AARON KLEIN FROM THE BROOKINGS INSTITUTION. WELCOME TO YOU BOTH. PAUL, GO ON AND TODAY IT” S KIND OF CALMNESS AVAILABLE IN FINANCIAL INSTITUTION LAND. WHAT DO YOU PREDICT? >> > > WELL, KELLY, I SEE THAT BECAUSE THESE UNREALIZED LOSSES GET ON THE FINANCIAL INSTITUTION” S ANNUAL REPORT, THEY ARE RESTRICTED IN TERMS OF THEIR ABILITY TO LEND. THEY REQUIREMENT TO TAKE STEPS TO LOWER EXPENDITURES, AND THEY” RE CHALLENGED ON LIQUIDITY. THEY” RE BORROWING FROM THE FED, THE FEDERAL HOME MORTGAGE BANKS AT HIGH FEES. AND THEY NEED TO HAVE SOME RELIEF THERE. >> > > ALL. AARON, LET ME BRING YOU IN FOR SOME CONTEXT.I KNOW YOU ‘
RE NOT A BIG FOLLOWER OF THIS DEBATE, BUT MAKE THE INSTANCE WHY WE WOULD BE HEADING TO THE POINT WHERE SOMETHING LIKE THIS IS BEING TALKED ABOUT. ARE THESE UNREALIZED LOSSES GOING TO END UP BEING REALLY MATERIAL OVER THE NEXT NUMBER OF YEARS OR CANISTER BANKS EAS EARN THEIR MEANS OU THEM? >> > > I COMMEND PAUL FOR PUBLISHING A PROVOCATIVE ITEM, AND HE” S RIGHT A WHOLE LOT OF BANKERS MADE A GREAT DEAL OF POOR CHOICES BY PURCHASING IN A LOW INTEREST RATE SETTING AND A GREAT DEAL OF THEM ARE UTILIZING THIS AS A BACK ENTRANCE TO OBTAIN SOME MONEY AND SOME LIQUIDITY. THE BIGGEST BORROWERS WERE SVB AND FIRST REPUBLIC. BUT OTHER BANKS, JPMORGAN, CITIBANK, THEY HAVE ALL REPORTED POSITIVE EARNINGS.SO WHAT YOU HAVE IS
SOME BANKS MADE BAD BETS AND THEY MUST ENDURE THE EFFECTS, OR AS PAUL CLAIMED, BAIL OUT THE PEOPLE THAT MADE BLUNDERS AND INCENTIVE INDIVIDUAL THAT SUCCEEDED. WHEN YOU MAKE A MISTAKE, I WEAR ‘ T THINK YOU NEED TO ASK UNCLE SAM TO BAIL YOU OUT. > > THE BANKS TOOK THE BAIT >>, IF I TIN PRICE ESTIMATE THE PREVIOUS KANSAS CITY FED PRESIDENT. THEY ARE INNOCENCENTIVIZED TO B THESE. BUT PAUL, ALLOW ME TO TURN TO YOU. SOME SAY THAT THE BANKS HAD A BAILOUT, DUE TO THE FACT THAT THE FED IS ACCEPTING A GREAT DEAL OF THIS STUFF AT PAR.IN THE PAST, IT WOULD BE FORCING A PRICE CUT. REGARD THEY ALREADY BEING GIVEN A BIT OF A BAILOUT BELOW? > > WELL, KELLY, IF YOU LOOK AT WHAT THE BANKS ARE PAYING ON THIS FINANCIAL OBLIGATION THAT THEY ‘ RE TAKING OUT TO MEET THEIR LIQUIDITY NEEDS, YOU KNOW, DOWN PAYMENTS DRAINING OF THE FINANCIAL INSTITUTION FOR A VARIETY OF FACTORS, THEIR REQUIREMENT TO REMAIN TO FUND CAR LOANS. AGAINST WHAT THEY ‘ RE MAKING ON THOSE PROPERTY, THERE ‘ S PROBABLY A 300 BASIS FACTOR DISTINCTION IN BETWEEN THERE. SO THEY ‘ RE ESSENTIALLY LOSING CASH BY BORROWING FROM THE FED IN ORDER TO MAINTAIN LIQUIDITY. AND IN LOOKING AT TYPE OF WHAT THE BANKS PERFORM IN TERMS OF THEIR INVESTMENTS, THIS IS NOT A TEMPORARY TROUBLE. IF YOU LOOK AT THE MATURITIES OF SEVERAL OF THESE AVAILABLE FOR SALE SECURITIES, THEY ‘ RE EXTENDING OUT 10 YEARS OR LONGER. AND TO AARON ‘ S POINT, THIS’REALLY ISN ‘ T A WALL ROAD ISSUE. THIS IS A’WALL STREET AND KEY STREET’PROBLEM. THERE ‘ S A MULTITUDE OF SMALLER, MID-SIZED BANKS THAT REMAIN IN THIS SITUATION. THEY HAVE FEWER ALTERNATIVES THAN THE LARGER BANKS IN STIPULATIONS OF HOW TO FUNCTION THEIR ESCAPE OF IT. > > AARON, THE VARIOUS OTHER DIRTY LITTLE TRICK OF THIS WHOLE AFFAIR IS THAT THE GOVERNMENT
>> DEMAND FINANCIAL INSTITUTIONS TO HOLD TREASURIES. WHATEVER IT ‘ S GOING TO DO BELOW, IT ‘ S GOT TO DISCOVER A CUSTOMER FOR MORE TREASURY BONDS THAN IT ‘ S EVER HAD TO DISCOVER A PURCHASER FOR AT A TIME WHEN THE CENTRAL BANK HAS STEPPED BACK. OTHERWISE BANKS, AFTER THAT THAT? > > WELL, APPEARANCE, PASSION RATES HAVE TO BE COLLECTION BY THE MARKET AND DEFICIENCIES HAVE >> REPERCUSSIONS. IT ‘ S NOT JUST TREASURIES. A WHOLE LOT WAS HOME MORTGAGE BACKED SAFETY AND SECURITIES, FED BY THE FEDERAL BOOK, WE ‘ RE ACQUIRING MORTGAGE STOCKS FOR COVID RELIEF FOR A REALLY LENGTHY TIME AFTER IT WAS NECESSARY. A GREAT DEAL OF THESE PROBLEMS, YOU KNOW, INCLUDED THE FEDERAL RESERVE AND THEIR REGULATORY FAILURES AT SVB AND OTHER PLACES WHO WERE FILLED UP ON HOME MORTGAGE BACKED SAFETY AND SECURITIES THAN ON SECURITIES. FOR PAUL ‘ S FACTOR, THE LENDERS ARE EXCELLENT AT PLAYING POSSUM, OH, WE ‘ RE IN TROUBLE, THE ECONOMY WILL SUFFER UNLESS YOU BAIL United States OUT.BUT DON ‘ T TOUCH OUR PERKS, DON ‘ T LOWER OUR RETURNS, ALL IN PAUL ‘ S PROPOSAL, JUST HELP
United States OUT. AND YOU KNOW, I ‘ M SORRY, BUT WE ‘ RE NOT GOING TO GET YOU OUT OF THIS, YOU MADE THE BLUNDER, IDENTIFY YOUR OWN METHOD. > > PAUL, QUICK LAST WORD. IF ABSOLUTELY NOTHING IS DONE, AND WHAT DO YOU ASSUME THE SUPREME TROUBLE COULD COME TO BE BELOW IF WE FAST ONWARD THE CLOCK? > > WELL, I THINK WE CAN SEE SOME BANKS GOING UNDER. AND WHETHER IT ‘ S, YOU UNDERSTAND, ONE LARGE >> BANK OR, YOU KNOW, A NUMBER OF SMALLER BANKS, YOU UNDERSTAND, WE COULD SEE THEM’GO UNDER AND FINANCING IS GOING TO BE RESTRICTED. IF WE GO INTO, and IT ‘ S JUST GOING TO–.
THEY DEMAND TO TAKE STEPS TO REDUCE COSTS, AND THEY” RE CHALLENGED ON LIQUIDITY. > > WELL, KELLY, IF YOU LOOK AT WHAT THE BANKS ARE PAYING ON THIS DEBT THAT THEY ‘ RE TAKING OUT TO MEET THEIR LIQUIDITY REQUIRES, YOU RECOGNIZE, DOWN PAYMENTS MOVING OUT OF THE FINANCIAL INSTITUTION FOR A SELECTION OF FACTORS, THEIR NEED TO CONTINUE TO FUND CAR LOANS. AGAINST WHAT THEY ‘ RE MAKING ON THOSE PROPERTY, THERE ‘ S PROBABLY A 300 BASIS FACTOR DISTINCTION IN BETWEEN THERE. WHATEVER IT ‘ S GOING TO DO BELOW, IT ‘ S GOT TO DISCOVER A PURCHASER FOR MORE TREASURY BONDS THAN IT ‘ S EVER HAD TO LOCATE A PURCHASER FOR AT A TIME WHEN THE CENTRAL FINANCIAL INSTITUTION HAS TIPPED BACK. AND YOU KNOW, I ‘ M SORRY, BUT WE ‘ RE NOT GOING TO GET YOU OUT OF THIS, YOU MADE THE ERROR, FIGURE OUT YOUR OWN MEANS.