1
00:00:00,320 --> 00:00:04,080
Speaker 1: A FED chair, a former Treasury secretary, a former White

2
00:00:04,120 --> 00:00:07,880
Speaker 1: House Chief economist, two CEOs who turned around their companies,

3
00:00:07,920 --> 00:00:11,960
Speaker 1: and two private equity competitors with different takes on their business.

4
00:00:12,320 --> 00:00:15,480
Speaker 1: This is a special best of additional Bloomberg Wall Street Week.

5
00:00:15,760 --> 00:00:31,800
Speaker 1: I'm David Weston. Each week we bring you interviews with

6
00:00:31,840 --> 00:00:35,360
Speaker 1: some of the top minds in government, economics, business and finance,

7
00:00:35,760 --> 00:00:38,560
Speaker 1: with the goal of taking a broader and deeper look

8
00:00:38,600 --> 00:00:40,920
Speaker 1: at the world of investing. As we head into the

9
00:00:40,920 --> 00:00:43,280
Speaker 1: holiday season, we thought we'd pull together some of the

10
00:00:43,360 --> 00:00:47,200
Speaker 1: highlights from the year so far across a range of subjects,

11
00:00:47,479 --> 00:00:50,680
Speaker 1: and we start at the top with the person everyone

12
00:00:50,800 --> 00:00:53,880
Speaker 1: on Global Wall Street talks about and speculates about just

13
00:00:53,920 --> 00:00:57,120
Speaker 1: about every day. We had the rare opportunity to sit

14
00:00:57,200 --> 00:00:59,600
Speaker 1: with FED Chair J Powell for an extended one on

15
00:00:59,600 --> 00:01:02,400
Speaker 1: one covera focus not so much on what he thought

16
00:01:02,400 --> 00:01:05,240
Speaker 1: the FED would do at any given meeting, but instead

17
00:01:05,240 --> 00:01:09,000
Speaker 1: on how he approaches his job as steward of monetary policy,

18
00:01:09,360 --> 00:01:12,200
Speaker 1: what his theory of the case is. We started with

19
00:01:12,360 --> 00:01:15,679
Speaker 1: one of the big surprises even mysteries this year. While

20
00:01:15,720 --> 00:01:19,480
Speaker 1: the US economy continues to charge ahead despite all those

21
00:01:19,560 --> 00:01:22,240
Speaker 1: rate hikes, he's delivered at record speed.

22
00:01:24,640 --> 00:01:28,800
Speaker 2: We certainly have a very resilient economy on our hands.

23
00:01:28,840 --> 00:01:32,399
Speaker 2: We've got the economy growing strongly. If you think back

24
00:01:32,440 --> 00:01:35,959
Speaker 2: a year, many forecasts called for the US economy to

25
00:01:35,959 --> 00:01:38,800
Speaker 2: be in recession this year. Not only has that not happened,

26
00:01:39,240 --> 00:01:42,160
Speaker 2: growth is now running for this year above its a

27
00:01:42,160 --> 00:01:45,520
Speaker 2: longer run trend. So that's been a surprise, driven largely

28
00:01:45,600 --> 00:01:49,400
Speaker 2: by consumer spending, driven by a very strong job market

29
00:01:49,480 --> 00:01:53,360
Speaker 2: with people getting jobs with high first time nominal wages.

30
00:01:53,360 --> 00:01:56,160
Speaker 2: And then as inflation has come down, real wages which

31
00:01:56,160 --> 00:01:59,120
Speaker 2: is spurring spending, and we've also had inflation coming down.

32
00:02:00,000 --> 00:02:03,240
Speaker 2: You know that's it really is a story of much

33
00:02:03,320 --> 00:02:06,320
Speaker 2: stronger demand. There may also be there may be some

34
00:02:06,360 --> 00:02:08,040
Speaker 2: ways in which the economy is.

35
00:02:09,160 --> 00:02:10,800
Speaker 3: Less affected by interest rates.

36
00:02:11,160 --> 00:02:15,760
Speaker 2: It's hard to know precisely, but for example, companies, many companies,

37
00:02:15,800 --> 00:02:18,480
Speaker 2: any company with bond market access will have termed out

38
00:02:18,480 --> 00:02:21,520
Speaker 2: its debt right and therefore may not be feeling the

39
00:02:21,520 --> 00:02:22,520
Speaker 2: effects of higher rates.

40
00:02:22,960 --> 00:02:23,600
Speaker 3: The same may be.

41
00:02:23,680 --> 00:02:26,600
Speaker 2: True of homeowners who have a long term, fixed rate,

42
00:02:26,919 --> 00:02:30,320
Speaker 2: low rate mortgage, who then are therefore not because it's

43
00:02:30,360 --> 00:02:33,760
Speaker 2: not an adjustable rate or a higher rate. They're not

44
00:02:33,800 --> 00:02:36,560
Speaker 2: feeling that increase in rates, so the economy may be

45
00:02:36,600 --> 00:02:40,519
Speaker 2: somewhat less susceptible to the effects of rate increases. On

46
00:02:40,560 --> 00:02:43,520
Speaker 2: the other hand, if you look at look at interrat

47
00:02:43,560 --> 00:02:47,680
Speaker 2: sensitive spending, these are very much the the the places

48
00:02:47,680 --> 00:02:50,000
Speaker 2: where we see where we expect to see and do

49
00:02:50,120 --> 00:02:54,640
Speaker 2: see effects. So for example, in housing or in you know,

50
00:02:54,800 --> 00:02:57,440
Speaker 2: the housing effector has been sector has been very affected

51
00:02:57,440 --> 00:02:58,440
Speaker 2: by higher rates.

52
00:02:58,200 --> 00:03:00,959
Speaker 3: As purchases of durable goods.

53
00:03:01,040 --> 00:03:03,239
Speaker 2: If you look at surveys, people will not say that

54
00:03:03,280 --> 00:03:04,920
Speaker 2: it's a good time to buy a car or a house.

55
00:03:05,040 --> 00:03:05,920
Speaker 3: Quite the contrary.

56
00:03:06,360 --> 00:03:10,600
Speaker 2: So we see policy working through its usual channels. It

57
00:03:10,639 --> 00:03:12,720
Speaker 2: may just be that rates haven't been high enough for

58
00:03:12,800 --> 00:03:15,480
Speaker 2: long enough. And again it's all happening in a context

59
00:03:15,560 --> 00:03:16,840
Speaker 2: of very strong demand.

60
00:03:17,080 --> 00:03:19,600
Speaker 1: We've heard other speculators maybe the terming out of debt,

61
00:03:19,639 --> 00:03:22,520
Speaker 1: as you say, both corporate debt and hushole debt may

62
00:03:22,800 --> 00:03:26,160
Speaker 1: diminish the effectiveness of rate hikes. Do you have a

63
00:03:26,240 --> 00:03:28,880
Speaker 1: view on whether that's true, And if it is true,

64
00:03:28,919 --> 00:03:30,640
Speaker 1: what does it say about mante posy. Does it mean

65
00:03:30,720 --> 00:03:33,040
Speaker 1: you have to go farther in the rate hikes or

66
00:03:33,080 --> 00:03:34,440
Speaker 1: do you just not have the power to affect it?

67
00:03:35,400 --> 00:03:39,640
Speaker 2: So no, I don't think that there's a fundamental shift

68
00:03:39,720 --> 00:03:42,080
Speaker 2: in the way that interest rates affect the economy. There

69
00:03:42,160 --> 00:03:44,800
Speaker 2: may be some differences in this cycle because of what

70
00:03:44,840 --> 00:03:48,920
Speaker 2: I mentioned. As I mentioned, we are seeing those the

71
00:03:48,920 --> 00:03:51,440
Speaker 2: effects where we expect to see them, which is intrasensitive

72
00:03:51,480 --> 00:03:55,240
Speaker 2: spending and also asset prices to some extent, and the

73
00:03:55,240 --> 00:03:57,920
Speaker 2: exchange rate, which you're also seeing a strong exchange rate,

74
00:03:58,240 --> 00:04:02,080
Speaker 2: which is disinflationary. I don't think there's a fundamental change

75
00:04:02,080 --> 00:04:04,960
Speaker 2: in the way monetary policy affects the economy. And again

76
00:04:05,000 --> 00:04:07,440
Speaker 2: it goes back to just very strong demand. We take

77
00:04:07,480 --> 00:04:10,720
Speaker 2: the economy as it is, We take fiscal policy and

78
00:04:10,760 --> 00:04:13,000
Speaker 2: the economy and all the things we don't control, they

79
00:04:13,000 --> 00:04:17,120
Speaker 2: come to us, and we conduct policy always to achieve

80
00:04:17,960 --> 00:04:21,600
Speaker 2: maximum employment and stable prices. So we just take what comes.

81
00:04:22,080 --> 00:04:25,320
Speaker 2: The fact that we have a strong, growing economy, a

82
00:04:25,320 --> 00:04:27,080
Speaker 2: strong growing labor market.

83
00:04:27,160 --> 00:04:27,480
Speaker 4: And.

84
00:04:28,880 --> 00:04:29,960
Speaker 3: Inflation coming down.

85
00:04:30,080 --> 00:04:32,719
Speaker 2: These are the elements that we want to see that

86
00:04:32,960 --> 00:04:36,560
Speaker 2: to achieve the outcome we want. It may take more time,

87
00:04:36,680 --> 00:04:40,480
Speaker 2: but ultimately this is the kind of thing you would

88
00:04:40,480 --> 00:04:43,400
Speaker 2: want to see along the path to getting through this

89
00:04:43,440 --> 00:04:44,960
Speaker 2: without a big increase in unemployment.

90
00:04:45,120 --> 00:04:48,800
Speaker 1: How much effect thus far has the FED had we

91
00:04:48,920 --> 00:04:52,040
Speaker 1: all have memorized how long and variable lags? How long

92
00:04:52,080 --> 00:04:54,320
Speaker 1: and how variable and where are you in that process?

93
00:04:54,560 --> 00:04:56,640
Speaker 1: Are you at the twenty five percent point, the fiferent

94
00:04:56,640 --> 00:04:58,440
Speaker 1: in terms of seeing it in the effect in the

95
00:04:58,480 --> 00:05:01,400
Speaker 1: real economy, there's no precision in.

96
00:05:03,080 --> 00:05:05,400
Speaker 3: Our understanding of how long legs are.

97
00:05:07,080 --> 00:05:09,599
Speaker 2: One thing that has changed in the modern era is

98
00:05:09,640 --> 00:05:14,239
Speaker 2: that markets now, over the course of the last thirty years,

99
00:05:14,240 --> 00:05:16,800
Speaker 2: central banks that have decided, instead of being secretive, to

100
00:05:16,839 --> 00:05:19,640
Speaker 2: be very transparent. And what that has meant is that

101
00:05:20,040 --> 00:05:24,839
Speaker 2: markets move actually well in anticipation, well before our policy moves.

102
00:05:24,839 --> 00:05:30,320
Speaker 2: So the transmission from policy moves to financial conditions actually

103
00:05:30,400 --> 00:05:32,680
Speaker 2: happens before the moves now, whereas that was not the

104
00:05:32,760 --> 00:05:36,400
Speaker 2: case fifty years ago when Milton Friedman coined the phrase

105
00:05:36,720 --> 00:05:41,080
Speaker 2: along and variable legs. But now you have financial conditions

106
00:05:41,120 --> 00:05:43,599
Speaker 2: changing and the questions how does it affect the economy.

107
00:05:43,720 --> 00:05:48,480
Speaker 2: The standard channels are asset prices in such intrasensitive spending

108
00:05:48,520 --> 00:05:50,760
Speaker 2: in the exchange rate, for example, And again we do

109
00:05:50,800 --> 00:05:54,120
Speaker 2: see that happening, just not as fast as we would like,

110
00:05:54,480 --> 00:05:57,840
Speaker 2: and I would attribute some of that to just stronger demand.

111
00:05:58,160 --> 00:06:01,839
Speaker 2: Household savings were turned out to be higher household spending

112
00:06:01,839 --> 00:06:04,040
Speaker 2: has been stronger, and that's by far the largest part

113
00:06:04,040 --> 00:06:04,680
Speaker 2: of the economy.

114
00:06:04,800 --> 00:06:07,200
Speaker 1: In order to conduct monetary policy effectively, do you need

115
00:06:07,200 --> 00:06:10,919
Speaker 1: at least hypothesis about how much has already hit the economy,

116
00:06:10,960 --> 00:06:12,480
Speaker 1: because it's hard to know how much more you need

117
00:06:12,520 --> 00:06:14,359
Speaker 1: to do if you don't know how far you've come.

118
00:06:14,680 --> 00:06:17,320
Speaker 2: So on lags, I think if you think back, it's

119
00:06:17,360 --> 00:06:20,720
Speaker 2: been a year now since the last seventy five basis

120
00:06:20,720 --> 00:06:23,279
Speaker 2: point hike we did. It was the November meeting in

121
00:06:23,279 --> 00:06:26,320
Speaker 2: twenty twenty two. The first one was in June, so

122
00:06:26,320 --> 00:06:28,479
Speaker 2: it's more than a year, so we should be seeing

123
00:06:29,080 --> 00:06:31,479
Speaker 2: the effects. By the way, they don't all just arrive

124
00:06:31,600 --> 00:06:34,000
Speaker 2: on one day. They arrive and then they're thought to

125
00:06:34,120 --> 00:06:36,800
Speaker 2: peak and then to diminish. So there's a lot of

126
00:06:36,839 --> 00:06:39,840
Speaker 2: uncertainty around lags, and one of the reasons why we

127
00:06:39,920 --> 00:06:43,560
Speaker 2: have slowed down significantly this year is to give monetary

128
00:06:43,560 --> 00:06:46,760
Speaker 2: policy time to work. The truth is, though you can

129
00:06:46,800 --> 00:06:52,640
Speaker 2: find academic support for different speeds and duration of lags,

130
00:06:52,640 --> 00:06:55,840
Speaker 2: So we have to use our eyes and a little

131
00:06:55,839 --> 00:06:59,000
Speaker 2: bit of risk management in patients in slowing down the

132
00:06:59,000 --> 00:07:01,000
Speaker 2: pace to make sure that we we are seeing the

133
00:07:01,040 --> 00:07:03,760
Speaker 2: full effects, and I think again that's part of why

134
00:07:03,760 --> 00:07:06,960
Speaker 2: we've slowed down this year. We went very quickly in

135
00:07:07,000 --> 00:07:09,640
Speaker 2: twenty twenty two to catch up to where we needed

136
00:07:09,680 --> 00:07:12,800
Speaker 2: to be, and now we're moving carefully with these decisions.

137
00:07:14,920 --> 00:07:17,360
Speaker 1: After we spoke with Chair Powell, our special Wall Street

138
00:07:17,360 --> 00:07:20,760
Speaker 1: Week contributor and former treasure Secretary Larry Summers warned us

139
00:07:20,760 --> 00:07:23,800
Speaker 1: about what he thought Powell had not given sufficient attention

140
00:07:23,840 --> 00:07:27,080
Speaker 1: to that looming federal deficit and what it means for

141
00:07:27,120 --> 00:07:29,239
Speaker 1: the economy and for monetary policy.

142
00:07:31,640 --> 00:07:35,640
Speaker 5: I didn't find anything to strongly disagree with in what

143
00:07:35,760 --> 00:07:39,840
Speaker 5: Chairman Powell said, but there was a big newfoundland of

144
00:07:39,880 --> 00:07:43,680
Speaker 5: a dog that wasn't barking as he was speaking. And

145
00:07:43,720 --> 00:07:49,720
Speaker 5: that's everything about the federal fiscal situation. That matters two ways.

146
00:07:50,360 --> 00:07:54,000
Speaker 5: If there's more debt and much bigger deficits, that means

147
00:07:54,040 --> 00:07:57,920
Speaker 5: more demand in the economy, and that raises the neutral

148
00:07:58,000 --> 00:08:02,400
Speaker 5: rate now and raises even more the prospective neutral rate

149
00:08:02,640 --> 00:08:03,400
Speaker 5: in the future.

150
00:08:03,840 --> 00:08:05,320
Speaker 6: That's one important length.

151
00:08:05,880 --> 00:08:10,880
Speaker 5: The other important length is that when you're trying to

152
00:08:10,920 --> 00:08:14,640
Speaker 5: sell huge amounts of long term debt because you have

153
00:08:14,800 --> 00:08:15,520
Speaker 5: very big.

154
00:08:15,280 --> 00:08:18,240
Speaker 6: Deficits, its price goes down, and that.

155
00:08:18,200 --> 00:08:23,440
Speaker 5: Means longer, higher long term yields, a rising term premium.

156
00:08:23,840 --> 00:08:25,040
Speaker 6: And I think you've got.

157
00:08:25,000 --> 00:08:28,840
Speaker 5: Both of those phenomena going on, and realization that the

158
00:08:28,880 --> 00:08:34,319
Speaker 5: neutral rates likely to be higher because of fiscal policy

159
00:08:34,960 --> 00:08:42,320
Speaker 5: and the supply absorption aspect. And I understand that the

160
00:08:42,320 --> 00:08:46,760
Speaker 5: Fed's job is not to get involved in fiscal policy,

161
00:08:47,400 --> 00:08:50,680
Speaker 5: but I think over time, the FED is going to

162
00:08:50,760 --> 00:08:55,080
Speaker 5: have to, as the monetary authority of the country, going

163
00:08:55,160 --> 00:08:58,199
Speaker 5: to have to engage on some of these questions about

164
00:08:59,280 --> 00:09:04,520
Speaker 5: treasury debt, especially given the magnitude of its own balance

165
00:09:04,559 --> 00:09:09,480
Speaker 5: sheet and the magnitude of the losses that acting as

166
00:09:09,760 --> 00:09:14,319
Speaker 5: the agent of the treasury and taxpayers, the very substantial

167
00:09:14,400 --> 00:09:17,880
Speaker 5: losses that have been taken in a marked to market

168
00:09:18,000 --> 00:09:22,480
Speaker 5: sense on the Fed's balance sheet. So those fiscal issues

169
00:09:22,559 --> 00:09:25,840
Speaker 5: have to be at the center, it seems to me

170
00:09:25,960 --> 00:09:28,640
Speaker 5: of a discussion of interest rate issues.

171
00:09:28,840 --> 00:09:31,440
Speaker 1: So pick up on exactly what that means for the FED,

172
00:09:31,600 --> 00:09:34,320
Speaker 1: because J. Paul didn't deny that, although he said there

173
00:09:34,320 --> 00:09:36,280
Speaker 1: are a lot of factors, he thinks that's just one

174
00:09:36,360 --> 00:09:39,000
Speaker 1: factor going into what's going on the twenty five year yield,

175
00:09:39,040 --> 00:09:40,880
Speaker 1: for example, or thirty year yield. Right now, he said

176
00:09:40,880 --> 00:09:43,240
Speaker 1: it's too complicate. He doesn't really know, but he said,

177
00:09:43,280 --> 00:09:44,800
Speaker 1: we have to take that as it is. It doesn't

178
00:09:44,880 --> 00:09:47,520
Speaker 1: change our policy if you are exactly right.

179
00:09:47,400 --> 00:09:48,199
Speaker 7: And I assume you are.

180
00:09:48,480 --> 00:09:51,839
Speaker 1: How does it change the Fed's policy monetary policy right now?

181
00:09:52,679 --> 00:09:56,920
Speaker 6: Well, I think there are two separate parts of it.

182
00:09:57,000 --> 00:10:01,680
Speaker 5: Insofar as the neutral rate is being pushed up by

183
00:10:01,960 --> 00:10:06,079
Speaker 5: higher fiscal deficits, that's a thing that means the FED

184
00:10:06,120 --> 00:10:11,400
Speaker 5: has to raise the actual rate in order to keep

185
00:10:11,480 --> 00:10:16,120
Speaker 5: the same degree of balance between the accelerator and the brakes.

186
00:10:17,160 --> 00:10:19,920
Speaker 6: Insofar as the interest rate.

187
00:10:19,800 --> 00:10:23,520
Speaker 5: Is going up because of some kind of term premium,

188
00:10:23,920 --> 00:10:30,400
Speaker 5: and that's important. That's restraint that's being applied to the economy.

189
00:10:31,040 --> 00:10:34,480
Speaker 5: That's the break, and it might substitute for a break

190
00:10:34,559 --> 00:10:38,560
Speaker 5: the FED would otherwise have to provide. So it's not

191
00:10:38,720 --> 00:10:41,840
Speaker 5: enough for the FED to recognize that rates are going up.

192
00:10:41,960 --> 00:10:46,320
Speaker 5: It has to implicitly be forming a view as to

193
00:10:46,480 --> 00:10:50,240
Speaker 5: what the cause is. And I don't think that's analytically

194
00:10:50,320 --> 00:10:53,320
Speaker 5: easy at this point. And it's sort of the first

195
00:10:53,440 --> 00:10:56,359
Speaker 5: rule of mine fields to step gingerly.

196
00:10:58,720 --> 00:11:02,360
Speaker 1: That was special Wall Street Week contributor Larry Summers of Harvard.

197
00:11:04,120 --> 00:11:04,520
Speaker 7: Coming up.

198
00:11:04,600 --> 00:11:07,920
Speaker 1: We turned to another economist, doctor Cecilia Rouse about where

199
00:11:07,920 --> 00:11:10,640
Speaker 1: the economy is headed as we head into an uncertain

200
00:11:10,720 --> 00:11:15,599
Speaker 1: twenty twenty four. That's next don Wall Street Week on Bloomberg.

201
00:11:24,080 --> 00:11:26,320
Speaker 1: This is a special additional Wall Street Week bringing you

202
00:11:26,360 --> 00:11:28,960
Speaker 1: some of the most important interviews from twenty twenty three.

203
00:11:29,160 --> 00:11:30,120
Speaker 7: I'm David Weston.

204
00:11:30,400 --> 00:11:33,240
Speaker 1: Earlier this year, Cecilia Rouse stepped down as chair of

205
00:11:33,280 --> 00:11:36,679
Speaker 1: President Biden's Council of Economic Advisors and agreed to take

206
00:11:36,760 --> 00:11:39,400
Speaker 1: over as president of the Brookings Institution as of the

207
00:11:39,440 --> 00:11:40,120
Speaker 1: first of the year.

208
00:11:40,559 --> 00:11:42,000
Speaker 7: We talked with her earlier this.

209
00:11:42,000 --> 00:11:44,760
Speaker 1: Month after US jobs numbers came in a bit lower

210
00:11:44,800 --> 00:11:47,680
Speaker 1: than expected, and asked what they told us about where

211
00:11:47,720 --> 00:11:49,080
Speaker 1: the economy is headed.

212
00:11:51,200 --> 00:11:54,679
Speaker 8: I think we are seeing the slowing of the labor market,

213
00:11:54,720 --> 00:11:57,400
Speaker 8: which has been long anticipated. Some might say what took

214
00:11:57,440 --> 00:12:00,600
Speaker 8: so long, But what we see is that employees growth

215
00:12:00,640 --> 00:12:03,640
Speaker 8: remains healthy. Like if we were to talk pre pandemic.

216
00:12:04,240 --> 00:12:06,240
Speaker 8: An average job growth if we look over the last

217
00:12:06,240 --> 00:12:08,720
Speaker 8: three months, has been just over two hundred thousand jobs

218
00:12:08,760 --> 00:12:11,040
Speaker 8: a month. This month it came in at one hundred

219
00:12:11,040 --> 00:12:13,960
Speaker 8: and fifty. That number will be revised, but what we

220
00:12:14,000 --> 00:12:16,719
Speaker 8: see is healthy job growth, which is consistent with an

221
00:12:16,720 --> 00:12:20,560
Speaker 8: economy that is powering along, but which is coming down

222
00:12:20,679 --> 00:12:23,720
Speaker 8: from the very high growth we had as the economy

223
00:12:23,760 --> 00:12:26,240
Speaker 8: recovered from the pandemic. I think these numbers will be

224
00:12:26,240 --> 00:12:28,480
Speaker 8: welcomed by the FED. As I said, I think many

225
00:12:28,520 --> 00:12:31,600
Speaker 8: economists will see this as the natural course of the

226
00:12:31,640 --> 00:12:33,400
Speaker 8: economy getting back to normal.

227
00:12:33,760 --> 00:12:36,440
Speaker 1: Well, no offense to the economists such as you, but

228
00:12:36,800 --> 00:12:40,000
Speaker 1: and you've been off on some few things recently, and

229
00:12:40,120 --> 00:12:42,599
Speaker 1: let me talk about that specifically, the relationship between the

230
00:12:42,679 --> 00:12:45,160
Speaker 1: labor market on the one hand and inflation on the other.

231
00:12:45,360 --> 00:12:47,920
Speaker 1: We thought we knew what that was, that it seemed

232
00:12:47,960 --> 00:12:50,640
Speaker 1: to really the relationship went away, that Phillips currency knew

233
00:12:50,679 --> 00:12:51,319
Speaker 1: really flat.

234
00:12:51,679 --> 00:12:52,280
Speaker 7: Where are we now?

235
00:12:52,320 --> 00:12:55,000
Speaker 1: Do we have a theory about what the labor market

236
00:12:55,120 --> 00:12:56,160
Speaker 1: means for inflation?

237
00:12:57,400 --> 00:13:01,840
Speaker 8: So you know, the reality is that in economics there's

238
00:13:01,920 --> 00:13:05,320
Speaker 8: not a fabulous theory and one theory of inflation. And

239
00:13:05,360 --> 00:13:07,960
Speaker 8: I think that is part of the challenge. Another part

240
00:13:07,960 --> 00:13:10,080
Speaker 8: of the challenge is what was the source. We know

241
00:13:10,440 --> 00:13:14,640
Speaker 8: that we had unprecedented supply challenges due to the pandemic,

242
00:13:14,960 --> 00:13:18,560
Speaker 8: both in terms of getting goods to people manufacturing goods

243
00:13:18,600 --> 00:13:20,360
Speaker 8: because people have a part of that process and with

244
00:13:20,400 --> 00:13:22,959
Speaker 8: the pandemic they couldn't show up to work. And then

245
00:13:23,000 --> 00:13:26,079
Speaker 8: we also know we had unprecedented demand because of the

246
00:13:26,480 --> 00:13:30,959
Speaker 8: remarkable support that the federal government here and abroad provided

247
00:13:31,040 --> 00:13:33,760
Speaker 8: to consumers and businesses to get them through the pandemic.

248
00:13:34,160 --> 00:13:37,079
Speaker 8: So we know we had this mismatch of supply and demand.

249
00:13:37,320 --> 00:13:39,760
Speaker 8: The question is which was going to win in terms

250
00:13:39,760 --> 00:13:44,400
Speaker 8: of sort of regularizing faster. So I think this goes

251
00:13:44,440 --> 00:13:46,840
Speaker 8: back to we hadn't seen inflation for a long time.

252
00:13:47,280 --> 00:13:50,880
Speaker 8: Economics doesn't have one solid, well established theory of inflation,

253
00:13:51,240 --> 00:13:53,560
Speaker 8: and the fact that we had an unprecedented shock to

254
00:13:53,640 --> 00:13:56,640
Speaker 8: our domestic economy and the global economy.

255
00:13:57,240 --> 00:13:58,119
Speaker 6: What we're seeing.

256
00:13:57,840 --> 00:14:03,080
Speaker 8: Now is monetary authorities stepped in, the federal government stepped in,

257
00:14:03,120 --> 00:14:06,240
Speaker 8: They pulled back appropriately, and the economy is getting back

258
00:14:06,240 --> 00:14:06,640
Speaker 8: to normal.

259
00:14:07,240 --> 00:14:09,640
Speaker 1: And as a labor economist, which you are, what about

260
00:14:09,640 --> 00:14:12,160
Speaker 1: what I would call the cross tabs beyond just the

261
00:14:12,280 --> 00:14:15,800
Speaker 1: overall numbers, the top line numbers. We had been having

262
00:14:15,800 --> 00:14:17,720
Speaker 1: a pattern, I believe, of having some of the lower

263
00:14:17,760 --> 00:14:20,080
Speaker 1: income people and people of color, some of the minorities

264
00:14:20,240 --> 00:14:24,240
Speaker 1: benefit disproportionately. Is it a last in, first out sort

265
00:14:24,240 --> 00:14:26,960
Speaker 1: of thing, where as you start to slow the labor

266
00:14:27,000 --> 00:14:29,120
Speaker 1: market actually those are the people that get hurt the most.

267
00:14:30,160 --> 00:14:32,680
Speaker 8: Well, that is a bit to remain to be seen.

268
00:14:33,040 --> 00:14:36,800
Speaker 8: You are absolutely right that traditionally strong labor markets benefit

269
00:14:36,840 --> 00:14:39,640
Speaker 8: those who traditionally are not helped in labor markets. So

270
00:14:39,680 --> 00:14:43,400
Speaker 8: we had narrowing of, for example, racial gaps in unemployment

271
00:14:43,520 --> 00:14:48,080
Speaker 8: and employment. We saw women have benefited tremendously in this recovery.

272
00:14:48,680 --> 00:14:51,320
Speaker 8: What we saw in today's job report suggested a bit

273
00:14:51,320 --> 00:14:54,479
Speaker 8: of a tick up in unemployment for African Americans Hispanics,

274
00:14:54,880 --> 00:14:57,080
Speaker 8: but we saw overall a tickup as well, So.

275
00:14:57,680 --> 00:14:59,000
Speaker 6: This remains to be seen.

276
00:14:59,320 --> 00:15:02,120
Speaker 8: There have been, and you know, there are some changes

277
00:15:02,160 --> 00:15:05,240
Speaker 8: in our labor market. We still have very strong growth

278
00:15:05,600 --> 00:15:08,560
Speaker 8: in employment, I think overall, especially given where we are,

279
00:15:09,080 --> 00:15:13,120
Speaker 8: and we see labor having more of a voice traditionally,

280
00:15:13,160 --> 00:15:16,920
Speaker 8: when we see unions being stronger, that helps those who

281
00:15:16,960 --> 00:15:19,880
Speaker 8: are the lower wage workers as well. We've seen increases

282
00:15:19,920 --> 00:15:22,360
Speaker 8: in the minimum wage, so I think it depends. We

283
00:15:22,400 --> 00:15:25,520
Speaker 8: will have to see. One thing we do believe we've

284
00:15:25,560 --> 00:15:29,160
Speaker 8: also seen for African Americans is that the wage increases

285
00:15:29,200 --> 00:15:32,280
Speaker 8: and the labor market increases are changes in occupations. So

286
00:15:32,320 --> 00:15:35,360
Speaker 8: if they stick there, that could be more enduring. But honestly,

287
00:15:35,480 --> 00:15:38,760
Speaker 8: we will see as we go. Hopefully what we see

288
00:15:38,800 --> 00:15:41,880
Speaker 8: now is a labor market that is cooling. The Federal

289
00:15:42,520 --> 00:15:45,680
Speaker 8: Reserve is able to pause the interest rate increases and

290
00:15:45,720 --> 00:15:47,880
Speaker 8: maybe even start to decrease at some point in the

291
00:15:47,880 --> 00:15:50,520
Speaker 8: future when in place inflation needs to come down a

292
00:15:50,520 --> 00:15:54,200
Speaker 8: bit more. But that we maintain this strong labor market

293
00:15:54,280 --> 00:15:56,120
Speaker 8: even as inflation continues to cool.

294
00:15:56,480 --> 00:15:58,680
Speaker 1: You mentioned the labor unions, and certainly that has been

295
00:15:58,720 --> 00:16:00,720
Speaker 1: a development through the course of this. We've had the

296
00:16:00,760 --> 00:16:03,920
Speaker 1: Writers Guild, We've had the actors, we had ups and

297
00:16:03,960 --> 00:16:06,600
Speaker 1: now we had the UAW with the autoworkers. More yet

298
00:16:06,640 --> 00:16:10,120
Speaker 1: to come. There's still some issues depending out there. Do

299
00:16:10,160 --> 00:16:13,280
Speaker 1: you have a sense or a hypothesis whether this is

300
00:16:13,320 --> 00:16:16,560
Speaker 1: a fundamental shift, perhaps over the longer term, of the

301
00:16:16,560 --> 00:16:18,600
Speaker 1: power between labor on the one handed capital and the other,

302
00:16:18,880 --> 00:16:21,360
Speaker 1: or whether this is labor basically doing what it should

303
00:16:21,400 --> 00:16:23,240
Speaker 1: be doing, which is selling at the top of the market,

304
00:16:23,240 --> 00:16:24,920
Speaker 1: if you would, This is when they have the most

305
00:16:24,960 --> 00:16:26,520
Speaker 1: power so get the best deal they can.

306
00:16:26,600 --> 00:16:27,800
Speaker 7: But it will come back down.

307
00:16:29,240 --> 00:16:30,640
Speaker 6: Again. Remains to be seen.

308
00:16:30,720 --> 00:16:33,560
Speaker 8: I think in a healthy economy we have both labor

309
00:16:34,320 --> 00:16:38,440
Speaker 8: has voice and we have capital the owners and the

310
00:16:38,560 --> 00:16:42,080
Speaker 8: managers also have agency, and that they work together and

311
00:16:42,520 --> 00:16:46,320
Speaker 8: they negotiate, because fundamentally, we want a strong economy that

312
00:16:46,520 --> 00:16:50,200
Speaker 8: benefits all, but we also don't want to leave workers behind.

313
00:16:50,680 --> 00:16:53,840
Speaker 8: We understand shareholders and managers have to get their returns

314
00:16:53,840 --> 00:16:57,760
Speaker 8: as well. So I hope that we we rebalance that

315
00:16:57,920 --> 00:17:01,200
Speaker 8: negotiation and so that we don't we have this increasing

316
00:17:01,240 --> 00:17:04,480
Speaker 8: income and equality, this increasing wealth inequality, which I think

317
00:17:04,560 --> 00:17:08,160
Speaker 8: is not healthy for our society, both economically nor politically.

318
00:17:10,800 --> 00:17:13,280
Speaker 1: That was doctor Cecilia Rouse, who takes over as president

319
00:17:13,320 --> 00:17:23,119
Speaker 1: of the Brookings Institution on January first. This is a

320
00:17:23,160 --> 00:17:25,760
Speaker 1: special best out of edition of Wall Street Week. I'm

321
00:17:25,840 --> 00:17:29,119
Speaker 1: David Weston. When Brian moynihan took over as CEO of

322
00:17:29,119 --> 00:17:32,359
Speaker 1: Bank of America in twenty ten, his company was still

323
00:17:32,480 --> 00:17:35,680
Speaker 1: reeling from the acquisition of Merrill Lynch and countrywide.

324
00:17:35,960 --> 00:17:37,240
Speaker 7: Today, the second.

325
00:17:37,080 --> 00:17:40,359
Speaker 1: Largest bank in the country is making record profits. Brian

326
00:17:40,440 --> 00:17:42,840
Speaker 1: sat down with us at the Aspen Economic Strategy Group

327
00:17:42,880 --> 00:17:46,240
Speaker 1: meetings in August against the backdrop of beautiful Mountains, the

328
00:17:46,320 --> 00:17:51,240
Speaker 1: failure of several regional banks in March, and recurrent uncertainties

329
00:17:51,280 --> 00:17:55,200
Speaker 1: overfunding the federal government. But throughout the year, Brian came

330
00:17:55,280 --> 00:17:58,240
Speaker 1: back to the overall strength of the US.

331
00:17:58,160 --> 00:18:02,480
Speaker 4: Economy because in the day, the consumption power of the

332
00:18:02,560 --> 00:18:05,960
Speaker 4: United States drives economies around the world. Therefore, there's you know,

333
00:18:06,119 --> 00:18:08,840
Speaker 4: US consumers spend dollars, so if you're selling stuff in dollars,

334
00:18:08,920 --> 00:18:12,199
Speaker 4: you got to be exposed a dollar. And so I

335
00:18:12,240 --> 00:18:14,399
Speaker 4: think the idea of some of this debate about reserve

336
00:18:14,400 --> 00:18:16,879
Speaker 4: currency status, it's been tightening in the flight to quality,

337
00:18:16,920 --> 00:18:19,520
Speaker 4: and the US tends to come. Now ten year bonds

338
00:18:19,520 --> 00:18:21,280
Speaker 4: moved up and everybody gets moved on up. We're talking

339
00:18:21,280 --> 00:18:23,680
Speaker 4: about the difference between you know, three eighty three ninety

340
00:18:23,680 --> 00:18:24,800
Speaker 4: and four ten, four twenty.

341
00:18:25,320 --> 00:18:27,680
Speaker 9: These are not very big moves in a grand scheme

342
00:18:27,680 --> 00:18:28,000
Speaker 9: of things.

343
00:18:28,000 --> 00:18:30,800
Speaker 4: It is tapping quickly, and people get excited about who

344
00:18:30,840 --> 00:18:33,640
Speaker 4: trade bonds is living from the grand or impact in economy.

345
00:18:33,680 --> 00:18:36,640
Speaker 4: Those moves are needed to get the ultimately yeld curve

346
00:18:36,680 --> 00:18:38,760
Speaker 4: has to get back and sink or else we aren't

347
00:18:38,880 --> 00:18:41,400
Speaker 4: taming the inflation or we're going to drive into a recession.

348
00:18:41,640 --> 00:18:43,200
Speaker 7: When you talk about the strengthen the US dollar.

349
00:18:43,359 --> 00:18:46,080
Speaker 1: Is it stronger today as a reserve currency globally than

350
00:18:46,080 --> 00:18:47,360
Speaker 1: it was ten twenty years ago?

351
00:18:47,440 --> 00:18:49,359
Speaker 4: And if so, whid because I think the opportunities in

352
00:18:49,359 --> 00:18:51,080
Speaker 4: the US are the strongest. And that's why, you know,

353
00:18:51,160 --> 00:18:53,000
Speaker 4: with a great financial system we have, with a great

354
00:18:53,040 --> 00:18:56,800
Speaker 4: set of companies and innovation, we have the research universities,

355
00:18:56,840 --> 00:18:58,960
Speaker 4: we have the things like if we keep investing in

356
00:18:59,000 --> 00:19:02,600
Speaker 4: all that and like capitalism and you know, United States

357
00:19:02,640 --> 00:19:05,639
Speaker 4: style capitalism drive, the US will always be a favorite

358
00:19:05,640 --> 00:19:08,480
Speaker 4: place because other places are struggling with different systems that

359
00:19:08,560 --> 00:19:12,280
Speaker 4: proved not to be as beneficial, with less innovation, less

360
00:19:12,280 --> 00:19:15,160
Speaker 4: ability tackle problems, and so yes, it's interesting from time

361
00:19:15,160 --> 00:19:17,360
Speaker 4: to time all what goes on. But if you think about,

362
00:19:17,520 --> 00:19:19,520
Speaker 4: you know, think about the late sixties to now, we've

363
00:19:19,560 --> 00:19:21,280
Speaker 4: doubled them amount of people work United States. We were

364
00:19:21,320 --> 00:19:24,240
Speaker 4: supposed to be taken over by Japan inkeewers, the computers

365
00:19:24,280 --> 00:19:25,720
Speaker 4: are going to get rid of all the people. The

366
00:19:25,720 --> 00:19:28,080
Speaker 4: people are still working. We had to more in Vietnam.

367
00:19:28,200 --> 00:19:32,360
Speaker 4: We had the political constitutional crisis and Nixon presidency.

368
00:19:32,359 --> 00:19:33,920
Speaker 9: You had an oil and bark.

369
00:19:34,040 --> 00:19:36,040
Speaker 4: All that stuff happened in the early seventies and still

370
00:19:36,680 --> 00:19:38,840
Speaker 4: a dec you know, fifty years later, we have twice

371
00:19:38,880 --> 00:19:40,240
Speaker 4: as many people work in this country.

372
00:19:40,359 --> 00:19:42,080
Speaker 1: Since we talked last Brian, and we now have the

373
00:19:42,119 --> 00:19:45,600
Speaker 1: proposed regulations on capital requirements from the Federal Bank regulators.

374
00:19:45,760 --> 00:19:47,880
Speaker 1: We talked before, and you said one hundred basis points.

375
00:19:47,880 --> 00:19:50,320
Speaker 1: As I recall, a difference in the capital requirements would

376
00:19:50,359 --> 00:19:52,639
Speaker 1: amount to one hundred fifty billion dollars lest year long. Now

377
00:19:52,680 --> 00:19:54,360
Speaker 1: we have the proposals. What would it mean for Bank

378
00:19:54,359 --> 00:19:55,720
Speaker 1: of America and for our banking system.

379
00:19:55,960 --> 00:19:58,159
Speaker 4: Well, what it does is it's not to get too

380
00:19:58,240 --> 00:20:01,280
Speaker 4: technical in the grand scheme of things, but it changes

381
00:20:01,320 --> 00:20:02,360
Speaker 4: the calculation of risk.

382
00:20:02,200 --> 00:20:05,520
Speaker 9: Weighted assets RWA. And so the idea is that the.

383
00:20:05,560 --> 00:20:07,760
Speaker 4: Estimates by the FED is it's fifteen to twenty percent

384
00:20:07,800 --> 00:20:10,520
Speaker 4: of RWA increase. When you do that, then ten percent

385
00:20:10,600 --> 00:20:13,560
Speaker 4: of RWA at X and ten percent of URWA at

386
00:20:13,560 --> 00:20:15,320
Speaker 4: one point one times X means you have to have

387
00:20:15,440 --> 00:20:18,159
Speaker 4: more capital, and so the amount of capital goes up.

388
00:20:18,200 --> 00:20:20,040
Speaker 4: That then constrains lening because you can't do anything with

389
00:20:20,080 --> 00:20:21,720
Speaker 4: that capital. If you did, then you'd have more rw

390
00:20:21,880 --> 00:20:24,280
Speaker 4: and you have to have more capital. But I think

391
00:20:24,280 --> 00:20:27,679
Speaker 4: if you step back, this industry is well capitalized. It

392
00:20:27,760 --> 00:20:30,480
Speaker 4: just proved it again in another crisis. It's well managed,

393
00:20:30,640 --> 00:20:34,720
Speaker 4: it's well regulated. You've had successive FED regime of chairs

394
00:20:34,760 --> 00:20:37,840
Speaker 4: and people working in the chair supervision vice chair over

395
00:20:37,880 --> 00:20:40,359
Speaker 4: the years say the capital is adequate. Industry, it's well,

396
00:20:40,600 --> 00:20:43,720
Speaker 4: it's well managed as well capitalized. They'll be banks will fail.

397
00:20:43,800 --> 00:20:45,679
Speaker 4: They fail, they failed throughout history.

398
00:20:45,680 --> 00:20:46,280
Speaker 9: That happens.

399
00:20:47,080 --> 00:20:49,359
Speaker 4: But since the financial crisis, more people under the tent

400
00:20:49,560 --> 00:20:51,680
Speaker 4: because the issue of financial crisis, a lot of stuff

401
00:20:51,720 --> 00:20:53,119
Speaker 4: wasn't a tent. The problem is if you get the

402
00:20:53,119 --> 00:20:56,040
Speaker 4: capital regulations of banking system to tight, you push stuff

403
00:20:56,080 --> 00:20:57,040
Speaker 4: back outside the tent.

404
00:20:57,080 --> 00:20:57,879
Speaker 9: And that's a concern.

405
00:20:58,520 --> 00:21:00,480
Speaker 4: So as I look at it, one, give a set

406
00:21:00,480 --> 00:21:03,080
Speaker 4: of rules, we'll live with it too. It won't, you know,

407
00:21:03,119 --> 00:21:05,800
Speaker 4: bank Americal adjustice business model to make it work. But

408
00:21:05,880 --> 00:21:09,080
Speaker 4: what's been interesting about this is it's competitive position.

409
00:21:08,840 --> 00:21:10,359
Speaker 9: United States versus Europe and others.

410
00:21:10,680 --> 00:21:14,600
Speaker 4: This is making the bank industry, all banks less competitive

411
00:21:14,600 --> 00:21:16,960
Speaker 4: to mid sized US companies than foreign banks are to

412
00:21:17,000 --> 00:21:19,879
Speaker 4: mid sized US companies participating in the same global supply

413
00:21:20,000 --> 00:21:23,080
Speaker 4: chains in those countries. That's more of a trade question

414
00:21:23,480 --> 00:21:24,840
Speaker 4: and a balance of power question.

415
00:21:25,000 --> 00:21:25,400
Speaker 9: That's one.

416
00:21:25,440 --> 00:21:27,359
Speaker 4: And then second, I've surprised by the amount of descent

417
00:21:27,400 --> 00:21:29,439
Speaker 4: that the governors of Federal Reserve. I've been working on

418
00:21:29,480 --> 00:21:32,280
Speaker 4: Federal Reserve stuff for my whole career forty years now,

419
00:21:32,560 --> 00:21:34,400
Speaker 4: and I was just surprised the amount of debate, which

420
00:21:34,400 --> 00:21:36,280
Speaker 4: shows you that, you know, whether it's mortgage loans on

421
00:21:36,280 --> 00:21:40,320
Speaker 4: one side, whether it's at tax benefits for and treatment

422
00:21:40,400 --> 00:21:44,399
Speaker 4: for energy clean energy investments, or whether it's the basic

423
00:21:44,440 --> 00:21:46,919
Speaker 4: trading and things like that. There's got a lot of

424
00:21:47,000 --> 00:21:48,439
Speaker 4: water that's got to go over the dam here to

425
00:21:48,440 --> 00:21:50,200
Speaker 4: get these rules right, because there's a debate even among

426
00:21:50,280 --> 00:21:52,040
Speaker 4: the governors themselves about what the right answer.

427
00:21:51,840 --> 00:21:53,600
Speaker 1: Is over the years. Brian, you said there's a role

428
00:21:53,640 --> 00:21:55,480
Speaker 1: for regulation, and you'll live with the regulation as you

429
00:21:55,480 --> 00:21:57,280
Speaker 1: say you will with capal parts. But what is the

430
00:21:57,280 --> 00:21:59,800
Speaker 1: problem it's being addressed. That's what I don't quite understand

431
00:22:00,040 --> 00:22:01,919
Speaker 1: about the crisis we had the back in March with

432
00:22:02,000 --> 00:22:02,359
Speaker 1: the banks.

433
00:22:02,359 --> 00:22:04,240
Speaker 7: I'm not sure this addresses that well.

434
00:22:04,280 --> 00:22:06,600
Speaker 4: And that's been the debate, and that's go read the

435
00:22:06,600 --> 00:22:08,800
Speaker 4: descents in the debate and the things.

436
00:22:08,800 --> 00:22:10,320
Speaker 9: So strong regulation is important.

437
00:22:11,040 --> 00:22:14,119
Speaker 4: Rapid growth in banks tends to come from things that

438
00:22:14,160 --> 00:22:16,080
Speaker 4: turn out to be not so interesting after the fact,

439
00:22:16,160 --> 00:22:19,199
Speaker 4: and so I think, you know that's the thing they

440
00:22:19,240 --> 00:22:20,960
Speaker 4: need to sort of come to a common agreement on

441
00:22:21,040 --> 00:22:23,560
Speaker 4: Basil three. Across the world we're just applying it with

442
00:22:23,640 --> 00:22:27,560
Speaker 4: much more rigidity and requirements. And so if you look

443
00:22:27,560 --> 00:22:30,080
Speaker 4: at the largest bank in France, UK and Germany, they

444
00:22:30,119 --> 00:22:32,560
Speaker 4: have about half the capital requirements in the largest banks

445
00:22:32,560 --> 00:22:35,240
Speaker 4: in US do. So that gets send a competitive question,

446
00:22:35,280 --> 00:22:37,040
Speaker 4: and so I think people just have to look at

447
00:22:37,080 --> 00:22:39,920
Speaker 4: it seriously, look at it relative to what we're trying

448
00:22:39,920 --> 00:22:42,320
Speaker 4: to do here. We want the strongest banking industry. Our

449
00:22:42,320 --> 00:22:45,320
Speaker 4: bank conustry has better returns, has better things. But on

450
00:22:45,359 --> 00:22:47,399
Speaker 4: the other hand, our multiples are half or less than

451
00:22:47,440 --> 00:22:49,399
Speaker 4: the SMP multiples. There's a reason for that, which as

452
00:22:49,400 --> 00:22:51,879
Speaker 4: investors are saying, wait a second, if the capital demands

453
00:22:51,880 --> 00:22:54,040
Speaker 4: don't stop, we don't sure that we can continue to invest.

454
00:22:54,119 --> 00:22:56,040
Speaker 4: So there's a little bit of a counter veil here

455
00:22:56,040 --> 00:22:57,480
Speaker 4: that people have to pay attention to. And then back

456
00:22:57,480 --> 00:22:59,639
Speaker 4: to your point, every hundred base of points of capitals,

457
00:22:59,640 --> 00:23:02,920
Speaker 4: one hundred fifty billion less loans we have Bank America

458
00:23:02,920 --> 00:23:05,119
Speaker 4: could do, and this applies across what they can't be

459
00:23:05,119 --> 00:23:05,760
Speaker 4: done other places.

460
00:23:06,040 --> 00:23:07,360
Speaker 9: Those companies aren't that size man.

461
00:23:09,440 --> 00:23:12,560
Speaker 1: That was Bank of America Chair and CEO Brian moynihan.

462
00:23:19,240 --> 00:23:21,080
Speaker 7: This is a special edition of Wall Street.

463
00:23:20,880 --> 00:23:24,120
Speaker 1: Week reprising some of the most important interviews we've had

464
00:23:24,119 --> 00:23:27,880
Speaker 1: this year. Private equity and other forms of alternative investing

465
00:23:28,080 --> 00:23:30,720
Speaker 1: has had a pretty rough time recently, going from a

466
00:23:30,840 --> 00:23:33,879
Speaker 1: record year in twenty twenty one to almost freezing up

467
00:23:33,880 --> 00:23:36,920
Speaker 1: in twenty twenty two and just getting going again this year.

468
00:23:37,359 --> 00:23:40,000
Speaker 1: We talked to two leaders in the sector about there's

469
00:23:40,040 --> 00:23:44,080
Speaker 1: somewhat different takes on a challenging business, starting with Blackstone

470
00:23:44,119 --> 00:23:50,760
Speaker 1: CFO Michael cha who says the challenges may benefit his firm.

471
00:23:51,200 --> 00:23:53,679
Speaker 10: Our business model is really made for times like this.

472
00:23:54,480 --> 00:23:57,360
Speaker 10: At its core, you know, we're all about long term,

473
00:23:57,640 --> 00:24:01,400
Speaker 10: locked up committed capital through funds structures, and what that

474
00:24:01,440 --> 00:24:04,080
Speaker 10: allows us to be is patient, and it allows us

475
00:24:04,080 --> 00:24:06,600
Speaker 10: obviously to have capital and time when capital is short.

476
00:24:07,080 --> 00:24:09,359
Speaker 10: And indeed we have nearly two hundred billion dollars of

477
00:24:09,440 --> 00:24:13,119
Speaker 10: dry powder to invest opportutunistically in the coming time period.

478
00:24:13,440 --> 00:24:15,960
Speaker 10: And our history has shown that those couple of years

479
00:24:16,000 --> 00:24:18,360
Speaker 10: coming out of a cycle are some of the best

480
00:24:18,359 --> 00:24:20,639
Speaker 10: times to invest. So we're excited about what the future

481
00:24:20,680 --> 00:24:21,040
Speaker 10: will bring.

482
00:24:21,200 --> 00:24:23,080
Speaker 1: As you see that thaw, and if I can draw

483
00:24:23,080 --> 00:24:25,479
Speaker 1: the analogy the green shoots coming up through the ice,

484
00:24:25,560 --> 00:24:28,560
Speaker 1: more or less is the nature of the deals changing.

485
00:24:28,640 --> 00:24:30,280
Speaker 1: We saw a piece in the Wall Street Journal this week.

486
00:24:30,280 --> 00:24:32,960
Speaker 1: Actually Blackstone has mentioned it, the suggestive private equity is

487
00:24:33,280 --> 00:24:36,200
Speaker 1: doing more smaller deals, maybe because of the uncertainty of

488
00:24:36,240 --> 00:24:40,119
Speaker 1: the price of financing, even regulatory overhang. Are you Are

489
00:24:40,160 --> 00:24:42,360
Speaker 1: you seeing smaller deals than you did before?

490
00:24:42,720 --> 00:24:45,240
Speaker 10: I think, well, we have our own particular perspective. We

491
00:24:45,400 --> 00:24:48,159
Speaker 10: scale as one of our big advantages in our private

492
00:24:48,359 --> 00:24:50,159
Speaker 10: allows us to do things others can't do in our

493
00:24:50,160 --> 00:24:52,800
Speaker 10: private equity business. You know, we've successfully in the last

494
00:24:52,840 --> 00:24:55,200
Speaker 10: couple of years been able to engineer a couple of

495
00:24:55,240 --> 00:24:58,560
Speaker 10: really large deals of partnership with Emerson in the climate

496
00:24:58,600 --> 00:25:02,120
Speaker 10: technologies area. Does the name the business recently a five

497
00:25:02,160 --> 00:25:05,919
Speaker 10: billion dollar take private of a business called Seevent. So

498
00:25:06,440 --> 00:25:08,439
Speaker 10: we do think that's one of our edges, and so

499
00:25:08,520 --> 00:25:10,320
Speaker 10: you can't paint with the broad brush that the deals

500
00:25:10,359 --> 00:25:13,080
Speaker 10: are getting smaller. I do think that the development of

501
00:25:13,119 --> 00:25:15,119
Speaker 10: the direct lending market, which there's been a lot of

502
00:25:15,440 --> 00:25:18,360
Speaker 10: focus on in the private credit area, you know, has

503
00:25:18,400 --> 00:25:23,200
Speaker 10: in this cycle, and I think secularly allows for deal

504
00:25:23,240 --> 00:25:26,440
Speaker 10: making to continue, including at relative scale, in a way

505
00:25:26,480 --> 00:25:30,280
Speaker 10: that maybe five ten years ago is less doable.

506
00:25:30,359 --> 00:25:31,199
Speaker 7: As you look at the.

507
00:25:33,359 --> 00:25:36,840
Speaker 1: Landscape out there where are the investment opportunities and how

508
00:25:36,880 --> 00:25:40,359
Speaker 1: dependent on the assumptions that were done or close to

509
00:25:40,400 --> 00:25:42,080
Speaker 1: done with the hiking of the rates.

510
00:25:42,600 --> 00:25:45,879
Speaker 10: Sure, well, it's a multifaceted answer, and we have a

511
00:25:45,880 --> 00:25:47,880
Speaker 10: broad business and so we have sort of a balanced

512
00:25:47,880 --> 00:25:50,879
Speaker 10: attack and aren't relying on one single strategy. But I

513
00:25:50,920 --> 00:25:54,439
Speaker 10: think for sure on the on the credit side, lending

514
00:25:54,480 --> 00:25:56,920
Speaker 10: money right now in this environment is a very compelling

515
00:25:56,960 --> 00:25:59,760
Speaker 10: thing to do with very good risk reward, probably some

516
00:25:59,800 --> 00:26:02,160
Speaker 10: of the best risk ard we've seen in a long

517
00:26:02,200 --> 00:26:05,320
Speaker 10: time in the credit area. So in things like direct lending,

518
00:26:05,640 --> 00:26:08,160
Speaker 10: you know, you can generate double digit returns given where

519
00:26:08,160 --> 00:26:11,320
Speaker 10: base rates are and spreads for being in the very

520
00:26:11,359 --> 00:26:13,440
Speaker 10: senior most part of the capital structure with a lot

521
00:26:13,440 --> 00:26:16,359
Speaker 10: of equity beneath you. So that is very attractive. In

522
00:26:16,400 --> 00:26:18,959
Speaker 10: other forms of private credit, whether it's asset back credit

523
00:26:19,520 --> 00:26:22,840
Speaker 10: or real estate credit, similarly, it's a very good time

524
00:26:22,840 --> 00:26:25,760
Speaker 10: to investment a risk award standpoint. So that's one big theme.

525
00:26:26,080 --> 00:26:28,000
Speaker 10: And then on the equity side, a little bit apropos

526
00:26:28,040 --> 00:26:29,639
Speaker 10: what I talked about when I went through the deals

527
00:26:29,640 --> 00:26:34,640
Speaker 10: we're doing, I'd say we're still applying some of our

528
00:26:34,720 --> 00:26:38,360
Speaker 10: same key themes around sort of the sectors and areas

529
00:26:38,359 --> 00:26:40,960
Speaker 10: we want to invest in, but now we think we'll

530
00:26:40,960 --> 00:26:43,960
Speaker 10: do it in a more interesting environment, maybe somewhat more

531
00:26:44,000 --> 00:26:47,920
Speaker 10: dislocated environment to find value. So that's really how we're

532
00:26:47,920 --> 00:26:48,479
Speaker 10: approaching it.

533
00:26:50,359 --> 00:26:52,760
Speaker 1: For a different approach to private equity, we talk with

534
00:26:52,840 --> 00:26:56,680
Speaker 1: KKR CO head of Global Private Equity Pete Stavros about

535
00:26:56,680 --> 00:27:02,440
Speaker 1: their use of shareholder capitalism to generate value well.

536
00:27:02,440 --> 00:27:07,280
Speaker 11: Stakeholder capitalism for me is finding a way to not

537
00:27:07,320 --> 00:27:11,560
Speaker 11: only deliver great outcomes for shareholders, but doing right by

538
00:27:11,880 --> 00:27:14,280
Speaker 11: workers and the climate. And I have to say, there's

539
00:27:14,760 --> 00:27:18,240
Speaker 11: tons of brilliant people working on climate issues. Obviously it's critical,

540
00:27:19,000 --> 00:27:21,920
Speaker 11: there's not enough people focused on labor and so that's

541
00:27:21,960 --> 00:27:22,959
Speaker 11: really my passion.

542
00:27:23,000 --> 00:27:24,199
Speaker 7: A lot of it has to do with how I

543
00:27:24,200 --> 00:27:24,560
Speaker 7: grew up.

544
00:27:24,640 --> 00:27:27,920
Speaker 11: My dad was a construction worker for forty years, earned

545
00:27:27,960 --> 00:27:30,879
Speaker 11: an hourly wage and really taught my sister and I

546
00:27:30,880 --> 00:27:33,679
Speaker 11: around the dinner table what it's like being an hourly worker.

547
00:27:33,760 --> 00:27:36,600
Speaker 11: You know, you don't have a voice, nobody listens to you,

548
00:27:36,680 --> 00:27:39,359
Speaker 11: there's no incentive alignment, and you have no stake in

549
00:27:39,400 --> 00:27:43,400
Speaker 11: the outcomes. So that ignited a passion in me from

550
00:27:43,400 --> 00:27:46,000
Speaker 11: a very early age to think about these labor issues.

551
00:27:46,040 --> 00:27:48,639
Speaker 11: And then when I became an investor, you know, wow,

552
00:27:48,640 --> 00:27:51,240
Speaker 11: what an opportunity because you're responsible for all of these

553
00:27:51,280 --> 00:27:54,119
Speaker 11: companies with all of these many employees, and if you

554
00:27:54,160 --> 00:27:58,480
Speaker 11: can cascade change through a variety of a number of companies,

555
00:27:58,520 --> 00:28:01,240
Speaker 11: which private equity as well suited to do, you can

556
00:28:01,480 --> 00:28:04,840
Speaker 11: impact you know, thousands, if not hundreds of thousands of people.

557
00:28:04,880 --> 00:28:07,159
Speaker 1: So that sounds fine, but you'll forgive me if many

558
00:28:07,200 --> 00:28:09,400
Speaker 1: of us who don't understand private equity the way you do,

559
00:28:09,400 --> 00:28:12,159
Speaker 1: don't associate that approach with private equity. You tend to

560
00:28:12,160 --> 00:28:13,800
Speaker 1: think you go and you buy the company, you strip

561
00:28:13,880 --> 00:28:15,439
Speaker 1: out costs, you'll leverage it up, you sell it.

562
00:28:15,600 --> 00:28:20,000
Speaker 11: Yeah, well, but private equity is not perfect. Capitalism's not

563
00:28:20,000 --> 00:28:23,760
Speaker 11: not perfect. But this is a superior way of operating

564
00:28:23,800 --> 00:28:27,520
Speaker 11: a company in every respect. You can align incentives not

565
00:28:27,600 --> 00:28:30,040
Speaker 11: just of the senior team, but of all of the employees,

566
00:28:30,840 --> 00:28:33,679
Speaker 11: help them create wealth for themselves and create a better culture.

567
00:28:33,760 --> 00:28:37,000
Speaker 11: I mean, if you can figure out a way, and

568
00:28:37,040 --> 00:28:39,640
Speaker 11: we think we're on the right path here to have

569
00:28:39,720 --> 00:28:42,440
Speaker 11: employees less likely to quit their jobs, more engaged on

570
00:28:42,480 --> 00:28:45,440
Speaker 11: the job, you've got a better opportunity to deliver on

571
00:28:45,520 --> 00:28:48,400
Speaker 11: value creation initiatives, which is the core of private The

572
00:28:48,440 --> 00:28:53,240
Speaker 11: core of private equity is transformation. Take a good business,

573
00:28:53,320 --> 00:28:56,160
Speaker 11: make it great, and you're not going to be as

574
00:28:56,160 --> 00:28:58,520
Speaker 11: effective as you could be in that effort if you

575
00:28:58,520 --> 00:28:59,640
Speaker 11: don't have everyone aligned.

576
00:29:00,040 --> 00:29:03,240
Speaker 1: So that sounds great, also sounds fairly simple, is it

577
00:29:03,280 --> 00:29:06,160
Speaker 1: when you actually do it? Because often the implementations were

578
00:29:06,200 --> 00:29:06,720
Speaker 1: the tricky part.

579
00:29:06,760 --> 00:29:08,360
Speaker 7: Lot Ye, it's incredibly difficult.

580
00:29:08,760 --> 00:29:10,800
Speaker 11: So if this were easy, this would have been done

581
00:29:10,800 --> 00:29:14,800
Speaker 11: fifty years ago, and there's many challenges starting with So

582
00:29:15,080 --> 00:29:16,440
Speaker 11: let me just define the program.

583
00:29:16,760 --> 00:29:17,480
Speaker 7: The program that.

584
00:29:17,440 --> 00:29:19,960
Speaker 11: We've been working around around employee ownership is about much

585
00:29:19,960 --> 00:29:23,000
Speaker 11: more than handing out stock. If it's just handing out stock,

586
00:29:23,160 --> 00:29:25,960
Speaker 11: then we're in a compensation discussion, which is important, but

587
00:29:26,040 --> 00:29:29,239
Speaker 11: that's not going to change cultures. As my friend Dove

588
00:29:29,320 --> 00:29:32,320
Speaker 11: Seidman Alway says, you can triple people's compensation and not

589
00:29:32,360 --> 00:29:35,760
Speaker 11: get ownership behaviors, which I think is very true. So

590
00:29:35,920 --> 00:29:39,000
Speaker 11: we are taking ownership as the foundation as an ethos,

591
00:29:39,240 --> 00:29:41,680
Speaker 11: and then on top of that, we are building a

592
00:29:41,800 --> 00:29:46,040
Speaker 11: robust employee engagement effort, teaching financial literacy, opening up the

593
00:29:46,080 --> 00:29:49,680
Speaker 11: business plan to all employees, financial information, sharing financials with

594
00:29:49,720 --> 00:29:52,880
Speaker 11: all employees and teaching basic corporate fans so they can

595
00:29:52,960 --> 00:29:56,400
Speaker 11: understand the information being shared with them. All of this stuff,

596
00:29:56,600 --> 00:29:59,400
Speaker 11: taken together is what can move a culture. And to

597
00:29:59,440 --> 00:30:03,320
Speaker 11: your point, it's hard. You know, day one, people say,

598
00:30:03,600 --> 00:30:05,360
Speaker 11: I don't believe it. I don't believe I'm gonna have

599
00:30:05,360 --> 00:30:06,960
Speaker 11: a voice in my work. I don't believe this dock's

600
00:30:07,000 --> 00:30:09,280
Speaker 11: ever going to be worth anything. To your point, I've

601
00:30:09,320 --> 00:30:11,560
Speaker 11: read about private equity. You know, I'll believe it when

602
00:30:11,600 --> 00:30:15,200
Speaker 11: I see it. Another challenge is CEOs are overwhelmed. A

603
00:30:15,200 --> 00:30:18,360
Speaker 11: lot of CEOs will say to me, okay, let me

604
00:30:18,440 --> 00:30:19,160
Speaker 11: just get this straight.

605
00:30:19,360 --> 00:30:21,120
Speaker 7: You want me to double my profits.

606
00:30:21,240 --> 00:30:23,120
Speaker 11: You want the financials by the twelfth of the month,

607
00:30:23,200 --> 00:30:25,680
Speaker 11: the metrics packaged by the fifteenth of the month. You

608
00:30:25,720 --> 00:30:29,040
Speaker 11: want me to decarbonize, add diversity to the board, change

609
00:30:29,040 --> 00:30:31,000
Speaker 11: the way I recruit so we add diversity deep into

610
00:30:31,040 --> 00:30:36,120
Speaker 11: the organization. And now you want teach financial literacy, drive

611
00:30:36,120 --> 00:30:38,240
Speaker 11: eplay engagement, make everyone an owner in the business. You know,

612
00:30:38,320 --> 00:30:42,239
Speaker 11: come on, pete, what are the real priorities? And so

613
00:30:42,360 --> 00:30:46,280
Speaker 11: CEOs are overwhelmed. The unlock is and this enables all

614
00:30:46,320 --> 00:30:48,200
Speaker 11: of it is for CEOs to understand. If you do

615
00:30:48,280 --> 00:30:50,880
Speaker 11: these last four things, right, it's going to make everything

616
00:30:50,920 --> 00:30:54,760
Speaker 11: else easier. So no, it's not easy, but it's it's

617
00:30:54,800 --> 00:30:55,440
Speaker 11: worth the effort.

618
00:30:55,520 --> 00:30:57,720
Speaker 1: Does it also hurt their cost structure when you start

619
00:30:57,800 --> 00:30:59,760
Speaker 1: talking about sharing and comp and things like that, does

620
00:30:59,760 --> 00:31:02,360
Speaker 1: that actually add to their cost structure? Or do you

621
00:31:02,480 --> 00:31:05,640
Speaker 1: offset in the compensation and the salary and benefits.

622
00:31:05,720 --> 00:31:09,080
Speaker 11: Well, one important thing to understand is this is never

623
00:31:09,120 --> 00:31:12,280
Speaker 11: a trade for wages and benefits. So this is not

624
00:31:12,320 --> 00:31:15,360
Speaker 11: about pushing risk onto workers. So we're not asking workers,

625
00:31:15,640 --> 00:31:18,360
Speaker 11: here's some stock, can we take some compon benefits back.

626
00:31:18,400 --> 00:31:21,040
Speaker 11: It's always incremental, it's always free. We're not asking workers

627
00:31:21,040 --> 00:31:25,600
Speaker 11: to invest out of pocket. So to your question, it's

628
00:31:25,640 --> 00:31:28,800
Speaker 11: not an incremental fixed cost. It's sharing in upsides, so

629
00:31:29,080 --> 00:31:32,240
Speaker 11: there's no payout if there's no value creation. And in

630
00:31:32,280 --> 00:31:35,280
Speaker 11: our experience, this pays for itself when it's done well.

631
00:31:35,640 --> 00:31:37,280
Speaker 11: And I don't want to make it sound like it's easy.

632
00:31:37,640 --> 00:31:40,040
Speaker 11: When your patient and you put years of effort into this,

633
00:31:40,040 --> 00:31:41,520
Speaker 11: this pays for itself many times over.

634
00:31:41,560 --> 00:31:42,480
Speaker 7: Let me give you an example.

635
00:31:42,840 --> 00:31:46,400
Speaker 11: So public company that we bought in twenty thirteen was

636
00:31:46,400 --> 00:31:49,680
Speaker 11: called Gardner Denver. So we took it private in twenty thirteen,

637
00:31:50,400 --> 00:31:53,160
Speaker 11: there were six thousand employees at the company. Out of

638
00:31:53,200 --> 00:31:56,720
Speaker 11: six thousand people, eighty six people had ownership, which is

639
00:31:56,760 --> 00:32:00,120
Speaker 11: what we see typically it's one to five percent. We've

640
00:32:00,120 --> 00:32:04,240
Speaker 11: done an employee engagement survey, ever, massively high quit rates.

641
00:32:05,000 --> 00:32:09,320
Speaker 11: When we started measuring engagement, twenty percent was that we

642
00:32:09,640 --> 00:32:13,960
Speaker 11: measured in the twentieth percentile according to Gallup. We brought

643
00:32:14,000 --> 00:32:16,400
Speaker 11: in a new leadership team, totally changed the way the

644
00:32:16,440 --> 00:32:20,400
Speaker 11: company ran. We shared openly the business plan, financials, We

645
00:32:20,440 --> 00:32:24,320
Speaker 11: made huge improvements and things like worker safety. And when

646
00:32:24,320 --> 00:32:26,080
Speaker 11: I give you the results, I want to stress this

647
00:32:26,120 --> 00:32:30,480
Speaker 11: took us almost ten years, but the engagement scores went

648
00:32:30,520 --> 00:32:33,440
Speaker 11: from the twentieth percent out to the ninetieth and the

649
00:32:33,520 --> 00:32:35,640
Speaker 11: quit rate went down ninety percent.

650
00:32:37,520 --> 00:32:42,360
Speaker 1: That was Pete Stavros of KKR. Coming up, we'll hear

651
00:32:42,360 --> 00:32:46,080
Speaker 1: from GE CEO Larry Colt about the remarkable turnaround of

652
00:32:46,120 --> 00:32:52,480
Speaker 1: a corporate icon and how it happened. That's next on

653
00:32:52,480 --> 00:33:03,040
Speaker 1: Wall Street Week on Bloomberg. This is a special best

654
00:33:03,120 --> 00:33:04,480
Speaker 1: of edition of Wall Street Week.

655
00:33:04,600 --> 00:33:05,480
Speaker 7: I'm David Weston.

656
00:33:06,080 --> 00:33:09,960
Speaker 1: G has gone through a remarkable transformation selling assets on

657
00:33:10,000 --> 00:33:13,600
Speaker 1: the way to breaking up into three different publicly traded companies.

658
00:33:13,480 --> 00:33:15,680
Speaker 7: And increasing value all along the way.

659
00:33:16,160 --> 00:33:18,560
Speaker 1: But when Larry Culp took on the role of CEO

660
00:33:18,640 --> 00:33:20,960
Speaker 1: five years ago, it didn't look like it was going

661
00:33:21,000 --> 00:33:23,240
Speaker 1: to turn out this way. When we talked with him

662
00:33:23,240 --> 00:33:26,160
Speaker 1: about how the turnaround came to be, we started with

663
00:33:26,320 --> 00:33:28,520
Speaker 1: why he took the job in the first place.

664
00:33:30,520 --> 00:33:35,880
Speaker 12: GE an incredibly important company to our country, into the world.

665
00:33:36,640 --> 00:33:40,040
Speaker 12: GE a company that I had long admired through the

666
00:33:40,040 --> 00:33:44,080
Speaker 12: course of my career, and given what I had heard,

667
00:33:44,160 --> 00:33:48,240
Speaker 12: given what I had learned as a director, clearly a challenge,

668
00:33:48,240 --> 00:33:51,000
Speaker 12: perhaps the challenge of my generation. And it was really

669
00:33:51,000 --> 00:33:54,400
Speaker 12: those three reasons that ultimately led me to say, yes,

670
00:33:54,920 --> 00:33:57,880
Speaker 12: I'll put my uniform back on, and here we are.

671
00:33:58,240 --> 00:34:00,840
Speaker 1: So you put your uniform back on. What did you

672
00:34:01,080 --> 00:34:03,120
Speaker 1: set up to do first? What were your priorities? Is

673
00:34:03,160 --> 00:34:05,040
Speaker 1: you sat down the first day in that desk. So often,

674
00:34:05,080 --> 00:34:06,760
Speaker 1: even if you're close to the job, until you've had

675
00:34:06,760 --> 00:34:07,719
Speaker 1: the job, you haven't had it.

676
00:34:08,520 --> 00:34:11,120
Speaker 9: That's right. I don't remember sitting down much that first day.

677
00:34:11,360 --> 00:34:11,520
Speaker 7: Right.

678
00:34:11,520 --> 00:34:16,200
Speaker 12: There was a lot happening, but I knew relatively quickly

679
00:34:16,719 --> 00:34:19,439
Speaker 12: that we had to do two things. One, we had

680
00:34:19,480 --> 00:34:22,360
Speaker 12: to get our arms around the balance sheet issues. We

681
00:34:22,440 --> 00:34:25,239
Speaker 12: had over one hundred and forty billion of debt outstanding.

682
00:34:25,600 --> 00:34:28,160
Speaker 12: That was a crushing load in a host of different ways,

683
00:34:29,080 --> 00:34:31,520
Speaker 12: and we needed to get to a better place in

684
00:34:31,600 --> 00:34:34,160
Speaker 12: terms of the day to day operation of the business,

685
00:34:34,440 --> 00:34:37,279
Speaker 12: and those turned out to be priorities that really took

686
00:34:37,320 --> 00:34:41,560
Speaker 12: us through the first couple of years deleveraging and running

687
00:34:41,560 --> 00:34:42,359
Speaker 12: the businesses better.

688
00:34:42,600 --> 00:34:43,560
Speaker 9: It was somebody that simple.

689
00:34:43,760 --> 00:34:45,279
Speaker 1: As I say, you were on the board for a

690
00:34:45,280 --> 00:34:47,680
Speaker 1: short time before it took over, so some of the

691
00:34:47,680 --> 00:34:51,040
Speaker 1: problems you knew about, but you couldn't anticipate Boeing seven

692
00:34:51,160 --> 00:34:54,440
Speaker 1: thirty seven, Max, couldn't anticipate the pandemic, couldn't anticipate supply

693
00:34:54,560 --> 00:34:58,360
Speaker 1: chain or in Ukraine. Did that change your plan?

694
00:34:59,440 --> 00:35:02,880
Speaker 12: Well, I think early on we knew that we needed

695
00:35:03,239 --> 00:35:07,520
Speaker 12: the utmost sense of urgency around the deleveraging. When a

696
00:35:07,560 --> 00:35:09,680
Speaker 12: number of us had joined the board through the course

697
00:35:09,680 --> 00:35:12,560
Speaker 12: of twenty eighteen, the plan of record was to actually

698
00:35:12,600 --> 00:35:16,359
Speaker 12: spend our healthcare business, much as we did earlier this year.

699
00:35:16,440 --> 00:35:19,239
Speaker 12: But I think we found as we dug into it

700
00:35:19,400 --> 00:35:21,640
Speaker 12: that while that was a good idea, we couldn't possibly

701
00:35:21,680 --> 00:35:24,600
Speaker 12: pull it off given the leverage level and given the

702
00:35:24,600 --> 00:35:27,359
Speaker 12: performance of the other businesses, which is why we made

703
00:35:27,360 --> 00:35:31,920
Speaker 12: the quick pivot through the fall into early twenty nineteen

704
00:35:32,000 --> 00:35:36,120
Speaker 12: to actually sell a small part of healthcare, our biopharma business,

705
00:35:36,800 --> 00:35:39,600
Speaker 12: for twenty billion dollars. And that was really the first

706
00:35:39,960 --> 00:35:43,440
Speaker 12: big step we took toward the deleveraging. All the while

707
00:35:44,560 --> 00:35:47,280
Speaker 12: I was spending time with the team, touring facilities, talking

708
00:35:47,320 --> 00:35:50,480
Speaker 12: to customers, trying to get my arms around in terms

709
00:35:50,560 --> 00:35:53,120
Speaker 12: of what we were doing day in and day out

710
00:35:53,160 --> 00:35:56,920
Speaker 12: and why we weren't anywhere close to our full potential operationally.

711
00:35:57,480 --> 00:35:59,600
Speaker 1: As you say, Larry, you had to deleverage. You really

712
00:35:59,600 --> 00:36:00,960
Speaker 1: had to take a hard look at the balance sheet

713
00:36:01,000 --> 00:36:03,040
Speaker 1: and really clean it up as quickly as you could.

714
00:36:03,960 --> 00:36:07,120
Speaker 1: To draw a strained analogy, It's like give them a gin.

715
00:36:07,520 --> 00:36:09,360
Speaker 1: You have to figure out which cards to hold and

716
00:36:09,360 --> 00:36:11,200
Speaker 1: which ones to lay down. As you went through your

717
00:36:11,239 --> 00:36:14,160
Speaker 1: operations in gluting, healthcare, but others as well, what was

718
00:36:14,200 --> 00:36:16,440
Speaker 1: your criteria for saying this one we're going to hold,

719
00:36:16,760 --> 00:36:18,000
Speaker 1: I think this one we can give up.

720
00:36:18,800 --> 00:36:21,280
Speaker 12: Well, I think we wanted. I looked at all three businesses.

721
00:36:21,320 --> 00:36:23,279
Speaker 12: I was new to the business. I hadn't really been

722
00:36:23,719 --> 00:36:28,240
Speaker 12: deep into aerospace or energy, had had some exposure to healthcare.

723
00:36:28,480 --> 00:36:32,160
Speaker 12: I thought all three businesses were terrific leaders in their

724
00:36:32,200 --> 00:36:37,239
Speaker 12: own right, solving significant global challenges, businesses that we could

725
00:36:37,320 --> 00:36:40,799
Speaker 12: run better than we were at the moment, and we

726
00:36:40,840 --> 00:36:46,319
Speaker 12: need we needed really everybody contributing, again, given the debt load.

727
00:36:46,760 --> 00:36:49,480
Speaker 12: So what we did with Biopharma was really look for

728
00:36:49,560 --> 00:36:53,640
Speaker 12: a small business that would yield a high multiple, so

729
00:36:53,680 --> 00:36:55,560
Speaker 12: we didn't give up much, but we knew given the

730
00:36:55,560 --> 00:36:58,760
Speaker 12: growth potential of the business, we could make a meaningful

731
00:36:59,160 --> 00:37:02,080
Speaker 12: step forward in de leveraging, which is exactly what we did,

732
00:37:02,440 --> 00:37:07,279
Speaker 12: all the while staying focused on the basics, improving our

733
00:37:07,360 --> 00:37:11,120
Speaker 12: dayly operations so we could be better for our customers.

734
00:37:11,160 --> 00:37:15,720
Speaker 12: We could throw off more cash and begin to carry

735
00:37:15,760 --> 00:37:18,440
Speaker 12: that debt load in addition to some of the asset

736
00:37:18,520 --> 00:37:19,759
Speaker 12: sales that we were involved in.

737
00:37:19,880 --> 00:37:22,120
Speaker 1: You've mentioned a couple of times improving the operations, which

738
00:37:22,160 --> 00:37:25,520
Speaker 1: sounds easy, but in my experience, it's really hard. So

739
00:37:25,760 --> 00:37:28,120
Speaker 1: how could you, as something of an outsider, come in

740
00:37:28,160 --> 00:37:30,880
Speaker 1: and understand where you needed to improve operations? And that,

741
00:37:30,960 --> 00:37:33,240
Speaker 1: of course is not just what people do, but who's doing.

742
00:37:33,040 --> 00:37:34,680
Speaker 9: It well exactly right.

743
00:37:34,760 --> 00:37:37,040
Speaker 12: And for me, David, my approach has always been it's

744
00:37:37,080 --> 00:37:41,400
Speaker 12: about the team first and foremost. Fortunately, we inherited I

745
00:37:41,440 --> 00:37:45,239
Speaker 12: think a tremendous team at GE in each of the

746
00:37:45,280 --> 00:37:48,319
Speaker 12: three businesses at Corporate up and down the org chart.

747
00:37:48,880 --> 00:37:50,879
Speaker 12: So what we did is we set about making sure

748
00:37:50,920 --> 00:37:55,560
Speaker 12: we knew where we were organizationally. We dove in deeply

749
00:37:55,719 --> 00:37:59,080
Speaker 12: to make sure we understood how we were running the businesses,

750
00:37:59,320 --> 00:38:01,520
Speaker 12: not just in the c suite, but all the way

751
00:38:01,560 --> 00:38:03,560
Speaker 12: down to the factory floor. And there were a host

752
00:38:03,560 --> 00:38:07,720
Speaker 12: of opportunities that we as a team identified.

753
00:38:07,320 --> 00:38:08,480
Speaker 9: Areas where we could do better.

754
00:38:08,520 --> 00:38:11,040
Speaker 12: We could do better for our customers, reduce cycle times,

755
00:38:11,080 --> 00:38:15,000
Speaker 12: improve our delivery performance, all the while taking a lot

756
00:38:15,000 --> 00:38:18,560
Speaker 12: of waste out of the system. Wasted often frankly, helped

757
00:38:18,600 --> 00:38:21,719
Speaker 12: us improve our profitability in our cash flows. It was

758
00:38:21,800 --> 00:38:24,920
Speaker 12: a daily battle, it was a game of inches, but

759
00:38:25,040 --> 00:38:27,480
Speaker 12: over the course of time we really were able to

760
00:38:27,800 --> 00:38:33,319
Speaker 12: lay in our lean operating model so that today we're

761
00:38:33,320 --> 00:38:38,040
Speaker 12: able to perform at much higher levels across General Electric

762
00:38:38,440 --> 00:38:39,759
Speaker 12: in ways that I think are going to serve all

763
00:38:39,800 --> 00:38:41,600
Speaker 12: three of our businesses very well going forward.

764
00:38:42,160 --> 00:38:43,680
Speaker 1: I think I hear you saying you don't think it

765
00:38:43,719 --> 00:38:45,800
Speaker 1: was the team that was at fault. The team was

766
00:38:45,840 --> 00:38:48,319
Speaker 1: basically a solid team you could work with. So that

767
00:38:48,400 --> 00:38:50,560
Speaker 1: makes you ask exactly what was wrong with the operation?

768
00:38:50,760 --> 00:38:52,560
Speaker 1: And let me start with one thing that's terribly important

769
00:38:52,560 --> 00:38:55,120
Speaker 1: as metrics. Was it a metrics issue? Did you bring

770
00:38:55,120 --> 00:38:57,000
Speaker 1: in a new set of metrics? Where'd you get them from?

771
00:38:57,440 --> 00:39:00,319
Speaker 12: Well, the team that we have a GE as a

772
00:39:00,320 --> 00:39:03,759
Speaker 12: team that I've just really been thrilled to be a

773
00:39:03,840 --> 00:39:04,200
Speaker 12: part of.

774
00:39:04,239 --> 00:39:05,560
Speaker 9: Over these last five years.

775
00:39:05,960 --> 00:39:08,400
Speaker 12: We brought in a number of new people, we mixed

776
00:39:08,400 --> 00:39:10,239
Speaker 12: it up, but by and large, the team that you

777
00:39:10,280 --> 00:39:12,120
Speaker 12: see on the field today a GE is the team

778
00:39:12,160 --> 00:39:15,759
Speaker 12: that was there five years ago. I give that team

779
00:39:15,880 --> 00:39:18,759
Speaker 12: very high marks, David. With respect to metrics, one of

780
00:39:18,760 --> 00:39:20,319
Speaker 12: the things that we worked hard to do was to

781
00:39:20,320 --> 00:39:23,840
Speaker 12: make sure that we had a shared definition of winning.

782
00:39:25,000 --> 00:39:27,200
Speaker 12: It's very easy in a large company for everybody to

783
00:39:27,239 --> 00:39:30,080
Speaker 12: think that they're doing what has been asked of them.

784
00:39:30,560 --> 00:39:33,280
Speaker 12: In turn, that developed their own scorecards to their own metrics.

785
00:39:33,560 --> 00:39:40,280
Speaker 12: We really tried to keep things very simple. Start with safety, quality, delivery, cost,

786
00:39:40,840 --> 00:39:44,360
Speaker 12: that's the operational core of any business, and then we

787
00:39:44,400 --> 00:39:46,640
Speaker 12: look to growth. We looked to some of the financial

788
00:39:46,640 --> 00:39:49,120
Speaker 12: metrics like cash flow, generation, margin expansion.

789
00:39:49,520 --> 00:39:50,600
Speaker 6: So it was a shorter list.

790
00:39:50,680 --> 00:39:54,400
Speaker 12: It was a more compactless accessible to people throughout the organization,

791
00:39:54,719 --> 00:39:58,040
Speaker 12: and then we just got focused on driving the critical few.

792
00:39:58,239 --> 00:39:58,359
Speaker 7: Well.

793
00:39:58,400 --> 00:40:01,759
Speaker 1: It was often is conducive to actually communicating because you

794
00:40:01,800 --> 00:40:02,600
Speaker 1: have too many priorities.

795
00:40:02,640 --> 00:40:04,319
Speaker 7: It's hard for the organization really follow it.

796
00:40:04,600 --> 00:40:06,680
Speaker 1: But how do you once you have those make sure

797
00:40:06,680 --> 00:40:09,040
Speaker 1: that everybody in the organization is getting it because too

798
00:40:09,080 --> 00:40:11,200
Speaker 1: often people at the top they say things and it

799
00:40:11,239 --> 00:40:13,520
Speaker 1: gets down a level, maybe two levels, It doesn't get

800
00:40:13,520 --> 00:40:15,040
Speaker 1: down actually out of the shop floor.

801
00:40:15,400 --> 00:40:18,600
Speaker 12: Well, you communicate until you're tired of hearing yourself say

802
00:40:18,640 --> 00:40:21,120
Speaker 12: the same things, and then you keep going. That's what

803
00:40:21,160 --> 00:40:24,360
Speaker 12: I've learned over time. But we tried to be hands

804
00:40:24,400 --> 00:40:26,880
Speaker 12: on and that's really the way that we've operated. So

805
00:40:26,920 --> 00:40:30,680
Speaker 12: it's not just using the CEO's bully pulpit to communicate

806
00:40:30,960 --> 00:40:36,080
Speaker 12: those metrics or our leadership behaviors more broadly, humility, transparency,

807
00:40:36,239 --> 00:40:40,840
Speaker 12: and focus, but through every operating review, through every customer visit,

808
00:40:41,520 --> 00:40:44,520
Speaker 12: time on a factory floor, time on a lab, having

809
00:40:44,560 --> 00:40:47,239
Speaker 12: the same conversation with the team, where are we with

810
00:40:47,280 --> 00:40:51,120
Speaker 12: respect to safety, quality, delivery and cost? How are we

811
00:40:51,120 --> 00:40:52,920
Speaker 12: better today than we were yesterday? How do we get

812
00:40:52,960 --> 00:40:56,239
Speaker 12: better tomorrow? And that really begins to turn the flywheel.

813
00:40:56,760 --> 00:40:59,680
Speaker 12: It takes time, and as you mentioned earlier, we had

814
00:40:59,719 --> 00:41:02,319
Speaker 12: a lot of Kurr balls thrown at us given some

815
00:41:02,360 --> 00:41:06,839
Speaker 12: of the tragedies with the seven three seven Max COVID Ukraine.

816
00:41:07,080 --> 00:41:09,439
Speaker 9: But this is a resilient team. This is a talented team.

817
00:41:09,440 --> 00:41:12,360
Speaker 12: It's a team that loves the mission, loves the company,

818
00:41:12,880 --> 00:41:16,480
Speaker 12: and we've just kept doing that type of work day

819
00:41:16,520 --> 00:41:18,040
Speaker 12: in and day out, and I think that's where you

820
00:41:18,040 --> 00:41:18,720
Speaker 12: see us today.

821
00:41:20,520 --> 00:41:30,960
Speaker 1: That was Larry Colp, Chairman and CEO of GE. Finally,

822
00:41:31,120 --> 00:41:34,200
Speaker 1: one more thought, and it comes from economist Melissa Karney

823
00:41:34,200 --> 00:41:36,919
Speaker 1: of the University of Maryland, whose new book The Two

824
00:41:37,040 --> 00:41:39,759
Speaker 1: Parent Privilege addressed an economic challenge we have in the

825
00:41:39,800 --> 00:41:42,480
Speaker 1: United States today, and that is the number of children

826
00:41:42,560 --> 00:41:44,920
Speaker 1: growing up in single parent families.

827
00:41:47,000 --> 00:41:50,360
Speaker 13: I have been studying US in comminequality and poverty and

828
00:41:50,400 --> 00:41:53,560
Speaker 13: social mobility for over twenty years, and I've been in

829
00:41:53,600 --> 00:41:57,680
Speaker 13: countless at this point, policy conversations and academic conversations about

830
00:41:57,680 --> 00:42:01,000
Speaker 13: these issues, and it has become abundantly clear to me

831
00:42:01,520 --> 00:42:04,520
Speaker 13: that what's happened to families in the US, and in

832
00:42:04,560 --> 00:42:07,400
Speaker 13: particular the rise and the share of kids living with

833
00:42:07,480 --> 00:42:11,000
Speaker 13: one parent households. How this has primarily happened outside the

834
00:42:11,040 --> 00:42:15,680
Speaker 13: college educated class. These trends are really important to what

835
00:42:15,719 --> 00:42:19,920
Speaker 13: we're seeing with child poverty, inequality, undermining social mobility. College

836
00:42:20,040 --> 00:42:23,680
Speaker 13: educated adults over the past forty years, as their earnings

837
00:42:23,680 --> 00:42:26,120
Speaker 13: have gone up, as their incomes have gone up, they

838
00:42:26,160 --> 00:42:28,799
Speaker 13: have continued to marry each other, have their kids in

839
00:42:28,840 --> 00:42:32,480
Speaker 13: two parent married households, and shower an abundance of resources

840
00:42:32,480 --> 00:42:36,239
Speaker 13: on their kids. But outside the college educated class, there

841
00:42:36,280 --> 00:42:38,919
Speaker 13: has been a huge decline in the share of kids

842
00:42:38,920 --> 00:42:41,560
Speaker 13: living with two parent households. And we're not just talking

843
00:42:41,560 --> 00:42:45,080
Speaker 13: about teen moms or the most disadvantage groups. Teen childbearing

844
00:42:45,200 --> 00:42:47,920
Speaker 13: is way down. If we just look at the kids

845
00:42:48,000 --> 00:42:50,640
Speaker 13: born to high school educated moms, moms with a high

846
00:42:50,640 --> 00:42:53,719
Speaker 13: school degree, maybe some college moms we would have considered

847
00:42:53,760 --> 00:42:56,359
Speaker 13: parents we would have considered middle class, in the middle

848
00:42:56,360 --> 00:42:59,480
Speaker 13: of the education distribution, the likelihood that their kids are

849
00:42:59,520 --> 00:43:02,520
Speaker 13: growing up been a married parent home has declined from

850
00:43:02,960 --> 00:43:06,160
Speaker 13: eighty six percent to sixty three percent in a forty

851
00:43:06,239 --> 00:43:09,520
Speaker 13: year period. This is massive, and this has not been

852
00:43:09,560 --> 00:43:12,160
Speaker 13: good for kids. This really isn't saying that single moms

853
00:43:12,200 --> 00:43:15,000
Speaker 13: aren't doing everything they can to take care of their

854
00:43:15,080 --> 00:43:17,560
Speaker 13: kids and to give them the best shot in life.

855
00:43:17,680 --> 00:43:20,480
Speaker 13: But having two parents in the home means two sources

856
00:43:20,480 --> 00:43:23,480
Speaker 13: of income, two people with time to invest in kids,

857
00:43:23,760 --> 00:43:25,840
Speaker 13: you know, two people keeping an eye out on you,

858
00:43:26,040 --> 00:43:30,799
Speaker 13: investing in you. And so that decline is really is

859
00:43:30,840 --> 00:43:33,360
Speaker 13: really important. It's not been good for kids. And because

860
00:43:33,400 --> 00:43:36,399
Speaker 13: there really is now over the past forty years, this

861
00:43:36,800 --> 00:43:40,880
Speaker 13: emergence of a wide gap by education group. This is

862
00:43:40,920 --> 00:43:46,400
Speaker 13: really accentuating income inequality, inequality and outcomes and contributing to

863
00:43:46,480 --> 00:43:48,879
Speaker 13: class gaps in our society. So what do we see

864
00:43:48,920 --> 00:43:51,439
Speaker 13: in the data. We see that there's this massive income gap,

865
00:43:51,480 --> 00:43:55,040
Speaker 13: but it's not just income. We also see differences in

866
00:43:55,239 --> 00:43:58,200
Speaker 13: parental time. So kids who are growing up in married

867
00:43:58,239 --> 00:44:01,840
Speaker 13: parent households, they get more time with parents, and we

868
00:44:01,880 --> 00:44:04,319
Speaker 13: think that matters. Parents are reading to their kids, they're

869
00:44:04,360 --> 00:44:07,160
Speaker 13: driving them, the activities, they're doing all these things that

870
00:44:07,840 --> 00:44:11,040
Speaker 13: developments that colleges tell us or developmentally appropriate at different

871
00:44:11,080 --> 00:44:14,760
Speaker 13: ages and set kids up to do better in school,

872
00:44:15,080 --> 00:44:17,920
Speaker 13: to avoid getting in trouble in school and basically be

873
00:44:17,960 --> 00:44:20,560
Speaker 13: on a better path. And then we see that difference

874
00:44:20,560 --> 00:44:24,839
Speaker 13: in outcomes. Again, higher income, higher educated parents are more

875
00:44:24,960 --> 00:44:28,000
Speaker 13: likely to be married, but even adjusting for that and

876
00:44:28,040 --> 00:44:32,040
Speaker 13: comparing kids who are in otherwise similar situations but for

877
00:44:32,120 --> 00:44:34,439
Speaker 13: this difference in whether they have two parents or one

878
00:44:34,480 --> 00:44:36,600
Speaker 13: parent in the home, we see that kids with two

879
00:44:36,640 --> 00:44:38,879
Speaker 13: parents they're more likely to go to college, they're more

880
00:44:38,960 --> 00:44:42,240
Speaker 13: likely to graduate college, they're more likely to have higher

881
00:44:42,280 --> 00:44:45,360
Speaker 13: earnings and be married themselves as adults. Once we recognize

882
00:44:45,360 --> 00:44:48,120
Speaker 13: the policy urgency there, we should have the same sort

883
00:44:48,160 --> 00:44:52,279
Speaker 13: of public and private and philanthropic investments in programs in

884
00:44:52,360 --> 00:44:55,960
Speaker 13: policies that are focused on strengthening families as we do

885
00:44:56,120 --> 00:44:59,640
Speaker 13: on policies that are looking at schools or training programs,

886
00:44:59,680 --> 00:45:02,799
Speaker 13: are all all of these other institutions that in many

887
00:45:02,840 --> 00:45:05,719
Speaker 13: ways now are trying to make up for the deficits

888
00:45:05,719 --> 00:45:08,320
Speaker 13: of broken families. And so I think we need both

889
00:45:08,719 --> 00:45:12,880
Speaker 13: economic investments and social changes and a commitment to strengthening

890
00:45:12,920 --> 00:45:16,200
Speaker 13: families as a way to improve kids' outcomes and to

891
00:45:16,320 --> 00:45:19,080
Speaker 13: build a stronger society and future for our country.

892
00:45:20,960 --> 00:45:23,759
Speaker 1: That was Melissa Karney, professor of economics at the University

893
00:45:23,800 --> 00:45:27,000
Speaker 1: of Maryland and author of The Two Parent Privilege. How

894
00:45:27,040 --> 00:45:30,520
Speaker 1: Americans stopped getting married and started falling behind.

895
00:45:31,239 --> 00:45:31,680
Speaker 7: That does it?

896
00:45:31,719 --> 00:45:34,040
Speaker 1: For this episode of Wall Street Week, I'm David Weston,

897
00:45:34,120 --> 00:45:34,920
Speaker 1: This is Bloomberg.

898
00:45:35,160 --> 00:45:37,440
Speaker 7: See you next week.