Don’t Let Silicon Valley Die

As reported on Bloomberg, banks are now approving large home loans with with zero downpayment in Silicon Valley. Yeah, we saw this before but with smaller loans in the last housing bubble. This new instance has been touted as an innovation of sorts to let people buy in a place where the real estate prices have risen by obscene amounts to obscene levels in an obscenely short period of time. The “innovation” is to take into account the future income and wealth. Yeah, that’s supposed to be already the way with all loans. But some additional accommodations are being made in SV mainly because companies, larger ones, have lobbied in “helping their employees with the problem”.

But that’s a mistake.

It’s good short term for the larger companies but disastrous for the smaller ones and startups and for everyone long term and it will lead to the end of SV as the center of innovation.

Here’s how it goes:

Big companies lobby banks and lenders to make it possible for their employees to get loans which are ridiculous. The loans force those employees to buy when they shouldn’t. That drives the demand in the market which further raises the prices. That’s one cycle. It’s well understood and nothing new here.

The next cycle is what happens to the employees after they get the large mortgage and it’s less thought about. These employees have now put themselves in behind the 8 ball. They are in a situation where they need that employment to keep their unaffordable living situation. That makes them play it safe and keep their heads down and keep that job. They censor any thoughts of risky ideas that might lead to something great. They’re working for the man because they feel like they have to. This might benefit Google or Facebook or Apple in the short term as they get this indentured loyalty from their employees. But the system loses in the process.

And on top of that, those who used to move to the area to tinker with ideas surrounded by others who tinker with ideas now need a job before moving there. It’s no longer affordable to hangout and tinker. You have to be working. And most likely, working for the bigger employers who pay a secure enough salary rather than risky equity because you can’t pay your large rent bill with Uber options or your “lean startup” equity.

Fact is that a lot of startups get created by 24 year old engineers who have not worked long enough to have decent savings. Add a student loans and a large rent to their monthly cash needs and you get a situation full of stress and little space for creative thinking. It gives them a very short leash.

So while it seems like the banks are helping, they are killing the goose that laid the golden egg for one last orgasmic omelet of cash.