Renowned CNBC host Jim Cramer recently took to Twitter to express his concern over Silvergate's "unprecedented" bailout loan from the Federal Home Loan Bank.
"This is extraordinary," tweeted Cramer. "A bailout loan from the Federal Home Loan Bank for a crypto bank to stem the run. I wish people knew how dangerous this is all getting. NOT business as usual," he added.
Cramer's comments come in response to a tweet by former SEC official John Reed Stark, who said that U.S. taxpayers are now officially subsidizing "crypto fraud/grift" in the first U.S. crypto bailout. "So this is how liberty dies," he said.
This sentiment was echoed by a number of social media users who voiced similar concerns over the use of public funds to bail out a private bank engaged in cryptocurrencies. Many commentators are questioning whether or not taxpayer money should be used as a reward for engaging in risky investments.Silvergate was able to get its hands on $4.3 billion in funding from the FHLB — an organization not typically known for doling out liquidity — after deposits began leaving their books following the collapse of cryptocurrency exchange FTX last year. The injection of funds helped to stem a bank run.
The FHLB is a government agency that usually provides funding for housing finance programs, such as mortgages. It was thus quite surprising for this agency to offer such a large loan for Silvergate, especially since cryptocurrencies are highly volatile assets. Other banks and mainstream lenders have generally shied away from it.
As American Banker reported, some industry experts also questioned whether funding a troubled crypto-friendly bank is in the public interest.