Writing in the Wall Street Journal, Vivek Ramaswamy warns of the government’s bailout of Silicon Valley Bank. Two slices:
Treasury Secretary Janet Yellen announced Sunday evening that Silicon Valley Bank’s uninsured depositors would gain access to their deposits on Monday. The Federal Deposit Insurance Corp. insures only deposits up to $250,000. The bailout creates incentives for risky behavior, teaching large depositors that they can throw money at risky banks without diversifying or conducting diligence. SVB long lobbied for looser risk limits by arguing that its failure wouldn’t create systemic risk and thus didn’t merit special intervention by the U.S. government. Yet on Sunday, Treasury deemed SVB “systemically important.”
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SVB’s situation is different from that of most U.S. banks. Only 11% of its deposits were insured. While the operating accounts of small businesses often exceed the FDIC limit, large banks usually sweep the excess into cash-management programs that buy Treasury bills and other securities. As the nation’s 16th-largest bank, SVB simply chose not to do so. For some reason Roku, the publicly traded maker of streaming devices, had a $487 million balance with the bank.
SVB also had a concentrated client base of tech startups whose needs for capital were highly sensitive to rising interest rates. Yet SVB itself had the highest concentration of any major bank in mortgage-backed securities, also especially sensitive to that risk factor. This is an egregious oversight specific to SVB. Its investment portfolio was 57% of total assets, more than twice its peer average of 24%.
And here’s the Wall Street Journal‘s Editorial Board on the SVB bailout. Three slices:
This is a de facto bailout of the banking system, even as regulators and Biden officials have been telling us that the economy is great and there was nothing to worry about. The unpleasant truth—which Washington will never admit—is that SVB’s failure is the bill coming due for years of monetary and regulatory mistakes.
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SVB executives made mistakes, and they will pay for them, but they were encouraged by easy money and misguided regulation. As the Fed flooded the world with dollar liquidity, money flowed into venture startups that were SVB’s customer base. The bank’s deposits soared—far beyond what it could safely lend.
In a world of near-zero interest rates, SVB put the money in long duration fixed-income assets in search of a higher return. Regulators after the 2008 crisis had deemed these Treasury bonds and mortgage-backed securities nearly risk-free for the purpose of measuring bank capital. If regulators say they’re risk-free, banks and depositors may be less careful.
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Thus the cries for federal intervention. Treasury Secretary Janet Yellen said Sunday there will be no “bailout” for SVB, but she is indulging in semantics. The feds said they will guarantee even uninsured deposits at SVB as well as at Signature Bank in New York. Typically in a bank failure those depositors would get their money back with a 15% to 20% haircut. This would no doubt be a hardship for many customers, but the $250,000 limit was known.
Will a universal uninsured deposit guarantee be next? This would be a monumental policy surrender, essentially admitting that the regulatory machinery established in 2010 by Dodd-Frank failed. We may be the only people in the world who still worry about “moral hazard.” But a nationwide guarantee for uninsured deposits, even for a limited time, means this will become the default policy any time there is a financial panic.
Models of democratic decision-making tend to assume that voters have preferences and that candidates adjust their platforms to conform with those preferences; however, the direction of causation is largely the opposite. Political elites offer policy platforms to voters, and voters adopt those policies – they follow their leaders. Following Their Leaders argues that policies are designed by the elite and the electorate has little say. Preferences for public policy tend to be anchored in a political identity associated with a candidate, party, or ideology; voters’ preferences on most issues are derived from their anchor preferences. Holcombe argues that because citizens adopt the policies offered by the elite, democratic institutions are ineffective constraints on the exercise of political power. This volume explores political institutions that help control the elite who exercise political power and discusses the implications political preferences have on democracies.
Kimberlee Josephson offers some history of ESG ‘investing’ (so-called). A slice:
ESG assessments are a daunting matter for firms, and any fall from grace in a ratings review can be put on full display, to which Mark Zuckerberg and Elon Musk can attest. Unlike financial data that is audited by accountants who are in a credible and specialized role, ESG measurements are conducted by so-called sustainability experts – a fairly new field encompassing a vast array of concerns and production processes.
David Henderson persuasively argues that “stock buybacks are good, not bad.” Here’s his conclusion:
Fortunately, Erica York, a senior economist at the Tax Foundation, nicely shows why stock buybacks often make sense. They tend to happen when a firm doesn’t have better investment options. Stock sellers can then use the funds to invest in firms that do have better investment options. Oh, and by the way, who owns a large percent of corporate America? Pension funds. Many workers rely on these funds for their retirement. Those tears that Schumer and Biden are shedding for workers are crocodile tears.
The Cato Institute’s Protectionist Madness 2023 tournament is now underway!
Fraser Nelson warns that, despite the data, “Britain may well repeat its lockdown blunders sooner than anyone thinks.” Three slices:
Almost exactly three years ago, Chris Whitty explained the trouble with lockdowns. Pandemics, he would say, kill people in two ways: directly – and indirectly, via panic and disruption. It’s hard to measure the latter but you can count the total number of deaths, from all causes. Such figures are coming in now. The country with the smallest rise isn’t Australia or New Zealand, who closed their borders. Nor is it Italy or Canada, who had some of the toughest lockdowns. The winner, with the smallest rise in “excess” deaths since the pandemic began, is Sweden.
For those who had accused the lockdown-rejecting Swedes of pursuing a “let it rip” policy that left people to die, this is all rather baffling. And it raises some interesting questions. Australia had hardly any Covid: just lockdowns. So how did it end up with “excess deaths” – at 7 per cent – more than twice the level of the Swedes? If choosing lockdown was to “choose life” (as Matt Hancock put it) then where, in the world’s data, is the correlation between lockdown severity and lives saved?
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The Lockdown Files give three main insights into what went wrong. First, we have firm examples of “the science” being invoked to impose various measures that turn out to be politically motivated. Then we see the slapdash method in which major decisions were made: how WhatsApp replaces normal government. And finally, the tone. How after taking emergency powers, this group of men go from being thoughtful and open-minded to being flippant and gung-ho. Once again, we see how power corrupts – and absolute power corrupts absolutely.
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By showing us the psychology of a group in a crisis, the Lockdown Files explain why previous pandemic planning failed: it didn’t factor in human nature. The public panic was so deep that there was huge pressure to impose restrictions, whether they worked or not. This created a gravitational pull that sucked in the government, opposition and much of the media – crushing the normal safeguards (cost-benefit analyses, etc). No one wanted to go against it. Even academics found a huge pressure to be quiet if they had doubts. Oxford’s Carl Heneghan calls this the “silence of science”.
Sweden had the unflappable Anders Tegnell as chief epidemiologist, who went all-out to argue against what he saw as populism: lockdowns that were not backed by science and could cause more harm than good. He never stopped arguing, giving television interviews while waiting on train platforms and publishing study after study. He won people over. Sweden ended up with middling Covid but among Europe’s least economic damage and lowest increase in deaths. In an interview last week, Tegnell offered advice for his successor: “Have ice in your stomach.”
Wall Street Journal columnist Joseph Sternberg reflects on Britain’s Lockdown Files. Two slices:
Many of the messages are disgraceful. Mr. Hancock and others chortle about the fate of travelers subjected to expensive hotel quarantines on their return to the U.K. during one phase of the Covid response. Officials debated whether pandemic regulations could be used to arrest political gadfly and lockdown critic Nigel Farage—who for years has been an archnemesis of the governing Conservative Party.
Personal political concerns of the principals—whether the desire to appear tough on the virus or a scramble to avoid further embarrassing policy pirouettes—intruded into many decisions. In a discussion in November 2020 over whether contacts of positive cases should continue to be required to quarantine for 14 days, Mr. Hancock resisted scientific advice to loosen this onerous restriction for fear that a new rule would “imply we’d been getting it wrong.” The government chose saving face over saving lives or liberties.
The recurring theme is that British officials inflicted an unprecedented lockdown on their citizenry based on flimsy and conflicting scientific evidence. Politicians and their advisers (often communications aides) decided for political reasons to push a measure. Scientists hemmed and hawed about the measure’s likely efficacy. The politicians then chose to heed either the “hem” or the “haw” that offered support for what they already wanted to do.
The debate in August 2020 over mask mandates in English schools shows how it worked. Mr. Hancock noted an absence of clear medical advice in favor of masking. But Mr. Johnson’s communications director, Lee Cain, observed that Scotland’s government was about to impose a mask mandate in schools, which would create pressure for England to follow suit. “Why do we want to have the fight,” he asked, while a senior civil servant worried “nervous [English] parents will freak out.”
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But neither should one overlook the public’s eagerness to have its pants scared off. Messages from early March 2020 expose the administration’s realization that, even before the first lockdown, the public’s self-imposed social-distancing measures—a huge signal of risk-aversion—were running far ahead of official guidance.
The lockdown files expose a governing class happy to exploit scientific uncertainty and public fear to expand its powers to an unprecedented degree in service of its own parochial interests and ambitions—reason enough to say “never again.”
