Alan Zendell, March 13, 2023
The collapse of Silicon Valley Bank and its subsequent shutdown by California regulators and the FDIC brought back nightmarish memories of the financial crisis of 2008. That one happened so fast, we didn’t have much time to panic before the federal government stepped in to bail out banks that were too big to fail. It was only after things had been stabilized that we were told the whole truth – that our entire financial system had come close to collapsing.
The most convincing evidence of how serious things were was the way the outgoing Bush administration and the incoming Obama people worked smoothly together to institute reforms and restore confidence in the system. In a time of already heightened divisiveness, the relative lack of partisan sniping and finger-pointing was a clear indication of how much jeopardy we were in.
The banking crisis was also a poignant reminder that those on the far right who advocate weakening the federal government and giving much of its regulatory authority to the states are playing politics with the financial security of our country. Without the resources of the federal treasury and the government’s flexibility to react globally in a timely manner, we might have found ourselves in the middle of a second Great Depression. It’s also a hopeful reminder that when the chips are really down, most of our leaders are able to put partisanship aside and govern.
Major bank failures are always scary, but the Biden administration acted quickly to avoid panic. Treasury Secretary Janet Yellen coordinated the rapid emergency response that enabled the President to speak reassuringly to the nation this morning. Does that mean everything is fine, that there’s no risk of a financial collapse?
There’s more than one right answer to that question. On one hand, I learned in thirty-seven years of working for the feds that every high-level speech and press release is entirely about spin and influencing public opinion. I’m not implying that Biden was lying, although assuming that his assurances are a hundred percent reliable, or that there’s not a lot more information out there that wasn’t revealed would be naïve. Every president weighs what the public is told, whether it’s about a financial crisis, a war, a pandemic, or an investigation of wrongdoing. It’s like a scene from one of those disaster movies about an asteroid causing an extinction event. The president says to his cabinet, “We’re all doomed, but only we know we have no chance of surviving. What would be gained by telling everyone?”
So maybe the world banking system is secure and maybe it’s like a huge dam with serious cracks. We can only be sure that our best financial people are working on it, and the more serious the problem turns out to be, the more likely it is that everyone – the White House, the Congress, and the Courts, if necessary, will work together to fix it.
The problem I see is that a potential banking crisis cannot be isolated from every other major policy decision. In today’s world, they’re all inextricably tied to each other. What if the cost of shoring up our financial system is a trillion dollars or more? How do we, as a nation pay for it? We’re already facing serious challenges from House Republicans on whether to approve an increase in the debt ceiling and what measures should be taken to reduce our current deficit.
We all know the drill. Do we repeal the Trump tax cuts that cost the treasury almost three trillion dollars? Do we severely reduce services for welfare, education, Medicaid, and Medicare? Do we cut back on our essential investment in converting to renewable energy so we’re no longer dependent on Russian or Middle Eastern oil? Or do we decide we can no longer afford to support Ukraine in repulsing Russia’s invasion, thus setting up a Neville Chamberlain-like scenario in Europe, increasing the likelihood of nuclear war?
Whether you’re a tax-hating Conservative, a Progressive, or a Libertarian, it’s time to realize that extremist solutions won’t solve this problem. In the end, there’s only so much to go around. In the event of a serious looming catastrophe, the world economy, in the short run, is a zero-sum game that will require a careful triage analysis. The wealthiest among us who have benefitted greatly from the growing influence of the far right will have to step up and pay their share, simply because no one else can. And the Bernie Sanders advocates who want every social problem fixed, today, will have to accept that the survival of the country and the world economy take precedence.
The failure of the Silicon Valley Bank could be a helpful development if in the end, it forces us to refocus on our real priorities and put politics aside.