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What the Collapse of SVB Means For Deposits and Interest Rate Increases · Leaders in Lending

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You're listening to Leaders and Lending from Upstart, a podcast dedicated to helping consumer
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lenders grow their programs and improve their product offerings. Each week, here,
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decision makers in the finance industry offer insights into the future of the lending industry,
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best practices around digital transformation, and more. Let's get into the show.
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Welcome to Leaders in Lending. I'm your host, Jeff Keltner. This
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week's episode features my conversation with Nick Timorrose, the chief economics correspondent for The
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Wall Street Journal. Nick and I had originally planned to talk mostly about the
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FED, but given that we recorded this podcast on Thursday, marks the sixteenth,
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less than a week after the collapse of Silicon Valley Bank and Signature Bank,
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we decided to delve a little bit into what happened with those institutions,
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what the response from the federal government has been and how effective it's been,
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and a lot about how that might impact stimulus monetary policy of the government policy
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moving forward we think the after effects of those collapses might be. It was
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a very timely conversation and we are glad that we can have Nick on to
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talk about this very important topic with us. So it was. It was
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a really interesting conversation. I know, I learned a lot about something that
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doesn't happen all that often and kind of what the causes and impossible after effects
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are. And I hope you will as well, So please enjoy this conversation
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with Nick timorros Nick, Welcome to the podcast. Thanks for making the time
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to join us today. Thanks for having me. You know, we're recording
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this here on what is it, Thursday, the sixteenth of March. And
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we talked last week about things we might talk about, and I feel like
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over the weekend the world changed and there's maybe timely topics that we don't want
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to ignore that have occurred. So I thought I might just start off with,
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you know, roughly the takeaways you have from what happened. Obviously,
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I'm talking about Silicon Valley Bank and the kind of failure of that bank,
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that stepping in of the federal government, the FDIC, and kind of where
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we're at, Like, what's your takeaways as we talk about this a couple
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of days after the you know, the ultimate takeover by the FDIC, of
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what happened and how how we responded. Well, I think there are a
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couple of things. One question has been, of course, what was going
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to break in this FED interest rate cycle? Right the Fed? The saying
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is, the Fed always raises rates until something breaks or someone always goes through
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the windshield. And so now we now we're beginning to see I mean we
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knew last year obviously Crypto and some of the other digital assets that had you
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know, gone parabolic in twenty twenty one came back down. But this is
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you know, now now you're getting into things that obviously policymakers are more concerned
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about because if you damage credit creation, you know, credits the lifeblood of
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the economy. So now we're beginning to see some of the casualties of the
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Fed's rate increases, and I think it's raising questions about how the FED will
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respond because the FED wants the economy to slow down. They want demand,
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and they want to restrict demand to bring inflation down yet supply demand into balance,
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but they don't want to do it by causing a banking crisis. And
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so the analogy I use Jeff is sometimes you know, the FED doesn't know
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how it's moves are going to affect the economy. They call those the lags
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of monetary policy, and It's like hitting that glass ketchup bottle. You keep
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hitting it, nothing comes out, nothing comes out, and then you smack
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at another time and everything comes out. They want more of a squeezeable bottle
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where they can kind of control it carefully, but that is not how the
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economy and infrastrate policy works. Is there anything you think gets them close?
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I love the squeeze bottle analogy, and I've got the ones now that you
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store upside down, so they're not only squeezable, but the ketchups right now
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right there for you. Yeah, is there anything that is it equating to
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that? That? I mean, obviously not to the upside down squeeze bottle,
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but to the more real time understanding of the impact of changes to the
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economy that they can respond to, because that's a that's an interesting analogy.
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I'm curious if you see anything that moves them closer to a squeeze moodel from
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banging on the fifty seven on the glass one. Well, you know,
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so, I think the challenge here for the FED is they have a mandate
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to bring inflation down, but it is harder to do that if you have
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an unstable financial system. So what we saw you know this past Sunday was
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they came out. They made two big moves. The first one was they
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said they would They said, also, by the way, Signature Bank has
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been closed in New York, and we're gon we're gonna stand behind the uninsured
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depositors of Silicon Valley Bank and Signature Bank. And they did that by invoking
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what's called the systemic risk exception. The FDIC has to resolve failed banks in
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the least cost manner for their deposit insurance fund unless they deem they and the
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Fed and the Treasury deem there to be a systemic risk, which allows them
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to not focus on the least cost to the deposit insurance fund. So that
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was the first step. The second step was because there was some concern,
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there was a lot of concern that you would have a bank run on Monday
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morning if uninsured depositors of a bank that was seen, as you know,
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fairly stable. I read that Signature Bank had by rating from more than half
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of the Wall Street analysts to cover it. So if you know, people
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wake up on Monday and they say, well, the equity analysts who cover
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this bank couldn't do the credit risk analysis, what prospect to uninsured depositors have
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you would have had runs on other banks that we're seeing is not large enough
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to have the government in there. So they created this facility at the FED
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called the Bank Term Funding Bank Term Funding Facility. I'm missing one of the
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acronyms there, but essentially it said, if people want to get their money
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out of the bank, we will provide a way for banks to borrow from
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us in order to meet demands for withdrawals. And the whole was that that
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would sort of cauterize this problem, and you know, you don't actually have
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to use it, right, like Hank Paulson said about backing the GSCs in
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two thousand and eight, if you have a bazooka, people know you have
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it, maybe you won't have to use it. So this was really an
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insurance policy to say, all right, if there is if there are deposit
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outflows on Monday, banks are going to be able to meet them. So
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maybe there won't need to be deposit outflows on Monday. Yeah. Yeah.
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Do you sense that there is movement of foot to evaluate I mean, this
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kind of feels like an admission that, on some level, for any reasonable
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institution, we're going to step in and ensure all deposits, and that feels
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like I think a lot of people. I mean, I think many consumers
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and even businesses don't understand that the idea that they're ensure the deposits are not
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actually at the bank, that they're at some risk they're kind of lending the
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bank the money to make loans, and that there's risk in doing that.
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I mean, I think most of us just as when you put your money
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in the bank and if you leave in the bank account, that should be
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the safest place it could be. It can't go anywhere. And I don't
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know if there's going to be a movement to actually make that more formal and
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official and more holistic way where it's kind of implicit for the systemically important financial
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institutions, where it's kind of an implicit guarantee from the government beyond the standard
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insurance limits and now a questionable one for at least two institutions, and make
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you assume that in the future such similar measures might be taken. I'm curious
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if you think there's some movement to make that a more official stance, to
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make like an unlimited deposit guarantee, to remove the limits on the deposit insurance.
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It really raises questions about what's the future for deposit insurance, right because
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regulators said after two thousand and eight that they had tried to address too big
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to fail, and Silicon Valley Bank wasn't considered by anybody to be too big
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to fail, the sixteenth largest bank in the country. But I think a
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couple of things to note here. One is the speed of the run on
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that bank was just shocking, right, a quarter of the deposits out the
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door in one day, forty two billion dollars out of deposits being withdrawn.
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And when you look at, you know, the customers of the bank,
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I mean this was a very concentrated customer base, non insured deposits. These
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were these were not stable deposits, right, There was a risk that if
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people thought the bank wasn't safe, they would run. And so I think
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now you probably are hoping bank supervisors are going through and looking at other banks
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that are in the same situation where they might not have such stable deposits.
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So that's one point. I think. You know, this is not new
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though, this problem for regulators, And I wrote a book last year about
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the Fed's response to the COVID crisis called trillion dollars triage, and I focus
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a lot on the FED chair J. Powe. He worked at the Treasury
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Department in nineteen ninety one, in January nineteen ninety one, so this is
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in the thick of resolving the bank failures that came out of the interest rate
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increases in the nineteen eighties. And there was a Sunday, I think the
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first weekend of the year ninety one, the Bank of New England was failing
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and they were talking about what to do with the uninsured depositors. This was
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the thirty third largest bank in the country at the time. It was going
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to be the third largest bank failure in the country at the time. One
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point, I want to say, nineteen billion dollars in deposits, only ten
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percent uninsured. So really the inverse it was, you know more than you
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know, ninety percent of those deposits of Silicon Valley Bank were not insured.
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So what did they do. Powell's boss was a Harvard academic. His name
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was Bob Glauber, and he kind of got up on his soapbox and he
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said, this is moral hazard. If we'd step in and bail out these
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uninsured depositors. Then there won't be any risk discipline, risk taking by bank
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management or you know, the you know, the wealthy people or customers that
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put their money in the bank, they should know, you know, what
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that bank was up to. And the FED then there was a FED governor
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the name of John Laware, and he said, okay, well, if
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you do that, here's what we think is going to happen. Every money
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sent there will be a run on every bank in the country as they're uninjured.
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Depositors try to get their money out on Monday morning, they will come
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to us and then we will be dealing with that problem. So you're the
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government, you can do whatever you want, but that's what we think is
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going to happen. And Powell later explained, you know, we chose the
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we chose the backstop of the depositors without dissent. So people, you know,
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are surprised this happened, but this is it's not surprising really if you
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look at the history of this. This is how policymakers have responded on this
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on this topic. Yeah, and I think the comment, I think the
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President made the same comment of kind of like the equity holders, the bond
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holders those guys are taking risk and they deserve to be wiped out. But
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I do think there's, at least in the common man's perspective, a pretty
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big difference between the depositor who and their money a checking account and the person
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who had equity your bond. And I thought, I don't know what you're
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taking. But my sense that like um, that that small businesses were supposed
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to be looking at the financials of a bank to understand if they had their
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money at a safe bank that was making responsible lending or not, that that
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was supposed to be a backstop, when to your point, you know,
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the buyside analysts in the equity markets were telling me these were good banks,
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you know, both of them having been through their audits relatively recently and coming
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out with clean bills of health from auditors. Like it seems to me a
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bit unrealistic to think that the depositor is the is the one who's supposed to
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impose some sort of financial discipline by being unlinked deposit with banks making risky moves
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with money. That if that's the idea that that's a backstop, that seems
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a bit misguided to me. It does, though, raise questions about all
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right, well, if if every time this happens, then the government's going
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to step in and you know, ensure the uninsured depositors. What what are
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we doing with deposit insurance going forward? Should that be priced differently? I
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think the other thing that we saw, you know, this week again it's
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it's March sixteenth or so, but what we saw the beginning of the week
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was it didn't actually provide maybe the measure confidence that you might have hoped that
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these actions. Obviously we don't know the counterfactual. A lot of people think
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it would have been a lot worse if the government hadn't had done what they
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did. But I think a couple of people I've talked to have said,
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what's spooked folks about? This is one Silicon Valley bank, you know,
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the beginning of March, even though they had had some people knew generally what
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the problems were there. They had some interest rate risk that was causing problems
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for them. They had bought a lot of lower yielding long duration mortgages and
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treasury securities when they had all these deposits coming in in twenty twenty and twenty
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twenty one, think of a kind of the pandemic tech boom or bubble that
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we had, and so this bank benefited from that. They put that money
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to work. They didn't manage the interest rate risk, perhaps as prudently as
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other banks have, and that caught up to them. But the concern was
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that was seen as a fairly strong, healthy franchise. I talked to somebody
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who said, you know, two weeks ago, if you had said you
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want to own this franchise, they would have said, of course I do.
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Then people see how quickly the money can leave the bank. Now it's
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March sixteenth, no one has bought the bank. I think the FDIC is
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doing a second auction for the assets on Friday the seventeenth, and but that
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then people begin to say, well, wait a minute, this thing that
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I thought had great value, the values gone, the depositors fled. That
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leads to questions now around other similarly situated midsize regional banks. And that's a
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concern because if the deposits are seen deposits are usually seen as sticky, and
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if they're now seen as flighty, at least for these regional players, then
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you have a unstable equilibrium potentially, especially as deposit rates have been stayed fairly
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low, and the FED is raised in restrates a lot, and so there's
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a gap you can close there by raising deposit rates, but that could create
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a negative funding spread for banks or certainly you know, lower margins. And
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so I think those are the concerns that haven't been fully addressed or resolved yet.
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Yeah, it's one of the things when I talk to banks that I
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definitely here is the stickiness of deposits and the question of if that the historical
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stickiness can be maintained in the future. Particularly, I mean, you know,
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the banks have this idea of beta, like how much they have to
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raise interest rates on deposits to keep deposits As interest rates in the market's rise,
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do you really have to match that? And the answer has typically been
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not that much. But we've also for quite a period of time, I
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haven't had interest rates go so far so quickly that people are going, wait
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a minute, I can go get three and a half points on a checking
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account at one of these new fintechy banks, Like, that's a pretty big
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delta from the OZO point five or whatever I might be getting. And so
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I do think there's more concern that those deposits are becoming less sticky, both
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because there's a big beta, big delta in terms of yield available from a
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traditional you know, most banks a day and the most aggressive banks on the
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forefront. And to your point, just how rapidly and easy it is for
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people to move money, I mean not forty two billion dollars in a day
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was just I think terrifying people that it can just I mean, it's just
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a click on the cell phone away from moving from A to B. And
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I think that's a new reality that people are not quite sure what to deal
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with, what to do about, and how to think about how much stickiness
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of deposits really has been more or less permanently shed, particularly if there's a
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big, big gap in return rates. Yeah, it's it's I mean people
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have called it the first you know bank run of the digital age or the
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twenty first century, right, this kind of social media and you know it's
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a cliche to say perfect storm, but you did kind of have a perfect
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storm here. You had all these very you know, these startups that need
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a stable source of funding. They're on tech, they're talking to each other,
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they're all being financed by some of the same you know, their portfolio
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companies of the same venture capital firms. So once word went out, get
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your money out of this bank, you know, there wasn't a whole lot
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to do at that point. It really and it took I think it took
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the regulators just by surprise because we're not used to seeing deposits flee that quickly.
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I'm sure they thought they had more time to try to do what normally
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happens, which is, well, if this bank is going to make it,
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we're going to find a buyer, we'll go in, take it over
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on the weekend, announce it after close a business Friday. But here you
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had the state regulator in California going in at eight fifty in the morning,
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and I think that also spooked people that ge that this could just happen that
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fast. Yeah, yeah, I think it's probably if you looked at the
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depositor to Twitter user ratio at Silicon valid base quite a bit higher than most
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institutions, and that kind of like the meme stocks, it kind of went
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crazy on Reddit. I mean, it was it was an environment where those
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customers were highly concentrated a small number of information channels, which it could cause
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you know, at least within that depositor based a high degree of contagion really
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rapidly, which is probably a bit unique to some of these you know it's
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Silicon Valley Bank and others, but in the general concept of how much more
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quickly this thing can spread in the age of social media is probably a very
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real phenomenon for for every institution. Yeah, definitely. And you know,
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I think it's something where people are only going to now have to figure out
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how to deal with it. I mean I saw something from a communications a
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PR shop this week sort of telling their clients like, you got to get
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on top of this when it happens. Now, you've got to have a
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plan and tell people what it is you're actually doing so that they if they're
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feeling sick, you can make them feel well. Yeah. Yeah, I
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do think the other the other piece of that, if you think of this
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as being a Silicon Valley banks experience too, with being kind of a combination
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of some mismanaged interest rate and duration risk along with a kind of very rapid
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bank run. The communications seems to have been one of the places people want.
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They did not do the best job of kind of calming their customers and
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their crisis. Communications pr firms I think are using this as an example did
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not really effectively manage that the communications and the risk through that as they could
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have. Is probably a good a good note for others. It was.
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I mean, what the catalyst for all of this was On Wednesday night they
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announced they were going to raise capital, I think to two point two five
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billion dollars. They were going to have to sell they were going to have
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to take losses on some of these hold formaturity securities, and so they were
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going to record a loss and that just made people ask questions, and so
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you want to try to answer those questions before people can say, well,
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wait a minute, what else might we not know? Well, what's going
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on here? Right? So I'd like to shift a little bit from the
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story to you know, we had originally talked about talking about the FED,
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and I think a lot of people are debating what will the FED do now?
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Are they going to stop interest rate rising? Is? You know,
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how are they going to respond? And the thing you and I talked about
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that I think is fascinating is getting beyond this kind of simplistic view of the
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FED as kind of things happen in the world, and then just the FED
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responds as if it's a monolithic institution that just is an input output kind of
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you know, we just keep raising rates until inflation hits the nart number we
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want, and then we decrease rates intileration. But it's really it's really ultimately
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run by individuals, and particularly Chairman Powell. And so tell me a little
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bit about how you think his perspective, like, where is he coming from
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when he thinks about I mean, obviously it was an unusual world pre this
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particular incident in terms of the interest rate rises we'd seen in the economy we've
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been experiencing. Where do you think he's coming from and the motivations that are
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driving him? And then and then I guess after that we talk about what
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you think we might see from the Fed and moving forward. So Powell,
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just to give some background, He's spent his career mostly in the private sector.
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As I said before, he worked in the Bush administration, the first
19:56
Bush administration in the early nineties, and then private sector, private equity,
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you know, came back to He's from Washington, so he was living in
20:06
Washington, not really working in twenty eleven and worked on the debt limit problem.
20:14
He really helped the Geithner. Tim Guyler, the Treasury Secretary, convinced
20:19
Republicans here was a Republican private equity guy saying, you guys got to raise
20:23
a debt limit even though you don't want to, because you'll just really screw
20:27
everything up if you don't. And so they sort of thanked him for it,
20:30
and they put him on the fedboard. They were also having trouble getting
20:34
Republicans to agree to one of their nominees for the FED. So he's on
20:38
the FED for five years under Bernanke and Yellen, and he sort of became
20:42
a centrist. You know, Republicans were quite unhappy with the policies have been
20:48
Bernankie and Janet Yellen, and Peel supported them. Donald Trump becomes president and
20:52
he sort of likes Janet Yellen's policies, even though he wants to have his
20:56
own person in the job. So Peel becomes the FED chair and Powell had
21:02
had taken sort of in that same tradition of Bernake and yelling of view that
21:07
you know, the economy needed more support. After the COVID shock, the
21:11
FED went all in. And the concern before the COVID shock had been that
21:15
actually growth is too weak across the world, inflations and interest rates are going
21:22
to be low. That's going to leave central banks with less room to stimulate.
21:26
Then of course you get hit with this inflation in twenty twenty one.
21:30
And now, you know, I think Powell is focused on making sure that
21:36
that he isn't remembered as the central banker who undoes forty years of relatively successful
21:44
inflation control, or what was seen as inflation control by the central bank,
21:48
by the FED, you know, Vulker, Greenspan, Bernakee and Yellen.
21:52
And obviously there were other forces at play that helped inflation to stay low as
21:59
it came down. But I think that's the concern now is you can't you
22:03
know, if you're the FED and your job is to maintain price stability and
22:07
maximum employment. But the Fed has already sort of said, you can't have
22:11
great employment if you don't have price stability, if you don't have real wages
22:15
going up, what good is a job? So so that's that, you
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know, That's I think where he's coming from, where he's been coming from
22:22
as he raises rates quite aggressively, is there's no reason for this place to
22:26
exist if we fail on inflation. Now, one thing he has that Paul
22:32
Volker didn't have, for better or worse, is the FED is said they've
22:36
set this new American inflation target of two percent. Volker didn't have to worry
22:38
about that. He knew inflation was too high. He knew he needed to
22:41
get it lower. In nineteen eighty two, as inflation came down from you
22:45
know, double digits down to four or five percent, he said, Okay,
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I think I've done enough, and he backed off. But the Fed
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now, and we can talk about this if you want, he has made
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two percent sort of the the what they need to have. They've set that
23:00
as their target, and so there's a you know, the credibility is at
23:03
stake for the institution but also for Powell, and I think that is important
23:08
in thinking about how this institution's approaching what they're dealing with here. So let's
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let's dive into a little bit. Where did the two percent come from?
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What's the nature of the target for two percent? The rationale for a specific,
23:22
specific target on that So two percent wasn't something that you know, economists
23:26
did finally tuned empirical analysis to get to arrive at it actually came from New
23:36
Zealand. New Zealand had had, like many countries of bad inflation problem in
23:40
nineteen eighties, and so in nineteen ninety they said, all right, we're
23:41
going to set a target of zero or two percent, and actually we could
23:45
fire you central bank governor if you don't hit the target. The idea though,
23:48
was if you tell people what it is you're trying to do. You
23:52
know, monetary policy, interest rate policy operates through the financial sector, and
23:57
so before the nineteen nineties, the FED didn't tell anybody what they were doing
24:02
with interest rates. It was all a big mystery and you just kind of
24:04
figured it out from what was happening in the overnight borrowing market. But there
24:08
began to be this revolution glassnost in monetary policy, where if you actually tell
24:15
people what it is you're trying to do and how you will react incoming data
24:21
the Fed's reaction function. If you tell people what your reaction function is,
24:25
then as the economy unfolds, people in the markets they were guessing, but
24:30
they're really educated, well better educated guesses about how you're going to respond,
24:34
and so interest rates began to move as people began to understand, well,
24:38
actually, here's how the Fed's going to react to this, because we know
24:41
the FED is seeking in this case two percent inflation. So the FED also
24:47
up until that point in nineteen ninety six, inflation hadn't you know, inflation
24:52
had been too high, and so they always knew the direction of travel was
24:55
we want to bring inflation down. But by the early two thousands, and
24:59
you yet to worry maybe about interest rates went to one percent in two thousand
25:03
and three, there were concerns that maybe the problem could be too low as
25:08
opposed to too high on inflation. Japan was dealing with deflation and it was
25:12
a very difficult problem for that central bank to get out of. It has
25:17
been up until very recently. So Burnanky Ben Burnanky goes and says, we
25:22
should set an inflation target. And they had sort of already informally been conducting
25:27
policy with the eye of you know, one maybe it was one and a
25:30
half, maybe it was two percent. Finally, the financial crisis hits in
25:33
two thousand and eight and they say, okay, this is you know,
25:37
this is it. We could have deflation here, Let's set a target,
25:40
let's announce what it's going to be. And there's a great quote from Bernanke.
25:45
Before he became chair, he was a governor at the FED, and
25:48
in two thousand and three at an FOMC meeting, he said to his colleagues,
25:52
you know, ambiguity has its uses in games like poker, but monetary
25:59
policy is a cooperative endeavor, and so if we tell people what it is
26:03
that we're trying to do, we actually improve our odds of achieving it.
26:07
And so that's really where this two percent inflation targeting came from, and it's
26:11
something that's become a global standard. Really, most central banks around the world
26:17
have inflation targets, with maybe some differences, but generally two percent has sort
26:23
of become the standard that the goal thin. What do you think happens if
26:30
impacts like like what we saw this weekend are in conflict with two percent because
26:34
inflation is obviously not there yet, and yet there's some sense that maybe they
26:38
will stop raising rates for a little while based on the reaction to the failures
26:44
of the banks, the concerns about contagion. How do you think they weigh
26:48
different factors in the economy against that inflation target, because that becomes once you've
26:52
got an explicit target and you're not there you kind of ties your hands if
26:55
you At the same time, there are other things that you might want to
26:56
take into consideration that might change your point of view. It curious how you
27:00
think the FED up weighing things. So before the banking issues, the FED
27:03
had been able to say, well, this is pretty easy inflations. We
27:07
have two mandates and kind of a silent third mandate. The two mandates are
27:11
inflation, employment, maximum employment. The silent third mandate, I think is
27:15
financial stability. But financial stability was fine and employment was three point six percent
27:22
unemployment in February. What's not to like about that? So they were saying,
27:25
well, we can just go all in on fighting inflation. Now if
27:27
unemployment rises or if you have financial instability. Now you have to actually say,
27:33
what are the trade offs? How do we manage these tradeoffs. One
27:36
way they can manage it, and you hear some people talking about this is
27:38
well, we never said we have to get to two percent tomorrow, right,
27:44
you can get to two percent over time. And so right now a
27:47
lot of their forecasts and projections are consistent with getting their buy twenty twenty five,
27:52
So they're giving themselves two or three years to get to two percent you
27:56
don't need to get you ten percent of the work force unemployed tomorrow to try
28:02
to get two percent by December. This is referred to sometimes as optimal control.
28:07
Right where you're trying you you know, you know, you want to
28:11
balance these two things or these three things. The banking problems, though,
28:15
I think, are you know, a wild card certainly for the FED right
28:21
now if they can, you know, if they can deal with these with
28:23
other tools, like the things that they came out with on Sunday, that
28:26
would be their first choice is not to have to use monetary policy to deal
28:30
with you know, the right tool for the right job, so monitor,
28:33
if monetary policy is the tool you're using to deal with macroeconomic management and inflation,
28:40
then you come up with other tools. Sometimes they're called macroprudential tools,
28:45
regulatory tools. You know, you can intervene in the markets, but continue
28:49
to focus interest rates on bring inflation down. But if the if the banking
28:55
crisis gets really bad, then you're going to have much tougher conversations I think,
29:00
and decisions around that. And I would just you know, point to
29:04
two thousand and eight. You know, the day after Lehman went down,
29:07
there was a FED meeting, and the transcript is public, so anybody can
29:11
go look up what they were talking about at the FOMC meeting on September sixteenth,
29:17
two thousand and eight, and it makes for fascinating reading because there was
29:22
an inflation problem. Actually, that summer, oil prices went to one forty
29:26
a barrel CPI, the consumer price index went above five percent. Now core,
29:32
which is what the FED is more focused on, wasn't so high,
29:33
but they were worried about inflation. And you read what people were saying that
29:37
day, and I'm not you know, this isn't a gotcha exercise. You
29:41
can see that there were a lot of people around the table who were worried
29:44
about inflation as they were about financial sector instability. And in hindsight, you
29:48
say, oh my gosh, how could you You know inflation wasn't going to
29:52
be a problem anymore and we had the financial crisis, But at that point
29:55
in time, you know, so I've been wondering for months, wh happens
30:00
if we get into a situation like that. And I'm not saying we're in
30:03
a situation like that, but if we were in a place where you're worried
30:07
about inflation, you feel like your hands are taught. Even there's a financial
30:10
stability issue, but you feel like your hands are tied because you really got
30:12
to focus on inflation. Um the you know, it's it's It creates much
30:19
much more difficult decisions. Yeah, and I do think the concept of financial
30:26
instability at large scale feels more real and recent. I think the idea that
30:30
that is a thing that can happen, I think after two thousand and eight
30:33
probably doesn't feel as abstract to policymakers as it does as it might have at
30:40
that time. In some ways, maybe a little recency bias in having seen
30:45
some of those all right, last topic areas. I know we're running up
30:49
on the time I told you we take, but you mentioned the kind of
30:52
data and responsiveness of the FAT and I wanted to ask what you see in
30:56
terms of, obviously the kinds of data that uses there. I know there's
31:00
a lot of survey data that goes into this, and at least in my
31:04
world, in a lot of consumer spaces that the validity and kind of usefulness
31:10
assertive day data is coming into questions that becomes less People are less responsive to
31:12
various ways that we've taken surveys we're trying to find new ways? Are are
31:17
there interesting trends you see in the kinds of types of data that are available
31:21
to policymakers at the FED and other places and shifts maybe and how they think
31:23
about those data sources as they try and respond to pretty rapidly changing conditions.
31:29
I mean, even right now, like waiting for a survey response feels out
31:32
of date compared to how quickly you might have to make choices in some of
31:36
these situations. So I'm curious if you see the trends kind of data side
31:38
of how they look at what I think. You know, I think big
31:41
data or these new data sources do offer opportunities. I think one of the
31:47
drawbacks is maybe that there isn't a long time history with some of them.
31:49
So you know, the great thing about the payroll report is it goes back
31:53
to nineteen forty eight. You know, there have been changes over time,
31:57
but you do have a long time series on it um where you where you've
32:02
seen some of these newer data sources being really helpful. I think during the
32:06
pandemic, you know, the open table um and some of the you know,
32:10
there was small business payment processors Wampley there was a home base, which
32:16
was way to tracks kind of small business payroll, those real time sources when
32:23
something really crazy was happening, we were shutting down the economy, or people
32:28
were staying home out of their own choice because they were afraid of getting sick,
32:31
and so you were trying to figure out, well, what's happening out
32:35
there were you know what we're um, what's mobility like, what's what's foot
32:40
traffic like? You could use some of these data sources to try to figure
32:45
out if we were actually getting out of the worst of it. Uh And
32:47
and the FED did use those insided some of those um just in their kind
32:53
of um analysis of the US economy. And so it will be interesting to
32:59
see if more of those data sources, you know, the FED gets some
33:02
I think credit card data, real time credit card data. If you have
33:07
you know, if you have companies that are that have a fairly good market
33:12
share, then and the market share is stable, you're not having to worry
33:15
about mixed shifts polluting the data. There is more data that might be you
33:22
can bring to bear to try to figure out where those turning points are in
33:27
the economy. Yeah, well, certainly I'll add that to my list of
33:30
interesting things to watch, Nick. I appreciate you taking the time today.
33:35
I know it's a very timely conversation. I guess we'll all be watching what
33:38
actually happens over the next couple of weeks, because I said, this a
33:42
pretty fast moving environment and it'll be curious to see how how things play out
33:45
compared to some of the things we talked about today. So I appreciate your
33:47
coming and sharing your perspective. Thank you, Jeff. Pleasure to be with
33:51
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