EMERGENCY PODCAST: Silicon Valley Bank Collapse | PBD Podcast | Ep. 246
PBD Podcast Episode 246. In this episode, Patrick Bet-David is joined by Barry Habib, Adam Sosnick and Tom Ellsworth. Skip the waitlist and invest in blue-chip art for the very first time by signing up for Masterworks: https://www.masterworks.art/pbdpodcast
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0:00 - Start
3:33 - Reaction To Silicon Valley Bank Collapse
39:52 - Did Trump Removing Regulation From Dodd-Frank Cause SVB Fail?
55:02 - Did The Government LIE About The Unemployment Rate?
1:09:27 - Mortgage Debate With Barry Habib
1:20:02 - Should The FDIC Cover Your Bank Account in FULL?
1:24:18 - Reaction to 12x INCREASE in Certificate's of Deposit (CD's)
1:30:51 - Who Will Be The Next Silicon Valley Bank?
1:39:20 - How The Silicon Valley Bank Collapse Can Help Ron DeSantis In The 2024 Election
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Patrick Bet-David is the founder and CEO of Valuetainment Media. He is the author of the #1 Wall Street Journal bestseller Your Next Five Moves (Simon & Schuster) and a father of 2 boys and 2 girls. He currently resides in Ft. Lauderdale, Florida.
This world of entrepreneurs, we get no value to hate it.
I run, homie, look what I become.
I'm the one.
Okay, so we had to do this because of all the mess that's been going on.
And you've been asking about it.
Pat, we got to do a podcast.
We got to do a podcast.
And as crazy of a schedule as we're having, we decided to have it.
And we got Barry Habib in the house.
He's got a lot of numbers, 47 slides.
We're not going to go through all of them, but we will go through some of the data.
All 47 slides.
He's got something.
I cut them down.
I cut him down right before I came.
He's got some jobs data that no one's talking about, some numbers on rates.
I know today I saw the report.
I'm sure we all saw the lowest in 26 days.
We'll talk about that.
Tom, you got a bunch of stuff going on with Silicon Valley Bank.
Everybody does.
Adam, all of us here with the news.
I just did a, what do you call it, a Twitter spaces earlier with Mario on Twitter.
Everybody was on.
Everyone's commenting on what's going on with Silicon Valley Bank.
It's been a scare.
And today's market, I put a question, I put a poll in the morning.
Will today end up the market being up or down?
71% of the people that voted say the market's going to be down.
Only 29% said the market's going to be up.
You want me to update you on what's going on in the market?
What is going on in the market?
Rob, if you can pull it up to see how the market is doing, because the reality of it is everything's in green today.
Very weird.
Except for the banking.
No, no, except for banking.
Banking is not individual banking.
Everything else is in the green today with the stock market.
So having said that, having said that, I say we just get right into it with the main topic that everybody is talking about, which is Silicon Valley Bank.
16th largest bank in America to go fail.
The last time this happened was, I believe, WAMU.
And I remember WAMU was a roughly $330 billion company that Chase ended up buying for $1.9 billion.
If you want to zoom this in so we can take a look at this, zoom it in so people can see exactly the chart.
Rob, if you're doing it, that way we can't see it.
By the way, when did we have the former CEO of WAMO?
Yeah, we had him on.
We had him on a few months ago.
that was a few and that was what talk about timing and that's you've You've gone on and on about what happened with WAMO and how disappointing.
You remember what happened afterwards in the interview, how upset his wife was and how upset him.
I'm like, listen.
His wife was not happy.
This is what you did.
You were the CEO.
This is why we're asking you.
Right there is WAMU.
If you look at the chart on the left.
And the one on the right, if you can zoom in again, Rob, what you just did is fine.
No, no, do what you did.
Just go to the green.
Yeah, if you can.
Okay.
Oh, Rob, we are way off today, buddy.
You're normally good, but today we're... Rob Slackin'.
Okay, it's all good.
Let me get right into it.
So the 16th largest bank in America goes bankrupt.
The last time this happened, fails.
The last time this happens was WAMU, $330 billion company.
Chase ends up buying for $1.9 billion.
Here's an article from, you have the charts you're showing.
Okay, so Silicon Valley Bank collapses and second biggest U.S. bank failure ever.
This is an independent story.
California-based Silicon Valley Bank was seized by regulators on Friday, making it the second biggest bank failure in U.S. history since 2008 collapse of WAMU, which had $307 billion in asset when it was shuttered.
On 25th of September, 2008, 10 days after Lehman Brothers failed, Silicon Valley Bank failed after depositors, mostly technology workers and venture capital back companies, started withdrawing their money, creating a run on the bank.
The bank had approximately $209 billion in total assets and about $175 billion in total deposits as of 31st December of 2022.
This is Silicon Valley Bank.
And it was unclear how many of its deposits were above $250,000 insured limit guarantee by FDIC.
How many percent?
93%.
Right.
However, there is a little chance of contagion in the banking sector at major banks of sufficient capital to avoid a similar situation.
So this has scared a lot of people.
I'll go to you first, Barry.
Based on what we know, what was your reaction?
Were your surprise?
And then we'll get into how we feel about the way they're handling it, whether it's yelling Biden because he gave a speech today.
So, okay, there's a lot to unpack here, so I'll just try and be quick here.
So this bank had problems because in 2008, under the Dodd-Frank, they were allowed to invest in assets.
Now, it wasn't a bad decision necessarily to invest in these assets, but what happened was that they were yielding on $82 billion worth of investments around 2%.
Now, it's okay because if you're paying your depositors very little, you can make some spread there.
But as you know, when somebody deposits money in your bank, you don't have all those assets on hand.
You keep roughly 10%, the rest you lend out to try and make the arbitrage, to try and make the spread.
That's how banks make money.
The problem is, is that a lot of these investments were now underwater.
You see, when you invest in a lot of the bonds that they invested in, they invested in mortgage-backed securities.
So a 3% mortgage equals a 2% coupon because everybody takes a piece.
So those 2% coupons, I'm getting 2%.
That's okay if I'm paying a half of 1%.
I'm making money on it, okay?
However, what starts to happen is as the Fed has maniacally raised rates without thinking about the consequences, they're not very good at unintended consequences.
They now gave people alternatives to move their money.
So now you can move your money to a short-term six-month treasury and get 5%.
So people start withdrawing money.
Tech companies were doing a little bit more poorly, as we know.
They start having less capital.
There's less money going in.
So what happens is that the bank now has to make up this money.
Where do they get it from?
They have to now sell assets.
Here's the real craziness of it.
They had on their books $12 billion positive, but it really wasn't.
Because once you started looking deep, what they had was invested in these bonds that were now underwater.
Under Dodd-Frank, these are considered now to be no-risk assets.
So you do not have to report under Dodd-Frank unrealized losses.
They had $15 billion in unrealized losses.
This was not a solvent bank.
They were $3 billion unsolvent as at the end of last year, which is why the CEO was selling stock, which is why you had insiders getting paid bonuses up front and early.
Now, they start to get exposed because Jim Kramer, an amazing five weeks ago, touts this as the stock you got to buy.
Okay, it is Jim Kramer was out there looking at his thing again.
I swear to you, February 8th.
We got the video.
Is this the same Jim Kramer that compared Sam Bankman-Fried to Rockefeller or to Andrew Carnegie?
There's actually an ETF, which is contrary to Jim Kramer.
But anyway, on point here.
I'm sending it to you, just so you know.
So Jim Kramer on February 8th talks about how this stock's undervalued, how it has room to run, is his quote.
It was at $320.
Here's, watch this.
Just watch this.
Put the audio so we can hear it.
It's the Jim Kramer Dead Cat Bank.
Watch this.
Your to date is SVB Financial, don't you?
This company's a merchant bank with a deposit base that Wall Street had been mistakenly concerned about.
SUB and Silk Value Bank recently bought one of our favorite research firms, Boffitt Nathanson.
It's become less dependent upon private equity and venture capitalist offerings.
Wait a second.
Those dried up last year, they could come back.
Yes, some of them come back here with a stock directly affects their oversold position.
Stock was the fourth worst performer in 2022.
I think the fears were not justified.
It's a very compelling situation.
Hey, by the way, long-term private equity and venture capital, they're not going away.
Being a banker to these immense pools of capital has always been a very good business.
Stock's still cheap.
Now, you have to remember that a stock that's going to be a lot of money.
That's just a few weeks ago.
It's 16%, like yesterday.
February 8th.
It takes a lot more to recover.
After losing two-thirds of your value, you need a 200% gain to get back to even.
This is arithmetic.
Some people call it geometry.
So you could argue SVB's nearly 40% rally this year is barely a drop in the bucket.
And that's how I want you to figure it out.
That's crazy.
I think it's also a good example of why these bounce back moves might be far from over.
These stocks should have more room to run, especially if you think they were driven down to artificially low levels.
That's crazy.
Yes, it's crazy positive.
You should find the chart on this.
This is a classic.
This is SVB.
It's a classic dead cat bounce.
But he's right.
But here's why this is significant.
Because this draws attention to SVB.
Now, whether you want to think of it as investment or not, now people start digging in.
And as people dig in, what do they see?
They see this 15 billion in unrealized losses that they didn't have to report.
But now that you dig in, and what do they start telling their clients?
They start telling your clients, hey, you know what?
This bank is vulnerable.
I'd probably take my money out of there.
And as deposits start now cascading out of there, this is where they have to raise money.
They go to raise $21 billion, and they do because they have to.
But how do they do it?
They sell some of their assets.
Now, when you sell those $21 billion, they cherry-picked them.
Only $2 billion in losses.
But now you have to realize those losses, right?
So when people look under the hood, they say there's another $13 billion in unrealized losses.
People start pulling out money in droves.
They can't borrow money.
The shorts are attacking the stock.
They can't issue stock.
And this is how it happens so quickly.
So let me just give some of the stats.
If you can have this here.
16th largest bank, 97% of the money at Silicon Valley Bank is not protected by FDIC.
I've seen 93%.
I've seen 97%.
Whoever's right, one of the two.
Either way, it's a lot of money.
12 days ago, like 13 days ago, the CEO, Gregory Becker, sold 11% of his shares.
Daniel Beck, the CFO, sold 32% of his holdings.
CMO Michelle Draper sold 28% of her holdings, around $5.1 million.
If you post a picture of Forbes just seven days ago.
This one right here.
By the way, they took the tweet down, just so you know, that's the one I posted, but they took it down.
Just go to the picture I sent you.
It's another one of those pictures I send you, Rob, that should be on your phone.
Go one more, go one more.
Right there.
Look at this.
This is their tweet.
This is six days ago.
Proud to be on Forbes' annual ranking of America's best banks for the fifth straight year and to also have been named the publication inaugural financial all-stars list.
They tweeted this.
I retweeted this.
They took it down because they obviously, you know, I'm sure a lot of people were retweeting this.
This was all over the place.
They don't want people to see just five days ago, you're bragging about this.
So this becomes the question.
There's a terminology called front running, right?
You know what front running is.
If you can pull up the definition of front running, front running, let's just read the exact definition.
The practice by market makers of dealing on advanced information provided by their brokers and investment analysis before their clients have been given the information.
Okay, this is, if an investor does this, what's worse is when you're in it, you're the guy that knows what's about to happen and you do it.
Isn't this a crime, Tom, to do something like this?
I'm on that page.
I'd like to see an investigation.
I'll tell you why.
I am right here with Barry Butler.
Great to see you today.
Good to see you, brother.
Is on March 1st, Becker was at an event in Los Angeles, and he said, we pride ourselves on being the best financial partner in the most challenging times.
He said that, but he said that and then was heading to London where he was going to go get a bank of the year honor at this London deal on the second.
It gets better.
He had already been told that there was a call coming from Moody's.
Moody's had looked at a footnote that was in there.
Because remember, they don't have to disclose everything in standard page that they had the $15 billion.
Moody saw that and came back and said, hey, we have a question.
Are you, if you were to look at this as a mark to market rather than a mark to maturity, where are you at here?
Because our assessment is we're going to lower you two ratings levels, Pat, two.
And he said, what do we have to do?
You have to clean this up.
And part of the plan to clean it up, exactly as Barry just said, sell $20 billion of it, but technically that's depositor money.
That was depositor money you put in the bonds.
Now you have to sell the bonds.
You're short.
And then you have to cover the hole, it's called.
Well, how do you cover the hole?
Tell you what, we'll call some of our favorite venture capitalists and we'll issue some stock, even though they were already down from 725 to 325, down 400 points in the preceding 12 months.
And they're going to dilute that kind of a down.
And so they went out to dilute it.
But now we all know what happened.
The bank run started.
General Atlantic, I think, was the VC that backed out on the half a billion dollars.
They were getting advice from Goldman Sachs, which was really bad advice the whole way down.
And in fact, the management had changed.
They became very, very smug.
It used to be a great bank, but then they were like, they thought they were too good for themselves.
They didn't try to endear themselves to any potential investors or venture capitalists.
They were like, they were not friendly to the environment.
So nobody wanted to invest with them.
But to Pat's point about front running, you freaking know that you have footnoted your earnings report, Pat.
He knew he footnoted it.
And he knew that Moody's was in the lobby saying, we got to talk and we may take you down two ratings levels.
And yet he did this.
I'm with Pat.
I think there should be a deeper investigation on this.
This term front running, I've never heard this term, but we've all heard the term insider trading.
And I googled frontrunning versus insider trading.
And it's actually the same thing.
It says front running is similar to insider trading with the minor difference in this case that the broker works for the client's brokerage rather than the inside, the client's business.
So it's a form of insider trading is what frontrunner is.
But this is even worse, though.
Like what Nancy Pelosi and her husband get accused of is insider trading.
What a lot of these Congress people, how are you worth $140 million on a $160,000 salary?
Okay, that could be insider trading.
Dude, you're on the inside.
You know exactly what's going on.
The level of audacity to go up there and collect it and then come back and say, hey, we got the bank of the year.
Hey, guys, sell off because this is $13 billion.
Let's do it quickly.
Look what's going to happen.
And then now it's leading into where we are today.
And by the way, when you look at their backgrounds of what they did, just kind of want to give you a background of what they did.
The CEO was a director at San Francisco Fed.
The CFO was a former analyst at Freddie Mac.
The chief administrative officer, which you guys were kind of putting up, he was a former CFO of Lehman Brothers.
The chief risk officer led credit ratings in 2007.
The chief legal officer was general counsel at Citibank in 2008.
So to say they have a star-studded lineup of people with experience to make sure a company doesn't make the mistake that Lehman Brothers made or others made, they have it.
And they still did this.
Before we go into the question that I want you to give your feedback on, you know, I want to talk about whether $250,000 is enough, whether we need to increase that.
I want to talk about a few things on the inside that I got an email from Goldman this morning.
I'm going to share with you guys.
I want to talk about Dodd-Frank, a video from Trump that's circulating about what he said in 2018.
And a lot of people are blaming Trump for this, Midas Touch, and a lot of these guys, which we'll talk about that.
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So going back at it, so Barry, you see the list of all these names of people qualified, their background.
Director of San Francisco Fed, former analyst at Freddie Mac, former CFO of Lehman Brothers, led credit ratings in 2007, which is the chief risk officer, or former general counsel at Citibank in 2008.
What are you thinking about them knowing if you had all this experience, couldn't you have prevented this from happening?
Yeah, here's a couple of things.
So number one, they did not have a chief risk officer from April 29th until January 4th.
Tom, am I right on that?
That's exactly right.
Eight consecutive months.
Eight consecutive months.
So they did not have a chief.
Why did you not replace your chief risk officer?
They did not.
And by the way, Laura Isarietta stepped down from her role as CRO in April of 22.
Yeah.
So now you don't have a chief risk officer.
You pull that up.
But wait a second.
What's happening at the same time?
At the same time, your risk has increased dramatically because the Fed has now gone on a rampage raising rates until something breaks.
And here something is breaking.
So during that time, if you take a look from the four and a half months from June 15th, the Fed raised rates 300 basis points.
In a seven and a half month period, they raised it 375 basis points.
And in the last year, they've raised 450 basis points.
You need a chief risk officer to what this is a mismatch in duration.
Short-term rates are going up, and my long-term investments are going down in value.
I need a chief risk officer to deleverage that, not after they've gone up 450 basis points on the short end, but after maybe the first 75 basis points and after long-term rates start coming up.
Start levering these things.
Start putting hedges in place.
This is what you're supposed to be doing to protect the assets of the bank.
Yeah, that's wild you're showing this here.
Laura stepped down from her role as a CRO of SVP Bank, April 2022.
What paper is this?
What magazine is this?
Forbes and formerly department company in October, according to an SVP proxy, filing the bank appointed a permanent.
By the way, here's what's weird.
If you run a broker dealer, you can't run a broker dealer without an OSJ, Office of Supervisory.
You can't have it without a branch office manager or BOSS, depending on the size of it.
How the hell is a company this size able to even operate?
Tom, that's very confusing to me how somebody can operate without a CRO.
It is.
We came from insurance for people that are listening, and we had Patrick had put, even though we were a FMO, very large nationwide FMO, Pat included in the management team a chief compliance officer, which he wasn't required to do, but all the carriers had that because we always wanted to be one step better and look one step cleaner.
And in this case, by the way, supposedly, Pat, she didn't leave in October.
That's just her last day of pay.
She left in April, and then there was like this period of time where she got her salary and benefits, but she wasn't in the building.
So what is the, I wonder what the level of responsibility is to disclose this to investors and account holders to know we don't have a CRO in payroll right now.
Is there any disclosure that you have to disclose and let them know?
Do they have that kind of a responsibility?
Or you don't know the answer to that.
I'm not going to get the regulations.
And if it was these folks, probably footnote number 82, along with the 15 billion.
So you know what this takes me, if you were going to say something because I got a bunch of other questions.
There's so many moving parts here.
And every day we're learning more information, but from your guys' optics, is this fraud?
Is this idiocy?
Is this a lack of leadership?
Clearly, these guys are all smart guys.
They've been around the banking industry forever.
What does this boil down to?
You know, it's very hard to say.
And without the benefit of knowing what happened behind closed doors, you can only assume things, right?
But it sure doesn't seem like this was run correctly.
You know, you had to see these Fed rate hikes coming.
You see the mismatch in duration.
Somebody needed to step up and say, we have to make some adjustments or changes.
While there might be short-term pain, we can't let this get out of control.
Gotcha.
And let me ask you one more question because you kind of threw it in there initially, and my antennas went up because you used the word that we all learned in 2008, MBS, mortgage-backed securities.
You said that earlier, and I was like, holy shit.
We're going there again.
No, no, what's that?
These are performing loans.
There was no problem with delinquencies.
This is just an interest rate move.
So if somebody's back, think about how many 3% mortgages there were, right?
So the coupons that they fall into is a 2% coupon.
In other words, a borrower pays 3%, but by the time the originator, servicer, securitizer, everybody, Fannie and Freddie makes a piece, there's 2% left in the coupon for an investor like us, right?
Or if you're a bank and you put a lot of your assets in, they're getting a return of 2%.
I think their average return was like 1.86.
Let's call it 2% is what they're getting.
So if they're getting 2% on that, think about this.
You're receiving 2% on a long-dated maturity.
That's the rate you're getting.
But as the open market gets to 3% and 4% and 5% on the coupon, where it is now, is it $5% on the coupon?
Who's going to buy your 2% coupon?
They will if you discount it enough to make things balance out.
So at a discount, they'll buy it.
But meanwhile, that's the $15 billion that they had in losses.
So it wasn't always $15 billion.
As rates were going up, maybe it was $1 billion.
Maybe it was $2 billion.
That's the time where you could put hedges, you could put puts, you can unlever some of that.
That's what the chief risk officer should have been doing.
And they've been living for so long under ZERP, right?
Zero interest rate policy.
And to buy for a bank, for a bank, think about it.
On the balance sheet, they were holding it as marked to maturity.
No bank can buy a bond and mark it to maturity because when they're using deposits, it's part of the deposits.
By definition, the deposits in a real tough economic situation have to be liquid enough to be retrieved.
So how do you buy a bond marked to maturity when you and let's say Barry and I have a bunch of real estate and we buy a bond marked to maturity and you say, you guys are idiots.
You got it at 2%.
We're saying, we're just holding it to the end.
We don't have to sell it.
So we're only going to make 2%, but that's okay.
It's just going to pay out, right?
And then we're going to get the principal back.
But if that was a situation where we needed it to be liquid, then we get screwed.
And what was the screw?
The screw was 20 billion sold, 1.8 billion loss.
That was what they had to pay off to the buyer to get them to take it off their head.
But the held to maturity was allowed legally to be done by the Dodd-Frank regulation, which says it does not come off of tier one capital.
So these are deemed to be held to mature.
In other words, okay, the market fluctuation we just talked about, guys, if theoretically you held it until it got paid off or until it matured, you get 100%.
You get par value back.
So there's no theoretical loss.
But if you wanted to market, like you said, to the actual market value, there's a significant amount of loss in where it is.
So what the Fed did by setting up this facility is they said, okay, we will lend against what you have.
So what happens is they say, we'll take it based upon the par rate.
We will not give you a haircut.
But now you got to pay us.
You got to pay us, you know, four and three quarters, 5%.
Today's rate.
Today's rate.
You're getting 2% back, but it's going to eat into your profit margin.
The other thing, Patrick, you said before, which is very interesting.
And obviously, this is where we're going is now at the present time, all deposits are insured, not just the 250.
Think about a small regional bank that today has to pay, and they maybe can't afford it that much, to pay that FDIC insurance on all their deposits.
What that may do is that, guys, that may force a lot of concentration.
These small banks help startup companies.
They help you.
They're your local bank, right?
That's where you have the relationship.
I mean, it could be where we see it like a utility where they're all just concentrated and run by the government.
So here becomes a question, which is kind of Adam, I think, what you were asking.
Responsibility goes on who, if you think about this.
The conversation we're having on the spaces was: okay, whose fault is this?
You know, because right now they're calling it a, they're not calling it a bailout.
They're calling the what?
It's just a backstop.
And by the way, bondholders are probably screwed.
Shareholders are probably screwed.
We're protecting the people that deposited.
But it's not a bailout.
You know, he's not a snitch.
You know, it's not a bailout.
So it's a bailout.
It's a bailout.
You can look what Yellen says here on page three.
Yellen says no bailout for Silicon Valley Bank.
We're not going to do that again.
Treasury Secretary Yellen stated that the federal government will not provide a bailout to Silicon Valley Bank, but we'll work to meet the needs of depositors who stand to lose millions after the bank collapsed last week.
Yellen signaled that government bailouts like those from 2008 financial crisis would not be considered, but the regulators would weigh a wide range of available options for protecting depositors who had more than FDIC amount of $250,000 in their accounts.
Yellen tried to reassure Americans that Silicon Valley Bank collapse would not create a domino effect for other banks and that the core problem Silicon Valley was rising interest rates rather than problems with the tech sector.
Okay, so in a way, when you read this, they're saying it's not a bailout.
Where does this money come from?
Is this money, you know, money that's coming that taxpayers are not going to be paying?
What are they going to do?
Just print it?
Who pays the price for that?
So here's the, you know, when you crash your car, Pat, and you have to tell your dad about it, and you're very careful about how you word what was going on when you wrecked?
That's what's going on here.
She's saying it's not a bailout, meaning we are not printing money and we are not taking money out of treasury to pay for this.
Therefore, it's not a bailout.
That's what she's clinging to.
And I think they're full of crap.
Here's what they're taking this out of what's called there's a $100 billion exchange stabilization fund.
That's to stabilize on emergency basis the markets.
Wait a minute, wait a minute.
Where did that $100 billion come from once upon a time?
It came from Treasury once upon a time.
It came from taxes once upon a time.
So she's saying we're not going to make new printed money and new instant appropriations on the congressional budget.
That's what she's saying.
So this $100 million exchange stabilization fund, she's taking $25 billion out of it and putting it there along with this brand new other device, the BTFP Bank Term Financing Program, where they can now pay the difference between FDIC and the deposit in the event of a bank failure.
So guess what?
Now a bank can be irresponsible and say, well, we're not going to get sued by the depositors because the federal government's going to back them up out of this thing.
And it'll just be our shareholders and bondholders that get screwed.
I agree with Tom 100%.
I just want to point out a couple of things on Yellen.
So Friday, she said the banking sector is resilient.
That's almost like a Baghdad Bob comment, kind of like, you know, there's nothing going on here, right?
Nothing to see here, guys.
Because we make sure it's resilient.
Right.
And inflation's just transitory.
It's transitory.
Nothing to see here, guys.
So then what happens is on Sunday morning, she says there's no shot of a bailout.
I guess somebody must have pulled her over on the side and said, hold on, Jen, this is much bigger than you ever imagined because now people can't make payroll.
That's what people were freaking out.
How am I going to make payroll if the money's no good, right?
So because you could have two, three million in payroll.
It's not uncommon for a lot of these companies.
So now, when we talk about bailout, what they are doing truly is a bailout.
And here's why.
If I have something that's worth $100 and I'm getting paid by the government $130 way above market, and they say, yeah, it's okay for me to pay you $130 because 10 years from now, you'll get the $130 back.
They're theoretically not taking a loss, but they're holding it to maturity and they get it back.
That's why they're claiming it's not a bailout, but they're paying above market for it.
So therefore, there's no other way to look at it other than it is a bailout.
They're paying above market for something should be worth.
Let me ask you guys with this whole reassurance and calming.
Don't you think it's sort of important to define and explain what a bank run is?
Because that's essentially what this comes down to.
You start to hear these terms.
It's a bank run.
They're trying to avoid a bank run.
And that's just what?
Let's read that right there.
I think if bank runs happen.
Let him read it.
Go ahead.
Bank runs happen when customers panic and everyone tries to get their money out all at once.
The author explains that what happened at Silicon Valley Bank leading to the second biggest bank failure in U.S. history is essentially what happened.
Did you see the lines of people outside getting their money like literally live?
First thing to publicize?
First of all, yes, I have.
Well, isn't it true that 90% plus of Silicon Valley Bank's assets were above the 250,000 FDIC insurance?
Meaning it was all major money from tech startups, millions and millions of dollars in there.
So isn't it sort of on the bank to diversify who it's getting its money from?
I mean, I don't know that.
It's not on the bank.
No, no, it's not on the bank.
No, this is not.
Okay, so who, so if you look at this here, this is how I process this.
Rob, if you want to stop because you're distracting everybody.
It's just, yeah, we're fine.
We don't need to see the video.
So if you think about this, here's what I want you to think about.
So in a situation like this, Bill Ackman comes out and says, what?
It's not fair.
This is not good.
You should figure out a way to take care of the depositors and all this other stuff.
And then David Sachs goes and agrees with them.
And Vivek Ramazwani, who was running for office, comes out and says, no, this is a bailout.
What are we doing?
And then, you know, David calls him out as a fox.
You know, it's a very interesting back and forth between Sachs, Ackman, Vivek Ramaswani, and a lot of other people, right?
Okay.
All heavyweights.
Oh, no, no.
It's fine.
It's all heavyweights.
But now here becomes the thing to be thinking about.
So when Benghazi happened, do you remember when Benghazi happened?
How many people were killed during Benghazi?
How many lives were there?
Four people, right?
And if you're an average person, if you were a Democrat, you said what?
Say, well, Barack Obama and Hillary Clinton did their best.
I mean, what else do you expect them to do?
They didn't do anything wrong.
They tried so hard.
They had sleepless nights trying to take care of this.
If you were Republican, what did you say?
Hillary Clinton, this is why she's this.
She was sleeping and she didn't even want her to get up and see what's going on.
And that picture they posted with Hillary Clinton, Barack Obama, and all this stuff, that's just a picture for media they posted, right?
Okay, great.
And then the average person three, six, 12 months late after the after what do you call it, the election debates were done, guess what?
They're going to the next news cycle.
Hey, what's the next thing?
Okay.
And people forgot about Benghazi.
Guess who's never forgot about Benghazi till today?
The four families.
The four families that lost somebody.
Fathers, brothers, mothers, sisters, husbands, you know, wives and all this stuff that in this case, you're never going to forget those.
So think about those four families.
If you're related and one of those individuals was your son or your brother or your father, what do you think you're going to do the rest of your life?
There may be vengeance in you.
You may have a feeling of what?
Revenge.
You're never going to be the same.
If your kid is going to say, I'm going to go to the military, your reaction is going to be more dramatic than an average person because you're experiencing that pain.
Your hate towards a Hillary Clinton or a Barack Obama is going to be what?
Higher than anybody else because it's your fault.
It happened under your watch.
Can you blame those four families?
No, we can't blame those four families.
However, let's bring it to the situation today.
So Silicon Valley Bank, they go through what they're going through.
Fine.
Who do you think cares about that bailout the most?
People that have money with Silicon Valley Bank.
Who else do you think cares the most?
Those who have their employees that they're paying the salaries through Silicon Valley Bank.
Who else?
People who work for Silicon Valley Bank.
They should care the most.
Okay.
All right.
Secondly, if you go to the people who criticize capitalism the most, which capitalists do they criticize?
Those socialists or Democrats or low and middle income families that say capital is all they care about is what?
Money and all this other stuff.
Who do they criticize?
This is exactly what they criticize.
Because when you think about the foundation of capitalism, there's four things.
The foundation of capitalism comes down to four things.
It's freedom to buy.
It's freedom to try.
It's freedom to sell.
You know what the last one is?
It's the freedom to fail.
A lot of people at this level want the first three freedoms, but they don't want the fourth freedom.
What's the fourth freedom?
Dude, you failed is what you did.
So what do you want to do?
Well, we got to get our money and all this other stuff.
Okay, fine.
Now, some people will say, well, you can't say that.
If it was your money, you would also be saying the same thing to get the money.
I'm not disputing that.
You're right.
If I had money in there, I would be very concerned because that's my family's money.
And rightfully so, just like you, if you're 72 years old, you're probably less thinking about what it is to be a barrier of entry or regulation holding people back from competing with these super centers at Walmart or Target or a financial cult.
You're probably more thinking about what?
Medicare, MedSUP, retirement, you know, Social Security.
And you should, because that's what's affecting you directly, right?
So I'm not judging the people that have money in Silicon Valley Bank, but it is a right criticism to say you want to be protected, but you go take all the risks.
So what does this teach?
So imagine in life how you create resentment for kids.
I got four kids.
If I discipline my oldest son more than in a different way than I discipline my youngest son, I officially create resentment between them two and from my oldest to me.
If I discipline Tico for he does something and I take iPad away from him for two months, but the same thing Dylan does and I let him play iPad for two months, Tico's going to say, I knew he was your favorite.
I knew he was your favorite.
And today, the low and middle income families, guess what they're saying?
I knew they were your favorites, Fed.
I knew they were your favorites.
You bailed them out again.
You gave them money again.
They're right.
You sit there and try to say the opportunity.
But this does affect them, though, Patrick, because the payroll and then the contagion to other banks.
You know, I think the banking system, the shareholders who invest in the banks, they're not being taken care of.
They're going to probably lose everything.
The people who loan money or the bond holders, they're probably going to get a fraction of what they invested in.
Maybe I don't know.
I don't know what it's going to be, right?
Anybody's guess is good to mind.
Bonds are first position.
They'll probably get scraps.
But then the depositors, that's the everyday person.
It's their money.
And if it wasn't them.
Silicon Valley Bank is not an everyday person's bank, though.
This is not a community bank.
This is a regional bank.
There's only 27 regional banks in America.
They're one of 27.
But if you worked for them and you couldn't get paid because your payroll was in there.
Well, guess what happens there?
Here's what I would say.
What happens with there?
There's a guy named Jamie Dimon.
Okay.
You know what Jamie Dimon did last Thursday with his bankers?
Hey, guys, call every single one.
We're doing an all-nighter today.
Call every single one of the accounts and businesses that are with Silicon Valley Bank.
Tell them to come over here.
Here's what we're going to do for you.
We'll take care of you.
We're going to make sure your employees get paid.
We're going to do this.
We're going to do that.
Capitalism works its way out.
Let me read you this note that the COO of Shopify sent out.
Can you show the COO, Shopify, if he can read it?
I'm going to read this message to you right there.
Check this out.
Go back one, the other way.
There you go.
Zoom in.
Hello, this is Kaz, Shopify COO, reaching out.
I know we've already sent you an email.
Your Shopify payments pay out going out to SVB and asking you to change your account on file.
Please do that.
I'm reaching out to also offer something else.
If your funds are locked up and you have trouble hitting payroll, please let me know.
We'll immediately open up a balance account for you and fund it with the amount of money your payroll so you can pay your people.
Don't worry about signing anything now.
We'll get lawyers to get paper things later.
We won't charge you interest.
We want to help you pay us back with no interest.
This is capitalism.
So this is what I mean by a Jamie Dimon season and says, okay, SVB Bank, you want to be irresponsible and reckless.
You want to get an award and then come back.
There's a reason why this morning, can you pull up the one with the, I get an email this morning from Goldman first thing in the morning.
And I'm like, oh, what's this email all about?
That one right there.
Zoom in.
Look at this.
They rate banks, the GSIB.
You have to know what GSIB stands for.
GSIB stands for Global Systematic Something here.
Let me read.
Important banks.
Important banks.
That's exactly what GSIB says it for.
It's a cousin to CFA or whatever.
Yeah, it's called Globally Systematically Important Banks.
What a weak name, but that's what they call it.
Go down a little bit so everybody can see this.
So at the top, all the way at the top, meaning zoom in a little bit and then we'll go from the top.
There you go.
Yeah, there you go.
So the most stable bank, they have J.P. Morgan Chase in a league of their own.
By the way, what's empty above JP Morgan's?
Why is that?
Meaning somebody hasn't reached a level of 3.5%, which is like the highest level is what they're saying.
Nobody's an A-plus.
Well, J.P. Morgan Chase is an A-plus.
They just don't have anybody that has a perfect score.
So J.P. Morgan Chase at the top.
Then it's B of A Citigroup HSBC, which HSBC bought the UK branch of Silicon Valley Bank.
And then you have the next tiers, Bank of China, Barclays, BNP Doesha Bank, Goldman Sachs.
And then the next one you have Wells Fargo is on that list, by the way, all the way at the bottom.
So think about that.
Wells is not at the B of A level.
Wells is not at the Chase level.
Wells is not at the city level.
A lot of times people think Wells is one of those.
It's not.
Morgan Stanley on a lower list.
And then ING, you see some of these other guys, right?
You see Wells, by the way.
They're all the way at the bottom.
You'll see them all the way.
So this kind of gets you to say, all right, we got to be careful.
But this is my concern.
And I want to ask the two of you guys here on what you say with this.
So when you look at Dodd-Frank, the video, can you pull up the video of Trump with Midas Touch?
And they shared this, and there's a whole community right now, people that are saying, well, you would never show this on the podcast.
There's no way you're going to talk about this on the podcast.
No, we kind of like to see both sides of the argument.
This argument is this whole situation with Silicon Valley Bank is Trump's fault if he can play this clip.
The legislation I'm signing today rolls back the crippling Dodd-Frank regulations that are crushing community banks and credit unions nationwide.
They were in such trouble.
One size fits all.
Those rules just don't work.
And community banks and credit unions should be regulated the same way.
And you have to really look at this.
They should be regulated the same way with proviso for safety as in the past when they were vibrant and strong, but they shouldn't be regulated the same way as the large, complex financial institutions.
And that's what happened.
And they were being put out of business one by one.
And they weren't lending.
Since its passage in 2010, Dodd-Frank has dealt a huge blow to community banking.
As a candidate, I pledged that we would rescue these community banks from Dodd-Frank, the disaster of Dodd-Frank.
And now we are keeping that commitment.
And all of the people with me are keeping that commitment.
We passed and signed a record number of bills terminating.
And you can stop at this point.
So when you see this, your understanding, if either one of you guys, Barry or Tom, what was the cause of Dodd-Frank?
We know what happened under Obama, Barack Obama.
What was the cause of Dodd-Frank?
And at the same time, what credibility do you give to what Midas Touch and some of these guys are talking about saying if Trump wouldn't have deregulated some of these regulations in Dodd-Frank, this would have never happened with Silicon Valley Bank?
It wasn't because the loans were not performing.
It wasn't because of bad investment.
It was a duration mismatch.
It happened because the Fed went about, of course, to raise rates in an unsustainable manner without thinking about unintended consequences.
If these would have been investments that were turning up bad, that's one thing.
And then you could say, okay, the fact that what was done here, and I believe that it isn't spoken about in this clip, but I believe what they're discussing here is when he rolled back the reserve requirement of how much you'd have to keep for a small bank where it was removed, that's the reserve requirement, so that those banks could invest that money and wind up making more profitability, which gave them options.
It made for more competition.
So I'm not saying right or wrong.
I'm just trying to outline it because I don't think that really displays what the ruling was that he removed.
So if these were bad loans that went bad, well, then you could go back to this clip and say, you know what?
If you would have had more stringent rules and they made less investments, maybe they would have been smarter investments.
Okay.
But the investments were good.
It just was a duration mismatch that wasn't managed.
Tom, what would you say about that?
Two things.
First of all, the game when you have a weak leader in the White House is to blame the predecessor.
So trains are getting derailed.
Oh, Trump changed a ruling on one type of cargo, yet he's responsible for all trains derailing.
Now, this happens here.
Oh, this would have happened.
Wait a minute.
Why haven't we had five or ten banks?
If Trump created a situation where the banks could run willy-nilly, why do we only have one bad actor?
Why?
And that bad actor, Dodd-Frank, reserve requirement, forced to take capital if you're insolvent.
No exotic instruments.
Transparency in reporting.
None of that is present here in what happened with Silicon Valley Bank.
These boneheads took $20 billion, put it into bonds, risk officer leaves, nobody's paying attention to the portfolio, and then they end upside down.
And remember, less than seven months, Jay Powell moves the rates and they're upside down.
So do they sell it in a panic right that?
No, they hung on to it.
And guess what?
He raised them again and it got worse.
So I don't see anything under Dodd-Frank.
And I'd love to see a teardown that says, okay, what specific red light did SVB run that was not present in Dodd-Frank light after Trump's move?
By the way, I agree with you.
I think that's the question.
Yeah, but also, Tom, let's remember, within Dodd-Frank, it gave SVB the ability to use hold to maturity and not take the haircut right there.
They were able to declare that it was the total value.
That's what the problem was.
And a lesson nobody learned from Mark 15.
If anybody has watched The Big Short, you know that mark to market hiding in the background is ultimately what kills big stacks.
And this was exactly what Dodd-Frank allowed SVVB to do.
So Dodd-Frank allowed for this.
Yes, it did.
Not the other way around.
Exactly right.
Because Dodd-Frank allowed for the provision that you now, that $15 billion in loss, you don't have to take it as a loss.
You could say we're going to hold it to maturity, even though the market value, like Tom was saying, they didn't have to mark that to market.
It doesn't come off your tier one capital, as long as it's in one of the assets that's deemed no risk, like an agency mortgage.
Balance sheet footnote.
And by the way, by law, that's all they had to do.
Rob just found this.
If we can take a look at this, in 2018, the House passed a rollback of regulations in Dodd-Frank by a vote of 258 to 150, not even close.
And in the Senate, 17 Democrats joined Republicans.
So this is both Democrats and Republicans joining together to get the bill to Trump's desk and sign into law, which the bill raised the threshold for regulation standards from $50 billion to $250 billion, which left less than 10 banks in the U.S. subject to stricter federal oversight and allowed banks under $250 billion in assets to escape increased scrutiny.
Go ahead.
Well, I just, since we're kind of dipping our toes into the political side of things, do you want to address what Biden said today?
I kind of summarized his whole speech.
I want to wrap this up before we go.
But here's the thing with this part for people to be thinking about.
It's very easy for both sides to do this.
This isn't a Republican or a Democrat thing.
Both sides do it where they're like, yeah, but this was his fault.
Yeah, but it was that fault.
And probably everybody in this room guilty of doing this before.
Here's a challenge, though.
For how long did Biden's administration have control of the House, Senate, and to be able to do it?
How long?
Well, if they had it for two years, how come they didn't do anything with this?
You had two years.
It's plenty of time.
So if you're saying, well, you know, it's this fault, well, then it kind of becomes your fault because you could have actually done something about it for two years and you never thought about this.
So if that's the case, whose fault is it really?
Or can we just set this thing aside and say, let's deal with this direct to make sure this doesn't happen again to another bank today?
But my biggest concern of this before we go to the Biden speech is the following.
Let me tell you one more concern.
Here's my concern.
So my concern, I'm kind of debating in my head and I'm going back and forth.
Okay.
And I'm trying to not stick to one side of the argument.
On one end, I understand the frustration of people saying, hey, capitalism for the poor and socialism for the rich.
I get it.
And on the other side, I'm like, okay, we do need more regional banks.
We need more banks, period.
Okay.
This crisis, to be honest with you, just made Chase a lot stronger, right?
If you think about this, this crisis, how many people in America had this conversation three nights ago?
Husband and wife are in bed.
They're having this conversation together.
Hey, babe.
Yeah, babe.
Babe, the bank we're with, is it one of the bigger banks or is it a regional?
Let me find out.
Babe, it's a regional.
Are we what kind of are we a community?
Oh, but did you, did you see what's going on?
Babe, look, let's just be safe and go to one of the bigger guys.
Who do you think should go to?
I don't know.
Larry, my cousin said, go to Bank of America.
All right.
Larry, go to Bank of America.
Hey, Johnny is at Chase.
Let's go to Chase.
How many people you think in the last week, that's the data I would want to know.
How many people left smaller banks to go to the bigger banks?
That's the risk.
Now, some people may say, well, that's the right move to make.
That is the exact way it needs to be.
We need to go there.
Let me ask you this other question.
Do you think Tesla forced other car makers to innovate faster?
Do you think Tesla was good for the economy?
The answer is what?
Of course it was.
Absolutely.
It made everybody say, we better get our shit together before this guy eats our lunch, right?
Do we think we did a Rob?
What did we do two weeks ago when we're talking about the weapon manufacturers where we showed how they went from 51 companies down to five?
Do you know which one I'm talking about?
The Javelin.
It's a lateral chart this way where it goes.
You end up with only Boeing and Lockheed.
Do you remember that?
It was 51.
If you can look it up, see if you can find it.
It was 51 companies that we had 45 years ago where the market could compete to see who to get their weapons from, who to get their, you know, anything they wanted.
And it went from 51 to 40 to 30 to 20 to now five.
Well, the fewer we have, the less competition there is.
So there's more bullying.
The fewer banks we have, believe it or not, socialists want that.
They want it to be nationalized banking.
They want that.
That's more of a control.
Of course.
That's more of a control by the U.S. Single Payer Healthcare.
It is by far the worst thing.
It is by far the worst thing for you and I because they get to bully us.
So again, as much as this is, if I'm on the Democratic side and I kind of want to get my top five banks to get stronger, guess what I'm doing right now?
This is exactly what I'm doing right now.
Get your money out of regionals.
This is exactly, can you zoom in, please?
Thanks for finding it, Rob.
If you can zoom in a little bit, look at this.
This is showing we used to have 50 plus companies in 1980 to buy aerospace, any kind of weapons, anything we wanted, down from 1980, 25.
Lockheed, Boeing, Raytheon, Northrop, and General Dynamics.
If we go the way we're going right now and the big banks use this crisis, we all know the same by Ram Emanuel, never let a crisis go to waste.
If they use this crisis, this is a great season for the bigger banks, the bigger bullies, to eliminate a lot of the community and a lot of the regional competition.
Yeah, that's what I'm concerned about.
Also, what we've seen in retail, though, I mean, it used to be mom and pop shops all over the country, and now it's Amazon, Walmart, and Target, if you're lucky.
Sam's.
And Sam's, so is consolidation that bad of a thing in general, or is it depending on the sector?
An area that you need innovation, it is, you know, so innovation, ideas, your banks are important.
They're part of the fabric of life.
You go to your local bank, you have a relationship with them.
You know, it's important.
Yeah, it's we as much as, you know, from the safety standpoint, the average person could say, that's exactly why I'm going to take my bank, you know, my money away and go to a bigger one.
It is not going to long-term work out for everyone there.
You do not want that.
If you look at the numbers, I looked it up earlier.
A community bank in America, we have 2,258 community banks in America.
This is ranges 10 billion to 100 billion.
That's what they're considering.
The community banks are that size.
Large banks in America, we have 38 of them.
This is banks that are worth $100 billion or more.
I think Chase, if you can pull it up, you had it earlier, Rob, is a $3.2 trillion bank, $3.2 trillion.
And there you go.
Chase is $3.2 trillion in assets.
And it's B of A City.
Look at even Wells is at the top.
They don't put it as safety all the way at the top.
U.S. go all the way to the bottom until it gets to $100 billion.
If you can do that to see how many we got, boom, boom, Silicon Valley keep going.
Yeah, there's 38 of them that we have.
And in regionals, we only got 27 of them.
Rob, scroll back up a little bit.
Let me just see the top 10.
Got it.
Golden side.
We need more competition.
We definitely need more competition.
The last thing we need is consolidation.
We do not need consolidation.
If you want to go into President Biden gave a speech earlier today, I think it was four minutes and 10 seconds, give or take.
He talked about how deposits will be there.
He talked about the problems with bank.
He brought up Dodd-Frank on what they did and how he blamed Trump.
And he talked about unemployment under 4% for straight months.
And he talked 14 straight months.
And he talked about protecting depositors.
So it's very much quick, four minutes, 10 seconds.
But he also took credit for 12 million jobs created, which all of the people.
He did put back the ones that went shut down with COVID that came back.
That's a very ridiculous statement to make.
I'm sorry.
I just took notes down specifically regarding the bank run and Silicon Valley Bank.
He said the FDIC took control of all assets for the banks.
And by the way, it wasn't just Silicon Valley Bank.
What's the regional bank that also just went under?
Silvergate.
No, no, no, it's Silvergate.
Signature.
Signature New York.
Silvergate was.
Yeah, he's right.
Silvergate was a week and a half ago, and they were a crypto bank.
Got it.
So here's some of the highlights of what Biden is saying.
All customers are going to be protected and will have access to their money.
There's going to be no losses to taxpayers.
That's something he wanted to point out.
And we talked about this earlier, where these fees are coming from.
All fees we paid by what the banks pay into this FDIC fund, that all management from these banks will be fired, and the investors into these banks will not be protected.
And obviously his overall goal here is to eliminate any stress and people freaking out for these bank runs we were discussing earlier.
It was interesting to me that he used it to point blame, but the blame is misappropriated here.
Let's understand what happened.
The reason why the Fed, okay, so we have a mismatch in duration.
That happened because the Fed was extremely aggressive.
Why was the Fed extremely aggressive?
Because they were overly accommodative and culpable as well was government, which was overly stimulative.
In combination, they created this inflation.
So you have the arsonist is now become the firefighter.
So this is where the problem is.
Now, by the way, what the Fed did today, I applaud them.
They had to save the depositors.
I agree with that.
But their moves to maniacally increase rates, that's like if somebody, heaven forbid, if somebody's ill and you say, okay, I'm going to give you some medicine.
Five minutes later, you're not better.
I'm going to give you another dose.
I'm going to give you another dose.
This is what they're doing because it takes a while for this to happen.
I've got some stuff on inflation that they're trying to fight.
If you ever want to take a look at it up there, that shows inflation is going to come down if they just understood how it worked and if they just saw what causes it to come down.
Since you brought up job market, why don't you go to the slides with the job market?
You see they got some data.
I don't know, Rob.
Job market is going to be a little bit different.
So the Fed thinks that the job market's so great.
You got James Bullard.
You got all of them on parade saying we got blowout jobs number.
BS, okay?
Number one, in January showed 517,000 job creations.
That is not for real.
What we had was we had a seasonal adjustment.
The numbers showed we lost 2.5 million jobs.
But they said, you know, January, we usually use 3 million.
So poof, 500,000 jobs created.
We did not create those.
But what's even more egregious, take a look, Rob, just scroll through real quick to the next one.
I want to show you.
So this is the 517, right?
It really would have been 2.5 million losses on the next one.
And go ahead and scroll through if you can.
And I wanted to show you the thing from the BLS.
Just go to the very next slide.
Yeah, just advance it to the next one.
You see the bottom left?
It says the arrow.
I don't know if you see the arrow.
Yeah, just advance it to the very next slide.
There you go.
At the bottom there, you see what it says 2.5 million losses?
That's from the BLS.
You can't play with that.
Now look at the next one.
The next one's absolutely crazy, Pat.
Look at these numbers, guys.
That's the Bureau of Labor Statistics.
That's our government, folks.
That's our government.
So take a look at what they showed from the household survey, which, as you all know, that's where we get.
Can we zoom in, Rob?
That's where you get the unemployment rate.
Yeah, there you go.
They claimed in January we created 894,000 jobs.
But what they did was they made an adjustment called a population control effect.
What was that?
They picked up some undocumented workers from early 2022.
Now, any of us, logically, wouldn't you just, wouldn't you just go back and say, oh, let's revise the numbers?
No.
No, Pat.
You know what they did?
Although they were never created in January 2023, they put 810,000 jobs as created in January 2023.
That's why the unemployment rate went down instead of going up.
You're kidding.
No, that's right from the BLS.
That's right from the BLS.
So those 810 were created in 2022.
But they put it in.
2023.
Now, I don't want to, this came out February 3rd.
Guess what happened four days later, by the way?
Do you know what was the big 510?
No, the State of the Union address was four days later.
Okay.
So now, who knows if they're related.
I'm not going to say they are.
They are.
And I just think it's kind of coincidental.
But now when we take a look at something like this, that was what happened in January.
Let's go to February's numbers.
February's numbers were, I think, very indicative.
If you wouldn't mind, just go right to the next slide, brother.
So this shows you what it would have been.
It would have been 3.9% without the seasonal adjustment instead of 3.4.
Now, in February's numbers, here's what we got.
It showed 311.
Go to the very next slide if you can.
311,000 jobs created, right?
But you see on the bottom in yellow, there was a big jump in this one category that says, if you're unemployed for five weeks or less, that jumped by 343,000 people.
So go to the next slide.
This kind of illustrates it.
So that's a bucket.
That bucket jumped by 343,000.
So what goes into the bucket?
People that just got unemployed.
What drains the bucket?
If you either got another job or you're unemployed less than five weeks.
If the job market is so hot, we know that the jobless claims reportedly that week were only 194,000.
You're very, very low.
So you're not getting the inflow into the bucket, but it's not draining because people either aren't getting jobs or they're being in a position here where they're staying unemployed.
That's why you see this going up.
That's so wild that they present it the way they do to say it's the lowest in how many years?
Lowest in 50.
Seven years, 50-something years.
Hey, it's the lowest in this, it's lowest and that.
So, okay.
So, Barry, if what you're saying is true, and let's just say it is based on the numbers you're given here, it's the LFLS.
It's not like you're getting the number from a survey, then that means the economy is worse than it really is.
Is that a fair assessment?
We have less full-time jobs now than we did back in May of 2022.
Much of the job gains are part-time workers.
Much of the job gains are people working multiple times.
We have less full-time workers full-time.
That's not good.
Now, Pat, the next one's going to really blow your mind.
Check this out.
Now, we got all these job gains, right?
Go to the very next slide if you can, please, Rob.
This one's really interesting.
Do you see that chart on the bottom there?
Yes.
That chart on the bottom shows COVID.
But what these are is hospitality and leisure workers.
This has been the engine of growth.
Most of the job gains have come from this category, but it's not real growth.
You're just putting these poor people back to work, right?
But if you notice, we're almost back to trend.
Do you see that?
We're even lower than that.
But eventually, let's say we put everybody back.
There's not that much more juice left to be squeezed here, right?
And if you take a look at the job openings and labor turnover, known as the Julch Report, this is job postings.
This category last month was down 194,000.
So this tells me the labor market's about to take a negative turn.
If the labor, and I'm with you, I'm fully there, and I've been saying this for a few months where I think that's the number no one's talking about.
Okay, but let's go there.
Let's go there.
You, your background, for people that don't know your background, I mean, if you've been on, you've been on a couple other times, we had you on a podcast.
Your background, for people that don't know this, you have won the Crystal Ball Award for the most accurate real estate forecaster in 2017.
This is through Zillow, in 2019, and 2020.
You're the only three time, I believe, right?
Okay.
So you've been able to successfully forecast what's going to be happening.
That's kind of how what you're known for with that part of your success.
You've done other things, but this is specific to this.
We have a great, great team.
It's not just me.
Our team, you know, I'm sure it's a good idea.
It's a team effort.
It's impossible for you to do it by yourself.
You need the right people to give you the data, but still, your name is tied to you based on the data you get.
These are the forecasts you made.
If these numbers are the numbers you're showing, and we just had what's going on right now with Silicon Valley Bank, okay?
And Powell is going to be sitting here.
A lot of people were saying, well, before Silicon Valley Bank, he was going to raise the rates by half a point and maybe another half a point and then back to back, you know, quarter to quarter.
Now, some people are saying he's not going to do anything, let alone some people are saying he may even cut and lower it.
So what is your forecast on based on this, based on inflation, based on Silicon Valley Bank, what do you think Powell's going to do next with interest rates?
Okay, so interest rates is very interesting because mortgage rates are going to be more determined by inflation and the Fed will have more of an impact on shorter term rates and also the stock market.
So I believe that the Fed will more than likely have a difficult time hiking more than a quarter percent.
I think a half a percent is off the table.
I think maybe zero.
I don't think they'll cut at this meeting, but I think that it'll either be a quarter or no move at all.
Maybe a pause just to see things settle down.
Because remember, the Fed, by moving rates up too quickly, has caused these imbalances.
Things will break.
Now, the problem with the Fed is that they don't look at inflation.
Mortgage rates and real estate for that matter will be highly motivated and driven by inflation.
I have a couple of slides there, Rob.
That's probably going to be in the beginning.
There's a slide there how mortgage rates follow inflation.
If you could see the correlation.
Okay, this shows you what happens during recession.
This shows you mortgage rates go down during every recession.
So I believe we're headed for recession.
As a matter of fact, while we're on the topic of recession, look at the next slide.
Very, very interesting, Rob.
Go up one.
I'm sorry.
Go up one.
Yeah.
Why haven't we not been in a recession?
Maybe we are.
We already had two quarters of negative GDP, Pat.
But take a look at credit card balances.
The gray area, that's the recession followed by the pandemic.
Everybody forgets we had a recession before the pandemic, two months before it.
But credit card balances on top were way up and the savings rate was like 10%.
That big spike in savings was the stimulus.
That went into people's savings accounts.
Fake.
But look at what they did with it.
They wisely paid off their credit cards.
They couldn't spend it on anything else.
Notice how they drained their savings and it paid off credit cards.
Then we got another stimulus check, but we spent that even faster.
But what did we do?
We bought a lot of name-brand stuff that we got, don't worry, got another one coming.
Boom.
And then once that stopped, people liked that stimulus lifestyle.
How do you keep it going, Pat?
You charge up your credit cards, which have low balances, and you drain your savings.
We've gone from a 10% savings account to 3.5%, and we now owe more on our credit cards than ever in history.
Even this has to have a limit sometimes, and that's where we hit the wall.
$940 billion.
Credit card report came.
By the way, savings rate was the lowest we've had since it's a long time.
It was since 17 years ago, I think it was 2.4% savings rate in February.
I want to say these are scary numbers to see that.
So again, saying that, saying that, Powell is almost cornered now with this crisis to have to either not touch it or lower it.
Tom, do you think Powell is going to still raise rates?
Do you think he's going to delay it 30, 60 days to see how the market's going to react to this, to see if any other banks are going to react to this?
What do you think Powell is going to do next?
Well, right now, I think it depends on the next 48 hours.
Today was a rough day on the market, but not a cataclysmic day on the market.
I'm with Barry.
I think a half point's off the table now.
I think it's a quarter point.
But if there is any jitteriness in the next 48 hours in banking stocks, like there's fallout, they still need to find a buyer for Maine Silicon Valley Bank.
Remember, they only found HSBC to buy the UK one, and PNC on Sunday night said, nah, I'm out.
They wanted PNC, Trust, and U.S. Bank, which are the top three banks at the next tier.
They wanted one of those, preferably PNC, because of a stronger balance sheet, to pick up United States SVB.
If nobody picks that up, you know, it's going to, I think you're going to see jitters.
And if there are jitters, I think Powell may go zero next Thursday.
It's the 22nd.
Yeah, it's like we got a week, right?
What's today?
13th.
Okay, so we got a week and a day.
So next Wednesday, if it's jittery, next Wednesday, Powell may go zero, but I believe he's only doing 25.
Okay, so here's a question you got to ask.
How many people in how much you think Powell communicates with Biden, with Yellen?
How much communication you think there is with them and Biden right now?
I think Powell sends 14 text messages a day and receives 1,400.
Okay, so how quickly you think after this event?
I'm not being funny.
I'm saying, you know, I think everybody's hammering out.
I got you.
I got you, Tom.
So how much do you think right now a emergency call or meeting has been made with all of them to say the following?
Hey, Jerome, we know we can't tell you what to do, but here's what I want you to be thinking about.
We both know what's going to happen if you raise the rates a half a point.
The reason why this happened with Silicon Valley Bank is because the rates increasing the way it did, and that kind of messed them up.
How many more banks like that are out there?
I don't know.
But if you increase it the way you were going to increase it, a point to point and a half over the next four, five, six months, this may be the time for you to pump the brakes at least for 90 days to see how this reacts.
Do you think that's the responsible call for Yellen and Biden to make to Powell?
I think Yellen made that call on Friday afternoon after they seized SVB in the morning.
They knew where the dominoes were going.
They were watching the market.
I believe that call happened before dinner time on Friday.
Can I pick?
Well, I agree with you.
I mean, who knows?
I agree with you.
I think your guess is a very, very good one.
I want to show you where I think inflation is going, and I want to show you why I think that the Fed, if they only would pay attention to this, they would understand that they've already done more than enough and inflation is rolling over already.
Can we please go to the chart, go up a little bit, and I want to pull this chart up that shows inflation.
You're just pointing that up, Pat.
I think that you made the right point.
Right before the roller coaster, right before the roller coaster.
Okay.
So what this shows you are shelter costs.
Now, when you look at CPI, the consumer price index, the core CPI is what's important because that's how you determine monetary policy.
Core takes away food and energy.
The Fed can't influence a bird fluid, egg prices going up, weather, oil production.
So they take that out.
They say, well, let's look at the core rate because we can influence this.
43%, 43.2 to be exact, of the core CPI is shelter costs.
So that's rent and owner's equivalent rent.
The way that the Fed looks at housing and the CPI looks at housing is as a service, as you know.
It doesn't matter what your mortgage rate is.
It doesn't matter what your home value is.
What am I paying in rents?
And what can I rent my home for?
So that's what they look at.
Take a look at what's happening in this area.
It was 18% a little over a year ago.
Now it's going up by 3%.
But the problem is there's a lag.
They count the last 12 months.
So it takes time.
So if you just click to the next one, it's like a roller coaster.
You got to put it in play mode, though, because there's an animation too.
It's like real-time shelter costs are coming down, but the way it's in CPI, go to the next one, just put it in play mode.
And go to the next slide.
Now advance it forward.
If you're pretty much hit the forward arrow, it's not doing anything.
All right.
So go to the next slide and just put that one into play mode.
Yeah, for whatever reason, Rob is doing it right.
It's just for whatever reason.
The computer doesn't react to it.
It did it again two weeks ago, I think, Rob.
So, Rob, if you put that in, maybe it's because it's in full screen.
Look at the go with the book one, Rob, with the one that's to the left of full screen.
Are you able to get out of this, Rob, or no?
Rob, please tell me your number.
He's got it.
You got the right one, Rob.
Just see if you can go to the very next slide.
Do you see the arrow on the bottom left?
There you go.
Keep going.
One more arrow now.
Okay, go back one.
If you could play this one, I want to show you this particular slide.
But if you hit forward on that one, it's not going to happen.
There it is.
Okay.
So you see the blue line there?
Yeah.
That's the way it is within the CPI report.
It's saying shelter costs are going up 7.9 because of the lag.
In real time, it's 3%.
There's a mathematical calculation we all could do, guys.
Take a look.
If you take the difference between the two, which is 4.9%, and you take the weighting of 43%, CPI core is currently overstated by 2%.
Barry, explain what you're mortgage rates have to come down.
Long-term rates have to come down because inflation is already coming down.
Just be patient and wait for this lag.
Okay, so there we go.
Can I just ask you that?
You're saying that mortgage rates are going to come down.
They have to come down because inflation is.
Barry, some people will say you're talking like a mortgage broker.
I'm not a hell of a good one.
You were with G-Mac National Sales Director.
The last time you stopped doing loans was 07.
You're like one of the greatest LOs that we've had in the market.
So a lot of time when realtors or loan officers say that, you're in the space.
The counter-argument to that would be: okay, we saw what happened when we made money pretty much cheap for 12 years and then we try to get off of it.
You know, it didn't work for us to do that.
And right now, some will still say a lot of properties are overvalued.
The amount of how much home values have increased compared to income has increased.
It doesn't match.
The saving doesn't increase.
So people can't afford to buy a house at today's price.
I have a chart for that to show you that it's a little bit of an interesting scenario.
It's not that right now, the affordability is worse, but the affordability will improve though, Patrick.
How?
Okay, a couple of things.
First on this.
Isn't when you say affordability, forget about the charts for a second.
Isn't it when you say affordability will improve this year?
Okay, so you know what that means to me?
That's a very nice way of saying you're about to lose equity in your home.
Your property value is going to go down.
I think that actually we probably will see about 3% nationwide appreciation this year because the level of inventory, it's just so tight.
We saw already in January when rates dropped to about 6% that there are multiple offers around the country.
I'm not seeing that though.
And I'll tell you.
In January, we saw it.
But that's not slowed back.
But I'm going to tell you, from a buyer's standpoint, I'm not seeing that.
From a buyer's standpoint, I'm not seeing that.
I'm seeing from the buyer's standpoint minus 500,000, minus 1 million, minus 200,000.
They lowered by another 299,000.
They lowered by $300,000.
Well, I mean, I don't know.
I mean, always will be specific incidences.
Obviously, you're right on the specific instances.
But if you go by the numbers, let's just say from the FHFA or from Kay Schiller, the seasonally adjusted numbers show that real estate values from the very peak after 121 consecutive month rise are down 1% from FHFA, 2.7% from K-Schiller.
Those are the numbers from K-Schiller.
Those are the best two sources that you know what a seller will say?
A seller will say, Barry, I hope you're right.
But how come I'm not getting any offers of qualified buyers today?
Because I hope you're right.
They're hibernating with 7% rates, but that's why this is so important.
For you to say, guys, let's lower the rates.
It's all going to work itself out.
That's the problem.
The problem isn't for the Powell is sitting there saying, I get what you're saying, Barry.
I understand what you're saying.
A lot of loan officers are getting crushed right now.
A lot of realtors are getting crushed right now.
I get it.
But I can't do this right now.
But he doesn't control mortgage rates, Pat.
He does not.
But mortgage rates are going to trade and follow inflation.
Long-term investors, the short end of the curve, 100%.
All the short end will follow that.
But the long end of the curve won't.
So that's fair, but that's kind of like my kid saying, Dad, trust me, I'm going to read 100 pages this week.
Let me play iPad on Monday.
I'm telling you, I'm going to read 100 pages by the end of the week because I'm going to read it.
Just let me play iPad on Monday.
I'm like, no, no, that's not how life works.
First, read 100 pages, then I'll let you play iPad, right?
First, let's lower inflation, then let's lower it.
That's why it's so important because inflation on a year-over-year basis, it has been stubborn because the comparisons from shelter have propped it up, but also the comparisons from where we were a year ago were relatively high.
If we take a look, the date that you should be circling is May 10th on your calendar.
That's when we get the inflation data.
That begins a string of information.
May 10th.
May 10th.
A string of inflation data that will be lower, replacing higher inflation data from the previous year.
It will bring the year-over-year numbers down and we'll get the shelter curve.
Barry, trust me, everybody wants you to be right.
I'm not sitting here saying, I don't want you to be right.
I want you to be right.
But the market is seeing other things.
The market right now, when it comes down to buying car, the national car payment right now is 9-11 or 9-20.
Just two years ago, it was 5 freaking 75.
How the hell is the average American able to go to that?
So rates on a million-dollar loan two years ago, the payment was nothing.
Today, on a million-dollar loan, at the rates that I'm getting, if I got a 750 credit score, if I can show everything, it's nearly 50.
It's just higher.
These are two.
And income is not increasing.
No, no, income is.
By 50%?
But it doesn't have to because you don't use all of your income to qualify for it.
So a couple of points.
Income, according to ADP, went up 7.2% year over year.
Car payment went up nearly 100%.
You're 100% right.
College is 500%.
Guys, I agree with you.
I'm not disagreeing with you.
I'm not disagreeing with you.
It is less affordable.
However, in an equivalent state of affordability, you had 20% appreciation.
I'm saying 3% appreciation and predominantly due because you have such unbelievably record low inventory.
There's 578,000 units for sale in this country.
I tell you what, here's what I'm going to tell you.
You're so good.
I'm going to do my next refinance with you.
I don't do loans.
I'm saying this one you may want to do.
It's going to be a decent one.
But no.
So, you know, Barry, are you getting nominated for another Crystal Ball award?
How does this work?
Well, look, well, let's see what happens, right, with rates.
Nobody knows for sure.
Of course, could I be wrong?
Of course I could be wrong.
However, to me, when I look at something like this and I say, okay, it appears that inflation should be coming down.
Historically, mortgage rates or all long rates always follow inflation.
What I hope happens with Jerome Powell, I hope he doesn't break.
Okay.
That's my fear.
I hope he doesn't break.
You know what I said today on the call when all these guys are saying, well, Patrick, but Patrick, but Patrick, I said, listen, is it fair to say that a crisis happened last week to the economy?
Yeah, it did.
How the hell is the market up on Monday?
Tell me when in your life something bad happened in your life and you got rewarded the next day.
Do you realize how that makes no sense?
There needs to be.
If I don't go to school, it's kind of like me going to school and I skip two weeks straight.
I don't even go to class.
I don't know what my homework is.
Hey, Ms. Taylor, how are things?
Well, Patrick, great job because your grade went from 72% to 91%.
How the hell did my grade go up?
I didn't come to school last two weeks.
That's what's going on right now.
This is where the average person watches the market and says, I got to tell you, man, this is exactly why I want to have nothing to do with finance.
I'm going to go freaking be a construction worker.
I'm going to go be a general.
I'm going to go be a plumber.
Forget this stuff here.
So you mean to tell me the 16th biggest bank in America goes out of business and on Monday, rather than people panicking, they say, buy.
Yeah, that makes a lot of sense to me.
By the way, when we started the show, the market was up at 3 p.m. when we started it.
Now at the close of the market, the Dow was down 90 points.
The S ⁇ P did close negative for the day.
You know what that means to me, though?
Down 90 points?
What is 90 points on 32,000?
Not a lot.
It's a very good point.
It's points.
0.1%, 0.2%.
0.28.
0.28.
That's nothing.
Yeah.
That's at the end of the day, thank God took profit.
Yeah.15.
Minor numbers.
The S ⁇ P was up.
NASDAQ was up, though, 0.45.
Yeah, that's the numbers right there if you want to look at it.
NASDAQ was higher 0.45%.
S ⁇ P is down 0.15.
So basically, it was a nothing burger in the market today.
There's other reasons why the S ⁇ P, there's some technical stuff going on breaking underneath its 200-day moving average.
There's some negatives for the stock market that I see that could cause a little heartburn, maybe another 10% drop.
You guys remember in 2007, 2008, I mean, I was just starting my financial career.
I couldn't spell for a 1K at that point.
But we remember just the slow drip of information.
Boom, boom.
All of a sudden, Lehman Brothers is holding what's going on here?
And then the market's 500 points today, 500 points today, 500 points today.
Are we seeing any correlation with what's happening then with now?
Is there like, you know, if you don't learn from history, you're destined to repeat it?
Is it too early to tell?
What are your thoughts?
Well, like I said, I think that I think maybe the market, the stock market, the equity market appears to me to be a little bit overextended.
I think that it will likely retest 3,500 on the S ⁇ P.
But, you know, anything could happen in this world, right?
Yeah.
By the way, Rob, can you try to find how bank stocks did today?
Okay.
Bank stocks did today.
I'm curious to know exactly.
There you go.
I just found this here.
Let's see what it's showing.
Oh, my God.
Right across the board.
Let me just send this to you.
And then also, Rob, if you can find KBW index, that's right.
The banking index, KBW.
Exactly right.
I'm going to send this to you.
You just see it right there.
Now, remember, they have to pay insurance on all of this, so it's going to be more expensive for them because they have to pay insurance on everything above 250.
There you go, Pat.
There's the index.
11% down today.
What is it?
This is the KBW NASDAQ Bank Index.
So this is an index fund.
11%.
11.66.
And by the way, right at the start, it was stable through the day.
But see at the start, wham.
Okay, so Chase is down 1.8.
Bank of America is down 6%, give or take.
Morgan Stanley is down 2.29.
Wells is down 3%.
HSBC is down 2%.
Royal Bank of Canada is down 0.6.
Goldman Sachs is down 3.71.
Charles Schwab is down 11.57.
Citigroup is on 745.
Let's see any one of them that's big numbers that they have.
Isn't it here that Goldman Sachs down 12?
Oh, no, 3.7.
Okay, that's 12.7.
By the way, Bank of Nova Scotia, shout out to you guys.
They're up 0.74%.
Look at Charles Schwab down 11 and 11.
I saw that.
USB.
USB is 10% down.
PNC is down 5.8.
5.18.
ING.
Okay, there you go.
Truest Financial Corporation, nearly 17%.
So none of these guys, very few of them are down 11.66, but the fund is down 11.66, give or take.
So this is good.
It should be like this.
There should be a price to be paid right now.
People should be a little bit skeptical.
People shouldn't be sitting there saying it kind of worked itself out.
But here's the part.
I guess the question everybody at the end of the day has to ask now is this.
You know the whole FDIC quarter of a million dollars.
Okay.
So if now you're going to come and protect depositors and you're saying they should do that, fine, no problem.
Then you have one of two decisions you guys got to make.
Either one, you have to increase to 250 and put no limit, which is kind of what you're doing right now, or raise it to a number.
But if you say 250 and you're willing to do that no limit, then it's not really 250.
It's just a wink-wink, 250.
Hey, be very careful, but don't worry about it.
We're going to back you up even if it's more than 250.
One part of government will pay you the 250.
The other part of government will give you the rest.
So what's the right thing to do?
Do you think that that number needs to be what, Tom?
What do you think that number needs to be?
Well, I agree with Mark Cuban.
And Mark Cuban just said, shouldn't we move this to 500?
Like a half a million dollars insured.
I think that's a rational approach.
Now, I'm all in favor of protecting depositors.
I am one, not a vest VP, but I am a depositor and I'd love to see myself protected.
But I'll tell you what I don't like.
What this basically tells the banks is that you can be foolish and the government's going to bail out your depositors and you only have to worry about the investors.
I just think when you make these bailouts, it's a moral hazard.
But I think it should be 500 to your core point.
I think it should be a little higher than that.
I think probably a million is probably more realistic for today's day and age.
And what that will do is if you have money in payroll, you can probably do sweeps.
You can invest it in treasuries and then bring it back in the day before payroll.
It is the digital age.
You could do these things.
However, a million would alleviate for small businesses the need to kind of go back and forth with more sophisticated banking.
Well, you know how they say, like, to make six figures ain't what it used to be, right?
So to use that analogy, when did the FDIC $250,000 limit come into effect?
How long ago was that?
Do we know?
Can we Google that?
Because if it was 50 years ago, it's not the same number.
It was 100,000.
What if we adjusted the 250 across time?
Well, exactly.
I mean, it wasn't 100,000 for a long time.
Was it?
I'm just trying to look for, I'm sure Rob is on the ball here, but like just like, for instance, this past year, we've seen that Social Security has increased by like 8% to deal with inflation and the cost of living and CPI and all that.
I'm wondering if that same metaphor could be used for the FDIC.
And by the way, Rob, when you do that, can you also run a poll on the podcast right now, since we're on the topic of what they think it needs to be increased to?
Should it stay at?
I'm asking this question on Twitter.
Well, keep it at, keep it at 250.
Okay.
I'm more towards you, which is, I think, a million bucks is the number because we can keep it at a million for 10 years, 20 years.
And you just kind of keep it at that number.
And also, Pat, you don't want it to be too much more than that because you got to pay insurance on that, where that would put some banks that are smaller in a tough position.
And you bring up a good point there, Barry.
A lot of these bank accounts are companies, businesses.
I don't know too many just average Joes just with quarter mil in the bank, baby, a million bucks in the bank.
But a lot of these are companies that don't want to diversify.
Imagine if you're a company with $5 million in assets.
You don't want to deal with 10 different banks.
Like kind of what Cuban said.
You have all these fees.
It'd be great for the banks, but you just want to consolidate, keep it simple.
That's a good point, right?
Especially if it's payroll that you're dealing with.
Again, you could avoid that by putting it in treasuries and back and forth, but that puts strain on a small company.
You know, you got a bookkeeper or one.
You know, if you're a company with 15, 20 people, it's not easy.
Also in treasuries, isn't there sort of a lockup period?
You can't just do it where it can match your payroll periods.
You could stagger it.
Yeah, but that's when it gets very complicated.
Yes.
Exactly.
Keep it simple, Stupid, the KISS principle.
Yeah, running that poll to see what's going to happen with those numbers.
But a couple of things here that we're looking at with savings rate.
I don't know if you guys saw this here.
Wall Street Journal savers pile money into bank CDs as rates top 5%.
Did you see that?
Where banks are topping 5%.
And by the way, when is the last time we had 5%?
I think the last way I can tell you who it was.
I remember who ran a commercial every day talking about 5%, 4.5%, 5.5%.
You know what the company was?
ING Direct.
I don't know if you remember that.
Americans are rediscovering CDs as a safe haven amid high inflation, rising interest rates, and economic anxiety balances in CDs soaring from $36.5 billion in April.
Is this correct?
Damn.
Did you see these numbers?
Balances increased in CDs from $36.5 billion in April of last year to $418 billion January of this year.
No, Tom, that's 12x.
No, just $400.
Yeah, $418 billion.
Banks are competing for deposits again after several years of showing little inclination to do so.
The top yielded nationally available 12-month CDs are now between 5% and 5.25, which is significantly higher than the average yield on a 12-month CD.
Currently at 1.5 now, CDs work best for relatively short-term savings goals, such as down payment on a house.
It's crucial to shop around and consider that, da-da-da-da.
But Pat, that's the problem is that you're pulling money out of deposits and you're putting them in CDs.
And now you have long-dated maturities that there's a mismatch.
Yep, that's a good point.
What do you think about it, Tom?
Well, first of all, I agree with the mismatch, but the second part is I think there's a, there's your, there's your answer.
Mortgage originations are at their lowest point in 28 years.
And where's the down payment money?
I think you're seeing a lot of, this is liquid money Americans have.
A significant amount of that you just described is basically down payment money that's on the sideline.
This is, and I read last Friday, the most rate sensitive generation, the 35-year-old home buyer today is the most sensitive that generation, most rate sensitive buyer in the history because their lives, they've never seen this.
They don't understand that it was perfectly reasonable to have a $600,000 home with a 6% loan on it with reasonable property tax district.
They don't understand that that's perfectly realistic.
They've been living in a payment economy from their car to everything else they've had that has been so artificial because of ZERP.
And so now it's all coming home to Roost and they're like, 6%, good Lord.
And their grandparents are saying, why are you screaming?
I want to show you a scary number.
Somebody just sent this here to me saying, Pat, take a look at this here.
And this is by Nick, Nick James, who's, if you're watching this, this is, you send it to me.
So zoom in here, FDIC, a goal all the way to the bottom, what their balance sheet is and how much they're protecting.
Right now, the amount of money they have, if you look at that closely, they have $125 billion.
You know how much they're protecting?
$9.9 trillion.
Did you hear that?
Yeah, say that one more time.
Okay, yeah.
You got a lot of numbers on this page, right?
Has $125 billion in their balance, but their insured deposits, the quarter million dollars on the millions of accounts that are out there, they're protecting $9.926 trillion.
in short deposits.
Pat, are you okay?
No, but this is the point.
What this is showing is that it's okay.
That's the problem.
What this is showing is the fact that you can't just say, we got you.
Don't worry about it.
No, you don't have the money.
You don't have the money.
By the way, you may be able to do it for one SVB bank.
Maybe for a second bank.
If all of a sudden you get a third, fourth, fifth, seventh, eighth, nine, tenth, they can't do anything at that point if this happens.
So you're saying they weren't just concerned about the poor citizens with deposits at SVB?
That they looked at their own dashboard and said, good Lord, we better make sure there's no runs on banks Monday.
That's right, Tom.
That's exactly right.
But by the way, you know what that number is?
Do you know what that number is?
Like what percentage of the insured deposits they have?
What is it 1.26%?
It's 1.26%.
Yeah, that sounds about right.
Do you understand what I'm asking here?
Yes.
Like what they have, they only have 1.26%.
Yeah, 900 would be 10%.
So yeah, it's about 1.25%.
Oh, that's it.
The reserve ratio.
Okay, so that should answer the question here on whether they're saying, well, I just asked the question right now on Twitter.
I said, keep it at 250, 500, 1 million unlimited.
36% is the highest, said keep it at 250.
500,000 is the lowest, 12%.
1 million is the second lowest, 23%.
But do you know 29% said keep it unlimited?
You know what that tells you?
Most people have no clue that the number and the kind of funds that we have, how the hell are we going to be able to protect this unlimited when you only have 1.26% of the dollar amount insured right now, the FDIC?
Can I tell you actually why, low-key, I kind of really appreciate what's happening right now with the Silicon Valley Bank because it's, it's, you know, this whole return to normalcy and all that.
These are the types of conversations that we need to be having as Americans with the debt that we're taking on in America, right?
And the situations that are going on in the banks over the last few years, whether it's cultural issues like the wokeism stuff and LGBTQ and critical race theory and all these, then it became abortion and COVID and jabs and, oh, NFTs and meta world and I'm buying real estate in the fucking metaverse.
Who gives a shit?
This is what makes America tick.
These are the types of issues that we really need to focus on.
Great point.
And get on the same page here.
Not all the nonsensical stuff.
Like I just bought an NFT in the metaverse with a COVID mask attached to it.
Like that's like let's get past that and get back to reality here.
I think that's very important.
Absolutely.
I just ask you to be a little sensible for people that are going through challenging times and have a little sympathy and compassion for the folks that bought land at $4.8 million in the metaverse.
Versus bored apex.
Have a little bit of respect.
Seriously.
You know what?
You're insulting a lot of people right now.
Okay.
So next question, next question.
Tom, the market today is reacting to what's going on.
Okay.
A day, two days, three days, a week, two weeks, three weeks, four weeks.
I'm going to go strictly to you here.
Do you think if I were to ask you the chances of this happening with another bank that's worth more than $100 billion, the 38 banks that are worth $100 billion or more, what is the likelihood of another bank or two also going through this the next few months?
Give me the percentage.
What do you think the percentage is?
You can say, you know, whatever percentage.
If you're a betting man, what do you think it is?
Well, knowing what we know and ZERP for so long and such a level of irresponsibility, I think it's probably about a 25% chance.
You think that high?
Yeah.
Oh, my God.
There's probably a 25%.
Here's it.
25% chance of a run on the bank and everything else going like this?
Or do I think there's a 25% chance that there's another bank like signature that gets a tap on the shoulder?
Different question.
Is there another bank like signature that the regulators are going to reel up and say, okay, guys, we got to read those freaking footnotes and we got to read everything right now.
Is there another bank out there that they're going to collar like they did the New York other bank?
No one knew about this other New York bank.
It was an oh, by the way, point in the Sunday news cycle, right?
What's this other bank signature?
Well, while we were talking to Silicon Valley Bank, we already knew this was coming.
And so we kind of sent a couple of the boys over there to kind of pull them into line.
So do I think there's one more?
I think there's a 25% chance that that's more.
Pretty high number, right there.
I think that's a very high number.
Barry, I think you may be a little bit more conservative than that.
Where are you at with that?
So if you were to, there's a chart I have that I'm going to, I'm going to send, I'm going to send it to you to you, Pat.
I'm going to text it to you.
Or should I say I send it to Rob?
Is that the best way to go here?
All right.
I'm texting it to you.
It gives a scoreboard.
So take a look at that.
I just texted it to you, Rob.
I think if the Fed did not step in, there'd be a 100% chance of this happening.
But now that the Fed stepped in with this facility, I think that it is unlikely that it does happen.
So I would agree.
If the Fed didn't do it, very, very hard.
First Republic jumping around on one leg now.
Exactly.
They're amputated one leg.
Exactly.
Just to be clear here, you're saying there'd be 100% chance of another banking system.
I agree with them.
Yes.
By the way, that's what I'm thinking of.
I agree with them in a way where take a look at that.
That's your scoreboard.
You know why?
You know why I'm on the side of what he's saying right now, if they don't do anything about it?
Because what this decision did to the other 27, to the other 26 regionals and the number of communities and all the smaller banks, I, as a depositor, said it's going to be fine.
Yes.
The FDIC is going to step in.
But here's a question, just like we just found out.
What percentage of depositors do you think know that the FDIC on their balance sheet only has $125 billion to protect $9.9 trillion?
What percentage of depositors in the market you think knows that?
Zero?
I didn't know that.
We all didn't know that.
I just learned right now myself.
So that's the part.
So you're 25%, even with it happening.
Where are you at now that the Fed did step in?
What would you be at?
Would you say 5%, 10%?
Yeah, unlikely because I think there's facilities to get you out of it.
Well, I don't have no idea, but I mean, you guys have a lot of credibility here.
What I would like to avoid is sort of like a self-fulfilling prophecy and be like, these banks are definitely going under.
And then the narrative kind of starts happening with that.
I like that the fact that the government is stepping in and ensuring people everything's okay.
Right.
I thought you were going to ask me, like, do you know of one?
And I was going to say First Republic.
But beyond that, I agree.
I think there's a lot of banks out there right now that are trying to make it right if they're not right.
And they also know that the depositors are safe Because grandma has put this thing out there, $25 billion in the BTFP.
Let me ask you guys a question, Barry.
This is for you.
So this is sort of a naive question because I don't work on bank balance sheets.
But, you know, if you're at Chase, if you're at Goldman, if you're at Wells, at BOA, like you're talking about that Silicon Valley Bank didn't have the risk officer or the risk manager even working for the last eight months, these banks, I assume, are like alert, red alert, red alert.
Like, let's make sure we're solvent.
Like, are there protocols in place that banks are making sure that they're good to go?
I think that hopefully that's something that everybody is looking into.
And if, I mean, they probably already know where all the bodies are buried, right?
Now I think everybody else has line of sight to see that these investments in supposedly risk-free assets that aren't subject to the haircut because of the fact that interest rates have gone up.
I think people are looking at what is the percentage of loans that you have that were at very low yields that mark to market, if marked to market right now, how much would your actual solvency be?
Yeah.
And this goes back to Pat's four points of capitalism and the freedom to fail.
And the metaphor of the entire 2008 crisis was what?
Too big to fail.
So I'm wondering with all this consolidation of banks and Pat's saying that we need more competition in banks, what happens if one of these massive banks fails?
Like, what happens to the U.S. at that point?
Well, no, that part is when others will come in and pick them up for pennies on a dollar.
Right.
What WAMO, you're saying.
WAMA, you saw 308, 312, whatever the number was, how much they were bound.
They were bought for a buck nine, billion nine.
That's nothing, right?
That's pennies on a dollar.
WAMU went like this to Chase, and how uncomfortable was the CEO sitting right here three, four months ago?
The most uncomfortable meeting that we had because he thought he was coming here to talk about seven keys to success.
And we talked about how the hell did WAMO, one of the biggest banks in America, go down the way it did.
So, yeah, that to me, you know, there's a part where if you're looking at this and whether you agree with the decision or not, you just have to make sure there's not three or four other banks out there.
Because if there is, Tom, FDIC cannot do nothing.
It'll be another quantitative easing, 3.0, 4.0, whatever you want to call it.
Super tarp.
And this time around, it will not be a small number.
This time around, it's going to be a couple trillion dollars if that happens again.
And the banks every day, and this has been part of Glass-Steagall and a lot of other regulation, the banks at the end of each day have to post to the regulators balance sheet with certain tests, right?
And so there is visibility out there.
That's why the regulators jumped in on Silicon Valley Bank on not just a crashing stock price.
They jumped in on because the run on the bank, it's actually, they were almost kind of blind to the public activity because they look at the sheet at the end of the day and they're like, sweet Jesus, you know, these guys are dead.
And the regulators can only jump in on the regulatory violation.
And so that's when it happened.
And when there was a $42 billion request and then all of a sudden they're negative $9.58, just under a billion at the end of the day, and they're like, okay, not only have you flipped the circuit breaker, you flipped all of them, you know, and here we come.
And so that happens every day.
I got a crazy question for you.
It's not like there's no visibility.
This has nothing to do with anything, but it does.
We know what's happening next year.
We know right now, Vivek Ramazwani is going out there making his rounds and he's getting on this space.
He's working his tail.
He's everywhere, right?
Guys like this, he's hustling.
You can tell he's out there.
You saw Pence make a comment that he made.
He's still on the January 6th comments that he made about, I don't know if you guys saw that or not, but he's, you know, it is going to go down as one of the worst embarrassing.
What did he call it?
He threw Trump under the bus in a major, majority.
Ministry won't treat him fair.
He endangered my family.
Yeah, something like that that Pence said, right?
Who is going to use this crisis the most and who will this crisis help the most?
Does this help Biden?
Does this help Trump?
Does this help DeSantis?
Does this help a candidate from the outside that's going to come in?
Who does it help?
Or it's too early to tell.
What do you think?
Wow.
Tom, I'll go to you first.
I think this helps DeSantis for three reasons.
The mainstream media, once again, Trump derangement syndrome, they're out there attacking him, saying it's all his fault.
And it's irrefutably on Biden's watch.
And so the guy that's standing over here, that there's really nothing stuck to him, is the guy who just got a benefit out of a couple of big crises and rock throwing.
And so I think that helps DeSantis.
I think not that he's running.
I don't think Bernie Sanders is running, but this entire storyline just screams, the millionaires and the billionaires get all the favors out of here and the little guy.
The whole Main Street versus Wall Street narrative right there.
I mean, this is Silicon Valley Bank getting bailed out.
I mean, in the heart of Tech Valley out there.
And this is just going to go right to the squad and AOC.
And they don't care about you.
They don't care about Main Street.
All they care about is Wall Street, Silicon Valley.
And it's just going to be the same old, you know, Bernie narrative.
And by the way, that was the infancy of the Occupy Wall Street movement, how this all started.
And he's kind of not wrong to call out this sort of crony capitalism.
I don't know.
I think that because this can affect people who are on a salary that are getting paid, I think it's a little bit of a different thing.
And because you do have pain from people who made the investments in the bank, the big money who were the investors, the stockholders, they got wiped out.
The bondholders probably get a lot of pain that they're going to feel.
So I don't think that that's the way that it'll be told in certain media outlets.
I don't think they'll tell the whole story.
I think they'll do exactly what you're saying.
I think you're right that that's the spin that they'll try to put on it.
But this is not a Donald Trump problem.
He did not create this.
This was a Dodd-Frank issue, and this was a lack of oversight issue, which is for the last couple of years under the current administration.
I mean, the balance sheet of this bank turned last year.
This was a very profitable bank.
These investments turned based upon what the Fed did under this administration's watch.
So I know they're going to try and spin it the best that they can, but anybody who can see through that can see that this is clearly on, it's clearly on the Fed.
It's clearly on the additional stimulus that caused the inflation.
And it's on the lack of oversight on what these banks were able to do.
At the end of the day, isn't it on specifically Silicon Valley Bank?
More than anything, right?
They were allowed.
Yes, it is, of course.
But they were allowed to not have to disclose these as tier one capital losses because of the Dodd-Frank ruling.
Rob just pulled this up.
Ron DeSantis blames woke culture for Silicon Valley Bank collapse, reminds him of financial crisis.
And Bernie Madoff.
He's trying to jump on top, jump on it.
The only reason I'm laughing is because Ron DeSantis is going to blame everything on woke culture.
That's his entire MO.
This bank, they're so concerned with the DEA and politics and all kinds of stuff.
I think that they really diverted from focusing on their core mission while noting that he didn't have any similar information on certain Florida banks or any concerns on runs run on banks in the state.
By the way, can you pull up what the chief, I don't know if it's the chief operating officer, but one of the C-suites, or could have been the VP, what the lady said in her profile.
You have it.
I send it to you.
It's a picture that you have.
It's one of the three pictures that right there.
Go back.
This is the head of financial risk management and model risk Silicon Valley Bank UK Limited.
The phrase, you can't be what you can't see resonates with me as a queer person of color and a first-generation immigrant from a working class background.
There were not many role models for me to see growing up.
I feel privileged to co-chair the LGBTQ, I don't even know, ERG, and help spread awareness of lived queer experiences, partner with charitable organizations, and above all, create a sense of community for our community, employees, and allies.
This is the head of financial risk management and model risk Silicon Valley Bank UK Limited.
I mean, what that profile has to do with how good you are at your job, I don't know.
But listen, go for it.
Hey, I think Valetame is going to rock because I'm half Assyrian, half Armenian, born and raised in Iran, lived at a refugee camp in Germany, and I can relate to people whose fathers is a 99-cent store cashier and parents got to do.
Can you imagine if I put that on my profile?
And you're also a married man who's straight and you have kids and you like coaching baseball.
What does that have to do with it?
Well, to her, that could work against me.
To her, that could work against me.
Don't assume that it's a her because her name, his name is Jay.
Oh, my God.
Ra, our guy posted a picture on PBD podcast the other day.
If you go to Twitter profile, he's so funny, this stuff he posts.
He posted, he says, Only kids from 90s will remember this.
I don't know if you saw this or not, Rob.
This meme even made me crack up.
I almost peeped my pants when I saw this.
I'm like, this guy's funny.
I'll send it to you here.
Okay, go two more lower.
It should come up right there.
Two more lower.
Right there.
Only 90s kids will remember this.
Yeah, I remember that.
Yeah.
Well, what's crazy?
I was having lunch yesterday with a buddy, Oliver, if you're watching this, and he said that he was traveling and there was a drop-down box just like this, and he had to enter his pronoun.
Had to.
He was traveling.
And it was, I was like, what'd you put in?
He's like, well, I put in, you know, he, his.
He's like, I don't, I've never done this in my life.
But it was all the he, she, we, they, us, who, what, when, when, they, L, G, T, Q, G.
And he's like, dude, I'm just trying to get a flight here, buddy.
Honestly, if you think about it, to some people, it's intimidating that the American alphabet has how many letters in it?
26.
There's 26.
26.
And that's already intimidating.
Yeah, I know.
Right?
Now you're throwing pluses and decimals and pie signs in there.
Holy shit.
Only the strong will survive with that many acronyms.
I was in the military.
We had to remember acronyms, but this one makes it even tougher.
I want to do one last story before we wrap up.
One last story before we wrap up here.
Let me see what I got here.
If we got any stories for today or we keep it for tomorrow.
Tom, do you have any stories?
Papa.
Can we tell a story maybe about why the future might look bright and we're not all just going to go down with the show?
Oh, you know what?
That's a good question when you ask that.
A girl posted a question in Instagram about what's going on.
I posted a video and she says, and you still think the future looks bright.
And I said, only for those who view themselves as leaders.
Very simple.
What do you mean by that? Someone asked.
A leader never sees himself or herself as a victim.
Put them in any situation.
Yes, it's going to be a painful season.
Yes, going to go through tough times.
You know, in our company right now, it's so funny.
I started, I mean, it's not funny.
I was a 23-year-old guy started selling insurance.
And now I'm 44, 21 years.
And we went through the experience of everybody was single and they would bring a different girlfriend or boyfriend.
So you never knew who was serious.
Then we went through the experience of people getting engaged.
Oh my God, engagement party, all this stuff.
It's kind of cool, 28 years old.
Then you went through, you know, marriage.
Oh, my God, the guy's getting married.
Let's go to his wedding.
Let's go to a wedding.
And you went through a few divorces as well.
Some didn't work out and you have to kind of go second try to a third try.
Then people had kids and you want to celebrate and it's like, oh, it's awesome.
You're having kids.
It's great.
Congratulations to you.
Then a second kid, then a third kid.
Then you go into those parties.
And then when your age is 44, parents start dying.
That's kind of what we're going through right now.
And it's hard.
One of our guys, his mother passed away yesterday.
Another one of our guys who's there from both of them, one of them was their day one.
The other guy came in a year and a half after started a company.
His mom passed away two weeks ago.
And you had these conversations.
And this is just happening more and more and more because age is now in the fours.
And when you go in the fives, other experiences are going to happen.
We're going to go to kids' graduations and all this stuff.
Six, you're going to have health issues.
Someone had a heart attack.
That could happen in your 50s.
Stroke, all this other stuff.
Life is going to happen and it's going to happen to all of us.
Whether it's a loss of a loved one, it's a bankruptcy, it's a loss of a job, you lose a business, you go through challenging times, you're going through emotional times.
It doesn't matter.
It's going to happen.
None of us are free from it.
Not Rob, not you, not Tom, not Barry, not I, not you.
But somehow, some way, leaders figure out a way to go through it, whether they mourn privately and they do with people they trust and they feel safe with, whether they go through it amongst a church or somebody that they feel comfortable to go talk about it with.
But you're going to go through it.
However, there's a reason why we follow leaders because they know how to handle tough times better than others.
So my challenge to everybody, listen to this.
Instead of being overwhelmed, this is real.
We're not faking it.
We're not acting like this isn't real.
Oh, just go read a positive thinking book.
It's going to be all right.
No, it could be pretty ugly the next six, 12 months.
But if you choose to lead, it's times like this where you create a reputation where people call you a leader.
They don't call you a leader during good times.
They call you leaders on how you handle bad times and this is the season.
So we just send a text at the beginning of the podcast and it went to people that were part of the podcast, okay, for the second live that's coming up at our studio.
The last one we did was a hit.
We had a blast of people that were coming in.
Well, I can tell you in the first nine minutes, the VIP tickets sold out instantly.
I think there's only 40 tickets left because the people that got the text messages, they were able to go do it first.
Now it's being announced to everybody.
Our second live that we're going to have will be a different schedule.
We're going to do it from 7 to 9.
You'll come at 6 o'clock.
There's going to be different things that you'll do.
And then from 7 to 9, we'll do the podcast.
9 to 9.30, we'll do private Q ⁇ A.
Then we'll do pictures, mingling, and then we'll go into the cigar lounge, have conversation.
Some of the best conversations I had was in a cigar lounge.
We sat down.
A lot of value teamers were asking questions.
Hey, what about this?
And what about that?
And we had a chance to network with everybody.
We are currently scheduled for the 6th to have Dave Rubin will be with us.
And it is the weekend of UFC 287 or 283.
One of them.
So there's going to be a lot of other people in town.
Can't tell you who else is going to be there.
But we got some friends we're talking about that could be there at the event as well.
So if you haven't yet bought your tickets, Robert, let's make sure we put in the description, in the chat, and in the comment section so you can get your ticket.
It will sell out.
ASAP, I am looking forward to seeing many of you on April 6th with us at our new studio.
Having said that, Barry, thanks for coming out.
It was phenomenal.
Very good insight.
It's a privilege to be here.
I love everything you do.
I follow every single one of your posts.
It's like, I don't know how you find this amazing stuff.
Anybody who's not following you is crazy.
But thank you for all you do.
I appreciate it.
Thanks for having me on.
Yeah, this was great.
Believe me, this was great.
This was great.
You guys, you guys are awesome.
Barry, it's been a while.
And just by the way, I think we had 15, 16,000 live on with us today.
This is your first time watching PBD Podcast.
We do this weekly, three times a week.
Join us, subscribe, be a part of what we're doing.
We've got a lot of content on Instagram.
I am Barry Habib.
Just if you want to follow, I put a lot of this short content on about these types of topics.
