That’s Not How Any of This Works

I wanted to call Vivek Ramaswamy’s Newsweek op-ed to your attention. After making some of the observations I’ve made here he continues:

Silicon Valley’s dirty little secret? Venture investors could easily infuse fresh equity capital to make up for any balance-sheet losses. Yes, that involves painful equity dilution for founders and VCs, which means the CEOs and other VCs don’t make as much money when the company becomes wildly successful. And yes, capitalism includes accountability for poor financial decisions. But that’s how these losses should be recuperated, not at the taxpayer’s expense.

Moreover, many of those founders and venture-backed companies even received private benefits—such as non-dilutive venture debt—from Silicon Valley Bank itself, as an implicit condition for depositing their money with SVB. Ordinary Americans would have never enjoyed the upside of those special arrangements.

But facts be damned: Their gambit worked.

Behold this pure display of cronyism. The tech companies that petitioned President Biden to protect their assets are now changing the rules after the fact to help a select few who are favored by political actors.

It’s wildly unfair. But it’s worse than that, too: By selectively changing the rules after the fact for SVB, the U.S. government is now incentivizing greater risk-taking by corporations in the future, teaching large depositors at smaller banks that they can simply throw money at risky banks without diversifying or conducting diligence, just like many tech startups did here.

My key point is that I think that the public good, bank management, shareholder scrutiny, and depositor scrutiny should all be aligned. Right now they aren’t. I also think that laws should be enforced without carveouts, exceptions, or special cases. Such things inevitably repeat inevitably become political footballs.

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