Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Pharaoh and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, financing, investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and
Speaker 1: anywhere you get your podcasts, and always I'm Bloomberg dot Com,
Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. I'm pleased
Speaker 1: to say that alongside us here at the global headquarters
Speaker 1: of the International Monetary Fund in Washington, DC, Mohammed al Arion,
Speaker 1: Bloomberg opinion columnist and Queen's College Cambridge president Mohammed Mnick,
Speaker 1: Good morning. Can we stopped calling it a banking crisis?
Speaker 1: This was not a banking question. Tell me why this
Speaker 1: wasn't a banking crisis. A banking crisis is a crisis
Speaker 1: of the banking system. This was a banking tremor. A
Speaker 1: few banks that were caught offside and badly supervised went down.
Speaker 1: The big banks are just fine, and we're seeing that.
Speaker 1: In fact, the big banks are benefiting from this because
Speaker 1: they've got two things. Not only are they viewed as safe,
Speaker 1: but they've got diversified business models, and you saw what
Speaker 1: happened to fake you, so that suddenly it is the
Speaker 1: narrow bank that are riskies and it's the universal banks
Speaker 1: that are resilient. If it wasn't a crisis, why do
Speaker 1: you think the officials needed to use the systemic risk exception.
Speaker 1: I think it crept up on them and they just
Speaker 1: went a little bit too far. I understand why they
Speaker 1: did it. I suspect I would have done it too,
Speaker 1: but they post systemic risk. I think the deposit run
Speaker 1: and the speed of the deposit run at First Republic
Speaker 1: scared them a lot. But this was a failure of supervision.
Speaker 1: We have to understand that this was a failure of supervision.
Speaker 1: We have enough evidence now to show the extent to
Speaker 1: which the FED failed in the supervision of First Republic.
Speaker 1: So let's say absolutely, this is not a banking crisis.
Speaker 1: This didn't rise to some kind of two thousand and
Speaker 1: eight or even you know, potentially that's the nineteen eighties
Speaker 1: type scenario. But is it credit crunch that we're going
Speaker 1: to see evolve. Yeah, So we we're going through a
Speaker 1: major transition which has made some business models incredibly stressed,
Speaker 1: incredibly stressed and we're going to see that. We are
Speaker 1: now focusing on the banks. You just wait to see
Speaker 1: all the levet finance that has to refinance itself. We
Speaker 1: talked a little bit about commercial real estate, but it
Speaker 1: goes well beyond this. When you change to interest rate
Speaker 1: paradigm as quickly as we did, you will catch people offside,
Speaker 1: and some people will be able to get back on side.
Speaker 1: Other people have business models that doesn't allow to get
Speaker 1: back on side. Ground. Why am I saying this because
Speaker 1: the some of the smaller banks have that issue. They
Speaker 1: have higher funding costs, that deposits have become more flighty,
Speaker 1: and they're going to have to contract their loan books
Speaker 1: and they are making loans that the big banks will
Speaker 1: not make. So yes, we are going to have a
Speaker 1: reduction in credit contraction. We've got to talk about a
Speaker 1: Federal Reserve. Raga Raja and a good friend of yours.
Speaker 1: I know it was fantastic yesterday and I wish we
Speaker 1: were alongside him. He was talking about some of the
Speaker 1: blame lining at the fee of the Federal Reserve and
Speaker 1: the unwitningness of this institution that we're sitting in this
Speaker 1: morning to call out monetary policy officials for their role
Speaker 1: in some of the instability. What would you stand on
Speaker 1: that now, Mohammad, So, I think it's very important to
Speaker 1: keep our central banks accountable. They are very important. As
Speaker 1: you know. I'm a huge fan of central banks, and
Speaker 1: when I criticize the FED, it really hurts me. But
Speaker 1: it's important to have some accountability in the system. Why
Speaker 1: because that is the basis of political independence, and no
Speaker 1: one wants to erode the political independence of central banks.
Speaker 1: But central banks have to own their mistakes and have
Speaker 1: to learn from their mistakes to continue to enjoy something
Speaker 1: that is very precious and very important for the system
Speaker 1: as a whole, which is the ability to make policy
Speaker 1: without having to go to Congress. One FED official this week,
Speaker 1: in the last week at least, said the move from
Speaker 1: zero to close to five percent in about twelve months
Speaker 1: wasn't the problem with the banking system. You've talked about
Speaker 1: a failure of bank management. Do you think that has
Speaker 1: anything to do with it? A decade of zero interest
Speaker 1: rates and then going from zero to five like that.
Speaker 1: So we've had three stages of this tragedy. Stage one
Speaker 1: was too loose for too long. Remember in March when
Speaker 1: the inflation print was seven and a half percent. The
Speaker 1: FED was still injecting liquid it into the economy. That's
Speaker 1: much of last year. We should have started tightening policy
Speaker 1: significantly a year ago. The second problem is that after
Speaker 1: this whole long period, the FED mischaracterized inflation, so we
Speaker 1: lost nine months of possible policy adjustments. When you start late,
Speaker 1: you end up going higher and staying there for longer.
Speaker 1: That is the logic. That is why timely policy responses
Speaker 1: are so important. So, of course this interest rate cycle
Speaker 1: has been mishandled. Of course it has had an impact
Speaker 1: on what we are seeing in terms of not only
Speaker 1: financial turbulence, but all so what we're going to see
Speaker 1: in terms of economic turbulence. Your cambridge there is a
Speaker 1: spectacular stained glass window of a ven diagram. It is
Speaker 1: just a remarkable stained glass window. There are forty two
Speaker 1: circles here at the IMF, and they're trying to find
Speaker 1: a ven diagram of politics economics debate. That gets to
Speaker 1: a common theme. I can't find the common theme this
Speaker 1: time around? What is it? So I was surprised when
Speaker 1: in the six o'clock hour you said, there's all these
Speaker 1: issues and there's no common theme. That's absolutely a common theme,
Speaker 1: and the common theme is a world of deficient aggregate supply.
Speaker 1: We have gone from a world of deficient aggregate demand
Speaker 1: that was a story out there the global financial crisis
Speaker 1: to a world of deficient aggregate supply. You get inflation,
Speaker 1: you get interstate hikes, you get more inequality both nationally
Speaker 1: and globally. And I could go down the list, and
Speaker 1: if you under response, if you're underreact to that shift,
Speaker 1: then you start digging all sorts of issues. Brilliant, But
Speaker 1: the heart of the matter is Ambrose Evans Priture absolutely
Speaker 1: nails this with the Neo Viccellian essay today in the Telegraph.
Speaker 1: The bottom line is there's too much money out there
Speaker 1: and not enough investable opportunities on a global basis. We've
Speaker 1: been this way for a while. Is it a generational
Speaker 1: issue where we're never going to escape this trap of
Speaker 1: just too much money chasing not enough constructive ideas. So
Speaker 1: we certainly have too much money. What I would love
Speaker 1: to discuss with him, is it notion that we don't
Speaker 1: have enough investment opportunities. We are going through major transition,
Speaker 1: the energy transition is a major investment opportunity. Let's talk
Speaker 1: about the market failures that mean that we haven't been
Speaker 1: able to take advantage of this important window in terms
Speaker 1: of investments. And we can have a long discussion about
Speaker 1: what the US has done, and I know it upsets
Speaker 1: the EU appearance, but they're white. They're trying to address
Speaker 1: market failures in order to have more private public partnerships
Speaker 1: to invest in an area that is critically underinvested. A
Speaker 1: brilliant idea, can he run the port authority look funnel?
Speaker 1: Mohammed is raised in a really really important issue. This
Speaker 1: is not with the benefit of hindsight. We set it
Speaker 1: at the time. Germany and the European countries, who had
Speaker 1: the luxury of incredibly acceptionally low interest rates didn't make
Speaker 1: the move to invest in a way that they should
Speaker 1: have done well the way I would in Davos. It's simple.
Speaker 1: There's all these fancy plagards and marketing ideas of infrastructure
Speaker 1: and you know McKinsey like eighty page documents and development
Speaker 1: and it just hasn't He don't remember when Wolfgang Schober
Speaker 1: left the German finance ministry and they all stood outside
Speaker 1: and did that black zero as if it was something
Speaker 1: to celebrate. It was a total failure. Of policy over
Speaker 1: the last ten years. Well, this is this word austerity
Speaker 1: and economic policy as well. Are we going to see
Speaker 1: austerity in Britain again? I mean within the sharks that
Speaker 1: we see now there's Britain is so comfortable with austerity,
Speaker 1: aren't there? No, Unfortunately, Britain has become comfortable with low growth.
Speaker 1: That's a problem. You know. We have three issues and
Speaker 1: with my friends people you know very well, Michael Spence
Speaker 1: and Gordon Brown, we've been working on this for a while.
Speaker 1: We have three issues. One is we have inadequate growth models.
Speaker 1: Growth models we have to we think how we grow.
Speaker 1: Two we have inadequate domestic policy implementation, and three we
Speaker 1: have inadequate global policy coordination. Those are the three big areas.
Speaker 1: Now there are solutions to all three. That's a good news,
Speaker 1: but we've got to focus the discussion. How it to
Speaker 1: have said and thanks for being so generous with your time.
Speaker 1: Thank you, fantastic has always Thank you, Sir Mohammad our Arian.
Speaker 1: Joining us now is ken Ley On, the director of
Speaker 1: Equity Research at cf R. Ken You've had about ten
Speaker 1: twenty minutes to go through some of these numbers. What
Speaker 1: stands out for you? These banks are not only resilient,
Speaker 1: but they're making money. So we did see in particularly
Speaker 1: in the consumer areas strengthen, the private in the wealth
Speaker 1: management credit card with flat capital markets are strong. And
Speaker 1: I think maybe the conversation has been missing this is
Speaker 1: that we're going to see these banks do better ahead
Speaker 1: we hit the trough. So I would say the worries
Speaker 1: about the large banks is over. They're resilient. And even
Speaker 1: if this is the first time too deposits are down
Speaker 1: but loans are up, that's really the first time that
Speaker 1: metric changed, and maybe six quarters, perhaps that's a good thing.
Speaker 1: And quietly JP Morgan is offering you John a five
Speaker 1: percent one year CD rate, So either if the deposits
Speaker 1: go out, they're quietly taking money from smaller banksy Ken,
Speaker 1: you've been following this for decades in the chone changes.
Speaker 1: You can go back and look from annual report letters
Speaker 1: from fifteen years ago that are embarrassing in their vogue.
Speaker 1: Is the vogue now for these banks to talk down
Speaker 1: their scope and scale. I look at the revenue pop
Speaker 1: and JP Morgan and I would suggest as government affairs
Speaker 1: people are telling mister Diamond, don't let anyone know. Are
Speaker 1: they almost too successful. You're spot on, and the issue
Speaker 1: here is really the messaging and that it's not that
Speaker 1: we have too much capital and we're restricted because there's
Speaker 1: going to be regulatory costs and more regulation as relates
Speaker 1: to holding capitalised, especially exiting Basle three end game. So
Speaker 1: the story here really is making sure investors are comfortable
Speaker 1: that they can get dividend growth and buybacks at levels
Speaker 1: commensurate with the last two or three years. And that's
Speaker 1: going to be really the debate they have behind closed
Speaker 1: doors with Michael Barr and the bank super advisors on
Speaker 1: the stress test, not this year but next year. So
Speaker 1: that's the important thing for investors is knowing that these
Speaker 1: banks are not only resilient and profitable, but they can
Speaker 1: get a total return on their investment. Ken I want
Speaker 1: to build him what Thomas saying, because he's absolutely right.
Speaker 1: We're talking about credit crises and the potential for some
Speaker 1: sort of fragility, and we're talking about JP Morgan expecting
Speaker 1: to bring an eighty one billion dollars of net interest
Speaker 1: income this year, which is far above what people were expecting.
Speaker 1: They are minting money. At what point are we expecting
Speaker 1: Some of the discussion from the C suite to be
Speaker 1: gloomier than perhaps it really is, to perhaps divert a
Speaker 1: little bit of attention from what's going on in the
Speaker 1: bottom line. The bottom line speaks for itself, and that's
Speaker 1: what moves markets. Gerard was correct that we may have
Speaker 1: hit peak net interest margins, but looking back over the
Speaker 1: last five years of the large banks, only JP Morgan
Speaker 1: was able to grow net interest income from twenty seventeen,
Speaker 1: mostly because they expanded their loan activity and their book
Speaker 1: But overall the picture is good, and that was our
Speaker 1: point in the middle of March, is that obviously there
Speaker 1: was tremendous concerns about financial stability, but it was a
Speaker 1: great time as some of the large banks have sold
Speaker 1: off and we took advantage. And I think the capital
Speaker 1: markets still can give you a strong punch in the
Speaker 1: second half of the year because right now we're at
Speaker 1: the trough in terms of underwriting and also mergers and acquisitions.
Speaker 1: You know, Ken Leon's dead on and Lisa, I think
Speaker 1: this is so important. Max Abelson tearing this apart for
Speaker 1: Top Live right now, this is a surreal conversation. And
Speaker 1: mister Leon and Cassidy touch upon this. Their return on
Speaker 1: equity is eighteen percent they are minting money don't look okay.
Speaker 1: So how much is this a JP Morgan story and
Speaker 1: how much is this a BROADERCT banking story and can
Speaker 1: that really will ultimately be the question through the rest
Speaker 1: of this year as perhaps people parse the differential between
Speaker 1: the JP Morgans of the world and all of the
Speaker 1: I don't want to say Silicon Valleys of the world,
Speaker 1: but perhaps the first republic banks of the world. There's
Speaker 1: two iterations here. The first one is if you're diversified
Speaker 1: and you have large capital markets businesses, you're going to outperform.
Speaker 1: The second part of this is really related as you
Speaker 1: look at not only the superregionals, but smaller banks, they
Speaker 1: have a narrower tell asset mix, a higher percentage of
Speaker 1: commercial real estate loans and commercial loans, and the consumer
Speaker 1: will probably slow down a bit in the second half
Speaker 1: of the year. We saw that in the JP Morgan
Speaker 1: results on credit card revenue Ken this was wonderful, wonderful
Speaker 1: to half of mc kenny on that FCFI. Right what
Speaker 1: we're gonna do here is moved to the bank and earnings.
Speaker 1: But right now stay in a very delicate discussion. This
Speaker 1: is a byelat that's what we call it down there.
Speaker 1: We're going to have a bilatto right now, that sort
Speaker 1: of two parties that really don't want to talk to
Speaker 1: each other talk to each other. We're going to do
Speaker 1: that with Waldst Nembrowski, European Commission Executive Vice President, the
Speaker 1: former Prime Minister of his Latvia, the bilot you go
Speaker 1: into now across the Atlantic Ocean with select American officials.
Speaker 1: Is the tension normal back to your prime ministership with
Speaker 1: Latvia in the heart of the GFC, or is there
Speaker 1: something new this time about trans atlantic bilat tension? Good morning. Well,
Speaker 1: first of all, I would highlights that there is a
Speaker 1: very strong transatlantic cooperation. We are strategic allies, and especially
Speaker 1: in times like Zis where we aren't confronted by Russia's
Speaker 1: aggression against Ukraine by war on European soil, we need
Speaker 1: to work together with US and with the entire democratic world.
Speaker 1: And I would say that this corporation, both in terms
Speaker 1: of supporting Ukraine and putting sanctions against Russia is is
Speaker 1: very strong and very good. On a trade side, obviously,
Speaker 1: we are also having very extensive agendas. This was a
Speaker 1: subject of some of my meetings also yesterday and there
Speaker 1: we're still working, for example, on some of the discrimintary
Speaker 1: aspects of the US Inflation Reduction Act. But once again
Speaker 1: we are constructedly engaged with authorities and hope to the
Speaker 1: extent possible solciose issues from Latvia up to Estonia over
Speaker 1: to Finland in your world, in all of our worlds
Speaker 1: have changed here with Finland joining NATO. To me, it
Speaker 1: was just a lifetime shock to see that. How did
Speaker 1: the political dialogues you're in everyday change given a shock
Speaker 1: of this war in Finland simply joining moving from its
Speaker 1: independence in Europe? Well, I think as regards Finland, it
Speaker 1: obviously was a logical choice. If you live next to
Speaker 1: the aggressive empire, you need to seek a stronger protection,
Speaker 1: and that's what Finland did always joining NATO, and hopefully
Speaker 1: Sweden will be able to join soon as well, and
Speaker 1: it definitely strengthens the security in entire Baltic Sea Region. Commissioner,
Speaker 1: you're always diplomatic. I always suggest that you've had to
Speaker 1: spend a week putting up fires, fires started from by
Speaker 1: someone else. I would like to understand how the Europeans
Speaker 1: would respond if the US administration turned around and said
Speaker 1: that they don't want to get caught up in crises
Speaker 1: that aren't ours. What would you say back to that? Well,
Speaker 1: as I was saying at the beginning of interview, when
Speaker 1: we are confronted with major challenges, we are better off
Speaker 1: if we work together as EU US, that we strengthen
Speaker 1: our transatlantic alliance. If it's of the French president there, well,
Speaker 1: clearly is a position of the EU is very clear
Speaker 1: on this. As I said, EU and US are strategic
Speaker 1: allies and we especially in current confrontation or geopolitical situation,
Speaker 1: we need to work together. I get the feeling, and
Speaker 1: this is my assessment, and you can correct me. By
Speaker 1: all means that you're all underplaying the tension between the
Speaker 1: European Union and the US right now publicly. Whenever I
Speaker 1: speak to someone from the US administration or the European Union,
Speaker 1: I get the same story. We all need to work together.
Speaker 1: What I actually see as an observer is a race
Speaker 1: for subsidies in the United States, the European Union racing
Speaker 1: to get its act together to do the same thing.
Speaker 1: It's a real tension starting to emerge. How are you
Speaker 1: going to resolve that? How do you actually truly work together?
Speaker 1: When the US is spending a lot of time saying,
Speaker 1: let's build an America, make America, and then buy America.
Speaker 1: How are you going to resolve that? Well? On ZIS
Speaker 1: and if we are to discuss specifically US Inflation Induction Act,
Speaker 1: who has been very clear since the very beginning. So
Speaker 1: we definitely welcome the climate ambition of the Inflation Induction
Speaker 1: Act and is also working on these goals. But at
Speaker 1: the same time, we have serious concerns about discriminatory aspects
Speaker 1: in Inflation Induction Act. We have set up the dedicated
Speaker 1: EU US Task Force to work on those issues, and
Speaker 1: indeed we are raising these issues also bilaterally with US
Speaker 1: administration and trying to solve them. The previous administration is
Speaker 1: heavily criticized for its approach to trade. Everybody would come
Speaker 1: on TV publicly they had no problem saying getting criticized
Speaker 1: in the Trump administration. Is there any difference any daylight
Speaker 1: whatsoever between this administration and the last one on trade?
Speaker 1: Can you identify one specific piece of daylight difference between
Speaker 1: what this administration is doing and what the last one did. Well,
Speaker 1: First of all, with this administration, we were able to
Speaker 1: park several long standing disputes like RBS Boing dispute, like
Speaker 1: dispute related to steel and aluminium tariffs. Right now we
Speaker 1: are working on the global steel and aluminiumsranges of that Commissioner. Well,
Speaker 1: just yesterday I was discussing this with US trade representative
Speaker 1: Ambassador Thai and there is a very intensive, very constructive
Speaker 1: engagement and we are working with a deadline of October
Speaker 1: this year. In mind, we talk a lot about the
Speaker 1: relationship between the US and Europe, both when it comes
Speaker 1: to trade, but also when it comes to military. We've
Speaker 1: been talking about these leagues that are very sensitive from
Speaker 1: the national security of the United States. Does that change
Speaker 1: your relationship at all with sharing information or doing business
Speaker 1: with the US? Well, once again I must emphasize that
Speaker 1: in a situation where we see aggressive policy of rush,
Speaker 1: I would say increased ambitions of alter attended regimes, it's
Speaker 1: important that democratic world works together. So yes, our problems
Speaker 1: are difficulties, but we need to be able to to
Speaker 1: discuss overcomes them and find a joint solutions as a
Speaker 1: response to current job political situation. But as you're very
Speaker 1: kind to give us so much your time, thank you
Speaker 1: for paying with this commission, we appreciate it. Bariston Browskiste
Speaker 1: of the European Commission, this is always a joy joining
Speaker 1: us now Loop and ram and with PIMCO, head of
Speaker 1: the EM of course, your service to the International Monetary
Speaker 1: Fund for years, and far more importantly a student of
Speaker 1: the ramifications of the central banker to the world, Jerome
Speaker 1: Powell in EM sovereign debt. How big of an influence
Speaker 1: is mister Powell? Right now, I'm Bolivia, I'm Ghana in
Speaker 1: the news today and frankly on other larger, more successful
Speaker 1: EM economies. Well, the FED cycle is extremely important for
Speaker 1: major emerging markets, particularly those in the investment grade portion
Speaker 1: of the asset class. But you correctly point out that
Speaker 1: for the frontier markets that are really facing credit stresses, relatively,
Speaker 1: you know, the impact of the FED is relatively a
Speaker 1: lot smaller than you would expect. It's smaller than you'd expect.
Speaker 1: But the fact is there's a multidimensional crisis in EM.
Speaker 1: Now in your study of history at LLC of how
Speaker 1: is this distress, this tension different than what we've seen
Speaker 1: back to nineteen ninety two and frankly back before that, Well,
Speaker 1: I take a slightly different view. I actually think the
Speaker 1: crisis is more in developed markets than emerging markets. For
Speaker 1: the first time in a long time in EM, you
Speaker 1: have inflation coming down, you have growth essentially, Companion Emerging
Speaker 1: career got out front with radio increases, absolutely Career, Brazil, Chile,
Speaker 1: the list is endless, and not only that they've avoided
Speaker 1: deep recessions, whereas we have the kind of soft landing
Speaker 1: versus hard landing debate in in developed markets. I think
Speaker 1: that you know, when we're thinking about crises in EM,
Speaker 1: it really is a select number of frontier markets that
Speaker 1: don't form the aggregate part of emerging markets that we
Speaker 1: actually invest in. And it's important to bear that in mind.
Speaker 1: For countries like Mexico, like Brazil, like South Africa, like Indonesia,
Speaker 1: we're extremely constructive this UH, this new phase within their economies,
Speaker 1: particularly as they're trying to come out of this tightening cycle,
Speaker 1: is going to be very constructive for EM investors. Lupin,
Speaker 1: you said, this is one of the most exciting IMF
Speaker 1: meetings you've ever been at. Why, Well, this is the
Speaker 1: first time we really have a lot of discussions on
Speaker 1: debt restructurings and importantly the role of the multi development
Speaker 1: banks and the and China in debt restructurings, and so
Speaker 1: this time around, you know, we're seeing a lot of
Speaker 1: debate and discussion some pushback from China. It's the first
Speaker 1: time we're really seeing negotiations related to the MDB's senior
Speaker 1: status in debt restructurings, and the recent global workshop that
Speaker 1: the IMF held last week essentially highlighted that the MDBs
Speaker 1: will be committing more grant financing for some of these
Speaker 1: debt restructuring countries. How much is what you were first
Speaker 1: talking about connected to this very deeply that right now
Speaker 1: the crisis is not in the developing world as much
Speaker 1: when it comes to the rates picture, it's much more
Speaker 1: in the developed world and frankly, US, which is the
Speaker 1: biggest market for a lot of these debt instruments. How
Speaker 1: much is that coloring the conversation and the willingness to
Speaker 1: sort of allow things to sort of just go on
Speaker 1: and losses to gather at a time that's somewhat fraught
Speaker 1: for the developed world. So I think that, you know,
Speaker 1: the impact that high inflation in the developed economies has
Speaker 1: on these discuss is important, but it really isn't the
Speaker 1: front and center when it comes to the debt negotiations.
Speaker 1: The debt restructuring issues are long term. It really strikes
Speaker 1: at the heart of how the Paris Club, China, India,
Speaker 1: the GCC Saudi Arabia are going to work together in
Speaker 1: future debt restructuring. So these are longer term issues that
Speaker 1: I think all parties recognize the importance of really putting
Speaker 1: front and center. Are you impressed with how the IMF
Speaker 1: has handled some of these discussions. Yes, I think the
Speaker 1: IMF has played its part in terms of being the
Speaker 1: negotiator between all of these actors. There are elements that
Speaker 1: the IMF needs to focus on in terms of it's
Speaker 1: lending into arrears and lending assurances criteria. It's really important
Speaker 1: for countries like Sri Lanka, like Ghana who went through
Speaker 1: balance of payments crises but need financing from the IMF
Speaker 1: immediately and in a very short period of time for
Speaker 1: the IMF to really iron out some of these creases
Speaker 1: when it comes to their lending into arrears and assurances practices.
Speaker 1: On a market desk with your three Bloomberg terminals in
Speaker 1: front of you, loop and what do you want from
Speaker 1: China to signal from China that they will do Western restructuring.
Speaker 1: What's the next step the FD Robin Wigglesworth has done
Speaker 1: a great job on there's our end of current I
Speaker 1: think has been strong on this as well. There has
Speaker 1: to be a China process of restructuring. What's it look like?
Speaker 1: So we're getting a lot more clarity on what China's
Speaker 1: and key issues are in these debt restructurings. And essentially
Speaker 1: the first is the seniority of the multilateral development banks,
Speaker 1: and to some extent the recent announcement on grants has
Speaker 1: overcome that. The second is domestic debt restructuring. And this
Speaker 1: is a very valid concern from the Chinese. Many countries
Speaker 1: that are coming for debt restructurings have very high levels
Speaker 1: of domestic debt which need to be addressed. But essentially
Speaker 1: governments find it extremely difficult to impose haircuts on their
Speaker 1: population and as well look after the stability of their
Speaker 1: banking sector. This is an issue that needs to have
Speaker 1: a lot more work behind it to really get a
Speaker 1: handle on it. We don't have the time for this.
Speaker 1: Where you go a hand for three hour? Can you
Speaker 1: do a panel with me today? What are you doing
Speaker 1: at eleven thirty this morning? The heart of it to me,
Speaker 1: is Russia Sherman mentioned the other day, is the rescue culture?
Speaker 1: Is the rescue culture where everybody has to be pain free?
Speaker 1: Is it's seeked over to your world of sovereign debt workout?
Speaker 1: Do we want everybody to be painless in working towards
Speaker 1: haircuts or extended duration? I think that the em world
Speaker 1: is no stranger to haircuts and actually very painful restructurings.
Speaker 1: We've got a long history of very low recoveries in
Speaker 1: some countries and very high recoveries in others. I think
Speaker 1: that you know, where we're going to is a shift
Speaker 1: from the focus on private bondholders to the official sector
Speaker 1: in terms of how the official sector should behave and
Speaker 1: coordinate themselves in resolving debt restructuring. So really, with the
Speaker 1: collective action clauses reforms that we saw over the last
Speaker 1: decade and a half, the private sector really is doing
Speaker 1: its part and the issues are much more in the
Speaker 1: official and the official bilateral sector. Always been the case.
Speaker 1: The official sector doesn't like take in lost this time.
Speaker 1: You know that, look at what happened in Europe. I
Speaker 1: just think I wantedly same thing. Is the tension with
Speaker 1: China going to impinge best practices on a new twenty
Speaker 1: first century IMF, and this has been a big concern. Also,
Speaker 1: what are the rules of the road. I mean, can
Speaker 1: China say all right, we didn't get paid back, so
Speaker 1: we're going to take your port you know what I mean,
Speaker 1: We're going to take your shipping line. This is we're
Speaker 1: not the big issue. The jargon for this is they go, well,
Speaker 1: we're into meetings and technicalities. I don't know what I am.
Speaker 1: F technicalities are Lupin's expert at that tannicality. So you're
Speaker 1: just hearing about that careers fascinating stuff. It is fascinating.
Speaker 1: I actually like some of these meetings are really fraught
Speaker 1: and everyone talks about it's like, oh, yeah, we're coming
Speaker 1: to an agreement. Then you talk to them behind the
Speaker 1: scenes and they're like, oh yeah, they make it toublically,
Speaker 1: they make it a bit of a snooze. Yeah, exactly.
Speaker 1: For me, it's been pretty sleepy. But you're not behind
Speaker 1: the scenes. Big time significant loop and this is great.
Speaker 1: Thank you, Thank you, PIMCO. On the latest from the
Speaker 1: International Monetary Fund of the World Banks Spring meetings, we
Speaker 1: have the h is John and I try to do
Speaker 1: it Davos or at Jackson Hole to finish strong with
Speaker 1: a qualified individual. Eric Nielsen carried the optimism of europe
Speaker 1: UNI credit in the darkest days of a number of
Speaker 1: years ago. He joins us today with the perspective of
Speaker 1: his public service at the IMF on the Turkey and
Speaker 1: Russia watch as well. You were in the trenches year ago,
Speaker 1: years ago of IMF duties. Is the I AMF focused
Speaker 1: right now on fixing these debt crises or are they
Speaker 1: completely distracted by the therapy that Lisa was talking about
Speaker 1: moments ago they feel distracted. I share the sentiment you said.
Speaker 1: It's that I have been to probably fifty of these
Speaker 1: meetings over the years, and I have I cannot recall
Speaker 1: such a division between what you the IMF writes about,
Speaker 1: but they talk about what the official sector talk about.
Speaker 1: And then you go out of this building and meet
Speaker 1: in the private rooms with private investors and other private
Speaker 1: sector people, and they all talk about Russia, China, and
Speaker 1: then to Europe right sorry, US, China and the war
Speaker 1: and then Europe here and here we talk about we
Speaker 1: need to do some fiscal to transman, we need some
Speaker 1: monitor tightening in facial a little bit too high and
Speaker 1: then we go lucky lucky, we had a financial mini crisis,
Speaker 1: so we can talk about financi stability, but it's not
Speaker 1: really a problem, as we can have heard, and I agree,
Speaker 1: but that's what they talk about. They don't talk about
Speaker 1: the elephant in the room that fundamentally economic policy of
Speaker 1: thirty years is out the window. We are not no
Speaker 1: longer having free trade, We no longer have believes in
Speaker 1: free capital movements. We don't We now have to talk
Speaker 1: about industrial policies, sanctions. But they're not leading the discussion here.
Speaker 1: And this institution was meant to be the very embodiment
Speaker 1: of that push. That's right, So what's gone wrong? That's
Speaker 1: a good question to Let's first recognize that they're in
Speaker 1: a difficult spot. They have shareholders on both sides of
Speaker 1: the debate, right, but and they don't have a history
Speaker 1: of having criticized the US and China. You can't find
Speaker 1: it in the back back, right, that doesn't happen. And
Speaker 1: these are the two big issues, right, and they don't
Speaker 1: really talk about it. Right, This is a so they
Speaker 1: need to be brave. They should have been brave. They
Speaker 1: were not here. I think they missed their opportunity to repainting.
Speaker 1: For the way Tommy brought it up so many time
Speaker 1: since in China, just how the absence of Chinese here
Speaker 1: and the you know, long ago and far away. The
Speaker 1: Managing director told me on our trip they at least
Speaker 1: began to engage discussion. And the word they use, which
Speaker 1: you have lived, Nielsen, is technicalities. Is this going to
Speaker 1: be a process for it of technicalities or is it
Speaker 1: going to be real leadership by Secretary Yellen, the Managing Director,
Speaker 1: by the Chance of the Exchequer, and indeed by the
Speaker 1: leadership in Beijing. This is I don't know the answer
Speaker 1: what how they would do, but they're not there now right.
Speaker 1: It is it's they have two good chapters from the
Speaker 1: IMF on sort of geo politics, right, there's one in
Speaker 1: the Wheel and one in the Finances de bed A report.
Speaker 1: They op out the effect on foreign direct investment this
Speaker 1: could have and estimate what it is. There's no policy conclusions,
Speaker 1: there's no sort of economic effects conclusions of it, So
Speaker 1: it's technicalities economic sort of analysis. Interesting, great Stock totally
Speaker 1: agree with this. So is this basically is this basically
Speaker 1: a crisis of leadership? Yeah? I mean ultimately yeah, I
Speaker 1: mean maybe, but but it's possible that the deck of
Speaker 1: carts handed here is unplayable because it's America and China. Right,
Speaker 1: But I mean, yeah, but what's the consequence then, I mean, honestly,
Speaker 1: what is the relevance then of the IMAT if you
Speaker 1: have a situation where they're not taking a policy stance,
Speaker 1: they're not calling people out, they're not creating at, they're
Speaker 1: calling out the UK. Yeah, all right, Okay, that's what
Speaker 1: you know. And a lot of people in the UK,
Speaker 1: for obvious reasons, are very upset by it. Now, I think, Eric,
Speaker 1: we can sit here and agree that some of the
Speaker 1: policy issues of the UK quite rarely needed to be
Speaker 1: criticized over the last ten years, and we can find
Speaker 1: some common ground there. But why are they so comfortable
Speaker 1: going after the United Kingdom? And then when she power
Speaker 1: walks around here, it's like, think, you know, it's fine,
Speaker 1: there was no favor that you know, we can't talk
Speaker 1: about that. What is that about? It's a bit power, right,
Speaker 1: and and who you want to please? Right? It's a
Speaker 1: and and And they haven't the East at this stage
Speaker 1: been willing to stay a bob back in the end,
Speaker 1: in the death in the Latin American debt crisis. Delor
Speaker 1: Shia today, still in his high nineties, will tell you
Speaker 1: stories about how he walked down the street to the
Speaker 1: Treasury and going to him at least worked with him
Speaker 1: and make things happen. You don't see this now, I think,
Speaker 1: So what's the consequence, Well, the the easier consequence is
Speaker 1: that this institution and the World Bank will be on
Speaker 1: the back seat and not in the driver's seat, if
Speaker 1: they even would be in the car. Right, this is
Speaker 1: the issue, right, this is the world has moved on
Speaker 1: in a very traumatic way. I think the thirty years
Speaker 1: of globalization believe where monitor or sybe economic policy were
Speaker 1: set by sort of the ideas the we economy is
Speaker 1: believe in a free trade and these sort of things.
Speaker 1: That's not there anymore. It's the security apparato or agencies
Speaker 1: who have taken over. And maybe that's real life and
Speaker 1: that's just what it is. But the result of that
Speaker 1: is that economic policy is not in the driver's seat anymore.
Speaker 1: This is there not talking about it. Let me dove
Speaker 1: tell gave a week ago with a stunning five year
Speaker 1: view with some of the zeitgeist this morning, and that
Speaker 1: would be a study of nominal GDP. You are the optimists,
Speaker 1: But can you frame out a reduced real GDP along
Speaker 1: with a reduced inflation? Yeah, you can. I mean this
Speaker 1: is sort of an economy's argument that is based on
Speaker 1: the base case. And when I talk to a staffer
Speaker 1: here and he defended what they've done is that in
Speaker 1: the in the publication is that you have fundamentally to
Speaker 1: articulately a base case. The problem is that there are
Speaker 1: so many risks around it that one of them is
Speaker 1: bound to happen. But I think the probably is bigger
Speaker 1: still because I think the whole narrative of economic policy
Speaker 1: making and who runs the show today has changed, is changing,
Speaker 1: It's always changed now and this is not so then
Speaker 1: we can yeah, we can talk about that growth. Maybe
Speaker 1: global growth going to be two point eight or two
Speaker 1: point seven percent, and maybe either the neutral rate. Yeah,
Speaker 1: it's going to come down a little bit. And the
Speaker 1: central bankers don't like it right now. They can't think
Speaker 1: going to take the monster policy. That's a sideshow. It's
Speaker 1: a sideshow. It's not the real story in the real world.
Speaker 1: The clients we talked to European corporates, other corporates are
Speaker 1: like this, is not what they talk about. This is
Speaker 1: inflation is coming down, and yes we can discuss, well,
Speaker 1: there's twenty five basis points one or twice or whatever. Yeah,
Speaker 1: that's not the real story. As the most important question
Speaker 1: of the morning, what was better the eight dollars strata
Speaker 1: teller in Washington, DC or the three euro strat to
Speaker 1: tell her back in back in Milan? Which one it was?
Speaker 1: It was very good at the one I had yesterday,
Speaker 1: I have to say, but most of it landed on
Speaker 1: the sidewalk. He said. There's great things from the RNF
Speaker 1: spring meetings in DC. Eight dollars for a strata tell
Speaker 1: her ice scream, which is almost as good as the
Speaker 1: one you get in Milan. What went wrong? Did the
Speaker 1: FED allow us inflation to run away? I'm raising questions
Speaker 1: about you, Eric. This is great. Subscribe to the Bloomberg
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Speaker 1: your podcasts. Listen live every weekday starting at seven am Eastern.
Speaker 1: I'm Bloomberg dot Com, the iHeartRadio app, tune In, and
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Speaker 1: I'm Tom Keane and this is Bloomberg