Is There a Moral Hazard in Bailouts?

This episode was recorded in two parts, with a special segment added on March 14 to address the failures of Silicon Valley Bank and Signature Bank of New York. Premium subscribers gained access to this added segment the same day it was recorded. Here it has been merged into the same file to create a single episode. To get early access to podcast recordings and take advantage of a host of other exclusive benefits, sign up to become a premium member at our Substack or Supercast.

Jake Schurmeier of Harbor Capital Management joins the podcast to discuss his experience at the Federal Reserve Bank of New York, which overlapped with a full monetary policy cycle, and what this may tell us about future Fed policy -- especially in light of the events surrounding Silicon Valley Bank and Signature Bank of New York.

• The guest spent several years at the Federal Reserve Bank of New York's open markets trading desk, where he was responsible for implementing monetary policy and monitoring the treasury market (3:41);
• In this role he experienced the whole life cycle of quantitative tightening to quantitative easing, concluding with the liquidity injections that accompanied the Covid pandemic (5:13);
• Chances are "pretty high" that the Fed reins in quantitative tightening, or QT, in light of the events around Silicon Valley Bank (SIVB) and Signature Bank of New York (SBNY). A lot of it depends on the uptake of the Bank Term Financing Program, or BTFP, the new lending facility (6:49);
• Can these measures save the business model of regional banks? (10:26);
• The possibility of moral hazard introduced by regulators (12:57);
• Where does this leave interest rate policy? Fifty basis points is probably off the table, but a 25bps raise is certainly in the offing... (14:10)
• In general, what kinds of catalysts will the Fed be looking for to shift from QT to QE? (16:20);
• Was there ever any talk of negative interest rates? Did the Fed ever have discussions about buying stocks (21:00);
• Background on the guest (25:33);
• The Fed's purchases of mortgage-backed securities was in retrospect unnecessary on the scale and duration with which it happened during Covid (28:24);
• For a quasi-government organization, the Fed acts quite quickly. Faster than corporations. A look inside the Fed's decision-making process (32:05);
• Yes, Fed officials and employees are required to disclose their stock transactions (37:29).