Regulators rushed Friday to seize the assets of one of Silicon Valley’s top banks, marking the largest failure of a U.S. financial institution since the height of the financial crisis almost 15 years ago.
Silicon Valley Bank, the nation’s 16th-largest bank, failed after depositors hurried to withdraw money this week amid anxiety over the bank’s health. It was the second biggest bank failure in U.S. history after the collapse of Washington Mutual in 2008.
The bank served mostly technology workers and venture capital-backed companies, including some of the industry’s best-known brands.
The problem is that a goodly number of tech businesses in Silicon Valley have their funds in that bank, to the tune of seven, eight, and nine-figure deposits. The FDIC only insures a quarter-million per depositor, so those companies' cash is frozen, if not partially gone. They'll have to wait for the forensic auditors to unravel things to see how much of their money they may get back. Which will take awhile.
In the meantime, those companies won't be able to pay their employees and their bills.
Things could get rather grim.
3 comments:
It’s quite amusing that the Vulture, sorry, Venture Capitalists hastened the demise. SVB was solvent until a group of VC’s advised their clients to pull their funds “just in case”. That run on the back resulted in a unfillable temporary asset hole that required the FDIC to step in. No one would have lost money if the run had not occurred, and now…
As a worker, I don't care if the CEO has to mortgage his house, but the paychecks better be full and on time.
Had a Boss once who when he couldn't make payday, would conveniently go camping in his motorhome that Thursday before payday. We could get a small advance from petty cash but that was never enough to pay the mortgage which made me late. Hated that job.
w3ski
We are already seeing the demands from the usual sources (e.g. Larry Summers) wailing that the Gods are going to bring down their wrath upon us if the country (i.e. all of us not-rich folks) doesn't pay these poor billionaires back all the money they lost in their perfectly voluntary investment activity. This reminds me of the situation during the agricultural depression of the 1920's, something most people have never heard of, when the secretary of the treasury, Andrew Mellon, one of the richest and greediest person who ever lived, saw to it that when farms all over the country started to go bankrupt, money was used, not to aid the farmers, but to pay back bankers for the bad loans they made. The result was a disaster so great that by 1928 or so, there was actually a significant possibility of an agrarian revolt, which was only narrowly averted. Once again, we see government economic policy about to be used for nothing but protecting the assets of the wealthy, increasing further the gap between the richest couple of thousand families in the country and everyone else.
As Thomas Piketty noted some years ago, this sort of thing inevitably, throughout all of history, has resulted in violent revolution. Sad to say, a significant part of the hyper-rich are delusional enough to think that they could manipulate such a catastrophe to their own benefit. Let's hope we don't live to find out.
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