Why The Silicon Valley Bank Crash is Such a Big Deal

Our financial system is pretty wild.
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Johnny Harris is an Emmy-winning independent journalist and contributor to the New York Times. Based in Washington, DC, Harris reports on interesting trends and stories domestically and around the globe, publishing to his audience of over 3.5 million on Youtube. Harris produced and hosted the twice Emmy-nominated series Borders for Vox Media. His visual style blends motion graphics with cinematic videography to create content that explains complex issues in relatable ways.

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Comment (41)

  1. An interesting fact is that the CEO of Silicon Valley Bank sits on the board of Federal Reserve Bank of San Francisco.
    The solution seems obvious, require higher reserve limits for banks. If currently 10%, why not 30 or 40% or even 100%. But moves like this get blocked by the federal reserve because it would essentially reduce their level of control over the economy

  2. So reckless venture capitalists are really just fools who don't know what they're doing and don't understand how anything works who have the ability to crash the economy and screw over absolutely everyone besides themselves because consequences don't affect the rich? Noted.

  3. This is about the only time in my 52 years of broke-ass history I can sigh with relief. All I have is debt (mortgage, credit card), unrealised equity (a house worth triple the build cost), and enough income to survive the interest rate rises now and for the foreseeable future.

  4. Outside observer here, but is this not different than the bailouts in 2008? My understanding is that the too-big-to-fail banks were essentially written a cheque in that event. SVB is being shutdown is it not?

  5. Johnny, the 10% reserve requirement was abolished in 2020 by the fed. Also, it seems like you missed the point about the money multiplier. The reason it’s multiplied is not because the money goes circulating into the economy. That’s normal, any money you spend, whether it originated from debt or not, will get passed on multiple times but it doesn’t multiply there. What actually happen is that banks will give you 10 grands and then write it in the books as a liability owed to them. They effectively doubled your money because they created a form of ‘fictions capital’ (in the form of a right to your debt repayment) that they will then sell or trade. It is called fictitious because in theory it is worthless until you actually repay the debt. However, it has value because people are willing to exchange real money for those future earnings. So to recap, when the bank loaned you 10 grands, it effectively created 20 grands of value in the economy which then gets multiplied up to 100k in the form of fictions capital because as you explained, the loan money you get from one bank gets reloaned by another until the reserve requirement prevents it from spiraling out of control (in theory because those requirements are zero at the moment) https://www.federalreserve.gov/monetarypolicy/reservereq.htm

  6. To understand modern banking, I recommend looking up "dr crane wheat receipts". Johnny's video is a modern retelling of the same material, with maybe a few additions since 1971.

  7. I think it's pretty simple:
    * Government should never bail out (Apart from FDIC fund insurance paid for by banks)
    * Having an FDIC membership should require strict regulations on reserves, bonuses, periodic stress tests, audits, etc
    * Offering any banking product without FDIC insurance should come with a clear obligation to inform about the risks.

  8. It’s crazy watching the SVB scandal after passing the CPA FAR. SVB considered the bonds as held-to-maturity investments. With those kinds of investments, an entity does not need to mark them to market. Meaning any daily gains or losses do not appear in the balance sheet and trading securities. No outside (or I guess inside also) observers noticed SVB had way too many investments in bonds when everyone knew the government would raise interest rates, thereby making those bonds near worthless. As long as SVB held the bonds to maturity, that would receive a safe but small profit. However, in the immortal words of the great Mike Tyson, “everyone has a plan until they get punched in the face.” SVB got punch but could weave due to worthless investments.


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