Mohamed El-Erian, chief economic adviser at Allianz and Bloomberg Opinion columnist, talks about the banking crisis, what new regulation could look like and he shares his views on future interest rate policies. El-Erian spoke with Bloomberg’s Francine Lacqua in Cernobbio, Italy on March 31 on “Bloomberg Surveillance.”
El-Erian’s opinions are his own.
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Good morning Anna and thank you so much and it’s so beautiful actually here in Lake Cobo that people always wonder can something really go wrong with the world economy when you’re in such a beautiful setting it’s a firm yes especially when you look at Banks I’m delighted to be
Joined Now by Muhammad Elyria Muhammad thank you for joining us when you look at the banks I mean what have we just lived through like Mar it was March Madness and it took us a while to get through it so we lived through a funding crisis that was created because of a lot
Loss of trust you know banking is based on trust and if trust goes out the window bad things happen the good news is the flashing red is behind us but we’re now in the flashing yellow phase we’re going from liquidity to Capital and from Financial contagion to economic contagion how
The credit crunch because does that take so it takes a long time this is not 2008. 2008 was a sudden stop where things just stopped because the payments and settlement system was at play this is very different this will play out probably in the third and
Fourth quarter and it will have a long tail so it is very very different from what we’ve experienced before is there anything think that policy makers cannot put in place to cushion that well the first thing is to fix past mistakes this was as admitted by the Vice chair bar a
Major lapse in supervision this should not have happened but it did happen so the first thing to do is to make sure that with the existing regulation there’s better supervision then there is a potential for some tweaks to regulation but we must be really careful because if we go overboard on regulation
This will cause Banks to be even more cautious but what’s so what’s the next thing to follow I don’t know whether if you look at svb but also Credit Suisse and we understand it was a you know a problem basically run on the banks it was people fearful about their deposits
Is there something else I could break yeah so so when you have three things coming together in inherent fragility both svb had a balance sheet fragility and pretty Suites had a business model fragility that had been there for a long time two is when you have interest rates that weren’t increased in
Time and therefore accelerated in a very short amount of time and then third when you have amplifiers in the system you get what we have in terms of what next I actually worry less about a banking crisis as much as I worry about the consequences of what we’ve already seen
But there’s something like pretty sweet I mean it’s really incredible actually the speed at which it happened and we always know for many years that it had a model problem but it’s just gone right in like the space of a week it could it happen to someone else sure it could
Have I mean if you lose trust in a banking institution it is very difficult to save it you know I often step back and say Switzerland’s second largest bank is gone one of the 30 systemic banks are gone and they went just like that we now heard that Silicon Valley Bank not only
Lost 42 billion on the Thursday but was it was said to lose 100 billion of deposits on the Friday things move at the speed of sound and regulators and supervisors had to realize this because when you have a lapse in supervision the risks of fragility are very large
But vicarious piece wasn’t a problem of supervision right it was basically that that people were feared and deposits were flowing out and the government stepped in is there anything in Europe that again policy makers can do to try and reassure or is it a business model
Problem do banks now need to give more for deposits to make sure that that people stick and are more loyal with them so so I think it’s mainly a business model issue um they have to safeguard deposits that’s issue number one issue number two we’re going to revisit liquidity buffers
We’re going to revisit Capital buffers because that’s important so it is a business model issue and Banks often have to evolve Muhammad when you look at what’s going on in the U.S do you really worry about Shadow Banking and again when you talk about Shadow banking do we
Have any idea of how big this is so we don’t and that’s one of the problems is that the supervisory process and the regulatory process has lacked developments so what happened as you know is that lots of the risks that were in the major Banks migrated to the
Non-banks and non-banks Now operate like some of the major Banks we don’t have a good understanding of that but what we do know is that sudden moves tend to catch people off site you and I lived through the October November drama in the United Kingdom who would have
Thought that the pension system could be to quote Andrew Bailey near meltdown but it happened because interest rates moved so quickly so there are significant fragilities in the non-backing sector and we’ve got to figure that out but in the US is it the fed’s fault because they were behind the curve dealing with
Inflation and then when all guns blazing you know the the example I use is how would you feel if you’re in a car when there’s fog and the driver continues to drive it at maximum speed and then the because they say the fog is transitory it will lift then the fog thickens they
Say well maybe it’s not transitory but they continue to drive quickly and then suddenly they panic and hit the brakes do we expect accidents when someone drives like that yes and we’ve gotten Financial accidents it for me it doesn’t come as a surprise at all that the mistake of transitory inflation and the
Mistake of not moving fast enough to begin with which then resulted in the massive increase resulted in accidents the hope is you don’t get a big economic accident right so how can they readjust to that right so they’ve made the mistake what do they do now so the worst
Thing that would they could do right now is to say we have a credit issue coming yeah let’s cut interest rates if they do that we will end up with stagflation and financial instability I think president Lagarde was absolutely right when says monetary policy interest rates is
Targeted at Price stability and all the other tools we have we target Financial stability do not commingle the two I think the ECB understand that that but the FED is at the risk of commingling this is different this is actually also the argument that Ellen zettner of
Morgan Stanley was saying is that they have to keep these two separate it’s very easy to to conflate them if it infects the economy correct and the market has already conflated them the reason why the market thinks that we’re going to get a cut as early as June is
They believe that the FED is going to be reacting not to a significant decline in core inflation that’s going to create a problem but it’s going to be the client here reacting with something else and I think that would be a mistake Muhammad it does you know and and I
Think you were one of the first ones to to say if they go to the two percent Target even three percent they’ll crush the economy will they be happy with the four percent inflation it’s also if there’s a confounded credit crunch so it’s very hard to protect this threat
Very hard they’ve got the wrong framework they’ve got a framework for the world of yesterday not today and the decisions aren’t consistent over time um so they would have a choice um in the third quarter either crush the economy to get to two percent yeah change the two percent Target which they
Won’t do because they’ve missed it so much or like you say live with three to four percent inflation hoping that it’s stable and and keep on promising us two percent down the road I think the third choice is the most sensible one in these in this world of second best whether
They do it or not I don’t know Francine but you would do that where do you see interest rates in general in the US by the end of the year no Cuts so I don’t see them cutting okay let’s let’s talk about what they should do and what they
Will do what they should do is they shouldn’t be unless something that we don’t know happens in the real economy yeah um what they will do I don’t know um you know when when you are overly data dependent and the FED is overly dated and you know when you’re acting
With tools that have impact over time yeah you can’t react to every bit of data you have to have a strategic anchoring and this fed has lacked a strategic Anchorage
This financial event was created intentionally by the low interest rates which encouraged unserviceable debt, this and all the poor regulation, inaccurate us fed chair guidance and a desire to create conditions that will allow the introduction of cbdcs.
The only thing I disagree with is the word "accident". It was /is incompetence.
True .It is a long slow grinding down nature of recession. Hard Assets will remain at their inflated value and possibly collapse later. The currencies are already depreciated w.r.t Hard assets, commodities and will then collapse even more. Crisis was started by paper currencies and printing and will possibly end with paper currencies being in focus with much less value. The situation can only be lifted by services and human effort
So far, I can only say that globalists have screwed up everyone by turning situation around the COVID-19 by making everyone make the same but spend more on everything. 😢 This is extremely unfair wealth redistribution. Plus IRS is behind regular folks, banks are reporting every transaction over $600. So, if you would cash out the same $666 and then deposit it and do it enough times monthly then you might attract unnecessary attention of the IRS 😢
SVB was laundering money from drugs and human trafficking from out of New Hampshire politicians and corp owners? See Mike Gill and his investgation into SVB and New Hampshire and it goes all the way to the Federal reserve. An upcoming investigation into New Hampshire and corruption with lots of offshore accounts found in the Panama Papers is coming soon. Someone tipped off SVB and in 10 hours 42 billion was taken out of the bank by depositors. Weeks before SVB bank leaders sold stock. SHUT THE FEDERAL RESERVE AND CENTRAL BANKS and arrest all laundering money. Especially Deutsche Bank and BOA and wells fargo and Chase Manhattan and Jp Morgan and Credit Suisse. They know all big banks are making big bucks laundering money from drugs weapons and child trafficking. Time for bankers to be imprisoned for aiding drugs that kill our children.
Due to the recent events with SVB, it is uncertain that the market will make large gains very soon, therefore it is prudent to limit expectations and prepare for a potentially lengthy recovery phase. It is advised to postpone major investment choices until the economic situation in regions of concern has stabilized. It's better to remain cautious and avoid becoming involved in the present volatility.
Bank run now! Get cash.
Time to end the federal reserve. Most evil institution ever created.
he said, "greater liquidity buffer". Translation: cash reserve
El Erian is right as usual. The funny aspect is that the FED during the era of the Gold Standard was unable to save the economy during the Great Depression because they were focused on maintaining Gold quantity in reserves and today the FED may once again be unable to save the economy due to a focus on reduction inflation which if you see the recent decisions by OPEC+ well guess what? The FED once again has no control over the issue it is trying to solve. I think the FED will need to accept higher inflation if they will aim to save the economy and with the forces of DE-Globalization that may anyhow become expectation.
The feds anchoring was transitory
self inflated hype
Every bank would fail if there was a sudden withdrawal of 30% or more of their deposits, unless there is a way for that bank to easily borrow funds from another source.
The failure of Silicon Valley Bank has torn into global markets, with investors ripping up their forecasts for further rises in interest rates and dumping bank stocks around the world. I'm at a crossroads deciding if to liquidate my dipping 200k stocck portfolio, what’s the best way to take advantage of this bear market?
Iblees was Ali ?
Fish and rice ka Pakistan.
We have hyperinflation in 1973-80 becasue Fed went along with market by keeped interest rate low. EL-Erain said all correct except cut interest rate. USA goverment now using a lot of paper money to buy weapons, support Ukraine. Goverment 's high expenditure in US weapons manufacture will cause high inflation in global market. Once loosing financial policy, US dollar will flow around market. Hyperinflation will be there.
Well the recent events with SVB make it unlikely for the market to make significant gains soon, so it's wise to manage expectations and prepare for a potentially long recovery period. It's recommended to avoid making significant investment decisions until the economic environment stabilizes in areas of concern. It's best to exercise caution and avoid engaging with the current turbulence.
When the Great Depression and other huge catastrophes occurred, I used to believe that everyone went bankrupt, but they didn't… Some made millions; I also assumed that everyone closed their businesses during these times, but certain did start new ones. It all depends on your point of view; there will always be moments of prosperity for some individuals and times of depression or recession for others. My main concern now is how can we generate more revenue during quantitative times? I can't afford to see my life savings of $200k crumble to dust.
INflation is good brah…..Stock going up to infinity brah. BUY THE DIP BRAH
Banking is based on trust.
One might say based on confidence run by confidence men.
Good to see Mo is back 🎉
I have a feeling, that the fed knows they are going to “crush the economy” they just won’t say it.
Mother of All Ponzi scheme is at the end of the line 😂😂😂😂😂 gotta get more debt otherwise it's over!! Find the debt pronto you are out of debts.
Como Lake, what a wonderful place to retire in. That's why you want to become rich…
Otherwise, I do totally agree with Mohamed.
Sell oblgations, invest in gold, its just tbe start of the crisis
58,836 views and 806 likes, says it all.
Good interview – but he missed – not only Feds fault but the Whitehouse to with their increased spending that goes unchecked
Always my favourite to listen to, simple terms and insights clearly. Keep bringing him back for longer please !
I'm really worried about the current bank crisis. If a bank as big as SVB could fail, I fear for a lot more. I know a friend who is running a high-growth startup, and was badly hit by the bank run. I have pulled out more than $340k from my bank. After all, the FDIC covers only up to$250,000, and the implosion could have bad effect.< Looking to invest into the stock market now. Does anyone know how I could go about it>
The eternal optimist, Mohammed El Erian. How do you all know the worst is behind us?
Biden ruined America. Giving another 2 billion to the comic while America goes to ruins.
4:52 Who has being printing money for more than a decade? It's not being "behind the curve"…Central Banks created this problem long time ago.
3:28 Money laundry for more than a decade!!! Yes, there was a lack of supervision.
Funny how this guy lies 😂😂😂 as if they don't control the system & everything happened by itself 😂😂😂😂 again trying to fool you. They know they did it. Nothing there is left unchecked. They do but blame is shifted away.
Busted Banks should be bankrupted and the depositors should get their money up to the guaranteed limit of around $250k. That is the contract.
Everybody else associated with the failed bank should lose…end of.
Joe Bloggs can't pay the rent and gets thrown out of his house.
Joe Bloggs can't pay his bills….the creditors send in the bailiffs and they take the lot…TV and all.
Joe Blogg's Company goes bust…the same….Fire sale of everything, Staff pay offs etc.
So why should banks be any different and get "SPECIAL" treatment.?
Those same banks that got £TRILLIONS of printed money via Q.E. almost for FREE at ZERO% int. rates over the last 14 years to spend as they saw fit by lending it out and gambling it on the Global Casonos called Stock Markets….
All in exchange for PAPER IOUs.
This since the last Financial Crash of 2008.
Only the situation gets worse by the day…..
We see today that the World is awash with DEBT and PAPER IOUs (Bonds etc)….
"I promise to Pay…"
There is over $120TRILLION of these IOUs and DEBT floating about…More than the TOTAL VALUE of ALL STOCKS and SHARES on the PLANET…!!
The FREE MARKET stopped when those rogiue bank busted themselves and were bailed out and piled with FREE MONEY since…The USA for example created over $20TRILLION and handed it out to the banks.
The BANKS are a protected species, almost like Dinosaurs which consume everything around them…
Money the FOOD for them….
Money making money from money and from nothing else…..And when it dries up, the Governments step in and print more and more in exchange for Paper IOUs….
The mountins of DEBT and PAPER IOUs grows by the day…..
There is NO stopping this., because to do so would crash the whole economies of the World…..Some have already crashed.!!
Banks are a PROTECTED SPECIES today, whilst our societies are crumbling around us as more and more Joe's are caught in a poverty trap.
Governments are more intent on saving the Banks and spending on Military, as they are on improving their Country and Welfare.
Those failed entities called banks should be allowed to fail, otherwise the ROT will continue…..
He missed the entire bull since 2020
Sharp guy, I always listen when he speaks.
one of the people that have been bang on all the way through this mess
El-Erian was saying for months that the Fed was behind the curve and should have been raising interest rates faster than they did. Now he's saying the bank runs were a matter of trust? C'mon Francine. We expect more from you to hold the feet from people like El-Erian to the fire for their incorrect and hypocritical statements.
To say "this should have never had happened" is absurd! They know it's happening because they plan it to happen so they can pretend "it should have never happened" so they can take more bailout money.
Powell and Yellen are working for Biden, causing market crash will cause Biden to lose in the upcoming reelection 2024. Powell and Yellen will inject whatever necessary money to keep the economy at float.
Full steam ahead into The Fog Lol. Very funny.
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