40 – SVB & latest financial crisis

SVB goes down, and the Fed and Treasury react. The latest on the financial crisis: What actually happened? What was done to stave off the crisis? What are the next steps and what’s further on the horizon? As always, our “no bs” views and analysis. Navigation: Intro (01:34) Section 1: What happened? Section 2: What was done to stave off the crisis? Section 3: What are the next steps? Section 4: What’s on the horizon? Conclusion Our co-hosts: Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news Subscribe To Our Podcast Intro (01:34) Bertrand Welcome to Episode 40 of Tech DECIPHERED. An episode, of course, focused on what happened this past week with Silicon Valley Bank and the overall financial crisis around it. We are recording this as of Wednesday, March 15, Pacific Time. Between the recording and the release of this episode, it might take a few days, so things might have changed. Bear with us. What a week in Silicon Valley. That was pretty insane. I think we have a black swan type of crisis every year now happening. Nuno If it's once a year, is it still a black swan? Bertrand Of course not. Sorry if my joke was not explicit enough. Nuno You're being facetious, understood. Okay, clear. Bertrand I'm definitely being facetious about this. Definitely, in the past, I don't know, three, four years have forced us to run businesses in a different way. We will try to do a short episode this time focusing on what happened, what was done to stave off this crisis, as well as what's the next steps, what's on the horizon. Nuno Let's start with the obvious big picture thing. Rate increases by the Fed is one of the engines of all the issue around SVB. We'll come back to what actually happened later on, but let's go through fundamentals first. The Fed has been increasing interest rates dramatically for the last less than a year. It's going to be a year, I think, this week, from starting at 0.25-0.5 range to now being at 4.5%-4.75% range, if I got that right, for the Fed rate in one year, less than a year, which is incredible. That has created, obviously, a situation where there's a lot of strain on various financial products that banks, for example, may be over exposed to. Nuno But it all started, in all honesty, for a valid reason, which was really containing and reducing inflation. If we remember, inflation started around the one point something percent mark, so well below the 2% magical number, which we're now questioning is 2% really the right number or not. But it went through the roof by 2021 into 2022 to 9%, and the Fed had to do something. They've been pushing it down. Obviously, I think the last number of inflation is around 6.0%, very close to 6.0%. Clearly, the interest rate increases have been working in really containing and reducing inflation, but this is the side effect. Bertrand Yes, it's definitely a side effect. Why is it a side effect? It's because when you increase rates, especially so fast as a bank, especially banks who have seen continuous increase in deposits, thanks to the monetary inflation over the past few years. If you have bought assets, long-term bonds at low rates, suddenly with the rate increase, the value of your bonds is decreasing. Bertrand For me, what's also interesting in all of this, and we keep learning more and more in the coming few days, but if I look at regulators, it looks like as well, they were asleep at the wheel. I was reading that a very recent FDIC stress test was not including any chance of rate i...