During the 2008 banking crisis involving “too-big-to-fail” banks, the federal government used taxpayer money to bail out the large banks as a way of preventing an economic collapse. As Noah Smith notes in Noahpinion, “in 2008, the bankers who made the bad decisions that led to the financial crisis generally got to keep their (very lucrative) jobs after getting bailed out. And their banks continued to exist as well, and even got government to guarantee them some profits going forward. Even as normal people suffered mass unemployment and the loss of their careers and livelihoods, many of the people responsible for the disaster kept collecting million-dollar checks and being in respected positions of power, now with government guarantees. If that seemed unfair, it’s because it was unfair.”
In contrast, the March 12 decision to extend federal deposit guarantees to Silicon Valley Bank to prevent a panic among its customers included the provision that “Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
Again, Noah Smith explains, “A deposit guarantee for SVB and other banks will not be similar [to a bailout] at all. SVB will cease to exist, its owners will lose their money, and its employees, who made a lot of questionable business decisions, will be looking for new jobs. The people who get paid out will not be its owners or its employees, but its customers — people who stuck their money in a bank and didn’t think too carefully about whether that bank was a good bank. Maybe that was a little negligent, but it wasn’t greedy — they didn’t get rich by having a checking account at a badly run bank.”
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