Silicon Valley Bank, a go-to for tech startups, hedge funds, and VC or “venture capitalist” firms, collapsed last weekend, and the government stepped in with FDIC to take over and see that depositors’ funds weren’t taken out alongside the bank.

What led to the collapse?

Without getting too far into the weeds to talk about the root cause and systemic issues like fractional reserve lending, on Wednesday, March 8th, SVB announced they were being forced to sell securities at a loss. In turn, on March 9th, depositors rushed to withdraw their funds (known as a run on a bank) to the astonishing amount of $42 billion! It seems that operating much of 2022 without a chief risk officer bit them where the sun don’t shine. 

Leading up to the demise of SVB, several key figures within the bank made some sketchy moves, to say the least. For example, chief executive, Greg Becker, sold $3.5 million dollars’ worth of shares two weeks before the collapse, and CFO Daniel Beck sold $575,000 worth of shares the very same day. 

Those same executives had been reassuring their clients and investors that their bank was doing just fine. Liar, liar, pants on fire. 

How we can protect ourselves–

An obvious first step is diversifying where you bank if you have over $250,000 in liquid deposits. Another step is to take control of your investing and get as close to the stream of income as you can by investing in tangible assets like real estate.

Why Real Estate is Still a Safe Bet

If real-world inflation is as high as 10-15%, and you can get a loan with a fixed interest rate of 5%-7%, it can be a great hedge if the property is cash flow positive as both the tenant AND inflation work to pay off the note.

Bread and butter, single-family houses can still work as rental properties if you look in the right areas. – Think places like Jacksonville, FL, vs. a palatial property in Los Angeles. 

Because of what we’ve seen this week (Signature Bank and Silvergate Bank also collapsed), several economists predict that the FED will halt interest rate hikes, likely until the summer. I’m not so sure, but we’ll find out soon enough.

If the FED continues with interest rate hikes, it could hurt more banks and lead to further instability. If the FED places a hold on interest rate hikes or tries to reverse course, it will likely lead to an increase in inflation. Either way – we could likely be negatively affected if we don’t play our cards right.