May 29, 2024

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The Fed needs to slow down or ‘things are going to fall apart’

The Fed needs to slow down or ‘things are going to fall apart’

With the fallout from the Silicon Valley bank failure still lingering, the Fed needs to slow down before “a lot of things collapse,” Altimeter Capital’s Brad Gerstner told CNBC’s Halftime Report Monday.

Gerstner said he wasn’t “pointing fingers” 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 subsequent sell-off of regional banks.

Our head organizer [Powell] Things are fine, Gerstner told us on Tuesday. And by Thursday, it was very clear that our entire regional banking system was in trouble.

That, he said, leaves room for “a lot of investigation and a lot of questions being put to everyone involved.”

Three large banks with significant exposure to startups or cryptocurrencies have collapsed or closed down in the past week.

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

Silvergate, SVB and Signature Bank, which were shut down by regulators on Sunday, were all medium-sized banks focused on speculative technology or cryptocurrency investments. Their profile was much different than most regional banks, which focus on small businesses or individual consumers.

Gerstner said the risks to the regional banking sector far exceeded just SVB or “young startup founders,” but it’s important to note that the “main source” of funding for that market has disappeared “overnight.”

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“We are about to enter 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 happening in the world.”

Gerstner said the Fed’s efforts to curb inflation by quickly raising interest rates had thrown banks into a tailspin.

“This was not a problem in the startup 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 rose above 4% earlier this month.

“This is the market telling the Fed you better slow down, or a lot of things are going to break,” Gerstner said. “We’re going to have a massive recession, and much bigger problems.”