Blank Checks and Balances

The tide goes out and we're seeing no swimsuits.

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Ron DeSantis takes a bold stand against theoretical “blank checks” to Ukraine. Sarah, Steve, and Jonah discuss what this says about the current GOP.  Also:

-What happens now to the Silicon Valley Bank carcass

-Does Biden’s budgetary largesse mean anything

-Steve gets real about America’s soul

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  1. Mark

    As usual, great discussion. Regarding the discussion of the government covering deposits over $250k, I've heard the argument put forward by Vivek Ramaswamy, among others, the the typical depositor who stood to lose money without the depositor bailout wasn't an individual with a checking account who couldn't be expected to look into where and how his bank was putting deposited funds, but well-funded tech companies with CFOs whose job it would be (presumably) to be thinking about things like that. He mentioned Roku specifically. What say you?

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    1. MathewA

      I don't think $250k is nearly high enough. $250k doesn't go very far. It's very possibly for small/medium business to have over that. And once the bank run start no bank EVER has enough money

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  2. Lieseandrew

    Regarding Steve asking Jonah where his bank invests their deposits, I don't think that quite gets the argument. The argument isn't that random people should be on the hook, its that depositors with more than the FDIC $250k limit should be on the hook for the difference. Customers with more than $250k in demand deposit accounts are almost by definition people who can afford to put effort into tracking how that money is being managed; given that most of their assets aren't DDAs, these are clients worth $1MM+ and have lawyers and money managers anyway.

    To add to this, banks already offer services that will split large DDAs among up to 8 other banks, raising the functional cap to $2MM. Asking people with that much in liquid assets to take some responsibility for how they're used seems eminently reasonable to me.

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    1. MathewA

      It doesn't matter how well capitalized the bank is, if a bank runs starts the bank goes bust.

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  3. Mkliegman

    The good thing about this one was Steve's discussion about the budget in "Not worth your time." You were all too gentle on DeSantis about his response to Tucker's Ukraine questions. And mostly, the three of you spoke about SVB as complete novices; I don't blame you for that, but have some self-awareness, and if you're going to try to enlighten or enrich your listeners, bring on a guest that knows what he or she is talking about.

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  4. Jane.Elzinga

    I miss David!

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  5. Danvicki

    Regional banks with $50 billion + in assets can afford to manage interest rate risk by constantly stress testing their held-to-maturity investments against changing market interest rates. SVB’s deposit base included an extraordinary amount of “hot” money, that is deposits over the FDIC insurance protection. Managing “hot” deposits requires active policies that restrict rapid withdrawals.
    Assets supporting the deposits(liabilities) must match the duration of the deposits. Otherwise bank management and shareholders have a free put to earn big bonuses when time are good, or dump the losses on the FDIC is management screws up.
    Deregulation during Trump’s administration changed the asset base size for mandatory stress testing from $50 billion to $250 billion allowing SVB to legally ignore stress testing.

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    1. MathewA

      The assets they held were treasuries. More regulation isn't going to fix that problem.

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    2. Avatar photo
      Kizedek

      Yes.

      Sarah seemed to hold out that "woke" policies might yet prove to have something to do with the bank's failure. Jonah allowed, several times, that they "made poor decisions".

      But neither seemed to think that a Republican reflexive need to always reduce or retract regulation as a policy goal, had anything to do with it.

      Of course the fault was "poor decisions". And, no, we can't say they did anything illegal. *Because the illegality was just recently REMOVED*, to, as you said "allow SVB to legally ignore stress testing".

      For some reason, Republicans think that removing, reducing, or failing to enact regulation and guard rails is a positive good that enables the "market", or the decision-makers in the market, to magically act properly and sensibly all by themselves (but mostly to make more money, which is the highest good, apparently).

      But, hey, if they don't act properly and sensibly (and inevitably most won't), then that's Okay -- because, then, they are no better than the rest of us!

      Except, the rest of us already knew that (it's pretty self-evident after all), and we would kinda like some regulations and guard rails in place *for just such occasions as this!*

      Until then, long-live the corporate welfare state! (And bad actors like Trump, who not only have no time for regulations and guardrails but think they are above the law to boot)

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    Ben Connelly

    I’m waiting to find out what Russ Roberts thinks about this SVB bailout.

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  7. Gern Blansten

    Jonah, regarding the woke thing, isn't the argument not that they were *investing* in woke stuff, but that they as an institution that they were so concerned about participating and hiring based on those criteria that they didn't have more anything more than an ex-Leman Brothers guy as a risk officer and no one to say "Hey, interest rates are going up really fast, maybe we should do something!"

    Steve, I agree that I don't know where my bank has my money. I don't know where they're invested. But I do know my liability with the FDIC insurance. I know people who make sure they don't have more than $250K in any one bank because of that. As a one-man business, I don't know what a business that has to run over $250K through their bank account to meet payroll should do to prevent exposure, but I think they should be on top of that.

    I hope the Dispatch did just that, because I want you all to be doing well enough you'd be exposed but also made sure you weren't.

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      Mudskipper

      ...but that they as an institution that they were so concerned about participating and hiring based on those criteria that they didn't have more anything more than an ex-Leman Brothers guy as a risk officer"

      That's the argument, for which no evidence has been produced whatsoever. And, no, the risk officer was not an ex-Lehman guy.

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    2. Danielmedas1

      There are other options for corporations who need more deposit insurance.

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    Hank

    At the 44:20 mark, it wasn’t a very compelling argument on why the depositors of SVB should have been bailed out, but depositors in the future shouldn’t.

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    1. Gern Blansten

      I agree. It's funny to me Congress is saying that they should look at new limits for deposit insurance. If the last limits didn't matter, why would new ones matter either?

      And I'd believe that they'd be serious about changing things going forward and holding that line if I hadn't been alive in 2008.

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