The federal government’s eager bailout of depositors at Silicon Valley Bank (SVB) and Signature Bank over the weekend is met with cynical and frustrated reactions from taxpayers.
Many of the people The Hill spoke to for this article are nervous that the financial system could collapse again around them — and angry that rich venture capitalists could get a quick bailout from the government while expanded welfare benefits and debt forgiveness are gone forever seem to be out of reach.
“What am I surprised that our economy is run by people who own banks? No, it’s not a surprise. But yes, it’s another example of total injustice and racism,” said Ellen McTigue, a retired nurse from New York, in an interview with The Hill.
“There are no surprises there, but it is unfortunate and wrong,” she said.
McTigue added she thinks the government took a “more cautious than sorry” approach, which she understood.
But she still had concerns about the transparency of the defaults and the government’s response, which insured ultra-wealthy depositors well above the standard $250,000 limit set by the Federal Deposit Insurance Corporation (FDIC).
The bankruptcies of SVB and Signature are the largest since the financial collapse of 2008 and the second largest bank failure in US history, and the fallout is still affecting the entire global economy.
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The Dow Jones Industrial Average fell more than 500 points in early trade on Wednesday as CEO Larry Fink of financial giant BlackRock warned of “further seizures and closures” in an annual letter to investors.
Fink likened the situation to the “S&L crisis,” referring to the meltdown in the savings and credit sector of the 1980s that led to a $160 billion taxpayer-funded bailout of Wall Street.
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An employee hands papers to customers queuing for entry at the collapsed Silicon Valley Bank in Santa Clara, California on Monday March 13, 2023. President Biden assured Americans that the US banking system is safe.
Who pays for the bank bailout?
In a history of the Savings and Credit Crisis published on its website, the FDIC refers to the episode as a “disaster,” “debacle,” and “massive public policy failure.”
While taxpayers are technically not yet on the hook of the SVB and Signature collapses, since depositors were paid out of an FDIC-managed fund that banks pay into, their money is still at risk.
The fund is guaranteed “by the full confidence and credit of the United States government,” according to the FDIC, so taxpayers’ money could be used directly when the fund expires.
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An additional line of credit set up by the Federal Reserve for troubled banks is also secured with $25 billion from the Treasury Department’s FX Stabilization Fund, which has a net balance of $38 billion.
People who pay student loans cry badly
Students and recent graduates, in particular, who have been waiting for a dangling loan forgiveness promise from President Joe Biden’s administration, which could yet be overturned by the Supreme Court, are feeling sharp pangs of injustice.
They are frustrated with the VIP service that federal regulators are providing to the financial sector while their own financial ambitions remain in limbo.
“It really makes it clear to students and anyone looking for government support that we are not their first priority, that we live in a capitalist society overall and therefore their first priority will always be where the money is,” Vivian Cormany, a medical student at the University of California, Berkeley, who also works in the student cooperative there, said in an interview with The Hill.
“Helping people get higher education and helping people live better lives because they don’t pay off their student loans until they are 35 falls by the wayside when it comes to bailing out big banks,” Cormany said. adding that her father was set to pay off student loans by the age of 40 and that her mother decided not to go to college due to cost concerns.
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Mercury Robertson, who works as a resident’s assistant in a dorm at the University of Texas at Austin, told The Hill she can see the frustration bank bailouts bring to the students she supports and advises.
“They are very frustrated that things like this keep happening,” she said. “My own ongoing financial expenses are funded by the federal government, funded by the university. But whenever I see these bank bailouts, I think the money could go to improving UT or improving other Texas universities. Austin and Houston both have public universities that could use more funding.”
Victoria St. Louis said her decision to attend school was largely driven by cost, and she was very concerned about avoiding as much student debt as possible.
“There seems to be a system where banks can get away with not making the right investments,” St. Louis, a marketing and business student at Western Governors Online University in New York, told The Hill.
St. Louis had some tax advice for regulators and fiscal officials.
“One starting point would be the debt relief program they were trying to implement right now,” she added. “If they could have pulled that out as quickly as the bailouts, it probably would have made a tremendous difference in a lot of people’s lives.”
Senator Elizabeth Warren (D-Mass.) has described recent bank failures as “entirely avoidable.”
Do companies get preferential treatment over taxpayers?
A plea from companies in California’s tech sector appears to have been part of what prompted the federal government to react quickly over the weekend.
Just a day before the SVB insurance cap was lifted by Washington’s tax and monetary authorities, blue-chip investment group Y Combinator, whose companies are worth nearly $1 trillion in aggregate, wrote an open letter to Treasury Secretary Janet Yellen, asking for “relief” and attention.”
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Workers and business owners in other sectors of the economy say they would love to be given this kind of attention.
Albert Zibak, an independent pharmacist in New York, told The Hill that big business interests and their healthcare lobbies make it difficult for his company to compete with the larger chains.
He said the regulatory responsiveness he’s seen from the federal government to the SVB bank bailout would “definitely” make a difference to his business and others like it.
“If the government had a quick answer [to our regulatory concerns] Like what just happened with the financial situation, it would be a game changer,” he said.
Included in the rapid dissolution of banks deemed too big to fail was stalwart Lehman Brothers.
Americans are still furious over the 2008 bank bailouts
Public frustration at alleged preferential treatment for the financial sector is not new.
A 2013 Portal/Ipsos poll found that five years after the bank bailouts that followed the 2008 financial crisis, “Americans [were] still angry at Wall Street.”
44 percent of those surveyed believed that the government should not have bailed out the financial sector, and only 22 percent thought the bailout was the right thing to do.
Portal reported at the time that then-director of the White House National Economic Council Larry Summers had warned financial executives that “they don’t understand how angry average Americans are with them.”
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The anger eventually morphed into a protest movement called Occupy Wall Street in 2011, which saw protesters camp out in Zuccotti Park near Wall Street in lower Manhattan for nearly two months.
Activist Yotam Marom, who helped organize demonstrations during Occupy Wall Street, told The Hill he sees the aid to the failing banks as similar to that which sparked the protests in 2011, although on a smaller scale .
“Is this a similar situation? Yes,” he said. “I don’t know if people are suffering the same way now as they used to. But it is certainly not new that banks or large companies generally fail and are bailed out, and in that respect it is similar. And that makes you angry.”
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