Comment by Michael Burry, who knew about the 2008 crisis, on the bankruptcy of the SVB

Famous investor Michael Burry, known for predicting the 2008 crisis and filmed about it, said he believed that the crisis that followed the failure of Silicon Valley Bank could be resolved very quickly.

Burry said the current turmoil in the US banking sector could be short-lived without posing a significant threat to the economy. “This crisis can be resolved very quickly,” Burry tweeted, which he later deleted. “I don’t see any real danger here,” he said.

Burry, played by actor Christian Bale in the 2016 film ‘The Big Short’, recently compared the collapse of the SVB to the 2008 crash and the 2000 dotcom bubble.

‘HORSE AND GREEDY’

Comparing the collapse of the SVB to that of energy trading giant Enron, which went bankrupt in 2001 and led to the jailing of several top executives, Burry said that people filled with arrogance and greed failed to take foolish risks, while the government saved them by printing money.

Burry had made big money from short sales and predicted that the subprime mortgage market, which had played a key role in the 2008 economic crisis, would crash. The film The Big Short, which deals with this subject, also had a great impact.

HOW DID SVB WIN?

SVB provided banking services to many startups and technology companies in the US. The bank played a very important role in managing the personal finances of these entrepreneurs and investors.

In 2021, when private tech companies were at the height of the investment boom, money flowed into the SVB. Total deposits rose from $102 billion to $189 billion after the flow of money from companies that received ever-increasing investments from venture funds. This entry left the bank in “excess liquidity”.

In the FDIC statement, it was noted that as of December 31, 2022, SVB’s total assets were approximately $209 billion and total deposits were approximately $175.4 billion.

In the period of extremely low interest rates, the bank invested in government bonds to meet investor expectations. But then the rise in interest rates changed things.

At that time, the interest rate on these bonds was around 1%. As a result of the Federal Reserve’s interest rate hike, the interest rate on such bonds has approached 4 percent today and demand for older bonds has declined. Therefore, when clients wanted their money back, SVB had to sell its bonds at a loss.

When the SVB went bust on Friday morning, customers tried to withdraw $42 billion, a quarter of the bank’s total deposits, in a single day, and the bank was unable to meet the demands. Federal Deposit Insurance Corporation, the US regulatory agency that insures deposits up to $250,000, moved into the bank’s headquarters in Santa Clara, California, and took control by declaring the bank bankrupt.