Why Silicon Valley Bank Collapsed And What Comes Next
b'Last Friday, in the largest bank failure since 2008, Silicon Valley Bank failed.\\n\\nBanks fail all the time. But unless it\\u2019s a big or highly-connected bank, most of us don\\u2019t pay much attention. That\\u2019s because at the average bank, about half of all accounts are F.D.I.C.-insured. That means, if a typical bank fails, the F.D.I.C. will step in and pay every depositor back up to $250,000.\\n\\nBut Silicon Valley Bank was not a typical bank. It seems that only around a single digit percentage of accounts were under $250,000. And the people who banked at Silicon Valley Bank are among the most powerful in the world. Nearly half of venture finance-backed tech and life-science companies had money in there. When these people start shouting, those in power listen.\\n\\nAnd so the Federal Reserve and the Treasury Department and the F.D.I.C. stepped in forcefully. They retroactively insured all the accounts, and created an emergency system to backstop other struggling banks, too. But that doesn\\u2019t mean this is over. Bank runs are narrative phenomena. Rising interest rates are revealing a financial system that had only planned for low interest rates \\u2014 in perpetuity. And if, in practice, we\\u2019re going to make whole any depositor at any bank no matter how much money is in the account, shouldn\\u2019t we make that into actual policy, and charge banks for the privilege of full social insurance?\\n\\nNoah Smith is an economist, a former columnist at Bloomberg, and the author of the fantastic Substack Noahpinion, and he\\u2019s done some of the clearest writing and coverage of this mess. We talk about the above, as well as what the crypto boosters \\u2014 many of whom were begging for a bailout here \\u2014 got wrong about trust and finance, the problem the Fed now faces raising rates to fight inflation, whether this was a \\u201cbailout,\\u201d how a bank can be \\u201cnarratively important\\u201d no matter its size, and much more.\\n\\nMentioned:\\n\\n\\u201cHow the Fed is \\u2018Shaking the Entire System\\u2019\\u201d by The Ezra Klein Show\\n\\n\\u201cWhy the US Backstop After SVB\\u2019s Failure Is a Bailout\\u201d\\xa0by Joe Weisenthal\\n\\nNoahpinion\\n\\nBook Recommendations:\\n\\nChip War by Chris Miller\\n\\nHow Asia Works by Joe Studwell\\n\\nThe Invisible Bridge by Rick Perlstein\\n\\nThoughts? Guest suggestions? Email us at ezrakleinshow@nytimes.com.\\n\\nYou can find transcripts (posted midday) and more episodes of \\u201cThe Ezra Klein Show\\u201d at nytimes.com/ezra-klein-podcast, and you can find Ezra on Twitter @ezraklein. Book recommendations from all our guests are listed at https://www.nytimes.com/article/ezra-klein-show-book-recs.\\n\\n\\u201cThe Ezra Klein Show\\u201d is produced by Emefa Agawu, Annie Galvin, Jeff Geld, Rog\\xe9 Karma and Kristin Lin. Fact-checking by Michelle Harris, Mary Marge Locker and Kate Sinclair. Mixing by Sonia Herrero and Efim Shapiro. Original music by Isaac Jones. Audience strategy by Shannon Busta. The executive producer of New York Times Opinion Audio is Annie-Rose Strasser. Special thanks to Pat McCusker and Kristina Samulewski.'