March 19, 2023
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For this Suze School episode, Suze sits down with former FDIC Chair, Sheila Bair.
Suze: March 19, Welcome everybody to the Women and Money podcast as well as everybody smart enough to listen. Today, Suze School is a very, very special Suze School because all of us including me are going to be students today.
Suze: Students of one of the most incredible women I have ever met in my life. Her name is Sheila Bair. From 2006 to 2011,
Suze: Chairman Bear, which she is formally referred to
Suze: was the chairman of the F D I C.
Suze: And if you think about the years that she was chairman of the F D I C, which is the Federal Deposit Insurance Corporation, which is what insures banks, which is, what is freaking all of you out. Are you insured? Are you not insured? She was in charge of it all. But it was more than just her being chairman of the F D I C.
Suze: It was her really in 2006 informing everybody; be careful warning, warning.
Suze: The subprime mortgages that are out there are absolutely going to get us all in trouble. But yet the powers that be didn't want to believe her, they didn't want to deal with the things that she was talking about and then 2008 hit and you all know the rest of the story. But what you probably don't know is that because of Chairman Bair,
Suze: regulations were put into effect that probably over all these years saved the banking systems. She wanted regulators in banks. She wanted banks to have stress tests. They modeled the troubled asset relief program that saved the United States after the model that Sheila Bair created
Suze: So I could go on and on. But if I went on and on with everything this woman has done in her life to make this world financially a safer place, that alone would be the entire podcast. Just a very brief introduction before I go to Sheila, which is, Sheila and I met in 2008 when Sheila or her office contacted me:
Suze: what can we do to stop a run on the banks? And what the two of us did was we made many television commercials, public service announcements that went out all throughout the United States. But my favorite thing was that Chairman Bair and myself being right on screen, two women, looking right into the camera and I first said "nobody cares about your money more than me."
Suze: And then it went to Sheila and she went "and the F D I C."
Suze: She allowed me and Suze speak to work with the programmers of the calculator system for the F D I C. It's called Edie
Suze: so that all of you could understand how it worked. She allowed me to work again with the programmers of the F D I C website so that you would understand how it would work and how it did work.
Suze: And I think that the two of us did such a fabulous job together. I can't even tell you.
Suze: So that's how I met Sheila. So let me welcome the Chairman of the F D I C during the most crucial years, possibly, in America's financial history to the Women and Money podcast.
Sheila: Thanks for having me, Suze. It's wonderful hearing your voice again.
Suze: I was telling everybody about the work a little bit about the work when we first met all the way back in 2008, when you were Chairman of the FDIC during probably the biggest bank collapse in a long, long time in modern history with over 400 banks failing
Suze: and how we did all these P S A s together and we redid the calculator and the website and it was fabulous. The work that we did. You went on to continue to do extraordinary work in many, many ways and you still are to this day. But the real,
Suze: the reason I wanted you to come on, the Women and Money podcast is because bottom line people understand how F D I C insurance works. I have schooled them in that, but there's still a little bit afraid. And I thought if I simply asked you the question for those people who have money
Suze: in a bank or even in a credit union, because they understand that credit unions just like banks are insured, but with N C U A. Is there anything if they are within the insurance limits? Is there anything for them to be afraid of?
Sheila: No, for both a for both the credit union account and a bank deposit account, if they're below the insured deposit caps, they're absolutely fine.
Sheila: The FDIC has been around for nearly 90 years. Nobody has ever lost a penny of insured deposits. I believe the NCUA has a similarly stiller record. So yeah, the government has done a good job of protecting insured deposits that they should not worry about that.
Suze: Alright, so all of you, you just heard it from the Chairman of the F D I C during the biggest bank collapse like I said in modern history. So all of you just need to know that a few things that people do want to know. Is there a limit to how many beneficiaries you can have
Suze: so that you have FDIC insurance? They're very aware that if you have one beneficiary to an account that you get 250,000 two beneficiaries you get 500,000, is there a limit to the number of beneficiaries that you can have?
Sheila: Yes, there is a limit. It's, it's five now and I believe those rules are changing in April of next year. So I think they're tightening up on them a little bit. So, stay tuned. Check the website,
Sheila: always check the website and the, and the Suzie Ormn deposit insured deposit calculator.
Suze: Do they still have my picture next to it?
Sheila: I don't think they do, but they absolutely should and with the two of us and our PSAs.
Suze: Yeah, we were so good. You even got a new hairdo. Do you remember that?
Sheila: It was, it was... I called it my Suze do because it was very similar to yours. It looked great.
Suze: Right now, you can have up to five beneficiaries per account. So that's about one million $250,000 of insurance. And remember you can do that on every single different category of an account that you have at one bank. Just so you know that. Next, what they want to know is there a difference between F D I C and N C U A insurance? They understand that those two are the same,
Suze: but they're also worried they have money in their brokerage account. A lot of people have money in a money market account at a brokerage account, maybe money market fund. So can you number one explain to everybody the difference between a money market account and
Suze: a money market fund? And are they insured in the same way as if their money was at a bank or credit union?
Sheila: Well, you mean a money market account that's offered by a bank? No, that, that, that will be protected by deposit insurance, but a money market fund is something very different
Sheila: that is run by these big asset managers, Fidelity. Well, Vanguard, all of them have it and the money market funds typically, well, government money market funds are invested only in, in government securities. Obviously, they're allowed to have a small percentage of assets invested someplace else. But some other types of money market funds actually can be invested i
Sheila: short term paper, and other instruments that are not government backed and those are called prime funds. And there's been some problems with prime funds breaking the buck. So if you, if you want to put your money in a money market fund to make sure that it will, it will maintain that dollar for dollar value, dollar in dollar out,
Sheila: make sure that you're in a short term government money market fund. I think those are absolutely the safest ones.
Suze: And when you just said it broke the buck because a lot of people don't understand money market accounts as well as money market funds usually say that you're
Suze: money will be stable and the shares of it will always be valued at a dollar a share. In 2008, everybody, there was a money market fund that broke the dollar, it went below the dollar for a short period of time. And that was quite something if you remember that.
Sheila: Yes it was, it was a very bad experience and helped lead to a real seizing up of the, of the system
Sheila: So it was an important lesson for money market fund users. The SEC which regulates money market funds, not bank accounts, but money market funds has tightened up on their rules. And again, there are things called prime funds that are not always invested in government securities, but short term money market funds. Short term government money market funds are really a very safe place to put your money.
Sheila: With short term treasuries, there's not much loss of market value even when the interest rates go up and the very liquid, you can obviously short term, you know, t bills, you can sell quickly to meet redemptions. So that's, that's a pretty safe place. It's not, it's not covered by F D I C insurance, which is a,
Sheila: a pretty safe place to put your money.
Suze: And people have a hard time understanding SIPC insurance. They tend to think, oh, if their money is invested at a brokerage firm and they're covered by SIPC that their $250,000 will be protected there by SIPC
Suze: and their thing. Yes or no.
Sheila: So no. SIPC is a completely different animals. So SIPC, the Securities Investor Protection Corporation is really, it protects mainly protects securities investments, not bank accounts, security. The F D I C protects bank accounts.
Sheila: Your securities investments are protected by the SIPC, but that's really just limited protection against fraud or misappropriation. For instance, if your money market fund breaks the buck, SIPC is not going to pay you. You take that, that, that market risk as an investor, as a securities investor.
Sheila: So that's a very important thing to understand. SIPC coverage is very limited.
Suze: So the way that you would normally protect then, either large amounts of money or even small amounts of money within a brokerage firm is to either buy a certificate of deposit at some bank within that brokerage
Suze: firm and or treasury bills, treasury notes, whatever it may be. Also, people are really freaked because a lot of people that listen to the Women and Money podcast are all throughout the United States, some in very small cities or towns or whatever.
Suze: And they're hearing how regional banks are going to collapse. They're not safe and they need to take their money out and put it into a major bank. So can you briefly tell people what a regional bank is and your opinion about what I just said.
Sheila: Yeah, so a regional bank is, is a loose phrase for basically uh the banks that have hundreds of billions of assets but not trillions of assets. So we call systemic institutions originally those that are multi trillion
Sheila: and for the most part and the smaller depository institutions in the hundreds of billions are generally characterized as regional and they're called regional because they typically have a regional footprint within the United States.
Sheila: So P N C, U S Bancorp are two of the biggest ones, M&T and other bit smaller one. Those are just examples of what we call regional banks and, and mostly regional banks are just fine. Actually, during the financial crisis, when I was chair of the F D I C, the regional banks performed very well. Actually,
Sheila: they did not make the crazy loans that these thrifts have made, they took deposits, they made good loans and they were quite resilient and stable during the crisis and continue to be so. That's not not to say any bank, you know, uh mid sized bank of the size we're talking about is perfectly safe. But as a group, they are, they've been quite resilient. And again, you don't have to worry unless you're you have uninsured deposits of this size bank.
Sheila: And even if you do, I mean, if you've been with them for a long time, you know them well, I think you should be comfortable. This problem we have with Silicon Valley Bank, there were two problems. It's risk management was terrible
Sheila: and it relied almost exclusively on uninsured deposits by a bunch of very wealthy venture capitalists and the portfolio companies that the VCs had invested in and they were seeking yield. It was a high interest rate payer too. And so it wasn't a loyal depositor base the way most, you know, longstanding, regional banks will have, even with their uninsured depositors, they will, typically, these will be businesses and governments with the larger accounts
Sheila: that have done business with the bank for years and have some loyalty and knowledge of the bank. So, don't worry, I, I do worry that just fear itself could, could lead to a lot of deposit outflows at regional banks. There's risk in life. We can't guarantee everything.
Suze: So many times the listener will write in and they're looking for the highest interest rate wherever they could get it.
Suze: And I keep telling them no, it's not about the highest interest rate. It's about the going interest rate at the safest institution that you can invest your money in and that a lot of times banks and credit unions, I would imagine, you know, do things so that they can get a lot of people to put their money into them and they're giving higher rates than what they can normally really take a risk on.
Suze: I really always want people never to go for the highest rate, but go for the financial institution that is the safest and that has invested your money in such a way that they're not taking any risk with your money. So that means you get a quarter percent less. Who cares? Would you agree with that?
Sheila: I would absolutely agree with that. That's very sound advice. Generally the highest rate payers are,
Sheila: look, if the banks providing good service, they won't have to pay the highest rate. I mean, the banks that are paying the highest rates probably aren't doing anything else to attract deposits, but the ones that are maybe a little lower, but they're probably providing good service and they're drawing and keeping deposits that way.
Suze: Everybody did. You just hear what Sheila said?
Suze: Go for safety over, "I can get a quarter of a percent more here at eighth of a percent more there." Absolutely not. One thing that people are really freaked about is this debt ceiling that is coming up in a
few months. So a very strange question is, let's say this group of people prevent it from being signed or being raised.
Suze: Is it possible that treasuries will stop paying the interest rate out to people?
Sheila: I doubt it. I think probably the treasury will give priority to interest payments on, on, on treasury debt. So people should be assured on that though. What I really would hate is a situation where we don't raise the debt limit. So even though bondholders are getting paid or treasury security holders are getting paid.
Sheila: Social Security beneficiaries may not be or food stamp recipients may not be, you know, so there if they don't raise the debt limit, some there are areas where the government has made commitments of financial responsibility that they will not meet. And I think Janet Yellen's right is when she says the default is default. So even if you're paying interest on the treasury securities, if you're not making good on your obligations, in other ways,
Sheila: you're still in default. So, yes, I do think if it comes to that, hopefully they won't, they will prioritize interest on government debt, but I hope it doesn't come to that because the government has other responsibilities that they really should be making good on as well.
Suze: Next question is treasuries versus certificates of deposits, whether they're in a bank or a credit union. People seem to think that treasuries could be more affected, believe it or not, rather than the banks or credit unions that are paying interest on certificates of deposit. Any comment on that?
Sheila: Well, I think, look, if there really was a default on treasury debt, it would be highly destabilizing to the banking system. I, I can't imagine we would ever go there.
Sheila: I mean, technically that is right, the, the CD interest you're paid is the bank pays you that out of the profits. You know, when they lend your deposit out or invested your paid interest out of the returns they get on that. There's no direct collection between, you know, any default on treasury debt in your banks. The mechanisms will get your bank pays interest on your C D.
Sheila: But more generally, you know, it would be catastrophic for the financial system and if, if treasury, if the treasury did default on its debt. So again, let's I don't think that would ever happen and let's just hope we don't go there.
Suze: Alright. We can keep our fingers crossed just like you hope 2008 would never happen when you told them they were all going to happen. But yet that is a whole another story is it not. So the bond holdings have just been downgraded by Moody's and people want to know what does that mean, Suze? Like, does that mean that we're not creditworthy anymore? Whatever...
Suze: I do want people to understand that there are different rating agencies in the United States Standard and Poor's, Moody's whatever they may be and that to be rated. Is it not true that the bond issuer asked to pay Moody's like x thousands of dollars to have that company rate them? Isn't that how it works?
Sheila: Yes, that's right. That's been a big issue too because the raters are
Sheila: paid by the issuers.
Suze: So think about that everybody. So when you see a downgrade by Moody's, for instance, shame on them. They should have downgraded some of these issuers way before when they first did their examination of them. But because they're paid by the issuers to do what? Grade them, they never get usually a bad rating because who's going to pay to rate you if they're going to fail you?
Suze: So I just want you all to keep that in mind when you see that, would you agree with that?
Sheila: Well I do think it's a flaw, I mean, I think most, most of the rating agencies try to be independent but you're right. I mean, the economic incentives are there. You know, it's a huge problem during the crisis because these rating agencies were given triple A ratings to these toxic mortgage backed securities and derivatives based on the mortgage backed securities. And, yeah, it was all being driven by the income they were getting from the issuers. So
Sheila: I think with, with, with corporate debt, it's, it's a better system. I think there's much more integrity involved. But some people have suggested maybe the stock exchanges should pay for the ratings or, you know, some investor group, some way to get the investors to pay for it directly. But that just hasn't happened yet.
Suze: So if everyday normal people who don't understand rating agencies don't understand anything, they just want their money safe and sound,
Suze: what would you tell them to do with it?
Sheila: So if, if this is money that they cannot afford to lose any money of that, it has to maintain stable value for them, then put it in a bank or put it in a credit union. Banks and credit unions are regulated so that they can maintain stable value, stability in your deposit, dollar in dollar out, plus whatever interest they might pay. So that's where you should put the money. I would put those to the highest and then short term government money microphones next in terms of super safe places to put your money
Suze: And where do treasury bills and notes fit into that?
Sheila: Well, you can buy those directly too. It may be easier. You'll have more ease of putting the money in and out if you use the money market fund as opposed to buying it directly
Suze: yourself. Why do they make it so difficult in so many cases to do treasuries? I mean, yeah, I mean, I was, you know...
Sheila: I'm a former treasury official. Let's show you an antidote. I wanted to buy an I Bond last summer for my kids
Sheila: and I needed to update my bank account information and I waited and waited for months and months and months and months and I finally pulled strings and I emailed some, I didn't want to, but I emailed some colleagues at Treasury and they got it fixed for me because I don't like to, you know, I try to be like everybody else but yeah, their systems are really need an upgrade, they need more people.
Sheila: Um, but they're, they're getting them now, you know, and there's been some controversy but Treasury has always been under resourced when I was there is under resourced. They need to give more money to upgrade systems and hire more people to answer the phones too.
Suze: You mentioned I Bonds and the listeners and everybody I think in the United States can tell you that for the past two years, I've been an I Bond fanatic. I mean, really, I went frenzied on it, but after this last one,
Suze: I've asked people to think about twice before the end of April, obviously and the rate changes in may think about it because just maybe it's not the greatest investment anymore since you have to lock up your money for five years, since there is a three month interest penalty. Although that won't matter so much of interest rates, or inflation goes down. And do you have a feeling about
Suze: would right now, would I Bonds still be something that you would pull all those strings for, to get your kids money in it? Versus like you did back then? Versus would you do that right now? Do you think given what probably inflation will be in May?
Sheila: Yeah. So I, so I'm not a financial advisor, so I always, when people ask me for advice, I'll just tell you what
Sheila: I would do it. I've decided not to buy one at this point in time. I think it's a, it's uncertain what's going to happen with inflation. And I like you have to lock it in for, for, for five years and,
Sheila: you know, inflation, I think the Fed's ability to keep raising rates has been hampered. Uh They just try to go too fast, you know, and I think they're going to hit pause or slow down significantly. We may just have to tolerate a little more inflation for a while to get it under control without,
Sheila: you know, a severe recession or financial crisis. So, um I'm holding off if that's of interest anyone, I am holding off.
Suze: I've told the listeners to hold off as well. All right. But that was during a period of time though, when I was almost sure that inflation would start to come down,
Suze: but interest rates would remain higher. I and I'm not sure that that's true anymore. So now I'm caught in this thing of really what does one do because you could tell by the fluctuation in the treasury market and everything
Suze: that it's it's very difficult. It was very simple before a week ago. Now, it's become a lot more complicated, but we'll just have to see what happens here, right? With that. So you mentioned the word recession and you put the word severe in front of that word. So we've had an inverted yield rate curve now for some time
Suze: and all of us know or it's been predicted that every time we have one, eventually we go into recession, it's not right away. It could be one, two or three years. But we also know
Suze: that every time we've gone into recession, it happens sooner. Once you start to see that inverted yield rate curve start to correct, which is in its own little way, is doing it like on March eighth. You had a 1% difference between the two and the 10 year.
Suze: And now that has limited itself a lot. And so usually when that happens, it's 4-6 months from that time when recession hits. So, do you have an opinion on that?
Sheila: Well, yeah, I mean, I think when that happens it's really the market saying, you know, recession is, is going to be happening sooner than later, meaning that the Fed will have to lower rates. And so that's why you get less pressure on the yield curve.
Sheila: So, and that's exactly what's going on. Now, I think with this situation with Silicon Valley Bank and then Credit Suisse and just the uncertainties around people are feeling now about the financial system, um that they're assuming the FED is going to ease up a bit on its inflation fight. So interest rates will hold steady or go down and may go down further if we have a recession. So that's what, that's what the market is saying. And the market sometimes is right on these things, sometimes not.
Sheila: I'm hoping we can still avoid it. Um that's why last December I said, I thought the Fed should hit pause. They were going too fast. I'm I'm an inflation hawk. I've been, I've been saying since 2010, I wanted them to normalize interest rates. I don't, I think easy money is
Sheila: very destabilizing and you know, it punishes savers and encourages leverage and speculation and all the unpleasant things we've seen in the past years, in our economy, it was almost 14 years of easy money. So you can only undo that so fast. So I think they need to hit pause and assess a bit before they go further.
Suze: And if you could give advice or if you want to give advice to listeners thinking that we probably, this is me thinking it, probably will go into a recession. I don't know if it will be a big one or not or whatever. What would be the one thing that you would want everybody to do to protect themselves during a recessionary environment?
Sheila: Well, save money, put it in a bank or put it in a credit union or a liquid government short term money market fund where you can easily access it if you need it. Uh You know, that's, that's the best thing you do. If you lose your job or your hours are cut back, if your pay is reduced, have a cushion to fall back on. The worst thing that happens to people as you get into a recession, they don't have savings, their income goes down, then they have to borrow. So they've got a debt load too.
Sheila: Um So save your money, build up your savings. Um I think, I think that's absolutely the best thing you can do.
Suze: So my last question for you is out of everything you've done, which is significant, whether you know it or not. Your involvement starting, you know, in 2006 with all the policies and how things worked and how everything then was modeled was absolutely instrumental into trying to make
Suze: the United States banking system and money system, the safest possible. Obviously, they undid a lot of that in 2018, right, but you gave it your best shot. So, out of everything that you've done, which is monumental up until this point, what would you say is the greatest thing you ever accomplished?
Sheila: Well, I I still take a lot of pride in giving people peace of mind during, during the crisis. And again, Suze, thank you for, for working with me to help get that message of public confidence. People, you know, people left their money in the banks. Actually, bank deposits grew during this crisis because people had confidence in the F D I C
Sheila: and that was because we got the word out there. I got out there people like you with a lot of credibility vouched for us. And then when banks did fail and we had about 400, we, we handle it smoothly within one business day, everybody had access to the insured money. I think there's, there's a lot of work behind the scenes and sometimes I think we made it look too easy. But that is absolutely the thing I'm the most will always be the most proud of.
Suze: All right. And what I'm actually now the most proud of for you as to what you have done is you have a series of books for kids called Money Tales and I believe you have six out, two more are coming. My favorite one, by the way is Billy the Borrowing Blue Footed Booby. Because
Suze: he in this book demonstrates exactly what everybody does in the United States. You talk about wants versus needs in here and everything. So I just want to tell all the listeners you have kids, you have grandkids. In fact, you could benefit from reading any one of Sheila Bair's
Suze: Money Tale books. And the reason is it brings it home to you sometimes when we watch a cartoon or when you watch something, a very simplistic way we go. Oh my God, that's what I'm doing. Oh my God. I am that cartoon character. Oh my God. I am that character in the book. So I want to tell you, I've read all of them so far.
Suze: I think every one of them is fabulous. Truthfully my favorite and sitting right in front of me right now, Billy the Borrowing Blue Footed Booby. Because everybody in the United States right now is starting to borrow again and again and again. And if all of you were to read this book, maybe just maybe you would keep yourself out of debt. Sheila, I thank you so much for all your service. I thank you so much for,
Suze: for caring about people and their money. And, and really wanting the best for them. And I'm so honored, seriously, so honored to call you my friend.
Sheila: Well Suze, the feeling is mutual. You've been amazing over the years, your financial advice and you're, you're just incorruptible. You are so honest and that's why people trust you and that's why we trusted you to help us, you know, get the word out with the F D I C and I still trust you now and thank you for all that you do as well.
Suze: Thank you. Thank you. Thank you, Sheila. I love you so much. Alright, everybody. So I hope you enjoyed that. I hope you learned from Miss Sheila Bair herself. However,
Suze: there's always more to learn about your money and that is why we do the Women and Money podcast. So join me next Thursday with MS Travis for an Ask KT and Suze Anything. But until then you know where I'm going,
Suze: you know where I'm going, don't you? There's only one thing that I want you to say every single day and it is this: today wherever I go, I will create a more peaceful, joyful and loving world. Alright. Go out there and be unstoppable.
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