Plenty of things are above my pay grade, but the bullshit is thick with this as it always is when the rich men in nice suits (Larry Summers) soberly inform the president that he needs to act or the world will be destroyed.
The Fed has no legal authority to do what they're doing - valuing financial assets at par rather than market - other than the basic "if we declare something an emergency fuck you we do what we want" power - which is just "we do what we want when we want " power.
It's not a bailout!forget about SBV liabilities for a second, the real bailout story is the regime-change in the Fed's treatment of collateral:
— Daniela Gabor (@DanielaGabor) March 13, 2023
par value goes against every risk management commandment of the past 30 years.
it turbocharges the monetary power of collateral pic.twitter.com/7T0M8QUrrn
But a bailout is what it is, and what it ought to be called. The credit lines represent a subsidy to bad treasury management on the part of banks who should never have allowed themselves to get so badly overextended in terms borrowing short and lending long. (They also, perhaps conveniently, avoid anyone having to ask impertinent questions about why the bank supervisors allowed these positions to develop in the first place).In a tweet, Daniel points out that if you're going to bring out the big money bazooka, a big reason to do so is to point to it and say, "Look! We brought out the big bazooka!" Doing so, and then trying to claim you haven't, undermines most of the legitimate justification for doing so.
The extension of the FDIC guarantee, though, is not just a bailout – it’s specifically a bailout for billionaires. It undermines the whole point of limiting deposit insurance, and exposes the fund to risk. And the benefit of this risk assumption mainly goes to the venture capital investment industry.
That industry has, frankly, done the exact opposite of having covered itself in glory over the last week. We have discovered that major VCs put pressure on their portfolio companies to deposit at Silicon Valley Bank. Then they encouraged those same companies to run on the bank. And then some of them spent the weekend attempting to raise panic about the rest of the financial system, in order to put pressure on the government for a bailout. All after having spent the previous decade talking about “moral hazard” with respect to student loan forgiveness, and praising themselves for “disrupting” the old fashioned financial system with cryptocurrency.
If there had been no bailout – if the FDIC had operated normally and not extended insurance to people who hadn’t paid the premium – then the bill would have arrived at the VCs’ door. They are the owners of the tech startup companies, and they would have been the ones responsible for ensuring that those companies could make payroll if they had lost money in a bank failure through no fault of their own. It might not have been pleasant for the VCs to put up more funding, or to admit that their contribution of management expertise and financial acumen had been so spectacularly negative, but they would still have done it. To let a good investment go bad in this way would, as Professor John Cochrane points out, a clear example of the sunk cost fallacy. The venture funds were the source of the cash that was at risk in the SVB failure; it’s their loss that has been socialised.
— Dan Davies (@dsquareddigest) March 13, 2023