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Brownstone Institute

Where Is Occupy Silicon Valley?

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8 minute read

From the Brownstone Institute

BY Craig PirrongCRAIG PIRRONG

Bank failures tend to come in waves, and we are experiencing at least a mini-wave now.

Banks fail for three basic reasons: 1. Credit transformation: deterioration in borrower creditworthiness, usually due to an adverse economic shock (e.g., a real estate bust). 2. Maturity transformation: borrowing short, lending long, and then getting hammered when interest rates rise. 3. Liquidity transformation combined with an exogenous liquidity shock, a la Diamond-Dybvig, where idiosyncratic depositor needs for cash lead to withdrawals that exceed liquid assets and therefore trigger fire sales of illiquid assets.

The two most notable failures of late–Silicon Valley Bank and Silvergate–are examples of 2 and 3 respectively.

In some respects, SVB is the most astounding. Not because a bank failed in the old-fashioned way, but because it was funded primarily by the deposits of supposed financial sophisticates–and because of the disgusting policy response of the Treasury and the Fed.

SVB took in oodles of cash, especially in the past couple of years. The cashcade was so immense that SVB could not find enough traditional banking business (loans) to soak it up, so they bought lots of Treasuries. And long duration Treasuries to boot.

And then Powell and the Fed applied the boot, jacking up rates. Bonds have cratered in the last year, and took SVB’s balance sheet with it.

Again, an old story. And hardly a harbinger of systemic risk–unless such reckless maturity mismatches are systemic.

SVB was the Banker to the Silicon Valley Stars, notably VCs and tech firms. These firms are the ones that deposited immense sums in exchange for a pittance of return. Case in point, Roku, put almost $500 million–yes, you read that right, 9 figures led with a 5–into SVB!!!

I mean: what the eff? Was the Treasurer a moron? For who other than a moron would hold that much in cash in a single institution? (Roku claims its devices “make your home a smarter.” Maybe they should have hired a smarter treasurer and CFO, or replaced them with one of its devices). Hell, why is a company holding that much in cash period?

A few of these alleged masters of the universe (like Palantir) saw the writing on the wall and yanked their deposits: deposits fell by a quarter on Friday alone, sealing the bank’s doom. Those who were slow to run howled to the high heavens over the weekend that if there was not a bailout there would be a holocaust in the tech sector.

Even though the systemic risk posed by SVB’s failure is nil (or if not, then every bank is systemically important), the Treasury Department and the Fed responded to these howls and guaranteed all the deposits–even though the FDIC’s formal deposit insurance limit is $250,000. You know, .05 percent of Roku’s deposit.

When evaluating this, one cannot ignore the reality that the Democratic Party is completely beholden to Silicon Valley. This is beyond scandalous.

Occupy Silicon Valley, anyone?

Treasury Secretary Janet Yellen insulted our intelligence by assuring us this is not a bailout. Well, it’s not a taxpayer bailout, strictly speaking, because the Treasury is not providing the backstop. Instead, it is being funded by a “special assessment” on solvent banks. Which are owned and funded by people who also pay taxes. And such an “assessment” is a tax in everything but name–because it is a contribution by private entities compelled by the government.

The policy implications of this are disastrous. The whole problem with such bailouts is moral hazard. What is to stop banks from engaging in such reckless behavior as SVB did if they can obtain seemingly unlimited funding from those who know that they will be bailed out if things go pear-shaped?

And the regulatory failure here demonstrates that bank regulation–despite the supposed “reforms” of Frankendodd–can’t even catch or constrain the oldest bet-the-bank strategy in the book. Free banking–no deposit insurance, no bailing out of depositors–couldn’t do worse, and would likely do better.

No, the failure of SVB is not the scandal here. The scandal is the political response to it. This reveals yet again how captured the government is. This time not by Wall Street, but by tech companies and oligarchs that are currently the primary source of Democratic political funding.

A couple of weeks ago the Silvergate story looked juicy, but SVB has put it in the shade. Silvergate also grew dramatically, but on the back of crypto rather than SV tech. It became the main banker for many crypto firms and entrepreneurs. The crypto meltdown did not affect Silvergate directly, but it did crush its depositors, the aforesaid crypto firms and entrepreneurs. They withdrew a lot of funding, and an old-fashioned liquidity mismatch did it in.

In traditional banks, deposit funding is “sticky.” Banks that rely on wholesale funding (“hot money”) are more vulnerable to runs. Silvergate’s funding was not traditional sticky deposit funding, nor was it hot money per se. It was money that was pretty cool as long as crypto was cool, and became hot once crypto melted down.

A run started, but the run was precipitated by a liquidity shock. Simple story, really.

Silvergate’s failure was not a scandal. SVB’s failure per se was not a scandal (except to the extent that our vaunted banking regulators failed to prevent the most prosaic type of failure).

Again–the scandal is the politically tainted response that will have baleful consequences in the future, as the response virtually guarantees that there will be more SVBs in the future.

Author

  • Craig Pirrong

    Dr Pirrong is Professor of Finance, and Energy Markets Director for the Global Energy Management Institute at the Bauer College of Business of the University of Houston. He was previously Watson Family Professor of Commodity and Financial Risk Management at Oklahoma State University, and a faculty member at the University of Michigan, the University of Chicago, and Washington University.

After 15 years as a TV reporter with Global and CBC and as news director of RDTV in Red Deer, Duane set out on his own 2008 as a visual storyteller. During this period, he became fascinated with a burgeoning online world and how it could better serve local communities. This fascination led to Todayville, launched in 2016.

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Brownstone Institute

Deborah Birx Gets Her Close-Up

Published on

From the Brownstone Institute

BY Bill RiceBILL RICE 

According to Birx, she intentionally buried the more draconian elements of the lockdowns in text at the end of long documents, theorizing (correctly apparently) that most reporters or readers would just “skim” the document and would not focus on how extreme and unprecedented these mandates actually were.

Most Americans will remember Dr. Deborah Birx as the “scarf lady” who served on the White House’s Covid Response Team beginning in February 2020.

According to a recently-released (but little-seen) 24-minute mini-documentary, it was Birx – even more so than Anthony Fauci – who was responsible for government “guidelines,” almost all of which proved to be unnecessary and disastrous for the country.

According to the documentary, the guidelines ran counter to President Trump’s initial comments on Covid, but ultimately “toppled the White House (and Trump) without a shot being fired.”

The mini-documentary (“It Wasn’t Fauci: How the Deep State Really Played Trump”) was produced by Good Kid Productions. Not surprisingly, the scathing 24-minute video has received relatively few views on YouTube (only 46,500 since it was published 40 days ago on Feb. 26).

I learned of the documentary from a colleague at Brownstone Institute, who added his opinion that “Birx (is) far more culpable than Fauci in the Covid disaster…Well worth the time to see the damage an utter non-scientist, CIA-connected, bureaucrat can do to make sure things are maximally bad.”

I agree; the significant role played by Birx in the catastrophic national response to Covid has not received nearly enough attention.

Brought in from out of Nowhere…

From the video presentation, viewers learn that Birx was added to the White House’s Coronavirus Task Force as its coordinator in latter February 2020.

Birx worked closely with Task Force chairman Vice President Mike Pence, a man one suspects will not be treated well by future historians.

According to the documentary, “career bureaucrats” like Birx somehow seized control of the executive branch of government and were able to issue orders to mayors and governors which effectively “shut down the country.”

These bureaucrats were often incompetent in their prior jobs as was Birx, who’d previously served as a scientist (ha!) in the Army before leading the government’s effort to “fight AIDS in Africa” (via the PEPFAR Program).

When Birx was installed as coordinator of Covid Response she simply rehashed her own playbook for fighting AIDS in Africa, say the filmmakers.

The three tenets of this response were:

  1. “Treat every case of this virus as a killer.”
  2. “Focus on children,” who, the public was told, were being infected and hospitalized in large numbers and were a main conduit for spreading the virus.
  3. “Get to zero cases as soon as possible.” (The “Zero Covid” goal).

The documentary primarily uses quotes from Scott Atlas, the White House Task Force’s one skeptic, to show that all three tenets were false.

Argued Atlas: Covid was not a killer – or a genuine mortality risk – to “99.95 percent” of the population. Children had virtually zero risk of death or hospitalization from Covid. And there was no way to get to “zero cases.”

Atlas Didn’t Shrug, but was Ignored…

Furthermore, the documentary convincingly illustrates how the views of Atlas were ignored and how, at some point, his ability to speak to the press was curtailed or eliminated.

For example, when Atlas organized a meeting for President Trump with Covid-response skeptics (including the authors of the Great Barrington Declaration) this meeting was schedule to last only five minutes.

The documentary also presents a report from the inspector general of the Department of State that was highly critical of Birx’s management style with the African “AIDS relief” program she headed.

Among other claims, the report said she was “dictatorial” in her dealings with subordinates and often “issued threats” to those who disagreed with her approach.

Shockingly, this highly-critical report was published just a month before she was appointed medical coordinator of the Coronavirus Task Force.

A particularly distressing sound bite from Birx lets viewers hear her opinion on how controversial “guidance” might be implemented with little pushback.

According to Birx, she intentionally buried the more draconian elements of the lockdowns in text at the end of long documents, theorizing (correctly apparently) that most reporters or readers would just “skim” the document and would not focus on how extreme and unprecedented these mandates actually were.

The documentary points out that Birx’s prescriptions and those of President Trump were often in complete conflict.

Birx, according to the documentary, once pointed this out to Vice President Pence, who told her to keep doing what she believed.

Indeed, the Vice President gave Birx full use of Air Force 2 so she could more easily travel across the country, spreading her lockdown message to governors, mayors, and other influencers.

Several Covid skeptic writers, including Jeffrey Tucker of Brownstone Institute, have noted that President Trump himself went from an opponent of draconian lockdowns to an avid supporter of these responses in a period of just one or two days (the pivotal change happened on or around March 10th, 2020, according to Tucker).

Whoever or whatever caused this change in position, it does not seem to be a coincidence that this about-face happened shortly after Birx – a former military officer – was named to an important position on the Task Force.

(Personally, I don’t give Anthony Fauci a pass as I’ve always figured he’s a “dark master” at manipulating members of the science/medical/government complex to achieve his own desired results.)

This documentary highlights the crucial role played by Deborah Birx and, more generally, how unknown bureaucrats can make decisions that turn the world upside-down.

That is, most Americans probably think presidents are in charge, but, often, they’re really not. These real rulers of society, one suspects, would include members of the so-called Deep State, who have no doubt installed sycophants like Fauci and Birx in positions of power.

I definitely recommend this 24-minute video.

A Sample of Reader Comments…

I also enjoyed the Reader Comments that followed this video. The first comment is from my Brownstone colleague who brought this documentary to my attention:

“… As I said, things can change over the period of 20 years but in the case of Birx/Fauci, I do not believe so. I have never seen people entrenched in the bureaucracy change.”

Other comments from the people who have viewed the mini-documentary on YouTube:

“Pence needs to be held accountable.”

“What does Debbie’s bank account look like?”

“(The) final assessment of President Trump at the 23:30 mark is, while painful, accurate. He got rolled.”

“This is very hard to find on YouTube. You can literally search the title and it doesn’t come up.”

“Excellent summary, hope this goes viral. Lots of lessons to learn for future generations.”

“Eye opening. Great reporting.”

Post from One Month Ago…

“37 likes after 3 years of the most controversial and divisive action in recent history. How can this be?”

“Oh never mind. YouTube hid it from the public for years.”

“Probably hasn’t been taken down yet for that reason, relatively low views.”

“Thanks for this! Sounds like everyone below President Trump was on a power trip and I didn’t think it was possible to despise Pence more than I already do.”

“…the backing of CDC, legacy media, WHO and government schools, business folding in fear are ALL responsible. Accountability for every person and agency is paramount!”

“Should be noted that her work on AIDS in Africa was just as useless and damaging.”

“First, any mature, adult woman who speaks with that much vocal fry should be immediately suspect. And the glee with which she recounts her role at undermining POTUS is remarkable and repulsive. This woman should NEVER be allowed to operate the levers of power again.”

Republished from the author’s Substack

Author

  • Bill Rice

    Bill Rice, Jr. is a freelance journalist in Troy, Alabama.

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Brownstone Institute

Justices’ Grave Error in Murthy v. Missouri

Published on

From the Brownstone Institute

BY Aaron KheriatyAARON KHERIATY 

Along with my co-plaintiffs, I was at the Supreme Court last week for oral arguments in our Murthy v. Missouri case, in which we are challenging the federal government’s alleged censorship on social media. The Supreme Court will likely rule in June whether to uphold, modify, or strike down the Fifth Circuit Court of Appeals’ injunction against five federal agencies, in what, the district court judge wrote, “arguably involves the most massive attack against free speech in United States’ history.”

At the hearing, Justice Samuel Alito pointed out that emails between the White House and Facebook “showed constant pestering of Facebook.” He went on to comment, “I cannot imagine federal officials taking this approach to the print media…It’s treating these platforms like subordinates.” He then asked the government’s attorney, “Would you treat the New York Times or the Wall Street Journal this way? Do you think the print media considers themselves ‘partners’ with government? I can’t imagine the federal government doing that to them.”

The government’s attorney had to admit, “The anger is unusual” — referring to White House official Rob Flaherty literally cursing at a Facebook executive and berating him for not taking action quickly enough to comply with the government’s censorship demands.

Justice Brett Kavanaugh followed up, asking, “On the anger point, do you think federal government officials regularly call up journalists and berate them?” It’s worth recalling that Kavanaugh worked as a White House attorney before he was appointed to the court, as did Justices John Roberts and Elena Kagan. No doubt there were times they dialed a journalist or editor to try to convince them to change a story, clarify a factual assertion, or even hold or quash the publication of a piece. Kavanaugh admitted, “It’s not unusual for the government to claim national security or wartime necessity to suppress a story.”

Perhaps colorful language is sometimes used in these conversations, as Kavanaugh himself hinted. Kagan concurred: “Like Justice Kavanaugh, I have had some experience encouraging the press to suppress its own speech…This happens literally thousands of times a day in the federal government.” With a wink to the other former executive branch attorneys on the bench, Roberts quipped, “I have no experience coercing anyone,” which generated a rare chuckle from the bench and audience.

This analogy to government interactions with print media, however, does not hold in the case of the government’s relationship with social mediaThere are several crucial differences that profoundly change the power dynamic of those interactions in ways directly relevant to our case. These differences facilitate, in Alito’s words, the government treating the platforms like subordinates in ways that would be impossible with print media.

Behind the Scenes

First, when a government official contacts a newspaper, he is talking directly to the journalist or editor — the person whose speech he is trying to alter or curtail. The writer or editor has the freedom to say, “I see your point, so I’ll hold my story for one week to allow the CIA time to get their spies out of Afghanistan.” But the speaker also has the freedom to say, “Nice try, but I’m not persuaded I got the facts wrong on this, so I’m running the story.” The publisher here has the power, and there is little the government can do to threaten that power.

By contrast, with requests or demands for social media censorship, the government was never talking with the person whose speech was censored, but with a third party operating entirely behind the scenes. As my co-plaintiff, the eminent epidemiologist Dr. Martin Kulldorff, quipped, “I would have been happy to get a call from a government official and hear about why I should take down a post or change my views on the scientific evidence.”

Power Dynamic

Additionally, there is little the government can do to destroy the business model and cripple the New York Times or Wall Street Journal, and the journalists and editors know this. If the government pushes too hard, it will also be front page news the next day: “Government Trying to Bully The Post to Censor Our Breaking Story,” with the lede, “Naturally, we told them to go pound sand.”

But the power dynamic is entirely different with Facebook, Google, and X (formerly Twitter): The government does have a sword of Damocles to hang over the head of noncompliant social media companies if they refuse to censor — in fact, several swords, including the threat to remove Section 230 liability protections, which Facebook founder Mark Zuckerberg has accurately called an “existential threat” to their business, or threats to break up their monopolies. As the record in our lawsuit shows, the government explicitly made just such threats, even publicly on several occasions, in direct connection to their censorship demands.

Furthermore, unlike the major tech companies, newspapers or magazines do not have massive government contracts that might disappear if they refuse to comply. When the FBI or Department of Homeland Security calls Facebook or X with censorship demands, the corporate executives know that a weaponized agency has the power to launch frivolous but onerous investigations at any time. It thus becomes virtually impossible for social media companies to tell the government to take a hike — indeed, they may have a fiduciary duty to shareholders not to incur serious risks by resisting government pressure.

The text of the First Amendment doesn’t say the government shall not “prevent” or “forbid” free speech; it says the government shall not “abridge” free speech — i.e., shall not do anything to lesson a citizen’s ability to speak or diminish one’s potential reach. A sensible and clear injunction would simply state, “Government shall not request that social media companies remove or suppress legal speech.”

But if the justices want to distinguish between persuasion and coercion in the injunction, they need to appreciate that social media companies operate in a very different relationship with government than traditional print media. These asymmetrical power dynamics create a relationship ripe for unconstitutional government coercion.

Republished from The Federalist

Author

  • Aaron Kheriaty

    Aaron Kheriaty, Senior Brownstone Institute Counselor, is a Scholar at the Ethics and Public Policy Center, DC. He is a former Professor of Psychiatry at the University of California at Irvine School of Medicine, where he was the director of Medical Ethics.

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