Silicon Valley Bank’s failure fits a very old pattern, rooted in our need to get rich quick, dating back to the Gold Rush.
Silicon Valley Bank’s collapse is widely discussed as a harbinger of the future, a sign of problems in technology businesses that were its best customers. But this bank failure actually fits a very old pattern — of California putting the world economy at risk.
Catastrophe only spawned new banks. After San Francisco’s 1906 earthquake, A.P. Giannini set up a makeshift bank in North Beach. Eventually, he would establish Bank of America, which in the 1980s, was briefly the world’s largest bank. This deregulation was most shamelessly exploited by the Lincoln Savings and Loan Association, based in Irvine, and its head, Charles Keating, who used depositors’ money to make high-risk investments. Keating, seeking to evade federal regulators and keep control of his thrift, compromised five U.S. senators, the so-called Keating Five, including California’s Alan Cranston. Keating was eventually convicted of fraud but freed on appeal.
Then, as now, the Golden State had the country’s biggest, most expensive housing market. Our middle class, desperate to buy homes, led the way to ever-growing consumer and mortgage debt. Our banks and mortgage companies — including Calabasas-based Countrywide Financial, once the nation’s largest mortgage lender — led the way in making bad subprime loans that left borrowers owing more than their homes were worth. Countrywide and its friends on Wall Street also recklessly securitized those loans.
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