As Federal Reserve Mulls Interest Rate Hike After Bank Failures, ‘Frontline’ Correspondent James Jacoby Explains How Fed’s “Culture Of Secrecy” Threatens Hollywood And Big Tech

The Federal Reserve is expected to raise interest rates again on Wednesday, continuing its year-long push to curb inflation. But that balance is more elusive than ever given the failures of Silicon Valley Bank and Signature Bank and subsequent meltdowns tied to the new rate environment.

James Jacoby, a correspondent with Frontline, spent years reporting on the Fed’s mysterious ways for an installment of the PBS series, Age of Easy Money. The documentary, which premiered last week and is available to stream for free on the Frontline YouTube channel, details the long series of decisions from the 2000s to today that kept interest rates artificially low. The challenge now: Trying to get companies of all stripes to forego one of the foundational elements that helped them grow.

“Silicon Valley is going through a correction right now, in large part because easy money is over,” Jacoby told Deadline in an interview. The rise in rates “will have massive effects on Silicon Valley, it will have massive effects on the entertainment business.”

An advanced degree in economics is not required to understand the basic whiplash that hit SVB, Credit Suisse and other institutions in recent days. They had invested in various venues under the assumption that the low rates would continue. After the Fed decided to ratchet up rates no fewer than eight times in 2022, they couldn’t adjust in time to limit their vulnerabilities.

Sheila Bair, former chair of the FDIC, blames the Fed for creating the bank failures, which were the worst since the financial crisis of 2008. “If we hadn’t been driving our economy for 14 years with easy money and then trying to really quickly undo that, we wouldn’t be having these problems,” she says in the film. “For a long time, I have advocated for the Fed to be raising rates. Even I believe now they need to hit ‘pause.’ They’ve gone too far, too fast. They need to understand the impact on the financial system and the economy.”

Jacoby, who has done previous Frontline episodes on Amazon and Facebook, and before that investigated intelligence agencies as a 60 Minutes producer, calls the Fed “the most insular and private institution that I have ever reported on.”

Some of that “culture of secrecy” is at least partly intentional. When the central bank was created in 1913, it was meant to be an independent monetary policy body focused on averting the kinds of panics that convulsed the U.S. economy at the turn of the 20th century. In order to retain its focus, it would have to be free from partisan politics. A century later, however, the Fed has been roundly criticized as out of touch despite its stated mission of helping everyday Americans.

“There’s a lot of myopia there,” Jacoby said. “History has shown that they should start to think more about the unintended consequences of their policies.”

Even the terminology used by the Fed to communicate its moves has a stilted, inaccessible vernacular. “Quantitative easing” or “quantitative tightening,” for example, indicate which way the weather is blowing as far as interest rates. “There’s an absolute analogy to the Vatican. Everything’s there except for the white smoke,” Jacoby said. “They might as well be speaking Latin.”

Once the smoke clears, what will the effect be on Hollywood and Big Tech? Jacoby said the landscape is likely to be dramatically reshaped if rates remain elevated. For starters, he said, “the M&A frenzy is over.” As money flowed into venture capital and private equity, those funds looked for upside in areas like streaming and technology, financing deals with low-interest debt. After rates rose sharply, not only have those incentives shifted, but unrealized losses could be hiding in companies’ books. While the federal government’s takeover of SVB and the UBS acquisition of Credit Suisse helped protect depositors, Jacoby feels the threat of contagion has not vanished.

“There are reasons for concern,” he said. “The unknowns here are worrisome. This is a big pullback and it’s going to have big ripple effects.”

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