The fall of the investment bank Lehman Brothers in the fall of 2008 triggered a crisis that nearly brought down the global financial system. No wonder every effort has been made to prevent such an event in the future. Under the leadership of Senator Chris Dodd and Congressman Barney Frank, legislation was drafted and passed by President Barack Obama in 2010.
President Donald Trump is known to hate everything his predecessor did, especially laws he signed. Under pressure from Wall Street, he relaxed the Dodd-Frank Act in 2018, allowing banks to engage in more speculative activities again. One bank that could benefit from this was Silicon Valley Bank (SVB). Your CEO Greg Becker would have personally worked to ensure that requirements were relaxed for his bank.
The hard banking law was softened
The relaxation of the Dodd-Frank Act has been cited as a possible reason for the collapse of the SVB. Saule Omarova, a law professor at Cornell University, told the Financial Times that the weakening of the law “certainly reduced the buffer banks need to absorb losses.”
Omarova continues: “If this had not happened, the SVB would have had a larger buffer. (…) The chance of a bank run would have been significantly smaller and if it had happened, significantly fewer bank customers would have to worry about their money today.”
From this perspective, the case seems clear: Trump has given in to the banks’ greed and watered down a law that would have forced them to be more cautious. Ergo, the ex-president is responsible for the current bank collapse, isn’t he? Not quite.
This argument has a weakness. Trump could only water down the Dodd-Frank Act with Senate approval. He, in turn, could only do this if Democratic senators were also involved — and 17 of them were, including Senator Mark Warner, who was highly influential on financial issues. The SVB case can therefore not or only partially be attributed to Trump.
The Conservatives also pulled out all the stops to gain political advantage from the collapse of the bank. SVB is a typical example of awake capitalism, they say. In the Wall Street Journal, columnist Andy Kessler points out that the SVB emphasizes that 45 percent of its board of directors is female, and that it also includes a black man, an LGBTI+ man and two veterans. Kessler reacts maliciously. “I’m not saying 12 white men prevented this mess, but it could be that the company was distracted by diversity issues.”
The anthem of awakened capitalism is, of course, being booed up and down on Fox News as well. At the same time, the right hopes to revive the golden days of the Tea Party. This far-right to far-right movement came about as a result of the government bailing out the banks during the 2008 crash, while many small homeowners lost everything. The Tea Party’s anger led to a massive defeat for the Democrats in the 2010 election.
Vivel Ramaswamy also tries to rekindle this anger on the Wall Street Journal’s opinion page. It is a libertarian hedge fund manager and hopeless Republican presidential candidate. The Biden administration only wants to save the SVB because it is a bank that finances start-ups that have mostly switched to the Green New Deal, Ramaswamy teases, demanding: “The taxpayer should not reward this political arrogance.”
The fear of a new Tea Party is also in the government’s bones. On Sunday, Janet Yellen said all bank customers will get their money back, including those whose balances exceed the $250,000 insured by the state. At the same time, however, the Minister of Finance emphatically emphasizes that not a penny of taxpayers’ money would be used for this rescue.
The cabinet also wants to save not only the SVB, but also the Signature Bank. This New York-based bank also collapsed over the weekend for similar reasons to the SVB. It’s mostly in the crypto business and its clientele is anything but awake, including the Trump Company and Jared Kushner, Trump’s son-in-law.
The government and the central bank have no choice but to bail out the ailing banks. While the term “bailout” is frantically avoided, it is ultimately just that. Anat Admati, a professor of finance at Stanford University, explains in the “Financial Times,” “Once the time comes, they’re held hostage. There’s nothing you can do about it.”
The bailout, which should not be called a bailout, should succeed in calming down the economic situation. The political waves will hardly be flattened so quickly, especially now that ugly details have become known, for example that SVB CEO Becker would have sold his shares last week. He is probably the main culprit of the debacle. He has ignored a basic rule of banking, which is that you must balance short-term and long-term risks first and under all circumstances.
After all, Becker should not get away with his personal profit optimization. President Joe Biden has already announced that this time the perpetrators will be held accountable. And Ro Khanna, an influential Democratic representative from Silicon Valley, demands in the Washington Post, “We need to recover this money and return it to the bank customers.”
Soource :Watson
I am Amelia James, a passionate journalist with a deep-rooted interest in current affairs. I have more than five years of experience in the media industry, working both as an author and editor for 24 Instant News. My main focus lies in international news, particularly regional conflicts and political issues around the world.
