this is "gps," the global public square. welcome to all of you in the united states and around the world. i am fareed zakaria coming to you from new york. today on the program, panic in the markets as the banks need

rescuing again. i'll ask one of the people who was at the center of the storm the last time around, the former ceo of goldman sachs lloyd blankfein about whether the system is stable, and is your bank account safe? also, how did it come to this? did we learn the wrong lessons the last time? i'll talk to julian tet of "the financial times." then -- don't mess with the french people's retirement plans. that's the lesson from weeks of strikes and protests and then chaos in parliament as the government pushed through their policy anyway. [ speaking non-english ] >> which brought the outrage right back to the streets. ♪ ♪ >> we'll tell you what you need to know. >> but first, here's my take.

on his trip to saudi arabia last year president biden made an emphatic declaration about u.s. policy in the middle east. he said we will not walk away and leave a vacuum to be filled by china, russia or iran. last week's reproachment between saudi arabia and iran brokered by china suggests that this is precisely what has happened. the re-establishment of relations between iran and saudi arabia is not in itself a seismic event. they broke off relations only seven weeks ago, last week's revelations reported a deep seeded flaw in the american foreign ap foreign policy, one that has gotten worse in recent years. they wrote an essay that described two plans for american's grand strategy after the cold war. he called them bismarck or britain? the first was to emulate britain to geopolitics by building

alliances against rising powers that seem hegemonic, but otherwise stay uninvolved. the balance of power strategy would be impossible for america as a preeminent power and lynchpin of the international order. instead, he advocated a strategy as the broker who junified germany and made it a great power in the 19th century. bismarck depicted the ideal situation for germany as not that of the acquisition of territory, but a total political situation in which all powers except prance need us and are kept from coalitions against us as much as possible by the relations with each other. the associated doctrine is called the kissinger, name not for henry kissinger, where bismarck codified it. in a remarkable case of historical resonance, however,

henry kissinger's greatest diplomatic triumph a century later was animated by the same idea. in making the opening to china while simultaneously pursuing detente with the soviet union kissinger had better relations with beijing and moscow than they each had with each other, in fact, many of the notable successes of the american foreign policy centered around this bismarckian idea. for decades during the cold war america had better relationships with israel and the arab states than they had with each other. it weaned community countries like slovenia away from their grip and for decades before the iranian resolution it had better relations with iran and saudi arabia than they had with each other. today, however, washington has lost the flexibility and suppleness that would inform just this sort of strategy.

our foreign policy today usually consists of grand moral declarations that divide the world into black and white, friends and foes. those staples quickly get locked in place with sanctions and legislation making policies even more rigid. the political atmosphere becomes so charged that merely talking with a foe becomes risky. there's now a whole slew of countries with which the united states either has no relations or only limited, hostile contact. russia, china, iran, cuba, venezuela, syria, myanmar, north korea. you can make the case for opposing any one of these countries individually, collectively, though, the effect is to create a rigid foreign policy and one where we are unwilling to talk to everyone in the room and unable to show flexibility presumably based on the idea that it's best simply to hope for the overthrow of these regimes. this is not really a criticism of the biden administration, but of american foreign policy as it

has developed over the last decades. america's status has corrupted the foreign policy elite. foreign policy is all too aufsh an exercise in making demands and issuing threats and condemnations. there's very little effort made to understand the other side's views or actually to negotiate. the obama administration tried to take a different path and it negotiated a nuclear deal with iran that seemed to bolster the moderates with the regime and could have led to a more workable relationship with the country. it engaged china while pushing back on issues like economic espionage with some success. it began a process of normalizing relations with cuba and it even tried to maintain a working relationship with russia, but the political climate in washington was largely hostile to this kind of kissingerian diplomacy and once donald trump entered the white house he pulled out of the nuclear deal and slapped tariffs

on china and tried to overthrow the government and none of these succeeded and they established that they are extremely hard to change. biden campaigned on undoing many of these policies, but once he took office he found it politically easier to just go along with the tough line. all of this evokes the inertia of an aging empire. today our foreign policy is run by an insular elite that operates rhetoric that pleases domestic constituencies and seems unable to sense that the world out there is changing and fast. go to cnn.com/fareed for a link to my washington post pol up this week and let's get started. ♪ ♪ ♪ a little over a week ago the 16th largest bank in the united states, silicon valley bank

collapsed. customers panicked after the bank announced it would be selling several billion dollars in shares to cover huge financial losses precipitating a classic bank run. the bank's failure threatened to wipe out many tech start-ups, venture capital firms and other american businesses large and small that kept deposits there, something in the neighborhood of $150 billion held at the bank was not backed by the federal government because it was in accounts larger than the fdic's $250,000 limit. the panic looked like it was spreading to other banks and could pose a risk to the broader financial system. so last sunday the federal government stepped in to rescue silicon valley bank and another failed institution, sig of nah you are bank. all depositors will be able to get their money and even big accounts. the biden administration insists this is not the bailouts because the depositors not the

shareholders and executives are the ones being rescued. did the government do the right thing and is the banking system secure? my next guest used to run goldman sachs, one of the country's largest and most influential banks. lord blankfein, good to have you back. >> fareed, good to see you, thank you. >> i don't want to give you ptsd, lloyd, but do you remember 2008? you were in the middle of that. how is this chrissis different from 2008? >> well, a crisis is a crisis, but it has totally different roots and totally different characteristics and we'll see if it gets to the same dimension. for one thing, in 2008 the bank his bad assets on their books or in many cases investors, shareholders, the government couldn't assess what the value of those assets were. you remember subprime mortgagees, were they worth anything at all? what were they work here?

you have the asset side of the bank's balance sheet pretty good and most of it is the government debt so that's money good. the problem is that they took duration risk, that is, they invested in long term bonds and when interest rates went up the pitteling interest rate that they had went down in value. so in this case that sparked a bit of a concern among creditors and depositors and so deposits left the bank. in 2008 there were asset problems and in the current market it's a liability. it's really people pulling out their deposits, but their assets is probably in the long run money good and they suffered a valuation in between. also, the context is different. banks today, and financial institutions in general are much better capitalizid and think the regulators and the congress in their actions post-2008 could take credit for that, and so we're starting in a much, much

different place for the financial system as a whole. it doesn't mean there won't be esoteric issues as was silicon valley bank. >> and lloyd, when you look at the situations right now and it's a moving situation, but what the government has done right now, can most americans and all depositors feel our money is safe? we don't need to go to the bank to withdraw? >> i think the answer is kind of yes with an ellipses because the government is partly a result of the reforms. you can query whether it was a good reform or a poor reform and took away the power of the fed to just issue a blanket guarantee of all deposits in the system which they did in 2008. instead, it left them with the power acting in concert with the fdic and the treasury to if they

find a systemic emergency to guarantee the deposits of entity by entity, bank by bank. i think what we heard from the fed is in this moment, in this fragile moment they are implying that they will regard any event or any run on a bank as systemic and the implication is they will use that authority that they have, but they can't announce that in advance and they can't declare it, but they've come as close as they possibly can to do it, but they don't have the power to issue a blanket guarantee, but i would be -- i think you are able to rely on it, but there is a tail risk in that lack of absolute centery. >> now, there are a lot of people who feel that this is, in some way a bailout and this is in some way, one more example of

capitalism for the poor and socialism for the rich. that is the whole bunch of these tech companies that where the cfos should have been managing their accounts properly, left huge amounts of money in uninsured deposits and roku had $500 million sitting essentially in cash in an account and presumably there are other regional banks that made the same mistakes that svb made that are now going to get backstopped by the fed. is it fair to say that the government has helped a lot of people who in the normal course capitalism made mistakes and should have been wipe out? >> well, clearly people won't lose mope so the answer is yes, stharpn't aiming at this group or that group, but an eye for

the systemic risk to the entire system so the dragnet picks up everybody when you do it, but it opens up the -- what you're asking, what i think, is really the policy question of guaranteeing deposits and that's something that will have to be worked through. we have a $250,000 cap on what the government will guarantee. how sensible is that? the words that get tossed around is moral hazard and that is if you protect these depositors they and other depositors in the future won't be so careful where they leave their money and if they're not so careful this situation is likely to recur, and the implication, and the suggestion is that people should do their homework and do research on which are solving institutions. i won't deny that an institution capable of leaving $500 million in a single depository in a single bank probably have the

wherewithal to do that, but really, in our financial system do we really expect and do we want to make it the duty of the depositors to make that forensic accounting analysis on banks? we don't make people do analysis of airplanes when we board them. we rely on the faa. if it's certified we get on them. we do the same thing for drugs that get sold if they're tested and approved we rely on it. people are not doing those forensics by themselves. we might think of extending that to some extent, maybe to a great extent, to deposits and raise that limit, but that's a policy decision that will take place. >> stay with us. when we come back, i'm going to ask lloyd blankfein whether these bank crises will tip the economy into a rescission and about if they do, what should the federal reserve do because it's been trying to raise interest rates all along.

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and we are back with lloyd blankfein, former chairman and

ceo of goldman sachs. lloyd, i want to understand what the future of banking looks like, what the business model as it were, if the federal government is going to insure all deposits, in a sense, the whole business of banking used to be that you've managed the fact that you're taking short term money and you're loaning it out at a long term -- you have long term investments and if the federal government is going to guarantee you against any miscalculation, what is the model of banking? has it become a utility, a highly regulated utility for everyone? >> well, i don't think there's anything to gaeruarantee banks their kinsolvency and policy debates will flow from this, clearly, if we don't do this -- look, the biggest -- the biggest

banks, the few biggest banks have very high capital standards and liquidity standards and stress tests and the regional banks like silicon valley bank have a much lower level of regulatory scrutiny and therefore kind of safety, let's be honest, and if you just left it like this the losson that people may walk away with, the money is safer with the largest banks and so they're exercising their discretion in moving those things. the consolidation might be an objectist system and there are big policy debates and you asked the future of banking. is it a virtue that america has well over 4,000 banks and most big countries have a few big banks with branches that operate

throughout the company. we have branches that are dedicated to regions, that focus on particular industries, silicon valley bank is an example and it may be the oil patch and particular groups like some community banks and loan associations and connected to unions. we also have the fastest growing large economy in the world and i'm not sure that that's not a reason. our credit system for the largest economy is in the communities and in the industries and in the various sectors and that's probably a good thing. i wouldn't necessarily want to experiment and withdraw that, but if we incentivize people to go to the biggest banks then the sector will consolidate beyond what people think is an attractive thing. >> so, lloyd, the federal reserve has been raising interest rates and while it won't explicitly say this, what it's been trying to do is engineer a soft recession, right? by making money more difficult to borrow. it's been trying to slow the

economy down. it's highly likely, it seems to me, that these -- all these bank crises are going to do some version of that. so should the fed stop raising interest rates? >> you know, the market as we speak here, the market is projecting a 70% chance that the fed raises 25 basis points. i personally -- i personally think it would be okay to stop here. to your direct question about with respect to the current situation and the effect on the economy, it is a certainty that this will -- that this situation will cause -- will act in a way that's similar to a rate rise in some ways. banks will have to, because of the tension and the pressure and uncertainties, banks of husband their lending on the deposits they have. so already there will be less credit. less credit means less growth. so some of the mission of the

fed in trying to slow the economy will be done here. >> lloyd plblankfein, always go to have you on. >> thank you very much, fareed. next on "gps" we'll zero in on the collapse of silicon valley bank. did regulators miss obvious signs of trouble? what about the culture of silicon valley? was that to blame? my next guest will explain. ♪ i've been able to explore and learn a tremendous amount about how chinese americans have experienced civil rights and immigrant rights and what life must have been like for them. and as i pass it on to my daughter, it's an important part of understanding who we are. ♪

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comcast business. back now with the bank crisis that has rippled across the world. silicon valley bank's fall was one of the fastest in history. the reason some argue, social media caused some of the panic that resulted in history's largest bank run. my next guest has written about the curse of virality that has underpinned this modern crisis. julia is editor-at-large for "the financial times." julian, welcome, i want to ask

you to put your hat on as an anthropologist and not just as a wizard and the way this stuff works culturally because so much of what happened here was triggered by social media, and by the kind of virality or the speed with which communications happens today. is that at the heart of particularly speed of this bank run? >> well, the roots in the credit come from the latin credere meaning to believe and finance without trust is worth nothing and one of the problems that bankers and regulators are grappling with is that we live in an age of cyber flash mobs. because of this, news flashes around the world and you get these explosions of passions that flare up and die down and we saw the political implications of that, and the

fashion and music world where suddenly things become wildly trendy and disappear from sight. we've seen it in social interactions. last summer, a teenager i know had a pizza party for a dozen kids and someone mentioned it on social media and within minutes there were hundreds of teenagers there and the party was ruined, but more seriously in the banking world, banking runs are not new. panics are always at the heart of any bank collapse, but the difference between now is that in the 20th century they took a long time because people had to go to the bank branch, and get bits of paper and it would take days, if not weeks. now it is so fast that it happens before we know it even started and their 40 million dollars out of silicon valley bank because people are posting panicky messages on social media

and it spiralled. the problem for regulators what do you do in this cyber regulated world that can be hard to quench. >> that raises a fascinating question. do we need a different model of banking for the future? >> well, there are things you can potentially do to stop the cyber flash mobs from escalating. so, for example, you could make it difficult for people to pull out money quickly in digital means, you could have a cooling off period. you could basically say that people who post, you know, scary messages on the internet as many people did in the beginning of last week, you account say that this could be prosecuted for creating panic, but frankly speaking, i'm not sure that's going to work because in an age where we can order whatever pizza we want from our phones we can't have a situation where we can't take the money out of the bank because that curtails

freedoms and it is very hard to say what is or is not, you know, fear mongering messages because one could argue that some people felt they had a public interest to warn the public about the dangers in the banks by putting things on social media rather than just keeping that noise into the hands of a tiny elite. so i would argue that the only way you'll really counter this world of cyber flash mobs which can destroy credibility and credit is to make sure that the banks are actually trustworthy. >> you write a lot about culture and siloed cultures and debt culture in silicon valley is siloed and they think of themselves as a real community. what is striking to me is all of these guys the minute they got a whiff of a problem. they panicked as they say in game fury, they defected and pulled their money out precipitated a bank run that could have been avoided if they'd all stayed calm and slowly worked it out. people like peter thiel led the

charge. it feels like this is partly an indictment of the culture of silicon valley. >> the first is why did techies not see this coming? and partly because the people working on silicon valley are so dazzled by computer cyleness and so addicted to the idea of being anti-establishment, moving fast and breaking things to quote mark zuckerberg, trying to disrupt everything and essentially hating washington and hating wall street that they've been very, very scornful of things like old-fashioning banking. they spent far more time, the founders of these start ups thinking about science and looking at the banking relationships or asking whether it was a good idea to use silicon valley bank so heavily and putting so many eggs in one basket and they didn't see what other people saw which was silicon valley's balance sheet was sitting on enormous and

extremely dangerous losses which could be threatening. so that's part of the problem, but the other problem is that when the crisis started, essentially the silicon valley community, if you like, panicked yes, they tweeted and yes, a number of them did pull their moneyity on pretty fast. it's really important to understand that anyone running a venture fund had a fiduciary duty in many cases to act rather than stick with the bank because the ceo of silicon valley himself had told them that there were problems in the bank and if they'd left their money in the bank and the bank had then failed the heads of the funds could have faced legal liability for not being responsible. i spoke to peter thiel last week about what happened and yes, his venture capital group founders fund did pull their money out and advised the portfolio company to pull their money out which is fiduciarily the

responsible thing to do. peter thiel had $20 million of his own money which he did not put out not because he was trying to be noble, but because he hadn't been tracking that closely what happened to silicon valley bank. he wasn't that close to it and didn't act fast enough. so the point is that many people who are supposedly some of the brightest people in america working in silicon valley turned out to be unbelievably stupid when it came to looking at basic finance and banking. >> wow. on that sobering ♪, jillian particular ett, al always a pleasure to talk to you. >> next on gps, emanuel macron pushed legislation to raise france's this week. protests have intensified and what will this mean for france and emanuel macron when we come

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upset has turned to outrage in france after president macron's government used a special constitutional power to force a controversial bill through the legislature on thursday. at issue is something near and dear to the hearts of french men and women, their retirement and instead of retirement and receiving a government pension at 62, they will have to work an extra two years and get it at 64. macron says the reform is necessitated by rising life expectancies and the ever-decreasing ratio of workers to retirees. in the 1960s, france had four active workers per retiree paying into the pension funds. in 2020 there was only 1.7 workers for retiree and two-thirds of people say they're against the reforms and joining me is sophie petter and author of revolution frances and emanuel macron and the quest to

reinvent a nation. sophie, first give us a sense of what it means that macron used this constitutional mechanism and he couldn't get a majority in the lower house. that has now provoked as the french term goes a vote of no-confidence. will it succeed? could this government fall? >> well, that's the question we're going to be looking at on monday because there are two vote of no-confidence that have been tabled. they need a majority of seats in the lower house of parliament and it's not a majority of people present and an absolute majority of seats in parliament in the national assembly. that, technically is perfectly possible if all of the opposition parties were to combine and were to vote in favor. i think what we are likely to

see, however is that you will see the extreme and marine le pen's party on the populist hard right will vote in favor and the left-wing alliance will also vote in favor and the key to this vote is the republicans and the republican party and they are being told by their leader not to vote in favor, but some of them are rebelling and want to vote this government down. so it could come down to the votes of 20, 25 republicans whether or not they want to bring the government down. i think they won't, but nobody is feeling confident about that right now. >> what does this mean for macron for the rest of his term? because it seems as though he's had greater opposition than he expected and it must wound him, right? >> i think that's right. if his government survives these two votes of no confidence,

politically, the government and the president have been badly wounded by this, and looking at the rest of the second term, he hasn't been in office for one of those five years. it's going to be extremely difficult about whether or not it's democratic to use the constitutional provision and is it politically legitimate and that will make his time, i think, certainly in the next few months and longer than that extremely difficult. there's even a request about the government itself can survive in the short run. >> help us explain, sophie how the french know this, and he lowered the retirement age, since then, life expectancy has b gone up about ten years and the ratio of workers paying into this fund has gone drown dramatically, i think about 30%.

so the math clearly seems to suggest that you need some adjustment. every other european country or at least every other major european country has made these adjustments. germany's retirement age is 67 and not even 64 which is what macron is proposing. are the french just sort of blind to this and feel france is unique? >> you know, i think it's got to do with the sense in france that the rolling back of the time you spend in work is part of what makes france french and it's part of civilization and the retirement age is 65 to 60 and it was a socialist government 20 years ago that brought in the 35-hour working week and all of this is a part of what the french feel is a civilized way of organizing society. these are social preferences and therefore, i don't think that they buy this argument that it's

about an accounting need or democratic need and they don't really buy the argument that it's just because other countries have done it they have to do it, too. so i think it's culturally very complicated and probably even more so post-covid where people are re-evaluating their work more generally and that is why the french feel that this is not part of what makes them friends and they really are resisting it. public opinion have been consistently against this reform for the beginning of the year when the government first presented it. >> what about finally, why has macron been so unyielding on this? he, too, has stuck to his guns even though it was clear that he didn't have a majority of the people with him. >> i think for the president macron, i think he sees this as a real test of whether he can continue to modernize and reform france which is what he tried to

do during his first term in office. it was in his dna. that's what makes him president, really. he feels he can do things to try and change france and reform france in ways that they haven't before, but you only have to look back in history and you remember it was under jacques chirac when they were trying to reform pensions and brought down that government and the parliament was dissolved. so it is something that touches the very heart of what the french believe in and macron felt or feels still that he can do what past presidents haven't been able to, and it's a real gauge of whether he is still the reformist president that he certainly was in that first term in office. >> well, you're right that if he gets it done he will do something that no french government has been able to do for 25 years. sophie pedder, thank you so much. >> pleasure.

>> next to gps, one piece of good news came in britain's new budget. pub goers will save 11 pence on beer which is part of a new brexit pub guarantee. how else is britain doing on brexit? not so well. i'll explain in a moment. (vo) ...help communities thrive. that's why wells fargo has donated over $420 million dollars to diverse small business owners. (smb) back to alpha, plant. (vo) when a bank does what it says... (smb) lights on guys. (vo) ...small businesses can reach new heights. doing gets it done. wells fargo, the bank of doing. the day you get your clearchoice dental implants makes every day... a "let's dig in" day... mm. ...a "chow down" day... a "take a big bite" day... a "perfectly delicious" day... - mm. [ chuckles ] - ...a "love my new teeth" day.

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and now for the last look. finally, the british people are seeing the benefits of brexit. this week chancellor jeremy hunter presented a budget that contained a brexit pub guarantee. from august, the tax on beer and cider will be up to 11 pence lower than the tax on beer and cider in super marks. he was keen to claim would have been impossible to enact when britain was a part of the european union.

it is worth recalling that the benefits of brexit was supposed to be a lot more than a bar of beer subsidy. boris johnson at a lightly regulated. it didn't happen. having broken away from its largest market, britain is the only g7 country whose economy hasn't rebounded to its pre-pandemic side, and january, the imf predicted it would be the only major economy to shrink this year. and that environment, singapore is a mirage. as ganesh noted in the ft in november, britain is actually starting to look more and more like a pale imitator of europe. the conservative party

post-brexit has presided over significant tax hikes included a rise in the corporate tax rate from 19 to 25%. by 2028, the country's tax burden and its tax revenue as a proportion of gdp would have risen to 38%, up five percentage points to 2016. according to the uk's office for budget responsibility this will make the tax burden the highest since world war ii. spending will rise to its highest levels since the 1970s. it would dramatically lower immigration. in the years before brexit, the us uk independence party, nigel farage spoke about preserving british jobs for the british born. it saw record high mass migration in 2022, 500,000

people came to britain's shores than left it. none of that increase comes from the european union. more europeans left the uk than migrated there. much of it comes from one-off events like refugees from ukraine. and as the piece from the financial times makes clear it was made clear by policies put in place after brexit. visas grafrned to the chefs and butchers, home health aides and nurses have surged but the government has classified them as shortage industries to fill them. although chancellor hunt didn't mention this, it lays out shortage industry and construction, and that means foreign-born brick layers, carpenters in the uk are also likely to rise. this change in policy means not only a surge in visas for

workers, but also a shift in those workers' countries of origin. as the ft reports the uk saw >> now, immigration is a good thing for the economy. the office for budget responsibility said migration to the uk could grow gdp by half a percentage point by 2027. the rise year hardly matches the matist criteria for preserving it for the british born. it's fair to say a few years since brexit has been implemented, things have turned out exactly the opposite of predictions. no wonder most britains seem to want a do over. thanks to all of you for being part of my program this week.

i'll see you next week. if you miss a show, go to cnn.com/fareed for a link to my iphone podcast. ing. for that engagement ring... the groom's parents. you think they're looking at photos of their handsome boy? they're not! she just saw how much they spent on ballroom dance classes... won't be needing those anymore. digital tools so impressive, you just can't stop banking.

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>> hello and thank you so much for joining me this sunday. i'm fredrica whitfield. we begin with a defiant vladimir putin making a surprise visit to ukraine overni