March 17, 2023
From Popular Resistance

Above Photo: US politicians have insisted that, unlike the 2008 bank bailouts, no taxpayer money will be spent towards SVB or Signature. Michael Fleshman.

The US is divesting from working people.

And investing in banks and venture capitalists, to the tune of hundreds of billions of dollars.

The March 10 collapse of Silicon Valley Bank sent shockwaves throughout the world economy. Since then, the US government moved quickly and decisively to bailout the bankā€™s depositors to the tune of USD 151 billion. The collapse of SVB, a bank utilized heavily by the tech industry and venture capitalists, is the second largest bank failure in US history. Signature Bank, based out of New York, also failed quickly afterwards as SVBā€™s crash triggered distrust in the banking system across the nation. The US government also bailed out Signature, spending USD 70 billion to ensure that the bankā€™s depositors had access to all of their money.

Many are outraged at the amount of money being thrown at banks and venture capitalists, and are calling for a bailout of the people, not the rich.

Is this really a bailout?

Top US officials including US President Biden and Treasury Secretary Janet Yellen have attempted to reassure the public that the government is not in fact bailing out the banks. This is due to the mass public backlash over the sheer quantity of government money spent on these banks.

US politicians have insisted that, unlike the 2008 bank bailouts that generated waves of popular movements from Occupy Wall Street to the Bernie Sanders campaign, no taxpayer money will be spent towards SVB or Signature. Instead, the money is coming from a ā€œspecial levyā€ on banks. However, some have pointed out that the money that banks will use to pay this levy comes from bank profits, which are ultimately generated through fees taken from customers and the money made by speculating using customersā€™ deposits. In other words, the bankā€™s money is really the peopleā€™s money.

Do banks really keep your money safe?

This recent bank crisis has shed light on some uncomfortable truths about the banking system under capitalism. Although the deeper cause of SVBā€™s collapse was the Federal Reserve raising interest rates which devalued government bonds, this interest rate raise caused customers to begin to mistrust SVBā€™s investment in such bonds. This created a ā€œbank runā€, in which large numbers of depositors begin to withdraw all their money from the bank at once.

Why should it be a problem for depositors to want their money back, if banks exist to keep peopleā€™s deposits safe and whole? This is because in reality, banks do not keep money safe, they gamble with it. In order to generate profits, banks invest the vast majority of their customersā€™ deposits into stocks, bonds, or other securities. Bank runs happen every few years across the globe, but banks are usually never financially prepared for them, as they are incentivized under capitalism to generate the most profits possible by speculating on more and more of their deposits. For example, if one bank speculates on 90% of their deposits, they will fall behind a bank which speculates on 95%.

This was exacerbated in 2020, when the Federal Reserve eliminated the reserve requirement altogether. For decades, banks were required to keep a certain amount of deposits in reserve. But the Fed used the pandemic as an excuse to eliminate this rule, and now banks are required to keep 0% of deposits in cash. Banks now have very little of their money in cash: SVB had 5% out of USD 175 billion before its crash, and both Bank of America and JPMorgan have 2%.

What would a bailout of the people look like?

The banks and venture capitalists gamble with peopleā€™s money. Yet time and time again, the government bails them out when risky gambles naturally go wrong. But some are pointing out that when it comes to the working class, the US government does not invest billions of dollars within a matter of days.

The majority-Black city of Jackson, Mississippi has gone without reliable drinking water since September 2022. The bold social spending proposals of the Build Back Better legislation package were slowly chipped away at and ultimately destroyed supposedly for being too expensive, although the proposed social programs would have been a fraction of the billions just spent on banks.

Not only is the US not investing in working peopleā€”itā€™s divesting. 32-states are set to cut food stamps drastically this month, creating what experts call a ā€œhunger cliffā€, impacting over 30 million people. Some could see monthly food assistance fall from USD 281 to USD 23. This comes at a time when groceries were 11.3% higher in January than they were a year prior. Eggs, in particular, cost 70% more than they did a year ago.

The dire economic straits of working people in the US are too numerous to list, but here are a few more realities: Tech companies like Uber and Lyft successfully upheld legislation in California that keeps gig workersā€™ wages down to as low as USD 6.20 an hour. Over one in four US adults have rotting teeth, disproportionately Black people, people with low incomes, and those with less than a high school education. Most people in the US struggle with weekly expenses.

Some argue that if the government begins to invest in poor and working people instead of the rich, these efforts will be generously rewarded in the nationā€™s economy. Bidenā€™s student debt relief program is currently being stymied by right-wing billionaire donors in the nationā€™s court system. But student loan forgiveness could boost the US economy, experts say, as more adults would have the money to participate in consumption, especially in the housing market.

More than half of the people in the US from ages 16 to 74 read below a sixth-grade reading level, but if literacy skills are raised through investments in public education, this would generate USD 2.2 trillion in annual income for the US, a Gallup study found. This would account for almost 8% of the nationā€™s GDP.

Peoples Dispatch spoke with Breakthrough News journalist Eugene Puryear on what exactly a bailout of the people could look like. ā€œWe can look to the precedent that was set during the COVID-19 pandemic in 2020. Something like the Paycheck Protection Program could be set up by the Federal Reserve,ā€ Puryear said. ā€œIt could also take the form of direct checks to workers who are facing potential disruptions in their income.ā€

Puryear proposed the nationalization of private banks. This way, the banks ā€œcould keep all of the various operations that need to be going, like payroll, [for] any legitimate business that was somehow caughtā€¦in the ructions created by the banks that they chose to do business with.ā€

These solutions, says Puryear, could resolve issues ā€œin the favor of workers and in ways that put the pain most on the investors and the speculators.ā€

However, ultimately, ā€œwhatever we do to address the SVB crisis, we will be doing again and again and again, because it wonā€™t be solving the fundamental problem.ā€

ā€œThe only thing we can really do,ā€ Puryear said, to end the cycle of economic crises and bank bailouts, ā€œis to get rid of capitalism, because thatā€™s where this comes from.ā€