WHEN SILICON VALLEY BANK WENT DOWN, MANY PROGRESSIVES, AND MUCH OF the media, immediately pointed to malfeasance, special pleading, and regulatory failures—a conditioned response with a strong pedigree. But if those were the real causes, then SVB (and Signature, and First Republic) would have been isolated cases. It’s clear now they were not. A systemic crisis is unfolding—with a systemic cause.
The problem was not (as Larry Summers declared) that a bank should not convert short-term deposits into loans and investments. That is—more or less—what banks do. It was also not (as Elizabeth Warren declared, along with other progressives fighting the last war) that the bank took on too much risk. Its loans were risky—because it specialized in start-ups, which are inherently risky. But they were not failing. Its investments,…
