What Happened Today: March 13, 2023

Banks in crisis; Mexico's president says they're not to blame for fentanyl; A letter from the Chief Rabbi of Odessa

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The Big Story

Speaking from the White House on Monday, President Joe Biden tried to shore up confidence in the banking system after his administration rescued not one but two failed banks since Friday. “Your deposits will be there when you need them,” Biden said, adding that bank managers should be fired and investors holding stock in those banks would not receive restitution. “When the risk [doesn’t] pay off, investors lose their money. That’s how capitalism works.”

Coming days ahead of the 15^th anniversary of the Federal Reserve-backed bailout of Bear Stearns, this latest intervention by U.S. regulators will likely spur a rapid revision of current banking policy focused on preventing the collapse of banks deemed too big to fail and thus integral to the global economy since the 2008 Great Recession. The collapse of Silicon Valley Bank (SVB) on Friday—the largest bank failure since the 2008 crisis—showed the system’s vulnerability when it comes to smaller banks, too. The $175 billion in deposits moved from SVB to the FDIC for safe keeping had only recently qualified SVB for stringent regulatory stress tests that take place every other year; larger banks must be tested annually. 

Analysts anticipate that the central bank’s move to backstop deposits at SVB—along with New York’s Signature Bank after it failed over the weekend—will likely thwart more bank runs. But the fallout remains widespread as stocks for several banks with large holdings of uninsured deposits were halted on Monday by automatic fail-safes designed to stop runaway crashes. Two-year Treasury yields also notched the largest single-day drop since 1987’s infamous Black Monday, one of the biggest market crashes in modern memory. 

Taken as a whole, the ongoing banking sector crisis now has investors suspecting the Federal Reserve will back off the expected plan of increasing interest rates to hose down inflation as those very rate hikes contributed to the collapse of the small regional banks to begin with. 

Read More: https://apnews.com/article/silicon-valley-bank-uk-bailout-hsbc-sale-4d2da0e9c6f39c0fd8faf321a2b295cf

In The Back Pages: Knight Takes Rook in Cold War II

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The Rest

→ Israeli Prime Minister Benjamin Netanyahu said his administration could possibly step in to aid Israeli companies with exposure to the collapse of Silicon Valley Bank. “We have an obligation, of course, to try to protect these companies, whose main operations are in Israel and will remain in Israel, and also their employees,” he said over the weekend, offering a subtle jab to the tech startup executives who’ve threatened to pull their business out of Israel in protest of his government’s controversial judicial reforms. Though some Israeli tech companies dealt with the SVB branch in Tel Aviv, others had relations with the closed California headquarters directly, leaving an unclear picture of Israel’s exposure to the collapse.

→ The British government and Bank of England arranged for the sale of Silicon Valley Bank’s United Kingdom subsidiary branch to HSBC for 1 pound, with English customer deposits protected “with no taxpayer support,” according to a statement from the British government. The deal will take place under the auspices of HSBC’s English subsidiary after U.K. regulators spent frantic days trying to find a buyer for the SVB branch that had become integral to the country’s startup sector. Before the sale, British offices for 140 tech companies wrote a letter to the government warning that SVB’s collapse was an “existential threat” to their industry.

→ China’s military will become a “Great Wall of Steel,” President Xi Jinping said in a speech on Monday, adding more strain to the already brittle relations with the West. Speaking to some 3,000 National People’s Congress delegates after Xi secured his unprecedented third consecutive term in office, Xi said he’d strive to fix the Taiwan issue fomenting animosity between Beijing and Western counterparts but that he “resolutely opposed external interference and Taiwan independence separatist activities.” The president’s newly appointed number two, Li Qiang, made his debut in the routine as the good cop to Xi’s bad cop, saying economic interdependence between the United States and China should supersede noneconomic political tensions like Taiwan. “Some have been trumpeting the idea of decoupling with China,” Li said. “But I wonder how many people can truly benefit from this hype.”

→ While U.S. highway traffic volume has largely bounced back since the pandemic, the number of traffic tickets being issued has not had a similar revival across the country. Now regulators wonder if the throttling of summons is what’s behind the spike in traffic deaths. In New Jersey in particular, the number of automotive deaths has been rising steadily since 2019, and the state’s Division of Highway Traffic Safety’s recent report places much of the blame on the 38% decline in tickets handed out to drivers for everything from parking violations to DUIs. “Considering the critical nature of enforcement in traffic safety, a renewed emphasis must be placed on the importance of traffic safety enforcement moving forward so that these poor habits and perceptions do not continue to take root,” the department wrote.

→ Challenging the vast body of evidence to the contrary, Mexico’s President Andrés Manuel López Obrador said on Thursday that his nation was not producing the fentanyl driving the 70,000 drug overdose deaths in the United States. 

• In fact, America’s overdose epidemic was its own fault, the president said, an addiction crisis driven by the nation’s broken homes and “social decay.” 

• Just this year, Mexican military officials celebrated the seizure of 500,000 fentanyl pills during a raid in Sinaloa state of the largest synthetic lab yet shut down by law enforcement. 

• López’s denial of his nation’s involvement in the overdose crisis comes as U.S. Republican lawmakers increase calls for military intervention in Mexico to bring down the drug labs. 

• In return, López has criticized the Republican legislators as “inhuman and interventionist,” and threatened to campaign for Mexicans and Hispanics living in the United States to boycott the Republicans during the 2024 election. 

→ The drug known as Daybue received the green light from the U.S. Food and Drug Administration on Friday, making it the first approved medication for the genetic brain disorder known as Rett syndrome. Affecting fewer than 50,000 people across the United States, Rett syndrome primarily afflicts girls and can affect speech, coordination, and the use of one’s hands. Daybue could run around $450,000 a year for treatment after a late-stage trial showed patients’ core symptoms improving compared to a placebo.

→ Thread of the Day:

Chris Arnade 🐢🐱🚌 @Chris_arnade

The larger point is, the problem cities (& rest of US) is facing is less about homelessness & more about substance abuse. That's the dog wagging the tail Providing users homes is still right thing to do, morally & for public well being, but it's not going to end our dysfunction

Writer Chris Arnade gets into an ongoing conversation here on the issue of how to best combat the yearslong homelessness crisis that’s only grown worse in many American cities since the pandemic. As Arnade notes, giving more houses to those who don’t have a place to live inevitably reduces rates of homelessness, yet does little to address the larger systemic drivers behind the homelessness crisis, in particular drug addiction. Though Arnade is missing some of the more recent research, which has shown that targeted interventions bringing down large drug trafficking operations do lead to reductions in overdose deaths in the immediate vicinity of those raids, the thread and linked discussions are worth the read. 

→ Thanks in large part to the immense generosity of donations from Tablet readers who contributed to the Ukraine relief fundraiser featuring Bernard-Henri Lévy and Natan Sharansky in February, Tablet made a $10,000 donation last week to the Chabad of Odessa, which has been evacuating and caring for orphans, among other things. A heartfelt thanks to all who contributed. Below, the Chief Rabbi of Odessa shares his appreciation.

Dear Friends,

Thank you so much for such tremendous support for the Chabad Community of Odessa. 

I want to share the following overview of the work we’ve done since Russia invaded Ukraine. Mishpacha Odessa network consists of many social and educational institutions, including schools, kindergartens, children’s homes, nursing home, and Jewish University. Since February 24, we have been running a continuous evacuation campaign for the local Jewish population. Over 250 buses have already brought passengers to safety. Of those whom we evacuated are 120 children from the Mishpacha Children’s home, and 180 women and children whose husbands/fathers cannot leave the country due to military age. For a year they were living in our refugee camp in Berlin.

This year, we have spent a lot of effort, time, and money to support all the refugees. During the evacuation of the children, we could not imagine the war would last so long. Just a couple of days ago we brought children and refugees back to Odessa. It was not an easy decision, but we had to get out of there, as it became almost impossible to raise 750,000 euros every month.

We have started building bomb shelters in our institutions as we must take care of the safety of our children. This is our current priority. Two basements in the kindergarten and elementary school are already used during air raids. We have to reconstruct 3 more basements. 

Your $10,000 donation will go towards building a bomb shelter for our beloved children.

Hatzlacha Raba in all your good deeds!

Sincerely,

Avraham Wolff

Chief Rabbi of Odessa and Southern Ukraine

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SCROLL TIP LINE: Have a lead on a story or something going on in your workplace, school, congregation, or social scene that  you want to tell us about? Send your tips, comments, questions, and suggestions to scroll@tabletmag.com.

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Knight Takes Rook in Cold War II

The new global conflict with Russia, and China is playing out like a game of 3D chess, with the U.S. up in some areas but losing in others

By Michael Lind

Global power politics takes place in multiple dimensions, much like a game of 3D chess. Different players compete on different levels, though some are playing on every board.

Consider the war in Ukraine. This conflict, comparable to the proxy wars in Korea and Vietnam during the original Cold War, can be understood as the first proxy war in the current Cold War between the U.S. and post-Soviet Russia. It can be analyzed on three levels: regional, continental, and global.

At the regional level, the war is a struggle between Ukraine, which seeks to maintain its territorial integrity, and the Russian regime of Vladimir Putin, whose initial war aims failed, and who has since been reduced to trying to break off and annex the regions of eastern Ukraine with Russian-speaking majorities while terrorizing civilians and destroying civilian infrastructure. Ukraine fits into a larger regional pattern for Putin, who openly laments the dissolution of the U.S.S.R., and has long engaged in efforts to dominate buffer states around the borders of the post-Soviet Russian Federation. There was Chechnya (whose independence movement was brutally suppressed), South Ossetia (broken off from Georgia in a brief war in 2008), Crimea (which Soviet leader Nikita Kruschev transferred to the Soviet Republic of Ukraine in 1954, and which Putin seized from Ukraine in 2008 and later annexed to Russia), and Ukraine itself, where Russia has been aiding and financing a war in the eastern provinces of the country since 2014. Belarus, another former Soviet republic, remains nominally independent but is closely allied with Russia under its president, Alexander Lukashenko

Putin seems to have believed that a brief, successful assault on Ukraine would allow him to install a friendly government in Kyiv, while detaching the eastern portions of the country. Instead, the Russian invasion met massive resistance from the Ukrainian government of Volodymyr Zelensky, backed up by military aid from the U.S. and its NATO allies, which also levied harsh economic sanctions on Russia.

But countries waging campaigns of war have often overrun their initial budgets of blood and treasure yet emerged victorious at the end. If the Ukraine war ends with Russia indefinitely controlling portions of eastern Ukraine as well as Crimea, then Putin will have achieved his regional strategic goal, if only at a high price.

The next level on the 3D chess board is the continent of Europe and NATO. Here there are five major powers, each with its own strategic goals: Russia, France, Germany, Britain, and the United States.

At the European level, the Ukraine war has disastrously backfired against Russia. It has driven European countries back into the sheltering arms of the United States, and it has frightened Russia’s neighbors Sweden and Finland into seeking admission to NATO. When the Cold War ended peacefully, Mikhail Gorbachev promoted the idea of a “common European home” that would unite Western and Eastern Europe with Russia in a shared institutional framework—and would exclude the United States. This possibility was foreclosed by the expansion of NATO into Eastern Europe over Russian objections, and now the backlash against the Russian invasion of Ukraine may have made Russia a pariah state in the eyes of most Europeans—though not necessarily in non-European eyes—for years or decades to come.

The Ukraine war, by underscoring Europe’s security dependence on the United States, has also reduced France's influence in the region. Regardless of domestic politics, the French foreign policy establishment since de Gaulle has usually sought to build up a tightly integrated European bloc under French and German leadership with a high degree of independence from the U.S. and China. But while some Americans would welcome more European self-sufficiency in defense, the Ukraine war is likely to drive an expansion of the U.S.-led NATO alliance in the near future.

Germany is another loser as a result of the war in Ukraine. Since its post-Cold War reunification, Germany has tried to be a chamber of commerce disguised as a country. The Germans imported cheap oil and gas from Russia to power factories exporting goods to China and the rest of the world, all while free-riding on U.S. defense spending. Thanks to sanctions against Russian imports and the destruction of the Nord Stream gas pipelines, Germany’s energy supply base has been violently reoriented to North America, with a growing percentage of its natural gas now coming over the Atlantic to replace former Russian supplies. Germany has been resisting American pressure to decouple economically from China, but over time Berlin may submit to Washington. In the 2030s Germany may be more of a subordinate American satellite than it has been since the beginnings of Ostpolitik in the 1960s.

In the European theater of power politics, the U.S. has emerged for the time being as the winner. U.S. victory has come at the expense of Russian relations with Europe, French dreams of an autonomous Europe, and German hopes to be simultaneously on good terms with Russia, China, and the U.S. The first secretary general of NATO, Lord Ismay, is often quoted as saying that the purpose of NATO was to “keep the Soviet Union out, the Americans in, and the Germans down.” For the foreseeable future, NATO, which integrates the U.S. into European security policymaking, will expand in membership and resources. Meanwhile, the European Union has lost the United Kingdom as a result of Brexit and is considered illegitimate by many nationalists in Eastern Europe and many populists in Western Europe. If Cold War II continues, American hegemony over most of Europe is likely to deepen, as the influence of the civilian EU diminishes. And Britain, America’s closest European partner and an ardent supporter of Ukraine, may be counted as a winner in the geopolitics of the Ukraine War as well.

What about the global level of the 3d chess game? Here there are only two major players: the U.S. and China.

China’s per capita income, like that of the late Soviet Union, is below that of the U.S. and its major allies. But by any reasonable definition, China is a superpower like the U.S. or, to use military jargon, a “peer competitor.” Unlike the Soviet Union, China is a superpower in multiple dimensions: economic, military, and diplomatic.

In purchasing power parity (PPP), China has already surpassed the U.S. as the world’s largest economy, and will almost certainly surpass it soon by the other important measure, market exchange rates. Nor is the size of China’s economy merely a reflection of a large population, as in the case of India. China is catching up in silicon chip technology, rivals the West in quantum computing and supercomputing, and has its own artificial intelligence and space programs.

Firms of Chinese origin like Tiktok and Huawei have gone global, while a single Chinese firm, DJI, manufactures a majority of the civilian drones sold worldwide—and a majority of those used in American state and local law enforcement. After the COVID-19 epidemic originated in China, possibly leaking from a Chinese virology laboratory, the U.S. and other countries discovered how utterly dependent they were on Chinese factories and facilities manufacturing drugs and drug precursors and personal protective equipment (PPE). It may be a matter of time before Chinese firms compete in the aerospace and automobile industries. And China produces more steel than all other countries in the world combined.

What about China’s military? In 2016, President Barack Obama boasted: “We spend more on our military than the next eight nations combined.”

But this was misleading, because it was based on market exchange rates, a less accurate measure than purchasing power parity—according to which American defense spending is only equal to that of China and Russia combined. And even purchasing power parity measures may be overestimating American military strength. The French scholar Jacques Sapir has argued that American economic statistics inflate “paper” sectors like finance and real estate, and disguise areas important for national strategy in which the U.S. is at a disadvantage compared to China or Russia, like manufacturing and mining.

In diplomacy, too, China is now the second superpower. In the last generation the Beijing regime has systematically built a parallel set of global institutions that exclude the U.S. from membership. One is the Shanghai Cooperation Organization (SCO), founded in 2001 by China, Russia, and four former Soviet republics: Kazakhstan, Uzbekistan, Kyrgyzstan, and Tajikistan. This pact, excluding the U.S., has grown to include India and Iran.

Then there is the Chinese-led Pacific trade organization, the Regional Comprehensive Economic Partnership (RCEP), which excludes the U.S. but includes American allies Japan, South Korea, Australia, and New Zealand, among other countries. By its own choice the U.S. is not represented in another Chinese creation, the Asian Infrastructure Investment Bank (AIIB), which now has 106 member nations, including Britain and numerous other countries in Europe. Step by step, China is creating global organizations that exclude the U.S. as a member.

During the first Cold War, India and other countries belonged to the “nonaligned” group, seeking to maintain their independence from the communist bloc and the American-led “Free World” (which included many dictatorships and autocracies in the Middle East, Latin America and Asia). The return of bipolarity to the international system—this time, based on Sino-American rather than Soviet-American rivalry—has been followed by a re-emergence of something like the nonaligned cluster of countries. When the U.S. called for harsh sanctions against Russia following the Russian invasion of Ukraine, America’s close allies cooperated, but most countries in the world conspicuously refused to punish Russia. Notably, the list of countries bucking the U.S. calls to punish Moscow included populous democracies like India, Mexico, Brazil, and South Africa. Their refusal to take part in the anti-Russian sanctions undermines the claim, made repeatedly by President Biden, that the dividing line in the conflict is between democracies and autocracies.

The Ukraine war has reinforced the accelerating division of the world between a U.S.-led alliance system, an informal Chinese-led bloc in which Russia is the junior partner, and a majority of countries which seek to be on good terms with both sides. On the global level, China is in a better position in Cold War II than the U.S. Despite Trump’s and Biden’s best efforts, the U.S. remains dangerously dependent on Chinese manufacturing. China is modernizing its military, while the U.S. military has been drained by a generation of futile Forever Wars in Afghanistan and the Middle East. The Chinese regime can sit back and let the U.S. and Russia--its chief adversary and its “frenemy”--exhaust each other’s arsenals in Ukraine while it presents itself to the rest of humanity as a benign civilian trading power and benevolent international aid donor.

None of this means that China will replace the U.S. as a global hegemon. The gradual rise of India, and the industrial development of Africa, may cause the relative military and economic power of both the U.S. and China to decline at the same time. And a Chinese collapse or political transformation that would alter the balance of power cannot be ruled out.

For now, however, this is the status of the 3D chess game centered around Ukraine. Unless Ukraine, armed by the U.S. and NATO, can recapture its eastern territories and drive Russia out of Crimea, Russia is likely to achieve some if not all of its territorial goals in the former Soviet republic, as it did in Chechnya, Georgia, and Crimea. At the level of European diplomacy, Russia is out, the Germans are down, the French are sidelined—and America is back, with Britain at its side.

At the global level, however, China for now is in a better position than the U.S., which cannot run its own economy without Chinese imports. As Cold War II grinds on, America may deepen its hold over Europe, but that may turn out to be a consolation prize for the loss of American global hegemony.