Bill Ackman Says Government Response To SVB Collapse Not Bailout: 'People Who Screwed Up Will Bear The Consequences'

Banking regulators stepped in to stem the rot at SVB Financial Group SVB-owned Silicon Valley Bank, as they announced multiple measures, including giving depositors access to all of their money starting Monday, and making available additional funding to eligible depository institutions.

What Happened: Hedge fund manager Bill Ackman, who has been very vocal on the issue over the weekend, tweeted yet again to clarify how the measures announced by the government do not tantamount to a bailout.

SVB Vs. GFC: How Govt.’s Responses Differ: “This was not a bailout,” Ackman said, referring to the measures announced through a joint statement by Treasury Secretary Janet Yellen, Fed President Jerome Powell and Federal Deposit Insurance Corporation Chairman Martin Gruenberg.

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During the Great Financial Crisis, the government injected taxpayer's money in the form of preferred stock into banks, Ackman said. Bondholders were protected and shareholders were diluted to varying degrees and taxpayer's money was put at “great risk,” he said.

“Many people who screwed up suffered minimal to no consequences. Those were bailouts,” the money manager said.

In the case of SVB, shareholders and bondholders have been wiped up, Ackman noted. The FDIC insurance fund, capitalized by premiums paid by banks, would absorb any potential losses and the fund would recoup any losses by assessing more premiums on banks, he said.

Crisis Averted: If the government hadn’t intervened, it would have led to a 1930s-like bank-run scenario starting Monday morning and causing enormous economic damage and hardships to millions, Ackman said.

There is now a clear roadmap of how the government would manage in the eventuality of a similar situation in the future, he added.

All the same, the hedge fund manager said this is a massive wake-up call for the boards of banks.

“Our gov’t did the right thing. This was not a bailout in any form,” Ackman said, adding, “The people who screwed up will bear the consequences.”

He noted that investors who didn’t adequately oversee their banks will be wiped out and bondholders also will face a similar fate.

Ackman said the government’s initiatives will likely help restore depositors’ trust in the banking system. “Without this confidence, we are left with three or possibly four too-big-to-fail banks where the taxpayer is explicitly on the hook, and our national system of community and regional banks is toast,” he added.

Photo: Courtesy of Wikimedia Commons

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