In the wake of the 100% coverage of SVB deposits, what appears to be moral hazard, or cosseting people from their mistakes, has come to mind for numerous folks, including myself. Mitigating this concern, however, is Marcus Weisgerber and Patrick Tucker at DefenseOne:
In the hours after Silicon Valley Bank collapsed on March 10, Pentagon officials who work directly with startups that develop national-security technologies grew increasingly concerned.
Would startups that had money in the bank need to stop work? If that happened, would there be supply-chain disruptions? Would a company under financial stress put its intellectual property at risk? …
“You certainly would have seen the national-security implications for autonomy for AI, for cyber space, a lot of the sectors which are so vibrant right now and could be used to better effect by the Defense Department,” he said. “It would be like cutting the [research and development] for all of those different companies. And you can imagine what happens, right? That means you’re just living on your current product. And as soon as they run out, nothing’s coming.”
It’s an important point, more important than questions about moral hazard. That’s not to denigrate the latter topic, but I’ve always been a firm believer that a philosophy that results in self-extinguishment should be considered inferior, at least in that context.
The above writers go on to suggest that the Defense Department might take the place of SVB, which would frustrate conservative free markets, but there’s nothing magical about the free market. If it presents unacceptable risks in a given context, then best to detour around it.
