Where is George Bailey when you need him? Perhaps you’ll remember the woebegone character played by Jimmy Stewart in the 1939 classic movie, It’s a Wonderful Life. George had given up his personal dreams in order to take over the reins of the family’s Building and Loan business after his father died unexpectedly. He was constantly helping others in the community, but due to several plot twists involving the mean rich guy in town, George reached a point where he was contemplating suicide on Christmas Eve. Fortunately, his guardian angel, Clarence, intervened and was able to show George just how great his life really was.
There’s a scene in the movie when a run on the Building and Loan happens. Just as George and his new bride, Mary, are set to leave in a taxi on their honeymoon, he notices depositors have gathered outside another local bank demanding their money. Instead of continuing on with his honeymoon, George runs to his own office to head off a run there.
In an oversimplification of what transpires, George (with Mary’s approval) lends out to customers the money they’d saved for the honeymoon. He manages to placate all his depositors and ends up the day with two dollars in the safe. Without that, the business would have been bankrupt and have had to seek new financing.
Does any of that scenario sound the least bit familiar of late? Apparently, neither the Silicon Valley nor Signature Banks had a George Bailey in charge. Because both of those institutions went belly-up last week. As of this writing, it does seem as if other banks will be taking over those businesses, and they’re getting them at bargain basement prices. (As any fan of Wonderful Life knows, that’s exactly what the mean old rich guy in town was trying to do in the Bedford Falls community. He was offering Bailey’s depositors fifty cents on the dollar for the money they had on deposit at George’s institution.)
Now, my knowledge of economics and the banking business as a whole is, shall we say, rather limited. Although I actually worked at a bank for a few years many moons ago, my position was in the marketing department. Nobody ever let me handle any money. My job was simply to entice you to either put your money in the bank or take out a loan.
From what I can gather, though, basically neither Silicon Valley nor Signature Banks had sufficient collateral to back up their loans, nor enough cash on hand to give out to depositors demanding their money. It seems the fine folks at Silicon Valley were known for making loans to start-up companies in the technology arena. I’m pretty sure that means they were loaning money to people with a wish and a dream but very little actual hold-in-your-hand product to sell.
Signature, on the other hand, was seemingly big in the cryptocurrency industry. You know, such as Bitcoin, Ethereum, Tether, Binance, and others. (Sounds as if I know what I’m talking about, doesn’t it? But I don’t.) I did, however, find this explanation: “Bitcoin is a protocol which implements a highly available, public, permanent, and decentralized ledger. In order to add to the ledger, a user must prove they control an entry in the ledger. The protocol specifies that the entry indicates an amount of a token, bitcoin with a minuscule b.” For real. That’s actually what it said. Clears the whole thing right up, doesn’t it?
Anyway, it seems the cryptocurrency business is in disarray. In the news just recently were multiple stories about a guy named Sam Bankman-Fried who was arrested in the Bahamas on charges of federal fraud, among other things, in relation to crypto exchange FTX. I don’t know if the events that transpired with Signature were related to Mr. Bankman-Fried’s woes, but I refer you back two paragraphs to my comment about ‘people with a wish and a dream but very little actual hold-in-your-hand product to sell.’ You can’t put a bitcoin in your pocket and buy a candy bar with it at Kroger’s.
Money people in Washington, D.C., are thoroughly involved in trying to sort out both these messes and prevent others from happening. That ought to really help the situation since it seems that one of the biggest culprits of the problems at hand is the rapidly rising interest rates of late put into effect by – wait for it – the Feds.
And despite all the rhetoric and promises to the contrary, who in the end do you think is going to be on the hook financially to help out? Perhaps when we do our taxes next year, we can all put the depositors at Silicon Valley and Signature Banks down as dependents.
©MMXXIII. William J. Lewis, III – Freelance Writer
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