American Oligarchy

Meet your Girl Danielle Moody, recording from the Home Bunker. Folks, you know, I got to tell you that all of the news surrounding the Silicon Valley Bank failure and seizure by the federal government as well as now Signature Bank and the FDIC stating that all of the depositors will be insured, even those that exceeded the two hundred and fifty thousand dollar insurer limit will be insured, I got to tell you that I'm so disgusted by this entire situation.

I'm disgusted because people like my upcoming guest Jennifer Tobb, predicted that this would happen. I'm disgusted by the fact that, you know, during the Obama administration, as we were watching banks being greedy as fuck, which predicated the foreclosure crisis, and none of those executives being held accountable any which way for ruining the American dream and the lives of

millions of people. Fast forward to Peter Thiel, an ultrawealthy white man who via tweet, is able to destabilize the banking industry, and I think to myself, why the fuck do these people have so much fucking power. And it's because we've allowed for the rich to become ultrawealthy and that we have the regulators right, those that are supposed to regulate our institutions received donations from the very people

that they are responsible for regulating. And then we wonder why shit like this happens because they just buide their time until their friends and cronies come into office, they get their ways so that they can buy their fifth house or their fifth fucking plane. You should not have that type of excessive wealth when there are people that are going hungry, where the federal government is totally fine to step in and bail out right these fucking banks.

But when it comes to those that are accessing trying their damned this to access the American dream via student loans to go to college, Oh no, you see fights and lawsuits being waged to make sure that the middle class and the working class remain exactly in the place that they are. There won't be any fucking lawsuits that are waged and political fights that are fought over this. I'm just so sick of the shit, you know, I'm so sick of the shit, and I'm so sick of

being lied to. It's greed, folks, And unlike Gordon Geko said back on Wall Street, greed is not good. Greed is actually fucking catastrophic. So coming up next my conversation with my friend Jennifer Tobb, the author of Big Dirty Money, Folks.

I am always so thrilled when a friend of the show and friend of mine, the author of the Big Dirty Money, Jennifer Tobb, makes the time to join us on woke a f Because, folks, when there is capitalism and greed and finances a myths in this country, there's only one person that I go to to make sense of the nonsense, and that is you, Jen Tobb. So

let's jump right in. All of the news. All the rage right now is a brown Silicon Valley Bank and the fact that the federal government has seized Silicon Valley Bank as well as I believe Signature Bank, another regional bank, that essentially there has been a run on these banks with depositors feeling uncertain that their deposits of over two

hundred and fifty thousand dollars will be covered. When the federal government says we got you and we're not going to use taxpayer dollars in order to ensure your deposits. But we're going to use this quote unquote pot that all banks pay into when things like this happen. Jen, you give us your fifty thousand foot view of what happened with Silicon Valley Bank and Signature Bank and what is happening in banking right now. Well, I'm so glad you asked me, because I just finished working on a

piece that when I have it, i'll share it. I'm writing an opinion piece for MSNBC, so it's fresh in my mind. So one thing before I kind of go through the really key details that I think are easy to understand if you actually pay attention, are not just spinning people for a living. You mentioned that there's this promise that taxpayers will never pay for these bailouts because it's going to come out of some fund banks pay into, well, the deposit Insurance fund that the FDIC has. If it

runs dry, it gets refilled. But in these situations, yes, there will be a future assessment on banks. That's the promise. The problem is back during the Dodd Frank era, right after the two thousand and eight financial crisis, I was one of the people helping work and encourage stronger legislation than we actually got. And one thing we were arguing

for was to pre fund that rescue fund. We were we were looking, we were actually looking for a special assessment of one hundred and fifty billion dollars to prefund, and that got shot down. People said it would encourage banks to fail. Not really. No one wanted to pay into the prefund. So that's one thing. But let's let's talk about what happened. And before I get the details, I want to make clear a couple of things. One, this is not the same thing as the global financial

meltdown of two thousand and eight. There is going to be contagion, but it's not going to be as bad. That's one thing too, It's not no big deal. And three, I blame not just Congress, but I also blame the FED who made who took advantage of a giant rollback of the Dodd Frank Law in twenty eighteen and made it worse. And I don't want to be here saying I told you so, but I flip and a half to say, you know what I wrote about this in two thousand and eight, I told you so. You know,

so whatever I mean, why wasn't the only one? It's not about that I did. What makes me the most angry about this situation is this would not have happened if Congress had not under roll back. Dodd Frank and Trump signed that law. But the problem is in this case, Daniel, are going to be perfectly Frank. It wasn't just the Republicans in Congress. There were big chunk of supporters at that time. The House was in Democratic control, and though

the Senate wasn't. Mitch McConnell needed at least he needed sixty votes to get this through, and he didn't have them, but he got the votes he needed from Democrats. It's infuriating. Okay. One last thing is Silicon Valley Bank, which I'm sure you've heard this in the news. Silicon Valley Bank was one of the bank's lobbying for the rollback yep, okay, and in fact, they thought it was laughable that the kinds of restrictions and oversight on them should be should exist.

They called them, you know, they called themselves a mid size bank, which at the time they were. And then once the ceiling for this special special heightened scrutiny, and stress tests and stuff was fifty billion dollars. As soon as that was lifted to two fifty low and behold, they did rapid growth. And they grew from a bank just at that level well above it until they failed two hundred billion. That never would have happened without this rollback.

I'm glad that you brought that up, because I was going to ask for an explanation for people to understand what the threshold was, what they had to have in holding when they needed to begin stress testing, and how that number was d billion. And at the time that Silicon Valley Bank was seized by the FEDS, they had a holding of two hundred and nine billion dollars. Right on paper, they're well with the wa wait wait wait wait on paper on paper, on paper, yeah, they're well

within though. Right there, they were well within the new deregulation that Donald Trump signed into twenty eighteen because they didn't make it to two fifty. They got to two hundred and then their whole ship started to crumble. Explain to us what exactly happened jen with the they got to t hold, like, what exactly was happening? And also what do we think the executives were doing when they started to sell off their shares about a week or so before the actual lapse of the bank. Okay, so

two things. One for those folks who are interested sort of generally in what is banking about and how banks fail, I have a new substack called Follow the Money, and I just put something up. My Monday column is always called on the Money, and I put an excerpt from testimony of mind before the Senate Banking Committee in twenty sixteen, and that testimony was about how these things called capital and liquidity should not be loosened up for banks. I'm not going to get into what that is, but if

you read that, I think it will become clear. But the fundamentals there which are kind of necessary for talking about this is that, as everyone probably knows, banks take deposits and banks make loans. People know that, but banks don't just take deposits and make loans. They also they also take that deposit money and invest it in other things like treasury securities and mortgage backed securities and so on. Right.

People also don't think if you have a deposits in a bank, you know, Daniel, you just mentioned that it's insured up to two hundred and fifty thousand. It used to be one hundred thousand. But you are essentially a lender to the bank right when you're a depository. At anytime, you can ask for your money back. Similarly, the loans. If the bank makes a loan, a mortgage loan, or a commercial loan to a business, those loans are the

bank's assets. They make money because they pay an interest, and hopefully when you sell them, you sell them for a profit or at least break even, so you can sort of think of it that way. In traditional banking, the way the bank makes money is the amount of interest it's bringing in on its loans. Let's say it's bringing in you know, six This would be a dream, but this is the example people give. Historically, bank bank

has loans at pay six percent. It pays depositors three percent, and it makes a difference the money on the spread. That's kind of the general idea of banking. Let's think of something a little bit different when you think about banking in reality, though, too. Have you ever noticed that if you want to get let's say you want to get a bank loan for a mortgage to buy a house, often the bank will say you know, we'll give you a cheaper rate if you if you bank with us,

right if you keep them. Similarly, here, let's say you went to something like Silicon Valley Bank and you were a business that wanted to get a loan from them, and let's say they gave you a million you needed, like five million dollars or whatever. They want you to keep that money in their bank. So though on the one hand, the five million is showing up is a loan as an asset of theirs, on the other hand,

you've now got five million on deposit with them. Well, some of it you're going to be using to buy stuff, but you're also going to be whenever you bring in money from customers, you're going to be depositing with them. So there's a little bit of an overlap relationship. Okay, so let's let's let's leave that. Let's leave that be so you understand how this works. Now, one of the biggest risk bank face is that this maturity transformation deposits

can be taken out on demand. But the loan, that mortgage loan, it's thirty years, or that corporate loan it's ten years. So only if you get too many depositors saying I want my money. Now, how does the bank pay the depositors? They have to sell the loans. That's fine, you would think, except in a rising interest rate environment. We are in a rising interest rate environment. And here's why. I remember how I told you, Okay, what if you have some loans on the books. Let's say your loans

in the books are only paying two percent interest. But let's say the Fed is raised rates and now it's four percent. That means no one wants to buy your dumb two percent paying loan. If you're trying to sell that loan and you keep it on the books at the price you bought it at, Let's say that you bought the loan for one hundred thousand dollars, it's not worth as much anymore because someone can go out there and buy another bank could buy a loan from someone

else that's paying in four percent interest. This is a lower yielding loan. So the problem here is this banks like SVB when it grew, remember I told you it was below fifty billion, yep, it grew super fast, and the way it grew super fast between twenty eighteen and twenty twenty one, like huge, huge, growth is it bought a lot of treasury bonds and mortgage backed securities in that era, but those were very very low interest rates. They didn't manage their interest rate risk and they didn't

have to write down those loans. So those loans that they had, you know, you know, let's say you have one hundred billion dollars worth of loans that are not worth one hundred billion anymore because the interest rates are so low and people want to buy higher yielding loans. The way the county rules work is the Fed doesn't require the bank even as the interest rates up go up to realize Those are called unrealized losses. So it's a big it's a big landmine on the balance sheet.

Everything is fine until depositors want their money out. And if they want their money out and you go to sell it a firesale those loans, you're to have a loss. That's exactly what happened to SVB last week. So SVB, which grew really rapidly, didn't manage its interest rate risk over the years, didn't hedge it properly, and frankly didn't have to GM right because in terms of what is required right, they didn't break the law yes, right, No,

they didn't break the law. And what's even worse about this, I remember, I'm talking about these these assets that they have. What I didn't mention that's really important that you alluded to at the beginning, is it has all these depositors. Right, so it had two hundred nine billion in assets, it only had one hundred and seventy five billion in customer deposits. The problem was these were not normal customer deposits. It is very unusual if you look at a chart of

these the nature of these deposits. Over ninety percent of those deposits were uninsured businesses who put their money there above the two hundred and fifty thousand dollars per account. Some of those businesses were businesses that were startups or in the crypto space. Those these are very runnable assets which specialized in runnable liabilities. Remember, and I think what SVB often did as they said, if you want to us to give you a loan, you have to put

your deposits with us. I'm not sure if they always said that, but I get the sense that that might have been a goodie that they wanted or they asked for. Okay, so these are highly runnable deposits. We call this hot money, so hotter than most because it's it's businesses that are more likely to take their money in and out for payroll. But also in this case, whenever they had the money over two hundred and fifty thousand, they knew if this bank failed, they didn't want to be last in line,

and they knew that the FDIC didn't ensure this. They could have had to take haircuts or lost a good chunk of their deposit. So what happens is like a few days before the run fda C Chairman Martin Gruenberg, and the FDAC is the one that runs this deposit insurance fund. He mentioned that across the banking sector there were substantial unrealized losses. These are the holes in the balance sheet where almost like you've got two set of books.

The official set of books are holding them at purchase value, but the actual reality is they're really not worth that if they had to be sold. He said, the banking system has over six hundred and twenty billion dollars and unrealized losses. He says this there are folks that are sniffing around like Peter Teal and other people in Silicon Valley, and they put out the bat signal. First Peter Teal sells all of his cells, He withdraws all of his money he has on deposit. He has something called a

founder's fund. He said, he put withdraws all of his money with SVB. And then someone else puts out a bad signal and they said get your money out. I mean think he did too. And so there's a run. Everyone wants their money. So what does the CEO of SVB have to do. They have to sell. And when they went and sold around twenty billion dollars of securities, they had a loss of one point eight billion. So you know when we're talking about yeah, in theory, they

had a capital cushion in there. You know, they had two hundred and nine in assets in one hundred and seventy five in deposits. And really, really that two hundred and nine wasn't We're gonna bear that out. So this run continues. This is on Wednesday. On Thursday, they said they had to raise they want to raise capital, No one,

They couldn't find many takers to raise capital. Um you know, there was new new stock in new preferred stock, and so basically the stock price plummets on Thursday, literally the day after they announced they need to raise more money because of that, you know, fire sale, and then fear spreads and the regulators in California sees the bank put it under FDIC control. This is on on Thursday. On Friday, UM on Friday the then I think I'm getting to Friday.

But anyway, at some point we have the FDIC announcing that anyone who was insured will be be fine. We covered, but not that people who were uninsure might get less. And then then you know, everyone goes whining. You know, all these uninsured depositors, which are largely businesses who knew the risk, who knew they should have spread that money across many banks and bank accounts. They complained enough that

that the regulators decided on Sunday. This is the FED, the FDIC and Treasury, they decided that they would cover all depositors, including including the uninsured. So they said that on Sunday. And that's at the same time they did the same thing for Signature Bank. In addition to this, though besides that, showing that it's not just these two banks, the FED announced us I knew what they call it it's like a bailout facility. It's basically a fund to

bail out any other banks. And this reminds me the Financial Crisis two thousand and eight because they basically said, we will buy at par value, at face value, any securities, like any of these low interest rate securities at other banks have on their books, will pay the fake value for them so that you don't have to experience these unrealized losses. So, Jim, I know you're gonna lose your mind right now. And are you thinking about student loans

right now? Because I know I'm thinking. I'm thinking about a couple of things. And so I want to start with Peter Deal. I want to start with him because this goes to my belief in the fact that the American all a dark system is out of fucking control.

That I want people to understand and all of the rundown and economics one oh one and one oh two that you gave us that it was one person that started via tweet a run on Silicon Valley Bank, right, this is and it was not the resident of the United States, It was not the head of the Federal Reserve. One ulture wealthy white man via tweet started a run

on this back. Yeah. Yeah, so here we are in this to by the way, please it makes sense for him, right because he apparently he I think he's that's the bank aware to start us bank at and he's told people to do it, and I think he has people in My understanding is you know, his people investing his funds go there. His doing that and getting the bad signal out resulted in everyone organizing doing this run. And then it resulted in these uninsured depositors being covered, I understand,

and covered because they organized. You should say, right, so you're saying is this broken? Oh no, it's functioning how they want it to function. No, it's functioning how they want it to function. And when you say, oh, are you thinking about student loans? Of course I am right, of course I am, because again we are functioning inside of a system that is built to make sure that

wealthy people remain whole. I mean where this is. You know, when I listened to the oral argument at the Supreme Court on the student loans and I wrote about this for my substackt. The key thing, as you know, is not the key reason why this is being attacked, but the legal arguments are that the Department, that the Secretary of Education didn't have the authority even though Congress gave

him emergency authority, including to cancel old student loans. They didn't have the authority to do this even though he did it, and that the Supreme Courts is second cast them. Here we have the FED creating one of these facilities to bail out the entire banking system using their authority under thirteen three of the Federal Reserve Act, which is less flip in clear than the Department of Educations authority was.

And you're not going to see I'll tell you, I don't think we're going to see a challenge win at the Supreme Court on this. I'm trying to remember, because why would wealthy people challenge themselves? Well, there might have. People are only going to challenge the poor, right that, and challenge the less advantaged. What I need to go back and look is I'm trying. I'm remembering that there might have been back in twenty fifteen or sixteen, some kind of challenge to this. I need to go back

and look. But I know it all the bailouts held up. Maybe there's a challenge. I can't I actually go back and look and see how it was treated at the time. But fundamentally, um, you know, fundamentally, this is it's it's it's not even about the law. It's a deeply unfair way. These narratives are spies. You see all these people saying, oh, don't think of it as these stupid bankers, think about these poor depositors who are no better. And no, it's

not all Silicon Valley chieftains. This little lady you know who, from wherever she's from. I saw this thing. I started my own startup, and it's not just the big businesses. It's me and you know, it's me and my five people. And like their American dream, well, you know what, a

lot of us have an American dream. A lot of students have American dreams, and they are just the I even see there's some good people on the news talking about this, but there's some people that I have seen, some talking heads who keep emphasizing that, you know, it's not just big businesses. You know what, Listen, anyone who has more than two hundred and fifty thousand dollars in a single account knew what they were getting themselves into. Period.

And I've seen people argue with me on Twitter saying, yeah, but they couldn't have gotten as good of a rate if they hadn't gone to this bank, and that's what the bank probably required. I'm like, that's their choice. I shouldn't have to bail out them for making that choice.

That's not or we need to have a different system where we decide if the government's going to backstop this, if the government's going to pay for a military, the government should pay for school, should pay for It's just amazing to me that when there's this thing that I wrote in the piece, I don't make it through the edit. But they're just like, there are no atheists, foxholes, there are no capitalists and bank failures. No, because they're all

socialists at that point, right they were before. I mean, yeah, it becomes so stark, Jim. I guess is the injustices, the inequities, the fact that the ultrawealthy are just going to continue to get wealthy, are going to continue to be made whole, and they are made whole by causing holes in the middle class and in the working class. And until we actually have a government that sees the needs of the middle class and the working class and

the poor above the ultrawealthy. Nothing is ever going to change. And the fact is is that, you know, much in the same way that we look to the police to write police reports with accuracy about their own wrongdoing, we look to the federal government, which is filled with people who receive donations from the very people who they are in charge of regulating. And until that actually stops, which it won't, this will continue over and over and over again.

Every five, ten, fifteen, twenty fucking years, this will be the headline. People will say, we'll need more regulation, a Republican will get in office, well, you know, and then fascism. We'll just rain down because we won't have democracy to move forward. So what happens, Well, what I'm hoping for is something I saw my friend Dennis Kelleher suggest. He runs Better Markets, which is a nonprofit, nonpartisan kind of

think tank around market functioning. He's a good guy and he wants there to be an independent investigation of what went down at the FED. Right now, someone it inside the FED is said, we're going to do this thing and ourselves and put out a report by May and it is like, no, and it shouldn't even be. The Inspector General for the Fedruyu have some independent other inspector general look at what happened, because this was a tremendous

failure of supervision. Even though this bank managed to get out of some of the more serious oversight, there's no reason why it should have been taking on this kind of interest rate risk or having such a non diversified funding on its liability side. And the San Francisco FED as well as the FED um, you know, the central Bank itself needs to be investigated. Yeah. Yeah, and of

course you just saw that. But but the biggest the other thing is, you know, we need to as you know Label Warren said last night, you know, we need to and Katie Porter, we need to roll back the word. We need to cancel the law that roll back Dodd Frank, and we need to actually reopen the debates around Dodd Frank and put back in the stuff that we were arguing for that we didn't get into the final legislation. Yeah, like the prefund also, Yeah, yeah, good luck with that.

I'm just saying, yeah, I'm just saying good luck with that. And I won't hold my breath because I'd rather not pass out and hit my head on my computer Jennifer Tobb. We will have you back again as this continues to unfold, but to have more conversations about immense greed and the American oligarch that we don't talk about. We're all about seizing yachts and private planes and multiple homes of Russian oligarchs, but we speak nothing on the technocrats and the American

oligarchs that run everything in our lives. So as always, dear friend, we appreciate you, so good to see you. That is it for me today. Hear friends on woke app as always, power to the people and to all the people. Power, get woke and stay woke as fuck.