This is the full transcript for season 5, episode 7 of the Quartz Obsession podcast on the public tech bank.
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Scott: If you follow the news, you might be wondering, “What’s going on with banks?” It kicked off with rumors that Silicon Valley Bank was on the verge of going under. Clients rushed to pull their money out. It turned out the bank had made risky investments and didn’t have the cash on hand when its customers started withdrawing, so the bank collapsed.
Silicon Valley Bank served a crucial population: tech companies, startup founders, and venture capitalists. A huge chunk of the tech industry was banked by SVB, and if that pool of money went down with the bank, the US economy could very well go down with it. That left the US government with no choice but to rescue Silicon Valley Bank’s clients, making sure they got their money back.
Washington wound up, very suddenly and without really planning to, bankrolling the tech industry. What if we could do it on purpose? What if the federal government didn’t just swoop in when there was a disaster, but instead proactively funded this critical economic sector? What if, when you wanted to get your startup going, there was a radically different option for funding. A public option.
I am Scott Nover, the host of the Quartz Obsession, where we’re taking a closer look at the technologies and innovations that might someday change our lives today. A public tech bank in the United States.
Scott: Nate, who are you and what do you do at Quartz?
Nate: I’m Nate DiCamillo and I’m an economics reporter with Quartz, mainly focused on the labor market, but also macroeconomic trends and issues in the US and internationally.
Scott: Anything related to money you cover, right?
Nate: My beat tends to just go everywhere, so, like, yes.
Scott: So Nate, this season of the Quartz Obsession has been about innovation, and one of the strange things that’s happened while we’ve been making it is that we’ve been watching in real time a shift in attitudes about how the future of tech is funded. And by that I mean, specifically, we watched Silicon Valley Bank collapse and take some other institutions with it.
Can you tell us about the role that Silicon Valley Bank played in the tech ecosystem? Was it more than just a place to get cash out of the ATM?
How did Silicon Valley Bank serve the tech industry?
Nate: Silicon Valley Bank offered, not just, like, your typical kind of, like, banking and financing services. Its primary, kind of, like, pitch to these investors, to startups, was that it had the kind of, like, relationships with venture capitalists that other banks did not.
It not only had its own venture arm, but it could also find venture capitalist partners to help finance your next series. In addition to that, it also had this kind of, like, personal banking for the, like, entrepreneurs that were in these startups. You know, “Come and bank with us and get your seed money through us,” but also inviting them to kind of get a mortgage out of Silicon Valley Bank.
So it was a very deposit-hungry bank that wanted to kind of bank the entire, kind of, like, financial lives of entrepreneurs and the startups that they created.
Scott: What does that mean, “deposit-hungry”?
Nate: It means that it needs more deposits so it can make money off of those deposits when it puts them into treasuries.
When you want to make a lot of money off of treasuries, you need more money to put into treasuries. This is why you’ll see, you know, a lot of digital banks, like SoFi, for instance, offer really high, like, savings account yield because they, like, wanna rake in more deposits as they’re able to earn more yield on their treasuries. Without a separate, more robust lending business, that’s kind of what you’re left with: You need to try to get as many deposits in the bank as possible. Whereas the big six banks in America that hold, like, 85% of deposits aren’t as deposit-hungry because they’re already flush with deposits and they also already have a dynamic loan book.
Scott: So what’s wrong with that?
What are long-term US Treasuries?
Nate: The main criticism that I think financiers had of Silicon Valley Bank is that they were investing in 10 year treasuries, and the people that they were serving had, like, much shorter kind of, like, fundraising timelines. So they would fundraise every 18 to 24 months and the criticism is that they should have been investing in, like, two year treasuries instead of 10 years.
Scott: Let’s zoom out a little bit. Treasuries are bonds issued by the treasury department, right? Why is it a problem that Silicon Valley Bank was buying them?
Nate: They are essentially something that you buy now and you get paid out later, and there’s yield on them, not too different from if your grandma or grandpa bought you, like, savings bonds as a kid.
Scott: Right, so the proposition is the government is fundraising in some way. They’re selling bonds, and you, the consumer, are buying into it because you’re promised more money later, right?
Scott: And so that’s kind of what Silicon Valley Bank was buying into. They were locking up their money with the assurance that down the road they would get much more money back. It was a pretty safe government bond. The problem was that the pace that they needed liquidity or money on hand was a much shorter term than what they had just bought into from the government.
Scott: So there’s a discrepancy between what this bank was putting its money in, which was a long-term financial product and the pace at which the tech industry was actually functioning, which is very rapid and more so when interest rates were rising and the tech sector was suffering. Is that right?
How rising interest rates affected Silicon Valley Bank
Nate: Yeah, but the thing is that you want to have a little bit more of a diversified business than just that. They didn’t really have this kind of, like, loan book that could also really rise in value as interest rates rose.
Scott: When you say the Silicon Valley had a diversity problem, you’re talking about their investments were not very diverse—they were mostly investing in 10 year treasuries, and then they also had a diversity problem with their clientele, that all of their customers were basically exposed to rising interest rates, which hit the tech industry hard.
Nate: Yes. You know, you can be a bank that’s just focused on one industry, but if you’re a bank that is, like, as deposit hungry as Silicon Valley Bank was, it can be quite difficult in a high interest rate environment.
Scott: So one thing I’m thinking about is you’re talking about the relationships of Silicon Valley Bank and the kind of personal touch that they had with the tech industry, and I was wondering kind of how much is that by nature of being a regional or local bank, and how much of that was just kind of a weird one-off situation because they were so close to this weird unicorn, for lack of a better word, industry.
Regional banks vs. big national banks
Nate: I mean, it’s a bit of both. Regional banks have, proven through many studies, are better at delivering personalized finance to their customers than big banks are.
Most notably in the pandemic, we had the paycheck protection program and there was a lot of fraud involved in that program, but regional and community banks did a lot better in terms of getting those loans to the people that needed it. But there’s also this thing within banking now that if you are gonna try to break through in the US banking system where you have these, like, six massive banks and you’re not one of the massive legacy banks, if you’re a community bank, going niche is a pretty good way of trying to, like, develop those relationships and did just so happen that, you know, again, the region of Silicon Valley has so many tech companies that I was able to target, and so it also made sense for it to be a regional bank, right.
Scott: Regional banks are closer to the consumer, they’re closer to the companies that they’re banking. They kind of get it.
Scott: A little bit better than the big national banks, right?
Nate: Absolutely. They can form the kinds of relationships that you could… when you’re a tech entrepreneur, you could call up someone at Silicon Valley Bank that would be able to work with you. You didn’t have to sit listening to that automated telephone system that we all hate when we try to get through to our bank.
Scott: I like the ones that call you back.
Nate: Oh yeah.
Scott: I’m gonna call you back in three hours, so you’re not just listening to elevator music.
Scott: So there seems to be a tension at the heart of banking between banks’ ambitions to finance their customers’ projects and get returns and their commitments to protecting customer deposits. You’ve gotta make money with money, but you also have to make sure the money is there when people need it. Why was walking that tightrope harder for Silicon Valley Bank than other institutions?
Why did Silicon Valley Bank fail?
Nate: The fundamentals of Silicon Valley Bank, like, if they actually raised money when their stock price was up, instead of waiting a day to raise money… Basically on Wednesday, they were, like, “We lost 2 billion in bond sales!” And then they were like, “But we’re gonna… we’re gonna fundraise to cover that.” But they waited until Thursday to fundraise. So in part it was just, like, terrible communication on behalf of the bank. And their deposit base was just a bunch of super flighty customers that were ready to run as the first sign of trouble.
Scott: Right, and so what we have is a classic bank run and everyone wants to get their money out and the bank collapses. The bank fails. The government lets the bank fail.
Scott: Now, there is a hard limit in banking regulation. The FDIC, or the main deposit insurance regulator in the United States, only ensures $250,000 of customer deposits in a given bank. Where does that even come from?
What does the FDIC do?
Nate: So, the FDIC, it’s the Federal Deposit Insurance Corporation for the United States, and it was created in the New Deal and it came in response to a rash of bank runs. And the US used to be very sensitive to bank runs in the first half of the 20th century. And since the FDIC’s insurance, the US has never experienced a series of bank runs like it did in the beginning of the 20th century.
Scott: How does the FDIC prevent that?
Nate: First, the FDIC has a deposit insurance fund, which holds 1.35% of all insured deposits. That deposit fund. it keeps us stocked through fees that it imposes primarily on large banks, but, like, obviously that 1.35% of insured deposits, that fund isn’t gonna be able to cover, like, a JPMorgan Chase if it, like, suddenly goes under.
So it also has the ability to borrow, to be able to also fulfill its deposit insurance requirement. Ever since the FDIC was created, we no longer have, like, narratives of, like, rampant bank runs. Like, Silicon Valley Bank is very subdued, very, very small compared to the bank panics that we had in the first half of the 20th century.
Prior to the FDIC, often our economic crashes and our narratives around economic crashes had to do with, like, what was going on with the rich class of Americans, like, what were the bankers doing? What were their financiers doing and whatnot? And that was a very common reason for us to enter into recessions.
Scott: So the FDIC has worked in a sense, like, it has very much staved off the worst impulses of word of mouth panics that could afflict the entire banking system and really put Americans’ money at risk, right?
Nate: Yeah. Like, I know for sure, unless I become a millionaire by a stroke of luck tomorrow, that my checking account will always be insured by the FDIC.
Scott: Well, then, I guess we won’t give you that raise, Nate,
Scott: But, and that’s not to say that banks haven’t failed, but the system as a whole has remained fairly solid.
Nate: Yeah, I mean, like, in terms of the response to the banking system, even though, like, you might see some hyperbolic kind of, like, headlines from crypto bros writing about, you know, the end of the banking system, this has showed, like, some of the cracks in bank regulation because we loosened some of the requirements on banks that are 50 billion and above in 2018. But it’s also showed the resilience of just our overall ability to backstop the financial system.
Scott: So something that is absolutely fascinating is: Because so many of Silicon Valley banks’ customers had more than $250,000 in the bank, any amount of money over that was not protected by the US government. Is that right?
FDIC’s $250,000 deposit insurance limit
Nate: Yeah. And it’s right for a lot of other banks that serve wealthy customers, like, this is a common issue for smaller banks that try to carve out their niche by serving super wealthy customers. But it’s, like, very time consuming. If you’re a bank in that position to try to get the deposit insurance, you can try to go through companies that will offer deposit insurance on your accounts entirely, for a fee. They’ll spread ‘em out across a bunch of different banks, and that’s what those companies kind of act as middlemen. But again, you’re a bank that wants to accept these deposits, because you wanna make money off of ‘em, you don’t wanna have other banks making money off of ‘em and you don’t wanna pay for the extra deposit insurance. So it’s just, like, right now as we’re set up, like, for the really kind of wealthy accounts, like, there just isn’t an incentive to try to, like, protect those deposits.
Scott: So the government came in and it said, “We’re not going to do a full on bailout of the bank itself. We’re gonna let Silicon Valley Bank fail. We’re gonna get rid of its executives. The bank itself is not going to exist in the same form as it once was, but we are going to ensure all of these uninsured depositors at the bank, and make sure that essentially the tech industry is bailed out.”
Scott: Why do you think they came to that conclusion?
What was the federal government’s response to SVB’s collapse?
Nate: I think that the US banking regulators have a lot of trauma from the 2008 crisis and wanna look out for cracks in the financial system that they might not be aware of. And I mean, this was one of those blind spots.
And so part of this was a failure in bank supervision, but the other part of this is that now there’s this discussion within the FDIC kind of looking at what would it look like for the FDIC to ensure all deposits. So economists have brought up the fact that that poses some moral hazard risks and that it could encourage banks, even though, like, SVB itself and its executives do not exist in any way, shape, or form in the same format as they did before, it still could encourage kind of, like, risky bank models, just knowing that, like, “Oh, well now all our deposits are good, like, we can do whatever we want.”
Scott: Right, Silicon Valley Bank could probably reform and, you know, get its customer base back and try some other weird tactic, right?
Nate: Yeah, and there’s also just, like, this question of what kind of society do we want to live in, too? Like, we go through socializing all these risks, but then we privatize all the returns from taking those risks. And so, like, it’s, like, who do we want to actually, like, benefit from taking the risk. And in a time where we have historic inequality, it’s reasonable that people are getting upset and calling this a bailout, because you’ve set up a system in which the risk takers are getting a bunch of rewards, but the actual, like, full pain of it is not felt by them.
Scott: That is such a great point. Nate. We are, as you say, socializing the risks of banks and privatizing the returns.
Nate: I’m pretty sure that’s a quote from something.
Scott: From what I understand, the economist Joseph Stiglitz popularized it, but it’d been around before that.
Nate: Right, right, right.
Scott: So it seems, like, for a lot of folks, the takeaway from the collapse of Silicon Valley Bank was that they screwed up—they should have been more diversified in their customer base and in their investments. But you have a different take, that tech definitely needs a personalized approach to banking that Silicon Valley Bank had, but a way more powerful backer. So what’s your hot take?
Nate: So my hot take is that we might consider what public banking options there might be for tech.
The tech sector in the United States could benefit from a public banking option that would offer cheaper financing and also direct loans to technologies that could be really transformative for the US, stuff that’s more than just mobile apps.
Scott: What does a public option look like for tech banking?
What does a public option look like for tech banking?
Nate: It looks like something that can outcompete private banks because it’s tied to the Federal Reserve and is able to get the kind of cheap financing for the Federal Reserve that big banks can.
It looks like a bank that extends loans for projects that really matter for the country’s needs. You want a new power grid, you want geothermal, you want to get nuclear fusion done. You want to be able to do the climate transformation going into this green economy. You want all those things. And I mean, Silicon Valley isn’t really, like, producing that for us. It’s, like, having us, like, obsess over new features on apps, which is, like, all well and fine, but, like, what we want is a future—you and me, our kids, our friends’ kids can have a better quality of life. I don’t want a world in which, like, we only build things based on 10 year time horizons.
Scott: What’s the 10 year mark?
Nate: Because that’s what most venture funds in the US. That’s how long they invest for before they exit. So they invest in a company and then, like, they wait for the company to IPO or something, or be sold.
Scott: Would a public tech bank be less risky than what we saw with Silicon Valley Bank?
Would a public tech bank be less risky than SVB?
Scott: Why do we want something that’s less risky?
Nate: I mean, that’s a good question. Like, we want something less risky because the way banking is set up now is, like, banks are always gonna be looking for the largest returns in the short amount of time. But also it’s too easy to trick a bank into financing a ton of bubbles right now.
Scott: Is there a bigger risk if the US government is financing a bunch of bubbly tech companies?
Nate: Well, so whatever US bank gets chartered, we get to, we the people get to say what it finances, how it works. The notoriously volatile tech sector is volatile because it’s been so focused on short-term earnings.
Those venture capitalists have a need to raise funds, like, every 18 to 24 months. And so that phenomenon can kind of be broken by a public tech bank. A public tech bank can, you know, offer to extend loans to someone that is starting a new social media company, for sure. But they’re also gonna have a ton of loans that are focused on a real tech infrastructure that’s gonna push us towards the future.
Scott: Why is that?
Why would a public tech bank be better for funding future innovation?
Nate: Previously, like, most of our, like, tech investment that’s come from the government has been through things like DARPA, which is a program from the defense department where the military had certain goals that they wanted to reach, and so out of that came the invention of silicon itself—that Silicon Valley’s named after—the internet, GPS, a bunch of other things. And the hope here with, like, something like a public tech bank would be that we wouldn’t just, like, wait for something to become a priority of the US military before we pursued it.
Scott: I thought Al Gore invented internet, no? [laughs]
Nate: [laughs] Right.
Scott: So the US government has a long history of funding and financing innovation. They’ve just done it through military spending in other ways, right? So this isn’t totally new, but it’s a new way of doing business.
Nate: Yeah, the US has had this really strong emphasis on national security, so it will invest in anything related to national security and the private sector will build off of that, obviously, things like the internet increase our productivity and GDP by, like, multiples, but that in-between space when we don’t need something because we’re trying to compete with other countries based on national security is what we need to be thinking about.
Scott: And so let’s back up. What are public banks and what’s our history with them in the US?
Public banking in the US
Nate: There was public consumer banking through the US Post Office from 1911 to, like, 1966.
Scott: What does the post office have to do with banking?
Nate: The postal banking system came out of, like, the 1907 bank panic, and at the time the Republican party supported the postal banking system while Democrats wanted deposit insurance. Democrats got the deposit insurance later, but that postal banking system for a number of decades was able to provide free personalized banking services for people across the country in places where bank branches could not reach.
Scott: That’s fascinating. How do other countries invest in technology? Do they have public banks for that?
How do other countries fund the tech industry?
Nate: Yeah. You’ll see this sometimes. A country might have a tech portion of their, like, development bank focused on investing in, like, bridges and tunnels, but then also technology. And then you might see some countries—like Ireland did this recently—using their, like, kind of sovereign wealth fund to do a similar kind of financing.
It’s just a very smart move for the government to direct financing more intentionally. And another form of a public bank is an export-import bank. Right now, the US has an export-import bank that helps small businesses to be able to get goods from one part of the world to another using insurance, loans, loan guarantees.
Scott: Right. Coming up, we’ll talk about what a tech bank could do for the future of the planet, and why that’s going to piss off every venture capitalist in Silicon Valley. But first, a quick break.
We’re back with Quartz’s Nate DiCamillo, and Nate, I’m wondering why we don’t have that many public banks in the United States.
Why don’t we have public banking options in the US?
Nate: I think it’s the laissez-faire kind of view of economics that’s a little ingrained in American culture. And so even though the creation of public banks doesn’t mean we’re eradicating private banks, we’re fearful of crowding out private investors.
Scott: Your proposal would both emphasize investment in technology while also reducing risk. Is that the two-pronged goal here?
Nate: That is the two prongs. Yeah.
Scott: And why should the United States invest in technology?
Nate: If we don’t invest in tech we’ll fall behind other countries. But another important point is that whatever bank we create wouldn’t remove the need to also invest in these things via Congress and through deficit spending and through just, like, straight up the government creating new programs. But what it would do is, like, when we have, like, a split Congress like we do now, it would mean financing for those sectors wouldn’t stop.
Scott: And who would make decisions about what the priorities are for this bank to invest in?
Nate: Well though, that’s always an important point to think about when you’re creating a new public entity. So you wanna make sure that that bank isn’t just gonna switch based on whatever president is in office. You’re gonna wanna make sure that they have, like, executives that, sure, are gonna get, like, replaced regularly, like, Senate-confirmed or confirmed by the state legislature.
Nate: But you also don’t want to them, make them subject to, like, every whim of a politician.
Scott: Right, you want some sort of checks and balances to keep the entity stable.
Scott: I think one of the lessons from Silicon Valley Bank that I don’t wanna lose is that it’s important not to enable risky behavior or take on too much risk, and I wonder how a public bank would be able to backstop tech without enabling the worst tendencies and whims of the tech sector.
Nate: Totally. I think that when it comes to not creating what economists like to call a moral hazard, and where you create, like, a system where there are no consequences, and so it, you know, encourages bad behavior for private actors or for startups, businesses, or individuals. I think that lies in how the bank is chartered and what its underwriting standards are going to be. Will it have a mandate to only service sectors that aren’t competing with private banks? And then what kind of leverage is it allowed then to take on.
Scott: Can this bank increase access to financing and tech and bring more people into the fold in a way that Silicon Valley banking in general currently is not doing?
How would a public tech bank benefit the economy?
Nate: Yeah, I like, to think of, like, a public tech bank as, like, really expanding the definition of of technology, or at least the way that we think about technology to include a lot more hardware, materials, advances, and things that can really shift the whole kind of, like, framework for how we innovate.
So one way in which this tech bank I think would reduce risk in the overall economy is it would just create a new standard for the kind of tech projects we wanna take on. We no longer just say that what is gonna return the highest amount of money in 10 years is gonna be what’s financed. We’re gonna say that, like, actually what has the, like, most potential impact is gonna be financed.
Scott: So you’re saying a public tech bank could have a longer time horizon than what’s currently the norm in tech banking.
Nate: Oh yeah. Traditional tech banking and even traditional banking just overall, because, like, one of the issues for why we really struggled to get private banks to even consider something like the carbon output of the companies that are underwriting is because they refuse to look at risk on, like, a 50-year time horizon. They also refuse to look at, like, investment on a 50-year time horizon, and banks that are backed by the government—the government, again, I feel, like, people think of it as this very fragile institution that because it’s, you know, has a deficit, it’s just one day it’s going to, like, crumble or something, which is, like, a narrative that gets, like, put around in a lot of propaganda and isn’t really supported by the fact that you and I walk around to, like, feeling very, like, comfortable and fine under our pretty stable government.
But the part of that stability, part of living in this democracy is that, like, it can be, the Federal government especially, can be this eternal institution that can say it’s gonna set mandates for multiple decades rather than just one decade.
Scott: And when you’re looking 50 years out, when you’re looking multiple decades out, the biggest risk factor for, I’m gonna say, most businesses is climate change. Could a public tech bank be the answer to addressing our climate change problems?
Could a public tech bank help address climate change?
Nate: I think most experts would say it would be one of the answers for sure, to addressing our problems. It certainly doesn’t negate the need for financing from legislation passed by Congress, but I think that it would be something that would be able to direct a lot of the big private investors, especially, like, pension funds and that sort of thing, towards a future that’s greener and actually begin to, like, coordinate as a thing, an entity, a bank that would be able to move with the speed of the market, but have the backing of the government.
Scott: Right. So a public tech bank could be a way that the US government shifts Silicon Valley’s priorities from, let’s say, apps to, let’s say, climate change.
Nate: Exactly. Think less about how you’re gonna find your next dog walker and more about how you’re going to, like, upgrade an entire country’s infrastructure and decrease an entire world’s carbon output.
Scott: I would like to thank Rover for watching my dog right now as I am doing this interview. So we can’t totally throw the app economy out, but…
Nate: Totally. It can hang out. There’ll still be private funding for that. [laughs]
Scott: Right. We can also have a public option to make sure there is still, uh, an Earth for all of our pets to walk around on.
Nate: [laughs] Yeah.
Scott: Now, Biden’s Stimulus Initiative, the Inflation Reduction Act, actually had an allotment for a green bank of sorts. Can you tell us about that?
Nate: Yeah, it’s something that’s, like, modeled after similar banks in Connecticut, New York, California... It’s gonna go and help municipalities, nonprofits to be able to get things out, like rooftop solar, solar storage, and that sort of thing.
It’s something that the US is familiar with because of what’s existed at the state level. It’s just gonna be the first time that at the federal level we have a green bank.
Scott: So rising interest rates kind of pulled the rug out from under Silicon Valley Bank, but also its clientele. How would this proposal help, if and when we return to a low interest rate environment?
Nate: Private banks can be incredibly sensitive to interest rate moves unless they have a ton of deposits. Like, the largest six banks in the US are fairly resilient to interest rates, and a public option would also be really resilient to interest rates because we can say that for this public option, a certain number of state or national entities have to hold deposits there.
So it’s, like, super easy for this bank to increase deposits. It doesn’t have to increase deposits, like Silicon Valley Bank did by offering all these goodies on top for entrepreneurs and their startups. The US government can run a pretty massive deficit and be just fine. The federal government can have limitless resources.
Nate: And would allow the largest investors in the United States, which are the pension funds, the largest kind of, like, funds in the United States, to put their money in things that are going to have some sort of backing from the US government.
Scott: So I’m painfully aware that we’re hearing this proposal from a business reporter, not from a venture capitalist or a startup CEO. I’m wondering how you think stakeholders in the industry would react to your proposal.
How would VCs and startups view a public tech bank?
Nate: I think that most venture capitalists and startup executives have this view of Silicon Valley currently that they are disruptors, uh, they’re kind of these financial cowboys of the financial Wild West, and they are breaking up all the old ways of doing things.
And so I think the idea that a public option would need to be added would be seen as bureaucratic, perhaps even, uh, socialist or Marxist or whatnot. On behalf of this group of people that tends to lean very libertarian and tends to have a very, very high view of the impact they have on the world. The amount of times in which you see on Twitter, Scott, a VC say, “Well, you should be grateful because you have iPhones because of us!” is, I mean, if I had a dollar for that every time it happens, I’d be a millionaire.
Scott: You could start your own tech bank.
Nate: [laughs] It’s just a common refrain, like, this idea that Silicon Valley pulled itself up by its bootstraps, which just isn’t true. A large part of the reason why this place exists is because of the US government.
Scott: But also what’s been made possible by the US government is a low interest rate environment.
The impact of US monetary policy and low interest rates
Nate: This is also true, I mean, for reasons that had to do with a lot of things outside of Silicon Valley, a lot of things with the housing market and banks and whatnot, we had to keep interest rates super low because the Congress that we were dealing with didn’t want to stoke the economy, and so the central bank had to use the one tool it had to do that, which is lowering interest rates. And sure, that creates periods where there is a lot of cheap capital. But that’s another argument then for another public entity that can steer cheap capital in the right direction.
Scott: Yeah. For the tech industry, which is famously laissez-faire and libertarian, they’ve gotten by for decades with low interest rates. And the second that the Federal Reserve raised interest rates, they were in a little bit of trouble. Not only negatively affecting Wall Street and the stock market, but also we’ve seen in banking, one of the main banks in tech couldn’t stand up in a high interest rate environment.
Nate: Yeah. And honestly I empathize, Scott, like, I, myself, have not been in a high interest rate environment before. And I realized how long, like, the last time we were in a high interest rate environment, a truly high interest rate environment was, like, the 70s and 80s. I wasn’t born yet! So, like, you have a lot of companies that have a lot of younger people at it that have never had to try to navigate something like this before, and so how are they supposed to see what’s gonna happen?
Scott: Yeah. For all of our listeners at home, Nate is 15 years old. He’s just a wunderkind reporter.
Scott: What’s interesting is that when Silicon Valley Bank failed, there were a lot of venture capitalists that were asking the government to either bail it out or bail out depositors, which ultimately they did. So there seems to be a crack in the, uh, ethos of libertarianism...
Scott: …That has pervaded Silicon Valley for a long time.
Scott: Maybe that’s an opening for your proposal.
Nate: There’s a saying, “Everyone is a Keynesian in foxholes.” When stuff hits the fan, that’s when you’re ready to accept money from the government.
Scott: Everyone’s a free market capitalist until they’re in a bind.
Nate: The Keynesian School of Thinking comes from John Maynard Keynes, who was an English economist, very liberal and emphasized the government’s ability to increase our productive capacity, which is a fancy way of saying to make us more able to build more stuff.
Scott: Right. Everyone’s on a hot streak until they’re back at the ATM trying to get more money to go back to the table.
Nate: [laughs] Exactly.
Scott: So how could a public tech bank change the venture capital ecosystem? Could a proposal like this actually put private actors out of business?
How could a public tech bank change the VC ecosystem?
Nate: I mean, Saule Omarova, who’s a legal expert, has this proposal for a national investment authority, which would include both a public infrastructure bank that would be basically like a public tech bank. And then the other half of it would be a public venture capital arm. Now I would think of it as, like, a public BlackRock basically. And that in her proposal, it would be charged to not compete with private actors, but even if it were investing in things that private actors aren’t investing in, you have this standard for, like, how capital should be invested, and you have this bigger, kind of like, 800-pound gorilla where you kind of, like, have this change in the ecosystem that happens as a result.
So I think you could see a lot more venture capitalists begin to think more deeply about taking on a longer time horizon maybe in their investments and also thinking more deeply about where do they actually want to put their capital and actually seeing, like, some sort of, like, financial stability along with risk taking, being, like, a value in Silicon Valley.
Scott: Nate, I think you’re gonna get a little bit of opposition from Silicon Valley types on Twitter. What’s gonna be your retort when they tweet angry stuff at you?
Nate: My retort will be, “Do you want another internet moment? Because, like, this is what’s gonna get us there. And if you wanna build a lot more cool apps in whatever the next version of the internet is, back this up.”
Scott: Right, the internet or the web might not have survived a 10-year VC cycle.
Scott: I will retweet that. I will go to war with you, Nate!
Nate: [laughs] Yeah...
Scott: Nate DiCamillo covers economics for Quartz.
The Quartz Obsession is produced by Rachel Ward with additional support from executive editor Susan Howson and platform strategist Shivank Taksali. Our theme music is by Taka Yasuzawa and Alex Suguira. This episode was recorded by Eric Wojahn at Solid Sound in Ann Arbor, Michigan, and at G/O Media’s headquarters in New York City.
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Gabriela Riccardi: They’re saying that we can move our decision making over to computers and basically create a future where our human preferences, our human errors, our human bias can be taken out of the equation, and that somehow computers can be beyond bias.
Scott: I’m Scott Nover. Thanks for listening.
Nate: I had just a, um, bagel from the bodega right next to my apartment.
Scott: That is New York privilege.
Nate: I know, but I also got a coffee too, a large coffee, that was $2 as well, but they always charge me $4.16 because of the interchange fee. I don’t know if they’re technically supposed to do that. I can’t remember what New York state law is.
I know they can’t stop me from buying something because of the interchange fee. That was my last bodega in East Harlem, like, they used to be, like [does a voice] “There’s a $10 minimum,” and I’d be, like, “Wrong! Not according to the New York Department of Financial Services. So I’m going to pay for this now.”