Need proof? Just look at our previous post showing a timeline of failed tech predictions by some of the biggest names in business, academia, and technology over the last two centuries. Experts not only get it wrong – they get it embarrassingly wrong.
The Earth 100 Years in the Future
So why predict the future? Because it’s fun and it helps us critically think about how to take advantage of future investment and business opportunities. In the case of today’s infographic from Futurism, the predictions are courtesy of a team of “futurists, architects, technological forecasters, and sociological soothsayers” that were hired by Samsung to look at what life may be like in the year 2116. We’re happy that we’re not on the hook for any of these.
The full publication containing all predictions can be found here. The types of predictions fall into three main categories: Future Living The report predicts that homes of the future will be be 3D-printed by swarms of drones, and that cities will take completely different shapes than what we are used to. Cities in the future will use stronger materials such as carbon nanotubes that will allow us to build skyscrapers that are unlike anything we’ve seen. On land they will be taller and stronger, but we will also be able to build cities underwater and underground, or in arcologies (architectural ecologies) that will dwarf today’s tallest structures. Science and Research The fusion of humans and machines will blur the lines of what is human and what is not. (As a side note: Futurist Ray Kurzweil predicts that we have no option but to do this. He says that by 2045 “the pace of change will be so astonishingly quick that we won’t be able to keep up, unless we enhance our own intelligence by merging with the intelligent machines we are creating”.) Medicine and Aging In 100 years, much of healthcare will take place in our own homes. Walk-in medical capsules or pods capable of multispectral scanning will constantly assess our bodies for disease or damage. Leisure and Travel There will be a rise of a “nomadic and rootless” culture as private sub-orbital spaceflight blurs the lines between nations. 3D-printed homes may be folded up and moved to new locations. Space Travel Humans will become an multiplanetary species, using new propulsion technology to explore the solar system with manned flight. on But fast forward to the end of last week, and SVB was shuttered by regulators after a panic-induced bank run. So, how exactly did this happen? We dig in below.
Road to a Bank Run
SVB and its customers generally thrived during the low interest rate era, but as rates rose, SVB found itself more exposed to risk than a typical bank. Even so, at the end of 2022, the bank’s balance sheet showed no cause for alarm.
As well, the bank was viewed positively in a number of places. Most Wall Street analyst ratings were overwhelmingly positive on the bank’s stock, and Forbes had just added the bank to its Financial All-Stars list. Outward signs of trouble emerged on Wednesday, March 8th, when SVB surprised investors with news that the bank needed to raise more than $2 billion to shore up its balance sheet. The reaction from prominent venture capitalists was not positive, with Coatue Management, Union Square Ventures, and Peter Thiel’s Founders Fund moving to limit exposure to the 40-year-old bank. The influence of these firms is believed to have added fuel to the fire, and a bank run ensued. Also influencing decision making was the fact that SVB had the highest percentage of uninsured domestic deposits of all big banks. These totaled nearly $152 billion, or about 97% of all deposits. By the end of the day, customers had tried to withdraw $42 billion in deposits.
What Triggered the SVB Collapse?
While the collapse of SVB took place over the course of 44 hours, its roots trace back to the early pandemic years. In 2021, U.S. venture capital-backed companies raised a record $330 billion—double the amount seen in 2020. At the time, interest rates were at rock-bottom levels to help buoy the economy. Matt Levine sums up the situation well: “When interest rates are low everywhere, a dollar in 20 years is about as good as a dollar today, so a startup whose business model is “we will lose money for a decade building artificial intelligence, and then rake in lots of money in the far future” sounds pretty good. When interest rates are higher, a dollar today is better than a dollar tomorrow, so investors want cash flows. When interest rates were low for a long time, and suddenly become high, all the money that was rushing to your customers is suddenly cut off.” Source: Pitchbook Why is this important? During this time, SVB received billions of dollars from these venture-backed clients. In one year alone, their deposits increased 100%. They took these funds and invested them in longer-term bonds. As a result, this created a dangerous trap as the company expected rates would remain low. During this time, SVB invested in bonds at the top of the market. As interest rates rose higher and bond prices declined, SVB started taking major losses on their long-term bond holdings.
Losses Fueling a Liquidity Crunch
When SVB reported its fourth quarter results in early 2023, Moody’s Investor Service, a credit rating agency took notice. In early March, it said that SVB was at high risk for a downgrade due to its significant unrealized losses. In response, SVB looked to sell $2 billion of its investments at a loss to help boost liquidity for its struggling balance sheet. Soon, more hedge funds and venture investors realized SVB could be on thin ice. Depositors withdrew funds in droves, spurring a liquidity squeeze and prompting California regulators and the FDIC to step in and shut down the bank.
What Happens Now?
While much of SVB’s activity was focused on the tech sector, the bank’s shocking collapse has rattled a financial sector that is already on edge.
The four biggest U.S. banks lost a combined $52 billion the day before the SVB collapse. On Friday, other banking stocks saw double-digit drops, including Signature Bank (-23%), First Republic (-15%), and Silvergate Capital (-11%).
Source: Morningstar Direct. *Represents March 9 data, trading halted on March 10.
When the dust settles, it’s hard to predict the ripple effects that will emerge from this dramatic event. For investors, the Secretary of the Treasury Janet Yellen announced confidence in the banking system remaining resilient, noting that regulators have the proper tools in response to the issue.
But others have seen trouble brewing as far back as 2020 (or earlier) when commercial banking assets were skyrocketing and banks were buying bonds when rates were low.
