Two definitions

The story of Silvergate Bank is a tale of two definitions. Silvergate started out as one of the very few modern banks… maybe the ONLY modern bank… that followed the CORRECT definition of a savings bank. They failed because they tried to follow the CORRECT definition of a bond in a world where everyone else was using a totally lunatic INVERSE definition of a bond.

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Correct definitions:

A savings bank solicits deposits from individuals or businesses. It holds the deposits safely, buys safe bonds with the deposits, and gathers the interest from the bonds. It then pays part of the interest to its depositors and keeps part as profit. The Postal Savings Bank functioned this way and the Soviet savings banks did the same. Silvergate functioned this way, soliciting real money deposits from fake money bitcoin businesses who had swindled their customers. Silvergate was not swindling the swindlers.

A bond is a contract for a fixed term of years, essentially a loan from buyer to seller. The buyer KEEPS the bond contract for the years specified. The seller pays a fixed rate of interest, either during the term or at the end; then returns the principal to the buyer at the end of the term. The buyer does not consider the contract to be a sellable asset.

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Bizarre lunatic modern definitions:

A “bank” solicits money from depositors, but DOES NOT PAY INTEREST on the money and DOES NOT KEEP the money. Instead, it gambles the money away on wild idiotic sucker bets and sucker speculations, then relies on the federal insurance system to bail it out after it loses all the deposits.

A “bond” is a reverse contract. The buyer pays the seller, then sells the contract long before the maturity date, at a price which is the reciprocal of the interest rate. If the interest rate is high, the “bond” becomes worthless. If the interest is zero, the “bond” is worth an infinite amount.

Nothing else in the world works this way.

If the car market worked like the “bond” market, a brand-new car that runs perfectly would be worthless and unsellable, while a burned-out hulk would be an infinitely valuable Classic.

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When Silvergate started to lose money, it tried to gain more cash by selling its treasury bonds AFTER the central banks had turned away from ZIRP. The interest on the bonds was going up, which should have made them MORE valuable as drivable vehicles. Because the modern “bond” “market” functions insanely backwards, these better-performing bonds were now worth much LESS than their face value, so Silvergate lost even more money.

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Update 3/8: Well, I spoke too soon. Silvergate has switched to Modern Bank Mode. They’re begging FDIC for a bailout.

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And just a few hours later: FDIC amazingly said FUCK OFF, and Silvergate is shutting down RIGHT NOW!

We are definitely in a new economic world, and it’s a much BETTER world. The central banks have stopped counterfeiting, and the regulators have started regulating!