Wednesday, March 15, 2023

Silicon Valley Bank and Joe Biden’s $19 Trillion Monday - WSJ

If Monday’s rout in bank stocks further spooked uninsured depositors, it was just one more way government was working against itself. Shareholders had reason for fright as the government suddenly and unilaterally rewrote the terms of their investments. In essence, out of the blue, the risks that large, sophisticated uninsured depositors had willingly accepted were shifted to bank shareholders and U.S. taxpayers so Joe Biden could have a pleasanter start to his week than otherwise would have been the case.

One bird has flown, and that’s moral hazard, or the idea that bailouts only encourage the behavior that makes bailouts necessary. Don’t buy the claim that bank shareholders and CEOs are being taught a lesson. By guaranteeing all deposits, government actually makes banks an even more attractive source of funding for swing-for-the-fences bets by politically adroit, high-rolling bank entrepreneurs and executives.


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Such a hysterical reaction by fedgov makes me wonder what they know that I don't.

I don't suppose I'm alone. That could actually destabilise things. Oh well, Geriatric Joe, eh?

Posted by: dearieme | Mar 15, 2023 8:23:16 AM

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