'Shark Tank' Judge 'Mr. Wonderful' Reveals How Biden's Bank Collapse Response Ensures Things 'Will Never Go Back to Normal'
The federal government’s weekend decision to protect Silicon Valley Bank depositors with accounts over the FDIC’s $250,000 threshold has become a hot topic of debate. Those who support the move believe the depositors would have lost money through no fault of their own while others argue they should have diversified their capital across many banks and done a little due diligence while they were at it.
Regardless of which side one takes, the government’s intervention didn’t take place in a vacuum and it will have massive ripple effects and unintended consequences for years to come.
Ahead of President Joe Biden’s comments to reassure Americans on the soundness of the U.S. banking system on Monday, Kevin O’Leary, a judge on ABC’s “Shark Tank” and the chairman of O’Leary Ventures, weighed in on the debate with CNN.
O’Leary vehemently opposes the decision and claimed it triggered a paradigm shift in the market. He said it ensures that things “will never go back to normal.”
“What effectively happened over the weekend is that he [Biden] nationalized the American banking system,” O’Leary told CNN. “It’s no longer a risk. It’s no longer private in any sense. It is now backstopped by the government. Ultimately the taxpayer.”
He blamed the collapse of Silicon Valley Bank on its “negligent board of directors and idiot management” and called it a “very powerful cocktail” that “completely wiped out that bank.”
He emphasized, “And that’s what should have happened.”
O’Leary pointed out that depositors with accounts over $250,000 were “generally business accounts or sophisticated investors.” He mentioned that a rule of thumb in his industry is never to put more than 20 percent of your liquid assets in “one financial institution because you never know where the Black Swan is swimming.”
“Now, you have no risk in any bank at any time, and you as a taxpayer bear that [risk] going forward.”
Asked if “things are going to go back to normal,” O’Leary replied, “No, they’ll never go back to normal.”
Speculating on what Biden was likely thinking, O’Leary said, “‘Look, I can’t take this risk anymore. I’m just going to nationalize the whole thing.’ And that’s the way we should look at banking going forward. Nothing more than highly regulated utilities. And that has profound impacts for you as an investor.”
He discouraged future investment in any bank-issued securities, either equity or bonds.
CNN co-anchor Poppy Harlow stopped her guest to make the point that small and medium sized banks were subject to more lax requirements than larger banks and noted that the “big guys [stock prices] closed up on Friday and there’s a flight to safety, to JPMorgan, to Citigroup, etc.”
O’Leary said, “You should not assume that just because they’re big, they can’t fail. Managers makes mistakes.”
Harlow pushed back, “But they are held to stress test requirements, higher capital and liquidity requirements because of Dodd-Frank. That didn’t get diminished for those big ones.”
O’Leary shot back, “And you should assume that stage is going to be lifted even higher on them. So they’re going to be even more regulated as they become more concentrated and far less profitable. That’s my point. This really does make you think about owning bank stocks long term. I think they’ll be underperforming the index for decades to come.”
“It was a good idea to de-risk $250,000 and make more sophisticated investors think about their behavior and how they should put their capital to work. Get diversity. You don’t have to do that anymore, according to what the president is going to say. You have zero risk and that has consequences,” O’Leary said.
“There’s no such thing as a free lunch, and this is going to be very expensive for shareholders of banks long term. I would never put my money into a bank stock ever again.”
Although Biden officials may have believed their quick action over the weekend and Biden’s reassuring words may have been enough to stave off a banking crisis, the reality may be far different. Whether they were right or wrong to make depositors whole, the government interfered in the free flow of capital in the U.S. economy. They took risk out of the equation. And O’Leary is right that things will never be normal again.
There is also no indication that the panic is over. Shares of Credit Suisse dived on Wednesday morning after the chairman of the Saudi National Bank, the bank’s largest shareholder, said his company “won’t provide further financial support,” according to CNBC.
Fear (which had never really left) quickly returned to the market. Though off its lows, the Dow tumbled over 500 points on this news. The S&P and the Nasdaq fell over 2 percent after the Credit Suisse news, but have since gained ground.
As Warren Buffet famously said, “Only when the tide goes out do you learn who has been swimming naked.” Last week, that turned out to be the Silicon Valley Bank. There will be others.
The SVB collapse is explained in detail in an exclusive report for The Western Journal’s subscribers: “The Everyman’s Guide to SVB’s Fall.” Consider subscribing to The Western Journal to read content like this and to help combat Big Tech’s attempts to demonetize us.
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