Charles Gasparino
Opinion
March 18, 2023 | 9:27 p.m
Charles Gasparino discusses why the US economy needs strong leadership in Washington at a time of multiple bank failures.
Only Photo via Getty Images
It’s a funny but sad spectacle that Joe Biden & Co. are trying to turn the chaos at Silicon Valley Bank – and the crisis engulfing the banking system – into a political victory.
Funny because the BS is as good as its lunatic about the temporary nature of inflation or how well it’s handled the alarmingly messy pullout from Afghanistan.
Sad because it underscores the downright stupidity of our political class as they face very serious banking and economic problems that cannot be slung away.
Of course, the final word on the collapse of SVB, Signature Bank, the near-collapse of First Republic Bank, and whatever else will implode has yet to be written when this column appears in the paper.
But one thing I do know for sure: Banking crises demand leadership from Washington – things so obviously lacking at a time when it is so much needed.
In 2008, Treasury Secretary Hank Paulson worked day and night to put out several fires and to speak to Congress and the American people about the gravity of the situation. Today we have Sleepy Joe Biden, his equally sleeping Treasury Secretary Janet Yellen announcing that bank bailouts are not real bailouts because taxpayers are not involved.
Really?
Treasury Secretary Janet Yellen reportedly said that bank bailouts are not real bailouts because taxpayers are not involved.AFP via Getty Images
The government just gave the SVB a blank check to protect all of its depositors, mostly left-wing Bay Area venture capitalists. That means all accounts are covered by FDIC insurance, even those over the $250,000 limit.
He says deadpan that the money comes from the big banks that contribute to the FDIC insurance pool. OK, but if the banks fund the fund, they will pass those costs on to depositors. That means anyone with a bank account, which means almost every American taxpayer, will complete these wealthy VC guys.
Moron.
Not very “stressful”.
Biden and Yellen then say the softening of the banking law known as Dodd-Frank meant that mid-sized banks like the SVB were spared the so-called stress tests that exposed their weaknesses. They seem to ignore (or most likely have no idea) the dirty little secret that such tests are derisively dubbed “feather tests” in banking circles because even big risk management challenges like Citigroup seem to pass them.
Another whopper: Biden and Yellen want us to believe that the San Francisco Fed had no idea what was happening in their backyard to a bank that grew exponentially in three years before sinking.
Again, don’t believe it. The CEO of SVB was on the board of his local Fed bank. Everyone who should have known what the SVB was up to did. And according to many reports, they were too busy making sure the banks they regulate adhered to ESG standards and enacted so-called social justice measures to care about SVB’s apparent risk-taking. One of my sources worked at SVB until about a year ago and described the bank’s business model as: “Loans to VC-backed companies that didn’t make money, asset-based credit lines for PE funds and little else. It should never have received FDIC insurance. It wasn’t a place that lent to construction companies and took deposits from your aunt.”
Biden said Dodd-Frank’s dilution meant the SVB was spared the so-called stress tests that exposed its weaknesses. Bloomberg via Getty Images
Yes, FDIC insurance was supposed to protect smaller depositors like your aunt, not dice-rolling tech millionaires who banked at SVB and knew it was a risky business. These tech millionaires (like the SF Fed) either knew or should have known that a hiccup in the economy, like rising interest rates, could fail this bank, and perhaps others.
As I first reported last week, the big banks are now freaking out because another mid-sized bank, also in San Francisco, called the First Republic is about to succumb to market forces. (See a pattern here?) They contributed $30 billion to stabilize the bank, at least for now.
Because I also hear that the bank could be sold to one of the rescuers in the next few days. It’s not necessarily because they think First Republic is a great deal — rather, they’re genuinely concerned about an economic contagion that policymakers can’t handle.
Do you remember 2008?
The bill is coming for the past two years’ dubious economic policies: the Biden administration’s unprecedented spending to transform the US into a quasi-socialist European welfare state, and the Fed’s money-printing to make it happen.
Every top banking executive I speak to says the current troubles in the financial system could lead to something on the scale of 2008. They’re also seriously concerned that the banking fracas are yet another example of Sleepy Joe & Co. not being up for the job.
Or as someone said to me, “Where’s Hank Paulson when you need him?”
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