President Joe Biden has done something that most statists in America have only fantasized about doing. The forty-sixth president has effectively nationalized the U.S. banking system.
In response to the collapse of the Silicon Valley Bank (SVB), a small bank that was responsible for providing loans to a large number of America’s start-up companies—notably those in biotechnology—the Biden Administration announced that it would not bail the bank out as the U.S. government had done during the 2008 Great Recession.
So, you ask, what did Joe Biden do in response to this challenge?
What Joe Biden Did
Instead, the Federal Reserve stepped in with the Bank Term Funding Program (BTFP) which will offer “loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying financial assets as collateral. These assets will be valued at par.”
Behind that program, the Fed is going to “backstop” the BTFP with a possible $25 billion from the Exchange Stabilization Fund (ESF). The ESF came out of the 1930s and was used throughout the COVID-19-induced financial crisis by the Fed to “help stabilize markets by accepting a broader range of assets as collateral for loans to financial institutions.” This action, in turn, essentially helps to keep the economy running normally during a downturn – thereby, in theory, preventing a financial crisis from becoming a full-blown depression.
To be clear: this money is from the U.S. Department of Treasury and is used to cover any losses the Fed may experience in propping up failing banks. So, while the Biden Administration insists that no tax dollars will be used to bail the SVB (and very soon other small banks around the country) out, if the ESF money is used—and there are losses associated in deploying those assets—then, yes, tax dollars will have been used.
How is the Biden Administration able to claim that they are not using tax dollars for these bailouts?
How It “Works”
The bulk of the funding for the Biden Administration’s policy will come not from taxpayers but from the Federal Deposit Insurance Corporation (FDIC), which has around $250 million in its coffers. The money is paid for by the banks themselves, which are assessed fees by the FDIC over the span of their operations.
Because of the political implications of these actions, the Biden team insists that this is not a bailout. According to the Biden Administration, these moves are merely extraordinary measures to ensure the normal functioning of what Biden has repeatedly—laughably, in my honest opinion—referred to as a “strong as Hell” economy.
Whether it is FDIC money or tax dollars being used to bail out a bank, the fact remains that the federal government is ordering money to be used to save the banking system again.
More important is the way in which the bank is being bailed out. Rather than bailing out bondholders, the U.S. government is bailing out all depositors. This has never been done before.
What’s more, as Shark Tank’s Kevin O’Leary lamented to Fox News host Neil Cavuto, by bailing out all depositors—even those who had more than the already insured $250,000 in the banks in question—the federal government has just nationalized the banking sector.
After all, it isn’t just SVB’s depositors who have been put at risk by that bank’s horrific management. It is the small-to-medium-sized, regional banks that have massive exposure to this SVB contagion.
As O’Leary noted in his Fox News interview, by making everyone whole at those banks, the government was effectively removing risk from the banking sector; now whether one is a good or bad bank manager won’t matter anymore.
David P. Goldman of The Asia Times notes that “commercial and industrial loans at smaller banks were only half of the lending by large banks. By 2022, smaller banks’ loan books were as large as the big banks.”
So, when Biden and his apparatchiks take to the airwaves to insist that there is no systemic risk to the market, you should be skeptical. This isn’t only going to impact SVB or a few other smaller banks. This banking crisis is going hit almost all the smaller banks—and will, therefore, impact the whole banking sector, because so many larger banks depend on business with those smaller banks.
Think back to the language of the BTFP. According to the Fed, the BTFP will “help stabilize markets by accepting a broader range of assets as collateral for loans to financial institutions.”
That sounds charged with systemic risk, doesn’t it?
Making America European
The likeliest outcome of these actions is not only the nationalization of the banking system. It is also the reduction of the banking system to just a few big banks running all other banks. This is where things get creepy: centralization of banking power and its ultimate fusion with political power.
In the meantime, too, the impact on small businesses, which account for 48 percent of all employment in the United States, will be detrimental. The Small Business Administration (SBA) is fond of telling the public that “small businesses are the backbone of the American economy.” They truly are. Should these engines of growth be denied access to loans in order to grow their operations, the U.S. economy will be harder hit than it already has been.
Lest we forget that the Silicon Valley “innovators” who stand to lose their rear ends because of the collapse of SVB are scheduled to go to Congress next week, hat-in-hand, and beg for a bailout. All Congressmen and women must resist their pleas. Even if they are companies working with the Department of Defense on innovation. The U.S. government cannot spend any more money on dying enterprises than it already has.
Lastly, it is important to understand just how, precisely, the banking crisis of 2023 began. Yes, it was bad management and poor leadership at SVB. Further, it was the government that made the failure possible. The stimulus that both Presidents Donald J. Trump and Joe Biden poured into the economy prompted Fed Chairman Jerome Powell to spike the interest rates.
Because SVB and so many other banks had become accustomed to chronically low interest rates and easy money, the bank leadership did not anticipate a reversal in its good fortune. With interest rates high, the bank collapsed as it couldn’t cover its losses.
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The Biden Administration has proposed trillions of dollars in additional spending with its new federal budget proposal. As I noted in a previous piece, Biden’s budget was unserious. The proposal was a trial balloon designed to get people talking about taxing the wealthy; to engage in Biden’s chaotic class war.
Should any semblance of his budget be passed, the spending involved will only worsen the financial crisis we now find ourselves in. What’s more, if Powell keeps raising interest rates, more banks will find themselves needing help.
Joe Biden is spending the country into oblivion. He is bailing out wealthy depositors at these banks. Under Biden, our once-private banking industry has essentially been nationalized, too. With each year this man remains in office, a little bit more of America you and I knew will be chipped away. Eventually, we will look much like the European Union: a boon for crony capitalists and a nightmare for innovators.
As former President Donald Trump might tweet, Sad!
Brandon J. Weichert is a former Congressional staffer and geopolitical analyst who serves as a Senior Editor for 19FortyFive.com. Weichert is a contributor at The Washington Times, as well as a contributing editor at American Greatness and the Asia Times. He is the author of Winning Space: How America Remains a Superpower(Republic Book Publishers), The Shadow War: Iran’s Quest for Supremacy (March 28), and Biohacked: China’s Race to Control Life (May 16). Weichert can be followed via Twitter @WeTheBrandon.
March 15, 2023 at 8:57 am
God bless people in the world.
It’s not crony capitalism, but it’s the reality of socialism. Federal Reserve Bank is the same as People’s Bank of China, central bank of the Soviet Union, and Deutsche Reichsbank of Nazi. So the few people control the other people, the president is king, judges, congress and senator are servants of president.
God bless America.
March 15, 2023 at 10:26 am
Talk about breathless hyperbole. No, the US did not nationalize the banks…nor did it socialize the losses of the banks equity or debt holders. All it did was backstop bank depositors based upon the realization that the failure of SVB, for which again, the banks owners and debtholders were wiped out, could have serious ramifications for both depositors as well as create a cascade of additional bank failures. If you don’t get the rationale for the government wanting to avoid an 80s style S&L crisis, you are too stupid to write for this publication. Also, there is no reason to believe that the government is compelled to make all bank depositors whole in every situation .
March 15, 2023 at 12:07 pm
Democrats have set up a system whereby the rich can invest in risky securities, reap the benefits, knowing that if their investments go south, the American taxpayers will make good on their losses
Imagine a casino where you win on every bet. How long would that casino be in business?
March 15, 2023 at 2:57 pm
Nothing says “invest as recklessly as you want the federal govt will bail you out” quite like… bailing out banks that invest recklessly.
March 15, 2023 at 4:51 pm
Sorry Scottfs, but that’s not what’s happening here by a long shot.
The depositors, who are the ones being made whole, were far from “investing in risky securities”. They were putting their money in the bank and likely not getting any interest income or very little interest income at all. Putting your money in the bank is about the lowest risk thing you can do other than putting it in your mattress.
On the other hand, those who “invested” in SVB…”invested” as in owned stock in the company, they have been wiped out in full…as they should.
March 16, 2023 at 1:53 pm
this is G.O.P BS FROM 45 TRUMP
March 16, 2023 at 3:33 pm
so no mention of who remove many laws designed to prevent this ?
hint it was not Biden
Milind M Padki
March 16, 2023 at 5:39 pm
Your antipathy towards protecting the common depositors’ money is stunning.
March 16, 2023 at 7:40 pm
The woke president keeps hurling money over to his woke war in Europe. Now approaching $100 billion.
Meanwhile, the Fed keeps raising interest rates.
March 16, 2023 at 8:44 pm
Scottfs, Whenever I have the urge to read something really stupid I turn to your posts…this story’s author is close behind you.
March 17, 2023 at 11:59 am
Nationalization is socialization.
“A rose by any other name would smell as sweet”.
If federal funds are used it it still a tax payer funded bailout.
March 17, 2023 at 2:59 pm
As bad and biased and absurd an article as I could imagine. Visualize wanting to let the banking system collapse as a right wing authoritarian political hit can be made. The people above said it nicely, I will say this is pure vicious tripe.
March 17, 2023 at 5:13 pm
A bad day to have Joe Biden in your culture. He’s ruined everything he’s touched.
March 18, 2023 at 6:37 am
This is oBiden’s plan for the Digital Dollar scam
March 19, 2023 at 8:52 am
he,s working for us we pay him so if we have a boss we can do anything we want and get paid like bidens party what a great day in america we get a president who pays all other countries money gives them power guns and weapons to fight us whow arn,t we all stupid
March 19, 2023 at 9:56 am
about 90 years back if the FDIC was set up to insure the deposits of bank account holders , how is Joe Biden responsible for what is clearly not a bailout but instead normal policy? I still remember the Savings and Loan fiasco and its much the same thing… somebody over regulated some financial institutions, somebody else decided that was bad for business and later some of these institutions failed..
March 19, 2023 at 4:48 pm
Sleepy Joe Biden: Destroying The USA One Day at a Time!
March 19, 2023 at 5:14 pm
To the 1945 Team. Take your stupidity somewhere else like Russia that will do—reading your B.S. makes me sick. With a company with an Honorable name of the year 1945, I gather that it is what or where it comes from. Go back to Grade School & start over. ????
March 19, 2023 at 5:47 pm
This is no more a bailout than anyone that buys fire insurance to protect their home or business, health insurance to protect ones self or family against a financial disaster. It does now protect equity stake holders. Their protection is a diverse portfolio.
March 19, 2023 at 6:04 pm
Lots of comment about socilism and goverment protecting investments for the rich. First, savings ones earnings is not an investment in the sence of risk vs reward. It’s intended as a secure place to keep earnings, an alternative to a coffee can under your bed. It’s also a safe repositary persons or business to have available funds that drive our economy, home, retirement security, vacations, cars ……. FDIC is your insurance and is actuall paid by banks from the money earned on deposits. Incidently those dividends paif are taxed, funds that run our country.
March 21, 2023 at 2:21 am
The left has now moved up the timeline they thought they had to undermine the banks and create the means to nationalize them to control the money of this nation….the impeachment of 2 conservative Trump appointments of the SCOTUS is designed to take down the courts and the rule of law, resulting in legal chaos….The R’s must show resolve and a real spine to crush the left with the rule of law and the use of the US Constitution and may God protect them….
March 21, 2023 at 2:41 am
Just remove the word “Banks” and don’t make “America’s” plural, and that sums it up.
March 23, 2023 at 6:47 pm
Seriously Shmendrick? Even Biden’s own “experts” do not know what they are talking about. I do not believe you know what you are putting out there but I guess if you say it confidently enough it is true. Not really. Biden has effectively destroyed the country and people like you probably profit from it. The day of reckoning is coming for us all.