US capitalism is ‘breaking down before our eyes’: Griffin
3 Min Read
One of the strongest economies in the world could be losing its title.
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A sign is displayed at a branch of Signature Bank in New York, Monday, March 13, 2023. (AP)
The founder of hedge fund Citadel, Ken Griffin, said the rescue plan for Silicon Valley Bank revealed by US regulators shows American capitalism is "breaking down before our eyes".
Griffin told the Financial Times that the US government should not have intervened to safeguard all SVB depositors following the bank's collapse on Friday in Santa Clara.
In an interview on Monday Griffin said that “the US is supposed to be a capitalist economy, and that’s breaking down before our eyes,” adding that after US regulators pledged to protect all depositors in SVB — even those with balances above the $250,000 federal insurance limit, “There’s been a loss of financial discipline with the government bailing out depositors in full."
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SVB was shut down by US regulators on Friday after customers raced to withdraw $42 billion — a quarter of the bank's total deposits — in one day, and a failed attempt to raise fresh capital cast doubt on the lender's survival, according to the Financial Times.
Griffin stated that opponents of the rescue package have raised concerns about the risk of moral hazard associated with making all depositors whole on the money they have with SVB, while regulators have faced questions about missed warning signs. “The regulator was the definition of being asleep at the wheel."
According to the billionaire Citadel founder, whose fund became the most successful hedge fund firm this year, the strength of the US economy meant the US government did not have to act forcefully. “It would have been a great lesson in moral hazard,” he said. “Losses to depositors would have been immaterial, and it would have driven home the point that risk management is essential.”
He added that credit losses have been minimal, and bank balance sheets are at their strongest ever: "We can address the issue of moral hazard from a position of strength.”
Griffin's position contrasts sharply with that of Bill Ackman, another high-profile hedge fund manager, who on Monday called for the Federal Deposit Insurance Corporation to "explicitly guarantee all deposits now", warning that "hours matter".
He wrote on Twitter that “our economy will not function effectively without our community and regional banking system”.
Our economy will not function effectively without our community and regional banking system. Therefore, the @FDICgov needs to explicitly guarantee all deposits now. Hours matter.
— Bill Ackman (@BillAckman) March 13, 2023
We also need a modern version of our deposit insurance regime, but that will take some time, and… https://t.co/38mcc75M9a
Griffin said that neither he nor his hedge fund Pershing Square had any exposure to Silicon Valley Bank, adding that his personal exposure to the venture capital sector was "less than 10 percent of my assets".
It is worth noting that The Wall Street Journal's latest survey of economists suggested in October last year that the US economy will tip into a recession this year, as the Federal Reserve struggles to bring down firmly high inflation.
The probability of a recession starting from October last year and 12 months ahead was 63%, up from 49% in July's survey, according to the report. It is the first time the survey has put the probability above 50% since July 2020, following the previous short but sharp recession.
