The Host

Today my favorite thing is the explanation of the SVB bank collapse. The most delightful aspect of these explanations are their commitment to opacity. For instance, it is agreed upon by the financial opinion columnists - the same ones who said that SVB was super awesome and will last forever and ever and ever… last week - that there was a failure of regulation, oversight, and a lot of them also believe wokeness is the issue, so, everything makes sense. 

None of these columnists have actually explained what regulations failed, what oversights were the issue, nor what specifically “wokeness” does to destroy banks. The reasons for that are plenty-fold, but in essence, there’s only one reason: to distract from the nature of banking and its inner workings. And to make things so complex and boring that it would be unreasonable to expect someone to learn about it unless they were being paid to do so.

This is an issue on account of well, here we are. The regulations that are spoken of in specific, are done to obfuscate in the service of point scoring. For example, it is oft quoted that Trump fucked up the Obama-era regulations, as well as SVB themselves for lobbying Congress to lessen regulations, as well as that SVB hired a wokeness expert who, I guess, woked all that money away. What regulations though? 

One such regulation is, should a bank have more than 50 billion dollars in assets, it will be subject to more stringent regulations and oversight. This was changed to 250 billion dollars after the executives at SVB paid Congress and Trump. 

A clever eye might spot that, I was told a regulation was weakened, but that regulation… was a different regulation? Like what? Some of these regulations SVB was no longer subject to included, “frequent analyses from 3rd parties” and “More stringent stress tests”. A clever eye might spot that, essentially, these regulations amount to “you can only do this amount of crime”. 

I say this because the way these banks work - all banks work - is crime. What happened with SVB was a failure of the banking system as it is structured. It has no political party nor affiliation. It’s just business, baby. The reason SVB failed is actually fairly simple, that is why every effort is made to complicate it. If we walked around with a complete understanding of the world banking system, we would murder them. Full stop. No mitigation.

Here we go: you deposit money into a bank. This money is now imaginary. The bank takes this imaginary sum of money, equivalent to the total amount of real money that depositors have put in, and they borrow money based upon that amount. With that amount, the bank can be “trusted” to pay the interest the other bank charges on the loan. With the combination of your imaginary money and the borrowed money - money borrowed from other banks - the bank loans money to businesses or/and give it to themselves. The bank charges interest on the money they loan and as long as the amount of real money they receive exceeds the amount of real money they pay in interest to the banks that have loaned them money, the bank is successful. 

The bank, however, doesn’t receive a ton of money in this game. The money the bank does make is the bank’s money, it’s real money. That money is invested in other businesses or “the market”. “Investing” money in the market is gambling that money. For the most part gambling is fine, because as the economy improves, so do your investments. But reasonable investments don’t make that much money. Gambling should be more exciting. The bank starts to gamble and lose. The bank has now borrowed too much money in comparison to the amount of money it is making. In order to cover that money, the bank borrows money from the bank, not the bank’s money, the money you deposited, the imaginary money.

The money still technically exists, but you can see now, that the bank has borrowed money with the promise of being able to pay it back based upon the amount of assets in its control, and then borrowed that money. The bank has borrowed the money twice. This is fine, though, for the most part, because the bank doesn’t pay that money out every day. The bank only pays the money when someone asks for it. So long as you don’t pull your money out when the bank is unprofitable, then your money exists. If you pull your money out when the bank is unprofitable, your money does not exist. 

The fundamental truth of the economy is that money exists in banks so long as no one goes looking for it. 

One thing to note about the double borrowing of money that banks do. By borrowing money that doesn’t exist, when the banks make money, that money is real money made from imaginary money. That is, simply put, printing money. 

Everything everyone has to say about SVB is meaningless. The fundamental problem exists within every bank in the system, that’s it. As our economy is structured, the banks always collapse if/when people go looking for their money. That doesn’t have to happen.

Think of it this way. The “economy” is an organism. Attached to that organism is a parasite. The parasite sucks blood from the organism to sustain itself. If the host is making lots of blood, the parasite is drinking lots of blood. If the host is sick, the parasite doesn’t get as much as it wants. The parasite feels sick.

There are only two ways to go from there, either the host dies or the parasite dies. Unfortunately, the host gave the parasite complete control of the government. Whoops.