The World That Was

Adrian Olivier,

Sunday 5 March – Sunday 12 March:

The biggest story of the week is the collapse of two little-known-to-the-public, but highly-important-to-the-global-technology-ecosystem banks. The first, Silvergate Bank, has since 2016 bet big on servicing the crypto economy. Silvergate announced a $1 billion loss on the sale of assets in the fourth quarter of last year, and on Thursday announced that it would wind down bank operations. Bitcoin, Ethereum and other cryptocurrencies plummeted on the news. The other, Silicon Valley Bank (SVB) had specialised in financing start-ups, and at the end of 2022 the bank was the sixteenth largest in the United States by assets under management. It had $209 billion (€196 billion) in assets and $175.4 billion (€164.5 billion) in deposits and is a financial partner for almost half of venture capital-backed technology start-ups in Silicon Valley.

After venture capital investors on Thursday announced fears over SVB’s liquidity, the stock price of SVB Financial Group – the bank’s parent company – cratered more than 60% by market close. On Friday morning the company’s shares were down another 44% in pre-market trading. SVB also announced a $1.8 billion dollar loss in the process of liquidating assets (largely U.S. Treasury bonds) to pay depositors. SVB sold $21 billion (€19.7 billion) of financial securities, losing $1.8 billion (€1.7 billion) in the process. On Friday, U.S. regulators moved to take control of the company, and the bank is now under the control of the US Federal Deposit Insurance Corporation (FDIC). The panic set off a cascade of broader financial and technology sector stock sell-offs.

This was a surprise announcement to investors and has raised fears around the health of the entire banking sector in a climate of raised (and raising) interest rates. On Thursday, the four largest American banks had a collective $52 billion dollars wiped off their market values, while European and Asian markets were also hit – Deutsche Bank hit hardest, losing 7.35%. On Friday, Wall Street Banks managed to recover somewhat in the trading session. British Chancellor of the Exchequer Jeremy Hunt warned that the British tech sector was at serious risk from the collapse. This stunning failure is the largest bank failure after the collapse of Lehman Brothers during the 2008 Financial Crisis. In a tweet, Elon Musk signalled interest (perhaps jokingly) in buying the bank.

In Mexico it was revealed that 4 American citizens (3 men and a woman) were kidnapped by the Gulf Cartel as they travelled into the town of Matamoros (northeast Mexico). The woman was on her way to get a tummy tuck surgery. Their vehicle was hit at an intersection by another vehicle, and armed gunmen exited an SUV before shooting and kidnapping the Americans. A Mexican woman was also killed by a stray bullet about a block and a half away. Mexican security forces found the 4 Americans in a wooden shack on a road to the Gulf of Mexico. Two were found dead, their bodies having since been repatriated to the United States from a morgue in Matamoros. The other two were alive, though one was seriously injured. In a strange twist, the Gulf Cartel issued an apology and turned in the 5 men they claimed were responsible for the kidnapping. The men were tied up and left on the roadside with a letter explaining from the Gulf Cartel that “We have decided to turn over those who were directly involved and responsible in the events, who at all times acted under their own decision-making and lack of discipline,”. The five men had apparently gone against the cartels (famously peaceful…) rules that respect the life and well-being of the innocent.

In the Battle for the Donbass, Bakhmut is still centre-stage. The Ukrainian defence of the city remains determined, though Wagner PMC troops have made slow but steady gains to the north and south of the city. Despite these gains Wagner’s leader Yevgeny Prigozhin has complained of ammunition shortages and silent treatment from the Kremlin and Defence Ministry, declaring a “tactical pause”. There are rumours that Prighozhin, along with Chechen leader Ramzam Kadyrov and General Surovikin attempted to push out Russian Minister of Defence Sergei Shoigu after the Ukrainian counterattack back in August. Surovikin had advocated a strategy to stabilize Russian lines (which he accomplished) and wait for a Ukrainian counteroffensive in the spring. This strategy would involve absorbing the Ukrainian spring counter-offensive – and exhausting Ukraine’s combat power – before launching their own renewed offensive. This strategy was not suitable to the Kremlin, which appears increasingly frustrated by the lack of progress. Surovikin was demoted, replaced by Valery Gerasimov who evidently offered the Kremlin a more attractive offensive plan. The same Gerasimov who led the initial attack on February 24…

On Thursday a Russian missile barrage targeted Ukrainian power infrastructure in Odessa and Kharkiv leaving parts of the cities without power. This is a continuation of a months-long attack on civilian infrastructure by the Russians.

In perhaps the most positive story of the week, Iran and Saudi Arabian announced a diplomatic rapprochement on Friday, restoring full diplomatic relations. The two nations have severed ties with each other multiple times in the last decades, but the news is welcome as it could reduce tensions in the region. The agreement was brokered by China and reflects the growing Chinese influence in the region. The two nations will re-open their embassies and diplomatic missions within the next two months and will increase security co-operation and investment. The White House, which was informed of the talks by Saudis, said it welcomes any moves that de-escalate tensions in the region.

Saudi Arabian oil giant Aramco reported a record annual net profit of $161.1 billion for 2022, up 46% from the previous year on higher energy prices, increased volumes of oil sold and improved margins for refined oil products. Aramco is the most profitable company in the world and plans to increase oil output to 13 million barrels a day by 2027, up from 10.3 million barrels a day in January of this year.

In Pakistan there have been two suicide bombings in Balochistan province in the past week. On Sunday a security official was killed and eight others injured after a vehicle was targeted in a suicide bombing in the port city of Gwadar. The separatist Balochistan Liberation Front – a terrorist group – has claimed responsibility.  On Monday, Pakistani Authorities said a suicide attack against a truck transporting police had killed 9 and wounded 13. The blast happened when the attacker rammed his motorbike into a truck carrying officers returning to the provincial capital Quetta after policing a festival. No group has claimed responsibility for the second attack.

In response to new rules in China to regulate human gene editing, there has been an international outcry by scientists who say they are not enough. The regulations were updated following an outcry five years ago when Chinese scientist Dr He Jiankui, from Shenzhen in Guangdong Province, said he had created the world’s first gene-edited twin girls who were resistant to HIV infection. He was sentenced to 3 years in prison and given a fine. Now free, it was revealed last month that Dr He planned to set up a clinic in Hong Kong to continue researching gene editing. Hong Kong immigration officials rescinded his visa after discovering his criminal record.

Tensions are high on the Korean Peninsula. North Korea launched at least 6 short-range missiles on Thursday afternoon as leader Kim Jong Un (along with his daughter) looked on. This is in response to upcoming joint military drills, called Freedom Shield, held by the United States and South Korea. The military exercises, starting on Monday, will last for 11 days and “will integrate elements of ‘live exercises’ with constructive simulations,”. These will be the largest military drills in 5 years and infuriate North Korea, which sees them as dress rehearsals for an invasion.

The White House is asking Congress for a $886.4 billion military budget for the fiscal year 2024. This includes $842 billion dollars going to the Pentagon and $44.4 billion going towards other federal agencies’ military spending – such as the Energy Department’s nuclear weapons program. This number is likely to edge closer to the $1 trillion dollar mark as President Joe Biden can authorise extra spending – like he has done in funding Ukraine. Secretary of Defence, Lloyd Austin said the funds were necessary to confront China – the Pentagon’s top priority.

In the week ahead:

The Freedom Shield military exercises in South Korea over the next 11 days – and the North Korean response – will no doubt reach more headlines in the coming week, as will the fallout of the SVB collapse.