All Articles Finance Modern Money While You Were Working - April 6

While You Were Working – April 6

Surely Mnuchin is joking, Wells Fargo and karma, BoE's Carney talks climate change, Dow takes another tumble, and Tiger lives dangerously ... again.

4 min read

Modern Money

Steven Mnuchin

Treasury Secretary Steven Mnuchin said WHAT about China and debt markets?

Scary comments from Secretary Mnuchin

I am going to let the comments by Treasury Secretary Steven Mnuchin about how the approach by the US to its tariff dustup with China has been “well-organized” slide. It is so painfully obvious that the US approach hasn’t been well organized, that it seems like most people inside the West Wing have no clue what the plan is. Maybe part of being well-organized means keeping your plan a secret. Just like when President Bartlett had a secret plan to fight inflation.

No, the comments from Mnuchin I found most eye-opening were his comments on whether China would ever retaliate by making it harder for the US to finance it growing debt.

“I’m not concerned about that. … There are lots of buyers around the world for U.S. debt.”

Note Mnuchin isn’t saying he doesn’t think the Chinese will make such a move; he is expressing confidence that such a move wouldn’t really hurt the US because of all the other buyers out there.

That is insane.

China opting out of the market for US Treasurys would have an incredibly negative impact on the US economy. For all the hot air that has been spewed forth about bond market liquidity in the last half decade, this is something that actually would have a massive impact on bond market liquidity. Surely Mnuchin knows this. Or maybe he knows it and is just trying to keep it a secret.

This should come as a surprise to no one

According to emails that bounced around the Consumer Financial Protection Bureau in the days after it announced its $190 million settlement with Wells Fargo over the fake account scandal, bankers at other institutions large and small reached out to the CFPB and offered their congratulations. Somehow, this took the CFPB staffers by surprise. It shouldn’t have.

Those CFPB staffers seem to have forgotten how Wells Fargo conducted itself during and immediately following the financial crisis. Wells Fargo very much puffed its chest out and bragged about how it shrewdly avoided mega losses related to mortgage-backed securities and didn’t need any kind of government bailout. In fact, Wells Fargo Chairman Dick Kovacevich was the one bank leader at the infamous meeting that spawned the Troubled Asset Relief Program (TARP) who initially refused the billions of dollars Hank Paulson, Ben Bernanke et al were trying to force the big banks to take.

Yes, Wells Fargo enjoyed a number of years of good press about how their risk management was so much better than everyone else’s. And then the fake account scandal popped. Of course bankers at other institutions were going to applaud Wells Fargo finally getting its hands slapped by a regulator. It’s called karma.

On financial stability and climate change

Bank of England Governor Mark Carney talked climate change today at a summit of central bankers in Amsterdam. Carney likened the risks posed by climate change to the financial crisis and called on banks and insurance companies to share more information about their own financial exposure to climate change. I particularly enjoyed how Carney promoted the disclosure by touting it as a chance for firms to put their money where their mouth is on climate change.

“Given the uncertainties around climate, not everyone will agree on the timing or scale of the adjustments required … [but] the right information allows sceptics and evangelists alike to back their convictions with their capital.”

In a perfect world, someone in Carney’s position would be able to more than just ask banks to do more on climate change. Imagine if the BoE required banks to commit a certain percentage of their loans to technological and infrastructure projects aimed at combating climate change.  

Bank lending and climate change

So while the BoE’s Mark Carney is calling on banks and insurance companies to do more to solve the climate change challenge, banks in the US are poised to crank up their lending to boost fossil-fuel production. Go figure.

WYWW Appetizers

  • The Fed’s first non-economist chairman doesn’t need numbers to tell him everything.
  • The Dow dropped 573 points.
  • Tiger Woods is flirting with missing the cut at The Masters.