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Speaker 1: This is Bloomberg Surveillance. The amount of momentum that we

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Speaker 1: saw in January was distinctly different from anything that we've

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Speaker 1: seen over the last four years. Unfortunately for us, for

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Speaker 1: the U S. In the near turn, when it comes

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Speaker 1: to manufacturing, we still fit in headwinds cycle. Market is

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Speaker 1: effectively recalibrating. It is taking back the losses that had

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Speaker 1: made an anticipation of a much deeper set trajectory. Bloomberg

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Speaker 1: Surveillance your link to the world of economics, finance and

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Speaker 1: investment on Bloomberg Radio. Good running everyone, Michael mckeeon time

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Speaker 1: Keen a Thursday before Jobs Day. We welcome all of

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Speaker 1: you worldwide. A lot going on today worldwide. Maybe you're

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Speaker 1: called a recovery after two days of brutal moves in

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Speaker 1: foreign exchange features up eight down, features up fifty eight.

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Speaker 1: Good morning across this nation, Serious the next TEMP Channel

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Speaker 1: one nineteen, Good Morning, Bloomberg twelve, Boston FM, Washington and Baltimore,

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Speaker 1: Bloomberg nine sixty the Bay Area, and good morning of

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Speaker 1: fog in New York Bloomberg eleven Curio UM as well.

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Speaker 1: Just the most interesting morning as we lead up to tomorrow. Again,

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Speaker 1: Bill Gross and Jim Blastman in the eight o'clock hour tomorrow.

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Speaker 1: This morning, Bloomberg Surveillance brought you by Cone Resnick Accounting,

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Speaker 1: tax advisory. Regulatory changes can impact your business. See all

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Speaker 1: the experts that Cone resident can help you navigate these complexities.

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Speaker 1: Find out more at Cone Resnec dot com. C O

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Speaker 1: H N R. E Z and I C. K. Con

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Speaker 1: Resnick dot com. Michael is a good time to speak

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Speaker 1: to J. B. Diamond's favorite academic. And it's a good

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Speaker 1: time and added Body, finance professor from Stanford University, uh

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Speaker 1: the author of the book The Banker's New Clothes. Um

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Speaker 1: Thomas being sarcastic, of course never you were just up

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Speaker 1: in Minneapolish for the Minneapolis Fed Thomas meeting Neil cash Carry,

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Speaker 1: the president of fed UP. There is holding a series

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Speaker 1: of seminars on how he originally said we should break

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Speaker 1: up the banks. Now he's backed off that a little bit,

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Speaker 1: So maybe we call this on how best to regulate banks?

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Speaker 1: But but how did the first one go? Well? Um,

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Speaker 1: obviously I'm thankful that he had that event and that

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Speaker 1: he invited me there. Um I said what I had

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Speaker 1: to say, and I'm not sure I think afterwards. There

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Speaker 1: was one good thing he did, which is he uh

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Speaker 1: dismissed this new invention which is just a variation on

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Speaker 1: an earlier Tier two capital called t LAX and said,

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Speaker 1: how about like just equity if you want to observed losses.

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Speaker 1: So that was kind of a the one obvious step there,

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Speaker 1: and so we'll say where where it comes out. But um,

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Speaker 1: you know, there there were different different views expressed. I

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Speaker 1: think I did a little better than Simon Johnson, who

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Speaker 1: was just completely slammed by the discussants afterwards for some

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Speaker 1: size caps. But I may have resonentedly. You know, you're

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Speaker 1: you're not suggesting that we impose size caps on the banks.

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Speaker 1: That wasn't my suggestion. My hope is that through other

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Speaker 1: changes they will become smaller than there will be pressures

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Speaker 1: on them. And there's some beginning to through these living

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Speaker 1: whales and other things they're threatening. I'm told, I believe

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Speaker 1: it when I see it that when they failed the

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Speaker 1: living wills one more time, uh in October, then maybe

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Speaker 1: something might actually happen. They got to get to October,

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Speaker 1: and I believe the first quarter in eight worldwide for banking,

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Speaker 1: the new banking of too Big to Fail banking has

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Speaker 1: been moldy. What what do you ascribe to the moldiness

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Speaker 1: of the moment? You have a entirely different ProView from

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Speaker 1: Stanford and every sale side analysts we speak to. I

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Speaker 1: don't know, I don't talk to as many analysts as

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Speaker 1: you do over here. Uh. My view is, first of all,

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Speaker 1: that you see mold when you know the world is

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Speaker 1: kind of muddling along and there's a lot of problems

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Speaker 1: in the world, and when you have a lot of leverage,

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Speaker 1: the downside doesn't look pretty well. The headline here and

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Speaker 1: that is so important. If we get global growth, do

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Speaker 1: you see a healthier banking system, Well, it might come

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Speaker 1: the other way around. I think that getting a healthier

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Speaker 1: banking system could be a precursor to better growth because

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Speaker 1: I think they're just dysfunctional at at these sort of

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Speaker 1: you know, zombie or near zombie stage that they kind

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Speaker 1: of always muddle in and lengthened recessions and all of that.

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Speaker 1: So look at Europe where you know they're telling you

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Speaker 1: why aren't the bank lending? Well, of course there's got

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Speaker 1: to be demand and all of that, so other things

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Speaker 1: might need to happen. But I think leaving the banks

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Speaker 1: to to kind of hope to get better on their

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Speaker 1: own when the system is so bloated instead of you know,

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Speaker 1: cleaning up that system is part of what's wrong with

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Speaker 1: the world. Well, they at a relative basis, the USS

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Speaker 1: has gone farther than Europe though, that's right. Well, Europe

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Speaker 1: is a complete mess because there's a lot of symbiosis

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Speaker 1: between banks and governments in Europe and they really haven't

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Speaker 1: sold out. There's just a lot of really ugly politics

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Speaker 1: in the euro Zone especially, and they've just had multiple

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Speaker 1: different problems, so from the subprime straight to their sovereign problems.

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Speaker 1: You know, they have a lot more banking problems than

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Speaker 1: we in a really dysfunction, and they depend more on banking,

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Speaker 1: so banks are bigger in Europe relatives, So now Italian

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Speaker 1: banks are falling part and the whole banking union is

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Speaker 1: a mess. So anyway, yes, the US is a bit better.

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Speaker 1: US is more diverse, financial markets, a little bit less

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Speaker 1: dependent on banks. I mean, I'm I'm not happy with

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Speaker 1: with I think the whole global system is very fragile,

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Speaker 1: but so stand back and hopefully I hope it doesn't

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Speaker 1: implode tomorrow, which you know, who knows well the the

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Speaker 1: banking system had a rough cork to put it. My uh,

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Speaker 1: does that suggest to you that in fits and starts,

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Speaker 1: Dot Frank is working fits and starts? This is about right.

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Speaker 1: It depends what you call working. I mean, you know,

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Speaker 1: the people have different aspirations for what can happen. My uh,

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Speaker 1: you know were but we're more. When I started into

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Speaker 1: this six years later, I am. I'm thankful for any

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Speaker 1: little progress. So I kind of added my explantations of

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Speaker 1: bit you mentioned earlier bloated, which sets up the most

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Speaker 1: delicious tension. If I'm in a car right now worldwide

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Speaker 1: in New York, wherever, in London, and I'm listening to you,

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Speaker 1: I'm saying, okay, we're bloated. So the solution in every

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Speaker 1: era is combination, which means M and A, which means

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Speaker 1: bigger banks. Which way do you want to go bigger

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Speaker 1: banks or no M and A and stay bloated? Well

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Speaker 1: bloated is that could be a whole system of a

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Speaker 1: lot of little ones, So it doesn't have to be

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Speaker 1: M and A. So you know, the solution to weak

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Speaker 1: banks is not necessarily to be swallowed by by another bank.

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Speaker 1: What is the solution, Well, you might need to unwind

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Speaker 1: some banks, for example, the system might need to shrink

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Speaker 1: a little bit, because it's when you have access capacity

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Speaker 1: in any industry, then you know there's a sort of

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Speaker 1: a struggle for survival. Is there a history of eliminating

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Speaker 1: banks without combination. I've never read that. Well, I don't

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Speaker 1: know what cleaning up a banking system means. I mean

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Speaker 1: we have sometimes give an example of Sweden, you know,

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Speaker 1: in the nine in the early nineties for for something

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Speaker 1: like that. The problem right now is, I mean, the

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Speaker 1: bloatedness is sort of is part of it is a

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Speaker 1: very interconnected system. So a lot of balance sheet bank

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Speaker 1: balance sheets are sort of within the system, not going

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Speaker 1: out into the real economy. So I think part of

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Speaker 1: it is sort of to try to simplify structures which

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Speaker 1: already you know, there's just a lot of back and

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Speaker 1: forth on the balance sheet. You know, I can tell you,

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Speaker 1: you can sell me, we can have a big balance sheet.

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Speaker 1: So some of the balance sheet is just a lot

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Speaker 1: of churning within. And so I think the the once

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Speaker 1: you start unpacking some of these balance sheets, I'm not

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Speaker 1: sure exactly what what will what what a linear system

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Speaker 1: would would would look like, but I do not want bigger,

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Speaker 1: bigger of the bigger banks, that's for sure, But who

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Speaker 1: would decide what you unpack? That's the problem. That's why

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Speaker 1: I like equity requirements because I'm I'm hoping although somebody

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Speaker 1: said that their way, they have ownership structure restrictions on

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Speaker 1: bank holding companies, would prevent investor pressure literally uh, pushing

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Speaker 1: banks to break up, which of course it was a

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Speaker 1: failed proposal in city. Uh. But so the question is

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Speaker 1: until it becomes the pressure becomes more like conglomerates faced

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Speaker 1: when they were to bload it. Because I think that

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Speaker 1: investors like linear companies. What you hear from investors in fact,

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Speaker 1: that they are uninvestable at the size, that they're too opaque.

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Speaker 1: I mean, this was you know, from Paul Singer. This

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Speaker 1: was when you just heard recently warning is about derivatives.

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Speaker 1: You know, Singer has that this endeavors. When when we

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Speaker 1: were there a couple of years ago, I didn't come

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Speaker 1: again to be ignored again. Uh. And but but recently

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Speaker 1: Warren Buffett said another again that this is a ticking

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Speaker 1: time bomb, that a counting issues are not dealing with

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Speaker 1: it the same things. So there's been a lot of

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Speaker 1: warnings about some of these lurking risks around even off

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Speaker 1: balance sheet, the risks higher, as you say, though, in

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Speaker 1: Europe than even here. For sure, Europe is very scary.

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Speaker 1: What can they get out of it? Or are we

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Speaker 1: going to see an explosion? In Europe is a deep

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Speaker 1: political problem because there their governments depend on banks, and

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Speaker 1: banks depend on government and everybody depends on ECB right now.

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Speaker 1: So e CB, the European Central Bank is like the

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Speaker 1: the only game in town in Europe right now for everybody,

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Speaker 1: for the governments too, because it's gonna roll that currency.

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Speaker 1: Let's come back. Another body with Stanford is we look

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Speaker 1: at banks and her critical eye on their path forward,

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Speaker 1: not only the two big failed banks, but the rest

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Speaker 1: of the American banking system. Features up eleven earlier. They've

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Speaker 1: given way a little bit. I don't want to understell

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Speaker 1: it now. The VIX trading, the VIX starts trading three

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Speaker 1: yeah in the morning, and so it's something new. We

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Speaker 1: usually quote a static VIX which begins at nine thirty.

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Speaker 1: That's not the case to VIX does better this morning.

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Speaker 1: Less for your fifteen point five nine in point four

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Speaker 1: six vix points a ten year yield one point eight

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Speaker 1: zero percent a churn to the market. Oil up though

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Speaker 1: West Texas up a dollar sixty two right now forty

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Speaker 1: five forty two per barrel, and the end finally weaker

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Speaker 1: for two days one oh seven fourteen, a weaker Japanese yen.

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Speaker 1: Let's check in with Michael bar and get the latest

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Speaker 1: world and national headlines. Michael, Mike, Tom, thank you very much.

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Speaker 1: A proposal coming today from the nation's top in sumer

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Speaker 1: financial regulator would give account holders of all kinds of

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Speaker 1: another weapon in disputes with the banks or other institutions.

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Speaker 1: The Consumer Financial Protection Bureau wants to ban mandatory arbitration clauses,

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Speaker 1: which would affect the entire financial industry and the hundreds

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Speaker 1: of millions of bank accounts, credit cards, and mortgages that

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Speaker 1: Americans use. Now, US bank customers have mostly signed away

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Speaker 1: their right to sue the bank. Workers living in New

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Speaker 1: York City who also have caregiving responsibilities at home now

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Speaker 1: have a stronger safety net. A new law has taken

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Speaker 1: a fact to protect employees from termination, demotion, or denial

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Speaker 1: of promotion because of their standards as a family caregiver.

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Speaker 1: Global News twenty four hours a day, powered by our

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Speaker 1: twenty four hundred journalists Michael barn Right Town and Michael,

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Speaker 1: thanks so much. Tomorrow job say James Glasson and Bill Girls.

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Speaker 1: You've got the a team with us to provide perspective

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Speaker 1: as we go. Beneath the headline data at eight thirty

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Speaker 1: worldwide to Bloomberg Surveillance. The news update brought to you

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Speaker 1: by Mercedes Ben's outstanding offers are in full Blue met

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Speaker 1: business news twenty four hours a day at Bloomberg dot com,

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Speaker 1: the radio plus mobile lap and on your radio. This

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Speaker 1: is a Bloomberg Business Flash and I'm Karen Moscow. US

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Speaker 1: Dock Index futures are rising, so is nim X screwde

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Speaker 1: oil up four point one percent this morning. Let's go

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Speaker 1: to the First Word Breaking news desk for today's morning call.

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Speaker 1: Here's Bill Maloney. Good morning Bill, Good morning Karen. That's right.

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Speaker 1: Futures are higher on this busy day for earnings US

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Speaker 1: ten yield at one point eight percent, and doubt futures

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Speaker 1: currently hired by fifty seven points, says He's gains seven

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Speaker 1: and a half and NAZAC futures rise by seventeen. On

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Speaker 1: the US economic front, at eight thirty, Initial Office claims

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Speaker 1: estimate two hundred and sixty thousand and Attend thirty natural

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Speaker 1: gas storage change. After the bells night, Fitbit teach you

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Speaker 1: a just STPs view missed, low assessments, Kraft heins beat,

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Speaker 1: MetLife missed, and Tesla is up four percent pre market

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Speaker 1: after its results. Regarding earnings today, Regenera and Ali, Bob

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Speaker 1: mc kellogg, and Mark were all mixed, while Martin Marietta

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Speaker 1: beat and Deal News Tribunes board rejected Gannett's takeover bid,

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Speaker 1: and another news Costco April comps sales missed estimates shares

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Speaker 1: it down to percent pre market. Finally, some of the

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Speaker 1: early Wall Street upgrades and downgrades China Lodge and cut

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Speaker 1: the neutral of like Goldman, Sachs, add Morgan, Stanley, g

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Speaker 1: and C Holdings cut to equit to ex Sporting cut

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Speaker 1: to underweight, Gennec and Wyoming cuts a hold over At

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Speaker 1: Steve full Live from the first Breaking News Desk, com

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Speaker 1: Bill Maloney, Karen Very thanks Bill to hear live breaking

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Speaker 1: news over your Bloomberg type squawk go on your terminal,

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Speaker 1: that's sq you a w k go and that's a

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Speaker 1: Bloomberg business flash. Tom and Mike Karn, thanks so much.

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Speaker 1: Bloomberg Surveillance brought you by and Esco. Factor based strategies

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Speaker 1: Investco dot com slash high conviction. There isn't her book,

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Speaker 1: The Banker's News Clothes a chapter? If not? Now, when

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Speaker 1: a not a body with US of Stanford in our

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Speaker 1: studios in New York and not you are an email

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Speaker 1: magnet bankers worldwide, email in and say what is her prescription?

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Speaker 1: What is your prescription for our banks? I mean, there's

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Speaker 1: got to be a to do away from academics much

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Speaker 1: more towards what do we really do? What do they

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Speaker 1: do well? I mean you might say that this makes

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Speaker 1: them more bloated, but I say, for want immediately, anybody

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Speaker 1: who has any profits should retain them and not pay

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Speaker 1: them out. I mean Hu and Shin from BS, nobody

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Speaker 1: would be their shareholders. Nobody would be their shareholders. Well,

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Speaker 1: the shereholders that are there are already there. If they

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Speaker 1: if the stock price goes down, it would be a

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Speaker 1: correction for the fact that they would should absorb their

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Speaker 1: own lives. So you're saying that the major banks should

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Speaker 1: eliminate dividends, eliminate if they can pay dividends. But any

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Speaker 1: supporters on that in Washington, Well, I mean I said

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Speaker 1: it would be I s just called for it. Uh,

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Speaker 1: And I think that's like your best stress test is

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Speaker 1: to show us what you're worth in market, and if

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Speaker 1: they're worth very little, that just means that they live

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Speaker 1: so much on subsidies. In other ways, if they get

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Speaker 1: deluded a lot, that just means that they're taking all

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Speaker 1: more downside risk because you have to risk bank. Essentially,

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Speaker 1: they're not willing to go out and do an equity

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Speaker 1: because their existing ones get deluded because you're bearing downside

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Speaker 1: risk that otherwise you can shift on to others. That's

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Speaker 1: all that's going on. And so their intense hate of

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Speaker 1: equity only shows me that they're a weak because this

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Speaker 1: is the symptom. So Minneapolis fed I had a slide

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Speaker 1: that had a picture of a zombie sort of a

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Speaker 1: picture of a of a it's like a coffin and says,

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Speaker 1: do don't open that inside is said, and I had

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Speaker 1: a list of symptoms of insolvency, and the symptoms include

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Speaker 1: making money out. How come we could do equity cash

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Speaker 1: calls here and they work out as a general statement,

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Speaker 1: and they're unable to do an equity cash call. In Europe,

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Speaker 1: it suggested their banks are very sick. I mean that

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Speaker 1: is what happens when banks, when any corporation is very sick.

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Speaker 1: The definition of insolvency is the inability to raise more

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Speaker 1: equity because nobody's going to buy your upside and you're

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Speaker 1: downside together from where you are right now, you know

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Speaker 1: you're basically bust. So the question I have is, show

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Speaker 1: me capital ratios that were all flat to the crisis.

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Speaker 1: I don't believe them. What I see is symptoms. I

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Speaker 1: see symptoms that show unhealthy corporations. So view me as

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Speaker 1: a corporate doctor. And you see these institutions and I say,

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Speaker 1: something's wrong with them. How do they even make it

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Speaker 1: through another day? Well, they make it through another because

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Speaker 1: they don't actually default, and because they don't have normal

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Speaker 1: creditors who are going to force them into default, even

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Speaker 1: though they could very well be insolvent. That's the problem

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Speaker 1: in banking that you can persist in insolvency for a

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Speaker 1: long time or near insolvency, which other corporations can't. There

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Speaker 1: are people who are suggesting lately that part of the

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Speaker 1: big problem for those banks and for the banks in

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Speaker 1: the United States, the central banks, that they're the enablers

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Speaker 1: here because they're financializing everything. You hit it exactly right.

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Speaker 1: So central banks, this is a very good point. Central

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Speaker 1: banks are enormous players, and among other things, they keep

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Speaker 1: their kind of the the give the tender loving care

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Speaker 1: to the private banks, sort of enabling them. You can

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Speaker 1: see what happens when they withdraw support, like when they

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Speaker 1: can be very harsh on Greece. That was really actually

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Speaker 1: nasty because that was Germany forcing the European Central Bank

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Speaker 1: to make a bad situation in Greece ever worse over

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Speaker 1: the summer by closing their that ELA then emergency liquidity

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Speaker 1: assistance from just the Greek banks. But in the rest

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Speaker 1: of the place they're keeping governments. That's why I said,

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Speaker 1: e CBS calls the shots in Europe. It keeps the

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Speaker 1: governments and the banks alive everywhere, and and it is

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Speaker 1: their ability. And if you look at what Bloomberg uncovered

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Speaker 1: about the loans of the various liquidity facilities through the crisis.

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Speaker 1: You know, they suddenly decide which collateral is good or not,

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Speaker 1: which haircut to give or not, and all of a

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Speaker 1: sudden they're keeping everybody alive. Do you discern excellence anywhere

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Speaker 1: in American banking? Is there one bank? I mean, you know,

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Speaker 1: we talk about M and T and Buffalo as being

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Speaker 1: an original experiment, but is there one major bank and

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Speaker 1: all the seleb slash CEOs that we uh follow and

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Speaker 1: speak to, is there somebody nudging towards a mighty best practices?

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Speaker 1: They don't have incentives personally to do this. It's got

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Speaker 1: to be a collective action. In fact, when I have

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Speaker 1: dressed in two thousand and ten, when Jamie Diamond had

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Speaker 1: a big, you know, cover story in the New York

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Speaker 1: Times magazine saying that he's the banker we hate the least,

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Speaker 1: I had an OpenD in that morning in Huffington Post.

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Speaker 1: It was actually my first top head in which was

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Speaker 1: very long to tour it on corporate finance, and they

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Speaker 1: and I addressed Jamie Diamond directly. My one mistake was

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Speaker 1: I said he wants to be as big as Walmart

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Speaker 1: when he was already ten times bigger than Walmart at

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Speaker 1: the time. But what I said was why don't you advocate?

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Speaker 1: And in a letter to to to the board, I

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Speaker 1: also said that wh don't you advocate for higher capital

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Speaker 1: requirements for all? But allows to that is excell Weiber

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Speaker 1: actually who is an ex academic who gets it and

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Speaker 1: and so so you get some CEOs who actually understand

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Speaker 1: the rest of them will just say those those things,

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Speaker 1: and I don't know that CEOs. I keep track. I'll

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Speaker 1: tell you who. I had dinner with his risk manager

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Speaker 1: and they do some good work. We're gonna have to go,

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Speaker 1: but you gotta come back or we gotta speak to

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Speaker 1: you from Palo Alto, including the Minnesota. I'm meeting with

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Speaker 1: carry and not a Madi. Thank you, Global Wall Street Worldwife,

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Speaker 1: You're needed emails. I miss somebody's appearance. This is Bloomberg's

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