I’m not a money person, so I like an 8-minute description of what’s going on this week. Let me know if any of this is wrong!
When will we learn that big money needs to be more tightly regulated, not less, and that the advocates for deregulation are worse than bank robbers?
I have been saying this ever since Barack Obama chose to help the banks instead of the bank customers.
Privatize gains and socialize losses, that is the way.
There’s a Fed meeting next week, and although they got helped a bit today by a half decent CPI reading, I’m sure Powell has no idea what to do now. Market still favors a 25% rate increase, because if you take the foot off the gas too soon, inflation may rise again. But that’s dangerous because with higher rates more banks might get into strife. Difficult situation, which is entirely the Fed’s fault and of their own making, with the money printing of the last few years.
I think we learned that big money needs to be regulated long ago, but big money can buy congressmen and regulators and Presidents, and the rest of us can’t.
@ 1
Typical Lib-Dem (childishly): “But if he had done that, then the Republicans would be angry at us and call us names and people won’t vote for us anymore!’
@ 3
That and –let’s face it– most people are stupid when it comes to economic matters. When they hear the people with money saying that a policy will be bad, it MUST be bad since… well… they (supposedly) know about money.
The relevant policy was the Economic Growth, Regulatory Relief, and Consumer Protection Act–from 2018. That raised the threshold for certain regulations from $50 billion to $250 billion.
@rorschach #2
What I’ve heard is that rising interest rates typically help banks, and that Silicon Valley Bank was unusual in that they had placed a large bet against rising interest rates. If they were subject to greater regulation, maybe they wouldn’t have been able to do that.
KPMG Gave SVB, Signature Bank Clean Bill of Health Weeks Before Collapse
(KPMG is an accounting and auditing firm)
Very good video. lots of helpful context (Cramer just proved he is a loud imbecile who shouldn’t be given that big network megaphone. But, the media will ignore the facts and let him continue his shouting bullshit)
The other commenters here added lots of good perspective, too.
As we say in our publications: Banksters one of the sneakiest, most destructive manifestations of Crapitallism.
OT
Something very different-
Both Quincey Jones and
Michael Caine celebrate their 90th birthday today.
Now back to the depressing and corrupt financial market.
Our organization, being progressively minded (not corporate democrap or nwoliberal), we have always avoided banks. We aren’t billionaires, so we can’t use bullying influence to protect our ‘assets’, so we avoid the bullying by using credit unions (cooperatives where you are a member, not as much of a victim). Somewhat less gain, but also less risk and more of a voice in the process.
@9 birgerjohansson: Thanks.
Quincey Jones, a musician’s musician and Michael Caine an actor’s actor. Both, great.
Siggy, @ #6@ SVB was unusual in a number of ways, and their exposure to bond rate risk probably wasn’t that unusual… It looks like there may be quite a few other banks with similar (or worse) exposure [registration required]:
The really unusual thing about SVB was that they had a relatively small number of customers, highly concentrated in one place and one industry (and an industry particularly vulnerable to boom and bust cycles, and which is currently having some severe issues), many of whom knew each other, and none of their accounts were under the FDIC insurance limit. That’s what made the mismatch with the liquidity of their asset portfolio so dangerous.
I think “we” know that banks, financial institutions of all sorts, and business/industry in general need regulation. The problem is that many/most of the people who own those things have the money to buy the politicians to keep regulations from happening. And I only say “many/most” rather than “all” as a nod to the few in those arenas of life who at least seem to have a modicum of an understanding that regulation is beneficial to them as well.
As for Jim Cramer, he’s showing his years. It only takes a few views to realize he’s another TV personality shilling for the big boys.
Further insights – Excerpt from
https://digbysblog.net/2023/03/13/rugged-individualism-for-everyone-else/
‘Soon after Treasury Secretary Janet Yellen told “Face the Nation” … the government would not bail out failed Silicon Valley Bank (SVB) , Treasury, the Federal Reserve, and FDIC issued a joint statement late Sunday after consulting with President Joe Biden the FDIC would government regulators would “complete its resolution of Silicon Valley Bank … in a manner that fully protects all depositors.Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” the statement continued. ‘
HOWEVER, I am sure this is a lie. The banksters will face higher FDIC insurance fees and will be offered loans, WHICH WILL BE PASSED ON TO THE TAXPAYER CUSTOMERS. Because banksters ALWAYS make the little guy pay for their crimes and to ensure their growing wealth.
Every business passes their costs on to their customers. Your “gotcha” fails to distinguish between taxpayers who are customers of the bank and taxpayers who are not customers.
@15 Reginald Selkirk said: Your “gotcha” fails to distinguish between taxpayers who are customers of the bank and taxpayers who are not customers.
I reply: yes, technically you are correct. However, since this practice applies to all banksters, I’m sure most all taxpayers will be impacted. All businesses pass costs to customers. However, call me naive if you wish, I make the distinction between legitimate costs of doing honest business and making customers pay for fraud, waste, abuse and gross, unethical risks the business takes.
Just saw a Washington Post headline saying, “GOP blames ‘woke’ capitalism for SVB collapse”. “Woke” is the new go to blame target.
A few points that the Youtuber missed:
– Silicon V Bank’s depositors had their money concentrated in SVB because that was a condition of the loans SVB made to them. SVB required the conditions that caused some of its depositor-borrowers to panic.
– Some commenters, notably James Angel of Georgetown U., said that SVB made a mistake by borrowing short (from depositors) and lending long (buying treasuries). That is an idiotic take – borrowing short and lending long is the fundamental business model of banking. Banks are supposed to maintain enough liquid assets to be able to meet fluctuating depositor demands for their money, called reserves. Bank reserves generate no profit to speak of, so government regulations have to require certain proportions of reserves.
– SVB did not keep sufficient reserves, in order to boost its profits. It took risks which stricter regulations would prevent – regulations and reserve requirements that the ‘to big to fail’ banks must follow. And, as noted, the CEO lobbied for the law that let SVB escape those stricter regulations.
– Financial regulation is substantially looser than it was before 1980, because regulations put in place after the 1930s collapse have been removed, and regulators have been discouraged from tightly regulating ‘new’ financial vehicles like crypto and derivatives. Note that the choice to not regulate derivatives was made during the Clinton administration, against recommendations by Brooksley Born, head of the CFTC at the time.
I applaud the answer from daulnay but I want to add to it.
Observation. Interest rates have been going up for a year or more, yet SVB slumbered on. Their bond investments have suffered, true, but they should have been more actively managing the situation to reduce the risk as interest rates went up and bond prices came down. That is what banks are supposed to do, it is not something clever or unusual. Yet they slumbered on and gave each other bonuses.
Observation. Each of the corporations that placed money in SVB had a Chief Financial Officer who allowed it. The CFO is responsible to protect the corporation’s money – again, this is their job and not an optional requirement. @daulnay mentions contractual requirements, but a CFO who took data to their CEO boss would have gotten a hearing.
Observation. The CFO should also know how much of the money is at risk – meaning they should have known they had millions of dollars at the bank that were only insured to $250K. I am but a lowly individual investor and even I know how much of my money is insured at my bank (brokerage) — $250K of federal insurance PLUS $millions of added insurance, covering all my cash.
Observation. The CEO should have listened and understood the CFO, and reported this to the Board. None of this is CYA, it is proper reporting and risk assessment.
Therefore, none of the CEOs and CFOs involved shold be getting any bonus money this year. This particularly applies to the “C-level” of SVB and their Board of Directors. But there were a lot of CFOs asleep at the wheel. Trust? Sure. Smarter to Trust But Verify. Therefore, any CFO that left more than $250K in the SVB bank should have any bonus cancelled.
Observation. This happens routinely. It is drawing attention today because of the size of the institutions and the associated collapses, but bank failures are pretty routine. Self-regulation is a joke.
Therefore, more regulation is required. And it should be pretty severe. Reinstitute Glass-Steagal, for example. And let us see some perp-walks of CEOs and CFOs.
I also want to hear more about what Peter Thiel did. Peter and Elon worked together, and they seem to be the Tweedledum and Tweedlestupid of Silicon Valley.
Another one:
Behind paywall, but a very good and thorough take by a very smart economist;
https://noahpinion.substack.com/p/why-was-there-a-run-on-silicon-valley
It gives a very clear explanation of the financial/banking aspects, and goes into Thiel and all the other things that happened. Seattlesipper is right, that the CFOs should have been on top of it, at least at the larger startups. In the smaller ones, the CFO is often someone the VC assigns them as a condition of funding, if they have a CFO at all.
seattlesipper: businesses quite quickly have over $250k in the bank.
Take your paycheck (pre-tax), add in the employer side, multiply by the number of employees in your company. You need that much in an account to run payroll. Best to have a few times as much just in case. You also have a bunch of other expenses to cover.
Splitting between bank accounts is possible but there’s only so much time in the day.
The childishness is all yours.
numerobis: Splitting between bank accounts is possible but there’s only so much time in the day.
There are more options than just splitting bank accounts. For example, buy insurance to cover the gap; insurance companies are happy to take your money. As a concrete example, my broker obtains additional insurance on my behalf to cover the cash portion of my brokerage account (the equities are another question entirely). This does present the problem of turtles all the way down – do I know the insurer will be good for an insurance claim? Do I know the reinsurer will be good for a claim? This solution is not the full backstop that the federal government FDIC provides, but it is prudent — and Dogmatix would approve :)
He starts part way through the story, at the bank run … with no explanation of why it occurred.
He quotes from the statement from Treasury but omits the part about the funds to cover depositors not coming from tax payers (it appears on the screen briefly but he doesn’t read that crucial sentence) — FDIC is a an insurance program and the costs for bank failures are covered (by law) from fees imposed on the other banks. And there’s not a “single idea” (“please don’t panic”) … there’s the other idea that depositors (but not investors) are being protected from losing their money–this includes mom & pop pension funds. He says “that sounds good but some of the investors had already cashed out” — but that’s not about the government stepping in to protect them, that’s about the conniving that led to the bank run in the first place, which again is not where he started and does not explain. And he completely neglects to mention that, when SVB bank officials lobbied the government “several years ago” to raise the asset threshold, that was under the Trump administration and Trump signed relaxations of bank regulations into law (a majority of Rethugs and some blue dog or otherwise foolish/corrupt Dems voted for the legislation.)
This is a profoundly stupid and ignorant right wing talking point that is always used to argue against imposing anything–taxes or regulations–on corporations. Think about this: if businesses pass all their taxes onto customers, then why didn’t they just hike up prices before the taxes were even imposed?
Not true … about 15% of accounts were under the limit, and I know some of those people.
@ 25
Oh you sure showed me. 🙄
Hypocritical libertarian “government money for me, not for thee” assholes:
https://slate.com/technology/2023/03/silicon-valley-bank-rescue-venture-capital-calacanis-sacks-ackman-tantrum.html
https://www.washingtonpost.com/opinions/2023/03/13/silicon-valley-bank-bailout-federal-regulation/
@30 Of course I didn’t, as you are completely blind to your own extreme intellectual dishonesty, I simply called you out.
JIm Balter, @ #29: thanks for the correction.
It is fun to compare the 2008 bank chrisis with how non-corrupt conservatives handled the Swedish bank chrisis of 1992.
They socialised the banks in everything but name, kept the bank customers free from economic damage and by the time they released their grip on the banks had reclaimed almost the whole cost for the tax payers.
I repeat, this was a conservative-led government. Of course, they are not mainly financed by donations by big business and most of their active members are middle-class, so by Merican standards they are commies.
In re #18…
“– Silicon V Bank’s depositors had their money concentrated in SVB because that was a condition of the loans SVB made to them. SVB required the conditions that caused some of its depositor-borrowers to panic.”
From what I’ve read, there weren’t many loans made to SVB business depositors. A large number of startups had accounts with SVB because a) that is what their VCs told them to do, and b) a lot of other banks didn’t want to deal with startups.
“– Some commenters, notably James Angel of Georgetown U., said that SVB made a mistake by borrowing short (from depositors) and lending long (buying treasuries). That is an idiotic take – borrowing short and lending long is the fundamental business model of banking. Banks are supposed to maintain enough liquid assets to be able to meet fluctuating depositor demands for their money, called reserves. Bank reserves generate no profit to speak of, so government regulations have to require certain proportions of reserves.”
It is not “borrowing short and lending long” that is a problem; as you note, that is a basic principle of banking. But another basic principle of banking is that one should be managing one’s risks in doing so. If you have the vast majority of your deposits in uninsured, VC hot money, then you should not be keeping half of your money in long-term, illiquid securities.
As others have pointed out, the big problem with SVB is that both its assets and its liabilities were dependent upon low interest rates, which hit them from both sides as interest rates started to rise. Any competent risk manager should have been changing the structure of their assets as soon as interest rates started rising.
More detail from Marc Rubenstein here: https://www.netinterest.co/p/the-demise-of-silicon-valley-bank
Well, that escalated quickly:
https://www.bloomberg.com/news/live-blog/2023-03-15/credit-suisse-in-crisis?cmpid=socialflow-twitter-business
@ #36: Credit Suisse’s problems appear to be entirely unrelated, it’s just that everybody’s suddenly got very jumpy around anything connected to banking.
According to republicans its all because of the “woke” agenda.