U.S. regulators sprung into action over the weekend to protect depositors after shuttering Silicon V͏ ͏ ͏ ͏ ͏ ͏
with Steve Clemons
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U.S. regulators sprung into action over the weekend to protect depositors after shuttering Silicon Valley Bank and Signature Bank of New York, part of a series of dramatic steps to prevent a run from spreading to other mid-sized financial institutions. Will it work? The Principals team has a roundup of what you need to know from Washington this morning.
On 2024 watch, Shelby Talcott followed Florida Governor Ron DeSantis’ campaign-like events in Iowa over the weekend, where he pointed to his team’s relative lack of public infighting, drama and “palace intrigue” as a selling point. I wonder who he’s contrasting himself with there.
On the global front, I’m in Doha today at the Global Security Forum and over the weekend interviewed former Trump National Security Advisor Robert O’Brien and Rwanda President Paul Kagame. Both shared some must-read news, which we have in today’s newsletter.
PLUS: Joseph Zeballos-Roig has One Good Text with Jason Furman about what happens to money held in regional banks after this week’s financial earthquake.
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The U.S. intervened to ensure all depositors at Silicon Valley Bank get their money back starting on Monday, only days after the institution swiftly collapsed due to an old-fashioned bank run.
What did they do?
The Federal Reserve, Treasury Department and the Federal Deposit Insurance Corporation unveiled a plan to backstop uninsured depositors.
Currently, only customers with deposits $250,000 and below are insured by the FDIC. But by invoking a “systemic risk exception,” they’ll now be able to cover larger accounts, which make up a much higher percentage of SVB’s deposits than most banks.
The Fed also announced a new “Bank Term Funding Program” with $25 billion from its Exchange Stabilization Fund that would provide temporary loans to financial institutions as needed.
Why did they do it?
The emergency moves were intended to ward off a broader panic in the financial sector that could prompt mass pullouts at other mid-sized banks. It also was meant to ensure business clients of Silicon Valley Bank and other at-risk institutions could make payroll.
In addition to Silicon Valley Bank, officials said they would back up deposits at Signature Bank of New York, which was also closed by regulators on Sunday amid fears it could be next in line for a collapse.
Members of Congress briefed by Treasury officials on Sunday evening told Semafor that they had been warned additional banks could be in a similar position, but that backing up deposits would hopefully stabilize the situation. As of Monday morning, shares of First Republic Bank were plunging in pre-market trading.
Is it a bailout?
It depends on who you ask. Federal regulators said in a joint statement on Sunday evening that “no losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
A senior Treasury Department official also emphasized on a call with reporters that — unlike the 2008 crash — the Biden administration is aiding depositors, not the banks’ shareholders or executives themselves. “The firms are not being bailed out,” the official said.
Economics writer Noah Smith made the case against the term “bailout” on similar grounds: “No regular folks will owe any money, SVB no longer exists, and SVB management will lose their jobs.”
Others disagreed, saying the Fed and FDIC were intervening in ways that made clear to banks and large depositors across the country that the government would go beyond any established interpretation of the law to rescue them. This was especially galling, some noted, because SVB and other banks had successfully lobbied to loosen post-2008 regulations intended to prevent similar crashes.
“It is a bailout and it does set a precedent,” Dean Baker, co-director of the Center for Economic and Policy Research, told Semafor. “It is a bit infuriating to see us bailing out Silicon Valley geniuses who couldn't be bothered to do ten minutes of homework on a bank where they are parking tens of millions of dollars.”
Now what happens?
Officials are hopeful the moves will ward off a system-wide crisis. President Biden, who plans to address the situation this morning from the White House, said in a statement he would seek accountability from those responsible for the “mess.”
A larger bank could still buy up Silicon Valley Bank, a scenario that was already widely discussed ahead of Sunday evening’s announcement. HSBC bought the British arm of Silicon Valley Bank overnight Sunday.
Both Republicans and Democrats, as well as former President Trump, are also already facing questions about their support for a 2018 law loosening regulations on banks and you can expect more this week. It’s still unclear how Congress will respond to the week’s events, although some lawmakers are already calling for hearings and potential legislation.
☞ White House: Biden will meet with his British and Australian counterparts in San Diego to announce plans for the trilateral AUKUS partnership that aims to deliver nuclear-powered submarines to Australia to counter security threats — read: China — in the Indo Pacific.
☞ Chuck Schumer: The Senate majority leader plans to keep hammering Speaker McCarthy for turning over Jan. 6 footage to Fox News, and pressuring Norfolk Southern over the East Palestine derailment, per his office. The Senate is also working through a number of Biden nominations this week.
☞ Mitch McConnell: The Senate minority leader is being treated and monitored at a hospital after suffering a concussion during a slip at a dinner in Washington. We don’t have any new updates on his condition, although one adviser said Friday he was “eager” to go home.
☞ Kevin McCarthy: McCarthy spent the weekend in California giving a pep talk to the state party for the first time since he locked down the speakership. The House is out on recess for the week.
☞ Hakeem Jeffries: McCarthy and Jeffries have found ways to work together despite high partisan tensions in Washington in order to keep House business functioning, the Washington Post writes.
FLICKR/Bureau of Land Management
President Biden is trying to balance concerns from energy companies and environmentalists this week over Alaskan oil drilling. Biden will announce today that the Arctic Ocean is off limits to oil and gas leasing and is preparing to issue new rules protecting 13 million acres of Alaska’s National Petroleum Reserve, according to an administration official. But he’s also reportedly set to approve ConocoPhillips' controversial Willow drilling project on Alaska’s North Slope, despite pushback from conservationists.
Former Trump attorney Michael Cohen will testify before a grand jury in New York investigating the hush-money payments made to Stormy Daniels, he confirmed to Semafor, as the Manhattan district attorney’s office nears a decision on whether to charge former President Trump.
Former Vice President Mike Pence made waves over the weekend when he told a crowd at D.C.’s Gridiron Club dinner that Trump’s “reckless words endangered my family and everyone at the Capitol and I believe history will hold Donald Trump accountable for January 6th.” Pence — who is also considering a presidential run — has criticized Trump before for his actions that day, but his words at the normally lighthearted Washington event went further than usual.
Rwanda President Paul Kagame signaled a change in posture regarding jailed human rights activist and Hollywood favorite Paul Rusesabagina, whose work to save Hutu and Tutsi refugees during the Rwandan genocide was memorialized in the film Hotel Rwanda. In an exclusive interview with Semafor at the Global Security Forum hosted by the Soufan Center in Doha, Kagame said “we have come to a point where we forgive the unforgivable.” Rwanda’s president, who previously said he would not be bullied by the U.S. or other powers on Rusesabagina, acknowledged negotiations are under way so that Rwanda “can move on” and “not remain stuck in the past.”
— Morgan Chalfant and Steve Clemons
Punchbowl News: The Senate will take up a bill to repeal outdated 1991 and 2002 war authorizations this week.
Playbook: While some Republicans like Sen. Mitt Romney, R-Utah and Rep. Patrick McHenry, R-N.C. signaled their approval of the Biden administration’s response to the Silicon Valley Bank collapse, others like Ron DeSantis tried to blame wokeism for the bank’s decision to invest in too many long-term Treasury bonds.
The Early 202: Top Pennsylvania Republicans are trying to clear the field for David McMormick to challenge Sen. Bob Casey, D-Pa. for his seat in 2024 in order to avoid a bloody primary battle.
Ron DeSantis sure looks like a presidential candidate
DES MOINES, IA – Florida Governor Ron DeSantis hasn’t publicly confirmed his plans to jump into the 2024 presidential race, but he’s increasingly looking like a candidate already. That includes quietly staffing up inside his orbit.
The RNC’s rapid response deputy director, Kyle Martinsen was recently hired to work for the Republican Party of Florida’s communications team, two people familiar with the hiring told Semafor. Nate Hochman, until now a writer at National Review, is heading to the communications team as well. DeSantis has firm control over the party; Helen Aguirre Ferré, its executive director since 2020, came from his office.
There’s also been recent buzz around Republican circles that Jeff Roe, who managed Ted Cruz’s 2016 presidential run, has been in talks about a possible role. (Though a member of DeSantis’ team shot down this speculation, telling Semafor the rumors were “not true.”)
DeSantis recently released a book detailing “Florida’s Blueprint for America’s Revival,” and has been criss-crossing the country on a book tour that includes stops in early primary states — like Iowa, where he spoke in Davenport and Des Moines to packed houses on Friday alongside Gov. Kim Reynolds and met with Republican officials in the state.
“You look at the results from our election in 2022 — we did better with every single demographic, except woke, left Democrats,” DeSantis told the Davenport crowd Friday morning. “That’s the only one.”
DeSantis’ showing in Iowa was well received, with potential voters lining up down the block in Des Moines and lines snaking through the casino in Davenport.
It also contained, at least indirectly, some of his first contrast messaging with Donald Trump. Amid hand-wringing over the GOP’s midterm results, he played up his 19-point re-election victory. And, as Trump is yet again surrounded by headlines about legal investigations and January 6th, he emphasized the lack of noise that’s followed him along the way to success.
“If you look at my administration, part of the reason we do well — they’re not leaking to the media, we don’t have palace intrigue, we don’t have any drama. It’s just execution every single day, and we end up beating the left every single day for four years,” DeSantis said in Des Moines.
During both events, the crowd booed as he mentioned Dr. Anthony Fauci, and cheered as he said “Florida stood as a refuge of sanity” and “citadel of freedom” during the pandemic.
In Des Moines, he received thunderous applause while discussing Florida’s response to the pandemic, the state’s education and “anti-woke” policies, and his decision to send migrants to Martha’s Vineyard back in September.
The topics — and DeSantis’ record in Florida — convinced at least a few voters, like 70-year-old Joseph Cassis, an author and illustrator, who said his vote was solidly for DeSantis should he jump into the race.
“He’s proved himself under stress, he still identifies with all Americans, not a select few, and he has that determination to get it done,” Cassis, cradling DeSantis’ new book that was given out at both events, said.
While Iowa voters appeared by and large enthusiastic to welcome the Florida governor to the state, they also enjoy being courted — many told Semafor they plan to entertain multiple options before committing to any one candidate. But unlike Haley, where potential voters arrived at her town hall in the state earlier this month eager to learn more about her, Iowans attending DeSantis’s events appeared more knowledgeable of his Florida policies.
“I think he treated his state with common sense and respect, and he’s a good leader in Florida,” Dave Eel, a 70-year-old retiree from Iowa, told Semafor. “So that’s all good on the national level, and his background in the military and so forth was excellent.”
The event even brought in at least one curious Trump voter, who told Semafor that DeSantis “seems to be doing a good job in Florida” but his vote has long been decided for Trump because “he’s proven himself” and is “what this country needs.”
THE VIEW FROM MAR-A-LAGO
Trump took to Truth Social over the weekend to repeatedly criticize “Ron DeSanctimonious,” telling Iowans to “tell him to go home!” Both he and his campaign team pointed to DeSantis’ past opposition to ethanol mandates (which boost Iowa corn) and his votes for benefit changes to Medicare and Social Security in Congress.
The U.S. would destroy Taiwan’s chip plants if China invades, says former Trump official
REUTERS/Ann Wang/File Photo
The United States would destroy Taiwan’s highly sophisticated semiconductor industry rather than allow it to be captured if China ever successfully invaded the island, according to Donald Trump’s former National Security Advisor.
“The United States and its allies are never going to let those factories fall into Chinese hands,” Amb. Robert O’Brien told me during a conversation airing today at the Global Security Forum organized by the Soufan Center in Doha, Qatar.
The bulk of the world’s most advanced microchips are produced in Taiwanese facilities owned by TSMC. Gaining control of those plants would make China “like the new OPEC of silicon chips” and allow them to “control the world economy,” O’Brien said.
“Now let’s face it, that’s never going to happen,” he said.
O’Brien drew a comparison to when Britain chose to destroy France’s storied naval fleet after the country surrendered to Nazi Germany, killing over 1,000 sailors in the process. He recounted how Winston Churchill, a noted Francophile, walked into the House of Commons “with tears streaming down his face because it was the hardest decision he made in the war,” but received unanimous applause.
The idea of demolishing Taiwan’s semiconductor fabs, rather than leaving them in Chinese hands, has been floated before. In 2021, a popular Army War College paper argued that Taiwan should threaten to sabotage the plants itself in response to an invasion in order to deter Beijing from attacking. Taiwanese officials have said there is no need, however, because for various reasons China would not be able to operate the factories after capturing them.
“Even if China got a hold of the golden hen, it won’t be able to lay golden eggs,” Chen Ming-tong, director-general of Taiwan’s National Security Bureau, said last October.
Still, I was caught off guard by O’Brien’s candor. It occurred to me at that moment that this national security advisor, cleared at the highest level of state secrets, probably knew whether there is some sort of “end TSMC” action plan should the U.S. and allies not stop China from taking control of Taiwan. O’Brien didn’t explicitly say there was such a plan, but when I asked if Taiwan’s chip production facilities would really be “gone,” he said “I can’t imagine they’d be intact.”
— Steve Clemons
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Jason Furman served as chairman of the Council of Economic Advisers under President Obama. He now teaches economic policy at Harvard University.
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WHAT THE RIGHT ISN’T READING: The Republican-controlled state Senate in West Virginia passed a measure limiting certain treatments for transgender youth after adding exceptions for those at risk of suicide.
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— Steve Clemons