It’s not 2008, but people worry about savings and investments

To answer a couple of readers’ questions: No, your Thrift Savings Plan accounts are not insured. Neither by the Federal Deposit Insurance Corporation nor anyone else. Maybe the G Fund. It consists of U.S. Treasury bonds, so they’re backed by the faith and credit of the government.

TSP plan holders surely know the importance of that faith-and-credit fact given that at this moment, Treasury is vacuuming those G-Funds balances into the extraordinary measures, by which the government is paying its bills. Borrowing from debt until it gets authority from Congress is issue new debt.

Therefore, the questions about TSP insurance suggest a certain level of anxiety about savings and investments. There’s also the ongoing question of future Social Security Old Age, Survivors and Disability Insurance funds’ solvency. The latest bank fiasco only compounds the anxiety. In the back of many minds lies the question, can the government stay on this course forever? I only quote the Government Accountability Office, which regularly states that the fiscal course is unsustainable.

The Silicon Valley Bank deal is nowhere near the size of the 2008-2009 financial crisis and its oceanic flood of toxic assets. Yet it’s also wrapped up in politics, moving rules, and bets on gyrating fiscal and monetary policy. At the least, maybe regular people in and out of government will stop citing “silicon valley” as some sort of lofty ideal. Between Theranos and the Silicon Valley Bank story, the Valley seems as much about hucksterism, inbreeding, self-dealing and working the political connections as about innovation. Why, just yesterday, one former Theranos executive reported for duty — to the Terminal Island Federal Correctional Institution at San Pedro, California. How did that lyric go? He “caught the last train for the Coast…”

It’s all enough to make one cry over one’s martini at the Lion & Compass. No, wait, that Silicon Valley power gathering spot closed five years ago.

Maybe the question, “Is my TSP insured?” sounds naive. But maybe not, when you consider the fact that even uninsured depositors — many of the millionaires and billionaires who knew their deposits were uninsured — are covered thanks to a “systemic risk exception” invoked by Treasury Secretary Janet Yellen. Shareholders and debtholders are out of luck. People can be forgiven for thinking the agreed-to-rules become just suggestions when the going gets tough. That’s not the regular way of the region that spawned Silicon Valley Bank. In the norms of the valley itself, we are told ad nauseum, risk came with not only the potential for both great reward, but also the possibility of losing everything, and everyone knew the rules.

On the other hand, alleged panic over the banking system doesn’t seem justified. Two failures by March 15th compares to zero failures in the previous two years, and an average of three per year in the last 10. Then again, between 2008 and 2014 more than 500 banks failed. People are concerned whether the SVB and Signature Bank collapse are a blip or the leading edge of a stormfront. As I finished this column, a group of 11 big banks sort of returned deposits that had flowed in from a bank called First Republic, which was in danger of becoming a third failure.

In a press release, the FDIC says, “No losses associated with the resolution of Silicon Valley Bank will be borne by taxpayers.” That’s thanks to use of the Deposit Insurance Fund. It’s maintained by FDIC, but banks by law must pay quarterly premiums into it.  Of course, the fund, like federal pension guarantee funds, are ultimately backed by the government. Taxpayers are always at least potentially on the hook. The trouble is, no one really believes in the no-bailout line, and this is on both sides of the political spectrum.

In the New York Times, left-leaning economist Paul Krugman stated, “The fact that the funds will come from the Federal Deposit Insurance Corporation — which will make up any losses with increased fees on banks — rather than directly from the Treasury doesn’t change the reality that the government came in to rescue depositors who had no legal right to demand such a rescue.”

In the Wall Street Journal, right-leaning columnist Holman Jenkins Jr. stated, “In essence, out of the blue, the risks that large, sophisticated uninsured depositors had willingly accepted were shifted to bank shareholders and U.S. taxpayers … ”

So, no, TSP accounts are not insured. But as financial advisor Art Stein noted the other day on the Federal Drive,  you wouldn’t want to move them to a bank anyway now. In 35 years, the TSP, like private sector 401K plans, have proven valuable components in planning for the future. If you’re in, the experts say, stay the course now more than ever.

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