Silicon Valley Bank Bailout is Instantly Politicized
Author: Greg Valliere
March 13, 2023
KEEPING DEPOSITORS WHOLE was the least-bad solution, but the post-mortem will be rocky. How did the regulators over-look the flashing red signals that SVB was in shaky shape? Were officials seduced by the chummy relationships between the regulators and the San Francisco Fed? There will be lots of congressional hearings to come on that.
MORE IMPORTANTLY, has the Fed accepted a precedent that will allow for similar bailouts in the future? Has this incident essentially eliminated the risk of failure — is there now an implicit understanding that the Fed will always bail out banks and depositors who make reckless decisions (see: cryptocurrencies). Will a universal uninsured deposit guarantee be next?
THE GOOD NEWS is that this collapse was addressed immediately, with — hopefully — minimum contagion. The bad news is that this crisis probably will not dissuade the Fed from more rate hikes. A 50 basis point move later this month seems unlikely, but a quarter-point hike is still on the table (inflation data tomorrow and Wednesday will be crucial).
FOR REPUBLICANS LOOKING FOR AN ISSUE, the optics couldn’t be better — Washington bailing out California zillionaires, tech firms, and venture capitalists while the rest of the country suffers from high inflation. There will be a political price to pay as populists in both parties — from Bernie Sanders to Donald Trump — ask whether bailouts reward bad behavior.
BIDEN WILL ATTEMPT TRIAGE this morning, with an address on the SVB bailout. He’s not having a good stretch, as China brokers a bold deal between Iran and Saudi Arabia that may isolate Israel, and as environmentalists howl over a Biden decision to open up a huge swath of Alaska for oil drilling — a clear sign that the president accepts fossil fuels as part of the solution, not part of the problem.
BIDEN’S POLLS MAY SLUMP AFTER THIS WEEKEND, but the hottest of all Washington hot seats is reserved for Fed Chairman Powell, who was sanguine (and wrong) on inflation two years ago and then took out a rate hike sledgehammer — clobbering credit markets, housing and and banks. Once the dust settles after this latest crisis there may be a focus on Powell’s tenure.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
©2023 AGF Management Limited. All rights reserved.