1 00:00:00,240 --> 00:00:05,000 Speaker 1: This is Bloomberg Wall Street Week. Market shruggle, higher consumer prices, 2 00:00:05,040 --> 00:00:07,400 Speaker 1: The economy is in the process of rebounding. Will the 3 00:00:07,400 --> 00:00:10,479 Speaker 1: futteral reserve have its own digital currency? The financial stories 4 00:00:10,520 --> 00:00:12,879 Speaker 1: that cheap hard work. Many people think the eels are 5 00:00:12,880 --> 00:00:15,080 Speaker 1: just going to keep marching up. We have more spending 6 00:00:15,120 --> 00:00:17,200 Speaker 1: coming out of Congress. One of the big questions I 7 00:00:17,200 --> 00:00:19,880 Speaker 1: think on investors minds inflation through the eyes of the 8 00:00:19,880 --> 00:00:23,560 Speaker 1: most influential voices. Larry Summer is the former Treasury Secretary 9 00:00:23,640 --> 00:00:27,240 Speaker 1: Bryan Wynhan a backup America, Will Smart, CEO of Charlie Sharp. 10 00:00:27,360 --> 00:00:31,560 Speaker 1: Bloomberg wool Street Week with David Weston from Bloomberg Radio. 11 00:00:31,840 --> 00:00:36,560 Speaker 1: Global investors search for direction with global economic recovery uneven, 12 00:00:36,920 --> 00:00:41,400 Speaker 1: pandemic risk not going away, and geopolitical risk on the rise. 13 00:00:42,040 --> 00:00:45,239 Speaker 1: This is Bloomberg Wall Street Week. I'm David Weston. A 14 00:00:45,320 --> 00:00:48,680 Speaker 1: lot of ups and downs this week, but no clear direction, 15 00:00:49,000 --> 00:00:53,000 Speaker 1: with concerns over the pandemic shifting overseas to places like India. 16 00:00:53,360 --> 00:00:56,600 Speaker 1: As the United States makes progress on vaccinations, with much 17 00:00:56,600 --> 00:01:00,520 Speaker 1: more yet to do, we let up now and stop 18 00:01:00,560 --> 00:01:04,920 Speaker 1: being vigilant. This virus will erase the progress we've already achieved, 19 00:01:05,800 --> 00:01:08,680 Speaker 1: the sacrifices we've made, the lives that have been put 20 00:01:08,720 --> 00:01:11,600 Speaker 1: on hold, the loved ones who've been taken from us, 21 00:01:12,720 --> 00:01:15,280 Speaker 1: the time we're never going to get back. There was 22 00:01:15,319 --> 00:01:19,200 Speaker 1: a lot of talk about infrastructure, including what it means, 23 00:01:19,280 --> 00:01:24,160 Speaker 1: and some groping toward a compromise, but prospects remained very unclear. 24 00:01:24,560 --> 00:01:27,440 Speaker 1: And US corporate earnings have come in strong so far, 25 00:01:27,840 --> 00:01:30,600 Speaker 1: but let's be honest, that was more or less expected, 26 00:01:30,720 --> 00:01:33,760 Speaker 1: wasn't it. And the markets by and large reflected the 27 00:01:33,800 --> 00:01:37,479 Speaker 1: gifts and the takes, with equities hesitating in their reflation 28 00:01:37,560 --> 00:01:40,880 Speaker 1: march upward and the tenuere yields staying just about one 29 00:01:40,920 --> 00:01:44,959 Speaker 1: point five, neither surging toward two nor falling back down. 30 00:01:45,520 --> 00:01:48,880 Speaker 1: Bloomberg broke the news that President Biden maybe getting ready 31 00:01:48,920 --> 00:01:52,720 Speaker 1: to follow through un Candidate Biden's commitment to eliminate preferential 32 00:01:52,760 --> 00:01:55,560 Speaker 1: tax treatment for capital gains at least for those making 33 00:01:55,600 --> 00:01:58,080 Speaker 1: over one million dollars a year, as part of an 34 00:01:58,120 --> 00:02:00,360 Speaker 1: effort to pay for some of the other Grahams that 35 00:02:00,400 --> 00:02:03,720 Speaker 1: the administration wants to take us through. What this could mean. 36 00:02:03,920 --> 00:02:07,400 Speaker 1: We welcome now David Herzig. He is tax principal in 37 00:02:07,440 --> 00:02:10,520 Speaker 1: the e y private client services tax practice. So, David, 38 00:02:10,520 --> 00:02:12,560 Speaker 1: thank you so much for being with us. As I say, 39 00:02:12,600 --> 00:02:15,600 Speaker 1: this doesn't come as unnecessary shocked anybody because the President 40 00:02:15,639 --> 00:02:18,720 Speaker 1: had it in his campaign website as a practical matter, 41 00:02:18,960 --> 00:02:21,520 Speaker 1: But what would this mean for the taxpayer and that 42 00:02:21,680 --> 00:02:25,320 Speaker 1: for that matter, for capital formation generally in the country, 43 00:02:25,960 --> 00:02:28,880 Speaker 1: Because David, thanks for having me. Um. I mean, I 44 00:02:29,360 --> 00:02:30,600 Speaker 1: think you hit the nail on the head with the 45 00:02:30,639 --> 00:02:33,120 Speaker 1: first thing, right. This isn't a surprise that you know 46 00:02:33,240 --> 00:02:36,839 Speaker 1: present Finden proposes during the campaign. Um, we haven't seen 47 00:02:36,880 --> 00:02:40,119 Speaker 1: the actual proposal, the American Family Plan yet, which which 48 00:02:40,160 --> 00:02:42,440 Speaker 1: will kind of give us some more guidance. But it 49 00:02:42,520 --> 00:02:45,520 Speaker 1: is really interesting to see what might happen with these 50 00:02:45,560 --> 00:02:48,680 Speaker 1: tax rates increasing, because you know, if you're in New 51 00:02:48,760 --> 00:02:51,480 Speaker 1: York or California, even the marginal rate might even be 52 00:02:51,560 --> 00:02:54,239 Speaker 1: higher than than the proposed rate because you have the 53 00:02:54,280 --> 00:02:57,360 Speaker 1: state level tax too, So you're seeing tax salvation putting 54 00:02:57,360 --> 00:03:00,440 Speaker 1: out that New York might have a mark general rate 55 00:03:00,440 --> 00:03:03,040 Speaker 1: of fifty eight point two percent, California might have a 56 00:03:03,080 --> 00:03:06,760 Speaker 1: marginal rate of fifty six point seven. So these rates 57 00:03:06,760 --> 00:03:09,120 Speaker 1: will really I think impact, you know, the way people 58 00:03:09,160 --> 00:03:12,680 Speaker 1: look at us, a capital formation how they balance their 59 00:03:12,720 --> 00:03:15,200 Speaker 1: portfoldio on what kind of goes on in kind of 60 00:03:15,240 --> 00:03:19,919 Speaker 1: their overall tax plan. Yeah, so so, Um, the real 61 00:03:20,000 --> 00:03:22,600 Speaker 1: question is for the people who are making more than 62 00:03:22,639 --> 00:03:25,079 Speaker 1: a dog a year, they they can afford some really 63 00:03:25,160 --> 00:03:27,760 Speaker 1: frust rate tax advice, the kind that you give them. Actually, 64 00:03:28,200 --> 00:03:30,400 Speaker 1: So if people come to you and say, what do 65 00:03:30,440 --> 00:03:32,920 Speaker 1: I do in response to this? How do you change 66 00:03:32,919 --> 00:03:36,480 Speaker 1: your investment behavior in response to something like eliminating the 67 00:03:36,520 --> 00:03:40,280 Speaker 1: preferential treatment for capital tax game for capital gains? Well, 68 00:03:40,320 --> 00:03:41,600 Speaker 1: I mean, I think that's all. I mean, it's a 69 00:03:41,600 --> 00:03:43,640 Speaker 1: hard question, right because we don't I guess there's an 70 00:03:43,640 --> 00:03:45,880 Speaker 1: initial matter. You don't know if really that will get 71 00:03:45,920 --> 00:03:49,720 Speaker 1: to the thirty nine point six percent that President bidence proposing. Right, 72 00:03:49,840 --> 00:03:52,520 Speaker 1: There's there's questions of how this might work through the 73 00:03:52,520 --> 00:03:56,760 Speaker 1: actual budget process. But let's assume for your argument, right, 74 00:03:56,800 --> 00:03:58,960 Speaker 1: that will use the thirty nine points. That's that that's 75 00:03:59,000 --> 00:04:01,920 Speaker 1: actually what gets past the Congress. The question is what 76 00:04:01,960 --> 00:04:03,680 Speaker 1: do you do about that? And I think that's a 77 00:04:03,760 --> 00:04:07,280 Speaker 1: challenging question for most taxpayers. Right when we talk to 78 00:04:08,240 --> 00:04:12,000 Speaker 1: taxpayers about this, you know, the questions become, you know, 79 00:04:12,680 --> 00:04:15,040 Speaker 1: is this going to be retroactive? Should I sell now 80 00:04:15,400 --> 00:04:18,200 Speaker 1: and then think about buying later and capturing the lower 81 00:04:18,360 --> 00:04:21,400 Speaker 1: tax right now, should we wait and see kind of 82 00:04:21,400 --> 00:04:23,479 Speaker 1: what happens and see if the rate actually goes not 83 00:04:24,680 --> 00:04:29,479 Speaker 1: but maybe a thirty percent ort and kind of see 84 00:04:29,520 --> 00:04:32,960 Speaker 1: what happens. There's a lot of questions and moving parts 85 00:04:33,000 --> 00:04:35,320 Speaker 1: about what you might want to do depending on where 86 00:04:35,320 --> 00:04:37,040 Speaker 1: the rate lands. I mean, there's just a lot of 87 00:04:37,120 --> 00:04:39,839 Speaker 1: uncertainty right now. I got a glimpse of one report 88 00:04:39,920 --> 00:04:42,440 Speaker 1: that came out on what's happened in the past that 89 00:04:42,560 --> 00:04:46,400 Speaker 1: suggested that if you do increase taxes on capital gains, 90 00:04:47,160 --> 00:04:50,960 Speaker 1: that you may move more business into pass throughs and 91 00:04:51,000 --> 00:04:54,919 Speaker 1: away from separate entities. Does that make sense? Well, I 92 00:04:54,920 --> 00:04:56,560 Speaker 1: mean I think generally, like what the way you have 93 00:04:56,600 --> 00:04:59,360 Speaker 1: to look at this is there's this kind of the 94 00:04:59,600 --> 00:05:02,159 Speaker 1: big elephant in the room that no one's really discussing analysis, 95 00:05:02,240 --> 00:05:04,680 Speaker 1: this thing called the locked in effect, right, and so 96 00:05:04,760 --> 00:05:08,039 Speaker 1: the locked in effect is basically this economic theory that 97 00:05:08,160 --> 00:05:12,040 Speaker 1: says you you won't sell if the tax rates get 98 00:05:12,040 --> 00:05:14,360 Speaker 1: too high. Right, So if if tax rates get too high, 99 00:05:14,400 --> 00:05:16,240 Speaker 1: I'm just going to hold onto my stock and wait. 100 00:05:16,480 --> 00:05:18,280 Speaker 1: And so one of the things that Democrats are kind 101 00:05:18,279 --> 00:05:20,600 Speaker 1: of proposing is saying one of the key drivers of 102 00:05:20,640 --> 00:05:23,560 Speaker 1: the locked in effect is step up a basis at death. 103 00:05:24,160 --> 00:05:26,160 Speaker 1: So what happens then is that when I die, I 104 00:05:26,240 --> 00:05:29,000 Speaker 1: get an increased basis in my stock or whatever it is, 105 00:05:29,120 --> 00:05:31,719 Speaker 1: and that kind of helps eliminate or mitigate against this 106 00:05:31,800 --> 00:05:35,400 Speaker 1: capital gains rate increase. So when you look at this, 107 00:05:35,560 --> 00:05:37,720 Speaker 1: you say to your point about like should we move 108 00:05:37,760 --> 00:05:40,800 Speaker 1: from corporate to partnerships, or or how should I think 109 00:05:40,800 --> 00:05:45,600 Speaker 1: about my investment strategy. If you eliminate capital gains preferences 110 00:05:45,640 --> 00:05:48,240 Speaker 1: at death, you're going to see some different kinds of 111 00:05:48,320 --> 00:05:50,680 Speaker 1: drivers for taxpayers trying to figure out which is the 112 00:05:50,720 --> 00:05:54,680 Speaker 1: most efficient kind of capital structure and and it you know, 113 00:05:54,720 --> 00:05:58,920 Speaker 1: generally partnerships have lower overall rates than corporate structures, so 114 00:05:58,960 --> 00:06:00,839 Speaker 1: you could definitely see a shift to kind of the 115 00:06:00,920 --> 00:06:04,080 Speaker 1: move to more partnership type structure. Yeah, but it's very interesting. 116 00:06:04,120 --> 00:06:05,960 Speaker 1: I had not made the connection. I'm not a tax 117 00:06:06,080 --> 00:06:08,440 Speaker 1: lawyer like you, but I had made the connection actually 118 00:06:08,600 --> 00:06:11,920 Speaker 1: with the stepped up basis uh in inheritance. That's that's 119 00:06:12,040 --> 00:06:15,280 Speaker 1: very interesting. Let me turn to a different subject, which 120 00:06:15,400 --> 00:06:18,960 Speaker 1: is proposals to increase the funding for auditing by the 121 00:06:19,040 --> 00:06:21,400 Speaker 1: I r S. You've seen that now to paper various things, 122 00:06:21,440 --> 00:06:24,680 Speaker 1: maybe elimiting the salt limitation, but for whatever purpose, is 123 00:06:24,720 --> 00:06:27,000 Speaker 1: it pretty clear that if we ramped up the spending 124 00:06:27,080 --> 00:06:29,520 Speaker 1: on I R S assets, we would ramp up the 125 00:06:29,600 --> 00:06:32,320 Speaker 1: revenue we get. Yeah, I mean, I think what you see, 126 00:06:32,440 --> 00:06:34,800 Speaker 1: like all the all the kind of studies that have 127 00:06:34,839 --> 00:06:37,479 Speaker 1: been done and all the the research that's been done 128 00:06:37,480 --> 00:06:40,920 Speaker 1: on the matter, is if you increase spending on audits, 129 00:06:40,960 --> 00:06:45,400 Speaker 1: you increase tax revenues. David, thanks, that's David Herzig tax 130 00:06:45,440 --> 00:06:49,560 Speaker 1: principle with Ian Wise Private client services tax practice coming up. 131 00:06:49,680 --> 00:06:52,320 Speaker 1: It's bad enough to speculate on doge coin or non 132 00:06:52,440 --> 00:06:56,719 Speaker 1: fungible tokens, but European football. We talked with Steve Pluka 133 00:06:56,839 --> 00:07:00,000 Speaker 1: of Bain Capital about what was behind that attempted cop 134 00:07:00,000 --> 00:07:02,800 Speaker 1: who that was the Super Soccer league. That's next on 135 00:07:02,839 --> 00:07:11,520 Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street 136 00:07:11,560 --> 00:07:15,720 Speaker 1: Week with David Weston from Bloomberg Radio. Investors are getting 137 00:07:15,760 --> 00:07:19,600 Speaker 1: creative in a low rate, low return world. Spacks, for instance, 138 00:07:19,760 --> 00:07:22,600 Speaker 1: used to be a last resort for companies struggling to 139 00:07:22,600 --> 00:07:25,640 Speaker 1: go public, but they've become all the rage, at least 140 00:07:25,720 --> 00:07:29,000 Speaker 1: until the SEC warned this month about accounting errors. They 141 00:07:29,080 --> 00:07:31,880 Speaker 1: raised nearly twenty six billion dollars of share sales in 142 00:07:32,000 --> 00:07:35,640 Speaker 1: January alone, compared with less than fourteen billion dollars in 143 00:07:35,720 --> 00:07:39,680 Speaker 1: all of two nineteen. Here's Scott Minored of Googgenheim. The 144 00:07:39,760 --> 00:07:44,360 Speaker 1: upside is if the sponsor finds are really good in Loveland, uh, 145 00:07:44,440 --> 00:07:47,040 Speaker 1: you know, you could still double or triple your money. 146 00:07:47,120 --> 00:07:50,680 Speaker 1: It's a similar story with cryptocurrencies. Bitcoin broke out in 147 00:07:50,720 --> 00:07:54,400 Speaker 1: two seventeen before plunging, and shot up to nearly sixty 148 00:07:54,400 --> 00:07:58,240 Speaker 1: five thousand dollars last week before tumbling once again. In 149 00:07:58,280 --> 00:08:01,840 Speaker 1: addition to institutional interests, the Nasdaq listing of coin based 150 00:08:01,880 --> 00:08:06,120 Speaker 1: last week lifted crypto's profile in mainstream markets. It's obvious 151 00:08:06,360 --> 00:08:09,360 Speaker 1: is an asset people are investing in. Our clients are 152 00:08:09,400 --> 00:08:13,040 Speaker 1: asking ascamely invest in assasset, and you put it on 153 00:08:13,040 --> 00:08:15,440 Speaker 1: our accounts and look at it. That's Back of America 154 00:08:15,520 --> 00:08:20,240 Speaker 1: chairman Brian moynihan. Smaller coins like doge Coin, which was 155 00:08:20,280 --> 00:08:23,680 Speaker 1: created as a joke, soared along with Bitcoin and has 156 00:08:23,760 --> 00:08:28,760 Speaker 1: Elon Musk's backing. Here's Galaxy Digital's Mike Novograts. You know 157 00:08:28,840 --> 00:08:32,160 Speaker 1: does was a main coin it doesn't really have a purpose. 158 00:08:32,240 --> 00:08:35,480 Speaker 1: Let's put people in the safest, best stuff. Uh not, 159 00:08:36,200 --> 00:08:39,080 Speaker 1: you know these joke coins. The crypto cras also fueled 160 00:08:39,120 --> 00:08:42,240 Speaker 1: the rise of n f t s non fungible tokens 161 00:08:42,440 --> 00:08:46,760 Speaker 1: unique irreplaceable identifiers created by algorithms, which gives value to 162 00:08:46,840 --> 00:08:50,240 Speaker 1: digital art and other assets. There's money to be made 163 00:08:50,320 --> 00:08:53,480 Speaker 1: with n f t s. In February, and animated image 164 00:08:53,480 --> 00:08:56,640 Speaker 1: of a flying cat leaving a rainbow trail went for 165 00:08:56,760 --> 00:09:01,360 Speaker 1: almost six hundred thousand dollars realities. A collectibles market is 166 00:09:01,640 --> 00:09:06,680 Speaker 1: somewhere between three or five hundred billion dollars US per total, 167 00:09:06,760 --> 00:09:08,640 Speaker 1: and I think that the reality is this market could 168 00:09:08,640 --> 00:09:12,640 Speaker 1: get just as large. That's Jonathan Bixby from n FT Investments. 169 00:09:12,920 --> 00:09:15,400 Speaker 1: There was a time when the ultra wealthy might buy 170 00:09:15,400 --> 00:09:17,800 Speaker 1: a sports team as a way to diversify their portfolio. 171 00:09:18,240 --> 00:09:21,079 Speaker 1: But this week a group of elite European football clubs 172 00:09:21,120 --> 00:09:23,480 Speaker 1: decided to go further and create a whole new league, 173 00:09:23,640 --> 00:09:26,400 Speaker 1: a super soccer league that would turn the richest and 174 00:09:26,480 --> 00:09:29,880 Speaker 1: most popular sport in the world on its head. Twelve 175 00:09:29,920 --> 00:09:33,600 Speaker 1: clubs from England, Spain and Italy signed on, backed by 176 00:09:33,720 --> 00:09:37,560 Speaker 1: four point eight billion dollars in debt financing from JP Morgan, 177 00:09:38,120 --> 00:09:41,360 Speaker 1: but it created a storm of protests from fans and 178 00:09:41,440 --> 00:09:44,480 Speaker 1: from UK Prime Minister Boris Johnson. By the end of 179 00:09:44,480 --> 00:09:48,080 Speaker 1: the week, several teams were backing out. Here's European Commission 180 00:09:48,120 --> 00:09:52,040 Speaker 1: Executive Vice President Margaret Vestaire. I myself just you know, 181 00:09:52,200 --> 00:09:54,600 Speaker 1: kind of relief that now some of the clubs are 182 00:09:54,679 --> 00:09:58,119 Speaker 1: dropping at as you have heard my colleague Marguerite Taskinas 183 00:09:58,679 --> 00:10:01,000 Speaker 1: very very strong that this is not in the European 184 00:10:01,000 --> 00:10:03,439 Speaker 1: way when it comes to football. Turns out the Super 185 00:10:03,440 --> 00:10:05,880 Speaker 1: Soccer League may not make it, but you have to 186 00:10:05,920 --> 00:10:08,720 Speaker 1: wonder whether it made sound business sense or was just 187 00:10:08,800 --> 00:10:12,520 Speaker 1: another example of too much money searching for too few opportunities. 188 00:10:12,760 --> 00:10:15,400 Speaker 1: Before the league collapsed, we heard from someone who resides 189 00:10:15,440 --> 00:10:18,920 Speaker 1: at the crossroads of high finance and sports ownership. Steve 190 00:10:18,920 --> 00:10:22,600 Speaker 1: Paluka is co chairman of private equity giant Bayne Capital 191 00:10:22,760 --> 00:10:25,720 Speaker 1: and co owner of the Boston Celtics. So we spoke 192 00:10:25,760 --> 00:10:28,559 Speaker 1: with him before the league collapse about what was up 193 00:10:28,679 --> 00:10:33,080 Speaker 1: with the Super Soccer League. On paper, conceptually, moving to 194 00:10:33,440 --> 00:10:37,160 Speaker 1: a more American style sports ownership situation will be great 195 00:10:37,160 --> 00:10:40,280 Speaker 1: for those big clubs because right now in europe UM, 196 00:10:41,040 --> 00:10:43,040 Speaker 1: there is no there are no cost controls, virtually no 197 00:10:43,080 --> 00:10:46,520 Speaker 1: cost controls. You can own a major franchise and be 198 00:10:47,120 --> 00:10:50,280 Speaker 1: relegated UM. So that is a lot of uncertainty from 199 00:10:50,280 --> 00:10:53,800 Speaker 1: a business standpoint, and uh, and so on paper, they've 200 00:10:53,800 --> 00:10:56,319 Speaker 1: been talking about this, I think for close to twenty 201 00:10:56,400 --> 00:10:58,679 Speaker 1: years now. But on paper it makes a lot of 202 00:10:58,720 --> 00:11:00,439 Speaker 1: sense for those large clubs and as gonna cause a 203 00:11:00,480 --> 00:11:03,320 Speaker 1: lot of disruption and and football is a way of 204 00:11:03,360 --> 00:11:06,960 Speaker 1: life in England and countries of Europe, so I think 205 00:11:06,960 --> 00:11:10,080 Speaker 1: you'll see a battle of go on. But ultimately, uh, 206 00:11:10,480 --> 00:11:12,880 Speaker 1: the large city owners that are supplying a lot of 207 00:11:12,880 --> 00:11:15,199 Speaker 1: those revenues, I think want to capitalize on that and 208 00:11:15,240 --> 00:11:17,280 Speaker 1: want a more stable structure. I think I may have 209 00:11:17,320 --> 00:11:19,840 Speaker 1: a rough, very rough understanding of why they also rans 210 00:11:19,840 --> 00:11:21,640 Speaker 1: if I can call them, that want to participate in this, 211 00:11:21,679 --> 00:11:23,439 Speaker 1: because they'll get a bigger piece of the pies. I 212 00:11:23,480 --> 00:11:25,920 Speaker 1: understand there'll be some caps on how much people can spend. 213 00:11:26,040 --> 00:11:28,120 Speaker 1: Why do the rich clubs want this? Because don't they 214 00:11:28,200 --> 00:11:31,320 Speaker 1: rich get richer when it comes to European football? Well, 215 00:11:31,360 --> 00:11:33,280 Speaker 1: I think part of the proposal is is to have 216 00:11:33,480 --> 00:11:37,760 Speaker 1: a more partnership with players where there's A. I think 217 00:11:37,800 --> 00:11:42,840 Speaker 1: they're talking about of the take goes goes to the players, 218 00:11:43,120 --> 00:11:44,679 Speaker 1: and right now I think the players are taking eight 219 00:11:44,800 --> 00:11:48,120 Speaker 1: percent of the take, and therefore even these big clubs 220 00:11:48,480 --> 00:11:50,640 Speaker 1: are losing money, you know, given the transfer costs and 221 00:11:50,679 --> 00:11:52,839 Speaker 1: given the cost of players. So I think part and 222 00:11:52,880 --> 00:11:55,800 Speaker 1: parcel with it is is a you can't be relegated, 223 00:11:56,240 --> 00:11:59,520 Speaker 1: and then having some cost controls in to ensure and 224 00:11:59,559 --> 00:12:02,040 Speaker 1: you can make modicum of profitability. This is a different 225 00:12:02,080 --> 00:12:03,880 Speaker 1: world from what I think a lot of people have seen. 226 00:12:03,920 --> 00:12:06,840 Speaker 1: With so much monetary and fiscal stimulus in the United 227 00:12:06,840 --> 00:12:09,920 Speaker 1: States but also in Europe and Japan. How does that 228 00:12:09,960 --> 00:12:14,160 Speaker 1: affect the investment decision? How do you avoid overpriced assets? 229 00:12:14,200 --> 00:12:16,800 Speaker 1: How do you find bargains in that world? Well, there's 230 00:12:16,880 --> 00:12:20,200 Speaker 1: very few bargains in that world. Uh, we're kind of 231 00:12:20,240 --> 00:12:23,040 Speaker 1: all time high multiples. As you know, the money supply 232 00:12:23,080 --> 00:12:28,200 Speaker 1: increased over which one leads to inflation and uh and 233 00:12:28,200 --> 00:12:30,200 Speaker 1: and the devastit is an all time might as well. 234 00:12:30,320 --> 00:12:34,400 Speaker 1: So so that's the that's the the situation that there's 235 00:12:34,440 --> 00:12:36,880 Speaker 1: a lot of money chasing a few deals, and that's 236 00:12:36,920 --> 00:12:40,319 Speaker 1: been great for private equity because what you have to 237 00:12:40,360 --> 00:12:43,040 Speaker 1: do in private equity is a be patient b You 238 00:12:43,080 --> 00:12:45,439 Speaker 1: have to have a thesis when you buy a company 239 00:12:45,640 --> 00:12:48,439 Speaker 1: on how you're going to improve it, make it larger, 240 00:12:48,559 --> 00:12:51,320 Speaker 1: make it global, have new products, because at the end 241 00:12:51,320 --> 00:12:54,560 Speaker 1: of the day, fundamentally people will pay for burrowing companies. 242 00:12:54,960 --> 00:12:56,719 Speaker 1: So if you're gonna pay those high multiples, you have 243 00:12:56,760 --> 00:13:00,000 Speaker 1: to have a plan that's going to justify that UM 244 00:13:00,080 --> 00:13:02,280 Speaker 1: and UH and that's what we do at Bank Account 245 00:13:02,320 --> 00:13:04,199 Speaker 1: But were formed, as you know, from a consulting firm, 246 00:13:04,240 --> 00:13:07,520 Speaker 1: Well Banting and Company. And from day one we've been 247 00:13:07,920 --> 00:13:11,199 Speaker 1: helping companies grow and and UH and prosper and as 248 00:13:11,240 --> 00:13:12,920 Speaker 1: we have to keep doing. And we got perceived with 249 00:13:12,960 --> 00:13:16,240 Speaker 1: caution not get carried away to pay be the last 250 00:13:16,240 --> 00:13:19,120 Speaker 1: one to pay the hyble before the crash, but pay. 251 00:13:19,559 --> 00:13:21,319 Speaker 1: You have to pay a fair multiple and then make 252 00:13:21,360 --> 00:13:24,200 Speaker 1: those companies grow. You mentioned the money supply and inflation. 253 00:13:24,200 --> 00:13:26,559 Speaker 1: There's something a debate going on between. On the one hand, 254 00:13:26,600 --> 00:13:28,280 Speaker 1: I put might put j Pal on one side saying, 255 00:13:28,280 --> 00:13:30,679 Speaker 1: don't really worry about inflation that much, given for a 256 00:13:30,679 --> 00:13:34,240 Speaker 1: long time it's been deflationary disinflationary rather inflationary, and Larry 257 00:13:34,280 --> 00:13:36,560 Speaker 1: Summers perhaps on the other side saying, wait a second, 258 00:13:36,559 --> 00:13:39,320 Speaker 1: pumping this much money need economy, you're going to get 259 00:13:39,360 --> 00:13:41,520 Speaker 1: more inflation than you think. Where do you come out 260 00:13:41,520 --> 00:13:43,240 Speaker 1: on that, and how do you take that into account? 261 00:13:43,280 --> 00:13:45,520 Speaker 1: If you do when you're looking at investments, Well, I'm 262 00:13:45,520 --> 00:13:48,440 Speaker 1: with Larry Summers on that if you look at at 263 00:13:48,440 --> 00:13:50,480 Speaker 1: all the data points in any country in the last 264 00:13:50,559 --> 00:13:53,560 Speaker 1: hundred years, when the money supplies increased that level, you 265 00:13:53,600 --> 00:13:58,040 Speaker 1: have gotten inflation percent at the time. Within a year 266 00:13:58,120 --> 00:14:00,920 Speaker 1: or two after those kinds of massive and resist So 267 00:14:01,000 --> 00:14:02,840 Speaker 1: I think there will be inflation. And so what you 268 00:14:02,840 --> 00:14:05,679 Speaker 1: have to do is factor that into your investment decisions 269 00:14:05,880 --> 00:14:08,920 Speaker 1: and uh and and figure out what companies will will 270 00:14:09,160 --> 00:14:11,760 Speaker 1: will be able to get through an inflationary period. So 271 00:14:11,840 --> 00:14:16,120 Speaker 1: companies that companies that can withstand that kind of inflation, 272 00:14:16,160 --> 00:14:17,600 Speaker 1: you have to factor that in your models. In fact 273 00:14:17,640 --> 00:14:19,680 Speaker 1: of that impression back, do you take into account the 274 00:14:20,120 --> 00:14:23,160 Speaker 1: future strength or weakness of the dollar, because typically when 275 00:14:23,160 --> 00:14:26,440 Speaker 1: you run record deficits trade deficit as well as budget deficity, 276 00:14:26,560 --> 00:14:29,320 Speaker 1: you're gonna have a weaker currency. Do you anticipate that possibility? 277 00:14:29,400 --> 00:14:31,560 Speaker 1: Do you take that into account in investing? I think 278 00:14:31,560 --> 00:14:33,640 Speaker 1: you have to take that into account as well, especially 279 00:14:33,720 --> 00:14:36,720 Speaker 1: if you're if you're on both sides of it. If 280 00:14:36,760 --> 00:14:39,120 Speaker 1: you're if the dollar appreciates and you're in a highly 281 00:14:39,200 --> 00:14:43,040 Speaker 1: export driven business USA business and exports all over the world, 282 00:14:43,320 --> 00:14:45,840 Speaker 1: that's gonna be beneficial with you. UM. If you have 283 00:14:46,000 --> 00:14:50,080 Speaker 1: raw materials and you have things that you're important to manufacture, UM, 284 00:14:50,200 --> 00:14:52,720 Speaker 1: that's going to be not the infestially used. So I 285 00:14:52,720 --> 00:14:54,720 Speaker 1: would suspect we're gonna have an inflationary environment of those 286 00:14:54,760 --> 00:14:56,480 Speaker 1: things will have to be factored in all all of 287 00:14:56,480 --> 00:14:59,920 Speaker 1: our investment decisions. Thanks to Steve Alucca of Bain Cap 288 00:15:00,560 --> 00:15:03,920 Speaker 1: coming up investing in our Future. What would putting two 289 00:15:04,000 --> 00:15:06,800 Speaker 1: point to five trillion dollars to work on infrastructure do 290 00:15:06,960 --> 00:15:10,840 Speaker 1: for our economy and for US business? From Ralph Schlastein 291 00:15:11,080 --> 00:15:14,600 Speaker 1: of Evercore. That's next on Wall Street Week on Bloomberg. 292 00:15:17,200 --> 00:15:21,160 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 293 00:15:21,280 --> 00:15:24,960 Speaker 1: Bloomberg Radio. There was a lot more talking about infrastructure 294 00:15:25,000 --> 00:15:28,239 Speaker 1: this week, including talk between the President and a bipartisan 295 00:15:28,240 --> 00:15:31,080 Speaker 1: group of lawmakers about what's needed and about how to 296 00:15:31,120 --> 00:15:34,040 Speaker 1: pay for it. Everyone seems to agree something needs to 297 00:15:34,080 --> 00:15:37,280 Speaker 1: be done, but we don't always hear exactly what it 298 00:15:37,320 --> 00:15:40,840 Speaker 1: would accomplish. So we asked someone who spent his career 299 00:15:40,880 --> 00:15:44,200 Speaker 1: walking the halls of power in Washington, and then those 300 00:15:44,240 --> 00:15:48,560 Speaker 1: of Wall Street Avercorp. Co Chairman and co CEO, Ralph Schlastein. 301 00:15:49,000 --> 00:15:53,560 Speaker 1: I think the economy is in very very uh good 302 00:15:53,600 --> 00:15:58,320 Speaker 1: shape poise to make a quite rapid recovery. And I believe, 303 00:15:58,880 --> 00:16:02,280 Speaker 1: if anything, the ECONO to me is going to surprise 304 00:16:02,400 --> 00:16:07,080 Speaker 1: on the upside because there's so much uh pent up 305 00:16:08,040 --> 00:16:13,960 Speaker 1: demand to consume, so much uh build up of net 306 00:16:14,000 --> 00:16:19,120 Speaker 1: worth uh and savings on personal balance sheets UH that 307 00:16:19,160 --> 00:16:21,320 Speaker 1: if we're gonna if we're going to get a surprise, 308 00:16:21,520 --> 00:16:23,560 Speaker 1: I believe it's on the upside. And I think if 309 00:16:23,560 --> 00:16:25,880 Speaker 1: we're going to get a surprise and unemployment, I think 310 00:16:25,920 --> 00:16:29,280 Speaker 1: it will be and how rapidly it declines. And I 311 00:16:29,320 --> 00:16:31,280 Speaker 1: think if we get a surprise and earnings, it will 312 00:16:31,320 --> 00:16:33,360 Speaker 1: also be on the upside. So I think one of 313 00:16:33,360 --> 00:16:36,400 Speaker 1: the questions people have is people expect that sort of upswing. 314 00:16:36,440 --> 00:16:38,440 Speaker 1: No question, is it going to be a sugar rish 315 00:16:38,840 --> 00:16:40,840 Speaker 1: sugar high that we come down off of quickly? Or 316 00:16:40,880 --> 00:16:42,880 Speaker 1: what do you think about the longer term prospects, not 317 00:16:42,960 --> 00:16:47,200 Speaker 1: just for going into and beyond the challenge here is 318 00:16:47,360 --> 00:16:53,880 Speaker 1: to get back to potential uh as rapidly as possible, 319 00:16:53,960 --> 00:16:57,440 Speaker 1: but not on a path that causes you to overshoot 320 00:16:57,480 --> 00:17:03,280 Speaker 1: and cause uh, you know, longer term and more sustained inflation. 321 00:17:03,760 --> 00:17:07,080 Speaker 1: As you said in your opening remarks, Uh, the amount 322 00:17:07,200 --> 00:17:12,760 Speaker 1: of fiscal and monetary stimulus that has been applied is 323 00:17:13,080 --> 00:17:17,360 Speaker 1: absolutely unprecedented, and the rapidity with which it's been applied 324 00:17:17,600 --> 00:17:21,280 Speaker 1: is also unprecedented. So we're a little bit in uncharted 325 00:17:21,320 --> 00:17:27,320 Speaker 1: waders as to uh what happens after we get closer 326 00:17:28,040 --> 00:17:34,280 Speaker 1: uh to uh, you know, potential growth. I will say 327 00:17:35,240 --> 00:17:39,480 Speaker 1: that over the long term, we have to get more 328 00:17:39,560 --> 00:17:45,919 Speaker 1: balance between revenues and expenditures in the government. Uh. You know. 329 00:17:46,000 --> 00:17:50,600 Speaker 1: The pace at which debt is expanding is tolerable in 330 00:17:50,680 --> 00:17:54,720 Speaker 1: a period of economic decline like we're like we've been 331 00:17:54,760 --> 00:17:57,240 Speaker 1: in for the last year or so, but it's not 332 00:17:57,400 --> 00:18:01,600 Speaker 1: sustainable over the longer term. One of the advantages I 333 00:18:01,680 --> 00:18:03,760 Speaker 1: think of your job is you get to talk to 334 00:18:03,800 --> 00:18:06,200 Speaker 1: c e O s all the time. Are they concerned 335 00:18:06,200 --> 00:18:08,320 Speaker 1: about overshooting I think was the term you used. Are 336 00:18:08,320 --> 00:18:11,560 Speaker 1: they are worried about running economy too hot? At this point, 337 00:18:11,600 --> 00:18:17,439 Speaker 1: I'd say there's very little concern about that. Uh, CEOs 338 00:18:17,480 --> 00:18:23,320 Speaker 1: are concerned about making sure they have uh sufficient uh 339 00:18:23,359 --> 00:18:28,040 Speaker 1: trained and qualified workers. UH. They're concerned about their uh 340 00:18:28,160 --> 00:18:32,760 Speaker 1: supply chains due to the rapidity of the recovery. But 341 00:18:32,840 --> 00:18:35,440 Speaker 1: at this point, uh, you know, we're still so far 342 00:18:35,480 --> 00:18:42,320 Speaker 1: away from uh you know capacity uh that that concern 343 00:18:42,560 --> 00:18:47,119 Speaker 1: really doesn't exist today. And I will say also that 344 00:18:47,280 --> 00:18:53,200 Speaker 1: the the logical concerned that one might have is that 345 00:18:54,080 --> 00:19:00,359 Speaker 1: inflation UH is that's is sustained at a much higher 346 00:19:00,440 --> 00:19:03,480 Speaker 1: level than we would like. And I do believe that 347 00:19:03,960 --> 00:19:08,120 Speaker 1: uh you know, technology, including some of the advances that 348 00:19:08,160 --> 00:19:12,439 Speaker 1: we've made uh as a result of COVID, does serve 349 00:19:12,480 --> 00:19:18,040 Speaker 1: as a longer term depressant on inflation. So one of 350 00:19:18,080 --> 00:19:21,280 Speaker 1: the things we're seeing proposed now by President Biden is 351 00:19:21,359 --> 00:19:24,240 Speaker 1: a massive I think that's not an overstatement of proposal 352 00:19:24,280 --> 00:19:26,919 Speaker 1: for what he calls infrastructure two point two five trillion dollars. 353 00:19:27,040 --> 00:19:29,879 Speaker 1: We also now have Republican senators coming back and saying, well, 354 00:19:29,880 --> 00:19:33,680 Speaker 1: we believe in infrastructure, but maybe institute of rather than 355 00:19:34,320 --> 00:19:37,840 Speaker 1: two trillion. But whatever the number is, what is that 356 00:19:38,000 --> 00:19:42,000 Speaker 1: likely to do the economy? It's going to provide uh 357 00:19:42,320 --> 00:19:47,199 Speaker 1: longer term uh, not immediate uh stimulus, because as we 358 00:19:47,280 --> 00:19:51,560 Speaker 1: all know. UH. The idea of quote unquote shovel ready 359 00:19:51,720 --> 00:19:56,840 Speaker 1: projects for economic stimulus has been tried UH in many 360 00:19:56,920 --> 00:20:01,080 Speaker 1: past recessions, UH and doesn't really work. Shove already never 361 00:20:01,119 --> 00:20:05,600 Speaker 1: seems to be shove already. I think the proposition that 362 00:20:05,680 --> 00:20:11,120 Speaker 1: we need to make uh multi hundred billion, perhaps trillion 363 00:20:11,480 --> 00:20:19,200 Speaker 1: ish dollar investments in UH roads, bridges, broadband, all things 364 00:20:19,240 --> 00:20:24,720 Speaker 1: that enhance productivity over the intermediates a longer term, I 365 00:20:24,760 --> 00:20:30,040 Speaker 1: think there's broad based agreement on that UH, and I 366 00:20:30,080 --> 00:20:36,080 Speaker 1: think there is still compromise or disagreement on the amount. UH. 367 00:20:36,080 --> 00:20:42,200 Speaker 1: There's a there's certainly disagreement on what constitutes infrastructure, and 368 00:20:42,240 --> 00:20:48,440 Speaker 1: there are certainly things in President Biden's proposal that uh, 369 00:20:48,480 --> 00:20:53,520 Speaker 1: you know, expand the historical definition of infrastructure. And then 370 00:20:53,560 --> 00:20:57,560 Speaker 1: of course there's the big question about how does this 371 00:20:57,640 --> 00:21:01,600 Speaker 1: get financed? Thanks to Ralph last line ever Corps coming up. 372 00:21:01,680 --> 00:21:04,280 Speaker 1: It's the second largest economy in the world, and if 373 00:21:04,320 --> 00:21:07,280 Speaker 1: we thought China might be throwing its economic weight around, 374 00:21:07,600 --> 00:21:10,960 Speaker 1: now we have the evidence from special contributor Larry Summers 375 00:21:11,000 --> 00:21:14,920 Speaker 1: of Harvard and Anna Gaelpern of Georgetown University. That's next 376 00:21:15,000 --> 00:21:23,639 Speaker 1: on Wall Street Week on Bloomberg. This is Bloomberg Wall 377 00:21:23,720 --> 00:21:27,840 Speaker 1: Street Week with David Weston from Bloomberg Radio. China the 378 00:21:27,920 --> 00:21:31,320 Speaker 1: number two economy in the world, gaining on the United States, 379 00:21:31,359 --> 00:21:34,440 Speaker 1: and it is coming to exercise its economic power around 380 00:21:34,440 --> 00:21:37,040 Speaker 1: the world, including through that One Belt one Road. Were's 381 00:21:37,040 --> 00:21:39,800 Speaker 1: making a lot of sovereign loans all around the world. 382 00:21:39,840 --> 00:21:41,760 Speaker 1: We don't know very much about them, but we now 383 00:21:41,800 --> 00:21:44,560 Speaker 1: have a new insight into them, and that is because 384 00:21:44,600 --> 00:21:48,320 Speaker 1: of professor Anna Gelpert. She is from Georgetown University and 385 00:21:48,359 --> 00:21:50,119 Speaker 1: we welcome her now she's done a study and we're 386 00:21:50,200 --> 00:21:53,720 Speaker 1: joined our special contributor Larry Summers, who really pointed out 387 00:21:53,760 --> 00:21:56,680 Speaker 1: and to be so and it's a fascinating thing you did. 388 00:21:56,960 --> 00:21:59,280 Speaker 1: You actually got your hands on some of these contracts 389 00:21:59,320 --> 00:22:01,240 Speaker 1: because most of us never see what they are, the 390 00:22:01,400 --> 00:22:04,200 Speaker 1: terms on which China is lending to some sovereigns around 391 00:22:04,240 --> 00:22:08,080 Speaker 1: the world. What did you learn? The project is very 392 00:22:08,160 --> 00:22:11,879 Speaker 1: much a collaboration. There are folks from AID Data William 393 00:22:11,920 --> 00:22:18,919 Speaker 1: and Mary specialized in finding UM project documents about various 394 00:22:19,000 --> 00:22:26,480 Speaker 1: bilateral deals with China and otherwise and UM they found 395 00:22:27,080 --> 00:22:30,320 Speaker 1: a hundred pure accident, by the way, a hundred nice 396 00:22:30,400 --> 00:22:35,680 Speaker 1: round number contracts between Chinese lenders primarily China x and 397 00:22:35,720 --> 00:22:40,360 Speaker 1: Bank and China Development Bank and governments in developing countries, 398 00:22:40,560 --> 00:22:43,840 Speaker 1: and it's both one belt, one road and you know 399 00:22:43,960 --> 00:22:48,160 Speaker 1: large emerging markets in Latin America, Argentina, Ecuador among them. 400 00:22:48,280 --> 00:22:53,120 Speaker 1: UM And the question was so UM Brad Parks at 401 00:22:53,119 --> 00:22:56,600 Speaker 1: AID Data, Scott Morris at Center for Global Development, and 402 00:22:56,800 --> 00:23:03,199 Speaker 1: Christoph Trebish and Sebastian Hornet Heel and i UM tried 403 00:23:03,359 --> 00:23:09,399 Speaker 1: to figure out whether these Chinese contracts were normal, whether 404 00:23:09,560 --> 00:23:15,439 Speaker 1: they were um UH roughly in line with other bilateral 405 00:23:15,440 --> 00:23:20,439 Speaker 1: official contracts, with other commercial contracts, or whether in fact 406 00:23:20,720 --> 00:23:23,879 Speaker 1: the story that you see in the papers about China 407 00:23:24,359 --> 00:23:29,080 Speaker 1: taking over Sri Lanka courts and electricitys and wows is 408 00:23:29,760 --> 00:23:32,440 Speaker 1: the right story. There's an enormous amount of kind of 409 00:23:32,480 --> 00:23:36,359 Speaker 1: myth making and myth busting space, but not a whole 410 00:23:36,480 --> 00:23:39,119 Speaker 1: lot of um facts. So what did you find? What 411 00:23:39,160 --> 00:23:41,840 Speaker 1: was the myth? What was the reality? The myth was 412 00:23:42,119 --> 00:23:47,520 Speaker 1: China lens against infrastructure. China takes over these facilities on 413 00:23:47,560 --> 00:23:50,480 Speaker 1: the one hand, and the other myth is um. You know, 414 00:23:50,560 --> 00:23:54,600 Speaker 1: China is a benevolent lender UM that helps development. Well, 415 00:23:55,520 --> 00:23:59,080 Speaker 1: neither of those is really quite right, and these warring 416 00:23:59,119 --> 00:24:00,639 Speaker 1: myths are sort of beside. At the point where we 417 00:24:00,680 --> 00:24:06,240 Speaker 1: found was terms that are more aggressive, more muscular than 418 00:24:07,080 --> 00:24:13,919 Speaker 1: other bilateral official contracts UM, and more muscular than most 419 00:24:14,000 --> 00:24:17,439 Speaker 1: commercial contracts. But the difference we found was really a 420 00:24:17,480 --> 00:24:21,199 Speaker 1: difference of degree. So China is much more likely to 421 00:24:21,359 --> 00:24:25,560 Speaker 1: use revenue accounts so to control cash for example UM 422 00:24:25,680 --> 00:24:29,760 Speaker 1: in a bank account, as addtional security beyond sovereign credit 423 00:24:30,359 --> 00:24:36,080 Speaker 1: than other lenders. China is much more likely to use. 424 00:24:36,240 --> 00:24:41,119 Speaker 1: Chinese lenders much more likely to use very expansive confidentiality 425 00:24:41,160 --> 00:24:46,800 Speaker 1: clauses UM. Again, others use them, but not nearly as often. 426 00:24:47,320 --> 00:24:51,400 Speaker 1: We see a lot more linkages between the loan contracts 427 00:24:51,520 --> 00:24:56,440 Speaker 1: and other projects by the same Chinese lender or other 428 00:24:56,600 --> 00:25:01,200 Speaker 1: Chinese lenders of Chinese enterprises in the borrowing country UM 429 00:25:01,240 --> 00:25:05,480 Speaker 1: so across default linkages UM. And then there's one clause 430 00:25:05,560 --> 00:25:08,240 Speaker 1: that we found that is truly unique, and that is 431 00:25:08,600 --> 00:25:13,639 Speaker 1: a promise not to restructure the debt in the Paris 432 00:25:13,720 --> 00:25:19,600 Speaker 1: Club of government to government creditors or otherwise in these 433 00:25:19,800 --> 00:25:23,520 Speaker 1: coordinated structuring. So Larry R. Goes to you actually, as 434 00:25:23,520 --> 00:25:26,120 Speaker 1: former Treasury secretary, you know the Paris Club well, that's 435 00:25:26,119 --> 00:25:28,520 Speaker 1: been historically sort of ad hoc way we work it 436 00:25:28,520 --> 00:25:30,560 Speaker 1: out when people can't pay their debts. Did it come 437 00:25:30,560 --> 00:25:33,040 Speaker 1: as a surprise to you that the exclude these debt 438 00:25:33,080 --> 00:25:35,399 Speaker 1: agreements from the Paris Club. I've learned not to be 439 00:25:35,480 --> 00:25:40,800 Speaker 1: surprised too often. I think Anna has done hugely important 440 00:25:41,160 --> 00:25:46,320 Speaker 1: research that moves us beyond ideology to some practicalities. And 441 00:25:46,400 --> 00:25:51,919 Speaker 1: I think those practicalities are that it's wrong when people 442 00:25:52,480 --> 00:25:57,040 Speaker 1: go on go into strong rhetoric about debt trapped diplomacy. 443 00:25:57,320 --> 00:26:01,119 Speaker 1: But at the same time, China isn't completely play and 444 00:26:01,240 --> 00:26:05,640 Speaker 1: fair vise a the other creditors and writing clauses into 445 00:26:05,720 --> 00:26:09,760 Speaker 1: its contract that says that we won't participate in the 446 00:26:09,800 --> 00:26:15,760 Speaker 1: global multigatural rescheduling processes isn't really fair. And you can't 447 00:26:15,760 --> 00:26:19,000 Speaker 1: have a system where people right go to people who 448 00:26:19,000 --> 00:26:21,800 Speaker 1: are desperate for money and get them to agree to 449 00:26:21,880 --> 00:26:26,840 Speaker 1: contracts that one particular category of debt can't ever be restructured. 450 00:26:27,200 --> 00:26:29,760 Speaker 1: So I think we're gonna be in a much more 451 00:26:31,040 --> 00:26:37,080 Speaker 1: fruitful position to have international dialogue on these matters because 452 00:26:37,520 --> 00:26:42,040 Speaker 1: of uh the research that Anna and her many colleagues 453 00:26:42,080 --> 00:26:45,159 Speaker 1: and her many colleagues have done. But look this is 454 00:26:45,280 --> 00:26:50,920 Speaker 1: a big deal. We've got more flow of credit across 455 00:26:50,960 --> 00:26:55,720 Speaker 1: international borders than at almost any point in history. You 456 00:26:55,880 --> 00:27:00,919 Speaker 1: look at the amount of debt that's carrying junk bond spreads, 457 00:27:01,520 --> 00:27:04,840 Speaker 1: and that's telling you that people think that not always 458 00:27:04,880 --> 00:27:07,760 Speaker 1: that debt's gonna get repaid, and sometimes it's gonna have 459 00:27:07,800 --> 00:27:11,320 Speaker 1: to be restructured. And the right time to think about 460 00:27:11,359 --> 00:27:14,800 Speaker 1: the restructuring of debt is not when we're an extremist, 461 00:27:15,320 --> 00:27:18,959 Speaker 1: but in advance. And so I think it's gonna need 462 00:27:19,000 --> 00:27:21,280 Speaker 1: to be a lot of soul searching in the international 463 00:27:21,359 --> 00:27:26,520 Speaker 1: community around these debt issues. And you know, I think 464 00:27:26,560 --> 00:27:29,440 Speaker 1: that it's gonna take it's gonna take time. I think 465 00:27:29,480 --> 00:27:34,520 Speaker 1: one of the important conclusions of Anna's research is that 466 00:27:34,600 --> 00:27:37,600 Speaker 1: none of us have a monopoly on virtue, and that 467 00:27:37,880 --> 00:27:41,840 Speaker 1: some of the practices that people thought of as problematic 468 00:27:41,960 --> 00:27:48,720 Speaker 1: Chinese practices are also problematic European practices, and maybe even 469 00:27:48,760 --> 00:27:53,919 Speaker 1: problematic in some cases American UH practices. And so we 470 00:27:54,040 --> 00:27:58,920 Speaker 1: just need to work through a system that can work 471 00:27:58,960 --> 00:28:02,560 Speaker 1: for everybody. Oh and let's pick upbout what Larry just said. UH, 472 00:28:02,600 --> 00:28:05,760 Speaker 1: And you are an expert on sovereign debt, not just Chinese, 473 00:28:05,760 --> 00:28:08,920 Speaker 1: but in general sovereign debt. It doesn't make sense to 474 00:28:09,000 --> 00:28:12,320 Speaker 1: ask the question, how many of these provisions muscular you 475 00:28:12,440 --> 00:28:16,200 Speaker 1: call them provisions are to protect China as a lender 476 00:28:16,240 --> 00:28:19,959 Speaker 1: as opposed to advance China China policies, or is it 477 00:28:20,040 --> 00:28:22,880 Speaker 1: inherent in any sovereign debt and in fact the sovereign 478 00:28:22,880 --> 00:28:24,400 Speaker 1: doing the lending is going to try to have their 479 00:28:24,440 --> 00:28:27,440 Speaker 1: will in things other than just getting repaid. So that's 480 00:28:27,440 --> 00:28:31,520 Speaker 1: a fabulous question data because I think that we spend 481 00:28:31,600 --> 00:28:37,320 Speaker 1: way much time haggling over these boundaries between official and 482 00:28:37,400 --> 00:28:40,560 Speaker 1: commercial lending, whereas in fact, I think the assumption has 483 00:28:40,640 --> 00:28:44,120 Speaker 1: got to be and what we see is it's all 484 00:28:44,240 --> 00:28:47,880 Speaker 1: mixed motive and the motives shift over time. What we 485 00:28:48,040 --> 00:28:51,479 Speaker 1: see in the contracts is the leverage that the lender 486 00:28:51,640 --> 00:28:55,000 Speaker 1: has to pursue their goals. And we saw this in 487 00:28:55,120 --> 00:28:58,080 Speaker 1: Russia Ukraine, mind you right where the Russian sovereign left 488 00:28:58,120 --> 00:29:01,800 Speaker 1: fund sued Ukraine for three billion dollars in London. Was 489 00:29:01,840 --> 00:29:05,320 Speaker 1: that a commercial transaction or was that part of a 490 00:29:05,520 --> 00:29:10,400 Speaker 1: broader strategy in some sense? Commercial official is is not 491 00:29:10,480 --> 00:29:13,160 Speaker 1: a fruitful question to ask. The question is what are 492 00:29:13,160 --> 00:29:16,600 Speaker 1: the objectives of the slender, what tools does the slender 493 00:29:16,720 --> 00:29:20,640 Speaker 1: have and what bargaining power does the borrower have. I mean, 494 00:29:20,720 --> 00:29:25,520 Speaker 1: borrowers have agency, and I think that it's um important 495 00:29:25,600 --> 00:29:29,320 Speaker 1: for us to make sure that a um countries know 496 00:29:29,440 --> 00:29:33,600 Speaker 1: what they're getting into and that there is some sort 497 00:29:33,640 --> 00:29:36,840 Speaker 1: of a set of norms and in particular surrounding disclosure. 498 00:29:36,880 --> 00:29:39,200 Speaker 1: I musta say, the one thing that I learned from 499 00:29:39,200 --> 00:29:41,480 Speaker 1: this project is I really want to see the contract. 500 00:29:42,440 --> 00:29:46,360 Speaker 1: There are set of special features about sovereign debt and 501 00:29:46,840 --> 00:29:49,680 Speaker 1: policy and all that, but some of this comes back 502 00:29:49,760 --> 00:29:52,800 Speaker 1: to something that in a way is even uh simpler. 503 00:29:53,400 --> 00:29:57,160 Speaker 1: If I'm borrowing to buy a car, I want two things. 504 00:29:57,240 --> 00:30:00,640 Speaker 1: I want as low and interest right as possible, and 505 00:30:00,720 --> 00:30:03,040 Speaker 1: I also want, in the event that I don't pay 506 00:30:03,080 --> 00:30:05,800 Speaker 1: the car back pay the debt back, it to be 507 00:30:05,840 --> 00:30:09,000 Speaker 1: as hard for the lender to repossess the car as possible. 508 00:30:09,840 --> 00:30:11,920 Speaker 1: And there's some trade off between those two things. If 509 00:30:11,960 --> 00:30:14,800 Speaker 1: it's gonna be really hard to repossess the car, the 510 00:30:14,880 --> 00:30:19,320 Speaker 1: lender is gonna demand a higher rate, And so you 511 00:30:19,400 --> 00:30:22,239 Speaker 1: have to think about it both at the beginning in 512 00:30:22,360 --> 00:30:26,520 Speaker 1: terms of the desire to have lower rates, and part 513 00:30:26,560 --> 00:30:31,200 Speaker 1: way through in the event that thing that things go wrong, 514 00:30:31,640 --> 00:30:36,640 Speaker 1: and that's really the subtlety uh in this subject. Okay, 515 00:30:36,640 --> 00:30:39,520 Speaker 1: thank you so very much the Professor Anna Gaelpern of 516 00:30:39,520 --> 00:30:42,600 Speaker 1: Georgetown Law and of course Wall Street Weeks special contributed 517 00:30:42,640 --> 00:30:46,840 Speaker 1: Larry Summers of Harvard University. Finally, one more thought. Can 518 00:30:46,960 --> 00:30:50,560 Speaker 1: zoom be hazardous to your health? Working from home? A 519 00:30:50,640 --> 00:30:53,320 Speaker 1: year ago most of us didn't really think much about it. 520 00:30:53,360 --> 00:30:55,480 Speaker 1: But thirteen months ago we all packed up our things 521 00:30:55,480 --> 00:30:57,520 Speaker 1: and we left the office and we went off to 522 00:30:57,560 --> 00:31:00,400 Speaker 1: work from our homes, never thinking that it might last 523 00:31:00,440 --> 00:31:03,240 Speaker 1: for over a year. So now we've spent a year 524 00:31:03,280 --> 00:31:06,360 Speaker 1: figuring it all out, the tech, the kids learning from home, 525 00:31:06,520 --> 00:31:10,320 Speaker 1: finding someplace to do our work, and oh yes, learning 526 00:31:10,320 --> 00:31:13,880 Speaker 1: how to use Zoom or Skype or whatever. At first 527 00:31:13,960 --> 00:31:16,760 Speaker 1: it was a rush how much we could get accomplished. 528 00:31:17,120 --> 00:31:20,160 Speaker 1: But now it's starting to dawn on us that there's 529 00:31:20,200 --> 00:31:23,480 Speaker 1: another side of this working from home business. Sure, it's 530 00:31:23,520 --> 00:31:26,560 Speaker 1: convenient to walk down the hall around the corner, but 531 00:31:26,680 --> 00:31:29,520 Speaker 1: it's equally convenient for everyone else to reach out and 532 00:31:29,680 --> 00:31:32,360 Speaker 1: get us any time of day or night. And that includes, 533 00:31:32,440 --> 00:31:35,800 Speaker 1: goodness knows, on the weekends, which takes us to that 534 00:31:36,000 --> 00:31:40,560 Speaker 1: health issue and the HSBC program manager working from home 535 00:31:41,040 --> 00:31:44,360 Speaker 1: who on a Sunday afternoon felt tightness in his chest 536 00:31:44,480 --> 00:31:48,040 Speaker 1: and some difficulty breathing. Yes, he was having a heart attack, 537 00:31:48,440 --> 00:31:51,400 Speaker 1: and as Johnny Frostick laid out in a LinkedIn post 538 00:31:51,480 --> 00:31:54,960 Speaker 1: that's been liked over two hundred thousand times, his first 539 00:31:55,040 --> 00:31:58,840 Speaker 1: thoughts weren't about himself or about his family. He told 540 00:31:58,840 --> 00:32:01,320 Speaker 1: Bloomberg News he was worried about missing a meeting with 541 00:32:01,400 --> 00:32:04,240 Speaker 1: his manager coming up the next day. In his words, 542 00:32:04,560 --> 00:32:08,440 Speaker 1: this isn't convenient. Let's be clear, we all had the 543 00:32:08,440 --> 00:32:11,400 Speaker 1: ability to work too much without the help of Zoom, 544 00:32:11,440 --> 00:32:13,920 Speaker 1: and Mr Frostick is the first to admit he needs 545 00:32:13,960 --> 00:32:16,320 Speaker 1: to lose a bit of weight. But as we go 546 00:32:16,440 --> 00:32:19,480 Speaker 1: forward into this new world, maybe we should think about 547 00:32:19,480 --> 00:32:22,120 Speaker 1: whether it may be a bit too easy to work 548 00:32:22,200 --> 00:32:26,960 Speaker 1: anytime and anywhere. When Mr Frostick listed his new priorities 549 00:32:27,000 --> 00:32:30,680 Speaker 1: in his LinkedIn post, the first was I'm not spending 550 00:32:30,760 --> 00:32:34,920 Speaker 1: all day on Zoom anymore. Sound like someone you know 551 00:32:36,480 --> 00:32:38,280 Speaker 1: that does it. For this episode of Wall Street Week, 552 00:32:38,320 --> 00:32:41,120 Speaker 1: I'm David Weston. This is Bloomberg. See you next week.