WHY CORONAVIRUS COULD SPARK A CAPITALIST SUPERNOVA

By John Smith
APRIL 5, 2020
Republished from Open Democracy. This article is part of Open Democracy’s 'Decolonising the economy' series.

“Global yields lowest in 500 years of recorded history. $10 trillion of negative rate bonds. This is a supernova that will explode one day,” tweeted Bill Gross, the ‘bond king’, in 2016.

This day has come closer. Capitalism now faces the deepest crisis in its several centuries of existence. A global slump has begun that is already devastating the lives of hundreds of millions of working people on all continents. The consequences for workers and poor people in Asia, Africa, and Latin America will be even more extreme than for those living in Europe and North America, both with respect to lives lost to coronavirus and to the existential threats to the billions of people already living in extreme poverty. Capitalism, an economic system based on selfishness, greed and dog-eat-dog competition, will more clearly than ever reveal itself to be incompatible with civilisation.

Why is supernova – the explosion and death of a star – an apt metaphor for what could now be about to unfold? Why could the coronavirus, an organism 1000th the diameter of a human hair, be the catalyst for such a cataclysm? And what can workers, youth and the dispossessed of the world do to defend ourselves and to ‘bring to birth a new world from the ashes of the old’, in the words of the US labour hymn, Solidarity Forever?

To find answers to these questions, we need to understand why the ‘global financial crisis’ that began in 2007 was much more than a financial crisis, and why the extreme measures taken by G7 governments and central banks to restore a modicum of stability – in particular the ‘zero interest rate policy’, described by a Goldman Sachs banker as “crack cocaine for the financial markets” – have created the conditions for today’s crisis.


GLOBAL CAPITALISM’S ‘UNDERLYING HEALTH ISSUES’

The first stage of a supernova is implosion, analogous to the long-term decline in interest rates that began well before the onset of systemic crisis in 2007, which has accelerated since then, and which fell off a cliff just as coronavirus began its rampage in early January 2020. Falling interest rates are fundamentally the result of two factors: falling rates of profit, and the hypertrophy of capital, i.e. its tendency grow faster than the capacity of workers and farmers to supply it with the fresh blood it needs to live. As Marx said, in Capital vol. 1, “capital’s sole driving force [is] the drive to valorise itself, to create surplus-value… capital is dead labour which, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks.”

These two factors combine to form a doom loop of awesome destructive power. Let us examine its most important linkages.

Many things both mask and counteract the falling rate of profit, turning this into a tendency that only reveals itself in times of crisis, of which the most important has been the shift of production from Europe, North America and Japan to take advantage of the much higher rates of exploitation available in low-wage countries. The falling rate of profit manifests itself in a growing reluctance of capitalists to invest in production; more and more of what they do invest in is branding, intellectual property and other parasitic and non-productive activities. This long-running capitalist investment strike is amplified by the global shift of production – boosting profits by slashing wages rather than by building new factories and deploying new technologies. This enables huge mark-ups, turbo-charging the accumulation of vast wealth for which capitalists have no productive use – hence the hypertrophy of capital.

This, in turn, results in declining interest rates – as capitalists compete with each other to purchase financial assets, they bid up their price, and the revenue streams they generate fall in proportion – hence falling interest rates. Falling interest rates and rising asset values have created what is, for capitalist investors, the ultimate virtuous circle – they can borrow vast sums to invest in financial assets of all kinds, further inflating their ‘value’.

Falling interest rates therefore have two fundamental consequences: the inflation of asset bubbles and the piling up of debt mountains. In fact, these are two sides of the same coin: for every debtor there is a creditor; every debt is someone else’s asset. Asset bubbles could deflate (if productivity increases), or else they will burst; economic growth could, over time, erode debt mountains, or else they will come crashing down.

Since 2008, productivity has stagnated across the world and GDP growth has been lower than in any decade since World War II, resulting in what Nouriel Roubini has called “the mother of all asset bubbles,” while aggregate debt (the total debt of governments, corporations and households), already mountainous before the 2008 financial crash, has since then more than doubled in size. The growth of debt has been particularly pronounced in the countries of the global South. Total debt for the 30 largest of them reached $72.5tn in 2019 – a 168% rise over the past 10 years, according to Bank of International Settlements data. China accounts for $43tn of this, up from $10tn a decade ago. In sum, well before coronavirus, global capitalism already had ‘underlying health issues’, it was already in intensive care.

Global capitalism – which is more imperialist than ever, since it is both more parasitic and more reliant than ever before on the proceeds of super-exploitation in low-wage countries – is therefore inexorably heading to supernova, towards the bursting of assets bubbles and the crashing of debt mountains. Everything that imperialist central banks have done since 2008 has been designed to postpone the inevitable day of reckoning. But now that day has come.

10-year US Treasury bonds are considered the safest of havens and the ultimate benchmark against which all other debt is priced. In times of great uncertainty, investors invariably stampede out of stock markets and into the safest bond markets, so as share prices fall, bond prices – otherwise known as ‘fixed income securities’ – rise. As they do, the fixed income they yield translates into a falling rate of interest. But not on March 9, when, in the midst of plummeting stock markets, 10-year US Treasury bond interest rates spiked upwards. According to one bond trader, “statistically speaking, [this] should only happen every few millennia.” Even in the darkest moment of the global financial crisis, when Lehman Brothers (a big merchant bank) went bankrupt in September 2008, this did not happen.

The immediate cause of this minor heart attack was the scale of asset-destruction in other share and bond markets, causing investors to scramble to turn their speculative investments into cash. To satisfy their demands, fund managers were obliged to sell their most easily-exchangeable assets, thereby negating their safe-haven status, and this jolted governments and central banks to take extreme action and fire their ‘big bazookas’, namely the multi-trillion dollar rescue packages – including a pledge to print money without limit to ensure the supply of cash to the markets. But this event also provided a premonition for what is down the road. In the end, dollar bills, like bond and share certificates, are just pieces of paper. As trillions more of them flood into the system, events in March 2020 bring closer the day when investors will lose faith in cash itself – and in the power of the economy and state standing behind it. Then the supernova moment will have arrived.


THE LEFT’S IMPERIALISM-DENIAL, AND ITS BELIEF IN THE ‘MAGIC MONEY TREE’

The gamut of the left in imperialist countries – the Jeremy Corbyn-led wing of the Labour Party in the UK; the motley crew of left-Keynesians such as Ann Pettifor, Paul Mason, Yanis Varoufakis; supporters of Bernie Sanders in USA – are united on two things: they all acknowledge, to one degree or another, that imperialist plunder of colonies and neocolonies happened in the past but do not acknowledge that imperialism continues in any meaningful way to define relations between rich and poor countries.

And they believe in one or other version of the ‘magic money tree’, in other words, they see the decline of interest rates into negative territory not as a flashing red light showing the extremity of the crisis, i.e. not as the implosion phase of a supernova, but as a green light to borrow money to finance increased state investment, social spending, a Green New Deal, and even a bit more foreign aid. In fact, there is no magic money tree. Capitalism cannot escape from this crisis, no matter how many trillions of dollars governments borrow or central banks print. The neoliberals rejected magical thinking, now they embrace it – this shows the extent of their panic, but it does not make magical thinking any less fantastical. The trillions they spent after 2007-8 bought another decade of zombie-like life for their vile system. This time they will be lucky to get 10 months, or even 10 weeks, before the explosion phase of the supernova begins.


CORONAVIRUS – CATALYST FOR CATACLYSM

The coronavirus pandemic occurred at the worst possible time: growth in the eurozone had shrunk to zero; much of Latin America and sub-Saharan Africa were already in recession; the sugar-high from Trump’s huge tax-giveaways to US corporations was fading; the US-China trade war was causing serious disruption to supply chains and was threatening to entangle the EU; and tens of millions of people joined mass protests in dozens of countries across the world.

Interest rates are now deep in negative territory – but not if you are Italy, facing an enormous increase in its debt/GDP ratio, not if you are an indebted corporation trying to refinance your debts, not if you are an ‘emerging market’. Since March 9, corporate interest rates have gone through the roof; in fact few corporations can borrow money at any price. Investors are refusing to lend to them. Corporations are now facing a credit crunch – in the midst of global negative interest rates! That’s why the ECB decided to borrow €750 billion from these same investors, and use it to buy the corporate bonds which these same investors now refuse to purchase, and why the USA’s Federal Reserve is doing the same on an even bigger scale. Italy’s (and the EU’s) fate now depends on the willingness of the Bundesbank to replace its private creditors. Their refusal to do this would be the final stage of the EU’s death agony.

During the middle two weeks of March, imperialist governments announced plans to spend $4.5 trillion bailing out their own bankrupt economies. An emergency online summit of the G20 (the G7 imperialist nations plus a dozen or so ‘emerging’ nations, including Russia, India, China, Brazil, and Indonesia) on 26 March, declared “we are injecting over $5 trillion into the global economy.” These are weasel words; by ‘global’ they actually mean ‘domestic’! The response of the ‘left’ in the imperialist countries is to clap its hands and say, we were right all along! There is a magic money tree after all! – apparently not realising that this is exactly what happened post-2008: the socialisation of private debt. Or that, unlike post-2008, this time it will not work.

Yet, as imperialist governments belatedly mobilise – and monopolise – medical resources to confront the coronavirus crisis in their own countries, they’ve abandoned poor countries to their fate. The left in the imperialist countries (or we could just say ‘imperialist left’, for short) has also ignored the fact that there is nothing in these emergency cash injections for the poor of the global South. If you are an ‘emerging market’, well, fuck off and join the queue for an IMF bail-out! As of March 24, 80 countries were standing in this queue, waiting for some of its $1tr lending capacity. $1 trillion sounds like a lot of money, and indeed it is, but, as Martin Wolf, chief economic correspondent for the Financial Times, points out, “the aggregate external financing gaps of emerging and developing countries are likely to be far beyond the IMF’s lending capacity.”

Furthermore, as Wolf suggests, the purpose of IMF loans is to help with “external financing gaps” – in other words, to bail out imperialist creditors, not the peoples of debtor nations; and they invariably come with harsh and humiliating conditions that add to the crushing burden already pressing down on the peoples of those countries. In this sense, they are just like the vast government bailouts of private capital in the rich countries – but without anything added on to finance welfare payments or partially replace wages. The aim of the latter is to purchase the docility of the working class in the imperialist nations, but they have no intention of doing this in Africa, Asia and Latin America.

On March 24, the United Nations issued an appeal for $2bn to fight the coronavirus pandemic in Africa, Asia and Latin America. This money, which the U.N. hopes to raise over the next nine months, is 1/80 of the annual budget of the U.K.’s NHS, and less than 1/2000 of the $4.5tr they plan to spend keeping their own capitalist economies alive. It is also less than 1/40 of the money which imperialist investors have taken out of ‘emerging markets’ during the first three weeks of March, “the largest capital outflow ever recorded,” according to IMF managing director Kristalina Georgieva.

The maximum extent of relief for the collateral effects of the coronavirus epidemic on the peoples of poor countries in Africa, Asia and Latin America was indicated by World Bank president, David Malpass, who said after the G20 summit ended that his board is putting together a rescue package valued at “up to $160 billion” spread out over the next 15 months – a minuscule fraction of the economic losses that the coming global slump will impose on the peoples of the absurdly-named ‘emerging markets’.


“WE HAVE A REVOLUTIONARY DUTY TO FULFILL" – LEONARDO FERNANDEZ, CUBAN DOCTOR IN ITALY

So, what is to be done? Instead of applauding the bailout of big corporations, we should expropriate them. Instead of endorsing a temporary moratorium on evictions and the accumulation of rent arrears, we should confiscate real estate so as to protect workers and small businesses. These, and many other struggles to assert our right to life over the rights of capitalists to their property, are for the near future.

Right now the priority is to do whatever is necessary to save life and defeat the coronavirus. This means extending solidarity to those who are most vulnerable to the pandemic – homeless people, prisoners, asylum seekers enduring ‘hostile environments’ – and to the dispossessed and victims of imperialism in the slums, shantytowns and refugee camps of the global South. Raghuram Rajan, former governor of the Bank of India, points out that “pending a cure or a reliable vaccine, the world needs to fight the virus into submission everywhere in order to relax measures anywhere.” The Economist concurs: “If covid-19 is left to ravage the emerging world, it will soon spread back to the rich one.”

The coronavirus pandemic is just the latest proof that we need not so much an NHS, but a GHS – a Global Health Service. The only country that is acting on this imperative is revolutionary Cuba. They already have more than 28,000 doctors providing free health care in 61 poor countries – more than the G7 nations combined – and 52 in Italy, 120 more to Jamaica, and are helping scores of other countries to prepare for the pandemic. Even the far-right Bolsonaro government in Brazil, which last year expelled 10000 Cuban doctors, branding them terrorists, is now begging them to return.

To defeat coronavirus we must emulate Cuba’s medical internationalism. If we are to defeat this pandemic we must join with its revolutionary doctors and revolutionary people, and we must prepare do what Cuba did to make this internationalism possible – in other words, we must replace the dictatorship of capital with the power of working people. The coronavirus supernova makes socialist revolution – in imperialist countries and across the world – into a necessity, an urgent practical task, a life and death question if human civilisation is to survive and if the capitalist destruction of nature, of which the coronavirus epidemic is merely the latest symptom, is to be ended.



Thanks to Andy Higginbottom, Shih-yu Chou, and Walter Daum for comments on earlier drafts of this article.

How D.C. Swamp Money Made Trains More Dangerous

I CHOO-CHOOSE YOU

The Norfolk Southern crash has brought renewed focus on how the rail industry has evaded some regulations. That story has been playing out for decades.


Roger Sollenberger
Political Reporter
Updated Mar. 05, 2023

Photo Illustration by Erin O’Flynn/The Daily Beast/Getty Images, James St. John/Wikimedia Commons, and Public Domain

After the catastrophic Norfolk Southern train derailment in East Palestine, Ohio, it didn’t take long for the supercharged partisan atmosphere in Washington to morph the disaster into a political blame game.

Republicans castigated President Joe Biden’s administration for falling asleep at the switch. Biden officials pointed to deregulation under former President Donald Trump. And all the while, the rail industry knew that, even though new safety regulations would seem like an obvious response to the crash and subsequent release of toxic chemicals into the air, new regulations were far from a given.

Although it’s far from the most influential lobby in Washington, the rail industry has spent more than $700 million in the last 25 years, according to data maintained by OpenSecrets. And it’s those hundreds of millions spent pushing back against government safety regulations—primarily but not exclusively through Republicans—that has purchased considerable influence in the U.S. Capitol.

A review by The Daily Beast of lobbying and campaign finance filings tells a story of a decades-long ideological push and pull. The review shows that, while it’s sometimes difficult to draw straight lines between an acute event and its cause, entrenched corporate and political cultures still have an overwhelming influence.


Rail Company Pissed Off Environmentalists Before Ohio Crash
Kelly Weill

For instance, one major requirement now on the books—an automated braking technology called “positive train control” (PTC)—debuted on the National Transportation Safety Board’s “most wanted” list in 1990. But under industry pressure, PTC wasn’t fully implemented for 30 years.

As the dust, debris, and various poisons settle from this Norfolk Southern crash, it appears the Trump administration’s specific anti-regulatory moves may not be directly responsible for the wreck, which the National Transportation Safety Bureau’s preliminary report blamed on an overheated wheel bearing.

But that finding itself doesn’t necessarily shift the blame back to Biden. In fact, it puts more pressure on Republicans to do something they’ve resisted for years—expand rail safety regulations, such as updating outdated track detection technology.

That’s perhaps the most profound revelation to emerge from the financial data: meaningful changes are almost always reactive, in response to catastrophes instead of anticipating and preventing them before they happen.

In the wake of the crash, federal regulators disclosed that there have been five similar derailments since 2021, two involving Norfolk Southern, the American Journal of Transportation reported on Thursday. The article also said that current track monitoring relies on “antiquated technology” with “a mixed record of preventing accidents.”

But it’s difficult to rein in an industry that’s as vital to everyday American life as railroads are, let alone convince the industry to support forward-looking regulations that would eat into its bottom line. It’s hard to overstate the leverage that this special interest group wields—if railroads stop working, America stops eating.

And yet, the railroad industry’s culture of resistance is most immediately and easily identified in the money.

Over the years, the industry has poured hundreds of millions of dollars into blocking and stalling new rules and legislation, including measures designed to strengthen and modernize rail safety. But a side-by-side comparison of rail lobby spending and government action also suggests that money alone doesn’t explain everything. Instead, the larger baked-in political ideology of the governing party appears to have carried the day on key issues.

Feds Order Rail Company to Pay Up for Toxic Train ‘Mess’
‘NO GOODNESS IN THEIR HEART’
Josh Fiallo


This is reflected in the fact that the rail industry’s lobbying expenditures soared under Barack Obama—most specifically his first term—and then fell, most notably after Obama unilaterally enacted key safety regulations in 2015. The spending stayed at those same lower levels after Trump took office, and have continued at that rate under Biden.

According to OpenSecrets data, the railroad industry shelled out nearly $185 million on lobbying during Obama’s first four years. During Trump’s one term in office, that spending totaled around $107 million. (Rail lobbying during Obama’s second term was about $127 million, according to OpenSecrets.) And railroad lobbyists are far more likely to have direct connections to Capitol Hill than almost any other group

Filings further show that the money was largely aimed at blocking government regulation.

The Association of American Railroads—the industry’s top lobbying group—spent heavily to push back against safety, labor, and antitrust proposals during the Obama years, according to an OpenSecrets database of lobbying disclosures. Under Trump, the partisan winds became friendlier, and spending tailed off.

While Obama didn’t exactly stick it to the railroads—his early visions of overarching antitrust and labor reforms never came to fruition—he did use his executive power to impose some key safety regulations in the face of all that cash. But Trump quickly scrapped those rules with the stroke of a Sharpie, and the railroad companies apparently didn’t feel they had to kick up their spending to convince him and his allies to act in their favor.

That’s not to say they stopped spending. Lobbyists know they have to maintain their relevance, and over Trump’s term, the rail lobby—led by AAR—spent millions of dollars renting the ears of lawmakers.

Many of those expenses went to combat the Safe Freight Act. That bill would have enshrined the two-member crew minimum into law, and was introduced in 2017 by a Republican—the late Rep. Don Young of Alaska, who’s the longest serving Republican in Congress of all time.

Norfolk Southern alone spent about $4.5 million on lobbying between 2017 and 2018, according to the company’s federal lobbying disclosures.

A Norfolk Southern representative referred The Daily Beast to “our extensive Government Relations’ Political Activity and Political Contributions overview” and their statement on the NTSB findings.

“We are taking further actions to improve the safety processes and technology we currently have in place while we await the final results of the NTSB investigation,” the representative said, pointing to $1 billion annual investments in safety technology, equipment, and infrastructure and several corporate commitments.

GOP Demands Rail Safety Fixes After Ignoring Rail Safety
CARRY ME OHIO
Sam Bodey


Asked for comment, an AAR spokesperson sent a 228-word statement saying that “any assertion that railroads broadly opposed increased safety regulations is patently false,” pointing to a “a long, consistent record.” The spokesperson gave one concrete example, “pushing the Department of Transportation” in 2015 to raise standards for tank cars carrying flammable liquids, including a petition on the matter to the Pipeline and Hazardous Materials Safety Administration. (Those negotiations were more nuanced, according to the DOT’s final rulemaking and the PHMSA’s response to the petition.)

The statement also directed The Daily Beast to the AAR’s statement this week on newly released Federal Railroad Administration safety data, and touted “$20 billion in annual private investments” towards broadly “maintaining the network” and “deploying technology to enhance safety.”

When Trump landed in the White House, he quickly tanked several of the targeted Obama policies. One rule—which briefly came back into the news after the Norfolk Southern derailment—mandated new brake technology for trains carrying volatile and hazardous materials. Trump also killed a rail safety audit program, along with another proposed Obama rule requiring trains to operate with two-man crews, which had already begun to languish. Those repeals and others under Trump appear either minimally or entirely unrelated to the Norfolk Southern derailment, according to a Washington Post fact check.

Generally speaking, the rail industry’s political giving has always favored the GOP. According to OpenSecrets, the industry has spent about $108.6 million to influence elections since 1990, with PACs giving more than individual employees.

Republicans have received the majority of those donations in every election, with two exceptions—the 1990 and 2010 midterms. And some of the recent top GOP recipients, such as Sens. Sam Graves, Jerry Moran, and John Thune, hold leadership positions with influence over that industry.

Contributions from Norfolk Southern employees and its corporate PAC have also historically curved towards Republicans, the data shows, though the company favored Democratic candidates in both 2020 and 2022.

In one curious case, the money went the other way.

Between 2017 and 2021, then-Sen. Roy Blunt (R-MO) rented office space from Norfolk Southern for both his campaign committee and leadership PAC, FEC records show. Over that period, Blunt’s committees paid Norfolk Southern approximately $76,000 in rent. (In 2015, Blunt introduced a bill with bipartisan co-sponsors that would extend the deadline for adopting PTC.)

Still, it’s clear that Obama’s actions—no matter how debatable their relevance to the Norfolk Southern disaster, or the Democrats’ failure to deliver on antitrust issues—appear to have overcome an onslaught of cash. But he and liberal allies also weren’t able to rally enough support to fully overcome Republican and industry resistance.

It’s instructive to note that the anti-regulatory lobbying push actually started the year before Obama took office, under a Republican administration.

Rail Officials Back Out of Town Hall on Ohio Train Disaster
NOW YOU’RE WORRIED?


That year, the railroad industry spent almost $43 million lobbying inside the beltway as Congress negotiated the bipartisan Rail Safety Improvement Act of 2008, which introduced positive train control. President George W. Bush signed it into law that October.

But the pendulum quickly swung the other way.

After the RSIA was passed, the industry dug in hard against some of those new rules, including the PTC requirement, which at that point had already been on the government’s wishlist for 18 years.

Over the next several years, the rail lobby successfully convinced lawmakers on both sides of the aisle to delay the mandate, citing cost and time constraints.

Obama himself signed a bill delaying PTC in 2015—the same year he put forward the new braking requirement that Trump tossed—and the rule was only fully adopted at the end of 2020.

The biggest revelation in the data is still not about money’s effect on the speed of progress, or even partisanship per se. Again, it’s that the most significant advancements are almost never proactive. Industry interests are powerful, and it takes a catastrophe like East Palestine to sharpen the focus on safety.

For instance, the RSIA of 2008, with its long-awaited PTC mandate, came only after a commuter train collision in Southern California killed 25 people. At the time, the Association of American Railroads put out a press release backing the bill. But according to the Internet Archive, the page disappeared from the organization’s website sometime between 2012 and 2013.

Around that same time, the industry convinced the Obama administration to extend the timeline for the PTC rule. Three years later, however, a fatal Philadelphia Amtrak wreck brought rail safety front and center again. In response, Obama enacted federal regulations without the help of Congress, while agreeing to delay PTC. The next year, however, another deadly passenger train crash put the heat back on the railroad lobby.

The Norfolk Southern freighter that derailed last month had positive train control. According to the NTSB’s preliminary report, the train’s PTC system was not to blame, as it was “enabled and operating at the time of the derailment.”

That’s put a new albeit reactive focus on another safety mechanism: old detection technology that may not be up for the task.

At a press conference addressing the report, NTSB chair Jennifer Homendy told reporters that track monitoring is “something we have to look at.”

“Roller bearings fail,” Homendy said. “But it’s absolutely critical for problems to be identified and addressed early so these aren’t run until failure.”

Beware a new wave of populism, born out of coronavirus-induced economic inequity

Big businesses and governments are fast making themselves inviolable. There could be a backlash


Nick Cohen Sat 18 Apr 2020 THE GUARDIAN 
 

Protesters ‘Rally Against Capital’ in London in February 2020. Photograph: Ollie Millington/Getty Images
SEE SOME PROTESTERS WERE ALREADY MASKED AGAINST COVID-19

Aglobal wave of injustice could follow the global pandemic. Pre-existing tendencies towards monopoly, Chinese dominance and predatory capitalism will explode unless governments take measures to contain them. I accept that it is hard to imagine public fury at a rigged economy when voters are rallying to their leaders and lockdowns are enjoying overwhelming support. Solidarity cannot last, however, as the crisis accentuates the division between insiders and outsiders.

You see them now. Employees with staff jobs, and the ability to work from home, are coping, for the moment. A few might experience lockdown as something close to a holiday and rhapsodise on the joys of home baking and box sets. As insiders stay inside, they save the money they would have spent in shops, restaurants, hotels and travel agents - the places where the insecure, the luckless nine out of 10 in the bottom half of earners who cannot work from home, once made their livings.


What applies to individuals applies to corporations and private equity funds that are strong enough to buy up distressed assets at a fraction of their pre-crisis value. I sat up and paid attention last week when I heard Sebastian Mallaby of the US Council on Foreign Relations warn that private equity is likely “to play both sides”: soaking up government largesse and profiting from market mayhem. It won’t, he concluded, “look great when we consider the political economy of the pandemic a year from now”.

You catch a glimpse of the future in the manoeuvres of the US private equity firms thinking of deploying hundreds of billions of dollars they hold in reserve as high-interest loans to struggling companies. The arguments this month about a Chinese state-owned investment firm buying up the British chip manufacturer Imagination Technologies are a further harbinger of a possible world to come. The Chinese Communist Party’s “2025 Made in China” strategy sees it leapfrogging the west by taking over companies and establishing a global lead in smart manufacturing, digitisation and emerging technologies. Covid-19 gives the party the opportunity it needs. Funds and states are operating in a market where the tendency towards monopoly was already established.

The 2008 crash, like recessions before it, concentrated economic power, as large firms used their resources and access to finance to ensure their survival. But, unlike in the last century, a multitude of rival businesses did not emerge once recession had passed, to provide competition and new employment opportunities for workers wanting to raise their wages by switching firms. In 2016, according to the Resolution Foundation, Britain’s 100 biggest firms accounted for 23% of total revenue across the economy, up by a quarter since 2004. As the economic crisis we are entering looks worse than 2008, worse indeed than anything anyone alive can remember, the rise of corporate giants seems assured. Big governments – and this crisis is making governments bigger than ever – will welcome them, because they want the convenience of dealing with big businesses, not with tens of thousands of small and medium-size firms.

Complaints about tax-exile billionaires wanting other people’s money are a warning

Do you begin to see how popular fury might build? Vulture capitalists swooping on undervalued assets. Chinese communists, who censored news of Covid-19 rather than alerting the world, benefiting rather than suffering. Big business trampling over all who might challenge it. It’s not a recipe for social peace.

Superficially, the crisis of 2020 does not appear anything like the financial crisis of 2007-08 and not only because it threatens to bring an incomparably greater level of impoverishment. Then there were human villains: bankers and captured regulators who broke the financial system, northern Europeans who congratulated themselves as they let southern Europe collapse. Now there’s just an invisible infectious agent that wants only to replicate itself. The similarities remain striking, for all that. Gordon Brown and Alistair Darling, like leaders across the west, weren’t interested in jailing bankers or making them pay back their bonuses. Their sole concern was to stop the collapse of the banking system. The morality of the bailout could wait – forever, as it turned out. Everywhere in the west, the public reaction was the same. Democracy was a racket. Taxpayers had to rescue the richest people in the world and then suffer years of stagnant wages and cut public services to meet the bill. If you need a one-line explanation for populism, this is the best there is.

Yet again, vast amounts of public money are being committed, but instead of stagnation we face catastrophe. Nervous commentators rererence how the Great Depression of the 1930s fuelled nazism and communism, as 2008 fuelled populism, and dread what awaits us. They should know there is no necessary link between economic and political failure. Far from enabling tyranny, the economic crisis of the 1970s, for instance, saw the end of the rightwing tyrannies in Spain, Portugal and Greece and the beginning of the decline and fall of the Soviet empire. Our future depends not only on the work of scientists but on the efforts of governments to stop democracy turning into a swindle.

The EU says countries must ensure that big business doesn’t use state funding to buy out rivals and adds that nation states should take stakes in companies threatened with Chinese takeovers. However the UK’s relationship with the EU ends, that’s good advice.

Governments should not forget natural justice as they did in 2008. Complaints about tax-exile billionaires in the Richard Branson mould wanting other people’s money are a warning, not a tabloid distraction. If, as seems likely, the government moves from subsidising wages to direct loans to big business, the first question must be what do taxpayers, employees and wider society gain in return.

Sociologists talk of the “Matthew effect”, an idea lifted from Saint Matthew’s account of the most unChristian words Jesus uttered: “For to everyone who has will more be given, and he will have abundance; but from him who has not, even what he has will be taken away.” Our task is to make sure this miserable prophecy is not now vindicated.

• Nick Cohen is an Observer columnist

'No genocide': Tibet activists sidetrack Beijing Winter Olympics flame ceremony

 

Activists grabbed the spotlight at the flame-lighting ceremony for the 2022 Beijing Winter Olympics in Greece on Monday by unfurling a Tibetan flag and a banner that said "no genocide" at the Games. The demonstrators pulled out the flag and banner during the ceremony in Olympia attended by International Olympic Committee (IOC) president Thomas Bach and several dozen dignitaries including Chinese officials.

Activists urge IOC to postpone 'genocide' Beijing Games

Issued on: 19/10/2021 -

Activists have called for the 2022 Winter Olympics in Beijing to be postponed

 ARIS MESSINIS AFP

Athens (AFP)

Activists on Tuesday called for the postponement of the Beijing 2022 Winter Olympics as China prepared to receive the Olympic flame, a day after a protest disrupted the lighting ceremony in Olympia.

"This is sports-washing. There are no legitimate reasons to host the Games during a genocide," Zumretay Arkin, advocacy manager of the World Uighur Congress, told a news conference in the Greek capital.

"For sure there will be protests (in China) by Uighurs, Tibetans," said Arkin, who said she has had no contact with her family since 2017.

Lit on Monday in Ancient Olympia, the cradle of the ancient Games, the flame will be handed over to the delegation from Beijing 2022 at the Panathenaic Stadium in Athens, where the Olympics were revived in 1896, and will be flown to China.

During the ceremony in Olympia on Monday, the activists unfurled a Tibetan flag and a banner that said "no genocide" at the Games. A similar protest was held at the Acropolis in Athens.

Tibet has alternated over the centuries between independence and control by China, which says it "peacefully liberated" the rugged plateau in 1951 and brought infrastructure and education to the previously underdeveloped region.

But human rights campaigners and exiles say the Chinese central government practises religious repression, torture, forced sterilisation and cultural erosion through forced re-education.

Campaigners believe that at least one million Uighurs and other Turkic-speaking, mostly Muslim minorities are incarcerated in camps in Xinjiang.

After initially denying the existence of the Xinjiang camps, China later defended them as vocational training centres aimed at reducing the appeal of Islamic extremism.

"Who is going to guarantee that none of my relatives are actually now working in forced labour factories producing clothing and uniforms for the Olympic Games," Arkin said Tuesday.

"Can anyone tell me where my relatives are? I don't think so."

The activists on Tuesday said Hong Kong residents, Tibetans and Uighurs faced "Orwellian" surveillance in China, which they said was "emboldened" after hosting the Summer Games in 2008.

The IOC is legitimising "one of the worst violations of human rights in the entire 21st century" and defiling the spirit of the Games, said Pema Doma, campaigns director for Students for a Free Tibet.

"These Games cannot go ahead as planned, they must be postponed," she said.

IOC chairman Thomas Bach has batted off talk of a potential boycott, claiming the International Olympic Committee's political neutrality and saying it was up to governments to live up to their responsibilities.

A victim of the 1980 Moscow Games boycott, the former fencer has said such moves only punish athletes, and insists the IOC was addressing the rights issue "within our remit".

Around 2,900 athletes, representing approximately 85 National Olympic Committees, will compete in the Winter Games between 4 and 20 February 2022.

Arkin said the campaign "to train light on all the different abuses" was stronger than that of 2008, bringing together "Uighur communities, Hong Kong communities, Tibetan, Southern Mongolian, Chinese and Taiwanese communities".

"No one can stop us. Not the IOC, not governments, not sponsors, not athletes. We will not stop," she said.

Protesters Disrupt Torch Lighting For Beijing Winter Olympics


AP
Mon, October 18, 2021

ANCIENT OLYMPIA, Greece — Three activists protesting human rights abuses in China sneaked into the archaeological site where the flame lighting ceremony for the 2022 Beijing Winter Olympics was being held Monday and ran toward the newly lit torch holding a Tibetan flag and a banner that read “No genocide games.”

The protesters managed to enter the grounds and attempted to reach the Temple of Hera, where the ceremony was being held. They were thrown to the ground by police and detained.

A security officer tries to stop protesters holding a banner and a Tibetan flag as they crash the flame lighting ceremony for the Beijing 2022 Winter Olympics. 

(Photo: ARIS MESSINIS via Getty Images)

“How can Beijing be allowed to host the Olympics given that they are committing a genocide against the Uyghurs?” one protester said, referring to the treatment of Uyghur Muslims in China’s northwest region of Xinjiang.

The flame was lit at the birthplace of the ancient Olympics in southern Greece under heavy police security.

With the public excluded amid pandemic safety measures, and a cloudless sky over the verdant site of Ancient Olympia, the flame was ceremoniously kindled using the rays of the sun before being carried off on a mini torch relay.

Earlier, other protestors were detained by Greek police before they could reach the site. Pro-democracy protests also had broken out during the lighting ceremony for the 2008 Beijing Summer Games.

A police officer rushes to stop protesters holding a banner and the Tibetan flag (unseen) as they crash the start of the flame lighting ceremony for the Beijing 2022 Winter Olympics at the Ancient Olympia archeological site. 

(Photo: ARIS MESSINIS via Getty Images)

Despite widespread international criticism of China’s human rights record, the International Olympic Committee has shied away from the issue, saying it falls outside its remit.

In his speech in the ancient stadium of Olympia, where in antiquity male athletes competed naked during a special truce among their often-warring cities, IOC President Thomas Bach stressed that the modern Games must be “respected as politically neutral ground.”

Security officers stop three protesters holding a banner and a Tibetan flag as they crash the flame lighting ceremony for the Beijing 2022 Winter Olympics at the Ancient Olympia archeological site. (Photo: ARIS MESSINIS via Getty Images)

“Only this political neutrality ensures that the Olympic Games can stand above and beyond the political differences that exist in our times,” he said. “The Olympic Games cannot address all the challenges in our world. But they set an example for a world where everyone respects the same rules and one another.”

This article originally appeared on HuffPost and has been updated.

World at risk of second Great Depression due to coronavirus, says Chinese central bank

Zhu Jun from the People’s Bank of China says the risk is small, but the world must be alert to the threat

Economies around the world have been hit by the measures taken to stop the spread of Covid-19
Karen Yeung 5 Apr, 2020 SCMP

Measures to curb the spread of Covid-19 are likely to take

 a serious economic toll.  Photo: Xinhua

China’s central bank has warned the international community to be alert to the risk of a “Great Depression” in the wake of the Covid-19 outbreak, although it said the chances of this occurring was low.

“The possibility of a ‘Great Depression’ cannot be ruled out if the epidemic continues to run out of control, and the deterioration of the real economy is compounded by an eruption of financial risks,” Zhu Jun, director of the international department of the People's Bank of China, was quoted by local media as saying last week.

The difficult trade-off between the need to protect public health and the economic cost of shutting almost all face-to-face human activity has prompted warnings from many economists that the economic shock from Covid-19 may be more severe than the 2008 global financial crisis or even the Great Depression.

The latter, which began with the Wall Street Crash of 1929, saw credit markets freezing up, massive bankruptcies, US GDP falling by more than 10 per cent and unemployment rates that touched 25 per cent.


Professor Terence Chong Tai-leung from the department of economics at the Chinese University in Hong Kong, said he was optimistic the global contraction would not be as severe as the 1930s slump.

“Governments are likely to decide to ease off restrictions by July. They need to prevent disruptions that would cause food shortages, social unrest or greater damage to human lives and the economy than if the restrictions continued,” Chong said. “The economy will naturally rebound when restrictions are lifted.”

But there is evidence the major toll this crisis is already having a massive impact on the US employment situation. US initial jobless claims of 6.65 million last week, up from 3.3 million the week previous week, highlighted fears of mass unemployment.

Currently global markets are already down 35 per cent, credit markets have seized up to 2008 levels. Even mainstream financial firms such as Goldman Sachs, JP Morgan and Morgan Stanley expect US GDP to fall by an annualised rate of 6 per cent in the first quarter, and by 24 per cent to 30 per cent in the second.


Moody’s has warned that 30 per cent of US home loans may stop being serviced as a result of job losses and a lack of support for small businesses.

Zhu from the Chinese central bank said the biggest market uncertainty came from the fact that central banks’ swift and forceful actions could not directly help to control the epidemic but stopping its spread would help market confidence.

He said the policies of advanced economies had helped stabilise stock market sentiment but hidden risks continued to exist in the global financial system.

For example, stock markets in developed countries have been rising for many years so their valuations are under pressure.

If the market panics due to the intensifying impact of the epidemic, that could lead to tighter market liquidity, triggering market contagion across different asset classes.

The corporate sector, which has a relatively high level of debt, could also see an increase of defaults on banks’ non-performing assets and corporate bonds.


Nouriel Roubini, professor of economics at New York University's Stern School of Business, said the public-health response in advanced economies has fallen far short of what is needed to contain the pandemic and so the risk of a “greater depression” was rising by the day.

He warned that if a series of virus-related negative supply shocks reduced potential growth, the fiscal response of many countries could hit a wall as they would not be able to borrow enough in their own currency.

“After the 2008 crash, a forceful (though delayed) response pulled the global economy back from the abyss. We may not be so lucky this time,” Roubini said. “Who will bail out governments, corporations, banks and households in emerging markets?”



Despite a US$349 billion government backstop, US banks are refusing to lend to struggling small businesses at 0.5 per cent, and choosing to make the loans at 1.0 per cent instead.

Michael Every, global strategist at Rabobank said, in reality these financial packages can be hard to access, and may not be really effective.

“That is a Great Depression happening in the blink of an eye,” Every said. “Who knows where the damage will spread to, and when, if we are going to see 25 per cent unemployment across much of the developed world for an extended period?”

---30---

Key Democrat fears only a market crash will resolve debt limit impasse

“I would tell the president, ‘You can negotiate ,  there’s a reason we don’t negotiate with hostage-takers, Because you’ll be doing it again real soon.”

BY MIKE LILLIS 

THE HILL

- 04/23/23 

A key Democrat is warning this week that only a stock market collapse will break the partisan stalemate over raising the debt ceiling and preventing a government default over the summer.

Rep. Jim Himes (D-Conn.), a former Goldman Sachs executive and senior member of the Financial Services Committee, said the Republicans’ opposition to a debt limit hike without steep spending cuts is so entrenched that only an economy-rattling market tumble — like the crash that accompanied the financial crisis of 2008 — will shake GOP leaders to accept a bipartisan compromise.

“I fear that this ends the way the famous TARP, the Troubled Assets Relief Program, got passed in 2008. And that is when the markets finally say, ‘You guys have got to stop screwing around,’” Himes said Thursday during a wide-ranging interview in his Capitol Hill office.

TARP was Congress’s controversial response to the global financial crisis 15 years ago, providing $700 billion to stabilize teetering banks and restore faith in reeling credit markets. Championed by then-President George W. Bush and his treasury secretary — former Goldman CEO Hank Paulson, who warned of a global economic collapse if the funding was denied — the bill was killed in the House the first time it hit the floor in late September 2008.

The surprise vote sent the stock market into a freefall, pulling the Dow down 7 percent — the steepest decline since the attacks of 9/11 — and the Nasdaq down more than 9 percent. All told, the U.S. equity market lost $1.2 trillion in a day. Four days later, after making minor changes, spooked House lawmakers passed the bill and sent it to Bush’s desk.

Himes, who was first elected to Congress a month later, predicted it will require a similar scare to convince the Republicans who control the House to pass a debt ceiling increase that can also win President Biden’s signature.

“Sadly, I think it’s going to take that kind of market signal to wake my ideologically frenzied friends up and just say, ‘Let’s move on and do some real stuff,'” Himes said.

The debate surrounding the debt limit is growing more urgent as the government inches closer to the important moment when it exhausts the “extraordinary measures” it’s currently using to pay its debts — a mystery date Treasury officials say could come as early as June. Unless Congress raises that cap, the government would be unable to pay all of its existing obligations, marking the first default in U.S. history. Economists of all stripes have warned the effect on the global economy could be catastrophic.

Biden, from the start, has demanded a “clean” debt ceiling bill absent any other provisions — a stipulation Speaker Kevin McCarthy (R-Calif.), who’s leading the Republican negotiations, has refused.

Pressured by conservatives in his conference, McCarthy is insisting on steep spending cuts to accompany the borrowing hike. As an opening bid, he introduced legislation on Wednesday to cut federal spending by $4.5 trillion over the next decade, according to GOP estimates, while raising the debt limit by $1.5 trillion or through March 2024, whichever comes first.

Republican leaders are racing to secure the support to pass the bill early next week, but they have some work to do to overcome the reservations from some GOP lawmakers — conservatives and moderates alike — who are fighting for favored changes.

Leaders are voicing confidence heading into the vote — “The cup is half full, we can get there,” McCarthy said — and even some of the most conservative GOP lawmakers are signaling their intent to support the package.

“[Democrats] certainly have been floating the notion that they didn’t think we can get to 218,” said Rep. Dan Bishop (R-N.C.), who was among the conservatives who forced McCarthy to adopt a host of concessions — including a tougher line on deficit spending — in support for his Speakership bid in January. “I think they underestimate both where we’ve begun and what we accomplished in January to get ourselves better organized around clear ideas.”

Still, GOP leaders are reportedly short of 218 Republican votes, and Democratic leaders are warning McCarthy that he should expect no help from across the aisle.

“We’re at a point now where House Republicans are going to have to produce the votes for their extreme legislative proposal,” House Minority Leader Hakeem Jeffries (D-N.Y.) told reporters Thursday.

Even if the bill passes the House, it’s dead on arrival in the Democratic-controlled Senate, putting the sides closer to default without a resolution. The dilemma facing McCarthy is finding some compromise that can win bipartisan support, for the sake of avoiding a default, without angering conservatives to the extent that they attempt to topple him from power — a process he agreed to make easier as part of his deal with them in January.

Himes said the challenges facing McCarthy are much tougher than those that confronted former Speaker John Boehner (R-Ohio), who had a much larger majority to work with during the debt ceiling battle of 2011, when the U.S. credit rating was downgraded for the first time in history.

“It’s unquestionably much worse,” he said. “One hundred days of experience as Speaker, and he’s got a tiny majority. And that majority includes people who — let me be diplomatic and say are unpredictable.”

Himes, echoing a chorus of others in his party, was quick to point out that Democrats voted to raise the debt limit three times under former President Trump — and even Republican deficit hawks were largely silent when those votes occurred under a GOP president.

“Remember, three times during Donald Trump the debt ceiling got raised, and you didn’t even notice because Kevin McCarthy and all the Republicans were like, ‘Let’s not screw around here now, we’ve got a [Republican] president,’” he said. “Now all of a sudden they need to take the grenade out, pull the pin and put it on the table.”

Democrats, he added, are happy to debate the merits of federal programs and the funding provided to them. But that conversation should happen in the normal process of passing appropriations bills, he said, not with a federal default hanging in the balance. Durbin: Conversation about budget should be ‘separate’ from debt ceilingKlobuchar: Biden, McCarthy should negotiate on budget, not hold Americans’ mortgages ‘hostage’ over debt ceiling

“God bless you, if you want to cut food stamps to hungry children, if you want to make it harder to go to college, put that idea forward. But do it as part of the regular legislative process where we can debate it,” Himes said. “You don’t get to say, ‘We’re going to cut food stamps, and if you don’t do it, we’re blowing up the economy.’ Which is what the debt ceiling conversation is all about.”

Amid the debate, some moderate Democrats are quietly voicing frustrations that Biden has refused to negotiate with McCarthy. But a vast majority of the caucus is sticking with their ally in the White House, warning opening that door would set a dangerous precedent for debt ceiling debates in the future. Himes said his advice to Biden would be to hold his ground.

“I would tell the president, ‘You can negotiate. [But] there’s a reason we don’t negotiate with hostage-takers,’” Himes said. “Because you’ll be doing it again real soon.”

SILICON VALLEY BANK CRASH

Tech execs race to save startups from 'extinction' after SVB collapse
Reuters
March 12, 2023


By Jeffrey Dastin, Anna Tong and Krystal Hu

PALO ALTO, California (Reuters) - Technology executives, prominent venture capitalists and founders including OpenAI CEO Sam Altman raced this weekend to keep alive companies caught up in the collapse of Silicon Valley Bank.

Friday's dramatic failure of the bank, which focuses on tech startups, was the biggest since the 2008 financial crisis. It roiled global markets, walloped banking stocks and left California tech entrepreneurs worrying about how to make payroll.

Aiming to avoid what Garry Tan, the CEO of startup accelerator Y Combinator, called a potential "extinction level event" in the tech sector, industry executives moved quickly to do what they could to save small businesses.

Altman, who runs one of Silicon Valley's hottest companies, bailed out some entrepreneurs from his own pocket, according to a Twitter message by his brother and one beneficiary who spoke with Reuters.

"I was running out of options, and so I just emailed him," Doktor Gurson, CEO of Rad AI, said in an interview on Saturday. Within an hour or two, Altman responded, offering him six figures: enough to make payroll and no strings attached, just a request to return the funds once Gurson is able, he said.

Asked for comment, Altman told Reuters, "I remember the investors who helped me out when I was running a startup and I really needed it, and I always try to pay it forward."

Henrique Dubugras, co-CEO of fintech startup Brex, also spent the weekend working the phone after his company announced an emergency credit line on Friday to help startups get through their next payroll.

As of Saturday evening, he said Brex had received $1.5 billion in demand from nearly 1,000 companies. "We’re trying to sign up lenders by end of day tomorrow. Everybody is sprinting," he said.

Even small startups are getting in on the action to help others. Aleem Mawani, founder of Streak, a company with about 30 employees, tweeted Friday he would lend his personal cash free of any terms to other small startups worried about paying staff. He said he then had discussions with a few companies and was aiming to prioritize lending for those living paycheck to paycheck.

“I'm a founder and I know how awful it would be to not make payroll,” Mawani said in an interview.

'MALFEASANCE OR MISMANAGEMENT'

By late Saturday, more than 3,500 CEOs and founders representing some 220,000 workers had signed a petition started by Y Combinator appealing directly to U.S. Treasury Secretary Janet Yellen and others to backstop depositors, many of them small businesses who are at risk of failing to pay staff in the next 30 days.

The petition advocated "stronger regulatory oversight and capital requirements for regional banks" and an investigation into any "malfeasance or mismanagement" by SVB executives. More than 100,000 jobs could be at risk, the petition warned.

SVB did not reply to a request for comment, and Y Combinator did not elaborate on the petition.

Venture investors have advised startups to seek alternatives to gain short-term liquidity. Some, including Lowercarbon Capital, have offered loans to portfolio companies that have funds stuck at SVB.

Its partner Clay Dumas said Lowercarbon would provide payroll support for the next two weeks and was wiring funds out Monday.

Khosla Ventures told Reuters, “Given the rapidly evolving situation, we are talking to 100+ portfolio companies assessing their critical needs and plan to bridge where we are a lead or major investor."

'LIFELINE'

Rad AI's Gurson had not talked to Altman for years when he emailed the OpenAI chief Saturday morning, desperate for help. The startup relied on SVB, the sudden closure of which meant he lacked the money to pay some 65 employees on Monday, he said.

"People's livelihoods depend on us," said Gurson, whose San Francisco-based company helps radiologists work more efficiently and includes staff with wide-ranging roles and wherewithal. "They’ve got mortgages to pay; they’ve got bills."

Gurson's co-founder waited eight hours on a Federal Deposit Insurance Corporation hotline to no avail, he said. Multiple attempts to transfer funds out of SVB had failed.

But Gurson saw a Twitter post from Altman, whom he met as a founder participating in 2014 in Y Combinator, where Altman was president. The two men did not know each other very well, he said.

"It's like a lifeline," Gurson said of Altman's generosity.

Gurson estimated "conservatively" that Altman has given more than $1 million to support other startups in similar need.

"The crazy thing here is he's not an investor in our company," Gurson said. "He didn’t ask for anything."

Altman did not comment on how much he had given companies but said he did not view his contributions as risky.

"Even if SVB can't find a buyer or a loan over the weekend, a lot of the money startups have on deposit will be made available to them. But in the meantime, people are facing a real liquidity crunch through no fault of their own, and employees need to get paid," he said.

(Reporting by Jeffrey Dastin in Palo Alto, Anna Tong and Krystal Hu in San Francisco; Additional reporting by Tatiana Bautzer; Writing by Kenneth Li; Editing by William Mallard)

Silicon Valley Bank's demise began with downgrade threat



2023-03-11 
Peder B. Helland - Hope

In the middle of last week, Moody's Investors Service Inc delivered alarming news to SVB Financial Group (SIVB.O), the parent of Silicon Valley Bank: the ratings firm was preparing to downgrade the bank's credit.

That phone call, described by two people familiar with the situation, began the process toward Friday's spectacular collapse of the startup-focused lender, the biggest bank failure since the 2008 financial crisis.

Friday's collapse sent jitters through global markets and walloped banking stocks. Investors worry that the Federal Reserve's aggressive interest rate increases to fight inflation are exposing vulnerabilities in the financial system.

Details of SVB's failed response to the prospect of the downgrade, reported by Reuters for the first time, show how quickly confidence in financial institutions can erode. The failure also sent shock-waves through California's startup economy, with many companies unsure how much of their deposits they can recover and worrying about how to make payroll.

The Moody's call came after the value of the bonds where SVB had parked its money fell due to the higher interest rates.

Worried the downgrade could undermine the confidence of investors and clients in the bank's financial health, SVB Chief Executive Greg Becker's team called Goldman Sachs Group Inc (GS.N) bankers for advice and flew to New York for meetings with Moody's and other ratings firms, the sources said.

The sources asked not to be identified because they are bound by confidentiality agreements.

SVB then worked on a plan over the weekend to boost the value of its holdings. It would sell more than $20 billion worth of low-yielding bonds and reinvest the proceeds in assets that deliver higher returns.

The transaction would generate a loss, but if SVB could fill that funding hole by selling shares, it would avoid a multi-notch downgrade, the sources said.

REUTERS

Silicon Valley Bank staff offered 45 days of work at 1.5 times pay, FDIC email shows

LANANH NGUYEN AND PETE SCHROEDER
REUTERS

Employees of Silicon Valley Bank were offered 45 days of employment at one and a half times their salary by the Federal Deposit Insurance Corp, the U.S. regulator that took control of the collapsed lender on Friday, according to an email to staff seen by Reuters.

Workers will be enrolled and given information about benefits over the weekend by the FDIC, and healthcare details will be provided by the former parent company SVB Financial Group, the FDIC wrote in an email entitled “Employee Retention” late on Friday. SVB had a workforce of 8,528 at the end of last year.

Staff were told to continue working remotely, except for essential workers and branch employees.

The FDIC did not immediately respond to a request for comment.

Silicon Valley Bank imploded after depositors, concerned about the lender’s financial health, rushed to withdraw their deposits. The frenetic two-day run on the bank blindsided observers and stunned markets, wiping out more than $100 billion in market value for U.S. banks. SVB ranked as the 16th biggest bank in the United States at the end of last year, with about $209 billion in assets and $175.4 billion in deposits.

Members of California’s congressional delegation are set to be briefed by FDIC officials on Saturday, according to a report by Politico, which cited two people familiar with the situation.

The lender’s main office in Santa Clara, California, and all of its 17 branches in California and Massachusetts will reopen on Monday, the FDIC said in a statement on Friday.

ABC host slams regulation cuts 'under President Trump' after Silicon Valley Bank collapse

David Edwards
March 12, 2023

ABC/screen grab

ABC host Martha Raddatz noted that Trump-era regulation cuts may have contributed to the rapid collapse of Silicon Valley Bank last week.

While speaking to Sen. Mark Warner (D-VA), Raddatz wondered about the downfall of the go-to bank for tech startups.

"Senator, after the financial crisis in 2008, regulations were put into place to make sure banks could weather large losses," Raddatz told Warner on Sunday. "Under President Trump, some of those were rolled back, and in 2018, you were one of only 17 Democrats who voted for the bill that rolled back some banking rules, including for institutions the size of Silicon Valley Bank."

"Do you regret that vote?" the host asked.

Warner defended the vote: "I do think these mid-sized banks needed some regulatory relief."

"So, Senator, you don't regret that vote?" Raddatz pressed.

"I don't regret that vote," he insisted.

Watch the video below from ABC or at the link.

SILICON VALLEY BANK USED FORMER MCCARTHY STAFFERS TO WEAKEN REGULATIONS, LOBBY FDIC

Two senior aides to House Speaker Kevin McCarthy were among the top lobbyists for the bank at the center of a new financial crisis

Ken Klippenstein
March 11 2023

AFTER SUCCESSFULLY LOBBYING, for the rollback of new rules applied to Wall Street in the wake of the financial crisis, lobbyists for Silicon Valley Bank immediately began pressing their case further to the federal authority that insures bank deposits in the event of another crisis, according to lobbying disclosures reviewed by The Intercept. The lobbying effort managed to exempt banks the size of SVB from more stringent regulations, including stress tests aimed at uncovering the type of weaknesses that led to the bank’s implosion last week. Two of the bank’s top lobbyists previously served as senior staffers for House Speaker Kevin McCarthy, who himself pushed for the repeal of significant pieces of the landmark Wall Street reform legislation known as Dodd-Frank.

The meltdown of Silicon Valley Bank on Friday represents the second largest bank collapse in American history and the first since the 2008 financial crisis. Over 90 percent of SVB’s deposits exceed the amount federally guaranteed by the FDIC, meaning those people may never see their money again, or may lose substantial amounts.

SVB’s president, Greg Becker, himself pushed for weaker banking regulations, telling congress to lift “enhanced prudential standards…given the low risk profile of our activities,” as The Lever reported.

A chief culprit, economists say, is legislation signed into law by President Trump in 2018, which rolled back key parts of the Dodd-Frank banking regulations passed in the wake of the 2008 financial crisis. That 2018 legislation, called the Economic Growth, Regulatory Relief, and Consumer Protection Act, passed with strong support from the Republican Party and critical support from some Democrats. Among those leading the charge was then-House Majority Leader Kevin McCarthy, who is now House Speaker.

“We’re going to move this Senate bill directly to the president’s desk to ensure these reforms help the economy to grow further by making community banks stronger,” McCarthy said of the legislation in 2018. “This is going to free up a great deal of capital and this will help a lot.”

Two former staffers for House Speaker Kevin McCarthy are registered lobbyists for Silicon Valley Bank, with one specifically lobbying on the 2018 Dodd-Frank repeal law that experts say made this crisis more likely, according to federal lobbying disclosures reviewed by The Intercept.

Other SVB lobbyists worked for political figures cutting across both parties including President Bill Clinton, former Sen. Mike Enzi, R-Wy., former Sen. Tom Coburn, R-Okla., Rep. Joe Courtney, D-Conn., former Sen. Arlen Specter D/R-Pa., and former Rep. Jay Inslee, now governor of Washington.

Brian Worth served as coalitions director for McCarthy from January 2011 to May 2014, when he was House Republican Whip. Since March of 2017 he’s been a partner at Franklin Square Group, where he’s worked as a lobbyist for SVB. Wes McClelland served as a policy advisor and senior policy advisor for McCarthy from April 2011 to September of 2015 and joined Franklin Square in January of last year, where he has also lobbied on SVB’s behalf.

Franklin Square is the only lobby group that SVB has used in over a decade, having lobbied on its behalf every year from 2009 to 2023. The only other lobby shops SVB has employed were DLA Piper from 2009-2010 and McGuireWoods consulting from 2010-2011.

A spokesperson for McCarthy did not immediately respond to a request for comment.

Worth lobbied on the repeal law beginning on October 1, 2017, right up to its passage on May 24, 2018. Then, starting on July 1, 2018, SVB began lobbying the FDIC — the very same federal agency responsible for insuring bank deposits, which was tasked with implementing critical portions of Dodd-Frank.

Though Franklin Square has lobbied on behalf of SBV since 2009, the 2018 filing represents the first time it had ever lobbied the FDIC.

Beginning on April 20, 2022, McClelland also began lobbying the FDIC on SBV’s behalf, which both he and Worth continued doing right up until SBV’s last lobbying filing this year.

The lobbying disclosures do not provide any more detail about the work. Neither Worth nor McClelland immediately responded to requests for comment.

“This was a 100 percent avoidable problem,” economist Dean Baker told The Intercept in an email, pointing to the Dodd-Frank repeal bill. “That bill raised the asset threshold above which banks have to undergo stress tests from $50 billion to $250 billion. SVB would have been required to undergo regular stress tests before the revision; among the stresses you look at are sharp rises in interest rates, which is apparently what did in SVB. Presumably, if its books had been subject to this test, the risk would have been detected and they would have been required to raise more capital and/or shed deposits.”

Twitter slams 'moron' Charlie Kirk for suggesting Silicon Valley Bank crashed because of 'DEI' efforts

Maya Boddie, Alternet
March 12, 2023

Charlie Kirk speaking with attendees at the 2021 Southwest Regional Conference hosted by Turning Point USA at the Arizona Biltmore in Phoenix, Arizona. (Photo credit: Gage Skidmore)

Turning Point USA founder and conservative, Charlie Kirk, suggested Silicon Valley Bank collapsed due to the lender's diversity, equity and inclusion commitment statement on its website.

Kirk tweeted, "It is a mystery why Silicon Valley Bank collapsed," along with a screenshot of the banks Diversity, Equity and Inclusion statement.

NBC reporter Ben Collins responded to Kirk's tweet, writing, "On the right-wing internet, SVB collapsed because of DEI and ESG, which is just SBF's version of CRT. This is the kind of sentence you're gonna start hearing from presidential candidates, and they're going to wonder why nobody cares. It's meaningless acronyms all the way down."

Other Twitter users chimed in to criticize the right-wing activist's theory, calling it "embarrassing, even for you."

@williamlegate: "to suggest that this is the reason is absurd, but it was also very predictable. I called it yesterday that you all would blame this on DEI"

@holman: "it's okay to admit you don't understand banking!"

@Cassizzi: "Frankly it would be a bigger mystery if a community college dropout like yourself knew anything about liquidity risk management in a financial institution. But nice try, Charlie."

@buccocapital: "you are a true moron"

READ MORE: 'War on white people': Charlie Kirk's train derailment conspiracy theory

David Burrows: "Hilarious. Now tell us why CPAC collapsed"

@MikieAndTheVibe: "im not sure if this post just makes 0 sense or if you’re saying that the company failed because they attempt to include gay and black people"

Andy Brining: "Yeah, everything with you is a mystery for some reason. I wish we could discover the common factor."

READ MORE: Silicon Valley Bank becomes 'largest bank' to collapse 'since 2008' financial catastrophe: report

@e_michael1: "In case people were wondering, this is *not* why SVB failed."

@RagingGinge: "c'mon Charlie this is embarrassing even for you."

READ MORE: Silicon Valley Bank's collapse triggers concern over potential 'bloodbath' and risk to broader markets

Inside the Silicon Valley Bank failure: A tech industry in shock as it awaits a government response

People stand outside of an entrance to Silicon Valley Bank in Santa Clara, California, 10 March 2023 - Copyright AP Photo/Jeff Chiu

By Aleksandar Brezar • Updated: 11/03/2023 -

The news out of California that authorities shut down Silicon Valley Bank (SVB) on Friday shocked the tech start-up and venture capitalist world, with its sudden collapse over the course of two days roiling the market by Saturday.

SVB - the 16th largest bank in the US but a crucial one for the startup community - was closed down by regulators on Friday after a bank run dealt it a lethal blow following attempts to recover deposit losses and the sale of treasury bonds and securities.

"SVB was obviously the beacon of the start-up venture community for four decades. Almost, you know, one of those institutions that everyone viewed as too big and too strong to fail," Samir Kaji, a former banker who spent more than 20 years in the industry, told Euronews Next.

Silicon Valley Bank collapse: Fears of financial crisis after bank used by US tech sector fails

Yet SVB was hit hard by funding drying up over the past year in the tech and startup sector as well as the Federal Reserve's plan to aggressively increase interest rates to combat inflation.

The bank was backed by billions of dollars worth of bonds, but in having to sell them at a time when interest rates were high, they sold them at a significant loss.

But SVB’s customers were largely startups and other tech-centric companies that started becoming needier for cash over the past year.

A Brinks truck is parked outside of Silicon Valley Bank in Santa Clara, 10 March 2023

AP Photo/Jeff Chiu

"When they had the announcement of the capital reshuffling [on Wednesday]," he recalled, "what ended up happening there was a 'town hall' call with their clients which are mainly these VC firms".

And it actually incited more panic than it did to reassure, Kaji explained.

"There were torrents of emails, voicemails, calls, Slacks, text messages, where all of the VCs were imploring their companies to move capital out of SVB, which created that $42 billion leaving the bank".

SVB's 'specific' problems to result in only pockets of instability?

SVB is expected to re-open Monday with the FDIC in charge. It said all insured depositors would have full access to insured deposits no later than Monday morning.

"While there are no guarantees, it is very likely that the FDIC - which is the institution created in the New Deal to deal with bank runs and prevent bankruptcy - will likely resolve the situation," Armand Domalewski, a data analyst with a background in economic policy told Euronews Next.

There were torrents of emails, voicemails, calls, Slacks, text messages, where all of the VCs were imploring their companies to move capital out of SVB, which created that $42 billion leaving the bank.

Samir Kaji

Former banker

"People in the US think that their deposits are only insured up to $250,000 [€234,000], which is legally true. But in general what the FDIC tries to do since 2008 is arrange sales to other banks so that the customers are transitioned overnight. They don't lose their deposits".

The people who invested directly in SVB are going to get wiped out, but depositors have reasons to be hopeful, Domalewski explained.

The Silicon Valley Bank failure is the largest since Washington Mutual’s demise in 2008 - a watershed moment that triggered a major financial crisis and crippled the world’s markets since.

Yet SVB’s failure is expected to result only in pockets of instability, mostly due to its nature as a "boutique" bank and specific portfolio favoured by US tech startups and venture capital, servicing nearly half of the market.

Additionally, US and international regulators have introduced more stringent rules since the last financial crisis, aimed at ensuring that one bank’s failure would not trigger a cascade event, harming the broader economic system.

An FDIC sign is posted on a window at a Silicon Valley Bank branch in Wellesley, Massachusetts, 11 March 2023

AP Photo/Peter Morgan

The problems encountered by the bank "are very specific" and are not likely "to affect the entire banking sector, let alone the major banks," Ken Leon, an analyst with the firm CFRA, told AFP.

Morgan Stanley's analysts echoed this view, insisting in a statement: "We want to be very clear... We do not believe that the banking sector is facing a liquidity crunch".

Authorities in the US have also expressed their confidence in the country’s banking sector, which is far more diversified across multiple industries, customer bases, and geographies.

US Treasury Secretary Janet Yellen said on Friday that the banking sector remained "resilient,” while White House economic adviser Cecilia Rouse said the sector was "fundamentally different from what it was 10 years ago".

Silicon Valley Bank collapse: Here's how and why it happened

'Businesses should not fail because their choice of bank failed'

Some high-tech companies were hit hard by the news of SVB’s failure, however. On Friday, streaming device maker Roku said they had "around $487 million" (€456.9 million), or 26 per cent of its cash reserves, deposited at SVB.

Roku’s shares have gone down 10 per cent in extended trading, but the company said that "it continues to believe that its existing cash and cash equivalents balance and cash flow from operations will be sufficient […] for the next twelve months and beyond".

Requiring every individual business to do constant due diligence wherever they put their money creates a huge amount of stability.

Armand Domalewski

Data analyst

But smaller companies spent Saturday in heightened panic, as some of the startups depending on SVB became concerned over their ability to pay their employees post-shutdown.

Others scrambled to look for a bank to replace SVB even before markets reopen on Monday.

This is understandable, according to Domalewski, as fairly small businesses feeding a hundred employees feel "they’ll run out of money very very fast".

"Businesses should not fail because their choice of bank failed," Domalewski said.

"Requiring every individual business to do constant due diligence wherever they put their money creates a huge amount of stability".

"But I do think also, they should just wait to see what happens till Monday".
'Irrational' premise still led to 'rational' movement of cash

Yet the freakout persisted throughout Saturday, with emails from various firms said to have been circulating imploring companies to move their cash from other specialised banks to a top four bank as soon as possible.

"What this really cascaded into then is all of the regional banks being reviewed and many of the VCs have now looked at all this and said, 'Okay, well my distrust is not only with SVP, but it's actually with the broader read of the banking sector outside of the top four,'" Kaji explained.

Santa Clara Police officers exit Silicon Valley Bank in Santa Clara, 10 March 2023

AP Photo/Jeff Chiu

"And so everyone right now is looking at their company's funds and saying we simply just can't take a chance".

"When you have mass hysteria, the cat's already out the bag... the premise based on which people moved money was probably irrational, but once it started the movement of the cash it became rational".

"Because you never want to be the last one out. No one wants to be stuck in that same position with another bank" that is failing in the same way, Kaji concluded.
Protections in place to make all the difference?

In Europe, German and UK regulators are said to be monitoring the fallout of the SVB Group, although expectations of its overseas future were mostly optimistic on Saturday.

The group has offices in both European countries, as well as Ireland, Denmark, and Sweden, but its international arm is thought to represent a minor part of its overall business, with just 3 per cent of its total client funds coming from abroad.

On Friday afternoon CET, SVB’s UK branch said in a statement that it "has been an independent subsidiary since August 2022 with a separate balance sheet to the SVB Financial Group and an independent UK Board of directors".

And Domalewski believes that the protections in place since 2008 will make all the difference come Monday.

"There's a reason that we did all this since 2008 — passed a lot of new financial regulations formally and informally to make our banking systems a little more boring, a little more arduous, but to like prevent things like this from causing a full-scale crisis," he explained.

"It's been a long time since we've had a bank failure,” Domalewski said, “and people have forgotten what that's like".


Additional sources • AFP