[DDIntel] Innovations and Systematic Collapses

Mar 26, 2023

What happens when you invest most of your liquidities, as a bank, and people want to withdraw money? The answer to that is that you copy what Silicon Valley Bank did recently.

Silicon Valley Bank had a bank balance that would make even Jeff Bezos ($122 billion net worth) blush. With a deposit balance of $200 billion, they were swimming in money like it was their own personal money pit. But, they invested most of it into long-term US treasuries and agency mortgage-backed securities because, let's face it, loan demand was very weak.

Unfortunately, they relied too heavily on "held-to-maturity" (HTM) investments, which proved to be their undoing when interest rates spiked. Suddenly, their securities portfolio fell faster than a lead balloon and they were technically insolvent.

To make matters worse, their tech customers started withdrawing their money, causing a liquidity crisis and turning unrealized losses into realized losses. In a virtual bank run, customers pulled out a whopping $42 billion on March 9th, leaving SVB high and dry. The FDIC had to step in and shut down the party on March 10th, but at least customers were able to get their hands on their deposits.

Needless to say, the SVB was forced into bankruptcy, and now needs to get saved by Uncle Sam and old man Biden, so they don’t blow up the economy.

The Rise and Fall of Silicon Valley Bank

But, as we are very used to, the official story is never the whole story. We must dig the truth up ourselves and do our due diligence about each piece of information we find. Otherwise, we are just another “conspiracy theory” contributor.

For example, it may not surprise you that top SVB executives sold a whole lot of their shares before the stock became untradable due to bankruptcy. The CEO sold 11%, the General Counsel 19%, The CMO 28%, and the guy who knew very well what was going to happen, the CFO, sold a whopping 32% of his shares. Well, at least they ensured they have money for another “Lambo” and to buy another villa. Of course, the startups they supported and the investors who placed their bet on SVB, are most likely not that happy about them investing all of their liquidities, until they literally don’t have enough cash to buy a burger.

But maybe this was all planned, since the US government must now give them a big loan to stay afloat, and not blow up the startup and innovation economy, which, to be real, is the main reason why America has the technology and foundation to be the world’s greatest superpower.

The FDIC insures deposits up to $250,000, which make up less than 5% of SVB’s $175 billion of deposits, which means less than 5% of SVB’s customers are fully FDIC insured. One of those clients, called Circle, which manages the USD Coin, had around $3.3 billion in SVB; if those funds were lost, that would mean sure doom for the USD Coin.

The good news is that the president, Joe Biden, assured that everyone will be able to get their money back, so the startups can be at rest - and maybe can start looking for a new bank, that doesn’t juggle with their money like a jester.

6 Shocking Facts About SVB Collapse

This collapse of Silicon Valley Bank (SVB), and the way the US government jumped to the rescue, could be advantageous to other banks in America.

This collapse is expected to have a positive impact on US bank stocks. This is due to the fact that the federal government has stepped in to guarantee all bank deposits regardless of size, including those held by SVB's depositors. The Federal Deposit Insurance Corporation (FDIC) has insured all US bank accounts against the risk of loss, providing an added layer of safety and profitability to the banking system.

As a result of the FDIC's action, US bank stocks are now considered a better-value investment, similar to US Treasury bonds or T-bills. This is because bank investors can be assured that they will receive their money back, as Uncle Sam will always cover their losses. This newfound insurance provided by the FDIC has increased the value of US banks and could potentially lead to an increase in the value of lesser-known institutions, which are now attracting more business after SVB's collapse. All of the things that happened to SVB should be a very important lesson for all investors - especially since, Jim Cramer said you should buy SVB stock not long ago (this guy also said Tesla stock will go down in flames, a few years back).

All in all, FDIC's new insurance policy has made other US banks a more attractive investment option for individuals and businesses alike and could lead to increased growth and profitability within the banking industry.

Will SVB backstop boost Bank Stocks?

Moving on to greener pastures, the age of Artificial Intelligence seems to have started to bloom. After Stable Diffusion and Dall-E2, which are able to generate amazing images, paintings, illustrations, and other types of graphic content, the Chat-GPT from OpenAI has taken the world by storm, with its ability to write as accurately as a top writer and extract all kinds of information in seconds. ChatGPT is also very capable to write poetry and fiction stories, to rephrase text, or even summarise it.

Not too long ago, another version of ChatGPT called ChatGPT4 was released, which further improves the algorithm’s capabilities, compared to its predecessor, ChatGPT-3.5.

The new version can handle up to 25,000 words compared to the 3,000-word limit in the free ChatGPT version, allowing it to give more detailed responses and manage larger text inputs such as summarizing entire blog posts or websites. The most amazing improvement is that it can now process images along with text inputs, making it more versatile, useful, and interesting.

Also, the Bing engine has incorporated ChatGPT as part of it, making it an interesting search engine to try right now. Whether or not this new improvement of Bing will give it an “Edge” (pun intended) over Google’s search engine, or others, remain to be seen.

ChatGPT-4 Was Released

Those were the most notable pieces for this week’s DDIntel. There are more interesting articles below, which help you stay inspired and data-driven as always.

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DDIntel will be right back next week!