SVB Silicon Valley Bank

Laffey: The SVB Bailout Accelerates The Attack On The Middle Class

SVB Silicon Valley Bank
Op-Ed By: Steve Laffey. Silicon Valley Bank (Screengrab)

The elites in Washington DC never stop working against the middle class—never.  But now they have gone too far.

In the 1980s there was the Savings and Loan Crisis, which involved around 900 insolvent S&L banks. They had clearly mismatched assets and liabilities. The federal government set up the Resolution Trust Corporation (RTC): The total price to taxpayers was $160 billion.

In 2008, the federal government bailed out Freddie Mac, Fannie Mae, the banking system, Airlines, AIG, Bear Stearns, and anything they found to be “Too big to fail.” This was primarily due to the implosion of mortgage-backed securities. They had clearly mismatched assets and liabilities.

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Between the Emergency Economic Stabilization Act (EESA) and the Troubled Asset Relief Program (TARP), the final price tag was over $700 Billion.

Now, the federal government is backstopping $150 billion of uninsured deposits at one bank alone, Silicon Valley Bank. This bank has clearly mismatched assets and liabilities.

It is now too late to stop this calamity from spreading. The conversation and action must now pivot from the hogwash of Modern Monetary Theory, Mr. Trump’s encouragement of negative interest rates, and Speaker McCarthy’s notion that “Social Security and Medicare should be completely off the table.” These are just examples of the litany of nonsense that has been used to placate the middle class while Washington and the Fed enrich the elite.

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It is time for the truth.  America is bankrupt and we need to start a multistep program that will be hard for many to accept.

  • In case you missed my main point…assets must match liabilities, in amount and duration.
  • Change the Federal Reserve.  No more printing money. No more Dual Mandate. No more “Price Stability is 2% inflation.”  The Fed must have only one goal: to keep inflation at zero. They seem to be unable to do that, while I personally know fifteen friends from high school that could do so easily.
  • Break up the banks. No bank can have more than .5% of the assets of America. The best and safest bank is the bank that knows its customer—by name. 
  • Let those really rich people lose uninsured money.  Look down your street.  How many people do know have more than $250,000 in a bank?
  • People with over $250,000 at any bank should not be made whole.  There may be a “sugar high” when several banks’ depositors are made “whole”, but as I type, hundreds of Billions of dollars are moving, and the game of musical chairs has ended. There is simply not enough money to make everyone “whole.”
  • We must start the move to Limited Purpose Banking.  Banks should be limited to financial intermediation.  We will raise transparency so these problems do not exist. Hedge funds can take unlimited risk, not banks.
  • In the meantime, bring back Glass-Steagall. Ever wonder why the banking crisis happened in 2008?  It took 7-8 years for the investment bankers to really screw it up again.

Every financial crisis is caused by the mismatching of assets and liabilities. The Fed, since The Crash of ‘87, started this snowball of disaster down the hill that is the United States. It is now about to hit everyone. Let it hit the rich, not the middle class.

-Steve Laffey, former Mayor of Cranston RI, is a Republican presidential candidate.

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