Video
17:46
Matthew Stoller explained the dangers of the decision to protect SVB depositors
by UnHerd employees
The response to the Silicon Valley bank bailout has been extremely divided — but not along political lines. On the one hand there are democratic economic advisers, Founding Republicans and venture capitalists like David Sacks, who appeared on UnHerd this week to defend the decision. On the other side are populist politicians from left and right, such as Senators Elizabeth Warren and JD Vance, who are leading calls for cracking down on the banking industry’s loose regulatory framework.
One figure who has offered his full support to the latter camp is economist Matthew Stoller. Stoller is a research director at the American Economic Liberties Project and writes the substack “BIG”. He joined Freddie Sayers in explaining why he thinks the SVB rescue operation was so disastrous, arguing that it was entirely unnecessary:
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This is all stupid and very irritating and just another justification for this entangled, corrupt system and politicians who are only afraid of their own shadow. […] When you take risks, you have to eat the downside when something goes wrong. That’s just the reality here, and there weren’t even that many downsides. It’s all embarrassing.
– Matthew Stoller
For Stoller, the SVB crisis was a storm in a teacup, instigated by executives unwilling to deal with the inevitable consequences of their “poor risk management.”
That was just panic. The bank did a poor job of managing risk so its executives could make big bucks. They gambled with other people’s money. They lost. And then the people whose money they were playing freaked out and they went to the regulators and scared them. And so the regulators made them whole. That’s really all.
– Matthew Stoller
Which begs the question: What would have happened if the Fed had done nothing? According to Stoller, SVB depositors would have been more or less fine over time if the crisis had taken its natural course:
Your deposits would not disappear. […] If we had just gone through and allowed the FDIC to wind down the bank like it should have done today, most Silicon Valley Bank customers would likely have access to between 40% and 70% of their deposits. Probably 80% by the end of the week; and in two to four months they might have had access to all that, they might have had to cut their hair.
– Matthew Stoller
Stoller believes the entire banking system needs to be overhauled. First and foremost, the too-big-to-fail banks would need to be dismantled and “more aggressively” regulated, resulting in “more banks, closer to communities, enabling risk management.” Another solution, which may be less palatable to many, is to allow anyone and everyone to do business directly with the Federal Reserve risk-free. Concerns about privacy and government scrutiny were brushed aside. In any case, Stoller explains that the fact that the government is not already pulling the strings is a myth:
All banks are basically chartered by the government, they are controlled by the government, they have access to a whole financial safety net provided by the government. So, you know, that’s not a big step in our view of things; it gets away from this illusion we have that the banking system is kind of private
– Matthew Stoller