Bailout the rich, punish the workers
Why the Silicon Valley Bank disaster is more than just rich tech bros whining
So by now everyone’s heard of the disaster with Silicon Valley Bank. Essentially, Silicon Valley Bank put a lot of its money in 10-year Treasury bonds, locking it away in a safe bet. When interest rates rose, the bank didn’t have cash on hand to back up its guarantees, so it tried to raise some cash to make sure it was liquid enough. At the end of last week, that caused a run, right-wing venture capitalists panicked, cried doom and gloom and demanded the government step in. And at the same time, the New York City-based Signature Bank also failed, for a similar liquidity problem. And they did, backing up deposits and preventing a wider ripple effect. It seems to have worked and although many of the worst people in the world feel vindicated after begging for help, the government seems to have stopped a bigger crisis. Which is good, if anyone remembers 2008.
But it’s also worth looking at how both deregulation and Federal Reserve interest rates led to SVB and Signature Bank’s failure and why it stems from the same antipathy toward working class people.
There are many reasons to be mad at the way tech executives have effectively gamed the system, pushing deregulation then hypocritically but successfully getting a full government rescue. The government stepping in to prevent a bigger meltdown is, on the whole, good, even if the people behind the SVB run are infuriating. Inequality is higher than it was in 2008, the pandemic wiped out a lot of savings and the majority of people live paycheck to paycheck; another financial collapse would be devastating.
SVB was the main bank for Silicon Valley, the name wasn’t just for show, but it also had exclusivity contracts with some clients, tying them in it sink or swim. The bank had investments in affordable housing (something the Bay Area and California as a whole desperately need). A number of pension funds were also invested in the bank, putting retirees’ money at risk. Major venture capitalists — or at least the loudest ones — such as Elon Musk advisor David Sacks cried about the dangers workers faced when demanding rescue from the federal government, but of course that rings hollow and exploitative when compared to his many past comments insulting student debt relief, unions and workers’ wages. Because right now the institutions behind our banking systems, from the Federal Reserve to the major investors and lobbyists who pushed for the deregulation in 2018 that led to SVB escaping oversight, are more focused on limiting the power of workers, thinking that can get them richer or solve wider issues.
The Federal Reserve’s single-minded desire to crush inflation — and specifically stop people’s wages from rising — failed to ignore the real issue and could have caused things to snowball out of control. Federal Reserve Chairman Jerome Powell has made it very clear again and again that he sees workers’ wages as something that need to be curtailed in the fight against inflation. Nevermind that wages rose in recent years in part because they hadn’t in a bit, workers organized to fair pay in dangerous situations and it was to meet the need of higher costs, not the cause.
To be clear, higher wages aren’t the cause of inflation. It sure as hell wasn’t caused by the stimulus checks or enhanced unemployment insurance, despite what a friend seriously said to me recently. First off, those were not significant enough to cause price spikes. Second, they ended nearly two years ago. To think that they drove the inflation of the back half of 2022 and now is absurd. Yes time has been a blur since the start of the pandemic, but we’re not time traveling here.
No, the core reason inflation is still a factor is supply chain issues, and the core reason behind that is the pandemic. And for the places where there are no restrictions, the laissez-faire, endanger-everyone approach to the pandemic — which again is still killing thousands in the United States each week — sick workers can lead to labor shortages. It slows down production and transportation. Even the Wall Street Journal said as much.
And right now the Federal Reserve keeps wanting to treat the issue as a normal case of inflation. Raise rates, get people to reduce spending, then inflation should go down. That’s the traditional approach. They’re just, as Julia Doubleday correctly pointed out, missing the big red light: the pandemic. Costs are high due to supply chain issues caused by sick workers and the risk of sickness. As more workers get COVID-19 and long COVID this will continue. And those issues will continue to ripple down the line, with bursts of supply, high shipping costs, storage issues and the like. Yes matters such as the war in Ukraine and well documented corporate price gouging also play a factor here, but the predominant root cause is COVID. And since most countries have given up on masking, flattening the curve and public messaging about health (look at China for instance, which pulled a United States, dropped precautions and now has millions infected with many likely to die), it’s going to continue. It’s not too late to try and get a handle on this, to take it seriously. More than 7 million people are dead worldwide, with countless more suffering long-term health issues.
Still, Powell and the Federal Reserve want to cut inflation, in part because wages are too high; yes Powell actually said that, again and again. But apparently no one was too worried about a type of scenario where rapid interest rate hikes cause unintended bank failure and potential widespread meltdown, as just happened with SVB.
Because here’s the wild thing these people don’t realize: It’s a connected economy. It would be easy — and oh god I want to — to just laugh at the reactionary tech executives freak out as they discover their beliefs are bad, but that misses the bigger picture. This kind of greed and mismanagement threatens more than just them. Companies have pension funds tied up in these banks and investments. For as many awful tech bros as there are here, many less than awful people suddenly had their money put at risk. Short-term greed, plus an engineered attempt at a bank run played out in real time on Twitter for all to see, threatened many others.
Also, they’re not going to have some grand realization that their ideology stinks. Anyone who has seen these guys on Twitter in the last six months know they’re just not going to.
But the issue behind SVB is the same one that’s behind the train derailment in East Palestine, Ohio. Greed and cost cutting measures pushed deregulation, and as a result safety precautions were drastically cut back. And when a train did derail, as it did in East Palestine, it wasn’t just Norfolk Southern that had to deal with it, the people of that town and the surrounding communities found themselves directly affected by the fallout. And as with SVB, some people are trying to use the disaster to enrich themselves, with wealthy pro-deregulation figures trying to frame themselves as pro worker.
In the short term and the long term, people in power need to realize that everyone gets affected, directly or in the wake of big changes. The tech billionaires don’t deserve anyone’s pity, even though they’ll whine about it, but unfortunately some of the same issues affecting them affect everyone else. Like a pandemic, which is still killing people and leaving survivors with permanent damage. Want to solve most of the issues here? Start by addressing that. But since people in power aren’t considering that, we’re seeing inadequate approaches to monetary policy that don’t meet the real needs. And that in turn is spilling over in ways that are only going to hurt workers. The venture capitalist vultures might make all of the noise, but this is only going to hurt those they want to exploit.