(Bloomberg) — The US government’s emergency backstop of its financial system following the collapse of a Silicon Valley bank has drawn praise from prominent names including Larry Summers and Bill Ackman.
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But after a frantic weekend in which the Federal Reserve and Joe Biden’s administration took extreme measures to protect depositors at SVB and the rest of the country’s banks, a small but vocal group is emerging as critics of the rescue package.
Ken Griffin, the billionaire founder of hedge fund Citadel, told the Financial Times that the US government should not have intervened to protect all depositors at the Santa Clara-based bank.
“America is supposed to be a capitalist economy, and it is crumbling before our eyes,” Donner Griffin, a prominent Republican, told the FT on Monday. “There has been a loss of financial discipline with the government giving complete relief to depositors.”
Billionaire quant investor Cliff Asness tweeted Monday that the regulators pose a moral hazard and “that’s not okay.”
Asness, co-founder of AQR Capital Management LLC and a proponent of limited government, wrote the rescue “drastically reduced” the incentive for depositors to choose where to put their money.
Carson Block, founder of trading firm Muddy Waters Capital, said the government should not “bail out” uninsured deposits at SVBs because it rewards “massive failures” of risk management.
“Corporate depositors, in particular, should be expected to manage their counterparty risk,” The Block, which often makes money when markets fall, wrote in a Sunday statement that it tweeted. “Bailling out uninsured depositors in SVBs, who are mostly corporate, makes markets more infantile by sending the message that this kind of risk management is anachronistic.”
SVB’s seizure Friday, the biggest US bank failure since the financial crisis, sparked a flight of depositors and sent shock waves through the global financial system.
Regulators took measures to increase deposits on Sunday as New York’s Signature Bank declared failure. Both collapses followed news last week that fellow crypto-friendly bank SilverGate Capital Corp. would be shuttered.
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Biden has said that no loss will be borne by the taxpayers and that those responsible for the collapse of the banks will be held accountable.
“Investors in the banks will not be protected,” he said. They deliberately took the risk and when the risk did not pay off the investors lost their money. That’s how capitalism works.
Economist Nouriel Roubini questioned the logic of protecting depositors at Signature Bank, writing in a tweet that the move was the “mother” of all moral hazards.
Roubini, who has earned the nickname “Dr. Doom” for his bearish views of the global economy, is critical of cryptocurrencies, calling them “purely speculative asset bubbles.”
As of March 8, Signature Bank still held $16.5 billion in crypto-related deposits.
Roubini, CEO of Roubini Macro Associates LLC, wrote in another tweet, “All banks doing the crypto biz are collapsing.” “good riddance.”
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