No Accountability, No Shame
No Accountability, No Shame
It was 18 months ago today that the government and the Federal Reserve pulled the plug on Silicon Valley Bank — at that time, the second biggest bank failure in U.S. history.
It was one of those half-assed, jury-rigged Sunday night cleanup operations — the kind that was routine during the 2008 financial crisis.
Because highly connected tech investors and companies kept their money at SVB, the powers that be decided to waive the $250,000 limit on FDIC deposit insurance. Mark Cuban and Bill Ackman were among the finance heavies who brought immense pressure to bear.
Thus, everyone was made whole — even Roku Inc. (ROKU), which held $487 million in cash at SVB.
Obviously that would be a drain on the FDIC’s insurance fund. To help replenish it, the government ordered a “special assessment” on healthy banks that conducted their business responsibly — unlike SVB.
Ultimately, those costs were covered by you — via the fees and commissions and anything else you pay your bank.
SVB was the first in a series of bank failures that spring, climaxing with First Republic Bank — which surpassed SVB as the second-biggest bank failure in U.S. history. (Washington Mutual back in 2008 still holds the crown).
That summer, Michael Barr — the Fed’s vice chair for supervision — decided the banks needed to hold more cash on their balance sheets to prevent more SVB-style meltdowns.
“Some industry representatives claim that inadequate capital had nothing to do with those bank failures,” he said in July 2023. “I disagree.”
“Fourteen months later, Barr has walked back the landmark proposal that sought to apply more stringent rules on major U.S. lenders,” says the Financial Times.
We mentioned this depressing development briefly on Tuesday. The usual suspects like JPMorgan Chase and Goldman Sachs threw their weight around — and browbeat Barr into dialing down his proposal.
Instead of a 19% increase in capital requirements, Barr is suggesting only 9%. “For the nation’s six largest banks the change translates into a savings of roughly $100 billion,” says the FT.
The salmon-colored rag has a tedious front-page story today describing the clout the banks exercised to get their way — threatening to sue the Fed, leaning on Congress to curtail the Fed’s regulatory authority, etc.
Says Barr now: “Life gives you ample opportunity to learn and relearn the lesson of humility.”
Apparently that’s what he needs to tell himself to preserve some semblance of dignity after the big banks took him and — well, this is a family e-letter, so I’ll refrain from invoking a crude idiom here.
(It rhymes with “paid him their witch.”)
Left out of the FT’s coverage is this glaring question: How the hell does Michael Barr still have his job in the first place?
After all, it was on his watch that SVB — at the time, one of the 20 biggest U.S. banks — took irresponsible risks with its customers’ money.
“Why was Michael Barr not removed from office immediately after this historic failure?” asked Paradigm’s macro maven Jim Rickards only days after the collapse.
“Instead, the Fed has ginned up its PR machine by pretending it was on the case all along.”
Indeed, the Fed planted a butt-covering story in The New York Times a week after SVB collapsed: “Silicon Valley Bank’s risky practices were on the Federal Reserve’s radar for more than a year,” it said.
“So what happened next?” Jim asked rhetorically. “The answer is nothing. The Fed sent a few warning letters and that was it. Why was the bank not taken over when these cash and control defects were spotted? At a minimum, why was management not replaced and immediate remedial steps implemented?
“It’s time to replace Michael Barr. And let’s replace [Fed chair] Jay Powell while we’re at it.”
We said in March of 2023 Barr should resign. But as we chronicled after the Trump assassination attempt, precious few federal officials ever fall on their sword. Secret Service chief Kimberly Cheatle in 2024 and FEMA head Michael Brown in 2005 are too-rare exceptions.
Speaking of a culture of impunity within America’s power centers… let’s talk about Atlanta Fed President Raphael Bostic.
Elsewhere in today’s Financial Times: “The Atlanta Federal Reserve bank president violated the U.S. central bank’s trading rules and created the ’appearance’ of benefiting from confidential information, an internal watchdog said in a report on Wednesday.
“The Fed’s independent inspector general concluded that Raphael Bostic had repeatedly broken its trading policies since becoming president of the Atlanta Fed in 2017, including 154 trades executed on his behalf during communications blackouts ahead of Fed rate-setting meetings.”
But because it’s just the appearance of impropriety… and there’s no smoking-gun text message saying, “HA HA SUCKERS, I KNOW SOMETHING YOU DON’T AND I’M GONNA MAKE BANK!!...” Bostic will likely skate.
The Atlanta Fed board of directors says it will meet soon to “carefully discuss the report’s details further.”
Look for Bostic to issue a statement later today saying he did nothing wrong and he’ll never do it again. And that will be the end of it…
About Yesterday’s Yo-Yo…
“I think we’re dealing with a meaningful reversal here,” says Paradigm chart hound Greg Guenthner of yesterday’s yo-yo action in the stock market.
When we hit “send” on yesterday’s edition, the major U.S. indexes were solidly in the red. But at day’s end, they were solidly in the green. The Nasdaq tumbled more than 1% — and closed up more than one 1%. According to Bespoke Investment Group, the last time that happened was October 2022.
Greg reminds us October 2022 just happened to mark the bottom of that year’s bear market.
And he says history might be rhyming here — “especially since so many big, important stocks are near inflection points. The bulls showed up right when the market needed them the most.
“Now, this doesn’t mean we won’t see any more downside action this month (or any more chop, for that matter). I don’t know if the market is going to flip back to ‘easy mode’ just yet. It’s still September — we have a good chunk of this volatile trading month left to get through.”
But now that it appears certain the Federal Reserve will cut its benchmark interest rate by a quarter-percentage point next week, “perhaps everyone can relax and allow the market to drift higher into next Wednesday’s Fed meeting.”
Today, the major averages are digesting yesterday’s gains — none of the indexes moving more than a tenth of a percent.
The real excitement today is in precious metals — which shot higher as soon as the COMEX opened for trading at 8:30 a.m. EDT.
At last check, gold is up nearly 43 bucks to $2,553 — and silver is up a dollar to $29.66.
The start of COMEX trading coincided with the release of the wholesale inflation numbers — but there was nothing really jaw-dropping there.
Nor is there a huge sell-off in the dollar: After the European Central Bank cut interest rates today, the U.S. dollar index is down a mere quarter-percent to 101.53.
Elsewhere, crude’s monster rally of yesterday is carrying into today — a barrel of West Texas Intermediate up another two bucks to $69.42.
Bitcoin continues to bounce up and down and all around, now $57,508.
Abolish Property Taxes?
Huh… For the second time in 12 years, there’s a referendum in North Dakota to abolish property taxes.
I remember writing about the last time it was on the ballot in 2012. The sentiment behind it was sound. Irrefutable, really: “It means all of us are renters — none of us are homeowners,” said homemaker Charlene Nelson, a leader of the repeal movement.
As USA Today reported at the time, the measure “would require state government to make up for property tax revenue lost by local governments, but doesn’t specify how.”
On the assumption that it would cause more problems than it would solve… the proposal didn’t just go down in flames, it left a smoking crater in the earth. Seventy-six percent voted “nay.”
Alas, the 2024 model of the referendum appears to suffer the same fundamental flaw.
The revenue gap the state would have to cover runs to $1.3 billion, according to research by staffers with the state legislature. The Peace Garden State is relatively flush right now with revenue on sales tax and oil — but it’s not that flush.
Too, state control of the purse strings could result in a state power grab, no?
This time, however, the “yes” campaign is marshaling stronger arguments — led by a former state lawmaker named Rick Becker.
He says local governments could impose user fees for “municipal operations” and public works maintenance. If there are any shortfalls after those fees, he says the state could easily fill the gap — tapping the interest and capital gains earned by the state’s $10.9 billion “Legacy Fund,” a reserve built up by taxes on the state’s oil wealth.
It’ll be interesting, no doubt. We’ll make sure to follow up…
Cabbie Card Scam
Who had any idea that this innocuous item sold on Amazon might cause such a stir?
It seems a handful of scammers in Canada have bought these rooftop “taxi” signs and started driving around, offering rides — debit card payments only, please.
Canada’s state broadcaster, the CBC, tells the story of a woman from Calgary who took a ride one night — and found the next morning she’d been taken for a ride. The driver had recorded her PIN, stolen her card and given her back a fake with someone else’s name on it. Her bank account was cleaned out of nearly C$2,000 (US$1,470).
“This summer,” reports the network, “police in Calgary, Edmonton and at least five cities in southern Ontario, including Kingston and Ottawa, posted warnings online that they had received multiple reports of the scam.”
The Canadian Taxi Association is asking Amazon to stop selling the C$35 (US$26) signs. Amazon has politely declined.
Seriously, why should it be on Amazon to stop the scammers?
For years, personal finance experts have warned us that debit card payments aren’t nearly as secure as credit cards. Fraudulent charges are much harder to challenge and reverse. It’s just good hygiene to keep the debit card in your wallet and use it only at the ATM.
Anyway, should you ever wonder if you’re the target of a scammer, there’s a dead giveaway with these makeshift taxi signs — the power cord running from the sign through the driver’s window to the cigarette lighter.
That’s not how the signs are wired professionally. Word to the wise…
Mailbag: Another Goodbye?
“You shouldn’t be making comments about things you haven’t watched firsthand, while repeating the mainstream media and misunderstanding what was said,” a reader writes after yesterday’s post-debate edition.
“Trump didn’t say that he blew up the Nord Stream 2. He said while he was in office he ended Nord Stream 2 from being built, but then Biden when he took office allowed it to proceed.
“I wish that Trump had also said that Biden then blew it up after Russia invaded Ukraine, but he didn’t as the debate fact-checkers (i.e., moderators) would undoubtedly have questioned his statement.
“I get so much spam from the Paradigm Pressroom I can’t stand it and I’m about to block everything. I liked perusing through your columns, as some were informative, but this was such a major blunder on your part I have to question your judgment and whether you also make other things up.”
Dave responds: Here are Trump’s exact words as I saw on the ABC News transcript: “I ended the Nord Stream 2 pipeline and Biden put it back on day one…”
There’s really no further context for that remark, although if you want to examine the surrounding stream of consciousness, have at it.
Unless you’re going to argue the transcript is inaccurate or Trump’s facial expression conveyed some hidden meaning, he said what he said.
No, he did not say he blew up Nord Stream 2 — nor did I. Furthermore, I chronicled Trump’s attempts to “end” Nord Stream 2 during his presidency — an attempt that did not succeed. Construction continued into the Biden presidency. (I furnished still more background here.)
Here’s the bigger point, one that partisans on both sides refuse to grapple with…
The attempt to undermine Nord Stream 2 by Biden, by Trump and by Barack Obama was a fundamentally high-handed and corrupt undertaking.
It’s none of Washington’s damn business who the Germans buy their energy from. But Trump in particular was eager to do special favors for the American liquefied natural gas industry. In the absence of Nord Stream 2, Europeans would have to buy more LNG from U.S. companies. So he sought to meddle in the Europeans’ affairs.
Blowing up the pipeline, of course, was a Biden undertaking — as everyone from the legendary reporter Seymour Hersh to our own Jim Rickards has chronicled. It was the explosive climax to years of consistently idiotic policy under three consecutive administrations.
But whatever. If you want to believe I committed a “major blunder” because I offended your partisan sensibilities, I doubt there’s anything I can say to persuade you otherwise.
Go read The Gateway Pundit if all you want is to have your biases confirmed. We want readers who can think independently and who don’t fall for the power elite’s divide-and-rule schemes – because independent thought is the only way any of us can build and preserve wealth.
If that’s not something that interests you, you’re welcome to join the liberal reader on Tuesday and bid us farewell.
