[Obama hire - really...] Clueless Yellen fails to stave off bank crisis as First Republic sinks

<https://nypost.com/2023/04/28/clueless-yellen-fails-to-stave-off-bank-
crisis-as-first-republic-sinks/>

There are leaders who rise to the moment. Think Churchill and Roosevelt 
facing down the Nazi threat. Ronald Reagan’s famously accurate assessment 
of the former Soviet Union as an “evil empire.”

The moment now is also in need of leadership. Does Joe Biden have the 
chops to face down multiple global threats and secure our borders? And 
does his economic team, led by Treasury Secretary Janet Yellen, understand 
what could be in store for the economy as yet another bank heads for 
failure?

Sleepy Joe, of course, has been such an obvious disaster, it’s hard for 
even the mostly coddling White House press corps to ignore his incessant 
bungling. Yellen, meanwhile, has been given a total pass even though her 
stewardship has been equally inept. No greater example of Yellen’s 
cluelessness can be found than her stuttering attempts to adequately deal 
with the still smoldering banking crisis.

Another big bank, First Republic, is heading for government receivership. 
As I reported earlier this week on Fox Business, top banking execs with 
direct knowledge of the matter knew that First Republic was a goner. It 
was just a matter of time because its business was beyond repair. Despite 
that, Yellen led a misguided last-ditch effort to save it for no other 
reason than to save face. She wanted to fool the American people into 
believing the banking system and even the entire economy is fine, when 
it’s not.

Consider that for weeks now, Yellen’s message has been one of optimism. 
Fed rate hikes caused some financial indigestion (aka two midsized bank 
failures) but the worst was over. The US economy was poised for a soft 
landing; slower growth to squeeze out inflation but no steep recession.

This rosy scenario was predicated in part on her belief that a significant 
banking crisis had been averted, and bank lending would soon resume at 
prior levels. The collapse of Silicon Valley and Signature banks weeks ago 
were one-offs because Yellen and her team swooped in and threw money at 
the problem, insuring all deposits — even those above the government limit 
of $250,000. It didn’t matter that it was a bailout for rich tech-company-
types with ties to the Democratic Party. Systemic risk was averted.

Happy talk fools no one
That is, until we heard the recent news coming from First Republic — a 
large regional bank with a once-stellar rep also dealing with rich people 
and high-end businesses. It announced last week that despite an initial 
Yellen-inspired private-sector bailout, it too is on the brink again. Its 
clients saw through Yellen’s happy talk, yanked their money out and 
deposited it all in the nearest JPMorgan Chase branch. Within minutes, its 
stock tanked. More money headed for the exits, which meant First Republic 
was toast.

As this column goes to press, all my sources with direct knowledge of the 
situation describe First Republic as a “zombie bank.” It has enough cash 
maybe to hang around for a while but that’s about it. Because of its 
underwater assets depressed by rising rates and underperforming loans, 
it’s too weak to compete. If its stock continues to drop, insolvency isn’t 
far away.

These bank executives also say the right thing for Yellen & Co. to have 
done nearly from day one of the crisis was to put First Republic out of 
its misery and into government receivership where depositors are paid off 
at the $250,000 insurance limit and no more. Shareholders are wiped out, 
and its assets are sold at a discount.

That’s what is supposed to happen when you take too much risk. Meanwhile, 
Yellen should have turned her attention to the broader implications of the 
bank contagion, what it means for lending and the health of the US 
economy, which isn’t good if midsized banks keep failing and business 
lending is sharply curtailed.

Until Friday, Yellen was doing the opposite: Drooling happy talk about the 
banking system, and asking other banks to bailout the zombie. She’s also 
doubling down on her mistakes that caused this banking crisis in the first 
place, making it more difficult to escape.

Recall: Yellen and her team approved and devised all the Biden spending 
blowouts that sparked inflation. She prodded the Fed to keep printing 
money well into the COVID recovery, igniting more inflation she didn’t see 
coming until too late.

When the Fed needed to stamp out inflation through higher rates, Yellen 
didn’t have even a rudimentary idea of how the financial system’s plumbing 
was so damaged through easy-money risk-taking ­until banks began to fail.

First Republic almost became one of those failures along with Silicon 
Valley and Signature banks in the early stages of the bank tumult. At 
Yellen’s bequest, execs at JPM, BofA etc. extended the lender a lifeline, 
$30 billion in deposits on a temporary basis to prop up its ­finances.

Then Yellen wanted a do-over for First Republic, I am told, a k a another 
private-sector bailout. The bankers balked because unlike Yellen, they can 
read a balance sheet and First Republic, as a zombie, is impossible to 
save.

Yellen is finally listening. She and her team are working out a plan to 
shutter First Republic, selling the carcass of the bank to other, more 
stable players. Now Yellen needs to start focusing on other problem banks 
because they’re certainly out there, and figure ways to prop up the US 
economy. And by all means don’t cover all deposits over $250,000 like you 
did the last time. Doing so would just encourage more risky ­behavior.

If we have learned anything from all our financial crises over the years, 
it is that allowing the consequences of excessive risk-taking (losing 
money and worse) makes for the best type of financial regulation. The 
bailout-friendly Yellen may not be able to grasp this, but they’re harsh, 
teachable moments.

In the meantime, it would be nice if someone also taught Yellen to read a 
bank balance sheet.

Comments:

Sam
1 day ago

As I have posted before, academics should never be put in a position to 
actually govern or be in control of any government agency.  Only those 
that have practical successful experience in the private sector should be 
considered for those positions. 

-- 
"LOCKDOWN", left-wing COVID fearmongering.  95% of COVID infections 
recover with no after effects.

No collusion - Special Counsel Robert Swan Mueller III, March 2019.  
Officially made Nancy Pelosi a two-time impeachment loser.

Donald J. Trump, cheated out of a second term by fraudulent "mail-in" 
ballots.  Report voter fraud: [email protected]

Thank you for cleaning up the disaster of the 2008-2017 Obama / Biden 
fiasco, President Trump.  

Under Barack Obama's leadership, the United States of America became the 
The World According To Garp.  Obama sold out heterosexuals for Hollywood 
queer liberal democrat donors.

President Trump boosted the economy, reduced illegal invasions, appointed 
dozens of judges and three SCOTUS justices.