I'm not too well versed in economics, so can someone tell me what the fukk is going on?
Big Silicon Valley bank (like REALLY big bank) that is mainly used by tech companies and tech startups to hold their large amounts of money (think hundreds of millions or higher) did what all banks do, which is... When folks (companies) deposited their money in the bank, the bank then turned around and invested that money in other things (all banks do this, and it's basically how banks make their money).
Only problem is, this big Silicon Valley bank made a bad investment (they're saying the investment went bad due to the Fed hiking interest rates because of inflation, but there's an argument to be made that it's not the Fed fault that they made a "stupid" investment) and lost a lot of money. So they started looking for ways to get the money back, such as selling shares and other things... and they were honest about what was happening (I'm assuming this is legally required, them being honest, that is).
Once they said they were losing money, tech companies that had their money in that bank hit the
and said, "Wait a min... I know you ain't telling me what I think you're telling me."
(which is, that they don't have all of the deposit money that their customers, which are tech companies, deposited there.)
Immediately, this started a run on the bank (a run is basically everybody coming at one time to pull their money out). Of course, Silicon Bank didn't have that money on hand (probably only the first few companies to come were able to get all their money, and after that, they weren't able to fulfill everybody else's withdraw requests).
In Silicon Valley bank's defense, from what I understand, most banks can't survive a bank run, because no bank has ALL the money that was deposited in their bank on hand.
But in Silicon Valley Bank's situation, not only did they not have the money on hand, but they didn't have it ANYWHERE - because they actually lost the money (the bad investments).
So they start crashing HARD, and immediately Biden's administration looks over there like
"the hell going on, yo??"
Because this is going to have immediate repercussions on the US (and probably the world) economy. And if you're wondering how, these tech companies have thousands of employees, and they were holding a large percentage of their money in Silicon Valley bank. But if that money is gone, then they can't make payroll and pay those employees. They also can't pay their bills. They can't pay their rent, their light bills, whatever other expenses a company has... which starts a domino effect.
If employees aren't getting paid, then they can't pay THEIR bills. And most folks are living paycheck to paycheck outchea.
So that's the direct domino effect. But then it creates a wider ripple effect, because the greater American public is looking at this like
cause they're wondering if this is happening at this huge Silicon Valley bank, then maybe it can happen at their bank too (which is what happened in the 2008 financial crisis which wasn't that long ago and folks are still mentally scarred from). So if the American public starts losing faith in other banks, then they will start doing a run on their banks. And again, no bank can survive a bank run. If a bank run happens, then there are going to be a lot of people and companies whose money is gonna disappear and it's gonna create a larger domino effect that affects the US and world economy, much the same as the 2008 financial crisis did.
And that's what Biden is trying to avoid, which is why his administration immediately put the clamps on Silicon Valley bank and rushed out to reassure the American people. Cause if the American people lose confidence in the banking system, it's over.
So that's what we're seeing. Currently the Biden administration is doing a good job (it hurts me to say this since I'm MAGA now). There have been no wider ripple effects across the banking industry YET but it could still happen. Which is why they're doing everything they can to avert it.
But the bank in NY crashing isn't a good sign. It could be nothing, maybe it will be limited to these two banks. But maybe not.
We have to wait and see.
www.news24.com
boingboing.net
(Including black banks)
