Mar 12 • 25M

What SVB's collapse says about our world

The fastest rise in US interest rates since 1979 just claimed its first big scalp, but yet again, the US Govt is intervening to protect the richest from losing deposits, albeit it's no full bailout

Upgrade to listen
The latest daily snapshot of the news, detail, insight and analysis on geo-politics, the global economy, business, markets and the local political economy for citizens and decision-makers of Aotearoa-NZ.
Episode details
Always a bailout? Then-Finance Minister Bill English talks to reporters about the collapse of South Canterbury Finance in 2010. Photo: Mike Heydon/Getty Images

TLDR: The fastest rise in US interest rates since 1979 just claimed its first big scalp in the form of the collapse of its 16th biggest bank in less than a day. But yet again, the US Government is intervening to protect the richest from losing deposits in SVB— albeit the intervention will be no full 2008-style bailout of shareholders and managers.

The Biden administration and the Federal Reserve probably don’t have a choice but to intervene to stop a contagion of US bank runs into other smaller, specialist banks, but the more we see the arms of state being used to socialise the losses from financial disasters and privatise the profits of financial stability, the more we see the west’s social cohesion erode and its political fragility increase.

And that includes Aotearoa, which bailed out and guaranteed savers (by definition those with cash surpluses) in 2008 and 2009, while giving billions in cash to businesses and massive amounts of cheap loans to our most profitable banks during covid. No wonder there are calls for windfall taxes on banks and social cohesion is increasingly threadbare.

In my view, this latest episode should remind our big and very profitable banks (who currently do not have Government deposit guarantees) that they rely on the Government ultimately for their existence and social license. It also reminds us we need to hurry up and bring in a deposit guarantee.

Paying subscribers can see more of my analysis and detail below the paywall fold and in the podcast above.

Elsewhere in the news this morning

Listen to this episode with a 7-day free trial

Subscribe to The Kākā by Bernard Hickey to listen to this episode and get 7 days of free access to the full post archives.