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SVB political fallout ... not as dramatic as you think
Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, DC shares his perspective on US politics:
Who does Washington blame for the Silicon Valley Bank collapse?
After the largest bank failure in the US since the 2008 Financial Crisis, fears of a wider financial system failure prompted the Federal Reserve and the FDIC to take dramatic measures to contain more potential bank runs last weekend. This will have broad implications of the future of bank oversight, including capital requirements and what to do about uninsured deposits that will not be fully understood for years.
But it seems like the political consequences could likely already be over. Congressional lawmakers do not want to deal with another financial crisis, and have given federal regulators wide latitude to take whatever steps they think are necessary to backstop the financial sector. Much of these authorities were created on a bipartisan basis by Congress after the Financial Crisis in 2010, giving regulators the power to insure uninsured deposits while wiping out management and shareholders of the two failed banks, and creating a new liquidity facility for banks more generally.
And the response from Congress has largely been pretty positive. Some Republican lawmakers have even encouraged regulators to go further than they did and cover all uninsured deposits, which is probably unlikely. And there is, of course, the traditional blame game happening in Washington, with Democrats blaming a deregulatory effort that happened during the Trump administration and Republicans blaming both the management of the bank for being what they say is too woke and the economic conditions that created high inflation and rising interest rates under President Biden.
But the interesting thing here is that by the middle of this week, the Washington outrage machine had largely moved on to other issues, with conservative media focused instead on a new effort at gun control by the Biden administration and other media talking about the war in Russia and an ongoing political dispute between former President Donald Trump and current Florida Governor Ron DeSantis.
While some on both sides of the aisle will continue to criticize the Biden bailout for politically connected venture capitalists and tech pros, in the absence of further market disruptions, while there could be some longer term policy reforms to prevent these problems from happening again, nearer term, the fact that regulators saved Congress from having to pass another financial rescue like they did in 2008 is welcome news for most politicians in Washington. And this incident seems likely to sink into the swamp almost as quickly as it popped up.
Protest against the verdict restricting abortion rights in Warsaw, Poland.
What We’re Watching: Polish abortion protests, US stops Saudi/UAE arms sales, GameStop’s wild run
Poland abortion showdown: Poland's conservative government has moved ahead with controversial restrictions on abortion that set the stage for the return of large protests. The new rules, which prohibit abortion even in cases of severe fetal abnormalities, were first approved by a constitutional tribunal last fall, prompting hundreds of thousands of protesters led by women's groups to hit the streets in the largest demonstrations since the fall of communism in 1989. Faced with that backlash, the government delayed implementing the new rules for several months before abruptly changing course on Wednesday. Even before the new rules, Poland had some of the tightest restrictions on abortion in Europe — last year barely 1,000 women in Poland had the procedure done, with fetal abnormalities accounting for almost all of those cases. Abortion has become a lightning-rod issue in a deeply Catholic country that is increasingly split between the conservative rural areas that form the government's voter base, and liberal big cities where the opposition is strong. We are watching the streets of Warsaw and Krakow to see what happens next.
US arms sales to UAE, Saudis on hold: The Biden administration has paused the planned sale of billions of dollars worth of US arms to Saudi Arabia and the United Arab Emirates in order to conduct a wider review of all pending deals made under former president Trump. This is a common move for new administrations, but it may signal a broader change in recent US foreign policy regarding Yemen, where the Saudi-UAE coalition's five-year campaign against Iran-backed Houthi rebels has contributed to what the UN calls "the world's worst humanitarian crisis." While pressure from US lawmakers to review arms sales to Saudi Arabia grew in 2018 after the murder of Saudi dissident journalist Jamal Khashoggi, the Trump administration held firm. But new US Secretary of State Antony Blinken is on the record criticizing Saudi conduct in Yemen, and many Democrats — who now control Congress — are encouraging Biden to "reset" America's relationship with Saudi Arabia and the UAE. That would rankle Israel, which supports arming both nations to counter Iran's regional influence, and which recently normalized ties with the UAE as part of a US-brokered deal in which the Emiratis would get US fighter jets.
The politics of GameStop: This week, a populist revolt of sorts came to the stock market, of all places, as thousands of anonymous retail stock traders who connected via the social media platform Reddit got together to boost the stock price of video game chain GameStop by more than 700 percent, causing crippling losses for several hedge funds who had bet against the stock via "short" positions. The drama escalated when RobinHood — the no-fee stock trading app used by many of the GameStop buyers — suspended trading of the stock. RobinHood said it was to restore market stability, but the move seemed to allow hedge funds breathing room to recoup their losses, while preventing small-fry investors from continuing their buying spree. Cue: predictable outpouring of populist rage. Politicians of both parties seized on the story to call for tighter regulation of Wall Street, with even mortal political enemies such as Democratic Rep. Alexandria Ocasio-Cortez and Republican Senator Ted Cruz reaching a rare, if fleeting, consensus. There are a lot of potential issues for authorities to look at here, from policing how hedge funds operate, to regulating retail traders differently, to even looking at social media liability in instances of market manipulation. Expect a lot of politics around these issues in the coming weeks.- Updated to correct earlier version, which stated that RobinHood trading suspension prevented day traders from cashing out.