SVB Rescue... US Hedge Fund King Declares "Collapse of Capitalism" (Comprehensive)

Revival Through Public Fund Injection, Moral Hazard Deepens

Kenneth Griffin, founder of the hedge fund Citadel and a major political donor to the U.S. Republican Party, sharply criticized the Biden administration's bailout of Silicon Valley Bank (SVB), saying it demonstrated the collapse of American-style capitalism.

According to Bloomberg and other outlets on the 14th (local time), Griffin said in an interview with a British media outlet the previous day, "The capitalist economy of the United States is collapsing before our eyes," and criticized, "The government has bailed out all depositors, undermining financial discipline."

This raised questions about whether the federal government was once again rescuing Wall Street by implementing a comprehensive policy package aimed at preventing the SVB bankruptcy crisis from spreading risk throughout the U.S. financial sector.

He believes that assessing investment risks and taking responsibility for them lies with individual investors, and that using public funds to save failing companies is nothing but the collapse of American-style capitalism.

On the 12th, the U.S. Treasury Department, Federal Reserve, and Federal Deposit Insurance Corporation (FDIC) announced that they would protect all deposits exceeding SVB's insured limit, covering over 90% of total deposits, focusing on preventing a chain reaction of mass withdrawals (bank runs) caused by panic.

This was to quickly block the contagion of the SVB collapse spreading to other areas of the financial sector. In fact, indicators such as the New York Stock Exchange stabilized rapidly the day after the bailout package announcement, suggesting short-term effectiveness.

Griffin stated, "Even without government intervention, (U.S. financial sector liquidity) is strong enough," and directly criticized, "This was a great opportunity to teach a lesson about moral hazard, but the government missed that chance." He pointed out that active government intervention could encourage moral hazard in the financial industry and disrupt a sound market order.

[Image source=Reuters Yonhap News]

Carson Block, founder of Muddy Waters Capital, also said, "Depositors should be able to manage the risks of the banks they invest in themselves," and criticized, "Protecting deposits exceeding SVB's insured limit is anachronistic."

Cliff Asness, co-founder of global investment management firm AQR Capital Management, wrote on his Twitter, "Depositors were deprived of the opportunity to consider the risks of where they put their money," and said the government should not have bailed out SVB's depositors.

On the other hand, some argue that this measure is not a bailout but a proper act of depositor protection. Bill Ackman, chairman of Pershing Square and a U.S. hedge fund magnate known as the "Little Buffett," emphasized the day before, "The important thing is that the government sent a message that depositors can trust the banking system."

Ackman drew a clear line regarding the U.S. government's emergency measures, saying, "This is intervention for depositor protection, not a bailout," and viewed it as different from the 2008 financial crisis measures when the government injected taxpayer money into banks in the form of preferred shares as a bailout.

He added, "Had the government not intervened, a 1930s-style bank run would have continued, causing massive economic damage and hardship for millions," and emphasized, "Although more banks may fail despite government intervention, the government has provided a clear roadmap for managing banks."

On the 10th, SVB, which experienced a bank run, declared bankruptcy, plunging the U.S. financial investment industry into chaos. With total assets of $209 billion (approximately 277 trillion won), SVB was the largest commercial bank (CI) in Silicon Valley and the 16th largest bank in the United States. It is the second-largest commercial bank in U.S. history to enter resolution proceedings, following Washington Mutual, which disappeared during the 2008 global financial crisis.