SVB failed because the 'bankers' put people's money at risk, not because it was 'woke'

The term “politically correct” exploded on the national scene in 1991 as a pejorative referring to liberal thoughts about race, gender, education and whatever else needed, in conservative minds, a good spanking.

“Woke” is simply an angrier and slightly broader retooling of “politically correct,” and joins words like Archie Bunker’s “pinko” to personify a general irritation with the state of things, a condition more or less attributable to rampant liberalism.

The failure of tech-saturated Silicon Valley Bank has been blamed on wokeness because, by its own admission, it had one “Black” and one “LGBTQ+” on its board. Naturally then, it was no surprise when the bank failed, because these two were undoubtedly holding the other 10 “normal” board members at knifepoint, forcing them to invest in green energy, or some such.

Although insipid on its face, it's worth investigating, because, if wokeness is synonymous with diversity, there’s a good argument to be made that the bank failed not because it was too woke, but because it was not woke enough.

Scholars have noted that SVB was not so much a bank as it was a venture capital fund pretending to be a bank. Its high-interest savings accounts and low-interest mortgages were real enough, but they were barbed hooks to keep officers of Silicon Valley start-ups from taking their business elsewhere.

This, therefore, was a bank that was enthralled with the latest amazing, high-tech, fortune-making enterprise — and not very interested in banking. Really, should the curator of the Louvre have to worry with procuring an ample supply of plastic forks in the cafeteria?

The venture capitalists at SVB traveled in the rarified air of artificial intelligence and automated technology. They couldn’t be bothered with the yield on government bonds. So in an office building full of mathematical geniuses, it seemingly dawned on none of them that near-zero interest rates have nowhere to go but up.

But even so, a little more wokeness might have saved the bank in another way.

A forgotten fact of the corporate bailouts of the late 2000s is that they wound up earning the federal government — and taxpayers — a profit. The government took a stake in these failing companies, betting that they would right themselves. And they did.

There is a very real possibility that, when all is said and done, it will turn out that SVB was not insolvent at all  — it just so happened that its very undiversified clientele wanted to remove their millions all at once.

Banks have been compared to gyms; if all the gym members showed up at the same time there would be a lot of dissatisfied customers. SVB suffered a similar convergence.

But why did this happen? ​​Elizabeth Spiers, a digital media strategist and SVB customer, noted the degree to which the bank operated as a private club. If you were a white male and a graduate of one of a handful of elite universities, no idea was too wacky to be funded. Those without these credentials though were likely to be excluded.

These pre-approved members all tended to have the same mentors, the same connections and the same philosophies as everyone else. Proving the rule, convicted felon Elizabeth Holmes was accepted into the California tech world, but only because she acted, thought and even dressed like one of the boys.

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At 9 a.m. on the Thursday before SVB failed, 200 or more of these cloned venture capitalists were hanging out in a chatroom when questions about the bank began to form. Within an hour these questions coalesced into a panicked herd of tech bros stampeding to withdraw their funds.

No bank could have withstood such a run. But other banks don’t find themselves in that situation, because their clients are big and small, black and white, gay and straight, with different interests and objectives, and with better things to do than hanging out in the same chat room congratulating themselves on being so very, very smart.

“The biggest supposed geniuses of Silicon Valley could have chosen to remain calm and use their influence to work with the bank and help maintain stability in the market,” Spiers wrote. “Instead, people panicked. The venture capitalists chose a path that would be disastrous for their industry, freezing up capital, spooking investors and reducing the favored financial institution to rubble. Then they had the temerity to go on social media and congratulate one another for their quick thinking.”

Blaming the Fed and rolled-back regulations might feel good in the moment. But what regulation, what policy, will ever be good enough when the financial community in this country seems so intent on finding new and previously unthought-of ways to put everyone’s money at risk by acting stupidly?

Tim Rowland is a Herald-Mail columnist.

This article originally appeared on The Herald-Mail: Why did Silicon Valley Bank actually fail? Not from 'wokeness'