Bloomberg: Reckless Behavior Led to SVB Crisis: Ex-Bridgewater CEO

Former Bridgewater CEO David McCormick says the collapse of SVB is indicative of reckless behavior, poor regulation and a broader macro problem. He speaks with David Westin on “Wall Street Week Daily.”

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Transcript

Given the connection between Silicon Valley Bank and Tech I said to him what should we learn about the plan for Renewal given what’s going on there does that teach us anything this is what he said what’s happening uh within um uh the svb right now and uh and the

Regional Banks I think in it’s indicative of a different problem if I could say that which is you’ve had 10 years of Reckless Behavior access excessive spending which has been accelerated over the last two years under the bite Administration where we’re spending well beyond our means and

Excess in terms of low interest rates and those two things have created an asset liability mismatch that got reflected uh and and clear to all the moment the the FED jacked up interest rates the the purpose of that obviously was to fix the problem that they had

Created with inflation and um and you have Silicon Valley Bank of the of the banks probably the most terribly mismanaged um and so I don’t look at the silica Pecan Valley Bank as indicative of any sort of reflection on our tech industry in general I view it as an example of a

Poorly managed bank that was terribly regulated by the San Francisco fed and a broader macro problem you mentioned that at least apparently there was some mismanagement at Silicon Valley Bank one of the themes in your plan of renewal is less regulation not more regulation how do you square that was what we’re seeing

Right now by the way we’re Silicon Valley Bank but also I could even extend it to a train derailment in Pennsylvania in Ohio yeah well listen there’s no doubt that the government needs to play a role in protecting the the safety of our citizens in in in very targeted

Thoughtful balance ways and so East palestine’s a great example of that where we we certainly don’t have the right regulatory regime and the government needs to play a role by by the way it’s also an example of of where and this is what I saw on the campaign trail with many pennsylvanians where

There’s a whole part of our country that’s being left behind that you know people don’t even show up when there’s a trail when there’s a train wreck and so that that that whole situation is indicative of of a misguided level of government involvement but on balance the government’s been far too prone to

Be proactive with regulation and far too uh uh not eager enough I guess to roll back regulation let me give you an example that one of the things I liked about President Trump’s idea of for every new regulation put in you have to take away two is that there’s an inertia

Within the within the uh within the bureaucracy to regulate and um and you see that with the growth of regulations in the administrative State and I saw this in Pennsylvania with fracking um fracking has made incredible technological strides in terms of protecting the environment protecting the health and the regulations around

Fracking essentially make it very difficult to get natural gas out of the ground in Pennsylvania despite that it would be good for the environment display it’s great for the economy and despite it’s great for our national security and when you ask who’s behind this and why there’s this Labyrinth uh

Regulatory process that makes it impossible so smart regulation yes they’re probably I don’t know if a regulation there certainly should have been much better regulatory oversight with Silicon Valley Bank the the San Francisco Federal Reserve had to be sleeping at the switch what happened was so obvious right you had this bank that

Has deposits from very concentrated highly volatile depositors and you have a balance sheet where that where they’ve invested long in treasuries and when interest rates Spike they’re underwater that was so obvious for a bank regulator to see if they were doing their job so in this case it wasn’t the lack of

Regulation it was the lack of oversight and they didn’t do a good job so the U.S government as you say the core thing is basic r d which we’ve fallen behind and you talk about in your book but there isn’t enough money in the US government to fully fund everything that we had

Done private Capital that’s got to be private Capital what can or should the federal government do to facilitate that private Capital yeah well that’s the key key part of the book around technology leadership and essentially I make the case that we can’t have a China model where we have the state state-owned

Enterprises and that sort of thing we can’t be China we don’t want to be China we also can’t be what many on the left propose which is have you know industrial policy where the government’s in the middle of picking companies in some ways that’s some of the problems with the chips act the

Government’s putting money into specific companies and putting specific ties and you know obligations on top of it what we need to do is is put the government in a position where it’s through incentives tax rebates or or Capital that is first loss and maybe uh capped in a return

That drives private Capital into industries that make the most sense Let me Give an example how that might work we have the the idea in the book about a fund where the government would co-invest along with private investors but the government would take first loss and the government would cap its return

Of 15 what that does it puts a government Capital At Risk but it puts it at risk driving um a private sector capital is something that really matters it doesn’t pick companies it’s not as susceptible to cronyism and all those sorts of things and this is um is an important point

Because it runs counter to what we as traditional conservatives would would have thought of i as a sort of would have thought of and so that’s why in the book I have that section which you may remember which says what would Milton Friedman think yeah and uh and Milton

Friedman probably wouldn’t like what I’m proposing it was brush real short actually when they ask you that exactly and what I said to uh what I said the book is well what would Milton Friedman say to the fact that we’re losing this battle and that we need to adopt to our

Circumstances to win uh the the battle for Global Primacy

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