Silicon Valley Bank and Moral Hazard

Dedicated to diversity and regulated/supervised by a San Francisco Fed that was dedicated to diversity (see also “San Francisco Fed elevates a gay woman — its vice president — to the top job” (LA Times, 2018)), Silicon Valley Bank is being described as a casualty of its own wokeness. A friend who used to run a multi-$billion investment fund sent me this article by an economist, which attributes the need for an FDIC bailout… to the existence of the FDIC. Some excerpts:

The wrong way to think about moral hazard

Deposit insurance gives bank executive an incentive to take socially excessive risks. In some cases the risks won’t pay off. But that doesn’t mean executives don’t have an incentive to take excessive risks.

Things didn’t pan out for SVB. But that doesn’t mean their executives made an unwise gamble. It’s very possible that SVB’s strategy had a very high expected payoff, and they were simply hit by bad luck (rising interest rates.) Of course from a social perspective their decisions may have been bad, but not necessarily from a private perspective. “Heads I win, tails part of my losses are borne by taxpayers”. Of course I’d take more risk with those odds.

… back in the 1920s people cared a great deal about bank safety. Banks knew this, and managed their balance sheets far more conservatively than do modern banks. That’s why big city banks used to look like massive Greek temples; they had to convince depositors that they had the capital to survive hard times. The vast majority of big banks survived the Great Depression. US GDP in 1929 was about $100 billion and deposit losses during the Great Depression were $1.3 billion. Today, a 50% fall in NGDP (as in 1929-33) would wipe out almost our entire banking system. Modern bankers are far more reckless “despite” regulation. The negative effects of deposit insurance are far more important than the positive effects of regulation.

How do we get to Yglesias’s utopia [of more big banks]? Abolish deposit insurance (he wouldn’t agree). You’ll see a massive shift of deposits toward the larger, more diversified banks, making our system resemble the Canadian system.

FDR opposed deposit insurance, as he (correctly) feared it would create moral hazard. Unfortunately, Congress refused to listen to his good advice.

“FDIC fees are not a tax on the public.” Yes, they are.

“We aren’t bailing out bank executives”. No, we are not bailing out SVB executives, but we are (implicitly) bailing out their competitors.

I disagree with that last statement. The executives at SVB got to keep all of their big earnings from the big years that they had due to their aggressive risk-taking. Mary C. Daly gets to keep her $500,000+/year (including benefits) SF Fed compensation from incompetently supervising SVB. When things fell apart, none of these people had to pay anything back to the FDIC. It is the chumps with low-interest accounts at conservative banks who are left to pay.

Separately, I’m shocked that McKinsey wasn’t involved somehow in SVB! How can there be a group of elites robbing the peasants without McKinsey’s assistance? At least one of the usual suspects was there… “How Goldman’s Plan to Shore Up Silicon Valley Bank Crumbled” (WSJ):

Silicon Valley Bank executives went to Goldman Sachs Group Inc. in late February looking for advice: They needed to raise money but weren’t exactly sure how to do it.

Soaring interest rates had taken a heavy toll on the bank. Deposits and the value of the bank’s bond portfolio had fallen sharply. Moody’s Investors Service was preparing for a downgrade. The bank had to reset its finances to avoid a funding squeeze that would badly dent profits.

While few could have predicted the market’s violent reaction to the SVB disclosures, Goldman’s plan for the bank had a fatal flaw. It underestimated the danger that a deluge of bad news could spark a crisis of confidence, a development that can quickly fell a bank.

Goldman is the go-to adviser to the rich and the powerful. It arranges mergers, helps companies raise money and devises creative solutions to sticky situations of the financial variety—a talent that has made the firm billions.

Yet, for SVB, Goldman’s gold-plated advice came at the steepest possible cost. SVB collapsed at warp speed in the second-largest bank failure in U.S. history, setting off a trans-Atlantic banking crisis that regulators are working furiously to contain.

How big was the failure compared to the investments that are needed to build things with silicon? SVB’s pre-coronapanic/free-money-shower value was about $13 billion. A single Samsung fab is on track to cost 25 billion Bidies: “Samsung’s new Texas chip plant cost rises above $25 billion” (Reuters). The bump due to inflation in this one factory, according to the Reuters article, is in the same neighborhood as the SVB market cap, at least in nominal dollars.

We’re not hearing much about Signature Bank’s failure. For 8 years up to and including its seizure by the FDIC, Barney Frank was on the board: “Barney Frank defends role at Signature Bank: ‘I need to make money’” (FT):

FT says that Barney Frank made about $2 million by serving on the board of failed bank. None of that will be clawed back by the FDIC…

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Silicon Valley experts on gender equity and money have a $175 billion bank failure

Folks at Facebook like to lecture others, sometimes via software, regarding gender equity. What happens inside their own company? “Meta has a pay gap problem, with women abroad getting lower pay and smaller bonuses than men” (Business Insider):

The company, formerly known as Facebook, continues to pay women less than men, whether they’re hourly workers or on salary, according to Meta’s most recently available reports on pay inequity in the UK and Ireland. The company also hands women smaller bonuses, the reports said.

The report on Meta’s pay gap in Ireland is the most recent, having been released quietly in December as part of a new law in the country that went into effect last year. In 2022, women working for Meta in Ireland were paid 15.7% less on average than men at the company. The difference in bonus pay in the country is even larger, with the average bonus for women being 43.3% lower than those that go to men.

For women working at Meta in the UK, where the company operates out of London, the pay gap is smaller but still prevalent, according to a report from last year detailing pay data from 2021. The average woman there was paid 2.1% less than the average man. And again, the difference in bonuses is much starker, with the average bonus going to women being 34.8% less than bonuses paid to men.

The lords of Silicon Valley are also fond of reminding the peasants how much smarter they are about money, even as many venture capital firms there underperform the S&P 500 (HBR 2014; a 2019 article). What about something simple like running a bank? With about $200 billion in deposits to protect, Silicon Valley Bank made a big bet that the Vanquisher of Corn Pop wouldn’t set off hyperinflation. The bank bought long-term Treasury bonds. When Bidenflation took off, the value of these bonds collapsed. From “What’s Going on With Silicon Valley Bank?” (WSJ):

SVB Financial bought tens of billions of dollars of seemingly safe assets, primarily longer-term U.S. Treasurys and government-backed mortgage securities. SVB’s securities portfolio rose from about $27 billion in the first quarter of 2020 to around $128 billion by the end of 2021.

These securities are at virtually no risk of defaulting. But they pay fixed interest rates for many years. That isn’t necessarily a problem, unless the bank suddenly needs to sell the securities. Because market interest rates have moved so much higher, those securities are suddenly worth less on the open market than they are valued at on the bank’s books. As a result, they could only be sold at a loss.

Many of the bank’s deposits are sizable enough that they don’t carry Federal Deposit Insurance Corp. protection. SVB said it estimates that at the end of 2022 the amount of deposits in its U.S. offices that exceed the FDIC insurance limit was $151.5 billion.

Before it disappears, let’s have a look at their home page:

Certainly nobody can accuse them of failure to represent a diversity of hairstyles.

What can you do to protect yourself in case some other banks were overconfident regarding our current rulers and their Borrow-and-Spend-Like-Drug-Dealers economic policy? Move money that is in cash into mutual funds or common stocks. The bank is just a custodian for these assets and if the bank fails you’re still a shareholder at the same level. If you must have cash of more than $250,000, spread it among multiple banks.

Let’s dig a little deeper into this failed bank. It seems that they too might have built a culture of equity by underpaying a group of employees unified by a gender ID:

They were experts on “sustainable finance” whose own enterprise just happened not to be sustainable.


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Winter in Death Valley (versus heat tourism)

One thing that we learned during our December trip to Death Valley was that nobody else comes to Death Valley in December. “I would have thought that this would be the most popular time of year,” I said to a National Park Service manager, “given that one can hike around in comfortable temperatures and barely have to carry water.” He responded that summer was actually the busiest: “We get a lot of Americans driving through and checking us off their bucket list, but also Europeans who come here for heat tourism.” Heat tourism? “They don’t have deserts or extreme heat in Europe so they come here to experience 120 or 130 degrees.”

We did the Artists Drive loop, Natural Bridge trail, and Badwater lowest point from about 9:30 am to 12:30 pm.

After lunch, it was time for Golden Canyon Trail.

The next day we drove to Stovepipe Wells, a desolate and crummy place to stay compared to Furnace Creek, stopping first at the Mesquite Flat Sand Dunes:

After breakfast (masked restaurant staff and unmasked customers), we hit Mosaic Canyon.

We had lunch at the Ranch at Death Valley steak house. Once again, the servers were masked while customers were not. Also, curiously for California, the establishment seemed to be celebrating gun violence.

I’m not surprised by the passion for masks given that we were in California, but I am surprised that people who are sufficiently concerned about Covid to wear a mask didn’t take the opportunity, at some point during the past three years, to change careers into a job that doesn’t involve contact with hundreds of infested-by-viruses humans every day.

The Inn at Death Valley has nicer public areas, but the Ranch at Death Valley has some brand new standalone cottages.

After some time at the pool we went to Zabriskie Point for sunset, along with every other tourist.

Some fun with Apple’s panorama software:

We ate most of our meals at the Inn at Death Valley, just up the hill from the golf course/Ranch. Food and service seemed to be better.

After two days and three nights, it was time to head back through Pahrump to Las Vegas. We did not stop at Sheri’s Ranch for lunch with Hunter Biden, however, because we wanted to visit the Mob Museum before checking into the Cosmopolitan and walking to Din Tai Fung for dinner before Cirque du Soleil’s Mad Apple. The show was funny in addition to being awe-inspiring. Din Tai Fung made me weep for the paucity of good Chinese food in South Florida. What must we promise to the Taiwanese to get a branch here in Jupiter?

Before we left Death Valley, though, we stopped at Zabriskie Point for some pictures in the morning light.

One more panorama:

It was a great trip and one of the few times in recent memory that I was in a U.S. National Park and not jammed into a Manhattan-style crowd.

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Outdoor masks at the University of California graduate student strike

If you’re freezing cold in a northern lockdown state today, here’s an image (source) that will give you a warm glow: University of California graduate student slaves and other campus peasants picketing for a living wage (from the faculty that claims to be expert at determining how much for-profit corporations should pay their workers out of fairness and decency):

We can see the full range of Faucism here. The bandana against an aerosol virus. The simple surgical mask. Some cloth masks. A double mask (cloth over surgical?). No 3M N95 respirators that might conceivably block some virions.

Keep in mind that these are America’s smartest young people.

Related, a star University of California faculty member cheers on the workers but doesn’t explain why his own peasants had to strike:

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Christmas shopping for cameras in San Francisco

I had always thought that Leicas were too expensive, but some enterprising Californians managed to get a bunch of these cameras for Christmas stocking stuffers at a reasonable price. From one of my friends who lives in “the city”… “Leica Store in San Francisco Robbed at Gunpoint of $178K in Gear” (PetaPixel):

According to ABC7, surveillance video shows four thieves — at least one of them armed — exiting a gray sedan around 1:20 PM on Saturday and entering the store where they proceeded to smash display cases and make off with nearly $180,000 in camera equipment less than three minutes later. … the SF Chronicle reports that the armed robbery comes just a week after both Mayor London Breed and San Francisco Police Department Chief Bill Scott assured locals that the area was safe for holiday shopping and urged them to return.

Camera equipment has proven to be a high-priority target for thieves in San Francisco. Since the equipment cannot be locked by an owner like smartphones, tablets, and computers can, they tend to be much more tantalizing considering their high value. That means that photographers are often targeted, especially in the city by the bay.

There doesn’t seem to be a place where photographers aren’t targeted. Some have been attacked while stuck in traffic, another was shot by robbers after refusing to give up her camera, and last October a photographer was followed home and robbed of his gear at gunpoint.

My personal choice would be the Leica S3, a “medium-format” camera (larger sensor than 24x36mm; in this case 30x45mm).

With a normal-perspective 70mm lens, the camera will cost about the same what a new car sold for in pre-Biden times: $25,000.

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The protests against lockdowns in China: Why didn’t California pursue Zero COVID?

All of the U.S. media that previously celebrated lockdowns, school closures, forced masking, and forced vaccination are now highlighting the purported horrors of life in Zero COVID China. The apparent 180-degree change is justified by the idea that SARS-CoV-2 today is far less dangerous than it was in 2019. This is untrue according to Science: “Study suggests SARS-CoV-2 Omicron is as deadly as past variants” (May 2022). Sometimes the about-face is justified because vaccines are so effective, but “Covid Still Kills, but the Demographics of Its Victims Are Shifting” (KHN) shows that the reduction in death risk was at most 4X in the summer of 2022 and was trending down. (Remember that the vaccinated may have less to begin with because they’re more likely to be members of the laptop class. The reduction from the vaccine itself might be a factor of 2 at this point.) Why might the Righteous believe that COVID-19 is less dangerous than it was a few years ago? Because a human cannot be killed twice. Those who were most vulnerable to SARS-CoV-2 are already dead. Yersinia pestis did not become less dangerous in 1354, but most people who could be killed by it had died in 1346-1353.

From state-sponsored NPR: “China’s lockdown protests and rising COVID leave Xi Jinping with ‘2 bad options'”.

My big question is why Gavin Newsom did not pursue Zero COVID in California. Gifted with the meekest and most compliant group of humans in the history of our planet, he failed to use the obvious tools of quarantine (which include welding torches for apartment houses!) to shut down COVID for at least a few years, as the Chinese have done. Californians pat themselves on the back for having an age-adjusted death rate of 270 per 100,000 compared to 292 in give-the-finger-to-the-virus Florida (full stats; remember that California is one of the youngest states due to the miracle of immigration and Florida has one of the highest percentages of elderly and therefore vulnerable). But given their zeal for fighting COVID, isn’t the correct comparison for California the 0.3 deaths per 100,000 in China?

Here’s an NPR article noting that lockdown can also kill, e.g., because humans cannot access non-COVID medical care:

This is the same enterprise that cheered when U.S. states made it illegal for physicians to continue providing non-emergency care! Even worse, by highlighting “Young Chinese”, they’re implying that people of different ages face different risk levels from SARS-CoV-2 infection and, therefore, a young person might want to reject experimental medicines that have received emergency use authorizations.

Nearly 100,000 Californians have died with a COVID-19 tag. Gavin Newsom could have saved all but 100 of these folks if he’d used Chinese techniques to achieve a Chinese COVID death rate. Lockdown governors such as Newsom have explicitly marked the cost of lockdowns, e.g., children denied an education, adults denied the opportunity to work or socialize, at $0. So there would have no cost to Californians from a Zero COVID program. Hawaii showed that it is not illegal for a U.S. state to restrict people coming in from the rest of the nation. Why didn’t Newsom do at least what Hawaii did and, preferably (under his expressed value system), what China did?

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Long COVID and California Worker’s Compensation

I was chatting with a guy who works at a Los Angeles-based manufacturer about the challenge of building back up to full production. “One issue is that if you got COVID at any time during the past two and a half years,” he said, “California assumes that you got it at work. Then if you say that you have Long COVID you will get years of Worker’s Compensation payments. Especially older workers were prone to making Long COVID Worker’s Comp claims. and, if you add up their Social Security, Worker’s Comp, and 401k, it wouldn’t make any sense for them to return to the factory.”

Fact check: this law firm says “with COVID-19, there is a rebuttable presumption of a workplace connection. An employer has the burden of proving that a claimant was not exposed to COVID-19 in the relation to their employment.”

Let’s look at the California labor force participation rate. California has one of the nation’s youngest populations (one reason the COVID-tagged death rate was lower than in some other states) and we’d therefore expect the labor force participation rate to be higher than the U.S. average. Yet it isn’t:

We see participation rising as women entered the labor market (70s and 80s) and then falling as women were offered the opportunity to earn cash via divorce litigation or simply having sex with a married dentist (state child support formulas guaranteeing profits were introduced around 1990; history and also “Divorce laws and the economic behavior of married couples” (Voena 2016)). Then we see the downward trend from all of the enhancements to the welfare state that started in 2009 (see Book Review: The Redistribution Recession for how Americans could find themselves in a higher-than-100-percent tax bracket as a consequence of means-tested programs, including mortgage relief). And right now we are bumping along at 62 percent in one of the best labor markets for workers in history. That’s the same as the national rate despite California being 1.5 years younger (median) than the U.S. overall.

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Why did the police let David DePape hit Paul Pelosi with a hammer?

We are informed that the San Francisco police, presumably armed with guns and clad in bulletproof vests, were spectators as a violent attack on a taxpayer occurred. From the New York Times:

In the early hours of Friday morning, the intruder entered through a back door of the stately home in San Francisco’s upscale Pacific Heights neighborhood, yelling, “Where is Nancy?”

Nancy Pelosi, the House speaker, was thousands of miles away in Washington, D.C., protected by her security detail, but her husband, 82-year-old Paul Pelosi, was home. By the time police officers arrived after being dispatched at 2:27 a.m., they found the assailant and Mr. Pelosi wrestling for control of a hammer. The intruder then pulled the hammer away and “violently attacked” Mr. Pelosi with it in front of the officers, said William Scott, San Francisco’s chief of police.

In other words, if we are to believe Pravda, at least for a period of time, the police took no action to stop the crime in progress.

Chief Scott said in a late-afternoon news conference that when the officers arrived, they saw Mr. Pelosi and the suspect, each with a hand on a hammer. They ordered both men to drop the hammer, he said, and the suspect pulled it away and struck Mr. Pelosi “at least once.”

There are multiple officers (plural). One of the guys involved in the struggle is 82 years old. The other one is probably not a prime specimen of physical fitness (see below). Why wouldn’t the police officers have rushed in to take the hammer away instead of waiting for the struggle for hammer possession to be resolved?

More aggressive policing in Los Angeles 30 years ago:

Separately, the attacker is characterized as a “MAGA Trump supporter” on social media. “Pelosi Attack Suspect Was A Psychotic Homeless Addict Estranged From His Pedophile Lover & Their Children” (by Michael Shellenberger, the “lifelong progressive and Democrat” author of San Fransicko) has some photos taken at the attacker’s house in Berkeley, California:

Some excerpts:

DePape lived with a notorious local nudist in a Berkeley home, complete with a Black Lives Matter sign in the window and an LGBT rainbow flag, emblazoned with a marijuana symbol, hanging from a tree. … Neighbors described DePape as a homeless addict with a politics that was, until recently, left-wing, but of secondary importance to his psychotic and paranoid behavior. “What I know about the family is that they’re very radical activists,” said one of DePape’s neighbors, a woman who only gave her first name, Trish. “They seem very left. They are all about the Black Lives Matter movement. Gay pride.”

The modern American “family” structure is on parade here as well:

A November 27, 2008 article in the Oakland Tribune said Taub and DePape were married with three children. But DePape’s stepfather, Gene, told AP yesterday that Taub was his stepson’s girlfriend, not wife; that David and Taub had two, not three, children together; and that David’s third child was with another woman.

(At least two generations of children growing up without two biological parents.) The family structure evolves to become more complex over time:

Taub was in the news again five years later when she, then 44, married a 20-year-old man, Jamyz Smith, naked, at City Hall in San Francisco. A photo in the December 16, 2013 edition of The San Francisco Chronicle shows DePape, Taub, Smith, and the three children huddled under a blanket watching television together. The caption describes DePape as “a family friend.” … Ryan La Coste, who lives in an apartment directly behind the Taub-DePape house, said that the day after Taub’s wedding to Smith, “There was a huge fight. The guy [Smith] that she married got locked up. And so Taub married somebody else. My understanding was that David [DePape] was the best man to her husband at the wedding.”

Based on Twitter and Facebook, it is primarily Donald Trump who is to blame for this attack and, after Trump, Republicans generally. Let’s assume that this is correct. But why aren’t the San Francisco police at least partly responsible for not stopping what Donald Trump told David DePape to do? The Pelosis pay property tax on their Pacific Heights mansion. Aren’t they entitled to police protection rather than police spectators?

(Note that the disintegration of public safety in San Francisco is not a bad thing from the perspective of the Florida real estate industry or from the perspective of a Florida taxpayer. We would be delighted if everyone who owns a mansion in Pacific Heights (“the most expensive neighborhood in the United States”) sold it and moved to Palm Beach County to start paying property taxes to the school system here.)

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California’s new law against “lewd” pictures and Islamic tradition

“Bill to Ban Sending Unsolicited Lewd Pictures and Videos Signed Into Law”:

After receiving strong bipartisan support in the Legislature, Governor Gavin Newsom signed legislation earlier today authored by Senator Connie M. Leyva (D-Chino) to establish legal protections for technology users when they receive unsolicited sexually explicit images and videos, also known as ‘cyberflashing.’

Also known as the FLASH (Forbid Lewd Activity and Sexual Harassment) Act and sponsored by Bumble—the women-first dating and social networking app—SB 53 would create a private right of action against any person over 18 years of age who knows or reasonably should know that the lewd image transmitted is unsolicited.

During its legislative journey, legislators in both the Senate and Assembly signed on in support of the FLASH Act, including Senator Lena A. Gonzalez (D-Long Beach) and Assemblymember Cristina Garcia (D-Bell Gardens) as principal coauthors and Assemblymember Cecilia Aguiar-Curry (D-Winters), Senator Monique Limón (D-Santa Barbara), Assemblymember Cottie Petrie-Norris (D-Irvine), Assemblymember Luz Rivas (D-San Fernando Valley), Senator Susan Rubio (D-Baldwin Park) and Senator Nancy Skinner (D-Berkeley) as coauthors.

The article includes a photo of the bill’s author:

The image is a good example of “lewd” by Islamic standards. The woman shows part of her chest, all of her hair, all of her face. Maybe a prostitute would do that in Kabul, but who else? There are a ton of immigrants from Afghanistan to California. Can they now sue if they receive images like the above? If not, why not? I hope that nobody will say that non-Islamic standards of modesty are somehow superior to Islamic standards.

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Nobody on welfare moves, San Francisco edition

“Bay Area exodus: Median income drops as wealthy residents move out” (

New census data is shining more light on the Bay Area’s pandemic exodus: The region saw the largest drop in median income of any big U.S. metro area as wealthy people moved away — and current residents of all incomes are more likely to relocate soon than in any other major population center.

Household income in the San Francisco metro area fell 4.6% from 2019 to 2021 to $116,005 a year, according to a census report released this month.

The article highlights rich people moving, but, given that some percentage of Americans move every year, the drop in median income could just as easily be caused by no-income and low-income people staying. The article does not note that someone who is signed up to the full package of means-tested benefits (not to be characterized as “welfare”!), i.e., free housing, free health care, free food (SNAP/EBT), Obamaphone, and the new free broadband, is extremely unlikely to move (since it could take 10-20 years on waitlists to get the same package in a different location or state).

So a city or state is guaranteed to hold onto its lowest-income citizens (not to say “poorest” because they may enjoy a median earner’s lifestyle; see below) even when everyone else seeks to move, e.g., due to lockdowns, school closures, social disorder, and high crime.

From “The Work versus Welfare Trade‐​Off: 2013” (CATO), Figure 4:

Ignore the pre-Biden dollar figures and concentrate on the “percentage of median salary” column, which should be valid despite inflation. Prior to the 2020-2022 coronapanic enhancements to welfare, in other words, being on welfare in California yielded roughly the same spending power as working full time at the median wage (and with no risk of exposure to a virus at work and no need to wear a mask for 8 hours per day).

I think it is interesting from the point of view of journalism that the situation is characterized by rich people disproportionately moving rather than by welfare state beneficiaries disproportionately staying.

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