E119: Silicon Valley Bank implodes: startup extinction event, contagion risk, culpability, and more

Because then you will see a lot of people trying to move money away from any institution that stores their money in some sort of security that's not 100% liquid like cash. And that's going to cause a massive run.

So I think there's a chance that if the federal government doesn't step in here, the whole regional banking system could be decimated, and you're just going to be left with four too big to fail banks.

And I think what we know and what we're seeing is the next dominoes are already falling.

Folks, when you look at the equity tier of these regional banks, people are liquidating the equity tier because they know that that is the first domino to fall if banks go into receivership. Please act accordingly. You can see it in the ETFs. You can see it in the trade flows. This is not a Silicon Valley problem anymore.

But it shouldn't fail because we can't get money that is in a deposit. That should not be why we torch hundreds of startups and what they're working on. Maybe thousands.

And so if they start to go down and then payroll doesn't hit the air conditioning company that's using the tool in Arizona, and then the Stripe service isn't able to process e-commerce payments for a small business owner that runs a website, you can start to see how there can be very significant trickling effects.

I think private markets in BC could seize. I think you're going to see people pull term sheets. Maybe half as many fundings are going to occur as people try to do triage.

Jay, how you tweeted that you think this is going to cause a 60-day freeze in deal-making activity. I think that's more or less right.

They either do that this weekend or this thing keeps cascading next week.

And so that then takes you to path two, which is then the only other real solution is for the Fed to warehouse them and guarantee them.

If a federal agency comes in, if the Fed comes in and says, you know what, we are going to backstop all of these banks and we are going to put $500 billion behind it and we're going to guarantee that all these deposits are going to be made whole.

Nothing can revive the crypto market as we're seeing today. Even in a run on the bank, which is exactly what everybody was afraid of in a Bitcoin world, that thing is down 10%.

this is the reason for that, Chamath, is just that what we've seen is that liquidity is all correlated. So when people are panicking about the state of their finances and worried about getting access to their cash, the first thing they dump is crypto because it is very liquid.

we, the four of us, have been talking for the last 18 months about the impact of rising rates. And, you know, we talked a lot about, for example, like in our portfolio, my partners and I walked into every company and made them have at least enough money to get through mid-2025.

Two days ago, two days ago, Powell was testifying in front of the banking committee. And they asked him, do you see any systemic risks in the banking system because of the rapid rise in interest rates? He said, no, no systemic risk.

And I think that venture has always romantically been described as like buying lottery tickets. And so it doesn't matter if you lose. But when you have that kind of attitude, you just become super complacent and you don't think about left tail risk.

I get it, but the asset as an asset class, we can make fun of it all we want. It's actually performed pretty well. These guys have generated typically 18% as an industry kind of returns.

And this is exactly what happened in 2008, when people started giving those no recourse or no background check mortgages. Remember those? Where like you didn't have to do a background check to get a mortgage? That's what happened in venture. They just gave these, I saw it firsthand, willy-nilly.

So after the conversation we had on the show about venture debt, I'm like, I don't really like that SVB is in this business. So I told my guys, set up an account somewhere else.

And now what little cash they had left may also be gone, which means those valuations are even more impaired, which means that the LPs that gave them the money are even more underwater.