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Speaker 1: Brought you by Bank of America, Mary Lynch. Investing in

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Speaker 1: local communities, economies and a sustainable future. That's the power

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Speaker 1: of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated

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Speaker 1: Member s I p C. Welcome to the Bloomberg Surveillance Podcast.

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Speaker 1: I'm Tom Keene with David Gura. Daily we bring you

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Speaker 1: insight from the best in economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and

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Speaker 1: of course on the Bloomberg I said to our executive

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Speaker 1: producer Rachel Worsbin a few days ago getting our Delhi,

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Speaker 1: and I think that needs some discussion, Bobna Delhi, of course,

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Speaker 1: with a lot of work as us a number of

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Speaker 1: sectors of the American landscape, and also with the perspective

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Speaker 1: being removed from the song and dance for a number

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Speaker 1: of years, gives him a very twisted view. Bob Nardelli's

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Speaker 1: with excellent ex elate. I think I got that right, Yes,

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Speaker 1: thank you, and uh but has a great, great view.

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Speaker 1: What does it mean to you, Bob Nardelli? Forget about

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Speaker 1: all that's going on with Russian intelligence and the such

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Speaker 1: and Mr Bannon and the rest. What does it mean

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Speaker 1: when our president says make America great again? What's it

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Speaker 1: mean to your Western Illinois, what's it means in Mexico?

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Speaker 1: And what does it mean for Bloomberg T Boston. Yeah, well, Tom,

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Speaker 1: good morning. It's great to be with you and Francine again. UM. So,

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Speaker 1: what we're mostly excited about in the business community is

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Speaker 1: what's transpiring in um in Washington. I mean, we have

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Speaker 1: a hundred and eight degree turn from where we were

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Speaker 1: the last year, last eight years. We have a we

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Speaker 1: have an administration and a president that is actively engaging

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Speaker 1: with business. If you look at the parade of c

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Speaker 1: e o s that have been with him in the

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Speaker 1: Oval Office, encouraging investment, encouraging growth, encouraging the CEOs to

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Speaker 1: think about the globality of their business, but certainly looking

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Speaker 1: at local opportunities to invest. If you look at the

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Speaker 1: string of committed investments that have been made in the

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Speaker 1: past three to four weeks to really make America great again.

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Speaker 1: If you listen to the conversations about corporate tax and

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Speaker 1: rolling back some of the bureaucracy that has actually strangled

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Speaker 1: a lot of businesses, particularly small businesses and startups. So

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Speaker 1: I think we have strong encouragement repatriation. There's a number

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Speaker 1: of things. If you look at the Obamacare and and

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Speaker 1: some of the impacts it's had not only on healthcare delivery,

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Speaker 1: but the cost too many corporations and small businesses. So, Tom,

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Speaker 1: in total, if you put all those things down, there's

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Speaker 1: a lot of positives. Now, are there some distractions going on? Yes,

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Speaker 1: is the rate of change disturbing to some people, but

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Speaker 1: remember we have to make up for eight years, so

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Speaker 1: change will be the only constant, and it has to

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Speaker 1: be aggressive and it has to be bold, Tom. But

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Speaker 1: when you look at the animal spirits which you're talking

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Speaker 1: about in the CEO, is being willing to spend more?

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Speaker 1: Is there a concern among CEOs that actually the Trump

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Speaker 1: administration is I guess being distracted by what we hear

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Speaker 1: with General Flynn with Russia, and so that they won't

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Speaker 1: really be able to deliver in the time they've promised

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Speaker 1: all these infrastructure spending, all this taxation, repatriation. Well, there's

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Speaker 1: no question this issue with General Flynn is a bump

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Speaker 1: in the road, and it is creating distraction and is creating,

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Speaker 1: you know, some legitimacy on the part of of the

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Speaker 1: other party to create this distraction. But I think I

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Speaker 1: think the administration and the President is going to be

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Speaker 1: laser focused on his commitments and what he believes got

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Speaker 1: him into the office. And I don't think he's going

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Speaker 1: to back off on these things. Francy and I mean,

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Speaker 1: this is somebody that knows how to process a number

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Speaker 1: of different issues in parallel. Resident sequential Bob Mardeli, is

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Speaker 1: it so critical that we need to jump start this

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Speaker 1: with spending increases without attendant revenue increases? What do you

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Speaker 1: do with the deficit to GDP to jump start nominal

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Speaker 1: GDP to jump start make America great again? Do you

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Speaker 1: sacrifice fiscal prudence to blow out the budget deficit back

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Speaker 1: to five or six percent GDP? I think there's a

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Speaker 1: couple of things, Tom Right. I think we will have

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Speaker 1: to spend in advance of revenue. Uh. There's going to

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Speaker 1: take you know, major investments infrastructure within the corporations, if

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Speaker 1: we talk about building factories, if we talk about you know,

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Speaker 1: a resurgence in R and D which will create high

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Speaker 1: tech jobs, good paying jobs. I think if you if

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Speaker 1: you think about the national debt and we talk about

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Speaker 1: yelling increasing the interest rate, we have to we have

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Speaker 1: to pause and say, if this thing goes up to

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Speaker 1: four percent, what are we going to have to be

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Speaker 1: paying in interest on this twenty trillion dollars. So I

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Speaker 1: think that has to be talked about and put on

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Speaker 1: the table as a reality. You know. I think rates

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Speaker 1: will go up a couple of times this year based

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Speaker 1: on the prospects of a growing economy, on the prospects

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Speaker 1: of improved GDP. We've had eight years of low and

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Speaker 1: slow growth, you know, one one and a half percent.

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Speaker 1: We've got to get to three three and a half

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Speaker 1: percent to to really, uh, to realize the kinds of

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Speaker 1: things we've committed have been committed to about job creation

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Speaker 1: and economic growth in this country town Bob, does a

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Speaker 1: strong dollar actually hurt animal spirits? Well, the strong dollar

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Speaker 1: as always fancying there's there's the goes ins, and the

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Speaker 1: goes out. I think from a supply chain standpoint, a

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Speaker 1: strong dollar for US based manufacturer is a good thing

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Speaker 1: if you think about buying goods, you know, as part

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Speaker 1: of our export plan, obviously that will be that will

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Speaker 1: be impacted to some degree. So I think we have

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Speaker 1: to balance the good into bad with with a strong

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Speaker 1: dollar within the proposals you've seen and for example, I

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Speaker 1: don't quote me on this, folks, we're gonna go from

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Speaker 1: six eight tax brackets down to three or whatever we're

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Speaker 1: gonna do within the tax game. How do you convince

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Speaker 1: our listeners that it's not all gonna go to Bob Nardelli.

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Speaker 1: You know, big hitters like you are economics. Well, I

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Speaker 1: think there's a couple of things. For example, Tom to

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Speaker 1: that point, whether it's taxes or repatriation, we have to

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Speaker 1: make sure that the dollars that come back are are

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Speaker 1: handled in a thoughtful way. And what is what do

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Speaker 1: I mean by that? So, for example, let's say goes

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Speaker 1: into infrastructure, and now the latest discussion is that it

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Speaker 1: will be treated somewhat like a treasury, so that they

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Speaker 1: will get principle and some incentive, some interest in ended

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Speaker 1: for doing that. Maybe another ought to go into a

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Speaker 1: very measured account. You know, money is fungible, So we

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Speaker 1: got to go through these back through these corporations and

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Speaker 1: make sure that the money that comes back that let's

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Speaker 1: say it's not tax is clearly identified as incremental over

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Speaker 1: and above the current capital budgets that will go to

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Speaker 1: create jobs. I think your point is spot on the

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Speaker 1: average citizen does not want to see a stock buyback

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Speaker 1: program that helps the c e o s and the

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Speaker 1: upper echelon line their pockets. So we have to be

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Speaker 1: thoughtful about not letting that happen to them. Okay, if

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Speaker 1: I go to McCombe, Illinois, mccon, Illinois where you were

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Speaker 1: in school at Western Illinois. If I go to Jackson

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Speaker 1: Street Pub, you know, like that's like what it is.

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Speaker 1: It's a pub. I mean, I don't know what martinis

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Speaker 1: like four dollars and a beers buck a. I get it.

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Speaker 1: But within that America, how can they become reattached to

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Speaker 1: Washington into the finance of New York. I mean, how

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Speaker 1: is President Trump going to do that? Given the distraction,

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Speaker 1: particularly the last twenty four hours. So he has to

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Speaker 1: deal with the distractions. Uh, he can't just uh you know,

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Speaker 1: try and sweep them under the rug, because it's gonna

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Speaker 1: it's front and center the media. You know, congressional hearings,

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Speaker 1: et cetera, probably will take place on this issue. Set

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Speaker 1: that aside. You know, this is a president that went

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Speaker 1: out into the Midwest and went into those facilities and

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Speaker 1: made some big, bold commitments about being thoughtful creating jobs education.

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Speaker 1: You know, if you think about our H one b

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Speaker 1: you know the issue here where a lot of CEOs

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Speaker 1: are clamoring for high tech individuals, which I think is

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Speaker 1: points to a failure in our educational system that we

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Speaker 1: can't create that kind of talent here. The hb ones

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Speaker 1: for low tech jobs should be non existent. We got

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Speaker 1: enough people in our country that you be able to

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Speaker 1: fill those jobs in a meaningful way. And and and

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Speaker 1: get off, get off the benefit role with Robert and

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Speaker 1: Delhi and Bob. I want to have a serious discussion.

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Speaker 1: This is an unfair question, but I'm gonna start with it. Anyways.

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Speaker 1: If you had a given hundred million thirty years ago,

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Speaker 1: you knew how many jobs that would create. How many

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Speaker 1: fewer jobs as it given a hundred million in manufacturing

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Speaker 1: investment create today? Boy, I don't know the exact now,

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Speaker 1: third a quarter probably probably a third at most, maybe

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Speaker 1: a quarter time to your point, Uh, if you think

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Speaker 1: about not only labor rates, but the overhead benefits rates

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Speaker 1: and everything else that goes with it, Uh, you know,

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Speaker 1: the cost the cost to manufacturer today has gone up

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Speaker 1: significantly from when you and I were young young men

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Speaker 1: working and and I you know, I think Bob about

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Speaker 1: l B J and I'm just picking on him of

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Speaker 1: the era of the sixties of targeted investment tax credits

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Speaker 1: to get guys like Nardelhi or Jeff M. Eld or

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Speaker 1: whoever to do something. Why what is so hard about

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Speaker 1: targeted job creating tax That's why? Is that anathema? I'm

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Speaker 1: not sure. I mean, it certainly worked for a lot

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Speaker 1: of us. I think we were given opportunities that maybe

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Speaker 1: don't exist today because of that, Tom, But I would

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Speaker 1: not trade you know, you and I were talking offline

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Speaker 1: about the experience that we had lane highways putting up steel,

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Speaker 1: lane brick and so forth. I mean it, really, I

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Speaker 1: think it. It created a lot of the culture in

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Speaker 1: the in the overall manners which we think about business today.

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Speaker 1: It was a valuable lesson that's missed today. I think, Tom, Um,

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Speaker 1: we got to interrupt your folks, franccenes, please stay with

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Speaker 1: this as you choose. But we've just had two tweets

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Speaker 1: from the President that our news worthy, the one of

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Speaker 1: twelve minutes ago. The Russian connection nonsense is merely an

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Speaker 1: attempt to cover up the many mistakes made in Hillary

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Speaker 1: Clinton's losing campaign that's verbatim, and then just a minute ago,

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Speaker 1: information is being illegally given to the failing New York

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Speaker 1: Times in Washington Post by the intelligence community. Parentheses n

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Speaker 1: s A and FBI question mark close parentheses, just like Russia.

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Speaker 1: We bring those two now, we'll have them more in

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Speaker 1: our news cycle and within our conversations this morning, Francy,

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Speaker 1: And I'm sorry to interrupt with the drama out of Washington. Yeah,

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Speaker 1: the drama is important, Tom, because if you go back

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Speaker 1: to bobinar Deli, you have almost on a daily basis,

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Speaker 1: these kind of tweets, and it's unclear to me, as

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Speaker 1: a foreigner living very far from America, with the end

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Speaker 1: game is is he trying to talk about the institutions?

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Speaker 1: Will the institutions need to keep a check on him

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Speaker 1: even more? Will it end ugly? Yeah? Well, francying a

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Speaker 1: couple of things. I think we have seen this president

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Speaker 1: be consistent and true to form with his tweets about

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Speaker 1: the media and his I don't imagine this ongoing confrontation

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Speaker 1: with the media will change, Uh, in spite of the

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Speaker 1: you know, the issues that are swirling around the administration today.

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Speaker 1: Point number one, I think, uh, you know, second, of all,

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Speaker 1: this is not the media. This is he's going after

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Speaker 1: the intelligence community. Well that that's the second point I

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Speaker 1: wanted to make is again he has been somewhat consistent

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Speaker 1: and somewhat jauntice about n s A, the FBI, National

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Speaker 1: Security and the leaks that are taking place there today.

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Speaker 1: You know, I don't know. He has speculated that a

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Speaker 1: number of people and key positions who are not enamored

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Speaker 1: with this administration, who have been loyal to the prior administration,

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Speaker 1: could be trying to undermine what it is they're trying

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Speaker 1: to do. Uh. And Third, I think, you know, the

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Speaker 1: White House still needs to get organized in a manner.

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Speaker 1: They still are understaff, they still don't have all of

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Speaker 1: the cabinet positions filled, and yet they are, you know,

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Speaker 1: used Tom's example, I mean, they've got their foot on

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Speaker 1: the gas to the floorboard, going full speed ahead. And

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Speaker 1: so I think as soon as they can get the

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Speaker 1: rest of the organization in place, the rest of the

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Speaker 1: cabinets and a full staff, hopefully they'll be be able

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Speaker 1: to continue to provide good intelligence and good advice to

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Speaker 1: this president. Bob very quickly does the GOP supports Donald

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Speaker 1: Trump if he continues tweeting things like this. Well, they

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Speaker 1: may not be happy with it, but I don't think

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Speaker 1: it's going to change in the short term. Frenzy, all right,

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Speaker 1: what will change? What will make them change? Well? I think, uh,

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Speaker 1: you know, you still have some distractors within the party. Uh,

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Speaker 1: there's probably still some hard feelings among people in the

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Speaker 1: party that were bruised during the campaign. On the money question.

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Speaker 1: Here is, are the Republicans going to begin to say

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Speaker 1: to their guy, we're not going to do tax reform,

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Speaker 1: We're not gonna do Nardelli economics because of the zoo

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Speaker 1: with Russia, etcetera, etcetera. Is that a real risk? Well,

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Speaker 1: I think that would be a real risk to the

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Speaker 1: party in an even bigger risk to what we need

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Speaker 1: in this economy. Tom, Bob, thank you so much. Bob,

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Speaker 1: and our Deli with some real industrial experience, love talking

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Speaker 1: to him about particularly Western Illinois University friends in the quash.

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Speaker 1: She doesn't know where Western Illinois is, Tom Keen in

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Speaker 1: New York, Waite, I don't either. This is Bloomberg. Good

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Speaker 1: time to catch up with Stephen Whitey sitting group. Stephen,

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Speaker 1: good morning, Good morning, Tom. Tell me about profitability in America.

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Speaker 1: I get the idea we're having a melt up. I

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Speaker 1: get the idea of revenue growth is like okay, I

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Speaker 1: get the idea expense control is religion. But what's it

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Speaker 1: mean for earnings? Well, it means that the underlying case

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Speaker 1: of earnings before any corporate tax cuts or any acceleration

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Speaker 1: in economic growth driven by stimulus is probably six percent

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Speaker 1: in a world in which treasure the bombs or two

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Speaker 1: and a half percent. Uh. That is proving attractive. And

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Speaker 1: I think, I do you think is going to surprise?

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Speaker 1: You know for us? You know, looking back one year ago,

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Speaker 1: we were explaining that you know, there was a severe

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Speaker 1: dowur correction and energy related profitability dragging down, you know,

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Speaker 1: a bit of the industrial complex with it, but that

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Speaker 1: was very far along, uh, and you were likely to

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Speaker 1: see your recovery. We never sort of viewed it as

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Speaker 1: an earnings recession, just because some headlines were slightly negative,

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Speaker 1: but it was very, very concentrated. Now we're getting the

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Speaker 1: benefits of the rebound, and I hear a lot of

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Speaker 1: people talking about it as if it's a surprise. So

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Speaker 1: earnings um will reach records this year before tax cuts.

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Speaker 1: Where are we go ahead? Frenzy and I'm sorry, Steve,

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Speaker 1: what is the one thing that we're discounting or why

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Speaker 1: are the markets not pricing and possible terrors and that

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Speaker 1: actually impacts the earning straight away? What did you say

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Speaker 1: trade wars? Was that the word you use? I'm sorry,

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Speaker 1: I was talking about terroriffs. Why are the markets focusing

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Speaker 1: on a lot of earnings growth and higher expectations because

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Speaker 1: of this reflationary from Donald Trump? But why are they

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Speaker 1: not pricing in possible trade wars? No? I think that

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Speaker 1: this is um a lower probability risk than the unified

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Speaker 1: government under Republicans uh putting in place substantial fiscal stimulus.

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Speaker 1: But it is a risk nonetheless. Uh, And it is

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Speaker 1: not something that is significantly focused on. Uh. You know,

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Speaker 1: it is fair to say that there is a collection

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Speaker 1: of positives and negatives and markets have focused in on, uh,

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Speaker 1: you know, the clearer, more probable positives. But just how

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Speaker 1: we finance a stimulus in the United States, for example,

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Speaker 1: raises questions is to you know whether there will be

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Speaker 1: any of those disruptions and whether or not that can

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Speaker 1: actually feedback negatively in earnings. Stephen waiting, as you do

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Speaker 1: you now with the headline now about those promises When

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Speaker 1: did the promises come true? When does all the you know,

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Speaker 1: even before the election, the reflation bump, when does it

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Speaker 1: all start to happen? Well, you know, Speaker Paul Ryan

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Speaker 1: spoke about two hundred days, and two hundred days is

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Speaker 1: requires a lot of patients to get substantial tax the

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Speaker 1: form which I think, uh is, you know, the larger

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Speaker 1: part of any growth acceleration at the place. We just

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Speaker 1: heard the President though last week talk about in providing

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Speaker 1: some sort of an outline and announcement just a couple

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Speaker 1: of weeks of time, and that is reinvigorating. Uh, you

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Speaker 1: know everyone's expectation that that alone can keep us going.

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Speaker 1: I mean, do you mean to interrupt again, folks, But

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Speaker 1: we've decided to keep with the news flow out of Washington,

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Speaker 1: on the tweeting flow of the president when it is

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Speaker 1: on target, which it is. We are earlier with the

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Speaker 1: President of the United States thanking Eli Lake of Bloomberg view,

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Speaker 1: the n s A and FBI should not interview in

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Speaker 1: our politics and is it is a very serious situation

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Speaker 1: for the United States. And now Mr Trump says CRIMEO

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Speaker 1: was large caps taken by Russia during the Obama administration.

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Speaker 1: Was Obama too soft on Russia, Francy. And again I

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Speaker 1: don't mean to interrupt, but it is coming fast and

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Speaker 1: furious from a beleaguer White House. It is Tom and

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Speaker 1: and I can't figure out. So we talked a lot

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Speaker 1: about the friendship, the possible friendship between Russia and the US,

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Speaker 1: and this seems to be a tweet that actually flies

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Speaker 1: in the face of it, right. I mean he's saying,

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Speaker 1: first of all, Cremea was taken by Russia. This is

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Speaker 1: not something that Vladimir Putin will like. And then his

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Speaker 1: questioning whether Obama is too too soft on Russia? What

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Speaker 1: do we actually um Steve, you know, getting back to

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Speaker 1: we're still trying to understand what this administration can and

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Speaker 1: will deliver. What do we understand about how he will

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Speaker 1: deal with foreign leaders? Well, we are in a different world.

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Speaker 1: We're in a less predictable world on foreign policy. Um.

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Speaker 1: You know, it goes on both the fiscal front, the

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Speaker 1: nine gridlock to something just far more active. Uh. It

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Speaker 1: puts all sorts of policies and play, including monetary policy

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Speaker 1: and on the front policy front. Um and our bill

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Speaker 1: maybe predicting new administration is just significantly reduced compared to

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Speaker 1: you know the eight years we got used to you know,

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Speaker 1: I look, Steve, I look Steve at the makeup here,

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Speaker 1: and you know what you're so good at is moving

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Speaker 1: down the income statement off of the greater economy? Do

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Speaker 1: you just assume better g d P growth to underpin

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Speaker 1: the top line of the income statement? Is it a given?

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Speaker 1: I don't. I don't. I mean I get the theme

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Speaker 1: and I get the forecast of people like you, but

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Speaker 1: I just don't know how do we get there? Well, look,

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Speaker 1: I think one thing helped, and it is yes fair

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Speaker 1: to say a shift between you know, sort of one

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Speaker 1: sector to the other. And we mentioned that earlier. And

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Speaker 1: then when you had a six collapse in global capital

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Speaker 1: investment in the petroleum sector, you know, you have repositioned

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Speaker 1: for some higher prices. Now that all of that higher

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Speaker 1: price and the effect that's going to have on consumer incomes,

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Speaker 1: uh comes before there's any TEX stimulus, But there is

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Speaker 1: a savings cushion and these are familiar gasoline prices for

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Speaker 1: all of us. So I think that we will just

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Speaker 1: have somewhat higher inflation. We certainly have stronger confidence. Uh

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Speaker 1: So holding it all intact of higher inflation and higher

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Speaker 1: revenue is quite possible before any of those troubles. I

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Speaker 1: think UM, the idea that the US can accelerate its

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Speaker 1: pace of economic growth in the face of large tax

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Speaker 1: cuts UM is high probability. The question is what does

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Speaker 1: it do around the rest of the world. You know,

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Speaker 1: will we have a disruptive rise in the US dollar

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Speaker 1: more fit tightening than the rest of the world UH

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Speaker 1: can handle, UH, possibly shifting the tax burden to finance UH.

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Speaker 1: US stimulus UH to international producers. This will have impacts

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Speaker 1: on UH, you know, the best of companies in their

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Speaker 1: in their business models. Potentially. Now those are the unknowns

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Speaker 1: about policy stimulus in the United States, but you know,

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Speaker 1: stimulus that affects American companies is highly likely one way

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Speaker 1: or the other. Steve, this is exactly what I want

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Speaker 1: to ask you. At what point does dollar strength actually

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Speaker 1: heart earnings? So it does all along. I mean it

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Speaker 1: is you know, a two sided sword. I mean, we

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Speaker 1: are saving strong savings inflows into US dollar assets UH.

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Speaker 1: And you know the reason for that is probably going

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Speaker 1: to be the fiscal stimulus. That will mean federal to

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Speaker 1: saving and more economic growth in the United States, which

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Speaker 1: is good, but it's going to take some of the

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Speaker 1: strength away from uh you know EPs abroad when you'll

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Speaker 1: get tacks repatriation. So very very complex number of moving

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Speaker 1: parts here. But the reasons for the rise in the

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Speaker 1: dollar again are, you know, savings for positives for the

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Speaker 1: United States. Okay, I get that, but I get the

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Speaker 1: rate of change debate. I think all of our listeners

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Speaker 1: understand this. If I look at trade weighted broad dollar,

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Speaker 1: it is a vector stronger. What gets in the way

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Speaker 1: of just a grind to a stronger dollar that begins

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Speaker 1: to intinge all sorts of good things that could happen.

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Speaker 1: I'm looking at this way under a risk off scenario

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Speaker 1: where suddenly we find that the dollar is a disruptive

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Speaker 1: impact across the world. You know, we will see the

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Speaker 1: dollars fogger mostly against e M currencies if it is

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Speaker 1: being driven by policy divergence. Any better US growth rate,

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Speaker 1: then we will see the dollar higher against d M

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Speaker 1: currencies like z O where we're gonna be easy for

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Speaker 1: the entirety of this year and beyond. And you know,

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Speaker 1: the question becomes sort of, well, what is the scenario

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Speaker 1: for a weaker dollar? Uh? And it's one where sort

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Speaker 1: of US growth falls short and we stay in this

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Speaker 1: sort of trapped range of slow economic growth that we

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Speaker 1: have been in for the last six years. And so

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Speaker 1: I think that the tails, you know, the probability of uh,

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Speaker 1: you know, some sort of risk off event because some

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Speaker 1: policy mistake, as well as a more robust recovery. Both

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Speaker 1: of those probabilities have risen compared to where we were

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Speaker 1: a year ago. It's the central you know, sort of

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Speaker 1: the case of just slow, benign kind of growth, this

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Speaker 1: secular stagnation that would have resulted in a week or

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Speaker 1: dollar and that has been a that's a reduced probability. Uh.

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Speaker 1: Steve White, thank you so much. With City Group brought

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Speaker 1: you by Bank of America. Mary Lynch dedicated to bringing

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Speaker 1: our clients insights and solutions to meet the challenges of

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Speaker 1: a transforming world. That's the power of global connections. Mary Lynch,

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Speaker 1: Pierce Federan Smith Incorporated, Member s I p C. When

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Speaker 1: President Barack Obama came to obviously inherited a big financial crisis,

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Speaker 1: and much of it centered on the banks. Early in

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Speaker 1: his tenure in Mr Obama appointed Daniel Tarullo to the

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Speaker 1: Federal Reserve Board, and Dan became the point person from

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Speaker 1: attracting an entire new set of regulatory structures designed to

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Speaker 1: make sure we didn't repeat what happened to two eight.

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Speaker 1: Late last week, Governor Trula announced that he'd be stepping

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Speaker 1: down in just over a month, and he's here now

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Speaker 1: to review where we are and where we need to go.

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Speaker 1: Welcome going to Trula. Great to have you here. To

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Speaker 1: our radio listeners, this is so important Dan that we're

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Speaker 1: putting on radio as well as tell Us at the

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Speaker 1: same time. So so let's start with the big question.

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Speaker 1: You came in. A lot of things were broken. I

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Speaker 1: think almost everyone would agree with that. What remains broken

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Speaker 1: after eight years in terms of the regulatory structure, Well,

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Speaker 1: I don't know that there's anything so severely broken that

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Speaker 1: we should be worried about any immediate consequences. But I

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Speaker 1: do think that that two areas in which we've tried

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Speaker 1: to concentrate over the last eight years still need attention.

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Speaker 1: And the first of those is, of course, the very

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Speaker 1: largest firms that have been characterized as too big to fail.

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Speaker 1: There's been a lot of progress there, but there's more

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Speaker 1: work needed. And secondly, the nature of the crisis in

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Speaker 1: two thousand seven and eight reminded us that at the

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Speaker 1: nature of funding in a financial system in which traditional

429
00:25:03,920 --> 00:25:07,880
Speaker 1: lending and capital markets are so integrated is just as

430
00:25:08,000 --> 00:25:12,520
Speaker 1: runnable as in the nineteen twenties when bank deposits were

431
00:25:12,520 --> 00:25:15,600
Speaker 1: not insured. It's a different form of funding now it's ripo,

432
00:25:15,800 --> 00:25:20,480
Speaker 1: it's securities financing transactions. But the runability of that funding,

433
00:25:21,000 --> 00:25:25,240
Speaker 1: combined with the big drop in a key asset price, housing,

434
00:25:25,600 --> 00:25:28,840
Speaker 1: was what produced the crisis. And we need to be

435
00:25:29,000 --> 00:25:35,240
Speaker 1: constantly on the lookout for vulnerabilities with runnable funding. Uh.

436
00:25:35,280 --> 00:25:37,960
Speaker 1: And I think that's, by the way, an ongoing exercise.

437
00:25:38,000 --> 00:25:39,639
Speaker 1: You're not going to come to a point we say, Okay,

438
00:25:39,640 --> 00:25:41,960
Speaker 1: that's done. Now we move on. So let's start with

439
00:25:42,000 --> 00:25:43,760
Speaker 1: the first one you mentioned, which is too big to fail.

440
00:25:44,359 --> 00:25:46,199
Speaker 1: We have Gary Cohene, just a week ago or so

441
00:25:46,320 --> 00:25:48,000
Speaker 1: when they had the executive order, came out and said

442
00:25:48,000 --> 00:25:50,520
Speaker 1: we have not really addressed the too big to fail.

443
00:25:51,160 --> 00:25:54,280
Speaker 1: We have a Congressman Henseling. Actually, we'll play a little

444
00:25:54,280 --> 00:25:55,760
Speaker 1: thing of what he had to say, saying we've got

445
00:25:55,800 --> 00:25:58,840
Speaker 1: a big problem with bailouts. Let's play that. What's most

446
00:25:58,880 --> 00:26:01,520
Speaker 1: important to the American people, and that is to get

447
00:26:01,520 --> 00:26:04,600
Speaker 1: out of the bailout business. And unfortunately DoD Frank didn't

448
00:26:04,640 --> 00:26:08,679
Speaker 1: in bailouts and ensuring them into law. That has to change.

449
00:26:09,040 --> 00:26:11,359
Speaker 1: So are they right, and if so, what needs to

450
00:26:11,400 --> 00:26:12,800
Speaker 1: be done in order to fix the two big to

451
00:26:12,840 --> 00:26:15,879
Speaker 1: fail problems? I think they may be saying somewhat different things. UM.

452
00:26:15,920 --> 00:26:18,680
Speaker 1: I do think there's been an awful lot of progress

453
00:26:18,800 --> 00:26:21,199
Speaker 1: made in addressing the too big to fail problem. The

454
00:26:21,280 --> 00:26:26,480
Speaker 1: resiliency of our largest, most systemically important institutions is substantially

455
00:26:26,560 --> 00:26:30,120
Speaker 1: greater than a decade ago. Capital levels are way up

456
00:26:30,680 --> 00:26:33,480
Speaker 1: because of that run ability that I mentioned a moment ago.

457
00:26:33,600 --> 00:26:37,240
Speaker 1: We now have both liquidity regulations in place and much

458
00:26:37,280 --> 00:26:41,320
Speaker 1: better liquidity management systems by the largest institutions. We have

459
00:26:41,400 --> 00:26:45,760
Speaker 1: made progress on a resolution regime that will make sure

460
00:26:45,880 --> 00:26:48,840
Speaker 1: that no individual firm is too big to fail it

461
00:26:48,920 --> 00:26:53,400
Speaker 1: can be resolved in insolvency. I don't think we're there yet,

462
00:26:53,480 --> 00:26:56,399
Speaker 1: and so that's one area where more progress is needed.

463
00:26:56,720 --> 00:26:59,159
Speaker 1: One thing I will say, David, I think when someone

464
00:26:59,400 --> 00:27:01,920
Speaker 1: comes into tells you we've solved the too big to

465
00:27:01,960 --> 00:27:04,040
Speaker 1: fail problem, that's when you should begin to get worried.

466
00:27:05,560 --> 00:27:09,399
Speaker 1: It's almost insoluable by definition. I think because the financial

467
00:27:09,440 --> 00:27:13,840
Speaker 1: system adapts so readily and so um expertly in a

468
00:27:13,840 --> 00:27:17,600
Speaker 1: lot of ways to create new opportunities for making money.

469
00:27:17,920 --> 00:27:20,960
Speaker 1: The financial regulatory system needs to be attentive to those

470
00:27:21,040 --> 00:27:23,280
Speaker 1: changes and to evolve with it. And by the way,

471
00:27:23,359 --> 00:27:25,760
Speaker 1: that's what didn't happen in the pre crisis period. I

472
00:27:26,760 --> 00:27:30,119
Speaker 1: do wonder the government if we're getting into a cycle

473
00:27:30,119 --> 00:27:33,000
Speaker 1: where people are forgetting the financial crisis and exactly what

474
00:27:33,040 --> 00:27:35,359
Speaker 1: you just meant it. Yeah, so that's a that's an

475
00:27:35,400 --> 00:27:38,879
Speaker 1: excellent point. And you know, if we just go back

476
00:27:39,119 --> 00:27:41,800
Speaker 1: to a decade or twelve years ago, what was what

477
00:27:41,960 --> 00:27:44,119
Speaker 1: was the state of the financial system, including some of

478
00:27:44,160 --> 00:27:48,760
Speaker 1: our biggest firms then. One, even though capital markets and

479
00:27:48,800 --> 00:27:54,040
Speaker 1: traditional lending had been integrated, when firms priced for risk,

480
00:27:54,800 --> 00:27:56,919
Speaker 1: a lot of the instruments in which they traded, they

481
00:27:56,920 --> 00:27:59,760
Speaker 1: didn't take into account the credit risk that was embedded

482
00:27:59,760 --> 00:28:04,120
Speaker 1: in the as instruments Mortgage backed securities are the best example. Two,

483
00:28:04,320 --> 00:28:08,320
Speaker 1: they were not attuned to the possibility that across the

484
00:28:08,400 --> 00:28:12,119
Speaker 1: system you could have a liquidity squeeze, as everybody pulled

485
00:28:12,119 --> 00:28:15,199
Speaker 1: back saying we're not sure about asset prices, so for

486
00:28:15,240 --> 00:28:18,520
Speaker 1: the moment, we're just going to stay on the sidelines. Three.

487
00:28:18,840 --> 00:28:21,200
Speaker 1: In many instances, they did not even know what their

488
00:28:21,240 --> 00:28:24,160
Speaker 1: own risk was. In two thousand and nine, when we

489
00:28:24,280 --> 00:28:27,120
Speaker 1: ran that first set of stress tests on the fly,

490
00:28:27,240 --> 00:28:31,280
Speaker 1: as it were, we sent out requests for information, and

491
00:28:31,600 --> 00:28:35,199
Speaker 1: more firms than one would have expected. We're not able

492
00:28:35,320 --> 00:28:38,880
Speaker 1: in anything like a reasonable period of time to aggregate

493
00:28:39,000 --> 00:28:42,840
Speaker 1: risks to the same counterparties from across their big firm.

494
00:28:43,000 --> 00:28:47,040
Speaker 1: Those are the things that produced the regulatory changes that

495
00:28:47,360 --> 00:28:50,000
Speaker 1: we've put in place, and those are the things which

496
00:28:50,640 --> 00:28:53,760
Speaker 1: shouldn't be forgotten as a historical matter. But as I

497
00:28:53,760 --> 00:28:57,320
Speaker 1: said a moment ago, the kind of adaptations in the

498
00:28:57,360 --> 00:29:00,080
Speaker 1: financial system may mean that new risks are created it

499
00:29:00,080 --> 00:29:03,479
Speaker 1: along the way. How central to the regulatory structure at

500
00:29:03,480 --> 00:29:06,960
Speaker 1: this point are those stress tests? I think that they

501
00:29:07,000 --> 00:29:12,520
Speaker 1: are the single most important supervisory innovation, not just since

502
00:29:12,560 --> 00:29:16,000
Speaker 1: the crisis, but really for the last years. What do

503
00:29:16,080 --> 00:29:20,120
Speaker 1: the stress tests do? Stress tests first try to look

504
00:29:20,200 --> 00:29:24,160
Speaker 1: at a sizeable portion of the US financial system at

505
00:29:24,200 --> 00:29:27,960
Speaker 1: the same time to see how a recession or a

506
00:29:27,960 --> 00:29:31,160
Speaker 1: particular move and asset prices would affect all of the

507
00:29:31,280 --> 00:29:36,320
Speaker 1: larger end just a little bit less than largest firms. Second,

508
00:29:36,360 --> 00:29:41,600
Speaker 1: their dynamic. We change the scenarios from year to year

509
00:29:42,160 --> 00:29:46,520
Speaker 1: precisely so that we test for different things because you

510
00:29:46,640 --> 00:29:49,479
Speaker 1: don't know where the real stresses in the system are

511
00:29:49,480 --> 00:29:53,320
Speaker 1: going to come from. Uh. And Third, it is a

512
00:29:53,400 --> 00:29:55,880
Speaker 1: way of allowing us not only to make sure that

513
00:29:55,920 --> 00:29:58,720
Speaker 1: firms have enough capital and that they don't, as in

514
00:29:58,800 --> 00:30:03,400
Speaker 1: two thousand and seven, continue putting out dividends when their

515
00:30:03,440 --> 00:30:06,680
Speaker 1: capital is shrinking, but also it's an opportunity to make

516
00:30:06,760 --> 00:30:10,960
Speaker 1: sure that their own risk management systems quantitative and qualitative,

517
00:30:11,440 --> 00:30:15,400
Speaker 1: are attuned to the idiosyncratic risks that their own firms

518
00:30:15,400 --> 00:30:18,400
Speaker 1: may face. And there's just one other thing to add. Yes,

519
00:30:18,640 --> 00:30:21,880
Speaker 1: the largest, most systemically important firms need the stress test,

520
00:30:21,960 --> 00:30:24,959
Speaker 1: but there's a reason why we go further down, and

521
00:30:25,040 --> 00:30:28,800
Speaker 1: that is you need the whole system able to intermediate

522
00:30:28,880 --> 00:30:32,760
Speaker 1: credit even in a severe recession. So with very large

523
00:30:32,800 --> 00:30:37,080
Speaker 1: regional banks, which individually are probably not too big to fail,

524
00:30:37,440 --> 00:30:39,240
Speaker 1: we still want to make sure that as a group,

525
00:30:39,640 --> 00:30:43,200
Speaker 1: those banks are resilient enough to continue providing credit to

526
00:30:43,320 --> 00:30:46,400
Speaker 1: us households and businesses going to I want to go

527
00:30:46,400 --> 00:30:47,880
Speaker 1: back to what you said. You know, more work needs

528
00:30:47,920 --> 00:30:49,640
Speaker 1: to be done in terms of two big to fail,

529
00:30:49,680 --> 00:30:52,040
Speaker 1: and you laid out some things are their banks, So

530
00:30:52,480 --> 00:30:55,800
Speaker 1: in our financial community right now that are too big

531
00:30:55,840 --> 00:30:58,320
Speaker 1: to fail and should be to some extent broken up

532
00:30:58,320 --> 00:31:00,960
Speaker 1: a little bit. Well, what we've been trying to do

533
00:31:01,440 --> 00:31:07,400
Speaker 1: is to um set the regulations at the point which

534
00:31:07,440 --> 00:31:10,400
Speaker 1: we think is appropriate in order to take account of

535
00:31:10,440 --> 00:31:13,520
Speaker 1: the additional risk to the financial system that any such

536
00:31:13,560 --> 00:31:18,360
Speaker 1: firm creates, and then to have the firms themselves decide

537
00:31:18,400 --> 00:31:21,680
Speaker 1: the most efficient way to deal with those regulations, whether

538
00:31:21,760 --> 00:31:25,720
Speaker 1: to hold a lot more capital liquidity, or as we've seen,

539
00:31:26,200 --> 00:31:29,760
Speaker 1: to get out of some businesses, to reduce exposures and

540
00:31:29,800 --> 00:31:32,240
Speaker 1: other businesses. In a way, we're trying to use a

541
00:31:32,320 --> 00:31:36,600
Speaker 1: kind of pricing mechanism which gets them to decide the

542
00:31:36,600 --> 00:31:39,520
Speaker 1: best way to do it. I do think that we've

543
00:31:39,520 --> 00:31:42,000
Speaker 1: got to continue to do that, you know that. That's

544
00:31:42,040 --> 00:31:45,680
Speaker 1: why I mentioned last fall that I thought we should

545
00:31:45,760 --> 00:31:48,880
Speaker 1: integrate the search ard, the search arge for the largest

546
00:31:48,920 --> 00:31:53,440
Speaker 1: banks into the stress testing regime. And it's also why

547
00:31:53,600 --> 00:31:56,440
Speaker 1: we need to continue to work on the resolution regime,

548
00:31:57,040 --> 00:32:00,720
Speaker 1: because that importantly doesn't just say she give us this

549
00:32:00,800 --> 00:32:02,800
Speaker 1: big plan that will pull off the shelf, and the

550
00:32:02,840 --> 00:32:06,640
Speaker 1: event that you're failing, it forces the firms to change

551
00:32:06,680 --> 00:32:10,240
Speaker 1: the way they operate day to day, precisely so that

552
00:32:10,280 --> 00:32:13,520
Speaker 1: if you get to that Friday afternoon, you're not facing

553
00:32:13,800 --> 00:32:16,640
Speaker 1: a situation in which there's no liquidity to deal with

554
00:32:16,680 --> 00:32:18,960
Speaker 1: the stress. Now, for those of you just joining us

555
00:32:18,960 --> 00:32:22,120
Speaker 1: on Telligent Radio, we're speaking with Federal Reserve Governor Daniel Trulo,

556
00:32:22,360 --> 00:32:25,160
Speaker 1: and Dan I asked you about what yet needs to

557
00:32:25,160 --> 00:32:27,720
Speaker 1: be done. Are there any places you went too far

558
00:32:27,920 --> 00:32:30,280
Speaker 1: in retrospect that you would all back And particularly ask you,

559
00:32:30,560 --> 00:32:32,560
Speaker 1: is it possible to require that the banks have too

560
00:32:32,680 --> 00:32:37,560
Speaker 1: much capital? Well, in a theoretical sense, sure you can

561
00:32:37,600 --> 00:32:39,520
Speaker 1: require they have too much capital. But I think when

562
00:32:39,520 --> 00:32:43,600
Speaker 1: we're talking about these very largest institutions and you see

563
00:32:44,080 --> 00:32:48,480
Speaker 1: the um stress on the system that any one of

564
00:32:48,560 --> 00:32:53,360
Speaker 1: them could provide if it were failing, then you understand

565
00:32:53,440 --> 00:32:57,840
Speaker 1: why in order to provide a buffer against that the banks,

566
00:32:58,040 --> 00:33:01,080
Speaker 1: those kinds of banks will need to old more capital

567
00:33:01,280 --> 00:33:04,880
Speaker 1: than they might individually decide they want to. Now, when

568
00:33:04,920 --> 00:33:08,880
Speaker 1: you get to banks that are medium sized, smaller, and

569
00:33:08,960 --> 00:33:13,360
Speaker 1: certainly community banks, I think that they have a point

570
00:33:13,760 --> 00:33:19,480
Speaker 1: that the post crisis regime, both supervisory and regulatory, that's

571
00:33:19,520 --> 00:33:23,120
Speaker 1: been put in place in many instances cast the net

572
00:33:23,480 --> 00:33:27,200
Speaker 1: perhaps too broadly or deeply. I've been particularly concerned with

573
00:33:27,280 --> 00:33:30,320
Speaker 1: the impact on community banks. You know that the risk

574
00:33:30,320 --> 00:33:33,240
Speaker 1: based capital rules had to be changed to take into

575
00:33:33,280 --> 00:33:37,240
Speaker 1: account what the media, the the big regionals, and the

576
00:33:37,360 --> 00:33:41,240
Speaker 1: largest banks were doing. But in the process, those same

577
00:33:41,320 --> 00:33:44,640
Speaker 1: rules apply to community banks. And I think in this

578
00:33:44,680 --> 00:33:48,080
Speaker 1: post crisis period we need to think more in terms

579
00:33:48,120 --> 00:33:53,760
Speaker 1: of pretty sizeable a pretty distinct changes and differences in

580
00:33:53,800 --> 00:33:57,600
Speaker 1: the regimes applicable to, for example, community banks as opposed

581
00:33:57,600 --> 00:34:00,520
Speaker 1: to City or Goldmen or State Street. So you've seen

582
00:34:00,680 --> 00:34:04,280
Speaker 1: in your data that you look at actual tangible harm

583
00:34:04,320 --> 00:34:06,200
Speaker 1: done to the community banks because of this. For example,

584
00:34:06,240 --> 00:34:08,480
Speaker 1: in lending, is there less lending going on than should

585
00:34:08,480 --> 00:34:11,839
Speaker 1: be going on? Well, you know, it's very huh. My

586
00:34:12,000 --> 00:34:15,160
Speaker 1: sense has been pouring over the data speaking with bankers,

587
00:34:15,160 --> 00:34:18,960
Speaker 1: and my sense has been that the biggest problem remains

588
00:34:19,080 --> 00:34:22,560
Speaker 1: demand for lending, you know, by small businesses and by

589
00:34:22,560 --> 00:34:26,040
Speaker 1: in some cases consumers as well. Um. You know, if

590
00:34:26,080 --> 00:34:28,719
Speaker 1: you look at the n f I b UH index,

591
00:34:29,280 --> 00:34:32,400
Speaker 1: you National Federation of Independent Business, you'll see that a

592
00:34:32,640 --> 00:34:36,319
Speaker 1: very small percentage of smaller firms say that having a

593
00:34:36,520 --> 00:34:40,440
Speaker 1: problem getting alone when they think they need one for expansion.

594
00:34:40,480 --> 00:34:44,799
Speaker 1: The problem is the demand. But but you know, for

595
00:34:44,840 --> 00:34:50,759
Speaker 1: any small bank, any regulation or supervisory exam creates a

596
00:34:50,800 --> 00:34:55,000
Speaker 1: cost that it cannot amortize over hundreds of billions of

597
00:34:55,040 --> 00:34:58,280
Speaker 1: dollars of assets. It's amortizing it over a few billion

598
00:34:58,320 --> 00:35:01,319
Speaker 1: dollars of assets. They have one or two or three

599
00:35:01,440 --> 00:35:05,080
Speaker 1: or four compliance officers. So when you're pushing up those

600
00:35:05,160 --> 00:35:09,680
Speaker 1: costs in a way that is probably not necessary, you

601
00:35:09,760 --> 00:35:13,080
Speaker 1: are having an impact on the profitability of those banks.

602
00:35:13,440 --> 00:35:16,080
Speaker 1: And let's face it, you know small banks are subject

603
00:35:16,120 --> 00:35:19,759
Speaker 1: to enough pressures to pressures for economies of scale and

604
00:35:19,800 --> 00:35:22,480
Speaker 1: the like. I don't think we want the regulatory and

605
00:35:22,520 --> 00:35:27,399
Speaker 1: supervisory system to be an additional challenge for them given

606
00:35:27,440 --> 00:35:30,200
Speaker 1: the market challenges they face. So governor trulo, I think

607
00:35:31,560 --> 00:35:34,680
Speaker 1: DoD frank have been implemented. So we've seen financial firms

608
00:35:34,719 --> 00:35:37,359
Speaker 1: banks do a lot of work already. What do you

609
00:35:37,400 --> 00:35:40,799
Speaker 1: anticipate will happen in terms of financial regulation? Will we

610
00:35:40,840 --> 00:35:43,960
Speaker 1: see a rollback? Will banks kind of rollback all the efforts,

611
00:35:44,000 --> 00:35:46,560
Speaker 1: the compliance efforts that they've already taken, and what are

612
00:35:46,560 --> 00:35:49,919
Speaker 1: the risks that well? I don't I think it's far

613
00:35:49,960 --> 00:35:53,279
Speaker 1: too early to tell what the outcome of all these conversations,

614
00:35:53,280 --> 00:35:56,919
Speaker 1: discussions and proposals will be. UM I can say that

615
00:35:57,080 --> 00:36:02,160
Speaker 1: my hope and expectation are that the core reforms that

616
00:36:02,200 --> 00:36:05,520
Speaker 1: we've put in place for the largest institutions, the increased

617
00:36:05,520 --> 00:36:10,360
Speaker 1: capital stress testing, liquidity requirements, risk management, and the progress

618
00:36:10,360 --> 00:36:14,279
Speaker 1: and the resolution regime will be will have durability. And

619
00:36:14,320 --> 00:36:16,879
Speaker 1: I think they should have durability because I think there's

620
00:36:16,920 --> 00:36:21,600
Speaker 1: a broader consensus in the country that we cannot repeat

621
00:36:21,760 --> 00:36:25,279
Speaker 1: what happened in two thousand and seven and eight, that

622
00:36:25,360 --> 00:36:28,759
Speaker 1: we do not want more taxpayer bailouts, and that we

623
00:36:28,840 --> 00:36:31,960
Speaker 1: don't want to repeat the secular harm to the economy

624
00:36:32,000 --> 00:36:35,520
Speaker 1: that was caused by the financial crisis, and that that

625
00:36:35,640 --> 00:36:38,680
Speaker 1: I think, to get back to one of your earlier questions,

626
00:36:38,719 --> 00:36:42,080
Speaker 1: that's where memory is important, is to is to keep

627
00:36:42,120 --> 00:36:45,640
Speaker 1: that in mind. You know, I have always regarded higher

628
00:36:45,680 --> 00:36:48,560
Speaker 1: capital in the fight against moral hazard as a place

629
00:36:48,680 --> 00:36:53,319
Speaker 1: where conservative and liberal economic principles come together. When I

630
00:36:53,400 --> 00:36:55,279
Speaker 1: was tested when I'm still an academic and I was

631
00:36:55,320 --> 00:36:58,920
Speaker 1: testifying before the Senate Banking Committee on what was then

632
00:36:58,960 --> 00:37:03,360
Speaker 1: a set of basle to capital proposals, I was followed

633
00:37:03,400 --> 00:37:07,759
Speaker 1: by a quite conservative economist who agreed with what I

634
00:37:07,800 --> 00:37:10,319
Speaker 1: had just said, and we found that we shared this

635
00:37:10,480 --> 00:37:14,120
Speaker 1: view that you know, moral hazard is a problem for

636
00:37:14,239 --> 00:37:18,040
Speaker 1: an efficient capital and market allocation system. So Dan, quickly,

637
00:37:18,400 --> 00:37:21,400
Speaker 1: why are leading now? Well, you know, I came in.

638
00:37:21,920 --> 00:37:24,240
Speaker 1: I came in hoping to be part of a group

639
00:37:24,560 --> 00:37:28,239
Speaker 1: that put these kinds of reforms in place. I had

640
00:37:28,280 --> 00:37:33,640
Speaker 1: the unusual opportunity, just having literally written a book, uh,

641
00:37:33,719 --> 00:37:36,080
Speaker 1: to be in a government position where I could put

642
00:37:36,360 --> 00:37:40,359
Speaker 1: some of those those ideas into practice with my colleagues. Uh.

643
00:37:40,440 --> 00:37:44,319
Speaker 1: And you know, eight years is a long period to

644
00:37:44,440 --> 00:37:46,759
Speaker 1: have done this, And I think it's probably good for

645
00:37:46,760 --> 00:37:50,640
Speaker 1: the individual and good for the institution to move along.

646
00:38:02,800 --> 00:38:05,640
Speaker 1: David garin time teams to grow off. Franci mc quad, London.

647
00:38:05,719 --> 00:38:08,680
Speaker 1: I'm Tom Keane in New York without question or interview

648
00:38:09,000 --> 00:38:11,400
Speaker 1: of the day. Eli Lake is out of Trinity College

649
00:38:11,440 --> 00:38:14,200
Speaker 1: in Hartford, Connecticut. And what he has done is a

650
00:38:14,280 --> 00:38:16,959
Speaker 1: real and tangible journalist starting at the New York Sun.

651
00:38:17,520 --> 00:38:19,560
Speaker 1: Is not that he did this in two thousand nine

652
00:38:19,640 --> 00:38:23,439
Speaker 1: or that in two thousand thirteen. It's year after year

653
00:38:23,840 --> 00:38:28,520
Speaker 1: after year he's done serious journalism that breaks political news

654
00:38:28,560 --> 00:38:32,839
Speaker 1: and certainly breaks eggshells across all of our political landscape.

655
00:38:33,080 --> 00:38:35,920
Speaker 1: He writes op ed for Bloomberg View for David Shipley

656
00:38:35,920 --> 00:38:39,040
Speaker 1: and the team over there. And the President today sent

657
00:38:39,120 --> 00:38:43,320
Speaker 1: out a tweet on Eli Lakes essay, the political assassination

658
00:38:43,840 --> 00:38:46,440
Speaker 1: of General Flynn. Eli, wonderful to have you on the show.

659
00:38:46,600 --> 00:38:50,560
Speaker 1: Did the President cherry pick a single sentence out of

660
00:38:50,560 --> 00:38:55,480
Speaker 1: the balanced essay? Um? Well, I think he was basing

661
00:38:55,480 --> 00:38:58,239
Speaker 1: this on a tweet about a period I did on

662
00:38:58,360 --> 00:39:02,800
Speaker 1: Fox Hannity Show. UM, and I would say it's I

663
00:39:02,840 --> 00:39:05,520
Speaker 1: agree that, um, we shouldn't have the n S a

664
00:39:06,280 --> 00:39:08,560
Speaker 1: uh and the FBI interfere in our politics. But my

665
00:39:08,719 --> 00:39:11,680
Speaker 1: column was a lot about I mean, it was somewhat

666
00:39:11,719 --> 00:39:14,760
Speaker 1: critical of the President, I think for throwing Michael Flint

667
00:39:14,840 --> 00:39:17,960
Speaker 1: under the bus. And also it said, isn't it ironic

668
00:39:18,040 --> 00:39:21,560
Speaker 1: that the National Security Advisor has fired ostensibly for a lie,

669
00:39:21,600 --> 00:39:24,480
Speaker 1: which I had to say, I'm not sure he did lie. Um.

670
00:39:24,600 --> 00:39:26,920
Speaker 1: When this is an administration that has had such a

671
00:39:27,000 --> 00:39:30,040
Speaker 1: casual and opportunitistic relationship with the truth. I mean, the

672
00:39:30,040 --> 00:39:32,640
Speaker 1: president has said things that are just not true, and

673
00:39:32,920 --> 00:39:36,000
Speaker 1: you know, his first weeks. So I found that that

674
00:39:36,080 --> 00:39:38,719
Speaker 1: was my lead. Um. But at the same time, I

675
00:39:38,719 --> 00:39:41,680
Speaker 1: guess I would find myself an agreement with President Trump

676
00:39:41,680 --> 00:39:45,160
Speaker 1: and the sense that it's extraordinary that you would find

677
00:39:45,800 --> 00:39:48,239
Speaker 1: these this many weeks and this many sources in the

678
00:39:48,320 --> 00:39:51,360
Speaker 1: U S intelligence community to talk about the intercepts of

679
00:39:51,480 --> 00:39:54,680
Speaker 1: communications of US citizens or a US official like this.

680
00:39:55,120 --> 00:39:57,080
Speaker 1: The last time I can remember it happening within two

681
00:39:57,080 --> 00:40:01,920
Speaker 1: thousand nine, when there was some stories of interceptive conversation

682
00:40:01,960 --> 00:40:03,759
Speaker 1: with Jane Harmon. He was a what I'm trying of

683
00:40:03,800 --> 00:40:06,799
Speaker 1: congresswoman at the time, your single sentence which makes all

684
00:40:06,800 --> 00:40:09,920
Speaker 1: Americans sit up as quote, this is what police states do.

685
00:40:10,480 --> 00:40:14,279
Speaker 1: Let's be clear here, is this an intelligence community out

686
00:40:14,320 --> 00:40:17,960
Speaker 1: of control? Yes? I think there is an intelligence I

687
00:40:17,960 --> 00:40:20,160
Speaker 1: feel that this is in many ways a coup because

688
00:40:20,480 --> 00:40:23,279
Speaker 1: we don't even know the basic facts of this. What

689
00:40:23,480 --> 00:40:27,359
Speaker 1: did Flynn? What is Flynn resigning over? He's resigning over

690
00:40:27,600 --> 00:40:32,520
Speaker 1: allegedly misleading Vice President Trump according to the analysis of

691
00:40:33,000 --> 00:40:37,640
Speaker 1: the intelligence community of is intercepted communications. But Flynn, I mean,

692
00:40:37,680 --> 00:40:39,600
Speaker 1: I should say Flynn was not allowed to see the

693
00:40:39,640 --> 00:40:44,439
Speaker 1: transcripts of of these conversations. And haven't we all if

694
00:40:44,440 --> 00:40:47,200
Speaker 1: you're asked to remember a conversation, if this was I

695
00:40:47,239 --> 00:40:51,320
Speaker 1: should say, if Flynn had an in depth conversation about

696
00:40:51,320 --> 00:40:55,160
Speaker 1: sanctions with the Russian ambassador and then he lied about that.

697
00:40:55,200 --> 00:40:56,839
Speaker 1: He said, no, no no, no, no, we talked about something else.

698
00:40:57,200 --> 00:41:01,200
Speaker 1: That's a very serious deception. My understanding is that it

699
00:41:01,239 --> 00:41:03,960
Speaker 1: was an incidental part of a conversation about a lot

700
00:41:04,000 --> 00:41:06,279
Speaker 1: of other things that weren't having to do with things

701
00:41:06,480 --> 00:41:08,480
Speaker 1: I want my colleague friendzing look what to get in here.

702
00:41:08,480 --> 00:41:12,000
Speaker 1: But Eli, one more quick question before Franzie climbs on board.

703
00:41:12,200 --> 00:41:15,760
Speaker 1: At the end of your essay, you are brutally clear

704
00:41:16,239 --> 00:41:19,880
Speaker 1: that this could lead to a sequence of bad things

705
00:41:19,960 --> 00:41:23,839
Speaker 1: for the administration. What are you trying to observe from

706
00:41:23,880 --> 00:41:27,319
Speaker 1: the administration that the adults have entered the room? Have

707
00:41:27,400 --> 00:41:31,440
Speaker 1: you seen it yet? No? Not at the White House.

708
00:41:31,480 --> 00:41:35,280
Speaker 1: I think General Maddis and if I Maddie's former deputy

709
00:41:35,320 --> 00:41:38,080
Speaker 1: when he was the commander of InCom takes over at

710
00:41:38,120 --> 00:41:41,160
Speaker 1: the National Security Council. Those are very highly qualified people

711
00:41:41,200 --> 00:41:44,000
Speaker 1: who know what they're doing in very good managers. So

712
00:41:44,080 --> 00:41:46,520
Speaker 1: that is a good thing. But as far as how

713
00:41:46,560 --> 00:41:49,880
Speaker 1: the White House is working, it's it's outrage It's bizarre.

714
00:41:50,520 --> 00:41:54,600
Speaker 1: Trump apparently knew about these concerns from the acting Attorney general,

715
00:41:55,200 --> 00:41:58,920
Speaker 1: and they involved Flynn's description of these conversations to Pence,

716
00:41:59,000 --> 00:42:01,720
Speaker 1: and Pence did not all about any of this until

717
00:42:01,920 --> 00:42:05,840
Speaker 1: the weekend. Um, so that right there is a is

718
00:42:05,880 --> 00:42:07,880
Speaker 1: a sign of the dysfunction of the White House. And

719
00:42:07,920 --> 00:42:11,160
Speaker 1: then looked at what happened on Monday. We had Kelly

720
00:42:11,200 --> 00:42:13,840
Speaker 1: and Conway going out in the late afternoon saying the

721
00:42:13,840 --> 00:42:17,960
Speaker 1: President has full confidence in Mike Flynn, you know, stories

722
00:42:18,040 --> 00:42:24,240
Speaker 1: over guys, and then Spicer, the Press secretary, corrects that thing.

723
00:42:24,360 --> 00:42:27,319
Speaker 1: We're evaluating the situation. And then a few hours later

724
00:42:27,360 --> 00:42:30,680
Speaker 1: it breaks that he resigns. So that doesn't look good either.

725
00:42:30,840 --> 00:42:33,120
Speaker 1: And then to have Kelly and Conway I don't mean

726
00:42:33,200 --> 00:42:35,759
Speaker 1: to pick on her come out the next day and

727
00:42:35,800 --> 00:42:37,800
Speaker 1: acted and she didn't say the things that she said

728
00:42:38,000 --> 00:42:42,640
Speaker 1: less than twenty four hours before. It's surreal. Right, let's

729
00:42:42,640 --> 00:42:45,400
Speaker 1: take a stake back, Right, So you believe that intelligence

730
00:42:45,480 --> 00:42:50,040
Speaker 1: agencies Ennis and the FBI should not interfere in US politics? Fine,

731
00:42:50,120 --> 00:42:54,160
Speaker 1: do you think they're interfering because they are main Democrats

732
00:42:54,160 --> 00:42:57,279
Speaker 1: out to get President Trump? Or do you believe they

733
00:42:57,440 --> 00:43:00,520
Speaker 1: feel like they're the institution that need to keep president

734
00:43:00,920 --> 00:43:04,719
Speaker 1: in checks and balances? Okay, so there's let me let

735
00:43:04,760 --> 00:43:08,759
Speaker 1: me sort of unpack that a second. On the it's

736
00:43:08,880 --> 00:43:17,080
Speaker 1: completely legitimate to investigate Trump campaign connections to Russia, and

737
00:43:18,200 --> 00:43:21,000
Speaker 1: that should be a professional and serious investigation. The intelligence

738
00:43:21,040 --> 00:43:23,080
Speaker 1: community is doing that. I think Congress should do that

739
00:43:23,680 --> 00:43:26,120
Speaker 1: um and we should also saying how we can make

740
00:43:26,120 --> 00:43:28,400
Speaker 1: ourselves more resilient so that we are an attack this

741
00:43:28,480 --> 00:43:30,719
Speaker 1: way in the future, and how the Rustians did it,

742
00:43:30,800 --> 00:43:34,160
Speaker 1: and all of that needs to be investigated and responded

743
00:43:34,239 --> 00:43:38,759
Speaker 1: to and so forth. What's not okay is to have

744
00:43:39,200 --> 00:43:42,960
Speaker 1: a drips and drabs about the status of this really

745
00:43:43,320 --> 00:43:47,120
Speaker 1: secret investigation that involves US citizens without an opportunity for

746
00:43:47,160 --> 00:43:49,759
Speaker 1: themselves defended in court. The way they're supposed to work

747
00:43:50,120 --> 00:43:53,840
Speaker 1: is that you investigate, you take it to uh, you know,

748
00:43:53,960 --> 00:43:55,960
Speaker 1: you prosecute, you take it to report, and then you

749
00:43:55,960 --> 00:43:59,120
Speaker 1: can amount your defense. And then on the question of

750
00:43:59,320 --> 00:44:02,319
Speaker 1: monitor to communications, I am not one of I'm not

751
00:44:02,520 --> 00:44:06,000
Speaker 1: Glenn Greenwald. I'm not an old cultural libertarian. I think

752
00:44:06,120 --> 00:44:10,080
Speaker 1: that the government should have the power to monitor communications.

753
00:44:10,120 --> 00:44:12,920
Speaker 1: It's very important for stopping drugs, bucklers, and terrorists and

754
00:44:12,960 --> 00:44:15,360
Speaker 1: other kinds of things that we all want the government

755
00:44:15,400 --> 00:44:18,560
Speaker 1: to do. But that is an extraordinary power if that

756
00:44:18,680 --> 00:44:22,319
Speaker 1: is abused and selectively disclosed to the press to go

757
00:44:22,400 --> 00:44:26,160
Speaker 1: after political opponents which is what's happening here because Flynn

758
00:44:26,200 --> 00:44:30,319
Speaker 1: is certainly a political opponent of many in the intelligence community. Well,

759
00:44:30,320 --> 00:44:34,080
Speaker 1: we're entering into trying of Banana Republic or is that this?

760
00:44:34,160 --> 00:44:35,759
Speaker 1: As I said, this is what police states to do.

761
00:44:35,840 --> 00:44:39,319
Speaker 1: And I'd say it's polar to mid century America when

762
00:44:39,400 --> 00:44:43,120
Speaker 1: j Ed Hoover, the FBI director, had dirt on in

763
00:44:43,160 --> 00:44:47,600
Speaker 1: some cases even the President. We got fifteen seconds left.

764
00:44:47,600 --> 00:44:49,520
Speaker 1: I've got to ask you a key question in the morning.

765
00:44:49,719 --> 00:44:51,960
Speaker 1: Did the President d m you? You asked the President

766
00:44:51,960 --> 00:44:54,760
Speaker 1: of the United States to direct message you on Twitter today?

767
00:44:54,960 --> 00:44:58,239
Speaker 1: Did he know I wanted him to follow me so

768
00:44:58,320 --> 00:44:59,800
Speaker 1: we could we could chat that way. I thought it

769
00:44:59,800 --> 00:45:04,440
Speaker 1: would the advantage to get the boldness, the boldness of

770
00:45:04,480 --> 00:45:08,680
Speaker 1: Eli like ELI. Congratulations seriously on a balanced essays Mr

771
00:45:08,719 --> 00:45:12,359
Speaker 1: Greenwall talked about and certainly uh, thank you so much.

772
00:45:12,400 --> 00:45:15,840
Speaker 1: Looking forward to your next Bloomberg view, UH commentary and

773
00:45:15,920 --> 00:45:26,960
Speaker 1: op ed as well. Thanks for listening to the Bloomberg

774
00:45:26,960 --> 00:45:32,440
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud,

775
00:45:32,880 --> 00:45:37,120
Speaker 1: or whichever podcast platform you prefer. I'm out on Twitter

776
00:45:37,200 --> 00:45:41,000
Speaker 1: at Tom Keene. David Gura is at David Gura before

777
00:45:41,040 --> 00:45:45,400
Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg Radio,

778
00:45:57,880 --> 00:46:01,400
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779
00:46:01,480 --> 00:46:05,360
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780
00:46:05,520 --> 00:46:09,239
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781
00:46:09,600 --> 00:46:14,120
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782
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