It’s a tale as old as 2008. You wake up late, breakfast is a bust, the kids’ lunches get finished just barely in time for them to run out the door. You have to shower then head into the office but you get a text from your buddy who really wants to play nine holes before lunch. You reluctantly agree, but he wants to talk some work-related business, so why not? You grab lunch after golf. You gotta eat, right? He pays the bill. He always pays. Just that kind of guy. Afterward, you get a call (who does that anymore) from another friend. She invites you to spend the rest of the afternoon on her boat, popping a few Leineys and talking a little shop too. She offers you a couple of opera tickets she can’t use. Wow, that’s fantastic! You’ve never seen Les Miserable…always wanted to, though. You proceed to toss back a few and enjoy a beautiful afternoon on the lake. Before you know it, it’s 5:15, you’re half drunk, and wondering who was supposed to pick up the kids. But worst of all, you suddenly realize “Aw geez…I forgot to do my goddamn job.”
Now imagine you work for a certain governmental agency that oversees, let’s say…banking. Perhaps you’re an employee. Maybe you’re a Senator on the Banking, Housing, and Urban Development Committee. You could even be a member of a the current or former administration. That’s embarrassing, right? Forgetting to do the one thing you’re supposed to be doing…for a living. It’s fine, though. Perfectly understandable. People don’t do their jobs all the time. Most get fired for it, but hey, that’s their job. Those people should have gotten a job working for the SEC. Or better yet, gotten elected to Congress. That’s a sweet gig where doing nothing is expected, and sometimes rewarded. But imagine if it were the other way around. If they had to remember to do their job. Maybe this crazy shit wouldn’t keep happening.
Last Friday March 10th, the US experienced the biggest bank collapse since Washington Mutual in 2008. According to some fantastic reporting by The Lever:
On Friday, California regulators shut down the Silicon Valley Bank (SVB), a top lender to venture capital firms and tech startups, and the Federal Deposit Insurance Corporation took it over, following a bank run by its customers. The bank reportedly did not have a chief risk officer in the months leading up to the collapse, while more than 90 percent of its deposits were not insured.
Oh, and just like 2008, it gets better.
On Sunday, federal regulators announced an emergency action that “fully protects all depositors” at the bank, and they pledged that “any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks.”
Last year, bank lobbying groups mobilized against the Federal Deposit Insurance Corporation’s (FDIC) proposal to raise banks’ insurance premiums to shore up that deposit fund’s reserves, which had fallen below the minimum required by law.
Lobbying groups representing Silicon Valley Bank, or SVB, argued that risk of bank failures is low and insisted that requiring banks to pay more into the fund would harm financial institutions’ bottom lines.
Ah, would you look at that? Those incorrigible scamps got us again with all that “we know what we’re doing, don’t worry about us” repartee. You really have to admire them…really. Oh, the conversations that must have gone on…
“Hey, how’s it going?”
“Wassup, man. It’s been a minute. Come on in. What can I do you for?”
“Aww, you know. Just got some regs I want run by you. See if you need any to, you know, make sure you’re solvent.”
“Yeah, no, I think we’re good.”
“So, like what about your deposits? You have enough cash up in here?”
“What…like, what do you mean?”
“Well, you know, interest rates went up, right? You gotta have enough cash on hand to insure your deposits. Some people might want to withdraw some of that cheddar since it’s not so cheap to just borrow it anymore. Just want to make sure you’re covered, yo.”
“Well…I mean…I guess. But it never seemed to be a problem before. Sure, there was that one time, but it all worked out, right? I mean, bruh, we like having those deposits out there, know what I’m sayin’? We gotta keep making that money? You know how it is.”
“I hear you, man. We just got all this regulation sitting around over here not doing anything, so I thought if you need any, I mean…”
“Uh…nah. It’s cool. But I’ll hit you up sometime if we ever need some.”
“Yeah, okay. Sounds good. Oh, shit. I forgot my kid’s soccer game. I better bail.”
“Hey, you want a bump before you go?”
<checks smart watch> “Uh…yeah okay.”
Alright, I cannot speak to the absolute veracity of that particular exchange, but from a layperson’s perspective, does it really seem the least bit implausible? It’s like the wild wild west with velociraptors out here. And even when they do remember to do their jobs, regulators are basically that IT guy in college circa ‘05 who’s job it was to wander around the various departments seeing if folks wanted Windows ME loaded onto their computers.
I know what you’re thinking: “Hey, that’s okay. We’ve all been there. And the FDIC is guaranteeing everyone’s deposits so at least the little (Silicon Valley venture capitalist) guys will get their money back. All’s well that ends well, right?”
Ummm…sure? That sounds like a very positive way of looking at it. We could all definitely use more positivity in our lives and bank accounts. And I suppose I’d be remiss if I didn’t mention the extra special bonus. According to former Labor Secretary Robert Reich:
People who deposit money in a bank should not have to exercise care in selecting which bank they deal with for fear that their deposits might vanish overnight. So it’s appropriate for the Fed to bail out depositors.
But executives of banks — whatever the size of those banks — should have to exercise care in what they do with those deposits. If the Fed bails out all banks that get in trouble, bankers have no incentive to be more careful. Their major incentive will continue to be to make as much money as possible for their shareholders (and thereby for themselves), even if they put their depositors’ money at unreasonable risk.
So, our federal government - aka, we the taxpayers - is not just guaranteeing deposits for customers. It’s guaranteeing the bankers (shareholders) too. In other words, they get to loan out billions of dollars they don’t have then sit back and watch other people’s money roll in. And when it all comes crashing down because Aunt Ethyl’s withdrawal of a few of grand to fund her girls’ trip to Reno starts a run on the bank, the taxpayers pay them off. No wonder so many regulators and former congress folk want to get in on that action. Just ask former Democratic congressman Barney Frank, co-author of the Dodd-Frank legislation passed in 2010 that’s supposed to stop all this from happening. He’s on the board of Signature Bank, which was - coincidently, I’m sure - just taken over by the FDIC as well. He lobbied to ease those pesky regulations too. And appears to be unrepentant in spite of current circumstances. According to The Wall Street Journal:
Mr. Frank, who has earned more than $2.4 million in compensation from Signature Bank since 2015, rejected the idea that the regulatory change abetted Signature’s collapse.
I guess 300+grand a year buys a lot of forgetfulness. Even from the guy who literally wrote the book (2300 pages) on “How to Make Sure this Dumb Shit Doesn’t Happen Again”. Well, done Barney.
They call it “moral hazard”, that thing where one doesn’t care about consequences of their actions because there are no consequences to their actions. They’re covered either way. In fact, it doesn’t seem hazardous at all. Not to the guy getting 300Gs to sit part-time on a board and not to the guys making bank by being…a bank. You know what I mean.
Now, we can blame most of this on the Trump Administration, Reich goes on to say:
Because even the milquetoast protections of Dodd-Frank were rolled back by Donald Trump, who in 2018 signed a bill that reduced scrutiny over many regional banks and removed the requirement that banks with assets under $250 billion submit to stress testing and reduced the amount of cash they had to keep on their balance sheets to protect against shock. This freed smaller banks — such as Silicon Valley Bank (and Signature Bank) — to invest more of their deposits and make more money for their shareholders (and for their CEOs, whose pay is linked to profits).
But then we’d have to ignore the fact that since Democrats took over both houses of Congress - and Joe Biden the presidency - in 2020, they’ve done absolutely nothing to overturn that move. See how easy it is to forget to do your goddamn job? In their defense, they probably couldn’t have done it anyway. In 2018, when those regulations were rolled back, 17 Democratic Senators voted with 50 Republicans. More than enough to break a filibuster. As an aside, that’s really amazing, isn’t it? Do you see all the wonderful things that can be accomplished when Congress puts aside its differences and works together? Who says Republicans and Democrats can’t cross the aisle? Hooray for bipartisanship!
That said, from banking to railroads to immigration. Lots of boring, menial tasks get put off and, presumably, forgotten. How else can we explain why all this stupid keeps coming back around every few years? Again, Senators have a very full plate. There’s a lot of dialing for dollars and lunches and afternoon yachting going on. That leaves very little time for thinking about stopping those cute little rapscallions in the banking industry from ripping off the taxpayers…again.
Or maybe protecting the American people isn’t really their job after all. Maybe its just protecting their big money donors? Obviously, they haven’t forgotten to do that.