After Silicon Valley Bank failure. A system based on crisis
It was the anniversary of the death of Karl Marx on 14th March and he would surely have been interested in the news that HSBC bought Silicon Valley Bank for £1 at the weekend.
SVB had gone bankrupt in the US and its smaller UK operation was wound up on Sunday. It also has operations elsewhere around the world, in Germany and China.
Reports indicate that it was the bank of choice for new start ups in the tech sector, where poor economic conditions was leading to withdrawal of funds from SVB. HSBC will of course have taken on the liabilities and debts of SVB but that is the bank’s problem. Mostly.
In essence SVB failed to hedge (take financial account of) rises in interest rates which the US Government (as in the UK) is using to control inflation (whether that works is another matter). As a result the value of its assets fell and it found itself needing to seek additional funds. This set off the specific crisis.
It may lead as in 2008 to a wider banking crisis- Biden argues it won’t but this will become clear in fairly short order. However while several smaller US banks are also thought to be at risk, in Europe the much larger Credit Suisse is reportedly in trouble with a significant drop in its share price. A failure, or a failure by regulatory authorities to contain a failure quickly enough might lead to a much wider crisis.
This was reported on the same day as Jeremy Hunt’s Spring Statement. While the two events are not directly connected at the moment they may well end up being so.
The wider point is that Marx, who was no stranger to personal financial crisis, wrote a lot about banking crisis in mid-nineteenth century England. The specific details of each crisis were of course different to that behind the issues at SVB. However Marx’s point was that capitalism itself is a system which revolves around crisis. Gordon Brown may have though he could go beyond boom and bust but 2008 proved otherwise and 15 years on may be back there again.
If that does happen there is no question who the Government will think should dig capitalism out of trouble and it wont be their wealthy mates. Which is why the third event of 15th March was so important. Widespread and partly co-ordinated strikes on the cost of living.
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