Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. We're
Speaker 1: joining us now is Paul Tucker. He's former Deputy Governor
Speaker 1: of the Bank of England. Well, his latest book is
Speaker 1: called Tom Unelected Power. I know this is going to
Speaker 1: make Tom's must real list to the quest for legitimacy
Speaker 1: and central banking and the regulatory state. Still with us
Speaker 1: Rupert Harrison of Black Rock and John Norman of JP Morgan.
Speaker 1: Where are your books? I need? I need books from
Speaker 1: everyone on set. Paul Talker, thank you for joining us.
Speaker 1: Congratulations on the book. First of all, when you look
Speaker 1: back to Lehman's when you look back at just you
Speaker 1: know that oh eight period, when did you first realize
Speaker 1: about the scale of how enormous it was what we
Speaker 1: were going through. I think when best Earns failed and
Speaker 1: was rescued. I recall a meeting at the Bank of
Speaker 1: England where I said that had it not been rescued,
Speaker 1: there would have been mayhem, And a month later one
Speaker 1: of the directors came back to me and said, that
Speaker 1: was quite a thing to say. Defend it, and so
Speaker 1: I did. I think the tragedy and I don't think
Speaker 1: anyone has said anything intelligent about this, and I'm not
Speaker 1: going to is the wasted six months between bes Starns
Speaker 1: and Lehman. Why on both sides of the Atlantic, weren't
Speaker 1: the big dealers, the big banks forced to deleverage in
Speaker 1: the wholesale market commitments in a controlled way rather than
Speaker 1: in their lending to the real economy. Why wasn't Lehman
Speaker 1: is reputed to have been debating an equity injection from Korea.
Speaker 1: Why didn't that happen? Why didn't the US authorities push
Speaker 1: them to do it? And there's too much discussion about
Speaker 1: all the liquidity measures that were taken, some of which
Speaker 1: I devised, and of course central bankers think they were
Speaker 1: quite good, and not enough discussion about out missed opportunities
Speaker 1: by supervisors and regulators. But why because they didn't understand
Speaker 1: the interconnected it or they didn't want to see it.
Speaker 1: I don't know why. I think it's implausible to say
Speaker 1: people didn't understand the interconnectedness. Loretta Mesta just said, um,
Speaker 1: that we learned things about the interconnectedness. I don't think
Speaker 1: we learned a great deal. If you go back and
Speaker 1: look at things that the FED, the b I S,
Speaker 1: the Bank of England said in the years before the crisis,
Speaker 1: people knew the system was so horribly interconnected that they
Speaker 1: wouldn't be able to understand how it would unravel. The
Speaker 1: mystery and it is a mystery, um is why people
Speaker 1: if you provide liquidity, you don't solve the ultimate problem,
Speaker 1: but you buy time. How was the time used by
Speaker 1: regulators and supervisors? I still I don't think we have
Speaker 1: a good answer to that question on either side of
Speaker 1: the Atlantic. Well, and the wonderful voices set that we
Speaker 1: heard before you came on. We had Loretta Master of
Speaker 1: the Cleveland FED, who is truly one of our best
Speaker 1: myth maticians, and all this, and I go to a
Speaker 1: chapter in your book the limits of design? Are we
Speaker 1: asking too much of central banking? If the system lacks up,
Speaker 1: as Lauretta talked about in at ten back look back,
Speaker 1: If the system locks up, is the correlations become so tight?
Speaker 1: Is there a limit to the design? Yes? Is the
Speaker 1: simple answer if you expect central banks and agencies like
Speaker 1: central banks to make the world a perfect place. UM,
Speaker 1: this is doomed to fail. If you ask them to
Speaker 1: deliver stable and low inflation over time, ensure that the
Speaker 1: core of the banking system is resilient, they can do that.
Speaker 1: They can't manage the credit cycle, they can't manage asset prices.
Speaker 1: They can do those simple things. And in the years
Speaker 1: during the crisis and since UM a lot of countries
Speaker 1: have fallen into the trap of of expecting the central
Speaker 1: banks too much. And that's not only the central banks fault.
Speaker 1: It's because Paul Auditions, it's convenient for politicians to vacate
Speaker 1: the space and leave the central banks as the US cavalry,
Speaker 1: and it is very tempting central banks to occupy that. Actually,
Speaker 1: it's terribly difficult for them not to try to do
Speaker 1: something when the politicians don't step up to the plate.
Speaker 1: In the United States, of course, this is centers around
Speaker 1: the difficulty of fiscal policy of any kind. And Toto,
Speaker 1: all three of you, John Norman jump in here if
Speaker 1: you would please, and I think it's a question for
Speaker 1: all three of you. Francy lead this discussion, which is
Speaker 1: the solution is more capital on the bank's balance sheets.
Speaker 1: That just seems too simplistic to me, John is it?
Speaker 1: I think that is too simplistic. I think the underlying
Speaker 1: problem at the end of every business cycle is a
Speaker 1: leverage build up somewhere, and it is helpful to have
Speaker 1: banks will capitalized. That's one less source of leverage. But
Speaker 1: it's very difficult to keep households and corporates from building
Speaker 1: up leverage doing a long business cycle with low interest rates.
Speaker 1: And that's why you can always, i think, act some
Speaker 1: kind of high volatility decline in asset prices when we
Speaker 1: eventually go into a downturn, and there's only so much
Speaker 1: that central bankers can do to try to manage their
Speaker 1: their deleveraging process. I'd agree with that. I think that
Speaker 1: you know, more capital obviously is a big part of
Speaker 1: the solution, but that's never going to prevent failures or um.
Speaker 1: The next crisis is going to going to be different
Speaker 1: in some sets. I mean, I think Paul's point is
Speaker 1: a very interesting one. I mean, I think the UK
Speaker 1: is a good interesting example. Actually have a country where
Speaker 1: we've probably gone further than almost any other country and
Speaker 1: explicitly giving the bank of England now a remit to
Speaker 1: not just protect the banks from the cycle, but to
Speaker 1: try and protect the cycle from the bank. So you
Speaker 1: have the kind of financial policy committee that is tasked
Speaker 1: to try and step in and has already done that
Speaker 1: in areas like Vitlet in the UK is increasingly getting
Speaker 1: active in sort of counter cyclical capital measures to the banks,
Speaker 1: and so far I think that I think that the
Speaker 1: politics of that has been acceptable. I think the public
Speaker 1: are willing to allow central banks to step in. Whether
Speaker 1: that's politicians trying to push the responsibility away from themselves
Speaker 1: towards the central banks, so you know, will only find
Speaker 1: out the next time it really gets bad. Tucker, where
Speaker 1: are we more vulnerable today than we were on the
Speaker 1: eve of Leaming Brothers um shadow banking UM in China
Speaker 1: or worldwide? Probably a bit in the United States as well.
Speaker 1: I don't want to say more vulnerable in the United
Speaker 1: States than before two thousand and seven eight, But I
Speaker 1: think there's been a woefullly weak appetite to address shadow
Speaker 1: banking in the in the States, and a policy of
Speaker 1: will monitor it, spot the problems and then reform policy
Speaker 1: to catch up is doomed to failure. By By the
Speaker 1: time something is big enough to be a systemic threat,
Speaker 1: it has a real lobbying power in Congress and and elsewhere.
Speaker 1: I think the policy makers have have ducked this. It's
Speaker 1: it's difficult, but they've ducked it. And I think that's
Speaker 1: been a mistake. Another one which I know preoccupies some
Speaker 1: people in the Senate UM is so my generation of
Speaker 1: policy makers have pushed forced a lot of the derivatives
Speaker 1: markets to go our central counterparties. That's good. I still
Speaker 1: support that policy. But what happens of a central counterparty fails.
Speaker 1: We are ten years on um No one in the
Speaker 1: United States has said anything compelling about that. It isn't
Speaker 1: even clear that there are legal powers to address it.
Speaker 1: In Europe, more has been said and done, but the
Speaker 1: truth is that Europe is waiting to try to do
Speaker 1: something jointly with the United States. This will be imagine
Speaker 1: one of these things fails. I'm one of the few
Speaker 1: people on the planet that have dealt with the failed
Speaker 1: um CCP. This will be inexcusable. Well, there were one
Speaker 1: of the lessons that we've learned here. We've got I
Speaker 1: guess Phillips, Curb and DSG All the fancy phrases back
Speaker 1: to the martiall and cross, where's behavioral economics and all this?
Speaker 1: Are you guys still ignoring Robert Schiller? Are you still
Speaker 1: ignoring failor of Chicago? I don't think actually that was
Speaker 1: the problem before the crisis. I think it was partly
Speaker 1: a problem in the FED. The Greenspan doctrine meant that
Speaker 1: supervision and regulation was neglected in the FED. It wasn't
Speaker 1: a um an enticing or sexy place to to work.
Speaker 1: I think the difficulty is I think people have embraced
Speaker 1: the importance of behavior economics, I'm not sure that they
Speaker 1: know how to operationalize it. How do you how do
Speaker 1: you make a part of day to day policy? It's
Speaker 1: over value and I um sitting on television talking about
Speaker 1: it if you actually had the job. How do you
Speaker 1: How do you spot irrational exuberances from harmless exuberance? How
Speaker 1: do you spot the telco debt bubble which nearly did
Speaker 1: bring down banks in the early zeros, from the dot
Speaker 1: com equity bubble which didn't. Frankly, Paul the heart of this,
Speaker 1: and I go back to Merwyn King's historic speech in Scotland,
Speaker 1: which I thought was an early financial crisis landmark. But Paul,
Speaker 1: what is so important here is the theory of a
Speaker 1: central bank somehow getting out front of being expost or
Speaker 1: being ex anti. Are we delusional that we think central
Speaker 1: banks can get out front of economic trends, economic data,
Speaker 1: in the behavior of an economic system. We'd be delusional
Speaker 1: to put all our chips on that. Yeah, sometimes they
Speaker 1: can do that. I mean, I've just criticized Alan Greenspan,
Speaker 1: but Alan Greenspan did a good job in spotting the
Speaker 1: uplifting productivity in the late nineties and the early zero
Speaker 1: Sometimes you get that right, but you can't rely on it,
Speaker 1: Which comes back to me, we are not going to spot,
Speaker 1: or we cannot rely on spotting where the next crisis
Speaker 1: will come from and how bad it will be. All
Speaker 1: we can do is make the system more resilient, and
Speaker 1: that includes vitally being able to cope with failure. So
Speaker 1: there should be much more attention um in all of
Speaker 1: these programs on how are plans going to make the
Speaker 1: big banks and dealers resolvable so that we can wind
Speaker 1: them down or recapitalize them in a crisis, rather than
Speaker 1: turning to the taxpayer. And I think it's your responsibility
Speaker 1: both of you to sometimes make that sexy. People might
Speaker 1: be aren't going to be good at making that sexy.
Speaker 1: People like you are good at making at sexy, and
Speaker 1: you should try. Then. Well, I can tell you that
Speaker 1: the foreign years that I've done this show, nobody has
Speaker 1: told me that baky gets sexy. Joining us, Christmas Santi
Speaker 1: of Casanti Investments, yellmen, I own I renew this as
Speaker 1: well from Bloomberg, who wrote so many of our important
Speaker 1: stories on banking, on shadow banking, and she is timeless.
Speaker 1: She has not aged a moment since two thousand and eight.
Speaker 1: Susan Latt joins us from Washington with Mackenzie. Susan, congratulations
Speaker 1: on your fourteen page jewel on what happened and what
Speaker 1: didn't change? Tell us from Mackenzie Global Institute what is
Speaker 1: not changed, Well, what's not changed is that the world
Speaker 1: still has a lot of debt. It's a different kind
Speaker 1: of debt. It's taken out by governments and corporations as
Speaker 1: time instead of households. But after all of the tumult
Speaker 1: of two thousand and eight, we really expected that there
Speaker 1: would be what we call deleveraging or debt reduction, and
Speaker 1: instead we've got seventy two trillion dollars more debt than
Speaker 1: we had back then within this So this goes back,
Speaker 1: of course to one of the great books of this era,
Speaker 1: the Reinhardt and Rogoff effort. This time is different. The
Speaker 1: two professors don't make a distinction. They say, you've got
Speaker 1: to add private debt to public debt. When you add
Speaker 1: those two together, how ugly is the picture. Well, it's
Speaker 1: debt is higher in the United States, in the UK
Speaker 1: and Ireland and Spain than it was on the eve
Speaker 1: of the crisis. And I think of those as sort
Speaker 1: of the core crisis countries that had very over indebted
Speaker 1: household sectors and real estate bubbles that ended very badly.
Speaker 1: Um in the rest of the world that was not
Speaker 1: at the epicenter of the crisis, all forms of debt
Speaker 1: have continued to grow. Um. In Canada, our neighbors to
Speaker 1: the north, the land of very sound banking, their household
Speaker 1: debt is now at the same level as the US
Speaker 1: was back in two thousand and seven. When you look
Speaker 1: at developing countries, the change has been even more dramatic.
Speaker 1: And this is why now we're having problems in Turkey
Speaker 1: and Argentina, UM and other countries that were able to
Speaker 1: borrow because interest rates were so incredibly low, investors were
Speaker 1: willing to take a little bit higher risk to get returns,
Speaker 1: and so emerging markets, both companies and governments were able
Speaker 1: to borrow UM at unprecedented levels. Now as we look
Speaker 1: forward to rising interest rates UM and combined with in
Speaker 1: some countries unsound macroeconomic policies, we're going to see some problems. Yeah,
Speaker 1: where are we going to see problems? Susan? If you
Speaker 1: look at the spaces which may be more more vulnerable
Speaker 1: today than they were on the eve of the Lehman collapse,
Speaker 1: where is it well, in developing countries, it's always a
Speaker 1: combination of too much dead and then combined with some
Speaker 1: macroeconomic shocks. So in Turkey we've seen the lira plunge
Speaker 1: nearly fift since the start of the year, and a
Speaker 1: lot of their debt is in foreign currency, So a
Speaker 1: company that was paying a certain amount on debt service
Speaker 1: now is paying nearly double what they were if they're
Speaker 1: earning local currency revenues. Same problem in Argentina, which just
Speaker 1: asked for an I m F bailout. So we will
Speaker 1: see some tremors. Um, I think in emerging markets as
Speaker 1: we look ahead beyond that in the US and in Europe,
Speaker 1: I think that the troubles are more specific pockets, for
Speaker 1: instance US retail, But overall the picture doesn't look so bad.
Speaker 1: Um Yamen. Three, your your reporting. So Tom and I
Speaker 1: have been asking a lot of guests. You know, first
Speaker 1: of all, what the consequences have been from the financial crisis,
Speaker 1: And I've heard everything from you know, this was actually
Speaker 1: the stepping stone of populism because of the central bank
Speaker 1: action to banks being overregulated. What do you see as
Speaker 1: as the kind of definitive consequence of the financial crisis
Speaker 1: and the living collapse? I mean, the banks have definitely
Speaker 1: been regulated more and overregulated. That's a debate. You know
Speaker 1: that the banks say they're overregulated. Some critics say they're
Speaker 1: still not regulated enough, but they're definitely more regulated, which
Speaker 1: means they have their they're safer. After the crisis, you
Speaker 1: know a lot of regulation worldwide, not just US, Europe
Speaker 1: but everybody. Bossil Committee in Switzerland they did increase cap requirements,
Speaker 1: could it requirements, all kinds of things that make the
Speaker 1: banking systems safer, which meant things shifted to shadow banks
Speaker 1: a little bit. Shadow banks, they're everything that is not
Speaker 1: a bank, but that's still you know, is involved in
Speaker 1: the landing, So that that's that's an area that's harder
Speaker 1: to monitor. Regulators known less about it. They pay more
Speaker 1: attention to it. They didn't before. They pay more attention
Speaker 1: to it. But you know, and there have been political
Speaker 1: and economic repercussions as well, inequality rising everybody. A lot
Speaker 1: of analysts has say that's because of what happened after
Speaker 1: the crisis, which is the easy monitary policy that lowered
Speaker 1: interest rates and and and bought trillions of dollars of
Speaker 1: bonds by the FEDS and and other central banks European, Asian,
Speaker 1: and so all these things. You know, it has changed
Speaker 1: the world. We have we have risks shift from from
Speaker 1: the maybe the banking system to other corners of the
Speaker 1: financial system. You know, so the dangers are still there
Speaker 1: as as don't want saying there's so much more debt
Speaker 1: that it's clearly not safe enough in the world. And
Speaker 1: then you and Mark Pittman let our coverage on this
Speaker 1: what was going on at the time, it was hugely
Speaker 1: forensic reporting as well. And part of that forensic reporting
Speaker 1: is whether the banks from where you sit. Do we
Speaker 1: need greater bank concentration in America or do we need
Speaker 1: to diffuse the two big defails that great Andrew Ross
Speaker 1: Sorkin phrase, Do we need to diffuse the two big
Speaker 1: defails to the regional banks? I felt, you know that
Speaker 1: when I came to the US five years ago, I
Speaker 1: thought there were too many little banks around the country.
Speaker 1: And because there were, there were one my bank, my
Speaker 1: first bank in the US, Wayne County National Bank, had
Speaker 1: one branch, even if it didn't have to um. But then,
Speaker 1: you know, as I've covered banking in this country and
Speaker 1: around the world, I've looked at banking systems around the world.
Speaker 1: I've realized that, of course smaller banks. The biggest advantage
Speaker 1: of having all those smaller banks is that risk is
Speaker 1: spread out. You know, one bank fails, we have FD
Speaker 1: if they see if they takes care of him. But
Speaker 1: so the big banks are threatening, and it's always tough
Speaker 1: to to make sure that their risks are not too
Speaker 1: much and when they fail. Can I got to make
Speaker 1: some money out of Chris? Can you buy the banks
Speaker 1: in which flavor of banks is where the value is?
Speaker 1: I think it can time, But but I get an
Speaker 1: overall feeling in this conversation that we're talking about the
Speaker 1: last crisis almost like talking about would imagine old line.
Speaker 1: That's the theme today, Chris get But but where is
Speaker 1: the weak point? It's probably not going to be the
Speaker 1: big US banks. I I look at emerging markets, I
Speaker 1: look at where the stress points are today, and yeah,
Speaker 1: we have more debt, but their GDP is a little higher.
Speaker 1: It's it's China that's really levered up. So that's a
Speaker 1: big concern, and we've nationalized that. They're taking it from
Speaker 1: the private sector moving into the public sector, which is
Speaker 1: exactly what we wanted to do. Frins, right, Yeah, Susan.
Speaker 1: So one of the you know, we had Paul Tucker,
Speaker 1: deputy former Deputy Governor of the Bank of England, and
Speaker 1: he was saying, what we should really be watching out
Speaker 1: for is shadow banking in the US and China. What
Speaker 1: do we do? What should we do with shadow banking? Well,
Speaker 1: shadow banking by a definition is always a bit of
Speaker 1: a troublesome area because we just don't know a lot
Speaker 1: about it. So at this point in the United States,
Speaker 1: half of all new mortgages are coming from non bank
Speaker 1: entities UM and those mortgages are going largely into Ginny May,
Speaker 1: which is the third government owned mortgage securitizer that you
Speaker 1: don't hear a lot about. So that's definitely an area
Speaker 1: worth watching in the US. But I'll tell you what's different,
Speaker 1: and maybe I'm just always an optimist, but there are
Speaker 1: some positive changes in the financial system. For one, we
Speaker 1: don't have the trillions and trillions of dollars of derivatives
Speaker 1: and collateralized dead obligations CDEO squares credit default swaps that
Speaker 1: were built on the U S subprime mortgages, and that's
Speaker 1: what allowed UM, a small corner of the U S
Speaker 1: mortgage market, uh to then create this global damage and
Speaker 1: you know, throw the world into a global recession. All
Speaker 1: of that has disappeared, so that's very good news. So
Speaker 1: the risks that are out there could create losses, but
Speaker 1: it's not gonna have the ripple effects that we saw UM.
Speaker 1: In China, they've got a different story altogether. Talking to
Speaker 1: me about China season quickly sorry. Uh. So, China has
Speaker 1: levered up, as was mentioned. The good news for at
Speaker 1: least the US of the world is that all of
Speaker 1: that debt is coming from Chinese investors in Chinese banks,
Speaker 1: So if there were to be a crisis, it's going
Speaker 1: to be a domestic financial crisis within China. Now it
Speaker 1: doesn't have obvious international repercussions through financial channels. Of course,
Speaker 1: it's the world's second largest economy, so if China's growth
Speaker 1: were to slow down, that would affect lots of countries
Speaker 1: around the world. We're thrilled to develop that conversation this
Speaker 1: morning with Jean call Is, a former president of European
Speaker 1: Central Bank. Were honor that Mr Tuche could join in
Speaker 1: US and joining us as well the great euro optimist
Speaker 1: Eric Nielsen of unic Credit. When Europe was flat on
Speaker 1: its back. Nielsen was pounding the table next to Francine
Speaker 1: in London, saying, no, Tom, it's not that grim. Let's
Speaker 1: start with Mr Nielsen. We're supposed to start with Mr Triche,
Speaker 1: but Eric, I'm gonna start with you. Brief Mr Triche
Speaker 1: on the state of Europe right now. Is at euro
Speaker 1: sclerosis or Eric Nielsen? Is it a Europe of growth?
Speaker 1: I think it's uh, it's by far closer to the
Speaker 1: latter point you made Europe of growth. We have had
Speaker 1: years of one and a half to two percent growth
Speaker 1: not as much as you kind of would wish. But
Speaker 1: but if you look at it in per capita terms,
Speaker 1: we're doing basically as well as the US, and certainly
Speaker 1: if you look at for ninety of the population, because
Speaker 1: in America the growth really sits for the top ten
Speaker 1: and and we don't have the same income distribution issues
Speaker 1: as they have. Mr Trouchet, where us through this half far?
Speaker 1: And yes we'll talk about brutal moves in the m
Speaker 1: but Mr Trichet on Lehman, one of the great observations
Speaker 1: interview to interview is that the europe banking system is
Speaker 1: behind the United States system. What does European banking need
Speaker 1: to do to modernize to catch up with what the
Speaker 1: giants of the United States are doing. Of course, you're
Speaker 1: absolutely right. There is a big domination of the investment
Speaker 1: bank in New York and banks in the US in particular,
Speaker 1: which is very part toxical, because after all, the crisis
Speaker 1: was born in Wall Street. The epicenter of the crisis,
Speaker 1: of the big big crisis, which is as gray, wasn't
Speaker 1: as gray as the twenty nine thirties in the twentieth century,
Speaker 1: is really born in the US. But what you have
Speaker 1: to get in mind, is that there is a big
Speaker 1: structural difference between the US and Europe. In the US,
Speaker 1: at the moment of the birst of the crisis, the
Speaker 1: financing of the U S economy was made through banks
Speaker 1: with only twenty five of the final SINGE and through
Speaker 1: markets with seventy five. It is it was exactly the
Speaker 1: reverse in Europe, twenty five for the markets, seventy five
Speaker 1: percent of the financing for the banks. And that, of
Speaker 1: course is the first explanation because the recapitalization of banks
Speaker 1: in Europe was much more costly in terms of percentage
Speaker 1: of GDP than it was the case in the United
Speaker 1: States of America. There are many reasons for those differences.
Speaker 1: One important reason is the existence of Freddie mac and
Speaker 1: Fannie May, which we are mentioned previously in On Your Skin,
Speaker 1: and that explains why a very large part of the
Speaker 1: financing of the U. S economy comes out of I
Speaker 1: would say, see my public institution, and not through the banks.
Speaker 1: But that being said, of course, the European have a
Speaker 1: lot of hard work to do, and as you know,
Speaker 1: structural reforms of first importance have been decided, including the
Speaker 1: Single Supervision Authority, with the ultimate decision taken by the
Speaker 1: central banks, so the European where at I would say
Speaker 1: disadvantage in terms of structural difference with the US. It
Speaker 1: took a number of decisions, and I'm very much on
Speaker 1: the side of the optimism that was explaced by the
Speaker 1: previous speaker, Mrs the concern at the time when Lehman collapses,
Speaker 1: and actually market participants overall, regulators, even central bankers to
Speaker 1: some extent, did not realize the intercondectedness of the banking system.
Speaker 1: What do we know about the banking system now? Is
Speaker 1: there a danger that actually we could go back to
Speaker 1: that oh eight financial crisis. Well, what we know is
Speaker 1: that we have decided to reinforce considerably the resilience of
Speaker 1: the banks at a global level and through appropriate institutions
Speaker 1: in Basil, in particular with the backing of the G twenty.
Speaker 1: So a lot has been done to reinforce resilience. But
Speaker 1: that does not that does not suggest that if we
Speaker 1: had a big new shock, we wouldn't have contation. And
Speaker 1: I thing that this is one of the emerging property
Speaker 1: which comes out of what you just said, the generalized
Speaker 1: interconnectedness not only between institutions, but between markets and between economies.
Speaker 1: At a global level. So that is that is suggesting
Speaker 1: that we must be very prudent, very cautious in all respect.
Speaker 1: And I must confess I am not that toron kill
Speaker 1: myself when I look at the overall global indebtedness which
Speaker 1: continues to grow. When we know that the crisis came
Speaker 1: from many many causes. In particular, of course, one of
Speaker 1: the main cause was the indebtedness public and private at
Speaker 1: a global levels. This is an important point. Indebtness, where
Speaker 1: is it globally and are you talking about shadow banking?
Speaker 1: To two I would say, go to the bottom line.
Speaker 1: From two thousand up to two two eight, we had
Speaker 1: a very big augmentation of overall indebtedness public and private
Speaker 1: coming from the advanced economy ten pc for the em
Speaker 1: from the emerging economy. After the crisis, we continue to
Speaker 1: grow leverage at a global level, public and private, not
Speaker 1: not exactly the same in various countries. And the big
Speaker 1: difference is that it's this global leverage augments because of
Speaker 1: the advanced economy and because of the emerging economy. So
Speaker 1: that makes an enormous difference. Still, if there is something
Speaker 1: like a global economy, if the global indebtedness as a
Speaker 1: percentage of global GDP is a good indicator of vulnerability.
Speaker 1: Then we are in a very vulnerable situation. Mr. And
Speaker 1: I want to go to your engineering background here and
Speaker 1: talk about leakages, which is Newtonian physics. But let's go
Speaker 1: leakages within the financial system. Jean Collatricia, one of the
Speaker 1: great themes of our lookback of ten years has been
Speaker 1: the price in the cost of quantitative easy. What is
Speaker 1: the impact of these balance sheets that Draggy Powell and
Speaker 1: others have to face. What is the impact of those
Speaker 1: balance sheets, and particularly Mr Tricia on emerging markets. Well,
Speaker 1: first of all, it seems to me that the central
Speaker 1: banks did what they had to do. They were in
Speaker 1: a crisis, which had not the central banks been bold
Speaker 1: and swift, we would have had a great depression and
Speaker 1: we would have been in a dramatic situation for all
Speaker 1: our fellow citizens in all advanced economy. So the banks,
Speaker 1: the central banks did what they had to do because
Speaker 1: the situation was absolutely dramatic. And of course when the
Speaker 1: situation is much less dramatic, they have to withdraw progressively,
Speaker 1: which is being done successively because the sequence of events
Speaker 1: we are not the same in the US and in Europe.
Speaker 1: But we you see that they are progressively withdrawing so
Speaker 1: that there is nothing to say about that. It seems
Speaker 1: to me that the central bank did their job, and
Speaker 1: in any case, the counter factual would have been much
Speaker 1: more dramatic. That's absolutely obvious. Now it's true that there
Speaker 1: is not on these central banks. They are not the
Speaker 1: only game in town. You also have, of course, all
Speaker 1: the other partners, private sector, the other institutions, the governments
Speaker 1: under parliament, and there I have to say things we
Speaker 1: are not are not done as they should. In my opinion,
Speaker 1: structural reforms are lagging, and the most of the advanced
Speaker 1: economy and also the emerging economy uh not doing a
Speaker 1: good job in terms of fiscal policies, in terms of
Speaker 1: precisely augmentation of leverage in the public data and so forth.
Speaker 1: So we really have to mobilize old partners to be
Speaker 1: much more aware of the fact that if we want
Speaker 1: to avoid the repetition of the drama which took place
Speaker 1: ten years ago, we have to step in. This is
Speaker 1: a special moment for us in economics. We've done that
Speaker 1: with Milton Freeman and Robert Lucas, we did that with
Speaker 1: Stiglets and Rogoff Otabos and now joining Professor Rogoff of
Speaker 1: Harvard University. Marianna Masakado. She is at the University College
Speaker 1: London and a very very important and controversial book out
Speaker 1: The Value of Everything. I'm gonna make it as clear
Speaker 1: as I can. The first forty pages of this book
Speaker 1: should be read by every single economic student worldwide. Ken Rogoff,
Speaker 1: as it traces the history of economics. Mariana, I want
Speaker 1: to go to Ken on the Value of Everything. What
Speaker 1: she leads with here Ken is history, matters and economics
Speaker 1: from mercantilism, not the neo mercantilism of Trump, the mercantilism
Speaker 1: to Jevons and onto the modern age. Are we teaching
Speaker 1: enough Massicado history in our economics? No, we're not. I
Speaker 1: say we're not. That you'd be people now think economic
Speaker 1: history was something before two thousands. EXCEP trying to tell them,
Speaker 1: you know that, you know what people thought about these
Speaker 1: issues for a long time. Our ancestors weren't so full. Uh.
Speaker 1: The rap, Marian is the idea here that you are
Speaker 1: touting some form of a Marxist agenda, and yet a
Speaker 1: careful read of your book is no, that's not the case.
Speaker 1: Give us the nuance here of inequality as you see it.
Speaker 1: So what I argue is basically that value used to
Speaker 1: be hotly debated between economists. Today we have basically one
Speaker 1: theory of value that passes for econ one oh one
Speaker 1: and the value debates. Angeley has actually just gone to
Speaker 1: business school. So the word is talked about in terms
Speaker 1: of shareholder value, value chains, shared value. But we have
Speaker 1: a problem in economics that we actually have this tautology.
Speaker 1: We measure value by basically prices, which are supposed to
Speaker 1: reveal value. But that's actually what allows someone like Lloyd Blankfeed,
Speaker 1: one year after Layman that we were just talking about two,
Speaker 1: with a straight face, say that Goldman sax workers are
Speaker 1: the most productive in the world. Because that's a Harvard faculty,
Speaker 1: we won't go there. Um. And so this is also why,
Speaker 1: by the way, yesterday the head of Nostrom Pharmaceuticals, again
Speaker 1: with a straight face, said that he had the moral
Speaker 1: imperative to increase the price of the antibiotic that his
Speaker 1: company is producing by right to please the shareholders. So
Speaker 1: when we focus so much on, you know, maximizing shareholder value,
Speaker 1: which many people have criticized, but they haven't, I think
Speaker 1: on the full way to really debunk the underlying period
Speaker 1: of value that maximizeholder value assumes. Yeah, good morning from London.
Speaker 1: It's frenzy. How would you measure it then? I mean,
Speaker 1: you know, forget shareholder value. It's a price that you
Speaker 1: can measure with minimum wage, with everything. So if it's
Speaker 1: not a price that you want to fixate on, how
Speaker 1: do you measure everything that's around us. Well, it's funny
Speaker 1: because Tom just mentioned up marks. But you know, we
Speaker 1: could also go back to Adam Smith and David Ricardo.
Speaker 1: They actually did something that in some ways is in
Speaker 1: the popular debate today. They really worried about production, the
Speaker 1: division of labor, mechanization and the fact that this had
Speaker 1: on the profit wage relationships. So they had an understanding
Speaker 1: of value that was tied to the objective conditions of production.
Speaker 1: Forget whether it was the labor theory value or something else,
Speaker 1: but it had a fundamental connection to how we actually
Speaker 1: produce goods, how we organized production itself again through the
Speaker 1: division of labor. Adam Smith pin factory, and their understanding
Speaker 1: of value actually then determined their understanding of price. Today
Speaker 1: we have the reverse logic, we start with price and
Speaker 1: we assume that reveals value. So it's not that we
Speaker 1: should throw prices away, that's not the point, but that's
Speaker 1: that that's very different from thinking that prices themselves, um
Speaker 1: are are or what value is? I we just think
Speaker 1: of how we measure GDP. You know, it doesn't actually
Speaker 1: include all sorts of things that we know we're valuable,
Speaker 1: from care work to you know, if you marry, you're cleaner.
Speaker 1: GDP goes down um because something that was being paid
Speaker 1: for all of a sudden perhaps isn't. When we pollute,
Speaker 1: GDP goes up because we have to clean that pollution.
Speaker 1: So but you know, this problem is somehow has actually
Speaker 1: been talked about by feminists and environmentalists. What we haven't
Speaker 1: talked about is how GDP is full of rent. There's
Speaker 1: a difference between rents and profits and when when we
Speaker 1: have a subjective theory of value, and by that I
Speaker 1: mean really based on preferences again, so it's preferences and
Speaker 1: prices that are revealing value, then it becomes really easy
Speaker 1: for rent extraction and I would call value extraction activities
Speaker 1: to present themselves as value creation activities simply because they
Speaker 1: have prices and so on a concrete level, what does
Speaker 1: that change? So if we measure it differently, does it
Speaker 1: mean that we talk more about redistribution. Does it mean
Speaker 1: that actually would help with inequality and therefore with populism. Well, first,
Speaker 1: and I'd say the first most, foremost, we should admit
Speaker 1: that value is created collectively. So just coming back to
Speaker 1: the pharmaceutical drugs, which is really concrete, because people do
Speaker 1: die when they can't afford the drugs for such essential
Speaker 1: medicines like antibiotics. You know, in the United States, the
Speaker 1: National Institutes of Health spend over thirty two billion a
Speaker 1: year on the research that actually leads to these drugs. Now,
Speaker 1: the prices of these drugs should obviously reflect the contribution
Speaker 1: of the taxpayer, which is enormal in the higher risk stage.
Speaker 1: A few years ago, there were a set of doctors
Speaker 1: at Strong Memorial Hospital in Rochester, New York, including your father,
Speaker 1: who had the government support of medicine. She's saying in
Speaker 1: her book it's evaporated. I mean, essentially, we're not using
Speaker 1: government like we used to use government in the days
Speaker 1: when Strong, where your father was, was a massive research center.
Speaker 1: Is that true? First, honestly, congratulations on a wonderful book,
Speaker 1: and I agree people people should read it. Um you know,
Speaker 1: there are two separate issues here. One, I think is
Speaker 1: the rise of monopoly in the economy, which is producing
Speaker 1: the rents that Marianna is talking about the failure of
Speaker 1: economists to define antitrust policy in this new wage of ideas.
Speaker 1: How do you define whether Amazon's monopoly Google to monopoly
Speaker 1: They obviously are an economists haven't figured out a good
Speaker 1: way to say it. A separate issue is the size
Speaker 1: of government in a world where trade, where technology is
Speaker 1: producing things that always has but faster, and taxes and
Speaker 1: transfers need to compensate for that, or payments and kind
Speaker 1: in the case of health care, schooling is our next
Speaker 1: guest poses that this question was the financial crisis wasted
Speaker 1: writing a project syndicates him and how would say these
Speaker 1: shares these thoughts. While financial regulation has been materially strengthened,
Speaker 1: which is clearly the most important thing, it's implementation remains
Speaker 1: in the hands of a patchwork quilt of national agencies.
Speaker 1: And that's how Davis joins us now here on set
Speaker 1: in London. Very good morning to you and thanks for
Speaker 1: joining us. So when you refer to this patchwork quilt.
Speaker 1: Can we talk about the world in one conversation here
Speaker 1: or do we have to break this conversation up into two,
Speaker 1: Because of course the US did its thing on regulation,
Speaker 1: the UK did something different. I mean in the UK
Speaker 1: a lot of the power was put into the Bank
Speaker 1: of England, wasn't it. Yes? And the main point that
Speaker 1: I was making, well, I think there are two two
Speaker 1: main points. One is about the United States specifically, and
Speaker 1: there I think people should pay more attention to what
Speaker 1: Paul Volca has been saying. Paul Boker, in my long
Speaker 1: experience of financial markets, is usually right, and he has
Speaker 1: pointed out that all of the analyzes of the crisis
Speaker 1: points to the fact that the US regulatory system was
Speaker 1: vulcanized and it was very hard to produce one coherent view.
Speaker 1: And that remains the case. The US remains the one
Speaker 1: country on the planet which regulates cash, equities and derivatives
Speaker 1: by different regulators. It's the one country where there is
Speaker 1: a multiplicity of banking agencies, the Federal Reserve, the o
Speaker 1: c C, the fd i C, the state regulators, and
Speaker 1: where almost nothing has been done since the financial crisis
Speaker 1: to rationalize that system. There's a second point at global level,
Speaker 1: and I think the two dimensions of that one that
Speaker 1: Gordon Brown has made today, which is, at the time
Speaker 1: of the crisis in two thousand and eight nine, there
Speaker 1: was a coming together globally of people who saw the
Speaker 1: world in the same way, who understood each other's problems,
Speaker 1: and who acted decisively. Can we say that the basis
Speaker 1: of international trust is there at the moment with the
Speaker 1: war of words between Donald Trump and the EU, the
Speaker 1: UK splitting from the EU, not exactly warm relationships with
Speaker 1: Russia and China on these rants, and so would there
Speaker 1: be the basis for common agreements internationally if there was
Speaker 1: another crisis? And is this a real fear then within
Speaker 1: financial services? Because I saw those words from Gordon Brown today,
Speaker 1: I also spoke to Sir John give X of the
Speaker 1: Bank of England, of course, was there during the crisis,
Speaker 1: and he made the same point. He said, George Bush
Speaker 1: Junior at the time was President President George Bush, and
Speaker 1: he was the one who approved some of the fed's action,
Speaker 1: even though he said Congress stood in the way and
Speaker 1: could we rely on the President of the United States
Speaker 1: to allow the FED to do what was needed in
Speaker 1: terms of cooperation? How deep seated. Is this fear then
Speaker 1: in financial services here, I think people are concerned and
Speaker 1: they're also concerned about what weapons the authorities now have
Speaker 1: because interest rates remain extremely low. At the time, if
Speaker 1: you remember, there was quite a lot of headroom for
Speaker 1: the Federal Reserve and the Bank of England the ECB
Speaker 1: to bang interest rately quick down and to engage in
Speaker 1: a large amount of QI. Well, they're still all over
Speaker 1: the financial markets through QUI and in the straight so
Speaker 1: hey they have started to go up in a bit
Speaker 1: more in the US than here in Europe. Nonetheless, there's
Speaker 1: not much weaponry left in that arsenal, so I think
Speaker 1: those two concerns are linked to Sir Howard, good morning.
Speaker 1: I want to talk here a little bit about Lehman,
Speaker 1: and then we're gonna have to migrate to Turkey. With
Speaker 1: the movement and lira that we see in Turkish lear. Right,
Speaker 1: let's bring up the interdaan Leer. I really want to
Speaker 1: keep up to date on this worldwide Mr Arijuana speaking,
Speaker 1: and we've got a real explosion in Turkish lear as
Speaker 1: six thirty six out to sixty two. Howard, back to Lehman.
Speaker 1: If we could you took a commanding heights position as
Speaker 1: ahead of the f s A before the crisis more
Speaker 1: than anyone else. I know, you were the one that
Speaker 1: was supposed to maybe see it coming. By no means
Speaker 1: all right, were you wrong in your insight at the time.
Speaker 1: But to me, it was the amplitude that surprised Howard Davies,
Speaker 1: the amplitude that surprised Noil Rabini and others. What did
Speaker 1: we get wrong at the time about scope and scale? Well, look,
Speaker 1: I don't want this to be an exercise and self justification,
Speaker 1: but just to be clear, I did leave the regulator
Speaker 1: in two thousand and three, and if you look at
Speaker 1: the explosion of leverage, it took place between two thousand
Speaker 1: and three. Johnson has nailed this. You're absolutely right in June,
Speaker 1: in June of oh four, we saw this, So, sir
Speaker 1: Howard very clearly or tell us about that moment when
Speaker 1: leverage exploded. Well, what was surprising, and I think we
Speaker 1: did see the beginning of it in two thousand and three,
Speaker 1: was the arrival on the scene of derivatives like CDs
Speaker 1: in particular, but also the tranching of securities which allowed
Speaker 1: people to magnify credit. And as you know, the these
Speaker 1: c d os and CDOs squares had just started to
Speaker 1: come on the scene, and I did comment at the
Speaker 1: time that I was concerned about the toxic waste, which
Speaker 1: I've described a rather vivid phrase. I guess at the
Speaker 1: bottom of this system, whereby the lower tranches of the
Speaker 1: securitizations were nonetheless being traded as if they were fairly
Speaker 1: solid assets. Indeed through some magical process though some of
Speaker 1: them were given triple A status by the rating agencies.
Speaker 1: So I think we did see the germs of that,
Speaker 1: but the way in which it exploded over the next
Speaker 1: three or four years was a surprise to everyone. And
Speaker 1: I think looking back, you have to say, well, should
Speaker 1: monetary policy have been tougher, because monetary policy is, after
Speaker 1: all the most effective thing, And I think that in retrospect,
Speaker 1: interest rates in the U S should have risen more,
Speaker 1: and should regulators also have started to embrace these derivatives.
Speaker 1: And I think that actually goes back to my Balkanized
Speaker 1: regulation point, because as we know now, there were lively
Speaker 1: debates in the S between the FED and the o
Speaker 1: SEC and the CFTC and the SEC who couldn't agree
Speaker 1: on quite how these derivative products should be regulated. And
Speaker 1: I think that's the point, like coming back to my
Speaker 1: first point that Paul Volkers making. Has that changed and
Speaker 1: you say, he's right, we should to him, we are
Speaker 1: honored to have a morning with Brad Hints. I think
Speaker 1: who's stayed with us through TV and staying with us
Speaker 1: through radio as well, Brad Hints the former Lehman CFO
Speaker 1: and n Y you professor joint us now can monitor Brad,
Speaker 1: good morning. Let's look back ten years solvency crisis or
Speaker 1: aquidity crisis? What did that bank actually face liquidity, no
Speaker 1: question about it. You lost repo which you lost commercial paper.
Speaker 1: Your clients were selling back long term debt. Your counterparties
Speaker 1: were asking for more collateral um. Typically, financial institutions don't
Speaker 1: die for lack of equity, They die because of a
Speaker 1: funding run. What is the response ten his on look like?
Speaker 1: Because what strikes me is amazing ten years on is
Speaker 1: there's still huge debate about whether the response was the
Speaker 1: right response from regulators, from government officials to allow this
Speaker 1: bank to fail. There was a mistake to to let
Speaker 1: the let it fail. The you you scared the market,
Speaker 1: and in scaring the market, it was that uncertainty which
Speaker 1: led to the next thing, right, which was everybody pulls
Speaker 1: in their lending, everyone pulls in their counterparty risk, and
Speaker 1: you have a global credit reduction. Did it fail because
Speaker 1: there wasn't a Jamie Diamond there to write the check
Speaker 1: because he was preoccupied with a previous failure bear Stearns?
Speaker 1: Was it just somebody? There wasn't somebody else equivalent? In
Speaker 1: other words, there weren't there There wasn't There was a
Speaker 1: marriage partner, Yeah, there was all or a divorce partner,
Speaker 1: whatever you want to call it. But I don't know
Speaker 1: where I got that. But but but Brad Mr Diamond
Speaker 1: was exhausted from bailing out bear Stearns, and there was
Speaker 1: no obvious candidate to take out Lehman. Is that right? Well,
Speaker 1: you you had Barclay's at one point, right, you had
Speaker 1: UM and and and certainly you had Bank of America
Speaker 1: as another name. We we've all read the history on
Speaker 1: this that there were a number of things going on.
Speaker 1: I think the the issue you have as a management
Speaker 1: team at Lehman that was looking at this versus the
Speaker 1: history of other liquidity events. Right. As a result, their
Speaker 1: balance she continued to rise through nineteen through two thousand eight. Right,
Speaker 1: you said earlier, this was an opportunity for Mr. Full
Speaker 1: That's how they looked at it. Well, in terms of
Speaker 1: liquidity events are an opportunity in fixed income. In essence,
Speaker 1: you're buying good assets at a troubled price. If you
Speaker 1: have enough funding to make it through the crisis, you're fine.
Speaker 1: Lehman had twelve months in their liquidity plan. And who
Speaker 1: would have guessed that a liquidity event in mortgage backs
Speaker 1: would swing across the entire credit market ultimately into the
Speaker 1: government mark. So you know, there was the the issue.
Speaker 1: I think we have an example. I mean, there's an
Speaker 1: example of Solomon Brothers um facing a liquidity event in
Speaker 1: the ninety nineties and their CFO put their raised their
Speaker 1: internal costs to fund to put their balance sheet into
Speaker 1: a nose dot shed assets and that bought hom time
Speaker 1: and they made it through that liquidity crisis. Had Lehman
Speaker 1: done the same thing, I think of what Goldman did.
Speaker 1: Goldman not only did they made a bet against it,
Speaker 1: but they also did not grow their balanche. Goldman pulled
Speaker 1: in their horns. Lehman did not. Leman and and and
Speaker 1: that was that that really set the stage as the
Speaker 1: as the markets became ever ill liquid. Lehman was stuck
Speaker 1: with a concrete side of its balanche. Its assets side froze,
Speaker 1: its liability side ran off, and you know, the end
Speaker 1: of the you know, the end of Lehman occurred. That
Speaker 1: the surprise was the FED right. Because the FED had
Speaker 1: taken action with Bear, and the FED had taken action
Speaker 1: by allowing the broker dealers to have excess to the
Speaker 1: to the discount window. The assumption among observers was the
Speaker 1: FED was going to make sure that this was orderly,
Speaker 1: and the Lehman balance failure was not orderly, and there
Speaker 1: was the problem. So let's pick up on that, and
Speaker 1: a final question, use the word panic. Officials now believe
Speaker 1: they have the structures, the regulations to allow for an
Speaker 1: orderly failure of a bank when it actually comes to it,
Speaker 1: if we ever have to face a crisis like this again,
Speaker 1: whether it's in ten years, twenty thirty years, wherever it is,
Speaker 1: do you actually see the government and officials applying the
Speaker 1: rules that they currently have to allow for an orderly
Speaker 1: failure of a bank? Ever? Again, in the United States,
Speaker 1: the the FED needs to be able to lend wherever
Speaker 1: they wherever there is a need they're they're tied up
Speaker 1: too much at this point. In essence, we've established a
Speaker 1: set of rules that will be just perfect in the
Speaker 1: last crisis, and they we don't know what the next
Speaker 1: crisis will be. I mean, what this It goes back
Speaker 1: to Badget, folks. For those of you are not keeping score.
Speaker 1: Badget was a London banker that uh in journalists who
Speaker 1: decided we have to be the lender of the last resort.
Speaker 1: If Mr Paulson was sitting here and Mr Guitner, they
Speaker 1: would state to you that they had a lender of
Speaker 1: last resort responsibility to bail out the system. Obviously they
Speaker 1: did that with an expanded balance sheet. In all that,
Speaker 1: in hindsight, how do we get forward as we look back,
Speaker 1: all with the luxury of hindsight, what's the key lesson
Speaker 1: ten years from now? What is the key lesson? What
Speaker 1: do we learn from ten years ago? It's going to
Speaker 1: be the key lesson when this happens ten years forward.
Speaker 1: You need you need a strong team like we had
Speaker 1: those uh the three gentlemen who who who ran the crisis,
Speaker 1: step up and put their own careers on the on
Speaker 1: the line. Had they sucked their head in the sand, this,
Speaker 1: you know we would have had it faced a depression.
Speaker 1: They didn't. They moved very very quickly. We can argue
Speaker 1: about whether Lehman was a mistake or an under resumation,
Speaker 1: but they clearly moved which and you can see it
Speaker 1: right to US economy. US economy has come back better
Speaker 1: than others. Red Hits, thank you so much, honor to
Speaker 1: have you with us New York University. If you are
Speaker 1: in Paris, you have to send someone to America b
Speaker 1: MP Perry, but three decades ago sent Jean eve Fion. Critically,
Speaker 1: he was involved in the b MP for this transaction
Speaker 1: and has done tours of duty in Los Angeles where
Speaker 1: he worked on his tennis game, in Chicago, where on
Speaker 1: Lake Michigan he went sailing a lot, and wandered over
Speaker 1: to New York to command the b MP Perry BA
Speaker 1: flagship in America. Johnny Fion joins us this morning. We
Speaker 1: are thrilled to have you here at this tumultuous time
Speaker 1: for banking. Much to talk about in the hour. First
Speaker 1: of all, what was a single lesson you've learned from
Speaker 1: the lemon tobacco? Well, by the way, thank you for
Speaker 1: having me. It's a pleasure to be here, and you're
Speaker 1: very well informed by the way my tennis game. Um.
Speaker 1: I think the first lesson was not all the crisis
Speaker 1: are predictable, and it was very well said before the
Speaker 1: world got a little bit caught by surprise, even though
Speaker 1: some signals were already there. I think the second dimension
Speaker 1: we all learned was I don't think we had collectively
Speaker 1: to reassessed the interconnectivity between the various uh you know,
Speaker 1: entities and countries, and the world was already very interconnected. Otherwise,
Speaker 1: I believe that the world today is so different from
Speaker 1: ten years ago. It was already said, um, you know,
Speaker 1: the banking industry specifically, it's better capitalized, as more liquid, uh.
Speaker 1: The stress the stress testing being implemented here in the
Speaker 1: United States now in Europe. I think I've provided a
Speaker 1: lot of improvements as well as all the work that
Speaker 1: has been done around living well resolution planning. I'm not
Speaker 1: saying this is a risk less I'm just saying it's
Speaker 1: a it's it's a very different governance at well. Up
Speaker 1: for American artists want to make their BNP very well.
Speaker 1: It's the dominant bank of France and with a huge
Speaker 1: European platform, a retail platform, but also an expanse of
Speaker 1: and early vision to Asia as well. And the message
Speaker 1: this week Jane has been that Lehman was opportunistic in
Speaker 1: trying to get out front and to do do do
Speaker 1: Your bank is the polar opposite. Are do you worry
Speaker 1: now that in other banks we're seeing too much opportunistic
Speaker 1: tone that could get them into trouble. You know, Tom,
Speaker 1: it's an excellent point. At the end of the day,
Speaker 1: it's sunny about sides, it's donny about business model. It's
Speaker 1: really about risk management, risk capitide, and risk identification, which
Speaker 1: I think the banking industry as a whole has made
Speaker 1: a significant progress to your point as it relates to
Speaker 1: be in PRIBA. What has worked well of the many
Speaker 1: years is UH diversification. Diversification in terms of geographical diversification Europe,
Speaker 1: European leader, America's were deeply involved here in Asia, but
Speaker 1: diversification as well in terms of product mixed and in
Speaker 1: terms of activity. If if I go to our platform
Speaker 1: here in the United States, UM, it's a diversified platform.
Speaker 1: As you just said. You know, we have retail, we
Speaker 1: have wholesale, retail is Bank of the West, UM, we
Speaker 1: have two and a half million clients. We do lending
Speaker 1: consumer finance wholesale based in New York is serving corporates
Speaker 1: UH domestically internationally sixteen thousand people and six billions sixteen
Speaker 1: thousand dependent the United I don't know that in the
Speaker 1: United experiencing Yeah, ivelean talk to me a little bit
Speaker 1: about whether the French bank differently to the Americans and
Speaker 1: so do you need to speak to your customer differently
Speaker 1: in terms of uh, you know, UH sixteen thousand people
Speaker 1: in the United States UH six billion of revenues. This
Speaker 1: is the largest balanciet a location uh for the bank
Speaker 1: after France. Then in terms of speaking to clients here,
Speaker 1: we we feel very part of the fabric of the
Speaker 1: U S. Having said that, UH or I think one
Speaker 1: of our differentiating factors here is we can serve clients
Speaker 1: domestically UH probably as well as any other banks in
Speaker 1: the product suite we have. But when it's time to
Speaker 1: cover them outside of the United States, let's say do
Speaker 1: capturizing acquisition financing for logeate log reates corporates in the
Speaker 1: urban market where we lead. This is where we probably
Speaker 1: can add even more contribution to the client base here.
Speaker 1: But to your point. From seeing UH based in London,
Speaker 1: I'm sure you see that. Conversely, we've been very active
Speaker 1: in taking US European clients into the deep US market,
Speaker 1: leveraging or large distribution capabilities, particularly that distribution capabilities in
Speaker 1: the United States and having an ability to raise you know,
Speaker 1: US or or capital here and and euro UH in
Speaker 1: on the other side of the Atlantic has has worked
Speaker 1: pretty well, while the Transatlantic flow and dynamic has been
Speaker 1: quite active over the last few years. But how will
Speaker 1: finance change over the next ten years? Is it to
Speaker 1: five ten years? Is it digitalization? Is it the way
Speaker 1: we work or is it the way that banks actually
Speaker 1: learn to each other? You mean you mean looking forward
Speaker 1: over exactly in the next ten years, how will finance change? Well,
Speaker 1: it's I love the question from seeing Think. At times
Speaker 1: I feel one year is a really long term for me.
Speaker 1: But I think said that, I believe that the the
Speaker 1: future of banking here. Obviously it's around business model, it's
Speaker 1: around serving clients, but it's I think it's around other
Speaker 1: dimensions that maybe we don't speak enough. I think, for instance,
Speaker 1: obviously the first UH dimension is a technology. It's automatization,
Speaker 1: it's electronification, artificial intelligence. I believe that technology, if it's
Speaker 1: well done, is going to provide a safer world. And
Speaker 1: the concept of low touch and high uch to serve
Speaker 1: clients more efficiently is happening. But this is part of
Speaker 1: the future. There is another dimension which I believe is
Speaker 1: very connected with what you do here at Bloomberg. This
Speaker 1: is sustainability. The banking industry as the real world to
Speaker 1: play in this field, to support the planet and the
Speaker 1: future of the planet better and I think to be
Speaker 1: really even closer to our clients value. This is really important.
Speaker 1: Because I was in Paris with Francine for the parents
Speaker 1: of Reeman and Courseworks, we should state that Michael Bloomberg,
Speaker 1: the owner Bloomberg and these radio and TV properties, was
Speaker 1: very much part of that agreement. Does the Paris agreement
Speaker 1: still stand? Even as President Trump says no, I believe
Speaker 1: the Paris agreement, you know, Cup twenty one, Cup twenty
Speaker 1: two still stands more than ever as you know, actually
Speaker 1: in a few days here there was going to be
Speaker 1: the sustainable a week from the United Nations. I think
Speaker 1: Michael Bloomberg, with his forearm, is going to be extremely active.
Speaker 1: My group CEO jama Fe will be in New York
Speaker 1: and we will be very proactive here. Listen, you love
Speaker 1: statistics and metrics, Tom and Francine. If you look at
Speaker 1: the world today, you have over twenty trillions of savings
Speaker 1: every year, new savings to reach the United Nations as
Speaker 1: as DJs you between quotes only need five to seven
Speaker 1: trallion a year to reach the objectives. That's very doable.
Speaker 1: But the finance industry as a real world to play here.
Speaker 1: This bank BNDPIE has been one of the very first
Speaker 1: global financial institutions to actually commit to the u n
Speaker 1: to provide over ten billion off financing. Links to sustainability
Speaker 1: seems to talk about here of BNP parabout Thanks for
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to
Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.
Speaker 1: I'm on Twitter at Tom Keane before the podcast. You
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio.