Silvergate Capital Corp (SICP)

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Crypto Ponzi scheme with the Banks making full circle explained by Michael Hudson:
BEN NORTON: Michael, another factor in this is crypto. While all of this is happening, it’s also in the wake of a disastrous collapse in big parts of the cryptocurrency industry.

You yourself have always been very skeptical and have criticized this crypto industry and you can talk about that — I mean I’ve done many interviews with you over the years. Going back on the record people can see that you were proven right about this.

Of course Silicon Valley Bank as its name suggests is definitely involved in the tech sector and Silicon Valley.

But before SVB collapsed we saw Silvergate collapse, and Silvergate was very heavily invested — or at least many of its depositors were companies invested in crypto.

And then on March 12th there was another bank that went down which — unlike SVB and Silvergate, which were in California — the third bank to go down was Signature Bank which is based in New York City. And thirty percent — almost one-third of Signature Bank’s deposits were cryptocurrency businesses.

So maybe you can talk about crypto’s role in all of this. And of course this comes at a time when Sam Bankman-Fried — the fraudster who ran the FDX exchange — he was exposed to the world for committing literal fraud, and losing billions of dollars really overnight.

MICHAEL HUDSON: Well the whole mythology and fantasy of crypto has been burst, especially with Bankman-Fried.

Crypto was supposed to be — they called it peer-to-peer lending. The peer-to-peer lending was, the person who bought the crypto took money out of the bank and paid for crypto with a bank transfer fee — was one peer.

Who’s the other peer? The other peer was Bankman-Fried, and he could do whatever he wanted with his money.

The crypto cover story was, “Well, we know that the economy’s messed up and we don’t like big government and we don’t like the bank, so here’s an alternative to the banks, putting your money in that bank and putting your money, depending on government fiat currencies.”

So people would put their money into crypto, thinking, this is something different from the banks. And yet it turns out — what did the crypto companies do?

If you get a billion dollars of inflow by people who want an alternative, what are you going to do with a billion dollars?

Well Bankman-Fried simply bought luxury real estate and gave money to the Democratic Part and a few Republicans for campaign contributions to buy influence.

But most of the crypto was put in Silvergate Bank or other banks, or government securities. I mean, where else are you going to put a billion dollars inflow?

You get a bank transfer from a bank. It goes into your bank account — you have to have a bank account somewhere to hold it. And what do you do?

The money that goes into crypto ends up in the very banks or the government securities that crypto’s supposed to be an escape from.

So all that crypto is, is a disguised bank or a mutual fund that has its money in banks and government securities.

Except it has secrecy, so that if you’re a criminal or a tax evader or a crook and you don’t want the government to know what you have, you’re willing to give a premium.

Just like the cocaine cartel who will pay ten percent or twenty percent for money laundering.

Crypto was a vast money laundering operation wrapped in an idealization — a fantasy — that it was an alternative to banks and government money, when of course the backing for the crypto was banks and government money.

Obviously when people begin to realize this, and saying, “Wait a minute, who is running the cryptocurrency that we’re holding? We don’t know what it is.” Because it’s crypto — that’s why it’s called crypto. And it can’t be regulated, because the government can’t know what’s in it or who’s paying what, because it’s crypto.

So there’s no way of regulating crypto, and needless to say, every mafiosi — every sort of financial crook — finds it’s like taking a candy from a baby. All you have to do is say that we have a an idealistic libertarian answer to socialism.

So crypto was the libertarian answer to socialism. And we’ve seen — I think socialism won that particular fight.

The banks of course — when people were selling the crypto, the cryptocurrency had to draw on its bank account. And when it drew on its bank account, the banks were left without money.

The banks that had to pay the crypto company to pay the crypto seller had to sell their bonds and packaged mortgages and take a capital loss on assets that they were carrying at original book value or purchase price, but that they were only getting the market price for.

So, the whole unraveling of all of this — reality raised its ugly head.

BEN NORTON: Professor Hudson you’ve written in an article about this, which is “Why the US banking system is breaking up.” And then you followed up and you said that “the US bank crisis is not over.” And you warned that it could spread.

And I just want to go over this briefly again just these numbers here.

The biggest bank to ever fail in US history was Washington Mutual and I was in 2008 during the financial crash and it had $307 billion in assets.

The second biggest bank ever to collapse in US history was Silicon Valley Bank with $209 billion in assets. So pretty close to Washington Mutual.

And Signature Bank was the third biggest bank to collapse, which had $118 billion in assets.

So clearly there are parallels to the 2008 crash.


https://michael-hudson.com/2023/03/bond-market-play-reveals-systemic-crisis/