FINANCE
On March 10, the Federal Deposit Insurance Corp. took control of Silicon Valley Bank. Two days later, it shut down Signature Bank. Two days later, the U.S. Treasury Secretary and the CEO of JPMorgan Chase drew up plans for a private sector rescue of First Republic Bank that was experiencing a run on its deposits.
The cost to the Federal Reserve Bank of guaranteeing the deposits at both SVB and Signature Bank exceeds $140 billion. Other banks, anxious about deposit runs on their own institutions, borrowed from the Fed $153 billion, almost 50 percent more than their borrowings during the 2008 crisis.
How is it possible that we are back again with impending bank failures, and not one person or institution took preventative measures?
There are many disconcerting facts. First, the technology sector, which includes the rapacious venture capitalists and private equity firms that eagerly fund tech and biotech startups that often have poor, mostly untested, business models but have close connections with someone in Silicon Valley, eschew regulation and fight all forms of supervision. Yet here they are bleating that if the regulators did not bail them out, they could not pay their employees’ salaries and wages and that would create a huge downward economic spiral. A touch of blackmail to say the least.
Consider the size of these salaries and wages that employees of these startups earn. The starting salary for these nerds, who have just graduated with little or no practical experience, is well over $200,000 a year, with expected substantial bonuses.
Many of these startups survive on funding from eager VCs or lending consortiums that are convinced that at least one of them will be the next Google, Facebook or Moderna.
Alas, the record shows that 90 percent of tech and biotech startups fail.
Consider the role of Goldman Sachs that was engaged by SVB to raise equity to hastily boost its much-needed cash reserves and to conceal its asset-liability mismatch. Did Goldman Sachs not do any due diligence and recognize they were propping up a failing bank, and by trying a rapid sale of shares they were adding to the deception of SVB’s true health? And what about the self-satisfied, smiling Jamie Dimon, recruited to help the Feds come up with a solution to save the banking sector? His organization was an advisor to First Republic Bank. Did they also neglect to look at its health or was it just about blindly collecting fees? And rest assured, all the banks that helped prop up the financial sector will be earning handsomely for the inconvenience — an inconvenience which was an act of anticipatory reciprocity: If they were caught in a cash-flow crunch, others would be obliged to stump up loans for them too.
How is it that the Fed did not monitor the asset and liability positions of SVB, the bank that boasted having banked half of venture-backed tech and life sciences — all high-risk businesses? What has the Fed learned since 2008-09? Not much it seems. We must remember that the U.S. Treasury is filled with Goldman Sachs alumni; the blood between bankers and the Fed is thick. No arm’s length there.
Once again the bankers are bailed out for their greed with no consequences or recourse. The taxpayer will pay up for their egregiousness, you can bet on that. And the people relying on food stamps will be told, “Sorry, there is no more money for you.”
Shame on us for putting up with these injustices.
Annabel Beerel, author of “Rethinking Leadership: A Critique of Contemporary Theories,” can be reached through annabelbeerel.com.
