Bloomberg Audio Studios, podcasts, radio news. You're listening to the Bloomberg Balance of Power podcast. Catch us live weekdays at noon and five pm Eastern on Apple, Cockley and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Before Trump can get to his agenda on Friday, he has a lot to do here in Washington in the next few days. He will of course be attending former President Jimmy Carter state funeral tomorrow, and ahead of that, this evening, he is expected to meet at the Capitol with Senate Republicans as lawmakers look for some clarity on what exactly the legislative path forward is he would like
to pursue. There's a little bit of a difference between the Senate and the House here, and it's on the House that we'd like to focus with our next guest, the former chair of the House Financial Services Committee, someone who once held the Speaker's gavel for a brief period of time in twenty twenty three, is here with us now, former Congress and Patrick mcchenery of North Carolina here in our Washington, d C. Studios. So nice to see you on the other.
Side, Yes, and nice to be in studio as well.
It's lovely to have you as you are now on the outside looking in, anticipating what is about to happen. Now that Republicans do have entire control of Washington, how easy is it actually going to be to be able to exercise that control when it comes to some of these big ticket items we're talking about, tax reform, immigration reform, energy policy.
Big ticket items, major consequences, high stakes, narrow majorities. This is going to be a hell of a grind. That is the only way to describe it. We saw an opening day with a speaker's vote. We had fifteen votes for Speaker McCarthy's election. He got through it without help. That yet a faction within the House think that they were playing with the same dynamics as two years ago, and Speaker Johnson had his cart, which was the President elect Donald Trump, saying that this is an imperative to
elect the speaker. So we saw the dynamic shift and the power shift here in a significant way. That President Trump's power and popularity and the mechanics of good leadership in the House can lead to results. And so I think we're going to have a I think you're going
to get the big ticket items done. It's going to be the secondary issues that are going to be much much harder, and we need to lower I think Republicans need to lower their expectations on being able to achieve that in a timely manner.
I'm struck by the singular experience that Mike Johnson is having right now. You're one of the only people in the world and that is what it's like to stand in that rostrum look across the floor of the House of Representatives. We know that he's going to have an even smaller majority in this new Congress than he had before. But bring us back to that view. When you're in the rosterum and you're looking at that room in front of you and the Republican conference. We hear a lot
about the five families. What did it look like to you? Did you see these factions spread out in front of you as you were.
I spent most of my career in the House focusing on the mechanics the COO role, not the CEO role, not the chairman role, but the mechanics of the day to day and how to deliver on this So when I look out, I see the groups of people, how they're sitting, where they're sitting, their disposition, who are they talking to. Who is the person who's not supposed to be in that row talking to somebody in that row?
Why are these two people that I know hate each other, have personally told me they cannot stand each other, but they're laughing and hugging about something that's probably not good, right, It's a dangerous thing. So when you look out at the mechanics of this and what you saw from a Speaker Bayner and a Speaker McCarthy in particular, is they knew the granular details of this stuff, and Speaker Ryan came in with a different view, and I would say
that Speaker Johnson comes in with a different view. They're at the higher level of policy, the mechanics. They have not been steeped in. That's not their first order capacity. So they lead in a different way than those that understand the tactical day to day. And we're in an environment now where President Trump has this overarching has this umbrella that enables policy to be made within those powers
and within those contours. If he is definitive and certain, we're in this situation now where it just as a primary example, where if the president says he wants one reconciliation package, there'll be one reconciliation package. And if he says there are two, there will be two. And if he says maybe one, maybe two, you may get none. And so he has to be definitive in what he wants, in his expectations and then demand that congressional leaders perform to that. An uncertainty means nothing happens.
Okay. So when we look at as Joe is alluding to the many different factions here, the people you might find suspicious if they were sitting together the Freedom Caucus, for example, which caused a lot of trouble for Speaker McCarthy. That's why you had to step in for a few
weeks there to hold the gavel yourself. Are those the same people that you see as most likely to ultimately bow to what the former president and president elect is going to want, because they're the ones who are likely to push back on a debt sealing increase, on the idea of tax cuts without at least somewhat offsetting spending cuts.
Well, they're the ones that are most outspoken, and they're currently getting the most attention, but you have those that are on the moderate end of the Republican Party that are not getting attention, and they're the ones that will have significance sway over the contours of legislation as well. It is not just you know, you mentioned the five families, and it is to say that you can neatly divide this Republican Conference into five factions. They're more than that.
I mean, it's a myriad of challenges the speaker faces and you have one off challenging individuals that because of personality, because of their lack of understanding how the place works, may be problems on a weekly basis here. So it is far more complicated, complicated than the Freedom Caucus. Though the Freedom Caucus is currently shown with the nine votes that they withheld to Speaker Johnson that they have the
power to throw him out of the speakership. What they also submitted to is is an understanding that President Trump would force them to submit, and so they gave that up on the first vote. They made their show, but they did not extract any additional pain or get anything in result for that, other than to show they do have the capacity to take the speaker out. So it's a complicated thing, complicated beast. But this is why we
like this, why I love following this stuff. This is why you know, this is far more interesting than any other sporting competition. You know, there's a little fomo, but it also is a little more liberating because I don't feel that weight in the pressure of that moment to perform. But it is absolutely fascinating. It's going to be a fascinating Congress to watch.
I can't imagine how you remember that period of time when you were holding the gavel. But I think the point that you're making here is that even after Mago wins the election, House, Senate, White House, the power may in fact lie in the middle.
It does, and inevitably outside of a reconciliation package, you need to have almost with a reconciliation package, you'd have to have near unanimous Republican support that is competent.
Why won't he say what he wants like Johnson's begging for it? Just give us direction to your point.
That has always been the bag of President Trump from legislative leaders that is the first term and is now in his second term. This is part of how he operates and when people seek clarity. He may withhold that that may be a purposeful act, and I think on the most part it is. In other regards, it may be the fact that it doesn't see or his advisors don't see the need for him to step in.
Yet.
He has obviously a long list of things he would like to see accomplished that he would like to see the US turn into, including something you're very familiar with as it pertains to crypto. He wants the US to be now the bitcoin capital of the world. You obviously worked very hard on crypto legislation when you were Chair of House Financial Services. You had to do so through bipartisan negotiations that may be less mandatory now if you
will now that it will be full Republican control. How do you see the nature of any kind of market structure legislation, for example, that's going to move forward from here changing and how will it affect not just the incoming SEC chair Paul Atkins, but whoever takes Dars Benham's spot at the CFTC.
Well, so let's step back what we got with our market structure legislation called FIT twenty one, which was first of his kind on crypto giving it a regulatory definition of what is a digital asset and a regular tour and actually two regulators because we're America and we do things in a more complicated what But Fit twenty one was the result of biparson negotiations and the House of Representatives without the help of a Senate banking chair. Now
we have Tim Scott, a Senate banking chair. That is a world of difference from Democratic Senator cher Brown and
a pro administration. And I was working in an adversarial administration, highly adversarial administration, and yet I had one third of the Democratic Party joined me, including the number two and number three House Democrat, former Speaker Pelosi, significant members Jim Himes of Connecticut, serious legislators across the left of center ideology joined with House Republicans with an administration that did
not want them to do that. So I think the opportunity for Crypto legislating it goes way up because the environment is shifted, and Crypto has shown that they have capacity at the ballot box and they're willing to help their friends and go after their enemies. That is real power in Washington. They've expressed it. And if they're here to stay and here to play. They can have massive results over this Congress in future congresses.
A big change coming to the FED. Are you going to get dinner with Michael Barr no time?
Well I have that. I think Michael Barr resigning his vice chair to the FED is very good for a system of independent monetary policy and very good for the Federal Reserve. I think the likelihood that incoming President Trump would fire the head of regulation at the FED is number one warranted and number two likely to succeed in
the courts. And so for Michael Barr to step aside is actually as a direct result of this election number one, and number two the direct result of his mismanagement of the new set of regulations in bank capital standards that he couldn't even see through before the election. So I think this is a welcome and good thing for the American economy, a welcome and good thing for financial stability and banking in the United States, and very good for
our global leadership as well. I think the Federal Reserve Board does a fine job of overseeing their full powers when the board is in charge, and when they silo this off and hand it off to one individual on the board, they make mistakes, or that person keeps their does not keep their eye on the ball, like Michael Barr did not keep his eye on the ball in March with the March of twenty twenty three with the
regional banking crisis. So I think it's a welcome and good thing, and I wish him well as a member of the Board of Governors, and I'm grateful that he has gone with those additional powers of being vice chair.
Talking about the supervisory role of the FED here specifically, but you in that answer talked about the independent monetary policy setting role as well, and I wonder if you're confident about that independence in this incoming administration when just yesterday Donald Trump was at mar A Lago saying interest rates are far too high. Do you not think he's going to try to put some pressure here?
He always does, and he always will every president, well, every president has, every president has FDR tinkered with the gold supply during the Great Depression. LBJ physically assaulted the chair of the Federal Reserve, right, So he's not doing that. It mean tweets that does not make monetary policy, and the Board of Governors at the Federal Reserve have long terms as Congress designed so they can have this longer term view. And I think Jay pal has done a
fabulous job. Is share the FED. I think he's done a fabulous job. He's reining in what got out of control and inflation, and they're hitting their marks. But this president will speak his mind publicly where other presidents privately complained. And that is a big distinction between now and what was that.
We spent a lot of time in our conversation. You've been very generous with your time talking about pretty recent history. You spent twenty years doing this. I'm glad to see the bow tie is still here. So what's next for Patrick McHenry? This is going to be a massive life change for you.
It is it is this would've done my whole adult life, public policy campaigns and elections. I still want to remain involved in these big debates on financial policy. I think it's important that Americas stay at the fore front of the world of finance and we remain competitive. I have a deep interest in digital asset and cryptocurrency policy and affecting outcomes, but financial inclusion in fintech are these other areas of opportunity that I think we need to expand on.
So like to stay involved in the public policy debate, but more meaningfully in the economic consequences of our economy and participating in that in a real way.
Now, and you'll stay in touch with us.
Absolutely. This is the best place.
It is important to us.
Well, this is the best place to know what is happening day to day, moment to moment with the markets and here in Washington. So thank you all. Thanks for having me Hi Pray sir, thanks.
For being absolutely patchick. You Henry, former Congressman Republican with us at the table here in Washington.
You're listening to the Bloomberg Balance of Power podcasts. Catch us live weekdays at noon and five pm E's durn on Apple Cockley and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
A great conversation with the former Chair of the House Financial Services Committee, Patrick McHenry, who was discussing something that is very relevant today and that is the path forward on budget reconciliation. This is something Donald Trump is going to be talking about with Senate Republicans in Washington this evening, and I believe what former Congressman mckenry told us Joe was essentially, as long as Trump is clear, that is
what will happen. As long as Donald Trump, which is kind of where he is now, is suggesting one bill to bills, I'm down for anything he said. If he doesn't decide, that may be the one thing that makes sure nothing nothing happens.
That's why Mike Johnson and John Thune want an answer, and we're wondering if they get one today. Let's assemble our panel because they have feelings about this too. Rick Davis is with US Republican strategist and partner at Stone Court Capital, Bloomberg Politics contributor, joined by Democratic strategist Christy Setzer, founder New Heights Communications. Great to have you both with us here, Rick, How important is it for Donald Trump to be clear with John Thune with Senate Republicans when
they meet later on today? The clock is ticking here. If they want something out of the gate, they need to start writing legislation.
Yeah, It's obviously been in Donald Trump's interest to try and push the envelope on timing. You know, we just talked about getting some of his confirmed Senate confirmed secretaries in day one. Well, he wants to have the same kind of impact legislatively. He wants day one that the Senate and the House has stepping off on his agenda.
And what's really interesting to me is the fact that the president elects White House selection for immigration, Stephen Miller, has come out publicly saying he sided with Thune and we ought to do immigration first and get the rest of this stuff done in a second reconciliation package later.
So when you start seeing people around Donald Trump articulating a clear strategy on what they think ought to get done and they're the ones advising Donald Trump, I think it leads you to a path that could likely be an outcome today, which is Donald Trump puts his hand on Majority Leader Thun's shoulder and says, you've got the ball, get this thing rolling. I want immigration, energy, and a few other things first and and and will handle tax
cuts and other fiscal issues later. If that happens, then everyone salutes and steps off. There'll be no more debate.
Okay, Well, I'm guessing the only people saluting, really though, will be Republicans Christy, not Democrats. And I do wonder the role, if any, you see them playing in here. By nature, reconciliation means that just the majorities can get this thing through. You don't need sixty votes in the Senate, for example. So do they have any leverage in this conversation as Chuck Schumer relevant to how John Thune pursues this.
Yeah.
Sure.
We talked in the last segment about how Democrats right now are just going to try to control the things that they can, which include one sort of the controlling the media narrative a little bit. Obviously, as this process is going on, you're certainly going to see members of Congress, members of the Senate headed to cable networks to talk about what they would like to see in this process. And then they're also going to have some control, some
leverage about you know, small process things. What can they delay, what can they emphasize, that sort of thing. So it's not that I necessarily think that Democrats have too much of a preference of what gets addressed first, whether it's immigration in the border or you know, tax cuts for example. But I do think to the extent that you know, Rick was emphasizing how Donald Trump has been quick out of the gate with you know, naming potential cabinet nominees,
with legislation, wanting a big, beautiful bill, et cetera. Sure that shows that he is active, but it also shows not just your priorities, but your values. And I think that there is a lot of opportunity for Democrats right now to control the conversation about what are Donald Trump's values. We're going to talk about tax cuts. It's giving a huge benefit to people like Elon Musk and Jeff Bezos and Mark Zuckerberg and not you, right, So that is the leverage that Democrats bring right now.
Boy, I can't imagine, guys, would people think, listening to this common every day, who's going to go first? Or they could be one or two bills? My goodness, we've been talking about this for days and you start wondering exactly why it matters. Rick. But with regard to the border, if this in fact did come down to two different swings at reconciliation and they want to get to the border first, could they not get some help from Democrats
on that? Aren't there Democratic members in both chambers, frankly, but more so in the House who would like to be associated with border security.
Sure, you saw a virtual stampede toward being more assertive on border security before the last election, because I think members of the Democratic Party started reading the surveys and realizing this itself is much more than just border security. And Donald Trump has said openly he'd be willing to engage with Democrats on what to do about Dreamers and
work requirements and expanding H one B visa. And I mean, there's a lot to talk about on a bipartisan example, And we just saw a bipartisan bill come out of the United States Senate right before the election, parenthetically that Donald Trump had killed. But there is appetite for a bipartisan deal. I would say the one thing that is probably going to get in the way of anything significant like that is deportations. There'll be things in this bill that Donald Trump's going to want to have to make
and ease his path to massive deportations. And I can't imagine a scenario where Democrats would sign on to any bill that has that kind of punitive provisions in it. So, yeah, there are lots of good things to do on a bipartisan basis. Things have been done in that way in the Senate kudos to them. We'll see if Donald Trump picks up where that left off and takes it one step further.
So there may be some area for bipartisan cooperation on immigration, perhaps, Christy. But I also wonder about tax policy, because obviously there's going to be a massive tax reform debate, whether that is encompassing on this wider package or is indeed a separate reconciliation bill. When you think about issues that are likely to come up, like the salt cap, for example, something Donald Trump will be discussing with salt relevant Republicans
at mar A Lago this week. That is something that Democrats, Chuck Schumer included, have long been pushing for. Is it's typically blue states that are most affected by that. Are there going to be Democratic votes showing up for a tax package that includes that or is able to maintain the tax cuts that were put into place for inclusive of middle income families in twenty seventeen.
I do think that, I do think that is an area on the salt tax where they can peel off some Democrats, including yes, including Schumer and others in general, though that one provision does complicate an issue on which generally speaking there's unity for Democrats, and it is a really good issue for us in that, you know, in
terms of messaging. I mean, obviously I mentioned earlier that just generally speaking, I don't believe that people voted to give a huge tax cut to you know, millionaires and millionaires. They voted because they thought that they themselves would benefit from those tax cuts. So there's certainly kind of opportunity for Democrats to explain what's going on with that and how it's going to play out. There's also a bit of an opportunity for an education campaign on you know,
on how much this is all going to cost. It's going to add four trillion at least to the you know, to the budget, to the deficit over the next ten years. That's a problem, and how do we want to pay for it? Right, So that's actually where we get into
the meat of the conversation. We're going to see huge Republican divisions on how to pay for it and where the kinds of ways that for example, the House Freedom Caucus, those issues that they would like to entertain about how to you know, uh, how to pay for it include cuts to programs that are deeply popular, Medicaid, Medicare, and again there's going to be real consequences to groups that actually just put Donald Trump back into office, among seniors,
poor people, veterans, etc. So I do believe that they will be able to kind of pick off a few through issues like the salt tax. But for the most part, this is one where I think you're actually going to see a lot of democratic unity.
It's going to be.
Quite the patio of mar A Lago this weekend, Rick, there are large groups of Republican lawmakers who are headed to Florida for a confab. Governors will be there Thursday night Saturday. The Salty Republicans as we're calling them, will be there, The Freedom Caucus will be there. They all have their own interests, in their own ideas. What will come from these meetings at mar A Lago if nothing less than a congressional agenda.
Yeah, my guess is it's more here's what we think we can accomplish, rather than give us your ideas on what you want to do as members. It's usually the way it works with the White House. But I guess this is mar Lago, the winter White House, you know, in about two weeks. So the reality is that I've been hearing Republicans, the salty Republicans, really minimizing the exposure
on the salt tax. Many of them have taken up this queue that, wow, if we could just get a marriage penalty provision in there that gets rid of that, that would be great. It's not very expensive. It gives us something to say that we won I think if you have these kinds of attitudes going in, you're going to come out with some agreements that are going to
put salt revisions on the tax code. So the reality is, if they don't do all these things and the tax code doesn't get passed for some reason, then the salty Republicans have a huge victory. All those provisions that took away theirsult tax go back into effect. So the reality is they do have some leverage. But I get My guess is they will come out of mar A Lago charged up. They'll be happy with what they hear from the incoming White House team, and that will start some
of this momentum. As you can see, he's building momentum for early legislative successes, and I think it's a really good use of what has otherwise been really pretty dead time in a presidential transition.
How early though, is early RACA Ultimately he does tell John Thune, look, get me that first earliest win and wait for taxes later. How late in the year do you anticipate that would be that the tax package actually gets through in a second budget reconciliation bill.
Yeah, well, it depends upon obviously what else is coming up that needs funding. So you know, typically these reconciliation bills take on a life of their own when they're attached to fiscal measures. Right, so budget funding for the government. September is always a dicey month. It will be shocking to me that we have regular order this year and that we will have all the appropriations bills done before the end of September and we can fully fund the
government for the first time in a few decades. So that will be actually one moment in time where you're going to have to fund the government. It's a must pass bill. You slap what reconciliation in there, and you got a big fat tax cut, and you know, you'll see a lot of Republicans cheering for that kind of effort and a lot of Democrats really angry that they're going to miss an opportunity to vote on some good things in the budget because they've attached to tax cuts.
So I always think that that would be one of the first opportunities on a must pass legislation that you'd see reconciliation number two.
All right, Rick Davis, stone Court, Capital partner and Bloomberg Politics contributor together today with Christy Setzer, founder of New Heights Communications and Democratic Strategists. Thank you both.
You're listening to the Bloomberg Balance of Power podcasts. Catchs live weekdays at noon and five pm. E's durn on Apple Cockley and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa played Bloomberg eleven thirty.
We turn our attention to what's happening right now in southern California, Kaylee. The images have been just remarkable. We were just looking at some of the tape from last evening when the Getty Villa was just surrounded, it was engulfed, and we're seeing these wildfires get incredibly close to downtown Los Angeles. If you're with us on Bloomberg TV or on YouTube right now, this is the Palisades that's adjacent
to Santa Monica. Some incredibly beautiful homes and some rather famous and wealthy people live there, Kayley, and it's getting ever closer to some very concentrated population centers.
Yeah, we know that the fires already have killed two people. More than eleven hundred structures have been destroyed, many homes just simply burned to the ground as people have, of course rushed to evacuate to safety. All of this being intensified and spread by really powerful winds that are making it very difficult for firefighters to get this thing under control.
So we wanted to get an update now and turn to David Baker, who's Bloomberg Climate and Energy reporter coming to us from San Francisco today as we look down south in your state, David, is there any indication that these are going to be able to be controlled anytime soon? With winds like this, it's.
Going to be very difficult for firefighters to get a handle on these fires until the winds abate, and they have not really abated. The worst of them may be past us, but that is not one hundred percent sure. This windstorm event is supposed to last into Thursday, maybe into Friday, and there's the possibility of another windstorm coming in early next week with no rain in between.
Give us a sense geographically, David, of where this is happening and how close it's getting to areas of La the lot of people know, I mean, the Palisades are It's an area on a lot of on a lot of tours people know. Obviously the peer in Santa Monica. Where are you most concerned about?
Most concerned about the Palisades Malibu, which is downwind of the Palisades, and the fire is burning right towards there. They had a bad fire back in December that sort of presaged all of this. But I'm also very, very concerned about Pasadena. When you look to sort of the northeast of downtown La Pasadena has a major fire on its hands. We just got an update from CalFire on the size of that one. It is now past ten thousand acres and it is burning right into the edge
of that city. It's a beautiful place if you've been there. It's nestled right up against the San Gabriel Mountains. But that's part of the problem here. These winds are racing down the mountains and just tearing through that area. We don't know what sparked that fire, but now that it is going, it is raging there, and I am very concerned about that spot.
Well, very concerning indeed, and obviously our thoughts are with everyone who are in these areas in which they may find themselves in danger as we think about how ultimately these fires will be brought under control. It's not just whether or not the winds calm down, but of course water and other things that it will take to actually
fight the flames. There has been a lot of criticism thrown out today David by the President elect Donald Trump, by Elon Musk, for example, about decisions Gavin Newsom has made when it comes to water, Trump specifically saying that he refused to sign a water restoration declaration that would have allowed access to millions of gallons of water. Can you just walk us through the extent to which that is true or if it's playing any real role in the attempts to fight these fires.
With these fires when they are erupt the state throws pretty much everywhere resource it has at them in terms of access to water. I have not heard any on the ground reports about problems with getting access to water. Plus, the state does actually have and is using tankers that fly out over the ocean's skin, oop up water and just dump it where it's needed. We know they were
in use yesterday. We saw them flying off the coast of Santa Monica, so we know those are out there, and with fires like this once they get going, the big issue is how much water actually fell from the sky in the last six months before the fire started. Here in southern California, you're seeing virtually no rain since early last spring, whereas in northern California where I am, we've had atmospheric rivers and even a little bit of flooding.
They've had nothing down there, and that's the big issue here.
Well, it's great to spend some time with you, David, appreciate your joining us. Bloomberg Climate and Energy reporter David Baker with us from San Francisco. Thanks for listening to the Balance of Power podcast. Make sure to subscribe if you haven't already an Apple, Spotify, or wherever you get your podcasts, and you can find us live every weekday from Washington, d C at noontime Eastern at Bloomberg dot com.