The culture war has come for the banks, and friends, it is stupid. 

There are a wide variety of proposed explanations for the fall of Silicon Valley Bank. For instance, The Wall Street Journal’s editorial page has suggested SVB’s board “may have been distracted by diversity demands” as I guess it had too many women, too many Black people (one), too many queer people (again, one), and too many veterans (???).

Meanwhile, in The Financial Times, the problem is that Silicon Valley Bank let people work from home. “It is harder to have a challenging call over Zoom. It makes it harder to challenge management,” according to Nicholas Bloom, a professor at Stanford University who the FT chose to quote for some reason. “Ideas like hedging interest rate risk often come up over lunch or in small meetings.” Further, the problem was that SVB didn’t have the “abrasive, roll-up-your-sleeves culture of Wall Street,” an anonymous source complained to the FT.

We’re going to find out what happened. There are at least three investigations ongoing into Silicon Valley Bank: one by the Fed into its own actions, one by the SEC, and one by the DOJ. Certainly operating without a risk officer seems bad. Not a great look, either, for senior leadership to be selling shares when the bank isn’t doing so hot. Of course, there is an obvious, non-partisan explanation for this: greed.

Still, I feel confident that what happened at SVB had little to do with diversity efforts or work-from-home policies, and a lot more to do with deposit growth and its VC clientele. The bank also failed to predict the future correctly when interest rates eventually went up.

And predicting the future is the point of banking and of venture capital. Get it right, and you make money. Get it wrong, and the results can be catastrophic not just for you but for your entire community. Sure, SVB failed and depositors were rescued by the Federal Deposit Insurance Corporation — call it a “bailout” if you want, who cares — but it will be years before we see the full ramifications of that collapse.

Silicon Valley’s venture capital community loves to style itself as a bunch of rugged individualists. As we all learned during the run on Silicon Valley Bank, a community of individualists is no kind of community at all.

Silicon Valley Bank was a community bank, and its relationships were one of the most notable things about it. It understood how to work with businesses that were not yet making money. To reward itself for that risk, it did two things: first, it sometimes required those businesses to bank with it exclusively. Second, it got rights to buy shares of those companies in the future, often at bargain-basement prices. That second function echoed the VC industry it served: it bet that some of those money-losing startups would make it very, very big — thus covering any losses from the companies that failed.

The VC-like part of Silicon Valley Bank isn’t what went wrong. The bank part of the bank is where the failure occurred: a lot of deposits came in during the pandemic, and SVB chose to put half of them in a $91 billion investment portfolio that was vulnerable to interest rates rising. But because startup culture is also vulnerable to interest rates rising, that left SVB more exposed than other kinds of banks. As the startups started to draw down their cash rather than put more in, SVB had to get rid of its investments at a loss.

These right-wing talking points are unserious, so it’s worth asking why we’re hearing them at all. One possible answer is the involvement of Peter Thiel’s Founders Fund in the bank run. Thiel is one of the biggest donors to the Republican Party. 

A mysterious anonymous someone told Axios that Thiel wasn’t directly involved with the decision to tell portfolio companies to pull their money. Of course, after Thiel gave a big talk about how amazing Bitcoin was while Founders Fund was busily selling it, people might be a little skeptical about that. That might be why we’re hearing about “woke Wall Street.”

I have ignored the roiling battle over ESG investing, mostly because it is boring, but I guess we now have to deal with it. Thiel, of course, has publicly put ESG investing on his enemies list. 

Markets are made up of people. ESG investing — it stands for “environmental, social, and governance” — is a capitalist product, borne of the demand that firms do more than be profitable. It exists because investors want some basic level of eco-friendliness, pro-social actions, and good governance.

ESG isn’t really a new concept. While there are some investors that just want to make money, there are others who care about how that affects the people around them. The prime example is tobacco companies, which sell an addictive product that can and does kill people. In Barbarians at the Gate, Warren Buffett extolled the virtues of investing in cigarette companies: “It costs a penny to make. Sell it for a dollar. It’s addictive. And there’s fantastic brand loyalty.” If you don’t care about cancer deaths, this is a pretty good formula for investing.

Except a lot of people do care about these things. Most investors are not actually sociopaths; some of the biggest investors are handling pension and retirement funds for ordinary people. ESG investing is primarily institutional investors — BlackRock especially — trying to market a product that lets people make money without feeling too guilty. Clients are asking for this, actually! That is called market demand!

But ESG is about saying the right things, not necessarily doing them. So why are we seeing conservatives taking it seriously? Well, Republicans can’t admit there isn’t much market demand for their beliefs. They’re supposed to be pro-capitalism, after all. 

Money is the abstract version of our social ties. It is, very literally, what we owe each other. Silicon Valley Bank served a community, one where “every man for himself” is the going philosophy. That’s part of what leads to a bank run — because if the VC culture in Silicon Valley had been more interested in preserving its own community, it would not have tanked its own bank.

Then there’s the deregulation. In 2018, then-President Donald Trump signed into a law exempting smaller banks from some of the requirements of the 2010 Dodd-Frank bill, a post-financial-crisis attempt to reform banking. The new law meant that smaller banks, such as Silicon Valley Bank, weren’t subject to the same oversight requirements as “systemically important” banks, with more than $250 billion in assets. SVB itself lobbied for this!

I don’t necessarily buy that the market is the be-all and end-all of society. People often want things that are bad for them — cigarettes, for instance. But if you have been following the libertarians attempting to virtue-signal about the Almighty Market, there is one other funny little wrinkle here. A lot of money has flowed into big banks, which are perceived as being safer than little banks like SVB. Those “safer” banks are also much more heavily regulated. It’s almost like the market is asking to be less free. You can see how that might put Republicans in a bind.