In my last note in regard to the Silicon Valley Bank fiasco I said that in general people were not stupid, were often ignorant, illogical and irrational, and that the latter three I’s were responsible for most of the world’s problems. After watching a lot of the commentary on SVB, much coming from conservatives who should know better, I am revising my opinion to some extent–there are a lot of people who are willfully stupid. Some politicians and pundits keep referring to this as a “bailout” of rich investors, etc. This is pure hogwash. SVB was a publicly held bank; it was owned by shareholders. Some of the shareholders were wealthy. Many were ordinary people, directly or indirectly through pension funds, ETFs, etc. Wealthy or not, every shareholder is wiped out. No shareholder got a “bailout”.
The banks depositors likely included some individuals, like the Governor of California, and some of them were likely wealthy. But the vast majority of money deposited at the bank was from companies. These funds were there to be available to pay employees and vendors to the companies. If the funds aren’t available, employees don’t get paid, vendors don’t get paid, the company basically has to shut down or severely limit operations and that has a cascading effect through the economy. The people who are hurt the most are not wealthy people but ordinary workers and small businesses.
The bank was poorly managed; executives should be punished. But part of the problem is the phenomenal amount of money the federal government pumped into the economy, facilitated by the Federal Reserve. Someone had to buy all that debt the government issued, and they were happy to see banks like SVB do it. And then when this fiscal irresponsibility led to inflation, the Federal Reserve had to raise rates to try to limit the pain. The mess was created by the government. And the Federal government, and the states, have regulators that supposedly are constantly checking on banks’ financial condition and their management of risks, including those stemming from interest rate changes. The regulators failed to do their jobs. But that is because government hiring is now based on ideology, race, gender, sexual orientation, etc. and very intentionally not on competence. So you have a bunch of incompetent woke idiots in government supposedly watching over a bunch of incompetent woke idiots at SVB. The result was pretty predictable.
Refusing to make depositors whole is blaming the victim. Individuals and businesses have a right to assume that a heavily regulated industry like banking is safe. They have a right to trust government to ensure that banks are safe. The government breached that trust, as it always does these days. No depositor, no matter how sophisticated, should have to do a constant check on the liquidity or financial reserves of a bank and they won’t have access to information to do that. So it is just stupid to call this a bailout of wealthy depositors, or a bailout at all. The government has specific funds available to address these situations–tens of billions of dollars funded by assessments on financial institutions. Given that it caused the problem, certainly seems right for the government to fix it by making sure depositors don’t lose their money.