WEBVTT - Surveillance Special: 10 Years After the Crisis 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 0:00:14.000 --> 0:00:17.599 We bring you insight from the best in economics, finance, investment, 0:00:18.040 --> 0:00:23.560 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.640 --> 0:00:27.760 Bloomberg dot Com, and of course on the Bloomberg. We're 0:00:27.840 --> 0:00:30.400 joining us now is Paul Tucker. He's former Deputy Governor 0:00:30.520 --> 0:00:32.560 of the Bank of England. Well, his latest book is 0:00:32.600 --> 0:00:34.960 called Tom Unelected Power. I know this is going to 0:00:35.040 --> 0:00:38.280 make Tom's must real list to the quest for legitimacy 0:00:38.280 --> 0:00:41.800 and central banking and the regulatory state. Still with us 0:00:41.840 --> 0:00:44.320 Rupert Harrison of Black Rock and John Norman of JP Morgan. 0:00:44.360 --> 0:00:46.239 Where are your books? I need? I need books from 0:00:46.240 --> 0:00:48.960 everyone on set. Paul Talker, thank you for joining us. 0:00:49.000 --> 0:00:51.919 Congratulations on the book. First of all, when you look 0:00:51.960 --> 0:00:54.200 back to Lehman's when you look back at just you 0:00:54.200 --> 0:00:56.520 know that oh eight period, when did you first realize 0:00:56.520 --> 0:00:59.480 about the scale of how enormous it was what we 0:00:59.480 --> 0:01:02.200 were going through. I think when best Earns failed and 0:01:02.320 --> 0:01:04.720 was rescued. I recall a meeting at the Bank of 0:01:04.760 --> 0:01:07.720 England where I said that had it not been rescued, 0:01:07.760 --> 0:01:10.440 there would have been mayhem, And a month later one 0:01:10.480 --> 0:01:12.120 of the directors came back to me and said, that 0:01:12.160 --> 0:01:14.720 was quite a thing to say. Defend it, and so 0:01:14.920 --> 0:01:17.480 I did. I think the tragedy and I don't think 0:01:17.520 --> 0:01:20.400 anyone has said anything intelligent about this, and I'm not 0:01:20.440 --> 0:01:25.120 going to is the wasted six months between bes Starns 0:01:25.319 --> 0:01:29.200 and Lehman. Why on both sides of the Atlantic, weren't 0:01:29.240 --> 0:01:35.320 the big dealers, the big banks forced to deleverage in 0:01:35.360 --> 0:01:38.840 the wholesale market commitments in a controlled way rather than 0:01:38.880 --> 0:01:42.319 in their lending to the real economy. Why wasn't Lehman 0:01:43.160 --> 0:01:47.400 is reputed to have been debating an equity injection from Korea. 0:01:47.480 --> 0:01:50.680 Why didn't that happen? Why didn't the US authorities push 0:01:50.760 --> 0:01:52.760 them to do it? And there's too much discussion about 0:01:52.760 --> 0:01:55.200 all the liquidity measures that were taken, some of which 0:01:55.240 --> 0:01:57.640 I devised, and of course central bankers think they were 0:01:57.680 --> 0:02:01.680 quite good, and not enough discussion about out missed opportunities 0:02:01.720 --> 0:02:04.880 by supervisors and regulators. But why because they didn't understand 0:02:04.880 --> 0:02:07.040 the interconnected it or they didn't want to see it. 0:02:07.320 --> 0:02:10.200 I don't know why. I think it's implausible to say 0:02:10.280 --> 0:02:15.520 people didn't understand the interconnectedness. Loretta Mesta just said, um, 0:02:15.560 --> 0:02:18.480 that we learned things about the interconnectedness. I don't think 0:02:18.480 --> 0:02:21.240 we learned a great deal. If you go back and 0:02:21.280 --> 0:02:23.120 look at things that the FED, the b I S, 0:02:23.200 --> 0:02:26.520 the Bank of England said in the years before the crisis, 0:02:26.600 --> 0:02:30.280 people knew the system was so horribly interconnected that they 0:02:30.280 --> 0:02:33.440 wouldn't be able to understand how it would unravel. The 0:02:33.560 --> 0:02:37.840 mystery and it is a mystery, um is why people 0:02:38.200 --> 0:02:41.360 if you provide liquidity, you don't solve the ultimate problem, 0:02:41.480 --> 0:02:44.520 but you buy time. How was the time used by 0:02:44.600 --> 0:02:47.799 regulators and supervisors? I still I don't think we have 0:02:47.919 --> 0:02:51.000 a good answer to that question on either side of 0:02:51.040 --> 0:02:54.079 the Atlantic. Well, and the wonderful voices set that we 0:02:54.200 --> 0:02:56.720 heard before you came on. We had Loretta Master of 0:02:56.720 --> 0:02:59.600 the Cleveland FED, who is truly one of our best 0:02:59.639 --> 0:03:02.160 myth maticians, and all this, and I go to a 0:03:02.280 --> 0:03:06.040 chapter in your book the limits of design? Are we 0:03:06.200 --> 0:03:10.440 asking too much of central banking? If the system lacks up, 0:03:10.480 --> 0:03:13.520 as Lauretta talked about in at ten back look back, 0:03:13.760 --> 0:03:17.600 If the system locks up, is the correlations become so tight? 0:03:18.080 --> 0:03:22.519 Is there a limit to the design? Yes? Is the 0:03:22.600 --> 0:03:26.520 simple answer if you expect central banks and agencies like 0:03:26.720 --> 0:03:31.079 central banks to make the world a perfect place. UM, 0:03:31.080 --> 0:03:34.720 this is doomed to fail. If you ask them to 0:03:35.280 --> 0:03:39.040 deliver stable and low inflation over time, ensure that the 0:03:39.080 --> 0:03:42.400 core of the banking system is resilient, they can do that. 0:03:42.520 --> 0:03:45.880 They can't manage the credit cycle, they can't manage asset prices. 0:03:46.360 --> 0:03:48.920 They can do those simple things. And in the years 0:03:49.360 --> 0:03:52.520 during the crisis and since UM a lot of countries 0:03:52.560 --> 0:03:56.560 have fallen into the trap of of expecting the central 0:03:56.560 --> 0:03:59.280 banks too much. And that's not only the central banks fault. 0:03:59.320 --> 0:04:02.880 It's because Paul Auditions, it's convenient for politicians to vacate 0:04:02.960 --> 0:04:06.960 the space and leave the central banks as the US cavalry, 0:04:07.320 --> 0:04:11.400 and it is very tempting central banks to occupy that. Actually, 0:04:11.400 --> 0:04:13.560 it's terribly difficult for them not to try to do 0:04:13.720 --> 0:04:16.799 something when the politicians don't step up to the plate. 0:04:17.080 --> 0:04:19.760 In the United States, of course, this is centers around 0:04:19.760 --> 0:04:23.320 the difficulty of fiscal policy of any kind. And Toto, 0:04:23.360 --> 0:04:25.400 all three of you, John Norman jump in here if 0:04:25.400 --> 0:04:27.560 you would please, and I think it's a question for 0:04:27.600 --> 0:04:30.560 all three of you. Francy lead this discussion, which is 0:04:30.600 --> 0:04:34.560 the solution is more capital on the bank's balance sheets. 0:04:34.800 --> 0:04:38.320 That just seems too simplistic to me, John is it? 0:04:40.120 --> 0:04:42.400 I think that is too simplistic. I think the underlying 0:04:42.440 --> 0:04:44.520 problem at the end of every business cycle is a 0:04:44.600 --> 0:04:48.560 leverage build up somewhere, and it is helpful to have 0:04:48.640 --> 0:04:51.359 banks will capitalized. That's one less source of leverage. But 0:04:51.400 --> 0:04:55.119 it's very difficult to keep households and corporates from building 0:04:55.200 --> 0:04:58.120 up leverage doing a long business cycle with low interest rates. 0:04:58.160 --> 0:05:00.640 And that's why you can always, i think, act some 0:05:00.720 --> 0:05:03.279 kind of high volatility decline in asset prices when we 0:05:03.320 --> 0:05:05.320 eventually go into a downturn, and there's only so much 0:05:05.360 --> 0:05:07.599 that central bankers can do to try to manage their 0:05:07.640 --> 0:05:11.080 their deleveraging process. I'd agree with that. I think that 0:05:11.560 --> 0:05:13.880 you know, more capital obviously is a big part of 0:05:13.880 --> 0:05:17.320 the solution, but that's never going to prevent failures or um. 0:05:17.839 --> 0:05:19.800 The next crisis is going to going to be different 0:05:19.800 --> 0:05:21.320 in some sets. I mean, I think Paul's point is 0:05:21.320 --> 0:05:23.039 a very interesting one. I mean, I think the UK 0:05:23.200 --> 0:05:25.400 is a good interesting example. Actually have a country where 0:05:25.520 --> 0:05:27.880 we've probably gone further than almost any other country and 0:05:28.160 --> 0:05:30.560 explicitly giving the bank of England now a remit to 0:05:30.960 --> 0:05:32.720 not just protect the banks from the cycle, but to 0:05:32.760 --> 0:05:34.240 try and protect the cycle from the bank. So you 0:05:34.279 --> 0:05:36.279 have the kind of financial policy committee that is tasked 0:05:36.279 --> 0:05:38.320 to try and step in and has already done that 0:05:38.360 --> 0:05:43.159 in areas like Vitlet in the UK is increasingly getting 0:05:43.200 --> 0:05:46.400 active in sort of counter cyclical capital measures to the banks, 0:05:46.839 --> 0:05:49.040 and so far I think that I think that the 0:05:49.080 --> 0:05:51.320 politics of that has been acceptable. I think the public 0:05:51.760 --> 0:05:54.440 are willing to allow central banks to step in. Whether 0:05:54.520 --> 0:05:58.599 that's politicians trying to push the responsibility away from themselves 0:05:58.600 --> 0:06:00.520 towards the central banks, so you know, will only find 0:06:00.520 --> 0:06:04.080 out the next time it really gets bad. Tucker, where 0:06:04.080 --> 0:06:06.560 are we more vulnerable today than we were on the 0:06:06.600 --> 0:06:12.599 eve of Leaming Brothers um shadow banking UM in China 0:06:12.800 --> 0:06:15.600 or worldwide? Probably a bit in the United States as well. 0:06:15.600 --> 0:06:17.640 I don't want to say more vulnerable in the United 0:06:17.680 --> 0:06:20.279 States than before two thousand and seven eight, But I 0:06:20.320 --> 0:06:23.960 think there's been a woefullly weak appetite to address shadow 0:06:24.000 --> 0:06:27.080 banking in the in the States, and a policy of 0:06:27.160 --> 0:06:30.440 will monitor it, spot the problems and then reform policy 0:06:30.440 --> 0:06:32.960 to catch up is doomed to failure. By By the 0:06:33.000 --> 0:06:35.839 time something is big enough to be a systemic threat, 0:06:35.920 --> 0:06:39.760 it has a real lobbying power in Congress and and elsewhere. 0:06:39.760 --> 0:06:42.920 I think the policy makers have have ducked this. It's 0:06:42.960 --> 0:06:45.800 it's difficult, but they've ducked it. And I think that's 0:06:45.800 --> 0:06:49.000 been a mistake. Another one which I know preoccupies some 0:06:49.040 --> 0:06:53.000 people in the Senate UM is so my generation of 0:06:53.040 --> 0:06:56.440 policy makers have pushed forced a lot of the derivatives 0:06:56.480 --> 0:07:00.000 markets to go our central counterparties. That's good. I still 0:07:00.040 --> 0:07:03.919 support that policy. But what happens of a central counterparty fails. 0:07:03.960 --> 0:07:06.800 We are ten years on um No one in the 0:07:06.839 --> 0:07:10.600 United States has said anything compelling about that. It isn't 0:07:10.640 --> 0:07:13.720 even clear that there are legal powers to address it. 0:07:13.760 --> 0:07:16.560 In Europe, more has been said and done, but the 0:07:16.560 --> 0:07:18.720 truth is that Europe is waiting to try to do 0:07:18.840 --> 0:07:22.120 something jointly with the United States. This will be imagine 0:07:22.160 --> 0:07:23.960 one of these things fails. I'm one of the few 0:07:23.960 --> 0:07:26.000 people on the planet that have dealt with the failed 0:07:26.400 --> 0:07:30.480 um CCP. This will be inexcusable. Well, there were one 0:07:30.520 --> 0:07:32.520 of the lessons that we've learned here. We've got I 0:07:32.520 --> 0:07:36.080 guess Phillips, Curb and DSG All the fancy phrases back 0:07:36.080 --> 0:07:40.040 to the martiall and cross, where's behavioral economics and all this? 0:07:40.360 --> 0:07:43.400 Are you guys still ignoring Robert Schiller? Are you still 0:07:43.440 --> 0:07:49.040 ignoring failor of Chicago? I don't think actually that was 0:07:49.160 --> 0:07:52.320 the problem before the crisis. I think it was partly 0:07:52.320 --> 0:07:55.440 a problem in the FED. The Greenspan doctrine meant that 0:07:55.560 --> 0:07:59.200 supervision and regulation was neglected in the FED. It wasn't 0:07:59.200 --> 0:08:03.120 a um an enticing or sexy place to to work. 0:08:03.200 --> 0:08:06.120 I think the difficulty is I think people have embraced 0:08:06.440 --> 0:08:09.680 the importance of behavior economics, I'm not sure that they 0:08:09.720 --> 0:08:12.400 know how to operationalize it. How do you how do 0:08:12.440 --> 0:08:14.680 you make a part of day to day policy? It's 0:08:14.680 --> 0:08:18.120 over value and I um sitting on television talking about 0:08:18.160 --> 0:08:20.560 it if you actually had the job. How do you 0:08:20.760 --> 0:08:25.520 How do you spot irrational exuberances from harmless exuberance? How 0:08:25.560 --> 0:08:28.440 do you spot the telco debt bubble which nearly did 0:08:28.520 --> 0:08:31.120 bring down banks in the early zeros, from the dot 0:08:31.120 --> 0:08:34.480 com equity bubble which didn't. Frankly, Paul the heart of this, 0:08:34.559 --> 0:08:37.559 and I go back to Merwyn King's historic speech in Scotland, 0:08:37.559 --> 0:08:41.559 which I thought was an early financial crisis landmark. But Paul, 0:08:41.559 --> 0:08:44.280 what is so important here is the theory of a 0:08:44.360 --> 0:08:48.640 central bank somehow getting out front of being expost or 0:08:49.200 --> 0:08:52.880 being ex anti. Are we delusional that we think central 0:08:52.880 --> 0:08:57.400 banks can get out front of economic trends, economic data, 0:08:57.679 --> 0:09:01.880 in the behavior of an economic system. We'd be delusional 0:09:02.120 --> 0:09:04.559 to put all our chips on that. Yeah, sometimes they 0:09:04.559 --> 0:09:07.640 can do that. I mean, I've just criticized Alan Greenspan, 0:09:07.720 --> 0:09:10.480 but Alan Greenspan did a good job in spotting the 0:09:10.600 --> 0:09:14.000 uplifting productivity in the late nineties and the early zero 0:09:14.200 --> 0:09:16.200 Sometimes you get that right, but you can't rely on it, 0:09:16.240 --> 0:09:18.440 Which comes back to me, we are not going to spot, 0:09:18.880 --> 0:09:21.640 or we cannot rely on spotting where the next crisis 0:09:22.200 --> 0:09:24.720 will come from and how bad it will be. All 0:09:24.800 --> 0:09:27.320 we can do is make the system more resilient, and 0:09:27.360 --> 0:09:31.920 that includes vitally being able to cope with failure. So 0:09:32.040 --> 0:09:34.800 there should be much more attention um in all of 0:09:34.800 --> 0:09:38.080 these programs on how are plans going to make the 0:09:38.120 --> 0:09:41.959 big banks and dealers resolvable so that we can wind 0:09:41.960 --> 0:09:45.280 them down or recapitalize them in a crisis, rather than 0:09:45.360 --> 0:09:48.800 turning to the taxpayer. And I think it's your responsibility 0:09:48.800 --> 0:09:51.360 both of you to sometimes make that sexy. People might 0:09:51.360 --> 0:09:53.240 be aren't going to be good at making that sexy. 0:09:53.520 --> 0:09:55.600 People like you are good at making at sexy, and 0:09:55.600 --> 0:09:59.199 you should try. Then. Well, I can tell you that 0:09:59.480 --> 0:10:01.920 the foreign years that I've done this show, nobody has 0:10:01.960 --> 0:10:06.640 told me that baky gets sexy. Joining us, Christmas Santi 0:10:07.040 --> 0:10:09.560 of Casanti Investments, yellmen, I own I renew this as 0:10:09.559 --> 0:10:12.000 well from Bloomberg, who wrote so many of our important 0:10:12.040 --> 0:10:16.000 stories on banking, on shadow banking, and she is timeless. 0:10:16.000 --> 0:10:18.280 She has not aged a moment since two thousand and eight. 0:10:18.320 --> 0:10:23.040 Susan Latt joins us from Washington with Mackenzie. Susan, congratulations 0:10:23.160 --> 0:10:27.720 on your fourteen page jewel on what happened and what 0:10:28.000 --> 0:10:31.920 didn't change? Tell us from Mackenzie Global Institute what is 0:10:32.040 --> 0:10:36.319 not changed, Well, what's not changed is that the world 0:10:36.360 --> 0:10:39.400 still has a lot of debt. It's a different kind 0:10:39.440 --> 0:10:43.600 of debt. It's taken out by governments and corporations as 0:10:43.640 --> 0:10:47.520 time instead of households. But after all of the tumult 0:10:47.600 --> 0:10:49.959 of two thousand and eight, we really expected that there 0:10:49.960 --> 0:10:53.480 would be what we call deleveraging or debt reduction, and 0:10:53.520 --> 0:10:58.040 instead we've got seventy two trillion dollars more debt than 0:10:58.080 --> 0:11:00.800 we had back then within this So this goes back, 0:11:00.840 --> 0:11:02.880 of course to one of the great books of this era, 0:11:03.160 --> 0:11:06.080 the Reinhardt and Rogoff effort. This time is different. The 0:11:06.120 --> 0:11:09.480 two professors don't make a distinction. They say, you've got 0:11:09.480 --> 0:11:13.240 to add private debt to public debt. When you add 0:11:13.280 --> 0:11:17.000 those two together, how ugly is the picture. Well, it's 0:11:17.559 --> 0:11:20.520 debt is higher in the United States, in the UK 0:11:20.840 --> 0:11:23.719 and Ireland and Spain than it was on the eve 0:11:23.720 --> 0:11:26.040 of the crisis. And I think of those as sort 0:11:26.080 --> 0:11:31.319 of the core crisis countries that had very over indebted 0:11:31.360 --> 0:11:35.280 household sectors and real estate bubbles that ended very badly. 0:11:35.800 --> 0:11:38.240 Um in the rest of the world that was not 0:11:38.400 --> 0:11:43.079 at the epicenter of the crisis, all forms of debt 0:11:43.120 --> 0:11:47.200 have continued to grow. Um. In Canada, our neighbors to 0:11:47.240 --> 0:11:52.120 the north, the land of very sound banking, their household 0:11:52.120 --> 0:11:54.880 debt is now at the same level as the US 0:11:55.160 --> 0:11:58.520 was back in two thousand and seven. When you look 0:11:58.559 --> 0:12:02.120 at developing countries, the change has been even more dramatic. 0:12:02.160 --> 0:12:05.599 And this is why now we're having problems in Turkey 0:12:05.640 --> 0:12:09.240 and Argentina, UM and other countries that were able to 0:12:09.320 --> 0:12:13.360 borrow because interest rates were so incredibly low, investors were 0:12:13.400 --> 0:12:17.040 willing to take a little bit higher risk to get returns, 0:12:17.360 --> 0:12:20.760 and so emerging markets, both companies and governments were able 0:12:20.800 --> 0:12:25.240 to borrow UM at unprecedented levels. Now as we look 0:12:25.280 --> 0:12:29.319 forward to rising interest rates UM and combined with in 0:12:29.360 --> 0:12:36.120 some countries unsound macroeconomic policies, we're going to see some problems. Yeah, 0:12:36.440 --> 0:12:38.240 where are we going to see problems? Susan? If you 0:12:38.240 --> 0:12:41.320 look at the spaces which may be more more vulnerable 0:12:41.320 --> 0:12:43.920 today than they were on the eve of the Lehman collapse, 0:12:44.440 --> 0:12:48.440 where is it well, in developing countries, it's always a 0:12:48.480 --> 0:12:52.640 combination of too much dead and then combined with some 0:12:52.720 --> 0:12:57.360 macroeconomic shocks. So in Turkey we've seen the lira plunge 0:12:57.520 --> 0:13:00.320 nearly fift since the start of the year, and a 0:13:00.360 --> 0:13:03.320 lot of their debt is in foreign currency, So a 0:13:03.360 --> 0:13:06.760 company that was paying a certain amount on debt service 0:13:06.840 --> 0:13:10.600 now is paying nearly double what they were if they're 0:13:10.600 --> 0:13:14.680 earning local currency revenues. Same problem in Argentina, which just 0:13:14.840 --> 0:13:19.200 asked for an I m F bailout. So we will 0:13:19.280 --> 0:13:22.719 see some tremors. Um, I think in emerging markets as 0:13:22.760 --> 0:13:26.960 we look ahead beyond that in the US and in Europe, 0:13:27.040 --> 0:13:30.720 I think that the troubles are more specific pockets, for 0:13:30.760 --> 0:13:36.440 instance US retail, But overall the picture doesn't look so bad. 0:13:38.000 --> 0:13:40.719 Um Yamen. Three, your your reporting. So Tom and I 0:13:40.760 --> 0:13:42.920 have been asking a lot of guests. You know, first 0:13:42.920 --> 0:13:46.360 of all, what the consequences have been from the financial crisis, 0:13:46.640 --> 0:13:49.160 And I've heard everything from you know, this was actually 0:13:49.400 --> 0:13:52.200 the stepping stone of populism because of the central bank 0:13:52.200 --> 0:13:56.400 action to banks being overregulated. What do you see as 0:13:56.520 --> 0:14:00.000 as the kind of definitive consequence of the financial crisis 0:14:00.000 --> 0:14:03.080 and the living collapse? I mean, the banks have definitely 0:14:03.080 --> 0:14:06.600 been regulated more and overregulated. That's a debate. You know 0:14:06.720 --> 0:14:11.360 that the banks say they're overregulated. Some critics say they're 0:14:11.360 --> 0:14:14.360 still not regulated enough, but they're definitely more regulated, which 0:14:14.360 --> 0:14:17.720 means they have their they're safer. After the crisis, you 0:14:17.760 --> 0:14:20.800 know a lot of regulation worldwide, not just US, Europe 0:14:20.800 --> 0:14:27.640 but everybody. Bossil Committee in Switzerland they did increase cap requirements, 0:14:27.840 --> 0:14:30.280 could it requirements, all kinds of things that make the 0:14:30.320 --> 0:14:34.520 banking systems safer, which meant things shifted to shadow banks 0:14:34.520 --> 0:14:37.200 a little bit. Shadow banks, they're everything that is not 0:14:37.280 --> 0:14:40.440 a bank, but that's still you know, is involved in 0:14:40.480 --> 0:14:43.280 the landing, So that that's that's an area that's harder 0:14:43.320 --> 0:14:46.840 to monitor. Regulators known less about it. They pay more 0:14:46.880 --> 0:14:49.640 attention to it. They didn't before. They pay more attention 0:14:49.680 --> 0:14:52.480 to it. But you know, and there have been political 0:14:52.520 --> 0:14:56.840 and economic repercussions as well, inequality rising everybody. A lot 0:14:56.880 --> 0:15:00.360 of analysts has say that's because of what happened after 0:15:00.400 --> 0:15:04.080 the crisis, which is the easy monitary policy that lowered 0:15:04.120 --> 0:15:07.040 interest rates and and and bought trillions of dollars of 0:15:07.840 --> 0:15:12.960 bonds by the FEDS and and other central banks European, Asian, 0:15:13.280 --> 0:15:16.760 and so all these things. You know, it has changed 0:15:16.800 --> 0:15:19.840 the world. We have we have risks shift from from 0:15:19.840 --> 0:15:22.040 the maybe the banking system to other corners of the 0:15:22.040 --> 0:15:25.960 financial system. You know, so the dangers are still there 0:15:26.040 --> 0:15:28.880 as as don't want saying there's so much more debt 0:15:29.280 --> 0:15:32.160 that it's clearly not safe enough in the world. And 0:15:32.200 --> 0:15:34.480 then you and Mark Pittman let our coverage on this 0:15:34.840 --> 0:15:37.080 what was going on at the time, it was hugely 0:15:37.120 --> 0:15:40.960 forensic reporting as well. And part of that forensic reporting 0:15:41.080 --> 0:15:44.320 is whether the banks from where you sit. Do we 0:15:44.360 --> 0:15:48.720 need greater bank concentration in America or do we need 0:15:48.760 --> 0:15:51.760 to diffuse the two big defails that great Andrew Ross 0:15:51.800 --> 0:15:54.680 Sorkin phrase, Do we need to diffuse the two big 0:15:54.720 --> 0:15:59.360 defails to the regional banks? I felt, you know that 0:15:59.520 --> 0:16:02.440 when I came to the US five years ago, I 0:16:02.480 --> 0:16:04.960 thought there were too many little banks around the country. 0:16:04.960 --> 0:16:11.000 And because there were, there were one my bank, my 0:16:11.160 --> 0:16:13.680 first bank in the US, Wayne County National Bank, had 0:16:13.720 --> 0:16:17.160 one branch, even if it didn't have to um. But then, 0:16:17.400 --> 0:16:20.720 you know, as I've covered banking in this country and 0:16:20.800 --> 0:16:23.320 around the world, I've looked at banking systems around the world. 0:16:23.520 --> 0:16:27.800 I've realized that, of course smaller banks. The biggest advantage 0:16:27.800 --> 0:16:31.160 of having all those smaller banks is that risk is 0:16:31.800 --> 0:16:34.800 spread out. You know, one bank fails, we have FD 0:16:35.920 --> 0:16:38.160 if they see if they takes care of him. But 0:16:38.280 --> 0:16:41.760 so the big banks are threatening, and it's always tough 0:16:41.840 --> 0:16:44.400 to to make sure that their risks are not too 0:16:44.440 --> 0:16:47.200 much and when they fail. Can I got to make 0:16:47.240 --> 0:16:49.160 some money out of Chris? Can you buy the banks 0:16:49.160 --> 0:16:51.920 in which flavor of banks is where the value is? 0:16:52.400 --> 0:16:54.280 I think it can time, But but I get an 0:16:54.280 --> 0:16:57.360 overall feeling in this conversation that we're talking about the 0:16:57.440 --> 0:16:59.840 last crisis almost like talking about would imagine old line. 0:17:00.080 --> 0:17:04.280 That's the theme today, Chris get But but where is 0:17:04.320 --> 0:17:06.040 the weak point? It's probably not going to be the 0:17:06.359 --> 0:17:09.560 big US banks. I I look at emerging markets, I 0:17:09.640 --> 0:17:13.240 look at where the stress points are today, and yeah, 0:17:13.240 --> 0:17:15.200 we have more debt, but their GDP is a little higher. 0:17:15.200 --> 0:17:18.320 It's it's China that's really levered up. So that's a 0:17:18.359 --> 0:17:21.440 big concern, and we've nationalized that. They're taking it from 0:17:21.440 --> 0:17:23.879 the private sector moving into the public sector, which is 0:17:23.880 --> 0:17:27.480 exactly what we wanted to do. Frins, right, Yeah, Susan. 0:17:27.520 --> 0:17:29.359 So one of the you know, we had Paul Tucker, 0:17:29.440 --> 0:17:32.320 deputy former Deputy Governor of the Bank of England, and 0:17:32.359 --> 0:17:34.760 he was saying, what we should really be watching out 0:17:34.800 --> 0:17:38.480 for is shadow banking in the US and China. What 0:17:38.560 --> 0:17:42.320 do we do? What should we do with shadow banking? Well, 0:17:42.320 --> 0:17:45.560 shadow banking by a definition is always a bit of 0:17:45.600 --> 0:17:47.960 a troublesome area because we just don't know a lot 0:17:48.000 --> 0:17:51.200 about it. So at this point in the United States, 0:17:51.359 --> 0:17:54.680 half of all new mortgages are coming from non bank 0:17:54.840 --> 0:17:59.919 entities UM and those mortgages are going largely into Ginny May, 0:18:00.280 --> 0:18:04.040 which is the third government owned mortgage securitizer that you 0:18:04.040 --> 0:18:06.840 don't hear a lot about. So that's definitely an area 0:18:06.880 --> 0:18:10.240 worth watching in the US. But I'll tell you what's different, 0:18:10.320 --> 0:18:13.239 and maybe I'm just always an optimist, but there are 0:18:13.280 --> 0:18:16.679 some positive changes in the financial system. For one, we 0:18:16.760 --> 0:18:20.800 don't have the trillions and trillions of dollars of derivatives 0:18:20.920 --> 0:18:26.000 and collateralized dead obligations CDEO squares credit default swaps that 0:18:26.040 --> 0:18:29.040 were built on the U S subprime mortgages, and that's 0:18:29.080 --> 0:18:32.200 what allowed UM, a small corner of the U S 0:18:32.240 --> 0:18:36.280 mortgage market, uh to then create this global damage and 0:18:36.800 --> 0:18:39.320 you know, throw the world into a global recession. All 0:18:39.359 --> 0:18:42.440 of that has disappeared, so that's very good news. So 0:18:42.520 --> 0:18:44.960 the risks that are out there could create losses, but 0:18:44.960 --> 0:18:47.600 it's not gonna have the ripple effects that we saw UM. 0:18:47.600 --> 0:18:52.639 In China, they've got a different story altogether. Talking to 0:18:52.680 --> 0:18:56.199 me about China season quickly sorry. Uh. So, China has 0:18:56.280 --> 0:18:59.479 levered up, as was mentioned. The good news for at 0:18:59.560 --> 0:19:01.760 least the US of the world is that all of 0:19:01.760 --> 0:19:05.439 that debt is coming from Chinese investors in Chinese banks, 0:19:05.840 --> 0:19:07.840 So if there were to be a crisis, it's going 0:19:07.920 --> 0:19:12.240 to be a domestic financial crisis within China. Now it 0:19:12.320 --> 0:19:17.679 doesn't have obvious international repercussions through financial channels. Of course, 0:19:17.720 --> 0:19:20.480 it's the world's second largest economy, so if China's growth 0:19:20.480 --> 0:19:23.320 were to slow down, that would affect lots of countries 0:19:23.359 --> 0:19:29.760 around the world. We're thrilled to develop that conversation this 0:19:29.800 --> 0:19:33.160 morning with Jean call Is, a former president of European 0:19:33.200 --> 0:19:36.000 Central Bank. Were honor that Mr Tuche could join in 0:19:36.080 --> 0:19:39.520 US and joining us as well the great euro optimist 0:19:39.800 --> 0:19:43.480 Eric Nielsen of unic Credit. When Europe was flat on 0:19:43.520 --> 0:19:46.960 its back. Nielsen was pounding the table next to Francine 0:19:46.960 --> 0:19:51.200 in London, saying, no, Tom, it's not that grim. Let's 0:19:51.200 --> 0:19:54.160 start with Mr Nielsen. We're supposed to start with Mr Triche, 0:19:54.160 --> 0:19:57.200 but Eric, I'm gonna start with you. Brief Mr Triche 0:19:57.359 --> 0:19:59.880 on the state of Europe right now. Is at euro 0:20:00.040 --> 0:20:03.520 sclerosis or Eric Nielsen? Is it a Europe of growth? 0:20:05.520 --> 0:20:08.840 I think it's uh, it's by far closer to the 0:20:08.920 --> 0:20:12.280 latter point you made Europe of growth. We have had 0:20:12.880 --> 0:20:15.480 years of one and a half to two percent growth 0:20:15.520 --> 0:20:18.600 not as much as you kind of would wish. But 0:20:18.600 --> 0:20:20.560 but if you look at it in per capita terms, 0:20:20.600 --> 0:20:23.359 we're doing basically as well as the US, and certainly 0:20:23.400 --> 0:20:26.199 if you look at for ninety of the population, because 0:20:26.680 --> 0:20:29.040 in America the growth really sits for the top ten 0:20:29.119 --> 0:20:31.720 and and we don't have the same income distribution issues 0:20:31.760 --> 0:20:33.959 as they have. Mr Trouchet, where us through this half far? 0:20:34.040 --> 0:20:36.040 And yes we'll talk about brutal moves in the m 0:20:36.119 --> 0:20:40.040 but Mr Trichet on Lehman, one of the great observations 0:20:40.160 --> 0:20:44.919 interview to interview is that the europe banking system is 0:20:45.040 --> 0:20:50.680 behind the United States system. What does European banking need 0:20:50.760 --> 0:20:54.560 to do to modernize to catch up with what the 0:20:54.600 --> 0:21:00.720 giants of the United States are doing. Of course, you're 0:21:00.760 --> 0:21:06.200 absolutely right. There is a big domination of the investment 0:21:06.200 --> 0:21:09.639 bank in New York and banks in the US in particular, 0:21:10.520 --> 0:21:14.160 which is very part toxical, because after all, the crisis 0:21:14.359 --> 0:21:17.760 was born in Wall Street. The epicenter of the crisis, 0:21:17.800 --> 0:21:21.040 of the big big crisis, which is as gray, wasn't 0:21:21.240 --> 0:21:25.520 as gray as the twenty nine thirties in the twentieth century, 0:21:26.080 --> 0:21:29.239 is really born in the US. But what you have 0:21:29.400 --> 0:21:32.560 to get in mind, is that there is a big 0:21:32.600 --> 0:21:36.119 structural difference between the US and Europe. In the US, 0:21:36.280 --> 0:21:39.480 at the moment of the birst of the crisis, the 0:21:39.560 --> 0:21:42.280 financing of the U S economy was made through banks 0:21:42.760 --> 0:21:46.400 with only twenty five of the final SINGE and through 0:21:46.440 --> 0:21:50.879 markets with seventy five. It is it was exactly the 0:21:50.920 --> 0:21:55.000 reverse in Europe, twenty five for the markets, seventy five 0:21:55.000 --> 0:21:57.959 percent of the financing for the banks. And that, of 0:21:58.000 --> 0:22:02.240 course is the first explanation because the recapitalization of banks 0:22:02.280 --> 0:22:06.800 in Europe was much more costly in terms of percentage 0:22:06.800 --> 0:22:09.200 of GDP than it was the case in the United 0:22:09.240 --> 0:22:12.440 States of America. There are many reasons for those differences. 0:22:12.560 --> 0:22:15.480 One important reason is the existence of Freddie mac and 0:22:15.520 --> 0:22:20.600 Fannie May, which we are mentioned previously in On Your Skin, 0:22:21.200 --> 0:22:25.320 and that explains why a very large part of the 0:22:25.400 --> 0:22:29.680 financing of the U. S economy comes out of I 0:22:29.720 --> 0:22:34.080 would say, see my public institution, and not through the banks. 0:22:34.680 --> 0:22:37.960 But that being said, of course, the European have a 0:22:38.000 --> 0:22:39.720 lot of hard work to do, and as you know, 0:22:40.240 --> 0:22:45.359 structural reforms of first importance have been decided, including the 0:22:45.600 --> 0:22:50.480 Single Supervision Authority, with the ultimate decision taken by the 0:22:50.520 --> 0:22:55.119 central banks, so the European where at I would say 0:22:55.359 --> 0:23:00.080 disadvantage in terms of structural difference with the US. It 0:23:00.200 --> 0:23:02.600 took a number of decisions, and I'm very much on 0:23:02.680 --> 0:23:06.119 the side of the optimism that was explaced by the 0:23:06.160 --> 0:23:11.760 previous speaker, Mrs the concern at the time when Lehman collapses, 0:23:11.760 --> 0:23:16.879 and actually market participants overall, regulators, even central bankers to 0:23:16.920 --> 0:23:22.080 some extent, did not realize the intercondectedness of the banking system. 0:23:22.119 --> 0:23:24.639 What do we know about the banking system now? Is 0:23:24.640 --> 0:23:26.480 there a danger that actually we could go back to 0:23:26.520 --> 0:23:31.520 that oh eight financial crisis. Well, what we know is 0:23:31.560 --> 0:23:36.359 that we have decided to reinforce considerably the resilience of 0:23:36.440 --> 0:23:41.680 the banks at a global level and through appropriate institutions 0:23:41.720 --> 0:23:44.600 in Basil, in particular with the backing of the G twenty. 0:23:44.760 --> 0:23:48.520 So a lot has been done to reinforce resilience. But 0:23:48.680 --> 0:23:53.639 that does not that does not suggest that if we 0:23:53.760 --> 0:23:59.280 had a big new shock, we wouldn't have contation. And 0:23:59.640 --> 0:24:03.160 I thing that this is one of the emerging property 0:24:03.280 --> 0:24:06.680 which comes out of what you just said, the generalized 0:24:06.760 --> 0:24:13.400 interconnectedness not only between institutions, but between markets and between economies. 0:24:13.600 --> 0:24:17.959 At a global level. So that is that is suggesting 0:24:18.000 --> 0:24:21.920 that we must be very prudent, very cautious in all respect. 0:24:22.600 --> 0:24:26.720 And I must confess I am not that toron kill 0:24:26.880 --> 0:24:31.640 myself when I look at the overall global indebtedness which 0:24:31.680 --> 0:24:35.160 continues to grow. When we know that the crisis came 0:24:35.440 --> 0:24:40.000 from many many causes. In particular, of course, one of 0:24:40.040 --> 0:24:43.439 the main cause was the indebtedness public and private at 0:24:43.440 --> 0:24:48.160 a global levels. This is an important point. Indebtness, where 0:24:48.359 --> 0:24:50.520 is it globally and are you talking about shadow banking? 0:24:53.560 --> 0:25:00.160 To two I would say, go to the bottom line. 0:25:00.840 --> 0:25:05.960 From two thousand up to two two eight, we had 0:25:06.040 --> 0:25:11.000 a very big augmentation of overall indebtedness public and private 0:25:11.359 --> 0:25:15.560 coming from the advanced economy ten pc for the em 0:25:15.720 --> 0:25:20.439 from the emerging economy. After the crisis, we continue to 0:25:20.600 --> 0:25:25.560 grow leverage at a global level, public and private, not 0:25:25.560 --> 0:25:29.120 not exactly the same in various countries. And the big 0:25:29.160 --> 0:25:35.199 difference is that it's this global leverage augments because of 0:25:35.320 --> 0:25:40.159 the advanced economy and because of the emerging economy. So 0:25:40.400 --> 0:25:44.479 that makes an enormous difference. Still, if there is something 0:25:44.560 --> 0:25:50.520 like a global economy, if the global indebtedness as a 0:25:50.600 --> 0:25:55.400 percentage of global GDP is a good indicator of vulnerability. 0:25:55.520 --> 0:25:58.720 Then we are in a very vulnerable situation. Mr. And 0:25:58.800 --> 0:26:01.159 I want to go to your engineering background here and 0:26:01.200 --> 0:26:04.600 talk about leakages, which is Newtonian physics. But let's go 0:26:04.720 --> 0:26:08.199 leakages within the financial system. Jean Collatricia, one of the 0:26:08.240 --> 0:26:11.080 great themes of our lookback of ten years has been 0:26:11.080 --> 0:26:14.720 the price in the cost of quantitative easy. What is 0:26:14.760 --> 0:26:19.399 the impact of these balance sheets that Draggy Powell and 0:26:19.480 --> 0:26:22.560 others have to face. What is the impact of those 0:26:22.600 --> 0:26:29.400 balance sheets, and particularly Mr Tricia on emerging markets. Well, 0:26:29.480 --> 0:26:31.800 first of all, it seems to me that the central 0:26:31.880 --> 0:26:34.679 banks did what they had to do. They were in 0:26:34.720 --> 0:26:39.280 a crisis, which had not the central banks been bold 0:26:39.440 --> 0:26:44.280 and swift, we would have had a great depression and 0:26:44.440 --> 0:26:46.920 we would have been in a dramatic situation for all 0:26:47.000 --> 0:26:51.320 our fellow citizens in all advanced economy. So the banks, 0:26:51.520 --> 0:26:55.000 the central banks did what they had to do because 0:26:55.040 --> 0:26:59.359 the situation was absolutely dramatic. And of course when the 0:26:59.400 --> 0:27:04.120 situation is much less dramatic, they have to withdraw progressively, 0:27:04.160 --> 0:27:11.760 which is being done successively because the sequence of events 0:27:11.760 --> 0:27:14.199 we are not the same in the US and in Europe. 0:27:14.200 --> 0:27:18.240 But we you see that they are progressively withdrawing so 0:27:18.760 --> 0:27:21.840 that there is nothing to say about that. It seems 0:27:21.840 --> 0:27:24.760 to me that the central bank did their job, and 0:27:25.160 --> 0:27:28.160 in any case, the counter factual would have been much 0:27:28.240 --> 0:27:33.320 more dramatic. That's absolutely obvious. Now it's true that there 0:27:33.400 --> 0:27:35.359 is not on these central banks. They are not the 0:27:35.440 --> 0:27:38.439 only game in town. You also have, of course, all 0:27:38.480 --> 0:27:43.520 the other partners, private sector, the other institutions, the governments 0:27:43.600 --> 0:27:47.080 under parliament, and there I have to say things we 0:27:47.119 --> 0:27:50.720 are not are not done as they should. In my opinion, 0:27:50.800 --> 0:27:56.240 structural reforms are lagging, and the most of the advanced 0:27:56.240 --> 0:28:01.679 economy and also the emerging economy uh not doing a 0:28:01.760 --> 0:28:05.399 good job in terms of fiscal policies, in terms of 0:28:05.440 --> 0:28:09.160 precisely augmentation of leverage in the public data and so forth. 0:28:09.440 --> 0:28:13.800 So we really have to mobilize old partners to be 0:28:13.920 --> 0:28:16.800 much more aware of the fact that if we want 0:28:16.880 --> 0:28:20.760 to avoid the repetition of the drama which took place 0:28:20.840 --> 0:28:27.960 ten years ago, we have to step in. This is 0:28:28.000 --> 0:28:30.679 a special moment for us in economics. We've done that 0:28:30.760 --> 0:28:33.040 with Milton Freeman and Robert Lucas, we did that with 0:28:33.080 --> 0:28:36.879 Stiglets and Rogoff Otabos and now joining Professor Rogoff of 0:28:36.920 --> 0:28:41.720 Harvard University. Marianna Masakado. She is at the University College 0:28:42.080 --> 0:28:45.720 London and a very very important and controversial book out 0:28:46.040 --> 0:28:48.360 The Value of Everything. I'm gonna make it as clear 0:28:48.400 --> 0:28:51.400 as I can. The first forty pages of this book 0:28:51.440 --> 0:28:57.800 should be read by every single economic student worldwide. Ken Rogoff, 0:28:57.840 --> 0:29:01.640 as it traces the history of economics. Mariana, I want 0:29:01.640 --> 0:29:03.960 to go to Ken on the Value of Everything. What 0:29:04.120 --> 0:29:07.840 she leads with here Ken is history, matters and economics 0:29:08.000 --> 0:29:12.480 from mercantilism, not the neo mercantilism of Trump, the mercantilism 0:29:12.520 --> 0:29:15.200 to Jevons and onto the modern age. Are we teaching 0:29:15.320 --> 0:29:19.960 enough Massicado history in our economics? No, we're not. I 0:29:20.200 --> 0:29:23.360 say we're not. That you'd be people now think economic 0:29:23.480 --> 0:29:27.440 history was something before two thousands. EXCEP trying to tell them, 0:29:27.560 --> 0:29:29.840 you know that, you know what people thought about these 0:29:29.840 --> 0:29:32.920 issues for a long time. Our ancestors weren't so full. Uh. 0:29:33.080 --> 0:29:37.560 The rap, Marian is the idea here that you are 0:29:37.640 --> 0:29:41.680 touting some form of a Marxist agenda, and yet a 0:29:41.720 --> 0:29:45.600 careful read of your book is no, that's not the case. 0:29:45.920 --> 0:29:49.040 Give us the nuance here of inequality as you see it. 0:29:49.640 --> 0:29:52.240 So what I argue is basically that value used to 0:29:52.240 --> 0:29:56.040 be hotly debated between economists. Today we have basically one 0:29:56.120 --> 0:29:58.480 theory of value that passes for econ one oh one 0:29:58.800 --> 0:30:01.080 and the value debates. Angeley has actually just gone to 0:30:01.120 --> 0:30:03.400 business school. So the word is talked about in terms 0:30:03.440 --> 0:30:07.280 of shareholder value, value chains, shared value. But we have 0:30:07.320 --> 0:30:10.080 a problem in economics that we actually have this tautology. 0:30:10.120 --> 0:30:13.120 We measure value by basically prices, which are supposed to 0:30:13.120 --> 0:30:16.800 reveal value. But that's actually what allows someone like Lloyd Blankfeed, 0:30:16.880 --> 0:30:20.040 one year after Layman that we were just talking about two, 0:30:20.040 --> 0:30:23.160 with a straight face, say that Goldman sax workers are 0:30:23.200 --> 0:30:26.800 the most productive in the world. Because that's a Harvard faculty, 0:30:27.320 --> 0:30:30.280 we won't go there. Um. And so this is also why, 0:30:30.280 --> 0:30:34.360 by the way, yesterday the head of Nostrom Pharmaceuticals, again 0:30:34.440 --> 0:30:36.760 with a straight face, said that he had the moral 0:30:36.840 --> 0:30:40.040 imperative to increase the price of the antibiotic that his 0:30:40.080 --> 0:30:44.280 company is producing by right to please the shareholders. So 0:30:44.360 --> 0:30:48.240 when we focus so much on, you know, maximizing shareholder value, 0:30:48.240 --> 0:30:51.080 which many people have criticized, but they haven't, I think 0:30:51.160 --> 0:30:54.560 on the full way to really debunk the underlying period 0:30:54.640 --> 0:31:00.000 of value that maximizeholder value assumes. Yeah, good morning from London. 0:31:00.040 --> 0:31:02.479 It's frenzy. How would you measure it then? I mean, 0:31:02.720 --> 0:31:05.560 you know, forget shareholder value. It's a price that you 0:31:05.600 --> 0:31:09.800 can measure with minimum wage, with everything. So if it's 0:31:09.840 --> 0:31:12.160 not a price that you want to fixate on, how 0:31:12.200 --> 0:31:15.880 do you measure everything that's around us. Well, it's funny 0:31:15.920 --> 0:31:18.080 because Tom just mentioned up marks. But you know, we 0:31:18.080 --> 0:31:20.400 could also go back to Adam Smith and David Ricardo. 0:31:20.520 --> 0:31:22.960 They actually did something that in some ways is in 0:31:23.040 --> 0:31:26.920 the popular debate today. They really worried about production, the 0:31:26.960 --> 0:31:30.040 division of labor, mechanization and the fact that this had 0:31:30.040 --> 0:31:33.400 on the profit wage relationships. So they had an understanding 0:31:33.440 --> 0:31:36.480 of value that was tied to the objective conditions of production. 0:31:36.760 --> 0:31:39.240 Forget whether it was the labor theory value or something else, 0:31:39.280 --> 0:31:42.920 but it had a fundamental connection to how we actually 0:31:42.960 --> 0:31:46.640 produce goods, how we organized production itself again through the 0:31:46.680 --> 0:31:49.800 division of labor. Adam Smith pin factory, and their understanding 0:31:49.840 --> 0:31:53.160 of value actually then determined their understanding of price. Today 0:31:53.160 --> 0:31:55.560 we have the reverse logic, we start with price and 0:31:55.560 --> 0:31:57.680 we assume that reveals value. So it's not that we 0:31:57.680 --> 0:32:00.920 should throw prices away, that's not the point, but that's 0:32:00.960 --> 0:32:04.800 that that's very different from thinking that prices themselves, um 0:32:05.000 --> 0:32:07.520 are are or what value is? I we just think 0:32:07.520 --> 0:32:10.240 of how we measure GDP. You know, it doesn't actually 0:32:10.280 --> 0:32:12.520 include all sorts of things that we know we're valuable, 0:32:12.600 --> 0:32:15.440 from care work to you know, if you marry, you're cleaner. 0:32:15.800 --> 0:32:20.000 GDP goes down um because something that was being paid 0:32:20.000 --> 0:32:22.480 for all of a sudden perhaps isn't. When we pollute, 0:32:22.480 --> 0:32:25.440 GDP goes up because we have to clean that pollution. 0:32:25.600 --> 0:32:28.440 So but you know, this problem is somehow has actually 0:32:28.520 --> 0:32:31.560 been talked about by feminists and environmentalists. What we haven't 0:32:31.600 --> 0:32:34.560 talked about is how GDP is full of rent. There's 0:32:34.600 --> 0:32:37.719 a difference between rents and profits and when when we 0:32:37.760 --> 0:32:40.120 have a subjective theory of value, and by that I 0:32:40.160 --> 0:32:43.920 mean really based on preferences again, so it's preferences and 0:32:43.960 --> 0:32:48.000 prices that are revealing value, then it becomes really easy 0:32:48.040 --> 0:32:51.640 for rent extraction and I would call value extraction activities 0:32:51.840 --> 0:32:55.840 to present themselves as value creation activities simply because they 0:32:55.840 --> 0:32:59.320 have prices and so on a concrete level, what does 0:32:59.320 --> 0:33:02.080 that change? So if we measure it differently, does it 0:33:02.240 --> 0:33:05.040 mean that we talk more about redistribution. Does it mean 0:33:05.120 --> 0:33:09.280 that actually would help with inequality and therefore with populism. Well, first, 0:33:09.520 --> 0:33:12.920 and I'd say the first most, foremost, we should admit 0:33:13.000 --> 0:33:15.440 that value is created collectively. So just coming back to 0:33:15.440 --> 0:33:18.440 the pharmaceutical drugs, which is really concrete, because people do 0:33:18.560 --> 0:33:21.360 die when they can't afford the drugs for such essential 0:33:21.400 --> 0:33:24.960 medicines like antibiotics. You know, in the United States, the 0:33:25.080 --> 0:33:28.360 National Institutes of Health spend over thirty two billion a 0:33:28.440 --> 0:33:32.000 year on the research that actually leads to these drugs. Now, 0:33:32.360 --> 0:33:36.480 the prices of these drugs should obviously reflect the contribution 0:33:36.520 --> 0:33:39.160 of the taxpayer, which is enormal in the higher risk stage. 0:33:40.080 --> 0:33:42.200 A few years ago, there were a set of doctors 0:33:42.200 --> 0:33:45.760 at Strong Memorial Hospital in Rochester, New York, including your father, 0:33:46.080 --> 0:33:49.680 who had the government support of medicine. She's saying in 0:33:49.680 --> 0:33:54.160 her book it's evaporated. I mean, essentially, we're not using 0:33:54.280 --> 0:33:57.240 government like we used to use government in the days 0:33:57.240 --> 0:34:00.400 when Strong, where your father was, was a massive research center. 0:34:00.760 --> 0:34:04.840 Is that true? First, honestly, congratulations on a wonderful book, 0:34:04.920 --> 0:34:09.040 and I agree people people should read it. Um you know, 0:34:09.160 --> 0:34:12.080 there are two separate issues here. One, I think is 0:34:12.120 --> 0:34:15.400 the rise of monopoly in the economy, which is producing 0:34:15.400 --> 0:34:19.560 the rents that Marianna is talking about the failure of 0:34:19.560 --> 0:34:24.400 economists to define antitrust policy in this new wage of ideas. 0:34:25.120 --> 0:34:28.360 How do you define whether Amazon's monopoly Google to monopoly 0:34:28.400 --> 0:34:31.759 They obviously are an economists haven't figured out a good 0:34:31.760 --> 0:34:34.200 way to say it. A separate issue is the size 0:34:34.239 --> 0:34:39.200 of government in a world where trade, where technology is 0:34:39.360 --> 0:34:44.279 producing things that always has but faster, and taxes and 0:34:44.320 --> 0:34:48.120 transfers need to compensate for that, or payments and kind 0:34:48.239 --> 0:34:53.680 in the case of health care, schooling is our next 0:34:53.680 --> 0:34:56.880 guest poses that this question was the financial crisis wasted 0:34:57.120 --> 0:35:00.360 writing a project syndicates him and how would say these 0:35:00.680 --> 0:35:05.319 shares these thoughts. While financial regulation has been materially strengthened, 0:35:05.560 --> 0:35:09.040 which is clearly the most important thing, it's implementation remains 0:35:09.040 --> 0:35:12.680 in the hands of a patchwork quilt of national agencies. 0:35:12.880 --> 0:35:15.280 And that's how Davis joins us now here on set 0:35:15.400 --> 0:35:18.239 in London. Very good morning to you and thanks for 0:35:18.280 --> 0:35:20.520 joining us. So when you refer to this patchwork quilt. 0:35:21.160 --> 0:35:25.120 Can we talk about the world in one conversation here 0:35:25.239 --> 0:35:27.680 or do we have to break this conversation up into two, 0:35:27.719 --> 0:35:30.240 Because of course the US did its thing on regulation, 0:35:30.280 --> 0:35:32.279 the UK did something different. I mean in the UK 0:35:32.600 --> 0:35:34.040 a lot of the power was put into the Bank 0:35:34.080 --> 0:35:36.960 of England, wasn't it. Yes? And the main point that 0:35:37.160 --> 0:35:39.120 I was making, well, I think there are two two 0:35:39.160 --> 0:35:42.560 main points. One is about the United States specifically, and 0:35:42.600 --> 0:35:45.560 there I think people should pay more attention to what 0:35:45.600 --> 0:35:48.359 Paul Volca has been saying. Paul Boker, in my long 0:35:48.400 --> 0:35:51.480 experience of financial markets, is usually right, and he has 0:35:51.480 --> 0:35:54.000 pointed out that all of the analyzes of the crisis 0:35:54.080 --> 0:35:57.480 points to the fact that the US regulatory system was 0:35:57.560 --> 0:36:01.680 vulcanized and it was very hard to produce one coherent view. 0:36:02.160 --> 0:36:04.839 And that remains the case. The US remains the one 0:36:04.880 --> 0:36:09.480 country on the planet which regulates cash, equities and derivatives 0:36:09.520 --> 0:36:12.680 by different regulators. It's the one country where there is 0:36:12.680 --> 0:36:16.320 a multiplicity of banking agencies, the Federal Reserve, the o 0:36:16.480 --> 0:36:19.840 c C, the fd i C, the state regulators, and 0:36:19.880 --> 0:36:22.920 where almost nothing has been done since the financial crisis 0:36:23.200 --> 0:36:27.680 to rationalize that system. There's a second point at global level, 0:36:28.560 --> 0:36:30.200 and I think the two dimensions of that one that 0:36:30.280 --> 0:36:34.440 Gordon Brown has made today, which is, at the time 0:36:34.440 --> 0:36:36.719 of the crisis in two thousand and eight nine, there 0:36:36.920 --> 0:36:40.239 was a coming together globally of people who saw the 0:36:40.280 --> 0:36:42.760 world in the same way, who understood each other's problems, 0:36:42.760 --> 0:36:46.400 and who acted decisively. Can we say that the basis 0:36:46.440 --> 0:36:49.960 of international trust is there at the moment with the 0:36:49.960 --> 0:36:53.640 war of words between Donald Trump and the EU, the 0:36:53.760 --> 0:36:58.399 UK splitting from the EU, not exactly warm relationships with 0:36:58.800 --> 0:37:01.680 Russia and China on these rants, and so would there 0:37:01.680 --> 0:37:05.360 be the basis for common agreements internationally if there was 0:37:05.360 --> 0:37:07.239 another crisis? And is this a real fear then within 0:37:07.320 --> 0:37:10.080 financial services? Because I saw those words from Gordon Brown today, 0:37:10.160 --> 0:37:12.320 I also spoke to Sir John give X of the 0:37:12.320 --> 0:37:14.520 Bank of England, of course, was there during the crisis, 0:37:14.640 --> 0:37:18.120 and he made the same point. He said, George Bush 0:37:18.280 --> 0:37:20.799 Junior at the time was President President George Bush, and 0:37:20.880 --> 0:37:24.080 he was the one who approved some of the fed's action, 0:37:24.160 --> 0:37:26.359 even though he said Congress stood in the way and 0:37:26.400 --> 0:37:28.800 could we rely on the President of the United States 0:37:28.840 --> 0:37:31.840 to allow the FED to do what was needed in 0:37:31.920 --> 0:37:34.719 terms of cooperation? How deep seated. Is this fear then 0:37:34.760 --> 0:37:37.600 in financial services here, I think people are concerned and 0:37:37.880 --> 0:37:42.880 they're also concerned about what weapons the authorities now have 0:37:43.680 --> 0:37:46.960 because interest rates remain extremely low. At the time, if 0:37:47.000 --> 0:37:49.520 you remember, there was quite a lot of headroom for 0:37:49.560 --> 0:37:51.720 the Federal Reserve and the Bank of England the ECB 0:37:52.080 --> 0:37:55.560 to bang interest rately quick down and to engage in 0:37:55.600 --> 0:37:57.879 a large amount of QI. Well, they're still all over 0:37:57.880 --> 0:38:00.440 the financial markets through QUI and in the straight so 0:38:00.600 --> 0:38:02.200 hey they have started to go up in a bit 0:38:02.200 --> 0:38:04.879 more in the US than here in Europe. Nonetheless, there's 0:38:04.960 --> 0:38:09.439 not much weaponry left in that arsenal, so I think 0:38:09.560 --> 0:38:12.520 those two concerns are linked to Sir Howard, good morning. 0:38:12.520 --> 0:38:14.319 I want to talk here a little bit about Lehman, 0:38:14.360 --> 0:38:16.160 and then we're gonna have to migrate to Turkey. With 0:38:16.239 --> 0:38:19.040 the movement and lira that we see in Turkish lear. Right, 0:38:19.120 --> 0:38:21.040 let's bring up the interdaan Leer. I really want to 0:38:21.080 --> 0:38:24.400 keep up to date on this worldwide Mr Arijuana speaking, 0:38:24.440 --> 0:38:27.319 and we've got a real explosion in Turkish lear as 0:38:27.400 --> 0:38:31.920 six thirty six out to sixty two. Howard, back to Lehman. 0:38:32.239 --> 0:38:35.640 If we could you took a commanding heights position as 0:38:35.640 --> 0:38:39.359 ahead of the f s A before the crisis more 0:38:39.400 --> 0:38:41.759 than anyone else. I know, you were the one that 0:38:41.840 --> 0:38:44.719 was supposed to maybe see it coming. By no means 0:38:45.000 --> 0:38:48.880 all right, were you wrong in your insight at the time. 0:38:49.200 --> 0:38:54.440 But to me, it was the amplitude that surprised Howard Davies, 0:38:54.480 --> 0:38:59.399 the amplitude that surprised Noil Rabini and others. What did 0:38:59.400 --> 0:39:05.000 we get wrong at the time about scope and scale? Well, look, 0:39:05.040 --> 0:39:08.480 I don't want this to be an exercise and self justification, 0:39:08.520 --> 0:39:10.320 but just to be clear, I did leave the regulator 0:39:10.360 --> 0:39:12.520 in two thousand and three, and if you look at 0:39:12.560 --> 0:39:15.720 the explosion of leverage, it took place between two thousand 0:39:15.719 --> 0:39:21.880 and three. Johnson has nailed this. You're absolutely right in June, 0:39:22.440 --> 0:39:26.439 in June of oh four, we saw this, So, sir 0:39:26.520 --> 0:39:29.919 Howard very clearly or tell us about that moment when 0:39:30.040 --> 0:39:35.040 leverage exploded. Well, what was surprising, and I think we 0:39:35.120 --> 0:39:37.319 did see the beginning of it in two thousand and three, 0:39:37.680 --> 0:39:42.640 was the arrival on the scene of derivatives like CDs 0:39:43.040 --> 0:39:48.800 in particular, but also the tranching of securities which allowed 0:39:48.880 --> 0:39:53.960 people to magnify credit. And as you know, the these 0:39:54.600 --> 0:39:57.520 c d os and CDOs squares had just started to 0:39:57.560 --> 0:40:00.120 come on the scene, and I did comment at the 0:40:00.200 --> 0:40:04.239 time that I was concerned about the toxic waste, which 0:40:04.320 --> 0:40:07.319 I've described a rather vivid phrase. I guess at the 0:40:07.360 --> 0:40:11.080 bottom of this system, whereby the lower tranches of the 0:40:11.160 --> 0:40:16.560 securitizations were nonetheless being traded as if they were fairly 0:40:16.640 --> 0:40:20.400 solid assets. Indeed through some magical process though some of 0:40:20.440 --> 0:40:22.800 them were given triple A status by the rating agencies. 0:40:23.040 --> 0:40:25.520 So I think we did see the germs of that, 0:40:26.120 --> 0:40:28.919 but the way in which it exploded over the next 0:40:28.960 --> 0:40:32.719 three or four years was a surprise to everyone. And 0:40:32.760 --> 0:40:35.960 I think looking back, you have to say, well, should 0:40:36.040 --> 0:40:39.719 monetary policy have been tougher, because monetary policy is, after 0:40:39.800 --> 0:40:44.000 all the most effective thing, And I think that in retrospect, 0:40:44.280 --> 0:40:46.680 interest rates in the U S should have risen more, 0:40:47.160 --> 0:40:52.560 and should regulators also have started to embrace these derivatives. 0:40:52.600 --> 0:40:55.600 And I think that actually goes back to my Balkanized 0:40:55.680 --> 0:40:59.200 regulation point, because as we know now, there were lively 0:40:59.280 --> 0:41:01.360 debates in the S between the FED and the o 0:41:01.480 --> 0:41:05.280 SEC and the CFTC and the SEC who couldn't agree 0:41:05.400 --> 0:41:08.160 on quite how these derivative products should be regulated. And 0:41:08.200 --> 0:41:10.120 I think that's the point, like coming back to my 0:41:10.200 --> 0:41:13.880 first point that Paul Volkers making. Has that changed and 0:41:13.960 --> 0:41:19.560 you say, he's right, we should to him, we are 0:41:19.600 --> 0:41:21.960 honored to have a morning with Brad Hints. I think 0:41:22.000 --> 0:41:24.200 who's stayed with us through TV and staying with us 0:41:24.200 --> 0:41:27.200 through radio as well, Brad Hints the former Lehman CFO 0:41:27.800 --> 0:41:30.440 and n Y you professor joint us now can monitor Brad, 0:41:30.600 --> 0:41:34.120 good morning. Let's look back ten years solvency crisis or 0:41:34.160 --> 0:41:38.160 aquidity crisis? What did that bank actually face liquidity, no 0:41:38.320 --> 0:41:42.760 question about it. You lost repo which you lost commercial paper. 0:41:42.960 --> 0:41:47.640 Your clients were selling back long term debt. Your counterparties 0:41:47.719 --> 0:41:54.200 were asking for more collateral um. Typically, financial institutions don't 0:41:54.239 --> 0:41:56.600 die for lack of equity, They die because of a 0:41:56.680 --> 0:42:00.719 funding run. What is the response ten his on look like? 0:42:00.880 --> 0:42:03.680 Because what strikes me is amazing ten years on is 0:42:03.680 --> 0:42:06.920 there's still huge debate about whether the response was the 0:42:07.000 --> 0:42:10.719 right response from regulators, from government officials to allow this 0:42:10.800 --> 0:42:14.520 bank to fail. There was a mistake to to let 0:42:14.520 --> 0:42:18.080 the let it fail. The you you scared the market, 0:42:18.320 --> 0:42:21.480 and in scaring the market, it was that uncertainty which 0:42:21.560 --> 0:42:24.440 led to the next thing, right, which was everybody pulls 0:42:24.480 --> 0:42:28.799 in their lending, everyone pulls in their counterparty risk, and 0:42:28.920 --> 0:42:32.640 you have a global credit reduction. Did it fail because 0:42:32.640 --> 0:42:35.239 there wasn't a Jamie Diamond there to write the check 0:42:35.280 --> 0:42:38.960 because he was preoccupied with a previous failure bear Stearns? 0:42:40.320 --> 0:42:43.399 Was it just somebody? There wasn't somebody else equivalent? In 0:42:43.400 --> 0:42:46.440 other words, there weren't there There wasn't There was a 0:42:46.480 --> 0:42:49.520 marriage partner, Yeah, there was all or a divorce partner, 0:42:49.560 --> 0:42:51.360 whatever you want to call it. But I don't know 0:42:51.360 --> 0:42:54.920 where I got that. But but but Brad Mr Diamond 0:42:55.000 --> 0:42:58.319 was exhausted from bailing out bear Stearns, and there was 0:42:58.400 --> 0:43:02.600 no obvious candidate to take out Lehman. Is that right? Well, 0:43:02.760 --> 0:43:06.560 you you had Barclay's at one point, right, you had 0:43:06.760 --> 0:43:10.040 UM and and and certainly you had Bank of America 0:43:10.200 --> 0:43:13.000 as another name. We we've all read the history on 0:43:13.000 --> 0:43:15.279 this that there were a number of things going on. 0:43:15.680 --> 0:43:18.040 I think the the issue you have as a management 0:43:18.040 --> 0:43:20.279 team at Lehman that was looking at this versus the 0:43:20.360 --> 0:43:23.480 history of other liquidity events. Right. As a result, their 0:43:23.520 --> 0:43:28.799 balance she continued to rise through nineteen through two thousand eight. Right, 0:43:28.960 --> 0:43:32.000 you said earlier, this was an opportunity for Mr. Full 0:43:32.120 --> 0:43:35.920 That's how they looked at it. Well, in terms of 0:43:37.000 --> 0:43:40.240 liquidity events are an opportunity in fixed income. In essence, 0:43:40.280 --> 0:43:43.319 you're buying good assets at a troubled price. If you 0:43:43.400 --> 0:43:47.160 have enough funding to make it through the crisis, you're fine. 0:43:47.600 --> 0:43:52.480 Lehman had twelve months in their liquidity plan. And who 0:43:52.520 --> 0:43:56.440 would have guessed that a liquidity event in mortgage backs 0:43:56.719 --> 0:43:59.400 would swing across the entire credit market ultimately into the 0:43:59.400 --> 0:44:02.920 government mark. So you know, there was the the issue. 0:44:02.960 --> 0:44:04.560 I think we have an example. I mean, there's an 0:44:04.600 --> 0:44:08.640 example of Solomon Brothers um facing a liquidity event in 0:44:08.640 --> 0:44:12.400 the ninety nineties and their CFO put their raised their 0:44:12.440 --> 0:44:14.960 internal costs to fund to put their balance sheet into 0:44:14.960 --> 0:44:18.360 a nose dot shed assets and that bought hom time 0:44:18.400 --> 0:44:21.040 and they made it through that liquidity crisis. Had Lehman 0:44:21.120 --> 0:44:23.080 done the same thing, I think of what Goldman did. 0:44:23.160 --> 0:44:26.040 Goldman not only did they made a bet against it, 0:44:26.200 --> 0:44:29.560 but they also did not grow their balanche. Goldman pulled 0:44:29.560 --> 0:44:33.920 in their horns. Lehman did not. Leman and and and 0:44:34.200 --> 0:44:37.520 that was that that really set the stage as the 0:44:38.320 --> 0:44:42.000 as the markets became ever ill liquid. Lehman was stuck 0:44:42.000 --> 0:44:46.000 with a concrete side of its balanche. Its assets side froze, 0:44:46.320 --> 0:44:50.319 its liability side ran off, and you know, the end 0:44:50.320 --> 0:44:52.400 of the you know, the end of Lehman occurred. That 0:44:52.520 --> 0:44:55.319 the surprise was the FED right. Because the FED had 0:44:55.360 --> 0:44:58.120 taken action with Bear, and the FED had taken action 0:44:58.160 --> 0:45:01.279 by allowing the broker dealers to have excess to the 0:45:01.520 --> 0:45:07.480 to the discount window. The assumption among observers was the 0:45:07.520 --> 0:45:11.120 FED was going to make sure that this was orderly, 0:45:11.760 --> 0:45:15.279 and the Lehman balance failure was not orderly, and there 0:45:15.360 --> 0:45:17.400 was the problem. So let's pick up on that, and 0:45:17.480 --> 0:45:21.440 a final question, use the word panic. Officials now believe 0:45:21.560 --> 0:45:24.480 they have the structures, the regulations to allow for an 0:45:24.560 --> 0:45:28.680 orderly failure of a bank when it actually comes to it, 0:45:29.560 --> 0:45:31.719 if we ever have to face a crisis like this again, 0:45:31.719 --> 0:45:34.200 whether it's in ten years, twenty thirty years, wherever it is, 0:45:35.120 --> 0:45:39.239 do you actually see the government and officials applying the 0:45:39.320 --> 0:45:42.480 rules that they currently have to allow for an orderly 0:45:42.520 --> 0:45:45.280 failure of a bank? Ever? Again, in the United States, 0:45:45.640 --> 0:45:50.280 the the FED needs to be able to lend wherever 0:45:50.320 --> 0:45:54.680 they wherever there is a need they're they're tied up 0:45:54.800 --> 0:45:57.759 too much at this point. In essence, we've established a 0:45:57.760 --> 0:45:59.400 set of rules that will be just perfect in the 0:45:59.480 --> 0:46:02.600 last crisis, and they we don't know what the next 0:46:02.600 --> 0:46:04.719 crisis will be. I mean, what this It goes back 0:46:04.760 --> 0:46:07.040 to Badget, folks. For those of you are not keeping score. 0:46:07.040 --> 0:46:11.360 Badget was a London banker that uh in journalists who 0:46:11.520 --> 0:46:13.880 decided we have to be the lender of the last resort. 0:46:14.360 --> 0:46:17.000 If Mr Paulson was sitting here and Mr Guitner, they 0:46:17.040 --> 0:46:19.719 would state to you that they had a lender of 0:46:19.840 --> 0:46:24.920 last resort responsibility to bail out the system. Obviously they 0:46:24.920 --> 0:46:28.279 did that with an expanded balance sheet. In all that, 0:46:28.400 --> 0:46:33.640 in hindsight, how do we get forward as we look back, 0:46:34.160 --> 0:46:38.280 all with the luxury of hindsight, what's the key lesson 0:46:38.640 --> 0:46:43.800 ten years from now? What is the key lesson? What 0:46:43.960 --> 0:46:46.400 do we learn from ten years ago? It's going to 0:46:46.480 --> 0:46:49.520 be the key lesson when this happens ten years forward. 0:46:49.640 --> 0:46:53.279 You need you need a strong team like we had 0:46:53.880 --> 0:46:58.759 those uh the three gentlemen who who who ran the crisis, 0:46:59.600 --> 0:47:02.520 step up and put their own careers on the on 0:47:02.560 --> 0:47:05.840 the line. Had they sucked their head in the sand, this, 0:47:06.080 --> 0:47:08.040 you know we would have had it faced a depression. 0:47:08.120 --> 0:47:11.000 They didn't. They moved very very quickly. We can argue 0:47:11.200 --> 0:47:14.520 about whether Lehman was a mistake or an under resumation, 0:47:14.640 --> 0:47:17.239 but they clearly moved which and you can see it 0:47:17.280 --> 0:47:19.439 right to US economy. US economy has come back better 0:47:19.440 --> 0:47:21.600 than others. Red Hits, thank you so much, honor to 0:47:21.640 --> 0:47:27.120 have you with us New York University. If you are 0:47:27.120 --> 0:47:30.520 in Paris, you have to send someone to America b 0:47:30.719 --> 0:47:35.760 MP Perry, but three decades ago sent Jean eve Fion. Critically, 0:47:35.800 --> 0:47:38.399 he was involved in the b MP for this transaction 0:47:38.719 --> 0:47:41.040 and has done tours of duty in Los Angeles where 0:47:41.040 --> 0:47:43.719 he worked on his tennis game, in Chicago, where on 0:47:43.840 --> 0:47:46.759 Lake Michigan he went sailing a lot, and wandered over 0:47:46.800 --> 0:47:49.800 to New York to command the b MP Perry BA 0:47:49.920 --> 0:47:54.279 flagship in America. Johnny Fion joins us this morning. We 0:47:54.320 --> 0:47:57.520 are thrilled to have you here at this tumultuous time 0:47:57.560 --> 0:48:00.480 for banking. Much to talk about in the hour. First 0:48:00.480 --> 0:48:03.160 of all, what was a single lesson you've learned from 0:48:03.160 --> 0:48:05.640 the lemon tobacco? Well, by the way, thank you for 0:48:05.719 --> 0:48:07.560 having me. It's a pleasure to be here, and you're 0:48:07.680 --> 0:48:11.560 very well informed by the way my tennis game. Um. 0:48:11.640 --> 0:48:15.880 I think the first lesson was not all the crisis 0:48:15.880 --> 0:48:20.560 are predictable, and it was very well said before the 0:48:20.600 --> 0:48:24.799 world got a little bit caught by surprise, even though 0:48:24.960 --> 0:48:28.840 some signals were already there. I think the second dimension 0:48:29.200 --> 0:48:32.400 we all learned was I don't think we had collectively 0:48:32.480 --> 0:48:38.560 to reassessed the interconnectivity between the various uh you know, 0:48:38.800 --> 0:48:45.239 entities and countries, and the world was already very interconnected. Otherwise, 0:48:45.960 --> 0:48:48.160 I believe that the world today is so different from 0:48:48.200 --> 0:48:51.400 ten years ago. It was already said, um, you know, 0:48:51.440 --> 0:48:56.719 the banking industry specifically, it's better capitalized, as more liquid, uh. 0:48:56.800 --> 0:48:59.560 The stress the stress testing being implemented here in the 0:48:59.640 --> 0:49:02.920 United States now in Europe. I think I've provided a 0:49:03.480 --> 0:49:06.680 lot of improvements as well as all the work that 0:49:06.719 --> 0:49:10.840 has been done around living well resolution planning. I'm not 0:49:10.880 --> 0:49:12.960 saying this is a risk less I'm just saying it's 0:49:13.000 --> 0:49:16.759 a it's it's a very different governance at well. Up 0:49:16.760 --> 0:49:19.239 for American artists want to make their BNP very well. 0:49:19.280 --> 0:49:22.880 It's the dominant bank of France and with a huge 0:49:22.880 --> 0:49:27.200 European platform, a retail platform, but also an expanse of 0:49:27.280 --> 0:49:30.800 and early vision to Asia as well. And the message 0:49:30.880 --> 0:49:34.880 this week Jane has been that Lehman was opportunistic in 0:49:34.960 --> 0:49:36.920 trying to get out front and to do do do 0:49:37.640 --> 0:49:41.160 Your bank is the polar opposite. Are do you worry 0:49:41.200 --> 0:49:45.520 now that in other banks we're seeing too much opportunistic 0:49:45.600 --> 0:49:49.240 tone that could get them into trouble. You know, Tom, 0:49:49.480 --> 0:49:51.759 it's an excellent point. At the end of the day, 0:49:52.200 --> 0:49:55.239 it's sunny about sides, it's donny about business model. It's 0:49:55.239 --> 0:49:59.919 really about risk management, risk capitide, and risk identification, which 0:50:00.040 --> 0:50:02.799 I think the banking industry as a whole has made 0:50:02.840 --> 0:50:06.360 a significant progress to your point as it relates to 0:50:06.440 --> 0:50:09.560 be in PRIBA. What has worked well of the many 0:50:09.600 --> 0:50:16.680 years is UH diversification. Diversification in terms of geographical diversification Europe, 0:50:17.040 --> 0:50:21.400 European leader, America's were deeply involved here in Asia, but 0:50:21.480 --> 0:50:24.960 diversification as well in terms of product mixed and in 0:50:25.040 --> 0:50:29.160 terms of activity. If if I go to our platform 0:50:29.239 --> 0:50:33.040 here in the United States, UM, it's a diversified platform. 0:50:33.080 --> 0:50:35.080 As you just said. You know, we have retail, we 0:50:35.160 --> 0:50:38.560 have wholesale, retail is Bank of the West, UM, we 0:50:38.680 --> 0:50:42.080 have two and a half million clients. We do lending 0:50:42.560 --> 0:50:47.560 consumer finance wholesale based in New York is serving corporates 0:50:47.760 --> 0:50:54.400 UH domestically internationally sixteen thousand people and six billions sixteen 0:50:54.440 --> 0:50:56.640 thousand dependent the United I don't know that in the 0:50:56.719 --> 0:51:00.759 United experiencing Yeah, ivelean talk to me a little bit 0:51:00.800 --> 0:51:04.200 about whether the French bank differently to the Americans and 0:51:04.280 --> 0:51:07.240 so do you need to speak to your customer differently 0:51:09.200 --> 0:51:13.160 in terms of uh, you know, UH sixteen thousand people 0:51:13.200 --> 0:51:16.239 in the United States UH six billion of revenues. This 0:51:16.320 --> 0:51:19.920 is the largest balanciet a location uh for the bank 0:51:20.600 --> 0:51:24.480 after France. Then in terms of speaking to clients here, 0:51:24.480 --> 0:51:27.319 we we feel very part of the fabric of the 0:51:27.440 --> 0:51:31.560 U S. Having said that, UH or I think one 0:51:31.600 --> 0:51:35.320 of our differentiating factors here is we can serve clients 0:51:35.400 --> 0:51:39.000 domestically UH probably as well as any other banks in 0:51:39.000 --> 0:51:41.400 the product suite we have. But when it's time to 0:51:41.560 --> 0:51:44.360 cover them outside of the United States, let's say do 0:51:44.520 --> 0:51:49.200 capturizing acquisition financing for logeate log reates corporates in the 0:51:49.440 --> 0:51:53.440 urban market where we lead. This is where we probably 0:51:53.480 --> 0:51:57.399 can add even more contribution to the client base here. 0:51:57.800 --> 0:52:00.600 But to your point. From seeing UH based in London, 0:52:00.640 --> 0:52:04.520 I'm sure you see that. Conversely, we've been very active 0:52:04.520 --> 0:52:08.720 in taking US European clients into the deep US market, 0:52:09.520 --> 0:52:14.560 leveraging or large distribution capabilities, particularly that distribution capabilities in 0:52:14.600 --> 0:52:17.560 the United States and having an ability to raise you know, 0:52:17.719 --> 0:52:22.360 US or or capital here and and euro UH in 0:52:22.520 --> 0:52:24.760 on the other side of the Atlantic has has worked 0:52:24.760 --> 0:52:29.880 pretty well, while the Transatlantic flow and dynamic has been 0:52:29.960 --> 0:52:33.080 quite active over the last few years. But how will 0:52:33.120 --> 0:52:35.759 finance change over the next ten years? Is it to 0:52:35.840 --> 0:52:40.000 five ten years? Is it digitalization? Is it the way 0:52:40.160 --> 0:52:42.440 we work or is it the way that banks actually 0:52:42.480 --> 0:52:46.240 learn to each other? You mean you mean looking forward 0:52:47.280 --> 0:52:51.919 over exactly in the next ten years, how will finance change? Well, 0:52:51.920 --> 0:52:54.759 it's I love the question from seeing Think. At times 0:52:54.760 --> 0:52:56.719 I feel one year is a really long term for me. 0:52:56.840 --> 0:53:00.279 But I think said that, I believe that the the 0:53:00.320 --> 0:53:03.239 future of banking here. Obviously it's around business model, it's 0:53:03.280 --> 0:53:07.000 around serving clients, but it's I think it's around other 0:53:07.120 --> 0:53:10.759 dimensions that maybe we don't speak enough. I think, for instance, 0:53:11.120 --> 0:53:17.040 obviously the first UH dimension is a technology. It's automatization, 0:53:17.200 --> 0:53:23.040 it's electronification, artificial intelligence. I believe that technology, if it's 0:53:23.080 --> 0:53:26.480 well done, is going to provide a safer world. And 0:53:27.320 --> 0:53:29.760 the concept of low touch and high uch to serve 0:53:29.800 --> 0:53:33.360 clients more efficiently is happening. But this is part of 0:53:33.400 --> 0:53:36.200 the future. There is another dimension which I believe is 0:53:36.280 --> 0:53:39.320 very connected with what you do here at Bloomberg. This 0:53:39.520 --> 0:53:44.319 is sustainability. The banking industry as the real world to 0:53:44.400 --> 0:53:50.560 play in this field, to support the planet and the 0:53:50.560 --> 0:53:52.680 future of the planet better and I think to be 0:53:52.840 --> 0:53:56.920 really even closer to our clients value. This is really important. 0:53:56.960 --> 0:53:59.760 Because I was in Paris with Francine for the parents 0:53:59.800 --> 0:54:02.480 of Reeman and Courseworks, we should state that Michael Bloomberg, 0:54:02.920 --> 0:54:06.520 the owner Bloomberg and these radio and TV properties, was 0:54:06.760 --> 0:54:09.960 very much part of that agreement. Does the Paris agreement 0:54:10.080 --> 0:54:13.840 still stand? Even as President Trump says no, I believe 0:54:13.920 --> 0:54:16.680 the Paris agreement, you know, Cup twenty one, Cup twenty 0:54:16.680 --> 0:54:19.880 two still stands more than ever as you know, actually 0:54:19.920 --> 0:54:21.480 in a few days here there was going to be 0:54:21.560 --> 0:54:24.600 the sustainable a week from the United Nations. I think 0:54:24.680 --> 0:54:28.640 Michael Bloomberg, with his forearm, is going to be extremely active. 0:54:28.680 --> 0:54:31.279 My group CEO jama Fe will be in New York 0:54:31.560 --> 0:54:34.719 and we will be very proactive here. Listen, you love 0:54:34.760 --> 0:54:37.640 statistics and metrics, Tom and Francine. If you look at 0:54:37.680 --> 0:54:41.200 the world today, you have over twenty trillions of savings 0:54:41.440 --> 0:54:45.600 every year, new savings to reach the United Nations as 0:54:46.000 --> 0:54:49.800 as DJs you between quotes only need five to seven 0:54:49.840 --> 0:54:55.000 trallion a year to reach the objectives. That's very doable. 0:54:55.280 --> 0:54:57.960 But the finance industry as a real world to play here. 0:54:58.440 --> 0:55:01.960 This bank BNDPIE has been one of the very first 0:55:02.000 --> 0:55:05.680 global financial institutions to actually commit to the u n 0:55:06.080 --> 0:55:11.759 to provide over ten billion off financing. Links to sustainability 0:55:12.239 --> 0:55:18.799 seems to talk about here of BNP parabout Thanks for 0:55:18.880 --> 0:55:23.279 listening to the Bloomberg Surveillance podcast. Subscribe and listen to 0:55:23.440 --> 0:55:29.200 interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. 0:55:29.719 --> 0:55:33.080 I'm on Twitter at Tom Keane before the podcast. You 0:55:33.080 --> 0:55:36.480 can always catch us worldwide. I'm Bloomberg Radio.