The SVB debacle has exposed the hypocrisy of Silicon Valley

US tech innovators have a culture of regarding government as an innovation-blocking nuisance. But when Silicon Valley Bank collapsed, investors screamed for state protection writes John Naughton in The Guardian 

So one day Silicon Valley Bank (SVB) was a bank, and then the next day it was a smoking hulk that looked as though it might bring down a whole segment of the US banking sector. The US government, which is widely regarded by the denizens of Silicon Valley as a lumbering, obsolescent colossus, then magically turned on a dime, ensuring that no depositors would lose even a cent. And over on this side of the pond, regulators arranged that HSBC, another lumbering colossus, would buy the UK subsidiary of SVB for the princely sum of £1.

Panic over, then? We’ll see. In the meantime it’s worth taking a more sardonic look at what went on.

The first thing to understand is that “Silicon Valley” is actually a reality-distortion field inhabited by people who inhale their own fumes and believe they’re living through Renaissance 2.0, with Palo Alto as the new Florence. The prevailing religion is founder worship, and its elders live on Sand Hill Road in San Francisco and are called venture capitalists. These elders decide who is to be elevated to the privileged caste of “founders”.

To achieve this status it is necessary to a) be male; b) have a Big Idea for disrupting something; and c) never have knowingly worn a suit and tie. Once admitted to the priesthood, the elders arrange for a large tipper-truck loaded with $100 bills to arrive at the new member’s door and cover his driveway with cash.

But this presents the new founder with a problem: where to store the loot while he is getting on with the business of disruption? Enter stage left one Gregory Becker, CEO of SVB and famous in the valley for being worshipful of founders and slavishly attentive to their needs. His company would keep their cash safe, help them manage their personal wealth, borrow against their private stock holdings and occasionally even give them mortgages for those $15m dream houses on which they had set what might loosely be called their hearts.
The most striking takeaway was the evidence produced by the crisis of the arrant stupidity of some of those involved

So SVB was awash with money. But, as programmers say, that was a bug not a feature. Traditionally, as Bloomberg’s Matt Levine points out, “the way a bank works is that it takes deposits from people who have money, and makes loans to people who need money”. SVB’s problem was that mostly its customers didn’t need loans. So the bank had all this customer cash and needed to do something with it. Its solution was not to give loans to risky corporate borrowers, but to buy long-dated, ostensibly safe securities like Treasury bonds. So 75% of SVB’s debt portfolio – nominally worth $95bn (£80bn) – was in those “held to maturity” assets. On average, other banks with at least $1bn in assets classified only 6% of their debt in this category at the end of 2022.

There was, however, one fly in this ointment. As every schoolboy (and girl) knows, when interest rates go up, the market value of long-term bonds goes down. And the US Federal Reserve had been raising interest rates to combat inflation. Suddenly, SVB’s long-term hedge started to look like a millstone. Moody’s, the rating agency, noticed and Mr Becker began frantically to search for a solution. Word got out – as word always does – and the elders on Sand Hill Road began to whisper to their esteemed founder proteges that they should pull their deposits out, and the next day they obediently withdrew $42bn. The rest, as they say, is recent history.

What can we infer about the culture of Silicon Valley from this shambles? Well, first up is its pervasive hypocrisy. Palo Alto is the centre of a microculture that regards the state as an innovation-blocking nuisance. But the minute the security of bank deposits greater than the $250,000 limit was in doubt, the screams for state protection were deafening. (In the end, the deposits were protected – by a state agency.) And when people started wondering why SVB wasn’t subjected to the “stress testing” imposed on big banks after the 2008 crash, we discovered that some of the most prominent lobbyists against such measures being applied to SVB-size institutions included that company’s own executives. What came to mind at that point was Samuel Johnson’s observation that “the loudest yelps for liberty” were invariably heard from the drivers of slaves.

But the most striking takeaway of all was the evidence produced by the crisis of the arrant stupidity of some of those involved. The venture capitalists whose whispered advice to their proteges triggered the fatal run must have known what the consequences would be. And how could a bank whose solvency hinged on assumptions about the value of long-term bonds be taken by surprise by the impact of interest-rate increases? All that was needed to model the risk was an intern with a spreadsheet. But apparently no such intern was available. Perhaps s/he was at Stanford doing a thesis on the Renaissance.

Why do Governments Bailout Undeserving Banks?

 

The Wishful Thinking of Diaspora Pakistanis Reveals A Clandestine Truth About Pakistani Politics

Pakistan is financially, politically, and philosophically bankrupt. What it needs is a new paradigm: a truly people powered government by Arsalan Malik in The Friday Times 

 


In recent months, I have had several conversations with my fellow diaspora Pakistanis in the US about the dumpster fire that is Pakistani politics and economy. To my incredulous amazement, many of them still support the artist formerly known as the “Kaptaan.” Imran Khan continues to have a firm hold on the imagination of these diaspora Pakistanis.

To wit, a very successful, and intelligent Pakistani finance professional told me “IK is the only person who will stand up to the military and save Pakistan from default.” Never mind that IK was a construct of the military in the first place (indeed the overwhelming majority of Pakistani politicians are) and was unable to bring it to heel when he tried during his first unsuccessful term as PM. Pakistanis who think this way although passionate and well meaning, seem to be in-denial of the fact that a large part of the reason we are facing default is because of the fuel subsidies Khan revived a few days before his ouster. Those subsidies further depleted the Treasury at a critical time and effectively tore up the IMF agreement. It made no economic sense and was an act of pure pique to sabotage the subsequent government and curry favor with the masses. This was not the act of a leader who puts his country’s interests before his own. The successive government had to reverse this but the damage was already done. This is the same sort of irrationally misplaced good will that afflicts Trump supporters, who still think he will “drain the swamp” when, in actuality he moved the swamp to DC with him after his election. Just like Trump supporters are convinced he is the answer, many Pakistanis still think that IK will somehow save the Pakistani economy. This is a defensive retreat into fantasy in the face of the unpalatable reality that IK is perhaps even more narcissistic and incompetent than the other inept and feckless fools who have tried and failed to run Pakistan.

Another group of less sophisticated expats think that IK will be successful because “he is not corrupt and is not looking to enrich himself” as opposed to the shamelessly kleptocratic Bhutto/Zardari and Sharif clans. True, IK may not be corrupt but a person is known by the company he keeps. In IK’s case, this consists of the same corrupt, bandwagon careerists in bed with the military who have been a blight on Pakistan’s iniquitous politics ever since its inception. They continued to loot the country in cahoots with the military, under his watch and then abandoned him as soon as the going got tough and he ended up on the wrong side of the military establishment.

However, what both of these Pakistani expat types get right is that if elections were held tomorrow, IK would sweep to victory. He is doubtlessly the most popular politician in the country and has activated and vitalized countless numbers of young people who would not have been otherwise interested in politics. At the same time, he has unwittingly exposed the real puppet masters of Pakistan – its insatiable and pretorian military – and focused the ire of the masses against the top men in khaki behind the curtain for the first time in Pakistan’s history.

IK’s supporters have legitimate grievances against the failed ruling class and establishment elite, and see Imran as their last best hope. This is similar to the effect that Bernie Sanders has had on American millennials and Gen Z. The difference is that Bernie Sanders actually has a progressive, pro-worker, truly populist policy agenda. IK is an inept, incompetent, socially conservative, right-wing populist figure. He is a cult leader, whose track record proves that he cares for his ego much more than he cares for the country. We can be sure that, if accepted back in the fold by the military establishment, instead of confronting it, he will turn out to be even more compliant, because like all narcissists he cares more about power and assuring his own ascendancy and legacy.

Also, unlike Bernie, his politics excludes a class analysis of the problems that afflict Pakistan. Pakistan is at a crossroads. Instead of looking for solutions in another authoritarian strong man and the same old neoliberal policies, the answer to Pakistan’s travails lies in returning power to the working class people of the country, through, for example, the local grassroots organization of truly leftist and socialist political parties like the Mazdoor-Kisaan Party, the Awami Khalq Party, and the Awami Worker’s Party. No one who belongs to the elite that IK belongs to, which includes myself and my friend in finance by the way, can be expected to fix Pakistan.

Pakistan is financially, politically, and philosophically bankrupt. What it needs is a new paradigm: a truly people powered government, led by leaders from the working class, a la Lula in Brazil, that will have the mandate of a super majority of the people to enact progressive policies like raising the taxes on real estate speculation which is the most secure and profitable form of investment for Pakistan’s elites. Such a movement will also institute much needed land reforms to break up antediluvian and anachronistic agricultural monopolies. It will invest in the health and education of the working people of Pakistan instead of F-16s and it will confront the neoliberal institutions that have a stranglehold on Pakistan’s economy by, for example, reversing the disastrous terms of business with the Independent Power Producers (IPPs) which are the central reason for recurring power shortages resulting in an untold number of work days lost, and loss of profitability of private enterprises, and has plunged Pakistan into darkness and creeping de-industrialization.

True change only takes place when millions of working people demand it and when they demand justice. Then, the people at the top have no choice but to respond. In the end, the only force that will save Pakistan are the people of Pakistan, not the military, not the elite, not the businessmen, not the neoliberal economists or a cult of personality but the working-class people of the country. Otherwise, like all Potemkin villages, it will fall apart.

"Virat Kohli only restarted scoring centuries after visiting Mahakaleshwar Temple and doing puja"

 

There was no intent to arrest Imran Khan

 

Britain embraces trivia because it is stuck on the big issues

The fuss over Gary Lineker distracts a nation with no good choices on Brexit, growth and other important questions writes Janan Ganesh in The FT

To south-east Asia, with its EU-dwarfing population, its aspirations beyond middle-income, its clout as a hinge region in the tussle between the US and China. How to explain to someone here the almost subatomic littleness of the main story in the UK? 

You see, we have this sports presenter. And he tweeted something noble but hyperbolic. And the response was even less measured. And the fuss consumed MPs and the national broadcaster. Yes, for a week. No, we don’t have 5 per cent growth and industrial peace. We aren’t immersed in this trivia because the big things are going too well. 

In fact, perhaps the opposite is true. It just takes a bit of geographic distance to appreciate it. Britain, I suggest, is a nation that gets lost in froth and frivolity because, on the serious stuff, it is stuck. 

Let us count the different kinds of deadlock in the kingdom. Britain knows that Brexit was a mistake. It also knows that revising the decision would open the gates of domestic political hell. And so the governing class prefers a conspiracy of, if not quite silence, then awkward terseness on the subject. 

Britain knows what can spur economic growth: housebuilding, a shift in taxation from the young to the asset-owning old. It also knows that Nimbies and pensioners slap anyone who fiddles with the existing settlement. And so the opposition Labour party does not propose to do much more than the ruling Conservatives to displease them. 

Britain knows that its public services could do with more cash. It also knows that its tax burden is nearing longtime highs. Even the state of the union is a kind of impasse. Scotland’s place in it is contested enough to bring constant stress but not so contested as to force a clarifying referendum in the medium term. 

This is a stalemate society. All the energy that would ordinarily go into the debating and doing of meaningful change now finds an outlet in proxy wars about petty things. The Gary Lineker affair (though not the refugee crisis about which he tweeted) is one such trifle. The rolling melodrama of Prince Harry and Meghan, Duchess of Sussex, is another. 

To be clear, there are worse things than stalemate. Britain isn’t a disaster zone. It might avoid a recession. It has broken a run of inadequate prime ministers. One outcome of always skirting hard questions is relative civic peace. (Britain is easier to inhabit now than it was when Brexit was a big subject.) Nor does net annual immigration of more than half a million suggest a country on which the world has given up. Bangkok, Singapore and Ho Chi Minh City are permeated with some of Britain’s abiding assets: the English language, the inescapable Premier League, the elites who choose the UK for part of their education (or property holdings). 

But to plateau at a high altitude is still to plateau. With no movement on the big questions, no projects to be getting on with, expect Britain to throw itself into ever more sagas about nothing. Consider these low-stakes simulations of the debates it should be having. At least France goes direct. At least it is ripping itself apart over something important. Emmanuel Macron’s pension reforms entail vast public sums and the very contract between citizen and state. I had to be reminded, in the age of on-demand goals highlights, that Match of the Day still exists. 

The problem isn’t, or isn’t just, an unserious political class. Or an electorate in love with circuses. It is the insolubility of the UK’s problems. Brexit is as grim as the reopening of it would be. Fraying public services bother millions, but so would a net increase in taxation. The problem underlying everything, low growth, has cures that are as politically incendiary as the sickness itself. For Britain, on issue after momentous issue, there are no chess moves available that don’t hurt its position elsewhere on the board. 

One recent prime minister wasn’t so defeatist. She defined herself against the stalemate culture. She abhorred the polite ducking of hard choices. But Liz Truss will spend the rest of her life as a punch line. No wonder Britain thinks avoidance isn’t so bad after all. If the price is the diversion of national energies into such small potatoes as Lineker-gate, well, worse fates can befall a people. 

A phrase sticks in the mind from a different drama in a different country over a decade ago. “We do not have time for this silliness,” said Barack Obama as he released paperwork to confirm his American birth. Well, Britain has all the time in the world for silliness. What else is there to do?

Events in Lahore explained