WTH is Going On with Silicon Valley Bank? Michael Strain on how Federal Policy Helped Cause the Disaster

What the Hell Is Going On

AEI Podcasts

News, History, Government, Politics

4.4 • 633 Ratings

🗓️ 14 March 2023

⏱️ 45 minutes

🔗️ Recording | iTunes | RSS

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Summary

Before Friday, Silicon Valley Bank was the sixteenth largest bank in America. Now it bears the standard of being the second largest bank failure in US history, only upstaged by the 2008 financial crisis. As the initial shock – both to the market and to news headlines – is wearing off, some things are clear: SVB was badly run, had mismanaged its asset investments, and as a truly silicon valley-centric bank, had an un-diversified portfolio tied to tech start-ups, crypto, and its California clientele. But the real catalyst? A long year of the Biden administration’s failure to combat inflation caused the Fed to hike interest rates, resulting in a major loss of asset value for the bonds SVB owned. Now, the Fed, FDIC, and Treasury Department have decided to protect depositors – but not shareholders – beyond the standard $250,000 insured cap for deposits. In short, the average taxpayer is bailing out the Silicon Valley elite.

Michael Strain is the Director of Economic Policy Studies at the American Enterprise Institute. Dr. Strain is also the author of The American Dream Is Not Dead: (But Populism Could Kill It).

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Transcript

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0:00.0	This podcast is brought to you by the American Enterprise Institute.
0:03.0	If you like what you hear, please subscribe, rate, review, and share. Thanks for listening. Here's our show. What the hell's going on? What the hell is going on? What the hell is going on? I don't know what the hell he's talking about. You don't have to know what the hell is on it. What hell's the matter with these guys? We don't know what's going on. What hell's going on?
0:01.1	Who in God's name knows what it's all about.
0:34.8	Hi, I'm Danielle Pletka.
0:36.3	And I'm Mark Thiessen.
0:37.4	Welcome to our podcast. What the hell is going on? The Banking Edition.
0:42.3	Mark, what is going on?
0:44.6	Well, the Silicon Valley Bank and another bank signature bank have failed.
0:49.5	And the Biden administration has stepped in to make the depositors whole with a bailout.
0:55.7	They're not bailing out the investors. They're not bailing out the bank itself. But, you know,
0:59.9	normally all of us who have money in the bank, up to $250,000 of that is guaranteed by the FDIC.
1:06.7	And we know that that is intended so that normal, you know, ordinary Americans don't lose their shirts if a bank fails.
1:13.4	But Silicon Valley Bank, only about 11% of their deposits were in that range.
1:19.7	Yet 100% of their deposits are being guaranteed by the FDIC.
1:23.5	And so there's a sense here that the Fed's policies and the government's policies and sloshing around a lot of money in the economy have fueled the failure of this bank.
1:34.5	And then now a lot of millionaires and billionaires in Silicon Valley are getting a bailout in response to that.
1:41.7	It must be nice to have friends in high places is all I can say about this.
1:46.0	We talk about this with our guest, Mike Strain, AI's director of economic studies. And he explains,
1:52.9	I think, very clearly in a very lucid and not particularly tabloidy way, exactly what happened, why it happened. But bottom, bottom,
2:04.6	bottom line is that it's galling to think that if you are loosey-goosey with your money, you don't diversify,
2:21.3	you don't worry about where you keep it or about the quality of the bank that your deposits are in. Don't worry, Janet Yellen and Joe Biden are going to be
2:30.7	there for you using the guy at the corner store and your janitor's tax dollars
	...

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