The Daily Signal - INTERVIEW | Is My Money Safe? Financial Expert Explains Recent Bank Failures, Questions Activity of JPMorgan Chase

Episode Date: May 15, 2023

Americans needn’t worry about the safety of their money at the bank, financial and investment expert David Bahnsen says. Three large American banks have collapsed since the beginning of the year, but “there’s almost nothing in common at all with these three banks closing, relative to all the 2008 closings,” says Bahnsen, founder and chief investment officer of the wealth management company The Bahnsen Group.  When banks fail, as they did in 2008, it’s usually because of “people not paying back something they owe,” Bahnsen says, adding that’s not the case with the recent bank failures.  Bahnsen, whose company manages more than $4 billion in client assets, says Silicon Valley Bank, Signature Bank, and First Republic Bank were “totally ill-prepared for the idea of interest rates flying higher, as they have.”  Bahnsen joins “The Daily Signal Podcast” to explain the effect the Federal Reserve’s interest-rate hikes have had on America’s banks and what it means for the financial health of the country.  Bahnsen also explains why he, as a JPMorgan Chase shareholder, has proposed a resolution calling on the bank to investigate whether it is discriminating against clients because of their religious or political views.  Relevant Links Colorado Wants to Force Her To Create LGBTQ Wedding Websites: https://www.youtube.com/watch?v=nfk1q-EXNDE Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Nothing else is Rees. This is the Daily Exile podcast for Monday, May 15th. I'm Virginia Allen. This year already, three big banks have failed in America. But financial expert and investor, David Bonson, says Americans need not worry about the safety of the money in their bank accounts. Why? Does Bonson says that the recent bank failures that we have seen this year are very different from the financial crisis of 2008? Bonson joins me on the show today to explain why these bank failures aren't necessarily of concern to the average American,

but why we do need to pay attention to them and how they're affecting financial markets. He also shares some common financial advice that he says most Americans don't understand. Stay tuned for our conversation up next. And I'll never forget just being fearful for my life. Let me phone calls, emails, protests outside. the shop. I remember sleeping on the floor of my bedroom. Seeing the headlights driving by, just wondering if someone was going to carry out on some of the threats that I had seen in emails. Here I am on this journey, hopefully to protect not only my right to speak freely, but everyone's

right to do just the same. You've just listened to a sneak peek from our brand new documentary about Lori Smith. She's a web designer who the state of Colorado wants to force into creating LGBTQ websites and other content that directly violates her beliefs. We've seen. We've spoke with her and with Christian Baker, Jack Phillips, about their cases and about what's at stake for the First Amendment. You can find the documentary on the Daily Signals YouTube channel or in the show notes for this episode. We are joined today by David Bonson, the founder of the investment company, the Bonson Group, which manages over $4 billion in client assets. David, thanks for being here today. Well, thank you so much for having me. Can you start us off today by just sharing a little

bit of your background, what you do with the Bonson Group and how that work really contributes to the overall mission that you have and really bringing awareness to the common public about our financial system? Sure. So I started the firm a little over eight years ago, and so we have six offices, 56 employees. We manage about $4.5 billion. And we're working with regular people, private wealth clients, doing their tax planning, estate planning, and investing their money. I'm particularly passionate about something called dividend growth investing where I've dedicated my career to buying individual companies that are

growing dividends for people. I wrote a book on it, but see all of this work in financial markets is really part and parcel in my commitment to a free enterprise system. I spent 10 years as a managing director at Morgan Stanley and I was a senior VP at UBS for years before then. So I come from Wall Street. I believe very much in a need for Wall Street, a need for financial markets, and I'm tired of a Wall Street that doesn't defend itself, that doesn't defend a free market system,

like the one that has made Wall Street so big and powerful. And so I am quite passionate about the concept of a free and virtuous society. I'm a movement conservative, and the beauty of not being employed at Morgan Stanley now is I can say whatever I want, whenever I want, and I have no intention of firing myself or canceling myself. So I'm on the board at National Review. I do a lot of writing there and I'm just otherwise deeply involved with various conservative political and economic

projects. Well, I'm excited to have you say whatever you want during our conversation here today. Let's jump in and talk about some of the banking activity that we have seen in a America, just since the start of the year, we've watched as three pretty large American banks have closed. We have Silicon Valley Bank, Signature Bank, and, of course, the latest First Republic Bank have all gone under. Did these banks fail for the same reason or different reasons? There's a similarity between the three banks and their closings. There's almost nothing in common at all with these three banks closing relative to all the 2008 closing. So I'd point out out that in the financial crisis, we had over 120 commercial banks drop. And I'm not even

talking about the big Wall Street firms that everybody thinks about with the financial crisis, Bear Stearns, Lehman Brothers, Merrill Lynch, all of that stuff. We had 120 bank banks with, you know, branches on the street corner type of thing go down. And we've had three so far this year, but they're pretty good size. And all of them essentially this year, have closed for something to do with interest rates going higher. They've had almost no credit impairment at all, meaning what always 100% of the time in history has caused financial distress is people not paying back something they owe,

some form of bad debt. And then when you put enough leverage on that, it becomes a big problem. That's 100% the story of the history of financial problems. That is not at all related to what's happened here. So it's fascinating that three pretty good-sized banks have gone down, and none of their customers who owed them money stopped paying it. All that happened is essentially a funding gap.

They ended up having more assets than liabilities, yet as customers withdrew deposits, they ended up without the liquidity to run their bank, and they were totally ill-prepared for the idea of interest rates flying higher as they have. So then should the average American who banks at Bank of America or Truist or Capital One, do they need to be concerned at all about the money that's sitting in their bank account? And do they need to be concerned about maybe the next three years of America's banking health? Well, the answer is no.

but for a couple of different reasons. For one thing, you used Bank of America as an example, where, ironically enough, post-financial crisis and post the Dodd-Frank legislation that passed during the Obama years, Bank of America, J.P. Morgan, City Group, Wells Fargo, these big four behemoth banks, what we called too big to fail,

and I think people meant that previously as a pejorative, not as a good thing, these four have all benefited. They've all gained more deposits. And, of course, First Republic was sold to J.P. Morgan, who was one of the only banks that had the size and liquidity and capacity to buy First Republic and allow that transaction to go without any loss to depositors whatsoever and without having to go to any kind of a bailout mode. And so, no, those depositors are in a better position than they were. those banks are healthier, but do I think that the whole incident is a little bit of a reminder that in a fractional reserve banking system, if confidence goes away, a bank can go away. And that's

a self-fulfilling prophecy. We don't have a lot of banking failures in our country. It's a pretty rare event, and that's a good thing. But of course, when a bank can lend out more than it brings in in deposits, if enough people were to ask for deposits back all at once, there's a risk to that. And so I think that there are certain things that we need to do to always make sure we have a stable, healthy banking system. But I really do think that there were some mistakes made by these three particular banks. So with the close of First Republic Bank and J.P. Morgan Chase kind of stepping in there, what are your thoughts on how that shook out? and the federal government's role in that,

was that the best solution? And how, even though J.P. Morgan Chase took on so much of that responsibility, how much so on the hook are American taxpayers still, if at all, in the way that that shook out? Well, if you're not talking about Silicon Valley and we're only talking about First Republic, I am pretty sure that there was no way it could have been done better for limited. exposure to taxpayers. Now remember when we say taxpayers, there is a difference between taxpayers actually incurring a loss because the Treasury Department comes in and has to extend capital and the FDIC, which yeah, indirectly taxpayers are exposed. It's backed by the full

faith and credit the United States government, but it's funded by an insurance fund that the FDIC pays for via premiums from banks. Now, taxpayers are still customers of banks, so there's indirect exposure, but that's the risk that exists within the banking system. And all the stockholders of First Republic were wiped out. They got zero. The bondholders were wiped out. They got zero. All the depositors became depositors of J.P. Morgan. So there's no loss there to taxpayers on the deposit money whatsoever. But then what happens is J.P. Morgan wipes this out, takes on the deposits. Now, how are they in any better of a position than First Republic? Their assets were worth more than the liabilities. And J.P. Morgan has the ability to ride it out where First Republic didn't. But technically, you have to have some equity and your own capital, not just the deposit money on top. So they were going to be by doing this undercapitalized. So what?

What they did is a loss-sharing agreement with FDIC, where if there are any losses on some of the loans that are in this First Republic book, then FDIC would have some exposure. Now, I don't think there will be. And if there are, I think it's going to be minimal, but up to at the very most $13 billion, which, again, I think it's not going to be anywhere near that. But remember, they lost over $20 billion by backing the deposits, the Silicon Valley Bank, and First Republic's much bigger than Silicon Valley. So I think that this was done as a very good solution relative to other options, but there's some complexity to it that is a little bit difficult for people to grasp, and I get that.

Ultimately, J.P. Morgan helped quite a bit here, but they also got bigger. And a lot of people don't like the idea of the big banks getting bigger still. Yeah. Well, and I want to dive a little bit deeper into another issue related to JPMorgan Chase in just a few minutes here.

But I do want to get your thoughts on Federal Reserve hiking interest rates, what we've seen from them. Of course, they've just raised interest rates again to just over 5%. You recently said on Fox business that the Fed has hurt economic growth. Unpack that a little bit.

What do you mean? Oh, I think that they've done unbelievable harm. We could work backwards. I mean, the most recent are these bank failures themselves, where I believe you had banks that believed the Fed. The Fed said at the beginning of 2022, where the interest rate was 0%, they had left it there way too low, way too long.

We were well, well, well past the emergency COVID moment of March 2020. And 25 months later, they still have the interest rate at 0% and said we plan to be at 1.5% at the end of the year. They went to 5%. They raised rates more than triple what they said they were going to. So while I still believe Silicon Valley made poor decisions and some of these banks risk mitigation efforts failed, it's a little difficult to tell the banks how dare you believe the Fed and what they say they're going to do. The Fed has been using something called forward guidance as a policy tool for over 20 years where they essentially try to create a monetary outcome by announcing it ahead of time to allow financial markets to price it in.

Well, that's what they did, but then they moved the ball. And basically First Republic lent out a ton of money to really good borrowers, high quality, ultra high net worth people at two to three percent. But then now the rates have gone up to over five, and First Republic takes a hit to the value of those loans, even though those loans are still paying and performing. So I think the Fed is responsible for how they've distorted financial markets with their use of the interest rate. either tightening way too quickly and way too high or before that being too low for too long. But if you take one step back further, this is the bigger point I would make, that post-financial crisis, there were a lot of emergency things going on, some of which I support, some of which I don't,

but I'm not as critical of what happens in the middle of a real emergency. But when you leave the interest rate at zero for seven years and effectively really 10 years, they barely raised it at all after that. You allow an incentive to not build new technologies, new factories, new plants, but just simply to lever up pre-existing assets. People can get a great return by just continuing to invest in what they already have available in the economy. And what we need is growth. we need new invention, new products and services.

The Fed allows certain companies to stay in business that should go away with a zero percent interest rate. They can kind of live to fight another day, but really that capital could be resourced in a much more useful way if we had a more honest Fed funds rate and a cost to capital in our economy. So the Fed is facilitating what we call zombie companies to stay around, which basically keeps capital

in a less attractive, less efficient, less resourceful use when we could be stimulating growth by moving to a better use. This is fascinating. Thank you for breaking that down. Let's go ahead and loop back to J.P. Morgan Chase. You have sent a letter, a request to JPMorgan Chase. You're a shareholder there,

and you sent them a proposed resolution earlier this year calling for evaluation of the company's discrimination policies. You wrote about this in a recent piece in the Wall Street Journal. What discrimination policies do you believe that JPMorgan Chase is engaged in? Well, one thing I am very willing to say is it's entirely possible they're not, and I would give them the benefit of the doubt. But my point is that there's enough prima facie evidence that they've been debanking, closing bank accounts, not letting them.

not lending to or taking deposits from either certain conservative political organizations or certain religious or religious liberty organizations that my suggestion is that they run a process to evaluate even if they don't have a policy at the company level are there local and regional things happening that are resulting in discrimination now I strongly suspect it is happening. One incident here could have an explanation, maybe a second one there could be a coincidence, but there's enough volume of things that makes it look like they're violating their own policy against religious and political discrimination. But all I did is ask them to run a process to investigate if there may be things happening

not at the Park Avenue level, but down at the local, regional level that need to be addressed, Just as if they were discriminating on the basis of race or sex or gender, you know, those things would not be tolerated. Let's make sure it's not happening with religious and political discrimination. Well, they refuse to put it on the docket, and I'm a sizable shareholder in the firm, and of course, manage significantly more amounts of the shares on behalf of clients as well. And yet there was no basis for them turning down my request, not to do what I'm not to do. I asked, but to just put it on the agenda of the shareholder meeting to put it to a vote. It's one of my rights as a shareholder. I appeal to the SEC, and the SEC sometimes can be even more woke and problematic than

some of these companies, and the SEC ruled in our favor. They agreed with my attorneys that there was no basis for J.P. Morgan did not allow this on their shareholder agenda. So at the J.P. Morgan's annual shareholder meeting, which is on May the 6th, It's in their docket, in the agenda now. My whole case is in the written agenda and there will be a vote. And there's a lot of other shareholder resolutions, usually from far-left organizations. The Sierra Club always does a bunch of wacky environmental stuff and whatnot.

But what I don't understand is why JPMorgan would oppose the resolution. When I'm not coming in saying you are discriminating and I'm not saying please stop doing this, I'm saying there's enough evidence that may be happening. Let's get to the bottom of it. And if it isn't happening, you're going to be vindicated. And if it is happening, it gives everybody an opportunity to cure it, to fix it, so that we can maximize profits, eliminate biases, and basically be a better run company on behalf of us, the owners of the company.

So that's what the endeavor was. Really the irony is, if they had accepted to put my proposal on, I don't think anyone would have really heard about it. But by turning it down and having the SEC rule in our favor, it really put a lot of press and attention on it. And if nothing else, it's forced to the C-suite at J.P. Morgan to interact with us. And I think they're now a lot more aware than they were a few months ago that there are people like us out there who do not want them debanking people because of their politics or their

religion. So if shareholders vote and say, yes, this is something we want to look into, what would the timeline be? How long would we get final word on these are the results of what they found as they've looked into this? Yeah, there'd be a certain degree of flexibility on that. I mean, we'd be asking for it in less than a year, but there's no reason it would need to take that long. Part of it would depend on how cooperative they were. Once the shareholders approved the resolution, how vigilant would management be at making sure it was done right? So I don't know exactly how long it would take. I would imagine for a company of their size and complexity, you wouldn't

want it done in less than a few months, and there's no reason it would need to take more than a year. So let's put that somewhere between six and nine months. Yeah, well, we're going to be following this as it moves forward. But David, before we let you go, I want to ask you, is there a common sense piece of financial advice that you would give Americans that you think most Americans don't necessarily understand? Yeah, as far as their own personal finances, not macroeconomically or governmentally or whatnot. Yeah, you know, this isn't very complicated, but I don't think most people understand it. I volunteer to teach economics to a local Christian high school in Newport Beach, California, that I help to start.

And I tell these kids, P equals W, excuse me, W equals P minus C. W equals P minus C. W wealth equals production minus consumption. And I don't think it's any more complicated than that. That we need to view wealth not as dollars. There are countries that have far more units of currency than ours does that are nowhere near as wealthy. Wealth is the production of goods and services that meet the needs of humanity,

that enhance the quality of our lives. And the more we are producing, relative to what we're consuming, the wealthier we become. So for people's own individual lives, that is equally true, just as true as it is for countries or whole societies. And I think people that focus on greater production, we're living in a time that has a very low view of work, people wanting to basically work from home all the time, work three or four days a week, complain about retirement extension, the whole issue in France around extending their version of Social Security. A lot of people who didn't return to work after COVID, wealth equals production minus consumption. And I think it's the number one most important financial truism in our lives.

Excellent. Mr. David Bonson, thank you so much for your time. We encourage everyone to follow your work. It's not hard to find. You have impressive presence across so many news outlets. We really appreciate your insights. Thank you so much. Really enjoyed being with you.

And with that, that's going to do it for today's episode. Thanks so much for joining us here on the Daily Signal podcast. If you haven't gotten the chance, be sure to check out our evening show right here in this same podcast feed where we bring you the top news of the day. Also, make sure to subscribe to the Daily Signal wherever you like to get your podcast and take just a moment. to leave us your feedback and give us a five-star rating and review. And we'll see you right back here at 5 p.m. for our top news edition.

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