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SVB’s clients forgot that banks can fail

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Mon, Mar 13, 2023 09:34 PM

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Plus: Stablecoins aren't always stable. Follow Us This is Bloomberg Opinion Today, a failed bank of

Plus: Stablecoins aren't always stable. [Bloomberg]( Follow Us [Get the newsletter]( This is Bloomberg Opinion Today, a failed bank of Bloomberg Opinion’s opinions. [Sign up here](. Today’s Agenda - We forgot about [bank failure](. - Some [stablecoins]( are better than others. - There’s nothing great about [this resignation](. - Japan’s changing its mind about [marriage equality](. Getting Burned 101 Let’s say in 2008, you go to Cancun for vacation. The first day is perfection. But the next morning, everything hurts. Your thighs are the color of shrimp tails. The top of your nose feels laminated. The rest of your trip is spent underneath a palapa, where you vow to never forget sunscreen again. Fast-forward 14 years. You’re in Mexico again, this time with your family. Enjoying the sun and sand with your kids is euphoric. Until the next morning rolls around. Your kids are crying, and so are you. Everything hurts, just like last time, but way, way, worse. You dummy! You knew not to do this! This, in a way, is what just happened with Silicon Valley Bank. This chart helps explain what I mean: An astounding 565 banks have failed in the past 23 years. But the bulk of those happened around the financial crisis. Before SVB, it had been [868 days since the last bank failure](, Mark Rubinstein writes. Humans have increasingly [tinier brains]( and incredibly [short memory spans](. [In 2008](, some of the future CEOs of SVB’s startup clients were in high school, [daydreaming about Kevin](. Fourteen years later, they were understandably oblivious to risk that [SVB]( and [Signature Bank]( could collapse. But maybe the [venture capitalists]( and the banks themselves should have known better. There’s a power dynamic at play here, Shuli Ren explains: “When tech founders go to venture capital, [they are not only seeking funding, but also advice](.” VCs are supposed to be the adults in the room, raising their startup children to be financially savvy corporate citizens. But they forgot to write the “Your Bank Might Fail” chapter in the How to Be a Cool Startup and Make the World a Better Place handbook. Instead of telling these founders to diversify, VCs paraded their clients outside without sunscreen, praising SVB for having [superior customer service]( while failing to mention the dangers of uninsured deposits. These [very same VCs]( sent out mass [SOS texts on Thursday](, telling their clients to yank their funds out of SVB before it was too late, contributing to the problem. The government is [bailing out]( all of SVB’s customers so that they [get their money]( and make payroll, which  Matt Levine calls “[an incredibly valuable service](.” But it’s also a telltale sign regulators are mayyybe a tad worried about SVB’s failure leading to some sort of systemic banking crisis — a worry Paul Davies argues is unrealistic. “There are [no other publicly traded US banks]( with balance sheets that look similar to SVB’s,” he notes. Chris Hughes says the backstop has people wondering [whether we just raised the risk of moral hazard]( — the possibility of other bad actors taking advantage of a system where no one is punished when things go wrong. Although the government [isn’t using taxpayer funds]( to cover the losses, Chris argues “there will be longer-term costs.” Meanwhile, Wall Street is cheering the fact that the crisis is [raising hopes of Fed rate cuts](, writes John Authers. All of this may be enough to [stop the current panic](. Whether anybody will learn any lessons is another question. Bonus Bank Reading: - There was an early warning siren before SVB collapsed: [the UK’s pension-fund crisis](. — Marcus Ashworth - Clean-tech startups did a lot of their business through SVB. [How much will this setback cost](? — Mark Gongloff - Banking’s next threat? The rapidly weakening [commercial real estate sector](. — Robert Burgess - The SVB failure provides a window into [San Francisco and Seattle’s]( rocky economic recovery. — Conor Sen Lawful Good vs. Chaotic Evil A sideshow to the whole SVB saga is [stablecoins](. I’ll try to explain this in the simplest way possible, using bullet points because bullets can behave like paragraphs without actually being paragraphs: - First, a definition for the uninitiated: “[The job of a stablecoin]( is to behave across crypto markets like a digital dollar without actually being one,” Lionel Laurent writes. - This weekend, a bunch of people realized that Circle USDC — a stablecoin known for following the rules and playing nicely with US regulators — had parked $3.3 billion dollars at Silicon Valley Bank. Oops! - Panic ensued and USDC “depegged,” which means it “[lost its claim of being money](,” Andy Mukherjee writes: - On the other end of the stablecoin spectrum, we have Tether. It’s more of a rebel in regards to the whole “playing nicely with US regulators” thing. Nobody really knows where Tether parks its cash: “The money is somewhere! Probably! But you’ll never find out where,” Matt Levine [writes](. - And so when all the SVB drama ensued, Tether, ever the mystery, still got to behave like a dollar. In fact, it even [behaved better]( than a dollar! Inherently this feels kind of wrong, but also good for Tether, I guess? “There’s a certain twisted logic in the fact that an opaque stablecoin like Tether — which has been far cagier and deceptive about where its reserves are held — was a big beneficiary of USDC’s problems over the weekend,” Lionel writes. Tether might give you the ick, but it’s staying stable — which is arguably the whole point. Telltale Charts Wait, was the Great Resignation all in our minds? [This chart]( from Justin Fox is making me think so. There’s really nothing “great” about the small hill you see from 2021 and 2022. Maybe we’d be better off calling it the “Reasonable Resignation” instead. That has a nice ring to it. Japan is the only G-7 country that hasn’t gotten behind same-sex marriage. Gearoid Reidy writes polls are showing a rapid shift in public opinion in favor of the LGBTQ community. Although Prime Minister Fumio Kishida “can’t just snap his fingers and declare a referendum,” there’s still [plenty he can do to address the shifting consensus](. Further Reading [Building regulations]( are getting in the way of America’s green energy transition. — Bloomberg’s editorial board If Congress doesn’t do something about the debt ceiling, then [the bond market will](. — Bill Dudley President Joe Biden is looking like a fence-sitter with his [Alaskan oil policy](. — Liam Denning [High-earning power couples]( could be hurt by Biden’s tax plan. — Alexis Leondis Ivy League schools are acting [a lot like a cartel](. — Stephen Carter Northwest Kansas [is running dry](. — Adam Minter ICYMI Etsy’s [SVB exposure](. Russia’s [deadly week](. Jurors can’t agree on [the death penalty](. A [giant seaweed blob]( is heading toward Florida. Kickers A24 is [crushing it](. There’s a [boom in bushcraft](. The [TV-ification of video games]( is here. Area man [tattoos Nike trainers]( onto his feet. (h/t Mark Gilbert) Notes:  Please send sunburn horror stories and feedback to Jessica Karl at jkarl9@bloomberg.net. [Sign up here]( and follow us on [Instagram](, [TikTok](, [Twitter]( and [Facebook](. Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. You received this message because you are subscribed to Bloomberg's Bloomberg Opinion Today newsletter. [Unsubscribe]( | [Bloomberg.com]( | [Contact Us]( [Ads Powered By Liveintent]( | [Ad Choices]( Bloomberg L.P. 731 Lexington, New York, NY, 10022

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