Silicon Valley Bank officially began its collapse on Wednesday March 8th. By Friday, it had already earned its place in the obituaries. At some point along the way, the PR managers of the ruling class came up with their first (and boldest) lie: this will not spread. Despite SVB being the second largest bank collapse in U.S. history, there was no shortage of “experts” willing to be quoted giving assurances that this is simply an isolated incident of mismanagement. I will not challenge them on the claim that SVB was mismanaged, but when mismanagement results in an almost overnight collapse of a bank this massive, all while the mismanagers are operating fully within the confines of the law, it is an incredible display of wishful thinking if not outright deception to say that the risk is isolated. If I had written this piece then, this is where I would demonstrate how we know that the risk is not isolated. But by the weekend’s end, reality had already done the work for me.
Less than 48 hours after the second largest bank collapse in U.S. history, a consortium of central bankers, regulators, and presidential appointees decided that the risk of another institution going the same way as SVB was so likely, and brought a risk to the entire financial system that was so severe, that—for the sake of the economy—they needed to cause the third largest bank collapse in U.S. history. Along with the news that they would be shuttering Signature Bank, they also announced that all deposits in the failed banks, even those that were uninsured, would be accessible to depositors, and that the FED would begin overvaluing collateral for loans in order to make cash more freely available to banks. These actions are only possible if the Treasury Secretary, FED, and FDIC all unanimously agree that there will be serious adverse effects on the economy or financial stability if they are not taken.
The original story that SVB’s collapse gave no cause to think the problem could spread was already disbelieved by many, and the dissolution of Signature Bank confirmed the doubts of those still on the fence. Unable to deny the problem completely, the political party in power began to play the blame game. Biden and congressional Democrats, now forced to admit that there is major risk to our banking system, tell us that it is entirely the fault of the Republicans, specifically the previous administration. As evidence, they point to a 2018 bill that rolled back bank regulations and set the reserve requirement to 0%.
Like every effective lie, this one contains elements of truth. It is true that in 2018 a law was passed that permitted banks to operate with no cash available for depositors to withdraw. It is true that this is a major liability for the financial system. It is true that the bill was passed by a majority-Republican congress and signed by a Republican president. What is also true is that the bill would never have made it to then-President Trump’s desk without the sixteen Senate Democrats who voted to support it! The reporting at the time described the bill as a “rare bipartisan accomplishment” and an “unusual moment of political unity.” The Democrats who are currently in power would like you to forget this. Don’t worry! You’re in safe hands! But we remember the truth: this reckless deregulation was bipartisan. When it comes to putting workers’ livelihoods at risk for the sake of abundant loans and easy profits for the owning class, the owning class will always find bipartisan support in the state.
They repeated another message in every corner of the media that was covering the regulator’s responses to these bank collapses: taxpayers would not foot the bill for these “solutions.” Another sleight of hand by the economists who make a living with their forked tongues. As previously mentioned, one of these so-called “solutions” is to make cash even cheaper for banks by overvaluing the assets they offer as collateral. At a time of record inflation, the “regulators” charged with delaying this upcoming collapse have decided to make our money worth even less. Now to be clear, in a system doomed to periodic crises and showing us the first fits of its next, there are no good options that can prevent what is coming. But who can be surprised that they chose one that cheapens the dollar in your pocket so these empty banks can limp on just a little longer?
Someone always has to pay. As the capitalists are so fond of saying, there’s no such thing as a free lunch. We know that. We’ve seen it. The question isn’t whether lunch will be free, but whether we’ll all bear our fair share of the cost. There is nothing fair in putting the cost of reckless deregulation and risky lending on people who had no say in either.
“This will not spread.” Days later, another bank falls.
The banking system is “safe and well capitalized.” Even as these words leave their mouths, they authorize unprecedented actions—actions that are only legal in a time of a major systemic risk.
They tell us “it was those guys not us” and think we are too ignorant to remember the bill they point to as evidence was heralded as a wondrous bipartisan achievement.
They tell us “the taxpayer won’t foot the bill” as they print even more money during the worst inflationary crisis we’ve seen in decades, devaluing taxpayer savings and income.
As they skip and jump from trick to deception to lie, the message they really would like us to hear is: “Don’t worry. Everything is fine. Keep placing your faith in us, and please, we beg of you, do not begin questioning whether things really are as fragile as they seem.” And on this point, they actually provide a shred of hushed honesty. While never their loudest message, here and there they have made it known that the drastic actions they are taking are primarily meant to “reassure depositors” and to lower the chance of people making runs on other empty banks. Biden even goes so far as to try to speak it into existence, as if by magic incantation, saying “Americans can have confidence that the banking system is safe.” They care about what we think of all this. They care what we think because our trust in these lies is the last thread holding it all together.
The U.S. economy is bleeding, it’s hurt. It’s stumbling along on stilted steps, and the Federal Reserve needs to keep up the faith. That’s how all this works, right? Faith that the slip of paper, or the mark on the computer, means you have money somewhere that will be honored when you try to take it out.
Well, the working people are out of faith, and the capitalists are proving yet again that they never deserved it anyway.
