Silicon Valley Bank was shut down by regulators last week, marking the biggest bank failure since the 2008 collapse. So what happened? And what does this mean for YOUR finances? In this clip, Glenn explains exactly how SVG collapsed, why the Fed is to blame, and why working with a FDIC insured institution is IMPERATIVE.
Transcript
Below is a rush transcript that may contain errors
GLENN: Here's what happened. A couple of things. First of all, we're raising rates.
We had the COVID money coming in, right? To have
And you just heard there, all this COVID money. Well, they wanted to invest it. They needed to put it in some place. And invest it.
Silicon Valley. They had so much money coming in from COVID.
And so what did they do?
They bought treasuries. And at the time, you could buy a ten-year treasury, and you would get 2 percent interest. Guaranteed, at the end of ten years.
That was pretty good back then.
But now, treasuries are selling for about 5 percent interest.
And you don't get that, until the end of the ten years.
So when I buy something, a ten-year treasury, you're buying it for ten years.
If you have only eight years on it, you can sell it, but you're going to probably have to sell it at a discount if the new ones are paying more. So they invested the -- the money in treasuries, at 2 percent.
Just let's remember that. What they had in the bank, if you will -- they owed $195 billion. That's to the people who have put their money into checking accounts and savings accounts, mutual funds. They owed $195 billion. They had 208 billion, on the books.
That's a 17 billion-dollar -- when you have people all over the world starting to say, I think the bank is starting to collapse. They start to take their money. $17 billion can go that fast.
There was a clog in the system, that couldn't get the money wired out fast enough.
So they decided, they needed to sell. And then they announced, we're going to sell some Treasuries.
Well, once they saw that they were selling ten-year bonds, at 2 percent interest, and the market was saying, well, that's only worth 75 cents on the dollar in you.
And Silicon Valley bank was like taking it. They knew, this is a fire sale.
This bank is in trouble. That's what started all of the run on the bank. Now, you probably have FDIC insurance.
If you have FDIC insurance, it's to stop runs on the bank. However, Silicon Valley bank is different. It's very different.
I think it's 88 percent of their accounts, are not covered by FDIC. Why?
Because they're giant companies that are using payroll and keeping their money in the bank, as -- as the place where they can run their company.
So they -- they have more than 250,000 dollars in account. If they also, use the bank for a mutual fund, they found out Friday, they were also screwed.
See, this bank, loans money to these companies. These tech companies.
And they loan them out, venture capital.
And so they loan them the money to operate, and to be able to do everything they can, over the next year.
Well, they've got to put that money somewhere.
So the bank loans it out.
It's basically the depositor's money.
They loan that savings account of yours, per se.
And loan it to this venture capital firm.
Or, or -- the tech startup. And the tech startup then says, where do I put all this money?
And Silicon Valley bank says, oh, just in my other hand. Just give me my money back, and we'll invest it in mutual funds for you. We'll invest it in very safe things like BlackRock. So they did. And the tech companies thought they were safe.
Because it's invested in very secure places like BlackRock.
Except, what the bank didn't say, except in fine print. Is that all the money that you had invested, in BlackRock, was not yours anymore.
It was -- it was under the name Silicon Valley bank.
So when people started to call and say, hey, BlackRock, my money is safe. They said, you don't have any money.
Your money is invested in Silicon Valley bank. And because their name is on it, they're counting that as an asset. And now that asset as has to go to pay creditors.
So they lost their money. This is a giant shell game.
We have created nothing, but a shell game.
And the fed is the one that is causing this collapse, by the raising of the rates. But if you don't raise the rates, what happens?
Inflation goes out of control!
Why?
Because we have printed and loaned too much money out.
Okay. We'll pull it back in.
Well, the way you pull it back in, is raising interest rates. If you raise the interest rates, bonds have to pay a higher yield, and so when you buy a bond, you get more money back. And if somebody gets into trouble, they have to sell their bonds, exactly like Silicon Valley. And they have to take a hair cut. And then the entire thing collapses.
But here's the scariest thing.
This is what the fed has set out to do.
They want to see risky things, go away.
They want to see failure.
They need to people who are not stable to go out of business. Stop spending money. So we can suck all that money back in. But when they do collapse it. And our economy is in this kind of shape. You then have a domino effect, because nobody is in great shape.
And thing banks are playing a giant game.
So then people can't pay the paycheck. And then that paycheck falls -- causes you to default on your auto loan. Or your house loan.
And that makes another bank fail.
We're at the place, I told you in 2008. We would be. We have made the 2008 problem much bigger, and there's no way out.
Once you start printing money, there's no way out.
And what did we do?
Well, the fed said, we're not doing TARP. No, no, no. We have something entirely different. It's got a different name and everything. But we're going to cover all of those accounts.
Oh. Oh, okay.
So we're backing -- we're backing that now.
Yeah. But it's not your money. It's not your money. It's the fed's money.
It's the fed's money? Yeah. It's the money that the banks gave to us, to put aside for insurance in case something like this happened. Oh.
Where -- where did the banks get that money? Well, I don't know. Doing business.
Well, I mean, aren't these the banks you bailed out?
Well, yeah. And weren't you just giving them trillions of dollars is if
Well, yeah. Of course, we did. But they were paying in to this account.
Oh, okay. So the money you printed, that I'm on the hook for, you think to the bank, but they didn't use any of that money for that insurance?
No!
No. This is totally different.
Okay.
So now they're going to be protected, and I don't have an answer for you. Today.
Because all of the answers are bad answers. Should we back that?
No. No.
The constitutionalist, capitalist in me, says that's really bad.
Okay. So we don't back it. Well, no. No.
Because the guy who would like to see the entire western world not burn down to the ground, would like you to bail it out, just to give us some more time.
But that puts us right back where we were.
So I don't have -- I prayed hard today. What do I tell people?
Work on your spiritual health.
Because this is coming. At some point. It's coming. It has to. It has to. Now, the Washington Post said today, that the baggage's death marks both a sobering and salutary moment here.
The central bank has sharply increased interest rates over the past year, hoping higher borrowing costs would slow the economy down, and take the steam out of high inflation.
This is what the fed wants to see. They want to see a tightening of the financial conditions.
Great! They're on it. The Washington Post. With $209 billion in assets, the bank was just 118th the size of JP Morgan Chase. The nation's largest. Still Wall Street Journal was rattled by their abrupt end.
Bank of America was down nearly 12 percent in the past five trading sessions. They're down another five or about four and a half percent today.
Some banks are down as much as 10 percent today, before trading even started. The banks that served the riskiest part of the country and the economy, are the ones in trouble. Now, this is the Washington Post. I want you to listen to this.
Banks like SVB and Silvergate Capital, a San Diego-based bank that catered to cryptocurrency users, are the ones that are getting into trouble.
Oh. It's not a run -- it's not a run on the business model of the bank, it's -- it's not -- I'm sorry. It's not a run on the business model of the banking industry, in general, it's just the business model of this bank. So, in other words, if you are making risky loans, to -- to tech, or if you're investing and doing anything at all with cryptocurrency.
You're the problem. Hmm. That's interesting.
I'm going to tie some of this together here. We have a lot to go over, in just a second.
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Okay. So here's something you probably didn't know: The New York Times is reporting today, that good thing this bank has been saved. Silicon Valley Bank was in many ways, a climate bank. When you have the majority of the market banking through one institution, there will be a lot of collateral damage. Community solar projects appeared to be especially hard hit. Silicon Valley banks said, it led or participated in 62 percent of financing deals for community solar projects. Their smaller scale solar projects also serve lower income residential areas. Don't worry. Don't worry. The fed is covering all of this.
The devastation comes at a critical moment.
It is central to cut the greenhouse gases that are dangerously heating the planet, says the New York Times.
The federal government depends on climate technically companies to develop the innovations needed.
This is going to set the climate change industry down and set them back, for years.
Hmm. Gee. Well, good thing we're not drilling for oil. Good thing we're getting rid of all of our backup power plants, isn't it?
Home Depot cofounder said, the global lending firm, Silicon Valley bank, went broke because it was woke.
Now, the rising interest rates are really -- really why. But if you want to look at their business model, these guys are woke activists. He said, instead of protecting the shareholders and their employees, they're more concerned about the social policies.
As recently as this month just days before it went into receivership with the FDIC, the Silicon Valley bank discussed decarbonization, gay rights, the black venture ecosystem. And so much more.
Well, they were woke. Good thing.
Good thing. By the way, they were purchased this morning. By a British bank. Because Great Britain was worried about their tech industry. As SVB, funded a lot of their stuff too.
So that's good news
