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U.S. Government Stepping in to Rescue Customers After Collapse of Two U.S. Banks; North Korea Launches Two Missiles from Submarine Ahead of U.S. Drills; Border Officials Say, Group Attempted Mass Entry into U.S. in El Paso. Aired 7-7:30a ET

Aired March 13, 2023 - 07:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

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KAITLAN COLLINS, CNN ANCHOR: The federal government is now stepping in to calm financial panic over the failure of two U.S. banks.

DON LEMON, CNN ANCHOR: The Biden administration announcing it will extend a federal backstop to all the bank's deposits.

UNIDENTIFIED FEMALE: Treasury officials push back on the idea this was a bailout, saying the burden is not borne by the taxpayers.

UNIDENTIFIED FEMALE: Just moments from now, we will hear from President Biden.

UNIDENTIFIED MALE: Water everywhere, causing chaos across Central California.

UNIDENTIFIED MALE: Warnings of intense sustained flooding in the days ahead.

UNIDENTIFIED MALE: It's unimaginable.

UNIDENTIFIED FEMALE: Folks, we are not done yet.

UNIDENTIFIED MALE: Former Vice President Mike Pence telling a crowd in Washington that history will judge former President Donald Trump for his actions on January 6th.

UNIDENTIFIED FEMALE: Probably not a message that will be terribly popular with Republican-base voters.

UNIDENTIFIED MALE: Three women who live in Texas are believed to be missing in Mexico.

UNIDENTIFIED MALE: We really haven't had any other incidents that I can recall.

UNIDENTIFIED MALE: And the Oscar goes to -- Everything, Where Every, All At Once. UNIDENTIFIED FEMALE: This year at the Academy Awards, they had its highest number of Asian nominees ever.

UNIDENTIFIED FEMALE: For all the little boys and girls who look like me watching tonight, this is the beacon of hope. Dreams do come true.

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LEMON: And welcome in, everyone on a very busy Monday morning. We're going to begin with the Biden administration scrambling to prevent an economic meltdown after two different banks failed. Poppy is on her way to speak with a local toy store about how they are scrambling to respond. We're going to go to her shortly.

Meantime, a live look at the White House for President Biden set to address the nation in the 8:00 hour as the federal government tries to ease panic and stop the crisis from snowballing. We'll carry that for you live.

Silicon Valley Bank collapsed on Friday, becoming the largest U.S. banking failure since the great recession in 2008. Regulators also shut down Signature Bank based in New York. They say it was on the brink of collapse and a threat to the entire banking system.

Feds are now taking extraordinary action. They're guaranteeing that customers of both banks will be able to get their money back starting today. And they're offering emergency loans to other banks to keep them afloat.

I'm going to go straight to CNN Senior White House Correspondent M.J. Lee for the very latest. Good morning, M.J. What do we expect to hear from the president when he speaks shortly?

M.J. LEE, CNN SENIOR WHITE HOUSE CORRESPONDENT: Good morning, Don. Well, it is clear that President Biden's overarching message this morning is going to be there is no need for panic. We saw over the weekend the administration working furiously to try to contain the fallout and that culminated in the announcement last night that was quite dramatic, that said all depositors will have access to all of their funds starting today and that taxpayers are not going to foot the bill.

When he speaks in a little bit, the president, we expect him to echo some of the messages of reassurance that we heard from some of the other top U.S. officials, including the fact that they believe the U.S. economy is not where it was back around the 2008 crisis, that the economy is far more resilient, that the reforms that were put in place after that financial crisis will work. That is part of why Treasury Secretary Janet Yellen said that the bank is not going to be -- is going to get a bailout, excuse me, and also this commitment that they're going to try to protect small businesses. Remember, small businesses made up a large portion of the depositors at Silicon Valley Bank.

But the president, you know, last night said in a statement that he will hold those responsible for this mess, fully accountable. We're about to see who he believes are responsible for what happened and also what accountability is going to look like, Don.

LEMON: All right. M.J. Lee joining us from the White House this morning, thank you, M.J.

COLLINS: All right. So, let's talk more about this, because it's remarkable. At the moment, there were two banks that abruptly closed their doors. The U.S. government is now backing deposits not just for Silicon Valley Bank and but also Signature Bank.

Christine Romans is here to explain along with ProPublica Senior Editor and Reporter Jesse Eisinger. I want to get to you on what the federal government is doing in a moment, can you just explain this?

[07:05:02]

Because now, it is not just the bank that happened on Friday, SVB, it's also this bank from yesterday that has now collapsed after the warning they got.

CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: Right. So, look, this is, in short, a run on the bank, classic run on the bank. And two things happened here. The Fed started cranking up interest rates, right? And so all of these long-dated treasuries that SVB had on its books got less and less valuable, at the same time, tech was starting to have a little bit of a downturn. And so the companies that used to be putting money into the bank were taking money out of the bank because they were burning so much cash. And suddenly --

COLLINS: There's no money.

ROMANS: Well, suddenly, it became clear that the bank was selling its treasuries at a loss, spooked investors. Investors started telling their companies that the startups that they invested in, get your money out of there. And it was a classic run on the bank.

But I think what is really clear is we knew when the Fed was jacking up interest rates, you would find maybe some weaknesses in the system. Something would break. And in this case, these two banks broke.

LEMON: What's your take? Because I know we -- we talked to it in the break here about whether this was the -- whether it's a bailout.

JESSE EISINGER, SENIOR EDITOR, PROPUBLICA: Yes.

LEMON: And you say it clearly is, even though taxpayer money is being sent -- well, taxpayer money is not being used.

EISINGER: Well, it would be pretty to think so but it's not the case. Taxpayer money is backing this. There are two ways that we are bailing out these banks right now. And when we're talking about bailing out the banks and the depositors, what we're really talking about is bailing out tech pros (ph) and venture capitalists backing the companies that were depositors here. So, what we're doing is we're protecting the depositors, but there is not enough money in the insurance fund that is paid for by banks to really protect all the depositors in America. So, that's really backed by taxpayers. If there is really a run, taxpayers would back that.

The second thing is that the fed opened up a huge new lending facility today. We're not talking about that as much, but that's going to banks. And they can sell or they can give their assets that have lost money to the fed and they get a loan. They get a cheap loan that they couldn't get otherwise. So, taxpayers are certainly backing up these very wealthy investors who have made mistakes.

COLLINS: I think one thing that's important to note, though, is that this company did have a lot of companies running their payroll through this. So, it's not just it's affecting tech pros in Silicon Valley, real people weren't going to get paid, and that was a concern. But basically, what we heard from a treasury official last night was, quote, the firms are not being bailed out. Depositors are being protected. You're saying that they're wrong.

EISINGER: Right. They are -- that's not accurate. Now, I agree with you about payrolls. But, you know, basically, the treasury is like, blah, blah, blah, it's not a bailout, if we can name this something else, it's not the case.

But what happened is people were about to take losses and the losses primarily were wealthy venture capitalists. And let's be clear, some of the biggest anti-government deregulation advocates in America were suddenly screaming for federal government help this weekend. They got it and their losses were prevented by the federal government stepping in. There is no way to sugar-coat that. That is a bailout.

ROMANS: Stockholders in the bank will not be protected. They're going to be wiped out. And I think that is important to note. And I think, you know, bailout is such a dirty word after the great financial crisis, when these banks took risks that were just ridiculous and the entire financial system was on the brink. This is not 2008, and I don't think this bank is a systemic risk kind of bank, this SVB, and disagree with me if you want, and Signature. This is a different kind of scenario that we're in here but they're still very, very careful about not wanting to call this a bailout.

I would point out that the bailout of the great financial crisis, taxpayers made money in the end on that bailout. But it was ugly. It hurt along the way. That fed facility you're talking about I think is really important to note. So, this is the fed giving banks, banks who want it, a one-year loan. Their collateral is all of these bonds that are worthless today but letting them -- count them at par, not marking them to markets. So, it's like giving really good, cushy deal.

EISINGER: And there you have it. There is a bailout. I think you made a really important point that underlying this is a question of whether this was an actual systemic risk that required the federal government to come in here. And this is one bank. Banks do fail. This was concentrated in one specific area, Silicon Valley, very wealthy enclaves, also a small part of the overall economic. And the number of employers and employment here, while significant, and I'm very sympathetic for the payroll agreement, is very small. We're talking maybe 100,000, 150,000 workers here. So, it's really not really an economy-wide systemic financial crisis that required federal government possibly, you could argue.

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COLLINS: Quickly before we go. I talked to Gary Cohn yesterday, Trump's former economic adviser, now runs IBM. Senator Warren has criticized the rollback of those Dodd-Frank rules that were put in place, saying that contributed in part because there was less oversight of a bank of this size. Do you either think that is true? He says it's not. He says he doesn't think it would affect --

EISINGER: It's a very good point. And one of the people who is advocating for that rollback was the CEO of SVB, the failed bank. And what happened was they carved out these regional banks from Dodd-Frank protections. And so that was a Trump era deregulation.

LEMON: Well, we have got to run. Just real quickly, what do we expect to hear from the president today?

ROMANS: Look, I think he's going to say that we're going to make sure the financial system is strong and that we're going to make sure that your money is safe. And I think the bottom line here is that if you have less than $250,000 in a bank account, your money is safe no matter what happens. It's insured by the federal government.

In this case, these are people and companies that have way more than $250,000 -- they had $137 billion in uninsured assets deposit sitting in this bank. They were not protected. The government stepped in and said everyone will be made whole.

LEMON: By the way, Jesse is also the author of the Chicken, you know what, Poop Club, I won't say the word on morning television, Why the Justice Department Fails to Prosecute Executives. Thank you both.

ROMANS: Chicken Shoot.

COLLINS: That's what they say in Iowa.

ROMANS: Exactly.

LEMON: You can fix one of the vowels there and you know what we're talking about. Okay. Thank you both. I appreciate it.

So, even if you don't, you know, monitor, closely monitor markets, Silicon Valley Bank's failure is having a real impact. You need proof of that? Look at the toy store, CAMP, their venture-back retailer. And on Friday, they sent an email out to their customers to put up this ad on their website. It said, when your bank collapse, run, don't walk to save 40 percent at CAMP. The captions say, I never like the Bay Area and could this happen? How could this happen? This all sucks. Promo code, bank run. Is that right?

So, Poppy, we're, you know, we're talking about kids toys here and you're live at the CAMP store right now. Poppy, what are you seeing? Hello?

POPPY HARLOW, CNN ANCHOR: Hey, guys. Good morning. We're with Ben Kaufman, the founder of CAMP and the CEO. This is your idea over the weekend. And we're smiling because, thank goodness, your deposits are now assured because the federal government. But this was a last-ditch effort over the weekend to try not to collapse. That's how dependent you guys were on SVB.

BEN KAUFMAN, CEO AND CO-FOUNDER, CAMP: Yes. About 85 percent of our company's cash assets were at SVB.

HARLOW: 85 percent, millions of dollars?

KAUFMAN: Millions of dollars.

HARLOW: Okay. So, what happened to you Friday?

KAUFMAN: So, on Friday, when we got the alert that the FDIC was taking control of the bank, we had no idea what would be the next step. We didn't know how long it was going to take for us to get our cash out. To be honest, we still kind of don't. They say today we'll see what happens.

HARLOW: You don't know if you can get your money?

KAUFMAN: Well, we know we can and we're so grateful that the Fed stepped in and why they did. But we did what startups do, which is we kind of took matters into our own hand and we kind of had that fight for survival. It's a similar fight for survival we felt when COVID happened and we ran an experimental toy store. And so we turned to our most loyal group of customers and said, hey, we need inflows cash right now. We set up a new account and kind of pushed our weekend sales to a new account.

HARLOW: At JPMorgan Chase?

KAUFMAN: At JPMorgan Chase, and we said, we need your help. And the outpouring of support was absolutely --

HARLOW: So, to all our viewers and guys back in the studio, the reason that I wanted to have Ben on is I'm one of those loyal customer. I have got little kids. You've got three little kids. I get this email Friday afternoon, and I'm like, wow, they're turning to everyone who is a customer to try to save the business. That's how dire the straits were for you.

KAUFMAN: Yes, we had to pretend like it was the end of times. And not pretending, it felt that way, we had to find a way to fight for survival. And that was, again, turning to customers, providing them with a little bit of offer, right? There was value in it for customers who offered 40 percent off and we were so lucky to have so much amazing support.

HARLOW: In all the things that keep you up at night as the founder of a business, small business, as a startup, did you ever think that your deposits that were largely held in, you know, securities, treasuries, bonds, would not be available?

KAUFMAN: No. I mean, like you said, like running a startup is hard. Running a retailer is hard. Running a product company is hard. Running an experiential environment is hard. We never had to think about like the safety of our bank. That's an added layer.

HARLOW: Okay. So, I spoke to a lot of founders this weekend. And another startup founder and CEO told me that it was a requirement that if you got lending from SVB, you had to hold all of your cash deposits there. They require that. Is that true for you?

KAUFMAN: It was true at a certain point in our company's history.

[07:15:02]

We had a line of credit with SVB. We no longer did at the time of the collapse. But because of when you check out at the register, the money automatically went to SVB, it was all kind of wired in to SVB. We never actually transferred that away once that contractual requirement went away.

HARLOW: But that's notable. I mean, would explain why so many founders and startups had all of their cash in this bank.

KAUFMAN: Yes, it was the bank to use.

HARLOW: And they made to do that if you wanted to get credit from them?

KAUFMAN: Yes.

HARLOW: Do you have a message from the management, Gregory Becker, the CEO, or the management of SVB? Do you think this was bad management?

KAUFMAN: I don't know. I mean, I'm -- I run a toy store. I'm not an economist. I don't know how to manage, you know, money at that scale. Frankly, like SVB was there for us when we needed them, they were there for other startups when we needed them. And, again, startups are hard.

HARLOW: And is that why you didn't pull all your money out when you heard all this Twitter chatter and D.C. talking about pulling money out when you wanted?

KAUFMAN: We attempted to on Thursday. It just didn't settle at the other banks.

HARLOW: I have to think of all employees first. What were they saying to you? What were they feeling?

KAUFMAN: Well, again, we were lucky to have an account already set up at JPMorgan Chase. The first thing I said to our employees is that we have a little bit cash there, because if you pay in cash in our stores, you know, the store managers run it over to Chase. We had a little bit of cash there. We knew we were going to able to make payroll this week. But we said like the future is uncertain. We don't know what the next step is going to be. And so, again, we turned to customers and immediately store managers are saying the stores were packed. And, you know, what we saw online from people that were not only existing customers but new customers wanting to support this brand was -- you know, I'll never forget it. It was amazing.

HARLOW: I'm so glad. Does it change finally how you hold your money going forward? Do you now split it up? I think a lot of heads of small companies and startups are thinking do we put 20 percent in this bank and 20 percent in this bank and 20 percent in this bank?

KAUFMAN: Yes. I think that's going to have to be a consideration moving forward. I don't want to do this again.

HARLOW: No. No one does. We're glad you're okay. You're going to make your next payroll.

KAUFMAN: We sure are. I mean, again, like the support this weekend was incredible. We're just going to go back to the regular startup fights, you know, the regular fighting for survival that every startups do even when their bank is stable.

HARLOW: You made it through COVID. You made it through this. I told you, we would get all of our kids Christmas gifts, birthday gifts here. The staff is always so lovely. Good luck. Thank you very much, Ben Kaufman.

KAUFMAN: Thank you so much. Thanks for having me.

HARLOW: Hey guys, back to you.

LEMON: And one of the coolest old school rocking horses in that store, Poppy, as we you know.

HARLOW: They love the old school rocking horse.

LEMON: It's one of my favorite. It was great. I love what he said. I'm a toy store owner, right? I'm not an economist. And I think that speaks to a lot of folks -- what a lot of folks are dealing with.

COLLINS: It's such a good interview by Poppy there. And it just also brings home the real life impacts of this. I mean, Fox Media, Etsy, Roku, all these companies were affected by this over the weekend and didn't know if -- when this morning happened if they were going to have access to any of their money. Now, they're saying they'll have access to all of it. But it shows you, he is a toy store owner, and he's like, what am I going to do?

LEMON: And even though they're going to have access to it, it still causes a lot of consternation. There's a lot of undoing of things that they probably tried to put into place over the weekend that they are going to have to fix. So, it's not done yet, so we're going to continue to pay attention. And, remember, the president is going to speak shortly and we're going to carry that for you live. Interesting to see what he is going to have to say.

In the meantime, North Korea saber-rattling once again this time with a missile test launched from a submarine.

COLLINS: Also, officials say that a large group of people seen here approach the U.S. border point. The entry point in El Paso, Texas, in an attempt mass entry into the country. We'll take you live to the ground next.

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LEMON: North Korea conducting another missile test. It launched two strategic cruise missiles from a submarine on Sunday. Officials in Pyongyang saying the drill, quote, confirmed the reliability of the weapons system. The move comes as the U.S. and South Korea kick off their annual springtime joint military exercise. The 11-day Freedom Shield drills are the largest in the last five years. North Korea also issued several warnings against the scheduled drill last month.

COLLINS: Also, U.S. border patrol clashed over the weekend with a large group of migrants at the El Paso border crossing. Officials say that the migrants were essentially trying to gain entry to the U.S. en masse on Sunday forcing agents to put up barricades and halt traffic.

CNN's Rosa Flores joins us live from Houston. Rosa, what happened and how did officials handle this?

ROSA FLORES, CNN CORRESPONDENT: Kaitlan, good morning. According to Customs and Border Protection, this disruption started at about 1:30 on Sunday, and this happened at the Paso del Norte Bridge in El Paso, Texas. Now, This connects El Paso to Ciudad Juarez, Mexico. And CBP says that they deployed physical barriers to stop this attempted mass entry into the United States.

Now, according to Customs and Border Protection, by 7:00 P.M. local time, the flow of traffic was back to normal. And, Kaitlan, I just checked those cameras, the live cameras and the traffic, it is back to normal. And the big question is why. Why are we seeing this right now? Well, you probably remember the immigration policy towards Venezuelans changed in October, and since then, Kaitlan, there's been a swelling of Venezuelans in Ciudad Juarez, on the Mexican side. And from talking to some of them recently, there is just desperation. They feel hopeless because they've sold everything in their home country and now they're stuck on the border. Kaitlan?

COLLINS: And all of this is going on as we are also tracking this investigation this morning, Rosa, for these three women who were from Texas that have disappeared on their way to a border town in Mexico. What can you tell us about the latest on that investigation?

FLORES: You know, I just obtained photographs of the search. This is from Nuveo Leon A.G.'s office. He sent me these overnight and these are from March 7th. You can see that there is dozens of vehicles involved and drones and also personnel.

[07:25:01] Now, this, again, is in the state of Nuevo Leon, in Mexico. Here is the timeline that we know. According to the Penitas, Texas police chief, now this is in the Rio Grande Valley of South Texas, he says that these three women crossed over to Mexico on February 24th. Now, according to several Mexican authorities, they say that these women were driving a green 1996 Chevy Silverado and that they were going from a town in Nuevo Leon called China to another town in Nuevo Leon called Montemorelos when they disappeared and that their family reported them missing on February 25th.

Now, if this name sounds familiar, Tamaulipas, it's because it should, now that is the state where the four Americans recently were kidnapped. Well, these women had to drive through the state of Tamaulipas to get to Nuevo Leon, Mexico. Now, as you know, the state of Tamaulipas is in this Department of State's do not travel list. The state of Nuevo Leon is not on that list but it is considered an area where crime and kidnapping also happen. And, Kaitlan, I should mention, we reached out to the FBI, the FBI is not commenting at the time. Kaitlan?

COLLINS: And you know their families are worried about these three women. Rosa Flores in Houston, thank you for that.

LEMON: Straight ahead, the big wins and highlights from last night's Oscar Awards and how the slap was addressed.

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UNIDENTIFIED MALE: If anyone in this theater commits an act of violence at any point during the show, you will be awarded the Oscar for best actor.

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