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Biden: U.S. To Cover Customers, Not Investors After Two Banks Fail; Another Atmospheric River Threatens Flood-Ravaged California. Aired 2-2:30p ET
Aired March 13, 2023 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BIANNA GOLODRYGA, CNN ANCHOR: Hello everyone, I'm Bianna Golodryga. Welcome to CNN NEWSROOM.
JOHN BERMAN, CNN ANCHOR: And I'm John Berman. Victor is off this afternoon.
And we begin with President Biden's dramatic overnight move to try to guarantee that the money is in the bank. This came after the sudden collapse of two banks, Silicon Valley Bank, SVB, and the costly -- that -- which is the costliest bank failure in 15 years. And Signature Bank which saw a run on its funds as for SVB's collapse. Today, the president announced regulators are taking them over. But unlike what was seen in 2008, the U.S. will cover only bank customers, not bank investors.
(BEGIN VIDEO CLIP)
JOE BIDEN, PRESIDENT OF THE UNITED STATES: All customers who had deposits in these banks can rest assured -- I want to rest assured there'll be protected, and they'll have access to their money as of today. That includes small businesses across the country, the bank there, and the need to make payroll, pay their bills, and stay open for business. Investors in the banks will not be protected. They knowingly took a risk. And when the risk didn't pay off, investors lose their money. That's how capitalism works.
(END VIDEO CLIP)
GOLODRYGA: SVB small business owners are thankful for the Biden administration's decision including one Seattle startup co-founder. He said he would have had to shut down if the government had not stepped in.
(BEGIN VIDEO CLIP)
STEFAN KALB, COMPANY "SHELF ENGINE" USES SILICON VALLEY BANK: I am quite relieved from what I heard from President Biden. I think the administration has taken this on and off, exactly the way that I think it should be which is the depositors of the bank need to be made whole. This is a cornerstone of the U.S. economy. The bank system is set up such that we expect it to be safe. It's odd to think about it now but just even a week ago, Silicon Valley Bank was the gold standard.
(END VIDEO CLIP)
GOLODRYGA: CNN chief White House correspondent Phil Mattingly is with us. Wow, what a difference a week can make as we heard from that executive. So, Phil, all of the president's moves have been kept to keep competence in American banks. Officials really scrambling over the weekend to get this plan together before markets open for trading today.
PHIL MATTINGLY, CNN CHIEF WHITE HOUSE CORRESPONDENT: Yes, that's exactly right. And, Bianna, you know this as well as anybody, confidence is critical. You'll just listen to what you just heard that a week ago, a bank that was considered the gold standard now no longer exists. That creates very real anxiety, rarely real concern. I think the concern from administration officials was that there would be significant outflows of deposits from a number of institutions, a lot of which they had been watching, viewed as very much risk -- at risk or potentially on the verge of failure. And they needed to do something to step in the way of that.
And you saw that in a very dramatic manner, really two different steps that were taken yesterday, both backstopping all deposits for both SVB and from Signature Bank in New York, which failed on Sunday. And then on top of that heading -- having the Federal Reserve establish its lending authority that would give these middle and smaller banks -- midsize banks, smaller banks access to a lending window to ensure that they would be able to maintain liquidity.
Now, both of those are critical to having ensured that the market has confidence that these banks can still exists, that depositors have confidence that the deposits are safe, and trying to calm things down to some degree. But also, a very different set of circumstances than in 2008, which the president made very clear he wanted to underscore today. Take a listen.
(BEGIN VIDEO CLIP)
BIDEN: No losses will be borne -- and this is an important point, no losses will be borne by the taxpayers. Let me repeat that. No losses will be borne by the taxpayers. Instead, the money will come from the fees that banks pay into the Deposit Insurance Fund.
(END VIDEO CLIP)
MATTINGLY: And, guys, implicit in what the president is trying to do there is a balancing act. They understand, the administration officials, that they're potentially very poisonous politics tied to what they're trying to do here. And differentiating this moment from the moment that we saw throughout the fall of 2008 is absolutely critical. What the president said is true.
The FDIC Deposit Insurance Fund is funded through bank assessments. The Federal Reserve's lending facility while it is set up with $25 billion from the U.S. Treasury. They don't expect to have to utilize any taxpayer money.
However, make no mistake about it, the full faith and credit of the U.S. government is behind these moves. They don't expect it will cost any taxpayer money at all throughout the course of the process. But that is a risk and that is something that they're trying to make very clear is very different than what we saw throughout the bailouts are 2008 and 2009.
BERMAN: Yes, they very much wanted to be different.
BERMAN: They needed to be different, I think both economically and politically. Phil Mattingly at the White House, thank you so much for helping us understand these moves.
With us now is CNN's Matt Egan. Matt, you've been talking to an insider at the Silicon Valley Bank. How are they explaining what happened and what happened so fast?
MATT EGAN, CNN REPORTER: Well, John and Bianna, the management of this bank, they are facing some real tough criticism about how they handled what was obviously a very sensitive situation. I talked to a current employee at Silicon Valley Bank and he was dumbfounded by how all this went out, specifically the fact that CEO Greg Becker. He went public with the extent of the bank's need for cash before privately lining up the financial support they needed to get through the storm.
This employee said that you know that was absolutely idiotic. They were being very transparent. It's the exact opposite of what you would normally see in a scandal, but their transparency and forthrightness did them in. And here's why.
The argument is that this set the stage for a panic, right, customers ended up pulling out $42 billion on Thursday alone in a classic run on the bank. $42 billion context, that is a huge amount of money. That is about almost a quarter of the bank's total deposit. And be -- by the end of that day, by the close of business, the bank had a negative cash balance. They had run out of money.
I talked to Yale professor Jeff Sonnenfeld, who's an expert on management issues, and he called this a tone-deaf botched execution by the bank. He sums it up this way. He said, "someone lit the match, and the bank yelled fire."
Now, I should note that the CEO did reportedly apologize to his employees about what happened. I think the question now, of course, is whether or not this massive response from Washington is going to be enough. Investors are on high alert for whether or not there's other banks that are in a similar situation.
Regional Banks, they got clobbered late last week. I would have thought that we would have seen a bit of a rebound after what the government just announced last night, but not so much. Look at that on your screen. You see losses of 40 percent, 60 percent from some of these major banks, First Republic Bank, Western Alliance, Comerica taking significant losses. I think the math --
BERMAN: That's 60 percent down.
EGAN: That is --
BERMAN: We're not talking 60 points down.
EGAN: And that is 60 percent down today. And I think the message from the market is the jury is still out on whether or not what Washington has done will really be enough.
GOLODRYGA: And that has nothing to do with how these banks are capitalized, right? These are investors who are concerned about what they saw happen at SVB now potentially happening to other banks.
EGAN: Yes, absolutely. And remember the investors at SVB, they were wiped out. The bondholders are getting wiped out.
EGAN: The depositors are being made whole. So, we could have a situation where some of these banks lose massive amounts of equity value, but the depositors, they could still be just fine.
GOLODRYGA: So, let's talk about some of those emergency measures that the government took over the weekend. Matt, stay with us.
Also joining the conversation is Aaron Klein. He served as Deputy Assistant treasury secretary in the Obama administration, and he is now a senior fellow at the Brookings Institution. Aaron, good to see you. Thank you so much for joining us.
So, in addition to the FDIC now ensuring all depositors including those who didn't have insurance, and guaranteeing all of their deposits, they took this extra extraordinary step over the weekend. And they created an emergency lending facility really to act as a backstop -- the treasury really the backstop here, putting some $25 billion on the line suggesting that the financial system is whole, is sound, and that, of course, is to prevent this continuing on -- this contagion effect to impact other regional banks. Do you think that this will do the job?
AARON KLEIN, FORMER DEPUTY ASSISTANT TREASURY SECRETARY: Well, look. I think they're -- everybody's money -- I mean, it's safe. The banking system broadly is safe. Banking is a game of trust and confidence. And sometimes you need to take overwhelming measures to restore that trust and confidence. Because at the end of the day, almost every single American has less than $250,000 in their bank account.
The bailouts that happened for Silicon Valley and Signature Bank were really about bailing out large corporations that had built up huge exposures at a bank. That was not like your normal Street bank. Look, most banks of Silicon Valley size have about a thousand branches. Silicon Valley Bank had 16 branches. This was a business bank, not a people bank.
BERMAN: You keep using the phrase bailout, which is a loaded term here, right?
BERMAN: Because this is supporting the customers, the investors, people, and companies that had money in the bank -- had deposits in the bank. But it's not bailing out as both Matt and Bianna have been speaking about. It's not backing -- bailing out the investors who you know, invested in a bank. But you don't see the thinking here, why do you keep calling it a bailout?
KLEIN: No. So, first things. One, they're taxpayer money here. The Deposit Insurance Fund that the FDIC uses, it is true it is an assessment on bank. Also true, as Phil knows that this is on the government's balance sheet. This is government money when banks -- when the FDIC loses money and hits the government's debt and the government's balance sheet. And so, you know, you have to be honest with the American people. It's not politically popular.
Nobody's in support of a bailout until they're on a boat that springs a leak. And so, all these businesses who had uninsured deposits and they knew they were uninsured, you know, they're very thankful that the government bailed them out for a bank that was really in a lot of trouble. And this is the same government, the federal reserve who regulates this bank who's completely asleep at the switch in --
KLEIN: -- in letting the bank fall and find itself in this position. But you have to be honest here. And these are taxpayer funds going to uninsured bank depositors, usually, large businesses and companies that otherwise might have taken a small loss because they were uninsured creditors. And instead, Uncle Sam is going to make them home.
GOLODRYGA: Let me talk about regulators here and whether or not they took their eye off the ball in terms of SVB. Because clearly, you could argue that management made bad decisions. That having been said, you saw investments and deposits go up double in size in two years at this bank, of about -- almost all of it, 98 percent or so uninsured. Was this an area where regulators could have stepped in sooner and prevented what we're now seeing?
KLEIN: It's a massive failure of bank supervision. So, during the financial crisis, we had so many different regulators in America and they all pointed fingers at each other saying it was in this part of the company and that part of the company, etcetera. Silicon Valley Bank was regulated head to toe by the Federal Reserve. They had tons of authority. Authority granted to them in the Dodd-Frank bill that we worked on in the Obama administration. And they botched it.
And there were clear red flags, huge asset growth, as you described, hot money, institutional, uninsured depositors who are a flight risk, massive exposure to unhedged interest rate risks in buying treasuries and cheap mortgages a couple of years ago, and it's just -- it remains to be seen. You know, I really hope people are held accountable here, particularly the regulators, the Federal Reserve, who supervise this bank, and it was hardly a Gold Standard Bank. But I -- it's -- it flummoxed me how they're able to do what it did, and get approval by the Federal Reserve in every step of the way.
BERMAN: You know, Matt, Aaron's talking about the Fed here. And this has some other ripple effects with the Fed or it might in terms of a decision, which could come soon, how much and whether to raise interest rates?
EGAN: Yes, it's amazing how much has changed in like the last week or so because it was just six days ago that Jerome Powell came out. And he basically indicated that the Fed could step up the war on inflation. The markets began pricing in.
A growing chance -- a significant chance that the Fed is going to raise interest rates by 50 basis points next week, now the thinking has completely changed. Goldman Sachs says they don't think the Fed is going to raise interest rates at all because of all of this stress in the banking system because of what Aaron was just talking about, which is that the Fed rate hikes have created a situation where the bonds that some of these banks are sitting on that they rely on for capital has lost a lot of value. It's also hurt the tech companies that SVB, you know catered to and that it's probably not a good time to raise interest rates in that environment. I talked to a former FDIC chair Sheila Bair, who was overseeing that agency during the 2008 crisis --
EGAN: And she said to me, look, the Fed needs to hit pause and assess the full impact of its actions so far before raising short-term rates further. But a lot has changed here and now we could be in a situation where the Fed may just do nothing next week.
GOLODRYGA: They're in an unenviable position. We've got a big CPI report coming out tomorrow as well. But there have been people that have been saying, listen, you should take a pause for months now. Not certainly for this reason, but now you've got more chiming in.
BERMAN: Matt, Aaron Klein, thank you both very much.
KLEIN: Thank you.
GOLODRYGA: Well, another powerful storm is set to batter parts of California again, including San Francisco, Oakland, and Sacramento. We'll take you there where more dangerous flooding threats are threatened millions.
BERMAN: And Donald Trump's lawyer says the former president will not testify in front of the grand jury investigating his alleged role in a hush-money scheme. But you know who is? His former fixer, Michael Cohen. The potential implications of that. Ahead.
BERMAN: This afternoon, storm-battered Central California is bracing for a new atmospheric river event that means even more rain and possibly more flooding. Unrelenting storms in Monterey County collapse the levee for the Pajaro river over the weekend. Gushing water swallows neighborhoods and traps scores of residents.
GOLODRYGA: Emergency crews raced to rescue people surrounded by rising floodwaters. At least two people have died and hundreds were forced to evacuate.
CNN national correspondent Mike Valerio is on the ground in Pajaro. And, Mike, the state cannot catch a break. And we now understand that floodwaters drastically receded overnight. Tell us what you're seeing right now behind you.
MIKE VALERIO, CNN NATIONAL CORRESPONDENT: Right, Bianna. I think that's the best news that we can report from here in the heart of Pajaro. You know, we've been walking in our waiters all up and down the community streets all weekend and in this particular spot, the heart of Pajaro, you know on Sunday, Bianna, we had water up to here, the top of this bumper.
So, if you look, it's fallen close to a foot all the way down here. Now, of course, we have the nearby Salinas River which is also raging. But this is the hardest-hit community by far. And it's all because of this breached levee.
Let's take you to an aerial perspective drone video that CNN shot late yesterday just before sunset. And you'll see an aerial picture, Bianna and John, of where we're standing right in the heart of the community. And then the video eventually will show you this 120-foot gap in the levee which was breached at midnight Friday and sent all of this water all around us.
Now, why this matters, John and Bianna, the stakes of trying to fix it putting as many boulders, ballasts, debris, riffraff between now and late tonight when the next atmospheric river comes through, is because look at our backdrop right here. You have this shimmering river that is a neighborhood street, tons of homes filled with migrant families. You know, we are in a part of California that's next to Pebble Beach, Halcyon coastline, John Steinbeck Country very close to Silicon Valley.
But there are berry fields over here where people work the land. I mean, unchanged social dynamics since The Grapes of Wrath in 1939. You have -- (Speaking in a foreign language). Behind us, a church, auto body shops. And if we come over here to my left, you can see things still drying out. This would have been knee-deep high water yesterday. But again, the stakes are so high of trying to fix this levee before even more water is expected tonight, Bianna and John.
BERMAN: Incredible images there. Mike Valerio, thank you so much for your reporting on this.
Luis Alejo is the chair of the Monterey County Board of Supervisors, which serves parts of the town of Pajaro. Luis, thank you so much for being with us. You know, we're expecting this new atmospheric river event coming later today. This is on the heels of this last one, and you're not even recovered from that, so how worried are you?
LUIS ALEJO, CHAIR, MONTEREY COUNTY BOARD OF SUPERVISORS: Well, this is the worst-case scenario come true for the community of Pajaro. And it's going to get worse before it gets better with this next major storm coming through. This community of Pajaro is mostly low-income Latino farmworkers. And this is the worst thing that could have happened to them right now.
These are folks who have very little, and now to be out of their homes and who -- for -- who knows how long, and the damage that they're facing to their homes, businesses, and vehicles is severe. But even beyond that, the damage to all the agricultural fields that surround this community and throughout Monterey County has created hundreds of millions of damage already. And it will mean that many of these farmworkers will be out of work for many weeks if not months.
So, we are needing all the systems that we can from our state and federal leaders. We need that -- those resources now. The need is great. And it will only continue to grow in the coming days and weeks.
BERMAN: What's going on with evacuations at this point, this afternoon? I know there were people who couldn't get out before the last hit. Will they be able to get out this time if they need to before this next event expected tonight?
ALEJO: Well, this community is one of about 1700 residents. Most of the residents have already evacuated. Most are staying with family and friends. Those who have nowhere else to go are ending up at our shelters.
And since the first evacuation, there have been additional residents who have been evacuated from the community. So, as time goes on, more residents who have decided to stay are making the choice to leave, especially in light of the next storm coming through. So, those efforts are ongoing and we certainly encourage all residents to evacuate that community for their own safety, especially when we expect more stormwater to come through that community in an area that's already heavily saturated with water.
BERMAN: You know, we've heard some vivid descriptions and we can see them with our own eyes here. How would you describe what you're seeing there?
ALEJO: Well, I haven't -- I was a resident of the city of Watsonville on -- during the last storm 28 years ago in 1995. This appears to be even worse because we never had Highway One shut down just outside of the community of Pajaro and the city of Watsonville. That shut down yesterday.
And that water is backing up because of the highway itself and it's moving stormwater into other areas that we do not see create flooding and damage 28 years ago in the last flood. So, this is worse. And especially with this next storm coming through, we're seeing things that we have never witnessed previously in flooding in this particular floodplain.
BERMAN: Luis Alejo, thank you so much. And please stay safe. Wish you the best of luck tonight.
ALEJO: Thank you very much. We appreciate it.
GOLODRYGA: Take a bigger picture view, more than 18 million people now across California under flood watches. Let's bring in CNN meteorologist Derek Van Dam. And, Derek, California could see up to eight inches of rain today alone?
DEREK VAN DAM, CNN METEOROLOGIST: Yes, Bianna, I would say that's on the high end of our scale but certainly within the realm of possibilities. But what you're looking at behind me is glorious to the residents of California. This is the Oroville spill water dam and it is releasing water for the first time since 2019. Every drop of water you see here signifying relief from the long-standing drought that has plagued the state for years. And in fact, the latest dam levels there actually are 200 feet above the recorded record low setback in 2021.
So, we do have another atmospheric river coming. Here's a look at the forecast totals and you can see we'll be measuring the snowfall in feet once again. And rainfall especially along the coastlines anywhere from two to four inches.
Here's a look at the Weather Prediction Center's moderate risk which extends into Southern Oregon, and Northern California. But notice how it starts to move southward for the day on Tuesday. So, Monterey, in the San Luis Obispo, Los Angeles -- we're talking Ventura County, Los Angeles County. This is an atmospheric river, classic.
It oscillates from north to south. You'll see the precipitation get heaviest tonight across the Valley, Sacramento, San Francisco, and then moving further south into LA for the day tomorrow. So, a very, very active pattern across the West Coast.
BERMAN: Derek, while we have you, tell us what's going to happen to us up here in the northeast. Do I have to fix my snowblower by tomorrow?
VAN DAM: You can need to unpack your winter coats. Get your snowblower ready because we've got a heavy-wet snow event that's going to take place.
CAN DAM: This is another Nor'easter but it looks like it'll be in the Catskills for New York, Berkshires, and also Boston. You have the potential for major to extreme impacts, especially the further away from the coast you travel. This will be a windy and very moisture- laden storm, so the potential for power outages exists with this latest nor'easter that's coming in later tonight.
BERMAN: All right, Derek Van Dam, thank you very much for that reporting.
GOLODRYGA: You will hear a personalized weather forecast. That's how I'm putting you out here, John Berman.
BERMAN: You know, I know. I'll be there in Boston tomorrow. But I'm actually -- the snowblower is broken. I don't know how to fix it, but luckily my wife does know how to fix it.
GOLODRYGA: There you go.
VAN DAM: Wow.
GOLODRYGA: A brilliant wife, always stepping in to help you out there.
BERMAN: Yes, always.
GOLODRYGA: Well, former President Trump returns to Iowa tonight. It's his first time in the states since launching his third bid for the White House. Ahead, why his once staunchest allies are now less optimistic this time around?