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    Double-Barreled Economic Threat Puts Congress on Edge

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    Republicans and Democrats disagree over how recent bank closures should impact the debt limit stalemate, and have taken divergent lessons from past economic crises.WASHINGTON — In 2008, an imminent collapse of the banking system consumed Congress before lawmakers delivered a bailout. Three years later, a debt limit crisis enveloped Washington and led to a series of spending cuts after a dangerous brush with default and a first-ever downgrade in the nation’s credit rating.Now unease about the banking system’s stability and a stalemate over raising the debt limit are engulfing the capital simultaneously, ratcheting up an already high level of financial anxiety as two economic challenges Congress has experienced before become intertwined.“The stakes are exceptionally high when you are dealing with what amounts to a one-two punch of economic peril,” said Senator Ron Wyden, Democrat of Oregon and chairman of the Senate Finance Committee. “The messages that you send to the economy and the public with respect to banking and the full faith and credit of the United States — it doesn’t get more consequential than that.”Republicans and Democrats acknowledge it is a scary case of déjà vu times two. But they diverge sharply on how recent bank failures — and uncertainty over how Congress should respond to them, if at all — will influence the debt limit fight later this summer.At their just-concluded retreat in Florida, House Republicans took the line that shakiness in the banking system should strengthen their hand in the coming showdown over the debt limit. They argued that a Democrat-led spending spree spurred inflation, forced up interest rates and led to a precarious situation for all but the largest banks. The clear answer, to them, remains deep spending cuts, and they say they will still insist on cuts before making any move to raise the debt ceiling.Treasury Secretary Janet L. Yellen said on Tuesday that the president was willing to talk federal spending with Republicans, just not under the threat of a debt default.Pete Marovich for The New York Times“That should wake everybody up,” Speaker Kevin McCarthy, Republican of California, told reporters on Tuesday when asked about the intersection of banking stability and the debt limit. “Why are we having a crisis? Because the government spent too much and created inflation.”“I believe to get to a debt ceiling limit, you have to be spending less than we spent before,” he said.But Jerome H. Powell, the Fed chair, on Wednesday disputed the notion that spending remained the chief driver of inflation.“Spending was of course tremendously high during the pandemic,” he said at a news conference announcing an increase in interest rates. “As pandemic programs rolled off, spending actually came down.”“Fiscal impulse is actually not what’s driving inflation right now,” he said. “It was at the beginning perhaps, but that’s not the story right now.”Democrats say House Republicans are doing the exact opposite of what is required at a critical moment, even as the Fed offers assurances about the soundness of the banking system. They say the fallout from any banking instability should persuade Republicans that the last thing the economy needs is the specter of a default from a failure to raise the debt limit, which is projected to be reached as early as July without action by Congress.Senator Chuck Schumer, Democrat of New York and the majority leader, on Wednesday assailed the Republican stance as “reckless and truly clueless.”.css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.“Instead of calling for calm, House Republicans are sowing chaos by threatening a default at a time when banks need stability,” he said. “The right answer is for Republicans in the House to stop saber-rattling, drop the hostage-taking and brinkmanship and work together, work in a bipartisan way, to extend the debt ceiling without strings attached.”Other Democrats shared those sentiments, dismissing calls from some Republicans to prioritize federal payments should Congress fail to agree on a debt-limit increase. They say that approach is unworkable and default by another name.“The banking crisis highlights the importance of paying our bills on time,” said Senator Chris Van Hollen, Democrat of Maryland and a member of the Banking Committee. “We don’t want to create any more uncertainty in the financial markets and the economy. Because of what happened with the banks, it is more important than ever that Republicans don’t allow us to get close to the cliff.”“Because of what happened with the banks, it is more important than ever that Republicans don’t allow us to get close to the cliff,” said Senator Chris Van Hollen, Democrat of Maryland.Pete Marovich for The New York TimesThe 2008 and 2011 economic crises were earthshaking events on Capitol Hill. In the fall of 2008, in response to warnings from Treasury and Fed officials that the nation’s banks were about go under, Congress dove into a titanic, market-rattling debate over the $700 billion Troubled Asset Relief Program, ultimately approving a historic government intervention in the economy.Three years later, a new House Republican majority and the Obama administration took their clash over spending to the brink of financial ruin, bringing the country close to a federal default before striking a last-minute deal on spending cuts cleared the way for an increase in the debt ceiling, averting disaster.Lawmakers say they drew many lessons from those painful experiences. But the two parties did not draw the same ones.For Democrats, the 2011 experience hardened their opposition to negotiating over increasing the debt limit, confirming their belief that it should be raised without conditions since it is simply making good on spending already approved by Congress, with the support of members of both political parties. Republicans, by contrast, say that same experience persuaded them that the only way to exact real spending cuts is to use the threat of a federal debt default as leverage.The clashing approaches now have the parties again dug in over increasing the debt limit. Scant progress has been made toward finding a resolution that could avoid undermining the economy, even as the banking system exhibits signs of stress.Some Republicans say that they see the high-profile failure of the Silicon Valley Bank as an isolated incident, in contrast to the widespread fear of a total banking collapse in 2008 before Congress intervened.“This is not ’08 and ’09 when the banking industry was crazy on their asset side,” said Senator Mike Braun, Republican of Indiana. “That side of the economy I think learned its lesson.”He and other Republicans said they need to continue to push for spending reductions as part of any agreement to raise the debt limit and called on Democrats and President Biden to drop their refusal to negotiate.“This is not just a one-way street,” said Senator John Cornyn, Republican of Texas. “Hopefully Biden and the administration will get real when it comes to negotiating something, rather than saying, ‘I am not going to negotiate anything.’”In an appearance on Tuesday before the American Bankers Association, Treasury Secretary Janet L. Yellen said that the president was willing to talk federal spending with Republicans, just not with the debt limit sword held at his throat.“Having this conversation needs to happen over time and in the appropriations process and not through the threat of forcing a default,” she told members of the group. “It is essential that Congress raise the debt ceiling and that they do it promptly in order not to inflict a truly catastrophic wound on our economy and our financial system.”Republicans and Democrats credit consumer confidence for holding off economic calamity and so far preventing Congress from entering the crisis atmosphere that permeated both 2008 and 2011. But there is no guarantee that confidence can be maintained, and lawmakers warn of the possibility of cascading events should the banking system become viewed as unstable or the debt limit standoff go on too long.“It has,” warned Senator Richard Blumenthal, Democrat of Connecticut, “the makings of a perfect storm.” More

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    Fed Meeting Holds High Stakes for Biden

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    The president is counting on the central bank to strike the right balance on jobs and inflation — and to prevent a spiraling financial crisis.WASHINGTON — The Federal Reserve’s decision on Wednesday on whether to raise rates at a precarious moment carries risks not just for the central bank, but also for President Biden.Mr. Biden was already relying on the Fed to maintain a delicate balance with its interest rate decisions, simultaneously taming rapid price growth while avoiding plunging the economy into recession. Now, he also needs the Fed chair, Jerome H. Powell, and his colleagues to avert a misstep that could hasten a full-blown financial crisis.Economists and investors are watching Wednesday’s decision closely, after the Fed and the administration intervened this month to shore up a suddenly shaky regional banking system following the failures of Silicon Valley Bank and Signature Bank. So are administration officials, who publicly express support for Mr. Powell but, in some cases, have privately clashed with Fed officials over bank regulation and supervision in the midst of their joint financial rescue efforts.Forecasters generally expect Fed officials to continue their monthslong march of rate increases, in an effort to cool an inflation rate that is still far too hot for the Fed’s liking. But they expect policymakers to raise rates by only a quarter of a percentage point, to just above 4.75 percent — a smaller move than markets were pricing in before the bank troubles began.Some economists and former Fed officials have urged Mr. Powell and his colleagues to continue raising rates unabated, in order to project confidence in the system. Others have called on the Fed to pause its efforts, at least temporarily, to avoid dealing further losses to financial institutions holding large amounts of government bonds and other assets that have lost value amid the rapid rate increases of the past year.“Under the currently unsettled circumstances, the stakes are high,” Hung Tran, a former deputy director of the International Monetary Fund who is now at the Atlantic Council’s GeoEconomics Center, wrote in a blog post this week.“Disappointing market expectations could usher in additional sell-offs in financial markets, especially of bank shares and bonds, possibly requiring more bailouts,” he wrote. “On the other hand, the Fed needs also to communicate its intention to bring inflation back to its target in the medium term — a difficult but not impossible thing to do.”Economists and investors are watching the Fed’s decision closely.Haiyun Jiang/The New York TimesMr. Biden has for nearly a year professed his belief that the Fed could engineer a so-called soft landing as it raises interest rates, slowing the pace of job creation and bringing down inflation but not pushing the economy into recession. That would complete what the president frequently calls a transition to “steady and more stable growth.”It would also help Mr. Biden as he gears up for a widely expected announcement that he will seek re-election: History suggests that the president would be buoyed by an economy with low unemployment and historically normal levels of inflation in 2024..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.Through the beginning of the year, data suggested a soft landing could be in the works. But in recent months, price growth has picked up again. The economy continues to create jobs at a much faster pace than Mr. Biden said last year would be consistent with more stable growth. Fed officials were eyeing a more aggressive inflation-fighting stance before the banking crisis hit.Mr. Powell suggested in congressional testimony this month that the Fed could raise rates by as much as half a percentage point in the two-day meeting that ends on Wednesday. Days later, Silicon Valley Bank failed, followed by Signature Bank. The Fed, the Treasury Department and the Federal Deposit Insurance Corporation announced emergency measures to ensure that the banks’ depositors would have access to all their money, and that other regional banks could borrow from the Fed to prevent the rapid flight of deposits that had doomed Silicon Valley Bank.Mr. Biden will need further cooperation from Fed officials if more bank failures, or other events, threaten a full-scale financial crisis. Republicans control the House and appear unwilling to sign on for a potentially large government rescue of the financial system, like the bipartisan bank bailouts during the 2008 financial crisis.“It’s especially important when you can’t count on Congress,” said Jason Furman, a Harvard economist who led the White House Council of Economic Advisers under President Barack Obama. “We’re going to see the only game in town when it comes to financial stability is the White House and the Fed.”Administration officials have publicly lauded Mr. Powell since the Silicon Valley Bank failure. Karine Jean-Pierre, the White House press secretary, told reporters this week that there was no risk to Mr. Powell’s position as Fed chair from his handling of financial regulation.“The president has confidence in Jerome Powell,” she said.Ms. Jean-Pierre also reiterated the administration’s longstanding refusal to comment on Fed interest rate decisions. “They are independent,” she said, adding: “And they are going to make their decision — their monetary policy decision, as it relates to the interest rate, as it relates to dealing with inflation, which are clearly both connected. But I’m just not going to — we’re not going to comment on that from here.”There is wide debate on what interest rate announcement Mr. Biden should be hoping to hear on Wednesday afternoon.Some economists and commentators have pushed the Fed to hold off on raising rates entirely, contending that another increase risks further rattling the banking system — and consumers’ confidence in it.Liberal senators like Elizabeth Warren, Democrat of Massachusetts, and progressive groups in Washington have urged the same for months but for a far different reason. They argue that continued rate increases could slam the brakes on economic growth and throw millions of Americans out of work, and they say the real drivers of inflation are corporate profiteering and snarled supply chains, which will not be tamed by higher borrowing costs.“I don’t think the Fed should be touching interest rate hikes with a 15-foot pole,” said Rakeen Mabud, the chief economist at the Groundwork Collaborative, a liberal policy group in Washington.“Tanking our labor market is not the way to a healthy economy, is not the way to stable prices,” Ms. Mabud said. “We have an additional imperative this month, which is that aggressive interest rate hikes are exactly what have created some of the instability that we’re seeing” in the financial system.Other economists, including some Democrats, have urged the Fed to raise rates even more swiftly to beat back inflation as soon as possible.“The whole reason we have independent central banks is so they think about things on a longer time horizon than the typical White House is able to,” Mr. Furman said. “So I think the Fed, insofar as it did anything to hurt Biden, it was that it raised rates too slowly.” More

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    U.S. Is Ready to Protect Smaller Banks if Necessary, Yellen Says

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    The Treasury secretary pledged that the Biden administration would take additional steps as needed to support the banking system.Treasury Secretary Janet L. Yellen said pressures on the nation’s banking system were “stabilizing” in remarks to the American Bankers Association.Pete Marovich for The New York TimesWASHINGTON — Treasury Secretary Janet L. Yellen expressed confidence in the nation’s banks on Tuesday but said she was prepared to take additional action to safeguard smaller financial institutions as the Biden administration and federal regulators worked to contain fallout from fears over the stability of the banking system.Ms. Yellen, seeking to calm nerves as the U.S. financial system faces its worst turmoil in more than a decade, said the steps the administration and federal regulators had taken so far had helped restore confidence. But policymakers were focused on making sure that the broader banking system remained secure, she said.“Our intervention was necessary to protect the broader U.S. banking system,” Ms. Yellen said in remarks before the American Bankers Association, the industry’s leading lobbying group. “And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”She added: “The situation is stabilizing. And the U.S. banking system remains sound.”However, Ms. Yellen also underscored the gravity of the current situation. She said the stresses to the banking system, while not as dire as the 2008 financial meltdown, still constituted a “crisis” and pointed to the risk of bank runs spreading.“This is different than 2008; 2008 was a solvency crisis,” Ms. Yellen said. “Rather what we’re seeing are contagious bank runs.”In response to a question from Rob Nichols, the chief executive of the American Bankers Association, Ms. Yellen said she did not want to “speculate” about what regulatory changes might be necessary to prevent a similar situation from recurring.“There’s time to evaluate whether some adjustments are necessary in supervision and regulation to address the root causes of the crisis,” she said. “What I’m focused on is stabilizing our system and restoring the confidence of depositors.”She spoke as government officials contemplated additional options to stem the flow of deposits out of small and medium-size banks, and as concerns grew that more would need to be done.Ms. Yellen said recent federal actions after the failure of Silicon Valley Bank and Signature Bank this month were intended to show that the Biden administration was dedicated to protecting the integrity of the system and ensuring that deposits were secure.In the past 10 days, federal regulators have used an emergency measure to guarantee the deposits of Silicon Valley Bank and Signature Bank, initiated a new Federal Reserve program to make sure other banks can secure funds to meet the needs of their depositors and coordinated with 11 big banks that deposited $30 billion into First Republic, a wobbly regional bank..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.“The situation demanded a swift response,” Ms. Yellen said. “In the days that followed, the federal government delivered just that: decisive and forceful actions to strengthen public confidence in the U.S. banking system and protect the American economy.”Despite those efforts, the Fed’s campaign to raise interest rates to tame inflation has exposed weaknesses in the balance sheets of regional banks, rattling investors and raising fears that deposits are not safe.Ms. Yellen said the financial system was far stronger than it was 15 years ago but also called for an examination of how the recent bank failures occurred.“In the coming weeks, it will be vital for us to get a full accounting of exactly what happened in these bank failures,” she said. “We will need to re-examine our current regulatory and supervisory regimes and consider whether they are appropriate for the risks that banks face today.”The Federal Reserve, which is the primary regulator for banks, is undertaking a review of what happened with Silicon Valley Bank as well as looking more broadly at supervision and regulation.The uncertainty about regional banks has also led to concerns that the industry will further consolidate among big banks.Ms. Yellen made clear on Tuesday that banks of all sizes are important, highlighting how smaller banks have close ties to communities and bring competition to the system.“Large banks play an important role in our economy, but so do small and midsized banks,” she said. “These banks are heavily engaged in traditional banking services that provide vital credit and financial support to families and small businesses.”The Treasury secretary added that the fortunes of the U.S. banking system and its economy were inextricably tied.“You should rest assured that we will remain vigilant,” she said. More

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    Biden Warns That Climate Change Could Upend Federal Spending Programs

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    A chapter in the new Economic Report of the President focuses on the growing risks to people and businesses from rising temperatures, and the government’s role in adapting to them.WASHINGTON — The Biden administration warned on Monday that a warming planet posed severe economic challenges for the United States, which would require the federal government to reassess its spending priorities and how it influenced behavior.Administration economists, in an annual report, said that reassessment should include a new look at the climate-adaptation implications of aid to farmers, wildland firefighting and wide swaths of safety-net programs like Medicaid and Medicare, as the government seeks to shield the poorest Americans from suffering the worst effects of climate change.The White House Council of Economic Advisers also warned that, left unchanged, federal policies like fighting forest fires and subsidizing crop insurance for farmers could continue to encourage Americans to live and work in areas at high risk of damage from warming temperatures and extreme weather — effectively forcing taxpayers across the country to pay for increasingly costly choices by people and businesses.The findings were contained in a chapter of the annual Economic Report of the President, which was released on Monday afternoon and this year focused on long-run challenges to the U.S. economy. They came on a day when the Intergovernmental Panel on Climate Change, a body of experts convened by the United Nations, reported that Earth was barreling quickly toward a level of warming that would make it significantly more difficult for humans to manage drought, heat waves and other climate-related disasters.The White House report details evidence showing the United States is more vulnerable to the costs of extreme weather events than previously thought, while suggesting a series of policy shifts to ensure the poorest Americans do not foot the bill.“Climate change is here,” Cecilia Rouse, the departing chair of the Council of Economic Advisers, said in an interview. “And as we move forward, we’re going to have to be adapting to it and ensuring that we minimize the cost to families and businesses and others.”The report broadly suggests that climate change has upended the concept of risk in all corners of the American economy, distorting markets in ways that companies, people and policymakers have not fully kept up with. It also suggests that the federal government will be left with significantly higher costs in the future if it does not better identify those risks and correct those market distortions — like paying more to provide health care for victims of heat stroke or to rebuild coastal homes flooded in hurricanes.State and local officials, not the federal government, have authority where development happens, so people keep building in high-risk areas, a classic example of what economists call a moral hazard.Johnny Milano for The New York TimesFor example, the report cites evidence that private mortgage lenders are already offloading loans with a high exposure of climate risk to federally backed Fannie Mae and Freddie Mac. It highlights how the federal flood insurance program, which essentially underwrites all home flooding insurance policies in the country, is at risk of insolvency.At a time when administration officials and the Federal Reserve are struggling to stabilize the nation’s financial system, the report warns that home buyers and corporate investors appear to be underestimating climate-related risks in their markets, which could lead to a financial crisis.“Rapid changes in asset prices or reassessments of the risks in response to a shifting climate could produce volatility and cascading instability in financial markets if not anticipated by regulators,” the report says..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.To address those dangers, the report offers components for a federal climate adaptation strategy. Its recommendations — some of them already in early stages through existing administration actions — include producing better information about climate risk, helping financial markets accurately price that risk and better protecting the most vulnerable from the effects of climate change.Perhaps the most significant proposal, and probably the most politically sensitive, is a call for Washington to exert more pressure on state and local officials, pushing them to be careful about where and how they let people build homes, businesses and infrastructure projects.That proposal would address a core problem that has hindered America’s efforts to adapt to climate change. When people build in places that are most exposed to the effects of climate change — along coastlines, near riverbanks, at the edge of forests prone to wildfires — state and local governments get most of the benefits, in the form of higher tax revenues and economic growth. But when flooding, fires or other major disasters happen, the federal government typically pays the bulk of the cost for responding and rebuilding.Yet for the most part, state and local officials, not the federal government, have authority over where and how development happens — so people keep building in high-risk areas, a classic example of what economists, including the authors of the report, call a moral hazard.In response, the document proposes using federal funds to change the behavior of state and local officials, by tying that money to state and local decisions. That approach has been tried before, with little success. In 2016, the Obama administration suggested adjusting the level of disaster aid provided to states, based on what steps they took to reduce their exposure to disasters. States objected, and the change never happened.Subsidizing crop insurance for farmers could continue to encourage Americans to work in areas at high risk of damage from warming temperatures and extreme weather, the Biden administration will warn.Mark Abramson for The New York TimesAdministration officials said they were already trying to leverage some spending from the infrastructure law President Biden signed in 2021 to influence state and local behavior. The report suggests much more aggressive action could be necessary.It also proposes a rethinking of the nation’s system of insuring against disasters — moving away from separate localized policies that cover fire, flooding and other events, and more toward a nationally mandated “multiperil catastrophe insurance” system that is backstopped by the federal government.Perhaps most sobering for Washington’s current fiscal moment — when Mr. Biden is battling with House Republicans who are seeking sharp cuts to federal spending and raising anew concerns over the growing national debt — is the report’s suggestion that climate effects could subject growing numbers of Americans to heat stroke, respiratory illnesses and other ailments in the years to come. That could further drive up government costs for health programs like Medicare and Medicaid.The Council of Economic Advisers has begun a yearslong effort to project those climate-related effects on future federal budgets, which it detailed in a highly technical paper released this month.The report released on Monday also included chapters on the economics of child care, higher education, digital assets and more.In reviewing Mr. Biden’s economic record, White House economists dived deep into the issue that has bedeviled the recovery on his watch: persistently high inflation. The report lists several explanations for why price growth has surprised administration and outside economists over the last two years but never settles on a primary driver. It does concede that pandemic relief spending under Mr. Biden and President Donald J. Trump may have played a role, by helping Americans save more than usual — and then begin to spend that extra savings.“If the drawdown of excess savings, with current income, boosted aggregate demand, it could have contributed to high inflation in 2021 and 2022,” the report says. More

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    Biden Asks Congress for New Tools to Target Executives of Failed Banks

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    The request is a response to the federal rescue of Silicon Valley Bank and Signature Bank, and it seeks to impose new fines and other penalties.WASHINGTON — President Biden asked Congress on Friday to pass legislation to give financial regulators broad new powers to claw back ill-gotten gains from the executives of failed banks and impose fines for failures.The proposal, a response to the federal rescue of depositors at Silicon Valley Bank and Signature Bank last week, would also seek to bar executives at failed banks from taking other jobs in the financial industry.The measures contained in Mr. Biden’s plan would build on existing regulatory powers held by the Federal Deposit Insurance Corporation. Administration officials were still weighing on Friday whether to ask Congress for further changes to financial regulation in the days to come.“Strengthening accountability is an important deterrent to prevent mismanagement in the future,” Mr. Biden said in a statement released by the White House.“When banks fail due to mismanagement and excessive risk taking, it should be easier for regulators to claw back compensation from executives, to impose civil penalties, and to ban executives from working in the banking industry again,” he said, adding that Congress would have to pass legislation to make that possible.“The law limits the administration’s authority to hold executives responsible,” he said.One plank of the proposal would broaden the F.D.I.C.’s ability to seek the return of compensation from executives of failed banks, in response to reports that the chief executive of Silicon Valley Bank sold $3 million in shares of the bank shortly before federal regulators took it over a week ago. Regulators’ current clawback powers are limited to the largest banks; Mr. Biden would expand them to cover banks the size of Signature and Silicon Valley Bank.In a contrast with top Silicon Valley Bank officials, a senior Signature Bank executive and one of its board members bought shares in the firm’s stock last Friday while it was experiencing a run, regulatory filings show. Signature’s chairman, Scott Shay, bought 5,000 shares of Signature stock while one of its directors, Michael Pappagallo, bought 1,500 shares.The president is also asking Congress to lower a legal bar that the F.D.I.C. must clear in order to bar an executive from a failed bank from working elsewhere in the financial industry. That ability currently applies only to executives who engage in “willful or continuing disregard for the safety and soundness” of their institutions. He is similarly seeking to broaden the agency’s ability to impose fines on executives whose actions contribute to the failure of their banks.The proposals face an uncertain future in Congress. Republicans control the House and have opposed other pushes by Mr. Biden to strengthen federal regulations. A 2018 law to roll back some of the regulations on banking that were approved after the 2008 financial crisis passed the House and Senate with bipartisan support.Senator Steve Daines, Republican of Montana, faulted Mr. Biden’s focus on regulation and indicated that he would not support any move to impose new rules on the banking sector.“What we don’t need is more onerous regulations on well-managed and sound Montana banks that didn’t fail,” Mr. Daines said in a statement on Friday evening.Democrats were far more vocal in supporting the call for new rules. The chair of the Senate Banking Committee, Sherrod Brown of Ohio, said in a statement emailed to reporters that regulators needed “stronger rules to rein in risky behavior and catch incompetence.”He added that in addition to executives who had failed at their duties, there should be a way to hold accountable the “regulators tasked with overseeing them.”In a letter to the chairs of the Securities and Exchange Commission, the F.D.I.C. and the Fed, Representative Maxine Waters, a Democrat from California, asked the regulators to use the “maximum extent” of their current powers to hold both banks’ senior executives and board directors accountable.She added that the Dodd-Frank law enacted after the 2008 financial crisis had given agencies more powers than they had yet used to tie executive compensation in the financial industry to successful risk management strategies.“While I am moving quickly to develop legislation on clawbacks and other matters arising from the collapse, it is critical that your agencies act now to investigate these bank failures and use the available enforcement tools you have to hold executives fully accountable for any wrongful activity,” she wrote. More

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    How Washington Decided to Rescue Silicon Valley Bank

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    Officials were initially unsure about the need for the measures they eventually announced to shore up the financial system, but changed their minds quickly.WASHINGTON — On Friday afternoon, the deputy Treasury secretary, Wally Adeyemo, met with Jamie Dimon, the chief executive of JPMorgan Chase & Company, at Mr. Dimon’s office in New York.The Biden administration and the Federal Reserve were considering what would be the most aggressive emergency intervention in the banking system since the 2008 financial crisis, and the question the two men debated was at the heart of that decision.Could the failure of Silicon Valley Bank, the mega start-up lender that had just collapsed, spread to other banks and create a systemic risk to the financial system?“There’s potential,” Mr. Dimon said, according to people familiar with the conversation.Mr. Adeyemo was one of many administration officials who entered last weekend unsure of whether the federal government needed to explicitly rescue Silicon Valley Bank’s depositors before markets opened on Monday morning.In the White House and the Treasury, some officials initially saw the bank’s swift plunge to insolvency as unlikely to spark an economic crisis — particularly if the government could facilitate a sale of the bank to another financial institution.They quickly changed their minds after signs of nascent bank runs across the country — and direct appeals from small businesses and lawmakers from both parties — convinced them the bank’s problems could imperil the entire financial system, not just rich investors in Silicon Valley.On Friday morning, aides met with President Biden in the Oval Office, where they warned that the panic engulfing Silicon Valley Bank could spread to other financial institutions, according to a White House official. Mr. Biden told them to keep him updated on developments.By Friday afternoon, before financial markets had even closed, the Federal Deposit Insurance Corporation had stepped in and shut down the bank.Still, the kind of rescue that the United States ultimately engineered would not materialize publicly until Sunday, after intense deliberations across the government.This account is based on interviews with current and former officials in the White House, Treasury and the Fed; financial services executives; members of Congress; and others. All were involved or close to the discussions that dominated Washington over a frenzied process that began Thursday evening and ended 72 hours later with an extraordinary announcement timed to beat the opening of financial markets in Asia.The episode was a test for the president — who risked criticism from the left and the right by greenlighting what critics called a bailout for banks. It also confronted Treasury Secretary Janet L. Yellen with the prospect of a banking crisis at a moment when she had become more optimistic that a recession could be avoided. And it was the starkest demonstration to date of the impact that the Fed’s aggressive interest rate increases were having on the economy.Wally Adeyemo, deputy Treasury secretary, was initially unsure whether the government would need to intervene to rescue Silicon Valley Bank’s depositors. Andrew Harnik/Associated PressSilicon Valley Bank failed because it had put a large share of customer deposits into long-dated Treasury bonds and mortgage bonds that promised modest, steady returns when interest rates were low. As inflation jumped and the Fed lifted interest rates from near zero to above 4.5 percent to fight it over the last year, the value of those assets eroded. The bank essentially ran out of money to make good on what it owed to its depositors.By Thursday, concern was growing at the Federal Reserve. The bank had turned to the Fed to borrow money through the central bank’s “discount window” that day, but it soon became clear that was not going to be enough to forestall a collapse.Officials including Jerome H. Powell, chairman of the Fed, and Michael S. Barr, its vice chair for supervision, worked through Thursday night and into Friday morning to try to find a solution to the bank’s unraveling. By Friday, Fed officials feared the bank’s failure could pose sweeping risks to the financial system.Compounding the worry: The prospects of arranging a quick sale to another bank in order to keep depositors whole dimmed through the weekend. A range of firms nibbled around the idea of purchasing it — including some of the largest and most systemically important.One large regional bank, PNC, tiptoed toward making an acceptable offer. But that deal fell through as the bank scrambled to scrub Silicon Valley Bank’s books and failed to get enough assurances from the government that it would be protected from risks, according to a person briefed on the matter.A dramatic government intervention seemed unlikely on Thursday evening, when Peter Orszag, former President Barack Obama’s first budget director and now chief executive of financial advisory at the bank Lazard, hosted a previously scheduled dinner at the bank’s offices in New York City’s Rockefeller Center..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.Among those in attendance were Mr. Adeyemo and a pair of influential senators: Michael D. Crapo, Republican of Idaho, and Mark Warner, Democrat of Virginia. Both were sponsors of a 2018 law that rolled back regulation on smaller banks that critics now say left Silicon Valley Bank vulnerable.Blair Effron, a large Democratic donor who had just been hired by Silicon Valley Bank to advise it on its liquidity crunch, was also there. Earlier that day, the bank had attempted to raise money to stave off collapse with the help of Goldman Sachs — an effort that, by Thursday evening, had clearly failed.The Federal Reserve ultimately opened a lending program to help keep money flowing through the banking system.Al Drago for The New York TimesMr. Effron and Mr. Adeyemo spoke as it became evident that Silicon Valley Bank was running out of options and that a sale — or some bigger intervention — might be necessary. Jeffrey Zients, Mr. Biden’s new chief of staff, and Lael Brainard, the new director of his National Economic Council, were also being pelted by warnings about the bank’s threat to the economy. As Silicon Valley Bank’s depositors raced to withdraw their money on Thursday, sending its stock into free fall, both Ms. Brainard and Mr. Zients began receiving a flurry of calls and texts from worried leaders in the start-up community that the bank heavily served.Ms. Brainard, who had experienced financial crises in other countries while serving in Mr. Obama’s Treasury Department and as a Federal Reserve Board member, had begun to worry about a new crisis emanating from SVB’s failure. She and Mr. Zients raised that possibility with Mr. Biden when they briefed him in the Oval Office on Friday morning.Other officials across the administration were more skeptical, worrying that the lobbying blitz Ms. Brainard and others were receiving was purely a sign of wealthy investors trying to force the government to backstop their losses. And there were concerns that any kind of government action could be seen as bailing out a bank that had mismanaged its risk, potentially encouraging risky behavior by other banks in the future.Ms. Brainard started fielding anxious calls again on Saturday morning and did not stop until late in the evening. She and Mr. Zients briefed Mr. Biden that afternoon — virtually this time, because the president was spending the weekend in his home state of Delaware.Mr. Biden also spoke Saturday with Gov. Gavin Newsom of California, who was pushing aggressively for government intervention in fear that a wide range of companies in his state would otherwise not be able to pay employees or other operational costs on Monday morning.Concerns mounted that day as regulators reviewed data that showed deposit outflows increasing at regional banks nationwide — a likely sign of systemic risk. They began pursuing two possible sets of policy actions, ideally a buyer for the bank. Without that option, they would need to seek a “systemic risk exception” to allow the F.D.I.C. to insure all of the bank’s deposits. To calm jittery investors, they surmised that a Fed lending facility would also be needed to buttress regional banks more broadly.“Because of the actions that our regulators have already taken, every American should feel confident that their deposits will be there if and when they need them,” President Biden said on Monday.Doug Mills/The New York TimesMs. Yellen on Saturday convened top officials — Mr. Powell, Mr. Barr and Martin J. Gruenberg, the chairman of the F.D.I.C.’s board of directors — to figure out what to do. The Treasury secretary was fielding back-to-back calls on Zoom from officials and executives and at one point described what she was hearing about the banking sector as hair-raising.F.D.I.C. officials initially conveyed reservations about their authority to back deposits that were not insured, raising concerns among those who were briefed by the F.D.I.C. that a rescue could come too late.By Saturday night, anxiety that the Biden administration was dragging its feet was bubbling over among California lawmakers.At the glitzy Gridiron Club Dinner in Washington, Representative Ro Khanna, a California Democrat, cornered Steve Ricchetti, a top White House aide and close adviser to the president, and urged Mr. Biden and his team to be decisive. He warned that many of Mr. Biden’s major achievements would be washed away if the banking system melted down.“I said, Steve, this is a massive issue not just for Silicon Valley, but for regional banks around America,” Mr. Khanna said, adding that Mr. Ricchetti replied: “I get it.”Privately, it was becoming clear to Mr. Biden’s economic team that banking customers were getting spooked. On Saturday evening, officials from the Treasury, the White House and the Fed tentatively agreed to two bold moves they finalized and announced late on Sunday afternoon: The government would ensure that all depositors would be repaid in full, and the Fed would offer a program providing attractive loans to other financial institutions in hopes of avoid a cascading series of bank failures.But administration officials wanted to ensure the rescue had limits. The focus, according to a person familiar with the conversation, was ensuring that businesses around the country would be able to pay their employees on Monday and that no taxpayer money would be used by tapping the F.D.I.C.’s Deposit Insurance Fund.It was a priority that the rescue not be viewed as a bailout, which had become a toxic word in the wake of the 2008 financial crisis. The depositors would be protected, but the bank’s management and its investors would not.By Sunday morning, regulators were putting the finishing touches on the rescue package and preparing to brief Congress. Ms. Yellen, in consultation with the president, approved the “systemic risk exception” that would protect all of the bank’s deposits. The bipartisan members of the Federal Reserve and the F.D.I.C. voted unanimously to approve the decision.That evening, they announced a plan to make sure all depositors at Silicon Valley Bank and another large failed financial institution, Signature Bank, were repaid in full. The Fed also said it would offer banks loans against their Treasury and many other asset holdings, whose values had eroded.“Because of the actions that our regulators have already taken, every American should feel confident that their deposits will be there if and when they need them,” Mr. Biden said during brief remarks at the White House.By Tuesday afternoon the intervention was showing signs of working. Regional bank stocks, which had fallen on Monday, had partially rebounded. The outflow of deposits from regional banks had slowed. And banks were pledging collateral at the Fed’s new loan program, which would put them in a position to use it if they decided that doing so was necessary.The financial system appeared to have stabilized, at least for the moment. More

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    Don’t Call It a Bailout: Washington Is Haunted by the 2008 Financial Crisis

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    The colossal bailouts after the 2008 collapse arguably saved the global economy, but they also provoked a ferocious popular backlash.WASHINGTON — On that summer day in 2010 when he signed new legislation regulating the banks after the worst financial crash in generations, President Barack Obama declared, “There will be no more tax-funded bailouts. Period.” Standing over his right shoulder just inches away and clapping was his vice president, Joseph R. Biden Jr.Nearly 13 years later, Mr. Biden, now himself a president facing a banking crisis, appeared before television cameras on Monday to make clear that he remembered that moment even as he guaranteed depositors at failing institutions. “This is an important point: No losses will be borne by the taxpayers,” he vowed. “Let me repeat that: No losses will be borne by the taxpayers.”He could not even bring himself to utter the word “bailout.”Washington remains haunted by the specter of government intervention after the banking sector collapse that triggered the Great Recession, leaving leaders of both parties determined to avoid any repeat of that painful period. The colossal bailouts initiated under President George W. Bush and continued under Mr. Obama arguably saved the global economy but also provoked such a ferocious popular backlash that they transformed American politics to this day.The notion that “fat-cat bankers,” as Mr. Obama once called them, should be rescued by the government even as everyday Americans lost their jobs, their homes and their life savings so rankled the public that it gave birth to the Tea Party and Occupy Wall Street movements and undermined the establishment across the political spectrum. In some ways, that popular revolt empowered populists like Donald J. Trump and Bernie Sanders, ultimately helping Mr. Trump to win the presidency.“Today’s populism is firmly rooted in 2008,” said Brendan Buck, a top adviser to two Republican House speakers, John A. Boehner and Paul D. Ryan, who were both eventually targeted by Tea Party rebels within their own party. “The bailouts not only fostered distrust of corporations, but cemented the notion that elites always do well while regular people pay the price. Bailouts were also followed by a large expansion of government, and while it all may have prevented much worse calamity, the recovery was slow.”Mr. Biden, of course, knows all that intimately. He saw it up close, watching the public uprising from his office in the West Wing while counseling Mr. Obama on how to respond. Even the separate economic stimulus package that Mr. Obama assigned Mr. Biden to manage came to be tainted because many Americans confused it with the bank bailouts.And so now, as he endeavors to head off a crisis of confidence after the failure of three financial institutions in recent days, Mr. Biden wants to avoid not just a run on the banks but a run on his credibility.“The term and the idea of bailouts are still highly toxic,” said Robert Gibbs, Mr. Obama’s first White House press secretary. He said Mr. Biden rightly focused on accountability for those responsible and sparing taxpayers the cost. “Those are two important lessons learned from 15 years ago. Emphasizing that the ones being helped are instead innocent bystanders who just had money in the bank is why a backlash on this action is less likely.”But Republicans were quick to pin both the crisis and potential resolution on Mr. Biden, accusing him of fostering economic troubles by stoking inflation with big spending and labeling government efforts to head off escalation of the crisis the Biden bailout.“Politically, if you ask me what’s the impact of bailing out rich techies in California — which is exactly how this will be played — then the answer is Donald Trump’s likelihood of re-election just went up three to four points,” said Mick Mulvaney, who came to Congress as a Tea Party champion and later served as Mr. Trump’s acting White House chief of staff.In repeating that taxpayers will not bear the cost of bailing out depositors at the failed banks, Mr. Biden noted that the cost will be financed by fees paid by other banks into the Federal Deposit Insurance Corporation, or F.D.I.C. What he did not mention was that a separate loan program that the Federal Reserve has opened to help keep money flowing through the banking system will be backed by taxpayer money. In a statement on Sunday, the Fed said it “does not anticipate that it will be necessary to draw on these backstop funds.”.css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.The nuances did not matter to Mr. Biden’s critics. “Joe Biden is pretending this isn’t a bailout. It is,” Nikki Haley, the former ambassador to the United Nations now running for the Republican presidential nomination, said in a statement. “Now depositors at healthy banks are forced to subsidize Silicon Valley Bank’s mismanagement. When the Deposit Insurance Fund runs dry, all bank customers are on the hook. That’s a public bailout.”Other conservatives argued that a government rescue, however it is formulated, warps private markets and eliminates disincentives for financial institutions taking reckless risks because they can assume they too will eventually be saved, a concept called “moral hazard.”“Organizations that can’t manage risk should be allowed to fail, and taxpayers should not be forced to bailout the well-connected and wealthy because a bank prioritized woke causes above smart investing,” David M. McIntosh, a former Republican congressman from Indiana and president of the Club for Growth, a conservative advocacy organization, wrote on Twitter.But the White House adamantly rejected the comparison to the bailouts of the past, noting that the government is protecting depositors, not investors, while firing bank managers responsible for the trouble. “This is very different than what we saw in 2008,” Karine Jean-Pierre, the White House press secretary, told reporters.Michael Kikukawa, another White House spokesman, later said in a statement: “The president’s direction from the outset has been to respond in a way that protects hardworking Americans and small businesses, keeps our banking system strong and resilient, and ensures those responsible are held accountable. That’s exactly what his administration’s actions have done.”Mr. Biden, for his part, blamed Mr. Trump for the current crisis, saying “the last administration rolled back some of these requirements” in the Dodd-Frank law that Mr. Obama signed in 2010. Mr. Trump signed legislation passed by lawmakers in both parties in 2018 freeing thousands of small and medium-sized banks from some of the strict rules in the earlier law.The bailouts back then came in response to a banking crisis that seemed far more dangerous than what is currently evident. Some of the country’s most storied investment houses were collapsing in 2008 under the weight of risky mortgage-based securities, starting with Bear Stearns and later Lehman Brothers.Mr. Bush was warned that a cascade of failures could propel the country into another Great Depression. “If we’re really looking at another Great Depression,” he told aides, “you can be damn sure I’m going to be Roosevelt, not Hoover.”Casting aside his longstanding free-market philosophy, Mr. Bush asked Congress to authorize $700 billion for the Troubled Asset Relief Program, or TARP, to prop up the banks. Aghast at the request just weeks before an election, the House rejected the plan, led by Mr. Bush’s fellow Republicans, sending the Dow Jones industrial average down 777 points, the largest single-day point drop in history to that point. Alarmed by the reaction, the House soon reversed course and approved a barely revised version of the plan.Mr. Obama and his running mate, Mr. Biden, both voted for the program and went on to win the election. Taking office in January 2009, they then inherited the bailout. In the end, about $443 billion of the $700 billion authorized was actually used to bolster banks, automakers and a giant insurance firm. As unpopular as it was, the injection of funds helped stabilize the economy.The ultimate cost of the bailouts of that period remains in dispute. Mr. Obama and others who were involved often say that they were all ultimately paid back by the companies that benefited from the funds. ProPublica, the nonprofit investigative news organization, calculated in 2019 that after repayments the federal government actually made a profit of $109 billion.But it depends on how you count the costs. Deborah J. Lucas, a professor at the Massachusetts Institute of Technology, calculated that same year that the TARP program cost $90 billion in the end, a far cry from the original $700 billion. But other bailouts, most notably to Fannie Mae and Freddie Mac, the federally backed home mortgage companies, brought the total cost of various bailouts to $498 billion in her estimation.Either way, critics on the left and right felt aggrieved. As recently as 2020, Mr. Sanders cited the issue in running against Mr. Biden for the Democratic nomination. “Joe bailed out the crooks on Wall Street that nearly destroyed our economy 12 years ago,” he said at a town hall.Mr. Biden stood by the decisions, maintaining they worked. “Had those banks all gone under, all those people Bernie says he cares about would be in deep trouble,” he said during a debate, adding, “This was about saving an economy, and it did save the economy.”The issue was not enough to cost Mr. Biden the nomination, but that did not mean voters remember the bailouts of the past fondly. “To many, it didn’t feel like it ‘worked,’ and that made it very easy to demagogue,” said Mr. Buck. “A long period of economic malaise also leads to people looking for something or someone to blame, which is the basis for populism. I firmly believe we don’t get Trump without the devastation of 2008.” More

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    Was This a Bailout? Skeptics Descend on Silicon Valley Bank Response.

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    The government took drastic action to shore up the banking system and make depositors of two failed banks whole. It quickly drew blowback.WASHINGTON — A sweeping package aimed at containing damage to the financial system in the wake of high-profile failures has prompted questions about whether the federal government is again bailing out Wall Street.And while many economists and analysts agreed that the government’s response should not be considered a “bailout” in key ways — investors in the banks’ stock will lose their money, and the banks have been closed — many said it should lead to scrutiny of how the banking system is regulated and supervised.The reckoning came after the Federal Reserve, Treasury and Federal Deposit Insurance Corporation announced Sunday that they would make sure that all depositors in two large failed banks, Silicon Valley Bank and Signature Bank, were repaid in full. The Fed also announced that it would offer banks loans against their Treasuries and many other asset holdings, treating the securities as though they were worth their original value — even though higher interest rates have eroded the market price of such bonds.The actions were meant to send a message to America: There is no reason to pull your money out of the banking system, because your deposits are safe and funding is plentiful. The point was to avert a bank run that could tank the financial system and broader economy.It was unclear on Monday whether the plan would succeed. Regional bank stocks tumbled, and nervous investors snapped up safe assets. But even before the verdict was in, lawmakers, policy researchers and academics had begun debating whether the government had made the correct move, whether it would encourage future risk-taking in the financial system and why it was necessary in the first place.“The Fed has basically just written insurance on interest-rate risk for the whole banking system,” said Steven Kelly, senior research associate at Yale’s program on financial stability. And that, he said, could stoke future risk-taking by implying that the Fed will step in if things go awry.“I’ll call it a bailout of the system,” Mr. Kelly said. “It lowers the threshold for the expectation of where emergency steps kick in.”While the definition of “bailout” is ill defined, it is typically applied when an institution or investor is saved by government intervention from the consequences of reckless risk-taking. The term became a swear word in the wake of the 2008 financial crisis, after the government engineered a rescue of big banks and other financial firms using taxpayer money, with little to no consequences for the executives who made bad bets that brought the financial system close to the abyss.President Biden, speaking from the White House on Monday, tried to make clear that he did not consider what the government was doing to be a bailout in the traditional sense, given that investors would lose their money and taxpayers would not be on the hook for any losses.“Investors in the banks will not be protected,” Mr. Biden said. “They knowingly took a risk, and when the risk didn’t pay off, investors lose their money. That’s how capitalism works.”The Downfall of Silicon Valley BankOne of the most prominent lenders in the world of technology start-ups collapsed on March 10, forcing the U.S. government to step in.A Rapid Fall: The collapse of Silicon Valley Bank, the biggest U.S. bank failure since the 2008 financial crisis, was caused by a run on the bank. But will the turmoil prove to be fleeting — or turn into a true crisis?The Fallout: The bank’s implosion rattled a start-up industry already on edge, and some of the worst casualties of the collapse were companies developing solutions for the climate crisis.Signature Bank: The New York financial institution closed its doors abruptly after regulators said it could threaten the entire financial system. To some extent, it is a victim of the panic around Silicon Valley Bank.The Fed’s Next Move: The Federal Reserve has been rapidly raising interest rates to fight inflation, but making big moves could be trickier after Silicon Valley Bank’s blowup.He added, “No losses will be borne by the taxpayers. Let me repeat that: No losses will be borne by the taxpayers.”But some Republican lawmakers were unconvinced.Senator Josh Hawley of Missouri said on Monday that he was introducing legislation to protect customers and community banks from new “special assessment fees” that the Fed said would be imposed to cover any losses to the Federal Deposit Insurance Corporation’s Deposit Insurance Fund, which is being used to protect depositors from losses.“What’s basically happened with these ‘special assessments’ to cover SVB is the Biden administration has found a way to make taxpayers pay for a bailout without taking a vote,” Mr. Hawley said in a statement.President Biden said Monday that he would ask Congress and banking regulators to consider rule changes “to make it less likely that this kind of bank failure would happen again.”Doug Mills/The New York TimesMonday’s action by the government was a clear rescue of a range of financial players. Banks that took on interest-rate risk, and potentially their big depositors, were being protected against losses — which some observers said constituted a bailout.“It’s hard to say that isn’t a bailout,” said Dennis Kelleher, a co-founder of Better Markets, a prominent financial reform advocacy group. “Merely because taxpayers aren’t on the hook so far doesn’t mean something isn’t a bailout.”But many academics agreed that the plan was more about preventing a broad and destabilizing bank run than saving any one business or group of depositors.“Big picture, this was the right thing to do,” said Christina Parajon Skinner, an expert on central banking and financial regulation at the University of Pennsylvania. But she added that it could still encourage financial betting by reinforcing the idea that the government would step in to clean up the mess if the financial system faced trouble.“There are questions about moral hazard,” she said.One of the signals the rescue sent was to depositors: If you hold a large bank account, the moves suggested that the government would step in to protect you in a crisis. That might be desirable — several experts on Monday said it might be smart to revise deposit insurance to cover accounts bigger than $250,000.But it could give big depositors less incentive to pull their money out if their banks take big risks, which could in turn give the financial institutions a green light to be less careful.That could merit new safeguards to guard against future danger, said William English, a former director of the monetary affairs division at the Fed who is now at Yale. He thinks that bank runs in 2008 and recent days have illustrated that a system of partial deposit insurance doesn’t really work, he said.An official with the F.D.I.C., center, explained to clients of Silicon Valley Bank in Santa Clara, Calif., the procedure for entering the bank and making transactions.Jim Wilson/The New York Times“Market discipline doesn’t really happen until it’s too late, and then it’s too sharp,” he said. “But if you don’t have that, what is limiting the risk-tanking of banks?”It wasn’t just the side effects of the rescue stoking concern on Monday: Many onlookers suggested that the failure of the banks, and particularly of Silicon Valley Bank, indicated that bank supervisors might not have been monitoring vulnerabilities closely enough. The bank had grown very quickly. It had a lot of clients in one volatile industry — technology — and did not appear to have managed its exposure to rising interest rates carefully.“The Silicon Valley Bank situation is a massive failure of regulation and supervision,” said Simon Johnson, an economist at the Massachusetts Institute of Technology.The Fed responded to that concern on Monday, announcing that it would conduct a review of Silicon Valley Bank’s oversight. The Federal Reserve Bank of San Francisco was responsible for supervising the failed bank. The results will be released publicly on May 1, the central bank said.“The events surrounding Silicon Valley Bank demand a thorough, transparent and swift review,” Jerome H. Powell, the Fed chair, said in a statement.Mr. Kelleher said the Department of Justice and the Securities and Exchange Commission should be looking into potential wrongdoing by Silicon Valley Bank’s executives.“Crises don’t just happen — they’re not like the Immaculate Conception,” Mr. Kelleher said. “People take actions that range from stupid to reckless to illegal to criminal that cause banks to fail and cause financial crises, and they should be held accountable whether they are bank executives, board directors, venture capitalists or anyone else.”One big looming question is whether the federal government will prevent bank executives from getting big compensation packages, often known as “golden parachutes,” which tend to be written into contracts.Treasury and the F.D.I.C. had no comment on whether those payouts would be restricted.Uninsured depositors at Silicon Valley Bank and Signature Bank, who had accounts exceeding $250,000, will be paid back.David Dee Delgado/ReutersMany experts said the reality that problems at Silicon Valley Bank could imperil the financial system — and require such a big response — suggested a need for more stringent regulation.While the regional banks that are now struggling are not large enough to face the most intense level of regulatory scrutiny, they were deemed important enough to the financial system to warrant an aggressive government intervention.“At the end of the day, what has been shown is that the explicit guarantee extended to the globally systemic banks is now extended to everyone,” said Renita Marcellin, legislative and advocacy director at Americans for Financial Reform. “We have this implicit guarantee for everyone, but not the rules and regulations that should be paired with these guarantees.”Daniel Tarullo, a former Fed governor who was instrumental in setting up and carrying out financial regulation after the 2008 crisis, said the situation meant that “concerns about moral hazard, and concerns about who the system is protecting, are front and center again.” More