A Writer Tries to do Math
Let Jimmy Stewart explain it instead
Yeah My Heart Stood Still, a Bank Run-run-run
A friend of mine asked me if I was going to write about the Silicon Valley Bank collapse, because he didn’t feel like reading in depth on it and was hoping I could summarize it instead. I’ll take it as a compliment that he asked, but I’m pretty dumb when it comes to finance issues. Luckily, a lot of actual news outlets with real reporters have taken a stab at it, and I can just cheat off their homework. And best I can tell, this was just an old-fashioned bank run, like we saw in It’s a Wonderful Life:
The difference is, it seems, SVB didn’t have Jimmy Stewart around to calm down their depositors. But on the bright side, this doesn’t appear to be any sort of scam or fraud, it was just a bank making what seemed like good decisions at the time but turned out to be bad bets.
Just as a quick Econ 101 lesson, when banks take deposits, they then use that money to provide loans (which are then paid back with interest) or to buy investments which increases the assets the bank can use to make loans, cover deposits, etc. Silicon Valley Bank had apparently been using most of its deposits to buy up long-term/low-yield U.S. government bonds. That’s not the worst decision on its face, as long-term U.S. bonds are usually some of the lowest-risk investments available. They don’t pay much in interest because they’re so low-risk, but that’s the price of being low-risk. Except.
You may have heard on the news that inflation has been a bit of a problem over the last year or two, and that in response the Federal Reserve has raised interest rates in an effort to tighten the money supply and thereby lower prices. The issue there, in addition to the general economic pain caused by higher prices and higher interest rates, is that it squeezes institutions like Silicon Valley Bank on both ends. Higher prices and higher interest rates means depositors need more of their money sooner than expected, and the higher rates also devalues those low-interest long-term bonds they had been purchasing as assets. (Why would anyone want to buy low-interest bonds when there are higher-interest bonds available?) So when SVB tried to sell some of those bonds to raise the money to cover their deposits, they were unable to raise enough money to do so, and long story short they didn’t have enough cash on hand to cover the withdrawal requests and they failed as a financial institution.
You’ve probably heard of the FDIC — the Federal Deposit Insurance Corporation — which insures various types of bank accounts in situations such as these. That way when banks fail, depositors aren’t left penniless and the entire economy doesn’t collapse. Well, the FDIC these days is only supposed to insure each account up to $250,000. I assume most of us never have to worry about that sort of thing — although if you do, feel free to send a few bucks my way — but SVB had an inordinate number of customers with well over that $250,000 limit, which meant that many customers (some being entire businesses) stood to lose millions upon millions of dollars if the FDIC held to that $250,000 per-account limit. But earlier this week, the Federal Reserve, in conjunction with the Treasury Department and the FDIC, announced that they would ensure that all depositors from SVB (as well as a similar institution, Signature Bank) would be made whole. It’s important to note, I think, that this only applied to depositors — shareholders and executives still lost their shirts, unlike in the financial crisis of 2008. They’re also adamant that taxpayers aren’t on the hook for any of it, and that it will be funded by other financial institutions instead. And while that might be technically true in the sense that no funds paid to the government will be transferred to SVB depositors, it seems a little disingenuous given that taxpayers are also customers of the financial institutions that are going to be covering these costs. Thus, Americans who had nothing to do with SVB are going to be seeing increased fees from their respective financial institutions, and it doesn’t seem particularly comforting to me that “well it’s not from your taxes!”
The politics of this are sort of weird, and honestly I don’t feel like I have a firm enough grasp on it to have an actual opinion. Mitt Romney supports the decision, and faux-populist Trumpist dweebs like James Comer oppose it, so it was probably the right decision.
Tangentially related, a lot of the criticism from the Right has been that SVB was so “woke” that they focused too much on leftist politics instead of their fiduciary responsibilities, and that just strikes me as incredibly silly. I suppose when you’re so dedicated to the idea that “woke-ism” is the cause of every societal ill, there’s no problem too ridiculous to be blamed on cultural leftism; but I personally have a difficult time pinpointing which leftist belief would cause the executives of a financial institution to invest too heavily in long-term government bonds as opposed to better diversifying their assets. I consider myself pretty well-versed in the language of the Left, but I don’t see the connective tissue between, like, restorative racial justice, trans advocacy, non-heterosexual representation in media, and…going all-in on treasury bonds?
Similarly, there are complaints that the FDIC shouldn’t extend its insurance beyond the $250,000 threshold because the responsibility falls on depositors to ensure their financial institution is making sound fiduciary decisions to remain solvent, and I just…really? Again, I’m a financial ignoramus, so maybe that’s a thing wealthy types do, but that just seems like asking too much of bank customers. I’m a fairly raging capitalist, and I understand that part of the free market is allowing people to feel the consequences of their poor decisions, but I don’t really see how the free market is served by allowing people to lose millions of dollars and however many businesses to go under because their bank made a marginally bad decision. (And again, it wasn’t even that bad of a decision. This isn’t like FTX, which was straight fraud, or Lehman Brothers, who made a series of risky investment decisions. This was just being on the wrong side of a bubble.) I’m not so much of a free market purist as to advocate putting the entire economy at risk in order to teach one institution a lesson, y’know?
Another irony in this story is that it’s almost certainly a predictable result from a 2018 law passed by a Republican Congress and signed by then-president Trump which raised the threshold for various financial regulations on institutions from $50 billion in assets to $250 billion in assets. Which is to say, if the threshold had remained at $50 billion, SVB would’ve been subject to various requirements that likely would have prevented its over-reliance on government bonds as assets, thereby preventing its collapse. So what a bunch of irresponsible deregulators those Republicans were, right? …eh, except that one of the largest proponents of the change was none other than former Congressman Barney Frank, one of the namesakes of the Dodd-Frank financial regulations borne out of the 2008 financial crisis. Strange bedfellows and all that.
If You Look for Justice, You’ll Find Just Us
Former Vice President Mike Pence made a little news over the weekend when he harshly (by his standards) criticized Donald Trump at the annual Gridiron Dinner, saying “President Trump was wrong. I had no right to overturn the election. And his reckless words endangered my family and everyone at the Capitol that day. And I know that history will hold Donald Trump accountable.”
I mean, it’s pretty weak tea, as far as I’m concerned, if that counts as really sticking it to Trump. It still baffles me, as I’ve said before, that Donald Trump is running for president and there’s no chance that he will have the same running mate as last time because a mob of his supporters stormed the Capitol looking to hang the guy. We’re just watching the race as if that’s not completely insane. But I digress.
I’m glad Pence has garnered the courage to say, simply, that Trump was wrong — i.e., crazy — and that his words about the election put Pence and others in literal danger. Good for him. But I’ve never much cared for the formulation that “history will hold Donald Trump accountable,” because it removes human agency and responsibility from the equation — as if “history” is this outside benevolent force issuing judgments on various actors and deeming them morally good or bad. Nonsense. What is “history” if not the general consensus of human beings regarding past events? “History” will only hold Donald Trump accountable if we hold Donald Trump accountable, and so far, it seems to me, we’re leaving quite a lot to be desired on that front. If Mike Pence believes that “history” will hold Donald Trump accountable, what does he make of the fact that Trump is currently leading the polls for the Republican nomination? Would he consider that “being held accountable”? And if not, what does Pence plan to do about it?
Relatedly, what does Pence make of the fact that dismissal of — or in some cases, affirmative support for! — the January 6th riot is becoming the price of admission for the Republican primary? If Pence genuinely believe that it was a “disgrace” and that it “mocks decency to portray it otherwise” …what does he plan to do about the fact that the base of the Republican party, with Donald Trump at its head, seems to be diametrically opposed to him?
In the aftermath of January 6th, then-Senate Majority Leader Mitch McConnell was positively gleeful that “Democrats are going to take care of that son of a bitch for us!” The son of a bitch, in that case, was Donald Trump. But you’d think Mitch would know better than to rely on Democrats for anything, and when their effort to “take care of that son of a bitch” fizzled, Mitch (to his eternal shame) ultimately voted to acquit Trump. There should, I think, be a lesson there.
Democrats aren’t going to “take care” of Donald Trump. “History” isn’t going to “hold Donald Trump accountable.” The only way any of that happens is if we do it ourselves. And that’s going to require people like Mike Pence, and Mitch McConnell, and those like them, to stand up to Trump and his supporters and say “you have no place here.” Does anyone think they’re actually going to do that? I don’t.
Here’s a bonus item because I’m going to be traveling on Friday and it likely won’t have a newspeg by next week.
DeSantis’s Strange Strategy
I’ve always been skeptical of Florida Governor Ron DeSantis’s apparent political strategy of leaving no room to his populist right from which Donald Trump could attack him. That involves, basically, doing whatever he thinks the rubes will like, whether he actually believes it himself or not. (Note: I’m not calling GOP primary voters rubes, per se, I just think DeSantis takes them as rubes by pandering to them so plainly. Whether he’s right is an as-yet untested hypothesis.)
Donald Trump has been attacking DeSantis for his previous Reaganism — or, in Trump’s telling, his Paul Ryan-ism — because DeSantis is on record supporting things like reforming Social Security and Medicare, general corporatism, etc.
The most recent attempt by DeSantis to distance himself from previous positions came earlier this week when he answered a question on Ukraine from that other corporatist cosplaying as a populist, Tucker Carlson:
If you don’t feel like wading through that entire thing, here’s the gist:
While the U.S. has many vital national interests – securing our borders, addressing the crisis of readiness within our military, achieving energy security and independence, and checking the economic, cultural, and military power of the Chinese Communist Party – becoming further entangled in a territorial dispute between Ukraine and Russia is not one of them. […]
Without question, peace should be the objective. The U.S. should not provide assistance that could require the deployment of American troops or enable Ukraine to engage in offensive operations beyond its borders. […]
A policy of “regime change” in Russia (no doubt popular among the DC foreign policy interventionists) would greatly increase the stakes of the conflict, making the use of nuclear weapons more likely. […]
The Biden administration’s policies have driven Russia into a de facto alliance with China. […]
We cannot prioritize intervention in an escalating foreign war over the defense of our own homeland, especially as tens of thousands of Americans are dying every year from narcotics smuggled across our open border and our weapons arsenals critical for our own security are rapidly being depleted.
Just a few things up front:
“Territorial dispute”? Ex-squeeze me? Baking powder? To say that the current war in Ukraine is a “territorial dispute” is akin to saying that Hitler had a “territorial dispute” with Poland, circa 1939. It’s such a bloodless, anodyne term that glosses over such a huge pile of honest-to-God literal evil that DeSantis should be embarrassed. I mean, my God, man.
The idea that this isn’t a “vital national interest” is belied by the fact that containing Russian aggression has been a chief foreign policy objective of the United States for [checks calendar] the better part of eight decades.
Of course “peace” should be the objective. But if that’s genuinely the aim, then Russia must be defeated. Because it’s not as if Ukraine is an equal participant here. If Russia ceased fighting today and retreated back over the border, there would be peace. If Ukraine ceased fighting today, there would be slaughter. So there’s only one avenue for peace, and we know what it is.
Just as a point of fact, I’m not aware of anyone of any prominence, even the hawkiest neo-con, calling for “regime change” in Russia. I mean, I think the world would be better off if Vladimir Putin was evicted from this planet, but that’s not the same as pursuing a policy of “regime change.” But please, if there’s a “DC foreign policy interventionist” advocating for such a thing, name one name.
There’s nothing “de facto” about China’s alliance with Russia, but it has nothing to do with the Biden administration’s policies driving anything. Moreover, it’s incredibly strange to me that these people are so hesitant to confront Russia — who has revealed themselves to be a completely inept conventional force — while claiming to be much more confrontational with China, a much more formidable opponent. Don’t poke the Bear, but slap the Dragon in the face is not a coherent approach to foreign policy.
Framing aid to Ukraine as coming at the expense of the opioid crisis is just horseshit class-baiting (nationalist-baiting?). It’s not a choice between aiding Ukraine and solving the opioid crisis. We can certainly do both. It just so happens that solving a national drug crisis is a bit more complicated than sending weapons systems to Europe.
But all of that aside — and it’s a lot, I admit — I just don’t know how DeSantis squares this newfound skepticism toward Ukraine with his previous opinions on the matter:
Why was it “a mistake,” in 2015, to refuse to provide defensive and offensive weapons to Ukraine in order to deter Russia, but in 2023 it’s a mistake to provide them? What changed? The obvious answer, of course, is the president. Barack Obama, to his shame, was the one refusing to provide lethal aid to Ukrainians. Joe Biden, meanwhile, has finally found a foreign policy issue on which he is correct, and DeSantis is tripping all over himself to get on the wrong side of it in order to pander to a newly-isolationist wing of the Republican primary electorate.
It’s plausible to me that Ron DeSantis doesn’t believe any of his recent conversions, but that’s cold comfort. Normally a political candidate would seek to obtain power by making his actual beliefs as palatable as possible to as many voters as possible. DeSantis, meanwhile, seems to base his beliefs on whatever is most political effective at a given moment. There’s something off-putting to me about a guy who appears to want to be president, but we have no indication what his actual beliefs are. I mean, that shit might fly as a cable news host, but that’s a narrower audience, is it not?
These days, authenticity is a valuable commodity for a politician. I’m not convinced that Ron DeSantis authentically believes in anything, and it triggers sort of an uncanny valley for me. I’m honestly a little surprised that more voters aren’t put off by his blatant pandering. It might simply be that voters are unaware, but the more visibility DeSantis receives as he inches closer to his presumptive presidential campaign, the more questions he’s going to have to answer about his previous statements. If Donald Trump is going to rub DeSantis’s nose in his previous support for Social Security reform, I don’t imagine he’s going to let a flip-flop so blatant as whether we should arm Ukraine go unmentioned.
Occasional Trivia
Answer from last time:
Category: Nuclear Physics
Clue: Ionization energy is the amount of energy required to remove one of these from an atom.
Electron
Today’s clue:
Category: Before and After
Clue: Seal’s hit song about smooching with a president’s mother.
Dispatches from the Homefront
Every year my wife and I say we’re going to ease the children into the time change, and every year we don’t do that. This year, however, our older daughter seemed to be having more of a challenge than usual. She was groggier than ever on the way to school, and by lunch time she had developed a fever which necessitated being picked up from school. She then slept for about 14 of the next 24 hours, which seemed to take care of the fever, but not before I added yet another item to the long list of atrocities attributable to Woodrow Wilson.