WEBVTT - Special: The Next Financial Crisis 0:00:06.320 --> 0:00:12.960 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. 0:00:13.480 --> 0:00:17.560 Daily 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 --> 0:00:33.839 Bloomberg dot Com, and of course on the Bloomberg So 0:00:33.920 --> 0:00:37.199 let us begin. It is about the next financial crisis 0:00:37.200 --> 0:00:41.240 that will not happen. Uh. As we began to put 0:00:41.280 --> 0:00:45.600 this panel together, uh, it just got better and better 0:00:45.680 --> 0:00:49.120 and weren't wonderful. Uh. And I'm not going to go 0:00:49.159 --> 0:00:51.479 through all their bios because that will take precious time. 0:00:51.520 --> 0:00:55.000 And Richards is with us. She has a wonderful concision 0:00:55.040 --> 0:00:58.840 in her analysis of finance and investment. I call her 0:00:58.880 --> 0:01:02.960 the mathematician. We enjoy so much having her with us 0:01:03.000 --> 0:01:06.399 on Bloomberg Surveillance. And I just I was just thrilled 0:01:06.400 --> 0:01:08.240 and Ann could find the time to be with us today. 0:01:09.040 --> 0:01:12.240 Jess Staley runs a bank. Uh. He said, the most 0:01:12.240 --> 0:01:15.600 intelligent thing I've heard up the valley so far, which 0:01:15.640 --> 0:01:18.240 just it feels like two thousand six. We get to 0:01:18.319 --> 0:01:21.840 that in a moment. Uh. We have another banker, whether 0:01:21.840 --> 0:01:24.640 it's Mr Corbett. Now I've got it out of the way. 0:01:24.800 --> 0:01:27.240 All I wanted to know from Mr Corbett, who's a 0:01:27.360 --> 0:01:31.240 real football But there's guys I played football. He was 0:01:31.280 --> 0:01:33.120 like the real deal. So all we talked about was 0:01:33.120 --> 0:01:37.080 Patriots Eagles, which I think has lost to translation at Davos, 0:01:37.200 --> 0:01:39.920 but we got that out of the way. We are 0:01:39.959 --> 0:01:43.119 honored to have find seeing High with us from China. 0:01:43.240 --> 0:01:46.280 Thank you so much for attending today with your work 0:01:46.319 --> 0:01:50.080 in Shanghai over the years, and now of course in Beijing. Uh, 0:01:50.280 --> 0:01:53.280 David rubensteins with us and Ken Rogoff who were with 0:01:53.360 --> 0:01:55.800 me last year, and thank you so much for again 0:01:55.840 --> 0:01:59.120 being with us. With different views. I always would start 0:01:59.160 --> 0:02:03.440 with Enriched, but because of his acclaim on financial crisis, 0:02:03.440 --> 0:02:07.120 may start with Dr Roga. First. Uh, your your book 0:02:07.160 --> 0:02:08.680 which was my book of the year last year, The 0:02:08.680 --> 0:02:10.960 Curse of Cash. I hear a new edition The Curse 0:02:11.000 --> 0:02:14.280 of Bitcoin. Well that well that move sales. Who it's 0:02:14.320 --> 0:02:16.960 the last quarter of the book. Actually, yeah it was. 0:02:17.040 --> 0:02:19.840 And this is an important note because it was my 0:02:19.919 --> 0:02:23.920 most courageous book ever and that can receives serious uh 0:02:24.200 --> 0:02:28.000 criticism and threat from his book. It's not just about 0:02:28.000 --> 0:02:30.280 the beginning of the book. It's about negative interest rates 0:02:30.280 --> 0:02:33.799 and it's about all the upward Mabel wells as if 0:02:33.840 --> 0:02:36.960 we have another financial crisis, there really isn't a plan, 0:02:37.280 --> 0:02:39.760 a even of what central banks would do. So I 0:02:39.800 --> 0:02:42.280 think it's something we need to talk about. Let's talk 0:02:42.400 --> 0:02:45.520 right now about the acclaim of your work with Karmen Ryner. 0:02:45.680 --> 0:02:48.720 This time is different? Do you feel that now that 0:02:48.960 --> 0:02:54.400 this time is different? I mean I don't. I feel 0:02:55.120 --> 0:02:59.480 we're still coming out of the last financial crisis at 0:02:59.639 --> 0:03:02.799 deep is Slamic. Financial crisis like we experience has a 0:03:02.880 --> 0:03:07.240 long afterlife, and taking eight to ten years to fully 0:03:07.280 --> 0:03:10.600 recover is not unusual. And I must say a lot 0:03:10.639 --> 0:03:13.639 of the talk about secular stagnation things will never be 0:03:14.000 --> 0:03:20.480 good again conflates genuine issues like demographics, productivity with UH 0:03:20.520 --> 0:03:24.200 the financial crisis, And so I'm actually I'm not going 0:03:24.240 --> 0:03:26.520 to tell you there's not going to be another financial crisis. 0:03:26.520 --> 0:03:29.040 Sales of my book would collapse. But I'm kind of 0:03:29.080 --> 0:03:32.639 optimistic going forward about you know, where the world economy 0:03:32.680 --> 0:03:35.040 is at the moment. We can talk about could there 0:03:35.040 --> 0:03:38.480 be a financial crisis, of course, could there be a recession, absolutely, 0:03:38.960 --> 0:03:41.160 But I actually think we're at the tail end of 0:03:41.160 --> 0:03:45.640 the last one. UH. In a typical pretty typic culture jectory. 0:03:45.760 --> 0:03:49.440 What was the number one lesson we learned coming out 0:03:49.480 --> 0:03:53.920 of this crisis? Oh boy, I'd leave it to I'm 0:03:53.960 --> 0:03:56.240 gonna ask them to I only got like three questions today. 0:03:56.240 --> 0:03:57.920 But but from where you sit, I mean, in the 0:03:57.920 --> 0:03:59.720 middle of your book, you go into this whole thing 0:03:59.760 --> 0:04:03.480 on Spanish Spinisher amount of the collapse, saying and it 0:04:03.520 --> 0:04:07.440 was longer than ten years. Yeah, I mean, certainly the 0:04:07.440 --> 0:04:10.240 theme this time, as different as people convinced themselves, is 0:04:10.240 --> 0:04:12.760 different that everything is going to go to the moon 0:04:12.880 --> 0:04:16.200 forever and it never does, And particularly when you see 0:04:16.320 --> 0:04:20.560 debt rising at an aggressive pace, you should look out 0:04:20.640 --> 0:04:23.360 for that. And in the current environment, interest rates are 0:04:23.360 --> 0:04:25.800 really low, and so you can say debt levels are 0:04:25.880 --> 0:04:28.760 high around the world, but not compared to the interest 0:04:28.839 --> 0:04:31.719 rates that we have. So I'd actually throw out that 0:04:31.880 --> 0:04:36.359 the biggest risk to the global economies that we're probably 0:04:36.480 --> 0:04:41.800 in an inflection point where the you know, tightening of 0:04:41.880 --> 0:04:47.320 labor market, statement of demand could get inflation, could get investment, 0:04:47.600 --> 0:04:50.760 which we haven't had, and then if something pushed up 0:04:50.760 --> 0:04:54.159 real interest rates. It's not my baseline case, sure, everyone, 0:04:54.880 --> 0:04:58.080 but we don't really know why they went down so much. 0:04:58.080 --> 0:05:00.839 They're phenomenals. And if they went up the places that 0:05:00.920 --> 0:05:03.800 weren't enjoying as much growth and had a lot of 0:05:03.839 --> 0:05:09.279 debt Italy, Japan, for example, some emerging markets, they could 0:05:09.320 --> 0:05:12.680 have a lot of problems. I certainly see China as 0:05:12.680 --> 0:05:15.880 a place where they're at an earlier stage of this. 0:05:16.080 --> 0:05:19.200 They didn't have the financial crisis. They did a great job, 0:05:19.920 --> 0:05:23.120 but they do have a lot of the characteristics of 0:05:23.200 --> 0:05:26.520 a typical financial crisis. Building up some of the themes 0:05:26.560 --> 0:05:29.240 to speak to our panels about. And I thought you 0:05:29.360 --> 0:05:31.960 had a very important perspective in the in the in 0:05:31.960 --> 0:05:36.120 the room about our collective memories, in the number of 0:05:36.160 --> 0:05:39.600 people in the financial business that really have not enjoyed 0:05:40.320 --> 0:05:43.839 how you get into a crisis. What would you say 0:05:43.880 --> 0:05:47.760 to the young crew who haven't enjoyed two thousand seven 0:05:47.839 --> 0:05:50.680 or some of the moments of two thousand eight and nine. Well, 0:05:50.720 --> 0:05:53.000 I think I think what kind of said is absolutely right, 0:05:53.040 --> 0:05:54.880 and it's not even a plan A. So we have 0:05:55.680 --> 0:06:00.240 we have far fewer tools to deal with any event 0:06:00.360 --> 0:06:02.120 that happens. And by the way, it will happen somewhere 0:06:02.120 --> 0:06:04.039 where none of us are looking. It never happens where 0:06:04.040 --> 0:06:06.600 you're looking at always happens somewhere else. And I think 0:06:06.640 --> 0:06:08.680 if you look at what's changed, what's shifted over the 0:06:08.760 --> 0:06:11.359 last ten years, we really have had ten years without 0:06:11.360 --> 0:06:15.120 any form of credit cycle. So we've now got a 0:06:15.120 --> 0:06:16.960 whole bunch of people who have never gone through a 0:06:17.000 --> 0:06:20.120 default cycle. And financial crisis are pretty simple. They always 0:06:20.200 --> 0:06:24.640 start with somebody borrowing, short lending, long been leverage in there, 0:06:24.800 --> 0:06:28.640 and a default, so you know, absolutely, so you know, 0:06:29.000 --> 0:06:30.839 we know that the elements will be there, we just 0:06:30.880 --> 0:06:33.160 don't know what the triggers are. And when you look 0:06:33.200 --> 0:06:35.599 at some of the new structures that haven't been through 0:06:35.680 --> 0:06:40.080 that tried and tested pro process around, for example, structured 0:06:40.160 --> 0:06:43.839 leverage dtfs or peer to peer lending, new things which 0:06:43.880 --> 0:06:46.560 are good developments in many senses, but they have not 0:06:46.760 --> 0:06:49.320 been through the rigor in the way a bank two 0:06:49.400 --> 0:06:51.159 or three d year old bank has it's kind of 0:06:51.160 --> 0:06:54.479 figured out how it manages a credit cycle through that period. 0:06:54.800 --> 0:06:56.640 We've got a lot of things that are now big 0:06:56.680 --> 0:07:01.200 operators in the market that we don't really know how 0:07:01.240 --> 0:07:03.320 we'll respond to the next one. So you know, I 0:07:03.320 --> 0:07:05.800 think you've got to look for where the kernels are 0:07:06.000 --> 0:07:09.080 for what will happen when eventually we go over the 0:07:09.080 --> 0:07:10.680 top and we start to go down the other side. 0:07:10.680 --> 0:07:12.440 It's in those sorts of things that would be the 0:07:12.520 --> 0:07:15.360 unexpected places that have not been through this stuff before. 0:07:15.880 --> 0:07:18.400 Did you figure out who do you go to the next? 0:07:18.400 --> 0:07:21.520 Among two major banks? And Mr Corbett and Mr Staley, 0:07:21.680 --> 0:07:23.600 I'm just gonna be polite and go b is before 0:07:23.680 --> 0:07:28.920 see is that just Daley? So many of the things 0:07:30.080 --> 0:07:32.480 as well. I'll go with the bank names today. When 0:07:32.480 --> 0:07:35.440 you look at the resurrection of Barclays that you're trying 0:07:35.440 --> 0:07:37.440 to manage right now, and if you look at how 0:07:37.440 --> 0:07:40.120 you're trying to steal the bank for the future, You've 0:07:40.160 --> 0:07:42.920 mentioned to me that you do see the asset size 0:07:42.960 --> 0:07:45.880 James McIntosh and the Journal today has a fabulous start 0:07:46.160 --> 0:07:49.600 chart on the non correlation of stocks and bonds as well. 0:07:49.800 --> 0:07:51.720 How do you look at the markets and tie that 0:07:51.840 --> 0:07:55.080 into where we are now? Is we get ready for 0:07:55.200 --> 0:07:57.360 whatever the crisis is down the road? But I do 0:07:57.440 --> 0:07:59.080 feel it's a little bit like two thousand and six 0:07:59.080 --> 0:08:01.239 when we're all talking about whether we've solved the riddle 0:08:01.240 --> 0:08:04.480 of economic crisises. It take some comfort in Kin saying 0:08:04.520 --> 0:08:07.240 he doesn't see it emminally on the edge. But you know, 0:08:07.320 --> 0:08:11.800 given given asset valuations, given that we've got four percent 0:08:11.840 --> 0:08:15.040 global economic growth, Uh, it seems like we're in a 0:08:15.080 --> 0:08:17.680 pretty good place right now economically. But we've got a 0:08:17.720 --> 0:08:20.320 monetary policy which is still seems like it's in the 0:08:20.400 --> 0:08:23.120 remnants of a depression era, and I think we have 0:08:23.240 --> 0:08:25.840 all very little capacity and the capital markets to do 0:08:25.920 --> 0:08:29.040 with the real move in in interest rates. What I 0:08:29.080 --> 0:08:31.600 would also say is, I do think that the banks 0:08:31.720 --> 0:08:34.720 are in such a different position than they were in 0:08:34.760 --> 0:08:37.319 two thousand and six, two thousand and seven. If there 0:08:37.400 --> 0:08:40.040 is going to be another financial crisis, my bet is, 0:08:40.120 --> 0:08:45.000 you know, most crisises are are where where we run 0:08:45.000 --> 0:08:47.319 into something that was totally obvious, but we all missed it. 0:08:47.400 --> 0:08:49.880 So two thousand and eight was strip as securities or 0:08:49.920 --> 0:08:52.080 cash need no capital that I think that got wrong. 0:08:52.559 --> 0:08:55.760 Thousand nine was a Eurozone bar whereas the units are 0:08:55.760 --> 0:08:57.720 in credit. We sort of got that one wrong. Uh, 0:08:57.760 --> 0:09:01.120 there's something out there in the capital markets. Um, given 0:09:01.120 --> 0:09:03.160 where you know, equity markets are at a whole time 0:09:03.240 --> 0:09:06.320 high and and volatilities that at all time low, that's 0:09:06.360 --> 0:09:08.719 not a sustainable proposition. I don't think it's going to 0:09:08.800 --> 0:09:11.280 come from the banks uh. And I guess the final 0:09:11.320 --> 0:09:13.840 thing for me is, uh, we just got done with 0:09:13.920 --> 0:09:18.640 our stress test with the Bank of England, and you know, uh, 0:09:18.679 --> 0:09:21.360 Mike goes to the same process with process with the FED. 0:09:21.679 --> 0:09:24.480 When I look at the stress test, um and and 0:09:24.520 --> 0:09:26.640 what we clearly focused on is how does Barkley's do 0:09:26.720 --> 0:09:29.640 coming out of that? The really issue take the stress 0:09:29.720 --> 0:09:32.520 that our regulators are putting these banks through and apply 0:09:32.640 --> 0:09:36.000 that stress to the rest of the economy. And uh. 0:09:36.040 --> 0:09:38.080 And I think given where debt levels are, given our 0:09:38.120 --> 0:09:42.000 exposure to low interest rates, if we do have another 0:09:42.040 --> 0:09:44.719 economic cycle, which I would argue we will, I think 0:09:44.720 --> 0:09:47.240 the capital markets will be tested. Michael Spencer wrote an 0:09:47.320 --> 0:09:51.280 essay seven years ago, I think on type one and 0:09:51.400 --> 0:09:55.480 type two regulation and almost you can't see what you're 0:09:55.520 --> 0:09:57.320 supposed to see, but you can see things that you 0:09:57.360 --> 0:10:00.120 could that are a distraction. It was not that it 0:10:00.200 --> 0:10:02.960 was confusing, but Jess goes right to it. We have 0:10:03.040 --> 0:10:07.160 stress tests. Do you believe in stress tests? Distress tests 0:10:08.160 --> 0:10:11.920 keep you from a financial crisis? Really a gimmick. I 0:10:12.240 --> 0:10:15.559 think we've done a lot actually with the conventional banking system, 0:10:15.600 --> 0:10:17.920 but that pushes a lot of the problems into the 0:10:17.920 --> 0:10:21.120 shadow banking system, and you know that that that could 0:10:21.120 --> 0:10:24.480 be where we see the next problem come from stress us. 0:10:24.480 --> 0:10:27.680 We're a good idea, but that they're not perfect. And 0:10:27.800 --> 0:10:30.120 you know that, Michael Corbett. When you look at banks, 0:10:30.120 --> 0:10:31.760 there are a different kind of bank than they were 0:10:31.800 --> 0:10:35.480 at the beginning of the last UH financial crisis. You 0:10:35.520 --> 0:10:38.320 speak of resiliency, but you mentioned to me a word 0:10:38.360 --> 0:10:40.920 which I'm hearing. It's almost maybe my phrase for Davos 0:10:40.960 --> 0:10:44.120 this year. Maybe it's Davos scales up. We need scale. 0:10:44.200 --> 0:10:47.920 Michael Nathanson in media with Moffatt Nathanson the other day 0:10:47.960 --> 0:10:50.400 told me we are going to have scale and media 0:10:50.720 --> 0:10:52.840 like we have with Fox and Disney, and we can 0:10:52.880 --> 0:10:56.360 maybe address that later on. David Rubinstein tell us about 0:10:56.480 --> 0:10:59.640 scale in banking to try to avoid the agony of 0:10:59.679 --> 0:11:03.719 the next financial crisis. If you think about where are 0:11:03.760 --> 0:11:05.960 some of the lessons that came out of the last crisis, 0:11:05.960 --> 0:11:09.240 And one of the challenges was that we had a 0:11:09.320 --> 0:11:14.040 global banking business model where everyone or most big banks 0:11:14.080 --> 0:11:19.200 were seeking or trying to execute against similar plans be 0:11:19.320 --> 0:11:23.160 everything to everybody, the financial supermarket. You remember, oh six 0:11:23.160 --> 0:11:25.679 oh seven, that was the talk that was the rage 0:11:26.040 --> 0:11:28.720 I think what's different today is coming out of the crisis, 0:11:28.760 --> 0:11:32.240 what you've seen banks do in many ways is go 0:11:32.360 --> 0:11:35.200 back to their basics, or go back to the areas 0:11:35.240 --> 0:11:38.280 that they believe they've got a competitive advantage, and that 0:11:38.360 --> 0:11:43.200 competitive advantage is oftentimes steeped in scale. And we think 0:11:43.240 --> 0:11:45.920 of scale and whether scales in your markets business, or 0:11:45.960 --> 0:11:49.480 your banking business, or your lending business. In today's age 0:11:49.760 --> 0:11:54.920 of slower growth and more regulation, if you don't have scale, 0:11:55.679 --> 0:11:58.080 the odds are you can't buy it. Right. You're not 0:11:58.160 --> 0:12:01.520 seeing big banks get bigger through quisition. You've got to 0:12:01.559 --> 0:12:05.320 build it, and in slower growth, that's tougher to do. 0:12:05.840 --> 0:12:08.760 And so what we've seen is the industry in many 0:12:08.800 --> 0:12:12.480 ways pull back to areas of strength, areas of scale, 0:12:12.720 --> 0:12:15.440 and you've ended up with very different business models, which 0:12:15.480 --> 0:12:19.240 in itself is far more resilient. So we can use 0:12:19.280 --> 0:12:21.920 different examples of firms out there in terms of how 0:12:21.920 --> 0:12:25.079 they change. But when we look at City as an example, 0:12:25.120 --> 0:12:26.960 I can tell you the things that we're not today. 0:12:26.960 --> 0:12:29.760 We're not an insurance company, we're not an asset manager, 0:12:30.080 --> 0:12:32.760 we're not a hedge fund, were not any of those things. 0:12:32.760 --> 0:12:35.439 Were simply a bank and a bank that operates globally, 0:12:35.720 --> 0:12:38.280 and that's the scale that we've pulled back to. And 0:12:38.280 --> 0:12:40.280 as you can go around and look at Justice Bank 0:12:40.320 --> 0:12:42.160 and look at other banks, and you can see the 0:12:42.200 --> 0:12:45.120 divergence of business models. And I think that's that's quite 0:12:45.160 --> 0:12:47.760 powerful in terms of what it means for resiliency for 0:12:47.800 --> 0:12:51.640 the system. Do you day to day having better knowledge 0:12:51.679 --> 0:12:55.439 of your global bank? How do you keep track within 0:12:55.480 --> 0:12:59.679 the scale? How do you coordinate your global bank if 0:12:59.720 --> 0:13:03.439 you're bigger and bigger scale? I mean the aniless conference 0:13:03.440 --> 0:13:06.760 calls doesn't do it, endless travel doesn't do it. How 0:13:06.840 --> 0:13:10.040 are the communications going to exist within a given institution 0:13:10.480 --> 0:13:13.160 if we all decide to scale up. If you think 0:13:13.160 --> 0:13:14.880 in many ways of what's going on in the world, 0:13:14.920 --> 0:13:18.480 and in particular on the institutional side, and a business 0:13:18.559 --> 0:13:22.080 and others are great examples of it, is they're scaling 0:13:22.120 --> 0:13:26.960 as well. So it's not that we're necessarily covering more clients. 0:13:27.080 --> 0:13:30.240 We're not. We're actually covering less. It's not that we're 0:13:30.480 --> 0:13:35.120 entering more countries or doing more things. We're just doing 0:13:35.160 --> 0:13:37.880 more with what we have and using the benefits of 0:13:37.920 --> 0:13:41.520 scale against that. So we're not adding complexity. In fact, 0:13:41.600 --> 0:13:44.120 we've taken complexity out of the out of the bank 0:13:44.160 --> 0:13:46.760 and out of the system. I want to turn a 0:13:46.800 --> 0:13:48.800 little bit of politics here, and I think this is 0:13:48.880 --> 0:13:51.920 so important thing. You and I were talking and you 0:13:52.160 --> 0:13:56.040 brilliantly said that you would like to respond to what 0:13:56.240 --> 0:14:00.920 is clearly part of the Western zeitgeist in this January 0:14:00.960 --> 0:14:04.679 of two eighteen. And it's not that it's about China 0:14:05.040 --> 0:14:08.000 or it's China's fault, but that China is a number 0:14:08.040 --> 0:14:11.920 one risk we enjoyed with Bloomberg Surveillance working with Ian Bremer, 0:14:11.960 --> 0:14:14.560 and you raise your group early in the year and 0:14:14.600 --> 0:14:18.040 they did place China is the number one risk of 0:14:18.080 --> 0:14:23.360 the number that they had uh through their annual review. 0:14:23.800 --> 0:14:26.280 You take a real issue in that, why is China 0:14:26.640 --> 0:14:32.000 not a risk? Um? Well, before I answered your question, 0:14:32.640 --> 0:14:37.000 let me say, since I'm the only regulator here, I 0:14:37.600 --> 0:14:43.120 think as regulator you have to always stay alert on 0:14:43.240 --> 0:14:48.560 any financial risk that's coming up. And although the economy 0:14:48.640 --> 0:14:53.800 is doing quite well globally, but we cannot be complacent. 0:14:55.000 --> 0:14:59.880 And in terms of financial risk, I think every christ 0:15:00.080 --> 0:15:04.760 it is almost seemed to be associated with some kind 0:15:04.760 --> 0:15:08.240 of asset bubble, right, it could be that could be 0:15:08.280 --> 0:15:12.680 accurate it could be something else. And so this is 0:15:12.720 --> 0:15:15.760 the sign that we should look around. Are there any 0:15:15.800 --> 0:15:21.120 asset bubbles in any major economies? And if you find some, 0:15:22.040 --> 0:15:25.120 you know, the emerging asset bubble, then as a regulator, 0:15:25.600 --> 0:15:28.200 we've got to do something about it. So this is 0:15:28.560 --> 0:15:35.600 my opening statement. But to answer your question, um, since 0:15:35.640 --> 0:15:38.360 the Chinese economy is so large, right, so if something 0:15:38.400 --> 0:15:42.040 bad happens to the Chinese economy, the rest of the 0:15:42.040 --> 0:15:45.120 world will be affected. So it's you know, the concern 0:15:45.160 --> 0:15:49.680 about China in that sense, it's justified. We realize that 0:15:49.720 --> 0:15:54.800 we have some problems quite some years ago, and the 0:15:54.960 --> 0:15:59.640 problem is mainly with a lot of that and we 0:15:59.720 --> 0:16:03.480 have too much that in our system macro what we 0:16:03.640 --> 0:16:08.200 use you know, this macro UH in that in this 0:16:08.440 --> 0:16:12.080 ratio whatever uses a non financial sector that divided by 0:16:12.120 --> 0:16:14.600 GDP has been a rising all the time. It's now 0:16:17.160 --> 0:16:19.440 So we realized that, you know, some time ago, and 0:16:19.480 --> 0:16:23.840 we began to take actions two years ago. And the 0:16:23.840 --> 0:16:27.440 good news at this point is that that ratio for 0:16:27.480 --> 0:16:31.400 the first time platoid in the last quarter of last 0:16:31.440 --> 0:16:37.200 year UH, it did not rise. UH. And furthermore, M 0:16:37.280 --> 0:16:42.840 two divided by GDP is also not rising and M 0:16:42.880 --> 0:16:47.040 to The growth rate of M two in China last 0:16:47.120 --> 0:16:51.040 year was only eight two, which is almost two percentage 0:16:51.400 --> 0:16:55.720 lower than nominal GDP growth rate. So you can see 0:16:55.760 --> 0:17:02.640 the effect of taking these UH tightening actions. UH Now, 0:17:03.720 --> 0:17:09.399 since the macro that level is so high, So people 0:17:09.400 --> 0:17:13.880 will still be worried about the consequences of something happens 0:17:13.920 --> 0:17:16.720 to the to the financial system. And I can tell 0:17:16.760 --> 0:17:22.400 you know, in the Chinese system, if something bad happens 0:17:22.440 --> 0:17:28.560 to UH certain small financial institutions, right, what we will do, 0:17:29.040 --> 0:17:30.840 and this is the lesson we learned from the US 0:17:30.880 --> 0:17:34.560 financial crisis. What we will do is that we will 0:17:34.600 --> 0:17:39.200 move very swiftly to contain that risk, to make sure 0:17:39.359 --> 0:17:44.480 that whatever panics caused by this you know, small institution 0:17:45.119 --> 0:17:48.720 does not spread into the entire system quickly. And if 0:17:48.720 --> 0:17:52.359 you can contain that risk and make sure the planic 0:17:52.440 --> 0:17:56.960 does not spread, then the entire financial system will be okay. 0:17:57.320 --> 0:17:59.879 And the way that we move swiftly in China is that, 0:18:00.040 --> 0:18:02.480 you know, I'm almost sure that if something like that happens, 0:18:02.760 --> 0:18:05.800 the Central Bank in China will coming immediately. Some of 0:18:05.880 --> 0:18:09.760 the larger healthy financial institutions will be brought in to 0:18:09.880 --> 0:18:13.800 take care of that small institution immediately so that the 0:18:14.000 --> 0:18:17.880 inter bank lending does not phreeze, right and the system 0:18:17.920 --> 0:18:21.280 can still function right now. This is something that the 0:18:21.359 --> 0:18:24.439 Chinese government always does value well, right because you know, 0:18:24.440 --> 0:18:28.640 our system can function really quickly. But of course, if 0:18:29.080 --> 0:18:32.240 you know the larger problem is so big, then even 0:18:32.240 --> 0:18:34.480 if you can move swiftly, you will not be able 0:18:34.520 --> 0:18:36.879 to deal with the impast system. You know, the bigger 0:18:37.200 --> 0:18:41.240 system in the rest is bigger risk in the system. 0:18:41.280 --> 0:18:45.840 So that is why moving earlier to contain the scale 0:18:45.920 --> 0:18:48.760 of the of the empire system, the risk of the 0:18:48.760 --> 0:18:52.560 empire system is so important. And as I said, you 0:18:52.600 --> 0:18:56.520 know we've made some progress in that as well. One 0:18:56.520 --> 0:18:58.680 thing I noticed her and I left David Rubinstein for 0:18:58.840 --> 0:19:01.119 left last, because I think he can provide us with 0:19:01.240 --> 0:19:05.360 a terrific perspective of not only finance and economics and investment, 0:19:05.400 --> 0:19:08.520 but bring it over to our geopolitics as well. I 0:19:08.560 --> 0:19:12.920 was thunderstruck by Richard Edelman's Trust Barometer released yesterday. Every 0:19:12.960 --> 0:19:15.720 year it's different. I think it's an incredibly important document 0:19:16.240 --> 0:19:18.880 and the fracture is the word of the moment here. 0:19:18.920 --> 0:19:21.880 We're fractured. Craig Gibbs article today in the Journal. We're 0:19:21.920 --> 0:19:26.240 fractured within our nations, and it really shows, as you 0:19:26.280 --> 0:19:29.680 mentioned to me earlier, the geo political mix that we're 0:19:29.720 --> 0:19:32.720 in as we speak to bankers and managers of money, 0:19:32.720 --> 0:19:36.000 and of course in a steamed academic that speaks to me, 0:19:36.080 --> 0:19:39.439 David Rubinstein, of exogenous shocks out there that get us 0:19:39.480 --> 0:19:43.360 to the next crisis. Well, um, the most exogenous shock 0:19:43.400 --> 0:19:46.200 I'm worried about the moment is these lights. They're very hot. 0:19:46.280 --> 0:19:51.320 So we do the surveillance, Dad, I hope they're getting 0:19:51.480 --> 0:19:53.400 you know, vitamin D into me at least something. I'll 0:19:53.400 --> 0:19:55.920 get something out of this. Stop. But if anybody thinks 0:19:56.000 --> 0:19:58.240 that's what it is, these lights are very very hot. Okay, 0:19:58.640 --> 0:20:02.000 So global warming is coming here? Um, he's say, such 0:20:02.040 --> 0:20:05.399 a TV story. Just get right to thank you so 0:20:05.480 --> 0:20:08.479 much for your program. Thank you very much for the plug. 0:20:09.240 --> 0:20:13.000 So right now, the biggest concern I have is that 0:20:13.080 --> 0:20:15.960 most people think there's no problem of a likely recession 0:20:16.600 --> 0:20:19.360 this year and maybe even early next year. Generally, when 0:20:19.400 --> 0:20:23.879 people are very happy and confident, something wrong happens, um, 0:20:23.920 --> 0:20:26.440 as you know from your own research. So I am 0:20:26.520 --> 0:20:29.760 nervous that the conventional wisdom is that we have no 0:20:29.840 --> 0:20:32.679 recession problems around the world. Everybody's doing quite well. As 0:20:32.760 --> 0:20:36.040 John Kenneth Galbraith, the former Harvard faculty member, famously said, 0:20:36.240 --> 0:20:39.199 the conventional wisdom is usually wrong, and it might be 0:20:39.240 --> 0:20:42.600 in this case. So what would produce a recession this year? 0:20:42.600 --> 0:20:44.640 I'm not saying what happened, but what is the thing 0:20:44.680 --> 0:20:46.919 that I most worry about? Well, I do worry that 0:20:47.040 --> 0:20:50.040 government's uh, maybe having a little bit too much debt, 0:20:50.560 --> 0:20:53.280 and maybe they have too much entitlement programs that they're 0:20:53.320 --> 0:20:55.400 not holdingly going to be able to honor. And at 0:20:55.440 --> 0:20:57.639 some point people will wake up and say, the US 0:20:57.680 --> 0:21:00.959 government has twenty trillion dollars of debt and funded liabilities 0:21:00.960 --> 0:21:04.200 that are hard to fathom about. They're being actually paid 0:21:04.200 --> 0:21:05.720 but leaving it out of side, and people don't worry 0:21:05.720 --> 0:21:07.920 about their while I worry about geopolitical things that we 0:21:07.920 --> 0:21:11.119 can't anticipate, the so called Black Swans so um an 0:21:11.160 --> 0:21:15.280 unanticipated nine eleven type events. Somewhere in the Western world. 0:21:15.800 --> 0:21:19.600 A dirty bomb goes off somewhere, Russia decides have invade someplace. 0:21:20.160 --> 0:21:22.960 The Middle East gets hot again in certain parts that 0:21:23.000 --> 0:21:25.840 are not yet hot. Maybe there's some more hot disputes 0:21:25.920 --> 0:21:29.120 between Saudi Arabia and Iran. We don't know, maybe something 0:21:29.160 --> 0:21:32.040 between China and Japan. So you never know what's going 0:21:32.119 --> 0:21:34.280 to happen, or it could be a pandemic. So I 0:21:34.320 --> 0:21:36.520 think when everybody's complacing, that's usually when you have to 0:21:36.520 --> 0:21:38.960 be nervous. Now that your earlier question, what was the 0:21:39.040 --> 0:21:41.880 lesson of the last recession by your own debt back 0:21:41.880 --> 0:21:44.440 at a discount? Um, Those people that bought their own 0:21:44.440 --> 0:21:47.440 debt back and the discount made great fortunes. And if 0:21:47.440 --> 0:21:49.200 you can't buy your own debt back and the discount, 0:21:49.200 --> 0:21:51.840 hold on, hold on, hold on, don't give back the 0:21:51.920 --> 0:21:54.480 keys to the banks, because eventually the economy will come back, 0:21:54.480 --> 0:21:56.080 and if you hold on, you'll make a lot of money. 0:21:56.119 --> 0:21:57.879 And the people that made the most money out of 0:21:57.880 --> 0:22:00.320 the last recession in private equit least. But people that 0:22:00.320 --> 0:22:02.119 bought their own debt back or managed to keep the 0:22:02.160 --> 0:22:04.680 banks away and hold held onto the assets until the 0:22:04.720 --> 0:22:09.000 economy came back. That's what happened. Great fortunes were made 0:22:09.040 --> 0:22:11.840 and great reputations were made by holding onto assets or 0:22:11.880 --> 0:22:13.960 buying your own debt back at a discount. So when 0:22:14.000 --> 0:22:16.680 the economy starts going this way, you know, don't run 0:22:16.720 --> 0:22:19.040 for the fences, be there, and you know, hang around 0:22:19.040 --> 0:22:20.680 the hoop because you're gonna buy some things a great 0:22:20.680 --> 0:22:23.560 discounts within this. And again we welcome all of you 0:22:23.680 --> 0:22:26.320 were streaming with the World Economic Forum website and the 0:22:26.480 --> 0:22:29.560 top link as well. And again I thank Bloomberg for 0:22:29.600 --> 0:22:33.440 their commitment to this event on Bloomberg Radio and television worldwide. 0:22:33.480 --> 0:22:36.280 So we've gone around UH once and I can go 0:22:36.359 --> 0:22:38.040