Speaker 1: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 1: Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio our next guest.
Speaker 1: But years working at several iconic Wall Street firms, former
Speaker 1: Goldman sax Managing Director, former senior managing director at bear
Speaker 1: Stearns over in London, before that Lehman and Chase Manhattan.
Speaker 1: Nomi Prince is an economist. She's also an author and
Speaker 1: an investigative journalist. She's also the author of several books,
Speaker 1: including her newest, Permanent Distortion, How the Financial Markets Abandoned
Speaker 1: the Real Economy Forever. She joins us live in the
Speaker 1: Bloomberg Interactive Broker's studio this afternoon. No me, congratulations on
Speaker 1: the new book. Just came out on October eleven, so
Speaker 1: it's been out for a couple of days. We're going
Speaker 1: to talk about the book. We got a great chunk
Speaker 1: of time with you. But given your background, your role
Speaker 1: as an economist, we gotta get your take on what's
Speaker 1: happening in the markets right now and what's happening in
Speaker 1: the economy. I mean a wild day on Wall Street
Speaker 1: where we saw markets open down more than two percent
Speaker 1: and then end up finishing the day close to session highs.
Speaker 1: What's going on here, um mass insanity in the markets.
Speaker 1: I mean, what's happening right now is that the markets
Speaker 1: don't know how to process whether they're going to have
Speaker 1: sort of cheap money forever, whether the FED is going
Speaker 1: to go back to sort of what it used to
Speaker 1: be like, whether it's going to continue to high grates,
Speaker 1: how to actually interpret every little teeny piece of data.
Speaker 1: So there's no idea forward looking analysis in the markets
Speaker 1: right now. It's all reactive um. And that's something that's
Speaker 1: very new to the period that we're living in right now,
Speaker 1: versus when I was on Lall Street, when it was like, okay,
Speaker 1: this is what rates are. They go up, they go down,
Speaker 1: they're sort of a balance. But by the time we've
Speaker 1: gotten to this point where rates have been at zero
Speaker 1: for for so much of the last fourteen years and
Speaker 1: now they're sort of moving up. But the feed is
Speaker 1: still sitting on a book of almost nine trillion dollars
Speaker 1: worth of assets, and all the central banks around the
Speaker 1: world are in similar kind of positions. It's really hard
Speaker 1: to figure out where there's actually value in sectors, in names,
Speaker 1: and in the specifics of the market. So a lot
Speaker 1: of this is more knee jerk reactive than necessarily forward analysis.
Speaker 1: How should we think about the financial markets? Is it
Speaker 1: the real world, the real economy? It isn't and and
Speaker 1: and this is part of the process that we've been
Speaker 1: in since really two thousand eight and a little bit
Speaker 1: before that. I mean, when we got into two thousand eight,
Speaker 1: because in the beginning of the two thousand, two thousand,
Speaker 1: two thousand and one, we had rates very low, we
Speaker 1: had mortgages going crazy at a subprime crisis, and we
Speaker 1: got this whole quantitative easing period that we are still
Speaker 1: living in right now. And we're not at the back
Speaker 1: of this by a long shot. We're we're like in
Speaker 1: the middle of potentially you know, quei forever um, even
Speaker 1: if books come down by a little bit. And so
Speaker 1: what does that mean? I mean, the real economy doesn't
Speaker 1: necessarily get the benefit of financing the same way it
Speaker 1: used to get the benefit of financing in the sixties
Speaker 1: and the seventies and the fifties when we were building
Speaker 1: roads and highways. Because it's come second to money being
Speaker 1: created quickly, being leveraged excessively, and flowing into financial assets
Speaker 1: that are quicker to turn around. So can I ask
Speaker 1: you something? So the sophistication of markets and how we
Speaker 1: can trade it and slice and dice it. Is that
Speaker 1: why you're saying it doesn't It's just a whole different
Speaker 1: game on Wall Street versus years ago, decades ago, when
Speaker 1: it really was reflective of what was going on in
Speaker 1: the economy. Well, there was certainly more information that was
Speaker 1: coming from the direct economy through companies that were involved
Speaker 1: in creating different components of the economy and being more
Speaker 1: directly related to individuals. And now, of course we have
Speaker 1: much more technology of much more analysis. We also far
Speaker 1: more leverage um, and so we combine the technological leverage
Speaker 1: with the financial leverage, we have this complete disconnect between again,
Speaker 1: money going into the economy and sticking around and being
Speaker 1: used for longer term capital investments and creation and all
Speaker 1: of that relative to I'm here now, I'm there. Now,
Speaker 1: I'm trading on momentum, on trading on technological factors, I'm
Speaker 1: trading on computer science, and I'm not necessarily trading on
Speaker 1: value and the long term view. You said something that
Speaker 1: makes me think about the role that government takes, because
Speaker 1: when you think about big infrastructure projects in the nineteen
Speaker 1: fifties and nineteen six do you think about the post
Speaker 1: World War two boom here in the United States, the
Speaker 1: building of Levittown, for example, all of these like shovel
Speaker 1: ready projects. That's something that you need to have, you know,
Speaker 1: widespread agreement on when it comes to putting that, you know,
Speaker 1: implementing them. We don't have that right now. It's all
Speaker 1: a joke. It's always infrastructure week right and Washington and
Speaker 1: nothing ever gets done. Is that a big obstacle to
Speaker 1: kind of getting past where we are the financialization of
Speaker 1: the economy. That's a really good question, and it's true.
Speaker 1: In the fifties and sixties we had we had a
Speaker 1: connection in politics that related to the connection of what
Speaker 1: was needed to be done in the country, the building
Speaker 1: of those highways, the building of the space program, the
Speaker 1: building of permanent, lasting features. We've been had that in
Speaker 1: the nineteen thirties, like Whoever Dam was built in the
Speaker 1: middle of the Great Depression, because it was a process
Speaker 1: that had started and it had financing, and it retrieved
Speaker 1: that financing throughout the all the years that it took
Speaker 1: to build it. So there's a lot of longer term
Speaker 1: thinking and longer term capital commitment in those days, not
Speaker 1: just from the direction of Washington, I had that too,
Speaker 1: but also from the direction of private industry, from Wall Street,
Speaker 1: from companies throughout the country. That there was a collaboration
Speaker 1: that that has really become disintegrated. Now we can't even
Speaker 1: build a tunnel between Manhattan and New Jersey. We we can't.
Speaker 1: We haven't been able to do that, and there's an
Speaker 1: incredible need for it. We've got no me priends with us.
Speaker 1: She's an author and investigative journalist. She's got the new
Speaker 1: book out, Permanent Distortion, How the Financial markets abandoned the
Speaker 1: real economy Forever. She was a managing director at Goldman Sachs.
Speaker 1: She ran the International Analytics Group. As a senior managing
Speaker 1: director at bear Stearns, she was a strategist that Lehman
Speaker 1: brother She was also at Chase Manhattan Bank before that UM.
Speaker 1: She also was on Senator Bernie Sanders Federal Reserve Reform
Speaker 1: Advisory Council. Know me, what I want to talk to
Speaker 1: you is about how you made the transition from banking
Speaker 1: into becoming an author an investigative journalist, Like why did
Speaker 1: you leave the industry, did you run from the industry.
Speaker 1: Now just kidding, UM nine eleven, how two things happened
Speaker 1: from the industry, right, nine eleven happened. I was like
Speaker 1: Goldman Sachs Corner office and twenty floor, the whole, the
Speaker 1: whole thing, UM that was going on at the time.
Speaker 1: And at the time also there was a lot of
Speaker 1: corruption that was happening on the corporate side. That was
Speaker 1: sort of when en Ron was breaking, you know, it
Speaker 1: was in world calm was breaking. There was a lot
Speaker 1: of like tension in terms of what the reality of
Speaker 1: bound and sheets were, what the role of Wall Street was,
Speaker 1: and of course what we found it to be UM
Speaker 1: in all those corporate scandals, and I was I was
Speaker 1: seeing a lot of that and getting sort of, you know,
Speaker 1: very disgusted with a lot of them. And then of
Speaker 1: course not eleven happens and sort of you know, add
Speaker 1: one and one, get two and two is based on
Speaker 1: I need to go and I need to talk about
Speaker 1: this stuff, and so a lot of them. The first
Speaker 1: writings I did, UM were about what was going on
Speaker 1: in terms of the corporate scandals, telecom sector, the energy sector,
Speaker 1: UM in Wall Streets connection, and I wound up taking
Speaker 1: that route into my first book, Other People's Money, The
Speaker 1: Corporate Monky of America UM, which also talked about the
Speaker 1: inns of golden sacks as well as the banking industry
Speaker 1: and everything that was going on there, because I thought
Speaker 1: at the time nobody was talking about it. I mean,
Speaker 1: at the time, we couldn't even talk about being inside
Speaker 1: Wall Street's not like today where everybody's talking sort of
Speaker 1: about everything all the time. It wasn't like that. It was.
Speaker 1: It was very much a sort of more secretive sort
Speaker 1: of situation, and I needed to talk about it, so
Speaker 1: I needed to be outside to talk about inside. I
Speaker 1: want to get right back to no Me. Prinds, author
Speaker 1: and investigative journalist. Google her because her backgrounds incredible. She's
Speaker 1: got a new book app Permanent Distortion and how the
Speaker 1: financial markets abandoned the real economy Forever Permanent Distortion. Why
Speaker 1: is it permanent? Um? Excellent question. It was not taken
Speaker 1: lightly because I like words as well being an author. UM.
Speaker 1: It's because in the wake of the financial crisis, when
Speaker 1: we went down to zero percent interest and and and
Speaker 1: we created four and a half trillion dollars worth of
Speaker 1: money from nowhere to take debt out of the market.
Speaker 1: At the time, US debt in generals nine trillion dollars
Speaker 1: four and a half trillion equivalent was on the Fed's books.
Speaker 1: Some of that was mortgages, treasuries, was all connected. Then
Speaker 1: we had a double down situation that happened in twenty
Speaker 1: So the period in between there was a lot of
Speaker 1: speculation when will the Fed raise rates, etcetera. They raised
Speaker 1: in markets were were insanely negative on that whole prospect.
Speaker 1: They didn't raise again until twenty six and then sort
Speaker 1: of bits along the way to turned around in twenty
Speaker 1: nineteen and to twenty nineteen because Wall Street collateral wasn't
Speaker 1: working between Wall Street and its own its own, its
Speaker 1: own customers, UM, the repoil markets were falling apart. So
Speaker 1: the FED turned around and created more q E, brought
Speaker 1: rates down again. UM talked about as if it was
Speaker 1: related to the economy, but in fact was related to
Speaker 1: the quity on Wall Street, which, by the way, right
Speaker 1: now we're going to see a lot of problems I
Speaker 1: think coming into tomorrow's numbers. But besides that, when we
Speaker 1: got into just a few months after that and the
Speaker 1: pandemic hit, that's when there was an overdrive factor and
Speaker 1: that's when the FED went to nine trillion dollars from
Speaker 1: at the time four point one, but effectively doubled in
Speaker 1: a few months what it took a number of years
Speaker 1: to get to the first time. Other central banks around
Speaker 1: the world following and what became just a sort of help,
Speaker 1: which was enormous to begin with, became a permanent artificial
Speaker 1: cushion to the markets. And even right now, even with
Speaker 1: rates coming up now and all the speculations, the FEDS,
Speaker 1: you know, totally changing and it's going to be this
Speaker 1: inflation hawk. Even though can't fight a lot of the
Speaker 1: inflation it says it's trying to fight, it doesn't actually
Speaker 1: change the fact that this cushion is underneath all the
Speaker 1: financial markets. And that's why we have days like today
Speaker 1: where the market basically spans fifteen hundred points and day
Speaker 1: on the doubt, that's not normal, that's not healthy. That's
Speaker 1: related to the speculation versus this permanent idea of this
Speaker 1: distortion between where the money goes to the economy, how
Speaker 1: it gets to the markets, where it stays it. It's
Speaker 1: not a question of blaming the FED. It's a question
Speaker 1: of the Feed is responsible for creating the cushion. So
Speaker 1: I blame the cushion. The FED created the cushion, So
Speaker 1: in that respect, yes, I do blame the FET. But
Speaker 1: you have to look at the bigger picture, not just
Speaker 1: not just what is the FET and doing now with
Speaker 1: interest rates? That obviously is creating uncertainty in the markets,
Speaker 1: and it's certainly oppressing people trying to get mortgages right
Speaker 1: now which are twice as expensive as they were six
Speaker 1: months ago. That and that's a really quick change. And
Speaker 1: if you're trying to budget and you're the bottom level
Speaker 1: of your own you know, sort of the economy. But
Speaker 1: this is more about the fact that cushion exists. It's
Speaker 1: not just the FET, it's the Bank of England, it's
Speaker 1: the European Central Bank is a bankage, but it's the
Speaker 1: global um central bank network that has basically created this
Speaker 1: this outside source of capital in order to be there
Speaker 1: when it deems necessary, and that that uncertainty about what's
Speaker 1: necessary is now what's permeating in the markets, and it's
Speaker 1: a reason why capital can't go outside those markets when
Speaker 1: they're going up or when they're going down to long
Speaker 1: term projects into the foundational economy. To the same extent,
Speaker 1: as before, and did this start I mean, would you
Speaker 1: say that this was the in the wake of the
Speaker 1: Great Financial Crisis or was this happening earlier. It was
Speaker 1: happening a bit earlier, but quantitative easing to the extent
Speaker 1: that we saw it, we see it now and in
Speaker 1: the doubling sense of financial crisis was a post financial
Speaker 1: crisis phenomenon. And we had a situation where the entire
Speaker 1: banking system was so over leveraged and all of the
Speaker 1: customers of all the over leverage mortgage product we're facing,
Speaker 1: you know, potential largin calls and everything else out the
Speaker 1: whole system, from the top on all the way to
Speaker 1: the outskirts um. And so from that point on, when
Speaker 1: the FED decided, Okay, Ben Vernaki just just want a
Speaker 1: noble prize for not noticing this happened in into nine
Speaker 1: because we had a home bubble then too. Um. But
Speaker 1: the point being that that this created um, this this
Speaker 1: momentum in the fabrication of money that had not existed
Speaker 1: ever before. Japan kind of did it for a while,
Speaker 1: did it since the nineties, but but nowhere near to
Speaker 1: the same extent that the FED did it. And then
Speaker 1: every other central bank in the world followed, and so
Speaker 1: again this became a global situation where the global cost
Speaker 1: of money was zero and the global cushion continued to grow,
Speaker 1: and that happened in the wake of the financial crisis. Soho.
Speaker 1: As a result, those who have access to that Christian
Speaker 1: basically and that velocity of money have really benefited in
Speaker 1: a big way. And hence we have this massive gap
Speaker 1: in society that just gets bigger and bigger in terms
Speaker 1: of wealth. That's right, because obviously if you're in the
Speaker 1: market and you can leverage yourself into the market, that's
Speaker 1: whether you're a wealthy individual, the CEO of a company
Speaker 1: that buys a lot of its own shares or has
Speaker 1: the benefit of other leverage coming into that particular company,
Speaker 1: or any of the financial markets, those have this buzz up.
Speaker 1: Again right now, there's a bit of uncertainty, but for
Speaker 1: the most part they have had this um, the acceleration
Speaker 1: I would say, the velocity of money. So basically, this
Speaker 1: this tush of money going into those areas and therefore
Speaker 1: money money has choices, but money goes I talk about
Speaker 1: this in the book that the if you visualize where
Speaker 1: money is going, money is flooding into the place where
Speaker 1: it can go most easily and where it can stay
Speaker 1: most easily, we can have the greatest impact. And that
Speaker 1: means that anyone using it, anyone leveraging, and anyone that
Speaker 1: has access to it gets that benefit and anyone who
Speaker 1: doesn't simply doesn't and as a result that gap. We're
Speaker 1: speaking with Gnomi Friends, author and investigative journalist. She's got
Speaker 1: the new book Permanent Distortion. How the financial markets abandoned
Speaker 1: the real economy forever? You know me? How can banks
Speaker 1: better serve the real economy? Banks can look at their
Speaker 1: balance sheet in terms of where their small business loans are.
Speaker 1: They can look at where they're paying people for the
Speaker 1: interests on their savings account. They cannot charge ridiculous fees
Speaker 1: relative to the amount of money that people have with
Speaker 1: accounts right now for example, No, I'm not going to
Speaker 1: do that, and they're not, yes, because the incentives aren't
Speaker 1: aligned for this, right, the incentives aren't aligned for this,
Speaker 1: so why would do so? So in I have this
Speaker 1: conversation at the fed UM. I have this conversation as
Speaker 1: of saying at the fed UM in front of the FED,
Speaker 1: the IMF and central bankers who are who are involved
Speaker 1: in this in this, you know, the animal meeting they
Speaker 1: have there and that the topic was why is into
Speaker 1: Wall Street helping helping Main Street? And I just got
Speaker 1: up and I said, because you you're not making them.
Speaker 1: I mean, they basically have the benefit of all of
Speaker 1: QUI all of the loans, all of the help, all
Speaker 1: of the access to zero percent money, and you're wondering
Speaker 1: why they're not sort of just just giving it out
Speaker 1: to sort of little people that hold accounts with them.
Speaker 1: I mean, it's not really rocket signed, so not because
Speaker 1: they don't have to. I get the argument for why
Speaker 1: they should because of the assistance they got from the government. Right.
Speaker 1: And there are banks, as you know you worked at Lehman,
Speaker 1: they're not around anymore, right, I mean, there are banks
Speaker 1: that are are survived because of it. But I do
Speaker 1: wonder as publicly held companies, they have got to constantly
Speaker 1: think about returns to investors. And that's why I think.
Speaker 1: I'm not pointing fingers or anything, but I mean that's
Speaker 1: why they potentially don't do that. And we've just got
Speaker 1: about thirty or forty seconds left here, So is there
Speaker 1: you talked about. I don't know what's the final takeaway
Speaker 1: for our audience. Well, the final take of me is
Speaker 1: when I say permanent, I actually mean permanent. I don't
Speaker 1: think there's going to be a period where the FEDS
Speaker 1: book is going to go back down to the billion
Speaker 1: dollar or as it was before the financial crisis of
Speaker 1: two thousand and eight. Maybe it dibbles from like nine
Speaker 1: trillion into six seven trillion, it's still massive, and then
Speaker 1: again you multiply that throughout the world. So what does
Speaker 1: that mean. That means going forward we're gonna have more
Speaker 1: and more of these volatile days to this magnitude. We're
Speaker 1: going to have more of these crises, bubble, crises, bubble
Speaker 1: So it's not necessarily gonna be one big thing. It's
Speaker 1: going to just be a volatile scenario because there's a
Speaker 1: permanent distortion of where money is created, where it goes,
Speaker 1: who gets it and who doesn't, Which is in the
Speaker 1: real consim is gonna be always a Christian out They're
Speaker 1: floating and it's massive. Um, let me come back, please,
Speaker 1: no me, friends, author, investigative journalists, so much permanent distortion.
Speaker 1: How the financial markets abandoned the real economy forever? Um.
Speaker 1: Great conversation. If you missed it, check out our podcast
Speaker 1: feed on Bloomberg dot com. That's it. We gotta run
Speaker 1: crazy day. We'll see you tomorrow.