We Have a Social Media Problem.

Welcome back. It’s been a crazy month or so and now that things have cooled a bit it’s time to reflect and analyze how tf we got here. I happen to spend a lot of time scrolling Twitter and have personally been appalled at how brazen some of the tweets about the current banking situation are getting. As in, it’s almost like people want bank runs or banking contagion issues?

We have a bank run problem on Twitter - social media is making things move faster and the larger FinTwit accounts need to call this BS out and self-regulate.

Let me explain below. Let’s dive into each time Twitter wildfires hurt financial institutions.

Credit Suisse: The first time - October 2022. 

The magnitude of this one got caught under the radar. The way this started is absolutely f****king ridiculous. On October 1st, 2022, an Australian reporter at ABC, David Taylor, vaguely tweeted “Credible source tells me a major international investment bank is on the brink.” This dude had barely any Twitter followers but this was picked up quickly by the internet and immediately led people to believe that Credit Suisse was on the brink. FinTwit went crazy with memes and on Monday led to a brief selloff in Credit Suisse stock. The tweet got retweeted 6k times and liked 28k times and ofc got widely reported by several other accounts on Twitter.

By Monday, October 3rd, Taylor deleted the tweet. Apparently, the tweet was driven by a single conversation with a financial analyst. A spokesman for ABC said, “His managers have discussed the matter with him and reminded him of the ABC social media guidelines.” Good work team.

The New York Times had a really good piece a couple of weeks later covering how the CS situation unfolded. The FinTwit account known as Wall Street Silver (who has blocked me lol) tweeted on October 1st that “Credit Suisse is probably going bankrupt.” This tweet got retweeted more than 3k times and liked more than 11k times and was another big driver behind the rumor that things were over at CS. When asked by the NYT about why he tweeted, Wall Street Silver said his rationale was “low stock price and memes on Reddit.”

Incredible, that’s absolutely incredible. Accounts with 300k followers can just say they think bankruptcy is happening because of memes on reddit.

During that weekend of October 1st, bank executives had to call clients to reassure them that deposits were fine.

What was underappreciated about this whole ordeal is that it caused a TON of outflows – these tweets caused 110B Francs of outflows!!!!! That’s f***ing insane. Anyone who was doubting here and thinking “Harry ur overreacting about the impact of social media dog” is probs in disbelief. Look at that chart below.

Look obviously, CS eventually did file, and I’ll get to that later in this newsletter – but CS’s shotgun wedding was caused by this March 2023 Twitter craziness rather than this 2022 “on the brink” tweet. This was a completely unprompted and totally separate event that caused significant damage to CS going into an even worse Twitter driven banking issue.

FTX - November 2022 (This was a Scam tho).

Before FTX some other crypto exchanges got caught up in quick social media death spirals, but FTX was certainly the moment where a lot of people were taken aback.

FTX collapsed within a matter of 10 days, but felt a lot quicker. First CoinDesk reported that Alameda Research, the quant fund affiliate of FTX was stuck with $5B of FTT (FTX’s tokens) on their balance sheet, as opposed to USD or ya know, another real currency.

Note – I do think the start of the fall of yield farming tokens started with the SBF interview by OddLots hosts Joe Weisenthal and Tracy Alloway, joined by Matt Levine. During this timeframe, SBF explained that yield farming tokens were boxes that increased in yield when more people put money in them. Matt Levine promptly started laughing and called it a ponzi scheme. It wasn’t long before the yield coin situations at several players like Celsius and Coinflex were scrutinized, and then suddenly fell apart like a house of cards once people started withdrawing money.

In very short order after the article, Binance, led by Changpeng Zhao (known as CZ) took to Twitter and announced Binance would be divesting their stakes in FTT. In very quick order, SBF, who had quite the Twitter presence, started writing regular threads assuring everyone that everything was fine and blamed CZ’s actions as a rival just trying to threaten his business.

During that weekend and early into the week a lot of people were shell-shocked. Depositors tried to withdraw roughly $6B from FTX and the value of FTT fell 80%. There was a rush to withdraw from FTX and FTX was looking for a bailout. Binance initially sought to buy the Company but walked away after a day of due diligence. Within 5 days since the Binance announcement, FTX filed for Chapter 11 bankruptcy protection and SBF stepped down as CEO. Over the next month, it became clear that this was an alleged Ponzi scheme and cesspool of corporate fraud which led to SBF getting arrested.

This is ultimately different from the bank runs we saw in March 2022, but this needed to be highlighted because this chaos on Twitter, especially among the VC and Tech community, served as a precursor to things falling apart even faster at REAL institutions.

Silicon Valley Bank

This was the first real observation of things breaking a lot faster than it did in the pre-social media world. I noted this on Twitter and a lot of people who were around for the Global Financial Crisis acknowledged how glad they are Twitter wasn’t around in 2008.

It’s worth noting though, per a lot of work by Bloomberg that Twitter wasn’t the initial start of the panic – it started with group chats and email chains first before transitioning to Twitter.

Bloomberg found through several interviews that well before the Twitter craziness, VCs and entrepreneurs were ringing up their closest buddies to make sure they got a heads-up to gtfo of SVB. Not long after, warnings were making their way into a 400 person WhatsApp group, an email thread full of 1,000 AZ16 founders, and a 1,500-person Circle group.

There was pretty poor treasury management on SVB’s part, with the bank holding $91B worth of held-to-maturity treasuries, but it certainly doesn’t help when your depositors quickly turn against you.

While group chats and email chains led the crisis, eventually VCs, who are well known as very humble ppl, wanted to gain Twitter Clout. My personal belief is these guys wanted to act like the next Michael Burry or Steve Eisman by boldly calling out this collapse. They also of course were impacted by SVB, given many VCs elected to bank with them, so VCs also probs wanted to loudly argue for an outcome that helps themselves.

Obviously, the chaos spread from group chats to Twitter and suddenly VCs and silver-haired Hedge Fund titans were losing their minds.

Some of the biggest people screaming on Twitter were Jason Calacanis, David Sacks, and Bill Ackman. Jason and Sacks are VCs known for appearing on the All In Pod with Chamath, who is renowned for pumping and dumping SPACs on naïve retail investors.

Bill Ackman ofc is a famous hedge fund titan, but he has seen his credibility slip in recent years with bad Herbalife and Valeant investments. He’s been more recently under fire by the general public for crying on CNBC in the midst of the beginning of the covid-19 pandemic and for bizarrely defending SBF during the FTX fallout. Bill Ackman had some strange SVB tweets and was on Twitter Spaces fielding banking system questions from Grant Cardone? Tf?

One of the loudest people on Twitter was Jason Calacanis, he was on Twitter screaming in ALL CAPS about what was going down. In a now-deleted tweet, Jason went full Arbitrage Andy and called for the end of times.

Ya man, the goofy named startups that don’t solve any actual problems not making payroll was going to lead to the US entering a Mad Max state of play. I had a couple tweets making fun of Jason below.

Ultimately, of course, the situation got resolved on the evening of Sunday, March 12th when the US government guaranteed 100% of SVB’s depositors. Thank you to the brave hero below for your efforts in keeping everyone calm.

VCs quickly pivoted, praising themselves as the heroes while not really grasping that their actions over the past few years or so were a contributing factor to the beginning of a potential banking crisis. And of course, they didn’t realize that this domino falling would start adding question marks around several other banks.

First Republic: Still alive thankfully, here’s a quick note.

As many of you are aware, the situation at First Republic has been up in the air for the last few weeks. The current status is that several banks are evaluating buying them and the government and FDIC are working to support the business. On March 17th, 2023 they received $30B in deposits from other big banks such as JP Morgan. Now we get to watch the stock swing back -10%/+10% consistently every day until a resolution plays out. I don’t have much to say on them, but this tweet below was very very sus. I called it out here.

Very sus activity. Hopefully, we’re able to find an amicable solution with First Republic and VCs can stfu and not make it about themselves for a minute.

Credit Suisse: Round 2

Okay back to Credit Suisse again. They obviously made it through the first Twitter-induced bank run, but couldn’t make it through this one.

People were looking for the next domino to fall and naturally, Credit Suisse was the firm on the shakiest footing. European counterparties began reducing exposure from CS as reported by Bloomberg on March 15th and March 17th.

However, the big issue that cascaded the crisis was a misunderstanding between Ammar Al Khudairy, the Chairman of the Saudi National Bank, and Bloomberg News. Here’s the rundown: It’s been public info since the Saudi National Bank took a 9.9% stake in Credit Suisse that they wouldn’t go above 10% since a variety of Swiss and European rules would kick into place if their equity position increased. This was all public knowledge. Here’s what happened next though – Bloomberg asked Mr. Al Khudairy if they would invest more equity and received an astounding, definitive “Absolutely Not.” Mr. Al Khudairy quickly elaborated to say the reason they wouldn’t invest further was because of the regulatory issues I just laid out. Unfortunately, the tone in which “Absolutely Not” was said was highly negatively received and several news organizations ran with the “Absolutely Not” headline, with the elaboration then explained in a news article. A lot of people ran with the headline though and that spooked depositors and market participants.

I highlighted the chaos here - but the damage was done. Credit Suisse and UBS were sent to a shotgun marriage by the Swiss National Bank and now UBS is looking to reduce headcount (the new Company is 116k people) by 20%-30%. As for Al Khudairy, he resigned from his position on March 27th, 2023.

And boom, just like that a storied financial institution went down. This one certainly hit the hardest among the FinTwit and FinMeme communities as CS was a BB and didn’t need a bailout after the Global Financial Crisis. But after a terrible decade riddled with scandals, the Company’s demise was gradual, then sudden.

The failed efforts (thus far) on Deutsche Bank and Charles Schwab.

There have been other attempts on FinTwit to seek out a banking contagion or look for the next domino to fall. During the weekend of March 24th, it almost felt like people were looking for the next big financial institution to go under. There were calls that Deutsche and Charles Schwab CDS trading wider (both are investment grade btw) was going to spark the next banking crisis!! I called it out here. Thankfully, nothing has materialized.

I mentioned Twitter a lot, but YouTube doesn’t really seem to be helping either. YouTube video covers are known to be highly exaggerated, but the photos below are ridiculous. I watched the Graham Stephan one and it was pretty sensible, but the photo makes it seem like “it’s so over”. Maybe YouTubers need to chill tf out too?

What Now?

Lastly, another recently fearmongered item is de-dollarization, which is pretty much only being pumped by alternative news sources. De-dollarization means other countries are seeking to substitute and replace the USD as a peg or a way to trade commodities. The Countries that are being suggested as floating this are US rivals who certainly aren’t known for having very reliable or stable currencies on their end. So that whole thing seems pretty telling. It feels like sometimes FinTwit accounts are actively pushing anti-US narratives. I called it out here. I will let that linger.

Here’s a question though – are memes part of the problem? I wouldn’t think a meme poking fun at how Silicon Valley Bank is going to heaven with Harambe or posting a Bill Hwang meme directly deteriorates the situation at Credit Suisse and SVB. Look, if people come out and say “Hey Harry or other memer, this meme/tweet is actively making this bank situation worse!” then I think it’s worth thinking about, but that hasn’t been happening since most of meme/content FinTwit is referencing news articles, joking around constantly, and is never really taken seriously. I have yet to see a meme where I’ve thought “this is causing a bank run” my reaction has more so been “This meme is making light of the situation and this is an obvious joke” – the issue has more so been a FinTwit thought leader is exacerbating the situation and riling up most of people who follow xyz thought leader for their “accurate” takes.

IMO – the issue lies with the thought leaders of FinTwit, who are supposed to be guiding FinTwit, particularly retail/general FinTwit, are providing opinions that are conveyed as statements of facts. Several accounts on Twitter like to scare people for the sake of eyeballs, clicks, and more newsletter subscribers. I and many others don’t resort to these scare tactics and love to call out the BS.

Next steps – the sensical ppl on FinTwit need to continue to call out the bad actors.

You saw a lot of this during the Silicon Valley bank run. A lot of prominent FinTwit accounts were calling out the VCs that were going berserk. Sensical ppl on FinTwit are also calling out the accounts that were freaking out over Charles Schwab 5 year CDS widening by 20bps to 125bps…. For anyone that hasn’t traded or tracked CDS that needs a primer, that is well within market investment grade trading levels and not an identifier of “significant distress”.

Beyond FinTwit, look, we need more regulatory eyeballs looking at Twitter for market-moving tweets. It’s becoming clear how much sway a few 300k accounts can have at gaslighting more naïve investors and potentially causing bank runs. Right now a lot of the Tweet issues have been confined to Elon Musk’s “Funding Secured at 420” tweet and some of the Zach Morris and Co. alleged pump and dumps, but I’m a firm believer that we now need more eyeballs to take a look at social media.

So am I arguing that regulators need to start taking a deeper look at the tweets of big accounts? Ya, I honestly am. Will that happen or should it happen? Idk, it definitely won’t happen in a fast fashion and the last thing we’d want is overregulation. But look, think back to that first run on Credit Suisse - over 110B Francs in outflows due to a rumor from a vague tweet. Clearly social media is having an impact here. How much of an impact is something obviously up for debate, especially since retail investors and people on Twitter don’t have the biggest checkbooks. Still, I’ve laid out enough to show that it is having a meaningful impact.

Think at how quickly these banks unraveled – it was all over for some banks over a weekend or in a matter of a few days. The SEC cannot act fast enough and really frankly isn’t incentivized to move quickly either. It’s really only the Treasury that needs to be willing to act quickly, but their solution comes from supporting/bailing out/helping (whatever you want to call it) the banks that ran into trouble rather than addressing what caused the shakiness in the first place.

Who else could provide a solution beyond regulators? What about Twitter? Maybe Twitter can add more community notes saying “Hey this tweet isn’t accurate and is fearmongering, here are the actual facts”. That seems much more viable and they did that to some Jason tweets. However, it doesn’t help that the owner of Twitter (Elon obvs) is continually saying “wow so true, this is a problem” to the biggest fearmongers on FinTwit. The community notes idea coupled with other more serious FinTwit accounts calling bullshit on the fearmongers are probably the best and fastest solutions that can be enacted currently. In conclusion, I think the best thing we can do for now is to self regulate and make it clear that some FinTwit accounts are actively trying to fearmonger rather than be a straight shooter.

So hey, if you see someone prominent on FinTwit trying to stir up fear and chaos, lmk. I’m happy to go after them and call them out on their BS.

That’s all for now.

Best,

HYH