The Silicon Valley Bank bailout

fies its legitimacy as a heavyweight diplomatic mediator able to resolve the most antagonistic geostrategic competition in the region It could create the first conditions for a shift in the strategic balance in the context of rivalry with the United States in the Gulf China’s ambitions to position itself as a credible peacemaker have a broader scope covering conflicts in Syria, Libya and Yemen especially after this agreement This could be problematic in Washington The United States hesitance to spend more political capital on mediating conflicts is increasingly seen in the Middle east as evidence of the United States declining power and its focus on competition with China in the Indo-Pacific The agreement could also provide the Chinese leadership with more strategic options since deescalating tensions between Riyadh and Tehran creates a thin layer of security and stability necessary for oil exports bound to China, trade sea lines of communication and Chinese Belt and Road investments

For Saudi Arabia and Iran, China s ostensible commitment to the “non-interference” principle and its “nonalignment regional policy attached great credibility to its position as a broker To be clear, both countries seem united in their grievances towards the Biden administration, albeit at different levels Nonetheless, despite Iraq s hosting the talks for the most part China’s desire to take the lead has met Riyadh and Tehran s willingness to hand it a diplomatic win a stark indication of China’s growing influence over the two biggest powers in the Gulf

It remains to be seen whether the Chinese mediation will hold in the future and indeed cover other regional conflicts Nevertheless, China has just left the United States with a bleeding nose in the Gulf

Ahmed Aboudouh is a nonresident fellow with the Middle East Programs at the Atlantic Council

Where was the US when Iran, Saudi Arabia restored ties?

The prime minister held fruitful and productive meeting with Emir of Qatar on the sidelines of the 5th UN least Developed Countries Conference in Doha The prime minister told the host Emir of Qatar that Qatar’s suppor t for Pakistan uplift initiatives is duly valued and appreciated by the people as well as the government of Pakistan Jerusalem Post e d to R a l

Th e n e w s o v e r t h e w e e k e n d t h a t I r a n a n d S a u d i A r a b i a a g r e e d t o r e e s t a b l i s h r e l a t i o n s t o o k m a n y p o l i c y m a k e r s b y s u r p r i s e a n d i s s e e n b y s o m e a s p o t e n t i a l l y c a s t i n g a s h a d o w o v e r t h e p o s s i b i l i t y o f I s r a e l a n d S a u d i A r a b i a p r o g r e s si n g i n t h e i r r e l a t i o n s

The deal, brokered by China, was announced after four days of previously undisclosed talks in Beijing between top security officials from the two rival Middle east powers

It came just days after the Wall Street Journal reported that peace between Saudi Arabia and Israel is contingent on assistance from Washington in developing the Saudi civilian nuclear program and the provision of security guarantees

A senior official traveling with Prime Minister Benjamin Netanyahu’s entourage to Italy naturally put the blame on his predecessors as well as on the Biden administration There was a feeling of American and Israeli weakness, so Saudi Arabia turned to other channels,” said the senior Israeli official who briefed reporters in Italy

Other observers said the rapprochement between the long-strained countries was in part due to Israel s increasingly right-wing turn and political chaos unfolding due to the judicial reforms The move certainly must have been a surprise for Netanyahu, who has often portrayed Israel s strength as a ticket to more relations in the region

WHAT DOES THIS MEAN FOR ISRAEL AND THE MIDDLE EAST GOING FORWARD? While all the critics of the Iran-Saudi deal may be correct, it would be wise to urge caution in how Israel moves forward It would be good for the government to welcome the deal cautiously but to also draw the necessary conclusions

First and foremost the fact that China mediated a deal between two Middle eastern powers says something about the US China is a rival to America and the countries have been vying for influence over the region for decades China’s ability to enter into the Iranian-Saudi standoff is a result of the vacuum created by the lack of US engagement in the region

It is no secret that the Biden administration – and the O b a m a a d m i n i s t r a t i o n b e f o r e i t – v i e w e d t h e i r r o l e a s moving away from the Middle east Obama did this by setting redlines in Syria that were never enforced allowing Russia to enter the country The Biden administration has done the same by signaling to the Saudis and emiratis that they are on their own when it comes to fighting the houthis in Yemen

China has outshone the US in the Middle east and that will have repercussions on Israel, whose alliance with America directly affects its own standing in the region As we have long argued when the US is strong and perceived as engaged in the region this empowers Israel and vice versa

On the other hand, Israel will need to wait and see if the normalization of ties between Iran and Saudi Arabia means that Riyadh will have more influence and connections when it comes to reining in Iran

When Iran is more aggressive, whether in weapons trafficking to Lebanon or Yemen or destabilizing Iraq and Syria then Israel and Saudi Arabia are both threatened Saudi Arabia cares deeply about Yemen and Lebanon, and also Iraq and Syria; and this means that Iran’s actions will be in the spotlight after the agreement

We should welcome diplomacy as a pathway toward peace and stability in the region At the same time, we should make it clear that the redlines relating to nuclear weapons production remain the same as in the past

Riyadh does not want Iran to have a nuclear weapons program It is likely true that China also does not want an Iranian bomb even if Beijing has chosen to remain silent on this issue or appear to support Iran against US sanctions in the past Israel’s other interest is to maintain its track of emerging and potential ties with Saudi Arabia As we have seen with reconciliation with Turkey – which has warm relations with Tehran – relationships can evolve on separate tracks

The deal between Saudi and Iran is a significant development in the Middle east Israel needs to speak with its allies in Washington and urge the Biden administration to become more active Sitting on the sidelines is not smart policy; other players will fill the void

Th e Treasury and Federal Reserve stepped in late Sunday to contain the financial damage from Friday’s closure of Silicon Valley Bank guaranteeing even uninsured deposits and offering loans to other banks so they don’t have to take losses on their fixed-income assets This is a de facto bailout of the banking system even as regulators and Biden officials have been telling us that the economy is great and there was nothing to worry about The unpleasant truth which Washington will never admit is that SVB s failure is the bill coming due for years of monetary and regulatory mistakes ***

Wall Street and Silicon Valley were in full panic over the weekend demanding that the Treasury and Fed intervene to save the day It s revealing to see who can keep a cool head in a crisis and it wasn t billionaire hedge-fund operator Bill Ackman or venture investor David Sacks, both frantic panic spreaders The Federal Deposit Insurance Corp closed SVB and the cleanest solution would be for the agency to find a private buyer for the bank This has been the first resort in most previous financial panics and the FDIC was holding an auction that closed Sunday afternoon But Rohit Chopra, the elizabeth Warren acolyte on the FDIC board is hostile to bank mergers on ideological grounds and the purchase terms could be too onerous for some potential buyers The biggest banks are now the safest, and deposits are flooding into them J P Morgan can park that money at the Federal Reserve and earn interest on its reserves Why take on a new political headache?

SVB executives made mistakes, and they will pay for them but they were encouraged by easy money and misguided regulation As the Fed flooded the world with dollar liquidity, money flowed into venture startups that were SVB’s customer base The bank s deposits soared far beyond what it could safely lend In a world of near-zero interest rates, SVB put the money in long duration fixed-income assets in search of a higher return Regulators after the 2008 crisis had deemed these Treasury bonds and mortgage-backed securities nearly risk-free for the purpose of measuring bank capital If regulators say they re risk-free banks and depositors may be less careful But those securities declined in value as the Fed took interest rates up quickly to break the inflation it helped to cause SVB had enormous capital losses if it were forced to liquidate those assets before maturity That’s exactly what happened as SVB customers withdrew their deposits The San Francisco Fed regulates SVB somehow missed this rising vulnerability The Fed and Treasury will try to blame the bankers but they are as much if not more culpable The idea of elevating San Francisco Fed president Mary Daly to the Board of Governors seems preposterous after SVB *** an entity to protect SVB s insured depositors up to the legal limit of $250,000 But something like 85% to 90% of SVB’s deposits are uninsured The worry is that depositors in other banks will now flee Thus the cries for federal intervention Treasury Secretary Janet Yellen said Sunday there will be no bailout for SVB but she is indulging in semantics The feds said they will guarantee even uninsured deposits at SVB as well as at Signature Bank in New York Typically in a bank failure those depositors would get their money back with a 15% to 20% haircut This would no doubt be a hardship for many customers, but the $250,000 limit was known

Will a universal uninsured deposit guarantee be next? This would be a monumental policy surrender essentially admitting that the regulatory machinery established in 2010 by Dodd-Frank failed We may be the only people in the world who still worry about “moral hazard ” But a nationwide guarantee for uninsured deposits even for a limited time means this will become the default policy any time there is a financial panic

There’s also a question of the legality of such a guarantee The FDIC created a “transaction account guarantee program amid the 2008 panic, but Congress explicitly let it expire in Dodd-Frank Congress set the $250 000 insured limit to protect average Americans not venture investors in Silicon Valley The FDIC may have resorted to its “systemic risk exception” for SVB and Signature but this is a stretch considering their size The joint statement by regulators said it received the required twothirds vote of both the FDIC and Fed boards, and we’d like to see the creative legal work by the Office of Legal Counsel at the Justice Department

The Fed is acting as it should as a provider of liquidity to all comers But it’s going further and offering one-year loans to banks against collateral of Treasurys and other fixed-income assets The Fed will value these assets at par, which means banks don’t have to sell their assets at a loss The Fed is essentially guaranteeing bank assets that are taking losses because banks took duration risk that Fed policies encouraged This too is a bailout

Perhaps this will contain any market mayhem but if it doesn t our guess is that the Treasury, FDIC and Fed will look to guarantee uninsured deposits across the banking system The Fed will want to avoid institutional blame for financial damage and President Biden will do anything to avoid letting a financial panic affect the overall economy as he prepares to run for a second term next year

But there is political risk from a bailout too

If the Administration acts to guarantee deposits without Congressional approval, it will face legitimate legal questions

The White house may choose to jam house Speaker Kevin McCarthy if markets aren t mollified But Mr McCarthy has a restive GOP caucus as it is and a bailout for rich depositors will feed populist anger against Washington

The critics have a point For the second time in 15 years (excluding the brief Covid-caused panic), regulators will have encouraged a credit mania and then failed to foresee the financial panic when the easy money stopped Democrats and the press corps may try to pin the problem on bankers or the Trump Administration but these are political diversions

You can t run the most reckless monetary and fiscal experiment in history without the bill eventually coming due The first invoice arrived as inflation The second has come as a financial panic with economic damage that may not end with Silicon Valley Bank bEIJING

M i a n a b R a R tHE annual gathering of more than

2,900 deputies to the National People’s Congress (NPC), China’s national legislature, in Beijing for the country’s development and reform priorities among other things has drawn to a close

At the closing meeting of the first session of the 14th NPC on Monday morning Chinese President Xi Jinping pledged to perform his duty scrupulously do his utmost and prove worthy of the trust of all NPC deputies and the Chinese people of all ethnic groups

In a speech broadcast live, Xi, who was on Friday elected Chinese president by a unanimous vote, said the people’s trust is the biggest motivation that drives him to march on and is a great responsibility he shoulders

“From this day forward to the mid-21st century the central task of the entire Communist Party of China (CPC) and all Chinese people will be to build China into a great modern socialist country in all respects and to advance the rejuvenation of the Chinese nation on all fronts he said

HigH-quality development:

High-quality development which entails innovative coordinated green and open development and development for everyone was one of the buzzwords during the country s all-important political event

While attending a deliberation with his fellow NPC deputies from the delegation of Jiangsu Province during the session, Xi stressed the importance of pursuing highquality development calling it the “first and foremost” task in China’s modernization endeavor As one of the engines driving China s economic growth Jiangsu has become a front-runner in the country s modernization bid In 2022 the province s GDP reached 12 28 trillion yuan ($1 77 trillion) m o r e e ff i c i e n t e c o n o m y e n a b l e d b y a shifted focus to high-quality development F o r i n s t a n c e t h e c o u n t r y s e n e rg y c o nsumption per 10 000 yuan of gross domest i c p r o d u c t i n 2 0 2 2 d e c r e a s e d b y 0 1 percent from 2021 while CO2 emissions p e r 1 0 , 0 0 0 y u a n o f G D P f e l l 0 8 p e r c e n t year on year, according to the National Bureau of Statistics

C h i n a s h o u l d f o s t e r r u r a l i n d u s t r i e s w i t h l o c a l f e a t u r e s t o c r e a t e m o r e c h a nn e l s f o r i n c r e a s i n g r u r a l i n c o m e s a n d c o n s o l i d a t e a n d e x p a n d t h e a c h i e v em e n t s i n p o v e r t y a l l e v i a t i o n t o p r e v e n t l a rg e - s c a l e r e l a p s e i n t o p o v e r t y a c c o r di n g t o t h e g o v e r n m e n t w o r k r e p o r t a r e so l u t i o n o n w h i c h w a s p a s s e d b y N P C d e p u t i e s o n M o n d a y In 2022, the growth of rural residents’ incomes outpaced that of urban residents for the 13th consecutive year and the income ratio between urban and rural residents dropped from 2 88 in 2012 to 2 45 in 2022 further narrowing the urban-rural income gap a 2 8-percent increase over the previous year and its economic output accounted for 10 2 percent of the country s total

The Chinese leader also highlighted the role of the private sector in pursuing such development when he attended a joint group meeting of national political advisors last week, underscoring that private enterprises