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Did Biden bail out Calif and NY?

Is there some reason I'm not on this gravy train? I don't think it's unreasonable that the Federales share some of the love with the Spritzler Report. We provide a valuable public service and support...err...Green Energy. That's right, and we love Green Energy. How's that?

Ok, now that I've said that, do I need to fill out some forms or show up at a Democratic fundraiser? I'm ready to receive my free gift.

How Biden Bailed Out California and New York

The real motivation lies in the states’ budgets, which depend on the success of green startups.

Allysia Finley, WSJ

March 19, 2023 3:54 pm ET

Imagine a bank in Houston that caters to the oil-and-gas industry. It makes low-cost loans with credit-friendly terms to unprofitable shale frackers on the condition that they hold their deposits exclusively at the bank, where they earn an above-market return. It also manages the wealth of oil and gas executives.

The bank uses its enormous deposits to fund more risky loans to frackers and acquire Treasury bonds and government mortgage-backed securities. The latter obscure the credit risk on its balance sheet. As frackers burn cash, the bank struggles to redeem deposits and has to sell assets at a loss.

As news of the losses spreads, there is a run on deposits. The Federal Deposit Insurance Corp., with the approval of a Republican president, takes over the bank and guarantees all its uninsured deposits, including those of oil-and-gas executives. Wouldn’t Democrats scream “bailout”?

This essentially describes what has happened at Silicon Valley Bank over the past week. Democrats insist the FDIC’s guarantee of uninsured deposits decidedly isn’t a bailout. The truth is that the Biden administration not only bailed out Silicon Valley investors and companies. It also rescued California, whose budget depends on them, and the state’s liberal political class. It did the same for New York by back-stopping uninsured deposits at Signature Bank.

California’s tax revenue has swelled—and is now falling—in tandem with Silicon Valley’s fortunes. As the Federal Reserve pumped trillions of dollars into the economy and cut interest rates to near-zero, the stock market surged. Investors sold stock in tech companies at inflated prices. Startups took advantage of the hot stock market to float public shares.

Investors plowed their capital gains into high-yielding accounts at SVB and startups with accounts at the bank. Between December 2019 and December 2022, its deposits tripled to $173 billion. SVB became Silicon Valley’s premier bank by offering generous loan terms and above-market returns on deposits to unprofitable companies, many with no revenue.

But as the Fed raised interest rates and tech startups burned through cash, SVB had to sell mortgage-backed securities at a loss to cover deposit redemptions. You know the rest of the story.

Normally, uninsured depositors—those with more than $250,000 in an account—would take a haircut of some 10% to 15% if a bank fails. But tech investors, California Gov. Gavin Newsom and Silicon Valley politicians lobbied the White House for help. Not guaranteeing uninsured deposits would “hurt the innovation pipeline” and “ordinary people,” claimed Silicon Valley Rep. Ro Khanna.

It’s true: Absent the FDIC bailout, startups would have had to raise more capital from venture investors to offset their losses. That may have proved difficult for less-promising enterprises, as investors refused to give more money while they tried to pare their own losses. But it likely wouldn’t have been a problem for the truly innovative firms.

And those with more than $250,000 in a bank account aren’t “ordinary” people. What has hurt ordinary people is the Fed’s inflationary policies. Why shouldn’t Silicon Valley have to bear some pain as the central bank corrects the ultra-loose monetary policies that enriched its technocratic class? Is Silicon Valley too important to lose money? As far as Mr. Newsom is concerned, the answer appears to be yes.

High earners in California’s Bay Area pay about half of state income tax. Capital-gains realizations surged to $245 billion in 2021 from $145 billion in 2019, helping create a more than $100 billion budget surplus last year. But stocks have plunged and tech layoffs are increasing, so California is staring down the barrel of a gaping deficit.

Tax revenue through the first eight months of this year is running $25 billion lower than last year. The budget carnage would be greater if investors had to write down their startup investments. No wonder Mr. Newsom, who reportedly had an account at SVB, praised the administration’s bailout’s “profoundly positive impacts on California.”

Meantime, SVB’s New York bailout companion, Signature, has received a bum rap as a crypto bank. But if most of its uninsured depositors were crypto companies, there’s no chance the FDIC would have bailed them out. Signature primarily caters to New York’s liberal special interests, which donate to Democratic campaigns.

It is New York City’s top lender to low-income housing developers and “a significant player when it came to financing for personal injury firms,” according to One of its specialities was financing the purchase of taxi medallions. According to the New York Times, it was also known “for catering to wealthy families.” Former Gov. Andrew Cuomo has a campaign account at the bank.

Mr. Khanna insists that a bank catering to the oil-and-gas industry would be treated the same as SVB and Signature. But maybe the reason those two banks failed to manage their risks is their leaders knew they had political protection in case they got into trouble.

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