No bank is safe from the panic of a bank run in today’s social communications age, says Senator John Kennedy.
Republican Senator John Kennedy of Louisiana called banks “sophisticated Ponzi schemes” while discussing the US banking crisis that’s claimed multiple crypto-supportive financial institutions in the past two months.
The politician also spoke on the state of inflation, which he believes the Federal Reserve will need to bring to at least 8% to cool down.
Banks Are Ponzi Schemes?
“They’re really just – and don’t take this the wrong way – sophisticated Ponzi schemes,” he said. “They work when everybody trusts each other.”
Given the speed at which banking panic can spread beginning from a single person’s iPhone, Kennedy said a herd can “panic and stampede” to the point where “anybody can go broke.”
The initial bank run began when SVB revealed that it had realized a $1.8 billion loss following a $21 billion bond portfolio sale to restructure its balance sheet. Panic spread over the following two days, with PayPal co-founder Pether Thiel encouraging companies to withdraw from SVB.
A Longer Inflation Fight
According to Kennedy, taming inflation will require raising interest rates much further, from its current 5% to 5.25% level to the realm of 8% to 10% – unless the problem is tackled from both a monetary and fiscal angle.
“Powell’s gonna have to raise rates much higher than he normally would have if Congress would slow the stimulus of spending,” he said.
Featured Image Courtesy of The Washington Post