Tech investor David Sacks, worth several hundred million dollars and with at least some degree of personal stake in the Silicon Valley Bank (SVB) failure, wrote in The Federalist last week to argue the federal rescue of SVB depositors was justified. The problem is that Sacks’ arguments are wrong, or at least deeply flawed.
I don’t mean to pick on Sacks. He has stood out as extremely vocal in defending the Federal Deposit Insurance Corporation (FDIC) for fully backing all SVB deposits beyond the statutory $250,000 limit.
Some of the arguments Sacks is making are the same arguments being made by politicians such as President Joe Biden, Rep. Maxine Waters, D-Calif., and Sen. Mitt Romney, R-Utah. The following is a refutation of the arguments Sacks and others have made, and a call to action.
Argument One: This Wasn’t a Bailout
Many proponents of the SVB depositor bailout argue this wasn’t really a bailout, because the shareholders lost all their money and SVB employees lost their jobs. Wrong. The rules say that the FDIC insures up to $250,000 per depositor per insured bank. SVB depositors are a relatively small group of extremely wealthy individuals and funds, and the FDIC made the unprecedented decision to cover 100 percent of their deposits.
Had the bailout not occurred, these depositors wouldn’t have lost everything. They would have likely taken a haircut on their deposits, depending on the quality of the loans SVB made (40 percent of the assets were loans, 60 percent were liquid securities).
