A Little Commentary on Silicon Valley Bank's Failure from The Pundits

 

They are all libertarians until they are hit by higher interest rates.

— Nassim Nicholas Taleb (@nntaleb) March 11, 2023

Silicon Valley Bank bought bonds when interest rates were low. Now that they're high, the bonds are worth (much) less, and the bank failed...after successfully lobbying to be exempt from some bank regulation. 

For a more detailed explanation, see Steve Keen's essay here. He, and many others, blame the Fed's speedy increase in interest rates, and the subsequent decrease in value of the bonds SVB had bought. This is a case of iatrogenic medicine--where the treatment causes the disease.

From Mike Norman, commenting on the fallout from being unable to meet payroll thanks to SVB's failure: "If youre a big firm you’re going to have to get all your USD to a 100% govt money market fund and establish your own credit union staffed by your own people for the firm to use for payroll and current accounts payable/receivable... US banking system completely unusable with these Art degree monetarist morons trying to operate it…"

Meanwhile:

Jerome Powell testified in front of the banking committee this week.

COMMITTEE: “Do you see any systemic risk in the banking system because of the rapid rise of interest rates?”

POWELL: “No”

🥴

— Genevieve Roch-Decter, CFA (@GRDecter) March 12, 2023

It’s Like Über, but for Deposit Insurance

Posted on March 13, 2023 by mikethemadbiologist

In light of the Silicon Valley Bank bank run and subsequent rescue, David Dayen points out there’s a solution for businesses, known as Insured Cash Sweep, which chops up your money into FDIC-insurable units of $250,000. That would mean these businesses worried about losing their excess cash wouldn’t. Why SVB didn’t use this for its clients is… unclear, though given the bank officers’ recent behavior, such as paying out a bunch of bonuses right before the FDIC closed them, I’m guessing they didn’t want to spend the money to set this up.

Of course, the larger context is that Trump, Republicans, and some ‘moderate’ Democrats voted to decrease regulations which, had they still been in place, would have prevented the bank run (boldface mine):


Back up: How is it that Silicon Valley Bank [SVB], Thursday the 16th-largest bank in America by assets, is shutdown, in receivership, with every chance of a wild financial ride to come over the next week as every organization with more than $250K in any one bank frantically moves money around to try to get all of its deposits under the $250K FDIC insurance maximum?

…And the answer is:

“As a banking organization, our liquidity is subject to supervision by our banking regulators. Because we are a Category IV firm with less than $250 billion in average total consolidated assets, less than $50 billion in average weighted short-term wholesale funding and less than $75 billion in cross-jurisdictional activity, we currently are not subject to the Federal Reserve’s LCR or NSFR requirements, either on a full or reduced basis…”

What Dan does not mention is §401 of the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act:

§165 of the Financial Stabiity Act of 2010… is amended… in the matter preceding paragragph (A), by striking “$50,000,000,000” and inserting “$250,000,000,000”…

supported by 50 Republican and 17 Democratic Senators (and by 225 Republican and 33 Democratic House members), and signed into law by President Trump.

If not for this action of “regulatory relief”, SVB would have been subject to the original Dodd-Frank NSFR, and would have been unable to have taken on the asset portfolio it took on, and so it would not have crashed—at least, not the way it did, and not now…

If we lived in a good world—one in which Dodd-Frank had, as it should have, established the principle that all commercial banking deposits are insured (and that banks pay insurance premiums on all of their deposits) and if the 2018 EGRR&CPA had not been passed exempting SVB from NSFR, et cetera, then Peter Thiel’s chaos-monkey appearance would not have made a difference. No one would have an incentive to pull their money out of SVB. If anyone had felt the urge, SVB would have had a very different portfolio—one without this mark-to-market loss and the expected-future-capital-gain offset—because it would have had to maintain its NSFR ratio above 100% throughout.

It’s fucking stupid all the way down. One other point: if this had been a bank in Michigan that lent mostly to small manufacturers (let’s less than fifty employees), would the titans in Silicon Valley call for helping the depositors?

You already know the answer to that question.

Added: It’s weird how the Fed argues it needs to raise rates to cause unemployment so they can lower inflation, but also needs to make SVB depositors whole to prevent job losses. I suppose some jobs are less inflationary than others.

 Update: From The Intercept:

“There is definitely a class element,” economist Dean Baker of the Center for Economic and Policy Research said of the federal intervention in an email to The Intercept. “Look at how easily we can toss tens of millions of dollars at people who couldn’t figure out how limits on FDIC deposit insurance work, but the idea of giving $10k in debt relief to a student who might have used bad judgment in taking out a loan when they were 18, gets so many people upset about moral hazard and individual responsibility.”

Perhaps no one embodied this contradiction more than Larry Summers, former Treasury secretary and a vocal critic of student debt relief. “This is not the time for moral hazard lectures or for lesson administering or for alarm about the political consequences of ‘bailouts,’” he said in a tweet on Sunday.

Update #2: From Naked Capitalism

This post makes a point that is glossed over in nearly all mainstream coverage of the collapse of SVB and resulting bailout: 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.

However, the post gets a key element of the SVB-depositor power dynamics wrong. It was not the venture-capital backed companies that chose or agreed to keep all their deposits at SVB. It was their venture capital investors that forced this arrangement on them, confirmed by a reader: “Speaking as a former customer as dictated by my VCs.” This distinction matters because it puts the locus of influence and favor-trading much higher up the food chain.

 Update #3: From Modern Money Theorists Stephanie Kelton and Randall Wray.

This is an extensive history of the Fed's actions as they appear in bank failures. SVB is nothing new.

 

Poverty Programs in the U.S.

 From the NY Times. Excerpt:

Antipoverty programs work. Each year, millions of families are spared the indignities and hardships of severe deprivation because of these government investments. But our current antipoverty programs cannot abolish poverty by themselves. The Johnson administration started the War on Poverty and the Great Society in 1964. These initiatives constituted a bundle of domestic programs that included the Food Stamp Act, which made food aid permanent; the Economic Opportunity Act, which created Job Corps and Head Start; and the Social Security Amendments of 1965, which founded Medicare and Medicaid and expanded Social Security benefits. Nearly 200 pieces of legislation were signed into law in President Lyndon B. Johnson’s first five years in office, a breathtaking level of activity. And the result? Ten years after the first of these programs were rolled out in 1964, the share of Americans living in poverty was half what it was in 1960.

But the War on Poverty and the Great Society were started during a time when organized labor was strong, incomes were climbing, rents were modest and the fringe banking industry as we know it today didn’t exist. Today multiple forms of exploitation have turned antipoverty programs into something like dialysis, a treatment designed to make poverty less lethal, not to make it disappear.

This means we don’t just need deeper antipoverty investments. We need different ones, policies that refuse to partner with poverty, policies that threaten its very survival. We need to ensure that aid directed at poor people stays in their pockets, instead of being captured by companies whose low wages are subsidized by government benefits, or by landlords who raise the rents as their tenants’ wages rise, or by banks and payday-loan outlets who issue exorbitant fines and fees. Unless we confront the many forms of exploitation that poor families face, we risk increasing government spending only to experience another 50 years of sclerosis in the fight against poverty.

The best way to address labor exploitation is to empower workers. A renewed contract with American workers should make organizing easy. As things currently stand, unionizing a workplace is incredibly difficult. Under current labor law, workers who want to organize must do so one Amazon warehouse or one Starbucks location at a time. We have little chance of empowering the nation’s warehouse workers and baristas this way.

 

Context for the Scott Adams Story

Recently "Dilbert" cartoonist Scott Adams issued a rant saying he won't help black people because of a Rasmussen poll that found blacks did not agree with "It's OK to be white." But that "It's OK to be white" phrase is part of the racist backlash against blacks' civil rights.

From The Present Age

Excerpt: "Salon writer Amanda Marcotte delved this point further on Twitter: 

'Part of the problem is that if, hypothetically, someone flashed white supremacist symbols at the camera [like the 👌..."OK" sign] the point of the stunt would be to get liberals wound up, so they can then claim that liberals are just imagining things,' she wrote. 'That was what the OK symbol was literally invented to do: Both serve as a white supremacist symbol and also one that is just ordinary-enough looking that when liberals expressed outrage, the white supremacist could play the victim of liberal hysteria.'

'It’s okay to be white' is the very same thing. It’s something that, if you take it out of context, sounds harmless. If you’re familiar with the context, however, it quickly becomes something one would quite easily object to.'

"Imagine if the KKK adopted an unofficial slogan of 'Sunshine, rainbows, and unicorns for everyone.' If you were familiar with it, and 'sunshine, rainbows, and unicorns for everyone' had been associated with the Klan over a span of years, how would you answer the polling question, 'Do you agree or disagree with the following statement: sunshine, rainbows, and unicorns for everyone?' Good pollsters don’t try to trick people into saying they agree with slogans (if they wanted to ask about whether it’s okay for white people to exist, they could have done that, but they, instead, decided to take something that the Anti-Defamation League added to its Hate Symbols Database)

"And that, among many other reasons, is why Rasmussen is not a good pollster." ... and why it's disingenuous for Adams to ignore the context for that slogan.

A Little Shade for Bill Gates

 

Ukraine Updates from the New Yorker, My Comments

The following is partly from a New Yorker interview (2/27/23) with Jeffrey Sachs. The interview is extraordinary because it breaks the wall of silence from Western media about how complicit the U.S. was in instigating that war. Note how Sachs has to consistently resist the interviewer's insistence on the official line that Putin is a maniac who is solely responsible for an "unprovoked" invasion of Ukraine. Sachs very clearly recounts the provocations. 

Why does the interviewer insist on the official narrative? "[T]here will always be an 'official version' of reality--say, that plantation owners are benevolent paternal figures who only have the best interest of their slaves at heart--which no one, neither masters nor slaves, actually believes, and which they are likely to treat as self-evidently ridiculous when 'offstage' and speaking only to each other, but which the dominant group insists subordinates play along with, particularly at anything that might be considered a public event." From a description of Domination and the Arts of Resistance (1990), by James Scott

And if you don't believe the media are waging an information war, ask yourself when was the last time you heard about Seymour Hersh's exposee about the U.S. sabotaging the Nordstream Pipeline. There's radio silence about that too, and when it's mentioned, there's a concerted effort to discredit Hersh, the reporter who revealed the My Lai masscre in Vietnam--another inconvenient truth.

Excerpts:

"The [Ukraine] war began...nine years ago, with the U.S. participation in the overthrow of Ukraine’s President Viktor Yanukovych, in February, 2014—the very active U.S. role in that. We’ll only perhaps know the full extent of it when the archives are opened, decades from now. We know enough that this was why the war actually occurred....

"In late 2013, when protests against Yanukovych broke out, the U.S. took the occasion to play extremely actively in this and in ways that were rather direct, let us say—paying a lot of money to those who were leading this so-called movement and helping to finance what became a coup.

"(Interviewer) So you think what happened in 2014 was a coup?

"It was a coup, of course. It was an unconstitutional seizure of power when very violent groups, well armed, stormed the government buildings in February, 2014. [Protesters, angered by Yanukovych’s rejection of a trade agreement with the European Union, were killed by security forces after trying to occupy parts of Kyiv; afterward, Yanukovych was isolated politically and fled to Russia with the assistance of the Kremlin. I asked Sachs over e-mail for a source for his claim about the role played by the U.S. He responded, “It is public knowledge that the National Endowment for Democracy and US NGOs spent heavily in Ukraine to support the Maidan. I have first-hand knowledge of that spending.” The N.E.D. told The New Yorker that it provides funding to civil-society groups but “does not provide funding to support protests.”]....

"I’ve been an adviser economically all over the world, and I know leaders all over the world and have known leaders all over the world for many decades. I’ve seen a lot, and what I’m trying to convey is something very basic about American foreign policy, and that is that it is devastatingly based on lies and covert actions, and I see those lies all the time.

"I happened to be on a talk show the night that Colin Powell presented the U.N. testimony. There were six panelists. They went around the table, and they finally came to me. I said, “It’s lies. It’s clearly lies,” which it was. It wasn’t just wrong intelligence; it was lies cooked up to justify a war. Then I happened to know about the lies of the U.S. in Syria. You keep talking about Putin bombing people in Syria; the United States both provoked the disaster and stopped it from ending. I know that.

".... I am telling people that the narrative that we have is leading to an escalation of deaths, and it’s putting us on a path to nuclear devastation."

You might also read political scientist John Mearsheimer's 3/1/22 interview (here), which agrees. The U.S. provoked the Ukraine war.

Excerpt:

"For years, Mearsheimer has argued that the U.S., in pushing to expand NATO eastward and establishing friendly relations with Ukraine, has increased the likelihood of war between nuclear-armed powers and laid the groundwork for Vladimir Putin’s aggressive position toward Ukraine. Indeed, in 2014, after Russia annexed Crimea, Mearsheimer wrote that 'the United States and its European allies share most of the responsibility for this crisis.'"

I'll remind readers that "truth is the first casualty of war." You will have no trouble finding editorials and news stories in the West about how bad the Russians are, so the above interviews very rarely see the light of day. 

When the recent stage of the war began, my niece sent me a Tweet alleging the Russians were so bad that when the Ukrainian soldiers on Snake Island responded to a demand they surrender with ""Russian warship, go fuck yourself!" the Russians killed the Ukrainians. Even that was a lie (see Wikipedia here)

Finally, I'll mention my father was a soldier in World War II, in fact he was on the first wave landing in one of the bloodiest battles of the Pacific, Iwo Jima, where he was wounded. I know of no one more anti-war than my father, who actively encouraged me to avoid the draft during the Vietnam war. When I was in college, he bought me a subscription to I.F. Stone's newsletter. To give you an idea of Stone's take on U.S. belligerence, and the narrative used to excuse it, his biography is entitled All Governments Lie. My conclusion, based on conversations with Dad, was that he was deeply ashamed of having participated in even a "good" war.

Update: A (suppressed) Ukrainian political scientists demonstrates that the snipers killing protesters were part of a false flag operation, and actually protesters themselves. In other words, the outrage at the elected, Yanukovich government, was manufactured. Excerpts from the link above:

:In the final months of 2022, Katchanovski submitted a new investigation on the Maidan massacre to a prominent social sciences journal. Initially accepted with minor revisions after extensive peer review, the publication’s editor effusively praised the work in a lengthy private note. They said the paper was 'exceptional in many ways,' and offered “solid” evidence in support of its conclusions. The reviewers concurred with this judgment.

"However, the paper was not published, a decision Katchanovski firmly believes to have been 'political....

"Among those fervently supporting Katchanovski’s appeal was renowned US academic Jeffrey Sachs. 'You have written a very important, rigorous, and substantial article. It is thoroughly documented. It is on a topic of great significance,' Sachs wrote to the scholar. 'Your paper should be published for reasons of its excellence…The journal will only benefit from publishing such a work of importance and excellence, which will further the scholarly understanding and debate regarding a very important moment of modern history.'"

 

The Systemic Incentive for More Crime

 Answering a bunch of bloggers asking for bigger carjacking penalties:

"The law, in its magnificent equality forbids rich and poor alike from sleeping under bridges, begging in the street, and stealing bread [or transportation]" - Anatole France (1844 - 1924)

Treating crime as a problem of individuals naturally brings one to condemn the criminal. But crime has a large systemic component. When 40% of U.S. population can't handle a $400 emergency, and ~27% of seniors have Social Security to fund more than 90% of their retirement, then lots of people are in desperate situations. My friends on the police force must face them more frequently, too.

It's far cheaper and more humane to fund social safety nets, even if some "non-deserving" criminal profits. Currently, the U.S. is doubling down on domination and suppression. U.S. population '82 - 2017 increased 42%. Police funding increased 187%.

Crime is actually in a decades-long decline thanks to our aging population. Canada, with identical age demographics, incarcerates one seventh as many per capita, and has insignificantly different crime stats than the U.S.

Meanwhile, "blue-collar" crime (robbery, mugging, etc.) costs $12 billion annually, while white collar crime (fraud, embezzlement, etc.) costs $1 trillion, says the FBI. Where are the Wall St. guys doing the perp walk? [crickets]

The City of Denver discovered handing homeless people vouchers meant 40% fewer arrests in that population. Cheaper and more humane, I say.

The clamor for more draconian penalties is straining at a gnat while swallowing a camel.

More:

As for "soft on crime" D's who want to "Defund the police"...Every Democratic candidate I've seen campaigning has repudiated that (very accurate) slogan. Every one, without exception.

As for being "soft" ... I'd settle for not being stupid. If you have a stick and a carrot, but only use the stick, not even a donkey will behave. The U.S. is stick-addicted. It's a thug, starting wars overseas, and on its own people. Just remember that the next time you read Putin was "unprovoked."

 

Propaganda Backfire

 

Ukraine's charm offensive in Berlin did not go as expected.

Russian destroyed tanks were brought to Berlin from Ukraine. They were supposed to remind the Germans of giving military aid to Ukraine.

But instead,the citizens of Germany began bringing flowers to the tank.
😂😂😂 pic.twitter.com/e189llE02H

— Richard (@ricwe123) February 25, 2023