[Plura-list] SVB's investors will get $2b in public bailout money

[Cory Doctorow]

Read today's issue online at: https://pluralistic.net/2023/03/18/2-billion-here-2-billion-there/

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This Monday (Mar 20), I'm doing a remote talk for the Ostrom Workshop's Beyond the Web Speaker Series

https://iu.zoom.us/meeting/register/tZUkduCtrjgqGdyxV37xLBfw6XCs9VM7RfnT

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Today's links

* SVB's investors will get $2b in public bailout money: Also, Silicon Valley is apparently a neighborhood in Manhattan?

* Hey look at this: Delights to delectate.

* This day in history: 2003, 2008, 2013, 2018, 2022

* Colophon: Recent publications, upcoming/recent appearances, current writing projects, current reading

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🐦 SVB's investors will get $2b in public bailout money

We were told that the Silicon Valley Bank bailout wasn't a bailout: in a bailout, it's the *investors* who get public money; but with SVB, it was the depositors. But, of course, the owners of SVB were also depositors in their own bank. All in all, SVB's owners are entitled to $2B in public money.

When Biden said, "investors in the banks will not be protected.  They knowingly took a risk and when the risk didn’t pay off, investors lose their money.  That’s how capitalism works," he was ignoring the fact that this isn't how *the law* works.

Writing on Credit Slips, the incomparable Adam Levitin - the best source on bankruptcy law writing on the web today - breaks it down: "creditors of a subsidiary have no claim on the assets of a parent." That means that the FDIC has no claim on the assets of the now-bankrupt holding company that owned SVB:

https://www.creditslips.org/creditslips/2023/03/oops-how-the-fdic-guaranteed-the-deposits-of-svb-financial-group.html

Which means that when the FDIC makes all the depositors at SVB whole, they will transfer $2b to the "investors" whom Biden promised "will not be protected." If you're interested in the minutiae of this, Levitin's piece is short and clear - there's no automatic tort-based claim that would let the FDIC get the money back from the investors, because SVB isn't classed as a really big bank (a "G-SIB").

As for Dodd-Frank's "source of strength" doctrine, it "doesn't create any concrete financial liability—it's just exhortatory."

Bankruptcy law *does* give priority to regulators seeking capital to keep depositors whole, but that applies only when the bank makes "a specific promise to do so." All this means that "the FDIC seems to have accidentally guarantied $2 billion for the creditors of SVB Financial Group without any offsetting claim."

No source has been better for understanding the SVB debacle than Credit Slips, asking questions and raising issues that no one else has even noticed - like, why didn't SVB use CDARS or another reciprocal deposit service (where banks stash money on behalf of depositors with one another to keep balances below the insurable limit)?

https://www.creditslips.org/creditslips/2023/03/why-werent-silicon-valley-bank-depositors-using-cdars-.html

I first found Credit Slips thanks to its outstanding coverage of the bankruptcy of the Sacklers, the intergenerational crime-family that made billions by starting and fueling the opioid crisis, and managed to keep those billions thanks to a series of breathtakingly corrupt, extremely complex legal maneuvers:

https://pluralistic.net/2021/07/29/impunity-corrodes/#morally-bankrupt

SVB's owners are attempting their own bankruptcy law hack, and Credit Slips is on the case, analyzing the bank owners' claim that SVB is actually a *Manhattan* company, despite being based in, you know, *Silicon Valley*:

https://www.creditslips.org/creditslips/2023/03/who-knew-silicon-valley-was-on-park-avenue-manhattan.html

In its filings, the company claims its "principal place of business" is its modest offices at 387 Park Avenue South (and not the massive headquarters building it maintained in Santa Clara, which SVB lists as its HQ on its "Bank Holding Company Report, Systemic Risk Report, Consolidated Financial Statement, and Parent Company Only Financial Statement for Large Bank Holding Companies."

SVB isn't incorporated in NY, it has no bankrupt NY affiliate and does not keep its principle assets in NY. Despite the obvious absurdity of its claim to being headquartered in New York, SVB's officers swore to it on penalty of perjury.

Why would they do this? They're judge-shopping. They evidently believe they'll get a better deal from a judge in the Southern District of New York than they would in the Northern District of California.

Like, maybe they think the SDNY will let them protect the $2b the FDIC has promised them.

SVB lobbied for lax regulation - including lower reserves - and failed to take basic steps to protect their depositors that comparable banks engaged in. They suborned their regulators, evading the prudent supervision that would have prevented a bank from taking shares in 3,000 of their depositors' businesses and building a balance sheet whose deposits were "90-100% uninsured ‘hot money’ deposits by venture capitalists to bet on unhedged long-term bonds":

https://mattstoller.substack.com/p/fire-the-fed

As Matt Stoller writes, SVB extended below-cost loans to insiders as part of its "white-glove" service, promised depositors personal audiences with top tier VCs each time they deposited $100m. All of this created the utterly foreseeable, absolutely preventable systemic risk that the public is now bailing out, to the tune of $175b.

Weighed against that $175b price-tag, the $2b that we're about to shower on the architects of this collapse may seem like small potatoes. But as the old saying goes, $2b here, $2b there, pretty soon we're talking real money.

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🐦 Hey look at this

* Rishi Sunak has electricity grid upgraded to heat his private pool https://www.theguardian.com/politics/2023/mar/12/rishi-sunak-has-electricity-grid-upgraded-to-heat-his-private-pool (h/t Super Punch)

* National Science Foundation News https://www.youtube.com/channel/UCRuCgmzhczsm89jzPtN2Wuw

* What is algorithmic amplification and why should we care? https://aisnakeoil.substack.com/p/what-is-algorithmic-amplification

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🐦 This day in history

#20yrsago Aaron Swartz warns that Danger is repeating the Newton's restrictive SDK licensing mistakes https://memex.craphound.com/2003/03/18/danger-repeating-apples-newton-mistakes-with-restrictive-sdk/

#20yrsago HK researchers identify mysterious, deadly respiratory disease https://web.archive.org/web/20030413164143/http://www.interesting-people.org/archives/interesting-people/200303/msg00276.html

#15yrsago Sequoia Voting Systems scares NJ county off of auditing its machines https://www.nj.com/news/2008/03/voting_machine_maker_threatens.html

#15yrsago Wikihistory: sf story about the revert-wars among time-travellers — “everybody kills Hitler on their first trip” https://web.archive.org/web/20080302114051/http://www.abyssandapex.com/200710-wikihistory.html

#15yrsago CBC to release TV broadcast as high-quality, no-DRM BitTorrent download https://www.michaelgeist.ca/2008/03/cbc-bittorrent-release/

#15yrsago Sequoia Voting Systems threatens Felten’s Princeton security research team https://freedom-to-tinker.com/2008/03/17/interesting-email-sequoia/

#10yrsago Sheet music for the Mario “coin” sound https://web.archive.org/web/20091030172840/http://www.mariopiano.com/mario-sheet-music-coin-sound.html

#10yrsago CPAC racism panel derailed by audience member who suggests slaves should have been grateful for food, shelter & clothing https://archive.thinkprogress.org/cpac-participant-defends-slavery-at-minority-outreach-panel-it-gave-food-and-shelter-to-blacks-1959db62fa/

#10yrsago Copyright shouldn’t take away real property rights https://www.wired.com/2013/03/you-dont-own-your-cellphones-or-your-cars/

#10yrsago Literature’s business model explained, with special reference to the age of the Internet https://www.vqronline.org/articles/what-business-literature

#10yrsago HOWTO make homemade “Cadbury’s Easter creme” eggs https://food52.com/blog/6103-homemade-cadbury-creme-eggs

#10yrsago Audio from my Homeland tour presentation https://ia800303.us.archive.org/22/items/Tclp2013-03-13CoryDoctorowOnTheThemesOfHomeland/cmdln.net_2013-03-13.mp3

#10yrsago What is good and important about steampunk https://harkaway.tumblr.com/post/45604944287/the-steampunk-movement-is-good-and-important

#5yrsago Steven Brust’s “Good Guys,” a hardboiled noir urban fantasy, with everything great about Brust on proud display https://memex.craphound.com/2018/03/18/steven-brusts-good-guys-a-hardboiled-noir-urban-fantasy-with-everything-great-about-brust-on-proud-display/

#5yrsago Raleigh cops are investigating crime by getting Google to reveal the identity of every mobile user within acres of the scene https://www.wral.com/to-find-suspects-police-quietly-turn-to-google/17377435/

#5yrsago Local UK governments say identifying buildings with Grenfell cladding would be a gift to arsonists and terrorists https://www.theguardian.com/uk-news/2018/mar/16/towers-with-grenfell-style-cladding-at-risk-of-arson-and-terrorism

#5yrsago Richard Spencer says that antifa sucked all the fun out of college appearances, calls it quits https://theintercept.com/2018/03/17/richard-spencer-college-tour-antifa-alt-right/

#5yrsago Wells Fargo accused of ripping off rich people, too https://www.cnbc.com/2018/03/16/wells-fargo-wealth-management-employees-questioned-by-federal-agents-wsj.html

#1yrago Late stage capitalism is weird capitalism: A planned economy run by Blackrock, Vanguard and State Street https://pluralistic.net/2022/03/17/shareholder-socialism/#asset-manager-capitalism

#1yrago The market for carbon credit lemons https://pluralistic.net/2022/03/18/greshams-carbon-law/#papal-indulgences

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🐦 Colophon

Today's top sources:

Currently writing:

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* A Little Brother short story about DIY insulin PLANNING

* Vigilant, Little Brother short story about remote invigilation. ON SUBMISSION

* Moral Hazard, a short story for MIT Tech Review's 12 Tomorrows. FIRST DRAFT COMPLETE, ACCEPTED FOR PUBLICATION

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Latest books:

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* "How to Destroy Surveillance Capitalism": an anti-monopoly pamphlet analyzing the true harms of surveillance capitalism and proposing a solution. https://onezero.medium.com/how-to-destroy-surveillance-capitalism-8135e6744d59 (print edition: https://bookshop.org/books/how-to-destroy-surveillance-capitalism/9781736205907) (signed copies: https://www.darkdel.com/store/p2024/Available_Now%3A__How_to_Destroy_Surveillance_Capitalism.html)

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* Red Team Blues: "A grabby, compulsive thriller that will leave you knowing more about how the world works than you did before." Tor Books, April 2023

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* The Lost Cause: a post-Green New Deal eco-topian novel about truth and reconciliation with white nationalist militias, Tor Books, November 2023

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