The Pulverizing Power Of Panic

Yesterday a bank failed. Silicon Valley Bank, one of the most prominent lenders to the tech industry and the 16th largest bank in the country, was shut down by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Company took over operations as the bank’s receiver. The collapse of SVB is the second largest bank failure in U.S. history.

Bank failures are never pretty. They often recall Ernest Hemingway’s famous observation that there are two ways to go bankrupt: “gradually, and then suddenly.” Banks operate on a foundation of trust in their stability and integrity, and when that foundation is undercut, failure can occur with breathtaking speed. That appears to be what happened with SVB.

As an interesting CNBC article recounts, SVB’s downfall took less than two days. On Wednesday, the bank advised investors that it needed to raise $2.5 billion. At that point, the bank was apparently still reasonably well capitalized; at the end of December, it reported $209 billion in assets and $175 billion in deposits. But underlying issues with the American economy had caused some start-up depositors to withdraw their assets to stay afloat, the bank found itself short of funds and was forced to sell the bonds it had available for sale at a loss, and when it announced it needed to raise additional funds the blood was in the water. The bank’s stock price plummeted, the tech investment community spread the word that deposits should be removed from the bank, and customers withdrew an astonishing $42 billion in less than 48 hours, leaving the bank with a negative cash balance of $958 million. With the bank insolvent and unable to find a buyer, regulators stepped in.

The CNBC article quotes one fintech investor as saying that the failure of SVB was “a hysteria-induced bank run” caused by venture capital firms. That’s often what happens–and the sad thing is that the people who panic, withdraw their funds, and precipitate bank failures usually end up safe, whereas the people who leave their money in the bank and trust that all is well often end up sorry. In the case of SVB, the people who kept their deposits in the bank will now have to deal with the FDIC, which insures deposits up to $250,000 per depositor. If you’re someone who had more than $250,000 on deposit at SVB, you might well find yourself out of luck.

For all of our thin veneer of civilization and sophistication, people are still prone to panic–especially panic about money. Let’s all hope that the failure of SVB, coming on the heels of cryptocurrency collapses and other recent negative financial developments, doesn’t provoke a stampede.

The “Avoiding Panic” Dodge

These days we’ve got plenty of people advising us not to panic about the Ebola virus.  Whether it’s those ubiquitous, generic “psychologists” who seem to pop up whenever there is some significant incident, or public health officials who want to reassure us that in the grand scheme of things Ebola is really not that big a deal, experts galore are urging us to control the inner demons that might otherwise transform us into a howling, red-eyed, torch-wielding mob that could end modern civilization as we know it.

The counseling to avoid panic is a dodge, of course, because no one is panicking.  But by depicting concerns about how the Ebola issue has been poorly handled as indications of unfortunate mass hysteria, the people who have dropped the ball can deflect and avoid legitimate inquiry.  Tsk, tsk!  They’re the rational ones; the rest of us are excitable, poorly informed boobs who are just going to make matters worse.  Like the policeman at the yellow tape of a disastrous crime scene, they just want us to move along.

We shouldn’t fall for this sham in this case, and should insist on getting answers to some entirely reasonable questions.  Ebola isn’t a phantom menace; it is a deadly disease, and in the latest outbreak in West Africa it has had a mortality rate of 70 percent, according to  the World Health Organization.  In America, we have established the Centers for Disease Control and Prevention precisely to deal with the enormous risks posed by such dread infectious diseases. When a man infected with Ebola reached America and received treatment in Dallas before dying, it appears that the CDC and the Dallas hospital that provided the treatment were unprepared to deal with the case in a way that ensured effective containment of the disease.  First one nurse, and then another, were found to be infected, and now we learn that the second nurse was permitted to board an airplane when she was exhibiting a low-grade fever that is one of the first signs of the virus.

Is it panicky and irrational to question how and why these circumstances could possibly occur?  If you were one of the 132 unsuspecting passengers flying from Cleveland to Dallas with that nurse — people that officials are now trying to trace and presumably monitor — wouldn’t you think it was entirely legitimate to question the competence of the CDC and to ask whether it was following any kind of meaningful containment strategy?

It is becoming increasingly clear that the CDC has badly fumbled this situation, which means that it is failing at the principal reason for its existence in the first place.  Demanding answers about how that happened is not a a sign of hysteria, but rather of requiring accountability by a government agency that simply has not done its job and, in the process, is exposing the people it is supposed to protect to unnecessary risk.

Bracing For The Superstorm

Here comes Hurricane Sandy, the tropical storm that is scaring the pants off everyone from the east coast to the Mississippi.

Sandy is still far to the south, but speculation about the disasters it might inflict makes for juicy headlines.  It could be a “Frankenstorm” that might pile water up against Manhattan Island, swamping low-lying areas and flooding subways tunnels.  It could wipe out hundreds of miles of beachfront through massive storm surges.  It might combine with a cold front and then drop huge amounts of heavy, wet snow up and down the heavily populated eastern seaboard, snapping rotted old trees like matchsticks, downing thousands of miles of power lines, and leaving the most densely populated part of the nation without power for days.  Under the right circumstances, the storm could paralyze multiple states and municipalities just as Election Day arrives, throwing the nation into chaos.

The dire warnings of forecasters whip us into full panic mode before cautioning us all to stay calm.  But we know what they’re really telling us.  It’s a zombie apocalypse!  Old Testament stuff!  Dogs and cats, living together!  Mass hysteria!

Hey Russell, get your flashlight ready!  Soon Brooklyn could be underwater, and the veneer of civilization may well be ripped away from the citizens of New York City, leaving marooned residents to battle savagely for the last scraps of dirty water hot dogs.  Or not.