Speaker 1: This is Bloomberg Wall Street Week. The global push into infrastructure,
Speaker 1: breaking the IPO logjam in text. The financial stories that
Speaker 1: sheepe are work cutting inflation without losing jobs. Do we
Speaker 1: need rate cuts? And if so? How many? Investing in
Speaker 1: a time of geopolitical turmoil.
Speaker 2: Through the eyes of the most influential voices.
Speaker 1: Ten Rogueff economists at Harvard former FDIC had Shila Bert
Speaker 1: ge CEO, Larry Kulp, San Francisco FED President Mary Daily Bloomberg.
Speaker 2: Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: The White House drama continues, bank earnings get started, and
Speaker 1: Chair Powell walks a line. This is Bloomberg Wall Street Week.
Speaker 1: I'm David Weston. This week Professor Kate Judge on the
Speaker 1: Bank Reserve regulations. Jay Powell says, are on the way.
Speaker 3: It certainly looks like what we're going to end up with?
Speaker 3: Is it a very different suite of reform?
Speaker 1: And Mark Soter of EGI the man picking up the
Speaker 1: baton from legendary investor Sam Zell.
Speaker 4: And Miss Malatty was my mentor and a great human being.
Speaker 4: We've all been in the roles for years.
Speaker 1: We begin with the US economy after a week when
Speaker 1: Chair Powell said he was gaining confidence but not yet
Speaker 1: enough to claim success and controlling inflation. And then on Thursday,
Speaker 1: us CPI numbers seem to underscore the progress he is
Speaker 1: seeing from an investor's perspective on the economy. We welcome
Speaker 1: back now Scott Besson. He is founder and CEO of
Speaker 1: Key Square Capitalist. So Scott, great to have you back
Speaker 1: with us. David always good to be with you. So
Speaker 1: we heard from j Powell this week and he said,
Speaker 1: look at we're looking at something in the two zero
Speaker 1: point five range, and inflation going in the right direction,
Speaker 1: and labor market's still pretty strong. Growth is pretty strong.
Speaker 1: It looks like a pretty good economy, is he right?
Speaker 5: I think if we look at the aggregate numbers, aggregates
Speaker 5: are good. But you know Chinese have a central plan
Speaker 5: and you know they tell us they have a five
Speaker 5: point five percent the GDP target. So GDP looks good,
Speaker 5: but underneath the hood, you know, there's some alarming things.
Speaker 5: The last job's number, fifty percent of the jobs were
Speaker 5: created by the government. If we have government adjacent which
Speaker 5: is healthcare and education, it was up to about eighty percent.
Speaker 5: Inflation is slowly coming down. The shelter number came down
Speaker 5: this month, and you know, I don't think the FED
Speaker 5: needs to be in a hurry. They had been with
Speaker 5: this so called dot pod, which I think they should
Speaker 5: get rid of because it's becoming an embarrassment forum. They'd
Speaker 5: been at three cuts for twenty twenty four. Just at
Speaker 5: the June meeting they adjusted to one cut and now
Speaker 5: the market is pricing in two or three for the year.
Speaker 5: So it's all over the place. So having been very wrong,
Speaker 5: why not take your time, make sure and see what happens.
Speaker 1: So let's talk about what you think second term with
Speaker 1: Donald Trump might mean for some of those very factors
Speaker 1: you're talking about, particularly that bottom fifty percent, the people
Speaker 1: who really feel that they're hurting right now. What would
Speaker 1: he do given this economy, given that's pretty good for
Speaker 1: most measurements, what would you do to really make it
Speaker 1: that much better?
Speaker 5: Well, look, I think we're going to have to reprivatize
Speaker 5: the economy because this is running on government spending where
Speaker 5: at it's seven percent peacetime non recessionary budget deficit. This
Speaker 5: is unheard of. I have a peace out today is
Speaker 5: saying for the first time, interest costs are exceeding or
Speaker 5: defense spending. So the spending is now becoming also a
Speaker 5: national security issue. So I think we are going to
Speaker 5: go back to under Donald Trump, the private sector push
Speaker 5: the economy. We didn't get inflation because the private sector
Speaker 5: impetus was met with deregulation. Under the Biden economy, they
Speaker 5: had big government spend, but it was met by increased regulation.
Speaker 5: That's the formula for inflation.
Speaker 1: There's a lot of talk, as you know, about getting
Speaker 1: the deficit under control, but President Trump in his first
Speaker 1: term did not get the deficit under control. I mean,
Speaker 1: if you look at this is the Committee for Responsible
Speaker 1: Federal Budget, they say under his administration, we added eight
Speaker 1: point four trillion dollars, and four point three trillion of
Speaker 1: that was not COVID related. We added a lot under
Speaker 1: Biden as well, but actually substantially less than under President Trump.
Speaker 5: Yeah, well, they're using CBO projections, not the actual numbers.
Speaker 1: We'll talk about taxes. That's also a concern. In that
Speaker 1: piece you refer to the Bob Rugen and Ken channel,
Speaker 1: they actually said there's a problem with the tax extending
Speaker 1: the tax cuts that we had back in twenty seventeen.
Speaker 1: If you extended that that would really substantially increase the
Speaker 1: deficit because only and I think this is a CBO number.
Speaker 1: You correct me if it's wrong, but only twenty percent
Speaker 1: of those tax cuts actually paid for themselves.
Speaker 5: Well, I think this summer around, and I think with
Speaker 5: Trump one point zero, we got to stop the clock
Speaker 5: at the end of twenty nineteen because COVID was a
Speaker 5: game changer. And I think that there is big appetite
Speaker 5: for pay fors this time. So I think we would
Speaker 5: get this Orwellian named Inflation Reduction Act under control. I
Speaker 5: think you can say a trillion on that. If you
Speaker 5: empower states on Medicaid, that's another trillion. I think that
Speaker 5: there will be some tariff income. So I think that
Speaker 5: there is a big appetite to reinstate the tax cuts.
Speaker 1: But with pay fors, well, well, terrorists, it would be
Speaker 1: income to the federal government, but the money would come
Speaker 1: out of consumers pockets. We did not, I mean, China
Speaker 1: doesn't pay that money consumers paid, and it might stow inflation.
Speaker 5: Well, look, I think that if you are if we
Speaker 5: have forty or fifty dollars oil and we have deregulation,
Speaker 5: we have higher growth, we control immigration at the border
Speaker 5: because this unfedered immigration. Now, the economics profession had for
Speaker 5: years said that somehow the one thing that didn't they
Speaker 5: respond to supply and demand was immigrant labor. Now they're saying,
Speaker 5: oh no, it does suppress inflation, increases economic growth. So
Speaker 5: I think if we secure the border, the bottom twenty
Speaker 5: five percent of Americans will see wage increases.
Speaker 1: President Trump is talking about more than securing the border.
Speaker 1: He certainly has been talking about that for a long time.
Speaker 1: He's also talking about deporting a lot of people who
Speaker 1: are not documented here. Now, wouldn't that reduce the workforce
Speaker 1: and therefore increase wage costs and inflation?
Speaker 5: It could for the bottom twenty five percent. Those people
Speaker 5: are not working in Microsoft and not even in middle
Speaker 5: income jobs. And I don't know about you, I've got
Speaker 5: no problem at the bottom twenty five percent gets a
Speaker 5: much deserved waveg increase. You know, under Trump, one point
Speaker 5: zero working class Americans did better than the top ten
Speaker 5: or twenty percent the Joe Biden economy. It's been great
Speaker 5: in the Biden economy. You either own assets or you don't.
Speaker 5: The stock market set a record high housing prices or
Speaker 5: a record high. Bottom fifty percent of Americans have debt.
Speaker 5: Most households couldn't meet a five hundred dollars medical emergency,
Speaker 5: and I think it'd be great if that group got
Speaker 5: a wage increase.
Speaker 1: Fascinating. We're always great to talk with you, Scott, Thank
Speaker 1: you so much. That is Scott Bessant of Key Squared Group.
Speaker 1: In his testimony before Congress this week, Fedchair Jpole spent
Speaker 1: a fair amount of time on those proposed Basil three
Speaker 1: regulations and specifically when we can see a new version,
Speaker 1: given the agency's decision that more than just some tweaks
Speaker 1: were needed to what the agencies first proposed to take
Speaker 1: us through. Where we are, we welcome back now, Catherine Judge.
Speaker 1: She's professor at the Columbia Law School, So professor, thanks
Speaker 1: so much for being back with us. We don't know
Speaker 1: what they're going to come out with. It looks like
Speaker 1: later on this year, won't go into effect till sometimes
Speaker 1: next year. But do we think basically they are cut
Speaker 1: back on some of these reserve requirements.
Speaker 3: That is certainly what it looks like right now. Powell
Speaker 3: has said on multiple.
Speaker 6: Occasions that we should expect broad and material changes.
Speaker 3: Again, this is not just the FAED.
Speaker 6: The FED has to work closely with the FDIC and
Speaker 6: the OCC But it certainly looks like what we're going
Speaker 6: to end up with is a very different suite of
Speaker 6: reforms than those that were proposed about a year ago.
Speaker 1: So there are specifics with regulation like this. It's come
Speaker 1: downe on Pike and we'll find out where it ends up.
Speaker 1: But we also had a pretty momentous I think term
Speaker 1: in the Supreme Court when it comes to regulation, not
Speaker 1: necessarily involving bank regulation, but about regulation overall. But particularly
Speaker 1: the thing if you were focused on, is Chevron. The
Speaker 1: overturning the Chevron doctrine, in which the courts would defer
Speaker 1: to the agency's determpretation of the statute. Could that affect
Speaker 1: banking regulation as well?
Speaker 3: It certainly could and will.
Speaker 6: I mean, if you look back historically, Chevron was actually
Speaker 6: one of the key vehicles that facilitated deregulation during the
Speaker 6: nineteen eighties and nineties. So, as you just said, the
Speaker 6: core idea of the Chevron doctrine is when a statute
Speaker 6: is ambiguous, that's going to be treated as a delegation
Speaker 6: to the relevant agency to figure out the best interpretation
Speaker 6: under the circumstances that they're facing using their expertise, and
Speaker 6: so in the nineteen nineties that was a mechanism through
Speaker 6: which they said, look, look banks can have to engage
Speaker 6: in a far broader array of activities than we previously thought.
Speaker 6: In the short run, I think banks are celebrating this
Speaker 6: as a win. Business is celebrating this is a win.
Speaker 6: Longer term, it's really hard to know. It really creates
Speaker 6: a lot more legal uncertainty. It does reduce the relative
Speaker 6: certainty regulators are going to have regarding the whether or
Speaker 6: not their rules are going to be respected, and it
Speaker 6: puts courts in the.
Speaker 3: Driving seat in a way that I think could really
Speaker 3: shake things up.
Speaker 1: So I'm going to ask you something to do something
Speaker 1: you're not going to want to do. Is just speculate,
Speaker 1: but we don't know. But you teach regulation and legislation
Speaker 1: with respective particularly financial institutions. As we look at various
Speaker 1: regulations that are pending, including the Basil three, but not
Speaker 1: limited to that. Right now, do we think that that
Speaker 1: may affect the way they go about making their rules,
Speaker 1: because now they're very a conscious effect. They're going to
Speaker 1: have a court of some sort looking over their shoulder,
Speaker 1: right quick.
Speaker 3: Yeah, So two things.
Speaker 6: One, I think it's certainly going to effect the way
Speaker 6: that they undertake rulemaking Basle three and otherwise.
Speaker 3: That's partly because again lower Bright just overall Chevron, but
Speaker 3: there are also a number.
Speaker 6: Of other significant Supreme Court decisions that really allow courts
Speaker 6: to scrutinize far more closely the decisions that regulators are
Speaker 6: making and the processes through which they're making those decisions.
Speaker 6: So there is a risk it's going to make regulators
Speaker 6: a little more gun shy and a little more worried
Speaker 6: about making sure they've crossed every single ty and have
Speaker 6: dotted all of.
Speaker 3: Their eyes before they problet get a regulation.
Speaker 6: That being said, bank regulators are also bank supervisors, and
Speaker 6: they have an ongoing duty to really promote the safety
Speaker 6: and soundness of the institutions that they oversee. So you
Speaker 6: could end up in a world where regulation is not
Speaker 6: able to keep up with potential changes in market dynamics,
Speaker 6: or risk that supervisors are.
Speaker 3: Seeing a lot more work.
Speaker 6: It's done through that supervisory process, which is far less
Speaker 6: transparent and far less uniform.
Speaker 1: Well, so this is a fascinating point I had not
Speaker 1: already thought about. It may shift away from the regulatory
Speaker 1: approach where they have a notice in comment every comments
Speaker 1: and we know what's going on. As opposed to i'll
Speaker 1: call it prosecutorial discretion of a sort through the supervisory function.
Speaker 1: That's a very different kettle of fish.
Speaker 6: It is a very different kettle of fish. It's one
Speaker 6: banks have had to deal with for a long time.
Speaker 6: But the question is relative important. One of the ways
Speaker 6: of understanding Chevron, particularly as it's been narrowed in recent years,
Speaker 6: is it created a real carrot that really encourage regulators
Speaker 6: to undertake noticing comment rulemaking, which is very time consuming,
Speaker 6: very resource intensive process, because at the end they knew
Speaker 6: they were going to get this carrot called Chevron difference.
Speaker 6: Now that you've taken that carrot away, it puts a
Speaker 6: lot more onus on the regulators to think, well, what
Speaker 6: is the right tool of the very tools I have
Speaker 6: available for trying to achieve a particular end. It still
Speaker 6: might be regulation in some set of circumstances, but it
Speaker 6: could also be supervision for banks, to be things like
Speaker 6: the living will process that we've seen being a mechanism
Speaker 6: through which you get kind of change over time. It
Speaker 6: could also, for something like the CFPB, be policy making
Speaker 6: through enforcement rather than clarify with certain terms mean use
Speaker 6: enforcement policy be a mechanism to which you make policy.
Speaker 3: So again, I think it certainly changes.
Speaker 6: The world around regulation by rulemaking, but that doesn't mean
Speaker 6: long term it's really a win for business.
Speaker 1: Professor has always a great treat to have you with us.
Speaker 1: That is Professor Catherine Judge of Columbia. Coming up, Sir
Speaker 1: Kiir Starmer has won his large majority in the British Parliament.
Speaker 1: Now what's he going to do with it? We ask
Speaker 1: former UK Ambassador to the United States, Sir Peter Westwickotte.
Speaker 1: That's next on Wall Street Week on Bloomberg.
Speaker 2: This is Bloomberg Will Street Week with David Weston from
Speaker 2: Bloomberg Radio.
Speaker 1: This is Walterree Week. I'm David Weston. Last week saw
Speaker 1: a labor government sweep into power after spending many years
Speaker 1: in the wilderness, but the size of the majority did
Speaker 1: not necessarily indicate how much the new Prime Minister, Sir
Speaker 1: Kiir Starmer can do with it. We turned to someone
Speaker 1: who spent his career in the British Foreign Service as
Speaker 1: ambassador to the United States, France and Turkey for his
Speaker 1: views on the nature of the win and what we
Speaker 1: can expect next.
Speaker 7: The interesting thing is that although they've got a huge
Speaker 7: majority and the working majority will be of one hundred
Speaker 7: and seventy or so, they've only in fact received slightly
Speaker 7: less than two percent more votes from the British public
Speaker 7: than they did last time. So what's happened is not
Speaker 7: so much that there is an overwhelming vote of confidence
Speaker 7: in the Labor Party. It is a sense that throw
Speaker 7: the bombers out if you like, that the Conservatives had
Speaker 7: had run out of road and run out of trust
Speaker 7: and run out of support, and people have to some
Speaker 7: extent voted for the Labor Party. Certainly ten percent more
Speaker 7: voted for Labor than for Conservatives, but there's also been
Speaker 7: fourteen percent for the right wing anti European Party of
Speaker 7: Nigel Farage, and the Scottish Nationalists lost big time to
Speaker 7: Labor in Scotland, and the Liberal Democrats have won more seats.
Speaker 7: They're going to have seventy one seats in the new parliament,
Speaker 7: which is a historic high. They've never done that well
Speaker 7: since the party came into being, So everybody has done
Speaker 7: well except for the Conservatives.
Speaker 1: Which leads to at least an interesting question, which is
Speaker 1: normally you think about a mandate when you have this
Speaker 1: larger majority, if it was a vote against the Conservatives
Speaker 1: more than it was for Labor. When it comes to policies,
Speaker 1: what did the British people vote for? In terms of policies.
Speaker 7: The slogan which the leader of the Labor Party came
Speaker 7: up with after road testing a number of different options,
Speaker 7: was one word change, and their focus groups and political
Speaker 7: scientists told them that that was what the British electorate
Speaker 7: really wanted to hear. These guys, the Conservatives have been
Speaker 7: in power for the last fourteen years. We've had COVID,
Speaker 7: We've had Brexit which hasn't gone well. We've got no
Speaker 7: very little economic growth, We've got no productivity, you know,
Speaker 7: investment and exports have been patchy, if not done in
Speaker 7: a whole lot of different issues, and stagnant middle class
Speaker 7: incomes over the last probably twenty years, which has upset
Speaker 7: a lot of people. So they voted for change. They
Speaker 7: voted to get rid of the guys who've been in
Speaker 7: charge for the last fourteen years. But the Labor Party
Speaker 7: was very cautious about not being very specific in terms
Speaker 7: of what that change would bring. You know, they didn't
Speaker 7: want to talk about Brexit, which almost the three quarters
Speaker 7: of the British people now recognized was doesn't mean to
Speaker 7: say three quarters of the British people want to go
Speaker 7: back into the European Union, but most people recoon that
Speaker 7: was a mistake. They didn't really get discussed. The Toriest
Speaker 7: didn't want to talk about it because it was their handiwork,
Speaker 7: and the Labor Party didn't want to talk about it
Speaker 7: because they were frightened of losing votes which had become
Speaker 7: a first time conservative voters and who were traditionally their supporters.
Speaker 1: A change, but not a change in taxes as I
Speaker 1: understand it, We're not going to increase taxes, and yet
Speaker 1: we want to increase growth, productivity and investment. How do
Speaker 1: you do those two things fiscally? Where do you come
Speaker 1: up with the money for that?
Speaker 7: Well, they're going to have a little bit of a
Speaker 7: cushion fiscally because they revised the numbers for growth and
Speaker 7: we're now looking at zero point seven percent for the
Speaker 7: first quarter of this year, whereas people thought it was
Speaker 7: pretty much stagnant. So there's a little bit more growth
Speaker 7: coming in. There is quite a lot less inflation. We
Speaker 7: were up at eleven percent last year at the highest point,
Speaker 7: and we're down at two percent now. There isn't any
Speaker 7: evidence at the moment of productivity increase. Exports have surprised
Speaker 7: people by doing a bit, but particularly of course to
Speaker 7: non European markets, so there's a little bit of extra cushion,
Speaker 7: extra wiggle room coming in there. The other thing David
Speaker 7: to be clear about is that they've said we will
Speaker 7: not be raising income tax and we will not be
Speaker 7: raising corporation tax, but they have not said they were
Speaker 7: and they will not be raising VAT, which is a
Speaker 7: sales tax. But they have not said anything about capital
Speaker 7: gains tax, and they've not said anything about some of
Speaker 7: the other business specific taxes. They've not said anything about
Speaker 7: windfoll taxes for energy companies, which have made a lot
Speaker 7: of money out of the rise of global prices as
Speaker 7: a result of the Ukraine conflict, and so the big
Speaker 7: headline tax issues they've said no, no, no, we won't mess
Speaker 7: with that, but they haven't excluded some other things. And
Speaker 7: they are going to put tax on private education fees,
Speaker 7: which they nobody's ever done before in the United Kingdom,
Speaker 7: which will raise a bit of money. And they have
Speaker 7: done something which the Tories had already done, which was
Speaker 7: to change the non dom as we call it, the
Speaker 7: non domicile tax regime for very wealthy people who have
Speaker 7: an expatriot status and who live in the UK but
Speaker 7: don't get taxed on any of the wealth that they
Speaker 7: have outside Britain. They're changing all that which the Conservatives
Speaker 7: already promised to do it. The labor parties say they'll
Speaker 7: go further. I'm not sure how fuch further they'll go.
Speaker 7: I worry that we might just drive away a lot
Speaker 7: of the wealth that we need for our economy at
Speaker 7: a time when it's still pretty fragile. So there are
Speaker 7: some areas of tax where they've got the option to
Speaker 7: raise more money, but they are scared of being deemed
Speaker 7: to be business unfriendly. And you may have noticed that
Speaker 7: even in the first day or two after the election,
Speaker 7: stock markets rallied Sterling did a bit better. The business
Speaker 7: community at the moment anyway, doesn't seem to be too scared,
Speaker 7: and they probably quite like the idea that with a
Speaker 7: whating great majority there is going to be some political
Speaker 7: stability and maybe some policy stability for the next four
Speaker 7: or five years.
Speaker 1: So Petero's talk about the relationshiptween the United Kingdom and Europe.
Speaker 1: You mentioned the name that must not be named in
Speaker 1: the campaign of Brexit that nobody wanted to talk about.
Speaker 1: What do you anticipate this Labor government might do with
Speaker 1: respect of Brexit. I understand maybe not pull back entirely,
Speaker 1: but maybe modified around the edges.
Speaker 7: Yestarmer has said and so have his other ministers, that
Speaker 7: there will be no return to the Single Market or
Speaker 7: to the Customers Union under a labor government. So that's
Speaker 7: pretty definitive in terms of not turning the clock back
Speaker 7: to pre Brexit days. Was that necessary to ensure that
Speaker 7: they got a substantial majority. Perhaps it may also be
Speaker 7: realistic in that the price of going back on the deal,
Speaker 7: which is very europe favorable. Frankly, the price of going
Speaker 7: back on the deal negotiating by Boris Johnson would be
Speaker 7: quite considerable. There would have to be restoration or free
Speaker 7: movement of labor, which is free movement of people, which
Speaker 7: is a political hot potato, especially for the Conservatives, but
Speaker 7: it's also going to be tricky for the Labor Party.
Speaker 1: So Peter, thank you so much for be with us
Speaker 1: here on Wall Street Week. Really appreciate it. That is
Speaker 1: Peter west mccott. He is former British Ambassador to the
Speaker 1: United States. Equity Group Investments was the investment firm Sam
Speaker 1: Zel ran so successfully for so many years. Mark Soder
Speaker 1: for many years served under Sam as president of the group.
Speaker 1: And we welcome h now to Wall Street Week. So
Speaker 1: welcome Mark. Great to have you here, David, thanks for
Speaker 1: having me. Sam Zel was such a friend of this program.
Speaker 1: We so benefited whenever he came on, and so we're
Speaker 1: really fortunate to have you here. First of all, talk
Speaker 1: about that transition, because those are really big shoes to fill.
Speaker 1: You were president before Sam passed away, but talk to
Speaker 1: just about that transition where you are in it.
Speaker 4: Yeah, So thank you first of all for having me.
Speaker 4: It was a long transition and continues to be a
Speaker 4: long transition. Sam put me in that role nine years ago,
Speaker 4: and when he did, it surprised me. I'm an operator
Speaker 4: at Rank Companies and I never expected to run this business.
Speaker 4: And he said, look, it's a business. If I could
Speaker 4: come back and look at the place thirty years from now,
Speaker 4: I want Equity Group to be there and healthy and running.
Speaker 4: And so I want somebody who can run a business
Speaker 4: that was again nine years ago, and he said, I
Speaker 4: don't actually don't need you today, but I need you
Speaker 4: to start planning for when I'm not here, And so
Speaker 4: dial it that far back. We've been working myself, the family,
Speaker 4: Sam's son in laws involved in the family office. We've
Speaker 4: been working at this for a decade. And so you know,
Speaker 4: it's a big loss to have him leave us, and
Speaker 4: I miss Melott. He was my mentor and a great
Speaker 4: human being. But we've all been in the roles for years, right,
Speaker 4: so this isn't a wow. Sam's gone. Now what do
Speaker 4: we do? He was really good at not just letting
Speaker 4: us practice but actually run the business, and he slowly
Speaker 4: kept stepping back year after year. And I would say
Speaker 4: the last two three years we didn't really talk about deals.
Speaker 4: We talked about people. We talked about developing people. We
Speaker 4: talked about do we have the right people? So the
Speaker 4: development kind of moved into that phase. And you know,
Speaker 4: so far, I don't want to say it's been easy,
Speaker 4: but it's been reasonably smooth for that big a change.
Speaker 1: So a long evolution, certainly with Sam no longer with us,
Speaker 1: but also I wonder in the nature of the business.
Speaker 1: I mean, I think if Sam as a real estate investor,
Speaker 1: going back to ann arbor and student housing right where
Speaker 1: he started out. I don't think Sam's out so much
Speaker 1: as a private equity guy.
Speaker 4: Yeah, So that I think is something that a lot
Speaker 4: of people don't realize. Sam, I think, more than anything,
Speaker 4: was a person that just evolved over time. So that
Speaker 4: real estate, yep, back in the sixties and seventies, that's
Speaker 4: what he did. Then he built the reads and went
Speaker 4: public with all this, and that was in the seventies
Speaker 4: and the eighties early nineties. Real estate started to get
Speaker 4: crowded at one point, and so he actually moved into
Speaker 4: distressed investing, so he was doing good company, bad balance
Speaker 4: sheet type stuff back before the phrase existed, back in
Speaker 4: the late eighties early nineties. That started to get crowded.
Speaker 4: And then he went overseas and he went to Argentina
Speaker 4: and China and India and invested overseas. And again people
Speaker 4: don't know that as much. And now we're in a
Speaker 4: different stage. We're if you kind of come current, we're
Speaker 4: doing a lot of business with lower middle market more
Speaker 4: in the US, a lot of family run businesses, So
Speaker 4: especially coming out of COVID, there's a lot of owner
Speaker 4: operators who've kind of realized that their company is growing,
Speaker 4: they need more capital. But the flip side is ninety
Speaker 4: eight percent of the net worth is tucked in that
Speaker 4: one company. They don't want to sell out, right, they don't.
Speaker 4: They're not ready to retire and they're looking for a partner,
Speaker 4: and so they've a lot of them have heard about
Speaker 4: private equity and there's good bad about it, but they
Speaker 4: don't want to sell the company to someone and then
Speaker 4: have it foot three years later, years later, And so
Speaker 4: you know, that's who we are. We tend to own
Speaker 4: companies for a very long period of time, and you know,
Speaker 4: Sam with his background and frankly how we've built the organization,
Speaker 4: we show a little bit more patience. I think with
Speaker 4: some of these companies where there's been a founder, their
Speaker 4: names on the door and they've been doing it for
Speaker 4: twenty years. So that is really really different when you
Speaker 4: think about it. First of all, I don't have to
Speaker 4: if I own a company for fifteen years and you
Speaker 4: own them for five, I have to find one third
Speaker 4: as many companies. So that's a benefit. We're very big
Speaker 4: on compounding, right, So Sam was real advocate of if
Speaker 4: I find something, stay with it at the end of
Speaker 4: the day, and we reinvest in our winners. Okay, so
Speaker 4: you take a typical private equity firm. Let's say they
Speaker 4: invest one hundred million dollars in a company and they
Speaker 4: double it, right, or maybe they triple it, then they
Speaker 4: definitely want to sell it. When we make three times
Speaker 4: our money, we look at it and we're like, look,
Speaker 4: we have the right management team, We're in the right industry,
Speaker 4: with the right company, we'd probably get the right processes
Speaker 4: in and in our minds, that's the best risk return
Speaker 4: we can find.
Speaker 1: That's a great story. Really fast saying we're fortunate to
Speaker 1: have you here to tellus thank you so much for
Speaker 1: being here. I'm with Sam, but we're glad to have you.
Speaker 5: I appreciate it.
Speaker 1: Thank you, Chris, Thanks so much to Mark Sodter of
Speaker 1: Equity Group Investments. Coming up, it's time for the annual
Speaker 1: gathering of the Aspen Economic Strategy Group, focused this year
Speaker 1: on dynamism in the US economy. We'll hear what to
Speaker 1: expect from the director of the group, Melissa Karney of
Speaker 1: the University of Maryland. That's next on Wall Street Week
Speaker 1: on Bloomberg.
Speaker 2: This is Bloomberg Wall Street Week with David Weston from
Speaker 2: Bloomberg Radio.
Speaker 1: This is Wall Street Week. I'm David Weston. At the
Speaker 1: end of the month, prominent economists, business leaders, and policymakers
Speaker 1: will gather again in Colorado for the Aspen Economic Strategy
Speaker 1: Group meetings. Wall Street Week was there last year when
Speaker 1: the subject was building a more resilient US economy. If
Speaker 1: you look at the economy day, it's a pretty resilient economy.
Speaker 1: You know, we've been through a lot of challenges and
Speaker 1: we look pretty strong today in a relative sense.
Speaker 8: A lot of people think, oh, this is a technically
Speaker 8: hard issue, but what we've seen at this conference is
Speaker 8: a bunch of people saying, well, gee, if you do this,
Speaker 8: and you do that, and you do that, if you
Speaker 8: can make real progress.
Speaker 1: It really is a question on the political will.
Speaker 9: And we're trying to keep the fires burning. We are
Speaker 9: not focused on the short term, okay, We're focused on
Speaker 9: the longer term. And when we get Democrats and Republicans together,
Speaker 9: there's really not that much difference between us, right, and
Speaker 9: that gives me hope.
Speaker 1: This year, the subject will be strengthening America's economic dynamism,
Speaker 1: and to set the stage, we welcome back now University
Speaker 1: of Maryland economics professor Melissa Karney, who is director of
Speaker 1: the Aspen Economic Strategy Group, So Molist, who we're really
Speaker 1: looking forward to this at the end of the month,
Speaker 1: give us a sense of that. I think it's sort
Speaker 1: of a pivot. We've gone from resiliency not to dine
Speaker 1: what is the state of dynamism? What are the questions
Speaker 1: you're asking?
Speaker 8: That's right, Well, thanks for having me back, David, and
Speaker 8: we're looking forward to having Bloomberg return to ask them
Speaker 8: at the end of the month to be with us
Speaker 8: for this meeting. So the reason why we're shifting the
Speaker 8: focus now from resilience to dynamism is because our economy
Speaker 8: has proven to be quite resilient. It's in a pretty
Speaker 8: strong position. We came out of the pandemic and the economy.
Speaker 10: Really was resilient.
Speaker 8: But now the nation is moving very deliberately away from
Speaker 8: some of the market principles that have guided economic policy
Speaker 8: making in this country for decades that have led to
Speaker 8: great improvements and innovation and living standards, and that poses
Speaker 8: I think a lot of important questions for a group
Speaker 8: like ours about how to how to frame a new
Speaker 8: economic policy regime. Taking the nation's move towards more protectionist
Speaker 8: nationalist policies in mind, and do this in a way
Speaker 8: that still preserves and strengthens economic dynamism as opposed to
Speaker 8: impeding economic growth. And so that's what we're going to
Speaker 8: be focused on. We're going to take this apart in
Speaker 8: a lot of directions, talk about industrial policy, trade policy,
Speaker 8: but really with this goal of maintaining economic growth, innovation
Speaker 8: in the face of this national reconsideration and reconfiguration that's
Speaker 8: coming from both parties.
Speaker 1: Exactly, it is for both parties, although the Bida mistation
Speaker 1: particularly has embraced some of the industrial policy you're talking
Speaker 1: about in the acts we've had. Let's pick up on that.
Speaker 1: You mentioned industrial policy. When does it work? When does
Speaker 1: it not work? What are the questions again you're going
Speaker 1: to be addressing at this form.
Speaker 8: Yeah, this is really critical. I mean the conversation that
Speaker 8: needs to be had is not a simple one of
Speaker 8: is industrial policy good or bad, but rather when is
Speaker 8: industrial policy appropriate? When is state driven industrial policy likely
Speaker 8: to succeed versus be captured by political and business interests.
Speaker 8: There's also very important questions about how to actually design
Speaker 8: industrial policy. So if you think about what the proponents
Speaker 8: of industrial policy are saying, they draw on and they
Speaker 8: claim lots of policy goals national security, a transition to
Speaker 8: a green economy, supply chain resilience, job creation, the revitalization
Speaker 8: of economic communities. Which of those policy considerations or goals
Speaker 8: are appropriate to justify state driven innovation and funding of
Speaker 8: particular manufacturing. When is industrial policy more appropriately thought of
Speaker 8: as sort of a political favors to swing states. When
Speaker 8: do national security issues really arise?
Speaker 1: What products should.
Speaker 8: Be thought about as part of the need to invest
Speaker 8: in US capacity for production under the guise of national
Speaker 8: security versus looking to friendly allies or diversified supply supply chains,
Speaker 8: and so all of that really needs to be considered.
Speaker 8: There is also the very practical question about state capacity
Speaker 8: so ales.
Speaker 1: It used to be said that industrial policy is picking
Speaker 1: winners versus losers. There are some people now who are
Speaker 1: starting to question whether in fact we're only picking winners
Speaker 1: that basically the government intervenes to help people across the spectrum.
Speaker 1: Does that interfere with dynamism? Do we have to and
Speaker 1: I hate to say this, have a little bit more
Speaker 1: creative destruction or to guarantee that dynamism that's driven the
Speaker 1: United States economy in the past.
Speaker 8: I mean, this is why to mainstream economists, and I
Speaker 8: would consider myself one get nervous when when the federal
Speaker 8: government is really taking an active approach to deciding which
Speaker 8: sectors or which firms to invest in. That's not to
Speaker 8: say there aren't real reasons and opportunities for government subsidies
Speaker 8: to advance, you know, innovation investments in basic science, for example,
Speaker 8: we know have really larger terms, but there is a
Speaker 8: worry that that government funding can sort of just prop
Speaker 8: up firms that really, you know, wouldn't be successful on
Speaker 8: their own. And this is why the details of how
Speaker 8: these kinds of federal programs are designed are critically important.
Speaker 1: One of the things that I think has really sustained
Speaker 1: the US economy in recent years has been the fiscal intervention.
Speaker 1: A lot of money has been pumped into the economy,
Speaker 1: and that leads to debt and deficits. Well, how does
Speaker 1: that interact with the dynamism that we need in the economy.
Speaker 8: Oh, the US debt is a challenge that whoever wins
Speaker 8: the election, this needs to be a real issue that's
Speaker 8: dealt with the fact that by the end of this year,
Speaker 8: our deficit will be seven percent of GDP, unprecedented outside
Speaker 8: of wars or recessions, really impedes and impedes the federal
Speaker 8: government's ability to make the investments that would be consistent
Speaker 8: with bolstering economic dynamism. This is a real drain on
Speaker 8: our fiscal capacity.
Speaker 1: It also makes us much.
Speaker 8: Less resilient in the face of future shocks that are
Speaker 8: sure to come. It also heightens the risk that eventually
Speaker 8: we're going to have another financial crisis, and so dressing
Speaker 8: the data absolutely needs to be part of any economic
Speaker 8: policy making going forward in an effort to improve the
Speaker 8: US's ability to make the investments that will bothster our
Speaker 8: economic dynamism.
Speaker 1: Melissa here at Blueberg, it seems as if we cannot
Speaker 1: have a conversation with anyone without talking about generative AI.
Speaker 1: Is that a potential driving force behind dynamism? How much
Speaker 1: can we counter? Is it hyper? Is it real?
Speaker 8: Yeah, David, I have no idea what's hype or real,
Speaker 8: but it does certainly add a lot of uncertainty in
Speaker 8: the background of all of this. What AI is going
Speaker 8: to do to the labor market, in my view, is
Speaker 8: entirely unclear, but I think we could be pretty confident
Speaker 8: that it's.
Speaker 1: Going to shake things up.
Speaker 8: I mean, there are definitely going to be new jobs created,
Speaker 8: but there are also going to be jobs lost. This
Speaker 8: has you know, experts say this has the capacity to
Speaker 8: sort of change the labor market in society in the
Speaker 8: same way that electricity or steam power did. So it's
Speaker 8: going to be transformed. But if the challenge is it's
Speaker 8: going to be transformative in ways that I don't think
Speaker 8: anybody really has a good handle on. And so thinking
Speaker 8: about how our country, our workforce, our students are in
Speaker 8: a good position to leverage the power of AI so
Speaker 8: that it's a force for good, both in an economic
Speaker 8: sense and I mean personally, I'm really concerned about the
Speaker 8: impact it could have on democracy in the functioning of
Speaker 8: our institutions. We need to be getting ahead of this.
Speaker 1: Melissa, thank you so very much, and we look forward
Speaker 1: to being with you and asmen again. As Professor Melissa
Speaker 1: Karney of the University of Maryland mutually assured, destruction it's
Speaker 1: a term some of us are old enough to remember
Speaker 1: from the Cold War, a theory that the best way
Speaker 1: to keep the United States and the Soviet Union from
Speaker 1: destroying each other was for each side to know that
Speaker 1: the other would wipe it out if it moved first
Speaker 1: in a nuclear war. Things have certainly changed a good
Speaker 1: deal since the nineteen sixties, when I was a boy
Speaker 1: reading Seven Days in May Failsafe, afraid that the Russians
Speaker 1: would hit my hometown of Flint, Michigan because of our
Speaker 1: auto plants. We've had arms reduction agreements and non proliferation agreements,
Speaker 1: none of which stopped several other nations getting their own
Speaker 1: nuclear weapons without any clear and certain way of deterring
Speaker 1: them from using them. And now there's a new potential
Speaker 1: threat to be guarded against, one that's much harder to
Speaker 1: deal with because it can, and we hope will be
Speaker 1: used to do a lot of good that nuclear bombs
Speaker 1: never could. It's artificial intelligence, which many see as affecting
Speaker 1: every part of the economy.
Speaker 10: I think it actually does run right across the entire economy.
Speaker 10: Maybe not to the same depth in every sector, but nevertheless,
Speaker 10: it's very broad based.
Speaker 1: And AI may be every bit as deep as it
Speaker 1: is wide.
Speaker 7: Yes it is profound, Yes it is transformative.
Speaker 1: But as with any powerful tool, there are also some
Speaker 1: big potential risks, Risks that chat GPT creator sam O
Speaker 1: but admits we have to be careful to guard against.
Speaker 11: I mean, I think there's many ways it could go wrong,
Speaker 11: But we work with powerful technology that can be used
Speaker 11: in dangerous ways very frequently in the world, and I
Speaker 11: think we've developed over the decades good safety system practices
Speaker 11: in many categories.
Speaker 1: It's not perfect, and this won't be perfect either.
Speaker 11: Things will go wrong, but I think we'll be able
Speaker 11: to mitigate some of the worst scenarios you can imagine,
Speaker 11: you know, bioterrors like a common example, cybersecurities.
Speaker 1: Another Mustafa Suliman, co creator of open Mind and now
Speaker 1: CEO of AI at Microsoft, has even proposed that the
Speaker 1: United States and China avoid an AI arms race by
Speaker 1: starting talks right away on a bilateral agreement to contain
Speaker 1: what's coming, sort of an arms limitation agreement like those
Speaker 1: negotiated between the United States and the USSR back in
Speaker 1: the nineteen eighties.
Speaker 12: We will ultimately need global cooperation, but at this moment
Speaker 12: we have to be optimistic encouraging of the Nation States.
Speaker 12: There's no way to put the genie back in the boggle.
Speaker 12: This really is happening. So there art is going to
Speaker 12: be around shaping it in the public interest and making
Speaker 12: sure that our democratic governments remain in control.
Speaker 1: So only one's concern is about AI escalation between countries.
Speaker 1: But another AI battle is being waged even as we speak,
Speaker 1: this one between employers and employees. IBM says that the
Speaker 1: substantial portion of the AI large corporations are using already
Speaker 1: is for talent acquisition.
Speaker 13: And how do we actually bring to life for us
Speaker 13: what we call ask HR, which is really enabling us
Speaker 13: to have all two hundred and fifty thousand IBM rs kind.
Speaker 7: Of become really productive and actually.
Speaker 13: Elevating our HR teams to truly hire value perhaps skills,
Speaker 13: talent recruiting, and allowing us each day to sales service.
Speaker 13: And I think we love the most about it, Boody,
Speaker 13: is it's like available to you twenty four by seven
Speaker 13: and it allows you to get really fast responses.
Speaker 1: Not unexpectedly, the other side is striking back. Recent studies
Speaker 1: from resume Builder and Canvas say that nearly half of
Speaker 1: job seekers are now relying on AI in their applications
Speaker 1: for help in putting together their resumes, to help write
Speaker 1: the cover letter, or for both. But wait, there's one
Speaker 1: other place where maybe we could use AI to choose
Speaker 1: our next employee like maybe the person we employ as
Speaker 1: president of the United States. Americans are about to go
Speaker 1: to the polls in November, with about a quarter of
Speaker 1: voters saying they don't like either of the two candidates.
Speaker 1: So why not turn it over to the chatbots to
Speaker 1: choose our next president? And according to novelist Tim Dorsey,
Speaker 1: we wouldn't have to worry about that mutually assured destruction business.
Speaker 1: He says that as things are now, our political process
Speaker 1: appears to be a toxic dance of mutually assured destruction
Speaker 1: that takes all the citizens down with you. But then again,
Speaker 1: we'd have to make sure that we weren't creating some
Speaker 1: sort of doomsday machine. The doomsday machine, and what is
Speaker 1: that which will destroy all life on earth?
Speaker 7: Doctor Strangelove, How is it possible for them to have
Speaker 7: built such a thing.
Speaker 5: It is not only possible, it is essential.
Speaker 7: I wish we had one of those day machine.
Speaker 1: Streets that does it. For this episode of Wall Street Week,
Speaker 1: I'm David Weston. This is Bloomberg. See you next week.