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OPINION

Biden’s Banking Bailout Precedent Could Unleash a Wave of Bank Failures

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.
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AP Photo/Patrick Semansky

Yes, President Joe Biden's banking bailout proposal is indeed a bailout.  And, yes, US taxpayers will end up paying for it, one way or another.  Ignore the political claims that say otherwise.

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The bigger and far more important question is this — is President Biden inadvertently establishing a "Banking Bailout Precedent" that guarantees all uninsured deposits (beyond the $250k FDIC limit per person) of all the Prince Harry's and Meghan Markle's and corporations with deposits in U.S. banks?   Again, ignore the political claims that say otherwise.  

Most will view it exactly this way and expect the same treatment with their "uninsured deposits" when another U.S. bank fails.  

And this Biden Banking Bailout may have just assured us that many more bank failures will come...and soon.   

Six points that paint a worrisome picture:

1.  Out of the gate, we know we have a leader with proven poor judgment.  President Biden (and the hard left puppeteers who surround him) have made the wrong key policy decisions at every turn in his presidency.  Why should we think this policy decision will be any different?

Examples of poor policy judgments include — shutting down the Keystone Pipeline when we desperately needed domestic energy; a disastrous withdrawal from Afghanistan; trillions in stimulus spending that unleashed the greatest wave of inflation since the 1970s and, in turn, produced our current skyrocketing interest rates; the decision not to broker a peace agreement and instead give near-unconditional USA / NATO backing to a losing horse (Ukraine) against a far stronger adversary (Russia); provocative acts that pushed Russia and China together in a powerful new alliance; disrespecting our long-loyal ally Saudi Royal Family leading to arch-enemies Iran and Saudi Arabia reestablishing diplomatic relations in a deal brokered by China; opening our southern border to an endless wave of illegal immigrants and fentanyl trafficking, and so on.  

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2.  We had three significant banks fail last week — Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank. SVB and Signature are the second and third-largest bank failures ever.  Odds are high that in this skyrocketing interest rate environment, coupled with the collapse of the cryptocurrency tulip bulb mania, there are many other banks…perhaps dozens…in similar dire circumstances desperately trying to stay afloat.  On Monday, the New York Stock Exchange halted trading over 50 bank stocks based on these concerns.

3.  President Biden's Banking Bailout guarantees all the depositors of SVB and Signature whether their deposits are insured or not.  This policy sets a direct "precedent" for what happens with future bank failures and their depositors and is highly inflationary to boot.

4.  The CEOs and boards of other troubled banks are now likely considering "self-fail" to jump on the Biden Banking Bailout Precedent.  This opportunity to protect all uninsured deposits, including that of family and friends of bank principals, won't last forever.  Getting out while you still can is a strong motivator.  And they know that their equity holders are likely toast either way.

5.  The Russia-Ukraine War is turning decisively against Ukraine.   And, yet, the American media and public are still pretending otherwise — in fact, most Americans think Ukraine is on the cusp of victory.  In the next few months, the Russian army will likely break out and run to the Dnieper River and the outskirts of Kyiv.  When this happens, President Biden, the USA, and NATO will look like fools.

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6.  The US banking crisis, coupled with Ukraine's collapse, may make President Biden (and his leftist puppeteers) desperate for a subject change.  Intervening in the Russia-Ukraine War may be their opportunity.  To "save freedom and democracy from Putin and Russia” — the new slogan of woke nobility.  

Desperate leaders do desperate things.  We need to be on guard to prevent this.

President Biden unilaterally attempted to forgive $400 billion in student loans (likely to be overturned by the U.S. Supreme Court) and is now attempting to unilaterally set a precedent to make USA taxpayers liable for all uninsured bank deposits without the approval of Congress.  The United States Constitution gives the power of the purse to Congress, not the President.  

This monarch-like action needs to be challenged in the U.S. Supreme Court.

The most thoughtful solution to our current banking crisis was offered by Vivek Ramaswamy in a March 11 tweet:  "Here’s the right answer: - No depositor amnesty for SVB depositors: let SVB fully fail. - FDIC should get out of the way & let whoever wants to acquire SVB do the deal. - Monday morning: increase FDIC guarantee to [$10mm] for all banks. This prevents a run on other banks. Silicon Valley is pushing the idea that SVB depositors must be rescued to prevent a run on other banks. Wrong. If you want to prevent a run on other banks, increase the FDIC guarantee. But SVB screwed up by utterly failing to take interest rate risk into account in two ways - both in terms of client concentration risk amongst startups and investing in interest rate-sensitive securities. So did the many startups who blithely did business with them. It’s not the U.S. taxpayer’s job to now coddle them."

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Congress should debate and vote on the Biden Bank Bailout Precedent as soon as possible.  If Congress wisely rejects it, Vivek Ramaswamy's plan should be put front and center, debated, and voted upon.

We need thoughtful, sound, wise judgment in times of crisis.  President Biden's bailout certainly is not that.


George Mullen 
is the author of "The Coming Financial Tsunami" (2005) and "Welcome to the Bubble Economy" (2006), which accurately predicted the 2007-08 global economic crash. He is spearheading Sunbreak Ranch in the effort to end America's homeless crisis.  He is a principal of StudioRevolution.com in San Diego, California.

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