A waterfall, or an avalanche? Take your pick.
If likened to a waterfall, the Silicon Valley Bank Collapse that dominated U.S. news Friday and through the weekend was sourced from years of central bank inflation and risk-inspiring federal policies that led to it and has seen bits of key info, like detritus, flowing into view behind it.
And like an avalanche, the SVB crash has deep, systemic, central banking roots, possesses numerous policy triggers, and throws at us revelations about untrustworthy media, dangerous, risk-increasing institutions like the FDIC, and what appears to be justified worry that, even as one sees breaking news of New York-based Signature Bank collapsing, this could be just the start of many more collapses, more insane central government bailouts ( even if they’re not given that name), and a political push for central bank digital currency.
Among the news crashing around us, we can begin by looking at the absurd character of CNBC “investment/financial expert” Jim Cramer, who, as the New York Post notes, sang the praises of SVB stock in a manner that echoed his dumb 2008 suggestion to NOT dump Bear Stearns stock, just days prior to its collapse.
Then there’s the off-tune presence of the Federal Deposit Insurance Corporation - a.k.a., the FDIC - a Constitution-defying, risk-pumping, legacy of FDR-central planning and cronyism that not only promises your tax cash to each signatory bank up to $250,000 per depositor as “insurance,” it -- as its own financial entity -- has nowhere near the assets to cover all the $9 TRILLION in risk it promises to “insure”.
The SVB story is big, not just because it is the second-biggest bank failure in U.S. history.
It is tied to a darker history of U.S. central-planning, government control of the money system, and government debt (and the inflation-boom-bust cycle they all inspire), and it is a prime example of how the unconstitutional “rules” and “protections” politicians claim are for “us” really are just weapons for them to use selectively as they work on more ways to accumulate power for themselves and shovel assets to those who play the political game.
First, a bit of backstory. In 2004 I wrote a piece for the Mises Institute in which I tried to warn people that the government prohibition of a competitive money system and the simultaneous existence of a government-granted monopoly “Federal Reserve” (actually, it holds a fraction of metal commodities in “reserve” compared to the “money” it prints) was not just immoral and anti-economic, it was, at that time, keeping interest rates near zero, and making its coming inflationary tragedy even worse. The subsequent bust wiped out TRILLIONS in over-priced investments and saw so many months of GDP lower than the level measured at the end of 2007 that, technically, it was an economic depression that lasted until the end of 2011.
Government spending and borrowing, central bank inflation (i.e. money-pumping) in order to buy that government debt, and fascist cronyism lead to not just the disaster of price increases and over-bidding on resources, but to time-shifts for spending, resource misallocation, and the inevitable busts once the average consumer begins to see how intensely his or her buying power has been diluted by the vast amount of added money in the system.
At a certain point, the detached-from-real-economics minds at the Federal Reserve begin to raise interest rates, which often – as it has done now -- leads to an “inverted yield curve” where short-term bond rates actually are higher than the ten-year bond, where prices for those lower-yield bonds crash, and both factors not only slam new participation in investment, they make it difficult for “fractional-reserve” banks – such as SVB – to get the liquidity needed to pay depositors’ demands for its already lacking, barely available, fractional-reserves.
Once depositors get a sense of the problem, they know they have to get what they can out of the bank before another customer beats ‘em to it.
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Economist Peter C. Earle has composed for the American Institute for Economic Research an excellent overview of the SVB crash – one that offers wider lessons for all people interested in fundamental economics. In part, he explains:
“Federal Depository Insurance Company (FDIC) filings indicate that US banks took over $600 billion worth of unrealized losses last year, a large portion of which was generated by precipitously falling bond prices amid the Fed’s aggressive interest rate hikes. In addition to holding $108 billion in Treasuries during the worst year in history for such securities, SVB’s books include $74 billion in loans, a portion of which were undoubtedly extended to local tech companies. Tech companies have recently been under pressure as well, and are cutting costs.”
Earle’s mention of the FDIC offers us a key opportunity to more closely scrutinize that government creation, and the overall idea of government “insurance” for deposits, as well.
Not only is there no constitutional provision allowing the federal government to create a “corporation,” let alone one that promises to insure bank deposits, the mere existence of the FDIC is what economists call a “moral hazard.” It promises insurance for deposits, which inspires bankers to engage in riskier lending and investment compared to any environment in which they would have to get insurance via real, market-based, non-tax-backed, means.
The FDIC and its cousin, the FSLIC (Federal Savings and Loan Insurance Corporation), already has/have inspired reckless lending.
In 1980, the FDIC increased from $40,000 to $100,000 the amount it would insure for individuals and businesses.
Then, in 1989, the $20 billion-in-the-red FSLIC was folded into the FDIC, and the result was a disaster, inspiring even more reckless lending, rampant and uneconomic home-building, and an eventual bubble-burst in the housing sector circa 1990. Just out of college, I actually worked for an auction firm that helped liquidate many of those homes, through to 1991.
But the FDIC is not just a moral hazard inspiring lending that normally would be avoided by real market participants.
In the case of SVB -- which, partly thanks to this artificial "insurance," was investing in worthless "ESG" (Environmental, Social Governance) projects -- the FDIC has swooped-in like a vulture. The FDIC literally has taken control.
As Jesse Pound writes for CNBC:
“According to press releases from regulators, the California Department of Financial Protection and Innovation closed SVB and named the FDIC as the receiver. The FDIC in turn has created the Deposit Insurance National Bank of Santa Clara, which now holds the insured deposits from SVB.
The FDIC said in the announcement that insured depositors will have access to their deposits no later than Monday morning. SVB’s branch offices will also reopen at that time, under the control of the regulator.”
Notice the term “regulator.” As I often stress to economics students, that’s a euphemism for “threatener” or economic fascist. It not only is the immoral near-end of a government-inspired economic boom-bust, seeing specially selected people take over assets, seeing the government “manage” who will and will not get paid what they are owned as depositors or bond holders of the bank, it also indicates something else that is very important.
Key figures in “government” knew.
This special new “Deposit Insurance National Bank of Santa Clara” could not pop out of the statist oven in a day on March 10. Bureaucrats and politicians had to set it up and approach people to become its new officers. This tells us that the faceless figures who created the new bank had to have known about SVB’s insolvency.
This is worse than Jim Cramer applauding the bank, mere days before the collapse. This is worse than Forbes recently placing it on its list of “best.” It’s also worse than what we see in reports that the Greg Becker, CEO of the bank, sold large holdings in it prior to the crash. And it’s worse than the bank-runners giving big bonuses to select employees, prior to the crash.
This indicates that “officials” worked behind the scenes not only to replace the soon-to-be-insolvent SVB, but that they didn’t warn depositors about the financial instability of the institution.
This lack of transparency is precisely what politicians like Democrat Congressmen Chris Dodd and Barney Frank told us they were “insuring” when, more than a decade ago, they passed Constitution-defying legislation to have the Federal Reserve do annual “stress tests” on large banks, and to make investment firms use accountants that were separate from their own businesses.
Curiously, Dodd-Frank also ushered in the obnoxious Elizabeth Warren creation of the Consumer Financial Protection Bureau (CFPB), which said nothing about this coming collapse and sees both it and Liz Warren mum about the FDIC figures behind the scenes who conspired to create a new bank out of the collapsing SVB while NOT TELLING DEPOSITORS.
And, by the way, Barney Frank in 2015 joined the board of Signature Bank -- the New York state-based bank that just failed over the weekend.
Are Americans not supposed to notice these towering edifices of graft, fascism, empty promises, and utter hypocrisy?
As we see politicians like conservative Rep. Matt Gaetz (R-FLA) openly oppose any bailout of SVB, and we realize that the unbalanced and unconstitutional FDIC itself likely will get a bunch more of our tax cash – because this entire house of cards is ready to fall and the “special” people need our money -- and as Treasury Secretary Janet Yellen, the Federal Reserve, and the FDIC scheme for a way to hand out more “bailout-like” money without calling it a “bailout” -- likely handing big money to big depositors who should have known that the $250,000 maximum “insurance” from the FDIC wouldn’t cover larger deposits – we will watch as the central planners try to make decisions about our lives and liberty.
Is it any wonder that some of us don’t like pretending that America is the “land of the free”?
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