BY JEFFREY SONNENFELD AND STEVEN TIAN
ECONOMY
The collapse of Silicon Valley Bank and the Biden Administration’s unprecedented response, guaranteeing deposits and backstopping regional banks, has catalyzed an important and necessary national conversation over what went wrong, and what can be done to prevent future crises.
But SVB’s fall has also set off a frenzy of mythmaking, ranging from ideological clichés to hyperbole.
INSIDE
ISRAEL FACES A GROWING POLITICAL CRISIS WHAT THE OMICRON WAVE MEANS FOR LONG COVID A CHRISTIAN REVIVAL AND A SENSE OF COMMUNITY
These fact-free myths dangerously confuse the general public. Even more important, they obfuscate some of the genuine underlying drivers of SVB’s collapse.
False narrative No. 1: Ideological opportunism: The fallout from SVB’s collapse is much more of a political problem than it is an economic problem—and it is being driven by the politics of the left and the right.
Sadly, flagrant, clichéd ideological opportunism cuts across both sides of the aisle. On the far right, extremist, self-styled antiwoke warriors such as Vivek Ramaswamy and Josh Hawley are absurdly blaming “ESG” and “wokeism” for the demise of SVB. Their use of this politicized rhetoric is equivalent to somebody blaming their weight-loss program when they have to replace a tire on the car—it is just completely irrelevant. Likewise, on the left, progressive voices have rushed to blame greedy fat-cat corporate cronies and pointed the finger at lax regulation by government entities at the supposed beck and call of their corporate overlords. Frankly, even if SVB had been subject to stronger liquidity and capital requirements, it is hard to imagine what regulations could have abated SVB’s most foundational challenges, which are practically universal to all banks—an asset-liability duration mismatch and higher interest rates eroding the value of their securities. These are not challenges that can be regulated away, lest credit creation come to a complete stop.
False narrative No. 2: Hysterical hyperbole: Several financial-industry voices are wildly distorting President Biden’s necessary emergency measures, which were designed to prevent spreading contagion from taking down even more banks and to make innocent depositors whole. While these emergency measures will have far-reaching and long-lasting consequences, there is zero intention to fundamentally transform the banking industry into a regulated utility or to permanently destroy all prospects of shareholder value creation. The overextrapolation of a set of interim emergency measures fosters more confus
