The Bazooka & The White Whale
The Bazooka & The White Whale
Silicon Valley Bank, Emerson’s Eye, and the California Dream
The world is on pause and fast-forward.
I was living in Brooklyn when the pandemic hit, and I contracted Covid in March of 2020. I’ve never really tried that hard to remember those days, or write about them, but for some reason I feel compelled now—as if, at last, a cycle has completed.
The weird density of that time escapes me. We were waiting things out at home, but the weight of the world was in the air. A kind of Theatre of the Absurd, in which life was suddenly reduced to the sum of my routines, and where the grip of normalcy was so totalizing that it could have passed for psychosis. In the very early days, authorities were curiously absent, and information was sparse. Statistics and theories swirled around us. By the time I got better, or thought I did, the latest word on the street was that NYC was going to close the bridges and tunnels leading out of the city. Our lives had become claustrophobically small and catastrophically vast overnight.
I packed a bag and drove down to Mississippi to stay with my parents back home. Before I knew it, I was situated next to the ping pong table in my childhood attic, trading interest rates, sorting out whatever remained of my social life, and trying not to go insane. Nothing was happening, and at the same time—at least on the screen in front of me—everything was happening. Lawmakers poured trillions of dollars into the global economy in the name of the pandemic. Federal Reserve Chairman Jerome Powell brought out the bazooka; in six weeks, the Fed bought more government bonds than they had in ten years. The price of oil went negative. No one could agree on what was happening. Civilization was on the brink of collapse. Civilization was on the brink of a technological revolution. My symptoms—indigestion, headaches, fatigue, insomnia—kept coming back. I was taking two-hour naps in the middle of the day, sometimes on the carpet floor. In that attic, I really would have believed anything.
“We had all the momentum; we were riding the crest of a high and beautiful wave... So now, less than five years later, you can go up on a steep hill in Las Vegas and look West, and with the right kind of eyes you can almost see the high-water mark—that place where the wave finally broke and rolled back.”
Hunter S. Thompson, Fear and Loathing in Las Vegas
Life, like headlight, goes on. I’m no longer shooting hoops on the toy basketball set my parents got me in elementary school. I quit my trading job. I spent my days making kitchari and writing bad poetry. The prospect of change was suddenly captivating. Henry Miller had grown up on my block in Brooklyn, and I’d been reading his memoir of convalescence, Big Sur and the Oranges of Hieronymus Bosch. Why not, I said, and I moved to California, right next to the ocean. Looking back, I only remember one part of the drive west. It was 5 a.m., I was just pulling out onto the freeways outside Chicago, passing unmanned tollbooths and missing persons alerts and a huge column of smoke rising up to the east like the remains of the sun. The roads were all marked as work zones, but I never saw a single worker.
“It was as if the light were buried in the Pacific Ocean, producing an enormous curvature of space. It made a person hungry to travel in that light, although also, and maybe more insistently, thought Norton, it made you want to bear your hunger until the end.”
Roberto Bolaño, 2666
At the time, I wasn’t metabolizing my food. And also I couldn’t stop eating. My body clearly craved nourishment and was simultaneously rejecting everything it was offered. There were days I gained 15 pounds. For a year and a half, I couldn’t focus on anything else. I tried everything—fiber, probiotics, antidepressants, acupuncture, cold therapy, reiki, ayurveda, naturopathy. Eventually, in fits and false starts, I started to get better. After 18 months of whipsaw, my viral symptoms finally went away.
As my body regained equilibrium, my brain fog cleared. I realized how much I missed New York. The trip back could’ve been five days or five minutes. I stopped for gas at the world’s largest Chevron just outside Las Vegas, and I didn’t stop at all in Omaha. The night was young and I figured I just might make it to Chicago and a few miles west of Naperville I saw the old pillar of smoke coming up on the horizon and I stopped on the shoulder of the freeway to do jumping jacks. I was going back the way I came.
The pandemic may be over, but the pause is still with me. I’m still tapping away at my keyboard, alone in my apartment, which may as well be an attic, and the world outside the window still churns at warp-speed.
In here, life is small. I worry about dumb things, hiccups at work, what I’m going to eat, how I’m going to get wherever it is that I’m going. I spend a lot of time on bikes and subways and driving my car in circles for street cleaning.
Out there, though, every day is a hundred-year flood. Look out your window: a revolution is happening somewhere, and depending on how you look at it, this can mean entirely opposite things. A revolution is a paradox, both a radical leap forwards and a celestial reset—a return to origins.
Shall we sift through the rubble? A deadly virus, a government shutdown, a deflationary panic, an attempted insurrection, a new bull market—what is your company doing to fight climate change and how does it involve blockchain?—whoops, it’s a bubble, things are falling apart again, Russia in Ukraine, China in Taiwan, floods in Pakistan, the forests are burning, the ice caps are melting, a new bear market, heavens to Betsy, runaway inflation.
Our little ship, always in the eye of the hurricane. The cycles of trauma and hope, boom and bust, cooperation and isolation… they are forever accelerating. What remains of the wave?
Look no farther than the latest column of smoke: the Silicon Valley Bank crisis. An old-fashioned bank run on nouveau riche billions, perpetrated on social media in less than 24 hours. SVB’s equity and debt went to zero, and the FDIC ultimately intervened to guarantee 100% of SVB deposits. It was the second biggest bank failure in history.
What happened? As usual, it’s hard to separate the peculiarities of the event from the enormous narratives surrounding it.
The bank was way over its skis in terms of risk. Not in a Chad-like we’ll-bet-on-anything revival of ’08, but in that SVB was a prime beneficiary of the mind-altering money-printing orgy of the last 15 years. Central bank intervention, artificially low interest rates (ZIRP, or Zero Interest-Rate Policy), rampant quantitative easing, too much for too long. Under this new monetary framework, downturns are no longer politically tolerable. We are always redefining the word “recession” so that it is never happening.
A world awash in cheap financing is all too ready to throw money at every problem, and also every solution. It’s difficult to overstate how much, over the past decade, these policies have warped reality. No one should be arguing about this: If you engineer the cost of capital to be zero, you distort the calculus of not just those funding things but also the people making things. The bigger the perceived backstop, the more rampant the risk-taking.
What gives? When cash is just an idea away, nobody stays young for long. Enter the profiteers—startups, venture capital, private equity, and importantly, ponzis, grifters, scammers, bag pumpers, and subscription sellers.
The heirs will always line up for an advance on their inheritance. Frankly, I am exhausted of looking at charts like this one:
SVB—they were the high-water mark of the wave.
The bank had an extremely un-diversified depositor base, mostly comprising tech startups, and 94 percent of which was uninsured (above the $250k limit guaranteed by the FDIC). SVB invested in VCs and even alongside them; the target startups, in return, banked with SVB. If you’re a founder, you probably got a sweet deal on a mortgage as a result 🚩🚩🚩. Hop on board the rocket-ship: In 2020 and 2021, SVB’s deposits more than tripled. The average industry growth was 37 percent.
Where did all that moolah go? In the last five years, SVB accumulated an unhedged $124 billion portfolio of long-term treasuries and mortgages at all-time lows in interest rates. Remember, as rates rise, the value of a bond falls. If you bought a 30-year U.S. treasury in May 2020, you’d currently be down 32 percent.
The funny thing is: all banks carry risk like this. Their business model has always been leveraged: borrow short-term (deposits) and own long-term securities (loans, treasuries, mortgages). Accounting rules allow banks to identify certain bond holdings as “hold to maturity,” which means they’re going to sit on it for its full lifespan and collect all the coupons and principal. That way, they don’t have to worry about the value fluctuating with interest rate movements in real time. Unless, of course, depositors want their money back, and the bank has to liquidate. In this case, the loss is realized. And that’s exactly what happened.
On March 9th, SVB depositors attempted to withdraw $42 billion, and this led to a fire-sale of the bank’s bond portfolio. The same people who got SVB rich ended up burning their own house down. What better way to ensure a bail-out?
We tend not to think of our folksy regional bank as a risky enterprise. In fact, we often perceive banks to be a kind of vault: you give them your money, and it will always be there for you, like a good friend.
Consider the dollar bills in your purse or wallet. Do you think of them as risky? Maybe the inflation of late has made us more attuned to changes in purchasing power—in the same way that SVB managed to mostly ignore its ever-depreciating shit-heap, right up until the day it couldn’t.
On a deeper level, it’s all too easy to forget that currency is, at its core, a faith-based medium. It only has value because enough people have agreed to use it. Money is a metaphor that requires collective belief.
For this reason, bank runs rarely happen in isolation. Already, three other banks have gone down, and there will almost certainly be more. Depositors are fleeing to Wall Street behemoths, the banks with the backstop, too big to fail. As credit expert Sid Prabhu put it in a tweet: “Remember kids, America is about personal responsibility. You are personally responsible for positioning yourself for bailout money.”
Always in the eye of the hurricane: Shatter the illusion of community, and suddenly we’re just the sum of our routines. Nobody leaves and nobody lends. The economy collapses, the central bank steps in as a lender of last resort, and we’re back to the QE bazooka and, ultimately, debt monetization. But something is wrong; all that stimulus never gets metabolized. As Keynes once said, we’re “pushing on a string,” on pause and fast-forward, and eventually time, like money, vanishes altogether. It is an old story, and yet always closer than it appears. Since the Lost Decades, Japan’s economy has never recovered.
It may have officially died in the 19th century, but there is a new strain of transcendentalism in America. It has nothing to do with self-reliance and nature, and everything to do with the sanctity of money and the market. There is no profession more quintessentially American than that of the speculator—the mover and shaker of capital, and the mother of all invention. We need not run around with picks and shovels anymore. We’re living out a different kind of California dream.
The leading proponent of transcendentalism was the poet Ralph Waldo Emerson, who considered nature the closest encounter we might have with revelation. He often writes of the “transparent eye-ball,” the unified nothingness we attain when enveloped in the Universal Being. In this way: “Know thyself” and “Study nature” become “at last one maxim.” One of my old professors, Jeffrey Stout, articulated his own vision of Emersonian perfectionism:
“There is no fixed goal, no rest. Each of us is on a staircase. Yours differs from mine. We can see a few steps below us and a few steps above. Above you, there is a more excellent version of who you are, calling you upward. This is your higher self. Turning your back on it would be a violation of sacred duty. Ascent, however, requires abandonment of your established self. The higher self congeals out of the highest intimations of excellence you can intuit from where you stand.”
Well shucks, the boom times make romantics out of all of us. And yet for all his Zen mastery, there is something creepily acquisitive, even imperialist, about Emerson’s eye, which so magnanimously incorporates its surroundings at will. Just who is this aspirational self, in the modern day? In my last piece, we talked about the decline of the English major in American universities—how students nationwide face an ever-increasing pressure to “make it” as quickly as possible, how money and prestige have become the ever-present walls separating us from a life well-lived, how struggle no longer exists in plain sight. Notice how, in the years since 2008, the word austerity has vanished from the political lexicon. There will be no more recessions.
The one-way train of the last four decades has left us all with short memories. Secular deflation, globalization, technology, and demographic changes all conspired to create the biggest bull market on record, generating more wealth than at any other time in history—and wealth inequality. In 2020, the bottom half of the U.S. held just 2 percent of nationwide wealth, less than the richest three families in America combined. During the pandemic, global billionaires saw their net worth explode by 70 percent—the biggest increase ever recorded. Since the April 2009 low, the tech-heavy Nasdaq is up 750 percent. There is no fixed goal, no rest; each of us is on the Staircase, hunter or hunted. The market is a seductive metaphor for the natural world, indeed.
Here is an evil plan: If you want to destroy America, take our stock market away from us. Engineer inflation which at first appears transitory but eventually seeps into all aspects of consumption. Beg the Fed to ignore the signs, which are manifestly everywhere, and then force them to tighten policy too much and too late, Peg-leg Powell, without a leg to stand on, in the face of an enemy that is at once nowhere and everywhere—a White Whale.
Cringe away, but the most vigorous contemporary assault on transcendentalism was, astonishingly, Moby-Dick.
Ahab and Ishmael’s insatiable desire to see, and thus to know—or is it to have?—is the focal point of the collision with Emerson. Melville simply doesn’t believe his own eyes, when taking in nature, can confer reality. That is, we see what we want to see, rather than the world beneath the waves. Adrift at sea, man goes blind, gazing “for hours and hours … dead to windward, while an occasional squall of sleet or snow would all but congeal his very eyelashes together.” It is only when the sailor shuts his eyes—as Ahab tells Starbuck, “All visible objects, man, are but as pasteboard masks … Take off thine eye!”—that he stumbles upon true vision.
On board the Pequod, cataracts fill Emerson’s eyeball. “Your whales must be seen before they can be killed,” Ishmael tells us, and his words ring ominously true. For all their efforts, the ship’s crew do not clap eyes upon their quarry until the final three chapters of the novel. Their voyage is largely characterized by its endless, fruitless looking—the Staircase. Despite multiple warnings, the crew woefully miscalculate the risk they all took, to their peril.
Once the whale reveals itself, it is physically impossible to look at, head-on: “Not one distinct feature is revealed; no nose, eyes, ears, or mouth; no face; he has none, proper; nothing but that one broad firmament of a forehead, pleated with riddles; dumbly lowering with the doom of boats, and ships, and men.” The white whale, in other words, does not welcome our gaze. It remains incomprehensible and untameably wild, beyond our fantasies of seeing and knowing and having for our own.
Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers’, who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat…
The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose.
John Maynard Keynes, “The Economic Consequences of the Peace”
If I’ve depressed you with my visions of doom (or worse, bored you), lemme try and turn that frown upside down.
If I have learned anything in the last few years, it’s that my optimism is local. The only job I never want to lose involves belief. That is, I believe in myself and the people around me. I believe in this small cohort’s capacity for good. You may think this is the smallest form of optimism, and I would agree, and say to you that it is also the most ambitious. In fits and false starts, the human form heals itself, and eventually, its neighbors. And even if there were an asteroid hitting the earth tomorrow—or Valentine’s Day, 2046!—I don’t think that sentiment should ever change.
Stay safe out there, bonfire crew. And remember, don’t believe anything you tell yourself after 9 p.m.