Team Biden is going bank BS — but you can’t spin this disaster

It’s a funny but sad spectacle that Joe Biden and company are trying to turn the chaos of Silicon Valley’s bank – and the crisis engulfing the banking system – into a political win.

It’s funny how BS works for and spins the temporary nature of inflation, or how well it handled the alarmingly chaotic withdrawal from Afghanistan.

Sad because it highlights the outright stupidity of our political class as they stand up to it all Serious issues related to the banking system and the economy cannot be overlooked.

Of course, the last word hasn’t yet been written on the collapse of SVB, Signature Bank, the imminent collapse of First Republic Bank, and whatever else is imploding by the time this column appears in the paper.

But one thing I know for sure are those banking crises They demand leadership from Washington Things that are obviously missing at a time when they are most needed.

In 2008, we had Treasury Secretary Hank Paulson working day and night putting out multiple fires and coming to an understanding with Congress and the American people about the seriousness of the situation. Today we have Sleepy Joe Biden, Sleepy Treasury Secretary Janet Yellen declaring that bank bailouts are not really bailouts Because taxpayers are not involved.

truly?

The government just gave SVB a blank check to cover all depositors, especially venture capitalists in the Gulf region. This means that all accounts are covered by FDIC insurance, even those over the $250,000 limit.

He says bluntly that the money comes from the big banks that contribute to the FDIC insurance pool. Well, but if the banks are financing the fund, they will pass on those costs to the depositors. This means that every person with a bank account, which means almost every American taxpayer, these wealthy VC guys will be earning.

Duh.

Not too “stressful”.

Then Biden says Willen Relaxation of the Banking Act known as Dodd-Frank It means that medium-sized banks like SVB have survived the so-called stress tests that would have exposed their weaknesses. They seem to ignore (or more likely have no clue) the dirty little secret that such tests are derisively known in banking circles as “feather tests” because even basket cases of big risk management challenges like Citigroup seem to pass them.

Another massive one: Biden and Yellen would have us believe that the San Francisco Fed He had no idea what was going on in the backyard With a bank that grew exponentially in the three years before it sank.

Again, don’t believe it. The CEO of SVB was once a member of the board of directors of the Domestic Federal Reserve Bank. Whoever had it should have known what the SVB had to do. By many accounts, they were too busy making sure the banks they organized met ESG standards and embraced so-called social justice remedies to pay attention to the obvious risk taking by SVB. One of my sources worked at SVB until a year ago, and here’s how he described the bank’s business model: “Loans to venture capital-backed companies that didn’t make any money, asset-based lines of credit to private equity funds and more. It shouldn’t have been done.” Give him FDIC insurance. This was not a place that gave out loans to construction companies and took deposits from your aunt.”

Yes, the FDIC insurance was supposed to protect small depositors like your aunt, not the tech millionaires who banked with SVB and knew it was a risky business. These tech millionaires (like the Federal Reserve Bank of San Francisco) either knew or should have known that hiccups in the economy like price hikes could doom this bank and possibly others.

As I first reported last week, the big banks now fear another mid-sized San Francisco bank about to succumb to the forces of the market named First Republic. (See the pattern here?) They poured $30 billion into stabilizing the bank at least for now.

This is because I also heard that the bank may be sold in the coming days to one of the bailout participants. The reason they do this isn’t necessarily because they think First Republic is a great company — rather, they’re so concerned about economic contagion that policymakers have no idea how to deal with it.

Remember 2008?

The bill comes because of the unserious economic policies that have prevailed over the past two years or more: unprecedented spending by the Biden administration to turn the US into a quasi-socialist European welfare state and money printing by the Federal Reserve to make it happen.

Every senior bank executive I talk to says current problems in the financial system could lead to this Something on the scale of what happened in 2008. They are also deeply concerned that the banking turmoil is another example of Sleepy Joe & Co. Not being on the job.

Or as someone put it to me: “Where’s Hank Paulson when you need him?”