WEBVTT - Blinder Expects Up to Four Fed Rate Hikes This Year 0:00:00.120 --> 0:00:02.920 Brought you by Bank of America Mary Lynch. Investing in 0:00:03.000 --> 0:00:07.840 local communities, economies and a sustainable future. That's the power 0:00:08.080 --> 0:00:12.360 of global connections, Mary Lynch, Pierce Fenner, and Smith Incorporated 0:00:12.760 --> 0:00:27.400 member s I p C. Welcome to the Bloomberg Surveillance Podcast. 0:00:27.840 --> 0:00:31.520 I'm Tom Keene with David Gura. Daily we bring you 0:00:31.560 --> 0:00:36.600 insight from the best in economics, finance, investment, and international relations. 0:00:37.000 --> 0:00:41.600 Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 0:00:41.680 --> 0:00:49.519 of course on the Bloomberg First Billy joined us here 0:00:49.560 --> 0:00:51.920 in our Bloomberg eleven FIE Studios in New York, managing 0:00:51.920 --> 0:00:54.920 director and head of North American Economics at City. Give 0:00:55.000 --> 0:00:56.560 us a sense of how you've processed all of the 0:00:56.560 --> 0:00:59.600 FED speak this week, all of the comments from various 0:00:59.600 --> 0:01:01.400 meapories of of the Federal Reserve. You know, I think 0:01:01.440 --> 0:01:04.960 that's probably the best example of the success of FED Talk, right. 0:01:05.000 --> 0:01:07.440 I mean, they were out of the picture with probabilities 0:01:07.440 --> 0:01:09.040 of like twenty thirty it's just about a week or 0:01:09.200 --> 0:01:12.240 two weeks ago, and now with this chorus of people 0:01:12.360 --> 0:01:14.960 talking things up. Um. And what's remarkable about is that 0:01:15.120 --> 0:01:17.679 doing it without hard data, right, that they're basing almost 0:01:17.720 --> 0:01:20.720 all of this up upbeat stuff on the prospect of 0:01:20.760 --> 0:01:23.360 physical policy, which we learned nothing about their in speech, right, 0:01:23.720 --> 0:01:26.080 and the fact that sentiment data is on a high 0:01:26.200 --> 0:01:28.839 and we have a divergence between sentiment data and real data. 0:01:29.080 --> 0:01:32.039 So my real question is has the FED changes policy rule? 0:01:32.280 --> 0:01:34.920 Is it really basing monstrey policy now on sentiment data 0:01:35.280 --> 0:01:37.039 or putting at least putting more weight on it, and 0:01:37.080 --> 0:01:39.720 somehow deep saying that sediment data is a good predictor 0:01:39.800 --> 0:01:42.320 of real data. That's a whole new economy model. And 0:01:42.360 --> 0:01:44.400 if that's the case, they should start to show us 0:01:44.400 --> 0:01:46.520 some research that says, you know, the world should look 0:01:46.560 --> 0:01:48.559 at sentiment data and that I have yet to see. 0:01:48.560 --> 0:01:51.040 What did you make of that speech on on Tuesday night, 0:01:51.040 --> 0:01:53.320 our colleague Michael McKee uh saying, when we look at 0:01:53.320 --> 0:01:54.840 the markets, when you look at what's happening here with 0:01:54.840 --> 0:01:56.520 with FED funds features, you can attribute all of that 0:01:57.120 --> 0:01:59.320 to what's been happening with with these FED policy makers, 0:01:59.360 --> 0:02:00.520 not with what the press and had to say. You 0:02:00.560 --> 0:02:03.200 agree with that. I think that what the President showed 0:02:03.480 --> 0:02:06.200 was a very thematic speech and that was great for 0:02:06.240 --> 0:02:08.679 his audience. But what scared me as an analyst and 0:02:08.720 --> 0:02:11.440 as an economist, is where are the plans that we're 0:02:11.440 --> 0:02:16.600 supposed to get for corporate tax rate maybe fift What 0:02:16.600 --> 0:02:18.200 what are you gonna do to pay for it? Those 0:02:18.200 --> 0:02:20.600 details are not appropriate for that kind of sweech, but 0:02:20.760 --> 0:02:23.040 at least a hint to say, here's the framework that 0:02:23.080 --> 0:02:25.359 we're gonna try to sell you coming up. I think 0:02:25.400 --> 0:02:27.040 what it shows that there's a lot of dissensions within 0:02:27.120 --> 0:02:30.240 Republican Party and that makes me worried that the timetable 0:02:30.320 --> 0:02:32.239 for corporate tax reform and all of the so called 0:02:32.240 --> 0:02:35.920 fiscal reforms may actually be pushed back to even beyond 0:02:36.880 --> 0:02:38.639 um And that's what scares me. If I'm a FED 0:02:38.639 --> 0:02:40.960 policy maker, I'm looking at the buffet of economic data 0:02:41.320 --> 0:02:43.520 before me. What's missing, what's not on the table? What, 0:02:43.520 --> 0:02:46.320 what's what could possibly keep them from raising grades here March? 0:02:46.360 --> 0:02:49.639 How about inflation? All right? I mean you're supposed to 0:02:49.680 --> 0:02:52.560 say I'm worried about inflation, but the latest PC reading 0:02:52.680 --> 0:02:55.720 was what exactly one point seven year on year, and 0:02:55.800 --> 0:02:57.960 has that changed. It's been the same one point seven 0:02:57.960 --> 0:03:00.359 for the last six months. So so to say, wow, 0:03:00.440 --> 0:03:03.160 we are behind a curvel worried that we should normalize 0:03:03.160 --> 0:03:05.520 policy on a at a at at least a more 0:03:05.560 --> 0:03:07.600 accelerated pace than what the market thought just a few 0:03:07.720 --> 0:03:10.840 few weeks ago. Then you gotta say, what has changed 0:03:10.880 --> 0:03:13.160 in my mind? What has changed my assessment? And the 0:03:13.280 --> 0:03:15.400 hard data are not giving it to help young Gera. 0:03:16.080 --> 0:03:19.919 And I'll put this chart out, folks, billy, help young Gera. 0:03:20.160 --> 0:03:23.079 Within the era where all we ever said was measured, 0:03:23.720 --> 0:03:27.960 we were measured, we were safe, we were measured. Alan 0:03:28.000 --> 0:03:30.920 Greenspan said we were measured. Boy, that got us in trouble. 0:03:31.840 --> 0:03:35.160 Why can't we just do one and done? I Arthur 0:03:35.160 --> 0:03:38.240 Burns would have done one and done. Now we're measured. 0:03:38.280 --> 0:03:42.160 We have vector's help because we we went to the 0:03:42.320 --> 0:03:44.440 bad place. Um and and yes we had to get 0:03:44.480 --> 0:03:47.600 to a bad place. Means zero rates because of the crisis. 0:03:47.840 --> 0:03:49.840 But now how much how much? How long has it 0:03:49.840 --> 0:03:52.640 been since the crisis? A decade and we're still at 0:03:52.680 --> 0:03:55.520 near zero rates. That's why we can't do one and done. 0:03:55.680 --> 0:03:57.880 So we should be at two, maybe even two and 0:03:57.880 --> 0:04:00.640 a half to three. So you're saying five and well 0:04:00.720 --> 0:04:02.960 we should, we should be at a higher place, but 0:04:03.000 --> 0:04:05.680 we can't get there because of the way the measure 0:04:05.680 --> 0:04:08.680 pace that they've taken. And they told us we're data dependent, 0:04:08.920 --> 0:04:10.880 So now how do we get from here to there? 0:04:10.960 --> 0:04:13.560 And the review for our pop quiz here At the 0:04:13.680 --> 0:04:15.880 end of the show, Bill Lee of City Group just 0:04:15.960 --> 0:04:19.839 told us they have soft data but not hard data, 0:04:19.960 --> 0:04:24.159 right exactly. I know that the employment data we're gonna 0:04:24.160 --> 0:04:26.600 get here comes to you don't have to take you 0:04:26.640 --> 0:04:28.680 don't have to take that scribble my notes here to 0:04:28.839 --> 0:04:33.119 to get that. All fats get out of it. Really, 0:04:33.200 --> 0:04:35.479 I know we get this this jobs report perilously close 0:04:35.520 --> 0:04:37.440 to when we're gonna get this FED decision. Does that matter? 0:04:37.480 --> 0:04:39.599 How much does it matter the proximity of these two, 0:04:39.680 --> 0:04:41.920 these two events, and and well it's because in the 0:04:42.000 --> 0:04:44.200 quiet period they can't talk about it, right, But let's 0:04:44.200 --> 0:04:46.440 face it, if you let one data point push you around, 0:04:46.520 --> 0:04:48.080 that's not the FED that I know, that's not the 0:04:48.080 --> 0:04:50.800 FED that has the credibility to say that we're we're 0:04:50.839 --> 0:04:53.039 analyzing the data and looking at the trends and not 0:04:53.160 --> 0:04:56.000 the noise. And and besides, the data in the labor 0:04:56.040 --> 0:04:58.880 market has actually been very good. We'll be getting much 0:04:58.960 --> 0:05:01.520 higher employment number that would be consistent with a low 0:05:02.000 --> 0:05:05.640 growth regime, which says, what we've got crappy productivity, right 0:05:05.920 --> 0:05:08.560 and and so so in that world, right we we 0:05:08.560 --> 0:05:12.919 we can't just start moving markets because of sentiment and 0:05:13.000 --> 0:05:15.920 feelings data. It really has been based on what has 0:05:16.040 --> 0:05:19.680 changed in our our projection of inflation trajectory to justify 0:05:20.000 --> 0:05:23.960 pulling forward to But even at the level of PC 0:05:24.400 --> 0:05:27.719 is nowhere near Cleveland CPI. We showed that chart yesterday, folks, 0:05:27.839 --> 0:05:30.520 I promise I'll do it tomorrow on television and I 0:05:30.520 --> 0:05:33.000 will get it out on Twitter. It's a great CPI chart. 0:05:33.520 --> 0:05:36.960 But do these people manage to the data point, the 0:05:37.120 --> 0:05:41.000 present data point, or do they manage to the vector 0:05:41.160 --> 0:05:44.880 the inertial force of inflation? You like this physics statement 0:05:45.680 --> 0:05:49.560 physics Thursday and and and you can't get a nerdy 0:05:49.600 --> 0:05:52.000 engineer like me started on this talk. But but if 0:05:52.040 --> 0:05:54.560 you start managing to the data point, then you have 0:05:54.680 --> 0:05:56.680 to be moved around by the data. You have to 0:05:56.720 --> 0:05:59.720 manage the underlying process. You've gotta manage to the process 0:05:59.720 --> 0:06:02.880 and the and what has happened to the process. Nothing. Yes, 0:06:02.960 --> 0:06:06.680 we have improvements, Yes we have more confidence. We're going 0:06:06.720 --> 0:06:09.040 to get there, But are we going to get there faster? 0:06:09.200 --> 0:06:11.360 What's your run rate on GDP right now, frame that 0:06:11.440 --> 0:06:13.400 forces we got a wide dispersion here. Right now the 0:06:13.640 --> 0:06:17.680 GDP now accounting estimates are showing first quarter at below two. Yeah, 0:06:17.680 --> 0:06:21.680 but what about twelve months forward? We we are at 0:06:21.720 --> 0:06:26.000 the two and a quarter to a quarter gloomy day. Well, 0:06:26.200 --> 0:06:28.520 that's pretty good considering we where we don't have a 0:06:28.520 --> 0:06:32.040 one handle right, but certainly for next year we're anticipating 0:06:32.040 --> 0:06:34.719 a two six to seven because we're expected anticipating a 0:06:34.760 --> 0:06:37.960 half point pop from fiscal policy. Now, as we said earlier, 0:06:38.120 --> 0:06:40.839 given the speech that we just heard and no plan inside, 0:06:41.200 --> 0:06:43.520 that timing may actually be pushed back. Now, what are 0:06:43.520 --> 0:06:46.000 the markets reacting to? That's what I'm curious about. Why 0:06:46.040 --> 0:06:48.839 is the stock market at historic new highs? Well, they 0:06:48.880 --> 0:06:51.120 see the regulation, I see that too, right, And they 0:06:51.120 --> 0:06:54.000 see the prospect of corporate text reform, the timing of 0:06:54.000 --> 0:06:57.480 which is uncertain. But is it gonna result in capex 0:06:57.680 --> 0:07:00.280 investment or is it gonna be dividend stuff? Back? So 0:07:00.400 --> 0:07:02.880 I think it's dividends to interrupt David, but I'm gonna 0:07:03.160 --> 0:07:07.320 but do they also see new animal spirits and a 0:07:07.400 --> 0:07:12.000 higher nominal GDP than the gloomsters at City Group? Look Hey, 0:07:12.080 --> 0:07:14.240 you know, the gloomsters are looking at the real data. 0:07:14.400 --> 0:07:16.760 And if I wear a sentiment kind of guy, I'd say, Wow, 0:07:17.000 --> 0:07:19.000 my animal spirits are gonna be pushing things up, and 0:07:19.000 --> 0:07:22.400 I'd be raised my forecast. But lesson learn from modeling 0:07:23.080 --> 0:07:25.840 too for too long the sentiment data or not could 0:07:25.840 --> 0:07:28.800 predictors of real data and the economy itself. I mean, 0:07:29.200 --> 0:07:31.000 I would love to be you know, I think my 0:07:31.040 --> 0:07:33.320 sentiment says I want to be rich and thin. I'm 0:07:33.320 --> 0:07:36.920 neither right, and I can't spend radio we're all rich, 0:07:37.000 --> 0:07:40.680 and I can't spend unless I have a paycheck to 0:07:40.760 --> 0:07:44.240 meet my expenses. So so that's that's the key. We'll 0:07:44.240 --> 0:07:45.920 come back, we'll talk about tax from we'll talk about 0:07:45.920 --> 0:07:47.760 the regulation. But let me ask you just about your 0:07:47.840 --> 0:07:49.920 your purview here is North America, but fold this into 0:07:49.960 --> 0:07:52.840 a global context. I really intended to watch the webcast 0:07:52.840 --> 0:07:55.360 if Governor Branard yesterday, but I crashed hard after staying 0:07:55.400 --> 0:07:57.520 up so late to watch the president speech the night before. 0:07:57.720 --> 0:07:59.679 Read the read the remarks though, and she talks about 0:07:59.680 --> 0:08:02.560 how she's happy with what's happening in Japan and Europe. 0:08:02.920 --> 0:08:04.640 What's your sense of how that folds into into your 0:08:05.000 --> 0:08:06.480 Let me put back my I m F had where 0:08:06.480 --> 0:08:08.440 I did have a global perspective. You know, the global 0:08:08.480 --> 0:08:12.440 economy is improving. Even the emerging markets have have pushed 0:08:12.520 --> 0:08:15.280 up the growth rates. But half the increasing emerging market 0:08:15.280 --> 0:08:17.880 growth is coming about because of the of of two 0:08:17.960 --> 0:08:20.960 countries Russia and Brazil coming out of recession. The rest 0:08:21.000 --> 0:08:23.120 of emerging markets, it's kind of me Andrey along and 0:08:23.160 --> 0:08:24.960 when we look at Europe and say, oh my god, 0:08:25.120 --> 0:08:27.920 Europe has improved so much, we're still talking one handles. 0:08:27.960 --> 0:08:30.680 We're talking one as opposed to one point two percent 0:08:30.800 --> 0:08:34.080 or maybe zero point nine. Now that's a massive improvement, yes, 0:08:34.200 --> 0:08:36.400 but by my books, that's not the kind of growth 0:08:36.400 --> 0:08:39.360 that it spurs us or anybody. That's how we love 0:08:39.440 --> 0:08:42.120 to have you on state that again. The e M 0:08:42.240 --> 0:08:46.920 enthusiasm now, the dr BRAINERD sees and others is mostly 0:08:47.000 --> 0:08:50.520 from Brazil and Russia's cyclical recovery. They're coming out of 0:08:50.520 --> 0:08:53.800 recession and so emerging markets. But the rest of the 0:08:53.800 --> 0:08:56.319 emergint it's not the Philippines, it's not in Mexico, it's 0:08:56.360 --> 0:09:00.319 not They are along in the same pace slightly better 0:09:00.480 --> 0:09:03.200 because because the commodity world has come back a little 0:09:03.200 --> 0:09:06.199 bit right, but really the key there is China. Where 0:09:06.240 --> 0:09:08.280 are you gonna get this? Folks? The inside of Bill 0:09:08.360 --> 0:09:11.280 Lee is sitting group that was brilliant Brazil and Russia 0:09:11.320 --> 0:09:14.760 plus physics Thursday. I mean it's just David. It's enough 0:09:14.800 --> 0:09:16.560 to put David. It's enough to run back to my 0:09:16.600 --> 0:09:18.320 desk and get the calculator. You know why A you 0:09:18.400 --> 0:09:20.640 Yen's in there producing and I think he's not nonfer 0:09:20.760 --> 0:09:23.920 sleep right now with us is William Lee for years 0:09:23.920 --> 0:09:27.040 at the International Monetary Fund. Now it's City Group. And Bill, 0:09:27.080 --> 0:09:30.720 you've done six pages on the border tax. What's your 0:09:30.840 --> 0:09:34.800 value add in the executive summary? What part of the 0:09:34.880 --> 0:09:38.520 debate is what we need to focus on so that 0:09:38.679 --> 0:09:42.840 we can determine the value of an import tax. I'm 0:09:42.880 --> 0:09:45.520 trying to take the debate out of the academic pinhead 0:09:45.600 --> 0:09:49.080 world of instantaneous adjustments. Because the border type has been 0:09:49.120 --> 0:09:52.360 sold as a good source of revenue for paying for 0:09:52.400 --> 0:09:55.480 tax for tax cuts and and tax reform in general. 0:09:55.679 --> 0:09:57.640 So why don't we use it? Well, it's because it's 0:09:57.679 --> 0:10:02.400 the storting. It's gonna mess up the the imports and exports, 0:10:02.520 --> 0:10:07.960 subsidizing exports, uh, shutting off imports, But the the advocates 0:10:08.000 --> 0:10:11.679 like Feldstein, our Back and Holds It can say, don't 0:10:11.760 --> 0:10:14.840 worry because that dollar is just gonna pop up just 0:10:14.920 --> 0:10:17.520 like that and offset the distortion, and we're gonna cut 0:10:17.559 --> 0:10:19.679 the same world that we have. Now, what an awful 0:10:19.720 --> 0:10:22.440 way to sell something to the President Trump instead should 0:10:22.440 --> 0:10:25.720 tell him in the real world that exchange rate takes 0:10:25.720 --> 0:10:28.280 about four to five years to adjust. And even if 0:10:28.280 --> 0:10:30.640 you hold Montrey policy unchanged, that's still we're gonna take 0:10:30.640 --> 0:10:33.000 three years to adjust. So for three to five years, 0:10:33.280 --> 0:10:36.240 you've got a situation where you can actually shut down 0:10:36.240 --> 0:10:40.560 imports a bid, promote exports, concentrate production here in the US, 0:10:40.800 --> 0:10:44.000 get the jobs you want that make America better again. Now, 0:10:44.240 --> 0:10:46.000 isn't that the line you should be using our President 0:10:46.000 --> 0:10:49.160 Trump instead of the hour Back holds Its lines. That's saying, no, 0:10:49.880 --> 0:10:52.400 nothing's gonna change, but you get to get more money. 0:10:52.600 --> 0:10:54.880 But and President Trump says, I don't love it because 0:10:54.920 --> 0:10:58.239 it's way too complex. No, Kidden, Not only is it complex, 0:10:58.400 --> 0:11:00.920 it doesn't work that way. It works in a textbook. 0:11:00.920 --> 0:11:03.479 And when I used teacher Columbia, I talked about incipient 0:11:03.800 --> 0:11:06.880 increases in the in the balance of payments that cause 0:11:07.040 --> 0:11:09.840 an instantaneously stagery jump. We no longer have that. We 0:11:09.880 --> 0:11:13.000 have FX desks, we have importers, we have exporters. We 0:11:13.120 --> 0:11:15.520 have not one good, but a lot of goods with 0:11:15.559 --> 0:11:19.160 different price elasticities. What on earth makes you think that 0:11:19.160 --> 0:11:21.199 that textbook model is the one you should be used 0:11:21.280 --> 0:11:24.079 to sell the president on a very important policy move 0:11:24.160 --> 0:11:27.160 like this. How integral to tax reform is this borderjustment tax? 0:11:27.200 --> 0:11:29.000 We didn't here to mention in the speech last night. 0:11:29.000 --> 0:11:30.880 When you look at how you might pay for all 0:11:30.920 --> 0:11:32.880 this stuff, it seems so important. Could you get tax 0:11:32.880 --> 0:11:35.680 reform without having it involved? We at City actually have 0:11:35.800 --> 0:11:40.280 our forecast um going into without a border tax. But 0:11:40.320 --> 0:11:42.520 in order to do that and not let the budget 0:11:42.520 --> 0:11:44.439 blow out to like two, three or four or five 0:11:44.440 --> 0:11:47.200 percent of GDP, we had to assume that the tax 0:11:47.240 --> 0:11:49.720 cuts on the corporate side will go down to maybe 0:11:50.160 --> 0:11:52.880 not twenty, not fifteen. And we had to go to 0:11:52.920 --> 0:11:56.480 every cat and dog expense and and and deduction we 0:11:56.520 --> 0:11:59.480 could find to shut things down because quite frankly, that 0:11:59.480 --> 0:12:02.640 that tax going down to fift will cost about one 0:12:02.640 --> 0:12:04.920 point a trillion dollars. The border tax gives you more 0:12:04.960 --> 0:12:06.640 than a chillion, and almost pays for all of that. 0:12:07.000 --> 0:12:09.520 Let's take two different businesses. Mark Fields has a small 0:12:09.600 --> 0:12:12.760 car shop called Ford Motor Company. There's a guy named 0:12:12.760 --> 0:12:14.920 Michael Dell in Austin. I what's he doing? Is he 0:12:14.960 --> 0:12:17.360 gonna buy the Rangers this year? I don't know what 0:12:17.400 --> 0:12:20.960 Michael Dell is doing. Two different worlds. They're all affected 0:12:20.960 --> 0:12:25.120 by the border tax. What is the price elasticity? What 0:12:25.280 --> 0:12:28.840 is the responsive thing they should focus on in the 0:12:28.880 --> 0:12:32.560 next two years? Of course, for the one thing about 0:12:32.559 --> 0:12:35.719 autists who know is that they they make stuff and 0:12:35.760 --> 0:12:37.920 they export stuff in order to get to the final 0:12:37.920 --> 0:12:40.640 product of that car. That final product maybe here located 0:12:40.679 --> 0:12:42.920 here in the US, or maybe located in Mexico. But 0:12:42.960 --> 0:12:45.480 there's a lot of interest insity trade. How on earth 0:12:45.480 --> 0:12:48.720 are you going to be taxing and subsidizing that imports 0:12:48.720 --> 0:12:51.079 and exports of these of these firms, Right, So they're 0:12:51.080 --> 0:12:54.480 gonna have a nightmare of an accounting about now. Now 0:12:54.520 --> 0:12:58.360 Michael Dell, Right, I used to buy his Dell computers 0:12:58.360 --> 0:12:59.760 when I was in college. I don't know what he's 0:12:59.800 --> 0:13:02.160 got into now, but he certainly is in the high 0:13:02.200 --> 0:13:06.280 tech industry, which is very very important intensive for parts. Right, 0:13:06.480 --> 0:13:10.200 and Mexico, but Asia, Asia, and and and export intensive 0:13:10.280 --> 0:13:14.000 or intellectual property. So so we're gonna subsidize this intellectual property, 0:13:14.160 --> 0:13:16.160 which kind of means that even by the way, a 0:13:16.240 --> 0:13:18.200 law firm, every law firm is gonna have a server 0:13:18.280 --> 0:13:21.120 in Denmark because they're gonna say, I'm an exporting industry, 0:13:21.240 --> 0:13:23.560 I shouldn't have to pay for my legal services, even 0:13:23.559 --> 0:13:26.640 though you can get stuff here in the well said, 0:13:26.760 --> 0:13:31.040 but on Michael Dell, the assumption is he can raise prices. 0:13:31.800 --> 0:13:35.439 I don't think he got that memo. Can he can? 0:13:35.679 --> 0:13:39.000 Can a Michael Dell raise price? If he does, his 0:13:39.080 --> 0:13:42.280 competitor called the you know, the Taiwanese and and and 0:13:42.320 --> 0:13:45.760 even the Chinese manufacturers are gonna say, we're gonna sell 0:13:45.840 --> 0:13:48.280 things and undercut you. So don't you even dare raised 0:13:48.840 --> 0:13:59.160 David his competitors Wayne Last from another complies my my 0:13:59.400 --> 0:14:03.800 wish that prevent me. Billy, thank you so much. With 0:14:03.920 --> 0:14:06.760 City Group UM this morning on the border text, we 0:14:06.840 --> 0:14:09.480 protect the copyright of all of our guests. We're not 0:14:09.480 --> 0:14:12.800 going to send you out his um lovely, lovely six 0:14:12.840 --> 0:14:15.360 page dissertation in the Border tex Get that through your 0:14:15.400 --> 0:14:32.560 city bank representative as well. We were doing physics earlier. 0:14:32.680 --> 0:14:35.720 David Gura, it's very good to do Thursday physics. We're 0:14:35.720 --> 0:14:39.360 doing vectors in inertial momentum, so let's do something more boring. 0:14:39.480 --> 0:14:43.000 Fanny Freddy, wouldn't that be good? Why don't you bring 0:14:43.000 --> 0:14:45.520 in our esteem guest, Yeah, spring Jim Milstein, here's the 0:14:45.560 --> 0:14:47.480 chief of former Chief Restructuring Officer at the U S 0:14:47.520 --> 0:14:49.960 Department of the Treasury, and joins us here in our 0:14:50.000 --> 0:14:53.280 bloomboog lemon studios. Go ahead, what the hell is the 0:14:53.360 --> 0:14:59.400 chief We're gonna get that last out of there's one 0:14:59.400 --> 0:15:04.240 of my house. Yeah, on personal retainer. Describe briefly what 0:15:04.280 --> 0:15:06.680 you did what that role does within the Treasury Department. Well, 0:15:06.800 --> 0:15:09.880 during the financial crisis, the Treasury was responsible for the 0:15:09.880 --> 0:15:12.320 administration of the TARP program and we made a number 0:15:12.320 --> 0:15:16.720 of significant investments in various institutions in the financial sector 0:15:16.760 --> 0:15:20.160 to make sure that it didn't collapse. And when we 0:15:21.040 --> 0:15:24.320 after those investments were made, somebody had to figure out 0:15:24.320 --> 0:15:26.440 a way to get out of them. And the short 0:15:26.480 --> 0:15:29.160 straw was drawn by and I had there was a 0:15:29.160 --> 0:15:32.440 meeting the Treasury in the Secretary's office and uh, and 0:15:32.600 --> 0:15:34.760 somebody somebody has to do with A I G. And 0:15:34.760 --> 0:15:36.680 the guys who had been there like three days longer 0:15:36.720 --> 0:15:39.240 than need all took a step back, and I was 0:15:39.320 --> 0:15:41.840 left in the front room. I've got six jokes to make. 0:15:41.960 --> 0:15:44.880 Steve Rattner was with this yesterday, but forget about the jokes. 0:15:45.560 --> 0:15:47.800 A I G. Showed up and the tone in the 0:15:47.880 --> 0:15:49.960 room changed. There were all these issues. I mean, I 0:15:50.000 --> 0:15:52.040 get it. You had to buy a building in New 0:15:52.120 --> 0:15:54.720 York City to get Jamie Diamond to take up. You know, 0:15:54.920 --> 0:15:57.200 we all know the history, but the key thing for 0:15:57.240 --> 0:15:59.360 guys like you is A I G. Walked in the 0:15:59.440 --> 0:16:02.080 room and it was a different conversation. What was that 0:16:02.160 --> 0:16:05.560 like the you know, the difference with I mean the 0:16:05.640 --> 0:16:08.920 Lehman Brothers file for bankruptcy on you know, Monday, Monday, 0:16:09.000 --> 0:16:11.920 September fift I think A I G was downgraded that 0:16:12.000 --> 0:16:16.640 day and as a consequence, um all of its derivatives 0:16:16.640 --> 0:16:20.440 book changed in its character overnight because they have been 0:16:20.440 --> 0:16:24.080 relying on the credit rating of the parent company to 0:16:24.160 --> 0:16:28.480 provide their collateral for their derivatives, and so when the 0:16:28.520 --> 0:16:32.400 downgrade occurred, they had a massive cash call, a cash 0:16:32.400 --> 0:16:35.840 call that you know, really no institution, uh their size, 0:16:35.880 --> 0:16:38.840 with their size derivative book could meet without help from 0:16:38.880 --> 0:16:41.880 their friends, and their friends were all reeling. Uh. So 0:16:42.120 --> 0:16:44.840 a private credit facility couldn't of the size needed, couldn't 0:16:44.880 --> 0:16:48.080 be put together. And there was really two choices. Uh. 0:16:48.400 --> 0:16:52.080 The Fed could have uh said I don't know who 0:16:52.120 --> 0:16:55.680 you are, don't darken my door. Uh, you're on your own, 0:16:55.760 --> 0:16:57.560 or the Fed did could do what it did, which 0:16:57.600 --> 0:17:00.240 has stepped in with an emergency loan to en sure 0:17:00.320 --> 0:17:02.960 that they could perform their obligations in the ordinary course 0:17:03.000 --> 0:17:05.480 of business. Tom brings up g SCS. Have we heard 0:17:05.560 --> 0:17:06.920 much in the way of a plan for what the 0:17:07.160 --> 0:17:11.080 government plans to do with the Fanny and Freddy? Um? 0:17:11.119 --> 0:17:14.280 You know there were hints of it, uh during right 0:17:14.320 --> 0:17:18.000 after Munition was nominated. I think one of the first 0:17:18.000 --> 0:17:20.400 things he said was we're going to think about recapitalizing 0:17:21.040 --> 0:17:23.600 Fannie and Freddy and ending the Conservatives ships. He dialed 0:17:23.600 --> 0:17:26.920 that back a little bit during his confirmation hearings Um 0:17:27.080 --> 0:17:29.040 and said he wants to work with the Senate in 0:17:29.040 --> 0:17:32.480 the House on on reform. But you know, the Senate 0:17:32.480 --> 0:17:35.840 in the House tried this three years ago. UH, serious 0:17:35.880 --> 0:17:38.480 effort led by the you know, with the Treasury Department. 0:17:38.600 --> 0:17:42.920 Then Obama Treasury Department, and the topic just proved too 0:17:43.000 --> 0:17:46.080 complicated because there are lots of puts and takes. Right there, 0:17:46.480 --> 0:17:50.159 there's a the implied government guarantee, and you know, if 0:17:50.200 --> 0:17:53.200 you're gonna make that explicit, so it was to ensure 0:17:53.240 --> 0:17:55.480 that we're actually paid for the privilege of guaranteeing all 0:17:55.520 --> 0:17:59.800 of that mortgage debt um. Then you know, the quid 0:18:00.000 --> 0:18:02.760 o quo is that, well, if the government's involved and 0:18:02.800 --> 0:18:07.920 putting its balance sheet behind the credit of various homeowner mortgages, 0:18:07.960 --> 0:18:10.639 then that's a program that should be made widely available 0:18:10.680 --> 0:18:13.240 to all homeowners. It shouldn't just be rich people with 0:18:13.280 --> 0:18:16.840 great credit. Uh. And so you're constantly in a tug 0:18:16.840 --> 0:18:20.360 of war between the affordable housing folks who say, hey, 0:18:20.400 --> 0:18:22.400 if we're using the balance sheet to the federal government, 0:18:22.560 --> 0:18:25.439 there should be a program with public benefit. Because of 0:18:25.520 --> 0:18:29.360 time and we could talk with Mr Milstein folks four 0:18:29.400 --> 0:18:32.800 to five hours and just alone to wander through Pan 0:18:32.840 --> 0:18:37.680 American Airlines, the Disney restructuring of of of euro Disney 0:18:37.680 --> 0:18:41.359 and all that. Your worker clearly gotlie but Lazard, et cetera. 0:18:42.200 --> 0:18:46.000 But I gotta jump forward to how you interpret the 0:18:46.119 --> 0:18:51.440 regulatory and restructuring zeal of this new administration. I mean, 0:18:51.520 --> 0:18:54.640 I mean, you're you're not a constitutional law guy. You're 0:18:54.720 --> 0:18:58.960 you're more in the regulation realm, but interpret force what 0:18:59.119 --> 0:19:04.119 you presume is to come. Yeah. So, UM, you know, 0:19:04.200 --> 0:19:09.639 there's a playbook that UM. The Heritage Foundation, funded by 0:19:09.680 --> 0:19:15.000 the Koch brothers, has um published that many of the 0:19:15.040 --> 0:19:17.960 bills coming out of the House, whether it's the Choice 0:19:18.000 --> 0:19:21.960 Act from Hencer Lank, the tax reform proposals, and healthcare 0:19:21.960 --> 0:19:27.359 proposals pushed by Speaker Ryan are following and it is 0:19:27.440 --> 0:19:32.280 a you know it, it's a it's a limited government 0:19:32.400 --> 0:19:36.600 libertarian philosophy. UM. And the real question is, you know, 0:19:37.280 --> 0:19:39.480 in a much more complicated economy than we had in 0:19:39.480 --> 0:19:42.160 the nineteenth century. I found it interesting that President Trump 0:19:42.160 --> 0:19:46.000 and his speech to Other Night cited Lincoln defending for 0:19:46.080 --> 0:19:49.840 protectionist policies. It's defending a protectionist policy. We were an 0:19:49.840 --> 0:19:53.840 agricultural society back in the nineteenth century. You know, it wasn't. 0:19:53.880 --> 0:19:57.520 It wasn't. Number one of the Chicago Convention was no. 0:19:57.720 --> 0:20:00.480 But but we were. We were running a merkel untilist policy. 0:20:00.520 --> 0:20:02.800 We were in a global power. Then we're a small 0:20:02.880 --> 0:20:06.119 little you should paint the pictures, folks. I'm sitting in 0:20:06.160 --> 0:20:09.040 our studio here. It's fifty nine in Lexington, and I'm 0:20:09.040 --> 0:20:11.400 in my usual turret. David sits across from me. Mr 0:20:11.400 --> 0:20:14.320 Milstein is sitting to my right. David's left in the 0:20:14.400 --> 0:20:17.879 chair to my left sat one of the major hitters 0:20:17.920 --> 0:20:22.360 of your world. The day they renigged on the agreements 0:20:22.440 --> 0:20:28.200 on Chrysler, you were directly involved in those transactions. Moving 0:20:28.280 --> 0:20:30.960 forward with the Trump administration, are we going to get 0:20:31.040 --> 0:20:34.800 the rule of law in the rule of contract or 0:20:34.840 --> 0:20:39.600 are we going to get some form of Chrysler like chaos. Well, listen, 0:20:39.720 --> 0:20:43.080 you know, the government of the United States, the Congress 0:20:43.040 --> 0:20:44.879 of the United States, and the President have the power 0:20:44.920 --> 0:20:50.560 to change the law, uh, and to alter the playing field. UH. 0:20:50.560 --> 0:20:53.560 And so you know, one man's one man's abdication of 0:20:53.600 --> 0:20:56.840 the rule of law is another man's reform. And so 0:20:57.080 --> 0:20:59.200 you know, I think that you always have to understand 0:20:59.200 --> 0:21:02.160 which side of that argument people are on, because there's 0:21:02.240 --> 0:21:05.320 behind that argument is usually an economic interest that's being 0:21:06.040 --> 0:21:10.600