Better Safe than Sorry?
The decision to bail out SVB involved money. Lots of money. The printing of money and flooding of the economy, however, does have consequences.
About two weeks ago, on 12 March, President Joe Biden made an “imponderable” decision. In the WSJ, Holman W. Jenkins asks, if Silicon Valley Bank had failed in the normal way – with big customers required to accept modest haircuts on their uninsured deposits – would it have caused a nationwide bank run and economic calamity?
Mr. Biden, as Mr. Jenkins notes, took office with an “overwhelming priority to pass a superfluous domestic bailout package, on top of those already passed, so [he] could claim credit for the pandemic recovery already visible around the corner.” But with the SVB bailout, has the Biden administration braced confidence in the banks or helped to weaken them?
Who helped the President with his decision to bail out SVB?
We do know he got a lot of help in deciding to bail out Silicon Valley Bank’s uninsured depositors from its uninsured depositors, including tech entrepreneurs and venture capitalists who worked the phones and social media and skew heavily Democratic in their political giving.
We know that lobbying for the bailout was California Gov. Gavin Newsom, a Democratic up-and-comer whose personal business and nonprofit ties with Silicon Valley Bank were extensive.
The whole economy still has to solve the problem, warns Mr. Jenkins. What would Silicon Valley Bank have had to do to stay alive.?
Financial institutions’ fixed-rate assets not only have been badly dinged in market value, the mingy income streams they generate can’t keep up with rising deposit rates and operating costs. This problem didn’t first surface with Silicon Valley Bank but with U.K. pension funds during the short, unhappy premiership of Liz Truss. Remember the cynical way the Biden administration piled on to suggest Ms. Truss’s garden-variety pro-growth nostrums were to blame?
The Absurdity of Printing Money Without Inflation
Mr. Biden essentially embraced the progressives’ modern monetary theory, which admittedly became universal amid the pandemic, positing that the U.S. government could print and spend money without inflation.
That recovery was shaping up to be a rocket ship. By pouring unnecessary fuel into its engines, Mr. Biden contributed to the destabilizing rise in inflation and interest rates that spawned today’s bank panic, the end of which may not be in sight.
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