A Bailout Most Crooked, Part 1

Oh, c’mon!

They have done it again, and in a way that makes a flaming mockery of both honest market economics and the so-called rule of law. In effect, the triumvirate of fools at the Fed, Treasury and FDIC have essentially guaranteed $9 trillion of uninsured bank deposits with no legislative mandate and no capital to make these sweeping promises good.

That’s right. In the case of the direct bailout of all depositors at SVB and Signature Bank, these closed institutions have now been ridiculously christened on a postmortem basis as “SIFIs” (systematically important financial institutions). That makes them eligible for a hidden backdoor bailout mechanism in the 2009 Dodd-Frank Act, which gave authorities the power to guarantee any and all bank deposits above the standard $250,000 limit.

You might say “who knew” our brilliant legislators deemed public guarantees of the deposits of giant hedge funds and Fortune 500 companies, among like and similar “deserving” others, to be an essential “reform” warranted by the lessons of 2008?

Then again, we will just note the hideous abuse of language implicit in this weekend’s maneuver. Total assets of the US banking system amounted to $30.4 trillion at the end of 2021. Accordingly, the $110 billion of assets at Signature bank amount to 0.36% of the total and SVB’s assets of $210 billion were just 0.70% of the banking system’s assets.

If these sub-1% entities are indeed “systematically important”, then riddle us this: Why were these cesspools of reckless banking not declared to be SIFIs back in 2011 along with JP Morgan ($3.7 trillion of assets), Bank of America ($4.1 trillion of assets) and the rest of the two dozen SIFI big boys, who at least had to adhere to enhanced capital and liquidity standards in return for getting the SIFI trophy?

Indeed, notwithstanding all the Mickey Mouse aspects of the SIFI capital standards regime, it might well be wondered whether Signature and SVB would still be open today had they needed to adhere to JP Morgan levels of capital and liquidity, but one thing is certain: Getting the benefits of a posthumous SIFI designation that they were never required to adhere to while they were still among the living is a new low in Washington servility to the powerful. In this case, the billionaire overlords of Silicon Valley and the VC racket whose deposits were at risk until about 6PM Sunday night.

And yet, and yet. The grotesque bailout of the large depositors who wear the Big Boy Pants at these institutions is just the tip-of-the-iceberg of the outrage warranted by this weekend’s pitiful capitulation.