Opinion How 2008 haunts the politics of the current banking crisis
When it comes to averting a financial catastrophe, there is rarely an attractive option. So picking the right one is not likely to win political points.
Two years later, Pelosi’s Democrats were back in the minority. “I think that’s why we lost the election in
2010, because it created the tea party on one side, Occupy Wall Street on the other — everybody unhappy we’ve bailed out Wall Street at the expense of Main Street,”https://anshlivevk.blogspot.com Pelosi recalled as she prepared to leave the speakership in December. “It wasn’t true, but that’s how it was perceived.”
The populist fury that was ignited then has continued to burn on bothttps://anshlivevk.blogspot.comh the left and the right. Which is why, in the wake of the March 10 collapse of Silicon Valley Bank, it is critical for the Biden administration to show that it has taken to heart the political lessons, as well as the financial ones, of 2008.While there are vast differences between then and now, starting with the scale of the crisis, there are also some disconcerting echoes. It is not unreasonable for Americans to note how quickly the government came to the rescue of wealthy Silicon Valley depositors whose funds exceeded the $250,000 that is guaranteed to be covered by the Federal Deposit Insurance Corporation, and to wonder whether the same would happen if, say, their own local bank failed.
Or whether, if the demise of medium-sized Silicon Valley Bank, followed quickly by that of crypto-heavy Signature Bank in New York, truly represented a “systemic risk” that merited Washington’s intervention. Might the message to the banking industry be that there is no consequence for engaging in imprudent management practices in pursuit of profit?
As Pelosi noted, what thehttps://anshlivevk.blogspot.com public backlash in 2008 showed was how much perception — and clarity in messaging — matters. President Biden has strenuously avoided using the word “bailout,” and has insisted: “No losses will be borne by the taxpayer.” But while it’s true that uninsured depositors of Silicon Valley and Signature are being made whole through fees that banks pay to the FDIC, the cohttps://anshlivevk.blogspot.comst of those fees presumably are passed along to the average citizens who are their customers.
It is also clearly with the memory of 2008 in mind that Biden is declaring that, this time, the executives of these institutions won’t be allowed to get off the hook.
Even without that regulation, the San Francisco Federal Reserve might have seen this coming, given Silicon Valley Bank’s explosive growth, its reliance on uninsured deposits and the fact that it held an investment portfolio that was vulnerable to losing value as interest rates rose.
Now is not the time to paper over any lapses. So it was troubling that, according to the New York Times, Federal Reserve Chair Jerome H. Powell blocked mentioning possible regulatory failures in a joint statement released last weekend by the Fed, the Treasury Department and the FDIC
Containing the current financial and political fallout might be only the beginning for the Biden administration. Many economists believe that the real failure in 2008 was that government did not go far enough and for long enough — that, for instance, it backed off fiscal stimulus too soon because of heavy criticism of the bank bailouts.
While the administration is not likely to win plaudits from middle America for doing what is necessary, giving people a clearer idea of why they are doing it is essential for the economic health of the country and the credibility of the people who are running it.
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