00:00:37.000His 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.
00:00:45.000We will not embrace the ideas that have destroyed countries, destroyed lives, and we are going to fight for freedom on campuses across the country.
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00:01:05.000Silicon Valley Bank is no more, but it's not just Silicon Valley Bank.
00:01:11.000There's fragility all across the banking industry right now.
00:01:17.000Questions are, are we about to see a 21st century equivalent of a bank run?
00:01:22.000Over the weekend, the federal government made a series of announcements.
00:01:26.000Now, 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.
00:01:36.000I'm not even saying that in an accusatory way.
00:01:39.000You probably should work over the weekend to make sure that the entire American banking system doesn't collapse.
00:01:45.000Multiple stocks of banks are down double digits, 30, 40, 50, 60%.
00:01:52.000In 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.
00:02:08.000So what exactly happened with Silicon Valley Bank?
00:02:12.000And by the way, it's not just Silicon Valley Bank that collapsed.
00:02:16.000Over 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.
00:02:33.000Now, look, part of this is psychology.
00:02:35.000If every single depositor demands their money, the bank doesn't have the money there.
00:02:40.000They should teach you this in eighth grade finance class.
00:02:44.000That just because you see your money in your balance does not mean the money is there.
00:02:48.000Now, 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.
00:02:58.000Now, they have to have, because of a fractional banking system, they have to have some part of that actually in their available liquid accounts.
00:03:07.000But if 10%, 20%, or 30% of the depositors say, I want my money now, it crushes the bank.
00:03:15.000Now, why it happened and how it happened is going to be under great debate.
00:03:19.000We have some amazing experts coming this hour that will explain it.
00:03:22.000But 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.
00:03:58.000And 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.
00:04:13.000It probably is a bailout just by different terms.
00:04:16.000And so Silicon Valley Bank goes under.
00:04:20.000The federal government says it's not a bailout.
00:04:23.000But here's the central debate or the controversy.
00:04:26.000Claims that the decisions do not amount to a bailout.
00:04:29.000However, they're likely to be challenged.
00:04:30.000While 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.
00:04:40.000So it's the full faith and credit of the United States that is swooping in to make the depositors whole of Silicon Valley Bank.
00:05:23.000It probably is a bailout by other terms and other means.
00:05:26.000And what happens now with Signature Bank?
00:05:28.000What if another five, another six, another seven, another eight, another nine, another 10 banks crumble?
00:05:32.000And not to overly defend the Biden administration, but they really had no choice this weekend than to do what they did.
00:05:40.000Now, if you allow Silicon Valley Bank to fail and all you say is, look, we're up to $250,000 in deposits.
00:05:46.000The question is, how fragile is our banking system really?
00:05:50.000And that probably is why they moved as quickly as they moved.
00:05:53.000Now, 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?
00:06:03.000It'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.
00:06:16.000Because 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.
00:06:30.000I want to play another piece of tape here.
00:06:32.000Joe Biden saying that customers can access their money after regulators shut down the Silicon Valley Bank, play cut seven.
00:06:40.000Treasury Secretary Yellen and a team of banking regulators have taken action.
00:06:45.000All customers who had deposits in these banks can rest assured.
00:07:20.000There are two major ways a bank can fail, insolvency or a liquidity crisis.
00:07:25.000The collapse of Silicon Valley Bank seems to be more of a liquidity crisis.
00:07:29.000What that means is there was a high amount of demand for cash for them right now.
00:07:33.000And since Silicon Valley Bank didn't have a way to meet all that cash immediately, it collapsed and caused in a bank run.
00:07:42.000Now, a lot of people had no comprehension of what Silicon Valley Bank is.
00:07:48.000This is the bank for startup culture in Silicon Valley.
00:07:53.000Because 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.
00:08:10.000But Silicon Valley Bank couldn't find profitable ways to lend that money.
00:08:14.000And so they simply bought a bunch of U.S. Treasury bonds at very, very low interest rates.
00:08:19.000That is a great example of how you knew you had too many dollar bills in the system.
00:08:23.000When 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.
00:08:36.000That's exactly why you see asset prices going up across the board.
00:08:40.000Now, thanks to widespread inflation, the Federal Reserve had to raise interest rates sharply.
00:08:46.000Silicon Valley Bank's treasury bonds are worth a lot less now, and their startup clients need to pull out their cash more than ever.
00:08:53.000If Silicon Valley Bank had been a normal bank with lots of retail investors, they might have gotten away with this.
00:08:58.000In fact, back in February, there are already financial experts and analysts noticing that Silicon Valley Bank was basically broke months ago.
00:09:07.000But 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.
00:09:24.000And then that kind of contagion grows and people worry and then they take their money out and it collapses the banking system.
00:09:34.000Okay, Kirk fans, I need you to stop and pay attention to this.
00:09:39.000I have never experienced anything quite like the new Strong Cell product.
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00:10:40.000Again, I take it every day and the difference I feel is undeniable.
00:10:44.000By taking just one small bottle of Strong Cell liquid every day, you can experience an energy boost within the first week and even more benefits within the first 15 days.
00:10:52.000After 30 days, you'll feel like a new person.
00:12:24.000Here'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.
00:12:34.000President 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.
00:12:52.000Now, the question is: were they acting on material, non-private information?
00:12:56.000Now, 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.
00:13:11.000Continues 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.
00:13:28.000Did they see something that was coming?
00:13:30.000Did they know the 185 to 1 leverage that the bank was tolerating?
00:13:38.000And the answer is probably yes on that front.
00:13:40.000The 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.
00:13:51.000These plans allow company insiders and executives to arrange sell shares to certain predetermined tates in order to prevent illegal insider trading.
00:13:59.000Certainly seems like an perfectly timed window to dump stock.
00:14:05.000While 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.
00:14:18.000The bank was once the 16th largest bank in the United States, serving HNI or high-net worth individuals and venture capitalists.
00:14:29.000We also know that Silicon Valley Bank was deep in with the Chinese Communist Party and Chinese banks and Chinese companies.
00:14:36.000Silicon Valley Bank was especially popular among Chinese biotech groups that operated between the United States and China, according to the Financial Times.
00:14:44.000The 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.
00:14:53.000The goal is to provide cash liquidity for banks to stop a cascade of bank runs.
00:14:58.000Three years ago, you go back in the archives of the Charlie Kirk show, three years ago.
00:15:02.000And 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.
00:15:13.000We made a very provocative and bold statement three years ago.
00:15:20.000We said the lockdowns and the spending that will happen because the lockdowns will break the American economy as we know it.
00:15:36.000Talk about treatments, ivermectin, hydroxychloroquine, intravenous therapy, vitamin D supplementation, not being fat, getting good exercise, proper hydration, understanding comorbidities and underlying risk factors.
00:15:50.000But instead, we locked down the entire economy, put masks on kids, shut down our schools, and created trillions of dollars out of thin air.
00:16:03.000And 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.
00:16:20.000The excesses that came from creating $6 to $8 trillion out of thin air has a cost.
00:16:27.000Amazon, Facebook, Google, they had record highs.
00:16:32.000Never before had tech companies turned profits like this.
00:16:35.000Everyone's staring at screens all day long.
00:18:24.000What happened out of Dodd-Frank is clearly a failure, the inability of regulators to do the most basic of their job.
00:18:33.000But really, you have now a double indictment on the Fed, Charlie.
00:18:37.000The 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.
00:18:50.000I 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.
00:19:14.000And then the interest rates start rising and the value of the bonds that this bank is holding go down.
00:19:23.000So they got into what we call a vicious cycle in finance where the depositors are pulling money out.
00:19:29.000And then because they're doing that, they can't raise new capital.
00:19:33.000They can't raise equity to keep their bank afloat.
00:19:37.000And so it was a real failure of regulation.
00:19:40.000And 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.
00:20:42.000The value of Silicon Valley Bank is zero.
00:20:45.000The equity shareholders are going to get zero.
00:20:48.000The owners of the business had a lot of value one week ago and it's gone and not coming back.
00:20:56.000The unsecured bondholders are probably going to get zero.
00:21:00.000If it's not zero, it's going to be just a little bit less by the time they sell off assets.
00:21:06.000So it's not a bailout of Silicon Valley Bank, but it is a bailout of uninsured depositors that had over $250,000.
00:21:16.000And 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.
00:21:32.000And you assume that you put cash in, you're going to get cash out.
00:21:36.000And they felt that it would have been a disaster to wake up this morning and have those depositors uncovered.
00:23:06.000So 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.
00:23:18.000Is that essentially what they're saying?
00:23:20.000And from a free market economic standpoint, Dave, which you're an expert on, is there a moral hazard?
00:24:50.000Banks 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.
00:24:58.000This company had less leverage than that because they weren't lending the monies out.
00:25:02.000They were not a traditional bank that was taking deposits in and then going out and doing mortgages and things like that.
00:25:09.000What this bank did is have a bunch of junk on their balance sheet.
00:25:12.000They would lend to a Silicon Valley company and take warrants and equity and stock options.
00:25:18.000So they were kind of running like, who's that guy from the bar stool?
00:25:24.000Dave Portnoy, my hedge fund friend said it was like Dave Portnoy was running their balance sheet.
00:25:37.000What 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.
00:25:48.000So that leverage is being misunderstood a little bit.
00:25:50.000So the general health of the American banking system, we saw Signature Bank collapse at all.
00:25:55.000Do you think Signature Bank collapsed because of the Silicon Valley Bank?
00:26:00.000I mean, it just seems the timing seems to be too much of a coincidence, meaning did depositors say that I want my money back?
00:26:05.000Is 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.
00:26:14.000There's just so much grift and corruption and fraud in this crypto world.
00:26:36.000And so, but the fear that the federal government is trying to prevent is a psychological run, right?
00:26:43.000Which, 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.
00:26:54.000Now you can open up your app and say, I'm getting it out.
00:26:57.000But you make an interesting point, Dave.
00:26:59.000Is the federal government basically saying that it is not a $250,000 insured reserve requirement?
00:27:18.000Yeah, 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.
00:27:28.000If 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.
00:27:42.000What they it's very similar, Charlie, to Fannie and Freddie back in before 2008.
00:27:48.000There was an implicit guarantee that was actually in the statute, but it was never explicit.
00:27:54.000Then, after the Treasury Department took over Fannie and Freddie in September of 2008, it became explicit.
00:28:00.000They 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?
00:28:09.000And if it's explicit, who's going to pay for it?
00:28:11.000Just 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.
00:28:35.000So basically, just imagine if 10,000 people do that, right?
00:28:41.000That'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.
00:29:19.000We're actually partnering with you at some things at Turning Point Academy.
00:29:22.000I'm a little surprised, though, just from your perspective, that you're comfortable with the federal government involving itself here.
00:29:29.000So make the free market economic argument so that I can understand it from your perspective.
00:29:35.000Yeah, Charlie, it's not that I'm comfortable with the federal government intervening.
00:29:38.000It's that we have a system where this has become the expectation.
00:29:43.000And so the federal government doesn't generally get to pick when they're going to jump out.
00:29:49.000You think of that multi-trillion dollar CARES Act and the PPP legislation the Trump administration passed.
00:29:55.000I 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.
00:30:05.000Ideally, 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.
00:30:21.000When they change the rules like this midstream, it undermines credibility.
00:30:25.000And so you end up paying for that later.
00:30:27.000There will be a higher cost to federal deposit insurance and it will be borne by bank depositors and other banks.
00:30:34.000The big banks will subsidize the little banks, et cetera.
00:30:38.000But again, the problem is not just what they did in the last 24 hours.
00:30:42.000We turned to them after the financial crisis with Dodd-Frank and said, keep any of this from happening.
00:30:48.000And 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.
00:31:49.000So moving forward, the repeal of Dodd-Frank is something I enthusiastically agree with because it actually strengthens some of the big banks.
00:31:59.000But Dave, I have to just say, and this is just kind of a broader question that I'd love your take on.
00:32:04.000We were told this would never happen again.
00:32:07.000Banking is one of the most hyper-regulated industries.
00:33:26.000But 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.