There was rare, bipartisan agreement that the swift actions from the Biden administration over the weekend to deal with an emerging banking crisis dramatically reduced the risk of wider failures.
Two of the largest bank collapses in US history took place over the course of 48 hours. There were bank runs both on banking apps and in person, with panicked customers frantically trying to extract their money.
Sunday night, the federal government acted. They didn’t save the banks. In fact, Silicon Valley Bank and Signature Bank failed. But to slow a bank run and prevent panic, the administration took steps to ensure that all customers’ money would be there, beyond the $250,000 regularly insured under the FDIC system.
The government’s response, coupled with assistance in emergency loans to aid endangered First Republic Bank, ensured that when the markets opened Monday there was only nervousness, not panic in the system.
The moves from President Biden were praised by even some rank-and-file Republicans, including the House Financial Services Chairman Patrick McHenry.
“They acted swiftly and boldly, and I’ve told them more than once that bold action I will absolutely support if it is in the interest of the financial system and in the interest of the American people,” said McHenry, a North Carolina Republican.
What there was a debate on, however, is whether the Biden administration’s actions constituted a “bailout.” The debate over this framing matters.
Only years later do we fully understand the political implications of the 2008 economic collapse. The idea that large banks deemed “too big to fail” were given federal money by Congress to prop them up wasn’t popular at the time, but it was deemed necessary as financial panic engulfed the globe.
Here is what happened next: Average Americans faced the worst recession since the Great Depression, with Black and Hispanic families particularly affected by the downturn. Meanwhile, executives at these banks who made terrible business decisions not only kept their jobs, they gave themselves big bonuses, thanks in part to the taxpayer money handed over by the government.
This outrage transformed politics in America and around the world. At home, the Tea Party movement emerged on the right and Occupy Wall Street on the left. The populist drive created huge political opportunities for the likes of Elizabeth Warren and Donald Trump.
It also began a political realignment, where the Republican Party rebranded itself as the party for the forgotten little guy, and Democrats eventually became the party of the educated, wealthy suburbs.
This time around, Biden did his best to not only prevent financial contagion, but also to avoid the political ramifications of the b-word.
In 2008, banks were indeed bailed out. In 2023, they technically weren’t. Silicon Valley Bank and Signature Bank are no longer banks today. Their executives are gone. Investors in those banks lost their money. Biden delivered a statement to reiterate that no taxpayer money was used and that he would fire the CEOs, now that the federal government had taken over what remained of the banks. This is exactly what both Senators Bernie Sanders and Mitt Romney asked for from Biden. That’s a pair that doesn’t agree on much.
Of course, it’s not that simple. Regular depositors in those banks, including many recognizable tech companies backed by wealthy investors, were largely saved by the federal government.
To some, that was enough to call this a bailout. Republican presidential candidate Nikki Haley said on Twitter that “Joe Biden is pretending this isn’t a bailout. It is.”
Florida Representative Matt Gaetz also used the term.
The banking system since has appeared stable, though analysts note some banks aren’t out of the woods. But one thing is definitely true: In 2024, we will be debating whether this moment was a bailout and who was responsible. The real question for Biden is: Will it stick?
James Pindell can be reached at email@example.com. Follow him on Twitter @jamespindell and on Instagram @jameswpindell.