Webinar: When Banks Fail

June 05, 2023
by: Cohen Circle Team

Our webinar brings together three prominent voices in banking and finance for a lively debate.

The panelists explore:

  • What happened with Silvergate, SVB, Credit Suisse, and First Republic banks
  • Long-term effects on financial markets, businesses, and households
  • New banking models for the future
  • And more!


  • Betsy Cohen, three-time bank founder and serial investor
  • David Kotok, CIO of Cumberland Advisors and famed commentator
  • Abby Joseph Cohen, Columbia Business School Professor and retired Goldman Sachs Partner

Moderated by Jewelle Bickford, Retired Global Partner at Rothschild NA

Below are some highlights from the webinar, followed by a full transcript.

If you only needed your telephone in order to take out the deposits, the Treasury the Fed, the FDIC had an obligation to respond with the same alacrity. And they didn't. They didn't give on that first round, the comfort that a solution would follow. A solution did follow. But that moment of pause, I think was a great contributor to the ultimate outflow of deposits. - Betsy Cohen

We have a number of the banking institutions that got into trouble that forgot some of the basic rules of how to be a bank 101, including things like diversification of deposits, diversification of liabilities, credits, but also, they kind of forgot about how to diversify and how to manage their risks. - Abby Joseph Cohen

My view is the Fed did intervene. And they did it several times. And the amounts involved exceed the amount of bank failures in the great financial crisis. So I applaud the action of the Fed. They acted as quickly as they could, they stopped a contagion. And the risk of that contagion to the banking system in the US economy was enormous. - David Kotok

The transcript from the live webinar on May 22 has been edited for clarity, and included below the replay video.

Jewelle Bickford 04:35
Welcome to our seminar on the banking crisis and navigating the aftermath. I'm Jewelle Bickford and I will be your moderator today. I was a formerly a partner at Rothschild investment bank, and more recently, a partner in Evercore Wealth Management, from which I retired last year to become the president of Paradigm for Parity, a nonprofit, which partners with corporations to help women achieve gender equality with racial equity by 2030.

It is our pleasure to have a distinguished panel of guests this afternoon. I'll begin by introducing Betsy Cohen, the founder of Cohen Circle. She has had a distinguished career. She started over 40 years ago in banking, real estate and financial law. Her career began as a professor at Rutgers teaching antitrust regulation and government antitrust law and government regulation. I think she soon found that banking could be more lucrative and switched careers. She founded the Jefferson Bank and more recently in 1999, if not the very first, one of the first FDIC-insured, online banks servicing the FinTech industry. Betsy has been described by Forbes as a Most Powerful Self Made Woman. But my favorite description of Betsy was when the Financial Times called her a female banking tycoon. She has served on many boards, including the Asia Society and Metropolitan Opera and the Metropolitan Museum. So she spends many hours giving back.

Our next guest is Abby Joseph Cohen, who is currently a Business Professor at Columbia Business School. Abby was extremely well known as a former partner at Goldman Sachs. She did research on economics, political policy, and the capital markets, and advised all of us as well as several foundations and institutions. But my favorite of Abby is the major baseball league, their endowment. Imagine being so well known in the financial markets, that Harvard Business School has a case study around your life and career, and that you've had your own profile in the New Yorker and your own cartoon. Welcome Abby.

Our next guest is David Kotok, who has had an equally distinguished career. He is the Chief Investment Officer and Founder of Cumberland Advisors. He's a frequent contributor to the financial media, both the New York Times, The Wall Street Journal, Barron's, and Bloomberg. He has written four books, but my favorite is From Bear to Bull Market with ETFs. He's also been in government in New Jersey, he was on River Port Authority, and also on the Treasury transition team for Governor Thomas Paine and Christy Whitman. Welcome, David. So let's get started.

Abby, who is to blame? How did this happen? Is it the fault of the bank managers and the CEOs? Is it the fault of the regulars? Set the stage for us, please.

Abby Joseph Cohen 09:31
Jewell, thank you for what I think will be the beginning of a wonderful discussion. I think it's important to recognize that there has been a confluence of factors that contributed to the most recent banking crisis, and we need to talk about all of them. However, let me in the interest of brevity just mention four of them.

The first has to do of course with Fed policy and the rise in interest rates over 18 months. And it wasn't the rise in rates itself that was the particular problem. But that so many participants in financial markets sort of forgot how to deal with changing interest rates, we became so accustomed to low rates, in fact, rates that were on an inflation adjusted basis, zero or less, and we became accustomed to that low volatility. So when that began to change, many of the banks were not prepared.

The second thing to keep in mind is that there was plain and simple, some really bad banking. We have a number of the banking institutions that got into trouble that forgot some of the basic rules of how to be a bank 101, including things like diversification of deposits, diversification of liabilities, credits, but also, they kind of forgot about how to diversify and how to manage their risks. In one case, for example, Silicon Valley Bank, there was no risk officer for the final several months of that bank's existence.

The third piece is that the supervision and regulation that would normally be provided by the Fed and the FDIC, was somewhat lacking. And a recent report by the Fed indicated that in fact, was partially to blame. Now, there can't be enough regulators to sit on top of every single bank. And in fact, the Fed, the Fed staff did signal to SVB Bank as one example, that they were concerned about some poor risk management techniques. But the bank didn't follow up. Neither did the Fed. And one of the questions is, why not?

And one final factor that we have to keep in mind is that in some ways, what happened several weeks ago, was a bank run. There have been bank runs in the United States for centuries. Not that we're such an old country, but you can go back to the early 19th century, and find other examples of bank runs. This was a 21st Century Bank run, you didn't have to go to the bank to ask for your money, you just had to pull out your phone and transfer the funds somewhere else. And so much of what happened, happened very, very quickly. Social media played a role as well. And it didn't really give the banks or the regulator's an opportunity to take care of this perhaps in, let's call it a less panic kind of manner.

Jewelle Bickford 13:08
Well, thank you. This gives us a lot to build on. See. I have always thought one of the major strengths of the US banking system is the broad range of regional and community banks throughout our country. What is the impact on them? And also expand a little bit on what Abby said is this crisis self inflicted?

Betsy Cohen 13:35
It's self inflicted in that the bankers did not really act as bankers, they were acting as marketers as growth company CEOs, etc. But managing a bank is managing risk. And I think they took their eye off the off the ball, I do agree with you. That one of the strengths of the US banking system is the localness of the banks, the ability to respond to a particular community, which has characteristics that are different from those that are national. And so the understanding of community needs has always been a great strength, which we haven't seen in countries that have very concentrated banking formats. But I think this will impact the community banks because the essence of this is the element of trust, as it is in big banks and small banks, but trust by depositors, by borrowers in fidelity, and the professionalism of the bankers and the bank regulators.

And so if we go back to what Abby was saying about a run on the bank, whether it be electronic or in person. I think the funding mechanism which has been traditional for community banks, which is primarily local deposits, has to be unsettled. At this point, we see a great movement from deposits into treasury bills, and that's yet another story. But if in fact, the funding is not there, then the lending will not be possible. And that is a circle, which is not virtuous.

Jewelle Bickford 15:38
That's an excellent point. David, you heard Abby say the Fed even said themselves, that they have some responsibility here. Is it fair to criticize the Fed and talk a little bit about the cost that is ensuing as a result?

David Kotok 15:59
Well, Abby opened remarks with four factors. So one of the factors was the Fed, and Betsy demonstrated factors, which were not the fear, but the behavior of bankers. So if we say was the Fed at fault, yes. But it's a very interesting debate, to say, you're going to make a policy that is going to affect an entire system. And you're going to do so coming out of a long stretch of zero interest rates and Pandemic fighting, and then an inflation surge, all of which can be criticized with a retrospective, but in real time as a policymaker are very, very difficult to deal with.

I think the Fed did a reasonably good job with what it had to deal with. And then when it came to the run on the bank that Abby described so well, with SVB, the Fed intervened to stop a sequential contagion in the banking system. And it did so in a very unusual way. It developed a method to lend to the FDIC as a federal agency. Once that happened, it was able to support the deposit structure. So we didn't have depositors lose their money and trigger sequential collapse. The Fed acted quickly, it had to wait for the FDIC to cease SVB. And then it had to go through a process and that process was enshrined in 2018 in law, so it's falling quickly. Now it's a counterfactual to make the argument I just raised. The we don't have a counterfactual, the counterfactual would have been what happened if the Fed didn't intervene. And we can speculate about that.

But my view is the Fed did intervene. And they did it several times. And the amounts involved exceed the amount of bank failure in the great financial crisis. So I applaud the action of the Fed. They acted as quickly as they could, they stopped a contagion. And the risk of that contagion to the banking system in the US economy was enormous, in my opinion. That's I think Fed did a good job here.

Jewelle Bickford 18:53
Okay, well, they'll that's a wonderful point to be made. And I'm sure they'll be very happy to hear. Abby, I'd like to go back to you again, please. How do we know when this is over? Are we through with the banking crisis? If the Fed has done such a good job, as David described, is it over?

Abby Joseph Cohen 19:15
That is a very difficult question for you to answer with any humility or confidence. But let me follow up David's comment, and that is to say, the Fed admitted that there was some mistakes that they made prior to the collapse of SVB and signature, but I agree wholeheartedly that they've done a terrific job since and this is part of the answer to your question, Jewel, which is they are now paying very careful attention to other institutions where there may be similar problems.

Also, keep in mind that one of the things they did was make it pretty clear to everybody is that there is no limit upward limit. In terms of that FDIC insurance. One of the reasons we saw money flying out of some financial institutions, including at First Republic, is that many of the depositors were nervous about whether their funds would be protected. And I think that the Fed and FDIC have made it clear that those funds will be protected in whatever institution they're in. And that's something that should, I believe, have a calming influence on on what's going on. You know, the Fed learned lessons from previous crises, and one of the most important ones was 1930, where the Fed made some huge mistakes, there was a very large commercial bank that was viewed as a regional bank, at that time called Bank of United States. This is a bank that was illiquid, it was not insolvent, and the Federal Reserve, and the bank and the Federal Reserve Bank of New York took the position that they couldn't do anything about it. And when the other commercial banks at that time, basically refused to provide any assistance, Bank of United States closed shop.

Now, the consequences were enormous. It was actually the largest commercial bank in the United States, in terms of size of deposits and number of accounts, and it basically was responsible, according to scholars, Ben Bernanke, who's a Princeton study, the Great Depression. Milton Friedman, Anna Schwartz, and they believe that it was the failure allowed by the Federal Reserve in 1930, of this bank that turned the recession of 1929, into the Great Depression of the 1930s. And this is a Fed that learned its lesson in that regard. We certainly saw it in the 2008 and 2009, GFC, when Mr. Bernanke was in charge, and I think we saw it again. Now, when the Fed moved in quickly. Whatever the risk factors weren't leading up to the crisis, this is a Fed that has shown it's willing to step up when there's a problem and try to take care of it to reduce the likelihood of contagion. So my response to your question, is it over? I don't know for sure. But I think that they will continue to play whack a mole, if they need to.

And I think that we have already seen some calming down. But that he makes a good point, we have seen that money has flown out o,f float out rather, of some of the regional banks that's gone into some of the very large major banks, the so called G-SIBs, the globally systemically important banks. And what's happened is the concentration of our banking system has increased. So whereas originally, we might have told ourselves, our banking system is best served, by having lots of institutions, we now see that the money is being concentrated in a very small handful of very large institutions.

Jewelle Bickford 23:17
Well, that's an interesting question for Betsy. I mean, Betsy, do you think as a result of what's happened that Abby's talking about, JP Morgan acquiring 30 billion of assets from First Republic and all this consolidation, do you think that means we're going to end up like the Canadian system? Are we going to have, you know, a few mega banks and no more community banks? And And also, if you can add to the question, or your answer, is there anything anybody can do, the Fed can do to help the community banks get these deposits? Again?

Betsy Cohen 23:51
I would like to begin by taking issue with my co-panelists. So on the question, the Fed, and we're using that as the term I think for the overarching governmental regulating bodies really did quit. And I take issue because just as it was mentioned, that if you only needed your telephone in order to take out the deposits, the Treasury the Fed, the FDIC had an obligation to respond with the same alacrity. And they didn't. They didn't give on that first round, the comfort that a solution would follow. A solution did follow. But that moment of pause, I think was a great contributor to the ultimate outflow of deposits. I think the community banks will recover from that, because there is a much more direct communication mechanism. But I do think that we, the sequence of events, has moved us toward a much more lopsided and concentrated banking system than we might have envisioned even five or 10 years ago.

Jewelle Bickford 25:30
Well, that brings me to the question that I asked David, and I'm going to ask all three of you. What are the costs going forward? I mean, are the banks going to have to pay all kinds of new fees? Or is the consumer going to have to pay a great deal more, I'm not just talking about interest rate costs, although that's a huge cost. So David, let me start with you. And then I'd like everybody to weigh in on this topic.

David Kotok 25:57
We know there's a cost. Because we know the FDIC now has a plan to replenish the Deposit Insurance Fund. So we know a cost will be levied, we know there'll be a cut off point at 5 billion in deposits. We know what the fee will be, roughly two basis points of months. And we know what it will take, two years. And those are estimates. But they are pretty refined. That's cost that's coming. That's coming on every midsize and larger bank in the United States, every one of them. That's our system.

So we know that Betsy made a point about community banks to new banks are under more scrutiny. They are the supplier of credit and banking services to small and independent businesses, and in some places in the country to the agricultural businesses. And they are under a contraction in the ability to extend credit that to cost with to transfer to the small and independent business, or to the agriculture sector or other sectors. So that's the second derivative costs, but it's a big one. The third cost is hard to estimate, in my opinion. And that's uncertainty premium, the definition of an uncertainty premium, is you can't estimate what it is, you know it's there. But you don't know how much it is. And Betsy makes a point that I think is very valid in the initial pause, the initial pause, scared the hell out of everybody. And the repair of that pause. Trigger of uncertainty premium may be underway.

But if I might, it's being exacerbated by the debt ceiling debate, which means two things: we have simultaneous problems in the financial sector, and then they apply to the banking sector. And at the same time, we have no resolution of clarity on either one. And if I may, a good example that applies to banks and banking this morning. This morning, the difference between the normal relationship between a one month treasury bill yield, and the federal funds rate, which is the policy rate was out of whack by 58 basis points, that's over half of 1% in cost. That is a cost that's being directly or indirectly imposed on every bank, every bank deposit, every business, every money market fund in the United States. That's this morning. Why? Because the uncertainty of the banking system is in play. And we don't know how to measure it. But we do have a way this morning to put an estimated price on it. And at the same time, the debt ceiling debate is raging. And we have a way to estimate the combined price. And it's almost 60 basis points, six tenths of 1% and an interest rate on the entire country and all of its businesses and financial system. So there is a cost. And that cost is being applied right now today to you and me and everybody on this call.

Jewelle Bickford 29:46
Well, that brings me to an interesting point. Going back to Betsy, how do small businesses deal with the economics of this? What advice do you have for founders, especially in the startup world?

Betsy Cohen 30:04
I think it's very serious. And I think it will cause the failure of bankruptcy of a number of companies that might, if they had had access to credit, over the interim period in which they were building a business, to fail. I think we saw just a foreplay of this in the in the pandemic, when the PPP was being administered. Small businesses that did not have access to the lending mechanism to tide them over -- whether it be restaurants or other consumer businesses that are generally small businesses-- and did not have any customers because no one could come out. We saw those that got access to the PPP were able to survive, and many that did not survive. And we will see this accelerated in this next period. Because of the lending contraction. I think the way to at least work at the issue for small businesses is to reinforce their communication with community banks if they have them already, or to develop them if they don't.

Jewelle Bickford 31:51
Is there any on the flip side of this? Is there any strategy that you can suggest that banks can implement to restore customer confidence so that they start depositing again in the regional banks, and so that they have money to lend going back to this circle?

Betsy Cohen 32:10
I think it's going to take time. I think that there is no instant viewer for lack of trust. And so I think that over time, whether it's one month or two months or a longer period, that trust is going to have to build up again. And if communication is part of that development, or redevelopment of a trusted situation. That's what I think small businesses are going to have to work at.

Jewelle Bickford 32:48
I know that you started your career with a lot of experience in real estate, don't these community banks often lend in real estate?

Betsy Cohen 32:57
Well, I think they've been shocked, so to speak, by the fact that one of the major elements that needs to be managed is the duration of loans, vis a vie the duration of funding mechanism that deposits. And I think that banks like First Republic, which made a significant number of longer term, real estate loans, and it's inherent in real estate, that the loans be longer and not on the same cycle as the demand deposits. You know, may shy away from that. So I think real estate, it's not only the cost of the borrowing, it's the availability and the borrowing, which may in fact impact the development of ongoing Real Estate projects.

Jewelle Bickford 38:06
Do you expect there to be new regulations on behalf of the government? Because the banks didn't do what they were supposed to do? Or do you just think it's a matter of better enforcement?

Abby Joseph Cohen 38:28
I think the discussion thus far is really more along the lines of better enforcement, internal enforcement, making sure that risk control systems are in place. But let's keep in mind that even though we have many fewer financial institutions, many fewer banks than we used to, there are still a lot more financial institutions than regulators. And you can't expect each of the regulatory authorities be at the Fed or the FDIC, or the comptroller of the currency, to actually have enough people to be sitting with the auditors at each financial institution. So it really becomes a question as it often is of self policing.

And I do think a number of these institutions have learned some lessons? One of the things to keep in mind is that the damage that has occurred with regard to many of these institutions hasn't been to the depositors. And I think that's a good thing, because the depositors were protected, but there has been significant damage to the shareholders. In some cases, the shareholders were wiped out. In other cases, shareholders have lost a significant percentage of the value they thought, and we've been so damaged to the bond holders. And I think that managements of many of these companies in response to their outside shareholders. Some bondholders are just going to have to learn to be more careful. And as Betsy put it, they need to worry about internal risk controls.

Jewelle Bickford 40:10
David, what do you think? Do you agree with Abby? Or do you think we're going to have the new government regulation?

David Kotok 40:18
Yeah, I agree with Abby. And I think we'll see more government regulation. If we look at history, starting with 1930, and the failure of the Bank of the United States, every time we reach a point and have a financial crisis of some type, two things happen. One, it is followed by more scrutiny, more regulation, and more intense restriction to avoid a repetition. You could criticize that and say yes, but they come in and fight the war that's already been fought and lost. And that's part of our system.

The other thing we do is we go through an intellectual debate about moral hazard. But moral hazard in our system changes every time we have a crisis. I had clients who said to me, we should have let the depositors fail of SVB, we should have let the depositors lose money, it would have helped the system. Don't you agree? I said, No. Tell me what benefit it has to bankrupt. Many other companies fire those employees, destroy their capital structure. So we have the moral hazard debate. It's an intellectual debate, I happen to agree with it. I wish everybody were more responsible, but they're not. So our system is changing. We'll have more rules, more scrutiny, more regulations. This time, we're going to see more clawback on management. The management of SVB will be defending themselves in court for a while. There is an issue here of management responsibility, responsibility to the public, to shareholders, and behaviors. And the scrutiny this time, because of the size of these events will be enormous. And that's a probably a good thing, because it's in favor of integrity as a manager.

Jewelle Bickford 42:45
I saw in the paper that the CEO did not wish to give back his bonus, which was huge, many millions of dollars that had been given to him just shortly before this crisis exploded. Do you think that he will be made to give it all back?

David Kotok 43:02
I can't say what he will be made to do or not to do. But what I can say is, there is a desire to see discipline imposed on management decisions, which certainly don't seem to be within high integrity standards. Maybe the United States needs South Singapore law, instead of US law. And things might be different. I see Abby smiling at that one week, we're gonna see it in the public domain this time after this crisis.

Jewelle Bickford 43:48
Okay, Betsy. What's your view?

Betsy Cohen 43:53
I agree with everything that's been said, but would add just a bit to it. I think management will be punished, so to speak, during this next period of time, because there's a build up of anger, that management was not punished in the last financial crisis. So that will carry over. I think it's probably well placed. Because, in fact, even if it's not management's fault, the profile of a successful bank has really changed during this recent period. It went from being well managed in terms of profitability, to being growth oriented. And those two things don't always coalesce. So management has a lot of responsibility. And it may be convenient for management to be more in the limelight in terms of what I'll call punishment. But it really is, I think, a healthy thing in that if it can be kept in balance, that management, reimagines the bank as a group of assets that have to be risk managed. And that is the essence of banking. And it would be a good thing to have that be the measure by which management is judged.

Jewelle Bickford 45:45
This panel has presented a rather grim picture, if I'm going to summarize here, management will be punished, banks will lend less in their communities, because it's going to take time to build back faith with the depositors to get the deposits to build up the money to lend. And we're probably going to see some new regulation and hopefully better enforcement. Is that fair?

And when you overlay on top of this, that we have this crypto currency? Do you think the government is going to regulate what I look at as a sort of shadow banking system?

Betsy Cohen 46:37
I'm happy to start, I don't know where the end is. But I think cryptocurrency has been a mystery, in terms of its management, to regulators for a period that extends beyond or that of the recent crisis, I think it is a very difficult area to come to conclusion on. But I also think that it is a symptom of what was growing unease with the banking system in terms of looking for alternative mechanisms for the transfer of funds. So it doesn't stand alone, it turns and it isn't necessarily a result of this recent crisis. But we'll have to be dealt with over the course of the next years, in maybe a wholly different way.

Jewelle Bickford 47:50
Abby, what's your view of what I call the shadow banking system?

Abby Joseph Cohen 47:56
The shadow banking system is far broader than just crypto. I'm not a huge crypto fan. One little factoid, of course, is that Bitcoin itself is incredibly energy wasteful. So I don't quite understand the enthusiasm for it. But the shadow banking system is very, very broad. It's not just banking institutions that we became accustomed to, but you look at hedge funds, private equity funds, etc. Many of them have been stepping in through things like private equity, but also private credit. And when we think about, where could there be a points of stress over the next year or so I think private credit is clearly one of those areas. A great deal of institutional money went into that category, a lot of foundations and endowments and so on. And the question is, was it priced properly, when interest rates were so low, particularly inflation adjusted interest rates, and now that nominal rates have have risen, and real rates have risen, a lot of that private credit, may turn out to be not quite so well structured? And this to me is a potential problem.

Jewelle Bickford 49:16
David, do you have any comment on this, please?

David Kotok

I would make two quick points. We saw a cryptocurrency dealer blow up in a bankruptcy. And we will be litigating that for a while. And it was a shock. It was not a banking, systemic shock. It was a shock. People lost money. They complained, I remember the clamoring for the FDIC to extend $250,000 worth of coverage to a Bitcoin investor that lost money. Now, there are words for temerity in various languages. But that's temerity. And that's exactly what distinguishes the banks, the banking system, the Federal Reserve, the FDIC, the US dollar, as a reserve currency and all its institutional history and legacy good and bad, from these others.

The second point is when you have a banking crisis, and you have lending contraction, at the margin, you move some customers away from the banking system, because they are without choice. So they are then more vulnerable to the private side, which is not reported and not observed. A lot of loans have a phrase attached to them, the little letters EBITDA, there is no generally accepted accounting principle. Definitely definition of EBITDA, different strokes for different folks. That's a warning for those who want to play. We are very careful. In our firm, we do reviews of portfolios for banks and for our clients, we stay within the mainstream and avoid the other shadow side. That's our choice. That's why we have clients who come to us. So different strokes, different folks. What I fear is this banking crisis will shift some of that activity into this murkier area.

Jewelle Bickford 50:34
That's a sobering point. I'd like to close by talking about the elephant in the room, which is the debt crisis, raising the debt ceiling. We briefly discussed it. But I'd like to start by asking each of you the probabilities. So Betsy, why don't you begin, what is your feeling about the raising the debt ceiling? Do you think Congress is going to do this and 10, 12 days that are left?

Betsy Cohen 54:36
Well, I've been so pessimistic that I feel that I have to be optimistic someplace. And I guess maybe I'm pollyannish on this, but I do think that despite all the political pressures, that there is recognition of the importance of coming to a positive, or an agreed upon conclusion, with respect to the debt ceiling, and so I would say, because there is no other choice in my mind that it will get resolved. I know that sounds uncharacteristically optimistic for me. But I'm gonna stick with it.

Jewelle Bickford 55:23
Well, I'm happy to hear that. Abby, what is your feeling?

Abby Joseph Cohen 55:28
Well, let's begin with the observation that the debt ceiling itself is absurd.

Jewelle Bickford 55:35
Glad you mentioned that.

Abby Joseph Cohen 55:37
To basically have a situation where, let's say, an individual has used their credit card. And at the end of the month, that individual says, "To show you my fiscal rectitude, I'm not going to pay my credit card." That's exactly what's going on here. The Congress has already approved these expenditures, a lot of the money has already been spent and so on. We are the only country that has this debt ceiling process. It's absurd. And what's going on now is the theater of the absurd in my view.

Since 1960, the debt ceiling has been raised, if I remember the data, 78 times, two thirds of those occasions were under a Republican President, one-third under a Democratic president. So to think that this is a Democratic issue, or a Republican issue is also not quite correct. What I do worry about, though, is that Mr. McCarthy, who has to be running the process now for the house, as speaker is very beholden politically, to many of the extreme elements in his own party. There are many people who have said they're never going to vote to raise the debt ceiling. Now, hopefully, they'll change their mind.

And I think that we have a situation where there may also be some in the Republican caucus who think it would be okay to mess up the the economy a bit, particularly to benefit their candidate for 2024. So I find myself somewhat pessimistic. That doesn't mean the debt ceiling situation won't be resolved, it has to be resolved. The question is, when, and how much damage will be done in the interim. As we discussed earlier, there's already damage, we've already seen credit default swaps being priced as if there's a big problem. In the United States, we've already seen interest rates rise more than we think they probably would have done. Other than that. And I'll just remind everybody that the last time this happened, which was 2011, again, Republican Congress, a Democratic president, the rating agencies downgraded US Treasuries. But the market downgraded US Treasuries days before the rating agencies actually did. So as David suggested, at the very beginning of this discussion, keep your eye on what interest rates are actually doing. And what this tells me is that there's already concern about what's going to happen in the United States as a consequence of this.

Jewelle Bickford 58:33
David, what's your view on raising the debt ceiling?

David Kotok 58:36
I agree with Betsy, it'll eventually be done. And I like her optimism. I agree with Abby, and her concern and the risks she's articulated. I agree with her pessimism. And I ask one question- has no answer. Is our political system so fragile? That the only way we get a resolution in matters like this is to have a TARP moment on the stock exchange when we wake up the country? We haven't had the TARP moment. SVB could have been one. It's a good thing it wasn't. And if there were TARP moment tomorrow, which would be one of the great market opportunities for those of us who would be willing to take it? But which shocked the country and jolt the politicians and leave them then no choice? Maybe? Maybe Janet Yellen has to say, "I can't send you your social security payment this month, because Congress won't let me." Maybe that's what it'll take. We'll see.

Jewelle Bickford 59:50
Maybe we should suggest to Janet Yellen that she not send any money to anybody in Congress in any capacity. Maybe if they didn't get their paycheck.

David Kotok 1:00:02
Jewelle, when you say that, I'm ready to vote for you for any office at the federal level you want to run for.

Jewelle Bickford 1:00:08
Thank you very much. Well, this has really been fun for me. And I want to thank everybody in the audience for attending. And I want to thank our panelists who are certainly among the most knowledgeable people that I know on this topic.

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