Turkey’s Central Bank of Erdogan

This is an audio transcript of the FT News Briefing podcast episode: Turkey’s Central Bank of Erdogan

Marc Filippino
Good morning from the Financial Times. Today is Friday, October 22nd, and this is your FT News Briefing.

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Marc Filippino
The US Federal Reserve is banning top officials from making individual financial trades. Former US president Donald Trump plans to capitalise on his massive following with the new social media company that’s just merged with a Spac. And while central banks around the world are raising interest rates, Turkey’s central bank just slashed its.

Katie Martin
President Erdogan. He’s no fan of high interest rates. He’s described high interest rates as the mother and father of all evil.

Marc Filippino
That is, of course, our markets editor, Katie Martin. I’ve a great chat lined up with her, she’ll untangle what’s going on in Turkey and this week’s crazy story involving the cryptocurrency company, Tether. I’m Marc Filippino. And here’s the news you need to start your day.

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Marc Filippino
A few weeks ago, two top Fed officials resigned after it came out that they had made questionable financial trades. The trades took place last year just as the US central bank was ushering in pandemic monetary policies that would turbocharge markets and asset prices. Now, at the time, there was nothing in the Fed’s rule book preventing these officials from making these trades. But yesterday, the Fed changed all that. It banned its policymakers and senior staff from buying individual shares and a number of other investments. The FT’s Washington bureau chief, James Politi, explains why it moved so quickly.

James Politi
Some of the criticisms of these financial trades really kind of attack kind of the heart of the Fed’s credibility as it sets policy. If there’s any sort of whiff of conflicts of interests or officials trading based on what they know or based on where they expect the markets to go, then it’s certainly very damaging. I think the other reason it was important for the Fed to act quickly is because the White House is in the midst of deciding the fate of sort of the future leadership of the US central bank. Jay Powell’s term as Fed chair expires in early February. And on Capitol Hill, the revelations about these financial trades have certainly led to increased criticism and scrutiny of Powell and the rest of the Fed. So I think it was important for him to tackle this sort of very quickly.

Marc Filippino
James Politi is the FT’s Washington bureau chief.

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Marc Filippino
This week, Donald Trump announced he’s launching his own online media platform that will compete with Twitter and Facebook, both of which banned the former US president from their platforms. Trump will theoretically be able to tweet from his own social media site, which he promises will have non-woke content. Now, the company behind Trump’s new site is called Trump Media & Technology Group. The former president’s company is set to secure a public market listing after merging with something called a special purpose acquisition vehicle, or Spac. It’s an investment vehicle that allows new companies to list without the rigour of a conventional listing. To talk more about this, I’m joined by our US Lex editor, Sujeet Indap. Hi, Sujeet.

Sujeet Indap
Hi Marc, good to be here.

Marc Filippino
So first of all, why is Trump taking this company public and why via Spac?

Sujeet Indap
Yeah, this is a chance for for Trump to both monetise his incredible following and at the same time, raise fresh capital for this new media venture, which he wants to launch. He was, of course, banned from Twitter. Part of this venture, TMTG, will be a social network where apparently he will be able to tweet. And so the Spac market, there’s been kind of a revolution there. The Spac itself raises capital from investors, and then private companies are able to both go public but also get access to that cash. And both of those things could be attractive to someone starting a new venture. And in this case, it’s the former president launching a media company.

Marc Filippino
So Sujeet, what do you make of Trump’s going public via Spac right now?

Sujeet Indap
Yeah. So there has been this wave of Spac deals. Companies dozens, probably hundreds now that have gone public via Spac. In the last year, there was a hot market for several months. It’s cooled off substantially in recent months. And the reason is oftentimes these companies are very immature. Their forecasts are very uncertain, and there’s been a real kind of pullback in risk. And so this deal has many of the hallmarks of transactions where there is a real concern about viability of the company. Again, there are no forecasts. There’s no real business plan. Trump is, as the deal closes, you’ll have access to hundreds of millions of dollars in cash. This is the type of business that wouldn’t probably be able to go public in a traditional way. And so whether this transaction gets done, whether investor protections are actually realised and investors and Spacs have a chance to evaluate a deal or they don’t like it, they can get their money back. And so if there are mass redemptions as they’re called, people calling back their money, that will cast doubt both on Trump, but also this particular Spac or blank-cheque vehicle that raise all this money with the hopes of doing a legitimate transaction.

Marc Filippino
Sujeet Indap is the FT’s US Lex editor. By the way, the name of the Spac that Trump’s media company merged with to access public markets is called Digital World Acquisition Corporation. At the close of trading yesterday, its shares were up more than 350 per cent. That means the hedge funds that invested in Digital World Acquisition last month could enjoy millions of dollars in gains.

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Marc Filippino
Turkey’s currency, the lira, tumbled yesterday after the country’s central bank slashed interest rates by a whopping two percentage points. This comes as other central banks are raising interest rates to grapple with post-pandemic inflation. Turkey also has inflation, quite a bit of it, and it’s now hovering around 20 per cent. To figure out what’s going on, I’m joined by our markets editor, Katie Martin. Hey, Katie.

Katie Martin
Hey, how are you doing?

Marc Filippino
I’m doing good. So we’ve reported on Turkey’s central bank doing things that don’t make sense to mainstream economists. But Turkey’s President Recep Tayyip Erdogan he has a, he has a thing against high interest rates, right?

Katie Martin
So the situation with the Turkish central bank really has been bubbling up for ages, for years. So President Erdogan, he blames high inflation on mysterious lobbies and thinks that higher interest rates actually cause higher inflation, which is out of step with the rest of the modern world, basically. He’s described high interest rates as the mother and father of all evil. He’s fired several central bank governors over the past few years, and just the other day he fired another three members of the central bank rate-setting committee. So, you know, it has been called the Central Bank of Erdogan, rather than the central bank of Turkey.

Marc Filippino
And that can’t possibly be making the place very attractive to foreign investors who the country needs?

Katie Martin
A lot of foreign money has already left the country. Frankly, a lot of big foreign investors have already said, “OK, I’m out. I don’t understand what’s going on with interest rates, and I don’t particularly like the politics.” So what this means is that it’s actually ordinary Turkish people, you know, the cost of imports of all sorts of things and including fuel, but also just everyday goods that’s jacking up its jacking up the debt servicing costs for companies. It’s really a cost of living issue for ordinary people in Turkey, and it’s quite sad to see. But yet it’s just really hard at this point to see what can it turn around because we’ve had quite a few of these interest rate cuts and we’ve thought, OK, maybe the central bank has kind of in some way humouring the president. Now it just feels like it’s game over and President Erdogan is absolutely in control.

Marc Filippino
Katie, you wanna switch gears to a totally different topic, cryptocurrency? There was a really crazy story this week involving the company Tether, which operates a kind of cryptocurrency called stablecoin. Katie, I’m gonna hand the story off to you to explain, because there was just a lot going on here.

Katie Martin
Oh, there is never a dull moment with the Tether story. So tell me to start with the basics, right? This is stablecoins of which Tether is the biggest. They’re like kind of dollars that live online. If you wanna jump in and out of crypto coins like Bitcoin or Dogecoin or whatever it is, the easiest way to do that is not with, you know, normal dollars, fiat currencies, people call it, but with stablecoins. Tether’s the biggest by a long way. There’s about 70 billion of these things kicking around, and in theory, that backed one to one with dollars. But when you actually ask to see what’s in those reserves that back these stablecoins, you don’t get a huge amount of information. And regulators have been kind of nibbling away at this for a while, trying to get more information about its reserves, trying to figure out whether these reserves are big enough to be a financial stability issue in and of themselves. And then enter stage left Hindenburg Research, which is a short-seller and a hunter of bad behaviour of all kinds across the corporate and financial world.

Marc Filippino
And this is a big research fund. Hindenburg took down Nikola, Nikola and Lordstown Motors. You know, they’re in the big leagues here.

Katie Martin
This is one of these short-sellers that people really sit up and pay attention to when they come out with an opinion on on a particular company. Now in this instance, they’re not so much offering an opinion, but what they are offering is a million dollar bounty for information on Tether and its reserves that anybody can claim. Tether didn’t take this terribly well, says it’s a pathetic bid for attention, and says that “Tether is a trailblazer, a special breed in business”. But Hindenburg is serious as that the market deserves more clarity around what Tether is up to. So this is opened up a whole new front in the Tether story that was just fascinating to see, basically. (I’ll be,) yes stay tuned.

Marc Filippino
Katie Martin is the FT’s markets editor. Thank you, Katie.

Katie Martin
Yeah, you’re welcome.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Fiona Symon and me, Marc Filippino. Our editor is Jess Smith, with help this week from Peter Barber, Gavin Kallmann and Michael Bruning. The theme song is by Metaphor Music.

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