The failure of the Silicon Valley Bank over the weekend has renewed America’s fears that we could be headed towards another major banking crisis. The worst part is that this crisis was entirely predictable after regulations were gutted several years ago. Mike Papantonio & Farron Cousins discuss more.
Transcript:
*This transcript was generated by a third-party transcription software company, so please excuse any typos.
Mike Papantonio: The failure of the Silicon Valley Bank over the weekend has renewed Americans’ fears about could we be headed towards another major banking crisis. The worst part is that this crisis was entirely predictable by regulators, and they could have taken care of this years ago. There’s books. Okay. Here it is. The bank has to report what their investments are, where they are putting their money, what are the deposits and things should balance out. And in that balance, there needs to be at least a $50 million hedge between that. Okay. So in this situation, the banks go out and they buy these bonds. Okay. The bonds are two years, three years, four years out. They buy ’em at one percent, where the interest rates are 1%. Powell comes around and he’s trying to help inflation, right? So he keeps raising interest rate 1%, 2%, 3%, 4%, 5%. And as they do, it depletes the value of the bonds. So the bank’s holding onto this, not worthless, but they’re worth tremendous amounts less than they were when they bought ’em. So somebody comes in, they say, I want my money. They gotta sell the bonds and take a loss, right?
Farron Cousins: Yeah. And that’s exactly what happened with the Silicon Valley Bank. And unfortunately for them, it was, you know, a third of their investors came in and said, we’re worried now, we want our money. So they sell more bonds, suffer these billions in losses. I think they did lose what, a third of their value over overnight last week.
Mike Papantonio: Yeah.
Farron Cousins: And it just led to this, you know, good old Great Depression style run on the bank, and then they’re outta money.
Mike Papantonio: Yeah.
Farron Cousins: Like within a matter of three days, no more money at the bank. It completely folds. And as usual, the same people who caused this mess, you know, the politicians in DC, they came out first thing Monday and said, don’t worry, we’re gonna give you all your money back, folks. We’ve got a bailout already ready.
Mike Papantonio: We got taxpayers who’ll be glad to take care of this screw up. Okay.
Farron Cousins: Which was their screw up to begin with.
Mike Papantonio: Which was their screw up. Okay. So the first thing that we hear is, let’s blame game. It’s Trump’s fault. Trump, and he did. Trump reduced that net, that safety net from 250 million, that the Frank, that the Dodd legislation would’ve permitted to 50. Now, but what the rest of the sentence is that they don’t say is that 33 Democrats voted to do that. Okay. They don’t talk about that part of the story, and they don’t talk about the fact that Biden’s been in office for three years. If Trump screwed that up, why didn’t he, when he controlled the House, when he controlled the Senate, why didn’t they go back in and get that fixed? I mean, how do you, there’s been no discussion about that.
Farron Cousins: Right. I mean, we had a solid two years there, even though it would’ve been a tough sell in the Senate. Well, actually, I don’t even know that you could have passed the Senate because you got somebody in there who while she was in the House, led the Democrats to deregulate it.
Mike Papantonio:That’s true.
Farron Cousins: And that person is Kyrsten Sinema.
Mike Papantonio: That’s right.
Farron Cousins: Who took over a million dollars from these banks to deregulate them. So, but they still could have at least tried, you know, at the very least you could have tried. And they didn’t even do that.
Mike Papantonio: Well, you could have doubled down on regulators, right?
Farron Cousins: Yeah.
Mike Papantonio: I mean, you know, could have said, look, I don’t like that this Dodd-Frank has been now watered down to where there’s not a $250 million safe net, safety net there. There’s only 50 million. Which is the difference in what the point being there’s a lot they could have done. They didn’t do it. Don’t go blaming everybody else. There’s plenty of blame to spread around here. Regulators, regulators should be fired. The people were in charge of, they’re all assigned. They have regions, they have territories. Find out who that person is and fire them.
Farron Cousins: Well, and why didn’t anybody warn Powell as he’s just raising interest rates like a drunken sailor, why didn’t somebody step in and say, wait a minute? We’ve got banks out here because, you know, we’ve deregulated, they’ve got these investments that are gonna become worthless if you don’t slow this down.
Mike Papantonio: Yeah.
Farron Cousins: Inflation’s already coming down. You can chill for a moment. We’re gonna cause a massive banking crisis here. Nobody bothered to tell Powell that or if they did, he just didn’t care.
Mike Papantonio: Well, especially since Powell’s already seen the history.
Farron Cousins: Exactly.
Mike Papantonio: Greenspan did exactly the same thing. Volcker did exactly the same thing, and it ended up in a disaster. They have all this history behind them and they continue going to that, well, let’s just raise rates. We can stop inflation. That was part of this problem right here.
Farron Cousins: Yep.
