'The next step should be obvious. Our only realistic path away from having to bail them out over and over again is to nationalize large parts of the banking system.'
In case we need any more proof, the bailout of the Silicon Valley Bank is yet another overt sign that we are operating within a new version of capitalism. The wealthiest among us have little fear of losing money from their most important financial investments. They know they will be bailed out, and the rest of us will pick up the tab.
If they succeed, the bank officers and investors become rich. If they fail, the government makes the depositors whole. It’s a business model with little downside. But perhaps the major reason in the case of SVB’s bailout has to do with the very wealthy venture capitalists who are invested in many of the tech start-ups that have their money parked in SVB accounts. These VC moguls, many of whom profess to be anti-government libertarians, made it clear to the political establishment that a bailout was required – and immediately!
That changed in a hurry after the Reagan-Thatcher idea of government captured the minds of most policymakers. The goal was to get the government out of the economy and get its foot off the necks of Wall Street/City financiers. Let them be free to create, free to build, free to drive the economy forward. Let them fund mergers and hostile takeovers that weed out the weak. Let them use corporate money to buy back stocks, manipulate share prices and stuff their own pockets.
And they deregulated derivatives that allowed for financial betting involving tens of trillions of dollars. It was argued that these bets would stabilise the financial system by spreading risk far and wide. To be sure, new regulations had to be passed to appease a furious public. Dodd-Frank forced the large banks to keep more cash on hand and to go through periodic stress tests. But should a crisis reach those banks, does anyone really believe they will be allowed to fail?
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