PBD Podcast - Barry Habib On The Silicon Valley Bank Collapse | Ep. 246 | Part 1

Episode Date: March 14, 2023

In this episode, Patrick Bet-David and Barry Habib will discuss: Silicon Valley Bank Collapse Trump being involved in the SVB collapse  FaceTime or Ask Patrick any questions on https://minnect.com/Want to get clear on your next 5 business moves? https://valuetainment.com/academy/Join the channel to get exclusive access to perks: https://bit.ly/3Q9rSQLDownload the podcasts on all your favorite platforms https://bit.ly/3sFAW4NText: PODCAST to 310.340.1132 to get added to the distribution list --- Support this podcast: https://podcasters.spotify.com/pod/show/pbdpodcast/support

Did you ever think you would make it? I feel I'm so close, I can take sweet the theory. I know this life meant for me. Yeah, why would you plan on galiah when we got bett David? Value payment, giving values, contagious disorder, entrepreneur's, we can't no value to hate it. I didn't run home, you look what I've become. I'm the one.

Okay, so we had to do this because of all the mess that's been going on. You've been asking about it, Pat, we got to do a podcast. We got to do a podcast. And as crazy of a schedule as we're having, we decided to have it. And we got Barry Habib in the house. He's got a lot of numbers, 47 slides. We're not going to go through all of them, but we will go through some of the data. All 47. He's got a lot of down, 47 slides. We're not gonna go through all of them, but we will go through some of them with data. All 47, don't wait like, I'm down, I cut him down right before I came. I say we'll tell you. He's got some jobs data that no one's talking about, some numbers on rates.

I know today I saw the report, I'm sure we all saw the lowest in 26 days. We'll talk about that. Tom, you got a bunch of stuff going on with Silicon Valley Bank, everybody does. Adam, all of us here with the news, I just did a, what do you call it, a Twitter spaces earlier with Marri on Twitter.

Everybody was on. Everyone's commenting on what's going on with Silicon Valley Bank. It's been a scare. And today's market, I put a question, I put a poll in the morning. Will today end up the market being up or down? 71% of the people that voted say the market's gonna be down. Only 29% said the market's gonna be up. You want me to update you on what's going on in the market?

What is going on in the market? Rob, if you can pull it up to see how the market is doing because the reality of it is, everything's in green today. We're except for banking. Russell to know except for banking banking is not individual banks everything else. Here we go. Isn't a green today with the stock market so having said that having said that I say you uh we just get right into it with the main topic that everybody is talking about, which is Silicon Valley Bank. 16th largest bank in America to go fail. The last time this happened was I believe WAMU.

And I remember WAMU was a roughly $330 billion company that chased and that are buying for 1.9 billion. If you want to zoom this in so we can take a look at this, zoom it so people can see exactly the chart Rob if you're doing it that way we can see it By the way, when did we have the former CEO of one? Yeah, we had a mom we had a mom a few months ago I was a few and that was what I talk about time and that's yeah You've you've gone on and on about what happened with mom and how disappointed it was you Remember what happened afterwards in the interview how upset his wife was and how upset him? I look listen his wife was not happy. this is what you did this you were to see

Oh, this is why we're asking you right there's one move you look at the chart on the left and The one on the right if you can zoom in again Rob what you just did is fine. No, no do what you did just go to the green Yeah, if you can okay. Oh Rob we are way off today, buddy. You're normally good, but today we're Okay, it's all good. Let me get right into sort of 16 largest bank in America goes bankrupt Oh, Rob, we are way off today, buddy. You're normally good, but today we're... Rob's lacking. Okay, it's all good. Let me get right into, so the 16 largest bank in America goes bankrupt.

The last time this happened fails. The last time this happens was Wawmu, 330 billion dollar company. Chase ends up buying for $1.9 billion. See, there's an article from... You have the charts you're showing. Okay, so Silicon Valley bank collapses and second biggest US bank failure ever.

This is an independent story. California based Silicon Valley Bank was seized by regulators on Friday making it the second biggest bank failure in US history since 2008 collapse of WAMO, which had $307 billion in assets when it was shuttered on 25th of September 2008, 10 days after Lehman Brothers failed Silicon Valley bank failed after depositors, mostly technology workers

and venture capital bank companies started would draw their money creating a run on the bank. The bank had approximately $209 billion in total assets and about $175 billion in total deposits as of 31st December of 2022, this is Silicon Valley bank. And it was unclear how many of its deposits were above $250,000 and short limit guaranteed by FDIC. Ninety-three percent. Ninety-three percent, right. However, there is a little chance of contagion in the banking sector at major banks of sufficient capital to avoid a similar situation. So, this is

scared a lot of people. I'll go to you first, Barry, based on what we know, what was your reaction, were you surprised, and then we'll get into how we feel about the way they're handling it, whether it's yelling, biting, because he gave a speech today. So okay, there's a lot to unpack here, so just try and be quick here. So, this bank had problems because in 2008, under the Dodd-Frank, they were allowed to invest in assets. Now, it wasn't a bad decision to invest in these assets,

but what happened was that they were yielding on $82 billion worth of investments around 2%. Now, it's okay because if you're paying your depositors very little, you can make some spread there. But as you know, when somebody deposits money in your bank, you don't have all those assets on hand. You keep roughly 10%. The rest you lend out to try and make the arbitrage to try and make the spread.

That's how banks make money. The problem is that a lot of these investments were now under water. You see, when you invest in a lot of the bonds that they invested in, they invested in mortgage back security. So a 3% mortgage equals a 2% coupon because everybody takes a piece of the 2% coupons, I'm getting 2%. That's okay if I'm paying a half of 1%, I'm making money on it. Okay. However, what starts to happen is as the Fed has maniacally raised rates without thinking

about the consequences, they're not very good at unintended consequences, they now give people alternatives to move their money. So now you can move your money to a short term six-month treasury and get 5%. So people start withdrawing money. Tech companies were doing a little bit more poorly, as we know. They start having less capital. There's less money going in. So what happens is that the bank now has to make up this money. Where do they get it from? They have to now sell assets. Here's the real craziness of it. They had on their books $12 billion positive, but it really wasn't.

Because once you started looking deep, what they had was invested in these bonds that were now under water. Under Dodd-Frank, these are considered now to be no risk assets. So you do not have to report under Dodd-Frank unrealized losses. They had 15 billion in unrealized losses. This was not a solvent bank. They were 3 billion unsalvin as at the end of last year, which is why the CEO was selling stock, which is why you had insiders getting paid bonuses up front and early. Now, they start to get exposed because Jim Kramer, an amazing five weeks ago, touts this as the stock you got to buy. Okay. It is out. Jim Kramer was out there looking at his thing again. Fab you. I swear to you. I got the video. Is this the same Jim Kramer

that compared Sam Bigman freed to Rockefeller or to Carnegie? There's actually an ETF, which is a contrary Jim Kramer. But anyway, real on point here, I'm sending you to just show you know, so Jim Kramer on February 8th talks about how this stocks undervalued, how it has room to run. It's his quote. It was at $320. There's watches. Just watch this. Put the audio so we can hear it. It's the Jim Kramer dead cat back watch says. Here to date is SVB Financial, don't you want? This company's a merchant bag with a deposit base that Wall Street have been stakedly

concerned about. SUV sales silver value bank. Risen bought one of our favorite research firms, Buffett, Nathanson, and it's become less dependent upon private equity and venture capitalists all of these. Wait a second, those dried up this year, they could come back. Yes, some of them come back here with a stock directly flexing over sole position.

Stoppers of fourth worst performance in 2022. I think the fears were not justified in this very compelling situation. And by the way, long-term private equity and venture capital are not going away. Being a banker to these immense pools of capital has always been a very good business. Stocks still cheap.

Now you have to remember that it's stocked the whole system. It's just a few weeks ago. It's just a few weeks ago. Like February, April, the last year. Five weeks. Well, it takes a lot more to recover. Look at this. After losing two thirds of your value, you need a 200% gain to get back to even.

This is arithmetic. Some people call it geometry. So you could argue SVB's nearly 40% value this year is barely a drop in the bucket. That's why I want you to figure that's crazy. I think it's also an example of why these bounce back moves might be far from over. These stocks had a more room to run, especially if you think they were driven down to artificially low levels. That's crazy. That's crazy. That's crazy. It's crazy. But you should find the chart on this. But here's a classic, this is SVB. It's a classic dead cat bounce. He's right. But, but Patrick, you should find the chart on this. But, but here's a classic, this is SVB.

It's a classic dead cat bounce. But he's right, but here's why this is significant. Yeah. Because this draws attention to SVB. Now, whether you want to think of it as investment or not, now people start digging in. And as people dig in, what did they see? They see this 15 billion in unrealized losses

that they didn't have to report. But now that you dig in and what do they start telling their clients? They start telling your clients, hey, you know what? This bank is vulnerable. I'd probably take my money out of there. And as the positives start now cascading out of there, this is where they have to raise money. They go to raise 21 billion and they do because they have to, but how do they do it?

They sell some of their assets. Now, when you sell those 21 billion, they cherry picked them. Only two billion in losses, but now you have to realize those losses, right? So when people look under the hood, they say there's another 13 billion in unrealized losses, people start pulling out money and droves. They can't make, they can't borrow money. The shorts are attacking the stock. They can't issue stock. And this is how it happens so quickly.

So let me, let me, let me just give some of the stats. If you can show, have this year, 16th largest bank, 97% of the money at Silicon Valley Bank is not protected by FDIC. I've seen 93% I've seen 97% whoever's right, wonder the two, either way it's a lot of money. 12 days ago, like 13 days ago, the CEO, Gregory Becker, sold 11% of his shares, Daniel Beck, the CFO, sold 32% of his holdings,

CMO, Michelle Draper, sold 28% of her holdings around $5.1 million. If you post a picture of Forbes just seven days ago, this one right here. By the way, they took the tweet down, just so you know, that's the one I posted, but they took it down. It just go to the picture I sent you.

It's another one of those pictures I sent you, Rob, they should be on your phone. Go one more, go one more. Right there, look at this one. This is their tweet. This is six days ago. Proud to be on Forbes annual ranking of America's best banks for the fifth straight year

and to also have been named the publication in Agueral Financial All-Stars list, they tweeted this, I retweeted this, they took it down because they obviously, I'm sure a lot of people were retuding this, this was all over the place, they don't want people to see, just five days ago you're bragging about this.

So this becomes the question, there's a terminology called front running, right? You know what front running is. Of course, if you can pull up the definition of front running, front running, let's just read called front running, right? You know what front running is. If you can pull up the definition of front running, front running, let's just read the exact definition. The practice by market makers of dealing on advanced information provided by their brokers

and investment analysis before their clients have been given the information. Okay, this is, if an investor does this, what's worst is when you're in it, you're the guy that knows what's about to happen and you do it. Isn't this a crime tom to do something like this? I'm on that page.

I like to see an investigation. I'll tell you why. I am right here with Barry Bothering. Great to see you today, guys. I guess to see you, brother. Is on March 1st, Becker was at an event in Los Angeles and he said, we pride ourselves in being the best financial partner in the most challenging times.

He said that, but he said that and then was heading to London where he was going to go get a bank of the year honor at this London deal on the second. It gets better. He had already been told that there was a call coming from Moody's. Moody's had looked at a footnote that was in there. Because remember, they don't have to disclose everything in standard parlance and a quarterly earnings report, but they did footnote in the details page that they had the $15 billion. Moody saw that and came back and said, hey, we have a question.

If you were to look at this as a market market rather than a market to maturity, where are you at here? Because our assessment is we're going to lower you two ratings levels, Pat, two. And he said, what do we have to do? You have to clean this up. And part of the plan to clean it up exactly, as Barry just said, sell 20 billion of it, but technically that's deposit or money. That was deposit or money you put in the bonds.

Now you have to sell the bonds you're short. And then you have to cover the whole, it's called. Well, how do you cover the whole? Tell you what, we'll call some of our favorite venture capitalists and we'll issue some stock. Even though they were already down from 725 to 325 down, 400 points in the preceding 12 months and they're going to dilute that kind of a down and so they went out to dilute it, but now we all know what happened. The bank run started, General Atlantic, I think, was the VC that backed out on the half a billion dollars.

They were getting advice from Goldman Sachs, which was really bad advice the whole way down. And in fact, the management had changed. They became very, very smug. It used to be a great bank, but then they were like, they thought they were too good for themselves. They didn't try to endear themselves to any potential investors or venture capitalists. They were like, they were not friendly to the environment, so nobody wanted to invest with them.

But to Pat's point about front running, you freaking know that you have footnoted your earning support, Pat. He knew he footnoted it. And he knew that Moody's was in the lobby saying, we got to talk and we may take you down to ratings levels. And yet he did this. I'm with Pat. I think there should be a deeper investigation on this. This term front running, I've never heard this term, but we've all heard the term insider trading.

And I Googled on a front running versus insider trading. And it's actually the same thing. It says front running is similar to insider trading with the minor difference, in this case, that the broker works for the client's brokerage rather than the inside the client's business. So it's a form of insider trading is what front running is going to do.

But this is even worse still. Like what Nancy Pelosi and her husband get accused of is insider trading. What a lot of these Congress people, how are you worth $140 million on $160,000 salary? Okay, that could be worth insider trading. Dude, you're on the inside. You know exactly what's going on.

The level of audacity to go up there and collect it and then come back and say, hey, we got the bank of the year. Hey guys, sell off, cause this is 13 billion. Let's do a quickly look what's happening over it. And then now it's leading into what we are today. And by the way, when you look at their backgrounds

of what they did, just kind of want to give you a background of what they did. The CEO was a director at San Francisco Fed. The CFO was a former analyst at Freddie Mac. The chief administrative officer, which you guys were kind of putting up. He was a former CFO of Lehman Brothers. The chief risk officer let credit ratings in 2007.

The chief legal officer was General Counsel at Citibank in 2008. So to say they have a star studded lineup of people would experience to make sure a company doesn't make the mistake that Lehman Brothers made or others made, they have it. And they still did this. Before we go into the question that I want you to give your feedback on, I want to talk about with the $250,000 as enough, what do we need to increase that?

I want to talk about a few things on the inside that I got an email from Goldman this morning. I'm going to share with you guys. I want to talk about Dodd Frank, a video from Trump that's circulating about what he said in 2018. And a lot of people are blaming Trump for this, might as touch and a lot of these guys, which we'll talk about. Now let me first go to our sponsors. Today's sponsor is Masterworks. If you guys have been following the content, you're not at this point. I've spoken about these guys quite a lot. I'm a guy that likes collectible cards.

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Look up masterworks, and we're gonna put the link below, Rob, for them to be able to take advantage of it. It'll be in the description and the chat. So, go back at it. So, Barry, you see the list of all these names of people, qualified, their background, director of San Francisco Fed, former analyst at Friedman,

former CFL of Lehman Brothers, brothers, let credit ratings in 2007, which is a chief risk officer, or former general counsel of city bank in 2008. What are you thinking about them knowing, if you had all this experience, couldn't you have prevented this from happening? Yeah, here's a couple of things. So number one, they did not have a chief risk officer from April 29th until January 4th.

Tom, am I right on that? That's exactly right. It consecutive months. It consecutive months. So they did not have a cheat. Why did you not replace your chief risk officer? They did not. And by the way, is Zaryetta stepped down from her role as CRO in April of 22? Yeah. So now you don't have a cheese for risk. You pull that up. But wait a second. What's happening at the same time? At the same time, your risk is increased dramatically because the Fed has now gone on a rampage, raising rates until something breaks. And here's something is breaking. So during that time, if you take a look from

the four and a half months from June 15th, the Fed raised rates 300 basis points. In a seven and a half month period, they raised the 375 basis points. And in the last year, they've raised 450 basis points. You need a chief risk officer to what this is a mismatch iteration. Short term rates are going up and my long term investments are going down in value. I need a chief risk officer to de-leverage that, not after they've gone up 450 basis points on the short end, but after maybe the first 75 basis points,

and after long term rates start coming to, start unlevering these things, start putting hedges in place. This is what you're supposed to be doing to protect the assets of the bank. Yeah, that's why you're showing this year. Laura, step down from the role as a CRS SVP bank, April 2022. What paper is this?

What magazine is this? Forbes and formerly department company in October, according to an SVP proxy filing the bank appointed opponent. By the way, here's what's weird. If you run a broker dealer, you can't run a broker dealer without an OSJ office of supervisory. You can't have a broker dealer without an OSJ office of supervisory. You can't have a without a branch office manager or BOS is depending on the size of it. How to hell is a company this size able to even operate?

Tom, that's very confusing to me. How somebody can operate without a CRO? It is. And we came from insurance for people that are listening. And we had Patrick headed put, even though we were a FMO, very large nationwide FMO, Pat included in the management team, a chief compliance officer, which he wasn't required to do, but all the carriers had that because we always wanted to be one step better and look one step cleaner. And in this case, by the way, supposedly, Pat, she didn't leave in October. That's just her last day of pay. She left in April, and then there was like this period

of time where she got her salary and benefits, but she wasn't in the building. So, so what is the, I wonder what the level of responsibility is to disclose this to investors and account holders to know we don't have a CRO in payroll right now. Is there any disclosure that you have to disclose and let them know? Do they have that kind of responsibility? I don't know the answer to that. I'm third with the federal regulations.

Yeah. And if it was these folks, probably footnote number 82, along with the 15 billion. So you know what this takes me? If you were going to say something, I just, I got a bunch of other questions. There's so many moving parts here. And every day we're learning more information,

but from your guys' optics, is this fraud, is this idiocy? Is this a lack of leadership? Clearly, these guys are all smart guys. They've been around the banking industry forever. What is this boil down to? It's very hard to say. And without the benefit of knowing what happened behind closed doors, you can only assume

things, right? But it sure doesn't seem like this was run correctly. You have to see these Fed rate hikes coming. You see the mismatch in duration. Somebody needs to step up and say, we have to make some adjustments or changes. While there might be short-term pain, we can't let this get out of control. Gotcha. And let me ask you one more question because you kind of threw it in there initially.

And my intent has went up because you use the word that we all you learned in 2008, MBS, mortgage-backed securities. You said that earlier and I was like, holy shit, we're going there again. No, no, what's that? These are performing loans. There was no problem with the linkancies.

This is just an interest rate move. So if somebody's back, think about how many 3% mortgages there were, right? So the coupons that they fall into was a 2% coupon. In other words, a bar were pays 3%, but by the time the originator, servicer, or securities, everybody, Fannie and Freddie makes a piece,

there's 2% left in the coupon for an investor like us, right? Or if you're a bank and you put a lot of your assets and they're getting a return to 2%. I think their average return was like 1.86. Let's call it 2% is what they're getting. So if they're getting 2% on that, think about this. You're receiving 2 on a long dated maturity. You get, that's the rate you're getting. But as the open market gets to 3 and 4 and five on the coupon, where it is now,

is it five on the coupon? Who's going to buy your 2% coupon? They will, if you discounted enough to make things balance out. So at a discount they'll buy it. But meanwhile, that's the $15 billion that they had in losses. So it wasn't always $15 billion as rates were going up. Maybe it was one billion, maybe it was two billion. That's the time where you could put hedges, you could put puts, you can unlever some of

that. That's what the chief risk officer should have been doing. And they've been living for so long under Zerp, right? Zero industry, you know, policy. And to buy for a bank, for a bank, think about it. On the balance sheet, they were holding it as marked to maturity. No bank can buy a bond and market to maturity because when they're using deposits,

it's part of the deposits. By definition, the deposits in a real tough economic situation have to be liquid enough to be retrieved. So how do you buy a bond marked to maturity when you and this I bear in I have a bunch of real estate and we buy a bond marked to maturity. You guys and you say you guys were idiots, you got it at 2%. We're saying we're just holding it to the end. We don't have to sell it.

So we're only going to make 2%. But that's okay. It's just going to pay out, right? And then we're going to get the principle back. But if that was the situation where we needed it to be liquid, then we get screwed. And what was the screw? The screw was 20 billion sold, 1.8 billion loss. That was what they had to pay off to the buyer to get them to take it off their head. But the hell to maturity was allowed legally to be done by the Dodd-Frank regulation,

which says it does not come off of Tier 1 capital. So these are deemed to be held to mature. In other words, okay, the market fluctuation we just talked about guys, if theoretically you held it until it got paid off or till it matured, you get 100%, you get par value back. So there's no theoretical loss. But if you wanted to market, like you said,

to the actual market value, there's a significant amount of loss in where it is. So what the Fed did by setting up this facility is they said, okay, we will lend against what you have. So what happens is they say, we'll take it based upon the par rate. We will not give you a haircut, but now you gotta pay us. You gotta pay us, you know, four and three quarters,

five percent. Today's rate. Today's rate. You're getting 2% back, but it's going to eat into your profit margin. The other thing Patrick, you said before, which is very interesting. And obviously this is where we're going is now at the present time, all deposits are insured, not just the 250. Think about a small regional bank that today has to pay, and they can't maybe can't afford

it that much to pay that FDI insurance on all their deposits. What that may do is that, guys, that may force a lot of concentration. These small banks help start up companies, they help you. They're your local bank, right? That's where you have the relationship. I mean, it could be where we see it like a utility where they're all just concentrated and run by the government.

So here, here becomes a question, which is kind of out of my thing what you were what you were asking. Responsibility goes on who if you if you think about this. The conversation we're having on the on the spaces was okay whose fault is this you know because right now they're calling it a they're not calling it a bailout they're calling the what. It's just a backstop. A backstop. And by the way, bondholders are probably screwed. Shareholders are probably screwed. We're protecting the people that deposited. But it's not a bailout, you know, but she's not a, he's not a snitch, you know, it's not a bailout. So it's a, it's a bailout. It's a bailout. You can look what Yellen says here on page three. Ye yellow says no bailout for silicon valley bank we're not going to do that

again treasury sector secretary yellow started the stated that the federal government will not provide a bill out to silicon valley bank but will work to meet the needs of the positives who stand to lose millions after the bank collapse last week yellow signal that government bailouts like those from two thousand eight crown financial cars would not be considered but the regulators would wait a wide range of available options

for protecting depositors who had more than FDIC amount of $250,000 under accounts. Yellen tried to reassure Americans that Silicon Valley banks collapse would not create a domino effect for other banks and that the core problem Silicon Valley was rising interest rates rather than problems with the tech sector. Okay, so in a way, when you read this, they're saying it's not a bill at, core problem Silicon Valley was rising interest rates rather than problems with the tech sector. Okay. So in a way, when you read this, they're saying it's not a bill out, where does this money

come from? Is this money, you know, money that's coming, that taxpayers are not going to be paying? What are they going to do just printed? Who pays the price for that? So here's the, you know, when you crash your car pat and you have to tell your dad about it and you're very careful about how you word, what was going on when you wrecked, that's what's going on here. She's saying it's not a bailout, meaning we're not printing money and we're not taking

money out of treasury to pay for this. Therefore it's not a bailout. That's what she's clinging to. And I think they're full of crap. Here's what they're taking this out of what's called there's a hundred billion dollar exchange stabilization fund that's the stabilize on emergency basis the markets wait a minute wait a minute

where did that hundred billion dollars come from once upon a time it came from treasury once upon a time it came from taxes once upon a time so she saying we're not going to make new printed money and new instant appropriations on the congressional budget. That's what she's saying. So this $100 million exchange, the stabilization fund, she's taking 25 billion out of it and putting it there along with this brand new other device, the BTFP bank term financing program, where they can now pay the difference between FDIC and the deposit in the event of a bank failure. So guess what?

Now a bank can be irresponsible and say, well, we're not going to get sued by the depositors because the federal government is going to back them up out of this thing. And it'll just be our shareholders and bondholders that get screwed. So I agree with, I agree with Tom 100%, I just want to point out a couple of things on yelling. So Friday, she said, the banking sector is resilient. That's almost like a Baghdad Bob comment kind of like, you know, there's nothing going on here, right? Nothing to see here. Yeah. Because we make sure it's resilient. Right. And now inflation's just transitory. Just transitory. Not to see here. So then what happens is on Sunday morning, she says there's no shot of a bailout.

I guess somebody must have pulled her over on the side and said, hold on, Jennifer, this is much bigger than you can ever imagine, because now people can't make payroll. That's what people are freaking out of. How am I going to make payroll if the money's no good, right? So because you could have two, three million in payroll, it's not uncommon for a lot of these companies. So now when we talk about bailout, what they are doing truly is a bailout and here's why. If I have something that's worth $100 and I'm getting paid by the government, $130, way

above market, and they say, yeah, it's okay for me to pay you $130 because 10 years from now you'll get the $130 back. They're theoretically not taking a loss, but they're holding it to maturity and they get it back. That's why they're claiming it's not a bailout, but they're holding it to maturity and they get it back. That's why they're claiming it's not a ballot, but they're paying above market for it. So therefore, it is, there's no other way to look at it other than it is a ballot. They're paying above market for something should be worth. Let me ask you guys with, you know, this whole reassurance and calming, don't you think

it's sort of important to define and explain what a bank run is? Because that's essentially what this comes down to, no? Like you start to hear these terms, it's a bank run, they're trying to avoid a bank run is because that's essentially what this comes down to. No, like you start to hear these terms. It's a bank run. They're trying to avoid a bank run. And that's just what? It's three definitions of a bank run. I think it's two different discussions. Let them read it. Go ahead.

Bank runs happen when customers panic and everyone tries to get their money out all at once. The author explains that what happened at Silicon Valley bank leading to the second biggest bank failure in US history is essentially what happened here. Did you see the lines of people outside getting their money, like literally, like, first individual public say, no, first of all, yes, I have. Well, isn't it true that 90% plus of Silicon Valley bank's assets were above the 250,000 FDIC in short, meaning it was all major money from tech startups, millions and millions of dollars in there. So, isn't it sort of on the bank to diversify

who it's getting its money from? I mean, I don't know how that is. No, it's not on the bank. No, it's not on the bank. No, this is not, okay, so if you look at this here, this is how I processed this. Right, if you wanna stop, cause you're distracting everybody. It's just, yeah, we're fine, we don't need to see the video. Right, if you want to stop because you're distracting everybody.

Just, yeah, we're fine. We don't need to see the video. So if you think about this, here's what I want you to think about. So in a situation like this, Bill Acme comes out and says, what, it's not fair. This is not good. We should bail and we should figure out a way to take care to the positives and all this other stuff.

And then David Sacks goes and agrees with them. And Vivek Ramazwani, who was running for office, comes out and says, no, this has a bailout. What are we doing? And then, you know, David calls them out as a fox, you know, it's a very interesting back and forth between Sacks, Akmin, Vivek Ramaswani, and a lot of other people, right? Okay.

Oh, heavy weights. Oh, no, no, no, it's fine. It's all heavy weights, but now here becomes the thing to be thinking about. So when Benghazi happened, do. So when Benghazi happened, you remember when Benghazi happened, how many people were killed during Benghazi? How many lives were there?

Four people, right? And if you're an average person, if you were a Democrat, you said what? So a Barack Obama and a Hillary Clinton did their best. I mean, what else do you expect them to do? They didn't do anything wrong. They tried so hard. They had sleepless nights trying to take care of this.

If you were Republican, what did you say? Hillary Clinton, this is why she was sleeping. And she didn't even want her to get up and see what's going on. And that picture they posted with Hillary Clinton, Barack Obama and all this stuff, that's just a picture for media they posted, right? Okay, great. And then the average person,

three, six, 12 months later, after the election, the debates were done. Guess what? They're going to the next news cycle. Hey, what's the next thing? Okay. And people forgot about Benghazi. Guess who's never forgot about Benghazi till today? The four families, the four families that lost somebody. Fathers, brothers, mothers, sisters, husbands, you know, wives and all this stuff that in this case, you're never gonna forget. So think about those four families.

If you're related and one of those individuals was your son or your brother or your father, what do you think you're gonna do the rest of your life? There may be vengeance in you. You may have a feeling of what revenge. You're never gonna be the same. If your kid is going to say, I'm going to go to the military, your reaction is going to be more dramatic than an average person because you're experiencing that pain. You're hate towards

a Hillary Clinton or a Barack Obama is going to be what? How are you then anybody else? Because it's your fault. It happened under your watch. Can you blame those four families? No, we can't blame those four families. However, let's bring it to the situation today. So, as Silicon Valley bank, they go through what they're going through, fine. Who do you think cares about that bail out the most? People that have money with Silicon Valley bank? Who else do you think cares the most? Those who have their employees that are paying the salaries

through Silicon Valley Bank. Who else? People who work for Silicon Valley Bank. They should care the most, okay? All right. Secondly, if you go to the people who criticize capitals on the most, which capital list do they criticize? Those socialists or Democrats or low and middle income families that say, capitals all they care about is what? Money and all this other stuff. Who did they criticize?

This is exactly what they criticize because when you think about the foundation of capitalism, there's four things. The foundation of capitalism comes onto four things. It's freedom to buy, it's freedom to try, it's freedom to sell, you know what the last one is? It's the freedom to fail. A lot of people at this level want the first three freedoms, but they don't want the fourth freedom. What's the fourth freedom? Dude,

you failed is what you did. So what do you want to do? Well, we got to get our money and all this other stuff. Okay, fine. Now some people say, well, you can't say that if it was your money, you would also be saying the same thing to get the money. I'm not disputing that. You're right. If I had money in there, I would be very concerned because that's my family's money. And rightfully so, just like you, if you're 72 years old, you're probably less thinking

about what it is to be a barrier of entry or regulation, holding people back from competing with these super centers at Walmart or Target or a financial code, you're probably more thinking about what? Medicare, mess up, retirement, you know, social security. And you should because that's what's affecting you directly, right?

So I'm not judging the people that have money in Silicon Valley Bank, but it is a right criticism to say, you want to be protectable, you go take all the risks. So what does this teach? So imagine in life how you create resentment for kids. I got four kids. If I discipline my oldest son,

more than in a different way than I discipline my youngest son, I officially create resentment between them two and from my oldest to me. If I discipline Tico for he does something I'm a young guy, youngest son. I officially create resentment between them too and from my oldest to me. If I discipline Tico for he does something and I take iPad away from him for two months, but the same thing Dylan does and I let him play iPad for two months,

Tico's gonna say, I knew he was your favorite. I knew he was your favorite. And today, the low and middle income families guess what they're saying. I knew they were your favorites, favorites fed. I knew they were your favorites. You bailed them out again. You gave them money again. They're right. You know they were your favorites, Fett. I know they were your favorites. You bail them out again. You gave them money again.

You're right. You sit there and try to say that. But this does affect them, though, Patrick, because the payroll and then the contagion to other banks. You know, I think the banking system, the shareholders who invested in the banks, they're not being taken care of. They're going to probably lose everything.

The people who loan money or the bondholders, they're probably going to get a fraction of what they invested. Maybe, I don't know. I don't know what it's going to be. Anybody's guess is good to mind. Bonds are first position. They'll probably get scraps. But then the depositors, that's the everyday person.

It's their money. And if it wasn't that they can do that. Silicon Valley Bank is not a everyday person's bank though. I know, but, but... This is not a community bank. But if it would... This is not a, this is a regional bank. There's only 27 regional banks on America.

There are one of 27. But if you worked for them, you couldn't get paid because your payroll was in there. Well, guess what happens there? Here's what I would say. What happens with there? There's a guy named Jamie Diamond. Okay.

You know what Jamie Diamond the last Thursday? With his boat bankers? Hey guys, call every single one. We're doing an all-nighter today. Call every single one of the accounts and businesses that are with Silicon Valley Bank. Tell them to come over here. Here's what we're gonna do for you.

We'll take care of you. We're gonna make sure your employees get paid. We're gonna do this. We're gonna do that. Capitalism works its way. Let me read you this note that the COO of Shopify send that. Can you show the COO Shopify if you can read it? I'm going to read this message to you right there. Check this I'll go back one the other way. There you go zoom in. Hello, this is Kaz Shopify COO. Reach

in out. I know that we've already sent you an email your Shopify payments payout going out to SVB and asking you to change your account on file. Please do that. I'm reaching out to also offer something else. If your funds are locked up and you have trouble hitting payroll, please let me know. We'll immediately open up a balance account for you and fund it with the amount of money of your payroll so you can pay your people. Don't worry about signing anything now. We'll get lawyers to get paper things later.

We want charge interest. We want to help you pay us back with no interest. When you're, this is capitalism. So this is what I mean by a Jamie Dimes season that says, okay, SVB bank, you want to be irresponsible and reckless, you want to get an award and then come back. There's a reason why this morning, can you pull up the one with the,

I get an email this morning from Goldman, first of in the morning, and I'm like, what's this email all about? That one right there, zoom in. Look at this, they rate banks, the GSIB, you have to know what GSIB stands for. GSIB stands for global systematic something here. Let me read.

Important banks. That's exactly what GSIB stands for. It's a cousin to see fair, and everybody else. It's called globally, systematically important banks. What a weak name, but that's what they call it. Go's a cousin to see fair and everybody else. Yeah, it's called globally, systematically important banks. What a weak name, but that's what they call it. Go down a little bit so everybody can see this. So at the top, all the way at the top, meaning zoom in a little bit and then we'll go from

the top, there you go. Yeah, there you go. So the most stable bank, they have JP Morgan Chase in a league of their own. By the way, what's empty above JP Morgan's? Why is that? Meaning somebody has reached a level of three and a half percent, which is like the highest level is what they're saying. Nobody's an A plus.

No, well, J.P. Morgan Chase is an A plus. They just don't have anybody that has a perfect score. So J.P. Morgan Chase at the top, then it's B.A.V.A. City Group HSBC, which HSBC bought the UK branch of Silicon Valley Bank. And then you have the next tier's bank of China, Barclays, B.M.P. Deutsche Bank, Goldman Sachs. And then the next one you have, Wells Fargo is on that list

by the way, all the way at the bottom. So think about that. Wells is not at the B-a-a-level. Wells is not at the chase level. Wells is not at the city level. A lot of times people think Wells is one of those. It's not. Morgan Stanley on a lower list.

And then I.N.G., you see some of these other guys, right? You see Wells by the way. Well, the way down there, all the way at the bottom. You'll see them all the way to the right there. So, this kind of gets you to say, all right, we got to be careful. But this is my concern, and I want to ask the two of you guys here on what you say with this. So when you look at .franc frank the video can you pull up the video of

trump with might as touch and uh... uh... they shared this and there's a whole community right now people that are saying well you would never show this on the podcast there's no way you can talk about the sound the podcast no we kind of like to see both sides of the argument this argument is this whole situation with silicon valley bank is trumps fault if you can play this clip. The legislation I'm signing today rolls back the crippling Dodd-Frank regulations that

are crushing community banks and credit unions nationwide. They were in such trouble. One size fits all. Those rules just don't work. And community banks and credit unions should be regulated the same way, and you have to really look at this. They should be regulated the same way with proviso for safety as in the past when they were vibrant and strong, but they shouldn't be regulated the same way as the large complex financial institutions.

And that's what happened, and they were being put out of business one by one. And they weren't lending. Since its passage in 2010, Dodd-Frank has dealt a huge blow to community banking. As a candidate, I pledge that we would rescue these community banks from Dodd Frank, the disaster of Dodd Frank, and now we are keeping that commitment and all of the people with me are keeping that commitment. We passed and signed a record, number of bills, terminating jobs. You can stop at this point. So when you see this, your understanding,

if either one of you guys, Barry or Tom, what was the cause of Dodd-Frank? We know what happened under Obama, Barack Obama. What was the cause of Dodd-Frank? And at the same time, what credibility do you give to what might have touched on some of these guys are talking about saying, if Trump wouldn't have deregulated some of these regulations in talking about saying if Trump wouldn't have deregulated some of these

regulations in Dodd-Frank, this would have never happened with Silicon Valley Bank. It wasn't because the loans were not performing. It wasn't because of bad investment. It was a duration mismatch. It happened because the Fed went about a course to raise rates in an unsustainable manner without thinking about unintended consequences. If these would have been investments that were turning up bad, that's one thing. And then you could say, okay, the fact that what was done here, and I believe that it isn't

spoken about in this clip, but I believe what they're discussing here, is when he rolled back the reserve requirement of how much you'd have to keep for a small bank where it was removed, that the reserve requirements so that those banks could invest that money and wind up making more profitability, which gave them options it made for more competition. So I'm not saying right or wrong, I'm just trying to outline it because I don't think that really displays what the ruling was that he removed. So if these were bad loans that went bad, well, then you could go back to this clip and

said, you know what, if you would have had more stringent rules and they made less investments, maybe they would have been smarter investments. Okay. But the investments were good. It just was a deracent mismatch that wasn't managed. Tom, what would you say about that? Two things. First of all, the game when you have a weak leader in a White House is the blame predecessor.

So trains are getting derailed. Oh, trump changed a ruling on one type of cargo yet he's responsible for all trains derailing now this happens here oh this what happened wait a minute why haven't we had five or ten banks if trump created a situation where the banks could run willy nilly why do we only have one bad actor why and that bad actor dot frank reserve requirement forced to take capital if you're insolvent no exotic instruments transparency reporting none of that is present here in what happened with silicon valley bank

these boneheads took twenty billion dollars put it into bonds risk officer leaves nobody's paying attention to the portfolio and then they end upside down in member seven less than seven months J Powell moves the rates and they're upside down. So do they sell it in a panic right that no they hung on to it See I guess what he raised them again and it got worse So I don't see anything on the Dodd Frank and I'd love to see a tear down that says okay What specific red light did SVB run that was not present in Dodd-Frank

light after Trump's move? By the way, I agree with you 100%. I think that's the question. Yeah, but also Tom, let's remember within Dodd-Frank, it gave SVB the ability to use hold to maturity and not take the haircut right there. They were able to declare that it was the total value. That's what the problem was. And a lesson nobody learned from Mark.

If anybody has watched the big short, you know that Mark to market, hiding in the background is ultimately what kills big stacks. And this is what exactly what Dodd Frank allowed SVVB to do. So Dodd Frank allowed for this. Yes, it did. Not the other way around. Exactly right, because Dodd Frank allowed for the provision that you now, that 15 billion loss, you don't have to take it as a loss. You could say, we're going to hold it to maturity, even though the market value, like Thomas Sain,

they didn't have to mark that to market. It doesn't come off your tier one capital. As long as it's in one of the assets that's deemed no risk like an agency mortgage tax balance, she footnote by and by way by law, that's all they had to do. Rob just found this. If we can take a look at this in 2018, the House passed a rollback of regulations in Dodd-Frank by a vote of 258 to one, not even close. And in the Senate, 17 Democrats joined Republicans. So this is both Democrats and Republicans joining together

to get the bill to Trump's desk and sign into a law, which raised the bill raised the threshold for regulation standards from 50 billion to 250 billion, which left less than 10 banks in the US subject to stricter federal oversight and allowed banks under 250 billion in access to escape increased scrutiny. Go ahead. Well, I just, since we're kind of dipping our toes into the political side of things, you want to address what Biden said today, I kind of summarized this whole speech.

I want to wrap this up before we go. But here's the thing with this part for people to be thinking about. If it's very easy for both sides to do this this isn't a republican or a democratic both sides do it where they're like yeah but this was his fault yeah but it was that fault and probably everybody in the strong guilty of uh... of doing this before here's a challenge though for how long did bydons administration have control of the house senate and

to be able to do it well if they had Well, if they had it for two years, how come they didn't do anything with this? You had two years. It's plenty of time. So if you're saying, well, you know, it's this fault, well, it kind of becomes your fault because you could have actually done something about it for two years and you never thought about this.

So if that's the case, whose fault is it really? Or can we just set this thing aside and say, let's deal with this direct to make sure this doesn't happen again to another bank today. But my biggest concern of this before we go to the Biden speech is the following. Let me tell you one more I can say. Here's my concern. So my concern, I'm kind of debating in my head and I'm going back and forth.

And I'm trying to not stick to one side of the argument. On one end, I understand the frustration of people saying, hey, capitals and for the poor and socials and for the rich, I get it. And on the other side, I'm like, okay, we do need more regional banks. We need more banks, period. Okay. This crisis, to be honest with you, just made chase a lot stronger, right? If you think about this, this crisis, how many people in America had this conversation three nights ago, husband and wife are in bed,

they're having this conversation together, hey babe, yeah babe, the bank we're with, is it one of the bigger banks or is it regional? Let me find out, babe, it's original. Are we, what kind of, are we we're a community? Oh, did you see what's going on, babe? Look, let's just be safe and go to one of the bigger guys. Who do you think should go to?

I don't know. Larry, my cousin said go to Bank of America. All right. Larry go to Bank of America. Hey, Johnny is at Chase. Let's go to Chase. How many people you think in the last week? That's the data I would want to know.

How many people left smaller banks to go to the bigger banks? That's the risk. Now, some people may say, well, that's the right move to make. That is the exact way it needs to be. We need to go there. Let me ask you this other question. Do you think Tesla forced other car makers to innovate faster? Do you think Tesla was good for the economy?

The answer is what? Of course it was. Absolutely. It made everybody say, we better get our shit together before this guy, it's our lunch, right? Do we think, we did a, Rob, what did we do two weeks ago when we're talking about the weapon manufacturers where we showed how they went from 51 companies down to five.

Do you know what you wanna talk about? The javelin. It's a lateral chart this way where it goes, do do do do do do do do do do do do do do do do do do do do do do do do do do do do do do do do do do do do do do do do do down to five. Well, the fewer we have, the less competition there is. So there's more boolean. The fewer banks we have, believe it or not, socialists want that.

They want it to be nationalized banking. They want that. That's more of a control. Of course, that's more of a control by the US government. Single-payer healthcare. It is by far the worst thing. It is by far the worst thing for you and I because they get to bully us. So again, as much as this is, if I'm on the Democratic side and I kind of want to get my top five banks to get stronger, guess what I'm doing right now? This is exactly what I'm doing right now.

Get your money out of regionals. This is exactly, can you zoom in please? Thanks for finding it Rob. If you can zoom in a little bit, look at this. This is showing, we used to have 50 plus companies in 1980 to buy aerospace, any kind of weapons, anything we wanted, down from 1980 to 25. Lockheed Boeing, Gratheon, Northrop, and General Dynamics.

If we go the way we're going right now, and the big banks use this crisis, we all know the same by Rahm Emanuel, never let the crisis go to waste. If they use this crisis, this is a great season for the bigger banks, the bigger bullies, to eliminate a lot of the community and a lot of the regional banks.

That's my concern. That's my concern. That's what I'm concerned about. It's all about us. banks, the bigger bullies, to eliminate a lot of the community and a lot of the regional banks. That's my concern. That's what I'm concerned about. It's also what we've seen in retail though. I mean, it used to be mom and pop shops all over the country and now it's Amazon, Walmart and Target, if you're lucky. And Sam's and Sam's, so is consolidation that bad of a thing in general or is it depending on the sector?

An area that you need innovation, it is. So innovation, ideas, your banks are important. They're part of the fabric of life. You go to your local bank, you have a relationship with them. It's important. Yeah, it's a, as much as, you know, from the safety standpoint, the average person could say, that's exactly what I'm going to take my bank in my money when you go to a bigger one. It is not going to long term work out for everyone there.

You do not want that. If you look at the numbers, I looked it up earlier, a community bank in America, we have 2,258 community banks in America. This is ranges 10 billion to 100 billion. That's what the community banks are that size. Large banks in America, we have a 38 of them. This is banks that are worth a hundred billion or more. I think Chase, if you can pull it up, you had it earlier, Rob. It's a $3.2 trillion bank, $3.2 trillion. There you go. Chase is $3.2 trillion in assets, then it's B.A.V.

City. Look, it even wells is at the top. They don't put it as safety all the way at the top. You go all the way to the bottom till, guess, to $100 billion if you can do that to see how many we got. Boom, boom, so come out, keep going. Yeah, there's 38 of them that we have. And in regionals, we only got 27 of them. Drop scroll back up a little bit. Let me just say to the top 10.

Got it, go on the side. We need more competition. We definitely need more competition. The last thing we need is. Consolidation. Yeah, we do not need consolidation. If you want to go to President Biden gave a speech earlier today, I think it was four minutes and ten seconds give or take, he talked about how deposits will be there. He talked about the problems with bank.

He brought up Dodd Frank on what they did and how he blamed Trump and he talked about unemployment under four percent for straight months and he talked about unemployment under four percent for straight months and he talked fourteen straight months and he talked about protecting the positives so it's very much quick four minutes ten second he also took credit for twelve million jobs created which is always put back put back the ones that would shut down with cover the back of it that's a very ridiculous statement to make i'm sorry i just took notes down specifically regarding the bank run

and Silicon Valley bank. He said, the FDIC took control of all assets for the banks. And by the way, it wasn't just Silicon Valley bank. What's the regional bank that also just went under? Silvergate. So, no, no, not Silvergate. It's so rich. Signature.

Signature, right. Signature, right. Silvergate was a week and a half ago and they were a crypto bank. Yeah. So here's some of the highlights of what Biden to say, all customers are going to be protected and will have access to their money.

There's going to be no losses to taxpayers. That's, you know, something you wanted to point out. And we talked about this earlier, where these fees are coming from. All fees we paid by the what the banks pay into this FDIC fund, that all management from these banks will be fired and the investors into these banks will not be protected. And obviously his overall goal here is to eliminate any stress and people freaking out for these bank runs we were discussing earlier.

So it was interesting to me that he used it to point blame, but the blame is misappropriated here. Let's understand what happened. The reason why the Fed, okay, so we have a mismatch and duration. That happened because the Fed was extremely aggressive. Why was the Fed extremely aggressive? Because they were overly accommodative and culpable as well was government which was overly stimulative. And culpable as well was government, which was overly stimulative. In combination, they created this inflation. So you have the arsonist is now become the firefighter. So this is what the problem is.

Now, by the way, what the Fed did today, I applaud them. They had to save the depositors. I agree with that. But their moves to maniacally increase rates. That's like if somebody, having for a bit of somebody's ill and you say, okay, I'm going to give you some medicine. Five minutes later, you're not better. I'm going to give you another dose. I'm going to give you another dose. This is what they're doing because it takes a while for this to happen. I've got some stuff on inflation that they're trying

to fight if you ever want to take a look at it up there that shows inflation's going to come down if they just understood how it worked and if they just saw what causes it to come down. there that shows inflation's going to come down if they just understood how it worked. And if they just saw what causes it to come down.