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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is Wall Street Week. I'm David Weston bringing you

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Speaker 2: stories of capitalism. Affordable housing is a problem pretty much

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Speaker 2: everywhere across the United States. We go to Austin, Texas

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Speaker 2: to look at one city that's actually doing something about it. Plus,

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Speaker 2: giving grad students a way to finance their education seemed

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Speaker 2: like a good idea at the time. Now cutting back

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Speaker 2: on the support is creating problems for students and universities alike.

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Speaker 2: And tariffs are back with a vengeance as President Trump

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Speaker 2: threatens fifty percent levies on a range of Canadian imports

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Speaker 2: with more to come. What will they mean for trade

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Speaker 2: and for the US economy. But we start once again

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Speaker 2: with our intelligence in a week when the Chinese came

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Speaker 2: forward with yet another model that they claim is cheaper

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Speaker 2: than the US alternatives and can do just about as well.

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Speaker 2: Stephen Ratner is chairman and CEO of Willet Advisors, which

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Speaker 2: invest the personal and philanthropic assets of our founder and

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Speaker 2: majority shareholder, Michael Bloomberg. So, Steve, Artificial intelligence has been

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Speaker 2: all the talk of the markets for some time now,

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Speaker 2: both the investment in it and the promise of it.

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Speaker 2: There are some questions being raised right now? What do

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Speaker 2: you think of those questions? Are they serious questions?

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Speaker 3: Oh, there are definitely serious questions. David.

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Speaker 4: Let me step acts for a second and say that

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Speaker 4: every technological innovation that I've seen happen has always occurred

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Speaker 4: with sort of a swirling of the cosmos effect, where

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Speaker 4: the stars are forming and you don't quite know how

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Speaker 4: it's all going to shake out for a while. And

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Speaker 4: that was certainly true for example, when we had computers

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Speaker 4: came in. There are many different computer manufacturers, many different systems,

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Speaker 4: and so forth, all the way through the Internet. But

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Speaker 4: I would say this time it may be even more

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Speaker 4: dramatic in terms of not really being able to see

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Speaker 4: clearly how the movie ends. The movie's going to end

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Speaker 4: with a lot of artificial intelligence. In my opinion, it's

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Speaker 4: going to be a huge contributor to society, to the economy,

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Speaker 4: to our lives. But exactly who the winners and losers

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Speaker 4: are I don't think you can say with one hundred

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Speaker 4: percent certainty.

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Speaker 2: Just yet, the markets have been very enthusiastic, I think

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Speaker 2: it's fair to say with a broad brush so far,

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Speaker 2: we're now starting to see perhaps a little hesitancy on

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Speaker 2: the money being borrowed. As you see some of the

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Speaker 2: spreads really increase for the hyperscalers. Are the markets having

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Speaker 2: some doubts now about the repayment of all that money?

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Speaker 3: Not about the repayment per se.

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Speaker 4: I mean, the widening of the spreads is still quite

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Speaker 4: modest relative to where they were and relative to other.

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Speaker 3: Spreads for other kinds of companies.

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Speaker 4: I think the market got caught up in a little

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Speaker 4: bit of irrational exuberance to us, to borrow a phrase,

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Speaker 4: when when Google and others financed all that debt and

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Speaker 4: gave them pricing that was really kind of rock solid,

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Speaker 4: you know, very very high investment grade pricing. And I

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Speaker 4: think on reflection, the market is saying, well, you know,

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Speaker 4: they're good companies, and they've still got trillion dollar plus

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Speaker 4: market caps, but shouldn't we have a little bit more

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Speaker 4: of a margin of safety If you saw on Google's

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Speaker 4: earnings earlier this week that they're actually potentially running cashulo

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Speaker 4: and negative now because of all the capex, and that

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Speaker 4: isn't the end of the world. It's not terrible, and

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Speaker 4: hopefully the capex will be justified. But the market just

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Speaker 4: wants to be paid a little bit more for it.

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Speaker 2: And as you say, there's going to be a lot

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Speaker 2: of AI. However it all plays out, no question about it.

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Speaker 2: One question though, that did come up, particularly this week,

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Speaker 2: is what kind of AI will it be, given what

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Speaker 2: we saw coming out of China, Whether in fact we

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Speaker 2: need the silver plated special version that's very out there

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Speaker 2: in advanced or is there something that's a little less

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Speaker 2: powerful but perhaps much cheaper.

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Speaker 4: Well, yes, and so that is the absolute question of

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Speaker 4: the moment is who are the winners I'll call it,

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Speaker 4: who are the winners and losers going to be? We

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Speaker 4: had a few months ago, as you well recall, the

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Speaker 4: deep seek moment. We're China first kind of raised its

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Speaker 4: head in a way where people said, ah, they actually

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Speaker 4: have something. And now we've had a number of different

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Speaker 4: developments in China that lead us to think that again,

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Speaker 4: they have very robust models. It has been tested that

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Speaker 4: their model, their news models, are not quite as good

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Speaker 4: as ours, but they're close. But they come at a

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Speaker 4: fraction of the price per token. You know, token is

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Speaker 4: the unit of purchase of artificial intelligence. That's a big question,

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Speaker 4: and it is in some ways not that different of

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Speaker 4: a question than the question of competing against anything else

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Speaker 4: China does, whether it's cars or whatever. But in some

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Speaker 4: ways it is a more complicated question because of the

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Speaker 4: of information leakage the wrong way and things like that.

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Speaker 4: So we're going to see how it unfolds. What you're

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Speaker 4: going to see and what you've already seen are a

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Speaker 4: number of companies getting in the business of essentially intermediating

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Speaker 4: between the user and the LMS and essentially going out

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Speaker 4: and you ask it a question or you ask it

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Speaker 4: to do something, and it figures out the least expensive

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Speaker 4: way to get what you want by going whether it's

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Speaker 4: model A, B, or C, and then coming back and

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Speaker 4: it might be a bit of each for that matter,

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Speaker 4: or another one question might be all of the cheapest

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Speaker 4: or all the most expensive. So you're going to see

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Speaker 4: you're going to see things happen there. The token prices

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Speaker 4: in China are as little as five percent of what

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Speaker 4: they are here, and so we're going to have to

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Speaker 4: deal with that.

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Speaker 2: One of the features of the Chinese approach is so

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Speaker 2: called open source open weighting, where the most of the

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Speaker 2: US systems, the advanced systems, are not Should we expect

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Speaker 2: a new generation of AI to come up in the

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Speaker 2: United States that follows the open source open weighting approach.

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Speaker 4: I'm not going to take credit for this remark, but

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Speaker 4: I read it somewhere. It was sort of amusing to me,

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Speaker 4: which is that the most authoritarian country in this ecosystem

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Speaker 4: has the most open models of AI, and the most

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Speaker 4: open country in this ecosystem has the.

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Speaker 3: Most closed models of AI.

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Speaker 4: So it's sort of just a little irony that China

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Speaker 4: and we have gone in such different directions. Do I

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Speaker 4: think there'll be open source models here? I think it's possible.

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Speaker 4: I think it's possible. I can't say I know of

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Speaker 4: one right now that I would bet is going to

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Speaker 4: either emerge and be of any consequence, but it's certainly possible.

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Speaker 2: As we talk about the price of borrowing, the price

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Speaker 2: borrowing overall has crept up here where we have the

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Speaker 2: yield on the ten year significally about three point five now,

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Speaker 2: and on the thirty year US Treasury really above five

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Speaker 2: point one. What is causing that?

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Speaker 5: Right?

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Speaker 4: So, I think that you could maybe draw a little

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Speaker 4: bit of a line to AI, but I don't think

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Speaker 4: it's one that is meaningful, and I would not go there.

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Speaker 4: In terms of looking for answers to your good question,

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Speaker 4: and of course the only right answer is nobody really knows.

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Speaker 4: But I think the factors that are out there that

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Speaker 4: are weighing on the market are certainly inflation, which while

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Speaker 4: it went down last month, it will almost certainly go

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Speaker 4: up next month, given what's happening to oil prices as.

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Speaker 3: We sit here.

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Speaker 4: As we sit here today, and you also have the

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Speaker 4: fact that the federal budget deficit is still high and

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Speaker 4: in fact going higher. It was one point eight trillion

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Speaker 4: dollars last year, It's going to be one point nine

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Speaker 4: trillion dollars this year. It's going to be one point

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Speaker 4: nine trillion dollars next year, and then it goes up

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Speaker 4: from there, and we are going to exceed our highest

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Speaker 4: level of debt to GDP, which was one hundred and

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Speaker 4: six percent in nineteen forty six at the end of

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Speaker 4: World War Two, and keep going up from there. And

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Speaker 4: this is something, of course, as you know, that economists

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Speaker 4: and Wall Street types have been discussing for decades, which

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Speaker 4: is what point as the treasury market sort of roll

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Speaker 4: over and say we can't take any more of this.

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Speaker 4: I'm not here to say that that's happening now, and

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Speaker 4: I'm not here to say it's ever going to happen.

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Speaker 4: Treasuries have always been viewed by the market as rock

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Speaker 4: solid investments. But certainly the amount of debt and borrowing

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Speaker 4: that's going on by the US government is playing a

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Speaker 4: major role, playing a major role, as is inflation and

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Speaker 4: other uncertainties in the world. But basically it's a function

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Speaker 4: of inflation and borrowing.

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Speaker 2: And as I look around, it's certainly the United States problem.

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Speaker 2: It's not unique to the United States. We see it

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Speaker 2: in a fair amount of the Western world, where fiscal

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Speaker 2: situations really deteriorated, the balance of debt to a balance

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Speaker 2: sheet has really grown.

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Speaker 4: Yes, we have this problem in other countries as well

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Speaker 4: as here, with high and growing debt loads as they

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Speaker 4: deal with the same issues we deal with aging societies

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Speaker 4: and so forth. And you saw this in Britain in

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Speaker 4: the very brief Lose Trust moment where she tried to

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Speaker 4: propose a budget that would have increased a British borrowing

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Speaker 4: by a material out and the market just threw up

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Speaker 4: on it and said, that's not happening.

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Speaker 3: And you know, it wasn't that long ago.

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Speaker 4: Maybe fifty years is a long time, but it was

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Speaker 4: I think around nineteen seventy six. That Britain needed a

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Speaker 4: rescue package from the IMF, and so these countries we

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Speaker 4: have the advantage of being the ultimate reserve currency.

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Speaker 3: We still are.

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Speaker 4: People still want us treasury, so that in a way

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Speaker 4: is an advantage. It's also the disadvantage that if you

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Speaker 4: can do things you shouldn't do, you sometimes do them.

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Speaker 2: Steve View are responsible for a large number of investments

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Speaker 2: around the world. As you look at the increasing borrowing

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Speaker 2: costs we're seeing right now, as I say, creeping up,

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Speaker 2: but nonetheless moving in that direction, how does it affect

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Speaker 2: your investment decisions? Does it affect what you invest in,

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Speaker 2: what you keep investing in?

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Speaker 3: Liquidity?

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Speaker 2: How do you take into account?

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Speaker 4: Yeah, it does affect it. It affects it in several ways,

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Speaker 4: maybe reverse order. It does make investing in fixed income

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Speaker 4: a debt more attractive. We're not really big dead investors.

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Speaker 4: We did some of it a few years ago, about

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Speaker 4: five years ago, when we thought there was a moment

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Speaker 4: where both rates were high and spreads were wide, and

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Speaker 4: so we could achieve attractive returns. I don't think we're

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Speaker 4: near that level, at least for our appetite, but for

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Speaker 4: many investors when they see the thirty year ago above

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Speaker 4: five percent, Maybe that's a better bet than being in

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Speaker 4: stocks that could go down or whatever. So that is

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Speaker 4: certainly one thing that affects investing. The second thing that

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Speaker 4: affects investing is that and we learned this in twenty

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Speaker 4: twenty two when a lot of the software companies had

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Speaker 4: real problems with their valuations, because what happens is the

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Speaker 4: market when you have a company where the cash flows

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Speaker 4: are way out there in years, the market uses a

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Speaker 4: discount rate to arrive at a present value of those

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Speaker 4: cash flows and therefore an appropriate stock price. When interest

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Speaker 4: rates go up, the discount rate you use goes up,

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Speaker 4: and so companies that were most of the of the

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Speaker 4: earnings are on the comm so to speak, are hurt

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Speaker 4: with higher interest rates. And that, yes, to anticipate a

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Speaker 4: question that could well affect some of the AI companies

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Speaker 4: and things if interest rates continue to go up. The

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Speaker 4: third place that it has an effect that we have

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Speaker 4: to be mindful of is when we make private equity

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Speaker 4: investments that involve significant amounts of debt. If the cost

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Speaker 4: of debt goes up, then obviously the cost of operating

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Speaker 4: this business goes up, and therefore you can't pay as

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Speaker 4: much for it, So it is having something of a

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Speaker 4: limiting factor on our ability to do private equity and

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Speaker 4: make the kinds of returns that we want to make.

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Speaker 2: Coming up. Everyone likes to complain about housing costing too much,

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Speaker 2: but is anyone doing anything about it? We go to Austin,

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Speaker 2: Texas to see what people there claim is working.

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Speaker 6: We knew that our affordability had become a really bad issue.

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Speaker 2: This is a story about solving the unsolvable. Housing Affordability

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Speaker 2: is a problem across the United States, not just in

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Speaker 2: New York City.

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Speaker 7: It is nearly impossible today to find affordable housing in

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Speaker 7: New York City. We face we face one of the

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Speaker 7: most severe housing crises in American history.

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Speaker 2: But there's one major US city that appears to be

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Speaker 2: making real progress when others are struggling. Austin, Texas, once

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Speaker 2: called Waterloo, a city that built its reputation on opportunity

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Speaker 2: for the settlers of the Republic of Texas and now

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Speaker 2: for musicians, for entrepreneurs, and for young families. Everyone seems

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Speaker 2: to have a theory about what makes this city so special,

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Speaker 2: and naturally so too does its mayor, Kirk Watson.

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Speaker 6: Were place in that the creativity and the innovation and

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Speaker 6: a lot of the things that has made us successful

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Speaker 6: arises out of what I consider to be a fountain

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Speaker 6: of youth. Those universities every year bring thousands of young

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Speaker 6: people with new thinking, new ideas, new music, greater diversity,

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Speaker 6: all of the things that make the city pretty special.

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Speaker 6: And then what happens is, after about a year or so,

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Speaker 6: they all say, Ooh, I never want to leave.

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Speaker 2: But as the pandemic fueled remote work and companies moved

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Speaker 2: to Austin, there was an influx of new residents, pushing

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Speaker 2: the housing market to the breaking point. Renz jumped roughly

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Speaker 2: twenty five percent in a single year, one of the

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Speaker 2: biggest increases in the nation. Take us back at the time,

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Speaker 2: coming out of the pandemic, when you were taking a

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Speaker 2: second run at being mayor of Austin, what was the

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Speaker 2: housing situation in Austin at that time.

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Speaker 6: Well, the housing situation was one that was pretty dire.

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Speaker 6: Of Austin's rapid growth and supply and demand, we were

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Speaker 6: about fifteen percent above I think the national median or

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Speaker 6: national average on what it cost to live to rent

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Speaker 6: in Austin, Texas. We knew that our affordability had become

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Speaker 6: a really bad issue.

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Speaker 2: So Mayor Watson turned to one of the oldest rules

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Speaker 2: in economics. When demand is rising fast, look for ways

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Speaker 2: to increase supply.

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Speaker 6: The programs really started with a couple of pretty basic thoughts.

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Speaker 6: One was we needed to address red tape. We needed

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Speaker 6: to get out of.

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Speaker 3: Our own way.

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Speaker 6: And in fact, what I did is we partnered up

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Speaker 6: with Mackenzie Consulting and they came in and did a

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Speaker 6: top to bottom, soup to nuts review of our site

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Speaker 6: planning process. The city itself was adding about ten thousand

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Speaker 6: dollars a month to the cost of a single family home,

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Speaker 6: and it was causing more than a half a million

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Speaker 6: dollars a month to multifamily. Well, you can't out of

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Speaker 6: one side of your mouth say your four affordability and

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Speaker 6: out of the other side of your mouth. Beginning in

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Speaker 6: the way. And then, of course the second big area

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Speaker 6: is land use itself and how we make it so

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Speaker 6: that people can use the land and build what they

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Speaker 6: need to build.

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Speaker 2: And the question of land use, what reforms did you enact?

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Speaker 2: I suppose this is in terms of things like density.

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Speaker 6: Yeah, density is one of the big ones. I guess

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Speaker 6: the way I would approach this is I would start

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Speaker 6: with density in the sense that single family zoning really

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Speaker 6: allowed for one unit on a single family's owned lot.

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Speaker 6: We came in and through what we called our Home Initiative,

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Speaker 6: we changed that to allow by right, three units on

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Speaker 6: any even a single family's owned lot. And then the

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Speaker 6: second oncond thing we did is again this will help

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Speaker 6: with density. What we did is we changed the minimum

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Speaker 6: lot size in Austin. Our minimum lot size when I

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Speaker 6: came into office was five thousand, seven hundred and fifty

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Speaker 6: square feet. Was that that was the minimum lot you

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Speaker 6: could build on. Well, it doesn't take much to land

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Speaker 6: use understanding to realize that what that means. If you've

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Speaker 6: got to have that big a lot, then you're going

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Speaker 6: to need to build a big house.

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Speaker 3: You're going to need to build a mc mansion.

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Speaker 6: That's the only way it makes any sense. But if

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Speaker 6: you have the ability to have three by right, and

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Speaker 6: you reduce the minimum lot size, which we did to

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Speaker 6: eighteen hundred square feet from five seven hundred and fifty

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Speaker 6: to eighteen hundred, now you can start building what I

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Speaker 6: was talking about a minute ago, those starter homes. You

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Speaker 6: can build smaller homes and it makes economic sense. The

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Speaker 6: market can react to that inappropriate way.

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Speaker 2: The City of Austin took a range of action to

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Speaker 2: deal with local regulations and restrictions, but what can lawmakers

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Speaker 2: do in the rest of the country. Congress recently enacted

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Speaker 2: the twenty first Century Road to Housing Act to try

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Speaker 2: to address affordability, but some question whether it goes far enough.

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Speaker 2: Tom Shapiro runs GTIS, which develops residential and commercial real

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Speaker 2: estate across the country and abroad, and he questions how

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Speaker 2: important the new legislation will be.

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Speaker 8: The government can do what they want to do, but

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Speaker 8: if you add supply, rents will drop. So there has

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Speaker 8: to be ways of adding this supply through all sorts

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Speaker 8: of means that the government can control a lot of it.

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Speaker 2: If you talk about the federal, state, and local governments,

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Speaker 2: which have the biggest effect on the affordability of housing,

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Speaker 2: it depends.

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Speaker 8: It really depends on the market because a lot of

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Speaker 8: the local markets, you know, are really the most important part.

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Speaker 8: But if you get Terris like Texas, where there's no

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Speaker 8: Zoni in Houston like obviously that's quite different, but the

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Speaker 8: federal part arts are probably less. So in most markets,

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Speaker 8: that's really the local markets that are creating the cost

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Speaker 8: increases in a lot of these projects.

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Speaker 2: In the wake of Austin's reforms, developers added nearly fifty

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Speaker 2: thousand rental units in twenty twenty three and twenty twenty

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Speaker 2: four alone, the biggest increase of any major US city,

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Speaker 2: and as those apartments hit the market, rents began to fall.

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Speaker 2: Inflation adjusted rents felt nineteen percent from the twenty twenty

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Speaker 2: one average to twenty twenty five.

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Speaker 9: The rents have definitely been declining. I so personally, anecdotally

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Speaker 9: in some of our places the rents are down twenty percent.

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Speaker 2: Austin real estate broker Jen Burbis has a front row

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Speaker 2: seat to the changing dynamics of Austin's housing market.

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Speaker 9: There are something like fifty percent of the units have

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Speaker 9: turned over this last year, which is the highest number

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Speaker 9: in the entire country. I thought that was astonishing if

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Speaker 9: you can think about that, fifty percent of the renters

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Speaker 9: in Austin moved this last year.

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Speaker 2: But for builders, the swing away from scarcity created a

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Speaker 2: different set of pressures, more supply rents and a tougher

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Speaker 2: equation for new projects.

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Speaker 9: It cyclical like anything else, right. Effectively, really, what builders

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Speaker 9: are doing is a form of arbitrage. And they have

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Speaker 9: their land costs, their build cost then they have their margins,

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Speaker 9: and then what they can rent things for, and then

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Speaker 9: that really dictates the difference between those two things dictates

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Speaker 9: their profits. Well, now the profits are coming down because

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Speaker 9: rents are coming down, but as that inventory gets absorbed,

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Speaker 9: rents will probably start swinging back up again, and then

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Speaker 9: we will start seeing more permits being pulled in the

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Speaker 9: multifamily space.

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Speaker 2: Shapiro says Austin's apartment boom follows the pattern Burbus describes.

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Speaker 8: It's not like the developers get to gather and say

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Speaker 8: we should probably build twenty thousand units a year. You

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Speaker 8: guys build two, I'll build three. Doesn't work that way.

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Speaker 8: As we know, everyone builds at the same time. You know,

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Speaker 8: no offense the developers, and where one of them, you

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Speaker 8: give a developers money and they build it.

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Speaker 3: We can go to any of.

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Speaker 8: These Sun Belt cities, to Nashville or Charlotte, they all

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Speaker 8: respond to the same thing. You know, great employment stories.

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Speaker 8: You know, back to Austin. Number two population growth in

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Speaker 8: the country, number three employment growth in the country, and

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Speaker 8: dead last for resale activity. Because of all the things

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Speaker 8: that we're talking about. So I would say, you know,

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Speaker 8: if you look at the sun Belt right now, way oversupplied,

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Speaker 8: you know, very concerned where we haven't been investing for Shapiro.

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Speaker 2: Those cycles aren't just something to watch. They can present

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Speaker 2: an investment opportunity. What are some areas where the reverse

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Speaker 2: has happen, where there's just none enough supply, which is

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Speaker 2: really driving prices up and addressing that affordability issue.

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Speaker 8: We fundamentally believe that San Francisco's recovering and the market

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Speaker 8: is just soaring right now, so where and you're able

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Speaker 8: to buy buildings at half of replacement costs, So you're

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Speaker 8: not going to seek construction for while. So when you

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Speaker 8: talk about affordability, it has been affordable. It's about to

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Speaker 8: be less affordable, and then we'll start to see units

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Speaker 8: start to deliver. Similar in New York and New York

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Speaker 8: median rent for a one bedroom apartment it's fifty five

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Speaker 8: hundred ars a month. It's going up. What's the issue.

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Speaker 8: The issue is you need to build a for units,

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Speaker 8: but in order to do that, you have to let

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Speaker 8: developers raise rents. You can't tell developers that they can't

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Speaker 8: ever raise rents when your expenses are going up, as

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Speaker 8: you probably know they just instituted no unting freezes for

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Speaker 8: rent stabilized units. How generally a development works in New

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Speaker 8: York is reserve approximately depending on the project, around thirty

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Speaker 8: percent of your units for affordable, seventy percent for market rate.

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Speaker 2: Terrific.

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Speaker 3: That works great, But if.

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Speaker 8: You now tell me my affordable units, I can't raise

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Speaker 8: and we should assume Mundani's going to be an eight

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Speaker 8: year term mayor because he's wildly popular. I don't see

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Speaker 8: that changing anytime soon. You're not going to see rent increases,

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Speaker 8: So how do you underwrite that? So if you can't

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Speaker 8: build the affordable units, you can't build the market rate units.

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Speaker 8: We're just going to continue to have the supply issue

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Speaker 8: and it's very, very hard to build in New York.

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Speaker 8: So there has to be a collaboration and understanding that

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Speaker 8: if you can't have the developers earn a reasonable profit

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Speaker 8: on these projects, you're not going to be able to

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Speaker 8: deliver the market rate units, and you can't the affordable

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Speaker 8: units as well. But it's a huge problem, and frankly,

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Speaker 8: I think it's a problem that everybody needs to deal with.

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Speaker 2: If there's one thing nearly everyone can agree on, it's

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Speaker 2: that housing affordability has become a problem. The real challenge

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Speaker 2: begins when communities have to decide how to solve it

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Speaker 2: and whose interests to prioritize. Along the way, are there

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Speaker 2: divisions in the opinions based on whether, for example, if

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Speaker 2: you own a house, you like the price of housing

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Speaker 2: to be pretty high. If you're trying to buy one,

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Speaker 2: you want to be low. If you're renting, you want

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Speaker 2: the rent to be low. If you're a landlord, it's

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Speaker 2: not so attractive. It is a zero sun game.

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Speaker 6: Well it's not a zero sum game, but sure you

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Speaker 6: have some division. I've actually even done my best. I've

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Speaker 6: not been successful. Let me say that at outlawing the

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Speaker 6: use of things like Nimby and Nimby use those labels.

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Speaker 5: You know.

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Speaker 6: It's interesting to me that the other day I was

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Speaker 6: quoted in a speech I gave about affordability that the

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Speaker 6: Vice President vance, The Vice President vance you Austin as

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Speaker 6: an example. And then a few weeks later, Mayor Mam

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Speaker 6: Donnie of New York City used Austin as an example.

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Speaker 6: So I kind of like the fact that it looks

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Speaker 6: to be a nonpartisan approach.

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Speaker 2: Vice President Vance and New York's Mayor Mumdannie may share

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Speaker 2: an appreciation for Austin's work to make housing more affordable,

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Speaker 2: but make no mistake that Austin's path of increasing supply

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Speaker 2: is very different from them Donnie's freezing rents. Time will

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Speaker 2: tell what works best, but at least at this point,

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Speaker 2: one size definitely does not fit all. You mentioned Marrimumdanni,

440
00:23:36,720 --> 00:23:39,600
Speaker 2: and certainly he was elected in part because of affordable housing.

441
00:23:40,000 --> 00:23:42,600
Speaker 2: Did it ever occur to you to Amy propose, maybeage,

442
00:23:42,680 --> 00:23:45,800
Speaker 2: just limit how much you can charge for rent. Do

443
00:23:45,840 --> 00:23:48,639
Speaker 2: it the other way around, don't provide more supply, just

444
00:23:48,960 --> 00:23:51,440
Speaker 2: really go to the price. Well, I live.

445
00:23:51,320 --> 00:23:53,720
Speaker 6: In Texas and that was not an option.

446
00:23:56,119 --> 00:23:59,840
Speaker 2: Up next, the shock hitting graduate students and their universities

447
00:24:00,040 --> 00:24:02,879
Speaker 2: as the federal government pulls back on the federal grad

448
00:24:02,920 --> 00:24:17,280
Speaker 2: school loan program. This is a story about having too

449
00:24:17,359 --> 00:24:20,800
Speaker 2: much of a good thing. A US college education has

450
00:24:20,840 --> 00:24:24,040
Speaker 2: been the path to a brighter future for generations, and

451
00:24:24,119 --> 00:24:27,120
Speaker 2: the government has often played a key role in that future,

452
00:24:27,400 --> 00:24:30,280
Speaker 2: starting with the GI Bill paying for higher education for

453
00:24:30,359 --> 00:24:33,680
Speaker 2: World War Two veterans, and then with federal loan programs

454
00:24:33,680 --> 00:24:37,600
Speaker 2: helping students get their start. But it's not just undergraduates

455
00:24:37,640 --> 00:24:40,840
Speaker 2: getting these loans. The government has also provided loans for

456
00:24:40,960 --> 00:24:44,800
Speaker 2: grad students, a program that exploded in recent years but

457
00:24:44,920 --> 00:24:47,480
Speaker 2: is now coming to an end because of the One Big,

458
00:24:47,520 --> 00:24:50,959
Speaker 2: Beautiful Bill Bloomberg. Scarlett Foo has the story.

459
00:24:53,840 --> 00:24:57,280
Speaker 10: Like many Americans, Marissa Borr relied on loans to pay

460
00:24:57,320 --> 00:25:00,560
Speaker 10: for her education, a Master of Social Work degree Washington

461
00:25:00,680 --> 00:25:02,280
Speaker 10: University in Saint Louis.

462
00:25:01,920 --> 00:25:05,000
Speaker 11: Which found up being a pretty expensive decision to make.

463
00:25:05,320 --> 00:25:08,439
Speaker 11: Having the debt that I had has absolutely shaped the

464
00:25:08,520 --> 00:25:11,520
Speaker 11: trajectory of the last several years.

465
00:25:11,240 --> 00:25:12,199
Speaker 5: Of my life.

466
00:25:12,600 --> 00:25:15,720
Speaker 10: Or obtained her loans through grad Plus, a federal program

467
00:25:15,760 --> 00:25:18,280
Speaker 10: introduced in two thousand and six by the George W.

468
00:25:18,359 --> 00:25:22,040
Speaker 10: Bush administration that allowed students to take out unlimited and

469
00:25:22,160 --> 00:25:26,440
Speaker 10: uncapped loans. Its purpose was to expand access to graduate education,

470
00:25:27,040 --> 00:25:29,840
Speaker 10: but it also left young Americans like Borr saddled with

471
00:25:29,920 --> 00:25:32,960
Speaker 10: significant debt. The program came to an end this month

472
00:25:33,080 --> 00:25:36,200
Speaker 10: with new limits placed on graduate lending from the federal government.

473
00:25:36,760 --> 00:25:39,800
Speaker 10: Almost all programs will be capped at twenty thousand, five

474
00:25:39,880 --> 00:25:44,120
Speaker 10: hundred dollars per year, except for those deemed professional, including

475
00:25:44,240 --> 00:25:47,159
Speaker 10: law and medicine, which will top out at fifty thousand

476
00:25:47,200 --> 00:25:50,359
Speaker 10: dollars per year. Under the new loan limits or would

477
00:25:50,400 --> 00:25:52,639
Speaker 10: have been over thirty thousand dollars short.

478
00:25:53,119 --> 00:25:56,760
Speaker 11: So grad plus loans have historically really filled in the

479
00:25:56,800 --> 00:25:59,760
Speaker 11: gaps for people who are needing to finance more.

480
00:26:00,680 --> 00:26:03,639
Speaker 10: In the grad Plus program's first year, Americans borrowed some

481
00:26:03,760 --> 00:26:07,360
Speaker 10: two billion dollars. By last year, that number had ballooned

482
00:26:07,400 --> 00:26:10,919
Speaker 10: to more than fifteen billion dollars, accounting for over thirty

483
00:26:10,960 --> 00:26:14,560
Speaker 10: percent of all graduate student loans. So how did grad

484
00:26:14,560 --> 00:26:17,440
Speaker 10: plus come to dominate the business of higher education.

485
00:26:17,560 --> 00:26:23,760
Speaker 5: After the financial crisis. We had so many families, especially homeowners,

486
00:26:24,320 --> 00:26:28,760
Speaker 5: who really lost so much of their household wealth. That

487
00:26:28,880 --> 00:26:33,440
Speaker 5: meant that they weren't able to really contribute to their

488
00:26:33,640 --> 00:26:36,760
Speaker 5: own education or to their kids' education.

489
00:26:37,440 --> 00:26:40,840
Speaker 10: Rohitchopra is the former director of the Consumer Financial Protection

490
00:26:40,960 --> 00:26:44,640
Speaker 10: Bureau and its first student loan ombudsman. He is currently

491
00:26:44,720 --> 00:26:48,320
Speaker 10: the Secretary of the California Business and Consumer Services Agency.

492
00:26:48,720 --> 00:26:55,040
Speaker 5: We really had a lot of private financial institutions looking

493
00:26:55,119 --> 00:26:59,560
Speaker 5: to make big money on those plus loans. They were

494
00:26:59,640 --> 00:27:04,960
Speaker 5: able to issue billions and billions of dollars and really

495
00:27:05,040 --> 00:27:06,040
Speaker 5: take no risk.

496
00:27:06,359 --> 00:27:09,840
Speaker 12: The federal government and Congress basically said, hey, look we

497
00:27:09,920 --> 00:27:13,560
Speaker 12: can expand federal lending, make loans available to graduate and

498
00:27:13,600 --> 00:27:17,440
Speaker 12: professional students, and those loans will actually generate revenue for

499
00:27:17,520 --> 00:27:18,400
Speaker 12: the federal government.

500
00:27:19,040 --> 00:27:21,920
Speaker 10: Beth Acres is a senior fellow at the American Enterprise

501
00:27:22,000 --> 00:27:25,920
Speaker 10: Institute who studies the economics of higher education. She says

502
00:27:26,040 --> 00:27:29,000
Speaker 10: grad plus push schools themselves to shift the type of

503
00:27:29,040 --> 00:27:30,439
Speaker 10: degree programs they offered.

504
00:27:30,720 --> 00:27:35,240
Speaker 12: Grad plus created incentives for institutions to really lean into

505
00:27:35,320 --> 00:27:38,560
Speaker 12: the graduate and professional education space. So, I mean, this

506
00:27:38,720 --> 00:27:41,200
Speaker 12: was really money on the table, and there was demand.

507
00:27:41,280 --> 00:27:43,800
Speaker 12: We've been celebrating higher education to such a degree that

508
00:27:43,840 --> 00:27:46,240
Speaker 12: people felt like these are degrees that they want.

509
00:27:46,560 --> 00:27:50,320
Speaker 10: Graduate programs have long been described as cash cows for universities.

510
00:27:50,800 --> 00:27:53,760
Speaker 10: Although grad students make up just sixteen percent of enrollment,

511
00:27:54,080 --> 00:27:57,760
Speaker 10: graduate programs account for roughly forty percent of student loan debt.

512
00:27:58,400 --> 00:28:03,720
Speaker 10: How significant is gradual tuition revenue to Fordham's business model?

513
00:28:03,720 --> 00:28:08,840
Speaker 10: To your financials, It is a big part of our model.

514
00:28:08,840 --> 00:28:10,400
Speaker 13: It's about a third of our revenue.

515
00:28:10,760 --> 00:28:14,760
Speaker 10: Tanya Tetlow is president of Fordham University, a Jesuit university

516
00:28:14,760 --> 00:28:17,199
Speaker 10: in New York City with campuses in the Bronx and

517
00:28:17,240 --> 00:28:20,200
Speaker 10: Midtown Manhattan. It offers more than one hundred and thirty

518
00:28:20,240 --> 00:28:23,520
Speaker 10: graduate degree programs. Wish programs are you worried about the

519
00:28:23,560 --> 00:28:25,800
Speaker 10: most now that grad plus is going away in its

520
00:28:25,800 --> 00:28:27,399
Speaker 10: current form.

521
00:28:27,480 --> 00:28:30,600
Speaker 13: I think teacher training K through twelve training, right, it

522
00:28:30,640 --> 00:28:33,320
Speaker 13: matters so much, and I wish teachers were paid more

523
00:28:33,359 --> 00:28:35,760
Speaker 13: than they are. But the fact is we need them,

524
00:28:35,840 --> 00:28:38,640
Speaker 13: and we need them really well trained because the future

525
00:28:38,680 --> 00:28:40,120
Speaker 13: of everything relies on them.

526
00:28:40,360 --> 00:28:42,640
Speaker 10: If the new loan caps leave a student like more

527
00:28:42,680 --> 00:28:45,920
Speaker 10: than thirty thousand dollars short, what are their options to

528
00:28:46,000 --> 00:28:49,280
Speaker 10: make up that shortfall? Many will turn to private lenders.

529
00:28:49,880 --> 00:28:53,760
Speaker 10: Ken Ruguero is CEO of Assent Funding, which offers outcomes

530
00:28:53,800 --> 00:28:55,320
Speaker 10: based student loans.

531
00:28:55,840 --> 00:28:59,960
Speaker 14: In about fifty to seventy five percent of the student situation.

532
00:29:00,320 --> 00:29:03,440
Speaker 14: The private sector can support the student with all the

533
00:29:03,480 --> 00:29:07,200
Speaker 14: borrowing they need at rates that are either a little

534
00:29:07,320 --> 00:29:10,400
Speaker 14: less than the current federal loan or a little bit

535
00:29:10,480 --> 00:29:11,720
Speaker 14: higher than the federal loan.

536
00:29:11,960 --> 00:29:14,520
Speaker 10: Why is there a difference in the rate that some

537
00:29:14,600 --> 00:29:16,840
Speaker 10: private lenders which charge versus the federal government.

538
00:29:17,440 --> 00:29:21,320
Speaker 14: The federal government doesn't pull credit. Credit is priced relative

539
00:29:21,400 --> 00:29:25,520
Speaker 14: to the expectation of repayment. So when there's a high

540
00:29:25,560 --> 00:29:29,360
Speaker 14: expectation of repayment, then we can give very, very low

541
00:29:29,440 --> 00:29:31,480
Speaker 14: interest rates lower than the federal government.

542
00:29:31,680 --> 00:29:34,560
Speaker 10: On the one hand, private lenders use underwriting and credit

543
00:29:34,640 --> 00:29:37,000
Speaker 10: checks to reduce the risk of students taking on debt

544
00:29:37,000 --> 00:29:37,880
Speaker 10: they cannot repay.

545
00:29:38,400 --> 00:29:40,600
Speaker 12: When a lender comes in and thinks, am I going

546
00:29:40,640 --> 00:29:43,280
Speaker 12: to make a loan to this student, what they're really

547
00:29:43,320 --> 00:29:45,560
Speaker 12: thinking is is this student going to be able to

548
00:29:45,560 --> 00:29:48,640
Speaker 12: repay this loan? And quite frankly, that's a good thing

549
00:29:48,640 --> 00:29:49,280
Speaker 12: for the student.

550
00:29:49,760 --> 00:29:52,320
Speaker 10: On the other hand, taking out private loans can be

551
00:29:52,440 --> 00:29:55,360
Speaker 10: risky and potentially more expensive for students who lack a

552
00:29:55,400 --> 00:29:56,440
Speaker 10: strong credit history.

553
00:29:56,720 --> 00:30:02,160
Speaker 5: There will be a boom for many financial institutions who

554
00:30:02,200 --> 00:30:06,880
Speaker 5: offer private student loans. Many of them were drooling at

555
00:30:06,920 --> 00:30:11,840
Speaker 5: the opportunity to be able to take back that lending volume.

556
00:30:12,160 --> 00:30:14,880
Speaker 10: With federal loans. Barers may have ways to get out

557
00:30:14,920 --> 00:30:18,840
Speaker 10: of default if they find themselves in trouble. What options,

558
00:30:19,000 --> 00:30:21,480
Speaker 10: if any, exist in the private loan market.

559
00:30:21,680 --> 00:30:28,120
Speaker 5: These private student loans don't have any clear consumer protections

560
00:30:28,720 --> 00:30:32,200
Speaker 5: for when you can't afford your payment. So I'm really

561
00:30:32,280 --> 00:30:36,360
Speaker 5: worried that student loan borrowers are going to be forking

562
00:30:36,560 --> 00:30:41,960
Speaker 5: out big payments and leading them to default on their

563
00:30:42,040 --> 00:30:46,680
Speaker 5: other obligations, maybe falling behind on their auto loan and

564
00:30:46,760 --> 00:30:51,960
Speaker 5: risking repossession or falling behind no rent and being at

565
00:30:52,040 --> 00:30:52,880
Speaker 5: risk of eviction.

566
00:30:53,600 --> 00:30:56,760
Speaker 10: One of the Trump administration's stated goals in eliminating the

567
00:30:56,760 --> 00:30:59,920
Speaker 10: grad plus loan program is to incentivize schools to reduce

568
00:31:00,080 --> 00:31:03,120
Speaker 10: tuition and fees. But that's easier said than done.

569
00:31:03,240 --> 00:31:05,880
Speaker 13: We're thinking about everything we can. It's just very hard

570
00:31:05,880 --> 00:31:09,920
Speaker 13: to bridge the gap of excellence our students deserve. We're

571
00:31:09,960 --> 00:31:12,479
Speaker 13: already as frugal as we possibly can be and what

572
00:31:12,520 --> 00:31:15,360
Speaker 13: they can afford to pay, and the new caps are

573
00:31:16,000 --> 00:31:16,480
Speaker 13: so low.

574
00:31:16,680 --> 00:31:20,000
Speaker 10: So graduate tuition has steadily increased over the past twenty years,

575
00:31:20,040 --> 00:31:23,480
Speaker 10: with some people attributing that inflation to the availability of

576
00:31:23,560 --> 00:31:26,240
Speaker 10: uncapped federal loans. Do you think that that's fair.

577
00:31:26,760 --> 00:31:30,200
Speaker 13: We are in a pricing model that is very illogical,

578
00:31:30,240 --> 00:31:32,520
Speaker 13: but it's impossible for us to escape, which is that

579
00:31:32,560 --> 00:31:35,640
Speaker 13: tuition signals quality in the market. If a school is

580
00:31:35,800 --> 00:31:39,440
Speaker 13: too cheap, it seems suspicious that maybe they're not as good.

581
00:31:39,520 --> 00:31:42,720
Speaker 13: So that sticker price does keep rising in the market.

582
00:31:42,720 --> 00:31:45,240
Speaker 13: And where we've been very flat on price as an

583
00:31:45,240 --> 00:31:49,360
Speaker 13: industry across decades is on financial aid, and so that

584
00:31:49,480 --> 00:31:51,520
Speaker 13: net price is the number you need to look at

585
00:31:51,560 --> 00:31:53,400
Speaker 13: and that net price has been far more flat than

586
00:31:53,400 --> 00:31:54,240
Speaker 13: people realize.

587
00:31:54,360 --> 00:31:57,000
Speaker 10: So briefly explain how tuition at FORDOM is priced. What

588
00:31:57,080 --> 00:31:59,240
Speaker 10: are the factors, specific factors that come into play for

589
00:31:59,320 --> 00:32:00,040
Speaker 10: your institution.

590
00:32:00,640 --> 00:32:04,920
Speaker 13: We look at literally at the market to see where

591
00:32:05,040 --> 00:32:07,840
Speaker 13: is our competition and where they're pricing. We're guessing at

592
00:32:07,840 --> 00:32:10,640
Speaker 13: that for next year, right because we don't collude on price,

593
00:32:11,520 --> 00:32:15,719
Speaker 13: but we look at how good we are and that

594
00:32:15,960 --> 00:32:19,480
Speaker 13: we should not cost more than an Ivy League institution,

595
00:32:19,680 --> 00:32:22,400
Speaker 13: but we should not cost less than a competitor who's

596
00:32:22,440 --> 00:32:24,520
Speaker 13: not as good a quality as we are. That's how

597
00:32:24,520 --> 00:32:27,480
Speaker 13: we're setting tuition price. How we're setting the actual price

598
00:32:27,560 --> 00:32:31,000
Speaker 13: is doing everything we can to maximize financial aid of

599
00:32:31,080 --> 00:32:34,040
Speaker 13: knowing that we compete almost individually for students.

600
00:32:34,680 --> 00:32:37,120
Speaker 10: Fordham did find a short term fix ahead of the

601
00:32:37,200 --> 00:32:40,320
Speaker 10: July first expiration of grad plus. The school announced it

602
00:32:40,360 --> 00:32:43,200
Speaker 10: would allow students in its social work program to begin

603
00:32:43,240 --> 00:32:46,240
Speaker 10: classes over the summer, giving them a chance to benefit

604
00:32:46,280 --> 00:32:48,920
Speaker 10: from unkept borrowing for one final year.

605
00:32:49,560 --> 00:32:53,640
Speaker 13: It was a way to at least put off the

606
00:32:53,680 --> 00:32:57,440
Speaker 13: pain of what our students would face. But we do

607
00:32:57,560 --> 00:33:02,800
Speaker 13: know that even then, our enrollment has begun to decline. Overall,

608
00:33:02,960 --> 00:33:05,720
Speaker 13: and we are just pushing the paint off until next

609
00:33:05,800 --> 00:33:09,160
Speaker 13: year when students will very much not qualify FORGRED plus.

610
00:33:09,200 --> 00:33:11,600
Speaker 10: So it sounds like this was a short term bridge

611
00:33:11,640 --> 00:33:15,320
Speaker 10: as Fortum searches for a more permanent solution to this

612
00:33:15,400 --> 00:33:16,560
Speaker 10: funding gap that's emerged.

613
00:33:16,680 --> 00:33:22,440
Speaker 13: Yes. Yes, but it's a problem not just for Foredom.

614
00:33:22,520 --> 00:33:26,600
Speaker 13: But there will be fewer trained K through twelve teachers

615
00:33:26,640 --> 00:33:30,040
Speaker 13: in the metro New York area for public and parochial

616
00:33:30,160 --> 00:33:33,320
Speaker 13: and private schools. There will be fewer counselors at a time,

617
00:33:33,360 --> 00:33:35,840
Speaker 13: and families are desperate to find a counselor for their child,

618
00:33:36,520 --> 00:33:37,920
Speaker 13: and that's a problem for everyone.

619
00:33:38,440 --> 00:33:41,720
Speaker 10: Tuition appears unlikely to come down immediately, but in a

620
00:33:41,760 --> 00:33:44,520
Speaker 10: world where higher education is a marketplace that competes on

621
00:33:44,600 --> 00:33:47,959
Speaker 10: price and outcomes, students have a choice of where and

622
00:33:48,000 --> 00:33:50,880
Speaker 10: how they pay for their education. Looking back on her

623
00:33:50,960 --> 00:33:54,360
Speaker 10: journey or wishes, she was more discerning in weighing the

624
00:33:54,400 --> 00:33:56,840
Speaker 10: costs and benefits of her educational investment.

625
00:33:57,280 --> 00:33:59,640
Speaker 11: I would never have done anything differently about getting my

626
00:33:59,720 --> 00:34:03,080
Speaker 11: mass and social work. However, if I had been able

627
00:34:03,120 --> 00:34:05,520
Speaker 11: to have a sneak peek of what this debt would

628
00:34:05,560 --> 00:34:07,960
Speaker 11: look like ten years down, the line from when I

629
00:34:07,960 --> 00:34:11,680
Speaker 11: started grad school, I really would have looked around much

630
00:34:11,719 --> 00:34:14,160
Speaker 11: more widely. I would have been a lot more thoughtful

631
00:34:14,200 --> 00:34:17,080
Speaker 11: about what kind of value am I getting at my dollar.

632
00:34:17,760 --> 00:34:20,640
Speaker 10: Riggio agrees that it comes down to doing your research.

633
00:34:21,200 --> 00:34:25,520
Speaker 14: You should shop around for the best priced loan and

634
00:34:25,640 --> 00:34:29,640
Speaker 14: the best loan that fits your circumstance. When you're applying

635
00:34:29,680 --> 00:34:34,200
Speaker 14: into a competitive marketplace like grad programs, are having two

636
00:34:34,239 --> 00:34:36,920
Speaker 14: schools and letting both of them know that you've applied

637
00:34:36,920 --> 00:34:39,879
Speaker 14: to two and are considering to can very often get

638
00:34:39,920 --> 00:34:40,800
Speaker 14: you a better price.

639
00:34:41,560 --> 00:34:44,640
Speaker 10: With grad plus loans no longer available, students will now

640
00:34:44,719 --> 00:34:47,440
Speaker 10: need to shop around more for the best deals, like

641
00:34:47,480 --> 00:34:51,640
Speaker 10: in any business transaction. But Fordham's Tetlo says higher education

642
00:34:51,760 --> 00:34:53,920
Speaker 10: needs to be more than just the business of getting

643
00:34:53,920 --> 00:34:56,840
Speaker 10: a degree. Otherwise it's easy to lose sight of the

644
00:34:56,880 --> 00:35:01,400
Speaker 10: cost to the country and communities fewer social work, fewer nurses,

645
00:35:01,640 --> 00:35:02,600
Speaker 10: and fewer teachers.

646
00:35:03,400 --> 00:35:06,279
Speaker 13: It matters that if you know the profession of your

647
00:35:06,360 --> 00:35:09,239
Speaker 13: dreams that is absolutely what you want, is not a

648
00:35:09,320 --> 00:35:12,040
Speaker 13: high paying one that you're careful about how much doubt

649
00:35:12,080 --> 00:35:16,200
Speaker 13: you take on. But education is broader than that. And

650
00:35:16,239 --> 00:35:19,360
Speaker 13: I say that not because families themselves should think about

651
00:35:19,760 --> 00:35:24,640
Speaker 13: the values of democracy and citizenship and making that personal decision,

652
00:35:24,680 --> 00:35:28,480
Speaker 13: but society should right. Education is infrastructure as much as

653
00:35:28,560 --> 00:35:31,719
Speaker 13: roads and highways are, and the countries against whom we

654
00:35:31,800 --> 00:35:35,640
Speaker 13: compete are investing heavily in education, not just pushing the

655
00:35:35,680 --> 00:35:37,560
Speaker 13: price of that onto individual families.

656
00:35:40,000 --> 00:35:43,600
Speaker 2: Coming up. Canada is back in President Trump's crosshairs. We

657
00:35:43,640 --> 00:35:46,799
Speaker 2: hear from our special contributor Christia Freeland about how big

658
00:35:46,840 --> 00:35:49,319
Speaker 2: a problem the latest round of tariffs could be for

659
00:35:49,440 --> 00:36:02,839
Speaker 2: Canada and for the United States. This is a story

660
00:36:02,840 --> 00:36:06,480
Speaker 2: about deja vu all over again. This week, the White

661
00:36:06,520 --> 00:36:09,840
Speaker 2: House announced yet another round of tariffs on Canadian goods,

662
00:36:10,120 --> 00:36:13,040
Speaker 2: this time charging fifty percent on imports of a range

663
00:36:13,040 --> 00:36:17,480
Speaker 2: of items including milk, hockey equipment, beer, and plywood, but

664
00:36:17,640 --> 00:36:21,759
Speaker 2: specifically excluding energy and potash, a critical fertilizer used by

665
00:36:21,800 --> 00:36:26,040
Speaker 2: American farmers. Our special contributor, Christia Freeland, served as Canada's

666
00:36:26,080 --> 00:36:31,640
Speaker 2: Finance Minister and Deputy Prime Minister. So Christia, we have

667
00:36:31,680 --> 00:36:34,600
Speaker 2: an announcement now that the Trump administration wants to impose

668
00:36:34,760 --> 00:36:37,200
Speaker 2: a new round of tariffs fifty percent of fifty percent

669
00:36:37,280 --> 00:36:41,120
Speaker 2: on certain goods from Canada next month. What are these

670
00:36:41,160 --> 00:36:43,920
Speaker 2: tariffs and why does the Trump administration say they need

671
00:36:43,960 --> 00:36:44,760
Speaker 2: to put into place.

672
00:36:45,000 --> 00:36:49,960
Speaker 15: So a proclamation has been signed or three proclamations, and

673
00:36:50,000 --> 00:36:54,160
Speaker 15: they are due to come into force on August nineteenth,

674
00:36:54,239 --> 00:36:59,560
Speaker 15: thirty days after the proclamation. The official rationale is in

675
00:36:59,640 --> 00:37:06,120
Speaker 15: reaction action to Canadian treatment of US alcohol, US dairy,

676
00:37:06,360 --> 00:37:10,880
Speaker 15: and US cars and car parts. But we have to

677
00:37:10,920 --> 00:37:15,560
Speaker 15: be careful about believing the official rationale because just before

678
00:37:15,600 --> 00:37:19,720
Speaker 15: the proclamation came out, the complaint was that Canada needed

679
00:37:19,719 --> 00:37:24,160
Speaker 15: to be punished for the Canadian wildfires, which is a

680
00:37:24,280 --> 00:37:27,719
Speaker 15: hard thing to figure out how Canada should stop them?

681
00:37:28,440 --> 00:37:31,919
Speaker 15: And I think we really have to recognize that this

682
00:37:31,960 --> 00:37:36,520
Speaker 15: is happening against a backdrop of what is turning out

683
00:37:36,560 --> 00:37:44,280
Speaker 15: to be a very contentious renegotiation of the USMCA formerly

684
00:37:44,320 --> 00:37:48,480
Speaker 15: known as NAFTA trade agreement governing the US, Canadian and

685
00:37:48,600 --> 00:37:49,880
Speaker 15: Mexican trade relationship.

686
00:37:50,040 --> 00:37:52,680
Speaker 2: Well, you were right in the center of negotiating at

687
00:37:52,760 --> 00:37:54,920
Speaker 2: USMCA the last time around when you were part of

688
00:37:54,960 --> 00:37:58,440
Speaker 2: the government. What has been announced is on specific categories

689
00:37:58,560 --> 00:38:01,120
Speaker 2: of goods. How big a deal is that in terms

690
00:38:01,120 --> 00:38:03,120
Speaker 2: of the amount of trade between the United States and Canada.

691
00:38:03,239 --> 00:38:06,959
Speaker 15: People have calculated that it's about twenty billion dollars worth

692
00:38:07,000 --> 00:38:08,359
Speaker 15: of goods.

693
00:38:08,880 --> 00:38:10,040
Speaker 16: It's not.

694
00:38:11,480 --> 00:38:14,520
Speaker 15: A killing blow for the Canadian economy, but it is

695
00:38:14,600 --> 00:38:17,839
Speaker 15: significant in and of itself. And I think the other

696
00:38:17,960 --> 00:38:23,239
Speaker 15: thing what is really important about this is it shows

697
00:38:23,440 --> 00:38:24,640
Speaker 15: that this is going to.

698
00:38:24,600 --> 00:38:26,879
Speaker 16: Be a truly contentious negotiation.

699
00:38:27,680 --> 00:38:32,680
Speaker 15: It shows that Donald Trump wants to punish Canada, and

700
00:38:32,840 --> 00:38:34,720
Speaker 15: Canada now has to decide how to respond.

701
00:38:35,080 --> 00:38:37,600
Speaker 2: Do we think it's punished Canada or use some leverage

702
00:38:37,600 --> 00:38:40,560
Speaker 2: on Canada. As I understand it, I reports the United

703
00:38:40,600 --> 00:38:43,759
Speaker 2: States is farther along with Mexico in negotiating on the

704
00:38:43,840 --> 00:38:46,879
Speaker 2: USMCA thes with Canada. I'm not sure Canada's engaged that much.

705
00:38:47,000 --> 00:38:48,799
Speaker 2: Is it possible this is just a way to get

706
00:38:48,800 --> 00:38:49,920
Speaker 2: Canada to the table.

707
00:38:50,120 --> 00:38:52,799
Speaker 15: I actually, David agree with you about most things, but

708
00:38:52,920 --> 00:38:55,480
Speaker 15: I don't think that's a fair interpretation at all. Canada

709
00:38:55,520 --> 00:38:59,880
Speaker 15: has been ready willing and able to negotiate any place

710
00:39:00,280 --> 00:39:04,160
Speaker 15: any time. The US did not have to impose tariffs

711
00:39:04,160 --> 00:39:07,800
Speaker 15: to get Canada to negotiate. Canada wants to talk, Canada

712
00:39:07,840 --> 00:39:11,160
Speaker 15: wants a deal. In fact, Canada has made a number

713
00:39:11,200 --> 00:39:16,719
Speaker 15: of concessions, sort of bargaining against itself in advance, I

714
00:39:16,800 --> 00:39:20,320
Speaker 15: guess to show willingness to negotiate. Canada last year dropped

715
00:39:20,440 --> 00:39:23,799
Speaker 15: the digital services tax. Canada has dropped most of its

716
00:39:23,840 --> 00:39:28,440
Speaker 15: retaliation against the illegal and unjustified US two three two tariffs.

717
00:39:28,560 --> 00:39:32,759
Speaker 2: One area where I think there's been very specific, purposeful

718
00:39:32,800 --> 00:39:36,680
Speaker 2: discrimination is alcohol. We've heard a lot about Canadians just

719
00:39:36,760 --> 00:39:40,000
Speaker 2: not whining to buy US alcohol. Does Donald Trump have

720
00:39:40,040 --> 00:39:41,360
Speaker 2: a point when it comes to alcohol.

721
00:39:41,480 --> 00:39:42,239
Speaker 16: Absolutely not.

722
00:39:43,080 --> 00:39:47,920
Speaker 15: What has happened on alcohol is at a provincial level

723
00:39:48,680 --> 00:39:55,280
Speaker 15: in response to the two three two tariffs on Canadian steel, aluminum, cars,

724
00:39:55,400 --> 00:39:59,960
Speaker 15: and car parts. And those tariffs, let's remember, are imposed

725
00:40:00,360 --> 00:40:04,239
Speaker 15: allegedly on national security grounds, so we have to think

726
00:40:04,280 --> 00:40:07,720
Speaker 15: that Canada is a national security threat to the United States.

727
00:40:08,480 --> 00:40:12,359
Speaker 15: They are being imposed against goods that we should have

728
00:40:12,440 --> 00:40:16,399
Speaker 15: free trade in according to the usmcaight R trade Deal.

729
00:40:16,920 --> 00:40:22,439
Speaker 15: So those were imposed last year and regular Canadians and

730
00:40:22,760 --> 00:40:26,440
Speaker 15: the premiers of a lot of Canadian provinces were very angry.

731
00:40:27,000 --> 00:40:30,560
Speaker 15: And so the premiers of some of Canada's largest provinces

732
00:40:30,800 --> 00:40:35,960
Speaker 15: took the decision that provincially owned liquor stores would not

733
00:40:36,280 --> 00:40:41,799
Speaker 15: buy us alcohol. That is a wildly popular decision, and

734
00:40:42,200 --> 00:40:46,080
Speaker 15: the premiers of Quebec, Ontario, British Columbia would face a

735
00:40:46,320 --> 00:40:49,680
Speaker 15: huge public backlash if they backed down, and in fact,

736
00:40:49,719 --> 00:40:52,919
Speaker 15: they've been very clear and they've said absolutely not, We're

737
00:40:52,920 --> 00:40:54,120
Speaker 15: sticking with this boycott.

738
00:40:54,320 --> 00:40:56,879
Speaker 2: All of which leads us to what do we think

739
00:40:56,960 --> 00:41:00,800
Speaker 2: the Canadian response is likely to be to this latest ROUNDFS.

740
00:41:01,040 --> 00:41:04,960
Speaker 15: Canada is in a challenging position right now, David, because

741
00:41:05,280 --> 00:41:11,440
Speaker 15: on the one hand, public sentiment is very, very angry.

742
00:41:12,320 --> 00:41:17,240
Speaker 15: Canadians feel that they are a good, reliable neighbor ally

743
00:41:17,360 --> 00:41:20,600
Speaker 15: and trading partner for the United States. It wasn't so

744
00:41:20,680 --> 00:41:23,600
Speaker 15: long ago that we went through the drama of renegotiating

745
00:41:23,640 --> 00:41:25,520
Speaker 15: our trade deal and we got a deal.

746
00:41:25,360 --> 00:41:26,200
Speaker 16: With Donald Trump.

747
00:41:26,920 --> 00:41:31,920
Speaker 15: And notwithstanding that, we keep on getting hit by wave

748
00:41:32,000 --> 00:41:35,680
Speaker 15: after wave of punishment, first the two three two tariffs,

749
00:41:36,160 --> 00:41:39,880
Speaker 15: now this round of tariffs, and even when Canada has

750
00:41:39,920 --> 00:41:43,960
Speaker 15: sort of tried appeasement, tried to get along, dropped the DST,

751
00:41:44,760 --> 00:41:47,640
Speaker 15: it doesn't make any difference. In fact, the US comes

752
00:41:47,680 --> 00:41:54,240
Speaker 15: back for even more so, public opinion is very very angry.

753
00:41:54,680 --> 00:41:57,279
Speaker 15: In fact, something that I never thought I would see

754
00:41:57,280 --> 00:42:00,160
Speaker 15: in my lifetime is that we are now seeing that

755
00:42:00,320 --> 00:42:06,799
Speaker 15: more Canadians see the United States as a threat than China. Canadians,

756
00:42:06,800 --> 00:42:09,239
Speaker 15: for the first time in this polling see China as

757
00:42:09,280 --> 00:42:11,800
Speaker 15: a more reliable partner than the United States.

758
00:42:12,000 --> 00:42:14,480
Speaker 16: Communist, authoritarian China.

759
00:42:14,719 --> 00:42:19,239
Speaker 15: A country that just a few years ago illegally imprisoned

760
00:42:19,400 --> 00:42:25,000
Speaker 15: to innocent Canadians, ironically to punish Canada for honoring our

761
00:42:25,000 --> 00:42:30,359
Speaker 15: extradition treaty with the United States. Yet this country Canadians

762
00:42:30,400 --> 00:42:35,080
Speaker 15: feel is more reliable and trustworthy than the United States.

763
00:42:35,200 --> 00:42:38,520
Speaker 2: You wrote a piece in the Financial Times about this

764
00:42:38,760 --> 00:42:42,839
Speaker 2: problem of accommodation versus retaliation in dealing with the Trump

765
00:42:42,880 --> 00:42:46,960
Speaker 2: administration on trade. If indeed the Canadian government decided we

766
00:42:47,040 --> 00:42:49,120
Speaker 2: have to go to the retaliation route, what sorts of

767
00:42:49,200 --> 00:42:50,359
Speaker 2: lovers does it have.

768
00:42:50,800 --> 00:42:55,839
Speaker 15: I do think that the lesson that the Trump administration

769
00:42:56,120 --> 00:43:01,080
Speaker 15: is teaching the world that the only countries that ultimately

770
00:43:01,080 --> 00:43:04,480
Speaker 15: get to a good place with this administration are countries

771
00:43:04,920 --> 00:43:08,840
Speaker 15: that stand strong. I think the best approach to this

772
00:43:08,880 --> 00:43:13,480
Speaker 15: administration is do not escalate, don't look for a fight.

773
00:43:13,880 --> 00:43:16,840
Speaker 15: If you can find an area to agree on, that's great,

774
00:43:17,840 --> 00:43:21,600
Speaker 15: but do not back down. And if you get hit,

775
00:43:22,040 --> 00:43:23,800
Speaker 15: you do have to.

776
00:43:23,400 --> 00:43:24,880
Speaker 16: Fight back and stand firm.

777
00:43:25,400 --> 00:43:28,239
Speaker 15: That's very, very hard but I think it's the only

778
00:43:28,280 --> 00:43:31,600
Speaker 15: way to deal with this administration. If Canada wanted to

779
00:43:31,640 --> 00:43:34,839
Speaker 15: do that. Canada has a lot of leverage. Canada is

780
00:43:35,000 --> 00:43:39,640
Speaker 15: actually the largest export market for the United States if

781
00:43:39,719 --> 00:43:44,080
Speaker 15: you take goods and services, a market of well over

782
00:43:45,080 --> 00:43:50,120
Speaker 15: four hundred billion dollars. Canada matters, and as these tariffs

783
00:43:50,120 --> 00:43:56,600
Speaker 15: themselves demonstrate, some of the things that Canada sells are

784
00:43:57,000 --> 00:44:02,160
Speaker 15: critically important to the United States, things like energy, things

785
00:44:02,239 --> 00:44:04,080
Speaker 15: like potash.

786
00:44:05,280 --> 00:44:09,600
Speaker 2: The new tariffs on Canadian goods leave out an important category, fertilizers.

787
00:44:10,000 --> 00:44:13,360
Speaker 2: The US relies on Canada for potash and other agricultural

788
00:44:13,400 --> 00:44:15,879
Speaker 2: products made more expensive by the closing of the Strait

789
00:44:15,920 --> 00:44:19,120
Speaker 2: of Hormuz. Earlier this year, we spoke with businesses that

790
00:44:19,160 --> 00:44:21,759
Speaker 2: were getting a first hand look at the impact of

791
00:44:21,800 --> 00:44:22,480
Speaker 2: the conflict.

792
00:44:24,880 --> 00:44:29,000
Speaker 17: We have seen a major impact on global nitrogen phosphate values.

793
00:44:29,160 --> 00:44:33,120
Speaker 2: Josh Linnville is vice president of fertilizer at financial services

794
00:44:33,120 --> 00:44:34,320
Speaker 2: firm stone X.

795
00:44:34,800 --> 00:44:37,680
Speaker 17: Most farmers will tell you those prices have skyrocketed, and

796
00:44:37,760 --> 00:44:39,920
Speaker 17: it's based on the fear of a lack of supply

797
00:44:40,040 --> 00:44:42,000
Speaker 17: that's out there. We have seen because of the shutdown

798
00:44:42,040 --> 00:44:44,279
Speaker 17: of the Persian golf, the global s and D for

799
00:44:44,400 --> 00:44:47,160
Speaker 17: nitrogen and phostate as well, which isn't getting as much traction,

800
00:44:47,560 --> 00:44:50,439
Speaker 17: not as much as much attention. We are seeing both

801
00:44:50,440 --> 00:44:53,359
Speaker 17: of those get extremely tight. So everybody is talking about

802
00:44:53,360 --> 00:44:55,239
Speaker 17: the oil and the gas and everything else that flows

803
00:44:55,239 --> 00:44:58,520
Speaker 17: through there. Few people know urea being the most commonly

804
00:44:58,560 --> 00:45:01,320
Speaker 17: traded nitrogen product of the world, about a third of

805
00:45:01,360 --> 00:45:03,880
Speaker 17: the world's product flows through that straight of hor moves.

806
00:45:04,239 --> 00:45:06,320
Speaker 17: When you look at the top ten list of global

807
00:45:06,440 --> 00:45:09,759
Speaker 17: urea exporters, three of them sit behind the straight of

808
00:45:09,800 --> 00:45:12,880
Speaker 17: horr moves. That's Iran, that's Guitar, and that's Saudi Arabia.

809
00:45:13,200 --> 00:45:16,320
Speaker 17: Those three nations represent three of the ten largest anhydrous

810
00:45:16,400 --> 00:45:19,520
Speaker 17: exporting nations, and even on the phosphate side, not a

811
00:45:19,560 --> 00:45:22,120
Speaker 17: lot of people understand this. Saudi Arabia is one of

812
00:45:22,120 --> 00:45:25,600
Speaker 17: the world's top five exporting nations for phosphate exports around

813
00:45:25,640 --> 00:45:28,200
Speaker 17: the world, and again, all of these products are stacked

814
00:45:28,239 --> 00:45:30,840
Speaker 17: up and backed up in production is suffering until the

815
00:45:30,880 --> 00:45:32,120
Speaker 17: straight of hormones is reopened.

816
00:45:32,120 --> 00:45:35,400
Speaker 2: To save traffic, one solution might come from closer to home.

817
00:45:36,000 --> 00:45:40,200
Speaker 2: Nitrogen based fertilizers like urea are not the only options available.

818
00:45:40,840 --> 00:45:44,960
Speaker 2: US farmers also rely heavily on fertilizers like potash, much

819
00:45:44,960 --> 00:45:48,160
Speaker 2: of which comes from Western Canada. Pam Schwan is the

820
00:45:48,200 --> 00:45:50,920
Speaker 2: president of the Saskatchewan Mining Association.

821
00:45:51,280 --> 00:45:54,360
Speaker 18: Potash is one of the main fertilizers that's used to

822
00:45:54,400 --> 00:45:58,520
Speaker 18: help make crops healthy and grow larger yields. So as

823
00:45:58,520 --> 00:46:00,720
Speaker 18: the world grows to ten million peace people by twenty

824
00:46:00,800 --> 00:46:04,000
Speaker 18: fifty on less arable land, we need to be able

825
00:46:04,000 --> 00:46:08,239
Speaker 18: to grow crops more effectively and more efficiently that have

826
00:46:08,320 --> 00:46:11,920
Speaker 18: higher crop yields. So potash is one of those three ingredients,

827
00:46:12,000 --> 00:46:16,719
Speaker 18: along with phosphorus and nitrogen that make crop yields much improved.

828
00:46:17,400 --> 00:46:20,320
Speaker 2: What is the role of potash in Canada's economy.

829
00:46:20,640 --> 00:46:24,160
Speaker 18: It's very significant, particularly in Saskatchewan. One hundred percent of

830
00:46:24,160 --> 00:46:27,520
Speaker 18: all the potash produced in Canada is produced in Saskatchewan.

831
00:46:27,680 --> 00:46:30,440
Speaker 2: Of the potash that is generated in Saskatchewan, how much

832
00:46:30,480 --> 00:46:33,080
Speaker 2: of it's consumed domestically in Canada, how much of it's

833
00:46:33,120 --> 00:46:34,760
Speaker 2: exported and to whom?

834
00:46:35,280 --> 00:46:38,360
Speaker 18: Yeah, very little is used in Canada and very little

835
00:46:38,400 --> 00:46:41,520
Speaker 18: in Saskatchewan. So there's probably over ninety eight percent of

836
00:46:41,520 --> 00:46:44,560
Speaker 18: what is produced in Canada. And again all in Saskatchewan

837
00:46:44,920 --> 00:46:48,480
Speaker 18: is exported to global markets. So of that about fifty

838
00:46:48,520 --> 00:46:51,080
Speaker 18: percent goes into the United States to help farmers there

839
00:46:51,200 --> 00:46:55,319
Speaker 18: grow corn, soybean, and oats, and the rest is exported

840
00:46:55,360 --> 00:47:00,760
Speaker 18: out to countries like China, India, and Indonesia and Brazil

841
00:47:00,840 --> 00:47:02,400
Speaker 18: are probably the main customers.

842
00:47:03,120 --> 00:47:07,520
Speaker 2: Fortunately for US farmers and for Canada's miners, Canadian potash

843
00:47:07,560 --> 00:47:11,080
Speaker 2: has been kept free from tariffs, something former Deputy Prime

844
00:47:11,080 --> 00:47:15,200
Speaker 2: Minister Freeland considers wise for all concerned two of.

845
00:47:15,120 --> 00:47:18,640
Speaker 15: The world's other leading potash producers after the full scale

846
00:47:18,760 --> 00:47:23,040
Speaker 15: Russian invasion of Ukraine. So I'm going to offer a

847
00:47:23,040 --> 00:47:27,640
Speaker 15: little Canadian editorial here a particularly bad time to have

848
00:47:27,680 --> 00:47:31,320
Speaker 15: a trade war with Canada. There are lots of reasons

849
00:47:31,320 --> 00:47:33,720
Speaker 15: a trade war with Canada is a bad idea.

850
00:47:34,120 --> 00:47:36,960
Speaker 16: You need Canadian aluminum.

851
00:47:36,200 --> 00:47:41,839
Speaker 15: For example, for US manufacturing, and aluminum is basically electricity

852
00:47:41,960 --> 00:47:45,160
Speaker 15: in solid form. But the fact that Canada is such

853
00:47:45,160 --> 00:47:48,799
Speaker 15: a major producer of potash is another good reason that

854
00:47:49,120 --> 00:47:50,279
Speaker 15: we're a great trading.

855
00:47:49,960 --> 00:47:53,759
Speaker 2: Partner that does it for us. Here at Wall Street Week,

856
00:47:53,960 --> 00:47:56,880
Speaker 2: I'm David Weston. See you next week for more stories

857
00:47:56,880 --> 00:48:07,560
Speaker 2: of capitalism.