Wednesday, March 22, 2023

Banking Crisis of the Rich to Make Rich Richer?


Billionaires caused the banking crisis according to one CEO.  The crisis required government institutions to funnel resources to shore up underwater banks.  

Assets = Liabilities + Owner equity
Many bank assets are not worth the amount initially paid for them due to Fed increases in interest rates.  Unwinding failed banks means harming the right side of the above equation, bondholders and shareholders.

Silicon Valley Bank catered to wealthy venture capitalists and private equity CFOs.  That subsection of billionaires got nervous and yanked their money in a digital bank run.  Oddly, a different subsection stands to gain by buying discounted bank assets, private equity underwriters (PEU).

The Carlyle Group led a PEU consortium that took on BankUnited after the 2008 financial crisis.  Uncle Sam subsidized that deal to tune of nearly $6 billion.  Carlyle et al more than doubled their money.

So a banking crisis of the rich could make some of the rich richer.  It's a PEU world.

Update 3-28-23:  More proof as to who got saved:

"the 10 largest deposit accounts at Silicon Valley Bank held a combined $13.3 billion"

The bailout really did protect billionaires from taking a modest haircut," offered Matt Stoller.

Update 3-29-23:  Former FDIC Chair Sheila Bair raised a number of questions about who benefited from the bailout.