The alacritous rescue of depositors at Silicon Valley Bank (SVB) and Signature Bank by the federal government over the weekend is getting a cynical and frustrated response from taxpayers.
Many of the people who The Hill spoke to for this article are nervous that the financial system could be crashing around them again – and angry that rich venture capitalists can get a speedy bailout from the government while expanded social services and loan forgiveness seem to be forever out of reach.
“What am I, surprised that our economy is run by people who own banks? No, it’s not a surprise. But yeah, it’s another example of total inequity and racism,” Ellen McTigue, a retired nurse practitioner from New York, told The Hill in an interview.
“No surprises there, but it is unfortunate and it’s wrong,” she said.
McTigue added she thought the government took a “better safe than sorry” approach that she understood.
But she still had concerns about the transparency of the failures and the government’s response, which insured extremely wealthy depositors well above the standard $250,000 limit provided by the Federal Deposit Insurance Corporation (FDIC).
The failures of SVB and Signature are the largest since the financial collapse of 2008 and the second largest bank failures in U.S. history, and the consequences are still rippling throughout the global economy.
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The Dow Jones Industrial Average dropped more than 500 points in early trading on Wednesday as CEO Larry Fink of financial behemoth BlackRock warned about “more seizures and shutdowns coming” in an annual letter to investors.
Fink compared the situation to the “S&L crisis,” referring to the meltdown in the savings and loans sector in the 1980s that resulted in a taxpayer-funded bailout of Wall Street to the tune of $160 billion.
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Who is paying for the bank bailout?
In a history of the savings and loan crisis posted on its website, the FDIC refers to the episode as a “disaster,” a “debacle” and a “massive public policy failure.”
While taxpayers aren’t yet technically on the hook for the SVB and Signature collapses, since depositors were paid out of a fund administered by the FDIC that banks pay into, their money is still at risk.
The fund is guaranteed “by the full faith and credit of the United States government,” according to the FDIC, so taxpayer money could be used directly if the fund runs out.
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An additional line of credit set up for ailing banks by the Federal Reserve is also backed by $25 billion from the Treasury’s exchange stabilization fund, which has a net balance of $38 billion.
People paying student loans cry foul
Students and recent college graduates especially, who have been waiting on a dangled promise of loan forgiveness by President Joe Biden’s administration that could yet be quashed by the Supreme Court, are feeling sharp pangs of injustice.
They are frustrated over the VIP service provided to the financial sector by federal regulators while their own financial aspirations are left hanging in the balance.
“It makes it really clear to students and anyone who looks to the government for support that we are not their first priority, that overall we live in a capitalist society and therefore their first priority is always going to be where the money is,” Vivian Cormany, a pre-med student at University of California, Berkeley, who also works at the student co-op there, said in an interview with The Hill.
“Helping people achieve higher education and helping people live better lives because they won’t be paying off student loans until they’re 35 falls to the wayside when it comes to bailing out big banks,” said Cormany, who added that her father was paying off student loans until he was 40 and that her mother decided not to got to college due to the cost.
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Mercury Robertson, who works as a resident’s assistant at a dormitory at the University of Texas in Austin, told The Hill that she can see the frustration that bank bailouts bring about in the students she helps to support and counsel.
“They get very frustrated that things like this keep happening,” she said. “My own current financial expenses are taken care of by federal funding, by the university. But whenever I see these bank bailouts, I think that money could go towards improving UT or improving other Texas universities. Austin and Houston both have public universities that could use more funding.”
Victoria St. Louis said her decision to attend the school was largely determined by cost and that avoiding as much student debt as possible was a major concern for her.
“There seems to be a system where banks can get away with not making the proper investments,” St. Louis, a marketing and business student at Western Governors online university in New York, told The Hill.
St. Louis had some fiscal advice for regulators and financial policymakers.
“One place to start would be the debt relief program that they were just trying to implement,” she added. “If they could have gotten that out as quickly as they did the bailouts that would probably make a tremendous difference in a lot of people’s lives.”
Are businesses getting preferential treatment over taxpayers?
An entreaty by businesses in the California tech sector seems to have been a part of what prompted the speedy response from the federal government over the weekend.
Just a day before the insurance cap for SVB was lifted by fiscal and monetary authorities in Washington, blue-chip investment group Y Combinator, whose companies have a combined worth nearly $1 trillion, wrote an open letter to Treasury Secretary Janet Yellen asking for “relief and attention.”
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Workers and business owners in other sectors of the economy say they would love to see that kind of attention paid to them.
Albert Zibak, an independent pharmacist in New York, told The Hill that big business interests and their lobbies in the healthcare sector make it hard for his company to compete with the larger chains.
He said the regulatory responsiveness he saw from the federal government on the SVB bank bailout would “definitely” make difference to his business and others like it.
“If the government had a quick response [to our regulatory concerns] like what happened with the financial situation going on right now, it would be a game changer,” he said.
Americans are still angry about the 2008 bank bailouts
Frustration among the public over what is seen as preferential treatment afforded to the financial sector is not new.
A Reuters/Ipsos poll from 2013 found that five years after the bank bailouts following the 2008 financial crisis, “Americans [were] still angry with Wall Street.”
Forty-four percent of the poll’s respondents thought the government should not have bailed out the financial sector and only 22 percent believed the bailout was the right thing to do.
Reuters reported at the time that then-director of the White House’s National Economic Council Larry Summers had warned financial executives that “they didn’t understand how angry average Americans were with them.”
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The anger ultimately turned into a protest movement known as Occupy Wall Street in 2011, which saw demonstrators camp out for nearly two months in Zuccotti Park near Wall Street in lower Manhattan.
Activist Yotam Marom, who helped organize demonstrations during Occupy Wall Street, told The Hill he viewed the assistance provided to the failed banks as similar to what sparked the protests in 2011, though it’s smaller in scale.
“Is this a similar situation? Yes,” he said. “I don’t know if people are hurting now in quite the same way as they were. But for sure, banks or big businesses basically failing and being bailed out is not new, and it is similar in that way. And that is infuriating.”
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