Follow Zach on Twitter | Send tips and insights to zwarmbrodt@politico.com Hi, I’m Zach Warmbrodt, POLITICO’s financial services editor and co-author of our Morning Money newsletter. I’ll be your guide this week for coverage of the Milken Institute Global Conference. Good morning and welcome back to Global Insider from a chilly Beverly Hills. The sun’s been struggling to shine here, underscoring the geopolitical and economic cloudiness that has dominated much of the Milken conference's early discussion. But before we get into the gloomy stuff, here’s a taste of what makes top Wall Street executives optimistic about what’s to come. THE BRIGHT SPOTS Global trade is fraying, the U.S. and China may be decoupling, but what replaces the current system might not be so bad, according to finance industry titans gathering at Milken this week. David Hunt, president and CEO of investment giant PGIM, made the case that the world isn’t de-globalizing, but that globalization is becoming more about regional relationships and less driven by China. And in his view, that’s not a bad thing. “The new Globalization 2.0 will be more stable and actually politically more durable because there'll be more countries involved,” he said. Citigroup CEO Jane Fraser outlined where the global bank is seeing economic bright spots. They’re largely “green shoots” in Asia. Japan has “really come out with a lot of vibrancy,” she said, with “tremendous inbound as well as outbound [investment] interest.” India’s mid-market companies are “impressive on the technology innovation, on the green supply chain,” she said. Fraser noted that India has a population comparable to China’s but a smaller economy – and that "smacks of an opportunity there.” As for Hong Kong? The rumors of its demise “are somewhat overdone.” “It feels like it will be an important gateway into China,” she said. NOW FOR THE BUZZKILL Hunt and Fraser clashed a bit over what’s next when it comes to the biggest economic story of the day – potential instability of the U.S. banking system. Milken attendees woke up to news that the government had taken over the ailing San Francisco lender First Republic and was selling it to JPMorgan Chase. Fraser, who helped lead efforts to shore up First Republic with $30 billion of private money in March, tried to project a sense of resolution. “No one likes to see a bank fail,” she said. “But that said, it's good to have, really, the last remaining major source of uncertainty resolved.” Hunt countered that the fallout in the financial system isn’t over. “As our chief economist likes to say: At higher rates, bodies will continue to float to the top over the course of the summer.” “There is a little bit of a tendency to kind of breathe a sigh of relief on mornings like this,” he said. “Actually, we're just starting. The implications for the U.S. economy and more broadly are now going to be pretty profound from what's happened and what may happen going forward.” Then there are fears that the U.S. will default on its debt later this summer — an event that would unleash unknown havoc on the markets and the economy. Treasury Secretary Janet Yellen warned Monday that the government could run out of cash to pay its bills by June 1 if Congress doesn’t pass a bill to raise the debt limit. President Joe Biden invited Congress’s top four leaders in both parties to a May 9 meeting on the issue. The U.S. has been through this before — most dramatically in 2011 — but Fraser said that last week the bank got three times the number of calls than it did the previous week from investors who were nervous. “This time feels different,” she said. “It’s more worrying.” TODAY AT MILKEN Full events details | Watch the livestream FT editorial board chair Gillian Tett interviews World Chess champion Gary Kasparov, Russian opposition leader Mikhail Khodorkovsky and others about Russia’s geopolitical future … Rep. Darrell Issa and CFR vice president Shannon O’Neil are on a panel about the future of global trade … Former Treasury Secretary Steven Mnuchin and Wells Fargo CEO Charlie Scharf talk U.S. economic uncertainty … Arkansas Gov. Sarah Huckabee Sanders and California Gov. Gavin Newsom speak (separately) … Former leaders from the FDIC, Comptroller of the Currency and Treasury talk about the state of banking What we’ll be watching: Former Treasury Secretary Steven Mnuchin told me he plans to talk about the First Republic rescue during his panel Tuesday morning, in what will no doubt stoke an obsession of conference attendees this week. (He declined to say more, not wanting to scoop himself on the specifics.) Mnuchin’s comments are potentially newsworthy for a number of reasons. He ran former President Donald Trump’s economic policy during the last big financial market calamity, Covid-19. He also helped usher through relaxed regulations that are now being blamed for the banking mess. Before entering government, he also led the investor takeover of failed California lender IndyMac in 2009, renaming it OneWest. So we’ll see how he grades the government’s decision to sell First Republic to JPMorgan Chase and whether he thinks there’s more instability to come.
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