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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.

GLOBAL RISKS AND TRENDS

NATO LEADER WANTS WALL STREET TO PITCH IN: NATO Admiral Rob Bauer on Monday challenged financiers in the room to do more to help fund the defense industry, citing supply chain constraints that have impacted the war in Ukraine.

“Our liberal economy for 30 years was based on earning as much money as you can, be as efficient as you can — no stock, just in time, just enough,” Bauer told POLITICO editor-in-chief Matt Kaminski on stage at Milken. “We saw with the pandemic, with medical equipment, that it was not enough and too late. And now with the war, we also see it’s not enough and too late.”

The problem, Bauer said, is that defense industry capacity is based on “low average demand.” He urged Wall Street to think bigger than shareholder value and long-term demand signals.

“I challenge the industry to become part of the values discussion,” he said. “What we’ve seen in this situation is when a nation gets into a war like Ukraine — it lost 35 percent of its GDP. And then suddenly everybody who has invested in that country understands that security is actually part of an economic discussion.”

GLENN YOUNGKIN ON CHINA: Virginia Gov. Glenn Youngkin was “long-term bullish on China” as a private equity investor in 2019. As the Republican governor of Virginia in 2023? Not so much.

“The Chinese Communist Party changed,” Youngkin told our Sam Sutton at Milken. “The investigations of Micron, the search of a Bain office, the recent changes in their regulatory framework about how they treat foreign companies. I think it’s a wake-up call for non-Chinese businesses on what it means to be in the Chinese market. This is really different from the China of five years ago.”

AT MILKEN, MANCHIN DIGS IN ON DEBT: Sen. Joe Manchin (D-W.Va.) said on stage at the conference that he’s willing to repeal parts of his own landmark climate law, the Inflation Reduction Act, over concerns that its implementation by the Biden administration is steering too much money to clean energy and proving to be too expensive.

“I’m only one vote, but sometimes one vote’s pretty important,” he told CNBC anchor David Faber.

OUT IN THE WORLD

MCCARTHY WANTS NETANYAHU ON THE HILL: NYT reports that House Speaker Kevin McCarthy offered to host Israeli Prime Minister Benjamin Netanyahu for high-level bipartisan meetings in Congress. It’s a break from diplomatic precedent and also a rebuke to Biden, who has declined to invite Netanyahu to the White House in protest over an Israeli judicial overhaul.

BIDEN MEETS WITH MARCOS: Reuters reports that Biden told Philippine President Ferdinand Marcos Jr. on Monday that the U.S. commitment to defense of the country is “ironclad,” including in the South China Sea.

BRAIN FOOD

CARVILLE WARNS DEMS: TRUMP ‘COULD WIN EASY’: Veteran Democratic strategist James Carville had a stark warning for his party Monday night at a POLITICO event on the periphery of Milken: Don’t get complacent about Trump.

Carville is most famous for his work on President Bill Clinton’s 1992 campaign. In an interview with POLITICO’s Jonathan Martin and Eugene Daniels, he said he hadn’t seen any data that indicated Trump was doing any better or worse than Biden.

“Once there’s a recession, that’s it,” Carville said. “He could win easy. He almost won last time.”

Thanks to Sam Sutton, Debra Kahn, editor Heidi Vogt and producer Sophie Gardner.

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