There are 7 shocking reasons the banking panic blew up.
It was not because of the “free market.”
It was not because of “too little regulation.”
It was not because of “fraud.”
The banking panic exploded because of government policies, politicians, and political ideology.
This has never happened before in history, and disturbingly, other banks are in trouble because of them.
Here are the 7 disturbing reasons for the failure of Silicon Valley Bank (SVB):
Reason #1: A politicized bank agenda – not good banking policies.
The bank’s political agenda was ideologically driven by pro-socialists, radical environmentalists, and by advocates of an anti-Christian worldview. The policies of the bank diverted money and attention from their core purpose.
SVB failed because of bad decision-making and bad investments.
Basically, it served as a Democrat-donor ATM, and an investor in their radical green new deal policies.
Last year, the bank gave over $5 billion in loans, investments, and other financing to support questionable and risky green-tech businesses. The company said it would be carbon-neutral by 2025 and promoted diversity, equity, and inclusion initiatives.
SVB was more concerned with ESG (Environmental, Social, and Governance) and DEI (Diversity, Equity, and Inclusion) instead of focusing on their core mission: banking.
According to SVB’s website, its “corporate philosophy of transparency and accountability guides our reporting on environmental, social, and governance performance with the goal of building trust and evolving our policies and disclosures.”
Their commitment to DEI is prominent on their website and corporate literature, which states, “We’re building a culture of belonging with a global workforce that celebrates greater dimensions of diversity.”
As a supporter of ESG, the bank committed to $5 billion in “sustainable finance and carbon neutral operations to support a healthier planet.”
Their support of the radical environmental movement also became a main focus:”We [SVB] support entrepreneurs and high-growth businesses at the forefront of innovation, helping to advance solutions that create a more just and sustainable world. Our longstanding commitment to innovation, combined with our deep experience supporting evolving technologies, enables us to contribute to a healthier planet via our own efforts and those of our clients.”
SVB also gave over $73 million to BLM and more money to other radical groups.
It’s was one of the most politicized and ideologically-driven banks in America, with pro-socialist and partisan Democrat business policies.
Reason #2: Poor management: driven by ideology, not proper due diligence.
SVB didn’t have enough money to meet depositor demand for their money…
The question is, why?
SVB backed questionable start-up loans and commercial real estate. Many of these speculative investments didn’t pan out, hurting the bank’s bottom line.
SVB also invested billions of dollars in long-term U.S. Treasury Bonds, and government-backed mortgage securities at 0% interest.
However, because the Federal Reserve raised interest rates so high and so quickly, these government securities lost big money as inflation made the value of the dollar drop.
To pay off debt, SVB had to sell a large chunk of these securities for $21 billion, losing $1.8 billion after taxes.
Then the politicized CEO, Greg Becker, publicly revealed that the bank was trying to raise $2.25 billion in capital as well as $21 billion in asset sales to cover the $1.8 billion loss.
That panicked SVB’s clients, and they made a run on the bank, withdrawing over $42 billion. That made SVB’s stock crash by over 60%.
The other inept decision SVB made was making a change from fractional reserves to no reserves. This led to SVB buying assets instead of simply loaning money… and unfortunately, these assets became liabilities quickly. They took stupid risks on unproven, unproductive green technologies that didn’t pan out.
Reason #3: Politicized Board of Directors.
The management and board of directors were all about political correctness, wokeness, and political/cultural transformation.
As a bank, SVB’s primary focus was on radical green agendas . Consequently, its loans were risky and made no sense.
Only one board member had any investment banking experience. As for the rest?
According to SVB’s CEO, Greg Becker, he was in full support of the Board’s direction on ESG stating, “Our ability to make a meaningful difference for people and the planet and address the systemic risk that climate change presents, is magnified by the outsized impact our innovative clients make.”
They were so politicized that the bank donated over 60% to Democrat politicians vs. less than 30% to Republicans – all of which are RINOs.
- SVB board member Kate Mitchell donated $50,000 to Hillary Clinton’s 2016 presidential campaign.
- Board member Mary Miller was a former Obama employee at the Treasury Department.
- Board member Garen Staglin donated $79,000 to Hillary Clinton and a total of over $135,000 to other Democrats.
Reason #4: Corruption and political favoritism ran the bank.
SVB executives sold over $84 million in company stock over the past 2 years before the bank crash.
SVB employees got their bonuses the same day regulators closed down the bank.
SVB’s Chief Administrative Officer, Joe Gentile, was the former CFO of the Fixed Income Division of Lehaman Brothers (another failed investment bank).
Kim Olsen, SVB’s Chief Risk Officer, worked at Deutsche Bank… one of the mail culprets of the 2008 economic collapse.
Reason #5: Biden’s massive deficit spending set the bailout in motion.
The national debt recently topped $31 trillion for the first time in U.S. history.
And since Biden has become President, he’s spent over $3.8 trillion, fueling rising prices and – inflation.
Here are some of the programs as well as the money they cost:
- The American Rescue Plan Act (ARPA), spends $1.8 trillion.
- The Infrastructure Investment and Jobs Act spends $765 billion.
- The Promise to Address Comprehensive Toxics (PACT) Act spends $278 billion.
- The CHIPS Act spent $255 billion.
- The Build Back Better bill (rolled into the Inflation Reduction Act) adds another $51 billion.
- The President’s executive actions total another $532 billion.
And at $5.8 trillion, President Biden’s proposed new budget would be the highest budget in American history.
Reason #6: The epic money growth from the Federal Reserve also fueled inflation, setting the stage for collapse with higher interest rates.
Biden’s massive spending caused the rate of inflation to skyrocket, causing the value of the dollar to shrink.
When Biden took office, the inflation rate was just 1.4%. In 2021 it peaked at 9.1%. Currently, it sits “officially” at 6.4%, according to the government’s figures. However, the inflation rate of everyday items hovers 12-15% or more depending on the item. For example, energy prices have risen over 37% since Biden took office.
Skyrocketing inflation prompted the Federal Reserve to raise interest rates several times to its current level, 4.5%. This is the fastest rise in over 40 years.
The sudden spike in interest rates dropped the value of Silicon Valley Bank’s Treasury bonds and mortgage bonds.
Most of Silicon Valley Bank’s (SVB) customers were tech companies, and when the economy started to slow and the tech business started to decline, they started pulling money from the bank, which forced SVB to sell its securities in order to cover the withdrawals.
Since SVB bought those securities when interest rates were at 0%, SVB lost money selling their securities to cover the withdrawals.
This placed the bank in a bad financial condition, and the bank’s balance sheets became precarious.
This scared major depositors, who started withdrawing their money from the bank. This caused a panic, prompting a run on the bank. Since the bank relied on a small number of large depositors, when they withdrew their money, SVB collapsed.
Reason #7: The Regulations Encouraged Bad Behavior.
Risky loans, bad investments, and reckless IPOs were all the linchpins for the collapse of SVB.
But it was bad government regulations and policies that encouraged taking bad risks because there were no consequences. The government and the taxpayer are there to bail them out. So why not make risky investments… SVB thought they had nothing to lose.
They could invest in highly risky start-ups and push them to go public with their IPO and get listed on the stock market, and rake in millions before the companies went bust.
We need a massive realignment in the IPO process. The process of raising capital must return to real companies with real products in search of real capital used to grow the companies that make it to the market – not pushed to enrich the founders of the company, their lawyers, and the investment banks at the expense of the public.
The problem is not solved with more regulations. Indeed, the regulations are making big banks bigger, and small banks smaller. And in this case, the regulations never questioned the politicized bank’s policies and practices.
It’s a failure of the bureaucrats, regulations, and government policy.
What do you think about the bank crisis and the politically-run banks?
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Read another article here: Banking Panic 2023: 7 reasons, politics, ideology, policy impact