WEBVTT - Surveillance: SVB Fallout with Michaud 0:00:05.080 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.480 --> 0:00:12.280 with Jonathan Faroe and Lisa Abramowitz. Join us each day 0:00:12.320 --> 0:00:16.800 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.239 --> 0:00:22.000 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.560 anywhere you get your podcasts, and always I'm Bloomberg dot Com, 0:00:26.600 --> 0:00:30.400 the Bloomberg Terminal, and the Bloomberg Business App. It was 0:00:30.480 --> 0:00:33.120 Friday or early morning Sunday. As we worked through the weekend, 0:00:33.159 --> 0:00:37.200 I said, get me. Showed he is with KBW, who 0:00:37.200 --> 0:00:41.800 have been attached to small banking and securities analysis of 0:00:41.880 --> 0:00:45.440 banking through my entire career. Thomas showed a CEO of 0:00:45.560 --> 0:00:48.879 KBWO stephel company. We're thrilled he could join us from 0:00:48.920 --> 0:00:52.440 California this morning at tim, I don't know where to 0:00:52.479 --> 0:00:55.360 begin with eight themes, but to cut to the chase, 0:00:56.000 --> 0:00:59.520 you've lived this, what should your own Powell do? And 0:00:59.600 --> 0:01:04.400 the hours and days? I think this is still a 0:01:04.440 --> 0:01:09.360 moment about confidence. It's confidence for depositors to know that 0:01:09.400 --> 0:01:13.679 the money in their bank is safe. It's also confidence 0:01:13.720 --> 0:01:18.080 among investors. You've got an SMP five hundred company who 0:01:18.200 --> 0:01:23.480 stock just went to zero pretty quickly, and so investors 0:01:23.480 --> 0:01:26.680 want to know that the confidence want to have confidence 0:01:26.800 --> 0:01:30.440 in the system as well, and so we need orderliness. 0:01:31.040 --> 0:01:34.240 And that's what I think is necessary at the moment. 0:01:34.680 --> 0:01:38.880 And the agency took action last night, and we're going 0:01:38.959 --> 0:01:41.560 to find out if it's enough for if more is needed. 0:01:42.160 --> 0:01:45.480 I'm very simply here. My theme for the year, not 0:01:45.520 --> 0:01:48.960 seeing any of this coming is a great zombie roll up. 0:01:49.120 --> 0:01:54.440 Keith Briant and Woods is expert engaging the zombies out 0:01:54.480 --> 0:01:59.040 there among thousands of banks. How troubled is our banking system? 0:01:59.360 --> 0:02:02.360 How many is bombies are out there? For twenty twenty 0:02:02.400 --> 0:02:05.960 three great zombie roll up. So I'll tell you the 0:02:06.720 --> 0:02:11.160 bank that fell last week, Silicon Valley, on all the measures, 0:02:11.280 --> 0:02:15.320 was probably one of the biggest risk takers in terms 0:02:15.520 --> 0:02:19.680 of interest rates with their bond portfolio. They were an outlier. 0:02:21.320 --> 0:02:26.600 My conversations with many banks CEOs is that the deposit 0:02:26.680 --> 0:02:31.560 outflow contagion had not spread throughout the industry. However, I 0:02:31.600 --> 0:02:35.519 know that concern was raising and rising and you could 0:02:35.560 --> 0:02:38.160 see I think if this continues, you could see it 0:02:38.240 --> 0:02:41.760 to start to affect banks that had very prudently managed 0:02:41.800 --> 0:02:46.480 themselves and that's what happens when consumer behavior or commercial 0:02:46.480 --> 0:02:49.760 behavior for deposits changes quickly. That's why I think we 0:02:49.840 --> 0:02:53.679 need a government support mechanism to make things orderly. We 0:02:53.800 --> 0:02:56.079 got some of that last night. If it's not enough, 0:02:56.280 --> 0:02:58.480 I think they got to do They should do more. 0:03:00.240 --> 0:03:02.640 But you know what's really interesting, Thomas, this is all 0:03:02.680 --> 0:03:06.480 about the unwinding of COVID relief. There are two things 0:03:06.480 --> 0:03:10.480 that happened that dramatically impacted the banking industry. One is 0:03:10.880 --> 0:03:15.240 we've had rate increases at the fastest pace of my career. 0:03:15.639 --> 0:03:18.600 It's been fast, and it's been significant in terms of 0:03:18.639 --> 0:03:23.280 its measure. Number two is that the system during COVID 0:03:23.440 --> 0:03:27.760 was flooded the banking system with deposits. There's a purposeful 0:03:27.880 --> 0:03:32.480 effort right now to drain liquidity and drain those deposits. 0:03:32.919 --> 0:03:35.800 It's happening at a pace that I don't think any 0:03:35.840 --> 0:03:39.640 management team in banking has ever seen before. So while 0:03:39.640 --> 0:03:43.520 that's happening, you have a crisis of confidence, which is 0:03:43.920 --> 0:03:47.000 compounding the issue. And that's why I think we need 0:03:47.040 --> 0:03:49.360 this broader support. If I were to show you the 0:03:49.720 --> 0:03:53.320 market the metrics of a typical bank, they're actually outstanding 0:03:53.640 --> 0:03:58.800 credit quality, is of no concern at the moment. You've 0:03:58.880 --> 0:04:03.120 got companies that had stable capital, but they weren't necessarily 0:04:03.160 --> 0:04:07.360 built to have this type of stress put on deposits overnight. 0:04:07.640 --> 0:04:09.960 And that's why I think we need a calming influence 0:04:10.440 --> 0:04:14.360 barring some sort of further intervention from the federal government. Tom, 0:04:14.360 --> 0:04:17.440 what are you doing at KBW to attract deposits and 0:04:17.480 --> 0:04:21.919 to keep the ones you have? Well, my firm at KBW, 0:04:22.080 --> 0:04:26.320 we're a securities firm, but I think that I think 0:04:26.360 --> 0:04:31.279 that so we don't We don't attract deposits at KBW, 0:04:31.800 --> 0:04:34.520 so to speak. But I think what I in talking 0:04:34.560 --> 0:04:38.440 to most banks in the industry, they have the liquidity. 0:04:38.480 --> 0:04:42.760 There are plenty of ability penny of lines and avenues 0:04:42.760 --> 0:04:46.160 that a bank can go down to augment their liquidity. 0:04:46.600 --> 0:04:50.880 So my sense is that depositors demands will be met, 0:04:51.720 --> 0:04:55.320 and I think other banks are. Some banks are seeing 0:04:55.680 --> 0:05:00.320 tremendous inflows from some of these other banks, so it's 0:05:00.360 --> 0:05:05.080 not equal everywhere in the industry. So I think things 0:05:05.120 --> 0:05:07.800 are steady enough as long as they don't get worse. 0:05:07.920 --> 0:05:10.440 That's my point. Well, Tom, do you expect a smaller 0:05:10.440 --> 0:05:12.880 and regional banks to have to pay more to attract 0:05:13.560 --> 0:05:16.680 just regular depositors who think, well, why shouldn't we just 0:05:16.680 --> 0:05:19.279 put our bank at the big money centers that are 0:05:19.400 --> 0:05:23.720 too big to fail? Well, yes, I think, I think that. 0:05:23.920 --> 0:05:26.000 I think in the third quarter of last year is 0:05:26.040 --> 0:05:29.120 where the light switch went on, so to speak, in 0:05:29.200 --> 0:05:33.479 terms of deposit competition. And that happened because of the 0:05:33.560 --> 0:05:36.919 speed at which FDIC deposits have been shrinking because of 0:05:37.000 --> 0:05:42.240 monetary policy. So we saw that competition sort of green 0:05:42.360 --> 0:05:45.000 light happen in the third quarter, so I think. And 0:05:45.040 --> 0:05:48.320 it's not just the banking industry competing with itself, it's 0:05:48.440 --> 0:05:55.039 market rates. Treasuries were offering a compelling alternative to deposits, 0:05:55.400 --> 0:06:00.120 so that competition was building and that's how fun to 0:06:00.120 --> 0:06:03.680 have been draining out of the system. So I tell ye, 0:06:03.839 --> 0:06:05.360 got to run up. Just got a headline. I need 0:06:05.400 --> 0:06:06.960 to get to. Thanks for being with us this morning. 0:06:07.000 --> 0:06:22.120 Tom shank of KPWA sobridar Rajapa joins us right now 0:06:22.120 --> 0:06:26.239 on this historic day with society in general. So brodri, 0:06:26.560 --> 0:06:28.720 I want to speak I think towards what the President 0:06:28.760 --> 0:06:32.359 will comment on here. What can we glean from the 0:06:32.480 --> 0:06:38.200 fixed income markets that can help politicians gauge the moment. 0:06:38.560 --> 0:06:44.000 What should they be watching in fixed income? Well, they're 0:06:44.000 --> 0:06:47.440 not watching anything specifically in the fixed income market per se. 0:06:47.560 --> 0:06:50.359 But what I think we should be encouraged by is 0:06:50.360 --> 0:06:54.760 the fact that financial conditions are still relatively easy. You're 0:06:54.800 --> 0:06:58.360 not seeing a meltdown in the in the equity market. 0:06:58.400 --> 0:07:02.800 You're not really seeing other risks of a contagion in 0:07:03.000 --> 0:07:07.200 all markets. This seems to be very localized, if you will. 0:07:07.240 --> 0:07:11.440 In the bond market, you're seeing a pretty dramatic decline 0:07:11.560 --> 0:07:15.240 in yields as the market starts to price out rate 0:07:15.320 --> 0:07:18.800 hikes for this year. So for the most part, at 0:07:18.880 --> 0:07:22.080 least thus far, it seems to be localized to the 0:07:22.080 --> 0:07:24.760 price action, i should say, in the bond market, and 0:07:25.320 --> 0:07:27.480 we're not really seeing a big risk of a contagion. 0:07:27.840 --> 0:07:30.400 Two things to Patrick. One, you called for lower yields. 0:07:30.680 --> 0:07:33.080 You're getting them in a mimictive way this morning. We'll 0:07:33.120 --> 0:07:35.400 come back on that call in just a moment. The 0:07:35.480 --> 0:07:38.600 second thing, there's two clear camps emerging. We've been discussing 0:07:38.680 --> 0:07:40.600 them in the last hour or so. One is that 0:07:40.640 --> 0:07:43.080 the market is right, this Federal Reserve is done. The 0:07:43.160 --> 0:07:45.320 second camp is ultimately the feeders shown. It has the 0:07:45.360 --> 0:07:49.520 toast to deal with deal with feut banks and can 0:07:49.600 --> 0:07:53.880 focus on tactic inflation, which camp you in it's going 0:07:53.920 --> 0:07:55.880 to have to be the ladder. I think it's very 0:07:56.040 --> 0:07:58.760 soon to make a call on the FED being done. 0:07:59.240 --> 0:08:01.840 Like you guys have discussing over the last couple of minutes. 0:08:01.880 --> 0:08:05.200 If you look at inflation, it's running very hot. You 0:08:05.240 --> 0:08:09.720 have a very strong labor market, and most importantly, financial 0:08:09.760 --> 0:08:15.640 conditions are easy. The financial stability risks seem to be 0:08:15.720 --> 0:08:19.400 somewhat ring fenced and isolated with a couple of banks. 0:08:19.520 --> 0:08:22.760 The question really becomes one of does the FED have 0:08:23.000 --> 0:08:26.160 all the tools it needs to be able to contain 0:08:26.240 --> 0:08:29.559 this problem? And again, you know you guys did a 0:08:29.600 --> 0:08:31.880 good job of outlining what happened in the UK. I 0:08:31.920 --> 0:08:35.199 think the parallels there are are very impression for this 0:08:35.240 --> 0:08:37.720 particular moment where the Fed can kind of threaten needle 0:08:38.040 --> 0:08:42.400 on two separate issues and continue to raise rates in 0:08:44.000 --> 0:08:46.760 the March media and even beyond if we can kind 0:08:46.760 --> 0:08:50.079 of deal with the problem at hand. So I want 0:08:50.080 --> 0:08:52.040 to just talk about the mechanics of the bond market 0:08:52.040 --> 0:08:54.240 at a time when you're seeing a fifty basis point 0:08:54.240 --> 0:08:56.040 move in the two year at a time when so 0:08:56.080 --> 0:08:59.280 many people had parked their cash in this debt. How 0:08:59.360 --> 0:09:01.640 much is it kind of creating fertilities in and of 0:09:01.640 --> 0:09:04.880 itself that there is such incredible volatility in the benchmark 0:09:05.240 --> 0:09:10.720 basic instruments that people use as tools of safety. So 0:09:10.840 --> 0:09:12.599 if it is a tool of safety, you want to 0:09:12.600 --> 0:09:14.439 be along the bond And we've been kind of talking 0:09:14.480 --> 0:09:17.520 about that, you know, pretty much since the beginning of 0:09:17.559 --> 0:09:19.720 the year, even when yields started a rise. Is that 0:09:20.120 --> 0:09:22.600 this is typically the sort of price action you tend 0:09:22.640 --> 0:09:25.160 to see in the bond market towards the end of 0:09:25.160 --> 0:09:27.640 the cycle, where the market gets a little bit very 0:09:27.760 --> 0:09:33.200 skittish on the potential turn and policy. So, especially given 0:09:33.240 --> 0:09:36.560 the fact that yields have risen so dramatically, our view 0:09:36.600 --> 0:09:39.319 has consistently been that the risk to yields are a 0:09:39.520 --> 0:09:43.000 specially due towards the downside, and that's exactly what you're 0:09:43.080 --> 0:09:46.559 you're seeing in the price action. Yes, the moves look 0:09:46.720 --> 0:09:48.960 very dramatic, and that's because the absolute level of the 0:09:49.000 --> 0:09:53.079 two year was at about five percent, you know, just 0:09:53.120 --> 0:09:55.400 a week ago, so a lot of that repricing is 0:09:55.400 --> 0:09:58.160 going to happen in the very front end. So that 0:09:58.200 --> 0:10:02.080 doesn't surprise me at all, um, But what you know, 0:10:02.080 --> 0:10:04.280 what we have to see going forward is not really 0:10:04.600 --> 0:10:07.240 read too much into the price action year. This could 0:10:07.240 --> 0:10:10.600 be partly driven by position unblinds, given the fact that 0:10:10.679 --> 0:10:14.400 the market was extraordinarily short heading into the into the 0:10:14.440 --> 0:10:17.439 March fo MC meeting. But I think kula heads will 0:10:17.440 --> 0:10:20.439 prevail when you have more information on how this route 0:10:20.480 --> 0:10:22.480 is going to play out. Brownie speaking, how are you 0:10:22.520 --> 0:10:23.880 going to play this about her? Are you going to 0:10:24.000 --> 0:10:26.320 lean into the long end? Are you going to basically 0:10:26.640 --> 0:10:28.679 cash in on some of the short positions you've had 0:10:28.679 --> 0:10:33.880 the short short end of the curve, We really didn't 0:10:33.880 --> 0:10:35.840 have any any shorts. I think we've been kind of 0:10:35.880 --> 0:10:39.200 leaning long in bonds for a good portion rule of 0:10:39.240 --> 0:10:42.520 this year, given the fact that you know, it's really 0:10:42.600 --> 0:10:46.720 hard to call the pivot on policy, so it's it's 0:10:46.800 --> 0:10:49.000 kind of you know, especially given the fact that you 0:10:49.040 --> 0:10:53.040 get such good returns and bonds. Our bias was perhaps 0:10:53.040 --> 0:10:55.800 to play from from the long end, because yes, we 0:10:55.880 --> 0:10:58.480 might lose the last twenty five basis points of rate 0:10:58.559 --> 0:11:01.000 hikes or not be able to know where the term 0:11:01.000 --> 0:11:04.000 a FED funds raiders. But broadly speaking, the market's going 0:11:04.000 --> 0:11:07.000 to look towards the trajectory of lower yields over the 0:11:07.080 --> 0:11:10.120 next year or two. So in that sort of context, 0:11:10.360 --> 0:11:12.599 I think that long play made sense. That said, with 0:11:12.760 --> 0:11:16.040 me moved quite significantly lower here, So I think we 0:11:16.160 --> 0:11:19.000 probably take a pause look at how things evolved. I 0:11:19.040 --> 0:11:22.640 wouldn't be surprised if we see another leg higher in yields, 0:11:23.400 --> 0:11:27.200 if we start to price in more hikes as the 0:11:27.200 --> 0:11:29.520 time progress is given the fact that we're not anywhere 0:11:29.559 --> 0:11:33.640 near achieving the goal on inflation. So Patri, your bonco 0:11:33.720 --> 0:11:35.839 is looking pretty good this monic and after the last 0:11:35.880 --> 0:11:38.240 couple of days, that's for sure. So Patra Jafford suck 0:11:38.320 --> 0:11:44.320 gens at, Patra, thank you. What you need to do 0:11:44.320 --> 0:11:47.679 on technology is people get chosen. There was a woman 0:11:47.760 --> 0:11:52.280 out of Minnesota who was exceptionally astute and operational research 0:11:52.320 --> 0:11:55.600 at Stanford, and she was annointed I remember the day 0:11:55.640 --> 0:11:59.040 as clear as I can, Marissa who was annointed as 0:11:59.040 --> 0:12:01.520 the leader of YAH, who many would say she at 0:12:01.559 --> 0:12:04.760 least stabilize a company and moved it along in its 0:12:04.760 --> 0:12:09.200 eventual pain. The gentleman that found her was Michael J. Wolfe. 0:12:09.240 --> 0:12:13.040 He's co founder and CEO of Activate. Is a unique 0:12:13.160 --> 0:12:16.240 voice for technology in this country. Hes worked with MTV, 0:12:16.400 --> 0:12:20.000 but far more with consulting with McKenzie and he is 0:12:20.000 --> 0:12:22.800 a voice that when he gets it's a lot, it's 0:12:22.800 --> 0:12:26.520 Michael Wolf online too. The answer the phone. What did 0:12:26.520 --> 0:12:28.720 you do this weekend? Were you glued to the phone 0:12:28.760 --> 0:12:32.199 this weekend? Well, it was a dark weekend for startups 0:12:32.360 --> 0:12:36.480 and for venture capital firms and either on Twitter, either 0:12:36.520 --> 0:12:40.600 on message boards and really blowing up my tax over 0:12:40.720 --> 0:12:44.840 the weekend because where people were afraid. Startups and vcs 0:12:44.840 --> 0:12:47.920 were concerned that they wouldn't make payroll this coming week 0:12:48.280 --> 0:12:50.600 and they were concerned that come Monday they'd have to 0:12:50.640 --> 0:12:53.720 start letting people go. I want you to address the 0:12:53.800 --> 0:12:57.199 behavioral construct that was beautifully described by the Wall Street 0:12:57.280 --> 0:13:01.240 Journal anecdote after anecdote, and I'm not going to mince words, Michael. 0:13:01.760 --> 0:13:05.520 It was fancy tech guys with fancy educations on fancy 0:13:05.600 --> 0:13:09.520 golf streams from Big Sky in Montana, flying back quickly 0:13:09.640 --> 0:13:14.160 to northern California to salvage the mess that is the 0:13:14.280 --> 0:13:17.880 image that America has of your world. Is it accurate? 0:13:18.200 --> 0:13:20.559 What's ironic is that in a lot of ways, the 0:13:20.679 --> 0:13:24.160 venture capitalists started that, and so it's the immediacy of 0:13:24.200 --> 0:13:28.760 social media. So starting on Wednesday, they already started advising 0:13:28.760 --> 0:13:33.120 their startups to take money out, and by Thursday, over 0:13:33.240 --> 0:13:36.960 forty billion dollars had already left Silicon Valley Bank. And 0:13:37.000 --> 0:13:39.359 so in a lot of ways, this was self imposed. 0:13:39.360 --> 0:13:42.760 And what's different about this versus two thousand and eight 0:13:43.280 --> 0:13:45.320 was you had at that time, you had Twitter that 0:13:45.360 --> 0:13:49.320 had two hundred thousand daily users. Today, all of the 0:13:49.440 --> 0:13:53.320 communication is happening through social media, and so it's not 0:13:53.360 --> 0:13:55.600 surprising you had a run on the bank. And what 0:13:55.720 --> 0:13:58.040 was so important in the quality threads this week and 0:13:58.120 --> 0:14:01.200 the people that weren't hysterical was bred sets are wonderful 0:14:01.240 --> 0:14:04.319 at Harvard, an actor and at the end of his thread, Lisa, 0:14:04.480 --> 0:14:08.560 he was scathing about the lack of humility among tech types. 0:14:08.800 --> 0:14:12.840 Gary Gensler out with this statement from the SEC that 0:14:13.000 --> 0:14:16.480 they are investigating and bring enforcement actions if we find 0:14:16.559 --> 0:14:20.240 violations of the federal securities laws. This raises questions of 0:14:20.280 --> 0:14:23.760 what potential conflicts some of these individuals had. Was that 0:14:23.800 --> 0:14:26.040 one of the discussions that people were having over the weekend, 0:14:26.360 --> 0:14:29.960 the main thing was this concern about what this meant 0:14:30.160 --> 0:14:34.480 for startups themselves, and this concern overall for people outside 0:14:34.520 --> 0:14:37.680 the technology business about what would this do to the 0:14:37.720 --> 0:14:40.400 innovation that's been taking place. I mean, these were not 0:14:40.520 --> 0:14:44.440 big companies. These were companies thousands of small companies who 0:14:44.440 --> 0:14:48.400 have yes taken in venture capital money. But there's concern 0:14:48.520 --> 0:14:51.560 that this would shut down innovation, that vcs would not 0:14:51.640 --> 0:14:54.680 be able to finance companies come this week or these 0:14:54.720 --> 0:14:57.720 coming months. Michael Showell was on earlier and he was 0:14:57.760 --> 0:15:00.240 saying that regardless of what happens and what the is 0:15:00.240 --> 0:15:02.880 trying to do in the treasure departments to offset some 0:15:02.920 --> 0:15:05.600 of the concerns about a failure to be able to 0:15:05.640 --> 0:15:09.400 withdraw it deposits, that lending conditions would tighten materially and 0:15:09.440 --> 0:15:12.240 that some of these smaller companies would face much higher 0:15:12.280 --> 0:15:15.520 standards to borrow a much higher rates. Is that in 0:15:15.560 --> 0:15:18.720 the conversations that you're having with some of these startups. Absolutely, 0:15:18.840 --> 0:15:22.600 I think they're worried about what happens. Even though the 0:15:22.640 --> 0:15:25.360 FED is going to backstop the bank and their funds 0:15:25.400 --> 0:15:27.840 are going to be available. I think their concern is 0:15:28.240 --> 0:15:31.200 will this have a chilling effect on venture capital funding? 0:15:31.440 --> 0:15:33.480 And will this have a chilling effect on the places 0:15:33.520 --> 0:15:36.320 where they can borrow money and in a lot of cases, 0:15:36.640 --> 0:15:39.400 though there are many of them are expecting to keep 0:15:39.440 --> 0:15:42.440 their money at Silicon Valley Bank. Over the weekend, a 0:15:42.480 --> 0:15:47.880 group of venture capitalists Kleiner Perkins and others in general catalysts. 0:15:47.920 --> 0:15:50.600 They put out a statement that said, no matter what happens, 0:15:50.920 --> 0:15:54.360 that they'll back Silicon Valley Bank. Now, there's also if 0:15:54.360 --> 0:15:57.160 you look at some of the anecdotes, companies weren't even 0:15:57.240 --> 0:16:00.120 set up to take money into other places. Of the 0:16:00.120 --> 0:16:02.920 founders were putting money into their personal accounts as they 0:16:02.960 --> 0:16:05.480 were able to transfer it out. Is there a discussion 0:16:05.680 --> 0:16:08.760 about some of these venture capital firms helping some of 0:16:08.800 --> 0:16:13.920 their portfolio companies to actually meet payroll to deal with 0:16:13.960 --> 0:16:17.840 some of their concerns on their imminent funding requirements. They're 0:16:17.840 --> 0:16:21.000 really based on the conversations I was involved in, there 0:16:21.000 --> 0:16:23.440 really weren't. That was not an option on the table. 0:16:23.680 --> 0:16:25.880 I think that everybody was looking at this, and in 0:16:25.920 --> 0:16:29.000 fact they were concerned about the laws in California in 0:16:29.080 --> 0:16:32.320 terms of what happens with missing payroll. Michael Wolfe one 0:16:32.320 --> 0:16:34.920 of the same voices this weekend. He was cryptic, but 0:16:35.080 --> 0:16:38.320 nevertheless saying was a guy named Dan Loebe there were 0:16:38.320 --> 0:16:41.160 others that were a little more hysterical all caps in 0:16:41.280 --> 0:16:45.280 that mouthing off in a time of true financial crisis, 0:16:46.040 --> 0:16:48.960 How do we get a behavior change in your world 0:16:49.200 --> 0:16:54.720 that affects a humility towards the entirety of America away 0:16:54.720 --> 0:16:58.800 from hyper educated finance and technology elite. Yeah. I think that. 0:16:58.880 --> 0:17:02.320 What's happening, though, is the world is moving away. The 0:17:02.520 --> 0:17:06.240 innovation world is already moving away from Silicon Valley. It 0:17:06.359 --> 0:17:08.320 used to be you started a company, you could only 0:17:08.359 --> 0:17:10.760 be located one place, and that was the Bay Area. 0:17:11.000 --> 0:17:13.080 Some came cases let on that. Let's be clear, the 0:17:13.119 --> 0:17:16.200 guy from AOL, Steve Case is really let on that. Absolutely. 0:17:16.200 --> 0:17:19.760 But when we move into new technologies like generative AI 0:17:19.880 --> 0:17:23.359 and self driving cars and even the metaverse, it's in 0:17:23.400 --> 0:17:26.840 other places, and I think that that Silicon Valley mafia 0:17:26.880 --> 0:17:29.240 will change. I didn't hear Dan Loebe this weekend talking 0:17:29.240 --> 0:17:31.600 about the metaverse, and most of the people watching the show, 0:17:31.600 --> 0:17:33.760 We're going, Michael, what the hell is it? We won't 0:17:33.800 --> 0:17:37.919 know it for five years. How do we reconnect Massachusetts 0:17:37.920 --> 0:17:43.560 Institute of Technology, Stanford, Caltech and other allegiance Georgia Tech Perdue. 0:17:43.680 --> 0:17:46.199 That's my pick in the NC double A. How do 0:17:46.280 --> 0:17:50.760 we connect technology engineering back with an America where the 0:17:50.800 --> 0:17:53.280 stereotype is they're flat on their back, right. I think 0:17:53.280 --> 0:17:55.760 that some of it's going to come down to innovation hubs, 0:17:56.280 --> 0:17:59.600 so Boston in a lot of ways, in Cambridge, those 0:17:59.640 --> 0:18:03.320 are gonna places and other places around Austin and others 0:18:03.320 --> 0:18:07.240 where you've got people. And it's also opening up the world. 0:18:07.280 --> 0:18:09.440 I mean a lot of these tech jobs have gone away. 0:18:09.480 --> 0:18:11.320 Those people are all going to find work, but they're 0:18:11.320 --> 0:18:13.640 not going to necessarily find work in Silicon Valley. They're 0:18:13.640 --> 0:18:16.560 going to find it in other companies and mainstream businesses. 0:18:17.000 --> 0:18:20.440 We've been talking about the potential fallout and the interconnectedness 0:18:20.440 --> 0:18:23.239 of markets that previously had been somewhat separate, and I 0:18:23.280 --> 0:18:26.760 wonder about stable coins, for example, the sort of crypto 0:18:26.840 --> 0:18:30.640 asset that is pegged two assets that for example, I'm 0:18:30.640 --> 0:18:33.879 thinking of the USD coin that had a lot of 0:18:33.880 --> 0:18:36.760 its assets parked at the Silicon Valley bank and suddenly 0:18:36.760 --> 0:18:39.160 it broke the buck, right, it went beyond one dollar, 0:18:39.240 --> 0:18:43.240 which was sort of the backing of its assets. I mean, 0:18:43.359 --> 0:18:45.919 how do you view that in terms of casting a 0:18:46.000 --> 0:18:48.760 real pall that has a permanence to it over asset 0:18:48.760 --> 0:18:51.359 classes that previously were heralded as the winners of the 0:18:51.359 --> 0:18:54.520 crypto winter. Yeah. I mean there by the way is 0:18:54.560 --> 0:18:57.720 the real arrogance, which is this idea that this wouldn't 0:18:57.720 --> 0:19:02.600 have happened if we had descend toalize finance and blockchain. Yes, 0:19:02.800 --> 0:19:06.240 USD USD coin um it's supposed to be it's a 0:19:06.280 --> 0:19:09.080 stable coin. It's supposed to always be stable at a dollar. 0:19:09.480 --> 0:19:12.280 It dropped down to eighty seven cents over the weekend 0:19:12.720 --> 0:19:16.640 and um USD had three billion dollars on deposit. So 0:19:16.800 --> 0:19:19.880 it is going to have a chilling effect on on crypto. 0:19:19.960 --> 0:19:22.480 It is going to make people wonder is this a 0:19:22.600 --> 0:19:26.200 viable place as it's safe? John from England emails in. 0:19:26.920 --> 0:19:29.400 John says, can you ask him if it was a bailout? 0:19:30.000 --> 0:19:33.280 Was this a bailout for younger Michael of Turks from 0:19:33.280 --> 0:19:36.040 another time and place? Well, I mean this, what's this 0:19:36.119 --> 0:19:38.399 is very different. It's a bailout, but it's very different 0:19:38.400 --> 0:19:41.880 than two thousand. But was a bailout? No? I think 0:19:41.880 --> 0:19:44.680 this is this was about about liquidity. It wasn't the 0:19:44.840 --> 0:19:46.960 This is not a bank that made that made risky 0:19:47.000 --> 0:19:50.919 investments in mortgage backed securities. This is a bank that 0:19:51.000 --> 0:19:53.760 had a liquidity problem. They made bad mistakes in terms 0:19:53.760 --> 0:19:57.840 of their investments, and ultimately, UM a lot of that 0:19:57.880 --> 0:20:00.320 money will come back. If you see. I don't mean 0:20:00.320 --> 0:20:02.320 to interrupt. Running out of time, and this is too important. 0:20:02.359 --> 0:20:04.119 If you were asked to serve on the board of 0:20:04.200 --> 0:20:07.520 the new SVB Bridge, what would be your advice. I 0:20:07.560 --> 0:20:10.560 think that that you better be an expert in finance 0:20:11.240 --> 0:20:15.280 and you better have really understand the kinds of credit 0:20:15.359 --> 0:20:18.000 risk officers and other people that are in place. Michael, 0:20:18.040 --> 0:20:19.920 we got to go because the news is just rip 0:20:20.000 --> 0:20:22.400 roaring here as or thirty minutes away from the President 0:20:22.680 --> 0:20:24.840 of the United States, Michael on short notice. Thank you 0:20:24.880 --> 0:20:28.920 for coming into that. Michael Wolfe at which barely describes 0:20:28.960 --> 0:20:43.320 his history with McKenzie, Yahoo and others. We begin this 0:20:43.359 --> 0:20:46.720 discussion this morning on your future in banking with Myra 0:20:46.880 --> 0:20:51.439 Rodriguez Valadario's managing principal at MRV Associates. You may not 0:20:51.640 --> 0:20:54.560 know her, but what you need to know she is 0:20:54.800 --> 0:20:59.240 steeped in the banking discussion of Washington. Myra, thank you 0:20:59.280 --> 0:21:02.040 so much for joining us in the six o'clock hour. 0:21:02.160 --> 0:21:05.600 I'm going to cut to the chase the Republicans, led 0:21:05.640 --> 0:21:11.320 by President Trump, are highly suspect of bank concentration. It's 0:21:11.400 --> 0:21:15.440 Donald Trump channeling is inner Andrew Jackson, I get it. 0:21:16.040 --> 0:21:19.199 Did that all go by the way, say side yesterday? 0:21:19.600 --> 0:21:23.000 And will the Republicans have to find common ground with 0:21:23.040 --> 0:21:27.760 the Democrats to make us a one banking system. Well, 0:21:27.800 --> 0:21:29.560 it's good to see you again, and thank you so 0:21:29.640 --> 0:21:33.800 much for having me here. Look, most unfortunately what's just 0:21:33.960 --> 0:21:38.080 happened this weekend is that venture capital and those kinds 0:21:38.080 --> 0:21:41.600 of companies have been bailed out. And this never should 0:21:41.600 --> 0:21:45.960 have happened. The Republicans primarily, although unfortunately some Democrats back 0:21:45.960 --> 0:21:50.240 in twenty eighteen voted for the e g R CCPA. Yes, 0:21:50.320 --> 0:21:53.960 one more alphabet soup of American regulations and laws. But 0:21:54.280 --> 0:21:59.600 once that vote came in, it revoked important liquidity and 0:22:00.240 --> 0:22:05.959 testing requirements for those banks exactly around the size of 0:22:06.000 --> 0:22:09.280 what Silicon Valley Bank is. So yes, Republicans should be 0:22:09.320 --> 0:22:14.080 finding common ground with Democrats now to evoke that useless 0:22:14.080 --> 0:22:18.480 piece of legislation which ended up being incredibly damaging yet 0:22:18.520 --> 0:22:23.000 again to unsuspecting ordinary Americans. Can we expand too big 0:22:23.040 --> 0:22:28.760 defail constructively across the regionals the superregionals, even some of 0:22:28.800 --> 0:22:32.119 the larger institution state by state, or do we need 0:22:32.160 --> 0:22:36.640 to expand it for each and every community bank. Yeah, 0:22:37.000 --> 0:22:39.640 excellent question, Tom Noe. We really need to go back 0:22:39.680 --> 0:22:42.560 to Title one dot frank that was signed back in 0:22:42.600 --> 0:22:46.560 twenty ten. At that time, those institutions that are fifty 0:22:46.560 --> 0:22:51.440 billion dollars and over work considered systemically important. And yes, 0:22:51.520 --> 0:22:55.240 you can have domestically systemically important banks. You can have 0:22:55.359 --> 0:22:57.600 the regional ones. Of course, you have the ones the 0:22:57.680 --> 0:23:02.080 size of JP Morgan, which are globally systemically important bank. 0:23:02.440 --> 0:23:05.880 And even these so called smaller banks, I don't call 0:23:05.920 --> 0:23:09.119 it two hundred and some ud billion dollar institutions like 0:23:09.320 --> 0:23:13.760 Silicon Valley Bank, small, even those kinds of institutions. We 0:23:13.960 --> 0:23:17.960 just saw this weekend how much instability and chaos they 0:23:18.000 --> 0:23:21.720 can cause to ordinary Americans and didn't even know that 0:23:21.800 --> 0:23:25.200 all of this was going on. And so those institutions 0:23:25.280 --> 0:23:30.320 should never have been changed. In other words, their designation 0:23:30.920 --> 0:23:33.159 never should have been changed. Wellmar whether they like it 0:23:33.280 --> 0:23:35.600 or not, has in Washington, DC acknowledged that you're right 0:23:35.680 --> 0:23:38.959 overnight by using the systemic risk exception for smaller banks, 0:23:39.800 --> 0:23:42.600 right exactly. Unfortunately, and I really hate to be right 0:23:42.640 --> 0:23:45.760 on this one. Quite a number of consumer advocates and 0:23:45.880 --> 0:23:49.960 myself for decades have been arguing that it is important 0:23:50.359 --> 0:23:54.440 to pay close attention to those regional banks. By definition, 0:23:54.880 --> 0:23:59.000