the Fed must slow down or ‘things break’

As the fallout from Silicon Valley Bank’s bankruptcy continues to unfold, the Federal Reserve needs to slow down before “many more things” break, Altimeter Capital’s Brad Gerstner told CNBC’s Halftime Report Monday.

Gerstner said he was not “pointing the finger” at Fed Chairman Jerome Powell. But Gerstner said there would be “a lot of questions” about the Fed’s response to inflation given the collapse of the SVB and the ensuing sell-off of regional banks.

Our main regulator [Powell] told us on Tuesday that everything was fine,” Gerstner said. “It was very clear on Thursday that our entire regional banking system was in trouble.”

That leaves room for “a lot of research and a lot of questions for everyone involved,” he said.

Three major banks with heavy exposure to startups or cryptocurrencies collapsed or closed in the past week.

On Wednesday, crypto-focused Silvergate Bank said it would wind down and liquidate. The next day, SVB shares collapsed after the bank said it was selling securities at a loss and trying to raise money, leading many venture-backed technology clients to withdraw their funds. On Friday, SVB was closed by regulators.

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

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

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

Gerstner said the Fed’s efforts to curb inflation by quickly raising rates confused banks.

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

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

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


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