McCormick firmly believes that these policies have effectively planted an economic time bomb which will render little ability for bailouts in the event of more collapses due to the lack of accountability and inflation.
Washington Examiner reports, David McCormick, former Bridgewater Associates CEO and Pennsylvania Senate candidate, expressed concern over broader economic turmoil following Silicon Valley Bank’s collapse.
As a top official in the Treasury Department during the 2008 financial crisis, McCormick believed that low interest rates from the Federal Reserve coupled with excessive spending had led to a variety of asset mismatches. Moreover, he expressed concern about the implicit government backstopping of uninsured SVB deposits.
The need for the Fed to raise interest rates is causing trouble for the financial system, McCormick suggested in reference to the country’s red-hot inflation. Because higher interest rates made newer bonds more desirable for investors given their higher earnings, SVB’s woes were rooted in a trove of old bonds it had amassed.
Last Wednesday, SVB announced plans to raise $2.25 billion in additional equity, cementing $1.8 billion in previously unrealized losses. As a result of this and the deluge of deposit withdrawals, a frenzy developed and mass withdrawals were made. In one day, $42 billion was withdrawn. In the midst of the company’s collapse, regulators took over the company on Friday.
Government officials announced over the weekend that depositors would be able to access their funds by Monday. It was significant since the Federal Deposit Insurance Corporation insures deposits up to $250,000, but SVB had deposits over that limit. The move was intended to stem panic from ravaging the banking sector.
The bankruptcy of Silicon Valley Bank has raised red flags for many economists and financial advisors, particularly David McCormick, the CEO at Bridgewater Associates. He is warning that inflationary economic policies from the Biden administration combined with the Federal Reserve’s low interest rates are planting time bombs in the economy — further straining a system already weakened by exploding debt levels, expansive government spending programs and last-minute banks bailouts. It appears to be no surprise then that uninsured bank deposits are becoming one of the newest economic risks as we come to terms with the SVB implosion being a possible sign of broader economic problems. It seems that unless accountability is taken and inflation reined in, a period of great turbulence could well be ahead.