Plain English with Derek Thompson - The SVB Debacle: The Biggest Myths, the Out-of-Control Blame Game, and the Worst Takes

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Today, we’re back to the news of the week.


That is Silicon Valley Bank in the death of Silicon Valley Bank and the banking Panic that it almost sparked.

I had a huge huge wind up to my last episode where I broke down everything that I thought was responsible for the death of Silicon, Valley Bank Short wind up.


Today, we are bringing back the economic Roundtable, Michael bat neck, and then Carlson of riffle, 12th management.

They are the co-host of the animal spirits.

And in this episode we basically comb through the hot takes and there are a lot of very very bad hot takes out there right now about what this Bank death meant what caused it what the lesson should be for Banking and regulation going forward.


This is this is a fun one.

I’m Derek Thompson and this is plain English.


Back by popular demand, the economic Roundtable.

Michael bat, Nick then Carlson.

Welcome back to the show.

Thank you, glad to be here.

All right, let’s talk about Silicon, Valley, Bank myths, lies nonsense.

I am interested.


First and foremost in teasing apart, the good takes from the bad takes in terms of why what happened happened?

And I first want to talk about the phenomenon of zirp zero interest rate policy from the Federal Reserve.

One of the themes, I think that have emerged from the last year, 15 months has been that lots of things that we thought were the wave of the future.


We’re in fact, what I would call Loops low in straight phenomena like we are living in the ashes of alert economy.

We thought that all sorts of techniques phenomena like the rise of Peloton streaming clearly taking over the world as a profitable business model entertainment that these were the wave of the future and they turned out to be low interest rate phenomena.


We thought crypto is going to take over at that turned out to be alert as well.

Metaverse, maybe that’s alert as well, and Silicon Valley Bank, it seems to me was sort of Hot looping.

They had a bunch of depositors that were early-stage Tech, guys.


They had a bet that depended upon low interest, rates this bet on held to maturity Securities one.

Big question that I have for you been, let’s start with you.

How much of what we’re looking at?

When it comes to the death of SPD is simply the latest chapter of a book called the 2010s alert story.


Well, if you look at Silicon Valley Bank in the pre-pandemic days, at the end of 2019, it was like an 11 billion dollar market cap by the end of 2020 one.

It was forty four billion.

This thing was a bank that these things should be boring sort of dividend-paying, they’re not supposed to be these crazy moon shots in this, this Bank quadrupled in value and it was trading like it was crypto or the metaverse or some sort of tech startup and that shouldn’t happen.


If something is boring as the banking system and Asleep, people were assuming, okay, this this party is never going to end and to your point, A lot of it was just low interest rates and because the FED just pulled the rug out on everyone and went from zero to 60 or 62 0, so fast.


I do think that there are a lot of people who had this paper well, thought it was just going to keep growing forever and ever.

And that raising interest rates, put an end to that very quickly.

Michael, there’s a bit of a debate about whether the most important contributor to the demise of Silicon Valley.


Lee was the depositor side.

The fact that their depositors were an ecosystem of early-stage tech startups who were talking to each other, who might have had a herd mentality when it came to pulling out their money and who were also very vulnerable to a rise in interest rates would shut down, the VC, spigot or whether they sealed their fate.


By placing this 80 billion dollar bet on long-term Securities.

That were a bet that was destroyed, but I think lost 15 billion dollars where interest rates started to rise when you look.

At the death of spb, do you think it’s yield its fate more on the depositor side or on the asset side?


Well alright, this is a very good question and to Ben’s point, this is a live by the sword Die By The Sword type of situation.

Silicon Valley Bank was a huge beneficiary of what you’re referred to as lurk if you were a text venture-backed startup, there was a one in two chance that you’ve banked at Silicon Valley.


So the question of whose fault is this, everyone’s trying to point fingers Jurors.

And you need to be like an eagle Montoya.

Another got to kill his father, I’m sorry, you need, like, six fingers.

The point that all the people that are to blame, you’ve got first and foremost, the FED.

I think they are probably at the epicenter of this.

What do we mean by that?


The FED took interest rates to zero appropriately so and they left him there for way too long.

They left in there for two years, even as inflation was over 6%.

They still weren’t raising rates.

So they were way behind the curve and they allowed this bubble to get blown into the venture capital in ecosystem.


Which is averaging something along the lines of 300 billion dollars worth of financing for these companies in 2021 that was six hundred billion dollars and all of that went into Silicon Valley Bank.

The problem is that these companies were so flush with cash that the bank’s didn’t need to make loans, they needed to manage their deposit or money.


They and they did so with various interest rate and yielding Securities, okay?

So then you go to the point of like well, did the bank completely blow it?

Is it their fault?

Probably, is it the fault of venture capital for funding all these companies?

What were they supposed to do?

They’re getting the money in right?


From, from LPS, from Individual from investors, they had to fund these companies and then wait a minute.

What about the regulator’s?

What is their culpability?

And all this?

And the Auditors KPMG just gave me a clean bill and the analyst.

Jason Morgan had an overweight on the bank.

And so there’s so many people to faulted point fingers to the venture capitalist, for pulling the rugged, say, get your money out, okay?


But there’s also a bigger culprit and it’s depend emic and I You spent a lot of time talking about the meteor, not the Ripple.

The meteor into the Pacific Ocean, that was the pandemic that is what started all of us.

And I think it’s really easy to forget that we’re going to talk about more about like in depth about, but it started with the pandemic, first and foremost after the pandemic, the FED doesn’t keep rates at zero for too long.


It doesn’t go from zero to four.

Just 75 basis points in 12 months, which is a fast hiking cycle ever, none of this happens without the pandemic.

The 21st century is really been a century of meteorites.

It’s striking the heart of the Pacific Ocean because there were stories.


You could tell in 2018, 2019.

Whether you were looking at the expensiveness of houses and metros.

You’re looking at things like the rise of what I called, the millennial consumer subsidy.

The fact that there were all these companies like uber and doordash, they’re essentially paying 30 year olds to order hamburgers and have them delivered to their home, on a, with an incredible deal.


And my argument was, we’re looking at the ripples of The financial crisis, everything that we’re describing when it comes to the shortage of housing or whether it comes to all of these weird consumer tech companies, this all this stuff is still coming out of the legacy of the financial crisis, the financial crisis, which crushed construction, which brought interest rates down that made these Millennial consumer, subsidy kind of companies possible you.


That was the that was a meteorite.

And now I totally agree with you Michael.

I think that there’s so much of what we’re looking at.

At that, it that are ripples spilling onto the shore of the pandemic.

Now you mentioned the fact that the FED might be to blame for this and I don’t necessarily disagree with you but then this is where I want to bring you in.


There are a lot of people, ahem David Sachs all in podcast who are explicitly, blaming the Federal Reserve almost uniquely.

And in isolation for this crisis this is not Christopher.

Guest the six-fingered And in The Princess Bride, this is just someone with one big claw finger.


That doesn’t make any sense to me, considering the Silicon Valley Bank president.

Craig Becker was sitting on the board of these San Francisco Federal Reserve.

I don’t understand how you can make an and fail to hedge.


A bet that depends upon low interest rates, when you have the front row seat to the agency in charge, As the institution in charge of raising interest rates been, what am I not seeing here?

What was Greg Becker looking at?

It is true.


If your plan rests on the lowest interest rates in history, staying there forever.

That’s probably not a good bet like we the interest was so low.

We’ve never seen that before.

So if your bet is a let’s just lock these in for 10 years and we’ll be fine.


Obviously the bank is to blame, there was plenty of Executives at other banks that did just fine through this.

They liked Good point.

The FED went from in it was a 25 mile per hour, speed limit in the Fed was like Vin Diesel doing the nitrous stuff and is Fast and Furious car.

And then they slam the brakes on and called caused a traffic backup.


So the FED they are probably, I don’t think they realize the unintended consequences of the speed of their hikes but it’s also true that.

Why didn’t this happen to other Banks, right?

There’s plenty of other banks that Chris fucker.

Craig, Becker was in the car.

He was a part of the, of the of the he was a, he was a driver of this car, he was a little brother.


He was Paul Walker, right?

Exactly if he’s not Vin Diesel, this is what I don’t.

I truly just don’t understand.

I’m sure we’re going to have Congressional investigations.

I think the psychology behind it is one of the biggest unknown factors because I think you can’t really explain a bank run without looking through the psychology of it.

I’m sure they thought, listen.


We’ve been doing this for our partners in Silicon Valley for so long.

There’s no way they’re ever going to give up on us.

Of course, they aren’t, there’s like there’s a great story about this Bank in Hong Kong in the 1980s.

That was right next to a pastry shop in the pastry shop.

I just started making Fancy cakes and everyone loved them.


So they’re out the door at this pastry shop.

Next to the bank and people at the bank, people are driving by the bank, thinking that was aligned to the bank and that caused a run on the bank because there was a long line of the pastry shop and it’s kind of it’s so it’s a psychology behind.

I’m sure that they never thought in a million years.


If they announced this money raised, or if they decided to sell these held to maturity Securities or whatever that this was going to cause they’re trusted customers to pull their money.

So I’m sure if you put him in, put the truth serum in them and ask them that he would probably Say know, they’ll stick by us.

There are, there are customers, I’m sure it was Hubris, you know, I think things were going so well in the tech community and they probably thought they were Untouchable.


Well, this is why.


I feel like again back to the six fingers.

If you’re asking who killed Silicon Valley Bank, I think you should look at and blame the bank Executives who made this bet?

I think you could bring in the Federal Reserve for some blame for falling behind inflation and then trying to whether it’s accelerate to 60 or decelerate, 20 clearly it was a shocking move that His Royal a lot of the economy you can look at Auditors that KPMG Regulators companies or banks that were looking at spb and not raising the alarm, we’re going to get to whether or not.


We can blame politicians who passed her In-laws in 2018, but none of this would have happened.

If the Silicon Valley culture that Becker bet on had come to pass.

That is to say the old-fashioned Silicon Valley land of collaborators where everyone says, As we’re in this together, we understand that if Founders fund asks its startup to start taking money out of the bank that it’s going to cause a bank run that’s going to destroy this critical part of our financial ecosystem.


Maybe six seven ten years ago.

You wouldn’t have had a run on the bank and SV B would have been able to eke out a survival.

But on top of all of these things and top of all of its mistakes.

It’s so not just a mild Bank Run, It saw the largest Run in history, forty two billion dollars in one day, 1 million dollars per second a bank run that was essentially a social media phenomenon that people could essentially execute on their phones in order to transfer money out of the bank.


And how much Michael do you think that the Venture, The Venture Capital decision to pull money to execute this Bank Run?

Really was like just the final nail in the coffin?

Yeah, it is.

It is interesting.

You mentioned David Sachs blaming the FED.


I don’t Remember him thanking the FED for keeping interest rates at zero inflating to the moon, the value of a lot of these these companies.

But be that as it may think that had the senior leadership in Silicon Valley, and we know who they are, how’d they come out with a calm voice inside?


Listen, Silicon Valley Bank has been a trusted partner for four decades.

They’ve been through ups and downs.

There is no reason to expect that they won’t weather this storm.

We’re going to stick by them, had that happened.

They would have been fine, but that’s not what happened.

The the the people at the top turned and told their companies to get out.


And this is a, this is a very close-knit culture, and once the word got out, Was the rational response as a general partner of your fund to get your company’s money out.

I mean, imagine imagine the opposite say, you know, don’t worry telling a couple, don’t worry if you have, these would be fine and then a not being funny, you look like an idiot.


So there was was a completely rational response.

I think what Greg Becker might have missed misunderstood is the fact that this missile just is wrong word.

Why did this happen to Silicon Valley Bank and other Banks?

There’s there’s two answers.

One, is that to what we would talk about their Miss managing their, their, their Treasures are Mortgage-backed Securities.


So do we?

This is a fractional Reserve System that we run on, right?

Thanks, get money.

They landed out.

If everybody wants their money back at once.

It cannot happen whether it’s Silicon Valley Bank Rich, a keyboard, but they made a bet that interest rates would say, well forever, and they messed up.


That’s, that’s one part.

The other part of it is that these companies not only were they not getting one of those who are in 2021 with new funding, they were, they’re hemorrhaging money because the cash burn to your point about Silicon Valley subsidizing and these These are not they’re not profitable companies, they’re just losing money, so it’s Silicon Valley Bank had to do was take some of their available-for-sale Securities, tell them but they had to replace that with common stock and as soon as they did that to you know be be compliant with regulations as soon as they did that.


It was like Leslie Nielsen.

Nothing to see here.

Well, there’s a paucity there.

And so what they fail to grasp is that they have a monolithic customer base, it’s not diversifies.

I’m Bank of America, they’re not serving your customers all over the country although they are.

But they’re all, they’re all of the same.

Early stage.


And so they ran.

And they’re on the same group chats, and they’re all following each other on Twitter and they’re all locked into the same dynamics of virality and herd mentality, that could cause and has historically caused a run on the bank.

It’s just that, in this case, it happened at the speed of light and it happened on social media everywhere all at once and so if everyone didn’t leave the bank would have been fine but that’s not how it played out.


Then there was also this very famous Lira quoted take by Kessler at the Wall Street Journal that I’d like to read for you and get your response to in its proxy statement, Silicon Valley Bank noted that besides 91% of their board being independent and 45 percent women.


They also have quote, one black, one lgbtq+, and two veterans.

I’m not saying 12 white men would have avoided this mess, but the company may have been distracted by diversity demands and quote.

So Kessler, The Wall Street Journal seems to think that, if the bank had been entirely run by white men, it we wouldn’t Have had this problem which relies on the theory that no banks in the history of banking, run by white men disproportionately have ever failed.


Then how do you feel about this particular take?

I was doing a little bit of research this past weekend and rereading about the Panic of 1907 which is probably one of the biggest Financial crises in history.

If it wasn’t for the Great Depression.

And I’m not guessing that there is a lot of diversity in the banking system back, then, it was all old white.


And with the monocles in the top hats and it is, it is kind of there’s a lot of Hysteria going out there.

People trying to figure out different ways to make the blame game as we’ve already talked about, there’s plenty of easy, people, easy targets to blame here, I don’t think we need to take a step further and make it any more difficult than it needs to be done.


Can I can I stand with castle for a second, please?


These companies were the deposits was at risk.

At the bank, really did go under, on the other hand, you have a bank like Schwab.

Its individual investors for the most part not not not always, but for the most part we are something like 80% of customer deposits are below the FDIC limit.


So there would be no reason to run.

So it was really this perfect storm is perfect shitstorm that led to a bank run.

Michael is valiantly trying to keep us in the land of substance of takes on the SBB collapse while.

I’m just trying to get us to do anti anti woke takes, I will only add this to Ben’s point about the Andy Kessler take, which is that the Wall Street, journal’s and Publishing continuously since Since the 1880s.


They were banking panics and 1884. 1898 1899 1901 1907 and 1908 when the banks were exclusively run by men who were white.

So it’s even in this particular newspaper.

It is a degree with my goal in his first comment.


It’s really an astonishing take to have been part of the show.

Serious clown show.

Let’s move on to the political Fallout.

I am not entirely sure how this is going to shake out.

Politically it seems at least possible to me, Michael that we might have averted a banking panic and in so averting, a banking Panic.


Joe Biden, just might not be punished because you are never punished for the panics and crises that the public doesn’t experience do a problem with that.

Take, do you have a problem with what the FED Treasury and FDIC did here.

And essentially saying, as far as it comes to the banks that failed over the last weekend.


We are going to guarantee deposits.

Not up to 250 K, but to Infinity, not only, do I not have a problem.

I applaud the Speedy action with which I took his guess.


If they did an iPhone Sunday night?

They would have acted on Monday morning.

What do I mean by that?

There would have been full-blown.

Chaos Panic people would have run for the Hills Regional Banks would have been just sucked dry and that’s not good.


Those are the life blood of the American economy, guess who went to local local businesses, its Regional basis, but it’s not that the behemoths.

So I applaud them for what they did.

The job of the Federal Reserve person hormones is to ensure Financial stability.



They fucked up with interest rates but in this case they did what they had to do.


No, I don’t fault them.

I think that it was absolutely necessary.

So I applaud them.

Eric you mentioned, all those crises in the late 1800’s and early 1900s those before the Federal Reserve existed in.

This is maybe kind of boring.


But the reason the Fed was created in the first place is to act as a lender of Last Resort.

That’s what their, that’s what their job is supposed to do.

So, I think the thing that That freaks people out is these crises are happening so much faster because we’re in the technology age and then the responses are happening even faster as well.


So you don’t get time to think through all of the different second and third or ramifications because everything happens so fast because regulars are learning that if they let things go on, like they did in 2008, and we have Congress vote on it and it and something fails, then things are going to get bad really quickly.


So Regulators just say, you know what, we’ve learned from the past and we’re going to step in before anything bad, really happens and it can Worse.

It’s important to note that this is not a bailout.

In the sense that listen, the equity went to 0, this is capitalism.


The bonds are trading at about 30 to 40 cents on the dollar.

What needed to be backstopped not bailed out was depositors regular people forget about the tech Pros.

There are regular or this 40-something thousand businesses, that bank with Silicon Valley Bank who guess what?


You need a bag to make payroll, right?

So this is not just barely on detector.

Rose will you can’t it’s not reasonable to think that the average citizen should be a forensic accountant.

And say hmmm is this business bank money good?

They had to step in and protect the citizens, the depositors of the United States.


I think I agree.

I think that.

Look, I, it’s not just that, I don’t want companies to fail just because the bank they happen to put their money into was stupid.

I don’t, I don’t think depositors should should necessarily.


I don’t think Founders should necessarily have to think so much about whether the institution holding next.

Month’s, payroll might.

Said Emily self, fuck themselves by making the wrong bet on long-term, treasuries like that actually don’t want America startup Founders, be thinking about that at all.


There’s already a thousand and one things you have to keep your eye on when you’re starting a company in AI, in biotech me there’s Silicon Valley Bank branches and in Boston and Kendall Square.

The heart of America’s biotech Community.

I don’t want people who are trying to cure cancer to be obsessed at 3 a.m. in the morning about whether or not the Regional Bank is going to fail next week.


I just don’t think it’s that’s their job.

So I’m I agree with that in addition to the concert of bailout and truly like I don’t care if people want to call this, a bailout of depositors.

You used.

It used to be term.

I’m fine.

The deeper question to me the other term that’s come up a lot as a question of moral hazard and I’ll give you my take first been before I throw it to you.


When I think about moral hazard, I think moral hazard for whom right?

Silicon Valley Bank is Michael just said no longer exists, so no executive of you know, First Republic is going to look at Greg Becker and be like you know what I should do?

I should totally fuck up my job and get bailed out by the FDIC.


No one’s thinking that there’s no moral hazard at risk among Bank Executives to accept that there’s any moral hazard here.

Its moral hazard for small companies with large deposits, its Regional Banks, but I’m not necessarily Or that I want to punish them right now.


I don’t think that they’ve necessarily made a mistake by putting two hundred fifty thousand dollars in one cent at First Republic, or at Pacific whatever ever Washington would ever ever.

Been am I getting the moral hazard aspect of this debate wrong here, G of a different take on the moral hazard?


Eventually, I think one of the things people say a lot and they said this after 2008 was well, this just creates a system where people just take more risk and that’s the big worry now.

Well, banks will take more risk, but isn’t it the opposite?

It to Michael’s Point management was fired in stock and bond holders, lost their money.

I mean, the good news is most normal.


People are never have to worry about having more than 250,000 dollars, and I think, as we’ve seen, even if you have more than that, it’s probably money.


I think they’ve kind of set a precedent here.

If you’re a lawyer, you would you go back and say, look what happened in March, 20 23, you help those depositors going to help our depositors.


So, I think the big thing is that we have to figure out is like, what’s the point of the banking system?

Anyway, I think the first giant step Warden figuring this out was in 2008 when we said, we’ll wait a minute, this is crazy.

And I think March 20 23 is going to be the next big step that people going to look back on in the future and say, what are we even doing here?


Why are, we letting why are we asking these Banks to take so much risk anyway.

So Matthew Klein has that his excellent subset called the overshoot.

So I he’s got a great line that I pulled here.

So he said banks are speculative investment funds.

Graft on top of critical infrastructure.

This structure is designed to extract subsidies from the rest of society, by threatening civilians with crises, if the bank’s better ever allowed to fill.


And his whole system is that look listen money in the payment systems and all these Financial rails that we shouldn’t have to worry about that.

People shouldn’t be freaking out about asking you my money safe, that stuff should be like kind of like a utility in a public good.

Let the bank’s handle checking the credit worthiness of borrowers and and you know, Doling out loans to people for mortgages and car loans and all the stuff that keeps the economy working in small businesses, but maybe having the bank’s try to manage that risk themselves, maybe that’s not a good idea in the first place to the feds just gonna have to back Backstop them anyway, like let the FED do it.



If banks really are to quote the great, Matt Klein speculative investment funds, grafted on top of critical infrastructure.

We shouldn’t we be regulating them more like it isn’t isn’t Elizabeth Elizabeth Warren. 100% right here.

That the 2018 deregulation of smaller mid-sized.


Regional Banks is a part of what brought us to this moment.

There was less scrutiny on the Greg Becker’s of the world, which puts them close enough to the edge that a little push from the VC.

Community potentially or almost caused a banking crisis, in America.

I mean, shouldn’t we utterly reconceive of the way that we are, regulating this critical industry.


So Elizabeth Warren said something along the lines of Jerome Powell should recuse himself from this and and the bank should be investigated for.

I think I don’t you use the term gambling, but it was something along those lines.

That’s not exactly what happened was their negligence perhaps across variety.


Sure, you could say.

Was their criminal Behavior?

No with a gambling know.

So is the answer rightly or wrongly more regulation?

I don’t see how there’s any other way around this, that’s going to be the answer because if there’s no real limit on FDIC insurance, which is what we learned there has to be regulation.


I don’t know if it’s Banks having more liquidity reserves or something along those lines, but the ability for banks to make money the way they have in the past is not going to exist and one more thing on that we want Banks to lend.

So this is a very complicated issue.

Shoo, what is the regulatory agency?


That without the 2018 law, we would have expected to maybe flag the problems at stb earlier, so that it didn’t have this kind of failure?

Is it?

The local, is it the San Francisco fed is it FDIC?


Is it another government?

You know, alphabet soup, agency, been Michael, who, who should be in charge of the In the fire alarm here, let me just check gbt.

I don’t know the answer to that but there is an eye on a lot of people pointing to the fed and saying that these Banks should have been part of the same stress tests and I was once a Shear stresses.


How did they–how did the head of the mr.

I think.

Unfortunately, the biggest problem here is that we just have too many of these smaller Banks probably and they probably all do help in their local communities.

But how are we?

I don’t know how the regulars are supposed to follow.

All these thousands of small Banks and I think unfortunately the biggest byproduct of this is going to be people.


Just can feel safer at AP Morgan and Bank of America and the probably gonna get screwed and get worse rates and we’re payments on their deposits, but they’re going to be safe because, you know that those banks are never going to be allowed to fail and you’re never going to have to have a bank run on the weekend at those kind of banks, Michael.


What are the costs and benefits of just having to your Banks, was talking to Liz Hoffman yesterday?

It was courting Felix, salmon, who pointed out that most other countries, that have essentially our GDP per capita that are as rich is us, they don’t have thousands of banks.

They have like three, four Banks, the regulated like the basically, He’s as you.


And Ben have talked about, we are dramatically over Banks compared to most other countries.

I am not so sure, that that over-banked quality of Americans is a pure bad thing.

I’m sure that there’s good things and bad things.


How do you, how do you see the pluses and minuses here of our abundance of regional Banks cashing out?

Yeah, it’s a great point.

I don’t, I don’t know enough to banking enough about the banking system to like have a heart opinion.

One weigh the other, what I would say is this, How many banks are willing to be like venture-backed that I don’t even know if that’s your bike.


That is a good idea, frankly, but the point is that if these companies are going to get funding from the likes of Jake and Morgan, I just don’t know the answer to that.

And this is the, there’s a bit of an irony here in the sense that Silicon Valley is at a period of time where they might have the next big thing.


She be key for came out today, Chad’s like whatever’s going on in AI.

We might be at an inflection point where the culmination of everything that we’ve been working towards with with, with computer graphics and all that sort of stuff.

We were at Nirvana with catchy beat a at exactly the time where funding might try up, who is writing checks right now.


Like if SCP and and I don’t know if the companies like going to disappear forever and they By the buyer absent absent.

Somebody to find those companies, what would venture investors are writing checks?

Well, I think the answer would be, it’s Microsoft.

I mean, just very directly.

If the question is, where is open a?


I going to get ten billion dollars in order to fund the compute necessary to run to all of this chat GPT searches.

Its Microsoft.

It’s a trillion dollar company and that goes the idea.

I think Ben Thompson is all over this point.

They might be entering an age where the top four top 5 tech companies today.


Or and Banks don’t have the same turnover rate that we might have been used to in the first decade and a half of the America of the 21st century in the American economy.

It might just be alphabet and Microsoft and Amazon and whatever may be meta, those still might be the largest tech companies in America, you know, 10, 15, 20 years from now because that good.


I mean I think I think again I think these pluses and minuses there on the one hand I think that lack of competition is bad lack of sort of start up I think is probably bad for coming up with new ideas, open a, I was not started inside of meta inside of Microsoft inside of Google, those are huge bureaucratic structures that might not have.


Had the nimbleness of Sam Altman is team.

So I think that there’s something really wonderful about startup about sort of culture at the same time.

I’m also very interested in the sort of mid 20th century Legacy of large American companies, having and funding massive R&D departments, like Bell labs.


Is that allowed them to take big bets?

I don’t think the 21st century record has been as Sterling.

But it’s not as if I think large companies can’t take, can’t do risky things.

I think they’re worse at operationalizing.

The risky Discovery is that they happen to come up with.


I want to move to the last issue here which is the direction of fed policy.

I saw a lot of people been in the hours after you saw First Republic Bank.

Just get the shit kicked out of it and stock market towns. 25% say, there’s no way the FED is raising rates.


We might actually even see a rate cut when the fomc meets again, and then stocks went right back up the inflation report that just came out was relatively hot, especially in core Services.

How does this all shake out?

Do you think the near Bank crisis that we’ve all just passed through is going to have any effect on the future of monetary policy?


I would love to know what the narrative is going to look like in two to three months because I think it has the potential because I think you’ve shaken the trust in the financial system and to me that has to be deflationary.

Now it could be.

We look back at this, in a few months and say, oh, that was pretty crazy.

The FED step in there was this bank that failed and everything was fine, but I do think that there is the risk of we’ve had multiple people in our life and wealth management and just regular people who follow Finance just say is my money safe in.


This is the kind of thing that people go along with her whole Lives and they don’t ever think that they have to worry about this kind of thing and it didn’t just getting people to stop and think that I don’t know if people are going to all of a sudden move on from that in a couple weeks time and just move on to the next thing, maybe they will.

And so I think we’re in the sort of Eye of the storm right now.


We don’t know if that storm was just going to go away magically or if it’s still here and there’s other dominoes to fall.

So I think any time with one of these were the faith and trust is sort of shaken.

You don’t know what’s happening next.

I think it unfortunately it could be that This is like a deflationary force and it’s going to work in the feds favor for inflation.


But does that mean we get a recession and a potential financial crisis?

That’s the hard thing that you would have told us that a week ago, we just said you’re nuts.

The inflation is high, still, and economy strong.

So, I think this adding this other element to it is going to make their job even harder.


Because the idea for some people is listen, the FED cannot stop raising rates because inflation is really becoming a problem and it’s becoming entrenched in other people.

Say, look, you just had a run on the bank.

You End the Fed kind of helped create that by raising rates.

So too far too fast.

And so I think it’s the meme with a guy who’s sweating and he’s got two buttons, it’s really tough for the federal How to Think Through what to do.


So I think it’s going to be very difficult for them to see what’s going to happen because they don’t know if another shoe is going to drop, you’re not Michael prediction time.

What are we going to see with the next fed meeting?

This is the first fed meeting and I think the last year where there was not unanimous consent, I mean there was no there’s no surprises.


Any of the primaries.

I don’t know what to expect right now.

I wrote over the weekend, that this might be a reverse Minsky moment in which the instability at Silicon, Valley Bank leads to stability in the sense that the FED is say, okay, we’ve gone.

We’ve got maybe too far and maybe we’re going to take a pause and so in a Twist of irony maybe the Panic that ensued will lead investors to take it an exhale.



The FED has done and that we see some sort of probably just a quarter, who knows, who knows?

Who knows.

But I do not think that the market was implying a 50 base.

As Point rate, hike in March and just a week and a half ago, I think that’s off the table.

I think it’s more likely.

We’re going to see a 25 basis.


Point rate hike or Apostle, Paul’s altogether, I’m just playing sad in my own head. 25 basis point rate hike, I don’t see inflation coming down quickly in the next few months, but I do think that housing and rent inflation or probably going to continue to come down.


Both of those are lagging indicators.

When you look at the new rents and the new home purchases, it seems like the direction it went exactly as Mike’s doing he said, show me your face showing his face between his two hands.

He had, there’s a huge gap which suggests that there’s still room for core services to come down.


Yeah, I think it’s possible possible and I’m not going away as I say this because whenever I make a prediction like this and never comes true, it’s possible that we simply avoided a catastrophe and that actually there aren’t going to be.

This is not the Bolder, the drops in the water.

This is not the meteorite, the crashes into the Pacific Ocean and we’re dealing with the ripples for 10 years.


It’s possible that six months from now.

We’re going to think back to this crazy weekend and actually Marvel at the fact that the government reacted quickly enough that we stopped talking about it very quickly.

That’s such a good point.

Do we just got lucky?

I’m not sure that it’s possible that you could see a incremental shift of deposits from Regional Banks to j.p.



I’m banked with Bank of America so I don’t have a particular decision to make here but you know, if I was in a Regional Bank I might really think about moving my money to a Bank of America or JP Morgan maybe we could see that.

But again, if we don’t have stock market gyrations, From now, if we don’t have more bank failures, if we don’t have anything in the news cycle, that is telling people that there is a crisis, there’s a fire in the banking system, what’s left to motivate decisions, there’s just going to be the next big thing.


There’s just going to be some other crisis, some entertainment news, some Netflix, things some culture War, you know, mishegoss and people will move right on.

So I’m not making a strong prediction here, but I’m holding out a part of my sort of prediction.

Polio for the possibility that six months from now.


We people actually aren’t talking about this because the federal government reacted so quickly can I just say one more thing been dark last time that we were on.

Ubm been all sort of, like nervously said, no recession this year.

Again, he said to Ben.


If there is not a backstop, if they do, not prevent all of the money, moving from, Regional Banks to j.p.

Morgan, there will be a recession because there will be a sea You’re tightening of credit.

I think.

I think we know a lot about human nature.

The opposite of a bank.


One is inertia.

And I think now that the government stepped in, I think inertia cooler heads will prevail.

And I think to the point that you just raised, which is such an interesting one, we might be lucky.

That s VB went under because that gave the FED tangible evidence that they’re breaking shit and it’s much better for.


I don’t mean this in a crass way, it’s much better for to be SBB than JPMorgan and so maybe we dodged a bullet in that sense, my only problem, Addiction is a body.

Like the FED is only going to be more used more, as a political weapon going forward, because I think people have seen the power that they have.


And if one party is in power or the other party looking to get power and they say, wait a minute, the FED can kind of orchestrate, a financial crisis to help us or hurt us.

I think in the future, the FED is going to be, its tried to be this body that says no we’re not political at all.

Keep us out of this in going forward.


I think it’s just going to be much more of a political body and it’s going to be used.

To help or hurt certain political Ambitions.

And that’s not necessarily a good thing.

Yeah, I guess the final word here is thank God.

The real chair.

The FED Reserve is the caps lock button.


On Jason calacanis has laptop.

I mean, that really is that really is the perfect here that holds all of the strings then.

Carlson Michael bat, Nick.

Thank you guys so much.

Thank you, thank you.

Thank you for listening.


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