A Exposé of a Permanent Financial Dystopia

an investigative journalist. She's also the author of several books, including her newest, Permanent Distortion, How the Financial Markets Abandoned the Real Economy Forever. She joins us live in the Bloomberg Interactive Broker's studio this afternoon. No me, congratulations on the new book. Just came out on October eleven, so it's been out for a couple of days. We're going to talk about the book. We got a great chunk

of time with you. But given your background, your role as an economist, we gotta get your take on what's happening in the markets right now and what's happening in the economy. I mean a wild day on Wall Street where we saw markets open down more than two percent and then end up finishing the day close to session highs. What's going on here, um mass insanity in the markets.

I mean, what's happening right now is that the markets don't know how to process whether they're going to have sort of cheap money forever, whether the FED is going to go back to sort of what it used to be like, whether it's going to continue to high grates, how to actually interpret every little teeny piece of data. So there's no idea forward looking analysis in the markets

right now. It's all reactive um. And that's something that's very new to the period that we're living in right now, versus when I was on Lall Street, when it was like, okay, this is what rates are. They go up, they go down, they're sort of a balance. But by the time we've gotten to this point where rates have been at zero for for so much of the last fourteen years and

now they're sort of moving up. But the feed is still sitting on a book of almost nine trillion dollars worth of assets, and all the central banks around the world are in similar kind of positions. It's really hard to figure out where there's actually value in sectors, in names, and in the specifics of the market. So a lot of this is more knee jerk reactive than necessarily forward analysis. How should we think about the financial markets? Is it

the real world, the real economy? It isn't and and and this is part of the process that we've been in since really two thousand eight and a little bit before that. I mean, when we got into two thousand eight, because in the beginning of the two thousand, two thousand, two thousand and one, we had rates very low, we had mortgages going crazy at a subprime crisis, and we got this whole quantitative easing period that we are still living in right now. And we're not at the back

of this by a long shot. We're we're like in the middle of potentially you know, quei forever um, even if books come down by a little bit. And so what does that mean? I mean, the real economy doesn't necessarily get the benefit of financing the same way it used to get the benefit of financing in the sixties and the seventies and the fifties when we were building

roads and highways. Because it's come second to money being created quickly, being leveraged excessively, and flowing into financial assets that are quicker to turn around. So can I ask you something? So the sophistication of markets and how we can trade it and slice and dice it. Is that why you're saying it doesn't It's just a whole different game on Wall Street versus years ago, decades ago, when it really was reflective of what was going on in

the economy. Well, there was certainly more information that was coming from the direct economy through companies that were involved in creating different components of the economy and being more directly related to individuals. And now, of course we have

much more technology of much more analysis. We also far more leverage um, and so we combine the technological leverage with the financial leverage, we have this complete disconnect between again, money going into the economy and sticking around and being used for longer term capital investments and creation and all of that relative to I'm here now, I'm there. Now, I'm trading on momentum, on trading on technological factors, I'm trading on computer science, and I'm not necessarily trading on

value and the long term view. You said something that makes me think about the role that government takes, because when you think about big infrastructure projects in the nineteen fifties and nineteen six do you think about the post World War two boom here in the United States, the building of Levittown, for example, all of these like shovel ready projects. That's something that you need to have, you know, widespread agreement on when it comes to putting that, you know,

implementing them. We don't have that right now. It's all a joke. It's always infrastructure week right and Washington and nothing ever gets done. Is that a big obstacle to kind of getting past where we are the financialization of the economy. That's a really good question, and it's true.

In the fifties and sixties we had we had a connection in politics that related to the connection of what was needed to be done in the country, the building of those highways, the building of the space program, the

building of permanent, lasting features. We've been had that in the nineteen thirties, like Whoever Dam was built in the middle of the Great Depression, because it was a process that had started and it had financing, and it retrieved that financing throughout the all the years that it took

to build it. So there's a lot of longer term thinking and longer term capital commitment in those days, not just from the direction of Washington, I had that too, but also from the direction of private industry, from Wall Street, from companies throughout the country. That there was a collaboration that that has really become disintegrated. Now we can't even build a tunnel between Manhattan and New Jersey. We we can't. We haven't been able to do that, and there's an

incredible need for it. We've got no me priends with us. She's an author and investigative journalist. She's got the new book out, Permanent Distortion, How the Financial markets abandoned the real economy Forever. She was a managing director at Goldman Sachs. She ran the International Analytics Group. As a senior managing director at bear Stearns, she was a strategist that Lehman brother She was also at Chase Manhattan Bank before that UM.

She also was on Senator Bernie Sanders Federal Reserve Reform Advisory Council. Know me, what I want to talk to you is about how you made the transition from banking into becoming an author an investigative journalist, Like why did you leave the industry, did you run from the industry. Now just kidding, UM nine eleven, how two things happened

from the industry, right, nine eleven happened. I was like Goldman Sachs Corner office and twenty floor, the whole, the whole thing, UM that was going on at the time. And at the time also there was a lot of corruption that was happening on the corporate side. That was sort of when en Ron was breaking, you know, it

was in world calm was breaking. There was a lot of like tension in terms of what the reality of bound and sheets were, what the role of Wall Street was, and of course what we found it to be UM in all those corporate scandals, and I was I was seeing a lot of that and getting sort of, you know, very disgusted with a lot of them. And then of course not eleven happens and sort of you know, add one and one, get two and two is based on I need to go and I need to talk about

this stuff, and so a lot of them. The first writings I did, UM were about what was going on in terms of the corporate scandals, telecom sector, the energy sector, UM in Wall Streets connection, and I wound up taking that route into my first book, Other People's Money, The Corporate Monky of America UM, which also talked about the inns of golden sacks as well as the banking industry and everything that was going on there, because I thought

at the time nobody was talking about it. I mean, at the time, we couldn't even talk about being inside Wall Street's not like today where everybody's talking sort of about everything all the time. It wasn't like that. It was. It was very much a sort of more secretive sort of situation, and I needed to talk about it, so I needed to be outside to talk about inside. I want to get right back to no Me. Prinds, author

and investigative journalist. Google her because her backgrounds incredible. She's got a new book app Permanent Distortion and how the financial markets abandoned the real economy Forever Permanent Distortion. Why is it permanent? Um? Excellent question. It was not taken

lightly because I like words as well being an author. UM. It's because in the wake of the financial crisis, when we went down to zero percent interest and and and we created four and a half trillion dollars worth of money from nowhere to take debt out of the market. At the time, US debt in generals nine trillion dollars four and a half trillion equivalent was on the Fed's books.

Some of that was mortgages, treasuries, was all connected. Then we had a double down situation that happened in twenty So the period in between there was a lot of speculation when will the Fed raise rates, etcetera. They raised in markets were were insanely negative on that whole prospect.

They didn't raise again until twenty six and then sort of bits along the way to turned around in twenty nineteen and to twenty nineteen because Wall Street collateral wasn't working between Wall Street and its own its own, its own customers, UM, the repoil markets were falling apart. So the FED turned around and created more q E, brought

rates down again. UM talked about as if it was related to the economy, but in fact was related to the quity on Wall Street, which, by the way, right now we're going to see a lot of problems I

think coming into tomorrow's numbers. But besides that, when we got into just a few months after that and the pandemic hit, that's when there was an overdrive factor and that's when the FED went to nine trillion dollars from at the time four point one, but effectively doubled in a few months what it took a number of years to get to the first time. Other central banks around the world following and what became just a sort of help, which was enormous to begin with, became a permanent artificial

cushion to the markets. And even right now, even with rates coming up now and all the speculations, the FEDS, you know, totally changing and it's going to be this inflation hawk. Even though can't fight a lot of the inflation it says it's trying to fight, it doesn't actually change the fact that this cushion is underneath all the financial markets. And that's why we have days like today where the market basically spans fifteen hundred points and day

on the doubt, that's not normal, that's not healthy. That's related to the speculation versus this permanent idea of this distortion between where the money goes to the economy, how it gets to the markets, where it stays it. It's not a question of blaming the FED. It's a question of the Feed is responsible for creating the cushion. So I blame the cushion. The FED created the cushion, So

in that respect, yes, I do blame the FET. But you have to look at the bigger picture, not just not just what is the FET and doing now with interest rates? That obviously is creating uncertainty in the markets, and it's certainly oppressing people trying to get mortgages right now which are twice as expensive as they were six months ago. That and that's a really quick change. And if you're trying to budget and you're the bottom level of your own you know, sort of the economy. But

this is more about the fact that cushion exists. It's not just the FET, it's the Bank of England, it's the European Central Bank is a bankage, but it's the global um central bank network that has basically created this this outside source of capital in order to be there when it deems necessary, and that that uncertainty about what's necessary is now what's permeating in the markets, and it's a reason why capital can't go outside those markets when

they're going up or when they're going down to long term projects into the foundational economy. To the same extent, as before, and did this start I mean, would you say that this was the in the wake of the Great Financial Crisis or was this happening earlier. It was happening a bit earlier, but quantitative easing to the extent that we saw it, we see it now and in the doubling sense of financial crisis was a post financial

crisis phenomenon. And we had a situation where the entire banking system was so over leveraged and all of the customers of all the over leverage mortgage product we're facing, you know, potential largin calls and everything else out the whole system, from the top on all the way to the outskirts um. And so from that point on, when the FED decided, Okay, Ben Vernaki just just want a noble prize for not noticing this happened in into nine

because we had a home bubble then too. Um. But the point being that that this created um, this this momentum in the fabrication of money that had not existed ever before. Japan kind of did it for a while, did it since the nineties, but but nowhere near to the same extent that the FED did it. And then every other central bank in the world followed, and so again this became a global situation where the global cost of money was zero and the global cushion continued to grow,

and that happened in the wake of the financial crisis. Soho. As a result, those who have access to that Christian basically and that velocity of money have really benefited in a big way. And hence we have this massive gap in society that just gets bigger and bigger in terms

of wealth. That's right, because obviously if you're in the market and you can leverage yourself into the market, that's whether you're a wealthy individual, the CEO of a company that buys a lot of its own shares or has the benefit of other leverage coming into that particular company, or any of the financial markets, those have this buzz up. Again right now, there's a bit of uncertainty, but for the most part they have had this um, the acceleration

I would say, the velocity of money. So basically, this this tush of money going into those areas and therefore money money has choices, but money goes I talk about this in the book that the if you visualize where money is going, money is flooding into the place where it can go most easily and where it can stay most easily, we can have the greatest impact. And that means that anyone using it, anyone leveraging, and anyone that has access to it gets that benefit and anyone who

doesn't simply doesn't and as a result that gap. We're speaking with Gnomi Friends, author and investigative journalist. She's got the new book Permanent Distortion. How the financial markets abandoned the real economy forever? You know me? How can banks better serve the real economy? Banks can look at their balance sheet in terms of where their small business loans are. They can look at where they're paying people for the

interests on their savings account. They cannot charge ridiculous fees relative to the amount of money that people have with accounts right now for example, No, I'm not going to do that, and they're not, yes, because the incentives aren't aligned for this, right, the incentives aren't aligned for this, so why would do so? So in I have this

conversation at the fed UM. I have this conversation as of saying at the fed UM in front of the FED, the IMF and central bankers who are who are involved in this in this, you know, the animal meeting they have there and that the topic was why is into Wall Street helping helping Main Street? And I just got up and I said, because you you're not making them.

I mean, they basically have the benefit of all of QUI all of the loans, all of the help, all of the access to zero percent money, and you're wondering why they're not sort of just just giving it out to sort of little people that hold accounts with them. I mean, it's not really rocket signed, so not because they don't have to. I get the argument for why they should because of the assistance they got from the government. Right.

And there are banks, as you know you worked at Lehman, they're not around anymore, right, I mean, there are banks that are are survived because of it. But I do wonder as publicly held companies, they have got to constantly think about returns to investors. And that's why I think. I'm not pointing fingers or anything, but I mean that's why they potentially don't do that. And we've just got about thirty or forty seconds left here, So is there

you talked about. I don't know what's the final takeaway for our audience. Well, the final take of me is when I say permanent, I actually mean permanent. I don't think there's going to be a period where the FEDS book is going to go back down to the billion dollar or as it was before the financial crisis of two thousand and eight. Maybe it dibbles from like nine trillion into six seven trillion, it's still massive, and then again you multiply that throughout the world. So what does

that mean. That means going forward we're gonna have more and more of these volatile days to this magnitude. We're going to have more of these crises, bubble, crises, bubble So it's not necessarily gonna be one big thing. It's going to just be a volatile scenario because there's a permanent distortion of where money is created, where it goes, who gets it and who doesn't, Which is in the real consim is gonna be always a Christian out They're

floating and it's massive. Um, let me come back, please, no me, friends, author, investigative journalists, so much permanent distortion. How the financial markets abandoned the real economy forever? Um. Great conversation. If you missed it, check out our podcast feed on Bloomberg dot com. That's it. We gotta run crazy day. We'll see you tomorrow.