After months of questionable Biden administration assurances that the U.S. economy is robust, the financial world was stunned to learn last week that Silicon Valley Bank (SVB), the nation's 16th largest, sustained $1.8 billion in losses. This prompted a run on deposits that wiped out SVB's assets within 48 hours. Experts have reckoned the bank's failure to be the second largest in U.S. history, unmatched since the 2008 financial crisis.
According to reports, imprudent investments, heavy lending to risky startups, high Biden-era interest rates, and general mismanagement undermined SVB amid the tech sector's downturn over the past year. The bank's U.S. division employed no chief risk officer from April 2022 to January 2023. Worse, an astonishing 89% of SVB's capital holdings are in accounts exceeding the federally insured deposit limit of $250,000, with some running into tens or hundreds of millions of dollars.
Over the weekend, the federal regulatory process snapped into action. Despite protests from prominent business figures, Treasury Secretary Janet Yellen initially announced that SVB would receive no federal bailout. The Federal Deposit Insurance Corporation (FDIC) moved with lightning speed to organize an auction to unload the bank, which it reportedly hoped to settle by late Sunday so that the markets would open this week with minimal disruption.
By Sunday evening, however, the entire federal banking apparatus had abruptly reversed course. A joint statement issued by Treasury, the FDIC, and the Federal Reserve announced that all SVB depositors would be fully covered as of Monday morning, in what they described as a "systemic risk exception." This euphemistic "resolution" was also extended to New York's troubled Signature Bank, which regulators closed earlier on Sunday after it had lost big by financing both crypto and New York City's floundering commercial real estate sector. The institutions' joint statement further announced that further emergency funds would be made available to any other bank currently facing insolvency.
Yellen has insisted that this is not a bailout—but if you believe that, I have a bank in California to sell you. The feds have also insisted that the announced rescue efforts will not involve taxpayer dollars. That strains credulity, coming from federal agencies whose very operations depend upon our renderings to Caesar. Not even Sen. Elizabeth Warren (D-MA), who chairs the U.S. Senate subcommittees on banking policy and fiscal responsibility, believes it, as she admitted in a New York Times op-ed on Monday.
What makes SVB so special and its clients so deserving? Media loyalists have cried wolf after the fact, claiming the bank's travails were the tip of an iceberg ready to sink the entire U.S. banking industry—a danger none of them appears to have noticed until after the feds flip-flopped, and one that virtually every professional economist discounts. Biden was quick to claim credit, tweeting that the principals who devised the bailout did so "at my direction" and that he was "pleased they reached a solution that protects workers, small businesses, taxpayers, and our financial system."
The notion that our whole banking system was teetering on the edge of a cliff sharply contradicts the Biden administration's narrative that our economic fundamentals are strong. But temporizing on that doubtful claim was clearly preferable to admitting the truth that the SVB bailout is a poorly disguised political payoff.
Silicon Valley, where SVB is the "go-to" bank for the tech industry, is the Democratic Party's richest fiefdom. In 2020 alone, Federal Election Commission data recorded some $200 million flowing into Democratic coffers from the California counties comprising the region. According to the Center for Responsive Politics, in that same year Democrats received 98% of all political contributions from internet companies, whose financing is SVB's bread and butter. Personal contributions to Democrats from individuals employed in the tech industry are nearly as high.
SVB cannot legally donate to individual candidates or political parties. According to the Open Secrets website, however, it operates a political action committee (PAC) that has donated predominantly to Democrats for the last 20 years. In 2020, Democrats received 100% of its PAC donations. Last year, the PAC sent hefty contributions to Democratic legislators Sen. Chuck Schumer (D-NY), Sen. Mark Warner (D-VA), Rep. Gregory Meeks (D-NY), and Rep. Josh Harder (D-CA), all of whom quickly praised the bailout. SVB's CEO Greg Becker, who cashed in $3.6 million of company stock a week before the bank's collapse, has been one of the PAC's leading contributors.
In addition to massive financial support for the Democrats, SVB also offers unquestioning ideological fealty the modern Left. The bank slavishly toes the line on DEI and ESG initiatives favored by the Biden administration, but widely believed to be divisive, demoralizing, and financially underperforming. According to the bank's website, "SVB is committed to creating a more diverse, equitable, inclusive, and accessible environment...within the innovation ecosystem, and in our communities...helping to advance solutions that create a more just and sustainable world [and] contribute to a healthier planet."
This is not empty rhetoric spouted to console guilty millennial employees. Even as insolvency loomed, SVB still pledged "at least $5 billion in loans, investments, and other financing to support sustainability efforts." According to Bernie Marcus, the billionaire cofounder of Home Depot, "these banks are badly run because everybody is focused on diversity and all of the woke issues and not concentrating on the one thing they should, which is shareholder returns." He might have been thinking of Jay Ersapah, chief risk officer of SVB's U.K. branch, who seems less interested in managing financial liability than fetishizing her identity as a "queer person of color" and promoting hackneyed diversity initiatives, such as SVB's first "pride month," employee "safe zones," and other activities of no fiscal benefit.
SVB might not have fallen into its predicament if it cared as much about profit as it does about woke ideology. But progressives who review SVB's website can rest assured that its entire workforce receives DEI training, and they will doubtlessly be pleased by recent increases in the ranks of its female and minority employees, who are possibly hired for reasons other than sheer merit. The message for Joe Biden's America is clear, however. As long as you flash the "empathy" and "diverse perspectives" SVB touts in its promotional materials—and fork over enough cash to the Big Guy in election season—your business can also be saved at taxpayer expense no matter how badly you go broke by getting woke.
Paul du Quenoy is president of the Palm Beach Freedom Institute.
The views expressed in this article are the writer's own.
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March 15, 2023 at 05:30PM
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