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Silicon Valley Bank and Donald Trump

I know. I know. Everyone is talking about the indictment of Donald Trump. For the last two to three years, I’ve complained that I’m extremely tired of talking about and writing about Donald Trump. It is hard to adequately tell you how sick and tired I am of discussing Donald Trump.

Since 2015, he has dominated the headlines like no other person during my lifetime. There have been various celebrities over the last several decades that have dominated headlines—like Madonna, Michael Jackson, the Bee Gees, Taylor Swift, the Beatles—and there have been politicians that have had their time in the spotlight like Spiro Agnew, Richard Nixon, and Ronald Reagan, to name a few. But no one has been constantly in the news like Donald Trump. So, I’m going to start off this month’s column by talking about finance and the Silicon Valley Bank.

Savings-And-Loan

Some readers remember the hundred-billion-dollar bailout of the savings-and-loan industry from the 1980s. Savings and loans used to be the neighborhood bank. They were a place we could put your money, and your money would steadily grow over time. You could get small loans, like a mortgage or car loan, but nothing risky.

Then, in the early 1980s, Congress, in its infinite wisdom, decided to deregulate the savings-and-loan industry. Very quickly many of these S&Ls began investing in highly speculative real estate. At the same time, many of them began using fraudulent lending practices, because there was little or no oversight. They were loaning money to friends with no collateral. They were loaning money to shell corporations that existed only on paper. They were loaning money to politicians to make sure oversight stayed away.

Finally, interest rates began to rise. Many of these savings-and-loan institutions had invested in real estate at a fixed interest rate. As interest rates began to rise, profit margins began to shrink and disappear. In order to rescue this industry we poured billions of dollars into what seemed to be a black hole.

Remember the Keating Five? Five senators— Alan Cranston (D-CA), Dennis DeConcini (D-AZ), John Glenn (D-OH), Donald W. Riegle, Jr. (D-MI) and John McCain (R-AZ)—intervened to keep the Federal Home Loan Bank Board from investigating Lincoln Savings and Loan and its chairman, Charles H. Keating, Jr. When the bank collapsed in 1989, the scandal went public—and Charles Keating went to prison.

Remember this tale. Deregulation. Risky investments. Rising interest rates. Failure. Government rescue.

Silicon Valley Bank

Until about four weeks ago, I suspect none of us had heard of Silicon Valley Bank. Why would we? It’s headquartered in California. It was a regional bank. Yet, it was the 16th largest bank in the country.

The original idea behind Silicon Valley Bank was relatively simple. They wanted to cater to Silicon Valley startups. The bank opened in 1983 (this is somewhat ironic since the savings-and-loan collapse began right around this time). Over the next several years, the bank found its niche in the technology sector. It developed a symbiotic relationship with several of the biggest venture capital groups. Slowly, they began to open branches throughout the country—but strategically located those branches in technology sectors. The bank continued to grow steadily.

In 2017, the Trump administration decided that small and regional banks did not need onerous oversight and regulation. Therefore, these banks were placed under what would one could call light supervision. So, a bank that had assets of less than $200 billion was considered small or regional. Banks would only get increased scrutiny when they had assets of over $200 billion.

This regulatory change allowed Silicon Valley Bank to become top-heavy with risky loans to start-up companies that have a high rate of failure. SVB also had a large number of loans that were unsecured.

One of the final pieces to this complex puzzle was the fact that Silicon Valley Bank had invested heavily in treasury bonds. Treasury bonds are a great investment when interest rates are low. So, Silicon Valley Bank grew rapidly in a two-to-three-year period with little or no oversight—until they reached that $200 billion threshold in late 2021. At that point, regulators were seeing problems in Silicon Valley Bank. Citations were issued, but it appears that they were too late to avoid the disaster that was ahead. Covid hit the world. Inflation started to grip our economy. This was followed by an increase in interest rates. Those treasury bonds switched from being an asset to being a debt. (Do you see the familiar pattern emerging?)

You don’t have to be a Nobel prize-winning economist to predict that interest rates wouldn’t stay low forever. This was predictable. The executives at Silicon Valley Bank were either stupid or reckless, or both. The big unanswered question is how many other banks have taken advantage of these looser regulations and will need to be bailed out in the near future?

By ecthompsonmd|2023-05-03T22:42:08-04:00May 3rd, 2023|Books, Domestic Issues, Economy, Elections|Comments Off

It was nearly 10 years ago when Eric Garner was selling loosies (individual cigarettes) on the streets of New York. Eric Gardner was a man who was barely getting by. He was in poor health. He was morbidly obese. He had been arrested multiple times for minor infractions. He was selling individual cigarettes in order to make money. On this particular street corner, he was actually known as a peacemaker.

On July 17, 2014, Eric Garner, a Black male, had just broken up a fight. The police were called. They saw Eric Gardner. They confronted him with regard to the sale of individual cigarettes. (This is illegal because it is not taxed.) Officer Daniel Pantaleo tried to handcuff Eric Garner. Mr. Gardner resisted. The police officer then wrestled Eric Garner to the ground using an illegal chokehold. Mr. Gardner was allowed to lie on the ground for seven minutes. Motionless. He was completely unresponsive. He was declared dead several minutes later on arrival at the hospital. No one went to jail.

In July 2016, Philando Castile was pulled over by police because he (and his girlfriend, who was also in the car) “look like people that were involved in a robbery.” It was 9 o’clock at night. Maybe, the police officer, Jeronimo Yanez, had x-ray vision. Maybe he had one of those biotic implants that the television character, Steve Austin, had in the hit show the $6 Million Man. In what can only be described as the worst misunderstanding of all time, Yanez asked for Castile’s license and registration. Castile mentions that he has a gun in the car. He reaches for his license and registration. He states that he is not pulling a gun out. Yanez repeats, “Don’t pull it out.” “I’m not pulling it out.” Then Yanez fires seven shots at close range. Mr. Castile is killed on the spot. Although Yanez was indicted, the jury voted to acquit.

Tyre Nichols was a 29-year-old Black man. He was stopped for reckless driving. Exactly what this means is unclear. Without any explanation, you know what happened. Basically, there is a confrontation with Black police officers. Mr. Nichols tries to run away. There is another confrontation in which it appears that all five Black police officers beat Mr. Nichols. Mr. Nichols is declared dead at the hospital hours later. After an investigation, the police officers have been fired. They have also been arrested on multiple felony charges.

A video has been released by the Memphis Police Department. This shows the death of Mr. Nichols. I will not be watching the video. There is nothing in that video that’s going to calm my nerves or change my mind. An unarmed American should not be beaten to death because of reckless driving. It is that simple.

Change, Reform
It has been almost 10 years since the Eric Gardner tragedy. Yet, I’m hard-pressed to think of any major reforms that we’ve seen over the last decade. We’ve had protests. We have had heated rhetoric in State Capitols. At the end of the day, not much has changed.

Many Americans were shocked that Mr. Nichols was beaten and killed by Black officers. While race may play a minor part in many of these tragedies, I believe that the majority of these incidents revolve around respect and authority. The police officer desperately wants to be treated as a respected member of our society. At the same time, the person of color, who is usually a person of color, wants to be treated as an American citizen. How do we fix this problem?

We must recognize that we are all human. I know this sounds corny. It sounds like a cliché. But I don’t think it is. Instead, we must recognize that humans act differently in intense, high-pressure situations. Once our brains perceive that we are in a life-and-death situation, rational thought is shut off. We have now initiated the “fight or flight” response. Neurochemicals are released, which cause us to act differently. We are now in survival mode. In my opinion, this is why these five police officers acted like a pack of animals. (Arthur McDuffie was a Black man and ex-marine who was pulled over for speeding. He led the police on a high-speed chase. When he was caught, he was beaten to death by four police officers. This occurred in 1979!) This is why officer Yanez shot an unarmed man. As soon as he heard there was a gun in the car, he perceived a serious threat. His ability to rationally take in stimuli, verbal stimuli, was gone. So, the answer to this puzzle is to avoid putting police officers in these positions where they think they are in mortal danger. Allow them to retreat to their police cars and call for backup. As they’re waiting for backup to arrive, the immediate threat lessens. Their blood pressure and pulse will slowly return to normal. Their ability to think rationally will return. Police officers must be better trained to de-escalate situations.

These “elite” police squads are a huge red flag to me. On TV, these police officers always make the right decisions. They never go over the line unless it is absolutely necessary to apprehend the bad guy. These squads have been the source of intimidation, fear, abuse, and lawlessness in the real world. In Detroit, in the 70s, there was an elite squad that was given leeway to clean up crime. They abused citizens, and they planted evidence. Their low point was when they raided a “drug deal.” The drug deal turned out to be a card game between off-duty Black police officers. Several officers were shot. One was killed. This squad was disbanded. There are examples of these squads across the country – from LA to New York to Memphis. Memphis had its own elite unit called SCORPION, from which all 5 police officers were members. All of these elite units end the same way, with mixed results in combating crime but a clear history of abuse and killing American citizens at an alarming rate.

But we know this. Right!?!? We know that if you give humans control of another group of humans without oversight, abuse will occur. In a simple psychological experiment performed at Sanford in the early 1970s, volunteers were randomly assigned to be prisoners or guards. Within days, the guards were treating the jailed as lessors. The experiment was stopped on day 6 because the guards were inflicting extraordinary abuse on these prisoners. The lesson from this experiment is that we as human beings can be cruel and inhuman if we are not given supervision. Now, let’s give a group of police officers – super status. District attorneys and judges will look the other way just as long as these super cops are getting results. This is not a formula for community trust. It is a formula for disaster.

By ecthompsonmd|2023-03-21T12:43:37-04:00March 21st, 2023|Civil Rights, Legal, Race|Comments Off

Happy holidays to everyone! I hope everybody survived. I hope that tons of snow (Buffalo, New York), bitterly cold wind chills, and subzero temperatures didn’t freeze out your holiday spirit.

Just before Christmas, a large cold front moved across the country. It brought severe winter weather to most of the country. Besides the freezing cold temperatures, wind gusts in the 40- to 50-miles-per-hour range made this a severe winter storm. On December 23, as winter storm Elliott hit the Midwest, over 4,500 flights were canceled. With Christmas just around the corner, this was disastrous for holiday plans. Over the next two days, Americans seemed to figure out how to get where they were going.

Unfortunately, that’s not true. Tens of thousands of Americans were stuck. They had no way to get to where they needed to go. While major air carriers like American Airlines, Delta Air Lines, and United Airlines managed to get their planes back on schedule relatively quickly, Southwest Airlines continued to struggle. A week later, Southwest Airlines continued to cancel more than 2,500 flights a day. Passengers were stranded hundreds of miles from home. Southwest had no answers for them. Why? Why was Southwest Airlines so out of step?

Let’s remember that we, the taxpayers, bailed out Southwest Airlines early in the pandemic. We handed them over $7 billion. Billion. This was done to prevent massive layoffs in the travel industry, which would have crippled our economy. So, I think that we should be able to ask Southwest for some customer service for our money.

A failed business model

Some of the problems lie in Southwest Airlines’ business model. Major air carriers like American Airlines, Delta Air Lines, and United Airlines use a hub and spoke model for their flights. For example, American Airlines has five or six major hubs throughout the United States. To get almost anywhere on American Airlines, you need to go through one of those hubs to connect to a remote location. For example, if you wanted to fly from Asheville, North Carolina, to Miami Beach, you have to fly into Charlotte, a major hub for American Airlines.

Southwest Airlines is different. They have a point-to-point model. For example, you can fly on Southwest Airlines from Oklahoma City directly to Phoenix. If you are flying on a major airline like American, to get to Phoenix, you would have to fly from Oklahoma City to Dallas (a major hub) and then Dallas to Phoenix. So, besides the cheaper fares, you also save time at the airport with Southwest.

The point-to-point model works great until you have a major weather event like winter storm Elliott. Now you have airplanes scattered all throughout the country, but they’re not in the right location at the right time. This makes logistics extremely difficult. One would figure that Southwest Airlines would have a sophisticated employee tracking system. This system would tell them where their pilots are as well as where their stewardesses (flight host/hostess) are located.

Unfortunately, they don’t. Southwest pilots have been sitting in airports waiting on assignments right beside angry passengers waiting on planes. To get this complicated system back online, Southwest Airlines must cancel thousands of flights to get their airplanes, pilots, and crew back in the right locations. It is still unclear to me why it takes nearly 10 days to make this happen. This is a huge failure of big business. The next time someone tells you about how great business is at efficient use of resources, point to Southwest Airlines.

By ecthompsonmd|2023-03-21T12:25:16-04:00March 21st, 2023|Business, Congress, Party Politics|Comments Off