- In his first response to the Silicon Valley Bank collapse, Vice President Pence warns against ‘moral hazard’ of bailouts
- ‘Banks make foolish decisions enabled by imprudent government policies and the American people pay the price,’ writes the former vice president
- Pence: ‘Americans will also be paying to guarantee the deposits of many Chinese companies that were SVB customers.’
By MIKE PENCE FOR DAILYMAIL.COM
PUBLISHED: 07:56 EDT, 14 March 2023 | UPDATED: 08:44 EDT, 14 March 2023.
Mike Pence served as the 48th Vice President of the United States
In America, the freedom to succeed has always included the freedom to fail. Or at least it used to.
Now we live in a world where certain politically favored businesses are propped up, backstopped and bailed out by government no matter how reckless they may be. That is exactly what happened during the 2008 financial crisis, and that is what is happening now with the banking panic set off by the failure of Silicon Valley Bank. Government is behind the bar pouring drinks, and some banks are going on another raging bender.
Just like in 2008, the cause of the current panic is excessive risk taking in the private sector that has been aided and abetted by government. To recap the 2008 fiasco: Congress pushed hard to expand homeownership and encouraged relaxed lending standards. Banks subsequently underwrote risky mortgages to subprime borrowers, which were then purchased by the government-sponsored firms Fannie Mae and Freddie Mac and repackaged into mortgaged backed securities. When subprime borrowers began to default, the whole system melted down along with our entire economy.
This time, the characters and setting are slightly different, but the plot remains the same. Under the Biden administration, Democrats have increased spending by over $10 trillion – more than the economies of Japan, Germany and Australia combined. This spending spree fueled record inflation, inevitably requiring the FED to raise interest rates.
SVB is not solely responsible for misallocating its resources on left-wing priorities; the Biden administration actively encouraged them to do so.
- Now we live in a world where certain politically favored businesses are propped up, backstopped and bailed out by government no matter how reckless they may be.
Meanwhile, in the private sector, SVB engaged in risky borrowing and lending on behalf of California’s donor class while committing billions of dollars to woke projects fighting climate change. The bank boasted that it was ‘living its values’ by pursuing left-wing environmental, social and governance goals and donating millions of dollars to liberal nonprofits. When interest rates went up, their long-term bonds imploded and SVB was left holding the bag.
But SVB is not solely responsible for misallocating its resources on left-wing priorities; the Biden administration actively encouraged them to do so. Rather than ensuring the strength of our banking system, Biden ordered bank regulators to push an environmental agenda. At the time of SVB’s collapse, the Federal Reserve was rolling out its latest climate-risk guidelines.
In 2008, I led the opposition to bailouts, and I continue to oppose bailouts now. We cannot have one set of rules for ordinary Americans and another set that takes special care of big tech, big banks and other favored industries.
Bailouts always beget more bailouts. I warned of the moral hazard created by the Troubled Assets Relief Program (TARP) in 2009, asking ‘where is all of this going to end? Just more handouts, more bailouts, and certainly…TARP is just going to be a down payment if we intend to bail out every failing bank in the country.'[1] Indeed, as we are seeing today, TARP was only the beginning.
Instead of encouraging dangerous behavior in the private sector, government should allow bad actors to bear the brunt of their bad decisions. We have bankruptcy laws for a reason. Bankruptcy is an orderly process that allows a failed business to restructure or be bought out by a solvent competitor – ensuring that the strong survive and the weak fall to the wayside, which is critical for maintaining a functioning free market.
- Instead of encouraging dangerous behavior in the private sector, government should allow bad actors to bear the brunt of their bad decisions.
The alternative is what we have today: banks make foolish decisions enabled by imprudent government policies and the American people pay the price. Of course, President Biden says taxpayers won’t pay for the bailout, but that is disingenuous – every American with a bank account will pay higher fees to replenish the billions spent by the FDIC to backstop failing banks.
But ultimately, we have to stop the insanity of bailing out failing businesses. No business is ‘too big to fail.’ Government should no longer choose winners and losers. Only then can we preserve a vibrant, healthy and flourishing free market.