Financial shockwaves rippled across the country this week following two bank failures. Plus, tension between the U.S. and Russia is on the rise after a Russian fighter jet intentionally engaged with a U.S. drone. Join guest moderator William Brangham, Neil Irwin of Axios, Fin Gomez of CBS News, Zolan Kanno-Youngs of The New York Times and Kayla Tausche of CNBC to discuss this and more.
Full Episode: Washington Week full episode, March 17, 2023
Mar. 17, 2023 AT 8:59 p.m. EDT
William Brangham: Bank failures expose economic concerns and Ukraine exposes GOP divisions.
A week of whiplash on Wall Street after two U.S. banks collapse and the government takes extraordinary efforts to prevent further financial turmoil.
Joe Biden, U.S. President: Americans can rest assured that our banking system is safe. Your deposits are safe.
William Brangham: The administration tries to calm concerns with all eyes on a key Federal Reserve meeting next week.
Mark Milley, Chairman, Joint Chiefs of Staff: Was it intentional or not? We don't know yet.
We know that the aggressive behavior was intentional.
William Brangham: Tensions between the U.S. and Russia reach a new high after Russian jet takes down the U.S. drone, the first direct conflict between the two nations since Moscow's invasion of Ukraine a year ago.
Mike Pence, Former U.S. Vice President: The war in Ukraine is not a territorial dispute.
William Brangham: Prominent Republicans criticize a likely 2024 presidential contender from their own party for downplaying Russia's invasion, next.
Good evening and welcome to Washington Week. I am William Brangham. Financial shockwaves rippled across the country this week following two of the biggest bank failures in American history. Silicon Valley Bank and Signature Bank were shut down by regulators last weekend.
On Monday, President Biden, trying to prevent more failures, took the unusual step of promising that all depositors at those collapsed banks would be made whole. Treasury Secretary Janet Yellen also addressed the banking concerns this week when she testified before Congress.
Janet Yellen, Secretary of the Treasury: Our banking system is sound. Americans can feel confident that their deposits will be there when they need them.
William Brangham: But fears do remain. On Thursday, some of the nation's biggest lenders gave $30 billion to a smaller rival, First Republic Bank, trying to assure its survival. Here in Washington, lawmakers on both sides of the aisle want to know what went wrong and why bank management and their regulators were caught so flat-footed, especially following the 2008 financial crisis.
Sen. Elizabeth Warren (D-MA): We need to learn from what has just happened with these banks and go forward by tightening the regulations.
Sen. John Thune (R-SD): I think it would be premature to start talking about solutions before we fully define the problem and ultimately get answers from the regulators about why they were asleep at the job.
William Brangham: So, this economic unease coupled with ongoing concerns about inflation raise the stakes for a highly anticipated Federal Reserve meeting next week, where Chairman Jerome Powell is expected to announce the Fed's next move on interest rates.
Joining me now to discuss all of this and more is Neil Irwin, he's the chief economic correspondent from Axios. And here with me in the studio, Fin Gomez is the political director for CBS News, Zolan Kanno-Youngs covers the White House for The New York Times, and Kayla Tausche, she is an anchor and senior White House correspondent for CNBC. Welcome to all of you. Thanks so much for being here. I'm feeling that I did not wear green like everybody else did.
Kayla, to you first. This week, we saw two banks collapse, this very aggressive move by the federal government. We saw this injection of billions of dollars into another lender. All of this to calm the jitters but the jitters do not seem to be calmed. Is it your sense that we are through the worst of this yet?
Kayla Tausche, Anchor and Senior White House Correspondent, CNBC: I think there is still a lot more to be learned, because we know what the government and private sector has done so far and what they have disclosed but we got a very important data point this week from the Federal Reserve on Thursday, which is what its balance sheet looks like, how much money has the Fed had to give out to other undisclosed bank.? That number $153 billion. That's the highest on record, even higher than any single time during the global financial crisis back in 2008.
So, that tells you that there are a lot of banks we don't know about who have run to the arms of the Fed for low-cost capital because they're worried about their own companies. We won't know who those banks are for another two years, and even for the deal that 11 major U.S. banks did for First Republic, where they essentially handed over $30 billion in deposits, they only did that for --
William Brangham: Opened up $30 billion in checking accounts.
Kayla Tausche: Well, some might say that they just transferred back $30 billion in deposits the First Republic customers had very worriedly moved to their banks, and so it was a returned gift, so to speak. But that deal only lasts for about 120 days. We could see what happens to First Republic. Can it find a buyer? Is the bank's operation even worse after that time or is this situation over? Does the tide come back in? We still don't know and there's a lot we're waiting to learn.
William Brangham: Neil Irwin, to you on this question. There has been some second-guessing about this aggressive move that the administration and the Fed took to try to stop the bleeding here. What do you think? Was this -- did it seem appropriate to the moment?
Neil Irwin, Chief Economic Correspondent, Axios: Look, this time, a week ago, they saw a profound risk of systemic crisis, of a run on deposits at banks around the nation. They decided it was better to do too much than too little in that situation and that it was worth it to kind of take the risk off the table that your deposits, even over the federal limit of $250,000, might be at risk.
Look, there's going to be a lot of picking over whether it was the right thing to do, whether what the long-term costs are, how the long-term regulatory structure ought to change the results. But the judgment that I think is not at all crazy, and quite reasonable, is that if we get into real financial crisis where every bank is seeing mass withdrawals, that's a very bad situation to be in, it would be devastating for the U.S. economy going forward.
William Brangham: Indeed. Zolan, can I ask you, what is the White House's view of all of this? Did they think that their actions -- certainly, the president is out there championing it, saying we've got you covered, we are going to make sure this doesn't get worse. Do they think secretly behind closed doors that the worst is over?
Zolan Kanno-Youngs, White House Correspondent, The New York Times: Well, I mean, the president is out there saying that but also emphasizing at this time accountability for banking executives. I think that, definitely, they feel that the actions this week were necessary but to say that there's no anxiety both politically and for the actual issue here we are talking about with the financial sector, I don't think we could say that.
Look, politically, we have to understand the concern here. I think we have to take a step back and realize how this president has -- what image he has projected over these past two years, one of the champion of the middle class, how many events have we seen recently where he is going and talking in front of unions, as well talking about bolstering the manufacturing industry. He often talks about the sanctity of labor as well.
Now, you also have that same president that was in his west wing office watching what happened in 2008 when a bailout happened and it was met with backlash as well. That still haunts Washington today.
So, absolutely there is concerned. I think you can still say -- two things can be true. I think they still are comfortable with the actions taken this week but at the same time, politically as well going forward, there is concern in the Administration.
William Brangham: Yes. Fin, Zolan used the B word, and that is not the B word that the administration has been willing to say, that this was a, quote/unquote, bailout. Can you remind us why that is such a sensitive issue for this White House and particularly for this president?
Fin Gomez, Political Director, CBS News: Well, you used the word jitters, and I think that's exactly what that word -- the concern that that word would cause, I think, among the American public, within the administration, if they utilize that word. It harkens back to that 2008 global crisis that happened that still has that impact, that still has permeated throughout the political landscape.
Now, you are seeing it used rhetorically by Republicans, especially from the Senate side, but it's also being used by potential Republican presidential hopefuls, presidential candidates, who are saying that this is, in fact, a bailout. And I think it also could be a prelude to what may come as we continue forward into this presidential cycle.
Zolan Kanno-Youngs: There's also a question here too. I mean, remember what one of the political vulnerabilities was for this president. Even before this, it was also inflation for the past two years. How will the Fed's actions going forward impact how they are trying to tame a red-hot economy, try to tame inflation as well? How will this impact the decision in the weeks to come around raising interest rates? All of that also factors into sort of the concern and anxiety about the actions.
Kayla Tausche: But there's a very real risk that the Fed continues to send mixed messages. Because last weekend when they came to the rescue of Silicon Valley Bank and they took control of Signature Bank, they did so under the rationale that there was a systemic risk to the economy. At the same time they are trying to shore up confidence, they are saying this could spill over.
And so it's a double-edged sword and they run the risk of doing the same next week with their interest rate decision because they have said inflation is persistent, it runs the risk of getting entrenched, we cannot stop now. If they stopped, they are signaling to the markets and the economy and the broader American public that they are worried. That's like your parents getting worried and you as a kid, like, oh, no, I wasn't scared until I saw you get scared.
William Brangham: Mom looks scared, watch out.
Zolan Kanno-Youngs: Exactly.
William Brangham: Neil Irwin, several Democrats, including Senator Elizabeth Warren, have argued that the 2018 rollbacks of some of the Dodd-Frank reforms that were put in place after the '08 crisis, that those rollbacks were complicit in what went down this week. What is the evidence for that?
Neil Irwin: So, look, in a narrow sense, I think the evidence is ambiguous, that if those legal changes to the regulatory structure in 2018 hadn't happened, would we have avoided all of this. That said, the tone that enveloped Washington over bank regulation in the last few years, it's unquestionable that was in the direction of these mid-sized banks do not deserve the kind of scrutiny that the giant banks gets. And so what that law that you are referencing did was said banks that have $240 billion in assets, they don't need to be treated the way a JPMorgan, Citibank does.
And so we're going to lower the level of scrutiny. And apart, again, from the specific question of whether if that law hadn't been passed, whether Silicon Valley Bank would still be operating, I think the open question is was there a broader situation where regulators felt like they could not push hard and not really scrutinize and drop the hammer on banks that were taking inappropriate risks in the last couple of years?
William Brangham: Fin, we heard from Thune and from Elizabeth Warren at the top of the show two competing ideas of what Congress ought to or ought not to in response to this. What is your sense about does Congress have a mandate? Is there enough of a majority of people in the House and the Senate to say we need to act, and if so, what is it that they might they do?
Fin Gomez: I think it depends on how worse this crisis gets. I think there is a sort of this collective field of populism right now and I think that this plays into that. And I think it affects both parties politically. And if this crisis gets larger, if it gets bigger, it has more of an impact across the country, I think you could see some maneuvering on both sides to do something more, maybe perhaps doing something what the president called for today in having more punitive measures for some of these senior executives who have run these banks and who have led these banks into the crisis that we are seeing now.
William Brangham: Zolan, this is -- this point we've been making here, as we're saying before, the president does want to seem like a middle-class champion, and that this concern over calling this a bailout and yet also wanting to keep the economy moving in the right direction, it is an incredibly complicated circumstance for him. It seems like he does -- in some ways he could be caught between a very real rock and a hard place here.
Zolan Kanno-Youngs: I think that's true. And talking about some of the progressive backlash on the Hill, one thing that I thought was interesting is -- and I saw a couple of members connected also immediately saying, look, these executives may have traded stocks, may have made a profit, but at the same time, Republicans continue to block a student loan plan that I'm sure that the president would love to be galvanizing his base off right now in the courts. So, now you also have that happening right now and that pressure on the White House too. It is an incredibly complicated balance that he has.
I think it will probably factor into more of the events we've seen of him touting an infrastructure package, touting a chips package as well. If we see in the weeks or in the months ahead what many expect will be a potential re-election announcement, I think you probably will see the administration double down on some of those events.
Last summer, we did see a series of legislative achievements happen and you would think that they would point to that to counter some of the criticism that might come from the past two weeks.
William Brangham: Right. I'm sure they wish that this banking crisis would simply go away and they could talk about the record, as you're saying.
Zolan Kanno-Youngs: And, remember, that record, a lot of those benefits, it takes time for voters to feel.
William Brangham: Its' not instant.
Zolan Kanno-Youngs: That's right. This, however, people see, people talk about immediately, people can feel immediately.
Kayla Tausche: Well, William, I think you're also going to see the administration trying to lean on the private sector very heavily. Earlier this week, the treasury and Fed brokered a deal with the four largest banks in the country. They had the four largest bank CEOs with them in person and the message that that sends is we build you up 15 years ago, you are a lot stronger, you bailout them out now, you bailout your peers. They want to wash their hands of this. They've done what they feel like they can do and now they want to lean on someone else to do it.
William Brangham: Neil one last question to you on this. As Kayla was mentioning before, the Federal Reserve is meeting next week. A lot of pressure on them, they want to keep moving forward against inflation but what they do next week could certainly be a signal as to what they really think about the severity of the crisis that we are in now. What do you expect from that meeting?
Neil Irwin: So, the Fed likes to emphasize the idea of different tools for different tasks, meaning they raise interest rates to try and fight inflation, meanwhile they do all of this emergency bank lending to try and prevent a financial crisis, prevent the banks from collapsing.
In truth, those things are more intertwined than they really like to admit. And if they do raise rates next week, that's going to make things harder on banks. And if they back off that might make the inflation situation harder. So, it's a really no-win situation.
I think they are probably going to go forward with that rate hike but signal openness and flexibility and they might not do it again if things really do go south. Because the truth is, if this banking problem that happened over the last week spreads to the entire banking system results in quite a contraction, banks making less loans, making more stringent loans, that will cause an economic slowdown in a way that the Fed interest rate increases up to this point really haven't.
So, there is a possibility that we will see the disinflation, the economic slowdown they've been trying to engineer for a year now come about because of the banking slowdown but the range of uncertainty is enormous at this particular moment.
William Brangham: All right. Neil Irwin, thank you so much for joining us.
Turning overseas now, tensions between U.S. and Russia is on the rise after a Russian fighter jet intentionally engage with a U.S. drone over the Black Sea on Tuesday. It was the most direct confrontation between the two powers since Russia's invasion of Ukraine.
And it comes days after Florida's governor and likely 2024 Republican presidential contender Ron DeSantis drew sharp criticism from several of his fellow Republicans for minimizing the significance of that invasion. He told Fox News, quote, while the U.S. has many vital national interests, becoming further entangled in a territorial dispute between Ukraine and Russia is not one of them. So, remarkable set of events we've been seeing.
Zolan, to you first, on this issue of this drone that we have seen, this is the kind of event that the White House seems that they have been trying all along to not allow happen, a direct kinetic conflict between Russia and the United States. How has the White House been responding to this?
Zolan Kanno-Youngs: You are absolutely right. How often have we heard the president emphasize to the American public, to the world, I'm not sending American troops actually into this war zone? We are supporting Ukraine with foreign aid. I'm trying to unite the west against Russia to have economic pressure, but we are trying to avoid any type, as you said, a kinetic war.
It has been an absolute focus for this administration and this kind of direct -- I mean, the public out there might be thinking, well, wait, this is a drone, I mean, is that still the same? I mean, it's not the same obviously as sending troops in. But this still is the type of escalation that they have been trying to avoid.
Also, there's a couple of other concerns now that this has happened. One, that video only shows, according to U.S. officials, just a little bit of what actually happened here. The administration's account is that there were two Russian fighter jets made 19 passovers over this drone as well. So, that just captures one. They, as you said, have said that at least the dumping of that jet fuel was likely deliberate as well.
Also what happens going forward in terms of that drone that they say may be deep in the sea. It's not clear yet whether or not Russia is actually going to recover it. They say it is unlikely but also there is concern about whether or not that could be used for propaganda purposes. U.S. officials are saying however that is incredibly unlikely at this time.
William Brangham: Kayla, just the fact that we saw the video even seems quite striking, I mean, how quickly that was declassified and put out there.
Kayla Tausche: I think the administration has realized that the strategy of radical declassification has been successful since the very start of this invasion. They had hoped that by telling the world what Russia was planning, that it would deter an invasion and even though it didn't, it showed that the U.S., at least its intelligence, was right after the chaotic withdrawal from Afghanistan when the intelligence there was highly flawed. So, the ability to continue declassifying this, to show the world in a very public way that this is exactly what happened and let the viewers take for themselves.
But I think what is so important about the timing of this is that it comes just before President Xi is set to visit with Vladimir Putin in Moscow. And that axis has been strengthening and Vladimir Putin is emboldened by having an ally like that. And this is pure saber-rattling before that meeting where he is going to get to put all his own pictures out there with these massive superpowers in the east and show the U.S. that he has this friend on his side.
So, certainly he is operating as if he is above the law. That's how he's been operating since the beginning of this conflict. And I don't think the administration is surprised by it even though, of course, it was its goal to not have this happen in the first place.
William Brangham: Fin, I want to turn to you on this question of what DeSantis said about Ukraine. Referring to the illegal invasion of Ukraine as a, quote/unquote, territorial dispute struck -- got him a barrage of criticism. But you've been out on the campaign trail, you've been at a Trump rally recently talking with Republican voters. We all think that Ron DeSantis is going to get into this race. And so the question is, does the position that he is staking out on Ukraine, that it really is not for us, let's not waste American blood and soil over there, is that a resonant point with Republican voters?
Fin Gomez: Absolutely. And specifically with the MAGA base that both he and Donald Trump are trying to appeal to. And I think when I spoke to voters in Davenport, Iowa, to them, this was -- the position that he and Donald Trump are aligned on is one that they firmly support. When Donald Trump was speaking about this issue and saying that he was going to end this war on day one, it was the loudest applause, one of the loudest applause, reactions from the crowd to this issue. He is playing to that MAGA base.
He is playing -- even though he has not jumped into the race, as you mentioned, William, he does seem like a candidate and he does seem like someone who is preparing to jump into the presidential race and that issue is one that's leading him and connect him to that base.
William Brangham: I mean, Zolan, I should point out, there are a lot of other Republicans who jumped to this to criticize DeSantis and say, that is not what America's position ought to be. But Kevin McCarthy, before he became speaker, hinted at this as a possibility as well that there will not be an open checkbook. Where do you see this coming down? Do you think the Republican Party will embrace that idea?
Zolan Kanno-Youngs: I think that after the -- well, part of the Trump effect and one of the lasting sort of effects of the Trump administration is a sort of realization that the MAGA base, as you were saying, there is interest in moving away from the sort of interventionalist kind of approach to a more sort of isolationist, quote/unquote, America First approach.
That being said, there were Republicans on the Hill criticizing that were criticizing Ron DeSantis this week and I found that they were criticizing that specific term, territorial dispute. And something that came up in conversations I was having particularly with foreign policy experts in this area was, if you are likely to run for higher office and you are put in a position where this war is still ongoing and, yes, maybe you aren't advocating for as much aid, but you are now in a completely different position where you are probably going to be in a position where you are rallying for some, that comment lives on.
And if there are members of Congress on the Hill that don't want to send foreign aid at that point, think about how much harder it has now become. You have now belittled this war, this invasion to something like a territorial dispute. That is going to make it harder going forward, not just for some a potential candidate that wants higher office but also, look, the president right now is in a position where, of course, he has made clear that he wants to maintain support for Ukraine. That is absolutely true.
He also has the challenge of European allies dealing with an energy crisis and an American public that continues to deal with economic pressure, as we've been saying. So, comments like this out in the public add to that challenge of maintaining the support of the country for this aid as well as your allies.
Kayla Tausche: But there were also a few Republicans that I spoke with who said, I didn't see those comment, so I could not possibly respond, which is another relic from the Trump-era, the plausible deniability. So, I think we are going to be seeing a lot of that as this schism continues in the party.
William Brangham: Do you think, though, that this moves into becoming a legitimate issue in the 2024 presidential race?
Kayla Tausche: At least a legitimate talking point. But a lot of Republicans will say actions speak louder than words. There is one thing that they're saying on the campaign trail, but then Kevin McCarthy assured his allies privately that he would continue that support flowing.
Zolan Kanno-Youngs: It may help, though, with starting to create some factions on the campaign trail as well with these candidates. You already saw what Nikki Haley's campaign launch focusing more so on foreign policy than I've heard from some of the other people on the race. You heard Mike Pence immediately react to this as well, as we played. Meanwhile, you have DeSantis and Trump that are sort of playing for that same base as well. So, you are starting to see -- and, again, DeSantis has not announced an actual campaign yet but you're starting to see some factions with these potential candidates.
Fin Gomez: Absolutely. And you are seeing that space in the lane opposing that position by both Trump and DeSantis. Mike Pence, as you mentioned, he spoke in New Hampshire yesterday and he spoke specifically on that, specifically addressing that, this is not a territorial dispute. And that to me shows that there is a wide lane on that side and that could politically help him as we continue forward in the cycle.
Of course, Nikki Haley is also there. Mike Pompeo, who is considering a run as well, could also be on that side of the ball. But it is interesting how quickly Mike Pence jumped on it and how that he is utilizing it already as a potential framework for a potential campaign.
William Brangham: It is such a difficult thing to predict what especially foreign policy issues will end up in a presidential race. But we're going to have to leave it for now.
And that is Washington Week for tonight. Thanks so much to our panel for being here and sharing your reporting. And thanks to all of you for joining along with us.
And be sure to watch PBS News Weekend where John Yang looks at how Michigan might pass three new gun safety laws in the wake of the Michigan State mass shooting.
I am William Brangham. Good night from Washington.
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