Not Too Big to Fail
by Not Sure
March 12, 2023
What follows is a fictional account of a true story, perhaps more accurate in the details than I suspect. All prices, costs and values supplied are pinned to the currency index for the U.S. dollar in the year 2023. In the conceit of Forrest Gump, I am inserting myself into this fairy tale as the mistress of a powerful man.
It’s July, but here in New Hampshire, the temperature is not too hot and the humidity not too high. All the outfits I packed are really cute. Everyone says I’m a dish, and I know it too, but it pays to preen and with Sugar Daddy it’s pennies from heaven. We’ll be here three weeks, so I brought three steamer trunks. I’m hot to trot with a different swimsuit for all twenty-one days and a morning skirt and an afternoon dress for every day! I know trousers are everywhere these days but Sugar Daddy likes me in skirts and I do too. Just yesterday, someone said, “Look at the landing gear on that dame!” Funny!
Sugar Daddy showed me the dinner menu a little while ago. He’s Meat & Potatoes so prime rib for him ($60.) I will have the shrimp cocktail ($18) and the braised lamb shank ($46) and maybe some peach melba ($13). Oh! I will start with two gin martinis ($15 each,) but I never have more than two because I don’t like to get sloppy. Nobody likes a sauced dame! “And watch the slang,” Sugar Daddy always says. To which I reply, “Yes, dear,” as if anyone thinks he keeps me around for my mind!
I think that I should spend as much time as I can poolside or in the lounge, because that’s where people will see me, right? But Sugar says I need to be at the spa every single day because that’s where the wives and girlfriends will be. “Ears open,” Sugar said, “and report everything you hear.”
Oh well! There’s lots to do at the spa. I can have the Ultimate Journey massage for $380 or the Botanical Facial for $340, a manicure for $80 and a pedicure for $115. That gives me an idea! I could change my polish every day to match my outfits! Except old fuddy-duddy just likes red. Red, red, red. Oh well, there are probably enough different facials and body wraps and massages to last three weeks.
This hotel is enormous. It’s called The Mount Washington Hotel at Bretton Woods but it’s in a town called Carroll, if you can call it town. I guess the Bretton Woods part of the name is because everyone comes here to ski in the wintertime. You won’t catch me on skis, except maybe water skis. Why cover up my famous landing gear with a silly pair of ski pants?
According to Wiki, “The Bretton Woods Conference, formally known as the United Nations Monetary and Financial Conference, was the gathering of 730 delegates from all 44 allied nations at the Mount Washington Hotel, situated in Bretton Woods, New Hampshire, United States, to regulate the international monetary and financial order after the conclusion of World War II. The conference was held from July 1 to 22, 1944. Agreements were signed that, after legislative ratification by member governments, established the International Bank for Reconstruction and Development (IBRD, later part of the World Bank group) and the International Monetary Fund (IMF). This led to what was called the Bretton Woods system for international commercial and financial relations.”
The conference was held well in advance of the conclusion of World War II, but the explanation was that there needed to be a mechanism in place to avoid the serious problems that occurred after World War I as the gold standard was abandoned in 1932, the “Great Depression” was followed by trade wars and the depression spread globally.
The outcome of the conference was the creation of the IMF to promote exchange rate stability with the exchange rates tied to gold. States agreed to cooperate to maintain a fixed exchange rate. This was the foundation of free trade.
Philosopher and economist John Maynard Keynes was the major player in the Bretton Woods Conference, along with the American Harry Dexter White of the U.S. Treasury Department. White is often labeled a Communist and he would be accused of espionage before his death in 1948. Cryptographers of the Venona project identified White under several different code names, and it is commonly acknowledge that he “almost certainly, and over many years, gave confidential and classified U.S. government information–in original, transcribed, and oral form–to individuals whom he knew would ultimately transmit it to the Soviet government ... Yet the economics White advocated were hardly Marxist. They were by this time what would be described as thoroughly Keynesian …” (Benn Steil, American economist and writer.)
It is still debated whether Keynes was a socialist or simply a radical theorist. Keynes encouraged debt financing (when you borrow money to run your business, rather than raise money from investors which is “equity financing”,) excess consumption and progressive taxation over balanced budgets, saving, and low taxes. His critics saw his theory as an attack to the principles of economic freedom. Government deficit spending was identified by Keynes as a necessary economic tool. Whether or not Keynes was a socialist, the destructive trajectory of deficit spending should be clearly apparent.
U.S. President Franklin Delano Roosevelt appointed Secretary of the U.S. Treasury Henry Morgenthau as president of the Bretton Woods Conference. Morgenthau was the architect of FDR’s New Deal, and a major shaper of policy foreign policy, especially with Lend-Lease, support of China and his “Morgenthau Plan” to deindustrialize Germany following WWII.
For all the handwringing about the dangers of currencies not pegged to gold, the still recent horror stories from a global depression, set against a world war still raging, the key idea driving the Bretton Woods Conference was the notion of open markets. In his closing remarks at the conference, Morgenthau stated that the establishment of the IMF and the IBRD marked the end of economic nationalism. This meant countries would maintain their national interest, but trade blocs and economic spheres of influence would no longer be their means. Without “economic nationalism” how do you remain a nation? Bretton Woods may have signalled the end of economic nationalism, but it was the beginning of grotesque and ongoing government interventions.
Nobody likes to come clean on the U.S. national debt. Is it approximately $21 trillion or $31.6 trillion and climbing? It depends on which source you choose to cite.
There’ve been a few papers written and meetings touted as “Bretton Woods II” and following the economic meltdown (or takedown) of 2007-2008, in November of 2008, a new conference was called together under that name. Nothing has been launched into policy in quite the way the outcomes of the first Bretton Woods “System” were. 2008 saw bailouts. Millions lost their homes and their livelihoods, but most banks survived and even benefited with individual bankers still pocketing big bonuses. A few institutions received “haircuts.” Some nations suffered more than others (see Greece,) from the austerity measures. Alan Watt often gave us the real definition of the word “austerity.” POVERTY.
Another term that slinked into the backdoor of financial nomenclature, soon to be trumpeted loudly when the time is right is the idea of “bail-ins.” In a bail-in, a bank or other institution's creditors must write off a portion of its debts to save it from insolvency. An example is the rescue deal for the biggest banks in Cyprus in 2013, which required shareholders and creditors to take on some of the costs of an institution’s failure.
It’s official when Wikipedia makes a special event entry:
Collapse of Silicon Valley Bank
SVB collapsed last week after a bank run, making for the largest bank failure since 2008 and the second-largest bank failure in U.S. history. On the morning of Friday, March 10, examiners from the U.S. Federal Reserve and the Federal Deposit Insurance Corporation arrived at SVB headquarters to assess the company’s finances. Hours later an order was issued for the FDIC to take possession of SVB.
Every talking head on television and the internet is dissecting this failure, pointing fingers and verbalizing “what needs to happen.” U.S. Secretary of the Treasury Janet Yellen has ruled out bailing out SVB to “avoid contagion,” but we must rest assured that regulators are racing against the clock and some sort of plan to deal with SVB will be in place before market’s open on Monday, March 13.
Last week a smaller bank focused on crypto, Silvergate Bank, also failed. Its collapse might not be felt as widely as SVB’s where the pain is already felt by companies such as Etsy, Roku, Circle and Vox Media.
Let’s not jump on the prediction bandwagon, but with high interest rates, recession and the constant chant for Central Bank Digital Currency (CBDC) it would seem this is just the beginning of sorrows.
Just hours before SVB collapsed, its employees were paid their annual bonuses from 2022. This was evidently business as usual as their annual bonuses have historically been paid on the second Friday of March each year. Whew! Just in the nick of time!
© Not Sure
Investors implore the government to step in after Silicon Valley Bank failure
As banks topple, regulators face reckoning on week of mayhem
Silicon Valley Bank failure having worldwide repercussions
Silicon Valley Bank employees received annual bonuses hours before government takeover
Etsy Struggles To Pay Sellers After Collapse Of Silicon Valley Bank
SXSW may be in Texas, but Silicon Valley Bank's implosion is casting an uneasy cloud over the tech festival
Elon Musk May Buy Failed Silicon Valley Bank
Venture capitalists are blaming each other for triggering the disastrous collapse of Silicon Valley Bank