UPDATED @ 6 PM EDT 03.12.2023: A second dubious crypto- blind eye bank has been seized by NY State authorities. This one on a Sunday night. That is… alarming in and of itself. We have been reporting on the investigations that suggest Signature may have been turning a blind eye to outright fraud by Sam Bankman-Fried, and his imploded crypto- empire called FTX. Now… it is… ghost meat. End, second update.

Well, for a change, John offers something with a lil’ cerebral meat to it. For that I am glad.

But his source, John Phelan (a failed “supply sider”), says (grossly oversimplifying) that the federal government’s supply of easy money meant that Silicon Valley Bank couldn’t earn enough spread between deposits and its loans. That may in part turn out to be true (but we have to wait to see the year end 2022 loan book, and deposit base to be certain — not yet available).

But he then goes on to say (in effect) that the federal government caused the collapse of SVB. That stimulus packages, then followed by higher rates — to tame inflation… were the proximate cause.

That ignores one clear reality: private sector / tech sector lending hubris. Bank executives awash in cash, looking to juice a little extra yield, on the asset base.

Several have capably made the argument that SVB was just too flush with cash in the 2020 to 2021 time frame. It had scads of tech project borrowers who were being literally firehosed with private equity money, into the billions, to deliver… nothing. The “to the moon” Bitcoin marketeers, and the vaporware geniuses were fleecing equity financiers (who went along willingly, as did SVB — by vast lendings). These techs vastly overhired, then fired (and ruined several downtowns in the process) and outright failed — in many cases. That left SVB with lots of bad, or problem, loans.

Then several parts of these sector participants imploded in shockingly obvious frauds: FTX, 3AC, Luna, Terra (and many others). That took down pure crypto- bankers, Silvergate and off-shore fly by night exchanges. And the yields SVB had been long chasing — by financing the whole sector… mostly dried up. [Or will await bankruptcy court resolutions in a year or so.]

So, to my eye, it was much more the fact that these SVB executives, acting in a capitalist fever and a myopia, tried to put too much money to work, in too many dubious projects.

That — without a doubt — is in no manner the fault of the government. And thank God, Yellen and the fed will not offer SVB a bailout. The depositors will mostly be okay, if they had $250,000 or less in the bank. Others, above that amount, will need to await asset sales to see more recovery.

Again, Hinderaker cannot accept his allied teams’ responsibility for bad personal decisions (he ran a small bank for several years in Minnesota, as well).

So he… knows better.

Updated, Noon on 03.12.2023: Scott Johnson has also written to complain that Janet Yellen hasn’t spoken specifically enough about “no bailouts“, for SVB.

That is… false. To my ear, she said there will be no bailout (other than pre-existing FDIC deposit insurance payouts). And several MSM sources, including AP and Reuters, now are reporting that an auction is being held this afternoon, to see if any deep pockets want to bid for the whole of SVB as an intact entity — and keep running it. That is a purely private sector auction — not a “bailout”.

So — in sum, let the bankers clean up their own mess, and put their own new risk capital to work. Not more of my federal tax dollars.

Is that clear enough, Scott? You too ran that small Minnesota bank. You know better.

Out.