Who Will We Rescue? Fat Cat Bankers or the Hungry? Guess.

Moral hazard (phrase) 1. the idea that if you save someone from the consequences of their actions, they take even bigger risks       --James Mackintosh, Wall Street Journal, March 16, 2023

Here’s what I don’t understand. And if you have the answer, please, chime in. Let me know.

To explain: a little more than a week ago the 16^th largest bank in the United States, the Silicon Valley Bank (SVB); it failed. They experienced a classic bank run. That’s where depositors rush to take money out of a bank for fear that they will lose that money to a bank failure. And it is such panic withdrawals that lead to failure. It’s kind of a self-fulfilling prophecy.

What led to the bank rush was SVB’s steep losses, because of its wrong bets on interest rates (they went up) and inflation (up as well), and also because the industry it was most invested in—high tech—has been on a sharp downward slide for the past year or so. That news, amplified by the instantaneous panic-spreading effect of social media, and it was a perfect storm for failure.  Thus, was and is the second largest bank collapse in United States history.

Now back to what confuses me. At first the feds said no bailout for folks who have above $250,000 in SVB, that is the limit the Federal Deposit Insurance Corporation (FDIC), guarantees deposits. Up to that level, folks are covered. Beyond it? Theoretically, those depositors are out of luck. It is this incentive, in part, that is supposed to motivate bankers not to take big risks with folks’ money. But what if a bank thinks that at day’s end the federal government won’t let them fail? See 2008. Well, then they might become banking high rollers, and also bet that Uncle Sam will come through.  

Moral hazard.

So, the Federal Reserve and the U.S. government is rescuing not one but two failed banks (SVB and Signature Bank). We’re told this will not cost taxpayers any money. Really? Really? I guess what angers and upsets me the most is how quick the feds seem to be at bailing out essentially well-heeled people and companies while at almost the exact same time, it is cutting back on food assistance programs for thirty-eight million people. Most of those hungry souls are the very old, the very young and the very poor.

Moral bankruptcy?

When COVID hit three years ago, the feds upped Supplemental Nutrition Assistance Program (SNAP) benefits by a minimum of $95 per month, for hungry individuals and families. Almost 14 million households (305,000 in Massachusetts) received this food lifeline.  SNAP is literally a lifesaver, but especially in the face of a global pandemic. On March 2^nd, all those extra funds ended. Congress chose not to renew the program and SNAP reverted back to pre-pandemic levels. Some families experienced a reduction of up to 50 percent. This while food inflation in the past year has been running at 10 percent.

SNAP isn’t cheap. With the added benefits the United States spent almost $120 billion last year to help put food on our neighbors’ table, and maybe on our own table too. For perspective: SVB will be covered for about $110 billion in its losses. The proposed Defense Budget for 2022 was $728 billion. The maximum SNAP benefit in Massachusetts for a family of four was $835. That will now be greatly reduced. On average each hungry American who benefits from SNAP saw their assistance drop by $90 on March 2nd.

Back to what I don’t understand, especially as a person of faith….

Why are too many of us as Americans and our government as well, so often more sympathetic to people of means than to the people of little or no means? How come the media makes so visible the lifestyles of the rich and famous, and yet basically ignores the reality of what it is to live in poverty in this country? We lionize those who leverage capitalism for their own outsized gains. Politicians even compliment people who avoid paying their taxes by any means necessary.   

And the morality of poverty?

The truth is that although it usually unspoken, the opinion of some who have much is that the many who have little: well, it must be their fault, right? The poor and hungry don’t work hard enough or work long enough hours. They should have gone to college, right? Maybe you shouldn’t have had so many kids! Where’s the moral judgment for the banking high rollers whom Uncle Sam is coming to save? Yes, I get that helping failing banks helps more than just the fat cats but still: why are the well to do always the ones listened to the first, by our government?

It reminds me of what some cynically say is the real golden rule. Not “Love your neighbor.” Instead, “Those who have the gold make the rules.”  In one his most famous stories, Jesus tells his followers that whenever they serve another in this world who is hurting, in a very real way, they actually serve him. They serve God. “I was hungry, and you gave me something to eat.”

Some things like human hunger and human greed? They never seem to change.

I just don’t understand it.

The Reverend John F. Hudson is Senior Pastor of the Pilgrim Church, United Church of Christ, in Sherborn, Massachusetts (pilgrimsherborn.org). He blogs at sherbornpastor.blogspot.com and is a resident scholar at the Collegeville Institute at Saint John’s University in Collegeville, Minnesota. For twenty-five years he was a columnist whose essays appeared in newspapers throughout Massachusetts and Rhode Island. He has served churches in New England since 1989. For comments, please be in touch: pastorjohn@pilgrimsherborn.org.

Addendum: A short scene from the 1946 film “It’s a Wonderful Life” depicts with power and truth, just what a bank run and financial panic, looks like. Check it out. Here’s a link.