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March 13, 2023

Biden Bails Out Silicon Valley Bank's and Signature Bank's Depositors, But Says It's Not a Bailout

He won't bail out the investors. But by guaranteeing the deposits, he keeps the bank afloat, which does in fact bail out the investors.

President Joe Biden on Monday told U.S. residents the nation's financial systems are sound, following the swift and stunning collapse of two banks that prompted fears of a broader upheaval.

"Americans can have confidence that the banking system is safe," he said from the Roosevelt Room before a trip to the West Coast. "Your deposits will be there when you need them."

U.S. regulators closed the Silicon Valley Bank on Friday after it experienced a traditional bank run, where depositors rushed to withdraw their funds all at once. It is the second largest bank failure in U.S. history, behind only the 2008 failure of Washington Mutual.

In a sign of how fast the financial bleeding was occurring, regulators announced that New York-based Signature Bank had also failed.

Biden claims that this isn't a bailout and also that taxpayers won't be paying for this bailout.

President Biden on Monday stressed that Silicon Valley Bank (SVB) will not get a government bailout after regulators seized the assets of the failed bank.

"No losses will be -- and this is an important for point -- no losses will be borne by the taxpayers. Let me repeat that, no losses will be borne by the taxpayers. Instead, the money will come from the fees that banks pay into the Deposit Insurance Fund," Biden said in remarks at the White House on the banking system.

Treasury Secretary Janet Yellen ruled out on Sunday a bailout possibility for the bank's owners and investors, saying in the aftermath of the 2008 banking crisis that "we're not going to do that again."

The government gave financial support to rescue companies through bailouts in 2008 and Biden stressed that the loses from SVB's failure will not be accepted by taxpayers. The Deposit Insurance Fund covers all deposits above the Federal Deposit Insurance Corporation's (FDIC) limits for banks.

Um, if we're paying to put money back into depositors' accounts, of course we're bearing the losses.

He means that he will be taxing the banks and the FDIC to pay for this.

The FDIC will sell off SVB assets to cover some costs but, beyond that, depositors will be paid with money from the Deposit Insurance Fund. This fund has been built up by fees collected from banks. Any losses to the fund "to support uninsured depositors will be recovered by a special assessment on banks," write Yellen and company.

A lot of folks are insisting this isn't a bailout and that it comes at no cost to taxpayers. For instance: The joint statement says, "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer."

But this is misleading. For one thing, banks are themselves taxpayers. And in situations like this, the many institutions who act responsibly must bear the burden of bank fees in order to inoculate less responsible actors. Besides, these fees assessed on banks don't exist in a vacuum that only burdens big businesses; banks pass on the costs of regulatory compliance to customers in a number of ways. So the idea that the government's bailout funds come from some sort of magical pool of consequence-free money is silly.

By the way: We'll be bailing out Joe Biden's Chinese business partners, obviously.

The failure of Silicon Valley Bank has left many Chinese funds and tech start-ups in the lurch, as the collapsed institution served as a key funding bridge for groups operating between China and the US.

SVB's abrupt takeover by US regulators on Friday has also cast doubt over the fate of its joint venture in China with Shanghai Pudong Development Bank, which maintains a separate balance sheet and has total assets of Rmb21bn ($3bn).

The Silicon Valley lender played a big role in China's dollar-based ecosystem for funding fledgling companies, industry insiders said, with funds and start-ups often holding money at the bank before bringing it onshore to mainland China.

I think they're talking mostly about SVB lending to Chinese companies, not Chinese companies keeping funds on deposit with SVB -- but we'll have to see.

Note that a big driver of this is a panic in Mortgage-Based Securities (MBS), which banks hold.

Why is there a panic in MBSs? Because Biden's hyperinflation has caused flexible-rate mortgages to skyrocket in costs, and some people are walking away from their mortgages, and then the value of MBSs fall, leaving the banks holding them in a precarious situation.

Paul Sperry @paulsperry_

BLAME GAME: Don't be misled, the MBS panic resulted from Biden's COVID panic --his overstimulus & lockdown-induced supply chain crisis stoked inflation which forced The Fed to ramp up interest rates which killed MBS market & left banks like SVB that placed big bets on MBS exposed

Of course, Biden flacks and the Democrats and the media -- but I repeat myself thrice -- are claiming the big problem is that Republicans made a few minor tweaks to banking regulation. They're saying that by reducing the amount of cash banks were required to keep on hand, this... caused the banks to lose billions in investments? How?

No, the problem is that Biden's hyperinflation is provoking another 2008-style mortgage-based security crash.

Now First Republic bank has lost 60% of shareholder value, and fears are growing of regional banks collapsing.

First Republic Bank shares plunged by about 60% in premarket trading on Monday even after the regional lender announced steps to shore up its balance sheet.

Shares of other regional banks and financial firms are also stumbling, signaling continued nervousness despite the aggressive federal response announced Sunday night to protect depositors at Silicon Valley Bank and Signature Bank.

Investors are on high-alert for banks with similar issues to the ones that collapsed Silicon Valley Bank last week.

Jim Cramer recommended that his viewers buy shares in the bank. Note that these shares are now essentially worthless.

On Friday, Cramer was still telling people to take a look at SVB's common stock and think about investing:

Jim Cramer @jimcramer

Watch SIVB common. It is climbing despite endless bear raids....

Anyone who listened to Jim Cramer bought stocks in a bank for real money which were quickly worth near-zero dollars. Bear in mind that SVB's investors were certainly looking to unload their stocks-- they knew the stock price was going down.

So Jim Cramer told his viewers to help out SVB's former investors by taking the soon-to-be-worthless stock off their hands. Jim Cramer enlisted his viewers to buy out the old investors, shifting the cost of the wipeout from the former investors to the new ones.

Is this all a coincidence?

Is he just this incompetent?

Trump did warn everyone:

digg this
posted by Ace at 01:13 PM

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