BY CARTER E. ANTHONY, CFA
Few Americans remain who saw the lines at the door, down the street and around the corner during the “Run on banks in 1929”.
As time has passed, not a lot of Americans remain who even remember seeing pictures of the run-on banks in 1929.
The Great Depression began as an ordinary recession in the summer of 1929 but became increasingly worse during the year.
At its lowest point, industrial production declined 47%, real GDP fell 30% and unemployment reached 20%.
The stock market crash of October, 1929, exacerbated the lack of confidence in the economy and the country.
Investors pulled their money out of the market and depositors pulled their money out of the banks.
Banks exist only because of depositors’ and borrowers’ confidence in them. By the end of 1930, 1,300 banks had failed.
So, what caused the “run” on the Silicon Valley Bank (SVB)? SVB specializes in loans to the technology industry.
The tech industry is run by “pointy-headed liberals” as our late Governor George C. Wallace so aptly described them.
The tech industry has hit a soft-patch where earnings growth is slowing and tens of thousands of employees are being laid off.
There is concern among investors about the short-term tech outlook. Rumors began about the safety of loans made by SVB to tech borrowers.
SVB, to increase its income over low interest rates it was earning from its tech loan portfolio invested non-loan assets in long-term Treasury bonds.
At the same time, Fed Chairman Powell put the brakes on the party by raising interest rates. Concern about questionable tech loans and a depreciating bond portfolio drove investors away.
It was somewhat like the run-on banks in 1929-1930 but it was centered around one industry, one bank and a couple of similar banks.
Incidentally, there will be no more lines starting at the bank’s door, reaching down the street and around the corner.
In somewhat poetic justice, the run on these banks occurred through technology, as in rumors on Twitter and a few clicks to move deposits out. Almost $200 million was moved out of SVB in 45 minutes.
Separately, in other news, during the first quarter of 2023 the Dow Jones Industrial Average rose .38%, the S & P 500 rose 7.03% and the Nasdaq, recovering from a downright horrible 2022, rose 20.49%.
It’s not unusual to see stocks and indexes snap back after a bad year. In 2022, the Nasdaq was down 33% so it is still not even. None of the indexes are.
The big question on Wall Street is “will he, or won’t he?” Will Fed Chmn Powell continue to raise interest rates?
He’s an inflation fighter and inflation has not been tamed. Should he continue to increase interest rates in the face of this banking crisis?
Wall Street loves a crisis; it increases transaction activity and revenue. Studies about other banks that might be in trouble have been rolled out.
What affects Americans most, inflation or a few banks going under because of poor management, poor auditors and poor bank examiners? Inflation affects everyone.
The biggest crisis in this country is in the White House and the Cabinet. Democrat Socialist President Biden says we must protect ALL of the shareholders and the depositors in the banking system.
The FDIC’s coverage of deposits is limited to $250,000. There were corporate depositors in SVB, obviously Democrat donors, with tens of millions in deposits.
Treasury Secretary Yellen says only those systemically affected by the losses will be protected.
Now that is where the biggest loss of confidence should lie. Can you imagine how the U. S. looks on the international stage?
An old worn out, mangy hound dog and a mousey little mannequin.