Feds have 48 hours to fix ‘soon-to-be-irreversible bug’

  • Billionaire investor Bill Ackman posted a lengthy tweet Saturday about the collapse of the Silicon Valley bank.
  • Ackman criticized the federal government’s response and its lack of monitoring of SVB for risks.
  • He said the government has “approximately 48 hours to rectify what will soon be an irreversible error” in its handling of SVB.

Billionaire investor Bill Ackman is urging the federal government to intervene in the collapse of Silicon Valley Bank after the once-trusted bank of tech and startup founders was shut down by regulators on Friday.

“The government has about 48 hours to fix a soon-to-be-irreversible bug,” Ackman tweeted in a long post on Saturday morning.

SVB became the second-biggest bankruptcy in the US after its share price fell about 86% this week, prompting the Federal Deposit Insurance Corporation to take over. Ackman warned that if the government or another big bank like JP Morgan or Bank of America doesn’t take over SVB, it could lead to similar bank runs at other small financial institutions as anxious customers turn to withdrawing uninsured deposits.

According to Ackman, this could lead to the collapse of several other smaller banks across the country.

The billionaire founder and CEO of hedge fund Pershing Square Capital Management argued that a lack of immediate federal intervention early in the SVB’s collapse could have a larger, catastrophic impact on the banking industry and the economy at large.

“The management of the SVB made a fundamental mistake. It has invested short-term deposits in longer-term, fixed-income investments. After that, short-term interest rates rose and a bank run ensued. Management screwed it up and they should lose their jobs,” Ackmann said.

He further chided the government for its failure to oversee the bank before it collapsed: “The @FDICgov and OCC[Office of the Comptroller of the Currency]messed up too. It is their job to monitor our banking system for risk and SVB should have been at the top of their watch list with more than $200 billion in assets and $170 billion in deposits from business borrowers in virtually the same industry.

The bank’s website said it was used by about half of all venture-backed startups in the US. Earlier this week, the bank’s shares began falling after it sold about $21 billion of its bond portfolio, resulting in a loss of about $1.8 billion on interest rate changes since the SVB bought the bonds, the report reported insiders before.

While the bank was trying to raise about $2 billion by selling stock and other securities, what effectively became a bank run began as venture capitalists and start-up founders began dumping their money over concerns about the strength of the bank withdraw bank.

SVB headquarters

Silicon Valley Bank headquarters in Santa Clara, California

Getty Images

Ackman previously called for the federal government to intervene, but clarified in a series of tweets Thursday that a bailout should aim to protect those with deposits at the bank, not the bank’s management, who could be responsible for the collapse.

On Saturday morning, Ackman stressed the importance of the government dealing with the situation quickly, as many startups depend on SVB for payroll and other expenses.

“My review of the SVB balance sheet on the back of the cover suggests that even with liquidation, depositors should eventually recover about 98% of their deposits, but ultimately when you have a paycheck next week, it’s too long,” Ackman said .

Ackman is the latest high-profile figure to call for government intervention to support the SVB, and joins Mark Cuban, who tweeted his own take on the situation on Thursday, including the idea that the government should buy all of the SVB’s debt.

Meanwhile, Nobel Prize-winning economist Paul Krugman tweeted early Saturday that SVB’s strength lies in cultivating relationships within Silicon Valley, saying that this moment was unlikely to coincide with the collapse of Lehman Brothers during the financial crisis 2008 to be compared.

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