Barry Sternlicht on how the Fed encouraged banks to take on interest rate risk

There are 400 PhDs at the Federal Reserve.  Four hundred.  This weekend, me and two of my colleagues went through six regional banks and if you had to mark them to market, they're all insolvent.  Now why are they insolvent?  Actually it was the rule book set up by the government.  The government said that if you own 10-year fixed agencies and mortgage-backs or if you own Treasuries, it's one-fifth the capital requirement than if you bought floating rate notes, senior secured floating rate notes.

So you wound up with a situation, the banks were following the rules.  They were following the rules and they did not have to mark those securities to market.  We run the nation's largest mortgage REIT.  We have 2 billion dollars in securities, and 90 percent rate-hedged.  It couldn't have happened to us.  But because the banks face no consequences with the held-to-maturity category, they decide to save some money and not put any hedges in place.  That's irresponsible, but it is the rule book that the OCC [Office of the Comptroller of the Currency] and the government, the Treasury and the Fed oversaw, and they didn't even stress test these banks if rates rose.

~ Barry Sternlicht, CNBC interview, 1:25 mark, March 23, 2023

Barry Sternlicht on Jay Powell: "I feel like he's the captain driving the Titanic into the ocean"

We're not arguing that the Fed has to act to bring down inflation, but we need to understand where the inflation came from.  It came from all those global stimulus packages on the back of the reopening global economy.  It was to the moon and beyond.  They missed the meme stocks, they missed the casino and now that we're building momentum and people are getting employed, and wages are rising, now they want to stomp on the whole thing and end the party.  I feel like he's the captain driving the Titanic into the ocean.  Consumers in the U.S. are still spending, but it's inevitable that they can't keep this up.  So the Fed has to stop... They're going to cause unbelievable calamities if they keep up their actions, not just here, but all over the whole globe.

~ Barry Sternlicht, CNBC interview, 2:20 mark, October 4, 2022