Bill Ackman: government should consider SVB bailout

Investors and tech founders are in “terrible terror” after Silicon Valley Bank, a major lender and key banking institution for the sector, said it was taking steps, including selling shares, to cover large losses on its balance sheet.

Now, a billionaire hedge fund investor is resurrecting a policy idea from 2008—a government bank bailout—to stave off the threat of a new financial crisis.

“The failure of [Silicon Valley Bank] destroy a long-term driver of the economy as VC-backed companies rely on SVB for loans and hold their operating cash,” Tweet Bill Ackman, the founder of Pershing Square Capital Management, on Thursday night.

“If private capital cannot provide a solution, it is necessary to consider the extremely dilutive bailout that the government wants,” he continued.

Venture investors interviewed by luck also takes for 2008 references. “SVB is not going down,” said one venture investor luck. “It’s like, too big to fail.”

Participating in SVB Financial Groupthe parent company of Silicon Valley Bank, fell 60% on Thursday, one day after the bank said it lost $1.8 billion selling its investments, and will sell shares to raise $2.2 billion. The sinking dragged down bank stocks across the US market.

If Silicon Valley Bank collapses, its customers won’t be able to access their funds or borrow more money, bringing their entire operations to a halt. That fear drives startups and venture capital firms consider pulling their money from Silicon Valley Bank to protect their money–and potentially run the bank.

On Thursday, Garry Tan, president of startup incubator Y Combinator, suggested that any startup concerned about bank solvency issues should lower their exposure to $250,000, the maximum amount protected by federal insurance. on deposit.

“Your startup will die if you run out of money for whatever reason,” Tan said in an internal message seen by Wall Street Journal.

The management of SVB is now trying to assure customers that the bank is not in danger, and asking for their trust. “I would ask everyone to stay calm and support us as we support you in this challenging time,” CEO Greg Becker told the venture capital firm in a call, reported. The information.

Silicon Valley Bank did not immediately respond to a request for comment.

What is ‘too big to fail’?

The idea of ​​a bank being ‘too big to fail’ became prominent during the financial crisis of 2008. Some financial institutions were considered too important to be allowed to fail, as central bankers argued that letting them go under could bring down even more banks, creating a complete collapse of the financial sector.

In 2008, the US government both took over troubled financial institutions like American Insurance Group (AIG) and bought $700 billion in toxic assets from big banks like Citigroup, Bank of AmericaJPMorgan and Wells Fargo.

Ackman on Thursday dismissed the idea that another bank could save SVB, citing another example from 2008: JPMorgan’s takeover of investment bank Bear Stearns. “After what the Feds did [JPMorgan] after it got bailed out by Bear Stearns, I didn’t see any other bank helping [Silicon Valley Bank]” he Tweet.

In March 2008, JPMorgan stepped in to take over the failing decade-old investment bank and prevent its collapse. The Federal Reserve backed the deal with $30 billion in support for Bear Stearns’ mortgage-backed securities. But the deal also means JPMorgan is on the hook for legal trouble over Bear Stearns and other troubled institutions it acquired. The investment bank finally spent $19 billion of fines and settlements with customers and regulators.

JPMorgan CEO Jamie Dimon now thinks rescuing Bear Stearns was a bad idea, writing in 2015 that “we will never do something like Bear Stearns again.”

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