March 15, 2023 - 5:46pm

The reaction to the rescue of Silicon Valley Bank has been acutely divided — but not along political lines. On one end there are Democratic economic advisors, establishment Republicans and venture capitalist libertarians like David Sacks, who featured on UnHerd this week to defend the decision. On the other are populist politicians from Left and Right like Senators Elizabeth Warren and J.D. Vance who are leading calls to crack down on the banking industry’s loose regulatory framework.

One figure to have offered his full-throated support to the latter camp is economist Matthew Stoller. Stoller is Director of Research at the American Economic Liberties Project and writes the Substack ‘BIG‘. He joined Freddie Sayers to explain why he thinks the SVB bailout was so disastrous, arguing that it was wholly unnecessary:

This is all stupid and very irritating, and just one more justification for this entangled, corrupt system, and policymakers who are just afraid of their own shadows. […] If you take risks, you have to eat the downside when things go wrong. That’s just the reality here, and there wasn’t even that much downside. All of it is embarrassing.
- Matthew Stoller

In Stoller’s opinion, the SVB crisis was a storm in a teacup, whipped up by executives who didn’t want to deal with the inevitable fallout from their “bad risk management”.

This was just a panic. The bank did a crappy job at managing risk so that their executives could make a lot of money. They were gambling with other people’s money. They lost. And then the people whose money they were gambling with were freaking out and they went to the regulators and scared them. And so the regulators made them whole. That’s really all this is.
- Matthew Stoller

Which begs the question: what would have happened had the Fed done nothing? According to Stoller, SVB depositors, over time, would have been more or less alright had the crisis been left to follow a natural course:

Their deposits weren’t going to disappear. […] If we had just gone through and let the FDIC resolve the bank, as they should have, today, most of the customers of Silicon Valley Bank would probably have access to between 40% and 70% of their deposits. By the end of the week, probably 80%; and in two to four months, maybe they would have had access to all of it, maybe they would have had to take a slight haircut.
- Matthew Stoller

Stoller believes the whole banking system needs a revamp. First and foremost, the too-big-to-fail banks need to be dismantled and regulated “more aggressively”, with the result being “more banks, closer to communities, that allow for risk management”. Another solution, which may be less palatable to many, is to offer everyone and anyone the ability to bank directly with the Federal Reserve, risk free. Concerns over privacy and governmental control were brushed aside. In any case, Stoller declares it a myth that the Government isn’t already pulling the strings:

All banks are basically chartered by the Government, they are inspected by the Government, they have access to a whole financial safety net that is provided by the Government. So, you know, this isn’t a huge step change in how we see things; it does get away from this illusion that we have, that the banking system is kind of private
- Matthew Stoller