What happened at Silicon Valley Bank SVB has nothing to do with what has been happening for some time at Credit Suisse. Credit Suisse, which has been trying to reorganize for three years, announced that it had identified “substantial weaknesses” in the financial reporting processes for the years 2021 and 2022 that could have caused “misstatements” of the financial results. But in the current atmosphere of economic and financial uncertainty in the markets, the negative psychological effect becomes the most important factor at the moment and the continuation depends entirely on the reaction of the central banks led by the Fed. Let’s hope that all the American decision-makers, especially the president and the finance minister, who are “graduates of the 2008 crisis” have learned from that experience how to calm down.
And our politicians, like the protesters, must understand that this is also the moment to stop the reform wars. Not because one side or the other is right, but because of global economic and political developments. The politicians and protesters are behaving like the SVB management before it realized what was happening and this is not the right time for that.
The SVB & Co. crisis is not the 2008 crisis, not even similar, but the psychological effect of “De Jove 2008” is still with us: last Friday it seemed, from the media coverage, that the American bankers were recreating the 2008 crisis. Just as it happened With the fall of the Lehman investment bank, so did the drama and panic that took over the media reports from California. A relatively large American bank, Silicon Valley Bank SVB, which is headquartered in Silicon Valley and whose main business deals with technology companies and investment funds in them, found itself in a difficult liquidity situation that led depositors to withdraw their deposits wildly and investors to sell their shares equally wildly and panic spread to all parts of the market.
Despite a quick response from the administration which assured that there was no imminent danger to the financial system, panic began to emerge, especially when it turned out that this was not an isolated case. It seemed, not least with the help of the media (for which this type of development contributes to the increase in ratings that have been on a downward trajectory for years) that the third financial-economic crisis of the 21st century was beginning. But President Biden and his Treasury Secretary Janet Yellen, both, as mentioned, graduates of the horror show of the 2008 crisis, understood very well that anxiety could spread quickly and immediately reassured, “Your deposits will be there when you need them,” the president told the public, adding that the bank managers responsible for the failures would be held accountable.
The regulators closed the bank already on Friday and the central bank, which of course also participated in the 2008 experience, announced emphatically, just as it announced in 2008, that it would re-examine the supervision of SVB, “We need to conduct a careful and thorough review of the way we supervised and regulated the company This and what we should learn from this experience,” said Michael Barr, the Fed’s vice chairman of supervision, who will lead the effort. As a side note, we will add that some Wall Street veterans were surprised, to say the least, by the words of the vice chairman of supervision. “Why did he use the words ‘this company’? Why didn’t he say ‘this bank’? And what does he mean by talking about the need to learn from this experience? Was the supervision of this bank different from the supervision of the US banking system? Didn’t they learn enough from 2008?”, asked one of the depositors who were standing on the bank’s doors in order to withdraw the deposits.
During the weekend it turned out as mentioned that the problem discovered in Silicon Valley Bank SVB is not specific and other banks are in crisis (not for the same reasons). New York-based Signature Bank (NYSE:SBNY), which is associated with cryptocurrencies and was established as part of Bank Hapoalim at the time, was also seized by regulators. In both cases, the government agreed to cover deposits, even those that exceeded the federally insured limit of $250,000 and even though they were not insured by the FDIC.
But the investors, despite the attempts to calm them down, continued to flee in panic and indiscriminately from most of the financial shares, but not only. The major investment house Charles Schwab (NYSE: SCHW) plummeted and even the major financial basket XLF fell by 6%. On Tuesday, after the investors realized what really led to the collapse of SVB and after countless reassurances from Wall Street and Washington, the investors calmed down and went back to buying, quite similar to the frenzy in which they sold. On Monday night and Tuesday morning we saw the media surprised by the irresponsible behavior of the investors who ran away from the financial shares in the previous two trading days. “Investors don’t learn that you shouldn’t react hastily,” said the same commentator who on Friday announced to the world about “De Jouve 2008”, arrogance as we know knows no bounds.
Overall, and as usual in cases of panic that spreads across the entire market, it became clear to investors that this was not a 2008-style crisis, but rather a localized crisis caused, like many crises of its kind in the American financial system, by the deadly combination of too little regulation, too much greed, and far too much fake media. We will explain. This is later, but first for the media.
The problem caused by the media: the media’s contribution to the specific situation at Silicon Valley Bank SVB and the panic that spread as a result must not be ignored. The media, due to the increasing competition and the continuous decrease in viewership which alienates advertisers, is trying to improve its situation through sensational headlines. Our conclusion is that the damage caused by the media, especially in the economic field, to the economy in general and to the investors who watch and listen to it in particular, is much greater than the benefit. Not only because of the amount of fake news that has been increasing since the information revolution began, but despite the fact that the “connection” between the news channels and the public is becoming disconnected (despite the decrease in the number of viewers) the influence of the media, especially on decision makers, has not decreased, quite the opposite, especially in the economic field.
It is not God forbid that the communication systems intentionally harm something, but rather the result of changes created by the information revolution in consumer behavior. Changes that cause a decrease in rating and income. The editors probably believe that sensational headlines that do not necessarily reflect what is written and often do not reflect the truth increase the chance that the ratings will increase. This is not supported by the facts but in the short term it affects the investors and what is no less important it affects, in the short term, the decisions made by the investment platforms that are operated by artificial intelligence.
Forbes magazine has published rating data for US news channels in February 2023. February, according to the survey, was CNN’s lowest-rated month in a decade, while the network’s prime-time lineup, among viewers aged 25-54, the key demographic group estimated by advertisers, down 42% compared to the same month a year ago. The economic news ratings CNN drew an average primetime audience of 122,000 viewers compared to Fox News Channel’s 299,000 viewers (down 33%). MSNBC was third with 119,000 viewers (down of 15%). Also in terms of total viewers, the Fox News network led in prime time with 2.262 million viewers, followed by MSNBC (1.165 million viewers) and CNN (587,000 viewers). For comparison – in gossip and investigative programs such as “The Five” or the daily program of Tucker Carlson is watched by over 3 million in each episode, and if you check the responses to the report that we have attached, you will find that the answer, “Who wants to listen to lies?” is the leader by far. Exactly the same trend (and probably for the same reason) is seen developing on the news channels in Israel.
Finally, the people who do watch the news devote 25 minutes to it, considering the fact that the US has 334,233,854 inhabitants (as of 12.31.2022) this is quite amazing and there is no doubt that it is similar to the situation in Israel. Make investment decisions based on a personal examination of the topics on the net because all the material is at hand, the great majority for free!
Who is to blame for the collapse of the bank? This is not the media (it is the instigator not the cause). The sought-after lecturer, Keith Fitzgerald, said, “I think that the greed (of the bank and no less of the investment funds and hi-tech managers) and the lack of appropriate oversight for such institutions led to the bank’s collapse. These are phenomena that have been accepted in Silicon Valley since forever that were simply observed the surface. The Federal Bank changed the requirement even to partial reserves, which allowed banks like SVB to go out and start buying assets due to the reserves that were not required.” Silicon Valley Bank SVB and its ilk invested the deposit money in government bonds and when the interest rate increases began, the bonds fell accordingly (no less than stocks ) and since such a thing entered the reports, SVB began to show large losses. The bank also found it difficult to lend and turned to losses.
Anyone who has a clue, probably professional shortists, understood, from the moment they raised interest rates and that the expectations were for continued increases, that a bank like SVB and its ilk would get into trouble and indeed, after the bank’s stock rose by 440% between March 2020 and October 2021, it fell by more than 72% the following year , before becoming aware of the problems. The bottom line is that it is lucky that the central bank and the government, because of the experience of 2008, acted correctly in their reactions and the panic stopped, otherwise a real crisis would have developed. But the main culprit is still the central bank and especially its branch in San Francisco that fell asleep on guard.
The connection of the hi-tech industry to the fiasco: VBS was founded in 1982 by two former bankers of the bank Wells Fargo and Professor Robert Medaris, a professor from Stanford University who understood the potential created for banking that understands the technological world that has developed in Silicon Valley in California and is ready to take the risk involved. Silicon Valley Bank SVB was called “the Goldman Sachs of the start-up industry” for a reason. Most of the bank’s business is based on deposits from Silicon Valley companies. The bank provides liquidity through deposits and loans for almost half of all venture-backed startups in the US. The bank took advantage of the fact that the financial system, especially the banks, were unwilling to engage in this (because of the risks) but believed rightly, as long as the tide continues and interest rates are low) That the risk is much smaller than you think, and this is due to the abundance of funds that chased the hi-tech world and especially the start-ups.
SVB’s high exposure to the start-up world, which until 2020 has paid off for the bank and customers in a big way, has probably “sedated” the gatekeepers of all parties to the developments. Why? Because between the tight monetary policy of the Federal Reserve and the inflation that developed, the interest rate hikes and the drop in the issuance sector, someone should have shouted “the king is naked” and as always, in a rising market, it didn’t happen. The shortists understood this but not the hi-tech geniuses, not the investors and worst of all, not even the central bank.