US Senator Calls Banks ‚Sophisticated Ponzi Schemes‘
• US Senator John Kennedy has called banks “sophisticated Ponzi schemes” due to the vulnerability of trust in today’s social communications age.
• The statement was made while discussing the recent US banking crisis that has resulted in multiple crypto-supportive financial institutions closing.
• Kennedy believes that to cool down inflation, the Federal Reserve will need to bring it up to at least 8%.
Banks Are Vulnerable
Republican Senator John Kennedy of Louisiana discussed the US banking crisis on CNBC, stressing that banks “exist on the basis of trust” and have become increasingly vulnerable in the era of advanced communications technology. He went on to say, “They’re really just – and don’t take this the wrong way – sophisticated Ponzi schemes. They work when everybody trusts each other.” With panic able to spread quickly through modern communication tools, Kennedy asserted that a herd can easily “panic and stampede” leading anyone to go broke.
Recent Bank Run Disastrous for SVB
Silicon Valley Bank (SVB) was seized by the Federal Deposit Insurance Corporation (FDIC) in March after a run on deposits caused it unable to satisfy all customers’ claims. The initial bank run began when SVB revealed a $1.8 billion loss from selling off its $21 billion bond portfolio as part of restructuring its balance sheet. All depositors were quickly bailed out in full by both FDIC and Federal Reserve.
Kennedy also spoke about inflation and believes that it should be brought up to at least 8% by the Federal Reserve in order to cool down current conditions.
Social Communications Age
Kennedy believes that banks are more vulnerable today due to social communications tools such as smartphones which allow people’s fear or distrust of banks travel much faster than before with potentially devastating effects on any institution’s balance sheet if enough people act on their fears simultaneously.
Banks exist based on trust between customers and themselves but this trust is becoming increasingly fragile due largely due to our modern technological advances making it easier for panic or distrust among customers spread quickly across an entire customer base leading even well established financial institutions into potential trouble without proper management or oversight from regulators like FDIC or Fed Reserve who can help bail out these institutions if they get into trouble fast enough..