The bailout hustle

Posted: March 14, 2023 by chrisharper in Uncategorized
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By Christopher Harper

Silicon Valley and New York City bankers got a good deal: a bailout worth billions of dollars in exchange for millions in campaign funds for Democrats.

But the cozy relationship between bankers and Democrats is a fairly recent development.

My father was a banker in the Midwest and a diehard Republican. He condemned FDR’s spending policies, loved Ronald Reagan, and wanted the government to balance the budget and stay away from his paycheck.

In fact, I thought for years that you had to join the Republican Party to become a banker. As a boomer, I thought my father was a bit off his rocker in his politics, and I wish I had told him just how right he was.

Today’s bankers remind me of the commodities traders I reported on in the 1970s. They’ll bet on almost anything.

Silicon Valley Bank bet on almost every tech idea that came through the doors.

But Andy Kessler of The Wall Street Journal goes beyond the gambling. “Management screwed up interest rates, underestimated customer withdrawals, hired the wrong people, and failed to sell equity. You’re really only allowed one mistake; more proved fatal. Was management hubristic, delusional, or incompetent? Sometimes there’s no difference,” he wrote.

Signature Bank of New York added political wokeness to the combination. The bank refused to do business with Donald Trump, scolding him for the events of January 6, 2021.

Despite all this nonsense, Biden & Co. will bail out the banks even though the White House says it’s not a bailout, providing funds to depositors who recklessly kept more than $250,000 in the banks. Federal bank insurance would not have covered that money until Biden waived the limit.

But the math doesn’t work. Silicon Valley Bank had $173 billion in total deposits, including $152 billion not covered by the Federal Deposit Insurance Corporation. Also, the FDIC did not cover $79 billion of the $88 billion in deposits at Signature Bank.

That’s nearly double the amount at the FDIC to cover all the depositors over $250,000.

Treasury officials said any losses to the DIF would be repaid in full by raising fees on the system’s banks. If the FDIC charges banks higher fees to cover the extra money, those costs will probably be passed onto the consumer through higher costs, such as increased ATM charges and overdraft fees.

So we will end up paying much of the bill for the bailout!

At least there’s a silver lining to all these shenanigans: no one will ever take Jim Cramer seriously, who told people to buy Silicon Valley Bank stock.

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