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Bailouts for Billionaires: Larry Summers: Now Is Not The Time For 'Moral Hazard Lectures'
Joy Reid covered this earlier on MSNBC
https://www.forbes.com/sites/mattnovak/2023/03/12/larry-summers-says-now-is-not-the-time-for-moral-hazard-lectures-about-bailouts/?sh=4f8606c47f13
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 doesn’t 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 can’t be indulged. Time is of the essence, according to Summers.
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Oddly enough, Summers doesn’t 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 couldn’t afford to go to college a new opportunity to go to college—precisely the idea behind student loans to begin with.
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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 doesn’t 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.
snip
“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 can’t be indulged. Time is of the essence, according to Summers.
snip
Oddly enough, Summers doesn’t 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 couldn’t afford to go to college a new opportunity to go to college—precisely the idea behind student loans to begin with.
Link to tweet
Link to tweet
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related:
‘Weren’t you a treasury secretary?’ Larry Summers gets dragged on the internet after post on SVB’s collapse
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:
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:
snip
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:
Link to tweet
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:
Link to tweet
Link to tweet
Link to tweet
snip
related
The Fed-Induced Bank Wobble
Today on TAP: Silicon Valley Bank’s 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/
snip
There are a couple of important lessons here. First and foremost, the Fed’s rapid pivot on interest rates couldn’t 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 Fed’s 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 Fed’s 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 Fed’s powers, authorities, and role.”
Second, because the depositors holding the bag at SVB are Very Important People, there’s 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.
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 today’s 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.
snip
Today on TAP: Silicon Valley Bank’s 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/
snip
There are a couple of important lessons here. First and foremost, the Fed’s rapid pivot on interest rates couldn’t 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 Fed’s 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 Fed’s 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 Fed’s powers, authorities, and role.”
Second, because the depositors holding the bag at SVB are Very Important People, there’s 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.
Link to tweet
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 today’s 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.
Link to tweet
snip
23 replies
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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/
via smoke and mirror games with nonviable business models.
No bank in America can withstand a run.
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 haven’t 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 Bank’s 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 didn’t 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 industry’s 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 cash—as long as interest rates didn’t 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 valuations—one 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 wages—or robot taxis paid no wages—while charging exorbitant fares for rides, increasing pollution, and adding to traffic. Or not, and I will sell off all the science-fiction projects I’ve promised, but still fail to make a profit.
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