Billionaire hedge fund titan Ken Griffin slammed the US government’s decision to backstop all depositors who had money in Silicon Valley Bank, saying it was a sign that “capitalism is breaking down before our eyes.”
“The US is supposed to be a capitalist economy, and that’s breaking down before our eyes,” Griffin, whose net worth is pegged by Forbes at $32.6 billion, told Financial Times on Monday.
Griffin blasted the Biden administration for pledging to make depositors — including those with accounts totaling more than the $250,000 federally insured threshold — whole following the meltdowns of SVB and Signature Bank over the weekend.
“There’s been a loss of financial discipline with the government bailing out depositors in full,” Griffin told FT.
The Citadel boss said that government agencies in charge of making sure that banks’ operations are sound missed the boat.
“The regulator was the definition of being asleep at the wheel,” Griffin said.
He suggested that allowing the banks to fail while backstopping only those accounts that are federally insured would have been “a great lesson in moral hazard.”
“Losses to depositors would have been immaterial, and it would have driven home the point that risk management is essential,” Griffin told FT.
“We’re at full employment, credit losses have been minimal, and bank balance sheets are at their strongest ever,” he added.
“We can address the issue of moral hazard from a position of strength.”
Griffin’s position stands in stark contrast to that of another hedge fund billionaire, Bill Ackman of Pershing Square, who has been vocal in demanding that the government protect all depositors.
Ackman defended the feds’ intervention, tweeting: “This was not a bailout.”
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“Had the [Federal Deposit Insurance Corporation], [the Treasury], and [the Federal Reserve] not intervened today, we would have had a 1930s bank run continuing first thing Monday causing enormous economic damage and hardship to millions,” Ackman tweeted.
“Our gov’t did the right thing.”
Carson Block, the founder of trading firm Muddy Waters Capital, came down on Griffin’s side.
In a notice he posted to his social media, Block wrote: “The government should not bail out the uninsured deposits at Silicon Valley Bank.”
“Bailing out uninsured depositors at SVB, which are mostly corporates, further infantilizes markets by sending the message that such risk management is anachronistic.”
Kevin O’Leary, the Canadian American investor and star of the hit show “Shark Tank,” eviscerated SVB’s “idiot management.”
“The combination of a negligent board of directors @SVB with idiot management is the potent cocktail that led to a disastrous outcome. Why should taxpayers bail them out?” O’Leary tweeted on Sunday.
“The lesson is simple, never put more than 20% of your liquid assets in any one financial institution,” he added.
O’Leary told CNN on Monday that President Biden has effectively “nationalized” the banking industry.
“You have zero risk and that has consequences,” O’Leary said.
“There’s no such thing as a free lunch.”
O’Leary added that the government’s actions are “going to be very expensive for shareholders of banks long term.”
“I would never put my money into a bank stock ever again,” he said.
