The US financial system today is pretty much taken as a given. We have the Federal Reserve, which sets interest rates and provides various liquidity backstops. We have regulated banks, which lend and create money and have access to the Fed. And we have non-bank financial activity that falls under the nebulous umbrella of "shadow banking." But how did we actually end up with this system? And why did policymakers design it the way they did? On this episode, which was recorded live at Bloomberg's New York headquarters on Nov. 29, we speak with Josh Younger and Lev Menand. They are research partners who have delved into the big questions about the structure of modern banking, the history that has shaped it into what it is today, and what its design actually means for the economy and society. This transcript has been lightly-edited for clarity.
Key points from the pod:
How did Josh and Lev become interested in this topic? — 3:41
The importance of Bill Martin and the 1950s Fed — 8:07
What are the benefits of a shadow banking system? — 12:02
The birth of the eurodollar market — 16:35
Does the Fed control too little or too much? — 21:35
Why the Fed exists to fight deflation — 25:11
Modern banking and the 2008 financial crisis — 27:48
Can the Fed do whatever it wants? — 30:41
Should we worry about financial instability now? — 35:21
Crypto’s outsider role in the financial system — 41:08
The use cases of central bank digital currencies — 46:28
The role of the dollar in the global financial system — 52:49
How could the US financial system be designed differently? — 58:23
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Tracy Alloway: (00:10)
Hello, and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway.
Joe Weisenthal: (00:14)
And I'm Joe Weisenthal.
Tracy: (00:15)
So Joe, this is a very special episode of Odd Lots. It is a live recording.
Joe: (00:21)
That's right. We did a live recording, there was a big, I don't what? 200 something people came out, it was a really packed house, to talk about finreg.
Tracy: (00:30)
That's right. Everyone got really into finreg. So this is basically a follow up from the episode we did with Josh Younger, one of our favorite guests, in which he was talking about the origins of the repo market. And we decided that we needed to talk more about it, and we wanted to bring in Josh's research partner Lev Menand.
Joe: (00:51)
Yeah, that's right. And so we have this sort of sprawling financial system. You know, as you mentioned, there's repo, there's eurodollars, there's crypto stablecoins, PayPal, Venmo, all of these things that have sort of like some banking like qualities, but aren't really banks. And so the frame after that great episode with Josh, I guess that was in October, is basically like, how did we get here? How did we get in this position where we have all these sort of various bank entities that aren't traditional banks, that in some way or another, the Fed is responsible for regulating or backstopping?
Tracy: (01:27)
Right. And I think there's a lot about the financial system that we tend to take for granted. But there's a reason that all of these different things exist -- for better or worse. And they do come with, you know, advantages and drawbacks. So that's really the theme of this particular episode, talking about how we got here and why and what it means now. So please enjoy it.
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Tracy:
Thank you everyone for coming to a very special live recording of Odd Lots podcast. I'm Tracy Alloway.
Joe: (01:56)
And I'm Joe Weisenthal.
Tracy: (01:57)
So I am very pleased to say that today we have Josh Younger, one of our favorite Odd Lots guests. We also have his research partner, Lev Menand. He is an Associate Professor of Law at Columbia, also the author of “The Fed Unbound.” And one of the reasons we wanted to hold this live event is because we recorded an episode with Josh Younger earlier this month I believe, where we talked about the origins of the shadow banking system, specifically the repo market. And one of the themes that emerged from that discussion is that even if you think the shadow banking market has a lot of issues and problems today, the reason those issues and problems exist sort of stems from these decisions that were made many, many decades ago -- conscious decisions by regulators, notably the Fed, that combined to create the shadow banking market as we know it today.
Joe: (02:49)
Right. Even if you're not interested in the shadow banking market, the shadow banking market is interested in you, basically. So yeah, I'm really excited about this. Plenty to learn, plenty to sort of look through history to sort of understand where we are now. Plenty of finreg and financial stability issues always popping up. So let's go for it.
Tracy: (03:10)
It's a good time to talk about financial stability. Just one note before we be begin. I think our producer already walked you through some of the housekeeping, but we are taking questions from the audience. Please write them down on your index cards and they will be put into the magic box that we have on stage. All right. So without further ado, Lev, why don't we start with you? I mean, researching the evolution of modern banking. How did you get into that and why?
Lev Menand: (03:41)
So it's really a product of my biography in some sense. I graduated from college in the midst of the global financial crisis and its aftermath, the Great Recession. And I, in a weird turn of events, got a job at the Federal Reserve Bank of New York. So I was thrown into an economy that was in turmoil -- financially induced turmoil. And so I was naturally very curious about that. And then suddenly I had a job that gave me an opportunity to learn about that problem, and to confront it directly. And so I got to work on the first CCAR, the first stress test, and developed that. And I also got to, I was seconded to the Financial Stability Oversight Council. I got to work on preparing the first Financial Stability Report for the United States.
And then, you know, once you find a problem that is interesting to you, you know, I guess my personality, I've just continued sort of chewing at that ever since. And in part because I don't think that we've solved problems from 2008. And, and I think that the consequences of 2008 are extremely momentous across a number of dimensions of our society, that many problems that we're experiencing today -- political, economic, social -- 2008 was a major shift in how we addressed those problems. The nature of those problems made a lot of them worse. And I think that monetary and financial stability, what we lost for that one moment is a key social good that we need to do a better job of preserving and protecting over time.
Joe: (05:21)
So, one, don't the two -- and Josh, you know, in terms of like, okay, we had you on recently, we talked about the 1950s, what is it about the history? Why is it important to take a historical lens to think about some of these problems and to think about, okay, what does an optimal financial regulation system look like? Why is like the historical lens a sort of useful approach for that?
Josh Younger: (05:43)
Yeah, so I have in many ways the opposite story to Lev. So I was trained as a physicist. I got my PhD in 2009. And so when the financial crisis was raising, I had no idea what was going on. I mean, I was entirely focused, I was using a telescope in Hawaii to look at colliding galaxies….
Joe: (05:59)
Other physicists were to blame for the financial crisis. So at least you're blameless.
Josh: (06:03)
Not going to take a view on that, but I think when you're a physicist, you're trained to figure out what the rules are, they're the input, in a sense. And so they're taking, you know, I just tried propose to figure out, well, how the world works because it works a certain way. And that's not up to me. But it's interesting to figure out, like, what that is. Financial markets are the opposite of that, which is we get to set the rules to achieve an outcome. And so, you know, as I went into the industry and sort of got deeper into the really fundamental questions of market structure, first you have to get your sea legs, because I didn't know like what bond math was, for example. And then these things, so you figure out like yields up prices down, I got that right .
But after you do that, you start to think about why the system operates the way that it does. And because it's a construct, because it's a set of choices that we don't necessarily like all the aspects of where it ended up, raises the question as to why we made those choices in the first place? Is this just a function of markets, you know, having their own mind, and going their own way? Or is this really a set of conscious decisions where maybe we don't love some aspects of the system, but it was set up to solve other problems, right? And so the history tells you that. It tells you what the intent was. And that's important -- one to just understand why things are the way they are, because to a new observer, they seem a little odd sometimes. But also to think about the limits of what you can do to fix it. Because the entrenched interests that are created by that process are really important.
Tracy: (07:27)
So why don't we talk about one of the rule-making episodes or one of the conscious decisions that was made that reverberates to today. And Josh, this is something we spoke about with you on the episode, the 1950s, and one of the outcomes of that particular era was the repo market as we know it today. But Lev you have also talked about how the Fed Chair at the time, William Martin, made a big decision about breaking with traditional banking and shifting the system into something new. And part of that involved the role of primary dealers in the repo market. But talk to us about that break and why it matters today?
Lev: (08:07)
William Martin is one of the most consequential 20th century figures and played a huge role in creating the world as we know today. Things that we take for granted, like the repo market, the eurodollar market, and their centrality, and how our financial system works, how our economy works, these were projects of William Martin and they were things that he tried to construct and bring about. And he was not painting on a blank canvas. He was actively trying to re-engineer a system that had been set up in the wake of the Great Depression the New Deal banking system. And that system was constructed around a separation between banking and other financial and commercial activity. And banking was a franchise business. And the point of the business was monetary -- to issue deposits. Deposits were the primary form of money, still are the primary form of money in the economy.
When there's more deposits, you get inflationary pressures. When there's fewer deposits, you get disinflationary pressures. This was the banking franchise. Banks were going to do this subject to a bunch of regulations. Other things were going to happen outside of banks. William Martin, in an effort to solve a series of problems, one of which you talked about with Josh previously, is keen to break down some of these borders. So the birth of the repo market is a way to allow broker dealer firms who had been pushed out of the banking business to find a way to fund themselves like banks, by copying the business model of banks. And so they're legally barred by the New Deal banking laws from maintaining deposits because there's a provision in the Banking Act of 1933 that says that only a bank can take deposits.
So they create a structure that mimics a deposit. And Martin is instrumental in facilitating this, allowing this to happen, providing a backstop for it, in the fifties. And this is really the birth moment of the shadow banking system – the idea that we're not going to have a money supply that's entirely provided by either the government in the form of cash or the banking system in the form of deposits, where the deposits are the sort of the big event. And the cash is a small side. So there's actually room in this system for non-bank money, other forms of private money -- namely repo. And this starts in earnest in the fifties. And everything else that sort of comes along, and I think we'll get to it, the eurodollar markets, money market, mutual funds, commercial paper of very short duration, stablecoins are a sort of variation on the same theme.
And all of these are more or less viable based on a sort of informal relationship that they can develop with the central bank. You know, if you have a central bank backstop, you can make a viable money alternative. If you don't have access to the central bank, you really, you can't get very big. You can't do that. And so Martin's key role was to was to rearchitect the system and make it clear that the Fed would provide backstops for various time types of non-bank money. Two in particular that become the dominant -- the repo market and the eurodollar market.
Joe: (11:30)
So you use this word – ‘border’ -- which I think is interesting. And you describe, okay, the expanding border. And there's all these sort of like non-bank shadow bank type entities that issue deposit-like instruments, even if they're not technically bank deposits narrowly defined. What is accomplished by this? What is sort of, for either of you, what do we get from having the benefits, having more of these entities that can issue deposit-like monies and having this relationship with the Federal Reserve outside of the sort of normal banking system?
Lev: (12:02)
Well, so I'll let Josh sort of get into the details on, on repo and the Treasury markets in particular. But just sort of at a high level, the banking system is heavily regulated under the New Deal banking law framework. And so there are lots of requirements on banks and there's an effort to direct the sorts of assets that banks invest in. So they're expanding the money supply. Where's the privilege of that going? Who gets access to that money issued based credit, that monetary financing? And there's lots of rules the government has put in place on who benefits. And there's lots of restrictions on the design of the banking system. So at this time, we have something that looks a lot more like a unit banking system. It's very decentralized. There's thousands and thousands of banks. There's limits on how big banks can be, there's limits on how much banks can pay their depositors.
This is Reg Q which exists from the thirties until the early eighties. And so the incentive to create non-bank money is an incentive to have some, to direct the benefits of monetary financing in some other way, not subject to all of these constraints. And so there's just large rents or surplus to extract from being able to expand the money supply outside of all these constraints. And so that's the impetus that everybody, that's always leading people to try to create private forms of money is to do it without all the costs. And this is exactly what's goes on with stablecoin as well.
Josh: (13:34)
So I think the Treasury market's a great example. So like, what do we want from the Treasury market? Well, the investors want liquidity. That means dealers that can expand and contract their balance sheets and take on a lot of leverage because a low margin business means lots of liquidity, means low transaction costs, but like you still have to pay the rent. And so you need to take on more leverage to make that a profitable business. And so that doesn't work in a traditional banking framework, in part because it shouldn't work in traditional banking's favor in certain ways. Like, banks are providing this incredibly central social service of making money. And so, they're held to a higher standard in a sense. And so, you know, dealers get access to money-like financing, even if it's not strictly money in the classic sense.
And that gives the market liquidity, depth and in particular low transaction costs. That's what we're really talking about, right? I don't want to pay a lot to trade my Treasuries and I want to do it in arbitrary size. So for the Treasury, that means lower yields, liquidity premium, right? Liquidity premium means I'm going to pay more because this thing has liquidity value, and that's just a lower overall cost of, of debt service. So all of these things are valuable. And then you wrap all of that in the context of having a lot of elasticity, meaning if there's a shock, like in 2020 for example, people need to monetize their Treasuries. Everyone needs to sell at the same time, there has to be new money to provide the proceeds of those sales. Because those bonds are held outside of the banking system, when they come into the banking system, they get turned into bank assets and that means they're funded with new money. And so then the holders of those bonds now hold money in the classic sense. And so that elasticity is not easy to provide, within the context of traditional banking. And so, you know, the shadow banks in a sense, like augment the money supply as needed under stress in a very desirable way. But it comes with costs. And that's the issue. It's a means to an end. It's not a generic good.
Lev: (15:26)
Just to put a finer point on what happened in the fifties, the Federal Reserve is providing the elasticity for the Treasury market coming out of the forties. And so if there is the need for balance sheet capacity, if you want liquidity in the market, where is that? Where's that elasticity coming [from]? If the Federal Reserve’s balance sheet. Can the banking system take that? Roll over? Given the regulations on the banking system, the liquidity, the amount of elasticity that they can provide is going to be much less. What if we turn to broker dealers and provide them with a similar ability, oh, they're not subject to all of these restrictions on their balance sheet capacity. They're going to be able to mimic the elasticity that the Federal Reserve balance sheet was able to provide. But now we don't have the Federal Reserve directly in the market anymore. And that's how this all gets going in the mid-fifties.
Tracy: (16:14)
Hmm. Josh, could you maybe talk a little bit about the birth of the eurodollar market? Because this is also something that happens by deliberate policy choice. And I feel like nowadays a lot of people talk about the eurodollar market as if it's some mysterious like shadow pot of synthetic dollar deposits just floating around. But why did it happen? Why does it exist?
Josh: (16:35)
Well, there's kind of two eurodollar markets in the beginning. There's the original eurodollar market, which is a communist creation.
Tracy: (16:45)
I wasn't expecting to hear that sentence.
Josh: (16:46)
Yeah. And so, one of the most important capital markets is a communist invention, which is in the late forties. People usually when they tell this history, they point to the Suez incident where the US froze Soviet assets and they said, ‘oh, I don't want to take that risk of the US seizing my assets.’ But it actually goes back a lot further. Even before the Korean War, there's declassified CIA documents that track the flow of dollars from Soviet accounts in New York into Europe. And why Europe? It's because in Europe you could have deposits denominated in currencies other than the local currency. That wasn't true in the US. So you could get a dollar deposit in Paris, you could get a dollar deposit in Belgium. And so in the late forties, the CIA is reporting a list of six or seven banks have taken communist dollars.
The problem with that is it's not scalable. Well, there's a lot of problems with that, but like, it's not scalable in the sense that what are you going to do with these dollar liabilities? You need assets to match the liabilities. And so they were used primarily for east-west trade finance. So trade in dollars from the communist block to the west. For a lot of reasons, the Soviet Union didn't want a lot of that because they wanted to be independent. And so they restricted it. And so like there was a very small market in the beginning. The key development is in 1954 when the UK liberalizes convertibility, meaning I can exchange my sterling for dollars onshore among banks and specifically in the forward market. And the key there is now I can hedge it, right? So now I can take a dollar deposit, I can hedge it back to sterling, put those sterling into the local market and maybe there's an arbitrage.
And it turns out, much like today, people didn't know how to price FX forwards in an arbitrage free framework. And so, the FX forward market of the mid-fifties had a large ‘cross currency basis,’ meaning it wasn't priced at precisely the interest rate differential, wasn't priced perfectly fair. So you make free money borrowing dollars in the eurodollar market, going to the FX forward market, swap them for sterling on a forward basis and just buy local bills in the UK. And so then the market starts to grow because now there's something I can actually do. It's still narrow. There's a lot of echoes of stablecoins in this, right? It's a specific application. We said stablecoin three times.
Joe: (18:52)
I was just going to say, okay, it's like 19 minutes in -- stablecoins have been mentioned three times. Why are we talking so much about stablecoins and what is it specifically in the context here? You know, you're talking about okay, this whole, like all these non-deposits that exist, sort of an arbitrage purpose, escape rules. Like how do stablecoins fit into this in your view?
Josh: (19:13)
Well eurodollars are a great example where you create a product for a very narrow purpose. So initially it's like sanctions evasion by communist bloc countries. And like that's obviously not going to grow. We tried that. It's not a great business model, again for a lot of reasons. So that stays relatively small. But once you find a use case -- in this case, cross-border interest rate arbitrage -- which is still narrow but bigger, the market starts to grow, and then you eventually get to the big event, right? So after 20 years you get to something really massive, but over time that product starts as a seed. In the case of stablecoins, it's the lack of access to traditional banking among large cryptocurrency exchanges. And so stablecoins are a way to transfer dollar equivalents into a new ecosystem.
Eurodollars were a way to transfer or create dollars in that case, which you could say of algo stablecoins as well. It's a way to create new money in the new ecosystem that is native to the new ecosystem. In this case it's European trade finance. And as global trade increases and specifically intra-European trade increases, there's this demand for dollars, there's a currency of trade. And now you have a new market. And so, I think the interest here for stablecoins is we're kind of at the beginning of that narrative. We're at 1955 where there's one bank taking major eurodollar deposits for the purposes of cross-border arbitrage. And the question is, what's the next phase in that? And what is required of the market and regulators to get to those next phases where there's real exponential growth? And will we do that and do we want to?
Tracy: (21:01)
So Lev, one of the things we've been discussing is how the Fed basically ceded some money creation powers. And I feel like nowadays one of the criticisms that you hear about central banks, and maybe this is because I spent too much time on Twitter, as we all do, but you know, there's a perception on Twitter that, ‘oh, the Fed controls everything’ and you know, all markets are artificially manipulated by the central bank. And so I guess my question is, does the Fed control too little or too much, or the wrong things? How would you view that?
Lev: (21:35)
That's a hard question to answer at the sort of level of abstraction. I would say that in some senses the Fed controls too little. The Fed was designed to manage the money supply, the bank-issued money supply. We have an outsourcing system. We don't have a money supply that's issued directly in bulk by the government. But we have a central authority, the Federal Reserve, whose job it is to manage the size and composition of bank balance sheets and the rate of expansion. And there's a specific mandate, they want to ensure that that expansion continues sufficient with the economy operating at its full capacity over the long term, which is what Section 2A is about. And the Fed has a much harder time doing its job keeping the money supply expanding at a rate consistent with the economy's full capacity potential over the long term, when a lot of the money in the system that's critical to the system's functioning, if it disappears you get huge disinflationary pressures – this is exactly what happened in 2008 -- if that's being issued outside of the banking system. Because the Fed has all these tools that allow it to monitor and adjust the size and composition of bank balance sheets. And it has many fewer tools with respect to broker dealer balance sheets. And certainly with respect to the balance sheets of foreign financial institutions that are issuing lots of eurodollars or stablecoin issuers. And so the more of the money supply that is outside of the Fed's tools, the more it's going to be over-relying on tools like emergency lending, which it can then repurpose. And so there's a discount window that's built into the Federal Reserve Act for the banking system.
That's one of the key tools that's built in so that they can manage the bank money supply, but then they create all these ad hoc facilities. They're basically ersatz discount windows for all the other shadow monies that have come along. And you see them roll out those facilities in 2008, and you see them roll them out again in 2020 because you need those discount windows. That's one of the only mechanisms we have now to ensure the monetary stability that the Fed is there to do. Otherwise you fail on the Section 2A, you get monetary shrinkage, which causes recession and depression. So in that sense, the Fed doesn't have nearly enough control. But then in another sense, you know, it's too involved. Because in order to make up for the lack of ex-ante tools, it becomes ex-post extremely involved in financial markets in ways that I think even Fed policy makers are sometimes uncomfortable with. And so you have a much, much larger balance sheet that's a product of not being able to control the money supply in the ordinary traditional ex-ante ways that Congress at least designed the institution to carry out its task. You
Joe: (24:44)
You know, you've written about this, but I want to following up on this point. I mean, one of the things, people are like, ‘oh, the Fed is there to fight inflation because politicians can't be trusted because if it weren't for the Fed, they would just spend and maybe ramp up spending before every election, etc.’ So we need this independent Fed. And your argument is that it’s not really not about that. That actually like the deeper history of the Fed, your story is like that's a myth that that's why the Fed exists
Lev: (25:11)
More or less. Yes, I mean the Fed almost exists for the opposite reason. So we set up the privately-owned, investor-owned banking system. We outsourced, we didn't do greenbacks. This was the direct money issued during the Civil War. We moved away from greenbacks, we created the national banking system in 1863. That was to prevent over issue by politicians, the idea that we just don't want to have the government issuing all of the money supply. We need to outsource that. Some of the money is going to have to be lent into circulation. We don't want the government to be doing that lending itself, having to evaluate credits. This could lead to corruption and problems. So we set up the national banking system and then 50 years later we create the Fed because what we discover is that the national banking system is prone to breakdowns, under issue of money, and it needs an institution to avoid those breakdowns.
Basically, to avoid deflation, to avoid contraction and to ensure that the money supply grows over time consistent with the ability of the economy to grow. And so the Fed doesn't actually get its Section 2A mandate until 1977. It has a mandate under what's called the Employment Act of 1946, which is to pursue maximum employment, maximum purchasing power. But that's a mandate that applies to the whole federal government. This is born of Keynesian thinking following the Second World War. It gets Section 2A in 1977. And the concern of Congress when writing that is about high unemployment in the 1970s you know, you would think that their concern was the high inflation rate, but they were concerned this was the highest unemployment since the 1930s. And the Fed was not providing enough growth in the money supply. And what's amazing is that it's just three years after this that you get the Volcker shock and changes our whole way of thinking about what the Fed is for. And then the Volcker Fed success, or perceived success, in taming a decade of inflation that various politicians and government officials tried to address and were understood to have failed, leads to a whole reconceptualization of what the purpose of the Fed is and what a central bank, what role a central bank should perform in an economy.
Tracy: (27:28)
So just on this note, I realize we're kind of having an abstract conversation about the purpose of the Fed, but can you maybe draw a direct line between that conceptualization of what the Fed should be doing or could be doing, to what happened in, for instance, 2008? Can you connect those two events?
Lev: (27:48)
Yes. So 2008 is the Fed confronting its need to perform its fundamental purpose, which is to prevent monetary contraction. The core of its mandate, the whole reason it was created, the reason for its key modifications, 1935, 1977, it's all about do not allow for a monetary system breakdown to cause a terrible recession. The Fed is there to prevent that from happening. And now they're facing this monetary system breakdown. And it's a product of this whole shadow banking system that they had been involved in developing over the years. It turns out to be unbelievably fragile, and need an enormous amount of central bank support in ways that they had not anticipated. And ultimately they don't keep all the balls in the air. The Lehman Brothers ball falls, and we can have a whole conversation about, you know, whether there were other ways to keep that ball in the air and what the right response to that was. But the reality is, when you have huge chunks of the money supply collapsing like that, you get a very acute recession.
And that's exactly what we have. And so the Fed does a sort of you know, in the period maybe a B/B+ job. I mean, I'm reluctant to sort of give it a grade because in some ways they failed completely, and in other ways they succeeded. They avoided a much worse crisis. But the Great Recession is fundamentally the product of a monetary system breakdown. That was a complete own goal from a social design perspective. We didn't need, it's like the electricity grid turning off for two months. Imagine what would happen if the electricity grid had sort of shut down for six weeks? You'd have a huge drop in GDP and the monetary system is like the electricity grid for the financial system, and if you turn it off, economic activity just sort of grinds to a halt. And the Fed's job is to keep the lights on and they didn't totally nail it.
Joe: (29:57)
So Josh, you know, with each of these crises and the two big ones obviously that we've experienced recently -- 2008, and then all the activity, the flurry of activity in spring 2020 when Covid hit -- you know, obviously there's all these sort of de facto discount windows that open up for the non-banking sector, but then there also seems to be this legal fight that emerges in terms of like, well, what tools are really available under the law? Is there any real limit to what the Fed can justify to itself? Like are there actually hard constraints on what the Fed can do? Or is it always, oh, sure, to either one of you? Or is it always the sort of like the only constraint is the creativity of the lawyers?
Tracy: (30:39)
This is an invitation to make fun of lawyers, I think.
Josh: (30:41)
Yeah, well that's fraught for many reasons in my case. Sure. But you know, I think the answer to that question is the answer to any question related to the legal constraints on a public institution, which is they, any public institution can quote unquote ‘get away’ with whatever they can justify. The question is like, is there a long history of doing it? That's not enough on its own, but like it helps, right? So the Fed's been doing repo since 1917. That's a long time. You know, it's been doing FX operations since the sixties. That's also a long time. And so like, you know, I always like the open and notorious doctrine, I guess you'd call it, is it called the doctrine? I'm not really sure. Basically if you walk into somebody's house, set up shop and never leave, and they never kick you out or call anyone, it's your house.
Joe: (31:25)
I know someone who tried to do that
Josh: (31:26)
Yeah, it usually doesn't work, but for real property that's like a real…
Lev: (31:30)
Adverse possession.
Josh: (31:31)
Yes, which shouldn't necessarily apply to administrative practices, but like the principle of the thing sort of applies to some extent. I’m kind of avoiding your question, in the sense that like, the answer is yes and no. But ultimately you have to be answerable to the public. And so, you know, I think that's on Congress in a sense to say, we don't like what you did, you can't do it anymore. I'm going to write that down. We're all going to vote on it and the president's going to sign it. Now, it's a rule. And they've done that in the past. And for example, also in the early fifties, there was a voluntary credit restraint program around the Korean War. And basically Congress removed the ability of the Fed to do that and they brought it back later. But like there've been examples of powers being removed by congressional action. And that's ultimately the remedy, right? It's not that people sue the Fed, it's that congress passes law.
Lev: (32:27)
2010 is also a great example. Dodd-Frank Act, Section 13(3), which is one of the core authorities that the Fed leans on in 2008. Congress makes significant modifications because it wasn't pleased with certain ways in which Congress used 13(3) in 2008, specifically Congress made 13(3) loans to support the rescue of Bear Stearns and to AIG. And the modifications in 2010 say that 13(3) lending has to be through facilities with broad-based eligibility. And the Fed can't make loans to save a particular specific failing financial company. And so just recently we had seen that mechanism at work, though I would say in general, the government is full of administrative agencies that exercise delegated authority from Congress pursuant to enabling statutes. And the ordinary mechanism for checking the exercise of authority by those agencies is the courts, is the judicial process.
So when the EPA decides to regulate air pollution they often get sued, and then they have to go and explain why the statute authorizes them to regulate air pollution in that way. And then there's a bunch of judges who, you know, are either convinced or not convinced and they apply various doctrines and that process, the Fed is subject to very little of that for a variety of reasons we could get into.
And so, unlike many agencies that we're familiar with, the Fed tends to be the final interpreter of its own enabling statute. And so it's the Fed General Counsel's office that sort of decides what Section 14 means because there's basically no cases where a judge has ever been involved. So we haven't developed a bunch of precedents and it's not sort of come about that anybody has sued the Fed for a variety of reasons and gotten a judge involved in the issue. And that's why the sort of main players that are constraining what the Fed can do are its own general counsel's office and then Congress, which can intervene.
Tracy: (34:40)
It must be nice to be able to be the arbiter of your own powers. Um, I'm going to reluctantly fast forward to 2022 and you know, we've been talking a lot about this on the podcast. There's been a lot of air being taken out of the sort of most frothy parts of the market and there's been a lot of talk about the Fed raising rates until something breaks. But the standard opinion seems to be that the financial system is safer than it was in 2008. You don't have the buildup of leverage that you had back then. Is that right? I'd love to hear from both of you, where are the pockets of vulnerabilities right now and should we be worried about financial stability?
Josh: (35:21)
So the interesting answer is there's some like idiosyncratic source of leverage that no one talks about and I'm going to tell you right now and then we'll have the answer. But I'm not going to do that.
Tracy (35:32)
We tried. Yeah.
Josh: (35:34)
Well, I can't do that, I should say. Not, I'm not going to do that. But I think 2020 is an interesting case study. So I hate to rewind to that, but 2008 is a credit crisis that is deflationary in the sense that the money that was created to fund new loans is now not money good, right? Because the loans are bad. When the loans go bad, the money goes away and you have deflation. In 2020 we have a big, much bigger economic shock than we had in 2008 by lots of measures. And yes, it was short-lived, yes, it was like quote unquote ‘V-shaped’ or whatever, maybe it's sort of a check mark shape because we kept going up, but like the that wasn’t obvious at the time. But we don't have a credit crisis. Like nobody's really worried about the underlying stability of the banking system in a meaningful way at any particular point in that.
Now we do stress tests, we make sure, but it's more about checking your answer than it is about coming up with a new one. And so, like that's a success in that it's not a credit crisis, it's a liquidity crisis. Central banks are designed to deal with liquidity crises. So, now you could ask the question, should there be that much liquidity in the market in general? That's ultimately the question of shadow banking is there's more liquidity than is necessarily is sustainable, and if the Fed's going to, or central banks in general are going to backstop liquidity, like they should have some limit to what they're willing to do.
If you think about the current environment, you know, just the simple fact of rising rates doesn't seem, with some idiosyncratic cases left aside, like for the global economy and for the US economy, is problematic in much more boring ways. Meaning it used to be really cheap to borrow money, it's not so cheap anymore. And that's not a financial system meltdown kind of thing. Because, now you know, that's a sanguine outlook and that's like classic, you know, final word on, like, it's not going to go well if I make that prediction. But I think the, the problem is different.
And there's this tendency to say, you know, there's this stressor that's applying pressure to the system and the system is vulnerable and this crack is going to open and it's all going to spread wide, and we're going to find out that what we didn't know is the only thing that matters. And I think we should open ourselves up to the possibility that this is kind of just a rate cycle and that there's no obvious source of monetary in stability. And that it's still going to be painful at times because it's more expensive for our money, but it's going to be about that real economy stuff as opposed to like the mechanical or the plumbing or the financial engineering side of things.
Tracy: (38:02)
Lev did, did Josh just jinx us into a major credit crisis in 2023?
Lev: (38:07)
I'm going to hazard the other position, the other side of this. It's certainly the case that we've made a lot of improvements since 2008, but we still have a fundamentally unstable monetary financial system. It's just inherently fragile. The run risk is lurking constantly. And that's because repo market and the eurodollar market, repo issuers and eurodollar issuers are not in fact banks. There is no deposit insurance, so you can't have repo insurance. And so there's enormous incentives that are just always hanging over to run. You can think of a cash provider in a repo or a eurodollar depositor as picking up pennies. They're getting paid more interest than if they're in a bank deposit and in good times, great, pick up those pennies in front of the steam roller. But then all that has to happen is a change in expectations about the future.
Any concern and there's just an incentive for the cash providers and eurodollar depositors to just go back to a regular bank deposit or a t-bill, you know, to get out. And so Ben Bernanke, I think it was his famous comment about the subprime mortgage issue, he thought that that was contained. He was like, this is too small to cause a crisis. But the lesson in some sense from 2008 is that if you have an inherently fragile monetary system, it doesn't have to be huge losses. It just has to be sufficient uncertainty about the distribution of those losses to cause all of the shadow money people to try to rush into the good money. And I would say that right now what we're looking at is balance sheets of shadow banks that are under pressure from interest rate rises because they have a lot of debt instruments that become less valuable when interest rates go up.
And so the more pressure the asset side of financial institutions that are issuing money instruments, the more pressure that that is under, the higher the likelihood that there'll be a moment where everybody looks down and says, wait a second, I don't know if this guy is such a good bet anymore. Let me just move my money to JP Morgan Chase. And that's what happened in 2008 in some sense.
Joe: (40:33)
All right, we're 40 minutes in and we'll get to audience questions in a second, but there's one, I want to bring it up. You know, Tracy mentioned like, well, nothing is broken yet, but one thing has broken. This is the crypto market, or there was a pretty big break there. But here's the thing, people hate bailouts. So thank God nothing so far, knock on wood, with the FTX story, has like caused any sort of financial institution to need a bailout. What should be done so that never in my life do I have to hear about a crypto company getting bailed out?
Josh: (41:04)
Who would you like to go first?
Joe: (41:05)
Either one of you. How do we avoid that risk forever?
Lev: (41:08)
So the crypto ecosystem is, I think eager for, and if they're not eager for it they should be, some official sector recognition that will allow ordinary financial institutions to hold and trade and deal in cryptocurrencies. Because right now what they have is a whole little world that just exists on the internet, is completely divorced from any economic activity in the real world. It's like the apotheosis of finance. The purpose of finance is to help us allocate real resources in the real world. And here's crypto and they're doing it except they're not allocating any resources in the real, there's no connect. The only point of connection between the crypto world, the only significant point of connection with the crypto world right now and the real economy is stablecoins, which is the bridge. It's how you get in and out. And so the stablecoin issues actually have real dollar assets. They're the only ones.
And so the way you avoid ever having a crypto bailout is you keep it that way. You don't have the actual economy ever become reliant or exposed to the value of these tokens. And you don't end up with massive stablecoin issuers that, you know, are issuing stablecoins that people use to buy real goods and services. If the only use of a stablecoin is to buy a token with no value, then you know, it's just not, it's not a real risk. But if people are using stablecoins to buy actual stuff, then it becomes part of the money supply. And if all those stablecoins disappear, you would get contractionary pressures that have to be counteracted by some official sector action. And it doesn't have to necessarily be a bailout, but a bailout is often the most efficient means. You know it would've been easier to have bailed out Lehman Brothers than to try to get the money supply expanding through other central bank actions.
Josh: (43:07)
So I think it's, like I completely agree with that. I mean, maybe I'm exposing myself to Twitter flame by saying that, but like, I mean…
Joe: (43:16)
That’s alright. You're not on Twitter. There's another Josh Younger on Twitter who’s not him.
Josh: (43:19)
Not me. Very, very much, not me. But there’s probably more than one in fairness. But I think that the thing that money's supposed to do something for you, right? So it's kind of along the lines of Lev’s argument, which is like it has some real economy purpose. And so ultimately bank deposits are good money in the sense that I can, yes, buy goods and services, but there's an underlying transfer of Federal Reserve liabilities behind that. Like banks interact with them between each other in Federal Reserve money. And then, that bank deposit has value in the sense that I can go to the bank and get paper money and then in principle pay my taxes with it, right? Because that's definitely use of government-issued money, is that I owe the government a hundred dollars, I take my hundred dollars, I give it to the government, I don't go to jail. Much better outcome.
And so, the question is in crypto, where's that convertibility? And so this is where the eurodollar analogy comes up, which is like building up an infrastructure that guaranteed that convertibility in a way that let the market scale was a lot of work and took a long time. And it involved the direct involvement of the Federal Reserve at many steps and all the other central banks. And so, you know, the crypto ecosystem is similarly offshore, involving many different regulatory authorities. And if I can't take my Bitcoin, turn it into a Tether, turn it into a dollar, turn it into a paper dollar and give it to the Treasury to pay my taxes, like if that chain is not guaranteed, it's hard to see how it scales.
And so like Lev’s point, you just don't do anything, and you're going to end up not necessarily with crypto exchanges being like ironclad, because you probably won't get that either. But it won't have like a real economy impact. It won't become a major component of the monetary system. It won't be a major component of the financial system and it can be segmented off. You know, the FTX stuff like is mostly about crypto, and there's real economy implications, and there's really like bad outcomes for lots of people and I don't want to diminish that at all, but like the banking system will survive.
Tracy: (45:34)
Should we take some audience questions? So we have some really good ones. I have to say about half of them are about crypto.
Joe: (45:40)
This is why we did them by a card.
Tracy: (45:42)
Yeah, good crypto questions. It's not like, ‘would you buy Bitcoin?’ But okay…
Josh: (45:48)
When you call it the magic box, you're going to get, yeah…
Lev (45:50)
No, to that one.
Tracy: (45:51)
On this convertibility point, here's one question. So do you think that some of the shadow banking solutions or other types of solutions could reach the retail level through payment solution companies such as PayPal? So that for instance, you could have repo availability for your average person on the street? And, this person didn't mention this, but I'll just tack this on – central bank digital currencies, I mean one of the use cases for those is this idea that people could potentially have access to the Fed directly in some way.
Josh: (46:28)
Well, you do have that, right? That's a money market fund. So the money market fund gives you direct access to repo, gives you direct access to theFed’s balance sheet. The reverse repo facility is a money market fund asset almost exclusively. And so like that functionality exists and people are utilizing it. The government money market fund complex, which is this like risk-free component of money market funds, it's like a multi-trillion dollar business. So it’s happening.
I think with central bank digital currencies, the question is what problem we're trying to solve? That's what everyone starts with when they talk about CBDC. They say like, well what are we trying to solve here? And I think like a central bank digital currency has two like unique aspects. One, is it is a digital asset blockchain or not. And the other is it is not a bank, it's the central bank.
So if we want a central bank digital currency available to retail investors, because wholesale has access to the central bank's balance sheet, the question is, do retail investors have serious concerns about the stability of commercial banks that would warrant a different counterparty, right? Their counterparty is currently a commercial bank. They'd rather it be the central bank. And you only do that if you really don't think that commercial bank's going to be good for the convertibility and everything about the way bank deposits are priced tells you people are perfectly comfortable with the ability of the banking system to deliver on their promise of convertibility.
So then it's a question of the settlement cycle and the payment system. And one of the things that I think is really interesting about the discussion of payments. Anyone's who’s talked to me has, I've probably brought up this statistic at some point, but the Fed does a survey, they say have you used a check cashier or another non-bank financial intermediary in the past year? So cashiers, payday loans, all that kind of stuff. And people will say yes or no, it's relatively small fraction of people, but it's non-trivial. And then they say, do you have a bank account? And it's 70% or so of people who use a check casher also have a bank account. So this is about the payment system for those folks. And that's why the financial inclusion bit of CBDC is, I think the question is, can the banking system solve that through a better payment system, a faster settlement cycle? Is it really about access to central bank money? Or is it about access to faster payments? And that's why segmenting the problem is useful because then you can look at the technology and say, this piece is useful. This piece is not.
Lev: (48:39)
So the banking system has been telling us that they're going to solve the unbanked/underbanked problem since the 1980s when Congress had a hearing and uh, the Fed actually said, don't worry. The banking system is going to address this. We'll get that number of unbanked down to the level of other advanced economies, which by the way is 99%+ other advanced economies are banked. And we have actually made a lot of progress in the last 10 years, for reasons having to do with technology making it cheaper to offer bank accounts. But we still have around 5% of households unbanked, which is millions of people. And so I do think that's one reason why central bank money, public option for central bank money could be appealing. Obviously I agree with Josh that there's not a safety stability deficiency for bank account money.
Of course, that's because the public stands behind that through deposit insurance and the discount window. And so the government has given a franchise for the banking system to create that safe money. And so fundamentally the question should we have CBDC is a question about do we want to re-engineer or change that arrangement and change the nature of the banking franchise and introduce a public option that competes with the banking franchise? Do we think that will lead to a solution of the unbanked problem that's more robust, a solution to the payments problem? The banking industry has spent decades not investing in fast payments because banks have an interest in the float and in having additional time to prevent fraud, which because of federal law, generally they have to absorb those costs. And so whereas other advanced countries have had real time gross settlement, real time payments at the retail level for decades, here we are in 2022 and it's patches here and there in the US where you can move your money quickly.
And this is part of the reason why you end up with the stablecoins in some sense, stablecoin issuers make this argument that it's going to be a more efficient transaction. So I think there's a question on those sort of bread and butter dimensions. Would a public option for bank account money improve the private options that exist? And then there's the larger question about the shadow bank money. What's a major reason why you have repo market? What's a major reason why you have money funds? Because FDIC insurance caps out at $250,000 and there's actually a deficiency in the nature of the bank franchise. We don't actually have this level of safety that we would want. And so there's large corporations that have very large balances, maybe they want to have a $500 million cash balance and they're maybe not so comfortable about having that all in one bank.
And do we need to fix that and maybe should Apple be able to just hold a billion dollar cash balance at the Federal Reserve that's non-defaultable. Why not make non-default money more widely available? And that's, I think, that's sort of the pro-case for central bank digital currency, not necessarily like on the blockchain, not tokenized central bank digital currency, but just, you know Fed accounts for all, which is something that I've been in favor of for many years now. I don't know if you guys knew that I was for that, but…
Joe: (52:06)
By the way future episodes, we should do one just on like why there's no instant payments in the US. I think that would do really well. Yeah, that's a good future episode. Can you, you know, Lev, you've written about the sort of co-evolution or the differing evolution. So we talk about, okay, the Fed having to like, come up with all these new mechanisms to deal with the growth of deposit-like things outside of the banking system. Can you compare that? Like what does it look like for the other major central banks and their evolution, ECB, BOJ. Have they also roughly had to do the same thing? Or because there is not a similar sort of as big offshore market for some of these other currencies, has it not been pressing of an issue?
Lev: (52:49)
So Josh might be deeper on this than I am, but generally the dollar-based shadow banking system is vastly larger than for other currencies. And there's a variety of reasons for this. One has to do with exactly what we were talking about, the stance of US policymakers, in particular Treasury Department and the Federal Reserve in the latter half of the 20th century to actually facilitate its growth, and to allow for the sort of impairment of the bank franchise, not just to allow to nurture it. Another has to do with the fact that in a lot of other countries, the currency that everybody wants to be in is dollars. And so for us, where you, we just use dollars here, but in a lot of other countries, there is a presence of multiple currencies. The other currency is dollars.
And so in European countries, the sort of shadow banking problem that they have is the creation of dollar deposits, which then they have to manage. As Josh pointed out one way to have managed that is just to prohibit institutions in your country from issuing deposits denominated in another currency. If you don't, if you allow it, you're going to want to regulate it because if these liabilities build up you, the central bank, you know, of Japan or in the UK, you can't create dollars. And so now you have a run in your economy amongst your institutions and you have to call up the Federal Reserve and ask for a swap line. You need to phone a friend or you're going to lose your economy and you can't carry out your mandate.
And so I would say that's been the big shadow banking problem. And I do think that in a lot of these jurisdictions, the eurodollars are issued by banks, but they're often issued by other types of financial companies, which we would consider sort of traditional shadow banks for here. So, you know, in Asia, life insurance companies, there are various companies engaged in short-term dollar liability creation. And how did the Bank of Japan deal with that in 2020 when it ran, it borrowed over $300 billion from the Fed to on-lend.
Josh: (55:13)
And I think that it's all part of the plan, basically, which is that in the fifties and sixties, the goal was to cement and entrench and grow the dollar system because it offered all of these benefits. This is exorbitant privilege. This is the idea that I borrow in my own currency, that’s also the currency of global trade. And so like the first generation of eurodollars, this is a benefit to other countries as well, right? Because there's the idea of a global currency. So of all trade happens in the same currency, I can finance it in that currency, I can deposit the proceeds of my trade in that currency and now I'm sort of all in ,all in the family kind of thing. And so, you know, the first generation of eurodollars is primarily deposits of central banks. So central banks are the seed for the modern eurodollar market. They are the depositors.
So they're making a choice to park their funds at a eurodollar issuer and not in t-bills or other sorts of dollar-denominated assets. It's because they see value in that system for themselves. And the Fed goes one step further and says like, you need to phone a friend, call me, right? Which is, here's some swap lines. It's 1962, start with Switzerland, move on to the BIS and the Bank of England and grow that network which sort of connects all central banks into one globalized dollar system. So you can do open market operations in the eurodollar market because ultimately the chain leads back to the issuer of dollars, which is the Federal Reserve
Lev: (56:33)
I think you guys had Perry Mehrling on recently.
Tracy: (56:35)
I was going to say we've come full circle to our previous live event.
Joe: (56:38)
The last time we did in September.
Lev: (56:39)
Yeah. You know, [Mehrling] has a book about Charlie Kindleberger? And the point that Charlie Kindleberger makes and that Perry makes is that there's huge network effects in money. And so it's much more efficient if we're all on the same sort of currency. And so the construction of the eurodollar market, which is an inherently unstable market in a lot of ways is also, it's a more efficient market. And so for all of the other countries that have different currencies, if they can get dollar funding, it's going to be cheaper. It's going to be better for their businesses. And so this system was built up over decades to, because of its superiority on certain efficiency dimensions, what policymakers never really worked out, was how to keep it stable in a business cycle downturn. And also various governance and distributional issues which are sort of shoved under the rug and are really significant in terms of who wins and who loses in terms of adopting what is a currency issued by the United States and what that means for businesses in the United States and also businesses in other countries.
Tracy: (57:36)
We are running out of time, so I'm going to ask one more audience question and I would encourage you all to seek out Josh and Lev after this because we will be having drinks over there. But in the meantime this question is from Yakov who is on Twitter at @yakov. And the question is, what does Powell fantasize about doing? Oh yeah. What does Powell fantasize about doing if he wasn't constrained by the dual mandate? I'm going to rephrase this slightly and say like, if the Fed could start over today when it comes to designing the financial system, what do you think it would do differently?
Joe: (58:13)
And since there's another question that's very similar to this, I'll just add, what would you do different? You know, someone else asked basically like, well, the one change you'd like to see.
Josh: (58:23)
I actually don't have a good answer to that question in part because like for all of its issues, like shadow banking has yielded great benefits to the United States. And so like, is it too much to pay the boatman? I'm not sure. But I think that the key is it takes a crisis to figure out how to fix it. And so like, in some sense the hypothetical is if you knew all the things that could go wrong, would you just build in systems that could handle it? The other version of this is to say, look, you know, the money supply should be issued by banks and investments are for investors and, you know, there should be some lubrication to the system, but the continuum of money is sort of too diffuse in a sense. Like it's hard to see where one ends and the other begins.
And so, you know, either drawing very clear lines, not necessarily at bank deposits, but like being very explicitly behind certain forms of and not others in advance. Again, with some policy goal in mind, in this case probably the global dollar system is worth preserving, in lots of ways. And so that kind of foresight would be useful. What would I do? And maybe I should have pretended like I didn't remember that part of the question. You know, the old Lombard Street logic I think applies really strongly, which is a lend against good collateral at a penalty rate. So liquidity should never be the reason why the financial system goes down. Now that means making sure you're comfortable with what people are doing, the providers of that liquidity are doing with the proceeds of it. So like in in data collection, transparency to regulators, not necessarily to the public, but certainly transparency to regulators, and to the public where it's useful and beneficial and in the public interest.
I think that's all really important. And part of the big problem with markets structured with this continuum of money is transparency is very hard to achieve. And so policymakers don't really know what they're looking at. They don't have all the information and we tend to sort of put together a data collection program that solves the last crisis. So we're getting really good at the Treasury market now, and I'm not convinced that's going to be the next big thing that breaks, you know, we have to avoid this tendency to kind of like investigate the thing after it goes wrong and then have all the information about it. But the next thing is not on our radar.
Lev: (01:00:33)
So I mean, I'm going to take a stronger position against the shadow banking system. I would say that the benefits tend to be very overstated and too often be articulated and stated by members of the financial sector who tend to reap a lot of those benefits. And on the other side of the ledger, I think the costs tend to be underappreciated, the full range of costs of the shadow banking system. And so, you know, there's one way of thinking about the eurodollar system as you know, a form of Dutch disease that has had all sorts of, had consequences within the US economy, although that's not my main reason to be concerned about it. I do think those issues should be looked at much more closely than policymakers seem to have looked at them so far.
There's such a focus on stability for the system. But there's huge political economy effects of having a system like this. And what you have is sort of an open-ended government backstop for financial sector risk-taking. And, you know, I don't get great comfort in the sort of invocation of the Bagehot rule. Walter Bagehot’s second half of the 19th century vision for how society should be structured is not one that I think many of us would find appealing today. This was a monetary financial system for an imperial power in a highly liberalized economy in the second half of the 19th century. And I think that there's a real concern that we should have about a system that is as unstructured as the one we have where the public sector is so frequently on the back foot. And I think that the solution isn't as hard as it sometimes seems and that the history that Josh has done such a good job of elucidating on the other podcast about the fifties and we talked a little bit about eurodollars, shows that the public sector actually has huge control over whether you have an inherently unstable system or a stable system.
And we just sort of, we have experience of this in other areas. And so think about other areas of financial regulation with respect to the regulatory perimeter. The reason securities regulation works is that we have a functional definition of a security and anything that comes within the functional definition, as opposed to a formalistic definition, you can't dress it up as something else and then not comply with securities regulation. Anything that's covered by the functional definition of security is subject to the same set of rules. Insurance regulation works like this, you know, if you call it an insurance document, obviously you have to follow the insurance regulation rules. But there's an incentive if you could maybe dress it up as something else. There's so many ways to dress up an insurance agreement and not call it insurance. If you could dress it up as something else and not be covered by the insurance rules, the insurance rules are going to fall apart. And this is true for mortgages.
There's so many areas of regulation and financial regulation in particular. The fundamental problem we've had in money and banking going back forever is that we have not had a functional definition that has been enforced. And Josh is right that there's a spectrum, but you can pick 90-day, you know, 90-day maturity. Any instrument that matures in 90 days or less, is a banking instrument that has to be issued by an entity that is subject to a same sort of coherent body of banking regulations. And that would just sort of regularize, rationalize, normalize, put some logic on a system that has become very ad hoc and unpredictable in a way that I think is on net, not in the public interest. And are there challenges like preserving the benefits of Perry Mehlring, Charlie Kindleberger’s, you know, international finance system with low frictions? Yeah, we’ve got to figure out some ways to preserve the benefits but I think there are ways to preserve the benefits, and the costs of doing nothing are large and we could be facing the consequences, you know, in more on that order of months and as opposed to years.
Tracy: (01:05:03)
Shall we leave it there?
Joe: (01:05:03)
Yeah, I was going to say we could talk for hours on this, but let let's leave it there. So many future episodes.
Tracy: (01:05:10)
I know, a ton of ideas here. Josh Younger and Lev Menand, thank you so much. Fantastic discussion. Really great to to have you here. Thank you to the audience for coming into the Bloomberg offices to actually listen to this. Thank you for your excellent questions.
Joe: (01:05:24)
Questions. Sorry we couldn't get to more of them.
Tracy: (01:05:25)
Thank you everyone.
You can follow Lev Menand on Twitter at @LevMenand. Josh Younger isn’t on Twitter.