After 20 years of what appeared to be unstoppable growth, America’s tech industry has spent the past year. Product failures in new industries like virtual reality and cryptocurrency, layoffs across the board, lower stock prices, and the failure of Silicon Valley Bank create a teachable moment to talk about the tech industry’s culture and direction.
Despite press coverage of the harms arising from internet platforms — including political and social polarization — of the questionable business practices of cryptocurrency, and the flaws of artificial-intelligence systems, policymakers have failed to regulate or legislate. Just as important, consumers have chosen to trust even the most untrustworthy of tech companies. We know there is something wrong, but we have not yet insisted on change.
Four factors contributed to the collapse of SVB. Had the Fed not raised interest rates by 4.75% over the past year, SVB would not have failed. Had Congress not passed a law in 2018 that loosened the regulation of banks such as SVB, SVB would not have failed. Had SVB employed good risk management, it would not have failed. Had bank regulators done their job during a period of rapidly rising interest rates, SVB would not have failed. But even with all four failures, SVB should not have failed.
One lesson is that loosening regulations on big sectors — such as the rollback of Dodd-Frank financial reforms in 2018 — rarely ends well. One might reasonably conclude that government regulations, such as those around vaccines, serve an essential role in consumer safety that becomes less obvious the longer they have been effective.Despite Biden’s recent threat to the Chinese-owned app, a national ban is unlikely, and a forced sale would get messy.
A third lesson is higher interest rates and increased geopolitical tension may not support the strategies embraced by startups over the past decade. This may be a blessing in disguise. This brings us back to Silicon Valley Bank. The people whose calls to withdraw funds triggered the bank run are successful, wealthy and careless. If leaders in Silicon Valley are unwilling to support SVB, one of their own and a uniquely valuable partner in their ecosystem, it is safe to assume their business goals would not consider, much less act for, the greater good.