Norbert Michel on Smarter Financial Regulation

Norbert Michel is the director of the Center for Data Analysis at the Heritage Foundation. Norbert joins Macro Musings to discuss a new book of collected essays, which he edited, titled Prosperity Unleashed: Smarter Financial Regulation. Norbert pushes back against the narrative that deregulation caused the 2008 financial crisis and argues that excessive regulation hinders growth and actually makes the financial system less safe. He and David discuss policy recommendations made in the book, including reforming the Federal Reserve’s last-resort lending practices, converting the Consumer Financial Protection Bureau (CFPB) into a commission, and more.

Read the full episode transcript:

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected].

David Beckworth:  Norbert, welcome to the show.

Norbert Michel: Thank you, David. Very happy to be here.

Beckworth:  I'm glad to have you on. We've worked together on projects and have been at conferences together.

Michel: Mm-hmm (affirmative).

Beckworth:  Tell us a little bit about your journey into this area. You work in an area that for me anyhow, I'm more of a monetary policy guy, I occasionally peek over into the financial regulatory arena, and it seems complicated. Lots of law, lots of moving parts. How did you get into that?

Michel: Kind of like everything else, I bumbled into it. I only went to Loyola because a buddy of mine in high school was going to Loyola, and I majored in business because he was majoring in business. It just turns out that I really liked finance and I took an Econ class with Deb Walker and loved the class and was exposed to a lot of ideas that I had never been exposed to. I couldn't give up finance as much as I loved it, so I double-majored in finance and Econ. Then turns out, University of New Orleans had a PhD in financial economics. I didn't have to leave, I'm from New Orleans, I didn't have to leave.

Beckworth:  Nice.

Michel: And I could do exactly what I wanted to do. That's kind of what I did, and then when I was finishing my PhD, I took a job in Arlington that was not a policy job or anything like that, but I really didn't like it. I made a few phone calls and did a series of interviews that I just lucked out, and eventually got an interview at the Heritage Foundation to work on policy. That was that.

Beckworth:  The rest is history.

Michel: Yeah.

Beckworth:  So some of this, so you've had background in finance formally through your education.

Michel: Right.

Beckworth:  But some of this you learn as you get involved in the issues.

Michel: That's right.

Beckworth:  Okay.

Michel: And I was a practitioner in the sense that I did actually do financial analysis for about a year while I was working on my degree.

Beckworth:  Okay.

Michel: And I did run a small company with my parents for a little while. I was interested in the interaction of finance and business and regulation from that standpoint, just doing those things. That's kind of, it all just kind of came together.

Beckworth:  It's been a busy past decade for financial regulatory issues.

Michel: Indeed.

Beckworth:  With the crisis, people want to have things changed. Of course the big, big result or creature that comes out is Dodd-Frank, and you've written a lot about that. This book of collected essays is a response to that and some of the regulations that float out of that, some of the thinking. It's interesting, you know, Dodd-Frank came out, if you were against it, you were a nut job, something crazy.

Michel: Right, right.

Beckworth:  But now there is more and more recognition that it may have gone too far. Even people on the Left talk about maybe we need to, at least on the margin, alter it. But you guys take a much deeper look at some of these issues in the book.

Michel: That's right.

Beckworth:  Give us kind of an executive summary overview of it, and then we'll get into some specific chapters.

Michel: Sure. I can just make sort of a mini-plug to set this up, if it's okay.

Beckworth:  Okay.

Michel: So this is the second book that we did, and it's the same format. This is not all my writing. This is a lot of people put a lot of work into both of these. But the project originated when we said, okay, let's put a book together that goes title by title and looks at Dodd-Frank. It's the case against Dodd-Frank, if you will. When we got done with that, we're just sort of sitting there thinking about, okay, now what? You realize that the regulatory system is so massive and it's gone so far off the rails that if we were to go the sort of standard approach that we went at Heritage, where we go issue by issue by issue. There’s not a lifetime, enough time in a lifetime to do everything.

Michel: So putting the book together was a way of addressing the broader issues. That's what this one is. That's what Prosperity Unleashed is. It's not just banking, it's not just capital markets, it's not just financial reg, it's not just fin reg, fin tech, sorry. It includes liability issues and civil liability issues and the right way of having the incentives to do the right thing. It's very, very broad, and I think it does a good job of getting into all the issues that need to be addressed, because the thing that I'm still the most amazed at is that there was this narrative coming out of the crisis that deregulated financial markets caused the financial crisis. That is so far from reality in that there was no such thing. There has never been any such thing, especially not in 2008, as a deregulated financial market, not even one sector.

Michel: You'll hear the term shadow banks quite a bit, as the non-bank institutions that caused the crisis and that sort of thing. But if you look under the surface a little bit, what you find is that there were basically two types of institutions writing a lot of the asset-backed securities and mortgage-backed securities. One is a special entity in a bank. Okay, so that, you take that off the table. That's not deregulated in any shape or fashion. That's in a bank. The other is an SEC-registered broker/dealer. They also have rules. They also have regulations. They also have to meet capital liquidity rules.

Michel: So the notion that this was somehow in the shadows, where nobody knew about it. The only people who didn't know about it were people who just weren't paying attention. I mean, regulators knew about this stuff. We look at all of these issues, and we say, okay, if we were going to set up a financial framework, sort of from scratch, and if we believe in markets, if we have a market-based economy, capitalism, if you will, what would that look like? That's the approach that we take, and we try to bring that perspective to every sort of piece of the financial markets.

Beckworth:  Yeah, and as your title implies, it's not no financial regulation. It's smarter financial regulation.

Michel: That's right, that's right.

Beckworth:  You recognize there's going to be some level of regulation involved. You just want it to be smart.

Michel: That's right.

Beckworth:  And the right incentives, empower the market to be a productive contributor to the process.

Michel: Mm-hmm (affirmative).

Beckworth:  All right, so there are a number of chapters in here. Is it 23 chapters in here? 23 chapters.

Michel: 23.

Beckworth:  So there's a lot of ground to cover, 300 and, almost 400 pages. I will encourage our listeners to take a look. We'll put out a link to it online on our webpage.

Michel: Thank you.

Beckworth:  Definitely take a look at the book. Is all of it accessible as PDF files?

Michel: It is.

Beckworth:  Okay.

Michel: You can download the whole book in one PDF file, or you can go chapter by chapter in a PDF file. Either ...

Beckworth:  Okay. So it's free, it's accessible.

Michel: That's correct. There's no charge.

Beckworth:  And then hopefully make the world a better place because of it.

Michel: Yes.

Beckworth:  I want to focus on a few of the chapters, ones that I found fascinating and given the amount of time we have today. I want to start with one that was written by someone who has been on the show before, George Selgin, who himself is fairly active in this area of financial regulation and monetary policy in particular. This is one of the few chapters in it that really gets into kind of like a monetary policy.

Michel: Right.

Beckworth:  This is a chapter entitled Reforming Last-Resort Lending: The Flexible Open Market Alternative. So tell us about, what is he trying to suggest in this chapter?

Reforming Last-Resort Lending

Michel: Okay, sure. The idea is essentially rethinking the way we view the Fed's lender of last resort function. If you look at the way the government did all these different things to prop up financial firms in the last crisis, a lot of that had to do with emergency lending at the Fed, the 13(3), Section 13(3) lending. People will say that it's the same, that's the idea. They created a lot of different programs, sort of on the fly, lending programs. Whether it would be the term auction facility, or the term securities lending facility. All these things to prop up and provide liquidity, to provide lending, to different sectors of the financial markets. So not just banks.

Michel: What George does in this chapter is say, okay, we need to just sort of take a step back. If we want to have less regulation in the markets, then we need to have some mechanism still for providing liquidity in a crisis situation, because if we don't have that, then nobody is going to let us redesign this and say that markets can take care of themselves. Because we do have a Federal Reserve with tight control over the money supply. What George's chapter does is envisions it, envisions that process in a completely different way. It is designed to competitively issue liquidity on a system-wide basis, both during normal times and during emergency times. You would replace all the current lending facilities with basically an auction facility, and it's very much like what's been done at the Bank of England, I think it's called the product mix auction.

Michel: The idea is that companies have to come, large banks, predominantly large banks in normal times, financial companies, come and participate in open market operations auctions. They bid competitively on the same sorts of things that they would now bid on in these programs. If the economy goes into sort of a crisis mode or a severe downturn, the idea is to adhere to the Bagehot principle of lending freely on a higher rate basis. The added risk in the economy would dictate that those auctions in the emergency times would be priced differently. So there's less of a moral hazard concern in that regard, and you are still providing liquidity on a system-wide basis, as opposed to creating all these ad hoc programs for this company or this small group of companies or that small group of broker dealers, and so on. That's the general idea of that.

Beckworth:  Okay, so it's kind of like a one-stop shopping at the Fed.

Michel: That's right, that's right.

Beckworth:  Get rid of all these other facilities, as well as the general open market operations. So you're taking kind of a standard open-market operation facility that we normally think about, and all the many different lending facilities, including the discount window, as well as TAF and everything ese you've mentioned. And combine it into one window.

Michel: That's right.

Beckworth:  One facility.

Michel: One place, yeah.

Beckworth:  One outlet, and it would be general enough that it would work both in normal times and in stressful times.

Michel: That's right.

Beckworth:  You mentioned it'd be more of an auction, so if the Fed wanted to increase the amount of liquidity, it would announce an auction, and then banks, firms have to compete for it. Is that the idea?

Michel: Yeah, and open market operations currently actually do work on an auction basis.

Beckworth:  Okay.

Michel: It would be a different type, but it would be the same general idea. I think the way George envisions it at least, I think under normal times, you would probably have a lot of the primary dealers doing most of this most of the time. But another way of thinking of this is that the primary dealer system, where all open market operations are conducted now, you know, that was created in the sixties, and there were actually technological and geographical reasons to do it that way back then. Well, those are all gone. So there's no reason not to open it up, you know, to basically to all banks, or at least all safe banks. You could do all banks with a decent CAMELS rating, for example, to let them all participate in that regular open market operation auctioning procedure.

Michel: I mean, that makes a lot of sense, just from a systemic risk type standpoint, even though I hate that term. We know in the last crisis that the primary dealer system itself became a bottleneck. We needed the liquidity everywhere, and we couldn't get it everywhere.

Beckworth:  Could get it past, it got clogged up with the primary dealers.

Michel: Right, right. They were some of the worst, they were some of the worst performing companies.

Beckworth:  Yeah, so the way it works now is the liquidity, the increase in reserves, monetary base, works its way through the primary dealers to the other financial firms, to the public more generally.

Michel: Right.

Beckworth:  You got, it's clogged up, you got sclerosis in the primary dealer system.

Michel: That's right. And you really don't need that system.

Beckworth:  That system is just a relic of the past, right?

Michel: Absolutely. No doubt.

Beckworth: Okay.

Michel: Much like the discount window.

Beckworth:  Okay, so you want to consolidate all those windows into one. You also want to expand the number of counterparties, the number of financial firms that can come and knock on the Fed's door. Wouldn't literally knock, but turn on their computer and bid.

Michel: Right.

Beckworth:  You'd have that, which is fascinating. So my local bank in Nashville could bid. The other thing that this product mix, this auction which is a little, the detail is a little confusing, but what I understand, and correct me if I'm wrong is, you could offer, the other thing, you could offer up more collateral, beyond Treasuries.

Michel: That's right.

Beckworth:  But the riskier the collateral, the steeper the discount the Fed would apply to your collateral, right?

Michel: That's right, that's the idea.

Beckworth:  Then during times of risk, you know, if there's a recession or a financial crisis, even steeper discounts, so you're sticking to the Bagehot principle. If you are solvent, but you have just a liquidity, temporary liquidity problem, you have these assets you can bring to the Fed.

Michel: That's right.

Beckworth:  You don't have to work your way through Bear Stearns or Goldman Sachs, you can do it yourself.

Michel: That's right, no, that's exactly right.

Beckworth:  Okay.

Michel: There's no technological reason against doing that, and there's no regulatory reason against doing that. So if we want to get liquidity into the banking system quickly, why wouldn't we do that?

Beckworth:  Yeah. I think he mentions in there, and maybe a previous conversation with him that, this is what's done at the ECB, the European Central Bank.

Michel: That's right.

Beckworth:  It's nothing like, radical, it's being done somewhere else.

Michel: It's not, that's right. The Bank of England, I believe his name was Kempler. I might have the name wrong, but at the Bank of England who came up with this, developed this first. I believe it was him. They put it in practice. I mean, as far as we can tell right now, it's still working. It's not completely out of the blue. It is actually somewhere in this world in place and functioning.

Beckworth:  Right.

Michel: It's under the right principles, and the technology is there for it. The logic is unassailable. Oddly, George will run into problems with people saying, "Oh, well, we want the Fed to be even bigger?" I understand the immediate reaction that he gets like that. It does make sense, because it does have that optic, but it really is a complete restructuring of the way we work the Fed and open market operations now. You have to look at it in a very broad sense. You can't compare it to ... I shouldn't it say that way. I should say, you shouldn't look at it as the Fed doing all the stuff that they do now and doing all this other stuff that we're talking about in the chapter. Literally, you have to go to a new system.

Beckworth:  Yeah. Or alternatively you could say, look, the system as it currently is is messed up.

Michel: Yeah, and that's clear, right?

Beckworth:  There's a very, very narrow channel … liquidity goes to the broader economy, and you want to expand that channel. You make it more natural.

Michel: That's right, that's right. We don't have a small amount of evidence that we need to do something like that.

Beckworth:  Right. We learn pretty historically in 2008, 2009 that primary dealers themselves can have problems.

Michel: Mm-hmm (affirmative).

Beckworth:  Let's be clear, because the primary dealers are the banks. Now we know, and many of our listeners do, but for folks who may not know. The primary dealers are the big financial firms that deal directly with the Federal Reserve when it buys and sells securities, right?

Michel: That's right, that's right. The Fed is by statute not allowed to buy Treasuries directly from the government, so they have to go through some agent and those are the primary dealers.

Beckworth:  Okay.

Michel: That's the way they set this up back in the sixties.

Beckworth:  Let me ask this on a practical policy level. Would this require an act of Congress, or is this something that a chairman of the Fed could, Fed itself could do?

Michel: Mm-hmm (affirmative). Well, so I think that you would need an act of Congress in one respect, and that's that you would need to get rid of the existing emergency authority. Otherwise, the Fed would still have too much authority to do ...

Beckworth:  Okay. The 13(3) part of the Federal Reserve Act.

Michel: That's right, that's right. Otherwise, they'd still have too much authority to do the ad hoc stuff that they've done.

Beckworth:  I see.

Michel: It would probably be safer to implement this via statute. However, the primary dealer system could be changed or ignored without an act of Congress. That's my understanding.

Beckworth:  So it could be, the Fed could basically expand who it interacts with as counterparties if it wanted to.

Michel: It could, it could. I'm pretty sure that they would argue that they need an act of Congress to do that, because they're going to be really careful. But they could, and the proof that they could is that that's exactly what they did in the last crisis.

Beckworth:  In an ad hoc basis.

Michel: On an ad hoc basis.

Beckworth:  Right, so they did some incredible direct-lending to firms, I mean, literally directly to firms.

Michel: That's right.

Beckworth:  Cut out the middle, because there were in some cases no middle man, because the market had crashed.

Michel: That's right.

Beckworth:  Your point is, let's make it formal, let's make it transparent.

Michel: Yes. I think everybody that is in the sort of free market, conservative policy world would feel much more comfortable if this were done via an act of Congress, so that everything was as transparent and open as possible. As clearly defined as possible. I think that that is the way to go.

Beckworth:  Well, I imagine people, many people at the Fed would probably feel the same way, right?

Michel: I think many would, I do.

Beckworth:  Because if they make, because this would in some ways, this would be a big departure, almost I want to say radical departure.

Michel: Oh, yeah.

Beckworth:  Even though in practice it'd really be, it'd be an enhancement.

Michel: But it would be a major change.

Beckworth:  It'd be a major change, and it would be helpful, even if the Fed wanted this, to have Congress, the Congress endorsement, I guess.

Michel: Oh, yeah. Almost like, I mean, not almost, they want cover.

Beckworth:  Right, cover is the right word.

Michel: It's not a little thing to be able to say that Congress has asked us to do this.

Beckworth:  Well, you know, this kind of, this probably is a nice segue into the next discussion. I feel like we could keep talking about this, but you have several other chapters that we want to get to. Let's move to chapter four, because this is tied to Congress. I want at some point come back and talk about the actual timetable of this, if Congress is actually ever going to get around to doing this. Because I suspect that may not be the case, given how things are going right now.

Michel: Not soon.

Beckworth:  The Republicans and Trump have not been able to do much. I'm not clear that this is going to happen any time soon. But chapter four gets into a discussion of the Financial CHOICE Act.

Michel: Right.

Beckworth:  Tell us about its key aspects and why you see it as an improvement over Dodd-Frank.

The Key Aspects of the Financial CHOICE Act

Michel: Okay, sure. The sort of, I hate to use this word, but sort of the major deregulatory aspect of what it does to Dodd-Frank is it gets rid of Title, basically, basically, gets rid of Title One of Dodd-Frank, which is this whole FSOC, financial stability oversight council idea.

Beckworth:  Okay.

Michel: And the SIFI designation, systemically important financial ... So it gets rid of that framework, basically. It gets rid of Title Two of Dodd-Frank, which is orderly liquidation. It gets rid of Title Eight of Dodd-Frank, which is sort of like Title One but for special clearing firms. It doesn't get rid of Title Ten, which is the CFPB, but it radically restructures that.

Beckworth:  What is it, explain what that CFPB is.

Michel: Oh, I'm sorry. Consumer Financial Protection Bureau.

Beckworth:  Okay.

Michel: Which is a new, Elizabeth Warren agency. That's what I call it. It changes that completely. It puts that on budget, it makes it transparent, it makes it an enforcement-only agency. It makes an enormous ...

Beckworth:  It still exists, this consumer protection agency, but it just changes how it's funded.

Michel: That's right. It changes the funding, it changes the structure. Actually it changes the name.

Beckworth:  So it makes it more like the SEC then, more like a commission.

Michel: Yeah, I think FTC is probably the closest analogy, I think. But yes, that's, it makes it more like the typical regulatory agency that you would find, rather than something completely different with vague authority and this weird funding structure that nobody understands or knows why it's there.

Beckworth:  Just to make clear to our listeners, so the way that this consumer protection agency is now set up, it gets funded from the Fed.

Michel: Automatically.

Beckworth:  The Fed creates its own money, because it is… the fact that it buys bonds and earns money off those bonds. Okay, so those are the deregulatory. Now you mentioned, I think there's one big piece that you're still getting to, right? And that's the off-ramp part.

Michel: Yes, yes, yes. I was going to say, two big things. One is it implements the FORM Act, which is the monetary policy act, which we don't have to talk about. But on the regulatory front, the big thing that it does, which is I think a very, very important idea, is this capital election, or regulatory off-ramp. The important part of this is that it completely changes the paradigm of how we think about the financial reg space in banking, and says, "If you as an institution hold a higher level of equity, or fund yourself with a higher level of equity, you are therefore able to absorb more losses. So we're not going to regulate you as heavily."

Michel: I mean, there are lot of details on exactly how this gets done, and those details can determine whether it's a great outcome or not, but to get that principle ingrained in our financial system would be enormous, because it's logically sound and it says, "We're going to actually just treat you like a business. You know, if we're going, you're going to meet some minimum requirements, and then we're going to leave you alone. You're going to operate your business. You're a financial intermediary, and you can go and do this." You can expand that idea greatly from what's in the CHOICE Act, but the CHOICE Act uses it to say, "You fund yourself with higher equity, and then we're going to relieve you from almost all of this Dodd-Frank stuff that we put on to implement safety and soundness."

Michel: And, most importantly, I think, it says, "We're going to let you get away from the Basel capital rules." Which were only supposed to be for internationally active banks, and in the late eighties were sort of cast upon all banks. Which never made any sense, but that's what we did. This says, if you have a sort of simpler, flatter capital ratio, and you meet the requirement, you don't have to deal with that anymore.

Beckworth:  Okay, so the basic idea is, if a bank is, if a bank funds with more capital, which means it puts its own money on the line, it's not borrowing as much.

Michel: That's right.

Beckworth:  So it has a bigger cushion. It can take, it can lose some value in its assets, some of its loans and whatever else it might be holding, and still be solvent. If it can do that, then we don't worry about it as much, and therefore we don't need as much regulatory burden. Now I know, going back to the bill itself, it hasn't ... Tell me, where does it stand? Let me ask the question that way.

Michel: Sure, no, that's the right question. It passed the U.S. House.

Beckworth:  Okay.

Michel: It would probably never get the 60 votes that it would need to pass through regular order in the Senate with the current make-up of the Senate. However, you could pass, the Senate could pass parts of the CHOICE Act in a budget reconciliation bill, so you wouldn't need to get the 60 votes. You would just need the 50, well, 50 and a tie-breaker, 51. That's, for a while, it looked like that was going to happen in this reconciliation bill, that they were going to put some parts in there. But I don't think that's going to happen now. I think that's pretty much off the table. However, they can come back next year and do two reconciliation bills if they want to, and put some of this stuff in a reconciliation bill. Same deal, you only need the 50, you don't need the 60. The House doesn't need to pass the bill again. This is already done. They could take those pieces and roll them in there.

Michel: The reason, one main reason, is that the CBO, the Congressional Budget Office, scored the CHOICE Act, and it showed that it was a budget-saver. That opens up a whole new world for you in the Senate. The two items in CHOICE that scored the best in terms of budget savings, and don't ask me how they got this, but this is what they did, are the CFPB reforms, restructuring the Consumer Financial Protection Bureau. And the Title Two, orderly liquidation repeal. That one is I think one of the more interesting ones, really. The Title Two orderly liquidation is supported by a taxpayer-backed fund, so that's how you get the cost savings. That deals with that.

Beckworth:  That's seems… yeah.

Michel: But what's interesting about it is that a lot of large banks like Title Two, and they say, "No, we need a good Plan B if we have financial trouble, and that's a great Plan B." Well, the fact that they want to keep that should tell you something about what that means. It's a lifeline, and what's even more interesting is that if you ask the Democrats and more Left-leaning policy people on Dodd-Frank, what was the big thing in Dodd-Frank that really makes us safer and that really is going to get us out of a crisis next time in a better way, they'll point to Title Two. They'll point to orderly liquidation. They'll say that that's protecting taxpayers and it's a good resolution process, and we can't do bankruptcy.

Beckworth:  Let's step back for a minute. So you mentioned orderly liquidation authority. You mentioned also the financial stability oversight council, FSOC. Again, I know what this is and you know what it is.

Michel: There's a lot there, I know.

Beckworth:  But let's step back, and why don't you explain, how would in theory this orderly liquidation authority, Title Two ...

Michel: Title Two.

Beckworth:  Why are there so many fans for it, what is it supposed to do, and then spell out why you think it's a bad idea.

Pros and Cons of the Title II Liquidation Authority

Michel: So what it's supposed to do is let the FDIC and the Fed come in and resolve a failed bank.

Beckworth:  Okay, like in the midst of a crisis, some big bank is crashing, and they can come in and save it.

Michel: That's right.

Beckworth:  They have unlimited funds to do that, or what?

Michel: Basically yes. The idea is that they would, for the first time, they would essentially, they could essentially wipe out the holding company to keep the subsidiary open. That's bad idea number one, because everybody knows going in that the whole goal of this is to keep that subsidiary open, no matter what. It exposes really how screwed up our framework is. You have this bank holding company structure in place for a lot of large banks, and the holding company does nothing but holds some capital. They don't do the operating. They're not the one that's out there making loans and so forth. The only reason that we have that bank holding company structure is because bank holding companies were created to get around the branching laws, the branching restrictions. Well, we don't have the branching restrictions anymore, so we really don't need that structure anymore. But that's how this has evolved. Now I'm getting way into the weeds. So bad idea number one is to pre-announce that we're going to wipe out one company to keep up the subsidiary.

Beckworth:  Let's make that concrete. Like Goldman Sachs, that's a bank holding company, but then the actual ...

Michel: Little operating companies that do the business.

Beckworth:  The actual part of the bank that does the business, it's a separate entity.

Michel: That's right.

Beckworth:  So the Fed, the FDIC would come in and say, "Okay, the bank holding company, you're done, you're gone. We're going to temporarily nationalize this until we get it sorted out and fixed and put funds in." Is that what they would do or would they ...

Michel: Well, it is supposed to be liquidation, but when they say liquidation, they're talking about the holding company.

Beckworth:  Okay, so it gets liquidated.

Michel: They'll close the holding company.

Beckworth:  But they will, will they infuse funds into the operating entity?

Michel: They will, they will.

Beckworth:  Okay.

Michel: They'll only do this, by the way, if the Fed and FSOC certifies that, and Fed is really the primary player here. They certify that there are no viable private funding sources, so that's, they'll only do that at that point. Then they'll come in, and then if they don't have enough in the holding company, then whatever they do is supported by the orderly liquidation fund. Which is, you could just sort of think of that as, just like the Federal Deposit Insurance Fund. It's a murky thing, but it's ...

Beckworth:  Is it funded right now?

Michel: No, it is not yet. It is not yet. It would be assessed, it would be funded by assessing fees on other companies.

Beckworth:  When does it kick in? I mean, when does it ...

Michel: When they do it.

Beckworth:  Oh, oh, so it only gets funded in the midst of a crisis, then.

Michel: That's my understanding. Now I'm not the Title Two expert, I'll preface that.

Beckworth:  Okay, okay.

Michel: It is not, as of yet, it is not funded, and it would only kick in if they need to do it, and they would only assess you later.

Beckworth:  Again, on its behalf, in its defense, it's a way to kind of formalize what was done during a crisis in an ad hoc manner. The advocates would say, look, we're just trying to be more transparent, more ...

Michel: Right, that's right.

Beckworth:  Here's step one through whatever, that will lead us through, instead of making this up and looking like we're the rich guys, we've told you ahead of time what we're going to do. That's their argument, right?

Michel: That's it, that's it. From their standpoint, it's this open, sort of pre-announced bankruptcy thing, but they're not calling it bankruptcy. One of the big differences is that you don't run it through a bankruptcy judge. You don't run it through bankruptcy experts.

Beckworth:  You have the bureaucrats ...

Michel: You have the FDIC doing it, yeah. If you talk to anybody at the FDIC, they'll be kind of like, yeah, we can't do this. I mean, we don't ... There's a lot of issues and problems with closing down small banks. So that part is a practical problem that nobody is really saying too much about, because they hope they never have, I guess they hope they never have to do it.

Beckworth:  So on paper, it looks great, but in practice, it'd be much more difficult for the regulators that wind down a bank.

Michel: Very much so.

Beckworth:  A big bank.

Michel: A big bank, yeah. I think that, too, one thing ... So aside from the taxpayer, ultimately taxpayer-supported fund to do this, it's the wrong idea to set something like this up. It's based on the wrong premise. Just like we have bank resolution based on, that goes through the FDIC, based on the wrong premise. That premise is that bankruptcy is disorderly. The truth of the matter is, bankruptcy itself came out of common law. It was always designed to prevent an orderly, I'm sorry, not to prevent, but to get an orderly resolution of a failed company. That's the whole point. Everybody talks about the Lehmann failure, how big of a disaster it was, and all that. But if you read the report, the bankruptcy report for Lehmann, it actually wasn't a disaster. It actually worked fairly well. Will somebody lose some money? Probably so. But somebody is going to lose some money anyway, and that's not the point. You can actually do this in an orderly way.

Michel: Other company, I'm sorry, other countries do have different bank resolution procedures from what we have in the U.S. They do like a temporary open bank policy, which we actually used to have here in the U.S., but we stopped doing.

Beckworth:  What is that?

Michel: So you would say, okay, what we're going to do is we're going to, and this is just for example. We'll close the bank this weekend. We're going to open back up on Monday on a limited basis. People who have insured funds can come and get their funds, and then we're going to shut the bank down.

Beckworth:  Okay.

Michel: Something like that. You'll have rules ahead of time that say, again, just for example, if you have insured funds, you can come and get 75% of them out when we reopen the bank. You'll get your money, you'll get your other 25% later, but you have to let us work through all this stuff.

Beckworth:  Okay.

Michel: Something like that. That's the way they would do that. That's not what we do here.

Beckworth:  Is the concern then that you're sending a signal that you can be more reckless? I mean, is there the signal that banks know that this ... I guess there's always been that, for like FDIC banks, right? Smaller banks.

Michel: That's right.

Beckworth:  But you're saying this basically, the concern is you're extending this moral hazard to the big ...

Michel: To the largest, that's right.

Beckworth:  Largest.

Michel: That's right.

Beckworth:  The [inaudible] like the systemically important banks, the Goldman Sachs of the world.

Michel: Yes, yes.

Beckworth:  Okay.

Michel: And those are run by lawyers. This is going to, you're going to have a deal-making sort of orgy fest here, when you do this, right? It's not clear that you get anything better in any way, shape, or form, than you would if you just let them go through bankruptcy.

Beckworth:  Okay, I think one of the arguments they would make, maybe Ben Bernanke can make this argument, is that if you go through bankruptcy, you know, it's the weekend, judge goes home, whereas they can come in and be super regulators, save the day. What's the response to that?

Michel: When I stop laughing, the judge does not go home, and the judge has a hell of a lot more experience doing that sort of thing than the Fed does.

Beckworth:  Okay.

Michel: The last thing in the world we need is the Fed who literally controls the spigot of money saying, "Oh, yeah, we'll come in and clean everything up. Everybody knows that ahead of time. Why do you care?" You know, I mean, that's, if you look at a really granular level at the derivatives contracts, we made a big change in '05, 2005, just before the financial crisis, where we took all the mortgage-backed securities and all these derivatives that blew up. We said, "You know what? We're going to give you guys some extra preferences in bankruptcy. You're going to be first in line." How did that turn out?

Michel: I mean, the system is so screwed up, it is, for the Fed, or for Ben to say that makes sense, because that's what he was running, right, and he's going to protect his legacy. I get that. But for the Fed to say, "We'll clean it up," is effectively nothing more than saying, the federal government saying, "Don't worry about it. We're going to pump all the money we need into this. Everybody relax." There is a moral hazard component to that. That's not a market, that's not a market-based allocation, that's not, you lose an enormous amount of information, pricing, interest rates. You've got an enormous amount of, I don't know if people know this, but when you go to Capitol Hill, you've already got an enormous amount of lobbyists. That's how legislation gets made.

Michel: The danger that this poses to that is quite frankly enormous. I mean, we're talking about enormous financial institutions, trillions of dollars at stake, and it doesn't make any sense to ...

Beckworth:  Right now, they're probably actively lobbying to preserve the orderly liquid authority?

Michel: Oh, they absolutely are. They absolutely have been lobbying to preserve orderly liquidation. No doubt. No, and that's a matter of record. You don't have to believe me, you can Google that one.

Beckworth:  Okay, so they're very, they love it, they love it, because they know it's basically a backstop for them.

Michel: That's right. And they admit that. They don't shy away from that.

Beckworth:  Okay. So it's interesting. On the one hand, maybe the Left, more progressives, the folks who marched on Wall Street, they want to preserve this, and the very banks that bother them are also wanting to preserve it.

Michel: Mm-hmm (affirmative).

Beckworth:  Have they wrestled with this observation, that why is Wall Street on my side?

Michel: Yeah. This has been brought up in hearings. I know for a fact that it happened in one hearing that I testified. Some of the Republican members of Congress pointed it out, just like you did, and I didn't hear any good answer while I was there. I didn't even hear them address, I didn't even hear the Left, the Democrats address it.

Beckworth:  It would be interesting to ask maybe, it would be interesting to ask some of the participants of Occupy Wall Street.

Michel: It would be, yeah.

Beckworth:  What do they think of the fact that Wall Street is actively lobbying, spending lots of money to keep the orderly liquidation still around?

Michel: Yes. It would be interesting. I don't know if they know what Title Two Dodd-Frank is, but it would be interesting.

Beckworth:  Well, some of them must.

Michel: Some, no, I'm ...

Beckworth:  But here's I guess ...

Michel: Bernie Sanders. It'd be great to ask Bernie Sanders.

Beckworth:  Yeah, it would. I'll have to have him on the show, see if he'd come on. So let me step back, because we're talking about the CHOICE Act. This Title Two part, this orderly liquidation, is it authority? Am I saying this right?

Michel: Orderly liquidation authority.

Beckworth:  Yeah, so O-L-A.

Michel: O-L-A, and there is an orderly liquidation fund, so it's ...

Beckworth:  Okay. The orderly liquidation authority seems to be the most contentious part, you think, between Democrats, Republicans on the Hill? If that weren't a part of the bill, do you think the bill would be more palatable?

Michel: Well, CFPB is pretty contentious, too.

Beckworth:  Okay.

Michel: I don't know ...

Beckworth:  The consumer protection part.

Michel: Yes.

Beckworth:  Now that one you're not getting rid of, you're just changing.

Michel: That's right.

Beckworth:  Where the orderly liquidation authority, you're completely [gunshot sound].

Michel: Kill it completely.

Beckworth:  Kill it, yeah. You're shooting it.

Michel: Yeah, so in some respects, the Consumer Financial Protection Bureau part is more contentious.

Beckworth:  Okay, interesting.

Michel: But in others it's not. They have a problem in that there is a pending case, possibly going, we're talking possible Supreme Court stuff here, where the lower courts have ruled that the existing structure of the CFPB is unconstitutional. There's pressure to change the structure anyway. It depends on how that plays out. If the appeals court rules, I think it's called En Banc, En Banc, if they affirm the lower court ruling. I'm sorry, if they affirm the original appeals court ruling, then you're headed to the Supreme Court, and then the Democrats actually have a stark incentive to say, okay, we better change the structure of this thing.

Beckworth:  Before it goes to the court.

Michel: Yeah, yeah.

Beckworth:  Let's at least have some influence over how it gets changed, given that it's not going to be abolished.

Michel: That's right.

Beckworth:  It's going to be there. Let's make sure it's more to our liking. All right, so again stepping back, we have the CHOICE Act, we have these different pieces of it. You mentioned it could pass next year more likely, most likely, with a budget ...

Michel: Pieces of it.

Beckworth:  Pieces of it. So couple questions. Number one, the CBO shows that this bill overall is good for the budget, lowers the deficit.

Michel: Right.

Beckworth:  Can you throw, I guess my question is, you're putting pieces of this bill into budget reconciliation, but you said the CBO maybe looks at the orderly liquidation authority as what saves money. If you put another piece, does it matter that maybe that piece wasn't the source of the budget savings?

Michel: It would matter in that they have to get savings, but it wouldn't matter in that they could still do it. Then you get into questions of, are you violating what's called the Byrd Rule in the Senate? Is what you're doing actually budgetary, or is it just some policy thing, with no budgetary component?

Beckworth:  Oh, okay. Little gray area there then.

Michel: It is very gray, because the truth on that one is, you can get away with a lot if you want to.

Beckworth:  You could say, the CBO overall says this is a great bill, but this piece, well, we're not so sure.

Michel: Yeah, yeah.

Beckworth:  I guess, here's my question. What I would like to see if there's one part of this holding, let's set the FORM Act aside, because I like that, too, but in terms of the bank reg part, the one thing I would really like to see is this off-ramp part passed.

Michel: Yes, yes.

Beckworth:  Even if the FSOC or the orderly liquidation doesn't change, it'd be great to have this option for banks. Now and just to be very clear, this regulatory off-ramp, this, if just that part passed, Dodd-Frank would still stand.

Michel: Oh, yeah.

Beckworth:  It just would be an alternative option if you had enough capital, right?

Michel: That's exactly right.

Beckworth:  Who, I mean, who can really argue with that? That seems very innocuous. If you fund with, isn't it 10% capital?

Michel: Yes, yes, it is.

Beckworth:  Okay. Now I imagine the devil is in the details, like how do you actually measure that, though, right?

Michel: It is, is it. They use a flatter capital ratio, if you will, so it's not a completely risk-based capital ratio like we have in Basel. But it does, in the bill, it does use the supplementary leverage ratio, which is technically part of Basel, and you, it uses risk weights on derivatives.

Beckworth:  Okay.

Michel: So it's kind of like you're going to get out of the Basel requirements if you meet one of the Basel requirements. But you don't have to do it that way. I mean, you could do it other ways, and you could do other definitions of equity ratio.

Beckworth:  Okay.

Michel: But it makes a big difference in how you define all the terms. Off-balance sheet items, derivative contracts and so on.

Beckworth:  All right. We could have a whole show on that, but let's move on to another chapter. This is all very fascinating. Chapter 23 in the book is titled A New Federal Charter for Financial Institutions. So talk us through that.

A New Federal Charter for Financial Institutions

Michel: Sure. That's a great one. I like that one a lot.

Beckworth:  Because you authored it.

Michel: I wrote that one. It plays off of this idea of the capital election.

Beckworth:  Okay.

Michel: It says, we're going to create a new optional charter, it's strictly optional. If you want to get out of a whole bunch of regulation, you can avail yourself of this banking charter, or this, I would call it a financial charter, this financial charter, if you have a higher equity ratio. It goes off that, it dovetails nicely off of that. It opens, the way that I've conceived the chapter is just as a concept. This is very flexible. You could do, you could probably do even more than one of these, if you wanted to, but the idea is to say, we're not going to have somebody under this charter in the federal safety net. If you have this charter, you have no FDIC deposit insurance, you don't have access to the Fed.

Michel: However, you don't have to abide by the remaining Glass-Steagall restrictions. So you could be a universal bank. You don't have to apply by the TILA rules, truth in lending act, the Home Mortgage Disclosure Act, the, put a whole bunch of them there, the Community Reinvestment Act, the Basel requirements. All these things that add up. The anti-money laundering laws under the Bank Secrecy Act, the know-your-customer rules, you have, I have in the chapter, I have an enormous list of regulations that you could exempt the financial firm from. It's flexible enough that you could play with the ratio, the capital ratio, and the regulations. If somebody in Congress wanted to do this, you could introduce it, and French Hill actually has introduced something similar, called it the Hamilton Charter. You don't have to have the exact ratio that I have in the chapter and the exact list.

Beckworth:  Just to be clear, let me step back. The essence of it is, the more capital the bank funds with, the more regulations they get out of.

Michel: That's it. And it's strictly optional.

Beckworth:  Okay.

Michel: You don't have to do this.

Beckworth:  You're not forced to go down the path.

Michel: That's right.

Beckworth:  It'd be kind of a bigger and better version of this off-ramp provision in the CHOICE Act.

Michel: That's right.

Beckworth:  You're, correct me if I'm wrong here, but you're saying, as you get more capital, then you get an extra regulatory ...

Michel: That's right.

Beckworth:  Each, at some level ...

Michel: No, that's the idea, yeah.

Beckworth:  There's incremental steps.

Michel: It's incremental, yeah. It's the same principle as CHOICE except that it lists many of the onerous regulations that everybody complains about, and it puts you essentially, if you're somebody who wants to start a bank or has a bank, it kind of puts you out there and says, "All right, you've been complaining about all these regulations. If you want to get out of them, here, you can get out of them. But you have to do this. You have to have higher equity. If you really want to do this, there's your shot."

Beckworth:  Okay.

Michel: If nobody chooses it, it's no loss. Nobody's going to do it.

Beckworth:  Very interesting. One of the things you bring up in this chapter is the idea of extended liability for shareholders as well.

Michel: That's right.

Beckworth:  Talk about that.

Michel: So this is, we wrestled with this. We used to have extended shareholder liability in banking in the U.S., and we've gotten away from that. You can see in the graph that's in there, and in other places, you can see that as that has happened, the equity ratio has come down. Which makes a lot of sense, right? If you have shareholders who are on the hook for their investment and for additional losses, the bank is going to be much more careful, the bank is going to hold higher capital. It's going to have a larger buffer in case anything goes wrong.

Michel: When you take that away, well, you take away the incentive to hold the larger buffer, you take away the incentive to have a higher equity ratio. That's what's happened. It's also happened in the non-banking financial sector, as those companies have converted. They used to be partnerships, which is of course a form of extended liability.

Beckworth:  So this would be the Wall Street firms. There used to be a lot of partnerships, right?

Michel: Right, that's right.

Beckworth:  Okay.

Michel: The Goldmans and the Bear Stearns and the Lehmann Brothers, and everybody. They all used to be partners.

Beckworth:  Let's talk through a specific example. If you were like a partnership, like law firms are partnerships.

Michel: Right.

Beckworth:  These that were financial firms, like Goldman that were partnerships, and if something went wrong, the partners were liable.

Michel: Right, that's right.

Beckworth:  I mean, they literally had to fork over the money.

Michel: Financially liable.

Beckworth:  So if I'm a partner, I'm like, okay, let's make sure we got things sound in this institution.

Michel: That's right. It used to be a sign of strength and comfort, and a way to tell people who were going to invest with you, we are sound and we're so confident that we're sound that our money is on the line.

Beckworth:  What started changing that? I mean, that wasn't like an act of Congress. That was just, they kind of, did they voluntarily start doing this?

Michel: Yeah, throughout the depression, it started changing. Then by the time we got out of there, then it was over, so you, I don't know that there was any one thing that changed it. I think it's just, through time, that's happened. I've heard people say that in order to get FDIC funds and in order to get Fed access to the ... I don't know that that's really true. I've heard stuff like that, but over time, I think competitive pressures to raise funds, and just to not have that, no reason to have that liability any more, those things have changed.

Beckworth:  But what's fascinating is, it was even recently that some firms were still doing this. You've shown in your chapter that Goldman Sachs retained unlimited shareholder liability until 1999.

Michel: Mm-hmm (affirmative).

Beckworth:  Now of course many of them had done that. You also mentioned a firm named Brown Brothers Harriman today provides private banking and other financial services while retaining unlimited liability for its general partners. There's actually still a firm that does that, but there were partnerships as important, as big as Goldman Sachs in the late nineties that still did this.

Michel: That's right.

Beckworth:  It's amazing today, it doesn't even cross our radar screen.

Michel: No, that's right. If you talk about saying something like, "Okay, we're going to have, the way we're going to deal with the stability problem is we're going to have the Citibanks and the Morgans of the world convert to partnerships," you don't go very far, very fast with that conversation. Because, no, they don't want to do that. They don't want their shareholders to have that kind of liability. Their shareholders don't want that kind of liability, and if they don't have to, then they're not going to.

Beckworth:  Well, let me ask a practical question, because I like this idea. I mean, Josh Hendrickson had an article he wrote, that I read, he called it contingent liability.

Michel: Yes.

Beckworth:  But I love the idea, because I think most people agree who've thought about this, that yeah, we need banks and financial firms to borrow less, to fund more with capital, fund with their own money. But what's the optimal amount? No one really knows for sure. Sure, it needs to be higher than it's been.

Michel: That's right.

Beckworth:  Okay, I think we can agree on that, but how much is right amount? What I kind of got out of reading this Hendrickson article is that if you incentivize the managers, the shareholders, they'll figure it out.

Michel: Yeah.

Beckworth:  And each institution is different. You make them, you incentivize them by making them liable beyond their own investments, you know, double, triple liability. I love that idea, that they could figure out the optimal amount of capital they need. But here's the challenge. With partnerships, I could see how that could work. How would it work in a Bank of America, where there's literally thousands of shareholders? How would you operationalize that?

Beckworth:  I mean, would Grandma down the street who has a share in her fund be liable?

Michel: Yeah, she has to kick in three times the amount she put in, yeah. I mean, it does raise practical concerns. On the one hand, however, it could be as simple as what I just jokingly said. Which is, if you're a grandmother down the street, and you have 50 bucks, well, you're liable for 150.

Beckworth:  Yeah.

Michel: I mean, so you could do that.

Beckworth:  You'd have to, I guess as an investor, you'd have to know up front, if you buy this share, you could be double or triple liability.

Michel: Double or triple, yeah. And that's really it. I mean, it's just that simple. However, that's not so simple, right? Because you have to convince people to do this, and you're not going to convince people to do this under the current environment. It would have to be an act of Congress that did this, and then there's the question of what will happen when you do this. Will anybody want to invest in a bank? That's the immediate pushback. Well, if other companies don't have triple liability, I'm sure as heck not going to put my money in a bank. I'm going go somewhere else.

Beckworth:  Maybe that's where partnerships then come back in. If the public didn't want to invest in banks, maybe ...

Michel: Yeah.

Beckworth:  But I guess it just, the logistics seem a bit daunting that, I don't know how many people own Bank of America, but just, if you had to, if I'm the government and I had to enforce, I had to go after, there's a crash. I have to go out and collect money from all these ... And maybe there'd be apparatus in place, but so some of the operational details seem a little gray, but ...

Michel: Owning the mutual fund shares would be, would complicate it even more.

Beckworth:  Yeah, no, exactly. You indirectly own. Would the fund that manages the fund pay for it, or would I pay for it? But it ... Go ahead.

Michel: Well, I was going to say, and that's why we went in a different direction in that chapter. We talk about this principle, and we say, that would be great, but it'd be tough to pull off.

Beckworth:  Operationally it'd be hard to do, right.

Michel: Yeah, so we went with the ...

Beckworth:  It's something to think about at least.

Michel: Oh, yeah.

Beckworth:  The beauty of it is, I guess, it aligns incentives with how much capital is in the system.

Michel: Which is the right idea.

Beckworth:  Yeah, and again, I encourage listeners to take a look at the chart in their book where they show, I mean, capital as high as 50% or more ...

Michel: Yeah, almost 60 before the Civil War.

Beckworth:  60% in the 1800s, and it kind of comes down as that liability ...

Michel: Steady drop.

Beckworth:  Liability begins to shrink. Okay. In the time we have left, because there's a lot more in this book that I'd love to get into. You have a, I'd encourage listeners to look at chapter nine, it's on reforming the financial regulators. Let's just touch on that briefly, okay. We only have a few minutes left.

Reforming the Financial Regulators

Michel: Okay.

Beckworth:  Because there's some interesting ideas in there. There's two ideas I want to touch on. Number one, you guys, and this is, there's several authors. You're one of them. But you get into a discussion of there's a move towards a super regulator of the financial system.

Michel: Right.

Beckworth:  Right now, there's still many regulators, and you have a neat little graph that shows all the cross ...

Michel: All 15.

Beckworth:  Yeah, is there 15, 15 or ... Okay. On one level, it's like, yeah, why do we have so many different regulators? It seems confusing. I imagine if I'm a bank, I have a state regulator that comes to me, the FDIC comes to me, the Fed comes to me, maybe the OCC comes to me. I have all these different regulators that overlook me that might have conflicting goals, and one may say one thing, another ... Okay, one regulator makes sense. But you guys are actually worried about a move to one super regulator. Why is that?

Michel: Yeah. And not only in principle, but in the way that it's been going, it looks like it would be the Fed.

Beckworth:  Okay.

Michel: Which would be the worst of both worlds in the sense that you shouldn't have the monetary authority also, again, getting back to what I said, being, having the money spigot, also being the regulator. The Fed, as the prudential regulator of the largest banks in the world, is not going to stand up and say, "Yes, we have messed up, and JP Morgan isn't solvent. And we need to close them down. We messed up." That's not going to happen. It's not. They're going to keep it afloat. That's not what you want. You don't want an insolvent bank propped up by the federal government or the Federal Reserve. We need to separate that.

Michel: In addition to that, I think you run the risk, and we make the case that you run the risk of whatever, whoever that super regulator is, treating everything sort of like a bank and you give this broad mandate of financial stability. Under a mandate like that, you have a lot of cover to do pretty much anything. Now we're going to be regulating banks, broker dealers, payday firms, all these guys as systemic concerns, and we're going to be doing what? Giving them capital requirements? Making them being examined all the time and doing all these things that might make sense for certain banks but probably don't make sense for everybody else. But we're going to essentially impose that bank model on everybody, and that's what we push against.

Beckworth:  Okay, so I guess the big concern about having one super regulator is it'd be a one-size-fits-all, cookie cutter which would not make sense across very different financial firms.

Michel: That's right. And that's kind of the way every government agency ends up doing things in their sphere.

Beckworth:  Yeah, I mean, and it's understandable, because they don't have expertise ...

Michel: Yeah, perfectly understandable.

Beckworth:  They don't have expertise in everything.

Michel: Right.

Beckworth:  And they're probably, you often hear, the regulators are often lagging behind in innovation so it's hard for them to stay current. All right, let's move to the last ... There again, there's more in this chapter, all fascinating, but another point you raise and you just actually alluded to it. But you guys would like to see the Federal Reserve focus only on monetary policy, and have all of its regulatory duties taken from it. Now that may seem really radical to our listeners, but the Bank of Canada does that. Isn't that the way, isn't Canada ...

Michel: Yep.

Beckworth:  Bank of Canada just does monetary policy. Inevitably, there will always be some indirect influence on how banks are doing, payment system issues, stability of the macro economy, those things. It will still do that, but it won't be in business of sending regulators to check up on banks.

Michel: Into the bank, right. That's right. One of the interesting things is though, I find interesting anyway, is that when Dodd-Frank was being crafted, Senator Dodd actually had the draft legislation to do just this, to carve that function out of the Fed ...

Beckworth:  Really?

Michel: I mean, they didn't do it.

Beckworth: I imagine the Fed said, no, no, no, no, no.

Michel: I imagine they did. I mean, it was there, it's been talked about.

Beckworth:  Of course, again, looking to Canada, they have their banking regulatory structure separate from the monetary policy structure, and they have had a very sound financial system. Now there's other thing, factors.

Michel: Lots of others, yeah.

Beckworth:  But maybe that's one thing that contributes to it. Well, we are out of time. This has been a fun conversation. Could keep going on, but we do need to let our listeners go. Our guest today has been Norbert Michel. Thank you so much for coming on the show.

Michel: Thanks for having me, David.