Bloomberg Businessweek Weekend - September 21st, 2019

the future. Plus, we catch up with CEO and chairman of Blackstone Steve Schwartzman, a fixture on Wall Street for a number of decades. He's got a new book out that really takes us inside what it's like to build one of the most influential investing firms in the world. And I love when you have someone who's so well known in the financial community taking us back to where he grew up, his family and all these experiences that really shaped him. So it's a really fun interview and

very comprehensive. Plus, this week's cover story, it's all about GM What a timely piece with its workers going on strike this week. But first, the U S sanctioned Iran Central Bank and Sovereign Well Fund on Friday. It was a move aimed at retaliation for last weekends attacks on key Saudi Arabian oil facilities now and the Oval Office. President Trump spoke to reporters about the new sanctions. We want to see if it works out, and if it works out, that's great, and if it doesn't work out,

that's great. In the end, it always works out. That's the way it is. It always works out. So you'll be seeing certain things happening. But a very major factor is what we did. These are the highest sanctions ever imposed on a country. We've never done it to this level. Let's say to our televie bureau now and speak with Ben Harvey for Macro view of the Middle East tensions. Ben, you say that Iran is holding the world economy hostage?

How so? Yeah, as we see in this UM in the most recent attack on Saudi Arabia, what they've done is they've they've struck at the heart of the the global energy infrastructure UM. This is the world's biggest refiner. When they attacked this Ramco site with with a single attack, they managed to knock out about half of Saudi Arabia's production and about five percent of global production alright, so that certainly was noticed big deal by the global stage,

certainly by the energy markets. What I think is interesting, though, is how you talk about that the pressure specifically by the United States that has been put on Iran. It is certainly created havoc in their economy, but it has put them in kind of a powerful position explain that, Yeah, Iran's economy is under massive stress, but for the past several decades, iron has invested in these essentially non state

armies around the region. Um So, whereas this is a pretty cost effective investment for them, they invest in these nonstate actors that can are basically forces of disruption um and when Iran feels pressure to connectivate them and as we see saw in this attack in Saudi create massive damage. So Ben talked to us a little bit about because you do reference and you know, right out of the gate, you talk about the art of war, and this is certainly uh you know, something that has been quoted an

awful lot throughout the year. But it's interesting you talk specifically about is asymmetrical warfare, which is what Iran is doing, and that is making it very powerful in the Middle East region. Even though it doesn't have the largest armies, are the most organized armies. It's made it a very powerful presence. Yeah, that's exactly right. I mean, Iran's main rival in the Middle East of Saudi Arabia. Iran cannot

compete with Saudi Arabian conventtional ground. Saudi Arabia is the world's third biggest purchaser of military equipment after the United States and China. It's significantly higher spender than than uh than Russia. Is Iran can't compete with that. So instead, what they're doing is investing in, as you say, asymmetrical warfare.

So they have small forces that can create havoc, whether it's on global shipping lanes, whether it's in in Iraq, whether it's in on the border of Israel, and also now of course in Yemen, where they have essentially gained a foothold in the Arabian Peninsula, which is Saudi Arabia's backyard. All right, So then what does this mean for some of the world's global powers, very developed powers like the United States. I mean, we know President Trump withdrew from

the Joint Comprehensive Plan of action. That was an agreement to contain Iran's military, specifically it's nuclear ambitions. But by pulling out of that, now what needs to be the role of the United States here, because it's very tricky. It is very tricky, and it's a very hard position for the US administration to be in. Right now, they've essentially backed Iran into a corner. UM. Iran is playing the role of disruptor. They want to get it wrong.

Back to the negotiations. Iran is refusing to come. So the question is how long do you do? Does the world put up with this? What you're seeing right now is a very interesting dance. For many years, the both sides, Iran and other sides that we're trying to counter Iran have benefited from this sort of UM strategy of plausible deniability. UM attacks would occur through Iranian affiliated proxies and then Iran could disclaim responsibility so that these were independent actors.

The world would sort of accept that and move on because there's also very little appetite for UH for a direct conflict with Iran. UM Right now, what you're seeing is is a lot of caution and actually putting this attack directly on Iran's doorstep, even along those who have been strong advocates of attacking Iran because the cost of doing so would be so high. I also think the timing is just kind of impeccable. Ben, I don't know how you see it, and I know you address this

as well. You know, Saudi Arabia has been moving towards the I p O of Saudi Aramco for a couple of years now. It's been usually anticipated. Uh, that's certainly, you know, kind of what happened this past week cast a different light on maybe the prospect of that, at least at this point. And I also think just the global economic picture, right we have a lot of question about global economic growth right now. So to see this kind of potential energy shock is a big deal. Sure, yeah,

this this came into sensitive time for the global economy. UM, A lot of a lot of countries across the world are trying to find ways to stimulate their economies. They're lowering interest rates. UM. A supply like shock like this would be very hard to deal with if this were sustained. The question now is how big of an impact is this going to have. Ken's already get its production back online, immediately or will this take monster even longer to to

solve um. And the other question, of course is you know, is this a one off event or could this continue to happen? Yeah, Ben, your remarks this week certainly reminding all of us it is as much a political, global political story as it is a global market story. Ben Harvey and Tel Aviv, Thanks so much, thank you very much. So very newsy story this week involving General Motors, because of course they had a strike which we feel like came out of nowhere. Uh, and we haven't seen GM

workers go on strike in a long, long time. Another challenge for Mary Barr, right, the CEO of General Motors. She's already led that company through a lot of job cuts and she's really got a new focus when it comes to GM right now. And in this week's magazine, a deep dive into Mary bar and her strategy. David Well, Charge Detroit, your chief joins us from that fine city, rock city as they call it. So David, tell us

what's going on, as Carol said very timely at General Motors. Sure, so we have this this strike right now that that as you mentioned, the union hasn't walked out on GM in a long time. And look, whenever you try to really overhaul a company or bring about great change, you're gonna have people who resist or react in in you know, kind of negative ways. And in this case, what GM has been doing for the past really five or six years,

they've been downsizing things in the core business. They sold their European operations, they fled Russia, they fled some of the Southeast Asian markets, India. They've they've downsized by getting rid of certain models, certain plants in the US that makes small cars are thinly profitable models. That's where the

Union gets angry. But what GM is really doing here, what Mary Borrows strategy really is, is getting out of low margin or money losing businesses that GM and other carmakers have just participated in for decades simply out of corporate inertion because car companies always thought they had to

sell every vehicle to everybody across the globe. She's getting out of that stuff, and with the money she saves, she's putting it into electric cars autonomous vehicles, because she sees that as the real future of the company, and it really is. Let's call it strategically, and then in terms of actual capital spending financially transformative for the company

if she can pull this off. Because the endgame for bar is sell cars to individual owners where you make a lot of money, right, build a service, robot taxis to to you know, se you're selling transportation by the ride with a self driving electric taxi at some point to other people. GM will become part manufacturer, part service. If all of this happens, it will take time. But

if she succeeds, that's what's going on. But your point is she's plowing a lot of money into you know, the GM what she expects to be the GM of the future. Uh. You know, you've got a company that's making money, right, and I think workers at this point, David are saying, wait a minute, we should get some of that as well. Yeah. What I really loved about working on this story is that, uh it sort of touches on a big point within the Americans cause right now,

which is questioning has capitalism gone too far? And when Mary Bara cuts models or plants because even if they make money, they don't make great money, uh, getting out of low margin businesses, or she moves a model like see the Chevy Blazer to Mexico A SUVs make good money. You don't need to make it with Mexican labor to make that profitably. The union reacts by same Wait a second, you've made record profits what's called record operating profits for

the last three years. The company is guided to match or beat that this year. So the money's coming in. Why do you have to keep cutting? Why do you have to keep sending vehicles to Mexico. You need to take care of us. That's what that fight is really about. There. There's similar sentiments among the salary workers too. They just don't have a public platform and the union to really

bring that voice to the foe. Well, and speaking of voices, me, Mary Barra has been seen as someone who is considered kind of one of them, right, I mean, she rose up through the ranks. She's part of the family, to say the least. How much eyebrow raising is there about her performance or what she's delivered on again for the workers. So well, it's a quick, quick point. A lot that

Wall Street likes are quite a bit. GM stock is one of the few auto stocks that have kind of held up in a year when the whole sector, including the suppliers, have kind of been battered because the world thinks we're at peak auto and you'll see sales soften. So in terms of earnings, the best it's already happened is sort of the market's reaction to this, and that's who she's been trying to serve. The workers not quite so happy. You go on the message board and they're

I'm talking about salary people. Now you're reading things like I've given the company twenty five years no loyalty. Uh. The u A W workers on their message board or in person will say, hey, we gave during bankruptcy. We gave up a lot of traditional union benefits and safeguards to keep GM alive through bankruptcy, and now you're making a lot of money, So where we want some payback?

Where's our reward? So there's a lot of that sort of thing directed uh, straight at Mary Barra, which has been on because she does have a very amiable persona. She's actually pretty well liked among the staff the union. She's kind of less of a figure because she has people beneath her that do the negotiating, but she still did have this this very amiable persona inside and outside

the company. So David One of the questions I think at this point is Mary Bara the focus, the attention, the money that she's spending on electric vehicles, autonomously driving vehicles, you know, whether or not her time is right, Is it right or she too early? You know, and that

that might be problematic down the road. That is the big risk because GM is spending a billion dollars a year on autonomous vehicles and many other billions developing electric cars, and really only Tesla has proven that they can sell electric cars right now. You see fi Quisly, you see Toyota, which has a lot of smart people and a lot

of money, taking a very conservative approach to this. That's really GM's risk here, plowing a lot of money into this stuff, and you don't find buyers for the electric vehicles, or as we're already seeing, autonomous vehicles are delaying their launch to the public because they keep finding more let's call it cases or incidences in traffic that the cars can't handle just right yet, and and and that stuff

keeps getting pushed out. So uh yeah, she spends a lot of money on this stuff, diverts people and resources from the core business, and it doesn't pan out for five, ten fifteen years. But this is the risk you take when you want to be a leader in both. And that's really what she wants to do. She wants to get big scale and electric cars and sell them more cheaply and profitably than others. She wants to lead in autonomous vehicle software and and let's call it robotaxi services.

Build the best brand first, and when you stick your neck out, sometimes you get chopped and sometimes you get across the finish line first. That's the risk right there, we're talking about cars and talking about electric vehicles. If we didn't ask you about Tesla and how that figures into Mary Barra's strategy here, she's got to be thinking about Elon Musk. She's got to be thinking about everybody

else who's chasing after evs. Yeah. Well, Elon Musk has dragged the automotive world kicking and screaming into electric vehicles. And that brand is so powerful now that it's kind of the iPhone of evs. And everybody wants to see if they can come up with the Samsung Galaxy five uh and the Android system to go head to head with it. And so far, even say we have German car makers out there, we've got portion and we've got autie.

With evs, they're not selling that great and that's who Mary Barr is looking at, and that's who she needs to go up against. That's David Welch, our Detroit Bureau chief. And I love this story because I remember when Mary Barr first made those moves. Everybody was really applauding her because she was thinking about what does the general motors of the future need to be and took some drastic moves. But timing will be so key in terms of what

she's done well. And I loved that part of the conversation, and you really push that with David, which was great, which was this is largely about timing rather than the right decisions. We all know where the industry is going, but if you get the timing wrong, the whole thing falls apart exactly. So nothing is immune from the sharing economy.

That includes legal advice. So enter Twitches co founder. We'll get into how that connection works here with the story Max Chaffkin features that are a business week in our studio today. So what's going on here? As you said, Twitch founder Justin Kahn, who if you're sort of on the older millennial side. You may remember as the reality TV star of Justin dot tv. This was like a very early Web two dotto thing. Put a camera, tracked everything, put a camera on his head. He he walked around

San Francisco doing twenty year old coder stuff. Um, it wasn't a huge hit. But he's back with a new company called Atrium, which is basically trying to, as you said, kind of bring the sharing economy to legal services, to replace your corporate lawyer with a five month subscription. I want to talk about that business. But the reason we care of the is that crazy thing putting the camera, which wasn't necessary big hit eventually kind of morphed into Twitch,

which did become kind of a big deal. Yeah and so so Twitch also sounded kind of crazy because who wants to watch, you know, other people play video games. Turns out lots of people. Twitch helped create the whole sort of notion of e sports uh and sold itself to Amazon for a billion dollars. It's now part of Amazon. Uh, you know, part of this vibrant, growing industry. Uh. And uh,

you know, Justin Kahn kind of wended his way. He was an investor for a while and then as as he explained to me in an interview, you know, basically started wondering why he was spending so much money on legal services. He realized he'd spent you know, something like two million dollars over the previous decade and didn't feel like he was necessarily getting enough for it. Okay, so

enter a triam. So tell me how this works, because it's a little bit max of a tiered service, right, yeah, I mean it's it's pretty similar to we work honestly, uh, five dollars and you get access to a an hour a month of general legal advice. So so you have a normal corporate lawyer who um comes from a big corporate law firm, who gets paid to a very high hourly wage, etcetera, etcetera. UM, and then you get this software platform which supposedly is going to automate a lot

of um these functions. So so they walked me through, you know, an offer letter where you type in the employee's name, you you check a few boxes and then outcomes a sort of legal document or they can do it for an NDA. And the idea is that's going to expand to include lots of stuff. So so in the long run, a lot of the legal services are going to be handled by software, by a computer. Your your corporate lawyer is going to be spending way fewer

hours um doing general lawyer stuff. I feel like some of it makes a lot of sense because we would talked about, you know, legal work in getting a mortgage or something. So much of it is formula that there's no reason why you can't kind of involve some types of technology or computer system to kind of walk us through it. Yeah, and we've seen this kind of on the sort of personal end of legal services. Legal Zoom has been around for a long time. Their websites that

will help you prepare a will. Um. There's also kind of an interesting start that's that's doing this in small claims court called do not pay, so so it's happening

in all sorts of areas. Atrium is kind of interesting because it's going after sort of like the core of the legal industry, these big corporate law firms that you know, generate enormous amounts of revenue and and pay these you know very you know, very well educated lawyers, you know, in some cases millions of dollars a year, al right, So it's the corporate legal world say oh, great idea. I mean, this stuff has been tried before, and I think it's it's key to to to understand that Atrium

is really aiming at the startup market. I mean, it is based in San Francisco, It is very much aimed at companies like Atrium. And I think if you, if you, you know, take a few steps back, you might say, look like, this is never gonna you know, this is never gonna come for mergers and acquisitions. This is never going to come for the kind of like New York finance law, which is kind of a huge part of the legal industry. UM. But you know, justin Conn, the

CEO of Atrium said that is their plan. They they're they're they're hiring lawyers and other cities. They want to eventually expand UM beyond Silicon Valley, but for now it's really startups for the most part. I gotta say I was pretty impressed because they already have what landed more than four hundred clients. Talked to us a little bit about because they've built up I mean, they have a pretty big number of employees already. Yeah, hundred and seventy employees,

thirty of whom are lawyers. These are the kind of corporate law types um. So, and then the rest are mixed of engineers are working on the software, and then some legal assistants and and and paralegals and that sort of thing. Um. They had this pilot program for the past two years, uh, and now are launching, as we reported, this subscription which has these two tiers five dars a month as I mentioned, and then a fifteen hundred dollar a month you know, premium edition, and and it goes

up from there. I mean they ideally, um, from their point of view, want to serve companies as they get larger and larger for the most part, now we're talking small companies handful of insize one, but they're not profitable yet. And then but they're what we've been around for two years two years, uh, not profitable and and that you know to to hear them talk about it as the whole point. I mean, they're their argument is that the problem with legal not to make money well for now anyway.

The problem with legal services from their point of view is that it's basically a high end service business where you have the partners at the top pulling in huge salaries which is basically profit sharing from the from the from the rest of the business. So law firms are

really profitable when they're successful. Um, the play here is is kind of the startup play to to grow really big and eventually generate profits, you know, once they've once they've amassed a huge client list, once the software, I guess is doing most of the work. The goal isn't to generate you know, profits on a per you know, engagement basis. And as a result, like the the actual costs that they're charging are are somewhat lower than a

normal corporate lawer. And that's Max Chafkin. This was a fun story but also a reminder that not every industry has been totally disrupted yet, and they're coming for the lawyers exactly right. Folks are trying to make the legal industry more productive. Uh so enter into the sharing economy.

That's what this story is all about. Two months after clinching it's sixty three billion dollar purchase of mont Santo by your face, a protracted legal battle of the U S Company's roundup, we'd killer it's those legal challenges that have wiped billions off the German conglomerates market value, which begs the question why y did buy or buy mont Santo? That feature story in the magazine this week joining us from Munich, Tim Lowe, Um, Tim, this is a big story,

big corporate story. Let's go to the beginning. First of all, why did bear by mont Santo? Who was the executive behind it all? Sure? Well, the CEO's name is Vanner Bauman and H. He's the guy who will always be associated with this deal. He he was the driving force behind him. The chairman of Buyer's board of supervisors or guys we call board of directors in the US, is a guy Vanner Venning. They're called Big Vanner and Little Vanner and Labor Kussen and H. The Vanner Venning was

CEO two CEOs prior to Vanner Bowman. Both of them are Buyer lifers. They've spent decades with the company and they've known each other for decades. And Vanner Venning the older one, Big Banner. Um, he sort of brought Vanna

Bowman along over the years. So what happened was when in around the time frame UH, buyer was looking to make some sort of a deal and the question was, you know, are we going to continue this evolution that they'd been on into more and more into healthcare pharmaceuticals, or were they gonna zag and do something you know that was a bit more conglomerate, Like it's a company

that for generations had been quite conglomerate heavy. And uh, most investors thought they were gonna go healthcare, gonna go pharma. And Vner Bauman, the CEO of Buyer, Now, he came up with this plan to go after Monsanto, and he he steered it through and it was bold, it was big, and uh it's uh, it's been pretty it's been pretty contentious here in Germany and abroad right to say the least.

And as you said, though, it's surprised investors because when he initially took over, I think he had said, you know, no big corporate moves, at least not right away, and yet he quickly announced this deal. What was he hoping to tap into before we get into the problems, what was he hoping to tap into by making this purchase, Because as you say, in sixteen bear the company, I mean, they were facing some blockbuster drugs that we're going to go off patent. They really needed to kind of revitalize

their business. Absolutely, they needed to do something there. They were at the time as valuable as they'd ever been on the public markets. Um, but they're two big key drugs, ones a Zarrelto and the other is a leah. Um. They had less than a decade left on patent protection,

so everyone knew they had to do something. And UM, what was going on is in the agriculture space, you had this wave of consolidation that had begun and very quickly UM Dow and DuPont had merged, and then KEM China had come in and bought Syngenta, And suddenly the two big players left who had yet to make any moves was mont Santo and Buyer. And UM, there was the two portfolios do fit pretty well together on the eggs side and UM, but it wasn't quite clear how

they might might join forces. It could be a JV. It could be mont Santo had tried to buy some Genta a couple of years ago or a year earlier. But the move from Buyer to just go in and buy Monsanto whole hog really caught people off guard. It was it was bold, it was big, and the markets Buyers shares tanked right after the news came out. It

caught investors off guard. As you said, Venner Bauman that he'd been CEO for only two weeks when news of this came out, and in the lead up to him becoming CEO, he'd been telling investors and journalists that he wasn't planning on doing anything revolutionary. UM. I think that's something he regrets saying. Yeah, all right, so let's dast forward a little bit, so they make this purchase. Um. How much of the potential legal problems because of mont

Santo's roundup weed killer were known at that time? Yeah, well, Uh depends who you ask. If you talk to the plaintiff attorneys in the US, it was it was all there. The key, the key thing that had happened. This was a year prior to Buyer's attempt to buy Monsanto. So it was. Uh. This organization called i ARC, which is a part of the World Health Organization and researches, you know, what causes cancer. Uh, they had identified glyphosate, which is

the key chemical inside round up the weed killer. Uh that they identified glyphosate as probably carcinogenetic to humans, meaning it could cause cancer if you use it. UM. Global regulator bodies from the E P a in the US to Europe, Japan all over have for years um allowed glyphosate to be used, and there was They continued to argue that that's the winning argument and therefore this was a fine, fine decision to buy Monsanto. They claimed they did all sorts of the due diligence and they concluded

the legal risk from roundup was low. Well, it wasn't low. It's been massive. There's now more than eighteen thousand lawsuits against the company in the US and they've lost three of three trials, and it's of one jury awarded two billion dollars to plaintiffs. A figure came down a little bit, but you know it's it's big. So yeah, I mean the long or the short answer is um. A lot

of people were saying, listen, it's all out there. Um. These these lawsuits are taking place in California and in St. Louis, in places where juries tend to side with plaintiffs, and in places like the Bay Area where Monsanto is not popular. So it's it's for many people not much of a surprise that buyer has been losing these cases. Well, and what's interesting is, and you have a number that anlysis to make that these Settling all of the US lawsuits for the company could cost from about two and a

half billion to twenty billion. I mean we're talking about some really big numbers at the same time. Round Up, I mean farmers continue to use this, correct, that's right. It's the world's most popular, most used weed killer. I mean it's been glypha state itself, which is the key ingredient, and round up has been likened to the holy Grail

of weed killers. It's it's remarkably effective at doing its job. Um, and you know there there isn't a great replacement at the ready for for farmers on a big industrial scale. I mean, sure, there's you know, organic farming, and there's other methods of killing weeds. But when you take a big step back and you look around the world, man, there's a there's a big question about if you do

get rid of glyphosate. Um, how are we gonna keep feeding the world's population, which is growing and on a planet where it's getting hotter and uh, you know, cropland is a limited resource right and food demands getting greater.

Let's talk about those. Some of the plaintiffs in the lawsuits, I mean, tell us about uh, you talk about one groundskeeper from California, forty six year old former school district groundskeeper dying of cancer and set his illness had been caused by spraying hundreds of thousands of gallons of round up. Um tell us about the types of plaintiffs that are coming up in the kind of cancer that they're coming

down with. Sure, well, I mean, one key figure to keep in mind is currently there's the latest figure Buyers given is there's like eighteen thousand, four hundred plaintiffs. It's probably much higher than that by now, maybe in the twenty thousand's, because that figures from July. So three cases have gone to trial so far, and uh, yeah, the first one was last August or last July and August,

and that was the MANU referenced. His name is Duane Lee Johnson, and um, he's you know, a fairly young father in his forties and comes down with non Hodgkins lymphoma, very sick. They rushed the case to trial because they thought he might die beforehand. Um. And that was the real you know, Canary and coal mine, you know, can these planet attorneys win these cases, and they won big. The jury awarded two eighty nine million dollars to the family.

A judge subsequently brought that down to about seventy nine million, but still massive. Um So he was the first, the first plantiff. The second one was a husband and wife duo actually, who both came down with non Hodgkins lymphoma. They've been using rat up for you know, decades on a handful of properties in California, and um they it's pre I mean, when you look at the odds of any individual, you know, coming down with a non Hodgkins lymphoma, and then you look at a husband and wife duo

both getting it right, that is pretty improbable. And that was I think in the courtroom that played a role in this. That's Tim Low from Munich And as we said, Jason, this issue of the magazine really takes some deep dives

in some well known global corporations. This one of course about buyer and you know, it's purchase of Montsanto, wondering whether or not that is ultimately going to be a mistake in the long term, or can they get through these legal battles and move on right And it's all back to round Up, a very well known brand to a lot of folks here in the United States, state and federal health authorities are investigating hundreds of breathing illnesses

reported in people who have used East cigarettes and other vaping devices. And earlier this month, President Trump said his administration will propose banning thousands of flavors used in East cigarettes. We have a problem in our country. It's a new problem. It's a problem with nobody really thought about too much, uh a few years ago, and it's called vaping, especially vaping as it pertains to innocent children. So this week, the US Centers for Disease Control and Prevention launched its

Emergency Operations Center to look into vaping lung injuries. You also had New York State waying in imposing a statewide emergency ban on flavored East cigarettes. What we are noticing is that more and more attention is being focused on vaping. Absolutely is Anna Edney is back with us from Washington. She had last week's cover story on a different part of the beat this week, the vaping controversy. I think it's fair to say and a great to have you

back with us. So, how and why has this accelerated so fast? All this attention on vaping? What really has brought a lot of the attention were these vaping illnesses that you mentioned. There have been six deaths related to them so far, and the CDC is looking into more

than three eight cases, so it's spread nationwide. And then on top of that, you have that a lot of underage UM users are vaping, and that number again even went up in twenty nineteen, UM H h S Secretary Alex Azar said it was about five million under age users. Last year it was about three point six million. So that's all converging to UM. You know, get the states involved as well as the President last week. Well, you know, this is one of those things and I know we've

been talking about a lot in our news room. I feel like over the last year that where were the regulators? Where was the U s. F d A when you know,

these things hit the market. Take us back initially because I think you talk a little bit about a press release that came back in the summer of That's right, It goes back a couple of years UM when the f d A. The commissioner then was Scott gottlieb Um, and he wanted to do a you know, implement this strategy that would not only look at the cigarettes but also would look at cigarettes and try to get people

um off of, you know, tobacco altogether. So he was looking at this idea where you would reduce them out of nicotine in cigarettes, and at the same time he wanted to give room for e cigarettes to grow as sort of an alternative. While you're maybe getting adults off smoking, you're giving them something to to use instead. But it hasn't worked out that way. What we've seen is nothing yet has happened officially on the nicotine front in cigarettes.

But at the same time, the vaping industry has taken off, and you have more kids hooked now than ever before. And so what happens next? Anna, who has the next move here? Because industry obviously has quite a stake in this, the President himself is weighing in via tweet and in public comments, seeming to make it sort of personal in a lot of ways. And then you have, as Carol alluded to, multiple regulators and departments of the government trying to figure out how to deal with this. Who's got

the next move? The next move is looking like it will come from the f d A again, but this will be directed this time by the President and by um HHS Secretary Asar who last week, you know, both said that they were going to um look into taking the cigarettes off the market flavored ones, um, so anything except tobacco flavor off the market, and they would have to reapply to the f d A to get approval

to resume sales again. So you know, we're looking to that to be the next, um, next policy that comes out that could have a huge effect on the industry. If it happens the way that the Trump and as are said, it could happen very quickly. UM. And you know that's something that we'll have to kind of see what what exactly the details are because we haven't seen

those yet. Well, and your point is that there's been you know, delay after delay, and here we are a couple of things going on right We have an acting FDA commissioner, it's going to take time to nominate somebody, get them confirmed, and then you also have elections which are going to keep lawmakers and everyone kind of busy. So we could see even more delay than any kind of true regulatory framework actually happening when it comes to the cigarettes. Yes, it's really tough to get major policy

proposals through when you have an acting f d a commissioner. UM, it helps a lot to have someone who has has sent it confirmation. And we're not even sure exactly who Trump is going to nominate for the permanent position, whether it would be the acting commissioner or someone else he's been talking to as well. So there's a lot of pieces at play here that, UM, you know, don't indicate

a whole lot of backing. Full disclosure. Michael Bloomberg, of course, the owner Bloomberg LP, the owner of Bloomberg Radio, TV and Business Week. UM. He has committed nearly a billion dollars to aid anti tobacco efforts. And we also want to mention that he's committed just recently a hundred and sixty million dollars to ban flavored East cigarette. I want to be fair too, because east cigarettes really came uh to the marketplace under the Obama administration. Why don't we

see regulations again? At that time Congress gave the FDA the authority to regulate tobacco in two thousand nine. They immediately said, okay, we're regulating cigarettes. Um, and this is a given. But Congress said, we want to let you guys decide what else you're going to put under this umbrella that we're going to call tobacco. So it took the f d A m until to say that it was going to include the cigarettes, and until to actually

include the cigarettes. So it was a very long process to get there, um and and deciding that the cigarettes would actually fall under the tobacco umbrella for the f d A. And that's Anna Edny joining us from Washington. The Jump administration's moves to weaken the Affordable Care Act have resulted in healthcare policies that leave holders often footing large bills. Here with more on this future story. Investigative reporter Zeke Fox Zeke, this story is definitely a troubling one.

I mentioned to that to you as we kind of got settled. Tell us first of all about the Das family, because I think you tell it well about what's going on through their experience. So Marisia lives out in Arizona. She's uh married to her husband is David, and a couple of years ago they were shopping for health insurance because the insurer that they had been buying policy from had decided to stop offering those kinds of policies in their area. So one mite, she went on Google. She

went to look for you know, affordable health care. She talked to a few people and one of them was a friendly seeming broker who said, I have a great policy for you, and Mercia you know, signed up and thought, you know, I'm covered. This is great, I have health insurance and you know, didn't pay much mind until until her husband woke up one morning and I couldn't get out of bed, and he asked her to pray with him, and instead their son called ambulance came and it turned

out he'd had a heart attack. Um with discharge from the hospital. He's doing well now. And Mercy I thought, you know, her bills were covered. You know, she started to get things in the mail saying pay this, pay that, but like, as you know, the insurance company hasn't caught up yet, right exactly. But eventually she figured out no,

actually she owes about two fifty thou dollars. She called her insurance company and they said, yeah, that's right, Like we're not going to pay all right, how can that be right? Because she was understanding she had hospital benefits and coverage, she had a deductible of what about exactly? So she thought that the deductible was all she do. But it turned out that she had what's known as a short term medical plan, and this is a kind of policy that's exempt from the requirements of the Affordable

Care Act. So her policy had all sorts of limitations that she was not aware of, such as it covered a maximum of five thousand dollars for surgeries. So anyone who's ever seen a hospital bill knows that, right it's gonna be it's gonna be way more than that. So for any surgery her family had, it was five thousand macs that would be covered. That's what the policy says. I mean, the limitations are so weird that it's it's

hard to believe. But uh, they when she called, they said, yeah, we won't be paying any We've paid a few thousand dollars of this bill and we won't be paying anymore. Seek. I feel like so many people are listening to this or watching this, and they're saying, oh, yeah, well, did you read the fine print? Tell us about the process in terms of maybe things in the fine print or something that the broker maybe was supposed to tell them

and maybe didn't. So Marissia says that the broker told her this was comprehensive insurance and that it was comparable to what she had before. The broker wasn't willing to speak with me, so I don't know what her side of the story is. I assumed that she would say

that that she informed Mariscia of the limitations. But the interesting thing about this is that since the Affordable Care Act passed, I think people have come to believe that there's a bunch of rules about health insurance and not any policy you buy is going to meet certain minimums. But it turns out there's this other kind of insurance called short term medical that the not have to follow

these rules. They can exclude people with pre existing conditions, they can put a cap on how much they'll pay, and the Trump administration is actually promoting these kinds of policies as a way of giving people more choices and cheaper insurance. To be fair, go back to the Affordable Care Act, of course, President Obama's he was the president at the time, big changes in terms of healthcare. These short term insurance coverage were part of that too, right,

but it was supposed to be very short term. Yes, so these were still allowed, but they were limited eventually to just three months, the idea being that you could buy this when you were between jobs, and the Trump administration has loosened that to up to a year with three rollovers. So essentially these policies could be your primary insurance. So tell me about because it sounds like then you've got that going on where that short term insurance now

can actually go on for a lot longer. But then you also have and I think you talked specifically about one company health insurance innovations that seems to be giving out these short term policies a lot, and maybe people aren't aware of what they're getting. Yes, So this part of the story starts with a flashy thirty five year old down in South Florida who had Lamborghini and a dollar wedding. You guys always character right. I wouldn't be a good story for me if it didn't have one.

This guy's name was Stephen Dorfman, and last year the Federal Trade Commission sued him and shut down his boiler rooms and said that he had conned thousands of people across the country and sold them sham health insurance. Of course,

you know he denies, as he's fighting the case. But uh, short sellers like hedge funds that are looking for overvalued companies read through this lawsuit and they picked up on something which was that this uh Dorfman character, who seemed like just sort of on artists from what the lawsuit said, was actually selling real policies, and that he had been earning all his commissions or most of them from this company called Health Insurance Innovations, which is a big public company,

you know, a big respectable company. And so people on Wall Street started questioning, what is this respectable company doing dealing with this kind of character, and started poking around on this Health Insurance Innovations publishing research saying that calling into question, you know, it's ties with these uh sketchy

seeming brokers. So since like last year, this company has been uh, you know, it says it's under attack from short sellers, and it's been saying that having to defend itself from accusations that it's working with brokers who are

misleading customers about uh, these limited health insurance policies. And I feel like the bigger issue now too is how do we make sure that Americans who are looking to get healthcare coverage are getting the right policy, are regulators looking at this more closely, so the I think it's the House Democrats are investigating the market for short term health insurance, and they've uh sent requests for information to

a number of companies. But in general, regulators are promoting the short term health insurance, which they're saying, you know correctly, if you're someone who is healthy, it might be a cheaper option for you. Of course, you could also go without insurance that would also be cheaper. Um, So I

wouldn't look to regulators to crack down on this. It's really actually at the center of the Trump administration's plan for healthcare from what we can tell that seek Fox and I really do feel like Jason, this is a story that people who have heard it read it are going to quickly look at their insurance policies to make sure that they're covered. God forbid that they have to be in a hospital or have some serious illness. It's never been more important to read the fun print. So

it's a special pursuit section this week. From VR and Whiskey to milk bread reform bankers in Dowton Abbey. It is the food issue. Wait, what something for everyone? There's always some food she's got cooking and we see what I did there. She's here with us in New York City. So let's start with the opener, because even the image is so arresting Virtual reality dining for its reality dining. So we're going chronological forward and then we'll move back

haunted out nabby. But R dining is something that we looked at really skeptically. UM. An author pitched it to us, and it's been something that's been really slow to take hold, Like dining in the dark. I don't know if you've ever been subjected to it, but it's not fun. Don't do it. Where's my food? You know, exactly as you're like spilling it down your front um. But VR dining

is something that's starting to catch on. It was a big deal at this food conference in South Korea earlier this year, and now it's actually coming to New York. UM there's a company called Aero Banquets r MX that's bringing a situation to the James Beard House, which is right here in New York City and ford five dollars, you can put on a VR headset and have like five courses and it's gonna be like fast and furious. But you might be looking at a barn and tasting cheese, right.

I mean that was the thing that I was trying to get my head around, literally and figuratively as I was reading this, that you're not looking at what you're eating, You're looking at something else, and so you're so informed. Your senses are essentially informed by what you're experiencing through your eyes, not necessarily what you would be experiencing if you were just looking at the food exactly. You're not looking at at the platonic ideal of like a cow

marching through the through a field. You're looking at something that is going to expand your senses somehow, and whether you buy into it or not means to be seen. Did you do it? I haven't done it. I've done some version of it actually with food, and I have to say I'm not a fan because I think of it as I think of eating is the best social experience in a really good way to have a conversation. And if you're arrested by you know, if you have this arresting image in front of you, I think it's

a lot sometime I'm simple is nice. It would feel weird if we all went out to dinner and like put on masks and then I don't know, but it is interesting that James Beard Foundation is getting involved. It's very smart for them because, you know what, you always have to find a way, Like they're sitting on pricey real estate in Greenwich Village and they had this floor that was unoccupied, so they get to trick it out

and move forward into the twenty one century. So I think it's actually a very smart idea for them, and it's worth seeing what's behind a. Gail Simmons, who's great top chef judge, is narrating the experience, and so I think people should try it, Like whether they want to go back, you know, I don't know. I just want to eat my food, that's all I want. Can we take a step back? Okay? She's Can we go to Japanese milk bread? Yes we can. I've never heard of you.

I have heard of it only because they sell it at the Japanese grocery just down the street here. I believe it category it would makes sense if they did. But budgets, um, so what is it? It's um, it's fantastic. It's just like it's a white bread, you know, and and for those of us who grew up in America with like not very good white bread on themselves wonderbread. You could call it wonderbread history. I mean, that's very true. But this is an amazing it's it's a bread that's

about seven times as rich as white bread. Although it looks a little bit like it, but the center is like a pillow. It's especially light and fluffy, it's a little bit sweet. It's super enriched with butter and our eggs and our milk, so it's really healthy. It's really healthy. But no, it's like a treat. It's really like it's fantastic, and it's definitely helped bring like sandwiches, you know, boring like sandwiches now they all have to be tricked out somehow.

It's definitely like helped heighten the profile of sandwiches. There was one um they're called sandos, the Japanese version is called sandos, and they're on these like just beautiful pieces of this milk bread and sometimes they can go they can be really thick, like at least an inch thick

compared to regular. Right, It's just it's such a treat, like you realize, like what a fantastic treat it is sometimes to eat a precise little sandwich and um, it definitely caught hold in Japan, like after World War Two when they were having rice shortages. They've always been you know, they've been a culture that likes rice, but there was American wheat coming in and so they started to make bread and these sandwiches. But they really believe in things

being well made. They have such a good culture for it. So um so, yeah, look out for these sandos that you're gonna see both the Japanese restaurants like Jason Store, but also um also in other restaurants, and you'll see them in sushi restaurants too. And that's cake crater our food guru. I love when they're sort of like a cake crater takeover of pursuits because you know it's gonna

be fun. Yeah, there's great stuff. We talked about virtual reality with her, but there's also a story about Whiskey milkbread reform bankers opening up restaurants in a little bit of a story about a cookbook and doubt Nabbey. Yeah, exactly. You need it for your tailgate, trust me, you do. So if you think private equity, you definitely think of Steve Schwartzman. He co founded the private equity behemoth that is Blackstone Today with Pete Peterson in the mid nineteen eighties.

After a successful career on Wall Street. He writes about his path, or what he calls a collection of inflection points that led him to who he is and where he is today. It's all in his new book, What it Takes Lessons in the Pursuit of Excellence. It's so great to sit down with you. Congratulations on the book. Oh thanks, fun to be here. Well, and if you could see us, you could see that we both have very well worn copies of this. It's really a great read. Steve. Congratulations.

As Carol said, one of the things that really jumps out to me is the stories of Wall Street, the stories from your early days sort of getting into it. D L. J. Lehman of course Blackstone later on. How has Wall Street changed over the course of your career, Well, wall Street's changed enormously. Uh. When when I got to Wall Street, Uh, there there were a very large number of firms uh doing different things. When when negotiated commissions were implemented in may day, the cost structure of most

of the firms was very high. And what happened is they were no longer competitive when somebody offered to do a brokerage trade for fraction uh. And so you you had this uh consolidation that occurred, uh with firms going

out of business emerging with other firms. Uh. And and ultimately you ended up with you know, ten firms uh, down from probably in terms of active firms, probably a hundred and fifty so so so it was it was a dramatic change that that happened over a ten to fifteen year period, and as results of that, everything changed. Is it a better Wall Street today? It's a different Wall Street? Uh, It's certainly a much more efficient Wall Street. It's a wall Street that can mobilize much more capital.

It's a world uh that that has printed so much money, uh, not just in the United States, but the deficits that have run uh that that it's easy to to aggregate a lot of money to do a lot of things. It feels like so much of what you've become and what you've created really does go back to those early days, first at DELJ briefly and then obviously business school, but Lehman Brothers. That's where you are really forged in a lot of ways. Talk to us about that time, the

lessons you took from that experience. Well, Lehman was at that point, uh, fascinating place in the in the investment banking, but a difficult place. I would say, my my first day at work, somebody walked out of the elevator and welcomed me and said, you're very lucky to work here, because nobody here will ever stab you in the back. Actually, they'll just walk right up to you and stab you in the front. And I remember going home my wife said, how is your first day at work? And I said,

this is going to be a really interesting experience. I feel like this leads and if if we may just talk a little bit about what's been going on in the world at large, because I feel like you have such a great vantage point in terms of some of the macro issues. And I think about US China and what you're just talking about. I think you have two individuals who completely believe that their course is the right one in terms of US China trade. Um, you know

both of them. You've been on behalf of the administration to China. I think you said in your books something like eight times eighteen talk about tenacity. Yeah, yeah, how do you see this working out? Well, I think it's it's more interesting than two people. Because China has been the most rapidly growing country probably in world history over

a forty year period. And and they did that with enormous energy, central planning and also adopting a lot of things that emerging markets countries do, which is hiding behind high terrafor falls, uh, closing its markets and if not closed, not making them as accessible as as the as the developed world does. Uh, and doing different things with intellectual property. And you know the US uh in um uh nineteenth

century sort of did the same thing. We were a poor little country, uh, and we found a way to use tariffs to protect ourselves at a certain point. That creates imbalances around the world. So so now that you know, China's got three trillion dollars of reserves, uh, it's it's the biggest producer and fulfiller of jobs in the world. So jobs have moved from the developed world to China. Wealth has moved, and the global financial crisis basically created

problems for the developed world. So now we have roughly half of the people, for example, in the United states who have income and insufficiency. Uh, they're in a bad way. Uh. And and that creates populism. And when domestic candidates for being attacked don't result in change for the people who are in trouble, they find a foreign devil. Uh. And I was pretty sure it was going to be China for those reasons. So so so in effect China recognize

is that that the circumstances of the world have changed. Uh. But but like all people who have a really good deal, why would you change it? And you only change it because there's there's pressure and the change ends up being in their interest. On the other hand, UM, there are people in their country who don't believe that. They just want things the way they are. Remember, people don't like

to change. And so here we have the developed world, represented by the United States, who wants them to change. So so it's a very interesting thing where we're China knows it has to change, the US wants them to change. It should be easy, uh, except Uh, it's not easy because people don't like giving up advantage. Uh. And and on the U S side, Uh, they would want to

accomplish this rebalancing as quickly and as thoroughly as they can. So, so what's what's happening over the last best two and a half years roughly, is these two giant countries which which together have somewhere between thirty five of the world's economy. So this is like the two parents fighting, uh and the children you know, are like hiding, uh and they're upset. That's the rest of the world. It's just slowing trade.

But long term potential decoupling of these two giant countries actually results in lower growth for everyone, right, And how much do you worry about that? How much do you worry about that decoupling, because that seems to be the biggest worry in the world right now, is that mom and dad will come together splitting of the world's right. Well,

partly that's happening because because there hasn't been the overlap. Uh. And and I think that because ultimately, um, you know, people are rational on a certain level, that that as as these two countries see that that's not working for them, uh, that that they'll come to a table, which is what's

happening now for the I guess the third time. Uh. And they're doing it not to just be helpful, that they're doing it as they as they recognize that the short term in in trying to can remain fine with policy adjustments, but they're borrowing from their future and long term if you really go off on your own and decouple uh and have a slower growing world, what's the wind in that? That's not a win, that's what And

what can you use, Steve Schwartzman do to help this along? Well, I think there are a lot of people who know both countries, and I think it's it's it's important that that that people understand where this is ultimately going, which is not in their interest. And ultimately I I believe that people will act in their self interest and there will be an adjustment. No, no one can predict the way.

Sort of the media wants what's going to happen in October and you know it's sort of in the you know sort of I guess, but it's a who knows, because it's really about for the primarily it's about China. They have their hardliners, they have their reformers. What do they actually want to put on a table? And President she has to balance that right now, well, somebody has to balance it. And and and in May when the trade talks basically were I was gonna say suspended, but

at that point they were ended. Uh. You know, the balance of reform versus you know, sort of the harder line position, the harder line people you know, in effect had more influenced now as it's all becoming more complicated, not just because of trade. Other decisions that China has made over the last two or three years are creating more complexity there. You know, they've got other things going on us as well. They put pressure on them. Uh, that that they're coming and saying, let's let's see if

we can do something. Uh is sensible. Uh, it's you can't get caught up in two people, and that's Steve Schwartzman, CEO, chairman, co founder Blackstone Group, and Uh, I loved our conversation. Obviously, we focused on his book and the lessons that he's learned, those inflection points that he talks about, and great also to get his views on some of the stories that are in today's headlines. And if you want to listen to the full interview, check out our Bloomberg Extra podcast.

We had a long conversation with him, but funnily enough, as we were talking to abutterwards. He said, we'd barely scratched the surface. That's why he wrote a book. I guess that's exactly There's a lot in there. And I gotta just say, I really do love this issue. I think the story and buy are really deep dive into that big corporate move that they did, corporate acquisition of

mont Santo and then General Motors. Right we we talk about electric vehicles, self driving vehicles, General Motors, Mary Barr. She may be ahead of the pack, and that may be spot on, or she just might be too early with her call. And that wraps up Bloomberg Business Week's weekend podcast. Thanks so much for joining us. I'm Jason Kelly and I'm Carol Masster. Be sure to tune into Bloomberg Business Week Radio Live Monday through Friday, starting at

two pm Wall Street Time. Can't catch us live. Get our daily podcast for the Ride Home at iTunes, SoundCloud and Bloomberg dot Com, and of coursion. Get this week's edition of the magazine. It is on newsstands now. We'll be back right here next week at the same time. Is Bloomberg