In the short but spectacular collapse of Silicon Valley Bank, we may have witnessed the biggest banking crisis ever.

It might even have been useful.

No one was seriously hurt except bank executives who made bad decisions and shareholders who weren’t paying attention.

Those Silicon Valley libertarians who for years demanded that the government get out of the way earned their comeuppance when they begged the Federal Reserve to bail them out. where is [Federal Reserve Chair Jerome H.] Power? where is [Treasury Secretary Janet L.] Shout? Stop this crisis NOW, tweeted David Sacks, the tech investor who was a fan of creative destruction until it got too close to his bank account.

Just as there are no atheists in foxholes, there are no libertarians in a financial panic.

Republican politicians provided a dose of humor, blaming the SVB’s financial blunders on the imaginary threat of wakeful banking. There is no evidence that the political inclinations of the bankers,

“

woke up

“

or otherwise affected their balance sheet.

The rest of us got a helpful reminder why free

–

market capitalism must be regulated: to protect the little man (and sometimes not-so-little boys) from catastrophe.

Most importantly, the Fed and the Federal Deposit Insurance Corp. (FDIC) received a wake-up call that their oversight is medium

i.e

banks have been dangerously lax.

T

The collapse of the SVB, terrifying as it is, could provide a useful correction to excessive bank deregulation, such as a brief health crisis that encourages people to exercise more and eat better.

Despite the mind-numbing complexity of high finance, SVB’s story turned out to be quite simple. The bank parked too much of its money in long-dated government bonds,

which and their value

Went down

in value

when interest rates rose. This left the SVB without sufficient assets if some of its depositors decided to withdraw their money in one go, which they did.

But SVB’s vulnerability should not have come as a surprise. The bank reported on its problems in public financial statements last fall. The Wall Street Journal published an article

about the asset squeeze in November, almost four months before the tech bros panicked.

The mystery is why neither SVB

Executive Chairman

Greg Becker nor the federal and state authorities appointed to regulate

the couch

action taken to prevent the crisis. The Fed or the California Department of Financial Protection

and innovations

could have desired

SVB

to raise more capital last year when it was less vulnerable. They didn’t.

Regulators were asleep at the switch, Lawrence J. White, a banking expert at New York University’s Stern School of Business, told my colleague Don Lee.

When the big savers of the SVB started their stampede

earlier this month in early March

it was too late.

For Powell and Yellen, the panic in Palo Alto raised the specter of runs on other medium players

i.e

banks nationwide.

So they stepped in, seized SVB, and said they would guarantee all bills, even those greater than the $250,000 FDIC insurance cap.

That qualifies as a rescue operation. It will be paid from bank fees rather than taxpayers’ money, but each bank customer will share the invisible cost.

Still, it was better than the alternative: more banking panic and greater damage to the economy.

The decision to cover uninsured deposits in excess of $250,000 led to handwring over moral hazard. In theory, capitalism regulates itself in risky behavior

for example putting too much money in one bank

is punished. If the government bails out people who make bad bets, they have no incentive to avoid taking unnecessary risks.

But the rescue operation of the SVB was not unprecedented. The FDIC and the Fed have been quietly bailing out most uninsured savers since 2008.

Becker wants the chance to explain himself at congressional hearings, the Capitol Hill version of the

Game of Thrones

walk in shame

on ‘Game of Thrones’.

Presumably the question will be asked whether he was really too awake to notice that his long-term bonds were losing value.

The regulators will also be held accountable, not just by longtime critics like Senator Elizabeth Warren (D-Mass.). Last week a dozen senators including Kyrsten Sinema (

ID card

-Ariz.) and JD Vance (R-Ohio) asked the Fed why the SVB had not investigated.

There is already a list of possible solutions. Congress could reintroduce so-called stress tests for medium-sized banks, a rule it abolished in 2018. The Fed could re-impose liquidity requirements on those banks, a rule Powell relaxed in 2019. bill banks for the costs.

The test comes in six months: is the Fed doing more? Are banks? And are voters still paying attention?

The jitters of the banking system are not over yet. The government is still trying to sell the remains of the SVB. San Francisco-based First Republic Bank still looks shaky even after injecting $30 billion in deposits.

But at least for a moment, the rest of us can breathe a sigh of relief. If all financial crises could be resolved as quickly as this one, capitalism would be a little less scary.