By Ahjamu Umi

According to a February 2023 Federal Deposit and Insurance Corporation (FDIC) audit, 563 U.S. banks have failed and/or come under regulatory authority since 2021. Here in California, U.S., the latest casualty has been the Silicon Valley Bank (SVB). This latest rash of bank failures, especially within the software start up SVB, have alarmed apologists for capitalism all over the world. With this piece, we are hopeful we can bring some fundamental understanding of “bank failure” and what’s happening for everyday working people.

First, it should be explained that the Federal Deposit Insurance Corporation (FDIC) is an institution of the U.S. federal government. It exists to provide some level of guarantees against bank failure. They do this by regulating banks, auditing them, and insuring bank deposits for up to $250,000 USD (aggregate deposits per institution).

What Does This Mean?

Let’s say for example, you have $275,000 in liquid asset deposits in any U.S. bank. If that bank fails and/or comes under FDIC jurisdiction, your deposits for up to $250,000 are insured by the federal government, meaning the government should issue you a check for that amount. The remaining $25.000 in deposits that you had in the failed bank makes you now a creditor for that bank. This means they owe you that money, just as you owe your credit card companies, car finance institutions, etc.

Of course, like any creditor/borrower relationship, your ability to get repayment has no guarantee. The bank can come under bankruptcy protection, etc., which means you would lose all or most of that $25,000 in this hypothetical example. But that is a fundamental definition of the role of the FDIC. It’s worth noting that credit unions are governed by the National Credit Union Administration (NCUA), which serves the same general purpose for credit unions that the FDIC serves for banks, including insuring deposits for up to an aggregate $250,000 per customer/member per institution.

It’s important to also note that the FDIC was formed in 1933 as a result of the Banking Act legislation. This happened four years after the great stock market crash of 1929 which means the FDIC was created as a vehicle to encourage renewed trust in the U.S. banking system. It’s that question of trust that provides the basis for creating a simple way of analyzing and understanding what is happening with banks within the capitalist system and how to interpret these bank failures.

The Origins of the Banking System

Contrary to popular opinion, the international banking system, and the concept of capital as the foundation of that system, did not start from the creative and intellectual genius of the fathers of the capitalist system. Instead, the start up capital for the international banking system came directly from proceeds produced from the enslavement of kidnapped Africans. The labor of their work was converted to revenues that were invested to initiate the banking system and the capital it would rely on to facilitate its existence. Every large international bank today from Chase to Barclays owes its origins to this nefarious beginning. If we understand and accept this irrefutable history, it should be easy to understand that the capitalist banking system, from its beginning, has been about exploitation and its that reality that paves the way for greater understanding of what’s happening today.

How Banks Work

Banks operate by taking your deposits, no matter how large or small, and investing those deposits to generate capital. The more money you have to deposit, the greater incentives the banks provide you for doing so, for example: no fees, more services, slightly higher dividends (returns on your deposits), etc. Whether you have $250,000 deposited in a bank, or $25, the process works the same. Your money is used by the bank to invest in any number of financial projects designed to provide a positive return for the bank on your deposit. For the overwhelming majority of us, this is done with little to no return to you.

Let’s say you have a job where your paycheck is directly deposited into your bank account every two weeks, say $2500 twice per month, and from each check you have $300 automatically transferred into your savings account. That means you are saving $600 USD per month. You will receive next to nothing for that money sitting and growing in that bank, but the bank will use your deposits and invest them in any number of profit generating projects— primarily exploitative projects around the world because those types of investments are the best suited to produce the highest return on the dollar. Think exploitative companies that steal resources from Africa for example. Companies like Dutch Royal Shell (Shell Oil) rob Nigeria’s Niger Delta blind drilling for oil. There is no oversight and the workers are paid peanuts. As a result, Shell’s profits continue to break records. Well, a bank will invest in Shell’s stocks and profit from Shell’s theft of resources from Nigeria. As Shell’s profits grow, the bank’s profits grow. And, by profits we mean capital i.e. money the bank earns that serves the sole and specific purpose of being reinvested for additional profits.

That’s why when the capitalist commentators talk about most U.S. banks being “well capitalized” they are actually telling the truth. These banks have millions of dollars – dollars they made investing your deposits – sitting around ready for them to invest to make even greater profits. Meanwhile, you get slim to nothing from them using your money and you will even be penalized if you come upon rough times and cannot maintain the minimum requirements they demand to keep your account(s) going. They have to make those demands of you because if your money isn’t available to them, they have nothing to invest and profit off of it. If you think about it, the banking model is basically the same as someone coming to you, taking your paycheck when you cash it, using your money to make additional money from it, and just returning to you what they took from you in the first place. And, if they are unable to get a return on your paycheck, they are usually supported by the government in their financial challenges while you are left to figure out how to proceed on your own with no help or support.

Silicon Valley Bank & Banks Playing With Your Money

That’s still not even the full story. Besides the example of investing in the exploitative practices of Shell and other criminal multi-national exploitative capitalist corporations, the banks invest heavily into shady and high risk ventures like securities from the secondary market. These types of investments are often bundled high risk mortgage loans, meaning loans provided to buyers who’s repayment potential is questionable, but who agreed to repayment terms at much higher, and profitable, interest rates. These types of unscrupulous business practices by banks have resulted in devastating consequences, such as the 2008 mortgage crash in the U.S. where everyday consumers were left houseless while the banks were bailed out by the 2009 multi-billion dollar gangster deal – compliments of the Obama Administration – one of the most lucrative welfare schemes in human history, recently eclipsed by the $2.2 trillion CARES Act of 2020. As it relates to banks like the Silicon Valley Bank in Santa Clara, California, U.S., the same principles apply. This bank was the home for software startup companies who invested incredible sums of money in highly questionable ventures for most of its 40 year existence. As has been alluded to, this has always been the program of capitalist banks, but in recent years we are seeing the limitations of this strategy much easier because the decline of capitalism has created conditions where the once assumed stability of capitalist banks is now more and more in question.

Let the Banks Fall While We Rise

This is a reality that will continue to create hardship for millions of people worldwide, but in the long run, this also has the potential to represent a new day for the masses of humanity where capital no longer controls the narrative everywhere on earth. There are a lot of variables to unpack in order to create that reality, but for now, the best thing all of us can do is engage every effort that we can to educate our communities about the role of banking institutions to profit from our continued exploitation and how the system is set up to support their existence, while making us the main source of accountability for ourselves and their greedy exploitative practices. This problem, like every other problem we face, cannot be resolved through any level of individual initiative. It cannot be resolved by any other approach to stabilizing the capitalist system. This problem is a reflection of the exploitative basis from which capitalism developed hundreds of years ago and it’s simply a manifestation that this profit over people model of operation is existing in its final days. This may be a scary thought to many, but at the end of the day, Kwame Ture was 100% correct when he said that “if we don’t struggle for revolution, we suffer so why don’t we organize and take the suffering as a pathway to our liberation and forward progress instead of just continuing to suffer with no end in sight?” Capitalist banks are viewed as vehicles to provide us with houses, cars, loans, etc. What they are in reality is a criminal operation that is 100% supported by the U.S. government which is nothing more than a mouthpiece for international capitalism. The sooner we can do the necessary work to create broader consciousness around this, the sooner we can reclaim the resources that rightfully belong, not to a small and criminal elite, but to the masses of people on earth.

Ahjamu Umi is revolutionary organizer with the All African People's Revolutionary Party, adviser, and liberation literature author.

By Bryant William Sculos

1. The economy is not—and never was—closed or shutdown.

At the peak of the global economic shutdown, it is likely that less than 50% of the economy actually shutdown. And for most of the initial “lockdown” period, much much less than 50% of the economy was inactive. Unskilled workers, sometimes having their hours cut, sometimes increased without overtime pay, magically became “essential workers.” While there is national and regional global variance, this is nearly universally true. Of course, many millions—if not billions—have lost their jobs around the world. Some of these are entertainment or hospitality/comfort service workers, but many are truly essential care and educational workers. The real backbone of the capitalist economic system has been endangered, hyper-exploited, or otherwise cast off. The stock market thrives all the while. Maybe, just maybe, we should actually shutdown this foundationally unjust world order.

2. The cure is worse than the disease.

The shutdown—and this weird post-shutdown partial shutdown period—has caused enormous harm to countless people. Actually, we could count them, but the people who make those decisions about what to count (and what counts) don’t care enough. It is because of the literal insanity of our system that people are literally being driven insane, into the depths of emergent and exacerbated mental illness. People are killing themselves because of the responses to COVID-19. But that isn’t because we shut down, but rather it is because of how we shutdown, without coming close to addressing long-preexisting social inequities that were barely below the surface—if below the surface at all. This is no cure at all. The most vulnerable are either dead or more vulnerable; the safe and secure are, for the most part, at least as safe and secure as they were before.

3. The disease is worse than the cure.

An economy isn’t a thing that is capable of caring. In the midst of a mass pandemic where likely well-over a million people have already died, we should care about something that has never cared about us? How could it? Economies are systems that reflect the distributions of power and then the character of the values and priorities of that society. The responses to COVID-19 are perfectly in-line with the systemic values of capitalism. As the infamous graffiti reminds us, capitalism is the virus. A COVID-19 vaccine won’t change that. There is a vaccine for capitalism, and it is up to all of us to find it (really, to create it, in practice) together.

4. Yes, the economy is more important than your grandma.

And it always has been. It is more important than you too! It shouldn’t be though. It doesn’t have to be, but if we look at the absolutely wretched state of elder care in the US and around the world, we shouldn’t be surprised to hear actual alive human beings—elected officials and policymakers no less—suggest that grandparents should be willing to sacrifice their lives on the altar of capitalism. Think about that. These people have been made completely fucking psychotic. Then again, before COVID-19 too many of us accepted this basic logic on a daily basis.

5. We really should compare this to the flu.

Not that COVID-19 is as serious as the seasonal flu—a mistaken thought I had and quickly abandoned in early March 2020. And yet, seasonal flu is an enduring civilizational challenge that we too easily accept as intractable, beyond what we’ve achieved thus far with the existing vaccination protocols. We have, occasionally more than 50% effective, vaccines that people need to take every year. Still, we have hundreds of thousands of people dying annually from the flu. Perhaps millions are saved, yes. But how many billions of dollars are made by the health care companies that make and distribute these vaccines? Vaccines that—while better than nothing—are still wildly inadequate. There are political-economic lessons we must learn from how the flu is treated, and we must refuse to allow the same things to happen with COVID-19, a much more serious problem.

6. Don’t let them bring evictions back.

We should be paying more attention to the fact that right now, in many places (but, perhaps, most notably in the US), evictions are effectively non-existent. As banks, landlords, and local sheriffs still try to find a way to evict people, we should fight to get the prohibition against eviction accepted as a new political norm—even if the result of such a struggle is a compromise that simply makes it harder for people to be evicted.

7. Physical distancing is new. Social distancing has been going on for a while. Since the late 1700s probably.

With the urbanization associated with the industrial revolution people have, over the past several centuries, lived increasingly close to one another. Physical proximity has increased along with the development and spread of global capitalism. During that same period, humanity has become increasingly socially-isolated. Family ties are less. Friendship bonds, while they may be maintained in more mediated form through social media, are perhaps stronger and more significant than ever before. Still, these bonds are not as powerful or enduring at this stage of historical social development as family bonds were prior to the advent of global capitalism—however oppressive and violent they indeed were. COVID-19 has merely exacerbated a problematic sociological pattern that was already with us. One wonders whether social ties will experience a jump in strength once COVID-19 is under better control, epidemiologically and medically speaking (likely only possible once mass vaccination is achieved).

Bryant William Sculos, Ph.D. is the founding curator and editor of LeftHooked, a monthly aggregator and review of socialist writing, published by the Hampton Institute, where he is also a contributing editor. He is a visiting assistant professor of global politics and theory at Worcester State University. Bryant is also the politics of culture section editor for Class, Race and Corporate Power and co-editor (with Prof. Mary Caputi) of Teaching Marx & Critical Theory in the 21st Century (originally published with Brill and now available in paperback with Haymarket Books).