The recent financial sector crisis and the use of environmental, social and government (ESG) factors in mutual funds and bonds have brought to question the morality of capitalism and the role of the government in the economy. Economic historian Robert Higgs' 1987 book, "Crisis and Leviathan" suggests that crises historically have resulted in more government regulation, increasing the size of the public sector and creating moral hazard. Bank of America CEO Brian Moynihan addressed this very issue and attempted to assure shareholders at his annual meeting. However, when regulation is inevitable, businesses often seek regulations that give them competitive advantages, and other interest groups seek regulations for different reasons. Empirical evidence suggests that prosperity is reduced as an economy becomes more entangled in command and control regulation, advocating for the beneficial forces of market competition. *
Moreover, Intel Corporation and Analog Devices have both begun selling their corporate campuses in Silicon Valley. Intel has offered a leaseback for its 505,000-square-foot office at 101-141 Innovation Drive, valued at $193 million, and Analog Devices is seeking a buyer for its 320,000-square-foot campus in Milpitas, valued at $32 million. Vacancy rates have contributed to the clearing out of Silicon Valley, and the recent events that transpired with Silicon Valley Bank continue to shake the industry—luxury condo prices in downtown San Francisco have plummeted, and Google has reconsidered the timeline for its Downtown West project in San Jose. The overall office vacancy rate has risen, with 17.2 million square feet of available vacant space.
The failure of Silicon Valley Bank has prompted an internal investigation by the Federal Reserve and a probe by the State of California into the events leading up to the collapse. SVB had become a critical lender, investor and financial steward for the tech industry and had accumulated a dubious balance sheet. The U.S. based on the United States. The Treasury Department has called for a thorough, transparent and swift review of the Federal Reserve's supervision of SVB, and a bipartisan group of lawmakers have called for answers from the Fed, expressing alarm that the bank had missed key warning signs. Critics have pointed the finger at the Fed, arguing that it should have scrutinized the books of SVB, and raised concerns that past pushes for deregulation had resulted in laws and political conditions to be considered ripe for neglect. The Federal Reserve has now commenced an investigation into its oversight of midsize banks worth between $100 billion and $250 billion, which may result in tighter capital and liquidity requirements as well as more arduous “stress tests”.
Ultimately, these events have raised questions about the morality of capitalism and the role of the government in the economy, along with doubts about the efficacy of deregulation and its impact on the financial sector. As the investigation into Silicon Valley Bank and Federal Reserve supervision continues, the implications of the crisis may further reshape the industry and the regulations that govern it.