From Zero to Hero – WSJ

To help fight this inflation, the Federal Reserve has raised the federal-funds rate from near zero to 4.5% to 4.75% since January 2022. This has caught a lot of banks, such as Silicon Valley Bank, holding portfolios of underwater bonds and mortgage-backed securities. Treasury Secretary

Janet Yellen,

in her previous role as Federal Reserve chair, kept rates too low for too long.

Now to save banks, Ms. Yellen says the Treasury, along with the Federal Deposit Insurance Corp. and the Fed, will act “in a manner that fully protects all depositors,” which means those not insured above $250,000. Catch that? She helped cause inflation and now is a hero for saving depositors. The press release notes, “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.” Uh huh. Pay no attention to those losses behind the curtain, which “will be recovered by a special assessment on banks.” Maybe no one will notice.

This D.C. trio of heroes are effectively guaranteeing all bank deposits, which by the way total $17.7 trillion even though the Fed’s balance sheet is only $8.4 trillion. Hmmm. This creates a classic moral hazard, encouraging bankers to let risk rip—no need for a chief risk officer—and then maximize profits because the federales will step in later. The only thing this guarantees is future bailouts.

Fed Chairman

Jerome Powell

is also playing this “saving us from his own mistakes” game. He has kept rates below the consumer-price index level for most of his five-year tenure. Now that inflation is running wild, which this page has repeatedly warned is what happens when you run negative real interest rates, Mr. Powell is all of a sudden an inflation hawk. He’s said he will “use our tools forcefully but thoughtfully and get inflation under control.” And he will raise rates “until the job is done.” A hero—solving the problem he helped create.

Meanwhile, there’s a trail of failed banks in his wake. While Silicon Valley Bank management clearly burned down the bank, they were handed the gas and matches by the Biden administration and the Fed, which now demand credit for racing their firetruck to the rescue.

This is an age-old game. Congress and President-elect

Franklin Roosevelt

pulled this one on lame-duck President

Herbert Hoover.

As banks began seriously failing in early 1933, Hoover drafted an emergency banking bill but was ignored by Congress. Lo and behold, five days after FDR’s March 4 inauguration, Congress passed the Emergency Banking Act of 1933 with almost identical language to Hoover’s. So guess who is the hero for saving the U.S. economy? Oh, and ushering in the era of big government.

Many blue-city administrators who gave room to the 2020 “defund the police” movement that inspired chaos are now cracking down on crime. San Francisco Mayor London Breed in July 2020 cut $120 million from police and sheriff’s department budgets. Four hundred police officers were let go. No surprise, looting and crime took off. Last month Ms. Breed asked for a budget supplement “to help fund police overtime caused by the severe police staffing shortage.” Fiddling Nero to hero.

Remember

Anthony Fauci,

hero for keeping us all alive during the pandemic? Now that the Energy Department and the Federal Bureau of Investigation have endorsed a Wuhan lab leak theory, more effort needs to go into understanding Dr. Fauci’s and the National Institutes of Health’s funding of coronavirus research at the Wuhan Institute of Virology.

Mr. Biden last week approved drilling at the Willow oil project in Alaska. Thanks Joe, even if it is only 0.002% of the Alaska Natural Petroleum Reserve, but maybe, just maybe, it will put a dent in the inevitable energy shortages and price hikes to come. Of course we’ve already seen shortages and high prices after Mr. Biden canceled the Keystone pipeline right after his inauguration. Last week to the applause of progressives, he also declared the Arctic Ocean off limits to oil and gas leasing. Seems Mr. Biden has a hero smile out of both sides of his mouth.

Be wary of those who wrap themselves in capes.

Write to kessler@wsj.com.