#9 - The Banking Crisis Continued

Unknown: 0:16

The content of this podcast is for informational purposes only and should not be construed as financial or investment advice. The views and opinions expressed in this podcast are those of the hosts and their guests. They do not necessarily reflect a position of any associated employers or organizations. Hello, everyone, and

Adam Rice: 0:33

welcome to Episode Nine of the applied MMT podcast. I apologize for the delay here. I haven't had time to edit this episode. So we originally recorded this a couple of weeks ago. In the episode Ryan and I talk about the latest happenings with first republic hold to maturity, securities, misunderstandings around banking in general solvency issues versus liquidity issues. And we also touch on Bitcoin and banking. Thank you again for listening, and we hope you enjoy the episode. Alright, Ryan, so we had another busy week in the banking and finance and international finance world. Lots of talk about bailouts, lots of talk about QE, lots of talk about undoing quantitative tightening. We'd love to hear kind of your explanation. As best you can, you know, maybe explaining to lay people exactly what happened with you know, let's say first republic, and how all the big banks kind of rallied around first republic and I don't know if you'd say sent them deposits or insured their deposits. But we'd love to hear your take on the what's happened around first republic in the past week or so. Yeah,

Ryan Benincasa: 1:50

sure. Thanks. Out. And, and yes, with first republic. So they issued a press release last Thursday, indicating that they had secured$30 billion deposit of deposits from these 11 banks that, I guess, you know, had had been recipients of deposit outflows basically backing up for a moment after the failure of Silicon Valley Bank the week before, there were, I guess, first republic, which caters to you know, a lot of similar clients, experienced similar to deposit outflow stress. And so if you think about it, right, let's just let's just take a, you know, a generic, let's just think of think about a bank for a moment. And a bank's balance sheet, it's got assets, and liabilities, and anything, you know, any residual when you take the assets minus liabilities, that residual is the banks, equity. And so, you know, if a, if a bank has, let's say, you know, it's got $100 in assets. Okay. And let's say it has $20 in cash $80 in loans and securities. Okay. And that, so that's on the asset side, on the liability side, let's say they have $90 in deposits. Okay. And, and then the remaining the, you know, they have $10 remaining in, in book equity capital. Okay. So, if, if the bank if a bank experiences, let's say, if this bank experiences a $10 deposit outflow, what does that look like from an accounting basis? Well, the bank would have to mark down the cash account on the asset side, right. So that goes from 20 to 10. And it would also have to mark down the deposits but an equal amount $10 Right. So now their deposits go from 90 to 80. So in that type of a scenario, the the assets are now $90 the liabilities are now $80. And the the equity capital that, you know, that is left over is actually unchanged, right? It's, it's, it's still$10. Now, I would just point out that, you know, the, the, the equity capital as percent of the total assets, in scenario just laid out is actually higher once the, the deposits have have left. So, again, this is all just kind of just accounting basics and stuff to sort of think about, because there's a lot of unfortunately, there's a lot of misinformation about, you know, how accounting for banks work So anyway, if a bank such as first republic, I mean, they ended, you know, per their annual report 10k, they ended last year with about $6 billion in cash on their balance sheet. And all of a sudden, this Silicon Valley Bank crisis happens, and they're suddenly dealing with massive, massive deposit outflows flows that it per the press release that range from 20 billion to as high as 100. Well, no, I'm sorry, I shouldn't say that. They had to borrow, as, you know, anywhere from 20 billion to 109 billion, you know, over the, you know, I think the period from either from like, last Monday to Thursday, or maybe even sometime the start in the previous week, so through last Thursday. So with that, what, you know, the reason that they would be going to the Feds discount window or or, you know, getting fhlb loan or drawing on the, you know, credit line, how JP Morgan, the reason you would need to tap those sources of liquidity is because it didn't have sufficient cash on hand, to meet depositor withdrawal requests, right, people are pulling or sending their funds out of first Republicans, you know, to it to a different bank, because they have this misconception, that first republic was undercapitalized. And so, that's, that's what I think we need to emphasize first is that the reason that first republic needed to borrow these, these funds and, you know, pledge collateral to, to, you know, secure new funding was to pay out depositor with withdrawals. And not because and they basically wanted to avoid incurring any losses in their, in their, you know, their loans and securities portfolios. And so that gets to this, this other sort of concept of, you know, and we kind of talked about last episode about, you know, like, losses in a held to maturity portfolio. So, so there's basically, people going around, claiming that first republic, is either, you know, insufficient is either insolvent, or its equity is severely impaired, because of the losses, and it's held to maturity portfolio. And, you know, that reflects the fact that they've made a bunch of loans. That, you know, a lot of to single family, home loans, essentially mortgages, and these loans were done at a time when rates were much lower. And so, today, the market value of those loans, you know, is severely less than, than their their face value, because rates today, because the Fed jacked up rates so high, you know, they've effectively reduce the the mark to market value of those loans. And a lot of those are sitting in what's called the held to maturity portfolio. These are not loans that the bank is looking to sell, they're looking to hold them to maturity, as the name would suggest. Right. And and so this is, I think this also is sort of gets at the heart of, you know, you and I were talking in the first few episodes about how, yeah, the Feds raising rates and that stimulate aggregate demand. And that's true. You know, there's a lot of people and to me, this is like, very ideological, Yang, hey, well, look, the Fed jacked up rates, and this is the tightening, right? This is this bank is insolvent. Now, you know, this is, this is

Adam Rice: 9:48

what people are referring to, when they say the fat is going to hike until something breaks. Right.

Ryan Benincasa: 9:53

Exactly, exactly. And they're gonna cause a, they're also in the break, they're gonna cause a financial crisis. And that's going to result in you know, the economy, you know, falling into a tailspin because you know, private sector spending is going to pull back and credit is going to contract and that's what the tight

Adam Rice: 10:13

which by the way, is absolutely crazy. That's how public policy works. Yeah, we're gonna go until we cause a financial crisis. Yeah, inflation under control as a financial crisis isn't, you know, potentially a lot more painful than inflation. It's right. It's just crazy. And not to mention that, you know, the feds, their mandate is ensuring financial stability. But

Ryan Benincasa: 10:46

I mean, the Fed was was, you know, founded, you know, to be lender of last resort to ensure that, you know, the banks have sufficient liquidity to avoid, you know, deflationary debt spiral. And here they are intentionally trying to cause one, right?

Adam Rice: 11:07

Do you think that they're actually, this is actually the intent is that like, you know, raising rates is going to have some kind of consequence down the road that's going to cause a crisis? And that's going to be what, you know, gets inflation or whatever is happening under control?

Ryan Benincasa: 11:26

Yes, I think I yeah, I think there's an argument to be made that this is basically what Jay Powell wanted, was the you know, they wanted, you know, to break they want, they wanted somebody, they wanted to score a political victory to show, hey, you know, you because he's just looking out for his legacy. Right? Right. He's, he's, he wants to, you know, come across like a tough guy. You know,

Adam Rice: 11:54

he wants to pull, he wants to pull a Volker

Ryan Benincasa: 11:56

and. Right, he had the, you know, the, the gumption to, you know, power power through, even though, you know, everyone was was, was, you know, because he was, he was the strongest and the toughest guy and, right, it's just, it's just a massive ego thing. Unfortunately, it's very, sort of tragic that that, you know, it's this one man, you know, and his sort of, you know, ego trip is causing all this distress, and pain that's completely unnecessary and counterproductive. But going back, yeah. And again, like, I think, like, this is all sort of ideological, right? I've been getting in arguments with people, because they say that, that, you know, Silicon Valley Bank was insolvent. And, you know, first republic is, if it's not insolvent, its you know, its equity is severely impaired. And it all it's this ideological argument based on losses in the held to maturity portfolio. And my point is, that's completely ridiculous. And, you know, the logical if you, if you take what they're saying to the logical extreme, they're basically saying, hey, the the mark values, loans, you know, they're probably worth like, 70 cents on the dollar right now, you know, they're issued at 100. And they're proud, you know, because rates are much higher their pride, you know, trade around 70 cents on the dollar. So that, you know, 30 cent or so, decline, that they're claiming that that is a real loss, that that, you know, is an expense, it's real, you know, that should be charged against the, you know, the company's retained earnings, and, and therefore, you know, cause a mark down in the bank's capital, right, and so the end, so, these banks need to raise capital to, quote unquote, plug this hole. And my, my point, if you take that to its logical conclusion, right and going back well, so take for example, Noel and I, we, we took out a loan, a mortgage to buy our house, back in 2021. Got right extremely favorable terms, we got a two and a half percent rate on it, okay, that loan again, is probably trading at like 70 cents on the dollar in the market. Okay. Taking it to its logical conclusion, right, if the banks need to report losses, and therefore expenses, like run those expenses through the income account, and charge it against their, their capital, balance, right, then by that same logic, borrowers, such as my wife and I, we should have to report that as income, right, our loan if our mortgage loan liability was you know, 100 and now it's only 70 If that's a reduction in liability, that's, you know, that would be counted as income. And so, like, the logical conclusion is that I should report that income to the IRS and and have to pay taxes on that income. I mean, that's just insane. Yeah,

Adam Rice: 15:36

again, it's just like this total misunderstanding of, of, you know, there has to be a balance between the asset and the liability.

Ryan Benincasa: 15:44

Exactly. And between expenses and income, if the banks are having an expense, whose income is that? It's, it's, it's, it's our income. Right. And, and so, you know, if you point that out to someone, then they get all they get all offended because they're just like, you know, they're now they're starting to sound like Elizabeth Warren who wants to, you know, tax unrealized gains, right? Well, this is basically the same thing. This is taxing a, you know, a bar to market, you know, loss, you know, big gain, if you're the borrower, on your, on your mortgage. I mean, that's crazy talk, right, there's no way to run, you know, uh, you know, a financial system. And one of the reasons why is because the bank that loan, like the bank has, has protections, right? I can't say to the bank, hey, you know, this loan is trading at 70 cents on the dollar, part of my mortgage payment that I have to make each month, you know, there's like a, you know, there's, there's an amortization schedule, right? It's a fixed, fixed amortization schedule over a three year period where you pay off the principal plus interest balance of the loan. You know, so each payment has a has an interest component and a principal component. Right? I could, you know, I can't say to the bank, hey, that loan is trading at 70 cents on the dollar. Now, I shouldn't have to make my mortgage payment, you know, what? A principal amount that assumes par, I should assume it's 70. Right? And the bank would say no, that's ridiculous. It's not like we have they have protections in the in the mortgage contract that say, No, you have to pay it back at par. So regardless of where it's trading in the market, I still have to make that amortization payment at par, every single month, for, you know, the, the remainder of the loans life. And so it's just not, it's just not reasonable to say, oh, because rates went up a lot. You know, this loan is now that is now, you know, the bank has to, you know, take a take a charge and I have to report income, it's like, no, we entered into a contract, the contract says, I have to pay it back at par. Right, and the story, that's the only thing. Now, if, if, you know, I, if I'm a high credit risk, and you know, and the banks were made makes this dicey loan, they're gonna have to start to take, they're gonna have to take charges, or, you know, hold cash in reserve, you know, to offset any potential future losses. Yeah. But if the loans are money, good, so to speak, right? It's like a walk, like, you know, it's money good, you're gonna get paid, you're gonna get get paid back what you owe, right? Then there's shit, then there's no, there's no impairment, there's no insolvency. Right? It's money. It's money. Good. So, when we think about a bank, like first republic, right, I mean, I had a look at their, excuse me, I had a look at their, you know, their single family mortgage book, whatever I mean, we're talking about so they do mostly jumbo loans. And which I think that are loans that exceed like$750,000. So, so the median loan size is 900,000 median FICO score for the borrower is like 780. So extremely high credit quality, and the Oh, and the median loan, the value of these loans is like 60%. So 40% downpayment. So these are like, extremely safe credits, like like these are these are money good. I mean, I mean, first republic has reported extraordinarily low credit losses over you know, its existence. I mean, we're talking about like, like, a few basis points, I think, you know, per year and so on. This is something where I'm just sort of baffled that more people don't really understand this, that this like these are these loans are money good, it doesn't matter if they're, you know, these mark to market losses in, you know, held to maturity portfolio. What, that doesn't matter if, if it's money good, then then the bank is solvent, right? They have a claim on your future earnings and productivity what? How can how can that possibly represent insolvency? So, and that's also the reason why JP Morgan was willing to, you know, get involved with what, you know, this $70 billion credit line and why they're, I mean, they own a lot of municipal securities, too, which I think is eligible collateral, either for the Fed, or, or fhlb, or both. And so, what happens is, you know, they get these massive deposit or deposit, you know, withdrawal requests, so they have to, because they don't have sufficient cash on hand to go pay out those withdrawals, they have to go borrow the funds from the fhlb, or from the feds, you know, by its discount window, or from JP Morgan. And so those that those borrowings, again, thinking about the accounting for a moment, increases the the cash on their balance sheet and simultaneously increases. You know, the liability side, it's like, you know, whatever, you'd call, like a loan payable or something like that. Yeah. And, you know, depending on where everything's priced, you know, they may, they may or may or may not make money on that, that sort of spread differential, right. If they if the cost of the loan payable exceeds the cost that they're making from holding cash, then that's, that's going to quickly eat into their their earnings, right? They have a negative net interest margin in that case. So what happened with with this deposit rescue deal sort of thing, right. So for all of these first republic, depositors, withdrew their funds and sent them to other banks. So

Adam Rice: 22:46

just pause there for a sec. I just have a quick question for you. Yeah. So the reason like the actual mechanism here for people withdrawing money, was it basically that, you know, it was widely publicized that first republic, for example, was another regional bank that has similar H cam portfolio as Silicon Valley Bank? Yes. And when that news broke, their depositors freaked out and said, Alright, the same thing that happened SVB might happen at first republic, we got to pull our money out, like is that? What happened here? Okay. Yes,

Ryan Benincasa: 23:19

exactly. It's basically a margin call. Right. It's the depositors basically, to the margin call again, it doesn't if the depositors it's just like what we were saying with Silicon Valley Bank, if it you know, the depositors are involved in a coordination game. And by the way, Professor, Rick's I retweeted him, and I said, like, we we talked about this because he mentioned the stag game. In a recent tweet thread he did, and the stag hunt, it's called. And I retweeted him saying, you know, we've mentioned this last episode, episode eight, and throw us a Like on that. So

Adam Rice: 24:06

sorry, about that. Yeah. I appreciate that. Yeah,

Ryan Benincasa: 24:10

right. But anyway, so So the depositors are involved in a coordination game, and they decided they that they were worried that that other that all the other depositors were going to pull their funds and that was gonna cause the bank to fail. And if they don't have insured deposits, and they they're potentially at risk now, that write that in there, you know, there was so much the bank had plenty of egg like have a capital buffer to absorb losses right like like the equity you know, the equity shareholders of a bank are the are the first loss component of the bank's capitalization structure. So, there was the you know, this this, you know, first republic is massively capitalized bank. So, so it's completely irrational to expect to experience some sort of impairment on your deposit, particularly given the high credit quality of the loans that first republic was making. So, again, this was a, this was a manufactured crisis, that I don't know, if it was deliberate, or if it was resulted stupidity, or some sort of combination, I think, I think at the end of the day, the lack of understanding of banking and how banks work, is a tragedy. I mean, I'm, you know, I have these discussions with other professional investors. And it just occurs to me that, that even professional investors and money managers don't actually know how banks work, for example, you know, I was I was going back and forth with with this one person. And they're, you know, they're trying to tell me that first republic is, you know, issuing is now funding a 3% loan book with 5% deposit costs, and I was just like, that's completely ludicrous. That's just not at all. That's not what's happening here. Right, that the first of all, there, you know, I was told that this person made the argument that, you know, when the deposits came in, all that did was replace all the deposits are lower costs, with newer deposits that are higher Foss, and I'm, like, that's just completely wrong. Because you, and that the Oh, and at the assets were the same and like, no deposits, when they flow in, right, you've got hired, you have to mark up the deposit liability, but you have to also mark up the cash asset. So that the so that the bank is in, you know, so that the balance sheet is in balance, right, you can't just you can't just say, oh, you know, the, the the I mean, you know, that the asset composition changes, if you have a massive deposit inflows. And so, you know, this idea that, that they were, that they needed to array that there was some sort of shortfall that they needed to raise deposits that, you know, are only, you know, a liability and, and that that was funding their assets, which only yield 3% That's just, that's just completely wrong. The other thing I would point out is that, you know, a bank's net interest income is, is not just a function of the price of, or the, you know, how much, you know, the rate that they generate on their assets minus the, the rate that they pay on their liabilities, it's also a function of volume, right? How much how many loans and or securities did the bank Purchase and Sale like and sell it, you know, over a given time period? And that's the other thing is, is, you know, we're talking about time periods, and we're also talking about different different mixtures, right? Yes, they have fixed rate mortgage loans on their book, they also have cash and cash. If you're a bank right now, and you hold your cash at the Fed, the Fed pays you, let's call it four and five eighths percent annual rate on their cash balance, right, the Fed calls it, you know, reserve balance, whatever, but the bank just calls a cash. So they will deposit at the Fed that pays them four and five eighths. So if you're, if you're, you know, getting brokered deposits that you're paying 3% on and you can hold cash that take zero credit risk, zero duration risk, make four and five eighths, guess what that difference that one to five eighths difference, that's that's positive net interest income. That's how to think about it is that sort of, you know, incremental, spread between your assets and liabilities, you don't have to fund like the mortgage book that that pays 3% was already funded at the time that that they made the loan, right, because they make the loan by by issuing a deposit. So So anyway, that's something so this press release came out last Thursday, and they said, you know, they had, you know, the prior close last Wednesday, they had $34 billion in cash and this dip As it this$3 billion deposit inflow from 11, Banks was effectively just a chunk of the deposits that had left first republic that the banks were then taking and putting back into first republic. And my guess is that first republic had, you know, such a high cash balance, again, they ended last year with $6 billion cash balance, as of last Wednesday, they said they had a three $4 billion cash balance that was before the deposits came in. So what what I think happened there is, you know, they had to tap their various liquidity sources, so fed discount window fhlb, JP Morgan, credit line, what have you. And so they had, I'm guessing, an elevated or relatively elevated cash balance, and also, you know, an offsetting loan payable, and they were, and I think that they were paying around 5%, you know, for that, for the loan for the money that they were borrowing from, like the Fed and fhlb and stuff. So the deposits that, that JP Morgan and Goldman Sachs and all these large financial institutions made into into first republic, it said that, that, that they were going to pay market rates. So let's just assume for a moment that that's 3%, I think that's around where were, you know, four months CDs, yield today is around 3%. So, so they're, let's say that they're paying 3%, essentially, you know, they had, you know, they had that three, 4 billion cash, they had some offsetting balance, probably due to pay back to the so these the cash, that they essentially are credited, by virtue of having attained these, these, this $3 billion deposit is probably being used to pay back the Fed fhlb and JP Morgan, for the, you know, the emergency credit facilities that were higher cost, right. So, so essentially, you're, you know, you're, you're lowering the amount that you owe on on on your, like, liability. So the, the incremental margin net interest margin, for First Republic after that deal was announced, was positive. Right, and the stock reacted positively in stuff when the news, you know, when the, you know, the rumors came out, and, you know, hit the tape and whatnot. And that makes perfect sense. But what people, again, well, I'm having a hard time with getting people understand is that, that, you know, that $3 billion deposit is paying 3% on that's, that that is offset by cash that's on the asset side of the balance sheet. And they can, they can purchase securities, they can hold cash at the Fed, like, there's all they can, you know, pay out, maybe they're just being conservative and want to make sure that they can they can meet further, depositor outflows. Right. So, that's, that's the whole thing. So but if they can make a positive spread on, you know, you know, between those assets and liabilities, and then, you know, they're still making, you know, they're still making a profit, right? It's not, it's not in a situation of insolvency. Right. And this is what, like, people keep saying, like, all their costs are going up, it's like, well, their incomes also going up. You know, and that was like, the whole, our whole thing we were talking about, like higher interest, higher interest is higher income for, you know, people that hold accounts at the Fed and people who own Treasury securities and stuff it is it's higher interest income, ran for some reason, it's just complete, that's just completely lost. Even in the professional investor analyst community. It's just people just don't even think about that. They think that, you know, that all you know, they're just, you know, damned, you know, to be receiving 3%, you know, into perpetuity, for some reason, even though it's like, it's like, ya know, the assets change, along with the liabilities. That's how, that's how banks work. Right? And if you're, if if I go out if I'm a bank, and if I go out and I get$3 billion in deposits, right, that again, you you have it changed the actual equity capital that's invested into the bank? Right? You've got more cash, and you've got, you know, more deposits. That those to offset you haven't, you haven't actually increased the bank equity capital, right, that increases when you generate earnings and the earnings flow through to the, to the, to the capital account. Yeah. And so, as you as you accumulate more deposits, you know, that, that, you know, that is reflected also with having more assets, right, more cash or securities. Right. So, the portion, you know, your, your, the amount of equity you have invested, dollar wise doesn't change, but as a percent of the total assets, it gets smaller and smaller. And so, that's why we have capital requirements, right, because of a, you know, a bank could theoretically have zero capital at risk. And, you know, just be 100% deposit funded, and, you know, they would make a return on equity capital of infinity. You know, and so that's why we have this sort of this regulatory structure of okay, no, there has to be, you know, you have to have skin in the game. Any credit losses have to be, you know, absorb first loss by by the shareholders by the equity holders. And that's, that's how it works. And so, you know, these guys were well, within their regulatory regulatory capital requirements. Yes, it's true, they probably could have had higher capital capital ratios and and what have you, but but by no means, does that mean that they were insolvent, they just, you know, they had lower these regional banks, I guess lobbied to, to have lower capital requirements, then the system, then the, you know, the money center, sort of systematically important financial institutions. And, you know, so that's the that's how they operated for a while. But, but again, that doesn't make them inherently unsafe or unsound. The assets are money. Good. And that's, that's what I think is so important to emphasize here is that this, this crisis only has happened because of people freaking out because they don't understand how banks work. Right? Right. I mean, I think I was telling you offline Adam, like I remember when the Bitcoin craze kind of really got started going back in 2020. Yeah. And like, I had friends telling me that Bitcoin was gonna replace banks, and I was like, what are we talking about?

Adam Rice: 38:36

Our Bitcoin? Bitcoins going to replace everything according to the Bitcoin community. Social media, basically everything that's broken in the world, Bitcoin can fix

Ryan Benincasa: 38:50

Bitcoin. Exactly. But the thing is, is like, and this sort of gets to the heart of just the vast misunderstanding of banking and the role of banking in our society and in our economy in a capitalist system. And the role of banks is to expand, you know, create sort of, like a flexible money supply. Yeah. And that's, that's, that's the whole purpose. It's not like when you when a bank makes a loan, it simultaneously creates a deposit and that deposit is used as money, you know, to be used it, you know, in exchange for for goods and services. So, that's, that's literally like banks making loans is is the source for people's money deposits, that is what supports the you know, the the money system, right, the actual dollars that that that is why, you know, when we say we say that their loans are money good for a reason. And it's so important that people understand this because that the banks are not like storage vaults is that as ever, we we just like

Adam Rice: 40:12

they're not just big safe deposit boxes, no deposit

Ryan Benincasa: 40:16

It's like, it's like the worst term ever. But, but no, that's not what they do their literal job is to extend credit in a safe manner that that, you know, enhances economic productivity and serves a public purpose. Right? They have, they have a public charter for a reason, right. And banks aren't hedge funds, either that they don't need pre accumulated deposits to, to use to fund loans, they actually, you know, they create the deposits that, that we use, and that we consider money when they make loans. And so, I just think like, that's really important to emphasize is that Bitcoin can't make loans. So far as I know,

Adam Rice: 41:13

right? i Not yet. It's still early days.

Ryan Benincasa: 41:19

Yeah, early adopter

Adam Rice: 41:21

early days.

Ryan Benincasa: 41:26

Yeah, no, it's Yeah, and now you're seeing like, all these lunatics going around saying, you know, like, the US is rolling over and the, you know, the bitcoin is gonna save everything, there's gonna be hyperinflation and blah, blah, it's like, hype, and people will cite, you know, these new liquidity facilities, like the bank term funding program, or whatever it's called. Yeah, you know, the Fed agreeing to you know, lend again at par value of, of eligible collateral for, for for loans. I mean, think about that for a second think about to all the people that are claiming that the the mark to market losses in the HCM portfolios are real, okay, the Fed is literally saying, know, what we will lend against those, those, those securities are money good, and we will lend to them at at their full par value. Okay. And just because there's the Fed is making these loans to provide liquidity. So the banks can pay out depositor withdrawals doesn't mean that their so called money printing, okay, the money was already printed, when, when the when the bank made the loan or when the security got issued, okay, they're just there, they're just temporarily accepting those securities or those loans as collateral at their full par value, you know, to supply the bank with liquidity with a source of liquidity, so that they can make payments and, you know, essentially not go negative in their reserve balances. And now, banks are allowed. I'm pretty sure like Warren Mosler has talked about this, like they're allowed to go to have a temporary temporary. What's a call when a temporary overdraft, but they have to fix I think, I think Bowser said you have like two weeks to fix it or something like that? I think so. I think that's right, which is, which is a little insane. And I don't think today we get charged like a penalty for that. So it's something to think about when, you know, banks, you know, you know, charge overdraft fees, but then they don't actually get charged overdraft fees by the Fed. It's kind of ridiculous. But But anyway, like, all this stuff about all this money printing hyperplanes It's like no, no, the money was already created. And by the way, you know, the cash that sits on a bank's balance sheet when it borrows from the Fed is offset by a liability that says that the bank has to pay you know that the bank has to pay back. So that's it's net it's neutral there's no actual you know, you can't just get you can't look at one side of the balance sheet. Well, looking at the other I don't know I don't know what it is, I don't know if it's if it's sort of this like Bitcoin, gold buggery, obsession where people just sort of, don't think of money as as being two sides of of an accounting ledger. I feel like that has to be it.

Adam Rice: 45:09

I think it is. I think that that might be one of the I mean, it's it's kind of What I'm talking about tomorrow night and this talk we're giving, it's just like no one really thinks like, double entry accounting is not very intuitive to most people. Like all spending is someone else's income. And asset is a liability. A deficit is surplus, like this stuff just isn't intuitive. It's not. It hasn't broken through in terms of common sense. And I think that's a that explains a lot of what's going on here too.

Ryan Benincasa: 45:42

Which is shocking, because it's been around for like, hundreds of years. Right. I mean, you know, I love the example of, of, you know, like Stephanie Kelton deficit MIT talks about, you know, well, you know, the, you know, in a basketball game, you know, the scorekeeper doesn't have to get the points from anyone, they just, they just mark up the account. And it is funny to think about, like, what if we did live in a world where, where you had to do a double entry bookkeeping, accounting for for, like, a sports game? Oh, you know, we have to keep our we have to keep our accounts in balance. So if I, if I, you know, sign points to this team after they scored a basket or a goal or something, you know, I have to simultaneously mark a negative balance somewhere else it's like, right. It's like, you know, it's kind of just, it makes you realize that all of this is it's just, it's just, you know, a tracking sort of information system. Yeah, it's just, it's just, it's just debits and credits. Right. Right. Exactly.

Adam Rice: 46:59

All right. Ryan, anything you want to? You want to close out with tonight? Oh,

Ryan Benincasa: 47:04

no, I think it's been a long week. So I'm think I'm gonna tapped out. Yeah, yeah.

Adam Rice: 47:13

All right. Cool. Well, thank you for the insight. I appreciate it. This. I learned quite a bit from this conversation. So thank you, man. And I will I'll see you tomorrow.

Ryan Benincasa: 47:22

All right. Sounds good. I'll see you tomorrow. Oh,