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Fund started by Trump-supporting Silicon Valley billionaire led fatal run on bank.
What role did the self-described "libertarian" venture capitalist play in SVB's collapse?
Gage Skidmore / Wikimedia Commons
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Peter Thiel, the multi-billionaire Silicon Valley venture capitalist who in 2016 emerged as one of the most prominent supporters of then-candidate Donald Trump, wrote a now-infamous essay in 2009 attempting to explain his self-described “libertarian” political philosophy. That essay published by the libertarian CATO Institute think-tank, is best-known for Thiel’s declaration that, “I no longer believe that freedom and democracy are compatible.”
He made another remark in the 2009 essay that now seems relevant in light of the Silicon Valley Bank collapse.
In a list of grievances included in Thiel’s CATO essay, titled “The Education of a Libertarian,” was his complaint that people are “forced to bail out reckless financial companies”—comparing that practice to government-sponsored torture.
Fourteen years later, Thiel himself may have ignited a run on Silicon Valley Bank that caused the 40-year-old bank to spiral into insolvency and inevitably ended with a government bailout.
The Multi-Billionaire Gets a BailoutThiel has pleaded his innocence, telling the Financial Times that $50 million of his own money remained in a personal account with SVB, an account that was frozen when the federal government assumed control of the suddenly defunct bank on March 10. The 55-year-old Thiel, whose personal net worth according to Forbes sits at $4.2 billion, told FT that he left his personal money in SVB because he did not expect the bank to go under.
Of course, he’ll be able to recover every cent of that money from the Federal Deposit Insurance Corporation thanks to the type of government intervention that Thiel, according to his own writings, finds intolerable. The FDIC, Pres. Joe Biden announced on March 13, will pay back all depositor funds even though under law FDIC insurance covers only up to $250,000 per deposit.
Did Thiel leave his money in the bank knowing the bailout would happen? Did he know that he’d get his full $50 mil back? There’s no way to know for sure because Thiel, unlike many of his fellow tech industry investors, stays off Twitter, grants only occasional interviews, and has been described as “Silicon Valley’s most secretive man.”
Another conservative venture capitalist and former PayPal exec when Thiel was CEO, David Sacks—who later co-authored a book with Thiel attacking the concept of “diversity”—and several other tech investors took to Twitter to throw what one commentator called a “weekend-long hissy fit.” Sacks and others demanded that the government step in to rescue SVB depositors, issuing dire imprecations of a nationwide run on banks that would cause a 2008-style meltdown.
According to financial analyst and former government regulator Daniel Davies, in an interview with The American Prospect, venture capitalists armed with their own billions, could have easily teamed up to keep the bank afloat in a private rescue of the sort that has happened in other countries. But they didn’t do it, according to Davies, because that would make the VCs bank owners and therefore subject to stricter government regulations.
Did Thiel Spark the Run on SVB?
Among his various financial ventures, Thiel is a founding partner in Founders Fund, an $11 billion venture capital fund that has invested in a wide range of tech firms including such familiar names as AirBnB, Spotify, Lyft, Postmates and Affirm.
Founders Fund also kept a significant amount of cash in Silicon Valley Bank. Exactly how much is not exactly clear, but it was a lot. On March 9, the fund wanted to put even more into the bank, instructing its investors to make new deposits into SVB to prepare for a new investment project.
But something was wrong. The transfers weren’t going through.
According to an account by the online publication Axios, the fund’s top executives started making calls imploring investors to get their cash out of SVB and into bigger, safer banks. By late Thursday morning, Founders Fund had drained all of its SVB accounts, and had no “exposure,” as financial folks like to say, in SVB's imminent failure.
Thiel’s involvement in the fund’s sudden abandonment of SVB remains somewhat murky. According to Axios, he was not involved in the calls telling investors to pull their money, and which led numerous other firms with large deposits to pull those as well. In the end, the run on SVB totaled $42 billion and left the 40-year-old bank essentially bankrupt. By the close of the day, state regulators had shut down SVB and turned it over to the federal government.
Founders Fund CFO Neil Ruthven told Axios that the fund was simply trying to protect its assets and acted “in line with our fiduciary duties.” But that failed to quiet rampant speculation—without any real evidence—that Thiel and Founders Fund had set off the bank run on purpose, for some unknown reason. What could that reason be?
Who is Peter Thiel, Anyway?
Thiel, along with Elon Musk, founded the groundbreaking online payments service PayPal in 1998 (when it was called Confinity) and sold it to eBay in 2002 for $1.5 billion. He was also the first major outside investor in Facebook. Those two resumé items alone would have made Thiel a Silicon Valley legend. But it is Thiel’s right-wing political views and activities that have brought him to the attention of the wider American public beyond the technology industry.
As a Stanford University undergrad, he co-founded The Stanford Review, a conservative student newspaper that, thanks to continuing financial support from Thiel and other conservative Stanford alumni, still exists after more than 30 years. The publication regularly railed against what Thiel and his comrades saw as out-of-control left-wing “political correctness.”
In 1995, Thiel and Sacks published a book titled The Diversity Myth: Multiculturalism and Political Intolerance on Campus. The book focused largely on the same bugaboos that vexed Thiel at Stanford.
“We need to have the courage to confront ‘multiculturalism’ and ‘diversity’ honestly,” Thiel and Sacks wrote in a foreword to the book.
By the time he wrote his 2009 CATO essay, Thiel had become disillusioned with any form of government at all. The previous year, he donated start-up cash to a group called The Seasteading Institute, founded by the grandson of conservative economist Milton Friedman. The “Institute” is dedicated to building offshore cities on artificial islands in the ocean where they would be (at least in theory) free from the laws or controls of any government and able to create their own libertarian societies from scratch.
“The nature of government is about to change at a very fundamental level,” an enthusiastic Thiel gushed at the time.
At least, Thiel said he was disillusioned with governments and their pesky laws. In reality, he holds citizenship in three different countries: Germany, where he was born and visits frequently, the United States where he was naturalized in 1978 at age 10, and New Zealand which granted his citizenship despite the fact that Thiel had spent only 12 days in the country.
New Zealand law requires an applicant to spend 1,350 days there in the five years before being awarded citizenship. But Kiwi authorities cited “exceptional circumstances” to gift Thiel citizen status there in 2011.
Palantir, another software company founded by Thiel and where he still acts as board chair, is highly dependent on government contracts, particularly with intelligence agencies such as the U.S. Central Intelligence Agency and National Security Agency.
One of Palantir’s initial investors was In-Q-Tel, a Silicon Valley venture capital firm owned and funded by the CIA and, therefore, by government taxpayer dollars. In 2019, during Trump’s presidency, one study found that Palantir had more than $1.5 billion in government contracts including $1.1 billion with the U.S. Department of Defense.
Thiel and Donald Trump
Far from abandoning society to go live on an artificial island, Thiel deploys his Silicon Valley-made fortune to play power broker in the world of right-wing politics. In 2012 he poured $2.6 million into a SuperPAC that supported the presidential campaign of libertarian Ron Paul. He backed Paul despite revelations early in 2012 that Paul in the 1990s ran a business publishing political newsletters brimming with racist, anti-Semitic and anti-gay content (Thiel himself is gay).
That same year he also funneled $1 million into Club For Growth, a SuperPac that supported candidates and activism associated with the Tea Party, a right-wing movement that foreshadowed the political rise of Trump a few years later. Texas Republican Senator Ted Cruz won election in 2012 with financial backing from Club For Growth.
Cruz ran for the Republican presidential nomination in 2016, but Thiel backed a different candidate. In a year when 95 percent of tech industry employee political contributions went to Democrat Hillary Clinton, Thiel threw $1.25 million into backing Donald Trump. So excited was Thiel about Trump that he threw aside his usual determination to keep a low public profile and delivered a speech at the Republican National Convention, where Trump was officially nominated.
Thiel did not donate to Trump in the 2020 campaign—but he poured plenty of cash into Trump-affiliated MAGA candidates in other races. He gave another million to Club For Growth in 2018, and in 2022 he spent more than $10 million to support Ohio Senate candidate and Hillbilly Elegy author J.D. Vance. Vance won his race. Blake Masters, another extreme-right candidate who ran for Senate in Arizona did not. Masters lost to former astronaut Mark Kelly, the incumbent Democrat, despite a whopping $13.5 million worth of backing from Thiel. In all, the Silicon Valley billionaire backed 15 Republican candidates with another $25 million, according to some estimates.
Could Thiel’s company have initiated the run on SVB as a way of undermining Biden and supporting Trump’s 2024 bid to regain the White House? The question seems far-fetched, though Thiel’s affinity for Trump is well-established. But if that was the motive, or one of them, it didn’t appear to work. According to early polling, 64 percent of Americans, including 62 percent of all Republicans in a YouGov survey of more than 10,000 adults, said they supported BIden’s decision to “bail out customers who had deposited money with Silicon Valley Bank.”
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