Silicon Valley Bank’s (SVB) failure is the largest bank failure since the 2008 global financial crisis.
Like 2008, financial zealots want the public to believe it’s complicated beyond casual understanding, using technical rhetoric to cover up that no one’s awake at the wheel.
Many have been trying to understand why SVB failed and a few reasons stand out as obvious causes: 1) liquidity problems resulting from depositors not doing basic cash sweeps with their money well past the FDIC insurance limits , 2) a lack of a Risk Officer, 3) a lot of Silicon Valley tech startups are unprofitable and often useless, 4) Trump signed a non-partisan law in 2018 that rolled back regulations in the 2010 Dodd-Frank Act. Before the law was signed, banks that had $50 billion USD of assets were seen as needing heavy regulation, this was changed to $250 billion by the Trump-era law; SVB held $216 billion in assets, the 16th largest bank in the States before crashing. Heavy regulation on SVB could have meant important backstops for dealing with rapid loss, requiring absorption measures like overnight treasuries.
What venture capitalists want people to believe is that the 2008 financial crisis or SVB’s failure is either the result of a brief blunder in the otherwise smooth 3D chess that mastermind investors are playing or that it’s a moral failing of the ignorant masses.
Take the Collateralized Debt Obligations (CDO) which were a star financial instrument in the housing crash of 2008. CDOs are definitionally complex financial pools of debt-based assets (mortgages, bonds, etc.) that act as collateral for investors. Leading up to the crash of ‘08, instruments called synthetic CDOs, which were tradable securities based on an underlying market (CDO), were tens of times larger than the actual CDOs built around mortgages that appeared safe. Investors were betting on the performance of other mortgage products rather than actual mortgages themselves. So when the bubble finally popped, it was a violent pop as the underlying market (mortgages) were not as safe as the packaged products that they were the referent of appeared.
The technical financial terms above probably produced a vertiginous feeling for you. This is a feature, not a bug. Many equity investors, especially venture capitalists, want their job to seem extremely complex and to involve a level of expert knowledge replete with technical terms, heuristics of human behaviour based on general game theory concepts such as prisoner’s dilemma, and so on—because otherwise they would be viewed largely as gamblers and opportunistic dogmatists with a professional sheen.
The rise of Silicon Valley’s ethos of start-up entrepreneurship and DIY innovation for innovation’s sake with the way financialization has become a game of labyrinthine technicalities and concepts that can all be dismantled at the moment of default has interesting origins. Melinda Cooper in her 2017 book Family Values: Between Neoliberalism and the New Social Conservatism draws parallels between the move in the social sciences in the ‘90s towards notions of identity performativity — no doubt made famous by Judith Butler’s Gender Trouble — with its lack of a semiotic referent and the way this worked in terms of a financial sector of loosening lending practices based on non-normativity and inclusion as opposed to the exclusive housing loans given to the white heterosexual Fordist family in the post-war period.
“The paradoxical relationship between collateral and credit is one that helps to illuminate the continued gravitational pull of the referent within the semiotics of performativity. If this relationship can be forgotten at the moment of greatest market euphoria, when all borrowers can enter into the market with minimal or no collateral, it violently reasserts itself in periods of debt deflation when creditors ‘call in’ their debts and demand the immediate materialization of assets.”
It’s this dialectic that paints the background of the Silicon Valley bubble. A region of near mythic importance to the US’s identity in the 21st century is a place of experimentation and conceptual infidelity to material constraints and possibilities. Those ideas that do emerge from the Valley successfully are often premised on slight conveniences that damage local economies.
E-hail apps like Uber are cashless and efficient for finding your location but offset wear-and-tear costs by putting it on the Uber driver’s personal car while siphoning money back to Silicon Valley instead of into the locality. Not to mention that Uber drivers have had to fight to be seen as wage employees instead of “independent contractors” in order to get solid wages and benefits.
When Silicon Valley is successful, it’s often because it’s parasitic.
The move to a highly financialized economy through neoliberal policy has been a disaster, and the SVB failure and the crash of ‘08 are further proof of that. It’s time to stop granting so much legitimacy to the rhetoric of high finance by technocratic liberals.
