Government bailout signals death of capitalism – Ken Griffin
The US government’s intervention in the unfolding banking crisis has been slammed by Citadel hedge fund founder Ken Griffin, who told the Financial Times the situation should have served as a good lesson for investors.
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According to the report on Monday, Griffin said the strength of the US economy meant the authorities did not have to take such forceful action. “It would have been a great lesson in moral hazard,” he was quoted as saying by the FT. “Losses to depositors would have been immaterial, and it would have driven home the point that risk management is essential.”
The CEO of the $62-billion hedge fund pointed out: “We’re at full employment, credit losses have been minimal, and bank balance sheets are at their strongest ever. We can address the issue of moral hazard from a position of strength.”
Griffin also lashed out at the US Federal Reserve over the banking turmoil, saying the regulator “was the definition of being asleep at the wheel.” “The US is supposed to be a capitalist economy, and that’s breaking down before our eyes,” he claimed. “There’s been a loss of financial discipline with the government bailing out depositors in full,” Griffin added.
Concerns over the health of the US financial system have grown since the failure of one of the country’s largest tech lenders last week. Silicon Valley Bank, which had over $200 billion in assets only a few months ago, imploded on Friday after what analysts called “a classic case of bank run.”
Alarmed over the state of the bank, depositors rushed to withdraw funds, which saw SVB’s shares crash and forced the Federal Deposit Insurance Corporation to shut the lender down. SVB became the largest US financial institution to collapse since the 2008 financial crisis.
SVB’s decline followed an announcement last Wednesday from California-based, crypto-focused bank Silvergate about its impending liquidation. On Sunday, New York-based Signature Bank was shut down by regulators, becoming the third failure in the US banking industry in less than a week.
On Tuesday, Moody’s ratings agency placed the First Republic Bank and five other American lenders on review for a downgrade. Global banking stocks have plummeted.