Stemming the Tide

 The question of whether it was proper to "bailout" the depositors it SVB was largely rendered moot by the run on another bank in NY. The failure of Signature Bank will likely be tied to a reliance on low interest rates and exposure to the ongoing fraud that is "crypto". All mid-sized regional banks are suddenly suspect, so Biden and the Fed are going to insure ALL deposits, not just the $250,000 cap.

By insuring the liquidity of accounts at these two struggling banks (and presumably every other mid-size bank), they are trying to stop the runs on banks before they happen. "Your money is safe. Relax."

Josh Marshall takes on the idea of a bailout and what it means politically, as opposed to economically. The bailouts of 2008 actually worked really well and paid for themselves. If anything it was the long delay by the Bush Administration to guarantee accounts that created the panic in the fall of 2008. By acting pre-emptively, the hope is that this crisis will resolve itself fairly quickly.  The toxicity of "bailouts" is unfair, because they really do work. 

What was toxic about 2008 was the lack of consequences for those who wrecked the economy. My guess is that Biden won't make that mistake again. By limiting the damage to a few banks, you can keelhaul those bankers without spooking a fragile banking system. As the Chinese saying goes, "Kill the chicken to scare the monkeys." Make an example out of SVB and Signature. Bring their execs up on charges if you can. 

But stopping the spread of a financial panic is absolutely the right thing to do.

What will be interesting to watch is how this mini-panic might cause the Fed to relax on interest rate increases. It was clearly tied to the zeal with which the Fed is raising rates, as that made many of the banks' equities and collateral worth much less than these banks assumed they would be. An entire business model built on cheap money is unraveling, and while inflation is mildly irritating at the moment, a financial crisis would really suck.

The Fed tends to be overconfident in its own wisdom, but I hope they look at these rumblings of crisis and realizes that - while these banks made bad bets - they had a role to play in this.