Category: Economy

  • The Tale of 2 Economies: Navigating the Growth Paradox in China 

    China presents a compelling case of the growth paradox, where robust economic indicators mask underlying disparities and societal sentiments. The dichotomy between China’s impressive economic figures and the lived realities of its businesses and people indicates how these contradictions coexist. Understanding these divides and seeking solutions to bridge them can have a significant impact on the nation’s economic trajectory and its global standing.

    A Growth Paradox

    On January 17, the National Bureau of Statistics announced that China’s GDP growth for 2023 reached 5.2 percent, a growth rate that is highly commendable and ranks prominently on the global stage. That figure would suggest that the Chinese economy has achieved stable and rapid growth, again. 

    However, the reality shows clear signs of strain: Consumers are saving their shrinking disposable incomes instead of spending them, and enterprises are suspending their investments due to fear of declining profitability and company value. 

    In 2023, the total market value of A-shares in China decreased by approximately 8.5 trillion yuan, an amount equivalent to the total cost of the Belt and Road Initiative over its lifetime (estimated to be between $1.2-1.3 trillion, or about 8-9 trillion yuan). This decline occurred against the backdrop of growing capital markets in the United States, various European countries, and India. In the first trading week of 2024 alone, an additional 7 trillion yuan was lost. Stock markets mirror the collective sentiments of investors, currently indicating a loss of confidence in China’s growth prospects.

    People I talked to during my recent trip to China shared these sentiments: The rich have little confidence in growing or even sustaining their wealth; the poor have little hope of upward mobility. Two phrases, “involution” (内卷) and “lying flat” (躺平) encapsulate what happened over the past year. Involution is a sociological term describing a state of excessive and ineffective competition, leading to a zero-sum game where resources are redistributed but minimal genuine value is created. Lying flat, an internet slang term, characterizes the attitude of those who opt out of this relentless competition, choosing instead to accept their circumstances and leave their fate to time.

    In socioeconomic terms, the “growth paradox” describes a phenomenon where there is an inconsistency between the statistical data of economic growth and the actual economic welfare of the general populace. This disparity involves complex structural issues that require comprehensive policy adjustments and socioeconomic development strategies for resolution.

    Unequal Benefits of Economic Growth

    The growth paradox is primarily due to the unequal distribution of economic growth benefits. Large enterprises and the urban elite disproportionately accumulate wealth, benefiting from the country’s economic growth. Their success overshadows the slower growth and constrained opportunities for private businesses, particularly small- and medium-sized enterprises (SMEs), and rural residents. 

    Despite SMEs in China representing 99.8 percent of all business entities and employing nearly 80 percent of the workforce, they face a contraction phase marked by limited access to capital, complex regulatory hurdles and excessive competition in a shrinking market. The Purchasing Managers’ Index (PMI) data from October 2023 underscored this divide: Large enterprises posted a PMI of 50.3 percent, with state-owned enterprises at 50.0 percent and large private enterprises at 50.7 percent, all indicating expansion. In contrast, medium-sized enterprises experienced a PMI of 48.6 percent, and small enterprises were at 47.5 percent, both in the contraction zone. 

    This pattern reflects broader industrial output differences in China. State-controlled enterprises saw a 7 percent growth in 2023, compared to a modest 5 percent for private enterprises, most of which are SMEs. Given the large number of employees in the SME sector, more people felt the strain of an economic downturn.

    Overcapacity vs Lack of Capacity 

    As the world’s factory, China’s production capacity was tailored to supply the global market during the golden age of globalization, from 1999 to 2018. However, since the onset of the trade war between the United States and China, efforts to de-risk dependency on China’s supply chains have particularly impacted China’s manufacturing sector. 

    SMEs, the backbone of China’s export-oriented manufacturing sector, are encountering severe profitability challenges, with many on the brink of bankruptcy. A sharp reduction in sales for an export-oriented company can significantly affect not only its own profitability, valuation, and stock price but also the financial health of many SMEs on the entire supply chain. This situation has created a vicious cycle where reduced profits hinder investment in R&D, production growth, and job creation, while intensified price competition from an involution-style rivalry further diminishes profits and, in some instances, leads to business shutdowns. This self-reinforcing cycle underscores the difficulties of operating in an economy facing declining demand, which results in serious overcapacity and unemployment. 

    On the other hand, China’s rapid advances in manufacturing have led to a dilemma in geopolitics. The country has ascended the global value chain, modernizing its industrial sector. This rise has been accompanied by an assertive recalibration of its international standing, aiming to reflect its burgeoning economic clout, especially in negotiations with the United States. However, this upward trajectory is tempered by a vulnerability due to its dependence on imported technologies and access to an open global market for its production capacity. This leaves China susceptible to U.S. sanctions on advanced technologies and to shifts in supply chains away from China toward the nearshoring and friend-shoring partners of the United States. 

    The semiconductor sector illustrates this point vividly. China faces significant “chokepoints” imposed by the U.S. and its allies in chipmaking, leading to shortages in high-end, especially AI, chips. Concurrently, China’s substantial investments in mature-node chipmaking risk creating internal competition and overcapacity, which could potentially result in anti-dumping trade restrictions from other countries. 

    Domestic vs Geopolitical Challenges

    The disconnect between economic growth, as suggested by statistical data, and the collective sentiments arise from a misalignment between macroeconomic trends and microeconomic activities within China. Government policies might focus more on long-term structural and quality improvements of the economy rather than on short-term employment and income growth, which may not be immediately understood or accepted by the public. Policy-driven GDP growth in large projects or investments in certain areas or industries may not directly translate into job opportunities or income increases for average citizens. 

    On one hand, sectors like renewable energy, electric vehicles, and high-tech manufacturing – considered the three new engines for China’s GDP – continue to offer promising growth avenues. On the other hand, businesses face significant challenges due to unpredictable policies, contracting export markets, reduced government spending, and cautious consumption by local consumers. These challenges cascade down the economic value chain. 

    The collapse of several high-profile real estate companies last year has triggered a domino effect across supply chains, resulting in decreased production within upstream industries such as steelmaking, cement, and construction, as well as affecting downstream sectors like furnishing and furniture. A fear of widespread economic instability and loss of investor confidence may ensue. At the societal level, collective sentiments include lowered expectations for future earnings; rising unemployment, especially among the youth; growing income inequality due to the concentration of wealth in certain industries and regions; and increasing costs (visible and invisible) in education, healthcare and aged care. 

    Globally, China is facing an increasingly hostile geopolitical landscape, where, as shown in the semiconductor sector, geopolitical pressures result in critical technology shortages and push China toward developing a self-reliant ecosystem to mitigate foreign influence and secure its economic future. 

    The China-U.S. relationship is at the core of China’s geopolitical complexity. Over nearly half a century, the relationship between China and the United States has evolved from diplomatic engagement to deep economic cooperation, and now to a state of strategic competition. Since the establishment of diplomatic relations, trade between the two countries has grown more than 200-fold over 45 years, with bilateral investment exceeding $260 billion, and over 70,000 American companies investing and operating in China. 

    Recently, the economic relationship between the two countries has shifted into a new era of technology rivalry, marked by strategic competition for control over global supply chains of critical technologies and minerals. This rivalry can potentially lead to technology decoupling. Such developments have profoundly impacted China’s economy, with export-oriented SMEs being particularly affected due to U.S.-led reshuffling of the global supply chains.

    A More Reclusive China?

    Facing such challenges, China is pivoting toward an inward-looking strategy. It is cultivating a self-reliant ecosystem focused on bolstering its large domestic market and internal circulation, aimed at becoming less susceptible to foreign influences. 

    China isolated itself for three years during the COVID-19 pandemic. In the post-pandemic era, China has cautiously opened its borders. Yet, wandering through the bustling streets in China, even in large cities like Beijing and Shenzhen, one notices a curious absence: Foreign faces are markedly sparse. 

    In 2023, China reported its first negative foreign direct investment (FDI) since 1998. Inward FDI has played a significant role in China’s economic growth, employment, productivity, and technological innovation. However, foreign enterprises and their foreign employees are either rushing out of China or have not yet returned post-pandemic.

    China’s advanced digital infrastructure has become a virtual barrier for foreigners. Chinese citizens have embraced technology with fervent zeal. China has leapfrogged into a cashless society where QR codes serve as the magic wand of commerce. They enable the easy acquisition of goods and services, including public services such as those in hospitals, schools, and customs at the borders, with a simple scan. However, for outsiders, especially those without a Chinese residential permit – which is required for foreigners to open a bank account and thus set up a QR code for mobile payments – life in China can be disorienting. 

    Beyond this virtual barrier, the digital divide is perhaps the most striking for foreign visitors. The Great Firewall, now AI-enhanced, looms large, segregating the online world. Efforts to breach this digital barrier, even via VPNs, are often futile.

    The Way Forward

    China’s economic reality, through the lens of the growth paradox, reveals the disparities between economic numbers and the sentiments of the people and businesses. These disparities underscore the need for more inclusive growth strategies. As China navigates the choppy waters of domestic challenges and geopolitical uncertainty, the true measure of its economic success will be how well it bridges these divides, ensuring that the fruits of growth are more evenly distributed across all strata of society. 

    The path forward calls for a balanced approach that harmonizes state-led development with market-driven entrepreneurship, fostering an environment where foreign and private businesses and entrepreneurs regain their confidence to invest for the future, and to grow their wealth through innovation and hard work. For confidence to return, they need not just growth opportunities but also stable and predictable policies, as well as a friendlier and more open global market.

    Specifically, shifting the focus from prioritizing infrastructure investment toward increasing investment in areas that contribute to social security, healthcare, and education will foster confidence among average citizens regarding their future. This approach may boost domestic consumption.

    Expanding high-level openness to the international community and continuously creating a market-oriented, law-based, and internationalized business environment are crucial to achieve this goal. Effectively removing barriers for foreign nationals coming to China for business, study, or tourism, and enhancing the convenience of living, traveling, and working in China are essential first steps.




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  • Diplomacy urged to ease concerns over US CHIPS Act

    South Korea\’s semiconductor industry is under pressure to choose a side in the rivalry between the US and China as Washington announced requirements for its $52bn semiconductor funding program. The South Korean government is also concerned as the requirements of the CHIPS Act call for subsidy applicants to share business information and excess profits with the US government, leading to calls for South Korean President Yoon Suk Yeol to negotiate directly with US President Joe Biden. However, the incentives set out in the act come with several strings attached that industry watchers claim are too burdensome for subsidy recipients, with conditions including providing sensitive operational information, sharing a portion of any profit that exceeds projections, and limits on Chinese operations. Industry observers call for the South Korean government to play a more active role in easing concerns, especially on issues such as information sharing and investment in China.



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  • Freeland\’s budget has to tread a narrow path between competing demands for cash: sources | CBC News

    The 2023 Canadian federal budget, to be unveiled on March 28, will prioritize three main areas: affordable living measures, investments in the clean industrial economy, and additional resources for provincial healthcare funding. Despite these priorities requiring significant spending, the budget will be constrained by a worsening fiscal situation. Experts suggest that Canada needs a focused approach to its economic recovery and policies centered on factors such as electric vehicles, batteries, green manufacturing, biosciences, and growing the electrical grid. The budget is also expected to include a training component, as the country transitions to these new sectors, which will require upskilling jobseekers. In addition, the budget will aim to promote simplicity and ensure that the benefits of the budget will be easily accessible. With regards to healthcare, the budget will include $198.6 billion over 10 years, with $49 billion of that being new funding, for the Canada Health Transfer and other agreements. The budget will also provide insight into the financial implications of healthcare packages on the country\’s bottom line. While there are few surprises expected in this budget, defense spending remains a concern as the Canadian military continues to assist Ukraine in defending itself from Russia.



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  • The second-largest bank collapse in US history just happened. Should Australia be worried?

    California-based Silicon Valley Bank (SVB), which specialised in financing tech startups, has collapsed, reportedly after a flawed capital raise and deposit withdrawals. The bank held $209bn in assets and $175.4bn in deposits. Nearly half of all tech and life sciences firms in the US that received funding were said to bank with SVB. The bank\’s collapse is the second-biggest in US history since the fall of Washington Mutual during the 2008 financial crisis. The US authorities have issued sweeping measures to enable full rescue of depositors\’ money, which will be made available from 13 March. Reports suggest that no contagion is expected to spread to the wider banking sector, but Australian banks, and UK and Israeli tech firms, could be affected to some extent. The fallout from the SVB illustrates the challenges of the tech sector, highlighting the insecurity of start-up firms in that sector. Professor Paul Kofman, Dean of the Faculty of Business and Economics at Melbourne University, highlighted the knock-on effect on superannuation funds, among other concerns.



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  • U.S., Britain hustle to stop a potential banking crisis after Silicon Valley Bank collapse | CBC News

    Governments in the US and UK have taken steps to prevent a potential banking crisis after the failure of California-based Silicon Valley Bank, which had over $200bn in assets and catered to tech startups, venture capital firms, and well-paid technology workers. Regulators in the US rushed to close Silicon Valley Bank on Friday when it experienced a traditional bank run, where depositors rushed to withdraw their funds all at once. It is the second-largest bank failure in US history, behind only the 2008 failure of Washington Mutual. The collapse set off a wave of panic in the tech sector as thousands of small and medium-sized companies stood to lose billions in deposits. The UK government facilitated the sale of Silicon Valley Bank UK to HSBC and Canada took temporary control of its Canadian branch. US officials assured all of the bank\’s customers that they would be able to access their money on Monday. The Asian and European markets fell, but not dramatically, and US futures were down.

    The extensive emergency lending program, which is intended to prevent a wave of bank runs and protect the bank\’s customers, will allow depositors at Silicon Valley Bank and Signature Bank to access their money on Monday. Deposit holders, including those whose holdings exceed the $250,000 US insurance limit, will be able to access their money. The Treasury has set aside $25 billion US to offset any losses incurred under the Fed\’s emergency lending facility. Though Sunday\’s steps marked the most extensive government intervention in the banking system since the 2008 financial crisis, the actions are relatively limited compared with what was done 15 years ago.



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  • \’Great wall of steel\’: Xi Jinping vows to strengthen China\’s military

    In his first public address since securing a third term as China\’s president, Xi Jinping urged the country to build a \”great wall of steel\” in the form of its military to safeguard its national security and development interests. Speaking at the closing session of the National People\’s Congress, Xi also called for China to \”unswervingly achieve\” national reunification, citing the island of Taiwan as a major challenge. Xi emphasized the need for faster technology development and more self-reliance in his speech full of nationalistic terms. The ruling Communist Party is expected to tighten oversight over security matters, following Xi\’s replacement of top security officials with his trusted allies. China also set a GDP growth target of about 5%, its lowest in almost three decades. The new premier, Li Qiang, reassured the private sector that the environment for entrepreneurial businesses would improve and equal treatment would be given to all types of companies. Li is tasked with reviving the world\’s second-largest economy after three years of COVID-19 curbs.



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  • \’Great wall of steel\’: Xi Jinping vows to strengthen China\’s military

    In his first public address since securing a third term as China\’s president, Xi Jinping urged the country to build a \”great wall of steel\” in the form of its military to safeguard its national security and development interests. Speaking at the closing session of the National People\’s Congress, Xi also called for China to \”unswervingly achieve\” national reunification, citing the island of Taiwan as a major challenge. Xi emphasized the need for faster technology development and more self-reliance in his speech full of nationalistic terms. The ruling Communist Party is expected to tighten oversight over security matters, following Xi\’s replacement of top security officials with his trusted allies. China also set a GDP growth target of about 5%, its lowest in almost three decades. The new premier, Li Qiang, reassured the private sector that the environment for entrepreneurial businesses would improve and equal treatment would be given to all types of companies. Li is tasked with reviving the world\’s second-largest economy after three years of COVID-19 curbs.



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  • The tech industry moved fast and broke its most prestigious bank

    On the last night of its existence, Silicon Valley Bank was hosting VC Bill Reichert of Pegasus Tech Ventures, who was giving a presentation on “How to Pitch Your WOW! to Investors” to about 45 or 50 people. Mike McEvoy, the CEO of OmniLayers, recounted the scene for me. “It was eerie over there,” he said. He saw a number of people exiting the building during the event, looking subdued.

    Roger Sanford, the CEO of Hcare Health and a self-described “professional Silicon Valley gadfly,” was also there. “Everyone was in denial,” he told me. “The band played on.”

    The next day, the emblematic bank of the tech industry was shut down by regulators — the second-biggest bank failure in US history, after Washington Mutual in 2008.

    What happened is a little complicated — and I’ll explain farther down — but it’s also simple. A bank run occurs when depositors try to pull out all their money at once, like in It’s a Wonderful Life. And as It’s a Wonderful Life explains, sometimes the actual cash isn’t immediately there because the bank used it for other things. That was the immediate cause of death for the most systemically and symbolically important bank in the tech industry, but to get to that point, a lot of other things had to happen first.

    What is Silicon Valley Bank?

    Founded in 1983 after a poker game, Silicon Valley Bank was an important engine for the tech industry’s success and the 16th largest bank in the US before its collapse. It’s easy to forget, based on the tech industry’s lionization of nerds, but the actual fuel for startups is money, not brains.

    Silicon Valley Bank provided that fuel, working closely with many VC-backed startups. It claimed to be the “financial partner of the innovation economy” and the “go-to bank for investors.” Among those banking at SVB: the parent company of this here website. That’s not all. More than 2,500 VC firms banked there, and so did a lot of tech execs.

    It fell in less than 48 hours.

    What happens to Silicon Valley Bank’s customers?

    Most banks are insured by the Federal Deposit Insurance Corporation (FDIC), a government agency that’s been around since the Great Depression. So of course, the accounts at Silicon Valley Bank were insured by the FDIC — but only up to $250,000. That’s how FDIC deposit insurance works. 

    That might be a lot of money for an individual, but we’re talking about companies here. Many have burn rates of millions of dollars a month. A recent regulatory filing reveals that about 90 percent of deposits were uninsured as of December 2022. The FDIC says it’s “undetermined” how many deposits were uninsured when the bank closed. 

    How bad could it get?

    Even small disruptions to cash flow can have drastic effects on individuals, companies, and industries. So while one very likely outcome is that the uninsured depositors will eventually be made whole, the problem is that right now they have no access to that money.

    The most immediate effect is on payroll. There are lots of people who are wondering if their next paycheck will be disrupted. Some people already know their paychecks will be; a payroll service company called Rippling had to tell its customers that some paychecks weren’t coming on time because of the SVB collapse. For some workers, that’s rent or mortgage payments, and money for groceries, gas, or childcare that isn’t coming.

    The problem is access to money

    This is especially rough for startups. A third of Y Combinator companies won’t be able to make payroll in the next 30 days, according to YC CEO Garry Tan. An unexpected mass furlough or layoff is a nightmare for most companies — after all, you can’t make sales if the salesforce isn’t coming into the office.

    Some investors are loaning their companies money to make payroll. Penske Media, the largest investor of this website’s parent company, Vox Media, told The New York Times that “it was ready if the company required additional capital,” for instance. That’s good, because Vox Media has “a substantial concentration of cash” at Silicon Valley Bank. Of course, one other problem is that a lot of investors were also banking at SVB, too.

    Payroll isn’t the only expense a company has: there are payments to software providers, cloud services, and so on, too. I’m just scratching the surface here.

    Does this have something to do with crypto?

    SVB’s failure didn’t have anything directly to do with the ongoing crypto meltdown, but it could potentially worsen that crisis, too. Crypto firm Circle operates a stablecoin, USDC, that’s backed with cash reserves — $3.3 billion of which are stuck at Silicon Valley Bank. That stablecoin should always be worth $1, but it broke its peg after SVB failed, dropping as low as 87 cents. Coinbase stopped conversions between USDC and the dollar.

    On March 11th, Circle said that it “will stand behind USDC and cover any shortfall using corporate resources, involving external capital if necessary.” The stablecoin’s value mostly recovered.

    Oh, and bankrupt crypto lender BlockFi also has $227 million in funds stuck, too.

    So if SVB doesn’t exist anymore, what takes its pla
    ce?

    In response to the collapse, the FDIC created a new entity, the Deposit Insurance National Bank of Santa Clara, for all insured deposits for Silicon Valley Bank. It will open for business on March 13th. People who have uninsured deposits will be paid an advanced dividend and get a little certificate, but that isn’t a guarantee people will get all their money back.

    The FDIC’s job is to get the maximum amount from Silicon Valley Bank’s assets. That can happen a couple ways. One is that another bank acquires SVB, getting the deposits in the process. In the best-case scenario, that acquisition means that everyone gets all their money back — hooray! And that’s the best-case scenario not just for everyone who wants to get their paycheck on time, but also because the FDIC’s greater mission is to ensure stability and public confidence in the US banking system. If SVB’s assets can only be sold for, say, 90 cents on the dollar, it could encourage bank runs elsewhere.

    Okay, but let’s say that acquisition doesn’t happen. Then what? Well, the FDIC evaluates, then sells the assets associated with Silicon Valley Bank over a period of weeks or months, with the proceeds going to depositors. Uninsured deposits rank high on the pay-back scale, behind only administrative expenses and insured deposits. So even if a sale doesn’t happen soon, the odds are high that customers will get their money back, assuming they can stay afloat waiting for it.

    How did we get here?

    So this is actually bigger than startups and Silicon Valley VCs. To understand how this happened, we’ve gotta talk about interest rates. Since 2008, they’ve been pretty low, sparking a venture capital boom and some real silliness (see: WeWork, Theranos, Juicero). There’s been a lot of froth for a long time, and it got worse during the pandemic, when the money printer went brrr. Meme stocks? Crypto boom? SPACs? Thank Federal Reserve chair Jerome Powell, who settled on zero percent interest rate policy (ZIRP).

    So if you are, let’s say, a bank specializing in startups, do you know what ZIRP world does to you? Well, my children, according to the most recent annual filing from SVB, bank deposits grew as IPOs, SPACs, VC investment and so on went on at a frenetic pace. 

    And because of all these liquidity events — congrats, btw — no one needed a loan because they had all this cash. This is sort of a problem for a bank. Loans are an important way to make money! So, as explained in more detail by Bloomberg’s Matt Levine, Silicon Valley Bank bought government securities. This was a fine and steady way for SVB to make money, but it also meant it was vulnerable if interest rates rose.

    A good old-fashioned bank run tipped SVB over, and there was no George Bailey to stop it

    Which they did! Powell started cranking up rates to slow inflation, and told Congress this week that he expects to let them get as high as 5.75 percent, which is a lot higher than zero.

    Here’s the problem for Silicon Valley Bank. It’s got a bunch of assets that are worth less money if interest rates go up. And it also banks startups, which are more plentiful when interest rates are low. Essentially, these bankers managed to put themselves in double trouble, something a few short-sellers noticed (Pity the shorts! Despite being right, they’re also fucked because it’ll be hard to collect their winnings).

    So did Silicon Valley just flunk the prisoner’s dilemma?

    Okay, this mismatch in risk in and of itself won’t tip a bank over. A good old-fashioned bank run did that. And at Silicon Valley Bank, there was no George Bailey to stop it.

    Here’s how it happened. When interest rates rose, VCs stopped flinging money around. Startups started drawing down more of their money to pay for their expenses, and SVB had to come up with cash to make that happen. That meant the bank needed to get liquidity — so it sold $21 billion of securities, resulting in an after-tax loss of $1.8 billion. It also came up with a plan to sell $2.2 billion in shares to help shore itself up. Moody’s downgraded the bank’s credit rating.

    Customers tried to withdraw a quarter of the bank’s total deposits on a single day

    In its slide deck explaining all this, Silicon Valley Bank talks about — I am not making this up — “ample liquidity” and its “strong capital position.”

    Now, recall, another bank called Silvergate had just collapsed (for crypto reasons). Investors, like horses, are easily spooked. So when Silicon Valley Bank made this announcement on March 8th, people bolted. Peter Thiel’s Founder’s Fund advised its portfolio companies to pull out, ultimately yanking millions. And you know how VCs love to follow trends! Union Square Ventures and Coatue Management, among others, decided to tell companies to pull their money, too. 

    This bank run happened fast, in less than two days. Tech nerds can take credit for that one. It used to be that you had to physically go to a bank to withdraw your money — or at least take the psychic damage of picking up a telephone. That slower process gave banks time to maneuver. In this case, digitalization meant that the money went out so fast that Silicon Valley Bank was essentially helpless, points out Samir Kaji, CEO of investing platform Allocate. Customers tried to withdraw $42 billion in deposits on March 9th alone — a quarter of the bank’s total deposits on a single day.

    It was over the next day. The share sale was canceled. Silicon Valley Bank tried to sell itself. Then the regulators stepped in.

    Who was in charge here?

    Until shortly after the failure of Silicon Valley Bank, its (now-former) CEO Greg Becker was a director of the Federal Reserve Bank of San Francisco. That’s one of the 12 banks overseen by the Washington Fed.

    While the bank run was ongoing, Becker told VCs, “I would ask everyone to stay calm and to support us just like we supported you during the challenging times.” As anyone who has ever been in a long-term relationship knows, telling someone else to calm down is a way to ensure they lose their entire goddamn mind. I think it might have been possible to staunch the bleeding if Becker had been even halfway good at PR. Obviously, he’s not.

    But separately from Becker’s ill communication, he was the leader behind the spooky asset sale/share offering combo punch. In fact, Silicon Valley Bank had other options: it could have borrowed funds or tried to offer sweet deals to depositors who stayed.

    It turns out Becker also sold $3.6 million of shares in Silicon Valley Bank’s parent company on February 27th. This was a pre-arranged sale — he filed the paperwork on January 26th — but it does seem like curious timing! Becker was presumably aware of his own balance sheet, and a director of a regional Fed bank. He had to know the Fed was going to keep raising interest rates — I mean, if I knew it, he’d better have known it — and he had to know that would be bad news for Silicon Valley Bank.

    What does this mean for startupland?

    The venture capital ecosystem exists because once upon a time, banks wouldn’t loan startups money. Think about it: a 23-year-old nerd slapping together a startup in someone’s garage or whatever usually doesn’t own anything they can put up as collateral against a loan. 

    One way that Silicon Valley Bank bolstered startups was by offering risky forms of financing. For instance, the bank lent against money owed to a business’ accounts receivables. Even riskier: the company lent against expected revenue for future services. Silicon Valley Bank also offered venture debt, which uses a VC investment as a way of underwriting a loan. And it worked! These kinds of products helped build Silicon Valley into the powerhouse it is now, says Jonathan Hirshon, who’s done high-tech PR for the last 30 years.

    One of SVB’s key problems: Silicon Valley is actually a small town

    The bank also would get slices of companies as part of its credit terms. That meant it made $13.9 million on FitBit’s IPO, for instance. More recently, Coinbase’s IPO paperwork revealed that Silicon Valley Bank had the right to buy more than 400,000 shares for about $1 a share. Coinbase’s shares closed at a price of $328.28 the first day it was listed.

    Startups aren’t the only ones who need to raise money. Venture capitalists do too — often from family offices or governments. Silicon Valley Bank invested in a number of VCs over the years, including Accel Partners, Kleiner Perkins, Sequoia Capital, and Greylock.

    This kind of gets
    us to one of SVB’s key problems: Silicon Valley is actually a small town. And while that meant SVB was the cool banker for the tech and life sciences startups here, that also meant its portfolio wasn’t very diverse. The incestuous nature of Silicon Valley startups means gossip is a contact sport, because everyone here is hopelessly entwined with everyone else.

    I don’t know if this is going to lead to bigger problems. It could! A lot of other banks are also losing money on their securities. But the gossipy nature of Silicon Valley, and the fact that so many of these firms are entwined, made the possibility of a bank run higher for SVB than it was for other places. Right now, rumors are flying in WhatsApp groupchats full of founders scrambling for cash. I suspect, too, that we’ll start seeing scammers attempting to target panicky technology brothers, to extract even more cash from them. 

    I don’t know what’s going to happen now, and I don’t think anyone else does, either. I do know, though, that SVB’s leadership weren’t the only ones who fucked up. This was the second big bank failure in a single week, suggesting our regulators were asleep at the wheel. And who was the primary regulator for both banks? Why, our friends at the Fed,





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  • Why the Silicon Valley Bank failure isn\’t looking like a repeat of 2008 | CBC News

    ہائی فلائنگ ٹیک اسٹارٹ اپس اور وینچر کیپیٹل فرموں کے ساتھ اپنے تعلقات کے لیے مشہور مالیاتی ادارے، سلیکن ویلی بینک نے بینکنگ میں سب سے پرانے مسائل میں سے ایک – ایک بینک رن – کا تجربہ کیا جس کی وجہ سے جمعہ کو اس کی ناکامی ہوئی۔

    اس کا زوال ہے۔ مالیاتی ادارے کی سب سے بڑی ناکامی۔ امریکہ میں اس کے بعد سے واشنگٹن باہمی ٹوٹ گیا۔ ایک دہائی سے زیادہ پہلے مالیاتی بحران کے عروج پر۔ اور اس کے فوری اثرات مرتب ہوئے۔

    کچھ سٹارٹ اپ جن کے بینک سے تعلقات تھے وہ اپنے کارکنوں کو ادائیگی کرنے کے لیے ہچکچاتے تھے، اور انہیں خدشہ تھا کہ انہیں منصوبوں کو روکنا پڑے گا یا ملازمین کو فارغ کرنا پڑے گا جب تک کہ وہ اپنے فنڈز تک رسائی حاصل نہ کر لیں۔

    یہ کیسے ہوا؟ یہاں کیا جاننا ہے کہ بینک کیوں ناکام ہوا، کون سب سے زیادہ متاثر ہوا، اور اس بارے میں کیا جاننا ہے کہ کیسے…



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  • Why the Silicon Valley Bank failure isn\’t looking like a repeat of 2008 | CBC News

    ہائی فلائنگ ٹیک اسٹارٹ اپس اور وینچر کیپیٹل فرموں کے ساتھ اپنے تعلقات کے لیے مشہور مالیاتی ادارے، سلیکن ویلی بینک نے بینکنگ میں سب سے پرانے مسائل میں سے ایک – ایک بینک رن – کا تجربہ کیا جس کی وجہ سے جمعہ کو اس کی ناکامی ہوئی۔

    اس کا زوال ہے۔ مالیاتی ادارے کی سب سے بڑی ناکامی۔ امریکہ میں اس کے بعد سے واشنگٹن باہمی ٹوٹ گیا۔ ایک دہائی سے زیادہ پہلے مالیاتی بحران کے عروج پر۔ اور اس کے فوری اثرات مرتب ہوئے۔

    کچھ سٹارٹ اپ جن کے بینک سے تعلقات تھے وہ اپنے کارکنوں کو ادائیگی کرنے کے لیے ہچکچاتے تھے، اور انہیں خدشہ تھا کہ انہیں منصوبوں کو روکنا پڑے گا یا ملازمین کو فارغ کرنا پڑے گا جب تک کہ وہ اپنے فنڈز تک رسائی حاصل نہ کر لیں۔

    یہ کیسے ہوا؟ یہاں کیا جاننا ہے کہ بینک کیوں ناکام ہوا، کون سب سے زیادہ متاثر ہوا، اور اس بارے میں کیا جاننا ہے کہ کیسے…



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