Hold onto your wallets

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 comes 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, is 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 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.

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, 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.

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.