00:00I do want to get your thoughts and pick your brain in all seriousness about this issue,
00:03not just of Fed independence in the most esoteric sense, but just this idea of letting government
00:08agencies do the job that they, to a certain extent, have been, you know, obligated to do either by the
00:15Constitution or Congress in some way or another, and whether we actually are seeing a complete
00:19erosion of that that we might not actually be able to get back. Yeah, well, I think we're
00:24definitely, more broadly, seeing an erosion of independent agencies' independence. But the
00:30Supreme, when the Supreme Court has supported that erosion and increasing authorities by the
00:36president to fire people who are otherwise term protected and where the statute says they can
00:41only be fired for cause. But they have carefully carved out the Fed as unique and in a need of
00:48independence and have a long tradition of independence. So I do think the Supreme Court
00:54may draw a line in terms of protecting Fed independence, even though for the other
00:58agencies, I think it's going, going, if not gone. Well, I am curious. I mean, you were at the FDIC
01:04for several years, and you were at the FDIC particularly during a very contentious time for
01:07our economy. And so you were no stranger to criticism from lawmakers and the public. So I am
01:13curious about the state of these institutions today, Sheila, and whether you think they are sound
01:19enough to, if not prevent the next financial crisis, certainly to respond to it in an appropriate
01:25way. Yeah, no, I do worry about that. I mean, there's been a lot of drama. The emphasis is
01:32definitely getting around job layoffs, you know, Doge cutbacks, all of that. That seems to be the
01:39emphasis plus D regulation as opposed to safety and soundness and bank supervision. That's not to say
01:46some of the regulations were perfect or could have been simplified. That's definitely true.
01:52But the trend really has been to deregulate, not to simplify. And yeah, I think it's been a
01:56distraction. And, you know, we don't want to relive 2008. We need an agency, especially my old
02:04agents at the FDIC, to be prepared to handle significant bank failures to make sure those
02:10depositors are protected. If depositors lose confidence in the FDIC, we've really got a problem.
02:15Well, let's stay on banks here. We did get big bank earnings this week that were fairly positive
02:20across the board. When you look at the outlook for the banking system, where do you see potential
02:27vulnerabilities? Yeah, yeah. Well, whenever I look at how, you know, strong and healthy and
02:33bank earnings are good, I remember that was all true prior to the financial crisis, you know,
02:37and then everything fell apart. So this may be, you know, the higher markets go, the harder they fall
02:44when it happens. And things just seem kind of bubbly to me right now. Mr. Trump clearly wants
02:50to run the economy hot. We're going to have credit stimulus. We've got fiscal stimulus. We're going
02:55to have monetary stimulus. No. He wants to cut credit card rates, deficit spending, as far as the eye
03:00can see, deregulation. We're going to lower rates at the Fed. Whoever's in charge, that's probably going
03:06to be the trend. So I do fear that with markets already bubbly, that we're putting a lot of fuel
03:12on it. And how long, you know, that works until it doesn't. So and you do get complacent, you know,
03:17when profits are good, bank failures are low, defaults are low. You get complacent. Oh, the good
03:23times are here. They're going to last forever. And they never do. And of course, another theme that
03:26we're seeing a lot of people talk about on Wall Street is the K-shaped economy. You have the big banks
03:31doing really well. And then you have consumers really feeling stretched at the lower income side.
03:37People talk about housing affordability affecting a lot of Americans. Do you think any policy changes
03:43coming out of the current administration are actually going to move the needle on affordability?
03:47Yeah, well, I'm glad he's starting to focus more on it. I think with housing, though,
03:52he seems singularly focused on getting interest rate down, which is going to just boost demand,
03:57which is going to make inflation worse because you have a housing supply problem. So I really wish
04:03he would focus singularly on supply. There's $200 million in MBS purchases that they're going to
04:09have the GSEs do. That is really ill-advised. I mean, that's like using the GSEs to do quantitative
04:15easing. And as we all recall, the MBS purchases by the Fed, it was like $1.3 trillion, I think,
04:21during the pandemic. That was kind of disastrous because it brought interest rates down. But
04:26inflated ignited, you know, very high housing inflation. And most of the beneficiaries of
04:32this low rates were people refinancing. It wasn't people trying to buy a house. Home prices just
04:37kept getting farther out of their reach. So that juicing demand, getting rates down by whatever
04:43means and certainly doing MBS purchases, the GSEs, it's a risk for them, too. They were doing this prior
04:49to the crisis. That's the reason they failed. They had these massive investment portfolios that
04:54included a lot of subprime securitizations. They did not know how to handle those risks. They did
04:59not know how to manage those risks. They had insufficient capital to absorb the volatility and
05:05the losses. The GSEs now are still undercapitalized. So to have them take on all this new risk on their
05:12balance sheet to try to get interest rates down, which is not their job, is really, you know, puts
05:18them at peril again. And we can't risk for I hope we don't see them getting into trouble again.
05:23So those are the wrong ways we need. He's he's a he's a real estate investor investor. Bill,
05:28baby, build. I mean, that's what we need to do. We need to build houses. And it seems like he's
05:32uniquely qualified for that. And it's frustrating. There isn't a bigger focus, though. He has been
05:37strong arming the builders right now. So so maybe we'll see some some progress. I am curious, though,
05:42on the point of the banks and particularly the GSEs and this idea that since the financial crisis,
05:46it's largely because of a lot of policies that arose out of that, including under the Obama
05:50administration, this idea that a lot of the risk in our markets moved into the private capital space
05:57writ large. And that's a very umbrella statement. But I am curious as to whether regulators have
06:02enough of a of a view into really what's going on behind the scenes in a way that they certainly
06:07had prior to the financial crisis, given so much of the risk was on the balance sheet of publicly
06:12traded banks. Yeah, well, that's true, though. I would I would add that in the lead up to the
06:19crisis, most of those subprime mortgages were being made by non-bank mortgage lenders. Now,
06:24they were being securitized by the big Wall Street banks, but they were there. The originations were
06:29being by the non-banks, the so-called shadow banks. So there was some of that going on. And then
06:34the banks themselves were purposely keeping a lot of stuff off balance sheet and special investment
06:39vehicles. Remember those sibs? They imploded and came back on the balance sheets and things started
06:44going bad. So it was a problem then. But it's a much worse problem now. You're absolutely right.
06:51And there's been so much handling about this in both Democrat and Republican administrations. But
06:57nobody really does anything about it. And in point of fact, a lot of the the fuel that has that has driven
07:03the growth of the of the shadow banks, then, you know, all these private funds in particular,
07:08it's bank lending. The banks are lending to them and then they're lending to companies as opposed to
07:14the banks lending to the companies directly. And that's basically a capital arbitrage because the
07:19banks have a lower risk weight on their capital if they lend to the private fund versus if they just
07:24lend to the company directly. And then a lot of those companies probably shouldn't be getting credit.
07:28Right. You don't want everybody to get credit. That's this. We're going to expand access to credit.
07:32Those are dangerous words I've heard so many times. Yeah. Some companies just shouldn't get credit.
07:37They're tenuous. They're risky. They shouldn't be getting credit. And so, you know, just blindly saying,
07:42you know, we're going to tolerate all this shadow banking and these shadowy structures to expand credit
07:47is kind of a dangerous mindset.
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