America’s casino capitalism swallows its banks!

Ensuring Socio-economic Justice

Crescent International

Sha'ban 22, 1444 2023-03-14

Daily News Analysis

by Crescent International

There is an old saying, “Don’t dig a hole for others, you may end up in it.”

This is what has been witnessed in the collapse of two major banks in the US: the Silicon Valley Bank (SVB) in Santa Clara, California, and Signature Bank in New York.

For decades, America has imposed sanctions on other countries in order to cripple their economies.

Now its own banks are collapsing, not as a result of sanctions from abroad but due to lack of customers’ confidence and the way the American banking system operates.

The start-up focused SVB, the 16th largest lender in the US, crashed due to customers withdrawing their deposits, prompting regulators to shut it down on March 10.

Silicon Valley, it must be noted, is the capital of venture capitalists who seek their fortunes by getting banks to finance their dreams.

Not all dreams are realized but easy money was made available to start-up companies.

The banks, including the SVB, are poorly regulated, hence the risk of financial meltdown.

As long as customer and investor confidence remained high, everything worked fine.

But such confidence was built on sand; it could easily be washed away.

There does not have to be any specific reason; the mere withdrawal of customer confidence can cause panic.

And it did, in the case of SVB.

Its collapse prompted investors to withdraw more than $100 billion in market value from other US banks.

A herd instinct was taking over, threatening the entire casino capitalist system of the US.

Swift action against SVB by government regulators only heightened panic resulting in Signature’s closure on March 12.

Signature Bank was a big lender in the crypto industry (total assets approx. $110.36 billion).

The closure of two banks marks another major failure in the US banking history, which according to experts has shaken the foundations of the US economy.

Several factors contributed to SVB’s collapse.

Since 2022, SVB was experiencing steep losses following increased interest rates by the Federal Reserve to control inflation and a major downturn in the tech industry.

Interestingly, banks executives, among them SVB executives, had lobbied hard to minimize oversight of their operations.

This was granted by limiting provisions of the Frank-Dodd law signed by President Barak Obama in 2010 to regulate banking operations.

Donald Trump gutted these provisions, resulting in the current fiasco.

The banks are thus the architects of their own misfortune.

During the pandemic, the tech industry made huge profits on the backs of other businesses that suffered losses due to shutdowns.

Over the last 18 months, however, hundreds of thousands of tech workers have been laid off.

SVB’s liabilities were heavily concentrated in the tech industry.

Despite its assets totalling $209 billion, SVB was unable to stem the depositors’ panic.

One of its conditions for giving out loans to start-up companies was that they must keep their principal account with SVB.

These start-up companies have lost tens of billions of dollars because of the bank failure.

Deposits over $250,000, are particularly hard hit. Their deposits are uninsured. This has affected most companies.

The negative fallout of SVB’s collapse has also affected start-up companies in Israel and Britain.

The tentacles of casino capitalism are spread far and wide.

It is also interesting to note that news about SVB’s funding of start-up companies in Israel reveals another conduit for funnelling billions of dollars into the parasitical state.

The bigger picture is that the American financial system is erected on extremely shaky foundations.

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