00:00:00
hey guys I got a little friend here
00:00:02
what
00:00:04
I think I'm gonna start a new podcast is
00:00:06
that a bulldog and I'm gonna have a
00:00:08
bulldog as my mascot
00:00:10
do you want a bulldog oh my God you got
00:00:13
my mascot yeah I took over your mascot
00:00:16
well look at that now you're actually
00:00:18
likable sax are you trying to improve
00:00:20
your image
00:00:22
is so unlikable that he has gotten a
00:00:25
bulldog oh my God sax show me his face
00:00:27
again is it him or her him what's his
00:00:31
name his name is Moose oh my God oh my
00:00:34
God you got a bulldog yourself yeah it's
00:00:36
really my mascot Jake I'm going solo
00:00:38
with my podcast I'm gonna call it this
00:00:40
week in technology it already exists
00:00:42
please don't start any more trademark
00:00:45
lessons all right everybody it's an
00:00:46
emergency podcast
00:00:48
Silicon Valley Bank has been taken over
00:00:51
by the FDIC sorry is this the twist live
00:00:54
stream am I on the twist live stream I
00:00:56
mean guys if you couldn't just interrupt
00:00:57
me well okay never gonna get through
00:00:58
this it's a lot to get through the world
00:01:00
needs to hear our opinions if you care
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about us click like And subscribe
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make sure you search for this week in
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startups and uh write a review in the
00:01:11
comments if you don't get enough jaycal
00:01:13
you can get me four more times a week
00:01:14
the name of the other podcast is this
00:01:16
week in startups thanks for the free
00:01:18
promo guys it is a huge day today in
00:01:21
Silicon Valley we haven't seen a Black
00:01:23
Swan like event happen here in a long
00:01:26
time since 2008. I thought the last time
00:01:28
was when you published the book Angel oh
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God
00:01:32
we have to get to work chamoth I saved
00:01:36
the jokes I'm trying to give you a cold
00:01:37
open we did that around here we go three
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two
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[Music]
00:01:56
okay everybody it's been a while 36
00:01:58
hours here we're gonna get into Silicon
00:02:01
Valley Bank imploding the FDIC has shut
00:02:03
down Silicon Valley Bank and there's
00:02:06
many different things we have to discuss
00:02:08
with me today as always the dictator
00:02:10
himself
00:02:11
the Rain Man David sacks and the prince
00:02:14
of panic attacks no more his wires
00:02:16
cleared David Friedberg the Sultan of
00:02:18
science welcome boys how is everybody
00:02:21
just to start this off contextually
00:02:24
the last 24 hours can you can you recall
00:02:27
a time in our careers where it's felt
00:02:30
this acute or insane or intense uh 2008
00:02:34
and covet okay and I think that this is
00:02:38
right up there could be two probably
00:02:40
three in terms of the level of panic and
00:02:43
concern the problem is we're in the
00:02:44
middle of it we don't know what's going
00:02:46
to happen this weekend so there's a lot
00:02:48
of anxiety right now a lot of panic
00:02:50
going on
00:02:51
and a lot of like unlike covid and 08
00:02:54
really acute effects that many companies
00:02:57
and investors are actively dealing with
00:03:00
right now like not just a few thousands
00:03:03
of companies that are really in a state
00:03:05
of like distress right now so it is um
00:03:08
potentially from a Silicon Valley
00:03:09
perspective worse than 08 or covet oh
00:03:13
for sure for sure I mean this this is
00:03:14
basically a Lehman sized event for
00:03:17
Silicon Valley remember when Lehman
00:03:19
Brothers went out of the basically fall
00:03:20
for bankruptcy in 2008 started the whole
00:03:22
financial crisis
00:03:24
the federal authorities thought that the
00:03:26
best plan for Lehman was to file for
00:03:29
bankruptcy they didn't try to save it
00:03:30
and that basically led to a Cascade
00:03:33
where the whole financial system almost
00:03:34
collapsed I think that svb this is a
00:03:37
lehman-sized event for Silicon Valley
00:03:39
and there's there's two big things
00:03:40
happening one is the impact on the
00:03:43
startup ecosystem so you're seeing
00:03:45
probably thousands of companies now
00:03:47
cannot make payroll in the next few
00:03:49
weeks because their money is trapped and
00:03:52
tied up at Silicon Valley Bank which is
00:03:54
now under receivership so if you wired
00:03:58
your money out yesterday you're good and
00:04:00
a lot of people managed to do that but
00:04:02
there are a lot of people who were had
00:04:04
wires in the hopper didn't make it today
00:04:07
logged into the website can't log in the
00:04:10
monies is frozen and we don't know when
00:04:13
they're gonna be able to get their money
00:04:14
out or how many cents of the dollar
00:04:16
they're going to get so basically the
00:04:18
whole startup ecosystem is in Peril I
00:04:21
think Gary tan called it an extinction
00:04:23
level event yes exactly that was a good
00:04:25
term and just to make it really clear
00:04:27
this is not big Tech at risk I know
00:04:29
there's a lot of people out there who
00:04:30
don't like the idea of bailing out big
00:04:32
Tech this is not Google it's not
00:04:34
absolutely those companies have plenty
00:04:36
of cash they're fine this is small
00:04:37
companies companies with 10 to 100
00:04:39
employees and you're looking at maybe
00:04:42
thousands of them just being wiped out
00:04:44
for no reason they didn't do anything
00:04:46
wrong because of this this could have a
00:04:48
very damaging effect on the startup
00:04:51
economy and the whole United States
00:04:52
economy this is little Tech these are
00:04:54
the future companies that will keep the
00:04:57
United States competitive versus China
00:05:00
and the rest of the world and then the
00:05:02
other big thing that's happening this
00:05:04
all happening in real time is a regional
00:05:06
banking crisis because when depositors
00:05:10
see that their money was not safe at svb
00:05:13
which was a top 20 bank that as far as
00:05:16
everyone knows was in Regulatory
00:05:18
Compliance nobody has said that svb
00:05:20
wasn't compliant as far as we know they
00:05:23
had a regulator Steel of approval and
00:05:26
now you find out your money was not safe
00:05:28
and it's not FDIC insured above 250 000
00:05:31
so the conversations we're all seeing in
00:05:34
our chat groups with leading investors
00:05:36
is why the hell would you keep your
00:05:38
money anywhere but JPMorgan or a top
00:05:41
four bank and so I think that unless the
00:05:44
FED steps in here over the weekend we're
00:05:47
going to see potentially a a run on the
00:05:50
regional banking system a Cascade like
00:05:52
we saw in 2008. well sax let's let's
00:05:55
just take a step back before because I
00:05:56
think you're right but we should talk
00:05:58
about why that happens the contagion
00:06:00
drivers and just so people know Silicon
00:06:03
Valley Bank is used by 50 percent of
00:06:05
venture-backed startups and I would say
00:06:08
the majority of venture firms also have
00:06:11
their money there so this morning I got
00:06:12
a note from uh fund I'm an LPN they had
00:06:16
millions of dollars that they can't
00:06:18
access to invest in startups so chamoth
00:06:20
there are many products and services
00:06:22
that Silicon Valley provides one is you
00:06:27
know banking services to startups
00:06:28
another is to venture capitalists they
00:06:30
do the mortgages for Banker for Venture
00:06:34
capitalists and for Founders as well
00:06:36
they provide those kind of white glove
00:06:37
services but you also mentioned in our
00:06:39
group chat they also provide loans to
00:06:42
GPS General Partners to people who run
00:06:44
uh Venture firms so the impact could
00:06:46
also hit there maybe you could explain
00:06:47
what that is and then we'll get into
00:06:49
what happened here yeah well I think
00:06:51
it's important maybe actually just for
00:06:53
Freeburg to just explain what's
00:06:55
happening but okay can maybe maybe let
00:06:57
me just do the lead-in and then
00:06:58
Friedberg can do the details but for for
00:07:01
those that are far away and aren't even
00:07:03
sure what's going on
00:07:05
the basic problem that we have right now
00:07:07
is in the last 36 hours a key part of
00:07:11
the financial Plumbing of Silicon Valley
00:07:13
has basically been turned off and as a
00:07:16
result billions of dollars of deposits
00:07:19
have basically
00:07:20
um been frozen it means that people
00:07:23
can't pay their bills it means that
00:07:25
people can't access their deposits it
00:07:27
means that credit lines could be in
00:07:29
default it means that payroll can't be
00:07:31
met and so as a result we have this
00:07:34
potential Contagion on our hands but in
00:07:36
order to understand it on a packet I
00:07:39
think it's important to explain exactly
00:07:40
how this came to pass so let me just
00:07:43
hand the ball to Freeburg and then we
00:07:44
can talk about some of the implications
00:07:45
of which there are many yeah before
00:07:47
Freeburg starts with the why just the
00:07:49
what that's happened as well this all
00:07:51
started on Wednesday evening when
00:07:52
Silicon Valley Bank's CEO published a
00:07:55
letter to shareholders announcing that
00:07:56
the bank was rebalancing its balance
00:07:59
sheet by selling tens of billions of
00:08:00
dollars worth of mostly U.S Securities
00:08:03
I'm sorry treasuries and then they
00:08:05
announced they would raise some money
00:08:06
and sell some shares in Silicon Valley
00:08:08
Bank the then the shares in Silicon
00:08:10
Valley Bank is a publicly traded entity
00:08:12
dropped 60 on Thursday then another 60
00:08:15
on Friday of course then the entire
00:08:17
world got focused on this and then every
00:08:19
venture capitalist started telling or I
00:08:22
would say the overwhelming majority of
00:08:23
venture capitalists told their
00:08:25
Founders to get their money out of svb
00:08:27
then you had a classic run on the bank a
00:08:29
small number of venture capitalists gave
00:08:30
advice to say hey we should support
00:08:32
Silicon Valley Bank I understand that
00:08:34
but it turned out to be really bad
00:08:35
advice and then
00:08:37
trading uh was halted on Friday morning
00:08:40
pending news and then finally the FDIC
00:08:42
shut down
00:08:43
Silicon Valley Bank at noon on Friday
00:08:46
and there's a lot of speculation of what
00:08:47
will happen on the win over the weekend
00:08:49
but maybe you could walk us through
00:08:50
technically what happened to Silicon
00:08:53
Valley Bank and why they had this cash
00:08:55
shortfall and this we spend the run of
00:08:58
the bank basically but what led up to
00:08:59
this the irony is it really was and is
00:09:02
prior to the quote run a financially
00:09:05
solvent business so I I have a few
00:09:07
slides to Fair on YouTube you can see it
00:09:09
that we pulled one slide that was kind
00:09:11
of made by us and the other set that
00:09:13
come from Silicon Valley Bank's actual
00:09:14
presentations but if you look at their
00:09:17
balance sheet this is from the end of
00:09:18
the year 2022
00:09:20
um you can kind of look at the you know
00:09:22
stuff that they owe their their
00:09:24
liabilities which is what they owe their
00:09:25
customers that sits in deposits because
00:09:27
when customers give you cash in a
00:09:29
deposit you owe them that money back so
00:09:31
that sits us a liability and then they
00:09:33
had a some other debt so in total
00:09:35
Silicon Valley Bank at the end of the
00:09:37
year had about 195 billion dollars in
00:09:39
liability it's 173 billion of customer
00:09:42
deposits that they owe to customers and
00:09:45
22 billion of other debt and then they
00:09:47
take those customer deposits and they
00:09:48
invest it in in a number of Securities
00:09:51
and the way that a balance sheet
00:09:52
business like this bank would operate is
00:09:54
you know the customers have access to
00:09:56
their cash
00:09:57
um anytime they want but in order for
00:09:59
the bank to make money they make longer
00:10:01
duration Investments and those longer
00:10:03
duration Investments give them the
00:10:04
ability to earn money on those longer
00:10:06
duration Investments more than they're
00:10:09
paying the customers for the deposit so
00:10:11
if you look at their longer duration
00:10:12
Investments they had about 208 billion
00:10:15
dollars
00:10:16
um of total assets sitting on the
00:10:18
balance sheet so compare that to the 195
00:10:21
billion that they owe customers and and
00:10:24
other debt holders so you know the
00:10:26
difference here between 208 and 195 is
00:10:29
about 13 billion dollars that's kind of
00:10:31
the net what people would call Book
00:10:32
value of Silicon Valley Bank at the end
00:10:36
of the year and of the 208 billion of
00:10:38
assets that they had not 74 billion were
00:10:40
loans and they've got a breakdown of the
00:10:42
loan portfolio here in a minute 91
00:10:44
billion where these hold to maturity
00:10:46
Securities where they don't actually
00:10:47
adjust the value of these on a quarterly
00:10:49
basis and 26 billion is what triggered
00:10:52
this Panic which is available for sale
00:10:54
Securities mostly treasuries and what
00:10:56
happened is Silicon Valley Banks
00:10:58
deposits came in so quickly over the
00:11:00
last couple of years that they went out
00:11:02
and they bought a bunch of treasuries
00:11:03
you know with the cash that they got and
00:11:05
the problem is that very quickly
00:11:06
Freeburg is actually MBS they bought a
00:11:08
bunch of MBS tenure division MBS an
00:11:10
important to note of the 208 billion
00:11:12
that they have the book value Friedberg
00:11:14
there was a whatever 10 if it's in cash
00:11:18
or something so they do have some cash
00:11:19
there
00:11:20
that's right yeah sorry it's a good
00:11:22
point if you go back so like you know
00:11:24
let's say that of the 100 of the 173
00:11:26
billion of customer deposits you know
00:11:28
they've got 14 billion of cash and then
00:11:31
they've got all these treasury
00:11:32
Securities they can sell call it 40
00:11:34
billion so if 25 of customers said
00:11:37
tomorrow hey we want our cash back
00:11:38
theoretically they could just dump those
00:11:40
treasury Securities distribute the cash
00:11:42
and give it all back to customers the
00:11:44
problem is if suddenly more than 25
00:11:45
percent want to get their cash back well
00:11:48
now they have a problem and that is
00:11:50
effectively what triggers the run on the
00:11:51
bank as soon as some folks think that
00:11:53
others might be pulling money out then
00:11:55
everyone rushes to be the first money
00:11:57
out the door and that's what triggers a
00:11:59
classic run on the bank there's a
00:12:01
statistic I think in the 1920s there
00:12:04
were several hundred banks that had runs
00:12:06
every year for almost the entire decade
00:12:08
and these this was like a regular kind
00:12:11
of occurrence that happened in the 1920s
00:12:12
that ushered in a lot of our modern
00:12:14
Securities laws that are meant to kind
00:12:16
of create the necessary liquidity
00:12:18
provisions and how these banks are able
00:12:20
to operate to make cash available to
00:12:21
customers but what happened is so much
00:12:24
so by the way Freeburg that they made a
00:12:26
movie It's a Wonderful Life about
00:12:27
bankrupt so basically one of the bigger
00:12:30
problems that Silicon Valley Bank they
00:12:32
ran into two big problems number one is
00:12:34
the closet decline where uh VCS were not
00:12:38
investing new money and when they were
00:12:40
not investing you money and startups
00:12:42
were burning more money than Silicon
00:12:44
Valley had modeled they would be burning
00:12:46
because they thought everyone was going
00:12:46
to reduce spend and reduce burn and they
00:12:48
didn't
00:12:49
so deposits were going down while all
00:12:51
these startups were burning money no VCS
00:12:53
were investing so total deposits were on
00:12:55
the decline meanwhile their bond
00:12:57
portfolio the assets that they hold on
00:12:59
the balance sheet also declined in value
00:13:01
and I and I kind of just put a really
00:13:03
simple illustration here on why if you
00:13:05
have a hundred dollar kind of face value
00:13:07
bond that earns two percent
00:13:09
uh which is basically you know where
00:13:11
these treasuries were a year ago and you
00:13:13
and you hold that for 10 years that
00:13:14
10-year bond yields 122 dollars
00:13:17
if the interest rate goes up to five
00:13:19
percent then though that that that Bond
00:13:21
should yield 163 dollars so the value of
00:13:25
the first Bond actually goes down by 25
00:13:27
because of the market conditions that's
00:13:29
how significant the value changes with
00:13:32
just a three percent change in the
00:13:33
interest rates and that's effectively
00:13:35
what happened with that available for
00:13:36
security segment of the Silicon Valley
00:13:39
Bank portfolio balance sheet they had
00:13:41
this Bond portfolio that suddenly got
00:13:43
devalued and they had declining deposits
00:13:46
so when deposits start to decline you
00:13:49
got to make sure you have enough assets
00:13:50
sitting on the balance sheet so they
00:13:51
sold a bunch of them said we're going to
00:13:52
raise more money and at that point
00:13:54
everyone kind of perked their head up
00:13:55
and said oh my gosh what's crazy is in
00:13:57
Q4 by the way
00:13:59
Seeking Alpha this website you guys know
00:14:01
they had actually done an analysis
00:14:03
instead of svb about to blow up and they
00:14:05
put together a bunch of slides that
00:14:06
highlighted why this might be the case
00:14:08
because they saw that deposits were
00:14:09
declining that their um their assets
00:14:12
that they hold were basically declining
00:14:14
in value because of the massive and very
00:14:16
quick rise in interest rates and that
00:14:18
svb had bought a bunch of bonds that
00:14:19
were long long durated bonds so it led
00:14:22
to a you know obviously a real
00:14:23
short-term problem if you look at the
00:14:25
rest of svb's loan portfolio there's
00:14:27
also a question of how distressed that
00:14:29
all is so 10 of their 70 billion plus
00:14:32
dollars of loans is in Venture debt and
00:14:36
Venture debt is very questionable in
00:14:37
this market right because historically
00:14:39
the way Venture debt makes money is that
00:14:41
they assume that VCS are going to keep
00:14:43
funding the companies that they're
00:14:44
providing debt to and if the VC stopped
00:14:46
funding the companies then the Venture
00:14:48
debt defaults and so if you go to the
00:14:49
last slide in this deck you'll kind of
00:14:51
see svb's performance on their Venture
00:14:53
debt portfolio yeah so look at this this
00:14:55
is the the performance results on just
00:14:58
the warrants that they get on their your
00:14:59
debt so when you when you issue Venture
00:15:01
debt you take a write down or you get
00:15:03
paid back and then you also get some
00:15:05
warrants you get some a right to buy
00:15:07
shares in the in the winners and the
00:15:09
startups that work and so the way that
00:15:11
svbs made money on their Venture debt
00:15:13
portfolio historically is hopefully they
00:15:15
get paid back on all their loans some of
00:15:17
them they don't but then they'll make a
00:15:19
bunch of money on selling their warrants
00:15:20
or the pub companies going public or
00:15:22
getting bought and in Q4 of 2022 it just
00:15:25
fell off a cliff and their Venture debt
00:15:27
portfolio really started to show
00:15:28
distress and that's 10 are these
00:15:30
realized gains or these are Mark to
00:15:32
market gains this is the net gains on on
00:15:34
their warrant so they don't Mark to
00:15:36
Market warrants I think this is what
00:15:37
they actually exercised and got out so
00:15:39
there was there was obviously a ton of
00:15:41
exits in 2021 so they made 560 million
00:15:44
dollars in profit on their warrants that
00:15:46
they had in their Venture debt portfolio
00:15:47
in 2021 that number collapsed to 148 in
00:15:50
2022 and you better believe most of that
00:15:52
was in the early part of 2022.
00:15:55
um so you know they didn't do a
00:15:56
quarterly breakdown on this this was
00:15:58
like their full year number but their
00:16:00
Venture debt portfolio which is another
00:16:01
seven billion dollars a capital also
00:16:04
distressed
00:16:05
um certainly wasn't going to perform as
00:16:07
everyone had modeled so when you kind of
00:16:08
start to add this all up and remember if
00:16:10
you go back to the beginning they only
00:16:11
had 15 billion dollars of true net Book
00:16:13
value which is the difference between
00:16:15
their assets and their liabilities and
00:16:17
so if you really start to adjust what
00:16:19
are those assets really worth are they
00:16:20
really worth what they're holding them
00:16:21
at the book at and if people start to
00:16:23
pull money out and you got to sell them
00:16:24
at a distressed price in order to give
00:16:27
people their cash that they're owed on
00:16:28
deposits that's when you have a classic
00:16:30
run on the bank problem and then
00:16:32
everyone tries to be the first out the
00:16:33
door
00:16:34
and that's basically like what triggered
00:16:36
this this week can I give you guys my
00:16:38
little version of all of this I think
00:16:40
there are three buckets but before I go
00:16:42
into the three buckets I just want to
00:16:43
say
00:16:44
to all of the employees at these
00:16:47
companies I think we the four of us
00:16:50
are so truly sorry for what's going on
00:16:52
and what you guys are going through and
00:16:55
then the founders that are trying to
00:16:56
navigate this it must be unbelievably
00:16:58
tough there are a few Founders in our
00:17:00
portfolio so
00:17:02
you know from all of us just know that
00:17:04
we're thinking of you guys and hopefully
00:17:07
everybody
00:17:08
ends up on the other side of this by
00:17:10
Monday or Tuesday with not a lot of
00:17:12
damage so let's just put that out there
00:17:14
as sort of like
00:17:15
Goodwill and kind of good Juju in the
00:17:18
world for the next it's going to be a
00:17:20
really difficult weekend for people who
00:17:21
are trying to navigate this yeah I think
00:17:22
it's well said yeah I mean
00:17:26
in really really tough shape right now
00:17:28
trying to figure out how do I make
00:17:29
payroll and it's a big question
00:17:32
okay so just putting a pin in that
00:17:34
because we'll come back to it I think
00:17:36
that
00:17:37
this whole debacle I guess is the maybe
00:17:40
the best word
00:17:42
there's a little bit of blame that you
00:17:44
can put at the feet
00:17:46
of three different groups of actors and
00:17:48
I just want to get your guys's reaction
00:17:50
to this so group number one and Freeburg
00:17:53
just mentioned this
00:17:55
is we the four of us have been talking
00:17:58
for the last 18 months about the impact
00:18:01
of rising rates
00:18:02
and you know we talked a lot about for
00:18:05
example like in our portfolio my
00:18:06
partners and I
00:18:07
walked into every company and made them
00:18:11
have at least enough money to get
00:18:13
through mid 2025 right I've said this a
00:18:16
bunch of times
00:18:18
and so that was about having very
00:18:20
difficult conversations about making
00:18:22
sure that you were husbanding cash so
00:18:25
that
00:18:25
you had enough to weather any storm that
00:18:28
came on the horizon
00:18:30
but it turns out that there was some
00:18:33
group of VCS and companies that just
00:18:35
didn't get that memo and just kept
00:18:38
spending
00:18:39
like nothing had changed
00:18:41
but when other VCS have stopped giving
00:18:44
you money
00:18:46
and you're continuing to spend like it
00:18:48
was 2020
00:18:49
that's what caused this mismatch and it
00:18:52
was really the spark that Lit the fuse
00:18:55
so I think it's a really sad commentary
00:18:58
at some level about the lack of
00:19:00
governance that we have inside of some
00:19:01
of these companies
00:19:03
where folks are just not doing the job
00:19:05
that they're supposed to at these board
00:19:06
levels I think people and we've talked
00:19:08
about this have made venture too much of
00:19:11
a popularity contest where they are you
00:19:14
know glad handing and smiling
00:19:17
and not doing the hard work of holding
00:19:19
folks accountable and so some handful of
00:19:21
VCS and some handful of founders
00:19:24
just didn't get this memo and it made
00:19:27
what could have been a slower train
00:19:29
wreck faster unnecessarily so I think
00:19:32
that that's worth talking about
00:19:34
then I think if you look at what
00:19:37
actually practically happened over the
00:19:39
last
00:19:40
year and a half at svb was that
00:19:43
they were so desirous of profits
00:19:46
that they basically had a duration
00:19:48
mismatch so what is that imagine you get
00:19:51
a job and you know somebody's like hey
00:19:53
Freeburg I'll pay you a hundred thousand
00:19:55
dollars
00:19:56
monthly over some number of months right
00:19:59
in in normal pay every two weeks or I'll
00:20:01
pay you 200 000 but you only get paid
00:20:03
once a year
00:20:04
well the problem with that second thing
00:20:06
is you still have monthly bills that you
00:20:08
have to make up for before you get paid
00:20:10
and so most people wouldn't take that
00:20:12
job even if they paid you a lot more
00:20:14
because you have this durational
00:20:16
mismatch you have to pay rent every
00:20:18
month you have to pay bills on a monthly
00:20:20
basis you have credit card bills all
00:20:22
these things and so you need to match
00:20:25
the timing of your cash flows
00:20:28
and so I think somewhere along the way
00:20:30
the risk Folks at svb just made a really
00:20:34
large miscalculation they basically went
00:20:37
and bought 10-year risk
00:20:39
in order to pay back money that could be
00:20:42
called on a daily or weekly basis that
00:20:45
obviously in hindsight was not a good
00:20:46
idea but more importantly and they
00:20:50
didn't adjust fast enough well they
00:20:51
can't because they have these Mark to
00:20:52
Market assets that were just getting
00:20:53
clobbered in the head as rates got
00:20:55
raised and then the Third
00:20:57
the third thing is around Regulators you
00:20:59
know after the great financial crisis we
00:21:01
went through a period where there was
00:21:02
hundreds of bank failures
00:21:05
and then for the last decade they've
00:21:06
been virtually none right they've been
00:21:08
like a few here or there and the last
00:21:10
one was just during covet
00:21:12
and so the The Regulators I think have
00:21:14
done a really good job with Dodd-Frank
00:21:16
and all of these other things to clean
00:21:18
up
00:21:20
the banking laws and the reporting
00:21:22
requirements and the capital structures
00:21:24
so that runs on banks
00:21:26
are more and more infrequent but they
00:21:30
kept this crazy loophole around the
00:21:33
accounting treatment of assets and they
00:21:35
allow these durational mismatches to
00:21:38
appear
00:21:39
in A bank's balance sheet
00:21:41
and so I think there's a piece here for
00:21:44
The Regulators which is here's an
00:21:47
opportunity that's glaring and obvious
00:21:49
now and screaming about how we need to
00:21:52
tighten some more of the transparency
00:21:54
that's required it shouldn't be a group
00:21:57
of armchair salutes on Seeking Alpha
00:22:00
that sniff this out three months before
00:22:01
it happened it should have actually been
00:22:04
a regulator that said hey hold on a
00:22:05
second something is happening here that
00:22:07
we don't like and so we I think need to
00:22:09
figure it out but I think those are the
00:22:11
three actors that are in play and they
00:22:13
each share a bit of the blame here
00:22:15
Freeburg Sachs what do you think who who
00:22:17
is to blame here most for this blow up
00:22:20
or is this just the extraogenous event
00:22:23
of the rate hikes happening in such a
00:22:25
short compressed period of time
00:22:27
no I mean look I think that svb's risk
00:22:30
management was terrible obviously they
00:22:33
signed up for these long data Securities
00:22:35
when the the market they serve is
00:22:39
incredibly volatile like Jamal says
00:22:41
duration mismatch really good point I
00:22:43
would also say that there's a weird
00:22:46
regulatory treatment where apparently if
00:22:49
you buy these 10-year bonds these
00:22:52
10-year mortgage-backed Securities or
00:22:54
10-year treasuries you don't have to
00:22:55
recognize the loss until you sell them
00:22:59
which is just bizarre so in other words
00:23:01
they should have been marking the the
00:23:03
positions to Market and instead they
00:23:06
just were allowing these losses to
00:23:09
accrue I don't understand how The
00:23:10
Regulators can allow that kind of system
00:23:12
I also don't understand how The
00:23:14
Regulators can allow
00:23:16
a bank to take customer deposits and
00:23:20
loan them out to startups with this
00:23:22
Venture debt that we've been talking
00:23:24
about in the show where 10 percent of
00:23:26
their portfolio is basically being
00:23:27
loaned out to startups who have no
00:23:29
credit that's crazy we talked on the
00:23:31
show a few months ago yeah actually it's
00:23:32
a good time to play the clip here
00:23:34
because what we saw and sax and I you
00:23:36
know seeing at the series a level you
00:23:39
have a lot of times Founders would get
00:23:41
this basically free money in their minds
00:23:43
I raised 10 I get five in Venture debt I
00:23:46
can extend my Runway
00:23:48
but that money comes due and here's the
00:23:50
clip for when Saks and I were talking
00:23:52
about it just a couple episodes ago what
00:23:55
I don't trust is whether the the return
00:23:58
models on Venture debt that were created
00:24:00
over the last five to ten years will be
00:24:02
a good predictor of what the returns
00:24:04
will be in the next five ten years when
00:24:07
a lot of the mortality that should have
00:24:08
happened in the past now happens in the
00:24:11
future yeah I mean this is just four or
00:24:15
five episodes ago we had kind of nailed
00:24:16
it startups have no collateral they have
00:24:18
no there's no security for that load how
00:24:20
does that make sense no not true loan to
00:24:23
a creditor not true guys look I I
00:24:25
disagree with you on this point look if
00:24:27
you pull up the the slide that breaks
00:24:29
down so let's talk about Venture debt
00:24:31
for a second because I've actually
00:24:32
invested in a venture debt fund and I've
00:24:34
seen the economics on it the way that
00:24:36
the The Venture debt model typically
00:24:38
works is the lender loans Money to the
00:24:40
startup and what they underwrite is what
00:24:43
the current VCS and the startup say
00:24:46
they're going to do to support the
00:24:47
company in the future so their ability
00:24:49
to get paid back in the future is
00:24:51
largely predicated not on underwriting
00:24:52
the company and the performance of the
00:24:54
business or the assets they have but
00:24:55
it's underrated by the fact that the VCS
00:24:57
are committed to continuing to put money
00:24:59
in and hopefully see that this thing has
00:25:01
a bigger there's no commitment there is
00:25:02
no commitment
00:25:06
hold on let me just finish I get it but
00:25:08
but the asset as a as an asset class we
00:25:12
can make fun of it all we want it's
00:25:13
actually performed pretty well these
00:25:15
guys have generated typically 18 as an
00:25:17
industry
00:25:18
and yeah you're right it's the same as
00:25:21
Ventures and the way that they generate
00:25:24
those returns is that they're loaning
00:25:26
money to the startups a bunch of those
00:25:27
startups fail they don't get paid back
00:25:29
and then the ones that succeed they
00:25:31
actually take warrants in the startups
00:25:33
so they have some Equity upside in the
00:25:35
startup and that's the way the model
00:25:36
works we can make fun of it all we want
00:25:37
it actually works as an industry let me
00:25:41
tell you why that broke is um it goes
00:25:43
back to the point you made earlier in
00:25:44
the show which is the the the lender has
00:25:47
this expectation that the VCS are going
00:25:48
to keep investing what if they don't
00:25:50
well we've been in a generally up into
00:25:52
the right bull market since the last
00:25:54
that's right
00:25:55
yeah I believe from the data for all
00:25:58
these models is is skewed because it
00:26:01
assumes again an environment in which
00:26:04
companies keep raising up rounds and as
00:26:07
soon as you get into a crisis in which
00:26:08
the that breaks then the whole asset
00:26:10
class breaks that's right I think this
00:26:12
was completely predictable but even if
00:26:14
you think that this asset class is
00:26:16
legitimate I don't understand why
00:26:18
banking deposits could ever be used to
00:26:20
fund it if you want to be a venture debt
00:26:22
fund go out and raise money from LPS
00:26:25
because what happens is when you raise
00:26:27
it with customer deposits you're
00:26:29
creating systemic risks for the banking
00:26:31
systems should never have allowed that
00:26:33
even worse under two assets are
00:26:35
correlated because you're you're loaning
00:26:38
it to people who are depositing it and
00:26:42
in every other part of the private
00:26:44
credit Market that is exactly what you
00:26:46
do what Sac said you can't use custard
00:26:49
customer deposits to do some clo deal or
00:26:54
to do like you know to back a PE play
00:26:56
these are all LP Capital that goes
00:26:59
towards that this is the only sliver as
00:27:02
far as I know where you take customer
00:27:04
deposits to create very risky loans
00:27:07
wrapped with warrant coverage and by the
00:27:09
way this stuff is never free right so
00:27:12
they make you keep your money there they
00:27:14
make you have enough money to cover the
00:27:16
size of the loan in the first place so
00:27:17
it's not even that valuable because if
00:27:19
they give you eight million dollar loan
00:27:20
you have to have eight million dollars
00:27:22
always on deposit otherwise you violate
00:27:24
the otherwise you know you breached
00:27:26
alone so there is no free lunch in
00:27:29
Venture debt there has never been and I
00:27:31
still think Venture debt is very much
00:27:33
like Venture Capital which is most of
00:27:35
these gains are on paper most of these
00:27:38
gains haven't really been realized and
00:27:41
now we're going to go through this
00:27:42
sorting process when all of this stuff
00:27:43
gets whacked I do want sexy your
00:27:46
reaction to this though which is the
00:27:49
thing that started this was the fact
00:27:50
that VCS seeing the markets imploding
00:27:53
stopped giving companies money but they
00:27:56
didn't do enough work to help Founders
00:27:58
cut burn
00:28:03
what is going on inside of these boys I
00:28:06
think that's crazy because listen I mean
00:28:08
we started doing portfolio updates with
00:28:10
our entire portfolio of Founders in
00:28:13
February last year saying this regime
00:28:16
change you've got to cut costs we did
00:28:17
another one in May you can watch them
00:28:19
both on YouTube okay and we were telling
00:28:21
Founders cut your burn do it now don't
00:28:24
wait we were beating the drum on this so
00:28:26
hard and in every board meeting and
00:28:28
privately and I like you know and it
00:28:30
takes multiple times frankly to get
00:28:32
through I think your point chamoth about
00:28:34
not wanting to be unpopular with the
00:28:37
founder crowd uh LED some young Capital
00:28:40
allocators to maybe say okay yeah let's
00:28:42
try this ditch effort before we do you
00:28:45
know another riff let's try this new
00:28:47
product let's change our sales strategy
00:28:49
I don't think it's young versus old I
00:28:51
think it's experience versus
00:28:52
unexperienced no I think it's experience
00:28:54
that's better I think that's right yeah
00:28:56
the experiences listen if you've never
00:28:59
lived through a bear Market you don't
00:29:00
know how bad it can get and Tech is a
00:29:02
boom bust cycle and the bus are really
00:29:04
hard really hard really hard and if
00:29:07
you've never lived through a regime
00:29:08
change before like there was in 2008
00:29:10
nine or in 2000 and 2000 was the worst
00:29:13
yeah 2001 to three yeah you're totally
00:29:15
improved you have no idea and you know
00:29:17
and and I think experience does matter
00:29:18
and there there aren't that many VCS
00:29:21
around who live through the.com craft no
00:29:23
probably 85 if not by the way if you
00:29:25
guys pull up just that slide on the loan
00:29:27
portfolio at svb I just want to make the
00:29:29
case a sex I hear you it's a risky it
00:29:31
seems like a risky investment to make
00:29:33
but what don't you guys agree that a
00:29:36
balance sheet business like svb or an
00:29:39
insurance company or any business that
00:29:41
has you know some amount of money coming
00:29:43
in that sits on the balance sheet and
00:29:45
then they invested for a period of time
00:29:46
there's a laddering of risk and there's
00:29:49
a laddering of duration that you have
00:29:51
and so if you look at Silicon Valley
00:29:53
Bank from there from the update they did
00:29:54
last week that figured all of this if
00:29:56
you look at svb's loan portfolio 70 are
00:29:59
really these asset back loans which are
00:30:02
56 of the portfolio is like you know
00:30:05
prepayments on on LP commitments and
00:30:07
then 14 is is private banking loans
00:30:10
which is loans against you know public
00:30:12
Securities that people have
00:30:14
only 10 of the portfolio is ventured at
00:30:17
which is 7 billion and you know look if
00:30:19
the asset historically is performed at
00:30:21
an 18 kind of rate of return what is the
00:30:24
you venture debt portfolio going to look
00:30:25
like in a distressed environment is it
00:30:27
negative 100 is it negative 50 negative
00:30:29
40 negative 30 I mean you guys can have
00:30:32
a point of view on this but you look I
00:30:34
mean for any business that's managing a
00:30:36
large um balance sheet of assets against
00:30:39
you know a short uh kind of liability
00:30:41
tree they're gonna have some riskier
00:30:43
assets I think you know the question is
00:30:45
was 10 too much of the loan portfolio I
00:30:48
think one percent's too much yeah you
00:30:51
know one of the issues here that we saw
00:30:53
qualitatively sax and I both saw
00:30:56
qualitatively is the standard for giving
00:30:59
these and the size of them got lower and
00:31:01
lower in fact the covenants went away
00:31:03
and this is what we kept having 100 say
00:31:05
to us it has no covenants they offered
00:31:06
me no covenants I don't have to have a
00:31:08
certain amount of cash I don't have half
00:31:09
a certain amount of Revenue those
00:31:10
covenants were there for a reason to
00:31:12
filter out the people who can't afford
00:31:14
the house right and this is exactly what
00:31:17
happened in 2008 when people started
00:31:19
giving those no recourse or no uh
00:31:22
background check mortgages remember
00:31:23
those where like you didn't have to do a
00:31:25
background check to get a mortgage
00:31:26
that's what happened in Venture they
00:31:27
just gave these I saw it firsthand
00:31:29
willy-nilly I begged Founders to not
00:31:31
take them and I only won that discussion
00:31:35
sacks one out of five times because
00:31:36
Founders are like money we're having
00:31:38
this debate but there's no indication
00:31:40
and there were no losses in this
00:31:42
portfolio to date that showed that
00:31:43
Venture that's underperforming we're
00:31:44
we're saying
00:31:46
past performance is no guarantee of
00:31:49
future performance exactly because it's
00:31:51
obvious to us on this podcast you guys
00:31:53
are arguing about Venture debt when the
00:31:55
real loss that happened at svb no we
00:31:57
understand that they bought a bunch of
00:31:59
treasuries and that was rates went from
00:32:01
two percent to five percent let me know
00:32:03
there's two things going on here okay
00:32:05
Freebird When I See Your Chart and you
00:32:07
talk about laddering this and laddering
00:32:08
that and X percent and all this kind of
00:32:10
stuff I think about the smartest guys in
00:32:12
the room okay this is long-term capital
00:32:14
low management this is Enron this is the
00:32:17
2008 bank failure they think they can
00:32:19
basically do Financial engineering to
00:32:21
make this work you know why it doesn't
00:32:22
work is because number one they're not
00:32:24
in fully liquid assets number two
00:32:26
they're not marketing to Market every
00:32:27
day if you're a deposit Bank you should
00:32:30
be required to keep all of your assets
00:32:32
in fully liquid Securities that you mark
00:32:35
to Market every day it's that simple and
00:32:38
what do they do they put it in 10-year
00:32:41
duration mortgage we need to explain
00:32:44
hold on where the value got devastated
00:32:46
with the rise of interest rates they
00:32:47
didn't have to mark that to Market and
00:32:49
second they put 10 of their portfolio in
00:32:52
basically loans to creditless startups
00:32:55
so when there is a run on the bank you
00:32:59
have a what like roughly 30 gap between
00:33:02
deposits and their actual the value of
00:33:06
their portfolio yeah and and listen that
00:33:08
shouldn't be allowed and and the reason
00:33:10
it's allowed is frankly I think
00:33:11
Regulators are completely asleep at the
00:33:12
wheel where's Powell where's Yellen two
00:33:15
days ago two days ago Powell was
00:33:18
testifying in front of the Banking
00:33:19
Committee and they asked him do you see
00:33:21
any systemic risks in the banking system
00:33:23
because of the rapid rise in interest
00:33:24
rates he said no no systemic risk tax is
00:33:27
right I agree that this is the rise in
00:33:30
interest rates is the key driver here it
00:33:32
drove down Venture investing it drove
00:33:34
down valuations and it's driving down
00:33:37
the value of long-terrated bond
00:33:38
portfolios which by the way is the
00:33:40
Mainstay and the standard of how a lot
00:33:41
of these businesses invest and operate
00:33:43
and it's called distress and stress on
00:33:45
the system my biggest concern is the
00:33:47
contagion effect that arises next if you
00:33:49
go in and you continue to assume
00:33:51
interest rates climb and everyone's
00:33:52
holding on to these bonds and they're
00:33:53
getting written down meanwhile you owe
00:33:55
people all this money in cash and the
00:33:56
other thing that's happening if you hold
00:33:57
cash today you're likely want a higher
00:34:00
interest rate to compete with treasuries
00:34:01
because you can invest in treasuries
00:34:03
today and make sure for a second here I
00:34:05
just want to make sure that the audience
00:34:06
understands and Yellen put out a
00:34:07
statement today Jackal just to finish
00:34:09
the the thought that they're they're
00:34:10
monitoring the situation yes she's
00:34:13
sitting there like a bump on log I mean
00:34:15
it's ridiculous they need to be out
00:34:17
front they don't understand like that
00:34:19
this is a cascading situation
00:34:22
either this weekend either this weekend
00:34:25
they place svb in the hands of a JP
00:34:28
Morgan they do basically
00:34:31
they either do that this weekend or this
00:34:34
thing keeps cascading next week and look
00:34:37
I could be wrong maybe they're working
00:34:38
on it right now behind the scenes if
00:34:40
they are kudos to them they'll have an
00:34:41
announcement before the Market opens on
00:34:43
Monday but if they're not and yellen's
00:34:45
just like we're monitoring the situation
00:34:47
while three days ago she was in Ukraine
00:34:49
this is incompetence at work all right
00:34:52
hold on we'll figure out a way for you
00:34:54
to dump this into January 6 next
00:34:57
he connected Silicon Valley Bank to
00:34:59
Ukraine it was yeah exactly it's
00:35:00
beautiful the piece here that's
00:35:02
important treasury doing in Ukraine I
00:35:04
mean seriously take it easy take it easy
00:35:06
here's what happened just so people
00:35:09
understand
00:35:10
U.S treasuries were at 102 you get like
00:35:13
a two percent a year they bought a bunch
00:35:15
of those that was actually when you
00:35:17
think about it you would say that's a
00:35:20
safe bet the problem is those are locked
00:35:22
up for 10 years and nobody anticipated
00:35:24
on the Silicon Valley Bank team that the
00:35:27
rate hike would happen so quickly so
00:35:29
violently remember we saw the 25 25 50
00:35:31
50 75 75 all those increases now what
00:35:35
happens to a two percent U.S treasury
00:35:38
when the interest rate goes up is they
00:35:41
get devalued they're not worth as much
00:35:42
so if you did need to sell them you
00:35:44
would have to sell them at a discount if
00:35:46
you held them to maturity you would get
00:35:47
that complete return and what happened
00:35:50
here is they needed to sell these
00:35:52
early and they sold them early and they
00:35:54
took a massive loss billions of dollars
00:35:56
and that's what lit diffused that's the
00:35:58
slide I showed like the price I just
00:35:59
want to make sure the audience
00:36:00
understands that if they had sold these
00:36:02
earlier or if they hadn't bought but
00:36:04
hold on hold on wait a month now why why
00:36:07
in that meeting did they have to decide
00:36:10
to emergency sell it's because
00:36:13
VCS stopped giving startups money so
00:36:16
startups couldn't deposit more money
00:36:18
into the bank but they kept spending at
00:36:21
the same rate that they were spending
00:36:22
which means that the deposits went down
00:36:24
yeah in the last 18 months not enough
00:36:27
folks read the memo
00:36:29
yes and by the way the tragedy of that
00:36:32
is let's just say that you did get the
00:36:34
memo and you did make the hard Cuts
00:36:36
right now then let's say you're working
00:36:39
on something and you can fill in the
00:36:41
blank on the thing that you care about
00:36:42
okay so for the listeners let's say it's
00:36:43
climate change let's say it's breast
00:36:45
cancer research whatever it is
00:36:46
this had nothing to do with you four
00:36:49
days ago
00:36:50
you had your money in the bank you did
00:36:52
everything you needed to do to go and
00:36:53
you know figure out product Market fit
00:36:55
you know try to get to Market try to
00:36:57
sell your product and all of a sudden
00:36:59
because of some other set of folks and
00:37:02
actors who couldn't get their act
00:37:04
together
00:37:06
now you're on the precipice of
00:37:08
bankruptcy in 36 48 hours that's crazy
00:37:11
to me this is the challenge Saks I think
00:37:13
you could speak to this as well is we
00:37:15
did all this portfolio management over
00:37:17
the last year these were the troubled
00:37:18
companies and then yet the company is a
00:37:21
large person who did the right thing
00:37:22
they had a big war chest and they had uh
00:37:26
set the burn at the right pace and now
00:37:28
they the other portion of our portfolio
00:37:31
that had big war chests they're now at
00:37:33
risk so if you're a capital allocator
00:37:35
right now you're looking at a group of
00:37:37
companies that you tried your best to
00:37:38
save and their and they're angled and
00:37:40
they're wounded and now the strong ones
00:37:42
are wounded too this is cataclysmic for
00:37:45
Silicon Valley if this does not get
00:37:47
stopped this weekend not only and I I
00:37:50
don't want to be hysterical you're right
00:37:52
this is a meteor hitting the dinosaurs
00:37:54
extension level event you're right Jake
00:37:55
how listen we have portfolio companies
00:37:58
that had tens or you know millions or
00:38:02
more in yes Silicon Valley Bank and
00:38:05
their account showed that their money
00:38:07
was in the safest money market funds
00:38:09
money market funds with a publicly
00:38:11
traded ticker symbol that were managed
00:38:13
by BlackRock or Morgan Stanley okay
00:38:16
that's what their accounts showed them
00:38:18
they had and then they're told all of a
00:38:20
sudden no you're only protected up to
00:38:22
250 000 everything above that that your
00:38:25
your money market fund is just an asset
00:38:28
of svb which is in receivership you get
00:38:30
a certificate yeah and you get a
00:38:32
certificate do you see this announcement
00:38:33
by the way regulator made things worse
00:38:36
the California Regulators stepped in and
00:38:38
they froze everything so our companies
00:38:40
were in the process we have companies
00:38:42
that submitted a wire Yesterday by the
00:38:44
way we spent all day yesterday on the
00:38:46
phone with our portfolio companies
00:38:47
trying to get them out we had wire
00:38:49
requests that went in before the
00:38:51
deadline and for some reason we're in a
00:38:52
queue they didn't get through and they
00:38:54
didn't get out they didn't get through
00:38:55
and then the California regulator steps
00:38:58
in this morning and freezes everything
00:39:00
and what did they announce they said oh
00:39:01
you're good you're good for your insured
00:39:03
amounts how much is that 250 000 for
00:39:06
your uninsured amounts which is
00:39:07
everything above 250 you're going to get
00:39:09
a certificate a certificate what does
00:39:11
that mean that means you're a creditor
00:39:13
in bankruptcy so the mutual fund that
00:39:16
you thought you owned was actually not
00:39:18
hypothecated in your name it was in
00:39:21
svb's name at BlackRock and so our
00:39:23
companies have been calling BlackRock
00:39:25
and calling Morgan Stanley saying hey do
00:39:27
you have my money market fund and
00:39:29
they're like no sorry that's svb so this
00:39:31
is the crazy they're sitting in a in a
00:39:33
creditor line in bankruptcy we got to
00:39:35
explain this these were called sweep
00:39:37
accounts so what Silicon Valley Bank did
00:39:39
with uh some of these large portfolio
00:39:41
holders let's say Saks and a bunch of
00:39:43
other VCS gave you 30 million bucks
00:39:46
yes and they would they took your money
00:39:48
and they said you know what just to be
00:39:50
safe we're gonna take your money we'll
00:39:52
automatically sweep it and distribute it
00:39:54
across two other accounts so we got this
00:39:56
BlackRock over here for you great we got
00:39:57
this Morgan Stanley over here great
00:39:59
whatever it is
00:40:00
you could only get to those through the
00:40:03
Silicon Valley Bank interface and so it
00:40:06
was supposed to protect you but there's
00:40:08
no recourse it seems those are frozen
00:40:10
too so the only thing you can do that's
00:40:12
logical and I had a mentor 30 years ago
00:40:14
when I had the magazine and we started
00:40:16
hitting millions of dollars in revenue
00:40:17
and he said I said how much money we
00:40:19
have in the bank he's like which bank
00:40:20
account and he had four bank accounts
00:40:22
and he would load balance them and he
00:40:23
did it every Friday God bless Elliott
00:40:26
cook he did it every Friday for me and
00:40:28
I've always done that I've always had
00:40:29
multiple bank accounts and load balanced
00:40:31
them but in this case Silicon Valley
00:40:32
Bank did it through one interface I have
00:40:35
multiple startups today who did this
00:40:37
exact thing sex
00:40:39
and they they couldn't even log into
00:40:40
Silicon Valley bank today to even see
00:40:42
where they're at I mean I think
00:40:43
everything got Frozen and the California
00:40:46
regulator froze them and they brought in
00:40:47
the FDIC so there's a couple problems
00:40:49
now with the working out of this this is
00:40:51
basically a bankruptcy process
00:40:52
receivership process it's that we've got
00:40:54
all these companies and you make payroll
00:40:55
in the next few weeks right and so these
00:40:58
processes don't work at startup time if
00:41:01
you could just figure out like over the
00:41:02
weekend okay svb lost 30 cents on the
00:41:06
dollar and everyone's just gonna be
00:41:07
prorated you're gonna get 70 cents in
00:41:09
the dollar and then you get your money
00:41:10
on Monday
00:41:11
it would be a hit to the Starbucks
00:41:13
ecosystem but people would recover and
00:41:15
move on but the fact the matter is it's
00:41:17
not going to be on Monday it could take
00:41:18
weeks or months to figure out how many
00:41:20
cents on the dollar you have are they
00:41:22
limited Silicon Valley Bank are they
00:41:24
selling the gas is
00:41:26
FDIC is going to liquidate everything
00:41:28
well you have two paths here path number
00:41:30
one is you if you actually try to sell
00:41:32
these assets but the problem is who do
00:41:34
you think the buyer is the buyer are the
00:41:37
sharpest Sharps on Wall Street who will
00:41:41
purposefully under bid these assets
00:41:44
and so that then takes you to path two
00:41:46
which is then the only other real
00:41:48
solution is for the FED to Warehouse
00:41:50
them and guarantee them and that's an
00:41:53
equivalent version of what they had to
00:41:54
do during the great financial crisis
00:41:56
which it was this thing called tarp
00:41:58
which is the troubled asset relief plan
00:41:59
which was just a backstop and a
00:42:02
mechanism so that these at the time
00:42:04
those toxic assets which were a bunch of
00:42:06
mortgage-backed loans could be cleared
00:42:09
through the system over time which
00:42:10
effectively meant that the FED basically
00:42:12
warehoused that risk so I think what we
00:42:15
need to see now is is sax it could be 50
00:42:18
cents on the dollar it could be 60 cents
00:42:20
if you want immediate liquidity you know
00:42:23
a friend in our group chat was
00:42:24
mentioning that there was one claim a
00:42:27
company that had a hundred million
00:42:28
dollars inside of svb
00:42:31
was offered 60 cents on the dollar today
00:42:34
for that claim
00:42:35
now the third party from a third party
00:42:39
who said I will take you I will give you
00:42:41
60 million today in return for that
00:42:43
certificate plus the 250 000 that says
00:42:46
Euro to 100 million
00:42:48
because they're willing to take the risk
00:42:50
that they'll get you know 80 million
00:42:53
right and then they take the difference
00:42:54
now the point is that if you're TR if
00:42:56
you're seeing today that kind of a
00:42:57
discount that's not a good sign I think
00:42:59
and it does speak to the fact that
00:43:01
Regulators have to step in now here's
00:43:03
the other reason why I think it's
00:43:04
important
00:43:05
I think what regulators and I think the
00:43:07
people and there's a lot of them in
00:43:09
Washington that listen to this what this
00:43:11
does is it torches
00:43:13
years of U.S innovation
00:43:16
and you should not let that happen there
00:43:18
are companies working on really
00:43:21
important things for the United States
00:43:24
and for the rest of the world
00:43:26
and if it's if if the company fails
00:43:29
because they can't make the product work
00:43:31
so be it we take that risk every day if
00:43:34
the company fails because customers
00:43:35
don't want to buy it so be it if the
00:43:37
product fails because a better product
00:43:39
comes out so be it but it shouldn't fail
00:43:43
because we can't get money yeah because
00:43:46
you forgot your paper
00:43:48
that should not be why we torched
00:43:51
hundreds of startups in what they're
00:43:52
working on this is maybe thousands yeah
00:43:54
this is a this would be a lost decade a
00:43:56
lost decade for so first of all do you
00:43:59
guys want to talk about second and third
00:44:00
or third order effects
00:44:02
because I think it's important to
00:44:04
highlight why it's not just about a
00:44:07
couple hundred Tech Bros in Silicon
00:44:09
Valley not being able to make payroll
00:44:10
but there's important Downstream
00:44:12
consequences for example there were
00:44:14
payment processing companies in Silicon
00:44:16
Valley that use Silicon Valley Bank to
00:44:19
store their capital and to to move money
00:44:21
around there are payroll companies that
00:44:24
do payroll for many businesses not just
00:44:26
Tech businesses but many businesses in
00:44:28
different parts of the economy that
00:44:30
store their cash at Silicon Valley Bank
00:44:32
and process money through Silicon Valley
00:44:34
Bank today was announced that Rippling
00:44:35
one of those companies could not hit
00:44:37
their payroll cycle today because they
00:44:39
had money tied up at Silicon Valley Bank
00:44:41
fortunately they announced that they
00:44:42
also have money at JP Morgan and other
00:44:44
places so they will be able to kind of
00:44:46
get the the payroll processed early next
00:44:48
week and get everyone back on track but
00:44:51
this is hundreds and potentially
00:44:52
thousands of companies that use their
00:44:54
payroll software to to process and pay
00:44:58
their employees and then there's all the
00:45:00
payment processors we don't know how
00:45:01
many of them have what level of exposure
00:45:03
and a lot of infrastructure companies
00:45:05
that move money in and through Silicon
00:45:07
Valley Bank and so if they start to go
00:45:09
down and then payroll doesn't hit the
00:45:11
air conditioning company that's using
00:45:13
the the tool and some you know in
00:45:15
Arizona and then you know the the stripe
00:45:18
service isn't able to process e-commerce
00:45:20
payments for a small business owner that
00:45:21
runs a website you can start to see how
00:45:23
there can be very significant trickling
00:45:25
effects and more important like we saw
00:45:27
in 08 perhaps to a different degree but
00:45:29
still a significant concern is the the
00:45:32
the contagion of panic where people say
00:45:34
if there isn't reliability in the things
00:45:36
that I thought were reliable before
00:45:39
I start to have real questions in the
00:45:41
soundness of the system overall and
00:45:42
that's why it's so important that Sac
00:45:44
said to step in Shore up the problem
00:45:46
this weekend I don't think it's about
00:45:48
bidding 50 cents or 60 cents on the
00:45:49
dollar every depositor needs to get paid
00:45:52
100 of their money and that cash needs
00:45:54
to be made available to them by early
00:45:56
next week and if that money is not
00:45:57
available to them if within the first 48
00:46:00
or 72 hours of the end of this weekend
00:46:02
then we are going to have a real crisis
00:46:04
on our hands because then you will see a
00:46:06
lot of people trying to move money away
00:46:07
from any institution that stores their
00:46:09
money in some sort of security that's
00:46:11
not 100 liquid like cash and that's
00:46:13
going to cost that's gonna cause a
00:46:16
massive run and so some what has to
00:46:18
happen the only way this can happen is
00:46:20
if someone takes over Silicon Valley
00:46:22
Bank this weekend and that the federal
00:46:25
government unfortunately as much as I
00:46:27
hate to say it because I absolutely hate
00:46:29
the federal government having a role in
00:46:30
this stuff has to say we will guarantee
00:46:33
100 of those deposits to the company
00:46:35
that takes over the bank that takes over
00:46:37
this portfolio and says let the port
00:46:39
folio of assets run its lifetime see
00:46:41
what you get paid whatever the Delta is
00:46:43
we'll make it up to you but we need to
00:46:44
make sure that there's cash here today
00:46:46
for all of these depositors if you had
00:46:48
something you wanted to say if not I
00:46:50
have something I want to say yeah the
00:46:52
other big thing that
00:46:53
svb was was an on-ramp for a lot of
00:46:58
investors including many U.S investors
00:47:00
to get money into China and without
00:47:03
commenting on whether that's right wrong
00:47:04
or indifferent the point is that China
00:47:06
has a very complicated Capital Market
00:47:08
structure which requires you to
00:47:11
basically use an offshore Bank I.E
00:47:13
non-domesticated Chinese bank and to be
00:47:16
able to get those dollars and so what
00:47:17
would happen is Chinese startups that
00:47:19
raise money would raise money from U.S
00:47:21
investors and abroad using these bank
00:47:23
accounts and so this issue now doesn't
00:47:26
just touch the United States Innovation
00:47:28
economy it also touches China's
00:47:29
Innovation economy which you know
00:47:31
creates actually a complicated set of
00:47:34
trade-offs for the U.S government and
00:47:35
treasury as they think about what they
00:47:37
want to do in this heightening great
00:47:38
power conflict that sax talked about
00:47:40
last week and I want to just make a very
00:47:42
important nuanced Point here I know
00:47:43
there is no bank that the public
00:47:46
specifically you know people who don't
00:47:49
want to support you know rich people
00:47:51
already like big Tech or billionaires
00:47:52
the the reason to backstop this with
00:47:56
public money is because we have a road
00:47:58
map for this people don't know this uh
00:48:01
widely but tarp was just over 400
00:48:03
billion dollars it actually returned a
00:48:06
15 billion dollar profit to the American
00:48:08
people this would require maybe 25 or 50
00:48:12
billion dollars ten percent maybe five
00:48:15
ten percent of the totality of tarp
00:48:17
would be enough to cover What's
00:48:20
Happening Here with Silicon Valley Bank
00:48:21
and work this out that's 50 billion
00:48:23
dollars for the people listening in
00:48:24
Washington or for the people who will
00:48:25
say hey why are we you know bailing out
00:48:28
big Tech you're bailing out small Tech
00:48:31
as Tremont said you're bailing out
00:48:33
Innovation on breast cancer on you know
00:48:36
uh renewable energy but most importantly
00:48:38
this can easily be structured so that
00:48:41
the American people return twenty
00:48:43
percent thirty percent maybe even double
00:48:45
their money you could structure this so
00:48:48
it is senior to everything else and is
00:48:50
exactly what the government is supposed
00:48:52
to do when there is a crisis that
00:48:54
doesn't mean the people who run Silicon
00:48:56
Valley Bank should have their Equity
00:48:57
worth a lot they should get wiped out
00:48:59
they didn't do their job properly the
00:49:02
equity the people who ran the management
00:49:04
team there if they don't get anything
00:49:05
that's okay they understand that but the
00:49:08
people who had their money at deposit to
00:49:10
pay the salaries and to pay for this
00:49:12
Innovation it is unconscionable that we
00:49:14
wouldn't backstop it and the I guarantee
00:49:17
you the US government could get some
00:49:19
warrants on those companies or
00:49:22
warrants and ownership in Silicon Valley
00:49:24
bank and make at least 50 cents on the
00:49:26
dollar maybe even double and that's the
00:49:29
way this bailout should be structured
00:49:30
and it has to be done this weekend you
00:49:33
bring up a great idea I think I think if
00:49:35
the U.S
00:49:36
balance sheet
00:49:38
does step in over the weekend I'm going
00:49:41
to say on behalf of the U.S taxpayer you
00:49:44
must
00:49:45
get a piece of these companies
00:49:47
and the reason why is that that's the
00:49:50
way to make it fair for everybody that's
00:49:52
not in Tech who's on the outside looking
00:49:54
in and if you look inside of Twitter as
00:49:57
an example there's a lot of negative
00:50:00
sentiment around even the idea of a
00:50:02
bailout happening and it's for this
00:50:04
exact reason because I think people
00:50:06
believe
00:50:08
that it will benefit just a small sliver
00:50:10
of people right so to step in and to
00:50:13
save these companies Jason would still
00:50:14
be you know really only helping
00:50:17
say several hundred thousand or several
00:50:19
you know and and the thing that that
00:50:21
gets wrong in my opinion is that
00:50:23
these companies if they're if they're
00:50:25
allowed to germinate
00:50:27
should be building things that actually
00:50:29
help everybody
00:50:33
including and so if you can view it that
00:50:35
way and if you can view a share of it
00:50:37
now obviously look we're very we have a
00:50:39
very deep incentive for that to happen
00:50:42
but I think it's important to present
00:50:44
the other side of it and the other side
00:50:45
would say this industry
00:50:48
has a little bit run amok
00:50:51
it's not well regulated
00:50:54
you know you guys push the boundaries
00:50:56
and get away with a lot
00:50:58
and there's a lot of consequences you're
00:51:01
saying but no I'm saying the tech
00:51:02
industry no no I'm saying the the
00:51:03
average person that's on the outside
00:51:05
looking into the tech industry can make
00:51:07
that claim and now they would be
00:51:09
pointing at Big Tech but the problem is
00:51:11
we all get swept in together under the
00:51:13
same thing and then what they would say
00:51:15
is I don't think it's right to to to
00:51:17
step in and I think that you have to
00:51:19
give the U.S taxpayer an incentive if
00:51:21
they are going to do it and I think the
00:51:23
the incentive should be that they should
00:51:24
just get a share in all this Innovation
00:51:26
if they take over the Venture debt
00:51:28
portfolio then they would have that
00:51:30
right the Venture debt portfolio comes
00:51:32
with warrants so they would have that I
00:51:33
think there's a big risk here that
00:51:35
precisely because Tech is unpopular and
00:51:38
people I think are confusing big Tech
00:51:40
with small Tech that the government
00:51:42
doesn't step in here and the The
00:51:45
Dominoes start falling and we start
00:51:47
getting all the systemic risks playing
00:51:49
out remember the beneficiaries here
00:51:51
aren't just these the sort of current
00:51:53
generation of tech companies and
00:51:55
everyone they do business with it's also
00:51:58
wherever the contagion goes next and
00:52:01
we're already seeing I think multiple
00:52:03
Regional Banks Under Pressure they're
00:52:05
stocked down people asking questions we
00:52:07
know people in our chat groups who are
00:52:10
wiring money out as fast as they can
00:52:12
just because why take a chance
00:52:15
you know that and by the way you have to
00:52:17
understand the game theory around these
00:52:19
Bank runs people describe them as a
00:52:21
panic but that implies that it's
00:52:23
irrational it's not irrational it's
00:52:25
actually rational and what this what
00:52:28
this is really highlighted is that what
00:52:30
you said earlier at the beginning sacks
00:52:31
which is that the regulatory oversight
00:52:34
is actually extremely pristine at the
00:52:38
biggest banks
00:52:39
but the smaller and smaller you get
00:52:41
there's a level of opacity and well your
00:52:45
lack of regulatory follow through that
00:52:46
allows this stuff to build so the Wall
00:52:48
Street Journal right now is reporting
00:52:49
that U.S banks have 620 billion of
00:52:52
unrealized losses just on treasuries I
00:52:54
don't know what the unrealized losses
00:52:56
are on these long-dated mortgage-backed
00:52:57
Securities like I said I have no idea
00:53:00
why Regulators allow Banks to hold these
00:53:03
uh bonds at their Book value instead of
00:53:06
marking them to Market every day that's
00:53:08
crazy and on the equity side you have to
00:53:10
do it Buffett talks about this all the
00:53:12
time the equity side you have to mark to
00:53:14
market the equity portfolio at the end
00:53:16
of every quarter right and he sees these
00:53:18
wild swings and he complains about it
00:53:20
but it's the right thing to do for
00:53:22
exactly this reason right so so think
00:53:23
about the game theory here okay the
00:53:25
banking system the banking Regulators
00:53:27
have created this opacity in the system
00:53:30
you've got all these assets that are
00:53:32
being held by these banks that are not
00:53:33
marked to Market so nobody really knows
00:53:35
what the true level of exposure is so
00:53:38
what's the response why take a chance
00:53:40
just move your money to JP Morgan so I
00:53:42
think there's a chance that if the if
00:53:43
the federal government doesn't step in
00:53:44
here the whole Regional banking system
00:53:46
can be decimated and you're just gonna
00:53:48
be left with four too big to fail Banks
00:53:50
how's that benefit anybody that doesn't
00:53:52
benefit the little guy guys there's a
00:53:54
there's a pretty good set of regulatory
00:53:56
disclosures that happen but I do think
00:53:58
that the real question is you know are
00:54:00
the ratios right do they should they
00:54:02
really be allowed to invest in these
00:54:04
types of assets with depositor capital
00:54:06
and if so with what percent of the
00:54:09
deposit or Capital should they be
00:54:10
allowed to do it and maybe you know that
00:54:12
seems to be where the biggest you know
00:54:13
issue is we've come a long way I mean I
00:54:16
just pulled up the statistic it's insane
00:54:18
there were 505 banks that failed in 1921
00:54:22
failures continued to rise in the early
00:54:24
20s and averaged 680 Banks per year
00:54:29
failed between 1923 and 1929. so
00:54:32
obviously you know coming out of 08 uh
00:54:34
there was a lot of controversy around
00:54:36
hey Banks can't make money anymore it's
00:54:37
too restrictive the disclosures and so
00:54:39
on the disclosures are actually quite
00:54:40
good you know you guys can go to these
00:54:42
these sites that regulate the banks you
00:54:44
can go to the SEC site you can get a
00:54:46
very detailed schedule of every asset
00:54:48
held by every one of these Banks it's
00:54:50
good transparency I would argue but
00:54:52
should they be allowed to invest in
00:54:54
Securities that are effectively not
00:54:55
fully liquid that are risky that are
00:54:58
long dated with short data deposits
00:55:00
right it seems It's a fundamental
00:55:02
question about what banks are supposed
00:55:03
to be doing in a world of computers that
00:55:05
can calculate everything the idea that
00:55:07
you can't solve duration matching
00:55:09
doesn't seem like one of those problems
00:55:11
that's intractable in 2023. I mean if
00:55:13
people can make an AI version of the
00:55:15
podcast
00:55:17
they could do that yeah I mean free
00:55:19
burger also like take this I think
00:55:21
Venture that's the most extreme example
00:55:23
how do you mark to Market alone to a
00:55:26
series a startup I mean that just 100
00:55:28
depends on what they're going to raise
00:55:29
the series
00:55:30
believer you can underwrite anything I
00:55:32
think you can under for the right
00:55:33
interest rate for the right premium you
00:55:35
can underwrite Insurance you can
00:55:36
underwrite loans I mean there's a lot of
00:55:37
ways that you could kind of how do you
00:55:39
mark that to Market on a daily basis
00:55:40
you're right no that you cannot you're
00:55:42
you're right absolutely yeah yeah and so
00:55:44
from a reporting perspective how does
00:55:47
that solve the problem you've got
00:55:49
different they've got different tiers of
00:55:50
regulatory Capital guys and so you know
00:55:52
there are rules around what the ratios
00:55:54
need to be and where you need to fall
00:55:55
and so they they bucket the stuff up
00:55:57
differently right if you're a bank and
00:55:59
you want to buy Securities you want to
00:56:01
invest in something that's not liquid
00:56:04
and Mark to Market every day you should
00:56:06
have to package it up in some period of
00:56:08
time and sell it if you want to make a
00:56:10
loan to a you know to a venture-backed
00:56:13
startup package those up and Syndicate
00:56:15
that and sell it as a security and if
00:56:17
you can't do that you probably shouldn't
00:56:19
be investing in the asset class anyway
00:56:20
same thing with like you know mortgage
00:56:22
these mortgages already get packaged up
00:56:24
and sold right so I just doesn't make
00:56:26
sense to me that like customer deposits
00:56:28
that's what we're talking about which
00:56:29
you assume should always be a hundred
00:56:32
percent safe right this is not a source
00:56:34
of capital where anyone's ever expecting
00:56:36
to lose money if you want to use risk
00:56:39
Capital to get some sort of outsized
00:56:41
return go raise that from LPS but to
00:56:44
like take customer deposits and use it
00:56:47
on on risky non-liquid Investments it
00:56:50
makes no sense there's one thing I could
00:56:51
I could just help people frame this
00:56:54
the aggregate amount of dollars in these
00:56:58
bank accounts I would estimate equals 10
00:57:00
percent of the value of the startups
00:57:02
they represent would we all agree on
00:57:04
that it's about 10 of the value of those
00:57:07
startups maybe 20. if how do you work
00:57:10
what how do you how do you calculate it
00:57:11
I don't know well I'm thinking about the
00:57:13
startups who recently did a round of
00:57:14
funding they diluted 10 percent that
00:57:17
represents all of their treasury or half
00:57:19
of their treasury so if that cash for
00:57:22
the startup portion of this equals 10 of
00:57:24
the value of service I can guarantee you
00:57:26
those startups with access to that
00:57:27
Capital again Monday will be able to
00:57:30
outperform the backstop that the
00:57:32
government would provide this sounds
00:57:33
like Enron math to me no okay if you
00:57:37
what are your startups just take any of
00:57:38
your startups they have 30 million you
00:57:40
don't have time listen we don't have
00:57:42
time here for the government to figure
00:57:43
out how to be a partner in or an
00:57:46
investor in all these startups I'm sorry
00:57:48
we don't I'm not saying step in or they
00:57:50
don't if they don't step in you'll have
00:57:52
systemic failure no no but do the math
00:57:54
definitely here of one of the companies
00:57:56
pick one of the companies that has 20
00:57:58
you have a company that has 20 million
00:57:59
there or 30 million there what does that
00:58:01
represent if you were to take their
00:58:03
valuation from last year when they
00:58:04
raised that money cut in half it doesn't
00:58:06
matter it doesn't matter who's the
00:58:07
depository it does not matter it matters
00:58:09
for people to understand how how much
00:58:12
value is going to be lost
00:58:14
and how easily recoverable it is if
00:58:17
these companies are allowed in aggregate
00:58:18
to deploy that Capital that's the point
00:58:21
you're not getting or I'm not explaining
00:58:22
to you properly if allowed to deploy
00:58:24
that it's going to return a multiple
00:58:29
an adventure multiple two three four
00:58:31
five x but if we destroy that money
00:58:33
these companies are going out of
00:58:35
business next month that money is their
00:58:37
money that's their deposit I agree with
00:58:39
you I'm trying to create a framing here
00:58:41
for people to understand exactly how
00:58:43
much value is going to be I think the
00:58:44
better framing is that when you put your
00:58:46
money in a FDIC insured bank and you put
00:58:49
it in a customer deposit that's supposed
00:58:50
to be completely safe that's paying you
00:58:52
a couple of percent interest and that is
00:58:54
reflected even as a money market fund on
00:58:56
your account you do not expect that
00:58:58
money to be turned around by the bank
00:59:01
and put in risk and raise the FDI no
00:59:04
sense raise the FDI Banks should not
00:59:06
work that way okay look I think it's
00:59:08
crazy that you could set up a bank
00:59:09
account okay because you just want to
00:59:11
write checks and you could lose that
00:59:13
money because the bankers decided to
00:59:15
loan it to some startup that's insane or
00:59:18
the bankers decided to buy a 10-year
00:59:19
mortgage-backed security who doesn't
00:59:21
understand interest rate risk that's not
00:59:23
the way the system's supposed to work
00:59:24
and you got all these people on Twitter
00:59:25
pushing back no bailouts or whatever
00:59:27
that's the depositor's money I agree no
00:59:29
bailout for sgb they should lose
00:59:31
everything all those Executives or stock
00:59:33
options are worthless all the
00:59:35
stockholders of that company their
00:59:36
Shares are worthless but the question is
00:59:38
should depositors lose money in these
00:59:40
Banks they just thought they're selling
00:59:42
for a checking account I mean are you
00:59:43
kidding me and if you let that happen
00:59:45
there will be a Cascade here because the
00:59:48
The Logical consequence will be
00:59:51
everybody's going to say put my money in
00:59:52
JPMorgan or Wells Fargo or Bank of
00:59:54
America there'll be four Banks that's it
00:59:56
and all the regional banks are going to
00:59:58
shut down 10
01:00:01
highly paid workers and not just Tech
01:00:03
workers are going to be out of jobs and
01:00:06
they don't have jobs waiting for them at
01:00:07
Amazon or Google to bail them out and
01:00:09
this is the start of a contagion if it
01:00:13
doesn't get started what do they do
01:00:15
wrong they used uh what is considered
01:00:17
one of the most reputable banks in the
01:00:19
world they use the top 20 bank that the
01:00:21
regular said was in compliance so did
01:00:24
they do something wrong or were The
01:00:25
Regulators asleep at the at the wheel
01:00:27
I don't know some way I think it's this
01:00:30
is Biden's fault or
01:00:33
wow it's binary zelinsky's fault what do
01:00:36
you guys think this means for VC
01:00:39
it is a chilling effect I I talked with
01:00:41
some LPS in the last two days in the VC
01:00:43
World I'll give you a couple anecdotes
01:00:46
I have a friend runs a fund he looked at
01:00:49
his portfolio they have 270 million
01:00:52
dollars or sorry 350 million dollars
01:00:54
tied up at Silicon Valley Bank
01:00:56
they need 27 million dollars uh for cash
01:00:59
for the next 30 days so he's called his
01:01:02
LPS and he's trying to get his LPS uh to
01:01:05
front him money to wire money so that he
01:01:07
can front his company's money so they
01:01:10
can actually pay their operating
01:01:11
expenses and cover their payroll and
01:01:13
then I spoke with a couple of LPS in the
01:01:15
last 48 hours
01:01:16
um they have gotten dozens of calls from
01:01:19
various Venture funds everyone is asking
01:01:22
the same question can we do a capital
01:01:23
call can we get money delivered early
01:01:25
can we use that money to support our
01:01:27
companies because their cash is stuck
01:01:29
coming out of this the the the
01:01:31
uncertainty that this creates in the
01:01:33
investment environment
01:01:35
um I think it's going to have a real
01:01:36
chilling effect not just with the GPS
01:01:38
and their you know uh proclivity to sign
01:01:41
term sheets right now and wire new money
01:01:43
over but also with the LPS as they're
01:01:45
making Capital commitments and actually
01:01:47
following through with with capital
01:01:49
commitments that have already been made
01:01:51
um given uh you know where's the capital
01:01:53
actually going to land up that was never
01:01:54
a question mark before it was never in
01:01:56
anything that anyone even considered
01:01:58
that Capital could be disappeared or
01:01:59
locked up or tied up and the fact that
01:02:02
this is adding this unique friction in
01:02:04
the market is the layer on top of an
01:02:07
already distressed and challenged
01:02:09
environment for fundraising for GPS for
01:02:12
LPS and it seems to
01:02:14
um be exactly the icing on the cake we
01:02:16
did not need right now no matter how
01:02:18
this gets resolved
01:02:20
I I think private markets in BC could
01:02:22
seize I think you're going to see people
01:02:24
pull term sheets maybe half as many
01:02:26
fundings are going to occur as people
01:02:28
try to do triage another VC friend of
01:02:30
mine just sent me a text he can't make
01:02:32
payroll next week he's a fund for his VC
01:02:34
fund his VC fund their employees cannot
01:02:37
he cannot pay his employees on Monday
01:02:39
Lord and so
01:02:41
um yes I do think funds could shut down
01:02:43
uh coming out of this it I think that
01:02:46
companies that were call it you know 75
01:02:49
distressed are done for now no one's
01:02:51
going to step in and Bridge them and
01:02:53
fund them uh it's going to accelerate a
01:02:55
lot of shutdowns because people are now
01:02:57
cash is King now cash is king or right
01:03:00
it's like a big shift I think that was
01:03:02
really well said I think you're you're
01:03:03
right about all that Jake how you
01:03:05
tweeted that you think this is going to
01:03:06
cause a 60-day freeze and and deal
01:03:07
making activity I think that's more or
01:03:10
less right you're right because you know
01:03:12
all the VCS out there have to think
01:03:13
about Shoring up their existing
01:03:15
portfolios exactly what if you got
01:03:17
companies that are now in distress that
01:03:18
are perfectly good companies you've got
01:03:20
to focus
01:03:21
you're picking one or two winners you
01:03:24
know and you're going to focus on that
01:03:25
you're going to say you know what the
01:03:26
rest of them could be good but I can't
01:03:27
it's it's going to be a tough decision I
01:03:30
have three open deals right now
01:03:32
um that we're doing I now have to figure
01:03:34
out how to get those deals done and I
01:03:37
have four companies that are in this
01:03:39
payroll situation in a major way so now
01:03:41
I've got capital and I've got to and
01:03:44
we're not personally affected by the
01:03:46
Silicon Valley Bank thing thank God but
01:03:49
now we have to do triage the known
01:03:52
winners in your portfolio that did
01:03:54
nothing wrong
01:03:55
or do you make the next three
01:03:56
Investments or four Investments and I'm
01:03:59
gonna make good on those three
01:04:00
Investments but next month Maybe not
01:04:02
maybe next month I'm taking off and I'm
01:04:05
focusing on the portfolio and I think
01:04:07
that's what's going to happen writ large
01:04:10
we're in triage mode now full on triage
01:04:12
mode
01:04:13
if this doesn't get resolved if they
01:04:15
can't get those what do you think it's
01:04:18
dark I had a meeting three weeks ago
01:04:21
with the US LP
01:04:23
and you know you guys know how
01:04:26
I run this business here but it's
01:04:28
there's there's like a lot of risk
01:04:30
management you know we think about this
01:04:32
stuff a lot
01:04:33
and the message that came back to me was
01:04:36
I don't think risk management is
01:04:38
worthwhile in Venture I didn't
01:04:40
understand where that was coming from
01:04:42
um because if you're investing your
01:04:44
money across a very risky asset class
01:04:47
you have to be always thinking about how
01:04:50
you could lose money
01:04:52
and I think that venture has always
01:04:53
romantically been described as like
01:04:55
buying lottery tickets
01:04:57
and so it doesn't matter if you lose but
01:04:59
when you have that kind of latitude you
01:05:02
just become super complacent and you
01:05:04
don't think about left tail risk you
01:05:06
only think about right tail outcomes and
01:05:09
this is an example of like left tail
01:05:11
risk that came out of nowhere that could
01:05:13
wipe out entire portfolios so you had
01:05:16
you know folks invest into funds
01:05:19
that spent a few years probably 2019
01:05:23
2020 2021 really misallocating money
01:05:27
right writing ginormous checks into
01:05:30
companies at valuations that didn't make
01:05:32
sense who then went and burned it
01:05:34
and now what little cash they had left
01:05:37
may also be gone which means those
01:05:38
valuations are even more impaired which
01:05:41
means that the LPS that gave them the
01:05:42
money are even more underwater and that
01:05:45
cycle I think is really terrible that'll
01:05:47
take a so maybe this is the wake-up call
01:05:49
where now risk management is actually in
01:05:52
Vogue and cool and it's important to
01:05:54
know this stuff I don't know we have
01:05:55
breaking news uh while we're taping this
01:05:58
the Department of Financial Protection
01:05:59
and innovation of the State of
01:06:00
California has published findings on svb
01:06:03
we'll pull it up on the screen for the
01:06:05
besties to respond to on March 8 2023
01:06:07
the bank announced a loss of
01:06:09
approximately 1.8 billion from the sale
01:06:11
of Investments we've talked about that
01:06:13
already
01:06:14
on March 8th 2023 the bank's holding
01:06:17
company announced it was conducting a
01:06:18
capital raise despite the bank being in
01:06:20
sound financial condition prior to March
01:06:22
9th 2023 investors and depositors
01:06:24
reacted
01:06:25
by initiating withdrawals of 42 billion
01:06:28
dollars in deposits so that would be
01:06:31
over 20 I think of the of the total
01:06:33
deposits from the bank on March 9th or
01:06:36
even more 2023 causing a run on the bank
01:06:39
as of the close of business on March 9th
01:06:41
the bank had a negative cash balance of
01:06:43
approximately 958 million despite
01:06:45
attempts from the bank with the
01:06:47
assistance of regulators to transfer
01:06:49
collateral from various sources to bank
01:06:51
it did not meet its cash letter with the
01:06:53
Federal Reserve
01:06:55
the precipitous deposit withdrawal has
01:06:57
caused the bank to be incapable of
01:06:58
paying its obligations as they come due
01:06:59
right and the bank is now inside the
01:07:01
beginning 42 billion dollars
01:07:04
uh is 25 of total deposits but 42
01:07:08
billion is greater than the 14 billion
01:07:11
of cash they had on hand and the 26
01:07:13
billion of liquid Securities that they
01:07:15
had so you add those two up together
01:07:17
you're at 40 billion and then to get
01:07:19
more cash they're gonna have to sell a
01:07:21
bunch of loan portfolios and selling
01:07:23
loan portfolios you got to package them
01:07:25
up it takes weeks or months to do that
01:07:26
and they're going to be sold to
01:07:27
distressed prices so this is where a
01:07:29
classic run-on-the-bank problem actually
01:07:31
causes a decline in the asset value of
01:07:34
the business uh and the assets that they
01:07:37
own because if you have to go and turn
01:07:38
around and sell those assets in the
01:07:39
market super fast you're going to take a
01:07:41
huge loss you guys remember that movie
01:07:42
Margin Call with Demi Moore and um
01:07:46
what's his name and they make this plan
01:07:48
to go and Mark and they're like
01:07:50
Swayze no not Patrick Swayze uh no the
01:07:53
Jeremy Irons Jeremy Irons he plays the
01:07:55
best character he's like the chairman of
01:07:56
the bank and they're like we have to
01:07:58
sell all this but we're gonna take a
01:07:59
huge loss and they make this big trade
01:08:02
that happens at the beginning of the
01:08:03
morning but that's what happens when you
01:08:04
have to sell a lot of assets very fast
01:08:06
as you guys know you end up selling them
01:08:08
at a discount so the rate at which
01:08:10
deposits are coming out of the bank can
01:08:12
actually impact the asset value held at
01:08:15
the bank and that's fundamentally what a
01:08:16
run on the bank causes and the irony is
01:08:19
as they point out the company was
01:08:21
fundamentally financially sound they had
01:08:22
enough assets marked at the current
01:08:24
market value or whatever to meet all of
01:08:26
their obligations but the rate at which
01:08:27
assets started to get pulled out is what
01:08:30
drove those that drove the company the
01:08:32
bank into distress and if you think
01:08:34
about it it it's it's an ironic point of
01:08:37
view on Silicon Valley because Silicon
01:08:40
Valley operates with such we all joke
01:08:42
about what a herd mentality uh and and
01:08:44
what an incredibly tied and and deep
01:08:47
Network Silicon Valley is we all got
01:08:49
dozens and hundreds of texts and
01:08:51
messages from friends colleagues
01:08:53
co-workers yesterday all relaying the
01:08:56
news about what they were going to do
01:08:57
and as soon as that happened that's how
01:08:59
tightly intertwined Silicon Valley is
01:09:01
within 24 hours every CEO and every
01:09:05
venture capitalist was on a chat group
01:09:07
or on a message group with other people
01:09:09
in the valley and once there was any
01:09:12
indication of panic the entire Market
01:09:14
flipped and you guys saw this we all saw
01:09:16
this within 24 hours the beginning of a
01:09:17
day yesterday it was like they'll get
01:09:19
through it it'll be fine they just took
01:09:20
a little mark down on their portfolio
01:09:22
they got plenty of assets but then it's
01:09:24
like well Founders fund said we should
01:09:26
probably get out okay well Founders fun
01:09:27
is getting out maybe we should get out
01:09:28
before everyone else does well we got to
01:09:30
get up before everyone else does let's
01:09:31
do it now I'm getting out right now I'm
01:09:33
telling my best friend I'm getting out
01:09:34
right now and then everyone tells their
01:09:35
second best friend and then all of a
01:09:36
sudden the whole valley knows it and
01:09:38
then the whole valley is running for the
01:09:39
door and this is a really interesting
01:09:40
and unique scenario it's not like the
01:09:43
classic consumer run on the bank
01:09:45
where you're trying to pull cash out
01:09:47
it's the Silicon Valley 24-hour cycle of
01:09:50
we all got to do it because everyone
01:09:51
else is doing like what we're seeing
01:09:52
with investing Cycles in Silicon Valley
01:09:55
where everyone chases and these bubbles
01:09:56
emerge the reverse I think happened
01:09:58
yesterday where the herd mentality drove
01:10:00
us all to rush for the door as quickly
01:10:02
as possible you know I'm not sure that
01:10:04
that that might be why it's not as much
01:10:06
of a contagion you know as you might
01:10:09
expect elsewhere because places other
01:10:11
kind of regional Banks don't have the
01:10:13
same sort of intertwinedness as we saw
01:10:15
with all the depositors here in Silicon
01:10:17
Valley Bank I don't know I don't know
01:10:20
this is where um I think that describing
01:10:23
what happens as a panic kind of misses
01:10:25
the fundamental rationality of the
01:10:27
response so both are true by the way
01:10:29
yeah so it does seem like a panic but
01:10:32
that doesn't mean that each individual
01:10:33
decision Maker's motivation is panic I
01:10:36
actually think it's a rational upside
01:10:37
downside calculation I mean this is all
01:10:40
Game Theory so if you think that there's
01:10:43
a risk of other people pulling out their
01:10:45
assets and in fact you're hearing that
01:10:47
they are you don't want to wait and be
01:10:50
the last one to leave and so you think
01:10:52
about it there's no penalty or downside
01:10:54
to taking your money out right so the
01:10:58
the downside of taking your funds out
01:11:00
immediately is zero and the upside is
01:11:02
you might save 100 of your money so it's
01:11:04
it's a rational decision when confidence
01:11:07
is lost to take out your money and in
01:11:10
fact it was rational there were a bunch
01:11:12
of VCS not a lot but some of them
01:11:14
between yesterday that you know sgb has
01:11:16
been a great player in the ecosystem for
01:11:18
30 years we should show our support
01:11:19
right now by not taking our money out
01:11:22
well guess what what happened to them
01:11:24
they got stuck and now their money is
01:11:26
frozen and they're not sure whether they
01:11:28
get you know Pennies on the dollar or
01:11:30
not whereas the people who rushed for
01:11:31
the exits yesterday got their money out
01:11:33
prisoner's dilemma it is a prisoner's
01:11:36
dilemma but here's the thing it's it's
01:11:38
not even about anymore whether the
01:11:41
institution is solvent it's about
01:11:44
whether there's confidence and I think
01:11:46
there is a risk now of contagion
01:11:48
spreading to these other Regional Banks
01:11:50
because people aren't sure and there's
01:11:52
already huge cash outflows leaving these
01:11:54
other Banks because why take a chance
01:11:56
the game theory of it is move your money
01:11:58
out until this is over and if you're
01:12:01
okay with you know moving it back in a
01:12:04
few weeks if it turns out not to be
01:12:05
around the bank that's fine so a lot of
01:12:07
this can be self-fulfilling you have to
01:12:09
remember that runs on the bank freeway
01:12:11
you said this a hundred years ago were
01:12:13
extremely common every decade there
01:12:15
would be a giant Financial panic and
01:12:17
there'd be a run on the bank run on many
01:12:19
banks and the only way that the federal
01:12:21
government stopped it was by introducing
01:12:23
FDIC and they said they said to
01:12:25
depositors your money is safe and at
01:12:27
that time 250 000 was enough the problem
01:12:29
we have is that with these business
01:12:31
Banks 250 000 is not enough
01:12:34
so all of a sudden there's going to be a
01:12:35
crisis of confidence if you think a
01:12:38
business bank can go under again you're
01:12:40
just going to leave all these Regional
01:12:41
Banks you're going to go to the top four
01:12:43
that's going to be it so I I think that
01:12:46
that the situation right now is really
01:12:48
Dynamic and If the Fed does nothing and
01:12:53
just says up you know these uh
01:12:55
depositors should have known better
01:12:57
you know the losses on them then I think
01:13:00
the rational reaction for depositors at
01:13:03
all these other Banks would be just to
01:13:05
leave
01:13:05
because I don't think depositors are in
01:13:07
a good position to assess the uh
01:13:11
liquidity and credit worthiness of a
01:13:13
bank I just don't think they are I think
01:13:15
stockholders are they're the people who
01:13:17
should lose all their money if the bank
01:13:18
goes under but not depositors any advice
01:13:20
or takeaways for Founders and capital
01:13:22
allocators going forward obviously have
01:13:25
your money in multiple bank accounts I
01:13:28
sent you guys a list that was just
01:13:29
published of all of the funds that
01:13:31
custody at svb
01:13:33
and it's unbelievable the list it's
01:13:36
every single major VC in Silicon Valley
01:13:39
wow where'd you get this I have my ways
01:13:41
oh extracted from SEC filings got it
01:13:44
okay thank you yeah this is amazing wow
01:13:46
holy I mean everybody's in there
01:13:50
500 Sequoia
01:13:52
we're going pretty fast here but yeah
01:13:55
to find
01:13:57
I mean this is
01:13:59
that we were we were out
01:14:01
a few months ago when we were talking
01:14:03
about Venture debt on the Pod I didn't
01:14:06
believe that sgb should be in this
01:14:08
business so I told oh look there's craft
01:14:10
there's craft no well hold on I'll tell
01:14:13
you does it say how much money we got in
01:14:15
there
01:14:15
yeah go to the right I'll tell you what
01:14:17
happened is so after the conversation we
01:14:19
had on this the show about Venture debt
01:14:21
I'm like I don't really like that sgb's
01:14:23
in this business so I told my guys set
01:14:25
up an account somewhere else so we did
01:14:26
that so we moved our firm accounts over
01:14:28
and we were just using sgb to make you
01:14:31
know Warehouse loans or whatever so I
01:14:34
thought they were just a lender to us so
01:14:36
yesterday when all this stuff went down
01:14:39
I said to our guys like we're out of
01:14:41
there right they're like well actually
01:14:42
we had about 45 million dollars that we
01:14:44
were about to distribute to LPS
01:14:46
and I'm like whoa that's crazy so we
01:14:48
were able to sweep that to an account we
01:14:51
used to make in-kind distributions and
01:14:53
then we got on the phone and we called
01:14:55
as many portfolio companies as we could
01:14:56
to get them out and we got a huge number
01:14:59
of them out but unfortunately some of
01:15:01
them didn't get out here's the thing
01:15:02
that I think people in Washington don't
01:15:03
understand we're doing this with the
01:15:05
next set of banks the triage is still
01:15:07
happening guys I will tell you look sex
01:15:10
I appreciate the the siren Call but I
01:15:13
think the only way that what you're
01:15:15
saying because you're saying that
01:15:18
triggers the next siren Call and the
01:15:20
contagion spreads I'm not blaming you
01:15:22
I'm just saying it's a reality and
01:15:23
you're right the game theory optimal way
01:15:25
to play this as a depositor is to move
01:15:27
your money out and get it somewhere that
01:15:29
it's completely safe and you know you
01:15:30
have your cash secured or buy a security
01:15:32
and a brokerage account where it's
01:15:33
totally safe and it's registered with
01:15:35
the Securities Exchange or something but
01:15:38
um in the meantime
01:15:40
for this to get resolved there has to be
01:15:43
a bear hug solution offered up this
01:15:45
weekend I'll say it again yeah in order
01:15:48
to stop the next set of siren calls to
01:15:50
drive
01:15:51
a call listen this is the thing I hate
01:15:54
about
01:15:55
um the the run on the bank conversation
01:15:57
is that if you warn people that there's
01:15:59
a possible run on the bank happening
01:16:01
you're actually creating the run on the
01:16:02
bank that's why it's so pernicious when
01:16:05
these things get started and yesterday
01:16:07
we were calling all of our portfolio
01:16:09
companies because we were warning them
01:16:11
because our obligation was to them but
01:16:13
we weren't you know I don't think we
01:16:15
were putting out like a siren to the
01:16:17
world and by the afternoon it was really
01:16:19
clear that if they listened and got
01:16:20
their money out they were in much better
01:16:22
shape than the ones who didn't listen so
01:16:23
this is the pernicious thing is that
01:16:25
every individual actor has to do what's
01:16:27
in their best interest and we're not
01:16:29
trying to start a um another run sorry
01:16:32
hold on but we know things we know
01:16:35
that people very close to us big players
01:16:37
are withdrawing their money from other
01:16:39
Banks right now
01:16:41
so let me just finish my point my point
01:16:44
is what you're saying makes a ton of
01:16:46
sense
01:16:47
and it's gonna cause this as you
01:16:51
described kind of pernicious escalatory
01:16:53
problem and the only way to stop it is a
01:16:55
bear hug which may not cost the taxpayer
01:16:58
anything If the Fed or some federal
01:17:00
agency stepped in and said we are going
01:17:03
to backstop all of these banks with all
01:17:05
of these deposits with cash and we're
01:17:07
going to guarantee it today and here's a
01:17:09
500 billion dollar facility and just by
01:17:12
saying that everyone stops trying to
01:17:15
pull their money out and you don't
01:17:16
actually need to backstop it with any
01:17:18
money it's it's so it's already started
01:17:20
so Nick if you just the link that I sent
01:17:23
you in the in the group chat can you
01:17:25
just throw that link up there I think
01:17:27
this is the best proxy for what Sox is
01:17:29
talking about so sort of I think very
01:17:31
unemotionally how would we know that
01:17:33
there is a contagion that's a foot
01:17:36
you would look at the equity layer of
01:17:39
all these Regional Banks so what is this
01:17:41
this is the ishares Regional Bank CTF
01:17:43
and what you start to see is this Decay
01:17:46
and go to the one week view Nick please
01:17:49
it just starts to fall off of a cliff
01:17:51
and so why is this happening well it's
01:17:54
happening because the equity tier of
01:17:56
these Banks are now increasingly worried
01:18:00
that their Equity will get wiped out and
01:18:02
so that's why they're selling and so the
01:18:05
I think what David said is already afoot
01:18:07
unfortunately it starts at svb but
01:18:11
forget the name for a second and take
01:18:12
Silicon Valley out of it this is a top
01:18:15
20 bank that now is in the receivership
01:18:17
of you know the authorities and so there
01:18:21
does need to be something that needs to
01:18:22
happen in really short order because
01:18:24
what's to prevent bank number 35. let me
01:18:27
just say it again if a federal agency
01:18:29
comes in If the Fed comes in and says
01:18:30
you know what we're going to backstop
01:18:32
all of these Banks and we're going to
01:18:34
put 500 billion dollars behind it and
01:18:36
we're going to guarantee that all these
01:18:37
deposits are going to be made whole it
01:18:40
stops the Panic at that point it you
01:18:42
don't even have to put up any money
01:18:43
because as soon as it's a first
01:18:45
derivative problem it's a feedback loop
01:18:46
as soon as you stop people from doing
01:18:48
the withdrawals the whole Market
01:18:50
subsides you don't actually need to you
01:18:52
unplug it and I think that's what needs
01:18:53
to happen this weekend that's what
01:18:54
should I unplug it today is the number
01:18:57
one need to go get um Silicon Valley
01:18:59
Bank hand it over to a big balance sheet
01:19:01
and guarantee that balance sheet but
01:19:02
they're going to make money by taking
01:19:03
this thing on on and number two they got
01:19:05
to make a statement we got another 500
01:19:07
Billy for you where's the president
01:19:08
where's he Allen well they'll make a
01:19:09
profit on it too so I mean they don't
01:19:11
need to use any money to do it right the
01:19:13
thing that's missing in our system is
01:19:15
that there's no FDIC for 25 million
01:19:18
accounts What like 250 is not an
01:19:21
effective amount that's a personal
01:19:22
account it's a small businesses needs
01:19:25
confidence in our economy in our banking
01:19:27
system or the whole thing starts to
01:19:29
unspool so what the quid pro quo should
01:19:31
be is you can get a 25 million FDIC
01:19:34
business banking account and the bank is
01:19:37
highly restricted in what it can do with
01:19:38
that money you can't put that money in
01:19:40
fugazi Venture debt you can't put that
01:19:42
money in lattered 10-year bonds that
01:19:45
don't get marked to Market it's only
01:19:46
highly liquid secure Mark to Market
01:19:49
assets and the the downside of that for
01:19:51
the bank is they'll make less money and
01:19:53
pass on less interest to the the
01:19:56
business the the depositor the
01:19:57
shareholders yeah so what that's the way
01:20:00
it should work how are stable coins
01:20:01
looking like a better option right now I
01:20:03
in the crypto guys right now are like
01:20:05
why didn't you you're not Jacob they're
01:20:07
not they're not joking it was a joke
01:20:09
nothing can revive the crypto Market as
01:20:10
we're seeing today even in a run on the
01:20:12
bank which is exactly what everybody was
01:20:14
afraid of in a Bitcoin world that thing
01:20:16
is down ten percent so of course
01:20:20
there's a reason for that is just that
01:20:23
what we've seen is that liquidity is all
01:20:26
correlated so when people are panicking
01:20:28
about the state of their finances and
01:20:30
worried about getting access to their
01:20:31
cash the first thing they dump is crypto
01:20:33
because it is very liquid so everyone is
01:20:36
trying to free up cash right now I just
01:20:38
want to be clear as the end of the show
01:20:39
here we were dancing around is this
01:20:41
going to be a Contagion
01:20:43
and I think what we know and what we're
01:20:46
seeing is
01:20:47
the the next dominoes are already
01:20:50
falling and so yeah contagion it cannot
01:20:53
be a contagion we have to stop it that's
01:20:55
the point that's your feeling and I
01:20:57
agree with you but I just want to make
01:20:59
sure people understand we started this
01:21:01
we didn't want to go there you know I
01:21:04
think with some reticent reticence to to
01:21:06
going there let's let's put it this way
01:21:08
if you if anybody if you have initiated
01:21:12
a wire in the last 24 hours you are
01:21:15
worried about contagion yes if you're in
01:21:18
DC and you have any ability management
01:21:19
matters and if you have any ability to
01:21:21
influence what's going to happen this
01:21:23
weekend we strongly advise unplug it
01:21:27
someone comes in and Bear Hugs the
01:21:30
market this weekend and says we will not
01:21:32
let contagion happen with a very big
01:21:35
slug of capital to support it that will
01:21:37
likely not even be needed to support it
01:21:40
because once you say that the contagion
01:21:42
will stop yeah Freeburg we're going to
01:21:44
know on Monday whether these Regulators
01:21:46
have in the administration know what
01:21:48
they're doing at all the other Black
01:21:50
Swan problem is that this weekend we
01:21:53
will find out what some of the
01:21:55
unintended second and third order
01:21:56
consequences are going to be of svb
01:21:58
being in a receivership this weekend we
01:22:01
talked a little bit about the pipes
01:22:02
problem but there may be several other
01:22:04
businesses
01:22:05
and companies that we don't know about
01:22:07
that may trigger another set of
01:22:10
cascading effects that are unrelated to
01:22:12
a banking problem but could drive some
01:22:14
more significant business and economic
01:22:16
problems that we're going to kind of
01:22:17
probably end up talking about next week
01:22:19
so you know this weekend with success
01:22:21
with payroll but there are other things
01:22:23
that this money goes towards uh you know
01:22:25
mortgages or rents so the cascading
01:22:29
effect of this if people stop paying
01:22:30
their rents if people stop paying
01:22:31
mortgages I mean real estate yeah
01:22:35
if I didn't visit a Kiev instead of East
01:22:37
Palestine Yellen visited Kiev instead of
01:22:40
Silicon Valley do these people know
01:22:42
what's going on here come home they
01:22:44
promise more financial assistance for
01:22:46
Ukraine and they're saying they're
01:22:48
monitoring the situation here we're in
01:22:50
the process of what what's the bill for
01:22:53
you yeah
01:22:56
the bill for Ukraine this month versus
01:22:59
this bailout is you know
01:23:01
probably the same so I think we have to
01:23:03
really think this through folks
01:23:05
yeah you're gonna get well no on Monday
01:23:07
where these people have a clue or not no
01:23:09
they have to be on TV tonight or
01:23:11
tomorrow this is to be a pressure on
01:23:13
Sunday hold on I think I think a lot of
01:23:15
these guys do know what they're doing so
01:23:17
let me just say it to them in language
01:23:18
they understand
01:23:20
folks when you look at the equity tier
01:23:23
of these Regional Banks people are
01:23:26
liquidating the equity tier because they
01:23:28
know that that is the first Domino to
01:23:30
fall if banks go into receivership
01:23:33
please act accordingly you can see it in
01:23:36
the ETFs you can see it in the trade
01:23:38
flows this is not a Silicon Valley
01:23:40
problem anymore
01:23:42
it is a Regional Bank problem and it
01:23:45
will get worse unless you do something
01:23:46
to make it better right and and Jake
01:23:49
I'll just use the word bailout I don't
01:23:50
like that word because no not about
01:23:52
backstop there were big you know too big
01:23:55
to fail banks in 2008 in the financial
01:23:57
crisis who did get bailed out those
01:23:59
people should have lost the value of
01:24:00
their stock okay that was wrong that's
01:24:02
not what we're talking about here the
01:24:04
PCB is wiped out already what we're
01:24:06
talking about is protecting depositors
01:24:07
these are people who trusted that when
01:24:10
they put their money in a top 20 bank
01:24:11
that our regulatory system is compliant
01:24:14
that they will not lose their money when
01:24:16
it says on their computer screen that my
01:24:18
money is in a black rock or a Morgan
01:24:21
Stanley Mutual Fund or money market fund
01:24:23
rather the safest instrument there is
01:24:25
that that money is where it's supposed
01:24:28
to be and if Regulators allow that bank
01:24:30
to put their money in stupid assets that
01:24:33
are not marked to Market and that's why
01:24:34
they shut down that is not a good reason
01:24:37
for depositors to not get their money
01:24:39
100 we're taking care of depositors here
01:24:42
and not bear filling out stockholders
01:24:43
this is not for the executives at the
01:24:45
banks it's for the depositors who did
01:24:48
nothing wrong and nor did their
01:24:49
employees and their customers and The
01:24:51
Innovation that they're working on all
01:24:52
right this has been a great all-in
01:24:53
podcast sorry we didn't have time to
01:24:56
talk about the uh
01:24:57
Shaman Q Anon Shaman I know that's a
01:25:00
passion project for you sex but you can
01:25:02
announce your Kickstarter for him and
01:25:04
your GoFundMe
01:25:07
for the shopping but uh where's the ball
01:25:09
dog man give me that Bulldog one more
01:25:11
time the shaman the shaman is an
01:25:14
intersection of three of a very
01:25:16
interesting Venn diagram he is very
01:25:19
athletically fit
01:25:20
incredibly hairy and obvious tattooed
01:25:24
that's a that's a try that you rarely
01:25:26
see you rarely see that and you know
01:25:29
also cultural appropriation so yeah we
01:25:31
have to keep that in mind and conspiracy
01:25:32
theories I mean this guy's got it all
01:25:34
are we gonna play poker this week at it
01:25:36
just like as the as the major is coming
01:25:39
it's kind of sad Silicon Valley is kind
01:25:41
of he's kind of an odd that seriously
01:25:43
the the shaman what's his name is uh
01:25:45
Jake uh he doesn't seem like he's all
01:25:47
there sure yeah no he's he's a guy who
01:25:49
has diagnosed Mental Illness but he's
01:25:51
completely non-violent he's completely
01:25:53
non-violent he actually believes in the
01:25:55
philosophy of Mahatma Gandhi of no
01:25:57
violence towards any creatures he's a
01:26:00
vegetarian yeah he you know he's a bit
01:26:02
of an odd duck
01:26:04
and he didn't assault anyone he just
01:26:07
wandered through the capital apparently
01:26:09
getting a tour uh from police officers
01:26:12
who are just guiding him through he's
01:26:13
the January four years hold on a second
01:26:15
he got four years in jail for that
01:26:17
because he became the face of an
01:26:19
Insurrection because he just just looks
01:26:21
so weird with the Viking horns and the
01:26:23
face paint or whatever we also made some
01:26:25
threats to politicians too but yeah I
01:26:27
mean it does seem like it might not be
01:26:29
the appropriate sentence he wrote a note
01:26:30
saying we're coming for you I think on
01:26:32
but you have to look into the case but
01:26:34
he was sentenced by a republican judge
01:26:36
from Texas and he had made threats
01:26:38
written threats and put them on the
01:26:39
desks of folks and he was one of the
01:26:41
first people into the building so I
01:26:43
think they got him for that but I agree
01:26:44
with you they're listening to the
01:26:47
building if he didn't break a door down
01:26:49
or didn't smash a window if he damaged
01:26:51
property that's one thing if he
01:26:52
assaulted someone that's one thing but
01:26:53
if he just wandered through the capitol
01:26:55
I think four years is kind of excessive
01:26:57
and I think the reason why the guy got
01:26:58
four years is because of his mental
01:27:00
illness he's not able to defend himself
01:27:02
the way that he should be this is just a
01:27:04
fundamental civil liberties issue if you
01:27:06
have any compassion at all you shouldn't
01:27:08
let a guy like that get scapegoated
01:27:09
there's 400 people who of the thousands
01:27:12
of people who broke in who were violent
01:27:15
and who got sentences of some degree
01:27:16
they were all uh settled like a plea
01:27:20
bargained including his they didn't go
01:27:22
to trial and if you know I think we
01:27:24
could all agree the violence that
01:27:26
occurred that day is you know should be
01:27:28
punished and the non-violent stuff
01:27:30
should be a speeding ticket you know and
01:27:32
we don't need three categories Jason I
01:27:35
think violence The Assault on cops or
01:27:37
and so forth yeah punished full
01:27:38
accessibility then damage a property and
01:27:41
then
01:27:42
people who just trespassed or wandered
01:27:45
through who may not even have known they
01:27:47
were trespassing probation that that
01:27:48
that's not that's not jail time that's
01:27:50
not a felony yeah I mean we want to
01:27:52
promote peaceful protests if they had
01:27:54
come with guitars and sang Kumbaya and
01:27:57
we shall overcome we'd be having a
01:27:58
different discussion here instead they'd
01:28:00
be cops you know and you can't beat cops
01:28:02
up sorry those ones go to jail yeah
01:28:04
period full stop we're in agreement okay
01:28:05
everybody it's been another amazing
01:28:07
all-in podcast sorry we couldn't get to
01:28:09
all the news but we felt that this
01:28:11
required a big unpacking for the Sultan
01:28:14
of science
01:28:15
the uh uh dictator and the Rain Man imv
01:28:20
Undisputed world's greatest moderator
01:28:22
we'll see you next time on the all-in
01:28:23
podcast not this week not this week
01:28:28
we'll let your winners ride
01:28:30
Rain Man
01:28:32
[Music]
01:28:44
besties
01:28:47
[Music]
01:29:02
it's like this like sexual tension that
01:29:04
they just need to release
01:29:06
[Music]
01:29:17
[Music]
01:29:21
I'm going all in
