If we do not learn from the mistakes of others, we are doomed to learn from our own. That is one saying that comes to mind when I read about the collapse of Silicon Valley Bank. But a more important Tamil adage comes to mind too. Loosely translated, it says, “When hunger strikes, all holy principles are cast aside”.
We Indian are subject to regular lectures on the virtues of the free market, open access, etc. But the ancient Tamils got it right. When they are hungry – which in the case of rich Silicon Valley VCs and Hedge fund operators means no caviar or Grand Cru with their expensive steaks, then all principles are thrown aside.
Background
Silicon Valley Bank or SVB is a special kind of bank that acts as bankers to startups and VC firms. Like most swashbuckling cowboy capitalists and of course, leftist NGO frauds, it was disdainful of regulators and regulations. In fact, it spent big money lobbying to have regulations relaxed, claiming strong risk management practices. Not to be outdone, Fortune magazine ranked it among “America’s best banks” for 5 years straight! Just keep that in mind when you read about democracy, press freedom, happiness indexes etc. If they can’t even understand hard figures, good luck to understanding happiness!
Now it has collapsed thanks to a bank run fueled by disclosed losses in government securities it was holding. Strangely it’s loan books appear to be ok.
SVB’s market cap, already under pressure this year, went from $15b to practically zero because FDIC (which insures bank deposits up to a limit) seized it! It was well over $40b not too long back. Now there are dire warnings of “systemic risks” and broader economic contagion and massive job losses in startups whose money is tied up with this bank. There are even rumours that His Royal Wokeness, Prince Harry and Megan have millions of their hard-earned money kept there.
Karma, as they say, is a female of canine species. Little wonder Adani’s CFO is laughing his backside off.
The Biden “boom” economy predicted by eminent economists like Krugman is making a lot of noise of the wrong sort indeed! For the record, this is the second-biggest bank collapse in the history of the USA! But don’t worry too much. Krugman will likely change the definition of bank collapse and wokes will lock the Wiki page to prevent “vandalism” so that Biden gets away scot-free. You may even see Op-eds in NYT arguing bank collapses are good for the economy and coloured people. Or just ask Ranaa or Dhume to write more anti-Modi articles until the storm passes over.
A full-fledged salvage operation is on. No, I am not talking about the bank – very little has been said on that from powers that matter. I am talking about salvaging Biden’s reputation or whatever remains of it. Already we see leftists blaming Trump as if Biden had no time to reverse any of Trump’s decisions. Of course, more important matters like changing the paint job on Air Force One took priority. Biden who can make our Pappu look like a towering intellectual giant is probably beyond caring. He is secure in the knowledge that Kamala and other options on the table are so much worse, no one will dream of asking him to make way. Cos at that point Americans would be ready to vote for Bannon or Kayleigh McEnaney or anyone endorsed by Breitbart.
In yet another indication of how close politicians, their advisors, the Treasury and other arms of the US government are with the people they are supposed to regulate, SVB appointed an ex-Obama Treasury official to its board. This revolving door has been a fixture of American politics for decades now.
My problems are yours
Let me state at the outset that SVB may yet survive this, perhaps sold to another bank. Based on opinions posted by knowledgeable folks, who may be wrong of course, its loans are ok, it’s just declined in the value of their investments due to interest rate changes. Those are US government securities so capital is safe if only held to maturity. Many other banks are in the same position as the problem is common. But that’s not the point of this piece. It’s the conduct of various players and their hypocrisy.
In fact, after I drafted this article, late on Sunday night Fed announced a support program that essentially loans out cash against these securities at par value. In other words, postponing the reckoning. Hoping perhaps that in a year’s time prices will recover or banks will find other ways to plug the gap without panicking. If Modi does something like this, he will be attacked by all free-market puritans of course. This could also mean Fed will be loath to increase rates because that will mean more trouble in years’ time. This is good for the elites who have been, for self-serving reasons, pushing the Feds to relax its interest rate stance for a while now, even before the SVB crisis.
Stocks, banks or companies collapsing is not new. It can happen anywhere and anytime. But the reaction of the free-market ayatollahs is the most bizarre. Or should I say predictable? True to the Tamil adage, they have forgotten all about their principles and are now out with a begging bowl asking for a bailout. Even Shahbaz Sharif had to take his skullcap off in respect! The list of blue-tick warriors running to the White House crying “mummmmmeeeee” is a long one indeed. As long as Bill Ackman’s Tweet justifying the rescue. Good Elon increased the limit to 4,000 characters. Maybe Sharif should consider paying the $8 and make full use!
Of course, some have genuine concerns and others are too clever to directly say, line my pockets. Instead, they are claiming to talk on behalf of US “innovation” and the jobs of thousands of startup employees, who they will not hesitate 5 seconds to fire over a Zoom call. Or destroy with their market moves. SVB’s CEO Becker sold $3.6m worth of stock barely days before the collapse. Guess he didn’t see it coming. Take your pick, he’s a lousy CEO or a damn good stock operator. Pelosi can hire him.
In other words, their arguments, as Prof Abishek Banerji pointed out, are “nationalistic”. But you see, nationalism is no sin if the nation is right. Just as patriotism is no sin if it is towards ideological fatherland for our Stalinist leftists. If not our left and wokes as well as their US donors hate both words and abuse anyone in India that talks that.
But make no mistake about it – the real goal of many of the folks that ask for a taxpayer-funded bailout is to ensure they can go around making more mistakes and the Fed will save them. It’s also aimed at reversing Fed’s rate hikes which were to safely deflate the asset bubble, soft land the economy and keep inflation in check. Once that policy is abandoned, stocks and valuations will soar, woke elite can buy new super yachts. And send more money to Ranaas of the third world. But the bills with hefty interest will come later – to be paid by the subaltern they cry so much for.
SVB also went months without any risk management head. But then it had Jay Esrapah as risk management head for the UK, who, to quote a media report, spent a lot of time on LGBTQ+ initiatives. Guess they had their priorities right! You can bet that they got their pronouns right. They also regularly spouted the sort of empty verbiage that woke elite loves to hear – climate change, diversity etc.
Interestingly, we have not had much wisdom on this topic from the ever-prescient army of mostly NRI geniuses we are blessed with – Rajan, Dhume, Kaushik Basu, Amartya Sen, Andy Mukerji or even Mihir Sharmas. How come Rajan, an expert on doomsday predictions missed this? What about Basu’s taxi driver? Guess they are too busy speaking the truth to power in Gorakhpur. Nor does it appear that short sellers like Ackman or Hindenburg (a research “institution” according to Ravish Pandeyji) managed to get this trade right.
Key takeaway
As my first sentence itself said, if we don’t learn from others, we learn from our own – mistakes. So what’s in it for us?
- When you hear of lofty principles, free market ten commandments that should not be violated etc., from WASP elites or their brown coolies, don’t even waste one minute believing. They are just as valuable as used toilet paper.
- It is perfectly OK for Europeans or Americans to disregard their own advice to the 3rd world if it suits their interests – be it coal in Germany, Russian gas for Europe, nuclear power for France, suppressing farmer protests with guns and police in Canada and Brussels or hands-off-the-market holy grails in the USA.
- It is perfectly acceptable to be nationalistic – just get your nation right! Obviously India is wrong place to be.
- Remember that the ones arguing for American taxpayer to bailout are at the very least trying to or claiming to, help their own country. God bless them.
- What you should look out for are the corrupt Indian frauds that lick up that waste and try to regurgitate it for your consumption. Reserve your contempt for them.
- We must also make up principles along the way as long as our goals are clear. Is hamaam mein sab nangey hain ji. As Groucho Marx once said, “those are my principles, if you don’t like them, well, I have others”. That’s one Marx I take very seriously.
- Our parliamentarians should offer Americans and EU regular sage advise on how to run their countries.
- If Rihanna can weigh in on our farm policy, Biden should consult Bollywood item numbers before deciding US banking policy. What does Rakhiji think about this whole saga? She must tweet regularly on US affairs. She’s much more intelligent than Mia.
Now that I have dispensed a lot of useful advise, let me offer a few useless ones.
- Bank runs are like what Ghalib said about love – “lagaaye na lage aur bujaye na bane”. They are not easy to start but once starts, hard to control. Rumors that have no basis in facts take over. In a bizarre development, an Indian cooperative Bank SVC, which has nothing to do with SVB other than alphabetical closeness, had to issue official clarification.
- While it may appear unlikely in India, government of the day must watch out for earliest signs – and put it out. Ruthlessly. Just don’t bother about lofty ideals.
- We do have deposit insurance along the lines of the US – but the limits are low (Rs. 5 lakhs) and more importantly, not many are aware of this. Good times are the right times to fix these issues. The limit must be well beyond middle-class deposit averages. Obviously we are not bothered about protecting the ultra-rich.
- Honest communication and risk management is the essence. Beef up the entire ecosystem – regulators, accountants and audit, transparency norms etc.
- Government must spend efforts on educating ordinary depositors, investors and the general public. While large failures may be rare, we do have smaller rural banks, finance firms and other frauds that collapse from time to time. Obviously not everyone can learn to read balance sheets but at the very least shady practices and too-good-to-be-true offers must be made known to all. So people are on guard.
Meanwhile, just take screenshots of relevant tweets and posts from our capitalist warriors. They will come in handy when they start dishing out unsolicited advice to us unwashed Indians.
