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Home » The magic SVB bailout that’s not a bailout

The magic SVB bailout that’s not a bailout

The New Neo Posted on by

Here’s the way it works, children:

President Biden on Monday stressed that Silicon Valley Bank (SVB) will not get a government bailout after regulators seized the assets of the failed bank.

“No losses will be — and this is an important for point — no losses will be borne by the taxpayers. Let me repeat that, no losses will be borne by the taxpayers. Instead, the money will come from the fees that banks pay into the Deposit Insurance Fund,” Biden said in remarks at the White House on the banking system.

In other words, Congress isn’t allocating special funds for this. But it’s a bailout nonetheless, applying not only to insured deposits but to uninsured ones. What’s more, this is how that latter group will be paid:

The decision creates bad incentives for financial institutions and their customers.

The Federal Deposit Insurance Corporation (FDIC) is supposed to guarantee money at insured banks up to $250,000 per depositor, per bank, in each account ownership category.* In this case, however, it will fully protect all depositors with no limit…

The joint statement says, “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”

But this is misleading. For one thing, banks are themselves taxpayers. And in situations like this, the many institutions who act responsibly must bear the burden of bank fees in order to inoculate less responsible actors. Besides, these fees assessed on banks don’t exist in a vacuum that only burdens big businesses; banks pass on the costs of regulatory compliance to customers in a number of ways. So the idea that the government’s bailout funds come from some sort of magical pool of consequence-free money is silly.

It’s “silly” in terms of logic. But it’s not “silly” in terms of propaganda. In fact, the idea that many economic actions Democrats promote that seem kind and compassionate – such as, for example, a rise in the minimum wage, or an extension of mortgages to buyers who are bad credit risks and can’t really afford them – have no bad economic consequences that are passed on to everyone else is often a winning message come election day. Biden may or may not be either stupid enough or senile enough to believe his own message, but most Democrat pundits and politicians are probably well aware of its falsity. And they count on the ignorance of many voters.

This action regarding SVB exacerbates the moral hazard aspects of previous bailouts. What’s more, as the article goes on to add, “it’s also likely to spur more rules and regulations that could further burden all banks and their customers.” To the Democrats, that a feature, not a bug. The article also goes on to detail how the failure happened and why; it’s worth reading. In conclusion:

In the end, “the culprit” in SVB’s collapse “wasn’t the kind of exotic derivatives and risk-taking that doomed banks in the 2008 financial crisis. Rather, it was a mismatch between deposits and assets—the building blocks of the vanilla business of commercial banking,” the Journal writers explain. “The episode has exposed a new set of vulnerabilities for the financial system. Bankers that grew up in the easy-money era following the 2008 crisis failed to ready themselves for rates to rise again. And when rates went up, they forgot the playbook.”

Comments

The magic SVB bailout that’s not a bailout — 62 Comments

  1. Neo, didn’t you write a series of political posts on your political change process? I can’t seem to find it.

    Reason I ask is that a woman who lives in SF, is part of the Venture world, and self-identifies as “moderate liberal”, posted today:

    “If you were to make a reading list for Progressives who want to learn about Conservative political ideology, what would you recommend?”

    https://twitter.com/michelletandler/status/1635320805889540098

    A lot of suggestion have already been submitted, but I thought your essays would also be valuable.

  4. No losses will be — and this is an important for point — no losses will be borne by the taxpayers. Let me repeat that, no losses will be borne by the taxpayers.

    Well, that has a familiar ring.

    Such as: “If you like your doctor, you can keep your doctor.”

  6. A lot of suggestion have already been submitted, but I thought your essays would also be valuable.
    ==
    She needn’t limit it to political literature or to specifically conservative literature. ChesterBelloc and C.S. Lewis are worth your while. So would Mortimer Adler’s How to Read a Book. If you can handle philosophical writings, Thos. Aquinas. For apologetical writing, Frank Sheed or Peter Kreeft. Common and garden texts in neoclassical microeconomics and macroeconomics can help. Taking courses in statistics can help. A tour of old school literature in international relations (Mackinder, Morganthau) can help. Work written by Joan Didion
    ==
    As for those concerned specifically with the social order, Edmund Burke, Robert Nozick, Thos. Sowell, Friedrick Hayek, Stanley Rothman, Robert Nisbet. Also, Heather MacDonald. David Stove was a person of interest.
    If you’ve a concern with literature, Anthony Esolen.
    ==
    Also, back issues of The New Criterion, The Public Interest, Policy Review, City Journal and, if you’re of a more religious bent, First Things and Touchstone.

  7. Pretty interesting back and forth today on Megyn Kelly’s show between David Sacks and Vivek Ramaswamy on this topic. It was pretty long and there are a bunch of clips of it on YouTube if anyone is interested.

    I mostly agree with Vivek but he is painting with too broad a brush on some of it.

    Her is one clip there are a couple of others.

    https://www.youtube.com/watch?v=jbZq2MecPvA

  8. N. Machiavelli, The Prince, Chapter XVI.
    Concerning Liberality And Meanness: https://www.gutenberg.org/files/1232/1232-h/1232-h.htm#chap16

    But before reading XVI, see as a prelude the last paragraph of Chapter XV:

    […] And I know that every one will confess that it would be most praiseworthy in a prince to exhibit all the above qualities that are considered good; but because they can neither be entirely possessed nor observed, for human conditions do not permit it, it is necessary for him to be sufficiently prudent that he may know how to avoid the reproach of those vices which would lose him his state; and also to keep himself, if it be possible, from those which would not lose him it; but this not being possible, he may with less hesitation abandon himself to them. And again, he need not make himself uneasy at incurring a reproach for those vices without which the state can only be saved with difficulty, for if everything is considered carefully, it will be found that something which looks like virtue, if followed, would be his ruin; whilst something else, which looks like vice, yet followed brings him security and prosperity.

  9. One of the most annoying things about this is the attempt to portray these start ups as just like the mom and pop restaraunt in Topeka trying to get off the ground.

  10. This is another consequence of “Modern Monetary Theory.” Zero interest rates plus billions and trillions in spending.

  11. I think it’s clear by now our elites intend to just keep using Uncle Sam’s blank check to paper over these problems until they eventually get so bad the result is an unfixable catastrophe.

    Mike

  12. S&P Financials down 3.78% today. Not too bad. However, there were some companies which suffered severe losses:

    SVB: -85.36%
    First Republic: -61.39%
    Comerica: -27.67%
    Keycorp: -26.95%
    Zions Bancorp: -23.87%
    Signature Bank: -22.87%
    Truist Financial Corp: -17.74%
    Huntington Bcshs: -16.83%
    Fifth Third Bancorp: -13.58%
    Citizens Financial Group: -11.02%
    Charles Schwab: -10.99%
    US Bancorp: -10.12%
    Lincoln National: -9.90%
    Synchrony Financial: -8.93%

  13. Of the above, the bank holding companies ranked by assets are

    US Bancorp (7th, $600 bn, 16% of the leader, JP Morgan).
    Charles Schwab (8th, $577 bn, 15% of the leader)
    Truist (10th, $548 bn, 15% of the leader)
    Citizens (16th, $225 bn, 6% of the leader)
    SVB (18th, $211 bn, 6% of the leader)
    Fifth Third (19th, $205 bn, 5% of the leader)
    Keycorp (24th, $190 bn, 5% of the leader)
    Huntington (27th, $179 bn, 5% of the leader)
    Synchrony (38th, $100 bn, 3% of the leader)
    Comerica (39th, $84 bn, 2% of the leader)

    First Republic, Zions, Signature, and Lincoln National are not on the Federal Financial Institutions Examination Council list.

  14. Griffin…”One of the most annoying things about this is the attempt to portray these start ups as just like the mom and pop restaraunt in Topeka trying to get off the ground.”

    While there are exceptions, startups don’t generally have a VC involved from day one, they are typically funded by founder(s) investing a large % of their assets, plus a lot of sweat equity, plus friends & family and angel investors. VCs come a little later, and often, there are several rounds, with the initial rounds being limited in size and far from a blank check on the VC’s funds. Also, VCs come in many sizes.

  15. Major auditing firm KPMG gave SVB a clean bill of health:

    Silicon Valley Bank failed just 14 days after KPMG LLP gave the lender a clean bill of health. Signature Bank went down 11 days after the accounting firm signed off on its audit.

    What KPMG knew about the two banks’ financial situation and what it missed will likely be the subject of regulatory scrutiny and lawsuits.

    https://www.wsj.com/articles/kpmg-faces-scrutiny-for-audits-of-svb-and-signature-bank-42dc49dd

    “Common sense tells you that an auditor issuing a clean report, a clean bill of health, on the 16th-largest bank in the United States that within two weeks fails without any warning, is trouble for the auditor,” said Lynn Turner, who was chief accountant of the Securities and Exchange Commission from 1998 to 2001.

  16. Davis Foster,

    I know I was mainly referring to David Sacks in that Megyn Kelly interview where he specifically cited a woman in Ohio who was a customer of SVB and had something like 10 employees (he didn’t say what this business did).

    I generally like Sacks but his enthusiasm for this smells too much of self interest.

    Has Peter Theil said publicly yet what caused him concern with SVB that arguably started this thing?

  17. Griffin…haven’t seen anything from Thiel on that, but maybe somebody just looked at SVB’s balance sheet and realized the exposure.

  18. David Foster,

    Yep, could be that simple but his fund seems to have played a big part in this thing getting rolling and starting the run.

  19. In fact, the idea that many economic actions Democrats promote that seem kind and compassionate – such as, for example, a rise in the minimum wage, or an extension of mortgages to buyers who are bad credit risks and can’t really afford them – have no bad economic consequences that are passed on to everyone else is often a winning message come election day.

    A long but excellent sentence. It reminds me of the mini debate between Glenn Beck and Bill O’Reilly. Bill was extolling the excellence of the GOP pols becoming populists. Glenn was shaking his head and pleading with Bill to recall the history of populism. Government policy created out of a knee-jerk popular compassion usually isn’t a great idea.

  21. Major auditing firm KPMG gave SVB a clean bill of health:
    ==
    Was KPMG attesting to the probity of its books or was it assessing the composition of its asset portfolio?

  22. I read the Michelle Tandler tweet thread. Sowell gets a large number of recommendations, of course. The one I’d recommend got 4 mentions, which is the Friedmans’ “Free To Choose.”

    Another uncommon one would be some of the popular essays by Frederic Bastiat. I read a number of them, and only later became aware that some of that material was written in response to published essays by JP Proudhon. It would be interesting to see essays from both of those authors put together in a sort of asynchronous debate form.

  23. “The Federal Deposit Insurance Corporation (FDIC) is supposed to guarantee money at insured banks up to $250,000 per depositor, per bank, in each account ownership category. In this case, however, it will fully protect all depositors with no limit.”

    . . . and everyone gets a Participation Trophy!

    Don’t worry, be happy . . .

    I know this is an exaggeration, but it sure seems that nothing means anything any more.

  24. ‘Its not a tumor’ actually it is a sygy of dem politicians zombie businesses and even some chinese ponzi scheme

  27. Was KPMG attesting to the probity of its books or was it assessing the composition of its asset portfolio?

    A major accounting firm audit of a large bank should include an assessment of its balance sheet and risk.

  30. A major accounting firm audit of a large bank should include an assessment of its balance sheet and risk.
    ==
    Was that the object of the audit?

  32. “Glenn was shaking his head and pleading with Bill to recall the history of populism.”

    In the case of the GOP, we’re talking about stopping policies that ACTIVELY HARM the nation and its citizens and, instead, trying to actually do things to improve the lives of all Americans, not just rich people and corporate donors.

    I mean, it’s really interesting how libertarianism can be so influential on Republican thinking and policy-making when it aligns with the interests of the wealthy, then becomes so irrelevant the instant it doesn’t.

    Mike

  33. I’ve never noticed libertarianism was all that influential in Republican circles, just a sporadic defense of business contra the legal profession, Democratic politicians, regulators, and unions.

  34. @ miguel > “Like piano players in the saloon”

    Thanks – that is the only article I’ve seen so far with information on the Federal Home Loan Bank connections — looks like we need to be investigating some government overseers for dereliction of duty.
    Which seems to happen a lot when problems hit Democrat donors.

  35. I also recommend this related post:
    https://wallstreetonparade.com/2023/03/fdic-investigators-are-on-the-premises-of-collapsing-federally-insured-crypto-depositor-bank-silvergate-its-not-a-friendly-visit/

    If bank examiners from the Federal Deposit Insurance Corporation are on the premises of Silvergate Bank, it is because officials of that bank put a big red target on their bank for the Feds on March 1 when it made a filing with the Securities and Exchange Commission that stated that the bank had concerns about its “ability to continue as a going concern.”

    The SEC filing also indicated that record-keeping at the bank is so suspect that it can’t even file its annual report for the full year of 2022 (Form 10-K) on time; and it needs more time to “record journal entries.” Equally troubling was the phrase that “its independent registered public accounting firm” will require more time “to complete certain audit procedures, including review of adjustments not yet recorded and the evaluation of the effectiveness of the Company’s internal control over financial reporting.”

    And if all that weren’t enough, it added for good measure that it was under multiple investigations from regulators, Congress and – oops – those folks with criminal prosecution powers – the U.S. Department of Justice.

    So, to summarize, that devastating information was released seven days ago and yet, yesterday, Bloomberg News’ reporters think that the Feds are on the premises of Silvergate to “salvage” the bank.

    Here’s an alternative theory: the FDIC bank examiners are on the premises of Silvergate Bank to find out how big a hole there is between what the bank owes to depositors, its cash on hand, and what its liquidated assets might be worth.

    Silvergate’s ability to find a white knight bidder to “salvage” the bank ended when gutsy U.S. Senators Elizabeth Warren (D-MA), John Kennedy (R-LA), and Roger Marshall (R-KS) released a letter on January 30 to the bank’s CEO, Alan Lane. The letter revealed that the bank had been stonewalling the Senators on their inquiries about the bank’s dealings with Sam Bankman-Fried’s collapsed crypto exchange, FTX, and his hedge fund, Alameda Research. Federal prosecutors have charged that Alameda and its principals looted more than $8 billion from FTX customer accounts and the money is missing.

    The letter from the three Senators to Silvergate CEO Lane explained the situation as follows:
    …
    It turns out that the people running Silvergate Bank did not quite grasp the concept of hot money. Hot money can pour in really fast to a bank and boost its deposit base but it can also drain deposits in record time, leaving the bank teetering. On January 5, Silvergate reported to the SEC that its “total deposits from digital asset customers declined to $3.8 billion” as of December 31, 2022 (down from the previously reported $11.9 billion on September 30, 2022.) That’s a 68 percent drop in one quarter – an astonishing figure for a federally-insured bank in the United States.

    A federally-insured bank is not some local mom and pop bakery that puts a sign on its door that it’s closing due to its rent going up. A federally-insured bank is part of a complex system of deposit insurance that, ultimately, puts the U.S. taxpayer on the hook for unrecouped losses.

    On an ongoing basis, the Deposit Insurance Fund (DIF) is funded primarily through quarterly assessments on insured banks. A bank’s assessment is calculated by multiplying its assessment rate by its assessment base. A bank’s assessment base and assessment rate are determined and paid each quarter.

    According to the FDIC, the Deposit Insurance Fund (DIF) held $128.2 billion as of December 31 while the total of domestic deposits tallied up to $17.7 trillion. But some of those deposits exceed the insurance limits. According to the FDIC, as of December 31 the Deposit Insurance Fund’s balance was just 1.27 percent of the insured deposits held at the nation’s banks. (See chart above from the FDIC.)

    That low reserve at the Deposit Insurance Fund has not been a problem heretofore but if crypto fraudsters are allowed by Congress to continue to invade federally-insured banking in the U.S., it could become a problem very fast.

    That problem would not only raise the cost of insurance premiums to the ethical banks in the system but it could also do serious reputational damage to the safety and soundness of the entire U.S. banking system.

  36. Drum rollllll…..
    It’s Trump’s Fault(TM)!!
    Yep, that’s right! Count on it…if only a few days late—well, “Biden” was kinda tied up with the bailout that’s not a bailout…you know…
    “Biden blames bank failures on Trump signing 2018 bill passed with significant Democrat support”—
    https://justthenews.com/government/white-house/biden-blames-bank-failures-trump-signing-bill-democrats-voted-2018

    C’mon man, you KNEW this was gonna happen…
    Better late than never, I guess…

  37. Biden today: “US banking is safe”

    BREAKING: Bank stocks in free-fall – trading halted

    Hoover: “Prosperity is just around the corner.”

    As for those concerned specifically with the social order, Edmund Burke, Robert Nozick, Thos. Sowell, Friedrick Hayek, Stanley Rothman, Robert Nisbet. Also, Heather MacDonald. David Stove was a person of interest.

    Milton Friedman’s Capitalism and Freedom influenced me when I was 18. Another economics-related one is Bastiat’s essay “What is seen and unseen.” Also Henry Hazlitt’s Economics in One Lesson.

  38. Was that the object of the audit?

    Probably not, but the Fed is supposed to do that (assess portfolio risk) as part of its supervision of member banks. SVB, though state-chartered, was a member of the Federal Reserve System and supervised by the SF Fed.

  39. BREAKING: Bank stocks in free-fall – trading halted

    They weren’t in free fall. The list of financial sector enterprises whose share prices fell > 7.5% I posted above.

  40. TRUMP dunnit (continued)….
    “The Bank Crisis Has Democrats Scrambling Behind The Scenes To Find A Scapegoat”—
    https://www.zerohedge.com/economics/bank-crisis-has-democrats-scrambling-behind-scenes-find-scapegoat
    Key grafs:
    ‘Democratic representatives are scrambling in the wake of the potentially contagious Silicon Valley Bank implosion, looking for a way to divert attention away from them should the crisis expand.
    ‘One avenue for scapegoating the event that has been suggested among Dems and the media is to blame a 2018 law that eased Dodd-Frank capital requirements for midsize and small banks. Republicans led the effort to pass the law, which President Donald Trump signed, but 33 House Democrats and 17 Senate Democrats also voted for it.
    ‘No mention, of course, of the cancerous exposure SVB had to numerous woke investments through venture capital, including money losing ESG related projects, climate change-based companies and World Economic Forum stakeholder capitalism projects.
    ‘The Dems have found their narrative, which is an old narrative: “The conservatives did it.”….
    ‘…They have called for endless liquidity measures and have consistently demanded lower rates and looser monetary policy. However, when Donald Trump’s Administration called for rate cuts during his term, Dems attacked. Once again, when Republicans do it, it’s wrong; when they do it, it’s good policy….’

  41. I’m not sure that the expression, “between a rock and hard place” even begins to explain this mess…
    “…Why The Banking System Is Breaking Up”—
    https://www.zerohedge.com/markets/hudson-why-banking-system-breaking
    Concluding grafs:
    ‘…[T]he entire financial system is being squeezed. Reuters reported on Friday that bank reserves at the Fed were plunging. That hardly is surprising, as banks are paying about 0.2 percent on deposits, while depositors can withdraw their money to buy two-year U.S. Treasury notes yielding 3.8 or almost 4 percent. No wonder well-to-do investors are running from the banks.
    ‘ The obvious question is why the Fed doesn’t simply bail out banks in SVB’s position. The answer is that the lower prices for financial assets looks like the New Normal. For banks with negative equity, how can solvency be resolved without sharply reducing interest rates to restore the 15-year Zero Interest-Rate Policy (ZIRP)?
    ‘ There is an even larger elephant in the room: derivatives. Volatility increased last Thursday and Friday. The turmoil has reached vast magnitudes beyond what characterized the 2008 crash of AIG and other speculators. Today, JP Morgan Chase and other New York banks have tens of trillions of dollar valuations of derivatives – casino bets on which way interest rates, bond prices, stock prices and other measures will change.
    ‘ For every winning guess, there is a loser. When trillions of dollars are bet on, some bank trader is bound to wind up with a loss that can easily wipe out the bank’s entire net equity.
    ‘ There is now a flight to “cash,” to a safe haven – something even better than cash: U.S. Treasury securities. Despite the talk of Republicans refusing to raise the debt ceiling, the Treasury can always print the money to pay its bondholders. It looks like the Treasury will become the new depository of choice for those who have the financial resources. Bank deposits will fall. And with them, bank holdings of reserves at the Fed.
    ‘ So far, the stock market has resisted following the plunge in bond prices. My guess is that we will now see the Great Unwinding of the great Fictitious Capital boom of 2008-2015. So the chickens are coming hope to roost – with the “chicken” being, perhaps, the elephantine overhang of derivatives fueled by the post-2008 loosening of financial regulation and risk analysis.’
    Related:
    https://justthenews.com/accountability/svb-knew-150-million-investment-losses-and-still-doubled-down-woke-agenda-despite

  42. From “Related”, above:
    ‘…The banks — like all too many institutions in corporate America of late — took their eye off the ball in a bid to pander to the progressivve ideological agenda, Crowley believes.
    ‘ “It is 100% true that we are seeing industries, companies across the board, that changed their focus to a social justice platform more than their actual core business,” she said. “And there are deleterious effects on that core business. They are trying to cover their tracks for their own wrongdoing, their own unethical behavior. And it’s veering off into DEI and ESG that has crippled their ability to actually serve their customers and protect their core mission.”…[Emphasis mine; Barry M.]

    And of course, no matter what “Biden” claims, “The People” will be shouldering the burden for this extravagant irresponsibility either in higher taxes or higher inflation.
    Or, as is most likely, both.

  44. “…Why The Banking System Is Breaking Up”—
    ==
    The FDIC insures 4,700 institutions. That does not include credit unions, who are insured by a different agency. It doesn’t include securities firms either. So, Silicon Valley and Signature fail and the market is treating several others as distressed, and this Hudson fellow tells you ‘the banking system is breaking up’, and you take him at face value.

  45. Very much that you’re right and he’s wrong.
    (But then I hope for a lot of things…)

  46. Credit Suisse has published its financial report today, showing a large loss. It was to have published last Thursday, but according to this, the SEC sent it back for review of risk assessment.

    On Tuesday morning, Credit Suisse published its annual report which revealed an $8billion loss for 2022. The bank had been due to publish the report last Thursday, but was sent back to review its books by the SEC.

    Shares held steady on the NYSE once trading began, flattening to around $2.54 – a marginal improvement on the morning’s low of $2.44 but woefully less than where it stood a year ago, when they traded at above $7.

    Today, Credit Suisse said the ‘weaknesses’ were down to a ‘failure to design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements.’

    https://www.dailymail.co.uk/news/article-11857123/Wall-Street-expert-predicts-Credit-Suisse-bank-fold.html

    So, yes, audits of publicly held companies are supposed to review the adequacy of disclosures of risk. Leftists are howling about disclosure of “climate risk assessment,” but actual financial risk is far more important.

  47. And, this morning, the WSJ editorial board points out correctly that the cost of the FDIC’s back-stopping of these banks will indeed be paid by taxpayers, in the indirect form of higher bank fees, since banks will be charged for the insurance losses. The result is a message to startups that the government has their back. Smaller regional banks will pay, but they will not be exempt from due diligence, as larger banks can now assume themselves to be.

  48. }}} President Biden on Monday stressed that Silicon Valley Bank (SVB) will not get a government bailout after regulators seized the assets of the failed bank.

    Translation:

    Pay NO attention to that idiot in front of the curtain.

    Glad I could help. 😛

  50. “…Money is free, right?”

    When it’s other people’s money, yes it is. And it will be other people’s money, because they’re going to get from “The Rich”, which is somebody that isn’t you.

  51. Also irritating is the report that Treasury had a preferred buyer for SVB over the weekend, but the FDIC wouldn’t go for it because of merger concerns. At this rate, we’re going to end up with a few massive banks and fewer smaller ones anyhow.

  52. A fundamental premise of the vast majority of demokrat party initiatives (that is, when it comes to taxes and spending) is that you can get something for nothing.

    The demokrats repeatedly get away with this canard because a very large percentage of the citizenry believe it. The demokrats know this, so they keep at it.

    Yep, let’s raise taxes on those greedy corporations; everyone will benefit.
    Sure.
    Corporations do not pay taxes; they collect them for the government from their customers.

    Unfortunately the dumbpublicans are not much help.

  53. “Too many mistakes”, though, may not be very helpful…
    Here’s another, more specfic take, from Don Surber:
    “Biden killed SVB. We’re next.”—
    https://donsurber.substack.com/p/biden-killed-svb-were-next
    H/T Instapundit.
    ‘ The blame game over SVB’s collapse is a diversion. The media have rounded up the usual suspects: Trump, greed, bad law, blah, blah, blah. When Captain Renault did that in Casablanca, he knew who the real culprits were. The media is not that bright.
    ‘ James Hickman is. He is the founder of Sovereign Research. He looked at the numbers and he found the culprit.
    ‘ Biden. He made government bonds worth less which has banks dropping like cockroaches in a Raid commercial.
    ‘…Hickman said, “SVB failed because they parked the majority of their depositors’ money ($99 billion) in U.S. government bonds.
    ‘ “This is the really extraordinary part of this drama. U.S. government bonds are supposed to be the safest, most risk free asset in the world. But that’s totally untrue, because even government bonds can lose value. And that’s exactly what happened.”
    ‘ SVB lost money on government bonds by the billion and that brought the bank down. That is like water catching fire….’

  54. Corporations do not pay taxes; they collect them for the government from their customers.
    ==
    The economic effect of indirect taxes is parceled out between various parties. The economic effect would be distinct from the accounting responsibility for the taxes, which rests with the corporation. In the case of a corporation tax, it would be parceled out between shareholders, employees, suppliers, and customers.

  55. Ah, Joe’s just making a partial campaign contribution rebate to his Silicon Valley’s needy, now slightly-less rich donors.

  56. “Was KPMG attesting to the probity of its books or was it assessing the composition of its asset portfolio?”

    The problem, as I understand it, is that these banks look good on paper, with assets exceeding liabilities (including, esp, deposits) by a comfortable margin. EXCEPT that a lot of their reserves are in bonds, and esp in super safe Treasury bonds. Held to maturity, the bonds will pay face value. Except that with a bank run, they don’t have that long, and the market for bonds crashes with high inflation (since the value of the bonds to the market is essentially the discounted (by the current interest rate, which includes the inflation rate) face value of the bonds). Marked to market (valued at what they would bring at sale), the reserves disappear, and for some banks go negative.

    The big driver here is the inflation caused by the Democrats, in the previous Congress, controlling both houses of Congress and the WH, spending like drunken sailors on shore leave. $Trillions$ shipped to conmen in Nigeria and Ukraine, to every possible Dem constituency, etc. They spent the money because they had the power to do so. Much of it was flushed down the toilet, with the grifters taking their cut along the way. And, the Fed had to (essentially) print money to pay for their spending, and as expected, inflation exploded.

    So, sure,the government will buy their reserves, in order to pay everyone off. And if the government holds the bonds until maturity, they will get their money back. Except they really won’t be, because of inflation. They have to borrow the money to buy the assets from the banks, and that is in today’s dollars, not the much less valuable dollars they will receive when they redeem the bonds at maturity.

  57. Misteaks wur maid. The receivers and bank examiners will sort that out.

    In the meantime, voices of calm must tamp down the panic. We don’t want a national panic over bank deposits. Too many people are trying to foment that result. Mostly for political purposes. But imagine how much the Chinese might get involved in such an activity.

    Here’s a little different take on the reason for the failure of SVB.

    “Everybody knows rising interest rates benefit banks…

    Well, almost everybody.

    You see, when it comes to banks, the idea of interest can get complicated. That’s because the word itself does double duty for these institutions…

    When banks loan out money, interest is an important revenue source. And when banks pay depositors, interest is an important expense.

    In the end, “net interest income” is all about profits. It’s just revenue minus expenses.

    Like all other companies, a bank’s income and margins expand when its revenue rises faster than its expenses. And the opposite occurs if a bank’s revenue comes in below its expenses.

    When interest rates rise, interest revenue goes up. But of course, interest expenses go up as well.

    So far, so good. That’s basic logic. But here’s where things can get complicated…

    When interest rates rise, interest revenue rises faster than interest expenses.

    That last sentence isn’t basic logic. It’s a custom that has developed over time.

    But depositors at the now-infamous and now-failed SVB Financial (SIVB) – which did business as Silicon Valley Bank – didn’t honor that custom. They didn’t play by the rules.

    As a result, interest income and margins for banks might never be the same again. And the same thing goes for the supposed “bullish” case for banks when interest rates rise…

    In a legal sense, SVB was just another bank. But as its trade name of Silicon Valley Bank suggests, it was much different in reality…

    SVB had an unusually wealthy, sophisticated, and demanding client base.

    These folks didn’t just sit back, watch interest rates rise, and continue to settle for lowball deposit rates. They knew how to find better deals with just a click of the mouse.

    So as rates rose, they pulled a lot of money away from SVB to chase better deals. And naturally, SVB had to come up with the cash to meet the influx of withdrawal demands…

    SVB had a large portion of its assets invested in U.S. Treasurys. And as we all know, these securities’ market values plummeted as the Federal Reserve raised interest rates.

    Now, a pullback like that can be tolerable. Many institutional holders of fixed-income portfolios can hold these securities until they eventually mature at 100 cents to the dollar.

    SVB was different. Its yield-seeking clients requested so many withdrawals so fast that the bank had no choice. It had to immediately sell a lot of its depressed U.S. Treasurys.

    Paper losses guaranteed to vanish at maturity are one thing. Immediate real-money losses are a whole new ballgame.

    This sort of liquidity crunch can cause failure. That’s exactly what happened to SVB.

    Now, almost everyone with any type of platform is talking about SVB’s failure. And that’s critical for the future of consumer banking…

    All this news coverage about SVB’s clients refusing to play the old ballgame of just letting banks benefit from rising loan rates while leaving depositors behind could create a snowball effect. It could inspire John and Jane Average to start taking their money elsewhere.

    We’re no longer living in the 20th century, when banks were often legally restricted to operating within a single state. We’re not even living at the turn of the 21st century, when many folks still cherished the convenience and occasional need to go to a physical branch.

    Today, we can use mobile devices to shop for better rates wherever we can find them…

    Free web portals like NerdWallet (NRDS) and Bankrate help everyday folks get better rates. It’s similar to how Expedia (EXPE) and other websites help folks shop for flights and hotels.

    Banks are eager to offer easy online account setup and transfer in order to poach clients from other banks. (Others poach from them, too. But that’s life – and just business.)

    Consumer banking won’t change overnight. Nothing does. After all, it took years or even decades for many people to get comfortable buying stocks or shopping online.

    More people need to get comfortable with the idea of mobile check deposits, looking at account fees in addition to rates, and more. Until then, the custom won’t change.

    But as we’ve seen over and over, the world evolves. Once change is set in motion, it doesn’t stop.

    So the custom of “everybody knows rising interest rates benefit banks” looks to be on a very short leash.
    Marc Gerstein”

    So, in Gerstein’s scenario, SVB’s depositors took their money out to get better rates elsewhere – something he believes is relatively new. Obviously, new regulations and practices for banks will be needed to deal with this yield shopping by depositors. If that’s what really happened.

  58. “…So as rates rose, they pulled a lot of money away from SVB to chase better deals…”
    “…It could inspire John and Jane Average to start taking their money elsewhere…”

    And this is what appears to be happening, with “better deals” meaning “merely trying not to see the money disappear” and “elsewhere” translating as the biggest banks on the block (IOW, “too big to fail”).
    And so, MORE “magic”:
    “Too-Big-To-Fail Banks Flooded With Deposits As Bank Run Drains Small Bank Of Cash”—
    https://www.zerohedge.com/markets/too-big-fail-banks-flooded-deposits-bank-run-drains-small-bank-cash
    Indeed, as the massive bank run “drains small banks of cash”.
    (Fortunately, one can always blame Trump, etc.—and the grotesque media will gleefully parrot 24/7 his responsibility for this catastrophe.)

    It would appear then that the battle royale is now shifting to the smaller banks, which according to this report, are hemorrhaging cash…or are about to.
    So will “Biden” bail them out too? (Is that even possible?)

  60. It seems reasonable that the FDIC insurance limit per depositor should be raised to $500,000. Businesses (and wealthy individuals) would be wise to spread their deposit money among multiple institutions. Of course, many banks like SVB require loan customers to do ALL their banking with the institution.

  61. Related (especially the second interview):
    “Kevin O’Leary rejects Biden admin’s response to SVB collapse: ‘We should not have done this’;
    “O’Leary tells ‘America’s Newsroom’ Silicon Valley Bank failed because of ‘idiot’ managers and executives”—
    https://www.foxnews.com/media/kevin-oleary-rejects-biden-admin-response-svb-collapse-done

    O’Leary describes the potentially explosive problems of “Biden” kneejerk policy having created a “no-risk banking” environment.

    Pretty brutal stuff.

  62. The big driver here is the inflation caused by the Democrats, in the previous Congress, controlling both houses of Congress and the WH, spending like drunken sailors on shore leave
    ==
    The spending was drawing heavily on the bond market and Powell & Co. decided to buy bonds and increase the monetary base. Powell & co. did not have to do that, though it’s possible he feared a failed bond sale (I suppose). Congress, of course, was the source of the problem.

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