Theodore Brita
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The sudden collapse of Silicon Valley Bank (SVB) has had wide-ranging effects. Other banks have suffered residual knock-on effects, and the collapse likely represents the single most pressing challenge the American financial system has faced since the housing bubble burst in 2008. Various theories have circulated as to why SVB failed, with varying degrees of plausibility. It seems difficult to imagine how Florida Gov. Ron DeSantis’ claim that the bank was “so concerned about [diversity, equity and inclusion] and politics and all kinds of stuff” could have led to its collapse. The fact that the bank refused to employ a Chief Risk Officer for at least some of 2022 is far more relevant, as is the fact that, in 2018, former President Donald Trump rolled back regulations on the banking industry that had been established in the wake of the 2008 crisis. But much like in 2008, the federal government stepped in to once again rescue an investment bank from the negative consequences of its risky investment. While experts are not in complete agreement over whether the steps the government took to rescue SVB constituted an official bailout, the fact that the Federal Reserve System, U.S. Department of the Treasury and Federal Deposit Insurance Corporation all intervened is telling enough. Once again, a highly important financial institution faced virtually no consequences for its risky behavior, which will likely have a detrimental material impact on hundreds of thousands of consumers.

Of course, SVB is now closed, and the people who worked there are likely currently unemployed. But those who did work there made a killing in the years before the bank’s collapse. The bank began to employ a riskier investment strategy in 2017, which was fantastic for profits over the short-term. As the bank embarked on this new strategy, analysis conducted in the aftermath of the crash found that executive pay at SVB skyrocketed. Riskier investments increased the bank’s return on equity — a widely used measure of profitability — until the Federal Reserve System began increasing interest rates at the end of 2021. Essentially, risky investments worked for SVB until economic conditions took a slight downturn. However, this did not encourage a change in strategy at the bank, which carried on making longer-term investments until its collapse. The more difficult economic situation the United States has witnessed since 2021 has affected consumers and financial institutions alike, but only financial institutions have received the benefit of the doubt from the government.

Perhaps the closest the American public has ever come to receiving a bailout in recent years, President Joe Biden introduced a plan to cancel $400 billion in student loans this past August. Many rich and powerful actors have fought tooth and nail to prevent his initiative from taking place. This fight has gone all the way to the Supreme Court, where six Republican states are arguing against the plan for debt relief. The hypocrisy between the treatment of working people and the treatment of financial institutions is present and blatant. Banks such as SVB are fully aware of what they are doing when they take on risky investments. These are massive institutions that measure the risk of every decision they make, as billions of dollars are often at stake. Meanwhile, millions of Americans feel the financial strain of a decision they made as an 18-year-old for much of their 20s. People such as Larry Summers have argued against forgiving student loans because it “raises demand and increases inflation.” But when it came to SVB, Summers tweeted that “the financial system suffered a shock, and while the emergency physicians have done a good job, the patient is not back to full health.” When tens of millions of people could finally get out from under a massive financial burden they have suffered through for years, they had to pay the consequences for their actions. When a bank consistently makes risky investments despite warning signs in the American economy, the emergency physicians better step in to save it.

In a famous article published in the aftermath of the 2008 recession, former Rolling Stone editor Matt Taibbi decried investment bank Goldman Sachs as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” While one can disagree with his hyperbolic description, time has proven the heart of his statement true. Large investment banks knew after 2008 that they would get bailed out despite making objectively terrible financial decisions, and the quasi-bailout SVB received only drives the point further home. Meanwhile, when tens of millions of Americans could potentially receive a massive break in the form of college debt relief, some of those in power were so vehemently opposed to the policy that the success or failure of the Biden administration’s plan is entirely at the discretion of the Supreme Court.

Theodore Brita is a junior majoring in political science.