Letting Silicon Valley Bank Melt Down Might Be Painful but It Wouldn't Be Stupid Like Saving It

(AP Photo/Carolyn Kaster)

Silicon Valley Bank (SVB), the favored lending institution of Silicon Valley tech start-ups and venture capitalists, was seized by federal regulators Friday afternoon. SVB, a top-twenty bank, became insolvent as it fell by a good, old-fashioned run on the bank. READ: Feds Take Over Silicon Valley Bank in Biggest Bank Failure Since 2007. The CEO, Greg Baker, who unloaded $3.6 million in SVB stock since January — purely coincidental, I’m sure —  resigned as a Federal Reserve Bank of San Francisco director (see Silicon Valley Bank CEO Sold $3.6M in Stock Before Collapse, Mysteriously out as Fed Reserve Board Member).


The potential damage of the second-largest bank failure in US history is significant.

The FDIC covers deposits up to $250,000. Only 2.7% of SVB’s deposits were fully insured, the second lowest percentage of fully insured accounts in the top 100 banks.

Many of them were corporate accounts holding millions of dollars. One estimate is that over 30% of the venture capital funded companies will be unable to make payroll next month due to their losses at SVB.


Also hurt will be China.

It even managed to damage companies that are against using money.

Naturally, because the companies facing insolvency are a sector of the economy favored by the left, backed by very wealthy companies that favor Democrats, and employ people who are mostly on board with the Diversity, Inclusion, and Equity craze, the calls for a government bailout are starting.


And no list of people making excuses for giving taxpayer money to monied interests would be complete without Mitt Romney.

I imagine the Federal Reserve will find some way to rescue the depositors. I’m ambivalent about that – I suppose it will happen – but I have to ask them what part of ‘guaranteed up to $250,000’ didn’t you understand? Bill Ackman says what he’s hearing is grim.


A lot of folks are claiming that not making depositors whole will create a loss of faith in the system. From my point of view, the problem with our financial system is entirely too much faith. Bankers have mutated from the ultra-cautious figures of the 40s and 50s into casino hustlers. Staid, fiscally conservative local and regional banks have been absorbed by behemoth companies who insulate themselves from the consequences of their actions by being “to big to fail.”

The availability of government bailouts to depositors and investors has prevented anyone from learning the lessons of the past. With barely a decade separating us from the 2007 catastrophe, you’d think that someone would remember that when gambling with investors’ money.

I hope Matt Gaetz gets support in the House and the Senate. We need to draw a line in the sand here, for the good of the financial system and the nation. If you are a bank and become insolvent, you will be shut down. If you have more than $250,000 in your insured account, you’ll get back the exact amount that is insured. Companies that fold, even if they are cute little tech companies with bazillions in venture capital backing, are just roadkill. We can’t afford to perpetually subsidize the lousy judgment and cavalier attitude that seems to infest the financial services and banking industries any longer.



Join the conversation as a VIP Member

Trending on RedState Videos