Graham Steele and Emily DiVito write:

Elon Musk’s unprecedented access to the US Treasury’s payment system deserves the public outcry that it has received. As former Treasury officials, we fear the situation is even more dire than it might appear.

Musk’s recent actions, days after the Office of Management and Budget’s government funding pause that a federal judge quickly blocked, suggest a big and broad vision for a dramatically consolidated and politicized Treasury. This could have widespread effects on our nation’s financial stability, jeopardize the livelihoods of millions of Americans, and undermine the public’s confidence in our entire financial system.

Our financial system operates on a foundation of trust. Over the past century and a half, rules and protections have been in place to ensure people can trust that their money will be there when they need it. Few people appreciate, or are even aware of, that the Treasury payment system—and the Bureau of Fiscal Service that oversees it—send billions of payments totaling nearly $6 trillion each year.

And that’s not a bad thing. That most people don’t have to spend time worrying if their money is safe is a testament to how well this system has served us and how often things run according to plan. When people lose that sense of trust, panic, bank runs, and financial crises can happen. That trust has been undermined in recent days with the news that Elon Musk and his allies have accessed the Treasury’s payment system.

It’s important to understand that the US Treasury stands behind our entire banking and financial system. It manages and provides financing for the Federal Deposit Insurance Corp.’s program that backstops most customers’ deposits and intervenes in times of crisis to stabilize the banking system. The deposit insurance program stepped up in 2023 when Silicon Valley Bank and others precipitously collapsed.

This administration reportedly is considering eliminating the FDIC, a New Deal-era agency, and consolidating it within Treasury. Like many other financial system tools, the FDIC is most effective when the public trusts that it can and will keep the financial system stable and quickly handle crises should they occur.

If we had another Silicon Valley Bank-style collapse today, there would be deep uncertainty about the Treasury’s role in that process and if people would have access to their money.

The Treasury doesn’t just backstop the banking system. It also provides a foundation for financial markets by issuing US Treasuries. As the world’s safest and most liquid financial asset, Treasuries serve as collateral for financial transactions and a source of stable investment for people and financial institutions alike.

Musk has suggested that he has control over the payments system to deny payments in an attempt to cut what he deems to be wasteful spending. Let’s be clear: The Silicon Valley ethos of “move fast and break things” is a reckless and dangerous approach to the world’s safest financial asset.

The government’s failing to make payments doesn’t amount to cutting spending; it’s a default on our obligations. It would have ripple effects for our nation’s credit rating, borrowing costs, and the Treasury markets. Ultimately, it would destabilize the global financial system. [Continue reading…]