If only SVB management had known the difference between a banking textbook and an LL Bean catalog!

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On the Senate floor, Louisiana Republican Senator John Kennedy slammed President Biden for “bailing out” three banks, including Silicon Valley Bank (SVB).


Sen John Kennedy: want to talk for a few minutes, Mr. President, about President Biden’s bailout of the three banks that went under.

When I, when I ran for this office in 2016 I observed, at that time, that one of the problems in America was that we had too many undeserving, I emphasize undeserving, because I don’t want to paint with to broad a brush. We had too many undeserving people at the top in America getting bailouts, and we had too many undeserving people at the bottom getting handouts, and the rest of America, most of America in the middle, was getting the bill, and I didn’t think that was fair.

An, apparently, it’s still the case today, Mr. President, and I still don’t think it’s fair, fair. Now President Biden chose to bail out three of our banks. It was a bailout. You can pretty it up anyway you want to, and you can put perfume on a pig, but it’s still smells like a pig. This was a bailout. It was a bailout for two reasons. Number one: except for the the people who own the stock in the banks and their unsecured creditors, President Biden and his regulators guaranteed that nobody affiliated with these banks would have any losses, and he said that’s not a bailout because money is not being provided by the American people, it’s being provided by all the other banks in America. Well, Mr. President, you know as as well as I do there is no money there. There isn’t anything free. Anything free, somebody had to work for it. By taking the, the hit, all the banks in America now, I’m referring to, banks serve taxpayers, that’s point one.

Point two, but those banks, all the banks in America that are going to have to pay for the President’s bailout, their just going to pass on those costs, including but not limited to their depositors. And last time I checked most depositors in banks in America were taxpayers as well. The second reason President Biden’s bailout is a bailout, and this is in the fine print, but he has set up a 20, I think it’s a 25 billion dollar fund the other banks that are in trouble can borrow from. And this this fund he says does not come from the American people, it came from the banks. Once again the cost of it will be passed on by the Banks to the depositors to the taxpayers. But this 25 billion dollar fund that banks that are in trouble can borrow from is set up as follows.

The banks can borrow money as they need it and as collateral they put up their securities. So the President says that’s a safe, that’s a safe bet. Except when you read the fine print you find out that the securities that the banks put up as collateral to borrow money from the American people are not what’s called Mark To Market. They, they aren’t the securities are not put up at their real value, there put up at the value at the time they were purchased. So, if you bought a security that was, let’s say, to make it simple, $20, and it’s owned, it’s owned by a bank, and it’s now worth $5 you, you give that $5 to the 25 billion dollar fund, but it’s really, and you get credit for $10, but it’s really worth only $5. I mean it’s a bailout and I’m not going to bubble wrap it and I don’t think we ought to try to bubble wrap it to the American people.

Now, let me say a word about Silicone Valley Bank. All the bank failures were were in abomination, but I think Silicon Valley Bank is symptomatic of the problem among all three. Yes, SVB as we call it, Silicone Valley Bank.

First of all, Silicone Valley Bank was not broke, it was not an insolvency problem, it wasn’t insolvent. Silicon Valley Bank has a liquidity problem. I mean, here’s what happened. Silicone Valley bank took in a whole bunch of deposits, on which they were paying an interest rate and then Silicone Valley bank took that money and went out and bought a bunch of securities, paying a higher interest rate than Silicone Valley Bank was paying the depositors. You say that’s pretty smart. There’s just one problem, the securities that Silicone Valley Bank bought were very sensitive to interest rates, and as interest rates went up, and they have, the value of those securities went down, and Silicone Valley Bank had to sell them. And sure enough Silicone Valley Bank got itself in the position of having to sell them because at lot of it’s depositors got scared about the bank’s position and other reasons and said, we want our money back, and Silicon Valley Bank didn’t have the money because it had to go sell these securities at a loss, and that put it at risk, and that’s why it had a liquidity problem, that could have been fixed. It wasn’t broke.

President Biden’s bailout could have been easily avoided if we had done, let me put that another way, if three things had happened. Not all three, but any one of the three things I’m about to explain, let me say that again. President Biden’s bailout could have been avoided if one or more of three things had happened.

Number one, if the management of Silicone Valley Bank had known the difference between a banking textbook and an LL Bean catalog, Silicone Valley Bank would have never bought securities that are so sensitive to interest rate without hedging that risk. And it’s a very easy thing to do. Honestly it’s banking 101. If you buy securities to back your deposits that are very sensitive interest rates, there are other securities you can buy to hedge that risk, so you don’t take the risk. I’m appalled. The bankers at Silicone Valley Bank didn’t do it. I mean it was bone deep, down to the marrow, stupid.

Number two okay Silicone Valley Bank management did it it was like a rock only Dumber but they did it The Regulators didn’t catch it there’s been a lot of talk about Silicon Valley Bank wasn’t being regulated because of a bill passed back in 2018 or 2019 that’s not true it had to fall regular reports with the Federal Banking regulators it was subject to stress testing it was subject to liquidity stress testing All The Regulators had to do was read the reports that the Silicone Valley Bank was submitting and they would have seen the problem you know who sold the problem way back in November and October that were covering silicone warned way back Stock analysts in the private sector that we’re covering Silicone Valley Bank warned way back last fall they said you know what this bank is setting it up for setting itself up for a potential liquidity problem the private sector do it where were the regulators where were they you couldn’t have found them with a search party I guess they were asleep but but this whole debacle could have been avoided if The Regulators said just done their job and stepped in and said silly on Silicone Valley Bank what you doing is dumb and you can’t do it anymore the third thing that could have rewarded President Biden’s bailout I think the bank went under on a Friday the Federal Reserve the Secretary of Treasury the head of the FDIC and all the other Regulators allowed the bank to go on instead instead of getting on the telephone and calling other Banks and saying I’ve got a situation here with Silicone Valley Bank it’s not insolvent it’s just them liquid we want you to bite that’s what that’s what normally happens and that’s all The Regulators had to do now why didn’t they do that there’s been a lot of talk about well they had an auction for the bank and nobody wanted that’s not true there were buyers but the problem was that the people at the FDIC do not like Bank mergers some Bank mergers or make sense some bankers don’t make sense in this case it would have made extraordinary sense and so the folks at the FDIC stalled and restalled and then we had Mass pan think back to the to the bailouts in the 0809 if you if you’re a banker and you get a call from the Secretary of Treasury the head of the Federal Reserve in the head of the FDIC can we sit down and talk with you and structure the terms by which you would buy this this this in liquid but but still solving Bank you’re going to take that phone calls so if we have done anyone of those three things this mess could have been avoided thank you Mr chairman with that I well let me just make one last comment I’m going to say it again in 2016 in America we had too many undeserving people at the top getting bailouts and we still do today thank you Mr chairman I suggest our Mr President I suggest the absence of a quorum.

Biden Doesn't Have Americans Best Interest At Heart