by Mitch Kokai
Senior Political Analyst, John Locke Foundation
David Sacks writes for the Federalist about the reasons underlying a recent high-profile bank failure.
It’s painful for me to watch so many smart pundits and politicians on both the right and the left buy into a media narrative that seeks to blame “wealthy speculators” or “tech bros” or venture capitalists for a banking crisis that ultimately started in Washington. Let me explain.
If you want to understand the context for the crisis, look at the Federal Deposit Insurance Corporation chair’s March 6 testimony — a week before Silicon Valley Bank’s collapse — where he explains that banks were sitting on $620 billion of unrealized losses from long-dated bonds. This provided the tinder for the crisis.
The match was lit when SVB announced on Wednesday, March 9, that it had effectively sold all of its available-for-sale securities and needed to raise fresh capital because of large unrealized losses from its mortgage bond portfolio.
On Thursday morning, the financial press widely reported SVB’s need for new capital, and short sellers were all over the stock. The CEO’s disastrous “don’t panic” call later that morning only heightened fears and undermined confidence in the bank.
The idea that one needed “non-public information” to understand that SVB was at risk is drivel being peddled by populist demagogues. Any depositor who could read The Wall Street Journal or watch the stock ticker could understand there was no upside in waiting to see what would happen next.
By Friday, the run on other banks had begun. This became abundantly clear when regulators placed Signature Bank in receivership, announced a backstop facility for First Republic, and temporarily halted trading of regional bank stocks on Monday. Even trading of Schwab was halted.
Some unscrupulous reporters and political types have even claimed that I somehow caused this through my tweeting. Dang, they must think I’m Superman! Or maybe E.F. Hutton. But the timing doesn’t line up at all. …