Silicon Valley Bank ($209 billion in assets) was America’s 16th-largest bank, only 6.5 percent the size of the largest (JPMorgan Chase, $3.2 trillion) and 2.3 percent the size of the four largest combined ($9.1 trillion). Yet SVB’s death-by-mismanagement supposedly posed a “systemic risk” to the financial system? Joe Biden’s administration evidently thinks this system is as perishable as it believes the planet is. If everything is brittle, politicians have endless crises to justify aggrandizing their powers.
Here comes capitalism without risk: profits private, losses socialized. Americans shall forgo the creativity of capitalism’s “creative destruction” by avoiding the destruction. Do not worry about moral hazard (incentives for risky behavior): Government will make Capitalism Without Hazard an entitlement for the innumerable entities government will deem too big to fail, for “systemic” reasons. This socialization of risk approaches a semi-nationalization of banking, so: Why should bank CEOs be paid more than civil servants?
The not-so-“transitory” inflation the government unleashed has increased for a third consecutive month; its annualized rate is triple the 2 percent target the Fed’s fine-tuners seek. SVB’s executives were inattentive to the predictable inflation that predictably punished their prediction of low interest rates for years to come.
Biden’s dreams of government growth require of Americans vast trust in government. This, despite evidence that:
Leaders of the National Institutes of Health worked surreptitiously to discredit the Great Barrington Declaration, in which epidemiologists correctly argued against blunderbuss lockdowns, and for pandemic responses targeting the most vulnerable, who did not include children. Disregarding their recommendations cost staggering sums and scarred a generation with learning loss.
The Centers for Disease Control and Prevention gave teachers unions cover as they avoided teaching and extorted benefits on spurious “public health” grounds. Government colluded with, and pressured, social media to suppress pandemic “misinformation,” as government defined this by its shifting criteria regarding the efficacy of masks, the necessity of commercial and school closures, a possible lab-leak origin of the coronavirus, and more.
Regulators are back to using their weekend bag of tricks in the name of ending a financial panic. Yet it doesn’t seem to be working very well. Perhaps that’s because in their frenzy the regulators are creating their own market risk with regulatory uncertainty.
That danger is coming into sharper focus as details emerge about this weekend’s rescue of Credit Suisse that was orchestrated by Swiss officials. The forced acquisition of Credit Suisse by UBS was supposed to calm markets, but Bern set off a tumult Monday in a $250 billion global market for bank bonds.
The upset arises because the Credit Suisse rescue will wipe out some 16 billion Swiss francs ($17.3 billion) in bonds that Credit Suisse had issued to cushion itself in case of a failure. Investors who bought those “additional Tier 1” or AT1 bonds understood the risk that their securities could be wiped out or converted to equity if Credit Suisse needed to be wound down. But under the terms of post-2008 banking regulations, equity investors are supposed to endure losses first.
Instead, shareholders are receiving three billion Swiss francs from UBS as part of the takeover, while the more senior AT1 creditors get zilch. This solves the political imperative to make sure someone, anyone, is wiped out in a bailout that includes nine billion francs of taxpayer guarantees for troubled assets. But the political fix has created a rule-of-law crisis that will bedevil the market for other banks’ AT1 bonds—at least until near-inevitable litigation over the Credit Suisse deal plays out.
Efforts to make the U.S. banking system less risky have had the opposite effect. Since the 2008-09 financial crisis, the largest banks have started to look more alike. The stress testing mandated by the Dodd-Frank Act led banks to diversify in the same way, which elevated systemic risk even as individual banks became less risky. The collapse of Silicon Valley Bank is a case in point.
Diversification is an essential feature of a healthy financial system. If banks take different approaches to balancing risks, a loss in one’s portfolio is less likely to mean a loss in another’s. If one bank goes down in an economic shock, it doesn’t mean others will follow.
But a recent study from the Boston Federal Reserve found that banks that performed poorly on the mandated Dodd-Frank stress tests subsequently adjusted their portfolios such that they more closely resembled the portfolios of banks that performed well. The average institution’s portfolio is more diversified, but the system is more uniform. By requiring all of the biggest financial institutions to adhere to the same measures, pass the same tests and follow the same practices, America has lost diversification in the entire banking sector.
This means that if something brings down one major bank, others are more likely to fall, snowballing into a major financial system collapse. This could be set off by a macroeconomic shock—such as the worst inflation in 40 years—or by a regulatory mistake. Even a small error in government rules, such as model or parameter misspecification, will be multiplied across the entire financial architecture. And if the regulations contain plain bad policy, it could be systemic.
We develop new facts relating news coverage, interest groups, and events in the legislative histories of minimum wage increases. First, we create and validate a database of news articles that includes coverage of minimum wages and organized labor. Second, we show that policy changes predict increases in news coverage that connects organized labor and minimum wages, in particular when those articles reference high-profile interest groups and research output. Third, these policy events lead coverage of organized labor to shift towards articles about minimum wages. We observe that the minimum wage’s popularity with the public makes this shift qualify as “good PR,” an assessment that is supported by sentiment analysis of articles about organized labor. This public relations channel can thus help rationalize why interest groups engage in policy advocacy.
It takes a special kind of hubris and a serious shortage of respect for the lives of other human beings to sit here, in the year 2023, and argue that the real problem with America’s post-9/11 wars is that they didn’t go far enough. The war in Iraq was a humanitarian and strategic disaster for the United States. It was “one of the most grievous errors in superpower history,” as Brian Doherty wrote in the March issue of Reason.” Mendacious in its beginnings, incompetent in its aftermath, and downright criminal in the death and civilizational wreckage it caused, the Iraq War was a catastrophe America has not yet properly reckoned with.”
The fact that many people pine for the return of lockdowns is why we can’t give up fighting until we have changed the laws and fixed the institutional rot that made them possible.