Came In Like A Teching Ball

Politix

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4.6 • 1.4K Ratings

🗓️ 24 March 2023

⏱️ 61 minutes

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Summary

Silicon Valley Bank failed and it remains to be seen what unintended consequences we may have unleashed by bailing it out. What’s clear, though, is that SVB’s risk exposure could probably have been detected and its failure prevented, and SVB’s richest, most powerful depositors tried to whip up a broader banking panic in order to build pressure on the government to save them from their poor decisions. They warned of everything up to civilizational collapse if the government didn’t announce that they’d be held harmless. And they got exactly what they wanted, with no strings attached, no new regulation, no new legislation, no symbolic tax on their standing in public life. They’ve gone right back to pretending to be masters of the universe, and they grow seemingly more enthralled with fascist politics every day, as if the Democratic government didn’t just bail them out. Economist Dean Baker joins host Brian Beutler to discuss the stakes of the bail out, and if economics can account for the moral hazard of caving to demands of extremely powerful political activists, openly allied with the political right, who threaten to break the system if they don’t get their way.

Transcript

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0:00.0	Hello and welcome to Positively Dreadful with me, your host, Brian Boydler.
0:24.7	I joked about this recently last episode actually, but let's, for real, talk about Silicon
0:29.2	Valley Bank, why it failed, why it got bailed out, what unintended consequences we may have
0:35.3	unleashed by bailing it out, and whether this is a big snafu or a small one. So my basic
0:42.0	understanding of what happened is that there were three regional bank failures, more or less
0:47.7	simultaneously, but two of them, Silvergate and Signature Bank, we've kind of collectively
0:53.6	agreed to shrug off because those banks blew themselves up with reckless cryptocurrency investments.
1:01.0	Silicon Valley Bank sucked up all the attention because its depositors and creditors included
1:06.9	tons of tech startups and the venture capitalists that fund them. And it failed by over-investing
1:14.9	in long-term government bonds, which to the untrained ear sounds like it should be a pretty safe
1:19.5	investment. But then we experienced inflation, the Fed hiked short-term interest rates, it reduced
1:25.8	the value of the long-term bonds, SVB then developed liquidity problems, which it tried to solve by
1:33.5	selling assets and borrowing money, and then bam, Peter Teal and other institutional clients
1:38.6	triggered a run on the bank, and that was the end of that. At least I think that's what happened.
1:43.4	If I'm wrong, I'm pretty sure my guest today will set me straight, but a few other things happened
1:48.4	on the way to the bailout, which the government announced just a few days after SUV entered
1:54.6	receivership. One is that in 2018, under Donald Trump, the Republican-controlled Congress,
2:01.6	with some help from Democrats, deregulated this very class of so-called mid-sized or regional banks
2:08.8	at those banks behest. SVB's risk exposure would probably have been detected and its failure
2:15.3	prevented if Congress had just let well enough alone. The second thing is that in the four-day
2:22.1	lag between the bank run and the bailout, SVB's richest, most powerful depositors tried to whip up
2:29.6	a broader banking panic in order to build pressure on the government to make them completely whole.
	...

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