With the collapse of Silicon Valley Bank, American taxpayers are obviously concerned about the health of the U.S. banking system. Federal regulators insured deposits beyond the $250,000 FDIC limit to protect against “systemic risk.”
The Biden administration disingenuously claims taxpayers will not be on the hook for bailing out SVB. Yet taxpayers will ultimately pay more for banking services because the regulators decided to insure all depositors, circumventing the $250,000 threshold.
Tune in to Grover’s latest episode of the Leave Us Alone podcast to learn more.
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Episode Transcript:
Grover Norquist (00:24):
Welcome, Grover Norquist chair with the Americans for Tax Reform. This is the Leave Us Alone Podcast. Welcome. We’re gonna be talking about taxpayers are still on the hook for the Silicon Valley Bank. This is the bank that a lot of Silicon Valley investments and startups were invested in some politicians as well. And it went belly up. And a lot of people are getting paid with money from where. And is it you? It is you. So that kind of gives away the, the game, but we’ll get to explain as to why that is happening. Do wanna talk about the Leave Us Alone Coalition. The reason we call us, leave us alone is that that’s there, there are two competing coalitions in American politics. One is center right and made up of people who wanna be left alone in different zones.
(01:18):
People who don’t want their taxes raised, or their businesses regulated to death or tax to death, or who want their 401ks and their life savings left alone and not be taxed and attacked, or freedom of religion. That people of various faiths wanna be left alone to practice their own faith and, and transmit to their children. People who homeschool wanna educate their own kids. People who go to private schools, people who care about the Second Amendment, basically a bunch of people around the table, all of whom wish to be left alone to run their own lives. And on their vote-moving issue. What they want from the government is to be left alone. That’s it. Leave us alone. And of course, now that you and I are going to be paying higher fees and costs to bank different places, because the fee that is paid for the insurance fees, that’s going out to many, many dollars out to the folks in California, those count ’em out of our pockets.
(02:14):
At the end of the day it’s not a tax, it’s a fee, but when you pay it, it really doesn’t seem to matter. It’s compulsory. You don’t have a choice. If you like what you’re hearing. Please do me a favor and subscribe to our podcast on Apple Podcasts and or Spotify. And if you leave a five-star review, that’ll help other people learn about the podcast and, and maybe they can and join us in the future. If you’re watching the live stream, be sure to hit the thumbs up on your, on your u on YouTube and subscribe to the Americans for Tax Reform YouTube channel. Or you can like us on Facebook. What happened in Silicon Valley Bank? Silicon Valley Bank, every bank has assets. People put money in, and then they lend it out.
(03:04):
And the bank tries to make more money. And how they lend it out than they pay to you. For an on interest for having the money in the bank and you should have as much money in assets as a bank, as people put in, you actually should have more something went wrong. And if a bank is well-run and everybody decides to pull their money out of the bank, then there’s enough money in the bank to pay everybody out. People don’t wanna pull their money out of the bank all at once unless they think there’s something wrong. If they think your bank only has half as much capital as it needs to pay everybody back the money that they put in, well then the first 50% of the guys who get in and get their money out are fine, and the other half are not.
(03:53):
And that’s why when people hear that some people are pulling their money out, well, so it’s not to be caught with their pants down. They say, I’m okay. I’m gonna get my money out too. And when people started to take their money out, there wasn’t enough money there. What happened? Somebody steal it, somebody walk away with it, somebody embezzles it. Probably not. What we do know is that the bank, the Silicon Valley Bank had invested a fair amount of money, billions into treasury securities, treasury bonds. You know, the back in the old days, as in 10 years ago, five years ago treasury bonds paid like one or 2% because inflation was so low and interest rates were low. That, that made sense. And if you’re a bank, you wanna put your money into something that gives you some return as opposed to cash.
(04:44):
But you also, so that when you wanted, it’s right there. And it’s not, if you inve invested in volatile stocks, there could be days when the stock market went down, when you couldn’t cover your capital requirements and other days when you were fine. But you wanna have some money there. Treasury bonds, bonds where it doesn’t move. Well, what happens when somebody decides to inflate the currency and inflation’s not one or 2%, but 6% or 7%, 6% for a full year? Well, those bonds you have are not keeping up with inflation. And when you sell those bonds, as when people said, we’d like our money out, they had to sell 21 billion worth of these bonds, but they weren’t worth what they paid for them. They, they lost 1.8 billion at least maybe more, because bonds that pay one or 2% are not as valuable as the new bonds that that pay five or 6%, that that pay more interest rate because inflation, inflation killed this bank.
(05:52):
If you hadn’t had inflation, they wouldn’t have been run out of town. They wouldn’t have lost the money. So at the end of the day, inflation killed the bank and their other banks, which may not have as much money in low yield bonds, but have some which are weaker than they normally be, maybe not enough to go bankrupt, but they’re not as healthy as they could be, should be inflation distort. So the whole thing in a free market system, prices give you information. Prices tell you what something’s worth. The prices tell you what other people think it’s worth. Now you may think it’s worth more than everybody else does, in which case you wanna buy that stuff. You may think it’s worth less. Everybody thinks it’s worth 10. You think it’s worth, and then don’t. You don’t want it if you don’t think it’s worth that much.
(06:39):
But prices lie to you when the government inflates the currency. And that’s not the real price of eggs. That’s the, you know, the inflated price of eggs. And so how do you make decisions about how to organize or what to buy when prices are lying to you about what the prices are? Because inflation and the value of the bonds is not what it used to be. So inflation does this insidious damage like water damage to your house. That, and it’s tough to even see how much damage is done or where it’s done. This may pop up in other areas, not just Silicon Valley. It could pop up in the oil patch, it could pop pot in farmland, it could pop up in trade places dealing with international trade, when you’ve got what’s supposed to be stable, the value of the dollar going haywire and getting worse and worse every day.
(07:33):
I mean, in inflation at 6% means things are getting worse. At 6%. The president was saying, well, it used to be seven, now it’s six. So that’s getting better. No, it’s getting worse a little more slowly than it was getting bad yesterday. But it’s still getting worse every single day. The value of the money in your pocket is declining. Every day you have 6% or 7%, or any inflation at all. Inflation makes the value of your assets worth less. Inflation’s just the rate of how quickly it makes the stop go wrong. So what else about the bank? Well, there’s a fairly political bank. It had some politicians in it. The governor of California had money in it. You wonder one wonders whether this one bank, which didn’t really have insurance the insurance, they have F D I C insurance that everybody’s forced to pay into.
(08:24):
Banks are forced to pay into, and then you end up paying in lower benefits from the bank because the bank has got the money they get to the government and not to pay you interest for your bank deposits as high as they would be, you’re paying for those fees. Those fees cover and will reimburse someone who has less than $250,000. So, you know, somebody who’s middle class person who’s saving a bunch of money, $250,000 in the bank, that’s a fair amount of money. But gajillionaire would have more. And they don’t want to, we don’t legally ensure that the government doesn’t insure it. Taxpayers don’t insure it because if you have that much money, if you had billions of dollars in a in a bank, you are assumed to be smart enough to pay attention to what the bank’s doing and to then know you’re taking a risk with this.
(09:18):
So, but this bank was mo 97% of the money in the bank was not insured. So the federal government wasn’t supposed to b make taxpayers or consumers pay for this at all. But they did. Why? Well, this is where you get all the questions about how politically connected the people there were. They were investing in green things and, and, and stuff that the Biden administration wants people to invest in. Do they really want many, many cylinder, cylinder being the green company that went bankrupt with a bunch of taxpayer money? And it was a symbol of the corruption of a politicized economy. When, when people make investments, not because of the return they expect, but because of political pressure or because for to, to achieve political goals rather than financial goals. People go bankrupt cuz they’re playing with other people’s money and they’re not trying to protect investors because they’re trying to do something politically.
(10:15):
So this is a very real challenge. It is getting bailed out other banks, they say, we’re not gonna do it again. Well, the whole problem of moral hazard is that when you, somebody fails and you bail them out, the next guy goes, well, I might fail, but I could either work really hard and save myself or maybe I’ll sleep in and if I fail, I’ll get bailed out. People don’t work as hard to stop failure if they think they’re being covered, if they think they’ll be bailed out. And so there may be other banks near the brink and you wanna really save your bank but have half as much money in it. You know, I mean, you saved it, but everybody’s unhappy with it. Would you rather go bankrupt and the government would come in and take other people’s money and bail out completely?
(11:01):
So the moral hazard of when you help somebody deal with their failures is you get more failure because people don’t fear failure because they’d rather fail completely than succeed mostly. But I can make more money if I fail completely and get bailed out. This is a real challenge. The other one is the old saying that never let a crisis a good, never let a good crisis go to waste. Never let a crisis go to waste. Which supposedly was something that Obama’s chief of staff said to take advantage if there’s a crisis. You can get people to do things when they’re not thinking straight. You know, you know, emergency, emergency, everybody to run from street. There’s an emergency judge, so throw money at it. That’s the way a lot of people including the Trump administration dealt with Covid.
(11:54):
It’s an emergency. We’d spend money, you know, we wouldn’t do this normally, but it’s an emergency. Emergencies are always dangerous when somebody tells you there’s an emergency double check. And they said, oh, there’s this emergency, we’ll have to throw money at it. And they were hoping. And then some people said, Biden, president Biden said, you know what? This is because of deregulation. Well, problem with that is that Barney Frank, very liberal democrat congressman, my congressman in Massachusetts when I lived there he endorsed the law, which the original law that was passed Dod Frank, named after Frank, he is one of the two guys that did it. He passed it. Then when they got there, they realized this is too much. It doesn’t do what we meant it to. And so they amended it with his support and recognition. And then Biden thinking, oh, it’s passed during the Trump years.
(12:43):
Oh, it’s a Trump deregulation. Ah, that’s the problem. And Barney Frank said, knock it off. That’s a lie. That’s not true. This had nothing to do with not enough regulations. And point of fact, there was somebody in charge over there of looking at things to make sure that their investments were there. The person noted, the people out there noted that they were invested in bonds. They didn’t say anything, they didn’t do anything. They didn’t change it. What good would it have done to have two people with, you know, more guys monitoring this when the one guy who was supposed to didn’t bring it to anybody’s attention? And you’ve probably seen the newspaper article that one of the, that that didn’t have a risk person at the bank, the person who was supposed to be hired by the bank to do risk analysis cuz they were off doing other things and some of the very woke things.
(13:30):
And so the question is, was this bank so woke that they were doing politics instead of protecting the investments of the people who put money into the bank? Those are interesting questions. We do know that inflation alone would’ve killed this bank the way it was done. We do know that if they’d, if the regulators had paid attention or you know, did see what was going on, they did see what was going on. They knew anything about it. If they had, maybe they could have started earlier to have changed the way they were investing in bonds and so on. That might have been helpful. But this is, the government creates a problem and then it decides to make government bigger to solve the problem. And that’s what we’re looking at here. Just another example of regulations that failed because the regulators weren’t doing what they said they were.
(14:20):
It’s not that they didn’t do enough, it’s that these regulations just weren’t being paid attention to by the regulators. And they do that and taxpayers or rather, people who put money in banks are paying the fees that will bail out billions and billions of dollars. It’s nice to hear from Janet Yellen that they’re not gonna bail anybody else out, but then she kind of says, we’ll bail ’em out if we want to. Which suggests that if you were a bank in Dallas, Republican Texas with, with money from evil fossil fuels, you might not get bailed out. But if you are money in making money bank in New York with a bunch of New York Democratic politicians investing and you like California Democrat Californians maybe you get bailed out. So they’re making a political decisions, not economic decisions. They couldn’t explain why, what the economics was for breaking the law.
(15:24):
The law doesn’t really say you can do this. It says, you know, maybe if there’s an emergency or something, and I guess that’s just a catchall, they can do what they want. They should probably plug that loophole if it’s gonna be abused and appears to be a politically abused situation on this one. So this is gonna be a real challenge. We do know the role that inflation played. It’s a little bit frustrating that Janet Yellen wasn’t willing to deal with that. As she looked at it and, and was asked by legislators what was going on, she seemed kind of clueless as to what happened, wouldn’t make promises about what she was going to do in the future. Rule of law means the laws are clear and apply to everyone. This bank shouldn’t. The bank wasn’t bailed up. Bank went bankrupt. The people who invest, who, who put money into the bank and invested their money with the bank through other processes they got paid back.
(16:26):
The billionaires did. The people who ran the bank, their bank went bankrupt. If you were owned at 10th of the bank, you got nothing. Okay? but if you depo, if you were a depositor, you got bailed out. They shouldn’t have gotten bailed out according to the law. But they were, which makes it a political decision, not a legal decision. And so not an economic decision. Why that bank a not another bank? So these are real serious challenges. We need to get them settled before the next time this all falls apart. And the other piece to this, I talked about the leave us alone coalition of people who wanna be left alone. There’s also a takings coalition that’s the alternative to the Leave USS Alone Coalition. The Takings Coalition is people who want the government to give them money. And sometimes that’s banks who want the government to bail them out when they make mistakes.
(17:20):
The government shouldn’t be bailing out people who make mistakes. They should be responsible for their mistakes, their mis their misadventures, their mis invests. The Takings Coalition, of course is a around the table trial lawyers who wanna be able to sue anyone they want and collect cash. The big city political machines which thrive on cash from the federal government, state governments and hiring all their friends for, for work. And people who benefit from government spending, government employees who get paid more than other people have better pensions than other people have more time off than the private sector does. The, these various groups and structures are all part of the Takings coalition. And unfortunately, the people who cashed in getting rewarded for their own mistakes are part of that takings coalition. So it’s a very political challenge that they, that we have right now.
(18:18):
But my final thoughts on this is that we need to keep an eagle eye on these politicians and make sure that they don’t go around handing out billions of dollars to their friends rescuing their friends who have bad, have bank problems, as opposed to normal Americans who have a bank problem. In which case they’re on their own. We’ve gotta have rule of law and we need to stop the inflation. We need to put an end to this inflation. 6% is not good. It’s not, oh, it’s great. It’s not seven, 6% is bad. Maybe 1% you can live with. Ultimately you shouldn’t have inflation. You want the dollar to be as good as gold. You want the dollar to be worth a dollar. You don’t want it to change cuz people are making decisions on that. So good to talk to you about Silicon Valley Bank, the bailout, the politics of it, the threats of more regulation. I think we can avoid that if we keep an eye on what’s going on. Thank you very much.