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Graf 6: Corrected to read that only about $8 billion were LESS than the insured amount, not GREATER than. Sorry. Something always slips through.

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Mar 13, 2023Liked by Heather Cox Richardson

Yup, the original inequality did seem at odds with my expectations! -- No harm done. We all make mistakes, and I certainly make WAY more typos and mistakes that I have ever seen in your posts. -- Dear HCR, what is far more important is your brilliant explanation in layperson's terms about the FDIC, the SVC situation in particular, and, as always, the historical context behind our current events. Thanks!

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Yes, an excellent explanation even for me an economic dolt. Our ex-banker neighbor issued a warning this weekend about this failure and tied it to the R threat concerning the debt ceiling. I note that those who oppose government regulation want a rescue and are first in line when there is a problem.

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Reminds me of Florida and Ohio clambering for FEMA help with each major climate / catastrophe crisis. Otherwise, their governors sneer at the federal government "safety net". It turns out for everybody but them, right? Definition of hypocrisy.

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Yes, it is. Hypocrisy is something people like Stubby DeSatan are good at.

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Yes, funny how that works. First in line for their own bailout, in amounts over $250,000, and also first in line to rail against giving a helping hand to college students in need of debt relief. Student loan debt relief to the tune of $10,000 - $20,000 per student. And they see no hypocrisy in that because they are entitled.

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Entitled hypocrites. Parasites of the highest order.

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Also first in line to pull their deposits out and cause a bank failure

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Noticing that Peter Thiel, that renegade Republican, got all his money out!

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Most things the Republicans come with are simply unthinkable, not raising the debt ceiling being only one.

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Always

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Amen to that, Michele! The screaming minority!

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Yes, thank you Steve for kudos to our mind expanding mentor, HCR!

Now if we could get the facts out in the whole country in great big letters and explanations. Regulations make a Capitalist Democracy strong and great! Just like “regulations( boundaries) make young people become strong and great.

Nothing becomes great without order.

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I share HCR daily letters on Facebook. I am never sure how many take the time to read! I wish all of my friends would read and then that they would share! But, this dreamer knows that will never happen! I am sure I have a lot of stalkers! Read and run!

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Dear Jean, because it matters…the USA is not a “Capitalist Democracy” but rather…a constitutional federal republic. What does this mean? “Constitutional” refers to the fact that government in the United States is based on a Constitution which is the supreme law of the United States. The Founding Fathers wanted republicanism because its principles guaranteed liberty, with opposing, limited powers offsetting one another. Regulation is like “Porridge,” often times it’s too hot while other times it’s too cold. Regulation combined with Mandates = Socialism/Communism…which is something too many US citizens don’t really understand. So be careful with your calls for more regulations — you’ll be super-excited in the beginning…right up until you’re disenfranchised during every facet of your day down the road.

You ended your post with “Nothing becomes great without order.” Did you feel that way during the BLM - ANTIFA riots that caused more than a Billion in damages across the country?

https://www.the-sun.com/news/1738968/dc-cops-clash-with-blm-and-antifa-protesters-outside-white-house/

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On the whole the BLM marches were orderly. Still wondering how many Proud Boys and their accomplices were involved in “incidents.”

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And Antifa was a tiny, fractional element reacting against the violence imported by right-wing groups in their attempts to delegitimize BLM protests.

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Dear Judith — looking forward to seeing “links” to your sources that validate your claim(s). Thanks!

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The reality is “group-think” has destroyed individuals desire to seek the truth. One side says all problems are created by Democrats and the other says everything is the Republican’s fault. Guess what…it’s BOTH! With regards to the Proud-Boys and ANTIFA’s involvement in the BLM protests... best intelligence (if one is seeking the truth) says they both had a presence and wreaked plenty of havoc as a result. Bottom line, people need to STOP it already with my Democratic Representatives and Senators and/or my Republican Representatives / Senators are working in my best interest. It’s all about MONEY and POWER. Need proof…? Just look at the “Congressional” Stock-Performance results compared to the BEST and BRIGHTEST individual and/or investment firm performances. Can you say “legalized-insider-trading” going on each and every single day? It’s appalling if you think about it…worst offender…? Drum roll please….Nancy Pelosi…! This is from the Huffington Post so those on the LEFT can forget about using the “I don’t trust your source” argument. It’s the flipping HUFFINGTON Post for Heaven’s sakes.

https://www.huffpost.com/entry/pelosi-congress-insider-trading_n_63374676e4b0e376dbf6c714

Here’s another report on “Insider-Trading” in Congress. Once again, these Representatives and/or Senators are not focused on making America strong and vibrant — most interested in POWER and getting RICH.

https://seekingalpha.com/article/4534829-trading-like-nancy-pelosi

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Regarding Antifa presence in racial justice protests, see the free Washington Post link I posted above. From the WaPo article: "Out of nearly 14,000 racial justice protests in 2020, antifa was identified in just 37, or 0.2 percent. That would not qualify as an infiltration of the Black Lives Matter movement."

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I think it is essential to have both internal and external regulation in order to be a functional human being in a society. Without both there would be chaos. The founding fathers certainly did not want unbridled liberty as they set down laws to govern people's behaviors. What they knew is that the balance of liberty and regulation had to be adjusted to the changing circumstances hence we have ways to adjust our laws/regulations and even our constitution. Excess liberty has its risks also. It is finding a functional balance that is necessary.

P.S. I know of no-one who has supported those that caused damage during the riots after George Floyd's death but shooting rioters would not have helped.

You can rebuild a store, you can't reverse a death and would you be willing to pull that trigger?

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“P.S. I know of no-one who has supported those that caused damage during the riots after George Floyd's death but shooting rioters would not have helped.”

Hmmmm…no-one? Here’s one for you — https://twitter.com/KamalaHarris/status/1267555018128965643

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I'm not sure that this should be taken as support for those doing damage or support for those who are too poor to afford bail but caught up in the protests. I would hope that this charity would make a distinction between the two groups when they bail someone out.

Please don't misunderstand me. I feel strongly that any violence is unacceptable and that those who can not regulate themselves should be punished appropriately. But just as the protesters are constrained with laws/regulations to prevent them from injuring or damaging others or property so should banks have reasonable regulations. Maybe I misunderstood your post because it seemed that you were against all regulations. I hope we can agree that reasonable regulations are necessary. Once we have a problem where someone has harmed others in some way we should incorporate clear regulation to prevent others from doing the same. I try to learn from my mistakes or snafus so that I don't repeat them. Shouldn't society as a whole do the same?

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YOU CAN NOT BE SERIOUS.

Robert🙏😳

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I’m glad it was a typo! I read that several times and finally concluded that banking had finally reached the higher-math plane that was beyond my comprehension or I was simply too old to figure it out!

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Lol Betsy... I was scratching my head too !

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Mar 13, 2023Liked by Heather Cox Richardson

I noted that too, so I am glad to see th correction. The upside is that I was motivated to consult the Bloomberg/Matt Levine source cited as "the best explanation," and you were right. It actually made a lot of sense to me. This is a fast-moving story with major implications for all of us to understand the importance of regulations and active oversight of the financial system.

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HSBC-UK has purchased SVB'S UK arm for One (1) English pound -- NOT a typo.

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They may have overpayed.

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HSBC's £1 will buy it SVC-UK's assets, which are considerable - but also SVC-UK's liabilities. That could prove to be a very expensive single pound sterling.

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Thank you for the confirmation; I asssume there is another SVC "arm" in India to be accounted for promptly.

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No worries--you caught it.

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Thank you for this excellent summary. I wonder if Signature was really in as bad a plight as SVB

but I guess the administration decided it would be better to stave off a general run on banks by a decisive step with regard to Signature, which will also leave Signature’s assets intact and make it more realistic to sell Signature to another bank or to have an orderly liquidation whereby most depositors can be made whole without a tax on other banks and without taxpayer support.

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Crypto needs to be declared a 20-year felony.

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I can't understand why anyone would invest in this. It is just a scam.

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Good catch.

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I know that feeling quite well!

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Libor = London interbank offered rate? Just asking. It is a term used in international economics.

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Typos and errors hardly ever slip through for you, Heather. Please do not be hard on yourself.

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Thank you for that. Questioning the rapidity of decline of my 70 year old reasoning abilities for a hot moment there!

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Not always. By any means! 😊

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An advantage of reading later is that it's the corrected version. I loved this!

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And once again the federal government, under strong leadership, has played the role that it's supposed to play — and decisively so.

Can we somehow make today's letter required reading for Republicans in Congress? Do they not have a clue that the majority of voters would hold them forever responsible for tanking the economy if they don't raise the debt ceiling?

But of course come Monday some of the radical right GOP will try to blame Biden for the financial problems that Trump unleashed.

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Yes, Republicans will blame Biden, Republican media will reinforce the message, and 74 million voters will believe those lies, including Jr’s ridiculous claim that 16 bank failures during Trump’s presidency didn’t happen. That is, the lies of radical right will succeed with the people they must convince to stick with them, and nothing will change. We still have to defeat them by getting almost everyone who is not invested in Republican lies to get to the polls and cast ballots against all Republican candidates.

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Rupert may someday realize that his big bucks depend on leadership by Democrats. Chump and Repub cronies would have us in the toilet by now. Won’t hold my breath for them to come to their senses, not even when their fortunes are at stake…

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Hear Hear👏 THANK YOU!

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From what I can tell, it's not that Republican leadership (even MTG) does not know that they are creating and promoting disinformation. They see it as their path to victory and domination by doing so. It's an old despotic trick. Liz Cheney and Kinzinger let some cats out of the bag, and look how the RNC reacted.

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But who do Americans blame for the collapse of 2007 and the resulting Great Recession? Americans have shorter memories than the life spans of fruit flies.

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Mar 13, 2023·edited Mar 13, 2023

James,

That's because we do bailouts. The Wall Street Journal, in one its normal about faces, blames "bad policy" which, they will likely associate with Democrats (even though Trump reduced the regulations).

But, honestly, giving the banks a free pass is always bipartisan. We really need to put in place regulation, leave it in place EVEN when someone drops a nice campaign contribution on us.

The Wall Street Journal article points out that guaranteeing ALL deposits is just dumb.

https://www.wsj.com/articles/the-silicon-valley-bank-bailout-chorus-yellen-treasury-fed-fdic-deposit-limit-dodd-frank-run-cc80761e?mod=hp_opin_pos_1

If we just let catastrophe unfold, like the Great Depression, people would remember, for 50 years, not to vote Republican.

Like they remembered after the Great Depression. For 50 years a Republican could not get elected Dog Catcher. Except Eisenhower. Who, was not really Republican at heart.

BUT? We bail em out.

People forget.

I really, really do think bailing out idiots with poor judgement who are also crooks is extremely poor judgement on Biden's part.

It is always a bad idea to reward criminal behavior. Period.

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Stock holders will not be bailed out. If large depositors had not had their deposits guaranteed, many ordinary workers in the tech industry would have not been payed and probably would have lost their jobs.

I’m not sure that anyone voting for a Republican now remembers or cares about who and what caused the Great Depression. They certainly don’t care about who and what caused the Great Recession just 15 years ago.

All of this amnesia is allowed to flourish because the media puts on politicians whom they know are lying and fails to confront those lies they know are coming.

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That, and apparently teaching any kind of real American history is no longer a thing.

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History is being taught, not just a history based on facts. It would better be called indoctrination.

News on television should no longer be called news. Perhaps Pablum for Sleepwalking Zombies would be a better name.

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It IS a bad idea to reward criminal behavior but WAY too many uneducated people who have been sucked into Trump Land end up affecting all the rest of us! Scary!

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🤣🤣🤣 Thank you. I don’t know the lifespan of fruit flies, but do know that the American memory span is less than a week.

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Yeppers. Just like Trump rolled back railroad safety regulations and then disaster !

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But?

Fox News was blaming Biden and the EPA. If you can somehow figure out that logic.

Good Luck.

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Tucker says whatever he wants. It doesn’t have to make sense

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He's beginning to seem pathological, and maybe even psychopathic, meaning he takes pleasure in harming others.

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Michael,

I see you are optimistic today: "Can we somehow make today's letter required reading for Republicans in Congress?"

You appear to actually think that Republicans can read!

However, I think, perhaps, your optimism is unwarranted.

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I am a Buckeye (Ohio) posting many of these comments on FB. Many of my FB friends are diehard Repubs. I'm so hoping they will see that this GOP is NOT the old GOP and that Trump and his ilk are dangerous to our country.

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That requires critical thinking skills; I think those went out of the party sometime between Nixon and Reagan. Definitely by the time Shrub was in office.

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And yesterday’s paper had a column by Marsha Blackburn about, among other things, “Freedom, free people, and free markets are essential to making Tennessee the best place to live, work, and rear your family.” She also slammed the IRS coming after YOU.

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Mar 13, 2023·edited Mar 13, 2023

Yep.

And, the idiots listening "believe".

If America is a "free market" then why are we bailing out a bunch of criminals that run banks into the ground??

LET THEM FAIL!!

Let the people who made those choices face CONSEQUENCES.

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While I sympathize with the impulse, the fact that letting them fail is a bad idea is the main point of today’s letter. While satisfying, the ripple effects through the entire economy could be catastrophic. And further - as usual, it would be the people who lose their jobs in that fallout who would suffer the most, not the wealthy who caused the problem in the first place.

Better to reinstate the parts of Dodd-Frank which were removed in 2018, and to tighten banking regulations that were loosened during the previous administration, to provide safeguards against this happening again.

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Mar 13, 2023·edited Mar 13, 2023

Nice comment, Kathy. The only way capitalism can work for everyone is when it is strongly regulated, and even then the best that can be said for it is that it is better than the known and tried alternatives. The GOP from Reagan on has done all it can to deregulate, thus regularly bringing the world to the edge of financial disaster. They must not fear the popular anger that would leave many of them hanging from lampposts if the worst ever came to pass.

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Hear, hear David! Unfettered capitalism is not the answer - not to banking, not to rail safety, not to health care, not to anything!

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You know, it is not the deregulation that is so bad, per se, but the fools that (literally) take it to the bank. I am so weary of the imbalance of the world's riches. Fewer and fewer have it all, and millions and millions are suffering. Yet all that money pays for grift and "legislation" to have their way.

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Protect the workers with unemployment insurance and placement services, take charge of a business if the service is essential (a hospital for example) triage and don't retain the management team (as was done in the Subprime crisis) that brought the business down. Enforce the goddam anti-trust laws ans don't put too many eggs in one basket. Don't allow corporations to be in a position to hold the public welfare hostage. Try to minimize the damage with always the pubic good in mind. Be fair to stockholders but also honor the warning that their investment may lose value.

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There are so many important words thrown about with little discussion of what they mean. "Free" and "freedom" is certainly one of them. "Freedom" as a social concept is meaningless Orwellianese if not tied to an honest effort to provide justice for all. The "freedom" of a dictator or apartheid party to do as they please at others expense is simply tyranny; and looked in the eye, that's what modern Republicans are selling. Modern Republicans reject accountability for themselves and gleefully impose their will on others. They rail against and sabotage egalitarian, universal rights that justice convey to all. You cannot separate freedom TO do as you please form freedom FROM oppression of others. The "sweet spot" is where the two overlap.

That is true of a free society, and also, since commerce is a subset of a society's functions, of a "free market". A real free market is one of reasonably equal opportunities. It limits the potentially "runaway" condition of using financial power to take power, just as the Constitution attempts to provide division of power and checks and balances to stabilize political power. That's Glass-Steagal, that's anti-trust. Allowing mega-corps to hoover in and control everything in sight just recreates the conditions of feudalism, what the Constitution was meant to replace.

"Accustomed to trample on the rights of those around you, you have lost the genius of your own independence, and become the fit subjects of the first cunning tyrant who rises." - Lincoln

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Ah, a fellow Tennesseean. Ms. Blackburn gets my vote for the 3rd most IQ-short and ill-qualified senator of the 100 we have in this country. Beaten out only by Tuberville (AL) and R. Johnson - (WI). I think Hagerty might be in the top 10 as well (or should I say bottom ten). We are so well represented. Blackburn was also my US representative for a time, and she got a ton of mail from me - more than I have written all congresspersons combined.

Oh, and I have the honor of also being represented today by the honorable (?) David Kustoff (Trump bootlicker, insurrection supporter, election denier, and recipient also of lots of civil-worded hate mail from me).

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Yeah, she’s an idiot. Hagerty campaign billboards said “trump likes me.” Hardly a ringing endorsement to me. My rep is “Carhart” Burchett. And now we have our own George Santos in Andy Ogles.

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IMHO, another example of a poor candidate is my NH governor, Chris Sununu, (yes, son of John Sununu, Chief of Staff for H.W. Bush). He's been in office for 4 terms; during the last one, he gladly said "I'm a Trump man through and through." (or words to that effect.) He's been very chummy with an ultra libertarian group called the Free State Project (How chummy? The Republican leader of the House is one of those.) Now he's decided to run for President...

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where is JD Vance - R OH in your list?

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Probably lots of opinions on this subject! I would say that to beat out Tim Ryan, either he or his campaign staff did some things right. Not all wingers are stupid.... perhaps the smarter ones are also the more evil.

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Mar 13, 2023·edited Mar 13, 2023

Yes, I agree....and of course the amount of $$ from the national GOP made a huge difference. Unfortunately the DNC did not consider the Tim Ryan Campaign "worthy" of investing national funds in...

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I feel your pain being represented by Sen Johnson and Rep Van Orden.

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Absurd fear-mongering at its finest. That's what Republicans do best. Blackburn is a dangerous embarrassment.

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Mar 13, 2023·edited Mar 13, 2023

She also signed on to the amendment to the constitution bill to limit the Supreme Court to the nine along with nine other Republican senators.

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The Republicans need to finish grade school. What a cluster.

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The weakening of Dodd-Frank in 2018 isn't all on the Republicans. While Elizabeth Warren and Sherrod Brown did raise alarms, there was a bipartisan push in the Senate that included Joe Manchin (no surprise) and a number of Democratic stalwarts like my own senator, Mark Warner and then Senator, now MSNBC commentator, Claire McCaskill. Without Democratic support, the "reforms" would have died. The problem is money in politics.

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Fault with this country's bank and finance policies rests with Clinton and Obama, too. Is Biden following in their footsteps with the way he has chosen to address recent bank failures?

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Of course money is the main way we get things done, so squeezing the blatantly undemocratic influence of individual hoards of money on elections and policy is the one ring to rule them all. What stops curbing antibiotic abuse, or climate abuse, and a host of other problems besides M O N E Y? Would Manchin be such an ass if there wasn't so much money in it? Too many politicians (Warren and Brown exceptions) seem in it for the $$$ and status. Like highway accidents, we likely can't eliminate all corruption,, but we can enforce "speed limits".

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Each paragraph is a succinct and thoughtful summary. Sadly, there are no RepulbiQans in congress that will agree.

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Thank goodness some actually will agree. Will they be able to say anything ?

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Michael, I regret not responding earlier. Has Biden chosen the right path to address our bank issues? There is reason to question his decision.

‘Financial deregulation led to the crash in 2008 and it could again in 2023. It’s time to make banking boring again’

'You didn’t have to be a rocket scientist to know that when the Fed raised interest rates as much and as fast as it did, the financial cushions behind some banks that had invested in Treasury bonds would shrink. Why didn’t regulators move in?'

Those are quotes from Robert Reich, former US secretary of labor, professor of public policy at the University of California, Berkeley, and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now.

I recommend his Opinion, published in the Guardian today: 'There’s a deeper story to Silicon Valley Bank’s failure. What can we learn from it?' See link below.

https://www.theguardian.com/commentisfree/2023/mar/13/svb-collapse-2008-financial-crisis

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Today, I read Reich's Substack, which also covers the same ground as the piece you linked to (helpful, thanks). https://open.substack.com/pub/robertreich/p/the-silicon-valley-bank-debacle?r=57fmo&utm_campaign=post&utm_medium=email

I'm hardly an expert on these financial issues, but it seems to me that Biden took swift and smart action to protect thousands of companies and individuals — many of them of relatively modest means. Otherwise, the fallout likely would have been disastrous.

But it's a short term move, and Biden acknowledged the systemic problems that led to SVB's demise and called for corrective action. Clearly, history keeps repeating itself whenever Republicans and (as Bill Espinosa points out below) some Democrats weaken regulations. Of course, Biden's call for Congress to restore tougher regulations will go nowhere with Republicans controlling the House.

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Michael, Biden and Buttigieg did what in terms of effecting the practices of the major railroad carriers while they were in negotiations with the unions for more than a year? Then close to the Holidays, oh, dear; it was no time to address the railroads' labor practices and sick time for the workers. Now our banking issues; slippin and slidin and avoiding that's my reading of Biden on these aspects of capitalism in the US. I think we came to different conclusions from reading of Reich's pieces.

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Perhaps. I think it's too early to judge Biden on the banking problems. For maybe he should have addressed the system issue when he enjoyed a more favorable Congress, though Manchin was and still is an unreliable Democratic vote. But I couldn't agree more about the handling of the major railroad carriers and unions.

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Yes, Michael❗️ ❗️ ❗️

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Mar 13, 2023·edited Mar 13, 2023

Glory, “shame-on-you” lectures the way to go…

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What would your mother say!

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Absolutely! 🤣😂😅‼️ Especially in public! And especially since he started the whole mess in public! Karma. 😉

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Truth has no home in the Republican Party. Get ready for “Willie Horton” like ads with no basis in fact.

Willie Horton who murdered a man and then raped his girlfriend was out on a furlough program. The ad blamed Mike Dukakis, the Democratic Nominee for President and sunk his campaign. The furlough program was created during the administration of Dukakis’ predecessor as Governor of Massachusetts, Edward King, a Republican.

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A bit of history that I am delighted to learn. Didn’t blame the problem or Dukakis, having never learned the full story of the crimes, but find it totally unsurprising that a Democrat is blamed by the Republicans for the actions of Republicans. There should be a popular banner with the national deficits caused by Republicans, cured by Democrats.

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They are already running an ad against Biden on the local TV stations and then they tie it to the newly elected D from Washington's third district.

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Mar 13, 2023·edited Mar 13, 2023

This morning I posted the following on Robert Hubbell's open comments:

This week we (once again) learned that "big" government does work.

A bit of history:

Between the stock market crash of 1929 and 1933, almost 9,000 banks closed, insolvent, unable to fund the return of their depositors cash. In other words, you couldn't withdraw money from your bank. The banks reserves and investments were insufficient to cover their customers’ deposits. You’ve probably probably seen the example of this in Frank Capra's famous movie "It's a Wonderful Life" where Jimmy Stewart, playing George Bailey, the owner of a Savings & Loan company, finds himself in the unfortunate position where his banking institution unable to fund his customers (and friends) withdrawals.

By March 3, 1933, many banking institutions, particularly in the West, had closed their doors, unable to fund their depositors' withdrawals.

On March 12, 1933, 90 years ago today, and only 8 days after being inaugurated as the 32nd president of the United States, Franklin Delano Roosevelt spoke to the Nation in the first of many his “Fire Side" chats.

In that speech only days after his inauguration, FDR sought to calm the Nation by explaining that the newly elected government would put in place new regulations that would protect the public from, what he called, "incompetent or dishonest" (a/k/a greedy) bankers who used depositors' money "in speculation and unwise loans.” I highly recommend listening to FDR’s address here:

https://www.fdic.gov/about/history/fdr_fireside_chat_banking_situation_03-12-33.mp3

On June 16, 1933 the "Glass-Steagall" Banking Act of 1933, signed by FDR .

The Act regulated banking and formed the Federal Deposit Insurance Company (FDIC). The FDIC was a new government agency funded entirely by the banking system to monitor the banking system and insure deposits in member banks. Here is more information about the FDIC: https://www.fdic.gov/

On this past Friday, March 10, 2023, Silicon Valley Bank (SVB) was deemed insolvent taken over by the Federal Deposit Insurance Company. The bank, which had funded huge loans to high tech start-up companies and venture capitalists, had invested it excess funds win bonds which, when interest rates climbed, lost value. In addition, when interest rates rose, funding for start-up companies dried-up so these companies started to withdraw their deposits in order to cover their expenses. One thing led to the next and the bank had to sell the now steeply discounted bonds at a $2B loss. Unable to meet its obligations to its depositor, the bank was closed by the State and taken over by the FDIC. Deposits up to $250,000 are insured so those funds will either be transferred to the new bank formed by the FDIC, The Bank of Santa Clara, or returned to the SVB’s customers.

Anyway, my point is that our federal government is there to protect us and assure stability. That government is under threat by a Republican Party that would end such regulation and government oversight in a heartbeat. It is up to us to remind Americans that our government is there to serve and protect us.

Later in the day, after posting that comment, I added to my post the following: -

The government announced it just closed Signature Bank, a bank that generally does business with law firms and hold large sums in escrow for banking clients. The federal government is using a "special assessment on banks" to protect "any losses to the Deposit Insurance Fund to support uninsured depositors."

Again, this is significant news. But for the quick actions of the Biden Administration, we could have be facing a banking calamity that would have been a direct result of Trump's and the Republican Congress' relaxation of banking oversight.

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Mar 13, 2023·edited Mar 13, 2023

Big or small, as much as it takes. good government is good and bad government is bad. Churchill quipped that democracy was the worst form of government except for the others. It is democracy (if you track what they do) that modern Republicans regard as the enemy, not government per se.

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Thank you for the links. Also the Winston Churchill quip

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And in 1995, that idiot Clinton signed the law that weakened Glass-Steagall and led to all the financial shenanigans of 2008, and the kind of bid'nezz that went on this weekend.

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Mar 13, 2023·edited Mar 13, 2023

TC, I was working with an environmental group in 1995 that opposed then-Senator Rod Grams (R-MN) proposed legislation to allow more motor use in the Boundary Waters Wilderness. We worked with then-Representative Bruce Vento, (D-MN) to propose counter legislation that protected against more motors.

Vento was a member of the banking committee at the time, and angling to be the next chair. He adamantly opposed the loosening of regulations that were proposed and predicted “the Great Recession.” We talked at great length one weekend about the risks Clinton was taking - mostly in the context of how such regulations protected the environment AND the economy. Bruce went on an epic rant with the only Republican in the room who questioned how such regulations were putting small businesses at risk of failure. Bruce, who had been a biology teacher before being elected, told this guy, the retired CEO of a tech company in MN, that small business failure was nothing compared to ecosystem failure-and proceeded to lecture the man on the bank failures that led to the Depression; that then led to strong regulations, that led to economic recovery. And how a strong economy helps protect the environment through regulations, along with the fact that there are limits to “growth” in a closed biological system. Wish I’d recorded him. I’d put it on endless repeat on social media.

Not that today’s Republicans would listen but at least it would overcome the need to actually read anything.

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I love stories like this. Thank you

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.. And of course, only few recall such things TC, and broadcast media fails us all miserably in that they don't, won't, serve the greater good by using the platforms to broaden public knowledge of little such historic recall related to today and yesterdays context - and most critically when their agency is so desperately urgent.

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But they are supposed to report “all” the news for their corporate sponsors, who interrupt with commercials just when the subject begins to be explored. Back to Cronkite days, say I. A tale to keep Cronkite in our heads: my daughter and another four-year old were having a discussion about their future careers. I don’t remember what my daughter thought, but her friend announced: “I am going to grow up to be Walter Cronkite.”

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Mar 13, 2023·edited Mar 13, 2023

Yes, Clinton did repeal the Glass-Steagall act.

I do note that both houses, when that legislation was sent to him, were Republican if I recall correctly.

But, Yes, Clinton was an idiot in every possible way a human can be an idiot.

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Isn’t it amazing what charm can concoct?

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That's a well-thought elucidation by Politifact on the subject that you're not getting enough praise for finding. One of the biggest takeaways is the implied indictment of every Republican president since Reagan in the deregulation push that led to much of the crisis we've seen in the 2000's.

It also points out how "right" Bill Clinton was politically, which partly explains his fairly broad appeal at the time. Ironically, this "Republican in a Democrat's skin" element of Bill Clinton may have led to his impeachment for having sex at the office -- Repubs couldn't attack him on policy because he'd adopted so many of theirs, so they had to attack him personally, instead

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Thanks for this link. How easily people succumb to CDS (Clinton Derangement Syndrome). Clinton was the last President who balanced the budget.

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Clinton was the least Democrat to ever hold the office. This Democrat is glad to say I saw his bullshit the first round and didn't vote for him twice and the only reason I voted for his wife was Trump.

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…and what about Obama?

'Obama endorsed the Wall Street bailout and appointed a team of Clinton-era economic advisers (led by Geithner, who became Obama’s treasury secretary, and Lawrence Summers, who became director of the national economic council). These were the same people who, working under Rubin in the 1990s, had prepared the way for the financial crisis by deregulating Wall Street. Geithner, as chair of the New York Fed, had been responsible for overseeing Wall Street in the years leading up to the crisis.'

____Robert Reich

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Mar 14, 2023·edited Mar 14, 2023

You go, Fern! I had forgotten that, but yes, what a troop of "red"- in- the- face those guys were.

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There is more to understand here. Good share. Thank you for the link.

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Thanks for the link, Jerry!

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Any time someone disses or praises any president without any shades of gray, I immediately assume it ain't so. Except Trump. Any successes his administration had was in spite of him being in office.

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TC, I remember Bill Clinton as a talented and ambitious politician, as well as a truly gifted straight-faced liar. Signing the law that weakened Glass-Steagall was a huge mistake that continues to cause enormous problems. But, I voted for him twice, can't deny it.

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As a Vietnam veteran of both the war and the war against the war, when I read about his chicanery with the draft, I knew I would never vote for a scheming piece of shit like that.

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TC, I believe that Biden has gone the way of Clinton and Obama in terms of our bank issues. I wondered whether you had read or would read Reich's 'There’s a deeper story to Silicon Valley Bank’s failure. What can we learn from it?' See link below.

https://www.theguardian.com/commentisfree/2023/mar/13/svb-collapse-2008-financial-crisis

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"Third way" democrat my azz !

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Clinton was not an idiot. Finance was not his “thing.” He was, in fact, a Rhodes Scholar and among our most intelligent presidents. The propaganda of the Republican Party, around which many of today’s comments center, deprived US of much that two bright and patriotic could have done for US. If you can find it, there is a television interview from the early 1990’s, Clinton and a well-respected news anchor. I stumbled onto it on a Sunday afternoon and was caught by the way then President Clinton was replying to a variety of questions.

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How many Rhodes Scholars have you known? From experience of knowing several, I can tell you that the likelihood of a Rhodes Scholar being actually intelligent is down there with the likelihood of an Ivy Leaguer being a worthwhile member of society.

Clinton was and still is a scheming piece of lower-class Southern "climbing" - as revealed in the story about his bullshit with the draft. As a Vietnam veteran of both the war and the war against the war, when I read that I knew he was someone you never turned your back on and always counted the silverware before you let him leave. And everything he did over those 8 years proved me right.

The only reason I voted for his "birds of a feather flock together" wife was Trump.

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Mar 13, 2023·edited Mar 13, 2023

"Anyway, my point is that our federal government is there to protect us and assure stability. That government is under threat by a Republican Party that would end such regulation and government oversight in a heartbeat. It is up to us to remind Americans that our government is there to serve and protect us."

Andrew,

In this case, I think we should let the White Republican Men fail.

Why not? They want black folks to fail. They want Hispanics to fail. They want anyone not like them to fail.

I say: Let those that sow hate, greed, selfishness and arrogance? FAIL.

Let those who are crooks and make mistakes face the CONSEQUENCES of their choices.

Like everyone else has to.

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Unfortunately, we too would pay the consequences. If banks fail, the whole economy fails. It would be everything, everywhere, all at once.

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I wish there was a way of having them address the consequences of their actions without dragging the rest of us along.

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Exactly! That's always the problem. They are allowed to enmesh their risky behavior in stuff that would affect everyone else.

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literally any bank can become insolvent if there is a run on deposits. Banks can't survive unless they can make money on your deposited cash. Your deposits are funding mortgages, other loans and the purchase of securities in the expectation that you and countless other depositors won't all want their funds at the same time.

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The simple George Bailey speech. It was perfect

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Silicon Valley Bank’s own chief executive, Greg Becker, sold $3.6 million of Silicon Valley Bank stock under a trading plan less than two weeks before the firm disclosed extensive losses that led to its failure. There’s nothing illegal about corporate trading plans like the one Becker used, since the regulations were gutted by Clinton-era economic advisors (led by Geithner, who became Obama’s Treasury secretary, and Lawrence Summers, who became director of the National Economic Council). These were the same people who, working under Rubin in the 1990s, had prepared the way for the financial crisis by deregulating Wall Street.

https://robertreich.substack.com/p/the-silicon-valley-bank-debacle?utm_source=post-email-title&publication_id=365422&post_id=108043756&isFreemail=false&utm_medium=email

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Mar 13, 2023·edited Mar 13, 2023

Thanks for the reference to Robert Reich's sub stack. He knows a helluva a lot more about this than me! Now reading Reich's sub stack, I completely forgot about the history that led to the Great Recession of 2008.

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Thank you, Andrew. You answered my first question.

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Interesting how losing money cuts through anti regulatory denial. Rules are the structural components of civilization

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Depending on who is losing it.

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It's reassuring to see that Yellen, Powell, and Gruenberg stepped in so quickly to protect the uninsured depositors and keep these two banks afloat and the system intact. I'm trying to imagine the criticism that will ensue from those who understand little to nothing about how a potential catastrophe was just avoided. I' would like to believe that they'll be able to see how not paying our debts would be even more catastrophic, but I'm skeptical that any of the Freedom Caucus folks will care. They seem hellbent on being as destructive as possible to our economy, the global economy, and democracy in general. May my forebodings prove unwarranted.

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Betsy Smith, I am afraid that it's not they won't "be able to see how not paying our debts would be even more catastrophic." Rather, it's that they honestly believe that government failure is better. They do not want our government to succeed. I know that's hard for reasonable people to wrap their heads around, but it is their fundamental belief. It also appears that they believe that somehow they would be immune from the economic fallout of an economic system collapse. Clearly, they do not comprehend the Great Depression, nor the Great Recession, and the toll it took on all segments of our society.

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They will shout from the rooftops that it's all the fault of Democrats.

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Yep. I would love for HCR to revisit and share again her analysis of the intentionality of capitalists to cause the stock market crash in 1929 in order to hamstring the incoming President. They had no concept of the havoc they would wreak on themselves.

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Huh? I wouldn't mind seeing that revisitation, too, since it's news to me. Where did you see that? I mean, the idea doesn't surprise me much -- I've notice for years that wealth is not well correlated with intelligence, much less wisdom. I've just not heard that there's evidence that the capitalists of the time figuratively shot themselves in the face to pull a political dirty trick.

Such a thing does renew the vague impression I've had over the years that a lot of economic news seems oddly synchonized with political events, as if whole stock market swings take place just in time to support or detract from somebody's political position. Without evidence, I've always attributed such impressions to innate pattern seeking. You say there's evidence for some of it?

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In October 1929 Herbert Hoover was about six months into his Republican presidency and there were three more years before the Democrat FDR would be coming in. Reading in Charles Rappleye's Herbert Hoover in the White House, in 1932 Hoover was up for reelection and wanted to try to solve the banking problem by closing all banks and have a restart. The Democrats campaign and the banking world would not come-on board with this -- until FDR was inaugurated and right away set up a bank holiday and got the ball rolling again.

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We need to remember focus of many MAGA loudmouths is on auditioning for high-paying gigs on Fox and on the speakers' circuit. Would anyone else hire Boebert, Gaetz, Greene, or any of these yahoos based on their skills, knowledge, or integrity? They'll need to make a living after Congress, unqualified as they are, poor things.

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Hire them to sweep the floors of the banks only.

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No, no, don't let them near any banks...

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As a newly retired teacher of high school history (World 9th-10th, American 11th, and Economics 12th) I often try to picture what kind of students these ‘Freedom Caucusers’ were back in their student days. We’re they present, diligent, prepared, curious? We’re they open, ask good questions, show leadership, get along with their peers? Did they participate in discussions from an informed and documented place? The teacher in me (and all the teachers who follow HCR and her readers) would love to hear from their teachers… Did they show inklings of their current national standing back then?

PS: I’d love New York Military Academy to release trump’s high school records!

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Or, they could live off of their handsome post-Congressional pensions.

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A senator's pension isn't as handsome as you're imagining. Boebert, Greene and Gaetz are currently eligible for an annual pension of $16,000 when they turn 62. They will have to be reelected and serve 4 full terms (24 years) before they are even close to a livable pension. The average federal pension is around $40,000. Do the math yourself

https://www.opm.gov/retirement-center/fers-information/computation/

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My understanding is that they have to serve 5 years to be eligible for anything. For a senator, that's one term; for a representative, it's 3 terms. Bobo and Margie 3 Names are in their second term, not sure about Gaetz (can't print my name for him)

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I am one of those who understands little about banking. However, you won't hear me criticizing. If people would just be quiet about that which they don't know and listen to those who do, we'd all be less ignorant. Republicans are trying to destroy our freedoms, along with everything else good.

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Betsy,

In this case, I think we should let the White Republican Men fail.

Why not? They want black folks to fail. They want Hispanics to fail. They want anyone not like them to fail.

I say: Let those that sow hate, greed, selfishness and arrogance? FAIL.

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So am I understanding you correctly, Mike S.? You think that responding to hate, greed, and selfishness with more of the same will make anything better? Forgive me, but you make me think of Trump, promising punishment and retribution. I'd rather be on the side of those promising redemption. Remember, white Republican men failed in 1929, and __everyone__ suffered during the Depression, an outcome I'm in favor of preventing. I haven't seen Stranger at the Gate, but from what I've heard, that sounds to me like a better path to take. Let me know what you think of it.

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Betsy, I thought the same thing when reading Mike’s comment. We’re better than that.

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Betsy. Good, mature thinking. But, a consequence of mitigating the consequences of lack of regulation is Americans vote Republican.

If we just let the banks fail, point out that occurred because of Republican Policy, and let people suffer?

Then maybe voters will be more careful when voting.

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I'd like to think that GOP voters would understand whose fault it was if we'd let the banks fail, but I'm dubious. Minds are made up about who the victims are, no matter what the issue may be, and whom to blame, and I'm guessing that they won't see the light and realize that it's their party that caused the debacle.

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There is no guarantee that a crisis has been avoided. But let us hope so.

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PBS' BBC World News said loud and clear the cause of the bank(s) failure is interest rate increases. Here we go...

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There isn't ONE cause. That is one of multiple factors. But people like simplicity, and they will believe what they want to believe.

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Another lucid, compact summary. The best I have seen.

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“…panic and fear over the collapse of just one major bank should make it clear that the Republicans’ threat to default on the U.S. debt, thus pulling the rug out from under the entire U.S. economy unless they get their way, is simply unthinkable.”

Since thinking is out of vogue among Republicans at the moment, doing the unthinkable is not a problem. In fact, it’s really quite easy; many do it every day.

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Yeah, somehow you know these yokels will be drooling over default even more now. No need for rational thought, it's pavlovian. Or Putie's bidding.

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And it’s what Bin Laden hoped would take down America…

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Good one Ralph!

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I learned very long time ago that when you invest, you should, especially as a young person, put maybe 50% in bonds and the rest in stock. You are going to have some tumultuous years but things seem somewhat balanced. The younger you might be, the more volatility, you can take. Not so, for older folks like me now. We must have a steady income to keep up with inflation and for our everyday needs. It is always a balancing act. The bank of Silicon Valley got way ahead of itself and you can see the greediness. The government does not want legitimate companies to fail so it is willing to step in but banks like these should have stiff penalties to pay. The taxpayer should not be dragged into any of this and I believe Yellen and Biden will reiterate that government must impose regulations. They should just do it by executive order, if they can and not be bothered by the obnoxious selfish cries of the opposition. Thank you, Heather...you stirred me up!

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SVB made a bad bet on buying longer maturity government bonds, normally a safe bet. Those bond prices dropped rapidly because the Fed raised rates much more rapidly than it ever has raised rates before. SVB could not roll over its bonds into newly issued bonds of the same maturity profile at higher rates without taking on big realized losses on the sales. Venture capitalists started calling their start-ups to pull their money and the bank run was on.

There are two big culprits, weakened bank regulation and the Fed jacking rates too fast. Every institution that invested in long dated government bonds is in the same situation. You are Ok if you can hold to maturity (say 20 years) and get the face value of the bond. Not so great at all if you need to sell at a loss now to pay out deposits.

TLT the 20+ year government bond fund ETF dropped in price from 172.25 in October 2020 to 91.85 at the October 2022 low, a loss of -47%. The yearly rate of change in TLT at its fastest drop was -22.2%, fastest before that was in 2013 at -12.5%.

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One can't help but wonder whether the Fed's Rip Van Winkle snooze with interest rates at zero for years isn't a culprit in this. Had interest rates begun rising incrementally quite some time ago the shock of the virtually instant rises now wouldn't have set off this chain reaction which the smart guys should have foreseen. Older folks with modest retirement nest eggs have taken it on the chin for years trying to find reasonable fixed income returns that would support a reasonable retirement lifestyle. Instead, the Fed robbed them of this, all to the benefit of corporate interests who've found cheap money the drug of choice. Now the picnic's coming to an end, but the Fed and Treasury seemed to have overlooked to likely fall out. In the end, we find that humans are basically terrible at managing the complexities of very large systems we create. We saw that in 2008. We will doubtless see more of this in 2022-23. We love complex systems. Trouble is we can't seem to manage them when they become out of kilter.

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We can be overwhelmed by complexities and the expectable unexpected, but I suspect laziness and dishonesty have more to do with the quality of our systems than our capacities. If "liberty and justice for all (did I mention "for all"?) was the base criterion of our socially significant systems, the would surely be less FUBAR. Deregulating those who handle most of society's money makes as much sense as deregulating streets and freeways. Obama's AG Eric Holder said of the Subprime affair:

"I am concerned that the size of some of these institutions becomes so large that ... if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy."

So the government didn't prosecute and made "so large that" even larger. Yet what is the extended impact of that approach upon governance of, by and for the people? An ounce of prevention is worth a pound (or many dollars worth) of cure.

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I think you are kind to ascribe even some errors as arising from "being overwhelmed," when (I agree) far more arise from laziness and disregard/dishonesty, playing the odds that they will not be caught, etc. Add lack of knowledge or forethought, or even the importance of asking "what if [this fails]?" and systems fail, all from the root cause of thinking the rules could be disregarded.

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Tim, I had the same thought. One of the causes, certainly not the only one. And you are spot on that our ability to imagine complex systems clashes with our inability to abide by the rules such systems entail. Which leads us back to people who think they are above regulation, rules, and laws.

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Or at least see their interests served by vigorously promoting the notion that they are.

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"One can't help but wonder whether the Fed's Rip Van Winkle snooze with interest rates at zero for years isn't a culprit in this. "

BINGO.

Tim, yes, you are correct. The Fed's irresponsible lowering of rates to zero was just dumb.

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There was some logic to lowering rates as a response to the financial crisis. But holding them at zero for so long was irresponsible and simply stupid. Savers were punished. Accordingly, too many inexperienced people ended up in equities they didn't understand. Most people don't have the risk tolerance to play that game properly. And many don't have the risk capacity. Watch the pain unfolding now...

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Bill,

Yes, I agree on all your points 100%!

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Even less intelligent was the fact that not a single mortgage banker went to jail for the economic crimes that crashed the economy in 2008.

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Even the little people benefited from low interest rates after a fashion; consumer credit, home mortgages and other sources of borrowing have been incredibly cheap for a long time. You can imagine the weight of all that paper now on lending institutions. In the case of variable mortgages, the interest costs of money can be shifted to the consumer at a certain time and rate, but only to the extent that the public can absorb it without individual borrowers going into default. The system is balanced, however precariously, on everyone's good will and ability to pay their debts, a little at a time, month by month.

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Of course it did. We had a dozen years of virtually free money. Well, some people did. I'd like to know when these smart guys went long bonds and against the Fed. Pretty risky thesis.

I strongly doubt we've seen the last of this story.

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Thanks for this very clear and helpful explanation, Heather. I don't understand why there was such a huge amount of money in uninsured accounts. Couldn't customers/clients have deposited that surplus in insured accounts in other banks?

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There are rumors some VCs required their unicorns deposit funds received in SVB. Also, the SVB CEO was a director of the San Francisco Fed (but removed on Friday).

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That's charming. These bubbles of entitlement and mutual back-scratching are getting really old.

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Have gotten really old, and really incestuous.

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CNN had an interview on with a start-up healthcare CEO who said outright that one of her investors called her to withdraw her deposits from Silicon Valley Bank on Thursday (day before take-over)and she and her partner did so in amounts under the limit that would "raise suspiscion." Not insider trading but definitely using insider information so there surely must have been insider trading. Where there is smoke....

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that must have been embarrassing for all involved...

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If you have a billion dollars in a single bank, you would have to spread it around to about 4,000 other banks to get it all insured. Even just one million dollars would require 3 other banks. But $1 million is like nothing to many folks in Silicon Valley, especially where company funds are involved. (But correct me if I am wrong, please.)

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Mar 13, 2023·edited Mar 13, 2023

Many of these depositors need to have significant cash available to pay expenses such as payroll, rent etc. So it is not unusual for companies to keep more than $250k in a bank account. But they know (or at least ought to) that any deposits above $250k are not insured. This was one of the lessons my father, who grew up during the Depression, taught me. I've applied his lesson ever since in my business. We keep our reserves in what are called Insured Cash Sweep accounts where funds are automatically spread among FDIC insured banks in amounts not to exceed the FDIC limit of $250k. These funds are critical to our business so it's important they always be insured.

In the past we also purchased government issued short term Treasury bills and long term T-bonds. HOWEVER, right now, it is questionable whether Treasuries are even secure. If the Seditious Republican Caucus forces a default on our Nation's debt, the full faith and credit of the US government will be severely impacted causing interest rates to rise and existing outstanding treasury values to fall which will reduce the value of bank assets (since they are the largest holder of Treasuries) thereby potentially producing even more bank insolvencies. Following is a good website to learn more:

https://budgeting.thenest.com/happens-treasury-bills-government-defaults-23246.html

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Thanks for your comment. I appreciate it as have no experience in this area.

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Hence the last sentence written by HCR...

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Perhaps you can confirm or deny something that I heard years ago about the much-debated "National Debt." Isn't the National Debt denominated in U.S. Treasury Bonds. And those who advocate for eliminating the National Debt, aren't they unwittingly calling for the elimination of the treasury bond market?

If this is true, then doesn't that imply that having a national debt, guanteed by the Constitution, is actually a good thing, creating a system of government bonds that act as an economic engine/buffer for the entire world? (Of course, I think it's quite possible that we currently have too much of a "good thing" with our national debt, but more because it may dilute the value of T-bills, not because a national debt is intrinsically a bad thing. On the other hand, I've never taken any economic classes, so I don't know.)

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Perhaps I'm naive, but wouldn't someone or a company with $1B or $1M have their money in other places besides banks, especially if it's not all insured? Money market funds, bonds, Treasury notes, etc., etc. I imagine that other banks that have to make up the "lost funds" are not happy campers either. Way too many questions keep popping up in my head, but it does seem to come down to the Masters of the Universe yet again wreaking havoc and dumping their money problems on the rest of us.

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Coming up soon:

Julius Caesar, dictator of Rome, is stabbed to death in the Roman Senate house by 60 conspirators led by Marcus Junius Brutus and Gaius Cassius Longinus on March 15. The day later became infamous as the Ides of March.

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My reading about FDIC led me to believe that if you have, say, 2 accounts in one bank but the account owners are not identical (e.g., parents have one account and parents and one child have another), each account is fully insured for $250,000. Is that correct?

I understand that large corporations whose assets are in the billions might have trouble coming up with enough account holders to use this approach, but I’m just wondering if it is true for smaller depositors. Can anyone out there help me, please?

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Yes, my understanding is provided each account has separate tax ID entity, the accounts are insured up to $250k. So, you could have a personal account, a trust account and an LLC account and each will be secured.

Another small historical note: Back in 1933, the FDIC insurance limit was $2,500!

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Not my understanding but then again it’s been awhile.

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From my old days in banking, you’re correct. But that was in the 80’s when I dealt with FSLIC. I don’t think it has changed but I’m not savvy on banking regs post 2008.

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It seems to me that a bank getting a deposit of $1 million could guarantee FDIC insured by partnering with 3 other banks.

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Robert Reich had a good explanation of the financial crisis this morning. Trump was only the latest perpetrator of rollbacks: the Bush, Clinton, and Obama administrations also eased restrictions. The profits in the financial sector of the economy would have been unthinkable during the New Deal. I am for protecting ordinary wage earners and retirees. Let’s make banking boring again!

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Thanks, Heather, for casting the SVB failure in a perspective that makes sense. I'm curious that Congress didn't have to weigh in here - Matt Gaetz preemptively stated that he would never vote to bail out depositors, so he must have thought he'd have a say.

I guess this is the right thing to do, though it galls me a bit to think we're creating a precedent here that may encourage bankers to be irresponsible (is that an internal contradiction?) You do make a very strong point about the effect that default on the national debt would make SVB's going under look like a pebble dropped in a puddle.

Thank you for your clarity. You always shed light.

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Mar 13, 2023·edited Mar 13, 2023

I presume deposits (up to the limit) would automatically be insured by the FDIC. Non-insured funds, not. Seems like none of Gaetz's business.

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Anti-regulation Silicon Valley libertarians met the same fate as their small town counterparts in Grafton NH who took over the village, shut down services and were eventually overrun by bears feasting on the uncollected garbage.

These are just two examples why the world has never seen a truly libertarian country rise to prominence, much less a village. In the absence of government, greed is not an acceptable substitute to maintain anything.

https://newrepublic.com/article/159662/libertarian-walks-into-bear-book-review-free-town-project

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Love your comment today!

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Mar 13, 2023·edited Mar 13, 2023

What’s happened with the Silicon Valley Bank (SVB) truly sucks and highlights the fragility of the American banking system.

SVB was an ‘elite’ bank that serviced high-tech companies and executives. It had a massive proportion of non-FDIC insured deposits ($165 billion out of $173 billion). SVB management chose to offset these deposits with short-term T bills and longer-term Treasury bonds.

As inflation soared, the value of these debt instruments dropped sharply. When large depositors became nervous and started cashing out, SVB could not generate the cash to pay out. That, in late February, the SVB CEO personally sold $3,500,000 in stock and SVB’s chief finance officer sold $560,000 in stock, suggested rats jumping off a sinking ship.

Personally, I consider it unconscionable that Silicon Valley fat cats, who are supposed to be sophisticated in financial matters, should have their uninsured deposits compensated. In capitalism, there is the risk of success or failure. This does not include an uninsured homeowner, while his house is burning, calling his insurance agent for a home insurance policy.

HOWEVER, the poor fiscal management at SVB puts in peril much of America’s banking system.

Especially with regional banks (those with $50-250 billion in deposits), a similar run on these banks could cause a liquidity crisis similar to what occurred in 2008. It could become a cascade of falling dominos.

Once I was Executive Vice President at Moody’s Investors Service, responsible for the credit rating of corporate and sovereign debt globally. Personally, I refused to rate the long-term debt of many institutions, because the risk seemed excessive. Only a week ago the major rating agencies had an A (good-very good) rating on SVB debt.

After 2008 the Fed/Treasury established much tighter risk management criteria for banks. These have been maintained for the largest banks. In the Trump administration, these were significantly weakened for ‘regional banks.’

I am not certain that there is any sure fire way to avoid frightening runs on banks. When this occurred during the Hoover/FDR presidential transition, FDR ordered all banks closed for five days. Such would be a disaster today.

My instinct is that Treasury Secretary Yellen and Federal Reserve Chairman Powell are endeavoring to pursue the ‘least worst alternative’ to keep our creaky financial system functioning. They state that uninsured depositors ($165 billion at SVB) will be reimbursed, but that this will not cost taxpayers a nickel. (Currently banks are being charged a fee that goes into a federal account established to cover such situations. Yellen says that banks will be charged a higher insurance fee).

Certainly the Treasury and the Federal Reserve should resurrect and tighten the oversight rules for regional banks that were weakened by the Trump administration. Moreover, this current fiscal crisis highlights the imperativeness of meeting out national debt obligations by June/July.

If the Republicans seek to screw this up with their ‘social expenditures’ blackmail, the financial muck up we are witnessing today could seem a trickle compared to the avalanche that could be triggered by a national debt default.

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After the 2008 crash, it was revealed how complicit Moodys and other rating agencies were in the deception. We need to seriously put eyeballs on them to change the culture and make it work FOR the American people. Having it be just another “good-‘ole-boy” network makes it more like an “oops!-We-did-it-again” immature teenager, than an elite monitoring institution.

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Mar 13, 2023·edited Mar 13, 2023

MLR As the one-time Executive Vice President of Moody’s (1970s), I was appalled by its and S&P’s lack of fiscal integrity three decades later. Moody’s, in my era, was at most multi-million dollar annual operation. Our fees were modest and our overriding commitment was to the investor. Personally (with no fee) I prohibited England, Iran, and other global credits from coming on to the New York financial market.

Three decades later both rating agencies were multibillion dollar operations.They fought for market share and their fee for a single credit rating could be in the hundreds of thousands of dollars. In their frenzy for $$$ I believe that they ‘sold’ some ratings.

Bonds, especially related to real estate, became increasingly complicated. (They were cousins of ‘derivatives.’) Frankly, neither the rating agencies nor, often, the issuers were fully aware of the risk of such credits. In 2008 when, as Warren Buffett phrased if, ‘The tide went out, and many individuals were exposed as being naked,’ there was a humongous financial crisis.

I wrote at the time that the rating agencies needed to be severely fined (later I believe they were—‘the cost of doing business.’) I also said that some of the top executives, as well as bank muckimucks, should be criminally indicted. Nope! My recollection is that only one low-level bank employee was indicted.

Today I would be chary about giving long-term investment ratings to many financial institutions.The prospect of a tsunami is great. On my watch at Moody’s we cautiously approached banks. When I left, we had only rated two banks: Barclays International and Bankers Trust.

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Barbara Since you are in Humboldt land, you might enjoy one of my favorite books—David McCullough’s BRAVE COMPANIONS. The 17 biographical articles start with a humdinger on Humboldt which I find extraordinary.

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HCR, Thank you for your last paragraph linking another Fear-Driver, the Republican Seditionists' threat to to default on U.S.debt as "unthinkable" self harm.

The SVB run took place rapidly over 7 calendar days as several accurate Tick-Toks have been published: one at NYT (Sorkin, et al), an explainer at Vox & Others. Several potent accelerators sped SVB's demise. As many posted last Friday, true, SVB was a huge player in Tech Start-ups but, also inthe budding Life Sciences ventures impacting bio payrolls, general partners & financial stability in Bio Centers. Update Monday in England: HSBC-UK has purchased SVB's UK arm for 1 English pound. I think I need a "cuppa".

Bank runs generate generalized, unfocused economic fears even among Baya Area, CA residents & businesses with no direct risk-- virtually no risk at all. All of this at time when our Country needs investments & budgeting for the next generation after coming out of the Pandemic.

TIme for a New Deal 2.0.

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I recall reading somewhere in the past, someone who had been saved from his own mistakes, and who had apparently experience something akin to a near-death e