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Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim

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Speaker 1: Fox along with my co host Lisa Abramowitz. Each day

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Speaker 1: we bring you the most important, noteworthy, and useful interviews

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Speaker 1: for you and your money, whether you at the grocery

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Speaker 1: store or the trading floor. Find the Bloomberg pm L

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Speaker 1: podcast on iTunes, SoundCloud and at Bloomberg dot com pim Fox.

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Speaker 1: There is this headline that crossed the terminal today that

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Speaker 1: I thought was fascinating and kind of funny. Gutting Dodd

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Speaker 1: Frank is hard to Republicans turn to easier things, things

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Speaker 1: like a bill about publishing research on exchange traded funds,

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Speaker 1: which is a bit less controversial than rolling back, say,

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Speaker 1: all of the banking regulations that were put in place

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Speaker 1: in two ten. To get a little bit more perspective,

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Speaker 1: Nathan Dean is here with us. He has a government

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Speaker 1: analyst for Bloomberg Intelligence, and it is so nice to

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Speaker 1: see him in person. He is with us in our

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Speaker 1: Bloomberg eleven three oh studio. So, Nathan, how much can

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Speaker 1: we really read into this idea? Uh that you know?

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Speaker 1: Because there because Congress is focusing on these sort of smaller,

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Speaker 1: more bipartisan issues they're just disregarding the idea of an

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Speaker 1: overhaul of god Frank. So I don't think they're disregarding

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Speaker 1: the idea of an overhaul of Dodd Frank. They're just

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Speaker 1: recognizing the fact that it's going to take time. You know.

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Speaker 1: I think that the House bill, the Financial Choice Act Bill,

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Speaker 1: that the next version two point oh, it was supposed

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Speaker 1: to be out in February. Now it's looking like we'll

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Speaker 1: be out in March. It may be out in April.

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Speaker 1: But I think the congressman's, especially the Senate, they recognize that,

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Speaker 1: you know, if we want to replace dot Frank, it's

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Speaker 1: going to take a long time. So let's try and

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Speaker 1: do some stuff and get it out of the way. First,

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Speaker 1: bipartisan bills like a need T F research, opening up

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Speaker 1: venture capital funds to more investors. And just today they're

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Speaker 1: having a hearing that on the House side about flood insurance. Nathan,

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Speaker 1: maybe you can explain this because this also goes to

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Speaker 1: the issue of reform for the Affordable Care Act for Obamacare.

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Speaker 1: Republicans in Congress were not in favor of Dodd Frank legislation, correct, correct,

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Speaker 1: And they've had a fair amount of time to come

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Speaker 1: up with an alternative plan. Is that accurate? Correct? So

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Speaker 1: where is this alternative plan? Why are they just crafting

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Speaker 1: this plan now? So the House has crafted this Financial

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Speaker 1: Choice Act very broad. It's never gonna pass it past

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Speaker 1: the House and won't pass the Senate. In order to

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Speaker 1: get anything past you've got to parrot down, you have

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Speaker 1: to get specific. There is bipartisan openness to relieving banks

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Speaker 1: below two fifty billion in assets. Correct, exactly, exactly, But

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Speaker 1: right now, there's just no incentive to negotiate. I mean,

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Speaker 1: if I'm if I'm on the Democratic side, for example,

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Speaker 1: why would I negotiate on a DoD Frank bill? You know,

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Speaker 1: when there are other things like Obamacare, attacks, reform, infrastructure,

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Speaker 1: you know that they want to tackle first. I mean,

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Speaker 1: it's not like banks are hurting right now. The fd

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Speaker 1: i C put out a report last week saying record profits,

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Speaker 1: you know, record small business lending. So does that mean

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Speaker 1: that some of the optimism that's been baked into bank

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Speaker 1: stocks and bank bonds is per ups a little ahead

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Speaker 1: of itself just because there isn't likely to be anything

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Speaker 1: in the cards for these very big banks, at least

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Speaker 1: within the next set of know eight months, certainly within

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Speaker 1: the short term, you know, we don't see any relief

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Speaker 1: for the large investment banks coming from Congress in the

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Speaker 1: short term. Regulatory side, it's a different matter, but even

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Speaker 1: then that's going to take time and process. Gairman Henstling

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Speaker 1: has said that this financial regulation is a year one issue,

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Speaker 1: but if you look at the Senate side, it's probably

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Speaker 1: more a year two issues. So I think if you're

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Speaker 1: gonna look and see what can Congress do to replace

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Speaker 1: dot Frank, It's not gonna happen this year. It's probably

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Speaker 1: gonna happen next year. And if that, that's even if

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Speaker 1: they negotiate. As someone who walks the halls of the

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Speaker 1: Capital and Washington in general, wanting if you can give

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Speaker 1: us who are looking into that bubble world into the

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Speaker 1: belt Way a sort of an idea of what has changed.

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Speaker 1: There's the tenor changed. I mean just in the last

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Speaker 1: let's say a month or so in terms of trying

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Speaker 1: to get anything actually out of the House, get it

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Speaker 1: approved by the Senate, and get it on the President's desk. So,

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Speaker 1: you know, there was this idea that when the new

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Speaker 1: Congress takes took shape, that the Senate was going to

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Speaker 1: negotiate Senate Democrats were gonna be willing to negotiate. You know,

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Speaker 1: there was some toxicity about the Supreme Court choice, etcetera.

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Speaker 1: You know that sort of pushed it off. But if

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Speaker 1: Senator Creepo and the Senate Banking Committee is looking at

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Speaker 1: Capital Form formation and these small bipartisan bills, he's trying

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Speaker 1: to build up that goodwill so when that eventual financial

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Speaker 1: regulation bill comes, he'll be able to work. Can we

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Speaker 1: just get a sense, as somebody who does walk the halls,

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Speaker 1: how much goodwill is there at this point between Republicans

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Speaker 1: and Democrats? Is there anything? So? Goodwill is probably a

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Speaker 1: strong word. But you know, the the Senate in particular

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Speaker 1: are full of experienced senators who have faith in the institution.

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Speaker 1: They know how to work together. Senator Schumer, Senator McConnell,

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Speaker 1: Senator Shared Brown. You know they know that eventually they're

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Speaker 1: going to have to negotiate um. You know, so, I

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Speaker 1: I still think that it's much less It's certainly toxic,

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Speaker 1: but it's much less toxic than if you were in

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Speaker 1: the House or if you're dealing with the White House,

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Speaker 1: and that it goes with legend, that goes for legislation.

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Speaker 1: But as you said, it doesn't really apply to any

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Speaker 1: of the regulatory changes that might happen, because that can

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Speaker 1: become from an executive order or from many agency changes.

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Speaker 1: So the executive orders that Donald Trump put out don't

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Speaker 1: apply to the financial regulators, the independent overseen by Congress.

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Speaker 1: Yet you know, if I'm at the SEC, or if

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Speaker 1: the CFDC in the White House calls me up to

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Speaker 1: say follow my executive order, I'm going to say yes.

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Speaker 1: You know, I think on the regulatory side, were really

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Speaker 1: need to wait until Janet Yellen leaves in February two eighteen.

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Speaker 1: When Donald Trump starts getting his own people in mid

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Speaker 1: two eighteen, I think you'll start seeing a lot of stuff.

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Speaker 1: But before then you're gonna see some small jurisdictional I

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Speaker 1: mean small rulemaking, small tweaks. You know, nothing brought or

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Speaker 1: any anything like that. Thanks very much for enlightening us.

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Speaker 1: And Nathan Dean is a government analyst for Bloomberg Intelligence.

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Speaker 1: He knows all about what's going on in Washington. Right now,

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Speaker 1: we want to turn to another bit of news on

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Speaker 1: President Trump's radar. John Huntsman has been picked by President

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Speaker 1: Trump to be his Russian ambassador and to get a

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Speaker 1: better sense of what this might mean for US Russian relations.

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Speaker 1: I want to bring in Richard Kahan, a managing partner

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Speaker 1: at Eurasia Advisors who has intimate knowledge of Russia and

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Speaker 1: has boots on the ground, very close sense of what

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Speaker 1: is going on there. Richard, what do you make of

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Speaker 1: this selection? Well, look, I think John Huntsman is a

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Speaker 1: seasoned diplomat, uh, someone extremely well connected politically with the

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Speaker 1: Republican Party, and someone who is a very safe, solid

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Speaker 1: choice during a period when the last thing Trump needs

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Speaker 1: is a messy confirmation hearing. And so I think part

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Speaker 1: of the explanation for the choice is the domestic aspect.

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Speaker 1: But he's also a very experienced leman who I think

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Speaker 1: can do a fine job in terms of representing our

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Speaker 1: country in Russia. Um, he does not, as you know,

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Speaker 1: have a background, if you will, in the Russian world,

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Speaker 1: but former US Ambassador to China, former US Ambassador to Singapore,

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Speaker 1: and former governor of Utah. Absolutely so, Uh, this is

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Speaker 1: a man of great experience and I'm sure he'll handle

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Speaker 1: this posting extremely well. And I think we're lucky, frankly

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Speaker 1: to have someone with his level of experience serving our

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Speaker 1: country in that capacity. You know, Richard, One of the

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Speaker 1: reasons why I was really eager to speak with you

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Speaker 1: was because of some of the messiness that we've been

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Speaker 1: hearing about the President Trump's campaign with respect to its

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Speaker 1: relationship with China. In your opinion of somebody who does

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Speaker 1: have a pretty close knowledge and contacts in Russia, do

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Speaker 1: you think that there is enough evidence that has already

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Speaker 1: been presented to give you a concrete feeling that there

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Speaker 1: was some kind of collusion between the Trump campaign and

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Speaker 1: Russia to win the US election. I would say that

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Speaker 1: I think the wise course at this stage to put

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Speaker 1: this behind us, and for the president to put it

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Speaker 1: behind him, is to get in front of it by calling,

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Speaker 1: for example, for an independent commission to look at it,

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Speaker 1: to go forward with disclosure on his own part in

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Speaker 1: terms of all of his contacts, all the rumors of compliment,

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Speaker 1: anything that could potentially come out, because we are going

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Speaker 1: to see an ongoing trickle of information, so I think

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Speaker 1: that is the wisest court. Of course. It also will

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Speaker 1: help him avoid any issues relating to UH interfering with

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Speaker 1: the you know, with an investigation, which as we know,

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Speaker 1: it's it's not necessarily the actions themselves, it's the actions

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Speaker 1: subsequent that can lead to various legal problems. So I

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Speaker 1: think he's asking for trouble by having this handled exclusively

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Speaker 1: by a Republican dominated committee, and that then a long term,

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Speaker 1: you know, this is only going to lead to a

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Speaker 1: longer and more painful situation. But I guess a long

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Speaker 1: it's a long way of getting into the answer to

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Speaker 1: your question. I do have genuine concerns. I thought it was,

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Speaker 1: but no, I am gonna answer. I do think that

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Speaker 1: from what I've both seen and what I've heard in Moscow,

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Speaker 1: that there is reason to be concerned about this issue

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Speaker 1: of whether, uh, the decisions that he made in the

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Speaker 1: past and potentially sound that he will make in the

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Speaker 1: future are fully independent, or whether they are in part

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Speaker 1: influenced by relationships financial or otherwise, or compromat that the

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Speaker 1: Russians may have. And Uh, I think it's healthy for

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Speaker 1: us to get to the bottom of all of that. UM.

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Speaker 1: I regret that that's a situation, but I think that

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Speaker 1: that is the case. I wonder if you could comment

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Speaker 1: on the state of the Russian economy having come out

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Speaker 1: of a recession, and I'm wondering whether you can speak

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Speaker 1: to the issue of economic performing in not just taking

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Speaker 1: into account the oil sector, because chemical, agriculture, machinery, food. Uh,

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Speaker 1: what is the state of the Russian economy right now?

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Speaker 1: The Russian economy has largely been frozen for some period,

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Speaker 1: has been compared often to the bression of years. The

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Speaker 1: financial markets really have not been functioning. This is in

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Speaker 1: part due, of course, to sanctions, but that's not the

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Speaker 1: entire story. It's also due to just the sense of anuih,

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Speaker 1: the freezing, if you will, of the initiative in that environment,

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Speaker 1: because people recognize that if they build a company and

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Speaker 1: have success, that ultimately some government related entities will seek

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Speaker 1: to obtain control of that. So I was I was

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Speaker 1: hoping to lead you down to military spending, because the

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Speaker 1: Russians of this said that they are going to increase

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Speaker 1: the military spending, but also the way that they calculate

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Speaker 1: GDP has changed and they now include military spending as

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Speaker 1: part of that GDP report. Well, first, let me say,

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Speaker 1: Russian military spending is a fraction of what we spend. Uh.

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Speaker 1: The statistics I've seen is somewhere in the area of

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Speaker 1: maybe six to seven percent of what we spend on

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Speaker 1: on on our defense spending. And indeed, the increase that

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Speaker 1: is now being proposed by the current administration would be

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Speaker 1: in the amount of the total amount of what Russia

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Speaker 1: spends on defense. UH. So, you know, Russia is not

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Speaker 1: in a position to compete with US on defense spending,

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Speaker 1: but we're already in a position that dramatically exceeds anything

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Speaker 1: that the Russians can put up on all sorts of

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Speaker 1: military fronts. I want to thank you very much for

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Speaker 1: joining us. Richard con he is managing partner for Eurasia Advisers,

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Speaker 1: giving us some detail about the United States relationship with Russia,

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Speaker 1: maybe pointing out that John Huntsman Ambassador, he's been selected

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Speaker 1: to be the U s Ambassador to Russia by President

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Speaker 1: Donald Trump. Perhaps he can change the relations and with

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Speaker 1: more and more positive note. Is your phone spying on you?

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Speaker 1: That is the big question of the day. I want

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Speaker 1: to bring in David Garrity. He's CEO of g v

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Speaker 1: A Research, also a columnist at Investo PDA. Uh he

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Speaker 1: is here with us in our Bloomberg eleven three oh studio.

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Speaker 1: And David, I know that you're interested in talking about

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Speaker 1: Alphabet's launch of Android android messages, but I kind of

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Speaker 1: feel like we have to start with the recent CIA

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Speaker 1: leaks and the emphasis that that's placed on security, particularly

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Speaker 1: with respect to your phone. David, do you expect that

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Speaker 1: this new emphasis on potential hacks could alter the landscape

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Speaker 1: for demand for Androids versus iPhones? Well, certainly, I will

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Speaker 1: lead to a greater demand for more secure software. And clearly, Android,

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Speaker 1: with about eighty eight percent share of globally installed smartphone

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Speaker 1: operating systems, is a big target where and it's easier

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Speaker 1: to break into the Android than the iPhone currently. Yes,

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Speaker 1: it is. And to the extent that you have anyone

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Speaker 1: of a number of smartphone original equipment manufacturers or o

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Speaker 1: e m s who have been taking the basic Android

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Speaker 1: software system and then custom tailoring it. In the process

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Speaker 1: of doing that, they may also have created further security risk,

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Speaker 1: which is what helps assist hackers in terms of getting

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Speaker 1: access to Android powered phones. David Garty, I mean, I'm

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Speaker 1: not going to pursue the security issue for the time

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Speaker 1: being because I mean, everybody knows that you know, everything

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Speaker 1: is hackable, right, I mean, there's nothing that is not hackable.

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Speaker 1: Although hold on a second, because I think it will

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Speaker 1: make a difference if people are focusing more on this,

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Speaker 1: it might determine whether they decide to buy an Android

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Speaker 1: or an iPhone. I mean that's my point, all right,

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Speaker 1: Well so okay, well good, well let's take that, because David,

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Speaker 1: I want you to talk about the different marketplaces for

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Speaker 1: Apple iOS devices and Android operating system devices, because I

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Speaker 1: understand that the Android operating system device that's a mid

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Speaker 1: to lower market price point, that's going to be a

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Speaker 1: lot of a lot more growth there than it is

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Speaker 1: going to be at the higher end. And that's a

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Speaker 1: de facto Chrome experience, right Google out of Chrome, and

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Speaker 1: then that's a Google Search experience. And now I want

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Speaker 1: you to tell us about messaging because they also want

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Speaker 1: that to be a Google experience. Yeah, certainly. I mean,

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Speaker 1: with respect of messaging, we've been seeing essentially a shift

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Speaker 1: in terms of people's communication away from email and over

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Speaker 1: towards messaging. It used to be SMS messages, but it's

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Speaker 1: really more taking place within I Message, Android or Google's

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Speaker 1: problem with respect to messaging was again this proliferation if

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Speaker 1: you will, across various handset O E MS. They needed

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Speaker 1: to establish a standard out. They have a product that's

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Speaker 1: been coming onto the market called Android Messages. They're trying

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Speaker 1: to acquire a certain base experience and standard that applies

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Speaker 1: across all Android instances, so they can be as competitive

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Speaker 1: as say Apple's EYE message has been. And understand, Apple

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Speaker 1: I Message has recently generated about sixty three quadrillion. That's

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Speaker 1: ten to the fifteen Power messages per year, or to

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Speaker 1: put it differently, that's two hundred thousand EYE messages per

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Speaker 1: second that are being sent. So that's an ecosystem that

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Speaker 1: has a wall around it because I understand you know,

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Speaker 1: if you do not have an iOS phone, you're not

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Speaker 1: getting anything but those I Well, if you have let's

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Speaker 1: say an I uh Touch or at iPad or something,

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Speaker 1: then you're inside the Apple ecosystem. Yes you are, and

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Speaker 1: to the extent that you're obviously sending to someone who

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Speaker 1: has an Apple device. On the other side, it's all

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Speaker 1: gonna be done within I message. That doesn't say that

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Speaker 1: you have messages incent outside they will be sending text messages.

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Speaker 1: But yes, your points correct. We've a lot about sort

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Speaker 1: of the saturation of mobile phones, and I'm wondering from

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Speaker 1: your perspective, is there anything that Alphabet could do, or

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Speaker 1: frankly even Samsung or Apple to change that or to

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Speaker 1: sort of suddenly change the landscape and cause people to

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Speaker 1: buy more iPhones or um or or greatly expand potential

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Speaker 1: places where people use them. Well, this has been a

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Speaker 1: problem certainly, you know that the smartphone market has been

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Speaker 1: bumping up against and the whole knock on Apple had

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Speaker 1: been the fact that their market was saturated, and you're

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Speaker 1: looking at users who were holding onto their phones for

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Speaker 1: a longer period of time just because of the cost

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Speaker 1: relative to their incomes. And you know, Jason chafe It's

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Speaker 1: comment about sort of saying well they should buy healthcare

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Speaker 1: premiums and not iPhones, you know, certainly goes over like

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Speaker 1: like a lead balloon. But it does touch on the

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Speaker 1: fact that you know, smartphones have become more expensive. Clearly

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Speaker 1: we're looking more in growth in other areas being able

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Speaker 1: to apply these software systems to the Internet of things,

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Speaker 1: which is where you are to raise more concerns having

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Speaker 1: to do with some of these security elements that you

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Speaker 1: were talking about earlier. But I would make one point

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Speaker 1: is that while technology itself is capable of being hacked,

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Speaker 1: we know from the experience around the Democratic National Committee

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Speaker 1: last year that is really more human behavior which is hackable,

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Speaker 1: not necessarily the devices. So if people are concerned about

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Speaker 1: their security. The first thing they need to do is

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Speaker 1: look to themselves and how is it that they're interacting

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Speaker 1: with technologies? How is it that they control the information

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Speaker 1: that they either access or create themselves? With respect to that,

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Speaker 1: is there a differential between messaging versus phone voice phone

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Speaker 1: over the phones? You know what I mean? As far

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Speaker 1: as hackability, well, to the extent that I messages are

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Speaker 1: are encrypted. And it's something where Apple in dealing with

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Speaker 1: the San Bernardino massacre. You know, Apple had taken a

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Speaker 1: stand that they didn't want to provide access to the

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Speaker 1: shooters phones and their devices. Um. You know certainly in

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Speaker 1: that respect now that there are hacks that were found

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Speaker 1: around it. Um, but Apple tends to be more secure

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Speaker 1: in this regard relatives, say to an Android. And certainly

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Speaker 1: if you looked at voice communications, you know, for for

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Speaker 1: an encrypted voice call, uh, you'd have to go to

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Speaker 1: a special hand set. So from that standpoint, you would

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Speaker 1: be interestingly enough find that messaging, say on an Apple platform,

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Speaker 1: tends to be more secure relative to other means of communication.

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Speaker 1: I want to get your thoughts on investing in Alphabet,

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Speaker 1: the parent company of Google. Here's a stock that is

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Speaker 1: up about nine percent so far this year. And I

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Speaker 1: just love this comparison. In two thousand seven, Google's revenue

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Speaker 1: was sixteen and a half billion revenue two thousand sixteen

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Speaker 1: over nine billion. This is a company went sixteen and

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Speaker 1: a half to over nine billion, and it's still growing

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Speaker 1: at double digit rates. Yes, And from that standpoint, I mean,

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Speaker 1: the big search applications are still you know, very solid

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Speaker 1: in the margins are certainly something that the desire of

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Speaker 1: many other businesses, but we are looking at larger addressable

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Speaker 1: markets that they're potentially moving into. People have certainly talked

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Speaker 1: about driverless vehicles and the scale. But even if just

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Speaker 1: the messaging that you've described becomes moderately successful, is this

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Speaker 1: a company is just going to continue to bold, you know,

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Speaker 1: bowl forward. In this way, Google is is very much

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Speaker 1: well established in terms of the human capital that they

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Speaker 1: have in place and capability of the people who are there,

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Speaker 1: in their ability to continue to retract and retain these people.

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Speaker 1: And from that standpoint, um, you know, Trump's blathering about

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Speaker 1: immigration aside, Google could just as easily set up its

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Speaker 1: operations outside the US to the detriment of the U

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Speaker 1: S tax base and still continue to be a very

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Speaker 1: competitive company on a global scale. So from that standpoint,

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Speaker 1: we clearly look at Google as being a company that

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Speaker 1: arguably has be part of a core portfolio for anybody

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Speaker 1: who's looking at the technology sector. Other names like Snap

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Speaker 1: perhaps not so much. Thanks very much. David Garretty is

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Speaker 1: always a pleasure. He is the chief executive a g

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Speaker 1: v A Research. President Donald Trump is scheduled to meet

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Speaker 1: with almost a dozen chief executives of small and mid

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Speaker 1: size banks from around the United States. There he is

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Speaker 1: seeking their their contribution and their input for a discussion

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Speaker 1: about regulations which may be hurting their ability to lend

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Speaker 1: the consumers and small businesses. This is all part of

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Speaker 1: the listening sessions that are taking place under the ages

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Speaker 1: of the National Economic Council, and we will bring that

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Speaker 1: to you as it happens. Well, let's focus our attention

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Speaker 1: more closely on one element of President Donald Trump and

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Speaker 1: the Republicans plans for taxes. Uh. They've said they'd like

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Speaker 1: to court cut corporate taxes, allow the repatriation of cash

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Speaker 1: that are in corporate accounts overseas, and also eliminate company's

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Speaker 1: ability to deduct interest expenses from taxes. Here to tell

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Speaker 1: us more is Noah Smith a contributor to Bloomberg View

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Speaker 1: and he blogs at No Opinion. No, it's great to

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Speaker 1: have you here in the studio. Thanks for being with us.

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Speaker 1: All right, So this, let's say that this is the

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Speaker 1: focus of the attention of bond market participants is whether

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Speaker 1: corporations will continue to be allowed to deduct bond interest payments.

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Speaker 1: What is going on there? Right? So, uh, for every company,

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Speaker 1: you have to make a decision how much do we

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Speaker 1: fund our operations with equity and how much do we

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Speaker 1: fund our operations with debt? Actually, most US corporations fund

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Speaker 1: mostly with equity. Actually debt is is smaller for equity,

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Speaker 1: fine for US corporations, but there's still a lot of

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Speaker 1: debt out there. For banks, it's the opposite. Banks really

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Speaker 1: take on a lot of debt, have very high leverage ratios,

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Speaker 1: so they are the ones who would be most affected,

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Speaker 1: although all all companies would be someone affected. The idea is,

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Speaker 1: right now we actually privileged debt finance over equity finance,

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Speaker 1: and under this new policy that would be changed going forward,

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Speaker 1: it would be a much more level playing field between

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Speaker 1: the two. Well, no, this is actually shaking debt markets

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Speaker 1: in a pretty massive way. There is some speculation that

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Speaker 1: the record pace of investment grade issuance that we've seen

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Speaker 1: this year is to lock in the current deduction over

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Speaker 1: a longer period of time that it will be grandfathered

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Speaker 1: in as they are unable to deduct these interest payments

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Speaker 1: from their taxes going forward. You made an interesting argument

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Speaker 1: in a recent column. You're saying, you know, this is

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Speaker 1: very important, that this is part of the tax postal,

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Speaker 1: and it's probably a good thing. You highlight how studies

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Speaker 1: have shown that the more debt levels are elevated in

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Speaker 1: a country, the more damaging asset price declines are for

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Speaker 1: an economy. So, in other words, you're saying, structurally, this

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Speaker 1: might actually be a good thing to push corporations to

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Speaker 1: take on less debt and to fund themselves more with equity.

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Speaker 1: Am I right? That's right? Yeah, Um, whenever you see

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Speaker 1: one of these giant financial blow ups that ends up

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Speaker 1: tanking the economy for ten years. You've seen this Japan, Korea.

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Speaker 1: We might even be seeing it happen with China right now.

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Speaker 1: We saw it with us of course in two thousand eight.

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Speaker 1: There's always a lot of debt involved, whether it's mortgage

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Speaker 1: debt or corporate debt as it was in Korea, or

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Speaker 1: commercial real estate debt as it was you know in Japan.

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Speaker 1: UM debt is always a big thing that's there and

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Speaker 1: that you can show this really easily. Is that because

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Speaker 1: a bond comes with a variety of legal constraints and

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Speaker 1: restrictions and also obligations that you don't have with equity.

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Speaker 1: I mean, if a company goes under and you're stuck

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Speaker 1: holding a bunch of stock, you know, great, you're done.

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Speaker 1: But if you're a bond holder, now you've got lawyers,

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Speaker 1: bankruptcy committee experts, and you have a stake in what

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Speaker 1: happens to the company's assets, right, I would say that's

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Speaker 1: a that's a lot of it. Um. The legal differences

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Speaker 1: are absolutely crucial. Debt has um limited enforceability. We can't

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Speaker 1: completely make you pay back debt. In fact, that's what

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Speaker 1: they call bankruptcy protection from creditors. And because of this,

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Speaker 1: you have this perverse incentive where I can actually have

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Speaker 1: an incentive to borrow a lot of money and not

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Speaker 1: pay it back. And the econ blogger Carl Smith no

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Speaker 1: relation once wrote that it's rational to borrow as much

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Speaker 1: as you can and never pay it back. If there's

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Speaker 1: no penalty at all. So if this goes through as proposed,

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Speaker 1: it will cause a massive shift in the way that

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Speaker 1: companies finance themselves, and I would think that it could

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Speaker 1: be potentially, I don't know, a painful process. No, absolutely,

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Speaker 1: So one thing that economists are starting realize that the

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Speaker 1: economy is not nearly as resilient as people have thought,

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Speaker 1: and these big adjustments to trade changes, legal changes, and

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Speaker 1: just changes in the industrial mix of the country don't

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Speaker 1: go so smoothly, and a lot of people can lose

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Speaker 1: their jobs and be you know, screwed for their for

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Speaker 1: their whole life. So which asset classes would be most

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Speaker 1: affected during this shift? I mean afterwards? Granted, maybe it

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Speaker 1: would create more stability, but amid all the turmoil you

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Speaker 1: mean which industries? Yeah, which industries where we see the pain? Banks?

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Speaker 1: I mean there they borrow so much, um, a lot

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Speaker 1: of housing related things because housing, you know, rely so

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Speaker 1: heavily on debt and so so banks and housing related

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Speaker 1: companies will be really affected, I think. And so that's

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Speaker 1: why I suggested that we we phase this in over

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Speaker 1: a while to to give these companies time to switch

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Speaker 1: to more equity finance, because in the long run. It

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Speaker 1: will make the economy more stable. There's no reason to

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Speaker 1: do this tomorrow. We're not about to have another financial

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Speaker 1: says tomorrow. I think you never know. But I famous

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Speaker 1: last words, famous last words. But um, but we we

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Speaker 1: de leveraged a lot and so but uh, but you know,

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Speaker 1: ten years down the line, twenty years down the line,

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Speaker 1: this could make a difference. So I think it might

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Speaker 1: be good to start phasing that in now. And and

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Speaker 1: a lot of people have been calling for more equity

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Speaker 1: for banks. Um. Usually this is in the form of

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Speaker 1: higher capital requirements, basically hold more cash, and so this

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Speaker 1: could be another step in that same direction. Thank you

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Speaker 1: so much. Noah Smith, contributor to Bloomberg View. Uh. He's

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Speaker 1: also he was an assistant professor of finance at stony

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Speaker 1: Brook University. Need blogs that No Opinion. He's also on

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Speaker 1: Twitter at that same address at no Opinion. Thank you

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Speaker 1: so much for joining us. That was great, um, and

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Speaker 1: it is something that we've heard a lot about in

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Speaker 1: the corporate bond market, because you have seen a record

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Speaker 1: pace of issuance of corporate bonds to date, and people

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Speaker 1: are suggesting perhaps it's to get ahead of this rule change.

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Speaker 1: Thanks for listening to the Bloomberg pien L podcast. You

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Speaker 1: can subscribe and listen to interviews at iTunes, SoundCloud, or

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Speaker 1: whatever podcast platform you prefer. I'm Pim Fox. I'm out

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Speaker 1: there on Twitter at pim Fox. I'm out there on

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Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. You

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Speaker 1: can always catch us worldwide on Bloomberg Radio