Reacting To The Silicon Valley Bank Collapse

It's not like we had a historical record that we could go back on where we could see previous examples of this kind of shenanigan happening. We're literally seeing certain aspects and components of history repeating itself. And you go through these generational cycles, there's like five to ten year boom bust cycles, and then there's these larger, more intrinsic generational cycles that take place. And I believe that's kind of the time frame that we find ourselves in right now. So how exactly is the FDIC going to solve a bank failure in the United States and, and could it happen in Canada? Today we get to talk about an actual bank failure. Isn't that amazing? Is it amazing? We're gonna have a little bit of fun talking about what's been going on. Very popular in the news right now. Second major bank failure in the United States this week with Silicon Valley bank. And I'm joined, of course with Henry Wong. We're gonna have a little bit of a discussion on that. We've got some notes to churn through. And Henry, we had some fun commentary before we hit the record button today. Where do you think we should begin on this massive bank failure, the second largest bank failure, I believe, in the US History that we're talking about, that happened over a really long 48 hour period of time.

It'd be very interesting to actually dive into this headline that is coming up in droves right now related to Silicon Valley bank, because people, they hear about it, but they may not even really realize the impact, the importance and the ripple effects that it can have on the economy. And Silicon Valley bank failure is the beginning, at least in my opinion, of a domino effect that's going to happen throughout tech and startups. And you know, just from my own personal experience, I used to be a CFO for a startup that had Silicon Valley bank as our bank. And I'll tell you, the experience with them, to be very fair with them, was actually quite good. There was a lot of red tape normally when trying to get financing and establishing the relationships with banks, but Silicon Valley banks understood how the tech space really worked. And it worked really well for us when it signed, when we were signing up for them. What a lot of people may not realize is they actually fund a lot of venture capitalists and people who are just building up their business from that standpoint. And over 95% of Silicon Valley Bank's deposits are not insured by FDIC. In Canada we have the CDIC at 100,000. So just to kind of give a little bit of comparison, what that actually means is Approximately, that's over 160 billion in uninsured customer deposits. And I know Richard, you and I have done a really good video with CDIC and with the Silicon Valley bank setting up banking for a lot of venture capital funded startups in the US that's about 65,000 startups. And that could mean 65,000 startups could be missing payroll. Maybe we'll start seeing some layoffs that are happening.

Clearly, if you can't make payroll, you're going to have a problem. You don't miss too many payrolls before your employees begin to revolt and leave in droves and go to where the money is. So that's obviously going to create a bit of a ripple effect. But prior to this even happening, there'd been a huge swath of layoffs happening, kind of on a bit of a global scale leading up to even this, this point in time in the tech space. Even some of the largest players, they've been, they've been shutting down departments in different countries and they've really been trying to reduce some of their labor outage of capital just based on other ancillary kind of global factors that have been happening. So it's interesting to see that those events now transpiring to this, and maybe there's not a direct link there, but it's just kind of curious as in the tech space really is going to get hit really hard in this instance. The reason for the tech space getting hit hard is, in my opinion, it's comical. It certainly was avoidable to a large degree. But it's also simply a matter of almost coincidence that the amount of capitalization that was taking place from individual businesses, the 65,000 startups you mentioned, large, large tech organizations, because there was a specified bank that made it easy or simple to do business with them in that sector. All of their eggs essentially were in one basket. We're going to talk a little bit about that. I'm going to point out at least one company that's come up and that's Roku, who doesn't know what Roku is. I'm sure everyone's got a Roku device somewhere in their home. They had over $487 million in one checking account with this bank. Not suggesting anyone should be fired over that. Maybe they should. If you know that your bank account is only insured up to $250,000 and you have 487 million sitting in that account, that's a little bit of concentration risk, maybe with a Couple multiples of a percent behind the level of risk that you're taking on as an organization. So how Roku is going to make payroll, I have no idea. They're going to have to sell an awful lot of Roku devices in the next couple of months in order to kind of fill that void and recapitalize to some degree.

I thought it would be really interesting to first show a video about something related to what's called a bank run. And this is kind of what's happening right now. What you're going to see is a video of someone taking a drive by of all of the depositors lining up to try to get their money.

There was a very interesting cartoon that actually showed something similar to this. And I thought this would be very interesting for everyone too.

It's a well known cartoon that's been known for predicting future events to happen. So this could be. I think that's why it's appropriate in this instance. Henry.

For those of you who are watching, this video has been slightly edited with one one title, but the rest of the video has not. So just thought I would share that.

What do you mean the bank is out of money?

Insolvent.

You only have enough cash for the next three customers.

Wait a minute, just a second here. No, no, I don't have your money here. It's in Bill's house and Fred's house. Hey, what the hell you doing with my money in your house?

Fre.

God. You know, I mean, it's. It's very silly obviously, but that's basically a nice summation of what's going on right now. I mean, you know, according to the drive by video, there's not people punching each other on the street yet, but I imagine a few boardrooms behind closed doors. Somebody's got a black eye at some of these major companies who don't have access to any money to make their payroll.

That video wasn't meant to make light of the situation. I mean, this for sure, a lot of individuals who are going to be in, for lack of a better word, wrecked in this situation. The challenge is it's the industry and the proposed issues structuring the industry model of the business. What we're going to see is also the outcome and the resolution of solving this problem, which is just about being announced also as we are currently recording this middle of March.

To quantify that, when you say solving the problem, what you really mean is how big government, those that they are in cahoots with in the banking system are going to present and market to the general population on how they want to solve the problem that many would consider they themselves created. So goes back to Nelson's book where he says it's like appointing the fox to guard the chicken house. That's ultimately what's going to happen in the resolution of this problem. To think that they're actually going to resolve anything. I personally, my opinion is I don't believe that that's true and that that's going to happen. We had an opportunity for them to do that back in 2008 when Lehman collapsed and all the other things. Oh, speaking of Lehman collapsing, the chief administrative officer of Silicon Valley bank just so happens to have been the person who was the CFO of Lehman Brothers when it collapsed. Huh. Apparently that guy didn't learn his lesson. Here you have multiple instances of people jackinnies doing ludicrous things to position large financial institutions that Joe average North American family needs to utilize and even the small business right up to the big business for the purpose of conducting business on a regular basis. The transactional flow of money, that's what banking is all about. It's about the movement of money. And because of ineptitudes and just poor planning, we're finding ourselves in this situation. You're right, it's not funny. There are comical things. I am going to laugh during this scenario because it never should have happened. But we're talking about serious events that are impacting the lives of day to day people. And a lot of it could have been avoidable and a lot of it is created because of the fundamental underlying design of the system that it's built upon. A lot of this has to do with fractional reserve banking and a whole host of other things on beyond that. By the way, that's even talked about in Nelson Nash's book when he says creating a bank like the ones you already know about. On page 19 and 20 of the book he literally talks about the failure of the highest performing bank per capita back in the early 1980s, which was first national bank of Midland, Texas. He explains how that bank failed right in this book. And the reason that they failed had a lot to do with what the owners of the company were up to. The shenanigans that goes on in these inside of the system were all the reasons why. You know Henry, you've been beating it like a dead horse that we need to start to separate ourselves from a system that is not designed to support us in our level of control.

With the bank that you've shared in the book, when did that happen September.

1983, which as I recall area of time during rapidly increasing interest rates. Coincidentally, we're finding ourselves in the same position. It's not like we had a historical record that we could go back on where we could see previous examples of this kind of shenanigan happening. And a lot of this had to do with the savings and loan crisis that happened during that time frame. So we're literally seeing certain aspects and components of history repeating itself. And you go through these generational cycles. There's, there's like five to ten year boom bust cycles and then there's these larger, more intrinsic generational cycles that take place. And I believe that's kind of the time frame that we find ourselves in right now.

You would think that very similar event and time if the problem was actually solved by the fox who was guarding the hen house. Let's kind of take a look at maybe something more recent at my time that I was a lot more familiar with and I was in the experience of that. Well, in 2023, the Silicon and just showing you the size of this collapse. Silicon Valley bank collapsed versus the 2008 Bear Stearns collapse which was Friday, March 14, 2008 Bear Stearns sees a liquidity crisis and attempts to raise emergency funding. On the 16th, Bear Stearns is bought by JP Morgan. Fifteen years later, Friday, March 10, Silicon Valley bank sees liquidity crunch and has taken over by regulators. And on the 12th, there's already been some talks certain banks and individuals and institutions looking to buy Silicon Valley Bank. You think they'd learn something at Richard.

You know, you'd like to think so. Everyone said in the wake of the global financial crisis in 2008, 2009, that they're going to take these lessons and we're going to learn from them and we're going to make sure that things are in place that this never happens again. And there was all kinds of regulation and all kinds of other things that happened. Well, one of the things that happened out of that was a lot of countries moved to bail in legislation versus bail out legislation, which was the case in that particular crisis time frame. And so the bail in scenario, we've talked a little bit about this in previous videos, has to do with effectively the depositor, the consumer who's got their money on deposit. You're just a creditor of the bank. Well, what happens in a bankruptcy is that the creditors, depending on the size of the creditor, the bigger you are, the more votes you have to cast in the bankruptcy proceedings when they go to Distribute all the assets that remain out of the bank. How much can you get out of it? In general terms, everyone understands the word liquidation. You know, you go to stores that are liquidation stores. Well, the reason you go there is because you can get things at a discounted price. Well, that's what happens with every business that liquidates. Everything that they had goes for a discounted value. Well, what they had was your deposits. Well, now your deposits are at a discounted value. How many of them are you going to get back? Well, you'll get back what quote unquote, the minimum guarantee amount is for you. But anything over and above that is at a discounted rate. That also assumes that there's enough solvency at the insurance company. The corporation insuring those deposits has available in the event of a run on the banks. What transpired to cause this bank to collapse in 48 hours is a run on the bank. There was something that led up to that prior to the collapses created by the run on the bank. But the run on the bank was created by the shenanigans leading up to that scenario. It's catalyst events that take place to create a causal impact.

Let's even take a look at what dollars we're dealing with. And you already mentioned about Roku. Let's take a look at the other people and industries. This is not even contained just to the bank and the banking industry. This is including circle, who has 3.3 billion in deposits. Roku was second.487 Blockfi, Roblox, Ginkgo Bio, iRhythm, Rocket Lab, Sangano Lending Club, Payoneer. All of these companies are not just banks. They include crypto, they include technology.

Payoneer as an example, is like a payment. I believe it's a payment facilitating kind of like similar to like a PayPal sort of a scenario. So people that might have money sitting in those accounts. That's kind of like a deposit institution itself. What's interesting here, you add up those top 10 ones that you listed. There's 1.1 billion from numbers two to 10 and 3.3 billion on the top one at Circle. Geez, that's 4.4 billion. And we're not talking about chump change here. That's just in the top 10 companies. I don't know about the case of the other institutions here, but at least on the Roku side, what I've learned from, you know, my reading is that all of that money was in one checking account. $487 million just in one account. Think about spreading that around just a little bit. It seems to a degree just insane that that would be the case for someone to not get fired over that. I would be astonished.

SVB has nearly 200 billion in deposits. 97% of these deposits were above that FDIC limit.

Again it's just an astonishing amount of what realistically would be covered and insured. Now, now we get into what's one of the problems that's being created. So we find out here today, you know, in some of the updated information is coming out, we're recording this on Monday, March 13, the FDIC has done a vote and they're going to exercise something they refer to as systematic risk exception. So just think about that. Systematic risk. An exception to systematic risk. So they're worried about a systematic risk. In other words, the system is at risk. We better create an exception to help mitigate the systematic risk that might be created by this massive bank failure. They're actually going to quote unquote guarantee 100% of all of these deposits. Now if the FDIC is going to guarantee 100% of all these deposits, that is light years in advance of the minimum requirement they're supposed to do. Which means that will probably deplete some of their capitalization which is required for all of the other nations deposits on all the other banks all over the planet. For every Joe Average consumer that could be a bit of a problem. So wouldn't that under capitalize the FDIC because they're helping out this one institution? Well the reason they want to do that is because they need to show a power move where they've, they're going to bolster the faith in the system because the whole thing is built on trust. Well if you have a massive institution with $200 billion failing in 48 hours, you know, that could have a little bit impact on trust. I don't know about you Henry, I would imagine that would impact your trust level just a hair.

It's the message, we're here for all the depositors.

Yeah. So they're going to say oh don't worry, we're going to take care of it. We're here for all depositors. No reason to go to every other bank that you have and start withdrawing your money willy nilly. Because as soon as the deposit comes out of those banks, then they also can't lend new money to create new cash flows. Like you have this, you do create a ripple effect problem. It is a domino. It's like hey, don't worry about it. Everyone in the country we're going to fly in with Harry Potter broom and we're going to wave a magic money wand. And the magic money wand is just going to solve everyone's problems. Just think about that for a moment. As a consumer groomer, even as a business owner, if you knew or believed that some mystical government or associated entity is going to show up waving a magic money wand to solve all of life's worldly problems, why on earth are we having any of the problems we have right now anyway? If the money one's always been there, how many times can you use the magic money wand before everything just comes crashing down around us? And if you're solving this problem, okay, then when the next one shows up, there's no more money left for it. Oh, we got to do a 911 phone call to Harry Potter to bring his magic money wand back out again? I don't think so. It's not sustainable. This is a real problem. This bank primarily is a bank for tech related businesses. I'm sure other businesses can do business, but primarily focused on tech related businesses. If these businesses have done such a piss poor job of managing their money, why on earth are we rewarding them for doing that? I understand there's employees that work for these companies that need to be paid. My heart goes out to them. I don't want to see that happen. I don't want to see people losing their homes and their jobs and everything. Nobody really wants to see that. But if we reward the morons that left all their money there in the first place, Roku, that shouldn't have been there, how on earth are they going to change their behavior moving forward? If you're saying, oh hey guess what guys? You can be total absolute morons and we're going to reward you by just taking care of it and sweeping it under the rug, everything's fine, why don't you go ahead and do it again? How is that going to help provide faith and trust in the system? There needs to be consequences. Big fat consequences. And if the FDIC just comes and takes care of it, all those consequences aren't going to show up. They are going to show up, just not to the people that should be dealing with the consequence. It's no different than in 2008 when all the bailouts happened and all of these CEOs and all the people got all the money. The government funded all the bailouts, but the guys that were running the company that ran it into the ground, they ended up with all the money. The same thing is going to Happen again. That's called crony capitalism. It's absolute lunacy.

There's an expression that profits for all of these banking institutions are privatized, but these bailouts are socialized because where's the money going to come from? It's coming from, let's say, fdic. It's going to come from the bank of you and me. Everyone else right now who had no involvement in someone else's failure is going to be paying for it. But because the U.S. treasuries and the Federal Reserves are in such big debt, in the amount of money that they printed, people don't even know anymore the level of debt, the trillions that they have, they can't even keep track of that level of impact. And I think it's important just to dive into identifying that. Silicon Valley bank is the largest bank to fail since the 2008 crisis. And the primary reason was their choice to invest their customers deposits in treasury bonds. So we know as a banking industry, they, aside from fractional reserve banking, they are taking customers deposits and lending it out for a higher gain. And they're holding on to reserves, which in Canada is actually based at those reserves. And they use that money to buy government bonds with fixed interest rates. And with the Fed rates increasing that much, the amount of bond yields that they were getting lending it out was so low that nobody now wants it because the yields that they can get now are at 5%. Like if you bought bonds that are at 1.5% and you're like, hey, let me sell you this bond for 1.5%, I'm like, why would I buy this bond when I can go out right now and get it for 5%? It makes absolutely no sense. Silicon Valley bank is now under control. Now, before all of this happened in this event, I just thought it'd be very interesting to highlight a couple of things that has happened. And I wanted to share a video on this. I'm sure everyone is very familiar with a gentleman named Mr. Jim Cramer. And this was recorded about a month ago.

I don't even think was a month, it was like two weeks ago. It was like late February of 2023. This is one of the, what I would refer to as financial entertainers as a television program, it's quote unquote entertaining. And here's what the financial entertainers advice to the general population was.

Hey, by the way, long term private equity venture capital, they're not going away. Being the banker to these invest immense pools of capital has always been a very good business. Stocks still cheap. Now you have to remember that a Stock that falls 66% like SBB Financial did last year, it takes a lot more to recover. After losing two thirds of your value, you need a 200% gain to get back to even. This is arithmetic. Some people call it geometry. So you could argue SBB, nearly 40% rally this year is barely a drop in the bucket. And that's how I want you to think it. I think it's also a good example of why these bounce back moves might be far from over these stocks that have more room to run.

First off, he mentioned that basically this bank is down 66% over last year and talking about it potentially being a good buy because it's at a effectively at a discounted value. He also mentions that it fell 66% in order to get back up to where they were, you only need to earn 200% to get back up to the same level. Not really well indicated there. You got to read between the lines. But he was saying, hey, they're down 66% but don't worry, they all need to make 200% just to get back up to where they were. Sounds like a lot of good value there.

A certain amount of particular parties were also involved in the selling of their shares, which include this individual who is the CFO of svb. Gregory W. Becker CEO Michelle Draper cmo. These people have sold millions of dollars of their stock ownership in svb. That is kind of an indication that someone's looking to jump ship.

I think in one of the reports I saw that was, it was like an like 11% or something like the total value of shares that were sold by, let's just say the talking heads running that particular company. It was not a small amount, it was a substantial amount of total shares of the company. So again, accountability, how are these individuals going to be held accountable? That's something that we need to be mindful of when we think about if this is an isolated instance, which I don't believe that it is, if it's going to happen again and then again and again and again. What, what is the mechanism that's going to be used to hold these individuals accountable? How many years in jail do you think they should get? Kind of reminds me of that GameStop thing that happened a few years ago. Again, these are, there's now a few recurrences of this type of things taking place that are outside of the typical control level. At the average citizen's scenario, there's manipulation that takes place that happens often behind closed Doors at levels that we don't have a particular voiceover unless it's maybe once every four years. Right. Recognize what's, what's the lesson here? What's one of the takeaways, what's one of the action steps for the Canadian or the American listening in is how are you intersecting and interacting with these diff. These different systems. To what degree of what you have available in an account value can you access and have a measure of control over? And if you look at all those account values and you recognize you're getting less and less and less control, you're probably going to want to make more and more and more decisions about how to bring that control back to the you and me level. Obviously we talk about process of becoming your own banker. On how to do that you can go to watch IBC.com of course and you can learn how to implement that process in your life. So that's all about bringing that control back to the you and me level. And removing your deposits from the typical commercialized banking sector and your lending and borrowing practices from that sector. Not letting them profit off of your your account values in multiple ways by lending your deposits and then also by feeding interest into their machine and instead moving that type of activity in that business to a different type of financial institution, an insurance company where you have a co ownership stake in their activities. That's a completely similar processes but just completely segmented from the type of vehicle or system that it operates in. And that's a lot of where you can get your control back, especially in this time frame.

The banking business works in fractionalized reserve banking where when you deposit $100 they fractionalize that put that 90% or whatever percent they decide out into the public. And going back to the Simpsons video, that's why that Moe's money is like why you have my money in your house. In your house. Because he's borrowed money for. For the house. But it was actually Moe's money that was a collection of that, of that money. So that is actually the lending practice that is happening as opposed to when money is deposited to a mutually owned insurance company that is put towards a unilaterally binding contract with the insurance company. Where a mechanism is where cash values will grow to match the death benefit. There is dollar for dollar existing for you that is being delivered there as opposed to some fractionalized number. And it'd be very much a surprise how much money these individuals are going to get back in their deposits.

And speaking quickly about again looking at the Cause and effect sort of a scenario here. And I mean, we could probably go a lot farther back on causal impacts. But a few things come up for me and I heard some commentary on this and some of the information I've been. I've been viewing. I guess I'll share more my opinion on it. I'm not going to validate this because I think it's just something to think through a little bit, you know. Nelson encouraged us to rethink our thinking. The timeframe of this happening where one of the hot topics is still all Covid related activity. It's still a very. I mean, you probably can't go through a day of your life where it's not coming up in some kind of conversation or some headline. We're maybe a year, maybe 18 months sort of post. Pandemic related activity. What happened during the pandemic is from a financial standpoint, there was a lot of subsidization taking place. Subsidization on businesses because they were really at a lot of risk of being able to meet their payroll obligations and other things. And so kind of across the board, different businesses were more impacted. Example, if you had a restaurant, you can't have customers, you've got a major problem. If you're a tech company and people can work from home, and most of them are working from home already, maybe not as much of an issue. There may have been some subsidization of these various different tech companies that they were able to tap into the same subsidiary resources that effectively the mom and pop businesses could. So that could have allowed them to bolster some of their capital reserves. Meaning more money in the bank. They had more money in the bank. Well, where were they doing their banking? Silicon Valley Bank. And so as that builds up and that builds and that builds up, well, Silicon Valley bank has got to take something and do something with that money. They have to commit some of that as part of their internal rules. They need to keep that money at some level of work. Hence why they're purchasing lots of treasury bonds and so forth at a relatively low market rate, where they were only tying the money up for somewhere between, I think, two and four years, roughly speaking, because they were. They were assessing and believing there would be a market change. But the rate and the speed of increase on the interest rates, which impacts the bond market happened at a much quicker pace than what they had locked their money up for. The result meaning every time that the interest rates went up, the value, what they had already purchased in those bonds went down. So that created an under capitalization effect on that bank. You know, in other words, I'm going back to thinking about follow the money. Okay? There's more money potentially available and building up because of what's happening with these tech organizations. They're becoming well capitalized or over capitalized for different things. They also, a lot of these companies did exceptionally well during the pandemic. You know, we'll use Roku as an example. I would imagine a lot of people went out and bought Roku devices during the pandemic because they're stuck at home. Well, what do they want to do? They want to be entertained. They're subscribing to more flixes and the subscription services because everyone's stuck at home and their kids are stuck at home. And you need more of these things in that timeframe. So that was actually really, really good for a lot of tech type organizations. Not all, not across the board, but, but certainly many of them. So that means they had rapid growth and then during that time frame, like that can mean you amass more capital. Well, if Silicon Valley bank has all this money flowing through its books, it's got to put some of it to work. They just did a bad job of putting it to work because they didn't see the probability of the potential of a rapidly increasing rate environment that devalued all the bonds. Now when people came to start getting the money out, the businesses, these tech companies, they want it, they're coming to get their money. They're asking for so much of the money out. But in order to do that, they had to sell off their bonds at a discount. The result is they were under capitalized. That's what created this scenario. These are things that led up to this kind of cause and effect situation that created a 48 hour bank to collapse.

In Canada, the rates have already increased 10 times over 10 times in one year. So imagine all these institutions who purchase bonds have purchased them at a significant discount and then the rates went up 10 times. Probably still even more to go. We don't even know. And that is already just a highlight. This is not investment advice or anything, but that's just showing as the rates are going up, what you originally purchased as those bonds are now valued less because out in the market someone else can get bonds at a much better price with a higher yield. Who wouldn't want that? Why would they buy discounted bonds in that first place? Silicon Valley bank is just one of the banks. And just recently, as of the recording right now, Signature bank was also just shut down due to that same systematic risk where 94% of the deposits with Signature bank were not insured. And if we're just looking at Some of the U.S. regional bank stocks right now just from a financial market value performance and what is happening Western alliance fell down 75% First Republic fell down 65% Zions 43 Pacific West 41 Comerica 33% Fifth Third 20% the situation is not over yet. It's still going to keep coming, but we just don't know how long the effect is going to be. The solution is going to be deployed.

If you haven't done so already, make sure you get educated on these types of topics. A great way to get educated on how you can have more control of your money, keep more of it working for you in your hands, where it belongs with you and your family is to swing on over to watchibc.com tons of great information available there. Learn how the process of becoming your own banker can give you more systematic control with reference point to a system that you have ownership and control over. And that's one of the key things that we help people understand in relation to the type of content that we put up.