Why Silicon Valley Bank Collapsed — And What Comes Next
About this episode
Noah Smith, an economist and Noahpinion author, explains why Silicon Valley Bank collapsed: it held about $200 billion in assets funded by concentrated, uninsured deposits from startups, then parked that money in long-dated bonds that lost value as the Fed raised rates — a classic interest-rate bet, not bad loans. When depositors noticed, social media and group chats accelerated a bank run that killed the bank in days, prompting the government to guarantee all deposits and create an emergency lending facility. Klein and Smith debate whether that intervention was a 'bailout,' the moral hazard of protecting uninsured depositors, and how deposit insurance should be redesigned. The episode detours into crypto — Smith argues it's finance, not technology — and closes on the Fed's dilemma: inflation was still hot, the debt ceiling loomed, and the banking scare showed how rate hikes transmit through a fragile financial system.