I start this letter with a highly entertaining story about Barney Frank. Not the purple dinosaur... scarier. For those who are younger or with a shorter memory, around 2005 Representative Barney Frank was instrumental in applying political pressure to the banks in order to get them to loosen lending restrictions.
Banks, being banks, didn’t want to write risky loans where the borrower was likely to default. But Barney’s mission was to increase home ownership whatever the risk, and he helped the banks do his bidding by insuring their loans with the full backing of the U.S. Government, through Fanny Mae and Freddie Mac.
Under pressure and with the American taxpayer as a safety net, banks happily complied and commenced a multi-year loan free-for-all, and the housing market skyrocketed. Recall "negative-am" and NINJA loans.
Watch Frank’s confident description of the housing market in 2005. Tip: play it at half speed to get a better feel for Barney’s true brain function (see below for Frank’s words verbatim).
We know what happened next. These toxic loans were then repackaged by banks as Mortgage-Backed Securities, sold as “investments,” and caused the financial crisis of 2008, which nearly brought down the global economy.
Anyone with a scrap of reason might assume that after his disastrous policy and stupendous inability to understand the housing market that he regulated, Frank might have made a cathartic exit from politics or been sent out to pasture in humiliation.
But no. Old Barney of course went on to impugn others for the housing crisis he initiated, and then, astonishingly, was selected to lead the reform effort and co-author the massive piece of housing legislation known as Dodd-Frank.
Is it me or does this arrangement seem akin to selecting an epidemiologist who sponsored gain-of-function virus research in a Wuhan lab to investigate its origins and head the national response?
Fast forward to present: Silicon Valley Bank (SVB), which seemed to do everything under the sun except anything resembling competent banking, failed on March 10th, marking the 2nd largest bank failure in history.
Two days later, the 3rd largest bank failure in history occurred with Signature Bank of New York.
Ready for the punchline?
Guess who sits on Signature’s board of directors, earning more than $300,000 for his role in 2022 alone?
Wait for it…
That’s right. Barney Frank.
In true Barney un-frankness, he blames anything but himself. Crypto did it, he says, forgetting that the board of directors, of which he is a member, sets policy for the bank – and Signature loved investing in crypto!
YOU CAN’T MAKE THIS UP!
The objective is not to vilify Barney Frank, although I don’t mind reiterating that he is a varsity member on the squad of scoundrels.
The point is that our banking system is rigged and corrupt. Ever since the Federal Reserve was created in 1913, we’ve been destined to endure booms and busts, crash after devastating crash, and each time, the only true losers are you the Taxpayer! Edward Griffin documented this central tenet of modern banking in the 1994 landmark exposé The Creature from Jekyll Island. Chapter 2 is perfectly titled “The Name of the Game is Bailout.”
Even though SVB was managed as if it was run by kindergarteners, and despite the fact that the FDIC only insures $250,000 of deposits, the depositors who held more than 250k – approximately 90% of SVB’s depositors – are looking to get bailed out anyway!
When will you have had enough? According to the FDIC, 565 banks have failed since October, 2000. How many of those bank deposits were backstopped by taxpayers? Will your sterling, reputable bank be next? Is Jim Cramer signing its praises, as far as you can even decipher what he's saying? If so, you might want pay a visit to your local branch immediately.
We are all in the banking business. The question is what side of the table you’re on. Would you like to know how to Become Your Own Banker? When would you like to know, before or after the next banking crisis?
Silicon Valley Bank and Barney Frank - a corrupt system! – March 2023 (Pdf Download)
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Barney Frank, 2005: "Obviously, speculation is never a good thing. But those who argue that housing prices are now at the point of a bubble seem to me to be missing a very important point. Unlike previous examples we have had, where substantial extensive inflation of prices might have caused some problems, we are talking here about an entity, home ownership, homes, where there is not the degree of leverage that we have seen elsewhere. This is not the dotcom situation. We have problems with people having invested in businesses plans for which there was no reality; in people building fiber optic cables for which there was no need; homes that are occupied may see an ebb and flow in the price at a certain percentage level but you’re not going to see the collapse that you see when people talk about a bubble and so, those of us on our committee in particular will continue to push for home ownership.”
Sincerely,
Sam Arieff
Arieff Consulting
(904) 478-0102
Disclaimer: This newsletter represents the opinion of Arieff Consulting, Inc, and does not constitute financial, tax, or legal advice.