1 00:00:10,880 --> 00:00:14,240 Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast. 2 00:00:14,320 --> 00:00:18,560 Speaker 1: I'm Tracy Allaway and I'm Joe. So Joe. I know, 3 00:00:18,640 --> 00:00:21,840 Speaker 1: I said our Library series was at an end, but 4 00:00:22,280 --> 00:00:25,279 Speaker 1: as we discussed in the previous episode, I lied, and 5 00:00:25,320 --> 00:00:28,000 Speaker 1: I sort of lied twice because we have two extra 6 00:00:28,080 --> 00:00:31,520 Speaker 1: episodes and this is the second one. Although I promise 7 00:00:31,640 --> 00:00:34,839 Speaker 1: this is actually the last one. Who knows, maybe this 8 00:00:34,880 --> 00:00:38,159 Speaker 1: won't be the last one. What can I say? Library 9 00:00:38,200 --> 00:00:41,440 Speaker 1: gets people fired up and everyone really wants to talk 10 00:00:41,440 --> 00:00:44,400 Speaker 1: about it. But I will say some of the episodes, 11 00:00:44,600 --> 00:00:48,480 Speaker 1: um that were early in our series, we actually recorded 12 00:00:48,520 --> 00:00:53,000 Speaker 1: those before we had the big March sell off in 13 00:00:53,040 --> 00:00:56,000 Speaker 1: all the volatility that we saw in the market. So 14 00:00:56,400 --> 00:01:00,120 Speaker 1: I think we should actually have another discussion about what 15 00:01:00,160 --> 00:01:02,880 Speaker 1: we've seen this year with the coronavirus crisis and what 16 00:01:03,000 --> 00:01:07,520 Speaker 1: it might mean for the library transition. Yeah, no, I agree. 17 00:01:07,880 --> 00:01:10,120 Speaker 1: I do think like it's it's good to talk big 18 00:01:10,160 --> 00:01:14,360 Speaker 1: picture and the sort of long term trajectory of what's 19 00:01:14,360 --> 00:01:18,120 Speaker 1: coming for Library and the replacement. But in the meantime, 20 00:01:18,200 --> 00:01:23,240 Speaker 1: Library still exist, and so talking about how this benchmark, uh, 21 00:01:23,400 --> 00:01:26,520 Speaker 1: you know, what's happened with it during the extraordinary several 22 00:01:26,520 --> 00:01:29,160 Speaker 1: weeks and months for the market is a sort of 23 00:01:29,200 --> 00:01:32,160 Speaker 1: a useful thing as well. I hope, yeah. And I 24 00:01:32,200 --> 00:01:35,840 Speaker 1: guess the big tension that sort of emerges is should 25 00:01:35,840 --> 00:01:39,520 Speaker 1: we be attempting to do this big redesign of the 26 00:01:39,560 --> 00:01:43,560 Speaker 1: financial system, basically redesigning the reference rate to which trillions 27 00:01:43,560 --> 00:01:46,880 Speaker 1: of dollars of assets are tied at a time when 28 00:01:46,880 --> 00:01:50,960 Speaker 1: we're distracted by so much else going on in finance. 29 00:01:51,040 --> 00:01:53,160 Speaker 1: Right We're in the middle of a financial or maybe 30 00:01:53,200 --> 00:01:56,560 Speaker 1: not financial but an economic crisis. The Federal Reserve is 31 00:01:56,640 --> 00:01:59,880 Speaker 1: rolling out all these new programs. Regulators are you know, 32 00:02:00,040 --> 00:02:03,000 Speaker 1: looking at financial stability things like that. Should we be 33 00:02:03,080 --> 00:02:06,280 Speaker 1: tackling library at this exact moment? So we're going to 34 00:02:06,480 --> 00:02:10,280 Speaker 1: explore that tension in this discussion. And we have a 35 00:02:10,320 --> 00:02:13,520 Speaker 1: guest today who is a fan favorite for sure. People 36 00:02:13,880 --> 00:02:17,160 Speaker 1: we've had him on before and he had been requested 37 00:02:17,200 --> 00:02:19,799 Speaker 1: a lot, and then even again I've got requests like, oh, 38 00:02:19,840 --> 00:02:23,000 Speaker 1: you should talk to him again. So everything is aligning 39 00:02:23,040 --> 00:02:26,880 Speaker 1: for this episode are the culmination of the series. The 40 00:02:27,360 --> 00:02:30,120 Speaker 1: interest rate stars have aligned for us, all right, Well, 41 00:02:30,240 --> 00:02:34,440 Speaker 1: without further ado, let's bring on Josh Younger ahead of us. 42 00:02:34,520 --> 00:02:38,440 Speaker 1: Interest rate derivative strategy over at JP Morgan And as 43 00:02:38,440 --> 00:02:41,200 Speaker 1: you mentioned, Joe, a previous odd lots of guests who 44 00:02:41,240 --> 00:02:43,320 Speaker 1: talked a lot about some of the turmoil that we 45 00:02:43,360 --> 00:02:47,240 Speaker 1: saw in the treasury market in March. Josh, it's great 46 00:02:47,280 --> 00:02:50,160 Speaker 1: to have you back on Yeah, it's great to be back. 47 00:02:50,200 --> 00:02:53,600 Speaker 1: Thanks for having me. So maybe just to begin with, 48 00:02:53,639 --> 00:02:56,160 Speaker 1: you could give us a sort of summary of what 49 00:02:56,360 --> 00:03:00,840 Speaker 1: happened to libor in March when we had the market volatility, 50 00:03:00,840 --> 00:03:03,600 Speaker 1: and not just market volatility, but we did start to 51 00:03:03,639 --> 00:03:08,160 Speaker 1: see the beginnings of some concerns about the banking system 52 00:03:08,240 --> 00:03:11,480 Speaker 1: and that sort of reflected in the interbank lending rates. 53 00:03:11,480 --> 00:03:14,679 Speaker 1: So what did we see So, so I think it's 54 00:03:14,760 --> 00:03:17,080 Speaker 1: it's best to go back to two thousand eight, and 55 00:03:17,080 --> 00:03:20,600 Speaker 1: and that was an environment where live Or was this 56 00:03:20,800 --> 00:03:24,080 Speaker 1: really important kind of canary in the coal mine for 57 00:03:24,200 --> 00:03:27,960 Speaker 1: bank funding stress and ultimately the stability of financial institutions. 58 00:03:28,000 --> 00:03:31,800 Speaker 1: So when library started to move and other short term 59 00:03:31,880 --> 00:03:36,120 Speaker 1: rates like FED policy expectations did not, and that spread, 60 00:03:36,160 --> 00:03:39,320 Speaker 1: that difference widened out, it ended up being a really 61 00:03:39,360 --> 00:03:42,480 Speaker 1: important forward looking indicator for the for the problems that 62 00:03:42,480 --> 00:03:45,320 Speaker 1: we're gonna come and ultimately led to bailouts and a 63 00:03:45,360 --> 00:03:48,920 Speaker 1: couple of near or actual bankruptcies, and and all of 64 00:03:48,960 --> 00:03:51,560 Speaker 1: the problems that the financial system was facing we're kind 65 00:03:51,560 --> 00:03:57,040 Speaker 1: of pre presaged by moves in liborary. So that's been 66 00:03:57,080 --> 00:03:59,320 Speaker 1: something people have watched for a while, and there have 67 00:03:59,360 --> 00:04:03,320 Speaker 1: been episode is over the past twelve years where library 68 00:04:03,360 --> 00:04:05,560 Speaker 1: was once again in the spotlight. And the best example 69 00:04:05,600 --> 00:04:08,720 Speaker 1: of that was the European sovereign funding stress episodes of 70 00:04:09,400 --> 00:04:13,920 Speaker 1: and twelve UM, when initially Greece and ultimately Italy in 71 00:04:13,960 --> 00:04:19,200 Speaker 1: Spain we're coming under stress. Their banks were either directly 72 00:04:19,279 --> 00:04:23,520 Speaker 1: or or or implicitly part of the libar panel um 73 00:04:23,520 --> 00:04:26,039 Speaker 1: and we can talk about that as well, but the 74 00:04:26,080 --> 00:04:28,880 Speaker 1: banks in Europe were all interconnected to some extent, and 75 00:04:28,960 --> 00:04:32,080 Speaker 1: problems in Italy and Italian banks were ultimately problems for 76 00:04:32,640 --> 00:04:35,480 Speaker 1: German and French banks, and that went into the librar 77 00:04:35,600 --> 00:04:39,560 Speaker 1: fixing and library oh I s so I s being 78 00:04:39,600 --> 00:04:42,960 Speaker 1: fed funds, you know, fed policy expectations. The difference between 79 00:04:42,960 --> 00:04:46,680 Speaker 1: these two rates widened out quite a bit, so that 80 00:04:46,720 --> 00:04:50,120 Speaker 1: was ultimately like something people watched, is this financial stability 81 00:04:50,600 --> 00:04:54,920 Speaker 1: financial conditions indicator. Uh. More recently, we we saw an 82 00:04:54,920 --> 00:04:58,120 Speaker 1: even larger widening in the in library versus O I 83 00:04:58,279 --> 00:05:01,720 Speaker 1: S back in March, and so that was really the 84 00:05:02,080 --> 00:05:04,520 Speaker 1: largest movement that spread since two thousand eight. And it 85 00:05:04,640 --> 00:05:09,240 Speaker 1: was immediately questions as to whether this was another canary 86 00:05:09,240 --> 00:05:12,280 Speaker 1: in the cold mine, meaning, you know, libras is widening up. 87 00:05:12,320 --> 00:05:14,480 Speaker 1: Does that mean as much as the banks are telling 88 00:05:14,560 --> 00:05:16,800 Speaker 1: us that everything's fine and we're better capitalized and we're 89 00:05:16,839 --> 00:05:18,800 Speaker 1: more stable and we have all this high quality liquid 90 00:05:18,800 --> 00:05:22,680 Speaker 1: asset stock to rely upon to raise liquidity, like are 91 00:05:22,720 --> 00:05:25,880 Speaker 1: we actually in trouble and the market knows about it, 92 00:05:25,920 --> 00:05:30,239 Speaker 1: but maybe the public doesn't get and and that's priced 93 00:05:30,279 --> 00:05:33,599 Speaker 1: into the library. So, um, this was one of the 94 00:05:33,640 --> 00:05:37,840 Speaker 1: two or three things that was really closely watched by 95 00:05:37,880 --> 00:05:40,560 Speaker 1: a variety of people and ultimately, you know, the public 96 00:05:40,640 --> 00:05:43,880 Speaker 1: because you problems with banks or problems for the economy, 97 00:05:44,000 --> 00:05:47,679 Speaker 1: especially in a major economic shock at the same time. 98 00:05:48,240 --> 00:05:52,600 Speaker 1: Um So, so then all the questions really surrounded what 99 00:05:52,760 --> 00:05:56,080 Speaker 1: was actually driving this move and librar was Librard telling 100 00:05:56,120 --> 00:05:59,080 Speaker 1: us something about the banking system or was Livebrard telling 101 00:05:59,160 --> 00:06:02,360 Speaker 1: us something about the way that we construct live RRE. 102 00:06:02,360 --> 00:06:05,800 Speaker 1: Now that's much more technical and frankly less interesting to 103 00:06:05,880 --> 00:06:08,520 Speaker 1: the broader public. Um. And it turned out to be 104 00:06:08,640 --> 00:06:13,599 Speaker 1: mostly glad to explain that further. I mean, actually, when 105 00:06:13,600 --> 00:06:16,760 Speaker 1: we talked to you last time, which we've actually been 106 00:06:16,839 --> 00:06:19,080 Speaker 1: at the very end of March or maybe early April, 107 00:06:19,160 --> 00:06:22,480 Speaker 1: we still were right in the thick of the volatility. 108 00:06:22,520 --> 00:06:25,320 Speaker 1: But a lot of that conversation was about what was 109 00:06:25,360 --> 00:06:28,120 Speaker 1: going on, not with the banks per se, but with 110 00:06:28,920 --> 00:06:33,039 Speaker 1: other entities that were trading treasuries and trading futures and 111 00:06:33,080 --> 00:06:38,520 Speaker 1: the illiquidity in that space. So from your perspective, what 112 00:06:38,520 --> 00:06:43,000 Speaker 1: what was librar, What was that widening really telling us? 113 00:06:43,000 --> 00:06:45,040 Speaker 1: And what did it have to do with the volatility 114 00:06:45,040 --> 00:06:48,360 Speaker 1: at the time. Yeah, so's ultimately the question is what 115 00:06:48,480 --> 00:06:51,200 Speaker 1: are we really seeing when we see a live RAR fixing. 116 00:06:51,240 --> 00:06:54,320 Speaker 1: Let's say today library is thirty five basis points? Like, 117 00:06:54,400 --> 00:06:56,760 Speaker 1: what what is that number? What goes into that number? 118 00:06:57,360 --> 00:06:59,240 Speaker 1: In the pre crisis days where there was a lot 119 00:06:59,279 --> 00:07:03,960 Speaker 1: of interbank trading, of of short term lending and so forth, 120 00:07:04,040 --> 00:07:07,760 Speaker 1: like library had actual transactions behind it because banks would 121 00:07:07,800 --> 00:07:11,040 Speaker 1: do those short term loans relative to each other. Um. 122 00:07:11,120 --> 00:07:12,800 Speaker 1: But you know, somewhat tongue in cheep, we say, these 123 00:07:12,880 --> 00:07:14,800 Speaker 1: days there's no eye and library. The eye stands for 124 00:07:14,880 --> 00:07:18,000 Speaker 1: inter bank and there's no interbank trading. Where there's no 125 00:07:18,040 --> 00:07:22,760 Speaker 1: significant interbank trading, and so the Intercontinental Exchange is that 126 00:07:23,160 --> 00:07:26,600 Speaker 1: is the benchmark administrator. They put out a couple of 127 00:07:26,640 --> 00:07:30,560 Speaker 1: years ago revised guidance for panelists as to how this 128 00:07:30,680 --> 00:07:33,560 Speaker 1: submit their quotes, so to quickly review your library. Is 129 00:07:34,040 --> 00:07:37,400 Speaker 1: this panel of banks, large international banks that are active 130 00:07:37,400 --> 00:07:40,320 Speaker 1: in short term markets. Every day they're asked where they 131 00:07:40,320 --> 00:07:42,760 Speaker 1: think they can borrow, and they're supposed to put in 132 00:07:42,760 --> 00:07:45,480 Speaker 1: a number, And you don't have the option to just pass, 133 00:07:45,840 --> 00:07:48,280 Speaker 1: so you have to put a number in every day. Um. 134 00:07:48,320 --> 00:07:51,560 Speaker 1: It's easy to put in a number if you spending 135 00:07:51,640 --> 00:07:54,680 Speaker 1: borrowed money that day. Um. And that was very frequently 136 00:07:54,680 --> 00:07:56,960 Speaker 1: the case in in the sort of two thousand and 137 00:07:57,000 --> 00:08:00,120 Speaker 1: two thousand eight period um, and even earlier than that. 138 00:08:00,360 --> 00:08:03,280 Speaker 1: The problem is now, because there's not much inter bank 139 00:08:03,960 --> 00:08:07,080 Speaker 1: lending and borrowing, they're forced to rely on the commercial 140 00:08:07,080 --> 00:08:09,760 Speaker 1: paper market. So the question is did I issue commercial 141 00:08:09,800 --> 00:08:13,440 Speaker 1: paper or a certificate of deposit today? Um? And if 142 00:08:13,480 --> 00:08:15,040 Speaker 1: I did, then I've got a really great way to 143 00:08:15,040 --> 00:08:17,560 Speaker 1: make my quote because I borrowed money today, let's say 144 00:08:17,640 --> 00:08:20,559 Speaker 1: borrowed at forty basis points. So I tell the ice 145 00:08:21,360 --> 00:08:24,080 Speaker 1: that I borrowed at forty basis points. But when we 146 00:08:24,120 --> 00:08:26,720 Speaker 1: look back over the past year or so, on average 147 00:08:27,000 --> 00:08:31,000 Speaker 1: of the sixteen panelists, only say four or five on 148 00:08:31,040 --> 00:08:35,439 Speaker 1: average are doing that on a given day. So what 149 00:08:35,480 --> 00:08:38,480 Speaker 1: do I do if I don't have a transaction to 150 00:08:38,520 --> 00:08:41,839 Speaker 1: point to? And the the ICE released what they called 151 00:08:41,840 --> 00:08:45,760 Speaker 1: the Waterfall, basically a prioritized list of other things you 152 00:08:45,800 --> 00:08:48,800 Speaker 1: can look at, uh to come up with a number 153 00:08:48,840 --> 00:08:51,240 Speaker 1: that's supposed to be like close to where you could borrow, 154 00:08:51,679 --> 00:08:55,080 Speaker 1: but you're inferring it, you're not actually observing it. So 155 00:08:55,920 --> 00:08:58,000 Speaker 1: one of the interesting things that happened to lieb Or 156 00:08:58,240 --> 00:09:02,679 Speaker 1: in March was it it hit a pretty sharp peak. 157 00:09:02,840 --> 00:09:04,480 Speaker 1: I think it was something like I want to say, 158 00:09:04,559 --> 00:09:08,640 Speaker 1: one point four or one point five, and then it 159 00:09:08,679 --> 00:09:12,679 Speaker 1: took quite a long time to sort of start coming down, 160 00:09:12,920 --> 00:09:16,160 Speaker 1: even though the Federal Reserve was unveiling all these new 161 00:09:16,200 --> 00:09:21,200 Speaker 1: programs to inject liquidity into the economy. The technical dynamics 162 00:09:21,200 --> 00:09:25,880 Speaker 1: that you're describing, is that something that would um, I guess, 163 00:09:26,000 --> 00:09:30,960 Speaker 1: prevent a central bank stimulus measures or monetary easing from 164 00:09:31,000 --> 00:09:35,520 Speaker 1: impacting the library as well. Yeah, there's definitely a policy 165 00:09:35,559 --> 00:09:38,720 Speaker 1: transmission issues. So when the Fed moves interest rates around, 166 00:09:39,160 --> 00:09:42,200 Speaker 1: they're ultimately trying to stimulate the economy through the cost 167 00:09:42,280 --> 00:09:46,560 Speaker 1: of loans. The problem is they target the federal funds rate, 168 00:09:46,760 --> 00:09:48,360 Speaker 1: and there's not a ton of loans tied to the 169 00:09:48,360 --> 00:09:50,760 Speaker 1: federal funds rate. So when the Fed moves interest rates, 170 00:09:51,200 --> 00:09:54,080 Speaker 1: they rely on the relationship between that that federal funds 171 00:09:54,160 --> 00:09:57,520 Speaker 1: rates and other interest rates to to actually sort of 172 00:09:57,559 --> 00:10:00,319 Speaker 1: get the stimulus into the real economy. And I'm sure 173 00:10:00,320 --> 00:10:02,800 Speaker 1: your other guests spoke about the live war is by 174 00:10:02,840 --> 00:10:06,160 Speaker 1: far the most pervasive of those interest rates, so to 175 00:10:06,240 --> 00:10:08,520 Speaker 1: some extent, if it doesn't get passed through the library, 176 00:10:09,160 --> 00:10:11,319 Speaker 1: then it doesn't have nearly the same effect. And when 177 00:10:11,320 --> 00:10:14,360 Speaker 1: the Fed cut rates a hundred basis points, library didn't 178 00:10:14,400 --> 00:10:17,240 Speaker 1: really move in March, and so you didn't really have 179 00:10:18,200 --> 00:10:22,160 Speaker 1: a ton of stimulus, at least immediately into the economy. 180 00:10:22,160 --> 00:10:24,680 Speaker 1: There's also the question of whether interest rates were really 181 00:10:24,760 --> 00:10:27,520 Speaker 1: the thing that was causing issues, which I think is 182 00:10:27,559 --> 00:10:30,840 Speaker 1: a different conversation for somebody with more economics training than me. 183 00:10:31,200 --> 00:10:33,000 Speaker 1: But but if we say the Feds trying to do 184 00:10:33,000 --> 00:10:35,760 Speaker 1: what they can, lowering interest rates is the is the 185 00:10:35,760 --> 00:10:39,360 Speaker 1: most straightforward and classic thing they can do. If that's 186 00:10:39,360 --> 00:10:42,160 Speaker 1: not passed through the live or because of these technical issues, 187 00:10:43,000 --> 00:10:45,480 Speaker 1: you've got a problem. And so you know, it was 188 00:10:45,520 --> 00:10:47,079 Speaker 1: kind of alluding to earlier is that there weren't a 189 00:10:47,080 --> 00:10:50,520 Speaker 1: lot of transactions. And when we talked in April, one 190 00:10:50,520 --> 00:10:53,440 Speaker 1: of the issues was that the capital markets essentially shut down. 191 00:10:53,720 --> 00:10:57,559 Speaker 1: So what was typically four or five panelists issuing commercial 192 00:10:57,600 --> 00:10:59,800 Speaker 1: paper on a given day, which is again pretty small 193 00:10:59,800 --> 00:11:02,960 Speaker 1: for action of total number of panelists. Uh, that number 194 00:11:02,960 --> 00:11:05,720 Speaker 1: went to like two or three when when library was rising. 195 00:11:06,120 --> 00:11:09,640 Speaker 1: So the rise in library to a large extent reflected 196 00:11:09,800 --> 00:11:12,840 Speaker 1: other kinds of funding stress that are not really tied 197 00:11:13,400 --> 00:11:16,440 Speaker 1: to like bank credit. So this wasn't really about the 198 00:11:16,480 --> 00:11:20,160 Speaker 1: ability of banks to repay loans because of the risk 199 00:11:20,200 --> 00:11:23,840 Speaker 1: of bankruptcy or failure. It was about the cost of 200 00:11:23,920 --> 00:11:27,240 Speaker 1: securing dollars through other sources and just the scarcity of 201 00:11:27,280 --> 00:11:30,040 Speaker 1: dollar funding in general, which is a very different thing 202 00:11:30,080 --> 00:11:34,640 Speaker 1: and frankly much less concerning for overall financial stability. Because 203 00:11:34,640 --> 00:11:37,760 Speaker 1: the bank credit is in question that has all kinds 204 00:11:37,800 --> 00:11:40,680 Speaker 1: of knock on consequences for the economy, which we learned 205 00:11:40,679 --> 00:11:43,960 Speaker 1: about in two thousand two nine. Well, so, okay, so 206 00:11:44,840 --> 00:11:49,880 Speaker 1: in March, the rise in the library didn't necessarily reflect 207 00:11:49,960 --> 00:11:51,720 Speaker 1: what was going on with bank credit, which is good. 208 00:11:52,080 --> 00:11:54,920 Speaker 1: But in terms of its function as a benchmark for 209 00:11:54,960 --> 00:11:58,920 Speaker 1: all kinds of loans and derivatives and other instruments, was 210 00:11:58,960 --> 00:12:02,000 Speaker 1: it still basically serving its purpose if it was a 211 00:12:02,040 --> 00:12:06,440 Speaker 1: measure of overall funding conditions or funding stress elsewhere in 212 00:12:06,480 --> 00:12:11,000 Speaker 1: the financial system, that doesn't necessarily strike me as a 213 00:12:11,040 --> 00:12:14,000 Speaker 1: bad measure to still use if we're going for live 214 00:12:14,120 --> 00:12:17,360 Speaker 1: Or's main purpose. Well, so I guess when we think 215 00:12:17,360 --> 00:12:19,400 Speaker 1: about live or, like what is it supposed to do? 216 00:12:19,559 --> 00:12:21,400 Speaker 1: Like why do we make an index out of bank 217 00:12:21,600 --> 00:12:24,360 Speaker 1: borrowing in the first place, Because we could have just 218 00:12:24,400 --> 00:12:27,280 Speaker 1: tied everything to FED funds or or the prime rate, 219 00:12:27,320 --> 00:12:30,440 Speaker 1: like we have the prime rate. That's an alternative um. 220 00:12:30,480 --> 00:12:34,880 Speaker 1: And when we initially constructed live Or, the idea was, 221 00:12:35,480 --> 00:12:37,480 Speaker 1: you know, I need some kind of credit components. So 222 00:12:37,600 --> 00:12:39,520 Speaker 1: using Fed funds of the prime rate is not a 223 00:12:39,600 --> 00:12:43,440 Speaker 1: great measure because like this is a benchmark against which 224 00:12:43,600 --> 00:12:47,440 Speaker 1: loans to individuals and corporations it's getting measured. So I 225 00:12:47,480 --> 00:12:51,280 Speaker 1: want some elements of underlying credit risk in this index. 226 00:12:52,280 --> 00:12:55,760 Speaker 1: So who's the best credit around? Arguably it's it's the 227 00:12:55,880 --> 00:12:59,520 Speaker 1: largest international banks. So the question is, if I want 228 00:12:59,520 --> 00:13:01,880 Speaker 1: to borrow any I Josh, want to take out an 229 00:13:01,880 --> 00:13:08,240 Speaker 1: adjustable rate mortgage, my credit is bases points worse than 230 00:13:08,280 --> 00:13:10,360 Speaker 1: a good bank, right, And so I have this like 231 00:13:10,440 --> 00:13:14,800 Speaker 1: benchmark that's tied to ultimately private market, you know, credit 232 00:13:14,800 --> 00:13:18,520 Speaker 1: exposed institution, but one that's kind of high up on 233 00:13:18,559 --> 00:13:22,640 Speaker 1: the on the scale of qualities of credit. Um so 234 00:13:24,160 --> 00:13:27,200 Speaker 1: when you have live or moving because of broader funding 235 00:13:27,200 --> 00:13:30,520 Speaker 1: market conditions, and that really means the ability to find 236 00:13:30,559 --> 00:13:33,640 Speaker 1: those lendable dollars the very technical thing, right, I mean, 237 00:13:34,160 --> 00:13:36,760 Speaker 1: if you're unconcerned about getting your money back, but you 238 00:13:36,840 --> 00:13:38,880 Speaker 1: just don't have the dollars to lend because they're locked 239 00:13:38,920 --> 00:13:40,640 Speaker 1: up somewhere else, so you can't pass them through the 240 00:13:40,640 --> 00:13:43,520 Speaker 1: pipes effectively. Like, is that really the benchmark we want 241 00:13:43,520 --> 00:13:49,000 Speaker 1: to use for adjustable rate mortgages, for corporate debt, for 242 00:13:49,559 --> 00:13:52,679 Speaker 1: corporate loans, for for the main street lending facility. And 243 00:13:53,040 --> 00:13:56,280 Speaker 1: so the question is is not whether or not these 244 00:13:56,320 --> 00:14:00,520 Speaker 1: disruptions happened, because you know, any imperfect measure is going 245 00:14:00,559 --> 00:14:03,360 Speaker 1: to have issues occasionally. The question is is this something 246 00:14:03,440 --> 00:14:05,760 Speaker 1: I can expect to persist over long periods of time? 247 00:14:06,240 --> 00:14:07,920 Speaker 1: Is it going to lead to a lot of volatility 248 00:14:08,360 --> 00:14:11,520 Speaker 1: in interest rates that's not really reflective of the credit markets, 249 00:14:11,559 --> 00:14:14,280 Speaker 1: And so am I sort of creating more trouble than 250 00:14:14,320 --> 00:14:16,959 Speaker 1: it's it's worth and in tying the lending market or 251 00:14:16,960 --> 00:14:20,400 Speaker 1: continuing to tie it to this bank credit index that's 252 00:14:20,440 --> 00:14:35,640 Speaker 1: constructed in this in perfect way. So I think you 253 00:14:35,840 --> 00:14:39,640 Speaker 1: actually coined the term zombie liabor. I think you were 254 00:14:39,680 --> 00:14:43,440 Speaker 1: writing about that possibility back in September when you look 255 00:14:43,440 --> 00:14:45,760 Speaker 1: at what was happening in March, where you know, you 256 00:14:45,800 --> 00:14:48,440 Speaker 1: didn't have a lot of these lending transactions on which 257 00:14:48,440 --> 00:14:52,120 Speaker 1: to actually base libror. Do you think the risk of 258 00:14:52,280 --> 00:14:55,400 Speaker 1: ending up with zombie library, as you put it, is 259 00:14:55,440 --> 00:14:58,320 Speaker 1: increased or that there's proof that we're sort of heading 260 00:14:58,360 --> 00:15:02,200 Speaker 1: in that direction. Well, the zombie library outcome, and just 261 00:15:02,240 --> 00:15:05,360 Speaker 1: to review that, that's a scenario in which you have 262 00:15:05,440 --> 00:15:09,040 Speaker 1: this panel of sixteen banks, and starting in the beginning 263 00:15:09,040 --> 00:15:11,880 Speaker 1: of two the regulators are going to allow banks to 264 00:15:12,240 --> 00:15:14,320 Speaker 1: drop off the panel. They're no longer going to compel 265 00:15:14,840 --> 00:15:16,920 Speaker 1: membership because at the moment, if you want to get 266 00:15:16,920 --> 00:15:19,440 Speaker 1: off the library panel, it's actually not so easy to do. 267 00:15:19,520 --> 00:15:21,960 Speaker 1: And they're doing that because they need a decent number 268 00:15:21,960 --> 00:15:24,400 Speaker 1: of banks to get a decent sample in that in 269 00:15:24,440 --> 00:15:27,760 Speaker 1: that index. And so when people talk about librars quote 270 00:15:27,800 --> 00:15:33,600 Speaker 1: unquote going away at the end of two, what they're 271 00:15:33,640 --> 00:15:36,600 Speaker 1: referencing is is the f c A, the Financial Conduct 272 00:15:36,600 --> 00:15:40,280 Speaker 1: Authorities statement that they will no longer compel membership. And 273 00:15:40,320 --> 00:15:42,520 Speaker 1: so the presumption is if you don't have to stay 274 00:15:42,520 --> 00:15:44,120 Speaker 1: in that club to which you would not like to 275 00:15:44,200 --> 00:15:48,240 Speaker 1: join or remain, you'll leave UM. And and there's lots 276 00:15:48,240 --> 00:15:50,560 Speaker 1: of reasons why why one would want to leave that 277 00:15:50,560 --> 00:15:54,880 Speaker 1: that particular panel, and so zombie Library is a scenario 278 00:15:55,000 --> 00:15:59,320 Speaker 1: where a lot of banks leave, but not everybody does, 279 00:15:59,440 --> 00:16:02,400 Speaker 1: and your left with a kind of small contingent of 280 00:16:02,520 --> 00:16:06,080 Speaker 1: say five or six submitters, and that leads to a 281 00:16:06,120 --> 00:16:08,360 Speaker 1: lot of volatility, because if you pick the wrong set 282 00:16:08,360 --> 00:16:10,680 Speaker 1: of five, you could end up with a much more 283 00:16:10,760 --> 00:16:15,400 Speaker 1: volatile index. What thankfully, there's kind of a regulatory solution 284 00:16:15,440 --> 00:16:18,600 Speaker 1: to this. So UM if the f c A and 285 00:16:18,600 --> 00:16:22,440 Speaker 1: and the benchmark Administrator coordinate to some extent um, they 286 00:16:22,440 --> 00:16:24,800 Speaker 1: can come up with a scenario where the f c 287 00:16:24,920 --> 00:16:29,320 Speaker 1: A deems Library nonrepresentative, and instead of continuing to post 288 00:16:29,320 --> 00:16:33,120 Speaker 1: fixings because the ice the benchmark administrator, they're under no 289 00:16:33,280 --> 00:16:36,880 Speaker 1: obligation to keep posting Library or to stop posting Library, 290 00:16:36,920 --> 00:16:39,880 Speaker 1: but the SEA can simply say they don't think it's representative, 291 00:16:39,920 --> 00:16:43,120 Speaker 1: but you can keep producing fixings. Um. They have come 292 00:16:43,160 --> 00:16:44,680 Speaker 1: together and said, look, we're not going to do that. 293 00:16:45,360 --> 00:16:49,680 Speaker 1: If if the f c A says Library has entered 294 00:16:49,680 --> 00:16:51,880 Speaker 1: a stage where it just is no longer representative of 295 00:16:51,920 --> 00:16:55,360 Speaker 1: credit markets, then we the benchmark administrator, will stop publishing 296 00:16:55,360 --> 00:16:58,800 Speaker 1: it pretty soon thereafter. So I'm sort of less concerned 297 00:16:58,840 --> 00:17:04,400 Speaker 1: about that at the moment because of that coordination. UM. 298 00:17:04,680 --> 00:17:06,960 Speaker 1: And that's a good thing because like all of the 299 00:17:07,040 --> 00:17:09,240 Speaker 1: rules and will probably talk about fallbacks and all these 300 00:17:09,240 --> 00:17:13,159 Speaker 1: other things, like if Library is still getting produced, unless 301 00:17:13,200 --> 00:17:16,199 Speaker 1: you specifically account for that scenario, you could end up 302 00:17:16,200 --> 00:17:18,560 Speaker 1: in a situation where you keep having a reference a 303 00:17:18,680 --> 00:17:22,960 Speaker 1: rate that is increasingly problematic. And Library has its problems now, 304 00:17:23,080 --> 00:17:26,800 Speaker 1: but there's sixteen contributors, imagine there were five or six, 305 00:17:27,080 --> 00:17:31,840 Speaker 1: and and all the problems would be magnified. So just 306 00:17:31,920 --> 00:17:34,240 Speaker 1: while we're talking about the events of the last couple 307 00:17:34,240 --> 00:17:36,040 Speaker 1: of months, I mean, one of the things is this 308 00:17:36,160 --> 00:17:38,359 Speaker 1: series has gone on. We've talked about the various steps, 309 00:17:38,359 --> 00:17:41,240 Speaker 1: the difficulty and transition. Of course, we wanted to get 310 00:17:41,240 --> 00:17:45,840 Speaker 1: your broader perspective on that. But have there been any 311 00:17:45,880 --> 00:17:49,919 Speaker 1: substantive ways in which what we've seen since the beginning 312 00:17:49,960 --> 00:17:54,640 Speaker 1: of this crisis has changed the planning and overall trajectory. 313 00:17:55,000 --> 00:17:58,520 Speaker 1: So it hasn't changed the planning. The question is how 314 00:17:58,640 --> 00:18:00,800 Speaker 1: we I think it comes back to the of like, 315 00:18:00,840 --> 00:18:03,080 Speaker 1: how are you actually going to do this thing? Meaning 316 00:18:03,680 --> 00:18:05,760 Speaker 1: we can say we want to get off of live 317 00:18:05,880 --> 00:18:07,840 Speaker 1: or we can threaten to get rid of lib or, 318 00:18:08,480 --> 00:18:11,480 Speaker 1: But unless all the pieces are in place, that's a 319 00:18:11,600 --> 00:18:15,119 Speaker 1: pretty risky proposition because you're now talking about ripping out 320 00:18:15,480 --> 00:18:20,080 Speaker 1: one of the central elements of the financial system UM 321 00:18:20,080 --> 00:18:23,920 Speaker 1: in a pretty rapid fashion. Io is not that far away, 322 00:18:24,040 --> 00:18:26,240 Speaker 1: and so you've really got to make sure that you've 323 00:18:27,200 --> 00:18:30,440 Speaker 1: kind of ring fence the potential risks around doing that, 324 00:18:30,480 --> 00:18:33,640 Speaker 1: because I think we can all agree like, under normal circumstances, 325 00:18:33,640 --> 00:18:36,840 Speaker 1: you don't want to destabilize the vast majority of the 326 00:18:36,920 --> 00:18:39,040 Speaker 1: lending and derivatives markets, and you definitely don't want to 327 00:18:39,040 --> 00:18:42,520 Speaker 1: do that now. So what about March has made that 328 00:18:42,560 --> 00:18:45,040 Speaker 1: either more or less likely getting those pieces in place 329 00:18:45,680 --> 00:18:48,119 Speaker 1: to actually get to the to the point where we 330 00:18:48,160 --> 00:18:50,199 Speaker 1: can we can say we're off of live RAR and 331 00:18:50,240 --> 00:18:53,320 Speaker 1: specifically stop publishing it, because if you're to do that now, 332 00:18:53,880 --> 00:18:56,600 Speaker 1: you'd have a lot of problems. Um. So the first 333 00:18:56,600 --> 00:18:59,040 Speaker 1: thing you gotta do is you've got to come up 334 00:18:59,040 --> 00:19:02,000 Speaker 1: with fallback language, which that takes care of the fact 335 00:19:02,080 --> 00:19:06,440 Speaker 1: that when most of the existing loans and derivatives were written, 336 00:19:07,359 --> 00:19:11,080 Speaker 1: they didn't really contemplate a permanent end to live or. So. 337 00:19:11,200 --> 00:19:15,480 Speaker 1: My my favorite example of this is in some some 338 00:19:15,560 --> 00:19:17,920 Speaker 1: notes that are floating interest rate which is supposed to 339 00:19:17,920 --> 00:19:20,840 Speaker 1: observe library every quarter. Um. They say, well, if there's 340 00:19:20,880 --> 00:19:23,440 Speaker 1: no live or today, look at the last valid live 341 00:19:23,520 --> 00:19:25,920 Speaker 1: orre fixing you can find and use that to calculate 342 00:19:25,920 --> 00:19:28,679 Speaker 1: the payment, which makes total sense if you think it's 343 00:19:28,680 --> 00:19:32,440 Speaker 1: a day or two, but not if it's going away forever. So. Um, 344 00:19:32,480 --> 00:19:35,040 Speaker 1: if you own a security that's supposed to pay you 345 00:19:35,040 --> 00:19:39,200 Speaker 1: whatever library is now and library goes away, you're taking 346 00:19:39,200 --> 00:19:41,159 Speaker 1: the risk that, like library goes away at a very 347 00:19:41,200 --> 00:19:42,879 Speaker 1: low interest rate level, you just don't know, like we 348 00:19:42,920 --> 00:19:44,520 Speaker 1: don't know what librar is going to be in the future, 349 00:19:44,920 --> 00:19:47,080 Speaker 1: and so that's rolling the dice in a way that's 350 00:19:47,080 --> 00:19:50,280 Speaker 1: not particularly appealing. Um. And if you go to the 351 00:19:50,320 --> 00:19:52,760 Speaker 1: drivaters market, which one of your other guests might have 352 00:19:52,840 --> 00:19:55,560 Speaker 1: mentioned scales and stuff like that. But two trillion dollars 353 00:19:55,640 --> 00:19:59,679 Speaker 1: is a lot of money, um, and those payments have 354 00:19:59,800 --> 00:20:02,080 Speaker 1: been start to live bar. And the way those fallbacks 355 00:20:02,119 --> 00:20:04,640 Speaker 1: were initially set up was they said, well, if live 356 00:20:04,640 --> 00:20:07,520 Speaker 1: Board is not there today, then pick up the phone 357 00:20:07,520 --> 00:20:09,680 Speaker 1: and call people and try to get them to quote 358 00:20:09,680 --> 00:20:12,879 Speaker 1: you a level on a more informal basis. And I 359 00:20:12,880 --> 00:20:15,160 Speaker 1: think it's fair to say that if banks don't want 360 00:20:15,160 --> 00:20:17,760 Speaker 1: to be in the Liveboard panel for variety of reasons 361 00:20:17,800 --> 00:20:21,399 Speaker 1: including you know, liability and so forth, um, they definitely 362 00:20:21,440 --> 00:20:23,040 Speaker 1: don't want to be picking up the phone and just 363 00:20:23,119 --> 00:20:27,040 Speaker 1: quoting something in an informal way. So um, in the 364 00:20:27,080 --> 00:20:30,560 Speaker 1: case where you can't actually source informal quotes, then you're 365 00:20:30,640 --> 00:20:32,320 Speaker 1: kind of at a dead end, which means there is 366 00:20:32,359 --> 00:20:35,520 Speaker 1: no number with which to calculate the coupon payments on 367 00:20:35,560 --> 00:20:40,200 Speaker 1: two trillion dollars of notional worth of derivative contracts, which, um, 368 00:20:40,240 --> 00:20:41,399 Speaker 1: you know, if you were a lawyer, that would be 369 00:20:41,400 --> 00:20:43,000 Speaker 1: a great set up, but for the rest of us, like, 370 00:20:43,080 --> 00:20:46,199 Speaker 1: that's not a great um situation to be in. And 371 00:20:46,240 --> 00:20:50,840 Speaker 1: so like, the key is to amend all of these contracts, 372 00:20:51,240 --> 00:20:54,639 Speaker 1: not just derivatives and loans, but also mortgages and the 373 00:20:54,720 --> 00:20:58,639 Speaker 1: variety of other things to make sure they have, you know, 374 00:20:58,720 --> 00:21:02,760 Speaker 1: clauses that take care of this eventuality. And and so 375 00:21:02,840 --> 00:21:06,640 Speaker 1: that's the is to fall back protocol process. It sort 376 00:21:06,680 --> 00:21:09,880 Speaker 1: of serves two purposes, is that being the Derivatives UM 377 00:21:10,040 --> 00:21:14,000 Speaker 1: Industry Organization is putting forward standard language for all derivative 378 00:21:14,440 --> 00:21:16,600 Speaker 1: contracts take care of this. And what they're doing is 379 00:21:16,600 --> 00:21:20,959 Speaker 1: they're using a historical observation of live orar versus SOFA, 380 00:21:21,080 --> 00:21:23,800 Speaker 1: the secured overnight financing rate the replacement for lib orary. 381 00:21:23,960 --> 00:21:26,520 Speaker 1: So look at the difference between those two things, look 382 00:21:26,520 --> 00:21:29,119 Speaker 1: at its historical average, and now what you thought was 383 00:21:29,119 --> 00:21:33,040 Speaker 1: gonna be library is now you know, sofur plus this 384 00:21:33,200 --> 00:21:36,520 Speaker 1: spread that we're going to observe over the past five years, 385 00:21:36,680 --> 00:21:40,760 Speaker 1: let's say, UM. So that's great for the derivatives market. 386 00:21:41,119 --> 00:21:44,600 Speaker 1: And they're they're close to putting out the triggering terms 387 00:21:44,680 --> 00:21:48,320 Speaker 1: like under what circumstances do you do this specifically, how 388 00:21:48,320 --> 00:21:51,160 Speaker 1: do you actually calculate this spread, etcetera. And and they're 389 00:21:51,200 --> 00:21:53,720 Speaker 1: close to being done with that. And the key there 390 00:21:53,800 --> 00:21:58,320 Speaker 1: is that once you have a standard UM language, you 391 00:21:58,359 --> 00:22:01,240 Speaker 1: can incorporate it into other things. So a lot of 392 00:22:00,720 --> 00:22:03,600 Speaker 1: the push has been to make sure that all of 393 00:22:03,640 --> 00:22:07,280 Speaker 1: the cash products, all the securities and loans and and 394 00:22:07,280 --> 00:22:12,840 Speaker 1: and other non derivative instruments basically align with whatever language 395 00:22:12,840 --> 00:22:15,919 Speaker 1: is that comes up with because then you have a 396 00:22:16,000 --> 00:22:19,760 Speaker 1: single industry standard. That's a good thing. UM. Just less 397 00:22:19,800 --> 00:22:23,080 Speaker 1: to argue about. UM. The only thing is that the 398 00:22:23,119 --> 00:22:26,120 Speaker 1: hedges that are used to manage risk associated with those 399 00:22:26,160 --> 00:22:30,439 Speaker 1: investments are going to have the same fallbacks because the 400 00:22:30,520 --> 00:22:34,760 Speaker 1: last thing you want. You think about a large financial institution, UM, 401 00:22:34,840 --> 00:22:38,400 Speaker 1: like a major commercial bank, they have you know, hundreds 402 00:22:38,400 --> 00:22:41,920 Speaker 1: of billions of dollars potentially in interest rate swaps, and 403 00:22:41,960 --> 00:22:44,960 Speaker 1: those are used to fund or at least their associated 404 00:22:44,960 --> 00:22:47,320 Speaker 1: with the funding of assets. And so you know, if 405 00:22:47,320 --> 00:22:50,720 Speaker 1: you've even a small mismatch in the way those fallbacks 406 00:22:50,720 --> 00:22:54,360 Speaker 1: are triggered, that could be a very destabilizing thing as well. 407 00:22:54,400 --> 00:22:57,720 Speaker 1: So you want everything everything lined up nice and nice 408 00:22:57,760 --> 00:23:01,199 Speaker 1: and uniform and matched off across the whole range of 409 00:23:01,200 --> 00:23:04,680 Speaker 1: things with live or exposure. So so that's the first thing, 410 00:23:05,320 --> 00:23:08,120 Speaker 1: that's the first step. Shot. Let you well, it does 411 00:23:08,200 --> 00:23:12,159 Speaker 1: feel like the industry is basically attempting this gargantuan feat 412 00:23:12,520 --> 00:23:15,800 Speaker 1: at a very very tricky time, and we have these 413 00:23:15,880 --> 00:23:18,560 Speaker 1: key deadlines coming up as well. Do you get the 414 00:23:18,640 --> 00:23:24,160 Speaker 1: sense that anyone is sort of reconsidering the transition in 415 00:23:24,200 --> 00:23:28,240 Speaker 1: the current environment or are are they still pushing forward 416 00:23:28,359 --> 00:23:32,240 Speaker 1: um to the extent that they were earlier. So there's 417 00:23:32,280 --> 00:23:34,480 Speaker 1: there's still a lot of pressure to get it done UM. 418 00:23:34,720 --> 00:23:41,960 Speaker 1: The the UK Regulator has said plan on two UM. 419 00:23:42,080 --> 00:23:45,679 Speaker 1: They've acknowledged the risks, but the guidance has been to 420 00:23:46,200 --> 00:23:49,040 Speaker 1: plan on the original schedule. UM. The fall back stuff 421 00:23:49,040 --> 00:23:51,600 Speaker 1: I was talking about, that's mostly done, so I wouldn't 422 00:23:51,640 --> 00:23:55,240 Speaker 1: necessarily do that as a big concern. The issue is 423 00:23:55,800 --> 00:23:57,679 Speaker 1: how are we going to jump start a new market 424 00:23:57,760 --> 00:24:00,560 Speaker 1: in the middle of a market crisis? And so the 425 00:24:00,600 --> 00:24:03,520 Speaker 1: sofer market is is new like, there's not that much 426 00:24:03,560 --> 00:24:06,280 Speaker 1: of it out there. There's been a decent amount of 427 00:24:06,320 --> 00:24:09,640 Speaker 1: issuance of securities that referenced sofur, but they're almost all 428 00:24:09,720 --> 00:24:16,520 Speaker 1: from three government sponsored issuers. There's some trading in derivatives 429 00:24:16,560 --> 00:24:19,080 Speaker 1: both on the exchange the futures contracts and then, but 430 00:24:19,240 --> 00:24:22,520 Speaker 1: much less in the over the counter swap market, and 431 00:24:22,560 --> 00:24:25,560 Speaker 1: so like, you don't have a lot of transparency and 432 00:24:25,640 --> 00:24:30,359 Speaker 1: visibility into uh, that component that's going to become central 433 00:24:30,400 --> 00:24:32,639 Speaker 1: to everything. Like, we don't have a great sense of 434 00:24:32,640 --> 00:24:36,400 Speaker 1: of how the market would manage risk around around sofur 435 00:24:37,440 --> 00:24:40,680 Speaker 1: catch flows. And the question, and this is the part 436 00:24:40,720 --> 00:24:42,640 Speaker 1: that I think is is the risk factor that you're 437 00:24:42,680 --> 00:24:45,119 Speaker 1: you're alluding to, Um, how do we get people to 438 00:24:45,200 --> 00:24:47,919 Speaker 1: trade sof Mike, how do we actually push people in 439 00:24:47,920 --> 00:24:51,120 Speaker 1: that direction? Because um, you know this book Nudge, which 440 00:24:51,119 --> 00:24:53,639 Speaker 1: says you put in small incentives, people will tend on 441 00:24:53,720 --> 00:24:56,840 Speaker 1: masks to go in one way. Financial markets don't have nudges. 442 00:24:56,880 --> 00:24:59,040 Speaker 1: They have shops like we don't we don't do small 443 00:24:59,080 --> 00:25:02,919 Speaker 1: things Crementally, there really needs to be a strong push 444 00:25:03,000 --> 00:25:07,960 Speaker 1: because familiarity and liquidity and and and and you know 445 00:25:08,040 --> 00:25:11,320 Speaker 1: overall risk management strategies that tied to things, it's just 446 00:25:11,440 --> 00:25:14,560 Speaker 1: hard to move. And so we need some kind of 447 00:25:14,640 --> 00:25:17,080 Speaker 1: lever arm to push the market from live world to sofa. 448 00:25:17,600 --> 00:25:21,280 Speaker 1: And this is where there's a there's an interesting way 449 00:25:21,320 --> 00:25:24,760 Speaker 1: in which we can utilize the post two eight crisis. 450 00:25:24,760 --> 00:25:26,960 Speaker 1: I guess with the specify the crisis now, but the 451 00:25:27,160 --> 00:25:31,280 Speaker 1: post two thousand and eight crisis regulatory regime said we're 452 00:25:31,280 --> 00:25:35,119 Speaker 1: worried about interest rate swaps between two counterparties. So we 453 00:25:35,200 --> 00:25:38,040 Speaker 1: want you to all use a centralized counterparty. This is 454 00:25:38,040 --> 00:25:41,920 Speaker 1: this is CME and LC huh, this is the clearing houses. 455 00:25:42,200 --> 00:25:45,280 Speaker 1: And so the idea was have a central counterparty to 456 00:25:45,400 --> 00:25:49,359 Speaker 1: which all swaps are eventually facing. And that means that 457 00:25:49,400 --> 00:25:52,359 Speaker 1: you can make sure that that entity is well capitalized 458 00:25:52,400 --> 00:25:55,920 Speaker 1: and kind of transparency and and so and just a 459 00:25:56,000 --> 00:25:59,000 Speaker 1: much less complicated market. And the reason I'm highlighting this 460 00:25:59,080 --> 00:26:03,080 Speaker 1: is that at central counterparty now has an enormous amount 461 00:26:03,080 --> 00:26:06,960 Speaker 1: of influence over how the swaps market trades, because basically 462 00:26:07,000 --> 00:26:11,000 Speaker 1: everybody with very few exceptions are relatively few exceptions, has 463 00:26:11,119 --> 00:26:13,760 Speaker 1: to do business with the centralized counterparties. There's two of them, 464 00:26:13,760 --> 00:26:19,000 Speaker 1: to see ME and LC h so UM, the Alternative 465 00:26:19,040 --> 00:26:22,040 Speaker 1: Reference Rate Committee and others have been coordinating with them. 466 00:26:22,160 --> 00:26:25,720 Speaker 1: And it turns out there is an asset which is 467 00:26:25,800 --> 00:26:32,639 Speaker 1: quite large, very actively hedged and um and and controlled 468 00:26:32,680 --> 00:26:36,080 Speaker 1: in some sense by the decisions that these two central 469 00:26:36,119 --> 00:26:38,960 Speaker 1: counterparties make. And that is the value of all U 470 00:26:39,040 --> 00:26:41,439 Speaker 1: S dollar interest rate derivatives. So if I have a 471 00:26:41,480 --> 00:26:45,399 Speaker 1: swap contract that I executed a year ago, it was 472 00:26:45,440 --> 00:26:48,000 Speaker 1: word zero at the beginning. This is true of all derivatives, right, 473 00:26:48,000 --> 00:26:51,359 Speaker 1: they have zero value at initiation. But now let's say 474 00:26:51,400 --> 00:26:54,200 Speaker 1: it's worth five million dollars. So how did I come 475 00:26:54,280 --> 00:26:57,080 Speaker 1: up with that number? What you do is you say, 476 00:26:57,119 --> 00:27:00,399 Speaker 1: what's the what's what are the terms of this count tracked? 477 00:27:00,560 --> 00:27:02,720 Speaker 1: How did they compare to the current terms of the contract, 478 00:27:02,960 --> 00:27:05,000 Speaker 1: And what is my discount factor? What is the time 479 00:27:05,080 --> 00:27:08,600 Speaker 1: value of money that I should assume in calculate the 480 00:27:08,680 --> 00:27:11,440 Speaker 1: present value of those cash flests? And this also sounds 481 00:27:11,440 --> 00:27:15,280 Speaker 1: relatively technical. The key is that the clearing houses use 482 00:27:15,320 --> 00:27:18,040 Speaker 1: a particular interest rate to calculate the value of those 483 00:27:18,040 --> 00:27:21,399 Speaker 1: swap contracts. The gross value of those swap contracts is 484 00:27:21,440 --> 00:27:24,640 Speaker 1: something like one and a half trillion dollars at times um, 485 00:27:24,920 --> 00:27:29,119 Speaker 1: and it is very heavily influenced by the choice of 486 00:27:29,160 --> 00:27:32,600 Speaker 1: that interest rate, and they can in principle change that 487 00:27:32,640 --> 00:27:35,359 Speaker 1: interest rate from the effective Federal funds rate, which is 488 00:27:35,400 --> 00:27:39,960 Speaker 1: what it is now two so fur so. So now 489 00:27:40,000 --> 00:27:44,360 Speaker 1: I've created an asset that is very highly correlated. It's 490 00:27:44,440 --> 00:27:49,199 Speaker 1: values very highly correlated to the SOFA rate. It's very large, 491 00:27:49,359 --> 00:27:53,439 Speaker 1: it's trillion dollars um, and its value changes a lot 492 00:27:53,480 --> 00:27:56,679 Speaker 1: because its interest rates move, the value of interest rate 493 00:27:56,720 --> 00:28:00,399 Speaker 1: swaps changes, and that means that if I was hedging 494 00:28:00,880 --> 00:28:04,320 Speaker 1: changes in these valuations, I need to change my hedges. 495 00:28:04,480 --> 00:28:07,520 Speaker 1: And banks do that a lot. So I sort of 496 00:28:07,560 --> 00:28:10,600 Speaker 1: created a very highly call it convex, meaning it's value 497 00:28:10,680 --> 00:28:15,000 Speaker 1: changes as interest rates move, very highly convex, pretty large, 498 00:28:15,600 --> 00:28:18,520 Speaker 1: very explicitly tied to sofa asset. And now the banks 499 00:28:18,560 --> 00:28:20,200 Speaker 1: are all going to have to hedge. They're going to 500 00:28:20,280 --> 00:28:23,040 Speaker 1: do that with sofa swaps, and so all of a sudden, 501 00:28:23,040 --> 00:28:26,080 Speaker 1: I've created an environment where there is a lot of 502 00:28:26,119 --> 00:28:32,000 Speaker 1: trading and activity in sofa linked UM instruments, and I've 503 00:28:32,080 --> 00:28:34,320 Speaker 1: jumped started the market. And the plan was to do 504 00:28:34,359 --> 00:28:37,840 Speaker 1: this in October UM and and the clearing houses had 505 00:28:37,880 --> 00:28:40,200 Speaker 1: agreed to this, they came up with a plan for 506 00:28:40,280 --> 00:28:44,480 Speaker 1: it um. The problem is that plan relies in part 507 00:28:44,560 --> 00:28:49,120 Speaker 1: on the willingness of the market to kind of price out, 508 00:28:48,760 --> 00:28:53,280 Speaker 1: to put together expectations for what long term sofa payments 509 00:28:53,280 --> 00:28:56,560 Speaker 1: would look like versus other interest rates. And the experience 510 00:28:56,560 --> 00:28:58,520 Speaker 1: of the past two months has not been great for 511 00:28:58,600 --> 00:29:02,239 Speaker 1: that kind of activity. So the risk is that in 512 00:29:02,520 --> 00:29:05,960 Speaker 1: affecting this transition, and in affecting the transition of the 513 00:29:06,040 --> 00:29:10,080 Speaker 1: valuation of interest rate derivatives, you sort of cause significant 514 00:29:10,080 --> 00:29:13,880 Speaker 1: problems because there's not enough buy in from the counterpart 515 00:29:13,960 --> 00:29:16,440 Speaker 1: you need, and that would be very disruptive if we 516 00:29:16,480 --> 00:29:20,120 Speaker 1: were to happen. Can you just explain that last part again? 517 00:29:20,640 --> 00:29:24,200 Speaker 1: Uh spelled out what the risks would be. And is 518 00:29:24,240 --> 00:29:27,719 Speaker 1: there a possibility that that date in October could just, 519 00:29:27,920 --> 00:29:29,720 Speaker 1: I don't know, move to early next year or something 520 00:29:29,720 --> 00:29:33,400 Speaker 1: like that. Yeah. So, like if I'm a centralized counterparty 521 00:29:33,520 --> 00:29:36,200 Speaker 1: and I'm going to switch my discount factor. So let's 522 00:29:36,200 --> 00:29:38,520 Speaker 1: say I've got a hundred trades and they're currently worth 523 00:29:38,560 --> 00:29:41,400 Speaker 1: ten million dollars using the discount factor I currently use, 524 00:29:41,520 --> 00:29:44,360 Speaker 1: and I'm going to change to that from the effect 525 00:29:44,400 --> 00:29:46,959 Speaker 1: of federal fundrates to sofa Well, I need to know 526 00:29:47,000 --> 00:29:49,720 Speaker 1: what that not just what the sofa rate is, but 527 00:29:49,880 --> 00:29:53,360 Speaker 1: what the expectation for the difference between the new discount 528 00:29:53,400 --> 00:29:56,920 Speaker 1: factor and the old discount factor are going out ten, twenty, 529 00:29:56,920 --> 00:30:00,680 Speaker 1: even thirty years. And so the way these expectations are 530 00:30:00,760 --> 00:30:04,600 Speaker 1: usually arrived at as you have a population of specialists 531 00:30:05,360 --> 00:30:07,600 Speaker 1: who really do these kinds of trades. So there's a 532 00:30:07,600 --> 00:30:11,680 Speaker 1: whole market in like thirty year average difference between the 533 00:30:11,720 --> 00:30:14,200 Speaker 1: federal funds rate and live work like we trade swaps 534 00:30:14,240 --> 00:30:17,760 Speaker 1: like that, and there's a population of investors who come 535 00:30:17,840 --> 00:30:20,880 Speaker 1: up with those expectations or a variety of means and 536 00:30:21,000 --> 00:30:23,400 Speaker 1: then gets priced into the market and there's an observable 537 00:30:24,280 --> 00:30:29,480 Speaker 1: benchmark UM. So if they participate in these in these 538 00:30:29,840 --> 00:30:32,640 Speaker 1: discounting factors switches, then we can actually do it UM. 539 00:30:32,800 --> 00:30:35,800 Speaker 1: If they don't, then you're left with a new discount 540 00:30:35,800 --> 00:30:39,280 Speaker 1: factor that nobody knows well and the valuation of the 541 00:30:39,280 --> 00:30:42,560 Speaker 1: whole swaps market becomes highly uncertain. It's not a great 542 00:30:42,560 --> 00:30:46,120 Speaker 1: outcome UM, and you've sort of created more problems than 543 00:30:46,160 --> 00:30:49,520 Speaker 1: you solved UM. And there's a risk that there are 544 00:30:49,520 --> 00:30:54,160 Speaker 1: significant losses that percolate through the system and those who 545 00:30:54,160 --> 00:30:58,480 Speaker 1: are most exposed to UM the small differences in in 546 00:30:58,600 --> 00:31:01,640 Speaker 1: valuation are going to be you know, participants in the 547 00:31:01,640 --> 00:31:03,360 Speaker 1: market who have lots and lots and lots and lots 548 00:31:03,360 --> 00:31:05,440 Speaker 1: and lots of positions that are mostly netted off but 549 00:31:05,520 --> 00:31:08,680 Speaker 1: has small residual differences. That's a dealer, like that's a 550 00:31:08,720 --> 00:31:11,840 Speaker 1: bank because their market making and all these things. UM. 551 00:31:11,880 --> 00:31:14,280 Speaker 1: So uncertainty is bad for this whole process, and if 552 00:31:14,320 --> 00:31:17,080 Speaker 1: you try to push it overligned quick and you don't 553 00:31:17,160 --> 00:31:20,160 Speaker 1: get the buy in from the specific participants that you need, 554 00:31:21,240 --> 00:31:23,800 Speaker 1: you end up creating a lot of uncertainty. Um. At 555 00:31:23,800 --> 00:31:26,360 Speaker 1: the moment, it's it's sort of full steam ahead, and 556 00:31:26,480 --> 00:31:29,080 Speaker 1: you know, the thought is October is a long way away. 557 00:31:29,120 --> 00:31:33,640 Speaker 1: Things look a lot better, markets mostly stabilized at this point. Um. 558 00:31:34,400 --> 00:31:37,880 Speaker 1: You know, I've seen no reason to delay it. UM. 559 00:31:38,080 --> 00:31:39,760 Speaker 1: I think as we get closer to the data will 560 00:31:39,760 --> 00:31:43,920 Speaker 1: become clear if there is sufficient buy in from the 561 00:31:44,000 --> 00:31:46,760 Speaker 1: right people. UM. But you know at the moment that 562 00:31:47,120 --> 00:31:49,840 Speaker 1: the thought is I would stand schedule because if we 563 00:31:49,840 --> 00:31:52,240 Speaker 1: don't do this, then we can't do the other things. 564 00:31:52,480 --> 00:31:54,720 Speaker 1: And you know, when once you have people trading swaps. 565 00:31:55,280 --> 00:31:58,280 Speaker 1: Then let's say you were a corporate borrower in Middle 566 00:31:58,280 --> 00:32:00,680 Speaker 1: America and you've got a loan that is currently live 567 00:32:00,760 --> 00:32:04,880 Speaker 1: or plus in your bank. Collegy and says, you know, 568 00:32:04,960 --> 00:32:08,040 Speaker 1: we just changed this new interest rate called SOFA, and 569 00:32:08,440 --> 00:32:09,920 Speaker 1: you know we need to quote you a new spread, 570 00:32:10,400 --> 00:32:12,640 Speaker 1: so we're gonna make it SOFA plus three and a 571 00:32:12,720 --> 00:32:16,400 Speaker 1: half percent. And your immediate response would be, I don't 572 00:32:16,400 --> 00:32:19,200 Speaker 1: know what SOFA is, So explain that to me and 573 00:32:19,400 --> 00:32:21,000 Speaker 1: to how did you come up with three and a 574 00:32:21,040 --> 00:32:23,760 Speaker 1: half percent and the and the best way to do 575 00:32:23,840 --> 00:32:28,440 Speaker 1: that is to have some derivative traded that you can 576 00:32:28,440 --> 00:32:30,640 Speaker 1: point to and say, look, the market is pricing this 577 00:32:30,680 --> 00:32:33,840 Speaker 1: set of expectations. So for your five year loan, the 578 00:32:33,840 --> 00:32:36,200 Speaker 1: market says the difference between live or and sofa is 579 00:32:36,200 --> 00:32:38,560 Speaker 1: going to be half a percent, So it's fair for 580 00:32:38,600 --> 00:32:40,280 Speaker 1: me to charge you an extra half a percent because 581 00:32:40,280 --> 00:32:42,560 Speaker 1: that sofa it is going to be lower on average 582 00:32:42,600 --> 00:32:45,480 Speaker 1: over the next five UM. To do that you need 583 00:32:45,520 --> 00:32:48,280 Speaker 1: to have trading and sofa swaps, and and to have 584 00:32:48,400 --> 00:32:49,880 Speaker 1: that you need the big bank. So it's all about 585 00:32:49,920 --> 00:32:53,680 Speaker 1: laying up the pieces over the next six to twelve 586 00:32:53,720 --> 00:32:56,800 Speaker 1: months so that ultimately we can have a loan market 587 00:32:56,880 --> 00:32:59,400 Speaker 1: that's mostly at least new loans are mostly benchmark to 588 00:32:59,440 --> 00:33:03,480 Speaker 1: sofur um and you have that pricing transparency. Um, You've 589 00:33:03,520 --> 00:33:07,120 Speaker 1: got you know, participants and users of interest rate derivatives 590 00:33:07,160 --> 00:33:09,280 Speaker 1: moving them to the new index. You can have the 591 00:33:09,280 --> 00:33:11,640 Speaker 1: mortgage market moving to the new index. For the most part. 592 00:33:11,720 --> 00:33:15,920 Speaker 1: You know, you're you're starting to whittle down the population 593 00:33:15,920 --> 00:33:18,600 Speaker 1: of Livebrard products that you have because at the moment 594 00:33:18,640 --> 00:33:22,120 Speaker 1: it's it's still growing like the the the market's overall 595 00:33:22,200 --> 00:33:26,360 Speaker 1: risk to live AR has increased, not decreased over the 596 00:33:26,360 --> 00:33:29,120 Speaker 1: past year, even as the deadline has approached. And it's 597 00:33:29,160 --> 00:33:32,200 Speaker 1: because people are used to Library when we write new 598 00:33:32,200 --> 00:33:35,240 Speaker 1: loans now we typically do and versus Live wrary. Still, 599 00:33:35,680 --> 00:33:38,120 Speaker 1: most of those credit facilities that have been drawn on 600 00:33:38,200 --> 00:33:41,120 Speaker 1: in the crisis, most of them are linked to Library UM. 601 00:33:41,400 --> 00:33:44,880 Speaker 1: Most of the like the FED program, was originally gonna 602 00:33:44,880 --> 00:33:46,640 Speaker 1: be linked to Sofa, but they changed to the library 603 00:33:46,640 --> 00:33:49,239 Speaker 1: because the market is not ready for sofa lenked main 604 00:33:49,280 --> 00:33:53,880 Speaker 1: street lending loans. So you know the way we and 605 00:33:53,920 --> 00:33:55,920 Speaker 1: if you if you have this thing where the risk 606 00:33:55,960 --> 00:33:58,880 Speaker 1: you're trying to manage down keeps going up, it's not 607 00:33:58,960 --> 00:34:01,120 Speaker 1: a good setup to get rid of Library two years. 608 00:34:01,200 --> 00:34:04,240 Speaker 1: So so unless you put these pieces together in a 609 00:34:04,400 --> 00:34:08,880 Speaker 1: relatively precisely sequenced fashion and quickly, you're not going to 610 00:34:09,000 --> 00:34:11,879 Speaker 1: have a situation where the market's ready to get off 611 00:34:11,880 --> 00:34:15,120 Speaker 1: of live or you know, on schedule with respect to 612 00:34:15,120 --> 00:34:28,160 Speaker 1: the deadlines the phone, Josh, you mentioned these specialists who 613 00:34:28,200 --> 00:34:31,719 Speaker 1: are very good and practiced at pricing these things out 614 00:34:31,840 --> 00:34:34,799 Speaker 1: for a long time. When it comes to the just 615 00:34:34,840 --> 00:34:36,680 Speaker 1: real quickly, when it comes to the switch to sofa 616 00:34:37,040 --> 00:34:40,040 Speaker 1: is learning more technical challenge from their perspective, or is 617 00:34:40,080 --> 00:34:43,319 Speaker 1: it again just sort of habit and inertia in terms 618 00:34:43,320 --> 00:34:46,200 Speaker 1: of whether they'll be uh, you know, fully ready to 619 00:34:46,239 --> 00:34:48,799 Speaker 1: do that in buying into it. I think it's a 620 00:34:48,840 --> 00:34:51,480 Speaker 1: couple of things. The first is it's technical in the 621 00:34:51,520 --> 00:34:53,799 Speaker 1: sense that you know, we need to have a sort 622 00:34:53,800 --> 00:34:56,279 Speaker 1: of theory of SOFUR and and how it relates to 623 00:34:56,280 --> 00:34:59,319 Speaker 1: other interest rates and and we have a decent sense 624 00:34:59,320 --> 00:35:02,000 Speaker 1: of it over the past US five to ten years. 625 00:35:02,000 --> 00:35:05,080 Speaker 1: But the world's changing pretty quickly. And so when the 626 00:35:05,120 --> 00:35:07,760 Speaker 1: Treasury wants to issue five trillion dollars worth of collateral, 627 00:35:07,840 --> 00:35:10,120 Speaker 1: it has implications for the repo market, which means it 628 00:35:10,120 --> 00:35:13,120 Speaker 1: is implications for SOFER and so you know, what is 629 00:35:13,160 --> 00:35:15,879 Speaker 1: the long term deficit outlook look like has a lot 630 00:35:15,920 --> 00:35:19,080 Speaker 1: to say about how the repo market is going to 631 00:35:19,160 --> 00:35:21,799 Speaker 1: behave You've got bank regulations that are changing, even on 632 00:35:21,880 --> 00:35:24,840 Speaker 1: temporary basis. So it's hard. Um, that doesn't mean you 633 00:35:24,880 --> 00:35:27,879 Speaker 1: can't come up with a number. The key is if 634 00:35:27,920 --> 00:35:29,799 Speaker 1: you might be wrong, you have to be in a 635 00:35:29,840 --> 00:35:33,160 Speaker 1: position to to wear those losses and not have a problem. 636 00:35:33,200 --> 00:35:36,200 Speaker 1: And the issue is that the one of the hardest 637 00:35:36,280 --> 00:35:40,360 Speaker 1: hit communities, at least in the sort of institutional investor class. 638 00:35:40,920 --> 00:35:45,000 Speaker 1: UM in March was the relative value hedge fund and 639 00:35:45,280 --> 00:35:48,200 Speaker 1: asset manager community. And that's precisely you're relying on to 640 00:35:48,600 --> 00:35:50,880 Speaker 1: come up with these numbers. And so there's a lot 641 00:35:50,960 --> 00:35:53,680 Speaker 1: less margin for error if you've had a bad year already, 642 00:35:53,920 --> 00:35:56,719 Speaker 1: and the willingness to participate in saying it's voluntary, like 643 00:35:56,719 --> 00:35:59,239 Speaker 1: you don't have to do this, UM if you're a 644 00:35:59,239 --> 00:36:01,440 Speaker 1: hedge fund like you and just choose not to participate 645 00:36:01,520 --> 00:36:05,520 Speaker 1: in so for and that's fine. UM. And so without that, 646 00:36:05,800 --> 00:36:08,040 Speaker 1: by and it, it's just gonna be hard to keep 647 00:36:08,080 --> 00:36:11,120 Speaker 1: the process moving along. It doesn't mean you can't sort 648 00:36:11,120 --> 00:36:13,840 Speaker 1: of accept the risk of volatility and push forward and say, look, 649 00:36:13,880 --> 00:36:16,960 Speaker 1: you know, things look fine. I think they'll participate, and 650 00:36:17,080 --> 00:36:19,640 Speaker 1: you know, even if they don't, you know, the miss 651 00:36:19,640 --> 00:36:22,400 Speaker 1: will be small, and we'll just keep things on schedule 652 00:36:22,400 --> 00:36:25,680 Speaker 1: because it's more important to stay on schedule. UM, given 653 00:36:25,800 --> 00:36:28,680 Speaker 1: the level of risk that we perceive. That's a perfectly 654 00:36:28,719 --> 00:36:31,680 Speaker 1: valid perspective, but you know, it's it's not clear to 655 00:36:31,680 --> 00:36:35,200 Speaker 1: me that will obviously be the case come October. I 656 00:36:35,239 --> 00:36:39,120 Speaker 1: wanted to ask you something sort of more conceptual about SOFA. 657 00:36:39,280 --> 00:36:42,160 Speaker 1: So you mentioned at the beginning of our conversation when 658 00:36:42,160 --> 00:36:45,120 Speaker 1: you were talking about liebrar, the lieboard does have this 659 00:36:45,280 --> 00:36:49,040 Speaker 1: credit component in the sense that it's basically a sort 660 00:36:49,040 --> 00:36:54,440 Speaker 1: of interbank lending rate, and so for somewhat controversially doesn't 661 00:36:54,520 --> 00:36:58,239 Speaker 1: have that credit component. How do you see that impacting 662 00:36:58,400 --> 00:37:01,839 Speaker 1: the financial system and transact And does that mean that 663 00:37:02,160 --> 00:37:06,560 Speaker 1: so far is inherently not a sort of perfect match 664 00:37:06,680 --> 00:37:09,920 Speaker 1: for live ward. It's definitely not a perfect match. Um. 665 00:37:10,440 --> 00:37:14,400 Speaker 1: I think there's no good answer to this problem. So Um. 666 00:37:14,480 --> 00:37:18,439 Speaker 1: On the one hand, library has credit exposure, which sort 667 00:37:18,480 --> 00:37:21,480 Speaker 1: of is perceived to be beneficial in certain ways, but 668 00:37:21,760 --> 00:37:23,080 Speaker 1: you know, it kind of depends on who you are 669 00:37:23,080 --> 00:37:24,680 Speaker 1: in that equation. You know, the live world tends to 670 00:37:24,840 --> 00:37:28,200 Speaker 1: go up when the market when interest rates go down. Um, 671 00:37:28,280 --> 00:37:30,040 Speaker 1: that's just you know, interest rates go down when the 672 00:37:30,040 --> 00:37:33,240 Speaker 1: economy is worse, and that means credit, the credit outlook 673 00:37:33,280 --> 00:37:35,120 Speaker 1: is worse, and so liverar should go up for aative 674 00:37:35,120 --> 00:37:37,640 Speaker 1: to other interest rates. Uh. That works well if you're 675 00:37:37,680 --> 00:37:39,960 Speaker 1: the lender, but not the borrower. So it sort of 676 00:37:39,960 --> 00:37:43,799 Speaker 1: depends on your perspective. The other component of that is 677 00:37:43,880 --> 00:37:47,040 Speaker 1: it's sort of perceived to be a good match to 678 00:37:47,360 --> 00:37:50,680 Speaker 1: the other kinds of ways in which banks borrow um 679 00:37:50,719 --> 00:37:54,000 Speaker 1: and and you know, that's another thing that that's arguably debatable, 680 00:37:54,040 --> 00:37:56,319 Speaker 1: but it's been it's been put forward. The problem with 681 00:37:56,400 --> 00:37:59,000 Speaker 1: library is that credit markets tend not to be very 682 00:37:59,000 --> 00:38:03,240 Speaker 1: active crisis, which is precisely when you need the index 683 00:38:03,320 --> 00:38:05,239 Speaker 1: to be its most robust. And so that's what we 684 00:38:05,239 --> 00:38:08,120 Speaker 1: were looking at in March, which is at precisely the 685 00:38:08,160 --> 00:38:11,239 Speaker 1: time when FED policy needed to be passed through to 686 00:38:11,280 --> 00:38:15,080 Speaker 1: the real economy through live war um. The rate of 687 00:38:15,120 --> 00:38:19,160 Speaker 1: transactions was dropping significantly, like markets were seizing up um. 688 00:38:19,200 --> 00:38:21,160 Speaker 1: The only market that was much more active, or one 689 00:38:21,200 --> 00:38:23,239 Speaker 1: of the markets that was much more active, was the 690 00:38:23,280 --> 00:38:26,360 Speaker 1: repo market. So you know, the transactions that could in 691 00:38:26,440 --> 00:38:30,520 Speaker 1: principle go into live ar in March were much fewer, 692 00:38:30,560 --> 00:38:33,279 Speaker 1: and the transactions which went into sofare much greater, like 693 00:38:33,560 --> 00:38:36,360 Speaker 1: the repo market got more active. So the advantage of 694 00:38:36,400 --> 00:38:39,720 Speaker 1: this non credit link, the secure lending market so to speak, 695 00:38:40,239 --> 00:38:43,160 Speaker 1: that that SOFA represents is that it is more active 696 00:38:43,160 --> 00:38:46,160 Speaker 1: in a crisis, more robust in the crisis um than 697 00:38:47,520 --> 00:38:50,840 Speaker 1: than in normal times. Well, this raises question to me, 698 00:38:50,880 --> 00:38:52,200 Speaker 1: and I think we talked about in one of the 699 00:38:52,239 --> 00:38:56,319 Speaker 1: earlier episodes. Why couldn't the new benchmark just have been 700 00:38:56,880 --> 00:38:59,320 Speaker 1: something a direct policy, right? I mean, if you're getting 701 00:38:59,360 --> 00:39:01,160 Speaker 1: rid of the credit opponent, why not do you know, 702 00:39:01,239 --> 00:39:04,520 Speaker 1: one month or three month or overnight rates from the 703 00:39:04,520 --> 00:39:08,120 Speaker 1: Fed if that's essentially what it's going to track. So 704 00:39:08,880 --> 00:39:12,000 Speaker 1: the federal funds rate is actually not a direct policy, right. 705 00:39:12,080 --> 00:39:14,560 Speaker 1: So the federal funds rate is market determined by the 706 00:39:14,600 --> 00:39:17,880 Speaker 1: market um. In the pre crisis days, when the balance 707 00:39:17,880 --> 00:39:20,680 Speaker 1: sheet was small, basically the FED would be the buyer 708 00:39:20,680 --> 00:39:23,680 Speaker 1: and seller of reserves because federal funds rate is the 709 00:39:23,719 --> 00:39:27,759 Speaker 1: cost of borrowing reserves on an overnight basis, so on 710 00:39:27,840 --> 00:39:32,680 Speaker 1: borrowing cash from another bank um and specifically borrowing like 711 00:39:32,760 --> 00:39:36,680 Speaker 1: reserves at the FED and in the pre crisis days, 712 00:39:36,800 --> 00:39:39,640 Speaker 1: like the FED would sort of be the end borrower 713 00:39:39,640 --> 00:39:42,440 Speaker 1: and lender to maintain a rate that was like pretty 714 00:39:42,440 --> 00:39:46,359 Speaker 1: consistent with their target um. As the balance she grew 715 00:39:46,400 --> 00:39:48,040 Speaker 1: in the wake of the crisis and too, that's Nate. 716 00:39:48,080 --> 00:39:50,600 Speaker 1: They bought a ton of treasuries, a ton of mortgages 717 00:39:50,640 --> 00:39:53,560 Speaker 1: agency the ventures, so the baluncy got a lot bigger, 718 00:39:53,600 --> 00:39:55,880 Speaker 1: which meant there was a ton of cash in the market, 719 00:39:56,160 --> 00:39:59,000 Speaker 1: and that meant that nobody really needed to borrow cash, 720 00:39:59,760 --> 00:40:03,239 Speaker 1: be cause you would typically borrow cash to make sure 721 00:40:03,239 --> 00:40:06,520 Speaker 1: that you were at your minimum reserve levels for regulatory purposes, 722 00:40:06,560 --> 00:40:09,640 Speaker 1: like I need to hold Institution A needs fifty billion 723 00:40:09,680 --> 00:40:12,799 Speaker 1: dollars worth the reserves, institution being needs sixty billion dollars 724 00:40:12,800 --> 00:40:15,960 Speaker 1: worth the reserves. Reserves don't earn interest in that pre 725 00:40:16,040 --> 00:40:18,120 Speaker 1: crisis environment, and so I want to hold as little 726 00:40:18,160 --> 00:40:21,200 Speaker 1: as possible and stay as close to my minimums as possible. Now, 727 00:40:21,239 --> 00:40:24,239 Speaker 1: the FED has done two things. They've increased the supply enormously, 728 00:40:24,800 --> 00:40:27,080 Speaker 1: and they pay interest. So if you're a bank and 729 00:40:27,160 --> 00:40:30,120 Speaker 1: you have cash at the FED, you get into positive 730 00:40:30,120 --> 00:40:33,320 Speaker 1: interest right on that cash. So you actually are perfectly 731 00:40:33,360 --> 00:40:35,799 Speaker 1: find holding reserves for the most part at the FED. 732 00:40:35,840 --> 00:40:39,040 Speaker 1: You don't want to minimize your exposure. Um And the 733 00:40:39,120 --> 00:40:41,480 Speaker 1: correlate to that is who would actually lends reserves when 734 00:40:41,480 --> 00:40:43,960 Speaker 1: they're earning interest on them at a rate that that 735 00:40:44,120 --> 00:40:47,480 Speaker 1: might be below the interest they earned by holding them overnight. 736 00:40:48,120 --> 00:40:50,839 Speaker 1: And it turns out that the way that the regulations 737 00:40:50,840 --> 00:40:53,399 Speaker 1: were changed, the way the law was changed to allow 738 00:40:53,480 --> 00:40:57,000 Speaker 1: the FED to pay interest on reserves did not include 739 00:40:57,480 --> 00:41:01,920 Speaker 1: non depository institutions, So who's an depository institution. The federal 740 00:41:01,960 --> 00:41:06,040 Speaker 1: Homeland banking system is technically not a depository institution, and 741 00:41:06,120 --> 00:41:09,160 Speaker 1: so that meant is that they don't earn interest on 742 00:41:09,200 --> 00:41:12,320 Speaker 1: their reserves, but they are part of the federal reserve system, 743 00:41:12,400 --> 00:41:15,440 Speaker 1: so they lend out their cash at a rate below 744 00:41:15,480 --> 00:41:18,920 Speaker 1: the interest on access reserves, and the borrowers of that 745 00:41:19,080 --> 00:41:22,440 Speaker 1: cash are sort of borrowing below the interest on access 746 00:41:22,480 --> 00:41:25,440 Speaker 1: reserves rate and earning the spread between the two, or 747 00:41:25,600 --> 00:41:29,080 Speaker 1: possibly doing it for other for more technical reasons, And 748 00:41:29,160 --> 00:41:32,160 Speaker 1: so it turns out that the federal reserve policy rate, 749 00:41:32,480 --> 00:41:35,200 Speaker 1: or the target policy rate, the effective federal funds rate, 750 00:41:36,320 --> 00:41:42,200 Speaker 1: represents at best, on a typical day, billion dollars worth 751 00:41:42,200 --> 00:41:46,000 Speaker 1: of transactions, which is better than live or um I 752 00:41:46,000 --> 00:41:48,680 Speaker 1: should add, but but not a lot in the context 753 00:41:48,719 --> 00:41:51,400 Speaker 1: the whole system, whereas SOFA represents more than a trillion 754 00:41:51,400 --> 00:41:55,480 Speaker 1: dollars in underlying transactions, many many thousands. And most importantly, 755 00:41:55,920 --> 00:42:00,680 Speaker 1: the effective federal funds rate is a pretty idiosyncraticing because 756 00:42:00,719 --> 00:42:04,000 Speaker 1: it really reflects where the homeland banking system is willing 757 00:42:04,000 --> 00:42:07,400 Speaker 1: to lend out cash relative to other short term investments 758 00:42:07,760 --> 00:42:11,760 Speaker 1: to foreign banks, which doesn't strike me as the index. 759 00:42:11,840 --> 00:42:13,719 Speaker 1: You really want to link the rest of the economy too, 760 00:42:14,160 --> 00:42:18,520 Speaker 1: because it's a pretty technical, pretty idrisyncratic thing, and so 761 00:42:18,520 --> 00:42:21,520 Speaker 1: SOFA represents a true market in the sense that there's many, 762 00:42:21,560 --> 00:42:25,600 Speaker 1: many transactions, there are lots of borrowers and lenders, and 763 00:42:25,640 --> 00:42:28,520 Speaker 1: it's it's a real price discovery process that's not sort 764 00:42:28,520 --> 00:42:32,120 Speaker 1: of highly highly sensitive to to the minutia of things 765 00:42:32,160 --> 00:42:35,719 Speaker 1: like you know, homeland bank liquidity management. So so it's 766 00:42:35,719 --> 00:42:38,160 Speaker 1: a much more attractive right and the are sort of 767 00:42:38,200 --> 00:42:41,760 Speaker 1: considered both UM when they the Alternate Reference Rate Committee. 768 00:42:41,800 --> 00:42:44,839 Speaker 1: They considered both UM and came to the conclusion that 769 00:42:44,840 --> 00:42:47,440 Speaker 1: that this REPO rate, for all its problems, was a 770 00:42:47,520 --> 00:42:51,719 Speaker 1: much more desirable benchmark than things like fed funds. So, 771 00:42:51,840 --> 00:42:56,080 Speaker 1: putting it all together and considering what we just experienced 772 00:42:56,200 --> 00:43:00,319 Speaker 1: in March and April with live ar UM and sober 773 00:43:00,560 --> 00:43:05,240 Speaker 1: to some extent, are you optimistic that we're going to 774 00:43:05,520 --> 00:43:09,680 Speaker 1: meet the deadlines for the library transition? And I guess secondly, 775 00:43:09,719 --> 00:43:13,680 Speaker 1: are you optimistic that that transition is going to be 776 00:43:14,120 --> 00:43:16,360 Speaker 1: done in a way that's good for the financial system 777 00:43:16,400 --> 00:43:18,680 Speaker 1: and that the ultimate outcome is going to be that 778 00:43:18,719 --> 00:43:20,920 Speaker 1: the industry is in a better place than it was 779 00:43:21,640 --> 00:43:25,800 Speaker 1: in the library. Is yes, sorry, optimism is an interesting 780 00:43:26,040 --> 00:43:29,040 Speaker 1: way to characterize it. I am. I'm convinced we'll get there. 781 00:43:29,680 --> 00:43:33,080 Speaker 1: It is going to be the beginning of two first quarter, 782 00:43:33,120 --> 00:43:37,000 Speaker 1: second quarter, second half. I think there's a real risk 783 00:43:37,040 --> 00:43:40,040 Speaker 1: that it gets pushed back, just because when it comes 784 00:43:40,040 --> 00:43:42,399 Speaker 1: down to it, the way you get the market off 785 00:43:42,400 --> 00:43:44,880 Speaker 1: of lib or is you stop publishing lib rar and 786 00:43:44,960 --> 00:43:48,360 Speaker 1: hope that you've covered all your bases, and there's always 787 00:43:48,360 --> 00:43:49,799 Speaker 1: gonna be a moment where you bite your lip and 788 00:43:49,800 --> 00:43:52,480 Speaker 1: go I think it'll be fine. We did a ton 789 00:43:52,520 --> 00:43:55,080 Speaker 1: of work. We we really looked in everything, but like, 790 00:43:55,200 --> 00:43:59,040 Speaker 1: you never really know until you do it. So what 791 00:43:59,040 --> 00:44:01,719 Speaker 1: what do I think I might have wrong? And and 792 00:44:01,719 --> 00:44:05,239 Speaker 1: and ultimately, if if there's any concern about financial stability, 793 00:44:06,400 --> 00:44:08,560 Speaker 1: you know this deadline. It's good to have a deadline. 794 00:44:08,600 --> 00:44:11,280 Speaker 1: It's good to work towards a deadline. Um this deadline 795 00:44:11,320 --> 00:44:13,120 Speaker 1: was not chosen for any reason other than we need 796 00:44:13,160 --> 00:44:17,280 Speaker 1: a deadline that's realistic. So if financial stability is truly 797 00:44:17,320 --> 00:44:20,880 Speaker 1: at risk, I think turning off the lights and walking 798 00:44:20,880 --> 00:44:22,880 Speaker 1: out of the live or room wherever it is, like, 799 00:44:23,000 --> 00:44:25,640 Speaker 1: it's probably not a great idea. Whether or not that 800 00:44:25,719 --> 00:44:28,640 Speaker 1: point will come with the point of confidence that you 801 00:44:28,680 --> 00:44:31,880 Speaker 1: know we can take this risk comes you know, on 802 00:44:31,960 --> 00:44:34,680 Speaker 1: time quote unquote is in the first part of two 803 00:44:34,760 --> 00:44:38,839 Speaker 1: or or six or twelve months later. It is very 804 00:44:39,000 --> 00:44:42,239 Speaker 1: hard to say in advance. UM. I think it really 805 00:44:42,280 --> 00:44:44,759 Speaker 1: depends on how the next three or six months ago, 806 00:44:44,840 --> 00:44:47,239 Speaker 1: and especially that that discounting switch people called the big 807 00:44:47,239 --> 00:44:49,640 Speaker 1: bank discounting switch. That's kind of the next big event 808 00:44:50,440 --> 00:44:53,520 Speaker 1: um in that market. But you know, I'm optimistic that 809 00:44:53,520 --> 00:44:56,360 Speaker 1: it will happen. I'm optimistic that, um, it will happen 810 00:44:56,480 --> 00:44:58,799 Speaker 1: over a timeline that's not super long, and when we're 811 00:44:58,800 --> 00:45:01,759 Speaker 1: not talking about twenty years at the end of the day. 812 00:45:01,800 --> 00:45:03,360 Speaker 1: If it if it ends up happening in the second 813 00:45:03,400 --> 00:45:07,440 Speaker 1: half of two or the first half of three, like, 814 00:45:07,520 --> 00:45:09,839 Speaker 1: it's that a complete disaster for the market. No, we've 815 00:45:09,840 --> 00:45:11,600 Speaker 1: been working on this longer than we were working on 816 00:45:11,640 --> 00:45:16,160 Speaker 1: the Moon landing, So what's an extra six months? So um, 817 00:45:16,200 --> 00:45:19,320 Speaker 1: you know, I think that's it gives us a little flexibility, 818 00:45:19,360 --> 00:45:22,040 Speaker 1: which is not a bad thing. Um. In some sense, 819 00:45:22,040 --> 00:45:26,279 Speaker 1: there's value to acting as if the deadline is is 820 00:45:26,320 --> 00:45:28,919 Speaker 1: fixed because if it gets pushed back, but you're ready 821 00:45:28,960 --> 00:45:31,600 Speaker 1: at the end of twenty one, you've got no problems. 822 00:45:31,640 --> 00:45:33,680 Speaker 1: If you're not ready, then you then you've got a 823 00:45:33,680 --> 00:45:36,280 Speaker 1: big problem. So, um, you know, I think the market 824 00:45:36,280 --> 00:45:39,440 Speaker 1: will keep pushing towards these deadlines. Is it better for 825 00:45:39,520 --> 00:45:42,440 Speaker 1: the financialist system overall? You know, I think a more 826 00:45:42,520 --> 00:45:45,560 Speaker 1: robust benchmark is always a better thing, and in particular 827 00:45:45,560 --> 00:45:50,360 Speaker 1: one that's tied to transactions, because ultimately markets are about 828 00:45:50,360 --> 00:45:55,400 Speaker 1: confidence and transparency. And so when we think about benchmarks 829 00:45:55,440 --> 00:45:58,799 Speaker 1: that are embedded in basically everything the market touches, um 830 00:45:58,840 --> 00:46:01,720 Speaker 1: that it really have wound into the into the guts 831 00:46:02,400 --> 00:46:06,640 Speaker 1: and and the sort of ether of the financial system. Um, 832 00:46:07,080 --> 00:46:09,520 Speaker 1: it's really important that they'd be something that we can 833 00:46:09,560 --> 00:46:12,920 Speaker 1: count on for a long time. UM. And and something 834 00:46:13,680 --> 00:46:17,360 Speaker 1: like so far has a lot of features that are attractive, 835 00:46:17,400 --> 00:46:21,320 Speaker 1: and the most important being that it has many transactions, 836 00:46:21,440 --> 00:46:23,680 Speaker 1: very hard to manipulate. I'm sure when your prior guests 837 00:46:23,680 --> 00:46:26,480 Speaker 1: talked about the manipulation scandal, it's really hard to manipulate 838 00:46:26,960 --> 00:46:30,120 Speaker 1: something with that underlying transactions. It's a lot easier to 839 00:46:30,120 --> 00:46:33,799 Speaker 1: do it when there are sixteen panels um. And it's 840 00:46:33,800 --> 00:46:37,239 Speaker 1: a market with many participants, not just banks, So it's 841 00:46:37,280 --> 00:46:40,040 Speaker 1: a it's a broad mix. You know, secure lending is 842 00:46:40,120 --> 00:46:44,120 Speaker 1: only getting more important because there's plenty of treasuries around 843 00:46:44,120 --> 00:46:49,600 Speaker 1: and I don't think that's going to change anytime soon either. Um. So, uh, 844 00:46:49,640 --> 00:46:51,759 Speaker 1: you know, all of that's a good thing. Um, as 845 00:46:51,760 --> 00:46:54,479 Speaker 1: long as the process and the arc is put forward 846 00:46:54,480 --> 00:46:58,240 Speaker 1: a very clear and and very reasonable and very thoughtful 847 00:46:58,280 --> 00:47:02,719 Speaker 1: and and and careful and to push this forward. I 848 00:47:02,719 --> 00:47:04,840 Speaker 1: think at the end of the day, it's kind of 849 00:47:04,880 --> 00:47:08,719 Speaker 1: like every new piece of significant legislation, like everyone leaves 850 00:47:08,760 --> 00:47:12,360 Speaker 1: equally unhappy, and so librate transition will leave many people 851 00:47:12,400 --> 00:47:17,160 Speaker 1: equally unhappy. Um. But but you know, financial stability and 852 00:47:17,160 --> 00:47:20,560 Speaker 1: and and and confidence is key, and I think they're 853 00:47:20,600 --> 00:47:23,879 Speaker 1: heading in that direction. Josh, that was a really great 854 00:47:23,920 --> 00:47:26,920 Speaker 1: conversation as always, and it was lovely too happy back on. 855 00:47:27,120 --> 00:47:30,000 Speaker 1: And I'm so glad that you were the last person 856 00:47:30,080 --> 00:47:33,319 Speaker 1: to sort of crown our overarching Live Boars series. So 857 00:47:33,880 --> 00:47:38,520 Speaker 1: thanks thanks for being last, but definitely not least. Yeah, totally, 858 00:47:38,560 --> 00:47:41,160 Speaker 1: I'm glad it worked out and trying to keep it 859 00:47:41,400 --> 00:47:44,360 Speaker 1: not too technical. I hope that worked. I think it 860 00:47:44,440 --> 00:47:47,640 Speaker 1: was just perfect, right right on the edge of sophistication. 861 00:47:47,719 --> 00:47:50,839 Speaker 1: But I actually I think I understand I understood them 862 00:47:50,840 --> 00:48:04,600 Speaker 1: with all of it, So I thought that was thanks. Okay, 863 00:48:04,640 --> 00:48:08,360 Speaker 1: So I think we're done. I'm sort of scared to 864 00:48:08,400 --> 00:48:11,720 Speaker 1: say that. I think we are done with the librars here. Yeah, Josh, 865 00:48:11,800 --> 00:48:13,400 Speaker 1: I think we're done for now. I mean, I do 866 00:48:13,440 --> 00:48:16,560 Speaker 1: think you know, it's not the topic isn't going away. 867 00:48:16,600 --> 00:48:19,600 Speaker 1: But that was a really good summary, Josh, and just 868 00:48:19,719 --> 00:48:24,120 Speaker 1: so clear, and his ability to take a really sophisticated 869 00:48:24,719 --> 00:48:27,520 Speaker 1: topic very detailed. I mean, when I try to read 870 00:48:27,719 --> 00:48:31,520 Speaker 1: um on this topic, it's always difficult. But I think 871 00:48:31,880 --> 00:48:35,000 Speaker 1: he's one of the sort of clearest articulators. So good way, 872 00:48:35,120 --> 00:48:38,440 Speaker 1: good way, good good place to stop. Yeah, he definitely 873 00:48:38,440 --> 00:48:40,640 Speaker 1: has a way of bringing all these sort of various 874 00:48:40,680 --> 00:48:45,319 Speaker 1: threads in the financial system together in a coherent way. 875 00:48:45,400 --> 00:48:48,080 Speaker 1: So I guess I don't know about you, but the 876 00:48:48,200 --> 00:48:51,440 Speaker 1: overarching takeaway is how difficult it is to sort of 877 00:48:51,480 --> 00:48:55,719 Speaker 1: retool the underpinnings of the financial system, and especially to 878 00:48:55,800 --> 00:48:57,719 Speaker 1: try to do that at a moment like this. And 879 00:48:57,840 --> 00:49:00,680 Speaker 1: of course, when everyone embarked on the why or transition, 880 00:49:00,800 --> 00:49:03,840 Speaker 1: it was right after the two thousand eight crisis, and 881 00:49:04,920 --> 00:49:06,880 Speaker 1: I'm sure most people were hoping that we weren't going 882 00:49:06,920 --> 00:49:10,600 Speaker 1: to get another crisis for some time, and yet you know, 883 00:49:10,719 --> 00:49:13,440 Speaker 1: here we are and we're basically trying to end the 884 00:49:13,480 --> 00:49:18,160 Speaker 1: process in the midst of the biggest economic recession that 885 00:49:18,200 --> 00:49:21,520 Speaker 1: we've seen for many years. Yeah. Absolutely. It was just 886 00:49:21,680 --> 00:49:25,759 Speaker 1: yesterday's episode, so speak we were talking about that, that 887 00:49:26,320 --> 00:49:30,840 Speaker 1: moment with the clearinghouses coming up in October, and it's like, Okay, 888 00:49:30,880 --> 00:49:33,879 Speaker 1: this is when they're going to switch over to this 889 00:49:33,920 --> 00:49:37,759 Speaker 1: new benchmark. But hearing Josh talk about why even that 890 00:49:38,320 --> 00:49:40,719 Speaker 1: is going to be a challenge and how you need 891 00:49:40,760 --> 00:49:43,280 Speaker 1: to get the buy in of people who are experts 892 00:49:43,280 --> 00:49:47,480 Speaker 1: at pricing this stuff, that really is sort of illuminating 893 00:49:47,520 --> 00:49:52,480 Speaker 1: about illuminating example of how just even one step it's 894 00:49:52,560 --> 00:49:57,399 Speaker 1: extremely complicated, and of course there are numerous other steps involved. Yeah, 895 00:49:57,600 --> 00:50:00,280 Speaker 1: and I love that anecdote from Josh as well, about 896 00:50:00,320 --> 00:50:02,600 Speaker 1: you know, language in the contracts that talks about, well, 897 00:50:02,680 --> 00:50:05,440 Speaker 1: if there is no available library rate, you just go 898 00:50:05,480 --> 00:50:08,960 Speaker 1: back to the previous one. And most people were expecting 899 00:50:09,000 --> 00:50:11,120 Speaker 1: that to be you know, a day or two previously, 900 00:50:11,239 --> 00:50:13,880 Speaker 1: but if you actually sunset libar, then you could be 901 00:50:13,920 --> 00:50:16,000 Speaker 1: going back years and years and years. And it's all 902 00:50:16,080 --> 00:50:20,840 Speaker 1: stuff that people never really considered. They would have to do. Yeah, no, 903 00:50:20,960 --> 00:50:23,560 Speaker 1: it was really great and maybe we should do another 904 00:50:23,640 --> 00:50:26,719 Speaker 1: librar series, but like a year, you know, or six 905 00:50:26,760 --> 00:50:28,960 Speaker 1: months or something, and then we'll see how it goes. 906 00:50:30,320 --> 00:50:33,320 Speaker 1: We need to title this the Never Ending Library Series. 907 00:50:34,160 --> 00:50:39,520 Speaker 1: That should be the name. I like it. Okay, all right, well, 908 00:50:40,000 --> 00:50:43,440 Speaker 1: this has been another episode of the A Thoughts Podcast. 909 00:50:43,640 --> 00:50:46,399 Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at 910 00:50:46,400 --> 00:50:50,240 Speaker 1: Tracy Alloway and I'm Joe wi Isn'tal. You can follow 911 00:50:50,360 --> 00:50:53,600 Speaker 1: me on Twitter at the Stalwart. Definitely be sure to 912 00:50:53,640 --> 00:50:56,759 Speaker 1: follow our producer Laura Carlson, who had to book and 913 00:50:57,400 --> 00:51:00,880 Speaker 1: edit all of these podcasts, all of the series to 914 00:51:00,920 --> 00:51:04,440 Speaker 1: get him out in a single week. She's at Laura M. Carlson. 915 00:51:04,880 --> 00:51:08,200 Speaker 1: Follow the Bloomberg head of podcast on Twitter, Francesca Leavi 916 00:51:08,360 --> 00:51:11,000 Speaker 1: at Francesca Today, as well as all of our podcast 917 00:51:11,080 --> 00:51:15,080 Speaker 1: at Bloomberg under the handle at podcasts. Thanks for listening.