It took less than 48 hours for Silicon Valley Bank to collapse. This is partly thanks to the many online and email discussion groups that startup founders participate in.
Sara Mauskopf is part of many technical discussion groups – on WhatsApp, Slack, Signal and Telegram. Some are small and only have industry friends; some are groups for tech moms and people building parenting businesses. Mauskopf’s company, Winnie, connects child care providers and families. She’s also in a larger WhatsApp chat full of founders.
“That one is a private group, but I’m just not allowed to say the name of the group,” she said.
Usually, Mauskopf said these groups are full of chatter, gossip, humor and a bit of business advice. But last week, the tone suddenly changed.
“It all happened so fast, and I’m switching back and forth between all these different apps,” she said.
The messages were coming at lightning speed: Withdraw your money from SVB. It was hard to know how to react. By the time she went to withdraw her money, SVB had closed.
Word of mouth is how banks always started, according to Richard Grossman, who researches banking history at Wesleyan University. A rumor – true or not – creates chaos.
You may remember black-and-white images of “depositors lined up outside banks,” he said. “The stories you would see from the 1930s.”
Back then, we collected and gathered information differently. This means that the fallout has been slow and steady.
“News would be piling up on conventional news sources and banks were closing in a number of places over the weeks,” Grossman said.
Today, bank runs are different. With SVB, Grossman said more money was withdrawn within hours than during the 2008 banking crisis.
It’s because of the ease and pace with which we share, said Jonah Berger, the author of “Contagious: Why Things Spread.”
“So one person shares the information. It can make someone else more likely to withdraw their funds, making the bank even more likely to collapse than it otherwise would have been,” he said. “And so once things like this start, they’re sometimes hard to stop because they almost become self-fulfilling prophecies.”
And those conversations turn into a feedback loop of confirmation bias. People spread the same rumors in different groups.
“Possibility anxiety can sometimes overtake the truth because people share it because they’re anxious, and they want to know if it’s okay or not, and they’re excited, and they want to take action,” Berger added.
“I definitely felt irrational, like, ‘Oh, my. We have to do something now’ — like freaking out,” said Stella Garber, who runs management software company Hoop.
Garber said she is aware of the pitfalls of participating in these group chats. But she plans to stay there. When the government announced that it would protect SVB depositors, it was like being part of a team.
“It was euphoric,” she said. “I got, like, probably 50 text messages, DMs, all the same groups, people supporting each other.”
And the group chatter didn’t stop. Now he focuses on banking advice.
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