Back to Bailouts
The biggest lesson from the financial sector in recent days? The alleged “fixes” put in place after the 2008 meltdown didn’t do squat — and the feds are now poised to bail out everyone.
The Biden administration rescued the depositors of Silicon Valley and Signature Bank holding more than the FDIC-insured max of $250,000, who’d otherwise have seen their accounts above that level frozen before facing an eventual “haircut” of 15% or so.
And now any bank under pressure for cash to meet depositor obligations can borrow from the Federal Reserve against the full face value of its Treasury bonds, as opposed to their market value (crushed by Fed rate hikes necessitated by Bidenflation).
In other words, the government is still socializing private risk onto average taxpayers and thus creating incentives for more foolish risk-taking.
Sen. Liz Warren and other lefties are blaming bipartisan Trump-era changes to the post-2008-crisis Dodd-Frank reforms, which supposedly ensure “no more bailouts.”
Yet Barney Frank — i.e., the Frank
Dodd-Frank — served on Signature’s board. Maybe that law wasn’t based on a real understanding of how banks go wrong?
Plus, SVB would have gotten the all-clear under the original liquidity requirements of Dodd-Frank. And the bank’s behavior started raising red flags at the Fed in 2019, yet the San Francisco Fed, its main regulator, failed to step in. Woke SF Fed chief Mary Daly, who loved SVB’s politics, has a lot of questions to answer.
More politics: SVB was deeply involved in the green-finance side of tech, while Signature catered to pet causes of New York’s liberal elite. Sure looks having the right (that is, left) political friends won special treatment.
Meanwhile, ginormous Credit Suisse just got “rescued” (in a forced sale to UBS), suggesting that Europe’s similar post-2008 reforms also fell short.
The current global mess still seems unlikely to approach 2008 levels, but it’s a clear warning that the geniuses who thought they’d fixed the system . . . didn’t, and average citizens are stuck paying for bailouts yet again.