WEBVTT - Harvard's Scott Says Brexit Could Trigger Market Panic (Audio)

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<v Speaker 1>Broadcasting live to New York, Bloomberg even to Washington, d C,

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<v Speaker 1>Bloomberg to Boston, Bloomberg twelve under to San Francisco, Bloomberg

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<v Speaker 1>to the countries is at JAM General one, and around

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<v Speaker 1>the globe the Bloomberg Radio plus dav and Bloomberg got gone.

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<v Speaker 1>This is taking stock the battle for Britain's future. Our

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<v Speaker 1>next guest says that departs are of the United Kingdom

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<v Speaker 1>from the European Union could trigger a panic for financial markets.

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<v Speaker 1>We've got details. That's all coming up. Hal Scott's he's

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<v Speaker 1>a Harvard law professor, an expert on international finance and

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<v Speaker 1>securities regulation. We must hear what he has to say

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<v Speaker 1>because the leave vote once again is looking stronger in

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<v Speaker 1>the latest polls from the UK. Let's get back to

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<v Speaker 1>Charlie Pellett. Now he's in the newsroom of the polemic

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<v Speaker 1>Business Flash and I think you very much, Kathleen. We

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<v Speaker 1>are brought to you by the American Arbitration Association International

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<v Speaker 1>Trade to our business dispute Resolve Faster with the International

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<v Speaker 1>Center for Dispute Resolution, the leader in alternative dispute resolution

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<v Speaker 1>around the world. I see d R dot org. Now

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<v Speaker 1>the developing story Platinum Partners offices being rated by federal

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<v Speaker 1>agents looking into the hedge funds operations after a manager

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<v Speaker 1>at the firm was charged this month with bribing a

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<v Speaker 1>union chief. This according to a person familiar with the matter.

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<v Speaker 1>Agents from the FBI and the US Postal Inspection Service

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<v Speaker 1>were at Platinum's offices in Midtown Manhattan this morning. According

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<v Speaker 1>to the person who says the rate is separate from

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<v Speaker 1>the bribery probe, stocks are fluctuating light volume amid fragile

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<v Speaker 1>sentiment as Trader's way. The probability of the UK voting

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<v Speaker 1>to remain in the European Union a day ahead of

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<v Speaker 1>the referendum, an early climb for equities lost momentum after

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<v Speaker 1>Brexit polls released today quelled optimism. John Writing is chief

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<v Speaker 1>economist at r d Q Economics. Well Shirley Brexit vote

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<v Speaker 1>is not about economic policies, much more about immigration and

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<v Speaker 1>uh something that there's been Uh there is, I suppose

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<v Speaker 1>in the English British psychea a deep seated distrust of

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<v Speaker 1>of Europe. Fed X falling the most in five months

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<v Speaker 1>after disappointing investors by not providing more specifics on how

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<v Speaker 1>the four point eight billion dollar acquisition of Dutch shipping

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<v Speaker 1>company t n T Express will affect earnings fed X

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<v Speaker 1>down four point one percent, as MP lore by two

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<v Speaker 1>to two thousand and eighty six or dropped there a

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<v Speaker 1>point one percent, Gold down five twenty ounce to twelve

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<v Speaker 1>sixty seven to drop also of point four percent and

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<v Speaker 1>three thirty two on Wall Street. Now we'll look at

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<v Speaker 1>other news from around the world. Charlie, Thank you from

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<v Speaker 1>the Bloomberg news room. I Mark Crumpton. This news update

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<v Speaker 1>is brought to you by the Jeep Grand Cherokee, the

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<v Speaker 1>most awarded suv ever. The Grand Cherokee continues to raise

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<v Speaker 1>the bar with its luxurious interior and legendary four by

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<v Speaker 1>for capability Drive one at our local jeep dealer. Today,

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<v Speaker 1>campaigners pressed their eleventh hour appeals a day before the

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<v Speaker 1>UK's landmark vote on membership in the European Union. The

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<v Speaker 1>latest Opinion polls showed rival camps neck and Neck. An

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<v Speaker 1>online survey published by Opinion showed what the company called

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<v Speaker 1>a statistical dead heat, with forty percent of respondents for

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<v Speaker 1>leave and for remain. More than a week after the

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<v Speaker 1>mass shooting in Orlando, Florida, Governor Rick Scott is calling

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<v Speaker 1>for more support of local businesses near the Pulse nightclub

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<v Speaker 1>that have lost revenue. We gotta get her, get these

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<v Speaker 1>businesses back to work so they can continue to employ

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<v Speaker 1>the business of the people that that that they employ

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<v Speaker 1>every day. House Speaker Paul Ryan joined fellow Republicans to

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<v Speaker 1>unveil more of the House GOP's agenda. Speaker Ryan says

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<v Speaker 1>replacing Obamacare is an area where they have been working

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<v Speaker 1>on for some time. There are some longstanding principles you

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<v Speaker 1>will see advanced. But what you're seeing today is the

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<v Speaker 1>consensus by House Republicans on the best way to replace Obamacare,

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<v Speaker 1>and that is a very important achievement in and of itself.

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<v Speaker 1>Also on Capitol Hill, rebellious House Democrats shut down the

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<v Speaker 1>chambers legislative work today, staging a sid in on the

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<v Speaker 1>House floor and refusing to leave until they secured a

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<v Speaker 1>vote on gun control. Global News twenty four hours a day,

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<v Speaker 1>powered by more than journalists and analysts and more than

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<v Speaker 1>one d twenty countries From the Bloomberg News Room. I'm

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<v Speaker 1>Mark Crumpton, Charlie, and we thank you again. Recapping equities

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<v Speaker 1>lower twenty six minutes ago ahead of the close the

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

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<v Speaker 1>and eighty six, a drop of one tenth of one percent.

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<v Speaker 1>I'm Charlie Palaton. That's a Bloomberg Business flash the Brexit

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<v Speaker 1>vote on Bloomberg Radio Brexit. If the UK does decide,

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<v Speaker 1>does vote to leave the European Union, what will it

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<v Speaker 1>mean for financial markets? Our next guest says it could

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<v Speaker 1>trigger a panic similar what took place after the collapse

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<v Speaker 1>of leban Brothers. Let's get right to how Scott, now

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<v Speaker 1>professor at the Harvard Law School and someone who has

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<v Speaker 1>written and been quoted and listened to UH in great,

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<v Speaker 1>great depth on the US financial crisis. So we're very

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<v Speaker 1>eager to hear what he has to say about what

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<v Speaker 1>could be triggered by europe. How welcome back to the show.

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<v Speaker 1>Very much so, UH, an expert on capital markets regulation,

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<v Speaker 1>author of a new book that's coming out Connectingness and Contagion.

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<v Speaker 1>What is the contagion that could go from this vote

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<v Speaker 1>to the markets? Well, let me start by saying, I

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<v Speaker 1>think the probability of having women repead or compasion or

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<v Speaker 1>very very low. UH. Nonetheless, if it does occur to

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<v Speaker 1>all have a very high impact. So we need to

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<v Speaker 1>worry about it. It's just um. A contagion is basically

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<v Speaker 1>something that there's an irrational panic of the steer of

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<v Speaker 1>the unknown. I mean what happened with women as there

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<v Speaker 1>was a shock to the system. No large finance institution

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<v Speaker 1>can fail. Look at what we do with there. That's

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<v Speaker 1>not going to happen. And it did happen, and that

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<v Speaker 1>sent people rushing to the exits short term funding withdrawing

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<v Speaker 1>from banks and importantly non banks when money market funds, etcetera. Uh,

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<v Speaker 1>no short term funding available in the market. That was

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<v Speaker 1>the heart of the financial crisis in two thousand and eight.

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<v Speaker 1>So you never know when something like this can happen.

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<v Speaker 1>And if there were a pullout, um, it could. It

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<v Speaker 1>could be a shock and people said, I don't know

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<v Speaker 1>what's going to happen next. Uh, I'm going to get

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<v Speaker 1>my money out of banks or non banks. Hopefully that

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<v Speaker 1>never happens, but it has in the past. Professor Scott,

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<v Speaker 1>I'm wondering if you could draw on your experience in

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<v Speaker 1>capital markets regulation and speak perhaps about, well, what happens

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<v Speaker 1>on Friday, if indeed the United Kingdom votes to stay

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<v Speaker 1>in the European Union, will we see a different kind

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<v Speaker 1>of capital market structure in Europe. I don't think so. Um,

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<v Speaker 1>you know, our Europe has been working at um improving

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<v Speaker 1>their internal market. Uh, they have a big program to

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<v Speaker 1>do that. But you know, the fact of the matter

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<v Speaker 1>is that what integrates the financial markets in Europe is London.

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<v Speaker 1>London is the key to Europe's financial markets. So that's

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<v Speaker 1>gonna continue to be I mean, I think that's what

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<v Speaker 1>people are worried about. If London gets out, where will

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<v Speaker 1>the center of financial markets in Europe? Well, how this

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<v Speaker 1>is you touch on a point that is not about

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<v Speaker 1>panic and it's not about Brexit in crisis. It's also

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<v Speaker 1>about the EU and certainly the euro Area. I guess

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<v Speaker 1>that's what I'm referring to. That the ability to integrate

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<v Speaker 1>the banks in terms of bailing out grease or you know,

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<v Speaker 1>across the the area has been limited. Uh. Is there

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<v Speaker 1>any argument that you can see from a financial standpoint

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<v Speaker 1>at all for the UK to leave? Is there any

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<v Speaker 1>benefit they would get from, you know, being outside the

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<v Speaker 1>EU parameters but still maybe somehow able to remain the

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<v Speaker 1>center of finance in Europe. Well, as you know, they're

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<v Speaker 1>not part of the euro so they don't need to

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<v Speaker 1>get out of the EU. That of the Euro, they

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<v Speaker 1>have their own currency, uh, and they've been able to

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<v Speaker 1>operate as the center of financial markets in the EU

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<v Speaker 1>even with their own currency. So that give you, uh,

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<v Speaker 1>you know, some um insight into how important UK financial

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<v Speaker 1>markets are. UM. So I think that you know, if

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<v Speaker 1>they what they're what they're concerned about is the level

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<v Speaker 1>of European regulation and um it's very high. It's very bureaucratic,

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<v Speaker 1>um and they have to deal with it. So a

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<v Speaker 1>big argument for weave is we get rid of these

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<v Speaker 1>pointy head you know, guys on the continent that are

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<v Speaker 1>interfering on our free markets in the UK. I think

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<v Speaker 1>it's totally ex aderated by the way. I think both

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<v Speaker 1>sides are totally ex entering their consequences of a vote

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<v Speaker 1>here because they want to win the vote. But I

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<v Speaker 1>think there is you know, something to be said that

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<v Speaker 1>the UK, by getting out of the EU would be

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<v Speaker 1>free of some forms of financial regulation. But on the

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<v Speaker 1>other side, trade wise, um, I think uh, politically wise

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<v Speaker 1>good beople very bad for him, Tolly. Professor Scott, I'm

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<v Speaker 1>gonna try to draw you on on an unrelated topic

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<v Speaker 1>that has to do with negative interest rates. In Europe.

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<v Speaker 1>Have you ever experienced negative interest rates? And what do

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<v Speaker 1>you make of them? I've never experienced Sometimes god um

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<v Speaker 1>uh you know, um it's one thing for um, the

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<v Speaker 1>stead or potettos and actually doing I would say the

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<v Speaker 1>Bank of Japan to say to a bank, you know,

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<v Speaker 1>if you want to park money here, um, you may

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<v Speaker 1>have to pay us to kick um. You know, it's

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<v Speaker 1>just between the Bank of Japan and h Bank. Where

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<v Speaker 1>it gets a little dicey is when that bank who's

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<v Speaker 1>now paying the Bank of Japan to keep their money

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<v Speaker 1>there sort of you're still with me here, Well, we

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<v Speaker 1>go ahead and give you two seconds. Okay, it gets

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<v Speaker 1>icy if they tell me that I have to pay

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<v Speaker 1>a bank to keep my money with them, I'm gonna

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<v Speaker 1>take it out of that back. Thank you very much.

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<v Speaker 1>How Scott professor of Harvard Law School, joining us from Boston.

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<v Speaker 1>This is Bloomberg Radio. The Big Vote on breakfast, will

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<v Speaker 1>the UK vote to leave the European Union and what

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<v Speaker 1>our stock markets braced for? And once we get past

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<v Speaker 1>the vote, what should you be focused on? That's coming

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<v Speaker 1>up now on Bloomberg Radio.