The Old Policy Issues Behind the New Banking Turmoil - Many of the issues surrounding the closure of Silicon Valley Bank are the same ones that the 2008 crisis raised. - link
Why Did the Biden Administration Approve the Willow Project? - Drilling for more oil in the Alaskan Arctic would be, in the President’s own words, a “big disaster.” - link
What We Talk About When We Talk About Trans Rights - Masha Gessen on the public discourse over trans identity, the real reasons for the culture war over gender, and how well-meaning people can do better. - link
Nicholas Humphrey’s Beautiful Theory of Mind - In his new book, “Sentience,” a neuropsychologist argues that consciousness evolved to make us feel that life is worth living. - link
What the Saudi-Iran Deal Means for the Middle East - Brokered by China, the agreement between the two regional rivals reflects shifting economic—and ideological—alignments. - link
From Vox
Are Elon’s Tweets turning car buyers against Tesla? -
Elon Musk speaks at the World Government Summit in Dubai, 2023. | Karim Sahib/AFP via Getty Images
And there’s no reason to think any of this will change as long as Musk owns the thing. Because Musk = Twitter. Full stop.
Fine. What about Tesla, the EV company that made Musk wealthy enough to buy Twitter in the first place? That company has also been tightly linked to Musk’s persona, and it seems like it’s doing just fine: Tesla says the last three months of 2022 were its best quarter ever. We should get another update from the company in April.
So here’s an open question: Will Musk’s behavior on Twitter, and as Twitter owner, ever have an effect on Tesla?
If you have followed the Musk Twitter saga carefully, you’re well aware of Musk’s penchant for saying and doing things you might find repellent. This month, for instance, he publicly mocked a fired employee for his disability. The only real surprise about that incident was that Musk ended up apologizing for it, calling it a “misunderstanding.” A few days later, Musk started tweeting his support for Jacob Chansley, the “QAnon Shaman” who participated in the January 6 riot and who is in jail after reaching a plea deal with federal prosecutors.
But people on Twitter spend a lot of time thinking and talking about Twitter. Most people don’t use Twitter. Do they know or care about what Musk is doing there — and if so, will it change their opinion about owning a Tesla?
Some data suggests it could already be happening.
For starters, Tesla is no longer the only game in town when it comes to EVs. Plenty of automakers now compete in the market, and they seem to be making headway. A year ago, for instance, 17 percent of potential EV buyers told surveyors at YouGov that their first choice was a Tesla — more than any other brand. Now that number has dropped to 9 percent, outpaced by both Toyota and BMW.
That sentiment seems to be turning up in actual sales, too. Tesla’s US market share declined to 58 percent in the fourth quarter of 2022, down from 78 percent a year earlier.
There are multiple reasons why you might want to buy an EV that isn’t a Tesla. YouGov says potential buyers say price is most important to them, and Teslas have never been cheap. Safety is also a big consideration for buyers, and recurring reports of Tesla’s issues — like steering wheels falling off and multi-car pile-ups — may not help.
While YouGov hasn’t asked would-be EV buyers if their opinion of Musk affects their opinion of Teslas, it has asked the general population about their opinion of Tesla — and it has been going down since last spring, when Musk first announced that he was going to buy Twitter, and then spent months trying not to buy the company. In November, shortly after Musk bought Twitter, Tesla’s “net favorability” score became negative, meaning more people disliked the company than liked it.
There is, however, potential upside for Musk: While more people dislike Musk than before, more people also like Musk than ever before. Whether those new Musk fans are Tesla buyers, or will ever become Tesla buyers, is a question we can’t answer at the moment.
Again: It’s possible that an expanded EV market, and the headstart Tesla earned itself by more or less creating that market, will be enough for Tesla to enjoy record sales for years to come, regardless of Musk’s antics at Twitter.
But it’s been a very long time since car buyers associated their car purchase with the man running the car company — if the words “Lee Iacocca” mean anything to you, you are likely not a young person. We’ve never had a car company run by a guy who’s so addicted to Twitter that he bought the whole company. Now we’re running a real-world experiment to figure out if that was a good idea.
Why the Silicon Valley Bank collapse couldn’t have happened in this one state -
The Federal Reserve Bank of Boston doesn’t insure deposits (that’s the Depositors Insurance Fund), but it does look cool. | Paul Marotta/Getty Images
Don’t want to lose your bank deposits? Simple: Bank in Massachusetts.
In Michael Mann’s 1995 movie masterpiece Heat, bank robber Neil McCauley (Robert De Niro) explains to panicked bank customers that he has no intention of hurting them: “We’re here for the bank’s money, not your money. Your money is insured by the federal government. You’re not gonna lose a dime.”
As clients at Silicon Valley Bank (including my employer, Vox Media) learned last week, McCauley’s promise isn’t quite true. Deposits at banks and credit unions are indeed insured by the federal government, but only in cases of bank insolvency, and only up to $250,000 per person, per bank. If an individual or business deposits more than $250,000, that amount could vanish if the bank fails.
As someone who enjoys getting paychecks from the business that employs him, this concerned me,until the Fed, Treasury, and Federal Deposit Insurance Corporation (FDIC) eventually stepped in to guarantee all Silicon Valley Bank deposits. But while even those with more than $250,000 deposited were made whole this time, uninsured US depositors do, in practice, lose money with some frequency. A 2020 report from economists at the FDIC, which insures deposits at banks, found that a significant share of bank failures from 1980 to 2013 resulted in uninsured depositors losing some funds. From 1980 to 1987, as the savings and loan crisis began, some 24 percent of bank resolutions resulted in losses for depositors; from 2009 to 2013, after the financial crisis and reforms meant to protect deposits, 6 percent did. In the non-crisis period from 1992 to 2007, a staggering 65 percent of bank failures resulted in deposit losses.
But there is one state in America where this is simply not a problem. Since 1934, not a single depositor at an insured bank in Massachusetts has lost a dime. All deposits above the $250,000 federal limit are insured by a private entity — the Depositors Insurance Fund (DIF). Massachusetts law requires banks and credit unions to pay premiums to the DIF, which in turn guarantees depositors in case of bank failure. Such failures are rare in Massachusetts these days; only one bank, Butler Bank in Lowell, failed in the financial crisis. But in the S&L crisis in the ’80s, 44 banks failed in the state, over a quarter of all banks. In each case, depositors were made whole.
How did this come about? What does it mean for banks and consumers? And is something that came out of Massachusetts worth emulating for the rest of the country?
The Massachusetts deposit insurance experience [fireworks erupt, people hoot and holler in excitement]
Generally, when only one state in the US has a particular policy, it means one of two things. Option one is that it’s the only state that’s ever tried that policy, due to its particular, unique history. The Bank of North Dakota, owned and run by the state government and created during a short stint of quasi-socialist control of the state, is one of the former; no other state has ever set up a government bank, despite many attempts by advocates.
Option two is that a bunch of states have tried the policy, but all but one have since abandoned it. Maryland’s health care system, where all insurers pay the same prices, is one example, and Massachusetts’s banking system is another. A number of states tried deposit insurance systems in the wake of the Panic of 1907, but all of them failed due to either rapid deflation after World War I or the Great Depression a few years later. A few decades later, some states tried again to institute private deposit insurance programs; Ohio was the first, in 1956, while California, Iowa, and Kansas were the last, in 1981. But most of these systems wound up collapsing by the early 1990s, unable to pay what they owed.
Walker F. Todd, a lawyer then at the Cleveland Fed, argued in a 1994 paper that the state failures were largely about regulatory capture. The state funds couldn’t supervise banks enough to discourage risk-taking, or charge them enough in premiums so that the fund could cover them in the event that their inevitable risk-taking inevitably led to big losses. He blamed this on the banks’ influence over state political systems, which meant that state legislatures were inclined to allow risk-taking and disinclined to increase premiums.
So how did Massachusetts avoid this in the 1980s? For one thing, it used the FDIC as a backstop. Stone notes that in 1956, the DIF transitioned to only covering deposits in excess of the FDIC limit. That meant that the bulk of the cost of bank failures still fell on the Feds — unlike in, say, Rhode Island, where banks mostly lacked any federal insurance, relying instead on the state program. In 1985, after other state insurers began collapsing, the Massachusetts commissioner of banks required banks in his state to get FDIC insurance, too. The result was an unusually resilient insurance system that withstood even the spree of 1980s bank closures.
The DIF, which in its current form combines a number of predecessor groups that specialized in insuring different types of banks and credit unions, takes pride in the fact that depositors in its institutions have never lost a cent. “Even during the 1980s, when nineteen DIF member banks failed, the DIF insured $250 million in excess deposits,” Anna-Leigh Stone, an economics professor at Samford University who has studied the Massachusetts system, notes in a paper.
Stone’s research finds that the insurance makes people willing to leave more money in Massachusetts banks: Compared to similar banks elsewhere in New England, she finds that Massachusetts banks held 5 to 6 percent more deposits over the FDIC’s limit. Somewhat surprisingly, she finds that the Massachusetts banks did not use these additional deposits to make more loans, perhaps because the additional scrutiny of the DIF discouraged risk-taking.
Another paper by economists Piotr Danisewicz, Chun Hei Lee, and Klaus Schaeck published last year also examines the Massachusetts system. Unlike Stone’s, this paper finds that both deposits and lending are higher in Massachusetts compared to a control group of non-Massachusetts banks with branches in the state. But the increased loans, they find, tend to be prudent and not unduly risky. Stone told me the difference was due to slightly different control groups in each study, but both papers found fairly responsible behavior on the part of covered banks.
The risks of insuring all deposits
Sounds nice! But deposit insurance is not without its problems and critics. If insufficiently funded, or lacking a formal government promise to rescue the fund if it becomes insolvent, private insurers can fall apart, as happened in many states. But the bigger concern many economists have about deposit insurance is that its existence might make bank failures more common.
Charles Calomiris at Columbia University is the most famous exponent of this view, acrossa numberofpapers. Writing in the Wall Street Journal about Silicon Valley Bank this week, he argued that “Virtually every academic study of deposit insurance shows that it promotes, rather than reduces, banking system fragility.”
The key claim here is that people keeping deposits at banks should be watchfully examining those banks, seeing how stable or solvent they appear, and switching between banks based on what they find. This would exert discipline on the banks to behave more responsibly. While it’s unrealistic to expect most people to exert this kind of diligence, Calomiris argues that we could be “free riders on informed discipline” exerted by more watchful depositors, like other big banks.
By contrast, when deposit insurance is generous, clients have little reason to check up on the place where their money is stashed. For instance, I use USAA for checking and savings, my balances are way below $250,000, and I simply do not worry at all about what happens if USAA fails. This problem is known in economics as “moral hazard”: the tendency for actors to take on more risks if they’re insulated from the consequences of those risks. USAA is not a particularly risky bank, but whatever risks come with parking my money there are the FDIC’s problem, not mine. I’m totally insulated from any risk. And because I’m insulated from risks, I’m not going to discipline my bank, which means that bank in turn is going to take bigger risks.
Factors like this are why some systems are moving away from expansive deposit insurance. For instance, Germany, which has long had a byzantine system of voluntary private deposit insurance schemes that amounted to near-full coverage of deposits, is in the process of reducing the coverage those schemes offer, in part to align with other EU members that have less generous systems. The hope is that this will reduce the moral hazard problem going forward.
While Calomiris is right that severalstudies, including hisown, have found evidence that banks generally take more risks when they get deposit insurance, the economists who’ve studied Massachusetts’s system noted that they found little evidence of it in that specific context. “We were kind of surprised that in the Massachusetts setting we don’t find evidence for it,” Schaeck told me. “In fact, what we see in this specific setting is that banks seem to be more prudent.”
The Silicon Valley Bank collapse also presents an interesting challenge to the theory that without insurance, depositors will exercise useful disciplinary oversight over banks. In a way, this is precisely what led to the bank’s failure. The vast majority of its deposits — 89 percent as of the end of last year — were not insured. Depositors had a huge incentive to monitor the bank. And they did. The bank’s failure was precipitated by massive withdrawals, which were in turn precipitated by depositors reading an update on its finances posted on March 8, inferring that it was in trouble, and publicizing this finding on social media. Depositors and tech investors like David Sacks and Jason Calacanis took to Twitter to encourage people to panic:
Where is Powell? Where is Yellen? Stop this crisis NOW. Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday open or there will be contagion and the crisis will spread.
Here’s the thing: Calacanis and Sacks were behaving exactly like depositors are supposed to behave in a situation without deposit insurance. They’re supposed to monitor the financial health of the place they’ve put their money and pull out if they sense their money is in danger, in part as a signal to other, less plugged-in depositors to do the same. But this time, that behavior contributed to a run on the bank and its eventual collapse.
The distinction between “responsible depositor oversight” and “starting a massive bank run” turns out to be rather fine in practice.
Should America follow the Massachusetts model?
I asked researchers who’ve looked into the Massachusetts system if they think it could be a potential model for the US as a whole. They were cautiously supportive. “It’s a system that could and probably should be explored,” Stone said. “As we argue in the paper, there are many, many benefits,” Schaeck agreed. He likes that the Massachusetts system is private and effectively managed by a club of bankers, who have an incentive to check up on their competition. But Stone and Schaeck both note that Massachusetts’s banks are rather small, and none of them are large, systemically important institutions like JPMorgan Chase or Bank of America.
Those two, Wells Fargo, and Citigroup each have over $1 trillion in deposits, per last quarter’s FDIC filings. Chase and BoA have over $2 trillion. The FDIC, by contrast, has only $128 billion in its deposit insurance fund. While not all of the big banks’ deposits are insured, it’s safe to say that if JPMorgan Chase failed tomorrow, the FDIC’s deposit insurance fund would be emptied very quickly. Realistically, there’d be a large-scale bailout as in 2008 to prevent further economic fallout, and expectation of those bailouts can and does lead these banks to act recklessly. They’re a true moral hazard.
The FDIC’s fund would have to be significantly bigger if it decided to insure all deposits, especially at those large, systemically important banks. And that could be a political problem. The fund comes from premiums charged to banks; Massachusetts’s DIF charges its own premiums, meaning operating a bank there is more expensive. Banks really hate it when you make them pay more premiums. Just this past October, they cried havoc when the FDIC proposed raising the price of deposit insurance, stating, “banks are in excellent financial condition, so the FDIC’s action is a preemptive strike against a nonexistent threat.” Whoops.
That statement sounds ridiculous now, but the fact remains that banks wield considerable political influence and can often stop things like higher FDIC assessments or push related deregulation. They would argue that an increased premium would be passed on to consumers in the form of lower interest rates, and they might be right about that.
Another option would be to cut out the banks entirely. A proposal known as “FedAccounts,” from three financial regulation specialists — Vanderbilt’s Morgan Ricks, Columbia’s Lev Menand, and UC Law SF’s John Crawford — would let everyday individuals and businesses keep accounts at the Federal Reserve. Unlike a normal bank, the Fed wouldn’t lend out these deposits, so there would be no risk of them being lost in the way Silicon Valley Bank lost its deposits. As Ricks told me back in 2020, when the proposal was going around as a way to deliver stimulus payments, “Virtually every financial crisis in US history and world history has involved runs on money instruments or money substitutes. Runs on this stuff is the preeminent source of acute macroeconomic disasters.”
Indeed, what we just saw at Silicon Valley Bank was a classic run on money. If its clients had been able to keep money at the Fed, earning the normal Fed interest rate, none of this would have happened.
Of course, banks would hate this plan even more than increased FDIC fees. But given the events of the past week, that could be a good reason to try it.
Russian aircraft collided with a US drone, risking Ukraine escalation -
An MQ-9 Reaper drone with Customs and Border Protection (CBP) awaits the next mission over the US-Mexico border on November 4, 2022, at Fort Huachuca, Arizona. | John Moore/Getty Images
This is an “unsafe and unprofessional act by the Russians,” the US said.
A Russian warplane forced down a US drone over the Black Sea, the US says, another reminder of the potential escalation risks tied to the Ukraine war.
According to US officials, an MQ-9 drone was conducting “routine” reconnaissance operations at about 7 am local time Tuesday over international waters, when it was intercepted by Russian jets. The aircraft collided with the drone, which damaged its propeller, forcing the US to bring down the drone. “This unsafe and unprofessional act by the Russians nearly caused both aircraft to crash,” Gen. James B. Hecker, the commander of the US Air Force in Europe, said in a statement Tuesday.
Russia denies its aircraft collided with the drone, saying the US drone crashed because of its own maneuvers.
The US said it would continue to conduct missions in international airspace, and called on Russia to conduct itself safely. “This incident follows a pattern of dangerous actions by Russian pilots while interacting with U.S. and Allied aircraft over international airspace, including over the Black Sea. These aggressive actions by Russian aircrew are dangerous and could lead to miscalculation and unintended escalation,” the statement read.
When asked for more information on those alleged previous Russian actions, Megan A. Crusher, public affairs officer for US Air Forces in Europe, said they were “gathering details” and would be in touch with additional information.
The collision, if confirmed, would be the first physical military contact between Russia and the US since the start of the Ukraine war. It is another sign of the larger geopolitical tensions undergirding that conflict. Russia is pressing forward with its offensive, still trying to take Ukrainian territory. At the same time, the United States and its allies are providing Kyiv with economic and security aid that make it possible for Ukraine to fight the war, and potentially deter Russia’s advance and reclaim its territory. The West’s deep involvement, and Russia’s uncompromising focus on pushing ahead with its invasion, are ultimately putting two nuclear superpowers at odds.
So far, Washington appears to be trying to de-escalate the situation, warning Russia about the risk of escalation, while emphasizing the need for professional and safe conduct. Pentagon Press Secretary General Pat Ryder said Tuesday that the US drone was flying over a “busy and international waterway” and this was not an unusual mission for the US, especially this past year.
The White House and the Pentagon also emphasized that intercepts with Russian aircraft were not uncommon occurrences, either — that is, Russian jets just want to see what’s flying around up there. (The Russian jets were flying alongside the US drone for about 30 or 40 minutes before the hit.) Ryder emphasized that the vast majority of these intercepts are safe and professional; what’s different this time is that the Russian jet collided with the US drone and damaged it.
It’s unclear whether the Russian aircraft was also damaged as a result of the collision. The Russian Ministry of Defense said in a statement that the US drone “sharply maneuvered,” and then crashed after an encounter with Russian jets near Crimea, which Russia considers part of its territory — all in all, a pretty different take on the incident.
The United States and Russia have had close calls before, including in Syria, where US and Russian jets had midair near misses. As a result, Washington and Moscow set up a “deconfliction” line in Syria, to communicate and avoid other miscalculations. At the start of the Ukraine war, Russia and the US again maintained such a deconfliction line to avoid the potential for similar miscues that could push the two nuclear powers into a more direct confrontation. As of November, it has only been used once, according to reports. Crusher, with US Air Forces in Europe, confirmed to Vox that, ahead of the Russian collision, “no inbound calls to or outbound calls from the deconfliction line were made regarding this incident.”
Right now, the United States and Russia are offering two different takes, which is a troubling sign in any crisis moment. More details are likely to emerge in the coming days and weeks that might offer a clearer picture of the incident.
But this is also part of a larger story, about how the instability in Ukraine perpetually threatens to spill over, either from an apparent blunder or provocation. In November, an errant missile from a Ukrainian air defense system landed in Poland, killing two. This aircraft collision again shows the dangerous balancing act betweenMoscow and Washington, and how one miscalculation or ill-timed move carries with it the risk of the conflict spreading beyond Ukraine.
From The Hindu: Sports
Explained | What is the latest scandal involving F.C. Barcelona? - A look at the refereeing controversy involving Barcelona, which has surfaced as the club is still trying to recover from one of its worse financial crises and the departure of Lionel Messi
Ashwin regains No. 1 spot in ICC Test bowlers rankings - Ashwin grabbed a haul of six for 91 in the drawn 4th Test and was the leading wicket-taker in the Border-Gavaskar Trophy with 25 wickets
Women’s World Boxing Championships: India eyes strong show at home - 13th edition of Women’s World Boxing Championship will feature over 300 boxers from 65 countries
Erling Haaland equals Champions League record, scores 5 in Man City’s 7-0 win over Leipzig - The victory over RB Leipzig, which equalled Manchester City’s biggest European win, sent Pep Guardiola’s side into the quarterfinals 8-1 on aggregate
Morning Digest | U.S says Russian warplane hits American drone over Black Sea; RBI has allowed banks from 18 countries to trade in rupee, and more - Here’s a select list of stories to read before you start your day
From The Hindu: National News
KSRTC student concession will be limited to those from weaker sections: Minister - ‘Transport utility has incurred liability of ₹388.13 crore during 2016-2022 and ₹503.35 crore from 2007-08 to 2015-16 by providing concessions to students’
CUET-UG to be conducted in three shifts; merger with JEE, NEET to be announced two years in advance: UGC chief - “The schedule of the exam has been compressed this year to 10 days instead of over one and half month,” he said
Agri-horti mela at Navule from March 17 -
Opposition MPs fire fresh salvo against govt. over Adani involvement in defence sector -
DC tells officers not to avoid poll duty - He says only genuine reasons will be considered after detailed check Don’t come to me with requests for relieving them from election duty citing unsubstantiated reasons which I won’t be considering and such requests would fall on the deaf ears: Mr K V Rajendra
From BBC: Europe
Stock markets hit again by banking worries - Shares in European banks fall as investors remain nervous after the collapse of Silicon Valley Bank.
Russia pilots reckless in drone collision - US - A US surveillance drone plunged into the Black Sea following an encounter with Russian jets.
RAF and German jets intercept Russian aircraft near Estonian airspace - Two Typhoon jets are scrambled to intercept a plane flying between St Petersburg and Kaliningrad.
Wolves back in Belgium after 100 years, sparking controversy - Conservation measures mean the predators are back in Belgium after 100 years. Not everyone is happy.
German military boost fails to spend single euro - A plan to strengthen the army in the wake of the Ukraine war has been “pitiful” so far, an MP says.
From Ars Technica
All the ways the most common bit of climate misinformation is wrong - We’ve looked at natural cycles and causes. None of them can produce this warming. - link
Google Workspace launches annual plans, 20% price increase for monthly users - Higher prices are live for new users; existing user prices increase next month. - link
Here’s why slashing insulin prices will actually save Big Pharma money - The cuts will kick in just as a federal cap on Medicaid payments is eliminated. - link
Report: Microsoft cut a key AI ethics team - Expert calls decision “damning,” says it’s time for regulators to get involved. - link
Here’s our first look at Kia’s EV9 three-row electric SUV - The EV9 was designed with American tastes in mind and goes on sale later this year. - link
From Jokes Subreddit
I’m not circumcised so I only date Canadian Women… -
TIFU when my wife asked when I knew I loved her. -
I said “We were in Rome, the way you knew so much about the city like it was second nature to you. But I never felt you were condescending to me when I’d ask stupid questions. I saw how much you knew, how passionate you could be. I’d been bored by all the old buildings, but you brought it all to life. I think that weekend, was when I realised you could be the best thing about my life.”
She didn’t speak for a while, just looked at me until she said three words.
