Tech's Perfect Storm

bank bust fallout, fed steps in, scapegoating tech, an existential threat of bi-partisan populist nihilism, and a brief note on getting your act together

Given the rapid pace of news, I decided screw it I’ll go off. More of a piece than a lead story this week. Blow up my comments.

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Bank run. In short: Wednesday night, following the collapse of Silvergate Bank, Silicon Valley Bank signaled shocking news concerning financials already considered dire — publicly — for over two weeks. Thursday morning, around the time Axios reported on SVB’s attempt at a $1.75 billion stock sale at a loss, shares plummeted 50% on fears of insolvency, and there was a run. SVB attempted to quell concern in a disastrous, counterproductive call with investors at 11:30 AM PT, which the Information reported out just after 12:00 PM PT, and chaos erupted across social media. Thirty minutes later, wires out of SVB were already failing. It was the largest bank collapse since 2008, and the second largest in US history. 

With panic mounting, and fear of broader contagion as the run extended to regional banks across the country, the federal government assured the public it would protect depositors. In other words, Silicon Valley Bank would no longer exist, anyone with shares of SVB would lose everything, but anyone who kept their money at SVB would be protected. The government’s thinking here was any signal depositors would not be protected would naturally trigger a national run. At the time of my writing, Biden’s decision appears to have averted immediate, broader crisis. Nonetheless, most banks are trading down, including banks with far more defensible positions than SVB, and the truth is nobody really knows how this will shape the financial system in the weeks to come. The cultural and political impact is more obvious.

Tl;dr the bank bust fallout revealed for certain what we already knew: tech is now universally hated.

The run triggered a significant realignment revealing new political fault lines that will dominate identity and ideology over the next 12 months, possibly reorienting both major political parties, along with the entire technology industry. Scapegoating began as early as Thursday morning, with the burning question of who — specifically — was to blame for the failure of a bank that had no apparent strategy for mitigating risk in a tech bear market. Was it all the money the government printed followed by a spike in interest rates? Was it the actual failing bank? Or was it perhaps the people who pulled their money from the failing bank?

These are interesting questions, the answers to which, in keeping with the laws of mob psychology, could not possibly matter less. Federal intervention to guarantee depositors of SVB — and now Signature Bank — was framed by proponents of regional bank obliteration (a broad coalition of socialists, populists, and committed libertarians) as a “bank bailout,” an obvious lie given Silvergate, SVB, and Signature no longer exist. More clever proponents of our budding “make them suffer” movement chose instead to frame this as a “VC bailout,” a less obvious lie given most venture capitalists have funded companies that banked with SVB. But venture capitalists aren’t being “bailed out” either.

First of all, the good venture capitalists are all rich as hell, with a diversified net worth, and with most of their valuable equity positions in mature corporations less impacted by a single bank. Second, even the worst VCs are running funds on a 5-10 year time horizon, capitalized in increments, living off of management fees (sad, but my point is just they also aren’t taking a hit). The parties at risk here were tech companies, their employees, and regular depositors — people, just random ass regular people, who put their money in a bank.

But the chaos of the discourse was broad.

Standard left Democrats, including especially Senator Elizabeth Warren — who wavers between folksy democratic wisdom and full-blown socialism depending on the political season — argued this had something to do with regulation (we need more). Standard center-right Republicans also argued this had something to do with regulation (we need less). Leftist commentators argued the destruction of Silicon Valley Bank was actually both good and funny, given it was named Silicon Valley Bank and therefore, presumably, only super evil rich people were impacted. They would not be satisfied, they further argued, until every single person holding money in the bank, from large corporations to startups to random people down the block, lost everything, and were forced to get “real jobs.” Among right-wing populists, sentiment was not much different, though their ire seemed more honestly directed at the technology industry, which it considers, with some good reason, an enemy (more on this in a minute).

Standard left and center-left journalists mostly said nothing, biting their tongue on damaging stories they knew existed while attempting to avoid further escalation of a crisis capable of taking down significant elements of our economy. “Moderate” left-wing writers like Matt Yglesias — not woke, but still insufferable — gloated, while Bloomberg’s Joe Weisenthal targeted the hypocrisy of ‘libertarian tech bros’ with their hands out for free money. It’s important to note how little actual ideology mattered here, given Yglesias’ rough position in favor of free money, for everyone, always no matter what, and the fact that Weisenthal’s most famously known for his obsession with minting a “trillion dollar coin,” which is exactly as stupid as it sounds, and a literally endless printing of money. This class of critique is a little easier to understand. For people like Yglesias, it was simple professional jealousy of David Sacks, who not only runs a podcast more popular than Matty’s blog, but who Matty finds annoying.

The tech industry’s position was lockstep: the bank itself needed to go to 0, with every shareholder in the bank wiped out. But people actually holding money in the bank should be protected. The reaction was, in part, obviously emotional. Many kind, good people suddenly found themselves at risk of losing everything through no fault of their own. Payroll was Wednesday. This was going to be apocalyptic. Still, the position was mostly argued in terms of what a failure to protect depositors would mean on Monday: no American in their right mind would want any money in a bank. With trust in the financial system obliterated, the entire country would be thrown into economic chaos. But there was one critic from within worth noting — newly-minted anti-woke “icon,” and hero of the working class, Vivek Ramaswamy (a pharma tech bro, net worth: $600 million).

Vivek, running hard for the presidential Republican nomination against DeSantis and Trump, came out early in favor of no protection for depositors, as he believed anything less would be unfair. If the banks collapsed, so be it — rich people suck! No more favors for rich people! The broader implications didn’t matter, nor did any potential gutting of an entire, vital industry. Also, SVB was “woke” or something. Whatever. But after federal intervention quelled the crisis, Vivek concluded his position as such:

Vivek Ramaswamy @VivekGRamaswamy

If the real FDIC guarantee is some number greater than $250k, then why play the charade of pretending like there was a cap at all? I hate this game of the government saving its darlings by bending the rules after-the-fact. But I guess it’s kudos to Silicon Valley for winning this… https://t.co/HfVfORKJWx

A perspective so entirely divorced from reality I’m actually certain he knows he’s lying.

If there’s one thing I’ve learned over the last few days, it’s tech is no political party’s “darling.” Congrats to agents of the years-long media campaign to fundamentally tarnish the industry. The federal government moved to quell a regional bank run, but the extremes of both political parties wanted blood. President Biden made the right decision to stem disaster, and he’ll probably suffer for it.

Frankly, with no natural allies and what appears to be actual hatred from every direction, the future of American tech is dire. The lowest hanging fruit for targeting is crypto, associated with two of the failed banks, which Barney Frank is already blaming for the crisis. Should it matter that Frank sat on the board of Signature as it crumbled? Of course. Will it? Hello, my name is Mike Solana, you must be new here. The government was already plotting to destroy crypto, as we’ve covered extensively in Pirate Wires. The bank failures will be used to push aggressive regulation, possibly including a pitch to ban exchanges, and an end to the institution altogether. Ironic in the middle of a banking crisis, given — and please forgive for this one — bitcoin solves this (sorry sorry sorry).

More broadly, capital gains is going to be aggressively targeted, potentially undermining an entire system of equity (the real kind) that fuels the technology industry. Social media companies are already being blamed for the crisis, which Democrats immediately exploited.  

From Republican Congressman Thomas Massie Sunday night:

Thomas Massie @RepThomasMassie

Just got off of a zoom meeting with Fed, Treasury, FDIC, House, and Senate. A Democrat Senator essentially asked whether there was a program in place to censor information on social media that could lead to a run on the banks.

But does this mean protection from Republicans? Not a chance in a hell. Yesterday, Massie followed up with this:

Thomas Massie @RepThomasMassie

Understand what’s happening at FDIC: They’re taking the insurance premiums that were paid in to protect depositors under $250,000 (little guys) and using it to cover deposits of the very rich. They argue it benefits everyone to go “all in” on the first few banks.

There is not an entrepreneur in the country, no matter how cash-strapped, no matter how noble or exciting or important their work, who is considered anything more than a “coastal elite.”

Tech is now facing a perfect storm of what I’ve warned for years. The industry’s practice of political censorship in favor of Democrats, not only accelerated but made totally overt over the course of the Trump years, alienated more than half the country. Problematically, the half alienated is represented by the only natural allies business has — conservatives who both resist Democratic calls for greater control, and historically sympathized with entrepreneurship as emblematic of the American Dream, something left-wing tech executives did everything in their power to ridicule and undermine on a public stage for years.

Democrats may be socially liberal, values from which the tech alliance was born, but they reflexively loathe the rich, find the concept of entrepreneurial ambition suspicious, and fetishize a cartoonish portrait of the working class they believe at odds with the men and women who actually build businesses. The left is in favor of anti-trust legislation, it is in favor of industrial nationalization wherever possible, and it is highly sensitive to mob shit generally. In other words, tech has no obvious base of support in Washington.

But here’s what it does have: a lot of people who genuinely seem to want a good old fashioned mass murder.  

Edward Ongweso Jr @bigblackjacobin

My debut at @Slate: Venture capitalists are parasites who couldn't be trusted with the financial institution that held up their industry, let alone the direction of our technological development. Euthanizing them is imperative if we want a better world.

slate.comThe Incredible Tantrum Venture Capitalists Threw Over Silicon Valley BankRemind me why, exactly, these guys have so much control over technological innovation?

Increasingly, with industry leaders pointing fingers at each other, tech is in the most vulnerable position it has ever been. Political war is coming. The populist left and right will have to be appeased by both parties, and if unprotected the nation’s most important engine of progress and prosperity will be devoured.     

The only path forward for the industry, which basically now constitutes American industry generally, is in the first place collaboration. Then, nothing is possible without political influence, which itself will never be possibly without cultural influence. In other words: money. Money for candidates, money for media projects, money for hospitals and schools and museums, money for giant techno optimistic statues built along the San Francisco Bay. We need to be culturemaxxing. And if none of that works, we’re pretty much left with ourselves.

The good news is, until now that’s always been enough. Technology is the fifth estate. When power amasses to destroy you, persuade it, subvert it, or build something better. Just do it quickly.   

-SOLANA

NOTE: Welcome back to the Pirate Wires weekly digest. Every Tuesday, in these hallowed pages, I unpack a lead story and share a storm of links (a technology concentration, with strong intersections in politics and culture). The rest of the week, we’re publishing original reporting, essays, and interviews on the frontline of technology and culture. If you haven’t yet already, please consider subscribing for free. If you have, subscribe for your friends. Thanks love you enjoy the links.

BANK BUST FALLOUT

• Signature closed by regulators. “They gutted Signature so Biden admin could pin it on crypto. The fix is in,” tweeted Nic Carter. Hints of a potentially big scandal here, with Barney Frank openly signaling in its direction: there was “no real objective reason” that Signature was seized, he said. “I think part of what happened was that regulators wanted to send a very strong anti-crypto message.” (Max Reyes) 

• Regional bank stocks continued crashing on Monday. First Republic bank down 74%, PacWest 57%, Western Alliance 84% (Twitter)

• Biden vows to hold “those responsible for this mess fully accountable,” he said on Sunday (CNN)

• Etsy delays payments to sellers, due to the collapse of SVB. (NBC News) 

• Banks down, Bitcoin up. BTC was up nearly 10 percent within three hours of the stock market opening on Monday. 

• Stablecoin USDC broke its dollar peg after news Circle, the firm that manages the coin, acknowledged their $3.3b SVB exposure. It’s since recovered. (Coindesk)

AI BOOM CONTINUES

Henry Kissinger may think ChatGPT is a threat to democracy, but even in the depths of tech winter AI is flourishing.

• ChatGPT comes to Slack, school districts. Everyone’s favorite workplace app is now leveraging generative AI (Axios). So, apparently, are lots of school teachers and young students. (Axios)

• AI disc jockeys, AI models. Enterprising radio stations and fashion companies can circumvent the need for human hiring with AI disc jockeys and AI modeling agencies. (Freethink) (Twitter)

• Pentagon openly bidding for deepfake propaganda contracts. (Intercept) 

• Pentagon, FBI helped academics develop AI facial recognition software. (WaPo)

OTHER TECH NEWS 

• FTC to depose Elon. In a probe related to the Twitter Files and the company’s workforce cuts, the FTC is demanding the names of all journalists granted access to internal documents. (WSJ) 

• Tech platforms struggle to enforce user age restrictions. As social media companies come under fire for allegedly harming young users, they’re having trouble with age verification. (Axios) 

• Google may have to negotiate with unionized YouTube contractors after NLRB ruling. (Axios) 

• Big Tech under fire for platforming Indian cow-protecting vigilantes. (WSJ) 

CHINA

• TikTok pinky promises UK it’s not an arm of the CCP. The Chinese-owned company that’s planning to build two data storage facilities in Ireland unveiled “Project Clover” (subtle) in a bid to assure Europeans it won’t share user data with the CCP. (WSJ) 

• Profile of a Chinese industrial spy. Incredible piece of reporting from the Times on industrial espionage. (NYT)

SWAMP DISPATCHES

• JetBlue-Spirit merger blocked. The Justice Department’s Antitrust Division has filed a lawsuit to block the airline merger, and Mayor Pete is taking “unprecedented action” to help stop the deal. (Bloomberg) (Twitter) 

• Tucker Carlson airs footage of “Q-Shaman” being accompanied by police in capitol. (Fox) 

• Biden Challenger Marianne Williamson pushes back against “derisive and mocking” comments by White House press secretary. (Twitter) 

MISCELLANEOUS

• Newsom says CA will stop “working with” Walgreens, but what exactly this means is anyone’s guess; we break it down here. (Pirate Wires) 

• FDA says it intercepts imported prescription drugs to fight opioid abuse. Data shows it mostly blocks imports of cheap boner pills. (NBC) 

• Eugenics: important. Parents sue a fertility clinic that allegedly did not remove a rare cancer gene from their embryo, now a one-year-old boy. (progress.org.uk)

Until next week — 

-Solana

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