Pivot - Silicon Valley Bank’s Downfall

Episode Date: March 12, 2023

Kara, Scott, and William D. Cohan are back with a bonus episode to talk through Silicon Valley Bank’s 48 hour collapse. What does its fall mean for tech? Who's to blame? Will depositors be made whole? You can follow William D. Cohan at @WilliamCohan. We’ll be back with a regular episode on Tuesday! Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Just go to Indeed.com slash podcast right now and say you heard about Indeed on this podcast. Indeed.com slash podcast. Terms and conditions apply. Need to hire? You need Indeed. Hi, everyone. This is Pivot from New York Magazine and the Vox Media Podcast Network. I'm Kara Swisher. And I'm Scott Galloway. And we're coming to you with an emergency bonus episode in the wake of the largest U.S. banking failure since the 2008 financial crisis and the second largest ever.

As you know by now, prominent tech lender Silicon Valley Bank, the 16th largest bank in the country, is now under control of the FDIC, along with nearly $175 billion in customer deposits. Joining us now to break it all down is Bill Cohen, William D. Cohen, bestselling author, financial journalist, founding partner of Puck News, and a former banker. So welcome, Bill. Great to be here, Cara and Scott. Thank you for having me. So I want you to do a quick summary of what's happened. Why don't you start? I have a lot of statistics, et cetera, but why don't you tell us where we are and what happened so far that we know? Well, I mean, probably anybody who's listening to this knows by now the rough outlines is that this bank literally went into receivership, taken over by the FDIC in

something over 24 hours, seemed to be okay on Wednesday night. And by Thursday night, the stock had lost something like 70% of its value, and then on Friday was taken over. on Friday was taken over. And what was the cause of this? A lot of bad decisions by the bank's management, specifically, I think, to invest a lot of their depositors' money in overpriced bonds and mortgage-backed securities and treasuries that had lost a tremendous amount of value as the Fed pivoted to raise interest rates.

And then as rumors started circulating about troubles at the bank and depositors wanted their money out, it was a classic run on the bank. They had to sell the securities that they had on their balance sheet at a big loss and that just exacerbated the problem. So management error, big time problem. And of course, the Fed's 13-year infatuation with zero interest rates also played a big part in this. Right. And this run, which at first it was people could get a sense of it because they raised, they wanted to raise $2.25 billion in funds from new investors. They were talking about it. And so people in the venture community are very smart about this. And they withdrew $42 billion in funds by the end of the day. There's a specific venture

capitalists are having the fingers pointed to them more than others. And that also caused it. So it went from a market cap of more than $15 billion to FDIC control in 48 hours. I mean, so, you know, you have to ask yourself why people exacerbated the failing. I mean, if people just stayed calm and didn't run for the exits, now, you know, then this probably wouldn't have happened. People could also exacerbate the fall, which they chose to do for whatever reason, maybe competitive reasons, maybe to take out a big player that they didn't like. I mean, basically the same thing happened with Bear Stearns 15 years ago. So to me, it's a little deja vu all over again.

As usual, Bill, I think Bill's spot on. I think of it as kind of two things. One is the age-old story of how financial institutions go out of business, and that is mismatched durations. And that is you invest long and you borrow short. And that is they invested in kind of securities, which by the way, weren't risky securities, aren't securities that other banks don't hold. But it had a three-year maturity. And then they borrowed short.

And that is anyone, any depositor could get their could ask for their money back and was expected to get their money back on 24 hours notice, if not 60 minutes notice. So when VC-backed companies aren't doing as well and they need their money out, you have a mismatch. You have a bunch of money that can get out right away, and that money has been invested in securities that have a long-term maturity. The other thing that no one's really is fairly unanticipated or historic since 1979 is the federal funds rate has gone from 25 bps to 475. So when they purchase three-year maturity bonds in one year, all of a sudden those bonds are worth a lot less. And then when people start pulling money and they need to fund those withdrawals, they have to go into the market and sell those securities, add a discount and take a loss.

And all of a sudden they're in a liquidity crunch. That is the age old story of how hedge funds and alternative investment companies go out of business. What was less expected here and really interesting or more novel is concentration risk. And that is we knew they were concentrated in an industry. But I think when the forensics on this are done, you're going to find out that maybe as few as 20 people, specifically tier one VCs who have maybe 50 portfolio companies decided on Wednesday or Thursday morning to go into a war room mentality and said, call every CEO of our portfolio companies and tell them to get their money out now. And when your VC calls you and tells you to get your money out, you get your money out. So just do the math, 20 big time VCs, 50 portfolio companies, that's 1,000 companies,

average of 10 or 20 million. You're talking about 10 to 20 billion right there. So we not only didn't, I don't think people realized that the concentration wasn't even just a sector specific concentration, but it was concentrated to a couple dozen individuals. I don't think anyone saw that coming. Yeah, they didn't. Bill, talk about this, because you and I talked about this. There's a group of VCs that said, we stand together with the bank. Missing from those were Andreessen Horowitz, Sequoia, and Peter Thiel's Founders Fund. It looks like he got his money out. He wasn't exposed. Talk about that. A know, a lot of people on Twitter and other ways are speculating that it was a plan to do this. It's an open question right now whether there was

an organized conspiracy by smart people to take advantage of this situation, which does happen. I mean, look at a short squeeze, which occurred, occurs lots of times. It occurred, you know, Bill Ackman, very smart hedge fund manager, decided to short Herbalife and then was squeezed to near death by Carl Icahn and Dan Loeb, two other smart hedge fund guys. So, you know, it does happen. I have no idea what A16Z or Sequoia or Peter Thiel might have against this bank, but, you know, they did make themselves vulnerable. I think the big question to me, Cara and Scott, is why in the world would they invest their depositors' excess money,

money, that money that is not in loans, in the bond market at a time when the bond market was uninvestable. Everybody knew that zero interest rate policies, which had been going on for 13 years, was going to end. So everybody knew that if you bought a bond at par, you were going to get hammered on a mark-to to market basis as interest rates rose. You didn't know when they were going to rise, but you knew that interest rates could not stay at zero any longer. And now they've risen very, very quickly, as you pointed out, and they got hammered when they had to liquidate. I mean, that is malpractice in my mind. Give us a what for. Why would they do that? Since you've been writing about it for two years now.

The party was over. The punch bowl was. Yield Hunger Games. Yeah. Yield Hunger Games. Desperate for yield. Didn't want to just keep it in cash because cash is trash, right? So they go for yield.

And they got a little bit more yield. It cost them their bank. Cost them their bank. Costs them their bank. So I understand the domino effect here both of you the Silicon Valley bank is at the epicenter the aftershocks are all over the place possibly or not because a lot of Silicon Valley people are like this is the end times all banks will be that's their little scare trope going on some people are like oh maybe not it's just this one bank. Janet Yellen's expressing confidence which she has to do in banking regulators to make sure that it doesn't take the whole financial system down. This happened before with the Washington Mutual, as I recall. The New York

Times reported investors were dumping Peerstock, though, a First Republican signature bank. There's lots of banks that saw a fall off. And we'll talk about what happens to people's money, because Vox Media itself has a lot of cash in Silicon Valley Bank. We'll get to that in a second. But what's the after effects? First, you, Bill. Too early to say, Cara. We haven't heard from the Fed, at least I haven't heard from Jay Powell.

Very quiet on the Fed front. You know, by this time in the Bear Stearns saga, 15 years ago, we'd heard a lot from the Fed. Now, obviously, Silicon Valley Bank was not Bear Stearns. It's not at the epicenter of the financial system. It's not in the left ventricle of capitalism. But it is, as you said, a very important bank, and not just in Silicon Valley. I mean, startups across the country and even in the world. I heard from the CEO of a startup in Vienna who called me to tell me that he had 80% of his company's assets,

liquid assets, tied up in Silicon Valley Bank. And he's like, okay, my renway just got cut from nine months to six months. I'm kind of a little worried. So, you know, anything could still happen. The bank's assets could be bought. Somebody could come in and buy the whole bank. Or, you know, it could go to liquidation, and that's going to be trouble. What is the best case scenario for depositors here?

Now, they have the $250,000 that seems very small for most of these people per account, which some people think should be higher. The assets are allegedly there that they could. That's why the government shut it down from being able to people to take money out. But what could happen? It takes a while to get your money back if you're paid in full at all. Is that correct? That's correct. Now, the FDIC has created these dividend certificates, I guess, and the idea is that they can pay a dividend out on those certificates over and above the $250,000 relatively quickly.

special dividend out of like 50% of what was deposited over and above the $250,000. So that could be coming. And then it'll just be, it'll take time after that to see what happens. Obviously, if you've got $3 billion like Circle there, you know, you've got a lot of worry right now. Getting it back. Scott, you had a front row seat to this. You serve on boards of companies in the bank with SVB. What are you seeing? So there's a lot of layers to this. First off, the fear is that there's some sort of systemic risk to the entire banking industry, right, that there could be lines around the block to get your money out. I don't think that's the case here.

I think that was a real risk in 2008. But if you look at the stress tests all banks have to go through now, they essentially imagine each of the last three recessions, imagine the perfect storm them all hitting at once, and make sure they have capital reserve requirements, make sure that securities and investments they're invested in are just of a much higher quality. What Bill's talking about is in terms of logistically what happens, your $250,000 gets delivered to you on Monday. They make an estimate of what is almost sort of guaranteed in the bank that they can recover right away and say it's 50% of all deposits. They issue that dividend. And then the rest goes into some sort of like the court administrator. As they recover it, doles it out, and that takes a while. I don't think that happens. I think, and I'm speculating

here, I think on Monday they announce a deal and depositors are made whole. The unintended consequence here is a few things. One, you would have just crazy things such as a SaaS company can't make its payroll or its SVB credit card gets shut off. And there's just all sorts of weird things happening everywhere. Companies that are doing well have to start laying off people. There's just going to be story after story of weird unintended consequences when a company all of a sudden doesn't have access to its capital. The more creeping and insidious problem here is the following. And that is not a run on the banks, but a slow run towards monopoly power. And that is, imagine it plays out as it's supposed to play

out right now. It goes into receivership. You get some but not all of your money and you have to wait for the rest, 60, 70, 90 cents on the dollar. What VC is going to invest in any company without a condition that says you have to put all proceeds into one of five banks that have over $2 trillion in assets? What niche regional bank survives when this type of black swan event can take out what is arguably the strongest niche bank in America. When that happens, you have higher fees, you have a less robust banking system. I think right now they're in a war room, all of the smart people at the Fed and at the banking regulators are going, this clears out two thirds of American banks slowly but surely.

Because who on earth, after looking at what happened here, this wasn't fraud, this wasn't commingling of funds, this wasn't investing in no-doc loans, this wasn't commingling assets and investing in shitty crypto companies or tokens. This was, they invested in bonds. They got caught on the wrong side of interest rates, run on the bank, inspired by probably a couple dozen individuals.

Who is going to put their money into a regional bank or anything less than $2 trillion? So I think there will be huge incentive for the government to figure this out. And then on the flip side of that, I think what's happening right now, and I have no inside information, is that over the weekend we're going to transition from fear to greed. And that is a big bank, a David Solomon, a Jamie Dimon, is going to say to Powell or whoever's running this show right now or to Yellen, you just take the government bonds. You can hold them for three years. You can borrow at lower rates than we can. You're not going to lose that much money. I'm going to step in and overnight,

I'm going to be the premier bank in the tech sector where one out of two VC-backed companies bank with me. And I'm going to do in 24 hours what took SVB 24 years to build. And I don't think it'll be that expensive for the government. I think it'll be the most elegant acquisition in the history of financial services. And overnight, a bulge bracket investment bank is going to go to zero to 60 in tech. All right. So Bill, what do you think is, because they didn't have the greatest experience last time, right? There were some problems with when the government worked out different banks buying other banks. So talk about with this many assets under control. It is an attractive target. Who are the likely buyers in that, Scott, is that venture capital firms are already talking about supporting their portfolio companies by providing the payroll dollars on a zero interest loan basis that they would otherwise be using Silicon Valley Bank for, just to get over sort of a form of bridge loan to help out in this, you know, difficult time. So that might keep at bay

the worry that you just expressed about the consolidation, further consolidation of power into the, you know, big five banks or whatever they are these days. So it's important, Gary, to remember that the Fed has not let any of the SIFI banks, the systemically important financial institutions, buy, you know, anything since the financial crisis. So the Fed has to approve that. They're the prudential regulator of Goldman Sachs and J.B. Morgan Chase, etc., etc. So whether they would permit an acquisition, a WAMU-style acquisition, J.B. Morgan Chase, do you remember, bought WAMU after it had been seized by the FDIC? after it had been seized by the FDIC? Perhaps they bought out of it what they wanted,

just like they did with Bear Stearns. They left $30 billion of assets behind that they didn't want. Could some sort of structured acquisition with the Fed's approval happen? I mean, if I were David Solomon at Goldman Sachs, I would be looking at this immediately. That would get the research analysts off my back about Marcus and Green Sky in a real hurry. But it has to be approved by the Fed, right? Correct.

It has to be approved by the Fed. And Mark Cuban had posited that the Fed should buy up the bank. That seems unlikely. I don't think the Fed buys up banks. It facilitates other banks to buy other banks. Just like it did with long-term capital management. It basically forced Wall Street to bail out that hedge fund. That's right. And they have that ability to force them.

And this is an opportunity. This is a possible greedy opportunity. A coalition of VC firms, including Lightspeed Venture, put out a statement saying they'd urge their portfolio companies to resume business with the bank if it's purchased and fixed. Also, because he cannot stay out, and if any controversy, Elon Musk said he's open to buying Silicon Valley Bank and making it a digital-only bank. I feel like that's not going to happen. Either of you? Can we just not talk about him in this context for once? Yes, okay, good. I'm just saying. Well, when the Oscars happens on Sunday, if, say, Michelle Yeoh wins, he's going to go up and take it for himself. Anyway, to be clear, what happens to customers?

Let's get that. Silicon Valley Bank isn't really for retail customers, although I've had several friends who I was shocked had accounts there all under $250,000. They were worried. I was like, you'll get out the FDIC insurance, so you should be fine. But a lot of other people who are not people I thought were in there. But it has a specialized clientele, funding startups and tech projects, know very well.

A long time ago, they backed, I think, one of our code conferences or something. You know, they were very into marketing events, things like that. Known SVB customers, Roku, 500 million. Circle, 3.3 billion. Roblox, 150 million, Vox Media. I couldn't get Jim Bankoff to tell me, but its credit card stopped working, and our producers really want me to ask, will they get paid this month? They will, because Penske Media, who has just made an investment in Vox,

has agreed to do the same thing, to make sure there's cash on hand to be able to pay those things. But what should customers do? Well, again, if they have under $250,000, they're okay. If they're like Circle and have $3 billion, then it's going to be a long wait to get that $3 billion. I mean, I think in Wamuu, if I have this correct, JPMorgan Chase made all those depositors whole on their money. I mean, there's no reason that they shouldn't get it. I mean,

I've heard one venture capitalist told me today that, and I don't know about this as pure speculation, that the FDIC has some sort of special powers that they can force borrowers that the FDIC has some sort of special powers that they can force borrowers to repay their loans sooner so that the money comes in sooner so they can be paid out to the depositors. I'm not sure why you would disadvantage borrowers for the benefit of depositors. I'm not sure how that would work. But I think it's just a question of whether, A, somebody comes along to buy them and then they'll be in pretty good shape and whether the Fed will allow that to happen. B, whether somebody comes along to buy some of it and then it'll be touch and go.

Or C, it's just liquidated and that's going to be a long process and trouble. Yeah. And, Scott, what should companies be telling their boards and investors right now? I can tell you. As someone who's on the board, some of the companies I'm involved in got their money out. Others did not. And it's like there's only one thing you can do, and that is communicate in a very transparent way immediately. This is what's going on.

This is how much we have in there. This is what we've been told. And then move to any sort of this is what our plans been told, and then move to any sort of, this is what our plans are in terms of liquidity. I haven't seen or heard of a company that is not going to be able to make payroll. The VCs know that, okay, they're going to get most or all of their money back, or at least that's what they believe. So they're willing to provide bridge financing.

But I think the interesting conversation here is one around whether this company gets bailed out or not, and whether it is a bailout and moral hazard. And I would argue this really isn't a traditional bailout. And I've seen all this chatter on Twitter that, well, you can't- Why bail out the VCs? Right. We're bailing out. This is capitalism on the way up. I've said this. Socialism on the way down is cronyism. But use Delta as an example. Delta was bailed out, and basically management got to hold onto their options, and shareholders got bailed out. The shareholders and management here are toast. They've been wiped out. The question is, for a low amount of money, could you reduce systemic risk, reduce concentration of power,

could you reduce systemic risk, reduce concentration of power, and keep the tech economy humming at a fairly low number? I mean, it would be as if you said, okay, we're not going to bail out Delta, but any passenger who had bought a ticket, we're going to give them their money or credit for a future flight because we're worried that passengers are only going to fly on American and no one else, and it's going to be bad for the industry. So I think as the weekend progresses, the biggest checkbook in the world gets the five biggest banks in the room and says, whoever we have to do the lease for in terms of backstopping gets this and gets a series of unbelievable relationships and assets,

it strikes me that there's real incentive here for all for for the settle by Monday, right? Soon as possible. Right, Bill, they got to look care. This is a confidence game. A hundred percent like borrowing short and lending long is the world's oldest and riskiest confidence game. Okay. And so you've got to restore confidence as quickly as you can. Now, it's not 2008 because this bank is not at the, as I said, the left ventricle of capitalism like Bear Stearns and Lehman Brothers and Merrill Lynch were, but it's a significant part of a major ecosystem that we kind of celebrate in this country and we like, right? So we've got to restore confidence so that the contagion doesn't spread to, you know,

First Third or First Republic or other banks because that'll be trouble. And so the sooner they can restore confidence, the better. Even over the weekend. I've heard from several companies. They're like, why aren't they saying anything? Why aren't they being louder? They're all kind of wandering around, banging into walls. Yeah, well, nobody said much. And I know it's different and smaller,

but nobody said much when FTX went down. I didn't hear from the Fed on that. It's not a dissimilar situation, except there was alleged major fraud. But the run on the bank aspect was similar. I mean, what I don't understand is why this message of how dangerous borrowing short is and lending long never gets out there. And what the heck were these guys doing investing in bonds

and mortgage-backed securities at the height of the irrational bond market? So this bad management by SVB absolutely has to be investigated. They reportedly had no chief risk officer between April 2022 and January. The CEO, Greg Becker, lobbied against Dodd-Frank regulations in 2015. Sold some of his own stock. Sold more than $3 million in stock over the last two weeks. He's also no longer on the board of the San Francisco Fed as of Friday. One account, Raging Capital Ventures, flagged issues with its held to maturity bonds back in January.

So people were looking at this. Where were the regulators? I believe the answer is no way. I mean, granted, the yields were ridiculously low and it was the top of the market, but they had been ridiculously low for years. And I think a lot of people fell into this dangerous cold comfort of thinking we were going to be in a permanent low interest rate environment. I mean, what has happened over the last 12 months is historic since 1979. I don't think anyone could anticipate that. And I agree with you that it wasn't good cash management. I'm an idiot about money, and I was aware of it. But go ahead.

management. I'm an idiot about money and I was aware of it, but go ahead. You know, I do not like to disagree with Scott, but please do. The Fed's zero interest rate policy, quantitative easing policies had gone on for 13 years, had driven interest rates to the lowest levels in recorded history. So there was only one way this could go. Now, did it have to go as quickly as it's gone in the last year? Probably, but it never should have been that low for that long. And so knowing that, and I'm sorry, you know, I've been writing about this in the pages of the New York Times op-ed section for years. Okay, so if you were a fiduciary for shareholders, stakeholders, creditors, depositors as the CEO of Silicon Valley Bank, it is financial malpractice to put that much money into bonds at the top of the market. Let's assume the world agrees with you. Management, shareholders have been wiped out.

Deservedly so. They're done. They fucked up. They're done. They fucked up. They're done. The question now is, should depositors be made whole? And the regulatory question you asked is, the soft tissue around regulation here is one, cash management. Should there be constraints around cash management, what you can invest in? And specifically, the problem here was they weren't forced to mark their book along the

way. They were allowed to say these securities are worth what they'll be worth when they mature in three years, not what they're worth now if we had to sell them in a liquidity crunch, which would have created a different complexion of public reporting for this company. That is where the soft tissue on the regulation is. So I want to be clear. These guys, this was bad cash management. I would argue a lot of very reputable companies could be accused of the same thing 14 or 15 months ago. The question is, should you make depositors whole such that you don't create a march towards huge concentration and contagion. And you could do it, in my view, at very low cost to the government.

I think that's what's going on right now. And I don't know. We'll see. Fox Creative. This is advertiser content from Zelle. When you picture an online scammer, what do you see? For the longest time, we have these images of somebody sitting crouched over their computer with a hoodie on, just kind of typing away in the middle of the night. And honestly, that's not what it is anymore. That's Ian Mitchell, a banker turned fraud fighter.

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Bloomberg said what these two have in common is an unusually fickle depositor base. They certainly are fickle. One of my favorite tweets was, no atheists in a foxhole, no libertarians in a bank run. They were all calling for, where's the government, and things like that. So these depositors, are they fickle? I mean, they move fast. They certainly move fast, and they're all finger-pointing at each other as who moved too fast and knocked the Jenga block out. I think they're pointing a lot at certain people. I mean, I don't know.

What do you do for Circle, which has $3 billion of its cash in one place? I don't know. What is that? You can't have 10 banks, though. That starts, you know, you can't, like, put your money in 10 banks. That's Mark Cuban's point, right? Well, but if you did, you wouldn't be having this problem. So what's the cost of, I don't, what does it cost to have a bank account?

Not really much if you have a certain amount in there. I mean, there's a little more paperwork involved. I say gold in the mattress. That's how I work. No, I don't. But just to push on that bill, I'm not saying I don't agree with you, but that general, doesn't that lead to

there's basically three banks over time? And maybe that's the way it should be. Silicon Valley Bank had $200 billion. If this kind of black swan event can happen and 20 people can take the depositors down, I think they should be able to take the bank down. They did. The shareholders get wiped out. Should they be able to take the depositors down? Because if that's the case, I think we end up with two or three banks in the United States. Because I will take everything I have and put it at one of three banks that are the most bulletproof.

I think that's – why wouldn't you? Well, first of all, there needs to be a huge consolidation of banks anyway. I mean why do we have so many banks? I don't really know the answer. Maybe because people can make money because banking is incredibly risky, as I said, but it's also a great business, especially in a time period when the Fed is making money free. I mean, what other business on the face of the earth has its cost of goods sold for zero and its raw material for free. No wonder JPMorgan Chase made $48 billion in net income in 2021 because it's a great business when it's run intelligently and the risks are acknowledged and managed properly. So I think we're far from a concentration of banks, but I do take your point that people are going to say, as you said, especially

at the board level, should we risk putting our money in a regional bank? And it could knock the legs out of these regional banks that also are boutique banks that specialize in certain industries, right? Like this one did. This is the 16th largest bank in America. And I'll speak as an entrepreneur that used SVB and a bunch of other banks. They give me venture debt. When I start up, they're willing to give me great terms and just warrants on venture debt that finance my companies early on, that I really needed that financing, really great service.

And there's a ton of competition out there, and I did business with Co2, and I've done business with Goldman, and that competition has lowered the costs on me, the entrepreneur, such that I have a greater likelihood of success in creating jobs and creating economic growth. A robust, competitive banking system is just great for the ecosystem. I worry that if, ultimately, if depositors aren't made whole here, every future depositor just goes, I'm going to one of three banks, full stop, no matter what. And the fees slowly but surely get increased on every business, which dampens economic activity. And then the expertise also. This was a bank that

understood it. That's one of the complaints here. It might have been a little too close. They gave mortgages to people based on their stuff. We have this incredibly robust banking system. What was interesting is in the same 15 minutes, I received emails from VCs, two VCs backing two different companies I'm involved in. One was, get your money out now. Now. And the other was, and these are both tier one VCs. The other was, keep calm and carry on. Nothing to worry about.

See, what Scott has described, if I may, is a risky business model. It's great for the entrepreneur. I get it. They're making me mortgages with no money down. They're giving me lines of credit that I probably don't deserve. They're investing equity. They're taking warrants. Scott, you're a risky. I mean, they're doing all these things.

Bad, bad, bad. It's a bad business model. It's not a smart credit business to believe. Not when things go wrong. To believe you're going to get your money back. Great for the entrepreneur, lousy for the bank. Okay, let's agree with you. It's a bad business. The business should be allowed to fail.

The shareholders should get wiped out. The question is, should depositors be made whole or not? Should the depositors who decided to concentrate their hard-earned cash in this risky business model. The 16th biggest bank in America. I don't care if it's the first largest. But I just want to push on this. And this is a decent argument and a decent position. You believe ultimately the best solution is we end up with a small handful of just bulletproof, hugely capitalized banks.

No, I think that's leaping too far to a conclusion. I think letting this one bank with this risky business model go down, I don't, look, I'm an incredibly empathetic person. I don't want people to suffer, the depositors to suffer. I want the shareholders to suffer. I want the management to suffer. I want maybe some creditors to suffer. Done, done and done. I don't want depositors to suffer. On the other hand, if you're Circle and you've got $3 billion at this place. Yeah, that is a lot.

That was an eye-popping number. It was a little bit not thinking clearly. We've been watching layoffs galore. Does this pour gas on the big tech dumpster fire? There is a lot of shot in for the tech space, a lot of stuff. I don't want to pay for these tech people. You know, why should we save this? Sort of akin to why should we save the airlines? Why should we save this? But does it make it worse? Very brief answer, first bill, then Scott.

I think in the short term, it makes it worse because people don't know if they're going to be able to make their payroll payments. If they can't make their payroll, then guess what? They lay off people. All right. And in the long term? In the long term, everything's going to be just fine. We'll be both dead and just fine because the opportunity is vast, right? Just because one bank is gone doesn't mean that there won't be all sorts of competitors rising up. Maybe this is how David Solomon will make his mark in tech land. Finally. He doesn't have to kiss up to me as a bank.

Scott, very briefly. Management and boards are looking for any excuse to laugh people, and they just got another one. They got another one. Oh, that's a good way to put it. All right. Very last question. Monday, I want your guess on what's going to happen. The one thing that's going to happen.

Lay it out for people. Bill. I think there's going to be an announcement that somebody's buying parts of this carcass. Okay. Scott? Yeah. As Lida touched backstop from the government

and a big, well-capitalized bank is taking over this bank and gets a great deal and depositors have about a one-hour sigh of relief. Until? As we speak, I think the paperwork is being drawn up and a bank is saying to the government, I need you to take those bonds, backstop me. And the government probably is trying to get a bidding war saying, we want to backstop you as little as possible. And a bank's going to end up with half of every VC-backed company's banking business on Monday morning. All right. Well, that's it. I think we should start a bank, the three of us. Garrow says that. I think we should start a lot of things. These people don't seem very smart, Scott. That's what I'm pointing out. Bill's got the hair to be the CEO.

I know. Bill should be the CEO. Yeah. But you guys have the smarts. I'll be the fall guy. That's what I am. First time we fuck up, I'm the guy that gets fired. Okay.

But doing these shows, we really appreciate, Bill, you coming on. Scott, thank you for your insights. Thanks, Bill. My pleasure. Everybody, calm down. It's a difficult time, but it's also not the end of the world. And these things, we've gone through worse, of course. That's always the excuse. Can I just make a comment on that? I've had a bunch of entrepreneurs call me. I've had,

I can count them, 11 entrepreneurs call me and say, I had, I raised $22 million. Six weeks ago, I had 17 at SVB. And they're literally like, you can feel their head in their hands. And the one thing that I always hold on to is nothing is ever as good or as bad as it seems. Trust me, this is not as bad as it seems. True. I would agree, Bill. Totally agree with that. I mean, I literally thought we were going to have a financial meltdown in 2008. And the banks came back, the ones that survived, stronger than ever. $48 billion in net income at J.P. Morgan in 2021. Then calm down, boys of Silicon Valley. You'll get your money, as always.

And just again, I want to make that disclosure, Vox Media has significant deposits there, too. So we want to make sure you understand that. No more snacks. No more snacks. We're done with the oat milk. Finally, Jim can dump the oat milk. Anyway, I asked him on the show, by the way, and he declined very politely. Anyway, Scott, Bill, that's the emergency show. We'll be back on Tuesday with

more Pivot. We will have a lot more answers to discuss. Scott, read us out. Today's show was produced by Lara Naiman, Evan Engel, and Taylor Griffin. Thanks also to Drew Burrows. Make sure you subscribe to the show wherever you listen to podcasts. Thanks for listening to Pivot from New York Magazine and Vox Media. We'll be back Tuesday for a breakdown of all things tech and business. Thank you, Bill Cohen. Thank you all. Thank you.

And emergency. We're here for you in an emergency, our listeners.