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First Move with Julia Chatterley

Bank Admits "Material Weakness" in Financial Reporting; U.S. Stocks Rally on Bank Turnaround, CPI Data; Zandi: Inflation is Moving in the Right Direction; A look at Taiwan's Significance to the U.S. and China. Aired 9- 10a ET

Aired March 14, 2023 - 09:00   ET

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

[09:00:00]

(COMMERCIAL BREAK)

JULIA CHATTERLEY, CNN HOST, FIRST MOVE: A warm welcome to "First Move", great to be with you as always. And our focus remains the global

reverberations caused by the dramatic collapse of two U.S. banks and as many days we're talking Signature and SVB. After a turbulent Monday,

however, across stock markets, and particularly financials things do look a touch more stable today.

But despite the rush of regulatory support, questions still remain about the explicit safety of cash deposits. And that's just going to take some

time to calm. For now, welcome improvement across the United States after Monday swings the DOW as you can see, attempting to rise up to five days of

declines.

Today is all about the inflation complication for the Federal Reserve too. And the good news is there are no surprises, at least in today's consumer

price data. We will discuss all the details shortly. For now, as you can see Europe holding steady too, crucial to the tone and about 10 pre-market

for U.S. regional banks that saw their shares punished on Monday session.

They were down some 60 percent or more, in some cases, just take a look at those a dramatic about term for first republic, in particular there to some

real bounces, which are that at least at this stage, if pre market will temper it but its good news. The word today that cash outflows at these

institutions has also eased thanks to those deposit protections and the emergency loan access announced over the weekend a contributing factor no

doubt.

But of course less cash on deposit at these banks and we can balance sheets too means potential softer earnings and less ability to lend. Moody's is

now putting 6 regional banks under review for potential ratings downgrades. Some might say it's a little like closing the barn doors after the horses

have bolted but not me, of course.

Sharp losses over in Hong Kong and Tokyo banking stocks falling to their lowest level in three months also fresh fears about Credit Suisse over in

Switzerland amid new accounting problems that it shares falling to all-time lows and it's not just about the stability of global banks today.

It's about how the potential instability impacts Central Banker's ability to curb inflation. That was a tongue twister. First up, of course, are the

Federal Reserve and the importance of today's U.S. consumer price data new numbers showing the CPI rising 6 percent year over year last month?

So that's in line with expectations, month over month inflation in line as well. All this could give the fed the breathing room to pause rate hikes

next week, especially with the ongoing banking concerns. Clare Sebastian joins us now on this. The question is Clare, does it because we can call

this cooling based on the monthly data?

But it's still lofty, and it still poses a prevalent problem for the Federal Reserve, particularly in the face of the broader instability that

we've seen for Financials talk us through these numbers and what you think?

CLARE SEBASTIAN, CNN CORRESPONDENT: Yes, I think even though this is an annual deceleration and inflation, Julia the 8th consecutive one, it does

show, if you look into it, that inflation is persistent, and it is at 6 percent still triple the Fed's target. Of course, the biggest contributor

of all was shelter that accounted according to the Bureau of Labor Statistics for 70 percent of the month on month increase in consumer

prices.

That is something of course, that's essential housing is essential, you can't get away from that. So that is sticky food was up as well, the energy

did come down. The interesting thing, if you look at the charts is that while it's clear that the core, CPI core consumer prices appear to have

peaked in the U.S. in the middle of last year, and had been coming steadily down.

Since then, core CPI, if you strip out food and energy, it's a little less clear that peak is a little less clear, if you look at that chart. So I

think that's something that policymakers will be watching. And certainly, if you look ahead to the Fed meeting, the Fed funds futures in our pricing

and a higher probability of a 25 basis point a quarter percent rate raise next week when the Fed meets than they were before we got those CPI

numbers.

So it's clear that the market thinks the Fed will still have reason to act, despite the chaos that we're seeing the contagion potentially in the

banking sector. And the idea perhaps that crisis in the banking sector could essentially be doing some of the tightening for the Fed as a result

has pointed out that if banks are scared, they might stop lending and that could tighten financial conditions in it. All of that, of course, could

play into the Feds calculus next week.

CHATTERLEY: Yes, and those are the different things that they've got to consider at this point, the financial instability, the fact that now they

have to think about the banks and whether or not the instability that we've seen reduces lending which to your point would be disinflationary and put

some downward pressure on inflation, but they also don't want to send the message that the first sign of potential trouble.

[09:05:00]

Rate hikes don't go higher, because to your point, they have to do the work the problem is and it goes to the court the issue in the financial sector

as the higher the interest rates go, the more pressure on the bank holdings of these banks, and the bigger that on paper, sort of balance sheet gaps

that they have.

SEBASTIAN: Yes, and I think, you know, all of this makes for a significant. I mean, they always have a balancing act in some ways, but this makes for a

particular one, this time, because as you say, it's these rapid rises in interest rates, that essentially is at the heart of what went wrong with

Silicon Valley Bank.

They didn't protect their balance sheet rates went up, that reduced the value of their holdings. And they ended up in this situation, of course,

combined with the volume of uninsured deposits, they had on their books. I think the Fed has to concentrate on evasion, that is part of its dual

mandate, financial stability as a separate issue.

So it needs to be seen to be doing that. I think it also has reputational issues to consider here it is, of course, the bank regulator; it's launched

its own review into its handling of Silicon Valley Bank, its regulation and its supervision. So it's facing questions on that side, but it does need to

keep its eye on the ball.

When it comes to inflation, it's come this far, Julia and while it's facing multiple calls, from some quarters, to pause and wait, I think momentum is

now mounting certainly, if you look at the markets for a quarter point rate rise next week.

CHATTERLEY: Yes, and one might also argue that the Federal Reserve does have macro policy and financial stability tools, and could use them both at

the same time, but it might send people off to sleep. Clare Sebastian thank you so much for that!

OK, the blame game begins and what contributed to the collapse of Silicon Valley Bank and the tech sector is pointing the finger at CEO Greg Becker

for presiding over the second biggest U.S. banking failure on record. Joining us now is Matt Egan clearly balls for drops. Talk to us about the

blame game and where the finger pointing begins and ends?

MATT EGAN, CNN REPORTER: Well, Julia, listen, we don't know all the facts yet, but there's plenty of blame to go around. I mean, where were the

regulators here? In hindsight, there were some red flags. Silicon Valley Bank had rapid growth that was highly exposed to one sector, and it had a

lot of uninsured deposits.

Also, you and Clare were just talking about the role of the Federal Reserve and these rate hikes. But there's also a lot of questions about the

mismanagement at Silicon Valley Bank itself. I talked to a current employee at the bank, who really pin the blame on CEO Greg Becker.

Particularly how they broke the news last week, that they needed to raise a lot of money, rather than announcing that they had a hole in their balance

sheet, but its being quickly filled they sort of said, you know, we have this hole, and we hope it's going to be filled pretty soon.

And that just led to this panic that we saw this classic run on the bank, you know, on Thursday alone, $42 billion dollars was yanked out of this

bank. That is a lot of money. It was a run on the bank, by the end of the day, by the close of business. They were negative, they had a negative cash

balance.

So they ran out of money and so this employee at Silicon Valley Bank, he told me that this was, "absolutely idiotic". What the CEO did in terms of

how they announced this, on top of that, of course, was the mismanagement of the balance sheet in the first place. Now, I should note that the CEO

has reportedly apologized internally to employees about what went down.

But also, you know, I talked to a Yale Professor Jeff Sonnenfeld, who is a preeminent expert on management issues. And he agreed that the CEO did miss

handle this situation. And that help led to all of this money coming out. Sonnenfeld put it this way, he said, "someone lit a match, and the bank

yelled fire".

CHATTERLEY: That's an interesting way to put it also interesting that you didn't sort of dig into the details of whether or not a rollback of

regulation back in there in 2018, in some way played into this too, which I think is also part of the politicization of this moment, which I think you

would expect, and that will reconvene on that. Thank you so much for that report.

Now, the fight against rising prices, of course may not be over for the Federal Reserve. But there are questions now and whether the Fed may be

forced to pause its rate hike regime to prevent more banks from collapsing as Clare was just discussing. Let's get some context.

My next guest says the shocking fall of Silicon Valley Bank should be a wakeup call to the banking industry, and its regulators. Joining us now is

Former Vice Chair of the FDIC, Thomas Hoenig. He's also leading the Kansas City Federal Reserve during the 2008 financial crisis. Sir fantastic to

have you on the show!

[09:10:00]

It doesn't get better than new in terms of experience of both the challenges that we face, but I want to tap into the FDIC hat part of your

career if you wouldn't mind and just the short term in terms of response that we've seen based on what was announced for Silicon Valley Bank and for

Signature Bank. Can we now assume that if another bank fails, that uninsured depositors in that bank will be protected?

THOMAS HOENIG, FORMER VICE CHAIR OF FDIC: Well, you cannot assume that because under the rules for these situations, the Silicon Valley Bank was

bailed out under the systemic exception, which says, you get the Fed and the FDIC and the Treasury agreeing that if this bank were to fail, and

people were to lose money, that you'd have run on all the banks.

And that is a special exception. And then otherwise, you need legislation in order to do this, because Dodd Frank ended the ability to just bail out

banks, as you plead. So if another bank were to do this, to find them in this position, they would have to use that special exemption once again.

And I think that would be probably somewhat difficult in this political environment. Now, whether they would need to is less clear, because one of

the other provisions that the Federal Reserve announced with this bailout was that banks could now pledge their government securities that are

underwater at par, and receive money from the Federal Reserve.

So that they have this liquidity source that Silicon Valley was not able to get under the circumstances. And so this should allow banks to fund their

liquidity needs much more effectively than Valley Bank was able to do.

CHATTERLEY: Yes, and the hope that's enough of a support, but just so that my audience understand what you're saying is in order to protect uninsured

deposits in future bank failures, you're arguing that bank, again becomes systemic. And if you're arguing that bank becomes systemic or is systemic,

then arguably, it should be under the requirement to have broader stress tests every year, which many of these smaller banks simply aren't.

And you can't have it both ways. So let's talk about the plan going forward. What should the FDIC do going forward? And how better actually,

can it predict these kinds of failures, or at least material stresses as a result of what we're seeing in terms of market price action? This was

clearly a unique case of tech sector decline, government bond price decline, but we should be able to predict this better surely.

HOENIG: Well, when you are in an environment where you raise your interest rates by a factor of at least 25, you're going to have shots. I mean,

that's just comes with the territory. And so they should understand that. And I'm sure that they're looking at banks across the country, to see which

banks might be most exposed to a liquidity crisis, given the rise in interest rates.

But I think, you know, one of their difficulties now is that they have worked very hard. They, the FDIC and the Fed and the Treasury have worked

very hard to reassure people that their money is safe. So people now expect that even uninsured depositors will be bailed out going forward.

And these agencies will have to clarify that or confirm that going forward. And I think one of the ways they're doing that facility that I described to

you earlier. Now, the FDIC, they're all looking at these banks very carefully.

CHATTERLEY: Yes, I mean because we've argued it both ways now. We've said that they're either going to have to clarify that your uninsured deposits

are safe, or they aren't. So they actually do need to come out and say it is your point?

HOENIG: Well, what they are saying if you've noticed is the banks; the banking industry is very sound. And they're hoping people rely on me.

CHATTERLEY: Trust me I' m a lawyer, yes.

HOENIG: I know yes, I think yes. Well, yes, you have to have a lawyer in here. And they are going to have to write a memo saying that if another

bank faces this that means a systemic bill. Now, let me tell you one other thing that is very clear, if it's a smaller bank and it fails, the FDIC can

do what's known as a purchasing assumption transaction.

Under a purchasing assumption transaction, they sell it to a new owner. Another bank that sound and in doing that, they sell all the deposits,

insured and uninsured, to that institution, so no one loses any money. And that has been the primary practice for decades now on bank failures.

[09:15:00]

And that's the practice they'll take going forward. In this instance the shock came so quickly that apparently they didn't have a chance to build,

prepare what's known as a bid package. That is, they know bank is likely to fail. They get other banks to see if they're interested in buying the bank,

these banks do a quick due diligence on it, and they bid to own the bank.

And that is probably how future failures will be handled by the FDIC and that would not require any special provision. And so that should give

uninsured depositors comfort. That is the most likely way that the FDIC will handle future. Now, there's, no one can guarantee that, that has been

the practice and that should be the probably the assumed process going forward from here.

CHATTERLEY: Yes, your point is a very valid one, it sorts of doesn't help with SVB and it doesn't help with the crisis that ensued. But at least

everyone's now aware of the problems and looking at all of these banks, and the plan will be in place very quickly.

I want your Fed hacked now, please, because you've said clearly that the Federal Reserve is in a tough situation. But inflation is also a tough

situation, and they need to continue to raise rates. Would you argue that they should continue to raise rates and raise rates at the next meeting,

next week?

HOENIG: Well, I would argue, yes, they should raise rates, the expectation was a quarter points that they started talking about 50 basis point but

they should raise rates, because their primary issue right now is inflation. And they have dealt with this immediate crisis and hopefully

going forward, people understand purchasing assumption.

But even if they don't, they need to go forward, because if they don't go forward, they risk repeating the period of the 1970s. Where they raised

rates, they have you have a problem, they back off, inflation rises a little more, they raise rates, they back off, and inflation rises even

more.

And so they started at the beginning of the decade of the 70s with 3 percent, whatever inflation, it rose to four, and by the end of that

decade, inflation was 14 percent, because it didn't follow through. So they really, that's got to be their priority, they're going to have to follow

through.

Zero interest rates for over a decade created this problem, they have to go through the end, they have to stay the course and bring this inflationary

situation down or it will only get worse.

CHATTERLEY: So it's like that game of Whack a Mole. What your message is to the Fed is don't end up playing a game of Whack a Mole with inflation and

interest rates, you just have to stay the --?

HOENIG: Yes, that's exactly right. They have the tools to handle bank and there are going to be bank pressures are going to be there. When you raise

interest rates as much and you have a long term asset, you put downward pressure on those assets. So that's something the industry knows, the Fed

knows, and they have to recognize that.

But in the meantime, they'd better get inflation down or this problem will only become bigger. The future prices will only be larger. So take care of

your problems in priority and move forward.

CHATTERLEY: Yes, if you think this is bad, you wait. Former FDIC and Fed official. Yes, agree. Thomas Hoenig there, Sir thank you, I appreciate your

perspective! Now from one banks collapse to struggles at Credit Suisse, the bank has admitted to "material weaknesses" and its recent financial

reporting.

It lost $8 billion in 2022, and scrap bonuses for its top executive team. Anna Stewart joins me now. The bonus things, quite frankly, at this point

completely irrelevant it seems they're reporting an $8 billion net loss for 2022 but also material weaknesses in the financial reporting. How do we

even believe that the losses now that they're reporting are accurate?

ANNA STEWART, CNN REPORTER: I mean it's incredibly difficult. And of course, this comes after scandal after scandal, issues and failures of risk

management issues around corporate governance. So it's really hard actually to know how this fits into all of it and when these stories, frankly, we'll

stop what happens next.

Now, according to the bank, according to the report today, they say they failed to adequately identify potential risks to financial statements, and

I'll show you some of the statement that they have released to see what you make of it. Says the Board of Directors of Credit Suisse concluded that

this material weakness could result in misstatements of account balances or disclosures that would result in a material misstatement to the annual

financial statements of the bank.

That said, they say that full year results that they have posted today are unaffected and they also say that the years of question from the SEC last

week, which were 2019 and 2020. They say the statements they released then fairly present in all material aspects, their financial situation, IE there

are no issues there.

[09:20:00]

Very hard to know what to make of all of that and whether that will be enough to assuage the many concerns of clients and investors outflows have

continued they hit a record peak, in terms of client outflows in October of last year. Those have continued.

They have stabilized, but they certainly haven't reversed and looking at the share price, down around 2.5 percent right now, it was down 5 percent

earlier today, it was down 9 percent yesterday, with SVP. Also dragging down the sector and listen over the year, this bank has lost 70 percent of

its value and I don't see it stopping anytime soon at this rate.

CHATTERLEY: Yes, it's a lot of flow here. That was my observation, investors flowing away, depositors flowing away. And if you're cutting

bonuses, you can probably add talent to that too.

STEWART: And I think that's a big problem. That was one of the first things I thought looking at all this is what must it feel like to work there? And

how difficult will it be for this bank to retain and recruit talent, the executive team has changed so much. I'm not sure there are many people that

have been there for more than a year or two.

The Chairman is waving his $1.6 million share award for his first full year, unsurprising, the board will not be getting their bonuses. Frankly,

that is unsurprising as well. There will be a payout for employees, of course and the board particularly if this restructures works.

But that feels a long way off at this stage and I can't imagine it feels great to work at this bank right now. I would say that a sinking ship is

probably a metaphor too far, but it does keep springing leaks, Julia.

CHATTERLEY: Yes, it's a leaky ship. Anna Stewart, thank you very much for that. We'll say no more. More "First Move" after the break.

(COMMERCIAL BREAK)

CHATTERLEY: Welcome back to "First Move", a goodwill gesture. That's what Russia is calling its agreement to extend the Ukraine grain export deal for

a further 60 days. The current term is set to expire this Sunday. Meanwhile, Ukrainian President Zelenskyy says the country's future could

hinge on the outcome of Eastern battlegrounds.

(BEGIN VIDEO CLIP)

VOLODYMYR ZELENSKYY, PRESIDENT OF UKRAINE: The situation in the east is very tough and very painful. We need to destroy the enemy's military power

and we will.

[09:25:00]

Bilohorivka and Marinka Avdiivka and Bakhmut, Vuhledar and Kamianka and all other places where our futures being decided where our future, the future

of all Ukrainians is being fought for?

(END VIDEO CLIP)

CHATTERLEY: And Ivan Watson sent this report from Kramatorsk.

(BEGIN VIDEOTAPE)

IVAN WATSON, CNN INTERNATIONAL CORRESPONDENT (on camera): We're in this Eastern City of Kramatorsk because you can see, this is part of the

destruction caused by what Ukrainian Officials say, was a Russian strike hitting a three storey apartment building in this town. The Authorities say

at least one person was killed, another is in critical condition.

Other people wounded as well. The explosion eyewitnesses say happened exactly 6 hours ago at 8:30 in the morning, and it has shattered windows

all throughout the courtyard here where there are other similar buildings and at a kindergarten, which is just behind where Tom is right now

shattering all the windows there.

One of the remarkable things about what we're seeing right now is no one's complaining. No one is crying. People are just getting on with the work of

cleaning up the destruction, of cleaning up what is left of their homes. For example, as you can see, somebody's taking their collection of books

out of their apartment, which probably is not going to be livable, for the near future right now.

This is not the first time that the city has been hit by a deadly Russian projectile. It has been pounded before by Russian rockets and missiles. We

are located about 25 kilometers away from a very active frontline 15 miles and I've operated in those areas in the past couple of days.

The artillery is thundering kind of around the clock there there's a huge Ukrainian military presence there. This kindergarten that I visited

thankfully mercifully had no children there. They were evacuated the kindergarten has been closed for some 6 months. This is part of the reality

of what people are living in Ukrainians in Eastern Ukraine.

(END VIDEOTAPE)

CHATTERLEY: Ivan Watson reporting there. OK, coming up after the break had different kinds of bond market is the U.S. Financial System shaken not

stirred. Economist Mark Zandi sees it shaken not rattled. So I guess that's you know, near enough his thoughts after the break.

(COMMERCIAL BREAK)

[09:30:00]

CHATTERLEY: Welcome back to "First Move"! In a much better tone on U.S. stock markets at this moment a Tuesday turn around perhaps I don't want to

jinx it. But we are seeing improvement as you can see across the board in early trade crucial to today's lift I think and CPI rising 6 percent

overall last month, month-over-month, numbers were in line too.

Today's data could give the U.S. Federal Reserve some breathing room to hold rates steady next week given recent pressures on the banking sector.

Banks also giving the markets a boost here too crucial the strong balance that we're seeing in the U.S. regional banks that obviously tumbled during

Monday's session all due to Silicon Valley Banks contagion fears, First Republic Bank leading the advance as you can see there, where are we now?

And also important today, a firming up in bond yields after the historic multi decade falls. We saw in the previous session, even given today's rise

tenure yields, they remain well below the almost 4 percent levels we saw in recent weeks. This will give banks important breathing room too especially

those holding on to treasuries that have lost value at least on paper. Of course, you didn't crystallize that loss until you sell them.

Plenty for investors to consider today let's take a closer look at the inflation data and the Fed's future path. Mark Zandi is the Chief Economist

at Moody's Analytics and joins us now. Mark there's always something happening when I speak to you lively, I think would be the term we could

use for the past few days.

Let's assume we're in a black box and looking at the inflation print that we saw today. Treble, the target for the Federal Reserve, would that number

alone justify raising rates next week and if so, how much?

MARK ZANDI, THE CHIEF ECONOMIST AT MOODY'S ANALYTICS: So Julia, you're asking, all else being equal? Don't look at the banking--

CHATTERLEY: Yes, I want to ignore everything else.

ZANDI: OK, all right. Fair enough. Yes, I think if you just saw that inflation print, you'd say, OK, look, it's still on the hot side, the

economy's still strong. We're creating a lot of jobs unemployment slow. Yes, I would raise rates, probably a quarter points if I were on the Fed

meeting next week. But of course, you know, lots of other stuff going on here. But by itself, yes, I think would justify rate increase.

CHATTERLEY: Yes. But I just want to do that comparison. So now we get outside of the black box, and we bring in everything else that's going on?

Do you think they stand pat next week? Or do you think they move?

ZANDI: I do. Yes, I do, right? I mean, the banking system is under a lot of pressure. A lot of that goes back to the very rapid increase in now high

interest rates. And, you know, the Fed took some pretty extraordinary measures here.

You know, with the other regulators in the in the Biden Administration, but the Fed set up this credit facility for banks to use, if they need

liquidity if they need cash so in that context, so hard to imagine that they would actually raise rates.

Why not pause, take a look around, see what damage this events in the banking system has created, and then make a decision, you know, at the May

meeting. So I suspect they're not going to raise rates at the meeting next week.

CHATTERLEY: Thomas Hoeing just said to me, they can't do that. And the reason they can't do that is because inflation is still three times higher

than the target. They have to keep going and not risk of whack-a-mole situation, where they simply don't get rates high enough to control

inflation.

But I think one of the interesting questions that the Fed will also be asking them and you correct me if I'm wrong, is what the disinflationary

the potential disinflationary consequences of the bank stress that we've seen whether it's that, particularly for the smaller banks they decide to

lend less?

Whether consumers, given the concerns about the stability of the banks, perhaps decide to be a little bit more reticent? It's tough to predict at

this stage, but what are the medium term consequences of what we've seen over the past week, do you think?

ZANDI: Yes, I think that's exactly right Julia. I mean, I think you want to see, first of all, there's a lot of uncertainty with regard to what is

going to transpire here in the banking system. I think you would want to wait and see.

[09:35:00]

You know, what is the broader fallout on the on the system and then as you point out, what is the impact on lending bye by banks and ultimately on

what it means for the economy. You know, it feels like given what regulators and the administration have done and what the Fed has done.

That is going to staunch the problems in the system, and the economy is going to be fine. And we can get back to fighting inflation. But you know

we got to figure that all out. It's just too early to know precisely.

So I think caution would dare you to take a pause here. And the other thing to consider is, the economy is slowing, growth is slowing. And inflation is

moderating. You know, it's still way too high, as you say trouble. You know what the inflation target of the Fed is, but it's moving in the right

direction.

If you go back last summer, at the peak inflation was 9 percent. It's now 6 percent. It feels like by the end of this year, it's closer to three. So

given all that, I'd say, hey, let's just take a breath here, pause and take a look around and see what the implications are, you know, for the economy

here in the next few months.

CHATTERLEY: Prioritize. I think the point is, as you're saying, let's just bring up the chart, a second of this smaller regional banks, because

fingers crossed, what we're seeing, at least in early trademark is a bounce back and I'm talking significant double digit bounce backs to some of the

banks that were a concern, some of the smaller regional banks.

That's the top line that you can see in front of you. I mean, through an example Mark fest Republic's up 60 percent. So it's we're winding the

losses that we saw yesterday. Do you think we've seen the worst? I know it's tough to call?

ZANDI: Yes, I think so, right? I mean, given the very aggressive action of by the Federal Reserve, by the FDIC, by the Biden administration and the

U.S. Treasury, you know, what actions are saying is.

You know, the government has the banking systems back and will do whatever is necessary to ensure that the problems in SVB and Signature Bank don't

bleed out into the rest of the banking system. So yes, I think that's right.

That's exactly what I would have hoped for and expect is that we see these bank stocks, the government is saying, with crystal clear voice that, you

know, they've got the bank banking systems back, and they're not going to let it fail and not go down an untoward path. So it makes a lot of sense

that the stocks are coming back today.

CHATTERLEY: I've lost count in the number of the number of people over the past four days who've asked me about the stability of the banks, what they

should do with their deposits, whether their money should be in a big bank versus a small bank, whether they should have money in a number of

different banks.

They're all reasonable questions, I think to be asking at this point, Mark, have you also been asked these questions numerous times, by friends by

family and I just wondered, you wanted your wisdom. What have you been saying to them?

ZANDI: Yes, Julia absolutely. I mean, people are nervous. And, you know, I reasonably so. But, you know, I think it's fair to say that if your money

is in a bank, depository institution, or credit unions, you know, you its money, good, you're not going to have any problem, getting that money out

of the bank.

Whether it's under the 250k, you know, FDIC insurance limit, which that is for most Americans, you know, more than adequate. But even if you have

deposits that are more than that, in a bank, you will be fine. The government has, as I said earlier, your back, so no reason to worry.

Now, having said that, you know, it is a reminder that, you know, it would be it'd be wise to have if fortunate enough to have savings of more than

250k, you want to keep that dispersed across the banking system, you don't want to have all your money in one bank.

It doesn't make a whole lot of sense to do that in the context of what you're observing now, but at this point in time, if your money is in a

bank, credit union, its money good. You're going to get your money. No problem.

CHATTERLEY: Yes, I all I would say am we just seen a period of time where people couldn't access the money, even if it was protected. So just make

sure you've got access to quick cash, even just for a short period of time, and then keep calm.

Might very quickly last time we spoke, we were debating, no landing, hard landing, soft landing, you said slow session, which was my new word. I have

about 30 seconds. This changed the slow session that you predicted.

ZANDI: No, I feel pretty good about things. You know, obviously, when rates are rising, you know, that puts pressure on the economy on the financial

system, and it starts to shake and that's what we've been observing today, in the last couple of days.

But the system held holding together well, and again, we've got the administration and regulators on the case and makes me feel confident that

you know the economy is going to struggle here as because rates are high and they're going to go higher with inflation and but when we look through

it all we're going to get through without an actual economic recession or downturn

[09:40:00]

CHATTERLEY: So actually you're shaken but not stirred even if the markets for a level--

ZANDI: --We were shaken but not stirred I get it I that didn't dawn on me but I was music Yes.

CHATTERLEY: Mark Zandi. Thank you for that all right coming up on the show submarine under the spotlight how China is reacting to a U.S. Defense deal

with Austria and Britain next.

(COMMERCIAL BREAK)

CHATTERLEY: Welcome back to "First Move"! China condemning a security deal between the UK the United States and Australia to supply the Australian

military with nuclear powered submarines.

(BEGIN VIDEO CLIP)

WANG WENBIN, CHINESE FOREIGN MINISTRY SPOKESPERSON: The three countries have completely ignored the concerns of the international community and

gone further down a wrong and dangerous road.

(END VIDEO CLIP)

CHATTERLEY: Will Ripley joins us now. I think it's no surprise here that Beijing would react with concern.

WILL RIPLEY, CNN SENIOR INTERNATIONAL CORRESPONDENT: Yes, and react even before the official announcement was made. Now of course wasn't a surprise

they've been saying that this is going to be a pretty big deal.

[09:45:00]

First, it wasn't a surprise they've been saying that this is going to be a pretty big deal. And it certainly is a game changer in a lot of respects.

Julia, when it comes to, you know, supplying nuclear submarine technology to Australia that in 25 years will transform their capabilities and in the

short term allow for the rotation of U.S. and UK nuclear submarines into Australia.

Therefore, you know, bolstering the underwater deterrence that the United States still holds out quite an edge. In the submarine space over China

Julia, granted, China is making a lot of progress. But submarines, aircraft carriers, they're still decades behind the U.S.

And so this certainly presents a problem for China and their naval ambitions, which is why you heard such sharp rhetoric from the top all the

way down Xi Jinping. And, you know, every MOFA spokesperson, basically saying that the United States is trying to contain China.

But the U.S. believes that China's global influence and military movements pose a threat to democracy, democracy here in Taiwan, and in other places

around the world.

So that's why in addition to this submarine deal you also have in the U.S., basically appearing to prepare for a long term struggle with China

expanding its military presence in the Philippines encouraging Japan to expand its military to expand its own military after years of pacifism, and

also selling billions of dollars and unprecedented number of weapons to this self governing democracy here, Taiwan Julia.

(BEGIN VIDEOTAPE)

RIPLEY (voice over): Chinese fighter jets screaming over its skies, military ships sailing off its coast, daily occurrences for Taiwan, living

under the constant threat of a possible Chinese attack. Beijing's communist leadership claims Taiwan as part of its territory despite having never

ruled it tensions rising across the Taiwan Strait since Nancy Pelosi is visit in August, the first visit by a U.S. House Speaker to the island in

25 years.

REP. NANCY PELOSI (D-CA): We will not abandon our commitment to Taiwan.

RIPLEY (voice over): Who can forget China's response last year those days of large scale military drills encircling the island firing ballistic

missiles over Taiwan? Analysts fear this may be repeated again next month. Taiwan's President Tsai Ing-wen expected to meet U.S. House Speaker Kevin

McCarthy.

RIPLEY: So in saying that the United States would come to Taiwan's defense attack?

REP. KEVIN MCCARTHY (R-CA): Yes, we have a commitment to do that.

RIPLEY (voice over): But the U.S. has reasons to worry about a Chinese invasion of Taiwan, protecting valuable semiconductor chips. Taiwan is a

global leader in semiconductors tiny chips that power everything from computers to cars, the island producing 70 percent of global supply.

Defending democracy, losing democratic Taiwan to Communist China would shattered us credibility in the Indo Pacific region, protecting us

alliances, Asian countries would face an even more powerful China. A heavily shriveled police state with little freedom of speech, the stakes

are indeed high, but experts do believe there's reason for optimism.

RIPLEY (on camera): Do you think the U.S. and China are headed in a positive optimistic direction?

LEV NACHMAN, POLITICAL SCIENTIST, NATIONAL CHENGCHI UNIVERSITY: The idea that conflict between the U.S. and China is inevitable. I strongly disagree

with that meaningful channels of communication between the U.S. and the PRC that helps us minimize unknowns it helps us minimize confusion and

misunderstandings and ultimately, that that's good for Taiwan.

RIPLEY (voice over): U.S. China relations on a downward spiral since that suspected Chinese spy balloon bursting months at Beijing DC diplomacy. As

to Democratic allies, the U.S. and Taiwan get even closer. Taiwan's President and the third in line to the U.S. presidency meeting on American

soil. As tensions escalate, all eyes will be on China. And where is this all headed?

(END VIDEOTAPE)

CHATTERLEY: Well forgive me for their confusion there. But that was entirely my fault. I was going to pick up on what we were saying there

about China in the United States and Australia. And just make the point that it comes at a time when China's talking about building the military

into a great wall of steel with potential profound consequences for the likes of Taiwan.

Which has become a sort of economic and geopolitical pawn in many ways, between all of these nations, given the importance of semiconductors, as

you and I have discussed, it was interesting to hear that comment there with the gentleman saying.

Look, you know, despite the deterioration in relations, and certainly the rhetoric heating up, this perhaps less caution than you might imagine of

the risk of Taiwan or conflict. Let's call it that over Taiwan?

RIPLEY: Yes, I mean, look, it really depends on the timeframe for a Potential move on Taiwan which China has signaled that it's going to do

although they haven't signaled when it will happen they say they want it to happen peacefully.

[09:50:00]

The Taiwanese people have said in overwhelming numbers, they do not want to be absorbed by China. So that makes a peaceful absorption takeover, if you

will, out of the question. And that raises the question then.

OK, so is it going to be military and when so the U.S. is sending weapons in these this submarine deal is kind of more of a long term strategic plan

to counter try to train his navy, it might not have any immediate impact given the naval situation across the Taiwan Strait, Julia.

But even you know, these other potential issues that are coming up that could escalate things even further, the U.S. still talking about new curbs

on U.S. companies investing in China, you have the question of whether they're going to restrict or block altogether TikTok and, of course, China

pondering whether it's going to start sending lethal weapons to Russia and Ukraine. So there is just a lot right now.

CHATTERLEY: Yes. It's a lot. I mean, we're talking about these submarines being seaworthy, I think by the late 2030s, to your point, and you've

mapped it out perfectly, and goodness knows where we are at that point. Thank you for joining us so late in the evening, and thank you for putting

up with me, just generally. We appreciate you, thank you. Well, More at 'First Move' after this.

(COMMERCIAL BREAK)

[09:55:00]

CHATTERLEY: I ever talked again so that's it for the show 'Connect the World' is up next I'll see you tomorrow.

(COMMERCIAL BREAK)

[10:00:00]

END