The Running of the Bros
"pamplona san fermin" by Batto0 is licensed under CC BY 2.0.
In this free edition of Modern Whig Weekly: the collapse of SVB, budget shenanigans, the Remarkable Mr. Santos and Odds and Ends.
We’ve been busy the past week or so working on the final phase of our pivot to focus on publishing, much of which involved working on the website (in the background) and handling some technical issues. We paused the National Gazette temporarily in order to concentrate on getting the last items on the action list done. Thanks to some help from some experts in our orbit, we’ve crossed the finish line.
Most of the changes are pretty subtle. For subscribers to this General Newsletter, there won’t be any changes at all. If anything, you’ll notice some new outlets as we launch additional verticals on Substack and get into some longer-form articles published directly to our website. But our Friday evening missives will remain the same.
We’re going to keep the same format here, too -- a quick message on the latest Institute news, if any, and then a review of the weekly headlines. And have we had a week. So, let’s get to it.
The Running of the Bros
In Santa Clara, Calif. the past couple days it wasn’t exactly the running of the bulls in Pamplona, but someone got trampled nonetheless. Specifically, the tech industry’s very own favorite lender, Silicon Valley Bank (SVB).
On Wednesday morning, the 40-year-old bank’s stock opened at 265.17. By Friday morning’s opening, trading had been halted with the stock at 82.85; a couple hours later the FDIC announced the bank had been shut down and its deposits seized:
Silicon Valley Bank collapse: How it happened (cnbc.com)
It’s the biggest bank failure since the Crash of 2008, and the second bank failure this week after crypto lender Silvergate hit the skids. Both banks collapsed in the face of a run on deposits, but for different reasons. In the case of SVB, a lot of it had to do with the effect of rising interest rates on both their own balance sheet and the cash needs of their customers.
Whether they should have seen the challenges they were facing more clearly is an open question. So is the way they handled what started out as a pretty manageable challenge before turning into a death spiral. We’ll learn more in the coming days.
But it’s clear at least some segments of the economy, and some people working in them, are having trouble digesting the new rate environment. Which is understandable. For those who are currently in their early 30s or younger, their entire professional lives have played out in an era of free money and seemingly endless liquidity. And that includes many of the very Silicon Valley entrepreneurs who so precipitously yanked their money out of SVB.
Yet, even now we haven’t reached the level of the Fed funds rate just before the economy imploded in 2008: about 5.25 percent. During the boom years from 1995-2000 it was at times even higher, and never lower than 4.67 percent (a little higher than it is now).
So, it’s possible incidents like the collapse of SVB are a kind of inevitable collateral damage, something we should expect after such a long period of such abnormal conditions. There are also some pretty unique aspects to the bank’s operations -- it was founded and primarily served a distinct community, which made it vulnerable to a sudden shift in sentiment within that community. We shouldn’t look at it as a bellwether just yet.
But there’s no denying we’re in a period of economic transition. Where it’s all going is a matter of great debate, of course. In a famous line in the TV series The West Wing, the president (who is a Nobel Prize-winning economist) is teased by one of his aides: “You economists just make it up as you go along, don’t you.”
“Pretty much,” he answered.
We can only hope they get it right, especially at the Fed. In the meantime, this strange, post-Covid economic recovery is going to have a few more surprises in store for us. In a lot of ways, the SVB bank run came out of nowhere. We should brace ourselves for other shocks. If anything, history teaches us the path back to normal is rarely normal itself. But if we can get fiscal, monetary and industrial policy aligned and pulling in the same direction, we’ll be more than fine.
That is, of course, a big if.
You Show Me Yours
Since 1921, the president has been required by law to deliver an annual budget proposal for the entire federal government to Congress. It’s not the actual federal budget -- that’s written by Congress itself -- but rather a wish list based on the current administration’s policy priorities.
As one would expect, a lot of the tax provisions in the Biden budget released this week target high earners and corporations. Most of the spending provisions are focused on social programs, although there’s a significant bump in defense spending, too. With a Republican majority in the House of Representatives and a slim Democratic majority in the Senate, almost none of it will, in the words of Minority Leader McConnell, “see the light of day.”
But that’s to be expected. In fact, there really is no “president’s budget” per se. The actual federal budget is a massive document. What the president sends up to Capitol Hill is just a general blueprint.
On occasion, the opposition party will put it up for a vote, as the Republicans did with a couple of the Obama Administration proposals; invariably, Congress rejects them unanimously, or near-unanimously, as a symbol of constitutional independence (not that you’d know it from some of the embarrassing coverage, but it is what it is). Often, at least in normal times, the opposition in Congress will put up their own blueprint for a vote at around the same time, also doomed to failure but also just a way of setting priorities.
So far, the GOP hasn’t offered anything concrete as a counter-proposal to the Biden Administration’s plan. No one would expect a complete budget at this point. But one would expect there would be at least a general consensus within the Republican Conference in each chamber on where they would like to go. At the moment, no such consensus seems to exist.
In the grand scheme of things that shouldn’t be a problem. Wrangling, even among themselves, is what Congress does. But having laid down a marker on raising the government’s borrowing authority -- what we somewhat mistakenly call the debt limit, but whatever -- the doubts about what it will take for congressional Republicans to cash it in is having a real effect in the markets already:
The price of credit default swaps to insure against a U.S. default has soared (axios.com)
Many believe an actual debt default by the United States is unthinkable. They may be right, although given all the unthinkable things we’ve seen over the last seven or eight years it may not be something any of us should be sanguine about. The threat is still there, and it hasn’t been withdrawn.
What would help a lot is to see an actual budget proposal from the GOP, at least in broad terms. After all, the hardest thing to face in a hostage negotiation is a bad faith negotiator on the other side. Invariably, if they don’t tell you what they really want, each time you agree to anything they’ll just come up with another demand.
We now have the cards laid out on one side of the table. It’s time for the other side of the table to do the same.
Oh This Guy Again
Speaking of cards, the latest revelation about the man who may be the sketchiest and most questionable member of Congress in modern American history, if not all our history -- and that’s saying something -- is quite a doozy. Rather than a recap, take a minute to read this one for yourself:
George Santos masterminded 2017 ATM fraud, former roommate tells feds - POLITICO
Buried in the myriad details of the story is this little nugget: “Santos also claimed to the judge he worked for Goldman Sachs in New York, a key part of his campaign biography he later admitted wasn’t true.”
Needless to say, lying to the court is a no-no. But given the tsunami of lies Santos has told, it’s a fair guess it’s neither the first nor the last time he’s on the record stepping over the line. Way over the line. Certainly, he makes no distinctions about who he’s lying to; voters, judges, the press, colleagues, family, friends, acquaintances, random people on the street -- it doesn’t matter. He lies to all of them.
Yet there he sits, still a Member of Congress. Technically, he still has his committee assignments. He still enjoys all the perks and privileges of his office.
As we’ve mentioned before, it’s difficult to expel a sitting member of the House. It takes a two-thirds vote of the chamber on a resolution, which means under current circumstances all of the Democrats and about a third of the Republicans in the House would have to vote yes. Only five House members have been expelled in our history, and just two since the Civil War: Rep. Michael Myers (D-Pa.), after he was caught taking bribes from undercover FBI agents in the ABSCAM case, and Rep. James Traficant (D-Ohio), who was convicted of bribery charges.
Several other members of both the House and Senate have resigned in the face of ethics violations before any formal expulsion proceedings were begun. It’s actually been, regrettably, not all that uncommon. But there’s at least some comfort in knowing the vestiges of honor, or at least the shadow of shame, were enough to get them to do the right thing.
What it would take for Republicans to move against Santos is anyone’s guess. Clearly, no one should have any illusions about him leaving of his own volition. Politics is the easiest con he’s ever run, and being a Member of Congress is the best gig he’s ever had (it may be the only “honest” gig he’s ever had). He’ll hang on for as long as he can. Not to mention, shame and honor aren’t in his vocabulary.
The real question is whether they’re in anyone else’s.
Odds and Ends
A couple weeks ago, we mentioned the ongoing debate about the apparent mental health crisis afflicting young Americans. There’s a lot to be said about all of it, but over the past few weeks a few articles have popped up on Substack reflecting on the issue from a variety of perspectives, including from liberals and progressives.
Here’s Jill Filipovic in February:
Fear of a Female Body - Jill Filipovic (substack.com)
And Matt Yglesias last week:
Why are young liberals so depressed? - by Matthew Yglesias (slowboring.com)
But it may be Jonathan Haidt, who has been working these issues maybe ahead of just about anyone, who truly nails it:
Why the Mental Health of Liberal Girls Sank First and Fastest (substack.com)
All three are worth a read. It’s a subject we’re sure to return to in the very near future in the pages of the Gazette.
Speaking of which, Institute member Dennis Sanders had a few choice words about corporate governance on his Medium account which he kindly allowed us to cross-post. It’s part of a series, so there’s more to come. Check it out:
Bad Stewardship Killed Sears and Kmart (substack.com)
The revelations in the Dominion Voting Systems case against Fox News have been relentless. One can only imagine what will come out at trial:
Court records show political pressure behind Fox programming | AP News
And one thing has become glaringly obvious -- the ratings tail has been wagging the network dog:
Inside the Panic at Fox News After the 2020 Election - The New York Times (nytimes.com)
And finally, lest you think the silliness is confined to American political discourse:
Why I’m sticking up for science | The Spectator
Let’s hope Albert Camus was right: “Happiness and the absurd are two sons of the same earth. They are inseparable.”
Kevin J. Rogers is the executive director of the Modern Whig Institute. He can be reached at director@modernwhig.org.
The Modern Whig Institute is a 501(c)(3) civic research and education foundation dedicated to promoting the fundamental American principles of representative government, ordered liberty, capitalism, due process and the rule of law.
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