WASHINGTON — President Joe Biden knew earlier this month that he needed to project command and confidence as he prepared to deal with a looming banking crisis that would rattle financial markets.
He had learned that lesson the hard way a decade and a half ago, during the nation’s worst financial crisis since the Great Depression.
Just days after becoming vice president in 2009, amid a financial crisis that had started the year before, Biden opined that even if the new administration did everything right, “there’s still a 30% chance we’re going to get it wrong.”[ads1]; The comment did little to boost economic confidence, and Biden’s boss, President Barack Obama, had to fix the mistake by clarifying that the then-vice president had not meant to cast doubt on the wisdom of the administration’s bailout plan.
In today’s crisis, Biden seems intent on avoiding any ambiguity. He has tried to calm the financial markets, ensure that bank customers have access to their money and, just as importantly, tried to convince the public that government intervention to save the failing banks is not a bailout.
“Americans can have confidence that the banking system is safe — your deposits will be there when you need them,” Biden said from the White House Roosevelt Room as he outlined steps his administration would take to curb the crisis.
“No loss,” he added, “will be borne by the taxpayers.”
Whether Biden gets it done this time remains to be seen.
Biden’s handling of the economy has been his biggest test as president and is what he will be judged on the most if he runs for re-election as expected.
A new opinion poll illustrates what he is up against. Less than a third of the public approves of Biden’s handling of the economy, according to an Associated Press-NORC Center for Public Affairs Research poll released Thursday that showed his overall approval rating near the lowest point of his presidency. Even among Democrats, there is a 13 percentage point gap in how Biden is viewed overall versus his financial management.
The vote was taken after two regional banks — Silicon Valley Bank and Signature Bank — failed this month. The threat that the failures could spread to other financial institutions convinced Biden of the need to step in. The Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corporation took the extraordinary step last week of guaranteeing the deposits at the banks after regulators closed both.
And while Treasury Secretary Janet Yellen said Tuesday that “the situation is stabilizing,” the administration is not out of the woods.
The banking meltdown complicated the Federal Reserve’s efforts to tame inflation by raising interest rates, and stocks fell on Thursday after Fed Chairman Jerome Powell refused to commit or hint at rate cuts later this year.
Still, Powell and the White House said the U.S. can get inflation back to acceptable levels while avoiding a recession.
“We are not seeing a recession or a pre-recession,” White House press secretary Karine Jean-Pierre said Wednesday. “We see a strong economy.”
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Reminders of the financial collapse of 2008
For many, the collapse of Silicon Valley Bank and Signature Bank revived painful memories of the financial collapse of 2008. Biden and members of his inner circle were well aware of the comparisons as they huddled in the Oval Office on Friday, May 10. March to consider their options.
Still, Biden and his team felt that what happened this time was very different from 2008. Senior bank executives responsible for the banks’ difficulties would be fired. This time, the government’s intervention would not involve taxpayer dollars, but would instead rely on bank premiums and interest earned on funds invested in US government obligations.
Over the next 48 hours, Biden’s team worked behind the scenes to analyze the latest data they received and figure out a course of action. Biden spoke several times with Yellen. He spoke with California Governor Gavin Newsom about the collapse of Silicon Valley and its impact.
Among the administration’s main concerns was stemming widespread panic if people with deposits at those two banks could not access them Monday morning, sparking fears of a run on other banks if depositors rushed to withdraw their accounts, a senior official said in the White House. on condition of anonymity told USA TODAY.
“This idea that if you put money in the bank that you should have access to it, that was very important to him,” the White House official said, referring to Biden’s approach to handling the crisis.
One of the possibilities discussed was that another financial institution could step in and buy Silicon Valley Bank. When that didn’t materialize, regulators knew that a public announcement by the president would be necessary about the steps to be taken to stabilize the financial system and avoid a major panic.
It is not clear whether Biden can avoid the dirt of being accused of bailing out banks. Biden is proud of the role he played in the Obama administration in, as he wrote in his memoirs, “the design and implementation of the plan that helped President Obama take the country from crisis to recovery.”
But he also got a first-hand look at the political unpopularity of the government buying failing assets of big banks and other financial institutions ahead of the Great Recession.
“It appears that his communications are heavily informed by that experience,” said Steven Kelly, an expert on financial crisis management at Yale University’s Financial Stability Program. “He was quick to stress that this is not a bailout. The shareholders are punished. This is really about protecting the average depositor.”
“We must act with speed”
Despite Biden’s response, there has been criticism from both the left and the right.
South Carolina Sen. Tim Scott, the top Republican on the Senate Banking Committee, which is considering a presidential bid, told Fox News that the decision to insure all deposits with SVB is “the greatest form of corporate cronyism that we’ve seen in a very long time .”
Vermont Sen. Bernie Sanders, who had accused Biden in a 2020 presidential campaign of bailing out “villains on Wall Street,” warned of “more socialism for the rich.”
California Rep. Ro Khanna, a leading progressive Democrat whose district is in the heart of Silicon Valley, said it is important for Biden to continue pushing to hold executives of the failed banks accountable and for stronger regulation.
“But I think he will do those things,” Khanna said, and will “come out looking good because he took that decisive action and showed leadership in the time frame that was needed.”
Khanna had urged the administration to act quickly, both publicly calling out Yellen on CBS’ “Face the Nation” and privately buttonholing Steve Ricchetti, a top Biden adviser, at the annual white-tie Gridiron Dinner attended by politicians and journalists who were held at the weekend. the administration considered its options.
“I understood, because I represent Silicon Valley, how quickly the situation was evolving,” Khanna told USA TODAY. “I understood how many small businesses were pressured to move their deposits.”
Khanna had been frustrated by his conversations with FDIC officials who he believed were “hiding behind bureaucratic language.” And he wanted to impress upon the White House the importance of not only insuring every deposit with SVB, but announcing that decision before the markets opened on Monday.
“Steve Ricchetti got it,” Khanna said. “He said, ‘Well, I understand. I understand that we must act with speed.
Speed was especially important, according to Kelly, the Yale expert on financial crisis management, because changes enacted after the 2008 financial crisis limited the ability of the executive branch, the Federal Reserve and the FDIC to contain a crisis.
“It’s incredibly important that they don’t let a fire burn too long before they respond to it,” Kelly said. “They did the right thing from a risk management game to look at the risks that were out there and say, ‘OK, even though this bank might not be the biggest bank, it might not be super systemic, we don’t have the tools we need if it dominates to next big bank.’
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But Aaron Klein, who worked on financial regulatory reform at the Treasury Department during the Obama administration, believes it was not the right decision to protect all SVB depositors.
“The government is not here to bail out wealthy venture capitalists who put tens of millions of dollars into a troubled bank,” he said.
Klein doesn’t blame Biden for that, instead pointing the finger at the independent Federal Reserve, which, he said, failed to properly monitor SVB.
Blaming Biden, Klein said, would be like asking what paramedics could have done differently to help a heart attack victim after his cardiologist prescribed a McDonald’s diet.
And Klein credits Biden for wanting to hold bank executives accountable.
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Hearings the House and Senate will convene next week will shed light on whether the administration deserves any blame, said Doug Heye, a Republican political strategist who worked in Congress and in the George W. Bush administration.
“What did this administration do right or wrong? Was it just this administration, or were there mistakes made by the previous administration, warning signs that were missed or ignored?” Hey said.
Whether or not the crisis remains front of mind for voters will depend on how deep the problems are and how long they persist.
“We’ll just have to wait and see,” Heye said, “how all these banking issues play out over the coming not just weeks, but months.”
Maureen Groppe and Michael Collins cover the White House. Follow Groppe on Twitter @mgroppe and Collins @mcollinsNEWS.
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