Abandon 'One Korea' Policy, Lefkowitz Says

facing the Korean Peninsula. J Leftwitz is a former U S Special Envoy for Human Rights in North Korea and currently a leading partner at Kirkland and Ellis. J. Leftwitz, thank you very much for being with us. Good morning, How are you good. Maybe you could just begin by stating what many people do not know myself. Included, perhaps, is the current position of the United States government when

it comes to a uni fied Korean Peninsula. Well, it has been basically the policy of the United States going all the way back to the Korean War, uh that we believe that there really should be one government on the peninsula of Korea. It should be a government led by what is really the the Republic of Korea, the democratic government that is currently based in Seoul, and the Korean War when it actually ended, didn't formally end there.

There there's never really been a cessation of hostilities, and of course that's because the the Chinese have always insisted that everything above the thirty parallel be outside of the scope of influence of of what is South Korea, and so we've kind of been at a stalemate. But our official policy has always been that we support unification of the peninsula, and that's actually been the formal policy of

of of South Korea as well. You know, Jay, I was listening reading through the recent oup ed piece that you published in the New York Times, were you were saying that as long as the US, this is my interpretation anyway, as long as the US continues with this policy and remains hard fixated on it, uh, it's going to be very difficult to get some kind of uh, meaningful concession from China that could actually make a difference in this whole situation and end it without a catastrophic

type of event on the Korean Peninsula. I think that's the very accurate reading of of of my take here. I mean, look, there there are two there are two parties that were focused on here. We're focused principally on North Korea. And actually, to his credit, President Trump just signed into law in August second the uh bill called Countering America's Adversary through Sanctions, and that imposes new sanctions

on Russia, North Korea, and Iran. And I think there's certainly a lot that we can do in terms of dealing with North Korea from a sanctioned perspective. But the fact is we've been dealing with this North Korean issue

for decades. The Sixth Party took started in in two thousand and three, were now about fourteen years later, and they are marching inexorably towards not only having the nuclear weapons that they already have, but developing a delivery system that will have the ability to have ballistic missiles that are nuclear tipped hit the coast of the United States. And so what President Trump has said, which is corrected,

we have to get China to engage here. But it's simple negotiation tactics that you need both carrots and sticks, and I think the most important carrot here is to let China know that we actually are not seeking to exert our influence or South Korea's influence over the northern part of that peninsula. It's not actually something that anybody

believes is realistic at this stage. And yet as long as it remains our official stated policy, I think China believes that it is more to fear from a unified pen and flow with US influence in South Korea right on its weakest border then it has from this current unstable nuclear regime in North Korea. And if we could just allay those concerns that I think China would be

incentivized to help solve the problem of North Korea. Jay, I'm sure that you have discussions with some people currently in government or I imagine that you have a sense of the dynamic there. Do you have a sense that anyone is seriously considering what you're talking about? And if so, what would they hope that China would give a sort of a reciprocation and that could possibly ameliorate the whole situation.

So look, I have had quite a number of follow ups just in the last week from folks who are involved in in policy issues in the government. Uh, I don't want to reveal they are directly, and I also don't want to in any way suggest that the Trump administration is accepting my suggestions. But I think the Trump administration certainly recognizes that the path to a North Korea solution lies through China, and the challenges how to really

get the Chinese to the table. And when you say, what would we be looking for, you know, it seems to me that the message to China is, look, if we allay your concerns about too much US influence up north of the Parallel, in return, we want you to deal with this regime. Now, China has enormous economic clout. They could literally shut all of the remaining lights in Pianyang out in forty eight hours if they wanted to, and they could presumably also uh change the regime um

if they wanted to. And I think what we have to tell the Chinese is We're going to give you some time to do this, but if not, then here are the sticks. The sticks are we are going to have to protect U s citizens. We are going to have to think about putting short range missiles in the region,

whether in Japan or South Korea. We're going to have to start building a missile defense system that is there to protect the United States of interest, and it has to be in the region to deal with North Korea, and of course China certainly doesn't want the United States to do that. So I think we need a set of carrots and sticks to have a productive negotiation. J Lefkowitz. Do we know what it is that North Korea wants? Has anyone asked them? I don't know that anybody knows

what they want. You know, the problem with North Korea is it is really a cult of personality. It's probably the last true remaining stalinist authoritarian regime. They have concentration camps, they torture their own citizens, they routinely starve their own citizens. I mean, this is a cult of personality. It's not

really a nation state. And the problem is when you're not dealing with true nation states that are functioning nation states, Uh, there isn't the same sense of responsibility to a citizen rate accountability. Um. And so I don't know that anybody knows what what what the Kim family really wants here, Jay, real quick, what do you think the chances are at this point of a violent resolution to the situation. I don't think we're likely to have a violent resolution in

the short term. I think China certainly has has has made it clear to North Korea that at least short term, a true violent reaction would not be acceptable, and of course the United States would have to react with violence. If there were one South Korea, it would be in jeopardy. But I do think over the next year the United States of shores are going to be genuinely threatened, and so we can't leave it for a year from now to try to solve this problem. Jay Leftwitz, thank you

so much for joining us. Truly a pleasure speaking with you. Jay Leftwitz was a former U S Special Envoy for Human Rights in North Korea under President Bush from two five to two thousand and nine. He is currently a leading partner at Kirkland and Ellis in New York, and we will continue to bring you coverage in this issue because it is one of the main concerns that a lot of policymakers have, at least at Brown with Pimp Fox.

This is Bloomberg right now. We want to get more on this from Chris Strom, Justice Department reporter for Bloomberg, and Chris, you're listening. What was your biggest takeaway from this? Well, the biggest takeaway is that they aren't actually announcing anything new so much as they're saying that they're putting more

emphasis on activities to identify leaguers and men prosecute them. Uh. They Session said that they've now had more referrals that they're going to investigate, and he said that the number of active investigations is higher now than it was at the end of the end of last year. Uh. The abomb administration was known for for being for having an aggressive posture towards towards leaguers. And uh, it seems that Sessions wants to try to even outdo the Obama administration.

But you know, we'll still have to see how it plays out in the coming months. I mean, obviously Sessions has been under a lot of pressure to talk about leagues and that's what he's doing. Chris, just a question to you, because some Republican senators, I'm thinking, for example, of the Judiciary Chairman Chuck grass Lee back in July, he urged the leaker who had the information about the talks between Attorney Gen. Jeff Sessions in a Russian diplomat.

He urged the leaker to actually leak the entire conversation. Is there any confusion amongst the Republican senators about what leaks are allowed and what aren't. Well, I mean, certainly there's hypocrisy in in in this world, and so uh you know, uh, one person's leaker is another person's patriot. You know. So it just depends on your your your

politics and in your point of view. I mean even going back to um, you know, uh Trump when he was campaigning talking about uh, you know Russian, you know Russian, Uh, you know, hackers should should find Hillary Clinton's emails and leak them. I mean, you know, um, the idea that uh you know, some people support some leagues while they

oppose other leagues. Um, you know, is you know frequently happens. Chris, you know, I'm struck by this coming just as we find out about the assembling of a grand jury for or Bob Mueller's team. He is the special prosecutor that was appointed to look into any connection with Russia and possible collusion with respect to the U. S. Election. And I'm wondering, you know, this raises the specter of even more leaks. And do you expect that the conversation will

shift to what is classified? How how to determine these things? And do you expect the leaks to actually stop or just simply accelerate from here. Well, it's hard to know exactly how this is going to play out. Um Uh, certainly, Uh, there have been leaks that have been damaging to the to the Trump administration. Um that you know, appear to come from people who are who are who who feel that what Trump is doing is wrong and that they

need to stand up. And the and the way that they are choosing to stand up is being uh, you know, whistleblowers by by leaking information. Um. Uh you know, with

with Moller. You know, I think that the Trump administration seems to be trying to build a case to discredit what uh you know, what Maller is is finding, um by saying he has conflicts of interest and so um you know, to the degree that you've got you know, these competing these competing forces, I think that you're going to continue to see people, um, you know, leaking information to the media uh for what they see you know,

is in there in their best interest and so. UM. But I wouldn't be surprised if if you do see uh, the administration come forward with some you know, new active cases. Um. But these cases take a while, they're they're hard to uh, they're they're they're hard to prosecute. That's why you don't have many examples of actually successful prosecutions. And so you know, any case that that the uh you know Sessions is working on is going to take a while to come

to fruition. Is is there a way to I don't even know if it's relevant, but I mean, is there a way to to find what is a leaker? What is a whistle blow or and what is a confidential source? Well, there are there in the law. There there is definitions that um that you know apply when you're actually doing a leak investigation. And so um, if you're if you're somebody who's working inside government and you're not if you if you're working for the civilian side of government, the

non national security side of government. There are specific steps that you can go through in order to be a whistle in order to be designated as a whistleblower and have a job protection. UM. Now, people have said that those uh steps are very difficult to follow and that you know, they're cumbersome, and that oftentimes when people come forward and they follow those steps, they get retaliated against in in their own agency. And so there's a disincentive

to actually do that. So, um, but when you get into a leak investigation, you need to you know, look at the look at the facts that that are that are relevant to that investigation in order to find out you know what specifically, uh, you know what, what specific laws somebody violated and whether criminal charges can be can be brought against them. Chris, you know, I was really struck by the comments about media subpoenas. Did that ring something for you as being I don't know, something new? Yeah,

that that caught me. Um. The idea that you know, he said that they are going to be reviewing the idea of subpoenaing news outlets is uh, it's something that I think, you know, we need to watch for. Um. You know, I wouldn't be surprised to see the Trump administration to try to, um, you know, go after some news outlets for uh publishing uh, you know, classified or or sensitive information. I want to thank you very much

for joining us. Chris Strom is our Justice Department reporter for Bloomberg, giving us his thoughts and reaction to the comments from Attorney General Jeff A. Sessions today coming from the Justice Department. Thanks for every much well, today's non farm paywork report was better than estimated by a variety of economists. Joining us now is the former Deputy Secretary

of Labor under President Obama, Chris Lou. He is currently a Senior Fellow at the University of Virginia Miller Center, and he can be followed on Twitter at Chris Lou forty four. Chris Lou forty four, tell us if you

now have a new perspective after leaving the administration. Obviously, I'm wondering if you could explain to us what you have learned now that you are out of government about the politicization of these reports, because you know you did it when you were in when you were in the administration, that you know we take that, and of course the current administrat every administration does it. But is there a way to step back and say, all right, let's not

play politics with the numbers. Let's not describe blame or or credit, just describe what's going on. I think that's a fantastic point number that we touted back in Republicans love saying or uh, I love poo pooing them, and and and the flip right now as you see it, going the other way, where numbers that President Trump is touting, Democrats often sort of say, uh, this is really glass half empty. I think what's fair to say about these numbers is that it's a solid growth two nine anything.

Anytime you have a two before the number, that's a good sign. The constant here, and this runs across both administrations, is wage growth at two and a half percent. And while obviously any positive wage growth is a good thing, it's really not enough to make a meaningful difference in most people's lives. And this is one of the reasons why in the Obama administration we push for increases in the minimum wage, raising the overtime threshold, up skilling, which

are good, sensible, I would argue, nonpartisan policies. So I think that's the constant rate. I'm are go ahead, well, no, Chris, because I was going to say that actually, in the lower salary jobs there actually has been more growth with respect to salaries as well as jobs being filled. It seems to be uh, you know, clearly there could be more growth there as well, but you know, there has been also very little growth at the high end, in fact, less growth at the higher ends, which is uh, it

which suggests that there's something larger at play here. Well, it is something larger play. It reflects kind of the shifting of the economy right now, when you've got kind of um an outflux of manufacturing jobs in the United States, a lot of the folks that would have those jobs in rural areas have now moved to retail jobs, and so those salaries have been basically flat during this period of time. And again, looking a little bit more at

these numbers. While again over all these were positive numbers, I look at construction manufacturing, which had gains, but they weren't big gains. I looked at retail, which was essentially flat and has lost about eighty thousand jobs over the last six and that's kind of a longer term trend that is going to continue with automation. And so again this is a positive job report, but as with anything,

there are some issues in here. Chris, is there any data that you've been able to look at that describes the relationship between actually getting a job, holding a job, and the benefits such as healthcare, health insurance that would come with the job. Many people taking a position for those reasons as opposed to let's say, making money or or doing the particular work. Well, you're right, it's not just the that's a minimum wage. It's whether people have

health care, how robust that healthcare is. Obviously, um the affordable character has played an important role in helping to lift up people. But more broadly, it's what are the retirement benefits. As larger companies have moved away from the traditional pension plans, the longer term security of employees is really at risk. And as you move more to a gig economy where people don't work for one employer, uh for the course of their lifetime or even at one time,

it creates greater economic instability. And that's just not something we've really figured out a way to address quite yet in this country. You know, Chris, we had our own Carl Ricadona, chief US economist from Bloomberg Intelligence on earlier and he was saying that he does expect that wage growth will start to accelerate more later in the year if we still keep getting these two plus prints. Do you agree? Well, I hope so. And that's something that frankly,

we thought would happen um years ago and during this recovery. Mean, when we got down in the five percent unemployment, and people kept saying, well, we're close to full full employment, we should start to see wage growth. That just doesn't happen, and it starts to suggest there may be broader issues going on in the economy, whether it's with automation, whether is globalization that may be having a powerful downward impact

on wages. It also speaks more broadly as to whether the fet is being premature in raising interest rates and whether they ought to let this recovery go on a little bit longer. Of course, one of the big topics is immigration and the jobs that immigrate immigrants to the United States get when they arrive. Can you give us your thoughts about the trends that currently exist, what kinds of jobs they get, and whether these new policies will benefit,

as the President has said, the American workers. Well, I think the bill that the President out of the other day is the wrong approach. And that's not just me saying that. That's the US Chamber of Commerce, that's the I T industry, it's Senators McCain and Graham. Uh. You know, we are in a period right now in the United States where population growth really is at its lowest since the Great depression. And that's not only because of low birth rates, it's because of more people retiring. And so

we need more labor in this country. And yes, we need more high skilled labor. We need to replenish and revitalize the igh T industry in this country, but we need low skilled labored as well. And uh. Senator Lindsay Graham said it, well, in a state like South Carolina, you not only have high tech healthcare jobs, but you also have a retail, your food service, you have agriculture that all needs more people. And so artificially cutting in half legal immigration is not the right answer to creating

economic growth. Chris lou thank you so much for joining us. Chris Leu is a senior fellow at the University of Virginia Miller Center. He was the Deputy Secretary of Labor under former President Barack Obama, and he comes to us from Virginia. Well, it is another day and another billionaire hedge fund manager is coming out to trash the E

T F industry. Paul Singer, who's the billionaire founder of Elliott Management Corps, warned that quote passive investing is in danger of devouring capitalism, which may have been a clever idea and its infancy has grown into a blob which is destructive to the growth creating and consensus building prospects a free market capitalism. We'll here to defend the blob that is the E t F industry. Is our own Eric baltun As he is our senior et F analyst

for Bloomberg Intelligence and Eric Um. First, I just want to I want to ask you, you know, I have a feeling that you do not think that E t F s are devouring capitalism. Is there anything about Paul Singer's argument that rang true with you? Yes, So there's there's a one hand in the other. So on one hand, Vanguard and black Rock, which are ultimately passive, that's they own almost all the passive assets, are the top in the top three holders of the sp companies. So they

are becoming a bigger and bigger deal. And if we extrapolate the assets ten twenty years down the road, you could see a world where Vanguard alone owns thirty of the stock market. At that point, I think we would the government might step in at that point. But right now, let me give you some other context, which is to say that even though they're the top three in the top three holders of almost all the companies, they collectively only own about thirteen point five of the stock market.

Because here's why people forget this. Mutual funds which e t f s are included in, are a minority owner of the stock market. The rest is households, institutions, pensions, all people who are active essentially. So you are definitely looking at a rise of passive within mutual funds, where you're having more and more people put their money passively um and I think that speaks to a bigger issue, which is that active has lost the hearts and minds

of investors. And I think that's part of what you're seeing. You're seeing they feel threatened, they're they're losing. I'm sure he's getting calls from people saying, why don't I just put my money in the n sp y or or a separately managed account that's passive And it's tough to defend uh in this market going with free exposure, essentially,

it's just hard to combat that. And I think active in the eighties and nineties got potentially a little too greedy and did not pass on some of the economy's of scale in the form of lower fees. Meanwhile, Vanguard is then you have the world turning and now everybody wants everything cheap, and you could argue it's overshooting a little bit, but it's active creation. Well, okay, so let's talk about Paul saying, all right, his main hedge fund

oversaw thirty three billion dollars. He's not exactly hurting. He is a billionaire. Uh that fund gained three and a half percent in the first half of the year. Fine me underperformed the stock market for sure. But I I want to just talk to the one point that you made about Vanguard and black Rock owning such a substantial proportion of the biggest companies. Have they shown an inclination

to be active with their ownership of these shares? I mean, could they potentially affect great changes at companies without necessarily Yes, you know, the investors setting off on that and active maybe owning this whole their value for capitalism a little too much. I mean, arguably Elon Musk and Steve Jobs aren't waiting for active managers to do what they have to do. Um making profits is for their real motivation. Second,

active is definitely focused on short termism. They are definitely guilty of making everything about the quarterly earnings now passive. They have corporate governance groups. Now they're not is in the face of the c e o s, but they are definitely prickly and they vote with activists, sometimes against them sometimes but really what their game is is to create the environment to have good uh independent board corporate government's e s G policies so that long term value

can exist. But they're not gonna basically needle them on one product or another. That's not their thing. But they're not passive. They have teams that do this and both Larry Fink and Bill mcnabbel, now it's Tim Buckley have come out and said exactly what they hope to do. And that's where you got this dual class listing issue with the SMP. I think it was pushed by Vanguard

and Blackrock. Eric, is anybody ever gonna be let go from their job if they recommend to their client that they buy an e T F let's say, of the SMP five and it goes down, Well, if it goes down because the market goes down, or right, that's the spid. You buy the spider, right, you buy an index fund and you make it plain to the investor here, this is what it's connected to. Yeah, so you're bringing something that's even bigger, which is UM this fiduciary UH standard

and now it's a rule. So what we're finding is the reason you see this flood. The passive flows have doubled this year. They're doubling their intensity. And the fiduciary rules is not Trump trade. It's the fiduciary rule, correct, Because all of the money is going to the absolute cheapest products from Schwab, black Rock and Vanguard. They're taking

like ninety of the assets. And the reason is because if you don't go to the absolutely cheapest fund, a lot of advisors are worried their clients are gonna come back and say, hey, there was a cheaper fund on the market. You put me in this one, even though it was three basis points more, I'm gonna sue you. And so they're this fear of the fiduciary rule is sending money to basically as low as you can go,

and that's why that has exacerbated the fee war. UM. Now you can see the few were in print of Vanguard free zones like cybersecurity ETFs are now in a fee war there's two of them and they're like going down to six each now, and the fiduciary rule has everybody um that you're exactly right, so no one, Yeah, it depends. I will say that if somebody recommend sp Y over i VV, you know, that's six basis points more,

it's possible they get in trouble. And that's why spies losing money this year partially is because now there's cheaper san P five products. That's how one basis point is enough to double your flows. It's like the law of unintended consequences. Well done, Thanks very much for being with us. Eric balchun Is always a pleasure, Senior et F analyst for Bloomberg Intelligence. You can follow him on Twitter at

Eric Balchunis. Go ahead, Well, the one thing that does scare me, I will just add a sort of an epithet and they get three seconds. If if the market tanks and everybody pulls their money out, who's going to be on the other side if active managers are washed out of the market. Well, that's why we've got Erik Balchunis. He's going to be telling us. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast

platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo wits one. Before the podcast, you can always catch us worldwide on Bloomberg Radio