Human Events Daily with Jack Posobiec - EPISODE 418： SILICON VALLEY MELTDOWN - US BANKING SYSTEM DOWNGRADED TO NEGATIVE ON BANK RUN FEARS

00:00:00.000 these investor service has downgraded the entire U.S. banking system to a negative outlook from

00:00:15.240 stable, citing a rapidly deteriorating operating environment. It added that banks with unrealized

00:00:20.420 losses are under particular pressure. Joining us now with the latest is Yahoo Finance's Julie

00:00:25.140 Hyman. Hey, Julie. I mean, I guess on that last point,

00:00:27.440 tell me something I don't know. We've all come to realize over the last few days,

00:00:31.320 unrealized losses on certain bank balance sheets once they are forced to realize those losses

00:00:35.600 become a problem. So just to talk about what exactly is happening here, Moody's coming out

00:00:42.020 with this note late last night, but it was only just released publicly in the last hour or so.

00:00:48.360 The headline on this note, Outlook Change to Negative on Rapidly Deteriorating Operating Environment.

00:00:54.740 And the Moody's analysts behind this saying that they made this call on the U.S. banking system,

00:01:00.080 that there are concerns here, even despite the actions that the federal government took over

00:01:06.120 the weekend to try to shore up the banking system. Well, ladies and gentlemen, welcome aboard today's

00:01:11.060 edition of Human Events Daily, powered by Turning Point USA. We're very excited to have a special guest

00:01:17.360 on with us to go through all of the insanity that we're seeing from the U.S., the banking system,

00:01:23.900 the stock market being hit. Moody's now degrading the entire U.S. banking system to negative,

00:01:30.320 not just SVB, not just a couple institutions, the entire system citing, and I quote,

00:01:36.440 rapidly deteriorating operating environment. And our guest tonight, very excited to have him on.

00:01:43.840 And he's someone that I've followed for several years on economic issues and a lot longer than

00:01:49.260 that on a slightly different issue set, shall we say. It's Mayor Glenn Jacobs from Knox County,

00:01:56.080 Tennessee. Mayor Jacobs, thanks so much for being on with us today.

00:01:58.500 Hey, thanks for having me on, Jack. I greatly appreciate it.

00:02:01.440 Well, I really appreciate it. Now, when we're looking at something like this, for the folks at

00:02:05.660 home sitting back, you've got money in your bank accounts. People are starting to wonder,

00:02:09.560 should I go take the money out of my bank? Can you contextualize for us where things are from

00:02:15.420 your perspective and how we got here? Well, unfortunately, if we look at the big picture,

00:02:21.840 really the overall banking system and overall finance system is built on a fraud. It's built

00:02:28.040 on fractional reserve banking. In 1971, you know, Richard Nixon took us off the gold standard,

00:02:33.440 which just allowed all sorts of undisciplined actions coming out of the federal government from

00:02:38.840 the federal reserve. And this is what happens. You know, all the booms and busts that we see

00:02:43.940 throughout our economic history are the result of printing money and then inflation starts to take

00:02:49.900 off and it's causing pain to the consumer. So then you start contracting the money supply, which causes

00:02:55.320 a crash. And then you look at the investment going into parts of the economy where it shouldn't and

00:03:02.680 what economists call malinvestment. So there's a lot of issues, unfortunately. And this is something

00:03:10.080 that, you know, ultimately, I hope that we get through this intact. But nevertheless, it can cause

00:03:17.800 a lot of pain for a lot of people. I don't think anyone is immune from what could potentially happen.

00:03:23.840 No, I think you're exactly right. And that idea of malinvestment, it's this thought that,

00:03:28.540 well, if we're just going to shore up a couple of banks, we're going to shore up a couple of

00:03:32.780 institutions. But at the same time, what you're doing is you're throwing good money at bad

00:03:38.680 investments. And you're not teaching. And this is something that I find it's such a breath of fresh

00:03:44.320 air that you talk about, because I hear a lot of people on the right say, well, we got to protect

00:03:49.220 the companies. We got to shore things up. But that's not actually a free market system, is it?

00:03:54.740 No, absolutely not. If we look at 2008, and what happened, and of course, and again, don't get me

00:04:01.560 wrong, this is a serious situation. 2008 was a serious situation. There's a lot of pain. We all

00:04:07.040 need to understand that. But it's almost like people think that, say, when the card manufacturers

00:04:15.500 were bailed out, well, if we don't do this, they're all going to go away. No, they're not. What's going to

00:04:20.060 happen is those assets are actually going to be able to be acquired much more inexpensively by

00:04:25.400 better operators. And in a market, losses are as important as profits, because what losses reveal

00:04:33.040 are mistakes that are being made, have been made, and also incompetence in management. And what needs

00:04:39.620 to happen, of course, is you don't keep on repeating those mistakes. And that's where we're going right

00:04:45.000 down that road again. Oh, we need to do this. And this will be the last time. And, you know, then

00:04:48.980 everything's fine after that. Well, this has been a cycle that we've seen time and time and time

00:04:54.780 again. And I see people now talking about, don't worry about moral hazard, and don't worry about

00:04:59.080 learning lessons. The reason we're in this situation is because we haven't learned any lessons.

00:05:04.300 And at some point, you can't just keep on papering things over, which is what's been happening for a

00:05:09.320 long time, especially since 2008. It's just been ramp up the printing press, you know, try to throw out

00:05:15.320 as much phony money as we can to paper over the economy and everything will be fine. There is a

00:05:20.720 consequence to that. No, that's exactly right. And we're coming up on a break here. But when we come

00:05:25.600 back, I do want to get into some of these issues, because we've actually been talking about recently

00:05:30.200 here on the program, we had another guest on Raheem Kassam, who was talking about how a lot of the

00:05:35.000 government decisions that we've seen since specifically 2008 have been because there's been a lot of this,

00:05:42.400 you know, call it, you know, papering over, call it printing presses, we've been calling it funny

00:05:46.440 money, that the funny money has just been floating around in the system. And it's causing decisions to be

00:05:52.460 made, whether it be foreign policy, whether it be domestic economic policy, whether it's on trade, that

00:05:58.400 it's actually causing the wrong signals to go throughout our entire system. And that, of course, because

00:06:05.780 and we all know that there are people, there are politicians that are getting donations, we know there's on

00:06:09.820 both sides of the aisle that are benefiting from this. So they're perpetuating this longer and longer. And at some

00:06:17.760 point, right, at some point, we are going to have to pay the piper. And when the Fed hikes those interest rates,

00:06:25.180 like we just saw over the past year, whatever is in a position of vulnerability is gonna go boom. And that's

00:06:32.720 exactly what we're seeing right now with Silicon Valley. Stay tuned, we'll be right back. Mayor Jacobs

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00:07:51.080 And we're back. Human Events Daily with Mayor Glenn Jacobs out of Knox County, Tennessee. Mayor Jacobs,

00:07:55.980 when we last left, we were talking about this idea of bad signals, false signals being sent throughout

00:08:03.280 the entire system. And you talked about price signals and the importance of price signals. Can

00:08:09.060 you break that down for the audience and explain what's going on there? Well, sure. A great example

00:08:13.640 of how important price signals are is the Soviet Union. They didn't have any. And their economy is

00:08:19.500 incredibly ineffective, incredibly burdened by just every possible inefficiency, political decisions

00:08:27.960 being made. So on one hand, you'd see in warehouses, you'd see plenty of whatever good, but then it

00:08:35.960 wouldn't go out to the market for whatever reason. Okay. And you just had all these inefficiencies and

00:08:40.620 ultimately that helped crash their entire country. And that's what entrepreneurs in market look at is

00:08:49.000 that's how you make decisions. Okay. I can make money here. I'm going to lose money here. So I'm

00:08:53.660 going to put more money into this. Right. And then when that starts going up and more people will get

00:08:58.200 into it, then this over here will start dropping down and there's opportunities over here. And that's

00:09:03.400 really how resources are allocated in a market. And that's what a free market economy is. It's

00:09:10.420 allocating resources and it uses price signals to determine that. The problem is when the money is not

00:09:17.140 sound, those price signals just go all over the place. And then that's when you start seeing

00:09:22.420 entrepreneurs who are generally really good at forecasting the market and predicting what's going

00:09:28.200 to happen. But what you've done is you've taken away their barometer for figuring out, okay, this is a

00:09:34.540 good investment. This is not a good investment. And kind of what happens is it looks like everything

00:09:38.900 is a good investment because there's just all this money flowing in. And then as you said, what happens

00:09:43.120 is it's revealed that no, this is as a terrible investment. And once that starts to contract,

00:09:50.500 all of that is essentially destroyed through the market. So yeah, prices are people price

00:09:56.160 are the bedrock of a market economy. A hundred percent. And so some people then start realizing

00:10:01.240 this. So we saw like, for example, at the end of last week, it was Peter Thiel of not the regulators,

00:10:06.400 right? Not the government, not, uh, you know, not the California state, you know, Gavin Newsom or any of

00:10:12.520 this, no, it was Peter Thiel, a Silicon Valley investor himself, one of the most heterodox

00:10:17.160 thinkers in Silicon Valley, by the way, he came in and said, we got to get out of this thing because

00:10:23.060 this thing is crashing. And then suddenly everybody saw what was going on because I think you had a

00:10:28.360 little bit of a little bit of follow the leader going on there, but it's, it just blows my mind

00:10:33.180 that you have all these systems in place that are supposed to be tracking all of this on a regular

00:10:37.840 basis. But I think a lot of people, they point to things point to things. I'm seeing this on the

00:10:42.980 right too, where people are saying, you know what, it seems like a lot of these banks and specifically

00:10:47.300 this bank signature bank that was out there, they're focused on going woke. They're focused

00:10:52.240 on pronouns. They're focused on ESG ratings. And this whole idea of an ESG rating for your investment,

00:10:58.700 which is it's, I guess it's interesting if those are your issues, but that kind of takes you away

00:11:03.520 from what you just pointed out, these price signals, doesn't it? Yeah. And then also you look

00:11:08.800 at Silicon Valley bank and from everything that I can gather, you know, it's, there was not great

00:11:15.660 management. They did not hedge their interest rate risk. It's interesting because Jerome Powell,

00:11:22.040 who is chairman of the federal reserve recently said that higher interest rates will not have an

00:11:27.500 impact on bank risk. Well, see how that turned out for you in this case. Yeah, not so much.

00:11:32.360 But, but you're exactly right. And often it's, it's the individual entrepreneurs that people have

00:11:37.400 money on the line that can say, wait a second, there's something wrong here. What's going on?

00:11:41.640 And then also you look at SVG. I saw a statistic today. There's about 130,000 tech startups in this

00:11:48.400 country. 65,000 of them had loans with SVG. So it was Silicon Valley, not only Silicon Valley bank,

00:11:56.540 it was Silicon Valley's bank, but it appears that it was pretty, um, non-diversified as far as the

00:12:03.340 investments and the loans that they were making. Well, and, and someone, and I've seen, and on

00:12:08.640 Twitter, there've even been people coming out and saying that in fact, they tried to tailor their

00:12:14.900 services so that they could be a one-stop shop for all of Silicon Valley, all of what they call

00:12:21.820 founders. Um, and so that they were doing, they were doing housing loans for, if you were the CEO

00:12:26.860 of a tech company, they were doing personal loans. It wasn't just business stuff that they were mixing

00:12:32.300 all of these different products together and that they would go above and beyond even offering lower

00:12:39.020 than market rates on a lot of these loans. But here was the flip side on the backend was that you had

00:12:44.440 to make sure that your company's money had to be deposited with SVB, which to me, that doesn't

00:12:51.640 sound like banking. That sounds like another type of a, that sounds like a scam. Yeah, absolutely. Um,

00:12:58.160 I think as we go forward, obviously I'm not a regulator. Um, but I think more and more stories

00:13:03.660 will come out about how they were really doing business and, um, uh, you know, how that has impacted

00:13:10.420 this failure. Uh, and, you know, we still have contagion out there as far as with derivatives

00:13:15.940 and the banking system. So interconnected. So no doubt, this is a very, uh, important time,

00:13:23.220 which should cause all of us a lot of trepidation. Now, what about the role of regional banks in

00:13:29.000 general? So this idea that, so this, they're trying to say that, okay, it wasn't just the Silicon

00:13:33.540 Valley bank, but it's actually a regional bank. So what role do regional banks play in this system?

00:13:39.240 I, for example, down, down Knox County in Tennessee, are you, are you experiencing any

00:13:43.020 of this pressure? We have not. Um, you know, when you look at the banking system, of course,

00:13:47.820 you have the commercial, the money center banks, which literally do business with the federal

00:13:52.100 reserve, and then they're kind of the core and then it kind of goes out from there. Um, and also

00:13:58.140 when I say that, you know, fraction reserve banking, uh, and the issues that causes, we can't

00:14:04.720 blame the blank, blame the blank, excuse me, blame the banks for that. Uh, the reason is they're all

00:14:11.540 trying to compete and this is the system that's been set up. And if they don't engage in those

00:14:16.420 practices, they're not going to be able to be competitive. Um, so it's really the system that

00:14:22.880 we need to be looking at and not just pointing to, oh, this is an issue at this bank and this bank.

00:14:28.120 Yeah. I think in the case of SBB, there were some serious issues, uh, but I don't think that any

00:14:33.940 organization is immune just because of the way the system works. No, I think it's exactly right.

00:14:40.120 Mayor Glenn Jacobs, we're going to come back with you here in our very next segment, our last segment,

00:14:44.040 because I want to talk about the bailout. I want to talk about what message this sends to people

00:14:50.140 that are out there. Stay tuned. Human events daily coming up next.

00:14:53.020 We're back here. Final segment, human events daily. Now, mayor, I wanted to ask you about the role

00:15:00.040 that we're seeing of, and they're not calling it bailouts, by the way, you can't call it a bailout

00:15:05.340 anymore. Now, now it's a backstop. It's a, it's just a, just a liquidity increase. I mean,

00:15:10.660 they're just coming up with every name under the sun, but I got to tell you from the perspective of

00:15:15.160 the regular guy out there, the regular family, it seems like it has this appearance and this,

00:15:21.820 this, um, that this per this perception that here's an elite bank. It's Silicon Valley.

00:15:29.320 This is a bank that obviously a lot of political donations go through here.

00:15:33.500 They're getting bailed out. Meanwhile, prices, and we just saw the CPI index this morning are going up

00:15:39.820 across the board, especially for guess what? Oh, housing and essential essentials, right? It's down

00:15:44.680 in a couple areas, but housing and essentials are up. So, you know, the things that people actually need

00:15:48.340 every day and it just feels like it's another squeeze on the little guy. Like the little guy

00:15:54.520 is just getting squeezed out completely. You might even might even say choke slammed. You might,

00:15:59.800 you might use that as a phrase. I don't know if you know anything about that, but, but, but what is,

00:16:04.880 what is really going on there from, from the perspective of the little guy and, and these bailouts?

00:16:09.440 Yeah. I don't think it's fair, uh, for the average person out there. I mean, we're talking about $250,000

00:16:16.420 and everybody knew that going in. I feel bad for the depositors. You know, obviously when you put your

00:16:21.820 money in the bank, you think that it's going to stay there forever and be safe. Uh, but we should

00:16:26.500 all be aware that with your FDIC insurance is $250,000 limit. And that is what it is. And now we're

00:16:34.680 retroactively saying, Oh, we're just going to cover everything. And I've seen things of, uh, up to

00:16:40.060 $10 million for FDIC coverage. Well, here's something to keep in mind. The FDIC doesn't

00:16:45.840 really have much money. Okay. I think in total, it has access to about $225 billion. The problem is

00:16:52.820 the banking system is $22 trillion. So right now the FDIC, hopefully this would never, ever happen,

00:17:00.060 but the FDIC can only cover about 1.26% of bank accounts across the country. Well, look, it's

00:17:08.000 never going to work if you're talking about increasing that, that, uh, deposit limit by 40

00:17:12.260 times. Um, and I don't think most people can wrap their head around a $10 million limit. So obviously

00:17:19.540 these are people, uh, that were people of means. And it's, I think very difficult for the average

00:17:26.920 person out there, who, as you said, who is struggling in many cases to pay their bills

00:17:31.620 because inflation is crushing everyone, turn around and say, Oh yeah, we're, we're going to,

00:17:37.260 yeah, maybe it's not a bailout and that you're not bailing out the bank, but nevertheless, uh,

00:17:41.900 with the depositors, uh, we're going to make them whole. And, uh, that that's going to cost a lot of

00:17:47.900 money. And the average person just doesn't have the political ability to say, well, what about us?

00:17:52.880 You know, and, uh, what are you going to do about all the issues that we're suffering with?

00:17:57.180 Well, Kevin O'Leary from, from shark tank, he was on CNN last night and he just came out and said,

00:18:02.200 look, it, it feels like Biden is, is nationalizing the entire banking industry. Because if you're

00:18:07.980 telling people at that, to your point that your deposit is backed up to an unlimited level,

00:18:16.020 that it doesn't matter how much you've got in the bank, that FDIC is going to cover all of that.

00:18:21.060 Well, guess what? There's only a few ways the government's ever going to be able to do that.

00:18:24.920 There's only, and the federal pretty much only has one trick at this point to, to be able to get that

00:18:30.180 money going. So when you talked about, you talked about price signals, you talked about the markets,

00:18:34.540 you talked about, you know, it's, it's almost like we're the flip side of the Soviet union in terms of

00:18:38.980 this, because they didn't have money running around. We've got nothing but money running around

00:18:43.220 chasing all these different goods, but we're not using the, the language of price essentials. It's it's,

00:18:50.900 we've got, we've got unlimited supply, but the demand is, is, isn't being met.

00:18:55.180 Well, that's exactly right. And that's what Milton Friedman would say is the definition of price

00:19:00.840 increases. Inflation generally is when you have more money than available goods. And, you know,

00:19:08.500 obviously with inflation, economists, economic advisors, those people love it because they're able

00:19:15.640 to control the economy. I believe that's actually kind of a form of alchemy, right? That you put

00:19:21.100 money into the economy, you print a bunch of money, the economy booms, then inflation starts to get

00:19:26.980 uncomfortably high. You pull down the money, the economy retracts, you know, and that's how things

00:19:31.300 go. The problem is along the way, as we mentioned earlier, you have all these malinvestments throughout

00:19:36.700 the economy, which burdens it within efficiencies. So yeah, the, the issue ultimately is we've printed

00:19:43.440 way, way, way, way too much money. And that's coming home to, to roost now. And then of course,

00:19:49.280 you look at interest rates and what's happened there. And the fact that, um, you know, the Fed

00:19:54.060 thought that they could raise interest rates to help mitigate inflation without considering some of

00:20:00.640 the things that that could cause in this case, uh, putting interest rate risk on banks and

00:20:06.100 potentially, uh, hopefully this doesn't happen, but causing a cascade of bank failures.

00:20:10.320 Well, I think that's exactly what Moody's is probably looking at right now, because they're

00:20:15.120 saying they know that at some point the Fed is going to have to try to fight inflation.

00:20:20.280 But of course the Fed is now caught between a rock and a hard place, because if you actually

00:20:24.780 want to fight this and, and, you know, I like, I like your phrase that it's like alchemy of them

00:20:29.240 trying to control the economy. It reminds me of, uh, you know, Mickey Mouse and Fantasia when he's got

00:20:33.600 the brooms, you know, dancing around that eventually that's all going to fall apart. So either

00:20:38.860 you, they're not going to stop printing money, but they might stop giving it to some of their

00:20:42.380 buddies or you're, you go and hike interest rates again to try to fight inflation. And then guess

00:20:47.740 what happens, right? Then you're going to get more failures because we saw this in the eighties. We saw

00:20:52.420 this in, at the end of the nineties, we saw this in 2020 and you're going to see it again here if we

00:20:57.680 hike interest rates again. But it, it, it, it shocks me that these people thought that they could just

00:21:03.720 continue going on business as usual, even though we know that Powell was talking about hiking rates

00:21:09.180 for at least a year at this point, he's been putting it out there.

00:21:12.240 Yeah, absolutely. Uh, ultimately, you know, we have a situation here again, because of prices and

00:21:18.520 because of all the things that our economy, uh, with all the money that's been printed, um, in order

00:21:24.600 to remain competitive, in some cases you have to do this and you have to take risks. And then, you know,

00:21:29.620 the old saying of everybody looks good until the water goes out and you realize who's naked.

00:21:35.880 And, uh, unfortunately with our system, it doesn't reward caution and it doesn't reward, uh, actually

00:21:44.300 being a good steward of investment and of people's money. It rewards risk. And then you realize if you're

00:21:51.820 big enough and you have enough political pull, you can get the politicians to socialize that risk

00:21:58.700 while you've privatized the profits. That is not a free market. That is crony capitalism at its

00:22:04.960 worst. Look, I think it's great that, that we're hearing people and even elected officials,

00:22:09.480 such as yourself, start talking about this. I mean, I remember, and we were playing,

00:22:12.500 we played on the show yesterday that that old George W. Bush clip, which was by the way,

00:22:16.800 completely scrubbed from the internet. You can barely even find this clip out there anymore,

00:22:21.400 where it's George W. Bush, December, 2008 on CNN, sort of one of his like exit interview from the

00:22:27.420 presidency saying, well, you know, we had to, we had to abandon the free market principles in order

00:22:33.200 to save the free market system. And I, I think that that signaled that there, that there was something

00:22:41.660 very wrong with his brand of economic policy. And that even from someone who's, you know, you know,

00:22:49.120 on a free market side that this, this ain't the guy. Yeah, no, in a free market, you have to have

00:22:55.260 losses and you have to allow that to take place. You have to allow the liquidation of bad investments

00:23:02.780 to take place. If you don't, you cause inefficiencies in the economy. And then you also

00:23:08.660 cause huge moral hazard, which is what's going to happen now. As you mentioned earlier, if we just

00:23:13.140 say, okay, bank accounts are, there's no limit to how much they're protected. Well, what's the

00:23:19.860 incentive for anyone to actually look out for their money or take care of their money? There is none.

00:23:23.660 If you know, the feds are going to step in and fix the whole thing for you or try to fix it.

00:23:28.120 Exactly. Right. And it's going to be risk after risk after risk. And at the end of the day,

00:23:31.760 it's going to be the American people that are left holding it back. Mayor Glenn Jacobs,

00:23:35.380 thank you so much for joining us today. Where can people go to follow you, get your coordinates?

00:23:39.400 Well, thanks so much, Jack. I appreciate it on Twitter. It is at Glenn Jacobs TN. So that's G L E N N 1.00

00:23:46.360 J A C O B S T N. And then I'm also on Facebook, uh, as well as Instagram. And it's, that's the same 1.00

00:23:53.100 user name, the same handle, uh, G L E N N J C O B S T N. 0.90

00:24:00.040 Appreciate it. Thank you so much, Mayor Jacobs. Ladies and gentlemen, as always,

00:24:02.540 you have my permission to lay ashore.

00:24:03.880 Thank you.

00:24:04.540 Thank you.

Human Events Daily with Jack Posobiec - March 14, 2023

EPISODE 418： SILICON VALLEY MELTDOWN - US BANKING SYSTEM DOWNGRADED TO NEGATIVE ON BANK RUN FEARS

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