A major development in the banking world.
The FDIC just reported the California
regulators shut down Silicon Valley Bank,
a big lender out in California,
after reporting
a loss of over $1 billion.
There were fears of a run on this bank.
People wondering
if there should have PTSD to 2008.
What's going on here?
Yeah,
this really is an earthquake,
especially for the tech community.
Silicon Valley Bank
dropped by 60% yesterday alone.
We just learned today
that California regulators have shut this
lender down.
This is the biggest failure since 2008.
It's actually the second biggest failure
ever since Washington Mutual
in September. Of 2008.
This is a major lender tech startups.
The FDIC says that insured depositors
they will have full access
to insured deposits
by Monday morning insured deposits
that means up to $250,000.
Of course
we know that some small businesses,
some startups, some individuals
they have more than that $250,000.
It's not clear
if they're going
to get all of their money back.
This, of course, is not sitting
well in the marketplace.
We see the Dow is down
by more than 250 points.
Banks are leading the way lower.
The good news here
is that experts that I'm talking to,
they are hopeful that
this is an isolated incident,
that this is not part
of a broader systemic issue.
Mark Zandi, he told me
he's the chief economist
over at Moody's Analytics.
He just told me that
he doesn't think
that this failure
is symptomatic of a broader problem
in the banking industry.
Let's hope not,
because that's the last thing
we need right now.
You know,
the major banks are saying
that they are well-capitalized.
Matt Egan, thank you.
Robert Reich, former U.S.
labor secretary under President
Clinton, is with us
now, also the author of The System
Who Rigged It and How We Fix It.
Secretary Rice, always good to have you.
Let's start where Matt ended with this.
Silicon Valley Bank,
the FDIC now in control.
We saw that
there was some stumbles from Wells Fargo,
JPMorgan Chase, Bank of America.
Other banks
trading their halted yesterday.
What does this mean
for people
outside of the Silicon Valley bank
universe?
What does it mean
for the average borrower, if anything?
So far, it doesn't mean anything.
But the big question is one of contagion.
That is what we saw in 2008
was when one big bank
and a couple of others started to fail.
Or could not pay
their depositors,
could not actually pay up what they owed.
They were closed
and regulators had to move in very,
very quickly.
But we ended up with a financial crisis
because, you know, one big banking card
easily starts tipping over other cards.
It's a house of cards.
Now, we don't know yet about contagion.
What we do know
is that
this bank was obviously overextended
and this is related to the Fed
because as interest rates went up
and as and this bank was lending
to a lot of startups,
this bank simply could not handle it.
I think that
this is the biggest economic news today.
It is not.
This jobs report report was good.
And it's kind of signals to me
a soft landing.
But I think that in terms
of what the Fed is going to do
and this bank implosion
was potential contagion, may reverse.
Jerome Powell has a direction
it may lead to instead of a half
a point increase at the March meeting.
It may lead to no increase.
In fact, it's even conceivable
that interest rates
start dropping
out, but fear
that we're going to be in deep trouble.
You have advocated for the Fed
to stop increasing the interest rate.
Why before this issue with
Silicon Valley Bank
now?
Simply because I don't see any wage price
inflation, wages,
according to Jerome
Powell, are pushing up prices.
Well, that's simply not the case.
Look at today's report, for example,
we we are seeing
the smallest wage
increase in over a year.
Prices continue to rise.
That is absolutely true.
But wages are not pushing them up.
It's not
that workers are doing
so wonderfully well.
And what's pushing up
many prices
domestically in big companies
that want to increase
their profit margins.
And so they have monopolies
or near monopolies, oligopolies.
They are using the opportunity,
using inflation as an excuse
to put up their prices.
So this is at its at its bottom here.
It really is an anti-trust
monopolization issue.
It is not a Fed interest rate problem.
So you suggest that the Fed
should stop
increasing the interest rate,
but if that is the only tool they have.
I imagine
you're going to correct that assumption.
But if that is the only tool
they have to try to bring it back
down, to the 2% rate, that goal, then
what else can they do to to to
try to tame inflation,
if not increase the interest rate?
Well, first of all,
let me just say,
it's not clear
that they have to do anything else.
Inflation is starting to come down.
Now, we'll find out more Tuesday
when the inflation
report the consumer
price in Greece, increased report,
inflation report will be coming out.
But as of what we know now,
inflation is slowing slightly.
As the key here is the direction.
You know,
if inflation were increasing,
that would be one thing
but if inflation is starting to
slow down,
if we're
seeing it going in the right direction,
then it's not clear
that the Fed has got
to keep raising interest rates
and risking a recession
that is going to hurt everybody.