There's Nothing to Learn from Silicon Valley Bank

Just more reinforcement that we know nothing

I’ve been obsessed with this Silicon Valley Bank story. It’s the perfect horror story to pique my anxiety-ridden brain. This weekend, I kept thinking about scenarios: what if my company is tied up in this? What happens if I don’t get paid next week? Do I still have a job? Where is my money right now, safe in the bank?

It’s the closest thing I’ve had to an existential crisis since the onset of COVID-19. Truly a rush, made for a fun weekend of thinking about the “what-ifs”, as unlikely as they were to happen.

I think the lasting impression this event is going to have on me is the pure chaos we live in. I’ve been reading Everyday Chaos, a book that dives into the theory of chaos and how society adapts to an unpredictable environment. It’s impossible to predict human behavior. Gather all the data you want, you won’t be able to predict exactly what happens. This black swan event that happened over the weekend perfectly encapsulates that chaos.

Here are my key takeaways from the chaotic weekend.

Hindsight has limited practicality

I’ve read my fair share of articles analyzing the events leading up to the downfall of Silicon Valley Bank. But I don’t think there’s a ton to learn coming out of it. This event appears to just kind of happen.

This could just be my simpleton brain at work here, but let’s walk through the events that happen. The pandemic hit, the economy was forced to go remote, and tech boomed. VCs saw the opportunity and poured money into startups. As the preferred bank for many VCs, Silicon Valley Bank saw a huge increase in deposits. Being financially savvy as a top tech bank, SVB put that money in safe investments: long term bonds.

In parallel to this, as the pandemic hit, the economy was in fragile state. Supply lines were crippled, logistics for goods was out of whack, and the whole world economic system was in shock. Government subsidies poured in to keep the economy churning, and slowly businesses recovered and adapted to this new post-pandemic world. But with the new money flowing from both the government and VCs, inflation increased (and there’s probably countless other factors one can argue that led to inflation, but its a chaotic system that no one can predict, which is my point here). 

Increased inflation led to higher interest rates, and now two things happened that doomed Silicon Valley Bank. First, their safe, long-term investment in bonds lost value. Second, money was harder to get so SVB’s customers started withdrawing more than usual, forcing the bank to realize the losses in their investments. Report those losses, VCs get scared, and just like that, all the money is gone.

Lots of interesting events and decisions were made along the way, but I’m left wondering what should Silicon Valley Bank, or anyone, done differently in this scenario. You could probably prevent this particular outcome by adjusting a few decisions here and there in the timeline. But the system we live in is chaos, and there’s no way of knowing if the alternative outcomes put us in a better place.

Using hindsight to inform future decisions is fine, but it has its limits. While I’m sure the events of this past weekend will shape how I make financial decisions going forward, I doubt anything I do can prevent myself from being a victim to bad luck.

Flexibility beats Planning

So if I can’t use my hindsight to make better decisions going forward, I’m better off putting myself in a position to be flexibility. Rather than put more effort into understanding more about the world around me so that I can plan better, I’m embracing that I know less than what I’m comfortable with. I need to roll with the punches.

This is quite applicable to software engineering, as is everything. It’s just way too tough to fully know how software will work and be received by users. You need to be prepared for the unexpected. The way to prepare for that is not gathering more information so you can plan better and direct the course of the future. You need to roll with the punches.

In my day to day, I don’t need to worry about a Silicon Valley Bank going underway, taking all my money with it. But I do have to worry about a feature I’m writing to be obsolete and not wanted by the time I finish. I have to worry about 3rd party packages losing support overnight. Maybe tomorrow, AWS US East 1 region will go down again. I can’t really plan for these sorts of events happening with a solid degree of accuracy.

The best I can do is to adapt to the chaotic environment around me.