| | | | |  | | By Sam Sutton | Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. BEVERLY HILLS — We’ve already covered how Wall Street is weighing a possible U.S. default. The market response hasn’t been nearly enough to move the needle with Washington policymakers. Investors are “really under-appreciating the level of risk here,” Rep. Brendan Boyle, the top Democrat on the House Budget Committee, told your host after speaking at the Milken Institute Global Conference on Wednesday. While Boyle said he’s confident lawmakers will send a debt limit bill to President Joe Biden by June — the earliest Treasury estimates the U.S. could fail its obligations – if Wall Street were “to accurately price in that risk, I think it would help — like in 2011 — increase the likelihood that this gets resolved before June 1,” he said. To be sure, no one at Milken suggested a breach would be a breeze. Even those who think the U.S. could prioritize bond payments acknowledged the potential damage to its credit rating as other obligations — like public employee paychecks and entitlement programs – are put on hold. And while others say Biden should invoke the 14th Amendment to ward off a technical default, that would break the “foundation of just all sorts of things about the global financial system,” former Bear Stearns CEO Alan Schwartz said onstage with Boyle. Those are among the best-case scenarios if Biden, House Speaker Kevin McCarthy and Democratic leaders can’t hatch a deal. The problem, at least according to Boyle — is that too many investors have a “breezy, false confidence” that’s a fait accompli. Nothing about the talks would suggest that’s the case, said Committee for a Responsible Federal Budget President Maya MacGuineas, who also appeared at Milken on Wednesday. “I have never, ever been concerned,” she said, later adding that she had a “pit in her stomach” with both sides unwilling to cave. Federal Reserve Chair Jerome Powell was unsparing in his commentary on debt ceiling fight in a press conference shortly after announcing a quarter-point interest rate hike. “It is essential that the debt ceiling be raised in a timely way so that the U.S. government can pay all of its bills when they’re due,” the central bank chief said, according to Victoria Guida’s report. “No one should assume the Fed can protect the economy from the potential short- and long-term effects of a failure to pay our bills on time.” IT’S THURSDAY — Thanks to everyone who spoke with me and Zach at Milken this week! Looking forward to staying in touch. Send tips, gossip and suggestions to Sam at ssutton@politico.com and Zach at zwarmbrodt@politico.com.
| | | | GET READY FOR GLOBAL TECH DAY: Join POLITICO Live as we launch our first Global Tech Day alongside London Tech Week on Thursday, June 15. Register now for continuing updates and to be a part of this momentous and program-packed day! From the blockchain, to AI, and autonomous vehicles, technology is changing how power is exercised around the world, so who will write the rules? REGSITER HERE. | | | | | | | | | Senate Banking has a hearing on holding bank executives accountable at 10 a.m. … Senate Budget has a hearing on McCarthy’s debt limit bill at 10 a.m. … Reps. Rashida Tlaib, (D-Mich.) and Betty McCollum, (D-Minn.) have a debt limit press conference at 11 a.m. … More on Powell — From Victoria: “The central bank’s meetings drew an unusual amount of attention both because the collapse of three banks has shaken financial markets and the White House is locked in a fight with GOP lawmakers over raising the U.S. government’s debt limit that could have catastrophic results if it’s not resolved.” Biden closes in on Fed picks — More from Victoria: Biden will “likely promote Federal Reserve board member Philip Jefferson to the central bank’s No. 2 position and World Bank official Adriana Kugler to the open Fed seat, according to two people familiar with the matter, in a victory for Sen. Bob Menendez (D-N.J.).” The Banga era — Our Steven Overly: “Ajay Banga has been chosen to serve as the next president of the World Bank, taking over the global finance institution as it strives to help low-income countries overcome debt and combat climate change.” Manchin, Sinema chart their own path on debt fight — Our Burgess Everett: “Manchin and Sinema are not only pushing for a bipartisan deal but positioning themselves as potential players in any future Senate talks on a way out of the crisis.” — Our Jennifer Haberkorn: “Biden wants McConnell at the debt ceiling table, despite (or because of) their history” Drama at the CFTC — Our Declan Harty: “Wall Street's top derivatives regulator is moving to suspend its long-time internal watchdog following allegations that he wasted government funds, compromised whistleblowers' identities and demeaned employees, according to two people familiar with the decision.” China — Another major theme at Milken this year? Further deterioration of the political and economic ties between the U.S. and China. U.S. companies are still eager to invest, but a lot of multinationals at the event have taken “wait-and-see” approach as Biden prepares new rules for outbound investments, Daniel Tannebaum, who leads the global anti-financial crime practice at the management consulting firm Oliver Wyman, told MM. “That’s especially true for Silicon Valley firms,” he added. “No one is looking toward the exit, but they are trying to make sure they’re being responsible to their shareholders and clearly understanding the risks that their business would be exposed to.” Epstein — More from WSJ’s Khadeeja Safdar and David Benoit on the Jeffrey Epstein files. Even after pleading guilty to sex crimes involving a minor, the disgraced financier took meetings with Larry Summers — who wanted $1 million for his wife’s online poetry project — as well as LinkedIn co-founder Reid Hoffman, Apollo Global Management co-founder Leon Black and Woody Allen. — NYT’s Matthew Goldstein: “Stephen Deckoff, the founder of Black Diamond Capital Management, said he planned to build a 25-room resort on the islands once owned by the disgraced financier and registered sex offender Jeffrey Epstein.”
| | More tremors — A new Gallup poll found that almost half of Americans are “very” or “moderately worried” about the safety of their money in banks and other financial institutions, That level of concern echoes readings taken by Gallup during the 2008 financial crisis. — Bloomberg’s Matthew Monks: “PacWest Bancorp., a regional bank teetering following the collapse of three rival California-based lenders, has been weighing a range of strategic options, including a sale, according to people familiar with the matter.” — Goldman Sachs shared new polling data with MM that 69 percent said it was essential or “very important” that Congress enact spending cuts in conjunction with a higher ceiling, according to the 10,000 Small Business Voices program survey. A majority of those polled said they’d be harmed in a default. Notably, 9 percent of those polled said they’d transferred their deposits to other institutions following Silicon Valley Bank’s collapse. “They generate most of their banking relationships from banks in their community,” Joe Wall, a managing director on Goldman’s government affairs team, told MM. And those businesses still face headwinds from inflation, workforce shortages, insufficient child care options for their employees. “The overall climate is still incredibly challenging.” U.S. Chamber of Commerce goes to bat on capital requirements— A new letter from the business group said it was "surprised" by Fed Vice Chair Michael Barr's call for stronger capital and liquidity requirements for banks in his review of Silicon Valley Bank's collapse. Barr’s calls were made “without evidence,” according to a letter sent to the central bank by Executive Vice President Tom Quaadman. Senate Banking preview — Sen. Sherrod Brown (D-Ohio) plans to spotlight Silicon Valley Bank and Signature Bank’s management failures at today’s hearing, according to prepared remarks shared with MM: “Their CEOs and executives led their banks off a cliff.” Uh-oh — The Ohio Democrat might face some tough questions in the Senate hallway tomorrow. Brown “for years claimed an owner-occupancy tax credit at two properties, public records show — a potential violation of the state’s rules governing such incentives,” according to Henry Gomez of NBC News.
| | Form PF — From Declan: “Hedge funds and private equity giants are facing a wave of new disclosure requirements from the SEC, as the Wall Street regulator looks for new visibility into the $25 trillion private fund market.” Gensler’s a “no” on Sen. Gensler — Following Sen. Ben Cardin’s retirement announcement, social media became abuzz this week with an idea: Gary Gensler for Senate? But the SEC chair — and native Marylander — says thanks, but no thanks. “I’m humbled that you would even ask me about it,” he told a reporter Wednesday on a press call when asked whether he had considered a run. “But I’ve got a great job what I’m doing now. No, I’m not.” — Declan Meta — Our Josh Sisco and Alfred Ng: “The Federal Trade Commission is looking to up the ante against Meta for ongoing privacy violations, saying the company has failed to live up to its settlement following the Cambridge Analytica scandal.”
| | Ellie Collinson is now deputy director and COO of the U.S. Trade and Development Agency. She most recently was chief of staff to the CFO/assistant secretary of administration at the Department of Commerce. — Daniel Lippman
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