A rescue mission for First Republic Bank 

Make Me Smart March 16, 2023 Transcript

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Kai Ryssdal 

(Music starts before he is ready) Oh, fine. Must be Charlton. Must be Charlton.

Kimberly Adams 

No it’s not. It’s Jayk. Jayk did that to you.

Kai Ryssdal 

Hey, everybody. I’m Kai Ryssdal. Welcome back to make me smart, where are we make today make sense.

Kimberly Adams 

And I’m Kimberly Adams, thank you for joining us on this Thursday. Today we are going to unpack some of the news of the day or just news in general. And then get smiley by the end. So Kai yours is way more newsy, why don’t you go first?

Kai Ryssdal 

Alright, so I will continue in the vein of Silicon Valley Bank, and the implosion and all the after effects. We’ve been through Signature [Bank]. We’ve been through Credit Suisse yesterday. Overnight, last night and today, the big challenge for the banking system was First Republic, which had seen a stock price fall and depositors want their money back. And as we know, when those two things happen, it’s a challenge for a bank. And so today, there was a thing that happened that was very reminiscent of long term capital management back in 1998, where Wall Street all got together and saved a hedge fund that had made some rather severe and multibillion dollar miscalculations and prevented a similar financial crash to one we had in 2008. And perhaps even yet to come this week. No, I’m kidding. It’s not a crash that’s coming. Anyway. So the news is that…

Kimberly Adams 

Don’t feed the panic Kai.

Kai Ryssdal 

I know, I’m sorry. I’m sorry. I’m sorry. In fact, I’m not even calling it a crisis. I’m calling it a situation because what we have is a situation. It’s not yet a crisis. Anyway, so today.

Kimberly Adams 

We call it a situationship.

Kai Ryssdal 

That’s right situationship. 11 big banks, including some of the really biggies on Wall Street, like JPMorgan and Bank of America, announced that they are going to put $30 billion. 11 banks, $30 billion, the big Wall Street banks are putting 5 billion in peace. Some of the smaller regional banks are putting a billion dollars in. Just as deposits into First Republic, right. They’re not taking equity, they’re not taking debt. They’re taking just deposits. They walked up to the counter and gave a $5 billion check or a billion dollar check to the teller and said “hello, we’d like to open an account.” Metaphorically, that’s what happened. And I did an item on this on the radio show this afternoon. And in which I said, “Look, these are uninsured deposits, because as we all know, now, FDIC insurance is only $250,000.” Well, I have to credit Mitchell Hartman.

Kimberly Adams 

But do we know that really?

Kai Ryssdal 

Well, hang on. Here’s here’s Mitchell, right. So I said right at the end of the show, I said “that’s a very big high dollar, uninsured bet on First Republic. It’s a vote of confidence.” And Mitchell slacked me at 2:35 this afternoon, LA time and said, “OR it’s a humongous $30 billion bet that cannot lose in the game of Regulator Roulette: Moral Hazard Addition,” because Yellen Powell and company have just implicitly guaranteed the first infinity dollars of deposits, which is actually really true, and which I should have said. So I’m saying it here. Mitchell is absolutely right. The implicit guarantee now is that all your dollars are protected.

Kimberly Adams 

Yeah, and it’s that’s the rule until it isn’t anymore.

Kai Ryssdal 

Exactly. Exactly. So Mitchell gets mad props for that. Maybe I’ll do that tomorrow.

Kimberly Adams 

And then if they decide not to back someone’s deposit.

Kai Ryssdal 

Well, then everything explodes

Kimberly Adams 

Well, they’re gonna be open to “Oh, why for them and not for us?” You know and the federal government is playing favorites.

Kai Ryssdal 

Right. Absolutely. But I’ll tell you that that conversation will come amid the wreckage and the ashes of the American financial system. Because if Yellen and Powell come out now and say “no, no, no” then it’s going to be like Lehman Brothers. And it’s going to be apocalyptic.

Kimberly Adams 

Hmmm. I’m trying not to use these words.

Kai Ryssdal 

I know but but well, that was a big what if scenario, right? And then the what if answer there is, is it’s very not good.

Kimberly Adams 

Yes, this is true. This is true. Okay, well, I’m going in a little bit of a different direction. And basically following up on our deep dive on Tuesday that we did with Miss Emily Baker-White at Forbes, who was talking to us about TikTok. And one of the things that we discussed was that TikTok, among other journalists, they were sort of surveilling her and looking at where she was going in order to figure out what sources she was meeting with and all that stuff. Well, now she has a story out today in Forbes, that the FBI and the Department of Justice are investigating the events that led up to Bytedance, using the app to surveil American journalists, according to sources familiar with the department’s actions. And so that is… That’s funny, Bytedance was trying to figure out who her sources were at TikTok and now they probably want to know who her sources are at Department of Justice and the FBI. But anyway, so I thought that was interesting, given that we just talked to her. The other story, that I really was super impressed by, hat tip to Stephanie Siek, one of our editors, who posted this on one of our Slack channels. It’s an AP investigation about nursing homes. And something that I really didn’t know, which is that a lot of, most nursing… People who live in nursing homes often rely on some form of Medicaid to pay for their stay at a nursing home. But if you’re getting Medicaid to pay for your nursing home stay, you have to basically turn over all your other benefits to help pay for that care. So that’s your Social Security, any resources that you have. And you know, I’m just going to read it from the AP “nearly two thirds of American nursing home residents have their care paid for by Medicaid. And in exchange, all Social Security, pension and other income they would receive is instead rerouted to go towards their bill. The personal needs allowance is meant to pay for anything not provided by the home, from a phone, to clothes, to shoes, to a birthday present for a grandchild.” So the story is about this “personal needs allowance,” which is like $30 a month. And story is about all of these older people in nursing homes, who, you know, did what they were supposed to do, and they’re getting their Social Security. Nursing home care is so expensive, that they couldn’t afford it on their own so they relied on Medicaid, and then basically lost access to all of their money. And some of these nursing homes aren’t actually providing all the things that they’re supposed to. And so people end up basically stuck in nursing homes in poverty once they can’t take care of themselves anymore. And, you know, relying on care packages from their churches and things like that, because their Social Security and other benefits are getting routed elsewhere. It’s a super powerful story about something I absolutely didn’t know about. And I think… I would be shocked if this did not result in some kind of change in legislation. Because this is pretty bad.

Kai Ryssdal 

Yeah. One hopes

Kimberly Adams 

Oh, and this is the key thing. Unlike Social Security payments, this is not linked to inflation, this payment. So it’s $30 and has been $30 for decades. And Congress actually would have to change the law to boost it. And so somebody actually tried to push a law, that would change it, and would increase it and then link it to inflation. But it didn’t go anywhere. Like didn’t even get a hearing or something. So it’s it’s a really powerful story. So I would recommend people read it.

Kai Ryssdal 

Wow. Oh, man. All right, Jayk. All right, you see this about the spacesuit.

Kimberly Adams 

I saw the press release that it was coming, but I haven’t seen the spacesuits yet because I have been running around all day.

Kai Ryssdal 

There’s a cool story, which I saw about two days ago, from a company named Axiom Space, which I imagined just does a bunch of space gear and all this jazz. Anyway, Axiom Space is designing the EVA suit for astronauts who are going to turn to the lunar surface on Artemis-3, which hopefully will be in 2025. There’s a picture of it. It’s kind of cool, except for this, I’m gonna read you the paragraph. “Since a spacesuit worn on the Moon must be white to reflect heat and protect astronauts from extreme high temperatures. A cover layer is currently being used for display purposes only to conceal the suits proprietary design.” So it’s a really cool futuristic look. Wait, it gets better, really cool, futuristic looking spacesuit but then it says “Axiom Space collaborated with costume designer Esther Marquis from the Apple TV Plus series ‘For all Mankind'” which we’ve talked about, “to create this custom cover layer using the Axiom Space logo and brand color.” So what you’re seeing is not the actual spacesuit. It’s a Hollywood version of it, which is kind of cool. I do recommend For All Mankind, I still need to catch up to season three. But anyway, the new spacesuit is here, the new moon suit is here. It’s wild, wild wild wild.

Kimberly Adams 

And it’s a lot smaller looking. It that’s the cover, it’s a lot smaller looking than the original, because I mean, think about the image you have of like, you know, the astronauts bouncing on the moon in these giant giant suits. This is way more svelte. I guess

Kai Ryssdal 

It is svelte. It’s very good. Like, I will tell you, by the way, parenthetically. You know, you know what I hate? Those spacesuits that the SpaceX astronauts wear. I hate those. I think they’re terrible

Kimberly Adams 

Oh really?

Kai Ryssdal 

I think, I think they look like rubber overalls and those like plastic boot insert liner, things that go halfway up the… I think it looks terrible, looks terrible. And look, I understand that that function has to take priority over form, but still, they got to do better.

Kimberly Adams 

It’s funny how I realized that sort of sci fi fashion is like seeping into my life because I had a doctor’s appointment yesterday. And I walked out of the house and I realized that I’d accidentally dressed like one of the characters from Andor. Like, the whole like vibe, was like, like I had on like the same color scheme and like a belt and my pants and I was like wait a minute, I look like a character from Star Wars. I was like,

Kai Ryssdal 

Did the doctor looked at you and go “what are you doing?”

Kimberly Adams 

She was like, “that’s a really interesting outfit. Like, you look really nice.” I was like, I look like a character from Star Wars. She’s like, Oh my God. That’s it.

Kai Ryssdal 

Oh, my God. That’s funny.

Kimberly Adams 

It’s okay, though, it’s okay. All right. Mine is a story in the Washington Post about all of these people who have gone through extreme pet proofing methods in their homes because of their cats. And so the headline is “when cats can lock doors and raid food, pet proofing gets extreme.” The subtitle is the best. “Most cats are jerks once in a while, but some take it to another level. Here’s how their owners protect both the cats and their homes.” There’s a cat in the story that can open microwaves and like opened a microwave and stole pizza out of it. There’s a cat in this story that locked its owners out of the house. And I was I related quite hard to this story because Jasper wants stole my wallet. And it’s hard to believe that this is true. But in… what was it? So in 2020, when like December of 2020, when lockdowns were still happening. And I was trying to organize like Christmas gifts for my niece and nephews, nieces and nephews. And I suddenly couldn’t find my wallet and I tore the house up and down for like two weeks. Two weeks, I was looking for this. And I was calling all my friends and complaining and complaining. And so then I took Jasper to the vet and the vet said he was too fat and he needed to lose some weight. And so I stopped feeding him as much. And I stopped giving him as many treats and he got angry. And one day I gave him like two treats. And then I turn around and he’s sitting right behind my chair next to my wallet. Which means that he stole my wallet and strategically brought it back out. To demand more treats. I’m not kidding. I have a photo of him sitting next to the wallet and you will see how guilty he looks because I tore the house apart for two weeks and then it was just sitting there in the middle of the carpet next to him. Like there’s no way that he did not have that wallet. So anyway this is a running joke among my friends. Anytime I can’t find my wallet, they’re like “did Jasper take it.” Everyone thinks he’s so cute but he’s a thief.

Kai Ryssdal 

That’s so funny. Pretty smart cat. Pretty smart cat. All right, then we’ll end with the cat thief. A cat burglar if you will. We’re done for today.

Kimberly Adams 

Oh nicely done Kai!!

Kai Ryssdal 

Economic on tap is what we do… I know thank you very much. Words are my life. 6:30 Eastern 3:30 Pacific there’s gonna be drinks. I’m gonna have a beer probably, news. I have to go to a choir concert that day. No, I’m having a beer. Somebody else can drive. And a round of half full, half empty. We’ll do that too.

Kimberly Adams 

Yes. And before we go, once again, our March fundraiser. It ends at midnight tomorrow. And we still have about $90,000 that we’re really trying to raise. It’s a tough time for the media industry right now, as I’m sure sure you all have heard in the headlines. And I know $90,000 sounds like a lot but we have raised that much before in the final days of a campaign and with your help we can do that again. Donating is super quick and easy. We now accept Apple Pay and Pay Pal because we’re all high tech. So you can donate now at marketplace.org/givesmart if you can. We’d be super grateful.

Kai Ryssdal 

Make Me Smart is produced by Courtney Bergsieker. Today’s episode was engineered by Jayk Cherry. Our intern is Antonio Barreras.

Kimberly Adams 

Ellen Rolfes writes our newsletter. Marissa Cabrera is our acting senior producer. Bridget Bodnar is the director of podcasts. And Francesca Levy is the executive director of Digital.

Kai Ryssdal 

There you go