“I knew this was a giant bubble,” says one San Francisco–based hedge-fund manager.
Despite all the big brains who did business with the tech-industry stalwart, almost no one seemed to be aware that the bank would have been in deep trouble months earlier had it not been for an arcane accounting rule that allowed it to ignore the losses in its investment portfolio.see the bank’s collapse coming.
More than 95 percent of the deposits held by SVB and Signature were above the FDIC’s insured limit of $250,000. And they all had experienced sudden, explosive growth between 2020 and 2021 — the COVID era of nearly free money that led to a boom for Silicon Valley Bank’s venture and start-up clientele, which included the crypto concerns that banked at Signature.
He adds, “The only way that would be sustainable was if venture capital continued to grow exponentially, and I knew that was not possible, because I knew this was a giant bubble.” Another person who saw the light was short seller Bill Martin of Raging Capital Ventures. In January, he, “The bank would be functionally underwater if it were liquidated today.” The reason is that it had plowed a good portion of its ballooning client deposits during the 2021 bubble into conservative investments, including mortgage-backed securities , that ended up not matching the bank’s real-world financial needs.
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