Blame the bankers, blame the CEO’s, the rich investors, conservative politicians who decreased regulations, but don’t blame average Americans who are always the ones holding the bag. Yet, we find ourselves in a similar place with the bailout of Silicon Valley Bank, Signature Bank, First Republic Bank, and others. The reason you and I can fail is we’re not big enough.
When it comes to the economy, everyone is an expert, until they’re not. My list of useless economic forecasters include; Jim Cramer, Maria Bartiromo, Dave Ramsey, Jamie Diamond, Elon Musk, Warren Buffet, Fed Chairman Jerome Powell, President Biden, Treasury Secretary Janet Yellen, and so many more. These are the faces of micro and macro economic news. But they know NOTHING!
To a certain extent, I don’t blame them. They’re only interested in growing their wealth and power. So, if you’re listening to these people for advice on what to do with your hard earned money, you should stop. Think about it, there are 120.2 million full-time workers in the United States, per the U.S. Bureau of Labor Statistics. There’s no way these people or their super computers, and data scientists can help you. Remember, they make moves based on what’s good for them, not you.
The average American makes $55,640 per year. If you mismanage your funds, spend too much, take too many risks, you’ll end up bankrupt, and possibly homeless. With bad credit you may not even be able to get a job. These are the consequences of mismanaging your finances. Like many other businesses, mine suffered at the beginning of COVID. Thankfully, we received SBA loans to get us through the tough days. But were expected to pay back every penny, and we will.
However, if you’re rich and well connected the rules are different. You don’t need to look any further than the 45th president of the United States, Donal Trump. I’m not just talking about the 6 corporate bankruptcies. In this country, you’re rewarded for taking risks that will hurt people. And the more people on the line, the better the chance for a bailout.
I know, you’re thinking that’s not entirely true, Alex. How about people like Madoff? Fine, before I dive into the history of the US financial crisis, and our government rewarding irresponsible people, let’s look at a few examples where a white collar criminals who actually got the punishment they deserved.
Bernie Madoff: The mastermind of the largest Ponzi scheme in history, worth about $64.8 billion. The scam artist ripped off more than 37,000 people from 25 countries. He ended up getting a 150 year prison sentence. But only served 9, because he died in 2021 in jail at the age of 82. He went from billions to 24 Cents an hour.
Sam Bankman-Fried: Known as SBF, Bankman-Fried swindled $8 billion in customer money. SBF allegedly ordered Alameda Research, a company he founded in 2017, to increase its use of customer assets, drawing down massively on its “unlimited” credit line at FTX, the crypto exchange he founded. SBF could face 115 years in jail.
Elizabeth Holmes: Sentenced to more than 11 years in prison following her conviction in January 2023 for defrauding investors while running the failed blood testing startup Theranos.
Jeff Skilling, former CEO of Enron: Serving 24 years for fraud, insider trading, and other crimes related to the collapse of Enron. Convicted in 2006 and released in 2019.
Martha Stewart: SEC charged Martha Stewart, and broker Peter Bacanovic with illegal insider trading. The billionaire mogul spent 5 months in federal prison near Alderson, West Virginia, for lying about her sale of ImClone stock in 2001.
Bernie Ebbers, former CEO of WorldCom: Serving 25 years for accounting fraud that cost investors over $100 billion. Ebbers, had served about 13 years of his 25-year prison sentence for orchestrating an $11 billion accounting fraud by the defunct telecommunications company. He died in 2020.
Dennis Kozlowski, former CEO of Tyco: Sentenced 8 to 25 years for stealing $134 million from Tyco. Served 6.5 years.
Feel better? I don’t. Because for most these individuals they’ll either get special treatment in a while collar prison, and their victims’ lives are still destroyed. And truth be told, most rich, white collar criminals can afford to hire powerful law firms to keep them out of jail. Some even get to run for president.
Let’s visit some of the history that has brought us to the point where we’re reliving the same old story over and over. It’s the story of politicians working with big business to make sure the rich get more powerful, and the poor are voiceless.
1929: The Great Depression
The stock market imploded in October 1929, which caused depression for years to come. In 1933 as a response to the banking crisis caused by the Great Depression, Congress passed legislation with four provisions of the United States Banking Act of 1933 separating commercial and investment banking. It also set up the Federal Deposit Insurance Corporation, which guarantees bank deposits up to $250,000 per bank per account.
History seems to repeat itself again and again. Why? Because politicians and bankers work not for the people, but rather of the CEO’s of the largest companies. The relationship between elected officials and CEO’s is too convenient. While the legislative and executive branches of US government are easily to blame here, don’t forget that the judicial branch is also a culprit in this turmoil.
1973: OPEC Embargo
The financial crisis and impact of the OPEC Embargo of 1973 were significant and far-reaching.
The OPEC Embargo of 1973 was a response by the Organization of Petroleum Exporting Countries (OPEC) to U.S. support for Israel during the Yom Kippur War. OPEC member countries imposed an oil embargo on the U.S. and other countries that supported Israel, leading to a significant increase in oil prices and a global energy crisis. The embargo lasted for five months and had a major impact on the global economy.
The embargo led to skyrocketing oil prices, which caused inflation to soar and created economic turmoil in many countries. The United States, in particular, was hit hard, as it was heavily dependent on foreign oil at the time. The price of oil quadrupled, leading to long lines at gas stations, rationing, and a recession.
The financial crisis that resulted from the embargo was also exacerbated by other factors, such as high inflation and rising interest rates. The stock market declined sharply, and many businesses struggled to stay afloat. Unemployment rose, and there were widespread fears of a global economic collapse.
The impact of the OPEC Embargo of 1973 was long-lasting, as it led to major changes in global energy policies and a greater emphasis on energy independence. Many countries began investing in alternative energy sources and exploring domestic sources of oil and gas to reduce their dependence on foreign oil.
Overall, the financial crisis and impact of the OPEC Embargo of 1973 were significant and continue to be felt today, as countries around the world continue to grapple with energy-related issues and the global economy remains interconnected.
1987: Black Monday
Black Monday refers to the stock market crash that occurred on October 19, 1987, in which the Dow Jones Industrial Average (DJIA) dropped by more than 22% in a single day, marking the largest single-day percentage decline in the history of the stock market.
The crash was triggered by a combination of factors, including rising interest rates, a rapidly expanding trade deficit, and the widespread use of computerized trading programs that exacerbated the selling. The effects of Black Monday were felt around the world, with stock markets in other countries also experiencing significant declines. While the crash caused panic among investors, it ultimately did not lead to a prolonged economic downturn, and the markets rebounded relatively quickly.
Black Monday, the 1987 stock market crash, was caused by a number of factors, including:
- Program Trading: Program trading, which involves using computers to automatically execute trades based on pre-determined criteria, was a relatively new phenomenon in 1987. Some analysts believe that the widespread use of program trading by institutional investors may have exacerbated the market decline.
- Overvalued Stock Prices: Stock prices had been rising rapidly in the months leading up to the crash, with the Dow Jones Industrial Average (DJIA) increasing by over 40% in the year prior to the crash. This rapid increase in stock prices led some investors to believe that stocks were overvalued and due for a correction.
- International Economic Factors: The crash was not limited to the United States, as global stock markets experienced significant declines in the days following Black Monday. Economic concerns, including rising interest rates and a slowing global economy, may have contributed to the widespread decline.
- Investor Psychology: As stock prices began to fall, many investors panicked and began selling their holdings in large numbers. This selling pressure contributed to the market decline and exacerbated the overall panic.
The combination of these factors led to a rapid decline in stock prices on October 19, 1987, with the DJIA falling by 22.6% in a single day. The crash was the largest one-day percentage decline in history, and it took several years for the stock market to fully recover.
2001: The Dot-Com Crash
The 2001 Dot-Com Crash, also known as the Tech Bubble, was a significant financial crisis that impacted the global economy.
The Dot-Com Crash was caused by a combination of factors, including a speculative bubble in technology stocks, overinvestment in internet-based companies, and the collapse of many dot-com startups. Many investors had poured money into internet-based companies with the expectation of high returns, leading to inflated stock prices and an eventual market correction.
The crash had a significant impact on the technology industry, as many startups and established companies went bankrupt or were forced to downsize. The Nasdaq Composite Index, which was heavily weighted towards technology stocks, lost nearly 80% of its value between March 2000 and October 2002.
The Dot-Com Crash also had broader economic impacts, as the technology industry was a major driver of economic growth in the 1990s. The decline in technology stocks led to significant job losses, particularly in the tech sector. Many companies that relied on technology, such as retailers and financial services firms, also experienced declines in their stock prices and faced financial challenges.
The aftermath of the Dot-Com Crash led to a period of economic recession in the early 2000s, with sluggish economic growth, rising unemployment, and reduced consumer spending. The U.S. government responded with policies designed to stimulate the economy, including tax cuts and increased government spending.
Overall, the Dot-Com Crash was a significant financial crisis that had far-reaching impacts on the global economy, particularly in the technology industry. While the industry eventually rebounded, the crash led to significant changes in the way investors approached technology stocks and influenced economic policy in the years that followed.
2008: The Great Recession
The 2008 financial crisis was preceded by a bank bailout. We, the taxpayers, ended up paying for the mistakes and dishonesty of wall street. The bank bailout of 2008, officially known as the Troubled Asset Relief Program (TARP), was a financial rescue program enacted by the U.S. government in response to the 2008 financial crisis. The crisis was sparked by the collapse of the housing market, which led to a wave of defaults on subprime mortgages and a domino effect of financial failures throughout the economy.
In September 2008, the U.S. government took control of mortgage giants Fannie Mae and Freddie Mac, which had been hit hard by the crisis. A week later, Lehman Brothers, one of the largest investment banks in the country, filed for bankruptcy, causing panic in financial markets worldwide.
The government responded by enacting TARP, which authorized the Treasury Department to purchase up to $700 billion in troubled assets, such as mortgage-backed securities, from banks and other financial institutions. The goal was to stabilize the financial system by injecting capital into struggling institutions and preventing further failures.
The program was controversial, with many Americans opposing what they saw as a bailout of Wall Street at the expense of taxpayers. However, supporters argued that the failure of large financial institutions could have catastrophic effects on the economy, and that TARP was necessary to prevent a total collapse of the financial system.
Bank Bailout 1.0
TARP funds were used to bail out a number of large banks, including Citigroup, Bank of America, and JPMorgan Chase. To be exact, the bailout benefited 991 recipients in the amount of $475 billion. The program also provided assistance to the automotive industry, which was also struggling due to the economic downturn.
The bailout had mixed results. While it did stabilize the financial system and prevent further failures, it did not prevent a severe recession and high levels of unemployment. Additionally, many of the banks that received TARP funds continued to engage in risky practices and pay large executive bonuses, leading to continued public criticism.
TARP officially ended in 2014, with the Treasury Department reporting that it had ultimately disbursed $426.4 billion in funds and earned a net profit of $15.3 billion. The legacy of the bank bailout of 2008 continues to be debated, with some arguing that it prevented a much worse economic disaster, while others believe it was a missed opportunity to fundamentally reform the financial system.
2010: Paving the Way For Corruption
As I mentioned earlier the blame spans across all 3 branches of government. 13 years ago, the supreme court decided Citizens United v FEC, a landmark 5-4 ruling that unleashed billions of dollars from corporations, labor unions and other groups into American campaigns as a protected form of free speech. The 2010 case cleared the way for creation of Super PACs, the political entities which can raise and spend unlimited sums to influence elections, so long as they don’t explicitly coordinate with a candidate.
The biggest PAC donors, as of September 2021, included:
- Adelson Clinic for Drug Abuse Treatment & Research: This PAC donated over $100 million to Republican candidates and causes in the 2020 election cycle.
- Senate Leadership Fund: This PAC is affiliated with Senate Majority Leader Mitch McConnell and donated over $244 million to Republican candidates and causes in the 2020 election cycle.
- Priorities USA Action: This PAC donated over $103 million to Democratic candidates and causes in the 2020 election cycle.
- National Education Association: This PAC donated over $52 million to Democratic candidates and causes in the 2020 election cycle.
- House Majority PAC: This PAC donated over $80 million to Democratic candidates and causes in the 2020 election cycle.
The biggest recipients of election funds, as of September 2021, included:
- Joe Biden: The 2020 Democratic presidential candidate raised over $1.3 billion in campaign funds.
- Donald Trump: The 2020 Republican presidential candidate raised over $1.2 billion in campaign funds.
- Senate Majority PAC: This Democratic super PAC spent over $228 million on the 2020 Senate races.
- Congressional Leadership Fund: This Republican super PAC spent over $139 million on the 2020 House races.
- Democratic National Committee: This organization raised over $634 million in the 2020 election cycle to support Democratic candidates and causes.
2011: Occupy Wall Street
I was in NYC for a conference at the end of 2011. My COO and I went down to Zuccotti Park to speak to the protesters. These people weren’t anarchists per say, but there were some crazy ideas being thrown around. We stuck around for a few hours, but had to leave because the smell of urine was so bad.
Occupy Wall Street (OWS) was a social movement that began in New York City’s financial district on September 17, 2011. The protest was primarily focused on highlighting economic inequality, corporate greed, and political corruption.
The OWS movement was started by a group of activists, many of whom were inspired by the Arab Spring protests and the Spanish Indignados movement. The protesters established an encampment in Zuccotti Park, which they renamed Liberty Square, and began organizing a series of demonstrations, marches, and other actions.
The protesters’ main message was that the 99% of the population, which includes the middle and working classes, were being exploited and oppressed by the wealthy elite, who made up the top 1% of the population. They believed that the system was rigged in favor of the rich and that the government was not doing enough to address the growing economic inequality in the country.
The protesters were largely peaceful, but clashes with police occurred in some instances. The movement gained significant media attention and spread to other cities across the United States and the world. In the months that followed, the protesters organized numerous events and actions, including a global day of action on October 15, 2011, which saw protests in over 1,000 cities worldwide.
The movement faced criticism from some who claimed that it lacked clear goals and leadership, and that its tactics were ineffective. However, it also received support from a broad range of individuals and organizations, including labor unions, student groups, and progressive politicians.
In November 2011, police evicted the protesters from Zuccotti Park, effectively ending the encampment. However, the movement continued to have an impact, influencing the national conversation on economic inequality and inspiring other grassroots movements. The legacy of Occupy Wall Street can be seen in ongoing debates over issues such as income inequality, corporate power, and democratic participation in the United States and around the world.
2018: Deregulation 2.0 & the Revolving Door
As soon as Donald Trump took office he started to work with lobbyists and lawmakers to lower the bar in terms of regulation. In 2018, Trump signed a law that freed regional banks like SVB from strict regulations that followed the 2008 financial crisis. According to the Open Secrets, SVB spent $670,000 lobbying Congress between 2015 and 2018, when the new law was signed.
Rolling back Dodd-Frank helped eliminate section 401 of the law, which enhanced regulation for banks with assets between $50 billion and $100 billion, and gave the Fed discretion to apply the enhanced standards on financial institutions with assets between $100 billion and $250 billion, including how frequently to conduct required supervisory stress tests.
Previously, banks with assets of $50 billion or more were considered SIFIs, but under the new law, this threshold was raised to $250 billion. This change meant that many smaller banks were no longer subject to the same level of regulatory scrutiny as before.
The rationale behind the change was to reduce regulatory burden on smaller banks and allow them to better compete with larger banks. Supporters of the change argued that the previous threshold was too low and captured many banks that did not pose a systemic risk to the financial system.
Critics of the change, on the other hand, argued that it weakened important regulations put in place after the 2008 financial crisis to prevent another crisis from occurring. They worried that raising the threshold would allow banks to take on more risk and potentially lead to another financial crisis.
Barney Frank, the former congressman from Massachusetts who helped design the landmark banking safety legislation after the 2008 economic crisis, spent half of his life championing the little guy. But in 2018 he decided to get involved with the now-defunct Signature Bank, which was taken over by New York state. Barney Frank endorsed the rollback Trump signed into law. Left, right, center, it doesn’t matter!
Most politicians are in the pockets of the uber rich. It’s a revolving door, and a way to secure their own financial security. Had these banks not grown as quickly as they did, which happened because of deregulation, it’s more than likely the bank failures and bailout of 2023 would be happening. So, was Dodd-Frank Act a mistake?
2023: Bank Bailout 2.0
Republicans and bankers are not solely to blame here. The White House and the Biden administration would like for us to think that this bailout won’t cost the taxpayer a dime. That’s BS! Treasury Secretary Janet Yellen has been out there defending the administration’s strategy. She was recently asked about reviving Glass-Steagall. She stated that anything is possible.
What happened to Silicon Valley Bank?
On March 10, 2023, Silicon Valley Bank (SVB) failed after a bank run, marking the second-largest bank failure in United States history and the largest since the 2007–2008 financial crisis. Seeking higher investment returns, in 2021 SVB began shifting its marketable securities portfolio from short-term to long-term Treasury bonds.
The market value of these bonds decreased significantly through 2022 and into 2023 as the Federal Reserve raised interest rates to curb an inflation surge, causing unrealized losses on the portfolio. Higher interest rates also raised borrowing costs throughout the economy and some Silicon Valley Bank clients started pulling money out to meet their liquidity needs.
To raise cash to pay withdrawals by its depositors, SVB announced on March 8 that it had sold over US$21 billion worth of securities, borrowed $15 billion, and would hold an emergency sale of some of its treasury stock to raise $2.25 billion. The announcement, coupled with warnings from prominent Silicon Valley investors, caused a bank run as customers withdrew funds totaling $42 billion by the following day.
Soon, others would following, including: Silvergate Bank, Signature Bank, and First Republic Bank
Larger banks including Bank of America, Citi, and others depositing billions of dollars to prop up the losses. Not really! After all, these banks are not losing anything. BOA alone took in more than $15 billion of deposits from clients who withdrew their funds from SVB. This is a smoke mirror between our political puppets and wall street thieves.
Just look at where we’re at in terms of the national debt. The national debt was more than $31.42 trillion in December 2022. These bank bailouts will absolutely cost taxpayers in the coming years.
At a time when annual inflation hovers around 6%, unemployment is at 3.4%, the Fed just raised interest rates by another quarter point. That’s 9 times in the past year. The benchmark target range to between 4.75% and 5% — the highest since September 2007, yada, yada, yada.
I can give you all the micro and macro data points ranging from GDP to unemployment, but that won’t change the fact that the world’s richest continue to get richer. In fact, 2,365 billionaires enjoyed a $4 trillion boost to their wealth during the first year of the pandemic, increasing their fortunes by 54%, according to a new analysis by the Program on Inequality.
Surely, the CEO’s and architects of responsible for Bank Bailout 2.0 are going to be held accountable, right? Wrong! .
Gregory Becker (seen here on the left), presided over Silicon Valley Bank’s collapse apparently hasn’t stuck around to watch the dust settle—he’s headed for his $3.1 million Hawaiian hideaway. President Biden and all members of congress should be ashamed of themselves
They continue to reward the poor, poor CEO’s, even when they take unnecessary risks. CEO-to-median -worker pay ratio as of 2020 is 235:1, up from 212:1 three years before. The situation is out of control! Being an employee of any large company is no longer sustainable. The truth is capitalism is broken! Socialism is alive and well for the uber wealthy.
If lawmakers on either side, the president, and the supreme court wanted to protect the average American they could. But they won’t! It would cost them the cozy relationships they hold so dear. As a small business owner it’s hard not to be cynical about the how business and power functions in the US. All we can do is raise awareness, consume as little as you can from large companies, not re-elect the politicians who are part of the problem, and keep building your own little empire.
