00:02:40.580So Silicon Valley Bank has $210 billion in assets.
00:02:45.220And a big chunk of its portfolio was held in securities and, in particular, long-term government debt.
00:02:57.520And, in fact, it had the highest securities portfolio as a percentage of total assets of any bank.
00:03:06.440And it took long-term government debt.
00:03:10.460But then the Fed's policies, raising interest rates, made that government debt, made those bonds go down in value about 20%.
00:03:21.340And what happened is that the bank was required to mark-to-market those securities at their current valuations.
00:03:31.060Now, if it held those government bonds to maturity, it would get the full payout.
00:03:37.060But they're worth about 20% less because the interest rates they were taken out at are significantly lower than where interest rates are today.
00:03:47.540That, in turn, caused an old-fashioned run on the bank, which is depositors, and, in particular, venture capital companies and tech companies, began removing their funds en masse.
00:03:59.180And it was one after the other after the other that began pulling their funds out.
00:04:05.240Now, look, we all know from classic movies like It's a Wonderful Life that a bank doesn't have all of the deposits just sitting there in cash,
00:04:16.080that it, in the case of an S&L or a mortgage bank, it is loaning them out.
00:04:23.520In this instance, the bulk of the funds were in securities, including, in particular, both government debt and mortgage bonds.
00:04:32.820And so when a ton of the depositors are saying, give me my money back, they ran into real trouble because there was a liquidity mismatch.
00:04:42.280In other words, the assets they had available to give the depositors back were less than the demand from the depositors to get it back.
00:04:52.380And so California stepped in and shut the bank down on Friday.
00:04:59.240And what happened next was a series of things.
00:05:03.620So one consequence, the FDIC, the Federal Deposit Insurance Corporation, insures deposits up to $250,000.
00:05:13.640So if you or I have our checking account or savings accounts, most of us presumably have less than $250,000 in our checking or savings accounts.
00:05:23.140Those are entirely insured by the government.
00:05:25.620And that's true for anyone that has less than $250,000.
00:05:28.780That's also true for smaller businesses, for mom and pop businesses, smaller businesses.
00:05:32.780But above $250,000, that is not supposed to be insured by the FDIC.
00:05:40.300And in the case of Silicon Valley Bank, a massive amount, 96% of their deposits were uninsured.
00:05:50.200In other words, it had a bunch of big, big, big deposit accounts way above the $250,000 insurance cap.
00:05:58.640The folks that had deposits in Silicon Valley Bank that were above the $250,000 insurance cap include a ton of politically connected venture capital firms in Silicon Valley and startups.
00:06:15.940So, for example, Circle, the payment technology firm, had $3.3 billion in Silicon Valley Bank.
00:06:27.460$3.3 billion is way, way, way above $250,000.
00:06:32.980There were a total of 1,074 private equity and venture capital funds that were banking with Silicon Valley Bank.
00:06:41.300And if you look at some of the players, in addition to Circle, Roku, the streaming service, had $487 million in Silicon Valley Bank.
00:06:52.440The crypto lender BlockFi, which is now defunct, had $227 million.
00:06:58.840Roblox, the online gaming platform, had $150 million.
00:07:07.440And BuzzFeed, the online media platform, had about $56 million in cash and cash equivalents at the end of 2022, the majority of which was held at Silicon Valley Bank.
00:07:20.440So you have a lot of big players with huge amounts of money.
00:07:24.620Now, these players chose to deposit it knowing what the FDIC limits were.
00:07:31.880They didn't seek to find any other way to protect it.
00:07:35.760They counted on, number one, that they believed Silicon Valley Bank was too big to fail.
00:07:41.080But number two, what happened is the White House very quickly responded to Democrat politicians and tech firms and VC firms expressing dismay.
00:07:54.220And the Biden administration said, you know what?
00:07:58.080We're going to guarantee every deposit doesn't matter how big.
00:08:01.360That was, any way you look at it, a massive bailout.
00:08:08.220And it was a bailout that was done with no authorization from Congress.
00:08:15.340You know, you think back to the financial crisis that we saw in 2008.
00:08:23.1602008, there was a financial crisis and there was a massive bailout.
00:08:26.460And what happened there, the George W. Bush administration went to Congress and they sought to pass what was called TARP, the Troubled Asset Recovery Program.
00:08:36.760And the first time, in fact, the House of Representatives voted it down and didn't give the Bush administration the bailout it asked for.
00:08:44.100Then ultimately it did. And actually, the response to TARP prompted, in significant part, the Tea Party, the enormous wave of fed up voters that were very unhappy why rich connected bankers were getting billions in government money.
00:09:05.020The Biden administration didn't go to Congress, didn't think Congress had anything to say at all.
00:09:09.700They just announced it. We're giving away money. Why?
00:09:13.400Because these are Democrat donors and people we listen to.
00:09:17.700And you know what? Mom and pop across this country are going to pay more.
00:09:21.900Local community banks in Texas and all across the country are going to end up paying more because the Biden administration decided to bail out Silicon Valley Bank
00:09:32.380and to ignore the FDIC cap and give unlimited guarantees on deposits.
00:09:39.700Senator, I want to ask you a question, and this really is a political one, about the money that was coming out of Silicon Valley Bank.
00:09:49.180We've now been told that apparently they've given more than $73 million in donations to Black Lives Matter and related organizations.
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00:10:58.020So you see and you go back to what you're mentioning about how the FDIC works, right?
00:11:02.520You're supposed to have a limit to the first $250,000 of your deposits in a bank.
00:11:07.600But what Biden basically said is, hey, this is a woke liberal bank and we cover it all, even though the people that were putting the money in the bank knew that they were overly leveraged here,
00:11:18.500that they didn't have as sound of a lending practice as many other banks.
00:11:24.420So are we now at the point where we have a government that says, OK, you can act recklessly in the financial industry, specifically in banking,
00:11:34.140as long as you are in the right side of giving to Democrats or to parties, we'll cover you no matter how reckless you are, no matter how big you are.
00:11:43.340And as long as you're on our team and donating to things that we believe in, we'll get your back up to 100 percent of all of your deposits.
00:11:51.360Look, there are an awful lot of folks that are going to take exactly that message from this.
00:12:31.420They didn't have this hedged against interest rate risk.
00:12:37.200They were gambling that the Fed would not raise rates, even though they'd been screaming from the mountaintops that they were going to raise rates.
00:12:43.680A bank that is being prudent can hedge its investments against interest rates rising by investing also in counterbalancing investments that will go up when interest rates go up.
00:12:57.560They were focused on virtue signaling.
00:13:01.680They were focused on showing just how woke they are.
00:13:04.960And it's important to understand also, look, the bank here, these bank officers were bad actors.
00:13:13.040Let me tell you two data points that have been vastly underreported.
00:13:18.740Number one, hours before the bank was shut down, Silicon Valley Bank gave very substantial bonuses to all of its employees.
00:13:30.680They just began writing checks to everyone hours before they were shut down.
00:13:39.480Data point number two, in the two weeks prior to their being shut down, the CEO and the CFO sold large amounts of stock.
00:13:52.160The CEO ended up making over a $2 million profit from selling stock less than two weeks before the bank was shut down.
00:13:59.520Both of those indicate corrupt intent.
00:14:04.240I'll tell you, I had a conference call in the last 48 hours with all 100 senators were invited to participate and Treasury and the FDIC was on there.
00:14:17.380And I asked, I said, look, is it true that they gave bonuses to their employees, number one?
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00:15:23.540You look at Joe Biden, and one of the things that I think is very concerning about this Biden bailout, that's what it is.
00:15:31.300We should call it that, is the question now is, is this a big step towards government control of the banking system?
00:15:39.540Because if the government can choose winners and losers, and those are supposed to be giving oversight of the banks are not doing it, that's another huge problem here.
00:15:50.980And many people may not understand this, and I want you to explain it for people.
00:15:54.940The San Francisco Fed was who was supposed to be supervising this bank.
00:15:59.160They either were asleep at the wheel or didn't care that they were acting this way.
00:16:05.680And if this is what the government's going to do, is this almost a play where they say, hey, we're just going to have a United States government now that is in total control of the banking system.
00:16:15.980That would be terrible for this country.
00:16:18.000Well, the banking system right now is already heavily regulated, and bank regulators are deeply involved in examining the books, and they should be involved.
00:16:28.540There is a very important role for bank regulators to make sure that banks are being honest and have sufficient liquidity and are sufficiently financed.
00:16:38.520I will note that this crisis, number one, was heavily encouraged by government policy.
00:16:44.260And in particular, the Fed, for years, pursued an easy money policy of quantitative easing of virtually 0% interest rates that was flooding the system with cash.
00:16:56.100Number two, the federal government also treated long-term government debt as essentially risk-free, zero-risk government debt.
00:17:06.180Dodd-Frank, rammed through by the Democrats, heavily encouraged banks to invest in long-term government debt.
00:17:13.400Now, one thing that does is it helps finance the massive debt that the Democrats are racking up on their spending spree.
00:17:20.620They want banks incentivized to buy that debt.
00:17:23.700But number two, that may make sense in a non-inflationary environment.
00:17:30.000But when inflation exploded under Joe Biden and the Fed was forced to raise rates, suddenly that long-term government debt, you had a spread there that severely reduced the value of those bonds.
00:17:44.600And it was government policies that encouraged it on the front end.
00:17:48.320But then on the back end, you are absolutely right.
00:17:50.960The regulator of Silicon Valley Bank was the San Francisco Fed.
00:17:55.180The San Francisco Fed bears an enormous amount of responsibility for what happened because this wasn't subtle.
00:18:06.160Silicon Valley Bank was not hiding from the regulators that it had massive amounts in long-term government debt.
00:18:13.300The Fed obviously knew that the Fed was raising interest rates, and yet this exposure – and the Fed presumably knew that this interest rate exposure was not hedged.
00:18:27.120And so you have to ask, what the hell happened at the San Francisco Fed?
00:18:33.320You know, you go look at the San Francisco Fed's website.
00:18:36.560They again, like Silicon Valley Bank, have all sorts of woke things on there about ESG and climate change and Black Lives Matter.
00:18:46.660But actually doing their job, it is striking that the San Francisco Fed did nothing until it was too late.
00:18:55.360Will there be any accountability for the government regulators, specifically in San Francisco, on this?
00:19:02.020And is there anything that Washington can actually do to hold them accountable?
00:19:06.340Because if you basically simplify this, you pretty much had a group of wealthy speculators that got really upset that their money ended up being locked into a 10-year obligation at less than a 2% return.
00:19:20.140So then they basically said, all right, we'll convince the government it was in everyone's best interest to help them out of their jam at the expense of everyone else.
00:19:27.780And the Fed, who's supposed to be looking at this, watching this bank, they just didn't do a darn thing.
00:19:34.280Well, there needs to be accountability, and I do have a high level of confidence that at a minimum there'll be accountability in the House, that the House is going to hold the regulators to account.
00:19:44.320What Joe Biden and the Democrats and what the corporate media are trying to do is, of course, blame it all on Trump, because that's their answer for everything.
00:19:53.860But if you look at who the bank regulators were that were in charge of it, it wasn't Trump.
00:19:57.540Trump's been out of office for over two years.
00:19:59.540It was the Biden administration asleep at the wheel.
00:20:04.660And when you look at it also, look, the moral hazard this will create is dangerous.
00:20:33.880And in particular, look, it's worth noting the bailout is not even directed at Silicon Valley Bank and its stockholders.
00:20:42.680They have not been bailed out, at least not yet.
00:20:45.820The people who were bailed out were all of the depositors that had tens of millions or hundreds of millions or even billions of dollars in Silicon Valley Bank.
00:20:56.420By the way, among among many of those depositors, billions of dollars worth were Chinese companies.
00:21:03.820Silicon Valley Bank, one of the things it specialized in was was doing banking for foreign companies, foreign investors.
00:21:11.140And so this was also a bailout of China by the Biden administration.
00:21:16.660But, you know, what ordinarily happens when a bank fails and listen, we've seen banks fail.
00:21:22.100That's part of how the system operates.
00:21:24.400When the bank managers take on too much risk, the bank should fail because you don't want to incentivize.
00:21:32.140You don't want to have everyone taking on too much risk.
00:21:35.520But what ordinarily happens when when a bank fails is, number one, they try to find a private buyer and and they did try to do that over the weekend.
00:21:45.060And apparently they were unable to do so.
00:21:47.620There were several bids submitted, but the Biden FDIC refused to take any of the bids.
00:21:55.300Now, we don't know what those terms were.
00:21:57.500I can tell you in the call with the senators, we asked them and they didn't tell us.
00:22:01.580They didn't want people to know what the terms were, but the Biden administration turned down a private buyer that could come in and take over the bank, which is ordinarily what happens.
00:22:11.580Also ordinarily what happens when a bank fails is that everyone's deposits up to two hundred and fifty thousand dollars get held completely harmless.
00:22:20.720And those are guaranteed by the FDIC and the larger deposit holders.
00:22:25.580Typically, they're not blown out there.
00:22:28.400Their larger deposits are not typically worthless, but they usually take a haircut somewhere in the 15 to 20 percent range.
00:22:35.440And that's what ordinarily happens when you put a whole bunch of money in one place at risk without it being insured.
00:22:43.240All of the depositors knew that, but they also knew that with their friends in the Biden administration, that they could count on higher returns from Silicon Valley Bank playing fast and loose.
00:22:55.700And if things went south, I think they were confident that Democrats in Washington would have their back.
00:23:02.740Last question on this for you, Senator.
00:23:04.980They're obviously having two banks back to back collapse is going to make people uneasy.
00:23:10.500When you guys were on these calls, did anyone talk about other banks or there's still concerns that other banks may have been following and doing the same exact thing that Silicon Valley Bank was doing?
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00:25:11.460It's a concern that regulators need to take seriously.
00:25:13.600It's a concern that Congress needs to take seriously.
00:25:16.420We need our banking system to be safe and secure.
00:25:20.000There are very few, if any, banks, though, that are similarly situated to Silicon Valley Bank.
00:25:26.980Number one, it was almost exclusively big tech and venture capital companies that had deposits in Silicon Valley Bank.
00:25:39.080And the way Silicon Valley Bank would work is they'd bank a big venture capital firm.
00:25:45.860And the VC firm would require that all their portfolio companies – so a venture capital firm is a firm that takes investments from individuals and institutions
00:25:55.620and then invest, typically, in the tech space, early stage in startup companies.
00:26:02.100And so a VC firm could have dozens or even hundreds of tech startups that it's invested in.
00:26:10.880And many of the VCs would require every one of the tech startups it had.
00:26:16.600They had to bank at Silicon Valley Bank.
00:26:18.600And so you ended up having a very high concentration.
00:26:22.720That degree of sector exposure makes a bank quite vulnerable, that it was so intertwined with tech that tech has been hard hit lately.
00:26:34.340And in particular, the higher interest rates, much – when you look at startups, they are often heavily funded by debt.
00:26:40.560And a startup, it could often be a pretty long ramp up before they have significant revenue.
00:26:46.240And so Silicon Valley Bank had greater exposure because they were so sector-concentrated in one area, number one.
00:26:54.760Number two, the fact that 96 percent of their deposits were uninsured.
00:28:52.100Look, we could have a reasonable public policy debate listening to economists examining what needs to be done to ensure stability in the banking system.
00:29:02.600But the Biden administration didn't want that reasonable debate.
00:29:21.440And it seems like the new policy of the Biden administration is be a woke bank and support and advocate and give donations to woke ideology,
00:29:31.400And if that's what they're going to do for the next two years, that's going to be very concerning and should be an issue moving into the next presidential election.
00:29:39.000I want to talk also about China and really what's happening with climate change and with regulations.
00:29:47.740There are a couple of different Biden administration clips that have emerged recently highlighting just how much the Democrats are in bed
00:29:58.220and idolizing the Chinese Communist Party.
00:30:03.180These were moments that when you hear them, you're kind of in shock because you've got the Biden administration officials who are actually saying that they think China is amazing.
00:31:15.160How can we try to work together with them on issues where we can find common ground?
00:31:21.740Senator, China, just so people understand this, they're one of the biggest, if not one, the biggest polluting industrialization in the world.
00:31:29.060They don't ever play by the rules that we are, that these Democrats are trying to force us to play by.
00:31:34.820And not only are the Chinese laughing at us on all of our global warming issues that are just stifling our economy and manufacturing, but they're making money off of these bad policies and polluting at record levels that we've never seen before.
00:31:51.900And now you've got Democrats praising them.
00:31:54.760You know, it really is striking that in the same week that the Biden administration does a bailout for their politically connected friends in tech, including billions of dollars of a bailout for Chinese tech companies and Chinese investors, that you have a coordinated pivot from the Democrats to embrace China.
00:32:19.100Those three clips you played, the first one was from Jennifer Granholm, the energy secretary.
00:32:24.340The second one was from Gina Raimondo, the commerce secretary.
00:32:28.340And the third one was from Nancy Pelosi, the former speaker of the House.
00:32:32.640All of them are saying almost exactly the same thing.
00:32:35.440They're all saying, we've got to work with China as our partner in fighting climate change.
00:32:41.660Now, those are the talking points, and I will give Democrats credit.
00:32:45.900Democrats have incredible message discipline.
00:32:48.360The fact that you see all three of them saying almost word for word the same thing is clear.
00:35:04.640Because their major stakeholders, big tech, big business, big universities, big Hollywood, all of them are in bed with China.
00:35:12.940And so when you have Pelosi and the Democrats reading the CCP's talking points about how great they are on the environment, it is both deeply dishonest and laughably absurd.
00:35:26.500One other thing on China, you look at this moment and in history, I think this is going to go down as an extremely pivotal moment because it's not just this administration basically fanboying over China and rewriting history of what China is doing on climate change.
00:35:44.520But they're also allowing for China to really take advantage of what's happening with Russia and Ukraine.
00:35:52.220You combine these two things together on top of what they're doing with TikTok and spying and what they've been able to do with just stealing anything they can get their hands on through hacking in this country and stealing trade secrets.
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00:37:15.180Now, Senator, this administration so far, and correct me if I'm wrong, has still to date not one time stood up to China on any significant issue.
00:37:26.400I would even say probably any basic issue.
00:37:30.700What is the reasoning behind them being so obsessed with allowing China to just continue to grow, do whatever they want to do, and putting Americans second to China in this policy?
00:37:40.960Well, number one, that's been Joe Biden's policy his entire life.
00:37:45.480He has been an advocate on behalf of China for decades.
00:37:49.820If you remember the video of him saying, come on, man, China's our friend.
00:37:56.380He has been arguing that for a long time.
00:37:59.480Number two, by the way, he's also been perfectly happy to be personally enriched and for his family to be personally enriched.
00:38:06.720Because as we've talked about at length on this podcast, Hunter Biden made millions of dollars monetizing his father's political connections.
00:38:15.740And that included, as we know from the Hunter Biden laptop, 10% for the big guy for Joe Biden himself.
00:38:21.220So he's had a personal financial stake in doing business with China for a long time.
00:38:26.560But number three is the structural reality of the Democrat Party today.
00:38:32.140They're not willing to stand up to China because the people who fund them depend upon China.
00:38:39.760The people who form the core of the Democrat Party today are deeply intertwined with China.
00:38:46.320And actually, the Silicon Valley Bank situation illustrates that perfectly.
00:38:50.700Biden was all too eager to bail out his buddies in tech.
00:38:56.780But in doing so, he's providing billions in bailouts for China as well.
00:39:02.300And that's because the two are deeply intertwined.
00:39:07.140I'll point out on top of that, if you say, well, wait a second, you know, isn't that an exaggeration?
00:39:14.600In the last Congress, I forced a vote on the Senate floor on my amendment that said the federal government should be prohibited from buying electric vehicles or batteries manufactured using slave labor in concentration camps in China.
00:39:36.140You would think this would be an easy vote.
00:39:38.120You would think this would be 100 to nothing.
00:39:39.400Every single Democrat except one, every Democrat except Joe Manchin voted no.
00:39:46.140And that is a structural dynamic of how today's Democrat Party is organized.
00:39:52.820Yeah, it's certainly not looking out for the American people first and foremost.
00:39:56.740And we're seeing that whether it's the bank, whether it's China, whether it's climate change, the list goes on and on.
00:40:02.240Don't forget, if you're listening, we do this show three days a week.
00:40:04.740So make sure you hit that subscribe and or the auto download button so you get each and every episode when we're dealing with what's really happening in Washington, with what's happening with the banks right now.