If the rich customers of Silicon Valley Bank deserve to be protected from economic hardship by the government, what about the rest of us?

by Nathan J. Robinson, Current Affairs

Silicon Valley Bank collapsed in the second-largest bank failure in U.S. history. The federal government has acted swiftly to try to keep other banks from suffering bank runs, with the Federal Deposit Insurance Corporation (FDIC) assuring SVB depositors that their money is safe. Ordinarily the FDIC only insures deposits up to $250,000, but in this case it has promised that all of the money in SVB accounts will be available to the bank’s customers, no matter how much the government has to pay.

Silicon Valley Bank was widely used, as you might expect, by tech industry startups (as well as a bunch of California winegrowers), and startup types are not generally known for their belief in generous government handouts to those screwed by the free market. But libertarians quickly become socialists when they’re the ones who end up on the losing end of one of capitalism’s frequent crises. Billionaire Mark Cuban swiftly went from denouncing regulators to asking “Where were the regulators?” Tech industry leaders immediately started calling for the FDIC to ditch its $250,000 cap on guaranteed deposits and guarantee everything including the nearly $500 million that Roku held at SVB. Venture capitalist David Sacks said it was unfair for depositors to be punished for opening a bank account at an institution that failed, and that he wasn’t asking for a bailout but merely for the government to “ensure the integrity of the system.” CNBC reported on those noting “the irony as some VCs with notoriously libertarian free-market attitudes are now calling for a bailout.” (At Slate, Edward Ongweso Jr. has more on the “tantrum” thrown by venture capitalists who demanded that the government step in when SVB went under.)

Smartphone with SVB (Silicone Valley Bank) logo, on background of FDIC (Federal Deposit Insurance Corporation) symbol. Silicon Valley Bank collapse and taken into receivership by the FDIC.

One of those notorious for his “free-market attitudes” is Larry Summers, the former Clinton treasury secretary and Jeffrey Epstein associate. Summers has previously had harsh words for those advocating a bailout for underwater student loan debtors. But when it came to Silicon Valley Bank, Summers said that the government should step in and “this is not the time for moral hazard lectures or for lesson administering or for alarm about the political consequences of ‘bailouts.’”

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