SVB, Signature banks bailed out. Student Loan Forgiveness in limbo. Food Stamps Cut.

Peace Advocate April 2023

Photo: Anna Gyorgy/ Traprock
Raging Grannies perform at Tax Day, April 15, 2023, Greenfield. Photo: Anna Gyorgy/ Traprock

By Jeanne Trubek

Who gets bailed out in a financial crisis? Average citizens? Big banks and the corporations whose money they hold?

When Silicon Valley Bank and Signature Bank – institutions that catered to the tech and cryptocurrency industries – failed in March, the U.S. government took less than a week to decide all their deposits would be protected, no matter how large. This decision means that those who chose to put more than $250,000 in an account, exceeding the maximum guaranteed by the Federal Deposit Insurance Corporation (FDIC), will be protected. The lucky beneficiaries of this largess are companies, not families. The costs of guaranteeing these deposits will be over $175 billion. We are being reassured that this action is not a bailout – the money is coming from the FDIC, not the taxpayers.

Don’t be deceived: ultimately the rescue funds come from taxpayers. The FDIC will have to raise its fees on banks that will then have to raise their fees and lower the interest rates they pay to savers. The only ones to benefit here are the banks and the companies that keep large amounts of money in them. “It definitely is a bailout, and the idea it’s not going to impact taxpayers is technically correct but economically vapid,” says David Sacco, a practitioner in residence of finance at the University of New Haven’s Pompea College of Business. The bank fees tapped to cover the SVB and Signature deposits will raise those institutions’ costs and will affect customers in the form of “higher fees on people’s bank accounts, lower interest rates or lower service,” he says. “They’re arguing semantics. It’s a consumer-funded bailout.”

And while Sacco says he is not in favor of student loan forgiveness, he believes those borrowers have a point when they say they are being treated differently.

“It’s reasonable to say, ‘You’re bailing out one group that made bad choices – tech company depositors who happen to be huge donors to the political system – and you’re not bailing out ordinary citizens who made bad decisions,”’ he says.

At the same time that the country says it has the money needed to save these banks and companies, the roughly 40 million Americans who have been waiting for student loan forgiveness continue to wait and worry about whether they will eventually get a reprieve. After SVB’s collapse, former Treasury Secretary Larry Summers said that “what is absolutely imperative is that, however (the bank run) gets resolved, depositors be paid back and paid back in full.” But Summers has been far less enthusiastic about student loan forgiveness, tweeting that it could accelerate inflation and strip resources from people who are more in need.

What is happening to the ordinary individuals who are in need? On March 1, tens of millions of low-income families lost additional food stamp benefits after the expiration of a pandemic-era policy that had increased the amount they received. That expiration left food banks bracing for a surge in demand and some advocates predicting a rise in hunger nationwide. “This is a cost shift from the federal government,” said Ellen Vollinger, the SNAP director at the nonprofit Food Research & Action Center. “It just shifts the burden of hunger onto states and counties, to the charitable sector, but of course, most harshly, it shifts the burden to that household to try to make do with even less.” Those who qualify for the minimum benefit under the standard income guidelines — many of whom are older Americans relying on Social Security — will see the steepest decrease in benefits, from $281 monthly to only $23, according to Ms. Vollinger.

A huge double standard?

Our government’s priorities are clear. There are billions of dollars available for bailing out banks and industries, and for spending on the military, but as soon as a proposal is made for helping citizens – education, healthcare, food assistance, even improving infrastructure, cleaning up the air, and fighting climate change – the response is “We can’t afford that”. While federal officials decided over a weekend to bypass a rule limiting how much money regulators would insure, “we’ve been making calls for student debt cancellation for a decade,” says Braxton Brewington, spokesperson for the Debt Collective, a union of debtors that wants to see public needs like health care and education become free.

Some economists and lawmakers say other financial burdens like health care and housing have also not received the same type of emergency response, despite the toll those debts take on many Americans. “In America, if you’re a wealthy vulture capitalist with over $250,000 in uninsured deposits at a loosely regulated bank, the federal government will guarantee that your money is safe in a weekend,” tweeted Sen. Bernie Sanders, I-Vt. “If you have no health insurance and get cancer, you’re on your own. Unacceptable.”

Between 2007 and 2011, one fourth of American families lost at least 75 percent of their wealth, and more than half of all families lost at least 25 percent of their wealth. More than 8 million families lost their homes due to the collapse of the housing market and the value of homes. Although the banks that lost money were bailed out by the government, the citizens who lost their homes and their savings were not. Once again we are seeing for whom the government works.

Fed Chairman Jerome Powell has said there will be a review of what caused the recent banking collapses. “The question we were asking ourselves over that first week was, ‘How did this happen?'” Powell said to reporters.

When that review takes place, some questions will probably not be on the agenda, like who exactly is deemed too big to fail, whose voices matter, and why. Those questions may not come up. But they should. Let’s raise them.

Jeanne Trubek is Emmanuel College Associate Professor of Mathematics, emeritus and has been a volunteer at Massachusetts Peace Action since January 2017