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Many Voices, One Freedom: United in the 1st Amendment

March 19, 2024

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When the customer/loan portfolio of any bank is weighted heavily toward one industry, its fortunes will be more closely tied to the fortunes of that industry. The failure of such an institution will have painful consequences within the sector it serves, but is unlikely to generalize into the broader economy. This is why neither Silicon Valley Bank nor Signature Bank has been among those designated G-SIB, (Global – Systemically Important Banks) or D-SIB, Domestic – Systemically Important Banks; institutions whose failure would pose a risk of a broad financial crisis.

Silicon Valley Bank’s business customer base contains a concentration of tech startups. The composition of Signature Bank customers displays similar specialization relative to the crypto industry. Both of these tech sectors have been impacted by a significant tech downturn for over the past few months; with tech-sector entities becoming increasingly needful of cash.

“What we have here is a classic case of bad risk management …” said William Lee, the chief economist at The Milken Institute, said of the failings. Yet, in stepping in to guarantee deposits well in excess of the $250k maximum FDIC coverage, the Biden Administration is treating the failing of these institutions as if they would otherwise pose a credible danger of triggering a crisis in the general economy.

The narrative about this excessive intervention paints a picture of the Biden Administration’s swift and deft stewardship saving us all from a collapse of the banking sector. The opposite is true. In fact, in their zeal to score political points while preventing losses among their donors, the administration actually planted unjustified seeds of doubt about the state of the nation’s banks.

Biden’s Sunday night Propaganda show inaccurately portrayed the failing of these boutique banks; sector-specific institutions catering to extremely wealthy people and entities, as a threat to banking in general. He’s lying even by the government’s own definition of financial institutions whose failure presents a systemic risk.

The truth was that these institutions were heavily leveraged in volatile sectors; risks of which every depositor was aware. FDIC deposit insurance covers only $250k per depositor. Many among both banks’ customers had multi-millions on deposit, yet Biden’s address promised that his administration would guarantee the availability of all deposits by Monday. At the same time, the administration notes the revulsion with which hardworking American taxpayers view another billionaire bailout. So it denies that this is a taxpayer-funded bailout.

Wait, how does that work? Ah, a new “program,” of course!   

This week’s intervention is to be “fully covered by the fees which will be paid” into the administration’s brand new funding program; a concept hastily devised to create a more politically-palatable narrative about the action.

Obviously, no new laws were passed that permit the administration to claim its action and execute duly-passed law. It does not. And the administration’s new law-free program serves to nullify previous distinctions between financial institutions as it greatly expands the government’s role in banking. It accomplishes both without legislative action by the people’s representatives and does so before collecting the first dollar in fees.   

To claim that the billions on deposit with the failed banks is covered by an idea that is yet to be implemented is, of course, a lie. What specific damage is done by nullifying the D-SIB designation and exceeding FDIC deposit coverage in its absence?

  1. Doing so effectively nationalizes our banking sector; converting it into a centrally-controlled banking system
  2. Fostering systemic insolvency and dependence on federal subsidy.
  3. Assuring that banking decisions; access to capital, institutional investment, etc., can be made in pursuit of ideological doctrines rather than on the basis of sound fiscal principles.
  4. Sets the table for Central Bank Digital Currency; a prerequisite to the establishment of social credit scoring.

The failure of these institutions did not pose risk to the general economy, but clearly did risk loss to key members of the Democrat Party donor class. For instance, according to the Claremont Institute’s funding database, Silicon Valley Bank donated $73,450,000 to BLM; a militant arm of the DNC that has yet to provide a scholarship, housing assistance, job training, healthcare, or any other charitable work that might enrich a single black life. The administration’s action assures that such corruption of purpose becomes systemic.

In the wake of the 2008 financial crisis, financial institutions whose failure threatens the broader economy were identified and so designated. As morally hazardous as is the “too big to fail” designation that makes defying the laws of fiscal gravity painless for banks so designated, the designation at least established some guardrails on Federal intervention.

Banks so designated would be propped up if necessary to prevent a crisis in the larger economy. But not all banks present such economy-wide exposure. So the Federal Government (aka, the US Taxpayer) would not intervene to prop up every bank in the nation.

Having established that the failure of certain banks must be prevented by Federal intervention, it’s a very short trip to “the failure of any bank must be prevented by Federal intervention.” It was only a matter of time, wasn’t it? Once we decide that government has a legitimate role in preventing natural, albeit, painful, consequences of behavior within any sector, a government takeover of that sector becomes inevitable.   

Whether over banking or healthcare, the centralization of control is deadly dangerous because it assures that all misdeeds cause harm to the entire nation. Centrally-controlled economies always end in a catastrophic collapse. Unfortunately, they never do so without destroying lives, families, and whole societies.

Unless you want a Soviet-style banking system. It’s our move.

MANY VOICES, ONE FREEDOM: UNITED IN THE 1ST AMENDMENT

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Wallace Garneau
1 year ago

We have moved not just into a world where the government protects all banks, but where the government is assumed to be the solution to all problems, irrespective of cause. Once a people expect government to solve everything, eventual totalitarianism is assured.

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