May 2, 2023

Banks Collapse After Federal Fiscal Failure

Joe Biden doesn’t run the banks, but his economic mismanagement and federal regulation brought down another big bank.

We humans are funny creatures. We all know deep down that responsibly managing resources, including our finances, is critically important. But in practice, we often simply don’t care.

We just want that next vacation or new toy. We just want the bank on the corner to keep dispensing money without failing. We just want the federal government to keep running those programs to “take care” of people. Let someone else pick up the tab.

Oh how reality intrudes.

The U.S. national debt is $31.7 trillion and counting, and we officially hit the statutory debt ceiling in January. Treasury Secretary Janet Yellen has been using “extraordinary measures” to keep things running, though she warned yesterday that those measures will expire faster than she thought previously. “After reviewing recent federal tax receipts,” Yellen wrote in a letter to House Speaker Kevin McCarthy, “our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time.”

Her lecturing letter ought to be addressed to Joe Biden. McCarthy and his fellow Republicans already did pass legislation increasing the debt ceiling. It is Joe Biden who has so far refused to negotiate, and Senate Majority Leader Chuck Schumer has dutifully waited with him on the sidelines. They prefer to blame Republicans than to actually do anything responsible.

Biden did finally reverse course Monday, inviting McCarthy to come to the White House … next week. Nothing like urgency.

We bring that up because Biden has a fiscal log in his own eye when it comes to the rash of bank failures on his watch — including three of the four biggest failures in U.S. history.

In March, Mark Alexander thoroughly covered the failures of Silicon Valley Bank and Signature Bank. SVB was America’s 16th-largest bank, and its failure was the second largest in U.S. history.

Regulators seized First Republic Bank and on Monday sold its assets to JPMorgan Chase. The Federal Deposit Insurance Corporation (FDIC) will take a $13 billion hit, compared with about $20 billion for SVB. First Republic’s failure is now the second biggest, outmatched only by the 2008 collapse of Washington Mutual. JPMorgan also purchased Washington Mutual, and its buyout of First Republic only adds to the balance sheet of America’s largest bank.

Too big to fail just keeps getting even bigger.

What happened? In short, bad management. “Since the sudden collapse of Silicon Valley Bank in March, attention has focused on First Republic as the weakest link in the U.S. banking system,” reports CNBC. “Like SVB, which catered to the tech startup community, First Republic was also a California-based specialty lender of sorts. It focused on serving rich coastal Americans, enticing them with low-rate mortgages in exchange for leaving cash at the bank.”

In other words, like SVB, First Republic served wealthy Democrat elites — like Mark Zuckerberg. Its strategy of five-star service and cheap loans rather than rate of return for wealthy depositors didn’t end up panning out.

One particular wealthy Democrat elite blames the nebulous forces of deregulation. “The failure of First Republic Bank shows how deregulation has made the too big to fail problem even worse,” Senator Elizabeth Warren declared. “A poorly supervised bank was snapped up by an even bigger bank — ultimately taxpayers will be on the hook. Congress needs to make major reforms to fix a broken banking system.”

Someone get a Leftmedia fact-checker on the line. They scolded and censored anyone who dared suggest that taxpayers might “be on the hook” for SVB or Signature Bank. We’re guessing they’ll just whistle and look the other way now that Warren has said it, maybe because she hedged with future tense.

Moreover, Warren is a big fan of the Dodd-Frank financial takeover that passed before Harvard’s most famous “Native American” arrived in the Senate. Whatever deregulation happened under the too-brief Trump administration was merely rolling back some of the power grabbed by Warren’s ilk. It does not mean the feds don’t still regulate the financial sector even more heavily than before 2008.

Remember that three of the four biggest bank collapses in U.S. history occurred post Dodd-Frank and under Joe Biden’s inflationary economic regime.

Meanwhile, the Federal Reserve just released its autopsy of SVB Friday, and it echoes Warren’s statist conclusion: The failure of regulation means more regulation is needed.

The inconvenient truth, however, is that SVB collapsed in part because of regulation. The Fed’s regulatory “framework is quite complicated,” the report admits, and SVB expended “considerable effort seeking to understand the rules and when they apply, including the implications of different evaluation criteria, historical and prospective transition periods, cliff effects, and complicated definitions.”

As the editors of The Wall Street Journal translate, “SVB seems to have been more focused on complying with financial regulation than prudently managing its balance-sheet risks.” Fed Vice Chair for Supervision Michael Barr boasts of this “unflinching” report, but in reality all we got from the Federal Reserve was scapegoating and blame-shifting.

Just remember that these are the same people — mostly Democrats — who are managing our national fiscal house. SVB, Signature Bank, and First Republic all had bad debts that overwhelmed them.

What happens when America is finally overcome by the fiscal profligacy of politicians like Biden and Warren?

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