March 12, 2023
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On this episode, we go to a special Suze School for a lesson on the collapse of Silicon Valley Bank and why following FDIC / NCUA guidance is so important to protect your money.
Suze: March 12th, 2023. Welcome everybody to the Women and Money podcast and everybody smart enough to listen, Suze O here, now today's podcast was supposed to be on your net worth how you calculated, how it relates to real estate and things like that. However,
Suze: because of one of the second biggest bank collapses in the history of the United States,
Suze: Silicon Valley Bank or better known as S V B. A lot of you have been posting and emailing me and going, Suze. Can you just explain all of this to us and is our money safe at Alliant Credit Union? So let me just briefly say, and I'll go into more detail about Alliant in a little bit.
Suze: Your money is absolutely safe at Alliant. Very, very different. A credit union versus a commercial bank. You are to seriously get out your Suze notebooks right now because I'm going to give you a financial lesson as to how banks and credit unions for that matter work. Are you ready? Let's go.
Suze: Like I said, originally, Silicon Valley bank or SVB was the second biggest bank in U S history,
Suze: you know, since actually Washington mutual went under in 2008.
Suze: Now SVB was founded in about 1983. And because they were located in the heart of the tech startups in Silicon Valley. Remember Silicon Valley, don't you remember all of you hearing about how Amazon and Apple and Google, and they were all right there.
Suze: Because this bank decided to go after that kind of business. They located right there and called themselves the Silicon Valley Bank. Okay.
Suze: And they started to be known as a bank that specialized
Suze: in if you were a startup, meaning you were just starting up a tech company for the very first time
Suze: or even if you were an established tech company that continue to need money, money from who? Venture capitalists. And a venture capitalist is somebody who is very, very wealthy or a firm that is very, very wealthy that has all of this money. And they hear about an idea of a tech company.
Suze: The first time they ever heard about Google, the first time they ever heard about Facebook, the first time they ever heard about Airbnb and they are the ones that seed it. They give these companies their seed money, just like a seed that grows a plant, their seed money that allows these firms to get off the ground and grow. And for that investment,
Suze: they own a significant portion of that company. And if that company hits, they make billions and billions of dollars.
Suze: So S V B, the bank
Suze: was the bank that was known if you have a startup, especially in Silicon Valley, which they all were and you were getting venture capital money,
Suze: the place that you were to put that money was where? Into S V B
Suze: does that make sense to all of you?
Suze: So you banked with them and you put all your money with them?
Suze: And really, I think it was at the end of last year
Suze: SVB had approximately 210 billion
Suze: billion dollars in assets, everybody. Money that all these tech startups simply deposited there and it was sitting there waiting for them to use it. Now when one deposits money in a bank or a credit union, that financial institution has to do something with all of that money.
Suze: They have to usually take that money and invest it and what do they invest in? They usually invest in bonds. A lot of treasuries, a lot of different kinds of bonds. And remember a bond is a debt instrument that pays a specific interest rate for a specific period of time. And most bonds, individual bonds have a maturity date
Suze: where the investor knows that they are going to get back whatever amount of money they put in there, they will get that money back at maturity date.
Suze: Between the time they buy it and the bond matures,
Suze: the value of that bond goes up or down depending on interest rates. Do you remember these lessons that I was teaching you all the way back in 2022
Suze: and previously on every show I have ever done.
Suze: So that it's important that you understand that not only are you subjected to when interest rates move and you're invested in bonds, so are the financial institutions that take your deposits, put them into bonds to secure the interest rate that they can give you. Okay, when interest rates were really, really low.
Suze: And there was a period of time. Do you remember when you couldn't even get like 0.5% on the money that you had in a savings account? In fact, many of you still foolishly, truthfully, have your money invested in many banks that are just giving you .6% or less than 1% on your money that is sitting there,
Suze: while they, the financial institution has been able to invest that money and get 2%, maybe 4% on it today.
Suze: But that is besides the point, let's go back to what I was talking about. So when interest rates were really, really low,
Suze: that was at the time when lots of money was flowing into S V B
Suze: because when interest rates were low, remember this, now
Suze: tech stocks were skyrocketing. You had Amazon going through the roof, you had Netflix going through the roof, you had Google going through the roof, you had Apple going through the roof, you had companies like Snowflake and Salesforce and, and Envideo and on and on, going through the roof going to hundreds and hundreds and thousands of dollars a share.
Suze: And so what was happening then? Because the stock price of all the tech companies were going up so much, venture capitalists still wanted to invest in them and they were flowing money into these tech firms so they could continue to grow. They would take that money and put it where? In S V B,
Suze: and SVB had to invest that money at the time when interest rates and bonds were so very, very low.
Suze: And in fact SVB had invested about $21 billion at that time, with an average interest rate at that time of 1.79%.
Suze: Now think about it, have I not been telling you that treasury bills are at about 4%. The 10 year treasury bill is at about 4% right now. And even short term treasuries and certificates of deposit are a whole lot higher than that.
Suze: And this is when the trouble really started.
Suze: Now, as again, I'm just going to say to you remember, I have taught you this concept: when interest rates go up, the value of bonds go down,
Suze: when interest rates go down, the value of bonds go up. Which again is why I was telling you get out of bond funds, especially long term bond funds a year or so ago because we knew interest rates were going to go up, which meant that the value of your bond funds went down. And just like SVB, you saw how the value of your bond funds
Suze: and possibly individual bonds also went down 20 or 30% in value. Now, I want you to put a pin in that for just a second. Now, while interest rates were going up,
Suze: you know, the market was also going down.
Suze: We had many, many Suze Schools on that, that the biggest damage to the market would be done when interest rates continue to go up. Because why invest in the stock market when you could get four or 5% or more without having to risk your money.
Suze: So as interest rates started to go up, what sector of the stock market, everybody, got hit the most? We've talked about this. Do you know, remember it was the tech sector? You saw stocks go from 700 down to 200 down to zero. You saw stocks in the tech sector
Suze: absolutely be obliterated.
Suze: And as they were going down and down in value,
Suze: the venture capitalists started to get not so lenient with their money, they started to say, wait a minute, these stocks are going down way too much and maybe we should just wait a little bit to put more of our money in them. Especially the startups that haven't even been traded yet on the stock exchange
Suze: As the venture capital money started to dry up,
Suze: that caused many other startups who used to use the money that the venture capitalists would give them to pay their bills and everything
Suze: that caused the startups to start using the money
Suze: that was on deposit at S V B to pay their bills.
Suze: Now, SVB in order to meet the withdrawal demands of those clients, they had to sell bonds that had backed those investments. Do you get where I'm going here right now?
Suze: And they needed to sell them at a time when interest rates have been skyrocketing. Right now, we can take that pin out that I had you put in.
Suze: But those bond investments, because interest rates went up, they were all selling at that time for a serious serious loss. Again, think about your own portfolios. And for those of you who had money in bond funds,
Suze: you were down at one point about 30%. Okay. So SVB was selling these investments at a serious loss. So they were starting to run out of money to pay their depositors the request when they wanted money.
Suze: Last Wednesday, SVB announced that they had sold a big part of their holdings at a serious loss.
Suze: And I have to tell you Wall Street did not like that and it really didn't like it when SVB also announced it was going to sell $2.25 billion dollars worth of its shares.
Suze: And when that happened at the same time, that totally spooked all the venture capital people
Suze: who had large sums of money via these startups in S V B.
Suze: And I have to tell you even the other day, as you know, I have a startup by the name of Secure Save dot com and we are not part of this on any level, obviously.
Suze: Even the CEO of Secure Save was telling me the other day how he was on a call with 20 other C E O s of these kind of startups. And everybody was getting calls from their venture capitalists saying if you have money in SVB, we want you to get it out of there right now
Suze: because remember when a venture capitalist invests in a startup, even though it is the startup's money,
Suze: it's really the money and the future of the venture capitalist that put that money there via the startup. Did that make sense to you?
Suze: So, what happened then, because the phone started to ring everywhere, get your money out of SVB. That started a run on the bank. When the run started on the bank, the stock market and the share started to go down and down and down and down and down. And everybody started to freak and that caused people to line up outside to get their money out.
Suze: Now, while all of this was happening. SVB, they tried to find a buyer, they tried to raise more capital to meet the demands of their depositors. But before they could do that, the regulators of California shut it down and placed it in receivership under the F D I C.
Suze: Now, what does that mean for the depositors of S V P? The ones that had their money in there? Listen, if those depositors simply followed the guidelines of F D I C
Suze: Then on Monday they're going to have all of their money. No big deal at all. Everybody, that's why you always want to follow the guidelines of at least $250,000 of insurance for FDIC or NCUA for credit unions. And as I have taught you in past podcasts,
Suze: it is so easy to have so much more than $250,000 of insurance at a credit union or a bank by simply knowing the rules. I mean, I have in some banks and a credit union. I have more than $1 million dollars there
Suze: and I'm not worried about it because the way I structured the account all insured under N C U A or F D I C.
Suze: But those people who did not pay attention in this case to the F D I C guidelines. Yeah, they're in jeopardy right now. However, what usually happens is that obviously those who met the guidelines of F D I C, they will have their money on Monday.
Suze: But once the F D I C is able to actually sell S V
Suze: and we'll see if they can do that or not.
Suze: Those who are outside the F D I C limits, meaning they had more money in there than what F D I C would have covered.
Suze: Hopefully they will also get their money back. However,
Suze: right now, I don't know, doesn't seem like they have any buyers.
Suze: So that's what's happening there. That's why it happened. The real sad part is now many of the new tech firm startups most likely won't be able to pay their payroll. That's when other people that had nothing to do with this really like the workers they get affected. Next, many of you have been writing me saying so Suze,
Suze: how does affect us in Alliant Credit Union?
Suze: Alright. First you have to know that S V B was a commercial bank. They mainly did business with other businesses.
Suze: They didn't really do a lot of business with people like you, they did business with tech start ups. Alliant Credit Unio
Suze: is not a commercial credit union. They are a retail credit union which means they do business with people like you.
Suze: They make loans, yes, but for a house for a car for things like that.
Suze: That's number one, number two, Alliant is not a bank. They are a credit union
Suze: so they have to answer to you, their members, not their shareholders like a bank does. Remember Alliance isn't on a stock exchange.
Suze: You don't see it going up and down in value
Suze: because that's not how it works. Banks, there are many banks and they are on the stock exchange and they go up and down in value like SVB
Suze: according to what their earnings are and how they're doing.
Suze: So again. Aliant, they serve people like you. However, with that said,
Suze: I had a very long talk with Dennis Devine, the CEO of Alliant Credit Union. I did not write him. I did not request that email or the wanting to talk to him. He wanted to make sure that all of you were okay. He wanted to make sure, was there anything
Suze: that the women and Money podcast listeners would want to know? I want you to think about that for a second.
Suze: That's called Integrity. On a Saturday morning for a CEO of a major financial institution to write to say, Suze, what can I do for your listeners?
Suze: Are you kidding me?
Suze: So we had a really, really long talk
Suze: And again, there really wasn't much to say because
Suze: Alliant Credit Union is there to serve you. They invest your money very conservatively
Suze: so that it is there no matter what.
Suze: And if you simply abide by the limits of N C U A, which is the insurance that governs credit unions. Are you kidding me? You have nothing to worry about ever.
Suze: And I posted on the Women and Money app, that calculator that you could use to see how you could get far more than $250,000 of insurance at Alliant. Because so many of you have taken advantage of the certificates of deposit. That Alliant Credit Union is currently offering
Suze: the three month at 4.85% A P Y, the six month at 5% A P Y.
Suze: So many of you are depositing 500,000 - 800,000 large sums of money.
Suze: And you have to know that that money is insured under NCUA and it is so easy to do, it's not even funny. You're married. So you open up one account for yourself. $250,000 of insurance. You open up one for your spouse, another $250,000 of insurance. You open up a joint account
Suze: $250,000 then for each of you. That's $1 million $1 million dollars of insurance on just one account by simply naming up to five beneficiaries.
Suze: And that would be what? A lot of money. So it's so easy to protect yourselves. It's not even funny. You just have to make sure that you abide by the guidelines. And yesterday, I just have to go back to SBV for one second here. Yesterday, I got a text
Suze: from somebody that I just love who is in California. And she says to me, Oh my God, Suze, one of my really good friends is a CEO of a tech startup and he had $37 million SVB and he cannot get it.
Suze: I don't know.
Suze: What was he thinking? What was he thinking?
Suze: Wouldn't matter how interest rate or anything that he was being paid. Why would you ever have that much money in one place that wasn't insured really? Because there's so many ways that it can be done.
Suze: Back to Alliant however,
Suze: I just want to say something about Dennis Devine. I have never in my history
Suze: found a CEO of a major institution and I know I just said this but I am going to repeat it because it is true, everybody. Who cares about you
Suze: as much as Mr Dennis Devine does and because he cares about you, he cares about your money
Suze: and when you become a member of Alliant Credit Union, then it is his responsibility to take care of his members.
Suze: So I have money at Alliant Credit Union. KT did exactly what she said she was going to do. She has money there and I don't have any worries whatsoever. And that is why
Suze: I feel so great about having partnered with them
Suze: for the Women and Money podcast. Really. Everybody I could have chosen anybody. Do you have any idea how many financial institutions and other advertisers line up to sponsor this podcast?
Suze: But for three years now, I have chosen Alliant Credit Union. They didn't choose me. I chose them because I knew that they were the place for you always to bring your money home to. And I seriously hope you have.
Suze: So, what's the lesson here?
Suze: The lesson is bigger isn't necessarily better
Suze: and the lesson is when interest rates go up and the value of bonds go down, it just doesn't affect you. It affects financial institutions that invested this money a long time ago when interest rates were lower.
Suze: So, will this cause a lot more of banks to go belly up and financial institutions to be in trouble?
Suze: I don't think it will be like it was in 2008. Will really small banks possibly or banks that have to do with cryptocurrencies and things like that. Oh yeah, they could be absolutely in trouble.
Suze: But for all of you, you don't have to worry if you continue to do what I am asking you to do, especially if you're doing it with Alliant Credit Union.
Suze: And this is not an advertisement for Alliant Credit Union. This is a plea to all of you to keep your money safe and sound period because as I've told you over the past many podcasts, I don't like what's happening in Cryptocurrency. I don't like what's happening in the stock market. I still think we are in the midst of a bear market and that these markets are going to continue down.
Suze: I think home prices very well now can continue down that we know that the feds are going to continue to raise interest rates.
Suze: So we have been positioned very, very nicely in three and six months,
Suze: maturities in either the certificates with Alliant Credit Union or T bills that I will also say for many of you, I love the thank you emails I'm getting because of how easy it is to buy a certificate of deposit and renew it versus the T bills. I get it everybody. That's why we did it.
Suze: But I've been encouraging you to do short term maturities. We'll see what I think in terms of the I bonds. Again, I keep going back and forth, but I have a whole long time to make a decision and I make my decisions not based on my gut. I make decisions based on hard numeric economic facts. And then I tell you what I think.
Suze: So. That is the story of S V B. Alright, until Thursday when Miss Travis is back with me,
Suze: there's only one thing that I want you to say every single day and that is as follows today. Wherever I go, I will create a more joyful, peaceful and loving world. And when you do that, you will be unstoppable.
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