When is a bailout not a bailout?
If it walks like a duck then it's probably a bailout...
When is a bailout not a bailout?
Let’s start in Silicon Valley with the biggest bank failure since the 2009 financial crisis. Silicon Valley Bank (SVB) was among the go-to banks for start-ups and biotech companies. It’s growth in recent years was fueled by the cheap money that had been available and started to feel some constraints as the Fed continued to hikes rates to fight persistent inflation.
While Fed officials may have seen some joy knowing the tech industry was feeling some pain, they certainly weren’t hoping to help tip a bank with over $200 billion in assets into insolvency. Make no mistake as this certainly was not all the result of the Fed.
Nearly all of the depositors of the now defunct bank held assets over the insured FDIC limit of $250,000 in their accounts. That insurance was created to end the parade of bank runs that dominated the Depression era.
Now we are being told that the Biden Administration will guarantee all of those deposits. But it’s not bailout?
We feel the Biden administration is being a little disingenuous skirting around using the word “bailout” to describe what’s happening. The President wants Americans to know that the situation is under control — while also insisting on the fairness of the process, both for depositors and for others in the real economy who remember the bank bailouts of 2008. In 2008, the government moved specifically to keep banks from failing, and propped them up with Treasury loans. The Biden administration has been saying that since they’re still planning on firing the heads of SVB, letting investors suffer losses, and not using taxpayer funds, it’s not a “bailout.”
The PLAY: Banks, not just SVB, made some ill-advised bets (and make no mistake, because that is what they were) on purchasing long US Treasuries when interest rates were non-existent. In 2022 when The FED decided to rapidly raise interest rates those long-term holdings took massive hits (the longer the holding period on a bond the more they are inversely affected by rate increases) and a lot of banks, again not just SVB, now find themselves holding huge amounts of government debt that is under water. In order to raise capital the banks need to sell these positions at a loss.
If this happened to you or us, we wouldn’t be made whole by the government…so why does Mark Cuban get a break?
The SPIN: It’s a bank fund that’s aiding SVB and not taxpayer funds. It’s a loan. The government has offered Banks, not just SVB, an option to take a loan and The FED will buy back those under-water treasury notes from the bank, so they will have more liquidity.
But who put the money into the account to create this bank fund in the first place? Kind of feels like that was every US taxpayer. And if they are using my money to prop-up a failed institution, or even the clients of that failed institution, while they may not be going about it in the same manner as they did in 2008…what’s the old adage; “if it walks like duck…”
The ironic twist in this tale is that the CEO of SVB had lobbied for less scrutiny for he and his fellow smaller banks. That they weren’t taking risks like the big banks were in 2008 and so didn’t need the same regulations and stress-test requirements as those banks. Which of course has all those big banks now sitting back & feeling fine, because of the tightened regs, while some regional banks are lining up to grab the bailout, err we mean bank loan offer.
