WEBVTT - Surveillance: Slow Recovery With Fed's Harker 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 0:00:13.960 --> 0:00:17.560 we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.000 Bloomberg dot Com, and of course on the Bloomberg And 0:00:27.120 --> 0:00:30.160 we start with sometime the economic data. The July report 0:00:30.200 --> 0:00:33.600 on Empire manufacturing from New York turns positive for the 0:00:33.640 --> 0:00:38.320 first time since February seventeen, point to a significant increase there. 0:00:38.400 --> 0:00:41.640 And we see new orders, production and even employment turns 0:00:41.680 --> 0:00:44.479 slightly positive. So that is New York. What is happening 0:00:44.479 --> 0:00:48.360 in Pennsylvania and the second district of the Federal Reserve 0:00:48.840 --> 0:00:51.559 joining us now is Patrick Harker. He is the president 0:00:51.720 --> 0:00:54.440 of the Philadelphia Fed. Good morning to you, Pat, and 0:00:54.520 --> 0:00:57.000 thanks for joining us. Uh. I want to ask you 0:00:57.320 --> 0:01:00.000 off the top, how things are going in the Pennsylvania area. 0:01:00.160 --> 0:01:02.320 I know that the COVID case rate has risen a 0:01:02.360 --> 0:01:05.160 little bit. Are you concerned that you fall back into 0:01:05.160 --> 0:01:08.240 the same situation that we're seeing in the Sunbelt states? 0:01:09.200 --> 0:01:11.480 So in the Try state region Pennsylvania, New Jersey and 0:01:11.480 --> 0:01:14.160 Delaware that we cover, we have seen a little bit 0:01:14.160 --> 0:01:18.039 of an uptick in the COVID cases, but the governors 0:01:18.080 --> 0:01:22.360 have taken action to slow the uh the opening a 0:01:22.400 --> 0:01:25.200 little bit, so I'm not that concerned right now. I 0:01:25.240 --> 0:01:29.040 think the generally the virus is pretty well controlled here. 0:01:29.080 --> 0:01:31.520 It's still a tragedy and there's still a lot of 0:01:31.560 --> 0:01:33.880 work to be done, but I'm not very worried at 0:01:33.880 --> 0:01:37.200 this point for this region. What's your view of the 0:01:37.200 --> 0:01:40.039 economics of the region. How hard have you been hit? 0:01:40.080 --> 0:01:43.920 How hard are you going to be So the region 0:01:44.319 --> 0:01:47.800 is defacturing sector has bounced back. We saw our last 0:01:47.800 --> 0:01:52.200 report last month. We are seeing some good news there. 0:01:52.920 --> 0:01:56.240 We are particularly the city of Philadelphia itself is predominantly 0:01:56.360 --> 0:02:00.360 edge and meds, and I'm concerned about those. Are not 0:02:00.440 --> 0:02:03.400 just about the large medical institutions which have lost a 0:02:03.400 --> 0:02:08.480 lot of revenue because of elective procedures being curtailed or delayed, 0:02:08.800 --> 0:02:11.520 but also in the royal communities here. Those royal health 0:02:11.560 --> 0:02:15.799 systems have been hurt quite badly through this process. What 0:02:15.880 --> 0:02:19.160 about the overall US economy Now that we've seen this 0:02:19.280 --> 0:02:23.359 flare up across much of the country, are you revising 0:02:23.440 --> 0:02:27.000 your economic forecast or your outlook? So prior to this, 0:02:27.080 --> 0:02:29.839 we saw a pretty big hit and queue first half 0:02:29.880 --> 0:02:32.839 of this year, probably about in GDP in the first half. 0:02:32.880 --> 0:02:35.560 We thought it would bounce back around in the second half, 0:02:35.960 --> 0:02:40.720 ending around six down in GDP for the year and 0:02:40.840 --> 0:02:43.880 unemployment around ten percent. We are revising it right now 0:02:43.960 --> 0:02:49.240 because with the virus surging in the south and southwest 0:02:49.280 --> 0:02:52.120 of the country, we are concerned about that. I'm very 0:02:52.120 --> 0:02:54.200 concerned about that. So this is going to be a 0:02:54.240 --> 0:02:57.280 slow recovery. Until we get the virus under control, we 0:02:57.320 --> 0:03:00.400 can't get the economy back to full throttle. You mentioned 0:03:00.440 --> 0:03:02.840 EDS and meds. The EDS part of it is your specialty. 0:03:02.840 --> 0:03:06.120 You came up as an educator. How important is it 0:03:06.160 --> 0:03:09.920 to get the schools open? How important to the economy 0:03:09.960 --> 0:03:13.640 this fault. It's very important, but we have to do 0:03:13.720 --> 0:03:17.280 it carefully because we don't want to put people at risk. 0:03:17.600 --> 0:03:20.560 You start, for example, we know that in a child 0:03:20.600 --> 0:03:25.480 care business, about half the child care institutions, many of 0:03:25.480 --> 0:03:29.320 them are small uh companies that are taking care of children, 0:03:29.760 --> 0:03:32.880 about half of them closed, and the remaining ones they 0:03:32.960 --> 0:03:36.920 lost about at least fifty capacity in remaining open. So 0:03:37.080 --> 0:03:40.960 it's just simply if people can't find care for their 0:03:41.040 --> 0:03:43.560 children or be able to get their children to school, 0:03:43.920 --> 0:03:46.160 they're gonna have a hard time working. And particularly in 0:03:46.160 --> 0:03:50.200 a knowledge economy where people's productivity is really their knowledge, 0:03:50.760 --> 0:03:54.080 if they're concerned about their children and that's weighing on 0:03:54.120 --> 0:03:57.200 their mind, it's human nature, they're going to be less productive. 0:03:57.360 --> 0:03:59.600 So I think it's very important, but we can't do 0:03:59.640 --> 0:04:02.200 it in a way that puts the children or the 0:04:02.240 --> 0:04:05.160 communities at risk. Obviously a lot of risks for the 0:04:05.160 --> 0:04:08.440 economy that don't seem to be reflected in equity prices. 0:04:08.520 --> 0:04:11.640 Are you concerned about the level of stocks at this 0:04:11.720 --> 0:04:14.119 point and whether or not it's sustainable or we might 0:04:14.160 --> 0:04:16.040 be seeing a bubble that could pop and take the 0:04:16.040 --> 0:04:19.719 economy with it. So the equity market, the stock market 0:04:19.920 --> 0:04:22.720 is a measure we look at, but I often remind 0:04:22.720 --> 0:04:25.159 myself it's not the real economy. So for me as 0:04:25.200 --> 0:04:28.640 a policy maker, I'm looking at the signals coming from 0:04:28.640 --> 0:04:32.000 the real economy, employment data, inflation data, and so forth. 0:04:32.360 --> 0:04:36.039 That is my main concern right now. Well, do you 0:04:36.080 --> 0:04:37.880 think there is any role for the FED though, in 0:04:38.839 --> 0:04:43.240 perhaps controlling the rise of equities at this point? At 0:04:43.240 --> 0:04:45.599 this point we had the FED had that we had 0:04:45.680 --> 0:04:49.400 to act early and aggressively to help stem the damage 0:04:49.560 --> 0:04:53.200 from this unprecedented pandemic. And we did that, and so 0:04:53.440 --> 0:04:56.239 that was job one. Now as we start to climb 0:04:56.279 --> 0:04:59.400 out of this, hopefully sooner rather than later, we will 0:04:59.480 --> 0:05:04.120 address other issues. But we had to act to secure 0:05:04.160 --> 0:05:06.440 the economy and helps save as much of the economic 0:05:06.480 --> 0:05:10.000 infrastructure in the country as we could. What more can 0:05:10.080 --> 0:05:14.000 the Fed do? Lele Brainerd suggested yesterday that you let 0:05:14.160 --> 0:05:17.400 the economy run hot for a while and explicitly say 0:05:17.480 --> 0:05:21.279 you're going to let it inflation rise. Is that a 0:05:21.320 --> 0:05:24.040 strategy on the table for you? So we've been saying 0:05:24.040 --> 0:05:26.400 for a long time that the two percent inflation goal 0:05:26.520 --> 0:05:29.599 is symmetric, which means we should overshoot it. We're having 0:05:29.600 --> 0:05:33.080 a difficult time doing that. Like all developed economies, UM 0:05:33.120 --> 0:05:37.320 supported the idea of letting inflation get above two before 0:05:37.400 --> 0:05:40.039 we take any action with respect to the FED fund try. 0:05:40.960 --> 0:05:42.800 Do you think that at this point the FED can 0:05:42.839 --> 0:05:44.800 do a lot to stimulate the economy or is it 0:05:44.880 --> 0:05:48.120 really up to washing it In the fiscal side, I 0:05:48.160 --> 0:05:49.920 think there are things we can do. Our tool can 0:05:50.000 --> 0:05:53.880 we continue to lend and we have that authority, But yeah, 0:05:53.920 --> 0:05:56.360 I think the main issues that we're facing right now 0:05:56.800 --> 0:05:58.599 tend to be on the fiscal side of the House. 0:05:58.640 --> 0:06:01.160 I would agree with that. What would you like to 0:06:01.240 --> 0:06:03.440 see what's the most important thing to come out of 0:06:03.440 --> 0:06:05.120 watching them? What kind of aid? I know you don't 0:06:05.160 --> 0:06:07.720 want to mention a specific program, but what kind of thing? 0:06:07.839 --> 0:06:11.080 Where's the economy weakest that needs help? So I think 0:06:11.080 --> 0:06:12.919 a couple of things I worry about, And again I 0:06:12.920 --> 0:06:14.920 don't want to tell Congress what to do, but there 0:06:14.960 --> 0:06:17.320 are things I worry about. One is a cliff effect 0:06:17.320 --> 0:06:20.440 of unemployment insurance. Yes, there is a need to get 0:06:20.440 --> 0:06:22.440 people back to work, and people want to go back 0:06:22.440 --> 0:06:25.360 to work, but we can't just cut it off because 0:06:25.360 --> 0:06:27.640 if we cut it off, people stop spending and that 0:06:27.640 --> 0:06:31.080 will be a hit on the economy. Second, we're seeing 0:06:31.080 --> 0:06:33.480 the same kind of cliff effect with state and local 0:06:33.520 --> 0:06:36.400 governments if they start laying off lots of people. We 0:06:36.440 --> 0:06:39.440 talk a lot about anchor institutions. Well, one of the 0:06:39.480 --> 0:06:42.760 big anchor institutions in our economy are state and local governments, 0:06:43.040 --> 0:06:46.440 so they need some help. So those are two that 0:06:46.480 --> 0:06:49.919 I think are really important, and the third that I 0:06:49.960 --> 0:06:52.160 worry about, and we're doing a lot of work to 0:06:52.240 --> 0:06:57.000 defed on is small businesses. How to maintain the strength 0:06:57.000 --> 0:07:00.760 of small businesses, particularly for a minority can. The National 0:07:00.760 --> 0:07:03.599 Bureau of Economic Research recently put out a report saying 0:07:04.240 --> 0:07:08.960 it's about of black owned small businesses have closed during 0:07:08.960 --> 0:07:13.320 this pandemic. This is not only decimating to those businesses, 0:07:13.360 --> 0:07:15.920 but to the communities they serve. Well, what can the 0:07:15.960 --> 0:07:18.679 FED do? Are you are banking supervisors? Yesterday in his speech, 0:07:18.720 --> 0:07:22.200 you were critical of the paycheck Protection program for we 0:07:22.360 --> 0:07:26.320 focused more on bank relationships rather than need How how 0:07:26.320 --> 0:07:29.240 do you redesign that or where can the FED act? Well? 0:07:29.240 --> 0:07:31.520 I would say I was critical. What I was saying 0:07:31.640 --> 0:07:34.320 is that a lot of these micro enterprises, that is, 0:07:34.440 --> 0:07:37.000 enterprises with less than five employees, and we have lots 0:07:37.040 --> 0:07:39.800 of those in Phildelphia all around the country, they don't 0:07:39.800 --> 0:07:43.280 have banking relationships because for a lot of reasons, they 0:07:43.280 --> 0:07:48.160 don't necessarily trust the institutions. That's the root problem. We 0:07:48.280 --> 0:07:51.520 have to solve that problem to get I don't accept 0:07:51.880 --> 0:07:54.600 the fact that people don't have a banking relationship as 0:07:54.600 --> 0:07:56.800 the status quad and we should just accept We should 0:07:56.800 --> 0:08:00.000 work on that. We should bring people into the system 0:08:00.120 --> 0:08:02.480 so that they can have access to things like PPP 0:08:02.680 --> 0:08:06.160 programs and just have lower fees and better service to 0:08:06.240 --> 0:08:09.160 build their businesses. Before I let you go, I want 0:08:09.160 --> 0:08:11.640 to ask you how you're following the economy these days. 0:08:11.640 --> 0:08:14.040 We've had two better than expected jobs reports. Do you 0:08:14.080 --> 0:08:16.440 think we get the same thing for the month of July? 0:08:16.560 --> 0:08:20.480 And doesn't really matter. It will depend because of what's 0:08:20.520 --> 0:08:25.360 happening with resurgence of the virus. I'm a little skeptical 0:08:25.400 --> 0:08:27.520 that we're going to see as good a job's report, 0:08:27.680 --> 0:08:31.000 but we'll see. But it all comes down to right now, 0:08:31.240 --> 0:08:35.040 controlling the virus. The health of the economy is dependent 0:08:35.160 --> 0:08:37.400 on the health of all of us, and until we 0:08:37.440 --> 0:08:39.640 get the virus under control, we're not going to get 0:08:39.640 --> 0:08:41.720 the economy back to where we all wanted to be. 0:08:42.040 --> 0:08:44.400 You mentioned the fact that we're coming up on this 0:08:44.480 --> 0:08:47.760 fiscal cliff in July. In the end of September, we're 0:08:47.760 --> 0:08:51.040 going to have a lot of your lending programs expired. 0:08:51.120 --> 0:08:54.680 You anticipate at this point they continue. Potentially, it will 0:08:54.720 --> 0:08:56.520 depend on what the state of the economy is at 0:08:56.559 --> 0:08:59.679 that time. Right Thanks very much to Patrick Harker, the 0:08:59.679 --> 0:09:03.040 president of the Philadelphia Fed. Thanks for joining us today. 0:09:06.280 --> 0:09:10.200 It is about Ireland and the bomb show announcement this 0:09:10.280 --> 0:09:14.080 morning on Apple Computer was wonderful about this, as we 0:09:14.120 --> 0:09:18.000 have with us the Finance Minister of Ireland, Pascal Donahoe. 0:09:18.160 --> 0:09:21.240 And what is so interesting of Mr Donahoe is his 0:09:21.320 --> 0:09:26.240 truck from Trinity College in Dublin to real corporate, multinational 0:09:26.320 --> 0:09:29.920 work in the United Kingdom for Procter and Gamble years ago. 0:09:30.080 --> 0:09:34.920 He has lived the multinational nous of the United Kingdom, 0:09:35.000 --> 0:09:38.600 of the Republic of Ireland, indeed of Luxembourg in Europe. 0:09:38.880 --> 0:09:41.280 Finance Minister, we are thrilled to have you with us. 0:09:41.280 --> 0:09:46.000 Welcome to Bloomberg surveillance. Were you surprised by this huge, 0:09:46.520 --> 0:09:51.480 huge win for your nation and for Tim Cook and Cupertino? Well, 0:09:51.520 --> 0:09:55.400 I always believe such an outcome was possible. And Ireland 0:09:55.520 --> 0:09:59.120 has been very clear now over many many years that 0:09:59.400 --> 0:10:03.559 we do not make special tax agreements with any company 0:10:03.640 --> 0:10:07.319 big small here in our country, and all taxpayers are 0:10:07.320 --> 0:10:11.360 treated equally. We really value the relationship that we have 0:10:11.440 --> 0:10:14.240 with an employers such as Apple, like we value the 0:10:14.280 --> 0:10:17.440 relationship that we have with all employers in Ireland and 0:10:17.520 --> 0:10:20.640 we do not do special deals for them. And this 0:10:20.920 --> 0:10:24.800 ruling here today is a recognition of US Minister, you 0:10:24.920 --> 0:10:28.280 have lived this with p and years ago. I want 0:10:28.320 --> 0:10:31.880 you to explain to those of continental Europe and frankly 0:10:31.960 --> 0:10:36.680 those of you worldwide, that appropriate tax policy for multi 0:10:36.880 --> 0:10:43.520 nationals is not theft from the general taxpayer. Well, I 0:10:43.559 --> 0:10:49.120 believe it's absolutely imperrasive that big companies are taxed effectively 0:10:49.280 --> 0:10:52.760 and they are taxed fairly. And I also believe that 0:10:52.840 --> 0:10:55.839 for very big and very big digital companies, how we 0:10:55.880 --> 0:10:58.280 are going to tax them in the future is also 0:10:58.400 --> 0:11:02.480 going to change. But what was so important about this 0:11:02.559 --> 0:11:07.400 particular issue is an allegation was made that we were 0:11:07.440 --> 0:11:11.840 in some way treating Apple differently to other taxpayers that 0:11:11.880 --> 0:11:15.679 will be here in Ireland. This matter ultimately ended up 0:11:15.720 --> 0:11:18.320 in the General Court of the European Union and it's 0:11:18.360 --> 0:11:21.400 been settled in the way that you've now described. So 0:11:21.520 --> 0:11:25.199 the message from me, it's a finance minister here in Europe, 0:11:25.760 --> 0:11:30.079 is that companies, whether they're from Europe, America already well 0:11:30.360 --> 0:11:33.319 or else in the world, have to be taxed effectively 0:11:33.520 --> 0:11:36.719 and fairly. And this was a really important issue for 0:11:36.760 --> 0:11:40.280 our tax code here in Irelands, moving from taxing to spending. 0:11:40.320 --> 0:11:42.400 There's a big question. You are the president you're the 0:11:42.400 --> 0:11:45.240 head of a group of nineteen finance ministers. They will 0:11:45.280 --> 0:11:48.760 all get together this weekend for that European Commission meeting 0:11:48.760 --> 0:11:51.040 where they're gonna be speaking about that key trillion dollar 0:11:51.120 --> 0:11:53.680 trillion euro budget as well as the seven dred and 0:11:53.720 --> 0:11:57.839 fifty euro billion euro plan that has been proposed. How 0:11:57.880 --> 0:12:00.800 much pushback are you hearing from the frugal for and 0:12:00.840 --> 0:12:04.920 what has been proposed and bringing that fiscal stimulus down. Yes, 0:12:05.000 --> 0:12:07.760 there is a diversity of debate in relation to this 0:12:07.800 --> 0:12:12.440 particular project within Europe and inside the European Union, But 0:12:12.640 --> 0:12:14.760 very broadly, the point I would make to you and 0:12:14.880 --> 0:12:18.079 to all your viewers across the world if this is 0:12:18.120 --> 0:12:25.280 a really signature example of Europe deepening its economic architecture 0:12:25.800 --> 0:12:29.880 and deepening and making stronger the foundations of the Euro 0:12:30.520 --> 0:12:33.560 and we are doing us to strengthen the ability of 0:12:33.600 --> 0:12:37.120 our own economies here in Europe to respond back to 0:12:37.360 --> 0:12:40.880 the economic shock of COVID and because this is such 0:12:40.920 --> 0:12:43.120 a big project, of course of our different views in 0:12:43.160 --> 0:12:46.600 relation to us, but I do believe that within the 0:12:46.640 --> 0:12:49.640 European Union will reach agreement on the matter and the 0:12:49.679 --> 0:12:53.800 concerns that my colleagues and friends have amongst some countries 0:12:53.880 --> 0:12:56.439 for God, in the scale of the fond and how 0:12:56.520 --> 0:13:00.560 this money can be used effectively and transparently. I believe 0:13:00.640 --> 0:13:04.880 what creativity and imagination in the coming days are maybe weaker, 0:13:04.960 --> 0:13:08.400 so we'll find a way of reaching agreement. Mr Dannio, 0:13:08.440 --> 0:13:09.880 I want to go back to Apple. I think the 0:13:09.880 --> 0:13:12.120 sovereignty issue here and frankly as to do with the 0:13:12.120 --> 0:13:15.440 weekend meetings, but the sovereigny issue here is absolutely critical. 0:13:15.800 --> 0:13:18.800 Frankly going back to Trinity College and Elizabeth the First 0:13:19.120 --> 0:13:22.439 and the formation of liberty in Ireland. What this decision 0:13:22.880 --> 0:13:26.200 is really about, folding into all the different meetings that 0:13:26.280 --> 0:13:31.040 are you howners, is about sovereignty of nations to make 0:13:31.120 --> 0:13:34.720 their own laws. What does it mean for Brussels to 0:13:34.840 --> 0:13:40.800 see this victory by you today. Well, actually, I believe 0:13:40.800 --> 0:13:43.040 in the puding of sovereignty and I believe in the 0:13:43.040 --> 0:13:47.199 sharing of sovereignty. I'm a passionate supporter of the European project. 0:13:47.640 --> 0:13:50.800 I'm a deep believer in the process of European integration 0:13:50.880 --> 0:13:53.400 that we have and they need to look at how 0:13:53.440 --> 0:13:56.320 we can strengthen it in the future. So I would 0:13:56.320 --> 0:13:59.679 actually regularly make the case here in Ireland and to 0:13:59.760 --> 0:14:02.480 crawl us Europe and indeed across the world that the 0:14:02.520 --> 0:14:07.600 European project about economically and politically, it's an extraordinary achievement 0:14:07.800 --> 0:14:11.080 that from my point of view personally and politically, I 0:14:11.160 --> 0:14:13.760 want to protect and want to secure us and I 0:14:13.800 --> 0:14:17.440 want to grow within the future. And Commissioner Vestigure is 0:14:17.520 --> 0:14:20.560 a commissioner that I have huge respect for who I 0:14:20.600 --> 0:14:23.960 look forward to working with again in the future. Um 0:14:24.080 --> 0:14:27.520 that said, there are always a number of particular areas 0:14:27.680 --> 0:14:30.520 in terms of how decisions are made and then how 0:14:30.560 --> 0:14:34.400 they're implemented that are always going to matter to individual 0:14:34.520 --> 0:14:37.840 nation states. And from our point of view, the reason 0:14:37.920 --> 0:14:41.440 this was so important is that it create the inference 0:14:41.640 --> 0:14:44.960 that we used our national sovereignty in some way to 0:14:45.000 --> 0:14:48.120 get favorable treatment to a company. That wasn't the case. 0:14:48.400 --> 0:14:51.560 It's been recognized by the routing here this morning. But 0:14:51.640 --> 0:14:53.720 you know, I make all these this case, and I 0:14:53.840 --> 0:14:57.000 make that argument though in the context of somebody who 0:14:57.040 --> 0:15:00.680 is a European politician believes in the europe Union and 0:15:00.800 --> 0:15:04.880 the sharing of sovereignty. But inside that architecture, countries still 0:15:04.920 --> 0:15:09.040 have roles, their duties and their responsibilities. And that's why 0:15:09.080 --> 0:15:12.320 this hearing was so important. Finance minister, thank you so 0:15:12.400 --> 0:15:14.680 much for joining us this morning. Pasco Donajo is the 0:15:14.720 --> 0:15:19.400 Irish Finance Minister. Off of this extraordinary ruling out of 0:15:19.520 --> 0:15:28.880 Luxembourg on Apple computer. Daniel Tannebaum is expert hit what 0:15:29.040 --> 0:15:35.480 financial companies do given sanction rules and law changes. He's 0:15:35.520 --> 0:15:38.480 with Oliver Wyman after a distinguished career. He's got a 0:15:38.520 --> 0:15:41.920 fancy title of America's and a financial crime leader. But 0:15:42.120 --> 0:15:45.280 mostly what he does is going to rooms and say, okay, 0:15:45.320 --> 0:15:48.360 here your options. Dan Tannebaum, what are the options for 0:15:48.400 --> 0:15:52.240 American banking is they sit two blocks from the Mandarin 0:15:52.320 --> 0:15:56.520 Hotel in Hong Kong. Thanks Tom. It's it's gonna be 0:15:56.560 --> 0:15:59.960 a tough morning or day for for US banks opera 0:16:00.080 --> 0:16:02.920 rating in Hong Kong as they really think about what 0:16:02.960 --> 0:16:06.080 this could mean. I think it's really important to note, though, 0:16:06.080 --> 0:16:09.800 that sanctions weren't actually levied yesterday, but a framework was 0:16:09.880 --> 0:16:13.320 essentially established through the signing of the Hong Kong Autonomy Act. 0:16:13.840 --> 0:16:17.480 But if these sanctions are put forth um like many 0:16:17.560 --> 0:16:19.400 think they could be, and these were very much a 0:16:19.400 --> 0:16:22.880 blunt instrument rather than a surgical use of sanctions in 0:16:22.960 --> 0:16:27.520 a very sensitive market. Um it would be nearly impossible 0:16:27.720 --> 0:16:30.080 for a US bank to be able to comply with 0:16:30.240 --> 0:16:34.040 U S sanctions and Chinese law simultaneously. Well down, this 0:16:34.120 --> 0:16:36.040 is the issue. I'm trying to understand the scale, the 0:16:36.080 --> 0:16:38.440 magnitude of the issue before us right now. And let's 0:16:38.480 --> 0:16:39.960 just think this out. I don't want to get you 0:16:39.960 --> 0:16:41.800 in trouble with any clients. Let's say there's a bank 0:16:41.840 --> 0:16:43.840 that starts with an H and to the C. They 0:16:43.840 --> 0:16:47.400 have a headquarters in London and a huge presence. I'm 0:16:47.440 --> 0:16:50.840 thinking banks, nay, many banks. We're trying to keep down 0:16:50.880 --> 0:16:54.200 out of trouble. Down. Let's say that bank services a 0:16:54.440 --> 0:16:58.280 particular client that comes under these sanctions. What did they do? 0:17:00.120 --> 0:17:02.280 I mean, we've talked about this on the show before. 0:17:02.400 --> 0:17:05.639 I mean, realistically, they're going to have to pick which 0:17:05.800 --> 0:17:09.600 regulatory regime can end up hurting them the most. Now, 0:17:10.080 --> 0:17:14.000 I do think there's some cause for caution on all 0:17:14.040 --> 0:17:17.240 of this, because I mean we're potentially a year away 0:17:17.320 --> 0:17:20.760 from actually seeing any real designations under this program. If 0:17:20.760 --> 0:17:22.560 you get into the nuts and bolts of what was 0:17:22.640 --> 0:17:27.080 signed yesterday, the administration have ninety days to identify targets 0:17:27.119 --> 0:17:30.200 where designating then they have to inform Congress if any 0:17:30.240 --> 0:17:34.000 foreign banks carried out business with the aforementioned targets um 0:17:34.080 --> 0:17:36.000 and they have a year to do that. So you're 0:17:36.000 --> 0:17:40.359 talking potentially October one before you may begin to see 0:17:40.440 --> 0:17:44.240 any banking related restrictions or more serious sanctions that get 0:17:44.320 --> 0:17:47.800 rolled out. Potentially, Dan, the sanctions haven't been levied yet. 0:17:47.840 --> 0:17:50.560 You made a point of that, and clearly, uh, this 0:17:50.760 --> 0:17:54.320 is just amping up the arsenal the President Trump potentially 0:17:54.320 --> 0:17:56.560 could have. Can you give a sense of why now, 0:17:56.640 --> 0:17:59.760 because initially a President Trump didn't have that strong of 0:17:59.760 --> 0:18:03.720 a action publicly to the incursions in Hong Kong's autonomy. 0:18:03.960 --> 0:18:08.000 And this came, according to some people, sort of suddenly, Well, 0:18:08.040 --> 0:18:10.080 I mean it didn't. It didn't. Let's let's remember what 0:18:10.119 --> 0:18:14.439 he signed yesterday. It was a very very bipartisan piece 0:18:14.600 --> 0:18:17.359 of legislation passed in both the House and Senate that 0:18:17.560 --> 0:18:21.159 forced the president's hand. He was essentially given no choice 0:18:21.160 --> 0:18:24.399 in a veto proof majority to sign the legislation that 0:18:24.440 --> 0:18:27.600 came across his desk. So Congress is the one that 0:18:27.720 --> 0:18:32.440 acted and forced the administration to do something. They signed something, 0:18:32.480 --> 0:18:35.399 but haven't necessarily done anything yet. And I think the 0:18:35.440 --> 0:18:39.320 next step where the administration have to identify targets. That's 0:18:39.359 --> 0:18:41.919 the real sensitive piece here. But I don't think it 0:18:42.000 --> 0:18:45.439 was necessarily suddenly. Um. He definitely was delayed for a 0:18:45.440 --> 0:18:47.320 few weeks, and I think the timing was the UK 0:18:47.400 --> 0:18:51.359 announcement yesterday of of excluding a certain tech company from 0:18:51.400 --> 0:18:54.840 from involvement in their five G market. UM was you know, 0:18:54.880 --> 0:18:57.280 this has been a bad week in terms of Western 0:18:57.359 --> 0:19:00.960 China relation to John's correct delicate questioning of what a 0:19:01.040 --> 0:19:03.920 given bank would do. Look at the margin, this stops 0:19:04.440 --> 0:19:08.040 marginal Hong Kong growths for the financial system of the West. 0:19:08.640 --> 0:19:11.480 Where do they go when they move from stopping the 0:19:11.520 --> 0:19:15.560 marginal growth of headcount over to we've got to adjust 0:19:15.680 --> 0:19:20.160 at the margin or completely an exit Hong Kong. Where 0:19:20.160 --> 0:19:23.480 would you just suggest they go to? I mean there's 0:19:23.520 --> 0:19:25.919 no I mean this is still somewhat fresh, so I 0:19:25.960 --> 0:19:28.240 don't think there is a clear answer of where you'd 0:19:28.240 --> 0:19:29.720 go to. I know there's a lot of people in 0:19:29.760 --> 0:19:32.480 Singapore that are excited of what this could potentially mean 0:19:32.560 --> 0:19:35.560 for the further growth of Singapore as a financial services 0:19:35.640 --> 0:19:39.400 hub UM, which is a potentially a logical move from 0:19:39.400 --> 0:19:43.000 a regulatory standpoint In otherwise, UM there's no clear answer. 0:19:43.040 --> 0:19:46.200 I don't think anyone is evacuating the Hong Kong market yet, 0:19:46.200 --> 0:19:48.480 and I think any moves and doing so could be 0:19:48.560 --> 0:19:51.920 viewed as premature depending on the business. But this is 0:19:51.960 --> 0:19:54.160 what a lot of banks, similar to those that we're 0:19:54.200 --> 0:19:58.120 looking at Bregg's post Brexit locations had to do, may 0:19:58.160 --> 0:20:01.600 need to begin spinning up our plan if this escalates. 0:20:02.040 --> 0:20:04.199 Do we stay in Hong Kong or do we actually 0:20:04.240 --> 0:20:06.840 have to potentially move? I would point out, folks, a 0:20:06.880 --> 0:20:10.280 trip from Song Kong to Singapore is almost four hours. 0:20:10.320 --> 0:20:12.760 You're on the plane and you're like, really, it's like 0:20:12.880 --> 0:20:16.880 literally New York. It's a lot farther away than anybody imagines. There, 0:20:16.960 --> 0:20:20.920 Dan give us an update than on what your council 0:20:20.960 --> 0:20:24.920 would be to banks right now. I mean, I think 0:20:24.920 --> 0:20:29.360 it's keeping aware of what's happening. The one missed opportunity 0:20:29.359 --> 0:20:32.240 in all of this was the US again went and 0:20:32.320 --> 0:20:36.320 alone set forth the unilateral sanctions package that there weren't 0:20:36.320 --> 0:20:40.080 other countries latching onto, which does make it harder, um 0:20:40.119 --> 0:20:43.840 have you as you have these more significant business decisions 0:20:43.840 --> 0:20:47.000 that have to be made. I think trying to establish 0:20:47.160 --> 0:20:50.840 what this could potentially mean looking at the China response, 0:20:50.920 --> 0:20:53.159 which thus far has been focused similar to what it 0:20:53.240 --> 0:20:56.600 was last week with the designation of Marco Rubio and 0:20:56.640 --> 0:21:00.199 Ted Cruz for in response to weaker sanctions. UH. The 0:21:00.320 --> 0:21:04.119 Chinese response has been at least relatively measured, given I 0:21:04.119 --> 0:21:07.679 think they're aware that nothing has really happened yet, but 0:21:07.840 --> 0:21:10.840 companies need to begin to prepare to understand how they 0:21:10.880 --> 0:21:14.400 can operate in both markets UM without you know, completely 0:21:14.480 --> 0:21:18.159 running a foul of the other side. And there aren't 0:21:18.200 --> 0:21:21.760 any clear answers yet given you know, everyone's still decomposing 0:21:21.800 --> 0:21:24.760 this Executive Order and the Autonomy Act and what it 0:21:24.800 --> 0:21:27.320 could potentially mean. Well, Dan, you've now, dear. I think 0:21:27.320 --> 0:21:30.000 the era of sitting on the fence for many of 0:21:30.000 --> 0:21:33.800 these companies who won their hand in both regions without 0:21:33.880 --> 0:21:36.720 really coming out and saying what they think about the situation, 0:21:37.080 --> 0:21:41.000 that's over, isn't it. It does seem like that's over. 0:21:41.160 --> 0:21:44.000 I think the relations between US and China have only 0:21:44.040 --> 0:21:47.080 continued to worsen over the last few months. UM. And 0:21:47.160 --> 0:21:51.399 for banks that have grown their business in the APAC region, 0:21:51.640 --> 0:21:54.960 those that are have significant business in the US, UM, 0:21:55.000 --> 0:21:56.960 I don't know if they necessarily need to make any 0:21:57.040 --> 0:22:00.639 choices in the near term, but obviously this does pose 0:22:00.680 --> 0:22:04.400 a threat to the growth of the business UM going forward. 0:22:04.880 --> 0:22:06.960 Dan Tannebaum, great to catch up with you. Out of 0:22:07.000 --> 0:22:10.200 a woman, Partner in America's Anti financial crimes head, joining 0:22:10.280 --> 0:22:15.800 us on the latest out of Hong Kong. Bank of 0:22:15.840 --> 0:22:20.359 America has a franchise in research of trying to figure 0:22:20.359 --> 0:22:24.280 out the pulse of the by side, John, at any time, 0:22:24.359 --> 0:22:27.080 this is an important conversation, and I would say in 0:22:27.119 --> 0:22:30.040 the history of Bank of America's research, there's never been 0:22:30.040 --> 0:22:32.359 a more important time in this a pandemic than to 0:22:32.520 --> 0:22:36.160 figure out what the people scared stiff about the actual 0:22:36.200 --> 0:22:38.440 assumption or thinking happy to say we can bring Jack 0:22:38.520 --> 0:22:40.879 Wood it in now. Bank of America Securities head of 0:22:40.960 --> 0:22:43.760 a research investment committee, Jared, always great to catch up 0:22:43.800 --> 0:22:46.360 with you, sir. Just how under round is that cyclical 0:22:46.359 --> 0:22:48.280 part of the market and what will it take to 0:22:48.400 --> 0:22:51.840