I’ve been reading about SIVB early-stage, venture capital corporate customers and their reaction to the failure of SIVB. I’m stunned. They come across as total financial illiterates. They seem not to have known anything, even about the limits of FDIC insurance of their accounts, to say nothing of the excessive risk-taking of the SIVB management–which even my fast look at the financials revealed. Contrast that with the behavior of hedge funds who were aggressively shorting the stock at the same time startups were happily pouring new money into the bank.

The latest annual doesn’t tell anything like the whole story, though. SIVB apparently wasn’t only buying Treasuries. It was also buying (highly-illiquid) mortgage-related securities, as well–compounding its woes. I also saw two stories–hard to believe they’re correct–asserting that a year or so ago, SIVB was fully hedged against the possibility of rates going up, but that the company subsequently liquidated its hedges (a cynic like me muses that, if correct, this was to show a profit that would avoid a quarterly earnings miss) and didn’t put them back on.

I keep hearing/reading comments that SIVB et al is the worst financial disaster since 2008. True, maybe, but certainly very misleading. The GFC had main three elements, all of which are missing here. Back then,

–major US banks engaged in what I think of as a criminal enterprise in selling vast amounts of mortgage-related securities whose poor credit quality was covered up, to the point where the major institutions holding these securities–US and European–were effectively bankrupt. Worst hit were EU banks, which at least at that time were thought of as the ultimate dumb money

–not knowing which banks might go under, and, more importantly, when that might happen, foreign producers of goods refused to accept letters of credit from US banks, the normal way of making sure they’d be paid on arrival of their cargoes in the US. So they stopped shipping. World trade came to a screeching halt

–US corporations, ruing that they hadn’t laid off workers quickly enough after the internet bubble burst in 2000, and not wanting to make the same mistake twice, began mass firings.

I also find it puzzling that although the banking authorities seem to have been fully aware of what was happening inside SIVB, they were apparently content to accept the company’s refusal to change its behavior. Even that letter from the Bank of England wasn’t enough to get the US authorities to take effective action.