The Stock Market is a Conventional Wisdom Processor: Why Trump’s Tariffs Crashed the Stock Market While the Trump Musk Payments Crisis Hasn’t (Yet)

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I have a confession to make. Two months ago I tried to crash the stock market. 

Let me explain.

I have a story to tell about the first week of the Trump Musk Payments Crisis which is crucial to understand the turbulence in financial markets since “Liberation Day”.

As regular readers know by now, my entire world changed January 31st 2025. The news that David Lebryk, the top civil servant in the U.S. Treasury, was being pushed out for objecting to DOGE’s access to the Treasury’s payments systems at the Bureau of Fiscal Service, gave me a panic attack (for readers who need an introduction or a refresher, check out the interview Paul Krugman did with me.) That panic attack was about two things at once. The enormity of the dangerous implications of DOGE’s access to the Federal Government’s internal payments system was one. The second thing my panic attack was about was the nicheness of the knowledge. I knew first hand how few experts there were on the Treasury internal payments system because up to that date I couldn’t find an expert to answer my questions. I was completely overwhelmed by the prospect that a Venn Diagram of “people with relevant governmental payments system expertise” and “people with prominent media platforms willing to use that platform to straightforwardly communicate the terrifying danger” would leave only one person at the intersection. 

This terrifying feeling was not helped by the half dozen or so conversations I had with former Federal Reserve and Treasury officials that weekend. They left me with the distinct impression that they were as alarmed as I was, and their plan A was… my newsletter. Let’s just say that in MY Plan A I am no well placed former government official’s plan A. 

Anyway, at 1 AM Tuesday February 4th Wired reported that one DOGE employee, Marko Elez, had read and write code access. 6.5 hours later I confirmed their reporting in this very newsletter. Incidentally, I have not yet mentioned in the newsletter that on March 13th, in a piece dissecting what happened in that first week, Wired was able to credit my reporting in print (these things take time!). Wired cites me twice in their long piece:

The financial journalist and payments expert Nathan Tankus would later say that the news of Lebryk’s retirement gave him a “panic attack,” because everyone above Lebryk was a political appointee. [...] The fact of [DOGE employee Marko] Elez’s read/write access to Treasury payment systems, confirmed later by Tankus, became a source of contention. 

So thank you to Wired.

I’m explaining all this to contextualize my mindset the first week of the Trump-Musk Payments Crisis. The Tuesday prior I was the publisher of a sleepy, in the weeds newsletter “breaking” stories about the Federal Reserve… from 1942. A week later I was suddenly an investigative journalist keeping pace with the country’s premier tech publication on a technology story. This is where the point of this piece comes into focus. I had a previously scheduled interview that day for Bloomberg’s Odd Lots podcast to talk about my 18 month effort to FOIA the Federal Reserve. 

Obviously, I wasn’t going to be talking about FOIA. I talked about the Bureau of Fiscal Service and DOGE. But I had an agenda in mind. To understand that agenda, readers need to understand an extremely prescient newsletter from Odd Lots Co-Host Joe Weisenthal.

That November 7th piece, entitled “Beware The Stock Market Vigilantes”, is worth excerpting at great length:

When the stock market is down, people feel bad. When it’s up people feel good. If you’re an American politician (or President specifically), you’re forced to be sensitive to this in a very direct way if you want to be elected. It’s not really the same with bonds. The policy-markets nexus is just tighter with stocks.

Furthermore, because the stock market is how people fund their retirements (even for public employees with access to some kind of pension), pay for college, and so on, there’s arguably a limit to how long the American economic system can go without a rising stock market

I think this gets operationalized in all kinds of notable ways:

This probably puts a constraint on populist, anti-market interventions. You saw this when the trade war with China started heating up under the first Trump administration, and there were days when the market’s reaction was sharply negative to the headlines. Those tariffs didn’t have a massive economic impact, and they didn’t have a massive market impact. But it seems reasonable to think about what a much more aggressive tariff regime would have on equities.

There’s also a constraint that emerges when thinking about re-industrialization efforts (efforts whose future is ambiguous under the next administration). The idea of investing more domestically in factories etc. sounds nice to a lot of people. But it’s a very costly process, with uncertain returns. Technological leadership is also not one-off thing that you just achieve one day. It’s a constant process of risky investment, which (if you don’t have a monopoly) keeps pushing profits further out into the future. 

[...]

Anyway, to some extent this is just all theoretical talk right now. The stock market is at all time highs and surged since the election. So there’s no immediate source of concern here. For now this is not a source of pressure on the incoming Trump administration.

But I think it’s helpful when thinking about the range of future economic possibilities (with respect to trade policy, with respect to Fed personnel decisions, and so forth) to think about the power of the stock market in limiting, or putting a curb on, some of these outcomes. [Emphasis added]

I think the prescience speaks for itself. The main relevant quibble I had when I read it last November was I thought the piece conveyed an impression that politicians had to react to stock market moves. I argued, among other things, that “governments react to stock market moves because they are socialized to see them as important.” Obviously, that claim is being put to the test right now.

Anyway, when I walked into Bloomberg’s headquarters Tuesday, February 4th I had this newsletter from Joe at the top of my mind. I desperately wanted to get Marko Elez out of the Bureau of Fiscal Service and I was going to muster any resource I could. So I did my best to call up some “Stock Market Vigilantes”. My hope was that a big stock market reaction that was clearly attributable to news of DOGE’s unvarnished access to the Treasury payments system could greatly increase the pressure on them to back off. 

At the end of the interview, when Tracy Alloway asked me what could go wrong from DOGE mucking about in this system, I took direct aim at waking up some “heroic” stock market vigilantes:

There's no way to exaggerate how enormously dangerous this is. Every financial market in the world, in the country, in the world should be pricing in the operational failure uncertainties of this system. Every single financial market should be pricing it in, and none of them are. None of them are even close.

With the background context, it should be pretty obvious to readers that I was taking direct aim at the stock market. Really, I was taking direct aim at every financial market. Importantly, I wasn’t trying to “manipulate them”, at least not with false information. I was trying to get financial market participants to recognize the threat posed by a failure of the treasury’s payments system. “Pricing in” the potential for the treasury payments system to fail would mean higher interest rates for Treasury securities and far lower stock prices, among many other things. If the treasury fails, profits will be decimated. Indeed, a failure bad enough would make it an open question of whether the United States dollar would continue to exist. I wanted it to be priced into financial markets, so that it would go away.

Now this is all less serious than it might sound because I knew, and Tracy and Joe knew, that it was exceedingly unlikely that financial markets would price in these uncertainties. In fact, Joe says as much in the epilogue of the interview:

[T]he market will freak out when something happens. But before that, if something happens and there's a payment system, something gets broken, then we're going to see a market freak out. But everyone, until that moment is just always operates [as if] “in the end, the payments will be fine”. I don't think financial markets are good at situations like this where it's very binary, where it's like the default is you just sort of expect the payments to keep on running and everything is fine, et cetera. The default is you expect them to always raise the debt ceiling eventually when they have to, or the default as you expect the Fed to step in or whatever, mint a trillion dollar coin, but how to actually think about payments not actually happening, and there not being an easy way to fix this system. I, for one, am not surprised that it's hard to price that stuff in. [emphasis added]

I knew this, and agreed with it when I heard Joe say it in front of me. But I was going to try my best anyway. I was trying everything. 

While I failed to crash the stock market, those in the know understood what I was trying to do. As the saying goes, “shoot for the moon. Even if you miss, you'll land among the stars.” Plenty of people, including many powerful people, were alarmed by what they heard on that interview when it was released Wednesday, February 5th at 4:00 AM ET. I can’t currently talk about this aspect of my reporting in detail, but I can say that I have strong reason to believe that that Bloomberg Odd Lots interview specifically had a profound impact on the most senior former and current Federal Reserve and Treasury officials. The financial press opinion pages had not yet dramatized the importance of this story, indeed in my view they have not done so even two months later.

I can, however, confirm that the sweep of my reporting had a profound impact on high level current and former Treasury officials that week. In fact, two Biden era United States Treasury employees have agreed to exclusively go on the record with Notes on the Crises about this. Former senior advisor to the U.S. Treasury Chastity Murphy told me: 

Former colleagues and I, both within and beyond the Treasury building, were deeply concerned about Elon Musk’s operational access to the Bureau of Fiscal Service’s payment system. Many, including senior officials, turned to “Notes on the Crises” for insights into the unfolding situation. [emphasis added]

Meanwhile, Former senior advisor to the U.S. Treasury Anisha Steephen explained:

The alarm among the most senior former and current Treasury officials came from the truly unprecedented nature of what Bessent and Musk’s DOGE were doing. Never before had political appointees taken over the operation of the Treasury’s payment system or interfered with it in any way. We universally felt there was major risk to the integrity of the payment system and broader economy given its outsized importance. [...]

Notes on the Crises provided the most in-depth view of what was going on at the Fiscal Service.  Most importantly, Nathan elevated the issue beyond the usual D.C. circles and explained why it matters to people. Americans pay attention when an issue like this is in Rolling Stone

Anisha’s statements are especially interesting because as a “term appointee” they remained at Treasury into the early Trump administration and, by chance, left the same day that David Lebryk did. 

Obviously I’ll have more to say about the role Notes on the Crises played at the very highest levels that first week of February in the future based on these quotes (and much else).

But today, that’s not the important thing.

The important thing is what this tells us about the big picture. The alarm of former and current government officials about the Trump-Musk Payments Crisis did not and has not translated into conventional wisdom on Wall Street. And without conventional wisdom, financial markets won’t move. This process isn’t magical, nor do financial markets have some divine and indescribable magic. They are made of people. And not just any people, people with very particular ideological outlooks on the world. This is a group of people that did not simply believe the stock market would do well under Trump, they thought it would do significantly better under Trump than under Biden. They sufficiently believed this that fluctuation in the “odds” of a Trump victory directly translated into the behavior of the stock market. Or at least, the average wall street stock trader believed the average wall street stock trader believed that. But we won’t get into that mess right now.

If conventional wisdom among financial market participants was determined by the policy expert circles I run in, the threat of Trump’s tariffs would have led to a stock market crash in November. This past week is the first confrontation with reality during the second Trump administration that Wall Street has had as a collective. And that’s tariffs, a policy area with a wide and deep bench of expertise. The Trump-Musk Payments Crisis is still very obscure. I’ve got my work cut out for me before this threat becomes conventional wisdom. And Joe is likely right- payments may need to really melt down in a way that hits Wall Street before financial market traders ever take it truly seriously. We can’t afford to wait for that.

As of this writing, S&P futures are trading higher than the S&P’s closing price on Friday. I won’t make any claims about what will happen today, or really this week. We’ll see if financial markets stabilize or if this is just a prelude. What I will say is that the second Trump administration has benefited greatly so far by the presumption that policies that are “too negative” from the perspective of wall street would be rolled back once the negative impacts were known. Put simply, the stock market has not crashed up until now on the assumption that the second Trump administration would not “stay the course” on policies that crashed the stock market. Put this way, I hope readers can understand what a strange catch 22 this is. There is no greater reason to think that Trump’s crazy and erratic policies will be reversed than there is to think they will be permanent. The only difference is that the latter would put far greater pressure on a president as a stock market convention and provide more of a check on a president’s  brazen lawlessness.

The reality of a stock market crash is not quite serving as the constraint that Joe Weisenthal envisioned. But I’d rather have the stock market crashing than not have the stock market crash. And the sharper and more negatively it crashes in response to Trump’s bad behavior, the more likely that behavior will be curbed. Curbing that bad behavior is valuable to all of us. Ironically, it’s even more valuable to wall street itself. But try telling them that.