If Silicon Valley were a normal place, this past weekend might be remembered as the moment its libertarian instincts gave way to a profound appreciation for the healing power of government. Knowing the mind-set of the place as I do, I doubt that shift is likely. There is simply too much hypocrisy in the Valley’s attitude toward Washington.
That was plain to see in the Valley’s reaction Sunday when the Federal Reserve Bank, the Treasury and the FDIC guaranteed all deposits — insured and uninsured — at the failed Silicon Valley Bank. Regulators said depositors would be made whole, meaning their funds would not be trapped, or trimmed, in an extended unwinding process. This caused a collective exhalation in the Valley, whose companies had everything from payroll to daily cash management to basic processing of customer purchases tied up at SVB.
The feds didn’t have to do this. SVB accounts with balances above $250,000 were uninsured, and regulators might have chosen to freeze them until a sale of the bank was worked out. Tech companies of all sizes spent the weekend scrambling to line up alternative funding to keep their lights on.
The loudest voices of Silicon Valley cheered the bailout. “Just like that, crisis averted,” tweeted PayPal co-founder David Sacks on Sunday. “So easy to do and so unnecessary to ever have this outcome in doubt.”
Sacks is a leading member of Silicon Valley’s anti-government commentariat. Yet days earlier, he had been banging the drum for federal intervention: “Where is Powell? Where is Yellen? Stop this crisis NOW,” he tweeted on Friday. “Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday … or there will be contagion and the crisis will spread.”
This is the same Sacks who, in the context of aid to Ukraine, said in October: “The idea that the American government, the American taxpayer, or any American company is obligated to provide support is pure entitlement.”
This is typical of Valley moguls. I remember chit-chatting a decade or so ago with a former top executive at software giant Oracle, who was then a venture capitalist with the storied firm Kleiner Perkins. We were munching on appetizers during a party at his firm when, unsolicited, he started bending my ear about how annoyed he was by California’s high tax rates. It has long been fashionable in California to cling to the belief that your success was yours alone and had nothing to do with conditions or protections — or subsidies — provided by the government.
In reality, the Valley wouldn’t exist without the feds. Its origins date to the Cold War, when defense contractors established outposts in Northern California to be close to the nascent microchip business. The internet began as a government-funded project — the ARPANET — and eventually stimulated the dot-com era. In the 1990s, an obscure (and now controversial) addendum to federal communications law known as Section 230 made it possible for online publishers to avoid liability for contributions by their users. Facebook, YouTube, Twitter and others would be a fraction of their size without it.
None of this has made the savants of the tech world the least bit grateful. Microsoft famously ignored having a Washington presence until the Justice Department attempted to dismember it on antitrust grounds. Elon Musk has been bad-mouthing government intervention for years, though his biggest companies have benefited from government contracts — Space X has both NASA and the Pentagon as big clients — and have grown thanks to federal tax subsidies in the case of Tesla and Solar City.
Musk, who tweets about seemingly everything on his mind, has so far refrained from commenting on the banking crisis. Peter Thiel is perhaps the most prominent Silicon Valley libertarian. A German immigrant who made his fortune in California, he has explored such wackadoodle ideas as “seasteading” — the establishment of floating tax refuges beyond the reach of mainland government — and fleeing the United States for such safer havens as New Zealand. Thiel’s firm, Founders Fund, was among the shrillest in the what’s-in-it-for-me venture capital community, calling last week for its portfolio companies to yank their funds from Silicon Valley Bank.
Then there’s the crypto crowd, whose very existence is predicated on the need for an alternative financial system because of what it sees as the sclerosis of the one administered by Washington. As the SVB crisis unfolded, crypto players toggled between I-told-you-sos to calling for bailouts because — and you can only marvel at the chutzpah here — their funds were parked at SVB, too.
It will become more difficult over time for Silicon Valley to maintain its absurd charade that it doesn’t need government, though it undoubtedly will try. But without government’s support, these modern-day masters of the universe would be mere mortals indeed.