Commentary
In the last few days, the federal government has embarked on a disastrous path as regards banking and finance. Their actions guarantee a worsening of the problem whether in the near term or down the line. These “emergency” actions have effectively created a moral hazard that could wreck the entire sector and the whole economy over time. In short, the government just guaranteed 100 percent of deposits in major banks, amounting to nearly $10 trillion in bailout guarantees.
There is no living thinker who believes that this is a good idea. Why would they do it? From every account we have so far concerning the chaotic couple of days at the White House, they did it because they didn’t know what else to do. They fear that allowing Silicon Valley Bank (SVB) to fail would lead to contagion. There is zero evidence that this is true.
SVB failed for specific reasons related to its bond portfolio. Egged on by federal regulators who pushed government bonds over the exotic financial instruments that created such trouble in 2008, this bank went all in on fixed-rate bonds. Its entire portfolio became devalued when rates rose after the Fed changed its policies. Instead of taking a haircut, like many major banks did, this bank did nothing.
The bank should have been allowed to fail, full stop. Depositors might eventually have gotten 70 cents on the dollar. So flippin’ what? That’s what happens when you keep your money in uninsured accounts. Too bad for Harry and Meghan but that’s how it is. A little tough love here would have been a beautiful thing to see. Today would be very different as risk-management teams took a closer look at their bold holdings and depositors became more scrupulous in balancing out their accounts.
Instead, the government utterly wrecked rationality in the name of emergency.
We’ve been here before. There are very close analogies between this response to a banking crisis—never let any bank failure nor any depositor lose money—and the insane response to COVID. The unstated presumption behind the COVID response was that it was the government’s job to minimize or even eliminate infections. This idea was completely bogus from the very beginning and the attempt to implement it wrecked the country and world. It was all done under the cover of emergency.
Let’s go back three years ago this weekend to see what happened. On March 9, 2020, Donald Trump tweeted out that the coronavirus could be a lot like the flu and so there was nothing really that government could or should do about it. People die. That’s how it goes. Government has no magical power to stop it. On this intuition, however clumsily he stated it, he was exactly right.
Over the next three days, something changed. By March 12, he imposed a travel blockade from Europe, the UK, and Australia, and three days later he issued a lockdown edict for the whole country. Many other countries followed. What precisely happened to change his mind? All evidence points to the people who were whispering to Trump that this was not a normal virus. Instead it was a bioweapon from a lab. In that case, all the “germ games” that national security had played over the previous year (Crimson Contagion and Event 201) needed to be implemented.
All it took was for Trump to agree. Consider that he was being screamed at by all the industries and sectors that would benefit from lockdown: technology companies, media, big-box stores, online retailers, public-health bureaucrats, pharmaceutical companies, and a panoply of politicians seeking largesse. What was missing from this crowd of Chicken Littles was one scientist who could point out that a bioweapon virus from a lab still has to operate in its impact on the population like a textbook virus.
What they did was fast-track a vaccine that was not needed even if it worked for 90 percent of the population. Incredibly, it became its own form of bioweapon once forced on the masses of the population, causing rampant health deprecation and even death. In the name of controlling a supposed bioweapon they created one.
The right approach would have focused on therapeutics necessary to make sick people well. That concern was disregarded. The CDC and the NIH didn’t give a fig for that concern, which left doctors empty-handed once they confronted sick patients. It took a group of outspoken normal physicians to figure out that there were repurposed drugs that could work. Government, meanwhile, was only focused on ventilating people and spreading panic.
In other words, it was the invocation of emergency that caused people to lose their heads and forget all known information about viruses and disease mitigation. Instead, they deployed a wild and wacky experiment in universal human control as if we are all lab rats in their science project. It was nothing short of a disaster for public health, economics, culture, and law.
Something very similar unfolded over the weekend concerning SVB. Instead of treating this for what it was—the failure of a poorly run business—the White House panicked into tossing the trash all known economic principles and all rationality. It’s just common sense that you don’t bail out institutions that make terrible errors lest you create the very conditions that lead to a perpetuation of those errors in other institutions. But did they care? No. And why? Because it was an emergency.
There is only one kind of banking system that does not tolerate bank failures: a non-functioning one. Quite simply, stopping bank failures is the wrong goal driven by the wrong metric, just like virus shutdowns were motivated by the wrong goal driven by the wrong metric. The trouble is that powerful people in hot boxes of panic and freak-out are the wrong people to make these decisions and yet they are the ones making them.
We are witnessing yet another failure of the administrative state, in this crisis just like the last one. These are people with too much power, no accountability, and not enough knowledge or wisdom. And yet they are the ones running the show! And it appears that every time they do something to fix a problem, they make the problem worse. The supposed cure seems always to be worse than the disease.
There is one major and dramatic reform needed in this country and all countries. The administrative apparatus of the state needs to be completely disabled and gutted. It needs to happen now. And this solution needs to be broadly applied whether it pertains to disease, energy, banking, money, and everything else. Until this happens, there is good reason to be pessimistic about the cause of freedom itself.
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