In the Spotlight: SVB Collapse and its Historical Parallels
‘History does not repeat itself. It rhymes’ — Mark Twain
The world is once again embroiled in a banking crisis. We are sure you have by now already heard that Silicon Valley Bank and Signature Bank went into liquidation over the weekend. Those are not some tiny banks — Silicon Valley Bank had USD 210 Bln in assets, while Signature Bank had USD 110 Bln in assets. They were not giants, but SVB ranks as the second largest bank that has gone into liquidation (only behind Washington Mutual in 2008). Аlready аdding to the story is the largely expected liquidation of Silvergate Bank, and in total, we have had three bank failures in less than a month.
Historical Parallels with the Global Financial Crisis (GFC)
It is crucial to draw historical parallels between the recent bank failures and those of 2008, the year of the Global Financial Crisis (GFC). What happened during that time was that preceding the GFC, low-interest rates lured most banks to lower their home lending standards. Once too much credit was extended, massive speculation was unleashed on the housing markets. Home prices began to rise at levels practically never seen in history, while at the same time, we heard from the Fed that there was no cause for concern. Trust us, they said, there is no bubble in the housing market.
What happened in 2008 was softening of the economy and a gradual rise in interest rates. Suddenly that softening of the economy made credit a little bit more expensive, and housing prices began to plateau. But those small fluctuations in the interest rates and availability of credit had a vastly disproportionate effect on the market — it turned out people were not ready for a plateau; they were only prepared for an up market. As interest rates continued to rise, lending standards tightened, and suddenly many people were facing levels of financing that they could not afford and thus decided to default. But even that was expected. What was largely unexpected was that so many people would decide to default quickly.
The Housing and Crypto Bubbles
It turned out that there WAS a bubble in the housing market — it was OBVIOUS in all the TV commercial messages — ‘Get a mortgage, no money down, no credit score check, no employment verification!’ That was the message practically on all the TV stations… I guess the Fed does not watch TV…
But in hindsight, it is evident that EVERY bubble in history receives considerable public exposure — that is why it becomes a bubble. It seems silly, but to identify a bubble, at least in recent history, all one needs to do is watch for a significant move in asset prices and what receives increased publicity.
And what do you know, after COVID, in a span of less than 12 months, Bitcoin went from USD 10,000 to USD 60,000, and suddenly airwaves were full of FTX commercials, ‘Don’t Miss Out’. Half of all the commercials during 2022 Super Bowl were about crypto! Did we already mention that in order to spot a bubble, at least in recent history, all one needs to do is watch for increased prices and what gets advertised excessively on TV?
And what happened in 2023? We have three of the largest crypto banks failing, not only failing but failing in the same month. We may be wrong, but this looks awfully similar to what happened in 2008.
We believe the problem is that the Fed might not have a TV or cable subscription. To help them with bubble spotting, and banking regulation, we plan on organizing a drive to collect money for a decent TV and a 2-year cable subscription. Clearly, had they watched enough TV, like the rest of us, there is no way they would have missed the housing or crypto bubble.
Let’s save the world together — donate money for a TV and a 2-year cable subscription for the FED!