Thursday, November 30, 2023

Billionaire Bill Ackman is warning the US government that bad things could happen if they allow Silicon Valley Bank (SVB) to go bankrupt without giving everyone who has money deposited in it their money back. He says that if there’s no FDIC deposit guarantee, people will panic and start taking out all of their money on Monday morning.

Ackman’s Monday Warning

Billionaire Bill Ackman, who is the boss of Pershing Square Capital Management, says if the U.S. government doesn’t act fast, they are going to make a huge mistake that will cause big problems. He tweeted this on Saturday and said they have until Monday morning to fix it or else the consequences could be really bad.

The world has finally realized that an uninsured deposit is actually a promise for money from a bank that is no longer working.

Unless investment banks like JPMorgan, Citibank, or Bank of America buy Silicon Valley Bank by Monday morning or the government promises to protect all of SVB’s money deposits, then people will take out most of their savings from every bank except for a few ‘very important ones’. This could make a big difference in the banks and markets!

Billionaire Ackman said that people are starting to take their cash out of banks and put it into the U.S Treasury (UST) accounts because they can get more money in return than just leaving the money in a bank. This action will reduce liquidity from local and regional banks, meaning there won’t be as much money left for them and could cause a collapse of these important institutions.

This week, thousands of businesses that are very popular and successful but still in the early stages, won’t be able to pay their employees. Also, because lots of people are interested in short-term UST (which is a type of investment), the Federal Reserve might find it difficult to raise interest rates in order to slow down the economy.

Ackman Reveals What Went Wrong with Silicon Valley Bank and How to Fix It

Ackman said Silicon Valley Bank’s bosses did the wrong thing by taking people’s deposits and using them to buy something that would give them more money over a longer period of time. But then, when short-term interest rates went up, it caused people to take away all their money at once, which is called a “bank run”.

The billionaire said that not only SVB’s leading staff made a mistake, but the FDIC and OCC also messed up while they were keeping an eye on the banking system. Ackman shared that the two government bodies should have paid more attention to SVB with its $200 billion assets and $170 billion loans from businesses in same industry. He stressed his point by saying:

The FDIC and OCC should not let thousands of businesses with a lot of potential run into destruction. They should also not affect banks’ access to lower-priced deposits. The executive from Pershing Square also found that if one liquidates a business, the depositors should get almost all of their money back (around 98%).

He said the government should guarantee deposits of SVB because it wouldn’t cost much and the consequence of not doing so would be severe. He warned that it needed to be fixed by Monday.

Bill Ackman’s Tweet Shock

Saturday, Billionaire Ackman tweeted that he had been told by a reliable source: people who have their money at SVB could expect to get around half of it back on the Monday or Tuesday of this week and the remaining amount over time within the next three to six months based on its real value. He stressed this point in his tweet.

If what is being said turns out to be true, I think on Monday morning at a lot of banks that are not SIB Banks there might be people rushing to take all the money they have in their accounts out. Nobody wants to risk losing any of their own cash because it won’t do them any good. So if, in our system, we don’t give everyone protection for their deposits in the bank, more and more people will take all of their money out from Monday onwards.

Mr. Ackman declared on Twitter that neither he nor his firm, Pershing Square, have any money invested with Silicon Valley Bank (SVB). But he did say that he has some investments in smaller seed stage venture funds and certain early-stage startups which might have some exposure to the troubled SVB. All those ventures combined make up less than 10% of his total assets.

Do you agree with Bill Ackman? Let us know what you think in the comments section.

Pictures from Shutterstock, Pixabay and Wiki Commons.


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