A Bank Run Saga: Silvergate and SVB | Roundup

Transcript

all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-hosts today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode another Roundup here Michael's one and two vanciano fellas welcome to show we're just getting into it before we before we got on here so maybe we just fire right in I mean the big story of the week is obviously silvergate but as we're recording here it's also Silicon Valley Bank um so Silicon Valley Bank their

shares open down something like 40 today so we're gonna get deep in the Weeds on on silvergate but I think kind of the the theme of this is that it's a broader it's a broader issue and not just one that's relegated to crypto so well can you explain what you were just starting to explain to me about um what's going on with uh Silicon Valley Bank yeah so Silicon Valley Bank and it is like the the bank for Tech startups especially in the Bay Area I think across you know also the New York area and basically just Tech startups writ large what they'd provide is a more friendly experience for businesses that have maybe raised a bunch of venture capital but don't have three years of

audited financials or you know they don't have sort of the things that you would expect that a business opening a bank account at you know one of the the Wells Fargo's JPMorgan Chase Etc one of those Banks would likely look for when evaluating Bank uh um or customer ability to uh you know be a bank customer um whatever whatever their controls are so they've kind of taken this approach of these Bank these these businesses uh companies that are growing that are highly charged Venture Capital opportunities for them have the potential of not only just putting the money that they just raised the tens of millions or you know Millions to tens of millions of dollars hundreds of millions of dollars that they just raised and

putting that into our bank but also if on the outside chance that they become the next stripe Google Facebook Etc they're going to be the banking partner that they go with um because they've been with us the entire time and so it's sort of the like Buy Low process of getting access to the next wave of large companies what Silicon Valley Bank does and there are a number of others that do this as well but one of the things that they have also built out is a practice around Services additional to just like General banking services so they've got an entire Venture debt business and and they you know look at having vents or debt offerings for a lot of their clients as well they allow for potential for illiquid borrow so you as a founder

or an early employee at one of these businesses can put up your equity in that business that is you know the banking partner to Silicon Valley Bank and actually draw a line of credit against that they also do this this for Venture firms and Venture firms allow some Venture firms you know you can go to them and actually get a borrow against your GP state in the in the Venture funds um and so there's just like a lot that's tied up in the tech industry whether it be on the company side or the investment side and so um there's a lot that looks similar I'd say there's also a lot that's different between Silicon Valley Bank and silvergate silvergate was sort of the equivalent specifically for the crypto side of the world where it was you know

the the place that would ban the crypto companies it was the place where you could as a crypto client you could um I think they had the business of you put up your Bitcoin or um crypto as collateral and you to borrow against that they also had the silver data exchange Network and so the this I'm I'm you know not an analyst when it comes to financial institutions but we've been digging into this for the last bit um and so what it's looking like at least with silvergate and the reason why they're shutting down operations is um really at this point not having anything to do with crypto other than the fact that it seems like the crypto crowd and the customer base that they had and the deposits that they had was a

very fickle group where as soon as FTX blew up you started to see massive uh withdrawals of cash from silvergate because everybody was afraid that you know the the same thing was going to happen to FTX I think you know a lot of the same contagion concerns were there and so what what does this mean so when you're a bank you put cash into the bank as a depositor what the bank does and their their General business model is they take that cash and use it productively now this cash can go towards a lending operation like I was describing whether you're lending it out to customers who are putting up their illiquid capital or collateral up um or uh the other use of that Capital the deposits is you can go off and buy

marketable Securities and there are a ton of rules around what you can buy um historically this is some form of fixed income product whether it be treasuries um whether it be mortgage-backed security sometimes you can buy corporate debt um there's sort of a plethora of different options that you have as a bank but there are also very very clear rules about levels of risk and levels of liquidity at each one of these different risk thresholds this is why ratings agencies are so important and so as you start to see the massive withdrawals going into to end of Q4 for silvergate you you start to see them having to meet those withdrawal demands which means that they're having to sell a lot of the

fixed income that they had bought over the last few years now what happens with fixed income when you see rates rise in the way that we've seen over the last 12 months it means that anything that was purchased prior to then has an inverse relationship in terms of the price that you can sell it based on with the the yield that the market is currently demanding so if I need to go to zero to five percent the price that you're able to sell those marketable Securities for is priced as if that Bond was yielding five percent so you have to sell those assets at a loss and that's that's effectively what happened and that was the reason why silvergate had to delay

their 10K they identified losses they did the yeah the out of uh out of normal Cadence reporting um that that container led to further rate runs further selling that that's generally what happened I think in the case of silvergate um what we're seeing now though with Silicon Valley Bank and this is happening in real time and I I do want to emphasize I think there's a lot that's different here there's still some things that are the same um silvergate or sorry Silicon Valley Bank um they so over 2021 their deposits went from 102 billion to 189 billion and so think about the customer base of Silicon

Valley Bank a lot of them are tech companies startups that raise a ton of money and in 2021 you saw a lot of that money raised from venture capital or other offerings that where did the money go well it went to the bank and they were sitting on cash um so and and in 2021 the bank has to do something with that cash so what Silicon Valley Bank did at least as far as we can tell is that they went out and bought a lot of mortgage-backed Securities with a long-term duration and and when you're holding these assets on the bank balance sheet you basically have two camps of assets there's available for sale and then there's hold to maturity available for sale our assets that the bank has deemed Mark to

Market and and we could sell if we needed to hold to maturity is we're holding these to maturity we don't have to realize a loss if the price of those assets change but we're just going to hold them until they expire and we're going to continue to earn the yield that we were earning you know based off of the the agreements until we hold them to maturity and so what happened yesterday was was Silicon Valley Bank announced that they had sold off 80 percent of their available for sale Securities which was a total of 21 billion dollars of assets but they sold it at a loss of a 1.8 billion dollars and at the time of the announcement the entire market cap of Silicon Valley

Bank was around 15 to 16 billion dollars um now they they don't really have that much more if they've sold off 80 percent but they're taking the the assets that they have and they're reinvesting them into shorter duration assets that obviously will have a higher yield given that they sold off lower yielding assets and now we have higher yield so now they're going to be able to buy higher yielding assets um and so what what is now happening is now there's a concern that you don't have the bank doesn't have enough liquid Capital to be able to uh service withdrawals or the lending business if they need to um this I think you know is a solution that that is solvable and and they have

announced that they're going out and working with Goldman's act to sell common and preferred uh in a secondary offering to the tune I I see two reports that either 1.75 or 2.25 billion dollars um and if they can do that and they're successful at raising that capital in in short order they should be able to to fill the Gap and and meet any demands for withdrawals um the beta kind of elephant in the room is what happens with and you just have this on the chart what happens with the hold to maturity assets the hold to maturity assets are also long dated assets but they can't sell them because the estimates are that if they were to sell them they'd have to mark to Market

them they'd go from hold to maturity to available for sale and Mark to marketing those assets the loss that they would incur is actually greater than the market cap of the company uh and so this you know means that they're stuck and they're having to hold on to these assets it's in there every quarter I think three to four billion of these whole maturity assets are coming due and they're they're maturing out um so it's just going to take time um but you know the the solution here is raise Quick Cash by doing a secondary offering um and wait out the whole maturity assets until they're mature um and and kind of shore up the veins balance sheet but I think the overarching point here and I know you know they're Senators out there that

love to point that silvergate was potentially complicit in illegal activity um I think the bigger issue frankly is just there there were a lot of deposits at a time when there were low interest rates and a lot of withdrawals when there were at a time when there were really high interest rates and that really causes consternation from a bank balance sheet perspective because you're forced to sell at lower prices than when you bought um so I I think it's not super complicated there's a lot more Nuance that frankly I don't necessarily understand but you know we'll leave it we'll leave it there and and that's kind of the storyline do we know how much cash they have to meet withdrawals or like available to sell assets I guess they have none now but like what would be the cash balance that they have to

well so they sold 21 billion dollars worth of available for sale assets I don't know if it was 21 at their cost basis or 21 at their sale price but there was a 1.8 billion dollar uh 1.8 billion dollar loss incurred from that selling um and then how many deposits I actually don't know that off the top of my head guys just before before we go further there was a um I just wanna there was actually a really great piece written about this uh this is um the guy's name is Jesse Austin Campbell which was how Banks fail um I didn't know who this person was but apparently I think they worked at JP Morgan before this and basically it's kind of a it's kind of a helpful

understanding and there's there are pictures here to kind of describe a lot of what you were saying Michael this is um an example in if you're following along in picture form of what a bank balance sheet looks like at a super super high very simplified level so one of the rules for for folks who are not familiar with financial statements is when you're looking at a balance sheet your assets equals liabilities plus Equity so what that actually means for a bank is what they do like when you when you give them money what they do is they turn around and put that into loans they either make Direct Loans or they buy Securities like mortgage-backed Securities which is basically securitized mortgages or they buy U.S treasuries and those are that's like an

asset for the bank their liabilities are what they owe you in terms of deposits and then there's some small amount of buffer and basically the buffer which is the equity Capital that's in a bank is supposed to cover any what he calls uh-ohs but basically loans going bad so that's again kind of what what this is so the way loans loans going bad are securities that you have to sell at a loss it's both right it's the the direct the direct lending that they make people can default right so they actually reserve a little bit to account for that and then there's also Securities going going selling at a loss so you were getting into this but like I have a five-year-old brain when it comes to math so there's just inverse relationship in between yields and the

price of a bond is is what I always go to and so when you see these yields going uh up and up and up it means that bond prices are going down down down so when there are when there are deposits right which are the liabilities of the bank that basically customers get worried about and they all call in at the same time then you need to sell your assets which is your portfolio of liquid Securities which is what Michael was talking about before if yields have been going up that means the price of your assets are going down and then something that's an unrealized loss on paper becomes very real and that's what happened to silvergate in the beginning when there was concentration around the types of depositors that were parking money at silvergate all of them because they're all in the crypto industry

basically they were all facing the same trouble at the same time everyone needed their money at once so it wouldn't have been a problem right if there was diversification among the depositors for silvergate but the problem is that they're that they're they were concentrated and they all had a very similar set of needs which made them pull money at the same time which made them realize that loss and I think that's that's a similar problem with what's going on with silvergate or uh Silicon Valley Bank right similar set of customers similar set of lending activities and I got a question for you and you alluded to this Michael but the broad criticism about the management at silvergate is that they mismanage their duration right that's the criticism you're supposed to within your portfolio of

assets you're supposed to have diversification across duration so instead of just you know a 10-year right in terms of U.S treasuries so let's have like more short data debt even more long-dated debt you're supposed to have kind of a spectrum there the the question is though you would have to imagine a lot of these deposits came in in 2021 for silvergate and at that time if you remember fed funds was Zero at the very front end of the curve actually I'm pretty sure nominally like the the three-month treasury I'll look this up but I'm pretty sure it went nominally negative so am I missing something here like there was no yield to be had in the front end of the curve I don't know how they were supposed to take duration risk or diversity uh uh yeah so I don't know how they were supposed to be Diversified and

also still be profitable essentially right um what what that forced you to do is look at further dated uh further duration options uh sorry further duration bonds not actual options but um go out on the yield curve to actually get some yield which meant that your duration is a lot longer and I think you could justify this especially with you know in 2021 where you look at the net inflows and outflows and you say okay you know like let's do a distribution model and say like uh uh three standard deviation withdrawal month or quarter is gonna happen you know at what chance how do we model out you know what liquidity we would need in that case it's just we've been meeting these like Black Swan

level events of of lack of liquidity and and you know consternation in the crypto industry and then when you call out a specific bank for having potentially illicit dealings with someone who looks like they're you know going down for fraud of course there's going to be a natural run on the bank and of course you know people are going to get concerned just like they got concerned as soon as FTX or Voyager or Celsius blew up and they wanted to get their cash off so I think you're able to justify this from a management perspective saying listen we modeled this out this was outside the bounds of what we had ever been able to forecast and so therefore we felt fine with the duration risk that we were taking also it was the only option at the time

um and yeah I think you know that that's generally kind of how I would look at it the other the other thing I'd say about Silicon Valley Bank is you know just think about who their customer base is their customer base is a bunch of startups who in the last 12 months have been depleting their deposits because they have to pay operating expenses and there haven't been that many new you know massive swings of investment for a lot of those businesses and so the cash deposits that went from 102 to 190 in 2021 have just been slowly dissipating out in the form of payments and withdrawals without New Capital coming in and you're also hit with the same

Affliction I think it's more slow moving so once again I I they're doing a secondary right now between common and preferred Reuters is reporting that General Atlantic is has committed 500 million dollars to the deal um I think Silicon Valley Bank will you know live to fight another day the the people who will probably get hurt the most are the shareholders of Silicon Valley Bank who are going to have to take on the dilution of this Capital fundraise um so a very different scenario from what we saw yesterday and over the last few weeks the silvergate um but it is kind of the same root cause which is uh you know massively increasing yields in a very short period of time after a year of massive bloat of

cash deposits um so uh you know this this also isn't just going on with these two Banks Wall Street Journal reported earlier today a few hours ago that the top four banks in the U.S or four of the top top banks in the US have lost 47 billion dollars worth of market value just today um so that this is not you know I don't think that there's contagion I don't think there's massive risk but um you know there is a question as to like where does this stop is this you know going to be a risk for all the entire Financial sector I think it'll just be tough for the financial sector because they don't have to deal with this I think you're starting to see this pop up in a couple places though like the Blackstone read stuff when people try to redeem you know the money isn't

there Silicon Valley Bank like sure they might have a more concentrated set of customers that's depleting their their cash balances on hand but this was probably the similar investment tactic deployed by most bank cios and and they're probably all holding similar duration treasuries that have had similar you know levels of losses I don't know like everyone's saying like we need this big credit event for uh you know things to really like settle down and then recover like it kind of feels like this is now played out in crypto this is now played out in Tech banking this is now played out in commercial real estate like maybe it's not going to be this like economy-wide credit bubble but it certainly feels like this is starting to happen more frequently

because I'm trying to think about the like second order impact of this uh Silicon Valley Bank like dominated The Venture debt space does this freeze the the market for new Venture debt and if and if so does that then accelerate the cycle of startup failures because they can't access Venture debt so we're not doing that I would assume that market died probably it's already dead you know like people just aren't like even Capital call lend letters for firms like that kind of died around that same time period like you know for crypto definitely for broader Tech probably um like there are some gems in there in their Financial Times report where like they are doing Venture debt they're

doing fun to fund investments into managers they're doing things that like I guess like a normal Bank wouldn't or wouldn't have access to at the least and so like there's probably some stuff on the margin that that gets a little tougher to do but I I think and I put this in our our group chat on telegram if you want to throw that that little chart up there I think that is more indicative of like what's happening to venture than anything else where you know the and once you put this up like you have deposits that are going down there's less private investment um and you have cash burn that's going up and I don't know maybe there's a lag but I certainly would have expected

probably the deposits to have gone down but I also would have expected the cash burn to cut in a similar proportion but even in that Financial Times report they're basically saying you know it's not getting cut in that proportion that's not how it's actually working people are just spending and spending and spending that also strikes me as something that the general economy is probably going through as well right there's a lot of there's a lot of ticking time bombs that are have yet to go off your Silicon Valley Bank on Tuesday you've just seen silvergate go under on Monday and then go into Liquidation on Tuesday you're sitting there on a bunch of bond losses on increasing customer withdrawals and you know like picture like there's five guys in a room like

what are they talking about well I I actually think you have to do this do we need to do this like yes we need to okay like they're watching the stock price they're trying to like find buyers first like this is not like you know uh business as usual for them I actually I one thing so silvergate that we're recording on Thursday didn't silvergate announce their official shutdown yesterday on Wednesday so the the Wednesday announcement of silvergate I I think just happened to coincidentally fall on the day that Silicon Valley Bank was going to have to announce 1.8 billion dollars in losses from sale of assets because that that press release that went out on PR newswire went out at 4 pm Eastern so it

had to be teed up beforehand and they had to have done this already just happened to fall on the same day which is just really unfortunate timing super unfortunate but also I mean okay so Credit Suisse you know which is one of the the famous banks that everyone will know if if you had to take a guess what do you think their market cap is it's down 90 from all-time highs 11 billion 11 billion all-time lows and continues to make all-time lows here's the point that I want to hammer home because the opposite has been kind of made popularly in in it's reached the mainstream this is not a crypto problem this is a direct result of policy that has been enacted for the last two years so the explicit intention of quantitative easing is driving down

rates to push people out on the risk curve that's that's the explicit intention they want people to spend money they want investors to take risk that is their solution for growth so if you make interest rates zero then you make the most conservative most risk-averse actors in the financial system Banks take more risk that's what they that's what they have to do right in order to be a solvent institution and be profitable so it's this is a result of a zero interest rate regime more so than anything else and Vance you connected this to the B reap redemptions that Blackstone is facing you're absolutely right it's the same it's the same exact problem even Credit Suisse right it's like people need their money back the money isn't there for one

reason or the other or the things aren't liquid or they're not they're not like marked properly it's like my my to just of course it's gonna happen to less liquid asset classes first like real estate but I think what we're finding is that like the bonds that people own are not actually that liquid and if they are they're sitting on pretty massive losses that they would be able to clear them at well and you know the the zero interest rate policy yes is uh definite that's the first step in this in this process but the second step is how do you take risks as a bank there's only one way to really take risk as a bank and do it in size which is to put on more duration and so now you're seeing the the effects of that which is you have a miss you have a mismatch of

duration and it's just going to take time and that means that in the meantime you're going to have to shore up the ship and get the balance sheet liquid so that if if you have you know continued withdrawals like I'm looking at it right now Silicon Valley Bank is not down 40 it sounds 60 today that that's a scary fact that's a scary fact because if you go back to that little chart that we're drawing which is the assets and then there's the liability plus Equity the equities the buffer that's the buffer right it's the ability to sell Equity to raise cash that's what's going to solve the problem here so when the market cap and stock price is falling you that is we're watching the buffer you know get vaporized in front of our eyes and and also just to be abundantly clear I I

actually think that Silicon Valley Bank will be able to to shore up the ship I I think silicon silvergate was an unfortunate you know much smaller cap uh bank with a very very concentrated uh set of customers as well as just not the same track record as Silicon Valley Bank um so I think that there's going to be people to step in just as we saw Citadel and BlackRock and a number of other participants step in uh to sell it to silvergate I I don't think we're necessarily there yet but there will be people who uh step in for Silicon Valley Bank I love how George shorts was on the right side of the Silver Gate short even after all those people piled in he literally just drove it to zero I I do think it's not to go like full macro but there's a there's a good uh actually

who's on uh forward Guidance with Jack Farley this guy Michael Howell and he wrote this book called Capital Wars and like you know amateur armchair macro economists whatever but like the the gist of his book is basically the fed's job is has gone from setting interest rates to managing this massive pile of of you know high quality collateral and t-bills or bonds or things like that and like of course when you're buying all the collateral and you have a very liquid Market you don't have any losses and when that goes away the opposite tends to happen and it's like I don't know that's the only macro framework that I found be able to tie everything together uh even relative to last year where you had a terminal rate that was a lot lower um but you had crypto and and stocks

that were or higher this year even though the terminal rate is a lot higher and and things are a lot more aggressive like it seems to me a lot of this the the market seems to be functioning on just pure liquidity and that's why bonds and stocks are moving in a more correlated way that's why PES are going up even though the economic picture is darkening like that's the only thing that I have found that can really tie things together for me um also Quinn Stanley is calling for like you know more liquidity and like you know this could be the foundation of a new Bull Run so like that that plays to like my naturally bullish bias but I do find it has been pretty consistent in just like thinking through all of these things and again I don't know what the difference between like Credit Suisse

and black stone or rock is but like you know these things all generally seem like the same problem not enough liquidity I mean this is this is like a 4 on conclusion post 2008 you know it's just the bigger are going to continue to get bigger consolidate and frankly I mean kind of surprised so so just as like context I don't know exactly when silvergate you know the Regional Bank that it was prior to getting into crypto actually got started I think it had been around for a while but it really in no real in real like capacity of 2013 2013 okay they got in they got into crypto probably in the 2015-16-17 era because I I remember you know being customers of silvergate when

we were when we were doing hash leads um Silicon Valley Bank has been around since 1994. you know they've been they've been around for three decades which means I think that they just have a they have a stronger case and they have a stronger user customer base they just have a lot more track record and understanding of how to how to navigate these different Cycles um I'm also kind of surprised that you know with their success over the last few decades that they're not Consolidated into a larger operation um and maybe this is sort of One Direction that they'll have to choose whether or not to go um but it does feel like the ones that just got started the ones that are you know relatively less strong uh compared to the large veins or that compared to

the banks that have been around for longer you know the first one to follow silvergate from uh from Tom Schmidt reporting live from Twitter Silicon Valley Bank CEO Greg Becker on Thursday told top Venture capitalists to stay calm uh he added the bank has ample liquidity to support our clients with one exception if everyone is telling each other svb is in trouble that would be a challenge where have I heard this before well I know dude yeah dude that's tough like yeah like tough this is like the first of the four posts that lead to them being like we're getting withdrawals on the back yeah exactly I mean it feels pretty informal where so where do you send so like you guys have four codes who bank with probably silvergate and

svb like that's kind of the combo if you work in crypto or like silvergate and uh First Republic where where are you where do you send people like are people just like racing to open JPMorgan accounts right now in the practice bunch of banks in Europe that now want uh our poor Coast business like BCB places like Signum there's also a few other European Banks we just like haven't done diligence on yet standard operating procedure is is to have three bank accounts once you get to a certain threshold of deposits and and frankly like separate out to make sure that you have like an operating account you have like a high yield maybe savings account where you don't need to touch the money very often but like that's generally you know let's say once you raise over like

five to ten million dollars what what we kind of advise so it's not really that hard I mean if unless you have other intrinsic ties in business lines with with one of these Banks it's not really that hard to to ship your fund somewhere else if you've got two others uh but yeah it just depends on you know whether or not you can find that but I do think most of our uh most of our portfolio companies probably have an account with silvergate whether or not it's or sorry with Silicon Valley Bank whether or not they're using it and it's their main account or only in town I think very few I have a um you know they're using the stock it's like trading right now they keep halting it yeah yeah that's so wild that's that was I mean 20 billion dollar Bank a week ago

look at the look at the other uh the other stuff like uh what's the other one so JP Morgan uh Bank of America those are both down over five percent today as of the time of this recording can you imagine the size of problems that some of these bigger Banks like to to our points earlier like these are all Niche Banks but like I don't know you have like the mega Banks but also like what about all the ones where like they're a small town bank and like the Factory closed you know or they're laying people off or like you know there's more industries that are correlated than just like technology and crypto I mean also we're only into like you know six to nine months into non-zerb policy right like this is right yeah and everyone everyone's like yeah

like oh the economy's so resilient it's like no bro like this has just started yeah like it doesn't it's not like instant feedback loop yeah the uh someone I can't remember who this was but provided a helpful analogy here when it came to the price of oil so remember when oil was spiking and everyone was really worried about it and as it turns out the thing about oil that kills people is not the spike but it's the area under the curve so if you have elevated prices for a long period of time then that's when that's a problem and so I could think of the same analogy being being true for interest rates right there's some amount of Spike that you can kind of deal with and that's

like the analogy would be look at look at what happened to all of these Banks right when they bought a whole bunch of bonds at uh very low interest rates interest rates went up their bond portfolio was underwater but it's unrealized it's an unrealized loss so it took something a spark which is a bank run in both these both of these scenarios in order for that unrealized loss to become a realized loss also I'm pretty sure Regulators monitor this pretty pretty closely and carefully and I think Regulators get spooked about unrealized losses I don't know what that is but this could be this could be signs of stress right for this could be the area under the curve when it comes to interest rates and yeah maybe they were the economy was not as resilient as

people thought you're available for sale Securities you have to mark markets you have to every quarter have to come out and say what are the value of those assets whether or not you realize them is a question what what Silicon Valley Bank did uh it seems is that they realized it to shore up the liquidity to shore up the balance sheet um also raising more capital in the form of an equity financing um you know those are those are good facts what you know now you have to figure out is what's the value of the assets and do they need to tap into the hold for maturity Securities because we know that those are underwater but it's just a question of you know how long it'll take for them to have to dig into that and hopefully they don't have to it could be tough the other thing just to

to put the bookend on the consolidation of Finance this is also that's also why it's possible for Janet Yellen to go out and say hey we want to monitor every transaction over 600 that's a lot easier for so all I'm I'm not uh one of those people who's like oh this is all some big conspiracy but I do think it makes everyone's lives easier when there's a very small number of very large Banks and it will be and I think it's just way too early to call if this is the stress but this is this has been the thing that people have been kind of waiting for on the macro side of things like people thought something was going to break when they did this super aggressive Pace when it came came to interest rate hikes and everyone was kind of surprised that nothing really bad happened but this

this is definitely signs of stress and it's not localized to crypto this is not just sinus stress this is two Banks blowing up in a period of like 24 hours yeah it's yeah if I told you that there was going to be a 30 billion dollar so the all-time high for silvergate is 750 it's at 110 right now it's a six billion dollar market cap stock if I told you a 70 Billion Dollar Bank would go down 90 to 95 percent like yeah right what do you think is going to happen right the Silicon Valley Bank the the at the old all-time high is 750 yeah so it's like a so wait so guys for uh for svb what do you think happened do you think you

think they end up raising raising this money they'll be fine but shareholders will get screwed yeah there's enough people like General Atlantic that have invested interest in like the valley continuing to win that will back this up and I mean the other Dynamic too is like General Atlantic and it's out of the private Equity Firm uh or funds they're they're not a historical distress buyer like yeah they look at growth Venture firm right exactly yeah they're they're looking at this as a discounted value they're not looking at this as a distressed opportunity um which probably and once again not a banking analyst don't really pretend to be one this is just me reading the tea leaves and a lot of Wall Street Journal but I think generally there will be others that step in to fill the Gap if

not others like General Atlantic there's going to be an opportunity to sell uh Equity to you know more maybe more distressed oriented players I mean also I think they've got to be one of the biggest banks in the U.S like top 20 in the US right I think they're at that size top 20 25. they have hundreds of billions of deposits you got to imagine the government would step in no dude the government was freaking out over silvergate had like what yeah 20 billion 30 billion of deposits like this is a real big like people like oh yeah it's the it's the Silicon Valley you know it California has like what twice the GDP of Canada like this is a huge Bank um so you know I don't know

yeah I mean looking at this chart 211 currently last year yeah so last last year is uh do you mean 2022 or 2021 I don't know this is end of 2021. 212.1 there at 750. no no Q4 2022 212 billion in assets yeah 212 uh 342 of total client funds this this gets into the into the weeds of analysis I think that's yeah there's part of me yeah yeah I agree it's just like yeah I'm just watching it go down the equity ratio is two times the required

amount so they have a 15 equity ratio versus the required amount of eight percent so they could lose what does that mean they could lose half the half the uh shareholders but but but the question is uh was that two to one ratio before or after today before before I guess before too so by the way do we think this will be the last one of these foreign I don't know about Banks I'm just not smart enough but what I what I do think this is my like again General high-level knowledge is that the regulation that got passed post GFC

uh made a lot of the more risky assets pass out of the banking system and move into kind of the broad like shadow shadow banking system my I would guess that if there are signs of stress it would come from come from there yeah it's basically anyone that gives leverage extends leverage to investors or you know takes more risky collateral than banks are capable of taking it's a gigantic industry and it's it's kind of a broad definition but that's that's where I would guess if there's problems that's where it comes from I know that's a funny name but that's what it's referred to no no I I buy that yeah that's what I would guess I don't

think it comes from I mean I wouldn't have said that that this was going to happen but I just I just don't know do you think The Regulators do you think Regulators have to like take a or policy maker like do you think that that Jerome Powell is going to say something about this nothing has happened yet nothing literally nothing has happened yet a bank has dropped you know in share price unless there's anything else that happens where you have withdrawal dating or you know liquidity issues like listen I I read the same statement from the CEO I I can I don't think you can make those statements publicly if you don't feel like the liquidity is strong I I would actually say you know this is probably going to be one PR news cycle and and you know they'll raise the capital and

then we'll move past it the other side of that I don't know if you see a multinational Bank drop 60 in one day I don't think I don't think that is unexplained like you have to go somewhere and testify in front of somebody in my in like that's my guess I don't know how this works though I mean whatever's gonna happen is going to happen really quickly it's gonna happen in the in the course of the national like weed maybe too I I also think it's more of a price thing if you think if you see this go under 100 which would be like 65 or 70 or 80 down then I think it's also a different story because you know who's holding shares of svb financial probably like retirees older people

people looking for safe Investments probably part of their nest egg question I don't know I'm I'm not smart enough to guess how the the fed or different Regulators might think about this but I'd have to imagine they'd look at this and at least be worried I don't know if a public speech is coming but even though like politicians might you know put point the finger of blame in another Direction I think they're smart enough to know what really caused this and that it's probably not the last of it I'm generally in the camp that these people are smart people and they know what they're doing so I think they're smart enough to be pretty worried about this I'd be worried about it just only one game in town it's just

like buying bonds and then you get smoked in like a once in a decade or once in a century occurrence so the Jerome Powell spoke this week and I think that that's probably what sparked a lot of this off I mean he basically reiterated higher for longer and he had a the fomc that he gave at the beginning of at last month surprised a lot of people he came off as pretty dovish and the general interpretation without rehashing that was that he was convinced or he thought that he might get his soft Landing because there was still pretty strong you know strong unemployment or strong employment and retail sales and all this stuff that might indicate that and I think the market reacted super positively to that

that's why there was a big bump and now he basically walked that back the if you look at the the terminal rate that spiked this week that's it I think 5.7 or something like that it feels like people are having Deja Vu for when he started hiking 75 and it was like oh this is actually happening well the the other thing the the big thing that happened too is the chances the market chances of a 50 basis point increase in a few weeks went from 30 to 80 we're looking at uh Cleveland inflation yeah I mean February looks kind of hot it says like 0.54 CPI it's usually like 0.1 to 0.15 over like it generally like overestimates it's like I think CPI is

too hot so you know that that's like 0.54 here I'll put this so so let's just be 0.54 would imply greater than six percent uh inflation rate almost six if it's 0.5 it like looks bad if it's 0.4 it like looks good I think that's like the very simple way of phrasing this so like maybe it's 0.4 maybe it's 0.5 it's kind of like depends how overestimating it is but then March looks pretty cool 0.27 so I like my sense of people right now and this is like not not macro just like reading people's emotions is like oh my God it's it's just like before when they hiked it to 75 and they wouldn't stop and it's going to be terrible

I don't know I don't think the inflation numbers would would back that up in terms of like oh God they're going to like seven percent that being said you know the other data that's been coming out and I know you've got all kinds of official metrics when it comes to employment labor wages uh all of the official statistics look like unemployment at an all-time low job growth wage growth which seems to be in line reasonable but if you look at any of the private data some of the indeed.com all the different private metrics that you know are obviously not used by the FED but usually indications just like we've been using home prices and um some of the private data markers for

the inflation numbers all of those look like we're seeing terrible data it maybe just hasn't populated through the official data sources yet uh February had the largest decrease in job open job opportunities and job openings uh based on indeed.com since June 2020 you know back when everything basically halted for for covid so February was the worst month over month change um and I can't remember the number I think it dropped like 6.3 or something along those lines um I would broadly say that I think we're also going to start to see unemployment creep up which means that we actually might have

a tougher macro scenario uh from just an economic metrics perspective then everybody expected maybe maybe these credit crunches and liquidity issues are are the Canary in the coal mine just as higher federal funds rate is intended to do that slows down economic activity which leads to layoffs which leads to potential recession um and at least you know the macro people that I follow the the general consensus seems to be sometime in the summer time you know we'll be able to say that that was the start of a recession like what we're seeing is like obviously crypto is like rebuilding Tech feels like it's like really in the middle of

this like gnarly layoff cycle and and people are like like people aren't hiring PMS people aren't hiring for Business Schools like that's what tech feels like yeah curious Jano Michael like what are your friends think like some people I guess think it's like a really robust economy but like most of our friends don't you know you want I feel like I've been talking a lot this episode but I I think I don't think people really know what I think if you work in Tech like I keep referencing I've got one friend that works with Salesforce but the way the way that I hear it it's that Elliott management that board seat that they took has actually worked quite a bit and you guys were dead right about their kind of strategy for layoffs it's not just a one once and done cut that

possibility is kind of hanging over everyone's head they're smart and they're a well-managed company so they've kind of divided things up and been like hey there's you're on the right track right they've kind of put people in the good box and then the Penalty Box and I think that's a that's a pretty smart way of doing it uh but but I think that's you know adult day five minutes dude adults are just children too honestly it's like the biggest the biggest realization of being an adult is we're all just okay as as the Garrett if you're listening this we gotta clip this with Mike saying this with the tin foil they're putting microchips in the in

actually I can't say it taken off YouTube yeah you know making the frogs No No Youtube views from this one wait Vance what was your original question what was your question do our friends think that we're in a bull market or a bear Market no no like are the are the worries about inflation or growth uh most of my friends believe that we are in hard we are in hard times right now like ever all of my friends who either work in Tech or consulting or PE or wherever it may be no no one's no one's company is doing great right now Consulting is a great barometer for this too because like generally it's companies that don't have okay so consulting's interesting right now Consulting like um I've you know friends at like McKinsey or BCG or whatever when

things are really good their business thrives when things are in the total their business thrives but right now they're everyone's on the beach because um yeah everyone's on the beach because uh they're like companies have kind of like come off the rebound but they're like in this weird like middle Zone and they don't like need it's not like all hands on deck 2009 and 2020 I believe or maybe 21 were some of the best years for consulting firms just from a number of hours of work um Mike spent a lot of time on the beach is [Laughter]

the the other thing that I'll say and and this is a bias that probably I have uh just based on a ton of friends who work in private Equity number one the the ability to sell to a sponsor dead that market completely gone the ability to IPO a company dead can't do it so there's no liquidity whatsoever you also have a lot of these companies that just were levered to the hilt in terms of you know maybe Libra plus 500 basis points and so you've literally gone from six percent loading floating floating all of this is floating yeah when you when you do you know a sponsored levered buyout it's all floating so it goes from six percent that you have to pay every year

just to service the debt to 11 percent like most of these companies are gonna have a really tough time just being able to Debt Service based off of their cash flows and so I like there's going to be another shoe to drop here which is all the companies that are private so you don't get to track them every single day or every single week that are not going to be able to make their Debt Service and those are going to become issues as well can I try to make a guess of what I think people like the I think this has happened broadly across a whole bunch of different sectors but I because I uh a guy who is is decently high up at this consulting firm that I know he was like oh yeah we were gonna do a whole bunch of layoffs but then the year started a

little bit better and now we decided not to do layoffs and I think broadly what happened is we ended last year everyone was super bearish and they were like we're gonna wait and see what happens in January February and then the market rallied and people were like thank God we're out of this I knew it we're back and now I think people don't it was transitory all along it was transitory all along and I have a this is a this is an anecdote so so take it for what it's worth but there's a guy James davolos who told this story on on the margin he's a portfolio manager at Horizon kinetics which is a great hedge fund there pretty early in in crypto he told he told me a story about a guy who was at a at a

commercial real estate conference um this by the way I know there was that was flying around Twitter this week this predates that but basically was that the original because I saw about 15 different versions it wasn't the original it wasn't the original no no no but uh what he's what he said was this was I think multi-family specific but what he said was the what everyone did was they they bought basically a bunch of assets right that were priced at zero interest rates everyone was underwater but what people did was the thing that people want is a basically a one-year Term Loan like an extension loan and everyone's like and he was like well well why only one year and the general consensus was because the fed's going to Pivot so the other thing that happened this week is the

expectations of a Fed pivot which was getting priced in for I think September this year has gotten pushed out till mid 24th so if you did a one-year financing your out of luck you were like okay I've got my solution here I'm gonna wait until the FED pivots now the fed's not going to Pivot you are in you are in trouble and I think that General sentiment that the FED is going to Pivot and we're out of the woods here that was pervasive across not just Finance but a whole bunch of different things so I think that's the I think that's the Zeitgeist right now if I had to try to put my finger on it I think you're seeing just like the fear trade come back yeah there's like the fear trade and then there's like the great trade those are kind of like the two it's like

people are either like longing Chinese coins that they heard about from their friend or they're like trying to get into t-bills there's like no middle ground but like if you look at this Cleveland fed report I don't know doesn't really seem like inflation is going to be that big of a deal and I think when you see all the headlines go from inflation to growth concerns that's when you're gonna know it's like okay you know it's a different type of trade is back but if there's like a interlude of like a bunch of banks blowing up that's gonna be pretty bumpy yeah I was about to say we're also only nine days into March so you know this this March data um you know also also may bump around a

bit yeah like one of my one of my friends just texted me large cap Banks aren't supposed to trade like Dogecoin I have no like I did not do this I did not cause this problem like now everyone thinks blowing up these Banks T-minus how many days until until we're talking about how crypto speculation has uh come over into the traditional Financial market and is driving these Banks down I know well that's why we're trying to be very clear about what the root cause of the problem is here and it's yes because I agree with you Michael that's what's going on wasn't me yeah I saw Mike Isaac tweeted out he's like what's the he's like what what what was svb's exposure to to web3 is like clearly trying to like draw some

correlation there hey Mike guys that I was a uh two years ago Mike do you remember this he's like Jason says nothing but a crypto scab or something do you remember that he got called out right okay yeah I mean listen it's still happening um Vance can I tell the story of yesterday yes you can tell it I'll approval tell the story yeah Vance went to go send a payment at Chase Bank oh yeah and and the painter uh looks at his account and and says huh into web three how's that been going yeah we'll never forget my retail Banker trying to like ratio me IRL it's like

how's my pants he looked you looked really concerned there what did you think that story was going to be what did you what did you get up to yesterday yeah what was yesterday a busy schedule man that's fine you can tell that story oh we didn't even ask you about East Denver how is East Denver oh uh East Denver is good it was great I mean there were 35 000 registrants like 12 000 attendees is it's a massive event um let's see what are what are some takeaways Zeke every other panel was about zks so like zks were super pervasive privacy stuff was like yeah all these panels on privacy which really reminded me of 2019 um like too much privacy stuff honestly Roll-Ups like yeah I mean there's like zke evm ZK

Roll-Ups just like ZK everything um Roll-Ups were all over the place in terms of like specific projects that were talked about a lot like Celestia and uh eigenlayer like you know every conversation was like celestian eigenlayer in terms of like other ecosystems I mean it's eat Denver so obviously eth was like you know everyone's building on evm um but like if I had to pick one other ecosystem that was like in the narrative a little bit I'd say Cosmos um people there either like love Cosmos or they hate Cosmos and uh that so that was interesting uh no consumer stuff no nft stuff actually some really good games uh there's a whole gaming section there

which I know Michael you and bands are much deeper into games than Mike and I are but like there were some really I don't remember the names of them but like there's a whole gaming section where you could play these games and they were like tier one games like I've never like they were like it was like this could be an Xbox game um and but they were like you know they're crypto native games so that was pretty cool because I haven't seen a crypto game in like 18 months uh and they were really good really good gameplay so I mean just to touch on to that point uh the games that we're seeing are going to be interchangeable with web 2 web 3.

it's just what happens on the back end in terms of you know where is the ownership uh sitting the other the other antidote that we're seeing with some of these games is that the retention which then feeds into lifetime value is three to four x what you would see traditionally with an equivalent web 2 game so it you know this the suspicion and the theory and the thesis was right that if you imbue value into gaming ecosystems there's going to be a lot larger desire to stick around and and I think the one question is like are these and this is a fair question are is it causation or correlation are these like the early adopters who are coming over

from free to play or like web 2 Gaming that are already high lifetime value customers and they're just like there to play and test these things out and therefore you know the monetization looks really positive so that's a fair criticism them I think it's you know something that we're gonna be testing and figuring out but it at least early signs look positive guys I really want to make sure that we've got enough time to talk about coinbase wallets as a service can we I just want to do that before we uh we actually yeah this was uh this was I thought a super cool announcement and by the way I feel like we keep shouting them out or at least I do but it has been wild to watch the turnaround of coinbase over the last year you know the story going into 2022 was way too bloated uh all these you

know shipping a whole bunch of products but getting traction on none and the story of coinbase at least for the last and I know that there's a road map I'm sure that lined up with this but the last three months it's just like hit after hit after hit and they've trimmed their team down it seems like they've got their head on straight a very cohesive Focus they did the launch of bass uh and now Wallace's service is a massive win I think you know you know a little bit more about this than I do but basically it's white white listed wallets right so they provide the infrastructure that allows anyone to basically just say okay here's a wallet that we can use let me just step in and maybe uh not counter but at least provide some opposing opinion and granted like coinbase is our dominant

partner from everything that we do um from custody to trading Etc we have others as well but we we love to work with coinbase but also they have done a lot of major launches that haven't worked I think the proof will be in the pudding in terms of you know what does the uplit uptate from base look like what does the update from coinbase while it look like but the fact that you know nft Marketplace literally went nowhere um you know that that was a Miss um I think they're going to take a shot at all the different Layer Two ecosystems and and that's what bass is and they're going to take a shot at fireblocks and that's what their wallet is but I agree it's really a sad to see them take real shots now oh I don't think that's what their wallet is

actually here so first of all I think the nfts failed because um because of who they hired and because of who the team was behind the nfts so like here's the main difference when you talk to like the base team versus the nft team the nft team was like at least the people I interacted with was a bunch of web 2 people who had never worked in crypto before and they hired to come build this thing and their strategy which like I actually really understand at the time was like let's go hire a bunch of people from Instagram and like those kind of places and like and and and they'll they'll be able to on you know do consumer Tech really well whatever and that and that thesis definitely didn't play out if you I I'm really biased because I ended up

spending a lot of time with the coinbase team in Denver so I hung out a lot with Will who's their VP of engineering and Jesse who's leading base and he kind of gave me some insights into where bass is going it's very CR they're thinking about it in like a very crypto native way and um and I think they're thinking about it in the right way and then and then just the last thing Michael to touch on the wallet as a service I don't think wallet as a service is a competitor to fire blocks at all actually I think wallet as a service is is a developer toolkit apis and sdks that allow anybody to go build a wallet um and just basically why yeah white label a wallet so that is definitely the case and and I think the positioning of it externally

is developer uh Focus tooling um we had a call with coinbase yesterday uh and and talk to them about the wallet and the different offerings that they're they're positioning for the institutional side of it is this will be an MPC enabled fire blocks replacement where everything will be you know the the assets that aren't supported by by Prime will be able to be stored in coinbase wallet with an mpc-like solution frankly like we have now with Firebox um so I think it's actually both like it's definitely positioned as a developer tool for anybody who wants to go build a wallet service into their into their app or into their ecosystem but uh but I think the business model behind the wallet will be more like a fire blocks well there's coinbase wallet and then there's coinbase like wallet as

a service and those are two different things well the same technology but two different things so here here's the bear here's the uh Mike My Mic Michael bolito because I know you were optimistic on my mic yeah uh you were as bullish on the wallet as the services I was and I was trying to pick holes in this I think if you wanted to pick a hole in this and say this maybe won't work is there are a lot of compa because coinbase has so many products there are a lot of people who actually compete with coinbase and do you want coinbase do you want your entire back end your entire Tech stack on the wallet side of things which is where you own the relationship with the customer do you want that to be owned by your competitor so if you're another exchange you would

never use this if you're someone in the nft game you would never use this if you're someone who does staking you probably wouldn't use this so like there are there are a lot of competitors there let me let me lay out this is why I like all of this let me let me lay out how I think about coinbase as a business here I think you are going to see the unbundling of the crypto Exchange I I think basically coin coinbase has two different directions that they can go they can either become JP Morgan big financial institution heavily regulated or they can take the the New Path and I think you have to unbundle there's actually very good reasons why in tradfi you don't have Prime brokerage and custody in the exchange all lumped into the same thing those are in different organizations for like very good reason I think so the way

that it works right now is non-sustainable over a long period of time the reason I like what coinbase is doing is because I think what they're doing is positioning themselves as kind of a thin application layer a very crypto native thin application layer on top of a bunch of these services but they're making sure that they take their piece right so the Way That Base as a chain and coinbase as a wallet go together is I think the bet that they're making is right now a lot of the trading is happening on centralized exchanges over a period of time that's going to move to decentralized exchanges and the value that's going to get extracted there is either you know fees on from the from the chain you know base the chain or it swaps in in wallet swaps from the wallet or it's Mev that gets

extracted at the sequencer level that's a fascinating business that Wall Street just doesn't understand and I think it makes a lot of sense the wallets as a service the reason I think that's interesting is Michael you said this there's still a wallet problem when it comes to crypto I actually think I think that a potential use case that we don't all see is that a lot of really big so Michael bodley on our team one of our reporters has been breaking these stories about Amazon it seems like the initiative at Amazon for crypto is actually quite real and they're all very interested in nfts I think there's a really good chance that corporates that have enormous user bases and distribution might they are going to

want to play in web 3 crypto and the first thing that they need to do is get a wallet and I so I actually think that corporates might end up indirectly solving our wallet problem get a whole bunch of people in crypto and the wallet as a service the white labeled wallet solution from coinbase is what's going to help them get there so that's why I think it's it it's just interesting I'm just interested to watch how it plays out but yeah I mean it is interesting and so to touch on the coinbase you know business model as a whole um I I I continue to believe that there is a broader strategy here as I think we're discussing I also think that it's a bold move to effectively disintermediate your core business

um it's not the same but an interesting analogy might be you know just the fact that in 2007 when the iPhone was launched you effectively killed the entire iPod business as well as a lot of the use cases of the personal computer business by putting it all into one device but and and also um there were a lot of people who were not positive from a Wall Street and analyst perspective on Apple at the time um so I think that it's going to take time for this strategy to play out and for you know the data to be undeniable um but I agree that I think it's a step in the very much right direction um and then um I I think on the rest of it um yeah I mean

I I I believe that um yeah the the that they're going to be able to move in this direction uh and that there's going to be you know major changes um and I can't remember my last point so we'll skip there did you know a fun fact about Apple is something that did its IPO sorry The Regulators a uh there's a there's a new action that I just saw coming in food coin just got uh regulated by the Attorney General of New York oh boy oh I don't know but but uh part of the

complaint at least um from what we're talking about internally is that it appears to purport that eth is a security oh yeah New York AG claims that eth is a security in the kucoin lawsuit yeah that headline distracted me uh Michael where do you get your headlines like that when like flow of news uh that one was sent by our GC ah nice hmm yeah okay that wouldn't be great so sorry what was you saying one Mike what was your what was your second point after the broader coinbase I was just gonna say one of the funny things about Apple is that when it ipo'd back in I think it was

1987 or something like that 70s Regulators for actually 76. Regulators were really concerned about it and The Regulators in the state of Massachusetts actually banned it from being sold to retail largest uh I think one of the most successful companies in the history of the world isn't that isn't that funny um so funny little funny little piece of history there for you thank you thank you for the protection feel protected I'm extremely protected yeah the the other thing that happened this week that may or may not end up being significant but I did want to flag it is there was a judge that overruled the I think initial action from the SEC and actually allowed the sale of Voyager to go through to finance U.S so I would

keep in mind you know the SEC is obviously on the war path when it comes to to crypto but there is a you know it doesn't actually become lot right law or precedent or whatever it is until all this stuff gets adjudicated in courts and there's a chance that the legal system or judges or whatever won't end up going with what the SEC complaint was so so yes also um I remember my second point but we can skip it uh the uh the the thing about this type of a process and why we've seen so many of these settlements is you basically have two options when you know there's a regular regulatory complaint against you you can go and fight it out in court which probably will cost you know way more than what the settlement

might be and you have a chance of losing and then paying the settlement anyways or you can just settle and move on and in this specific situation it's different because you're talking about a bankruptcy estate who's complaining against the complaint that the SEC raised um and so it just goes straight to a judge who's adjudicating the entire bankruptcy proceeding um but I think the broader point point is you know what does this have in relation to all the other lawsuits that are going on and the other big thing that happened this week is uh there was initial uh uh initial proceedings in the gray scale versus SEC complaint and at least you know I I've I've just read the

second hand opinions or secondhand perspectives of people who were there in the room um but it it seems like Grace Yale there are three judges that were listening to this and it was expected that one of them would likely be on the side of grayscale at the beginning and it seems like two if not three were more on the side of Grace Yale at least based on their line of questioning following the initial discussions uh during that proceeding so yes this is you know great for Voyager customers because it means that they and they've already started doing this they've started the process of rebalancing they've started the process of Distributing to binance us um that's great because customers will get their asses assets back sooner um but then the other thing that's going on too is but you know all the different

other battles that are being fought at the SEC on all different fronts and it doesn't seem like you know at least initially the grayscale one is going in the direction that was expected now this doesn't mean anything from from a Bitcoin spot ETF perspective um it's very possible that the uh rejection gets thrown out by the judges but then that goes back to the SEC and then they just decide whether or not they're going to come up with a new reason for rejection um but it but it is interesting to follow how all these Court proceedings are are progressing well the other thing that happened this week I don't know if you saw Biden the Biden Administration proposed a whole new slew of changes to the tax code we might be getting a 40 capital gains tax which would be

listen he he he went for it I don't think there's a single thing that has been proposed from a new tax increase that was not included in this leaked budget plan um so you know I think what this is is a recognition and the reason why you know this isn't massive news right now I mean it's kind of news but not like major news is because everybody knows that there's no way that this thing ever has a chance of passing uh I think it's just an initial um it's an initial play in the negotiations that's going to come down in a few months for debt ceiling increases and broadly uh leading into the election in 10 months or election year in 10 months so I I think this is more of just like a shot

um and and basically a scarecrow to to be able to say hey this is what I stand for um but yeah man there have been there there'll be a lot of uh a lot of upset people across the board if if this uh were to become law I don't know too much about politics and what the game theory is and everything it does seem like there's an enormous amount of posturing that goes on but I I agree with you I don't think it doesn't seem like there's probably a super realistic chance of that passing I I think the big one in there and this is going to be probably a huge topic of your conversation um starting soon but also in in 10 months in election proceedings is what happens with support for for Medicare uh and expanding uh increasing taxes to to continue to fund Medicare because I I

think right now the trust is set to run out in like 2025 or 2026 and at that point you'd have to go down to like 80 coverage um which would obviously be 80 coverage but it also reduced some of the more uh less less um Central uh health services that Medicare recipients are expecting um so any changes to that I think are very very tough um but I think that's that's like the meatiest kind of like toughest one in in the in the Slate of changes that is supposedly going to be proposed powerful uh powerful political tool weaponizing Medicare I feel like Republicans did that to Dems for a while and then now Dems are doing it to Republicans those um those are

entitlements that you cannot I think that's the if you go back to our analogy of a balance sheet that's definitely a liability of the US government and you can you can print all the money that you want but at the end of the day a human being has to go and deliver that care that was promised to people so and if you if those info if you keep printing money and there's more inflation than the cost it's indexed to inflation sorry that was the other thing and so is social security so you're not saving any money that is a fixed that is a fixed cost that the government owes so just just worth saying for sure man yeah a lot of a lot of fun stuff uh let's see how next week turns out we shall see yeah we'll see I just got a notification

that Hobie token dumped like 60 in two minutes so great we're moving we're moving excellent excellent phenomenal all right guys phenomenal work fellas nicely done we'll see you guys next week [Music]