Summary of "Don't Call It A 'Bailout', But It's a Massive Big Tech & China Bailout" - The 47 Morning Update with Ben Ferguson

Release Date: March 15, 2023
Host/Author: Premiere Networks
Title: Don't Call It A "Bailout", But It's a Massive Big Tech & China Bailout

Introduction

In this episode of The 47 Morning Update, host Ben Ferguson engages in a profound discussion with Senator Ted Cruz regarding the recent collapse of Silicon Valley Bank (SVB) and its broader implications for the American banking system, politics, and international relations, particularly with China. The conversation delves into the nature of the government's response, labeling it as a bailout, and examines the intertwined relationships between big tech, venture capital firms, and political entities.

The Collapse of Silicon Valley Bank and the Government's Response

Initial Reactions and Market Impact

The episode opens with concerns from Americans about the stability of their banks following the significant failure of Silicon Valley Bank (SVB), which was among the top three bank failures of Senator Cruz's career.

Senator Cruz's Analysis (00:32 - 01:27)

Senator Cruz outlines the chaos in the financial markets, highlighting the failure of SVB as the 16th largest bank in the U.S. with $210 billion in assets. He asserts that the collapse has shaken the tech industry's financing and venture capital landscape, posing risks to mid-sized banks. He criticizes the Biden administration's swift move to intervene, describing it as a bailout that favors politically connected entities, potentially setting a precedent for future misconduct by other banks.

Is It a Bailout? (01:27 - 01:48)

The discussion pivots to whether the government's intervention constitutes a bailout. While the administration denies it, Cruz firmly believes it is indeed a bailout, with taxpayers bearing the burden indirectly.

Defining the Bailout (01:48 - 09:35)

Senator Cruz elaborates on his stance, emphasizing that the $120 billion fund, though labeled as bank-paid fees, ultimately derives from taxpayer money through taxes and consumer revenues. He criticizes the administration for not seeking Congressional approval, contrasting it with the 2008 TARP bailout which faced significant opposition. Cruz underscores that SVB's clientele primarily consisted of large, politically connected firms with deposits exceeding the $250,000 FDIC insurance limit. He cites examples such as Circle, Roku, BlockFi, Roblox, and Buzzfeed, all of which held substantial uninsured deposits at SVB.

Quote:
“This is 100% a bailout. And the Biden administration is spinning like crazy trying to pretend that it's not what they are arguing that the money... comes from you and me.”
— Senator Ted Cruz [01:48]

Mismanagement and Corruption at Silicon Valley Bank

Senator Cruz on SVB's Practices (09:35 - 15:44)

Cruz criticizes SVB's lack of proper risk management, noting the absence of a chief risk management officer and inadequate hedging against interest rate risks. He points out that hours before the bank's shutdown, SVB issued substantial bonuses to employees and that top executives sold large amounts of stock, indicating possible corrupt intent.

Quote:
“Both of those indicate corrupt intent. I'll tell you, I had a conference call in the last 48 hours with, with all 100 senators... 'look, is it true that they gave bonuses to their employees?'"
— Senator Ted Cruz [11:48]

He emphasizes that the bailout favored depositors with large sums, including Chinese companies, rather than safeguarding smaller depositors or shareholders. This selective rescue, Cruz argues, creates moral hazard, encouraging reckless behavior among banks who might expect future bailouts if aligned with political interests.

Government Oversight and Accountability (15:44 - 18:59)

The conversation shifts to the role of the San Francisco Fed in supervising SVB. Cruz questions the lack of accountability and effectiveness of regulators, suggesting that the Biden administration's oversight was inadequate. He anticipates that the House will hold regulators accountable, criticizing the administration for prioritizing politically connected banks over broader financial stability.

Quote:
“This is like Bonnie and Clyde. They're, they're robbing the bank as they know their customers. Deposits are about to get blown up.”
— Senator Ted Cruz [11:48]

Implications for the Banking System and Future Risks

Contagion Risks and Moral Hazard (22:27 - 28:44)

Cruz acknowledges the possibility of other banks experiencing similar collapses but notes that SVB's unique concentration in the tech and venture capital sectors made it exceptionally vulnerable. He warns that the government's intervention without proper oversight sets a dangerous precedent, potentially encouraging other banks to engage in risky behavior under the assumption of government support.

Quote:
“It is a bailout that was done with no authorization from Congress. You know, you think back to the financial crisis that we saw in 2008... Biden administration asleep at the wheel.”
— Senator Ted Cruz [09:35]

Federal Reserve's Emergency Lending Facility

Cruz criticizes the Federal Reserve's establishment of an emergency lending facility (13, 3 facility) that allows the Fed to loan money to back up long-term government debt at original purchase prices, labeling it another form of bailout that burdens taxpayers with significant financial obligations.

Political Dimensions: The Biden Administration and China

Democratic Policies and China Relations (28:44 - 39:17)

The discussion extends to the Biden administration's stance on China, particularly regarding climate change and economic policies. Cruz argues that Democrats are overly accommodating to China, ignoring critical issues such as intellectual property theft, human rights abuses, and environmental degradation. He highlights recent statements from Democratic figures like Jennifer Granholm and Nancy Pelosi, accusing them of idolizing China's environmental policies despite its status as the world's largest polluter.

Quote:
“They didn't think Congress had anything to say at all. They just announced it. We're giving away money.”
— Senator Ted Cruz [09:35]

Cruz contends that the Democratic Party's structural alignment with China through big tech, universities, and other sectors compromises America's interests. He underscores the hypocrisy in promoting China as a partner in combating climate change while allowing it to expand its coal capacity and continue harmful practices.

Biden Administration's Long-Term Policy Towards China

Cruz attributes President Biden's lenient policies toward China to personal financial interests and the Democratic Party's reliance on Chinese investments. He cites the inability of Democrats to pass measures against China's use of slave labor in manufacturing, illustrating the party's deep ties with Chinese stakeholders.

Quote:
“Hunter Biden made millions of dollars monetizing his father's political connections...”
— Senator Ted Cruz [37:06]

Conclusion

Senator Ted Cruz provides a critical examination of the Biden administration's handling of the Silicon Valley Bank collapse, framing it as a politically motivated bailout that favors large, connected entities at the expense of broader economic stability. He highlights systemic issues within banking regulation, the moral hazards introduced by selective bailouts, and the problematic relationship between the Democratic Party and China. Cruz calls for greater accountability and a reassessment of policies that undermine the integrity of the American banking system and national interests.

Notable Quotes:

1. “This is 100% a bailout. And the Biden administration is spinning like crazy trying to pretend that it's not what they are arguing that the money... comes from you and me.”
   — Senator Ted Cruz [01:48]

2. “This is like Bonnie and Clyde. They're, they're robbing the bank as they know their customers. Deposits are about to get blown up.”
   — Senator Ted Cruz [11:48]

3. “Hunter Biden made millions of dollars monetizing his father's political connections...”
   — Senator Ted Cruz [37:06]

This comprehensive summary encapsulates the key discussions and insights shared by Senator Ted Cruz and Ben Ferguson regarding the SVB collapse, governmental interventions, and the broader political and economic ramifications involving big tech and China.