Thank you for the example you provided. A few points: The "bailout" funds are not taxpayer backed from what the Treasury has stated. Of course, their intent now is meaningless if the contagion spreads.
In my view, Trump also would have allowed this "bailout". This is the "D.C. Uniparty" doing what they do best. Due to the speed that a decision was needed yesterday, Congress was not involved. Ultimately this is a moral question - Should customers lose millions of dollars through no fault of their own? The depositors did not make the bad investment decisions of SVB. Their management needs to pay, not the depositors.
I suppose you could argue that they took unnecessary risks by placing more than $250,000 in their accounts. I agree in principle, but when real life intervenes doing the right thing is more important than abstract principles.
Mr. Slipko. Thank you for reading it and for your thoughtful and incisive comments. My response.
1. Trump was close to his base and still is. He would have known that such an action would have outraged them. But your point is well taken, predicting what Trump will do is not something I would wager a lot of money on.
2. Yes. Innocent depositors would have been clobbered - perhaps unfairly. But when does this stop? Ever since George H.W. Bush bailed out the S and L's in Texas in the early 1990s, we have seen speculators become more emboldened. Clinton bailing out Goldman Sachs, Asian currencies and Greenwich Capital. And the outrage of the bail outs of Citibank, Goldman Sachs etc in 2008. See Dave Chu's note above about moral hazard. Not doing this could have resulted in banks runs and even riots. But the alternative is to allow speculators to continue this behavior. It must end.
3. Congress should have been called into special session to approve this.
As stated in the Wall St. Journal: "The Treasury and Federal Reserve stepped in late Sunday to contain the financial damage from Friday’s closure of Silicon Valley Bank, guaranteeing even uninsured deposits and offering loans to other banks so they don’t have to take losses on their fixed-income assets. This is a de facto bailout of the banking system, even as regulators and Biden officials have been telling us that the economy is great and there was nothing to worry about. The unpleasant truth—which Washington will never admit—is that SVB’s failure is the bill coming due for years of monetary and regulatory mistakes."
So what ever happened to "moral hazard?" Haven't we learned the lessons of Bear Stearns, which ended up failing anyway even after a bailout? At the very least, the salaries and stock sales of SVB's execs should be clawed back.
Thank you for the example you provided. A few points: The "bailout" funds are not taxpayer backed from what the Treasury has stated. Of course, their intent now is meaningless if the contagion spreads.
In my view, Trump also would have allowed this "bailout". This is the "D.C. Uniparty" doing what they do best. Due to the speed that a decision was needed yesterday, Congress was not involved. Ultimately this is a moral question - Should customers lose millions of dollars through no fault of their own? The depositors did not make the bad investment decisions of SVB. Their management needs to pay, not the depositors.
I suppose you could argue that they took unnecessary risks by placing more than $250,000 in their accounts. I agree in principle, but when real life intervenes doing the right thing is more important than abstract principles.
Mr. Slipko. Thank you for reading it and for your thoughtful and incisive comments. My response.
1. Trump was close to his base and still is. He would have known that such an action would have outraged them. But your point is well taken, predicting what Trump will do is not something I would wager a lot of money on.
2. Yes. Innocent depositors would have been clobbered - perhaps unfairly. But when does this stop? Ever since George H.W. Bush bailed out the S and L's in Texas in the early 1990s, we have seen speculators become more emboldened. Clinton bailing out Goldman Sachs, Asian currencies and Greenwich Capital. And the outrage of the bail outs of Citibank, Goldman Sachs etc in 2008. See Dave Chu's note above about moral hazard. Not doing this could have resulted in banks runs and even riots. But the alternative is to allow speculators to continue this behavior. It must end.
3. Congress should have been called into special session to approve this.
As stated in the Wall St. Journal: "The Treasury and Federal Reserve stepped in late Sunday to contain the financial damage from Friday’s closure of Silicon Valley Bank, guaranteeing even uninsured deposits and offering loans to other banks so they don’t have to take losses on their fixed-income assets. This is a de facto bailout of the banking system, even as regulators and Biden officials have been telling us that the economy is great and there was nothing to worry about. The unpleasant truth—which Washington will never admit—is that SVB’s failure is the bill coming due for years of monetary and regulatory mistakes."
So what ever happened to "moral hazard?" Haven't we learned the lessons of Bear Stearns, which ended up failing anyway even after a bailout? At the very least, the salaries and stock sales of SVB's execs should be clawed back.
Thanks Dave. No moral hazard anymore unfortunately.