WEBVTT - Bloomberg Wall Street Week: Bair, Gorsky, Vakil 0:00:00.160 --> 0:00:03.360 This is Bloomberg Wall Street Week. What's the state of 0:00:03.400 --> 0:00:06.360 corporate governance? The deficit is a real issue. The US 0:00:06.400 --> 0:00:09.880 economy continues to send mixed signals. The financial stories that 0:00:10.039 --> 0:00:13.000 cheap our world fed action to con concerns over dollar 0:00:13.039 --> 0:00:16.520 liquidity and encouraging China data. The five hundred wealthiest people 0:00:16.520 --> 0:00:19.160 in the world. Through the eyes of the most influential 0:00:19.239 --> 0:00:22.520 voices Larry Summers, the former Treasury Secretary, star Ward CEO 0:00:22.640 --> 0:00:26.360 Kevin Johnson sec Chairman J Clayton. Bloomberg wool Street Week 0:00:26.480 --> 0:00:30.200 with David Weston from Bloomberg Radio. Be careful what you 0:00:30.240 --> 0:00:34.120 wish for. More vaccines and seamulus point toward recovery, but 0:00:34.280 --> 0:00:36.440 it looks like it's going to be a bumpy ride. 0:00:36.800 --> 0:00:39.720 This is Bloomberg Wall Street Week. I'm David Weston. Maybe 0:00:39.720 --> 0:00:42.760 the most important development of the week, not just for markets, 0:00:42.760 --> 0:00:45.680 but for all of us was Johnson and Johnson joined 0:00:45.720 --> 0:00:49.760 the elite club of approved vaccine providers, adding its millions 0:00:49.760 --> 0:00:52.560 of doses to the battle against COVID. We talked to 0:00:52.680 --> 0:00:55.480 J and J chairman and CEO Alex Gorski about how 0:00:55.520 --> 0:00:58.000 they did it and how fast they can get that 0:00:58.120 --> 0:01:02.080 vaccine into people's arm. Look. From the very beginning, we 0:01:02.120 --> 0:01:06.160 tried to look at how could we design a the 0:01:06.400 --> 0:01:11.160 very best possible vaccine in terms of safety, efficacy, dosing, 0:01:11.640 --> 0:01:15.200 and and frankly administration and logistics and UH. And we 0:01:15.280 --> 0:01:17.080 had a platform that had been used in more than 0:01:17.120 --> 0:01:19.000 a hundred thousand patients that gave us a lot of 0:01:19.040 --> 0:01:22.920 confidence that the safety profile was very strong. We tested 0:01:22.959 --> 0:01:26.440 it thoroughly. And what's really important about our test, David, 0:01:26.480 --> 0:01:30.640 our clinical trials was we didn't start until September, and 0:01:30.720 --> 0:01:32.360 so just as we had come out of what I 0:01:32.400 --> 0:01:34.880 would say the low point over the summer and we 0:01:34.920 --> 0:01:38.160 started seeing cases increased, certainly across the United States, but 0:01:38.240 --> 0:01:41.600 more importantly around the world, that's when our trial began. 0:01:41.720 --> 0:01:45.520 So we were really into, you know, the the heat 0:01:45.880 --> 0:01:50.320 of the of the virus spread. Number two UH of 0:01:50.360 --> 0:01:52.160 our patients were in the United States, but we had 0:01:52.200 --> 0:01:56.080 about in Latin America, and we had about fifteen percent 0:01:56.160 --> 0:01:59.880 that we're actually in South Africa, so where you know, 0:02:00.280 --> 0:02:03.639 one of the most difficult strains of the South African straint. 0:02:03.880 --> 0:02:07.560 And by the way, of the fifteen thousand patients that 0:02:08.080 --> 0:02:10.440 we were working on, there are those that were infected 0:02:10.760 --> 0:02:13.880 actually had the South African variant UH, and so it 0:02:13.880 --> 0:02:15.560 gave us a lot of data, and what we saw 0:02:15.639 --> 0:02:19.240 were still very strong effectiveness rates in fact in serious 0:02:19.280 --> 0:02:21.880 cases and a hundred percent of the time as far 0:02:21.919 --> 0:02:24.560 as kept patients out of the hospital and kept them 0:02:24.600 --> 0:02:27.000 from dying. UH. So we know that this is going 0:02:27.040 --> 0:02:29.800 to be a really important tool for healthcare providers around 0:02:29.840 --> 0:02:33.000 the world. And so go forward and take give us 0:02:33.000 --> 0:02:35.280 a sense of where you're headed. Do you envision a 0:02:35.280 --> 0:02:37.480 world in which we have different versions of vaccine for 0:02:37.480 --> 0:02:39.480 different variants or do you think we know enough now 0:02:39.520 --> 0:02:41.600 to think we'll be able to have one version that 0:02:41.680 --> 0:02:45.519 will be good enough for all the variants. Well, David, look, 0:02:45.560 --> 0:02:48.920 I think all of these vaccines work extremely well, and 0:02:48.919 --> 0:02:51.160 the fact that we've seen these kind of results from 0:02:51.919 --> 0:02:56.520 three different platforms now is very encouraging. UM. And my 0:02:56.600 --> 0:02:59.200 recommendation is everybody needs to get a shot as soon 0:02:59.240 --> 0:03:02.560 as they possibly can, because every time this virus spreads, 0:03:02.960 --> 0:03:06.880 it's transmitted and UH it could has the potential to 0:03:06.960 --> 0:03:10.320 mutate to cause another variant, and so the faster we 0:03:10.360 --> 0:03:13.560 can get people vaccinated to stop that from happening, the 0:03:13.639 --> 0:03:16.720 likely better outcome we're going to have. But the good 0:03:16.720 --> 0:03:19.160 news is also is because of these new platforms that 0:03:19.200 --> 0:03:24.360 we have that are so much more adaptable, adaptable that 0:03:24.560 --> 0:03:27.640 right now companies and ours included as working on next 0:03:27.680 --> 0:03:30.639 generation should that be necessary. So we're gonna have to 0:03:30.680 --> 0:03:33.320 see how this plays out over the next sixth the 0:03:33.480 --> 0:03:36.120 next nine months. We could be in a situation where 0:03:36.120 --> 0:03:39.280 we see a precipitous decline in the virus. We could 0:03:39.280 --> 0:03:41.080 see some surgeons in the fall that we need to 0:03:41.080 --> 0:03:43.920 stay protective of, or we could see where we could 0:03:43.960 --> 0:03:46.640 need a booster shot or another shot further down the road, 0:03:46.640 --> 0:03:48.400 similar to what you do with the flu shot. But 0:03:48.920 --> 0:03:51.280 that being said, we're in a much better place today 0:03:52.080 --> 0:03:55.720 based upon all the great science, research and engineering that 0:03:55.720 --> 0:03:57.480 that we've been doing. But Alex, when you have the 0:03:57.520 --> 0:04:00.640 four million or who do you call to say worship 0:04:00.720 --> 0:04:04.000 ship them? Well, right now it's directly to the government. 0:04:04.040 --> 0:04:07.119 So in the United States, the government determines it goes 0:04:07.160 --> 0:04:11.840 from basically our our distribution facility and ups trucks to Macksson, 0:04:12.160 --> 0:04:14.480 and then the government works very closely to distribute it 0:04:14.480 --> 0:04:17.440 to the states. They're working closely with the governors as 0:04:17.440 --> 0:04:20.560 well as with some of the large retail chains. And 0:04:20.600 --> 0:04:22.640 you know, the good news is, David, I think now 0:04:22.720 --> 0:04:25.760 that we have a third vaccine out there, and and 0:04:25.800 --> 0:04:28.760 by the way, kudos to Fiser and Maderna for also 0:04:28.960 --> 0:04:32.599 significantly increasing their output. I would predict that in the 0:04:32.720 --> 0:04:35.160 second quarter we're no longer going to be near as 0:04:35.200 --> 0:04:38.640 supply constraint, and as we get more doses out, we're 0:04:38.680 --> 0:04:40.760 going to be able to open up some of the 0:04:40.800 --> 0:04:43.680 requirements and restrictions regarding who can get the vaccine and 0:04:43.720 --> 0:04:46.520 who can't, And as a result, our throughput will go up. 0:04:46.560 --> 0:04:48.400 And I think we're going to see a big difference 0:04:48.760 --> 0:04:51.400 about the number of patients being vaccinated in the second 0:04:51.480 --> 0:04:54.719 quarter around our country, let alone the world. Finally, Alex, 0:04:54.800 --> 0:04:57.760 I know you know you think strategically, and it's become 0:04:57.760 --> 0:04:59.760 a commonplace for all us to say the world's never 0:04:59.760 --> 0:05:02.080 going be the same as it was pre pandemic. But 0:05:02.120 --> 0:05:05.000 what about for Johnson and Johnson for your industry. Can 0:05:05.080 --> 0:05:06.960 you see ways in which you're going to make different 0:05:06.960 --> 0:05:10.240 decisions about deployment of capital employment going forward? Does it 0:05:10.320 --> 0:05:13.480 change the nature Johnson Johnson's business, what we've been through 0:05:13.600 --> 0:05:15.479 here with this pandemic. We look, I said, there's a 0:05:15.480 --> 0:05:18.920 few things that are very important strategic considerations for us 0:05:18.960 --> 0:05:21.720 going forward. And the first is the importance of global 0:05:21.760 --> 0:05:24.440 public health. I mean, one thing that this pandemic has 0:05:24.480 --> 0:05:28.360 demonstrated that if we don't have strong resilient public health 0:05:28.400 --> 0:05:33.240 systems in place, we don't have national security, economics, security, 0:05:33.600 --> 0:05:37.080 or frankly security as a society. And so making that 0:05:37.200 --> 0:05:42.160 investment focusing more on durability, sustainability, and maybe even some 0:05:42.200 --> 0:05:46.839 redundancy versus just maniacally on effectiveness and efficiency is going 0:05:46.880 --> 0:05:50.400 to be critical for us. Whether it's storing ppe, creating 0:05:50.480 --> 0:05:53.360 vaccine capacity, or the way that we even think about 0:05:53.400 --> 0:05:57.360 handling surgeons in hospital is some isn't a very important lesson, 0:05:57.440 --> 0:06:00.280 I believe for our industry. The second one for me, David, 0:06:00.360 --> 0:06:03.919 is just technology, and whether it's the technology of the science, 0:06:04.279 --> 0:06:06.440 the way we were able to collect data quickly, take 0:06:06.480 --> 0:06:10.279 the genomic information, apply it to a platform, have three 0:06:10.400 --> 0:06:13.840 vaccines in a period of months versus what ordinarily would 0:06:13.839 --> 0:06:16.719 require years. The way we've been able to share data 0:06:16.760 --> 0:06:20.560 and information to understand where this virus is and it isn't. 0:06:21.040 --> 0:06:24.960 I think it represents just a significant increase in the 0:06:24.960 --> 0:06:27.200 way we use data and the way that we apply 0:06:27.360 --> 0:06:30.840 that in decision making and healthcare systems throughout the world. 0:06:30.960 --> 0:06:33.919 That was Johnson and Johnson chairman and CEO Alex Gorski 0:06:34.160 --> 0:06:38.039 coming up Walmart as your friendly neighborhood bank. We talked 0:06:38.080 --> 0:06:40.800 with former f d i C head Sheila Bear about 0:06:40.800 --> 0:06:44.360 the risks and the opportunities. That's next on Wall Street 0:06:44.400 --> 0:06:54.880 Week on Bloomberg. This is Bloomberg Wall Street Week with 0:06:55.040 --> 0:06:58.520 David Weston from Bloomberg Radio. We don't care what they 0:06:58.520 --> 0:07:01.640 do as a retailer, but we are concerned about the 0:07:01.680 --> 0:07:05.040 safety and soundness of the financial system. And this doesn't 0:07:05.040 --> 0:07:10.000 just relate to Walmart. It's any commercial industrial company getting 0:07:10.040 --> 0:07:13.120 into banking and the threats that could potentially caused. That 0:07:13.320 --> 0:07:17.200 was former Ohio Congressman Paul Gilmore in two thousand seven, 0:07:17.240 --> 0:07:21.600 after Walmart's failed attempt to get into banking. Fourteen years later, 0:07:21.800 --> 0:07:25.560 Walmart maybe taking another look at taking on Wall Street, 0:07:25.600 --> 0:07:29.640 this time with two veterans from Goldman Sachs Consumer Finance division. 0:07:30.080 --> 0:07:33.480 They left Goldman this week to join a fintech startup 0:07:33.760 --> 0:07:38.000 backed by Walmart and Ribbit Capital. Omar Isma'il was the 0:07:38.040 --> 0:07:42.280 head of Goldman's consumer bank named Marcus launched in two sixteen. 0:07:42.720 --> 0:07:45.280 It was meant to get Goldman into the consumer business, 0:07:45.360 --> 0:07:49.040 but it's been slow to gain traction. Here's Stephanie Cohen 0:07:49.120 --> 0:07:52.720 of Goldman. Sachs. We want to be the leading digital 0:07:52.880 --> 0:07:55.800 banking platform, and the idea behind this is that we 0:07:55.840 --> 0:07:59.119 can be someone's holistic bank. Later this year, we planned 0:07:59.120 --> 0:08:01.840 to launch checking. We really think that's the final staff 0:08:01.880 --> 0:08:06.040 efforts by retailers and startups to begin offering core banking products. 0:08:06.040 --> 0:08:11.200 Pits fintech against Wall Street. You have fintech, big tech. 0:08:11.360 --> 0:08:13.720 You saw Walmart recently, so we just have to be 0:08:13.720 --> 0:08:17.360 prepared for intensified competition. We're ready for it. We're very 0:08:17.360 --> 0:08:20.080 competitive and we expect to win. That's Jamie Diamond of 0:08:20.160 --> 0:08:22.840 JP Morgan Chase. Walmart has been trying to get into 0:08:22.880 --> 0:08:25.560 the banking business since the late nineteen nineties. It first 0:08:25.600 --> 0:08:28.840 tried unsuccessfully to buy a bank in California. Then it 0:08:28.920 --> 0:08:31.080 tried again in two thousand and five, applying for an 0:08:31.080 --> 0:08:34.480 industrial bank charter in Utah, which had hoped to use 0:08:34.600 --> 0:08:38.480 to process credit and debit card transactions internally. But the 0:08:38.600 --> 0:08:42.720 retailer faced a firestorm of opposition from lawmakers and banking 0:08:42.760 --> 0:08:47.400 industry groups. After two years and several delays, Walmart ultimately 0:08:47.520 --> 0:08:51.800 withdrew its application. Here's Walmart CEO Doug McMillan. You can 0:08:51.840 --> 0:08:55.120 go away quickly if you're not moving to where the 0:08:55.160 --> 0:08:59.000 customer wants to be served in the future. So what 0:08:59.040 --> 0:09:00.959 we're trying to do here is to get people to 0:09:01.040 --> 0:09:04.520 be really open to embracing what's next. Sheilabart was the 0:09:04.559 --> 0:09:06.440 head of the f d i C when the agency 0:09:06.559 --> 0:09:10.719 temporarily suspended Walmart's banking ambitions and encouraged the retailed to 0:09:10.840 --> 0:09:14.360 partner with banks instead. I asked her, what is different 0:09:14.480 --> 0:09:18.439 this time around. I'm not sure much is different. There's 0:09:18.480 --> 0:09:23.880 a financial technology has uh created new opportunities to provide 0:09:23.920 --> 0:09:27.679 financial services, especially in the payments space, with with with 0:09:27.800 --> 0:09:31.560 larger returns. So it may be that Walmart used this 0:09:32.000 --> 0:09:35.280 as attractive um as you say that they tried to 0:09:35.280 --> 0:09:37.319 get an i LC charter in two thousand five and 0:09:37.360 --> 0:09:39.280 two thousand and six. I was actually chair of the 0:09:39.360 --> 0:09:42.000 f d i C when that was attempted. It was 0:09:42.040 --> 0:09:44.280 already an ongoing issue when I came to the f 0:09:44.440 --> 0:09:47.320 d i C and I placed a moratorium on their 0:09:47.360 --> 0:09:50.080 application because there was so much controversy about it and 0:09:50.160 --> 0:09:53.160 asked Congress to resolve this whether they really want a 0:09:53.160 --> 0:09:56.480 commercial entity like Walmart to own at an I l 0:09:56.520 --> 0:09:59.880 C which is essentially a bank, and Congress never really 0:10:00.000 --> 0:10:02.520 out with it. It's still permitted. Walmart at that point 0:10:02.559 --> 0:10:05.360 decided to withdraw the application, which I think was wise. 0:10:05.760 --> 0:10:08.360 The Great Financial Crisis was, you know, coming, and we 0:10:08.400 --> 0:10:10.319 had other things to worry about at the fdi C. 0:10:10.640 --> 0:10:13.720 So a lot of the policy arguments are the same. 0:10:13.760 --> 0:10:16.840 I think financial technology perhaps makes this more attractive now 0:10:16.880 --> 0:10:19.880 to Walmart. I can only speculate they haven't really provided 0:10:19.920 --> 0:10:22.240 much public information about what their plans are. As you say, 0:10:22.280 --> 0:10:25.600 most of the regulatory agencies disfavor a commercial entity owning 0:10:25.600 --> 0:10:28.000 a bank. There is an exception in this industrial bank 0:10:28.080 --> 0:10:32.480 sort of an interesting phenomenon. What are the risks from 0:10:32.480 --> 0:10:35.800 not having the full regulatory force applied to something like 0:10:35.840 --> 0:10:39.880 a Walmart? So yeah, so I think so their concentration 0:10:39.920 --> 0:10:42.760 of power. I think the traditional prohibition we've had on 0:10:42.800 --> 0:10:46.679 this is the concentration of power of commercial, very large 0:10:46.720 --> 0:10:50.679 commercial entities, you know, being able to build banking empires 0:10:50.679 --> 0:10:53.000 to That's that's a lot of concentrated power. So I 0:10:53.000 --> 0:10:57.640 think that's an issue. Also the impact on community banks, 0:10:57.800 --> 0:11:00.600 you know, given Walmart you know, could provide a lot 0:11:00.600 --> 0:11:03.760 of competition. Uh. I think there's a fear there that 0:11:03.800 --> 0:11:08.520 they could really hurt community banks. So that's really uh 0:11:08.640 --> 0:11:12.360 the policy arguments against it, um but it's you know, 0:11:12.400 --> 0:11:16.920 in terms of safety and soundness. The other difference with 0:11:16.960 --> 0:11:20.080 the regular bank charter is that there's no holding company supervision. 0:11:20.200 --> 0:11:22.400 So with an i l C, for a regular bank 0:11:22.720 --> 0:11:27.000 that's owned by another entity, the FED exercises authority regulatory 0:11:27.040 --> 0:11:30.920 supervisory authority over that holding company. With an i l C, 0:11:31.120 --> 0:11:34.240 you don't have that. However, in the case of Walmart, 0:11:34.360 --> 0:11:37.199 I'm not really sure that's an issue. First, the f 0:11:37.320 --> 0:11:39.240 D i C always when they prove these I l 0:11:39.280 --> 0:11:44.160 C charters contractually require the parent to provide financial support 0:11:44.240 --> 0:11:48.280 to to the i l C. And also, obviously Walmart 0:11:48.320 --> 0:11:50.480 has very deep pockets, so it's hard to imagine the 0:11:50.520 --> 0:11:52.840 situation where a bag of theirs would would get in 0:11:52.840 --> 0:11:55.080 trouble for one of the ability of the parent to 0:11:55.160 --> 0:11:58.360 support it. So I think safety and sands is less 0:11:58.360 --> 0:12:01.360 of an issue in this content X, but certainly consumer 0:12:01.400 --> 0:12:04.240 protection and the impact of the competition are very, very 0:12:04.360 --> 0:12:07.479 very real issues you mentioned shield of the possible squeeze 0:12:07.600 --> 0:12:10.120 on local and community banks. If the Walmarts of this 0:12:10.120 --> 0:12:12.040 world get into that business, could there also be a 0:12:12.080 --> 0:12:14.520 squeeze on the bigger banks as a practical matter, as 0:12:14.559 --> 0:12:17.400 more and more big commercial energies come into their neighborhood 0:12:17.440 --> 0:12:19.760 and compete with them, for example, for a deposit taking, Well, 0:12:19.760 --> 0:12:22.760 they could very well be And you know again it's 0:12:22.760 --> 0:12:26.480 that may be a benefit. It's uh one you know 0:12:26.520 --> 0:12:29.600 we've had with this terrible pandemic. We've had an accelerating 0:12:29.600 --> 0:12:33.319 trend towards you know, a lot of branches closing remote 0:12:33.320 --> 0:12:37.440 provision of financial services. It's less cost, it doesn't involve 0:12:37.520 --> 0:12:40.000 people personally interacting with each other, which has become an 0:12:40.040 --> 0:12:43.719 issue with this pandemic. But there are still a lot 0:12:43.720 --> 0:12:46.080 of people who want a physical location to go to 0:12:46.200 --> 0:12:49.520 for their banking services. And Walmart can provide that with 0:12:49.559 --> 0:12:53.120 all its stores of elderly people, you know, people lowering 0:12:53.160 --> 0:12:56.040 some people who don't have access to the internet. The 0:12:56.040 --> 0:13:00.480 the ability of also provide not just technology to allogically 0:13:00.480 --> 0:13:04.079 remote services, but also a physical location, I think is 0:13:04.080 --> 0:13:07.280 an advantage that that Walmart could provide in a benefit 0:13:07.320 --> 0:13:10.040 to that segment of the population that still wants wants 0:13:10.080 --> 0:13:13.840 an actual banking physical space to go to. So yes, 0:13:13.960 --> 0:13:16.959 and in that context, their their vast array of stores 0:13:17.040 --> 0:13:21.320 could be highly competitive with these larger banks branch operations. 0:13:21.360 --> 0:13:23.080 So as you're right, it's not clear that it would 0:13:23.120 --> 0:13:25.920 just be an impact to community banks. Well, you raise 0:13:26.000 --> 0:13:28.640 a very interesting possibility. I think we have talked for 0:13:28.679 --> 0:13:31.480 some time about the unbanked and the underbanked in the 0:13:31.559 --> 0:13:36.000 United States, typically in poor communities, suggest and how we 0:13:36.040 --> 0:13:39.319 address that. We haven't been successful terribly in doing that. 0:13:39.640 --> 0:13:42.959 Could a Walmart moving in actually help address that problem 0:13:42.960 --> 0:13:44.959 in the country. Well, I think they could. I mean, 0:13:45.000 --> 0:13:48.600 I think lower income and lower middle income Americans are 0:13:48.640 --> 0:13:53.439 are are very big part of Walmart's UH customer base, 0:13:53.600 --> 0:13:56.280 and so they're coming to those stores already. So yeah, 0:13:56.280 --> 0:13:58.920 I mean, I think we need to know what Walmart plans. 0:13:59.640 --> 0:14:02.600 They just plan to, you know, fatten their profit margins. Well, 0:14:03.000 --> 0:14:04.480 good for them, but you know, that's not really a 0:14:04.520 --> 0:14:07.640 public policy reason to provide the charter a group the charter. 0:14:08.280 --> 0:14:11.040 But if yeah, if they can leverage that reach that 0:14:11.080 --> 0:14:14.079 they have with the unbank and undermank populations to provide 0:14:14.520 --> 0:14:17.600 a fuller panic ply of financial services at low cost, 0:14:17.679 --> 0:14:20.400 at mainstream cost. Right, So people can go to payday 0:14:20.480 --> 0:14:23.680 lenders and pawn shops now and get financial services that 0:14:23.720 --> 0:14:28.480 are very high cost. But if Walmart can democratize for 0:14:28.600 --> 0:14:31.680 the democratized credit and banking services and provided the same 0:14:31.680 --> 0:14:33.160 cost that you and I get, and I think that 0:14:33.200 --> 0:14:35.840 would be hugely beneficial. So, you know, we need to 0:14:35.840 --> 0:14:38.280 stay tuned in terms of what Walmart is, what the 0:14:38.320 --> 0:14:41.280 value proposition is that they're contemplating, But there's certainly a 0:14:41.280 --> 0:14:43.960 lot of potential there. That was Sheila Bear, former head 0:14:44.000 --> 0:14:47.240 of the f d i C, coming up what broke 0:14:47.360 --> 0:14:50.720 the supply chain on chips just when we needed it most. 0:14:51.120 --> 0:14:54.920 We talked with supply chain expert Ndia Vakil of Wrestling. 0:14:55.440 --> 0:15:01.720 That's next on Wall Street Week on Bloomberth. This is 0:15:01.760 --> 0:15:06.120 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:15:06.320 --> 0:15:09.480 The world's manufacturing supply chains are showing signs of strain, 0:15:10.000 --> 0:15:13.720 and semiconductors or chips, are among the hardest hit. The 0:15:13.800 --> 0:15:17.440 combination of the pandemic, policy decisions and the growing demand 0:15:17.480 --> 0:15:20.960 for electric vehicles created a perfect storm for the industry. 0:15:21.200 --> 0:15:25.200 Here's GM CEO Mary Bara, this is an industry issue. 0:15:25.280 --> 0:15:27.920 Of course, we're working every single day with a cross 0:15:27.960 --> 0:15:30.400 functional team to look for opportunities of how do we 0:15:30.480 --> 0:15:33.720 minimize the impact. In January, Honda said it will cut 0:15:33.760 --> 0:15:37.000 domestic output at one of its Japanese factories, while Nissan 0:15:37.200 --> 0:15:41.760 is adjusting production of its note hatchback model. GM announced 0:15:41.760 --> 0:15:44.560 this week that it's extending temporary shutdowns that's three of 0:15:44.560 --> 0:15:49.120 its North American plants because of the ongoing semiconductor shortage. Well, 0:15:49.200 --> 0:15:53.760 the first quarter we have had some disruptions and idled 0:15:53.840 --> 0:15:56.800 some of our plants, but it is still a volatile situation. 0:15:56.920 --> 0:16:01.080 That's diner CEO Ola COLLINEUS. It's not just harmmakers. A 0:16:01.120 --> 0:16:04.120 shortage of chips affects everything from five G phones to 0:16:04.280 --> 0:16:08.880 medical devices. Here's Whahwei's Andy Perdy combination of a coronavirus 0:16:09.000 --> 0:16:12.920 and the the impact on not to be two technical 0:16:12.960 --> 0:16:15.440 the entity list, but the ability of American companies to 0:16:15.480 --> 0:16:18.120 sell the lesson others. It's really had a very negative 0:16:18.120 --> 0:16:20.840 effect on us. The shortage has gotten so bad that 0:16:20.920 --> 0:16:23.800 President Biden stepped in this week with an executive order 0:16:24.080 --> 0:16:27.960 directing a government wide supply chain review for critical goods. 0:16:28.240 --> 0:16:31.160 We need to make sure these supply chains are secure 0:16:31.160 --> 0:16:35.280 and reliable. I'm directing senior officials and my administration to 0:16:35.320 --> 0:16:39.880 work with industrial leaders to identify solutions to this semiconductor shortfall. 0:16:40.080 --> 0:16:43.320 The problem has been brewing since two thousand nine, and 0:16:43.400 --> 0:16:46.400 President Donald Trump's trade war with China also played a 0:16:46.440 --> 0:16:49.480 part in the supply crunch. Roughly ten percent of the 0:16:49.480 --> 0:16:52.120 world's chip production comes from s m i C, a 0:16:52.160 --> 0:16:55.800 semiconductor company that's partially owned by the Chinese government. In 0:16:55.920 --> 0:16:59.440 two thousand and twenty, the US restricted American companies from 0:16:59.480 --> 0:17:04.320 selling to sm i C. So by dealing with the 0:17:04.400 --> 0:17:10.240 availability of high tech, particularly semi conductors, to AWE and 0:17:10.359 --> 0:17:15.000 to ZE, we've slowed that down. That was former Commerce 0:17:15.040 --> 0:17:18.399 Secretary Wilburt Ross. To get a better sense of just 0:17:18.520 --> 0:17:21.040 how bad the problem is and what can be done 0:17:21.080 --> 0:17:24.480 about it. We talked with Benda Vakil, CEO of Resiling, 0:17:24.840 --> 0:17:28.480 the leading provider of supply chain mapping services, and she 0:17:28.600 --> 0:17:31.679 said that the problem has been a long time coming. 0:17:32.359 --> 0:17:35.919 This has been building since last year, and now we 0:17:35.960 --> 0:17:39.560 are looking at an extremely constrained environment. It started with 0:17:39.720 --> 0:17:44.320 two big battery fires at Japanese semiconductor plants, one in July, 0:17:44.560 --> 0:17:47.720 one in October. Then there were some labor strikes that 0:17:47.800 --> 0:17:51.320 ship making facilities in Europe, and then you combine that 0:17:51.520 --> 0:17:55.840 with the upheaval from COVID. We had fired in California 0:17:56.119 --> 0:18:01.399 record hurricane season winter storm to continue issues that we 0:18:01.480 --> 0:18:05.480 have experienced container shortages. And then we saw Boeing seven 0:18:05.560 --> 0:18:10.679 seven seven grounding, which grounds, which affects airshipment capacity. And 0:18:10.760 --> 0:18:14.199 just last week we heard that in Taiwan there is 0:18:14.240 --> 0:18:18.560 a water shortage that is creating constrained water supplies which 0:18:18.560 --> 0:18:23.360 are very essential for way for fabrication assembly operations. So 0:18:23.400 --> 0:18:26.000 it's a very interesting situation. Well and is it just 0:18:26.080 --> 0:18:29.240 a fluke I mean? Or were there fundamental underlying weaknesses 0:18:29.240 --> 0:18:31.480 and the supply chain because what you just described sounds 0:18:31.480 --> 0:18:33.439 like who could have predicted all those things would come 0:18:33.480 --> 0:18:37.680 together at one time. Um, the world of supply chain risks, 0:18:37.760 --> 0:18:40.400 I have to say, is it is a constant thing. 0:18:40.880 --> 0:18:45.120 There are in a given year resuling monitors over three 0:18:45.200 --> 0:18:50.360 hundred factory buyers alone. Add to that supply chain risks 0:18:50.440 --> 0:18:55.359 due to hurricanes, arthquakes, labor strike, transportation issues, and what 0:18:55.560 --> 0:18:59.240 you have is a situation and supply chain where normal 0:18:59.560 --> 0:19:03.360 is is disrupted. Now we have the bud imustration saying 0:19:03.359 --> 0:19:05.480 we're gonna get our arms around this. We're gonna start 0:19:05.480 --> 0:19:08.639 with information, making sure we know what's going on something 0:19:08.680 --> 0:19:11.080 I think you may have some insight into and resoling. 0:19:11.440 --> 0:19:14.240 Is that the right first step? Absolutely? In fact, I 0:19:14.240 --> 0:19:17.159 would say the direction that the government is going with 0:19:17.200 --> 0:19:21.520 supply chain right now. They first most critical. They have 0:19:21.680 --> 0:19:26.120 caused supply chain resilience a matter of national security. This 0:19:26.200 --> 0:19:28.600 is the first thing that they needed to do and 0:19:28.640 --> 0:19:33.440 they have finally done it. Um Understanding the supply chain landscape, 0:19:34.080 --> 0:19:37.639 who the critical players are, what are the global sites 0:19:37.760 --> 0:19:41.320 and regions that are critical to the supply chain. This 0:19:41.400 --> 0:19:44.800 is the first step in helping us make informed decisions 0:19:45.080 --> 0:19:48.239 about what are those sources of constraint supply that we 0:19:48.320 --> 0:19:51.760 need to address, where we need to hold back up supplies, 0:19:51.840 --> 0:19:55.000 where we need to hold extra inventory, and what it 0:19:55.080 --> 0:19:57.560 is that we need to do to avoid the similar 0:19:57.600 --> 0:20:01.639 problems that we experienced in ppech shortages last year that 0:20:01.760 --> 0:20:05.280 brought the healthcare industry to their needs. So it's really 0:20:05.320 --> 0:20:09.600 criticals and and mapping supply chains and understanding those global 0:20:09.640 --> 0:20:13.480 dependencies is the first step have we been spending too 0:20:13.560 --> 0:20:15.719 little on our supply chain, because as I listened to 0:20:15.760 --> 0:20:19.359 you and as you talk about increased inventories, increased capacity, 0:20:19.600 --> 0:20:21.399 that sounds like money that we in fact, we've been 0:20:21.440 --> 0:20:25.119 running a two tight a tolerance. Absolutely. But the FoST 0:20:25.119 --> 0:20:27.679 thing we did in the last twenty years is we 0:20:27.720 --> 0:20:32.680 went overseas and globalized. Not the wrong thing to do. 0:20:33.160 --> 0:20:36.159 You not only globalize your supply chain to take advantage 0:20:36.160 --> 0:20:41.000 of lower cost supplies, you take advantage of emerging markets 0:20:41.040 --> 0:20:43.720 and the demand there as well. That has been vacill 0:20:44.080 --> 0:20:46.880 CEO of residents. Coming up, we wrap up the week 0:20:47.040 --> 0:20:50.080 as always with our special contributor Larry Summers of Harvard. 0:20:50.560 --> 0:20:59.119 This is Wall Street Week on Bloomberg. This is Bloomberg 0:20:59.200 --> 0:21:03.200 Wall Street with David Weston from Bloomberg Radio, and we're 0:21:03.200 --> 0:21:05.400 gonna conclude our week as we do every single week, 0:21:05.400 --> 0:21:08.200 with our special contrainion Larry Summers of Harvard. So Larry, 0:21:08.200 --> 0:21:09.600 thanks so much for being back. One of the big 0:21:09.640 --> 0:21:12.480 events of the week was Fitchair J. Pale, speaking in 0:21:12.560 --> 0:21:15.200 a Wall Street Journal event. Talked about a lot of things, 0:21:15.240 --> 0:21:17.080 including the body yield things like that, but one of 0:21:17.119 --> 0:21:19.800 the things he addressed was inflation, and he admitted is 0:21:19.840 --> 0:21:21.720 how they're keeping a close eye on it maybe because 0:21:21.720 --> 0:21:24.080 of some of the things you've said, frankly, uh, and 0:21:24.200 --> 0:21:26.320 that they are not going to repeat the mistakes of 0:21:26.400 --> 0:21:28.439 the sixties and seventies as here before I do it. 0:21:28.840 --> 0:21:30.439 What does he need to do to avoid that. I 0:21:30.440 --> 0:21:32.880 sure hope they don't repeat the mistakes to the sixties 0:21:32.880 --> 0:21:38.040 and seventies, because they were hugely important, not just for inflation, 0:21:38.200 --> 0:21:42.800 not just for macroeconomics stability, but for the whole politics 0:21:42.840 --> 0:21:48.200 and attitude of the country. They're gonna need to look 0:21:48.440 --> 0:21:53.040 in hardheaded ways and to be prepared to not make 0:21:53.160 --> 0:21:59.040 excuses each month pointing to a different factor when inflation 0:21:59.240 --> 0:22:02.960 ficks up, and they're gonna need to remember that their 0:22:03.119 --> 0:22:08.840 priority is the macro economy. When I see them say 0:22:08.880 --> 0:22:14.800 they won't raise rates until UM diversity groups unemployment rates 0:22:14.920 --> 0:22:19.320 are appropriate, I get nervous because the FED can't really 0:22:19.359 --> 0:22:23.400 control those issues. Those are issues for antidiscrimination law, those 0:22:23.400 --> 0:22:26.840 are issues for fiscal policy, UH, those are issues for 0:22:27.000 --> 0:22:31.760 labor market UH programs. And so if the FED sets 0:22:31.760 --> 0:22:36.560 out to target the unemployment rate of particular groups without 0:22:36.680 --> 0:22:39.320 regard to inflation, that would be a good way to 0:22:39.400 --> 0:22:44.800 make really serious uh inflation. If they take inflation seriously, 0:22:45.359 --> 0:22:50.239 they monitor closely, and they're prepared to cause pain, they 0:22:50.280 --> 0:22:55.399