Silicon Valley was already reeling before its favorite bank collapsed

“The 360” shows you diverse perspectives on the day’s top stories and debates.

What’s happening

The collapse of Silicon Valley Bank, a financial institution that had played a key role in the tech industry’s explosive growth for 40 years, was in some ways the story of a single company making a series of disastrous decisions leading to its own downfall. But it’s also part of a larger picture about how a massive sector of the economy is facing a new set of challenges that create serious questions about its future.

Until last week, Silicon Valley Bank — named after the California region that was the birthplace of the world’s biggest tech companies — was a key player in that industry’s financial infrastructure. The bank’s willingness to take chances on unproven early-stage companies allowed it to expand rapidly. At the start of the year, SVB had nearly $210 billion in assets and provided banking services to about half of U.S. startups.

It took only two days for all that to fall apart. SVB’s key investors, spooked by fears about its stability, began withdrawing huge sums of money, setting off a run on the bank that quickly brought it to collapse. On Friday, the Federal Deposit Insurance Corporation took over SVB in order to protect depositors and prevent panic from spreading to other parts of the financial sector. After a weekend of uncertainty, President Biden gave an address on Monday to assert that the U.S. banking system was secure, all of SVB’s clients would be able to access their funds and taxpayers’ money would not be used to bail out the bank.

SVB’s swift disintegration came during a period when the once-boundless enthusiasm of Silicon Valley has gradually eroded. Recent months have seen a wave of layoffs in the industry, including 10,000 announced by Facebook’s parent company Meta earlier this week, despite solid growth in most other areas of the economy. Interest rate hikes have slowed investment and years of scandals have made the public and lawmakers increasingly skeptical of Big Tech’s role in the economy.

Why there’s debate

Beyond the immediate question about what setthe stage for SVB’s failure and whether the bank's depositors deserved to be rescued by the government, there’s also been a lot of discussion about what the incident says about Silicon Valley’s current struggles and its long-term future.

Many industry analysts claim that the past week has highlighted how the sector has long since outgrown the “move fast and break things” ethos that fueled its extraordinary growth in recent decades. They argue that tech has become too powerful and integrated into our everyday lives for the whole industry to still be run at the whim of billionaire venture capitalists, or VCs, whose only interest is enriching themselves. The harshest critics argue that SVB’s collapse is a symptom of fundamental flaws in Silicon Valley’s insular, self-aggrandizing culture that has done more harm than good in recent years and will only lead to more spectacular failures.

But others say turbulence in the tech industry is part of a necessary and worthwhile transition in which companies are finally beginning to emphasize stability over dreams of explosive growth. The shift, they argue, could help secure Silicon Valley for the long term and spare the rest of the economy from the dangers of an industry-wide cras.

What’s next

It remains to be seen whether another bank, or group of banks, will move in to replace SVB’s role as Silicon Valley’s primary startup financial partner. Meanwhile, government regulators are working to auction off SVB’s assets, which it hopes will create funds that can be used to pay back the bank’s depositors.

Perspectives

Technology is too important to trust greedy venture capitalists to run it

“If the technological innovation coming out of Silicon Valley is as important as venture capitalists insist, the past few days suggest they haven’t been very responsible stewards of it. The collapse of Silicon Valley Bank late last week may have resulted from a perfect storm of ugly events. But it was also emblematic of a startup ecosystem and venture-capital apparatus that are too unstable, too risky, and too unmoored from reality to be left in charge of something as important as the direction of our technological development.” — Edward Ongweso Jr., Slate

The tech industry needs to go back to making things that actually help people

“Silicon Valley’s V.C. class should use this rare opportunity to reflect on whether what they’re ‘founding’ and ‘building’ is actually improving the world around them, as they so often claim, or whether they are merely improving their own bottom line at the expense of others.” — Matt Ford, The New Republic

The magic of Silicon Valley is gone

“Tech will continue its relentless churn, but the energy has changed; there’s no magic, no illusions about what’s going on behind the scenes. The conception of Silicon Valley as a world-conquering juggernaut—of ideas, of the American economy and political sphere—has never felt further off. It’s not to say that tech should be demonized, just that tech isn’t special.” — Will Gottsegen, The Atlantic

Tech leaders lack the self-awareness they need to stop an even bigger crash from coming

“There has been little self-reflection on the part of the industry that was so closely tied to Silicon Valley Bank. And in the midst of these immature excuses from VCs and shallow recriminations from billionaire investors, the seeds of the next bubble are being planted. Without some serious accounting about Silicon Valley's culture and the tech industry's role in SVB's collapse, then something ugly like this is going to happen again.” — Linette Lopez, Business Insider

SVB’s collapse showed that Silicon Valley is rotten at its core

“If SVB was vulnerable to a rapid run-up in interest rates, it’s because it catered to an industry where showering unproven companies with cash is the norm, with venture capitalists competing among themselves to see who can make it rain the hardest. It’s an inherently haphazard system, one that breeds recklessness right into its foundation. It’s a little surprising, in fact, that it took this long for it to break down under the weight of all that hard-to-deploy capital.” — Brian Merchant, Los Angeles Times

Silicon Valley is on the rocky path toward a more stable future

“The tech sector is known for its boundless—sometimes irrational—optimism, and some caught in the crisis hope that good may come from it. … To get to that point, however, we have to get through the next few days and weeks—which could be trickier than expected.” — Chris Stokel-Walker, Wired

SVB’s collapse was more about the banking system works than any flaws in the tech industry

“What can the collapse of Silicon Valley Bank teach us about the tech industry? On one level, not much. … What brought S.V.B. down wasn’t lending to risky start-ups, or gambling on sketchy crypto coins, or some other ill-considered tech scheme. It was an old-fashioned bank run, set off back in 2021 by a series of old-fashioned bad decisions.” — Kevin Roose, New York Times

Everyone will benefit from the tech industry learning to pump the brakes a bit

“There’s always this desire to say, “Well, that was fun, it’s all over now, on to the next thing.” I think that would be a more dramatic story, but I don’t think that’s actually what’s going on now. I do think there’s been abundant evidence that moving a little slower on a lot of things could be beneficial … or simply doing more due diligence.” — Margaret O’Mara, Vox

Struggles in the tech industry don’t just affect high-paid developers and venture capitalists

“The failure of the bank — the go-to source of financing for many startups — ripples throughout Silicon Valley and beyond. It’s another stress point for tens of thousands of workers in the region with various jobs outside of tech, employed (or previously employed) by companies from small startups to tech behemoths alike. These layoffs and significant financial losses further fuel the inequities that plague the area.” — Lynn La, CalMatters

Is there a topic you’d like to see covered in “The 360”? Send your suggestions to the360@yahoonews.com.

Photo illustration: Jack Forbes/Yahoo News; photos: Tayfun Coskun/Anadolu Agency via Getty Images, Getty Images