Banking
Fig. 1. “East River Savings Bank,” apparently now a CVS drug store. Photograph by Jim Henderson, July 3, 2021, via Wikimedia Commons, CC BY 4.0.
I’ve been making further edits to the banking page. It was still really rather out of sequence yesterday and today I have more quotations that help pull the picture together.
“There’s not a way to help the people [Joe Biden] wants without also helping the uninsured depositors who made a bad choice by putting too much money into a single bank,” said one adviser to the White House. “I have no doubt in my mind that he feels ambivalent about it. But he’s not willing to take a risk with this economy.” . . .
Throughout the weekend, Biden’s inner circle emphasized the potential impact on workers’ paychecks, which they believed would resonate both with the president and the public, said one of the people familiar with the deliberations. And they urged Biden to speak to the public before U.S. markets opened to ward off runs on other regional banks. . . .
[The proposal to bailout depositors] also raised questions about whether the [Federal Deposit Insurance Corporation] might be expected to make all depositors whole anytime a bank fails, something it is not designed to do, making the decision especially painful for [FDIC Chair Martin] Gruenberg and his fellow board members.
Though the Fed and the FDIC were each designed to stop financial panics, the moves by both agencies also risked ratifying the notion that the government would always be there to dull the consequences of the collapse of a larger bank. It was the “moral hazard” question that dogged rescue efforts in 2008 and 2009. . . .
Bob Kocher, a partner at venture capital firm Venrock and former Obama-era White House official, said some panicked companies are going as far as transferring all their money into board members’ individual bank accounts while they set up their own new accounts with major financial institutions.
“There’s no way now as a board member you can sign off on putting all your money into a regional bank,” he said, adding that he expects to see significant outflows at similarly sized institutions like First Republic Bank and PacWest Bancorp. “Everybody’s racing to put their money into JPMorgan and Goldman Sachs.”
Beyond making payroll, Kocher said, [Silicon Valley Bank’s] failure raised questions about how companies would pay for basic services like cloud storage and website maintenance, as well a constellation of smaller suppliers, if their deposits got tied up in a troubled bank.[1]
I think the conclusion here is that a $250,000 limit on Federal Deposit Insurance Corporation coverage is simply the wrong approach to this problem. Large companies need large checking account balances to make payroll and pay their bills and, setting aside arguments about capitalism, the nature and function of money, etc., we probably would acknowledge that these are legitimate balances that should be protected. But that wasn’t everybody who had deposited large sums at these banks—hence the moral hazard problem which I discuss at length on the banking page.
What we need, if it’s possible to do, is a distinction between legitimately large balances and recklessly large balances, the very distinction the Joe Biden administration was unable to make.[2]
The extraordinary measures—which do not quite amount to bailout in the 2008 sense but bear more of a resemblance to a bailout than some venture capitalists would like to admit—come after the stunning collapse of Silicon Valley Bank. SVB officially shuttered Friday after a run on deposits, followed by similar failure of Signature Bank, which regulators closed Sunday amid concerns that it could threaten the financial system more broadly. The Biden administration cast the intervention as necessary to “maintain a resilient banking system.” But what this whole fiasco has made clear is that the banking system is actually pretty far from resilient, and has instead been left in a fragile state from deregulation.[3]
Brian Chappatta, “SVB’s 44-Hour Collapse Was Rooted in Treasury Bets During Pandemic,” Bloomberg, March 10, 2023, https://www.bloomberg.com/news/articles/2023-03-10/svb-spectacularly-fails-after-unthinkable-heresy-becomes-reality
Saleha Mohsin, Lydia Beyoud and Sridhar Natarajan, “FDIC Races to Return Some Uninsured SVB Deposits Monday,” Bloomberg, March 11, 2023, https://www.bloomberg.com/news/articles/2023-03-11/fdic-races-to-start-returning-some-uninsured-svb-deposits-monday
Associated Press, “US government: Silicon Valley Bank clients will get funds,” March 12, 2023, https://apnews.com/article/silicon-valley-bank-bailout-yellen-deposits-failure-94f2185742981daf337c4691bbb9ec1e
William D. Cohan, “SVB’s Valley of Death,” Puck, March 12, 2023, https://puck.news/svbs-valley-of-death/
Ben Foldy, Rachel Louise Ensign, and Justin Baer, “How Silicon Valley Turned on Silicon Valley Bank,” Wall Street Journal, March 12, 2023, https://www.wsj.com/articles/how-silicon-valley-turned-on-silicon-valley-bank-ee293ac9
Victoria Guida and Sam Sutton, “‘There’s going to be more’: How Washington is bracing for bank fallout,” Politico, March 12, 2023, https://www.politico.com/news/2023/03/12/silicon-valley-bank-fallout-washington-00086662
Jeff Stein et al., “U.S. says ‘all’ deposits at failed bank will be available Monday,” Washington Post, March 12, 2023, https://www.washingtonpost.com/us-policy/2023/03/12/silicon-valley-bank-deposits/
Nick Timiraos, “SVB, Signature Bank Depositors to Get All Their Money as Fed Moves to Stem Crisis,” Wall Street Journal, March 12, 2023, https://www.wsj.com/articles/federal-reserve-rolls-out-emergency-measures-to-prevent-banking-crisis-ba4d7f98
Zachary Warmbrodt, “Banks fought to fend off tougher regulation. Then the meltdown came,” Politico, March 12, 2023, https://www.politico.com/news/2023/03/12/banks-regulations-feds-svb-meltdown-00086694
Adam Cancryn, Ben White, and Victoria Guida, “How Biden saved Silicon Valley startups: Inside the 72 hours that transformed U.S. banking,” Politico, March 13, 2023, https://www.politico.com/news/2023/03/13/the-emergency-bank-rescue-that-almost-didnt-happen-72-hours-00086868
John Cassidy, “The Old Policy Issues Behind the New Banking Turmoil,” New Yorker, March 13, 2023, https://www.newyorker.com/news/our-columnists/the-old-policy-issues-behind-the-new-banking-turmoil
Telis Demos, “Were SVB and Signature Bank Just Bailed Out by the U.S. Government?” Wall Street Journal, March 13, 2023, https://www.wsj.com/articles/were-banks-just-bailed-out-by-the-government-6b0a582f
Eric Lutz, “The Silicon Valley Bank Crisis Is Complicated. But Donald Trump’s Role In It Isn’t,” Vanity Fair, March 13, 2023, https://www.vanityfair.com/news/2023/03/silicon-valley-bank-collapse
David J. Lynch and Tony Romm, “Washington’s bank rescue fails to erase all doubts,” Washington Post, March 13, 2023, https://www.washingtonpost.com/us-policy/2023/03/13/silicon-valley-bank-doubts/
Jeff Stein, “Is this a bailout and 6 other questions about the SVB collapse,” Washington Post, March 13, 2023, https://www.washingtonpost.com/us-policy/2023/03/13/svb-bank-bailout-fed/
Gilead
Abortion
Fig. 1. Sign at demonstration in front of the U.S. Supreme Court, May 3, 2022. Janni Rye, via Wikimedia Commons, Creative Commons CC0 1.0 Universal Public Domain Dedication.
Perry Stein, Ann E. Marimow, and Caroline Kitchener, “After unusual delay, Texas judge announces abortion-pill hearing,” Washington Post, March 13, 2023, https://www.washingtonpost.com/national-security/2023/03/11/texas-abortion-pill-hearing-kacsmaryk/
Illiberalism
Fig. 1. Photograph by Joachim F. Thurn, August 1991, Bundesarchiv, B 145 Bild-F089030-0003, via Wikimedia Commons, CC BY-SA 3.0 DE.
Carrie Keller-Lynn, “MKs approve 1st reading of override clause, in major step toward judicial overhaul,” Times of Israel, March 13, 2023, https://www.timesofisrael.com/knesset-debates-override-clause-as-president-warns-national-situation-very-serious/
- [1]Adam Cancryn, Ben White, and Victoria Guida, “How Biden saved Silicon Valley startups: Inside the 72 hours that transformed U.S. banking,” Politico, March 13, 2023, https://www.politico.com/news/2023/03/13/the-emergency-bank-rescue-that-almost-didnt-happen-72-hours-00086868↩
- [2]Adam Cancryn, Ben White, and Victoria Guida, “How Biden saved Silicon Valley startups: Inside the 72 hours that transformed U.S. banking,” Politico, March 13, 2023, https://www.politico.com/news/2023/03/13/the-emergency-bank-rescue-that-almost-didnt-happen-72-hours-00086868↩
- [3]Eric Lutz, “The Silicon Valley Bank Crisis Is Complicated. But Donald Trump’s Role In It Isn’t,” Vanity Fair, March 13, 2023, https://www.vanityfair.com/news/2023/03/silicon-valley-bank-collapse↩