Speculation and Financial Capital. Three Bank Failures. 5 2 2023

There has been a series of bank failures, with Silicon Valley Bank (SVC) bank, Signature Bank, and First Republic bank all going under. The state has bailed out the banks completely, as in the case of SBC and Signature, although they have suggested the big banks have an insurance policy to bail out banks that is somehow not part of taxes.

Of course, given taxes are a subdivision of surplus value, it really is only an accounting shell game of where the surplus value is really going. In the end, value is created by labour, and this surplus value represents the hours worked by the worker producing commodities he is not paid for.

The failure of the banks was tied to speculative investment. When it became clear the banks were no longer going to be able to make a profit for its investors, the speculative bubble burst, leaving the banks devalued.

Once the failures became imminent, people fled the banks with their deposits. This led to SVB, and Signature Bank not being able to guarantee its depositors, many of whom had uninsured money in the bank, as the state only provided $250,000 insurance on deposits.

This would change, and SVB and Signature, upon failing, had the state insure the whole investments, and the deposits. It meant if you were a millionaire, you would be compensated for your millions, even though the banks failed.

Which is clearly in bailout territory. The latest bank to fail is First Republic Bank.

“JPMorgan Chase’s purchase of First Republic Bank is intended to end a budding financial crisis, but it risks doing so by reviving a political battle over the power of the nation’s largest financial institutions.

“California state regulators closed First Republic early Monday after ruling it was “unsafe or unsound” and named the FDIC to sell off its parts.

“JPMorgan’s prominent role in the First Republic saga drew fire from lawmakers such as Sen. Elizabeth Warren (D-Mass.) and highlighted the limits of restructuring implemented in the wake of the 2008 financial crisis. JPMorgan — and other supersized banks — benefited in recent weeks as deposits fled regional lenders for the perceived safety of larger institutions, and now gained again by outbidding others for what was left.

Washington Post May 1 2023

https://www.washingtonpost.com/business/2023/05/01/first-republic-bank-seized-jp-morgan/

Which marked the end of First Republic Bank. Apparently its assets went on the chopping block, with JPMorgan buying up the devalued investments at bargain basement prices.

It should be noted Elizabeth Warren supported the bailout of SVB and Signature Bank, when its depositors and investors in its paper realized their money was not insured. They stood to lose billions, much of it in mortgage and securities speculation.

Capitalist state to the rescue; Warren would support a complete bailout for all investments in SVB, and Signature Bank, which resulted in the bailout of the billions in investments of financial capital, tied to speculation.

And as predicted, investors removed their money from the failing banks to the safety of the big banks, the banks considered “too big to fail” in the 2009 crisis.

An interesting use of taxes. Unfortunately, this use does not seem to be making anyone a profit, except perhaps JPMorgan, who saw new investment and deposits, as people removed their money from the smaller failing banks, to them. The investments JPMorgan just bought could prove to be able to make a profit in time, we don’t know what exactly they just bought. Probably some sort of speculation on Mortgages, securities, etc., which are now devalued severely, but could one day be worth something.

“All banks with more than $50 billion in assets are required to file with the FDIC a “resolution plan” designed to provide insight into how the institution could be wound down in the event that it fails.

“In its most recent version, submitted at the end of last year, First Republic said that “its focused business model, uncomplicated structure and conservative market share” would make it easy to wind down in a crisis.

““First Republic believes that a resolution of the Bank by the FDIC would not require the use of any extraordinary government support and would substantially mitigate the risk that the failure of the Bank could have a serious adverse impact on the financial stability of the United States,” the bank said in the December document.

“First Republic’s failure is expected to cost the FDIC about $13 billion, the agency said. The money will come from the FDIC’s deposit insurance fund, which insured banks pay into every quarter.

Ibid. Washington Post

As said the FDIC has an accounting technique that allows for the banks to save up money to bail themselves out when their excessive speculation results in a loss of returns on their money. At best we can say this surplus value is not divided off the state as taxes, rather is a hoard, in case of failure, insured by the FDIC, the state.

“its focused business model, uncomplicated structure and conservative market share” (see above) seems to have put the state’s insurance policy of bailouts for billionaires to the test again. Apparently the 13 billion dollars the state, which supports the FDIC, that just went to bail out First Republic: “…would not require the use of any extraordinary government support and would substantially mitigate the risk that the failure of the Bank could have a serious adverse impact on the financial stability of the United States,” the bank said in the December document.

ibid.

Well that’s an optimistic picture of how much capital is tied up in insuring banks. The 13 billion dollars certainly would not have a “serious adverse impact” on the FDIC.

Just how much surplus value does this mysterious investment for insurance in the banks in the FDIC come to? Apparently, according to First Republic’s bourgeois, this 13 billion dollars will cause no harm at all to the FDIC’s hoard. A drop in the bucket.

That’s three banks now that have had their assets sold to the highest bidder by the state, their depositors bailed out. A few more of these smaller banks falling will equal a big bank. As we are constantly reminded, we have no say over where the profit, which taxes are divided off of, is going. Whether or not it is a special hoard guaranteed by the state for banks when they have trouble investing their financial capital and making a profit, or if it is simply the surplus value created that is part of all commodity production in the land of capitalism, in the end it is the worker who pays.

Nicholas Jay Boyes

Milwaukee Wisconsin

American Democratic Republic

5 2 2023