Monday, December 11, 2023
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the Fed needs to slow down or ‘stuff is going to break’


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As the fallout from Silicon Valley Bank‘s failure continues to unfold, the Federal Reserve needs to slow down before “a lot more stuff” breaks, Altimeter Capital’s Brad Gerstner told CNBC’s Halftime Report Monday.

Gerstner said he wasn’t “pointing fingers” at Fed Chair Jerome Powell. But Gerstner said that there would be “plenty of questions” about the Fed’s response to inflation, given the collapse of SVB and the ensuing regional bank selloff.

“Our head regulator [Powell] told us on Tuesday that things were fine,” Gerstner said. “By Thursday, it was very clear that our entire regional banking system was in trouble.”

That leaves room for “plenty of investigation and plenty of questions asked for everybody involved,” he said.

Three significant banks with heavy exposure to startups or crypto collapsed or were shuttered in the past week.

On Wednesday, crypto-focused Silvergate Bank said it would wind down and liquidate. The following day, SVB shares cratered after the bank said it was selling securities at a loss and trying to raise cash, leading many venture-backed tech clients to pull their funds. By Friday, SVB had been closed by regulators.

Silvergate, SVB, and Signature Bank, which was shuttered by regulators on Sunday, were all medium-sized banks with a focus on speculative tech or crypto investments. Their profile was far different from most regional banks, which focus on small businesses or individual consumers.

Gerstner said the risk to the regional banking sector went far beyond just SVB or “young start-up founders,” but that it’s important to note the “prime source” of funding for that market disappeared “virtually overnight.”

“We are at the verge of one of the most interesting periods of technological innovation,” Gerstner told CNBC’s Scott Wapner, before comparing the current moment to the 2008 financial crisis. “Here we are again, we have a major reset occurring in the world.”

Gerstner said the Fed’s effort to tamp down inflation by rapidly raising rates threw banks into disarray.

“This wasn’t a problem of the start-up ecosystem,” the investor continued. “This was a national banking problem.”

While the yield on the 10-year Treasury fell nearly 20 basis points on Monday to 3.50%, it had climbed above 4% earlier this month.

“That’s the market telling the Fed that ‘you better slow down, otherwise a lot more stuff is going to break.'” Gerstner said. “We’re going to have a massive recession, and much bigger problems.”

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Bellie Brown
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