Pluralistic: The "small nonprofit school" saved in the SVB bailout charges more than Harvard (23 Mar 2023)

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A vast castle surrounded by a stately brick wall bearing an ornate gilt-framed sign reading 'Small, non-profit school,' in gothic lettering. Atop the wall is a caricature of Humpty Dumpty, looking distressed. He has a SVB logo over his chest. He is being restrained by tiny, top-hatted bankers.

The "small nonprofit school" saved in the SVB bailout charges more than Harvard (permalink)

There are no libertarians in a bank run. No sooner had venture capitalists whipped each other into a terrified Twitter frenzy at the imminent collapse of Silicon Valley Bank – a collapse caused by that selfsame frenzy – than the Ayn Rand-poisoned elite of Sand Hill Road started begging for Uncle Sucker to open the sluicegates:

Now, on the one hand, it's easy to dismiss these guys as very, very, very stupid. After all, they played a game of prisoner's dilemma in which they were allowed to talk to each other as much as they wanted – and they still sold each other out:

But they still have the common sense to realize that in an America where $10k in student debt cancellation, school lunches for hungry children, and library budgets are out of reach, handing billions to a bank rescue a balance sheet overwhelmingly made up the investments of "high net worth" investors wouldn't be popular.

After all, these guys have been crying about incipient guillotinism for years:

Sure, they don't compare small rises in the top marginal tax-rate to Kristallnacht anymore:

But they are locked and loaded for The Event, feathering elaborate subterranean, antipodean nests in the most luxurious bunkers New Zealand has to offer, against the day that the poors come to eat them:

So amid the clamor for socialism-for-the-rich, these billionaires went on the hunt for average joes who could serve as the face of the bailout. Like the "Ohio mom with 4 kids and a husband who works in manufacturing, who owns a small business:"

She's ex-McKinsey and raised $4m in VC for a $600/month life-planning app; her husband, another McKinsey alum, is a senior manager at a steel company (that is, he "works in manufacturing").

Clearly, the ex-libertarian 0.01 percenters begging for relief needed to find someone else. Enter David Sacks, a billionaire Paypal mafioso who waded into the debate with screenshots of an email from a "small, non-profit school" that would miss payroll if the bailout was not forthcoming:

Sacks held this up as evidence that SVB's depositors were "more diversified than the media narrative has allowed." Sacks went on to claim that the bailout saved "innocent bystanders" like "teachers" from being "laid off."

What is this small, nonprofit school? Writing in The American Prospect, Luke Goldstein sleuths it out: the "small, nonprofit school" is North Country School, an upstate New York boarding school where tuition runs $62k/year – more than Harvard or Yale:

North Country sounds like a great place to get an education. It's got its own private ski-slope. The local city raised a $7m municipal bond on its behalf. There's a rock-climbing range and horseback riding. The school emphasizes unstructured, outdoor education, with "farming, wilderness trips…even maple sugaring":

Let's be honest, this is the kind of education a lot of us dream of our kids having. No wonder that the alumni include numerous Rockefellers, and a scion of the Aga Khan family – claimed lineal descendants of the Prophet Muhammad.

As illustrious as the student body is, the trustees are even more gilt-edged. There's a former Jpmorgan managing director, a former Google exec, Austrian nobility, the Welch's grape heir and even JD Salinger's kid. The chair ran a booze delivery company that sold to Uber. Together, they manage $30m in assets and raise $3m/year in donations, on top of $9m/year in revenues.

As Goldstein points out, it might be a lot to ask of the median small, nonprofit school trustee to investigate the soundness of the school's bank. But these aren't the median trustees of the median school. They're raising millions from Vanguard and Fidelity and the JM Kaplan Fund. Perhaps it's not asking too much that high-flying financiers craft a risk management plan for their deposits – or, you know, just have the nous not to stash all their money in a single bank account, diversifying their risk the way that any financial planner would tell them to do.

According to Sacks, if the FDIC had frozen SVB withdrawals, or imposed a 10 percent haircut on depositors with more than $250k in the bank, the "modestly paid workers who tend not to have a lot of savings to fall back on" who worked at the school would have been out in the cold. But with donors on tap who give $50,000 at a pop, it seems likely that the trustees could have tapped someone for a bridge loan.

It's doubtless true that there are low-waged, precarious workers who would have been out in the cold if the FDIC hadn't stepped in, but the wealthy "investors" who clamored for the bailout spent the last several years consistently, brutally, loudly calling for an end to covid relief, no student debt cancellation, and cuts to public services. The idea that they were worried about saving the janitors and receptionists of Silicon Valley strains credulity:

You can't be on record calling for tech billionaires to "Sharpen your blades boys 🔪" ahead of mass layoffs and also claim to be a champion of the middle-class:

As Goldstein writes, "David Sacks couldn’t find a mom-and-pop institution to justify his cockeyed version of reality without turning to a VC colleague’s ultra-rich boarding school." There might be mom-and-pop institutions on the SVB balance-sheet, but David Sacks evidently doesn't know any of them.

New York State is a good place to be a Silicon Valley banker. For one thing, the Southern District of New York is an exceptionally nice place to be a bankrupt billionaire, which is why SVB's investors now claim that their headquarters are at 387 Park Ave, 2,951 miles from the Santa Clara HQ the company listed on all its filings:

In New York, elite boarding schools get federal rescues, so long as they can claim some nexus with SVB. But, as Goldstein writes, NY city and state schools are in outright financial crisis, with no aid in sight. The State University of New York system is drowning in debt. NYC schools are about to bring down massive layoffs, having lost $469m out of their budgets:

The FDIC stepped in to rescue SVB, claiming that it wouldn't cost the public anything – instead, the money would come from increases in the entire bank system's insurance premiums. But as Adam Levitin writes for Credit Slips, banks "will pass those premiums through to customers because the market for banking services is less competitive than the market for capital…higher costs for increased insurance premiums are likely to flow to the least price-sensitive and most 'sticky' customers: less wealthy individuals"

"So average Joes are going to be facing things like higher account fees or lower APYs, without gaining any benefit. Instead, the benefit of removing the cap would flow entirely to wealthy individuals and businesses. This is one massive, regressive cross-subsidy."

Nothing about this bailout intrinsically protects anyone's job. Yes, if the companies that banked with SVB went under, they'd have fired everyone. But tech companies are firing everyone anyway, 280,000 and counting, in profitable companies where they do stock-buybacks big enough to pay every worker's salary for the next quarter-century:

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