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March 13, 2023

Can Biden’s Bank Failure Contagion Be Contained?

Could the second-largest bank failure in U.S. history cause a crisis of confidence and cascading bank failures nationwide, as happened in 2008?

All financial sector hands are on deck this week after a liquidity run on Silicon Valley Bank (SVB), America’s 16th largest bank, resulted in the second largest bank failure in U.S. history.

Many of the depositors’ accounts among the $209 billion in total assets held by SVB far exceeded the $250,000 maximum covered by the Federal Deposit Insurance Corporation (FDIC). After a rush of $42 billion in withdrawals, SVB was out of cash and imploded, and thus was seized by the FDIC Friday. That placed many tech businesses and startups, an already overpriced market sector, in peril and raised serious questions about potential runs on other banks.

Indeed, a day later the FDIC seized control of Signature Bank in New York, becoming the third largest bank failure in history, and notably, one of the crypto currency market’s leading bankers. I have warned our readers about the perils of the crypto currency cult.

Then, just in time, FDIC convinced JPMorgan-Chase to infuse capital into First Republic Bank, as it was on a collision course with insolvency under liquidity pressure.

As SVB’s doors were being locked, Treasury Secretary Janet Yellen was asked if there was going to be a bailout akin to that of 2008. She declared: “The reforms that have been put in place means that we’re not going to do that again. But we are concerned about depositors and are focused on trying to meet their needs.”

In other words, a bailout of wealthy investors who made reckless decisions about where to park billions in cash is in the works, and within hours a Federal Reserve/FDIC statement noted, “[Yellen’s action] fully protects all depositors.”

As we expected, it was Joe Biden to the rescue, and there are two major reasons he is going to cover losses at SVB, beyond his claim that Americans need to “have confidence that the banking system is safe.”

First, it’s the Big Tech business sector that provides major campaign backing for Democrats nationwide. That would included California Governor Gavin Newsom, likely a 2024 presidential contender after Biden steps out. Notably, Newsom pushed for the bailout while conveniently omitting mention of this direct conflict of interest: SVB backs three wine companies he owns.

Second, SVB banked for Biden’s favorite business constituency — more than 1,550 “climate change” technology firms developing solar, hydrogen, and battery storage. SVB issued them billions in loans, and many were profiting on the tax credits included in Biden’s co-called Inflation Reduction Act. (What, you didn’t know that boondoggle bill was chock-full of Biden’s green machine profiteers?)

And get this load of manure according to Biden: “No losses will be borne by the taxpayers. Instead, the money will come from the fees that banks pay into the deposit insurance fund. Because of the actions that our regulators have already taken, every American should feel confident that their deposits will be there if and when they need them.”

In other words, the bailout will come from taxpayers — those who pay increased banking fees to cover banks’ fee increases to the deposit insurance fund. Got that spin! Meanwhile, USA Today and other so-called “fact-checkers” were protecting Biden from criticism, censoring anyone suggestion that taxpayers will fund the bailout.

The Wall Street Journal assailed Biden’s “sweeping $19 trillion implicit bank guarantee.”

And, there are 20 other large banks which face potential losses. In fact, Moody’s Investors Service, one of three primary rating services, downgraded its U.S. banking system rating from “stable” to “negative,” noting that reflects “rapid deterioration in the operating environment following deposit runs at Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank (SNY) and the failures of SVB and SNY.”

Analyst Marc Thiessen outlined the history of how Big Government interfered with the banking system, noting that the SCB failure is “just the latest evidence that Reagan was right when he warned us: ‘Government is not the solution to our problem, government is the problem.’”

By way of contrast, the largest bank failure was the $307 billion collapse of Washington Mutual Bank in 2008, one of the cascading failures resulting from the Democrats’ government-mandated subprime mortgage fiasco. For comparison, it is worth revisiting that crisis of confidence in our banking sector because Democrats also seeded that collapse. It paved the way for the election of a then-unknown junior senator from Illinois, Barack Obama, and his “older and wiser” VP, Joe Biden.

For necessary background, let’s take a quick walk down history lane.

On November 20, 1994, Bill Clinton signed the United Nations International Convention on the Elimination of All Forms of Racial Discrimination. Article V(e)(iii) of that treaty asserts that all people have a “right” to housing. A year later, in order to comply with the treaty and win the hearts and minds of millions of low-income constituents, Clinton had Treasury Secretary Robert Rubin rewrite the lending rules for the Community Reinvestment Act, opening the Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) subprime floodgates. In other words, mortgage lenders were able to make millions of loans for hundreds of billions of dollars to borrowers who, subject to free-market lending practices, would not have been able to qualify for loans.

Clinton’s legislation, in effect, applied affirmative action to the lending industry, which is to say that the 2008 crisis was NOT a “free-market failure” but the result of socially engineered financial policies by the central government. His “National Partners in Homeownership” created an enormous swell in “easy credit” for those who were otherwise not qualified for that credit. In effect, it launched an artificial housing bubble and greatly increased consumer debt. In October 2008, Clinton admitted, “I think the responsibility that the Democrats have may rest more in resisting any efforts by Republicans in the Congress … to put some standards and tighten up a little on Fannie Mae and Freddie Mac.”

That was a gross understatement.

In 2005, three years before he faced Obama in the 2008 election amid the financial market collapse, Senator John McCain declared: “For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac … and the sheer magnitude of these companies and the role they play in the housing market. … If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.”

Fact is, America elected the wrong guy. But as Obama’s chief of staff, Rahm Emanuel, declared: “You never want a serious crisis to go to waste. And what I mean by that is it’s an opportunity to do things you think you could not do before.”

With that as a backdrop, fast-forward to this week, and make no mistake: Biden and his leftist cadres will not let this “serious crisis … go to waste.”

The liquidity crisis at Silicon Valley Bank is different than that of the 2008 bank failures, except for the fact that Democrat fingerprints are all over this failure and it could lead to another contagious crisis of confidence. This time the culprit is Biden’s out-of-control inflationary spending and socialist economic policies, wrapped in his fabrications that his current budget plan will subdue inflation.

In his 2022 State of the Union, this “lying dog-faced pony soldier” declared, “My economic plan is about investing in places and people that have been forgotten.” Sounds just like the Clinton plan!

He has insisted repeatedly, “We can see how our economic plan is working.”

Indeed we can.

A good assessment about the SVB failure was provided by Bernie Marcus, the legendary cofounder of Home Depot, the world’s largest home improvement retailer — a man who knows more about economics and business than the combined knowledge base of the Biden administration.

According to Marcus: “I can’t wait for Biden to … talk about how great the economy is and how it’s moving forward and getting stronger by the day. [The SCB failure] is an indication that whatever he says is not true. And maybe the American people will finally wake up and understand that we’re living in very tough times. … It doesn’t look good. I feel bad for all of these people that lost all their money in this woke bank. You know, it was more distressing to hear that the bank officials sold off their stock before this happened. … Who knows whether the Justice Department would go after them? They’re a woke company, so I guess not. And they’ll probably get away with it. I think that … the administration has pushed many of these banks into [being] more concerned about global warming. … These banks are badly run because everybody is focused on diversity and all of the woke issues. Instead of protecting the shareholders and their employees, they are more concerned about the social policies.”

Marcus concluded: “The Fed keeps raising rates and inflation keeps going in the wrong direction. It’s not staying where it should be. People are struggling. People can’t pay their bills. They can’t fill their tanks with gas. And if you think that’s a good sign, I don’t think it is. And we have an administration that’s obtuse to this. They just keep talking about the great times and how good it is. It’s not good. Somebody with a sane head has to come in and understand that you can’t do two things. Number one, you can’t keep raising rates. And you can’t tax people more than they are. [Biden’s] proposal to tax the middle class and the rich is about as dumb as I’ve heard. … In a recession like this, you don’t do things like that.”

Regarding the proliferation of woke corporate policies referenced by Marcus, investigative reporter Katherine Donlevy notes that the head of SVB’s risk management department spent a lot of time focused on woke “diversity, equity, and inclusion” nonsense.

The FDIC will reopen SVB under the wing of a larger, healthier bank, but for sure, American taxpayers will be paying for the losses of depositors who made bad business decisions to aggregate their assets in one bank, uninsured.

As the Wall Street Journal editorial board concludes: “Will a universal uninsured deposit guarantee be next? This would be a monumental policy, surrender, essentially admitting that the regulatory machinery established in 2010 by Dodd Frank failed. We may be the only people in the world who still worry about moral hazard. But a nationwide guarantee for uninsured deposits, even for a limited time, means this will become the default policy anytime there is a financial panic… The Fed is essentially guaranteeing bank assets that are taking losses because banks took duration risk that Fed policies encouraged. This too is a bailout.”

Semper Vigilans Fortis Paratus et Fidelis
Pro Deo et Libertate — 1776


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