Don’t save the banks
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Don Surber donsurber@substack.com
Don’t save the banks
The collapse of two big Democrat-run banks in Democrat-run states has the Democrat-run Federal Reserve and the Democrat-run Treasury Department telling us we are in a crisis. Democrats tell us the government must save the banks. Democrats want to save the banks by targeting community and regional banks in Republican-run states, not the big banks that failed.
Sure, that will work just dandy.
Newsweek reported, “Billionaire Warren Buffett, one of the greatest investors of all time, reportedly spoke to President Joe Biden over the weekend, giving advice on the tumultuous situation the banking sector is currently navigating.
“Nebraska-based Buffett, nicknamed the Oracle of Omaha due to his successful investment decisions, had multiple conversations with senior officials in the Biden administration in the past few days, Bloomberg reported. According to the news outlet, calls between the legendary investor and Biden’s team focused on Buffett potentially investing in the U.S. regional banking sector. The 92-year-old chairman and CEO of Berkshire Hathaway also had advice on how to navigate the unfolding banking crisis.
“It wouldn’t be the first time that Buffett had intervened to calm the banking sector in turmoil. Back in 2008, at the height of the financial crisis, the guru investor bought $5 billion of preferred stocks in Goldman Sachs Group Inc., tossing the bank a crucial lifeline at a time when many institutions were struggling to strengthen their liquidity.”
Buffett will not do this out of the kindness of his heart.
When I see his name, I think about his railroad monopoly on transporting North Dakota oil which Obama and now Biden protected by nixing plans to build a pipeline, which would be safer and cheaper.
What calmed the financial sector in 2008 was not his measly $5 billion but that $700 billion TARP that President Bush threw over the problem.
Saving Goldman Sachs while letting Lehman fail kept the government’s supply chain of money experts flowing. Every official appointed to some finance-related office in DC seems to be a former Goldman Sachs employee. The only thing that exceeds party loyalty in Washington is the wallet.
Bank failures happen. They provide opportunities for other banks. In the case of Silicon Valley Bank and Signature Bank, the federal government will pay off a goodly amount of the debt and then sell the banks cheap to one of the banks Too Big To Fail, who profit.
Those banks are TBTF because they are politically connected.
The biggest of the big — JPMorgan Chase & Co. — is a shark that smells the blood. The media treats it like a friendly dolphin.
Fortune magazine reported, “Both JPMorgan and Jamie Dimon have stepped in to rescue failing and failed banks before—and it didn’t work out so well.
“JPMorgan bought the failed investment bank Bear Stearns in March 2008 for $1.4 billion, in a deal shepherded by the U.S. Federal Reserve. The Wall Street Bank later bought the banking subsidiaries of Washington Mutual later that year for $1.9 billion, after the savings and loans association failed in what is still the largest bank failure in U.S. history.
“JPMorgan’s deal to buy Bear Stearns was backed by the U.S. Federal Reserve, which offered $30 billion to support the deal. The Federal Reserve also took over Bear Stearns’ most toxic assets, which JPMorgan refused to take.
“Still, buying the two banks put JPMorgan on the hook for all of their problems, and Dimon publicly grumbled that U.S. regulators were suing his bank for misdeeds at Bear Stearns before the acquisition. Eventually, JPMorgan had to pay a total of $19 billion to settle disputes with regulators stemming from its purchases of Bear Stearns and Washington Mutual.”
Those disputes were claims by the actual owners that their companies were not dead when hauled off to JPMorgan. The TBTF bank paid $3.3 billion plus a $19 billion tax — settlement — to acquire a bank with 2,239 retail branch offices operating in 15 states. They also got a brokerage firm in the deal.
Never let a crisis go to waste, right? Money will be made because that’s Dimon’s job. But the magazine portrayed Dimon and his staff as the Rescue Rangers in this real-life, non-cartoon drama.
Fortune magazine is paving the way for another gift. It titled its story, “Jamie Dimon regretted saving Bear Stearns and Washington Mutual in 2008. Now the JPMorgan CEO is leading an attempt to rescue another flailing bank.”
If those 2008 deals really were bad, Dimon would not be acquiring another troubled bank.
He is acting just as the original J.P. Morgan acted in the Panic of 1893 when he saved the banking system under President Cleveland — another Democrat. Save the banking system enough times and eventually you, too, will be managing assets worth $3.37 trillion.
This is why banks prefer a Democrat president. They get bigger. The government gets bigger. Everyone gets happy.
The banking press— which is as skeptical as a puppy (and almost as smart) — is gobbling up the narrative of big bankers saving us.
Yahoo reported, “Regulators ‘willing to do whatever it takes to save the banking system,’ professor says.”
The praise for UBS — nee Union Bank of Switzerland — taking over Credit Suisse flies laughably in the face of past press concerns of mega-mergers and the monopolies they create. Think that’s just Switzerland? Re-read what I wrote about J.P. Morgan. The Swiss are following our example.
But there is an obstacle in these real-life Henry Potters’ plan to turn America into Potterville. There are too many community and regional banks out there acting as Bailey Brothers Building and Loan did.
The TBTF banks are draining the FDIC by having it cover the deposits that the TBTF do not pay premiums on. The narrative is that we must make all depositors whole because — well, just because it seems like social justice to spare billionaire Mark Cuban a trim of $10 million from his net worth.
The solution to this is to go ahead officially cover all deposits and charge the TBTF banks premiums that cover 100% of their deposits and not just the 3% Silicon Valley Bank actually insured.
No one in banking wants this solution. Of all the web sites, Zero Hedge sides with the big bankers.
It reported, “Why Extending Deposit Insurance Won’t Save The Banks.”
Instead of charging the big banks that are in trouble full premiums, Zero Hedge is pushing regulations to make community and regional banks less competitive because people are moving deposits from the big banks that are run by DEI morons to smaller banks that are run by bankers.
Zero Hedge said the way to stop people from moving money to smaller banks is to force them to raise interest rates.
The story said, “the problem is that the regional banks aren’t paying enough interest to retain deposits, and the solution is for them to pay more. That part is simple enough, and I agree with it. But I’m not sure I agree with the credit contraction part of it. I think the credit contraction has already happened, and that’s why the banks are paying so little on their deposits.”
In a free market, raising interest rates would attract more deposits. But under a Democrat president, we don’t live in a free market.
Forcing higher interest rates upon the smaller banks would make them less profitable, which would force them to take bigger risks which would lead to more failures.
Which would provide more opportunities for Buffett and JPMorgan to expand their empires
