WEBVTT - Bloomberg Businessweek Weekend - March 31st, 2023 0:00:01.280 --> 0:00:05.640 This is Bloomberg business Week inside from the reporters and 0:00:05.840 --> 0:00:09.400 editors who bring you America's most trusted business magazine, plus 0:00:09.480 --> 0:00:13.640 global business, finance and tech news. The Bloomberg Business Week 0:00:13.680 --> 0:00:28.680 Podcast with Carol Masser and Tim Stenebec from Bloomberg Radio. 0:00:33.240 --> 0:00:36.519 All Right, spite feeling a little bit better when it 0:00:36.560 --> 0:00:39.600 comes to the banks today, we're still trying to be 0:00:39.680 --> 0:00:43.000 smart and look for where the other trouble spots might be. 0:00:43.400 --> 0:00:46.720 Having said that, just quickly a reminder of the headlines 0:00:46.760 --> 0:00:49.280 in the banking world. First Citizens Bank Shares agreeing to 0:00:49.320 --> 0:00:52.199 buy Silicon Valley Bank. You've got leading the rally in 0:00:52.240 --> 0:00:55.880 bank stocks today, troubled First Republic, which following report a 0:00:55.960 --> 0:00:59.080 Bloomberg report that US authorities are considering more support for banks. 0:00:59.080 --> 0:01:01.080 So this one has really in on a tear to 0:01:01.120 --> 0:01:04.400 the upside. You've got the FDIC probing management conduct and 0:01:04.440 --> 0:01:07.559 the failures of SVB and Signature Bank. So a lot 0:01:07.560 --> 0:01:10.000 continuing to be on. So with that, let's get to 0:01:10.040 --> 0:01:12.440 our daily update on banks with US. Back with us 0:01:12.680 --> 0:01:15.680 is Bloomberg Intelligence Senior Alice for US Regional Banks, Herman Chan. 0:01:15.840 --> 0:01:18.920 He's here in our Bloomberg Interactive Broker studio also with 0:01:19.040 --> 0:01:21.679 us a voice who helped guide all of us through 0:01:21.680 --> 0:01:25.280 the last banking crisis and subsequent regulation that came out 0:01:25.319 --> 0:01:28.080 as a result. He testified numerous times before US and 0:01:28.120 --> 0:01:32.080 European policymakers and regulators on the crisis and global financial sector. 0:01:32.400 --> 0:01:35.479 Josh Rosener is managing director of the independent research consultancy 0:01:35.480 --> 0:01:38.800 firm Graham Fish Share author as well. He joins us 0:01:39.120 --> 0:01:42.720 via zoom in New York City. Josh Herman, Great to 0:01:42.760 --> 0:01:44.840 have you here, both of you. Herman, I want to 0:01:44.840 --> 0:01:47.800 start with you. First Citizens bank shares soaring today. Did 0:01:47.880 --> 0:01:51.000 they really get a great deal in buying SVB and 0:01:51.720 --> 0:01:54.720 is that the interesting story or is the interesting story 0:01:54.720 --> 0:01:57.680 that that helped calm everything down? I think it's a 0:01:57.680 --> 0:01:59.680 little bit of buff It was a great sweetheart deal 0:01:59.760 --> 0:02:05.840 for First Citizens. You're gaining really strong deposits that are 0:02:06.720 --> 0:02:12.360 largely rate free, and you're getting the loans that coming 0:02:12.440 --> 0:02:16.079 on the First Citizens books that's lost share agreement. So 0:02:16.200 --> 0:02:20.000 think of it as insurance against potential losses, and it 0:02:20.040 --> 0:02:22.840 really vaults the bank to become a top fifteen, top 0:02:22.919 --> 0:02:27.639 twenty institution. And the thing that analysts are looking at 0:02:27.800 --> 0:02:33.320 is the accretion in book value. Basically book value could 0:02:33.320 --> 0:02:36.280 increase by upboards of fifty percent, maybe even one hundred percent. 0:02:36.560 --> 0:02:38.720 So we're still waiting on numbers on that, and that's 0:02:38.760 --> 0:02:40.720 why those stock has really popped atay. What is a 0:02:40.760 --> 0:02:42.720 First Citizen? Because they've been buying lots of other banks 0:02:42.720 --> 0:02:44.720 over the years. It feels like, you know, something goes wrong, 0:02:44.760 --> 0:02:47.720 the FDIC comes in and it goes to First Citizen. Yeah, 0:02:47.760 --> 0:02:50.760 it's it's a small or less known bank. It's based 0:02:50.760 --> 0:02:55.680 in Rowley, North Carolina. It's a family run, which is interesting. 0:02:55.960 --> 0:03:01.520 The founder, the CEO is the founder's grandson, so it's 0:03:01.560 --> 0:03:04.560 been family operated and a large chunk of the family 0:03:04.600 --> 0:03:08.200 owns the shares. It bought CI a couple of years ago, 0:03:08.240 --> 0:03:10.079 so that was sort of its claim the flame of 0:03:10.080 --> 0:03:13.480 coming into the New York, New Jersey area. So they've 0:03:13.520 --> 0:03:15.720 got a lot of things going on, and it has 0:03:15.760 --> 0:03:19.160 a lot of credibility with the FDIC having done numerous 0:03:19.160 --> 0:03:22.800 transactions during the Great Financial Crisis. All right, Josh Rosner, 0:03:22.880 --> 0:03:25.480 come on in. It's been a busy couple of weeks. 0:03:25.880 --> 0:03:27.680 I mean it. You are go to voice for us 0:03:27.720 --> 0:03:30.480 so often during the Great Financial Crisis. How are you 0:03:30.560 --> 0:03:33.120 looking at the headlines today and the headlines over the 0:03:33.160 --> 0:03:37.080 last couple of weeks, well, it was definitely a sweetheart deal. 0:03:37.200 --> 0:03:38.960 How am I looking at the headlines today? I think 0:03:39.000 --> 0:03:43.400 everyone is starting to finally realize that sometimes the aftershock 0:03:43.440 --> 0:03:46.920 of an earthquake is bigger than the earthquake itself. And 0:03:46.960 --> 0:03:48.920 so I think we're starting to realize that, yes, you've 0:03:48.960 --> 0:03:54.000 had problems with the longer dated assets and the securitys portfolios, 0:03:54.040 --> 0:03:57.600 but regardless of what happens to interest rates, at this point, 0:03:58.640 --> 0:04:03.000 we're well ahead of the upcoming credit cycle. We're going 0:04:03.080 --> 0:04:06.800 to see rising delinquencies, rising defaults regardless of what the 0:04:07.320 --> 0:04:09.800 what the FED does at this point, and so to 0:04:09.840 --> 0:04:12.360 some degree, the fenshands are going to be tied. So 0:04:12.440 --> 0:04:15.200 you think that there's more to come. I think there's 0:04:15.600 --> 0:04:17.800 there's absolutely more to come. Typically, you've got a lag 0:04:17.800 --> 0:04:20.560 effect of interest rate hikes by about twelve months or so, 0:04:21.360 --> 0:04:24.760 and so you're not only worrying about today the choking 0:04:24.800 --> 0:04:28.080 off of credit or the tightening of credit conditions, but 0:04:28.200 --> 0:04:30.920 obviously you're going to end up seeing that impact the 0:04:31.839 --> 0:04:34.760 loan portfolios as we see repricings. And I think that 0:04:35.000 --> 0:04:37.200 many cases that's going to be pretty dramatic. You can't 0:04:37.200 --> 0:04:40.640 add five trillion dollars to the fed's balance sheet, or 0:04:40.680 --> 0:04:44.960 you can't print five trillion dollars without leading to some 0:04:45.080 --> 0:04:49.600 misallocation of capital, significant misallocation of capital. And Josh, when 0:04:49.640 --> 0:04:52.240 it comes to First Citizen and SVB, why did it 0:04:52.240 --> 0:04:56.160 take so long to get a deal done? Well? I mean, 0:04:56.200 --> 0:04:58.240 I think that's the other interesting thing. If you look 0:04:58.279 --> 0:05:01.560 at the law sharing agreement here, which is obviously massive, 0:05:01.640 --> 0:05:03.640 the FDIC is going to end up taking you know, 0:05:04.200 --> 0:05:09.719 some hit there, but they did so really by making 0:05:09.760 --> 0:05:12.560 a systemic declaration. I think it took a long time 0:05:12.640 --> 0:05:16.320 because it seems pretty clear that they didn't want any 0:05:16.320 --> 0:05:18.200 of the g sibs to be the bidders. I think 0:05:18.200 --> 0:05:20.760 that you could have actually put together a deal more 0:05:20.839 --> 0:05:24.200 quickly and with less laws sharing, But because we don't 0:05:24.200 --> 0:05:26.640 want them to be bigger, because we don't want them 0:05:26.640 --> 0:05:29.120 to be bigger politically, I think they recognize that that's 0:05:29.120 --> 0:05:31.680 a bit of a problem. I think functionally it's a 0:05:31.720 --> 0:05:34.520 problem as well. But I think it would have actually 0:05:34.760 --> 0:05:38.240 created more problems for them politically at this point, and 0:05:39.640 --> 0:05:44.560 because they designated this as a systemic failure, they actually 0:05:44.560 --> 0:05:48.520 don't have to follow the FDIC's requirements of least cost resolution, 0:05:48.880 --> 0:05:52.080 which allowed them to actually take more laws sharing. The 0:05:52.160 --> 0:05:54.280 downside of that is, there's only about one hundred and 0:05:54.320 --> 0:05:57.839 fifty billion dollars in the FDIC Deposit Insurance Fund and 0:05:58.000 --> 0:06:02.000 how many of these can you do without ultimately depleting them? 0:06:02.520 --> 0:06:04.960 And I want to bring Herman back into the conversation 0:06:05.000 --> 0:06:08.479 because when it comes to First Republic, will there be 0:06:08.640 --> 0:06:12.040 a buyer in this scenario as well? Yeah, I think 0:06:12.080 --> 0:06:14.360 we're still waiting to see what's going on. I would 0:06:14.360 --> 0:06:17.080 point to the fact that the Bloomberg News article said 0:06:17.120 --> 0:06:22.040 that the regulators are looking to even add more liquidity 0:06:22.400 --> 0:06:25.479 opportunities for a First Republic to tap to shore up 0:06:25.520 --> 0:06:28.240 their balance sheets. You point you can point to the 0:06:28.240 --> 0:06:31.200 fact that the thirty billion dollars deposits collectively from the 0:06:31.240 --> 0:06:33.680 largest US banks gives them a short term bridge to 0:06:34.279 --> 0:06:37.960 a solution. All of the points to us that the 0:06:38.000 --> 0:06:42.440 government and the banking industry doesn't want First Republic to fail. 0:06:42.720 --> 0:06:45.680 And how bad is it if we've keep throwing this 0:06:45.839 --> 0:06:49.279 much money. They've also been tapping right right the FED, 0:06:49.560 --> 0:06:52.919 So does it tell you how bad it really is? 0:06:52.960 --> 0:06:57.320 Then we calculated that the deposits may have left to 0:06:57.400 --> 0:06:59.839 the tune of about eighty nine billion dollars, and that 0:07:00.640 --> 0:07:03.520 comparable to one hundred and seventy billion dollars at the 0:07:03.600 --> 0:07:05.719 end of the fourth quarter. So you're talking about a 0:07:05.720 --> 0:07:08.840 pretty big chunk of the balance sheet that's missing. But 0:07:09.279 --> 0:07:12.080 it sounds like things have stabilized a bit, and so 0:07:12.120 --> 0:07:16.160 they're they're hopeful that there's an opportunity for them to 0:07:16.800 --> 0:07:21.760 become a full fledged independent institution without needing any further 0:07:22.080 --> 0:07:25.080 help from the government. I get, Josh, it feels like 0:07:25.120 --> 0:07:27.960 little Boy Blue, right, and it's just like hollow water hollow. 0:07:28.200 --> 0:07:30.040 That's kind of what it feels like. Maybe the water's 0:07:30.080 --> 0:07:32.800 coming slowly, but that's what it feels like. Or somebody 0:07:32.800 --> 0:07:35.200 said to me last week, or we overheard you know, 0:07:35.240 --> 0:07:37.560 you see one cockroach, you think that's it. It's not. 0:07:37.640 --> 0:07:41.240 There's a million more behind the wall. So help me, 0:07:41.440 --> 0:07:44.720 like how you are looking at this and where the 0:07:44.840 --> 0:07:49.080 next shoe to drop might come from. Well, remember, the 0:07:49.200 --> 0:07:54.000 problem wasn't even the losses the unrealized losses in the 0:07:54.120 --> 0:07:57.480 in the health maturity portfolio in these particular banks. It 0:07:57.560 --> 0:08:00.640 was that they had the unrealized losses are the liquidity 0:08:00.640 --> 0:08:03.600 in both the health maturity and they're available for sale portfolios. 0:08:03.640 --> 0:08:07.200 But worse than that, they had large amounts of deposits 0:08:07.200 --> 0:08:11.200 that were uninsured and little cash on hand to meet withdrawals. 0:08:11.240 --> 0:08:14.520 So those are really the two other pieces to it, 0:08:14.640 --> 0:08:18.280 besides the impairments due to interest rates. There are a 0:08:18.280 --> 0:08:21.920 lot of banks that have upside down HTM portfolios, a 0:08:21.920 --> 0:08:25.640 lot we're talking, you know, well over one hundred. That 0:08:25.800 --> 0:08:28.640 is not really the concern in my mind. The concern 0:08:28.760 --> 0:08:32.800 short term was the concern about deposits, cash on hand, 0:08:33.040 --> 0:08:37.319 the uninsured portion. But again, I think that the weird 0:08:37.520 --> 0:08:41.800 look becomes You've had a very long up cycle at 0:08:41.880 --> 0:08:45.080 zero rate. I mean we've seen you know, main street 0:08:45.640 --> 0:08:49.960 commercial and industrial loans, small commercial industrial loans, see loans 0:08:50.480 --> 0:08:54.040 you know, priced when we were almost at zero rates 0:08:54.600 --> 0:08:58.240 at libor plus four to six hundred. Now as those 0:08:58.320 --> 0:09:01.640 read price, how many of those main street borrowers are 0:09:01.640 --> 0:09:05.640 going to be able to actually sustain their payments at 0:09:05.720 --> 0:09:08.440 significantly higher rates. I think that becomes really the problem. 0:09:08.440 --> 0:09:10.920 And so I think we're about to go from the 0:09:11.000 --> 0:09:13.640 liquidity questions of this cycle to the credit side of 0:09:13.640 --> 0:09:16.240 the cycle. Do you agree, Herman, Yeah, I think there's 0:09:16.280 --> 0:09:19.680 going to be some normalization and credits. The banks have 0:09:20.120 --> 0:09:24.760 had very little loan loss content over the past several years, 0:09:25.240 --> 0:09:31.520 and it's been impressive that losses haven't really formed. A 0:09:31.559 --> 0:09:33.800 lot of that had to do with stimulus measures during 0:09:33.800 --> 0:09:38.720 the pandemic and the FEDS quantitative easing measures. But at 0:09:38.720 --> 0:09:40.959 this point, it does seem like we're heading into a 0:09:41.000 --> 0:09:43.840 recession and you should see loan losses really pop up 0:09:43.840 --> 0:09:48.200 and normalize further. Industry. Yeah, if you remember, if you 0:09:48.280 --> 0:09:51.760 remember back in in the third quarter of oh five four, 0:09:51.840 --> 0:09:54.480 we had a massive hurricane and everyone said, oh, this 0:09:54.600 --> 0:09:58.040 is a temporary blip, and that was when I had said, nope, 0:09:58.280 --> 0:10:01.640 the housing prices is eighteen to twenty four months away, 0:10:02.200 --> 0:10:04.640 And it was really driven by the fact that we'd 0:10:04.640 --> 0:10:09.800 had a full rate cycle and the problems we're working 0:10:09.840 --> 0:10:12.439 their way through the system and they would ultimately create 0:10:12.480 --> 0:10:15.280 those losses. We really have the same thing going on here. 0:10:15.320 --> 0:10:19.000 It's not in residential real estate this time to some degree, 0:10:19.040 --> 0:10:21.520 the market's well aware that it's in commercial real estate. 0:10:21.600 --> 0:10:26.720 It's in sort of see credit corporate. But we haven't 0:10:26.760 --> 0:10:31.320 had a cycle now since the Great Financial Crisis. Hey, 0:10:31.559 --> 0:10:34.480 you know Josh, it's interesting. There's a lot of places 0:10:34.520 --> 0:10:36.800 we can go. Does it make sense? And I was 0:10:36.840 --> 0:10:39.160 just reading something from Bloomberg that a company like Charles 0:10:39.160 --> 0:10:43.160 Schwab is getting caught up in all of this. You 0:10:43.200 --> 0:10:45.280 know they're getting caught up because yes, they've got the 0:10:45.280 --> 0:10:48.880 health of maturity portfolio issues, and yes it looks like 0:10:48.920 --> 0:10:52.000 they've got a lot of uninsured deposits. But you have 0:10:52.000 --> 0:10:55.080 to remember it's really a securities firm where their banks 0:10:55.080 --> 0:10:58.120 are really used. Just as you know liquidity, it's really 0:10:58.160 --> 0:11:00.719 other people's money in a different way. I don't think 0:11:00.760 --> 0:11:04.840 it is sensible. Most of the assets are on the 0:11:04.840 --> 0:11:07.439 securities side, so I think if you were to net 0:11:07.480 --> 0:11:12.120 them out, they're probably fine. That's interesting because brokerages in 0:11:12.160 --> 0:11:14.880 particular have come up a number of times in my reporting. 0:11:14.960 --> 0:11:17.480 So do you think they're a bit more unscathed and 0:11:17.760 --> 0:11:20.040 if so, what would it take for them to become 0:11:20.200 --> 0:11:22.839 more vulnerable at this point? Well, so, first of all, 0:11:22.880 --> 0:11:25.440 not only they do I think, yes, they're more unscathed, 0:11:25.480 --> 0:11:31.199 but they also have a much much more wealthy clientel, 0:11:31.679 --> 0:11:33.440 and so I think the stresses are going to be 0:11:33.600 --> 0:11:35.880 a lot less. I think you have to remember the 0:11:35.880 --> 0:11:38.160 loan portfolio is not going to look like a bank 0:11:38.200 --> 0:11:41.600 loan portfolio for the most part. You were talking about 0:11:41.600 --> 0:11:45.560 the strains in specifically commercial real estate. Do you think 0:11:45.640 --> 0:11:49.240 that could potentially be the next shoe to drop? Well, 0:11:49.280 --> 0:11:51.040 I mean, I think I think there's a number of 0:11:51.040 --> 0:11:55.880 shoes to drop once we start recognizing the credit side 0:11:55.880 --> 0:11:58.480 of the cycle rather than the liquidity side of the cycle. 0:11:58.520 --> 0:12:00.599 And so, yes, I think that commercial real estate is 0:12:00.640 --> 0:12:04.600 a problem. I think there's a lot of again discrete loans, 0:12:04.679 --> 0:12:08.840 small commercial loans, not just real estate, that are going 0:12:08.920 --> 0:12:11.720 to be wildly problematic. A lot of those have moved 0:12:11.720 --> 0:12:14.840 outside of the banking system into the business development corps, 0:12:14.880 --> 0:12:17.360 into the private equity firms, but I think those are 0:12:17.360 --> 0:12:20.520 going to be, you know, somewhat problematic as well. And 0:12:20.559 --> 0:12:23.120 so that's really my point is we are going towards 0:12:23.200 --> 0:12:26.800 a hard credit cycle. I don't think that's immediate. I 0:12:26.800 --> 0:12:29.920 think that there's a lag defect due to rates. And 0:12:29.960 --> 0:12:33.160 so my question is if we are this early on 0:12:33.440 --> 0:12:37.280 having calls to guarantee deposits, we have to remember that 0:12:37.320 --> 0:12:40.680 when you're guaranteeing deposits, ultimately are also guaranteeing the assets. 0:12:40.679 --> 0:12:42.400 And is that really where we want to go as 0:12:42.400 --> 0:12:47.360 a society. Well, I think that's okay, So unpack that 0:12:47.400 --> 0:12:48.839 a little bit. I think about you know, you went 0:12:48.960 --> 0:12:53.000 before lawmakers, You've talked about the sector and the regulatory environment. 0:12:53.120 --> 0:12:56.640 So Josh, why would that be so problematic? And I'm 0:12:56.640 --> 0:13:00.560 just kind of playing devil's advocate here, Yeah, because ultimately, 0:13:00.840 --> 0:13:04.320 you are guaranteeing the assets of the banks at the 0:13:04.400 --> 0:13:07.080 end of the day, if you're guaranteeing the deposits, we 0:13:07.080 --> 0:13:11.160 should have a system of bad management equals failure. Bad 0:13:11.200 --> 0:13:17.520 management equals failure not only for the companies themselves, but 0:13:17.600 --> 0:13:20.280 at the same time, there has to be some level 0:13:20.360 --> 0:13:23.920 of diligence required. The FED cannot actually bail you out 0:13:23.960 --> 0:13:26.960 every time, and bailing you out means that the FED 0:13:27.080 --> 0:13:29.400 is going to be guaranteeing the assets. We're seeing that 0:13:29.520 --> 0:13:34.000 right now, taking of long dated treasuries and mortgage assets 0:13:34.080 --> 0:13:37.040 off of the bank's books and holding them. That's not 0:13:37.160 --> 0:13:39.520 really the way to resolve a system. Now, we could 0:13:39.520 --> 0:13:42.400 talk about better ways to do it, but that's not 0:13:42.440 --> 0:13:45.480 where the conversation has gone yet. So right now we're 0:13:45.480 --> 0:13:49.040 still in this phase of people screaming for bailouts. Guarantee 0:13:49.120 --> 0:13:52.280 my deposits, guarantee my deposits. I'm not really sure what 0:13:52.440 --> 0:13:56.200 that ultimately solves for, and I'm not sure that we 0:13:56.240 --> 0:13:58.320 have the ability to do that. You know, you're talking 0:13:58.360 --> 0:14:01.880 about at the end of the day, fourteen trillion dollars 0:14:01.880 --> 0:14:06.600 of deposits right, Well, again, multiple poles of that in assets, Josh, 0:14:06.640 --> 0:14:10.880 and we have let Silicon Valley banco under. I think 0:14:10.880 --> 0:14:12.440 we should have let it go under. I think we 0:14:12.440 --> 0:14:14.440 could have done an orderly resolution. Do I think that 0:14:14.480 --> 0:14:17.480 it was systemic. I absolutely don't think that it was systemic. 0:14:17.520 --> 0:14:19.920 I think that Frankly, one of the pieces that we're 0:14:19.920 --> 0:14:24.320 not talking about is Dodd Frank sought to prevent the 0:14:24.360 --> 0:14:30.440 bank regulators from stepping in and providing support to individual institutions, 0:14:30.880 --> 0:14:34.440 and that change is why the regulators felt that they 0:14:34.480 --> 0:14:38.480 had to probably had to use the systemic designation as 0:14:38.520 --> 0:14:41.280 the way of stepping in, thinking they were avoiding contagion. 0:14:41.600 --> 0:14:44.160 But I don't see anything that was particularly systemic, and 0:14:44.160 --> 0:14:46.520 I don't see any real reason that depositors shouldn't have 0:14:46.600 --> 0:14:49.880 been bailed in. Are there any other cracks that are 0:14:50.000 --> 0:14:55.080 forming right now that are concerning for you? Again, I 0:14:55.160 --> 0:14:57.920 think that I think there are cracks. I think, you know, 0:14:59.040 --> 0:15:02.280 they're structural their long term, they've been for a long time. 0:15:02.320 --> 0:15:04.960 I think we need to address the leverage ratio. I 0:15:05.040 --> 0:15:07.720 think that we actually have to also start thinking about 0:15:07.800 --> 0:15:10.640 when in two thousand and nine our banks held about 0:15:10.640 --> 0:15:14.240 one ninth of their security's portfolio and treasuries, and today 0:15:14.360 --> 0:15:18.640 it's almost almost a quarter. We have to ask what 0:15:18.720 --> 0:15:21.800 banks businesses because it doesn't seem that it's the old 0:15:21.800 --> 0:15:25.720 fashioned business of lending, and so it really has become 0:15:25.800 --> 0:15:29.440 more of a casino. And the question is, well, they 0:15:29.440 --> 0:15:31.480 thought they were playing in a safer casino because they 0:15:31.480 --> 0:15:34.520 were just buying treasuries. But treasuries are given as zero 0:15:34.800 --> 0:15:37.880 risk waiting under BOSEL and is that appropriate? And does 0:15:37.880 --> 0:15:43.000 that incentivize less lending and less prudent behavior? You know, yes, 0:15:43.200 --> 0:15:44.920 you know it's crazy, Josh. Is that. I feel like 0:15:45.200 --> 0:15:48.120 we had these conversations during the Great Financial Crisis about 0:15:48.440 --> 0:15:50.920 come on, if it's a bank, be a bank, right, 0:15:51.200 --> 0:15:53.320 rather than get into something. But here we are again 0:15:53.400 --> 0:15:56.280 having this conversation. I'm also going to say, where was 0:15:56.280 --> 0:15:59.040 the FED oversight when it comes to interest rates? Because 0:15:59.520 --> 0:16:01.520 one of the BERG terminal users reach out to me 0:16:01.560 --> 0:16:03.640 and he's like, here, I can show you, you know, 0:16:04.760 --> 0:16:06.560 an event that they did at the Saint Louis FED 0:16:06.640 --> 0:16:09.520 that was worried about community banks an interest rate risk. 0:16:09.640 --> 0:16:14.040 So where was that oversight? Well, it was sorely lacking. 0:16:14.080 --> 0:16:16.480 And again we're looking at, you know, a handful of 0:16:16.520 --> 0:16:19.480 banks as having been problematic. But as I said, if 0:16:19.480 --> 0:16:22.120 you go through the call report data, which was really available, 0:16:22.480 --> 0:16:24.560 you didn't have to be a central banker to see it. 0:16:24.680 --> 0:16:28.600 You didn't have to be a financial markets expert in 0:16:28.720 --> 0:16:31.440 banking to see it. It's all there in the financial 0:16:31.520 --> 0:16:34.560 in the call reports, you could have seen how badly 0:16:34.680 --> 0:16:37.280 managed the interest rate risk was in the banking system. 0:16:37.600 --> 0:16:39.800 And so where is the regulator? I think that's a 0:16:39.800 --> 0:16:42.040 good question. But now we're in a place where the FED, 0:16:42.880 --> 0:16:46.960 being both the regulator of the banks and the central 0:16:46.960 --> 0:16:49.400 bank who's supposed to meet its dual mandate of price 0:16:49.440 --> 0:16:53.280 stability and full employment, is sort of caught in a 0:16:53.320 --> 0:16:56.800 betwixt and between, because if you save the banks, then 0:16:56.840 --> 0:17:00.480 you're actually not able to effectuate your mandate of price 0:17:00.480 --> 0:17:05.119 stability full employment in your monetary policy mission, and so 0:17:05.200 --> 0:17:07.760 their hands are ultimately tied. You can choose one or 0:17:07.920 --> 0:17:10.919 the other. You can't really choose both, Josh, I have 0:17:11.040 --> 0:17:14.560 to get your thoughts on pal and yelling. What's your 0:17:14.560 --> 0:17:16.639 take as far as how they've done so far and 0:17:16.680 --> 0:17:19.760 what you think needs to change. I think they've done. 0:17:22.160 --> 0:17:24.320 I don't think they've done a very good job. I mean, frankly, 0:17:24.359 --> 0:17:27.600 I think that even from the start, the systemic designation 0:17:27.640 --> 0:17:31.680 of these institutions was silly. I think that the fear 0:17:31.760 --> 0:17:34.639 that we couldn't let these institutions be wound down in 0:17:34.680 --> 0:17:39.520 the traditional orderly way is silly. But problematic is you 0:17:39.600 --> 0:17:42.879 put in place a one year program where you're telling 0:17:42.920 --> 0:17:47.119 banks that they can pledge their long dated securities to 0:17:47.200 --> 0:17:51.840 the FED at PAR, which does nothing to clean up 0:17:51.920 --> 0:17:55.360 the gap between par and mark to market. It's an 0:17:55.359 --> 0:17:59.480 extend and pretend there's no parrot. There's all carrot, there's 0:17:59.480 --> 0:18:02.360 no there's no requirement that may figure out a way 0:18:02.359 --> 0:18:06.879 to address it, you know, at some reasonable period of 0:18:06.880 --> 0:18:11.240 time before it expires. And so we're extending and pretending 0:18:11.359 --> 0:18:13.960 into the tougher side of a credit cycle. I don't 0:18:14.000 --> 0:18:17.960 know how that actually plays well, and I do think 0:18:18.000 --> 0:18:21.359 that the mark to market problem remains the issue. Do 0:18:21.480 --> 0:18:23.600 we need to. I know we both have like a 0:18:23.600 --> 0:18:25.480 million questions for you. Do we need to be worried 0:18:25.520 --> 0:18:29.159 about money market funds, commercial credit lenders? I'm going to 0:18:29.200 --> 0:18:32.280 assume you ask fintech, insurance companies, trade credit and elsewhere. 0:18:32.600 --> 0:18:34.439 You know, we talk about shadow banking. Do we need 0:18:34.480 --> 0:18:37.080 to be worried about that stuff? You know? I don't 0:18:37.119 --> 0:18:39.920 think we really do at this point. Again, I think 0:18:39.960 --> 0:18:43.520 the credit cycle itself is where I am more concerned, 0:18:43.520 --> 0:18:47.760 assuming that we make it past this liquidity cycle and 0:18:47.880 --> 0:18:50.600 the front end of the interest rate cycle, but the 0:18:50.840 --> 0:18:53.240 interest rate cycle becomes a credit cycle, and I still 0:18:53.240 --> 0:18:55.360 think that we're a few quarters away from that. So 0:18:55.720 --> 0:18:58.240 to me, the question isn't is there a recession on 0:18:58.280 --> 0:19:00.880 the rise? And it's is the recession on the horizon 0:19:00.960 --> 0:19:05.760 because of a failure to manage the illiquidity and bank 0:19:05.800 --> 0:19:08.600 balance sheets at this point? Or is that on the 0:19:08.640 --> 0:19:11.640 horizon because interest rates are going to feed their way 0:19:11.680 --> 0:19:15.080 through the python in credit losses and Josh, we only 0:19:15.119 --> 0:19:18.320 have about thirty seconds left. But should the Fed continue 0:19:18.480 --> 0:19:19.920 to high rate or do you think they need to 0:19:19.960 --> 0:19:23.560 cut well, I think that they'll probably have to stay 0:19:23.760 --> 0:19:25.600 pat for the moment. I think they're going to have 0:19:25.640 --> 0:19:28.919 to acknowledge or accept that the target inflation rate is 0:19:28.960 --> 0:19:32.639 moving north from here probably three and a half four percent. 0:19:32.720 --> 0:19:36.240 Whether they are willing to acknowledge it or not. They've 0:19:36.280 --> 0:19:41.439 been sort of I think Pollyanna ish on it for 0:19:41.480 --> 0:19:45.199 a while, and I think that's the reality. So I 0:19:45.320 --> 0:19:48.439 don't think that they can afford to cut, and I 0:19:48.480 --> 0:19:51.800 think that their interest would be in hiking. But again 0:19:52.160 --> 0:19:56.240 bank solvency versus their dual mandate, their hands are. You're 0:19:56.280 --> 0:19:59.840 listening to the Bloomberg Business Week podcast. Catch us live 0:20:00.040 --> 0:20:03.560 weekday afternoons from three to six Eastern Listen on Bloomberg 0:20:03.640 --> 0:20:07.080 dot Com, the Ion Radio app, and the Bloomberg Business App, 0:20:07.320 --> 0:20:13.560 or watch us live on YouTube. Starves at nine or 0:20:13.760 --> 0:20:19.920 Big Again Bright Yeah Yeah, Teas. All right, Yes, we 0:20:20.040 --> 0:20:22.119 might be playing that song for Jazz because she is 0:20:22.160 --> 0:20:24.960 from Texas or my relatives in Texas, but now we're 0:20:24.960 --> 0:20:27.280 really playing it for her next guest, because right now 0:20:27.280 --> 0:20:30.199 we've got an opportunity to really get a check on 0:20:30.240 --> 0:20:32.600 the economy from the city level, which I always love. 0:20:32.720 --> 0:20:35.040 Back with us is fort Worth, Texas Mayor Mattie Parker. 0:20:35.440 --> 0:20:39.119 She is with us via zoom from um fort Worth Hey, 0:20:39.119 --> 0:20:41.720 how are you, Matt Matda. I'm great, good, thanks for 0:20:41.760 --> 0:20:44.440 having me on. Well, see like the lead intro there, 0:20:44.440 --> 0:20:47.359 that was good, So good to have you back. Mayor Parker. 0:20:47.359 --> 0:20:51.360 When we talk back in October, I'm curious, it's been 0:20:51.359 --> 0:20:54.240 a few months since then. How has your world changed? 0:20:54.280 --> 0:20:57.320 And I'm curious about the economic and business outlook how 0:20:57.359 --> 0:21:01.040 it looks right now. Well, I think one huge factor 0:21:01.119 --> 0:21:04.000 that's positive for fort Worth is that with growth comes 0:21:04.000 --> 0:21:06.440 a lot of prosperity. And while across the country we're 0:21:06.440 --> 0:21:07.800 all kind of on pins and needles or what this 0:21:07.840 --> 0:21:12.840 economic situation really looks like, everything from flation, inflation, housing costs, etc. 0:21:13.640 --> 0:21:15.440 But in Fort Worth we still grow at a rapid 0:21:15.440 --> 0:21:18.280 pace every single day based on our high quality of 0:21:18.320 --> 0:21:20.840 life and what that comes, jobs and opportunity. And so 0:21:21.320 --> 0:21:23.840 while we are maybe cautious at times and prepared for 0:21:23.880 --> 0:21:25.720 the future and what it may bring, right now, we're 0:21:25.760 --> 0:21:28.359 really positive and feel like we're on the right economic 0:21:28.400 --> 0:21:33.359 trajectory for our city. So job growth, home prices, all 0:21:33.400 --> 0:21:36.160 of it kind of the same. Economic growth the same 0:21:36.240 --> 0:21:39.640 from when we talked, what six five six months ago, 0:21:40.280 --> 0:21:42.280 it really has I would say the housing market has 0:21:42.400 --> 0:21:46.280 changed a bit yeah, in some ways, yes, but it's 0:21:46.320 --> 0:21:48.240 kind of odd, honestly, and anybody in the real estate 0:21:48.240 --> 0:21:50.240 industry would tell you that right now. Part of it 0:21:50.280 --> 0:21:52.720 is just because our prices have continued to rise or 0:21:52.760 --> 0:21:54.720 stabilize a bit, you haven't seen the dip. And there's 0:21:54.720 --> 0:21:56.360 actually an article in the Wall Street Journal, I think 0:21:56.400 --> 0:21:59.240 yesterday about East versus West in terms of what prices 0:21:59.280 --> 0:22:01.159 look like across the country, we've seen them to be 0:22:01.280 --> 0:22:04.480 still strong here. Housing stock is still concerned. We have 0:22:04.640 --> 0:22:07.280 seen is a slowdown and the number of new projects 0:22:07.280 --> 0:22:09.679 coming online, especially with new housing. So we're watching that 0:22:09.760 --> 0:22:11.760 really closely because in a fast growing city, you've got 0:22:11.760 --> 0:22:13.639 to have a place where people to live, right and 0:22:13.680 --> 0:22:15.959 you're talking about the stock of housing. So clearly the 0:22:16.040 --> 0:22:20.560 inventory is still an issue in North Texas right now. Absolutely, 0:22:20.560 --> 0:22:23.200 it's really an issue across any high growth state like Texas. 0:22:23.640 --> 0:22:25.000