Democrats and Republicans turn socialist over Silicon Valley Bank
Independent democratic socialist Bernie Sanders sole voice against bail-out of uninsured depositors who chose to take the risk of bank failure
Republicans and Democrats alike characteristically decry socialism in political campaigning. Socialism, i.e., government owned and operated enterprises, removes the risks and market feedback necessary to promote the optimal allocation of economic resources and consumer welfare. Its the difference between the U.S. Post Office and FEDEX.
Last Friday, the Federal Deposit Insurance Corporation shut down Silicon Valley Bank for insolvency. The FDIC insures accounts up to $250,000, a ceiling that protects all Mom and Pop depositors. The miniscule percentage of depositors with sums above that ceiling know the bank risk they are assuming. The risk encourages them to search for prudently-managed banks and to boycott incompetent or ill-managed banks—the free market at work. In this way, poorly managed banks are weeded out by an inability to attract deposits and well managed banks flourish by attracting risk-sensitive depositors who exercise KYC (know your customer) in reverse. They are the first responders in keeping banking incompetence at bay.
But instead of letting free market forces operate to deter more Silicon Valley Bank failures, the Treasury Department, the FDIC, and the Federal Reserve announced on Sunday that all depositors would have access to their money above $250,000 on Monday. The funds will come, among other things, by surcharges on banks into a government pool and permitting overvaluation of government securities as collateral to borrow money. That means no depositor will pay a price for choosing to take the risk of banking with an ill-managed company and neglecting to do his or her homework. This is economic lunacy that will encourage more of the same depositor irresponsibility.
I have multiple clients. I make a risk assessment as to whether my bills will be paid. If I err, I pay the price. If the government guaranteed payment, I would have no incentive to do due diligence necessary for the efficient allocation of limited resources.
Senator Bernie Sanders (I-Vt.) denounced the bail out: “Now is not the time for U.S. taxpayers to bail out Silicon Valley Bank. If there is a bailout…it must be 100 percent financed by Wall Street and large financial institutions. We cannot continue down the road of more socialism for the rich and rugged individualism for everyone else.”
Congress can stop President Joe Biden’s socialism in its tracks. Enact a statute prohibiting the government from directly or indirectly bailing out negligent of reckless Silicon Valley Bank depositors. Democrats are certain to remain silent and idle with a Democrat in the White House seeking reelection.
But what about Republicans who control the House of Representatives with spare time to run down rabbit holes led by the Inspector Clouseaus of oversight, Jim Jordan (R-OH.) and James Comer (R-Ky.)? They started down this road with the ill-conceived Troubled Asset Relief Program in 2008 to bailout banks that had recklessly fueled a stupendous housing bubble that has again surfaced through trillion dollar market interventions by the Federal Reserve. Don’t expect House Financial Services Committee Chair Patrick McHenry (R-NC.) to champion legislation to arrest the depositor bailout. He stated after the bailout was announced on Sunday, “This was the first Twitter fueled bank run. At this time, it is important to remain levelheaded and look at the facts—not speculation—when assessing the right path forward. I have confidence in our financial regulator.”
Another nail in the American Empire’s coffin.
In America, if we pride ourselves with being a “free market capitalism” there should be a law against government bailing out large corporations- especially banks and other financial institutions- that go belly up due to taking unreasonable investment risks with depositors’ deposits under the ridiculous “too big to fail” doctrine.
In free market capitalism, corporations simply cannot be allowed to capitalize on their gains when risk leverage is on their side and socialize their losses by smearing them on the taxpayers when the same risk leverage turns against them.
If we are going to talk about any degree of social justice, I know nothing that is more unjust.
/s/ Emre Serbest