1
00:00:05,800 --> 00:00:08,720
Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.

2
00:00:08,760 --> 00:00:11,520
Speaker 1: Along with my co host Lisa Abramowitz. Each day we

3
00:00:11,640 --> 00:00:15,120
Speaker 1: bring you the most important, noteworthy, and useful interviews for

4
00:00:15,200 --> 00:00:17,840
Speaker 1: you and your money, whether you're at the grocery store

5
00:00:17,960 --> 00:00:20,720
Speaker 1: or the trading floor. Find the Bloomberg p m L

6
00:00:20,840 --> 00:00:32,120
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Well,

7
00:00:32,159 --> 00:00:35,280
Speaker 1: there's a debate over the National Flood Insurance Program in

8
00:00:35,320 --> 00:00:38,479
Speaker 1: the wake of the damage by Hurricanes Harvey and Her

9
00:00:38,720 --> 00:00:42,160
Speaker 1: and Irma, and here to explain exactly what the program

10
00:00:42,200 --> 00:00:44,400
Speaker 1: does and its future is David Sampson. He is the

11
00:00:44,440 --> 00:00:49,040
Speaker 1: chief executive of the Property Casualty Insurers Association of America

12
00:00:49,400 --> 00:00:51,640
Speaker 1: and he's also the former Deputy Secretary of the U.

13
00:00:51,720 --> 00:00:55,800
Speaker 1: S Department of Commerce under George W. Bush. David Samson,

14
00:00:55,840 --> 00:00:58,560
Speaker 1: thank you for being with us. Can you just describe

15
00:00:58,600 --> 00:01:01,800
Speaker 1: for people what is the National Flood Insurance Program, how

16
00:01:01,800 --> 00:01:04,560
Speaker 1: does it work, and what are some of the challenges

17
00:01:04,600 --> 00:01:08,800
Speaker 1: it faces. Well, the National Flood Insurance Program is in

18
00:01:08,880 --> 00:01:15,280
Speaker 1: existence because your regular homeowners or business policy UH doesn't

19
00:01:15,319 --> 00:01:18,520
Speaker 1: cover flood insurance. That dates it dates back to the

20
00:01:18,600 --> 00:01:25,280
Speaker 1: nineteen sixties where there was problems with flood maps and

21
00:01:25,280 --> 00:01:28,600
Speaker 1: and UH being able to underwrite flood risk, and so

22
00:01:28,760 --> 00:01:32,960
Speaker 1: the National Flood Insurance Program was created UH in the

23
00:01:33,040 --> 00:01:38,080
Speaker 1: nineteen sixties as a supplement to your regular homeowners policy,

24
00:01:38,720 --> 00:01:41,920
Speaker 1: and we emphasize all the time with homeowners and business

25
00:01:41,920 --> 00:01:47,039
Speaker 1: owners that your regular policy doesn't cover flood, and to

26
00:01:47,080 --> 00:01:49,800
Speaker 1: be covered for flood, you need to buy that that

27
00:01:49,920 --> 00:01:55,080
Speaker 1: separate policy. UM. The policy UM no pun intended is underwater.

28
00:01:55,160 --> 00:02:00,400
Speaker 1: It's twenty five billion dollars UH in debt. It's not

29
00:02:00,560 --> 00:02:06,280
Speaker 1: run on an actuarily sound basis UH like your private

30
00:02:06,320 --> 00:02:10,120
Speaker 1: sector infurence insurance companies would be required to do. The

31
00:02:10,280 --> 00:02:15,640
Speaker 1: premiums are heavily subsidized by the taxpayer, and as a

32
00:02:15,680 --> 00:02:20,320
Speaker 1: result of that, after Katrina and UH Sandy, the program

33
00:02:20,360 --> 00:02:22,640
Speaker 1: is now about twenty five billion dollars in debt. So

34
00:02:22,680 --> 00:02:25,679
Speaker 1: there's a lot of discussion in Congress about what reforms

35
00:02:25,720 --> 00:02:28,040
Speaker 1: need to be made to the program. It was set

36
00:02:28,080 --> 00:02:33,680
Speaker 1: to expire September UM we supported a um an extension

37
00:02:33,680 --> 00:02:36,200
Speaker 1: of that in the wake of Harvey and IRMA. It's

38
00:02:36,240 --> 00:02:41,720
Speaker 1: now extended through December eight, but long term, there needs

39
00:02:41,720 --> 00:02:43,799
Speaker 1: to be a discussion in Congress about how to put

40
00:02:43,840 --> 00:02:49,000
Speaker 1: that program on more sound financial footing. David, you represent

41
00:02:49,440 --> 00:02:53,840
Speaker 1: about a thousand companies that of the US is home, auto,

42
00:02:54,240 --> 00:02:58,680
Speaker 1: and business insurance. I'm wondering what rule they could or

43
00:02:58,680 --> 00:03:02,560
Speaker 1: would be willing to lay. In the flood insurance market.

44
00:03:02,639 --> 00:03:04,560
Speaker 1: Do you expect that there will be some kind of

45
00:03:04,639 --> 00:03:09,320
Speaker 1: convergence of public and private insurance plans to cover flooding,

46
00:03:09,480 --> 00:03:14,919
Speaker 1: especially as the expectation for these types of storms increases. Yeah, well,

47
00:03:14,960 --> 00:03:16,720
Speaker 1: there's always going to be a need for a federal

48
00:03:16,800 --> 00:03:19,040
Speaker 1: backstop for the flood insurance. So I think there's going

49
00:03:19,080 --> 00:03:22,600
Speaker 1: to need to be a long term reauthorization of the

50
00:03:22,639 --> 00:03:26,280
Speaker 1: flood in National Flood Insurance program. But clearly there is

51
00:03:26,840 --> 00:03:31,639
Speaker 1: increasing appetite in the private sector among private insurers and

52
00:03:31,720 --> 00:03:38,160
Speaker 1: reinsurers UH to write some flood coverage. The flood mapping

53
00:03:38,160 --> 00:03:42,320
Speaker 1: technology is much better today than it was in nineteen

54
00:03:42,400 --> 00:03:47,360
Speaker 1: sixty eight. You can just imagine the advances there UH,

55
00:03:47,400 --> 00:03:52,200
Speaker 1: and UH underwriting is much more advanced. Insurance underwriting is

56
00:03:52,200 --> 00:03:55,320
Speaker 1: more advanced today than it was in the nineteen sixties,

57
00:03:55,360 --> 00:03:58,480
Speaker 1: and so we do think that there is financial capacity

58
00:03:58,520 --> 00:04:03,120
Speaker 1: out there and appetite among UH insurers, some insurers and

59
00:04:03,240 --> 00:04:08,720
Speaker 1: reinsurers to take on some of this risk and to

60
00:04:08,720 --> 00:04:11,440
Speaker 1: be able to take some of the risk away from

61
00:04:11,760 --> 00:04:16,000
Speaker 1: the federal government and the and the federal taxpayer. David Sampson,

62
00:04:16,760 --> 00:04:19,159
Speaker 1: what is being done or what can be done to

63
00:04:19,480 --> 00:04:24,560
Speaker 1: avoid the scams and the frauds that are perpetrated on

64
00:04:24,680 --> 00:04:30,240
Speaker 1: people who are rebuilding their lives, their homes and their neighborhoods. Well. Uh.

65
00:04:30,480 --> 00:04:33,560
Speaker 1: First of all, the insurers number one priority right now

66
00:04:33,640 --> 00:04:35,960
Speaker 1: is getting checks into the hands of policy holders to

67
00:04:36,000 --> 00:04:38,320
Speaker 1: get families back in their homes and cars back on

68
00:04:38,360 --> 00:04:43,440
Speaker 1: the road and businesses opened again. UM. We're surging um

69
00:04:43,880 --> 00:04:48,360
Speaker 1: an army of claims adjusters into uh Florida just as

70
00:04:48,360 --> 00:04:51,960
Speaker 1: soon as the local officials UM uh say it's safe

71
00:04:52,000 --> 00:04:55,880
Speaker 1: to get back in and allow us in. But consumers

72
00:04:55,920 --> 00:04:58,679
Speaker 1: need to be very uh, you know, careful. The first

73
00:04:58,720 --> 00:05:02,720
Speaker 1: thing that consumers need do, UH is to call their

74
00:05:02,800 --> 00:05:09,400
Speaker 1: insurance agent or their insurance company, report the damage, photograph,

75
00:05:09,880 --> 00:05:13,040
Speaker 1: take video of all household items that are damaged or

76
00:05:13,120 --> 00:05:17,680
Speaker 1: destroyed in the storm. Unfortunately, we know that there are

77
00:05:17,720 --> 00:05:20,200
Speaker 1: some bad actors who prey on storm victims, and so

78
00:05:20,279 --> 00:05:24,159
Speaker 1: we encourage folks to be very very careful of riffing

79
00:05:24,240 --> 00:05:29,440
Speaker 1: companies or contractors or restoration companies that just come walking

80
00:05:29,480 --> 00:05:33,520
Speaker 1: down the neighborhood and UH put pressure on people to

81
00:05:33,640 --> 00:05:37,000
Speaker 1: sign to sign a contract right now and tell them

82
00:05:37,040 --> 00:05:39,000
Speaker 1: that if you don't sign up right now, you're gonna

83
00:05:39,040 --> 00:05:42,200
Speaker 1: be at the back of a line. UH. Consumers need

84
00:05:42,240 --> 00:05:46,760
Speaker 1: to be very very suspicious of that kind of activity.

85
00:05:47,480 --> 00:05:52,520
Speaker 1: Check professional references, be sure you before you sign a contract,

86
00:05:52,560 --> 00:05:54,480
Speaker 1: be sure you know the scope of the work that

87
00:05:54,520 --> 00:05:59,080
Speaker 1: they're going to do, the time frame, the cost um.

88
00:05:59,200 --> 00:06:01,919
Speaker 1: And the good news is today that a lot of

89
00:06:02,440 --> 00:06:06,159
Speaker 1: insurers are deploying a lot of technology to make it

90
00:06:06,240 --> 00:06:11,719
Speaker 1: easier for policy holders to file their claims. There's mobile apps,

91
00:06:11,800 --> 00:06:17,760
Speaker 1: there's online applications. Insurers will be using drones in Florida

92
00:06:17,880 --> 00:06:22,120
Speaker 1: to try to assess rooftop damage. UH. And you can

93
00:06:22,160 --> 00:06:27,200
Speaker 1: always ask for good references from your claims adjuster as well.

94
00:06:27,640 --> 00:06:29,560
Speaker 1: David Samson, thank you so much for joining us. David

95
00:06:29,560 --> 00:06:33,560
Speaker 1: Sampson is chief executive Officer of the Property Casualty Insures

96
00:06:33,600 --> 00:06:37,760
Speaker 1: Association of America, also the former Deputy Secretary of the U.

97
00:06:37,880 --> 00:06:40,680
Speaker 1: S Department of Commerce under George W. Bush, and he

98
00:06:40,720 --> 00:06:56,680
Speaker 1: has based in Washington, d C. Equifax has been in

99
00:06:56,720 --> 00:07:00,440
Speaker 1: the news, shares dropping further today, bonds as well falling

100
00:07:00,560 --> 00:07:05,520
Speaker 1: after they specified that they had a particular software vulnerability

101
00:07:05,560 --> 00:07:09,760
Speaker 1: that they knew about or were warned about before their

102
00:07:10,200 --> 00:07:14,400
Speaker 1: whole system was breached and one hundred million US consumers

103
00:07:14,480 --> 00:07:19,280
Speaker 1: data we were exposed and potentially put into the hands

104
00:07:19,400 --> 00:07:22,840
Speaker 1: of mallet intended people. Jordan Robertson joins us now his

105
00:07:22,880 --> 00:07:26,440
Speaker 1: technology reporter for Bloomberg News, as well as Viny Troy,

106
00:07:26,480 --> 00:07:30,520
Speaker 1: a chief executive officer of night Lion Security in St. Louis. Jordan,

107
00:07:30,560 --> 00:07:32,720
Speaker 1: can you just set this up for us? What is

108
00:07:32,760 --> 00:07:36,320
Speaker 1: the latest development in this story and how damaging is

109
00:07:36,320 --> 00:07:40,560
Speaker 1: it for Equifax? Sure, as everyone knows by now, Equifax

110
00:07:40,840 --> 00:07:42,520
Speaker 1: was the victim of a breach that affected you know,

111
00:07:42,560 --> 00:07:44,960
Speaker 1: more than a hundred and forty million people social security

112
00:07:45,040 --> 00:07:48,600
Speaker 1: numbers and other details of their consumer credit accounts. And

113
00:07:48,640 --> 00:07:52,640
Speaker 1: what Equifax announced last night was it confirmed some earlier

114
00:07:52,680 --> 00:07:55,160
Speaker 1: reporting that had gotten out that it was The way

115
00:07:55,240 --> 00:07:58,560
Speaker 1: the attackers got in was through a particular software vulnerability

116
00:07:58,920 --> 00:08:02,200
Speaker 1: UH in software used to build websites. Many large companies

117
00:08:02,280 --> 00:08:05,560
Speaker 1: use this. It's called Apache strut software. It's open source

118
00:08:05,600 --> 00:08:08,600
Speaker 1: software UH and the key thing about this software is

119
00:08:08,640 --> 00:08:11,480
Speaker 1: that there was a critical vulnerability in it, but that

120
00:08:11,640 --> 00:08:15,240
Speaker 1: vulnerability was patched or it was fixed, was two months ago,

121
00:08:15,800 --> 00:08:19,960
Speaker 1: but Equifax apparently didn't apply that fix by the time

122
00:08:19,960 --> 00:08:23,880
Speaker 1: the hackers got in in mid May. There's a caveat there, though,

123
00:08:23,960 --> 00:08:26,680
Speaker 1: is that many organizations take you know, can take weeks

124
00:08:26,680 --> 00:08:30,080
Speaker 1: even months to apply patches. However, uh, you know, for

125
00:08:30,200 --> 00:08:33,160
Speaker 1: critical vulnerabilities like this one. Uh, you know, that's that's

126
00:08:33,200 --> 00:08:35,080
Speaker 1: an off a long time and and Equifax is going

127
00:08:35,120 --> 00:08:36,920
Speaker 1: to take some heat, uh you know, and have to

128
00:08:36,920 --> 00:08:39,760
Speaker 1: answer some questions about you know, what caused that delay. Well,

129
00:08:39,840 --> 00:08:42,960
Speaker 1: the stock of equifaxes down another one percent after falling

130
00:08:42,960 --> 00:08:46,800
Speaker 1: more than fourteen percent yesterday. If any Troy, maybe you

131
00:08:46,840 --> 00:08:50,120
Speaker 1: could describe for us if you went to visit Equifax,

132
00:08:50,400 --> 00:08:53,160
Speaker 1: what would you see. Would you see a you know,

133
00:08:53,360 --> 00:08:56,479
Speaker 1: the most modern, the most up to date and secure

134
00:08:57,480 --> 00:09:01,319
Speaker 1: cyberg prevention facility, or just see people that are racing

135
00:09:01,360 --> 00:09:04,920
Speaker 1: around to try to put their fingers in the dike? Yeah,

136
00:09:04,960 --> 00:09:06,839
Speaker 1: I mean, you know, and I could tell you kind

137
00:09:06,840 --> 00:09:10,760
Speaker 1: of firsthand. I mean, Equifax had recently, you know a

138
00:09:10,840 --> 00:09:14,880
Speaker 1: number of job postings um regarding you know, different security

139
00:09:14,880 --> 00:09:16,560
Speaker 1: positions that they were looking for. And I mean I

140
00:09:16,600 --> 00:09:19,800
Speaker 1: know firsthand some of employees over Equifax that had a

141
00:09:19,880 --> 00:09:24,000
Speaker 1: number of legacy systems, all these kind of um legacy

142
00:09:24,080 --> 00:09:27,520
Speaker 1: means old in technology speak, right, Yeah, that's all right.

143
00:09:27,520 --> 00:09:29,440
Speaker 1: So they had all these old systems with you know,

144
00:09:29,480 --> 00:09:32,200
Speaker 1: basically there's all these different technology stacks running around there,

145
00:09:32,200 --> 00:09:34,559
Speaker 1: and they were trying very hard to consolidate them all.

146
00:09:35,120 --> 00:09:37,280
Speaker 1: But many of those systems, from what I understand, simply

147
00:09:37,360 --> 00:09:40,360
Speaker 1: we're going unchecked or unpatched. You know, they weren't updated

148
00:09:40,400 --> 00:09:43,360
Speaker 1: for any of these critical vulnerabilities, and they were just

149
00:09:43,480 --> 00:09:45,720
Speaker 1: left to kind of, you know, fend for themselves. And

150
00:09:45,760 --> 00:09:48,080
Speaker 1: I think that's the problem. You know, that's where we

151
00:09:48,160 --> 00:09:51,480
Speaker 1: ended up today. Vinny. What was the motivation behind not

152
00:09:51,760 --> 00:09:55,680
Speaker 1: patching up these problems? Was it motivated from saving money

153
00:09:55,840 --> 00:09:58,560
Speaker 1: or was it just simply that the problem didn't seem

154
00:09:58,640 --> 00:10:02,520
Speaker 1: that urgent. I don't, to be honest, I don't. I

155
00:10:02,559 --> 00:10:04,679
Speaker 1: think it was just a lack of resources. I mean,

156
00:10:04,679 --> 00:10:06,520
Speaker 1: when you have all these different systems, with all these

157
00:10:06,520 --> 00:10:09,600
Speaker 1: different technology stacks and not enough people to maintain them.

158
00:10:09,679 --> 00:10:12,319
Speaker 1: I mean, I know they were in progress to try

159
00:10:12,360 --> 00:10:14,760
Speaker 1: to consolidate all of them, so that they could maintain

160
00:10:14,800 --> 00:10:17,120
Speaker 1: them all. Um, but I just don't think they were

161
00:10:17,160 --> 00:10:19,439
Speaker 1: caught up to that point yet, Vinnie. I'd love to

162
00:10:19,440 --> 00:10:23,400
Speaker 1: get a sense of how widespread this lack of taking

163
00:10:23,440 --> 00:10:27,240
Speaker 1: care of business is among big corporate America. Are there

164
00:10:27,280 --> 00:10:31,800
Speaker 1: other companies that have similar problems and vulnerabilities that aren't

165
00:10:31,840 --> 00:10:35,000
Speaker 1: being patched simply because they don't know the resources or

166
00:10:35,000 --> 00:10:38,200
Speaker 1: they're trying to do too much with too little. I mean,

167
00:10:38,240 --> 00:10:40,360
Speaker 1: I think this applies to everybody. I mean, I don't

168
00:10:40,400 --> 00:10:43,080
Speaker 1: think there's a large company out there that I've seen

169
00:10:43,160 --> 00:10:47,640
Speaker 1: that doesn't do this. Um. You know, lack of good

170
00:10:47,679 --> 00:10:51,079
Speaker 1: security resources is a is a very widespread problem right now.

171
00:10:51,120 --> 00:10:54,200
Speaker 1: And organizations, I mean even if sometimes even if they

172
00:10:54,200 --> 00:10:56,320
Speaker 1: are willing to spend the money, just can't find the

173
00:10:56,360 --> 00:10:59,160
Speaker 1: people to do the work. I mean, there's definitely a

174
00:10:59,200 --> 00:11:03,079
Speaker 1: shortage of good security people right now. Jordan's speak to

175
00:11:03,160 --> 00:11:05,880
Speaker 1: the issue of the response on the part of Equifax,

176
00:11:05,960 --> 00:11:08,600
Speaker 1: because there have been stories that the website tool that

177
00:11:08,600 --> 00:11:12,760
Speaker 1: would let consumers see if their individual information had been breached,

178
00:11:13,200 --> 00:11:17,240
Speaker 1: uh doesn't work. Also, I understand for there's been a

179
00:11:17,280 --> 00:11:20,559
Speaker 1: directive that was sent out by the Federal Trade Commission

180
00:11:20,840 --> 00:11:25,120
Speaker 1: earlier today saying that there are now scammers. There are

181
00:11:25,160 --> 00:11:30,240
Speaker 1: people impersonating credit bureau staff. They are calling people telling

182
00:11:30,240 --> 00:11:33,600
Speaker 1: them that they are from Equifax looking to verify their

183
00:11:33,600 --> 00:11:37,360
Speaker 1: account information, and the FTC says, don't tell them anything.

184
00:11:37,440 --> 00:11:40,000
Speaker 1: No one from Equifax is going to call you. What

185
00:11:40,080 --> 00:11:44,280
Speaker 1: have you learned? Yeah, you know, my assessment is Equifax

186
00:11:44,320 --> 00:11:46,280
Speaker 1: is really blown it when it comes to the response

187
00:11:46,320 --> 00:11:49,559
Speaker 1: to this breach. You know, people feel very vulnerable when

188
00:11:49,600 --> 00:11:52,040
Speaker 1: this type of information leaks. Uh. You know, as you

189
00:11:52,080 --> 00:11:56,040
Speaker 1: mentioned Equifax's website for trying to determine if you you know,

190
00:11:56,080 --> 00:11:59,120
Speaker 1: were affected, Uh, it really didn't seem to work. People

191
00:11:59,120 --> 00:12:01,400
Speaker 1: punched in all kinds of random characters and codes and

192
00:12:01,440 --> 00:12:03,960
Speaker 1: still got responses back that they will breach. It didn't

193
00:12:04,000 --> 00:12:06,560
Speaker 1: seem to be like a very functional website. You know.

194
00:12:06,600 --> 00:12:10,880
Speaker 1: In addition, Equifax originally had a language on that website saying,

195
00:12:11,120 --> 00:12:12,880
Speaker 1: you know, if you sign up for these protections and

196
00:12:12,920 --> 00:12:15,600
Speaker 1: if if you are a victim, you know, you remove

197
00:12:15,720 --> 00:12:18,440
Speaker 1: all rights to sue the company in any class action suit.

198
00:12:18,679 --> 00:12:20,520
Speaker 1: And on top of that, the thing that really kind

199
00:12:20,520 --> 00:12:22,760
Speaker 1: of sticks in my cross is, you know, when companies

200
00:12:22,800 --> 00:12:25,160
Speaker 1: get breached like this, there's a very standard response. There's

201
00:12:25,160 --> 00:12:27,920
Speaker 1: a playbook now, which is, you know, you offer people

202
00:12:27,960 --> 00:12:30,720
Speaker 1: a year or two a free credit monitoring protection. These

203
00:12:30,720 --> 00:12:33,840
Speaker 1: are paying These are pay services that normally cost uh,

204
00:12:33,880 --> 00:12:37,320
Speaker 1: you know, fifteen dollars a month. Uh, you know, and

205
00:12:37,400 --> 00:12:40,720
Speaker 1: that that shields companies from liability. In other words, if

206
00:12:40,760 --> 00:12:43,320
Speaker 1: you can't prove damages and you can't prove you were harmed,

207
00:12:43,760 --> 00:12:46,240
Speaker 1: and the company says, hey, we offered these slee protections,

208
00:12:46,640 --> 00:12:48,960
Speaker 1: then you can't sue. So it's illegal. Is illegal shield

209
00:12:49,200 --> 00:12:51,240
Speaker 1: What Equifax did in this case is they didn't go

210
00:12:51,320 --> 00:12:54,160
Speaker 1: with a third party company to provide that service all

211
00:12:54,200 --> 00:12:56,800
Speaker 1: clear ideas a big company that does this LifeLock and others.

212
00:12:57,120 --> 00:12:59,520
Speaker 1: They went with their own service. They're signing people up

213
00:12:59,840 --> 00:13:03,040
Speaker 1: for for credit fraud monitoring, you know, from one of

214
00:13:03,040 --> 00:13:05,120
Speaker 1: their own services, which you know, in theory at the

215
00:13:05,200 --> 00:13:08,160
Speaker 1: end of the year, which is their their their monitoring period,

216
00:13:08,440 --> 00:13:09,760
Speaker 1: you know, they're going to try to sign you up

217
00:13:09,760 --> 00:13:12,080
Speaker 1: for the service. You're already of the database. It's very cynical.

218
00:13:12,480 --> 00:13:14,720
Speaker 1: I understand why the company would do it. Uh, you know,

219
00:13:14,760 --> 00:13:17,040
Speaker 1: it's a service under their control and they can they

220
00:13:17,040 --> 00:13:19,599
Speaker 1: can account for that. But from a public relations and

221
00:13:19,679 --> 00:13:23,600
Speaker 1: a perspective, a perception standpoint. You know, it's really it's

222
00:13:23,760 --> 00:13:26,480
Speaker 1: it's deeply cynical to be a victim of their breach

223
00:13:26,720 --> 00:13:28,040
Speaker 1: and then have to go sign up for one of

224
00:13:28,120 --> 00:13:30,800
Speaker 1: their services. Indeed, well, I know you're gonna be following

225
00:13:30,840 --> 00:13:34,000
Speaker 1: this story because it is nowhere near over talking about

226
00:13:34,080 --> 00:13:38,319
Speaker 1: Equifax and a hundred and forty three million US consumers

227
00:13:38,360 --> 00:13:43,160
Speaker 1: whose specific information, whether that is social security numbers, addresses, passwords,

228
00:13:43,679 --> 00:13:46,160
Speaker 1: user ID numbers, have been breached. I want to thank

229
00:13:46,200 --> 00:13:49,640
Speaker 1: you very much. Jordan Robertson. Robertson is our technology reporter

230
00:13:49,679 --> 00:13:52,840
Speaker 1: for Bloomberg News, joining us from our Washington, d C. Bureau,

231
00:13:52,840 --> 00:13:56,680
Speaker 1: and you can follow Jordan's at Jordan's are one thousand

232
00:13:56,800 --> 00:13:59,240
Speaker 1: on Twitter. And our thanks also to Any Troya, the

233
00:13:59,280 --> 00:14:03,880
Speaker 1: chief executive of of night Lion Security. They're based in St. Louis.

234
00:14:16,360 --> 00:14:21,080
Speaker 1: The Sheepa Corporation, the struggling Japanese conglomerate, has been trying

235
00:14:21,120 --> 00:14:25,080
Speaker 1: to sell it's immensely valuable microchip business to a group

236
00:14:25,080 --> 00:14:29,040
Speaker 1: of American and Japanese buyers. Bain Capital has emerged as

237
00:14:29,080 --> 00:14:32,160
Speaker 1: the leader, along with some other investors that are contributing money.

238
00:14:32,320 --> 00:14:35,520
Speaker 1: And now we're getting news that Apple maybe joining that

239
00:14:35,640 --> 00:14:39,920
Speaker 1: particular team to bid on this business. To discuss more,

240
00:14:39,960 --> 00:14:42,560
Speaker 1: I want to bring in Alex Sherman, Technology Media and

241
00:14:42,560 --> 00:14:45,440
Speaker 1: Telecom m and a reporter for Bloomberg News, as well

242
00:14:45,440 --> 00:14:48,040
Speaker 1: as an On Street of Austin senior semiconductor and hardware

243
00:14:48,080 --> 00:14:52,760
Speaker 1: analyst for Bloomberg Intelligence. Alex, let's start with you. Is

244
00:14:52,800 --> 00:14:55,040
Speaker 1: this a surprise Apple is joining this and what would

245
00:14:55,040 --> 00:14:57,880
Speaker 1: be the structure of this arrangement. I don't think Apple

246
00:14:57,960 --> 00:15:00,520
Speaker 1: joining it is necessarily. The surprise is they've been sort

247
00:15:00,520 --> 00:15:03,240
Speaker 1: of hovering around this process the the you know, for

248
00:15:03,360 --> 00:15:06,120
Speaker 1: months and months. What's the surprise might be the number

249
00:15:06,280 --> 00:15:10,320
Speaker 1: that they're thinking about investing in this Bain consortium, which

250
00:15:10,360 --> 00:15:12,920
Speaker 1: we broke the story yesterday that they're in talks to

251
00:15:12,960 --> 00:15:16,240
Speaker 1: invest about three billion dollars maybe even a little more

252
00:15:16,600 --> 00:15:20,080
Speaker 1: um in Toshiba's memory chip business. The strategic logic here

253
00:15:20,560 --> 00:15:23,520
Speaker 1: is simply that these chips are in iPhones, so you know,

254
00:15:23,560 --> 00:15:26,880
Speaker 1: they their flash memory chips that store photos and video

255
00:15:26,920 --> 00:15:31,680
Speaker 1: clips and augmented reality. So Apple has a you know,

256
00:15:31,760 --> 00:15:35,040
Speaker 1: has a big reason to to to to want to

257
00:15:35,040 --> 00:15:38,080
Speaker 1: have control over the future of these chips and not

258
00:15:38,160 --> 00:15:42,120
Speaker 1: to lose them um or at least lose pricing power

259
00:15:42,640 --> 00:15:45,080
Speaker 1: over them. However, you know, three billion dollars that may

260
00:15:45,080 --> 00:15:46,880
Speaker 1: not seem like a lot to Apple. You figure, what

261
00:15:47,000 --> 00:15:49,840
Speaker 1: Apple has two hundred and sixty one billion dollars of

262
00:15:49,880 --> 00:15:52,920
Speaker 1: cash on their balance sheet. What's three billion dollars? But

263
00:15:52,960 --> 00:15:55,080
Speaker 1: Apple does not have a big track record of doing

264
00:15:55,120 --> 00:15:57,040
Speaker 1: investments in M and A like this. In fact, the

265
00:15:57,120 --> 00:15:59,640
Speaker 1: largest deal they've ever done was the three billion dollar

266
00:15:59,760 --> 00:16:02,880
Speaker 1: deal for Beats a few years ago. Uh and this

267
00:16:03,000 --> 00:16:05,320
Speaker 1: may actually exceed that. So really, if you put it

268
00:16:05,320 --> 00:16:10,000
Speaker 1: into those terms, it would be Apple's largest acquisition slash investment. Ever,

269
00:16:10,720 --> 00:16:12,360
Speaker 1: I want to bring it on entrene of us and

270
00:16:12,800 --> 00:16:17,240
Speaker 1: on speak to the actual hardware and semiconductor aspect. That

271
00:16:17,360 --> 00:16:20,760
Speaker 1: is the technical sort of situation and the value that

272
00:16:20,800 --> 00:16:24,920
Speaker 1: this company has to to Apple and to Bain capital. Look,

273
00:16:25,000 --> 00:16:27,720
Speaker 1: this is supply sourcing, right, so you moreant to lock

274
00:16:27,880 --> 00:16:32,640
Speaker 1: up as many components of your supply in clear way

275
00:16:32,720 --> 00:16:35,280
Speaker 1: as possible for as long as you can, so to

276
00:16:35,400 --> 00:16:40,960
Speaker 1: the extent that you can relieve. The financing situation of

277
00:16:40,080 --> 00:16:45,440
Speaker 1: a of a key component of yours is a wind

278
00:16:45,440 --> 00:16:49,160
Speaker 1: for Apple in so far it's a commodity, right, So

279
00:16:49,280 --> 00:16:51,800
Speaker 1: the fact that they're able to get a long term

280
00:16:51,880 --> 00:16:54,800
Speaker 1: view on commodity clear sourcing. On a long term view,

281
00:16:54,840 --> 00:16:58,040
Speaker 1: it's a wind for It's a wind for Apple. Yeah one.

282
00:16:58,240 --> 00:16:59,880
Speaker 1: But if you step back and look at the longer

283
00:17:00,040 --> 00:17:02,560
Speaker 1: room carn text of Apple, Apple is fast becoming one

284
00:17:02,560 --> 00:17:05,520
Speaker 1: of the largest semiconnector companies. To the extent that it's

285
00:17:05,640 --> 00:17:10,280
Speaker 1: logic chips, highly differentiated chips with their substantial intellectual property,

286
00:17:10,520 --> 00:17:13,439
Speaker 1: Apples designing and making those chips. To the extent that

287
00:17:13,480 --> 00:17:16,800
Speaker 1: it's a commodity, it is trying to show up supply agreement.

288
00:17:16,920 --> 00:17:21,600
Speaker 1: So depending on the value of that component in the

289
00:17:21,640 --> 00:17:25,639
Speaker 1: Apple food chain, Apple staking different steps. You know, given

290
00:17:25,840 --> 00:17:29,800
Speaker 1: the importance to Apple of this business and that it's

291
00:17:29,800 --> 00:17:32,360
Speaker 1: trying to lock up its supply chain, it is a commodity.

292
00:17:32,840 --> 00:17:35,760
Speaker 1: I have to wonder, Alex, are there any other competing

293
00:17:35,840 --> 00:17:39,640
Speaker 1: bids that could even be floated that could rival this

294
00:17:39,960 --> 00:17:44,280
Speaker 1: composite bid that now includes Apple. Uh sure? So there

295
00:17:44,280 --> 00:17:46,960
Speaker 1: have been there are three bits around this, and there

296
00:17:46,960 --> 00:17:49,479
Speaker 1: have been three bits around this for some time. Although

297
00:17:49,640 --> 00:17:54,480
Speaker 1: the bit players have shifted, the biggest hurdle for a

298
00:17:54,480 --> 00:17:57,359
Speaker 1: deal to get done here still is the presence of

299
00:17:57,400 --> 00:18:01,119
Speaker 1: Western Digital which feels like it has some legal rights

300
00:18:01,800 --> 00:18:06,119
Speaker 1: to the Toshiba memory chip business through a deal it

301
00:18:06,200 --> 00:18:08,679
Speaker 1: did with sand Disc a couple of years ago. So

302
00:18:08,760 --> 00:18:12,480
Speaker 1: Western Digital has paired with KKR for a competing bid

303
00:18:12,520 --> 00:18:16,640
Speaker 1: here and sort of continues to threaten UH litigation if

304
00:18:16,680 --> 00:18:20,320
Speaker 1: in fact Toshiba decides to go with any other consortium

305
00:18:20,640 --> 00:18:22,880
Speaker 1: in the bank consortium seems like the most likely one

306
00:18:23,160 --> 00:18:25,399
Speaker 1: I mentioned earlier. Apple had been hovering around this for

307
00:18:25,440 --> 00:18:29,960
Speaker 1: a while. Initially, Apple actually back to bid from a

308
00:18:30,200 --> 00:18:33,359
Speaker 1: consortium led by fox Con, which of course makes iPhones,

309
00:18:34,040 --> 00:18:36,840
Speaker 1: But it became clear over the past few weeks that

310
00:18:37,240 --> 00:18:41,680
Speaker 1: there was very strong political opposition, Japanese opposition towards fox

311
00:18:41,760 --> 00:18:45,080
Speaker 1: Con winning a bid um given UH, you know, fox

312
00:18:45,160 --> 00:18:48,919
Speaker 1: CON's presence in China and Taiwan and the political implications

313
00:18:48,920 --> 00:18:52,760
Speaker 1: of losing a a gold star business like this UH

314
00:18:52,800 --> 00:18:55,320
Speaker 1: and and and setting it over from Japan to a

315
00:18:55,440 --> 00:18:59,440
Speaker 1: sort of you know, Chinese Taiwanese business UH that didn't

316
00:18:59,480 --> 00:19:04,160
Speaker 1: fly plow. So. So a couple of things that interesting.

317
00:19:04,320 --> 00:19:06,320
Speaker 1: One is the deal price is very high. If you

318
00:19:06,359 --> 00:19:08,320
Speaker 1: wanted the maximumount of money, you would have gone with

319
00:19:08,359 --> 00:19:12,160
Speaker 1: han Hi. Obviously, the China Japan venture doesn't fly so easily.

320
00:19:12,560 --> 00:19:16,320
Speaker 1: Western digitals interested in this in the Toshiba stake where

321
00:19:16,359 --> 00:19:21,400
Speaker 1: sandsc It's acquired entities already a JB partner. Is also

322
00:19:21,400 --> 00:19:25,480
Speaker 1: about supply. Remember that the flash memory business is relatively

323
00:19:25,520 --> 00:19:30,800
Speaker 1: consolidated with Samsung with share, so Toshiba sandes because the

324
00:19:30,920 --> 00:19:35,240
Speaker 1: next in the in the thirties, so that wouldn't have

325
00:19:35,280 --> 00:19:39,760
Speaker 1: flown that easily. So this is all about shoring up supply.

326
00:19:39,880 --> 00:19:42,840
Speaker 1: And the reason Apple is important is because they consume

327
00:19:43,640 --> 00:19:46,840
Speaker 1: of nan memory supply and too Man thanks very much

328
00:19:46,880 --> 00:19:49,800
Speaker 1: on answer us and our senior semi conductor hardware analysts

329
00:19:49,840 --> 00:19:53,320
Speaker 1: for Bloomberg Intelligence and alex A. Sherman M and a

330
00:19:53,400 --> 00:19:57,439
Speaker 1: reporter for Bloomberg speaking about Apple, Bain Capital and a

331
00:19:57,480 --> 00:20:13,440
Speaker 1: potential acquisition of Toshiba's chip business. Can we call upon

332
00:20:13,520 --> 00:20:16,879
Speaker 1: Laura Litvin, our congressional reporter for Bloomberg News who can

333
00:20:16,920 --> 00:20:19,560
Speaker 1: be followed on Twitter at Laura Litvin, l I t

334
00:20:19,840 --> 00:20:22,960
Speaker 1: v A N and Laura maybe just begin with what

335
00:20:23,040 --> 00:20:27,240
Speaker 1: was in the food last night? With the President's dinner

336
00:20:27,280 --> 00:20:31,280
Speaker 1: with Nancy Pelosi, minority leader and the Bernard leader in

337
00:20:31,320 --> 00:20:33,720
Speaker 1: the Senate, Senator Chuck Schumer. Were they eating from the

338
00:20:33,800 --> 00:20:35,919
Speaker 1: same menu, because it seems as they came away with

339
00:20:35,960 --> 00:20:39,200
Speaker 1: two different versions of the meeting. Well, they apparently ate

340
00:20:39,240 --> 00:20:41,480
Speaker 1: the same Chinese food at the meal, but they did

341
00:20:41,480 --> 00:20:44,159
Speaker 1: certainly come away with very different representations of what happened.

342
00:20:44,160 --> 00:20:46,960
Speaker 1: At least initially, UH. They seemed to pull a closure

343
00:20:47,000 --> 00:20:51,280
Speaker 1: together the UH. Senate Minority Leader Chuck Schumer and House

344
00:20:51,320 --> 00:20:53,960
Speaker 1: Minority Leader Against Plosi said last night that they had

345
00:20:54,560 --> 00:20:59,600
Speaker 1: a tentative deal with the President to marry UH protections

346
00:20:59,640 --> 00:21:02,680
Speaker 1: against deportation for eight hundred thousand young immigrants brought whose

347
00:21:02,800 --> 00:21:05,880
Speaker 1: kids with a worder security package, and they said there

348
00:21:06,080 --> 00:21:08,199
Speaker 1: was an understanding there would not be funding for a

349
00:21:08,200 --> 00:21:11,320
Speaker 1: border wall as part of that. And then Trump this

350
00:21:11,359 --> 00:21:14,760
Speaker 1: morning tweeted there was no deal UH, and but also

351
00:21:14,800 --> 00:21:19,280
Speaker 1: tweeted in UH defending the young immigrants and the fairness

352
00:21:19,280 --> 00:21:21,320
Speaker 1: of letting them stay here because their parents have brought

353
00:21:21,359 --> 00:21:24,359
Speaker 1: them here. And then he later did make some comments

354
00:21:24,359 --> 00:21:27,280
Speaker 1: to reporters where he said UH seemed to confirm the deal,

355
00:21:27,320 --> 00:21:29,119
Speaker 1: and he said he wants to pursue a wall, but

356
00:21:29,160 --> 00:21:32,520
Speaker 1: it would be later. The White House is really wrestling

357
00:21:32,560 --> 00:21:36,040
Speaker 1: with this, though, they a White House spokes appointedly said

358
00:21:36,080 --> 00:21:38,000
Speaker 1: they will not be amnesty in this bill. Wanted to

359
00:21:38,040 --> 00:21:40,840
Speaker 1: make that case this morning to reporters. Well, Laura, I

360
00:21:40,880 --> 00:21:44,040
Speaker 1: want to also touch on President Trump's comments that he

361
00:21:44,200 --> 00:21:48,000
Speaker 1: just made when he was on the tarmac in Florida.

362
00:21:48,280 --> 00:21:52,119
Speaker 1: He talked about the wall being crucial important. If the

363
00:21:52,119 --> 00:21:55,040
Speaker 1: wall doesn't get done, nothing gets done. Uh. You know,

364
00:21:55,240 --> 00:21:58,680
Speaker 1: this is is clearly talking to his base, which has

365
00:21:58,720 --> 00:22:03,520
Speaker 1: been expressing some uh dissatisfaction with his deals with the

366
00:22:03,560 --> 00:22:06,560
Speaker 1: Democrats recently. How realistic is it that he would come

367
00:22:06,560 --> 00:22:09,000
Speaker 1: through on something like that and really kind of put

368
00:22:09,040 --> 00:22:14,600
Speaker 1: the wall into some legislation. Well, I he's if you

369
00:22:14,720 --> 00:22:17,440
Speaker 1: really look at it, he's not really saying necessarily has

370
00:22:17,520 --> 00:22:20,840
Speaker 1: to be done this year or at this time when

371
00:22:20,880 --> 00:22:23,240
Speaker 1: he says that we're going to do a wall. Um.

372
00:22:23,320 --> 00:22:25,840
Speaker 1: And but the fact is the fact that he keeps

373
00:22:26,320 --> 00:22:28,720
Speaker 1: seeming to send different messages to people, and the fact

374
00:22:28,760 --> 00:22:30,840
Speaker 1: that he's under pressure and is even being attacked by

375
00:22:30,880 --> 00:22:34,679
Speaker 1: bart news headlines today that say he's amnesty don and

376
00:22:34,840 --> 00:22:38,680
Speaker 1: is being attacked by tweets by uh conservative Republican Steve

377
00:22:38,800 --> 00:22:40,639
Speaker 1: King in the House. These things are a lot of

378
00:22:40,640 --> 00:22:42,920
Speaker 1: pressure and it makes people wonder where this is going

379
00:22:42,960 --> 00:22:46,240
Speaker 1: and if things could fall apart, and um, there's some

380
00:22:46,359 --> 00:22:49,440
Speaker 1: prospect for that. But I did notice today that Republican

381
00:22:49,560 --> 00:22:51,760
Speaker 1: leaders in the Senate, two of them told us that

382
00:22:52,200 --> 00:22:56,000
Speaker 1: they do see some potential in doing something that marries um,

383
00:22:56,040 --> 00:23:00,000
Speaker 1: what's called DOCCA, the Deportation Order, the protections that Obama

384
00:23:00,400 --> 00:23:03,439
Speaker 1: put in place with a strong border security bill. Um.

385
00:23:03,480 --> 00:23:05,320
Speaker 1: They said, there's negotiating to be done, but there's some

386
00:23:05,400 --> 00:23:09,919
Speaker 1: possible uh, you know, some possible agreement here. Well, we

387
00:23:09,960 --> 00:23:13,520
Speaker 1: know that the President is also speaking in Fort Maris, Florida,

388
00:23:13,560 --> 00:23:18,760
Speaker 1: as you mentioned, arriving to check on the reconstruction and

389
00:23:18,800 --> 00:23:25,200
Speaker 1: the rescue operations related to Hurricane Irma. Do many Republicans,

390
00:23:25,680 --> 00:23:30,200
Speaker 1: Republican senators who are represent the border states, do they

391
00:23:30,200 --> 00:23:34,880
Speaker 1: really want this wall? Uh? No, there's been opposition from

392
00:23:35,520 --> 00:23:39,520
Speaker 1: border state lawmakers about a wall. Um. There's been a

393
00:23:39,560 --> 00:23:44,560
Speaker 1: real effort by members like John Cornyn from Texas, Republican

394
00:23:44,640 --> 00:23:48,040
Speaker 1: leader and the House Homeland Security Chairman might call both

395
00:23:48,040 --> 00:23:50,960
Speaker 1: are from both from Texas. Both have really pushed the

396
00:23:50,960 --> 00:23:54,359
Speaker 1: president very hard behind the scenes to treat levies that

397
00:23:54,400 --> 00:23:57,119
Speaker 1: are down along the Rio Grand River as a wall

398
00:23:57,280 --> 00:23:59,199
Speaker 1: and to put more money into those and then just

399
00:23:59,320 --> 00:24:02,320
Speaker 1: move on to other things like fencing technologies, other things

400
00:24:02,320 --> 00:24:05,959
Speaker 1: that are needed. Um and you know there there may

401
00:24:06,000 --> 00:24:08,159
Speaker 1: be some potential with the storms for Trump to pivot

402
00:24:08,160 --> 00:24:11,040
Speaker 1: and do and call that a wall. We'll have to

403
00:24:11,080 --> 00:24:13,720
Speaker 1: see how that comes together. You know, it's interesting. I'm

404
00:24:13,720 --> 00:24:18,000
Speaker 1: wondering what President Trump's relationship will be with fellow congressman.

405
00:24:18,040 --> 00:24:21,800
Speaker 1: There was quite an amazing Twitter post by Senator Chuck

406
00:24:21,880 --> 00:24:25,639
Speaker 1: Grassley which is as uh one news outlet put in

407
00:24:25,720 --> 00:24:29,200
Speaker 1: a post modern work of art um all in sort

408
00:24:29,200 --> 00:24:31,040
Speaker 1: of acronyms. Morning News says, you made a deal with

409
00:24:31,080 --> 00:24:33,960
Speaker 1: Schumer and Dacca. Have you have your staff brief me?

410
00:24:34,000 --> 00:24:37,080
Speaker 1: I know you undercut jud commission. It's like all not

411
00:24:37,200 --> 00:24:40,560
Speaker 1: English effort for by party agreement is their dissent in

412
00:24:40,720 --> 00:24:43,600
Speaker 1: just ten seconds. Do you think that Republican congressmen are

413
00:24:43,600 --> 00:24:48,120
Speaker 1: getting sick of President Trump's working with Democrats. I think

414
00:24:48,160 --> 00:24:51,680
Speaker 1: they're concerned about it. Uh In. Grassley is the chairman

415
00:24:51,680 --> 00:24:54,040
Speaker 1: of the di Ugiciary Committee with with jurisdiction over this

416
00:24:54,119 --> 00:24:56,400
Speaker 1: and seemed to be taken completely by surprise, and that

417
00:24:56,560 --> 00:25:00,600
Speaker 1: particularly is undercutting Trump's relationship with many of them. Thank

418
00:25:00,600 --> 00:25:03,280
Speaker 1: you so much for joining us. Laura Litvin, Congressional reporter

419
00:25:03,480 --> 00:25:06,439
Speaker 1: for Bloomberg. We will bring you more as we get it.

420
00:25:06,480 --> 00:25:10,480
Speaker 1: At President Trump today, kind of giving some mixed messages

421
00:25:10,520 --> 00:25:12,840
Speaker 1: trying to figure out how to move forward on the

422
00:25:12,960 --> 00:25:18,159
Speaker 1: data issue. Thanks for listening to the Bloomberg P and

423
00:25:18,280 --> 00:25:21,320
Speaker 1: L podcast. You can subscribe and listen to interviews at

424
00:25:21,359 --> 00:25:25,800
Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm

425
00:25:25,840 --> 00:25:29,280
Speaker 1: Pim Fox. I'm on Twitter at pim Fox. I'm on

426
00:25:29,320 --> 00:25:32,600
Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. You

427
00:25:32,600 --> 00:25:35,160
Speaker 1: can always catch us worldwide on Bloomberg Radio