Marketplace - A not-so-happy anniversary to Silicon Valley Bank

Episode Date: February 23, 2024

The failures of Silicon Valley Bank and several other institutions rank among the largest bank collapses in U.S. history. Almost a year later, small banks still face aftershocks. Also in this episode, traditional sports journalism is disappearing. Will accountability in the sports industry follow? And one couple finds financial freedom with an unusual real estate purchase.

Hey, so it's Friday. What do you like? A little macroeconomics, maybe? Yeah, we can do that. From American Public Media, this is MarketFlight. In Los Angeles, I'm Kai Risdell. Friday today, the 23rd of February. Good as it always is to have you along, everybody. We are just going to dig right in. Too much to talk about, not really enough time. Catherine Rempel is at The Washington Post. Jordan Holman is at The New York Times.

Hey, you two. Hey, Kai. So you both will get a whack at this question. And the gist of it is, was I hearing Neil Kashkari, the president of the Minneapolis Fed, correctly when I interviewed him this week? We're going to play two cuts tape and then we're going to talk about it. The gist of both of them was I was asking him how the economy is doing, does he think? And what is the Fed going to do on interest rates as one does with a Fed president? Here's the first piece of tape. And what is the Fed going to do on interest rates as one does with a Fed president? Here's the first piece of tape. Investment in residential real estate has held up remarkably well. And remarkably, construction jobs have continued to climb. Normally, I would have thought raising rates this much would have led to a lot of losses of construction jobs.

That makes me question, is monetary policy, do we have both feet on the brakes or just one foot on the brakes? Okay, two feet on the brakes or one foot on the brakes. Now, here's the second piece of tape. We keep getting surprised quarter after quarter at how strong GDP growth is and how strong consumer spending is. Those are good problems to have, but it makes me question, are we putting as much downward pressure on demand as we would have assumed given where interest rates are? There will be industry types who will hear that last sentence you uttered. Are we putting enough downward pressure on demand? And they will hear, oh man, Kashkari's thinking a hike. He's not thinking a cut. Okay. So you two are the industry types to which I will pose this question. Did I hear Neil Kashkari right?

Catherine Pell, what do you think? That it sort of seems like he's not thinking maybe a cut anytime soon. He came back at the end of that second question and said, well, let's just hold things where they are. But how did you read it? I think that's a perfectly valid reading of what he said. And to be clear, it's not just Kashkari. that's a perfectly valid reading of what he said. And to be clear, it's not just Kashkari. There are other members of the FOMC who have made comments recently suggesting that they don't want to cut rates too soon. If you look at the FOMC minutes, the Federal Open Market Committee

minutes, there were a bunch of comments or, you know, anonymized comments suggesting that they're concerned about cutting rates too soon rather than too late. You look at market forecasts and markets a month ago thought that we were due for a rate cut as of March. And today there's almost, you know, less than 5 percent, at least last I looked, less than 5 percent chance of a cut. Now, will the next move be a hike? I think that's still unlikely, but I think they're floating the idea that it's within the realm of possibility. Wow. Jordan, what do you think?

Well, I think about what he mentioned about the strong GDP, and then that makes me think about consumer spending. And when you look at the Walmart earnings this week, you get kind of two sides of the coin. The sales there were really strong, but you need to look at that more higher income shoppers are shopping at Walmart. So there does seem like there's pressure to some households where you wouldn't think that was the case maybe two years ago. So that's an interesting dichotomy happening. Well, so look, Catherine, number one, if the next move is a hike, I think people's heads are going to explode. But also, is it possible that monetary policy just isn't working the way it's supposed to anymore? do anymore? You say anymore. I think there has always been something somewhat mysterious about how monetary policy works. Like we don't exactly understand the mechanisms behind it. You know, you talk to macroeconomists and they can say, you know, generally it depresses demand,

but they don't know on what time frame. They don't, you know, the long and variable lags, to use the term of art. And we don't entirely understand still how it filters through the economy, how much of it's about the rate hikes themselves, how much of it's about expectations of future rate hikes and Fed credibility and all of the above. and all of the above. So the idea that it's not working precisely, I guess the question is, how is it supposed to work? And I think we candidly don't entirely know. And there are also weird things going on right now, too. It's not just about the Fed, right? I mean, we're coming out of this once-in-a-century pandemic. You have a lot of industrial policy that's probably partly contributing to that strong construction hiring, by the way, that Kashkari mentioned. So there are a lot of other variables going on. Katherine, don't you think it's remarkable, though, I mean, to a layperson that we don't

really know how monetary policy works? Come on, man. Well, we have some idea, but, you know, I think that there is not this finely grained knowledge that ideally we would have at our fingertips that, you know, the experts, the actual macroeconomists would be able to tell us on what time frame this tool is supposed to work and how. We just have general patterns. We know it's a blunt instrument and it generally cools demand. But exactly how and in what ways, it's still a little bit magical and mysterious. I've told this story before. I was doing a panel with Janet Yellen once when she was off the Fed and before she got to Treasury. And I asked her why inflation at that

point was so low. They hadn't been able to get it where they wanted to. And she literally looked at me and shrugged. And I'm like, oh, OK, I feel much better now. Jordan, you mentioned Walmart, wealthier people shopping there. That is number one, remarkable. Number two, Walmart, biggest retailer, I think on the planet, except maybe Amazon. They're the first one out the gate with earnings. What else are you looking for from retailers? Yeah. So this earnings period obviously covered the holiday season. So that's the most important time. So looking to see just how retailers in general fared. It's definitely it was more of a normal holiday season than the past few years. A lot of the supply chain issues cleared up. A lot of the inventory issues came lower. But one of the things that Walmart mentioned was attracting the higher

income shoppers. So it'll be interesting to see if other companies like Target and Macy's, which come out the next few weeks, say the same, say that they're seeing a difference with that higher income shopper and what they're buying. Read the tea leaves for me, Jordan. Do you suppose that that is some kind of shifting consumer mentality at this point? Yeah, it was interesting. When I was talking to the Walmart CFO, he mentioned that the food business has been really strong, which makes sense. That's what people have prioritized. But their general merchandise like apparel and home decor was weaker. But the reason why they actually gained market share was because those households making

over 100K were actually buying more with Walmart. So it's like once you brought people in the door, they still did want to buy things just at a lower price. Right. So that might be a trend that we see this earnings season. Everybody is looking for a deal. Jordan Holman at The New York Times, Catherine Pell at The Washington Post on a Friday afternoon. Thanks, you two. Thanks, Guy.

Have a nice weekend. On Wall Street this Friday. Hey, you remember that rally yesterday? Yeah, this is not that. We'll have the details a year since the big regional bank crisis of 2023. Signature Bank and Silicon Valley Bank failed. First Republic eventually did, too. You remember that? Justin Ho has been on this story for us the whole time. And a couple of weeks ago, he reported that a lot of businesses are less concerned about their deposits now than they were a year ago. The banks themselves, though, that's a whole different story. Here's Justin.

After Silicon Valley Bank failed last March, Chris Duncan, chief lending officer at LaSalle State Bank in Illinois, says he and his staff were making a lot of calls to the bank's depositors. Just to make sure that they understood that the bank was safe, it was sound, that their deposits were secure. Duncan says people's concerns died down after a few weeks, once they realized the banking crisis was contained. But then around late March and early April, Duncan says depositors started calling with a different concern, whether their money was earning enough interest. Duncan says those calls are still coming in. They've done a nice job of educating themselves on what the local competition is offering and calling the bank and requesting a match or to beat a

competitor bank. Duncan says the bank's been cranking up deposit rates ever since. But he says there's a problem on the other side of the bank's balance sheet with the interest rates on its loans. Because of the speed with which rates have increased on the Fed side, the loan rates really have not come close to catching up with the increases on the deposit side. Duncan says the bank also has a lot of money tied up in government bonds that it bought early in the pandemic, back when banks had lots of extra cash on hand. Unfortunately, those government bonds pay next to nothing in interest. Duncan says with today's hindsight,

We probably did that at the perfectly wrong time with interest rates where they were just on the cusp of the Fed starting to raise the Fed rate. A bank can't always sell off its government bonds, low interest rate loans and other assets to raise cash. But Julie Hill, a professor at the University of Alabama, says there's a problem with that. So you could take that mortgage that's at three percent and sell it, but no one wants to buy a 3% mortgage at face value because if you make a new mortgage, you can charge more. And if word gets around that a bank is selling assets at a loss, that can scare off depositors and cause them to pull out their money. That's pretty much what happened to Silicon Valley Bank last year. All you need is concern about your earnings or your investments or your commercial real estate, and suddenly your deposits might turn from stable to less stable. That said, some banks are trying to sell some of their assets anyway. A few weeks ago,

New York Community Bank, which took over a lot of assets from the failed Signature Bank, said it's considering selling off some commercial real estate debt to raise capital. The bank says its deposits are stable, but Hill says its willingness to sell is another sign that regional banks are still under a lot of pressure. I think we had sort of hoped that the banking woes were over, but it's not that bank balance sheets correct themselves overnight, even with good bank management. Getting rid of low interest rate loans isn't the only way for a bank to stay afloat. Another is to make new loans at higher interest rates, says David Reiling, the CEO of Sunrise Banks in Minnesota. If you're able to raise more deposits and then put that into current rate loans, you can kind of grow your way out of the problem to a certain extent, or at least reduce the problem. Reiling says that's easier said than done. A lot of banks

just don't have enough deposits on hand to lend out more money. But Reiling says his bank does, and that's giving it a chance to find new customers who can't get loans at their existing banks. There's opportunities out there. And if that business keeps growing and they need more credit and the current bank can't handle that, then we're kind of ready, able and willing to assist and take on that good customer. Plus, those businesses also have deposits. Over the last year, Reiling says his bank has been eyeing those, too. They may come to us and say, great, we'll do the loan for you, but you need to bring your depository relationship with it. We also want your business

checking account as well. And that, Reiling says, is helping the bank lend even more. I'm Justin Ho for Marketplace. Coming up... Life's an adventure. Have an adventure. You gotta risk it, you know? No risk, no reward, right? First, though, let's do the numbers. Dow Industrials up 62 points today at 10%, 39,131. The Nasdaq went the other way, 44 points down, 3 tenths percent, 15,009 or 6.

The S&P 500, little change, added just 1.5088. For the week, all three major indices finished in positive territory. The Dow up 1.3%. The Nasdaq up 1.4%. The S&P 500 up 1.6%. Just heard from Justin about an update on the state of regional banks, so let's check in on a couple, shall we? PNC Bank of Pittsburgh added 0.5%.

Trust, truest rather, Bank of Charlotte dipped 1.1 percent. Fifth Third Bank of Cincinnati down nearly two-tenths of one percent. Fifth Third, by the way, it's a merger of Fifth National Bank and Third National Bank. That's where that came from. Turns out landing a spacecraft on the moon, even though it might be sideways, makes for a pretty good day on Wall Street. Shares of Houston-based intuitive machines rocketed ahead almost 16%, said NASA Administrator Bill Nelson. Today is a day that shows the power and promise

of NASA's commercial partnerships. Bonds up, yield on the 10-year T-note down 4.25%. You're listening to Marketplace. I'm Kyle Risdahl. If you're a sports fan, there is no shortage of sports content out there. Podcasts, documentaries, all the all sports all the time talk shows. Take your pick, right? If you want actual sports journalism, though, coverage, not entertainment. These are grim days. The New York Times dissolved

its sports desk last year. The Los Angeles Times has laid off parts of its sports department. The once great Sports Illustrated is now more properly late and lamented. Sports journalist Keith O'Brien had a piece in The Atlantic the other day, the headline of which was, you'll miss sports journalism when it's gone. Keith, welcome to the program. Good to have you on. Thanks for having me, Kai. There is an incongruity, right, between the hundreds of billions of dollars in the aggregate. I'm sure it's close to half a trillion or a trillion dollars in sports globally, right? half a trillion or a trillion dollars in sports globally, right? And the austerity that is hitting sports journalism, right? We're seeing that all the time. And I mentioned that just as a segue into a question about ESPN and the NFL. ESPN, one of the leading sports journalism organizations of

the last, I don't even know how long they've been around, 40 years, something like that. They're now thinking about letting the NFL buy a stake. What does that tell you? Well, let's be clear. The NFL and ESPN are already partners. ESPN pays a boatload of money to cover and air games for the NFL. And so those two entities are already partners in almost every way, shape or form. But yeah, I mean, when one of our last remaining lions is in reportedly advanced talks to give an equity stake, an actual stake in its business to a league that it covers, well, that raises tons of journalistic questions. You don't need to be a journalist to know that there's a lot of baked in problems there. That actually reminds me of a line in your piece, actually, or a passage in your piece,

where I think it's baseball writers, there's a baseball writer you were talking to, who said, you know, the teams already have such control. And that's been created by the imbalance in power, right? The dollar value of these teams and the players and the lack of investment on the part of media companies and newspapers specifically, right? The teams now have all the control and the media has none. Well, that's true. And, you know, it is also completely different than how it used to be. You know, in the 1960s, 70s, even into the 1980s, reporters had up close and personal access to the athletes they covered. They were in the locker rooms and clubhouses on a daily basis. You know, one longtime beat writer I spoke to said that he used to shag baseballs on the road

when he was covering the Boston Red Sox. That's, you know, that's how enmeshed he was with the team. Which is in and of itself a little troubling, right? Just from a journalism ethics point of view. Well, right. And it did create problems. I mean, that coziness between sports writers and athletes did, you know, at times shield us, the public, from the real stories. But it also led to breaking news. It also led to feature stories and investigations because the reporters were there. And when you don't have the reporters in the room or in the clubhouse or on the field, you're just going to be missing things. So in five or 10 years, maybe less at the rate things are going, right, with the layoffs at the LA Times and the lack of coverage there and the New York Times and The Athletic and all of that that I talked about in the introduction, how long do we have, do you think, before meaningful sports journalism

is gone? Well, personally, as a journalist, I hope that never happens. But I do fear that the trend lines we're seeing right now predict a very dark future for, again, in-depth sports journalism. In Chicago, at Northwestern University, there was a massive story, and it was about the suspension of a very popular football coach over vague details about hazing. And what was ultimately unearthed there wasn't found by professional journalists. It was found by student journalists working at the Daily Northwestern. And so were it not for those student journalists in the room on the campus doing the work, we might never have learned the details of that hazing scandal at Northwestern. Sports journalist Keith O'Brien, he's also an author. He's got a book coming out,

actually, and he tells this story in The Atlantic piece about Pete Rose. His book is called Charlie Hustle. The piece in The Atlantic is called You're Going to Miss Sports Journalism When It's Gone, and I think we are. That was me editorializing. Keith, thanks a lot. I appreciate your time. Thanks for having me, Kai. Depending on who you ask, we are in this country about 3 million houses short of demand, give or take. So if you're limiting your house hunting to traditional housing, you might come up a little empty handed.

Non-traditional housing, though, schools, churches, sailboats, bowling alleys, even a bit of a different story. Here's today's installment of our series, Adventures in Housing. I'm Henry Pyle. I'm Kate Mills, and we are at Winterland Hall in Livermore Falls, Maine. We're actually in East Nashville, which is the Brooklyn of Nashville, if you will. Yeah, as many coffee shops as there are people. Yeah, but East Nashville did not start off that way. It was a beautiful location. The neighborhood was quiet. And then slowly but surely, a house that was originally sold for what,

like $29,000 back in the day was selling for $500,000. And that's when we were like, what's happening to our neighborhood? We were quite honestly gentrified out of our own neighborhood. I would have left Nashville forever ago if it wasn't for the kids. You know, before the pandemic, we were talking about, let's move overseas.

We're going to be empty nesters. Let's start over. Then the pandemic came and we kind of rethought that and said, where else could we go? There is not a single state that I did not look at houses in. I would go to bed and wake up in the morning and have 25 home listings that Kate had found. That was on a light day. Someone's got to do it. And I really knew that I would go anywhere and I would live in anything. If it was a place that was not meant to be inhabited, Kate wanted to live in it. Henry was still coming to grips with wanting to live in a city, wanting some sidewalks, wanting, you know, people. But what we wanted to do is be financially free and unburdened. When she found Grange Halls here in Maine,

the first one that she sent me that we just had to tour had holes in the floor. The windows weren't even fit in their frames because it was so foundationally crooked. She's saying, I wanted a sidewalk, but maybe what I wanted was just not a drafty home. I was having a really hard time in anywhere in the world finding this magical house. We were now so desperate that we're looking at houses for $650,000, $700,000, the exact opposite of what we wanted to do. And I said, we have to refocus. Let me tempt you with this 4,700 square foot house in Maine on three and a half acres, beautiful, and we could pay cash for it. You said, this gives us everything we want, everything we really want. And we called the

agent a few days later and we made an offer. And what did you say, Katie? We're Mainers. We're Mainers. But we'll never be Mainers. Nobody here will ever call us a Mainer. No. This house checked all the boxes of all the things I didn't want.

It's next to a busy highway. There's a junkyard next door. I didn't know I didn't want that. Turns things I didn't want. It's next to a busy highway. There's a junkyard next door. I didn't know I didn't want that. Turns out I didn't want that. Don't forget there's also a train and an airport within 50 feet from us. And you know what? All of these things are actually so charming in person. I mean, it's great. It's all these things you didn't know that you really wanted. At the end of the day, I'm super happy that we did what we did, how we did it. That's right. Our oldest was just up here this past weekend. And, you know, the message that we gave to him was life's an adventure. Have an adventure. You got to risk it. I kind of told him life is a highway. And for me, I want to ride it all night long.

Kate Mills and Henry Pyle having an adventure out in Livermore Falls Maine we cannot do this series without you no matter what kind of house you live in or are hunting for tell us about it would you marketplace.org slash Adventures in Housing. This final note on the way out today with space in the news. Well, we'll go to Mission Control last. I'll show you the spacecraft first. I'll show you the spacecraft first. I love my job. A couple of months ago, I went out to the headquarters of a company called Varda Space Industries. They're trying to make pharmaceuticals in space. Apparently, the lack of gravity does stuff to the chemicals that you can't do here on Earth. And you guys

built this capsule? We did. Several of them, yeah. One of them's in orbit right now. Back when I was there, Varda's first spacecraft had already been orbiting guys build this capsule? We did. Several of them. Yeah. All right. One of them's in orbit right now. Back when I was there, Varda's first spacecraft had already been orbiting for five long months with completed pharmaceutical experiments on board. They were trying to get approval from the FAA to bring it down. They had not at that point. What's it been doing up there this whole time? Right now, mostly just chilling. So here's the update. It is back. The capsule is done chilling, apparently. Deorbited on Wednesday. I think that's the word. The drugs on board are in the lab. Our theme music was composed by B.J. Liederman. Marketplace's executive producer is Nancy Fargali. Donna Tam is the executive editor. Neal Scarborough is the

vice president and general manager. I'm Kyle Rizdahl. Have yourselves a great weekend, everybody. We will be back on Monday. This is APM. All over the country. We need to improve reading in Wisconsin. Schools are changing the way they teach reading. I'm calling for a renewed focus on literacy. We have gotten this wrong in New York and all across the nation.

And it's happening because of a podcast. I think your podcast has changed my life. And I'm going to share this podcast with everyone I meet. Sold a Story investigates how teaching kids to read went wrong. New episodes of Sold a Story are available now.