Originally posted March 14, 2023.
Confidence in the Banking System?
“There will be no more tax-funded bailouts. Period.”
It seems like long ago. On 21 July 2010 then-President Obama uttered those failed words.
Cheered on by Joe Biden, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, before crowing:
The new law “demands accountability and responsibility from everyone. It provides certainty to everybody.”
Instead of questioning the dubious claims, the establishment generally “embraced the fantasy that giving financial regulators vast new powers would allow them to identify and wisely address risks in the financial system,” reports the WSJ.
Too much money in the system, James Freeman reminds his WSJ readers, “resulted in the highest inflation in 40 years, which finally gave the Fed no choice but to start raising interest rates.”
This contributed to a tech hangover in the Valley and elsewhere and also helped motivate depositors to look for higher returns outside their local bank.
With deposits fleeing, the bank had to sell government bonds, which are safe as long as Washington doesn’t default but are now trading at lower prices because of the rise in rates.
By all means let’s learn how bank management could have done better. But it’s already clear that at every turn in this story of a failing financial house, one can see the impact of a misguided and destructive federal intervention.
While Silicon Valley Bank was imploding this week, President Joe Biden told Americans they should “feel confident” in the banking system. Meanwhile the president was busy rolling out his plans for even higher federal spending.
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