SVB 'had no risk management whatsoever'
Paging Walter Bagehot...
I thought this was a great take on Silicon Valley Bank from Alfonso Peccatiello (right before Janet and Jay rescued the VC gazillionaires):
“Any money parked in a U.S. bank account above $250K is not your money, it’s an unsecured liability of the bank.
This is how money works, guys, whether we like it or we don’t like it.
This bank had no risk management whatsoever, and I think, to a certain extent, almost a political incentive to gamble, literally, and take ridiculous amount of risks on the asset side - and its depositors, by the way, I should say enjoyed quite some decent treatment because this bank had very lax lending standards as well.”
So are U.S. taxpayers now on the hook for this?
Large U.S. banks reported $7.891 trillion in estimated uninsured deposits at year-end 2022, almost a 41% increase since the end of 2019.
$7.891 trillion used to be a lot of money.
the discount window liberalization and the creation of the Bank Term Funding Program together achieve what is just a hair’s breadth away from a full backstop of uninsured deposits, while letting the officialdom pretend it hasn’t made that huge extension of subsidies to banks. Biden officials claim that banks will be made to pay for all these new goodies, when even now, they don’t pay the full value of FDIC deposit insurance.
Never let a crisis go to waste: The Silicon Valley Bank fallout makes the case for digital currencies
Janet Yellen to say US banking system ‘remains sound’ despite bank failures Yes, Janet, everything is “sound” when you have a printing press, an apathetic public and a world that still accepts dollars.
As I noted the other day “The only 'high-quality' financial asset is one that's taxpayer-backed.”
JPMorgan Says Fed’s Loans Will Provide $2 Trillion of Liquidity That should completely overwhelm the Fed’s pathetic “QT," right?
From the Fed, on the new BTFD program: Collateral Valuation: The collateral valuation will be par value. Margin will be 100% of par value.
As Walter Bagehot said, “lend freely, at the one-year overnight index swap rate plus 10 basis points, at par value, against deeply underwater collateral.”
Remember the savings and loan crisis?
The regulatory lessons of the S&L disaster are many. First and foremost is the need for strong and effective supervision of insured depository institutions, particularly if they are given new or expanded powers or are experiencing rapid growth. Second, this can be accomplished only if the industry does not have too much influence over its regulators and if the regulators have the ability to hire, train, and retain qualified staff. In this regard, the bank regulatory agencies need to remain politically independent. Third, the regulators need adequate financial resources. Although the Federal Home Loan Bank System was too close to the industry it regulated during the early years of the crisis and its policies greatly contributed to the problem, the Bank Board had been given far too few resources to supervise effectively an industry that was allowed vast new powers. Fourth, the S&L crisis highlights the importance of promptly closing insolvent, insured financial institutions in order to minimize potential losses to the deposit insurance fund and to ensure a more efficient financial marketplace. Finally, resolution of failing financial institutions requires that the deposit insurance fund be strongly capitalized with real reserves, not just federal guarantees.
Hundreds of Wall Street Execs Went to Prison During the Last Fraud-Fueled Bank Crisis (September 2013)
Great interview with former bank regulator William K. Black, here talking about the GFC (or what I call ‘Great Depression 2’):
The savings and loan debacle was one-seventieth the size of the current crisis, both in terms of losses and the amount of fraud. In that crisis, the savings and loan regulators made over 30,000 criminal referrals, and this produced over 1,000 felony convictions in cases designated as “major” by the Department of Justice. But even that understates the degree of prioritization, because we, the regulators, worked very closely with the FBI and the Justice Department to create a list of the top 100 — the 100 worst fraud schemes. They involved roughly 300 savings and loans and 600 individuals, and virtually all of those people were prosecuted. We had a 90 percent conviction rate, which is the greatest success against elite white-collar crime (in terms of prosecution) in history.
In the current crisis, that same agency, the Office of Thrift Supervision, which was supposed to regulate, among others, Countrywide, Washington Mutual and IndyMac — which collectively made hundreds of thousands of fraudulent mortgage loans — made zero criminal referrals. The Office of the Comptroller of the Currency, which is supposed to regulate the largest national banks, made zero criminal referrals. The Federal Reserve appears to have made zero criminal referrals; it made three about discrimination. And the FDIC was smart enough to refuse to answer the question, but nobody thinks they made any material number of criminal referrals [either].
After the savings and loan crisis of the 1980s and early 1990s, scores of individual bankers were convicted by the Department of Justice. Many were sent to prison. But almost no single senior executive went to jail or was truly held financially accountable for their role in the 2008 financial crisis, even as so many Americans paid a serious price when they lost their homes because they were underwater with toxic mortgages.
Then we got Eric Holder.
Here’s Holder in 2013 explaining the Obama Administration’s ‘Too Big To Jail’ policy:
I AM CONCERNED THAT THE SIZE OF SOME OF THESE INSTITUTIONS BECOMES SO LARGE THAT IT DOES BECOME DIFFICULT FOR US TO PROSECUTE THEM WHEN WE ARE HIT WITH INDICATIONS THAT IF YOU DO PROSECUTE, IF YOU DO BRING A CRIMINAL CHARGE, IT WILL HAVE A NEGATIVE IMPACT ON THE NATIONAL ECONOMY, PERHAPS EVEN THE WORLD ECONOMY. AND I THINK THAT IS A FUNCTION OF THE FACT THAT SOME OF THESE INSTITUTIONS HAVE BECOME TOO LARGE.
I believe this below is a now-deleted David Dayen quote:
Eric Holder is the guy who worked for a corporate law firm that represents Wall St firms, then he went into government and explicitly outlined a “too big to jail” policy for Wall St firms, and then he left government to go back to the same law firm.
And then there’s this incredibly prescient article from Pam Martens in May, 2008, six months before Obama was even elected:
The Wall Street plan for the Obama-bubble presidency is that of the cleanup crew for the housing bubble: sweep all the corruption and losses, would-be indictments, perp walks and prosecutions under the rug and get on with an unprecedented taxpayer bailout of Wall Street.
Read the above passage again. That is exactly what happened (and it very much helped someone like Trump get elected.)
Love the International Court of Justice defendants portrait
There are days when Rudy hits the nail on the head and then there are days when he hits it on the head with a jackhammer!