Speaker 1: This is Bloomberg Wall Street Week. We turn our attention
Speaker 1: to the markets this week. USCPI nevers reinforcing concerns about inflation,
Speaker 1: the financial stories that cheap our world, a really different
Speaker 1: reaction to mark its more indications of just how hot
Speaker 1: the US economy really is. Through the eyes of the
Speaker 1: most influential voices Larry Summers, the former Treachery Secretary, Katherine Keening,
Speaker 1: CEO of n y Mon Sam's l Sherman N, founder
Speaker 1: of Equatic Group Investment in Bloomberg Wall Street Week with
Speaker 1: David Weston from Bloomberg Radio, walking and chewing gum at
Speaker 1: the same time, as central banks address the need for
Speaker 1: financial stability without giving up their battle with inflation. Welcome
Speaker 1: to Bloomberg Wall Street Week Time David Weston. This week's
Speaker 1: special contribute to Larry Summers takes us through the FED
Speaker 1: decision and what the banking crisis could mean for the
Speaker 1: real economy. They need to recognize that regulation lost its
Speaker 1: way over the last year or two. A ruined Sundarajan
Speaker 1: NYU sort out the reel from the fanciful and chat GPT.
Speaker 1: The more people who use the system early on, the
Speaker 1: better it becomes and a special Wall Street Week roundtable
Speaker 1: on the banking breakdown, with Larry Summers joining former FED
Speaker 1: Governor Dan Trulo and stephaniely Flanders of Bloomberg Economics. We
Speaker 1: know first that there was a significant supervisory failure somewhere
Speaker 1: along the way. Central banks already had their hands full
Speaker 1: fighting inflation, but then a second front opened up with
Speaker 1: the banking crisis. They quickly spread from Silicon Valley to Zurich,
Speaker 1: where officials began the week announcing that UBS would take
Speaker 1: over credit suis, a move praised by ECB President Christine
Speaker 1: lagard I wilcome the swift action and the decisions taken
Speaker 1: by the Swiss authorities. The actions are instrumental for restoring
Speaker 1: orderly market conditions and ensuring financial stability. But it was
Speaker 1: a shotgun wedding that left holders of so called Coco
Speaker 1: bonds of credit suites out in the coal. Seventeen billion
Speaker 1: dollars of them are now rendered worthless, all of which
Speaker 1: put pressure on the FED to explain how we would
Speaker 1: pursue price stability and financial stability at the same time,
Speaker 1: and Wednesday we got our answer. Inflation remains too high
Speaker 1: and the labor market continues to be very tight. We
Speaker 1: remain committed to bring inflation back down to our two
Speaker 1: percent goal and to keep longer term inflation expectations well anchored.
Speaker 1: We will continue to closely monitor conditions in the banking
Speaker 1: system and are prepared to use all of our tools
Speaker 1: as needed to keep it safe and sound. My colleagues
Speaker 1: and I understand the hardship that high inflation is causing,
Speaker 1: and we remain strongly committed to bringing inflation back down
Speaker 1: to our two percent goal. And while global Wall Street
Speaker 1: was consumed with the stability of the banks and how
Speaker 1: the central banks would respond, the rest of the world
Speaker 1: went on as President G of China paid a visit
Speaker 1: to Moscow for a visit with his good friend Vladimir Putin.
Speaker 1: She is there to present himself as a responsible stakeholder
Speaker 1: and a peacemaker to try to further boaster China's reputation
Speaker 1: on the global stage. Congress some of the CEO of
Speaker 1: TikTok the Capitol Hill for a grilling over his social media.
Speaker 1: Female would also like to talk about national security concerns
Speaker 1: that you have raised that we take very very seriously.
Speaker 1: At the end of this challenging week, equities actually held
Speaker 1: up remarkably well, with the SMP five hundred up one
Speaker 1: point four percent the NAZAC up one and two thirds percent,
Speaker 1: while much of the action was over in bonds, where
Speaker 1: the yield in a ten year started the week just
Speaker 1: over three point four percent spiked up well over three
Speaker 1: point six to end a week back down at three
Speaker 1: point three seven, just a handful of basis points from
Speaker 1: where it all started. Tell us sort all of this out.
Speaker 1: We welcome now Dennis de Busher, his founder and president
Speaker 1: of twenty two V Research, and SONALDA Said, chief investment
Speaker 1: officer for fixed income at Franklin Templeton. So welcome both
Speaker 1: of you. Great to have you here. So now I'm
Speaker 1: gonna start with you, because the action really was largely
Speaker 1: in bonds. You're our fixed income person. Well, how do
Speaker 1: you explain how the bond market reacted to the news
Speaker 1: this week? So, you know, I wish it was an
Speaker 1: equity market equity week, but it is a bond market week.
Speaker 1: Clearly i'd see other type of volatility we're seeing in
Speaker 1: the treasury yield curve. It is very interesting. There is
Speaker 1: a certain amount, in my mind, disonance the bond market
Speaker 1: is asking pleading with the Fed to cut rates. However,
Speaker 1: if I look at what is being priced in by
Speaker 1: the bond market, the number of rate cuts being priced in,
Speaker 1: it just doesn't make sense. It only makes sense if
Speaker 1: you're anticipating a really drastic recession triggered by a massive
Speaker 1: banking crisis. But if that's the case, then the remainder
Speaker 1: of the bondmark it doesn't make much sense. I'm talking
Speaker 1: about credit markets, for example, we haven't seen spreads blowout.
Speaker 1: All the action really seems to be driven off market
Speaker 1: participants being unhappy with the FED not essentially doing what
Speaker 1: we've seen the FED do frankly since the global financial crisis,
Speaker 1: which has used overwhelming posts at the first sign of
Speaker 1: wobbles in any particular piece of the financial sector. So, Dennis,
Speaker 1: is the equity market basically having a big debate with
Speaker 1: the bond market right now because the bond markets are
Speaker 1: saying we're going to have cuts this week this year,
Speaker 1: even though Jay Palla keeps saying we're not going to have, guys,
Speaker 1: but the bond market seems to think it is. If
Speaker 1: really we were, wouldn't that signal something really bad going on?
Speaker 1: And shouldn't that be hurting equities? Right? Now he would
Speaker 1: say theoretically that it should be a pretty big drag
Speaker 1: on equities. I think one of the reasons why equities
Speaker 1: aren't reacting is because a lot of what's happening in
Speaker 1: the bond market could be a hedge against a really
Speaker 1: bad outcome, and at the end of the day, unless
Speaker 1: the near term adomic data is falling off a cliff,
Speaker 1: what it clearly is not doing. Lower rates are not
Speaker 1: going to be terrible for equities until it becomes very
Speaker 1: obvious that you're going to see significant earning degradation. And
Speaker 1: so there's some chance that the banking system gets or
Speaker 1: people have a lot more confidence in the banking system,
Speaker 1: and if that happens, then deposit risk goes away or
Speaker 1: is significantly reduced. You don't have this drastic tightening of
Speaker 1: financial conditions or lending standards. And if that were to happen,
Speaker 1: then the economy can weather it and maybe even with
Speaker 1: a lower rate outlook, and that combination at least stabilizes
Speaker 1: dequities until they have a little bit more information, because again,
Speaker 1: the earnings outlook is not terrible to start the year,
Speaker 1: and that's a really important point. So now the news
Speaker 1: was not just about what the Fed did or what
Speaker 1: j Powe said this week. We also have this overhang
Speaker 1: of some confusion, even some fear in parts of the
Speaker 1: banking industry, was that reflecting the market? Did the bonds
Speaker 1: react to all of that that was going on there
Speaker 1: some extent. But the reality is, you know, if we
Speaker 1: you know, you started off talking about the banking crisis,
Speaker 1: I would almost take issue with the idea that there
Speaker 1: is a crisis as such, because I would really distinguish
Speaker 1: what we are seeing today in banks from what we
Speaker 1: saw when we had a true banking crisis, a financial crisis,
Speaker 1: say two thousand and seven. Eight. We have to recognize
Speaker 1: that what we're looking at our banks, which buy and large,
Speaker 1: are extremely solvent. If you look at banks like SVP,
Speaker 1: for example, problem was the most fundamental mismatch of duration.
Speaker 1: We're not looking at deep, strange, unvaluable securities where you
Speaker 1: can't figure out how much their work. You're looking at
Speaker 1: government treasuries. You're looking at US treasuries. You're looking at
Speaker 1: mortgage bonds, where we know the value of the asset
Speaker 1: by the minute. So I think that's one thing to
Speaker 1: keep in mind every time I hear about the banking
Speaker 1: crisis and how this is spreading and there's something catastrophic waiting.
Speaker 1: I would I actually argue that what we heard from
Speaker 1: j Powell, indeed what we heard from Janet Yellin is
Speaker 1: broadly on point. If they see banks having runs, and
Speaker 1: remember in banking where in the business people are in
Speaker 1: the business and banking of borrowing short and lending long deposits,
Speaker 1: fund loans, it's what banking is. I just think that
Speaker 1: what they are doing, which is trying to separate out
Speaker 1: what to do about the banks from interest rates, up
Speaker 1: to a point, this is a very sensible thing to do.
Speaker 1: So Dennis said, whether the banks are in a crisis
Speaker 1: or not, I guess it matters whether they think they're
Speaker 1: in a crisis. You could go into a crisis because
Speaker 1: it really affects their willingness to lend to some corporations,
Speaker 1: and that could really affect equities. That is what the
Speaker 1: problem is for equities over time. And what we don't
Speaker 1: know is how much of that fighting of lending standards
Speaker 1: will actually show up over time. No one really knows.
Speaker 1: Tightening of lending standards is going to be quote unquote
Speaker 1: off the screen, So you're not going to be able
Speaker 1: to pick it up in the typical type of financial
Speaker 1: conditions in the sees that we are normally look at,
Speaker 1: you know, on a Bloomberg screen. So it's a really
Speaker 1: unknown But you know, we did a search today of
Speaker 1: Google trends FDIC insurance and after a giant spike up,
Speaker 1: it's come down aggressively. So the broader public is probably
Speaker 1: not so focused on this as much anymore. I realize
Speaker 1: we all are on Wall Street, and there's a lot
Speaker 1: of people in California that are. And so if you
Speaker 1: get past that risk, which is the deposit flight risk, yes,
Speaker 1: banks will have tighter lending standards. That might mean that
Speaker 1: the FED doesn't have to tighten as much on a
Speaker 1: go forward basis. In aggregate, you still have the same
Speaker 1: outcome slowing economy, lower inflation, but it doesn't mean a
Speaker 1: recession in the next six months. And if you don't
Speaker 1: have a recession in the next six months, then you
Speaker 1: have the case for eight equities to at least be
Speaker 1: stable and to have a significan get bounced back in
Speaker 1: some of the more cyclical areas of the market. So
Speaker 1: now the side, oh sorry, go ahead, So now please now,
Speaker 1: I was just going to just say to Dennis that
Speaker 1: in fact, that's exactly I've seen so much of talk
Speaker 1: about how j Powell talked about raising rates just two
Speaker 1: days you know that rates needed to go up a
Speaker 1: lot more two days before sv BE broke, and then
Speaker 1: we saw that when we saw the new SEPs the
Speaker 1: top peak rate is still where it was in December.
Speaker 1: So essentially what we're seeing is a substitution of higher
Speaker 1: rates which would have contracted demand for loans more yes,
Speaker 1: with fighter lending standards, as you said, which constrains the
Speaker 1: supply of credit. So overall, I do think it's too
Speaker 1: premature to assume that we're going to see this massive
Speaker 1: meltdown of the economy on the back of what we've
Speaker 1: seen in the past two weeks. So now the side
Speaker 1: and Denis be sure, we'll stay with us because we're
Speaker 1: a turn from what happened this week to what it
Speaker 1: means of medium and long term. That's gonna have next
Speaker 1: on Wall Street Weet on Bloomberg. This is Bloomberg Wall
Speaker 1: Street Week with David Weston from Bloomberg Radio. I think
Speaker 1: we have a lot of individual investors who are on
Speaker 1: the internet buying and selling stocks almost every single day,
Speaker 1: and as a consequence, their behavior is somewhat different than
Speaker 1: the traditional institution, and quite frankly, I think the institutions
Speaker 1: these days are behaving a little bit foolish as well.
Speaker 1: That was Roger mcnabe, a much younger Roger McBey then
Speaker 1: with Integral Capital Partners on Wall Street week back in
Speaker 1: February of nineteen ninety nine, when the number one moving
Speaker 1: the country was Message in a Bottle starring Kevin Coster
Speaker 1: and Robin Ry, and the number one song, well, that
Speaker 1: was Angel of Mine by Monica so Alacie of Franklin
Speaker 1: Templeton and Dennis de Buscher of twenty two V Research
Speaker 1: are still with us. So Dennis, let's go back to
Speaker 1: where you left us. Basically depends at the time horizon.
Speaker 1: We were talking about what happened this week. But when
Speaker 1: you look six months out, twelve months out, if you're
Speaker 1: an equity investor at this point, given all the uncertainty're facing,
Speaker 1: what do you do you plan for lower inflation and
Speaker 1: stocks that benefit from lower inflation? Very simply, we spend
Speaker 1: a lot of time trying to figure out what the
Speaker 1: Fed is trying to accomplish, and this is an open secret.
Speaker 1: They want lower aggregate demand to lower inflation. They're going
Speaker 1: to accomplish that goal one way or the other. Maybe
Speaker 1: the bank's timing of lending standard does it form. If
Speaker 1: that doesn't do it for them, they're going to tighten
Speaker 1: a lot. They're going to type more to make that happen.
Speaker 1: And so the net result of that is companies that
Speaker 1: benefit from lower inflation are going to outfl form. And
Speaker 1: as we see it, the things that will probably do
Speaker 1: the best of that backdrop are your early cyclicals on
Speaker 1: a relative basis, that's tech, communications, and discretionary, So that's
Speaker 1: an area we'd be focused on. Then the main question
Speaker 1: is as the economy slows, is it a recession or not.
Speaker 1: If it's a recession, then more your defensive sectors work.
Speaker 1: That gets you to the stables, utilities, etc. If it's
Speaker 1: a mild recession, I think you want to fade defenses,
Speaker 1: and I think you really need to start thinking about
Speaker 1: the next cycle, which to me is the most interesting conversation.
Speaker 1: Are we in and I know you talk to Larry Summers.
Speaker 1: Are we in a lower savings economy that's going to
Speaker 1: have consistently higher nominal GDP growth, consistently higher inflation and
Speaker 1: pressure affect. That's never really going back to two, but
Speaker 1: letting inflation run a little bit above target and over
Speaker 1: that longer term, right, you know, the defenses are going
Speaker 1: to be extremely unattractive if you're gonna have a two
Speaker 1: year great ramp put to book these levels for a
Speaker 1: persistent period of time. It's just possible in a lower economy. Dennis,
Speaker 1: I want to sneak Sonil in here because I want
Speaker 1: to ask you the same question as a fixed income Unfortunately,
Speaker 1: we have just a short period of time. What do
Speaker 1: you do when you're investing as a fixed income investor?
Speaker 1: So right now is staying up in quality. We've been
Speaker 1: relatively neutral duration because I think we're going to get
Speaker 1: a lot more volatility. I do think ten year rates
Speaker 1: are going to go back up before we actually stopped
Speaker 1: coming down. Because right now market and FED are playing
Speaker 1: a game of chicken. I happen to think the Fed's
Speaker 1: going to win, and so eventually we get higher yields
Speaker 1: and then I think we set ourselves up for a
Speaker 1: pretty good period for fixed income. We're already there as
Speaker 1: we move into slowdown, which allows the FED to cut
Speaker 1: some time next to that is terrific. Thank you, so
Speaker 1: much to both you, as Sonaldasai of Franklin Templeton and
Speaker 1: Dennis the Busher of twenty two V Research. FED chair
Speaker 1: pal this week said he didn't yet know exactly what
Speaker 1: went wrong with Silicon Valley Bank, but the vice chair
Speaker 1: bar was conducting an investigation to find out. We convened
Speaker 1: our own expert roundtable to discuss what we know at
Speaker 1: this point, what we don't know, and what changes it
Speaker 1: should be on the table to make sure we don't
Speaker 1: repeat what we saw over the last two weeks. Here's
Speaker 1: former treasure Secretary Larry Summers, former FED board member Jan Trullo,
Speaker 1: and Stephanie Flanders Bloomberg Executive editor for Economics and Government.
Speaker 1: I trust that the largest banks truly are in the
Speaker 1: much better capital and liquidity position that Jay Powell referred
Speaker 1: to yesterday during the press conference. We know first that
Speaker 1: there was a significant supervisory failure somewhere along the way.
Speaker 1: Was that failure in San Francisco Fed's inability to identify
Speaker 1: problems of growth and maturity mismatches and the like early on?
Speaker 1: Was it the failure of the second San Francisco FED
Speaker 1: team to which did identify some problems to follow up
Speaker 1: in a sufficiently robust way. Was it a supervisory failure
Speaker 1: because of the light touch approach to supervision that the
Speaker 1: Federal Reserve Board had put in place over the last
Speaker 1: four or five years. But I think in the most
Speaker 1: immediate sense, this is clearly a supervisory failure. Other factors
Speaker 1: may be uncovered as the FED Zone investigation proceeds. Larry,
Speaker 1: Let's put you back at the Treasury, or for that matter,
Speaker 1: at the White House. If you were looking at this situation,
Speaker 1: what questions would you be asking to make sure you
Speaker 1: understood the possible ramifications of what we've seen so far
Speaker 1: in a broader financial context. Before I answer that hypothetical,
Speaker 1: let me put a question to my friend Dan. Dan,
Speaker 1: I've heard it said, and I don't know that even
Speaker 1: in twenty twenty two, the FED stress tests that were
Speaker 1: applied to the largest banks did not include an analysis
Speaker 1: of the stress from a major interest rate hike. If
Speaker 1: that's true, that seems kind of bizarre from the point
Speaker 1: of view of the world of early twenty twenty two,
Speaker 1: when it certainly many people, certainly me on David's show,
Speaker 1: were emphasizing that there was likely to need to be
Speaker 1: very substantial increases in interest rates. Can you say something
Speaker 1: and if the stress tests weren't considering increases in interest rates,
Speaker 1: then perhaps the exempting of Silicon Valley Bank from the
Speaker 1: stress tests was not central to understanding the problem. Can
Speaker 1: you say something about interest rate hikes and FED stress tests? Sure? So,
Speaker 1: First off, I think, Larry, I agree with the statement
Speaker 1: you made towards the end of your question, which is, actually,
Speaker 1: if Silicon Valley had been in last year's stress test
Speaker 1: for real rather than its stress rehearsal, I don't think
Speaker 1: it would have made much difference, for precisely the reason
Speaker 1: you say that they weren't stressing the things that were
Speaker 1: the SVB vulnerabilities with respect to stress testing generally, over again,
Speaker 1: over the last five or six years, the stress test
Speaker 1: has become eminently predictable, but it follows the basic pattern
Speaker 1: of the scenario that was developed when we began doing
Speaker 1: the annual stress test. The scenario, of course includes a
Speaker 1: reduction in interest rates because of the hypothesis of a
Speaker 1: recession and the Fed's reaction, so to some degree, the
Speaker 1: answer to your question is like supervision. Generally, the stress
Speaker 1: test has become less rigorous over time, and I think,
Speaker 1: more importantly it's become too predictable, and the whole purpose
Speaker 1: of a stress test is that you're trying to stress
Speaker 1: against the unanticipated, not the anticipated. It does our entire
Speaker 1: approach to deposits change, given what we're seeing in the
Speaker 1: fact is they're not as stick as we thought they were.
Speaker 1: That's what I was alluding to earlier. I'd like to
Speaker 1: have a sense of exactly what the deposit profiles of
Speaker 1: this group of banks is as a whole, because in theory,
Speaker 1: at least, the supervisor should already have been distinguishing among
Speaker 1: different kinds of uninsured deposits, some of which I've always
Speaker 1: been understood to be eminently runnable, others of which have
Speaker 1: thought too were thought to be at least somewhat stickier
Speaker 1: than insured retail deposits. If it turns out that those
Speaker 1: and this is what Stephanie I think was suggesting that
Speaker 1: those middle categories have changed, then you're going to need
Speaker 1: a change in regulation and not just in supervision. That
Speaker 1: was our Wall Street Week roundtable of Larry Summers, Dan Trulo,
Speaker 1: and Stephanie Flanders coming up. It was a week that
Speaker 1: called for courage, and we found it in a somewhat
Speaker 1: unlikely place. That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. This is Wall Street Week. I'm David Weston.
Speaker 1: We're joined once again by our very special contributor to
Speaker 1: Wall Street Week. He is Larry Summers of Harvard. So, Larry,
Speaker 1: we now have had another week of turmoil, continued turmoil
Speaker 1: in the banking sector. What are you looking for going
Speaker 1: forward from our policy leaders in Washington? I think policy
Speaker 1: leaders need to be clear and decisive that depositors are
Speaker 1: not going to lose their money in large banks, in
Speaker 1: medium sized banks, or in small banks. They can do
Speaker 1: that within their existing authorities simply by being clear that
Speaker 1: in the event of failures, given the highly fevered environment
Speaker 1: with respect to contagion right now, they are prepared to
Speaker 1: use systematic systemic risk exemptions to allow the FDIC to
Speaker 1: pay off depositors with assurance that those funds will come
Speaker 1: from the banking industry. I think by doing that they
Speaker 1: can contain a significant amount of the pressures that we're facing.
Speaker 1: To provide confidence. I think they also need to increase
Speaker 1: the confidence they are providing in regulation. While it is
Speaker 1: true that the twenty eighteen Trump era legal changes were
Speaker 1: passed by the Congress were in almost every respect ill advised,
Speaker 1: and the important respects were driven by special interests pressure.
Speaker 1: It is also, i think clear that they are not
Speaker 1: the reason why we have had the problems we have had.
Speaker 1: The problems we have had reflect problems of management and
Speaker 1: a number of financial institutions, and reflect major failures of
Speaker 1: the supervisory and regulatory paradigm as implemented by the Federal Reserve,
Speaker 1: in particular the failure to do a stress test in
Speaker 1: twenty twenty two when interest rate interest rates were clearly
Speaker 1: on the upwards path. The failure to do any kind
Speaker 1: of stress tests about interest rate increases manifests a misunderstanding
Speaker 1: of what a major source of risk in the system was,
Speaker 1: and they need to signal an awareness of day shouldn't risk.
Speaker 1: They need to signal an awareness of solvency as well
Speaker 1: as liquidity issues in the regulatory paradigm going forward. Larry,
Speaker 1: we heard, of course from the Federal Reserve in particularly J.
Speaker 1: Powell news conference this week in which they did raise
Speaker 1: the rates again twenty five basis points. We're a little
Speaker 1: more vague on where they go from here At the
Speaker 1: same time the chair said that this was an outlier.
Speaker 1: Silicon Valley Bank was an outlier. I guess my question
Speaker 1: to you is how confident are we actually the FED
Speaker 1: has our arms around the problem now now we know
Speaker 1: there is the problem to interest rate risk when it
Speaker 1: comes to SVB, How confident that we know that there
Speaker 1: aren't other svbs out there. I think it's pretty clear
Speaker 1: looking at a variety of ratios that SVB and perhaps
Speaker 1: a couple of other banks were important respects outliers, but
Speaker 1: extreme examples tend often in life to point up digmatic issues.
Speaker 1: And as I've been pointing out, a world of high
Speaker 1: interest rates with digital banking click of a finger ability
Speaker 1: both to move accounts out and to open new accounts
Speaker 1: is going to be a different kind of world in
Speaker 1: terms of risk, And it's going to be a different
Speaker 1: kind of world in terms of what banks can rely
Speaker 1: on in terms of the stickiness of deposits, and to
Speaker 1: what extent that's true is something we're likely to learn
Speaker 1: in the next year or two. That's why I think
Speaker 1: it's appropriate, ahead of the curve to be sending clear
Speaker 1: signals of assurance with respect to bank deposits, because it
Speaker 1: is better to err on the side of overdoing it
Speaker 1: when you're talking about protecting against bank runs than it
Speaker 1: is to err on the side of under doing it.
Speaker 1: There are profound issues raised about the banking supervision here
Speaker 1: in the United States, and particularly with the stress tests.
Speaker 1: There are also questions being raised over in Europe right now.
Speaker 1: They had the approach of those at one bonds or
Speaker 1: cocos that did not hold up so well for Credit
Speaker 1: Suite certainly, and now as the weekest progressed here, we've
Speaker 1: seen Deutsche Bank com under the siege. What questions are
Speaker 1: being raised about the European approach to protecting the banks.
Speaker 1: I think it's important to recognize that, as Christine Legarde said,
Speaker 1: there are very important differences both between the way the
Speaker 1: terms of the Swiss banks are written at ones are
Speaker 1: written and the way the terms are written in other
Speaker 1: parts of Europe, and also to recognize that the ECB
Speaker 1: made clear that they're operating in a different paradigm than
Speaker 1: the Swiss authorities were. But I think it's also clear
Speaker 1: that there's going to need to be some fairly systematic
Speaker 1: rethinking of these contingent capital instruments and how they work,
Speaker 1: and on what occasions they are going to be bailed in,
Speaker 1: and on what occasions they're not. Despite many years of
Speaker 1: legal discussion, it's clear that there were not sharp and
Speaker 1: shared understandings in the marketplace. I suspect and hope that
Speaker 1: the European authorities, with the support of the United States
Speaker 1: and Secretary Yelling and Chair Powell, will send strong signals
Speaker 1: of support over the weekend for the European banking system,
Speaker 1: because given the scale of European institutions, there are potentially
Speaker 1: global consequences if problems spread from them. Larry, we have
Speaker 1: been understandably really focused on the banking situation, whether the
Speaker 1: United States or in Europe. In the meantime, the war
Speaker 1: in Ukraine proceeds. You had an ed piece in the
Speaker 1: Washington Post specifically on Russian assets. Take us through what
Speaker 1: you think would be a good step forward on the
Speaker 1: economic front as opposed to the military front in Ukraine.
Speaker 1: I've been working with former World Bank President Robert Zellek
Speaker 1: on this and with noted policy academic Philip Zeliko, who's
Speaker 1: a real legal expert. We are going to have to
Speaker 1: put billions of dollars, probably ultimately over a hundred billion
Speaker 1: dollars into Ukraine to win the war and then to
Speaker 1: win the peace. And the question is how that's going
Speaker 1: to be financed, And we believe there is both precedent,
Speaker 1: moral right and appropriateness to the financing coming from the
Speaker 1: Russian reserve assets that we have frozen. And right now
Speaker 1: those assets are frozen, but there is not yet a
Speaker 1: willingness to deploy them to finance the ongoing support for
Speaker 1: the economy and the ongoing compensation for damage that Russia
Speaker 1: has caused to the Ukrainian economy. And we believe that
Speaker 1: there needs to be appropriate and creative lawyering, along with
Speaker 1: strong political leadership to get past that and to be
Speaker 1: able to deploy those Russian reserves for that purpose. At
Speaker 1: a time when we are declaring that President Plutin is
Speaker 1: a war criminal, it seems to me almost inconceivable that
Speaker 1: we should be stopping short of using what are the
Speaker 1: currently immobilized assets of his state to deal with the
Speaker 1: damage that he and the Russians are causing. Larry, thank
Speaker 1: you so very much as our special contribute here in
Speaker 1: Wall Street Week. He's Larry Summers of Harvard coming up.
Speaker 1: It was a week that calls for courage, and we
Speaker 1: found it in somewhat unlikely place. That's the next on
Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street
Speaker 1: Week with David Weston from Bloomberg Radio. Finally, one more thought.
Speaker 1: One man with courage is a majority, so said Thomas Jefferson.
Speaker 1: And through the years we've seen some notable examples of
Speaker 1: a single person being a man or a woman standing
Speaker 1: up for what they believe in despite all the odds,
Speaker 1: like Army Secretary Joe Welch back in nineteen fifty four
Speaker 1: going toetete with Senator Joe McCarthy during the Red Scare
Speaker 1: untailed moment. Senator, I think I'll never really be you
Speaker 1: are crowding, are your right? Westman? Look you look down
Speaker 1: and don have you know damn about heat them dirt?
Speaker 1: Or in the nineteen eighties, Johnson and Johnson CEO Jim
Speaker 1: Burke taking the bold and expensive decision to pull All
Speaker 1: Thailan all off the shelves across the country until he
Speaker 1: could be sure of the absolute safety of his product,
Speaker 1: and that brave student we saw stand up to the
Speaker 1: tanks in Tenement Square in nineteen eighty nine, never to
Speaker 1: be seen again. Vice President Pence on January six, twenty
Speaker 1: twenty one, stood up to his book President Trump and
Speaker 1: a rampaging mob calling for him to be lynched as
Speaker 1: he insisted on doing his constitutional duty to certify the
Speaker 1: election of President Biden. President Trump is wrong. I had
Speaker 1: no right to overturn the election. The presidency belongs to
Speaker 1: the American people and the American people alone. But one
Speaker 1: area where we haven't seen much courage in our dealing
Speaker 1: with our national debt, especially when it comes to how
Speaker 1: we're going to pay for all that we owe in
Speaker 1: Social Security and Medicare. Everyone agrees that what we are
Speaker 1: doing is not sustainable. There's artisan support for Social Security
Speaker 1: and Medicare. If anything, we need to shore those programs up.
Speaker 1: They're running out of money. But when President Biden brought
Speaker 1: up the subject at the State of the Union address
Speaker 1: this year, he managed to get Republicans and Democrats to
Speaker 1: agree that we shouldn't do anything about the problem. Some
Speaker 1: Republicans want medicare and so security sunset. I'm not saying
Speaker 1: it's a majority, and he was proud of it because
Speaker 1: we all apparently agree, So security Medicare is off the
Speaker 1: books now a right try not to do front all, right,
Speaker 1: forgot this week, though, we did get an example of
Speaker 1: real courage in addressing an aging population, as President mccron
Speaker 1: of France stood up to his parliament to implement pension reform.
Speaker 1: In France, President Emmanuel mccrone's government faces two confidence votes
Speaker 1: as soon as today over his pension reform. Last week,
Speaker 1: McCrone used a constitutional provision to push through the plan
Speaker 1: to boost the minimum retirement age from sixty two to
Speaker 1: sixty four that led to violent protests. Mccron's government says
Speaker 1: that no confidence votes won't get a majority in parliament.
Speaker 1: Financial markets this week have called for more than a
Speaker 1: little bit of courage, Courage to face the truth, courage
Speaker 1: not to overreact, courage to remain calm. And so we
Speaker 1: leave you this week with some further thoughts from John Mack,
Speaker 1: who led Morgan Stanley through the worst of it in
Speaker 1: the Great Financial Crisis, and it took to lead his
Speaker 1: organization through that time. I knew if I cracked, they
Speaker 1: all cracked. So I had to put on a face.
Speaker 1: What they didn't know. I was shut my office door
Speaker 1: and just trying to pull myself together. I couldn't show
Speaker 1: the stress of fear that we were under. That doesn't
Speaker 1: for this episode of Wall Street Week, I'm David Weston.
Speaker 1: See you next week.