Economist Stephen Moore, a co-founder of the Club for Growth and former adviser to President Donald Trump, said the reason the Silicon Valley Bank (SVB) collapsed is because of the "massive inflation" fueled by the Biden administration's spending and the "trillions and trillions of dollars of borrowing that the federal government has done."
Moore made his remarks on the Fox News Channel, March 13, hosted by Harris Faulkner.
When asked what went wrong with SVB in California and Signature Bank in New York, Moore replied, "By the way, I agree with the president that we don't have an overall banking crisis. The system is sound. But I do think you have a lot of major banks that are in some trouble. And SVB, the Silicon Valley Bank, may just be the tip of the iceberg here."
“And I think it's important for people to understand how this potential banking crisis happened," said Moore. "It's not because there aren't enough bank regulators, as Biden is trying to say. It's because of the massive inflation and the trillions and trillions of dollars of borrowing that the federal government has done that has put our financial system in great jeopardy and great peril."
“You can't just keep doing this month after month after month, year after year, borrowing trillions and trillions of dollars," he added.
"And so what happened, because of the Biden spending and debt policies, is that not only did inflation go up, but interest rates have gone up," said Moore. "Harris, as you know, the Fed has had to raise interest rates eight or nine times, and they're talking about more interest rate increases to come. And that's caused a lot of financial problems for these big banks as the interest rates go up.”
The problems arose because SVB had purchased a lot of long-term government bonds, "mostly federal agency mortgage-backed securities," when the interest rates were very low, reported Barrons. But the Federal Reserve raised the interest rates (several times), which caused the value of the long-term bonds held by SVB to decline.
It's hard to sell a longer term treasury bond paying 2% interest, for instance, when the current rate on shorter-term bonds is 4%-6%. The bank may have to sell them at a loss, which is what SVB did -- in that sale, last week, the bank lost $1.8 billion, which spooked investors.
As explained by Peter Schiff, chief economist and global strategist at Euro Pacific Capital, "The plan was to sell the longer-term, lower-interest-rate bonds and reinvest the money into shorter-duration bonds with a higher yield. Instead, the sale dented the bank’s balance sheet and caused worried depositors to pull funds out of the bank."
"As the Fed jacked up interest rates to fight price inflation, it decimated the bond market," said Schiff. "Bond prices and interest rates are inversely correlated. As interest rates rise, bond prices fall."
Moore also criticized SVB for following a "woke" investment agenda, or ESG, Environmental, Social, and Governance investing.
“About $5 billion in depositors’ money [at SVB] went into these green energy programs that have no return," said Moore. "We know that these ESG funds over the last couple of years have severely underperformed the markets."
"Biden now wants to basically require a lot of banks and investment companies to do ESG investing and divest from oil companies," Moore added. "By the way, last year, the top returning in stocks were the energy companies that Biden wants these funds to divest from."
"There’s no question that this ‘woke’ investing had a very negative effect on the bottom line of SVB," said Moore.