Biden’s bank failures include this biggest monetary policy mistake in half a century

The failure of three banks in the past two weeks, including Silicon Valley Bank on Friday and Signature Bank on Sunday, is a saga of utter government incompetence. Call these banking meltdowns Biden banking busts. The Biden administration is obsessed with woke causes while the banks teeter toward insolvency.

Three days before the Silicon Valley Bank collapsed, Treasury Secretary Janet Yellen warned that climate change was putting the banking industry at risk. Yellen was in la-la country, speculating that future storms and tornadoes could diminish the value of bank assets.

Weather is a risk, but she was oblivious to the much more immediate problem facing banks – the plummeting value of the bonds they hold. She was oblivious to the impending fall of SVB and possibly several other smaller banks that had bought long-term bonds when interest rates were near zero.

In 2022, after doing nothing to control inflation the previous year, the Federal Reserve raised rates several times to compensate for its earlier inaction. These rapid rate hikes, the most drastic in decades, have devalued bank bonds.

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A week before Yellen’s rant on climate change, Moody’s Investors Service had already delivered bad news to SVB that it was about to be downgraded several notches because its bond inventory was not worth enough to repay debts. depositors. A day before Yellen’s goofy speech, Federal Deposit Insurance Corp. Chairman Martin Gruenberg also warned that the dwindling value of bonds held by banks meant a $620 billion problem ahead.

The Office of the Comptroller of the Currency, part of the Yellen Treasury, is responsible for reviewing the financial condition of banks. He failed to prevent the collapse of the SVB.

Yellen has been an outspoken campaigner for climate change, women’s rights and diversity, including appointing the Treasury’s first-ever racial equity officer. Apparently, the hordes of bureaucrats who work under him are also too busy with seminars on diversity, equity and inclusion to keep the banks from failing.

As the SVB crisis unfolded, Yellen was MIA. Now, she says she is watching several banks “struggling with the price boost” of their bonds.

Financial experts warn that smaller banks are in for a rough ride, though big banks like JPMorgan Chase, Bank of America, Wells Fargo and others aren’t likely to face trouble.

True, the leaders of SVB made mistakes. The first rule of banking is that assets must match deposits. If depositors can demand repayment at any time, then it is risky to use their money to buy long-term bonds. SVB had to sell $21 billion worth of bonds at a clearance sale, recording a loss of $1.8 billion.

Trading was suspended on Friday on the shares of several smaller banks whose share prices plunged over fears they were in the same situation. On Sunday, New York banking regulators closed Signature Bank.

President Joe Biden has created the perfect storm for what could become a series of bank failures. In 2021, he lied about inflation, saying it was temporary and “no serious economist” saw it as a threat. Yellen and Federal Reserve Chairman Jerome Powell, whose first term was about to expire, followed Biden and did nothing to lower prices. It was the biggest monetary policy mistake in half a century.

Then, in March 2022, the newly renamed Powell launched an aggressive rate hike to remedy what The Wall Street Journal called “a boondoggle largely attributable to the Fed.” As rates rose rapidly, startups could no longer afford to borrow and instead began withdrawing bank deposits. Without regulatory intervention, the fall of SVB was almost a foregone conclusion.

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On March 7, Powell predicted that the Fed “will likely pick up the pace of rate hikes” to keep inflation down. A task made more difficult by the budget proposal of our spending president, which is an inflation accelerator.

As rates rise, more banks could be in trouble. Continued government incompetence is not an option.

Mr. President, get rid of your awake minions and appoint competent people. Our money and our jobs are at stake.

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On Sunday evening, Biden said he was “strongly committed to holding those responsible for this mess fully accountable.” Look in the mirror, Mr. President.

Instead, he looks at the list of Democratic campaign donors and rushes to bail them out. Ninety-eight percent of all political contributions from people who worked in internet companies went to Democrats in 2020. People in Silicon Valley paid nearly $200 million for Democrats. It’s no surprise that the Treasury and the Fed are offering bailouts whether they use that word or not.

Biden’s reckless spending and inept monetary policy are behind this string of bank failures. And John Q. Public will end up paying one way or another.

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