The News: Hostage Crisis

Wednesday's Child Is Full of Woe

I don’t know much about the inner workings of banking and financial capitalism, so I’m not going to pretend to be an instant expert in that respect about this week’s news.

But I do understand something about social hierarchy, inequality, and political power. Which is most of what I think is important in the story of Silicon Valley Bank’s collapse and the subsequent move by the federal government towards a limited bailout. In fact, I think treating this story as something primarily requiring a technical explanation is a mistake. So is reducing it to a kind of cyclical event that is primarily structural, that sees speculative bubbles as some form of “economic normal”.

What has happened in the last forty years in the United States is a version of “state capture”. The upper reaches of the socioeconomic hierarchy—including professors with 401k retirement funds working for colleges and universities with large endowments—now have their current and future incomes tied to returns from a speculative investment economy. Corporate leaders shifted a long time ago to thinking that the share price was more important than the balance sheet, if for no other reason that their own compensation and wealth were produced through the share price rather than as a direct payment out of an operating budget. And in the last decade, shareholder capitalism has increasingly given way to hedge-fund capitalism—to a high-level coordination of ownership and speculation that can either supercede the authority of the state or command its actions because of its dominant position and because of the dependency of shareholder rentiers on an investment environment where returns always increase.

Governments at all levels ignore failures in local economies. Not just mom-and-pop stores on Main Street, but in hospitals, universities, mid-sized factories, big box stores, everything. No political leaders in Delaware County Pennsylvania seemed to care when the major health system in the county was acquired by for-profit operators and basically burned to the ground. They only noticed after the damage had been done, and they responded mostly with expressions of helplessness. It isn’t just leaders, it’s communities themselves. Small-town and rural Americans skew strongly to a political party that is especially determined to destroy higher education despite the fact that universities and colleges are important local employers and important suppliers of human capital in those communities. We hurt ourselves a fair amount of the time, or at least don’t recognize where our interests lie.

The coordinating body that supposedly steers the fiscal policy of the federal government doesn’t ignore American workers writ large, mind you. It pays a lot of attention to them as an economic danger, because there are too many of them working and because they want more of a share of the fruits of the productivity they alone are responsible for. That, you see, causes inflation. Never mind that you can just as easily argue that the current wave of inflation is a punitive price-gouging strategy adopted by American corporations determined that not even the mildest transfer of their profits to their workers will happen under their watch. If people want to be paid more, then they’ll have to pay more. Up the prices! The margins must remain. Once people stop really quitting or quiet quitting or unionizing and start being afraid for, grateful for the generous mercy of, their jobs again, maybe the prices can come back down. The Fordist bargain might as well have happened in prehistory: it is long since forgotten and forsworn.

Neither does the US government ignore the failures of high-risk speculators, of the bubbling stew of tissue-thin start-ups that seem endlessly entitled to venture capitalist money, of the careless banks that hold that money for them. Because, as John Ganz accurately says, they make noises that sound “like blackmail”. If we go, we’ll take the economy with us. We have, after all, done that before, remember? And so here is where you see the asset class—a class of which I am part—are the primary blackmailees, and we in turn have a close relationship in social structure to the people who are within the government. We call out for them to pay the ransom. We are all captured.

Unlike Ganz, I’d actually like to see every start-up that had its money in Silicon Valley Bank get burned, just like I can’t really find it in me to cry crocodile tears for investors in crypto and NFT who’ve been burned multiple times in the last two years of failures and swindles. As Adam Tooze, who has been characteristically brilliant on this story put it, “SVB’s depositors were in no regular sense, depositors. They are badly run and ill-advised businesses that for obscure reasons parked huge cash balances in a highly vulnerable bank.” VC-fueled start-ups full of the Silicon Valley ethos have been an itching plague on the American body politic for the last two decades. The useful successes who have brought some actual product or productive service that has endured past one or two rounds of technology replacement in online infrastructures could probably be counted on two hands. The also-rans that failed spectacularly, uselessly, hilariously are legion: most of them have just been resume builders for big-talking bullshitters in their 20s who are just hoping to get hired into middle management in a Big Tech firm. They leave behind them vacant office spaces, cities in doom loops, employees that they strung along and underpaid. They carry with them the confidence that they’re not going to be allowed to fail, big or small, because they can get on conference calls and panic the markets, and when they panic the markets, they panic the social classes who are captive to the speculative economies they instantiate.

High risk ought to mean: the gambler mostly goes broke, the house collects, and maybe if that happens enough times, people build an economy that reduces risk and regularizes returns. You don’t try to get rid of the high-risk investor, but you make them go to the equivalent of a midnight club in the bad part of town where nobody comes if you call the cops and nobody cares if you end up face down in the mud, where the best you can do is leave with a bigger stack of bills if you get lucky and a satisfied itch from having trafficked in the addictive danger of it all. I have no beef with a guy who wants to climb into Thunderdome with a chainsaw or bet a big stack of bills on an illegal rooster fight in some sweaty basement, I just don’t want any part of my economic security or social life to have anything to do with that guy.

But instead that kind of investor has captured the government—and rechristened the entire economy as that sort of exercise in precarity. It’s free-wheeling con games all the way down. George Santos is the spirit animal of 21st Century American capitalism: he belongs in Congress now, because half or more of the representatives are one way or another in hock to the world Santos has come from.

So no lessons are learned. The sanctification of Santos goes on. As Tooze says, “This is what it looks like when the bourgeoisie in the true sense swings into action. It is what it looks like when an executive committee or committees constitute themselves and demand action from the state”. People like me are the hostages of that executive committee: they tell us, “Your salaries and your future in retirement are in our hands. You want us to burn down the con men, then you are asking us to burn down the engine that pays you off along with them”. So maybe at this point I want exactly that, if that is actually what will happen—in this case I especially doubt in fact that the people who stood to lose their money held in Silicon Valley Bank actually could tank the economy.

Call the bluff, shut the midnight bookies down, let the start-ups fail faster and harder than they’re going to anyway, let the small banks and VCs go. If that spreads a financial pandemic all the way back into the houses of the three hedges and thus back to my house, well, I would rather live on the good earth than float in a perpetual fog of bubbles. The only way back to ground is a landing of some kind or another. The political will for soft landings—for reasserting a governmental prerogative to manage the economy for the good of all, to privatize risk and socialize profit—seems wholly absent, even though there are plenty of pragmatic sensible ways to do that. (Read Yakov Feygin’s justifiably celebrated essay for one such vision.) At some point, every hostage is desperate enough for freedom that they would welcome the risks involved in rescuers attacking the captors—or the dangers of escape through hostile territory. If the landing has to be hard, maybe that’s just the way it has to be.

Image credit: "Silicon Valley Bank Elevator Pitch Competition" by McFerrin Center for Entrepreneurship is licensed under CC BY-NC-ND 2.0.