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Silicon Valley Bank

Articles Mar 13, 2023

As many of you know by now Silicon Valley Bank collapsed this past week. It had more than 50 billion in deposits after the last quarter and was a major silicon valley and global funding source for startups. This was a weird situation for everyone watching because there was no larger financial scandal than in 2008 and there was no context of a major economic problem (yet). Fifty billion dollars reaches like roots of a giant tree into the earth; there are companies that cannot make payroll and investment funds that the collapse left wandering in the stratosphere. As of now, the Federal Deposit Insurance Corporation has taken over as the receiver of the bank funds.

What I find interesting is the reaction to the bank investment strategy crisis as well as the crisis itself. This seems like a completely avoidable problem and one that arose from very straightforward investment blindness. SVB essentially did not properly diversify investments and only purchased low-risk funds which could not return interest rates to cover the cost of their monies lent. For that, a bank needs to make other investments also that have different yields. Why was such a large bank lacking in long-term investment strategy?

There are news stories about the SVB UK risk-management boss focusing on her pet woke programs in months prior to the collapse. And yes, I do think this is a major problem in the Western world and one we are only just beginning to notice. Competence is taking a back seat to delusional self-focus and identitarianism. I don’t care how much or how little she was looking through her monocle at her own naval…she shouldn’t have been doing anything but focusing on risk management of the bank. Nothing else. Period.

A much larger issue may be represented by the bank collapse as well. In various news interviews with investors and bank experts a common refrain is heard: “the government.” The government should have done this, should have prevented that, etc. There is of course a tendency people have in times of crisis to regress into childlike dependency and to feel rage with a perceived parent who “should” not have let us fall to hurt ourselves. Has this become the national unconscious credo: that everything will be taken care of by the government?

According to one of the most famous economists in the 20th century, Milton Friedman, the Great Depression was caused mainly by the Federal Reserve failing to act properly in response to the banking crisis. It failed in his view due to internal power struggles and other factors. In the case of SVB, the feds seized control of the bank within 4 days and are now considering methods for a merger with a larger bank. In the meantime, federal funds have been deployed to initially stop the hemorrhaging and keep businesses in operation.

Has this action on the part of “the government” become our new unconscious parent…the benign force that will save us from our perilous decisions? I did not hear any business executives who banked with SVB explain why they had not diversified their investments so that they were not subject to the direction of one institution’s financial health. I have heard, however, that common chorus…the government…why didn’t mom and dad see this coming and catch me before I fell?

The more a society centralizes its decision-making apparatus the less likely it will be that such a people will remain adaptive. The Soviet Union failed because it had no adaptive private sector to move goods and services around. Potatoes literally sat rotting in warehouses because “the government” could not manage all things at once. A central nervous system relies on a wide array of neurons that all form a sense of consciousness. There is no actual central consciousness. There is just a large and diverse system of neuro-differentiation and neuro-unity that form a reaction apparatus called a brain, which parallels the mind. Arising from that complex system is a sense of being and the ability to engage with the world and its various problems.

It is my concern that the United States has moved so far down a path of centralizing and expanded government that everyday citizens implicitly rely on a sense of being looked after such that they fail to think for themselves. I worry that we are now in a time where the individual neurons that form our collective consciousness have become dormant and that the country has neuropathic numbness.

So for the risk management boss for SVB, Jay Ersapah, who became focused on her own woke projects in the months prior to the collapse, perhaps she had the illusory fantasy that the bank was impervious to real-world threat…that the company was her little bouncy house where she could draw with magic markers and throw glitter around. Perhaps she knew that there are no more mistakes and that a benevolent parent would make it all better. If you happened to have your coins in their little piggy bank, well, there is monopoly money on the way!

The Real Clear Politics Podcast with Dr Lucas Klein is the in-depth analysis and commentary on current political events through a psychological lens. The Real Clear podcast covers a wide range of topics, from the latest election results to policy debates, to exploring the impact of current events on the political landscape.