WEBVTT - CEO James Stone on New Book: Five Easy Theses (Correct)(Audio)

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<v Speaker 1>Broadcasting live to New York, Bloomberg eleventh Rio to Washington,

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<v Speaker 1>d C. Bloomberg to Boston, Bloomberg twelve hundred to San Francisco,

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<v Speaker 1>Bloomberg nine to the country, US Exam General one nineteen

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<v Speaker 1>and around the globe the Bloomberg Radio Plus Appen Bloomberg

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<v Speaker 1>dot Com. This is taking Stock. I'm Kathleen Hayes. My

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<v Speaker 1>co host Pim Fox is on assignment this Friday afternoon.

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<v Speaker 1>Could it be as easy as five easy faces to

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<v Speaker 1>give us common sense solutions to America's greatest economic challenges.

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<v Speaker 1>We're gonna be speaking now with James Stone, new York

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<v Speaker 1>Times best selling author about his new book, where I

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<v Speaker 1>especially talked to him about financial reform, What's wrong with

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<v Speaker 1>the banks? This from a man who has been there

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<v Speaker 1>and done that. He's worked in the financial services industry.

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<v Speaker 1>His critiques and ideas are going to be oh so interesting.

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<v Speaker 1>He's always also interesting. He's in the newsroom. His name

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<v Speaker 1>is Charlie Pellett, and he's got a Bloomberg Business flash

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<v Speaker 1>and I thank you very much, Athlene Hayes. We're looking

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<v Speaker 1>at a down day here with the Dow, the SMP

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<v Speaker 1>nestak all declining, We are brought to you by van

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<v Speaker 1>dot com slash Muni van Eck access the opportunities. Stocks

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<v Speaker 1>are retreating SMP heading for the steepest drop in two months,

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<v Speaker 1>amid caution over tepid global growth and a series of

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<v Speaker 1>looming events with the potential to spur renewed market turbulence.

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<v Speaker 1>Right now, we've got the SMP five hundred index down

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<v Speaker 1>one a down twenty four points, a drop there of

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<v Speaker 1>one one percent, to two thousand ninety one down. Industrials

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<v Speaker 1>down one eight a drop of nine tenths of one percent.

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<v Speaker 1>Nastac is down seventy two, a drop there of one

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<v Speaker 1>and a half percent. Murray Gunn is head of technical

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<v Speaker 1>analysis at h S b C Securities in London. He's

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<v Speaker 1>looking for what he calls a market melt. Once the

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<v Speaker 1>market starts moving up, you're going to see a bit

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<v Speaker 1>of a scramble, I think for people to get in

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<v Speaker 1>to the market. The one issue we have at the moment,

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<v Speaker 1>the one potential problem is the fact that on balanced

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<v Speaker 1>volume has not passed its previous peak, SOEL really would

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<v Speaker 1>like to see on balanced volume move up above that.

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<v Speaker 1>But if we move about twenty one thirty four on

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<v Speaker 1>the SMP five hundred, there's a potential target for twenty

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<v Speaker 1>sixty three in terms of an Elliott waves what we

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<v Speaker 1>call wave equality target. And right now the SMP of

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<v Speaker 1>gold up five eighty, the ounce twelve seventy eight, a

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<v Speaker 1>gain of point four percent to thirty two on Wall Street.

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<v Speaker 1>Now let's look at other news from around the world

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<v Speaker 1>on Bloomberg Radio. Thank you, Charlie from the Bloomberg Newsroom.

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<v Speaker 1>I'm Scarlet Food. Although how Speaker Paul Ryan called Donald

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<v Speaker 1>Trump's attack of a federal judge a textbook definition of racism,

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<v Speaker 1>he is still supporting the Republican presumptive nominee. I believe

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<v Speaker 1>that he's certainly better than Hillary Clinton. These are the

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<v Speaker 1>choices that we have. And here's the question I asked,

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<v Speaker 1>do I believe that these principles and these policies that

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<v Speaker 1>flow from those principles have a better chance of making

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<v Speaker 1>the law with Donald Trump and Hillardy Glinn. Absolutely. I

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<v Speaker 1>do believe that Senate Majority Leader Mitch McConnell tells Bloomberg

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<v Speaker 1>Politics Trump's attacks on ethnic groups and other Republicans need

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<v Speaker 1>to end. He says Trump needs to pick an experienced

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<v Speaker 1>running mate because quote, he doesn't know a lot about

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<v Speaker 1>the issues. Fans line the streets of Louisville to say

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<v Speaker 1>a final goodbye to hometown hero Muhammad Ali. Cleon Robertson

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<v Speaker 1>was a high school classmate him, also running through the

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<v Speaker 1>hall uh Patton on the going down the hallways. Ali

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<v Speaker 1>was seventy four when he died. Last week. A memorial

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<v Speaker 1>service is being held to honor the three time heavyweight champ.

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<v Speaker 1>Former President Bill Clinton is among those expected to speak.

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<v Speaker 1>Police are investigating the fire bombings of two Staten Island

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<v Speaker 1>churches in the same week as possible hate crimes. Police

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<v Speaker 1>say a man toss a malta of cocktail Thursday at

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<v Speaker 1>the First Central Baptist Church on Staten Island, setting the

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<v Speaker 1>exterior wall of the church and its awning on fire.

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<v Speaker 1>On Sunday, a Molotov cocktail was thrown through a window

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<v Speaker 1>of St. Paul's Memorial Episcopal Church, causing a small fire.

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<v Speaker 1>Both churches are in the Stapleton neighborhood. No arrests have

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<v Speaker 1>been made global news twenty four hours a day, powered

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<v Speaker 1>by twenty journalists and more than one fifty news bureaus

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<v Speaker 1>around the world. From the Bloomberg Newsroom, I'm Scarlet Foo Charlie,

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<v Speaker 1>and we thank you and again recapping s some P

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<v Speaker 1>five hundred index down twenty four points to two thousand

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<v Speaker 1>ninety one. Drop there of one. I'm Charlie Pellett and

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<v Speaker 1>that's a Bloomberg Business Flash. This is taking Stock with

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<v Speaker 1>Kathleen Hayes and Grim Fox on Bloomberg Radio. The biggest

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<v Speaker 1>economic challenges facing America could be solved with five easy

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<v Speaker 1>feces some common sense solutions, so writes James Own, founder,

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<v Speaker 1>chairman and CEO of the Plymouth Plymouth Rock Group in Boston.

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<v Speaker 1>He joins us today from there, I just have to

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<v Speaker 1>quickly know. First of all, I want to say welcome Jim.

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<v Speaker 1>It's great taddy on the show. Thanks glad to be

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<v Speaker 1>with you. I also want to let our our our

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<v Speaker 1>listeners know a little bit about your background. You you

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<v Speaker 1>taught economics, You got your PhD in economics at Harvard.

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<v Speaker 1>You were the Massachusetts Insurance Commissioner from seventy to seventy nine.

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<v Speaker 1>You were Chairman and Commissioner of the CFTC, the Commodity

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<v Speaker 1>Futures Trading Commission, you found the Plymouth Rock. I could

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<v Speaker 1>go on and on, but you are a guy who

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<v Speaker 1>really knows business. You're not just you're you know, you're

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<v Speaker 1>not You're not only an academic. And I think that's

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<v Speaker 1>one of the things that makes this book so powerful.

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<v Speaker 1>What drove you to write it? Well, I felt I

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<v Speaker 1>had some unfinished business from my time in Washington. I

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<v Speaker 1>didn't convince people when I was there of the dangers

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<v Speaker 1>of derivatives and over financialization of the economy, and so

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<v Speaker 1>this book was a chance to link my three careers

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<v Speaker 1>and take another crack at convincing people. Well let's start

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<v Speaker 1>there then, because you're an not the only person who

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<v Speaker 1>tried to convince uh, the world that there were dangerous

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<v Speaker 1>and derivatives. And you're up against the likes of Alan Greenspan,

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<v Speaker 1>you know, the former Fed gereman. There's a lot of

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<v Speaker 1>things right, but this is one thing he didn't recognize,

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<v Speaker 1>nor did Larry Summers, who became Treasury Secondary Uh, you know,

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<v Speaker 1>nor did many other regulators in Washington. What is your

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<v Speaker 1>common sense solution and why do you say there's still

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<v Speaker 1>so much risk in the financial system. Well, the financial

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<v Speaker 1>system didn't really get improved after the last crash. You know,

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<v Speaker 1>after the crash, the big lessons were learned, and the

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<v Speaker 1>big lessons are simple, which is less leverage and more disclosure.

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<v Speaker 1>I think Dodd Frank was a step forward, but it

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<v Speaker 1>didn't solve either of those things. And today the largest

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<v Speaker 1>banks have bigger derivative open positions than they had before

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<v Speaker 1>the crash, and the ten largest banks have two hundred

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<v Speaker 1>trillion in open derivative positions, three times the world's GMP.

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<v Speaker 1>So one of the things that you describe, that you

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<v Speaker 1>suggest has to do with a meaning fair reserve requirement

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<v Speaker 1>for derivatives. How would that work? Every time a derivatives

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<v Speaker 1>position is opened. Uh, you've got some counterparty risks, some

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<v Speaker 1>basis risks, some liquidity risks, some human error risk. You've

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<v Speaker 1>always got some risk. And so today that a bank

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<v Speaker 1>or other holder these derivatives doesn't have to record these

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<v Speaker 1>derivatives in any way that causes a reserve because they

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<v Speaker 1>met them against one another. But the netting doesn't get

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<v Speaker 1>rid of any of those risks that I just listed.

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<v Speaker 1>It does get rid of some risk of market movement,

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<v Speaker 1>So netting, you know, is a partial thing and not

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<v Speaker 1>a complete thing. They should have to put up reserves,

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<v Speaker 1>and if you had to put up even a fairly

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<v Speaker 1>small reserve, even a very small reserve, against these huge numbers,

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<v Speaker 1>you wouldn't have the positions and we'd be better off

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<v Speaker 1>if the banks didn't have them by a lot. A

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<v Speaker 1>couple other let's a couple hit on a couple of other.

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<v Speaker 1>Five thesis besides, what needs to be done to make

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<v Speaker 1>banks are really safe? And institutions that really a grease

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<v Speaker 1>the wheels of commerce instead of pulling the wheels off

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<v Speaker 1>of it. So security, what would you do with so security? Well,

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<v Speaker 1>social security, unfortunately, is going to need to be changed

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<v Speaker 1>in a way that nobody really likes. But it is

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<v Speaker 1>inevitability because the current eligibility age was set when people

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<v Speaker 1>live to be in their sixties, and now people lived

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<v Speaker 1>to be roughly eighty. Um. If we make great progress

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<v Speaker 1>in cancer, which I think we will, people will live

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<v Speaker 1>routinely into their nineties, We're going to have to raise

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<v Speaker 1>the eligibility age. And the sooner we do it, the

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<v Speaker 1>less painful it is because we can do it gradually,

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<v Speaker 1>and too many politicians want to wait until there's a crisis,

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<v Speaker 1>you know, speed up the brick wall, and then say,

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<v Speaker 1>crisis crisis, we've got to fix it. But then you've

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<v Speaker 1>got to fix it quickly and disruptively. We should fix

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<v Speaker 1>it now. So you want everybody wants fiscal balance, But

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<v Speaker 1>the way you look at fiscal balance is different from austerity.

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<v Speaker 1>So that's been a very contentious issue in Europe the

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<v Speaker 1>past several years. May people say those those solutions to

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<v Speaker 1>their crisis helped make even worse problems for countries like

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<v Speaker 1>Greece and others. What do you mean by fiscal balance

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<v Speaker 1>in the United States? Yeah, if you want to have

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<v Speaker 1>a lower deficit, if you want to come close to

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<v Speaker 1>balance in the budget, or even balance it the whole

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<v Speaker 1>way you can do that. Fiscal policy ought to be

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<v Speaker 1>used stimulus when you need it, and um to have

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<v Speaker 1>no deficit when you don't need it. But the best

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<v Speaker 1>way to fix it is to get rid of tax expenditures.

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<v Speaker 1>Appropriations get a lot of attention every year, they get

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<v Speaker 1>argued about, but our budget is full of tax expendatures

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<v Speaker 1>at his deductions that really don't do any good. And

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<v Speaker 1>although it's going to sound controversial, I would get rid

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<v Speaker 1>of the home interest deduction. I think that's a terrible

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<v Speaker 1>piece of public policy, and I'd get rid of the

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<v Speaker 1>corporate interest deduction. If you got of those two deductions,

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<v Speaker 1>you don't have to change appropriations, you don't change stimulus.

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<v Speaker 1>You would immediately balance the budget because those equal about

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<v Speaker 1>the deficit. The trouble with the home interest deduction is

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<v Speaker 1>that the bottom third of the population, the people you

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<v Speaker 1>want to help most are rankers. They get no benefit

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<v Speaker 1>from it. The next third don't itemize, they get no

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<v Speaker 1>benefit from it. It's only the top third and its

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<v Speaker 1>subsidizes the biggest home. All right, well, James Stone, thank

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<v Speaker 1>you so much for joining us today and giving us

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<v Speaker 1>I tasted your very erudite, very interesting new about five

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<v Speaker 1>easy pieces, common sense solutions to America's greatest economic challenges.

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<v Speaker 1>I'm Kathleen Hayes. This is taking Stock on whom the radio.

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<v Speaker 1>This Hampton's Commuter Minute is brought to you by Landrover.

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