The failure of the Silicon Valley Bank reflects the myth of the Wild West
When Silicon Valley Bank went down the drain, it wasn’t surprising that the loudest mouths in techworld began demanding that the federal government cover everyone’s losses. When capitalism goes kersplat, even the most libertarian Peter Thiel supporters become new dealers. Sure, they like to ridicule colleges as “woke madrassas” and denounce student loan forgiveness as a moral hazard. But if it is her Money at stake, they all serve to privatize the gains and socialize the losses. It’s a robber baron classic.
But because the bankers in question saw themselves as innovative in the way startups are funded, their gripes for government aid actually come from an entirely different source. They were pioneers on the border between technology and finance and acted as pioneers always do. After declaring themselves ungovernable—loners too free-spirited to be chained to high society—they headed into the wilderness to live off their rugged individualism alone. Then they were massacred and ran back to Fort Washington, demanding those in charge expand the camp’s borders outward to protect their precarious settlements. Through this cycle of bold sowing and tearful reaping, the West was conquered.
In SVB’s case, the argument went something like this: Silicon Valley Bank differed from other cumbersome banks, in part because it was too small to provide the kind of regulatory oversight that resulted from the 2008 financial crash, and in part , because it was too critical for the fast-paced, disruptive world of startups and venture capital. Bureaucratic intervention would only prevent anyone from creating value. Ungovernable!
That’s what SVB boss Greg Becker argued, and he got what he wanted. The bank has been allowed to move out of government protection, take far more financial risk than regulators should allow, and accept massive, uninsured cash deposits from zippy startups. Then, as the bank’s ledger turned red, its bosses — along with many of Silicon Valley’s loudest and most influential investors — freaked out and insisted the government take cover all losses, not just those of policyholders, to stave off a broader banking crisis. They banged on the fortified barricades and begged to be let back in.
America’s boldest pioneers always believed that if they scraped their knees, they could run back to Mom and Dad. This is one of the main points of one of the classic texts on the subject, Frederick Jackson Turner’s The Frontier in American History, published in 1920. Turner is basically saying that the dynamic I just described is one of the things that propelled the western edge of colonialism in North America toward the Pacific. The craziest, bravest, most ungovernable people slipped out of the surly shackles of rules and laws, ventured out, and put those surly shackles right back on – just a little further down the road. That’s why it took 100 years to get 100 miles inland, and then another 150 to reach San Francisco Bay. Venture out, retreat, let the government build you a new fortress, repeat. Being a tearful pioneer is slow going.
Turner’s work is controversial today. He thought the European role in North America was pretty great overall. He didn’t fully appreciate that what the White Frontier called was someone else’s living room, or that the pioneers had some pretty weak moral reason for chewing up the natural world and other people’s lives and liberties. But I think what he got right, at least implicitly, was the Westward-ho settlers’ tendency to play up their audacity and the apparent fate of their efforts — and understate how much they rely on regulations and government-run infrastructure.
Like what you ask? Then as now, the flow of information was as important as the flow of goods to maintain order and resettlement. As Cameron Blevins points out in his book Paper Trails, by 1889 the government had established a staggering 59,000 post offices covering 400,000 miles of routes and carrying millions of letters and packages. (By comparison, America today has only 100,000 gas stations and 15,800 Starbucks.)
Or think of the railway. Although built by private companies, they were still the engines of the state. As Wolfgang Schivelbusch says in The Railway Journey, the main difference between the nineteenth-century railroad expansion in the US and Europe was that the railroads in Europe replaced existing transport corridors – the carriage road, say, between London and Manchester. But in the US, almost all new railroad corridors were greenfield, crossing landscapes unfriendly to other modes of transportation at best. The railroads came before the targets. Ultimately, it fell to the government to protect these new routes and the cities that grew along them.
Of course there is more – military bases, telegraph lines, national parks, land registers, mineral rights, the complicated and constantly revised laws governing territories. Even taverns and inns, the independent businesses that kept far-flung farmers and long-distance travelers together, had government support—and government mandates.
Myths of Limits
It is unfashionable for people in the tech industry to dispute the central role that government-funded infrastructure and academic projects have played in the development of Silicon Valley and the digital age. The officers’ hand touched atoms and bits. Cold War defense treaties and national laboratories developed Western technical know-how; Cheap utilities and well-developed highways kept the machines running. Even before the government developed and supported the Internet itself, it systematized and regulated the broadcast spectrum. Every iota of disruption in the technology industry rests on the shoulders of vast bureaucracies.
The folks who wanted the government to cover SVB deposits over $250,000 know all this. But they argued that they were different – that this time (unlike all the other times) their particular genius and value meant we could trust them to work somewhat orthogonally to the rules, that we absolutely could not could overlook Opportunity to trust them. And yet here we are.
It’s the Californian ideology – Jeffersonianism with programmers instead of farmers, where social and political power structures are replaced by software and the free market.
The frontier myth and its associated fairy tale, Jeffersonian agrarianism, idealizes farmers and settlers as embodiments of the American spirit, living outside the rules yet creating moral order out of chaos. Last week, major western water reporter John Fleck shared a 30-year-old paper on social media about how these myths are letting these frontier heroes off the hook. They pocket all the gold they can scrape off the hills, but this mythology has them insist that anything that goes wrong is beyond their control, a product of circumstance – and therefore something the powerful do for the good of the nation should fix .
Shout down to Silicon Valley and you’ll hear echoes of this pioneering myth. Granted, its residents mostly don’t filter history through the old-fashioned lens of agrarianism, but through futuristic things like asteroid mining, robots, and space colonies. They don’t see themselves as heroes of a western frontier, but of space – the ultimate – as fractured by the legendary writers of science fiction’s golden age. Peter Thiel, Jeff Bezos, Elon Musk, Bill Gates – they are all sci-fi fans. And the Golden Age stuff often has a really libertarian bent. In Foundation, Isaac Asimov’s brilliant technologists flee a corroding empire. Robert Heinlein’s The Moon Is a Harsh Mistress shows hardworking businessmen on the moon rebelling against their colonial governors, just like the American colonists.
A few astute analysts described this as the Californian ideology as early as 1996, a Jeffersonianism that replaces farmers with programmers, so that “social, political, and legal power structures wither away and are replaced by unhindered interactions between autonomous individuals and their family software.” None “counterproductive Regulations” more; Engineers will invent tools like encryption and digital money to build “a ‘free market’ in cyberspace” created not by the government but according to the “original laws of nature”.
I want to make it clear: technologists are really innovative, and the government should Supporting advances like railroads and electrification and the internet. It’s good if the government can reduce the risk of investing in the future, whether by insuring bank deposits or giving homeowners tax breaks to put solar panels in their homes. And it’s good, too, that technologists and their investors are wrapping themselves in the beneficial parts of the frontier myth and venturing into the unknown to forge something new and better. I just think we should face up to what’s going on here. We should celebrate this financial and ideological entanglement at the forefront of innovation, rather than giving it the cold shoulder during Serie A and then sneaking back to only ask for help in times of crisis. The fact that we all have rights and responsibilities in a civil society is not a bug in our collective software. It’s a feature.
Adam Rogers is senior correspondent at Insider.