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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsBailouts for Billionaires: Larry Summers: Now Is Not The Time For 'Moral Hazard Lectures'
Joy Reid covered this earlier on MSNBC
Lawrence Summers, an economist who worked in the Clinton and Obama administrations, has been tweeting up a storm this weekend, advocating for a complete bailout of Silicon Valley Bank, which collapsed on Friday after a bank run reportedly led by billionaire Peter Thiel. But Summers doesnt want to hear any moral hazard lectures, as he puts it, about the risks of helping companies that had accounts with SVB.
I hope and trust that the authorities are on a path to doing what is necessary to restore confidence. Acting decisively and rapidly is both the cheapest for taxpayers and the best for the economy. Failure to act strongly enough would be a Lehman-like error, Summers tweeted on Sunday. Summers, a man who helped repeal the Glass-Steagall Act while Treasury Secretary under President Bill Clinton, also says any other banks should get help to protect the U.S. banking system more broadly.
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This is not the time for moral hazard lectures or for lesson administering or for alarm about the political consequences of bailouts, Summers tweeted, putting bailouts in scare quotes despite the fact that he was proposing a bailout by the simplest definition possible. Summers argued that trying to differentiate between different customers at SVG bank would be a luxury that cant be indulged. Time is of the essence, according to Summers.
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Oddly enough, Summers doesnt believe the collapse of SVB is a systemic risk, which would seemingly contradict the argument that the bank needs an immediate bailout. Summers also took a very different attitude when the people who might get a bailout where average Americans with college loan debt. Back in 2022, Summers tweeted against student loan relief, arguing that money for that relief would be better spent on allowing people who couldnt afford to go to college a new opportunity to go to collegeprecisely the idea behind student loans to begin with.
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related:
https://www.marketwatch.com/story/werent-you-a-treasury-secretary-larry-summers-gets-dragged-on-the-internet-after-post-on-svbs-collapse-e61e9c79
Former Treasury Secretary Larry Summers, as he often does, took to Twitter to opine on the financial issue of the day, the collapse of SVB Financial. He generated a firestorm with his comment. This was the tweet:
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The issue with that description is that all banks operate that way. They borrow funds, mostly from depositors parking their money there for a low interest rate in return, and then lend that money out, to households through mortgages, and to businesses via loans. Some of the more charitable replies:
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related
Today on TAP: Silicon Valley Banks collapse is a function of the Fed rate spike, and will surely trigger calls for its well-heeled tech and venture capital clients to get a bailout.
https://prospect.org/blogs-and-newsletters/tap/2023-03-10-fed-induced-bank-wobble/
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There are a couple of important lessons here. First and foremost, the Feds rapid pivot on interest rates couldnt help but spill over into the broader economy. As Dennis Kelleher of Better Markets, who sees this as just the beginning, explained, banks had no time to adjust to the rate changes, which caused mismatches between the expected and real value of their assets. Indeed, stock in First Republic Bank, a regional lender in California and elsewhere, plunged 50 percent in Friday trading.
The Feds actions to fight increasing inflation will need to be materially adjusted, which it should be anyway because inflation is driven by many factors that are beyond the Feds control, Kelleher said. Causing financial instability and a recession (of any depth and length) while missing the mark on inflation should cause a fundamental rethinking of the Feds powers, authorities, and role.
Second, because the depositors holding the bag at SVB are Very Important People, theres going to be intense pressure for a bailout. Hedge fund titan Bill Ackman is already calling for one. Larry Summers told Bloomberg that the financial system should be fine, as long as depositors get every penny of their money back, which would be a $150 billion bailout. The character of the depositors as job creators will be used to push this narrative, as Atrios points out.
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We just had a crisis where government stepped in to protect regular people; the job market roared back to life. The employment-population ratio for prime-age workers passed the pre-pandemic peak in todays jobs report in just three years. In the 2008 crisis, predicated on bailing out banks and the rich, it took 12 years to hit that milestone. Let that be a warning as we brace for the fallout.
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Carlitos Brigante
(26,494 posts)dlk
(11,509 posts)He couldnt care less about those who cant afford to attend college. He hasnt exactly done in that regard. Talk is cheap.
bullwinkle428
(20,628 posts)beyond that one house that sits in the UT neighborhood?
Give my regards to Bari Weiss!!
https://www.texastribune.org/2021/11/08/university-austin-founders-college-culture/
Casady1
(2,133 posts)I work with some of these startups. These are people just like you and me in these companies. For the most part they are liberal. Silicon valley and startups are pure American. It starts with an idea the comes to fruition and hopefully eventually will be used by business or consumers to better your lives.
It is one of the most important businesses we have in America. Our software is used worldwide.
My checks used to come from SVB. They made a bad mistake but buying U.S treasuries. It is hardly a terrible evil thing. They just didn't think Powell was going to raise the basis points by 5% in less than a year thus causing those bonds to be worth less. When Theil pulled his money it started the run. No bank in America can withstand a run.
These employees just need to be paid and these businesses did no wrong. This money is there operating budgets.
Celerity
(43,067 posts)via smoke and mirror games with nonviable business models.
is a problematic talking point that I have seen a handful of posters here repeat ad nauseum over and over.
That bank, if it had been subject to the old, pre-2018-gutting Dodd Frank stress tests, would never have been allowed to get out over their skis like they did. That bank engaged in ultra risking behaviour, a lot of it simply by the type of dodgy clients it courted (and made a shit tonne of profits off of).
That bank took vastly overinflated assets, wanted to squeeze more juice from the lemon, fucked around, and found out.
Thiel and other vultures then sunk the old bovver boots into their jacobs (ie. balls, nutsack, the family jewels, etc if you do not hablo London Cockney rhyming slang) and started the massive runs.
No stress tests, well, BIG stress it turns out.
These asshats that Summers et. al. are shilling out for are the very same RW and/or libertarian types who screamed and stamped their feet and demanded bank (and many other types as well) deregulation, then when it blew up in their arrogant faces, came screaming for big bad old gubmint to make them whole. Typical corporate socialism for the rich and scammy.
The Incredible Tantrum Venture Capitalists Threw Over Silicon Valley Bank
Remind me why, exactly, these guys have so much control over technological innovation?
https://slate.com/technology/2023/03/silicon-valley-bank-rescue-venture-capital-calacanis-sacks-ackman-tantrum.html
If the technological innovation coming out of Silicon Valley is as important as venture capitalists insist, the past few days suggest they havent been very responsible stewards of it. The collapse of Silicon Valley Bank late last week may have resulted from a perfect storm of ugly events. But it was also emblematic of a startup ecosystem and venture-capital apparatus that are too unstable, too risky, and too unmoored from reality to be left in charge of something as important as the direction of our technological development.
As the startups that make up Silicon Valley Banks customer base scrambled to figure out whether they would be able to make payroll, a group of extremely online venture capitalists spent four days emoting on Twitter, ginning up confusion and hysteria about the threat of a systemic risk if depositors didnt get all their money back, pronto. All weekend, they screamed that there would be an economic collapse, that they were concerned about the workers, that the Federal Reserve was responsible, that-that-that until finally, on Sunday evening, they got what they wanted: the government promising full account access to all Silicon Valley Bank depositors.
By now, it is relatively clear what happened at Silicon Valley Bank. A pandemic bull run inflated the value of tech startups and the funds of investors, resulting in a tripling of deposits at the regional bank that specializes in the industrys fledgling companies, from $62 billion at the end of 2019 to $189 billion at the end of 2021. SVB wanted to put that money to work, so it bought up U.S. Treasury and mortgage bonds that would take years to mature but serve as a relatively safe place to park its cashas long as interest rates didnt rise. They did rise, however, multiple times.
For over a decade, low interest rates have allowed venture capitalists to accumulate huge funds to give increasingly unprofitable firms with unrealistic business models increasingly larger valuationsone 2021 analysis found that not only were 90 percent of U.S. startups that were valued over $1 billion unprofitable, but that most would remain so. Give me tens of billions of dollars and a $120 billion valuation and someday, somehow, I will replace every taxi driver with gig workers paid subminimum wagesor robot taxis paid no wageswhile charging exorbitant fares for rides, increasing pollution, and adding to traffic. Or not, and I will sell off all the science-fiction projects Ive promised, but still fail to make a profit.
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Casady1
(2,133 posts)meet the people in these companies. I've worked them for twenty years. We developed the software that the SEC uses to do its investigations. The people in startups are not shitty people. I'm one of them.
Celerity
(43,067 posts)Obviously there are many good people labouring away at the lower levels (hell some high, high up as well) in tech and other startups, but there are so often far too many rotten apples at the top of the fruit pile.
Moral hazard is real thing, and both SVB and Signature may well be just the precursors for far bigger bombs down the road.
Casady1
(2,133 posts)educate yourself about high tech and how it works. it would surprise you.
Celerity
(43,067 posts)Pro tip:
Telling someone who just made valid and logical counter-arguments that they should
as your rejoinder is not the best of looks.
Casady1
(2,133 posts)i have a good friend who is an old school conservative went to Yale. He was two years behind Kavanaugh. he says the climate towards women at Yale was terrible. he is sure Kavanaugh was abusive. his daughter is a Berniac. she loves Bernie. She works for a climate change startup and their operating budget and payroll at SVB. she lives in Boulder and she is not getting paid.
Celerity
(43,067 posts)information to work with to make an even remotely valid judgement on it.
Also, even the worst of firms (so I am not talking about your friend's place of employment as it is being described by you) have many good people toiling away for them, so singular, anecdotal examples can be quite distorting in terms of the bigger picture.
Casady1
(2,133 posts)and it is a true story. All the stratup businesses have to be made whole. This is there operating expenses
House of Roberts
(5,160 posts)Bailouts for the working class is bad because it causes inflation.
Bailouts for billionaires is good because it also causes inflation, but on Wall Street.
Casady1
(2,133 posts)to what he said?
JHB
(37,152 posts)...on the grounds that it's a "lynch-pin" situation, like Obama's efforts to stabilize auto parts manufacturers, which we're doing to avoid really bad cascade effects, then it's exactly the time to talk about moral hazards and how this should be seen as a one-off. DON'T GET USED TO IT.
Celerity
(43,067 posts)in pandemic and unemployment aid.
Can't have that!
That money should be going to feed the speculation beast and funding some rando venture cap vulture's 3rd Bentley (or second Bugatti).
mathematic
(1,431 posts)Igel
(35,270 posts)(But perhaps the OP just missed posting the bit about Summer's calling for bailing out the actual investors. I'll assume that what was posted was complete for the point being inferred.)
The only "bail out" in that long, long post, is not distinguishing between types of customers so that all SVB customers are made whole.
Which is exactly what Yellen and the Biden administration is saying is *not* a bail out and have said is exactly what they've done. Discussions of moral hazard aside, because this is too important. One must assure customers that confidence is merited. In other word, if the OP is presenting all the evidence, Biden's really good for doing exactly the very bad thing Summer called for. I find that incoherent.
Yes, it's bailing out customers for all the "it's not really a bail out" talk because they were imprudent and incautious for all their savviness and, well, we really need to protect them from their adult bad decisions. It's just not bailing out investors.
At the same time, they're "backstopping" shaky banks by providing 1-year loans of assets to other banks, which isn't that much different from what the government did in 2009, except then it was a "bail out" that needed to be repaid and this time around it's a "loan". Oh, and last time the time to repay was longer than 1 year (although one has to wonder if that "1 year loan" isn't renewable as necessary, so it would always be a 1-year loan but last several years).
Model35mech
(1,491 posts)The CRISIS he screams out about is but a audio shield intended to drown out the Siren song for reason.
No one listens EXCEPT during a crisis, because no one cares until it is a crisis.
The failures are a pidding proportion of investment banking assets.
The industry that created this problem must absorb it's costs through an excise tax on their profits.
And the excise tax shouldn't be lifted until the costs are recovered, and regulation is in place to mitigate against recurrence of the reckless greed that opened the door for the crisis.
inwiththenew
(972 posts)Also if you believe that I have a bridge for sale. Great price. Let me know if you are interested.
Roland99
(53,342 posts)Deminpenn
(15,265 posts)policy dating to the 2008-09 financial collapse. If you haven't seen it, well worth watching as it shows exactly how everything that's happening now dates back to the "quantitative easing" the Fed began to mitigate that crisis.