No, the Silicon Valley Bank Bailout Doesn’t Justify Mass Student-Debt Relief

By Charles C. W. Cooke

Monday, March 13, 2023

 

On Twitter, CNN’s John Harwood asks what he presumably believes is a rather clever question: “Will the same people who oppose student debt relief also oppose making Silicon Valley Bank customers whole beyond FDIC’s $250K insured-deposit limit?”

 

What a profoundly dumb political culture we live in.

 

I can answer Harwood’s question with one word: Yes. I oppose student-debt “relief.” I also oppose “making Silicon Valley Bank customers whole beyond FDIC’s $250K insured-deposit limit.” But we should not pretend that these two issues are interchangeable, nor insist that those who answer Harwood’s query with a “no” are hypocrites. I understand that it is fashionable at present to pretend that every political issue that we debate is inextricably linked; for a good example of this phenomenon, consider how often you now see absurd sentences such as, “The reduced mill rate in Eggton County is a women’s-rights issue!” I know that politics is politics is politics. But truth matters, too, and I’m afraid that, while it might be convenient for progressives to pretend that the topics Harwood is conflating are identical, they are, in fact, no such thing.

 

Because I worry about the obvious moral hazards that are associated with such a move, I am strongly opposed to the federal government taking any action beyond what it was already legally obliged to do in a situation such as this one — which was (1) to use the FDIC to honor per-client deposits up to $250,000 and (2) to manage the sale of Silicon Valley Bank or its assets, so that depositors could be made as whole as they can be without outside interference. We have such rules in place for a reason, and, by treating those rules as if they were infinitely malleable, the Treasury has signaled to every bank in the country (or, at least, every bank in the country that the Treasury happens to favor) that, as a de facto matter, all of their deposits will be backed by the federal government. Human nature being what it is, this development is going to cause problems.

 

Nevertheless, there is a general-welfare claim here in a way that simply does not apply to President Biden’s illegal student-loan order — which, if we’re drawing analogies, is akin to the Treasury deciding on a whim to bail out the healthiest banks in the land. The purpose of the federal government’s intervention with Silicon Valley is to prevent a broad-based run on the banks that ends up severely damaging, or even destroying, the economy. The purpose of Biden’s student-loan play is to give money to people who spent a lot of cash on a consumer product that they received in full, and who, for entirely selfish reasons, would now like to have both the product they bought and the money they spent obtaining it. As a matter of political prudence, we can debate whether the Federal Reserve’s decision to guarantee all deposits at Silicon Valley Bank was necessary to achieve the aims by which it was justified, and, beyond that, we can debate whether it was an appropriate use of federal power. On both questions, I’m a “no.” But the existence of that legitimate debate does not require us to pretend that there is a useful comparison to be drawn between it and what Biden is trying to do with student loans. There’s not.

 

This is especially true when one considers that, pace all the caviling, the federal government has, in fact, chosen to provide “relief” from student loans when it considered the circumstances to be comparable. Last June, the Biden administration wiped out $6 billion worth of student-loan debt that was held by the more than 200,000 students who had attended schools that had allegedly defrauded them. This decision, Secretary Cardona announced, was “based on strong indicia regarding substantial misconduct by listed schools, whether credibly alleged or in some instances proven,” and was designed to reimburse consumers who, through no fault of their own, had spent their borrowed money on a faulty product. Cardona’s move was not without controversy — the Trump administration had declined to use the program, describing it as “free money” — but it at least drew a comprehensible line between borrowers who had invested their money in an institution that they believed to be kosher but was not, and borrowers who had invested their money in a legitimate institution from which they benefited in full. This being so, one could reasonably reverse Harwood’s question and ask, “Will the same people who support writing off the debts of students whose colleges collapsed around them also oppose making Silicon Valley Bank customers whole beyond FDIC’s $250K insured-deposit limit?”

 

Which is all to say that the correct analogy to draw between Biden’s unconstitutional attempt to write off $400 billion in student-loan debt is not with the crisis at Silicon Valley Bank, but with the banks that are running just fine. There is no “crisis” of student-loan debt; there are a lot of people who borrowed money to pay for a product they received. There is no “systemic” problem with student-loan debt; not only do college graduates earn more than everyone else on average, but, for more than three years now, the Treasury has stopped collecting student-loan repayments from anyone in the United States — at a cost of nearly $200 billion — on the extremely frivolous grounds that to do so would provoke hardship. Nor is there a risky “contagion effect” with student-loan debt — except, that is, for the federal government’s apparent desire to convince everyone in America that they should attend college irrespective of whether it makes sense, and that, when they’ve done so, they should recast themselves as the most hard-done-by victims in our society.