wired |When Silicon Valley Bank collapsed on March 10, Garry Tan, president and CEO of startup incubator Y Combinator, called SVB’s failure “an extinction level event for startups” that “will set startups and innovation back by 10 years or more.” People have been quicktopointout
how quickly the cadre of small-government, libertarian tech bros has
come calling for government intervention in the form of a bailout when
it’s their money on the line.
Late yesterday, the US government announced
that SVB depositors will regain access to all their money, thanks to
the Federal Deposit Insurance Company's backstop funded by member banks.
Yet the shock to the tech ecosystem and its elite may still bring down a
reckoning for many who believe it’s got nothing to do with them.
SVB’s 40,000 customers are mostly tech companies—the bank provided services to around half of US startups—but
those tech companies are tattooed into the fabric of daily lives across
the US and beyond. The power of the West Coast tech industry means that
most digital lives are rarely more than a single degree of separation
away from a startup banking with SVB.
The
bank's customers may now be getting their money back but the services
SVB once provided are gone. That void and the shock of last week may
cause—or force—startups and their investors to drastically change how
they manage their money and businesses, with effects far beyond Silicon
Valley.
Most immediately, the many startups who
depended on SVB have workers far from the bank’s home turf. “These
companies and people are not just in Silicon Valley,” says Sarah Kunst,
managing director of Cleo Capital, a San Francisco firm that invests in
early-stage startups.
Y Combinator cofounder Paul Graham said yesterday that the incubator’s companies banking with SVB have more than a quarter of a million employers,
around a third of whom are based outside California. If they and other
SVB customers suffer cash crunches or cut back expansion plans, rent
payments in many parts of the world may be delayed and staff may no
longer buy coffees and lunches at the corner deli. Cautious about the
future, businesses may withhold new hires, and staff who remain may
respond in kind, cutting local spending or delaying home purchases or
renovation work.
The second- and third-order
impacts of startups hitting financial trouble or just slowing down could
be more pernicious. “When you say: ‘Oh, I don’t care about Silicon
Valley,’ yes, that might sound fine. But the reality is very few of us
are Luddites,” Kunst says. “Imagine you wake up and go to unlock your
door, and because they’re a tech company banking with SVB who can no
longer make payroll, your app isn’t working and you’re struggling to
unlock your door.” Perhaps you try a rideshare company or want to hop on
a pay-by-the-hour electric scooter, but can’t because their payment
system is provided by an SVB client who now can’t operate.
market-ticker | Next up - Republic, which apparently had lines out the door (if you believe the Internet) on Saturday. Again: So what?
Folks,
bubbles attract stupidity. Stupidity is a constant in the universe; in
fact it is likely the only thing that is truly infinite (with all due
respect to the late Mr. Einstein.)
The so-called "Chief Risk Officer" at SVB had a masters in..... public administration. Anyone care to bet if she passed any form of advanced mathematics -- you know, like for example Calculus or Statistics?Do you think she understood exponents and why this graph made clear that concentration of risk and duration was stupid and likely to blow up in everyone's face -- including hers?
How about Bill Ackman and the others on the Internet screaming for a bailout? How about the CFOs of public companies like Roku that stuck several hundred million dollars in
said bank? Was it not widespread public knowledge (and available to
anyone who took 15 minutes to do research, which you'd think someone
would do before putting a hundred million bucks somewhere) that this institution was chock-full of VC-funded startup companies which, historically fail 90% of the time and their debt becomes impaired or even worthless?
Where are the indictments for fiduciary malfeasance among these people?
It takes a literal five minutes with Excel to prove to yourself that if debt is rising faster than GDP no matter the interest rate eventually the interest payments on that debt will exceed all of the economy.
This of course is impossible because you cannot use over 100% of
anything as its not there, but long before you reach that point you're
going to have trouble putting food on the table, fuel in the vehicle and
paychecks are going to bounce. It was for this reason that one of the first sections in my book Leverage, written after the 2008 blowup which I chronicled and laid bare upon the table featured exactly this chart.
The last bit of insanity was just 15 years ago by my math. Did we fix it? No. What was featured in the stupidity of 2008? Allowing banks to run with no reserves. Who did that? Ben Bernanke, who got it into the TARP bill that eventually passed and which I reported on at the time. It
accelerated that which was already going to happen because Congress is
full of people who think trees grow to the moon, leverage is never bad and exponents are a suggestion.
Oh by the way, your local Realtor thinks so to as does, apparently, the former SVB "risk officer" who, it is clear, didn't understand exponents -- or didn't care.
The simple reality is that it must always cost to borrow money in real terms. This means the rate of interest must be positive in said real terms, which means across the curve rates must be higher than inflation -- again, in real terms, not in "CPI" which has intentional distortions in it such as "Owner's Equivalent Rent" when you're not renting a house, you're buying it. Had said "CPI" actually had home prices in it then it would have shown a doubling in many markets in that section of the economy over the last three years.
In other words housing alone would have resulted in a roughly 10% per year inflation rate, plus all the other increases, which means the Fed Funds rate should have been 300bips or so beyond that all the way back to 2020 -- which would put Fed Funds at about 13% for the last three years.
It isn't of course but if it had been then all those "housing price increases" would not have happened at all. Incidentally even today the Fed Funds rate is below inflation and thus the crazy is still on.
It's a bit less on however, and now you see what happens when even though they're still nuts being slightly "less" nuts means that these firms are no longer capable of operating without the wild-eyed crazy; even a slight reduction of the heroin dose caused them to fail.
Never mind the wild-eyed poor choices of executives (who signed off on all of this?) at SVB which the regulators all knew about and ignored. The CEO? A director of the San Francisco Federal Reserve. Why don't you look up a few of the other "chief" positions and what they used to do. Bring a barf bag. No, really.
And what did Forbes think of all this? Why it was good for five straight years of SVB being rated one of their BEST BANKS!
Negative real rates are never sustainable. The insidious nature of that nonsense is that it extends duration in pre-payable debt, specifically mortgages. Mortgages
have had a roughly 7 year duration forever, despite most of them being
30 year paper nominally because people move for other than necessity
reasons (e.g. "I want a bigger house", "I want to live here rather than
there" and so on.) A huge percentage of said paper was issued at 3% and now is double that or more. Since a mortgage is not transportable (when you sell the house you extinguish the old one and take a new one) and changing that retroactively would be both wildly illegal and ruin everyone holding said paper you can't retroactively patch the issue -- which is that now nobody with a 3% mortgage is going to prepay it and move unless they have to and so the duration is extending and will continue for the next couple of decades. This in turn means if you have a 3% mortgage bond, the new ones are 7% and there's 10 years left on the reasonable expectation of its life you're now going to have to discount the face value by the difference in interest rate times the remaining duration or I won't buy it since I can buy the new one at the higher rate! This
is not a surprise and that it would happen and accelerate was known as
soon as inflation started to rise and thus force The Fed to withdraw
liquidity. The Fed cannot stop because inflation is a compound function and at the point it forces necessities to be foregone the economy collapses and, if continued beyond that point THE GOVERNMENT collapses because tax revenue wildly drops as well. The only sound accounting move at that moment in time as a holder of said paper was to dispose of the duration or immediately discount the value of that paper to the terminal rate's presumption and adjust as required on a monthly basis.
Nobody did this yet to not do it is fraud as these are not only expected outcomes they're certain.
Where was the OCC on this that is supposed
to prevent such mismatches from impairing bank capital? How about The
Fed itself, or the FDIC? The San Francisco Fed was obviously polluted as the CEO was on their board (until
he was quietly removed on Friday) but isn't it interesting that all
these people who were intimately involved in firms that blew up in 2008
were concentrated in one place in executive officers with direct fiduciary responsibility?
And isn't it further quite-interesting that all the screaming you're
hearing right now is about how "terrible" it will be that "climate
change" related firms will be unable to make payroll and the new
upcoming VC-funded startups won't because their favorite conduit has
been disrupted? What's that about -- the entire premise of
these firms requires them to not only force their startups to bank in
specific places with large amounts of money (since they don't earn
anything they have to have access to and consume tens of millions or more a year) but cash management, you know, putting all of it other than what you need to make payroll next week in 4 week bills is too much to ask?
There's a rumor floating around (peddled by Bloomberg) that over one hundred venture and investment firms, including Sequoia, have signed a statement supporting SVB and warning of an "extinction-level event" for tech firms. Really? Extinction
for technology or extinction for cash-furnace nonsense funded by
negative real interest rates which make all manner of uneconomic things
look good but require ever-expanding, exponentially-so, levels of debt issuance?
Again, that is not possible on
a durable basis and once again the reason why is trivially discernable
with 5 minutes and an Excel spreadsheet and graph. It takes about an
hour to do it manually using graph paper, a basic 4-function calculator
or the capacity to perform basic multiplication on said paper and a pencil.
CNBC |The
two biggest banking institutions serving crypto businesses in the U.S.
have shut down in the last four days. Investors have worried that the
collapse of Signature Bank, whose assets were seized Sunday evening by
regulators, was inevitable following the impending liquidation of
Silvergate Bank and given the increasing regulatory hostility toward
crypto companies. Now that event is past us, and has left young
U.S.-based crypto startups with few options for banking relationships.
“There’s kind of a black mark on crypto deposits for the next few
weeks,” said Conor Ryder, research analyst at Kaiko. “It could be that
one of the smaller banks decides to raise their hand and take on the
deposits but I don’t think they’ll be jumping on that opportunity after
everything was done over the weekend.” The biggest priorities for the
industry now are around diversifying on-ramps into crypto and focusing
on policymaker education.
Before the end of Silvergate and Signature,
the regulatory crackdown on crypto had already started. The days before
the industry had crypto-forward banks to turn to were some of the
darkest for the industry. The inability to form banking relationships
was a big obstacle to growth. At the end of February, three major
banking regulators issued a joint statement warning banks of the
liquidity risks associated with banking crypto companies. In January,
the Wyoming-chartered special purpose depository institution and
famously unleveraged Custodia Bank set off the de-banking wave when its
application to become a member institution of the Federal Reserve was
denied. “Banks and law firms are getting a clear message from
regulators: distance yourselves from crypto companies,” said Ric
Edelman, founder of the Digital Assets Council of Financial
Professionals. “This is blatant bias without legal standing, and if
sustained, it will harm U.S. innovation for decades to come,” he said of
the Signature closure. “But for the moment, crypto companies are
increasingly finding themselves where cannabis companies were a decade
ago.”
Stablecoins in focus Stablecoin regulation is set to take center
stage with the industry scrambling for banking alternatives, according
to various crypto market participants who are skeptical the remaining
banking institutions will welcome crypto with open arms. One of the most
clear paths forward is for crypto firms to transact in stablecoins.
“We’ve seen stablecoins crypto-pairs rise to an all-time high 90% of
trading volume on exchanges, up from 79% a year ago, at the expense of
the dollar,” Ryder said. “The industry has become less and less reliant
on the U.S. dollar and crypto firms are familiar with stablecoins, so
this could be a smoother transition than people expect.” Stablecoins
also satisfy the need for 24/7 payment rails, he added.
Both Silvergate
and Signature offered a service that allowed fiat money to easily flow
into crypto assets. Even if another bank opened its arms to crypto
companies, the industry is still feeling the loss of the Silvergate
Exchange Network and Signature’s Signet platform. Kaiko reported Monday
that liquidity is already suffering at U.S. exchanges. Gemini’s was down
74% in for the month, while Coinbase’s fell 50% and liquidity at
Binance.US dropped 29%. Binance, however, suffered a smaller, 13%
impact. The problem with the stablecoin route is it concentrates trust
in a handful of stablecoin issuers, who would likely need to be more
heavily regulated, Ryder said. Over the weekend Circle’s USDC stablecoin
broke its peg to the U.S. dollar, dropping below 87 cents. The frenzy
came after Circle said it has about $3.3 billion in SVB. It regained its
peg Monday.
nationalreview |The
2008 financial collapse and resulting Wall Street bailout popularized
the concept of “too big to fail” — the idea that certain institutions
were so massive, and so intertwined with the rest of the financial
system, that their failure could trigger a complete meltdown of the
economy.
Kinda insane that this entire debacle was potentially caused by @ByrneHobart's newsletter. Here's how the butterfly effect happened.
1) Byrne posts this article/Tweet calling out SVB's risk. 2) Pretty much every VC I know reads this newsletter 3) They all start to pay very,… https://t.co/zUSKF1ZW4J
While
I opposed that bailout on ideological grounds, I at least recognized
the tremendous risk that the implosion of the nation’s major investment
banks would pose for the broader financial system. But Sunday’s decision
by regulators to bail out uninsured depositors of the failed Silicon
Valley Bank would dramatically lower the threshold for federal
intervention in financial markets.
To
be sure, there are reasons to believe the collapse of SVB carries
broader consequences. While the FDIC guarantees deposits up to $250,000,
the overwhelming majority of SVB deposits exceeded that amount. It was
the bank of choice for many tech start-ups. Without access to their
cash, those companies would have difficulty meeting payroll.
Additionally, the sudden collapse of SVB could lead companies and
individuals who have deposits in other similar financial institutions to
withdraw their money starting on Monday, triggering more bank runs, and
more bank collapses.
While
regulators are not stepping in to rescue SVB as an institution, the
Treasury Department, Federal Reserve, and FDIC have announced that they
will make sure that all depositors at SVB as well as another failed
institution, Signature Bank, will have access to their money on Monday
even if those deposits exceed the $250,000 threshold. In a statement, regulators promise, “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
Defenders
of this decision will try to make it seem as if it’s an extraordinary,
one-off decision by regulators, but in practice, it has created a huge
moral hazard by signaling that the $250,000 FDIC limit on deposit
insurance does not exist in practice. The clear signal it sends is that
when financial institutions make poor decisions, the government will
swoop in to clean up the mess. There are plenty of ways in which poor
decisions made by financial institutions could have larger implications.
But in 2008, the justification for intervention was systemic risk.
This
was not a case in which the whole economy would be threatened if an
intervention were not taken. There would be disruption to a number of
companies in the tech sector and their employees, as well as potential
problems for similarly situated financial institutions. But the vast
majority of banks are well capitalized right now, and there is no
credible risk of this causing a complete financial meltdown.
In
fact, it isn’t even clear that depositors were going to be wiped out,
absent federal intervention. When SVB was shut down, it still had real
assets that were worth money, which can be sold to pay back investors.
Due to poor risk management, what they were not able to do is avoid a
panic in which a large number of depositors tried to withdraw their
money at the same time, which is what happened last week. Under one estimate
from a Jefferies analyst, when liquidated, SVB has the assets to pay
off 95 percent of deposits. This is no doubt one reason why regulators
are stating so confidently that they don’t expect this to cost taxpayers
money. Another reason is that they claim any losses incurred would be
repaid by “a special assessment on banks” which will inevitably end up
being passed on to their customers.
Anybody
who considers themselves a free-market conservative should be
especially concerned about this action. Regardless of the particulars,
it will just add to the talking point that when Wall Street or
well-connected tech companies are in trouble, the government swoops in
to the rescue. And yet lawmakers won’t eliminate student debt, give away
free health care, pay for child care, guarantee affordable housing . . .
and insert whatever cause you like. If you support socialism for tech
companies, don’t be surprised when you get it for everything else.
racket |The campaign against “disinformation” in this way has become
the proxy for a war against civil liberties that probably began in 2016,
when the reality of Donald Trump winning the Republican nomination
first began to spread through the intellectual class. There was a
crucial moment in May of that year, when Andrew Sullivan published “Democracies End When They Are Too Democratic.”
This piece was a cri de coeur for
the educated set. I read it on the way to covering Trump’s clinching
victory in the Indiana primary, and though I disagreed with its premise,
I recognized right away that Andrew’s argument was brilliant and would
have legs. Sullivan described Plato’s paradoxical observation that
“tyranny is probably established out of no other regime than democracy,”
explaining that as freedoms spread and deference to authority withered,
the state would become ungovernable:
The
very rich come under attack, as inequality becomes increasingly
intolerable. Patriarchy is also dismantled: “We almost forgot to mention
the extent of the law of equality and of freedom in the relations of
women with men and men with women.” Family hierarchies are inverted: “A
father habituates himself to be like his child and fear his sons, and a
son habituates himself to be like his father and to have no shame before
or fear of his parents.” In classrooms, “as the teacher ... is
frightened of the pupils and fawns on them, so the students make light
of their teachers.” Animals are regarded as equal to humans; the rich
mingle freely with the poor in the streets and try to blend in. The
foreigner is equal to the citizen.
And it is when a democracy has ripened as fully as this, Plato argues, that a would-be tyrant will often seize his moment.
It
was already patently obvious to anyone covering politics in America
that respect for politicians and institutions was vanishing at warp
speed. I thought it was a consequence of official lies like WMD, failed
policies like the Iraq War or the financial crisis response, and the
increasingly insufferable fakery of presidential politics. People like author Martin Gurri pointed at a free Internet, which allowed the public to see these warts in more hideous technicolor than before.
Sullivan
saw many of the same things, but his idea about a possible solution was
to rouse to action the country’s elites, who “still matter” and
“provide the critical ingredient to save democracy from itself.” Look,
Andrew’s English, a crime for which I think people may in some cases be
excused (even if I found myself reaching for something sharp when he
described Bernie Sanders as a “demagogue of the left”). Also, his essay
was subtle and had multiple layers, one of which was an exhortation to
those same elites to wake up and listen to the anger in the population.
Unfortunately,
post-election, each successive version of what was originally a careful
and subtle “Too Much Democracy” idea became more simplistic and
self-serving. By 2019 the shipwreck of the Weekly Standard, the Bulwark, was publishing “Too Much Democracy is Killing Democracy,”
an article which insisted it wasn’t an argument for the vote to be
restricted, but “it is an argument for a political, social, and cultural
compact that makes participation by many unnecessary.” Soon we had
people like Joan Donovan of Harvard’s Shorenstein Center leading the
charge for “de-platforming,” not as a general principle of course, but
merely as a “short-term” solution. In its own way it was very Trumpian thinking: we just need to clamp down on speech until we can “figure out what is going on.”
Still, as far back as 2016, the RAND Corporation conducted a study showing the phrase most predictive of Trump support was “people like me don’t have any say.”
This was a problem of corporate and financial concentration invisible
to people of a certain class. As fewer and fewer people were needed to
run the giant banking or retail delivery or communications machines of
society, there were more and more going straight from college back to
their parents’ houses, where they spent their days fighting voice-mail
programs just to find out where to send their (inevitably unanswered)
job applications. This was going to inspire some angry tweets, and
frankly, allowing all of them was the least the system could do.
Instead
of facing the boiling-ever-hotter problem underneath, the managerial
types decided — in the short term only, of course — to mechanically
deamplify the discontent, papering things over with an expanding new
bureaucracy of “polarization mitigation,” what Michael calls the
Censorship-Industrial Complex. Instead of opening society’s doors and
giving people roles and a voice, those doors are being closed more
tightly, creating an endless cycle of anger and reaction.
Making a
furious public less visible doesn’t make it go away. Moreover, as we
saw at the hearing, clamping down on civil liberties makes obnoxious
leaders more conspicuous, not less. Democrats used to understand this,
but now they’re betting everything on the blinders they refuse to take
off, a plan everyone but them can see won’t end well.
kunstler | Since banks today exist in a vast matrix of
interconnected obligations — promises to pay this-and-that — fear grows
that the rot from one bank, such as SVB, will infect many other banks
that are no longer able to keep their promises about paying
this-and-that, leading to a daisy-chain of things not getting paid. For
an economy, that’s about the same as the blood ceasing to circulate in a
body.
The practice in situations such as
this (say, as in 2008-09) is for the governing authorities — who
supposedly rule over the banking world like gods — to rush to rescue
these outfits with “liquidity,” money (or representations of it) as
required to re-balance things, or, maybe provide the impression of
re-balancing until something else can be figured out. The Jupiter and
Minerva of American banking, Jay Powell and Janet Yellen, were faced
with just that sort of call for divine intervention over the weekend as
fear seeped into every nook and crevice of the money world that wealth
was flaring away in the long-feared-of conflagration out of the dumpster
banking had become.
Sunday morning, Ms. Yellen told CBS
News “bailouts, no way” but by the afternoon Mr. Powell cried “bailouts,
way,” and they had to get their story straight. They offered up
$25-billion to bail out depositors for a smoldering system that will
arguably require a trillion dollars or more of liquidity to quench the
spreading fires. One thing looks for sure: the interest rate hikes that
Mr. Powell spoke of so confidently only days ago just got stashed into
his folder labeled “Fuggeddabowdit.” So, the campaign to control
inflation must now yield to the urgent need to create a whole lot of
money to spray over those fires.
You may have noticed that the value
of your money has been slip-sliding away the past year or so. Peanut
butter at five bucks a jar, and all. The situation at hand kind of
guarantees that we’ll be seeing a whole ole lot more of that. And then
the gods of money will have lost control of the interest rate console
altogether. No more tweaking the broken knobs. More inflation will
prompt US treasury paper holders to dump what they can while there’s
still some value to retrieve. But the US has to issue more debt for all
the bail-outs and theoretical buyers of new debt will perforce bid up
the rates to keep up with inflation… and yet the US can’t possibly bear
the burden of paying higher interest on its debt. Looks like the
business model for running the USA is breaking down before our eyes.
Luckily, Cap’n “Joe Biden” is at the
helm of this steaming garbage barge. His conference room full of
geniuses is ready with the solution to our predicament: the
long-mythologized Central Bank Digital Currency — a dream-come-true for
would be tyrants… the Godzilla of unicorns whinnying atop the biggest
rainbow of all: the promise of endless magic money for everybody,
forever. All you have to do to get it is: surrender your decision-making
power over your own life. The government will amalgamate your few
remaining assets in a CBDC account, tell you exactly what to spend it
on, and shut off your little card if you show any contrary impulses.
Well, they can try it. I doubt it will
work. Instead, the government will melt down in its own rancid puddle
of insolvency, the meta-grift will grind to an end, and it will be
everyone for his / her / they self in the broke-down Palace of Chaos for
a while… until things emergently reconstruct. But I get a little ahead
of myself. It’s not even ten o’clock on Monday morning.
reuters | The FBI has found scant evidence that the Jan. 6 attack
on the U.S. Capitol was the result of an organized plot to overturn the
presidential election result, according to four current and former law
enforcement officials.
Though
federal officials have arrested more than 570 alleged participants, the
FBI at this point believes the violence was not centrally coordinated
by far-right groups or prominent supporters of then-President Donald Trump, according to the sources, who have been either directly involved in or briefed regularly on the wide-ranging investigations.
Kash Patel calls on Tucker Carlson to release footage of undercover feds:
"Ray Epps was on FBI's most wanted list one day, and the next day he was off. There are only two ways that happens: you die, or you are an informant. Jill Sanborn, the head of the FBI counterintelligence… https://t.co/RALaXMKxX3pic.twitter.com/8DJXX5JN1z
— kanekoa.substack.com (@KanekoaTheGreat) March 8, 2023
"Ninety
to ninety-five percent of these are one-off cases," said a former
senior law enforcement official with knowledge of the investigation.
"Then you have five percent, maybe, of these militia groups that were
more closely organized. But there was no grand scheme with Roger Stone
and Alex Jones and all of these people to storm the Capitol and take
hostages."
Stone,
a veteran Republican operative and self-described "dirty trickster",
and Jones, founder of a conspiracy-driven radio show and webcast, are
both allies of Trump and had been involved in pro-Trump events in
Washington on Jan. 5, the day before the riot.
FBI investigators did find that cells of protesters, including followers
of the far-right Oath Keepers and Proud Boys groups, had aimed to break
into the Capitol. But they found no evidence that the groups had
serious plans about what to do if they made it inside, the sources said.
Prosecutors
have filed conspiracy charges against 40 of those defendants, alleging
that they engaged in some degree of planning before the attack.
They
alleged that one Proud Boy leader recruited members and urged them to
stockpile bulletproof vests and other military-style equipment in the
weeks before the attack and on Jan. 6 sent members forward with a plan
to split into groups and make multiple entries to the Capitol.
But
so far prosecutors have steered clear of more serious,
politically-loaded charges that the sources said had been initially
discussed by prosecutors, such as seditious conspiracy or racketeering.
The
FBI's assessment could prove relevant for a congressional investigation
that also aims to determine how that day's events were organized and by
whom.
Senior
lawmakers have been briefed in detail on the results of the FBI's
investigation so far and find them credible, a Democratic congressional
source said.
The
chaos on Jan. 6 erupted as the U.S. Senate and House of Representatives
met to certify Joe Biden's victory in November's presidential election.
Slate | Carlson also made a big show of his “exclusive” interview with Tarik Johnson, a former Capitol officer who has actually been interviewed before by NPR.
The House’s select committee on Jan. 6 did a fine job of connecting
larger dots, drawing a straight line from the Stop the Steal rhetoric
through to the insurrection. But though it interviewed Capitol police
officers, it skipped an interview with Johnson, who was pictured that
day wearing a MAGA hat. “The frontline officers and supervisors were not
prepared at all,” Johnson said on the air. He told Carlson he asked
leadership for direction after the Capitol was breached. “I got no
response,” he said. (He said that he used the MAGA hat to avoid being
assaulted by the crowds of rioters himself; the Capitol police have
denied no one responded to Johnson.) Johnson offered seemingly sincere
answers to Carlson’s leading and partisan questions, and gave Carlson’s
audience a fair representation of the riot: “They focused on Donald
Trump, not the failures of the Capitol police,” he said of the
committee. “Some people there had planned on being violent. Some people
may have turned violent after what they were going through. I think
people wanted to support their president. Some of those people just
wanted to support him, and some of those people didn’t commit violence,
and some of those people didn’t plan on it.”
Roosevelt
began that first address simply: “I want to talk for a few minutes with
the people of the United States about banking.” He went on to explain
his recent decision to close the nation’s banks in order to stop a surge
in mass withdrawals by panicked investors worried about possible bank
failures. The banks would be reopening the next day, Roosevelt said, and
he thanked the public for their “fortitude and good temper” during the
“banking holiday.”
At the time, the U.S. was at the lowest point of the Great Depression,
with between 25 and 33 percent of the workforce unemployed. The nation
was worried, and Roosevelt’s address was designed to ease fears and to
inspire confidence in his leadership. Roosevelt went on to deliver 30
more of these broadcasts between March 1933 and June 1944. They reached
an astonishing number of American households, 90 percent of which owned a
radio at the time.
Journalist Robert Trout coined the phrase
“fireside chat” to describe Roosevelt’s radio addresses, invoking an
image of the president sitting by a fire in a living room, speaking
earnestly to the American people about his hopes and dreams for the
nation. In fact, Roosevelt took great care to make sure each address was
accessible and understandable to ordinary Americans, regardless of
their level of education. He used simple vocabulary and relied on folksy
anecdotes or analogies to explain the often complex issues facing the
country.
Over the course of his historic 12-year presidency, Roosevelt used the chats to build popular support for his groundbreaking New Deal policies, in the face of stiff opposition from big business and other groups. After World War II
began, he used them to explain his administration’s wartime policies to
the American people. The success of Roosevelt’s chats was evident not
only in his victory in three elections, but also in the millions of
letters that flooded the White House. Farmers, business owners, men,
women, rich, poor—most of them expressed the feeling that the president
had entered their home and spoken directly to them. In an era when
presidents had previously communicated with their citizens almost
exclusively through spokespeople and journalists, it was an
unprecedented step.
gzeromedia | With so many other international stories dominating the news these
days – Russia’s war in Ukraine, US-China tensions, Iran’s nuclear
program, etc. – it’s easy to lose track of more positive stories. And
when it comes to Mexico, the headlines suggest the country is
struggling.
And I could write that story too. In most media, today’s Mexico conjures images of violent drug cartels and other organized crime groups, trouble at the US border, or large-scale protests led by an opposition that accuses the country’s president of a power grab that threatens democracy.
Mexico
has its share of problems. But today, I want to give you three reasons
for optimism that, politically and economically, Mexico is strong and
getting stronger.
The China substitute
First,
Mexico’s economic success remains closely tied to economic growth in
the United States. (In 2022, Mexico’s total trade with the state of
Texas was five times higher than its total trade with all of Latin
America.) Over the years, that’s been a mixed blessing. When the US
economy weakens, Mexico’s export revenue takes a hit. There are fewer
remittances flowing south from Mexicans working in the United States.
There are few American tourists pumping dollars into Mexican cities,
towns, and businesses.
But over the decades, the US economy has
remained strong and is currently running hot. Even with high inflation
and rising interest rates, the US job market is strong, consumers are
spending, and pandemic-weary tourists are traveling.
Mexico’s exports are surging. The country’s consumer confidence
is close to its highest point in a generation. Add the reality is that
the war in Ukraine has put strong upward pressure on global energy
prices, boosting Mexico’s oil revenue. As the war grinds on, that
advantage is likely to continue.
But the factor that matters most
for coming years is souring US sentiment on relations with China. The
Biden administration, both Democratic and Republican members of
Congress, and many US governors are pushing for a significant national
security and strategic decoupling from China and Chinese companies. US
businesses are increasingly less confident they can navigate complicated
US-China politics, abrupt changes inside China like the 180-degree turn
on COVID policy, and other factors to continue to do profitable
business in China.
Who benefits? Mexico. Particularly as
“nearshoring” becomes a much more familiar word for many Americans.
Nearshoring is the practice of shifting investment in manufacturing,
production, and business operations closer to home to avoid the problems
that come with both political risk and dangerously long supply chains.
Mexico already has the world’s 15th largest economy.
While China, much of Europe, and Japan are aging, Mexico also has
excellent demographics. Its population tops 130 million; its median age is 29.
But, talented populist though he is, he hasn’t bought
support by launching a state spending spree. Even after the pandemic,
Mexico’s debt-to-GDP ratio still stands at a healthy 50%,
because the leftist López Obrador, aka AMLO, has confounded critics by
both expanding the country’s tax base and keeping government spending in
check.
Nor does Mexico’s president face the problem of balancing
relations with multiple other countries. AMLO understands that his
country’s giant neighbor is its primary source of both opportunities and
challenges, and he’s invested in pragmatic relations with both Donald
Trump and Joe Biden. His economic ambitions center on strengthening and
expanding the USMCA trade agreement (NAFTA 2.0) rather than on hedging
bets on Europe and Asia.
Strong institutions
The
one area where AMLO is picking a fight that won’t help Mexico is on the
question of judicial oversight of government. At the moment, he’s going
after Mexico’s National Electoral Institute,
which administers elections, by trying to cut 80% of its funding. This
plan has filled Mexico City streets with hundreds of thousands of angry
protesters, who warn that if he succeeds, AMLO would undermine Mexico’s
ability to hold free and fair elections.
But the president isn’t
going to succeed. The country’s Supreme Court is going to rule against
him, and though AMLO can (and probably will) call on his own protesters
to block traffic, Mexico’s governing institutions are plenty strong
enough to keep the country moving forward.
In fact, that’s the
lesson from Mexico’s presidential election of 2006, which AMLO lost by
the smallest of margins and then rallied his supporters to occupy the
center of Mexico’s capital for many weeks. But as I wrote in September 2006,
the country’s political institutions absorbed that shock with no great
difficulty. Politics continued. The currency remained stable. The
economy moved forward.
AMLO has continued to wage war on a
political elite he believes is plagued with corruption and cost him
victory 17 years ago. But now, as then, Mexico is politically mature
enough to handle challenges even larger than we now see in the
president’s standoff with courts.
Finally, AMLO has given no
indication he wants to remove presidential term limits from the
country’s constitution, and unlike former US President Donald Trump and
Brazil’s former President Jair Bolsonaro, he and his party are genuinely
popular and have no need to contest the next election outcome with
violence. And all of AMLO’s likely successors agree with the merits of
nearshoring and deeper integration with the US, reinforcing the
country’s long-term economic stability.
Make no mistake: Mexico will
continue to face major challenges in the years ahead. Mexico must
continue to develop its infrastructure, energy, and water supplies to
fully benefit from nearshoring opportunities. Crime, corruption, and the
need to manage shifting US border politics will remain formidable
obstacles to progress. But advantages both external and internal provide
a solid foundation for progress.
theatlantic | “In the past two years,
democracies have become stronger, not weaker. Autocracies have grown
weaker, not stronger.” So President Joe Biden declared in his 2023 State
of the Union address. His proud words fall short of the truth in at
least one place. Unfortunately, that place is right next door: Mexico.
Mexico
is already bloodied by disorder and violence. The country records more
than 30,000 homicides a year, which is about triple the murder rate of
the United States. Of those homicides, only about 2 percent are
effectively prosecuted, according to a recent report from the Brookings Institution (in the U.S., roughly half of all murder cases are solved).
Americans
talk a lot about “the border,” as if to wall themselves off from events
on the other side. But Mexico and the United States are joined by
geography and demography. People, products, and capital flow back and
forth on a huge scale, in ways both legal and clandestine. Mexico
exports car and machine parts at prices that keep North American
manufacturing competitive. It also sends over people
who build American homes, grow American food, and drive American
trucks. America, in turn, exports farm products, finished goods,
technology, and entertainment.
Each
country also shares its troubles with the other. Drugs flow north
because Americans buy them. Guns flow south because Americans sell them.
If López Obrador succeeds in manipulating the next elections in his
party’s favor, he will do more damage to the legitimacy of the Mexican
government and open even more space for criminal cartels to assert their
power.
We are already
getting glimpses of what such a future might look like. Days before
President Biden and Canadian Prime Minister Justin Trudeau arrived in
Mexico City for a trilateral summit with López Obrador in early January,
cartel criminals assaulted the Culiacán airport, one of the 10 largest
in Mexico. They opened fire on military and civilian planes, some still
in the air. Bullets pierced a civilian plane, wounding a passenger. The
criminals also attacked targets in the city of Culiacán, the capital of
the state of Sinaloa.
By the
end of the day, a total of 10 soldiers were dead, along with 19
suspected cartel members. Another 52 police and soldiers were wounded, as were an undetermined number of civilians.
The violence was sparked when, earlier in the day, Mexican troops had arrested
one of Mexico’s most-wanted men, Ovidio Guzmán López, the son of the
notorious cartel boss known as “El Chapo.” The criminals apparently
hoped that by shutting down the airport, they could prevent the
authorities from flying Guzmán López out of the state—and ultimately
causing him to face a U.S. arrest warrant.
The criminals failed. But the point is: They dared to try. If the Mexican state decays further, the criminals will dare more.
WaPo | Lisa Torres was glued to her phone, watching news reports on the
kidnapping last week of four Americans in the Mexican city of Matamoros.
She lived in the Houston suburbs, hundreds of miles away, but knew well
the pain of having a relative snatched on the other side of the border.
Her son, Robert, was just 21 when he vanished in 2017.
As
Torres flicked through social media posts describing the Biden
administration’s rapid response to the abductions, she grew increasingly
upset. Finally, after the Americans were found on Tuesday — two alive,
two dead — she took to Twitter.
“I’m so angry I couldn’t sleep, thinking about how my U.S. government acted in Matamoros with the kidnappings,” she wrote in Spanish.
What happened to the Americans was sad, she wrote. But at least they
were recovered. “This only confirms that my U.S. government can help,
and they didn’t, in the case of my son. WHY?”
More
than 550 Americans are reported as missing in Mexico, a little-known
facet of a broader tragedy that has honeycombed this country with mass
graves. Soaring violence and government dysfunction have fueled a crisis that’s left at least 112,150 people missing, according to government records here.
Americans
make up a small part of that ghastly toll. And they are a tiny
percentage of the millions of U.S. citizens who travel to Mexico every
year for tourism, work and family visits. But just as there’s been an
uproar in Mexico over the government’s all-out effort to find the four
Americans, compared with its far more limited search for its own
abducted citizens, relatives of the Americans still missing are asking
why their loved ones haven’t been a higher priority for Washington.
“We
see that when the U.S. government makes strong statements, there are
results,” said Geovanni Barrios, a lawyer whose 17-year-old son, a U.S.
citizen, was abducted in the border city of Reynosa in 2008. “But there
aren’t only four Americans disappeared in Mexico. We don’t see [the U.S.
government] making these statements about the hundreds of other missing
Americans.”
The
kidnappings on March 3 in Matamoros, across the border from
Brownsville, Tex., drew attention in part because a passerby recorded
men in bulletproof vests dragging three of the victims into a truck
a few blocks from the Rio Grande in broad daylight. The video quickly
went viral, and the abductions were swept up in a turbocharged American
political debate. Lawmakers in Washington were already expressing alarm
about Mexican cartels’ exports of fentanyl, which accounts for
two-thirds of overdose deaths in the United States. Some Republicans have called for military strikes on the armed gangs.
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