President Ronald Reagan once said, “The nine most terrifying words in the English language are I’m from the government, and I’m here to help.“
Shock waves are rippling through the country after the announcement of the second largest bank failure in the country’s history last week — Silicon Valley Bank.
This just 15 years after the largest bank failure in the country’s history – Washington Mutual.
Research shows that the great collapse in 2008, one casualty of which was Washington Mutual, was one more example of the damage done by excessive government.
Then, standards for issuing mortgages deteriorated as a result of pressure from government entities Fannie Mae, Freddie Mac and the Department of Housing and Urban Development on lenders to meet affordable housing goals. More and more substandard loans were issued, all taking place under the illusion of government protection, until the house of cards came down.
After the total collapse, originating in government policy designed to allegedly make our lives better, the Dodd-Frank Act was passed, now with some 8,000 pages of regulations to supposedly strengthen America’s financial system.
Time and again, a crisis caused by government is supposedly solved by creating even more government.
So now, with the Dodd-Frank Act in place, passed under the pretense of “solving” the problems of instability in our financial system, here we are again.
I make no claims as any kind of expert in finance. But reading through articles by those who are, the amazing story that emerges behind SVB is its violation of principles that any undergraduate student in business learns. That is, banks make a profit by lending, investing at higher rates of interest than they pay on deposits.
So, managing interest rate risk is finance 101. Yet mismanagement of risk – the bank ignoring huge problems they would have if interest rates increased – is what brought it down.
How can it be that people who are allegedly smart do things that are incredibly stupid?
I attribute it to a detachment from reality. Detachment from reality is a direct symptom of a lot of government and politicization of our lives.
After the 2008 crisis, there were major government bailouts. This builds into the mentality of a culture that if you are big enough, government will not let you fail. And if you believe government will not let you fail, that government is your friend, you tend to do stupid, irresponsible things.
On top of this, when government passes laws like Dodd-Frank, it builds an attitude in the culture that the problem has been solved. In this case, that the regulatory system was put in place under which banks won’t fail.
As our culture becomes more deeply mired in a sense that our lives get better with more government and politics, more and more business people become detached from reality.
In this case, over recent years, “woke” culture has become rooted more and more deeply in business, particularly high-tech companies, a major customer base of Silicon Valley Bank.
Woke and ESG investment guidelines – environmental, social and governance – seems to have captured more attention at Silicon Valley Bank than the risk management essential to running their business.
The proxy statement of the bank, writes Wall Street Journal columnist Andy Kessler, notes that the board is “45% women” and there is “1 Black…1 LGBTQ+…and 2 Veterans.”
Republican presidential candidate Vivek Ramaswamy notes that SVB announced in 2022 committing $5 billion in “sustainable finance and carbon neutral operations to support a healthier planet.”
Worth adding to the picture is that the interest rate increases that SVB did not anticipate resulted from the inflation generated by trillions of dollars of government spending during COVID.
Now, fellow citizens, hold on to your wallets as our government bails out SVB, despite Treasury Secretary Janet Yellen saying it won’t happen.
The only good news is it increases prospects for a Republican victory in 2024.
Star Parker is president of the Center for Urban Renewal and Education and host of the weekly television show “Cure America with Star Parker.”
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SVB was NOT what anyone would classify as your standard bank. With 90 percent of its “customer base” comprised of unprofitable start-ups and the venture capitalists that funded those start-ups, SVB was in essence a private institution operating with a government issued bank charter for access to the broader financial system. It catered to a very narrow and specific client base centered around California’s Silicon Valley venture funding companies. That its management was more obsessed with virtue signaling and echoing all the hallmarks of DEI rather than being laser focused on how to properly manage their risk portfolio to avoid the situation that the Bank’s management caused themselves should be surprising. The same can be said for Signature Bank where Barney Frank and other notables of the Democrat Party held Board of Director seats. Signature Bank was run as essentially a funding arm of the Democrat Party, with a heavy emphasis on being “woke” over being financially competent. In both cases when political correctness and adherence to certain political agendas is valued more than financial competency and prudent risk management, bad things tend to occur.
That the government not only elected to bail them out, but also make them completely whole by offering to buy their now underwater treasury bonds at par value establishing yet another bad precedent that will no doubt be repeated for other politically connected banks in the future. When the value of the treasuries both SVB and Signature bought is now only worth 70 to 80 cents on the dollar, but you offer to buy them for par (100 cents on the dollar), you are rewarding bad risk management and establishing a two-tiered financial system that protects those aligned with the Democrat Party.
It’s a shame AMAC couldn’t find an article on this subject from the economic impact to the American taxpayer rather than just picking one narrowly focused on the potential political impact that may or may not exist come 2024. I think at least some of your readers would have appreciated getting a better understanding of how this all impacts the American taxpayer. Just a thought.
This Variation on theme has been played many times with audience being a loser each rime
This SVB and Signature Fail is not a two-way street. It is a one-way path with no exits to financial oblivion. I do not normally adhere to the implication that the SKY is FALLING, Yet here we are and as I look up at the Ivory Towers by gosh the SKY is FALLING. The Butterfly effect is in full play here folks. Sit down , Buckle Up, Hang on , and stop being so blind. Does anyone remember the SAVINGS AND LOAN DEBACLE BACK IN THE 80’s. RESOLUTION TRUST SCANDEL. OK WELL here we are again and again and again. Thankyou FEDS. for pushing the interest rate path until it finally broke the GOLDEN RING again ! Yeah,,, they did it again . The rush % Rates to improve something has now caused the West side of the house of cards to fall. Slow and Easy wins the race.
I told myself and my family don’t do anything crazy financially for the next 6 to 12 months because this train is about to derail. Here I was watching and hearing every day, every week that the rates were going up again and it would fix inflation. But at what cost. Now we are 2 steps backward because of the lack of oversight across the board. Who’s is running this thing. Obviously no one.
So instead of 3 years it will be 6 -7 years before we are back to a level playing field if were ever do get there. Back in 2002 I asked the guys that owned businesses in and around me in the mall where my little business was located when do you really think this is going to turn around. Some of those folk were older than I at the time, so I listened intensely, hoping that just maybe I might glean some modicum of light at the end of the tunnel. Some level of positiveness that would help me get through the next day, week , month. I heard maybe 3 years, others oh no 5 at least. It was 6 years before the dark cloud of inflation and recession were finally lifted. The root of that problem was 9/11... as we all recall. Now we have tasted what it feels like to see a real recovery only to have it taken down by greed and mismanagement. In very short order I might add. 2024 can’t come soon enough. But until then we have to, PRAY….!
According to FDIC scares over depositor bail-ins are mistaken:
FDIC Legal Department on bail-ins – Re Newsmax
fdic.gov/news/press-releases/2020/pr20037a.pdf#:~:text=Public%20Law%20111%E2%80%93203%20H.R.%204173%20Bank%20Bail-In%20%28Google,when%20necessary%20to%20keep%20itself%2C%20the%20bank%2C%20afloat.
But is it true that FDIC reserves are insufficient to insure the trillions of dollars depositors have in their accounts?
SVB: Too Corrupt to Fail. Among the wokist left’s, and Biden’s, largest donors. SVB knows woke corruption and obviously precious little about banking. As others make clear, “SVB ain’t your ‘ordinary’ bank.” These scum walk away with impunity and their bonuses, laughing at the rest of us, all under the protection of corrupt big government while being subsidized by our tax dollars. If that’s not the deal of the century then I don’t know what. Makes me ask, what’s the deal for eternity?