Capitalism for the Gains, Communism for the Losses
I was taught very young in my life that “A Fool and His Money are soon Parted”. Except if you live in a country with a government that protects the wealthy and taxes the poor. This was the case with the failure of the Silicon Valley Bank. The management of Silicon bank were more interested in Wokeness than in the risk management of their deposits.
Our financial system is built like a house of cards, and we are seeing that it doesn’t take much for people to lose faith in it ever since the housing crisis of 2008. We are in a catch-22 where the fed needs to tame inflation but raising rates could further exacerbate the current liquidity crisis and not raising them would allow inflation to continue to rise. The fact that the FED has stepped in and had the FDIC take over the Silicon Valley Bank and 2 others is causing much consternation within the banking industry.
There was a buyer for the SVB but the Biden administration for whatever reason did not want to let it be taken over. I believe, as many others do, that this was a bailout of a bank that was Woke but the people who managed it were all asleep at the wheel when it came to understanding risk management. The fact is that this bank didn’t have anyone attending to risk management for the last nine months. There are going to be many questions about how this was allowed to happen, and it is going to come down to faulty regulation by the FED.
All the uninsured depositors will be covered by a special assessment on banks. The interesting part is that the Biden administration is going to save all the woke depositors with deposits in excess of the $250,000 limit. The FED is establishing a new Bank Term Funding Program to protect mostly large Silicon Valley depositors. In essence, these tech companies and their owners are going to be bailed out by the Government who will raise the cost of FDIC insurance payments made by all banks. These costs will then be passed on to the public in the form of higher fees and lower interest rates on savings accounts along with higher credit card and checking account fees.
So once again the public will pay for the many sins of our financial institutions while companies like ROKU that had over 400 million on deposit will get all their money back. The major reason for this bank failure was poor risk management and inadequate oversight by auditors who are regulated by the San Francisco Fed. Management was so bad at Silicon that the bank’s president sold $3 million in the bank’s stock 2 weeks before its failure and paid bonuses to all its employees.
Ninety percent of FDIC banks are small community banks, and they are responsible for 60% of agricultural loans and will be hit the hardest with the new fees that will be assessed to pay for the bailout of these 3 banks that have been managed so badly. We should all be concerned about the effect these new charges will have on the ability of smaller community banks to loan money and make a profit. My concern is that this is just another way to concentrate the banking industry in the large banks and financial institutions by driving out the competition of smaller regional and community bank as these new costs for insurance will eat heavily into their profits.
How will this affect the average citizen? Aside from paying higher fees for bank services, the banking system seems to be able to handle this significant failure reasonably well. Currently, I don’t see any systemic risk to other banks but we never really know when the next domino will fall. So, if you have more than $250k in cash on deposit, you might want to take a look at spreading your risk by putting some of your assets in another bank or buying short-term treasury bills or a money market fund.
“We Get the Government We Deserve” but if your Woke you won’t go broke.