The Charlie Kirk Show - The Truth Behind the Silicon Valley Bank Failure with Dave Bahnsen

00:00:00.000 Hey everybody, today in the Charlie Kirk show the collapse of Silicon Valley Bank.

00:00:03.000 What is behind it?

00:00:04.000 Dave Bonson, who is an expert, helps explain exactly what is behind the collapse at Silicon Valley Bank.

00:00:14.000 Email us your thoughts, freedom at charliekirk.com and get involved with TurningPointUSA at tpusa.com.

00:00:19.000 That is tpusa.com.

00:00:22.000 Buckle up, everybody.

00:00:23.000 Here we go.

00:00:24.000 Charlie, what you've done is incredible here.

00:00:26.000 Maybe Charlie Kirk is on the college campus.

00:00:28.000 I want you to know we are lucky to have Charlie Kirk.

00:00:31.000 Charlie Kirk's running the White House, folks.

00:00:34.000 I want to thank Charlie.

00:00:36.000 He's an incredible guy.

00:00:37.000 His spirit, his love of this country, he's done an amazing job building one of the most powerful youth organizations ever created, Turning Point USA.

00:00:45.000 We will not embrace the ideas that have destroyed countries, destroyed lives, and we are going to fight for freedom on campuses across the country.

00:00:54.000 That's why we are here.

00:00:57.000 Brought to you by the Loan Experts I Trust, Andrew and Todd at Sierra Pacific Mortgage at AndrewandTodd.com.

00:01:05.000 Silicon Valley Bank is no more, but it's not just Silicon Valley Bank.

00:01:11.000 There's fragility all across the banking industry right now.

00:01:17.000 Questions are, are we about to see a 21st century equivalent of a bank run?

00:01:22.000 Over the weekend, the federal government made a series of announcements.

00:01:26.000 Now, you can count on the federal government to work weekends if they're trying to cover up the origins of the COVID virus or if they're trying to prop up the neoliberal banking order.

00:01:36.000 I'm not even saying that in an accusatory way.

00:01:39.000 You probably should work over the weekend to make sure that the entire American banking system doesn't collapse.

00:01:45.000 Multiple stocks of banks are down double digits, 30, 40, 50, 60%.

00:01:52.000 In fact, MarketWatch says that trading has been halted completely for several of the biggest banking stocks, especially mid-level ones, Bank of Hawaii, Regions Bank, many others.

00:02:08.000 So what exactly happened with Silicon Valley Bank?

00:02:12.000 And by the way, it's not just Silicon Valley Bank that collapsed.

00:02:16.000 Over the weekend, we got news that there were others right on the verge of collapse, but federal regulators came in and also said that Signature Bank has also collapsed and that they have assumed control over Signature Bank.

00:02:33.000 Now, look, part of this is psychology.

00:02:35.000 If every single depositor demands their money, the bank doesn't have the money there.

00:02:39.000 This is banking 101.

00:02:40.000 They should teach you this in eighth grade finance class.

00:02:44.000 That just because you see your money in your balance does not mean the money is there.

00:02:48.000 Now, the federal government, the FDIC, is supposed to insure that up to a certain amount, up to $250,000, but they've already lent out that money.

00:02:57.000 That money is elsewhere.

00:02:58.000 Now, they have to have, because of a fractional banking system, they have to have some part of that actually in their available liquid accounts.

00:03:07.000 But if 10%, 20%, or 30% of the depositors say, I want my money now, it crushes the bank.

00:03:15.000 Now, why it happened and how it happened is going to be under great debate.

00:03:19.000 We have some amazing experts coming this hour that will explain it.

00:03:22.000 But instead, I want to talk about some of the political implications of this and also whether or not this contagion is going to continue and grow.

00:03:32.000 I first want to play Cut Five.

00:03:34.000 Woke grandma, Janet Yellen, says we're not going to do that again.

00:03:38.000 We're not going to bail out the banks.

00:03:39.000 Play Cut Five.

00:03:41.000 Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out.

00:03:55.000 And we're certainly not looking.

00:03:58.000 And the reforms that have been put in place means that we're not going to do that again, but we are concerned about depositors and are focused on trying to meet their needs.

00:04:11.000 So is this a bailout?

00:04:13.000 It probably is a bailout just by different terms.

00:04:16.000 And so Silicon Valley Bank goes under.

00:04:20.000 The federal government says it's not a bailout.

00:04:23.000 But here's the central debate or the controversy.

00:04:26.000 Claims that the decisions do not amount to a bailout.

00:04:29.000 However, they're likely to be challenged.

00:04:30.000 While the fund going to depositors is paid into by U.S. banks, it is ultimately backstopped by the Treasury Department and therefore U.S. taxpayers.

00:04:40.000 So it's the full faith and credit of the United States that is swooping in to make the depositors whole of Silicon Valley Bank.

00:04:46.000 And I'll be very honest with you.

00:04:47.000 I see this both ways.

00:04:49.000 I see it both ways because there's a lot of good people that were using Silicon Valley Bank.

00:04:54.000 There's a lot of bad people too, a lot of crummy people, a lot of insider dealing, deceitful, Silicon Valley, woke pagan religion types.

00:05:04.000 But there are also people that were running their small businesses.

00:05:07.000 Now, the federal government is supposed to insure it up to $250,000.

00:05:11.000 What the government is saying is, though, we're going to make every depositor whole.

00:05:15.000 We're going to make every single dollar of the people that have had money in one of our accounts whole.

00:05:22.000 Now, is that a bailout?

00:05:23.000 It probably is a bailout by other terms and other means.

00:05:26.000 And what happens now with Signature Bank?

00:05:28.000 What if another five, another six, another seven, another eight, another nine, another 10 banks crumble?

00:05:32.000 And not to overly defend the Biden administration, but they really had no choice this weekend than to do what they did.

00:05:40.000 Now, if you allow Silicon Valley Bank to fail and all you say is, look, we're up to $250,000 in deposits.

00:05:46.000 The question is, how fragile is our banking system really?

00:05:50.000 And that probably is why they moved as quickly as they moved.

00:05:53.000 Now, it's unconscionable in one way that the moral hazard gets completely and totally removed, but it's worthy of some reflection, isn't it?

00:06:03.000 It's worthy of some reflection because Janet Yellen and Joe Biden and the people in charge of our government, I think they know how fragile the American banking system actually is.

00:06:16.000 Because if just 10% of people decide that I want my money back, I'm going to withdraw my money, you then have talks of a bank run, the likes of which we have not seen for well over 80 to 90 years.

00:06:30.000 I want to play another piece of tape here.

00:06:32.000 Joe Biden saying that customers can access their money after regulators shut down the Silicon Valley Bank, play cut seven.

00:06:40.000 Treasury Secretary Yellen and a team of banking regulators have taken action.

00:06:45.000 All customers who had deposits in these banks can rest assured.

00:06:48.000 I'm going to have it.

00:06:49.000 Rest assured they'll be protected and they'll have access to their money as of today.

00:06:54.000 No losses will be, and this is an important point.

00:06:57.000 No losses will be borne by the taxpayers.

00:07:00.000 Instead, the money will come from the fees that banks pay into the deposit insurance fund.

00:07:05.000 And so what actually caused this meltdown?

00:07:08.000 It remains a mystery.

00:07:09.000 We do know that Silicon Valley Bank was more interested in woke DEI programs and even having a head of risk assessment.

00:07:18.000 It's all very complicated.

00:07:20.000 There are two major ways a bank can fail, insolvency or a liquidity crisis.

00:07:25.000 The collapse of Silicon Valley Bank seems to be more of a liquidity crisis.

00:07:29.000 What that means is there was a high amount of demand for cash for them right now.

00:07:33.000 And since Silicon Valley Bank didn't have a way to meet all that cash immediately, it collapsed and caused in a bank run.

00:07:42.000 Now, a lot of people had no comprehension of what Silicon Valley Bank is.

00:07:48.000 This is the bank for startup culture in Silicon Valley.

00:07:53.000 Because we had so much stimulus and low interest rates for so long, because we decided to lock down our country unnecessarily and print $6 trillion out of thin air, money flowed into startups and tech that caused a lot of money to flow into Silicon Valley Bank.

00:08:10.000 But Silicon Valley Bank couldn't find profitable ways to lend that money.

00:08:14.000 And so they simply bought a bunch of U.S. Treasury bonds at very, very low interest rates.

00:08:19.000 That is a great example of how you knew you had too many dollar bills in the system.

00:08:23.000 When a bank can't find people to lend money to, they can't find borrowers that have good ideas that are able to make a return, that shows that you created way too much money.

00:08:36.000 That's exactly why you see asset prices going up across the board.

00:08:40.000 Now, thanks to widespread inflation, the Federal Reserve had to raise interest rates sharply.

00:08:46.000 Silicon Valley Bank's treasury bonds are worth a lot less now, and their startup clients need to pull out their cash more than ever.

00:08:53.000 If Silicon Valley Bank had been a normal bank with lots of retail investors, they might have gotten away with this.

00:08:58.000 In fact, back in February, there are already financial experts and analysts noticing that Silicon Valley Bank was basically broke months ago.

00:09:07.000 But specifically because they had a risky strategy catering to startups, they were more exposed to this kind of collapse, both because they had more cash being taken out each month and because they had a lot of savvy depositors who could notice the bank was in danger and then start a big bank run.

00:09:24.000 And then that kind of contagion grows and people worry and then they take their money out and it collapses the banking system.

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00:12:10.000 I think the consensus from you, the audience, is no more bailouts.

00:12:15.000 And they're saying it's not a bailout, but it's a bailout by other means.

00:12:18.000 And the question is: can the federal government keep this up if more and more banks start to collapse?

00:12:22.000 That's a serious question.

00:12:24.000 Here's what we do know: we know that the CEOs and the bosses of Silicon Valley Bank mysteriously sold a lot of their shares last month.

00:12:34.000 President Gregory Becker of Silicon Valley Bank sold over 12,000 shares for $3.5 million on February 26th, while the CFO sold over $575,000 in stock in a separate transaction on the same day.

00:12:52.000 Now, the question is: were they acting on material, non-private information?

00:12:56.000 Now, as insiders, they have to disclose these sales, and that's technically legal, unless they knew something that was materially non-public information, and they decided to benefit materially on that.

00:13:11.000 Continues by saying: while CEO President Becker sold about $3.5 million worth of shares and CFO sold $575,000 in stock in a separate transaction, Draper's shares were sold over several transactions in earlier months.

00:13:26.000 Did they know the balance sheet?

00:13:28.000 Did they see something that was coming?

00:13:30.000 Did they know the 185 to 1 leverage that the bank was tolerating?

00:13:38.000 And the answer is probably yes on that front.

00:13:40.000 The most recent dumpings of stock, I'm reading from CNBC, stock by Becker, who had not sold any shares in over a year, was done through the prearranged share sale of 10 B51 plans.

00:13:51.000 These plans allow company insiders and executives to arrange sell shares to certain predetermined tates in order to prevent illegal insider trading.

00:13:59.000 Certainly seems like an perfectly timed window to dump stock.

00:14:05.000 While the U.S. market regulator has responded by introducing a 90-day mandatory cooling off period, which would prevent executives from trading shares in the next three-month period, the new regulations are only going to affect April 1st.

00:14:18.000 The bank was once the 16th largest bank in the United States, serving HNI or high-net worth individuals and venture capitalists.

00:14:27.000 There's several questions here.

00:14:29.000 We also know that Silicon Valley Bank was deep in with the Chinese Communist Party and Chinese banks and Chinese companies.

00:14:36.000 Silicon Valley Bank was especially popular among Chinese biotech groups that operated between the United States and China, according to the Financial Times.

00:14:44.000 The Federal Reserve has announced that a new short-term loan program to assist banks that are having the same kind of problems that SVB did.

00:14:53.000 The goal is to provide cash liquidity for banks to stop a cascade of bank runs.

00:14:58.000 Three years ago, you go back in the archives of the Charlie Kirk show, three years ago.

00:15:02.000 And just with a very basic economic education, reading Henry Hazlitt, Milton Friedman, Von Mises, Rothbard, I agree with these guys on some things and disagree on others, especially Von Mises and Rothbard.

00:15:13.000 We made a very provocative and bold statement three years ago.

00:15:20.000 We said the lockdowns and the spending that will happen because the lockdowns will break the American economy as we know it.

00:15:29.000 We were mocked.

00:15:30.000 We were ridiculed.

00:15:31.000 We said that the first stimulus was unnecessary.

00:15:33.000 The second stimulus was unnecessary. 0.97

00:15:35.000 Reopen America.

00:15:36.000 Talk about treatments, ivermectin, hydroxychloroquine, intravenous therapy, vitamin D supplementation, not being fat, getting good exercise, proper hydration, understanding comorbidities and underlying risk factors.

00:15:50.000 But instead, we locked down the entire economy, put masks on kids, shut down our schools, and created trillions of dollars out of thin air.

00:16:03.000 And what you are seeing with Silicon Valley Bank today, what you are seeing with the fragility of the American banking system are byproducts of bad moral decisions that were made because of the lockdowns in 2020.

00:16:20.000 The excesses that came from creating $6 to $8 trillion out of thin air has a cost.

00:16:27.000 Amazon, Facebook, Google, they had record highs.

00:16:32.000 Never before had tech companies turned profits like this.

00:16:35.000 Everyone's staring at screens all day long.

00:16:37.000 Real estate boomed.

00:16:38.000 Low interest rates.

00:16:40.000 It was like the roaring 20s, but boy, did those of us that knew economics said this party is going to come to an end at some point.

00:16:47.000 Our deficit is a trillion dollars a year.

00:16:49.000 We spent our way out of 2008.

00:16:51.000 We tried to spend our way out of 2020.

00:16:54.000 Our debt to GDP ratio is well over 100% now.

00:16:58.000 So what do we do now if we get a real crisis?

00:17:01.000 Because I'm afraid that we're entering one.

00:17:03.000 The Fed can only swoop in so much and say, everything's fine here.

00:17:06.000 We're going to insure this.

00:17:07.000 Low interest loans.

00:17:09.000 At some point, that system is going to break.

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00:17:53.000 Joining us now is Dave Bonson, Chief Investment Officer of the Bonson Group and also editor of the DividendCafe.com.

00:18:00.000 Dave, welcome to the program.

00:18:01.000 Hey, Charlie, good to be with you.

00:18:03.000 So Dave, help us make sense of what is happening with the Silicon Valley bank, let's just say, mess.

00:18:10.000 You have a great article on your website about it, but how should we think about this?

00:18:15.000 Explain it to our audience.

00:18:16.000 Let's start with the fact that it is the total end of Dodd-Frank.

00:18:21.000 Dodd-Frank is a disaster.

00:18:24.000 What happened out of Dodd-Frank is clearly a failure, the inability of regulators to do the most basic of their job.

00:18:33.000 But really, you have now a double indictment on the Fed, Charlie.

00:18:37.000 The Fed built up this bubble in Silicon Valley with the 0% interest rates, all the quantitative easing that they facilitated that they just let go for far too long.

00:18:50.000 I understand extreme monetary policy right at the point of the COVID moment, but they kept it going for over two years and it built up this massive deposit base at Silicon Valley Bank, primarily depositing SPACs and IPOs of unprofitable companies and startup tech firms that were funded by venture capital.

00:19:14.000 And then the interest rates start rising and the value of the bonds that this bank is holding go down.

00:19:23.000 So they got into what we call a vicious cycle in finance where the depositors are pulling money out.

00:19:29.000 And then because they're doing that, they can't raise new capital.

00:19:33.000 They can't raise equity to keep their bank afloat.

00:19:37.000 And so it was a real failure of regulation.

00:19:40.000 And I don't want to beat this dead horse, but it is almost surreal how ironic it is that this firm was such a leader in the woke DEI hiring, their chief risk officer, bragging about her sexual orientation and gender status and identification.

00:19:58.000 And I don't care.

00:19:59.000 They can hire whoever they want.

00:20:01.000 But then they're placing these identity politics issues above the substance of the job of actually managing risk.

00:20:10.000 And so I'm not trying to get a political jab in there, but that's what this was.

00:20:13.000 Well, it's a fact.

00:20:14.000 And when you prioritize the things they were prioritizing, and we have the list here, it just takes your breath away. 1.00

00:20:20.000 Like they're like lesbian pride parades and all this nonsense. 1.00

00:20:24.000 You only have so much time and so much resources when you run a company. 1.00

00:20:27.000 And if that becomes a priority and not risk mitigation, you're going to have an issue.

00:20:32.000 So let me ask you, Dave, and you understand this stuff really well.

00:20:35.000 You're in the industry.

00:20:36.000 Is it technically correct to say the federal government is bailing out Silicon Valley Bank?

00:20:42.000 No, it is not.

00:20:42.000 The value of Silicon Valley Bank is zero.

00:20:45.000 The equity shareholders are going to get zero.

00:20:48.000 The owners of the business had a lot of value one week ago and it's gone and not coming back.

00:20:56.000 The unsecured bondholders are probably going to get zero.

00:21:00.000 If it's not zero, it's going to be just a little bit less by the time they sell off assets.

00:21:06.000 So it's not a bailout of Silicon Valley Bank, but it is a bailout of uninsured depositors that had over $250,000.

00:21:16.000 And very candidly, I think the prior administration would have done this same thing because it's a very tough message to Main Street to say, all you people who just put money in your bank account, you're not in the business of doing credit analysis of a bank.

00:21:32.000 And you assume that you put cash in, you're going to get cash out.

00:21:36.000 And they felt that it would have been a disaster to wake up this morning and have those depositors uncovered.

00:21:42.000 However, this is not mom and pop.

00:21:44.000 This is not grandpa and grandma.

00:21:46.000 If this were a farm bank in Kansas, would they be doing this?

00:21:49.000 I don't know.

00:21:50.000 But really, this is a bunch of startup hip tech companies.

00:21:53.000 Well, let me ask you, Dave, and I, again, this one happened to catch the headlines because of the volume of the assets.

00:22:00.000 But of the last decade, I have to imagine there's been other bank failures.

00:22:03.000 Did the federal government insure beyond $250,000 of every other bank failure of the last 10 years?

00:22:09.000 Or is this an exception?

00:22:10.000 No, this is an exception, but there hasn't been very many bank failures.

00:22:14.000 They've been very, very tiny and not systemic.

00:22:18.000 And the code that Congress passed allows an exception for systemic risk.

00:22:22.000 And this is the second largest that we've seen.

00:22:25.000 So it's understandable that they could refer to it as systemic.

00:22:29.000 The problem now, Charlie, is going forward, they have to make a decision.

00:22:34.000 Are they just going to have unlimited FDIC coverage or are they going to pretend the 250 still applies?

00:22:40.000 Because how could anybody really believe the 250 applies when they just made an exception for these two banks?

00:22:47.000 And so they either need to make it explicit or stop with this gray area because what it does is it really helps the big banks.

00:22:55.000 People say, look, I don't know what they're going to do with the smaller banks.

00:22:59.000 And so I'm just going to move my money to JP Morgan or Wells Fargo.

00:23:03.000 Congress is going to have to act here.

00:23:05.000 Yes.

00:23:06.000 So if somebody, for example, let's just say some tech company had $30 million in cash and they're because they were doing big payroll or the government's going to make them whole.

00:23:18.000 Is that essentially what they're saying?

00:23:20.000 And from a free market economic standpoint, Dave, which you're an expert on, is there a moral hazard?

00:23:26.000 Is there an issue here?

00:23:27.000 Do you have a problem with it?

00:23:29.000 I do have a huge problem with it, but it's more nuanced than calling it a bailout of the companies.

00:23:35.000 It is a bailout of the depositors.

00:23:38.000 The difference is, Charlie, that it's not being paid for by the taxpayers.

00:23:43.000 The banking system has to pay for it.

00:23:45.000 So there will be a higher cost to bank now because there's a higher insurance premium with FDIC.

00:23:52.000 Ultimately, it is backed by Treasury, and that is the taxpayers, but no taxpayer has ever lost a dollar on FDIC coverage.

00:23:59.000 I have a problem with it because of moral hazard.

00:24:02.000 I have a problem with forgiving student loans because of moral hazard.

00:24:05.000 I have a problem with anything where the government intervenes.

00:24:09.000 But again, the people who were going to hurt this morning were not the people who caused the problem.

00:24:13.000 Payroll, you know, employees at different companies.

00:24:17.000 It's a complicated issue.

00:24:18.000 I'm not trying to be simplistic, but fundamentally, they have to make a decision.

00:24:23.000 Did Dodd-Frank regulate banks well enough that we won't have these situations in the future or not?

00:24:29.000 Because clearly it didn't.

00:24:30.000 Yeah, this was supposed to never happen again, right?

00:24:33.000 That was the big promise.

00:24:35.000 So, Dave, help me understand if this number is significant or not, but it's floating around that they had 185 to 1 leverage.

00:24:41.000 What does that mean?

00:24:42.000 Is that applicable at all here?

00:24:44.000 Or is that just a separate number that is being misapplied to the narrative?

00:24:48.000 It is being misapplied, Charlie.

00:24:50.000 Banks can't have more than about eight, nine, or 10 to 1 leverage, meaning the monies that they bring in in deposits and what they lend out.

00:24:58.000 This company had less leverage than that because they weren't lending the monies out.

00:25:02.000 They were not a traditional bank that was taking deposits in and then going out and doing mortgages and things like that.

00:25:09.000 What this bank did is have a bunch of junk on their balance sheet.

00:25:12.000 They would lend to a Silicon Valley company and take warrants and equity and stock options.

00:25:18.000 So they were kind of running like, who's that guy from the bar stool?

00:25:24.000 Dave Portnoy, my hedge fund friend said it was like Dave Portnoy was running their balance sheet.

00:25:28.000 You know what I mean?

00:25:30.000 It was just all shiny objects: crypto, tech startups, all that stuff.

00:25:35.000 But they weren't over-levered.

00:25:37.000 What that is referenced to is the deposit base that they only had a few billion of capital and they had a hundred and something billion of deposits, but those deposits were on deposit with the bank.

00:25:48.000 So that leverage is being misunderstood a little bit.

00:25:50.000 So the general health of the American banking system, we saw Signature Bank collapse at all.

00:25:55.000 Do you think Signature Bank collapsed because of the Silicon Valley Bank?

00:25:59.000 Are they related?

00:26:00.000 I mean, it just seems the timing seems to be too much of a coincidence, meaning did depositors say that I want my money back?

00:26:05.000 Is that oh, yeah, that it's a run on the bank, and this is a risk we've had since the 1930s, so fractional reserve banking, but signature was much more crypto-related.

00:26:14.000 There's just so much grift and corruption and fraud in this crypto world.

00:26:14.000 Got it.

00:26:19.000 And the few banks that dared to try to offer traditional banking in the crypto space, signature last week, it was Silvergate Capital.

00:26:28.000 They're getting their faces ripped off.

00:26:30.000 And so it's not a coincidence.

00:26:31.000 It's connected, but there's just slightly different circumstances.

00:26:35.000 That makes sense.

00:26:36.000 And so, but the fear that the federal government is trying to prevent is a psychological run, right?

00:26:43.000 Which, again, in the era of digital banking, too, it can happen really quick because you don't actually have to run into like that old, you know, the old pictures of the 1930s, people running to actually the banks.

00:26:54.000 Now you can open up your app and say, I'm getting it out.

00:26:57.000 But you make an interesting point, Dave.

00:26:59.000 Is the federal government basically saying that it is not a $250,000 insured reserve requirement?

00:27:08.000 It's basically unlimited.

00:27:10.000 I mean, do you think the $250,000 is antiquated?

00:27:14.000 Should it just be any ceiling?

00:27:17.000 I'm curious your thoughts here.

00:27:18.000 Yeah, it's definitely antiquated right now because there's no one in the world who could believe that they will not insure whatever deposit level they have to.

00:27:28.000 If First Republic were to go down, which I don't think it's going to, but if it were, there's a 100% chance they would have to provide the same coverage to them as well, right after doing this for Silicon Valley depositors.

00:27:42.000 What they it's very similar, Charlie, to Fannie and Freddie back in before 2008.

00:27:48.000 There was an implicit guarantee that was actually in the statute, but it was never explicit.

00:27:54.000 Then, after the Treasury Department took over Fannie and Freddie in September of 2008, it became explicit.

00:28:00.000 They just need to decide: is this an implicit guarantee, which is going to lead to market confusion and distortion and moral hazard, or is it explicit?

00:28:09.000 And if it's explicit, who's going to pay for it?

00:28:11.000 Just to give you a small window into how financial panic psychology works, as I was texting with one of our wealthy donors at Turning Point USA this morning, and he said, Hey, Charlie, for whatever it's worth, I just told my money, my guys at my bank to go down to 250 on all of my accounts, and I'm going to go put it into either T-bills or something.

00:28:35.000 So basically, just imagine if 10,000 people do that, right?

00:28:41.000 That's going to have an effect because if you're moving the money out of the bank, the bank then has to basically make good on what you think is your balance when it's actually not all there.

00:28:51.000 And so that is a question, right?

00:28:52.000 If you want to stop the run on the banks, then the federal FDIC has to come out and say, actually, it's up to whatever you want it to be.

00:29:01.000 And the question is, then where does that money come from, right?

00:29:04.000 Because that $100 billion that I imagine would get exhausted pretty quickly, which the banks do pay in fees.

00:29:12.000 Dave, one of the things I love about you is you're so clear in understanding free market economics.

00:29:18.000 You teach free market economics.

00:29:19.000 We're actually partnering with you at some things at Turning Point Academy.

00:29:22.000 I'm a little surprised, though, just from your perspective, that you're comfortable with the federal government involving itself here.

00:29:29.000 So make the free market economic argument so that I can understand it from your perspective.

00:29:35.000 Yeah, Charlie, it's not that I'm comfortable with the federal government intervening.

00:29:38.000 It's that we have a system where this has become the expectation.

00:29:43.000 And so the federal government doesn't generally get to pick when they're going to jump out.

00:29:49.000 You think of that multi-trillion dollar CARES Act and the PPP legislation the Trump administration passed.

00:29:55.000 I wasn't really comfortable with all of it, but it's what the expectation now is that our society has in its relationship with the federal government.

00:30:05.000 Ideally, I don't have a problem with the existence of depositor insurance, but I want it to be a market transaction where there's federal depositor insurance to avoid a run on the bank like the Depression, but that there's a known limit and a known cost.

00:30:21.000 When they change the rules like this midstream, it undermines credibility.

00:30:25.000 And so you end up paying for that later.

00:30:27.000 There will be a higher cost to federal deposit insurance and it will be borne by bank depositors and other banks.

00:30:34.000 The big banks will subsidize the little banks, et cetera.

00:30:38.000 But again, the problem is not just what they did in the last 24 hours.

00:30:42.000 We turned to them after the financial crisis with Dodd-Frank and said, keep any of this from happening.

00:30:48.000 And then, yeah, companies, even woke companies I don't like like Dropbox or Roku, if they choose to bank somewhere because the rules of the game told them it would be safe.

00:30:59.000 It's a tricky deal.

00:31:00.000 I also don't want to get too punitive just because they don't share my politics.

00:31:04.000 At the same time, I'm not going to offer unearned sympathy.

00:31:07.000 I'm just not because there are some awful people.

00:31:09.000 Let me ask you, Dave, do you think, and do you think that Peter Thiel started this?

00:31:14.000 Because some people are going after Peter Thiel harshly.

00:31:18.000 Is that a fair critique of him?

00:31:20.000 He didn't start it, but he was a player in it.

00:31:24.000 No question.

00:31:24.000 The company that started it was Silicon Valley Bank.

00:31:28.000 By having a god-awful balance sheet and a totally unsustainable business model of hot deposits from a bunch of real sketchy companies.

00:31:38.000 But Pete Deal definitely played into it by publicly asking his portfolio companies to withdraw their deposits.

00:31:46.000 And so he's a player in this.

00:31:48.000 Yes.

00:31:49.000 So moving forward, the repeal of Dodd-Frank is something I enthusiastically agree with because it actually strengthens some of the big banks.

00:31:59.000 But Dave, I have to just say, and this is just kind of a broader question that I'd love your take on.

00:32:04.000 We were told this would never happen again.

00:32:07.000 Banking is one of the most hyper-regulated industries.

00:32:11.000 Is that a fair thing to say?

00:32:13.000 The most hyper-regulated industry.

00:32:15.000 Then how the heck is this possible?

00:32:17.000 I mean, there's supposed to be safeguards and measures, right?

00:32:21.000 And especially with the bank of the size and the magnitude here, were the regulators not doing their job?

00:32:27.000 The regulators were not doing their job.

00:32:29.000 The principals and risk managers at the bank were not doing their job.

00:32:34.000 And the Fed was not doing its job.

00:32:36.000 It kept money too loose too long.

00:32:39.000 And now it is way too tight.

00:32:40.000 So the Fed hurt Silicon Valley on both sides.

00:32:43.000 Silicon Valley was incompetent.

00:32:45.000 And Charlie, you can't regulate away incompetence.

00:32:49.000 That's what people never learned out of the financial crisis.

00:32:52.000 You have to let people suffer pain.

00:32:55.000 That's the greatest regulator in the world.

00:32:57.000 All of us who are parents know that.

00:32:59.000 Then kids get, that's it.

00:33:01.000 Then, Dave, do we just say to the big depositors, tough luck?

00:33:04.000 Do we just say, look, we'll go up to 10 million?

00:33:08.000 I mean, final thing.

00:33:10.000 You talk a lot in your economics class, moral hazard.

00:33:12.000 Are we on that fine line here?

00:33:15.000 Yes, we are on the fine line.

00:33:17.000 There is a moral hazard for uninsured depositors, but depositors should not have to worry about the solvency of their bank.

00:33:24.000 So they're making a policy mistake.

00:33:26.000 But the reason why I'm putting that as secondary is because the primary thing is why they're making the policy mistake, which is their failure to let this happen to begin with.

00:33:36.000 I think that makes a lot of sense.

00:33:38.000 Dave, you very, very clear.

00:33:39.000 Our audience loved it.

00:33:40.000 This is an incredibly confusing topic.

00:33:43.000 I mean, I do politics and philosophy.

00:33:45.000 I don't do fractional banking.

00:33:48.000 But you explained it in a way that I think everyone could understand.

00:33:51.000 And I sure hope we do not have a run on the banks.

00:33:55.000 That would be really bad and would be tragic for a lot of people.

00:33:58.000 Dave, thank you so much.

00:33:59.000 Thanks, Charlie.

00:34:03.000 Thanks so much for listening, everybody.

00:34:04.000 Email us your thoughts as always, freedom at charliekirk.com.

00:34:07.000 Thanks so much for listening.

00:34:08.000 God bless.

00:34:12.000 For more on many of these stories and news you can trust, go to CharlieKirk.com.

The Charlie Kirk Show - March 13, 2023

The Truth Behind the Silicon Valley Bank Failure with Dave Bahnsen

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