LARRY: THE COLLAPSE OF THIS
SILICON VALLEY BANK IS GOING TO
CAUSE AS FINANCIAL MELTDOWN.
JOHN CARNEY, WELCOME BACK AS
ALWAYS.
YOU JUST TOLD ME, THE FDIC HAS
SEIZED THE BANK, PRESUMABLY
THROWN OUT ALL THE OFFICERS IN
CONNECTION WITH THE CALIFORNIA
BANK AND AUTHORITIES.
>> THAT’S RIGHT.
THEY HAVE OFFICIALLY BEEN PUT
INTO RECEIVERSHIP.
THEY SAY ALL THE INSURED
DEPOSITORS WILL GET THEIR
DEPOSITS BACK.
BUT THAT’S NOT REASSURING
BECAUSE MUCH OF THE DEPOT ITS
ARE ABOVE THE INSURANCE LEVEL.
THE ODDS ARE I BET PEOPLE WILL
BE ABLE TO GET ALMOST ALL THEIR
DEPOSITS OUT.
I DON’T THINK THE FDIC IS LOOK
TO INFLICT HARM ON DEPOSITORS.
BUT THIS BANK HAD SOMETHING LIKE
90% OF ITS DEPOSITS ARE
UNINSURED.
SO THERE ARE PEOPLE AT RISK OF
LOSING THEIR DEPOSITS, AT LEAST
ON PAPER.
>> THE BIGGEST LENDER TO THE
SILICON COMPANIES, THE TECHIES
HAVE HAD A BAD RUN THE LAST TWO
YEARS.
BUT YOU ARE SAYING THERE IS A
MISMATCH BETWEEN THE COST OF
THEIR LIABILITIES AND RETURN ON
THEIR ASSETS.
>> ONE OF THE PROBLEM WAS WHEN
MONEY WAS SO FREELY AVAILABLE TO
THESE STARTUPS, THEY DIDN’T
BORROW A LOT.
YOU CAN LEND MONEY SO PEOPLE CAN
BUY A YACHT OR FANCY MORTGAGE ON
SOME TECH STARTUP’S MANSION.
BUT THEY HAD WAY TOO MUCH MONEY
SO THEY INVESTED IT IN BONDS.
BANK OF AMERICA HAS 25% IN
BONDS.
THIS BANK HAD 50% OF THEIR ASSETS IN BONDS.
ASSETS IN BONDS.
LARRY: THAT CURVE IS INVERTED.
THE 10-YEAR IS BACK UNDER --
THERE IS A NEGATIVE RETURN.
THEY ARE INVERTED.
>> THEY ARE LOSING MONEY AND AT
THE SAME TIME ALL THE START
YUPPEDS DEPOSITING MONEY, THEY
ARE WITHDRAWING IT JUST TO PAY
THEIR BILLS.
SO YOU ARE HAVING THE DEPOSITS
GO DOWN.
THEY HAVE TO SELL INTO A MARKET
WHERE WE ARE PRODUCING REAL
LOSSES, NOT JUST MARKET LOSSES.
THAT’S WHAT SPARKED THE PANIC.
THEY ANNOUNCED A $2 BILLION LOSS
ON THEIR ASSETS AND PEOPLE SAID
I BETTER GET MY MONEY OUT
QUICKLY.
IF YOU HAVE A DEPOSIT FOR THE
SILICON VALLEY BANK, YOU DON’T
WANT TO RISK NOT BEING ABLE TO
GET THAT MONDAY MORNING.
LARRY: THE FDIC STEPPED IN ON
THIS OLD FASHION RUN ON THE
BANK.
PEOPLE ARE LOOKING AT EVERY
OTHER BANK -- NOT THE BIG BANKS,
THEY WILL BE FINE.
THEY ARE EXTREMELY WELL
CAPITALIZED.
THE BANKING SYSTEM IS EXTREMELY
WELL CAPITALIZED.
I DON’T THINK WE ARE ON THE
VERGE OF A FINANCIAL CRISIS, BUT
I THINK WE’LL PROBABLY HAVE A
COUPLE MORE BANK FAILURES.
>> EAST COAST, WEST COAST?
ANY SENSE OF THAT?
REAL ESTATE RELATED?
>> YOU THINK ABOUT ALL THE LOANS
INTO OFFICE BUILDINGS THAT ARE
NOT PAYING THEIR RENT BECAUSE
THEY ARE HALF FULL.
SO I THINK THERE IS GOING TO BE
LOSSES.
I THINK WE’LL SEE A LOT OF THE
CALIFORNIA-BASED FINANCIAL
INSTITUTIONS GET INTO TROUBLE
BECAUSE THEY WERE SO DEPENDENT
ON THIS CHEAP MONEY ECOSYSTEM
FEEDING STARTUP CULTURE AND IS
NO LONGER THERE.
LARRY: WHAT HAPPENS TO THE
STARTUP CULTURE.
THERE IS NO CHEAP CHEAP MONEY.
THEY ARE GOING TO HAVE TROUBLE
GETTING LOANS.
>> THEY WILL HAVE TROUBLE
GETTING LOANS AND RAISING MONEY.
IF YOU CAN GET 5% ON A TREASURY
BOND WHY WOULD YOU WANT 10% ON A
RISKY STARTUP.
I THINK THEY WILL HAVE A LOT OF
TROUBLE CONTINUING TO RAISE
MONEY.
LARRY: LAYOFFS ARE GOING TO
COME.
IT’S NOT THE BIGGEST PART OF THE
ECONOMY IN TERMS OF MANPOWER.
BUT STILL IT’S A BIG PROBLEM.
YOU ARE WORRIED IT’S GOING TO
STRAIGHT AHEAD.
>> THIS BANK SILICON VALLEY BANK
WAS VERY WELL RESPECTED.
IF YOU CAN TIP THEM OVER THIS
QUICKLY IN JUST A MATTER OF
DAYS.
I THINK PEOPLE ARE GOING TO
START TO LOOK AND SAY, I DON’T
WANT TO NAME THE NAME THE OF THE
OTHER BANKS.
BUT, YOU KNOW, MAYBE I SHOULD
PUT IT INTO WELLS FARGO INSTEAD.
ANY BANK IN A FRACTIONAL RESERVE