The banking mess and the one solution*

Imagine you own a Las Vegas casino, but instead of running it yourself, you hire a management firm to run it.

After a while, you discover that the management firm was incompetent or crooked.

Their incompetence was costing you money, and their stealing was costing you even more money.

What would you do?

Would you fire the management firm and hire a new one?

Would you vow to create stricter rules and to supervise them more closely, only to discover the same thing happening again?

And again.

And again.

At what point would you finally realize that the combination of incompetence and the powerful temptation to steal simply are too great for you to supervise someone else running your casino?

At what point would you run the casino yourself?

That is the question the federal government again has before it. 

Federal regulators were racing on Saturday to seize and sell the troubled First Republic Bank before financial markets open on Monday, according to four people with knowledge of the matter, in a bid to put an end to a banking crisis that began last month with the collapse of Silicon Valley Bank.

The effort, led by the Federal Deposit Insurance Corporation, comes after First Republic’s shares tumbled 75 percent since Monday, when the bank disclosed that customers had withdrawn more than half of its deposits.

It became clear this past week that nobody was willing to ride to First Republic’s rescue before a government seizure because larger banks were worried that buying the company would saddle them with billions of dollars in losses.

At the beginning of what we call “America,” the government wrote laws, among which were laws that created the U.S. dollar.

Because the federal government created the U.S. dollar, you might think the federal government would understand that U.S. dollar banking is the responsibility of the dollar’s creator. 

But, seemingly, the federal government (and the public) don’t get it. Allowing for-profit, private banks to handle that responsibility, competently and without stealing, requires an impossible level of supervision along with a naive belief in the purity of the human spirit.

The words, “for-profit” are key.

Instead of their goal being the efficient and honest distribution of dollars, according to the rules and safeguards established by the government, the goal of the for-profit banks is, of course, profits.

Each time the government sees that incompetence combined with dishonesty and the easy availability of billions of dollars leads to losses for the public, new, stricter rules are created, followed by promises of even stricter supervision.

But temptation and incompetence, along with the bribing of lawmakers proves that even the strictest supervision never can overcome human nature to prevent further incompetence and larceny.

So, the government created Federal Deposit Insurance.

This, in effect, said,

“We never will be able to stop these incompetent miscreants from stealing or otherwise losing depositors’ money, so we might as well, just reimburse depositors for the money that was stolen or lost.

“At least that will prevent panicky runs on the banks.”

But even that was not sufficient to guarantee the survival of the most crooked and incompetent banks, which repeatedly tended to fail, leaving the question, “Who will run the bank after it fails, but still has assets and liabilities?” 

The F.D.I.C. has been talking with banks that include JPMorgan Chase and PNC Financial Services about a potential deal, two of the people said.

A deal could be announced as soon as Sunday, these people said, cautioning the situation was rapidly evolving and might still change.

Any buyer would most likely assume the deposits of First Republic, eliminating the need for a government guarantee of deposits in excess of $250,000 — the limit for deposit insurance.

It’s difficult to justify the $250,000 limit (which the FDIC can and does ignore, at its whim). The Monetarily Sovereign federal government could, with equal ease, insure any limit. Why not $500,000? Or a trillion?

But here is where we are:

1. Private, for-profit banks will continue to bend the rules, cheat the public, and fail, after which the federal government will enter cure-and-recover mode by passing new laws, later to rescind them.
2. In many cases, the federal government will run a failed bank until another for-profit entity can be found to take it over. The federal government knows how to run banks and needs no profit motive. 
3. The federal government will absorb all the losses, up to certain limits (that $250,00 per account, except when the government decides to absorb more than that. It’s all at the discretion of the government which has the unlimited ability to absorb losses.)
4. Nothing changes. The “solution” will be stricter regulations until Congress is again bribed to loosen the regulations. Typically, Democrats get tougher, and Republicans get looser, but no one is willing to explain the obvious solution*.

Fed will consider tougher banking rules after SVB failure
Courtenay Brown, Kate Marino

The Federal Reserve is considering stricter regulations for banks after an internal review found that looser rules were one key culprit behind Silicon Valley Bank’s collapse — the second-largest bank failure in U.S. history.

Why it matters: The review, released Friday, lays blame on the bank itself, as well as Fed supervisors charged with overseeing it and a regulation rollback, for the failure. The episode forced the government to take extraordinary action to backstop the banking system.

And here we go again. The rules are tightened until again, they are loosened.

But rules don’t just “get” loosened. Politicians loosen them

What they’re saying: “SVB’s failure demonstrates that there are weaknesses in regulation sand supervision that must be addressed,” Michael Barr, the Fed’s vice chair for supervision who led the review, said in a statement.

Nothing learned. No amount of regulation and supervision can prevent a profit-motivated organization, with its sticky fingers on billions of dollars, from stretching the rules or outright stealing.

In a press release, Fed chair Jerome Powell endorsed that takeaway, saying he supported “recommendations to address our rules and supervisory practices.”

Details: The 114-page report, completed in a little over a month, is the most comprehensive look so far at the failures on the parts of supervisors and bank executives that led to the collapse of the bank.

Why did the supervisors and bank executives “fail”? The profit motive impelled them to fail. Adam failed that test. Humanity fails that test.

But underpinning those failures are 2019 changes that loosened regulations and requirements for financial institutions similarly sized to Silicon Valley Bank, Barr said.

Which party was in charge in 2019? The party that boasts how “good for business” it is. (“Good for business,” is another way to say, “You boys do whatever you want, and if get caught, you won’t be prosecuted, and the government will mop up the mess you made.“)

Where it stands: Those rule changes, which came in response to federal legislation, and a “shift in the stance of supervisory policy impeded effective supervision by reducing standards, increasing complexity, and promoting a less assertive supervisory approach,” Barr said.

Barr said that the Fed plans to reevaluate those rule changes, which applied to banks with $100 billion or more in assets.

The big picture: Barr also proposed tougher rules related to capital and liquidity requirements, as well as the format of periodic stress tests — all of which had been under consideration before Silicon Valley Bank’s failure.

The event, however, intensified the urgency for review, according to senior Fed officials.

Barr is also looking to improve “speed, force, and agility of supervision,” all of which he said appeared to fall short in the case of Silicon Valley Bank.

Of note: A senior Fed official was confident the recommendations would be approved. But even if that’s the case, the process is lengthy so any new rules — particularly those related to liquidity requirements — likely wouldn’t take effect for several years.

So, for “several more years” (i.e. forever) it will be business as usual, because no one is willing to admit there is one solution* to the entire mess.

Between the lines: The report details the extent to which some of Silicon Valley Bank’s troubles were identified by Fed supervisors but not followed up on.

Silicon Valley Bank’s “foundational problems were widespread and well-known, yet core issues were not resolved, and stronger oversight was not put in place,” the report says.

For instance, by the time Silicon Valley Bank failed, it had accumulated 31 supervisory warnings — triple the average received by peers — about a list of issues that ultimately led to the bank’s demise.

No one did anything about those warnings, because being “good for business,” they had been bribed to do nothing.

The bank’s supervisors also identified problems in the bank’s interest rate risk management in annual exams dating back to 2020, but did not issue findings until 2022.

Supervisors “planned” to downgrade a key rating for the Silicon Valley Bank, but the bank collapsed before that rating was finalized.

Sure, they were “planning” to do something at some time in the distant future, but somehow, never managed to do it in time.

Meanwhile: The FDIC on Friday released a report of its own, on the failure of Signature Bank. This agency, too, highlights weaknesses in its supervision — but it blames those failings in part on being under-staffed.

Why are they “understaffed”? Could it be for the same reason the IRS is understaffed? The rich don’t want regulators to function so they bribe Congress to withhold funds from regulators, then claim this is good for business.

The document also reads as a scathing report card on Signature Bank’s management and board, who the FDIC says are ultimately to blame for the bank’s failure.

Management “did not prioritize good corporate governance practices, did not always heed FDIC examiner concerns, and was not always responsive or timely in addressing FDIC supervisory recommendations,” according to the report.

Why should management do any of those things? Crooked bank managers don’t serve jail time. That’s reserved for shoplifters and other petty crooks.

They also dropped the ball when it comes to crypto, the report finds. “[Signature] failed to understand the risk of its association with and reliance on crypto industry deposits or its vulnerability to contagion from crypto industry turmoil that occurred in late 2022 and into 2023,” it said.

Worth noting: A separate report from the GAO, also issued Friday, highlights inadequate bank supervision in both banks’ failures.

The bottom line: The regulatory response to this year’s bank failures — which may soon include another one — is only just beginning.

That is exactly what was said following the Great Recession of 2008, which was caused in part, by bankers’  thievery. No bankers went to jail, though their stunning criminality cost America trillions.

The regulatory response is always “just beginning.” Five years, and ten years, and fifty years from now, after numerous more bank failures, there will be regulatory responses that are “just beginning.”

THE SOLUTION*

There is a solution, though because the rich hate it, it never will happen unless the public catches on to the swindle.

The problem lies with the profit motive. Remember “Lead me not to temptation”? Hang millions of dollars in front of even the most honest man’s nose, and he will graduate from stealing office pencils to stealing everything. Period.

The solution is:

1. The federal government knows how to run banks.
2. The federal government creates the lending rules.
3. The federal government creates the bank investing rules.
4. The federal government determines the bank security rules.
5. The federal government determines interest rates
6. The federal government is the one entity in America that has no profit motive.
7. The federal government cannot go bankrupt.
8. The federal government insures the banks’ customer against loss.
9. The federal government supervises the banks
10. The solution to private bank insolvency is for private banking to end. The federal government should own and manage all the banks.

There is no public purpose served by allowing the private sector to run banking. The federal government should run the banking industry itself. No other “solution” will work. 

This is not difficult to see, unless one if being bribed not to see it.

Rodger Malcolm Mitchell
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY