Moral hazard for thee but not for me
Why are people mad at me? An explainer for VCs.
The tech startup bros are up on Twitter right now mockingly talking about how suddenly everyone is an expert in finance when it's time to hate on the tech world. I wouldn't go too far out on that branch friends, some of these very defensive VCs were supposed to be experts in finance and apparently couldn't figure out what was going on. But also... that is missing the point.
The issues with Silicon Valley Bank that have derived from it's involvement with startup culture are clearly fairly unique to the particulars of how that bank is involved deeply in that culture. Matt Levine's piece on SVB's double exposure is an excellent dive into this. That isn't the reason that the tech community is suddenly under critique nor is it the reason a whole bunch of people on Twitter are talking about why venture capital and their startups shouldn't be bailed out.
No, the problem is the hypocrisy. Of course no one wants to see the line employees of these companies in trouble. Not to mention, SVB isn't just a bank for startup cash, it has regular employees, standard bank users, housing, and businesses of all types. Generally, most critics don't want to see these depositors underwater.
On the other hand we’ve spent years watching Palo Alto types, VCs and the residents of Silicon Valley constantly arguing against exactly the regulation that might have helped prevent this problem to begin with.
Surely you can see how those outside the startup bubble might perceive this sudden turnaround in economic philosophy? When this crew of capitalist ghouls are begging for bailouts it seems a clear statement that their previous political positions weren't really based in any sort of philosophical or economic theory, but instead in a firm belief that there should be two Americas:
In SV's first America there are the home owners, the student loan takers, and the average man on the street. Apparently these people should not benefit from regulation, protection, or the funds of the US government. This first America should, in the view of the Startup Elites, lose money and garner no protections.
Then there's Silicon Valley's other America. In this other America they don't need to pay taxes or face regulations. They get to extract more money up and up into the already wealthy pockets of VCs while making it harder and harder for everyone else to make a living.
The VCs are flipping their position on government bailouts after spending years arguing that they shouldn't be constrained by any regulations or rules, financial or otherwise. People, both with and without a historical understanding of the marketplace, are understandably upset when they perceive a clear and certian statement that for all the talk of “wealth generation” and the moral burden of taking loans and running a buisness that VCs have done over the years these same self-identified gurus clearly feel no particular ethical requirements themselves. Apparently the moral hazard of the market is for us lesser beings, not the startups and their funders.
Those folks in the tech world who have any emotional intelligence (perhaps this is a narrow minority) surely can stop faking-it-to-make-it long enough to see where the sudden backlash is coming from. The behavior of their loudest voices is not earning them any sympathy.
This is apparently quite a surprise to the tech world. However, it isn't a surprise to me. There are the busses that transport SF employees to tech campuses that must reroute against angry opposition. Don't forget the loud "disruption" startups that meet with immediate anger and refuse to back down. I shouldn't even have to mention the crypto startups that have crashed and burned with millions in normal Americans' money on the promise of startup culture delivering big profits to the normal person.
America has been in an open class crisis that started with Occupy Wall Street and basically hasn't stopped. It has been hard to see at times over the last decade-plus because this class conflict has been successfully disrupted by the Right and basically split into two sides: the type of Q-anon, Jan 6., internet-weirdos who backed Trump to get one over on "the elites" and identify as the alt-right; and the rising labor and DSA movement that sits on the left. But both of these movements--when you talk to the average citizens on the ground--are about class conflict.
The future of this conflict is exactly this type of discussion: who gets regulated, who doesn't, and who is clearly willing to throw their strongly argued economic decisions out the window when their own wallet, or the wallet of their buddies, might be threatened.
It's easy to look at the fall of Silicon Valley Bank and spin out theories about the future of the tech world, startup culture, Northern California, etc...
It's also easy to say “but we created wealth” as so many startup culture “geniuses” have apparently fallen back upon to defend themselves.
It's a lot harder to adjudicate just how much startup culture is responsible for the uneven flow of that wealth. The rest of us are out here seeing rents go up, grocery prices go up, the price of living go up, and we're not getting bailed out. Instead, housing is purchased by rich people to rent on AirBnB. Getting around has been hijacked and priced up by Uber while it argues against any regulation or public transport. Groceries with reasonable prices are being pushed out by 15-minute delivery hubs whose lack of profitability is held off by VC funding. Living outside of Northern California, it sure seems like startups have been getting their bailouts continually for years. It can feel like karmic balance for the tech world to take its turn on the banking crisis-based rack. Maybe it is, maybe it isn't.
One thing is for sure, no one is going to forget just whose libertarian politics suddenly went on pause to protect their own wallets. Perhaps Startup Culture should stop being so defensive and listen for once. Maybe they could use this as an opportunity to be a little humble, to realize that their tactics and politics might not hold up quite so well to the real world outside of their now-popped bubble.
Perhaps they could use this time to reconsider how harmful they've been--how bad their: economic philosophy; austerity politics; lobbying; badly thought-out and unprofitable startups--can be.
It sure would be nice to see these VCs express the same level of concern for the rest of America’s citizens as they have for themselves and their drinking buddies. It would be a great time for the tech-wealthy to step back and realize they are looking down on most of America and offering cake via drone.
But I sort of fucking doubt they’ll think to apply their concerns to the rest of us. After all, when you live in the America of VCs and the ultra-rich, there are never any consequences.
Additional sources, reference, and reading.
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This post represents my **personal** opinion and does not reflect the position of my current, past, or future employers, this platform, or anyone other than me singularly.