Team Biden launches BS bank – but you can’t spin this debacle
It’s a funny but sad sight that Joe Biden & Co. are trying to turn the Silicon Valley Bank mess — and the crisis engulfing the banking system — into a political victory.
It’s funny because the BS works just as well on the transient nature of inflation, or how it handled the alarming and chaotic pullout from Afghanistan.
Sad because it underscores the sheer stupidity of our political class as they face very serious issues regarding the banking system and the economy that cannot be hijacked.
Of course, the last word has yet to be written on the collapse of SVB, Signature Bank, the near-collapse of First Republic Bank, and all that is imploding as this column hits the papers.
But one thing I am sure of is that the banking crises require leadership from Washington – things that are so obviously lacking at a time when they are so desperately needed.
In 2008, Treasury Secretary Hank Paulson was working day and night to put out multiple fires and level the gravity of the situation with Congress and the American people. Today we have Sleepy Joe Biden, his equally sleepy Treasury Secretary Janet Yellen, announcing that bank bailouts aren’t really bailouts because taxpayers aren’t involved.
The government just handed SVB a blank check to cover all of its depositors, mostly left-leaning Bay Area venture capitalists. This means that all accounts are covered by FDIC insurance, even those above the $250,000 limit.
He says bluntly that the money comes from the big banks that contribute to the FDIC insurance pool. Agreed, but if the banks finance the fund, they will pass on these costs to the depositors. This means that everyone with a bank account, which means pretty much every US taxpayer, will make these wealthy venture capitalist types safe and sound.
Not very “stressful”
Biden and Yellen then say that the weakening of the banking law known as Dodd-Frank meant that mid-sized banks like SVB were spared the so-called stress tests that would have exposed its weaknesses. They seem to ignore (or quite possibly have no idea) the dirty little secret that these reviews are derisively known in banking circles as “feather tests” because even big, tough risk management cases like Citigroup seem to succeed in them.
Another lie: Biden and Yellen want us to believe that the San Francisco Fed had no idea what was going on in its backyard with a bank that grew exponentially in three years before it went under.
Again, don’t believe it. SVB’s CEO was a board member of his local federal bank. Everyone who should have known what SVB was doing did. And in many ways, they were too busy making sure the banks they regulated adhered to ESG standards and adopted the so-called social justice remedies to care about SVB’s obvious risk-taking. One of my sources worked at SVB until about a year ago, and here’s how he described the bank’s business model: “Lending to venture capital-backed companies that weren’t earning cash, asset-based lines of credit for private equity funds and little else. He should never have been insured by the FDIC. It wasn’t a place that gave loans to construction companies and took deposits from your aunt.
Yes, FDIC insurance was supposed to protect small depositors like your aunt, not the dice-rolling tech millionaires who banked at SVB and knew it was risky business. These tech millionaires (like the SF Fed) knew or should have known that a hiccup in the economy like rising rates could doom this bank and possibly others.
As I first reported last week, the big banks are now panicking about another mid-sized bank also in San Francisco about to succumb to market forces named First Republic. (See a pattern here?) They contributed $30 billion to stabilize the bank at least for now.
This is because I have also heard that the bank could be sold in the next few days to one of the bailout participants. The reason they’re doing this isn’t necessarily because they think the First Republic is great business – rather, they’re seriously worried about economic contagion that policymakers don’t know how to handle.
Do you remember 2008?
The bill is running out for the unserious economic policies of the past two plus years: the Biden administration’s utterly unprecedented spending to transform the United States into a quasi-socialist European welfare state and the printing of money by the Fed to make that 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 have serious concerns that the banking tumult could be another example of Sleepy Joe & Co. ready for work.
Or as someone once remarked to me, “Where is Hank Paulson when you need him?”