the central banking shuffle

now almost a week into the clusterfuck of financial collapse incited by Silicon Valley Bank’s failure, some salient points should be outlined:

• when Yellen and Biden are careful to reassure the rightfully skeptical and angry public that the federal government’s swift response towards “making depositors whole” is “not a bailout,” and it “won’t come at the expense of the taxpayer,” they are lying. by removing the FDIC’s deposit insurance threshold, they make clear that no, the suffering of everyday people is not important to them, but yes, the risk that VCs won’t get their money is important to them. it’s so important to them that they open the possibility of the Treasury itself backstopping FDIC reimbursement claims, which does come at the expense of the taxpayer. your student loan debt? your life ruining medical bills? that takes time, politics doesn’t happen in a day. some shithead VC with a yacht and tackily decorated homes all over the world? his problems need to be addressed immediately.
• the governance at SVB deserves careful examination, because something suspicious was going on there. there are practices that allow for deposits over the traditional $250K FDIC threshold to be protected in the case of bank failures; these involve breaking the cash into packages of <250K and depositing those bundles into other banks in the participating network, diluting risk for the depositor. SVB required that depositors keep all their funds with the bank. VCs should understand why this would leave them vulnerable to exactly what happened last Friday. so that opens three options as to why this common practice wasn’t followed at SVB.
  • the bankers were somehow unaware that this was a common practice for large corporate deposits; unlikely.
  • the tech bro VCs and the bankers thought they were doing something clever for some obscure reason; possible, given the hubristic faith in “disruption” that is the hallmark of the tech industry.
  • or, they knew this was going to happen, and in fact wanted it to happen; disturbingly plausible.
• if you open the possibility of all deposits ultimately being insured by the federal government not long after the Fed implements a new policy that allows for collateral to be valued at par, meaning according to present market value rather than at a lesser value that reduces risk, what you are paving the way for is making all financial transactions and deposits the responsibility of the Fed. previously the Fed dictated monetary policy by adjusting interest rates, which tightens or loosens the amount of circulating money. admittedly this places a lot of power in the hands of a cabal of bankers without democratic oversight, but their power was mediated by the ways payments processing is done. now, with all deposits potentially the responsibility of the federal government through no limit FDIC insurance, and with commercial banks becoming essentially channels for money to run through the Fed itself because the Fed’s balance sheet is, well, unbalanced, then we’ve arrived at the prelude to that bugbear of many a paranoid: CBDCs.
• and worse, this is happening in several countries, notably Switzerland, where the Swiss National Bank has had to come to the rescue of the failing Credit Suisse. the Swiss National Bank, the US Fed, and 61 other central banks are clients of the Bank for International Settlements, BIS, the central bank for central banks. the BIS has been working for over a year on implementing CBDCs internationally. CBDCs allow the central bank to determine what can and can’t be purchased with the currency, where the currency can be spent, when the currency must be spent by. kinda makes you wish currency were backed by some physical asset rather than valued according to the whims of international elites! but before the goldbugs get too smug, remember that for years the price of gold was fixed twice daily in an office at the New Court headquarters of Rothschild & Co.