The Mediaverse by Dennis Kneale, TruthDAO opinion columnist
Perhaps this is, by now, purely a rhetorical question: does everything in the media have to be a fight these days? I refer to the coverage of the stunning collapse of Silicon Valley Bank, for 40 years a pillar of lending to thousands of tech startups and venture capital firms.
Last Friday the government took control of SVB and put it into receivership, after the first-ever run on a major bank which was driven by social media. Customers tried to pull out $42 billion in a single day. It erupted from an otherwise survivable loss of $1.8 billion—less than 1% of SVB’s total assets—on the sale of $21 billion in government bonds.
By Sunday, officials guaranteed depositors’ cash of any amount rather than the usual limit of just $250,000, thereby stopping the spread of fears to other banks. Let the fight begin.
The media on the right and left viewed this financial crisis through an ideological and political lens. So, they presented divergent versions of what went on, both of which jumped to judgment without evidence or proof, while failing to tell the real story.
On the right, the media and their heroes instantly zoomed up on two red-meat issues for Republicans. The first is the “moral hazard” of bailing out some wild gambler and encouraging other banks to take on inordinate risk. (Never mind that SVB’s wild risk was to put billions of dollars into U.S. government bonds, the safest investment vehicle in the world.)
The second issue is Silicon Valley Bank’s painfully woke, social-justice agenda and the notion that this is to blame for the bank’s losses. It took its eye off the ball. Both arguments are bunkum. For smarter insights on this, listen to options trader Jim Iuorio and wealth advisor Ed Butowsky on the latest episode of “What’s Bugging Me.”
The presidential campaign of 2024 has begun, alas. On Monday, the conservative National Review trumpeted: “Nikki Haley Blasts Biden for ‘Pretending’ SVB Isn’t Receiving a Government Bailout.” Money quote: “Joe Biden is pretending this isn’t a bailout. It is.”
Actually, no, it isn’t.
Here is the difference. In the meltdown of 2008-09, the nation’s largest banks and their shareholders were, indeed, bailed out by taxpayers. The feds ended up earning a profit on the whole package, which is beside the point.
Instead, this “backstop” by the FDIC helps depositors, as a way to stabilize the broader system and stop people from panicking at other midsize banks. These SVB depositors did nothing wrong: they put their cash into a top-20 bank that then invested it in safe government bonds. Plus, they now get only a government guarantee, a new assurance from the FDIC that they will get all of their own money back, rather than some payout.
Whereas for the bank itself, government officials seized control, diverted its assets into a new entity, and signaled a readiness to chop it up into pieces and sell them off, if necessary. Meanwhile, the feds let SVB shareholders suffer huge losses: SVB shares, at $300 in February, plunged 60% in a single day, down from $267 to $106.
What about the angle of Go Woke Go Broke?
SVB’s chief risk officer was a young woman of color, Jay Ersapah, who proudly promoted her LGBTQ status. New York Post story on March 11, lead: “A head of risk management at Silicon Valley Bank spent considerable time spearheading multiple “woke” LGBTQ+ programs, including a ‘safe space’ for coming-out stories, as the firm raced toward collapse.”
On March 12, Florida Gov. Ron DeSantis went on Fox News’s “Sunday Morning Futures” with Maria Bartiromo, telling her: “You know, Maria, just appears to me, I mean, this bank, they\’re so concerned with D&I [Diversity and Inclusion] politics and all kinds of stuff, I think that really diverted from them focusing on their core mission.”
The New York Post and Fox Business also reported that SVB had donated $73 million to Black Lives Matter, citing data from the conservative Claremont Institute. This was inaccurate, as pointed out by Vanity Fair, quoting another source, Popular Information. The millions went to various groups that pursue causes “related to” the BLM agenda.
Reality check. The too-woke story makes for great conflict and good copy, but it falls short. There is no evidence as yet that shows this bank lost money because of its ultraliberal leanings. Its stance, arguably, was good business, given the ultraliberal clientele it serves.
I mean, these are the people who gave us the Twitter Files, right?
The media on the left have fared no better. As soon as this story broke, instantly, they did what they always do: blame Trump. President Biden led the way for them, declaring to reporters: “Unfortunately, the last administration rolled back some of these requirements.”
Axios: “Silicon Valley Bank’s political blame game.” NBC News: “Silicon Valley Bank collapse puts new spotlight on a 2018 deregulation law.” CNBC.com: “Warren unveils bill to repeal Trump-era bank deregulation she says led to SVB, Signature collapses.”
This is an amazingly fast “solution” to a bank failure that happened only days ago.
Sen. Warren, sanctimonious as ever, also appeared on MSNBC with a fawning Rachel Maddow, and she snagged an op ed in the New York Times on March 13: \”No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules.\”
No, they aren’t. Sen. Warren lacks proof of her assertion. These bank failures stem from the Federal Reserve’s maintaining zero interest rates for almost a decade, and then going on a binge and raising rates 20-fold, from a quarter-percentage point to 5%, in less than a year.
This instantly reduced the value of older bonds paying far lower rates, causing losses on paper for the banks that held the bonds. They had invested huge sums in these safe government bonds, under the reforms imposed after the meltdown of 2008-09.
If SVB’s faithless depositors had stood down, the bank never would have had to sell its underwater bonds to raise cash, thereby avoiding the $1.8 billion loss that jolted Wall Street.
And if SVB executives had done a better job hedging their long-term bonds—and humbling themselves by privately asking for a loan at the Fed’s “discount window”—they would have survived even that loss.
This, apparently, lies beyond the ability of the senator and the media to comprehend.
Dennis Kneale, @denniskneale on Twitter, is a media strategist and writer in New York. He spent more than 30 years at The Wall Street Journal, Forbes, CNBC, and Fox Business. His podcast is called \”What\’s Bugging Me.\”