1 00:00:03,240 --> 00:00:07,560 Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio. 2 00:00:08,119 --> 00:00:11,040 Speaker 1: This week on the podcast, I have a very special guest. 3 00:00:11,360 --> 00:00:14,200 Speaker 1: His name is Ethan Harris, and he is Bank of 4 00:00:14,240 --> 00:00:19,799 Speaker 1: America Merrill Lynches co head of Global Research. Really I 5 00:00:19,920 --> 00:00:23,080 Speaker 1: call him the chief economist of Merry Lynch, but I know, uh, 6 00:00:23,120 --> 00:00:26,599 Speaker 1: that's not his formal title. Uh. He is really an 7 00:00:26,680 --> 00:00:33,400 Speaker 1: institutional guy whose clients are primarily big hedge funds, mutual funds, 8 00:00:33,440 --> 00:00:36,760 Speaker 1: pension funds, institutions, as well as the high net worth 9 00:00:36,800 --> 00:00:40,600 Speaker 1: group at Merrill Lynch, which remains one of the largest 10 00:00:40,680 --> 00:00:45,520 Speaker 1: asset management firms UM in the world. And he's also 11 00:00:45,920 --> 00:00:49,519 Speaker 1: a Federal Reserve expert and interest rate expert. And we 12 00:00:49,920 --> 00:00:53,920 Speaker 1: the talk ranged far and wide, everything from what the 13 00:00:53,960 --> 00:00:58,840 Speaker 1: FED did right and wrong, what various FED chiefs focused 14 00:00:58,880 --> 00:01:02,680 Speaker 1: on and and were the right FED chiefs at the 15 00:01:02,760 --> 00:01:06,000 Speaker 1: right moment uh, and some of the errors made by 16 00:01:06,200 --> 00:01:10,840 Speaker 1: other Fed chiefs. And we also had a conversation about 17 00:01:10,880 --> 00:01:13,800 Speaker 1: the state of the global economy, which I thought was 18 00:01:13,959 --> 00:01:18,560 Speaker 1: very thoughtful and interesting UM and without going off into 19 00:01:18,640 --> 00:01:22,200 Speaker 1: the weeds, without getting excessively wonky, it was very accessible 20 00:01:22,600 --> 00:01:28,160 Speaker 1: if you're at all interested in interest rates, monetary policy, economics, 21 00:01:28,200 --> 00:01:30,760 Speaker 1: and the state of the global economy. I think you're 22 00:01:30,760 --> 00:01:34,360 Speaker 1: gonna find this a very interesting and informative um. Dare 23 00:01:34,400 --> 00:01:38,880 Speaker 1: I say fascinating? Uh? Conversation. So, without any further ado 24 00:01:39,520 --> 00:01:46,480 Speaker 1: my conversation with Ethan Harris. This is Masters in Business 25 00:01:46,600 --> 00:01:51,080 Speaker 1: with Barry Ridholts on Bloomberg Radio. My special guest this 26 00:01:51,120 --> 00:01:54,720 Speaker 1: week is Ethan Harris. He is the chief economist of 27 00:01:54,920 --> 00:01:59,920 Speaker 1: Bank America Merrill Lynch, co head of the Global Economics Research. 28 00:02:00,040 --> 00:02:03,560 Speaker 1: To a quick overview of his CV, I can't do 29 00:02:03,640 --> 00:02:06,960 Speaker 1: the full one because it will take the whole show. UM. 30 00:02:07,320 --> 00:02:10,560 Speaker 1: Ethan regularly ranks in the top of investor polls and 31 00:02:10,639 --> 00:02:15,560 Speaker 1: forecasters surveys. He helps to coordinate the global economic forecast 32 00:02:15,639 --> 00:02:20,960 Speaker 1: and manages the Developed Markets economics team. Before coming to 33 00:02:21,000 --> 00:02:24,560 Speaker 1: Mary Lynch, Harris was the chief U S economist at 34 00:02:24,639 --> 00:02:27,720 Speaker 1: Lehman Brothers. Previous to that, he worked as an economist 35 00:02:27,720 --> 00:02:32,240 Speaker 1: at Barclays and JP Morrigan. He began his career spending 36 00:02:32,400 --> 00:02:35,880 Speaker 1: nine years at the Federal Reserve Bank of New York. 37 00:02:36,400 --> 00:02:40,320 Speaker 1: He has a PhD in economics from Columbia, where he 38 00:02:40,440 --> 00:02:44,399 Speaker 1: is also a university fellow. Ethan Harris, Welcome to Bloomberk. 39 00:02:44,520 --> 00:02:47,840 Speaker 1: Thank you. It's great to be here. So I also 40 00:02:47,919 --> 00:02:51,400 Speaker 1: left out you're the author of Ben Bernanke's Fed the 41 00:02:51,440 --> 00:02:54,040 Speaker 1: Federal Reserve after Great Span. We're gonna spend a lot 42 00:02:54,040 --> 00:02:58,440 Speaker 1: of time talking about the FED later, but but let's 43 00:02:58,560 --> 00:03:03,760 Speaker 1: just start basically. What what attracted you to economics? So 44 00:03:04,080 --> 00:03:06,120 Speaker 1: I was a history buff as a kid with the 45 00:03:06,240 --> 00:03:10,960 Speaker 1: name Ethan Harris growing up in in Massachusetts. Of course 46 00:03:11,000 --> 00:03:14,960 Speaker 1: everyone talked about Ethan Allen in the Green Mountain were 47 00:03:15,080 --> 00:03:20,320 Speaker 1: interviewing today, said aren't you Yeah, no, no, no, not now. 48 00:03:20,360 --> 00:03:22,760 Speaker 1: So I was very interested in history. But what got 49 00:03:22,800 --> 00:03:25,839 Speaker 1: me going into economics was that my older brother came 50 00:03:25,880 --> 00:03:28,960 Speaker 1: back from the University of Chicago and economics major, and 51 00:03:29,000 --> 00:03:33,640 Speaker 1: he said he started talking about economics with me. I 52 00:03:33,760 --> 00:03:36,360 Speaker 1: then said, hey, you know, this sounds pretty interesting, you 53 00:03:36,400 --> 00:03:40,720 Speaker 1: know because remember economics as a combination of history and 54 00:03:40,720 --> 00:03:43,520 Speaker 1: and math, and so it really fit my skill set. 55 00:03:44,080 --> 00:03:46,600 Speaker 1: And I was a pretty nerdy kid in high school. 56 00:03:46,600 --> 00:03:50,600 Speaker 1: So I decided to spend the summer reading Samuelson's Introductory 57 00:03:50,680 --> 00:03:55,560 Speaker 1: Economics textbook, and that hooked me in an economics. So 58 00:03:55,600 --> 00:03:58,640 Speaker 1: I was an economics major the day I arrived in college. 59 00:03:59,000 --> 00:04:02,720 Speaker 1: So your brother um is out of Chicago, you're out 60 00:04:02,720 --> 00:04:05,880 Speaker 1: of Colombia. I'm gonna ask a question. I'm gonna pull 61 00:04:05,920 --> 00:04:11,119 Speaker 1: it forward from another segment. Several economists, most notably Paul Krugman, 62 00:04:11,240 --> 00:04:15,720 Speaker 1: has divided the University of Economists into freshwater and saltwater 63 00:04:15,760 --> 00:04:20,520 Speaker 1: economists or coastal economists. And do you think that economy 64 00:04:20,680 --> 00:04:27,359 Speaker 1: holds any any accuracy? Is there something to the multiple schools? 65 00:04:27,400 --> 00:04:30,159 Speaker 1: I think there is, But there's also, as in a 66 00:04:30,200 --> 00:04:33,080 Speaker 1: lot of academia, there's a lot of debate about pretty 67 00:04:33,120 --> 00:04:35,880 Speaker 1: fine points. I mean, I think there is a broad 68 00:04:35,960 --> 00:04:40,720 Speaker 1: consensus among macroeconomists about some fairly general things, the idea 69 00:04:41,160 --> 00:04:44,000 Speaker 1: of the importance of free markets, the idea that you 70 00:04:44,080 --> 00:04:47,120 Speaker 1: do need a central bank that will manage the economy 71 00:04:47,120 --> 00:04:49,320 Speaker 1: to some degree. There are people whould argue that we 72 00:04:49,360 --> 00:04:52,720 Speaker 1: don't need to fed. Aren't those in in opposition? We 73 00:04:52,720 --> 00:04:55,440 Speaker 1: we want free markets. But at the same time this 74 00:04:55,560 --> 00:04:59,520 Speaker 1: was always the conundrum with Alan Greenspan, a true free 75 00:04:59,560 --> 00:05:04,839 Speaker 1: market mine Rand's acolyte, who was constantly accused of manipulating 76 00:05:04,920 --> 00:05:07,279 Speaker 1: mart How do you find a balance? Well, I think 77 00:05:07,360 --> 00:05:10,400 Speaker 1: I think we that's where the compromise comes. And so 78 00:05:10,440 --> 00:05:13,000 Speaker 1: that you've got the extreme view of no no intervention 79 00:05:13,040 --> 00:05:15,799 Speaker 1: at all, and then you've got the very aggressive intervention. 80 00:05:15,880 --> 00:05:18,280 Speaker 1: I think the reality is. And certainly what I learned 81 00:05:18,279 --> 00:05:21,960 Speaker 1: at the FED, which is obviously an interventionist institution, was 82 00:05:22,520 --> 00:05:25,360 Speaker 1: you know, you nudge the markets and the economy along, 83 00:05:25,360 --> 00:05:28,120 Speaker 1: you don't try to to micromanage it. And so that's 84 00:05:28,160 --> 00:05:31,159 Speaker 1: where the agreement I think is. Now. Of course there's 85 00:05:31,200 --> 00:05:34,120 Speaker 1: going to be debates, but I think that macre economics 86 00:05:34,279 --> 00:05:37,240 Speaker 1: is not nearly as fractured as it sometimes looks like 87 00:05:37,440 --> 00:05:40,280 Speaker 1: from the outside. So so let's go back to the 88 00:05:40,279 --> 00:05:43,080 Speaker 1: New York FED. Where was that your first job out 89 00:05:43,080 --> 00:05:46,000 Speaker 1: of Columbia? So who was the president at the time? 90 00:05:46,200 --> 00:05:51,839 Speaker 1: So so, so my career started basically Jerry Corrigan, of course, 91 00:05:51,880 --> 00:05:53,920 Speaker 1: and I ended up working closely with him. At one 92 00:05:53,920 --> 00:05:57,680 Speaker 1: point I was the assistant corporate secretary, which doesn't sound 93 00:05:57,800 --> 00:06:01,320 Speaker 1: very prestigious, but it put me in the president and 94 00:06:01,520 --> 00:06:05,480 Speaker 1: first Vice president's office, doing you know, work, system wide 95 00:06:05,480 --> 00:06:07,680 Speaker 1: type work as opposed to just the local bank work. 96 00:06:07,760 --> 00:06:10,640 Speaker 1: And so I I learned a lot in the experience 97 00:06:10,680 --> 00:06:13,240 Speaker 1: game to the FED right out of grad school. The 98 00:06:13,560 --> 00:06:15,359 Speaker 1: great thing about working at the FED coming out of 99 00:06:15,360 --> 00:06:17,800 Speaker 1: grad school is in grad school you learn a lot 100 00:06:17,800 --> 00:06:21,240 Speaker 1: of math and statistics. Uh, what you do learn at 101 00:06:21,240 --> 00:06:23,520 Speaker 1: the FED is how to apply it in a practical 102 00:06:23,560 --> 00:06:26,520 Speaker 1: way to real questions of the day. And so the 103 00:06:26,800 --> 00:06:30,120 Speaker 1: New York FED, with a lot of other young economists, 104 00:06:30,120 --> 00:06:32,720 Speaker 1: there was really a great place to kind of make 105 00:06:32,720 --> 00:06:37,680 Speaker 1: a transition out of academia into more practical use of economics. 106 00:06:38,040 --> 00:06:41,920 Speaker 1: And if I recall correctly, Jerry Corrigan was really a 107 00:06:41,960 --> 00:06:46,440 Speaker 1: major player UM in in if you read the history 108 00:06:46,480 --> 00:06:50,000 Speaker 1: of the seven Crash, and my favorite book on the 109 00:06:50,040 --> 00:06:54,000 Speaker 1: subject is Black Monday by Tim Metz, Corrigan is really 110 00:06:54,279 --> 00:06:58,120 Speaker 1: a major behind the scenes actor working to keep the 111 00:06:58,160 --> 00:07:00,960 Speaker 1: whole system together when it looks like it's falling apot well. 112 00:07:01,000 --> 00:07:03,120 Speaker 1: And that's that's the role of the New York FED. 113 00:07:03,160 --> 00:07:05,159 Speaker 1: And so we have a history of that. Obviously with 114 00:07:05,279 --> 00:07:08,000 Speaker 1: every time there's a big financial crisis, the president of 115 00:07:08,000 --> 00:07:11,680 Speaker 1: the New York Fed is absolutely critical because that's the 116 00:07:11,760 --> 00:07:14,119 Speaker 1: person who can talk to all the leaders of Wall 117 00:07:14,160 --> 00:07:18,200 Speaker 1: Street UM and kind of get people's heads around the problem, 118 00:07:18,240 --> 00:07:21,440 Speaker 1: get people working together. And so we've had multiple instances 119 00:07:21,560 --> 00:07:26,120 Speaker 1: where UM in a crisis moment, the New York President 120 00:07:26,160 --> 00:07:28,480 Speaker 1: has kind of really taken the lead and kind of 121 00:07:28,520 --> 00:07:32,600 Speaker 1: saved the financial system. I'm thinking of longtime capital management. 122 00:07:32,600 --> 00:07:35,920 Speaker 1: In the late nineties, there was a private sector rescue 123 00:07:35,920 --> 00:07:39,480 Speaker 1: deal put together, but that was really shepherd along by 124 00:07:39,520 --> 00:07:42,600 Speaker 1: the New York FED. And if memory serves, that deal 125 00:07:42,720 --> 00:07:45,720 Speaker 1: might have even been done in the hallways from New 126 00:07:45,760 --> 00:07:50,520 Speaker 1: York Fed. Absolutely, and and the you know, the idea 127 00:07:50,600 --> 00:07:52,760 Speaker 1: there was. I mean, actually, if you go back in history, 128 00:07:52,760 --> 00:07:55,400 Speaker 1: you go back all the way back to JP Morgan, 129 00:07:55,560 --> 00:07:58,520 Speaker 1: back and before the FED existed, that's what he would do. 130 00:07:58,640 --> 00:08:02,880 Speaker 1: He would gather together their bankers and in a financial crisis, 131 00:08:02,880 --> 00:08:06,480 Speaker 1: which remember the original purpose of the FED was to 132 00:08:06,520 --> 00:08:10,120 Speaker 1: prevent financial crisis, not to manage monetary policy, but prevent 133 00:08:10,160 --> 00:08:14,520 Speaker 1: financial crisis. And so that role is now kind of 134 00:08:14,560 --> 00:08:17,960 Speaker 1: moved into the New York FED, obviously working closely with 135 00:08:18,040 --> 00:08:21,000 Speaker 1: the with the chairman. But that was one of the 136 00:08:21,000 --> 00:08:22,880 Speaker 1: exciting things about working in the New York FED, right 137 00:08:22,920 --> 00:08:24,800 Speaker 1: in the heart of Wall Street and then in the 138 00:08:24,800 --> 00:08:28,480 Speaker 1: heart of the financial system. You're listening to Masters in 139 00:08:28,560 --> 00:08:32,240 Speaker 1: Business on Bloomberg Radio. My special guest this week is 140 00:08:32,280 --> 00:08:36,120 Speaker 1: Ethan Harris. He is the co head of Global Economics 141 00:08:36,160 --> 00:08:41,199 Speaker 1: Research at Bank America, Merrill Lynch and I wanted to 142 00:08:41,240 --> 00:08:46,120 Speaker 1: get into the specifics of interest rates and how they 143 00:08:46,280 --> 00:08:49,920 Speaker 1: vary around the world. And I understand the academic answer 144 00:08:49,960 --> 00:08:54,400 Speaker 1: to this, but it's never really been satisfactory. So ballpark, 145 00:08:54,880 --> 00:08:58,000 Speaker 1: the ten year bond in the United States is about 146 00:08:59,240 --> 00:09:01,760 Speaker 1: If you go to Germany, it's under half a percent, 147 00:09:01,800 --> 00:09:06,040 Speaker 1: It's about point four four as of this recording, and 148 00:09:06,240 --> 00:09:10,480 Speaker 1: Japan is about point to although given the most recent 149 00:09:10,559 --> 00:09:12,760 Speaker 1: activity from the Bank of Japan, who knows where that 150 00:09:12,760 --> 00:09:16,800 Speaker 1: will be by the time this broadcast. These are three 151 00:09:16,880 --> 00:09:21,360 Speaker 1: of the most powerful economic um countries in the world, 152 00:09:21,760 --> 00:09:25,840 Speaker 1: yet they seem to have wildly different rates. Why is 153 00:09:25,880 --> 00:09:30,040 Speaker 1: it that the United States has to pay two Germany 154 00:09:30,080 --> 00:09:33,480 Speaker 1: pays less than half a percent, and what maybe the 155 00:09:33,520 --> 00:09:38,320 Speaker 1: most indebted developed nation, Japan at least major economic power, 156 00:09:38,760 --> 00:09:40,800 Speaker 1: is paying less than a quarter percent? How do how 157 00:09:40,840 --> 00:09:43,760 Speaker 1: do we reconcile? So I Bury, I think what's going 158 00:09:43,800 --> 00:09:46,640 Speaker 1: on here is this is actually good news for the US. 159 00:09:46,760 --> 00:09:50,120 Speaker 1: I mean, because what we're seeing in Europe and Japan 160 00:09:50,960 --> 00:09:53,920 Speaker 1: is our markets that are pricing in a world of 161 00:09:54,000 --> 00:09:58,359 Speaker 1: near zero interest rates for the indefinite future, no inflation 162 00:09:58,640 --> 00:10:02,600 Speaker 1: for the indefinite future. That means that investors are very 163 00:10:02,640 --> 00:10:06,240 Speaker 1: pessimistic about the prospects for growth in those countries. Neither 164 00:10:06,320 --> 00:10:10,439 Speaker 1: country has managed to extract itself from this kind of low, 165 00:10:10,679 --> 00:10:15,040 Speaker 1: near deflationary kind of environment. The the US, at least 166 00:10:15,040 --> 00:10:18,040 Speaker 1: with two percent tenure yields, the markets are giving us 167 00:10:18,240 --> 00:10:22,560 Speaker 1: some some hope that, yeah, the the US has heeled 168 00:10:22,559 --> 00:10:25,400 Speaker 1: a good deal, that there is some prospect of an 169 00:10:25,320 --> 00:10:28,679 Speaker 1: acceleration inflation. The Fed doesn't have to keep interest rates 170 00:10:29,440 --> 00:10:32,080 Speaker 1: pegg to zero forever. So I think that the the 171 00:10:32,120 --> 00:10:36,320 Speaker 1: interest rate differentials telling you something about the prospect of 172 00:10:36,360 --> 00:10:39,480 Speaker 1: the US finally come out coming out of its malaise. 173 00:10:40,240 --> 00:10:43,120 Speaker 1: But a lot of doubts in the markets about Japan, 174 00:10:43,440 --> 00:10:47,000 Speaker 1: UM and UH in Europe. But but that spread has 175 00:10:47,080 --> 00:10:50,400 Speaker 1: been Germany has been yielding less than the US and 176 00:10:50,480 --> 00:10:53,400 Speaker 1: Japan less than Germany for the better part of a 177 00:10:53,440 --> 00:10:56,040 Speaker 1: couple of decades. And so I know, if I go 178 00:10:56,120 --> 00:10:58,679 Speaker 1: to a textbook, it's going to say, well, look at 179 00:10:58,720 --> 00:11:02,360 Speaker 1: the yield versus the real GDP net of inflation. But 180 00:11:02,520 --> 00:11:06,120 Speaker 1: that's not really satisfying. What I'm hearing from you is 181 00:11:06,200 --> 00:11:09,680 Speaker 1: that people in Germany and to a greater degree in 182 00:11:09,720 --> 00:11:13,840 Speaker 1: Japan are flocking to bonds because they don't have confidence 183 00:11:14,200 --> 00:11:16,840 Speaker 1: in the economy. Is no, No, I think that yeah. 184 00:11:16,840 --> 00:11:21,000 Speaker 1: I mean the bondmark of the tenure yield is amalgam 185 00:11:21,000 --> 00:11:23,760 Speaker 1: of people's expectations were where interest rates are going over 186 00:11:23,800 --> 00:11:26,959 Speaker 1: the next ten years. Um. You know, if you believe 187 00:11:27,200 --> 00:11:30,640 Speaker 1: that the Fed has some chance of normalizing interest rates 188 00:11:30,720 --> 00:11:34,439 Speaker 1: in the next few years, UM, you're going to demand 189 00:11:34,480 --> 00:11:37,080 Speaker 1: a higher interest rate on your tenure yield because you 190 00:11:37,200 --> 00:11:39,520 Speaker 1: need to cover the fact that you're you're going to 191 00:11:39,679 --> 00:11:43,240 Speaker 1: miss out on those higher rates. So um. And I 192 00:11:43,280 --> 00:11:45,880 Speaker 1: think that the I mean the longer history of of 193 00:11:46,120 --> 00:11:49,040 Speaker 1: super low rates in Japan. I mean Japan has had 194 00:11:49,080 --> 00:11:51,439 Speaker 1: not just a lost decade of growth. I mean people 195 00:11:51,440 --> 00:11:54,160 Speaker 1: talk about the nineties being a lost decade, but in effect, 196 00:11:54,640 --> 00:11:58,800 Speaker 1: Japan for twenty five years has been a low growth, 197 00:11:59,559 --> 00:12:04,400 Speaker 1: zero or negative inflation country. Um. And so if you're 198 00:12:04,440 --> 00:12:06,840 Speaker 1: buying bonds in Japan, you don't feel you need any 199 00:12:06,880 --> 00:12:11,360 Speaker 1: compensation for inflation because there is no inflation. Well, you're 200 00:12:11,400 --> 00:12:15,200 Speaker 1: really doing is parking money there. You're getting the tiniest 201 00:12:15,240 --> 00:12:19,359 Speaker 1: of yield and it's a way to not be in equities, 202 00:12:19,440 --> 00:12:24,520 Speaker 1: which twenty five years have not exactly been it's basically 203 00:12:24,840 --> 00:12:27,920 Speaker 1: people saying, yeah, I'm not I don't have enough confidence 204 00:12:27,960 --> 00:12:31,160 Speaker 1: in the economy to to put my money to work. 205 00:12:31,880 --> 00:12:34,480 Speaker 1: I'm going to take the safest investment I can and 206 00:12:34,520 --> 00:12:37,080 Speaker 1: just kind of sit on it um. Of course, what's 207 00:12:37,120 --> 00:12:40,120 Speaker 1: also going on in both Europe and Japan is that 208 00:12:40,200 --> 00:12:43,760 Speaker 1: the Central Bank is still buying debt and the FED 209 00:12:43,920 --> 00:12:47,640 Speaker 1: is stopped their their quantitative easing debt buying program, and 210 00:12:47,679 --> 00:12:51,920 Speaker 1: so there's an additional gap created by the fact that 211 00:12:51,960 --> 00:12:55,040 Speaker 1: they're still in an aggressive bond buying program to try 212 00:12:55,040 --> 00:12:58,840 Speaker 1: and artificially lower bond yields, as in hoping to stimulate 213 00:12:58,840 --> 00:13:01,120 Speaker 1: their economy. Well, the FED this kind of specked away 214 00:13:01,160 --> 00:13:03,800 Speaker 1: from that. So but I think that fundamentally that the 215 00:13:03,880 --> 00:13:06,840 Speaker 1: story here is about, you know, faith in the long 216 00:13:06,960 --> 00:13:11,360 Speaker 1: run growth and inflation prospects. It's not like people are 217 00:13:12,040 --> 00:13:14,680 Speaker 1: bowled up about the US. It's just in you know, 218 00:13:14,800 --> 00:13:16,480 Speaker 1: kind of the land of the blind. You know, the 219 00:13:16,480 --> 00:13:19,200 Speaker 1: one eyed man is king, and that's that's that's where 220 00:13:19,200 --> 00:13:22,400 Speaker 1: we are now. So so, although when we look at Germany, 221 00:13:22,559 --> 00:13:25,720 Speaker 1: despite the issue with the refugees, despite all the other 222 00:13:25,760 --> 00:13:29,679 Speaker 1: problems there, their economy seems to be running pretty strongly. 223 00:13:29,720 --> 00:13:32,600 Speaker 1: I mean, that is the strong man of Europe, isn't it. 224 00:13:33,080 --> 00:13:37,240 Speaker 1: I mean they're they're um. Obviously, they're the one part 225 00:13:37,280 --> 00:13:40,360 Speaker 1: of Europe that really looks healthy. And uh, it's not 226 00:13:40,440 --> 00:13:43,040 Speaker 1: that Europe is collapsing, it's just the region has had 227 00:13:43,080 --> 00:13:47,680 Speaker 1: a big double recession never really recovered, and so Germany 228 00:13:47,760 --> 00:13:50,520 Speaker 1: is is kind of the model of strength there. But 229 00:13:50,559 --> 00:13:53,160 Speaker 1: their interest rates are very tied into what other countries 230 00:13:53,200 --> 00:13:56,800 Speaker 1: are paying. Their interest rates are determined by the same 231 00:13:56,840 --> 00:14:00,600 Speaker 1: central bank as every other country there, so everyone's kind 232 00:14:00,640 --> 00:14:03,960 Speaker 1: of tied into this low rate environment on the assumption 233 00:14:04,000 --> 00:14:06,040 Speaker 1: that the ECB is not going to be able to 234 00:14:06,160 --> 00:14:10,079 Speaker 1: raise interest rates anytime soon. So so let's as long 235 00:14:10,080 --> 00:14:12,360 Speaker 1: as we're talking about Europe in Germany, I would be 236 00:14:12,400 --> 00:14:15,840 Speaker 1: remiss if I didn't bring up the Swiss, who have 237 00:14:16,000 --> 00:14:19,880 Speaker 1: been at times running negative interest rates. They are not 238 00:14:20,080 --> 00:14:23,440 Speaker 1: on the euro, so they're affected by the central bank, 239 00:14:23,840 --> 00:14:27,200 Speaker 1: but it's not like they're tied to the local currency. 240 00:14:27,880 --> 00:14:33,560 Speaker 1: Why is Switzerland's getting the benefit of borrowing money at 241 00:14:33,600 --> 00:14:36,840 Speaker 1: a negative rate. Here here's my money, and here's a 242 00:14:36,840 --> 00:14:40,440 Speaker 1: little ACTRA to keep it safe. Yeah, well, I think 243 00:14:40,440 --> 00:14:44,000 Speaker 1: that they are um. The one way to think of 244 00:14:44,040 --> 00:14:47,440 Speaker 1: it with Switzerland is they're kind of an island of 245 00:14:47,520 --> 00:14:52,200 Speaker 1: stability in Europe and so and I've been for centuries, centuries, 246 00:14:52,240 --> 00:14:55,400 Speaker 1: and and the crisis in Europe has caused a lot 247 00:14:55,440 --> 00:15:00,320 Speaker 1: of money to flow into UH, into UH Switzerland. That's 248 00:15:00,360 --> 00:15:03,040 Speaker 1: one reason they can borrow a cheap right. The other 249 00:15:03,080 --> 00:15:06,600 Speaker 1: thing is that it's created it's created an extremely strong currency, 250 00:15:06,680 --> 00:15:10,360 Speaker 1: which hurts their economy. They're kind of they're they're actually 251 00:15:10,680 --> 00:15:14,560 Speaker 1: in a sense there they're suffering worse from Europe's problems 252 00:15:14,560 --> 00:15:17,200 Speaker 1: and than Europe itself is suffering because they end up 253 00:15:17,200 --> 00:15:20,360 Speaker 1: with a very strong exchange rate, so they push interest 254 00:15:20,480 --> 00:15:23,840 Speaker 1: rates into negative territory to prevent their currency from being 255 00:15:23,840 --> 00:15:28,360 Speaker 1: so strong. And um, it's really a desperate battle by 256 00:15:28,720 --> 00:15:33,960 Speaker 1: Switzerland to avoid importing the problems of Europe. This is 257 00:15:34,080 --> 00:15:38,120 Speaker 1: Masters in Business on Bloomberg Radio. I'm Barry Ridhalts. My 258 00:15:38,240 --> 00:15:42,240 Speaker 1: special guest this week is Bank America, Mary Lynch's co 259 00:15:42,440 --> 00:15:47,000 Speaker 1: head of Global Economic Research, Ethan Harris. He is a 260 00:15:47,040 --> 00:15:51,120 Speaker 1: former FED researcher, former chief economist for Lehman Brothers, and 261 00:15:51,240 --> 00:15:55,680 Speaker 1: author of Ben Bernanke's Fed the Federal Reserve After Greenspan 262 00:15:56,440 --> 00:16:00,520 Speaker 1: And let's talk a little bit about inflation. You in 263 00:16:00,560 --> 00:16:04,400 Speaker 1: some or we'll talk about flation. As as was famously said, 264 00:16:04,880 --> 00:16:07,440 Speaker 1: it doesn't look like most of the world is suffering 265 00:16:07,520 --> 00:16:10,960 Speaker 1: from inflation. We're starting to see signs in the United 266 00:16:11,000 --> 00:16:14,680 Speaker 1: States perhaps wages will tick up. In parts of the 267 00:16:14,720 --> 00:16:18,800 Speaker 1: world we see deflation, and in other parts of the 268 00:16:18,800 --> 00:16:22,160 Speaker 1: world we're seeing disinflation. For the person who may not 269 00:16:22,280 --> 00:16:27,400 Speaker 1: be familiar with all these inflations, what are the differences? Yeah, so, um, 270 00:16:27,480 --> 00:16:30,400 Speaker 1: you know, inflation is just a general rise in wages 271 00:16:30,440 --> 00:16:33,440 Speaker 1: and prices and income. So everything's going up in value 272 00:16:33,480 --> 00:16:36,920 Speaker 1: over time, but it's not increasing your ability to buy things. 273 00:16:36,960 --> 00:16:39,760 Speaker 1: It's just prices going going higher. So if your wages 274 00:16:39,800 --> 00:16:43,920 Speaker 1: go up and prices go up proportionately, exactly what you know, 275 00:16:44,000 --> 00:16:46,120 Speaker 1: you're just you're paying more and you're earning more, but 276 00:16:46,200 --> 00:16:49,320 Speaker 1: you're kind of in place. Um, you know, deflation is 277 00:16:49,320 --> 00:16:53,640 Speaker 1: when you actually have falling prices across the economy. This 278 00:16:53,720 --> 00:16:57,080 Speaker 1: is very unusual. It really only happens in depression like 279 00:16:57,200 --> 00:17:00,280 Speaker 1: conditions for a sustained period of time, you know, the 280 00:17:00,280 --> 00:17:04,600 Speaker 1: Great Depression of the nineteen thirties and Japan's last decade. Um, 281 00:17:04,720 --> 00:17:07,960 Speaker 1: disinflation is just a slowing of inflation, so you're going 282 00:17:08,000 --> 00:17:11,280 Speaker 1: from five percent to three percent. So that's the Those 283 00:17:11,320 --> 00:17:14,480 Speaker 1: are the kind of words we bandy about all the time, 284 00:17:14,560 --> 00:17:18,800 Speaker 1: So now we hear frequently, I see frequently discussions of 285 00:17:18,920 --> 00:17:24,040 Speaker 1: deflation in commodities, deflation in China, and deflation in Japan. 286 00:17:24,560 --> 00:17:26,720 Speaker 1: Is that the right way to describe it? Are we 287 00:17:26,800 --> 00:17:31,440 Speaker 1: actually seeing deflation? Well? I mean when economists think about deflation, 288 00:17:31,680 --> 00:17:34,360 Speaker 1: usually they're thinking about something that's sustained over a long 289 00:17:34,440 --> 00:17:36,280 Speaker 1: period of time. So I think what you're seeing in 290 00:17:36,359 --> 00:17:39,959 Speaker 1: commodity markets is really a repricing where you've gone from 291 00:17:39,960 --> 00:17:45,040 Speaker 1: an environment of consistently high prices to consistently low prices. 292 00:17:45,440 --> 00:17:48,600 Speaker 1: And so during that interim you have very rapid deflation. 293 00:17:48,600 --> 00:17:52,960 Speaker 1: I mean, coal prices have dropped U seventy percent from 294 00:17:53,000 --> 00:17:56,640 Speaker 1: their peak, so um, but that's really over a year 295 00:17:56,720 --> 00:17:58,679 Speaker 1: year and it's a year and a half. Yeah, that's 296 00:17:58,680 --> 00:18:01,800 Speaker 1: an amazing drop. Mean, and by the way, this isn't new. 297 00:18:01,880 --> 00:18:06,120 Speaker 1: I mean, we've seen oil markets just flip and suddenly 298 00:18:06,119 --> 00:18:09,840 Speaker 1: a market that had been sustaining at very high prices 299 00:18:09,840 --> 00:18:12,600 Speaker 1: suddenly you have an oversupply problem. It just takes years 300 00:18:12,640 --> 00:18:14,720 Speaker 1: to get rid of it, and you end up in 301 00:18:14,760 --> 00:18:18,159 Speaker 1: this sustained low prices. But that's not deflation in the 302 00:18:18,240 --> 00:18:20,439 Speaker 1: sense that from We're not gonna have oil. Oil prices 303 00:18:20,480 --> 00:18:23,719 Speaker 1: can't drop ten dollars forever every month because they'll go 304 00:18:23,800 --> 00:18:27,000 Speaker 1: into negative territory. That's more of a one time kind 305 00:18:27,040 --> 00:18:30,480 Speaker 1: of big adjustment in the market. Real deflation is when 306 00:18:31,200 --> 00:18:35,520 Speaker 1: um year after year prices keep keep dropping and and 307 00:18:35,560 --> 00:18:38,720 Speaker 1: really the kinds of deflation that economists worry about and 308 00:18:38,840 --> 00:18:42,760 Speaker 1: not so much. You know, a few items like oil falling, 309 00:18:42,800 --> 00:18:47,080 Speaker 1: but it's really broad based price declines and broad based 310 00:18:47,200 --> 00:18:51,439 Speaker 1: wage decreases. That's those are signs of a sick economy. 311 00:18:51,680 --> 00:18:56,280 Speaker 1: So arguably the issue with oil this cycle has been 312 00:18:56,280 --> 00:19:00,240 Speaker 1: a supply issue. We brought I Ran online, we would 313 00:19:00,240 --> 00:19:04,000 Speaker 1: Iraq online, and the US has gone from a marginal 314 00:19:04,080 --> 00:19:07,600 Speaker 1: producer to a significant producer. And at the same time, 315 00:19:07,600 --> 00:19:11,280 Speaker 1: the Saudis, who normally would pull back are are continuing 316 00:19:11,320 --> 00:19:15,040 Speaker 1: to pump NonStop. UH plus Russia could use the money, 317 00:19:15,040 --> 00:19:18,960 Speaker 1: so they key, So the usual suppliers who would typically 318 00:19:19,000 --> 00:19:23,919 Speaker 1: pull back aren't. So arguably this is a supply issue. 319 00:19:24,480 --> 00:19:29,480 Speaker 1: What sort of deflationary environment is a demand issue? Well, 320 00:19:29,600 --> 00:19:33,080 Speaker 1: demand issue would be UH in fact, a Japanese experience 321 00:19:33,080 --> 00:19:36,720 Speaker 1: of the and two thousands a classic example that where 322 00:19:36,800 --> 00:19:40,720 Speaker 1: you have an economy that never really gets growing and 323 00:19:40,760 --> 00:19:45,440 Speaker 1: so over time UM prices and wage growth fade into 324 00:19:45,520 --> 00:19:50,000 Speaker 1: negative territory because there's not enough spending going on the economy. 325 00:19:50,200 --> 00:19:52,480 Speaker 1: And in Japan's case, I think it was a lot 326 00:19:52,520 --> 00:19:58,040 Speaker 1: of it was a severely damaged banking industry, severely damage 327 00:19:58,080 --> 00:20:01,080 Speaker 1: stock market and real estate market that just kind of 328 00:20:01,160 --> 00:20:04,680 Speaker 1: hung over the economy for long periods of time, combined 329 00:20:04,720 --> 00:20:08,280 Speaker 1: with a complete lack of confidence. I mean a lot 330 00:20:08,280 --> 00:20:10,800 Speaker 1: of what the story of Japan was confidence. So those 331 00:20:10,920 --> 00:20:15,040 Speaker 1: kind of when you have a big overhang of of 332 00:20:16,080 --> 00:20:21,040 Speaker 1: broken markets and lack of confidence that those that's really 333 00:20:21,080 --> 00:20:24,280 Speaker 1: what happens when you have these big deflation episodes. How 334 00:20:24,359 --> 00:20:27,560 Speaker 1: much of the Japan story is is one of demographics. 335 00:20:27,560 --> 00:20:30,919 Speaker 1: I keep reading that there's almost no immigration. It's an 336 00:20:30,960 --> 00:20:35,600 Speaker 1: aging society, and we all know your prime spending years 337 00:20:35,680 --> 00:20:38,399 Speaker 1: or your forties and fifties. If you have an aging society, 338 00:20:38,880 --> 00:20:42,360 Speaker 1: what does that do to uh deflation and spending? Well, 339 00:20:42,400 --> 00:20:44,240 Speaker 1: I think that if you look at the origins of 340 00:20:44,280 --> 00:20:47,800 Speaker 1: their crisis, it was a mass of real estate and 341 00:20:47,960 --> 00:20:52,120 Speaker 1: equity bubble that burst and left them with a crippled 342 00:20:52,160 --> 00:20:55,160 Speaker 1: banking system and a failure to kind of fix all 343 00:20:55,160 --> 00:20:59,560 Speaker 1: those problems quickly, and that created this ongoing overhanging the 344 00:20:59,600 --> 00:21:03,120 Speaker 1: econom mean, but I think over time the challenges for 345 00:21:03,119 --> 00:21:06,080 Speaker 1: for Japan have shifted, and what you're talking about with 346 00:21:06,080 --> 00:21:09,280 Speaker 1: the demographics is really the challenge going forward. It's the 347 00:21:09,440 --> 00:21:14,240 Speaker 1: fact that you know, when Japan got into trouble, at first, 348 00:21:14,359 --> 00:21:17,159 Speaker 1: demographic was not an important issue. But now we're in 349 00:21:17,200 --> 00:21:21,680 Speaker 1: a shrink a country that's a shrinking population, very low 350 00:21:21,760 --> 00:21:26,880 Speaker 1: birth rates and very little immigration, and so the new 351 00:21:26,920 --> 00:21:31,560 Speaker 1: generation of workers is much smaller than the old generation retirees. 352 00:21:32,480 --> 00:21:36,719 Speaker 1: That's a really serious challenge down the road for Japan. 353 00:21:37,000 --> 00:21:39,760 Speaker 1: I'm Barry rid Holts. You're listening to Master's in Business 354 00:21:39,760 --> 00:21:42,879 Speaker 1: on Bloomberg Radio. My special guest this week is b 355 00:21:43,000 --> 00:21:45,960 Speaker 1: of A. Merrill. Lynch is Ethan Harris. He is the 356 00:21:46,040 --> 00:21:49,520 Speaker 1: co head of Global Economic Research. He began his career 357 00:21:49,800 --> 00:21:52,600 Speaker 1: at the New York Fed as a researcher. And let's 358 00:21:52,640 --> 00:21:56,520 Speaker 1: talk a little bit about FED policy, because you mentioned 359 00:21:56,600 --> 00:22:00,119 Speaker 1: in the prior segment Japan was slow to response on 360 00:22:00,280 --> 00:22:05,200 Speaker 1: to their crisis, their markets and economy peaked in ninety. 361 00:22:05,760 --> 00:22:08,920 Speaker 1: Here it is twenty five years later. They're still mired 362 00:22:09,200 --> 00:22:14,320 Speaker 1: in soft uh economic I don't even want to call 363 00:22:14,359 --> 00:22:18,240 Speaker 1: it an expansion. It's been a temporary blip up. What 364 00:22:18,320 --> 00:22:22,199 Speaker 1: did the United States Feller Reserve do right that the 365 00:22:22,320 --> 00:22:25,840 Speaker 1: Japanese Central Bank failed to do well? First of all, 366 00:22:25,920 --> 00:22:29,119 Speaker 1: we should say that the FED had the benefit of 367 00:22:29,240 --> 00:22:33,520 Speaker 1: Japan's experience, and you know, we know that for example, uh, 368 00:22:33,560 --> 00:22:36,240 Speaker 1: Ben Bernanke spent a lot of time looking at Japan 369 00:22:36,359 --> 00:22:39,879 Speaker 1: and the mistakes that they made the big difference. Didn't 370 00:22:39,880 --> 00:22:42,080 Speaker 1: he do a big piece I want to say, oh 371 00:22:42,080 --> 00:22:45,560 Speaker 1: three or something along those lines about here's what Japan 372 00:22:45,680 --> 00:22:47,879 Speaker 1: should have done. I mean, been a student of the 373 00:22:48,280 --> 00:22:52,080 Speaker 1: Great Depression, he said, here's the lesson Japan did not learn. Yeah. So, 374 00:22:52,240 --> 00:22:54,879 Speaker 1: you know, Ben Bernanke is a very gentlemanly person, and 375 00:22:54,920 --> 00:22:58,360 Speaker 1: he actually went over to Tokyo and gave some very 376 00:22:58,440 --> 00:23:02,280 Speaker 1: pointed advice to the government about being more aggressive policy, 377 00:23:02,320 --> 00:23:04,720 Speaker 1: and they did not like it, and so he was 378 00:23:05,080 --> 00:23:07,280 Speaker 1: he uh, you know, this was something that he took 379 00:23:07,400 --> 00:23:10,080 Speaker 1: very much to heart. The the the importance of a 380 00:23:10,160 --> 00:23:13,840 Speaker 1: strong reaction. What the FED basically did is that they 381 00:23:14,200 --> 00:23:18,320 Speaker 1: took a do whatever it takes attitude, and that was 382 00:23:18,440 --> 00:23:21,160 Speaker 1: you know, if we cut interest rates and the economy 383 00:23:21,200 --> 00:23:24,480 Speaker 1: doesn't respond, you cut them again. If cutting doesn't work, 384 00:23:25,000 --> 00:23:27,280 Speaker 1: you promised to keep them low for a long time. 385 00:23:27,359 --> 00:23:30,480 Speaker 1: If that doesn't work, you'd start buying lots of assets. 386 00:23:30,800 --> 00:23:33,359 Speaker 1: And I think that the key to this was it 387 00:23:33,400 --> 00:23:36,200 Speaker 1: gave a sense to people in the markets in a 388 00:23:36,280 --> 00:23:40,080 Speaker 1: very panic condition that the FED was there, that that 389 00:23:40,080 --> 00:23:42,320 Speaker 1: that the FED was never going to be out of ammunition. 390 00:23:42,359 --> 00:23:45,120 Speaker 1: They were always going to have another weapon to put 391 00:23:45,160 --> 00:23:48,760 Speaker 1: to work. And so it was the the aggressiveness, and 392 00:23:48,800 --> 00:23:51,719 Speaker 1: it was the body language around their actions that we 393 00:23:51,800 --> 00:23:55,400 Speaker 1: will keep trying until it works that made FED policy 394 00:23:55,440 --> 00:23:59,280 Speaker 1: so effective. If you look recently at the European Central 395 00:23:59,280 --> 00:24:03,560 Speaker 1: Bank success US under Druggy, it's he's taken a page 396 00:24:03,560 --> 00:24:06,679 Speaker 1: out of the Bernanke playbook. His idea of do whatever 397 00:24:06,720 --> 00:24:10,160 Speaker 1: it takes. He understands. I think that you know, when 398 00:24:10,160 --> 00:24:12,359 Speaker 1: you're in a world of panic and people don't know 399 00:24:12,400 --> 00:24:15,479 Speaker 1: how to value anything and um and the economy and 400 00:24:15,480 --> 00:24:20,359 Speaker 1: the markets are are collapsing, uh, people want a sense 401 00:24:20,440 --> 00:24:24,200 Speaker 1: that some in some way there's a support system out there. 402 00:24:24,200 --> 00:24:27,080 Speaker 1: And so I think that that was the basic key 403 00:24:27,080 --> 00:24:30,199 Speaker 1: to the success was the aggressiveness and the confidence building 404 00:24:30,240 --> 00:24:34,359 Speaker 1: aspects of the policy response. Is it accurate to say 405 00:24:34,760 --> 00:24:38,640 Speaker 1: the US lead the train in two thousand and eight 406 00:24:38,680 --> 00:24:42,680 Speaker 1: with an aggressive policy policy response. Six years later, the 407 00:24:42,720 --> 00:24:47,199 Speaker 1: Bank of Japan decided to follow suit and begin what 408 00:24:47,680 --> 00:24:52,359 Speaker 1: arguably is even stronger policy response, at least relative to 409 00:24:52,480 --> 00:24:55,360 Speaker 1: g d P and Europe seems to be the laguatal 410 00:24:55,440 --> 00:24:58,400 Speaker 1: though they're finally seemed to be getting on board as well. Yeah, 411 00:24:58,440 --> 00:25:01,880 Speaker 1: so I think that the that there has been lessons 412 00:25:02,000 --> 00:25:05,040 Speaker 1: learned overseas. So the Bank of Japan was for a 413 00:25:05,080 --> 00:25:08,920 Speaker 1: long time almost in denial that these policies work at all. 414 00:25:09,520 --> 00:25:12,480 Speaker 1: When they first adopted quantitative easing, you know, the big 415 00:25:12,520 --> 00:25:17,879 Speaker 1: bond buying program that date to close to zero. The 416 00:25:17,920 --> 00:25:21,600 Speaker 1: first time they adopted that, they when they before they 417 00:25:21,640 --> 00:25:24,840 Speaker 1: announced it at the previous meeting, they basically said, we 418 00:25:24,880 --> 00:25:29,080 Speaker 1: are not going to do quantitative easing because it doesn't work, okay, 419 00:25:29,960 --> 00:25:32,679 Speaker 1: and then they went the next meeting they announced it. 420 00:25:32,880 --> 00:25:35,960 Speaker 1: So if you think about it, it's it's really what 421 00:25:36,040 --> 00:25:38,680 Speaker 1: they what they basically told the markets is were so desperate, 422 00:25:38,720 --> 00:25:41,560 Speaker 1: We're going to do a policy that doesn't work. Bernanke 423 00:25:41,760 --> 00:25:45,000 Speaker 1: did the opposite. He said, we don't know whether it's 424 00:25:45,040 --> 00:25:47,159 Speaker 1: going to be a super powerful weapon or not, but 425 00:25:47,200 --> 00:25:49,119 Speaker 1: we're going to try as hard as we can, and 426 00:25:49,160 --> 00:25:51,880 Speaker 1: we're gonna keep trying until it works. And that's been 427 00:25:51,880 --> 00:25:54,920 Speaker 1: the change that we saw the Bank of Japan recently 428 00:25:55,080 --> 00:25:59,560 Speaker 1: kind of taking a much more aggressive attitude um and 429 00:26:00,000 --> 00:26:03,120 Speaker 1: with Draggy taking over at the c B, UM kind 430 00:26:03,119 --> 00:26:06,600 Speaker 1: of you know, learning the lesson that. Yes, you know, 431 00:26:06,800 --> 00:26:09,880 Speaker 1: those central banks have been active, they've been keeping rates low, 432 00:26:10,000 --> 00:26:14,879 Speaker 1: they've been um stimulating growth, but they haven't really made 433 00:26:14,920 --> 00:26:18,840 Speaker 1: the effort and that that's the difference. So so we're 434 00:26:18,840 --> 00:26:25,320 Speaker 1: recording this the day the Japanese Central Bank surprised investors 435 00:26:25,440 --> 00:26:30,520 Speaker 1: by forcing rates to go negative. What's the thinking behind that, 436 00:26:30,560 --> 00:26:33,600 Speaker 1: what's the impact of that action? Uh? And what does 437 00:26:33,640 --> 00:26:37,400 Speaker 1: that mean to the Japanese economy and potentially it's stock market? Well, 438 00:26:37,440 --> 00:26:40,560 Speaker 1: I mean, looking at the bigger picture that I'm encouraged 439 00:26:40,560 --> 00:26:42,680 Speaker 1: by the fact that the two central bank, the two 440 00:26:42,680 --> 00:26:45,359 Speaker 1: big ones that are still easing policy, the b o 441 00:26:45,520 --> 00:26:50,480 Speaker 1: J and the ECB, are taking steps in the middle 442 00:26:50,520 --> 00:26:54,120 Speaker 1: of this very negative stock market we're in right now, 443 00:26:54,160 --> 00:26:56,960 Speaker 1: this risk off trade and global capital markets. I think 444 00:26:56,960 --> 00:27:00,200 Speaker 1: that that's helpful. It's help when people investor is there 445 00:27:00,200 --> 00:27:02,199 Speaker 1: in a panic mode, you know, getting their mind on 446 00:27:02,280 --> 00:27:04,520 Speaker 1: something else is quite useful. It's kind of like a 447 00:27:04,600 --> 00:27:07,520 Speaker 1: slap in the face. And so the fact that both 448 00:27:07,560 --> 00:27:09,560 Speaker 1: the ECB and the b o J are now saying 449 00:27:09,560 --> 00:27:12,560 Speaker 1: we're ready to act and support growth, I think has 450 00:27:12,600 --> 00:27:16,000 Speaker 1: really helped a lot in in stabilizing equity markets. Now 451 00:27:16,040 --> 00:27:18,280 Speaker 1: we'll see if it works on a sustained basis, but 452 00:27:18,760 --> 00:27:22,080 Speaker 1: it's it's very helpful. I think what they're doing is 453 00:27:22,080 --> 00:27:24,399 Speaker 1: is there. I don't think this policy of going to 454 00:27:24,480 --> 00:27:27,639 Speaker 1: a small negative interest rate on reserves, which is what 455 00:27:27,640 --> 00:27:29,960 Speaker 1: they've done. They're going to actually charge banks a little 456 00:27:30,000 --> 00:27:34,720 Speaker 1: bit for reserves. That's gonna help lower uh in borrowing 457 00:27:34,800 --> 00:27:38,760 Speaker 1: rates in the economy broadly by a small amount. I 458 00:27:38,800 --> 00:27:41,439 Speaker 1: think it's more of a symbolic gesture to tell you 459 00:27:41,480 --> 00:27:44,720 Speaker 1: the truth, than anything major. UM. But I think it's 460 00:27:44,760 --> 00:27:49,680 Speaker 1: important that given UH, given the fact that the Japanese 461 00:27:49,680 --> 00:27:54,840 Speaker 1: economy has felt soft lately UM and their their markets 462 00:27:54,880 --> 00:27:57,440 Speaker 1: are suffering the same pressure we're seeing in the US 463 00:27:57,520 --> 00:27:59,919 Speaker 1: and Europe. UM, it was important. I think that the 464 00:28:00,040 --> 00:28:02,200 Speaker 1: central Bank show that it's still in the game, and 465 00:28:02,480 --> 00:28:05,400 Speaker 1: I think that's basically what they're doing. So I'm always 466 00:28:05,440 --> 00:28:09,800 Speaker 1: reluctant to say, well, the stock market reacted, We're up 467 00:28:10,119 --> 00:28:15,720 Speaker 1: almost three hundred points, so therefore this action resulted in that, UM, 468 00:28:15,760 --> 00:28:19,600 Speaker 1: because that's so fraught with danger and sometimes it's random, etcetera, etcetera. 469 00:28:19,880 --> 00:28:22,280 Speaker 1: But I can help but note that as soon as 470 00:28:23,000 --> 00:28:27,080 Speaker 1: this cross the tape early early this morning, markets around 471 00:28:27,119 --> 00:28:29,199 Speaker 1: the world flipped from red to green and it was 472 00:28:29,240 --> 00:28:33,920 Speaker 1: a substantial positive response. What is it that stock markets 473 00:28:34,480 --> 00:28:38,800 Speaker 1: like so much about such an aggressive Japanese central bank? Well, 474 00:28:38,840 --> 00:28:40,200 Speaker 1: I mean, I think we have to I think we 475 00:28:40,240 --> 00:28:42,360 Speaker 1: have to step back and ask ourselves, why are the 476 00:28:42,360 --> 00:28:44,920 Speaker 1: markets selling off so much to begin with? I think 477 00:28:44,920 --> 00:28:48,000 Speaker 1: the global equity markets, I think at the beginning of 478 00:28:48,040 --> 00:28:51,040 Speaker 1: the year got hit from every angle there, like a 479 00:28:51,280 --> 00:28:56,680 Speaker 1: collapsing pocket around a quarterback. You know, you had geopolitical risk, 480 00:28:56,800 --> 00:29:00,560 Speaker 1: you had weakness in China, you had currency and stock 481 00:29:00,640 --> 00:29:04,600 Speaker 1: market action in China. So that's kind of been people's minds. 482 00:29:04,600 --> 00:29:07,480 Speaker 1: You've had the weakness and the oil market. So the 483 00:29:07,800 --> 00:29:11,640 Speaker 1: global equity market has gotten itself really uh, kind of 484 00:29:11,720 --> 00:29:16,200 Speaker 1: overwhelmed by by negative news. UM and and as I said, 485 00:29:16,240 --> 00:29:18,560 Speaker 1: I think what happens when the central banks step in, 486 00:29:18,600 --> 00:29:21,000 Speaker 1: as they kind of they offer this kind of sense 487 00:29:21,040 --> 00:29:23,000 Speaker 1: that there is it's not all bad news, that we 488 00:29:23,040 --> 00:29:25,760 Speaker 1: do have central banks that still can lower interest rates, 489 00:29:25,840 --> 00:29:28,040 Speaker 1: can create a little bit of stimulus into the markets. 490 00:29:28,480 --> 00:29:31,360 Speaker 1: And so just kind of getting uh, kind of changing 491 00:29:31,400 --> 00:29:35,080 Speaker 1: the story. I think um is helpful to the markets. Now. Well, 492 00:29:35,080 --> 00:29:39,320 Speaker 1: we'll see going forward. I mean we um. I personally 493 00:29:39,360 --> 00:29:42,440 Speaker 1: feel the global economy is okay and that this isn't 494 00:29:42,480 --> 00:29:47,080 Speaker 1: the beginning of a big negative market. But um, but 495 00:29:47,160 --> 00:29:49,480 Speaker 1: you know, we need to see how well the economy 496 00:29:49,560 --> 00:29:53,000 Speaker 1: stands up to would have been some fairly ugly developments 497 00:29:53,000 --> 00:29:55,600 Speaker 1: in the markets. So so let me ask you a 498 00:29:55,640 --> 00:30:01,600 Speaker 1: completely different question. You alluded to the global economy being okay. 499 00:30:01,640 --> 00:30:03,480 Speaker 1: A lot of the things we've been talking about have 500 00:30:03,560 --> 00:30:09,400 Speaker 1: been downside surprises geopolitics and collapsing commodities and weakness in China. 501 00:30:10,040 --> 00:30:12,320 Speaker 1: What is required to take place for there to be 502 00:30:12,880 --> 00:30:18,600 Speaker 1: a global upside surprising growth? Or or perhaps asked more 503 00:30:18,600 --> 00:30:23,640 Speaker 1: more simply, what might the pessimists be missing what might 504 00:30:23,680 --> 00:30:27,600 Speaker 1: not be anticipating? Well, I would turn that question around 505 00:30:27,600 --> 00:30:29,720 Speaker 1: a bit. I don't I don't think there's any big 506 00:30:30,240 --> 00:30:33,959 Speaker 1: upside story actually, to tell you the truth going forward, 507 00:30:34,000 --> 00:30:36,840 Speaker 1: I think that, um, the one thing you can always 508 00:30:37,800 --> 00:30:40,520 Speaker 1: point to is that you have, you know, some pretty 509 00:30:40,520 --> 00:30:44,960 Speaker 1: impressive new technology going on in the economy. Historically, we've 510 00:30:44,960 --> 00:30:47,520 Speaker 1: had these cycles where you'll have say a ten year 511 00:30:47,680 --> 00:30:51,680 Speaker 1: boom in in productivity due to a tech breakthrough. The 512 00:30:51,720 --> 00:30:54,280 Speaker 1: breakthroughs we're having now are pretty impressive. They're not they 513 00:30:54,320 --> 00:30:56,720 Speaker 1: don't seem to be delivering anything on the economy, but 514 00:30:56,760 --> 00:31:01,880 Speaker 1: there's always that kind of that kind of breakthrough. Um. 515 00:31:02,040 --> 00:31:04,239 Speaker 1: I think that the way I would phrase it is 516 00:31:04,560 --> 00:31:06,480 Speaker 1: what the markets need to do is they need to 517 00:31:06,480 --> 00:31:13,000 Speaker 1: start stop hyperventilating about low oil prices and weakness in China. Right, 518 00:31:13,440 --> 00:31:17,680 Speaker 1: is China really that important to the US economy? I mean, 519 00:31:17,720 --> 00:31:20,160 Speaker 1: we only sell eight tenths of a percent of our 520 00:31:20,200 --> 00:31:24,080 Speaker 1: GDP to China. The Chinese equity market has been off 521 00:31:24,080 --> 00:31:26,840 Speaker 1: on its own tangent for the last year and a half. 522 00:31:26,880 --> 00:31:29,520 Speaker 1: It had a buge zoom up and now big collapse. 523 00:31:30,120 --> 00:31:32,200 Speaker 1: We didn't pay any attention when it went up, so 524 00:31:32,240 --> 00:31:34,320 Speaker 1: why do we care if it's going down? It's kind 525 00:31:34,320 --> 00:31:36,640 Speaker 1: of it's it's on its own little planet. It's very 526 00:31:36,720 --> 00:31:42,960 Speaker 1: much a a immature and almost purely retail market developed 527 00:31:42,960 --> 00:31:45,720 Speaker 1: a structure, so and and and normally, you know, global 528 00:31:45,720 --> 00:31:48,400 Speaker 1: markets pay no attention to the Chinese market for just 529 00:31:48,480 --> 00:31:51,680 Speaker 1: that reason. It's not really integrated. It's not like the 530 00:31:51,760 --> 00:31:55,080 Speaker 1: close connections you get between European and US markets where 531 00:31:55,200 --> 00:31:58,800 Speaker 1: investors there's a lot of cross flow of investing and 532 00:31:58,840 --> 00:32:03,440 Speaker 1: people look at them as mature markets that function effectively. 533 00:32:03,560 --> 00:32:06,160 Speaker 1: So we really need to investors need to kind of 534 00:32:06,160 --> 00:32:10,480 Speaker 1: stop hyperventilating about China. So if anyone wants to find 535 00:32:10,480 --> 00:32:15,480 Speaker 1: your research, they they can access your work at be 536 00:32:15,640 --> 00:32:18,160 Speaker 1: a very Merrill Lynch. Is there other any of specific 537 00:32:18,200 --> 00:32:21,400 Speaker 1: places they can read your work? Well, I mean that's 538 00:32:21,480 --> 00:32:23,760 Speaker 1: that's the thing. I don't have a blog out there anything. 539 00:32:23,760 --> 00:32:26,040 Speaker 1: I write for Bank American Mary Lynch. So if you 540 00:32:26,120 --> 00:32:29,560 Speaker 1: are a client of the firm in any way, you know, um, 541 00:32:30,280 --> 00:32:32,120 Speaker 1: you know, you'd have access to all the stuff that 542 00:32:32,160 --> 00:32:34,760 Speaker 1: we write and when. By the way, I've got a 543 00:32:34,880 --> 00:32:37,800 Speaker 1: really great team that works for I am the pretty face. 544 00:32:38,560 --> 00:32:41,520 Speaker 1: I have a great team, and that's why you're on radio. 545 00:32:41,800 --> 00:32:44,600 Speaker 1: If you enjoy this conversation, be sure and hang around 546 00:32:44,600 --> 00:32:47,440 Speaker 1: and listen to our podcast. Extras where we keep the 547 00:32:47,440 --> 00:32:51,960 Speaker 1: tape rolling and continue chatting. Be sure and check out 548 00:32:52,400 --> 00:32:56,200 Speaker 1: my daily column on Bloomberg View dot com or follow 549 00:32:56,240 --> 00:32:59,760 Speaker 1: me on Twitter at Ridolts. I'm Barry Ritolts. You've been 550 00:32:59,800 --> 00:33:03,760 Speaker 1: listen and into Masters in Business on Bloomberg Radio. Welcome 551 00:33:03,760 --> 00:33:07,440 Speaker 1: to the podcast I was mentioning earlier. My guest this 552 00:33:07,480 --> 00:33:09,600 Speaker 1: week is Ethan Harris. And Ethan, thank you so much 553 00:33:09,640 --> 00:33:13,400 Speaker 1: for for doing this. I know many of your colleagues, 554 00:33:13,440 --> 00:33:15,480 Speaker 1: but I don't think you and I have ever met before. 555 00:33:15,840 --> 00:33:18,400 Speaker 1: Have we we have met before? It must have been 556 00:33:18,520 --> 00:33:20,760 Speaker 1: much more memorable for me than for you. Was it 557 00:33:20,840 --> 00:33:25,320 Speaker 1: at a dinner? Um? Where we meet? I think we 558 00:33:25,480 --> 00:33:29,280 Speaker 1: met at at one of these economics get togethers, But 559 00:33:29,320 --> 00:33:33,480 Speaker 1: I definitely, maybe maybe only know you through your personality 560 00:33:33,560 --> 00:33:37,120 Speaker 1: as a as a great radio host. It's um, well, 561 00:33:37,160 --> 00:33:40,120 Speaker 1: the personality thing. It's all an act as it has 562 00:33:40,200 --> 00:33:44,320 Speaker 1: nothing h I'm not really like this in real life 563 00:33:44,360 --> 00:33:47,479 Speaker 1: as as much as U. Although if this was an 564 00:33:47,480 --> 00:33:51,280 Speaker 1: act it would be a tough one to maintain over 565 00:33:51,360 --> 00:33:56,160 Speaker 1: long periods of time. But um um, I'm trying to think. 566 00:33:57,400 --> 00:34:00,400 Speaker 1: I'm trying to remember where we met and if it 567 00:34:00,480 --> 00:34:03,560 Speaker 1: was one of those Wednesday night dinners at Bobby Vans 568 00:34:03,640 --> 00:34:07,840 Speaker 1: or something like that. That's the only recollection I have UM. 569 00:34:07,880 --> 00:34:09,360 Speaker 1: But it was never a one on one thing. It 570 00:34:09,480 --> 00:34:11,840 Speaker 1: was if you're in a room with eight or twelve people, 571 00:34:11,840 --> 00:34:16,840 Speaker 1: it's really hard to I actually met the Pope's outside 572 00:34:16,920 --> 00:34:20,120 Speaker 1: money manager at an event like that where there's fourteen 573 00:34:20,160 --> 00:34:23,040 Speaker 1: people there and you want to talk to each person 574 00:34:23,080 --> 00:34:25,839 Speaker 1: for a few minutes, but a two hour dinner goes 575 00:34:25,880 --> 00:34:28,319 Speaker 1: by like that. It's like I wanted to ask, how 576 00:34:28,400 --> 00:34:33,920 Speaker 1: is the Pope allocated? You would think he would have 577 00:34:33,960 --> 00:34:41,120 Speaker 1: a long time perspective, although truth be told, church has 578 00:34:41,120 --> 00:34:43,279 Speaker 1: done pretty well on its own. No, and I don't 579 00:34:43,320 --> 00:34:45,840 Speaker 1: think he's he is any errors that he needs to 580 00:34:45,920 --> 00:34:48,520 Speaker 1: leave money too. So it's a whole it's a very 581 00:34:48,680 --> 00:34:53,560 Speaker 1: different sort of sort of investment process. So there is 582 00:34:53,600 --> 00:34:57,319 Speaker 1: a list of stuff I blew through during the broadcast 583 00:34:57,360 --> 00:35:01,040 Speaker 1: portion that I that I want to come come back 584 00:35:01,080 --> 00:35:08,080 Speaker 1: to before I get to my favorite UM questions. We 585 00:35:08,120 --> 00:35:12,520 Speaker 1: did not talk about the book Ben Bernanke's Fed, and 586 00:35:12,560 --> 00:35:15,520 Speaker 1: I also, I know I'm gonna get hate mail. One 587 00:35:15,520 --> 00:35:17,200 Speaker 1: of the questions I was going to ask, is, hey, 588 00:35:17,239 --> 00:35:21,480 Speaker 1: you're describing what the FED did, right, what did the 589 00:35:21,480 --> 00:35:24,680 Speaker 1: FED do wrong? So let me let me ask you that. 590 00:35:24,800 --> 00:35:28,200 Speaker 1: So over the past couple of decades, what was it 591 00:35:28,880 --> 00:35:33,640 Speaker 1: that the FED did wrong? Are they to blame in 592 00:35:33,760 --> 00:35:38,200 Speaker 1: some degree for the eight o nine financial crisis? Well, 593 00:35:38,360 --> 00:35:41,400 Speaker 1: I think when you look at the causes of the crisis, 594 00:35:41,440 --> 00:35:43,880 Speaker 1: you have to kind of spread the blame pretty widely. 595 00:35:43,960 --> 00:35:46,600 Speaker 1: I mean, Um, for one thing, we all know that 596 00:35:46,719 --> 00:35:50,120 Speaker 1: the regulatory structure of the US financial system was out 597 00:35:50,200 --> 00:35:54,480 Speaker 1: of date and it left over patchwork of of regulatory 598 00:35:54,520 --> 00:35:58,399 Speaker 1: agencies and regulations, and so it really needed reform, but 599 00:35:58,800 --> 00:36:02,120 Speaker 1: it's kind of a lack of political will to do that. 600 00:36:02,239 --> 00:36:05,320 Speaker 1: We also know that there is pressure from both parties 601 00:36:05,320 --> 00:36:09,480 Speaker 1: to promote growth in home ownership to the point where 602 00:36:09,640 --> 00:36:11,839 Speaker 1: there's kind of a loss of sight of you know, 603 00:36:11,920 --> 00:36:15,800 Speaker 1: whether it really it's appropriate for people with weak credit 604 00:36:15,880 --> 00:36:18,440 Speaker 1: and low incomes to to own real estate. I mean, 605 00:36:18,480 --> 00:36:20,960 Speaker 1: and so there's a bit of a political push in 606 00:36:21,000 --> 00:36:23,839 Speaker 1: that direction. I've been I've been pushing back on that 607 00:36:24,000 --> 00:36:27,800 Speaker 1: argument because when you do, when you do the deep 608 00:36:27,880 --> 00:36:32,040 Speaker 1: dive into warehouses went bad and what sort of mortgages 609 00:36:32,080 --> 00:36:36,919 Speaker 1: blew up, it wasn't necessarily I mean, we know countrywide 610 00:36:36,920 --> 00:36:40,920 Speaker 1: had issues but it wasn't necessarily the City banks, Bank America, 611 00:36:41,719 --> 00:36:45,640 Speaker 1: those sort of of more Wells Fargo underwriters. There was 612 00:36:45,719 --> 00:36:50,760 Speaker 1: this huge swath of private sector banks. Alan Greenspan called 613 00:36:50,760 --> 00:36:54,959 Speaker 1: them the financial innovators, and they ultimately ended up going 614 00:36:55,040 --> 00:36:57,440 Speaker 1: belly up. By the hundreds, there was a website called 615 00:36:58,120 --> 00:37:02,160 Speaker 1: mL implode mortgage lend their implode dot com. I think 616 00:37:02,320 --> 00:37:04,319 Speaker 1: by the time everything was done, it was almost five 617 00:37:05,760 --> 00:37:10,640 Speaker 1: specific underwriters who had come about in order to create 618 00:37:10,920 --> 00:37:14,720 Speaker 1: more just to sell the security. And I think that 619 00:37:14,760 --> 00:37:17,440 Speaker 1: one of the core problems with the way the mortgage 620 00:37:17,440 --> 00:37:21,640 Speaker 1: market was regulated before the crisis was that there are 621 00:37:21,680 --> 00:37:25,400 Speaker 1: competitive regulators, right, so if you were you know, you 622 00:37:25,440 --> 00:37:29,600 Speaker 1: had a state and federal regulators covering different kinds of 623 00:37:29,640 --> 00:37:32,960 Speaker 1: institutions that were lending into the market, and so it 624 00:37:33,080 --> 00:37:34,840 Speaker 1: was a bit of a race to the bottom. You know, 625 00:37:34,880 --> 00:37:38,239 Speaker 1: whoever was the loosest lender got the business right and 626 00:37:38,320 --> 00:37:42,720 Speaker 1: so m the inability to have a more integrated, clear 627 00:37:43,760 --> 00:37:47,239 Speaker 1: ownership of this sector and you know, who's really regulating 628 00:37:47,239 --> 00:37:49,560 Speaker 1: and what are sensible rules I think was a big 629 00:37:49,600 --> 00:37:53,439 Speaker 1: part of the problem. And so I think that the 630 00:37:53,440 --> 00:37:58,960 Speaker 1: the FED shared blame with every other regulator, not really 631 00:37:59,440 --> 00:38:05,279 Speaker 1: aggress of the addressing what was aggressive lending practices. But 632 00:38:05,640 --> 00:38:07,800 Speaker 1: it's hard to describe blame when you have a system 633 00:38:07,840 --> 00:38:11,120 Speaker 1: that was so poorly put together to begin with. Um, 634 00:38:11,440 --> 00:38:15,160 Speaker 1: you know, I a portion blame to a lot of 635 00:38:15,239 --> 00:38:19,560 Speaker 1: a lot of entities, both private sector and government. But 636 00:38:19,680 --> 00:38:25,440 Speaker 1: I remember looking at all those private sector mortgage writers, 637 00:38:26,120 --> 00:38:31,320 Speaker 1: primarily located in California, And I have friends who insist 638 00:38:31,400 --> 00:38:34,480 Speaker 1: on blaming one party or the other, like two groups. 639 00:38:34,520 --> 00:38:37,680 Speaker 1: It was the Democrats, it was Republicans, and really you 640 00:38:37,760 --> 00:38:40,760 Speaker 1: can point to all sorts of things that each party 641 00:38:41,239 --> 00:38:43,480 Speaker 1: did wrong. And when you look in California, that was 642 00:38:43,520 --> 00:38:47,160 Speaker 1: a Democratic legislature that basically said, why do we want 643 00:38:47,160 --> 00:38:51,279 Speaker 1: to thwart growth? This is a booming financial sector that's 644 00:38:51,320 --> 00:38:54,640 Speaker 1: giving mortgages to people who might not have otherwise had it. 645 00:38:55,480 --> 00:38:58,960 Speaker 1: At the same time, you had President Bush and the 646 00:38:59,040 --> 00:39:02,400 Speaker 1: Office of o c See telling state regulators, we're going 647 00:39:02,440 --> 00:39:07,360 Speaker 1: to federally prompt you and eliminate your predatory lending rules 648 00:39:07,400 --> 00:39:10,040 Speaker 1: because they conflict with the federal ones. So it was 649 00:39:10,080 --> 00:39:13,640 Speaker 1: the Democrats and the Republicans just growth in any cost, 650 00:39:14,120 --> 00:39:16,239 Speaker 1: and we know what the cost ended up being. Yeah, 651 00:39:16,320 --> 00:39:18,640 Speaker 1: And I think that I mean the lesson of all 652 00:39:18,719 --> 00:39:21,480 Speaker 1: this is what is that we know that in the 653 00:39:21,560 --> 00:39:24,640 Speaker 1: in the housing market, it's important that the borrow have 654 00:39:24,840 --> 00:39:27,400 Speaker 1: skin in the game, that they have a real down payment, 655 00:39:28,120 --> 00:39:32,920 Speaker 1: and that they have adequate ability to repay the mortgage 656 00:39:33,239 --> 00:39:36,919 Speaker 1: based on a sensible estimation their income flow. So those 657 00:39:36,960 --> 00:39:40,840 Speaker 1: are two of the very basic things that got lost 658 00:39:41,600 --> 00:39:44,759 Speaker 1: along the way, and and that is the key. I mean, 659 00:39:44,760 --> 00:39:49,040 Speaker 1: if you have the reason the mortgage crisis was so 660 00:39:49,040 --> 00:39:53,160 Speaker 1: so virulent is because with all, because you really didn't 661 00:39:53,160 --> 00:39:55,080 Speaker 1: need to lose that much money in the value of 662 00:39:55,080 --> 00:39:58,640 Speaker 1: your house before you're underwater, because there's almost no down payment, 663 00:39:59,080 --> 00:40:03,799 Speaker 1: in which case that distressed property becomes a sale, and 664 00:40:04,239 --> 00:40:07,399 Speaker 1: in every sale creates new distress properties by creating over 665 00:40:07,760 --> 00:40:11,240 Speaker 1: supply into the market. So it's critical. I think that 666 00:40:11,320 --> 00:40:14,279 Speaker 1: I think that the core lesson to me in terms 667 00:40:14,320 --> 00:40:17,480 Speaker 1: of regulate the mortgage market is you need down payments 668 00:40:18,120 --> 00:40:22,040 Speaker 1: and you need effective income document. Didn't we at one 669 00:40:22,120 --> 00:40:25,719 Speaker 1: time require a twenty or down payment and if you 670 00:40:25,760 --> 00:40:28,040 Speaker 1: didn't have it, you had to take out more pm 671 00:40:28,080 --> 00:40:32,440 Speaker 1: I insurance. Yeah. The the to me, the the uh UM. 672 00:40:32,680 --> 00:40:36,920 Speaker 1: In the ninety nineties, you had a fairly sensible mortgage 673 00:40:36,960 --> 00:40:39,520 Speaker 1: landing practice. When I bought my house in in uh 674 00:40:40,239 --> 00:40:43,319 Speaker 1: uh the early nineties, and we put down and we 675 00:40:43,440 --> 00:40:46,040 Speaker 1: really you know, had to scrape and scrim to get 676 00:40:46,080 --> 00:40:50,000 Speaker 1: the money together. And uh that meant that that it 677 00:40:50,000 --> 00:40:53,440 Speaker 1: would have taken a horrendous housing market for us to 678 00:40:53,480 --> 00:40:56,080 Speaker 1: be underwater in our house. And so that was a 679 00:40:56,200 --> 00:41:01,280 Speaker 1: very kind of safe uh mortgage to have in play. Um. 680 00:41:01,320 --> 00:41:04,239 Speaker 1: But when we went to the more exotic mortgages were 681 00:41:04,360 --> 00:41:09,239 Speaker 1: almost no money down, lack of adequate income documentation, all 682 00:41:09,239 --> 00:41:12,160 Speaker 1: that then that we know, we're kind of getting over 683 00:41:12,160 --> 00:41:15,480 Speaker 1: our skis at that. I love that expression of our skis. 684 00:41:15,800 --> 00:41:20,000 Speaker 1: I remember the first time I started reading about piggyback mortgages. 685 00:41:20,520 --> 00:41:25,480 Speaker 1: We were borrowing from one bank as your primary mortgage 686 00:41:25,520 --> 00:41:28,719 Speaker 1: and from another bank as a down payment. And you 687 00:41:28,719 --> 00:41:32,719 Speaker 1: would think, well, that's ridiculous, until the hundred loan to 688 00:41:32,800 --> 00:41:36,160 Speaker 1: value mortgages came along. So the idea was you could 689 00:41:36,160 --> 00:41:40,200 Speaker 1: borrow the whole cost of the house plus another to 690 00:41:40,239 --> 00:41:43,520 Speaker 1: do renovations to make it worth that much more. How 691 00:41:43,560 --> 00:41:47,279 Speaker 1: could those ever, ever, Well yeah right, yeah, And that 692 00:41:47,280 --> 00:41:49,680 Speaker 1: that's the story of that period and and my my 693 00:41:49,800 --> 00:41:52,600 Speaker 1: feeling in real time as is writing about as an economist, 694 00:41:52,680 --> 00:41:56,560 Speaker 1: was that in the early two thousands, I felt okay 695 00:41:56,600 --> 00:41:59,640 Speaker 1: about the mortgage market. You know, it was getting more aggressive, 696 00:41:59,680 --> 00:42:02,839 Speaker 1: but it hadn't reached these very extraordinary levels. In two 697 00:42:02,880 --> 00:42:05,759 Speaker 1: thousand four and two thousand five, you had this very 698 00:42:05,920 --> 00:42:11,600 Speaker 1: rapid escalation of exotic mortgages with with very aggressive features 699 00:42:11,640 --> 00:42:14,440 Speaker 1: to them. And that's what kind of set a bell 700 00:42:14,560 --> 00:42:17,200 Speaker 1: off in my own head worrying about the housing market. 701 00:42:17,239 --> 00:42:20,120 Speaker 1: Of course, I don't think any one in the business 702 00:42:20,400 --> 00:42:24,959 Speaker 1: understood the extent. Well, if you understood housing, you might 703 00:42:25,000 --> 00:42:29,200 Speaker 1: not have understood the whole CDs market and the how 704 00:42:29,239 --> 00:42:33,120 Speaker 1: the credit to fault swaps were built on top of 705 00:42:33,160 --> 00:42:37,240 Speaker 1: the securitized CDO market. You really it took a while 706 00:42:37,320 --> 00:42:41,800 Speaker 1: before all those different pieces of the puzzle came into focus. 707 00:42:42,040 --> 00:42:45,440 Speaker 1: Since you're a global guy, let's let's ask you about 708 00:42:45,440 --> 00:42:50,840 Speaker 1: our neighbor to the north. During our housing boom and bust, 709 00:42:51,320 --> 00:42:54,920 Speaker 1: it looked like the Canadians came out pretty well. They 710 00:42:54,960 --> 00:42:59,200 Speaker 1: have a very aggressive regulatory scheme and just a handful 711 00:42:59,200 --> 00:43:03,120 Speaker 1: of money center thanks. But after our boom and bust, 712 00:43:03,239 --> 00:43:08,320 Speaker 1: it's looked like they just kept going, what's happening in well? 713 00:43:08,400 --> 00:43:10,520 Speaker 1: You know, so I mean this is again I mean 714 00:43:10,680 --> 00:43:14,719 Speaker 1: the problem of course with we know that financial cycles 715 00:43:14,719 --> 00:43:17,480 Speaker 1: over time is that uh, you know, people learn their 716 00:43:17,560 --> 00:43:20,400 Speaker 1: lesson and they're very cautious and then they kind of 717 00:43:20,440 --> 00:43:24,880 Speaker 1: overtime unlearned the lesson. So years or so before everybody 718 00:43:24,920 --> 00:43:27,880 Speaker 1: forget Yeah, and so in the case of when the 719 00:43:28,000 --> 00:43:31,640 Speaker 1: U S went into its uh it's subprime mortgage problem, 720 00:43:32,400 --> 00:43:37,279 Speaker 1: Canadians had learned their lesson of their past housing crisis. So, um, 721 00:43:37,680 --> 00:43:41,239 Speaker 1: I don't think we're seeing anything in in Canada that 722 00:43:41,239 --> 00:43:44,680 Speaker 1: that compares to what happened in the US at the 723 00:43:44,719 --> 00:43:48,839 Speaker 1: peak of the crisis. Though, I think that Canada, um, 724 00:43:48,920 --> 00:43:52,560 Speaker 1: you know, is has you know, has things under control there. 725 00:43:52,600 --> 00:43:56,920 Speaker 1: So if memory serves, they lowered their down payment amount 726 00:43:57,000 --> 00:44:00,680 Speaker 1: that you have to have mortgage insurance. I'm doing this 727 00:44:00,800 --> 00:44:03,040 Speaker 1: off the top of my head. It was twenty or 728 00:44:03,040 --> 00:44:06,440 Speaker 1: twenty to fifteen percent. If you put less than fifteen 729 00:44:06,480 --> 00:44:09,759 Speaker 1: percent down you needed p M I insurance. Is are 730 00:44:09,760 --> 00:44:11,960 Speaker 1: you familiar to all with that? But I remember a 731 00:44:12,000 --> 00:44:14,520 Speaker 1: few years ago that was a big change and people 732 00:44:14,600 --> 00:44:16,719 Speaker 1: were up in arms about it, and I'm like, wait, 733 00:44:16,760 --> 00:44:19,920 Speaker 1: we don't we no longer have a mortgage. It doesn't 734 00:44:19,920 --> 00:44:24,000 Speaker 1: seem we have that mortgage insurance requirement that the US 735 00:44:24,160 --> 00:44:26,000 Speaker 1: used to and I'm I'm gonna have to look into 736 00:44:26,600 --> 00:44:31,120 Speaker 1: look into that and see, um why that went why 737 00:44:31,160 --> 00:44:33,560 Speaker 1: and when that went away. So so let me shift 738 00:44:33,560 --> 00:44:36,680 Speaker 1: gears a little bit and talk to you, UM about 739 00:44:36,760 --> 00:44:39,719 Speaker 1: yield curve. I know this is an area you're you're 740 00:44:39,880 --> 00:44:44,400 Speaker 1: very interested in. Um. Why is the yield curve so important? 741 00:44:44,760 --> 00:44:50,000 Speaker 1: What does it mean to looking at future economic activity? Well, 742 00:44:50,040 --> 00:44:52,479 Speaker 1: I mean, remember, the yield curve is telling you what 743 00:44:52,640 --> 00:44:55,160 Speaker 1: people is in effect telling you what people expect to 744 00:44:55,280 --> 00:44:58,440 Speaker 1: happen to interest rates over the say, if you're comparing 745 00:44:58,480 --> 00:45:01,560 Speaker 1: one year yields to ten year the tenure yield is 746 00:45:01,600 --> 00:45:03,480 Speaker 1: higher than the one year yield, it must mean that 747 00:45:03,560 --> 00:45:07,359 Speaker 1: investors expect interest rates to go higher. Right. One way 748 00:45:07,400 --> 00:45:10,160 Speaker 1: to think about it as a rough approximation is the 749 00:45:10,200 --> 00:45:12,759 Speaker 1: average one year yield every year for the next ten 750 00:45:12,800 --> 00:45:15,960 Speaker 1: years should roughly equal the current tenure yield, and then 751 00:45:16,000 --> 00:45:20,279 Speaker 1: that way you're getting the same investment return UM. And 752 00:45:20,320 --> 00:45:22,920 Speaker 1: so the yelkurve right now is pretty steep, and so 753 00:45:23,040 --> 00:45:27,960 Speaker 1: the yelkurve is telling us UM that the markets are 754 00:45:28,080 --> 00:45:29,840 Speaker 1: pretty comfortable. The idea of the FED is going to 755 00:45:29,960 --> 00:45:32,759 Speaker 1: be raising interest rates that you know, ten years from now, 756 00:45:32,760 --> 00:45:36,080 Speaker 1: we're gonna have an interest rate of above two percent 757 00:45:36,960 --> 00:45:39,719 Speaker 1: UM and UM. Now it's not saying that they're gonna 758 00:45:39,719 --> 00:45:43,320 Speaker 1: be high interest rates because we're going from zero UM, 759 00:45:43,840 --> 00:45:46,239 Speaker 1: but it's a it is a it is a bit 760 00:45:46,280 --> 00:45:48,879 Speaker 1: of a vote of confidence in that you know, we're 761 00:45:48,920 --> 00:45:51,160 Speaker 1: not stuck forever at zero. I mean, there are people 762 00:45:51,160 --> 00:45:53,640 Speaker 1: out there say the Fed, it's one and done. The 763 00:45:53,680 --> 00:45:57,200 Speaker 1: Fed can't can't hike rates. They're never going to get 764 00:45:57,239 --> 00:46:00,759 Speaker 1: close to the three four percent they would hope they 765 00:46:00,760 --> 00:46:04,360 Speaker 1: would get to UM and uh. I think the markets 766 00:46:04,400 --> 00:46:06,640 Speaker 1: are saying, well, we we think there. We don't think 767 00:46:06,640 --> 00:46:09,239 Speaker 1: we'll get all the way to that level, but we 768 00:46:09,320 --> 00:46:11,760 Speaker 1: do think the Fed will be able to hike. So 769 00:46:11,760 --> 00:46:15,160 Speaker 1: so there is a contingent of Fed haters out there 770 00:46:15,640 --> 00:46:18,760 Speaker 1: who who some feel that there shouldn't be a federal 771 00:46:18,760 --> 00:46:22,680 Speaker 1: Reserve in the first place. Others feel that if there's 772 00:46:22,680 --> 00:46:25,520 Speaker 1: a FED, they should be a little handcuffed and should 773 00:46:25,600 --> 00:46:30,880 Speaker 1: only have small incremental tools. What is it that the 774 00:46:30,920 --> 00:46:34,719 Speaker 1: Fed haters get wrong? Well, I mean, first of all, 775 00:46:34,840 --> 00:46:37,440 Speaker 1: let's let's let's step back and see what's talking about. 776 00:46:37,440 --> 00:46:41,279 Speaker 1: What what economists in general believe so. The University of 777 00:46:41,360 --> 00:46:46,160 Speaker 1: Chicago has a poll they do periodically of forty top 778 00:46:46,200 --> 00:46:50,160 Speaker 1: academic economists and one of the questions they asked them 779 00:46:50,200 --> 00:46:51,759 Speaker 1: is whether it would be a good idea to go 780 00:46:51,840 --> 00:46:55,600 Speaker 1: back to the gold standard? Right right? And the answer 781 00:46:55,640 --> 00:46:59,240 Speaker 1: they get is that they have zero of the forty 782 00:46:59,440 --> 00:47:02,200 Speaker 1: advocate going back to the gold standard, and the vast 783 00:47:02,280 --> 00:47:06,879 Speaker 1: majority strongly opposed the idea. And the reason is because 784 00:47:06,880 --> 00:47:11,040 Speaker 1: we go back in time before the FED existed. Um, yes, 785 00:47:11,160 --> 00:47:15,040 Speaker 1: we had low inflation, but we had a recession every 786 00:47:15,080 --> 00:47:18,239 Speaker 1: three years, and the account and the financial markets are 787 00:47:18,239 --> 00:47:23,440 Speaker 1: extremely unstable. So the FED we need some kind of 788 00:47:23,480 --> 00:47:27,439 Speaker 1: guiding hand in in monetary policy. It may you could 789 00:47:27,520 --> 00:47:30,200 Speaker 1: argue about whether the FED should be more or less aggressive, 790 00:47:30,320 --> 00:47:33,160 Speaker 1: but the idea of not having a central bank there, 791 00:47:33,680 --> 00:47:36,719 Speaker 1: I think history suggests strongly it would be it would 792 00:47:36,760 --> 00:47:41,719 Speaker 1: be a bad idea. I think the critics of the FED. UM. 793 00:47:41,760 --> 00:47:43,799 Speaker 1: What I like about the FED, and in fact, why 794 00:47:43,840 --> 00:47:46,560 Speaker 1: I worked there at the beginning of my career, is 795 00:47:46,640 --> 00:47:50,000 Speaker 1: I really believe the leadership of the FED are technocrats. 796 00:47:50,320 --> 00:47:52,680 Speaker 1: You know, there are people who are have that job 797 00:47:52,680 --> 00:47:56,160 Speaker 1: because they want to, you know, make the economy better, 798 00:47:56,560 --> 00:48:00,320 Speaker 1: and I don't think that it's a remarkably non political 799 00:48:00,440 --> 00:48:05,440 Speaker 1: institution um. And it's in one of the kind of 800 00:48:05,800 --> 00:48:08,359 Speaker 1: you know, not only do economists almost all agree that 801 00:48:08,440 --> 00:48:11,080 Speaker 1: you want um, you don't want to go back to 802 00:48:11,120 --> 00:48:14,200 Speaker 1: the gold standard, but almost every commost degree you need 803 00:48:14,239 --> 00:48:17,320 Speaker 1: an independent central bank. You don't want a politician the 804 00:48:17,400 --> 00:48:20,960 Speaker 1: political system running your central bank. This is what has 805 00:48:21,000 --> 00:48:26,360 Speaker 1: gotten countries into serious trouble historically. I'd rather have a 806 00:48:26,400 --> 00:48:29,480 Speaker 1: technocrat who might or might not be right on what 807 00:48:29,600 --> 00:48:32,880 Speaker 1: that they're doing than have somebody with a political agenda 808 00:48:33,400 --> 00:48:36,560 Speaker 1: running the FED. So so let's look at some of 809 00:48:36,560 --> 00:48:39,239 Speaker 1: the folks who ran the FED. We could go back 810 00:48:39,239 --> 00:48:43,600 Speaker 1: to Paul Volker, pretty uniformly looked at as one of 811 00:48:43,640 --> 00:48:47,240 Speaker 1: the giants of the Federal Reserve. Do you share that 812 00:48:47,239 --> 00:48:49,719 Speaker 1: that belief? Well, I mean, you know, he's kind of 813 00:48:49,760 --> 00:48:52,920 Speaker 1: like when you determine which presidents of the United States 814 00:48:52,960 --> 00:48:55,120 Speaker 1: are the greatest presidents, it's actually the ones that were 815 00:48:55,120 --> 00:48:59,759 Speaker 1: there during the war, right, It's people like people like one, 816 00:49:00,880 --> 00:49:04,600 Speaker 1: well Lincoln gets both, yeah, but it's the ones who 817 00:49:04,719 --> 00:49:08,759 Speaker 1: go through And Vulgar deserves credit as one of the 818 00:49:08,800 --> 00:49:11,799 Speaker 1: best FED chairman ever because He stepped in at a 819 00:49:11,880 --> 00:49:14,040 Speaker 1: time where it took a lot of courage for the 820 00:49:14,040 --> 00:49:18,320 Speaker 1: FED to basically say, Okay, that's it. Inflations out of control. 821 00:49:18,520 --> 00:49:20,880 Speaker 1: We're going to cause a recession, but we don't care. 822 00:49:20,920 --> 00:49:23,000 Speaker 1: What's what we have to do. We're not going to 823 00:49:23,560 --> 00:49:25,880 Speaker 1: We're not going to admit it. But the reality is, 824 00:49:26,440 --> 00:49:29,000 Speaker 1: we know that we're probably gonna be causing a recession here, 825 00:49:29,040 --> 00:49:31,880 Speaker 1: and so we're gonna we're because up to that point, 826 00:49:31,920 --> 00:49:36,520 Speaker 1: the FED had done half measures. Inflation was is a 827 00:49:36,600 --> 00:49:39,160 Speaker 1: ratcheting process. Inflation go up, the Fed push it down 828 00:49:39,160 --> 00:49:41,000 Speaker 1: a little bit, then I'll go up some more. And 829 00:49:41,040 --> 00:49:44,480 Speaker 1: the FED never really got its arms around the problem. 830 00:49:44,520 --> 00:49:48,160 Speaker 1: And he came in UH in an incredibly tough political 831 00:49:48,280 --> 00:49:52,319 Speaker 1: environment and and stuck to the policy and and and 832 00:49:52,480 --> 00:49:57,400 Speaker 1: vanquished UH inflation. And so I think that, you know, 833 00:49:57,520 --> 00:50:00,399 Speaker 1: because he was he did the right thing at an 834 00:50:00,400 --> 00:50:03,080 Speaker 1: incredibly difficult time, you have to rank him as one 835 00:50:03,120 --> 00:50:06,080 Speaker 1: of the top ever. And And so let's fast forward. 836 00:50:06,120 --> 00:50:08,839 Speaker 1: How is Jenney yelling yelling doing what is she now 837 00:50:09,600 --> 00:50:12,520 Speaker 1: barely two years in the job, not even yeah, well 838 00:50:12,560 --> 00:50:15,080 Speaker 1: you know, you look at it again. So you have 839 00:50:15,160 --> 00:50:19,239 Speaker 1: to give high marks to her predecessor because because he 840 00:50:19,600 --> 00:50:23,200 Speaker 1: you think about the the modern history of the US economy, 841 00:50:23,200 --> 00:50:26,759 Speaker 1: you've got, you know, three big events that that where 842 00:50:26,800 --> 00:50:29,320 Speaker 1: the central Bank had to really intervene. You had the 843 00:50:29,360 --> 00:50:32,000 Speaker 1: Great Depression, where the Fed actually did a poor job 844 00:50:32,080 --> 00:50:35,280 Speaker 1: and didn't really do its job of keeping a banking 845 00:50:35,320 --> 00:50:38,880 Speaker 1: system going. Then you had the fighting of the inflation 846 00:50:38,960 --> 00:50:43,000 Speaker 1: by vulcar A a successful war there. And then you 847 00:50:43,000 --> 00:50:45,680 Speaker 1: had Bernankey come in and say, listen, I'm not gonna 848 00:50:45,719 --> 00:50:49,280 Speaker 1: listen to the critics. I'm gonna gonna focus on getting 849 00:50:49,320 --> 00:50:52,840 Speaker 1: growth in the economy back. I'm not gonna listen to 850 00:50:52,880 --> 00:50:58,400 Speaker 1: people who say I'm creating inflation and hyper inflation, right, 851 00:50:58,480 --> 00:51:01,960 Speaker 1: all those predictions about that, that what he's doing, and 852 00:51:02,000 --> 00:51:04,640 Speaker 1: so you have to put very high marks in him. 853 00:51:04,719 --> 00:51:07,480 Speaker 1: For for Janet Yellen, it's more of a she's in 854 00:51:07,520 --> 00:51:11,799 Speaker 1: a in a less dramatic position, She's making less important judgments. 855 00:51:12,200 --> 00:51:15,080 Speaker 1: She hasn't been faced with a kind of challenge. But 856 00:51:15,080 --> 00:51:16,960 Speaker 1: but I'm I think that she's doing a good job. 857 00:51:17,040 --> 00:51:19,439 Speaker 1: I think she was a good choice. Is off. She's 858 00:51:19,480 --> 00:51:23,160 Speaker 1: a stay of course, sort of not not gonna undo 859 00:51:23,200 --> 00:51:26,400 Speaker 1: what Bernan She's She's very much in his mold, no 860 00:51:26,600 --> 00:51:30,240 Speaker 1: question about it. Yeah, and then I would be remiss 861 00:51:30,280 --> 00:51:34,640 Speaker 1: if I did not mention um the Federal Reserve chairman 862 00:51:34,719 --> 00:51:40,600 Speaker 1: formally known as the Maestro emphasis formally Alan Greenspan saw 863 00:51:40,719 --> 00:51:44,480 Speaker 1: his reputation go from the man who could do no 864 00:51:44,640 --> 00:51:48,400 Speaker 1: wrong to the goat of the financial christ Yeah, and 865 00:51:48,440 --> 00:51:52,800 Speaker 1: so um. I in my book I wrote about Bernaki 866 00:51:52,880 --> 00:51:56,760 Speaker 1: had two chapters on green Span, because you can't really 867 00:51:56,760 --> 00:52:00,320 Speaker 1: talk about his his uh you know and thank you 868 00:52:00,400 --> 00:52:03,800 Speaker 1: without talking about who he's replacing. The first chapter was 869 00:52:03,840 --> 00:52:06,640 Speaker 1: about what Greenspan got right, in the second was about 870 00:52:06,640 --> 00:52:11,799 Speaker 1: what he got wrong, which, yeah, well that this was 871 00:52:11,920 --> 00:52:16,280 Speaker 1: before the crisis had really played out, so at the time, 872 00:52:16,960 --> 00:52:20,719 Speaker 1: you know, your valuation of Greenspan would have been less negative. 873 00:52:20,760 --> 00:52:25,240 Speaker 1: But what I found striking is that the the problem 874 00:52:25,360 --> 00:52:28,120 Speaker 1: that what what happened green Span is that this is 875 00:52:28,200 --> 00:52:32,399 Speaker 1: partly because of the development frankly of business uh television, 876 00:52:33,360 --> 00:52:37,319 Speaker 1: was that this cult of personality developed a chairman and 877 00:52:37,440 --> 00:52:42,560 Speaker 1: he became the the face of of of business financial 878 00:52:42,600 --> 00:52:48,200 Speaker 1: markets TV and so the the the exaggerated description of 879 00:52:48,280 --> 00:52:52,120 Speaker 1: his powers of you know, forecasting and all that was 880 00:52:52,120 --> 00:52:56,200 Speaker 1: was way overdone. And what happened late in his career, 881 00:52:56,239 --> 00:53:00,319 Speaker 1: as he made some mistakes, you know, such to me, 882 00:53:00,480 --> 00:53:04,920 Speaker 1: the big mistake was taking rates down below two and 883 00:53:05,000 --> 00:53:06,880 Speaker 1: keeping him there for three years. I think they were 884 00:53:06,920 --> 00:53:10,160 Speaker 1: at one percent for over a year, and that kicked 885 00:53:10,160 --> 00:53:14,160 Speaker 1: off the whole inflationary spiral. And and I think, so 886 00:53:14,239 --> 00:53:16,560 Speaker 1: what I felt, so I to be you know, I 887 00:53:16,560 --> 00:53:18,440 Speaker 1: think to be honest about I have to talk about 888 00:53:18,480 --> 00:53:22,000 Speaker 1: what I wrote in real time, because hindsight is a 889 00:53:22,000 --> 00:53:24,399 Speaker 1: little bit unfair. So what I wrote in real time 890 00:53:24,520 --> 00:53:28,600 Speaker 1: was I didn't understand why he felt so obliged to 891 00:53:29,360 --> 00:53:33,440 Speaker 1: raise rates so carefully, you know, the gradualist approach, because 892 00:53:33,440 --> 00:53:35,759 Speaker 1: what happened, you know, as you said, he they had 893 00:53:35,800 --> 00:53:39,480 Speaker 1: lowered rates to very low levels and then they took 894 00:53:39,520 --> 00:53:41,920 Speaker 1: such a long time to get them back to normal. 895 00:53:42,400 --> 00:53:46,080 Speaker 1: They didn't they didn't create any financial restraint. I mean, 896 00:53:46,719 --> 00:53:49,799 Speaker 1: they was like they weren't even hiking because they took 897 00:53:49,800 --> 00:53:53,200 Speaker 1: all the shock out of it. The bond market rallied, 898 00:53:53,280 --> 00:53:57,840 Speaker 1: the equity market rallied. You had a massive expansion in 899 00:53:58,040 --> 00:54:01,239 Speaker 1: the in cheap credit in the house market. And so 900 00:54:01,320 --> 00:54:04,240 Speaker 1: that the mistake he made, I thought in real time, 901 00:54:04,560 --> 00:54:07,000 Speaker 1: and you know, in hindsight, I thought, obviously the mistake 902 00:54:07,040 --> 00:54:09,799 Speaker 1: looks much bigger. But in real time I thought, why 903 00:54:09,800 --> 00:54:12,640 Speaker 1: are you being so gentle here? Why can't what is 904 00:54:12,640 --> 00:54:15,760 Speaker 1: there a law against raising interest rates fifty basis points? 905 00:54:16,480 --> 00:54:18,600 Speaker 1: And and uh. The other thing that I didn't like 906 00:54:18,719 --> 00:54:20,719 Speaker 1: about him in real time again, I don't want to 907 00:54:21,000 --> 00:54:23,560 Speaker 1: be because I think that the that I, you know, 908 00:54:23,600 --> 00:54:26,279 Speaker 1: would I have made similar mistakes. I didn't like the 909 00:54:26,280 --> 00:54:28,880 Speaker 1: way he talked about the housing market at that time 910 00:54:28,960 --> 00:54:31,920 Speaker 1: he was a cheerleader for the housing market, and that 911 00:54:31,960 --> 00:54:34,520 Speaker 1: he should not have been doing that. He he gave 912 00:54:34,560 --> 00:54:40,239 Speaker 1: speeches that suggested that risks housing are very low and um, 913 00:54:40,320 --> 00:54:43,080 Speaker 1: and I and I can point back to pieces I 914 00:54:43,080 --> 00:54:46,319 Speaker 1: wrote at the time where I said, listen, you know 915 00:54:46,480 --> 00:54:49,000 Speaker 1: it's not true. You know, Greenspan gave a speech where 916 00:54:49,000 --> 00:54:52,799 Speaker 1: he said, um, that you know, real estate markets are 917 00:54:52,840 --> 00:54:57,120 Speaker 1: inherently local. Uh, you know, they're determined by local conditions. 918 00:54:57,160 --> 00:55:00,440 Speaker 1: So and it was an argument around there being Froth 919 00:55:00,560 --> 00:55:04,240 Speaker 1: and that remembers Frost speech, Frost speech in the housing market. 920 00:55:04,440 --> 00:55:06,640 Speaker 1: But the argument was trying to make was that they 921 00:55:06,680 --> 00:55:08,759 Speaker 1: won't all go up and down together, so they're not 922 00:55:08,800 --> 00:55:11,680 Speaker 1: that risky, right because they've got moved in separate directions 923 00:55:11,880 --> 00:55:14,759 Speaker 1: but you're not going to have Miami going straight up 924 00:55:14,800 --> 00:55:17,520 Speaker 1: in California going straight down. No. Well, and and that 925 00:55:17,640 --> 00:55:19,680 Speaker 1: was the problem is that we knew at the time 926 00:55:20,080 --> 00:55:24,920 Speaker 1: already that the credit availability had overextended. So these markets 927 00:55:24,960 --> 00:55:29,480 Speaker 1: were all joined together by by mortgage, by the mortgage 928 00:55:29,520 --> 00:55:33,400 Speaker 1: mark of very generous mortgage market, and um, a lot 929 00:55:33,480 --> 00:55:38,600 Speaker 1: of irrational exuberans. So so that idea that somehow we 930 00:55:38,640 --> 00:55:41,279 Speaker 1: could kind of work our way through this without any 931 00:55:41,280 --> 00:55:44,239 Speaker 1: any kind of problem for the FED chairman to say 932 00:55:44,280 --> 00:55:47,080 Speaker 1: that I didn't think was right. What are you saying 933 00:55:47,120 --> 00:55:49,560 Speaker 1: that was not very responsible? Is that what I'm here now, 934 00:55:49,640 --> 00:55:51,719 Speaker 1: I'm saying that that, you know, um, it's kind of 935 00:55:51,760 --> 00:55:53,680 Speaker 1: a job where if you don't you know, don't don't 936 00:55:53,760 --> 00:55:56,120 Speaker 1: you don't want to at any time kind of be 937 00:55:56,239 --> 00:55:59,200 Speaker 1: viewed as a cheerleader to the markets. And I think 938 00:55:59,239 --> 00:56:02,640 Speaker 1: that he ended up sounding like that. I don't think 939 00:56:02,640 --> 00:56:04,640 Speaker 1: he was intentional, I think that, but he ended up 940 00:56:04,640 --> 00:56:07,720 Speaker 1: sounding like So, so what about the infamous green span 941 00:56:07,880 --> 00:56:10,000 Speaker 1: put Was there really such a thing or was it 942 00:56:10,160 --> 00:56:14,800 Speaker 1: just the belief by traders that every time the market 943 00:56:14,880 --> 00:56:18,319 Speaker 1: throws a hissy fit, Uncle Allen is there to to rescue. Yeah, Well, 944 00:56:18,360 --> 00:56:22,080 Speaker 1: I think that um, there is, you know, and if 945 00:56:22,120 --> 00:56:24,439 Speaker 1: there are, there's always a put from a central bank. 946 00:56:24,640 --> 00:56:27,920 Speaker 1: But the question is what's the strike price? So is it? 947 00:56:28,000 --> 00:56:30,799 Speaker 1: Is it a deep out of the money emergency put 948 00:56:30,960 --> 00:56:33,799 Speaker 1: or is it or is it ant? So green Span 949 00:56:33,880 --> 00:56:36,799 Speaker 1: the complaint was, Hey, it's an at the money put 950 00:56:36,800 --> 00:56:39,680 Speaker 1: and every time the market negative and that and that 951 00:56:39,920 --> 00:56:43,279 Speaker 1: is a problem, right, that's a problem if you and 952 00:56:43,320 --> 00:56:46,800 Speaker 1: I think that central bankers debate this all the time 953 00:56:47,000 --> 00:56:48,840 Speaker 1: about when do you know? When do you step in? 954 00:56:48,880 --> 00:56:51,560 Speaker 1: When do you react to the markets? Um? Do you? 955 00:56:52,160 --> 00:56:56,200 Speaker 1: And And the answer is that put needs to be priced, 956 00:56:56,239 --> 00:56:58,600 Speaker 1: you know, pretty out of the money, and so that 957 00:56:59,000 --> 00:57:01,640 Speaker 1: people don't get this sense that the central banks always 958 00:57:01,640 --> 00:57:03,759 Speaker 1: going to rescue them and that that was the so 959 00:57:04,120 --> 00:57:07,000 Speaker 1: having too generous to put. I think you could argue 960 00:57:07,000 --> 00:57:09,200 Speaker 1: at times that that was one of the problems. Greenspan 961 00:57:09,280 --> 00:57:12,000 Speaker 1: head that that makes a lot of sense. So so 962 00:57:12,120 --> 00:57:19,160 Speaker 1: we've talked about Bernanke, green Span, yelling, and volker Um. 963 00:57:19,240 --> 00:57:23,320 Speaker 1: That's a pretty interesting run of people. I think folks 964 00:57:23,320 --> 00:57:28,040 Speaker 1: are not nearly as familiar with the local district, federal 965 00:57:28,080 --> 00:57:32,760 Speaker 1: reserve branch presidents. Um, who are these guys and how 966 00:57:32,800 --> 00:57:36,320 Speaker 1: important are they to the system. Well, the FIT is 967 00:57:36,640 --> 00:57:41,040 Speaker 1: a really uh, almost bizarre structure because remember is created 968 00:57:41,080 --> 00:57:43,560 Speaker 1: way back at the beginning of the last century, a 969 00:57:43,640 --> 00:57:46,720 Speaker 1: hundred years ago, and it was designed to have checks 970 00:57:46,720 --> 00:57:48,760 Speaker 1: and balances in the sense of not putting all the 971 00:57:48,800 --> 00:57:53,960 Speaker 1: power in Washington and spreading out these presidents across the country. 972 00:57:54,000 --> 00:58:00,120 Speaker 1: So there's almost a deliberate decentralization. Um. I think that 973 00:58:00,240 --> 00:58:03,440 Speaker 1: the system works. Okay, I think that you get you 974 00:58:03,480 --> 00:58:07,520 Speaker 1: get very different views. You have some sent some of 975 00:58:07,560 --> 00:58:11,000 Speaker 1: these reserve banks for the presidents of traditionally a hawk 976 00:58:11,120 --> 00:58:14,920 Speaker 1: and very anti inflation. You know. The the obvious one 977 00:58:15,080 --> 00:58:17,240 Speaker 1: might would be the Kansas City FED, where we've had 978 00:58:17,640 --> 00:58:22,000 Speaker 1: a string of very hawkish presidents. Um. And then you 979 00:58:22,040 --> 00:58:25,080 Speaker 1: have others who are are very dovish, you know, the 980 00:58:25,120 --> 00:58:29,040 Speaker 1: Boston FED president has has been on the dovers side, 981 00:58:29,280 --> 00:58:32,480 Speaker 1: Charlie Evans in Chicago on the dovers side. And so 982 00:58:32,520 --> 00:58:34,800 Speaker 1: I think that you I think that that's a healthy 983 00:58:34,840 --> 00:58:38,120 Speaker 1: debate and I and UM, I think that the the 984 00:58:38,720 --> 00:58:40,960 Speaker 1: the good thing about the FED, I think in the 985 00:58:41,000 --> 00:58:45,120 Speaker 1: way the policy process works is that there's a it's 986 00:58:45,120 --> 00:58:50,000 Speaker 1: a respectful group, right the FED. The chairman doesn't totally 987 00:58:50,040 --> 00:58:53,920 Speaker 1: dominate the committee, but there's a sense of respect and 988 00:58:54,000 --> 00:58:57,880 Speaker 1: coordination among them. So even with dissents and disagreements and 989 00:58:57,920 --> 00:59:04,440 Speaker 1: all that, you end up with a sensibly debated conclusion. 990 00:59:04,520 --> 00:59:07,480 Speaker 1: I mean, the advantage of having a committee decision making 991 00:59:07,560 --> 00:59:11,160 Speaker 1: is that committees make fewer mistakes than individuals. In this case, 992 00:59:11,200 --> 00:59:14,360 Speaker 1: the committee maybe a little bigger than it would be 993 00:59:14,400 --> 00:59:17,360 Speaker 1: optimally if you look at models of optimal sized committees. 994 00:59:17,400 --> 00:59:21,760 Speaker 1: But having a committee is helpful because it avoids, um, 995 00:59:21,800 --> 00:59:24,120 Speaker 1: you know, somebody who kind of just gets off on 996 00:59:24,160 --> 00:59:27,000 Speaker 1: the wrong track and and and doesn't listen to enough voices. 997 00:59:27,200 --> 00:59:30,960 Speaker 1: I recall, here's a little FED trivia. I recall at 998 00:59:31,000 --> 00:59:35,320 Speaker 1: one point in time green Span actually had exercised the 999 00:59:35,480 --> 00:59:38,560 Speaker 1: right to raise the lower interest rates on his own 1000 00:59:38,680 --> 00:59:43,680 Speaker 1: between meetings, and the FED ultimately rained that in. I 1001 00:59:43,680 --> 00:59:50,440 Speaker 1: want to say, there was an intromeding cut that seemed 1002 00:59:50,480 --> 00:59:54,520 Speaker 1: to really generate a lot of pushback amongst the Yeah, 1003 00:59:54,560 --> 00:59:57,000 Speaker 1: and I think if you look at the when Greenspan 1004 00:59:57,120 --> 01:00:01,040 Speaker 1: first came in, he was faced a pretty fractious committee, 1005 01:00:01,240 --> 01:00:05,200 Speaker 1: and I think over time, as his reputation built and 1006 01:00:05,280 --> 01:00:08,160 Speaker 1: he kind of took command of the committee, you probably 1007 01:00:08,200 --> 01:00:10,520 Speaker 1: had things go too far in the other direction with 1008 01:00:10,560 --> 01:00:14,720 Speaker 1: the chairman kind of dominating too much. And I think 1009 01:00:14,720 --> 01:00:16,760 Speaker 1: one of the things that Bernanki did when he came 1010 01:00:16,800 --> 01:00:20,560 Speaker 1: in is he deliberately I think, came in to reduce 1011 01:00:20,600 --> 01:00:24,000 Speaker 1: the cult of personality around the chairman. Um. I mean 1012 01:00:24,080 --> 01:00:27,480 Speaker 1: remembered it when when Bernanki retired, he did not have 1013 01:00:28,040 --> 01:00:31,120 Speaker 1: he didn't go to Jackson Hole for his last meeting 1014 01:00:31,160 --> 01:00:35,720 Speaker 1: there because Bernecki didn't want you know, they kind of 1015 01:00:36,040 --> 01:00:39,120 Speaker 1: sending off on a carpet kind of approach. He wanted 1016 01:00:39,120 --> 01:00:42,280 Speaker 1: to for the chairman is is obviously the most important 1017 01:00:42,320 --> 01:00:44,320 Speaker 1: member of the committee, and it's important of a strong 1018 01:00:44,560 --> 01:00:49,360 Speaker 1: person who can gather consensus together. But you don't want 1019 01:00:49,400 --> 01:00:54,040 Speaker 1: to have a structure decision making process where there's a 1020 01:00:54,080 --> 01:00:57,280 Speaker 1: complete control by one individual. And you know, he was 1021 01:00:57,400 --> 01:01:00,200 Speaker 1: chairman of the prince in Economics department. I am met gin. 1022 01:01:00,320 --> 01:01:03,840 Speaker 1: That's a fairly I don't know if genteel is the 1023 01:01:03,920 --> 01:01:08,520 Speaker 1: right word because of academic politics, but I would imagine 1024 01:01:08,520 --> 01:01:13,080 Speaker 1: that's a pretty good preparatory for for being a FED chairman, 1025 01:01:13,440 --> 01:01:16,560 Speaker 1: sort of wrangling all those cats together. There's some of that, 1026 01:01:16,680 --> 01:01:21,320 Speaker 1: and but I think that the the the big difference. 1027 01:01:21,360 --> 01:01:24,600 Speaker 1: I mean, obviously, the FED is making decisions that have 1028 01:01:24,760 --> 01:01:28,840 Speaker 1: to be made quickly and aggressively, and so you um, 1029 01:01:28,880 --> 01:01:31,880 Speaker 1: and I think that there's that sense there and that's 1030 01:01:31,920 --> 01:01:34,920 Speaker 1: why you need it. You need have a reasonably strong chairman. 1031 01:01:34,960 --> 01:01:37,080 Speaker 1: There are times in which you really have to move. 1032 01:01:38,120 --> 01:01:43,720 Speaker 1: So let's transition from government to private sector to Wall Street. 1033 01:01:44,600 --> 01:01:47,200 Speaker 1: You were at the New York FED for nine years 1034 01:01:47,280 --> 01:01:50,360 Speaker 1: and then you ended up at Barclays and JP Morgan 1035 01:01:50,360 --> 01:01:54,280 Speaker 1: and ultimately Lehman Brothers in Meryl. What was the transition 1036 01:01:54,360 --> 01:01:57,560 Speaker 1: like from being on the government side to the Wall 1037 01:01:57,600 --> 01:02:00,000 Speaker 1: Street private sector. Well, I mean one of the things, 1038 01:02:00,000 --> 01:02:02,840 Speaker 1: as you discover immediately is that everything moves at a 1039 01:02:02,960 --> 01:02:06,680 Speaker 1: hundred miles an hour if you work on the street, um, 1040 01:02:06,920 --> 01:02:10,400 Speaker 1: you know, and the the the in at the FED. 1041 01:02:10,560 --> 01:02:14,240 Speaker 1: You know, I would do briefings before the fom C meeting. 1042 01:02:14,320 --> 01:02:17,479 Speaker 1: So I would brief our local president in New York 1043 01:02:17,600 --> 01:02:20,640 Speaker 1: before you got down to Washington to vote a monetary policy. 1044 01:02:20,920 --> 01:02:23,520 Speaker 1: I'd have a three or four weeks to get my 1045 01:02:23,600 --> 01:02:27,000 Speaker 1: presentation together right, and that would be in full time 1046 01:02:27,200 --> 01:02:31,080 Speaker 1: right on Wall Street. You know, if something's happening you 1047 01:02:31,080 --> 01:02:33,760 Speaker 1: you you know, you got you know, two days to 1048 01:02:33,800 --> 01:02:36,560 Speaker 1: put it together. Not you know, if you're lucky and 1049 01:02:37,000 --> 01:02:41,040 Speaker 1: you have But the point is that, um, it's uh, 1050 01:02:41,200 --> 01:02:44,280 Speaker 1: it's the pacing of everything. It's the fact that you 1051 01:02:44,320 --> 01:02:47,240 Speaker 1: know you have to if you're gonna be successful on 1052 01:02:47,320 --> 01:02:49,440 Speaker 1: Wall Street is so especially on the South Side, you 1053 01:02:49,480 --> 01:02:54,840 Speaker 1: have to be um, we willing to change gears like that. 1054 01:02:54,960 --> 01:02:58,400 Speaker 1: You know, something comes up, you're writing something, and suddenly 1055 01:02:58,520 --> 01:03:01,440 Speaker 1: you know it's interesting, but it's not really what everyone's 1056 01:03:01,480 --> 01:03:04,600 Speaker 1: focused on. Throw that out and start over again, because 1057 01:03:04,600 --> 01:03:08,000 Speaker 1: this is the question of the day and people want 1058 01:03:08,480 --> 01:03:11,000 Speaker 1: that need fast answers, and that that kind of ability 1059 01:03:11,040 --> 01:03:15,040 Speaker 1: to kind of first of all cover multiple topics and 1060 01:03:15,120 --> 01:03:19,200 Speaker 1: many different kinds of clients and switch gears quickly is 1061 01:03:19,240 --> 01:03:24,320 Speaker 1: extremely important. So you went from a number of cell 1062 01:03:24,440 --> 01:03:31,080 Speaker 1: side shops um and institutional shops to a big bank 1063 01:03:31,120 --> 01:03:34,600 Speaker 1: America Merrill Lynch is a giant really more of a 1064 01:03:34,680 --> 01:03:37,400 Speaker 1: retail firm. What was that transition? Well, I think that 1065 01:03:37,440 --> 01:03:41,000 Speaker 1: the the I don't think it's a huge difference. Remember 1066 01:03:41,040 --> 01:03:43,880 Speaker 1: when I when I worked at at Lehman Brothers, who 1067 01:03:43,880 --> 01:03:47,880 Speaker 1: was working in the Obviously it's an investment bank and 1068 01:03:47,960 --> 01:03:51,560 Speaker 1: a lot of my time spent dealing with the trading 1069 01:03:51,600 --> 01:03:58,360 Speaker 1: floors and with institutions and const institutional customers. Um, I'm 1070 01:03:58,400 --> 01:04:02,000 Speaker 1: primarily focused on the investment bank at b of A 1071 01:04:02,080 --> 01:04:06,800 Speaker 1: Merrill Lynch. The new part, which in some ways is fun, 1072 01:04:07,000 --> 01:04:10,760 Speaker 1: is the retail business. Right, So you do need to 1073 01:04:10,800 --> 01:04:13,680 Speaker 1: be able to go and give a dinner speech to 1074 01:04:14,760 --> 01:04:17,320 Speaker 1: high net worth individuals, you know, the big clients of 1075 01:04:17,320 --> 01:04:21,840 Speaker 1: our wealth management business. Um, you need to know how 1076 01:04:21,840 --> 01:04:24,680 Speaker 1: to de jargonize and kind of and have to two 1077 01:04:24,680 --> 01:04:27,560 Speaker 1: different speeches. You're giving one friendly one and a more 1078 01:04:27,840 --> 01:04:31,880 Speaker 1: technical one. So, um, that ability to kind of switch gears, 1079 01:04:31,920 --> 01:04:35,360 Speaker 1: I think is the one kind of new challenge of 1080 01:04:35,440 --> 01:04:38,320 Speaker 1: moving to a place where you have a big retail business. 1081 01:04:38,560 --> 01:04:42,200 Speaker 1: And you were at Lehman Brothers for a good number 1082 01:04:42,200 --> 01:04:44,240 Speaker 1: of years. When when did you start with them? So 1083 01:04:44,320 --> 01:04:50,120 Speaker 1: I was there from uh from nine to the sinking 1084 01:04:50,200 --> 01:04:54,160 Speaker 1: of the ships, so for twelve years. Um, how did 1085 01:04:54,200 --> 01:04:57,560 Speaker 1: how did the company change over that period? Well, you 1086 01:04:57,640 --> 01:05:00,680 Speaker 1: had to have like a front row sea eat for 1087 01:05:00,800 --> 01:05:04,800 Speaker 1: one of the most fascinating in hindsight at the time. 1088 01:05:04,840 --> 01:05:07,400 Speaker 1: It had to be absolutely well. Well, I mean so 1089 01:05:07,520 --> 01:05:10,520 Speaker 1: I god, you know, I've had the fortune and misfortune 1090 01:05:10,560 --> 01:05:14,240 Speaker 1: of being in front row for a number of wonderful things, 1091 01:05:14,240 --> 01:05:19,920 Speaker 1: pretty awful things. Well the nine eleven Um, you know, 1092 01:05:20,320 --> 01:05:23,080 Speaker 1: watching the planes fly into the building there, you know, 1093 01:05:23,200 --> 01:05:27,080 Speaker 1: so but um and uh and then being in the 1094 01:05:27,080 --> 01:05:30,720 Speaker 1: front row watching Lehman go under. Right. So Lehman was 1095 01:05:31,600 --> 01:05:35,560 Speaker 1: had been an investment bank, had had problems over the years. 1096 01:05:35,600 --> 01:05:39,280 Speaker 1: When fold took over, Uh, it was a company that 1097 01:05:39,280 --> 01:05:43,640 Speaker 1: that was work in progress, kind of reviving itself, and 1098 01:05:43,720 --> 01:05:48,400 Speaker 1: he did a tryanus job of getting the firm back. Uh. 1099 01:05:48,760 --> 01:05:52,640 Speaker 1: There's some early scares around the long term capital jarred 1100 01:05:52,760 --> 01:05:55,840 Speaker 1: where you know, funding markets were really tell you two 1101 01:05:55,920 --> 01:05:59,000 Speaker 1: very tight markets for a while there. But he kind 1102 01:05:59,000 --> 01:06:02,479 Speaker 1: of built this was his company that he built, and 1103 01:06:02,560 --> 01:06:06,960 Speaker 1: so you know, the bank went the Lehman went from 1104 01:06:07,000 --> 01:06:10,080 Speaker 1: being i would say, kind of a second tier to 1105 01:06:11,080 --> 01:06:14,600 Speaker 1: right up there just below the golden sacks of the world. 1106 01:06:14,760 --> 01:06:18,200 Speaker 1: So and so that was a tremendous accomplishment. And then 1107 01:06:18,240 --> 01:06:21,600 Speaker 1: of course I think that Lehman fell victim to something 1108 01:06:21,640 --> 01:06:24,800 Speaker 1: that all the investment banks were victim to. We just 1109 01:06:24,920 --> 01:06:27,720 Speaker 1: happened to be kind of at the wrong wrong place, 1110 01:06:27,720 --> 01:06:32,160 Speaker 1: at the wrong tunel. Mortgage back bonds was them and 1111 01:06:32,360 --> 01:06:35,480 Speaker 1: bear Stearns. We were sectors. So you were right in 1112 01:06:35,480 --> 01:06:37,400 Speaker 1: the soup. We were in the soup, and you could 1113 01:06:37,520 --> 01:06:41,840 Speaker 1: argue that, you know, I'm sure their mistakes made all right, 1114 01:06:41,960 --> 01:06:45,680 Speaker 1: that could have avoided some of the pain. Uh. Well, 1115 01:06:45,720 --> 01:06:48,240 Speaker 1: the big one was turning Warren Buffett down, which I 1116 01:06:48,280 --> 01:06:51,400 Speaker 1: think a lot of people forget. Buffett came along and 1117 01:06:51,480 --> 01:06:54,720 Speaker 1: made an offer to fund Lehman at terms that turned 1118 01:06:54,720 --> 01:06:57,160 Speaker 1: out to be more generous than what he gave Goldman 1119 01:06:57,880 --> 01:07:01,480 Speaker 1: later on when everything was much much for and Fold 1120 01:07:01,520 --> 01:07:04,240 Speaker 1: turned him down. And that was really, if you want 1121 01:07:04,280 --> 01:07:08,600 Speaker 1: to pick a fatal that might have snatched a defeat 1122 01:07:08,600 --> 01:07:11,520 Speaker 1: from the Joseph victory. Yeah, I mean I wonder whether 1123 01:07:12,600 --> 01:07:15,360 Speaker 1: you know, he just didn't want You know, this is 1124 01:07:15,440 --> 01:07:17,800 Speaker 1: kind of like a parent who doesn't want to admit 1125 01:07:17,840 --> 01:07:20,160 Speaker 1: their kids not getting into Harvard, you know. I mean 1126 01:07:20,200 --> 01:07:23,520 Speaker 1: it's you know, the firm had big problems, as he 1127 01:07:23,640 --> 01:07:27,000 Speaker 1: said it, because of not just the residential but commercial 1128 01:07:27,040 --> 01:07:31,280 Speaker 1: real estate that was there and so and so the 1129 01:07:31,400 --> 01:07:34,880 Speaker 1: idea of cutting a deal where you sell assets at 1130 01:07:34,920 --> 01:07:37,840 Speaker 1: a huge discount probably was too much for him to stomach, 1131 01:07:38,480 --> 01:07:42,040 Speaker 1: But in hindsight it was a massive mistake. He also 1132 01:07:42,160 --> 01:07:45,280 Speaker 1: strikes Now, I've never met the man. I've only read 1133 01:07:45,320 --> 01:07:47,600 Speaker 1: and seen what he said, but he strikes me as 1134 01:07:47,640 --> 01:07:50,880 Speaker 1: a guy that doesn't like to be told no. And 1135 01:07:50,960 --> 01:07:54,959 Speaker 1: I can't imagine his inner circle where it was coming 1136 01:07:55,040 --> 01:07:58,000 Speaker 1: up to him with papers and saying, hey, Dick, this 1137 01:07:58,080 --> 01:08:00,160 Speaker 1: is a mess. You have to do something about this. 1138 01:08:00,640 --> 01:08:03,520 Speaker 1: He doesn't doesn't strike me of having the temperament that 1139 01:08:03,600 --> 01:08:06,240 Speaker 1: he wants to be told, Hey, you have a real 1140 01:08:06,280 --> 01:08:09,360 Speaker 1: problem here, fix it. Yeah, I don't. I don't know 1141 01:08:09,400 --> 01:08:12,240 Speaker 1: what happened in meetings in there, but uh, you know, 1142 01:08:12,320 --> 01:08:17,479 Speaker 1: Dick Fold was definitely a tough dude. And you know, 1143 01:08:17,680 --> 01:08:19,800 Speaker 1: and I'd say there are two things that stood out 1144 01:08:19,800 --> 01:08:21,639 Speaker 1: about one it was a tough dude, and the other 1145 01:08:21,800 --> 01:08:25,559 Speaker 1: was he you know, lived and breathed you know, Lehman Brothers. 1146 01:08:25,600 --> 01:08:28,639 Speaker 1: And that was he was in love with his company. 1147 01:08:28,720 --> 01:08:31,439 Speaker 1: This was his baby. And so of all the things 1148 01:08:31,479 --> 01:08:34,599 Speaker 1: you can say about him, it certainly, uh that that 1149 01:08:34,800 --> 01:08:39,360 Speaker 1: stood out, um, when you were there. Last question on Lehman, 1150 01:08:39,360 --> 01:08:42,519 Speaker 1: because I really don't want to re revisit this over 1151 01:08:42,520 --> 01:08:48,280 Speaker 1: and over again. A year or so before everything hit 1152 01:08:48,320 --> 01:08:52,320 Speaker 1: the fan, were there any internal signs of anything or 1153 01:08:52,560 --> 01:08:56,519 Speaker 1: was it just hey, listen, the whole sector is emptying 1154 01:08:56,800 --> 01:09:00,800 Speaker 1: entering a challenging period and we just have to fight 1155 01:09:00,880 --> 01:09:04,400 Speaker 1: a way through this. I think that, UM, I mean 1156 01:09:05,479 --> 01:09:08,160 Speaker 1: the lead up to the crisis, it was pretty obvious, 1157 01:09:08,200 --> 01:09:10,320 Speaker 1: I think two people in the business that there was 1158 01:09:10,360 --> 01:09:15,000 Speaker 1: a domino effect going clearly when bear Stones went down, 1159 01:09:15,080 --> 01:09:18,040 Speaker 1: everybody looked around and said, who's most similar to bare 1160 01:09:18,040 --> 01:09:22,640 Speaker 1: only answer was Lehman. Yeah, and so uh, anyway, you know, 1161 01:09:22,680 --> 01:09:25,520 Speaker 1: if you were if you were tuned into it, uh, 1162 01:09:25,680 --> 01:09:30,559 Speaker 1: you knew that every end of quarter earnings announcement was 1163 01:09:30,680 --> 01:09:36,439 Speaker 1: dangerous for all the investment banks and UM and it 1164 01:09:36,479 --> 01:09:38,599 Speaker 1: was a domino thing. It was like all of the 1165 01:09:38,680 --> 01:09:42,599 Speaker 1: investment banks had big problems. UM. But you know it's 1166 01:09:42,640 --> 01:09:45,240 Speaker 1: kind of like where was the market focus at the time, 1167 01:09:45,240 --> 01:09:49,120 Speaker 1: and so Lehman was in the crosshairs and um and UM. 1168 01:09:49,160 --> 01:09:52,200 Speaker 1: So you could feel it. Um that the weekend before 1169 01:09:52,280 --> 01:09:55,519 Speaker 1: Lehman went under, UM, I was sitting down with my 1170 01:09:55,600 --> 01:09:57,360 Speaker 1: boss at the time. I was the chief he was 1171 01:09:57,439 --> 01:10:00,360 Speaker 1: economist and he was the global chiefs named Paul Shared 1172 01:10:01,600 --> 01:10:07,760 Speaker 1: and uh, Paulson had just announced that uh that there 1173 01:10:07,800 --> 01:10:12,559 Speaker 1: would be no government money for Paul Yeah, yeah, for Lehman, 1174 01:10:13,479 --> 01:10:18,160 Speaker 1: and so so uh, you know, m Paul says to me, 1175 01:10:18,479 --> 01:10:20,760 Speaker 1: well that they you know, they can't let Lehman go 1176 01:10:20,880 --> 01:10:23,799 Speaker 1: under the financial markets collapse. And I said, but Paul, 1177 01:10:23,880 --> 01:10:27,719 Speaker 1: you know we may not be in our office on Monday. 1178 01:10:28,880 --> 01:10:32,040 Speaker 1: And uh in sure enough. I mean, um, it was. 1179 01:10:33,800 --> 01:10:37,640 Speaker 1: You could feel, you could feel the the the the 1180 01:10:37,920 --> 01:10:40,160 Speaker 1: how dangerous it was in real time. It was not 1181 01:10:40,360 --> 01:10:44,080 Speaker 1: at all surprised when the the the over the weekend, 1182 01:10:44,160 --> 01:10:46,800 Speaker 1: if they didn't have a deal, they were done. They 1183 01:10:46,800 --> 01:10:50,879 Speaker 1: were done. Yeah, that's amazing. So you mentioned, um, Paul, 1184 01:10:51,960 --> 01:10:55,720 Speaker 1: who was your bosson Lehman. Let me shift gears completely 1185 01:10:55,760 --> 01:10:58,400 Speaker 1: and go to some of my favorite questions. Who were 1186 01:10:58,439 --> 01:11:02,840 Speaker 1: some of your early mentors? Yeah, I mean the people 1187 01:11:02,880 --> 01:11:06,680 Speaker 1: who kind of influenced me. I picked three names. You know, 1188 01:11:06,720 --> 01:11:08,640 Speaker 1: I read your questions ahead of time, so I've I've 1189 01:11:08,680 --> 01:11:10,920 Speaker 1: had to think through it. I think my oldest brother, 1190 01:11:11,040 --> 01:11:14,559 Speaker 1: because he's the guy in Chicago. I mean he and 1191 01:11:14,680 --> 01:11:19,480 Speaker 1: you know he he's uh, he's a He really embraced 1192 01:11:19,479 --> 01:11:22,280 Speaker 1: and loved economics. He was inspired by some of the 1193 01:11:22,320 --> 01:11:25,439 Speaker 1: best professors ever. You know, people like Milton Friedman were 1194 01:11:25,520 --> 01:11:30,720 Speaker 1: there and stuff that was a seven Yankees at they did. 1195 01:11:30,760 --> 01:11:32,599 Speaker 1: And you look at all the Nobel Prizes that came 1196 01:11:32,640 --> 01:11:35,000 Speaker 1: out there. That was a great department. What did he 1197 01:11:35,080 --> 01:11:37,880 Speaker 1: end up doing well? He want to ended up getting 1198 01:11:37,880 --> 01:11:40,760 Speaker 1: an m b A and being uh in the in 1199 01:11:40,840 --> 01:11:45,080 Speaker 1: the hospital Finanza business so so he but he said 1200 01:11:45,120 --> 01:11:49,640 Speaker 1: didn't continue in economics. UM. My thesis advisor was a 1201 01:11:49,640 --> 01:11:53,160 Speaker 1: guy named Phil Keagan. Coincidentally, he's also a Chicago guy. 1202 01:11:53,880 --> 01:11:56,439 Speaker 1: And the thing I like with Kagan is that he 1203 01:11:56,520 --> 01:11:59,000 Speaker 1: was at at a time where I, you know, a 1204 01:11:59,040 --> 01:12:03,320 Speaker 1: lot of professors didn't seem to kind of want to 1205 01:12:03,360 --> 01:12:06,160 Speaker 1: put out for their graduate student. He was there at 1206 01:12:06,160 --> 01:12:08,760 Speaker 1: Columbia kind of a guy who was quite willing to 1207 01:12:08,800 --> 01:12:12,320 Speaker 1: work with you. He was also somebody who kind of 1208 01:12:12,720 --> 01:12:17,280 Speaker 1: had a very sober, unbiased way of looking at at 1209 01:12:17,360 --> 01:12:20,320 Speaker 1: issues and things. So he was quite an inspiration. But 1210 01:12:20,360 --> 01:12:22,720 Speaker 1: the guy who really was what I find the most 1211 01:12:22,760 --> 01:12:24,880 Speaker 1: interesting is the guy who I think was best for 1212 01:12:24,960 --> 01:12:29,640 Speaker 1: my career. It was a history professor I had in college. 1213 01:12:30,160 --> 01:12:34,879 Speaker 1: This history. He's a Russian history professor, and he hated 1214 01:12:34,960 --> 01:12:38,719 Speaker 1: the writing he was getting out of his students. Um 1215 01:12:38,800 --> 01:12:41,360 Speaker 1: and he so he decides to teach a writing class. 1216 01:12:42,800 --> 01:12:45,839 Speaker 1: UM and I took the writing class, and that class, 1217 01:12:45,960 --> 01:12:49,160 Speaker 1: i'd say of any I've never had a class that 1218 01:12:49,160 --> 01:12:52,240 Speaker 1: that did just made such a big difference in my 1219 01:12:52,520 --> 01:12:54,680 Speaker 1: ability to do I learned to write. It was a 1220 01:12:54,720 --> 01:12:59,000 Speaker 1: practical it's a practical hands on every day, somebody gets 1221 01:12:59,000 --> 01:13:01,760 Speaker 1: their paper ripped apart in class, right down to the 1222 01:13:01,760 --> 01:13:04,160 Speaker 1: gory details. And you you know, it's kind of like 1223 01:13:04,200 --> 01:13:07,040 Speaker 1: you know you either you know you either you know 1224 01:13:07,160 --> 01:13:09,479 Speaker 1: you either survive you know. If you what doesn't kill 1225 01:13:09,520 --> 01:13:12,960 Speaker 1: you makes you strong kind of world. And so I 1226 01:13:13,000 --> 01:13:15,240 Speaker 1: came out of that knowing how to write, and that 1227 01:13:15,240 --> 01:13:18,840 Speaker 1: that I think is a very important part of what 1228 01:13:18,880 --> 01:13:22,800 Speaker 1: we do. It's amazing what a significant skill set it is, 1229 01:13:23,320 --> 01:13:28,080 Speaker 1: and how often I encounter people who have either developed 1230 01:13:28,080 --> 01:13:31,360 Speaker 1: that skill or or have not. It could not agree 1231 01:13:31,439 --> 01:13:34,120 Speaker 1: more how significant that is. But it's it's one of 1232 01:13:34,160 --> 01:13:37,160 Speaker 1: the hardest things to teach. You know, it's really hard 1233 01:13:37,200 --> 01:13:41,360 Speaker 1: to teach because I mean and and uh, there's no 1234 01:13:41,439 --> 01:13:43,960 Speaker 1: way around it except to get It's kind of like 1235 01:13:44,000 --> 01:13:46,719 Speaker 1: the language immersion. You know, you can't learn a foreign 1236 01:13:46,800 --> 01:13:49,519 Speaker 1: language unless you immerse yourself from taking it once a 1237 01:13:49,560 --> 01:13:52,479 Speaker 1: week doesn't work. I learned a long time ago. If 1238 01:13:52,479 --> 01:13:53,840 Speaker 1: you want to be a good writer, there are two 1239 01:13:53,880 --> 01:13:56,680 Speaker 1: things you have to do one right every day and 1240 01:13:56,760 --> 01:14:01,160 Speaker 1: to read really good writing, and that's you. It's just 1241 01:14:01,400 --> 01:14:04,400 Speaker 1: a it's a ground war. You have to grind it 1242 01:14:04,400 --> 01:14:06,599 Speaker 1: out and that's the only way to get I agree 1243 01:14:06,640 --> 01:14:10,280 Speaker 1: with that. Um. So let's talk about some investors. What 1244 01:14:10,360 --> 01:14:16,400 Speaker 1: investors may have influenced your thinking about the relationship between 1245 01:14:16,400 --> 01:14:22,200 Speaker 1: the economy and markets. Well, I mean it's not I'm 1246 01:14:22,200 --> 01:14:24,960 Speaker 1: not really a guy who gets an instormation from from 1247 01:14:25,040 --> 01:14:28,200 Speaker 1: it gets his inspiration from investors. I mean they're there. 1248 01:14:28,200 --> 01:14:30,320 Speaker 1: What I have done over the years is that I 1249 01:14:30,360 --> 01:14:34,280 Speaker 1: find that, Um. It turns out in this job that 1250 01:14:34,400 --> 01:14:37,280 Speaker 1: being a macro economist is only part of it. You 1251 01:14:37,320 --> 01:14:40,400 Speaker 1: have to understand financial markets and how they work. And 1252 01:14:40,439 --> 01:14:43,720 Speaker 1: so over the years kind of working really closely with 1253 01:14:43,800 --> 01:14:48,679 Speaker 1: people who cover credit, uh, the equity analysts. Um. Even today, 1254 01:14:48,720 --> 01:14:51,519 Speaker 1: you know we we in my own work work now 1255 01:14:51,560 --> 01:14:54,200 Speaker 1: we collaborate all the time with the analysts and the 1256 01:14:54,200 --> 01:14:57,880 Speaker 1: other parts of research. Um, because there's always some an 1257 01:14:57,920 --> 01:15:01,120 Speaker 1: angle that you didn't get. And uh So it's not 1258 01:15:01,200 --> 01:15:04,360 Speaker 1: so much it's it's that part. It's it's kind of 1259 01:15:04,400 --> 01:15:08,479 Speaker 1: combining the strategy because you know, being in one of 1260 01:15:08,520 --> 01:15:10,839 Speaker 1: the things you that's I think very important to clients 1261 01:15:10,880 --> 01:15:14,040 Speaker 1: is they don't want economists that where the there's this 1262 01:15:14,120 --> 01:15:17,519 Speaker 1: kind of strict boundary line where you you make your 1263 01:15:17,520 --> 01:15:20,479 Speaker 1: FED call, your inflation calling, your growth call, but you 1264 01:15:20,560 --> 01:15:25,120 Speaker 1: never make the next step into what is So you 1265 01:15:25,200 --> 01:15:27,559 Speaker 1: need to be able to do that and that and 1266 01:15:27,560 --> 01:15:29,920 Speaker 1: and so there needs to actually be some overlap between 1267 01:15:29,920 --> 01:15:32,080 Speaker 1: what the economists is doing, what the strategists are doing. 1268 01:15:32,120 --> 01:15:36,320 Speaker 1: Otherwise the clients not getting a full story. So that 1269 01:15:36,320 --> 01:15:38,439 Speaker 1: that that's what I have been very important. I've heard 1270 01:15:38,479 --> 01:15:41,679 Speaker 1: the same thing from Byron Ween and from Ed Hyman, 1271 01:15:42,280 --> 01:15:45,400 Speaker 1: all of whom said the classic mistake is that he 1272 01:15:45,560 --> 01:15:50,719 Speaker 1: was in an economic thesis but no applicability to markets. Yeah, 1273 01:15:51,000 --> 01:15:53,880 Speaker 1: and and what you write about and what you the 1274 01:15:54,000 --> 01:15:57,320 Speaker 1: questions you address, they have to be dictated by what 1275 01:15:57,400 --> 01:15:59,920 Speaker 1: the market cares about at the moment. They can't be 1276 01:16:00,800 --> 01:16:03,080 Speaker 1: This is an interesting topic and I'd like to write 1277 01:16:03,080 --> 01:16:07,040 Speaker 1: about It has to be all driven by. What I 1278 01:16:07,080 --> 01:16:09,280 Speaker 1: want to do is say that clients or have a 1279 01:16:09,320 --> 01:16:12,280 Speaker 1: wrong idea about X. They're all obsessed about it. That's wrong. 1280 01:16:12,360 --> 01:16:14,240 Speaker 1: I'm going to explain why that's what I want to 1281 01:16:14,240 --> 01:16:18,519 Speaker 1: write about makes sense. Um, let's talk about books. I 1282 01:16:19,080 --> 01:16:23,960 Speaker 1: find myself fascinated by the reading list of people you know, 1283 01:16:23,960 --> 01:16:27,120 Speaker 1: our business. What what are some of your favorite fiction 1284 01:16:27,240 --> 01:16:31,360 Speaker 1: or nonfiction? Finance or nonfinance. I don't care well for me. 1285 01:16:31,640 --> 01:16:35,479 Speaker 1: One of the things is that well written history I love. 1286 01:16:35,600 --> 01:16:38,400 Speaker 1: I mean, I just write, wrote, I just wrote. I 1287 01:16:38,479 --> 01:16:46,720 Speaker 1: just read um Lawrence in Arabia, hum and um a 1288 01:16:46,800 --> 01:16:49,960 Speaker 1: couple of years. No, No, this is the recent recent 1289 01:16:50,360 --> 01:16:53,360 Speaker 1: who's the author, actually, I can't remember at the top 1290 01:16:53,360 --> 01:16:56,120 Speaker 1: of my head. Lawrence in Arabia, not Lawrence of Arabia. 1291 01:16:56,200 --> 01:16:58,719 Speaker 1: And the reason he calls it Lawrence and Arabias because 1292 01:16:59,400 --> 01:17:02,880 Speaker 1: you know, he's an how Sider coming into Um and 1293 01:17:03,360 --> 01:17:07,439 Speaker 1: the book is fascinating because it gives you this sense 1294 01:17:07,479 --> 01:17:12,360 Speaker 1: of the the underlying history of the Middle East and 1295 01:17:12,439 --> 01:17:16,280 Speaker 1: you start to understand, um, why the region is such 1296 01:17:16,320 --> 01:17:19,320 Speaker 1: a mess, right because he came in there in the 1297 01:17:19,360 --> 01:17:23,040 Speaker 1: middle of this it's a tribal place and the end 1298 01:17:23,640 --> 01:17:27,000 Speaker 1: and the and some of the things that the the 1299 01:17:27,040 --> 01:17:32,280 Speaker 1: imperial powers did there were quite bad. You know. The 1300 01:17:32,320 --> 01:17:36,360 Speaker 1: title is Lawrence in Arabia, Ward, Deceit, Imperial Folly and 1301 01:17:36,400 --> 01:17:39,599 Speaker 1: the Making of the Modern Middle East by Scott Anderson. 1302 01:17:39,600 --> 01:17:43,960 Speaker 1: Scott Anderson was really interesting. It's a good book. The 1303 01:17:44,000 --> 01:17:46,920 Speaker 1: book I'm familiar with in that space is uh, Seven 1304 01:17:46,960 --> 01:17:49,960 Speaker 1: Pillars of Wisdom, Right, that's you know College, that's way 1305 01:17:50,080 --> 01:17:52,120 Speaker 1: way back when, right that I think that was what 1306 01:17:52,240 --> 01:17:56,160 Speaker 1: he wrote was what his version of events, which is 1307 01:17:56,240 --> 01:17:59,400 Speaker 1: interesting to kind of see the uh see the way 1308 01:17:59,479 --> 01:18:06,519 Speaker 1: the Anderson kind of evaluates that. But so I love history. Uh, 1309 01:18:06,800 --> 01:18:09,599 Speaker 1: I've been reading since I was a kid. And give 1310 01:18:09,640 --> 01:18:12,080 Speaker 1: me another title? What else? What else stands out? Um? 1311 01:18:13,240 --> 01:18:17,240 Speaker 1: So I'm really terrible at remember your authors. So Atkinson's 1312 01:18:17,760 --> 01:18:22,000 Speaker 1: uh trilogy book on World War Two, the US in 1313 01:18:22,000 --> 01:18:30,600 Speaker 1: in Europe Um, Army at Don um um. Quite a 1314 01:18:30,720 --> 01:18:34,559 Speaker 1: quite a powerful story. It's it tells you a lot 1315 01:18:34,640 --> 01:18:38,800 Speaker 1: about how what a what a mess, Uh, it was 1316 01:18:38,960 --> 01:18:41,000 Speaker 1: when the US entered Europe and you had a bunch 1317 01:18:41,000 --> 01:18:45,920 Speaker 1: of amateur generals basically trying to fight the West point 1318 01:18:46,040 --> 01:18:50,200 Speaker 1: history of World War Two. No, it would be Army 1319 01:18:50,240 --> 01:18:56,960 Speaker 1: at Don did Jolly Roger guns at night? What what 1320 01:18:57,040 --> 01:19:00,280 Speaker 1: are the other ones? The day of battle? The Door 1321 01:19:00,280 --> 01:19:03,040 Speaker 1: in Sicily and Italy. Yeah, that's one of the three 1322 01:19:04,240 --> 01:19:07,120 Speaker 1: the greats who changed the course of British history. Oh, 1323 01:19:07,160 --> 01:19:12,200 Speaker 1: here it is the Liberation Trilogy triogy and then there's 1324 01:19:12,240 --> 01:19:15,360 Speaker 1: also UM, oh no, that's just isn't he just did 1325 01:19:15,400 --> 01:19:20,320 Speaker 1: the intro. I'll take a look at that. People always ask, uh, 1326 01:19:20,720 --> 01:19:22,720 Speaker 1: your guests mentioned a book, but I can't find it. 1327 01:19:22,800 --> 01:19:27,120 Speaker 1: So I always wanna always want to track that down. UM. 1328 01:19:27,200 --> 01:19:30,599 Speaker 1: The last couple of questions we have, so you've been 1329 01:19:30,600 --> 01:19:33,160 Speaker 1: in this industry for a good couple of years. What 1330 01:19:33,360 --> 01:19:37,559 Speaker 1: has most notably changed since you began in this kind 1331 01:19:37,680 --> 01:19:44,080 Speaker 1: in this field? Um? I I would I would say 1332 01:19:44,160 --> 01:19:49,800 Speaker 1: that the big changes has been the regulation of financial 1333 01:19:49,840 --> 01:19:55,200 Speaker 1: markets and so it's been for remember that in reaction 1334 01:19:55,280 --> 01:19:58,639 Speaker 1: to a lot of scandals in the business, UM back 1335 01:19:58,680 --> 01:20:02,120 Speaker 1: in two thousand and all the stuff with the people 1336 01:20:02,200 --> 01:20:07,680 Speaker 1: writing emails that that did contradicted with their official publication. 1337 01:20:08,760 --> 01:20:12,759 Speaker 1: On the show, talked quite bluntly and openly about Yeah, 1338 01:20:12,800 --> 01:20:17,479 Speaker 1: that all that stuff has uh turned it into a 1339 01:20:17,960 --> 01:20:23,040 Speaker 1: very heavily regulated business and uh um and uh you know, 1340 01:20:23,080 --> 01:20:26,519 Speaker 1: the good news is that you know it's working, um, 1341 01:20:26,560 --> 01:20:28,439 Speaker 1: and you don't get that kind of behavior. The bad 1342 01:20:28,479 --> 01:20:33,840 Speaker 1: news is that it's the level of paperwork and and 1343 01:20:34,240 --> 01:20:36,679 Speaker 1: that you have to go through is tremendous. And so 1344 01:20:37,160 --> 01:20:40,320 Speaker 1: from a day to day point of view, that's been 1345 01:20:40,760 --> 01:20:43,160 Speaker 1: a big change. I don't think that the business of 1346 01:20:43,200 --> 01:20:47,439 Speaker 1: being an economists changed. It's always been in my mind, 1347 01:20:47,880 --> 01:20:52,320 Speaker 1: what I do is always about new questions come up 1348 01:20:52,479 --> 01:20:55,439 Speaker 1: and just being flexible about the way you address them 1349 01:20:55,560 --> 01:20:59,559 Speaker 1: and being ready to find new angles. It's not that 1350 01:20:59,720 --> 01:21:02,519 Speaker 1: I a particular model that I used for years it's 1351 01:21:02,560 --> 01:21:05,960 Speaker 1: not working. I've had to change my models. What's what's 1352 01:21:06,000 --> 01:21:08,599 Speaker 1: happened is you always have to change your models because 1353 01:21:08,760 --> 01:21:12,559 Speaker 1: the models are never adequate. There's always something going on 1354 01:21:12,760 --> 01:21:17,879 Speaker 1: that that requires a more a more judgmental and subtle 1355 01:21:17,920 --> 01:21:20,759 Speaker 1: analysis than just putting a bunch of equations on a paper. 1356 01:21:21,520 --> 01:21:24,880 Speaker 1: So so, speaking of economics and an economists, if you 1357 01:21:25,040 --> 01:21:28,400 Speaker 1: had a millennial or someone coming right out of college 1358 01:21:28,439 --> 01:21:31,240 Speaker 1: now with an economics background and they came to you 1359 01:21:31,280 --> 01:21:34,879 Speaker 1: and said, I'm interesting in in I'm interested in pursuing 1360 01:21:34,880 --> 01:21:38,360 Speaker 1: a career in as an economist on Wall Street, what 1361 01:21:38,520 --> 01:21:42,400 Speaker 1: sort of advice would you give that person? Well, I mean, 1362 01:21:42,479 --> 01:21:44,640 Speaker 1: first of all, you there, you did you have to 1363 01:21:44,680 --> 01:21:48,919 Speaker 1: be a cautionary note about the this is a shrinking 1364 01:21:48,960 --> 01:21:52,479 Speaker 1: business rank frankly, right, so you've had count going down 1365 01:21:52,600 --> 01:21:56,280 Speaker 1: and yeah, and and um you know kind of uh, 1366 01:21:56,479 --> 01:21:59,920 Speaker 1: you know, just a cost conscious world that we live in. Uh. 1367 01:22:00,040 --> 01:22:02,720 Speaker 1: Um And so it's a tough road. Um. And I 1368 01:22:02,760 --> 01:22:04,519 Speaker 1: think one thing I would say to people who've had 1369 01:22:04,560 --> 01:22:07,439 Speaker 1: economics training is that there are a lot of things 1370 01:22:07,479 --> 01:22:09,240 Speaker 1: you can do with it. You don't have to become 1371 01:22:09,280 --> 01:22:12,840 Speaker 1: what I am, which is an economist working in an 1372 01:22:12,880 --> 01:22:15,360 Speaker 1: economics team. You could be a strategist, you can be 1373 01:22:16,280 --> 01:22:19,080 Speaker 1: portfolio manager. There are many things you can do economic. 1374 01:22:19,280 --> 01:22:21,760 Speaker 1: The great thing about economics is it's a discipline of 1375 01:22:21,800 --> 01:22:24,400 Speaker 1: the way you think about the world that makes it 1376 01:22:24,439 --> 01:22:27,040 Speaker 1: applicable to many things. So I when I tell people, 1377 01:22:27,560 --> 01:22:31,240 Speaker 1: I often have UM. Uh, you know, kids send me 1378 01:22:31,320 --> 01:22:34,519 Speaker 1: emails asking advice about you know, who are coming out 1379 01:22:34,520 --> 01:22:37,519 Speaker 1: of college and stuff, and I always give them that advice. 1380 01:22:37,520 --> 01:22:41,680 Speaker 1: If if you if you are absolutely in love with economics, 1381 01:22:42,760 --> 01:22:48,040 Speaker 1: go get a PhD. Suffer through that. Um. If you're 1382 01:22:48,080 --> 01:22:51,920 Speaker 1: not absolutely in love with it, though PhD is a 1383 01:22:51,960 --> 01:22:55,280 Speaker 1: tough road to go, UM, then you probably want to, 1384 01:22:55,479 --> 01:22:58,160 Speaker 1: you know, to take more of a business school approach 1385 01:22:58,240 --> 01:23:02,120 Speaker 1: or something n unless you love economics. NBA is a better, 1386 01:23:02,320 --> 01:23:04,360 Speaker 1: better round. I think it's a better route. I think 1387 01:23:04,360 --> 01:23:08,600 Speaker 1: it's more flexible. UM. But I think that um, you know, 1388 01:23:08,640 --> 01:23:10,240 Speaker 1: there's a lot of things you can do with an 1389 01:23:10,240 --> 01:23:15,840 Speaker 1: economics degree. I I've always wanted to just be an economist, 1390 01:23:15,840 --> 01:23:19,400 Speaker 1: and so to me, that was never an option. I 1391 01:23:20,360 --> 01:23:22,880 Speaker 1: major in economics, and I got to college, I went 1392 01:23:22,920 --> 01:23:26,960 Speaker 1: straight to my PhD program. I Uh, you know, UM 1393 01:23:27,240 --> 01:23:30,960 Speaker 1: went straight into working at the FED. There's never any 1394 01:23:31,080 --> 01:23:35,719 Speaker 1: kind of I mean, I'm pretty boring personal, let's face it. Uh, 1395 01:23:35,960 --> 01:23:38,400 Speaker 1: I wouldn't say that, but you knew what you wanted 1396 01:23:38,439 --> 01:23:42,000 Speaker 1: to do, and I did. That's you know, there are 1397 01:23:42,000 --> 01:23:44,400 Speaker 1: lots of people who come out of college and say, 1398 01:23:44,600 --> 01:23:47,599 Speaker 1: now what you know? You never had that issue now 1399 01:23:47,600 --> 01:23:50,280 Speaker 1: and I And I'm pretty lucky too, because I think 1400 01:23:50,320 --> 01:23:54,919 Speaker 1: that the share I mean, when I arrived at college, 1401 01:23:55,040 --> 01:23:58,000 Speaker 1: you had about three hundred premed majors and two hundred 1402 01:23:58,040 --> 01:24:00,720 Speaker 1: pre law mages. And of course by the end of 1403 01:24:01,040 --> 01:24:03,519 Speaker 1: college there are a lot fewer premed and pre law 1404 01:24:03,640 --> 01:24:07,320 Speaker 1: people because that was the easy path, was what you 1405 01:24:07,400 --> 01:24:09,519 Speaker 1: did when you didn't know what you want. Alright, I'm 1406 01:24:09,560 --> 01:24:14,040 Speaker 1: gonna go to law school and right, and and so 1407 01:24:14,080 --> 01:24:16,320 Speaker 1: I think that there's a lot of a lot of 1408 01:24:16,320 --> 01:24:19,040 Speaker 1: people had a big learning process, and you know, when 1409 01:24:19,080 --> 01:24:20,639 Speaker 1: you find a lot of kids come out of couege. 1410 01:24:20,680 --> 01:24:22,360 Speaker 1: You're not sure what they do. So a lot of 1411 01:24:22,360 --> 01:24:25,280 Speaker 1: people don't realize that to get a gig in radio 1412 01:24:25,400 --> 01:24:28,240 Speaker 1: you actually need a legal degree. So that's why I 1413 01:24:28,320 --> 01:24:31,839 Speaker 1: want that route. Um. Our last question, and I asked 1414 01:24:31,840 --> 01:24:35,920 Speaker 1: this of everybody, and the answer is very dramatically. What 1415 01:24:36,160 --> 01:24:40,200 Speaker 1: is it that you know today about markets, about investing, 1416 01:24:40,240 --> 01:24:43,240 Speaker 1: about the economy that you wish you knew when you 1417 01:24:43,320 --> 01:24:51,360 Speaker 1: began thirty years or so ago. M hmm, that's a 1418 01:24:51,479 --> 01:24:55,920 Speaker 1: that's a yeah, I thought, will pauses, he freezes up. Um, 1419 01:24:57,800 --> 01:25:00,640 Speaker 1: what what have I learned that I wish? It's not 1420 01:25:00,720 --> 01:25:03,040 Speaker 1: just what you learned, it's what would have been of 1421 01:25:03,280 --> 01:25:07,280 Speaker 1: huge help at the start of your career that ten 1422 01:25:07,400 --> 01:25:10,799 Speaker 1: or twenty years later you said, if only I knew 1423 01:25:10,880 --> 01:25:15,400 Speaker 1: twenty years ago. I think that the the I think 1424 01:25:15,479 --> 01:25:21,240 Speaker 1: that what you learn is about learning to kind of 1425 01:25:21,920 --> 01:25:26,240 Speaker 1: work in very high levels of uncertainty about exactly what 1426 01:25:26,680 --> 01:25:31,280 Speaker 1: you're looking at and knowing it's it's okay to be 1427 01:25:31,360 --> 01:25:34,080 Speaker 1: kind of lost for periods of time and to figure 1428 01:25:34,080 --> 01:25:37,439 Speaker 1: it out. Um. I've always felt that what happens in 1429 01:25:37,520 --> 01:25:41,080 Speaker 1: the in the economy is that something you get, you 1430 01:25:41,080 --> 01:25:44,160 Speaker 1: get an event you figure out the right angle. And 1431 01:25:44,200 --> 01:25:46,439 Speaker 1: if you get it right, if you figure out what's 1432 01:25:46,600 --> 01:25:48,840 Speaker 1: really the issue and how it's going to play out, 1433 01:25:49,400 --> 01:25:52,280 Speaker 1: your forecast just follows and you become smart for a year. 1434 01:25:53,960 --> 01:25:56,439 Speaker 1: And so it's that finding that it's finding the right 1435 01:25:56,520 --> 01:26:00,479 Speaker 1: angle in things that to me was the thing that 1436 01:26:00,479 --> 01:26:03,800 Speaker 1: that makes you a good economist. And the other thing 1437 01:26:03,960 --> 01:26:07,519 Speaker 1: is knowing when to capitulate. Oh, I didn't get the 1438 01:26:07,600 --> 01:26:10,920 Speaker 1: right admitting error and I got and and and the 1439 01:26:11,240 --> 01:26:14,559 Speaker 1: and maybe the lesson is that that I did learn 1440 01:26:14,800 --> 01:26:19,720 Speaker 1: was admitting errors is fine, sticking to wrong views in 1441 01:26:19,760 --> 01:26:22,080 Speaker 1: the face of the evidence that is wrong. But in 1442 01:26:22,160 --> 01:26:25,280 Speaker 1: minting airs, people respect that, especially if you're open and 1443 01:26:25,320 --> 01:26:27,240 Speaker 1: honest about it. You don't need to be right all 1444 01:26:27,280 --> 01:26:30,519 Speaker 1: the time. We all know that it's an art more 1445 01:26:30,520 --> 01:26:33,360 Speaker 1: than a science, and we get a lot of bad forecasts. 1446 01:26:33,360 --> 01:26:37,320 Speaker 1: So it's it's knowing when to capitulate is another kind 1447 01:26:37,320 --> 01:26:40,920 Speaker 1: of key life lesson there even thank you so much 1448 01:26:40,960 --> 01:26:43,400 Speaker 1: for being so generous with your time. This is this 1449 01:26:43,479 --> 01:26:46,160 Speaker 1: has really been quite fascinating, and I'm really glad we 1450 01:26:46,200 --> 01:26:48,800 Speaker 1: had a chance to uh sit down and go over 1451 01:26:48,840 --> 01:26:51,160 Speaker 1: the stuff. We'll have to drag you to another one 1452 01:26:51,160 --> 01:26:54,439 Speaker 1: of those dinners with less people, um this time. If 1453 01:26:54,479 --> 01:26:57,599 Speaker 1: you enjoyed this conversation, be sure and look up an 1454 01:26:57,600 --> 01:27:00,559 Speaker 1: Inch or down an inch on it tunes and you 1455 01:27:00,560 --> 01:27:06,320 Speaker 1: could see the full run of previous conversations we've had. 1456 01:27:06,439 --> 01:27:09,280 Speaker 1: Or or go to the blog and and click podcasts 1457 01:27:09,439 --> 01:27:11,439 Speaker 1: and you'll see the full run of all. I think 1458 01:27:11,479 --> 01:27:15,440 Speaker 1: we're up to eighty two or so of of these conversations. 1459 01:27:16,000 --> 01:27:18,680 Speaker 1: I would be remiss if I did not thank my 1460 01:27:18,760 --> 01:27:24,559 Speaker 1: head of research, Mike Batnick, and my producer, uh Charlie Bohmer, 1461 01:27:24,760 --> 01:27:28,720 Speaker 1: and uh Taylor Riggs, my booker, and today Charlie is 1462 01:27:28,760 --> 01:27:32,880 Speaker 1: also my engineer. UH So thanks everybody for for helping 1463 01:27:32,920 --> 01:27:36,080 Speaker 1: put this together. I'm Barry Ridholts. You've been listening to 1464 01:27:36,160 --> 01:27:38,280 Speaker 1: Masters in Business on Bloomberg Radio.