WEBVTT - How The Coronavirus Crisis Pushed The Fed Into Truly Uncharted Territory 0:00:12.480 --> 0:00:16.320 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:16.520 --> 0:00:21.160 I'm Joe Wisntal and I'm Tracy halliway, so, Tracy, this 0:00:21.280 --> 0:00:25.000 is obviously for the two of us in our career, 0:00:25.040 --> 0:00:27.640 as we've discussed numerous times already. I mean, this is 0:00:27.680 --> 0:00:31.920 the second big crisis that both of us have been 0:00:31.960 --> 0:00:34.839 involved in the cover. Yeah, you know, I kind of 0:00:34.880 --> 0:00:37.920 always used to think that nothing would ever top the 0:00:37.960 --> 0:00:42.280 two thousand financial crisis. Uh, And boy was I wrong, 0:00:42.400 --> 0:00:46.240 because I'm pretty sure this is going to be a much, 0:00:46.360 --> 0:00:49.840 much bigger economic crisis. Maybe not as big a financial 0:00:49.880 --> 0:00:52.400 crisis in terms of what's happening to the banking system, 0:00:52.440 --> 0:00:57.080 but definitely bigger from a sort of macro perspective. Yeah, 0:00:57.160 --> 0:01:01.120 definitely bigger from a macro perspective. It's a more global crisis. 0:01:01.160 --> 0:01:04.120 Even the two thou thousand nine was global. It's also 0:01:04.240 --> 0:01:07.680 just like you know, from a societal perspective, like, um, 0:01:07.680 --> 0:01:12.720 obviously the last crisis have huge ramifications for the financial system, 0:01:12.840 --> 0:01:15.240 but for the most part, like it didn't really change 0:01:15.280 --> 0:01:19.560 how people lived. There wasn't really much ambiguity about, you know, 0:01:20.120 --> 0:01:23.080 that much about what the post prisis landscape would look like. 0:01:23.840 --> 0:01:26.280 Whereas in this case, I don't think anyone really has 0:01:26.400 --> 0:01:30.120 any solid prediction. Yeah, for sure. This one is much 0:01:30.120 --> 0:01:33.240 wider in scale, with the potential to affect not just 0:01:33.319 --> 0:01:36.840 the economy but politics and society as a whole. And 0:01:36.959 --> 0:01:39.399 even back in two thousand eight, in the worst of 0:01:39.440 --> 0:01:42.400 the crisis, you know, right after Lehman collapsed, when people 0:01:42.440 --> 0:01:45.479 were really worried about the entire banking system, they were 0:01:45.480 --> 0:01:49.080 still going out to get sandwiches, you know, still going 0:01:49.160 --> 0:01:51.480 out getting hair coats, going about their sort of day 0:01:51.520 --> 0:01:54.720 to day business more or less, and all of that 0:01:54.880 --> 0:01:59.120 is very different, right now. Yeah, that's exactly that's exactly right. Well, 0:01:59.240 --> 0:02:03.240 there's never any good, by and large about crisis, and 0:02:03.400 --> 0:02:08.359 this one is particularly horrific from so many dimensions. Um. 0:02:08.400 --> 0:02:11.000 But one of the things that's interesting to see, and 0:02:11.040 --> 0:02:12.840 having seen the last one and this one, is that 0:02:12.880 --> 0:02:15.960 in any new crisis, sort of new voices are brought 0:02:16.000 --> 0:02:19.960 to the four people with expertise that previously weren't being 0:02:20.000 --> 0:02:25.320 paid as much attention to suddenly become very uh, widely 0:02:25.440 --> 0:02:28.360 read and widely followed. People in this case, of course, 0:02:28.840 --> 0:02:33.680 numerous epidemiology and health experts, but also people who really 0:02:34.000 --> 0:02:38.560 have a detailed understanding the financial system. Who can really 0:02:39.000 --> 0:02:44.359 explain all of these sort of new new monetary interventions 0:02:44.360 --> 0:02:47.120 and innovations that central banks around the world are doing 0:02:47.440 --> 0:02:51.000 are in high demand, right. I remember one of the 0:02:51.240 --> 0:02:53.359 I guess you would say the few good things about 0:02:53.440 --> 0:02:56.360 the two thousand eight financial crisis was that it sort 0:02:56.360 --> 0:02:59.960 of gave birth, or gave a boost to this really 0:03:00.240 --> 0:03:05.920 lively community almost of independent financial bloggers um and I 0:03:05.960 --> 0:03:07.880 still remember some of them, some of them have been 0:03:08.440 --> 0:03:12.560 on odd lots before. And also again I remember this 0:03:12.639 --> 0:03:15.919 because I was blocking at the time over at ft Alphaville, 0:03:16.080 --> 0:03:21.160 and it was my first job basically writing specifically about 0:03:21.160 --> 0:03:24.359 finance and markets. And the great thing about the situation 0:03:24.560 --> 0:03:28.160 was there was a really even playing field because everything 0:03:28.200 --> 0:03:31.480 that was happening was so new. It basically meant that 0:03:31.560 --> 0:03:34.920 even if you'd been following finance for ten years, you 0:03:34.960 --> 0:03:37.520 were sort of in the same position as a newcomer 0:03:37.640 --> 0:03:40.800 who was learning it all at once in real time. 0:03:40.920 --> 0:03:45.120 So it was really great to see that conversation happening. Yeah, 0:03:45.200 --> 0:03:48.400 novel crises have a nice way of, as you say, 0:03:48.480 --> 0:03:52.160 leveling the playing field, and the sort of old incumbent 0:03:52.360 --> 0:03:55.240 pundits don't really have an edge, which is kind of 0:03:55.680 --> 0:03:58.160 nice to see. So today the sad thing is we 0:03:58.240 --> 0:04:02.160 are old incumbent pundits. I know, yeah, I know. At 0:04:02.240 --> 0:04:04.000 least we can we can talk to the new ones. 0:04:04.000 --> 0:04:06.520 So today we are going to be talking to someone 0:04:07.000 --> 0:04:10.640 whose voice has really become extremely influential really just over 0:04:10.640 --> 0:04:15.000 the last several weeks, lots of people reading his writing 0:04:15.120 --> 0:04:19.560 as one of the sort of premier experts on this crisis, 0:04:19.600 --> 0:04:23.400 particularly from the actions of the Central Bank, and particularly 0:04:23.800 --> 0:04:26.000 all of the extraordinary moves that we've seen from the 0:04:26.000 --> 0:04:31.200 Federal Reserve really since late February through uh through now. Yeah, 0:04:31.240 --> 0:04:33.440 So I know who we're about to speak to, and 0:04:33.520 --> 0:04:35.960 I have to say, I I sort of don't know 0:04:36.080 --> 0:04:39.880 anything about his professional background. I just know what he 0:04:40.000 --> 0:04:43.520 does from reading reading his blog or sub stack. And 0:04:43.560 --> 0:04:47.520 also I think we did karaoke ones. So I'm really 0:04:47.520 --> 0:04:51.279 excited for this conversation. I wanna learn more. Alright, me too. 0:04:51.360 --> 0:04:53.880 So I don't know anything really about his background either, 0:04:53.920 --> 0:04:57.520 and I even so let's let's bring him in. He's 0:04:57.760 --> 0:05:00.520 Today we're going to be talking with Nathan tank Is. 0:05:00.560 --> 0:05:03.680 He's the research director of the Modern Money Network and 0:05:03.760 --> 0:05:06.920 he also in the last month has launched a much 0:05:07.200 --> 0:05:09.920 must read newsletter that everyone in the world is subscribing 0:05:10.000 --> 0:05:14.679 to understand the actions of the Federal Reserve. Everyone should 0:05:14.680 --> 0:05:18.000 subscribe to it. Nathan, thank you so much for joining us. 0:05:19.400 --> 0:05:21.360 Thank you so much for half of having me. What 0:05:21.680 --> 0:05:26.560 a generous introduction. Lots of people reading your newsletter on substack. 0:05:26.680 --> 0:05:30.400 But who are you? I'm serious, who are you? Like? 0:05:30.440 --> 0:05:33.559 I've I know Nathan, I know you in real life. 0:05:34.320 --> 0:05:36.640 I've got sandwiches in drinks with you in the past 0:05:36.720 --> 0:05:38.960 before this crisis. But I realized I don't know anything 0:05:38.960 --> 0:05:40.839 about you. Like who are you? Then? Like? How do 0:05:40.880 --> 0:05:43.599 you know so much about how the FED works? I 0:05:43.720 --> 0:05:46.080 like how we booked Nathan to come on all thoughts 0:05:46.120 --> 0:05:51.160 with without actually knowing this crutical information. Yea, Hey, the 0:05:51.240 --> 0:05:53.960 subseex speaks for itself. Where my kind of ordinance, or 0:05:54.120 --> 0:05:57.680 in terms of UH finance is the last financial crisis. 0:05:58.560 --> 0:06:00.839 I was in high school at the time time, and 0:06:01.480 --> 0:06:07.560 the financial crisis was extremely fascinating immediately and UH. I 0:06:07.640 --> 0:06:11.280 was at a high school that was kind of alternative, 0:06:11.360 --> 0:06:15.279 weird in New York City in Manhattan. That um had 0:06:15.320 --> 0:06:18.120 two teachers who had discretion over the curriculum and basically 0:06:18.160 --> 0:06:21.919 just said in January, let's just do a class on 0:06:21.960 --> 0:06:25.320 the financial crisis um where you read the newspaper each 0:06:25.360 --> 0:06:28.880 week and you'd argue over nationalization, over the A I G. Bonuses, 0:06:29.640 --> 0:06:32.960 over the stimulus, and just sort of like argue out 0:06:33.240 --> 0:06:35.160 what everyone else was arguing out on a week to 0:06:35.200 --> 0:06:39.039 week basis. And from that I was completely hooked um 0:06:39.080 --> 0:06:42.360 and fascinated by crisis, you know, trying to figure what 0:06:42.400 --> 0:06:45.280 was so interesting was it felt like something that no 0:06:45.320 --> 0:06:48.920 one really quite understood, but it was obviously the most 0:06:48.960 --> 0:06:51.760 important thing happening. And so ever since then, was just 0:06:51.800 --> 0:06:56.200 fascinated by crisis, wanted to learn about it, discovered writings 0:06:56.680 --> 0:06:59.359 by Minsky Um and that sort of just set me 0:06:59.400 --> 0:07:02.679 on at your Jet three to be very very interested 0:07:02.800 --> 0:07:08.360 in crisis, financial market design, fiscal policy, and over the 0:07:08.440 --> 0:07:14.800 years have kind of moved into working and writing on policy. So, Nathan, 0:07:14.840 --> 0:07:17.280 if you don't mind me asking what do you do 0:07:17.440 --> 0:07:23.040 now and does it overlap with your your interest in policy? 0:07:23.880 --> 0:07:26.960 As Joe introduced me Um, research director of the Modern 0:07:27.000 --> 0:07:30.800 Money Network. Before all this happened and with with the pandemic, 0:07:30.800 --> 0:07:34.360 which is obviously become the top of everyone's attention that 0:07:34.440 --> 0:07:38.000 I was working on a report on monetary policy for 0:07:38.160 --> 0:07:42.720 Agree to Deal UM kind of been doing similar polish 0:07:43.240 --> 0:07:46.840 policy ish things, uh in the background, kind of pushing 0:07:47.280 --> 0:07:50.880 alternative frameworks to implement these sort of broad policy goals 0:07:50.920 --> 0:07:54.800 that people have been interested in. So we should get 0:07:54.800 --> 0:07:57.920 to the you know, what you've been writing about and 0:07:58.440 --> 0:08:01.640 sort of how we can understand the Fed's extraordinary actions 0:08:01.800 --> 0:08:04.440 in a in a moment, but you mentioned, you know, 0:08:04.560 --> 0:08:07.280 after high school you sort of got interested in finance. 0:08:07.480 --> 0:08:09.880 But one of the things that really stands out in 0:08:09.960 --> 0:08:12.960 your writing it's not just that you're sort of interest 0:08:13.040 --> 0:08:17.320 in this altogether, but the sort of extreme granularity with 0:08:17.400 --> 0:08:21.400 which you understand monetary operations. Because I think a lot 0:08:21.400 --> 0:08:23.280 of people have this idea it's like, Okay, the fat 0:08:23.480 --> 0:08:27.560 is buy junk bonds and the fat is going to uh, 0:08:27.600 --> 0:08:30.400 you know, intervene in some new market. But the way 0:08:30.440 --> 0:08:34.160 you write about it is far more granular and detailed 0:08:34.160 --> 0:08:37.880 than that. So between you know, over the last two years, 0:08:38.200 --> 0:08:40.600 how did you or sorry, over the last say ten years, 0:08:40.800 --> 0:08:44.200 how did you really educate yourself on like the sort 0:08:44.200 --> 0:08:47.920 of finer points of topics that even a lot of 0:08:47.920 --> 0:08:50.520 like so called experts in the field actually don't have 0:08:50.520 --> 0:08:54.679 a ton of understanding. Um. Well, if one of the 0:08:54.880 --> 0:08:59.240 one of the most basic levels is just understanding monetary 0:08:59.240 --> 0:09:03.160 operations and the details of monetary operations, is really just 0:09:03.240 --> 0:09:07.000 about learning a language that there's this language, this language 0:09:07.000 --> 0:09:09.959 of accounting of t accounts, of drawing balance sheets, of 0:09:10.040 --> 0:09:13.240 drawing you know, you know, saying this entity has assets 0:09:13.240 --> 0:09:17.200 and liabilities and what set of transactions balance these balance 0:09:17.200 --> 0:09:20.920 sheets throughout the economy. Um. That is it's it's not 0:09:20.960 --> 0:09:24.400 so much like getting like a very detailed understanding, although 0:09:24.400 --> 0:09:26.680 you also have to know the operations and the names 0:09:26.679 --> 0:09:29.760 of the facilities, um, and the type of financial assets 0:09:29.760 --> 0:09:34.800 and their legal structure. But becoming more conversational in terms 0:09:34.800 --> 0:09:41.240 of monetary operations becomes just like a a rote doing 0:09:41.360 --> 0:09:44.920 examples of monetary operations over and over and over again. UM, 0:09:45.320 --> 0:09:47.560 drawing and drawing the t accounts. I mean, this is 0:09:47.880 --> 0:09:50.080 you know, one of the best things about Perry Merlin's 0:09:50.160 --> 0:09:53.760 passcuts in the shows. Um, of course, stero course is 0:09:54.160 --> 0:09:56.839 that drawing of balance sheets. UM. And I think that 0:09:57.200 --> 0:10:00.520 really is that core of that class. And um, I 0:10:00.559 --> 0:10:03.680 think that's generally applicable that the best money of banking 0:10:03.720 --> 0:10:08.040 and understanding of of monetary operations comes from just doing it. 0:10:08.040 --> 0:10:09.560 It's just the language that you have to learn, like 0:10:09.640 --> 0:10:12.280 any other language. And once you have it, once you 0:10:12.720 --> 0:10:15.720 can speak it, quote unquote, it's very easy to get 0:10:15.760 --> 0:10:19.440 a handle on new situations and new things going on. 0:10:19.679 --> 0:10:22.280 So I have a pre existing framework UM and pre 0:10:22.400 --> 0:10:25.760 existing understanding want before I look at all these different 0:10:26.120 --> 0:10:29.559 UH facilities and just balance sheet it out and figure out, okay, 0:10:29.600 --> 0:10:33.559 what exactly is going is going on behind these facilities. 0:10:33.559 --> 0:10:36.560 And once you do, the operations become clear what they mean, 0:10:36.720 --> 0:10:41.880 especially when you're used to seeing similar operating monetary operations 0:10:41.920 --> 0:10:46.559 in past examples. Mm hmm. I think that language point 0:10:46.679 --> 0:10:49.600 is really important, and I guess cynics would say that 0:10:50.080 --> 0:10:53.840 maybe central bankers sort of make the language as difficult 0:10:53.880 --> 0:10:57.120 as possible in order to sort of keep um the 0:10:57.200 --> 0:11:00.559 riff raff out, I guess, or make it less understandable 0:11:00.600 --> 0:11:04.440 for outsiders. But just to press on the point of 0:11:04.440 --> 0:11:08.280 of how you learned about monetary policy, were there any 0:11:08.280 --> 0:11:11.600 particular resources that you depended on, because I remember back 0:11:11.640 --> 0:11:15.040 in two thousand eight in the financial crisis, then most 0:11:15.040 --> 0:11:17.280 of what I was reading, for instance, to get up 0:11:17.280 --> 0:11:20.360 to speed. It all came from blogs and maybe some 0:11:20.440 --> 0:11:23.000 of the cell side notes. But is there anything in 0:11:23.040 --> 0:11:27.640 particular that you found useful? Um? Yeah, I read you know, 0:11:27.760 --> 0:11:29.800 blogs as well. I mean I still have I have 0:11:29.840 --> 0:11:32.480 an old reader of my Google Reader from the time, 0:11:33.040 --> 0:11:37.080 um and you know, still still technically subscribe to all 0:11:37.080 --> 0:11:42.000 those different sets of blogs, things like Naked Capitalism, um 0:11:42.160 --> 0:11:45.560 uh smith even just the whole ecosystem blogs beyond like 0:11:45.679 --> 0:11:49.320 one specific exception of maybe Naked Capitalism. It was more 0:11:49.400 --> 0:11:55.040 reading the different arguments that would go through different sets 0:11:55.040 --> 0:11:58.040 of blogs, things that would bounce from Krugman too to 0:11:58.240 --> 0:12:02.560 belong to all over the play Um you've seeing people 0:12:02.640 --> 0:12:05.600 in when they're actually arguing with each other is kind 0:12:05.600 --> 0:12:08.840 of what you get the clearer sense of, um, what's unclear, 0:12:09.200 --> 0:12:12.319 what's good to learn about? But um, I wou'd say 0:12:12.360 --> 0:12:15.479 combination of that plus reading in Sky, which definitely was replatory, 0:12:15.520 --> 0:12:18.120 and that just sort of getting obsessed and reading all 0:12:18.160 --> 0:12:22.880 sorts of all sorts of alternative Heternox literature, post kante 0:12:23.000 --> 0:12:25.240 In literature, and so like, you know, I felt like 0:12:25.280 --> 0:12:27.760 I really had a hand on things. Let's talk about 0:12:28.440 --> 0:12:31.280 Minsky because I'm sure I think a lot of our 0:12:31.880 --> 0:12:35.080 listeners maybe have some idea who he is. They have 0:12:35.200 --> 0:12:40.280 some idea that the financial instability hypothishness, that systems tend 0:12:40.360 --> 0:12:44.520 towards instability. Probably some of our guests would find him 0:12:44.640 --> 0:12:48.960 uh inside him as being influential. What was it about 0:12:49.040 --> 0:12:53.080 his work specifically that influenced you and sort of set 0:12:53.120 --> 0:12:54.720 you on the path, Like, what is it? What is 0:12:54.800 --> 0:12:57.559 the sort of main idea that really set you alife? 0:12:57.600 --> 0:13:01.280 Behind of his first that you know that you have 0:13:01.360 --> 0:13:04.000 to be able to speak in balance sheets, that balance 0:13:04.040 --> 0:13:06.800 sheets is how you keep yourself coherent. But then that 0:13:07.720 --> 0:13:11.880 the instability and the innovation in finance is one in 0:13:11.920 --> 0:13:14.439 the same thing, the idea that you're going to expand 0:13:14.480 --> 0:13:19.000 balance sheets but with a unique uh financial uh instrument. 0:13:19.160 --> 0:13:20.800 You know, you know what I would say today, a 0:13:21.200 --> 0:13:26.200 unique uh legal structure to those uh to those financial instruments, 0:13:26.600 --> 0:13:31.400 and that there's this social process by which new legal 0:13:31.480 --> 0:13:36.680 and financial innovations convince people that financial structure that in 0:13:36.760 --> 0:13:39.960 many respects is similar to an unstable one from in 0:13:40.000 --> 0:13:43.800 the past, is gonna be stable uh this time. And 0:13:43.800 --> 0:13:46.040 then you know, watching him discussed it through examples. The 0:13:46.080 --> 0:13:48.760 examples that I think are like obscure now, Like you know, 0:13:48.800 --> 0:13:52.960 he has a whole large sections in Stabilizing unstable economy 0:13:53.080 --> 0:13:56.880 on real estate investment trust in the seventies and these 0:13:56.880 --> 0:14:00.199 sort of more obscure things where you see, um, how 0:14:00.240 --> 0:14:04.760 the financial structure evolves and uh and and its relationship 0:14:04.880 --> 0:14:08.440 to to instability, and then also just things like you 0:14:08.480 --> 0:14:11.120 know Minsky. You know, at the time when securitization seemed 0:14:11.160 --> 0:14:13.280 like this new fingled thing that no one paid attention to. 0:14:13.840 --> 0:14:20.280 Reading Minsky discussed securitization and it's benefits the prophet seeking bands, 0:14:20.320 --> 0:14:23.520 but also it's potential for instability was like rebelatory. You know, 0:14:23.560 --> 0:14:26.040 it felt like at the time, maybe a little less 0:14:26.040 --> 0:14:27.960 so now, but in two thousand nine it felt like 0:14:28.000 --> 0:14:31.560 reading a profit. Um when when you read about when 0:14:31.560 --> 0:14:36.280 you read Minsky discussed securitization in the eighties, Well, let's 0:14:36.320 --> 0:14:40.680 talk about the evolution that is arguably happening now and 0:14:40.920 --> 0:14:44.560 what we're sort of seeing from the Federal Reserve. You 0:14:44.640 --> 0:14:47.240 and I have I think we've tweeted at each other 0:14:47.720 --> 0:14:51.560 a little bit about the sort of mingling of monetary 0:14:51.640 --> 0:14:56.000 policy with fiscal policy or the potential for that to happen, 0:14:56.080 --> 0:14:58.560 and it does kind of feel like, even if it's 0:14:58.560 --> 0:15:02.240 not happening explicit le central banks are certainly talking about 0:15:02.280 --> 0:15:07.040 it more, and there's this idea of monetary financing as well. 0:15:07.520 --> 0:15:10.440 Could you sort of give us a broad outline of 0:15:10.600 --> 0:15:13.920 what you're seeing on that front. UM, I mean, what 0:15:13.960 --> 0:15:17.600 we're seeing is basically like UM, a charged up version 0:15:17.880 --> 0:15:22.680 of quantitative easing, the large scale asset purchases UM over 0:15:23.680 --> 0:15:26.920 two thousand, two thousand nine to two thousand twelve roughly, 0:15:27.240 --> 0:15:31.760 but this time rather than being you know, this indirect 0:15:31.760 --> 0:15:36.040 offense attempt to increase demand by saying, you know, you 0:15:36.120 --> 0:15:39.680 buy a bond off of off of hedge fund and 0:15:39.720 --> 0:15:42.680 they reinvest in somewhere else, and you know, credited availability 0:15:42.720 --> 0:15:45.840 expands or whatever other theory you have for why quantitative 0:15:45.880 --> 0:15:48.480 easing would work. At the most basic level, the big gift, 0:15:48.640 --> 0:15:52.800 the sort of supercharge quantitative easing now has been about 0:15:53.040 --> 0:15:56.120 making sure that the treasury market function, making sure that 0:15:56.160 --> 0:15:58.400 you know, at this time, when you have a huge 0:15:58.440 --> 0:16:02.920 collapse and income across across business sectors, that they're able 0:16:02.960 --> 0:16:07.080 to access liquid assets they need to make payments, and 0:16:07.360 --> 0:16:11.000 the normal financial players who would usually accommodate that demand 0:16:11.160 --> 0:16:13.840 for whatever reason, weren't able to, and thus the FED 0:16:13.920 --> 0:16:17.800 became essentially, you know, a buyer of treasury securities of 0:16:17.880 --> 0:16:21.040 last resort or you know, maybe even a first resort. 0:16:21.280 --> 0:16:23.880 And so in this case, the large scale asset purchases 0:16:23.960 --> 0:16:28.200 have been about um fixing the financial plumbing um and 0:16:28.240 --> 0:16:31.720 making sure people have access to treasury security liquidity, rather 0:16:31.760 --> 0:16:35.360 than the sort of other the other sort of justifications 0:16:35.360 --> 0:16:39.040 for large scale asset purposes that happened a decade ago, right, 0:16:39.120 --> 0:16:43.000 so a decade ago arguably or in retrospect, obviously, the 0:16:43.040 --> 0:16:46.360 FED did a lot of treasury buying, but it was limited. 0:16:46.440 --> 0:16:50.960 It was arguably primarily a signaling vehicle about raids, or 0:16:51.080 --> 0:16:53.680 maybe it was something to do with the portfolio channel 0:16:54.080 --> 0:16:57.360 to encourage people into risky your assets to stimulate the economy. 0:16:57.400 --> 0:16:59.640 But in this case it was literally about making sure 0:16:59.680 --> 0:17:03.720 people could get liquidity for treasuries. The one thing that 0:17:03.800 --> 0:17:06.679 seems like very different or sort of like a innovation 0:17:06.760 --> 0:17:09.840 beyond what we saw in the last crisis is the 0:17:09.920 --> 0:17:14.359 degree to which the FED is intervening in the market 0:17:14.440 --> 0:17:18.399 for risky assets on the credit side, having clearly stepped 0:17:18.440 --> 0:17:22.520 into the market for investment grade bonds, but even high 0:17:22.560 --> 0:17:27.040 yield bonds, entities which carry credit risk and UM put 0:17:27.119 --> 0:17:30.760 in theory default. Talk to us about what they've done 0:17:30.920 --> 0:17:33.560 and how innovative it is in terms of a break 0:17:33.640 --> 0:17:36.840 from its previous actions it represents for the FED to 0:17:36.880 --> 0:17:40.960 get involved in these markets. I think it's hugely innovative. 0:17:41.000 --> 0:17:43.240 I think we can't underestimate. You know, of course, there's 0:17:43.280 --> 0:17:46.920 been UH in Europe and the e CP Japan, there 0:17:46.960 --> 0:17:51.600 have been purchases of corporate of corporate debt, so it's 0:17:51.600 --> 0:17:55.800 not a completely brand new innovation in terms of such 0:17:55.800 --> 0:17:59.359 a banking, even recent central banking globally. But for UM, 0:17:59.400 --> 0:18:01.720 the feeder was or of it's very unique because the 0:18:01.720 --> 0:18:06.399 Federal Reserve has has UH has had more than any 0:18:06.480 --> 0:18:10.000 other central bank has had. This commitment to our policy 0:18:10.119 --> 0:18:13.840 is neutral. UM. We don't pick winners and losers. We're 0:18:13.960 --> 0:18:17.520 just here to, you know, provide general credit support to 0:18:18.000 --> 0:18:21.880 manage general economic conditions. Were not about these specific entities 0:18:21.920 --> 0:18:26.240 and UM. The innovation today is that that is I'm 0:18:26.280 --> 0:18:29.480 clearly not the case. They by by circumstances they feel 0:18:29.520 --> 0:18:33.440 forced to make sure that corporate America as a whole 0:18:33.480 --> 0:18:37.760 has access to liquidity, but that you know, the mechanism 0:18:37.880 --> 0:18:42.240 for doing that, launching these primary corporate credit UH facility 0:18:42.320 --> 0:18:46.600 and the secondary market corporate credit facility that launching these facilities, 0:18:46.640 --> 0:18:50.840 they are intervening. They're making specific choices. They're choosing UM 0:18:50.920 --> 0:18:54.320 investment grade bonds and investment grade bonds that were investment 0:18:54.400 --> 0:18:57.080 grade H before a certain point. I think the current 0:18:57.080 --> 0:19:00.679 one is the current caught office March and there and 0:19:00.680 --> 0:19:04.640 then as well, they're buying extrage traded funds UM. And 0:19:05.160 --> 0:19:08.679 this is specifically, you know, this is them saying, you know, 0:19:08.920 --> 0:19:12.320 this set of corporate America, we we need to prevent 0:19:12.800 --> 0:19:16.200 the spread between their borrowing rates and the risk free 0:19:16.240 --> 0:19:19.240 borrowing right from exploding. They need to be able to 0:19:19.280 --> 0:19:22.600 access credit at this difficult time when there's this you know, 0:19:22.760 --> 0:19:26.879 big drop and revenue across the board. They they're they're 0:19:26.880 --> 0:19:29.520 putting this out there, and I think it's gonna it's 0:19:29.560 --> 0:19:32.639 gonna change the Federals are from now on, there's always 0:19:32.680 --> 0:19:37.520 gonna be bought corporate UH credit corporate securities before you 0:19:37.560 --> 0:19:40.040 can you know, first of all, shouldn't we give you 0:19:40.160 --> 0:19:42.480 normal give this to you as a normal tool of 0:19:42.520 --> 0:19:46.600 monetary policy. There's gonna be talk about UM specific sectors 0:19:46.600 --> 0:19:49.800 that they should be supporting, especially around energy. I think 0:19:49.800 --> 0:19:52.000 it's gonna be a huge one um in terms of 0:19:52.040 --> 0:19:56.120 the future of monetary policy debates, and and that combined 0:19:56.160 --> 0:19:59.840 with the municipal liquidity facility, which is state and local, 0:20:00.119 --> 0:20:02.840 just now there's I think there's gonna be this like 0:20:02.960 --> 0:20:05.880 debate between Okay, if you're at the zero lower band 0:20:05.880 --> 0:20:08.720 and you can't really have anywhere else to go, what 0:20:08.840 --> 0:20:12.320 should you be doing to trying to uh support the economy? 0:20:12.359 --> 0:20:17.280 Should you be loostening financial constraints of non financial corporations 0:20:17.440 --> 0:20:20.560 or should you be loosening the financial constraints of municipalities, 0:20:21.119 --> 0:20:25.400 especially the most disadvantaged municipalities who experience a lot of musterity, 0:20:25.480 --> 0:20:27.520 especially over the last decade. And so I think that 0:20:27.960 --> 0:20:30.680 I think that is the future of of debates over 0:20:31.119 --> 0:20:34.600 monetary policy. And it's a very different world, and it's 0:20:34.600 --> 0:20:37.959 a world that the Federal Reserve is uncomfortable with above 0:20:38.080 --> 0:20:42.400 everything else. Post two thousand eight, I remember we saw 0:20:42.440 --> 0:20:45.520 people up in arms over you know, well, people are 0:20:45.600 --> 0:20:48.520 up in arms over quantitative easing and talking about moral 0:20:48.560 --> 0:20:51.280 hazard and stuff like that. And of course now we 0:20:51.359 --> 0:20:55.080 see the FED taking on credit risk on an entirely 0:20:55.640 --> 0:21:00.320 different scale from your perspective. And this is kind of 0:21:00.320 --> 0:21:03.000 a tough question, but do you think they should be 0:21:03.280 --> 0:21:06.880 assuming that credit risk and what kind of moral hazard 0:21:07.000 --> 0:21:11.600 debates would you expect this to open up? I think 0:21:11.880 --> 0:21:15.840 the corporate credit facilities aren't necessary. I do think that 0:21:15.880 --> 0:21:18.920 you can't, like you can let specific companies go down, 0:21:18.920 --> 0:21:22.119 but you can't let UM they're to basically be a 0:21:22.200 --> 0:21:25.640 run on corporate America as a whole. What I would 0:21:25.680 --> 0:21:28.399 say is, I think the fact that you know that 0:21:28.520 --> 0:21:31.159 the safety net is revealed that you know not just 0:21:31.240 --> 0:21:33.399 that specific banks are too big to fail, but corporate 0:21:33.440 --> 0:21:35.639 America as a whole is too big to fail, and 0:21:35.680 --> 0:21:39.400 we'll always get some sort of generalized support UM. And now, 0:21:39.480 --> 0:21:42.240 especially in the finance side through the Federal Reserve, opens 0:21:42.320 --> 0:21:46.120 up questions about what responsibilities do they have as uh 0:21:46.280 --> 0:21:48.680 to the public, as we're essentially treating them as part 0:21:48.720 --> 0:21:51.679 of public infrastructure. You know, there are central workers, but 0:21:51.760 --> 0:21:55.879 now there are also essential corporations, and I think that 0:21:56.480 --> 0:22:01.240 opens up a question to you know, how firms operate 0:22:01.520 --> 0:22:03.200 and to the extent to which that they're going to 0:22:03.320 --> 0:22:06.919 be truly especially multig multinational corporations are going to operate 0:22:07.200 --> 0:22:11.800 truly as these like purely private entities, or whether there's 0:22:11.800 --> 0:22:15.080 going to be a transition to seeing them as sites 0:22:15.119 --> 0:22:18.920 of governance that involve a series of stakeholder who all 0:22:19.000 --> 0:22:24.040 have rights, um and I think that that is gonna 0:22:24.119 --> 0:22:25.800 be a v piece, And of course I think it's 0:22:25.800 --> 0:22:29.520 going to be. I think the municipality stuff is uh, 0:22:30.040 --> 0:22:32.800 very is very critical as as well, and in fact, 0:22:32.800 --> 0:22:34.639 it should be expanded a lot. I think, you know, 0:22:35.119 --> 0:22:38.040 it hasn't been anywhere near uh near enough what they've 0:22:38.080 --> 0:22:54.520 been doing. I want to get a little bit, you know, 0:22:54.640 --> 0:22:57.080 soon into what more the FEN could be doing. But 0:22:57.119 --> 0:22:59.560 before we do, I mean Tracy asked about this sort 0:22:59.600 --> 0:23:05.000 of moral hazard entanglement questions governance. What about the pure 0:23:05.080 --> 0:23:08.000 legality question of what they we've done. There are people say, oh, 0:23:08.040 --> 0:23:11.679 this is blatantly illegal, and then they cite some line 0:23:11.680 --> 0:23:13.959 of the law regarding the Federal Reserve Act and they 0:23:13.960 --> 0:23:16.399 say they can't be taken on credit risk like that 0:23:17.040 --> 0:23:19.159 just from a sort of purely within the bounds of 0:23:19.160 --> 0:23:21.840 what they're allowed to do. In your view, are they 0:23:21.840 --> 0:23:26.040 sort of still unambiguously within uh the letter of the law. 0:23:28.040 --> 0:23:33.240 I don't think it's unambiguous. I think it's definitely stretching 0:23:33.440 --> 0:23:37.639 the law sum um, but it's stretching the law in 0:23:37.680 --> 0:23:41.960 the way that the exact way that that happened in 0:23:42.000 --> 0:23:44.719 two thousand eight. And what's so, I mean, to back up, 0:23:45.320 --> 0:23:49.199 the key legal innovation that was employed in two tho 0:23:49.600 --> 0:23:53.359 and employed today was Okay, we don't have the legal 0:23:53.359 --> 0:23:58.000 authority to do sets of purchases that directly, so we'll 0:23:58.080 --> 0:24:01.320 launder these purchases through some leave the straw purchaser that 0:24:01.400 --> 0:24:03.920 will create which is a special purpose vehicle. At the time, 0:24:03.960 --> 0:24:07.080 they were named Maiden Lane one, Maiden Lane two, Maiden 0:24:07.160 --> 0:24:09.720 Lane three, UM. As far as I know, there isn't 0:24:09.760 --> 0:24:13.840 any really names today um for them, or if they're 0:24:13.840 --> 0:24:16.560 just like named after the facility or whatever. But they're 0:24:16.560 --> 0:24:19.760 setting up the set of special purpose vehicles where there 0:24:19.960 --> 0:24:25.040 is um a injection of equity from the treasury where 0:24:25.080 --> 0:24:27.720