1 00:00:00,320 --> 00:00:04,160 Speaker 1: Who you put your trust in matters. Investors have put 2 00:00:04,200 --> 00:00:07,640 Speaker 1: their trust in independent registered investment advisors to the tune 3 00:00:07,640 --> 00:00:12,240 Speaker 1: of four trillion dollars. Why learn more and find your 4 00:00:12,240 --> 00:00:27,240 Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,280 --> 00:00:31,320 Speaker 1: I'm Tom Keane. Always with Michael McKee. Daily we bring 6 00:00:31,360 --> 00:00:35,280 Speaker 1: you insight from the best in economics, finance, investment, and 7 00:00:35,360 --> 00:00:41,519 Speaker 1: international relations. Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, 8 00:00:41,560 --> 00:00:48,560 Speaker 1: and of course on the Bloomberg. When we invented surveillance, 9 00:00:48,600 --> 00:00:50,919 Speaker 1: Elmer's and I invented a years ago. This is what 10 00:00:50,960 --> 00:00:54,640 Speaker 1: we wanted on set this morning. Richard Hass the consul 11 00:00:54,720 --> 00:00:58,040 Speaker 1: and Foreign Relations and now joining us, the aerospace engineer 12 00:00:58,080 --> 00:01:00,840 Speaker 1: from a school in New Jersey, now associated for a 13 00:01:00,920 --> 00:01:05,000 Speaker 1: few years with Harvard. Michael Porter uh joins us and Mikeael. 14 00:01:05,000 --> 00:01:08,720 Speaker 1: I can only say your book on competition changed how 15 00:01:08,760 --> 00:01:12,120 Speaker 1: America thinks. I mean, it's that simple. Our our barrier 16 00:01:12,160 --> 00:01:14,640 Speaker 1: to entry this week, Professor Porter has been the traffic 17 00:01:14,959 --> 00:01:19,920 Speaker 1: in New York City myself, you had a berry there. Um. 18 00:01:20,000 --> 00:01:23,720 Speaker 1: I am dismayed by your update on our competition. It 19 00:01:23,760 --> 00:01:26,520 Speaker 1: goes into what ambassador has has talked about with our 20 00:01:26,560 --> 00:01:28,840 Speaker 1: disarray and you go right to the heart of that 21 00:01:28,920 --> 00:01:33,479 Speaker 1: an ineffective national discourse. What do you mean by that, Well, Tom, 22 00:01:33,280 --> 00:01:37,440 Speaker 1: I think the this is not new. We've actually had 23 00:01:37,560 --> 00:01:41,720 Speaker 1: versions of this for several presidential elections going forward. But 24 00:01:42,640 --> 00:01:46,760 Speaker 1: we have an economy that is UH peaked twenty years 25 00:01:46,800 --> 00:01:51,000 Speaker 1: ago UH and has been in very much a poor 26 00:01:51,040 --> 00:01:55,080 Speaker 1: performing mode. We know what to do to fix our economy. 27 00:01:55,160 --> 00:01:58,960 Speaker 1: We have a very clear idea. There's universally almost consensus 28 00:01:59,040 --> 00:02:01,960 Speaker 1: among all the thought full people that study this area. 29 00:02:02,000 --> 00:02:04,040 Speaker 1: We've got to change our corporate tax shoud We've got 30 00:02:04,040 --> 00:02:07,000 Speaker 1: to put substantial resources and infrastructure. We've got to clean 31 00:02:07,080 --> 00:02:11,280 Speaker 1: up the regulatory morass. We've we've we there's there's things 32 00:02:11,320 --> 00:02:14,880 Speaker 1: we know we have to address, but our political system 33 00:02:15,200 --> 00:02:18,679 Speaker 1: is not solving any of those problems. We've made virtually 34 00:02:18,720 --> 00:02:22,760 Speaker 1: no progress on anything in at least two decades, and 35 00:02:23,560 --> 00:02:28,480 Speaker 1: UH the country then it's just it's just sliding forward 36 00:02:28,600 --> 00:02:33,360 Speaker 1: in a very negative ways to get to that catalyst 37 00:02:33,600 --> 00:02:36,760 Speaker 1: shift the political process. I don't think the crisis is 38 00:02:36,800 --> 00:02:39,720 Speaker 1: what's going to do it anymore. That the system is 39 00:02:39,760 --> 00:02:45,360 Speaker 1: structured this way, it's structured to divide us. Uh, the 40 00:02:45,480 --> 00:02:50,400 Speaker 1: parties make really part of policy. Proposals don't make sense, 41 00:02:50,440 --> 00:02:55,680 Speaker 1: they're not implementable, they're not actionable. It's all theater. And uh, 42 00:02:55,800 --> 00:03:00,200 Speaker 1: it's not about coming together, taking into account legit him 43 00:03:00,200 --> 00:03:02,919 Speaker 1: at points of view, and then getting things done. Coming 44 00:03:02,960 --> 00:03:05,160 Speaker 1: up with a compromise corporate tax plan, coming up with 45 00:03:05,240 --> 00:03:08,480 Speaker 1: a compromise infrastructure plan, dealing with high skill immigration in 46 00:03:08,520 --> 00:03:10,840 Speaker 1: a way that we all know we need to do. 47 00:03:10,880 --> 00:03:13,760 Speaker 1: The Ambassador, you've seen this before, I mean Mr Jerry's 48 00:03:13,800 --> 00:03:17,240 Speaker 1: houses in Salem, Massachusetts. Is it jerrymandering? Is it the 49 00:03:17,280 --> 00:03:21,320 Speaker 1: corruption of money that has brought us to Professor Porter's frustration. 50 00:03:21,600 --> 00:03:23,520 Speaker 1: It's all sorts of things. It's the way we fund 51 00:03:23,520 --> 00:03:26,520 Speaker 1: our politics. It's the fact that we no longer have broadcasting, 52 00:03:26,560 --> 00:03:30,920 Speaker 1: we have narrowcasting. Individual politicians no longer dependent on parties, 53 00:03:30,960 --> 00:03:34,720 Speaker 1: which used to be compromising and mediating mechanism. In some ways, 54 00:03:34,720 --> 00:03:38,520 Speaker 1: we actually have the disintermediation of American politics. Each political 55 00:03:38,560 --> 00:03:41,400 Speaker 1: figure now is his own mini party, and they're scant 56 00:03:41,720 --> 00:03:45,400 Speaker 1: uh incentive for people to compromise. Indeed, if you do compromise, 57 00:03:45,680 --> 00:03:47,920 Speaker 1: you're more likely to get hammered by special interests. You're 58 00:03:47,960 --> 00:03:50,920 Speaker 1: more likely to face a primary challenge, and what's everyone's 59 00:03:50,920 --> 00:03:54,040 Speaker 1: focused on the presidential election? To me and Professor Reporter, 60 00:03:54,120 --> 00:03:56,680 Speaker 1: I think hits are exactly right. We're likely to wake 61 00:03:56,760 --> 00:03:59,640 Speaker 1: up regardless of who wins, with the Washington that hasn't 62 00:03:59,640 --> 00:04:02,560 Speaker 1: funded antally changed. It's still divided government, and it might 63 00:04:02,680 --> 00:04:04,840 Speaker 1: just be as difficult as every to get anything done. 64 00:04:04,880 --> 00:04:07,240 Speaker 1: But Michael Portrait, if I wasn't actually, if I didn't 65 00:04:07,240 --> 00:04:08,520 Speaker 1: know what we were talking about, and I was just 66 00:04:08,560 --> 00:04:11,040 Speaker 1: listening to you, you you could be talking very well about Europe. 67 00:04:11,080 --> 00:04:13,800 Speaker 1: You could be talking about any Western economy. Is it 68 00:04:13,960 --> 00:04:17,800 Speaker 1: something bigger that that? Actually, we're losing competitiveness because we're 69 00:04:17,839 --> 00:04:21,400 Speaker 1: still thinking with the things that we learned forty fifty 70 00:04:21,480 --> 00:04:24,719 Speaker 1: years ago, and the world has moved on. We're not China. Well, 71 00:04:24,760 --> 00:04:27,120 Speaker 1: I think I think that's that's part of it for sure. 72 00:04:27,880 --> 00:04:31,560 Speaker 1: I mean the US, for example, our tax policy is 73 00:04:32,120 --> 00:04:34,320 Speaker 1: a tax policy that might have made sense in a 74 00:04:34,440 --> 00:04:37,920 Speaker 1: pre global world, but it doesn't make any sense today 75 00:04:38,040 --> 00:04:41,720 Speaker 1: and we haven't modernized it. But I think Apple fix 76 00:04:41,839 --> 00:04:44,640 Speaker 1: that well, Apple is is a bit of a trigger. 77 00:04:44,680 --> 00:04:47,000 Speaker 1: It depends on how we fix it. If you listen 78 00:04:47,040 --> 00:04:50,240 Speaker 1: to some of our political leaders they say we're gonna 79 00:04:50,320 --> 00:04:56,520 Speaker 1: stop inversions, like companies are inverting because they just feel 80 00:04:56,560 --> 00:04:59,920 Speaker 1: like it to be evil. And actually companies are inverting 81 00:05:00,040 --> 00:05:03,479 Speaker 1: because the America has the highest statutory corporate tax rate 82 00:05:03,839 --> 00:05:07,240 Speaker 1: in the world, where the only economy that has a 83 00:05:07,279 --> 00:05:11,200 Speaker 1: sort of double taxation system on international income. Companies are 84 00:05:11,560 --> 00:05:16,919 Speaker 1: doing that because otherwise they can't compete. And instead of 85 00:05:16,960 --> 00:05:21,239 Speaker 1: fixing the problems that allow them to compete, we simply 86 00:05:21,279 --> 00:05:24,880 Speaker 1: have this theater with one side blaming the other. I 87 00:05:24,920 --> 00:05:27,360 Speaker 1: don't know if you remember this, Frantzi. Michael Porter stopped 88 00:05:27,440 --> 00:05:30,760 Speaker 1: Davos five years ago. You're creating shared value, your idea 89 00:05:30,800 --> 00:05:33,760 Speaker 1: of a new capitalism. What happened? Did you go down 90 00:05:33,800 --> 00:05:36,600 Speaker 1: in flames on that idea? No, Tom, I think that's 91 00:05:36,680 --> 00:05:40,280 Speaker 1: actually happening in the business community. You should. Uh, I'm 92 00:05:40,360 --> 00:05:44,320 Speaker 1: very I'm very proud we have now. Fortune magazine has 93 00:05:44,360 --> 00:05:47,120 Speaker 1: a new list. It's called the Company's Changing the World List. 94 00:05:48,520 --> 00:05:51,960 Speaker 1: That's happening. I did not hear Mr Trump or Secretary 95 00:05:52,000 --> 00:05:57,040 Speaker 1: Clinton talked about business within the context of creating shared value. Right. 96 00:05:57,200 --> 00:05:59,479 Speaker 1: The problem shared values that you look at companies like Nessa, 97 00:05:59,520 --> 00:06:01,800 Speaker 1: you know, leave, sure they're doing that, but there's still 98 00:06:01,880 --> 00:06:05,040 Speaker 1: short termism. And you can't argue against sense. Right when 99 00:06:05,040 --> 00:06:08,320 Speaker 1: you look at the amount of cash that big companies 100 00:06:08,360 --> 00:06:10,680 Speaker 1: are sitting on and the amount of dividends that they're 101 00:06:10,720 --> 00:06:13,159 Speaker 1: paying back, you can't tell me this is inclusive capitalism, 102 00:06:13,240 --> 00:06:16,400 Speaker 1: even for for the big companies. Well, you know, I 103 00:06:16,440 --> 00:06:18,560 Speaker 1: think you're right. Another you know, if you look at 104 00:06:18,560 --> 00:06:21,880 Speaker 1: how our companies doing investment is low. Companies are not investing. 105 00:06:22,160 --> 00:06:26,279 Speaker 1: Most of what they're investing is actually to buy backstock. Uh. 106 00:06:26,320 --> 00:06:30,320 Speaker 1: Why because they don't see growth opportunities in the economy. 107 00:06:30,360 --> 00:06:33,480 Speaker 1: They don't see any structural reasons why we're going to 108 00:06:33,600 --> 00:06:36,680 Speaker 1: get out of very very slow growth. Uh. Do you 109 00:06:36,720 --> 00:06:40,640 Speaker 1: know the proportion of Americans actually working today that are 110 00:06:40,640 --> 00:06:44,680 Speaker 1: of working age. We're back into the eighties and the seventies. 111 00:06:45,040 --> 00:06:50,440 Speaker 1: We have we we have Uh, productivity growth is slowly 112 00:06:50,520 --> 00:06:52,680 Speaker 1: declining in our economy. All that, so, what are you 113 00:06:52,720 --> 00:06:54,440 Speaker 1: going to do about productivity? What do you know about 114 00:06:54,440 --> 00:06:58,800 Speaker 1: the dynamics of capital investment, labor in total factor products? Again, Tom, 115 00:06:58,800 --> 00:07:01,880 Speaker 1: about three years ago, we at HBS put out what 116 00:07:01,920 --> 00:07:05,200 Speaker 1: we call our eight point plan. It's very simple. The 117 00:07:05,279 --> 00:07:09,920 Speaker 1: corporate tax rate, invested infrastructure, bring down the regulatory burden, 118 00:07:10,200 --> 00:07:13,360 Speaker 1: open up international trade. We're the ones who are getting 119 00:07:13,480 --> 00:07:15,760 Speaker 1: hurt by the internet. Invanstador house, you've got a one 120 00:07:15,800 --> 00:07:20,600 Speaker 1: point plan. What's the single professor reporters eight point plan? 121 00:07:20,840 --> 00:07:22,480 Speaker 1: Two things. One is t p P. If you want 122 00:07:22,520 --> 00:07:25,040 Speaker 1: to do anything over the next six months, both substantively 123 00:07:25,120 --> 00:07:27,600 Speaker 1: on trade and openness and to show that America can 124 00:07:27,640 --> 00:07:29,640 Speaker 1: work politically, it would be passage of t p P. 125 00:07:29,880 --> 00:07:32,840 Speaker 1: Over the longer run, education and training. We've got to 126 00:07:32,840 --> 00:07:34,880 Speaker 1: get our human capital up to the point where it's 127 00:07:34,880 --> 00:07:37,720 Speaker 1: it can compete globally. Right, But the problem Investador has 128 00:07:37,760 --> 00:07:39,760 Speaker 1: isn't that it takes two to tango. So you can 129 00:07:39,800 --> 00:07:41,440 Speaker 1: have an open America. If the rest of the world 130 00:07:41,520 --> 00:07:44,160 Speaker 1: is closed, then it won't advance the US at all. 131 00:07:44,200 --> 00:07:46,160 Speaker 1: This is again, this is a glow. It feels like 132 00:07:46,160 --> 00:07:49,200 Speaker 1: a global but TPP Quite honestly, the s H is 133 00:07:49,240 --> 00:07:51,840 Speaker 1: already relatively open. What it does is help the United States. 134 00:07:51,960 --> 00:07:53,880 Speaker 1: It brings others to the much closer to the point 135 00:07:53,880 --> 00:07:56,640 Speaker 1: where we where we already are. This is this to 136 00:07:56,680 --> 00:07:58,600 Speaker 1: me ought to be a no brainer. And where we 137 00:07:58,640 --> 00:08:01,840 Speaker 1: need transitional assistance for those workers who are adversely affected, 138 00:08:01,920 --> 00:08:03,960 Speaker 1: we should provide a to him This should be a 139 00:08:03,960 --> 00:08:06,960 Speaker 1: no brainer, but it isn't. What are the underlying causes 140 00:08:07,000 --> 00:08:10,280 Speaker 1: of what's going on? My own view is our political 141 00:08:10,360 --> 00:08:13,000 Speaker 1: leaders are just confusing the hell out of our people. 142 00:08:13,880 --> 00:08:18,440 Speaker 1: There's somehow saying that we somehow this is gonna hurt us, when, 143 00:08:18,480 --> 00:08:22,520 Speaker 1: as the ambassador said, we're already open. This can only 144 00:08:22,600 --> 00:08:25,000 Speaker 1: help us. It's going to allow us to get access 145 00:08:25,000 --> 00:08:28,880 Speaker 1: to markets that have been closed. Why wouldn't we do this? Uh, 146 00:08:28,920 --> 00:08:31,600 Speaker 1: instead of fixing the corporate sexism, which we all know 147 00:08:31,720 --> 00:08:34,559 Speaker 1: we have to fix. Everybody thoughtful knows you need to 148 00:08:34,600 --> 00:08:38,800 Speaker 1: have to fix. The political leaders say, oh, this corporate taxes, 149 00:08:38,880 --> 00:08:42,680 Speaker 1: and the companies are are abusing the taxes and they're 150 00:08:42,679 --> 00:08:48,120 Speaker 1: not playing fair. They're cheating by not playing taxes. Uh. 151 00:08:48,280 --> 00:08:52,680 Speaker 1: It's we've created a society where we can't make rational 152 00:08:52,800 --> 00:08:55,000 Speaker 1: choices about how to go ahead. And this is the 153 00:08:55,000 --> 00:08:57,600 Speaker 1: politicians fault. It's not that they're they're trying to do 154 00:08:57,880 --> 00:09:00,120 Speaker 1: I guess movie either more right wing or left wing 155 00:09:00,160 --> 00:09:02,640 Speaker 1: because this is what the citizen wants. And they have 156 00:09:03,360 --> 00:09:06,760 Speaker 1: politicians such as Marine le Pen, Donald Trump, a whole 157 00:09:07,080 --> 00:09:11,559 Speaker 1: loads of them that are different, that are popular. That's true, 158 00:09:11,679 --> 00:09:14,080 Speaker 1: And the other thing I would tell you is no 159 00:09:14,960 --> 00:09:19,800 Speaker 1: ideological position is ever good economic policy. Small government isn't 160 00:09:19,800 --> 00:09:22,520 Speaker 1: the good economic policy. Big government isn't the economic cost. 161 00:09:22,600 --> 00:09:26,520 Speaker 1: It's somewhere in between. It's some it's a synthesis of ideas. 162 00:09:27,320 --> 00:09:29,920 Speaker 1: It's also it's the law of intensity. Those who feel 163 00:09:29,960 --> 00:09:32,040 Speaker 1: that they are hurt by trade are far more active 164 00:09:32,040 --> 00:09:34,800 Speaker 1: in the political marketplace than the masses who benefit from 165 00:09:35,000 --> 00:09:39,360 Speaker 1: Do you advocate a new industrial policy for America. That's 166 00:09:39,360 --> 00:09:42,320 Speaker 1: a delicate issue. Well, we don't use the world industrial 167 00:09:42,320 --> 00:09:44,880 Speaker 1: policy because I've I've been in this space long enough 168 00:09:44,920 --> 00:09:48,080 Speaker 1: to know that's probably not the right word. We advocate 169 00:09:48,360 --> 00:09:53,400 Speaker 1: a new economic strategy for America. Our economic strategy has 170 00:09:53,440 --> 00:09:57,520 Speaker 1: been let the Fed bring down interest rates and will 171 00:09:57,520 --> 00:10:01,280 Speaker 1: hold that something good happens. The can't change this. We 172 00:10:01,320 --> 00:10:05,800 Speaker 1: have a structural problem. We're not fixing our weaknesses. We 173 00:10:05,880 --> 00:10:09,960 Speaker 1: are lagging behind. Uh. The incomes of the average American 174 00:10:10,040 --> 00:10:14,480 Speaker 1: are are are not moving with a very very few exceptions. 175 00:10:14,920 --> 00:10:18,600 Speaker 1: We're not fixing the things we know we've allowed to 176 00:10:18,960 --> 00:10:22,160 Speaker 1: go wrong in America. And until we do, we're gonna 177 00:10:22,280 --> 00:10:24,880 Speaker 1: we're gonna be in a trading range in the economy, 178 00:10:25,120 --> 00:10:28,120 Speaker 1: and it's going to be slow, Ambassador hash your book 179 00:10:28,120 --> 00:10:31,000 Speaker 1: coming out in January on the disarray, I believe there 180 00:10:31,040 --> 00:10:34,160 Speaker 1: will be a disarray in our debate on Monday on 181 00:10:34,320 --> 00:10:39,400 Speaker 1: foreign policy. What should we expect, Well, I mean, you've 182 00:10:39,400 --> 00:10:42,000 Speaker 1: got two very different candidates when it comes to farm policy. 183 00:10:42,080 --> 00:10:46,640 Speaker 1: Hillary Clinton is much more of a traditional continuity representative 184 00:10:46,920 --> 00:10:49,640 Speaker 1: Donald Trump. We don't exactly know what we get from 185 00:10:49,640 --> 00:10:52,000 Speaker 1: a Donald Trump presidency, but he has put on the 186 00:10:52,040 --> 00:10:54,719 Speaker 1: tables in questions some of the fundamentals of not just 187 00:10:54,840 --> 00:10:58,040 Speaker 1: post Cold War, but post World War two American foreign policy, 188 00:10:58,240 --> 00:11:01,720 Speaker 1: including our alliance relationships, our belief in in free trade, 189 00:11:01,840 --> 00:11:04,800 Speaker 1: and American leadership and activism in the world. What is 190 00:11:04,840 --> 00:11:07,600 Speaker 1: the one thing that that if you were in charge, 191 00:11:07,880 --> 00:11:10,600 Speaker 1: right and if you were president, um, what is the 192 00:11:10,600 --> 00:11:13,480 Speaker 1: one foreign policy that you would actually start implementing the 193 00:11:13,720 --> 00:11:18,600 Speaker 1: week after you get elected? Well, here's the foreign policy expert. 194 00:11:18,960 --> 00:11:22,679 Speaker 1: I would grieve thinking more about the economic policies that 195 00:11:22,720 --> 00:11:24,600 Speaker 1: will I think be good for the world and good 196 00:11:24,640 --> 00:11:27,800 Speaker 1: for America. And again I would start with this TPP 197 00:11:28,080 --> 00:11:31,600 Speaker 1: and continuing the trade opening process which has been installed. 198 00:11:31,800 --> 00:11:36,160 Speaker 1: America was the leader in opening the trade and UH 199 00:11:36,200 --> 00:11:38,360 Speaker 1: and then we we sort of we sort of shut 200 00:11:38,400 --> 00:11:40,839 Speaker 1: that down, and other countries took over. Other countries have 201 00:11:40,920 --> 00:11:44,360 Speaker 1: been very aggressive and in signing agreements and doing deals 202 00:11:44,360 --> 00:11:46,720 Speaker 1: and opening markets. So that would be that would that 203 00:11:46,720 --> 00:11:50,400 Speaker 1: would be one thing. We do need to again restructure 204 00:11:50,440 --> 00:11:55,719 Speaker 1: the international business taxation system right now we're tangled up 205 00:11:55,760 --> 00:11:59,280 Speaker 1: in a very complicated system where everybody's having to do 206 00:11:59,360 --> 00:12:02,160 Speaker 1: all kinds of ever things. The Ambassador, should we fear 207 00:12:02,480 --> 00:12:06,040 Speaker 1: bilateral negotiations? Do they hearken back to the thirties or 208 00:12:06,200 --> 00:12:08,520 Speaker 1: we just this is where we are now. You know 209 00:12:08,559 --> 00:12:12,120 Speaker 1: the grandeur of w t O is not going to return. Well, 210 00:12:12,360 --> 00:12:14,360 Speaker 1: w t O is not going to return. We're not 211 00:12:14,360 --> 00:12:16,319 Speaker 1: going to have a global answer on trade. But something 212 00:12:16,360 --> 00:12:20,000 Speaker 1: like TPP and conceivably one day maybe a Transatlantic deal 213 00:12:20,040 --> 00:12:22,839 Speaker 1: are fine. Uh if if you can't get it, And again, 214 00:12:23,120 --> 00:12:25,360 Speaker 1: what would be so good about passing t PP. It's 215 00:12:25,400 --> 00:12:27,800 Speaker 1: not something the economic benefit would which would be modest. 216 00:12:27,840 --> 00:12:30,599 Speaker 1: We just the strategic message that would say about that 217 00:12:30,640 --> 00:12:35,000 Speaker 1: America can operate politically and that our alliance relations actually matter. 218 00:12:35,480 --> 00:12:37,920 Speaker 1: It has been wonderful they have both of you here. 219 00:12:38,080 --> 00:12:41,240 Speaker 1: The only reason I feel good is to be here 220 00:12:41,360 --> 00:12:44,160 Speaker 1: Ambassador House with Michael Porter in the red Sox in 221 00:12:44,280 --> 00:12:47,320 Speaker 1: first place is a very I was gonna say thank 222 00:12:47,360 --> 00:12:48,880 Speaker 1: you and how good at much to be here that's 223 00:12:48,920 --> 00:12:52,160 Speaker 1: running and now you've reckon. This has been wonderful. Richard Hass, 224 00:12:52,200 --> 00:12:54,360 Speaker 1: thank you so much. Michael Porter, wonderful to see. We'll 225 00:12:54,360 --> 00:12:58,080 Speaker 1: see you again. And who you put your trust in 226 00:12:58,600 --> 00:13:02,440 Speaker 1: matters in. Asters have put their trust in independent registered 227 00:13:02,480 --> 00:13:06,960 Speaker 1: investment advisors to the tune of four trillion dollars. Why 228 00:13:07,520 --> 00:13:11,160 Speaker 1: they see their role is to serve, not sell. That's 229 00:13:11,160 --> 00:13:13,560 Speaker 1: why Charles Schwab is committed to the success of over 230 00:13:13,640 --> 00:13:18,960 Speaker 1: seven thousand independent financial advisors who passionately dedicate themselves to 231 00:13:19,040 --> 00:13:23,160 Speaker 1: helping people achieve their financial goals. Learn more and find 232 00:13:23,160 --> 00:13:31,720 Speaker 1: your independent advisor dot com. Michael Mayo with us, and 233 00:13:31,720 --> 00:13:34,120 Speaker 1: of course we will talk the drama Wells Fargo and 234 00:13:34,240 --> 00:13:38,400 Speaker 1: Mr Stump in Washington. But Michael Mayo, you've been so 235 00:13:38,480 --> 00:13:42,520 Speaker 1: good with us on a longer view and a longer perspective. 236 00:13:43,200 --> 00:13:46,720 Speaker 1: Whither Deutsche Bank. You don't cover Deutsche Bank directly, do you? 237 00:13:47,640 --> 00:13:53,319 Speaker 1: I do not? Can you comment on, as I said 238 00:13:53,320 --> 00:13:57,960 Speaker 1: earlier today on television, the overcome by events. I get 239 00:13:58,000 --> 00:14:01,360 Speaker 1: the feeling there's a red ric, there's a dialogue and 240 00:14:01,440 --> 00:14:04,320 Speaker 1: I don't need the ratio minutia from you, but there's 241 00:14:04,320 --> 00:14:07,040 Speaker 1: a belief and a hope on the part of their board, 242 00:14:07,040 --> 00:14:11,280 Speaker 1: their management Mr crying in all and then that goes 243 00:14:11,360 --> 00:14:15,199 Speaker 1: topsy turvy at some point. Do you feel that about 244 00:14:15,240 --> 00:14:18,320 Speaker 1: Deutsche Bank from a distance? Well, I think you're in 245 00:14:18,360 --> 00:14:22,520 Speaker 1: an environment where regulators feel pressure from politicians to crack 246 00:14:22,600 --> 00:14:25,760 Speaker 1: down on banks, whether it's in the United States or Europe. 247 00:14:26,040 --> 00:14:28,320 Speaker 1: So if you don't have your act together, if you 248 00:14:28,400 --> 00:14:31,560 Speaker 1: haven't straightened up your regulatory problems, if you haven't settled 249 00:14:31,560 --> 00:14:34,920 Speaker 1: your legal problems, the pressure just gets greater and greater. 250 00:14:35,320 --> 00:14:38,120 Speaker 1: And you're seeing that during this presidential election. I mean, 251 00:14:38,160 --> 00:14:41,680 Speaker 1: banking is still part of the debate. We'll probably hear 252 00:14:41,760 --> 00:14:43,280 Speaker 1: some of that in a few days during the first 253 00:14:43,280 --> 00:14:46,160 Speaker 1: presidential debate. So, whether it's a bank in Europe or 254 00:14:46,200 --> 00:14:48,680 Speaker 1: a bank in the United States, you better keep your 255 00:14:48,720 --> 00:14:51,040 Speaker 1: nose clean, you better clean up your problems. Otherwise the 256 00:14:51,080 --> 00:14:55,360 Speaker 1: pressure just is relentless. Do you perceive again across the 257 00:14:55,400 --> 00:15:00,400 Speaker 1: Atlantic that Europe has the same regulatory screw any of 258 00:15:00,440 --> 00:15:03,360 Speaker 1: the day to day books of a bank as we 259 00:15:03,440 --> 00:15:06,720 Speaker 1: do in the United States, Where X number of government 260 00:15:06,760 --> 00:15:09,640 Speaker 1: officials walk into name the bank, and they can set 261 00:15:09,680 --> 00:15:13,000 Speaker 1: up shop at any time. I take the steps that 262 00:15:13,080 --> 00:15:16,960 Speaker 1: regulators the United States are ahead of those in Europe. 263 00:15:17,000 --> 00:15:21,040 Speaker 1: And the most concrete example is the amount of capital 264 00:15:21,080 --> 00:15:24,480 Speaker 1: common equity that the US banks raised after this financial 265 00:15:24,520 --> 00:15:28,320 Speaker 1: crisis compared to that of the European banks, which still 266 00:15:28,320 --> 00:15:32,480 Speaker 1: are behind on their overall leverage, which hasn't come down 267 00:15:32,520 --> 00:15:35,800 Speaker 1: as much as for for US banks. And so I 268 00:15:35,840 --> 00:15:39,840 Speaker 1: believe in hardwiring the improvements in the banking industry. So yes, 269 00:15:39,880 --> 00:15:43,160 Speaker 1: there are thousands and thousands of people at banks like 270 00:15:43,240 --> 00:15:47,280 Speaker 1: JP Morrigan that are you in charge of their internal compliance, 271 00:15:47,600 --> 00:15:50,160 Speaker 1: and I just think that's a step ahead of the 272 00:15:50,240 --> 00:15:54,560 Speaker 1: European competitors. Michael may I saw Jamie Diamond yesterday at 273 00:15:54,560 --> 00:15:56,720 Speaker 1: the Economic Club of New York. He looked tanned and arrested. 274 00:15:56,800 --> 00:16:00,400 Speaker 1: Mike McKee, Jamie Diamond has to be remembered in Mike Mail, 275 00:16:01,880 --> 00:16:04,640 Speaker 1: I saw that yesterday. Yeah, you're stirring up trouble here. 276 00:16:04,640 --> 00:16:06,600 Speaker 1: You get mad at me for stirring up I would 277 00:16:06,680 --> 00:16:11,640 Speaker 1: never do. Uh. The Europeans, Michael said, they don't. I 278 00:16:11,760 --> 00:16:16,400 Speaker 1: think their banks can withstand the higher capital requirements that 279 00:16:16,440 --> 00:16:20,800 Speaker 1: are coming and shouldn't have to suggesting that we're going 280 00:16:20,840 --> 00:16:23,920 Speaker 1: to have a fight over the Bozel requirements. Do you 281 00:16:23,960 --> 00:16:26,160 Speaker 1: think that you know, we end up here in the 282 00:16:26,240 --> 00:16:30,200 Speaker 1: United States with weaker capital requirements if the Europeans take 283 00:16:30,240 --> 00:16:34,080 Speaker 1: the fight to the regulators. Absolutely not. I mean what 284 00:16:34,960 --> 00:16:37,840 Speaker 1: done has been done in the United States. The question 285 00:16:37,960 --> 00:16:40,520 Speaker 1: is will it go one step even further for the 286 00:16:40,600 --> 00:16:43,080 Speaker 1: US banks? And you have what's known as the FED 287 00:16:43,240 --> 00:16:46,560 Speaker 1: Reserve Stress Test, and once a year banks have their 288 00:16:46,680 --> 00:16:50,880 Speaker 1: balance sheets stressed for a scenario that's tougher, tougher than 289 00:16:50,920 --> 00:16:53,720 Speaker 1: it was the global financial crisis. And only after that 290 00:16:53,880 --> 00:16:57,240 Speaker 1: very severe stress test are banks allowed to return capital 291 00:16:57,280 --> 00:17:00,640 Speaker 1: through dividends and and buying back their own stock. So 292 00:17:00,680 --> 00:17:03,360 Speaker 1: it's already pretty significant for the US bank. Now it 293 00:17:03,440 --> 00:17:05,639 Speaker 1: might become a little bit tougher with the FED stress 294 00:17:05,680 --> 00:17:08,560 Speaker 1: test um, but this is just getting that much further 295 00:17:09,040 --> 00:17:11,240 Speaker 1: ahead of the European bank. So no, there won't be 296 00:17:11,280 --> 00:17:15,119 Speaker 1: any dilution of the current cap requirements to the US banks. 297 00:17:15,160 --> 00:17:17,600 Speaker 1: Where do you put the capital requirements of US banks? 298 00:17:17,600 --> 00:17:20,920 Speaker 1: Are they at an adequate level now? There we're still 299 00:17:21,040 --> 00:17:23,840 Speaker 1: waiting for the search charges to come in. Well before 300 00:17:23,880 --> 00:17:26,840 Speaker 1: the financial crisis, as you guys know, we published ten 301 00:17:26,880 --> 00:17:30,760 Speaker 1: thousand pages of cautionary research about the banking industry. One 302 00:17:30,800 --> 00:17:34,600 Speaker 1: reason because leverage before the Financial crisis was the highest 303 00:17:34,840 --> 00:17:39,080 Speaker 1: ever was in twenty five years. Now, after the financial crisis, Uh, 304 00:17:39,480 --> 00:17:43,120 Speaker 1: capital and bank balance sheets are the stronger, strongest they've 305 00:17:43,160 --> 00:17:45,120 Speaker 1: been in decades. In fact, if you just look at 306 00:17:45,320 --> 00:17:49,400 Speaker 1: a basic metric like equity too, assets is the highest 307 00:17:49,440 --> 00:17:53,240 Speaker 1: it's been in eighty years. Um. So I think banks 308 00:17:53,400 --> 00:17:57,280 Speaker 1: now are sufficiently capitalized. I think, you know, there's always 309 00:17:57,280 --> 00:17:59,399 Speaker 1: a debate how much capital is enough. And I was 310 00:17:59,440 --> 00:18:01,960 Speaker 1: a regulator at the Subtle Reserve in the late nineteen eighties, 311 00:18:02,000 --> 00:18:04,520 Speaker 1: and the right amount of capital to regulators is always 312 00:18:04,600 --> 00:18:06,480 Speaker 1: more and more and more. But I think we're at 313 00:18:06,480 --> 00:18:09,280 Speaker 1: that point where it seems to be about the right level. 314 00:18:10,119 --> 00:18:12,680 Speaker 1: Let us turn to Mr Stump right now, Michael Mayo, 315 00:18:12,800 --> 00:18:15,480 Speaker 1: John Stump. If you read his Wikipedia folks, and I've 316 00:18:15,560 --> 00:18:19,040 Speaker 1: had the honor of interviewing Mr Stump at length for 317 00:18:19,080 --> 00:18:23,000 Speaker 1: Bloomberg Events. Boy did he start out basic? One of 318 00:18:23,000 --> 00:18:26,520 Speaker 1: eleven kids. His father a dairy farmer. Um he started 319 00:18:26,520 --> 00:18:30,720 Speaker 1: out actually repossessing cars was his first job. This guy 320 00:18:30,800 --> 00:18:33,520 Speaker 1: is going to go to Washington there's gonna be a 321 00:18:33,560 --> 00:18:39,600 Speaker 1: little bit of scrutiny. What is John Stump's future, Michael, Now, well, 322 00:18:39,640 --> 00:18:41,960 Speaker 1: I'm going to correct you, Tom Keane. I would not 323 00:18:42,040 --> 00:18:46,679 Speaker 1: say a little bit of scrutiny. I would say he 324 00:18:46,840 --> 00:18:49,800 Speaker 1: is in the hot seat, um, and he has a 325 00:18:49,800 --> 00:18:54,200 Speaker 1: lot of questions to answer. And I read the testimony. 326 00:18:54,240 --> 00:18:57,879 Speaker 1: It's only five pages, and I'm telling you that won't 327 00:18:57,880 --> 00:19:00,800 Speaker 1: do it. I mean, this is not even an appetizer 328 00:19:00,960 --> 00:19:04,119 Speaker 1: for a meal. I mean I think Elizabeth Warren and 329 00:19:04,160 --> 00:19:06,640 Speaker 1: Gang they're looking for at least some red meat here 330 00:19:07,119 --> 00:19:10,280 Speaker 1: and questions that are not answered in his testimony. You know, 331 00:19:10,359 --> 00:19:13,520 Speaker 1: why did it take so long to stop the problems? 332 00:19:13,720 --> 00:19:16,960 Speaker 1: Where were the checks and balances, including from the board 333 00:19:17,000 --> 00:19:21,520 Speaker 1: of directors and what what are the repercussions for top management? 334 00:19:21,600 --> 00:19:24,480 Speaker 1: So I still think it's John Stump, CEO of Well 335 00:19:24,640 --> 00:19:28,080 Speaker 1: Fargo's uh, you know, job to lose. So I still 336 00:19:28,119 --> 00:19:30,200 Speaker 1: think he stays in the position. But I'll tell you, 337 00:19:30,640 --> 00:19:35,600 Speaker 1: the handling of this cross sell of fiasco has not 338 00:19:35,720 --> 00:19:39,959 Speaker 1: been good, both because the company did not intervene quickly 339 00:19:40,080 --> 00:19:43,720 Speaker 1: enough and also for the handling in the past week 340 00:19:43,800 --> 00:19:46,160 Speaker 1: or so. So I think he stays in the job. 341 00:19:46,200 --> 00:19:48,879 Speaker 1: But I also think there needs to be clawbacks of 342 00:19:49,000 --> 00:19:51,720 Speaker 1: pay of the head of the community banking division at 343 00:19:51,720 --> 00:19:55,119 Speaker 1: wels Fargo and possibly for the CEO too. In fact, 344 00:19:55,160 --> 00:19:58,280 Speaker 1: I read the proxy well Fargo's proxy. It says if 345 00:19:58,280 --> 00:20:01,959 Speaker 1: there's significant reputational arm, that's grounds for callback. So if 346 00:20:01,960 --> 00:20:04,600 Speaker 1: it doesn't apply, now, when would it apply? So home 347 00:20:04,720 --> 00:20:07,520 Speaker 1: management accountable, by the way, and I think shareholders need 348 00:20:07,560 --> 00:20:11,200 Speaker 1: to hold well Fargo management accountables. You don't always need regulators. 349 00:20:11,240 --> 00:20:13,280 Speaker 1: Let's have shareholders step in and fill the void. And 350 00:20:13,320 --> 00:20:16,199 Speaker 1: you guys know that that we've been attending annual meetings 351 00:20:16,400 --> 00:20:19,000 Speaker 1: trying to hold the boards of directors more accountable. By 352 00:20:19,040 --> 00:20:21,080 Speaker 1: the way, maybe they should have some people from the 353 00:20:21,080 --> 00:20:23,680 Speaker 1: board of directors at Wells Fargo testify and they could 354 00:20:23,720 --> 00:20:25,320 Speaker 1: read the papers and see what was going on in 355 00:20:25,320 --> 00:20:28,600 Speaker 1: the last few years. What questions were they asking. Well, 356 00:20:28,880 --> 00:20:30,920 Speaker 1: that's where I wanted to go with this, because members 357 00:20:30,960 --> 00:20:33,159 Speaker 1: of Congress like to show off of these hearings and 358 00:20:33,520 --> 00:20:36,400 Speaker 1: yell at people, and they will certainly with Mr. Stuff, 359 00:20:36,440 --> 00:20:40,480 Speaker 1: But for his future, the question is what do shareholders think? 360 00:20:40,480 --> 00:20:45,320 Speaker 1: What are you hearing about the shareholder reaction to this 361 00:20:45,400 --> 00:20:49,680 Speaker 1: whole thing. Do they isolate uh this from Mr Stumpford, 362 00:20:49,720 --> 00:20:55,040 Speaker 1: does it go into the CEO s office. Shareholders of 363 00:20:55,119 --> 00:20:59,480 Speaker 1: Wells Fargo want to see management held accountable. There is 364 00:20:59,560 --> 00:21:04,639 Speaker 1: concern learn about the impact of this across sell fiasco 365 00:21:04,880 --> 00:21:09,200 Speaker 1: on the bank's culture. So at the same time, I'm 366 00:21:09,240 --> 00:21:12,520 Speaker 1: not getting calls, I'm not getting emails saying get rid 367 00:21:12,520 --> 00:21:15,480 Speaker 1: of the CEO. So I think there's a middle ground 368 00:21:15,520 --> 00:21:19,439 Speaker 1: here of holding management accountable for the bad actions of 369 00:21:19,440 --> 00:21:24,600 Speaker 1: Wells Fargo for the last five years employees. That doesn't 370 00:21:24,640 --> 00:21:28,879 Speaker 1: happen in a vacuum. Now, having said that, well Fargo, 371 00:21:29,119 --> 00:21:31,840 Speaker 1: the top of the house did not want this to happen. 372 00:21:31,880 --> 00:21:34,800 Speaker 1: That's the big difference from the financial crisis. The financial 373 00:21:34,840 --> 00:21:39,360 Speaker 1: crisis was driven by faulty incentives at the top of banks. 374 00:21:39,840 --> 00:21:42,520 Speaker 1: There were no incentives at the top of Wells Fargo 375 00:21:42,880 --> 00:21:46,679 Speaker 1: to have unauthorized accounts opened up. We estimate that Wells 376 00:21:46,680 --> 00:21:50,720 Speaker 1: Fargo lost five million dollars as a result of these 377 00:21:50,760 --> 00:21:53,919 Speaker 1: two million unauthorized accounts being opened. The more that this 378 00:21:54,000 --> 00:21:58,280 Speaker 1: took place, the more well well Fargo lost. So it's 379 00:21:58,280 --> 00:22:02,000 Speaker 1: not intent, it's like they they didn't know at first. 380 00:22:02,720 --> 00:22:05,040 Speaker 1: When they found out, they didn't act quickly. Michael Mayo 381 00:22:05,119 --> 00:22:07,200 Speaker 1: with the CLSA, we talked banking. We already get back 382 00:22:07,200 --> 00:22:12,280 Speaker 1: to Wells Fargo, Michael Todd, Anthony Combs c O MBS Todd. 383 00:22:12,359 --> 00:22:16,320 Speaker 1: Anthony Combs is a hedge fund guy who many people, 384 00:22:16,400 --> 00:22:19,320 Speaker 1: including Warren Buffet, have said one day he could like 385 00:22:19,560 --> 00:22:23,959 Speaker 1: replace Warren Buffet. I believe there's an idea that he 386 00:22:24,040 --> 00:22:28,879 Speaker 1: will join the JP Morgan board, which just sid itself 387 00:22:28,880 --> 00:22:31,480 Speaker 1: a hedge fund guy in the JP Morgan board. I'm 388 00:22:31,480 --> 00:22:35,280 Speaker 1: really not sure about that. But what do you think 389 00:22:35,320 --> 00:22:38,760 Speaker 1: about the idea of a buffet guy with Buffet's exposure 390 00:22:39,160 --> 00:22:41,919 Speaker 1: to Wells Fargo, m X and all that about a 391 00:22:41,960 --> 00:22:44,919 Speaker 1: buffet guy being on the JP Morgan board is is 392 00:22:44,960 --> 00:22:49,919 Speaker 1: that a bit odd? I like the idea of having 393 00:22:50,000 --> 00:22:53,719 Speaker 1: somebody with a wealth of financial experience on the board 394 00:22:53,840 --> 00:22:56,320 Speaker 1: of a large bank. As you know, I've had issues 395 00:22:56,359 --> 00:23:00,200 Speaker 1: with some other banks, especially Comerica, where we think there's 396 00:23:00,200 --> 00:23:03,200 Speaker 1: a risk that the shareholders vote the CEO out after 397 00:23:03,320 --> 00:23:06,359 Speaker 1: next year's annual meeting. UM part of the concerned as 398 00:23:06,359 --> 00:23:08,000 Speaker 1: a lack of strength of that board. We've had that 399 00:23:08,040 --> 00:23:11,080 Speaker 1: concert with other boards. City Group before the financial crisis, 400 00:23:11,119 --> 00:23:14,320 Speaker 1: Bank America, we had that concern. So I think, you know, 401 00:23:14,400 --> 00:23:18,040 Speaker 1: JP Morgan is stepping back and saying who would be 402 00:23:18,680 --> 00:23:20,920 Speaker 1: value added to add to the board, And we said, 403 00:23:20,960 --> 00:23:24,000 Speaker 1: let's get somebody else that really understands finance, and that 404 00:23:24,000 --> 00:23:25,520 Speaker 1: could be a nice balance to the board. So I 405 00:23:25,920 --> 00:23:28,240 Speaker 1: like it. I mean, it's interest to me. Michael McKee, 406 00:23:28,280 --> 00:23:33,920 Speaker 1: Florida State University Finance, Multinational Business Operations, Todd Combs. It's 407 00:23:33,920 --> 00:23:35,639 Speaker 1: almost like he's out a big short. I mean, I 408 00:23:35,640 --> 00:23:40,000 Speaker 1: don't want to, you know, moviefy him. But but Michael McKee, 409 00:23:40,080 --> 00:23:43,639 Speaker 1: it is a different choice for JP Morgan. Well, it 410 00:23:43,760 --> 00:23:46,440 Speaker 1: is a kind of question, Michael. Do a quick follow 411 00:23:46,480 --> 00:23:48,800 Speaker 1: up here is just you know, why does Warren Buffett 412 00:23:48,880 --> 00:23:54,880 Speaker 1: care what happens to one of his competitors? Michael, Oh, 413 00:23:54,920 --> 00:23:57,720 Speaker 1: I'm sorry, I don't know. I don't see a whole 414 00:23:57,720 --> 00:24:00,160 Speaker 1: lot of reason why you would care about Because mean, 415 00:24:00,160 --> 00:24:02,800 Speaker 1: he's a big investor in Wells and EMICs and people 416 00:24:02,800 --> 00:24:05,760 Speaker 1: who compete with JPM. So you know, does he have 417 00:24:05,800 --> 00:24:08,600 Speaker 1: a dog in this fight? Well? I think, look, you 418 00:24:08,600 --> 00:24:11,320 Speaker 1: have so many thinks like Warren Buffett on your board. 419 00:24:12,080 --> 00:24:15,320 Speaker 1: Maybe so many one day replaces Warren Buffett. That doesn't 420 00:24:15,320 --> 00:24:17,680 Speaker 1: seem like a bad guy to have on your board 421 00:24:17,680 --> 00:24:21,040 Speaker 1: of directors, a long term thinker, somebody's really looking at value, 422 00:24:21,840 --> 00:24:26,040 Speaker 1: managing for economics not politics. Those are good traits on 423 00:24:26,040 --> 00:24:29,000 Speaker 1: a board of directors. Why not JP Morgan can get him, 424 00:24:29,440 --> 00:24:32,080 Speaker 1: you know, more power to Michael Michael McKee. Pick it 425 00:24:32,119 --> 00:24:34,040 Speaker 1: up your John Tucker. Did you just see that? That 426 00:24:34,119 --> 00:24:38,359 Speaker 1: was that surveillance pregnant silence? Because we have Michael Mayo 427 00:24:38,480 --> 00:24:41,920 Speaker 1: and Michael McKee and I did not handle that correctly 428 00:24:42,359 --> 00:24:48,040 Speaker 1: silence on radio. That's your special fumbles minor. It's a 429 00:24:48,080 --> 00:24:51,439 Speaker 1: double minor with Mike Michael McKee. Go back to Wells 430 00:24:51,440 --> 00:24:53,600 Speaker 1: Fargo for a second. They were the different bank. They 431 00:24:53,640 --> 00:24:56,119 Speaker 1: were the ones who kept their noses clean, stuck to 432 00:24:56,160 --> 00:24:59,920 Speaker 1: their knitting, did uh financial intermediation rather than make their 433 00:25:00,040 --> 00:25:03,720 Speaker 1: money and trading uh? And then they get into trouble 434 00:25:03,800 --> 00:25:08,359 Speaker 1: like this. Does this leave the banking industry more vulnerable 435 00:25:08,480 --> 00:25:15,160 Speaker 1: in the long run to more congressional meddling, more legislation? Wow? 436 00:25:15,240 --> 00:25:18,439 Speaker 1: When I saw what took place with Wells Fargo, you know, 437 00:25:18,680 --> 00:25:21,160 Speaker 1: Wellth Fargo one of the best banks the last couple 438 00:25:21,160 --> 00:25:24,560 Speaker 1: of decades. And then you see even employees at Wells Fargo, 439 00:25:24,800 --> 00:25:29,360 Speaker 1: you know, will cheat employees. So the reaction from regulators 440 00:25:29,440 --> 00:25:32,600 Speaker 1: is let's let's do more. My point is let's have 441 00:25:32,640 --> 00:25:37,000 Speaker 1: shareholders do more. But nature abhors a vacuum, Washington d 442 00:25:37,040 --> 00:25:39,880 Speaker 1: C loves one. So to the extent that shareholders don't 443 00:25:39,920 --> 00:25:43,320 Speaker 1: step in and hold banks accountable, that it does give 444 00:25:43,720 --> 00:25:47,720 Speaker 1: incentive for Washington d C to regulate more. So that's 445 00:25:47,760 --> 00:25:50,960 Speaker 1: going to be in view today at the Senate Banking 446 00:25:50,960 --> 00:25:53,160 Speaker 1: Committee as they grilled the CEO of Wells Fargo. It's 447 00:25:53,160 --> 00:25:56,960 Speaker 1: not just Wealth Fargo um positions at stake here, it's 448 00:25:57,240 --> 00:26:00,520 Speaker 1: in the banking industry, so it waits to be seen. Now. 449 00:26:00,520 --> 00:26:03,479 Speaker 1: Having said that, you know, I think the extent of 450 00:26:03,520 --> 00:26:07,199 Speaker 1: the problems at Wells Fargo will be unique. You're always 451 00:26:07,240 --> 00:26:10,240 Speaker 1: going to have defect rates, and that's something we can 452 00:26:10,359 --> 00:26:14,240 Speaker 1: debate and analyze. What's an acceptable defect rate in the 453 00:26:14,240 --> 00:26:17,280 Speaker 1: banking industry. It will never be zero percent, way too 454 00:26:17,359 --> 00:26:19,760 Speaker 1: high at Will Fargo, no question. But I have to 455 00:26:19,800 --> 00:26:22,639 Speaker 1: imagine that the defect rate so to speak, opening up 456 00:26:22,720 --> 00:26:26,280 Speaker 1: unauthorized accounts was higher at Will Fargo than than anybody 457 00:26:26,400 --> 00:26:28,960 Speaker 1: any of the other big banks. Mike, before you dash by, 458 00:26:29,040 --> 00:26:32,240 Speaker 1: hold cell on Will's Fargo. What price is an attractive 459 00:26:32,280 --> 00:26:36,199 Speaker 1: price to acquire shares of Wills Fargo? You need a 460 00:26:36,240 --> 00:26:39,919 Speaker 1: long term perspective. For Wells Fargo. We stuck with their rating. 461 00:26:39,920 --> 00:26:42,360 Speaker 1: We upgraded at twenty eight dollars several years ago. We've 462 00:26:42,400 --> 00:26:44,440 Speaker 1: had a nice ride. It's going to take some time 463 00:26:44,480 --> 00:26:48,560 Speaker 1: to work through it. But yesterday, uh I went next 464 00:26:48,560 --> 00:26:51,959 Speaker 1: to the Bloomberg Global headquarters at the well Fargo branch 465 00:26:52,440 --> 00:26:54,679 Speaker 1: at fifty eighth and third Avenue, and I talked to 466 00:26:54,720 --> 00:26:57,879 Speaker 1: customers as they left, and I said, are you happy 467 00:26:57,920 --> 00:27:00,360 Speaker 1: with the wealth being a Wells Fargo customer? And they 468 00:27:00,400 --> 00:27:02,840 Speaker 1: said yes. I go what about this crisis? And their 469 00:27:02,880 --> 00:27:06,480 Speaker 1: responses were, well, it's convenient. I've been here too long. 470 00:27:06,800 --> 00:27:10,480 Speaker 1: I wasn't victimized. I liked the product offerings. They're not leaving. 471 00:27:10,560 --> 00:27:14,159 Speaker 1: They've grown deposits by one half this decade through. You know, 472 00:27:14,200 --> 00:27:19,360 Speaker 1: it's a glass empty. I think this this blows over 473 00:27:19,400 --> 00:27:22,240 Speaker 1: with some pain and so long as they hold wal 474 00:27:22,359 --> 00:27:27,320 Speaker 1: Fargo management a Cataley Michael Mayo on the street. Research 475 00:27:27,440 --> 00:27:43,560 Speaker 1: on this is Bloomberg inflation is what it's all about. 476 00:27:43,600 --> 00:27:45,560 Speaker 1: For the Federal Reserve, they seem to have the job 477 00:27:45,640 --> 00:27:48,840 Speaker 1: staying kind of covered. Is inflation enough of a danger 478 00:27:48,880 --> 00:27:51,560 Speaker 1: to convince enough members of the Fed to surprise markets 479 00:27:52,080 --> 00:27:55,720 Speaker 1: and raise interest rates tomorrow? David Stockton is with the 480 00:27:55,800 --> 00:27:59,840 Speaker 1: Peterson Institute. He is a senior fellow there, but more 481 00:28:00,000 --> 00:28:04,879 Speaker 1: importantly he is a former monetary policy director at the 482 00:28:04,920 --> 00:28:07,760 Speaker 1: Federal Reserve Board, and we welcome him to the show 483 00:28:07,800 --> 00:28:10,760 Speaker 1: now to ask that question, Um, where do you think 484 00:28:10,800 --> 00:28:13,840 Speaker 1: they come down on the need to be preemptive At 485 00:28:13,920 --> 00:28:17,760 Speaker 1: this point they have enough space to kind of let 486 00:28:17,760 --> 00:28:22,000 Speaker 1: things go for a while. Yes, they're definitely not in 487 00:28:22,080 --> 00:28:25,959 Speaker 1: a preemptive mood at this point. I think it's pretty 488 00:28:25,960 --> 00:28:31,480 Speaker 1: clear that if they were actually acting aggressively ahead of 489 00:28:31,560 --> 00:28:35,320 Speaker 1: any overshoot and any overheating on the economy, they probably 490 00:28:35,359 --> 00:28:38,360 Speaker 1: would have already raised rates. But I think they're really 491 00:28:38,400 --> 00:28:42,719 Speaker 1: more concerned about the asymmetric risks, and that is raising 492 00:28:42,800 --> 00:28:46,600 Speaker 1: rates too soon, cutting off a recovery, not getting inflation 493 00:28:46,640 --> 00:28:50,400 Speaker 1: back to target. So I think really the committee, certainly 494 00:28:50,400 --> 00:28:54,120 Speaker 1: the center of the committee, Uh and Yelling in particular, 495 00:28:54,200 --> 00:28:56,360 Speaker 1: are more in the patient camp than the ready to 496 00:28:56,400 --> 00:29:01,840 Speaker 1: go camp. Do we see a single basis point move 497 00:29:01,920 --> 00:29:04,880 Speaker 1: is cutting off the recovery or is is it the 498 00:29:04,920 --> 00:29:09,640 Speaker 1: path in the final ending point that really matters. Yeah, 499 00:29:09,680 --> 00:29:12,000 Speaker 1: so it's not so much the timing of whether it's 500 00:29:12,120 --> 00:29:15,880 Speaker 1: September or December. It really is, as you note, it's 501 00:29:15,960 --> 00:29:20,320 Speaker 1: the trajectory and the pace at which they remove the accommodation. 502 00:29:20,360 --> 00:29:22,840 Speaker 1: And I think at this point they're voting with their 503 00:29:23,120 --> 00:29:25,720 Speaker 1: not so much with their mouths, but with their actions 504 00:29:25,880 --> 00:29:30,280 Speaker 1: for a rather gradual path here, David, you've just hit 505 00:29:30,480 --> 00:29:33,200 Speaker 1: when I mentioned this at dinner last night, Actually, folks, 506 00:29:33,280 --> 00:29:36,000 Speaker 1: to mean, David, one of the great mysteries of the 507 00:29:36,000 --> 00:29:39,840 Speaker 1: parlor game and the discussion is all the smart people, 508 00:29:40,120 --> 00:29:44,560 Speaker 1: all the experts, talk about a vector, a path, a trajectory, 509 00:29:44,880 --> 00:29:47,840 Speaker 1: and a huge body the public says, can't they just 510 00:29:47,880 --> 00:29:53,360 Speaker 1: go one and done? Explain why they can't do that? Well, 511 00:29:53,400 --> 00:29:56,280 Speaker 1: at this point, I mean, the reasons they can't do 512 00:29:56,360 --> 00:29:59,400 Speaker 1: that is that they still are in an accommodative position, 513 00:29:59,440 --> 00:30:02,440 Speaker 1: and we still are generating job growth. It's sort of 514 00:30:02,480 --> 00:30:05,600 Speaker 1: above the levels that would be consistent with a stable 515 00:30:05,680 --> 00:30:08,720 Speaker 1: unemployment rate. You know, we've been generating job growth in 516 00:30:08,800 --> 00:30:11,360 Speaker 1: the you know, hundred and fifty to two hundred thousand 517 00:30:11,800 --> 00:30:14,520 Speaker 1: per month range, and we only need about eighty two 518 00:30:14,520 --> 00:30:17,840 Speaker 1: a hundred UM, So I don't think the one and 519 00:30:17,920 --> 00:30:19,960 Speaker 1: done is going to get it to get you back, 520 00:30:19,960 --> 00:30:22,920 Speaker 1: in essence to a level of interest rate that would 521 00:30:22,920 --> 00:30:26,840 Speaker 1: be consistent with a stable unemployment rate and inflation running 522 00:30:26,840 --> 00:30:30,080 Speaker 1: at their two percent target. There's still accommodative in that sense. 523 00:30:30,200 --> 00:30:33,560 Speaker 1: The real issue is sort of how they how quickly 524 00:30:33,560 --> 00:30:35,880 Speaker 1: where do we want to place the risks going forward? 525 00:30:35,960 --> 00:30:38,000 Speaker 1: Do they want to place the risk more at the 526 00:30:38,040 --> 00:30:43,240 Speaker 1: potential for undershooting their target or overshooting their target? And 527 00:30:43,680 --> 00:30:46,880 Speaker 1: while they haven't actually admitted this publicly, it seems to 528 00:30:46,960 --> 00:30:50,080 Speaker 1: me as if they're certainly setting policy in a way 529 00:30:50,080 --> 00:30:52,080 Speaker 1: that suggests they want to take the risk that they're 530 00:30:52,080 --> 00:30:55,840 Speaker 1: willing to overheat and overshoot the target by a modest 531 00:30:55,840 --> 00:30:59,680 Speaker 1: amount rather than undershoot it. At this point, what is 532 00:30:59,760 --> 00:31:04,280 Speaker 1: the well, let me ask you this way, from your 533 00:31:04,400 --> 00:31:07,560 Speaker 1: point of view, what is the danger of inflation? Has 534 00:31:07,560 --> 00:31:10,160 Speaker 1: there been a sort of secular change here? We have 535 00:31:10,720 --> 00:31:13,680 Speaker 1: unemployment at what most of them say is basically full employment. 536 00:31:13,920 --> 00:31:17,400 Speaker 1: We're not seeing inflation. So UM, I think there's some 537 00:31:17,480 --> 00:31:23,480 Speaker 1: significant uncertainties about especially about how the Great Recession and 538 00:31:23,600 --> 00:31:29,240 Speaker 1: are relatively slow recovery have affected the labor market, and 539 00:31:29,240 --> 00:31:32,720 Speaker 1: in particular, just how much room is there to grow 540 00:31:32,880 --> 00:31:36,560 Speaker 1: further and push the unemployment rate down without generating inflation. 541 00:31:36,600 --> 00:31:38,680 Speaker 1: I think if you'd ask most economist a few years 542 00:31:38,680 --> 00:31:41,360 Speaker 1: ago and told them we'd be sitting here at the 543 00:31:41,880 --> 00:31:45,840 Speaker 1: sub five pcent unemployment, they probably would have expected more 544 00:31:45,920 --> 00:31:48,720 Speaker 1: upward pressure on inflation. And there's two things going on. 545 00:31:48,720 --> 00:31:52,480 Speaker 1: One is, inflation looks like to become less sensitive to 546 00:31:52,600 --> 00:31:55,920 Speaker 1: the unemployment rate or the degree of slacking the economy, 547 00:31:56,040 --> 00:32:00,560 Speaker 1: and had previously been the case UH years ago. And 548 00:32:00,680 --> 00:32:04,400 Speaker 1: the other thing is with labor force participation having declined 549 00:32:04,440 --> 00:32:08,800 Speaker 1: as much as it has, with part time employment still 550 00:32:08,920 --> 00:32:13,480 Speaker 1: relatively elevated UM, there's questions about just how much room 551 00:32:13,520 --> 00:32:16,719 Speaker 1: there is to grow the economy, and I think clearly 552 00:32:16,720 --> 00:32:19,440 Speaker 1: there's a split on the committee. Some some who have said, look, 553 00:32:19,720 --> 00:32:23,640 Speaker 1: we're pretty close to full employment, the inflation is likely 554 00:32:23,680 --> 00:32:26,240 Speaker 1: to head back to two percent relatively promptly, and others 555 00:32:27,120 --> 00:32:31,080 Speaker 1: think counseling, more patients and more experimentation to sort of 556 00:32:31,120 --> 00:32:34,240 Speaker 1: push the envelope to see just how much UH the 557 00:32:34,280 --> 00:32:37,160 Speaker 1: economy can grow at this point. David, thank you so much, 558 00:32:37,200 --> 00:32:41,960 Speaker 1: David Stockton with this Peterson Institute. Thanks for listening to 559 00:32:42,040 --> 00:32:48,160 Speaker 1: the Bloomberg Surveillance podcast, Subscribe and listen to interviews on iTunes, SoundCloud, 560 00:32:48,520 --> 00:32:52,479 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 561 00:32:52,520 --> 00:32:57,280 Speaker 1: Tom Keane, Michael McKee is at Economy Before the podcast. 562 00:32:57,400 --> 00:33:07,800 Speaker 1: You can always catch us worldwide Bloomberg Radio. Who you 563 00:33:07,840 --> 00:33:11,720 Speaker 1: put your trust in matters. Investors have put their trust 564 00:33:11,760 --> 00:33:15,080 Speaker 1: in independent registered investment advisors to the tune of four 565 00:33:15,200 --> 00:33:20,280 Speaker 1: trillion dollars. Why learn more and find your independent advisor 566 00:33:20,360 --> 00:33:23,320 Speaker 1: dot com