 These banks are what I call zombie banks. That is, they have negative net worth. The only way that executives and shareholders can come out of it really well is if they go out and take big gambles and they pay off. And if those gambles don't pay off, it'll be on us the taxpayers to pay for it. So that has to be regulated. They're going to be put in a straight jacket. So we are going to have, you know, we don't see it immediately, but we're going to have over the next few months, the next several years, a much more regulated banking system. Could you explain a little bit more what you mean by the phrase zombie banks? It's just a bank where if you marked all of its assets and liabilities to market, or if you just said, all right, today you just have to sell all your assets and pay off your depositors, you know, liquidate the bank. If you tried to liquidate the bank, you would not end up with any equity, anything left for the shareholders and executives. So this, and I call it, it's called a zombie. It's not really my term. It goes back to the savings and loan crisis. When the savings and loans were given the opportunity to keep going, even though that they were insolvent, they went nuts. They bought junk bonds. They bought commercial real estate. And as one economist pointed out, what the zombie banks would, savings and loans would do is they would pay higher interest rates because they were so desperate to kind of keep gambling and they would invest in weaker loans. And what does that do to a healthy bank or savings and loan? Well, now their ability to compete has gone away. So these zombies are really dangerous and that's why there will be justifiably very tight regulations. As we speak, the Fed is the most bankrupt bank in the country. You know, they're not gonna collapse. They can always take more money from the Treasury, but that's just the reality. They're in the position of SVB in terms of the market value of their portfolio. So I think when you go, so I think the process by which SVB went down is as I described it. When you talk about blame, then you have to talk about who could have done differently. And a lot of people would say, I think this is really strange, but a lot of people would say that the venture backed firms should have behaved differently. They'll say, well, they shouldn't have put, you know, $5 million in deposit at this one bank. They should have spread their deposits around. They shouldn't have put the money in. And I've also heard sort of the opposite, which is they shouldn't have all taken their money out a couple of weeks ago. They should have left it in. So they shouldn't have put as much in when they thought the bank was solvent and they shouldn't have taken as much out when they thought the bank was in trouble. So that's, okay, it's probably true that if they hadn't done those things, we wouldn't have had this bank run, but that kind of blame, I don't fit. The blame that I think I'm inclined to is to go all the way back to that deficit spending and the quantitative easing. There you're really putting the whole country at risk. There's no, you know, it does not end well. It leads to the inflation. The inflation leads to the high interest rates. The high interest rates bankrupt a bunch of companies, including a huge portion of the banking system. I think there's something like still $600 billion of embedded losses in all the banks and only about 2 trillion in equity. So they've lost about a third of their equity. So all that I trace back to the loose deficit spending and the quantitative easing. All of this raises questions about what we call moral hazard. And that's a question that Larry Summers, the former Treasury Secretary, former President of Harvard said is not something to worry about at this, he said in the lead up to the bailout of the depositors that it's not really a question that can be front of mind for regulators. I don't think this is a time for moral hazard lectures or for talk about teaching people lessons. We have enough strains and challenges in the economy without adding the collateral consequences of a breakdown in an important sector. Larry's my age. He remembers the savings and loan crisis and he knows what moral hazard is. But he also knows that this is an emergency that if you let the... If you stick with the $250,000 ceiling, obviously a lot of tech firms get wiped out and I don't feel like they deserved it. And I don't think... I think it would have been horrible for all of the people who worked for them cause all sorts of chaos. And on top of that, you have all these other banks where everyone can look at their financial statements and see that a certain percentage of them are underwater, not as badly as SVB, but they are underwater. And so you'll have bank runs all over the place, total chaos in the financial system. So yeah, you worry about moral hazard tomorrow, not today. I don't think Larry would say you never worry about moral hazard. And I think he knows you're creating a ton of moral hazard. And my point about zombie banks is that they are the owners there are the ones who have lots of moral hazard, especially now that all their deposits are guaranteed. If they're underwater, they have nothing to lose by taking money to Las Vegas and betting and they have everything to gain. And the only thing that stops them from doing that is regulation. And that means that the regulation is gonna be tighter. And I think that that is going to last forever. There's this basic trend that government financial policy, whether it's monetary policy, whether it's regulatory policy, the policies that survive are the policies that allow government to allocate credit to its preferred uses, especially to its own spending. As far as more hazard goes, I mean, at least the shareholders were not billed out. So there was no, there's still risk from investing in a poorly managed bank. As far as depositors go, most indicators show that they would have gotten like 80 cents back on their dollar if that were allowed to play out. So it's not, I don't think it's a moral case that those depositors had to be billed out. But from their perspective of preventing future bank runs in an emergency, I can see why they wanted to do it. But like, most moral hazard decisions are kind of that trend of fix the problem now and then adjust the moral hazard later and then never really adjust the moral hazard either because they just don't or because they've kind of created a situation that we can't really address it. And so I think that's just a general trend that just keeps happening. There's a lot of talk about abandoning any effort to fight inflation. I think, and I think John Cochran would think that any effort to fight inflation has to include a serious effort at reigning in the deficit. And not just any one year, but all the out years. And that includes social security and Medicare. Are we gonna see that? Probably not. So does that mean we're gonna relive the 1970s with a lot of floundering and random policy changes that don't do anything and you get a lot more inflation? So anyway, it's not an easy thing to answer. I just say that the one precedent that comes to my mind says, watch out for lots more inflation and more troubles. And just to be very clear about that, why is it that bringing the deficit and eventually the debt under control is the essential component there from your viewpoint? Because ultimately that's how the government injects money or wealth into the economy is by just running these deficits. And how do you get rid of government debt? You can formally default. You just say, wake up tomorrow and say, sorry, bondholders, you're not getting anything. Or you can actually cut spending, raise taxes, or you can inflate it away. There's no sentiment to formally default. There's no sentiment to bring the deficit under control, so what you're left with, it seems to me is inflation. Hey, thanks for watching that excerpt from my conversation with Lynn Alden and Arnold Kling about the Silicon Valley Bank meltdown. And what caused it? Who's to blame? What to expect next for the US banking sector? You can watch the full conversation by clicking here or on the link in the description below and subscribe to Reason TV and watch these conversations live every Thursday at 1 p.m. Eastern.