{"id":1902210,"date":"2023-03-21T14:56:38","date_gmt":"2023-03-21T18:56:38","guid":{"rendered":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/the-silicon-valley-bank-bailout-sends-exactly-the-wrong-message-and-endangers-the-economy\/"},"modified":"2023-03-21T15:03:10","modified_gmt":"2023-03-21T19:03:10","slug":"the-silicon-valley-bank-bailout-sends-exactly-the-wrong-message-and-endangers-the-economy","status":"publish","type":"post","link":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/the-silicon-valley-bank-bailout-sends-exactly-the-wrong-message-and-endangers-the-economy\/","title":{"rendered":"The Silicon Valley Bank Bailout Sends Exactly The Wrong Message And Endangers The Economy"},"content":{"rendered":"<aside class=\"mashsb-container mashsb-main mashsb-stretched\"><div class=\"mashsb-box\"><div class=\"mashsb-count mash-medium\" style=\"float:left\"><div class=\"counts mashsbcount\">28<\/div><span class=\"mashsb-sharetext\">SHARES<\/span><\/div><div class=\"mashsb-buttons\"><a class=\"mashicon-facebook mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/www.facebook.com\/sharer.php?u=https%3A%2F%2Fwww.conservativenewsdaily.net%2Fbreaking-news%2Fthe-silicon-valley-bank-bailout-sends-exactly-the-wrong-message-and-endangers-the-economy%2F\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Facebook<\/span><\/a><a class=\"mashicon-twitter mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/twitter.com\/intent\/tweet?text=&amp;url=https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1902210&amp;via=ConservNewsDly\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Twitter<\/span><\/a><a class=\"mashicon-subscribe mash-medium mash-nomargin mashsb-noshadow\" href=\"#\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Subscribe<\/span><\/a><div class=\"onoffswitch2 mash-medium mashsb-noshadow\" style=\"display:none\"><\/div><\/div>\n            <\/div>\n                <div style=\"clear:both\"><\/div><\/aside>\n            <!-- Share buttons by mashshare.net - Version: 4.0.47--><div class=\"article-content\">\n<p>Tech investor David Sacks, worth several hundred million dollars and with at least some degree of personal stake in the Silicon Valley Bank (SVB) failure, wrote in <a href=\"https:\/\/thefederalist.com\/2023\/03\/14\/dont-blame-depositors-for-bank-failure-blame-biden-and-svb-management\/\" target=\"_blank\" rel=\"noreferrer noopener\">The Federalist<\/a> last week to argue the federal rescue of SVB depositors was justified. The problem is that Sacks\u2019 arguments are wrong, or at least deeply flawed.<\/p>\n<p>I don\u2019t mean to pick on Sacks. He has stood out as extremely vocal in defending the\u00a0Federal Deposit Insurance Corporation\u00a0(FDIC) for fully backing all SVB deposits beyond the statutory $250,000 limit. <\/p>\n<div class=\"fdrlst__b89e9-paragraph-2-long d-flex justify-content-center\" style=\"margin-left: auto; margin-right: auto; text-align: center; \" id=\"fdrlst__b89e9-151285826\">\n<div id=\"div-gpt-ad-1379703300879-0\" class=\"mb-30\"><\/div>\n<\/div>\n<div class=\"fdrlst__b89e9-037fa5027c2d630b4d859e4c9319c9e0 fdrlst__b89e9-paragraph-2\" id=\"fdrlst__b89e9-037fa5027c2d630b4d859e4c9319c9e0\"><\/div>\n<p>Some of the arguments Sacks is making are the <a href=\"https:\/\/thefederalist.com\/2023\/03\/14\/the-silicon-valley-bank-bailout-is-the-latest-reason-the-uniparty-needs-to-go\/\" target=\"_blank\" rel=\"noreferrer noopener\">same arguments being made<\/a> by politicians such as President Joe Biden, Rep. Maxine Waters, D-Calif., and Sen. Mitt Romney, R-Utah. The following is a refutation of the arguments Sacks and others have made, and a call to action.<\/p>\n<h2>Argument One: This Wasn\u2019t a Bailout<\/h2>\n<p>Many proponents of the SVB depositor bailout argue this wasn\u2019t really a bailout, because the shareholders lost all their money and SVB employees lost their jobs. Wrong. The rules say that the FDIC insures up to $250,000 per depositor per insured bank. SVB depositors are a relatively small group of extremely wealthy individuals and funds, and the FDIC made the unprecedented decision to cover 100 percent of their deposits.<\/p>\n<p>Had the bailout not occurred, these depositors wouldn\u2019t have lost everything. They would have likely taken a haircut on their deposits, depending on the quality of the loans SVB made (40 percent of the assets were loans, 60 percent were liquid securities). Estimates put this haircut at 10-15 percent. <\/p>\n<p>Investment funds betting on what this haircut would be were set to provide SVB depositors immediate liquidity to some of their deposits by offering to buy the deposits for something slightly below that 85 percent. The government, by acting as it did, broke the rules everyone else lives by to ensure wealthy depositors got 100 percent of their cash immediately.<\/p>\n<div class=\"fdrlst__b89e9-d1dbd80796ff01f6efc5a3f6946bb109 fdrlst__b89e9-paragraph-6\" id=\"fdrlst__b89e9-d1dbd80796ff01f6efc5a3f6946bb109\"><\/div>\n<p>That was funded by the FDIC\u2019s insurance fund that comes from \u201cbank customers\u201d across the country. To the extent this fund is drained, the FDIC will need to have banks generate more fees from bank customers to replenish it (the FDIC fund has <a href=\"https:\/\/thefederalist.com\/2023\/03\/14\/the-silicon-valley-bank-bailout-is-the-latest-reason-the-uniparty-needs-to-go\/\" target=\"_blank\" rel=\"noreferrer noopener\">only $128 billion relative to more than $150 billion uninsured SVB deposits<\/a>).<\/p>\n<h2>Argument Two: No Bad Incentives Are Created by the Bailout<\/h2>\n<p>Sacks claims \u201canyone who thinks there\u2019s a moral hazard isn\u2019t paying attention.\u201d The first moral hazard is that the government just set a precedent for bailing out the estimated $6 trillion of uninsured deposits. More immediately, for us to have a free-market banking system, large depositors need to have some skin in the game. Large and sophisticated depositors being able to vote with their feet and move deposits is a check and balance on banks\u2019 risk-taking \u2014 which, aside from the massive cost of insuring all deposits, is why FDIC insurance always had a limit.<\/p>\n<p>Now, banks have an incentive, if they think their deposits are covered, to make riskier bets and pay depositors higher interest, which could lead to the government eventually having to cap the interest paid on deposits and further nationalize the banking system.<\/p>\n<p>In the same vein, the message the SVB bailout sent was the complete opposite message that should have been given (more on this below). Treasury Secretary Janet Yellen <a href=\"https:\/\/twitter.com\/SeidlerCorp\/status\/1636518949872451584?s=20\" target=\"_blank\" rel=\"noreferrer noopener\">just told<\/a> the Senate that SVB depositors were completely protected because the bank was judged to be \u201csystemically important.\u201d <\/p>\n<div class=\"fdrlst__b89e9-6b2b308535a51e8ca4198639a4cbe5f0 fdrlst__b89e9-paragraph-10\" id=\"fdrlst__b89e9-6b2b308535a51e8ca4198639a4cbe5f0\"><\/div>\n<figure class=\"wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter\">\n<div class=\"wp-block-embed__wrapper\"> <span class=\"tm703\"><\/p>\n<blockquote class=\"twitter-tweet\" data-width=\"500\" data-dnt=\"true\">\n<p lang=\"en\" dir=\"ltr\">Here is the snippet: <a href=\"https:\/\/t.co\/85iBeXC0Wn\">pic.twitter.com\/85iBeXC0Wn<\/a><\/p>\n<p>\u2014 Seidler (@SeidlerCorp) <a href=\"https:\/\/twitter.com\/SeidlerCorp\/status\/1636518949872451584?ref_src=twsrc%5Etfw\">March 17, 2023<\/a><\/p><\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/span> <\/div>\n<\/figure>\n<p>That means your local bank, or even most large regional banks, might be judged to <em>not<\/em> be systemically important, meaning deposits at anything but the largest 25 banks in the United States are not completely covered. This provides an incentive for large depositors to flee smaller, local, and regional banks and put money into the big banks, which is causing a further crisis, not quelling it.<\/p>\n<p>Also note that \u201csystemically important\u201d may just mean \u201cpolitically connected.\u201d It is no secret that SVB and Silicon Valley\u2019s tech funds, in general, massively donate to the Democratic Party. There <a href=\"https:\/\/nypost.com\/2023\/03\/12\/some-democrat-donor-investors-furious-over-bidens-handling-of-svb\/\" target=\"_blank\" rel=\"noreferrer noopener\">was immense political pressure<\/a> before the full bailout of SVB deposits was announced.<\/p>\n<h2>Argument Three: SVB Failing Is All Biden\u2019s Fault, Don\u2019t Blame the Depositors!<\/h2>\n<p>Sacks blames the Biden administration\u2019s 2021 spending and the subsequent inflation and rapid Federal Reserve rate hikes for SVB\u2019s problems. Yes, Biden is grossly mismanaging the U.S. economy, but every bank is dealing with these problems.<\/p>\n<p>Sacks says: \u201cBut it\u2019s important to understand that SVB\u2019s failure didn\u2019t arise from risky startups doing risky startup things. It arose from SVB\u2019s over-exposure to boring old mortgage bonds, which were considered safe at the time SVB bought them. Perhaps this is why SVB had an \u2018A\u2019 rating from Moody\u2019s and had passed all of its regulatory exams.\u201d<\/p>\n<p>Actually, SVB took exorbitant risks that other banks did not take. SVB took 60 percent of its deposit base and plowed it into an unhedged portfolio of Treasurys and Mortgage-Backed Securities (MBS). SVB did not hedge this portfolio (its executive in charge of this was putting on <a href=\"https:\/\/www.zerohedge.com\/markets\/fatal-distraction-senior-svb-risk-manager-oversaw-woke-lgbt-programs\" target=\"_blank\" rel=\"noreferrer noopener\">LGBT events instead<\/a>), and was essentially using depositor money to bet on lower interest rates. <\/p>\n<p>The vast majority of banks, large and small, have <a href=\"https:\/\/thefederalist.com\/2023\/03\/14\/the-silicon-valley-bank-bailout-is-the-latest-reason-the-uniparty-needs-to-go\/\" target=\"_blank\" rel=\"noreferrer noopener\">only 25-30 percent<\/a> of their assets in Treasurys and MBS. These banks all have hedged their interest rate exposure to a much greater degree than did SVB.<\/p>\n<p>More broadly, the argument completely misses the point. Yes, SVB depositors were receiving a <a href=\"https:\/\/thefederalist.com\/2023\/03\/14\/the-silicon-valley-bank-bailout-is-the-latest-reason-the-uniparty-needs-to-go\/\" target=\"_blank\" rel=\"noreferrer noopener\">higher return<\/a> than the general American public, along with special perks for the wealthiest funds and individual depositors. Yes, they were also sophisticated and should have done their homework \u2014 several outlets like Grant\u2019s Interest Rate Observer were warning about SVB in specific terms well before the collapse. <\/p>\n<p>But it is much simpler than that. For a factory worker to lose his job, nothing has to be <em>his fault. <\/em>For your grandparents to retire late because the market went down, it doesn\u2019t have to be <em>their fault. <\/em>The system requires that depositors have skin in the game, and those were the rules. If rich Silicon Valley millionaires can\u2019t take a loss on a bad decision, then this isn\u2019t capitalism.<\/p>\n<h2>Argument Four: What about the Small Businesses?<\/h2>\n<p>The argument that a full bailout was necessary to protect small entities or businesses is extremely dishonest. Again, SVB catered to a relatively small group of extremely wealthy depositors, such that nearly <a href=\"https:\/\/news.yahoo.com\/more-85-silicon-valleys-banks-233807890.html?guccounter=1&#038;guce_referrer=aHR0cHM6Ly93d3cuYmluZy5jb20v&#038;guce_referrer_sig=AQAAAFidp2pGPfQRTpFgKi9Fm6VDd_O0bM7XZioG3VPErhRU_v-lI7HeMt1YiZqm_NHQBrGcB3DJt7iUvgYsv2gQjOTklOPJTzuL-vte9Ed32IlaUvz0uVmLTvI1dv67F7G2WN4pARFORANscRrTLDF1ZAsTVE0g0NCE2RhQJ7X6Yoiu\" target=\"_blank\" rel=\"noreferrer noopener\">90 percent of its deposits were uninsured<\/a>. <\/p>\n<p>If we were really worried about small businesses, the government could have (and considered but decided against) insured up to $2 million or $5 million. Instead, an unlimited bailout was decided upon. The unlimited covering of deposits had nothing to do with small businesses, but was about protecting the millionaire and billionaire funds and individuals with deposits at SVB.\u00a0<\/p>\n<h2>Argument Five: The Bailout Was Necessary to Stop a Further Crash<\/h2>\n<p>Another extremely flawed argument claims there was no other option. Sacks says: \u201cOnce the run on the bank started, decisive action by the Fed was imperative. This meant protecting deposits (uninsured are 50 percent) and backstopping regional banks. No matter how distasteful you may find those things to be, preventing a greater economic calamity was necessary.\u201d<\/p>\n<p>This is extremely wrong. The government did the exact opposite of what was necessary to stop a crash. They covered the politically connected super-rich at an extremely irresponsible bank while launching a program that was too small to stop the problems they were creating at other more-responsible banks. <\/p>\n<p>As stated above, the message sent was that large banks would be completely covered but smaller and regional banks would not be. This ensures that the crisis rolls on, which, along with a sharply slowing economy, will likely cause market turmoil in 2023.<\/p>\n<p>The Fed just announced further intervention in the market because the prior intervention wasn\u2019t enough. Meanwhile, small banks are clamoring for a government guarantee on their deposits in order to <a href=\"https:\/\/www.zerohedge.com\/markets\/too-big-fail-banks-flooded-deposits-bank-run-drains-small-bank-cash\" target=\"_blank\" rel=\"noreferrer noopener\">stem the tide of large depositor withdrawals<\/a>.<\/p>\n<p>Instead, the government should have covered SVB deposits up to $5 million, instead of $250,000, and announced a much larger program to shore up more responsible banks than SVB. It should have explicitly been stated that responsible banks would be protected. This would have both preserved good incentives in the banking system, and stopped the slow-motion run on smaller banks we are currently witnessing.<\/p>\n<h2>You Should Be Very Mad<\/h2>\n<p>Now for the call to action. Normal people should be furious. Once again, the government changed the rules everyone lives by for a small, extremely wealthy, and politically connected group of people. Now, normal Americans will pay for this \u2014 with larger bank fees, and by suffering through the turbulence caused by the SVB bailout that has yet to play out. <\/p>\n<p>The vast majority of working Americans are underrepresented or unrepresented by both parties, who serve the interest of corporatism. How long can this last?<\/p>\n<div class=\"fdrlst__b89e9-3b98afebe938b476912c1f9ddb177cbe fdrlst__b89e9-after-post-content\" id=\"fdrlst__b89e9-3b98afebe938b476912c1f9ddb177cbe\"><\/div>\n<div class=\"article-tags bdr-top-black mt-30 mt-sm-60 pt-15 pt-md-45\">\n<ul class=\"list-unstyled d-flex flex-wrap align-items-center mb-0 mx-n10 p-0\">\n<li class=\"mt-10 mx-10\"><a href=\"https:\/\/thefederalist.com\/tag\/bailout\/\" class=\"btn btn-black btn-small\">Bailout<\/a><\/li>\n<li class=\"mt-10 mx-10\"><a href=\"https:\/\/thefederalist.com\/tag\/banks\/\" class=\"btn btn-black btn-small\">banks<\/a><\/li>\n<li class=\"mt-10 mx-10\"><a href=\"https:\/\/thefederalist.com\/tag\/bonds\/\" class=\"btn btn-black btn-small\">bonds<\/a><\/li>\n<li class=\"mt-10 mx-10\"><a href=\"https:\/\/thefederalist.com\/tag\/david-sacks\/\" class=\"btn btn-black btn-small\">David Sacks<\/a><\/li>\n<li class=\"mt-10 mx-10\"><a href=\"https:\/\/thefederalist.com\/tag\/federal-deposit-insurance-corporation\/\" class=\"btn btn-black btn-small\">Federal Deposit Insurance Corporation<\/a><\/li>\n<li class=\"mt-10 mx-10\"><a href=\"https:\/\/thefederalist.com\/tag\/federal-reserve\/\" class=\"btn btn-black btn-small\">Federal Reserve<\/a><\/li>\n<li class=\"mt-10 mx-10\"><a href=\"https:\/\/thefederalist.com\/tag\/janet-yellen\/\" class=\"btn btn-black btn-small\">Janet Yellen<\/a><\/li>\n<li class=\"mt-10 mx-10\"><a href=\"https:\/\/thefederalist.com\/tag\/joe-biden\/\" class=\"btn btn-black btn-small\">Joe Biden<\/a><\/li>\n<li class=\"mt-10 mx-10\"><a href=\"https:\/\/thefederalist.com\/tag\/lending\/\" class=\"btn btn-black btn-small\">lending<\/a><\/li>\n<li class=\"mt-10 mx-10\"><a href=\"https:\/\/thefederalist.com\/tag\/loans\/\" class=\"btn btn-black btn-small\">loans<\/a><\/li>\n<li class=\"mt-10 mx-10\"><a href=\"https:\/\/thefederalist.com\/tag\/maxine-waters\/\" class=\"btn btn-black btn-small\">Maxine Waters<\/a><\/li>\n<li class=\"mt-10 mx-10\"><a href=\"https:\/\/thefederalist.com\/tag\/mitt-romney\/\" class=\"btn btn-black btn-small\">Mitt Romney<\/a><\/li>\n<li class=\"mt-10 mx-10\"><a href=\"https:\/\/thefederalist.com\/tag\/silicon-valley-bank\/\" class=\"btn btn-black btn-small\">Silicon Valley Bank<\/a><\/li>\n<li class=\"mt-10 mx-10\"><a href=\"https:\/\/thefederalist.com\/tag\/treasurys\/\" class=\"btn btn-black btn-small\">Treasurys<\/a><\/li>\n<\/ul><\/div>\n<\/p><\/div>\n<p><\/p>\n<hr>\n<p>&#8216;From <a href=\"https:\/\/thefederalist.com\/2023\/03\/21\/the-silicon-valley-bank-bailout-sends-exactly-the-wrong-message-and-endangers-the-economy\/?utm_source=rss&#038;utm_medium=rss&#038;utm_campaign=the-silicon-valley-bank-bailout-sends-exactly-the-wrong-message-and-endangers-the-economy\">&#8220;The Silicon Valley Bank Bailout Sends Exactly The Wrong Message And Endangers The Economy&#8221;<\/a>&#8216;<\/p>\n<hr>\n<p><span style=\"font-size:11px\"><em>&#8220;The views and opinions expressed here are solely those of the author of the article and not necessarily shared or endorsed by Conservative News Daily&#8221;<\/em><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Tech investor David Sacks, worth several hundred million dollars and with at least some degree of personal stake in the Silicon Valley Bank (SVB) failure, wrote in The Federalist last week to argue the federal rescue of SVB depositors was justified. The problem is that Sacks\u2019 arguments are wrong, or at least deeply flawed. I<\/p>\n","protected":false},"author":822,"featured_media":1902211,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","fifu_image_url":"https:\/\/cndimages.nyc3.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2021\/01\/IMG_2758-scaled-1.jpg","fifu_image_alt":"","footnotes":""},"categories":[546],"tags":[8384,5373,9168,16795,5776,5774,8107,8109,7058],"class_list":["post-1902210","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-the-federalist","tag-bailout","tag-bank","tag-economy","tag-endangers","tag-message","tag-sends","tag-silicon","tag-valley","tag-wrong"],"fifu_image_url":"https:\/\/cndimages.nyc3.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2021\/01\/IMG_2758-scaled-1.jpg","_links":{"self":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1902210","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/users\/822"}],"replies":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/comments?post=1902210"}],"version-history":[{"count":0,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1902210\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media\/1902211"}],"wp:attachment":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media?parent=1902210"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/categories?post=1902210"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/tags?post=1902210"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}