SVB and education
A reporter recently interviewed me about something I tweeted on teacher pensions amidst the recent Silicon Valley Bank banking crisis, and it got me thinking about what this new twist in our rickety capitalist roller coaster all means for education. There are a bunch of takes available out there on the SVB affair, but I haven't seen much on its significance for education.
First some general things about how this crisis happened, how it appears to be resolved, and what that means for education in terms of pensions and beyond.
Never trust moderates
My sense is that the crisis happened because, in 2018, Silicon Valley Bank was able to lobby and create loopholes to the post-2008 Dodd-Frank legislation that was supposed to protect against various ruling class shenanigans. The problems all have to do with insuring deposits and making sure that banks are liquid enough to provide a certain amount of withdrawals if those requests happen to come in. Like, don't mess around with the money so much that you can't fulfill a certain number of your customers' requests. SVB wanted out of that 'restrictive regulation'.
Bernie Sanders and Elizabeth Warren said this would be a huge problem in 2018 and guess what, it is! (BTW, like 17 Democrat senators voted for this loophole along with Trump et al. Never trust moderates.)
As Yakov Feygin writes, the specific problem in this case is about how SVB treated its borrowers as depositors. So it's not the same thing as 2008.
In the case of SVB, the whole thing is peculiar because it was not the loan book that was underperforming but rather that SVB would force their borrowers to be their depositors AND give them warrants on their company's equity to boot. This unpleasant business practice led many firms to pile up huge, FDIC uninsured deposits in SVB that go against normal cash management practices.
As interest rates went up and the spigot of free credit stopped flowing, tech bros started panicking. Then ultra right wing tech grand-bro Peter Thiel apparently told his minions to get their money out of SVB all at once. Since SVB had 'freed' itself from regulations around insuring deposits, it ran out of money in the ensuing bank run.
At this writing on Monday March 20, while everyone thought the crisis was under control after a massive and paradigm-shifting financial tourniquet from the Federal Reserve and Treasury, 166 year old global bank Credit Suisse went under and was acquired by another bank, UBS, under guidance from various governments. The problems in Europe are bad enough that the Fed has made their swap lines daily instead of weekly. It feels like a wack-a-mole crisis, so we'll see where the little chaotic face pops up next.
I do think given the Fed's interest rate hikes, we'll be seeing these flash bang crises in place that were addicted to cheap credit (FTX, Silvergate, now SVB, CS, etc).
To stop the infection in the US, the Federal Reserve and Treasury told all the depositors with accounts at SVB (and then Signature and First National and maybe others) "don't worry sweetie, we'll cover you." Typically FDIC covers $250,000 but these venture capital-addicted tech bros had way more than that in SVB and elsewhere. And things have been so hard for them recently, what with FTX collapsing and crypto falling through, etc, so the Fed and Treasury is comping them for however much they had in the bank, blowing past the $250,000 limit.
Which begs the question...
What I'm seeing now is that, rather than a big system-wide crisis, this flash crisis is more significant for its paradigm shift in US financial policy. The shift is that the government has told us "we've got you no matter what." They'll backstop anything they think is important enough to backstop. Which begs the question: why not backstop more than just ruling class yahoo tech bros? Why don't you think school districts are that important? What about college students buried in student loans?
And that's the big takeaway so far for education. It's a paradigm shift rather than a budget hit. Since the crisis is cauterized off from the rest of the structure I don't think there'll be huge immediate money impacts. If the crisis doesn't reach broader markets then one hopes school districts, funded through property taxes and sales taxes, won't face consequences.
Pensions are a good example. I saw a list of teacher pensions with stakes in SVB and in absolute terms the exposure is low. Of course, in Pennsylvania, a couple percentage points' dip in returns has recently triggered an FBI investigation and bigger contributions from districts, which already have massive amounts of pension debt caused by contribution mandates they can't fulfill with existing revenues sources. So there's good reason to be on edge but I don't see any meteors hitting school finance yet.
In fact, maybe there's hope that the Federal Reserve won't keep jacking up interest rates, which hurts all of us and is a proximate cause of the SVB bank run. If that's what happens (and I saw a report that Goldman Sachs reduced the likelihood of another interest rate hike significantly) then that'll benefit districts when they go sell bonds on Wall Street. It'll lessen the interest rates.
But of course, as socialists we have to keep telling ourselves and everyone else that districts shouldn't have to go to Wall Street to pay for their facilities. They shouldn't be exposed to the ravages wrought by dumb ruling class assholes who try to get around the rules to keep making money they don't need. And the SVB crisis is super significant in this regard.
Let's make it official
Feygin's blog post is worth reading in full because he actually articulates, in the clearest terms I've found yet, the elevator pitch for a new left approach to finance coming out of heterodox economics. Feygin writes that the politics of this crisis are all in the 'bailout' the Federal Reserve and Treasury have provided depositors by blowing past the FDIC insurance amount. This is US social policy at work.
As I like to tell my European counterparts, "America does social policy through investment and industrial policy." This means that the US has a very weak welfare state but is not a small state. The American government is very good at stimulating investment and cleaning up the consequences of bubbles. At its best, this makes the American economy extremely innovative and productive and creates many highly paid jobs and employer-provided benefits. However, at its worst, it leads to lost decades and massive inequality.
Feygin goes on to make the key elevator pitch this way:
This is where my friend Saule Omarova steps in! In her work with Robert Hockett and others, she has noted that the state is vital to the smooth functioning of the private banking system and its support for investment. So, she asks, why not make it official? Instead of an ad hoc bailout of real assets through a private financial system, which tends to be very indirect in its effect, why not have some public entities which can do the work directly?
To use a patriarchal monogamy metaphor, the US government is having an affair with democratic finance. While it's married to an old, abusive neoliberal markets-first ideology--it's husband of forty years--it keeps going out at night and having fun with a young vital form of state capitalism. Feygin, Omarova, Hockett and others are saying: let's make it official. Leave your terrible husband and be happy America! You're already using public finance to save private finance from its drunken and violent ways. Just let it go already.
Of course, it's hard to get out of an abusive relationship, and neoliberalism is the paradigm case. The SVB crisis is significant because the US government has decided to go on a date out in the open with this new state capitalism, where people can see. So maybe she'll leave him? For schools, that could mean everything from student debt cancellation to a national infrastructure bank for school districts to finance their facilities.
As a socialist, to continue with the bad metaphor, I'm against the institution of marriage generally and would rather abolish the family. We need a robust democratic finance where the working class controls the means of production and thus the policies for the distribution of school resources. But that's not happening any time soon, so maybe this is a first step? The Feygin-Omarova-Hocket neo-state capitalism feels like the strongest anti-austerity, pro-labor, and viably American alternative available right now from which other kinds of changes might emerge. And this SVB crisis could be a big step in that direction.
Postscript: woke banking
Another thing I'm noticing is that right wingers are all blaming 'wokeness' for the SVB crash, saying the bank was paying attention to diversity instead of its cash flows. At first this sounds like sheer stupidity, but I think it's important to think about the ideological articulation here in its larger context.
There's a big rift in the capitalist ruling class. The rift has been around for a long time (I'm reading Melinda Cooper's Family Values right now and we might trace it to the split between neoconservatives and neoliberals in the 1970s), but the basic fault line is between global neoliberal capitalists and white Christian nationalist capitalists.
These two fractions are vying for hegemony right now and one of the clearest lines of demarcation in their fight is this concept of wokeness, which I suppose is a kind of milquetoast elite-captured identity politics. To me, it means what Leadbelly meant when he first said it, talking about the Scottsboro boys trial in Alabama in the 1930s. A group of Black men were framed for the rape of a white woman and the Communist Party took up their case when no one else would. Leadbelly was telling his audience to watch out for the larger tendencies of injustice at play in the world, because they're deadly. Today, 'woke' is an unstable signifier.
Anyway, the global neoliberals--based in the coastal cities--have had control for awhile, and it shows in education. But the white Christian nationalists--billionaires based in non-megacity regions--are gaining momentum and we can see what that'll mean for education in all the stuff coming out of places like Florida, Arkansas, Oklahoma, Tennessee, etc: voucher programs, authoritarian exclusion of various constituencies who have benefited from liberation struggles over the last sixty years along sexual, gender, race, ethnic, ability, and other lines when it comes to resources, curriculum, etc.
The SVB crisis is relevant here because, if the white christian nationalists can create an opportunity by characterizing this crisis and its effects as the effects of wokeness, they gain a point in their fight for hegemony as the 2024 elections begin. And they'd certainly be terrible to deal with if they won more ground.