President Ronald Reagan once said, "The nine most terrifying words in the English language are 'I'm from the government, and I'm here to help.'"
Shock waves are rippling through the country after the announcement of the second largest bank failure in the country's history last week — Silicon Valley Bank.
This just 15 years after the largest bank failure in the country's history — Washington Mutual.
Research shows that the great collapse in 2008, one casualty of which was Washington Mutual, was one more example of the damage done by excessive government.
Then, standards for issuing mortgages deteriorated as a result of pressure from government entities Fannie Mae, Freddie Mac and the Department of Housing and Urban Development on lenders to meet affordable housing goals. More and more substandard loans were issued, all taking place under the illusion of government protection, until the house of cards came down.
After the total collapse, originating in government policy designed to allegedly make our lives better, the Dodd-Frank Act was passed, now with some 8,000 pages of regulations to supposedly strengthen America's financial system.
Time and again, a crisis caused by government is supposedly solved by creating even more government.
So now, with the Dodd-Frank Act in place, passed under the pretense of "solving" the problems of instability in our financial system, here we are again.
The amazing story behind SVB is its violation of principles that any undergraduate student in business learns. That is, banks make a profit by lending, investing at higher rates of interest than they pay on deposits.
So, managing interest rate risk is finance 101. Yet mismanagement of risk — the bank ignoring huge problems they would have if interest rates increased — is what brought it down.
How can it be that people who are allegedly smart do things that are incredibly stupid?
I attribute it to a detachment from reality.
After the 2008 crisis, there were major government bailouts. This builds into the mentality of a culture that if you are big enough, government will not let you fail. And if you believe government will not let you fail, that government is your friend, you tend to do stupid, irresponsible things.
As our culture becomes more deeply mired in a sense that our lives get better with more government and politics, more and more business people become detached from reality.
In this case, over recent years, "woke" culture has become rooted more and more deeply in business, particularly high-tech companies, a major customer base of Silicon Valley Bank.
Woke and ESG investment guidelines — environmental, social and governance — seems to have captured more attention at Silicon Valley Bank than the risk management essential to running their business.
The proxy statement of the bank, writes Wall Street Journal columnist Andy Kessler, notes that the board is "45% women" and there is "1 Black ... 1 LGBTQ+ ... and 2 Veterans."
Republican presidential candidate Vivek Ramaswamy notes that SVB announced in 2022 committing $5 billion in "sustainable finance and carbon neutral operations to support a healthier planet."
Worth adding to the picture is that the interest rate increases that SVB did not anticipate resulted from the inflation generated by trillions of dollars of government spending during COVID.
Now, fellow citizens, hold on to your wallets as our government bails out SVB, despite Treasury Secretary Janet Yellen saying it won't happen.
The only good news is it increases prospects for a Republican victory in 2024.
Star Parker's column is syndicated by Creators.
(1) comment
Gee, another laughable take on current events from our perpetual pollyannish conservative Star Parker. It's funny how bass-ackwards her perspective is compared to the far more rational explanation of Elizabeth Warren quoted in the New York Times: "No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules. In the aftermath of the 2008 financial crisis, Congress passed the Dodd-Frank Act to protect consumers and ensure that big banks could never again take down the economy and destroy millions of lives. Wall Street chief executives and their armies of lawyers and lobbyists hated this law. They spent millions trying to defeat it, and, when they lost, spent millions more trying to weaken it. Greg Becker, the chief executive of Silicon Valley Bank, was one of the many high-powered executives who lobbied Congress to weaken the law. In 2018, the big banks won. With support from both parties, President Donald Trump signed a law to roll back critical parts of Dodd-Frank. Regulators, including the Federal Reserve chair Jerome Powell, then made a bad situation worse, letting financial institutions load up on risk. Banks like S.V.B. — which had become the 16th largest bank in the country before regulators shut it down on Friday — got relief from stringent requirements, basing their claim on the laughable assertion that banks like them weren’t actually “big” and therefore didn’t need strong oversight."
Clearly, the correct take on the SVB failure is the exact opposite of Parker's view that "a crisis caused by government is supposedly solved by creating even more government." With Republicans and conservatives acting as foxes in the henhouse and nearly bringing us all to ruin, the moral of this story is that greed and profit driven executives cannot be trusted and our banking system needs more oversight and regulation, certainly not less!
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