The End of Silicon Valley?

Federal Dipshit Insurance Corporation

“What is the robbing of a bank compared to the founding of a new one?” Bertolt Brecht famously asked. We might now also wonder, “What is the founding of a new bank compared to the failure of an old one?” Any time there is a financial crisis or a bubble bursts, it feels like reality breaking through: all the hoped for profits, all the dreamed-up schemes, all the promises floating in air, come crashing down. Oh, you thought you were one of the biggest banks in the country with massive assets? Well, guess what, you’re not and you’ve got bubkes. But even bank runs and financial panics are not just the rubber hitting the road, the real reasserting itself: they, too, are based on perceptions on subjective feelings, on “animal spirits.” Banks fail because people believe they will fail, because they lack confidence.

Last week, Silicon Valley capital signaled it lacked confidence in itself. In an industry obsessed with innovation and “disruption,” Silicon Valley Bank was one of that sector’s oldest institutions, dating back to its early years, a trustworthy, faithful servant of start ups and entrepreneurs. They sure showed their loyalty to their community bank as they panicked and ran. Imagine if George Bailey gave his speech in It’s a Wonderful Life and the townspeople said, “Fuck you, George, gimme my money.” And then, they began to cry for help, with the unseemly and often downright suspicious appearance on Twitter of former libertarian big brains begging the FDIC and the Fed to bail them out. Why? Because if they didn’t get help they said, there would be contagion and the whole system might collapse. To an untrained ear, that might sound a bit like blackmail.

They really had no need to fear: the FDIC guaranteed SVB’s uninsured depositors and thereby effectively guaranteed all deposits everywhere. There are really no such thing as uninsured deposits. If you put money in a bank, any bank, it’s not going anywhere. So, the panic turned out to be totally unnecessary. Their deposits were never really at risk. They lacked the kind of foresight and calm available to even to the most modest, stolid American businessman who knows that the government just will not allow depositors to get wiped out.

The question of a conspiracy seems besides the point: the system is already an open conspiracy of the capitalist class. It’s clear that through its rate hikes, the Fed is trying to break the power of labor. But when they endanger capital, well that’s another story. Does this mean I think we should have let SVB’s depositors fry out of spite? No, of course not. But that’s the thing. There doesn’t really need to be any conspiracy at all: the objective logic of the situation demands that a rescue take place or the entire economy might be at risk.

But I do think in the sober light of day, it’s time to write down certain assets on our books, namely the entire idea of Silicon Valley itself. For at least a generation, this was the white hot center of American capitalism, providing non-stop innovation, labor-saving wonders, all sorts of fantastic gadgets. They were literally building the future. These were supposedly titanic geniuses, the Henry Fords of our time. (In more ways than one, I’d add.) That era has ended or should end now. Turns out they don’t even understand how banks work. Just look around: Facebook is totally moribund. Elon Musk went from building rocket ships and electric cars to dicking around on Twitter. Peter Thiel’s whole deal is partly driven by his frustration that real technological development has apparently stalled out. They have resorted to trying to pass off transparent Ponzi schemes like NFTs as miraculous innovations. Now they are hyping “A.I.,” which is essentially Ask Jeeves that actually kind of works. They try to present themselves off as a diverse and eccentric bunch, boldly striking out in creative directions, but they are a monopoly or an oligopoly: They behaved like one giant herd when it came to SVB.

One refrain that came from the whining venture capitalists was, “Well, what if this was a farmer’s bank, wouldn’t that seem more sympathetic to you people?” Well, after the rate hikes of the 80s, literally hundreds of agricultural banks failed. So did other regional banks. Not to mention, all the Savings & Loans, which were supposed to be pillars of their communities. Nobody really remembers them or gives a shit about that now. That’s the way it works. So, here’s the deal: You are farmers now. You are the phone company. You’re not that special anymore. And yet, for all that, still quite well looked out for because of the nature of the system.

The sudden panic at SVB and the hobbyist interest of some of Silicon Valley capitalists in authoritarian politics have the same root: a fear of the declining social dominance of this particular class fraction. There’s still a lot of capital, but a lot less venture. Now they just want very badly to hold on to what they’ve got. They have entered into a risk-averse period. A lot of what they’ve created is just boring, old infrastructure now and therefore can’t offer the same fabulous returns it once did. Tech is not going to disappear overnight. But we should stop taking the pretensions of Silicon Valley so seriously: They are a bunch of schmucks, just like everyone else. And maybe even a little more so. Silicon Valley is busy laying off its workers, but maybe we should be laying off its capitalists. I’m sorry, but you’re just not very productive anymore, but best of luck with your next step!

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Here are some great pieces on the panic:

Edward Ongweso Jr. in Slate

Yakov Feygin on his blog.

Nathan Tankus on his.