Where is Silicon Valley's J. Pierpont Morgan?
NEW YORK, March 17 (Reuters Breakingviews) - Wall Street specializes in cutthroat capitalism, but when the going gets tough, banks band together. After withdrawals lashed the banking system in 1907, financier J. Pierpont Morgan corraled his peers into using their own money to calm the crisis. Over a century later, JPMorgan (JPM.N) Chief Executive Jamie Dimon did the same, getting 10 other banking executives on a call with top U.S. regulators to support First Republic (FRC.N) with a $30 billion cash injection.
The contrast with Silicon Valley – which is also embroiled in the ongoing firestorm – couldn’t be more stark. Startup and technology firms’ cash crunch precipitated the fall of Silicon Valley Bank and its parent SVB Financial (SIVB.O), which in turn sparked panic in the financial system. Yet these firms don’t have a Morgan or Dimon to drum up support. When SVB first started faltering, some venture capitalists did the opposite of pitch in, publicly encouraging companies to yank their funds from the bank.
With someone to focus the industry’s minds and wallets, things might have gone differently. Tech companies have enough cash that they could have covered the $1.8 billion loss SVB incurred when it sold a portfolio of bonds, or even the $30 billion banks put on deposit at First Republic. Google parent Alphabet (GOOGL.O) and Apple (AAPL.O) both have over $100 billion in cash, and tech billionaires abound: Sequoia managing partner Doug Leone, for one, is worth $5.6 billion, according to Forbes. These people could have restored confidence in the banks that grease their industry’s wheels.
A few things might explain the lack of cohesion. Silicon Valley is fragmented and built on an individualistic ethos. Unlike banks, there’s less common interest, at least in normal times. Amazon.com (AMZN.O) and Twitter have different activities, risks and concerns, as do the venture capitalists like Andreessen Horowitz who back young startups.
More importantly, unlike banks, tech companies don’t all answer to the same set of regulators, so they aren’t used to working together to appease them, or seeking safety in numbers. Before cryptocurrency exchange FTX fell, Sam Bankman-Fried was lobbying Congress to support laws that would benefit his own business, but there’s no single player in tech who has had enough at stake to play the Pierpont Morgan-Dimon role. Real, toothsome regulation might force Silicon Valley’s great minds to realize how interconnected their ecosystem is. So far, a financial crisis on their doorstep has not.
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CONTEXT NEWS
A group of 11 Wall Street banks injected $30 billion in deposits into First Republic Bank on March 16, hoping to rescue the lender from a crisis triggered by the failures of Silicon Valley Bank and Signature Bank earlier this month.
JPMorgan Chief Executive Jamie Dimon orchestrated the deal alongside Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell, Reuters reported.
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