What Was SVB And Why Did It Fail?

discussion at south By Southwest, which went really well. But that's neither here north Air. So there I am in the airport. I'm just sitting at the gate waiting for my zone to get called, and I hear a little bit of a hubbub, perhaps even occur fuffle, not a full blown commotion, but something is definitely going down right, like there's some chat going on, and I had my earbuds in I was listening to podcasts. At that point, I popped my earbuds out just to find out, you know,

being snoopy, what the heck is going on? And I hear a bunch of very well dressed people speaking in hushed, concerned tones. And I could tell that there was something that was going on and it had to do with money, but that was about all I could figure out. So I pop out my phone to check for the news to see if there's something that's come up that I should be concerned about. And I'm looking at the headlines and I don't see anything immediately that leads me to

real concern. But whatever it was that was happening must have been pretty bad. These folks were clearly agitated, maybe not quite at panic level, but not too far from that. And then after I scoured the breaking news some more, I finally figured it out. These folks were really important

people who work in the tech sector. They were on their way to the tech conference portion of south By Southwest like that's their world, and a bank that has been a pivotal component in the tech and startup industries had just collapsed. So today we're going to talk about Silicon Valley Bank or SVB and what happened there, because it does end up having an impact on the tech sector. And it also was the second bank collapse in a week, and then after that there was a third one, which

will cover at the end of this episode. So I mentioned Silvergate Bank collapsed last week. So this was a real estate bank or a bank that mainly dealt with like real estate loans and that sort of stuff back in southern California, but had jumped over to become a

bank in the crypto space. Around twenty fourteen. They had their own crypto exchange, and they served as sort of a bridge between the world of you know, US dollars and then cryptocurrencies, or the way I often think about it, even though I know it's ridiculous to think this way, I think of it in terms of real money and digital money. It's all digital, none of it's real. So I realized this is just you know, a bias talking

in my head. Anyway. Silver Gates issues hit when some big, big customers cryptocompanies in fact, like I'm not talking about like a person, I'm talking about an entire company that

has a corporate account with Silvergate. Well, some of these big customers were withdrawing lots and lots of money from silver Gates accounts, and Silvergate had already been on rocky ground when FTX collapsed late last year, and on top of that, the US government was starting to look into Silvergate to see if maybe there was anything hinky going on with silver Gate, and whether there was stuff going on or not. And I have no reason to believe

that hinkiness of any nature was happening. It doesn't really matter in the long run, because the perception that there could be trouble spooked a lot of customers of Silvergate and they decided to pull their funds out in case an investigation might uncover something that could lock up their money. So there was a run on the bank at Silvergate, and Silvergate did not have enough funds to cover all

the withdrawal requests, and as a result, it ultimately shut down. Now, Silicon Valley Bank has some similarities to Silvergate in that what led to svb's collapse was also ultimately a run on the bank. So your classic run the bank happens when customers lose confidence in a bank or a savings and loan company in the case of it's a wonderful life, or maybe there's some external financial pressure that convinces customers

they need to pull all their money out. Maybe they don't have a loss of confidence in the bank itself, but other economic conditions make people convince that they need access to cash right, like, it's a liquidity problem. Again, the cash and wealth are two different things, so it'll get kind of muddled as we talk about this. But the thing that happens is customers will rush to the bank to retrieve their cash, to pull all their cash out.

They might think that that would be safer in their hands than rather in a bank that could potentially be in trouble. But the problem is banks typically they don't have all of their customers money, Like the money you deposit in your bank is not necessarily at your bank anymore. At least, banks don't have everybody's money all at the same time because banks are businesses, and as a business they need to make money. And the way that banks make money, the way they generate wealth, is that customers

deposit money into a bank. The bank then takes these deposits and starts to loan out some of that money to other people who pay the loan back with interest. So over the long haul, your money is safely stored in the bank and the bank is making money through interest through its loans, and everybody's happy. But you know, banks have lots and lots of customers. Under normal conditions, there wouldn't be very much of a problem. If you decide to go to your bank and close out your

account and withdraw all of your money. Normally that would be fine because there are tons of other customers. There's lots and lots of money in the bank. There's plenty of it in there for the bank to send you your cash and close out your account. So as long as the bank is keeping a careful tally of where all those dollars are ultimately going and earmarking where they're meant to be, everything's fine and you can just skid

at all. Depending on how active the bank is in loaning out cash, you know, if a lot of people come in to do the same thing, there could be a serious shortfall. Right. If it's one person closing out their account, that's nothing, but if it's say sixty percent of your customers, that is a huge issue. And you get into the statement that you'd hear in It's a wonderful life, you know, Oh, well, the money's not here.

It's a Joe's house that's right next to yours. George Bailey would say, shout out to Shay who made me watch that movie. So, if the bank's customers include large companies, like companies that depend upon massive bank accounts in order to do stuff like pay employees, like that's the payroll account. Things can get really really bad, right if there's a run, Like if a company says, you know what, I don't trust that this bank is going to be able to

stay in business. I've got hundreds of millions of dollars in there. I need to pull it out. That's going to be a massive hit to that bank, and it ends up perpetuating the very problem that you're worried about in the first place. So that's the too long, didn't listen version of this story. Like you technically know what happened to Silicon Valley Bank at this point, there was a run on the bank. SVB could not cover all the withdrawals. The us FDIC had to sweep in and

shut things down and take over. But there is a lot more to this story, So hopefully you're going to stick with me for the long run, and we're going to cover the whole thing. So let's start by talking about where Silicon Valley Bank even came from in the first place. So we could go way, way way back, but let's just start with the late seventies. You know, disc goes on the decline. New wave is gearing up to take over. A little movie called Star Wars changed

both film and merchandising forever. And a couple of casual poker players came up with an idea for a bank that could play an integral part in the blossoming Silicon Valley landscape. Keep in mind the seventies, that's when we just start seeing the very earliest stages of the Silicon Valley flourishing, you know, that's when we started to see the hobbyist community end up turning into the personal computer community. It was an exciting time, and stuff was changing incredibly rapidly.

It seemed like the whole world was obeying Moore's law at that point. All right, Well, one of these two poker buddies was Robert Madeiras, a man from Kansas who had moved to California to attend Stanford where he studied

civil engineering. Then he joined the Navy and served for three years, and after that he pursued a degree at Harvard Business School, and then after that he got into a real estate company and moved back to California and ultimately became a consulting professor back at Stanford, and there he was encountering students who were facing very similar challenges. These were students who had compelling ideas for a tech

based business, but how would they secure funding. They didn't have the collateral needed to get big loans to start a business. The tech business is a challenging one to jump into. It has a lot of upfront costs that are pretty darn high. And this was before the venture capital community had really become a thing. So who was going to make the risk of loaning money out to these small startup businesses that could potentially become huge but you don't know for sure. Most of the established banks

weren't interested in taking on that kind of risk. Robert or Bob as he was often called, met Bill Biggerstaff, a man who worked for Wells Fargo, so who had a lot of experience in the banking industry. These two lived in the same area. They were playing tennis together.

They're the ones who went into together on a poker game that had a lot of movers and shakers and Silicon Valley in it, and Bob decided to bend Bill's ear about this idea that Bob had and essentially Bob's idea was to create a financial institution, to create a bank that primarily existed as a way to loan money to startups and help get these concepts off the ground, and in return, you know, they would end up getting

money and interest in all that sort of stuff. So it was a key piece that was missing early in the days of Silicon Valley. And around this time, another important thing was happening. The Reagan administration in the United States was easing off of regulations that otherwise would make it challenging to start a new bank. So the thought was that if you ease off on regulations, then more local banks can form. People can actually make banks in

their local communities. These banks will support that local community through loans, So you start to have money funneling into communities and allowing those communities to grow by easing off on the regulations that otherwise would make it difficult to establish a bank. So the regulatory environment changed. Bob recognized a need in the tech space, and Bill had the

banking experience. Plus Bill was apparently really really good at networking, and he had already built up some strong connections throughout Silicon Valley. You had the Stanford connections with the students who were eager to start up their businesses fresh out of school, I mean for ages. These tech colleges have also acted kind of like incubators for tech startups. Now,

this was not an overnight effort. It actually took around three years from the time they started talking about it to when they were able to secure a charter for their bank. So now we're up to nineteen eighty three. Tom Cruise has the iconic risky business hit theaters, ensuring that countless people over the years will copy his lip

singing style. While wearing tidy whiteis and a half unbuttoned shirt, Bonnie Tyler was singing Total Eclipse of the Heart, the song that was originally intended for a musical about vampires. That's totally a real thing, look it up. And then Bob and Bill brought on a third founder for the SVB. This was a guy named Roger Smith who came from the banking world as well, and Roger joined just as the bank received its charter and became known as Silicon Valley Bank. We got a lot more to talk about,

but before we get to that, let's take a quick break. Okay, So Silicon Valley bank establishes itself in nineteen eighty three. Now, at that time, the phrase Silicon Valley wasn't nearly as well known as it is today. There were a lot of startup tech companies that had Silicon in their names, but it's not like Silicon Valley had really taken hold in culture yet. So in many ways, the founders were lucky that things went the way they did, or you

could argue they weren't lucky. Maybe they actually helped forge the reality of Silicon Valley because now tech companies had a bank that would cater to them that welcomed their business. Tech startups that had previously found it difficult to secure loans through traditional banks had another option. Now this didn't

mean that SBB gave out loans to absolutely anyone. They still evaluated them, but they were much more likely to grant a loan out to someone who seemed to have a really strong idea and helped fund those early tech companies in Silicon Valley. And of course we all know that the tech industry would explode and grow to gargaguin proportions, and SVB would grow along with the rest of the industry.

Along the way. It helped fuel countless startups, some of which would grow in turn, and others would, of course unfortunately flounder and fail, and more established tech companies would continue to bank with SVB and use massive accounts to handle stuff like payroll. So, as you might imagine, the payroll account has to be really, really really large for some of these tech companies. And then you had like venture capitalists who were using the bank to help fund

their investments. And all of this was sort of this mutually beneficial relationship, a symbiotic relationship, but one in which if any party were to suffer disproportionately, it would ultimately hurt the others in it as well. That's foreshadowing, all right. So how do we go from a bank that is a financial pillar for much of the tech industries, really of the startup industry in particular, but for established companies too, how do we go from that to a bank that

collapses in a matter of a couple of days. Well, while there are some overlaps with silver Gate, this one didn't have anything to do with crypto, but it had a lot to do about interest rates. So if you're lucky enough to never have had to worry about interest rates, I'll give you a quick explanation. An interest rate is the amount that's paid on top of a sum of money. So we mostly talked about this in the form of loans. I mean there's you know, like bank account interest rates too,

which goes to the opposite direction. But with loans, you know, you have the amount that you borrowed, and the interest rate is the amount on top of what you borrowed that you will pay back to the lender. So we usually think of this as percentages. Actually we think of it an annual percentage rates or APR. So this tells you how much of a percentage of the amount you've

borrowed on top of that you're going to be paying back. Right, So, if interest rates are low, folks are more eager to take out loans because they're not paying as much on top of the loan amount itself. It is less expensive to take out a loan. You keep more of the money that you make using that loan to do whatever it is you wanted to do, assuming that you know it was being put forth in a way where it was going to generate revenue. Otherwise, what you think of

it is it's a way to manage debt. You don't go for a loan that has a high interest rate because that means you're going to be owing even more money in the long term. So this encourages stuff like investments. Right. A person might take out a loan to invest money into a project if there's a low interest rate on the loan because they might believe, Hey, this project's to pay out big time, and then I could pay off the loan, I can pay off the interest, I could

pass go collect two hundred dollars. I'm in the clear. I've made a profit. But when interest rates go up, well, it becomes much more expensive to secure a loan. Right, You've got to pay more on top of the loaned amount, and that cuts into whatever profit you might realize with your projects. So even if your project is a success, you're not going to make as much money because you got to pay that interest rate back to the lender. So this kind of dampens down the enthusiasm to invest

in projects. Right. I mean, some of these projects might take a long time to start realizing a revenue. In fact, some of them may have no business plan to speak of, and that the real plan isn't to make money as a business, but to hopefully get gobbled up by some bigger fish for a large payout. But all of these things can take time, and meanwhile, you know, you've got your loan payments at that interest rate on top of them, and that could be a real buzzkill, so it can

really slow down investments in the space. But for a really long time, interest rates in the US were super duper low, and you know, more recently they were super duper duper low, and you might think, oh, super low interest rates, that means way more loans, and a bank specializing in loans to the tech sector was going to

see a whole lot of business. And often that would be true, except recently you were in a tech sector where companies, including venture capitalist companies, were just flush with cash. There was very little need for loans because everyone already had the cash on hand to make investments. So, like venture capital companies, they might invest in companies that then go public, and as part of going public, the venture capitalists they get paid out, so they realize a huge

return on that initial investment. So now they've got way more cash than they did before, they don't necessarily need to go and secure a loan for their next investment. So SVB actually mentioned this in their ten K report a few weeks ago. This is a straight quote from

that report. Quote. Much of the recent deposit growth was driven by our clients across all segments obtaining liquidity through liquidity events such as IPOs, secondary offerings, SPAC fundraising, venture capital investments, acquisitions, and other fundraising activities, which during twenty twenty one and early twenty twenty two were at notably high levels end quote. So in other words, ain't no one going to get a loan? They are all flush

with cash. So SBB saw bank accounts swell with deposits. The deposit amount was growing with SVB, but the needs for loans were dropping. So you gotta remember a bank is a business. If the bank is not issuing as many loans, how then does it make money as a business. Well, SVB started to purchase stuff like treasury bonds and government securities. These payout at a rate where it's you know, you're able to redeem them for more than what it costs to buy them, but it takes time for them to mature.

If you try to cash out early, you get way less for them than if you held onto them for the whole time. Silvergate had previously poured a lot of money into these and part of silver gates crisis was that it was selling off its assets for way less than what had been planned, just to cover the withdrawals that were happening at the time, and the cascade meant that the bank was unable to remain solvent. While SVB catered to a different, more established clientele, it suffered a

very similar fate. At the end of twenty twenty two, SVB held on around one hundred and twenty billion dollars worth of securities. Now it gets more complicated than that. There are different types of securities, and a bank has to say what type of security it's investing in when it doesn't so there are held to maturity or HTM securities. Those are ones that, as the name suggests, you hold onto until they mature, at which case then you can

sell them off. But in the meantime they're on your accounts. Whether the market values go up or down. They have to stay there on your accounts until it's time for

them to be sold because they have matured. Now to get into the real nuts and bolts of all this would require a finance podcaster type that ain't me but just know that some securities are HTM and some are you know, you can sell whenever you like, but they are subject to the fluctuations of market value, which means at times they can be worth less than what you paid for them. Previously, SBB had put a lot of its assets into the HTM style of securities. However, as

long as everyone remained chill, SVB would have been fine. Right. Yes, it had poured a lot of its money into these long term securities, which meant that it was all tied up, and that meant that they didn't have as much money in their and their vault. You could think of it that way. They didn't have as much money in the vault to cover everybody's accounts. But again, if everyone had

stayed chill, things would have been okay. The only thing that would really upset the apple cart would be something like interest rates going up significantly or a run on the bank. And then the interest rate went up significantly. Now the reason for that was that the US federal government was trying to counteract inflation. And again, this gets super in the weeds and it's kind of beyond a tech podcast, but we'll give the super oversimplified explanation. So

when demand is high but supply is limited, prices go up. Right, Like, if everybody wants eggs, but there's only you know, enough eggs for twenty percent of the people there, those egg prices go way, way, way up. Everybody wants them, there's not enough for everybody, and the market settles this out by making them ridiculously expensive. Basic laws of supply demand, Right. But if costs keep going up, then you have a

problem with inflation on your hands. That the purchasing power of your money decreases and it requires more and more and more money to buy basic stuff. And even if you are really careful with your cash, if suddenly your cash buys less because of its purchasing power, there's not much you can do as an individual. So what the government does is it adjusts something called the federal funds rate. When banks lend money to other banks, they do so

using the federal funds rate. This rate, in turn influences the interest rates that banks use on their loans. So if you turn the dial on the federal funds rate, this kind of trickles down through the rest of the banking and loan industry. All right, So by cranking up the federal funds rate, the interest rates across the board start to go up, and that means it gets more expensive if you want to borrow money, So that discourages people from borrowing money, which also means it discourages people

from spending that borrowed money on stuff. That means demand starts to go down because people are holding onto their cash right, they're not spending it as readily. So as demand goes down, prices go down. So hiking up the interest rate convinces folks to go without. That in turn means the price for goods and services drop and we end up sidestepping some inflation problems. We're all in this together,

in other words, all right back to SVB. So the interest rates go up, investment companies start to clamp down on investments. Startups still need money to operate, but now venture capitalist sources are dried up because they don't want to overextend themselves. They don't want to borrow money with the interest rate being so high, So now startups are starting to have to dip into their own reserves in

order to cover operating costs. So SVB has funds in its vaults, but it's also heavily invested in these securities and it's not supposed to touch those for several more years because they haven't matured yet. So as companies begin to withdraw more and more money just to cover costs,

SVB with seeing its reserves depleted. Now, this could still have been salvageable if there had not been a run on the bank, but when you've got big companies that are depending on money being there so that they can do stuff like make payroll, stakes are pretty darn high. So more and more customers were concerned that they wouldn't be able to operate if they didn't withdraw all their money because they were worried about what might happen to SVB.

So for SVB to cover all these withdrawals, they had to start selling off some of those securities. But these securities weren't mature yet, so they were selling them at a pretty massive loss. In fact, that loss was nearly two billion dollars. However, it gave SVB liquidity, right. They suddenly had cash where they could cover withdrawals at least for a short time, even though the business itself was taking this massive loss in the process. Then Silvergate goes

belly up and investors freak the heck out. Now, mind you, the issues at Silvergate were different from SVB. I mean, yes, SVB and Silvergate both were dependent upon securities, but silver gates problems were largely due to its involvement in the crypto world. That was not something that was a big

concern for SVB. But the big players, you know, entities that had hundreds of millions or even billions of dollars in SVB started to pull out, and some fund management companies started to tell their clients, hey, you probably want to get your money out of SVB while you still can before they run out of cash and things really go south. That creates this panic, and it actually creates the very problem that the companies were trying to escape from.

Right They were worried that everybody else was going to do the thing that they were telling people to do, Whereas if everyone had just chilled, then it's quite possible that this collapse could have been avoided. But because everybody was scared and they were all trying to get their money at the same time, SVB was put into an

impossible situation. So over the course of last Thursday and Friday, enough big players try to withdraw their money to that forced SVB to shut down, and the FDIC swooped in to try and salvage things, or really just to stop things from getting way worse than they already were. Okay, we'll explain more about that, but first, let's take another quick break. All right, Now, let's finally talk about the FDIC that actually stands for the Federal Deposit Insurance Corporation.

So this organization ensures deposits and most banks in the United States. The word boast is important. Most banks are ensured by FDIC, and the FDIC is there to provide protection to customers and avoid a situation in which a bank fails and then all the customer money goes up and spoke right, That would be awful if you had done nothing wrong, but you are suddenly pennyless because the money you had deposited in a bank is gone, because the bank itself is gone. That's why the FDIC exists.

It ensures the money you put in the bank so that if the bank goes down, you still have that money. The FDIC gives you your money, but there is a limit. There's an FDIC limit on the amount of money it can ensure her account, and that limit is two hundred fifty thousand dollars in an account. Now, most of us would consider ourselves incredibly fortunate if we happen to have more than two hundred and fifty thousand dollars to put

into a bank. But when you're talking about tech companies that are handling massive business transactions, a quarter of a million dollars is just a drop of the bucket for some of these companies. Going back to the example I

keep mentioning payroll being a huge one. Right, if you are a sizeable company and you've got a big payroll and you need to have a bank account to handle the transactions, the amount of money that's going to go into that account is going to be well in excess of two hundred fifty thousand dollars, and anything beyond two hundred fifty thousand dollars is uninsured. According to svb's own regulatory filing earlier this year, about ninety percent of all

the deposits in SVB were uninsured. So that means like ninety percent of the deposits were in accounts that exceeded two hundred and fifty thousand dollars of FDIC protection, only ten percent of deposits in that bank were in accounts that held less than two hundred fifty thousand by December of last year. That is incredible, right, So when the FDIC stepped end, that is when I heard the other folks destined to be on my flight to Austin, Texas

have their moment of panic. Presumably these were folks who had accounts in SVB that were over this insured amount. Whether they were personal accounts or part of business accounts, I don't know, but that would be an enormous scary prospect that you have massive, maybe millions of dollars in this bank, and the bank has suddenly been seized by regulators and only two hundred and fifty thousand dollars in each account is insured. That could be a truly catastrophic loss.

Right to put it another way, SBB held one hundred seventy three billion dollars in deposits at the end of twenty twenty two. Total one hundred seventy three billion dollars of customer money put into deposits in SVB. Of that, one hundred fifty two billion was uninsured, so did one

hundred and fifty two billion dollars just plane disappear. Well, SVB still held assets which can be liquidated to cover some of the costs, but there was a lot of uncertainty they didn't know, like how is the FDIC going to handle this? How much of that unasured money will

be returned to depositors. On top of that, you still had all these companies that needed to do stuff like pay employees or make other big transactions, but their money happened to be tied to accounts that were in a shutdown financial institution, which totally throws a monkey wrench in corporate operations. So you suddenly have these tech companies that don't even know if they're going to be able to

do basic stuff like pay rent, pay employees. You know, all the mundane, regular transactions are completely disrupted because the financial institution at the heart of things has been seized. That uncertainty bread a lot of fear, understandably, like even people who weren't control of the money are scared. Like if you work for one of these big companies, you might wonder, am I going to get a paycheck this month?

How long until I get my next paycheck? How much money do I have to be able to cover expenses until that paycheck gets to me. It's a big, big deal. And again, it was affecting pretty much the entire tech sector because so many companies were making use of this bank. Now the US government has stepped up and essentially announced a bailout that the government is going to cover the money deposited in SVB, even the uninsured amounts of money. Now, this was done in large part to try and stop

a more general run on banks across the country. Again, banks are not inherently in danger of collapse. Some might have overextended on securities in the wake of lower numbers of loans, and they might also be a little worried because of interest rates. But as long as people don't panic, things can turn out okay in the long run. So this was a big move to try and stop a panic, specifically within the tech sector. Right. So another thing I should point out is while SBB truly was a pillar

in the tech community, it wasn't the only one. There are other banks that tech companies use for all these different purposes. Right, It's not like everything all the eggs were in this one basket. That's not the case. But then the fear was, well, we saw what happened to silver Gate, and then we saw what happened to SVB, so that might end up happening to this other bank. We use, let's proactively remove our money from there so that it's safe before disaster strikes. But that in turn

becomes the disaster. Right Like, if you have people saying, let's pull our all our money out now, then that creates the very problem that you're trying to avoid experiencing. So again it becomes this self fulfilling prophecy. Now, one of the many reasons why the government has come in to say they are going to cover all of these deposits, even the uninsured ones, is also because not only did we have Silvergate and SBB both fail within a week,

then on Sunday yesterday, Signature Bank collapsed. Signature Bank is not based in California. It's a New York based bank. It is a bank that starts with the letter S, so that's something that has in common with the other two.

But yeah, yesterday, which was Sunday, March twelve, twenty twenty three, for those of you who are listening from the future, regulators stepped into closed down signature like Silvergate, Signature was once focused primarily on real estate loans, just in the New York area instead of California, but it had also become a bridge into the crypto world, so it became kind of one of these financial institutions that connects the

regular financial world with the crypto financial world. And like Silvergate, the collapse of massive crypto entities like FTX and others really pulled the rug out from beneath Signature and left it unsteady. So the bank tried to find a buyer this past week in order to try and remain in business, but it just didn't happen, and again the government had

to step in. Regulators are assuring all customers of Signature that they will also get their money back, even if it was above the two hundred and fifty thousand dollars limit, just with SVB, and again this is sort of a preventive measure to try and avoid a more broad panic

in the United States. And in order to support that, I want to stress the problems of these three financial institutions are not universal across all financial institutions, and further, it is a situation that gets worse if people all try to pull their money out it becomes that self fulfilling prophecy I was talking about, kind of like when there was a fear that at the beginning of the pandemic that you wouldn't be able to get toilet paper,

which caused people to hoard toilet paper, which meant that you couldn't get toilet paper. That was the self fulfilling prophecy of that moment. We're seeing the same sort of thing with these banks. Now what this means all in the long term, that's very hard to say. Right now, Chances are a lot of companies are going to struggle in the short term, particularly in the tech space and

specifically in the crypto space. The crypto world in particular is facing even more uncertainty right now because regulators are picking up the pieces of these established financial institutions in the quote unquote real world, and now they're giving a massive side eye to the crypto community. Like regulars were already concerned about crypto, but the failure of regular banks who were connected to crypto has made this a much

more relevant issue for regulators at the moment. For crypto companies that we're hoping to continue to flourish without pressure from regulators, I suspect things are going to change rapidly over the next few months. We're going to see that dreaded interference from regulators as a result of this. I am being a little facetious when I say dreaded. I mean like, there are people within the crypto community who

really really want to resist any sort of regulation. But I would argue the lack of regulation has led to situations being rife for scams, for crime, and for massive amounts of fraud, and that this in turn stands to be a more existential threat to the crypto community than regulations would. I think regulations are a small price to pay if you want the crypto world to continue. If you don't want the crypto world to continue, yeah, get

rid of regulations. You'll self destruct, because we've already seen it happen, not because of the intentions of the people who are putting the community together, but because you'll find opportunists who say, ah, I can leverage the lack of regulations to make a huge amount of money at the expense of everybody else. Ha ha ha. So yeah, I have very little patience for this, because if you want the crypto world to actually establish itself and flourish. I

think regulations are absolutely required. There have to be controls, or else you have the situations we've seen in the last couple of years crop up now. I think these events have shown how there are some inherent weaknesses in fueling the crazy world of VC investment in the tech space, as well as the enthusiasm around the crypto space. But I think a lot of us already had a hunch that this world was always toying with massive risk. It's not like that's brand new news to any of us.

It does serve as a reminder that we should always use critical thinking when we're engaged in these kinds of activities, that we should ask tough questions. That should include asking tough questions of is it right for me to hold off on pulling my money out so that I don't make the problem worse? Or is it a case where you really do have to pull your money out because if you don't, the problem is everybody else has already acted, and then you're left holding the bag. That's what everyone's

afraid of. And unfortunately, unless everybody kind of agrees on the front end, like no, we're all going to be

cool and wait this out. It's kind of unavoidable. It sort of comes into the prisoner's dilemma scenario where no one has enough trust and everybody else to assume that things will be okay, so they have to act in self interest because they're convinced that everyone else is going to do the same thing, and if you don't do it first, you're going to be the one who is left with no money because the bank went went under. That's why the government is trying to step in and

stop all this from escalating. So, yeah, scary time, you know, one of the many like scary moments in tech, in tech finance really that I have seen. You know, it kind of reminds me in ways of what it felt like when the dot com bubble was bursting and we started to see all the enthusiasm and hype that had built up these these startup companies into overbloated, overfunded entity and then how it all came crashing down. That was very sobering. I think that we're in a similar moment now.

It'll be easier to say when we have more distance from it, maybe like five years from now, we won't even think about this, But at the moment it feels like it's pretty big. Anyway, that's it for today's episode. Hope that was informative and interesting to you. I think it is really important to understand these things because again, without the world of money, than all the tech stuff. Not to quote the name of the show, but all

the tech stuff we talk about wouldn't exist. The money has to be there for these things to even become reality. So I think that it's an important note to get an understanding of that. It also helps kind of keep us in the right headspace when we're thinking about supporting tech, because it really reinforces that we need to be responsible and careful in the way we do that and not just try and pounce on what we see as an

opportunity to print money. I think more and more we see those kinds of flagrant investments where it's just it's this thought that, oh, I'm going to see a hundred times return on this investment, so that's why I'm pouring money into it. I don't think that's always the most healthy approach. It's not sustainable in the long run in my opinion. But I also want to acknowledge I am not a financial expert. I'm not an investment expert. I'm certainly not you know, a millionaire. I'm nothing. I'm none

of those things. So it's very, very very possible that I am in the wrong here. It's just kind of my gut feeling. But we all know that gut feelings ultimately have limited reliability, so just keep that in mind. If you have topics you would like me to cover in future episodes of tech Stuff, please each out and let me know. You can do that by sending me a message on Twitter. The handle for the show is tech Stuff HSW or you can download the iHeartRadio app.

It's free to download, free to use. Just navigate over to tech Stuff use that little search field. Go to the tech stuff page. You'll see there's a little microphone icon. If you click on that, you can leave a voice message up to thirty seconds in length. Let me know what you would like me to talk about, and I'll talk to you again really soon. Tech Stuff is an

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