LEVER WEEKLY: Banks Say Let Them Eat Interest Rate Hikes

This is Lever Weekly, a recap of all of The Lever’s work from the past week. If you only read one email from us all week, this should be it.

Following links to all of our articles, you’ll find our weekly column connecting the dots on our coverage to deliver important takeaways. In this week’s essay, which we are opening to all subscribers, Rebecca Burns chronicles how the Federal Reserve is continuing to wage its war on workers — while sparing the banking sector from the pain of ongoing interest rate hikes.

(Scroll to the bottom to read the column.)

Rock The Boat.

Stuff The Lever Reported This Week:

• Document Shows Regulators Knew Of SVB Risk Five Years Ago — Bank overseers published a 2018 report with a major red flag about Silicon Valley Bank — and then they ignored it.

• Facing Collapse, Trump-Linked Bank Fought Regulators — Only months before its troubles, First Republic pressured bank overseers to preserve the status quo.

• How Vallas Helped Wall Street Loot Chicago’s Schools — Chicago’s mayoral aspirant enriched banks and helped create a financial crisis for the nation’s fourth largest school system.

• Biden And Becerra Let Big Pharma Profiteer Off Cancer Drug — Rejecting cancer patients’ petition, the Biden administration refuses to use the power its HHS Secretary demanded Trump use.

• Verizon Organizer Gets His Job Back — Verizon reinstates a retail worker it fired for union activities under a settlement with the National Labor Relations Board.

Stuff To Watch & Listen To:

• LEVER TIME: She Was Blocked for Being Right on Banks — Saule Omarova’s warnings about deregulation were rejected.

• LEVER TIME PREMIUM: LEVER TIME PREMIUM: Fire Fed Chair Powell? — The Lever takes aim at the nation’s chief banking regulator.

• WATCH NOW: Meet The Champions Of Banking Deregulation — See who helped slash bank rules before Silicon Valley Bank’s collapse, what they said at the time, and what they’re saying now.

• MOVIES VS. CAPITALISM: Brazil (w/ Melanie Vesey) — On this week’s MVC, the team digs into Terry Gilliam’s dystopian black comedy.

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Let Them Eat Interest Rate Hikes

By Rebecca Burns

“Raise your hand if you’re having a hard time hiring staff right now,” asked an executive of the banking industry’s top lobbying group, pantomiming a count of the audience.

“A good number of hands in the crowd — almost a majority if I’m not blind,” he concluded.

That not-so-scientific poll, meant to illustrate workers’ pesky lack of desperation amid still-low unemployment, took place at the American Bankers Association’s annual Washington summit last week.

Attendees at the bank lobbying group’s event were awaiting news of whether the Federal Reserve would go forward with its ninth-straight interest rate hike, while listening to friendly keynote addresses by congressional leadership from both parties — even as public anger mounts at yet another government bank bailout.

The central bank’s aggressive rate hikes are a key factor behind the latest round of shocks to banks, whose investment securities collectively lost $600 billion worth of market value due to rising rates. Yet the assembled bankers and economists appeared unbothered about whether the Fed’s actions might make the crisis worse, and focused instead on the imperative of suppressing wages and worker bargaining power.

There's a good reason for that. After Fed Chairman Jerome Powell, a former private equity executive, declared war on workers in order to drive down wages and fight inflation last year, it looked briefly like the banks might become collateral damage. But the Fed moved quickly to shield the banks — and only the banks — from the impact of its actions before announcing Wednesday that it would raise rates by another quarter-point.

That means that while ordinary consumer borrowers struggle, banks will have access to what one financial analyst recently called “the biggest bailout to the banking sector since the great financial crises.” A new Fed lending facility, launched the same day the central bank voted to bail out Silicon Valley Bank, has already injected more than $53 billion into financial institutions at highly favorable terms.

The double-standard was on full display at the ABA summit, where former Fed Vice Chair and Brookings Institution senior fellow Donald Kohn bemoaned that wages are “still too high” and predicted that rate hikes will continue — while telling the bankers in the audience that the Fed’s latest actions should provide “foam on the runway” to banks, in order to “make the landing as safe as possible.”

The Fed will even avoid releasing the names of banks that use the facility until a year after its end, to protect their reputations and avoid tipping off the public to any signs of trouble with their balance sheets.

That means banks shouldn’t be too proud to ask the government for help, Peter Cook, the ABA’s chief communications officer, told the audience. “There’s still the stigma concern — that if you do this, it’s a sign of weakness,” he said of using the Fed’s emergency lending facility. “That’s not how folks should look at this.”

It’s the latest in a long line of rescues extended to financial elites during crises — from the COVID-19 pandemic to the housing market crash — while politicians stigmatize and demonize workers and families receiving government aid, and reduce and eliminate those aid programs altogether.

Indeed, most of the modest help extended to Americans during the pandemic — from enhanced unemployment assistance, to increased food stamp payments, to universal free-school lunches, to expanded Medicaid coverage — has either already ended, or soon will. COVID-relief checks are a thing of the past, too.

The latest interest-rate hike is likely to strike yet another blow to workers, but the banks won’t feel the pain. Instead, they’ll get another handout — if they want it — and face little stigma from the Washington political class.

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