It’s a funny yet sad spectacle that Joe Biden and company are trying to turn the chaos in Silicon Valley bank – and the crisis engulfing the banking system – into a political win.
It’s funny how BS works for and spins the temporary nature of inflation, or how well it handled the alarmingly chaotic withdrawal from Afghanistan.
Sad because it highlights the outright stupidity of our political class as they face very serious issues about the banking system and the economy that cannot be separated.
Of course, the last word hasn’t yet been written on the collapse of SVB, Signature Bank, the imminent collapse of First Republic Bank, and whatever else is imploding by the time this column appears in the paper.
But one thing I do know for sure is that banking crises require leadership from Washington — something it clearly lacks at a time when it is most needed.
In 2008, we had Treasury Secretary Hank Paulson working day and night putting out multiple fires and coming to an understanding with Congress and the American people about the seriousness of the situation. Today we have Sleepy Joe Biden, the equally sleepy Treasury Secretary Janet Yellen, announcing that bank bailouts aren’t really bailouts because taxpayers aren’t involved.
The government just gave SVB a blank check to cover all depositors, especially venture capitalists in the Gulf region. This means that all accounts are covered by FDIC insurance, even those over the $250,000 limit.
He says bluntly that the money comes from the big banks that contribute to the FDIC insurance pool. Well, but if the banks are financing the fund, they will pass on those costs to the depositors. This means that every person with a bank account, which means almost every American taxpayer, these wealthy VC guys will be earning.
Not too “stressful”.
Then Biden-Whelen said the easing of the Dodd-Frank banking law meant that medium-sized banks like SVB had escaped so-called stress tests that would have exposed their vulnerabilities. They seem to ignore (or more likely have no clue) the dirty little secret that such tests are derisively known in banking circles as “feather tests” because even large risk management challengers like Citigroup seem to pass them.
Another formidable: Biden-Wellen would have us believe the San Francisco Fed had no idea what was going on in the backyard of a bank that had grown exponentially in the three years before it sank.
Again, don’t believe it. The CEO of SVB was once a member of the board of directors of the Domestic Federal Reserve Bank. Whoever had it should have known what the SVB had to do. By many accounts, they were too busy making sure the banks they organized met ESG standards and embraced so-called social justice remedies to pay attention to the obvious risk taking by SVB. One of my sources worked at SVB until a year ago, and here’s how he described the bank’s business model: “Loans to venture capital-backed companies that didn’t make any money, asset-based lines of credit to private equity funds and more. It shouldn’t have been done.” Give him FDIC insurance. This wasn’t a place that gave out loans to construction companies and took deposits from your aunt.”
Yes, the FDIC insurance was supposed to protect small depositors like your aunt, not the tech millionaires who banked with SVB and knew it was a risky business. These tech millionaires (like the Federal Reserve Bank of San Francisco) either knew or should have known that hiccups in the economy like price hikes could doom this bank and possibly others.
As I first reported last week, the big banks now fear that there is yet another mid-sized San Francisco bank about to succumb to the forces of the First Republic market. (See the pattern here?) They poured $30 billion into stabilizing the bank at least for now.
This is because I also heard that the bank may be sold in the coming days to one of the bailout participants. The reason they do this isn’t necessarily because they think First Republic is a great company — rather, they’re so concerned about economic contagion that policymakers have no idea how to deal with it.
The bill comes because of the unserious economic policies that have prevailed over the past two years or more: the unprecedented spending by the Biden administration to turn the US into a quasi-socialist European welfare state and money printing by the Federal Reserve to make it happen.
Every senior bank executive I talk to says the current problems in the financial system could lead to something on the scale of what happened in 2008. They also worry deeply that the banking turmoil is another example of a sleepy Joe & Co. failure. for the job.
Or as someone put it to me: “Where’s Hank Paulson when you need him?”
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