Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: The global push into infrastructure, breaking the IPO logjam in text.
Speaker 3: The financial stories that sheep.
Speaker 2: Are were cutting inflation without losing jobs. Do we need
Speaker 2: rate cuts? And if so? How many? Investing in a
Speaker 2: time of geopolitical turmoil?
Speaker 1: Through the eyes of the most influential voices.
Speaker 2: Ten Rogueff Economists of Harvard, former FDIC had Shiela Bert
Speaker 2: ge CEO, Larry Kulp, San Francisco Fed President Mary Daily Bloomberg.
Speaker 1: Wall Street Week with David Weston from Bloomberg Radio.
Speaker 2: Europe takes a right turn, Sherry Ridstone takes a pass
Speaker 2: and the Fed, the Fed just takes it slow. This
Speaker 2: is Bloomberg Wall Street Week. I'm David Weston this week Bloomberg.
Speaker 2: Stephanie Flanders on what happened to Europe?
Speaker 4: There was a particular humbling of the sort of center
Speaker 4: and the established parties for sure.
Speaker 2: Sharma of Rockefeller International on what happened to capitalism.
Speaker 5: Every time we have a crisis, the billouts get bigger.
Speaker 2: And Ron also of Munger, Tolls and Olson on his
Speaker 2: half century at the side of Warren Buffett and Charlie Munger.
Speaker 3: Neither Warren nor Jarlie are typical.
Speaker 2: And we start with the backward looking economic numbers of
Speaker 2: the United States this week and the forward looking statement
Speaker 2: of economic productions from the FED and what the chair
Speaker 2: Jay Powell had to say about it. And we welcome
Speaker 2: back our very special contributor. He's Larry Summers of Harvey. So, Larry,
Speaker 2: great to have you with us. What did you make
Speaker 2: out if we had some encouraging numbers actually on inflation?
Speaker 2: The same time, the FED is a little reluctant to
Speaker 2: talk too quickly about cutting.
Speaker 3: The numbers were encouraging.
Speaker 6: It's one month, but you know, every month is data,
Speaker 6: and I think the right posture has to be agnosticism
Speaker 6: about where we are going forward. It's hard to interpret
Speaker 6: the Fed's forecasts because they probably had a lot of
Speaker 6: inertia with everybody having set their view coming into the meeting.
Speaker 6: So it's not really clear that the projections that people
Speaker 6: were making genuinely reflected the new numbers.
Speaker 3: That was a point that Chairman Bowell stressed.
Speaker 2: We also have fiscal policy issues coming up in a
Speaker 2: sense around the ballot come November. There's increasing discussion about
Speaker 2: the alternatives between Joe Biden and Donald Trump. There's a
Speaker 2: fiscal policy, and you've been outspoken on the question, as
Speaker 2: others have been, about the possibility of inflation with the
Speaker 2: Trump economic policy.
Speaker 3: Take us through that look.
Speaker 6: I don't think there's been a more inflationary presidential economic
Speaker 6: policy platform in my lifetime. Perhaps George McGovern in nineteen
Speaker 6: seventy two in some ways would be a comparison, But
Speaker 6: other than that, I don't think there's been remotely comparably
Speaker 6: irresponsible set of proposals. His tariff proposals are the biggest
Speaker 6: supply shock, pushing up prices not just of imported goods,
Speaker 6: but of all the goods that compete with imported goods.
Speaker 6: That anybody who's worried about gouging should think that more competition,
Speaker 6: including from abroad, is a very very important step. And
Speaker 6: he's for much greater restrictions on the supply of labor,
Speaker 6: leading to more wage inflation.
Speaker 3: Pressures.
Speaker 6: And he's for scaling back the subsidies to renewable energy,
Speaker 6: raising energy costs. So look at it from demand, look
Speaker 6: at it from supp lie. This is a prescription for
Speaker 6: a major increase in inflation, and of course the expectation
Speaker 6: of that major increase in inflation and possibly the fact
Speaker 6: that the FED will be under much more pressure to
Speaker 6: prove that it's credible. This could easily be a prescription
Speaker 6: for a ten percent mortgage rate, something that I lived
Speaker 6: through and I bought my first house, but that I
Speaker 6: didn't think we were going to see again in the
Speaker 6: United States. This is really dangerous stuff.
Speaker 2: Literally, we pick up on the tariff's issue specifically, as
Speaker 2: we know President former President Trump traveled to Capitol Hill
Speaker 2: this week and there were reports in the press that
Speaker 2: he floated, at least as an idea replacing some are
Speaker 2: all of income tax with tariffs. There was one report
Speaker 2: that actually would just replace it entirely. Would do from
Speaker 2: an macroeconomic point of.
Speaker 6: View, Look, people miss people misspeak. Sometimes they're not serious
Speaker 6: about the things they say. That's probably a feature of
Speaker 6: candidate Trump. But replacing the income tax with revenue with
Speaker 6: tariff would be the worst macroeconomic policy proposal in US history.
Speaker 6: It of course burdens the middle class and the poor
Speaker 6: who purchased goods we goods that exist on international markets.
Speaker 6: So it's regressive, as many economic commentators have suggested, but
Speaker 6: that is actually.
Speaker 3: The least of it. Think about it this way.
Speaker 6: The smoot Hawley tariffs, which did enormous damage some people
Speaker 6: would say made the depression great, were six tenths of
Speaker 6: one percent of GDP. If you replaced half of income
Speaker 6: tax revenues, not all like he talked about, if you
Speaker 6: replaced half of income tax revenues with tariffs, those would
Speaker 6: be tax those would be tariffs six times smooth Hally levels.
Speaker 6: That's got the potential to do enormous damage to the
Speaker 6: competitiveness of every US exporter, to do huge damage to
Speaker 6: all kinds of workers who use imported goods in what
Speaker 6: their businesses produce. To create a downward spiral at as
Speaker 6: much higher prices for everything we import means consumers have
Speaker 6: less to spend on everything else, create worldwide economic warfare
Speaker 6: as the rest of the world responds. This is a
Speaker 6: prescription for the mother of all stagflations. Now, I don't
Speaker 6: think it's likely to happen even if President Trump is elected,
Speaker 6: so I don't know that markets should be discounting all
Speaker 6: of that. But this is something that I think should
Speaker 6: be viewed very ominously.
Speaker 2: Okay, Larry, thank you so very much for being with us.
Speaker 2: That's Larry Summers of Harvard, our very special contributor here
Speaker 2: on Wall Street Week. Sunday's elections for the European Parliament
Speaker 2: delivered a surprise set back for incumbents in France and Germany,
Speaker 2: even leading French President Macran to call a snap parliamentary
Speaker 2: election in France next month, and markets have reacted accordingly.
Speaker 2: To explain the situation on what's likely to come next,
Speaker 2: we welcome back Bloomberg Senior executive editor for Economics and Government,
Speaker 2: Stephanie Flanders. So, Stephanie, not only does your job require this,
Speaker 2: but you also have a podcast called voter Noamics where
Speaker 2: you talk about economics budding up against politics. We certainly
Speaker 2: see that in Europe right now. We see a lot
Speaker 2: of movement in the French market particularly, but I guess
Speaker 2: it was really triggered by these European parliamentary elections.
Speaker 4: Yeah, and you have the European Parliamentary elections, which is,
Speaker 4: you'll remember, its elections for the European Parliament, which is
Speaker 4: controls some parts of European policy, not all parts of
Speaker 4: European policy. And the sort of headline sounds uninteresting in
Speaker 4: the sense that the sort of center grouping that's led
Speaker 4: by represented by ursul LeVander Lyine, the current European Commission President,
Speaker 4: did still emerge as the largest grouping. It got about
Speaker 4: sixty percent of the votes. But as expected, you did
Speaker 4: have quite a lot of success. About quarter of the
Speaker 4: votes went to far right parties. And as you say,
Speaker 4: there was a particular humbling of the sort of center
Speaker 4: and the established parties in France and Germany. Olaf Schual
Speaker 4: Socialist Party was completely hammered by the Alternative for Deutschland
Speaker 4: and other parties in Germany, and you had the rise
Speaker 4: of Harassan Bleumre Nacionale used to be the National Front,
Speaker 4: the far right party in France.
Speaker 2: So let's turn to France from her, because that was
Speaker 2: an immediate aftermath of this. As we saw President mccront
Speaker 2: I think surprise, maybe even his own party and say
Speaker 2: let's have a snap election right away.
Speaker 3: Here.
Speaker 2: At the same time, there's a real resurgence of the
Speaker 2: right of center, maybe well right of center of Marie
Speaker 2: Le Penn and her party. What could that mean the
Speaker 2: selection in terms of the French economy, you know.
Speaker 5: It's extraordinary.
Speaker 4: We had at the start of the a few weeks
Speaker 4: ago we had the surprise decision by Richie Sounact to
Speaker 4: call an election, but he did have to kind of
Speaker 4: call one in the next months, and we were just
Speaker 4: surprised that he was doing it sooner in Matt Kroll's case,
Speaker 4: and he surprised people in his own office. As far
Speaker 4: as we can see, he held it very close to
Speaker 4: that decision. He's kind of got a reputation in the
Speaker 4: past for having taken enormous risks. He took an enormous
Speaker 4: risk in running for president without an established party all
Speaker 4: those years ago, so you can see this as kind
Speaker 4: of part of his mo o. But it has left
Speaker 4: open a wide range of outcomes and.
Speaker 2: The one really source of stability, ironically appears to be
Speaker 2: Italy and Ms Maloney, who came out of these elections
Speaker 2: rather well. There was a time that lot that long
Speaker 2: ago where we thought she was sort of an extreme
Speaker 2: but now she's seeing a reasonable centrist.
Speaker 3: Yeah.
Speaker 4: I mean, it's very interesting, isn't it. And we are
Speaker 4: going to see her the end of this week.
Speaker 5: We've had her.
Speaker 4: Leading the hosting the G seven summit in Pulio, which
Speaker 4: is not a bad place to have it this time
Speaker 4: of year, and very amicable, considered to be a very
Speaker 4: credible leader in Europe, has very much been normalized and
Speaker 4: become the acceptable face of the far right in Europe.
Speaker 4: I would you know, she's got some problems percolating under
Speaker 4: the surface. The Italian debt, always an issue, is becoming
Speaker 4: more and more of an issue. It's now on a
Speaker 4: more unsustainable path and could has already in fact is
Speaker 4: violating the European Union's rules on how much you can borrow.
Speaker 4: So she's going to be having a tussle with them
Speaker 4: about how much she has to tighten policy, and that
Speaker 4: could make her more politically unpopular in Italy. But you know,
Speaker 4: it is interesting you see the likes of Marine la
Speaker 4: Penn in France, who has a very odd mixture of
Speaker 4: economic policies, quite far left policies that I think investors
Speaker 4: would be concerned about. She you know, many people are
Speaker 4: saying the best path for her if she would be
Speaker 4: the sort of maloney path of actually building credibility with
Speaker 4: the markets and being mainstream in economic ways even as
Speaker 4: you are being quite far right or certainly culturally right
Speaker 4: on immigration and other things. So that's another interesting doesn't
Speaker 4: look like Marine la Penn's really going to be able
Speaker 4: to pull off the same trick that Georgia Maloney's pulled off.
Speaker 2: Stephanie, thank you, so, it's always great to have you
Speaker 2: with us. That is Bloomberg's own She's Stephanie Flanders. Coming up,
Speaker 2: we look at where the Indian economy heads next, as
Speaker 2: Prime Minister Mody begins his third term with the Rasher
Speaker 2: Sharma of Rockefeller International.
Speaker 5: Even though Moody one, it is seen by many people
Speaker 5: as some sort of a Motori defeat.
Speaker 2: That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: This is Wall Street Week. I'm David Weston. Prime Minister
Speaker 2: Mody has begun his third term after an election that
Speaker 2: did not give his party the clear majority many had expected.
Speaker 2: To take us through what we should expect next, Welcome
Speaker 2: back now Rashir Sharma. He's chairman of Rockefeller International and
Speaker 2: author of the new book What Went Wrong with Capitalist
Speaker 2: and Welcome back.
Speaker 5: Thanks David.
Speaker 2: So we're going to talk about your new book. Before that,
Speaker 2: let's just spend a minute or two on India, because
Speaker 2: we've talked about it before. You were one of the
Speaker 2: first ones that I saw who suggested maybe it wouldn't
Speaker 2: be a landslide for Moti. What are the possible consequences
Speaker 2: you think for economic policy of what we've seen.
Speaker 5: Well, I think that the way the election result has
Speaker 5: been interpreted is that in some ways it's seen as
Speaker 5: if this is a two speed economy going on in India.
Speaker 5: That the urban consumer is in good health and almost booming,
Speaker 5: but the rural economy in India in many parts at least,
Speaker 5: is in some sort of distress. So I suspect that
Speaker 5: there'll be some shift in terms of the spending priorities
Speaker 5: of the government in favor more of the rural economy
Speaker 5: and trying to do something a bit more about that.
Speaker 5: But I'd say the big takeaway of this election, and
Speaker 5: I think that this is something which I think has
Speaker 5: been really underappreciated. If you look at elections around the world,
Speaker 5: and particularly if you look at even India's electoral history,
Speaker 5: after an election, it is usually viewed as a mandate
Speaker 5: for some thing, and at the same time, the opposition,
Speaker 5: at least for a while, goes into retreat. They've just
Speaker 5: lost an election. They go into retreat and try and regroup.
Speaker 5: What's very unique about this Indian election is that even
Speaker 5: though Modi one, it is seen by many people as
Speaker 5: some sort of a model defeat just because the benchmark
Speaker 5: was so high and he's ended up with seats which
Speaker 5: are well short of the majority mark, just for his
Speaker 5: own party. On the other hand, the opposition is already
Speaker 5: behaving as if it won. It's been emboldened. It's out
Speaker 5: there much more aggressive, and a lot of the postport
Speaker 5: analysis is why did the opposition do so well? So
Speaker 5: this is a very strange election that way, that it's
Speaker 5: not been a cleansing or a catharsis. In some way,
Speaker 5: it's been like in terms of the consequences are going
Speaker 5: to be that the opposition from day one is going
Speaker 5: to be emboldened and I dare say almost disruptive. So
Speaker 5: I don't see that much policy action take place in
Speaker 5: India given this verdict.
Speaker 2: You mentioned urban versus rural. What about socioeconomic distinctions, because
Speaker 2: there have been some reports I've seen that. In fact,
Speaker 2: one of the things that turned on providence fromorality was
Speaker 2: the fact that the lower income people felt that they'd
Speaker 2: been left behind.
Speaker 5: Yeah, but I think there are many stories in India
Speaker 5: because you know, what is true in one state is
Speaker 5: not true in another state. And I think that's the
Speaker 5: part about India which we have spoken about, and something
Speaker 5: which I think is not you know, fully understood by
Speaker 5: many people that what happened in this election also is
Speaker 5: that there was no wave. There was no wave for Modi. Instead,
Speaker 5: we ended up in the traditional India where every state
Speaker 5: had its own contest in many ways, and so therefore
Speaker 5: you got an outcome which was an aggregation of what
Speaker 5: the various states were doing. And you're right there was
Speaker 5: some feeling in some states which even I traveled to,
Speaker 5: such as Maharashtra, where a lot of people felt that
Speaker 5: they were not getting the benefits of what was being
Speaker 5: promised and they were facing some sort of local issues.
Speaker 5: So that's true in terms of socio economic divide. And yes,
Speaker 5: more of the poet it seems, did vote, and more
Speaker 5: of the so called what they call it India, the
Speaker 5: backward cast, they voted for the opposition parties rather than
Speaker 5: more these So that's true, but it's a much more
Speaker 5: nuanced story. But the broad takeaway, as I said, is
Speaker 5: that I expect very little to get done in terms
Speaker 5: of new policies over the next year from an economic perspective.
Speaker 2: One of the things we talked about in the past,
Speaker 2: was the growth policies of Premiercermoti combined with relative restraint
Speaker 2: on inflation being able to really contain That is it
Speaker 2: likely that in order to reach out to some of
Speaker 2: the people that he did not bring along with him,
Speaker 2: Premian Soromoti will be driven to drive higher inflation through
Speaker 2: more stimulus.
Speaker 5: I hope not, because I feel that if there's one
Speaker 5: relative success story that the government had over the last
Speaker 5: five to ten years, it was on keeping inflation relatively low.
Speaker 5: And of course in India's case, whenever you go out
Speaker 5: and talk to people, they will always tell you that
Speaker 5: rising prices is an issue because in India's case, so
Speaker 5: many people are living at the margin they can't afford
Speaker 5: any increase in prices. But generally, in India's case, the
Speaker 5: inflation performance was much better. In fact, the big problem
Speaker 5: with the previous government was that they let inflation get
Speaker 5: out of control. So I think if he has any
Speaker 5: sort of you know, like sensitivity to what people want,
Speaker 5: and I think this is true everywhere we see it
Speaker 5: in the US as well, that we don't know whether
Speaker 5: good economic growth gets you re elected, but we do
Speaker 5: know for sure that if you end up with high
Speaker 5: inflation that gets you into big trouble. And even the US,
Speaker 5: which we'll speak about, the high inflation rates of the
Speaker 5: last three to four years are a real problem for
Speaker 5: the Biden administration.
Speaker 2: Congratulations for share another book out. So let's talk about
Speaker 2: it exactly the thesis of this book, because it is
Speaker 2: a statement, not a question about what went wrong? So
Speaker 2: what has gone wrong? How do you know it's gone wrong?
Speaker 5: When I look at the poll numbers, for example, that
Speaker 5: on one hand, you have, like, you know, all this
Speaker 5: great data that the American economy is relatively resilient. But
Speaker 5: if you look at the number of people who are
Speaker 5: happy in America with the state of the economic union,
Speaker 5: it is at close to record lows. According to many Poles,
Speaker 5: there are about seven to ten Americans today who want
Speaker 5: the major change to the economic system or, in the
Speaker 5: language of the polls, have it completely torn down. You know,
Speaker 5: that's pretty dramatic. There are only about thirty five percent
Speaker 5: or so Americans today who feel that they're going to
Speaker 5: be better off than their parents. Fifty sixty years ago,
Speaker 5: about seventy eighty percent of Americans felt that they would
Speaker 5: be better off than their parents. So there's a real
Speaker 5: feeling that something has gone wrong. And I think that
Speaker 5: it's particularly the fact to do with capitalism that most
Speaker 5: young democrats in particular in America today say they would
Speaker 5: rather have socialism than have capitalism. Now that's such a
Speaker 5: big statement for this beacon of American capitalism and all
Speaker 5: that we've spoken about of global capitalism. Rather, they are
Speaker 5: saying that they would rather have socialism a large cohort
Speaker 5: of the millennials and the young people, rather than have capitalism.
Speaker 5: So something has gone wrong. And what I've done in
Speaker 5: this book is to sort of look at deep down
Speaker 5: what's gone wrong, because, as they say, the first step
Speaker 5: to a cute is to first diagnose the problem. But
Speaker 5: I feel that in America today we're not even diagnosing
Speaker 5: what the underlying problem is.
Speaker 2: Why does it make sense from your partu view having
Speaker 2: studied this, Now, if you didn't know anything about our society,
Speaker 2: if you didn't read any of the media, you didn't
Speaker 2: read any of the polls, and you looked at our
Speaker 2: growth rate, which is add or above historical trend lines.
Speaker 2: You looked at unemployment which is close to lows of
Speaker 2: all time, most indications would say this should be a
Speaker 2: pretty happy economy.
Speaker 5: So why is it not exactly so? Because after I
Speaker 5: said that, there's a sliver it at the top, which
Speaker 5: is doing very well, But we have this two track
Speaker 5: economy out here that even now if you look at it,
Speaker 5: you know, the bottom fifty to sixty percent, they don't
Speaker 5: have any excess savings. They're not being able to spend
Speaker 5: that much. And as I said that, there's a feeling
Speaker 5: that they're being squashed by what's happening at the top.
Speaker 5: That today in America, economic mobility, social mobility, all of
Speaker 5: declined significantly, Like this is a country where people would
Speaker 5: move around, a lot of people would be in search
Speaker 5: of an opportunity. As I said, there's a real feeling
Speaker 5: in America today that they don't have equality of opportunity.
Speaker 2: Is it the government's fault in this sense? Two and eight,
Speaker 2: two thousand and nine, we had the Great Financial Crisis.
Speaker 2: There was concern about a depression, not just a great recession,
Speaker 2: but a depression, and there was a lot of government intervention,
Speaker 2: both on the monetary side and the fiscal side. A
Speaker 2: lot of people thought that was necessary to save us
Speaker 2: and maybe the world from depression. Then you had a
Speaker 2: pandemic and we brought the economy to a stop, and
Speaker 2: again it was start. There did be a lot of stimulus.
Speaker 2: Was it the government's fault? Didn't they need to come
Speaker 2: in and have this level of stimulus and support.
Speaker 5: Yeah. As I say in the book that when we
Speaker 5: have a crisis, I can understand that the government needs
Speaker 5: to intervene. I'm not a kind of person who's you know,
Speaker 5: liquidation is that we just let things sort of, you know,
Speaker 5: go and melt away on its own. What I'm trying
Speaker 5: to it would have shown in the book is just
Speaker 5: look at the progression of capitalism over the last one
Speaker 5: hundred years. We have gone from this liquidationist argument which
Speaker 5: caused the Great Depression in the nineteen thirties, to now
Speaker 5: an impulse where you liquefy, liquefy, liquefy that the moment
Speaker 5: you have even the slightest crisis like you had last
Speaker 5: year with the SVB or some the impulses, that we
Speaker 5: got to intervene, we got to save. And the problem
Speaker 5: is that we only have one case point, which is
Speaker 5: what we use all the time to justify intervention, which
Speaker 5: is that we think, if you don't intervene, we'll have
Speaker 5: another great depression. That is the argument used all the time.
Speaker 5: But what's the result today. The result today is the
Speaker 5: fact that bankruptcies are close to a record low. We
Speaker 5: have the number of new startups instead, which have been
Speaker 5: coming up, right, but until the pandemic like have been declining.
Speaker 5: So if you keep so much deadwood alive, and you
Speaker 5: keep so many incumbents and entrenched billionaires and oligopolies alive,
Speaker 5: you're not allowing new things to really surface. And the
Speaker 5: middle in particular is getting squeezed. So the argument in
Speaker 5: the book is that you're right that when we have
Speaker 5: in a crisis, you need some government help. But this
Speaker 5: is not just about crisis. This is about every time
Speaker 5: there's a minor flutter, you end up getting domin intervention.
Speaker 5: And it's not just about government spending. As I said,
Speaker 5: look at the amount of regulations every year, Like in
Speaker 5: America we introduce three thousand new regulations. How many regulations
Speaker 5: have we withdrawn over the last twenty years, twenty in total? Right,
Speaker 5: So we got a regulatory state, a bailout nation that
Speaker 5: in America in the sixties and seventies, and all bailing
Speaker 5: out a private sector company in America was considered heretically.
Speaker 5: We are America, we don't do this. Then you begin
Speaker 5: with the nineteen eighty four first big financial institution bailout
Speaker 5: in terms of continental Illinois, and after that, progressively, every
Speaker 5: time we have a crisis, the bailouts get bigger. And
Speaker 5: so that's again sort of you know, leaves a feeling
Speaker 5: with people that are you really a bailout nation? And
Speaker 5: if these you know, rich corporates are getting bailed out,
Speaker 5: the Irish person thinks, why am I not getting moored
Speaker 5: out of this? So it's about regulation, it's about bailouts.
Speaker 5: It's about government spending, which has gone up from three
Speaker 5: percent of GDP one hundred years ago to thirty six
Speaker 5: percent of GDB today through every administration. We're almost regarding
Speaker 5: some air pockets here there or the other, we have
Speaker 5: seen an increase in government spending.
Speaker 2: Every administration, incruing Reagan because people tend to think of
Speaker 2: Ronald Reagan as being a smaller government philosophy.
Speaker 5: Yeah, but the facts just don't bear it out. Because
Speaker 5: under his administration, government spending increases slowed down a bit,
Speaker 5: but they kept on sort of you know, carrying on
Speaker 5: at pretty high levels. And then if you look at
Speaker 5: it in terms of what happened under him as far
Speaker 5: as regulations were concerned, even though under Reagan too those
Speaker 5: kept on going up. The only deregulation we saw was
Speaker 5: the financial sector. The financial sectors a lots of deregulation,
Speaker 5: but outside of that, for the small and medium sized businesses,
Speaker 5: the regulatory burden has kept getting bigger. And this has
Speaker 5: real consequences, David, because it means that if you're looking
Speaker 5: to start a new business, the cost of doing that
Speaker 5: today is way higher on Wall Street, where for example,
Speaker 5: if you're looking to start a fund today, it's ten
Speaker 5: times in terms of the cost compared to twenty years ago.
Speaker 5: So you know, that just means that if you're already
Speaker 5: in business, or if you're a big person in business,
Speaker 5: you're able to benefit. So capitalism today in its distorted form,
Speaker 5: has become pro incumbent, and it has become a pro
Speaker 5: big business, whereas its true form capitalism should be pro
Speaker 5: competition and pro Churin the.
Speaker 2: Book is What Went Wrong with Capitalism and the author
Speaker 2: is Rushirm Sharma of Rockefeller International, coming up the unique
Speaker 2: partnership of Warren Buffett and Charlie Munger through the eyes
Speaker 2: of they're a lawyer for over fifty years. Ron Olsen
Speaker 2: of Munger, Tolls and Os, I'd know no partnerships that
Speaker 2: have lasted as long as the two.
Speaker 3: Of them had.
Speaker 2: That's the next time Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: This is Wall Street Week. I'm David Weston. Warren Buffett
Speaker 2: or Charlie Munger would have been historic investors individually if
Speaker 2: they'd never met one another. But they did meet and
Speaker 2: formed a partnership for over fifty years. One which they're
Speaker 2: a lawyer. Ron Olsen of Munger Toles and Olsen observed
Speaker 2: from close up almost since it began. We talked with
Speaker 2: Ron about that partnership, what made it work and what
Speaker 2: made it different.
Speaker 3: Neither Warren nor Charlie are typical. Did they have problems
Speaker 3: that were similar, Yes, but Warren and Charlie had the
Speaker 3: owner's attitude from day one and took a deep, deep
Speaker 3: interest in any problem. They did their own more. They
Speaker 3: didn't believe in consultants. They didn't believe in uh, you know,
Speaker 3: figuring out compensation for the managers with a compensation consultant.
Speaker 3: They operated independent of Wall Street, so they were very
Speaker 3: different than most other clients, I would say, and the
Speaker 3: fact that they owned the problem. They each had a
Speaker 3: deep understanding of every problem I got into. Maybe the
Speaker 3: first one was that was significant was when they acquired
Speaker 3: the Buffalo Evening News and within a few days thereafter,
Speaker 3: the competitive newspaper, The Courier Express, filed an anti trust
Speaker 3: case with a rather loudmouth planet Off's attorney from San
Speaker 3: Francisco that I knew well it had a lot of
Speaker 3: fun with actually Fred Furd and uh so. I spent
Speaker 3: a good part of that winner on that case, and Warren,
Speaker 3: of course was deeply interested in it as well as Charlie.
Speaker 3: He claimed that the process that was being used by
Speaker 3: really Warren developed to introduce the Buffalo Evening News as
Speaker 3: a competitive morning paper as opposed to an afternoon paper,
Speaker 3: was monopolization. Judge Briant in the trial court wrote a lengthy,
Speaker 3: lengthy opinion against us and basically made the point that
Speaker 3: Berkshire had not complied with the rules the marquee Queensberry
Speaker 3: and Henry Friendley, and his opinion said, I've searched the
Speaker 3: antitrust laws up and down and I couldn't find that
Speaker 3: rule of the marquee a Queensberry. But at any rate,
Speaker 3: Warren and I got to know each other, and of
Speaker 3: course many other sins. I would say that we were
Speaker 3: in the trenches the law longest in the Solomon problem,
Speaker 3: and they're after you know, you build a relationship that
Speaker 3: always goes beyond the problem. Ron talks about risk.
Speaker 2: I mean at risk is at the center of investment decisions,
Speaker 2: and it's also an important part of what lawyer does
Speaker 2: is assess risk and a prize clients at that risk.
Speaker 2: How does Warren Buffett approach risk in your experiences as lawyer?
Speaker 3: Well carefully and he approaches it also often with Charlie.
Speaker 3: I mean they would talk rarely, and particularly if you're
Speaker 3: talking about risk associated with an investment that was a
Speaker 3: regular occurrence, and each of them approach that, I think
Speaker 3: somewhat differently. They have a different set of priorities, a
Speaker 3: different set of readings, a different set of life experiences.
Speaker 3: Born as you know, very gregarious out front. He's the
Speaker 3: one who cuts the deals. Charlie is still sitting in
Speaker 3: his chair, as his kids say, he looks like a
Speaker 3: book with two legs, reading every day. Now. The two
Speaker 3: of them had this unique partnership. And it's another reason
Speaker 3: I don't have a lot of clients with a unique
Speaker 3: partnership like that. There's complete trust. There was a grounding
Speaker 3: in I would say Midwestern values. Warren had and Charlie too,
Speaker 3: had both had big, developed accounting capabilities. They both read
Speaker 3: all the financials, knew them well. But they didn't buy
Speaker 3: companies without an established record of consistent profits for five
Speaker 3: years or more, a leadership that they trusted with, that
Speaker 3: were that had integrity and had run the companies that
Speaker 3: they were about to acquire. And one question Warrenois asked
Speaker 3: was is this person going to love the money more
Speaker 3: than he loves the business, because Berkshire is about to
Speaker 3: make him very rich? And if they did, it wasn't
Speaker 3: a deal. They did. If they loved the business more,
Speaker 3: that's who we want. And so it was a combination
Speaker 3: of risk assessment. But as I say, I think Charlie
Speaker 3: added the perspective that uh and he was guided. He
Speaker 3: read every great psychologist and knew all the biases that
Speaker 3: exist in judgment and the enthusiasm of deal was more
Speaker 3: evident and warn u but confirmation bias was something Charlie
Speaker 3: guarded against and everything he did, and.
Speaker 2: Those are some of the thoughts having watched this partnership
Speaker 2: for over fifty years, as you say, from a pretty
Speaker 2: close distance, Actually what caused it to sustain it.
Speaker 3: Has to be clear. Charlie joined the board in nineteen
Speaker 3: seventy five, but the partnership of the two of them
Speaker 3: informal and then later very much a part of Berkshire
Speaker 3: Hathaway existed.
Speaker 2: Yes, so that partnership what sustained it, because we have
Speaker 2: seen other partnerships that are based on mutual trust and
Speaker 2: different contributions to the two partners and that have been
Speaker 2: close partnerships, but they don't tend to last for over
Speaker 2: fifty years.
Speaker 3: Well, I would say a couple of things. I mentioned
Speaker 3: the common backgrounds. They both had IQs that are off
Speaker 3: the chart. They both respected that they both had memories
Speaker 3: that exceeded mind, and they respected that they both were
Speaker 3: interested in building a company that would have permanence and
Speaker 3: committed themselves to it, particularly when Warren went along with
Speaker 3: Charlie finally and moved from buying what were referred to
Speaker 3: as cigarette companies with a few puffs left at a
Speaker 3: cheap price, and Charlie convinced them that it's far better
Speaker 3: for permanence to buy wonderful companies at a fair price
Speaker 3: than fair companies at a wonderful price, and they were
Speaker 3: dedicated to that. And as Warren said in his Tribute
Speaker 3: to Charlie and the Annual Letter, he let him take
Speaker 3: the bows. And he also knows in the letter that
Speaker 3: after he had blundered and made a mistake on something,
Speaker 3: Charlie never reminded him of it, and that Charlie was
Speaker 3: to Warren very much like the combination of a brother
Speaker 3: and a father.
Speaker 2: You talk about permanence and the fact that Warren and
Speaker 2: Charlie wanted something that was permanent. Unfortunately, in human institutionions,
Speaker 2: nothing's permanent. We've lost Charlie Munger Sadlely, Warren has no
Speaker 2: inclination in fears of goingwhere at the same time there
Speaker 2: will come a time when he's no longer with us.
Speaker 2: Have they succeeded? You think in setting up something that
Speaker 2: can be permanent, that can outlast even Warren Buffett, that's.
Speaker 3: Not only the idea, but I am confident that that's
Speaker 3: what says been built by the two of them, and
Speaker 3: the board understands that it's ongoing obligation post Warren and
Speaker 3: let's not get ahead of ourselves. He's not going anywhere soon.
Speaker 3: I had a wonderful conversation with you yesterday morning, and
Speaker 3: you know, the enthusiasm, the thinking is still there, just
Speaker 3: like it always was. But I would say that the
Speaker 3: Board has done a very good job in helping to
Speaker 3: maintain the post Warren permanence by having Gray Gabel as
Speaker 3: a designated successor.
Speaker 2: That was Ronallson of Munger, Tolls and Olsen. George Bernard
Speaker 2: Shaw advised that those who cannot change their minds cannot
Speaker 2: change anything. Our leaders typically tend to want to change
Speaker 2: things without changing their minds, or at least admitting they're
Speaker 2: changing them, epitomized in the immortal words of Prime Minister
Speaker 2: Margaret Thatcher to.
Speaker 7: Those waiting with bated breath for that favorite media catchphrase,
Speaker 7: the U turn. I have only one thing to say,
Speaker 7: You turn if you want to. The ladies not for turning.
Speaker 2: But there are exceptions, as when then Secretary of State
Speaker 2: Hillary Clinton announced that the United States would make a
Speaker 2: pivot away from Europe and toward Asia in its policies
Speaker 2: going forward.
Speaker 5: We have reached a pivot point.
Speaker 8: We now can redirect some of those investments to opportunities
Speaker 8: and obligations elsewhere, and Asia stands out as a regent
Speaker 8: where opportunities abound.
Speaker 2: This week, we've had any number of leaders political and
Speaker 2: business very publicly changed their direction, starting with Prime Minister
Speaker 2: Rishi Sunak, who thought better of his decision to cut
Speaker 2: short his time of the D Day commemoration and hurry
Speaker 2: back to campaign, admitting he'd made a bad mistake. Israeli
Speaker 2: opposition leader Benny Gantz changed his mind about participating in
Speaker 2: a wartime cabinet and said the Prime Minister Netanelle is
Speaker 2: now quote preventing us from advancing to real victory.
Speaker 6: What is the actual plan and that's not clear yet,
Speaker 6: and that frustration is what led Benny Gants to decide
Speaker 6: we can't do this anymore and take his party out.
Speaker 2: A lot of European voters apparently changed their minds about
Speaker 2: where the European Parliament should be headed, as they flocked
Speaker 2: to more conservative opposition parties.
Speaker 1: This right wing search did actually take place in the
Speaker 1: two most important countries in Europe, not across the entire continents.
Speaker 2: Which caused French President Macron to shake things up by
Speaker 2: calling a snap election of his own parliament.
Speaker 6: Above all.
Speaker 3: I hope that on June thirtieth and July seventh, the
Speaker 3: French will elect as many MPAs as possible from the
Speaker 3: presidential majority.
Speaker 2: But perhaps the biggest about face we saw this week
Speaker 2: came from Sherry Redstone, who had been flirting for months
Speaker 2: with a big deal that would merge Paramount into David
Speaker 2: Ellison's sky Dance. Just as Global Wall Street was getting
Speaker 2: ready for the big announcement, just as a special committee
Speaker 2: of her board was getting ready to approve the transaction,
Speaker 2: Miss Redstone apparently changed her mind and decided she wanted
Speaker 2: to stay in the entertainment business her father had founded.
Speaker 2: After all, at least for a Now, there's a fifty
Speaker 2: percent chance that nothing happened that in the end, Sherry says,
Speaker 2: this is too much.
Speaker 5: I will just keep the company.
Speaker 2: This is not the first time Paramount has needed to
Speaker 2: turn things around, as his own miniseries They'll offer on
Speaker 2: Paramount Plus recently explained it was in bad shape in
Speaker 2: their early nineteen seventies. Now all Sherry Redstone needs is
Speaker 2: a godfather. Paramount is going to come crashing down.
Speaker 3: We need his You've read the guy Father, right? Godfather? Sure?
Speaker 3: Who has that?
Speaker 2: Does it? For this episode of Wall Street Week, I'm
Speaker 2: David Weston. This is Bloomberg. See you next week.