Blame government for the new banking crisis.
Channel: ReasonTV
Date: 2023-03-16

Join investment adviser Lyn Alden, economist Arnold Kling and Reason's Zach Weissmueller for a discussion of the Silicon Valley Bank meltdown and bailout of depositors.

 "We have learned over the last few days that many small and mid-sized banks in this country are Zombies," writes Arnold Kling, a senior scholar at the Mercatus Center at George Mason University and former economist for the Federal Reserve system and Freddie Mac.

Following the run on Silicon Valley Bank, former U.S. Treasury Secretary Larry Summers urged the federal government to guarantee the money of all the bank's depositors and warned that "now is not the time for lectures about moral hazard." But Kling insists that "past crises," such as the savings and loan collapse of the 1980s, "were bungled by authorities who were blind to the moral hazard problem."

And Lyn Alden, founder of Lyn Alden Investment Strategies, says "banks are basically highly-leveraged bond funds with payment services attached, and we treat it as normal to keep our savings in them." She argues that the Federal Reserve makes it nearly impossible for banks to hold the bulk of their customers' deposits in cash because "regulators want banks to be reasonably safe, but not 'too safe.' They want all banks to be leveraged bond funds to a certain degree, and won't allow safer ones to exist."

Join Reason's Zach Weissmueller this Thursday at 1 p.m. E.T. for a discussion about the federal government's decision to guarantee all deposits at the failed Silicon Valley Bank with Alden and Kling. Watch and leave questions and comments on the YouTube video above or on Reason's Facebook page.

Photo credit: Shen Hong / Xinhua News Agency/Newscom

Show notes: 

Balaji Srinivasan on how “the Fed caused the crisis” - https://twitter.com/balajis/status/1634301417774268416?s=20

Federal Reserve: What is forward guidance? - https://www.federalreserve.gov/faqs/what-is-forward-guidance-how-is-it-used-in-the-federal-reserve-monetary-policy.htm

Brad DeLong on the need for a lender of last resort - https://braddelong.substack.com/p/saturday-night-thoughts-on-the-need

Thomas Massie Tweet about regulating financial speech on social media - https://twitter.com/RepThomasMassie/status/1635074378454147074?s=20
 
Larry Summers on Bloomberg: “Now is not the time for lectures about moral hazard”: https://www.youtube.com/watch?v=ID3ttHE2mpc

CNBC: Why Regulators Seized Signature Bank - https://www.cnbc.com/2023/03/13/signature-bank-third-biggest-bank-failure-in-us-history.html

Lyn Alden: A Look at Bank Solvency - https://www.lynalden.com/march-2023-newsletter/

FDIC: Unrealized Losses on Securites Held by Insured Banks - https://www.fdic.gov/news/speeches/2023/spfeb2823.html