# What Went Wrong in Great Financial Crisis Stimulus with Reporter Jon Hilsenrath

An episode of [Masters in Business](https://invisiblenetwork.ai/podcast/730188152), 31 Oct 2025, 1 h 32 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/4e4cd910-40a1-4619-a5f3-ae2b0012ffff/e54bb6ed-19a1-4ddb-81b1-b38700aa218b/audio.mp3?utm_source=Podcast&in_playlist=5873a3cb-298f-40bc-b71f-ae2b0013000d

Barry speaks with Jon Hilsenrath, founder of Serpa Pinto Advisory. They discuss Jon's career at the Wall Street Journal as a reporter, earning him the title of "Fed Whisperer," and the response to the Great Financial Crisis. They also discussed his belief the US is undergoing the post-industrial economic revolution. See omnystudio.com/listener for privacy information.

## Transcript

[0:02] Speaker 1: Bloomberg Audio Studios, podcasts, radio News. This is Masters in
[0:11] Speaker 1: Business with Barry Ritholtz on Bloomberg Radio.
[0:16] Speaker 2: This week on the podcast, another extra special guest. John
[0:20] Speaker 2: Hilsenrath was a reporter for the Wall Street Journal, covering
[0:24] Speaker 2: everything from September eleventh to the Federal Reserve for twenty
[0:28] Speaker 2: six years. His coverage at the Journal of the Fed
[0:32] Speaker 2: got him nicknamed the Fed Whisperer for his many, many
[0:36] Speaker 2: page one scoops. He's now running Serpa Pinto Advisory, multiple
[0:43] Speaker 2: Pulitzer Prize nomination, author of a book about Janet Yellen,
[0:48] Speaker 2: just a whirlwind of information about the economy, markets, and
[0:54] Speaker 2: the Fed. I thought the conversation was absolutely fascinating, and
[0:58] Speaker 2: I think you will also with no further ado, my
[1:01] Speaker 2: conversation with the Wall Street Journals. John Hilson Rath.
[1:05] Speaker 3: It is my extra special honor to be here.
[1:08] Speaker 2: Does it does it feel like you're in the enemy's territory? Competitive?
[1:12] Speaker 3: Uh, I've crossed over. I've crossed over.
[1:14] Speaker 2: Here now on the private side.
[1:16] Speaker 3: Yeah yeah, yeah, yeah. So I want to tell you,
[1:19] Speaker 3: and I should say on the Wall Street Journal page
[1:22] Speaker 3: one story as it was his, I'm a former editor too,
[1:25] Speaker 3: I had that many. I don't have that many anymore
[1:28] Speaker 3: because I've I left the journal.
[1:29] Speaker 2: Well, but those those headlines, like that number isn't growing anymore, right,
[1:33] Speaker 2: but it's but it's not going down either. That number
[1:35] Speaker 2: is a permanent record.
[1:36] Speaker 3: Yeah, I appreciate.
[1:37] Speaker 2: So you you have that many, you know, that many
[1:41] Speaker 2: pole positions and you're you're good to go.
[1:43] Speaker 3: And there were that many battles with editors at the
[1:46] Speaker 3: Wall Street Journal over you know, structure that story and
[1:49] Speaker 3: what headline to put on it.
[1:51] Speaker 2: That's a whole nother conversation we're going to get to.
[1:53] Speaker 2: I am constantly reminding people, Hey, you know, the writer,
[1:57] Speaker 2: they don't get to pick the headline. That's the editor.
[2:00] Speaker 2: And people seem shocked by that.
[2:02] Speaker 3: Yeah, it's a process. Let's just let's say the least,
[2:05] Speaker 3: it's definitely a process.
[2:07] Speaker 2: Before we get to your writing and editing, let's talk
[2:10] Speaker 2: a little bit about your background. Duke University, undergrad eventually
[2:15] Speaker 2: an NBA from Columbia. What was the career plan?
[2:19] Speaker 3: The career plan for me was always journalism. I actually
[2:22] Speaker 3: like you. I'm a Long Island boy. Are you from
[2:25] Speaker 3: Long Island?
[2:26] Speaker 4: Or?
[2:27] Speaker 2: From sixth grade on?
[2:27] Speaker 3: From sixth grade? On Okay I grew I grew up
[2:29] Speaker 3: there to Manhasset, Long Island.
[2:32] Speaker 2: And Welcus Valley. That's we could play Jewish geography. That's
[2:35] Speaker 2: twenty fifteen, twenty minutes from.
[2:37] Speaker 3: Me, although Manhasset was a Catholic town. But like, the
[2:40] Speaker 3: career plan for me was always journalism. I started writing
[2:43] Speaker 3: for the Manhasset Press when I was sixteen years old.
[2:47] Speaker 3: I was I started out as a sports writer. The
[2:49] Speaker 3: original plan was sports writer, ah, and then the next
[2:53] Speaker 3: plan was war correspondent, and then somehow I ended up
[2:58] Speaker 3: becoming an economics writer. But I stuck to the plan
[3:00] Speaker 3: of journalism.
[3:01] Speaker 2: So if journalism was always the plan, why an MBA,
[3:04] Speaker 2: why not journalism are well?
[3:05] Speaker 3: So I about excuse me. About five years into my
[3:10] Speaker 3: journalism career, I went back and did a fell When
[3:13] Speaker 3: I decided I want to do economics and finance, I
[3:16] Speaker 3: went back and did a fellowship at Columbia. It's called
[3:18] Speaker 3: a night Badget fellowship. Ye great program. And what they
[3:22] Speaker 3: did is they took a few working journalists and then
[3:24] Speaker 3: they put them through the business school for a year.
[3:26] Speaker 3: And then after a year that I decided to do
[3:30] Speaker 3: a few extra courses and get the NBA, But I
[3:32] Speaker 3: was really there for the fellowship to kind of to
[3:35] Speaker 3: Basically what I wanted to do was learn how a
[3:37] Speaker 3: balance sheet worked, learn how corporate finance worked. I had
[3:40] Speaker 3: spent a bunch of years covering like Macro, but I
[3:43] Speaker 3: didn't understand anything about what made Wall Street go. So
[3:46] Speaker 3: that was why I went back there.
[3:48] Speaker 2: So what was it that drew you to journalism? Oh?
[3:51] Speaker 3: Wow, I just you know, so I hated English class
[3:56] Speaker 3: in high school. I don't know how you felt, but
[3:59] Speaker 3: you know these four and they're still teaching it the
[4:01] Speaker 3: same way. By the way, these four paragraph essays of
[4:04] Speaker 3: you know, introduction, supporting paragraph one, supporting paragraph.
[4:08] Speaker 2: That was never a problem is always subject, predicate, what's
[4:11] Speaker 2: an adverb?
[4:12] Speaker 3: Why do I need to? And then it's like why
[4:14] Speaker 3: am I? You know, why am I learning to do
[4:17] Speaker 3: literary reviews? To kill a mocking bodker? Anyway, I never
[4:20] Speaker 3: thought I would have anything to do with writing, but
[4:23] Speaker 3: then I got involved in covering the local sports teams
[4:26] Speaker 3: and I was like, this is really interesting, this is fun.
[4:28] Speaker 3: I'm like right in the middle of the action and
[4:31] Speaker 3: like right on the sideline, and people are paying attention
[4:35] Speaker 3: and they care about it, and it just felt it
[4:37] Speaker 3: was just I had I had, I had fun, and
[4:40] Speaker 3: I've come to see over my career that like the
[4:43] Speaker 3: great thing about journalism and like here we are in
[4:46] Speaker 3: the Bloomberg newsroom is like you're always surfing right on
[4:49] Speaker 3: the edge of history, right, And so that's really what
[4:52] Speaker 3: ended up drawing it to me. I mean, there's the
[4:55] Speaker 3: reporting aspect and the writing aspect, but just the idea
[4:59] Speaker 3: of being like right in the middle of things as
[5:01] Speaker 3: they're happening and trying to make sense of them and
[5:03] Speaker 3: explain them was an addiction that I didn't get over
[5:06] Speaker 3: for a long time.
[5:07] Speaker 2: And right out of Columbia straight to the Wall Street
[5:10] Speaker 2: Journal was that your first gig?
[5:11] Speaker 3: Well, so I started out at a newswires service in
[5:16] Speaker 3: the early nineteen nineties. Here we are back in Bloomberg.
[5:19] Speaker 3: It was called right Night rit or Financial No sure, yeah,
[5:22] Speaker 3: And like.
[5:23] Speaker 2: Any relationship to the Night big a hot, No, there
[5:26] Speaker 2: was no.
[5:27] Speaker 3: There was no relationship except for the fact that the
[5:29] Speaker 3: Knight family was really rich and could fund something. Right, Okay,
[5:32] Speaker 3: But Bloomberg was like up and coming at the time,
[5:35] Speaker 3: and people weren't taking it as seriously as they should have.
[5:38] Speaker 3: But I did that a few years, moved to Hong
[5:42] Speaker 3: Kong with a newly wed on an extrege with my
[5:44] Speaker 3: newly wed on on an exchange program with Columbia, and
[5:48] Speaker 3: then I signed up with the journal over there.
[5:51] Speaker 2: How long were you in Hong Kong for five years?
[5:53] Speaker 3: About five years? Yeah, And that was a place.
[5:55] Speaker 2: This was when the UK was running the city and
[5:58] Speaker 2: before I was.
[5:58] Speaker 3: There right for the handover, so you know, so it's
[6:02] Speaker 3: I mean, there's another great thing about journalism is wherever
[6:05] Speaker 3: I went, it seemed like stuff started blowing up. So
[6:08] Speaker 3: I started with the Wall Street Journal in Hong Kong
[6:11] Speaker 3: in July of nineteen ninety seven. That was the week
[6:14] Speaker 3: that the UK handed the city over to China, and
[6:19] Speaker 3: it was also the week that the Taibati valued and
[6:22] Speaker 3: started the Asian financial crisis. So I got in there
[6:25] Speaker 3: and I was like flying from day one on these stories.
[6:28] Speaker 3: It turned out that the Asian financial crisis, particularly in
[6:32] Speaker 3: given what I was doing, was a much bigger event
[6:35] Speaker 3: than the handover. The handover was had much had long
[6:38] Speaker 3: term implications obviously, but yeah, so I was there for
[6:41] Speaker 3: all of it.
[6:42] Speaker 2: So how long after the handover did you start seeing
[6:46] Speaker 2: the heavier hands of China in day to day life
[6:48] Speaker 2: in Hong Kong.
[6:49] Speaker 3: You know, I think it's been a very slow and
[6:51] Speaker 3: corrosive process. And frankly, when I was there from ninety
[6:55] Speaker 3: six through two thousand, it was really the economic events
[7:01] Speaker 3: that were driving the city at the time. So the
[7:03] Speaker 3: first one was the Asian financial crisis and a property
[7:06] Speaker 3: crisis that swept through Asia. One of my formative experiences
[7:10] Speaker 3: as journalists was covering an investment bank called Paragrine Investments
[7:14] Speaker 3: that blew up, and I learned some really important lessons
[7:18] Speaker 3: that came back to help me in two thousand and
[7:19] Speaker 3: eight about how banks explode and you know, were implode.
[7:23] Speaker 2: So when you came back to tell you it was Paragrine.
[7:27] Speaker 3: Yeah. So one of the formative experiences of my career
[7:31] Speaker 3: in Hong Kong was covering the collapse of an investment
[7:33] Speaker 3: bank called Paragrine Investments, and you know, I saw, you know,
[7:38] Speaker 3: why banks collapse and what causes these kinds of runs.
[7:41] Speaker 3: It came in really handy ten years later when Bear
[7:44] Speaker 3: Stearns and Lehman Brothers were blowing up, and I had
[7:48] Speaker 3: insights that kind of got me ahead of those stories
[7:51] Speaker 3: in ways that surprised some people at the journal. I
[7:53] Speaker 3: would you know when I don't know if you remember
[7:55] Speaker 3: when those bear Stearns hedge funds blew up.
[7:57] Speaker 2: Oh? I remember.
[7:58] Speaker 3: I told my Colly Kate Kelly, who was all over
[8:02] Speaker 3: that story. I said, they're going to blow up this weekend.
[8:04] Speaker 3: We need to have a two thousand world story ready
[8:07] Speaker 3: to go Saturday. She's like, you're overreacting. I was like,
[8:10] Speaker 3: watch because I saw what happens when creditors of banks
[8:13] Speaker 3: get nervous. And I learned all that in Asia. The
[8:17] Speaker 3: other big event in Asia in the late nineteen nineties
[8:20] Speaker 3: was of course the handover. But for people in Hong Kong,
[8:24] Speaker 3: it's a very entrepreneurial city. They were thinking, well, how
[8:27] Speaker 3: do we get money? How do we make money off
[8:29] Speaker 3: of this? You know, how do we tire? You know,
[8:31] Speaker 3: the Chinese economy had been booming, it was a growth story,
[8:34] Speaker 3: and so people were looking for ways to advance themselves economically.
[8:37] Speaker 3: I think what we've seen happen to Hong Kong since,
[8:41] Speaker 3: and this is perhaps a lesson, is that, you know,
[8:45] Speaker 3: these attacks on democracy have been and free speech and
[8:50] Speaker 3: all that have been slow and corrosive, and it's a
[8:53] Speaker 3: different city today than it was twenty five years ago,
[8:56] Speaker 3: but after the handover, it was just people trying to
[9:00] Speaker 3: make better lives for themselves.
[9:02] Speaker 2: Right, really really fascinating. How do you get from Hong Kong.
[9:06] Speaker 3: To d C to DC? Well there was a stop
[9:09] Speaker 3: in the middle in New York. So I was in
[9:11] Speaker 3: Hong Kong for five years. Moved back to the US
[9:16] Speaker 3: in early two thousand and one, right in time for
[9:19] Speaker 3: the tech bubble to burse and of course nine to eleven. Again,
[9:24] Speaker 3: wherever I went it seemed like terrible things were going on.
[9:26] Speaker 4: You seem to be an unlucky charm and you know,
[9:29] Speaker 4: and I used to joke that like Wall Street should
[9:31] Speaker 4: just pass its hat around to retire me, because you know,
[9:34] Speaker 4: then I just get out of everybody's bad news.
[9:37] Speaker 3: But yeah, came back. I was in the New York
[9:39] Speaker 3: office for seven years writing about economics. I was our
[9:45] Speaker 3: markets editor during the credit bubble and the credit bust
[9:49] Speaker 3: and learned a lot in that experience about the interactions
[9:53] Speaker 3: of economics and final.
[9:55] Speaker 2: Where was your office in two thousand and one?
[9:57] Speaker 3: Our office was across the street front.
[9:59] Speaker 2: Right, not the the Fox Wall Street Journal office.
[10:02] Speaker 3: On that you moved up there after Murdoch took over.
[10:05] Speaker 2: That's right, this was you guys were right in the
[10:07] Speaker 2: middle of it.
[10:08] Speaker 3: We were, yeah, so what So we were across the
[10:10] Speaker 3: street in the World Financial Center, the southernmost tower, I
[10:13] Speaker 3: guess that was World Financial Center three. So I would
[10:16] Speaker 3: walk across the West Side Highway on this land bridge
[10:19] Speaker 3: every day, right.
[10:20] Speaker 2: Next to the Palm Court, if I recall correctly, that
[10:22] Speaker 2: big glass.
[10:24] Speaker 3: Yeah, yeah, yeah, yeah, we were across the street from
[10:27] Speaker 3: that too. Anyway, I happened to be in early that
[10:30] Speaker 3: morning trying to finish a story, and I was heading
[10:33] Speaker 3: over to the World Trade Center for NABE conference. And
[10:41] Speaker 3: you know, journal reporters tended to get in a little
[10:44] Speaker 3: bit after nine because we tended to have late deadlines.
[10:48] Speaker 3: I was in early, was there for the first plane
[10:50] Speaker 3: to hit, and then I ran out into the street
[10:53] Speaker 3: with a notebook. Second plane flew right over my head.
[10:55] Speaker 2: Wow. Yeah, And were you interviewing? People were like, what
[10:58] Speaker 2: did you do that day?
[11:00] Speaker 3: So well, so I'll tell you exactly what I did.
[11:03] Speaker 3: The first thing I did when I saw the inferno
[11:06] Speaker 3: from the first plane is I ran downstairs to I
[11:10] Speaker 3: was where the reporters were stationed. I knew the top
[11:12] Speaker 3: editors were down a floor. So I ran down there
[11:15] Speaker 3: to see who was here and who was organized organizing things.
[11:19] Speaker 3: I ran to Paul Steiger Oh, I was the managing
[11:22] Speaker 3: editor of the paper. I said, hey, I'm here, I'm
[11:25] Speaker 3: here early. You know, I'm on it. What do you
[11:28] Speaker 3: want me to do? And his advice was go figure
[11:31] Speaker 3: out what happened and don't get yourself killed. So like
[11:34] Speaker 3: he immediately understood that something serious was at hand. So
[11:39] Speaker 3: I grabbed a notebook and ran over that pedestrian bridge,
[11:43] Speaker 3: saw a lot of carnage in the street, and started
[11:46] Speaker 3: kind of writing. Well. The next thing I did was
[11:49] Speaker 3: call my wife to let her know that there was
[11:51] Speaker 3: a fire. And I was okay because I figured it
[11:53] Speaker 3: was going to be on the news within a matter
[11:56] Speaker 3: of minutes and she knew where I was, so I
[11:58] Speaker 3: called her to let her know I was okay. And
[12:00] Speaker 3: then a few minutes later, as I'm in the street,
[12:03] Speaker 3: the cops are trying to clear me out. They're saying,
[12:05] Speaker 3: you can't be here. This is a dangerous place, so
[12:08] Speaker 3: they're trying to move me out of the street. I walk,
[12:10] Speaker 3: and then as I'm walking kind of to follow the
[12:15] Speaker 3: police's orders, the second plane flies right over my head.
[12:18] Speaker 3: And you know, I stuck around and interviewed witnesses and bystanders,
[12:24] Speaker 3: and it was a pretty harrowing day.
[12:26] Speaker 2: Yeah, to say, to say the very least, let's bring
[12:28] Speaker 2: it back to something a little less arrowing or more traditional.
[12:35] Speaker 2: You have a really unusual career trajectory at the Wall
[12:38] Speaker 2: Street Journal. You start, you know, fairly green, and eventually
[12:43] Speaker 2: you're running what's probably the hottest desk in economics, which
[12:48] Speaker 2: is covering the FED, showing up at meetings, interviewing FED governor's,
[12:52] Speaker 2: FED presidents and the chair of the f O and c.
[12:56] Speaker 2: What was that process like to get there?
[12:58] Speaker 3: Yeah, well, you know, like my goal at the journal
[13:02] Speaker 3: was always well, I just wanted to write good stories, right,
[13:06] Speaker 3: And the journal back when I started at the place
[13:10] Speaker 3: was ironically you think of it as a finance, economics
[13:15] Speaker 3: markets kind of paper. And that's how I you know,
[13:18] Speaker 3: I grew up reading the New York Times and watching
[13:20] Speaker 3: my dad read the Wall Street Journal, and like that
[13:23] Speaker 3: stuff just didn't interest me. But what I discovered over
[13:26] Speaker 3: time was that the you had to be able to
[13:28] Speaker 3: write long feature stories to succeed page one stories. We
[13:32] Speaker 3: called them leaders. So like that's what I was focused
[13:35] Speaker 3: on doing what happened was by two thousand and eight,
[13:40] Speaker 3: I had I had learned a lot, basically in part
[13:44] Speaker 3: from my experiences in Asia, you know, where I covered
[13:49] Speaker 3: these banks collapsing and I saw financial crisis, and I
[13:53] Speaker 3: kind of felt like I had a roadmap for how
[13:54] Speaker 3: it worked. And then obviously in two thousand and eight,
[13:58] Speaker 3: I mean, the US markets were employed and it was
[14:01] Speaker 3: very complicated. It was kredit, it was credit driven. Our
[14:04] Speaker 3: star fed reporter left the paper that summer to go
[14:07] Speaker 3: to the economist magazine, greg Ip. It was a legend YEP.
[14:11] Speaker 3: And the guy that my future boss really wanted for
[14:18] Speaker 3: the paper had just moved to London, a guy named
[14:20] Speaker 3: Mark Whitehouse, who's a Bloomberg Opinion, brilliant, brilliant guy, and
[14:26] Speaker 3: he was I think seen as the heir apparent. But
[14:28] Speaker 3: he had just moved to London, so they had no
[14:30] Speaker 3: one else. And like I had learned a lot about markets,
[14:34] Speaker 3: I had been writing about economics. I was just well placed.
[14:37] Speaker 3: So they asked me to go to move down to
[14:39] Speaker 3: Washington in the summer of two thousand and eight to
[14:42] Speaker 3: cover the FED, and my first week on the job,
[14:45] Speaker 3: Lehman Brothers blew up, so I'm on the phone that
[14:49] Speaker 3: weekend with the top leadership of the FED, trying to
[14:53] Speaker 3: understand you know, when Tim Geitner is talking to me
[14:56] Speaker 3: about foam on the runway after like these day of
[15:00] Speaker 3: intense meetings collapsed, you know, some of these officials wanted
[15:04] Speaker 3: to talk to reporters to kind of keep us informed
[15:08] Speaker 3: because the next day was going to be a big deal,
[15:12] Speaker 3: and they just kind of wanted to have their story
[15:13] Speaker 3: out there. So I was talking to top people six
[15:16] Speaker 3: days into the job.
[15:18] Speaker 2: You're the perfect person to ask this question that I
[15:21] Speaker 2: have never gotten a good answer to, which was why
[15:26] Speaker 2: was it that AIG was saved and Lehman was not.
[15:30] Speaker 2: I have my own theory, yeah, but I haven't spoken
[15:33] Speaker 2: to very many FED officials in real time.
[15:36] Speaker 3: I think it was sequential, I mean remarkably right. So,
[15:41] Speaker 3: I mean what they were telling me Sunday night was
[15:44] Speaker 3: that they hoped that they had enough of these facilities
[15:49] Speaker 3: rescue facilities in place. You know, boy, I can't even
[15:52] Speaker 3: remember all the acronyms anymore, but you know, the liquidity
[15:57] Speaker 3: that they were pumping into the other investment banks, and
[16:00] Speaker 3: they hoped that they had enough of these facilities in
[16:02] Speaker 3: place in order to keep the system stable. The next day,
[16:06] Speaker 3: you know, people forget the FED had a policy meeting
[16:10] Speaker 3: on Tuesday. They didn't cut interest rates two days later,
[16:12] Speaker 3: Like Bernaki had a view that he thought that he
[16:15] Speaker 3: had the situation under control, and they realized, you know,
[16:18] Speaker 3: before AIG on Tuesday. On Monday, there was the money
[16:24] Speaker 3: market mutual funds that broke the boss, that's right, and
[16:26] Speaker 3: then all hell broke loose, and they realized that if
[16:28] Speaker 3: they didn't do something, that things were going to get
[16:31] Speaker 3: much worse. So it was the markets weren't a panic,
[16:34] Speaker 3: and I think the policy makers panicked and at that
[16:36] Speaker 3: point they just were doing whatever they could to put
[16:39] Speaker 3: out fires, whatever they go.
[16:40] Speaker 2: I have two pet theories on Lehman, and I want
[16:42] Speaker 2: to run them by you, Okay. One is they looked
[16:46] Speaker 2: at the balance sheets, the whole repo one oh five
[16:48] Speaker 2: and moving money off. Someone looked at the balance sheets
[16:51] Speaker 2: and said, hey, you could rescue these guys, but they're insolvent.
[16:55] Speaker 2: And not just a little insolvent. Yeah, they're tens of
[16:57] Speaker 2: billions of dollars insolvent.
[16:59] Speaker 3: Yeah.
[17:00] Speaker 2: That was the Lehman brother issue. Bear Stearns. It's like
[17:02] Speaker 2: they weren't insolvent. They just had too much money tied
[17:06] Speaker 2: up in a liquid assets. Was a liquidity issue, not
[17:10] Speaker 2: a solvency issue.
[17:11] Speaker 3: Yeah. And the rules that the FED was trying to
[17:14] Speaker 3: abide by at the very edge of its authority was
[17:17] Speaker 3: that they had to lend against good collateral, right and
[17:20] Speaker 3: if it was bad collateral, they couldn't do it. And
[17:22] Speaker 3: then the other problem that weekend was that they were
[17:25] Speaker 3: starting to worry about who was going to be the
[17:27] Speaker 3: next one.
[17:28] Speaker 2: To fail AIG because a.
[17:30] Speaker 3: Lot of I mean, you know, if if they bailed
[17:33] Speaker 3: out Laman, then the market's target was going to point
[17:35] Speaker 3: to Meryl Lynch, right like, So they were just happy
[17:38] Speaker 3: to get Meryl Lynch bought that week right, right.
[17:40] Speaker 2: Right, So that John saying that was a great last
[17:43] Speaker 2: minute deal he pulled off and it worked out well
[17:44] Speaker 2: for everybody.
[17:45] Speaker 3: Yeah, and they and and and they survived. So uh,
[17:49] Speaker 3: you know, it was coming at them fast and furious,
[17:52] Speaker 3: and I mean, what's kind of remarkable is that they
[17:53] Speaker 3: had all summer to prepare for it and it still
[17:56] Speaker 3: blew up in everybody.
[17:57] Speaker 2: The other the other thing that I would have to
[18:00] Speaker 2: be a fly on the wall for was, at one
[18:03] Speaker 2: point in time, one Buffet reached out to Dick Fold
[18:07] Speaker 2: at Lehman Brothers, and we don't really know the details,
[18:10] Speaker 2: but it kind of looks like Buffett made an offer
[18:14] Speaker 2: to Leman and he kind of to Fold and he
[18:16] Speaker 2: kind of turned up his nose at a low ball offer. Eventually,
[18:20] Speaker 2: Buffett makes the similar offer to Goldman Sachson. Goldman was
[18:23] Speaker 2: smart enough to take it. So you can imagine how
[18:26] Speaker 2: BERNANKI was thinking, Wait, they turned down Buffett.
[18:29] Speaker 3: Why do we have to get well, I mean, I
[18:31] Speaker 3: think a lot matters and kind of went at what price? Right?
[18:34] Speaker 3: So I know that they were working very hard all
[18:36] Speaker 3: summer to raise capital, and a number of deals, including
[18:39] Speaker 3: with Korean investors, failed to develop.
[18:42] Speaker 2: So we mentioned three hundred and nineteen page one bylines.
[18:49] Speaker 2: What stands out as some of your favorite pieces?
[18:52] Speaker 3: Well, I am most attached to those longer magazine feature stories.
[18:59] Speaker 3: One of my favorite ver It's was a piece I
[19:01] Speaker 3: wrote in two thousand and five. The spring of two
[19:04] Speaker 3: thousand and five, I actually had just been beaten badly
[19:07] Speaker 3: by the New York Times on another story and was
[19:10] Speaker 3: a little frustrated and disappointed with myself that I had
[19:14] Speaker 3: gotten beaten.
[19:14] Speaker 2: What was the topic that you were beaten on.
[19:16] Speaker 3: Oh that's I mean, that's that's a long story. It
[19:19] Speaker 3: was about an academic economist with an unusual background that
[19:23] Speaker 3: it's it's too complicated to get into. I mean, if
[19:26] Speaker 3: you want to, we can get into it. But it's
[19:29] Speaker 3: a all right, I'll it's a long story. But anyway,
[19:33] Speaker 3: I worked on a story with a colleague in Thailand
[19:36] Speaker 3: about how there was a global housing boom going on
[19:40] Speaker 3: that was being funded by a global credit boom and
[19:45] Speaker 3: increasingly complex credit not just through banks but through more
[19:51] Speaker 3: sophisticated vehicles and sophisticated investor groups. And I quoted Robert
[19:56] Speaker 3: Schiller in it. This is in June maybe of two
[19:59] Speaker 3: thousand and five, saying this was going to end in
[20:01] Speaker 3: a global recession. So and it connected the dots on
[20:04] Speaker 3: something that was building, and it took a couple more
[20:07] Speaker 3: years for it to really develop. I did another story,
[20:11] Speaker 3: and the stories I love were the ones that were
[20:13] Speaker 3: kind of looking around corners. But I did a piece
[20:16] Speaker 3: I think it was maybe two thousand and three, two
[20:19] Speaker 3: thousand and four looking at US China trade. I had
[20:24] Speaker 3: figured out an economists had told me, you know, everyone's
[20:29] Speaker 3: talking about all these imports coming from China and how
[20:31] Speaker 3: damaging it is for the US. You should look at
[20:33] Speaker 3: what the US is exporting to China. Our exports to
[20:37] Speaker 3: China are booming, and you should do a story about.
[20:39] Speaker 2: That agriculture, right.
[20:41] Speaker 3: So I looked at what was booming, and it turned
[20:44] Speaker 3: out that our number three export in value and our
[20:47] Speaker 3: number one export in volume was trash. We were the
[20:52] Speaker 3: Saudi Arabia. Well, we were sending them recycled paper, we
[20:56] Speaker 3: were sending them recycled plastic. We were sending them recycled
[21:01] Speaker 3: and they were turning that into the boxes and containers
[21:05] Speaker 3: and packaging that all the toys and books in microwoven
[21:09] Speaker 3: microwave ovens came back in And I kind of pieced
[21:13] Speaker 3: this together and actually used a little boy's piece of
[21:18] Speaker 3: trash to tell the story I found. I went to
[21:20] Speaker 3: a recycling facility in New Jersey where I still remember
[21:26] Speaker 3: their name, the Zizarro Brothers in New Jersey. Right near
[21:29] Speaker 3: the chipping containers. They had a container of recycled paper
[21:33] Speaker 3: that was going off to China. That let me pick
[21:36] Speaker 3: through it find a little boy's homework assignment that I
[21:39] Speaker 3: made a photocopy of. I put the homework assignment back
[21:42] Speaker 3: in the container where it belonged, and I tracked the
[21:44] Speaker 3: kid down, and then I was able to track this
[21:47] Speaker 3: one boy's homework assignment from the Zizarro Brothers backwards and
[21:52] Speaker 3: then all the way to a paper newsprint facility in
[21:59] Speaker 3: China and of us this boy's homework assignment to tell
[22:01] Speaker 3: how global trade was changing the face of the economy.
[22:06] Speaker 2: Coming up, we continue our conversation with John Hilson Wrath,
[22:10] Speaker 2: former chief economics correspondent for the Wall Street Journal. Today
[22:15] Speaker 2: he runs Surpa Pinto Advisory, discussing his Wall Street Journal
[22:21] Speaker 2: experience and Surpa Pinto. I'm Barry Ridults. You're listening to
[22:25] Speaker 2: Masters in Business on Bloomberg Radio. I'm Barry Ridults. You're
[22:44] Speaker 2: listening to Masters in Business on Bloomberg Radio. My extra
[22:47] Speaker 2: special guest today is John Hilson Wrath. He is the
[22:50] Speaker 2: former chief economics correspondent for the Wall Street Journal, where
[22:54] Speaker 2: he was dubbed the Fed Whisperer for all his many
[22:57] Speaker 2: scoops on the Fed. So let's talk about that. You
[23:02] Speaker 2: were thought of as the Fed Whisperer. What does that mean?
[23:05] Speaker 2: How do you get that nickname?
[23:08] Speaker 3: Well, it's funny you ask. It actually used to really
[23:11] Speaker 3: bother me when people said that, because I thought, you know,
[23:15] Speaker 3: my feeling when I was covering the FED is it
[23:17] Speaker 3: kind of trivializes what we're trying to do here and
[23:20] Speaker 3: the hard reporting that went into getting stories out of
[23:24] Speaker 3: the institution and you know, following the journalistic mission. So
[23:30] Speaker 3: maybe I was a little righteous about being called the
[23:32] Speaker 3: FED whisperer back then. You know, Wall Street loves to
[23:36] Speaker 3: attach these kind of two word names and everything. So
[23:40] Speaker 3: when I was covering the FED, it was like the
[23:42] Speaker 3: Taper tantrum and Qui infinity, the terrifying, and the FED
[23:47] Speaker 3: pivot and you know, so for me, it was the
[23:49] Speaker 3: FED Whisperer. But you know, since I left journalism and
[23:53] Speaker 3: started my own business, now I'll use whatever I can
[23:55] Speaker 3: to my advantage. So now I'm like, yeah, you can
[23:57] Speaker 3: call me the FED whisperer. I'll take that. Back in
[24:00] Speaker 3: the day when people.
[24:01] Speaker 2: Said it, I was like, I don't think Fed whisper
[24:05] Speaker 2: is as trivial as something like do you remember the
[24:08] Speaker 2: green span briefcase indicator how thick or thin hit? It
[24:11] Speaker 2: was just a dumb thing. Yeah, I don't remember seeing
[24:13] Speaker 2: MEC started it. Somebody started it, and it was just
[24:16] Speaker 2: one of those dumb like really are we really doing this?
[24:19] Speaker 2: But you were the one that was getting all the
[24:21] Speaker 2: FED scoops that when they wanted to publicize something, they
[24:26] Speaker 2: had a variety of outlets that they would reach out to,
[24:30] Speaker 2: So ten outlets would all get the same story, but
[24:33] Speaker 2: one outlet would have a much more in depth personal detail.
[24:38] Speaker 3: Here's where we got to mystify.
[24:40] Speaker 2: So okay, so let's see.
[24:42] Speaker 3: Yeah, I mean, we could talk for a long time
[24:44] Speaker 3: about that, but I wouldn't say that that was exactly
[24:46] Speaker 3: the way it worked. So, you know, and this is
[24:50] Speaker 3: kind of why I had, you know, was a little
[24:52] Speaker 3: upity about the FED whisperer thing is it wasn't like
[24:55] Speaker 3: there was some bat phone sitting at my desk and
[24:58] Speaker 3: like the phone rang and it was like, oh yes,
[25:00] Speaker 3: Chairman Bernanky, what would you like me to say today?
[25:03] Speaker 3: There was you know, and my successor, Nick Timros is
[25:08] Speaker 3: great at this. There was a lot of reporting that
[25:10] Speaker 3: went into this work. It wasn't it wasn't like a
[25:13] Speaker 3: spoon feeding kind of process. It was a very kind
[25:16] Speaker 3: of It was a process is a keyword, and it
[25:19] Speaker 3: was dynamic and complex. So I mean, we could we
[25:25] Speaker 3: could talk in some more detail about that, But it
[25:28] Speaker 3: wasn't that it wasn't the kind of thing that well,
[25:31] Speaker 3: first of all, that they only started doing press conferences
[25:34] Speaker 3: sometime after I guess it was around it was twenty twelve,
[25:39] Speaker 3: who was posed four years? Four years into the beat,
[25:43] Speaker 3: Maybe it was twenty ten. I can't even remember anymore.
[25:45] Speaker 3: But what went into the process of writing a FED
[25:48] Speaker 3: story was like you had to do a lot of reporting,
[25:52] Speaker 3: a lot of triangulation. You had to figure out where
[25:54] Speaker 3: the debate was going inside the room and put enough
[25:57] Speaker 3: pieces of the puzzle together in order to say this
[26:01] Speaker 3: is what they're likely to do. And it was also
[26:03] Speaker 3: very important. You know, people used to say, oh, how cold,
[26:07] Speaker 3: How could his stories always be right? He's clearly being
[26:09] Speaker 3: spoon fed stuff. Well, there's like there's a reason for that,
[26:12] Speaker 3: because I didn't report stuff I didn't know. So, you know,
[26:16] Speaker 3: you had to do a lot of reporting to get
[26:17] Speaker 3: to a point where you could say, all right, this
[26:19] Speaker 3: is where they are and what they're going, and where
[26:22] Speaker 3: you could say, you know, this is what we know
[26:24] Speaker 3: about the kind of state of the debate, or how
[26:27] Speaker 3: certain you know, there were some meetings where they weren't
[26:28] Speaker 3: sure what they were doing going into it, and I
[26:31] Speaker 3: wasn't going to get over my skis on that stuff.
[26:33] Speaker 3: So it was, uh, you know, so there was reporting
[26:37] Speaker 3: that went into that, there was understanding the institution. I
[26:41] Speaker 3: became very good friends with the New York Giants Beat.
[26:44] Speaker 3: I'm a big football fan New York Giants Beat reporter
[26:46] Speaker 3: in those years, and we used to compare notes, like
[26:49] Speaker 3: I saw my job in some way similar to what
[26:52] Speaker 3: she was doing it, Like I needed to know what
[26:54] Speaker 3: was going on in the locker room right right, and
[26:56] Speaker 3: I needed to know kind of who the players were,
[26:59] Speaker 3: what the game plan were, who the trainers were, like
[27:02] Speaker 3: every angle of the locker room in order to get
[27:05] Speaker 3: a whole picture and in order to say with authority
[27:08] Speaker 3: what I thought was happening and what was going to
[27:11] Speaker 3: go on next to that. You know, by game day
[27:14] Speaker 3: was an FOMC meeting. By then I had already done
[27:16] Speaker 3: the hard reporting. It was just a matter of saying,
[27:18] Speaker 3: all right, here's what happened on the field.
[27:20] Speaker 2: FED reporting as a sports analogy.
[27:23] Speaker 3: Well, I started out as a sports writer, so yeah.
[27:25] Speaker 2: It makes perfect sense. So let's talk a little bit
[27:28] Speaker 2: about the FED today versus when you were covering them.
[27:33] Speaker 2: Now you're covering them as a researcher and an analyst,
[27:36] Speaker 2: then you're covering them as a reporter. You wrote the
[27:40] Speaker 2: era of consensus and comedy at the US Central Bank
[27:45] Speaker 2: is ending.
[27:46] Speaker 3: Explain well, So, I mean the FED is a very
[27:51] Speaker 3: consensus driven institution. When I was covering the FED back
[27:57] Speaker 3: in the financial cris period two thousand and eight two
[28:01] Speaker 3: thousand and nine, there was actually a lot of disagreement
[28:04] Speaker 3: at the time. The disagreement was internal and mostly in
[28:08] Speaker 3: the regional Fed banks. So I actually spent a lot
[28:11] Speaker 3: of time talking to these regional Fed bank hawks to
[28:14] Speaker 3: understand what their case was against programs like QWE and
[28:19] Speaker 3: interest rate cuts and things like that repression, and there
[28:24] Speaker 3: were a lot of unknowns, for sure, there were a
[28:27] Speaker 3: lot of unknowns. So and bernanky and yelling, and then
[28:31] Speaker 3: Powell spent a lot of time trying to building processes
[28:34] Speaker 3: to build consensus around their decisions. What's happening now is
[28:39] Speaker 3: is it's the disagreement and division is politically driven, right,
[28:43] Speaker 3: we all know that. But what the President has a
[28:48] Speaker 3: clear view of where he wants interest rates going. He
[28:50] Speaker 3: wants all interest rates going down. It's I'm afraid a
[28:55] Speaker 3: little more complicated than what he perhaps thinks he's going
[28:58] Speaker 3: to get out of that because he might cut short
[29:01] Speaker 3: term interest rates and get higher long term interest rates, which.
[29:03] Speaker 2: Which happened very recently.
[29:06] Speaker 3: It happened with the FEDS cuts last year. And so
[29:09] Speaker 3: you know, he's putting on people in the institution who
[29:12] Speaker 3: were you know he expects to be loyal to him.
[29:14] Speaker 3: Stephen Miron is the latest. So we're and there's a
[29:18] Speaker 3: lot at stake, and there's turnover happening at the FED
[29:21] Speaker 3: right now. We all know there's going to be a
[29:24] Speaker 3: new chairman appointed by the President next year. There are
[29:28] Speaker 3: tests of loyalty. The really big issue is if the
[29:31] Speaker 3: president gets four people who are loyal or even closely
[29:34] Speaker 3: loyal to his views, he has an opportunity to remake
[29:38] Speaker 3: the entire system because with a majority on the FED
[29:41] Speaker 3: Board there are seven Board governors. With a majority of
[29:45] Speaker 3: four on the FED Board, then the Board can start
[29:49] Speaker 3: firing and restructuring the regional banks that might oppose some
[29:52] Speaker 3: of the policies that the President wants to pursue. So
[29:57] Speaker 3: there's a lot of stake right now. Two levels, one
[30:00] Speaker 3: with the succession of j. Powell and two with the
[30:03] Speaker 3: construction of who the other governors are going to be
[30:06] Speaker 3: on the FED board and how loyal they'll be to
[30:09] Speaker 3: the President's vision of how monetary policy should be running
[30:12] Speaker 3: the end.
[30:12] Speaker 2: So let's talk about that. You wrote a piece early
[30:15] Speaker 2: in the summer of twenty twenty five, the fourth seat,
[30:19] Speaker 2: meaning once the President gets a hold of that fourth seat,
[30:23] Speaker 2: he is essentially running the supposedly independent FED. Tell us
[30:29] Speaker 2: a little bit about that, and we'll eventually talk about
[30:31] Speaker 2: Lisa Cook. Yeah, and what this pretense firing really looks
[30:36] Speaker 2: like an attempts to get an early grib at that
[30:38] Speaker 2: fourth seat.
[30:39] Speaker 3: Yeah, and I'm actually going to go straight into Lisa
[30:41] Speaker 3: Cook in a moment. But so there's the President appointed
[30:45] Speaker 3: Chris Waller, he's a FED governor, he might get the
[30:48] Speaker 3: chairman's job. He appointed Michelle Bowman. These were in his
[30:51] Speaker 3: first terms, and she was given a promotion to Vice
[30:56] Speaker 3: sheriff supervision. He's now appointed Stephen Miron, who's made the
[31:02] Speaker 3: President's case for much lower interest rates just last week.
[31:05] Speaker 3: And so he's in theory one set away from having
[31:09] Speaker 3: four governors and a majority on the board and an
[31:12] Speaker 3: opportunity to move the FED in a whole new direction
[31:15] Speaker 3: and what's happened. It looked like that fourth governor job
[31:18] Speaker 3: might be j Powell's job next year when his chairmanship ends.
[31:22] Speaker 3: But what happened is now, and this gets a little complicated,
[31:27] Speaker 3: But the chair of the FHFA is accusing the Federal
[31:35] Speaker 3: Home Finance Administration or agency is accusing Lisa Cook, another
[31:40] Speaker 3: FED governor, of fraud and mortgage applications that she submitted
[31:45] Speaker 3: to her banks in twenty twenty one. It's an unproven allegation,
[31:49] Speaker 3: but if they're trying to remove her for costs, the
[31:53] Speaker 3: President has effectively announced that he's firing her for cause,
[31:56] Speaker 3: and she's challenging that it could be in the Supreme Court.
[31:59] Speaker 2: Now there's a whole concept of FED independence, and the
[32:04] Speaker 2: FED board can fire someone from cause. There doesn't seem
[32:08] Speaker 2: to be any precedent for the president fire. Let's hold
[32:12] Speaker 2: aside of fact. Wink wik nudge, nudge. We all know
[32:15] Speaker 2: that this mortgage thing is nonsense and it's just a pretense.
[32:19] Speaker 2: Let's just hold that aside. We're talking about governmental power.
[32:25] Speaker 2: Who has the power to hire and fire FED government?
[32:29] Speaker 3: The President has power the power to fire a FED
[32:32] Speaker 3: governor for cause. Then we get to it hasn't happened.
[32:36] Speaker 3: No president has tried. But then you get to our
[32:39] Speaker 3: question was of well, how A, how do you define cause?
[32:43] Speaker 3: And b what is the what is the process for
[32:47] Speaker 3: defining cause? And then going through the process of firing
[32:50] Speaker 3: a FED governor. This is all on chartered ground, and
[32:53] Speaker 3: it's moving to the Supreme Court to make some decisions. Now,
[32:56] Speaker 3: there are a whole other set of decisions the Supreme
[32:59] Speaker 3: Court has made where it has found that the president
[33:02] Speaker 3: can fire heads of other agencies at his discretion. And
[33:05] Speaker 3: one of the questions is whether firing a FED official
[33:09] Speaker 3: for cause is held to a higher standard than you know,
[33:12] Speaker 3: firing a participant in the National Labor Relations Board, and
[33:17] Speaker 3: the Supreme Court for reasons I can't say I fully understand,
[33:21] Speaker 3: seems to be ready to draw a circle around the FED.
[33:24] Speaker 3: But there are big questions of how do you define
[33:26] Speaker 3: cause and what's the process, And we don't know where
[33:30] Speaker 3: they're going to go with it. They need to kick
[33:31] Speaker 3: it back.
[33:32] Speaker 2: It's not just putting out something on social on any
[33:36] Speaker 2: social media order. You actually have to have a process.
[33:40] Speaker 3: Well, I don't know. I mean, the Supreme Court might
[33:43] Speaker 3: decide that the president can do it at his discretion
[33:46] Speaker 3: on X.
[33:47] Speaker 5: So if it's that discretion as but but then what
[33:50] Speaker 5: is Lisa Cook's argument is that, well, so there's a
[33:54] Speaker 5: definition of for a cause, and I don't have the
[33:57] Speaker 5: specific language in front of me, but it has to
[33:59] Speaker 5: be for discreet malfeasance or neglect.
[34:03] Speaker 3: On the job. And one of her one of her
[34:08] Speaker 3: defenses is that he isn't accusing me of doing anything
[34:11] Speaker 3: wrong on the job. These were applications I submitted years ago,
[34:15] Speaker 3: or and but then there's some fuzzy language that you know,
[34:18] Speaker 3: or or the like or something to that effect. And
[34:21] Speaker 3: so there's a question of whether there's enough gray area
[34:25] Speaker 3: for the president to define what fore cause means on
[34:29] Speaker 3: the first two things of you know, you know, malfeasance
[34:32] Speaker 3: on the job or neglect on the job, they don't
[34:33] Speaker 3: seem to hold up. But there's some gray area on
[34:36] Speaker 3: the third piece of that, you know, And that's that's
[34:39] Speaker 3: kind of legal precedent that's been said over many years.
[34:42] Speaker 2: It's fascinating because the government, when they were defending the
[34:46] Speaker 2: tariffs kinda said, well, AIPA says emergency, they don't say
[34:51] Speaker 2: anything about tariffs. What's an emergency? In the government's position
[34:55] Speaker 2: was whatever the President says it is. Yeah, all these
[34:58] Speaker 2: words that uretically have actual meaning. Once you start saying
[35:03] Speaker 2: it's subjective at the president's discretion four cause emergency, things
[35:08] Speaker 2: like that go out the window. It's going to be
[35:10] Speaker 2: interesting to see if the Supreme Court contorts themselves to
[35:15] Speaker 2: acquiesce to the president or follows what we think of
[35:19] Speaker 2: as traditional legal theory.
[35:22] Speaker 3: It's another big year court for sure. And I mean,
[35:27] Speaker 3: if you want to get really philosophical and pull the
[35:30] Speaker 3: lens way back, I mean, I personally think we're living
[35:32] Speaker 3: through revolutionary times kin to the French Revolution in the
[35:36] Speaker 3: American Revolution. And one of the things we know is
[35:40] Speaker 3: that in revolutionary times, standards and norms get thrown into
[35:44] Speaker 3: the air and redefined.
[35:46] Speaker 2: Which can first, Did did the throwing of the norms
[35:51] Speaker 2: away lead to the revolution? Or was the revolutionary set
[35:57] Speaker 2: up in place and norm are just collateral.
[36:01] Speaker 3: The revolution has been building for years. And I'll take
[36:04] Speaker 3: this back to my FED beat. It's a little off
[36:06] Speaker 3: the subject, but when I was covering the FED by
[36:10] Speaker 3: twenty thirteen twenty fourteen, I was regularly getting emails from
[36:14] Speaker 3: really angry readers who saw the FED as being at
[36:18] Speaker 3: the center of America's problems an example of an elite
[36:23] Speaker 3: Wall Street institution hurting the little guy in favor of
[36:28] Speaker 3: rich guys, an insiders game. And they saw me as
[36:33] Speaker 3: a reporter at the Wall Street covering the institution theater
[36:37] Speaker 3: as yeah as carrying their water. And I routinely got
[36:40] Speaker 3: emails from people saying there's a revolution coming, and like
[36:44] Speaker 3: they told me and like as a warning, they said,
[36:47] Speaker 3: there's a revolution coming, and when we come, you're going
[36:51] Speaker 3: to be one of the people we string up on
[36:54] Speaker 3: on you know, on pitchforks, on pitchforks they were, they
[36:59] Speaker 3: used injury of the French Revolution. I was seeing this
[37:02] Speaker 3: back in twenty fourteen. It actually led me to write
[37:05] Speaker 3: a series of collection of stories with actually the most
[37:07] Speaker 3: prolific Wall Street Journal Page one reporter of all time,
[37:11] Speaker 3: a guy named Bob Davis, about the economic roots of
[37:15] Speaker 3: what we call the economic roots of political discontent by
[37:18] Speaker 3: twenty sixteen. By twenty fifteen, like I was getting death threats,
[37:21] Speaker 3: and we saw that there was like something going on
[37:24] Speaker 3: in the country that was kind of deeper than your
[37:27] Speaker 3: normally agitated reporter, And so we went out and wrote
[37:31] Speaker 3: a bunch of stories called The Great unraveling in twenty
[37:34] Speaker 3: six I recall that I recalled that it was all
[37:37] Speaker 3: about how kind of trade had gone the wrong way
[37:40] Speaker 3: for many Americans, how finance had gone the wrong way
[37:43] Speaker 3: for many Americans, and technology, and that people were angry
[37:47] Speaker 3: and they were angry at the elites. And so to
[37:50] Speaker 3: answer your question, the revolution started a long time ago,
[37:54] Speaker 3: and I think we're pretty well into it. And you know,
[37:58] Speaker 3: I think a lot of this revolution has been and
[38:01] Speaker 3: you know, we have digital guillotines now right where like
[38:06] Speaker 3: where we'll cut off your head by your reputation. But
[38:11] Speaker 3: sadly and disturbingly, it's now getting somewhat bloody.
[38:17] Speaker 2: Yeah, no, to say the very least. You know, it's
[38:19] Speaker 2: kind of fascinating. When I was writing Bailout Nation, one
[38:24] Speaker 2: of the things that kept coming up when you look
[38:26] Speaker 2: at the history of who is Treasury secretary, they seem
[38:32] Speaker 2: to be pulled, pulled from two different groups. They were
[38:35] Speaker 2: either pulled from Wall Street and banking, or they were
[38:39] Speaker 2: pulled from manufacturing and industry. And throughout history, if you
[38:44] Speaker 2: had an industrialist as Treasury secretary when things hit the fan,
[38:49] Speaker 2: well a whole bunch of banks are going to have
[38:50] Speaker 2: to go under sorry, flip that when you have someone
[38:55] Speaker 2: from Wall Street, well, then we're going to rescue the banks.
[38:59] Speaker 2: And ironically, I don't disagree with anything you said about
[39:05] Speaker 2: the history. I think some of the anger is misplaced
[39:09] Speaker 2: because it wasn't the FED basically stepped in when Congress
[39:13] Speaker 2: threw their hands up and said, we can't do anything.
[39:16] Speaker 3: Oh and it was a financial crisis, right. It is
[39:19] Speaker 3: the lender of last resort, right, it's their role.
[39:22] Speaker 2: They were supposed to do that.
[39:24] Speaker 3: That's where they were creating in nineteen thirteen.
[39:26] Speaker 2: That's right. What didn't happen during a normal financial crisis
[39:31] Speaker 2: is fiscal stimulus along with monetary stimulus. Monetary stimulus benefits
[39:36] Speaker 2: the holders of capital. You on stocks, bonds, real estate
[39:40] Speaker 2: rates go down, you do great. When the government does
[39:43] Speaker 2: a big fiscal stimulus that tends to land on the
[39:45] Speaker 2: middle class. Hey, we're going to build an interstate commerce system,
[39:50] Speaker 2: an interstate highway system. We're gonna you know, create weaponized
[39:55] Speaker 2: kingsingism and build up defense. That tended in pass to
[40:00] Speaker 2: find its way to the middle class. What happened in
[40:03] Speaker 2: the twenty tens were you had all that monetary stimulus,
[40:07] Speaker 2: very little fiscal stimulus at least until the pandemic, and
[40:12] Speaker 2: for a brief period of time it looked like the
[40:15] Speaker 2: middle class was bought off.
[40:16] Speaker 3: Yeah, well, there's I mean, there's a lot of economics
[40:19] Speaker 3: in history here. What I'll say is, I agree with you.
[40:22] Speaker 3: We got fiscal policy exactly one hundred and eighty degrees
[40:26] Speaker 3: wrong after the financial crisis, in the sense that what
[40:30] Speaker 3: we needed was and there was some fiscal stimulus right
[40:33] Speaker 3: after the fact, but it wasn't sustained. We went, you know,
[40:36] Speaker 3: we went to fiscal austerity within a year or two.
[40:40] Speaker 3: What we needed was short term stimulus, right and long
[40:43] Speaker 3: term fiscal austerity in order to get the budget under control.
[40:49] Speaker 3: And what they did was short term austerity and nothing
[40:52] Speaker 3: about the long term. And I'm still waiting, by the way,
[40:56] Speaker 3: for the bond market to recognize this, and it doesn't
[40:59] Speaker 3: seem to do that.
[41:00] Speaker 2: It's kind of fascinating that the bond vigilantes. I keep
[41:05] Speaker 2: hearing those names come up, and they don't really seem
[41:08] Speaker 2: to exist anymore.
[41:09] Speaker 3: They seem to flutter their eyes and wake up and
[41:11] Speaker 3: then go back to sleep again.
[41:13] Speaker 2: I have a pet theory that there's just a shortage
[41:15] Speaker 2: of quality sovereign paper and so even a damaged, high
[41:21] Speaker 2: debt United States is still going to make good on
[41:23] Speaker 2: its debts.
[41:24] Speaker 3: So they're still appetite, right, And I think that helps
[41:26] Speaker 3: you explain why spreads are so tight right now, because
[41:29] Speaker 3: people will buy whatever paper they can.
[41:31] Speaker 2: Get, right, right, absolutely true.
[41:33] Speaker 3: Hey, I know that you have a bunch more things
[41:35] Speaker 3: you want to ask about the FED. Can I you
[41:37] Speaker 3: were asking a few minutes ago about the about covering
[41:41] Speaker 3: the fat and being the Fed whisper right and being
[41:44] Speaker 3: spoon fed so to speak.
[41:46] Speaker 2: Right, You didn't know no shoe leather, no heavy research,
[41:49] Speaker 2: no investigative jenneralism. They just handed you your stories.
[41:53] Speaker 3: And I pushed back, and see, there's a lot there's
[41:55] Speaker 3: a lot of there's a lot of reporting that went
[41:58] Speaker 3: into those stories. I just wanted to I don't know
[42:00] Speaker 3: if this was among the things he wanted to ask,
[42:02] Speaker 3: but I just wanted to describe, for a second, like
[42:05] Speaker 3: what my mentality was about, like what my job was, right. So,
[42:10] Speaker 3: and I used to preach this to colleagues all the time.
[42:13] Speaker 3: As a beat reporter, I felt like this is really
[42:15] Speaker 3: important to me. I had three responsibilities. One responsibility was
[42:19] Speaker 3: to break stories, right, that was those Fed scoops, and
[42:23] Speaker 3: it mattered. You know, if people were going to pay
[42:26] Speaker 3: to subscribe to the Walls regional all, they want something
[42:29] Speaker 3: different in there. The other responsibility I had was to
[42:32] Speaker 3: explain a complicated world. There were a lot of complicated
[42:35] Speaker 3: things going on when I was covering the FED with
[42:38] Speaker 3: QI and zero interest rates, and I had to understand
[42:41] Speaker 3: it and try to explain it to people. But then
[42:43] Speaker 3: the third piece was holding powerful people and institutions accountable.
[42:49] Speaker 3: And you know, I think that from the outside, maybe
[42:52] Speaker 3: people would look at this and say, oh, he's getting
[42:54] Speaker 3: spoon fed these scoops and he's pulling his punches. He's
[42:58] Speaker 3: not holding them accountable. But that third part was important
[43:00] Speaker 3: to me, and I mean, I'd be happy to talk
[43:02] Speaker 3: about stuff that we did on that front. And you
[43:06] Speaker 3: know what we did to try to hold the FED account.
[43:09] Speaker 2: Well, let's zoom in.
[43:10] Speaker 3: And there's also the sense that those that those two
[43:12] Speaker 3: things are in conflict right that well, you know, if
[43:15] Speaker 3: you're holding their feet to the fire, they're not going
[43:17] Speaker 3: to you know, they're not going to give you the
[43:18] Speaker 3: next scoop. And my response is, first of all, they
[43:20] Speaker 3: weren't spoon feeding these scoops. I had to work to
[43:23] Speaker 3: get the information and put them in positions where they
[43:26] Speaker 3: would tell me things that didn't happen by accident. I
[43:30] Speaker 3: had to leverage information how I could. But also, you know,
[43:35] Speaker 3: I had a responsibility to do the accountability stuff, and
[43:38] Speaker 3: I couldn't, let you know, fear get in my way
[43:40] Speaker 3: of doing that that it was going to undermine. And
[43:43] Speaker 3: you know, there were times when I made them uncomfortable
[43:45] Speaker 3: and I just had to do that.
[43:46] Speaker 2: So let's let's zoom out and take like a ten
[43:49] Speaker 2: thousand foot view. A FED chair has a story he
[43:54] Speaker 2: wants to inform the market of. And that's always been
[43:58] Speaker 2: my thought process. When the FED is communicating, it's not
[44:01] Speaker 2: about image or pr They want the market to do
[44:04] Speaker 2: some of their work for them, or at least not
[44:08] Speaker 2: shock or surprise the market. They want the market to
[44:12] Speaker 2: understand what's coming and be prepared for it. So how
[44:17] Speaker 2: would a BERNANKI or yelling go about communicating, Hey, you
[44:22] Speaker 2: guys don't understand there are after you left in twenty
[44:27] Speaker 2: twenty two, there was a bunch of increases coming. But
[44:30] Speaker 2: let's stick with the twenty tens. Hey rates are going
[44:34] Speaker 2: to are low and they're going to stay low for
[44:36] Speaker 2: the next for the foreseeable future. How does that get
[44:40] Speaker 2: disseminated out to the public and then to the bond
[44:43] Speaker 2: traders so that the street knows what's coming up next?
[44:48] Speaker 4: Right?
[44:49] Speaker 3: Yeah, Okay, So there are a lot of pieces to this.
[44:51] Speaker 3: The first one is you're right, there are two really
[44:54] Speaker 3: important imperatives from their perspective, especially in the twenty tens,
[44:59] Speaker 3: because the interest rate had gotten to zero. What they
[45:02] Speaker 3: realized was the only way they're going to like affect
[45:05] Speaker 3: financial conditions in a way that helps the economy is
[45:08] Speaker 3: if they convince the markets that they're going to keep
[45:11] Speaker 3: interest rates really low for a long time, then you
[45:13] Speaker 3: get long term rates down in addition, and so projecting
[45:18] Speaker 3: a stance of dubbishness for a long time became part
[45:21] Speaker 3: of the mission, right, And that was part of what
[45:24] Speaker 3: they wanted to do to influence the economy and financial conditions.
[45:27] Speaker 3: But then the other thing, as you said, is they
[45:30] Speaker 3: don't want to freak the markets out because that causes
[45:33] Speaker 3: in their mind, unnecessary turbulence that can be really damaging,
[45:36] Speaker 3: and they're still haunted to this day. By nineteen ninety four,
[45:41] Speaker 3: when Greenspan raised rates i think by three quarters of
[45:45] Speaker 3: a point and the market started pricing in a succession
[45:47] Speaker 3: of three quarter point increases, and then the next thing,
[45:50] Speaker 3: you know, Orange County, California blew up, in Mexico blew up, right,
[45:54] Speaker 3: So like they want their view of the world to
[45:59] Speaker 3: be under stood, and they do a lot of different
[46:01] Speaker 3: things along those lines. They give speeches. They've become more
[46:05] Speaker 3: you know, back in the early nineties when I started
[46:07] Speaker 3: on this beat, the FED didn't tell anybody anything.
[46:10] Speaker 2: Right there, It's so funny, I've told people this. You
[46:14] Speaker 2: get an announcement, we've raised rates. The only way you
[46:16] Speaker 2: knew the Fed did something was from the open market
[46:19] Speaker 2: activity in the bond market. Oh, the Fed must have
[46:21] Speaker 2: done something. What's going on?
[46:23] Speaker 1: Yeah?
[46:23] Speaker 3: Right, yeah, that was that was going to say, like
[46:25] Speaker 3: they weren't putting out announcements in nineteen eighty nine. When
[46:29] Speaker 3: they did something, you had fed watchers, that's what the
[46:32] Speaker 3: original term fed watcher, and you had people in the
[46:34] Speaker 3: markets who looked at what were going on with money
[46:37] Speaker 3: market rates and the FED injected X billion dollars and
[46:40] Speaker 3: they're like, oh, they just pushed up interest rates. And
[46:42] Speaker 3: then it took you three days to figure out if
[46:45] Speaker 3: that was their intention or an accident and then so
[46:47] Speaker 3: over a course of thirty plus years, they've become more
[46:50] Speaker 3: and more transparent, right, so they started green Span started
[46:53] Speaker 3: putting out statements. Oh and by the way, you know,
[46:56] Speaker 3: Alan Greenspan just delighted in how obscure he could be
[47:00] Speaker 3: and what he said, because he wanted to confuse people.
[47:03] Speaker 3: And they came to see over time that there was
[47:05] Speaker 3: a benefit to just being clear. So they put out statements.
[47:10] Speaker 3: They you know, they put up minutes. Obviously, they started
[47:13] Speaker 3: doing press conferences. Is there interaction between FED officials and
[47:19] Speaker 3: reporters that doesn't show up, you know, like onto, Yes,
[47:23] Speaker 3: FED officials talk to reporters on background in certain circumstances,
[47:29] Speaker 3: and so like yeah, we did talk to FED officials,
[47:31] Speaker 3: you know, not for attribution, but it was part of
[47:35] Speaker 3: a very dynamic process. When I like when I was
[47:37] Speaker 3: writing stories about for instance, Q two, stands out to
[47:41] Speaker 3: me like that was that was a situation where like
[47:45] Speaker 3: they were moving towards making a decision about Q two
[47:48] Speaker 3: over several months. It took them like six to nine
[47:51] Speaker 3: months to get there. And that was a case where
[47:53] Speaker 3: I was putting pieces very kind of I was putting
[47:59] Speaker 3: pieces of a puzzle together to be able to figure
[48:02] Speaker 3: out how they didn't even know where they were going
[48:04] Speaker 3: at the time, and so there was a lot of
[48:06] Speaker 3: reporting that had to go into understanding what was going
[48:10] Speaker 3: on behind the scenes, and which words that they used
[48:13] Speaker 3: matter mattered, and how they and how they used them.
[48:16] Speaker 2: My recollection of q E two, and this is ten
[48:20] Speaker 2: plus years ago, was I think it was before where
[48:24] Speaker 2: I even launched my own firm. We had maybe it
[48:28] Speaker 2: was a double line bond fund that was primarily mortgage back,
[48:33] Speaker 2: and it used to be ninety percent mortgage backed, and
[48:36] Speaker 2: then it was eighty percent, then it was seventy percent.
[48:38] Speaker 2: And what was going on is the FED was just
[48:40] Speaker 2: sucking up all of the mortgage back bonds out there,
[48:43] Speaker 2: yeah that the private sector had very little of it.
[48:48] Speaker 2: And eventually this went from a substantially mortgage back fund
[48:52] Speaker 2: to just another treasury fund.
[48:55] Speaker 3: And that was quey exactly what they wanted to tappen.
[49:00] Speaker 3: It's kind of crazy because it brought it took down
[49:02] Speaker 3: risk free rates they wanted. And so I don't know
[49:07] Speaker 3: if you or others and other investors in your funds decided,
[49:11] Speaker 3: all right, well, if we want to get a return,
[49:12] Speaker 3: we got to move further out on the risk card.
[49:14] Speaker 3: That was exactly what they were trying. You just you
[49:16] Speaker 3: just explained QUI to an action like the way they
[49:20] Speaker 3: wanted to do it.
[49:21] Speaker 2: And the ironic thing is the first person who said
[49:25] Speaker 2: that to me about risk capital was Jim Bianco summer
[49:31] Speaker 2: of nine in a canoe, maybe it was ten in Maine.
[49:37] Speaker 3: You're you're at the David Kotok.
[49:39] Speaker 2: That's right, And he had said the purpose of quantitative
[49:43] Speaker 2: easing is to get people out of the safe all
[49:47] Speaker 2: of the risk aversion that people developed during the financial crisis,
[49:51] Speaker 2: flooding into money market and bonds. Hey, in order for
[49:54] Speaker 2: the economy to work, we need this money to.
[49:56] Speaker 3: Move and the right of way. The purpose, this is
[49:59] Speaker 3: another thing is like I was always amused by how
[50:02] Speaker 3: like people on Wall Street reacted to stories because they
[50:05] Speaker 3: very often thought the stories were foreign about them. But
[50:08] Speaker 3: the purpose wasn't to get like the end goal wasn't
[50:11] Speaker 3: to get you guys to move out the risk curve.
[50:14] Speaker 3: It was to ease financial conditions in a way that
[50:18] Speaker 3: economic activity that was being put off for five years
[50:21] Speaker 3: from now would take place now instead. Right, it was
[50:25] Speaker 3: to get people to it was to generate economic activity
[50:29] Speaker 3: today that was being deferred because people were so underwater
[50:32] Speaker 3: or uncertain.
[50:33] Speaker 2: So it's funny to use the word underwater. I always
[50:37] Speaker 2: assumed that the way to recover from a crisis is
[50:42] Speaker 2: the mistake wasn't letting Lehman Brothers collapse. The mistake was
[50:46] Speaker 2: many more banks should have been allowed to collapse. Right,
[50:50] Speaker 2: tear the band aid off, have the government provide veteran
[50:54] Speaker 2: possession financing, so all these companies, you know, the joke was,
[50:58] Speaker 2: there's no such thing is toxic paper, only toxic prices
[51:03] Speaker 2: at the right price. These pools have bid, mortgages, had balance.
[51:06] Speaker 3: That's the age old debate in finance, right is you know,
[51:10] Speaker 3: if you bail them out, you're putting off all these
[51:13] Speaker 3: hard decisions. Basically, I remember talking to Bill Dudley about this.
[51:18] Speaker 3: But you know, basically, what you're doing is trying to
[51:20] Speaker 3: smooth smooth out the curve so that there isn't as
[51:23] Speaker 3: much damage today. You're bringing forward some activity, but by
[51:27] Speaker 3: by design, you're actually putting off some of the damage
[51:31] Speaker 3: for the future. The alternative is you tear the band
[51:34] Speaker 3: aid off, you get to the right price. But the
[51:36] Speaker 3: worry at the FED at the moment was that they
[51:38] Speaker 3: were replaying the Great Depression. And in the Great Depression,
[51:42] Speaker 3: what happened was the price didn't correct and readjust the
[51:46] Speaker 3: whole process of destruction fed on itself and it became
[51:52] Speaker 3: its own self feeding equilibrium that took a decade to
[51:55] Speaker 3: get out. And so that's the choice they made, was
[51:58] Speaker 3: that they didn't they didn't want to go down on
[52:00] Speaker 3: this path where banks start collapsing, there's no credit, Businesses
[52:04] Speaker 3: start collapsing, people get laid off, people have no money
[52:07] Speaker 3: to spend. More, banks collapse more, you know, So like
[52:10] Speaker 3: they were trying to short circuit that kind of process.
[52:13] Speaker 2: Although obviously we have the FDIC, we have all these
[52:16] Speaker 2: other structures in place to prevent.
[52:19] Speaker 3: That, but that wasn't enough. Lehman Brothers wasn't FDIC insurance, right,
[52:22] Speaker 3: And that was so here's my analogy.
[52:24] Speaker 2: But City, Chase, Wells Fargo go through all the lists.
[52:28] Speaker 2: There were plenty of banks. Chase was fine, but Wells
[52:32] Speaker 2: Fargo ran it's trouble and yeah, well but they're insured
[52:36] Speaker 2: not a bank, right.
[52:36] Speaker 3: But that's what I'm That's what I'm saying. The thing,
[52:39] Speaker 3: what they what they recognized was that they were replaying
[52:43] Speaker 3: the potentially the Great Depression, but the old story of
[52:47] Speaker 3: a bank run had been had been altered, and now
[52:51] Speaker 3: we're dealing with very exotic instruments and institutions that didn't
[52:56] Speaker 3: fall under the institutions that were that didn't fall under
[52:59] Speaker 3: the calls that were created during the Great Depression. And
[53:05] Speaker 3: you know, they were potentially going back.
[53:06] Speaker 2: So as we were speaking earlier, and it's a little
[53:08] Speaker 2: ironic they avoided the Great Depression, but sort of an
[53:13] Speaker 2: unintended consequence was they helped lead us to the French Revolution.
[53:18] Speaker 3: But yeah, yeah, in fact, you know, I remember a
[53:20] Speaker 3: conversation I had with with Bernanky way back then, where
[53:24] Speaker 3: you know, he said like he expected a populous blowback.
[53:27] Speaker 3: Really yeah, he expected it, just not as far as
[53:30] Speaker 3: it went well. I mean, I think he was surprised
[53:32] Speaker 3: by where it came from, right. I don't think he
[53:34] Speaker 3: would have expected it to have come from the right.
[53:36] Speaker 2: Well, that whole Rick Santelli, you know, tea party nonsense.
[53:41] Speaker 3: I had run in with Rick during that hotey.
[53:43] Speaker 2: I mean, wait, we're bailing out banks to the tunes
[53:46] Speaker 2: of tens of billions of dollars, but the people who
[53:50] Speaker 2: applied for mortgages, you're just gonna cut them loose. That
[53:53] Speaker 2: seemed to be what yeah.
[53:55] Speaker 3: And yeah, and there were a lot of consequences that
[54:00] Speaker 3: It's funny you mentioned Rick because Rick I went on
[54:03] Speaker 3: with Rick on CNBC and he lectured me that I
[54:05] Speaker 3: needed to be more opinionated in my questions at press
[54:09] Speaker 3: conferences and reporting, like.
[54:10] Speaker 2: You don't understand what that's not right? It's like that
[54:14] Speaker 2: you miss you seem to think.
[54:15] Speaker 3: I'll give you one little analogy since we're talking about
[54:18] Speaker 3: My analogy for Ben Bernanke is imagine that you are
[54:22] Speaker 3: a Civil War historian at at wake Forest University, and
[54:29] Speaker 3: you're an expert on the battlefields of the Civil War.
[54:33] Speaker 3: Actually let's call University of Virginia, because Virginia was more
[54:36] Speaker 3: center places. And you're an expert on the artillery and
[54:39] Speaker 3: the battlefields and the personnel, and you know everything about
[54:42] Speaker 3: the Civil War. And then you got a job as
[54:44] Speaker 3: a consultant at the at the Pentagon, and you did
[54:47] Speaker 3: such a good job as a consultant at the Pentagon
[54:50] Speaker 3: that they made you the Defense Secretary. And then a
[54:53] Speaker 3: new Civil War broke out, but it was being fought
[54:56] Speaker 3: with drones and laser guided miss That's what happened to
[54:59] Speaker 3: Ben Bernanke. He was a great depression historian who knew
[55:04] Speaker 3: about all the battles and wrote decisive histories of it.
[55:07] Speaker 3: And then he got the job at the FED, and he,
[55:10] Speaker 3: you know, he was fighting. He was refighting what he
[55:13] Speaker 3: thought was a great depression moment. But he was doing
[55:16] Speaker 3: it with these really high tech financial instruments like credit
[55:18] Speaker 3: default swaps and credit you know, clatteralized dead obligations and
[55:24] Speaker 3: the like.
[55:25] Speaker 2: Coming up, we continue our conversation with John Hilsenrath, former
[55:30] Speaker 2: Wall Street General reporter and current research advisor at Serpa
[55:34] Speaker 2: Pinta Advisory, discussing rates, politics, and the FED. Today, I'm
[55:39] Speaker 2: Barry Ridults. You're listening to Masters in Business on Bloomberg Radio.
[55:58] Speaker 2: I'm Barry Ridult's. You're listening to Masters and Business on
[56:01] Speaker 2: Bloomberg Radio, and some of you are watching us on YouTube.
[56:06] Speaker 2: My extra special guest today John Hilson Wrath, former chief
[56:09] Speaker 2: economics correspondent and FED whisperer for The Wall Street Journal,
[56:14] Speaker 2: now an analyst and researcher at his own shop, Surpa
[56:18] Speaker 2: Pinto Advisory. So let's talk about where we are today
[56:22] Speaker 2: in the world. Starting with a quote of yours, The
[56:25] Speaker 2: old normal is dead, the new normal is here? What
[56:28] Speaker 2: does that mean?
[56:30] Speaker 3: Wow, I'll be honest with you, I don't even remember
[56:33] Speaker 3: writing that, all right, so let me remove that, but
[56:36] Speaker 3: I mean we could, but let me redefine that. Okay,
[56:39] Speaker 3: you go back to our French Revolution story. Sure, which
[56:42] Speaker 3: is I think there's a new old normal setting in
[56:45] Speaker 3: which is that? You know? I mean I think we're
[56:48] Speaker 3: living through historically changing times on several levels. So one
[56:57] Speaker 3: of those is just is information right? And this brings
[57:00] Speaker 3: me again. But I've become I've been obsessed with the
[57:02] Speaker 3: French Revolution ever since people started telling me they're going
[57:05] Speaker 3: to stick my head into the eighteen But you know,
[57:08] Speaker 3: there was an information revolution happening during the French Revolution too.
[57:12] Speaker 3: There were printing presses everywhere knew, there were pamphleteers. I mean,
[57:16] Speaker 3: the printing press had been around for a couple of centuries,
[57:19] Speaker 3: but it wasn't being mass produced. And in every village
[57:22] Speaker 3: and every you know, neighborhood in Paris.
[57:26] Speaker 2: But sent you read.
[57:29] Speaker 6: Histories, If you read histories of the French Revolution, there
[57:32] Speaker 6: were pamphleteers everywhere giving their version of events on every
[57:36] Speaker 6: street corner, and they were basically tearing down the old
[57:40] Speaker 6: institutions of the church and the aristocracy who defined the
[57:43] Speaker 6: story for the public as they saw fit.
[57:47] Speaker 3: And you know the United States too, The Declaration of
[57:50] Speaker 3: Independence was a pamphlet. They signed the thing in Philadelphia,
[57:55] Speaker 3: they fled because the British were coming, found their way
[57:58] Speaker 3: to a printing facility in Baltimore and started mass producing
[58:02] Speaker 3: the Declaration of Independence. So, you know, I think we're
[58:05] Speaker 3: going through something like that now, where the old institutions
[58:09] Speaker 3: of power in the media or are being redefined. I mean,
[58:13] Speaker 3: for goodness sake, podcasters had a bigger influence on the
[58:17] Speaker 3: last election than see and ended. It's amazing to me, Yeah,
[58:21] Speaker 3: no doubt about it. So I think that, you know,
[58:23] Speaker 3: that's an old normal, but the new normal is you know,
[58:26] Speaker 3: this technological revolution, in my mind is mind boggling. I mean,
[58:30] Speaker 3: I'm happy to sit at the table with a contemporary.
[58:34] Speaker 3: When you and I were young men, if you wanted
[58:36] Speaker 3: to take a picture.
[58:38] Speaker 2: You know, you had to get a camera. You had
[58:40] Speaker 2: a black.
[58:40] Speaker 3: Box called a camera with something called film, a canister
[58:43] Speaker 3: called film in it, and then you know, you would
[58:46] Speaker 3: take thirty six snaps and then you had to take
[58:49] Speaker 3: it to a store.
[58:50] Speaker 2: Or a photo Matt a little yellow booth.
[58:52] Speaker 3: Yeah, yeah, and it had to get you know, it
[58:54] Speaker 3: took a week in the store to get developed, and
[58:57] Speaker 3: you had to pay some amount of money. If you
[58:59] Speaker 3: wanted to do a search, you went to a library.
[59:01] Speaker 3: If you wanted to write a letter, you wrote it
[59:03] Speaker 3: with a piece of pen on a paper. You stuck
[59:05] Speaker 3: it in an envelope, put a stamp on it, put
[59:07] Speaker 3: in a blue box, and waited a month for All
[59:10] Speaker 3: of that stuff is now instantaneous, infinite, and practically costless.
[59:17] Speaker 3: And so you know, and like I've ride the subway
[59:19] Speaker 3: in New York, you look like every every you know,
[59:23] Speaker 3: three out of every four people sitting next to you
[59:25] Speaker 3: was staring at their phone. I think the information we're
[59:29] Speaker 3: living through right now is quantums of magnitude of what
[59:36] Speaker 3: they were going through, I think during the French revolutions.
[59:39] Speaker 3: So it's an interesting time to be alive, doing well.
[59:42] Speaker 2: To say nothing about bad information, misinformation, propaganda.
[59:49] Speaker 3: Bad information. The word libel has its root in part
[59:52] Speaker 3: in the French wordly bell, which were these scandalous pamphlets
[59:56] Speaker 3: that were being put out about Marie Antoinette. And I
[59:59] Speaker 3: think it was called rub Street in London. Huh, So Yeah,
[1:00:02] Speaker 3: an abundance of information includes an abundance of really bad
[1:00:06] Speaker 3: information and misinformation. So we're living through all of that
[1:00:10] Speaker 3: right now. So let's talk about quite the central bank stuff.
[1:00:14] Speaker 2: You're not quite, but let's talk about what all this
[1:00:17] Speaker 2: means for the economy, which, as you have noted, has
[1:00:22] Speaker 2: proven to be much more resilient than most forecasters have predicted.
[1:00:27] Speaker 2: Where are we, uh in the economy today? What sort
[1:00:30] Speaker 2: of job does the FED have to do balancing their
[1:00:34] Speaker 2: dual mandate in the in the post pandemic economy we
[1:00:38] Speaker 2: are living through.
[1:00:39] Speaker 3: Yeah, I mean I think I think the FED is
[1:00:42] Speaker 3: in a tough spot and it's prone to making some
[1:00:46] Speaker 3: costly mistakes right now.
[1:00:47] Speaker 2: Do you think they make mistakes or are they just
[1:00:50] Speaker 2: always late to the party.
[1:00:52] Speaker 3: No, I think they missed. I think they make mistakes.
[1:00:54] Speaker 3: They clearly made a mistake after COVID, and I understand
[1:00:57] Speaker 3: and understand what happened. So this is the thing, like
[1:01:00] Speaker 3: people attacked the KIWI programs that BERNANKI did. I think
[1:01:03] Speaker 3: you know, in the moment that he implemented them, they
[1:01:07] Speaker 3: were the net benefits were greater than the net costs
[1:01:11] Speaker 3: in those moments. What happened I think was we went
[1:01:14] Speaker 3: into another shock after COVID, and I think, you know, J.
[1:01:18] Speaker 3: Powell made a mistake. He's frankly, he's not an economist,
[1:01:22] Speaker 3: and he misread a supply shock to the economy as
[1:01:25] Speaker 3: a potential demand shock. So we took all these tools
[1:01:29] Speaker 3: off the shelves that Bernanki and yelling it created and
[1:01:32] Speaker 3: threw them at the COVID shock, which was a supply shock,
[1:01:35] Speaker 3: overstimulated demand and we got inflation. So, yes, that was
[1:01:39] Speaker 3: a mistake.
[1:01:39] Speaker 2: You're putting more of that on the FED than the
[1:01:42] Speaker 2: massive fiscal stimulus from Karzact one and two under Trump,
[1:01:46] Speaker 2: Karzac three, and all the various spending bills under Biden.
[1:01:50] Speaker 2: You think that was more monetary than fiscal.
[1:01:52] Speaker 3: I think it was all of these things combined.
[1:01:54] Speaker 2: Okay, that's fair.
[1:01:55] Speaker 3: It was. And by the way, the other thing that
[1:01:57] Speaker 3: the FED and the Trump administration did intentionally was decided
[1:02:02] Speaker 3: we're not just going to bail out the banks this time,
[1:02:04] Speaker 3: We're going to bow out the little guys. That's why
[1:02:06] Speaker 3: everybody got those checks. Everyone was reliving the trauma of
[1:02:10] Speaker 3: the two thousand and eight financial crisis when they made
[1:02:12] Speaker 3: these decisions that created a whole new trauma. My mom
[1:02:16] Speaker 3: was a historian and she talked about the kaleidoscope of history.
[1:02:20] Speaker 3: So the configuration is constantly turning and growing out of
[1:02:24] Speaker 3: whatever last configuration we were in. The FEDS made a mistake,
[1:02:28] Speaker 3: a discreete mistake, and the mistake in two thousand and
[1:02:32] Speaker 3: I'm sorry twenty twenty twenty twenty one was over stimulating
[1:02:35] Speaker 3: in the face of a suppleas shock, but to get
[1:02:39] Speaker 3: to come more to you know. And I think one
[1:02:41] Speaker 3: of the problems that economists have is they call certain
[1:02:44] Speaker 3: things like a law or a rule, and they think
[1:02:48] Speaker 3: when they once it's called a law or rule, then
[1:02:50] Speaker 3: it must always be true, right the psalm rule. Claudia
[1:02:53] Speaker 3: Sam brilliant economists, wonderful person, you know, she noticed a
[1:02:58] Speaker 3: correlation between that's, you know, a certain moments when the
[1:03:00] Speaker 3: unemployment rate rises a certain amount of i think a
[1:03:03] Speaker 3: half percentage point over a six month period, it tends
[1:03:06] Speaker 3: to keep going up. That's like in a historical observation.
[1:03:10] Speaker 3: It's not a law written into rules about never.
[1:03:13] Speaker 2: From a zero percent interest rate and a sub four
[1:03:16] Speaker 2: percent unemployment rate, like when yeah, where some rule didn't
[1:03:21] Speaker 2: work was coming from levels that historically had never existed.
[1:03:25] Speaker 3: Yeah, so yeah, you have to look at the situation
[1:03:30] Speaker 3: you're in right now, and these rules of thumb and
[1:03:33] Speaker 3: people do you know, they're like, oh, GDP contracted, you know,
[1:03:36] Speaker 3: we're close to it. I think you have to look
[1:03:38] Speaker 3: at the situation you're in and make the most sense
[1:03:42] Speaker 3: of it that you can. So where are we right now?
[1:03:44] Speaker 3: So growth has proven to be more resilient than a
[1:03:47] Speaker 3: lot of people expected. But employment is slowing down, inflation
[1:03:52] Speaker 3: is above the FEDS two percent target. What sense do
[1:03:57] Speaker 3: I make of this? I think that the economy has
[1:04:00] Speaker 3: slowed down a little bit. But coinciding with all this
[1:04:03] Speaker 3: uncertainty from the tariff shock is we're going through an
[1:04:06] Speaker 3: investment boom. We're going through, you know, a technology driven
[1:04:10] Speaker 3: investment boom right now, which by the way, could hurt
[1:04:13] Speaker 3: labors and workers in the long run, and maybe we're
[1:04:16] Speaker 3: seeing some of that as we speak. By the way,
[1:04:19] Speaker 3: I also think that if the demand for capital is
[1:04:22] Speaker 3: rising for investment in AI and data centers, higher demand
[1:04:27] Speaker 3: for capital should mean a higher equilibrium interest rate, a
[1:04:30] Speaker 3: higher cost of capital. Right, If the demand for capital
[1:04:33] Speaker 3: is higher, then the price for capital should be higher.
[1:04:36] Speaker 3: And you know, but the FED is being asked to
[1:04:38] Speaker 3: respond to a labor market that's softening. You know. My
[1:04:43] Speaker 3: own concern is that the FED, is that the FED
[1:04:48] Speaker 3: is going to ease into the slowdown in the job
[1:04:50] Speaker 3: market when the financial markets are on fire, when it
[1:04:55] Speaker 3: thinks the risk free rate is lower than it actually is,
[1:05:00] Speaker 3: and when they're still an inflation problem, and they're gonna
[1:05:03] Speaker 3: light even more of a fire into these markets, which
[1:05:06] Speaker 3: might feel good for a few months for you know,
[1:05:09] Speaker 3: as we saw, and they're only two thousands, late nineties,
[1:05:11] Speaker 3: go on for years, but those situations often don't end well.
[1:05:15] Speaker 2: So you I want to combine two of the things
[1:05:18] Speaker 2: you said. You mentioned we're above the feds two percent
[1:05:21] Speaker 2: inflation target, But why is that a rule? If you
[1:05:25] Speaker 2: look at the two thousands, two thousand and ten tens era,
[1:05:30] Speaker 2: two percent was an upside monetary target. Yeah, from below.
[1:05:35] Speaker 2: Now we've kind of pivoted into a fiscal stimulus era. Yeah,
[1:05:40] Speaker 2: two percent is a downside target.
[1:05:42] Speaker 3: Yeah.
[1:05:42] Speaker 2: Should you have the same inflation target in the twenty
[1:05:46] Speaker 2: twenties that you had in the two thousands and twenty tens.
[1:05:49] Speaker 3: Yes, one hundred percent. It should be immutable, so it
[1:05:53] Speaker 3: should always be percent, because it is now and it's
[1:05:57] Speaker 3: in everybody's interest to keep it there. And here's why.
[1:05:59] Speaker 3: So we have a fiat currency, right and so you know,
[1:06:04] Speaker 3: if you go back two hundred years, three hundred years,
[1:06:06] Speaker 3: the anchor for that currency was was gold. You know,
[1:06:12] Speaker 3: people would say your money is as good as gold
[1:06:14] Speaker 3: if you if you had a dour today, you could
[1:06:16] Speaker 3: buy x number of ounces with that door today. That
[1:06:19] Speaker 3: was the anchor for the currency. Gold doesn't work as
[1:06:22] Speaker 3: an anchor for the currency. In my humble opinion, do
[1:06:24] Speaker 3: you know that Americans spend about the last time I
[1:06:28] Speaker 3: looked at this, about as much money every year on
[1:06:30] Speaker 3: dry cleaning as they spend on gold. And do you
[1:06:34] Speaker 3: know that the that the that the largest producers of
[1:06:37] Speaker 3: gold in the world include countries like Russia and South
[1:06:42] Speaker 3: Africa and Venuzu not the most stable producers. So like,
[1:06:46] Speaker 3: so why would we anchor our currency to to an
[1:06:50] Speaker 3: idea like like gold? What you want to have an anchor? Now,
[1:06:54] Speaker 3: so the inflation target, what inflation is is an anchor
[1:06:59] Speaker 3: that you know you're dollar is going to be worth
[1:07:03] Speaker 3: a known and set amount every single year. It is.
[1:07:07] Speaker 3: The two percent inflation target is the gold standard of
[1:07:10] Speaker 3: the past. And in my mind, it's a more sensible
[1:07:13] Speaker 3: gold standard because it touches a wider array of what
[1:07:16] Speaker 3: it costs us to live. So then the question becomes, well,
[1:07:19] Speaker 3: hy two percent? Well, so the answer is because that's
[1:07:23] Speaker 3: what they chose because and you know, and this actually
[1:07:26] Speaker 3: I go through this in my book about Yellen. But
[1:07:28] Speaker 3: you know, well, why shouldn't it be zero? Well, the
[1:07:30] Speaker 3: fear is. The fear was that if your anchor is zero,
[1:07:34] Speaker 3: then interest rates are always very low. And when you
[1:07:37] Speaker 3: get to a point where the economy is slow is
[1:07:39] Speaker 3: slowing down like a depression or recession, unemployment is rising,
[1:07:43] Speaker 3: the central bank can't do anything exactly what we live
[1:07:45] Speaker 3: through in the eight period. You need to have the
[1:07:48] Speaker 3: inflation number a little bit above zero. We want you
[1:07:53] Speaker 3: want it low, but you wanted something above zero so
[1:07:55] Speaker 3: that the Fed has a little wiggle room to support
[1:07:57] Speaker 3: the economy in a crisis. That's the idea. So you
[1:08:00] Speaker 3: could say, well, it should have been three percent, it
[1:08:02] Speaker 3: should have been four percent, okay, but we chose two percent.
[1:08:05] Speaker 3: And once you've chosen it, then it's very hard to say, like,
[1:08:09] Speaker 3: we choose something else. Now.
[1:08:11] Speaker 2: I read a paper by former FED Vice chair Roger
[1:08:15] Speaker 2: Ferguson about the two percent target, and Ferguson said, it's
[1:08:21] Speaker 2: a random number that came out of New Zealand's where
[1:08:24] Speaker 2: someone just happened to be talking about inflation in the
[1:08:28] Speaker 2: nineteen eighties and they tossed out two percent. And that's
[1:08:32] Speaker 2: the history of it. It traces to a New Zealand
[1:08:34] Speaker 2: banker discussion first fifty.
[1:08:36] Speaker 3: Years, first mover advantage. There was, there was, there was
[1:08:39] Speaker 3: certainly an element to it. But I want to say
[1:08:41] Speaker 3: something else about it because people sometimes make this argument that,
[1:08:44] Speaker 3: you know, why should you accept any inflation where we're
[1:08:47] Speaker 3: debasing our currency. The currency today is worth five percent
[1:08:51] Speaker 3: of what it was worth ten percent of what it
[1:08:53] Speaker 3: was worth, you know in nineteen thirteen when the Fed
[1:08:57] Speaker 3: was creative. But like you had, like in my mind,
[1:09:00] Speaker 3: what matters is the purchasing power of an hour of
[1:09:03] Speaker 3: your labor. Right, So exactly, if inflation is going up
[1:09:06] Speaker 3: two percent a year, okay, that's one thing. If you're
[1:09:09] Speaker 3: earning three percent of year for your labor, if you're
[1:09:12] Speaker 3: earning five percent a year for your capital, then you're
[1:09:16] Speaker 3: getting ahead. And it would be impossible for anyone to
[1:09:19] Speaker 3: argue to me that the human condition is I mean
[1:09:23] Speaker 3: on many levels, maybe psychological. I can't make this case,
[1:09:26] Speaker 3: but the human condition is worse today than it was
[1:09:30] Speaker 3: in nineteen thirteen. Of course, well like America became a
[1:09:33] Speaker 3: world superpower in nineteen So it's just it doesn't make
[1:09:36] Speaker 3: sense to me when people say you're debasing the currency,
[1:09:39] Speaker 3: Like what I want to say is against what measure.
[1:09:43] Speaker 3: Here's another Like when I was covering the.
[1:09:45] Speaker 2: Dollar is not supposed to be a permanent store of value.
[1:09:49] Speaker 2: It's a medium of exchange. If you're holding on to
[1:09:51] Speaker 2: a dollar for a century, you've made some financial errors.
[1:09:55] Speaker 2: That's not what you're supposed to do.
[1:09:57] Speaker 3: People used to always say to me, and I used
[1:09:59] Speaker 3: to hear them say when I was covering the FED,
[1:10:01] Speaker 3: that the FED is destroying the value of the dollar,
[1:10:04] Speaker 3: And like, I spent a lot of time. This gets
[1:10:06] Speaker 3: to something I think we're going to think about, like, well,
[1:10:08] Speaker 3: so what does that mean when the Fed? Like one
[1:10:11] Speaker 3: of my principles for writing was like I need to
[1:10:14] Speaker 3: be able to break things down to their to their
[1:10:17] Speaker 3: like their their core, meaning, like, what does it mean
[1:10:20] Speaker 3: when you say that the FED is destroying the value
[1:10:23] Speaker 3: of the currency.
[1:10:24] Speaker 2: They're dimasing it?
[1:10:25] Speaker 3: Yeah?
[1:10:26] Speaker 2: Yeah, but like a metal, precious metal.
[1:10:28] Speaker 3: But you know, so you couldn't say that like kind
[1:10:30] Speaker 3: of relative to other currencies, because the dollar was going up.
[1:10:33] Speaker 3: And while it's you know, the purchasing power of a
[1:10:36] Speaker 3: dollar today was going down. The purchasing power of your
[1:10:38] Speaker 3: income exactly is long. And this again brings me back
[1:10:42] Speaker 3: to the revolution, because this is also technological revolution. A
[1:10:46] Speaker 3: lot of working class Americans got left behind during this
[1:10:50] Speaker 3: era of technology and globalization. And what happened was the
[1:10:54] Speaker 3: purchasing power of their labor declined. It wasn't the FED
[1:10:59] Speaker 3: that did that from inflation. Inflation was very stable. The
[1:11:02] Speaker 3: purchasing power of the labor declined because they were competing
[1:11:05] Speaker 3: against you know, low wage workers in Mexico and China,
[1:11:09] Speaker 3: and because they were competing against machines that were replacing
[1:11:11] Speaker 3: them in the workplace. And so it is true. It
[1:11:14] Speaker 3: is a fact, and this is another part of the
[1:11:16] Speaker 3: revolution which is related and potentially intensifying. We've lived for
[1:11:22] Speaker 3: twenty five years into this kind of post industrial information
[1:11:27] Speaker 3: driven economy, and what we know about this is that
[1:11:32] Speaker 3: it exaggerates inequality, It concentrates wealth among very few people,
[1:11:37] Speaker 3: and a lot of people are being left behind. And
[1:11:40] Speaker 3: the question is and how do you like preserve the
[1:11:42] Speaker 3: value of the dollar. It's how do you preserve the
[1:11:45] Speaker 3: value of an hour of your work? You know, how
[1:11:48] Speaker 3: do you find work that's going to keep you keep
[1:11:51] Speaker 3: your family fed and get your kids through school and
[1:11:53] Speaker 3: you know, get you your trip to Disneyland.
[1:11:56] Speaker 2: You know, the federal government dropped the ball. And we
[1:11:59] Speaker 2: see it in some specific industries like if you're shutting
[1:12:03] Speaker 2: coal mines in West Virginia, well you have to retrain
[1:12:06] Speaker 2: those people to do something else. And if you work
[1:12:10] Speaker 2: in a furniture factory, a garment factory, any of the
[1:12:14] Speaker 2: low end manufacturing businesses that all left, those people have
[1:12:19] Speaker 2: to be retrained.
[1:12:20] Speaker 4: Well.
[1:12:20] Speaker 3: But so yes, so, I mean I kind of I wrote,
[1:12:22] Speaker 3: I wrote a lot about this, and we did, but
[1:12:24] Speaker 3: it's not It wasn't as if we didn't recognize we
[1:12:30] Speaker 3: I mean, all right, I'll just say it. The elites
[1:12:33] Speaker 3: who were driving the bus, uh didn't recognize that there
[1:12:37] Speaker 3: was a challenge there. You know, there was a Trade
[1:12:41] Speaker 3: Adjustment Act, right, there were facilities that were meant to
[1:12:44] Speaker 3: get people retrained.
[1:12:47] Speaker 2: Uh.
[1:12:48] Speaker 3: And then and there was a vast American community college
[1:12:50] Speaker 3: system which was meant to be a vehicle to get
[1:12:53] Speaker 3: people retrained. But I talked to people from manufacturing, you know,
[1:12:56] Speaker 3: from furniture plants and Hickory, which is one of my
[1:12:59] Speaker 3: favorite and nowlogies for America because Hickory, North Carolina is
[1:13:03] Speaker 3: right next to Charlotte. One's a banking center, one was
[1:13:05] Speaker 3: a furniture center. One went one way, one went red,
[1:13:08] Speaker 3: one went blue, one did better, one did worse. Anyway. Yeah,
[1:13:12] Speaker 3: I talked to people in these plants and Hickory, and
[1:13:14] Speaker 3: they're like, you know, I didn't finish high school. Now
[1:13:17] Speaker 3: you're telling me to go out. I'm fifty years old.
[1:13:20] Speaker 3: I got I gotta go and re educate myself. And
[1:13:23] Speaker 3: then like for the people who actually went through it
[1:13:25] Speaker 3: and did it, You're like, I was making twenty five
[1:13:28] Speaker 3: dollars an hour with bent, with a pension and health benefits.
[1:13:32] Speaker 3: Now I'm a phlebotomist. You know, I'm pulling blood out
[1:13:35] Speaker 3: of people's veins, making twelve dollars an hour at a hospital.
[1:13:40] Speaker 3: It didn't work for them, and the you know, this
[1:13:44] Speaker 3: was one of the great errors of the economics and
[1:13:47] Speaker 3: economic policy profession of the last twenty five years is
[1:13:50] Speaker 3: they didn't think that stuff through and the politics didn't
[1:13:54] Speaker 3: really weren't conducive to addressing that problem, but it and
[1:13:58] Speaker 3: this is my this is one of my kind warnings,
[1:14:01] Speaker 3: warnings for politicians, say, I don't see how anyone is
[1:14:04] Speaker 3: fixing that underlying problem that we live in a post
[1:14:07] Speaker 3: industrial economy that bifurcates wealth and income. And frankly, I
[1:14:12] Speaker 3: don't think it's realistic to expect we're going to reindustrialize
[1:14:16] Speaker 3: this country.
[1:14:17] Speaker 2: Even if we do, it'll be automated.
[1:14:19] Speaker 3: It's going to be exactly it's it's it's going to
[1:14:21] Speaker 3: be machines, and we're moving out of an industrial ear,
[1:14:25] Speaker 3: you know. So the so my question is like, how
[1:14:28] Speaker 3: do you I talk to an economist David Otter, who's
[1:14:31] Speaker 3: thought a lot about this stuff. He wrote the papers
[1:14:34] Speaker 3: about the China shock. You know, our work is not
[1:14:38] Speaker 3: only a source of kind of fulfillment and income, but
[1:14:41] Speaker 3: but the way we work is also the way we
[1:14:43] Speaker 3: distribute wealth and income. And so if the whole nature
[1:14:47] Speaker 3: of work is changing because of technology, then like, are
[1:14:51] Speaker 3: we thinking about how we're going to manage the distributional
[1:14:54] Speaker 3: effects of that? And I'm not like saying this as
[1:14:56] Speaker 3: some kind of you know, screaming, bleeding hord liberal. I
[1:15:01] Speaker 3: mean Donald Trump actually got elected because of the disaffected
[1:15:05] Speaker 3: American working class. And I don't think either party has
[1:15:08] Speaker 3: has actually gotten their hands around it. I wrote a
[1:15:11] Speaker 3: book about Jenny All, and I talked a lot of time,
[1:15:13] Speaker 3: spent a lot of time talking to Democrats about this.
[1:15:16] Speaker 3: I don't think any of these people have gotten their
[1:15:18] Speaker 3: hands around how do we navigate this, like this revolution
[1:15:21] Speaker 3: that we're going through the economic post industrial revolution.
[1:15:25] Speaker 2: So so I have one last question I'm going to
[1:15:28] Speaker 2: ask you before we get to our favorite questions we
[1:15:31] Speaker 2: ask old guests. Okay, but you've been alluding at it,
[1:15:33] Speaker 2: so feel free to go back to a previous conversation.
[1:15:38] Speaker 2: What do you think investors are not talking about but
[1:15:42] Speaker 2: should be. It could be a policy issue, an asset class,
[1:15:46] Speaker 2: a data point.
[1:15:47] Speaker 3: That that's it.
[1:15:48] Speaker 2: But I think it's yeah, that's why it's the it's.
[1:15:50] Speaker 3: The inequality issue because and when I said, I don't
[1:15:53] Speaker 3: want to use I don't want to use the word
[1:15:55] Speaker 3: inequality in like the kind of conventional politically divisive way.
[1:16:00] Speaker 3: What what I mean is that you know, an economy
[1:16:04] Speaker 3: creates income and wealth, and how that income and wealth
[1:16:08] Speaker 3: is distributed distributed across the population is a result of
[1:16:12] Speaker 3: the way. And and by the way.
[1:16:14] Speaker 2: There is for a chart on this exact.
[1:16:16] Speaker 3: There is there is no law. There is no rule
[1:16:19] Speaker 3: in economics that says that wealth and income will be
[1:16:26] Speaker 3: distributed in a fixed or predictable way. You know, the
[1:16:30] Speaker 3: agricultural era, uh what did not create an economic system
[1:16:36] Speaker 3: or that that distributed wealth and income equally. It was
[1:16:41] Speaker 3: very unequal. You had kings and queens and peasants, right.
[1:16:45] Speaker 3: It just so happened that the industrial economy distributed created
[1:16:48] Speaker 3: a vast middle class because you needed people attached to
[1:16:51] Speaker 3: machines to make the stuff that made our lives more comfortable.
[1:16:55] Speaker 3: But there's no rule that I see that says, moving
[1:16:57] Speaker 3: into a post industrial, high tech world, that this whole
[1:17:01] Speaker 3: new world is going to distribute income and wealth in
[1:17:04] Speaker 3: the same way. And so my question is what are
[1:17:06] Speaker 3: we doing about that? And by the way, I think
[1:17:08] Speaker 3: the institutions we talked about norms before, the institutions that
[1:17:13] Speaker 3: we've created over the last two hundred years, we're built
[1:17:16] Speaker 3: for an industrial economy. Our tax base, our voting systems,
[1:17:21] Speaker 3: everything is built for an industrial you know. So to me,
[1:17:23] Speaker 3: the big existential question is, you know, how are we
[1:17:27] Speaker 3: going to manage the distributional effects of income and wealth
[1:17:33] Speaker 3: creation and a high tech, high information economy.
[1:17:36] Speaker 2: I saw a table this morning. I can't I can't
[1:17:39] Speaker 2: find it now, but it basically shows a number of
[1:17:43] Speaker 2: industrialized countries and what percentage of their workforce is below
[1:17:52] Speaker 2: the median income and the US and UK are substantially
[1:17:59] Speaker 2: I think something like twenty three twenty four percent substantially below.
[1:18:03] Speaker 2: You look at other countries like Japan, the difference between
[1:18:06] Speaker 2: the mean and the median isn't that big. And when
[1:18:10] Speaker 2: you have a very skewed distribution like you're describing, that
[1:18:14] Speaker 2: gap gets bigger and bigger. So I'll dig up that table.
[1:18:17] Speaker 3: Well, you said it to me, I'd love to see.
[1:18:18] Speaker 2: I'll say, I'll share it with you and I'll post
[1:18:21] Speaker 2: it when we when we this goes live. But it's
[1:18:24] Speaker 2: kind of fascinating because you don't think of the country
[1:18:27] Speaker 2: that way. And when you look at what was it
[1:18:30] Speaker 2: the Z one flow of funds that the Fed puts
[1:18:32] Speaker 2: out good one, you can see that gap getting bigger
[1:18:37] Speaker 2: and bigger, especially since the nineties. I mentioned unintended consequences.
[1:18:43] Speaker 2: Some legislation passed by the Clinton administration to cap executive
[1:18:47] Speaker 2: compensation at I want to say it was a million
[1:18:49] Speaker 2: dollars or two million dollars that just led to massive
[1:18:53] Speaker 2: equity compensation.
[1:18:54] Speaker 3: Right, help drive and by the way, accounting fraud, that's right,
[1:18:58] Speaker 3: that's right.
[1:18:59] Speaker 2: So not only did you are you driving people to
[1:19:01] Speaker 2: hyper focus on the quarterly calls leading to some quarterly
[1:19:04] Speaker 2: yearnings leading to some monkey business, but people getting paid
[1:19:09] Speaker 2: in equity we're making and so that.
[1:19:11] Speaker 3: From political perspective, for Republicans, how are you going to
[1:19:14] Speaker 3: take care of the working class? Are these promises about reindustrialization?
[1:19:21] Speaker 3: Can you realize them? And for the Democrats, how are
[1:19:23] Speaker 3: you going to win people back? Because they lost them
[1:19:25] Speaker 3: Donald Trump took them from him. Well, the question is,
[1:19:28] Speaker 3: and by the way, is terms of the FED. All
[1:19:29] Speaker 3: the FED can ever do is make a mistake. It's
[1:19:32] Speaker 3: like his job is to prevent financial crises and keep
[1:19:35] Speaker 3: inflation stable. Like people love to attack the FED because
[1:19:40] Speaker 3: you know, you only notice it when it's screwing something up.
[1:19:44] Speaker 2: So and and by the way, for getting things right.
[1:19:46] Speaker 3: One other thing about the FED is, you know, I
[1:19:50] Speaker 3: live in Washington, d C. It's this place where like
[1:19:55] Speaker 3: people like ninety percent of people, what they're doing you know,
[1:20:00] Speaker 3: time is spinning you and trying to get you to
[1:20:03] Speaker 3: believe his story that's in their personal or institutional economic interests.
[1:20:09] Speaker 3: The Fed is out there trying to tell people what
[1:20:11] Speaker 3: it thinks it's going to do. Like you could give
[1:20:13] Speaker 3: them a hard time for making mistakes. I've just said
[1:20:16] Speaker 3: I think J. Powell made mistakes, but like, at least
[1:20:20] Speaker 3: they're trying to be honest about what they're up to.
[1:20:22] Speaker 3: I got to answer, and so many other people in
[1:20:24] Speaker 3: Washington are trying to mislead you. You know, I admire
[1:20:26] Speaker 3: them for trying to be straight.
[1:20:28] Speaker 2: I got to ask you a question. You've lived in
[1:20:29] Speaker 2: New York, you've lived in Washington, d C. Which town
[1:20:33] Speaker 2: is more transactional.
[1:20:35] Speaker 3: Oh oh, that's a good question. I didn't think you
[1:20:37] Speaker 3: were going in that. They're both transactional. But the difference
[1:20:40] Speaker 3: is in New York is a transactional town, and everyone's
[1:20:44] Speaker 3: looking out for their own interests, and everybody knows that, right,
[1:20:49] Speaker 3: and everybody knows that and accepts that is like the
[1:20:51] Speaker 3: rules of the game. Right in Washington, it's all transactional
[1:20:56] Speaker 3: and everyone's out for their own interests. But they're trying
[1:20:58] Speaker 3: to make you believe that they're doing it for you,
[1:21:01] Speaker 3: and and and that's why it all looks so hypocritical,
[1:21:05] Speaker 3: because like they're yes, they're totally transactional, and they're totally
[1:21:08] Speaker 3: trying to advance their party or their power or their
[1:21:12] Speaker 3: their you know, fundraising, but they're trying to make you
[1:21:15] Speaker 3: believe that they're doing it for you, to help you
[1:21:17] Speaker 3: so that your children will be better off.
[1:21:19] Speaker 2: Right.
[1:21:20] Speaker 3: And I'm sorry, I've got I've grown a little cynical
[1:21:22] Speaker 3: about No, I m I much prefer being in New York.
[1:21:25] Speaker 2: I asked that question because I had a feeling you're
[1:21:27] Speaker 2: going to go that way. New York. There's no pretending Yeah,
[1:21:31] Speaker 2: it's transactional because it's the center of US capitalism. DC
[1:21:37] Speaker 2: is something else.
[1:21:37] Speaker 3: Yeah, And like New York is traders, and it always
[1:21:40] Speaker 3: has been, Washington is lawyers. Here's my other New York
[1:21:43] Speaker 3: Washington analogy. If you're driving down the street in New York,
[1:21:47] Speaker 3: although you can anymore because there's so much traffic, if
[1:21:50] Speaker 3: you kind of move in and out of one lane,
[1:21:52] Speaker 3: if you kind of overstep your bounds, someone will honk
[1:21:55] Speaker 3: the horn, give you the finger, and keep driving. Right.
[1:21:58] Speaker 3: If you do that in Washington instead of giving you
[1:22:01] Speaker 3: their middle finger. They'll point their pointing finger. They'll wag
[1:22:04] Speaker 3: their finger at you and tell you you broke a
[1:22:06] Speaker 3: rule and then like threatened to turn you in. And then,
[1:22:09] Speaker 3: by the way, there are speed cameras everywhere. It's a
[1:22:12] Speaker 3: little bit more oppressive ever place.
[1:22:14] Speaker 2: I think, really amusing. All right, so I only have
[1:22:17] Speaker 2: you for a certain amount of time. Let's jump to
[1:22:19] Speaker 2: our favorite questions we ask all of our guests, starting
[1:22:22] Speaker 2: with who are your mentors who helped shape your career?
[1:22:27] Speaker 3: Well, so, I'd have to say one of my most
[1:22:29] Speaker 3: important important mentors at the Journal was a guy named
[1:22:32] Speaker 3: David Wessel, who covered the David Wessel covered the fad
[1:22:37] Speaker 3: in the nineteen nineties, was just like an institution in
[1:22:40] Speaker 3: economics and economic policy coverage. He gave me chances and
[1:22:44] Speaker 3: he was usually nice to me. So yeah, he's a
[1:22:48] Speaker 3: tough boss too. Dave Wessell was a great guy and
[1:22:50] Speaker 3: my best friend at the Journal all those years was
[1:22:54] Speaker 3: a guy named Bob Davis. Gentleman, good guy, great reporter.
[1:22:58] Speaker 2: Number one in terms of one bylines.
[1:23:01] Speaker 3: Yeah, man, I And and by the way, Nick tim
[1:23:03] Speaker 3: Rose is going to pass me pretty Oh really, I'm
[1:23:05] Speaker 3: sure I have I don't know the numbers, but I'm Nick.
[1:23:08] Speaker 3: Nick is my successor, uh covering the FED. He'll pass me,
[1:23:13] Speaker 3: but I don't know he's gonna catch Bob Davis.
[1:23:15] Speaker 2: That's amazing. Let's talk about books. What are some of
[1:23:18] Speaker 2: your favorites. What are you reading?
[1:23:19] Speaker 3: Well, I've been reading. I've alluded to this. I've been
[1:23:21] Speaker 3: reading a bunch about the French Revolution. I'm also reading
[1:23:24] Speaker 3: the book Sapiens, but I can't remember his full name. Harari. Yeah,
[1:23:29] Speaker 3: you'v all Harari. It's a pretty bleak perspective on humanity,
[1:23:33] Speaker 3: very I think I. I think I. I'm a little
[1:23:36] Speaker 3: more optimistic about our species and its intentions, but there's
[1:23:42] Speaker 3: interesting insights in there. Like I The reason I picked
[1:23:45] Speaker 3: it up is I think that humans have these kind
[1:23:49] Speaker 3: of primitive brains with primitive mcdowah and emotion centers. We
[1:23:55] Speaker 3: have an industrial area era economic and political structures, and
[1:24:01] Speaker 3: we're living with twenty third century technology, and I'm trying
[1:24:06] Speaker 3: to understand the primitive parts and how that might interact
[1:24:09] Speaker 3: with all this other thing.
[1:24:10] Speaker 2: You keep bringing stuff up. I have chapters in a
[1:24:13] Speaker 2: book for you that you're going to love. What do
[1:24:15] Speaker 2: you remember the name of the French Revolution book. You
[1:24:19] Speaker 2: know you're putting email to me, I'll dig it up
[1:24:21] Speaker 2: and you crack me up. Comparing DC to a city
[1:24:25] Speaker 2: of lawyers versus New York as a city of traders.
[1:24:29] Speaker 2: I'm going to share a book title with you called
[1:24:32] Speaker 2: Breakneck China's Rush to Build the Future by Dan Wang,
[1:24:38] Speaker 2: and he compares China versus the US. The US as
[1:24:42] Speaker 2: a country of lawyers, China as a country of engineers,
[1:24:47] Speaker 2: which is why they could put up as much stuff
[1:24:50] Speaker 2: as they do, as fast as they do.
[1:24:53] Speaker 3: But we're also a country of entrepreneurs.
[1:24:55] Speaker 2: For sure, for sure, and we're not just a lot
[1:24:57] Speaker 2: of state dictated although I was going to say not
[1:25:00] Speaker 2: a state dictated of industrial policy, but that's.
[1:25:03] Speaker 3: Just so, you know, So this is another thing that
[1:25:05] Speaker 3: I just have them having a hard time getting my
[1:25:07] Speaker 3: head around. So, like, China's economy is really struggling right now.
[1:25:10] Speaker 3: They definitely pushed us, they challenged us. You know, we
[1:25:14] Speaker 3: were our workers were hurt by the incursion of china imports.
[1:25:19] Speaker 3: But we're you know, on many measures. You know, we're
[1:25:23] Speaker 3: still doing all right and winning, but we basically conceded
[1:25:26] Speaker 3: to China's economic model. It's like we're loving we're moving
[1:25:30] Speaker 3: towards the state run capital is state run capitalism, which
[1:25:33] Speaker 3: is you know, it's it's hard for me to get
[1:25:36] Speaker 3: my head around the idea that we've given up on
[1:25:39] Speaker 3: a system and a project of democratic capitalism, and that
[1:25:44] Speaker 3: that's especially is democratic change, I should say, democratic free
[1:25:48] Speaker 3: market capitalism. You know, we seem to be having our
[1:25:52] Speaker 3: doubts about it. I guess what I would hope is
[1:25:54] Speaker 3: that we don't give up on it too fast.
[1:25:57] Speaker 2: I'm curious, is this a permanent it or is this Hey,
[1:26:02] Speaker 2: let the president have his ten percent of intel. But
[1:26:06] Speaker 2: he's this is his second term and he's almost eighty
[1:26:09] Speaker 2: and this is an aptive change, Like I've heard that
[1:26:12] Speaker 2: sort of vibe from people, and I don't know how
[1:26:15] Speaker 2: serious I think.
[1:26:16] Speaker 3: I think he and his followers and his lead the
[1:26:19] Speaker 3: leaders who were working with him are vulnerable on the
[1:26:22] Speaker 3: issue of inflation in the cost of living. Got he
[1:26:25] Speaker 3: got in there and in part because people were angry
[1:26:28] Speaker 3: about the inflation of the post COVID period. Back then
[1:26:31] Speaker 3: it was we're now doing a lot of We're doing
[1:26:33] Speaker 3: a lot of things right now. It's not just tariffs,
[1:26:36] Speaker 3: but with monetary policy pushing I guarantee you. If we
[1:26:40] Speaker 3: get the interest rate down to where the President wants it,
[1:26:42] Speaker 3: we're going to have inflation. And if we don't get inflation,
[1:26:44] Speaker 3: there's going to be an asset price boom. Where again,
[1:26:47] Speaker 3: this inequality thing, there's a few people who are going
[1:26:49] Speaker 3: to make a lot of money off of that. So
[1:26:52] Speaker 3: I mean, I think that they have a little bit
[1:26:56] Speaker 3: of an achilles heel in that issue.
[1:26:58] Speaker 2: Let's talk about street. What are you listening to in
[1:27:01] Speaker 2: terms of podcasts or watching on Netflix or Amazon product.
[1:27:05] Speaker 3: I watched a really cool show called Tehran, which was
[1:27:08] Speaker 3: about Israeli Mosat agents infiltrating Tehran. It was put out
[1:27:13] Speaker 3: a couple of two three years ago infiltrating Tehran to
[1:27:18] Speaker 3: blow up their nuclear reactors. I watched it like a
[1:27:22] Speaker 3: couple of months before they went and blew up their
[1:27:25] Speaker 3: you know, so that was really interesting. I'm also just
[1:27:28] Speaker 3: I'm a sports fanatic, so I don't really I don't
[1:27:33] Speaker 3: have to. I'll tell you what. I've stopped watching cable
[1:27:35] Speaker 3: television after been participating in it for a long time,
[1:27:40] Speaker 3: but if there's a game on them, yeah, I'm a
[1:27:44] Speaker 3: football fanatic.
[1:27:46] Speaker 2: Final two questions, what advice would you give a recent
[1:27:49] Speaker 2: college grad interested in a career in financial journalism.
[1:27:54] Speaker 3: Financial journalism. All right, so I've had this talk. This
[1:27:57] Speaker 3: is getting back to the whole printing press French revel thing.
[1:28:00] Speaker 3: I mean, I think it's clear that the journalism is
[1:28:06] Speaker 3: going through a period of exceptional disruption right now, right,
[1:28:10] Speaker 3: And so the choices that I was looking at when
[1:28:13] Speaker 3: I was coming into the field of like, you know,
[1:28:15] Speaker 3: how do I get to the Wall Street Journal? How
[1:28:17] Speaker 3: do I get to the New York Times? Like, it's
[1:28:18] Speaker 3: a different set of choices, And if you use the
[1:28:22] Speaker 3: kind of pamphleteers and analogy, you know, when you see what's
[1:28:25] Speaker 3: going on, look at you. You know you started a
[1:28:28] Speaker 3: podcast and you know this has become this great thing
[1:28:31] Speaker 3: for you. I say this to young people all the time.
[1:28:34] Speaker 3: Be think expansively and creatively about where these interests might
[1:28:42] Speaker 3: take you. You know, the core skill set of getting information,
[1:28:48] Speaker 3: distilling and making sense of the information and conveying information,
[1:28:52] Speaker 3: like that's the core of journalism. That's like that's more
[1:28:54] Speaker 3: essential than ever. But the way you're going to practice
[1:28:58] Speaker 3: those skills is going to be different than what I did.
[1:29:01] Speaker 3: And you know, like I had a young student that
[1:29:04] Speaker 3: I was working with and talking to with Duke a
[1:29:07] Speaker 3: few years ago. You know, she was going down the
[1:29:09] Speaker 3: whole newspaper route. She's now doing a true crime prodcast
[1:29:12] Speaker 3: in the Midwest, and so, you know, I think that
[1:29:15] Speaker 3: there's a lot of opportunity out there for people who
[1:29:19] Speaker 3: are willing to kind of take chances and be nimble.
[1:29:21] Speaker 3: And it's scary, but there's a lot of opportunity for
[1:29:24] Speaker 3: people who can be flexible and find the opportunities and
[1:29:27] Speaker 3: go for it. And I love being a journalist. I
[1:29:31] Speaker 3: would not take There's this ritual that journalists go through
[1:29:34] Speaker 3: where like experienced journalists are constantly trying to tell young
[1:29:38] Speaker 3: journalists don't do this, it's a terrible field, it's a
[1:29:41] Speaker 3: dying profession, and go become a lawyer, you know, blah blah.
[1:29:44] Speaker 3: I had a great experience, like I'm never going to
[1:29:46] Speaker 3: tell someone not to pursue that that dreamer, that interest
[1:29:51] Speaker 3: because it was so good to me. But you've got
[1:29:54] Speaker 3: to be willing to, you know, kind of take chances
[1:29:56] Speaker 3: and go down some roads you might not expect to go.
[1:29:58] Speaker 2: Down, recognize how the as this model has changed. Yea,
[1:30:01] Speaker 2: and our final question, what do you know about the
[1:30:04] Speaker 2: world of economics finance? Central banks today might have been
[1:30:08] Speaker 2: helpful twenty five or so years ago when you were
[1:30:10] Speaker 2: starting out thirty years ago.
[1:30:12] Speaker 3: Well, I mean, I guess the basic thing is just
[1:30:14] Speaker 3: that it's so much more interesting than I expected. I
[1:30:16] Speaker 3: didn't want to get into economics writing. I did. I
[1:30:19] Speaker 3: did by accident, and I stayed in it. I wanted
[1:30:24] Speaker 3: to be a war correspondent, and what I came to
[1:30:28] Speaker 3: see was that, like or a sports writer, that the
[1:30:31] Speaker 3: great battlefields and the great arenas that really affected the
[1:30:35] Speaker 3: human condition were in markets and economics. So I guess
[1:30:41] Speaker 3: what I would tell myself now was to go into
[1:30:44] Speaker 3: it with even more conviction because it turned out to
[1:30:47] Speaker 3: be so fascinating.
[1:30:49] Speaker 2: Really really interesting. Thank you, John for being so generous
[1:30:52] Speaker 2: with your time. We have been speaking with John Hilson Wrath,
[1:30:56] Speaker 2: former chief economics correspondent for The Wall Street Journal. Today
[1:31:00] Speaker 2: he runs Serpa Pinto Advisory. If you enjoy this conversation,
[1:31:06] Speaker 2: check out any of the five hundred and sixty seven
[1:31:08] Speaker 2: we've done over the past eleven years. You can find
[1:31:11] Speaker 2: those at Bloomberg, iTunes, Spotify, YouTube, wherever you find your
[1:31:16] Speaker 2: favorite podcast. Be sure to check out my new book,
[1:31:20] Speaker 2: How Not to Invest The ideas, numbers and behaviors that
[1:31:24] Speaker 2: destroy wealth and how to avoid them, how not to
[1:31:27] Speaker 2: invest at your favorite bookseller. Now, I would be remiss
[1:31:31] Speaker 2: if I didn't thank the Crack team that helps with
[1:31:33] Speaker 2: these conversations together each week. Alexis Noriega is my video producer.
[1:31:39] Speaker 2: An A. Luke is my audio producer. Sean Russo is
[1:31:43] Speaker 2: my head of research. Sage Bauman is the head of
[1:31:45] Speaker 2: podcasts here at Bloomberg. I'm Barry Retultz. You've been listening
[1:31:49] Speaker 2: to Masters in Business on Bloomberg Radio.
[1:32:00] Speaker 1: Bass back

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