President Joe Biden has done something that most statists in America have only fantasized about doing. The forty-sixth president has effectively nationalized the U.S. banking system.
In response to the collapse of the Silicon Valley Bank (SVB), a small bank that was responsible for providing loans to a large number of America’s start-up companies—notably those in biotechnology—the Biden Administration announced that it would not bail the bank out as the U.S. government had done during the 2008 Great Recession.
So, you ask, what did Joe Biden do in response to this challenge?
Instead, the Federal Reserve stepped in with the Bank Term Funding Program (BTFP) which will offer “loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying financial assets as collateral. These assets will be valued at par.”
Behind that program, the Fed is going to “backstop” the BTFP with a possible $25 billion from the Exchange Stabilization Fund (ESF). The ESF came out of the 1930s and was used throughout the COVID-19-induced financial crisis by the Fed to “help stabilize markets by accepting a broader range of assets as collateral for loans to financial institutions.” This action, in turn, essentially helps to keep the economy running normally during a downturn – thereby, in theory, preventing a financial crisis from becoming a full-blown depression.
To be clear: this money is from the U.S. Department of Treasury and is used to cover any losses the Fed may experience in propping up failing banks. So, while the Biden Administration insists that no tax dollars will be used to bail the SVB (and very soon other small banks around the country) out, if the ESF money is used—and there are losses associated in deploying those assets—then, yes, tax dollars will have been used.
How is the Biden Administration able to claim that they are not using tax dollars for these bailouts?
The bulk of the funding for the Biden Administration’s policy will come not from taxpayers but from the Federal Deposit Insurance Corporation (FDIC), which has around $250 million in its coffers. The money is paid for by the banks themselves, which are assessed fees by the FDIC over the span of their operations.
Because of the political implications of these actions, the Biden team insists that this is not a bailout. According to the Biden Administration, these moves are merely extraordinary measures to ensure the normal functioning of what Biden has repeatedly—laughably, in my honest opinion—referred to as a “strong as Hell” economy.
Whether it is FDIC money or tax dollars being used to bail out a bank, the fact remains that the federal government is ordering money to be used to save the banking system again.
More important is the way in which the bank is being bailed out. Rather than bailing out bondholders, the U.S. government is bailing out all depositors. This has never been done before.
What’s more, as Shark Tank’s Kevin O’Leary lamented to Fox News host Neil Cavuto, by bailing out all depositors—even those who had more than the already insured $250,000 in the banks in question—the federal government has just nationalized the banking sector.
After all, it isn’t just SVB’s depositors who have been put at risk by that bank’s horrific management. It is the small-to-medium-sized, regional banks that have massive exposure to this SVB contagion.
As O’Leary noted in his Fox News interview, by making everyone whole at those banks, the government was effectively removing risk from the banking sector; now whether one is a good or bad bank manager won’t matter anymore.
David P.. Goldman of The Asia Times notes that “commercial and industrial loans at smaller banks were only half of the lending by large banks. By 2022, smaller banks’ loan books were as large as the big banks.”
So, when Biden and his apparatchiks take to the airwaves to insist that there is no systemic risk to the market, you should be skeptical. This isn’t only going to impact SVB or a few other smaller banks. This banking crisis is going hit almost all the smaller banks—and will, therefore, impact the whole banking sector, because so many larger banks depend on business with those smaller banks.
Think back to the language of the BTFP. According to the Fed, the BTFP will “help stabilize markets by accepting a broader range of assets as collateral for loans to financial institutions.”
That sounds charged with systemic risk, doesn’t it?
The likeliest outcome of these actions is not only the nationalization of the banking system. It is also the reduction of the banking system to just a few big banks running all other banks. This is where things get creepy: centralization of banking power and its ultimate fusion with political power.
In the meantime, too, the impact on small businesses, which account for 48 percent of all employment in the United States, will be detrimental. The Small Business Administration (SBA) is fond of telling the public that “small businesses are the backbone of the American economy.” They truly are. Should these engines of growth be denied access to loans in order to grow their operations, the U.S. economy will be harder hit than it already has been.
Lest we forget that the Silicon Valley “innovators” who stand to lose their rear ends because of the collapse of SVB are scheduled to go to Congress next week, hat-in-hand, and beg for a bailout. All Congressmen and women must resist their pleas. Even if they are companies working with the Department of Defense on innovation. The U.S. government cannot spend any more money on dying enterprises than it already has.
Lastly, it is important to understand just how, precisely, the banking crisis of 2023 began. Yes, it was bad management and poor leadership at SVB. Further, it was the government that made the failure possible. The stimulus that both Presidents Donald J. Trump and Joe Biden poured into the economy prompted Fed Chairman Jerome Powell to spike the interest rates.
Because SVB and so many other banks had become accustomed to chronically low interest rates and easy money, the bank leadership did not anticipate a reversal in its good fortune. With interest rates high, the bank collapsed as it couldn’t cover its losses.
The Biden Administration has proposed trillions of dollars in additional spending with its new federal budget proposal. As I noted in a previous piece, Biden's budget was untenable. The proposal was a trial balloon designed to get people talking about taxing the wealthy; to engage in Biden’s chaotic class war.
Should any semblance of his budget be passed, the spending involved will only worsen the financial crisis we now find ourselves in. What’s more, if Powell keeps raising interest rates, more banks will find themselves needing help.
Joe Biden is spending the country into oblivion. He is bailing out wealthy depositors at these banks. Under Biden, our once-private banking industry has essentially been nationalized, too. With each year this man remains in office, a little bit more of America you and I knew will be chipped away. Eventually, we will look much like the European Union: a boon for crony capitalists and a nightmare for innovators.