The swift bailout of depositors at Silicon Valley Bank (SVB) and Signature Bank by the federal government over the weekend is drawing a cynical and frustrated response from taxpayers.
Many of the people The Hill spoke to for this article fear the financial system is collapsing again around them – and angry that wealthy venture capitalists could get a quick bailout from the government as services expanded welfare and loan forgiveness seem to be forever out of reach.
“What surprises me that our economy is run by people who own banks? No, it’s not a surprise. But yes, this is another example of utter inequity and racism,” Ellen McTigue, a retired nurse practitioner from New York City, told The Hill in an interview.
“No surprise there, but it’s unfortunate and it’s wrong,” she said.
McTigue added that she believed the government had taken a ‘better safe than sorry’ approach which she understood.
But she still had concerns about the transparency of failures and the government’s response, which insuring extremely wealthy depositors well beyond the standard $250,000 limit provided by the Federal Deposit Insurance Corporation (FDIC).
The SVB and Signature bankruptcies are the largest since the 2008 financial meltdown and the second largest bank failures in US history, and the consequences are still reverberating throughout the global economy.
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The Dow Jones Industrial Average fell more than 500 points in early trading on Wednesday as CEO Larry Fink of financial giant BlackRock warned of “more foreclosures and shutdowns to come” in an annual letter to investors.
Fink likened the situation to the “S&L crisis,” referring to the collapse of the savings and loans industry in the 1980s that led to a $160 billion taxpayer-funded Wall Street bailout. .
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Who pays for bank bailouts?
In a history of the savings and loan crisis posted on its website, the FDIC calls the episode a “catastrophe,” a “debacle,” and a “massive failure of public policy.”
While taxpayers aren’t technically responsible for the collapse of SVB and Signature yet, since depositors were paid from an FDIC-administered fund to which banks contribute, 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 by the Federal Reserve for troubled banks is also backed by $25 billion from the Treasury’s exchange stabilization fund, which has a net balance of $38 billion.
People who pay student loans cry foul
Students and recent college graduates in particular, who have been waiting for an outstanding promise of loan cancellation by President Joe Biden’s administration that could yet be overturned by the Supreme Court, are feeling deep pains of injustice.
They are frustrated with the VIP service provided to the financial sector by federal regulators while their own financial aspirations are left hanging.
“It makes it very clear to students and anyone who looks to the government for help that we are not their first priority, that overall we live in a capitalist society and therefore their first priority will always be where the money is,” Vivian Cormany, a pre-med student at the University of California, Berkeley, who also works in the student co-op there, said in an interview with The Hill.
“Helping people get a higher education and live a better life because they won’t pay off their student loans until they’re 35 falls by the wayside when it comes to bailing out the big banks,” said Cormany, who added that his father was paying off student loans until he was 40 and his mother decided not to go to college because of the cost.
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Mercury Robertson, who works as a resident assistant at a University of Texas at Austin dormitory, told The Hill she can see the frustration bank bailouts are causing in the students she helps support and advise.
“They’re very frustrated that things like this keep happening,” she said. “My own day-to-day financial expenses are supported by federal funding, by the university. But every time I see these bank bailouts, I think the money could be used to improve UT or improve other universities in Texas. Both Austin and Houston have public universities that could use more funding.
Victoria St. Louis said her decision to attend school was largely determined by cost and that avoiding student debt as much as possible was a major concern for her.
“There seems to be a system where banks can get away with not making the right investments,” a marketing and business student at Western Governors Online University in New York told The Hill St. Louis. .
St. Louis had tax advice for regulators and financial policymakers.
“A starting point would be the debt relief program that they were just trying to implement,” she added. “If they could have gotten this as quickly as they did the bailouts, it probably would have made a huge difference in a lot of people’s lives.”
Do companies receive preferential treatment compared to taxpayers?
A plea from California tech companies appears to have been part of what prompted the federal government’s swift response over the weekend.
Just a day before the insurance cap for SVB was lifted by tax and monetary authorities in Washington, blue-chip investment group Y Combinator, whose businesses have a combined value of nearly $1 trillion, wrote an open letter to Treasury Secretary Janet Yellen asking for “relief.” and attentive. »
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Workers and business owners in other sectors of the economy say they would like to see this kind of attention given to them.
Albert Zibak, a self-employed pharmacist in New York City, told The Hill that big business interests and their lobbies in the healthcare industry prevent his business from competing with the biggest chains.
He said the regulatory responsiveness he’s seen from the federal government on the SVB bank bailout would “certainly” make a difference to his business and others like it.
“If the government had a quick response [to our regulatory concerns] like what happened with the current financial situation, it would be a game-changer,” he said.
Americans still angry over 2008 bank bailouts
Public frustration with what is seen as preferential treatment given to the financial sector is not new.
A 2013 Reuters/Ipsos poll found that five years after the bailouts of banks following the 2008 financial crisis, “Americans [were] still mad at Wall Street.
Forty-four percent of survey respondents thought the government should not have bailed out the financial sector and only 22% thought the bailout was the right thing to do.
Reuters reported at the time that Larry Summers, then director of the White House National Economic Council, warned financial leaders that “they don’t understand how angry average Americans are with them.”
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The anger eventually boiled over into a protest movement known as Occupy Wall Street in 2011, which saw protesters camped out for nearly two months in Zuccotti Park near Wall Street in lower Manhattan.
Activist Yotam Marom, who helped organize protests during Occupy Wall Street, told The Hill he viewed the aid provided to failing banks as similar to what sparked the protests in 2011, though it is on a smaller scale.
“Is it a similar situation? Yes,” he said. “I don’t know if people are suffering now in the same way as before. But certainly banks or large corporations failing and being bailed out is nothing new, and it’s similar in that sense. And it’s infuriating. »
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