Populist Fury Grips Congress in Echo of 2008’s Bailout Backlash

Populists on both sides of the partisan divide in Washington can agree on one thing: They don’t like last weekend’s rescue of Silicon Valley Bank depositors and want to prevent anything like it from happening again.

(Bloomberg) — Populists on both sides of the partisan divide in Washington can agree on one thing: They don’t like last weekend’s rescue of Silicon Valley Bank depositors and want to prevent anything like it from happening again.

Republicans and Democrats differ on exactly how the US government should respond to the failure of three regional US banks and to the prospect of further financial industry turmoil fueled by troubles at Zurich-based Credit Suisse Group AG. If the contagion spreads, the backlash suggests strong resistance in Congress to any further intervention. 

The resentment is reminiscent of the public fury over the 2008 bank bailout that contributed to the rise of the Tea Party and the Republican turn toward populism, as well as the left-wing Occupy Wall Street movement.

The unity among populist lawmakers is unlikely to produce much lawmaking this time around, with Democrats calling for stricter regulations while Republicans denounce “woke” banking and technology billionaires whose rescue they argue comes at the expense of banks in their communities.

“Banks in Oklahoma in rural towns are about to pay a special fee to be able to bail out millionaires in San Francisco,” said Senator Jim Lankford, an Oklahoma Republican. 

Few recent government actions have been as persistently unpopular as the 2008 bailout, which even two years after the fact was so despised that congressional campaigns spent at least $50 million on attack ads criticizing the policy. 

“The main thing you want is to make sure that ordinary working people are not going to bail out large banks,” Senator Bernie Sanders, a two-time Democratic presidential candidate and leading voice in the party’s progressive wing, said. 

The political wounds Democrats suffered after the 2008 bailout may be one reason President Joe Biden, who experienced it first-hand as Barack Obama’s vice president, went to great lengths Monday to argue no taxpayer funds would be used to make whole uninsured depositors at Silicon Valley Bank and Signature Bank, a failed institution that catered to crypto clients.  

To a president accountable to voters in less than 20 months, the threat of cascading bank runs spreading economic ruin may be the graver risk. But Biden channeled public anger over the debacle and promised that executives responsible would be held accountable.

The Justice Department and the Securities and Exchange Commission moved quickly to open examinations of the bank’s collapse for possible misconduct by officers, including whether stock sales by executives violated trading rules, according to a person familiar with the matter.

Senator Elizabeth Warren, a Massachusetts Democrat, introduced legislation Tuesday to reverse a Donald Trump-backed 2018 banking deregulation law whose most vocal supporters included Silicon Valley Bank’s chief executive officer, Greg Becker.

“We need to change the regulations, and we need to do it fast,” Warren said. “Give these bankers the opportunity and they will pump up their profits, reward themselves and then be shocked, shocked when the banks collapse.”

Sanders joined in the push to restore regulatory measures such as stress tests on large regional banks such as SVB.

Representative Adam Schiff, a California Democrat running for Senate, sought to put his own stamp on the issue with legislation to claw back executive pay at failed banks. 

Several Democrats cast Republicans as being too tied to the bank lobby, while Republicans scoffed at Biden’s attempts to avoid the “bailout” label for the rescue package, which will be paid for through the government-backed Federal Deposit Insurance Corp. and fees the insurance fund levies on bank deposits. 

“You can pretty it up any way you want to, and you can put perfume on a pig, but it still smells like a pig. This was a bailout,” said Senator John Kennedy, a Louisiana Republican. 

Kennedy was first elected to Senate in 2016 after a populist campaign arguing middle- and working-class constituents were being squeezed by “bailouts” for the rich and “handouts” to the poor.

“Apparently it’s still the case today,” Kennedy said. “And I still don’t think it’s fair.”

Normally, the FDIC only insures deposits up to $250,000 but the cap was waived for SVB and Signature Bank. Favorable emergency loans to help other banks survive surges in withdrawals will come from the Federal Reserve.

“The Biden administration’s figured out a way to get a federal bailout without asking us to vote on it, which is ridiculous,” said Senator Josh Hawley, a Missouri Republican, who promised to introduce legislation block new FDIC assessments on bank deposits to make up the insurance fund balance.

Bankers have been villainized by populists throughout American history, going back to Andrew Jackson’s campaign against the Second Bank of the United States in the 1830s and William Jennings Bryan’s prairie populism of the late 19th and early 20th centuries.  

The role of Silicon Valley in this financial crisis adds to the cast of scoundrels tech titans, whose reputations have already slid in American culture. Their industry is no longer epitomized by Steve Jobs’s popular Apple iPhone but instead by Elizabeth Holmes’ fraudulent Theranos medical tests and social media misinformation.

Some Republican political figures also tried to connect the bank failure to the party’s cultural campaign against diversity initiatives and efforts to combat climate change, focusing on SVB’s efforts to market its inclusive board membership and financing of tech companies working on products to reduce greenhouse gas emissions.

House Oversight Committee Chairman James Comer, a Kentucky Republican, criticized SVB as “one of the most woke banks” in the country.

–With assistance from Erik Wasson.

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