If “once is precedent, twice is tradition,” then bank bailouts are now tradition – though they might have already been tradition if the 1980s bailout of the savings and loan industry constituted bank bailout number one. In any case, we are definitely now in “tradition” territory when it comes to bank bailouts. I know Joe Biden said what was done over the weekend was not a bailout, but President Biden says lots of things. It may be true that the stockholders of Silicon Valley Bank and Signature Bank will not be bailed out, but:
- Any depositor who deposited more than $250,000 in SVB or Signature will be covered for their whole deposit, not just the first $250,000. That’s a bailout.
- Anybody who owns stock in a bank whose stock might have tanked or might have even gone belly up but for the government’s actions over the weekend in bailing out depositors at SVB and Signature, is getting a bailout, too.
- Employees, including bank executives, whose employer might have been hurt or even gone belly-up but for the government’s actions over the weekend, are getting bailed out.
- And so on.
President Biden says the taxpayers won’t be paying any costs of these bailouts that aren’t bailouts. Ratter, the FDIC will just raise the fee it charges banks, so the banks will pay the costs. Yeah, right. Because banks don’t pass costs on to their customers.
Back in 2008-09, I thought the bailout was necessary because we did not know what would happen otherwise. There was a real fear of a depression. It wasn’t a matter of banks and bank executives getting specifically bailed out on purpose. It was a matter of protecting the economy, i.e., everybody, from a real catastrophe, and bailing out certain banks was part of the way we did that.
I don’t know if we are in that same situation today. If we are, then this bailout is probably necessary. It’s just too bad the banking and other financial sector regulators did such a poor job of foreseeing the risks that this bailout became necessary.
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