The Politics of Banking: The Story of Silicon Valley Bank
The whole SVB story illustrates just how accustomed we have become to seeking centralized solutions.
According to Tom Hogan, “This is a bailout of Silicon Valley billionaires that is going to be paid by mom-and-pop depositors.”
And if we go back further, this points to a bigger picture problem: the Federal Reserve has the power to manage the economy. This is an impossible task.
They printed billions of dollars in an attempt to rescue the economy from self-inflicted lockdowns.
They then ignored the resulting heavy inflation, said it was "transitory," then even once they admitted it was not, it took another 6 months for them to respond.
When they finally started to act, they tried to correct the market by aggressively hiking rates.
Those aggressive rate hikes led to the distortion in perception of how safe SVB was to its depositors.
In the meantime, risk management was either absent or busy doing other things.
Strict reporting regulations led to mass panic among depositors, especially the Silicon Valley crowd, who are infamously herd like, and they all lost trust at once.
A non-event quickly turned into an old-school bank run, and the bank came crashing down.
And then what happened? Well, the panicked people ran to the government to solve their problems.
Thomas Sowell famously said, “It is remarkable how many political "solutions" today are dealing with problems created by previous political "solutions."
That’s the TLDR, watch the short video here to see how the SVB puzzle fits together, and why you should care — hint: the more people ask the government to solve their problems, the more the government will happily oblige.