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banking crisis
Report Warns 'Today's Climate Crisis Is Tomorrow's Banking Crisis'
"This growing unseen and unacknowledged banking crisis is going to become visible soon as the climate-related disasters and losses pile up and insurance companies continue to go bankrupt."
Aug 23, 2023
Insurance companies bankrupted by climate disasters are the "canaries in the coal mine" portending "a much worse banking crisis," and regulators must act with urgency to avert financial crashes and costly bailouts, a report published Wednesday warned.
Amid increasingly frequent and severe fires, flooding, hurricanes, tornadoes, landslides, and hail storms across the U.S., "it's no surprise that there is a great deal of attention on the burgeoning crisis among insurance companies and their insured individuals and businesses," says the report, which was published by the financial reform advocacy group Better Markets.
"The U.S. property and casualty industry suffered losses of $5 billion in 2021, which ballooned to losses of $26.5 billion in 2022," Better Markets notes. "There have already been 15 confirmed weather/climate disaster events with losses exceeding $1 billion each in the U.S. as of August 8, 2023, with losses almost certain to exceed 2022."
That tally notably does not include the Hawaiian island of Maui, where a wildfire spread by hurricane-force winds leveled Lahaina, killing at least 115 people and causing an estimated $5.52 billion in damage.
"The number of insurance companies going bankrupt, withdrawing from states, limiting coverage, and significantly raising premiums is increasing by the day," the publication continues. "In addition, the reinsurance market, which is key for insuring major climate events, is facing a reduced investor demand, which is going to decrease coverage while increasing costs even more."
"However, this isn't just a crisis for insurance companies and their customers," Better Markets stresses. "The ongoing and worsening insurance crisis is the leading edge of a coming banking and financial crisis."
According to the report:
While climate risk is tragic for homeowners and problematic for insurance companies, it is exponentially worse for banks and the financial system. That's because insurance companies limiting their losses do not eliminate the losses entirely; they merely shift losses to other entities like banks which have large and increasingly concentrated portfolios of loans and other credit instruments to those now uninsured or underinsured real estate properties and businesses. When the inevitable climate disasters occur, those exposures will quickly become realized losses, potentially at levels that will cause banks to collapse, and possibly ignite a credit contraction, precipitate contagion, and result in a banking crisis if not a financial crash.
"There's a major untold story behind the unprecedented climate disasters pummeling the country and capturing the headlines: Today's climate crisis is tomorrow's banking crisis," said report author and Better Markets CEO Dennis Kelleher, who criticized federal regulators' lack of action.
"The Financial Stability Oversight Council (FSOC) and banking regulators' response thus far have been grossly inadequate and inconsistent with the material climate risks bearing down on banks and the financial system," he argued. "For example, the FSOC member agencies were called on just two years ago to bolster the financial system's resilience to climate-related financial risks. Yet, since then, the actions have been slow and half-hearted."
"This growing unseen and unacknowledged banking crisis is going to become visible soon as the climate-related disasters and losses pile up and insurance companies continue to go bankrupt and stop insuring homes, businesses, cars, and other bank assets in state after state," Kelleher warned.
"Just as insurance companies are acting to limit their losses, the FSOC and other banking and financial regulators must require banks and financial firms to assess their exposure to those losses and have an action plan to mitigate them before they materialize and cause banking crisis," he added. "Climate disasters are bad enough; a banking disaster on top of that will make everything much worse."
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Behind Trump's Possible Arrest and the Latest Banking Crisis Lurks the Billionaire Oligarchy
Ultra-rich individuals like Peter Thiel are a key part of the anti-democracy movement, of which Trump is the informal leader.
Mar 24, 2023
What connects the two biggest stories now dominating the news — Donald Trump’s likely arrest and the Fed’s bailouts of shaky banks?
Start with multi-billionaire Peter Thiel, and follow the money.
You may recall that in 2016, Thiel spoke at the Republican National Convention to make the case for why Trump should be the next president of the United States.
In the midterm elections of 2022, Thiel donated $15 million to the Republican Ohio senatorial primary campaign of JD Vance, who alleged that the 2020 election was stolen and that Biden’s immigration policy meant “more Democrat voters pouring into this country.”
Thiel also donated at least $10 million to the Arizona Republican Senate primary race of Blake Masters, who also claimed Trump won the 2020 election and who admires Lee Kuan Yew, the authoritarian founder of modern Singapore.
Masters lost. But thanks to Thiel’s munificence, Vance is now in the U.S. Senate.
Thiel and other wealthy self-described “libertarians” want Trump to be re-elected president in 2024. I’ll get to the reason in a moment.
What connects Thiel to the bank bailouts?
Days before Silicon Valley Bank failed, Thiel’s venture firm, Founders Fund, advised clients to pull their deposits out. This contributed to the run on the bank.
Some $50 million of Thiel’s own money was still stuck in the bank. Then, guess what? Thiel and other rich depositors got bailed out by the Fed.
Charges of hypocrisy have been leveled at Thiel and other wealthy depositors who claim to be libertarians but were rescued by the government.
There was nothing hypocritical about it. Thiel and others like him aren’t really opposed to government, per se. They’re opposed to democracy. They prefer an oligarchy — a government controlled by super-wealthy people like themselves.
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Thiel is part of the anti-democracy movement, of which Trump is the informal leader.
Their antipathy to democracy comes from the same fear that the extremely wealthy have always harbored about democracy — that a majority could vote to take away their money. That fear has been heightened by the fact that more and more of the nation’s wealth is going to the top, combined with demographic trends showing the majority of voters becoming less economically secure, more non-white, and politically left.
Thiel and his ilk see in Trump an authoritarian strongman who won’t allow a majority to take away their wealth. In December 2017, Trump and his Republican allies in Congress engineered a giant tax cut for the super-rich and the companies in which they invest. Many believe that a second Trump administration, backed by a Republican Congress, will cut their taxes even further.
They also support the Fed. Like most of the world’s central banks, the Fed is removed from democratic accountability, out of fear that financial markets otherwise won’t trust them to do unpopular things like bailing out banks or controlling inflation by slowing economies and causing millions to lose their jobs. The Fed is run largely by bankers. You might say it’s part of America’s oligarchy.
A few years ago, Thiel wrote that “I no longer believe that freedom and democracy are compatible.” Presumably he was referring to the freedom of oligarchs like himself to be unconstrained by taxes and regulations. In this narrow sense, he’s correct: Oligarchy is incompatible with democracy. Nor is oligarchy compatible with the freedom of the rest of us.
Thiel and others like him want to return to an era when American oligarchs had freer reign. In that same essay, Thiel wrote:
The 1920s were the last decade in American history during which one could be genuinely optimistic about politics. Since 1920, the vast increase in welfare beneficiaries and the extension of the franchise to women — two constituencies that are notoriously tough for libertarians — have rendered the notion of “capitalist democracy” into an oxymoron.
But if “capitalist democracy” has become an oxymoron, it’s not due to excessive public assistance or because women got the right to vote. It’s because billionaire capitalists like Thiel are undermining democracy with giant campaign donations to authoritarian candidates.
I’m old enough to remember a former generation of wealthy Republicans who backed candidates like Barry Goldwater. They called themselves “conservatives” because they wanted to conserve American institutions. But Thiel and his fellow billionaires in the anti-democracy movement don’t want to conserve anything — at least anything that came after the 1920s, including Social Security, civil rights, and even women’s right to vote (except for the Federal Reserve’s bailouts for the rich and its ability to draft average workers into fighting inflation).
The 1920s marked the last gasp of the Gilded Age, when the richest Americans siphoned off so much of the nation’s wealth that the rest of America had to go deep into debt to maintain their standard of living and sustain overall demand for the goods and services the nation produced. When that debt bubble burst in 1929, we got the Great Depression.
It was also the decade when Benito Mussolini and Adolf Hitler emerged to create the worst threats to freedom and democracy the modern world had ever witnessed.
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Critics Warn Another Fed Rate Hike Would Be the 'Straw That Breaks the Camel's Back'
One economist slammed the Fed for "protecting wealthy venture capitalists and startup CEOs" while showing "little concern for the millions of people who could lose their jobs."
Mar 21, 2023
Federal Reserve policymakers convened Tuesday for a two-day meeting that will culminate in a decision with major implications for the U.S. and global economies, which have been jarred by recent banking sector chaos and growing fears of a broader financial crisis.
The Fed is widely, though not universally, expected to raise interest rates by 25 basis points on Wednesday despite concerns that the central bank's tightening of monetary policy over the past year is at least partially responsible for the collapse of Silicon Valley Bank (SVB), a top lender to tech startups and venture capital firms.
Rakeen Mabud, chief economist at the Groundwork Collaborative, warned Tuesday that another rate increase would be a huge mistake with potentially devastating consequences that will fall most heavily on vulnerable workers.
The Fed's own projections indicate that millions of additional U.S. workers could face unemployment by the end of the year as the central bank continues to raise borrowing costs and tamp down economic demand.
"While the Federal Reserve wasted no time protecting wealthy venture capitalists and startup CEOs last weekend, it has shown little concern for the millions of people who could lose their jobs as a result of its aggressive rate hikes," said Mabud, who argued another rate hike would "be the straw that breaks the camel's back, sending our economy into a painful—and completely avoidable—recession."
"After the SVB fiasco," Mabud added, Fed Chair Jerome Powell "should not touch rate hikes with a ten-foot pole."
Josh Bivens, chief economist at the Economic Policy Institute, also called for a pause, arguing Monday that the case for halting rate hikes was clear even before SVB failed earlier this month, given recent signs that inflation and wages are cooling substantially.
"It is a genuine problem that interest rate hikes of nearly 5% in a year cause this much distress in the financial sector, indicating a clear failure of bank management and supervision," wrote Bivens, who noted that banks typically benefit from higher interest rates.
"These failures should be addressed going forward," Bivens continued. "But they exist today and the fallout of them clearly provides another argument for standing pat on further rate increases."
"Higher rates reduce inflation only by creating financial crises that crash the economy."
The Fed's policy meeting comes as it is facing mounting criticism over its role in the collapse of SVB and Signature Bank, with lawmakers and experts pointing to the central bank's rollback of post-financial crisis regulations that imposed tougher liquidity requirements on financial institutions with between $50 billion and $250 billion in assets.
"The Federal Reserve is irreparably broken and can no longer be trusted to go it alone on monetary policy," Lindsay Owens, the executive director of the Groundwork Collaborative, said last week. "As Congress works to re-regulate mid-size banks after the misguided 2018 rollbacks... they should also address the rot at the Fed."
In concert with the U.S. Treasury Department and other central banks, the Fed has worked to stem the fallout from the recent bank failures by launching liquidity operations and new lending programs aimed at backstopping the financial industry at home and abroad.
But experts have cautioned that the Fed's efforts to shore up the banking system will be undermined by further interest rate increases, which have proven to be a destabilizing force.
"The Fed has never managed to engineer a soft landing," Yeva Nersisyan, associate professor of economics at Franklin & Marshall College, and L. Randall Wray, professor of economics and senior scholar at the Levy Economics Institute of Bard College, wrote in an op-ed for The Hill late last week.
"The reason is simple: higher rates reduce inflation only by creating financial crises that crash the economy," Nersisyan and Wray explained. "After more than a decade of near-zero interest rates, the Fed hiked rates extremely quickly—by 400 basis points (4 percentage points). All balance sheets that had been built during the period of low rates immediately became toxic."
"What is missing from the debates over monetary policy today is the understanding that the Fed was not established to control inflation," they continued. "It was created to prevent financial crises by acting as a lender of last resort in times of distress. Indeed, that's exactly what the Fed is doing now—opening up its lending facilities to banks in need. But rather than focus on maintaining financial stability, the Fed has become obsessed with controlling inflation, something it cannot really do without causing either a recession or a financial crisis (or both)."
"Put on the crash helmets," the pair concluded. "It's going to be a bumpy landing."
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