There are three basic positions one can take on the problem of financial risk. You can support regulation to prevent risk-taking behavior, you can bail out firms whose failure poses a systematic risk, or you can take the purist libertarian stance that firms should be allowed to fail at any cost to the economy.
Apparently finding all three choices equally unappetizing, the Republican Party has instead settled on a fourth position to explain the failure of Silicon Valley Bank: blame the failure on “wokeness.” “This bank, they’re so concerned with DEI and politics and all kinds of stuff, I think that really diverted from them focusing on their core mission,” said Ron DeSantis on Fox News.
The New York Post has splashed a story under the headline “While Silicon Valley Bank collapsed, top executive pushed ‘woke’ programs.” The article depicts a staffer in the bank’s U.K. office as the woke scapegoat for its financial woes:
Jay Ersapah, the boss of financial risk management at SVB’s UK branch, launched initiatives such as the company’s first month-long Pride campaign and a new blog emphasizing mental health awareness for LGBTQ+ youth.
“The phrase ‘You can’t be what you can’t see’ resonates with me,’” Ersapah was quoted as saying on the company website.
“As a queer person of color and a first-generation immigrant from a working-class background, there were not many role models for me to ‘see’ growing up.”
To sustain the implication that Ersapah’s wokeness is the culprit, one would have to establish two important preconditions: First, that the financial risk manager for the U.K. branch was responsible for decisions made by the main branch in Silicon Valley. And second, that the time she spent writing a few anodyne sentences about the value of diversity somehow prevented her from analyzing the bank’s investment portfolio.
Needless to say, the Post’s story makes no effort to support either premise.
As ridiculous as it sounds, the conservative movement’s leading economic minds have all converged on the theory that SVB’s decision to overleverage its holdings in federal bonds is somehow a product of its commitment to social liberalism. Wall Street Journal columnist Andy Kessler points the finger at a statement touting the board’s diversity:
Was there regulatory failure? Perhaps. SVB was regulated like a bank but looked more like a money-market fund. Then there’s this: In its proxy statement, SVB notes that besides 91% of their board being independent and 45% women, they also have “1 Black,” “1 LGBTQ+” and “2 Veterans.” I’m not saying 12 white men would have avoided this mess, but the company may have been distracted by diversity demands.
Kessler’s language is unclear, but there are two ways to interpret it. The first is that having one Black person and one nonheterosexual — plus two military veterans! — prevented the bank from noticing its financial risk, which would be an extremely stupid argument. The second is that taking the time to put this information in a proxy statement prevented the bank from noticing its financial risk, which would be even stupider.
Meanwhile, former Trump economist Stephen Moore appeared on Fox News and interpreted a leading question about whether wokeness killed SVB differently. Moore blamed green-energy investments, which he called woke, concluding, “There’s no question that this woke investing had a negative effect on the bottom line of SVB.”
Moore’s analysis is deeply at variance with standard accounts of SVB’s failure, which blame the bank’s portfolio of Treasury bonds, not investing in green-energy projects, which are in any case a booming business.
The “blame wokeness” strategy appears to be an effort to fill the howling void that exists where a coherent Republican analysis of this issue ought to be and instead divert attention to the party’s current fixation. But the whole assumption it draws upon is deeply weird. Are people supposed to assume that, back in the good old days when banks were run entirely (and not just mostly) by white men, there were never financial panics?