Burn it down

My snappy colleague Ryan tore a band-aid off over the weekend, lamenting the death of the work ethic. Yes, it’s an open social wound. There’s a generational schism, of course. We knew that. The pandemic and three years of WFH skewed a lot. The wealth divide is worse now. And doubled interest rates have made real estate even more unattainable.

The comments section sank more than usual into a swamp of nihilistic moaning. So many people with unfulfilled expectations. So much anger. Such blame smeared on boomers, banks and bosses. It reminded of a poll we shared with you wherein close to half of younger respondents said socialism is the preferred economic model. Their solution to capitalism today: burn it down.

Will that happen?

The arsonists showed glimmers of hope late last week as a significant US bank failed. Some analysts said the collapse of the Silicon Valley Bank would force the Fed to reverse its interest rate hikes and cut the cost of money by a full 1% over the next few months.

Meanwhile the share value of Canada’s big banks dropped by almost $20 billion on the SVB news. Some regional US banks were whacked with a 40% equity drop. Charles Schwab lost 10% (the majority shareholder is TD Bank). The big Wall Street FIs were also hit, as stock markets retreated.

The question is about central banks. Has a 450-basis-point rate bloat started to break stuff? After all, SVB’s problems began after it put depositors’ money into government bonds which sank in value as Fed hikes took place. When it tried to issue new securities, revealing its almost-$2 billion investment loss, Internet chatter among its high-tech clients caused a panic. In one day $42 billion was sucked out by worried clients. The bank failed.

Ironically, SVB’s innovative, mostly-younger, tech-savvy and leading-edge depositors created their own nightmare. In a few hours they destroyed an organization that had nurtured, gambled on and supported many of them. In a world devoid of social media or digital communications, that never would have happened. The bank dudes would have covered their bond losses, secured some new capital, diluted their equity and carried on with business.

Instead, as some analysts said over the weekend, we came to the edge of financial contagion.

Two things.

First, don’t expect dominoes to fall. SVB mattered a lot to a volatile sector and a slew of corporate depositors, but it’s not bringing down any of the big guys. Nor will this cause the CB to panic, kick into reverse and drop rates. The Fed will hike again a week from Wednesday.

Second, the real story of SVB – like Ryan’s lament on the work ethic, our growing political polarization, the crisis of house lust and the dissing of capitalism – is the staggering power of influence. Never before have people been able to so quickly and effectively influence others or be influenced themselves into beliefs or actions. Quiet quitting. Crowdfunding truckers. Real estate booms and bust. Generation Squeeze. A bank run.

Giving people voice and social power is not a bad thing. But we’re also in an age of peer-to-peer, unfiltered ‘news’. Disinformation. Conspiracy theories, Qanon and political extremism – left and right. The MSM’s fact-checking is largely gone. People come to quicker decisions based on Tweets and social media like SnapChat or Telegram.

The glory is more power and influence given to every citizen. The danger is bad decisions made on corrupted data. Suddenly in social media, corporations are greedy and oppressive. People are stereotyped by their gen. Employers are the enemy. Galen Weston and Jeff Bezos are crooks. Or democratic capitalism is failing. On one side are the woke. On the other, patriots.

Sheesh, and now we have AI chatboys. The bold glamour filter. Real and fake are one and the same. The influencers are everywhere.

Thankfully old people have a defence. It’s called experience.