Update 3: One night in Tarrytown, when the bank came tumbling down

Not the place of the dinner, but illustrative

Last night I gave a ride to a guy who interviews “founders” of successful tech companies for his podcast. Basically they are serial entrepreneurs responsible for creating many tech companies. The best of the best.

There was a big dinner for these founders, who are in Austin for the South By Southwest event (SxSW).

21 founders were invited 17 showed up.

The dinner was in a mansion in the Tarrytown neighborhood of Austin, it was catered by a five star chef. The entire cost was underwritten by a finance firm called Mercury (https://mercury.com/ ) seeking their business.

Tarrytown is a big oak tree lined neighborhood of gorgeous southern mansions, close to downtown Austin. This is where old money lives. Or at least used to. I suspect many of the properties may be high end AirBNBs for the well off. It’s only a mile or two from downtown.

My rider was on the phone talking to someone about how many of these founders are having 10 and 20 million dollar credit lines yanked despite having high cash on hand ratios in their companies and cash flows that exceed their credit lines. They weren’t given a reason for the credit lines being yanked.  And they were taking their entire banking business and cash to other places. Whatever was going on, the bank revoking the credit lines made them all very nervous.

Some went to Mercury, and others were looking for new banks that could offer the liquidity they needed. A lot of them are getting twitchy and cutting overhead as quickly as they can. And they were spreading the word about whatever bank it was in Silicon Valley that is yanking credit lines. Many were affected. The specific bank in contraction was not named.

As a driver I’m one of the invisible people, like barbers, hair stylists, waitresses and bartenders. Sometimes people tell you the most amazing things they wouldn’t tell anyone else. They’re pretty sure they’ll never see you again and that is often true and they need to tell somebody. Other times you overhear the cell phone calls like last night. Odd I’d be the driver but that’s pretty much how the last 10 years have been for me. No coincidences.

The first thing this morning I noticed this new on the @disclosetv Telegram feed.

Silicon Valley Bank is owned by Silicon Valley Group. It’s top 10 shareholders include Vanguard and Blackrock. Share trading was halted after its shares dropped 66.6%. Interesting digits.

SVB was co-conceived by a guy named Bill Biggerstaff. I know, I laughed too!

Then it hit Bloomberg.

https://www.bloomberg.com/news/newsletters/2023-03-10/svb-crisis-puts-vcs-at-risk-silvergate-shuts-down-adani-on-world-tour?srnd=premium

Update 1: 

https://insiderpaper.com/silicon-valley-bank-shares-halted-after-heavy-sell-off-in-premarket-trading/

Update 2: 

https://twitter.com/houseofhorace/status/1634262735763705858?s=46&t=l3cvDrPl83_cjLIo4dxr5w

Update 3: 

My thoughts on Silicon Valley Bank. It was set up to be the focus as the "Lehman Brothers" of 2023, to take attention away from other institutions failing at this moment. The narrative will no doubt be spun this is brick that brought the wall down.

Banks gamble, that's how they lose money. They don't risk their own capital when they make you a loan, they convert your promissory note to IRS OID (sp?) form (the IRS is the middle man in the funds transaction), which is then forwarded to the Federal Reserve, which remits the funds for your loan via Fedwire from your value held at the Fed. So with that kind of free money loaned out at market rates, how could a bank ever go broke? Only if they gamble their free money.

SVB gambled on Silicon Valley startups, some of which succeed and produce a new service or product. Other large banks gamble in derivatives and exotic financial products that take a mathematician with knowledge of differential equations to even be able to guess their risk and reward potentials.  It also funded a lot of hare brained "green companies" and solar panel companies.

It doesn't take a genius to guess which bank was actually risking money on real ventures that could bring wealth to many people. So something in all this feels off... then there's the personnel links to key people from failed banks in 2008... and it kind of underscores the setup here. And they made sure they paid themselves first! 

 Kill Silicon Valley startups and only the largest players remain. This is financial herbicide on the most inventive part of the American economy.

The Thirty Tyrants

The Thirty Tyrants

The deal that the American elite chose to make with China 

has a precedent in the history of Athens and Sparta

BY LEE SMITH

FEBRUARY 03, 2021

https://www.tabletmag.com/sections/news/articles/the-thirty-tyrants

In Chapter 5 of The Prince, Niccolo Machiavelli describes three options for how a conquering power might best treat those it has defeated in war. The first is to ruin them; the second is to rule directly; the third is to create “therein a state of the few which might keep it friendly to you.”

The example Machiavelli gives of the last is the friendly government Sparta established in Athens upon defeating it after 27 years of war in 404 BCE. For the upper caste of an Athenian elite already contemptuous of democracy, the city’s defeat in the Peloponnesian War confirmed that Sparta’s system was preferable. It was a high-spirited military aristocracy ruling over a permanent servant class, the helots, who were periodically slaughtered to condition them to accept their subhuman status. Athenian democracy by contrast gave too much power to the low-born. The pro-Sparta oligarchy used their patrons’ victory to undo the rights of citizens, and settle scores with their domestic rivals, exiling and executing them and confiscating their wealth.

The Athenian government disloyal to Athens’ laws and contemptuous of its traditions was known as the Thirty Tyrants, and understanding its role and function helps explain what is happening in America today.

For my last column I spoke with The New York Times’ Thomas Friedman about an article he wrote more than a decade ago, during the first year of Barack Obama’s presidency. His important piece documents the exact moment when the American elite decided that democracy wasn’t working for them. Blaming the Republican Party for preventing them from running roughshod over the American public, they migrated to the Democratic Party in the hopes of strengthening the relationships that were making them rich.

A trade consultant told Friedman: “The need to compete in a globalized world has forced the meritocracy, the multinational corporate manager, the Eastern financier and the technology entrepreneur to reconsider what the Republican Party has to offer. In principle, they have left the party, leaving behind not a pragmatic coalition but a group of ideological naysayers.”

In the more than 10 years since Friedman’s column was published, the disenchanted elite that the Times columnist identified has further impoverished American workers while enriching themselves. The one-word motto they came to live by was globalism—that is, the freedom to structure commercial relationships and social enterprises without reference to the well-being of the particular society in which they happened to make their livings and raise their children.

Undergirding the globalist enterprise was China’s accession to the World Trade Organization in 2001. For decades, American policymakers and the corporate class said they saw China as a rival, but the elite that Friedman described saw enlightened Chinese autocracy as a friend and even as a model—which was not surprising, given that the Chinese Communist Party became their source of power, wealth, and prestige. Why did they trade with an authoritarian regime and send millions of American manufacturing jobs off to China thereby impoverish working Americans? Because it made them rich. They salved their consciences by telling themselves they had no choice but to deal with China: It was big, productive, and efficient and its rise was inevitable. And besides, the American workers hurt by the deal deserved to be punished—who could defend a class of reactionary and racist ideological naysayers standing in the way of what was best for progress?

Returning those jobs to America, along with ending foreign wars and illegal immigration, was the core policy promise of Donald Trump’s presidency, and the source of his surprise victory in 2016. Trump was hardly the first to make the case that the corporate and political establishment’s trade relationship with China had sold out ordinary Americans. Former Democratic congressman and 1988 presidential candidate Richard Gephardt was the leading voice in an important but finally not very influential group of elected Democratic Party officials and policy experts who warned that trading with a state that employed slave labor would cost American jobs and sacrifice American honor. The only people who took Trump seriously were the more than 60 million American voters who believed him when he said he’d fight the elites to get those jobs back.

What he called “The Swamp” appeared at first just to be a random assortment of industries, institutions, and personalities that seemed to have nothing in common, outside of the fact they were excoriated by the newly elected president. But Trump’s incessant attacks on that elite gave them collective self-awareness as well as a powerful motive for solidarity. Together, they saw that they represented a nexus of public and private sector interests that shared not only the same prejudices and hatreds, cultural tastes and consumer habits but also the same center of gravity—the U.S.-China relationship. And so, the China Class was born.

Connections that might have once seemed tenuous or nonexistent now became lucid under the light of Trump’s scorn, and the reciprocal scorn of the elite that loathed him.

A decade ago, no one would’ve put NBA superstar LeBron James and Apple CEO Tim Cook in the same family album, but here they are now, linked by their fantastic wealth owing to cheap Chinese manufacturing (Nike sneakers, iPhones, etc.) and a growing Chinese consumer market. The NBA’s $1.5 billion contract with digital service provider Tencent made the Chinese firm the league’s biggest partner outside America. In gratitude, these two-way ambassadors shared the wisdom of the Chinese Communist Party with their ignorant countrymen. After an an NBA executive tweeted in defense of Hong Kong dissidents, social justice activist King LeBron told Americans to watch their tongues. “Even though yes, we do have freedom of speech,” said James, “it can be a lot of negative that comes with it.”

Because of Trump’s pressure on the Americans who benefited extravagantly from the U.S. - China relationship, these strange bedfellows acquired what Marxists call class consciousness—and joined together to fight back, further cementing their relationships with their Chinese patrons. United now, these disparate American institutions lost any sense of circumspection or shame about cashing checks from the Chinese Communist Party, no matter what horrors the CCP visited on the prisoners of its slave labor camps and no matter what threat China’s spy services and the People’s Liberation Army might pose to national security. Think tanks and research institutions like the Atlantic Council, the Center for American Progress, the EastWest Institute, the Carter Center, the Carnegie Endowment for International Peace, Johns Hopkins School of Advanced International Studies, and others gorged themselves on Chinese money. The world-famous Brookings Institution had no scruples about publishing a report funded by Chinese telecom company Huawei that praised Huawei technology.

The billions that China gave to major American research universities, like $58 million to Stanford, alarmed U.S. law enforcement, which warned of Chinese counterintelligence efforts to steal sensitive research. But the schools and their name faculty were in fact in the business of selling that research, much of it paid for directly by the U.S. government—which is why Harvard and Yale among other big-name schools appear to have systematically underreported the large amounts that China had gifted them.

Indeed, many of academia’s pay-for-play deals with the CCP were not particularly subtle. In June 2020, a Harvard professor who received a research grant of $15 million in taxpayer money was indicted for lying about his $50,000 per month work on behalf of a CCP institution to “recruit, and cultivate high-level scientific talent in furtherance of China’s scientific development, economic prosperity and national security.”

But if Donald Trump saw decoupling the United States from China as a way to dismantle the oligarchy that hated him and sent American jobs abroad, he couldn’t follow through on the vision. After correctly identifying the sources of corruption in our elite, the reasons for the impoverishment of the middle classes, and the threats foreign and domestic to our peace, he failed to staff and prepare to win the war he asked Americans to elect him to fight.

And because it was true that China was the source of the China Class’ power, the novel coronavirus coming out of Wuhan became the platform for its coup de grace. So Americans became prey to an anti-democratic elite that used the coronavirus to demoralize them; lay waste to small businesses; leave them vulnerable to rioters who are free to steal, burn, and kill; keep their children from school and the dying from the last embrace of their loved ones; and desecrate American history, culture, and society; and defame the country as systemically racist in order to furnish the predicate for why ordinary Americans in fact deserved the hell that the elite’s private and public sector proxies had already prepared for them.

For nearly a year, American officials have purposefully laid waste to our economy and society for the sole purpose of arrogating more power to themselves while the Chinese economy has gained on America’s. China’s lockdowns had nothing to do with the difference in outcomes. Lockdowns are not public health measures to reduce the spread of a virus. They are political instruments, which is why Democratic Party officials who put their constituents under repeated lengthy lockdowns, like New York Gov. Andrew Cuomo and Chicago Mayor Lori Lightfoot, are signaling publicly that it is imperative they be allowed to reopen immediately now that Trump is safely gone.

That Democratic officials intentionally destroyed lives and ended thousands of them by sending the ill to infect the elderly in nursing homes is irrelevant to America’s version of the Thirty Tyrants. The job was to boost coronavirus casualties in order to defeat Trump and they succeeded. As with Athens’ anti-democratic faction, America’s best and brightest long ago lost its way. At the head of the Thirty Tyrants was Critias, one of Socrates’ best students, a poet and dramatist. He may have helped save Socrates from the regime’s wrath, and yet the philosopher appears to have regretted that his method, to question everything, fed Critias’ sweeping disdain for tradition. Once in power, Critias turned his nihilism on Athens and destroyed the city.