If I ever write a book, it’s gonna be called: ‘why smart people do dumb things’. My partner says it should be autobiographical but this might be a perfect illustration… to make money they didn’t have and didn’t need they risked money they did have and did need. That’s just plain foolish.
Warren Buffett
The collapse of Silicon Valley Bank last weekend saw general chaos play out across social media - Twitter in particular. Intellectual and financial lightweights like Jason Calacanis glued their caps lock keys down so they could scream hysterically into the void. The slightly higher IQ crowd consisting of hedge fund manager Bill Ackman and notable Paypal Mafia alum David Sacks did their best to ‘cry wolf’ into their own megaphones.
While their apparent intention was to encourage regulators to intervene before a widespread banking crisis could set in, there’s a decent argument to be made that they were precipitating the very thing they were trying to stop.
Amongst the ALL CAPS Tweets, the memes, and, hell, even the el risitas videos authored by yours truly, events were unfolding that are so unbelievable in retrospect it beggars belief. We’re talking about a level of insanity so rarified that it warrants remembering, and revisiting.
Enter Alexander Torrenegra.
Torrenegra is one of those serial entrepreneurs who has about as many previous start ups as I have had hot dinners. Famously a ‘Shark’ on Colombia’s version of Shark Tank, he currently runs a kind of two sided market place for employers and employees with an AI/big data twist. Sounds ‘legit’.
Over the weekend, Torrenegra posted an epic tweet storm centred on his own experience of banking with SVB over the previous couple of days:
Silicon Valley Bank was the main bank for two of our companies, my personal savings, and my mortgage.
This is how things unfolded for us: Between 2013 and 2023, all good.
Thursday, 9 AM: in one chat with 200+ tech founders (most in the Bay Area), questions about SVB start to show up. 10 AM: some suggest getting the money out of SVB for safety. Only upside. No downside.
10:50 AM: I read the messages in a bathroom break. Immediately cancel the meeting I had. Ask my wife, Tania, to wire all of our personal money out to other banks. Call my teams. Ask them to do the same. One of them, at the dentist, has to stop the procedure and run home.
This aptly describes the beginning of a stock standard bank run. A small number of clued-up insiders move to take their money out and panic begins to set in:
11:10 AM: We can't get the money out of any of the accounts. For our personal savings, we don't have other bank accounts readily available. For one of the companies, the permissions are not set up to allow such a significant exit of money. We can only get half of the money out. We wire it to Ameritrade, as we don't have any other bank account set up. For the 2nd company, the banking credentials had been changed. I cannot log in.
11:15 AM: Tania gets a hold of another bank we were already talking to, UBS. Ask them to open a bank account pronto.
11:20 AM: I change the permissions for the 1st company. We request another wire out to Ameritrade for the remaining money from that company. We have to wait for the wires to get out.
This is a crucial set up point for what is about to unfold. While it may be prudent to have redundancies for your business - like additional banking facilities - it’s not that big of a deal compared to what happens next.
The fact that Torrenegra could only send money to a retail brokerage account is extremely untimely:
~12:00 PM: All of my chats with tech founders in the US light on fire with what’s happening. Obviously, we have a bank runoff. Surreal.
12:30 AM: We request two wires for all the money from the 2nd company to Mercury.
12:38 PM: Wires to Ameritrade clear. The 1st company is safe.
12:45 PM: We sign dozens of documents -without reading them- and complete the opening of a personal bank account with UBS.
12:50 PM: Tania requests SVB, via their website, to wire all of our personal savings to UBS. Given the permission settings in place, they tell us that they have to call us.
Within the space of 3 hours, genuine panic and crisis has set in. The business accounts that Torrenegra had setup with SVB have instructions to wire the money out, and a good portion of his company’s working capital is sitting in a retail brokerage account.
Keep in mind that by this point he has actually identified a run on the bank, and 100’s of his peers have told him that there is a genuine crisis unfolding. He’s also one of the lucky few who moved quickly enough to get some of his money out. The next development is both comical and tragic:
1:30 PM: SVB is a solid bank. I know their CEO, Greg Becker. Great guy. I figure this is a temporary issue caused mainly by people panicking. They'll recover. I buy shares of SVB at what I consider significantly low prices.
2:09 PM: One of the wires for the other company clears.
~3:00 PM: My chats with tech founders from Latin America start to catch up.
4:05 PM: SVB calls us. Tells us that our savings will be wired the same day, as requested.
4:10 PM: We jump on a plane to fly back to San Francisco.
11:50 PM: We land. We learn that the 2nd wire for the 2nd company hasn’t cleared yet. Worst, the wire to get our personal savings out of SVB is still in the queue.
2 AM: Go to bed.
Friday 7 AM: Wake up. Nothing. SVB stock is 60% down overnight.
7:30 AM: Cancel all morning meetings to focus on the problem.
This is what is unbelievable. Not simply because of what happened to the share price in retrospect, but because of the cognitive dissonance required to both understand the gravity of a bank run (it’s terminal for the bank in question), and think participating in the equity is a good idea.
This is characteristic of a triple delusion expressed by the likes of Calacanis and Sacks over the weekend. Immense success in their professional lives is attributed to skill, and virtually nothing to luck (that certainly can’t be the case for Jason). Huge social media followings reinforces this first delusion. Purported ‘skill’ in a particular domain (technology start ups) is conflated with skill in a completely unrelated domain (banking).
While intelligent analysts who actually study and/or work for banks discussed capital ratios, HTM and AFS portfolios, and the essence of the issues that were plaguing SVB - half baked Silicon Valley Foundooooors (excuse the Twitter parlance) were buying shares in an already insolvent bank.
Torrenegra’s ends the long-form tweet with the perfect sign off:
At night: Reflect. "What did I do wrong?". "Am I good enough to do what I do?" Hug Tania.
Saturday: Figure there is nothing of value by focusing on the topic. It’s an externality. We shouldn’t invest too much time thinking about them. Or trying to predict the markets. Time to go back to what we can control: the execution of our companies.
Continue pushing forward. Persist. Persist. Persist.
Poetry.
Larry.