Holman W. Jenkins, Jr. has a new opinion piece out with the Wall Street Journal titled ‘The Joe Biden Banking Crisis.’ The title kind of says it all, doesn’t it? “FDR and Obama inherited their meltdowns,” the piece’s caption reads. “Biden’s was self-made.”
Jenkins begins his piece with a few points he wants the reader to consider.
One, JPMorgan, Citibank, and other big banks were uninsured depositors (to the tune of $30 billion) with First Republic Bank. Jenkins asks that if First Republic were to fail, and have regulators intervene, would the $250,000 insured deposit limit be enforced? JPMorgan and the rest aren’t going to wait and find out, instead, they are “scrounging up an alternative private rescue for First Republic.”
Second, Silicon Valley Bank failed because inflation and higher interest rates eroded the value of SVB’s “safe” assets. Yet now, the Fed is “crediting this collateral with its original value.” “If you could sell 65 cents to the Fed for a dollar,” Jenkins asks, “why would you ever reverse the transaction? You wouldn’t.”
Third, the dollar is losing value and dollar holders are worried about “unlimited dilution if the government needs to print money to uphold the financial institution.”
With those three points in front of mind, Jenkins offers a critique of Biden’s handling of the ongoing banking crisis.
Biden’s Fault?
Jenkins certainly thinks so. According to Jenkins, Biden must have thought that letting SVB fail “the normal way,” in which SVB customers would have needed to take “modest haircuts on their uninsured deposits,” would have caused a banking run and nationwide panic. So, instead of letting that happen, Biden decided to “bail out Silicon Valley Bank’s uninsured depositors from its uninsured depositors.”
Jenkins asks whether the political behavior of SVB and their depositors – who donated heavily towards the Democratic Party – was a factor in earning such a comprehensive bailout.
“Did the bank’s progressive dabblings contribute to its failure – or its rescue? Its investment in political window dressing at least tells you what management believed about its political environment,” Jenkins wrote. Indicative of the problem, Jenkins points out that California Governor Gavin Newsom, an ambitious Democrat with extensive ties to SVB, lobbied hard for the SVB bailout.
In sum, Jenkins wrote that modern banks are overly dependent on the government, which underwrites “confidence in the insurance, regulatory and economic systems on which they rest” – while also putting the government in a position to ruin that very confidence. So, did the Biden administration ruin that confidence? Possibly.
“Mr. Biden essentially embraced the progressive’s modern monetary theory, which admittedly became universal amid the pandemic, positing that the U.S. government could print and spend money without inflation,” Jenkins wrote.
According to Jenkins, the pandemic recovery was already underway and was already “visible around the corner.” But Biden piled on, adding “unnecessary fuel” to the fire. The result? According to Jenkins, “the destabilizing rise in inflation and interest rates that spawned today’s bank panic, the end of which may not be in sight.”
Jenkins concludes his piece by pointing out that FDR and Obama inherited their economic meltdowns (curiously, Jenkins sidesteps blaming Hoover or W. Bush for anything), whereas “Mr. Biden can claim authorship of his.”
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Harrison Kass is the Senior Editor at 19FortyFive. An attorney, pilot, guitarist, and minor pro hockey player, Harrison joined the US Air Force as a Pilot Trainee but was medically discharged. Harrison holds a BA from Lake Forest College, a JD from the University of Oregon, and an MA from New York University. Harrison listens to Dokken.
