Speaker 1: This is Bloomberg Wall Street Week. We turn our attention
Speaker 1: to the markets this week. USCPI never's reinforcing concerns about inflation,
Speaker 1: the financial stories that cheap our work a really different
Speaker 1: reaction to Mark. It's more indications of just how hot
Speaker 1: the US economy really is. Through the eyes of the
Speaker 1: most influential voices. Larry Summers, the former Treaty Secretary, Katherine Keening,
Speaker 1: CEO of d N y mon Sam's l Sherman Pan,
Speaker 1: founder of Equity Group Investment in Bloomberg wool Street Week
Speaker 1: with David Weston from Bloomberg Radio picking up the pieces.
Speaker 1: After a thunderstorm hit banks from Silicon Valley to Zurich, Congress,
Speaker 1: Central banks and investors try to regain their bearings. This
Speaker 1: is Bloomberg Wall Street Week. I'm David Weston. This week's
Speaker 1: special contributor Larry Summers of Harvard on the effects of
Speaker 1: a shaken banking system on the economy. Either the banking
Speaker 1: crisis will pass without the incident, or we're gonna see
Speaker 1: some kind of real downturn, We're sure. Sharman of Rockefeller
Speaker 1: Capital on whether there's a price we will pay for
Speaker 1: all of that government intervention it's that contradiction that we
Speaker 1: can't seem to handle what we want and what's the outcome.
Speaker 1: And former Treasury and CFTC official Tim Masset on whether
Speaker 1: we should have seen it coming. At the end of
Speaker 1: the day, this really was about bad bank management. The
Speaker 1: month of March is supposed to come in like a
Speaker 1: lion and out like a lamb. But this March entered
Speaker 1: like a lamb and then was savaged by the lion
Speaker 1: of serial banking crises. This was a week for starting
Speaker 1: to sort through the wreckage, with what's left of SVB
Speaker 1: sold to First Citizens Bank Shares. This is a fit
Speaker 1: the bank sentence. I think it gets the right base
Speaker 1: off the hook, gets the fdic of the hook. I
Speaker 1: think everyone's happy with this deal. And Congress is honed
Speaker 1: in on the SVP debacle, with ED Vice chair Michael
Speaker 1: Barr saying there's a lot of blame to go around
Speaker 1: anytime you have a bank failure like this. Bank management
Speaker 1: clearly failed. Supervisors sailed in, our regular choice system failed.
Speaker 1: Over In Zurich, UBS started the process of completing its
Speaker 1: forced marriage to Credit Suis. UBS chair Calm Kellerher announced
Speaker 1: that bankers from Credit Suis would have to be put
Speaker 1: through what he called a cultural filter to make sure
Speaker 1: they fit, and that Sergio Marte would return to take
Speaker 1: over as CEO to make it all work. Integrating two
Speaker 1: systemically important giant banks is really double trouble. And if
Speaker 1: that weren't enough, France's two biggest banks faced what could
Speaker 1: be over a billion dollars in fines as part of
Speaker 1: a government investigation into possible tax fraud and money laundering.
Speaker 1: French banks including BNP, Perry Baugh and Society GENERALIC face
Speaker 1: collective finds of more than a billion euros as part
Speaker 1: of an investigation into tax fraud and money laundering in China.
Speaker 1: Ali Baba announced it would try to avoid the government's
Speaker 1: hostility to big tech by getting smaller, specifically by breaking
Speaker 1: itself into six separate parts. We do believe that if
Speaker 1: you break the pieces up to some of the polits
Speaker 1: a bigger than the whole. And It was another week
Speaker 1: of job cut announcements, with McKenzie adding fourteen hundred and
Speaker 1: Disney seven thousand, which notably included Ike promotter who sold
Speaker 1: Marvel the bob Iger. Disney has begun the first round
Speaker 1: of the seven thousand job cuts that it announced in
Speaker 1: early February and memo that Bob I get the CEO
Speaker 1: has sent to staff. And to top it all off,
Speaker 1: on Thursday, Donald Trump became the first former president in
Speaker 1: US history to be indicted with criminal charges filed in
Speaker 1: Manhattan tied to hush money payments to adult film star
Speaker 1: Stormy Daniels. Donald Trump becoming the first former US president
Speaker 1: to be indicted, the arrangement coming as early as next Tuesday.
Speaker 1: The specific charges, however, are still under sealed. For all
Speaker 1: the drama of the week and the month for that matter,
Speaker 1: the markets in the end pretty much took in stride.
Speaker 1: The S and P five hundred wound up the week
Speaker 1: up a solid three point five percent. The NAZAC was
Speaker 1: up three point four percent, while the yield in the
Speaker 1: ten year added ten basis points but still ended the
Speaker 1: week below the three point five percent threshold at three
Speaker 1: point four six. To take us through it all, we
Speaker 1: welcome now Laurie Calvacina, she's RBC Capital Markets head of
Speaker 1: US Equity Strategy, and Julian Salisbury he is Goldman Sachs
Speaker 1: Asset and Wealth Management Chief Investment Officers. So welcome both
Speaker 1: of you. It's great to have you let me start
Speaker 1: with you on the equity side. At least, I was
Speaker 1: a little surprised that the equities held up so well
Speaker 1: considering all the turmoil. Look, I think there's this view
Speaker 1: out there that equities are out to lunch and are
Speaker 1: kind of asleep at the switch, and I don't think
Speaker 1: that at all. I think the market reaction was pretty rational.
Speaker 1: I think if you look at it from a top
Speaker 1: down perspective, despite everything we've just gone through in the
Speaker 1: month of March, if you look at economic forecasts, if
Speaker 1: you look at earnings forecasts, they're still anticipating the damage
Speaker 1: to be contained in twenty twenty three and twenty twenty
Speaker 1: four to be a recovery year. And we know that
Speaker 1: equity investors are ready to kind of move on from
Speaker 1: twenty twenty three and look ahead. If you look at
Speaker 1: it bottom up in terms of what's actually been doing
Speaker 1: the heavy lifting, it's technology. I think investors are starting
Speaker 1: to think about a sluggish growth environment going forward. Tech
Speaker 1: normally works well then, but I think one thing we
Speaker 1: know is that where whatever you thought the FED was
Speaker 1: going to do prior to SVB, your expectations have been
Speaker 1: pulled in. So I think markets are still trading the pause.
Speaker 1: They're trading the ultimate return of cuts, and technology stocks
Speaker 1: tend to be one of the best performing sectors after
Speaker 1: both of those. So I think it's quite rational. So, Julian,
Speaker 1: you manage an awful lot of assets, say gold and
Speaker 1: sacks and equities, but going well beyond equities, what are
Speaker 1: you seeing If in equities it seemed pretty solid through
Speaker 1: other thing, what are you seeing in bonds? What are
Speaker 1: you talking abou seeing alternative investments? Also on the equity side,
Speaker 1: it is kind of extort. And if you look back
Speaker 1: of the events of the last month, and here weel
Speaker 1: we are ending the month up three or four percents.
Speaker 1: If you know at the beginning of the month are
Speaker 1: like the events that we're getting to unfold, I'm not
Speaker 1: sure you would have predicted that. You know, what we're
Speaker 1: seeing right now is on the alternative side, continued demand,
Speaker 1: an interest in alternative asset classes, you know, given the vaul,
Speaker 1: utility and uncertainty of the environment. So I would say
Speaker 1: private credit, private real estate are still attracting a lot
Speaker 1: of interest. Was still seeing sluggish in US in terms
Speaker 1: of interest in private equity and growth equity. But the
Speaker 1: more kind of yielding income producing assets are attracting people
Speaker 1: because of the higher base rate environment, so the actual
Speaker 1: nominal yields on these asset classes is interesting to investors.
Speaker 1: So to the turmoil on the banks, Julian actually help
Speaker 1: the bonds in the sense that people rushing into barns,
Speaker 1: they wanted to buy more barns because they were so
Speaker 1: uncertain of where we were going. I think there were
Speaker 1: two things. First, the flight to quality generally, see saw
Speaker 1: money moving out of weaker banks into stronger banks. From
Speaker 1: from a deposit perspective, you'ress saw very significant fund flows
Speaker 1: into money market funds. I mean we saw I think
Speaker 1: there's a matter of public record fifty two billion dollars
Speaker 1: of flows into our money market funds in a two
Speaker 1: week period, just example of people looking to really move
Speaker 1: their money out of again weaker banks into more diversified risk.
Speaker 1: Also seeing people moving into bonds and other income producing assets.
Speaker 1: And then I would say, you know, again like pushing
Speaker 1: out a little bit of duration now and expectation that
Speaker 1: wherever I agree with Laurie's point, whatever you thought the
Speaker 1: path of rates was going to be, you know that
Speaker 1: the peak grade and the time horizon in which rates
Speaker 1: starts to roll over. Us probably come in because of
Speaker 1: the dampening effect that this has happened having on the economy. So, Laurie,
Speaker 1: if in fact, in the bond situation, people like this
Speaker 1: safety relative safety of bonds. Is there an equivalent in equities?
Speaker 1: Are you seeing because of some of the certain terminal
Speaker 1: with the banks and still uncertain about the economy. Are
Speaker 1: there's certain equities that people tend to go to when
Speaker 1: they're a little unsure the future. There are and you know,
Speaker 1: things like utilities, healthcare, consumer staples, you know, or tend
Speaker 1: to be where people go big caps in general, so
Speaker 1: we've seen small caps underperform, but technology stocks, interestingly, over
Speaker 1: the last I would say like five or six years,
Speaker 1: have become another safe haven. And we know that areas
Speaker 1: like utilities, consumer staples have been highly overvalued because people
Speaker 1: were really pushing into them last year when they were
Speaker 1: moving out of tech, and so I actually think, you know,
Speaker 1: it's interesting Tech had already been I think largely de
Speaker 1: risked last year, so people feel comfortable now coming back
Speaker 1: to it is more of a safety trade. July. One
Speaker 1: of the things people talk about it is a possible
Speaker 1: credit crunch. You react to actually what happened with the banks?
Speaker 1: Are people providing for that? Are there ways to provide
Speaker 1: for that? Or do you see a credit crunch around
Speaker 1: the corner. Sure, Look, I think that the very acute
Speaker 1: near term issue has been taken off the table. I
Speaker 1: think the policy actions to stabilize the bank the liquidity
Speaker 1: around the banking system has proven to be effective. But
Speaker 1: I do think there are a few things that are
Speaker 1: fairly certain for the sub two hundred and fifty billion
Speaker 1: dollar banks that have been subject to less stringent capital
Speaker 1: and liquidity or requirements, They're going to be required to
Speaker 1: hold more capital, They're going to be required to hold
Speaker 1: more liquidity, The cost of they're going to charge for
Speaker 1: their borrowers is therefore going to go up. They're also
Speaker 1: going to be subject to greater regulation. So I think
Speaker 1: credit availability is going to become tighter. Whatever you thought
Speaker 1: it was going to it's certainly going to become tighter
Speaker 1: result of these actions, and that is going to impact
Speaker 1: certain areas of the economy, particularly I think commercial real estate,
Speaker 1: which was already feeling very very fragile, and this is
Speaker 1: going to be, you know, just further add to the pain. Okay,
Speaker 1: Junior Salisbury and Laurie Cavesino. We'll be staying with us
Speaker 1: as we turn from where we are in the markets
Speaker 1: to where we are headed in the markets, and that's
Speaker 1: coming up next down Wall Street Week on Bloomberg. Yeah, yeah,
Speaker 1: this is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. Some quarter, huh heck. The three months in
Speaker 1: the financial world that ended tonight provided at least three
Speaker 1: times the usual thrills and spills, So it wasn't just
Speaker 1: a quarter. It was at least seventy five cents. And
Speaker 1: what did it all mean? By almost anything? You wanted
Speaker 1: it to me and provided you picked the right two bits.
Speaker 1: That was a Lewis recogniser at the end of its
Speaker 1: multuous march back in two thousand. Sounds a lot like today, frankly.
Speaker 1: But then the number one movie in the country was
Speaker 1: Aaron Brockovich starring Julia Roberts, and the number one song, well,
Speaker 1: that was Say My Name by Destiny's Child. Still with
Speaker 1: us or Julian Salisbury of Golden Sacks and Lory Cavesina
Speaker 1: of RBC Capital Markets. So Julian, let's start with you here.
Speaker 1: One of the things we've seen is apparently pulling back
Speaker 1: by the banks in making loans. What does that mean
Speaker 1: as an opportunity potential for private credit? Sure, I mean
Speaker 1: one of the reasons the banks are being forced to
Speaker 1: pull back right now, it's concerns around their own liquidity situation.
Speaker 1: Liquidity kills banks, not solvency generally. You know, you look
Speaker 1: at the private credit market. Somebody was asking me about
Speaker 1: this the other day, you know, what's going on with
Speaker 1: these shadow lenders, and I said, this wasn't a shadow
Speaker 1: banking problem, this was a banking problem, classic asset liability
Speaker 1: mismatch problem. The private credit market very differently. Generally, the
Speaker 1: participants in that market have very long dated liabilities, so
Speaker 1: they have the ability to be consistent and thoughtful about
Speaker 1: the way they deploy capital. They're not subject to redemptions.
Speaker 1: They can be a consistent relationship lender to private equity firms,
Speaker 1: so when they see an opportunity where the markets step
Speaker 1: back capital markets are closed, they can come in and
Speaker 1: be a provider of choice and enable private equity transactions
Speaker 1: to take place. So it's an attractive asset class. It's
Speaker 1: defensive in nature, it's floating rate in nature, and at
Speaker 1: a time like this, you can extract a particularly attractive
Speaker 1: credit and illiquidity premium. Is there any transparency risk in
Speaker 1: road markets those to say, in public markets you sort
Speaker 1: of know where the value is. Private markets you're not
Speaker 1: quite as sure. And right now we've seen some hidden
Speaker 1: liabilities we didn't know we're out there. Look it's it's
Speaker 1: a it's a great question, and I do think the
Speaker 1: discipline of being held to account minute by minute in
Speaker 1: the public markets is a great discipline, but there are
Speaker 1: you know, there are also certain types of businesses that
Speaker 1: benefit from growing and scaling outside the without being subject
Speaker 1: to you know, the day to day scorecard. Essentially. You know,
Speaker 1: certain types of businesses that don't aren't profitable for a
Speaker 1: long period of time sometimes are better off being built
Speaker 1: and compounded in in private market format. So look, it's
Speaker 1: a it's a it's a great question. But I think
Speaker 1: generally what you find is these are large sophisticated investors
Speaker 1: managing this this these pools of money, and you know,
Speaker 1: there's there's upsides to that as well, because you're not
Speaker 1: forced out of the trade, you can carry the trade,
Speaker 1: so you can take a long term view of value
Speaker 1: rather than thinking what's going to happen over the next
Speaker 1: one week, three months, or six months, Laurie, there's some
Speaker 1: debate about whether we should call it's a bank in crisis.
Speaker 1: So it was a crisis for Silicon Valley banks, and
Speaker 1: that clear it's a crisis for the banking industry overall.
Speaker 1: But it certainly was a lot of turmoil. I know
Speaker 1: that you have specifically looked back in the past. It's
Speaker 1: some similar crises or points of turmoil, and you actually
Speaker 1: took a look at the NASTAC one hundred during some
Speaker 1: of this take us through that we have a charter show. Yeah,
Speaker 1: so you know, I'm a great student of history when
Speaker 1: it comes to markets, and I think this is going
Speaker 1: to end up having its own name. It's going to
Speaker 1: be its own unique crisis. But to me, this is
Speaker 1: more like World Com than it was like Barren Lehman.
Speaker 1: And we took notice of the fact that the banks
Speaker 1: were trying to stabilize recently, and so we went back
Speaker 1: and essentially looked at kind of the problem industries in
Speaker 1: both that two thousand and two thousand and three period
Speaker 1: and the financial crisis, and what we found was that
Speaker 1: after both Baron Lehman, you basically saw the banks continue
Speaker 1: to act really really poorly. If you go back though
Speaker 1: to the tech bubble period, we saw that after World
Speaker 1: com NASTAC one hundred actually stabilized and kind of entered
Speaker 1: this very long, lengthy bottoming process. So it wasn't quite
Speaker 1: a clearing event, it was something close to it, but
Speaker 1: it did sort of, you know, sort of cathartic in
Speaker 1: a sense that you know, some of these excesses were
Speaker 1: exposed and dealt with, and then the market you know,
Speaker 1: took some time to heal, but ultimately was able to
Speaker 1: move on. Thank you so very much. It's great to
Speaker 1: have both of you with us, as Julian Salisbury of
Speaker 1: Golden Sacks and Lory Calvacina of RBC Capital Markets. As
Speaker 1: the month of March draws to a close, it looks
Speaker 1: like maybe all of the uncertainty about the banking system
Speaker 1: is starting to quiet down, helped in large part by
Speaker 1: the US government stepping in once again, this time to
Speaker 1: ensure deposits of people in Silicon Valley Bank. Racher Scharmer
Speaker 1: has taken a look at exactly what that might have
Speaker 1: for implications more broadly for the economy and welcome now.
Speaker 1: Rascher Scharmer, of course, is the founder of Breakout Capital
Speaker 1: Partners as well as chairman of Rockefeller International. Racher. Welcome
Speaker 1: back to Wall Street. We great to have you here
Speaker 1: once again. The government rides to the rescue here. That's
Speaker 1: good news for the people being rescued. But what possible
Speaker 1: ramifications might it have more broadly, Yeah, I think David,
Speaker 1: this is a great time to step back and see
Speaker 1: as to how Lord the bar has become now for
Speaker 1: government intervention. Now, of course, the banking sector is always
Speaker 1: a very sensitive sector because of the risk of a contagion.
Speaker 1: But what strikes me here is that how far we
Speaker 1: have come over the past few decades where you get
Speaker 1: more and more stimulus, more and more government intervention, and
Speaker 1: at the same time you have a slump in productivity growth.
Speaker 1: And I think that this is the point that is
Speaker 1: very underappreciated. At the surface, it seems as if the
Speaker 1: economy has once again survived a crisis and here we are.
Speaker 1: But I think what we forget that there's a price
Speaker 1: we are paying for this, that because of this constant
Speaker 1: government intervention, we're keeping alive a lot of zombie companies
Speaker 1: in this country, and the number of startups in fact,
Speaker 1: over time is going down. So why is this happening.
Speaker 1: This is happening because we're keeping a lot of deadhood
Speaker 1: in the system. The number of zombie companies in America
Speaker 1: today is nearly twenty percent of all companies can be
Speaker 1: classified as zombie companies. That number used to be barely
Speaker 1: two percent in the nineteen eighties or so. So that
Speaker 1: is the contradiction here, which is that we do not
Speaker 1: want to any pain, and that's completely justified, and we
Speaker 1: want the government to come to the rescue, but we
Speaker 1: also don't like the economic outcome where we have low
Speaker 1: economic growth, less and less and living standards, and that
Speaker 1: I trace back to the fact if you have low productivity,
Speaker 1: that's what you will get. And the low productivity is
Speaker 1: the direct consequence I think of such expansive government intervention.
Speaker 1: So we'll share, no question, we've had a lot more
Speaker 1: government invention, no doubt about that. But there's another factor
Speaker 1: as well. We've had very very low interest rates, which
Speaker 1: has allowed some of those so called zombie companies, companies
Speaker 1: that basically can't forward to service their own debt survive.
Speaker 1: As the FED has moved to a higher interest rate regime,
Speaker 1: might that help some on the front of zombie companies
Speaker 1: the allocation accoun and therefore maybe ultimately productivity. It could be,
Speaker 1: but so far there's basically evidence of fit. Look at
Speaker 1: the default rates. You know, the default rates are so
Speaker 1: low in the country today now, as you know that
Speaker 1: in capitalism, having some default rates is a very essential
Speaker 1: part of it. So this goes back to what sort
Speaker 1: of system do we want? So the default rates in
Speaker 1: the economy today are very low. Now, all this sounds
Speaker 1: almost a bit masochistic, that do we want more pain?
Speaker 1: Do we want more companies to go bust? Well, if
Speaker 1: you want capitalism, that's what you should be prepared for,
Speaker 1: because a capitalist economy should be a dynamic economy where
Speaker 1: you have much greater company creation. You have a lot
Speaker 1: of the deadwood that dies, and you don't have the
Speaker 1: creation of too many monopolies or very large companies that
Speaker 1: benefit also from very low interest rates as we know.
Speaker 1: So I think that it's that contradiction that we can't
Speaker 1: seem to handle what we want and what's the outcome
Speaker 1: that we're getting, or sure, do you think there might
Speaker 1: be a way to engineer in such a way that
Speaker 1: you take away the worst of the pain and yet
Speaker 1: you still have some discipline the market. And let's take
Speaker 1: then example of Silicon Valley Bank. To be sure, all
Speaker 1: their positors were guaranteed, they were made safe, but the
Speaker 1: bondholders were wiped out, the shareholders were wiped out, the
Speaker 1: management was wiped out. That's not exactly moral hazard, is it.
Speaker 1: But as I said that, looking at each individual instance
Speaker 1: almost seems justified. I'm looking at the cumulative effects here
Speaker 1: that if you have so much government intervention which is
Speaker 1: constantly at hand, then what are the consequences of that?
Speaker 1: So each individual instance it's very hard to argue against
Speaker 1: because no one likes to see that kind of pain.
Speaker 1: But what is it that we have seen. We are
Speaker 1: seeing the size of government stimulus over time having increased massively.
Speaker 1: If you look at each economic downturn, we have seen
Speaker 1: the size of monetary stimulus increase a lot, as we've
Speaker 1: seen every economic downturn, and we've seen lesser and lesser
Speaker 1: defaults because often the government's intervening also in a non
Speaker 1: monetary the non fiscity weed like this sort of did
Speaker 1: just now such a pleasure heavy with this is very illuminating,
Speaker 1: thank you, that's for sure. Charmant he is chairman of
Speaker 1: Rockefeller International. Coming up. We wrap up the week with
Speaker 1: our special contributor, Larry Summers of Harvard. That's next on
Speaker 1: Wall Street Week on Luberg. This is Wall Street Week.
Speaker 1: I'm David Weston. I don't like to say we're back
Speaker 1: with our very special contribute. He's Larry Summers of Harvard.
Speaker 1: So Larry, let's talk about inflation. We got those core
Speaker 1: PC and other PC numbers. Then this week we know
Speaker 1: the Fed pays attention to them. They were a little
Speaker 1: bit better than they had been. Yeah, they were. I
Speaker 1: don't think one should make too much of that. I
Speaker 1: think we are still a substantially unsustainable inflation country unless
Speaker 1: the economy turns down fairly hard in response to the
Speaker 1: credit issues raised by the banking system, and we don't
Speaker 1: know yet whether that's going to happen. So, in a sense,
Speaker 1: the outcomes here are a bit bifurcated. Either the banking
Speaker 1: crisis will pass without incident and without large impact on credit,
Speaker 1: and which case we really do have serious inflation issues
Speaker 1: and the Fed will have to tighten much more than
Speaker 1: is priced in, or we're going to see some kind
Speaker 1: of real downturn here. And I think both are plausible. Outcomes,
Speaker 1: and I recognize that there's a chance we'll skate through
Speaker 1: right in between, but I'd have to say that seems
Speaker 1: very much odds off to me. Soft landings are very hard,
Speaker 1: even in the best environment. So I think I heard
Speaker 1: in your answer We're gonna have to wait to see
Speaker 1: what the aftermath of the banking kerfuffle has been here,
Speaker 1: but gives us a sense of what you're expecting, and
Speaker 1: more important, what you're looking for. When will we know
Speaker 1: where there's a credit crunch. The lesson of financial crisis,
Speaker 1: if you study their history closely, is that it's not
Speaker 1: just all one big downturn. It was six months from
Speaker 1: Bear to Leahman. Even the week in which the Leaman
Speaker 1: events happened, the stock market went up and the FED
Speaker 1: did not cut rates, and the FED statement that week
Speaker 1: was heavily about inflation. So I think it's too early
Speaker 1: to give any kind of all clear sign. I think
Speaker 1: eventually we I think we've gotten to a point where
Speaker 1: I would say it's unlikely that there will be more
Speaker 1: panicked weekends with bank runs. Not impossible by any means,
Speaker 1: but I'd say that's certainly less than a well under
Speaker 1: a fifty percent chance but whether you're going to see
Speaker 1: some other kind of accidents, whether you're going to see
Speaker 1: a substantial restriction in credit, that's not very clear. When
Speaker 1: you have a series of earthquake tremors. One certainly hearing
Speaker 1: many anecdotes around constriction of credit. And the question really
Speaker 1: is is that going to go nonlinear where constriction of
Speaker 1: credit leads to declining asset prices, leads to non performance
Speaker 1: of loans, leads to more credit constriction. And I don't
Speaker 1: think we know yet whether it's going to go nonlinear,
Speaker 1: and I think we're going to be much of the
Speaker 1: way through the summer before I would feel comfortable being
Speaker 1: confident that it wasn't going to go nonlinear. Laurien, One
Speaker 1: thing we do know at this point is that the
Speaker 1: FDIC is on the hook for a lot of money
Speaker 1: for guaranteeing all those deposits in the billions of dollars here,
Speaker 1: What do you make of the financial aspect of this,
Speaker 1: what the ft is putting up as opposed to what
Speaker 1: some of the banks are benefiting from. I'm surprised by
Speaker 1: how much the FDIC has had to spend on these
Speaker 1: resolutions relative to the things that were being said earlier.
Speaker 1: They were hoping to sell SVB as a whole entity,
Speaker 1: and then in order to get somebody to buy it,
Speaker 1: they had to chip in a set of stuff that
Speaker 1: was cumulatively worth twenty billion dollars. The arithmetic a similar
Speaker 1: relative to the scale of the bank at Signature Bank.
Speaker 1: There are a lot of questions about those transactions. I'm
Speaker 1: still confused about why the holding company at of SVP
Speaker 1: is still being valued in a meaningful way, and I'm
Speaker 1: will want to see assurance that no executive there is
Speaker 1: getting deferred compensation. But these were studyingly expensive transactions. Ultimately,
Speaker 1: everybody's gonna say it's not coming back to taxpayers, but
Speaker 1: banks are taxpayers on behalf of people, their depositors, their customers,
Speaker 1: there people they lend to. And the twenty three billion
Speaker 1: dollars the FDIC has spent is one hundred bucks per
Speaker 1: adult American and that's a fair amount. So I wonder
Speaker 1: if we can't be looking at the procedures that they're
Speaker 1: using and finding ways to do better. And it looks
Speaker 1: like some of these deals were pretty attracted given what
Speaker 1: happened to the shares of some of the acquiring banks, right, Yeah,
Speaker 1: And I think that, yeah, that's right, David. There are
Speaker 1: two parts of it. There are what seemed like huge
Speaker 1: games that the banks that were lucky enough to get
Speaker 1: into this got over fifty percent for the acquirer of SVB,
Speaker 1: close to forty percent for the acquirer of signature. So
Speaker 1: there's that piece of it that they may have overpaid.
Speaker 1: There's also just a question of why it was necessary
Speaker 1: to pay so much. Learn a very different subject, we
Speaker 1: had for the first time in history of former US
Speaker 1: president indicted this week, Donald Trump was indicted for certain allegations.
Speaker 1: We're not even sure about what they all are yet,
Speaker 1: rising out of a hush payment that he was made.
Speaker 1: I really wonder about the connection of our justice system
Speaker 1: with politics. You have talked on this program before about
Speaker 1: what's been going overund Israel. What are the risks in
Speaker 1: Israel here in the United States that we politicize our
Speaker 1: clerl justice system, David, Everyone, even former presidents of the
Speaker 1: United States, is entitled to a presumption of innocence. God knows.
Speaker 1: I don't know the facts of those matters. What I
Speaker 1: think we saw in Israel was that when there was
Speaker 1: a sense of the intertwining of politics and the basic
Speaker 1: rule of law, and the judicial function that had, in
Speaker 1: addition to all the other consequences, really quite problematic of
Speaker 1: financial and economic consequences. And so I hope all the
Speaker 1: actors in this, both President Trump and those who feel
Speaker 1: loyalty to him and those involved in carrying out this prosecution,
Speaker 1: we'll be doing their very best to keep politics out
Speaker 1: of it, to act in ways that will provide reassurance
Speaker 1: that it is the rule of law that's being elevated
Speaker 1: rather than the political side, because ultimately the ability to
Speaker 1: have a viable market economy rests on their being confidence
Speaker 1: in the judiciary. And finally, we're gonna try something new
Speaker 1: here that you suggested is sort of a quick round,
Speaker 1: lightning round of some issues and people and whether you
Speaker 1: are long or short on them. Let's start, first of
Speaker 1: all with foreign direct investment in China. We had the
Speaker 1: premiere over there leeching this week. Really make a case
Speaker 1: for why there should be more foreign investment in China,
Speaker 1: long or short. Short deeds, not words are most important,
Speaker 1: and I think they're just enormous uncertainties about everything Chinese
Speaker 1: and about the Western response, and that's gonna chill investments substantially. Larry,
Speaker 1: you brought chat GPT to wall three week and now
Speaker 1: we have something like eleven hundred tech people who are
Speaker 1: writing another thing. Let's hold off on this chat GPT four.
Speaker 1: Let's make sure we know what we're doing before we
Speaker 1: keep moving forward. You long or short today on chat GPT,
Speaker 1: I'm long. It's continued development. One of the important developments
Speaker 1: in the last several weeks has been the engineering of
Speaker 1: the technology so that it can be used on much
Speaker 1: smaller computers. And that means the genie is out of
Speaker 1: the bottle. They're gonna be all kinds of people doing
Speaker 1: all kinds of things. And I think this is going
Speaker 1: to be a story. Like other technologies. Stories may take
Speaker 1: longer to think, longer to happen than you think it will,
Speaker 1: but ultimately it will happen faster and more pervasively than
Speaker 1: you thought it could. And final, Larry, we've talked about
Speaker 1: golf affairment. I know you're an avid golfer. We've got
Speaker 1: the Masters coming up next week. We've got two favorites
Speaker 1: right now, accorded to the betting ads, they are Scottie
Speaker 1: Scheffler and Rory McElroy. Are you long or short? Rory McElroy,
Speaker 1: I'd be long. Rory think he's overdue, and I think
Speaker 1: this may well be his moment. Okay, Larry, thank you
Speaker 1: so very much. That's our special contributor here on Walstere Week.
Speaker 1: He's Larry Summers of Harvard. This is Wall Street Week
Speaker 1: on Bloomberg. Finally, one more thought. Michael Kinsley famously said
Speaker 1: that a gaff is when a politician tells the truth,
Speaker 1: some obvious truth he isn't supposed to say. To reach
Speaker 1: the level of the true gaff, it isn't enough that
Speaker 1: a politician puts himself in an embarrassing situation and can't
Speaker 1: climb out of it. That happens all the time. Just
Speaker 1: last week, President Biden mistakenly he mistook Canada for China
Speaker 1: and got roundly criticized for it. I applaud China for
Speaker 1: stepping out, assuming I applauded Canada. But let's be honest,
Speaker 1: we all knew what he meant. Nor is it really
Speaker 1: a gaff when a leader simply forgets how to spell,
Speaker 1: as then Vice President Quaile did when he insisted a
Speaker 1: sixth grader at a spelling bee had to add an
Speaker 1: e onto the end of potato. And of course we've
Speaker 1: all watched former President Trump reached to make a point
Speaker 1: and found that his reach may have exceeded his grasp,
Speaker 1: as when he praised the Continental Army of seventeen seventy
Speaker 1: five for seizing airports. Our army manned the airport, it
Speaker 1: ran the ramparts, it took over the airports, It did
Speaker 1: everything it had to do. And at Fort McKendry under
Speaker 1: the rockets Glare, it had nothing but victory. But none
Speaker 1: of these can be considered a true gaff. Numb pointed
Speaker 1: at some basic truth that no one wanted to say.
Speaker 1: This week, we saw the results of a true gaff
Speaker 1: in the banking world when Credit Suis was in the
Speaker 1: cross heres. Earlier this month, Bloomberg's Manners Cranny asked the
Speaker 1: head of one of its major shareholders, the Saudi National Bank,
Speaker 1: whether it might double down on its investment, and his
Speaker 1: response was refreshingly clear and emphatic. The answer is absolutely
Speaker 1: odd for many reasons, outside the simplest reason, which is
Speaker 1: regulatory and statutory. We now own nine point eight percent
Speaker 1: of the bank. If we go abuff ten percent, all
Speaker 1: kinds of new rules kick in, whether it be by
Speaker 1: our regulator or the European regulator or this was the
Speaker 1: regulator and we're not inclined to get into a new
Speaker 1: regulatory regime. But sadly speaking the truth, clearly and directly
Speaker 1: is not always a defense. This week, SMB chairman amar
Speaker 1: abdulwa Al Gudari stepped down, reportedly for personal reasons, but
Speaker 1: just in terms of credibility and communication and guidance, they
Speaker 1: felt they had to do this movie. They didn't explain
Speaker 1: why they replaced them as chairman, but it goes without
Speaker 1: saying that much of the recent terminal probably has something
Speaker 1: to do with it. Score one for never answering a
Speaker 1: reporter's question directly. That does it For this episode of
Speaker 1: Wall Street Week, I'm David Weston. This is Bloomberg. See
Speaker 1: you next week.