As we start to sort through the fallout of the failure of Silicon Valley Bank and Signature Bank and the government’s reaction to it, the next question is: what’s next?
Government officials and mainstream pundits insist everything is fine now. They say quick government action averted a crisis. But in his podcast, Peter Schiff said this is really just the beginning of the next financial crisis.
This is no longer the 2008 financial crisis. This is the 2023 crisis. It’s been a long time — fifteen years since we had a financial crisis. I’m surprised it’s taken this long for this crisis to begin. But I’m not surprised we are having a crisis.”
Over the weekend, the Federal Reserve and the US Treasury took quick steps to address the failure of the two big banks. Peter called it “the plunge protection team.”
In order to prevent bank runs and shore up the system, they created a mechanism to ensure nobody loses their deposits – even those that weren’t insured by the FDIC. They also set up a loan program that effectively bails out any other banks that might be on shaky ground.
While these actions only kick the can down the road, Peter said the situation would have been much worse had the government not announced this bailout. We would have almost certainly had more bank failures.
Of course, government officials, including President Biden insist this isn’t a bailout.
Nobody wants to admit it’s a bailout because, obviously, the bailouts were not popular, and so they want to distance themselves from that language. But this absolutely is a bailout.”
Government officials can plausibly claim they are not bailing out the failed banks because they are letting the institutions go under. But the bank’s customers are getting bailed out.
They would have lost money. But now they’re not going to lose money. Why? Because the government is going to make up their losses.”
Biden and others also swear taxpayers aren’t on the hook for any of this.
OK, well, then where’s the money going to come from? The man in the moon? Of course, the taxpayers are going to pay. But they may not pay in the form of taxes because nobody has the integrity to actually raise middle-class taxes. But that doesn’t mean the taxpayers are going to get away with this. They’re going to pay for it. It’s just that they’re not going to pay for it with higher taxes. They’re going to pay for it with higher prices.”
Peter is referring to the inflation tax.
On Sunday the Fed announced the Bank Term Funding Program (BTFP). This program will offer loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging US Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. Banks will be able to borrow against their assets “at par” (face value).
In effect, the plan creates a mechanism for banks to acquire capital they couldn’t otherwise access under normal market conditions. And of course, the Fed will create the money for these loans out of thin air….