President of the Minneapolis Federal Reserve: Carpet Bomb the Country with Money

Planet Money, NPR

Planet Money

Planet Money: Episode 982




Back in 2008, 2009, Neel Kashkari worked for the federal government. He was running TARP, the federal bailout program for the banks and the car companies. Now he works at the Federal Reserve. He’s the president of the Minneapolis branch of the Fed, and he’s on the Federal Open Market Committee. That’s the part of the Fed that sets policy for the whole country. In other words, he was in the room where the key things happened in the bailouts of 2008. And now, like, just this week, as the Fed is trying to prevent the economic crisis from becoming a full-blown financial crisis, he is in the room again – I mean, sort of.



GOLDSTEIN: Hi. It’s Jacob Goldstein.

KASHKARI: Hi. How are you?

GOLDSTEIN: I’m fine, thanks. How are you?

KASHKARI: I’m very well, thank you.

GOLDSTEIN: I’m talking to you from a closet. Does it sound OK?

KASHKARI: (Laughter) It does sound OK.

GOLDSTEIN: Where are you?

KASHKARI: I’m in my basement at home.

GOLDSTEIN: What’s – you’ve got an office there? You’re, like, running the regional Fed from a remote location right now?

KASHKARI: (Laughter) Yeah, exactly. Well, our whole bank is working from home beginning this week.


GOLDSTEIN: Hello, and welcome to PLANET MONEY. I’m Jacob Goldstein. Today on the show, Congress is debating a trillion-dollar bailout for the economy. So I called up Neel Kashkari to talk about the mistakes that he and his colleagues made in the bailout of 2008, what we can learn from them and what the Fed and Congress and the president should be doing to save the economy right now.

Earlier this week, we posted an episode of PLANET MONEY explaining a bunch of emergency programs that the Fed is launching basically right now. The short version of what the Fed is doing is they’re doing a bunch of emergency lending, and they’re doing it to try to prevent this economic collapse that we’re going through right now – to try to prevent that from becoming a financial crisis that would make the economy even worse. And all that emergency lending – that was the first thing that Kashkari and I talked about.

KASHKARI: I mean, this is literally the reason that the Federal Reserve was created. The reason that central banks were created were to be that lender of last resort when there’s so much economic uncertainty that everybody is pulling back. They’re demanding cash because they’re scared. Banks come under a lot of pressure ’cause they just don’t have that much cash sitting around, so they have to turn to the Federal Reserve. And that – we are trying to fulfill our core responsibility in making sure that there’s enough liquidity in the financial system.

GOLDSTEIN: Meaning money, basically.

KASHKARI: Meaning money, yes.

GOLDSTEIN: Wish everybody would just say money when they said liquidity.

KASHKARI: (Laughter).

GOLDSTEIN: So let’s just walk down that road for a minute if we can. I mean, in terms of – so we’re at this moment when everybody wants money, nobody wants to lend. And, you know, now and even more in the coming weeks, more and more people and companies are going to be unable to pay back their debts, right? This is the thing that is starting to happen now. It’s going to keep happening. Like, what happens when everybody stops paying their debts?

KASHKARI: Just the simplest example is think about a landlord and a tenant in an office building or in a strip mall. So the coffee shop shuts, lays off their workers, doesn’t pay their – the owner of that strip mall, and then that owner doesn’t have money to pay their bank because they probably have a mortgage on that.


KASHKARI: And then the bank has bad debts, and then the bank ends up having more difficulty raising capital or raising funding because their bad debt. So it literally can cascade through the economy, and that’s why you actually need the federal government to step in and to provide resources to break these chain of dominoes, which would fall, you know, and causing widespread damage.

GOLDSTEIN: Like, are falling, right?

KASHKARI: Are falling.

GOLDSTEIN: Like, to be clear, it’s happening now, right?

KASHKARI: It’s happening now.

GOLDSTEIN: The coffee shop is obviously closed. I’m not buying coffee. The person who runs the coffee shop can’t pay the rent. The person who owns the building can’t pay the mortgage. The bank can’t function if people aren’t paying the mortgage. Like, that’s the thing that’s happening now.

KASHKARI: That is. And so the good news is the big banks and most banks in America have a lot more of their own capital than they had before the financial crisis.


KASHKARI: So they are better positioned to endure these losses, but only so far.


KASHKARI: And, you know, it’s also happening for big companies, like airlines, which get a lot of attention. I don’t know anybody who’s buying cars right now, so it’s going to affect the auto companies.

And the big question is, is this going to go on for a few weeks? I hope so, but I kind of doubt it. Or is it going to go on for months? And we just don’t know how long this is. And only the federal government has the balance sheet, has the financial resources to support the U.S. economy and to stop the dominoes from falling.

GOLDSTEIN: So you ran TARP – right? – the big bailout of the banks and car companies in 2008 and 2009. And, I mean, one of the reasons I wanted to talk to you was, like, I wanted to know sort of what you learned from that that might be helpful now.

KASHKARI: Well, I’ll tell you. There are two things that strike me. This is obviously a health crisis not starting in the banking sector, so there are huge differences.


KASHKARI: But there are two mistakes we made in the financial crisis that I think are directly relevant that I don’t – I hope we don’t repeat the mistakes this time.

No. 1, we were always slow, and we were timid. We were too small. And the reason is we didn’t know how bad the crisis was going to get, and we didn’t want to overreact. Well, that was wrong. We kept thinking, well, maybe we’ve done enough. And then we’d realize, oh, my gosh, we have not done enough. We need to do a lot more. And ultimately, we had this devastating Great Recession that took a massive fiscal and monetary response to bring the economy back from the brink of collapse.

Well, one of my takeaways is when the downside scenario is that devastating, you should overreact. The right policy response is to overreact to try to avoid that terrible downside scenario. So whether it’s the health policy response or the fiscal policy response or the monetary policy response, we should be erring on the side of doing too much.

GOLDSTEIN: Let’s talk about fiscal policy. That is Congress authorizing money to get out into the economy. Would you say…

KASHKARI: I think they’re moving more quickly than I would’ve guessed…


KASHKARI: …Especially given the partisan politics right now.


KASHKARI: And they’re talking about scale of a trillion dollars, which at least seems like it’s the right order of magnitude. So I think that – I think that our political leaders, as much friction as there is in our system, I think they’ve learned from the financial crisis that you got to move fast and you’ve got to be big. So I’m cautiously optimistic.

GOLDSTEIN: OK. So are move fast and be big – were those the two, or were those one lesson? I forget.

KASHKARI: No, that’s one.


KASHKARI: One lesson is err on the side of being aggressive. The second lesson is don’t worry about targeting your programs. In both the Bush and Obama administrations, and the Congress designed lots of programs to try to help homeowners in 2008 and 2009 avoid foreclosure. But the American people were angry about bailouts, and they said, we don’t want our neighbor who was irresponsible getting a bailout. So we had lots of screening criteria. Well, because of all that, very few homeowners actually got helped by all of our programs. And in my opinion, the housing downturn was more severe than it needed to be. We were penny-wise and pound-foolish.

And so today, in the COVID crisis, policymakers should be focused on helping as many businesses and as many workers as possible, not trying to narrowly target who needs – who’s deserving and who’s not. If we waste time trying to make those distinctions, we’re going to be too late.

GOLDSTEIN: And so specifically, what does that look like? If you turn that sort of general statement into at this moment, the government should do this specific thing but not that specific thing, what is that?

KASHKARI: Well, think about going back to the small business. I mean, if the government is going to try to vet thousands of small businesses – tens of thousands of small businesses to determine, is your coffee shop shut because of the virus, or is your coffee shop shut because you make bad coffee? If they try to make those distinctions, it’s going to be way too late.


KASHKARI: The key is speed, and the key is, is there a way to keep businesses operating and keeping people employed? We have unemployment insurance, but once people leave the workforce and go, you know, they lose their jobs. What we learned after the financial crisis – it took more than 10 years for the labor market to heal, bringing people back to work – ten years. We would be much, much better off as a country if we could get resources to the coffee shops, to the restaurants so they can keep their staffs employed until we get through this. The losses to society individually and to society of unemployment are profound, and they are long endured. So they need to just err on the side of helping as many businesses and as many workers as possible so that we can keep the economy going and keep workers employed.

And, you know, so one thing that I was thinking of this morning. There’s been talk about maybe loans to small businesses. Well, one way to do it – maybe you make the loan forgivable if they actually keep all their staff or they keep 90% of their staff.

GOLDSTEIN: So, OK, that’s businesses – small businesses, obviously important. But what about just regular people? I mean, in particular, we’ve been getting a lot of questions from our listeners about debt – like mortgage debt, et cetera. Is there something the federal government should do about debt for ordinary people?

KASHKARI: I mean, the best way to do it that I can think of in terms of actually implementing it is just sending money to people. And maybe it’s a thousand dollars to everybody below a certain income level, and then if the virus perpetuates for months, you do it again next month, and you do it again next month. And they can decide, OK, I got to use it to pay my mortgage or make my car payment. And then you recognize some people are going to get it, and they’re not going to need it, or they’re not going to spend it, and that’s OK. You just have to be OK with that because if you take the time to try to figure out who really needs it, it’s going to be too late.

GOLDSTEIN: Basically just carpet-bomb the country with money.


GOLDSTEIN: So that’s the policy level. I’m also interested in talking with you about sort of the personal level. I mean, you were the guy who everybody yelled at last time.

KASHKARI: (Laughter) That’s true.

GOLDSTEIN: That was like your job, right? Go sit there in Congress while they yell at you about the bailout. You were the guy in all of the rooms, or in a lot of the rooms, when people were deciding to do this or do that. There is somebody who is about to be the guy or the lady with that job now, right? There’s going to be somebody whose job is getting this trillion dollars out to America. What would you tell them based on your experience?

KASHKARI: Well, I’d say two things. One is hopefully it won’t be as bad because I think most Americans get that this is essentially a natural disaster.

GOLDSTEIN: Yeah, this is nobody’s fault.

KASHKARI: This is not somebody taking some risk, exactly.


KASHKARI: So hopefully, this will be a better environment politically in that scenario. And then second, just focus on doing your job as quickly and as effectively as you can. You’re not going to be able to control the politics. I certainly couldn’t. I doubt this person will be able to. But just focus on getting your programs going as fast as possible. We need speed, and we need execution, and that’s where their focus should be.

GOLDSTEIN: Are there any particular moments from when you were running TARP that come back to you?

KASHKARI: Sure. I mean, I remember, you know, we thought – we really believed that the financial system was literally collapsing beneath our feet. I remember we were all working day and night. I was sleeping in my office. I remember an economist came into my office crying at 10 o’clock at night saying the financial system is collapsing. What are we going to do? And I said, all we can do is focus on what we can control, and what we can control is getting our programs up and running as quickly as possible. And if that’s not fast enough and the system collapses, then we will work to try to put it back together again.

And I think that’s true here. We will get through this. We’ve gotten through very serious things in the past. We will get through this. But there’s going to be a lot of uncertainty along the way and a lot of hardship along the way for a lot of people.


GOLDSTEIN: Who else should we talk to about what’s going on right now? Let us know by email at Or you can find us on social media – @planetmoney. Today’s show was produced by Nick Fountain and Darian Woods. Our editor is Bryant Urstadt. Our senior supervising producer is Alex Goldmark. I’m Jacob Goldstein. This is NPR. Thanks for listening.


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