WEBVTT - Bloomberg Wall Street Week - February 16th, 2024 0:00:00.240 --> 0:00:02.440 This is Bloomberg Wall Street Week. 0:00:02.480 --> 0:00:04.400 I mean may not have an overall recession. We're having 0:00:04.400 --> 0:00:06.720 a rolling recession. To kind of roll looks pretty strongly 0:00:06.720 --> 0:00:07.680 it is when it comes to jobs. 0:00:07.720 --> 0:00:09.880 The financial stories that shape our world. 0:00:09.960 --> 0:00:13.640 Three major regional bank failures send shockwaves through the banking system. 0:00:13.680 --> 0:00:15.480 We're all trying to figure out what to make of 0:00:15.600 --> 0:00:17.360 generative AI through. 0:00:17.160 --> 0:00:19.320 The eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America, 0:00:22.560 --> 0:00:25.279 deebro Lair of the Paulson Institute, well then Hubbard of 0:00:25.280 --> 0:00:28.360 the Columbia Business School. Bloomberg Wall Street Week with David 0:00:28.400 --> 0:00:33.159 Weston from Bloomberg Radio. No end, insight for war in Gaza, 0:00:33.320 --> 0:00:37.199 for inflation, and despite it all, for strong markets. This 0:00:37.280 --> 0:00:41.000 is Bloomberg Wall Street Week. I'm David Weston. This week 0:00:41.040 --> 0:00:43.839 we'll talk with Richard has of Centerview Partners on the 0:00:44.000 --> 0:00:47.320 uncertain path for US foreign policy. In an uncertain world, 0:00:47.400 --> 0:00:48.519 we could be a great power. 0:00:48.640 --> 0:00:51.640 You need to be predictable and reliable, and right now 0:00:51.720 --> 0:00:55.040 I'm not sure that's consistent with the reality of American politics. 0:00:55.360 --> 0:00:58.400 And with Bob Steele, a parrella Weinberg on the global 0:00:58.520 --> 0:01:00.440 surge in infrastructure investing. 0:01:00.880 --> 0:01:03.560 There's a special role for the private sector that I 0:01:03.680 --> 0:01:09.080 believe can do, in many cases a better job of organizing, executing, planning, 0:01:09.120 --> 0:01:13.040 and delivering on the ambition that government has outlined. 0:01:25.720 --> 0:01:29.720 But we start with inflation, the subject global Wall Street 0:01:29.720 --> 0:01:32.800 has been focused on for the last three years. Back 0:01:32.800 --> 0:01:35.720 in twenty twenty one, some were warning us inflation was 0:01:35.760 --> 0:01:38.840 about to come roaring back, including Jillian Tat as the 0:01:38.880 --> 0:01:39.760 Financial Times. 0:01:40.200 --> 0:01:43.119 If you do have a big fiscal steamers package from 0:01:43.200 --> 0:01:48.200 Joe Biden's incoming administration, and if that coincides with the 0:01:48.240 --> 0:01:52.120 pandemic vaccine gradually spreading across the country and reducing the 0:01:52.200 --> 0:01:55.800 pandemic fears, you could have those two factors coming together 0:01:55.840 --> 0:02:00.000 and create quite a big upsearch and growth later this year. 0:02:00.800 --> 0:02:03.200 And our special contributor Larry Summers of. 0:02:03.160 --> 0:02:06.480 Harvard, My guess is that at the end of the year, 0:02:06.680 --> 0:02:11.840 inflation will for this year come out pretty close to 0:02:12.000 --> 0:02:13.280 five percent. 0:02:13.360 --> 0:02:15.960 Even as Fedchair j Powell at the time was telling 0:02:16.040 --> 0:02:18.760 us they couldn't really see that inflation yet. 0:02:18.760 --> 0:02:21.280 We expect readings on inflation to move up. 0:02:21.280 --> 0:02:22.400 That's called base effects. 0:02:22.480 --> 0:02:26.359 That'll be a temporary effect and it won't really signal anything. 0:02:26.600 --> 0:02:28.840 But by March of twenty twenty two, the FED had 0:02:28.919 --> 0:02:31.920 changed its tune and undertook a series of rate hikes, 0:02:32.000 --> 0:02:35.120 adding five hundred basis points over seventeen months. 0:02:35.639 --> 0:02:39.440 Inflation is much too high, and we understand the hardship 0:02:39.480 --> 0:02:42.640 it is causing, and we're moving expeditiously to bring it 0:02:42.720 --> 0:02:43.160 back down. 0:02:43.520 --> 0:02:46.160 Whether they expecting inflation to be a problem or not, 0:02:46.560 --> 0:02:49.840 pretty much everyone was surprised when the Fed's tough medicine 0:02:49.919 --> 0:02:52.960 didn't seem to phase the jobs market, taking a soft 0:02:53.040 --> 0:02:55.520 landing that seemed like a long shot and turning it 0:02:55.520 --> 0:02:57.760 into what may be the likely result. 0:02:58.560 --> 0:02:59.880 Nobody expected this. 0:03:00.080 --> 0:03:02.640 If we look back, we had inflation that went up 0:03:02.880 --> 0:03:06.840 during COVID, a FED raised interest rates, Inflations come down 0:03:07.160 --> 0:03:10.720 very consistently, so that was kind of expected. What didn't 0:03:10.760 --> 0:03:14.079 happen was unemployment didn't go up, growth didn't slow down. 0:03:14.560 --> 0:03:16.720 Then this week we got a reminder that we aren't 0:03:16.800 --> 0:03:20.200 past the inflation dragon yet, as USCPI numbers came in 0:03:20.280 --> 0:03:24.280 surprisingly hot, holding at three point nine percent year over year, 0:03:24.680 --> 0:03:27.920 way above that two percent target. To take us through 0:03:27.919 --> 0:03:30.480 the CPI numbers is the person who has warned us 0:03:30.520 --> 0:03:33.520 about the risks for three years now. Our special contributor 0:03:33.680 --> 0:03:36.200 Larry Summers of Harvard. So, Larry, thanks all very much 0:03:36.240 --> 0:03:37.880 for being with us. I suspect that you being right 0:03:37.920 --> 0:03:41.080 about this is not really good news necessarily. But where 0:03:41.080 --> 0:03:43.600 are we right now in your estimation inflation. It's certainly 0:03:43.600 --> 0:03:45.800 not at the five or six number level, but it 0:03:45.840 --> 0:03:47.160 doesn't look like it's getting out to two. 0:03:47.640 --> 0:03:52.120 Look, it's always a mistake to over interpret one month's number, 0:03:52.760 --> 0:03:59.440 and that's especially true in January, where calculating seasonality is difficult. 0:03:59.760 --> 0:04:02.400 I think I think we have to recognize the possibility 0:04:02.680 --> 0:04:07.480 of a mini paradigm shift. The soft landing paradigm. With 0:04:07.600 --> 0:04:12.040 the assumption that inflation was headed down to two in 0:04:12.080 --> 0:04:16.840 a tranquil, healthy real economy has certainly been called into 0:04:16.920 --> 0:04:21.680 question by these data. There had been a strong assumption 0:04:21.880 --> 0:04:27.240 that housing was headed towards being a major inflationary force. 0:04:28.040 --> 0:04:32.719 That doesn't show up in these numbers on owner occupied housing, 0:04:33.320 --> 0:04:36.560 And as I've looked carefully at these numbers, I think 0:04:36.600 --> 0:04:40.760 there's good reasons for that. The idea is that when 0:04:40.839 --> 0:04:45.360 we judge the cost of owner occupied houses, we try 0:04:45.400 --> 0:04:48.680 to estimate what it would cost to rent the residents 0:04:48.720 --> 0:04:52.240 in question, and many people have done that by looking 0:04:52.279 --> 0:04:57.040 at at all rentals, but most rentals are apartments and 0:04:57.080 --> 0:04:59.719 those don't have much to do with the price of 0:04:59.760 --> 0:05:01.239 owner occupied housing. 0:05:01.680 --> 0:05:03.719 If you look at the data focus. 0:05:03.560 --> 0:05:08.520 On single family housing houses with lawns and suburbs and 0:05:08.640 --> 0:05:13.640 the like, you don't get nearly as deflationary picture. The 0:05:13.760 --> 0:05:18.680 model I've been using for several years now with my 0:05:18.760 --> 0:05:24.479 co authors at the NBER is still looking for three 0:05:24.640 --> 0:05:31.000 four percent owner equivalent rental inflation through the remainder of 0:05:31.040 --> 0:05:37.440 this year. That's thirty percent of core CPI inflation. If 0:05:37.480 --> 0:05:40.400 it's running at three and a half, that uses up 0:05:40.480 --> 0:05:43.680 a lot of the room there is, and under a 0:05:43.760 --> 0:05:47.719 two percent inflation target, I think the Fed is going 0:05:47.760 --> 0:05:51.440 to have to be very careful. They were never right 0:05:51.880 --> 0:05:56.599 to be focused on March for a cut. I had 0:05:56.960 --> 0:06:02.080 been saying that that seemed pre mature, and they they 0:06:02.160 --> 0:06:03.479 and the markets. 0:06:03.040 --> 0:06:05.040 Have come around on that. 0:06:06.040 --> 0:06:11.080 I think that may is odds off at this point 0:06:11.160 --> 0:06:14.000 and probably should be odds off. 0:06:14.839 --> 0:06:17.960 And gosh, I think we've. 0:06:17.720 --> 0:06:23.280 Got to recognize what no one's talking about. There's a 0:06:23.360 --> 0:06:28.960 meaningful chance, maybe it's fifteen percent that the next move 0:06:29.680 --> 0:06:36.120 is going to be upwards in rates, not downwards in rates. 0:06:36.600 --> 0:06:39.160 You know you use a metaphor, David, that I used 0:06:39.200 --> 0:06:43.840 to use on this show. The worst thing you can 0:06:43.880 --> 0:06:49.640 do when the doctor prescribes you antibiotics is finish part 0:06:49.680 --> 0:06:50.360 of the course. 0:06:51.360 --> 0:06:53.600 Feel better, give up on. 0:06:53.600 --> 0:06:58.640 The antibiotics because you don't like taking them, and see 0:06:58.680 --> 0:07:02.839 what happens. The disease tends to come back, and it 0:07:02.960 --> 0:07:06.720 tends to be harder to go after the second time, 0:07:07.560 --> 0:07:14.840 and interst rates elevated to contain inflation are like antibiotics. 0:07:15.320 --> 0:07:16.800 So I think the FED has. 0:07:16.680 --> 0:07:22.840 To be very careful in this environment. 0:07:23.040 --> 0:07:24.400 And I think that. 0:07:24.560 --> 0:07:29.960 Many people who confused what they wanted with what was 0:07:30.080 --> 0:07:33.920 real were in much too much of a hurry to 0:07:34.080 --> 0:07:40.280 declare that we were obviously in a phase of major easing. 0:07:40.320 --> 0:07:42.160 With respect to monetary policy. 0:07:42.320 --> 0:07:45.320 So, Larry, let me continue your analogy to a disease, 0:07:45.600 --> 0:07:48.400 and perhaps what we have here is we're not recovering 0:07:48.400 --> 0:07:50.680 fully to two percent. On the other hand, the fevers 0:07:50.720 --> 0:07:53.240 not spiking up to five, six, seven percent the way 0:07:53.240 --> 0:07:55.320 it was before. What happens that we have just a 0:07:55.320 --> 0:07:58.679 low grade fever at the three to three plus level. 0:07:58.760 --> 0:08:00.000 What does that mean for the economy. 0:08:00.600 --> 0:08:05.840 Gosh, German Powell has said so many times two percent, 0:08:06.000 --> 0:08:10.800 two percent, two percent. As you'll recall from our previous conversations, 0:08:11.240 --> 0:08:13.320 I didn't think it was a great idea to have 0:08:13.480 --> 0:08:18.920 had so specific and tight a target, but we've had one, 0:08:19.040 --> 0:08:22.920 and we've set it, and we've repeated it a large 0:08:23.040 --> 0:08:27.680 number of times. If we decide that two sort of 0:08:27.720 --> 0:08:30.840 has lost its meaning and it's not something we have 0:08:30.960 --> 0:08:36.760 to accept when there's strong political pressures to ease, if 0:08:36.840 --> 0:08:41.520 we send that signal, I wonder why anyone would believe 0:08:42.280 --> 0:08:46.520 that we're going to stick with two and a half 0:08:46.840 --> 0:08:52.160 or three or whatever it is that we settle into. 0:08:52.840 --> 0:08:56.600 And then when that feeds into expectations. 0:08:56.080 --> 0:08:59.559 It'll get harder to hold the level we have. 0:09:00.520 --> 0:09:05.360 And of course we are headed into David, as populist 0:09:06.559 --> 0:09:10.800 election period is you or I can remember in our lifetimes, 0:09:11.480 --> 0:09:16.800 and we usually think of the FED as a bulwark 0:09:16.960 --> 0:09:27.040 against populism, not as a reinforcer of populist pressures. 0:09:27.240 --> 0:09:29.679 Let's continue on the subject of that populist election, as 0:09:29.679 --> 0:09:32.080 you call it, and specifically respect a fiscal policy. You 0:09:32.120 --> 0:09:34.160 and I have talked before about the deficit and the 0:09:34.200 --> 0:09:37.440 debt that is mounting here. I know you've just helped 0:09:37.480 --> 0:09:40.480 want something new called the Tax Reform Project, and in 0:09:40.520 --> 0:09:43.200 the introduction that you talk about that issue of the 0:09:43.240 --> 0:09:45.880 debt and the deficit, but it's somewhat of a new approach. 0:09:45.920 --> 0:09:47.720 There are a lot of people who have tax policies, 0:09:47.920 --> 0:09:49.760 but we haven't heard from the practitioners. 0:09:50.480 --> 0:09:50.680 Yeah. 0:09:50.800 --> 0:09:57.079 So I'm supporting my former student and wonderful colleague, Natasha 0:09:57.160 --> 0:10:02.840 Saren at the Ye Law School, who's the driving force. 0:10:03.559 --> 0:10:09.800 She's focused on IRS reform, and we're focused on IRS reform. 0:10:09.920 --> 0:10:12.080 Just to enforce the tax law we have. 0:10:13.000 --> 0:10:18.040 And there was important new research showing that from the IRS, 0:10:18.120 --> 0:10:21.760 showing that if we're able to carry through on the 0:10:21.800 --> 0:10:26.000 eighty billion dollar program that was part of President Biden's 0:10:26.040 --> 0:10:30.120 Recovery Act, that can pay off ten to one in 0:10:30.520 --> 0:10:34.840 eight hundred and fifty billion dollars of revenue collections, in 0:10:34.840 --> 0:10:38.480 addition to making our tax code fairer. And that's where 0:10:38.520 --> 0:10:41.320 tax reform discussions should start. 0:10:41.800 --> 0:10:44.000 And finally, Larry, there's a lot of talk about commercial 0:10:44.000 --> 0:10:47.520 real estate, particularly in the office space area. Obviously, the 0:10:47.600 --> 0:10:51.200 increased interest rates and failure to return to the office 0:10:51.240 --> 0:10:53.800 on some parts is really putting pressure on the valuations. 0:10:53.960 --> 0:10:56.800 So clearly there are some people who are hurting because 0:10:56.840 --> 0:10:59.440 of the reduced valuations. But my question is is a 0:10:59.480 --> 0:11:02.839 matter of individual banks for that matter, as well as 0:11:02.840 --> 0:11:05.400 owners being hurt or is there a potential for a 0:11:05.440 --> 0:11:08.120 more systemic problem here with commercial real estate. 0:11:08.559 --> 0:11:12.040 I think that this is something that our Central Bank 0:11:12.280 --> 0:11:17.080 is right to be looking at, and right to be 0:11:17.280 --> 0:11:21.720 looking at with an awareness that almost always in the 0:11:21.840 --> 0:11:29.320 past we have acted too slowly to force banks to 0:11:29.360 --> 0:11:35.439 stop distributing capital, to force banks to raise. 0:11:35.800 --> 0:11:38.520 New capital where that's appropriate, to. 0:11:38.600 --> 0:11:44.520 Force banks to fortify liquidity. I think it would be 0:11:44.800 --> 0:11:50.120 much more productive for our central bank to be focused 0:11:50.800 --> 0:11:58.280 on the question of real estate portfolios in the banks 0:11:58.760 --> 0:12:03.320 they supervise what the genuine value and credit worthiness of 0:12:03.360 --> 0:12:06.640 those assets is. I think that would be a much 0:12:06.679 --> 0:12:10.840 more productive focus for the Fed than some of the 0:12:10.880 --> 0:12:17.160 more abstract and politically driven arguments about various kinds of 0:12:17.240 --> 0:12:24.000 capital charges on the largest banks. The second set of 0:12:24.120 --> 0:12:27.040 arguments is an important one to have, but I think 0:12:27.080 --> 0:12:28.520 it's less urgent. 0:12:32.800 --> 0:12:33.600 Than the first. 0:12:34.000 --> 0:12:36.120 Okay, Larry, thank you so very much for joining us again. 0:12:36.160 --> 0:12:38.000 That's our special contributor here on Wall Street Week. He 0:12:38.080 --> 0:12:42.400 is Larry Summers of Harvard. Coming up, we'll take a 0:12:42.400 --> 0:12:45.040 look at how the markets responded to those CPI numbers 0:12:45.040 --> 0:12:50.400 with Lisa Erickson of US Bank Wealth Management. That's next 0:12:50.400 --> 0:12:56.200 down Wall Street Week on Bloomberg. This is Bloomberg Well 0:12:56.240 --> 0:13:06.520 Street Week with David Weston from Bloomberg Radio. This is 0:13:06.559 --> 0:13:09.880 Wall Street Week. I'm David Weston. Infrastructure has gone from 0:13:09.880 --> 0:13:13.160 the boring building of roads, bridges, and water systems to 0:13:13.200 --> 0:13:15.640 be all the rage, not just the United States, but 0:13:15.720 --> 0:13:19.040 all around the world. Bob Steel Pirella Weinberg helped put 0:13:19.080 --> 0:13:22.000 together one of the biggest deals in recent years, BlackRock's 0:13:22.040 --> 0:13:24.760 purchase of Global International Partners for twelve and a half 0:13:24.960 --> 0:13:28.240 billion dollars. But when we sat with Bob, we started 0:13:28.320 --> 0:13:29.840 with the larger contexts. 0:13:30.200 --> 0:13:32.160 I try to think about this with a bit of 0:13:32.200 --> 0:13:35.800 an on ramp into the conversation. You know, for thousands 0:13:35.800 --> 0:13:39.199 of years we had an agrarian economy. For a little 0:13:39.200 --> 0:13:42.160 more than one hundred years, we transitioned to an industrial economy, 0:13:42.600 --> 0:13:44.720 and now we're in the stage of moving to a 0:13:44.800 --> 0:13:49.199 knowledge and global economy. And each one of those economies 0:13:49.240 --> 0:13:53.560 required a different set of foundational infrastructure in order to 0:13:53.600 --> 0:13:57.360 allow the economy to succeed. And so there are lots 0:13:57.400 --> 0:14:01.480 of transitions going here, and there'll be lots of spending 0:14:01.559 --> 0:14:05.720 required to organize that transition. You're right, there's an energy 0:14:05.760 --> 0:14:10.000 transition underway, but there's also a transition with regard to 0:14:11.040 --> 0:14:17.240 how we move goods and services in a global economy, Ports, airports, 0:14:17.320 --> 0:14:23.000 things like that, and the digital infrastructure required too. And 0:14:24.240 --> 0:14:26.560 we all grew up where we built a highway system 0:14:26.600 --> 0:14:30.040 in America to move cars. Now we need the digital 0:14:30.080 --> 0:14:34.440 infrastructure to move data, which is the equivalent of in 0:14:34.480 --> 0:14:37.240 my mind, of the highway of knowledge for the future. 0:14:37.480 --> 0:14:40.320 So all of these things are coming together. Yes, energy 0:14:40.320 --> 0:14:42.320 transition is a large part of it, but I think 0:14:42.360 --> 0:14:43.240 it's much more than that. 0:14:43.440 --> 0:14:45.720 Well, given the size of it, it's too big for 0:14:45.880 --> 0:14:48.560 either the private sector to do it by itself, or 0:14:48.600 --> 0:14:50.600 for that matter, for government to do it by itself. 0:14:51.080 --> 0:14:52.920 What is the relationship to you, to the private and 0:14:52.960 --> 0:14:55.800 the public as we move into this transformation you describe 0:14:55.800 --> 0:14:57.080 in infrastructure, Well. 0:14:57.280 --> 0:14:58.360 Let's think about it together. 0:14:58.520 --> 0:15:02.280 First of all, it's up to government and our elected 0:15:02.320 --> 0:15:09.920 officials to organize the projects and the rules and regulations 0:15:09.920 --> 0:15:13.320 for how the economy should be set and that's their 0:15:13.400 --> 0:15:17.880 job is to lay out what's the destination or the blueprint. 0:15:18.720 --> 0:15:22.480 And I think that, but when you get to implementing that, 0:15:23.200 --> 0:15:25.800 I believe there's a special role for the private sector 0:15:26.120 --> 0:15:28.560 that I believe can do, in many cases a better 0:15:28.680 --> 0:15:34.160 job of organizing, executing, planning, and delivering on the ambition 0:15:34.600 --> 0:15:38.560 that government is outlined that the government's going to write 0:15:38.640 --> 0:15:43.720 the rules on energy transition, what are the requirements for cars, 0:15:43.800 --> 0:15:46.560 what are this and that? But it's up to business 0:15:46.640 --> 0:15:49.800 to respond and work with government in order to lay 0:15:49.840 --> 0:15:52.880 down the tracks to accomplish this and take us to 0:15:53.000 --> 0:15:57.560 the destination that our elected officials have organized in response 0:15:57.600 --> 0:15:58.960 to what we all think and need. 0:16:00.240 --> 0:16:03.040 The government has laid down a lot of infrastructure track 0:16:03.120 --> 0:16:05.720 in the last three years through the Inflation Reduction Act, 0:16:05.720 --> 0:16:09.160 the Bipartisan Infrastructure Bill, and the Chips and Science Act. 0:16:09.600 --> 0:16:13.720 I think that the three examples you gave of legislation 0:16:13.840 --> 0:16:16.520 and direction from the federal government are all in the 0:16:16.600 --> 0:16:21.239 right way, and they're serving as a stimulant to basically 0:16:21.360 --> 0:16:25.760 encourage this type of investment. We know that the Chips Act, 0:16:25.760 --> 0:16:29.160 while controversial, is going to bring new focus to the 0:16:29.160 --> 0:16:32.520 semiconductor industry. In the United States, and the group on 0:16:32.600 --> 0:16:37.800 behalf of Secretary Romundo that's organizing that are working hard 0:16:37.840 --> 0:16:40.000 to make sure the money is allocated in the right 0:16:40.040 --> 0:16:42.400 way to the right place, so that when we come 0:16:42.440 --> 0:16:45.200 back in three to five years, we've really made progress. 0:16:45.200 --> 0:16:46.840 And think about that for a second. It was a 0:16:46.880 --> 0:16:51.040 government organized project. The government's brought in outsize advisors to 0:16:51.040 --> 0:16:52.360 help them allocate the capital. 0:16:52.640 --> 0:16:53.640 The capital will. 0:16:53.440 --> 0:16:56.200 Go to companies who now are going to be managing 0:16:56.240 --> 0:16:59.480 that way. That seems to me like a good combination 0:17:00.280 --> 0:17:04.720 of interest and skills where hopefully we'll make progress on this, 0:17:05.000 --> 0:17:06.560 but it's going to take a long time. 0:17:06.960 --> 0:17:09.600 Whatever the efforts of the US government, it's not alone 0:17:09.600 --> 0:17:13.040 in pushing hard on infrastructure, particularly when it comes to chips, 0:17:13.280 --> 0:17:15.159 and particularly when it comes to China. 0:17:15.480 --> 0:17:18.399 You know, it's easy to imagine a fantasy world in 0:17:18.400 --> 0:17:20.640 which no one's subsidizing, but that's just. 0:17:20.640 --> 0:17:22.240 Not the world that we live in. 0:17:22.320 --> 0:17:25.200 And in fact, China started as semi connecer subsidies first 0:17:25.240 --> 0:17:29.320 and twenty fourteen sheet called to Conductors of core technology, 0:17:29.359 --> 0:17:33.160 and China started setting up its first government backed investment 0:17:33.200 --> 0:17:35.160 funds to pour money into the chip industry. 0:17:35.200 --> 0:17:36.320 And so whether you're the. 0:17:36.359 --> 0:17:38.560 US or Japan or Europe, You've got to act with 0:17:38.600 --> 0:17:40.840 that as a fact. That's just a given, and you're 0:17:40.840 --> 0:17:43.040 going to devise your policy around that. And I think 0:17:43.119 --> 0:17:45.920 one of the reasons why the US Congress passed the 0:17:46.000 --> 0:17:49.439 Chips Act was because they realized that there were US firms, 0:17:49.520 --> 0:17:52.240 US based firms that were getting more money in subsidies 0:17:52.280 --> 0:17:55.119 from foreign governments than from the US government. And so 0:17:55.520 --> 0:17:58.480 given those circumstances, it wasn't a surprise that the US 0:17:58.520 --> 0:18:02.879 companies were moving manufacturing overseas. And so given the scale 0:18:02.920 --> 0:18:05.120 of Chinese subsidies, I think a lot of governments are saying, 0:18:05.200 --> 0:18:08.199 we may not like industrial policy, we'll be skeptical of it, 0:18:08.280 --> 0:18:09.840 but what is the alternative. 0:18:10.280 --> 0:18:12.879 Given the size of the need and the opportunity, the 0:18:12.880 --> 0:18:16.720 government alone can't drive the transformation and infrastructure that's needed. 0:18:17.200 --> 0:18:21.359 Including large nonprofit foundations like the Rockefeller Foundation. 0:18:21.440 --> 0:18:23.880 Every big company out there should be a big part 0:18:23.880 --> 0:18:26.560 of this transition. If you run a food company, you 0:18:26.560 --> 0:18:29.520 should join a coalition we're helping to establish that wants 0:18:29.520 --> 0:18:33.040 fifty percent of your supply chains to be from regenerative agriculture, 0:18:33.080 --> 0:18:37.760 agriculture that actually sequesters carbon and avoids releasing unnecessary carbon 0:18:37.800 --> 0:18:40.760 into the atmosphere, and those types of transitions are going 0:18:40.800 --> 0:18:42.920 to be fundamentally commercial transitions. 0:18:43.040 --> 0:18:45.679 One way to let the marketplace direct all this capital 0:18:45.720 --> 0:18:49.200 to the most effective uses is through a voluntary carbon market. 0:18:49.480 --> 0:18:52.440 So I think these are very practical issues. Now combine 0:18:52.440 --> 0:18:56.800 that with governments and NGOs who are trying to come 0:18:56.880 --> 0:19:02.120 up with realistic solutions, and they need concessionary capital. They 0:19:02.160 --> 0:19:04.520 need first lost money. This is where I think that 0:19:04.560 --> 0:19:09.120 the voluntary carbon markets can help, because companies that are 0:19:09.119 --> 0:19:13.439 making every effort to get to either carbon neutrality or 0:19:13.640 --> 0:19:18.040 net zero nonetheless can't get there because the infrastructure isn't 0:19:18.040 --> 0:19:20.399 in place or technology isn't in place. 0:19:20.680 --> 0:19:23.280 When it comes to global investment in infrastructure, it's not 0:19:23.359 --> 0:19:26.480 just a need. Major players see it as a ripe opportunity. 0:19:26.760 --> 0:19:29.719 As we saw in the recent acquisition of Global Infrastructure 0:19:29.760 --> 0:19:31.000 Partners by black Rock. 0:19:31.600 --> 0:19:34.640 This is going to be the golden age of infrastructure investing, 0:19:34.960 --> 0:19:37.120 both in terms of the need for capital as well 0:19:37.160 --> 0:19:40.359 as investors who want that capital. Okay, and so the 0:19:40.440 --> 0:19:43.320 question we asked ourselves was how can we accelerate the 0:19:43.359 --> 0:19:46.480 pace at which we're getting things done? Investing new assets 0:19:46.560 --> 0:19:48.080 as well as getting. 0:19:48.240 --> 0:19:50.240 Pension funds, wealth funds'. 0:19:50.320 --> 0:19:53.280 Asset managers to give us additional capital. And so if 0:19:53.280 --> 0:19:58.560 you look at the marriage between ourselves and Blackrock, Rob 0:19:58.600 --> 0:20:01.320 Commuter said it was one plus one equals four. I'm 0:20:01.359 --> 0:20:03.080 not sure whether it was four or five oh three, 0:20:03.119 --> 0:20:05.159 but he's certainly had right that one plus one is 0:20:05.200 --> 0:20:08.560 more than two. As Larry said, perfect mirror images of 0:20:08.600 --> 0:20:11.360 each other. They have a great infrastructure business, but very 0:20:11.359 --> 0:20:15.040 complimentary with us. We do large cap transactions, they do 0:20:15.520 --> 0:20:19.479 mid cap transactions. They have a terrific infrastructure of debt business. 0:20:19.960 --> 0:20:23.879 It's primarily investment grade. OS is primarily below investment grade. 0:20:23.960 --> 0:20:27.000 They have an infrastructure solutions business, which we don't have. 0:20:27.200 --> 0:20:29.679 So you put these two businesses together, we can go 0:20:29.760 --> 0:20:34.000 to governments, We can go to companies large, small, medium 0:20:34.080 --> 0:20:36.439 size and offer them an integrated solution. 0:20:36.800 --> 0:20:40.800 The conversation you had with Larry and Bayou highlighted this idea. 0:20:41.160 --> 0:20:43.760 Our firm was the advisor, one of the advisors on 0:20:43.760 --> 0:20:46.800 that transaction, and I think what you're seeing and what 0:20:46.960 --> 0:20:49.920 Larry and Bio talked about, was that there's a global 0:20:49.960 --> 0:20:53.840 demand for capital, private capital to go with government capital 0:20:54.080 --> 0:20:58.280 in order to organize these large and important products. And now, David, 0:20:58.320 --> 0:21:00.760 the scale of these projects is so large, they're just 0:21:00.800 --> 0:21:03.720 a small handful of firms that can provide the capital, 0:21:03.960 --> 0:21:07.560 of which the combined Blackrock GIP combination will be one 0:21:07.560 --> 0:21:10.359 of the leaders. But there's different types of capital. The 0:21:10.400 --> 0:21:12.960 way I think about it is the government can provide 0:21:13.000 --> 0:21:17.280 some of the foundational capital to size the risk so 0:21:17.320 --> 0:21:20.159 that it's appropriate for private capital to come in. Some 0:21:20.200 --> 0:21:23.159 of these projects are so big and they're subjects to 0:21:23.359 --> 0:21:28.640 change by the population and by legislators and regulators. That's 0:21:28.720 --> 0:21:31.720 not the right risk for private people to underwrite. That 0:21:31.720 --> 0:21:35.200 should be underwritten by government. And then private capitals should 0:21:35.200 --> 0:21:37.680 come in to work with the projects once they're defined, 0:21:37.920 --> 0:21:41.080 and that's what the infrastructure investors have been able to accomplish. 0:21:41.080 --> 0:21:43.840 And so providing the private capital, and I think also 0:21:44.359 --> 0:21:47.480 private capital speaks to the issue you were just talking about, 0:21:47.560 --> 0:21:50.800 is where do you get the discipline to manage the 0:21:50.880 --> 0:21:54.960 projects well, to make the hard decisions and allocate capital 0:21:54.960 --> 0:21:58.400 in the right way. I think that when private capital 0:21:58.760 --> 0:22:02.280 is part of the equation, that brings that skill to 0:22:02.440 --> 0:22:05.280 the table and ensures that the project turns out in 0:22:05.320 --> 0:22:08.600 a better, more efficient more focused fashion than if it 0:22:08.600 --> 0:22:10.600 were just a government project. 0:22:10.600 --> 0:22:13.920 And that GP expertise in putting together and running big 0:22:13.960 --> 0:22:16.920 projects was an important part of what Blackrock saw when 0:22:16.920 --> 0:22:19.160 it made its twelve and a half billion dollar investments. 0:22:19.800 --> 0:22:22.720 They invest in major and larger projects than what we 0:22:22.880 --> 0:22:27.280 did in infrastructure, like Gatwick Airport and Sydney Airport, but 0:22:27.400 --> 0:22:33.040 they're particularly superb in the operational efficiencies of these investments. 0:22:33.040 --> 0:22:35.119 They improved the quality of service. 0:22:36.760 --> 0:22:39.399 And so if you think about what we have brought 0:22:39.720 --> 0:22:42.879 at Blackrock over the last eight years in infrastructure, what 0:22:43.040 --> 0:22:46.679 GP has been doing since two thousand and six, the 0:22:46.720 --> 0:22:49.600 two organizations look like a perfect match. And then you 0:22:49.960 --> 0:22:55.720 overlaid the cultural connection, and we always underestimate the cultural connection. 0:22:56.119 --> 0:22:58.800 Though GIP, now combined with black Write is one of 0:22:58.800 --> 0:23:01.920 the biggest global infra structure players, it is far from 0:23:01.960 --> 0:23:02.879 the only one. 0:23:03.040 --> 0:23:05.680 It's not just GIPS, not just black Rock. If you 0:23:06.280 --> 0:23:08.600 look at pro logis, if you look at really any 0:23:08.880 --> 0:23:14.160 large company investing in infrastructure or logistics looking at two areas. 0:23:14.520 --> 0:23:18.399 One is clean energy and energy transition in order to 0:23:18.400 --> 0:23:23.480 reduce costs and increase reliability and reduce risks. And also 0:23:23.640 --> 0:23:27.000 AI obviously and those are getting more and more intentwined, 0:23:27.080 --> 0:23:30.280 and inter relationship between AI and clean energy I think 0:23:30.320 --> 0:23:32.200 will be an interesting area to watch. 0:23:32.520 --> 0:23:34.960 When we're talking the trillions of dollars that will be 0:23:35.040 --> 0:23:38.320 needed for infrastructure investment around the world, you simply can't 0:23:38.320 --> 0:23:41.239 get there without major roles for the private sector and 0:23:41.600 --> 0:23:42.800 for the markets. 0:23:43.080 --> 0:23:48.560 I trust the marketplace and business on behalf of the 0:23:48.600 --> 0:23:53.520 marketplace with their ambitions to organize how to pursue the path, 0:23:53.760 --> 0:23:56.919