>> thank you for that. josh brown >> i like the action oracles and the name i added to last week in the bear market for nasdaq today's a little bit better. >> joey? >> gld, the money within commodities stays in commodities and you're seeing a lot of selling and oil and it will go into gold. >> i'll see you in a couple of hours with gundlach on "closing bell." the exchange is now. ♪ ♪ thank you very much, scott hi, everybody. i'm kelly evans and let's quickly recap what's happened since friday right now both svb and signature bank are out of business while first republic has secured funding for j.p. morgan and the fed and a major issue has been the safety of accounts over the $250,000 fdic cap, but president biden this morning saying, quote, deposits will be there when you need them and it will be no cost to the taxpayer the government announcing a new facility that will offer one-year notes to banks and pay them par for collateral like treasurys and mortgages and the very industry that are seeing

huge losses and pressuring regional banks we are seeing huge further declines in shares of the regional banks as you can see from a few examples behind me and despite all of that, the broader indexes are still positive as i say that the dow has gone negative i don't want say it makes more sense, but you can hardly call it a surprise. three-point increase in the s&p to 38.64 and the nasdaq, the epicenter of tech in some ways up three-quarters of 1%. the ten-year yield might be supporting this, it dropped to the lowest levels since early february if you look at the red on the screen, 3.5% an incredible drop from around 4% last tuesday and the two-year seeing the biggest drop since the fall of 1987 down more than a full point since last wednesday and we are seeing the vix initially spiking to around 30. so that's the highest level since last october obviously, huge questions remain is there another shoe to drop in the banking sector should the government have stepped in and was this the

correct way to do so and will we get a pause or pivot from the fed as a result? we will hear from ragu rajan and aaron klein, and we have coast-to-coast coverage and deirdre bosa with the fallout in silicon valley, and rick santelli is tracking the crazy moves for us and steve liesman has what the market thinks of the fed now. deirdre, let's start with you. >> a collective area, and i've been hearing from founders and will they be able to make bills this week and investors that have been scrambling all weekend to support portfolio companies over the longer term, though, the picture is less clear and it's likely to be more challenging for the tech community. start-ups are likely to face more difficult financing landscape. silicon valley bank occupied a very unique place here and in tech overall providing services, products and flexibility and even just accounts for

early-stage companies could not or would not serve many investors acknowledge that the bank, yes, managed its risk terribly and they say its value to the tech ecosystem was unsurpassed. that backdrop could hit start-up valuations further and push some of the biggest fund managers to mark down their private books sooner than they would like to jeffrey's rights since early 2021 while most listed tech stocks have fallen between 50 to 90% pevc funds have avoided marking down private or unlisted assets anywhere close to that level. the note calls out softbank by name saying this could bring their, quote, day of reckoning and there are others involved that have made huge bets in the start-up ecosystem like tiger global another way this could ripple through public tech companies and if the event of the past few days created the regional bank's preference in financials and the software equivalent could be big, better, capitalized tech

over smaller, less capitalized companies and these are some of the initial reactions we're seeing and it's likely to ripple out further in ways that we don't know yet we'll have that in a couple of minutes' time. let's turn to kayla tausche for the latest from washington kayla, how is this playing out as we move through the day >> kelly, there's something of a postmortem taking place in washington as regulators, lawmakers and the biden administration try to better understand how this happened and try to prevent it from happening again. today president biden said regulatory changes could be coming. >> i will ask congress and the banking regulators to strengthen the rules for banks to make it less likely this kind of bank failure would happen again and to protect american jobs and small businesses >> some of the options advisers to the financial industry are discussing are whether banks of a certain size should hold more long-term debt that could become capital if that bank were to fail incorporating interest rate movements into stress tests which have been largely focussed

from 2008 on loans going bad they're always fighting the last war, and also evaluating whether banks' assets and liabilities are mismatched silicon valley bank didn't just see the value of its treasurys decline. the issue is that those treasurys were funded with their deposits think, in a best-case scenario it would take months to implement new rules and president biden has suggested washington would do whatever it takes to ensure there's confidence in the system in the interim. kelly? >> and so, kayla, the next shoe to drop would be -- let me put it differently the transparency of the banks that have to tap this facility what do we know about that and the potential sigma issue? >> certainly, was there a stigma with t.a.r.p. and that program when that bank had to go with regulators and essentially put their tail between their legs and take money from the government, but this is different because this is a move that is funded essentially by the federal reserve and by fees that are paid by banks into the deposit insurance fund at the

fdic, and so it's quite a different structure than 2008, but even so, the devil is in the details here and despite the fact that every single agency as high as the president in that speech earlier this morning saying that taxpayers will bear no cost. this is not a bailout. american people, if you look at social media say how is this not a bailout if the banking system is getting hundreds of billions of dollars and trying to get the messaging right will be a challenge for washington, kelly. >> will it be disclosed or how much do you know the fdic fee will have to be raised up to >> all of that is still under discussion we do not know whether all of that information will be public and one interesting thing, kelly is that normally you could obtain that information pie filing a freedom of information act request, but the federal reserve does not have to respond to foyas they are shielded from that. even if they did not disclose it and journalists wanted to get that, it would be difficult. >> great reporting thank you.

let's turn to rick santelli with the huge moves we've seen on yields and the ten-year up 2.5% and this would bail out the losses that the banks were struggling under. >> yeah, i don't know if i would consider that some huge windfall benefit, that's for sure look at the three day of twos, everyone is talking about the historic implications. well, it pretty much jumps out at you squint a bit you see the high yield there 5.07 the low yield today 3.98 that's one heck of of a three-day run, and if you look up and down the curve whether you put twos and tens on the same chart i picked a good day to start these charts the end of january. why? because february 3rd was the big jobs report that pretty much changed everything you can see on that chart everything changed back, and if you look at twos and five break evens, these are the inflation, treasury protected and security versus treasury normal securities, when you'll find is whether it's two-year break

evens, five year, ten year, they all are moving lower rather dramatically and the key will be how much lower and how long they stay there and fed fund futures, i just picked december, the end of the year. you see that rally it pretty much negated everything since the february 3rd non-parm payroll and finally, if we look at the dollar index it's one of the few markets that hasn't come down to its february 3rd levels yet. it's still running a bit rich, but with the fed most likely on hold or a pause, look for the dollar index to be under some pressure kelly, back to you >> thank you very much we appreciate it, rick santelli. >> the silicon valley bank raising the moral hazard and the next move on interest rates and will the collapse of one of the biggest banks force the fed to evaluate tightening and we have several calls for a pause. i am joined by the professor of fin finance and aaron klein and

economics fellow at brookings and he worked on the dodd-frank act when he was assistant secretary for economic policy at the treasury policy. also with us senior economics reporter steve liesman and stephen bonnsan. aaron, i want to start with you and this seems to be growing support in terms of how it was structured and the delicacy with which they were trying to not bail out shareholders, but protect depositors do you think this was a well-crafted rescue? >> look, i think this was a giant bailout. i've been hoping that they would be able to sell assets in the customer bank on the basis of the bank and not resort to essentially providing unlimited deposit insurance. the predicate of deposit insurance has always been about protectioning the little guy and having sophisticated counterparties, banks, bear some risk and have market risk. i was hoping for different news this morning.

>> what do you think should have been done? in terms of protecting the little guy, people would argue what about small businesses that have accounts over that cap? >> look, we're talking about a bank that had 97% uninsured deposits whose biggest creditor seems to have been a $3 billion account with a cryptocurrency and we're talking about a bank where all of the depositors had already been taken care of, and so what i think we're doing here is risking a fundamental, structural change to our regulatory system in a situation whereio you had a bank completely under the nose of the fed. where was the supervision of the bank people talk about regulation and the rules? i'm asking where is the supervisors as this bank quadrupled in size over a couple of years and blew up a giant unhedged interest rate risk tied to fannie, freddie and u.s. treasurys. how is this allowed to happen right under the nose of the san francisco fed? >> do you have any theories of

that and what about the piece of regulation, dodd frank that kind of enshrined the current financial system >> look, dodd-frank regulates laws and rules you can't regulate judgment, and i am completely bewildered and betwixt as to where the regulatory judgment was and allow it to pursue a funding model entirely reliant on uninsured deposit ands investing that money on low-yield, mortgage-backed securities a year ago it's like the fed had no idea that interest rates were going to rise over the next year and allowing that to go unhedged there's only so much you can legislate and regulate it comes down to regulators doing their job and in this case, i think the federal reserve failed to do its job. >> so ragu, i'm curious what you would say about this because to put it differently i forget the starting number, maybe 60 billion to 200 billion in deposits or something because it was the recipient of such

stimulus larges and because depositories across the country and it turned around and put it into a high-yielding option at the time what should it have done differently? >> i am with aaron clearly, it was taking enormous interest rate risk and it was investing in long-term bonds and clearly the regulators should have been paying attention it would have invested in short-term interest. it wouldn't have made that much money. >> exactly the fundamentals and the banking is to capture that spread. there was -- the same idea that there is no alternative that people couldn't get income anywhere, banks have the same problem. so they were forced to get it wherever they could. what else were they supposed to put that cash in >> yeah. this is the search for your problem, right when the fed pumps the system full of liquidity, but at the same time interest rates are so low that they can't make much money, and what they do end up taking is more risk and that's

where the supervisors have to be more active and trying to look at what banks are doing and clearly as aaron says if the bank that was funded with 93% wholesale deposits and investing it in long-term bonds when the fed will raise interest rates. that should be red flag, red flag, red flag after red flag for the regulators. >> david, let me bring you in here sort of broad 10en it out and ia you nodding along. do you think this was the right move here for the public and for the markets? >> similar to what happened in 2008 i don't think the major issue was what they did today. it's all of the things that built up to making today necessary. i agree with everything both of the prior guests said. i cannot believe the president dared to say well, we just need more regulation. we're going to get more regulation to keep this from happening again. i thought they already did that.

as a matter of fact, they promised the american people they did this is such failure of competence they can't believe people put up with it and the other thing i will add that the other two guests didn't get into is the fed's culpability as the regulatory overseer, but as the center of monetary policy that they left on way too long after the covid emergency is what enabled that deposit base to go up so much and all of the silly ipos and spacs and the shiny objects and the ridiculous crypto story that's how that deposit base came up and then they overtightened and they destroyed value on the way down. the fed is at the scene of the crime all the time and they were in this case on the way up and the way down >> art, do you think david, the taxpayers will be on the hook in some way, shape or form for this >> the key word is some way because it won't be direct they're not bailing out the shareholders or even unsecured bond holders and by the way,

they really didn't bail out the shareholders with t.a.r.p. either citigroup's stock went down 98% and no, the bank holders will be wiped out. and it will be paid for by the taxpayers in the sense that the th banking system incurs the cost and they pass that on to deposi depositors and savers and there's a hidden cost that we end up absorbing and they cannot make the mistake with fannie and freddie leaving it implicit. let's answer the question and answer it now is there unlimited fdic insurance or not? >> raghu, i think you equal 100% of gdp are we putting the entire gdp behind the banks and what's the point of having banks at all if so, then bank at the fed. >> you need uninsured depositors to be taking losses because in some sense you need them to pay attention. why does roku have $87 million

in silicon valley bank they should have been paying per attention. >> where should that money be,where, aghu one thing that is unclear to me, having never run a business, what are the other options for accessing liquidity? >> they can go to safer banks. they have to pay attention to the risks of the banks that they're investing in and this is why we ensure 250,000 because there are people who are not paying attention that's fine. once you get beyond that you should start paying attention to what banks you are lending to because they are taking risk and if it's coming from the taxpayer you have no incentive. we also say we will take care of moral hazard down theline, and that's true. for the moment we deal with the systemic problems, but we never do take care of moral hazard down the line. that means regulation, supervision and that's not happening as well as it should >> let me bring in steve

liesman. i think larry lindsay thinks that this is inflationary because even though we're watching bond yields collapse and the rest of it it's meeting the issue with more liquidity. >> i just want to point out -- well, let me raise the issue of what is a potential contradiction and what rajan are saying if the supervisors couldn't see the problem with the balance sheet, what is it that you think you will hope to gain by depositors seeing holes in the balance sheet? you know what it takes to find out what was wrong with silicon valley bank. you needed to know it had a concentration of depositors. you needed to know that it had a duration risk in its portfolio that duration risk was unhedged and it had a series of problems inside it that the supervisors you both have acknowledged that

you're beside yourselves and couldn't see and yet at the same time you think the system would be appropriate to one that relies on depositors who, by the way, they can keep their money in ten separate bank accounts inside silicon valley and they would all be insured and they wouldn't be exerting any scrutiny at all on the bank. >> aaron, go ahead >> two things, there >> we don't know how much the supervisor saw and they have the ratings that they keep private and secret called camel's ratings. it was easier for the little person. >> they see everything, aaron. they have access to everything and the depositors don't have that do you know what page you have to go on on the call sheet to find the percentage of uninsured depositors it's some -- sorry >> it was in "the wall street journal" in november j.p. morgan chase has a great analysis on that, but the

regulators should be making more information transparent. on that point i completely agree with you the supervisors should be making the camel's ratings transparent to provide more information to people, not less, and i think another question we have to ask is what was the relationship between silicon valley bank's capital arm part of this financial holding company and the bank customers that they had? what were the other incentives and other things tying people to this bank beyond just the relationship -- >> oh, sure. we've heard quite a lot about that, raghu, what were you going to say >> i was going to say that we sort of knew these risks were building steve, you were at jackson hole where we presented a paper showing the extent of reliant on wholesale deposits was increasing the system and there was too little liquidity when the fed started tightening so at the very least you'd pay more attention to the issues of the liquidity mismatch of having invested in long term bonds. >> agreed. >> i've actually run the

supervisory structure for a bank, and you look at us like there is mismatches and that's the first thing the supervisor is supposed to do. >> i just want to point out for viewers -- >> go ahead, steve. >> it should be pointed out that rajan got up in front of the central bank leadership of the federal reserve and waved the red flag that he talked about. that was his paper and it's, like, the second or third time that he's done that in jackson hole and he deserves tremendous credit and it raises the ability of the federal reserve to separate monetary policy from what they call macro credential, and it doesn't seem to be, working well. >> and that was one of the lessons of '08 and raghu i want to know where you are. as they, as far as you understand, releasing the list of the institutions that have to tap this new facility? raghu, you first. >> if they can in a sense

contain contagion and i don't know what their thinking is on that i think certainly they should. the real problem is you're trying to trade out the politics of the bailouts with, yes, you do want to prevent contagion and that's more important to the general public than at this point information so they have to make the tradeoff >> go ahead, aaron >> you're exactly right. when we were doing dodd frank, senator dodd proposed taking silicon valley bank out of the fed and moving it to the occ he lost that vote 90-10 on the senate floor, and -- and the fed won again. >> he also proposed raising the cap for fdic insurance, aaron, can you speak to that? that was also shut down. >> that was raised during t.a.r.p. and not during dodd-frank t.a.r.p. was voted down in the house and the market fell a thousand points and we had to regroup trying to figure out how to bring more political support

spot bailout bill of t.a.r.p. and back am roo, one of the things that was thrown out was raising the deposit insurance company from 200 to 250 and without much public conversation and discourse, but a way to bring back house republicans who voted down t.a.r.p. the first time. >> aaron, this goes to the question of how much can the taxpayer stand behind bank deposits one to one. we're talking all of gdp if you had to -- if that was the implicit or explicit guarantee we're going further and further down this road the fed bailed out money market mutual funds and junk bond folders in response to covid, right? so this is nothing new this is a continuation of a system where the central bank feels that institutional money can't lose, and you know, when private companies benefit from taking risk and their losses are socialized by the public, what kind of economy is that? is that capitalism it doesn't feel like it to me.

>> david, which way does this leave the market positioned and we have a call for the fed to pause and we see the dow reaction and it's still green barely today although a number of kind of big-name investors i spoke with over the weekend are themes bearish where do you come down on this how should people be thinking through what feels like a backstop on the one hand and a cracking financial system on the other? >> essentially in the very short term people should expect this volatility and uncertainty, but i do believe that the fed now has had their tightening done for them and the quantitative tightening is done they've taken so many excess reserves now out of this system. the small-cap banks can't afford to have more tightening, and i just want to point out that it is untrue that these depository and institutions don't have options around $250,000. treasury bills have unlimited capacity with federal government

guarantee and the deposit insurance refers to a simple bank account this company holding hundreds of millions of there areses can go do corporate cash, and there's no same-day settlement for them to go through treasurys and other securities to achieve that liquidity need and principal protection for appropriate guarantees, and as far as where the market goes from here there's no question if the fed gets one more rate hike in that's the most they will get. they are one and done at the most >> raghu, i'll give you a chance to respond to that, as well. do you worry that that would have a negative impact in terms of stoking inflation or do you think the damage is done >> it depends how much contagion there is on this if people get worried they're putting money under the mattress and that becomes a problem and that is, in a sense, the downturn of the slack that the fed was looking for. if, however, over the next few days the sense of reassurance

and people go back to thinking about the future then the fed has not done it and they'll have to do more my sense is they'll take 50 basis points off the table for the next meeting and it's probably 25 and that, too, if the cpi numbers come in reasonably strong. >> steve, i'll give you the last word where are the markets telling you about where we're going with rate hikes >> steve liesman, as i see our next guest getting ready there in the panel and i'll keep them waiting for just one more moment steve, are you there can you put a button on this >> can you hear me >> i can hear you. if you can just put a button on this of where the market is in terms of rate hike and terminal rate >> if you can put up that fed funds chart for 2024 it's everything it's the opposite of the chart rick showed you the price and i'll show you the yield. we're down 4% and we were as high as 5% in terms of the 2023

funds rate let me quickly correction, kelly, i middsaid ten accounts t the bank and a lot of companies use cash management software that distributes to insured accounts and it's one way to do it and david was talking about the ability to use corporate cash and a variety of other ways is out there and they shouldn't have had all of that money in the bank. >> before i say good-bye, everybody. raghu, just tell us what will you be watching to see if the contagion risk has been stopped or not and we're seeing big declines across the regional bank today. >> i think the easiest thing to look at is the credit default swaps for bank as well as the stock price. we prevent a contagion risk and that's the most sense to look at it >> gentlemen, thank you all. i really appreciate it raghuman rajan, steve klein, the

valley turned on its own here and what does it mean for the financing landscape for start-ups going forward? let's bring in a couple of experts and dan primak is axio welcome to you both. there are people saying this was a mutually beneficial ecosystem here, and instead it was vcs turning on a bank. some reports that they were getting their money out before telling their start-ups to get their own money out. it was a bad look all around and a lot of bad blood and a lot of people furious over what's perceived to be terrible mismanagement and in retrospect left them fully exposed to its demise what are you hearing >> there are a lot of venture capitalists who told portfolio companies to get their money out and there were those that are supportive of svb. one thing is there's a sense of

pragmatism i'm a little sympathetic who on thursday started telling their portfolio companies you might want to get your money out ultimately the responsible sit to their companies and not to the bank and this bank has done a lot of good for silicon valley and what the demise will mean for the future of start-up formation. if you have payrolls or you're a company with payrolls next week, the pragmatic thing to do was to at least diversify and make sure you would have cash. remember, everyone who was freaked out on saturday, those were the companies that didn't pull their money out they could have had real problems and there's an enormous amount of animosity and bad blood right now and i'm sympathetic to both points of view >> dunkcan, have you seen anything like this before? >> i've seen bank runs and all bank runs are unhappy in their own way. this one was so avoidable, my god, what a dumb thing to say in a ceo conversation don't panic? that's why everyone panicked

dan is exactly right we had to tell our companies even though we knew it would leave to the contagion, they have to protect themselves they can't make payroll, they go down they go under and it's a prisoner's dilemma and that's yet whole industry acted the way it acted. >> would you have stepped up and put in your personal capital to help people make payroll, duncan >> we aren't in that situation, and we are fairly well protected in our portfolio, fingers crossed, but i think the bigger issue here is this, the speed with which they came into the market, the regulators was actually too slow. we all remember it's a wonderful life and you go down to the bank and get your money out and you have time to stop a bank run and the regulators have no time and it was too slow for silicon valley if they had asked gpt, what do we do? they would have gotten a quicker answer than what they responded with i think the answer is not to put more tarp trapaper trail on thes

and the internet goes too fast. >> did they reach out to you and say you acted too quickly? >> no. the problem was once everything cratered, what are you going to do you have no way out of it. a bank run is a human psychology problem. you don't solve it by saying don't act like everybody else. you solve it by protectioning the asset as quickly as you can. >> when did you get wind was it last week there was a newsletter about this in november there was jonathan weil writing about it in "the wall street journal. when did you first get any inkling that this institution would have this kind of a problem? >> this was not a surprise when the fed is raising rates and it's not a surprise. the real estate market around san francisco is depressed is not a surprise, but people thought the management of this bank which we love this bank is such a great institution we thought they would be on top of the issue the surprise hit on wednesday

night, and i don't know why they announced they failed to raise money. you would think they wouldn't say anything until they raised money and another just a blunder and the blunder compounded the next day >> go ahead, dan >> my understanding from talking to people who were involved in those conversations last week and the week before and svb leading into the wednesday announcement they didn't try to raise the money. they got half a billion dollars from general atlantic, and they only picked up the phone they felt in hindsight a terrible decision get the half a billion of general atlantic and the market will give us the other half they were fatally wrong about that. >> why do you think that is, dan? >> i do not know i can't figure it out. it's a question i keep asking and no one has an answer and i would say as the second part and dun duncan said this, it's also very clear. i've never run a bank and i would like to know that the

banks know that the possibility of a bank run is always out there. it's remote, but it is the worst-case scenario for you that somewhere there's a plate glass messaging bank if there is a bank run, follow steps one, two and three and it does not appear it had that and if it did it didn't institute it if it had it, did it institute it because it was a quiet period because of a share sale? it should have said screw you, quiet period let the fcc sue us or fine us in three years and we have a bank to save, instead it was a quiet period and we can't talk. >> the companies that have limits over 250, what are they going to do in terms of cash management how might this affect their ability or anyone's ability to get loans in the future? we've gone from plentiful liquidity to an extremely challenged situation in a very short period of time. >> first of all, svb has a special place in the ecosystem and it's a tragedy if it goes away and i do hope someone goes

in to buy them. >> if you're trying to give venture back to companies you don't rate them like a normal company. you rate the quality of the vc that's your credit rating and it's not the company and most banks understand how to do that. most do. first thing, tragedy if this thing doesn't continue in some form as an operating entity. i know dan has written a bit about this and why it has not happened because of politics here's what we had to tell our company which is is kind of obvious. we told them this, but not so forcefully, you have to diversify. put your money in money markets, put it in a tier 1, diversify the risk there's even a group that can spread it over so many banks that everything is over 250. it's a little complicated, but you could do that. so we told our companies thursday and friday go do this now and so they're all trying to have an alternative banking relationship the issue, though s if you have a venture loan from a venture lender you are required to make

that your primary bank and you are still left with that risk particularly on payroll and things like that. >> it sounds like that needs to change going forward >> real quickly, duncan. is this affecting people's ability to do business now that we have the facility up and running, some semblance of a plan, is it business as normal or not >> i'm wearing black today because i feel like i'm walking into a funeral it was slowing down anyway and this is going to freeze it up until we see how the dust settles. >> yeah. most venture funds now have to pocket reserves to backstop the table. literally, you couldn't make payroll in two days and march 15 is the seb money hadn't been released and i hope this shakes out in a positive way. >> thank you both for your time. duncan davidson, we appreciate it pd. >> still ahead, what a 72 hours it's been for svb including ceo of freight waves which says a fronted payroll this weekend and he joins us live ahead

as we head to break, take a look at the dow heat map on the 37th anniversary and that stock is one of the leaders today and the second best of 2.5% along with amgen and coca-cola, goldman and amex and your biggest laggards and the exchange is back right after this because you can't shut your eyes, it's not too late for another treatment option. to learn more visit treatted.com. that's treatt-e-d.com.

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which is on the way to snap a three-day losing streak. let's get to tyler matheson. hi, tyler. >> first repuckblic is one of te regional bank stocks in the wake of sill copicon valley bank and signature bank and it is down 65%. its executive chairman tells us the bank has been able to meet withdrawal demands with the help of additional funding with j.p. morgan and it is operating, so he says, as usual. the billionaire investor bill ackman tweeted regional bank stocks are an incredible bargain now although not without, quote, real risk as long as the government keeps backing all deposit ands he is confident it will. charles schwab is bouncing back and erasing most of the 23% drop it had this morn after it issued two statements on the strength of its financials saying its longstanding reputation is a safe port in a storm remains intact

those shares, though, are still down around 11%. kelly, back to you. >> i'll see you soon, tyler, as we pick up that coverage still ahead as traders look to capitalize on the volatility, is big tech now looking like the safety trade in we'll discuss. as we head to trade, take a look at the banks bucking the trend we do have some in the green united bank up 5%, wash, up 4% and valley national up 3.5%. we're back after this. ♪♪ what will you do? will you make something better? create something new? our dell technologies advisors can provide you with the tools and expertise you need to bring out the innovator in you. 92% still active? seems high. seriously? it's just a bike. wait. they make a treadmill

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♪ ♪ welcome back all three major averages are now positive the dow is up 109, but some regional bank stocks are still under a ton of pressure. pac west down 47% and the worst performer in the etf are these done or not? let's bring in anton schutz with the stock angle here and susquehanna has ideas and dom chu is along for the ride. anton, let me start with you you both know these banks better than anybody and that also raises some people's questions of did you have any inkling that these problems were coming and if so, why not >> first of all, if you think

about the deposit structure of the banks that have failed, you know, what they had in common was very lumpy venture capital deposits or multi-crypto deposits, and i had owned some of these banks in the past i hadn't owned a number of them for quite some time because i was worried about the deposit structure because i didn't know when they would leave or rise and at the end of the day that's not why they failed. these banks failed because there was a run on the banks the one point i really want to make here going back to the financial crisis, right? i ran money then, saw it then and lived through it with scars on my back, but at the end of the day when you create a run on the bank that's illegal. most days there's a run against it and let's see the sec deal with social media. social media did not exist in 2007 and 2008 the way it does

today and this is illegal to create a run by the way, we can solve this by creating all of the deposits of all of the banks and we did the same thing during the financial crisis and we came out of it just fine. look, at the end of the day it's not the taxpayers taking losses and it's the fdic funded by the banks and lots of money there. i think this is an anomaly i think the way these companies were funded, and -- let me ask you this so it seems more fundamentally problematic to me than that in the sense that they had deposit explosions the last couple of years. they had to put those deposits into something to earn a spread. they were encouraged in some ways by the way capital works to keep them on treasurys and mortgage-backed securities and then we jacked up rates and caused huge losses on those. what -- this problem runs deep yent see how this doesn't implicate almost the entire banking system >> well, i think it implicates well beyond the banking system,

right? rates are transitory, inflation is transitory. you're running a portfolio, what are you degree bonds are safe they're u.s. government bonds and it's still a deposit problem. if you didn't have runs they wouldn't have failed and they were poorly executed and confidence went down >> so you don't think the fact that they had losses and you don't think svb did anything wrong management wise here >> look, i don't like it i think it's not smart i think when you're matching securities portfolios against securities that are not particularly liquid or have a lot of risk that's not right silvergate didn't fail because it had crypto problems they problems because deposits left and they had securities portfolio with the same thing. that's what's happened here is the security portfolios went out and took duration risk and it's municipals and they didn't have the funding.

so lumpy funding is bad, and you know, they definitely made mistakes running those portfolios there's no doubt about it. >> let me leave it this way for people who are looking at these declines today do you see this as a buying opportunity then if we now have the backstop in place? are there exposed names you would avoid or do you think across the board the stock declines are overdone and people who share your opinion should be buying them? >> well, first of all, you know, i run a mutual fund. please send money. i will go out and spend it there are plenty of good -- good companies out there, so yes, i would be buying if i had one close. i think at the end of the day it is about individual companies, right? it's about how those balance sheets are structured and most of my companies have good core funding. they have checking accounts. they have business accounts and important players in their own communities and they reached out and they talk to their

customers. those customers want to leave deposits there, and i do think it's critical that we ensure all deposits and let everyone feel comfortable, calm down and by the way, all of those securities that everyone hates and have losses on, they are back every quarter until a security winds down and that's yet fdic secured the deposit which is did hit hard >> anton, thank you very much for coming on today. good to see you. we appreciate it anton schutz and let me turn to my next guest who is looking for different kinds of opportunity chris murphy is from susquehanna. chris, he thinks shorting -- we shouldn't be able to short these financial stocks right now if they moved to do something like that, what would thefall othefallout be arc cross the market, do you think? >> i think the knee-jerk expectation would be for markets to rally you know, but when you get involved and disrupt things and

maybe that will be a sign of more concern so, you know, i wouldn't necessarily think that would fix anything and if anything, it would probably lead to a heck of a lot more volatility. >> i want to bring dom in here because there are questions about the shorts that people already had in a position and if they're piling on right now. >> the interesting part about the praise action that we're seeing today and this kind of harkens back to what anton brought up in the last segment, this idea that with right now, with what the fed has done and what the treasury has, the holdings this they have, you basically said that these guys can pledge them as collateral, a full par value and take up loans up to a year and more sometimes to make good on these things the problem right now is what you have on the right side of the balance sheet with regard to the equity side of things and the deposits and liabilities if you start to move to restrict some of these trading activities, what you might then do is further to chris' point

disrupt what's going on with the discovery of what's happening right now. i would also say that passive index investing is probably causing a lot of this because people don't just sell individual stocks anymore. they sell an etf that holds these things and by proxy, everything that goes in it goes down as well the hard part about this is whether or not you can enact any real trading approxe any policy distinction and that will be the real issue. >> what about those shorts who might have bet on the banks that collapsed, chris, what happened do people get to close those shorts out >> yeah. you know, i think that that would remain to be seen. we're looking at the options and if you are concerned about that volatility has gotten a lot more expensive, but if you're sitting on a bank stock that's -- a regional bank stock that's down 50% or 60% you might want to look at some call spreads because volatility is expensive or calls just to cover against

something like that happening. in terms of what would actually happen, i don't know, but how to protect yourself, you can look at the options against your short position. >> i have an informational question just for some of the viewers out there. what happens if you've owned a short position or are long a put option, option to sell say silicon valley bank or signature bank these companies are now done you can not trade them anymore there is no trading activity what exactly happens and how do you realize profits, so to speak, if you're short that stock or if you own put options and are trying to kind of monetize them at this point? >> well, one thing to keep in mind is they are not going to be you had amatically exercises typically if something expires in the money, it's automatically exercised. you're going to have to go out there and, you know, call your prime broker or whoever you do your options with and make sure that you exercise those options. we know, you know, and then, of course, you is have a short position this will take a long time for

everything to get all figured out but at least your options don't go away. it's important to make sure that those options are officially exercised, even if the stock is halted or something like that. >> chris, can you also quickly, before i let you go, as you said on friday we were approaching in terms of vix call open interest, approaching the 2018 apocalypse highs. what does the market look like and what does that tell but what comes next >> you know, it's interesting. the s&p is basically flat, but we're seeing the most dispersion under the hood that we've seen in a couple of years, since i think the first covid vaccine was announced, so market is flat volatility continues to move higher a big part that have is because a new downside tail risk has been introduced. we were pretty comfortable in general. we kept talking about why the vix so low it was a known risk, fed and inflation and now it's a new unknown, unknown we're seeing the downside tail risk of options being bid up,

skew being bid up and that's pushing the vix higher even on a day when the s&p is flat. >> is that a bearish sign? >> that would -- typically, you know, when you see stuff like that happening means we're closer to the end. the problem is when you go back and do the back tests, soap of these back trests when the fed has been very friendly now, the fed has the opportunity to get a little bit more friendly coming up here, so, you know, fed being nicer to the market, yes. it's closer to capitulation. not as effective when the fed is being as hawkish as it's been for the last year or so. >> yeah. that goes back to the importance of the cpi and some of these other reports that will come in and maybe change their mind about that good stuff chris murphy from sump hanna thank you. the ten-year has dropped over the past year or so as the dovish expectations rise for next week's fed meeting. could it bail out the markets? we'll ask diana olick. >> mortgage rates on friday took

another dive, today the average rate on the 30-year fixed fell to 6.75% last wednesday it was over 7%, all according to mortgage news daily. the rate loosely follows the year on the ten-year treasury, so in real terms for a buyer looking at a $500,000 home with 20% down on a 30-year fixed the monthly payment this week is $128 less than just last week, still higher though than it was in january all right. us a asked what does it mean for the spring housing market let's take a look back in october rates surged over 7%, and that started the real slowdown in home sales, but in january, the rate had come way back, and that's why we saw a surprising jump in pending home sales in jaire if rates keep falling, that might give the spring market a much-needed boost, but that's a big if i spoke with the c.o.o. of mortgage news daily matt graham who said it's still all about inflation. markets have to guess at the inflationary impact of consumer fear right now and balance that

against what tomorrow's cpi data says about february, so as much as we might think big changes, kelly, again, it's all about inflation. >> diana, thank you. our diana olick. now, it was a confusing and stressful weekend for companies banking with sbv, including my next guest who said if a board member hadn't stepped up and fronted the money, they would have missed payroll today. joining us now is craig fuller, ceo of freight waves thanks for joining us. >> thanks for having me. >> is that happening because it's a pay day >> our payroll is on monday. all of our summon at silicon valley bank and didn't have any access to fund payroll our pay volume about $1 million so we needed to find the cash really quirks and our board stepped up and with no fuss and wired us the $1 million. >> which is amazing. now that you are fully aware of the risk of having a bank account over 250, do you in retrospect wish you had done something differently for cash

management purposes? >> we had our money in overnight treasuries the challenge is it was through silicon valley bank. we always felt like our money was protected and safe in fact, we reviewed our agreements and had our general counsel review the agreements over the weekend we didn't feel like the money was at risk even if the federal government hadn't backstopped it we just couldn't get our hands ton and with all the confusion that's taken place with the shutdown we didn't know how long it would be before we had access to it. we never worried about losing access to our money or money effectively evaporating. we just don't know how long it will take to be able to recover those funds. >> what are you hearing today, and are any of your personal funds affected by this as well in. >> personal funds -- my personal funds are not impacted by it our payroll for employees is all safe because our board has stepped up, but when it comes to the money that's currently held at silicon valley bank, we are not able to get access to it today or as of right now the systems have crashed we tried calling into customer

service at silicon valley but we can't get through. these are overnight treasuries, a sweep account we keep all our money in, and because they are held as equities or mutual funds or money market accounts it's actually treated different by the ferksdsds, so we still don'e a resolution of getting access to the funds we do think it will happen efficiently over the next week but we don't have a timing or clarity when that takes place. >> what about the rest of the cash needs that you have day-to-day for the business? how are those being met? >> right now we have payroll which is the big one luckily we have great terms with our vendors so that we can -- we're actively communicating with them, and we've always paid our bills and paid them quickly. no issues that we think are short term in nature, but we certainly have contingency plans. our board has all come together and has agreed to basically backstop our needs, and so we believe that we will be in good shape hopefully by the end of the week which is our

anticipation and no one knows. this is an unprecedented event fours, and so it's something that we haven't dealt with before but we feel confident that our board has and will continue to step into ensure that our business continues to operate. >> we're already seeing reports of shareholder lawsuits filed against sbv. if there was a deposit or a type of lawsuit, it was something that you would join in >> you know, i can't speak for that again, i don't think we were at risk of losing money in the trans action or in the shutdown because our money was held in overnight sweep accounts that are treated differently than just deposit accounts so i can't speak for whether we would take legal action i can tell you that this is a very disruptive event and one that is unanticipated, and, you know, in fairness to silicon valley bank and the companies that deposited with them, this was a bank rated very high by all the rating agencies, the 16th largest bank in the country so i think it -- it was something that no one expected or anticipated.

>> yeah. >> silicon valley going under, and -- and, i know, we felt like we did our diligence on the safety and soundness of the bank and the rating agencies rated it incredibly high so this is an unprecedented black swan event that has unfortunately disrupted all not all the operations but a lot of customer and client operations as well. >> sure. we really appreciate you talking about it today thanks for joining sfwlus thanks for having me. >> craig fuller, fascinating to see the ping poll ball of whose fault this is and who is held responsible. we'll continue to follow it. that does it for "exchange" storks dow up 134 points. every index is in the green right now and next on "power lunch" we'll talk about the crypto sigh of relief. why is that happening? tyler is getting ready i'll join him on the other side of this quick ea brk. your brain is an amazing thing. but as you get older, it naturally begins to change, causing a lack of sharpness, or even trouble with recall. thankfully, the breakthrough in prevagen helps your brain and actually improves memory.

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