Bank Runs and Crypto Fraud

The end of free money is not being taken well.

Dystopia takes many forms, like unhinged Capitalism for example. Record low interest rates created Venture Capital incentives and fraudulent trends like Web 3 and now Generative A.I.

When the rules of free market capitalism get corrupted enough, the whole system begins to lose trust in itself.

So contagion has hit the markets, in crypto and with small to medium sized banks.

• FTX and downfall of SBF

• Silvergate

• Silicon Valley Bank (bank run)

• SVB ripples hit India, China and startups everywhere.

• Now Signature Bank has closed as well (more to come).

Curiously the crypto collapse and the bank runs seem to be related. Higher interest rates are rippling through the system. Growth startups are starting to run out of money, even banks with a lack of diversification (in bonds) are doing to be doomed.

Even Stable coins going are being impacted, with USDC’s “black swan” depegging.

We cannot trust a system that leverages debt and takes risks that could collapse the savings of customers.

So for startups, over 30% of Y Combinator’s startups are exposed to SVB. Growth startups good luck in the new normal.

Dystopia is also how we navigate change in the stress tests. We didn’t navigate the pandemic and its economic after-shocks particularly well. Even the U.S. with its debt clock hasn’t played its long-term cards very well. With pandemic liquidity created (“helicopter money”) many companies are zombie companies and won’t survive this next period.

The Stock market has battered as it was in 2022, under appreciates how bad things could get in 2023 and in the years to come. The Karma of free money will have its revenge and I think with SVB and the bank runs, this is what we are seeing.

There’s a real costs to inflation and higher interest rates. As customers lose confidence in smaller banks, bigger banks swallow their customers which reinforces the monopoly Capitalism track the U.S. is on. Big Tech, Big Pharma, Big Real and Big Banks, the last survivors. That is the beginning of dystopia.

While some see the fall of Silicon Valley Bank as sudden, a lot occurred beneath the seams for this to happen including a predatory and backstabbing culture of VCs themselves. The idols of greed can indeed be dangerous.

All of this only increases wealth inequality in the U.S. as their version of capitalism and consumerism continues to degrade and as the Middle class is pressured even more with post-Quantitative Easing inflationary consequences so damaging to the fabric of their society, it’s actually structurally worse than a recession. It’s the decline of the Middle Class by a predatory 1%.

It’s now systemic, contagion is indeed occurring.

The decline of trust in Government, institutions and leadership will only continue. This hurts democracy and the future of capitalism itself.

Banks disappearing from view to bank runs is a crack in our fiscal and trust system. Even with the failure over the past several days of Silicon Valley Bank and Signature Bank that forced regulators to spring into action, markets still expect the Fed to keep up its inflation-fighting efforts. They literally have no choice.

The impact of QT and higher interest rates hasn’t even begun to be felt fully. The failure of Silicon Valley Bank, the biggest failures since the 2008 crisis, marks a new turn to the new normal.

So much has been written about FTX and the fall of SVB, and they each emblematic of the corruption of the times. The Venture Capital culture of Silicon Valley has actually done a lot of harm to the fabric of capitalism. From Web 3 mania circa 2016 to 2021, and now Generative A.I. 2022 to (the future), there is a sense of how unhinged the system has become.

Dystopia is also a system that tries to deceive itself. From increases to the cost of housing to the costs of healthcare, to a lack of wage growth that corresponds, having more money in the system is leading to poor outcomes. All to seemingly avoid a recession when the pandemic hit? It doesn’t seem to have been worth it.

Signature Bank is the 3rd biggest bank failure in U.S. History. The contagion in crypto and banking show cracks in the system that could get worse.