Tuesday, March 14, 2023
Danger! Falling banks!
If you missed it, we seem to be in the middle of a banking crisis-- the second-largest run on banks in the modern era.
It started, really, with a loosening under the Trump administration of regulations imposed after the 2008-9 financial crisis. That allowed banks to take more risks-- and for some, that included venturing into the quicksand we call cryptocurrency.
The first to fall was the Silicon Valley Bank, which was heavily connected to tech companies. A great majority of its deposits were over the $250,000, the upper limit for federal insurance. The question then came: will the federal government cover deposits over that limit?
To do so would seem to encourage this kind of risky behavior-- the government will always bail you out in the end. To not do so would risk a larger run on banks.
We ended up getting both-- they bailed out the bank, creating the "moral hazard" that comes with it, and more banks saw a run on their money.
This will be a crisis to watch. But, no doubt, we won't remember any lessons from it. We're not like that.
