In the past days, multiple billionaires have issued warnings following the sudden collapse of the Silicon Valley Bank, which forced the federal government to step in, with some warning that dire consequences could come in a matter of days.
Bill Ackman, the billionaire founder and CEO of hedge fund Pershing Square Capital Management, posted to Twitter on Saturday morning that the federal government had as little as 48 hours to fix the problem by Monday morning.
Ackman noted that a number of depositors may not see their money because it wasn’t insured, adding that the Federal Deposit Insurance Corporation notes it insures $250,000 per depositor, per insured bank for each account.
The sudden shuttering of SVB was announced by the FDIC and marks the worst failure of an American financial institution since 2008.
“The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake,” Ackman posted on Saturday morning. “The giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’ (SIBs),” he wrote, adding that more “withdrawals will drain liquidity from community, regional, and other banks and begin the destruction of these important institutions.”
SVB was the 16th largest bank in the nation with $209 billion in assets, prior to its Friday collapse, and the failure has sparked fears that other financial or technological companies could be impacted by a contagion of uncertainty.
The bank’s failure came as depositors rushed to withdraw their money over concerns about the status of the bank as the firm’s stock prices cratered by 86 percent this week.
“Already thousands of the fastest growing, most innovative venture-backed companies in the U.S. will begin to fail to make payroll next week,” Ackman warned. “Had the gov’t stepped in on Friday to guarantee SVB’s deposits (in exchange for penny warrants which would have wiped out the substantial majority of its equity value) this could have been avoided and SVB’s 40-year franchise value could have been preserved and transferred to a new owner in exchange for an equity injection.”
Ackman argued that the government should have been involved immediately, arguing that the bank’s collapse could reverberate across the U.S. economy and banking sector at large.
“SVB’s senior management made a basic mistake. They invested short-term deposits in longer-term, fixed-rate assets. Thereafter short-term rates went up and a bank run ensued. Senior management screwed up and they should lose their jobs,” Ackman wrote.
With such a large bank failing, there are few entities that could successfully pull off a buyout. On Saturday, the White House announced that President Joe Biden had spoken with California Gov. Gavin Newsom about the bank and is working to address the situation.
Some analysts and prominent investors believe that, should no resolution be reached by the time banks open on Monday, other banks could come under pressure from people who are concerned about their deposits.
“The good news is it is unlikely an SVB-style bankruptcy will extend to the large banks,” risk and financial advisory firm Kroll said in a research note, but added that small community banks could face issues, and the risk is “much higher if uninsured depositors of SVB aren’t made whole and have to take a haircut on their deposits.”
Others, however, feel that the collapse could serve as a “wake up” call for many Americans about the state of the U.S. economy, including Home Depot co-founder Bernie Marcus, who spoke on the topic in a Sunday morning appearance on Fox News.
“Maybe the American people will finally wake up and understand that we’re living in very tough times, that, in fact, that a recession may have already started. Who knows? But it doesn’t look good,” Marcus told the outlet.
“I feel bad for all of these people that lost all their money in this woke bank,” Marcus continued. “You know, it was more distressing to hear that the bank officials sold off their stock before this happened. It’s depressing to me. Who knows whether the Justice Department would go after them? They’re a woke company, so I guess not. And they’ll probably get away with it.”
“The Fed keeps raising rates and inflation keeps going in the wrong direction. It’s not staying where it should be. People are struggling. People can’t pay their bills. They can’t fill their tanks with gas. And if you think that’s a good sign, I don’t think it is. And we have an administration that’s obtuse to this. They just keep talking about the great times and how good it is. It’s not good,” Marcus concluded.
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