Surveillance: The Need For Transparency With Malpass

this horrific virus. He is a physicist from Colorado College. David, I want you to look right now at the inertial force of this ugly pandemic. How is your world bank adapting to the momentum of this pandemic? Hi? Hi, Tom, and John and Lisa. So the adapt the world banks doing okay. People are able to work from home. We gotten a lot of programs out over a hundred programs

that are directly at the health emergency. The problem is that developing countries are under immense pressure because of the global recession, that economic shutdown in the advanced countries, and the pandemic itself is still spreading through countries. Uh. And they also entered this problem with a lot of debt already on their books. So those are the problems that we're trying to address as we as the recession deepens, and then we hope find the other side and we

come out of it. In your distinguished career at bear Sterns, and particularly David, as you build out that world best Latin American coverage at bear Sterns, there was a mechanism for challenges in the third world in the emerging markets. Are the mechanisms there right now or do we just have to go to a debt suspension? I mean, can we use the processes in the e M that we have available or is this a new territory. I think we have to look at new territory because the debt

itself has changed. In the nineteen eighties, I was in the regular administration and there was a Latin debt crisis that had come from the petro dollar recycling. Remember, the oil prices had been high and so the banks could uh. The banks had a lot of deposits and they would lend those to the developing world, and the problem was they didn't get paid back when oil prices went low. So it was a bank crisis because they couldn't the bank deposits were a big portion of the capitalization of

the banks or they were critical. Um, it was syndicated loans. So this is quite different. There's euro bonds involved. Uh. There so a lot more commercial creditors than in in the past. Uh. And also the nature of the debt China. China is a much bigger player in this. They weren't really a creditor in the nineteen eighties. So that those two changes mean you have to look at a different process.

What we're doing is a suspension of debt payments. Now that that that's the official bilateral creditors, and we're encouraging the commercial creditors to stop taking payments from the poorest countries. Uh. That that's a response to the crisis. David, you do not represent the Trump administration, but you were certainly selected by the president to take over this important task at

the World Bank. Great, he's going after other institutions, his own CDC, He's going after the World Health Organization for all I know, he's going to go after the World Bank. How should your institution respond to a president who is not an internationalist? One correction Toime, I wasn't selected by him. I was proposed by him to the World Community. I was happy to be elected noted that board by the

Board and Governors of the World Bank unanimously. And it's been going well in terms of the changes that we're making at the World Bank that can help countries with growth, with better living standards, with all the things that were that we're trying to do, climate, education, health, uh and on down the line. Poverty is a big part of

the problem. Um so if you if you boil it down, we want to have international cooperation among the various organizations, but the drive for growth has to come from individual countries. So that's what we're trying hard to do at the World Bank. Are we have country offices in almost all of the developing countries, and those offices work with the governments to find out what will work best for the countries and then we can help fund it with grants

and loans. You know, the World Bank heavily is doing grants, which helps a lot with the net positive flow into the poorest countries. That's what we want others to do. You know, it's it's hard to say you're going to make a own to a country that's that's in extreme poverty. Because where they're going to get the resources to pay it back, So we try to shift the balance towards grants, David, that seems to be a theme throughout the world, certainly

in Europe, the idea of grants not loans. We're also talking about debt reduction, and you have been on the record saying that you do think that there needs to be some debt reduction throughout the developing world. How big a haircut are you talking about. Well, we we need to do the analysis of countries and what their debt sustainability levels are, how much debt can they support, and

then reduce the amounts of debt to that. But right now, the bigger, the immediate problem is the need for transparency. One thing that's going on in the market is debt rescheduling and restructuring where people don't know what the terms are, and that means other creditors are reluctant to participate. Uh, if there's if there's not knowledge of the terms. When I'm saying terms, for example, governments in the poorest countries are sometimes borrowing money and it's never disclosed how much

they're supposed to pay. Then the government leaves and the people of the country are left with the burden of the debt. That's something that's a cycle, that a debt cycle that we have to get out of because the politicians or the leaders can benefit from the immediate loan, but then it's very hard for the people of the country to repay that. David in the news this weekend Listalize article in the Washington Post on Lebanon was heartbreaking. How can you affect assistance to a Lebanon It's being

absolutely crushed right now. These are tough, tough challenges. Lebanon had taken deposits into its banking system and paid a very high interest rate. I think you know, I'll test your history, but remember the SNL crisis long ago in the US. You had this elevated interest rate that made it look good for depositors, but then when they began

to withdraw, it created a banking crisis. Um, what we're doing in Lebanon is trying to support the social safety net that means actual cash to actual people, individual people, rather than trying to run it through the government in the banking system, which is so problematic now. David, don't test Tom's history. Will be here all day. He'll start, David, you know how this works. We'll be here for a long long time. You know as well as I do that everybody wants to receive a grant. Nobody wants to

receive a loan. When you say there needs to be haircuts, who are you speaking to? That the the official bilateral creditors right now, and so that's uh, that's uh institutions in the US government institutions that are lending heavily. More than half of it now is China. Chinese institutions that have lent to these countries. Uh. They what they're doing right now is putting the debt payments at the end

of the term. They're they're pushing it down the down the line rather than reducing it, so the net present value is being preserved. At some point, you have to reduce the net present value in order to create light at the end of the tunnel for the poorest countries.

That's what we're that's what I've proposed. Also, the commercial creditors, the G twenties already asked them to do comparable treatment, meaning they would be reducing the net present value of the of the of their loans or of what's owed to them we're talking about, remember, the poorest countries. So given the pandemic, it doesn't make much sense for the wealthier countries and creditors to get back all of their money from the poorest countries and the people in those countries.

We could just as well be talking about Europe, but we're talking about much much poorer countries. David, of course, and you have a lot of empathy for what they're going through right now, and I can sense that when you send this message to the Chinese Communist Party, how receptive are they? Yeah, They're They're receptive. President She has said he wants to fully participate and he wants all Chinese agencies to put fully participate in the suspension initiative.

Then that gets into the details of what that means. So that's why what I've tried to do in the G seven meetings last Monday a week ago, and in the G twenty on Saturday, is be very specific about the need for the transparency. I'll give you one example. Central banks have been making deposits into other central banks and not not labeling it alone, so you make you know, I'll just put money in your bank account, but it's

really still my money. But it's not alone to you that that needs to have more transparency on that practice, so that others when they're lending or giving grants to these countries know what the totality of the debt is. So a lot of the work that we're doing this month and next month, what the World Bank is, what I've had people doing is put on the websites all the information that we have and then invite more information. We can shine shine a lot of light on this

and make progress. The reason it's so important is countries can then invite investment into their countries with the knowledge that it's that it's transparent, that the investor the new money coming in knows what it's getting. Devin mouth Pass fantastic to catch obvious, incredible inside and got to get you back on the program soon, Tavid mouth Pass there the World Bank President Casta nicol to now Intelligence Deputy director of research constant great to catch up and you

just want me through that. Have we got an agreement on size and what does the discussion around strings attached sound like? Going into this evening, it seems that we have made some progress on the size of the actual recovery funds with these three nine billion in grants being

proposed to by Chean Michel, the Council President. But as you just outlined, I think the question of kind of scrutiny, let's say, for you know, economic reforms on the ground, as well as the question of the rule of law when we're looking at the overall budget for Europe that is obviously still very much in the open and I think that's what we should be focusing on in the in the coming hours. Dr Nichol. There are there been changes since World War Two and how Europe does business,

how Europe gets along. Is this one of those changes or is that asking too much? I think I think that's a good way of looking at it to be, to be honest, because this is politically transformative. What what what leaders are trying to couple together here. Let's make no mistake in terms of the overall size of the money that we're looking at, it probably won't be enough, So we'll be back to to to this point what in a couple of months, in a in a year

or two from now. But I think the politically transformative moment is this idea of going to the to the market together as the European Union showing solidarity and also applying greater scrutiny for economic reform in those in those member states that are receiving the funds. So I think we shouldn't underestimate the political importance of what's going on here right now. That seems to be the argument from market participants as well, casting that it's not about size,

it's about signal. And if this isn't enough, we've got a mechanism to come back and do it again. That's the takeaway. Overwhelmingly, that's the consensus. Custon. Do you believe that's the case. Is there any reason to believe that this is just a one off? No? No, I think that is the case, because you know, setting precedent in the in the process of European integration, if you look at it historically, UM, it has has always been very important. That of course, doesn't mean and I think that's the

warning sign. That doesn't mean that the next round and the next steps that are still ahead of us will happen without conflict. Right So it doesn't mean that we're

getting a deal today that basically sorts everything out going forward. Um. The closer we integrate, the more political conflict will play out on the European stage, and I think we're getting a first stage, the first taste of that already in these negotiations right now, of via concept tom politically transformative another way of saying, is it a Hamiltonian moment and the question of the frugal four and how they really

feel towards the Southern states. Have there been any material concessions on the part of their attitude toward some of the southern states, and talking about Italy and Spain that are transformative in these negotiations, Carson, I think what is transformative here is the fact that even from the Bastian Cooks, the chancel of Austriy Mascult to the Prime Minister of the Netherlands, nobody has ever questioned the very idea of a recovery fund. That to me is the main, the

main movement. We're fighting over, you know, five billion in Grandson in grants, we're fighting over the exact level of scrutiny and the government's mechanism to I'm sure that that's all good, that's that's all fine, But the very idea that in this exceptional situation the North of Europe that depends so heavily on the Single Market has to show solidarity with itself that had never really been questioned. And I think that to me is the is the change here,

But Carson, this is important. Is Brussels changed by this or is another bare way until the next meeting. I think the most important thing that's changing is members states politics, domestic politics and the member states. And we've seen that over the last five to ten years everywhere across Europe.

Were usually focused on the bad news, the rise of populism and so on and so forth, but you've also seen I mean, if you look at France, for instance, the emergence you know of of a staunchly pro European leader like like McCall, the change of heart that we've seen from Angela Machael in Germany on the last meters

of her chansonship, that is, that is encouraging news. And so to me, the most important thing is what happened, is what's happening in the party systems of the most important member states, and they're indeed things have been happening. Cars and I hear you. The debate is about the size of this is not about the concept, and just by the very nature of the conversation right now. That is progress for the Europeans. On the final question though about the s evening, this has to be ratified at

home for Prime Minister Rutter. How hard is he going to be this evening when it comes to strings attached to the grants they'll hand out. Yeah, I think that will be. That will be the key thing, of course, because he needs to be able to go home to the Netherlands and remember that we're going into an election year the marche Um and he's under massive pressure, of

course from from the populist power right at home. So he needs to be able to go home and say we're not just putting money on the table, but we're actually gaining influence in the direction of better and more sustainable economic policies in the South. And if you can say that, then I think that's the pathway to would deal casta Nicol that's and no Intelligence Deputy Director of RESET first all that Dr Furman could join us, uh

this morning. There's never been an Act ten, whether you do it virtual or in class, Jason this fall that has the magnitude of the changes we're seeing. How will we come out of these magnitude of changes, the magnitude of fiscal policy, the magnitude of monetary intrusion into our system. Well, first of all, will come out a lot better if we have a big magnitude. Then if we don't have a big magnitude, all the evidence of the last experience

we had was going early, going big. You don't regret that, Um, you never regret that. I think a second thing, Tom, is we have to admit we're just uncertain. We don't know the path this virus is going to take. We don't know you know, what the pace of the recovery is going to be. It's very different in different states, and you need to build that uncertainty into your policy. Have it just automatically based on economic condition. We have

a labor economics. Dr Furman did his move from furlough to I think layoff to now outright firings give us the tone you see in the American labor economy in the coming months. Will there be a wave of terminations, yeah, Tom, I think there's two downturns. One is the temporary layoff downturn that's like a natural disaster, and that's been getting better quickly. There's a second downturn, though, which is people who have been fired, people whose businesses have gone bankrupt.

That downturn is getting worse a little bit every month. The fact that we're still seeing two million people claiming unemployment insurance, including the pandemic unemployment insurance, every week months after the shutdown, is very worrying about that second recession, which is sort of a normal recession and one that

won't solve itself very quickly. Jason, Given the fact that we do not seem to be having the virus fully under control in the United States, given the fact that we've seen record numbers of cases over the past few weeks, how concerned are you about also an accelerating wave of bankruptcies, because some people are suggesting perhaps we've seen the peak when it comes to default. I'm worried about I mean, I mean, look, first of all, ultimately, bankruptcies are one

of the functional things in the American economic system. We're better at bankruptcies and other countries we're better at having companies operate within it um that being had. If a lot of companies go bankrupt at once, if they don't have the financing to get through the bankruptcy and continue operating, that's what I'm really worried about and so want this. You know, for some companies, maybe the airlines should go

through bankruptcy. That might be the right way to handle um their situation, but it would need to be done in an orderly and managed way. And yes, I think there's a lot more of them ahead of us, Jason, can you link the extension of the six hundred dollars of enhanced unemployment benefits with the corporate health of America? This idea that corporate profitability has been bolstered by those enhancement employment benefits? How much could that be threatened if

there isn't an extension A lot. This is an amazing downturn where there's a huge hit to the U s eCOM ME, but consumer spending is right back where it was twelve months ago. Why is that? That's because disposable personal income is right back where it was, if not a little bit higher than it was twelve months ago. Why has income not fallen because of those unemployment insurance benefits?

So um, this is a recession completely unlike the last one where you saw a huge decline UM in consumer spending. Here we've had the v shaped recovering consumer spending. It's been supported by the unemployment benefits um If they went away right now, it would be a big blow to the economent Jason, what's so interesting here is if it's a natural disaster, and if we can be optimistic that there will be a cure, there will be a better America,

there'll be a better health, etcetera. What portion of the slowdown is strictly exogenous and drifts away or is any of it indogenous? And we really have to worry about an effect, a permanent effect on the American economy. I am worried that that natural disaster covers part of what we're seeing, But then you get the additional induced sort

of normal recession that that causes. And you know, I have in my head a model where we get back about half of what we lost or two thirds of what we lost relatively quickly, and then the rest of it is a slog that takes years. So you know, just six digits. I don't want to pin you down here, but how much stimulus do we need in the next couple of weeks. We've got an operative number of one trillion, maybe one and a half trillion. We see a deficit out to four trillion. I mean, of those good numbers

to you, are we low ball in the need? You know, if you did a well designed piece of legislation, I think about one point five trillion would be sufficient. If you throw in a bunch of nonsense which is likely to happen in Congress, and then you probably need brilliant Did you see how the professor from Harvard demigrates our politicians, calling it in a bunch of nonsense that doesn't happen in the United Kingdom. Well, he's not in government anymore, so it doesn't have to be as diplomatic, does he

Isn't that the cheap guy to all this? Once you leave, Tommy can say, Jason, carry on. Just to be clear, by the way, I think the bulk of what's going to be in there is gonna be good. Some other stuff, don't wait, Jason, if we quote you will put that on the end. We promise, just to wrap things up, Jason, the experience of the last ten years, the nature of that particular crisis was so different to the nature of this one. Are there any lessons learned from a very

shallow recovery in the previous ten years? For the recovery we were about to endure the one in front of us. Now, there were some things we could have done, stating local governments continued to cut back, it took about half a point of growth. Need to make sure they continue to be supported. Left time the stimulus ended prematurely. Need to continue it as long as it needed. But you know, I think there may be some sort of speed limit to how quickly people can reconnect to jobs, even if

you have a lot of demand. And so, you know, we just need to be prepared for a lengthy recovery process, but do our best to speed it. One final question. You know the work of Jared Bernstein and others assisting Vice President Biden. His Vice President Biden called upon you for analysis of his new economic policy. I'm certainly in touch with people in the Biden camp, but um, you know, they think they have a lot of good ideas. You

didn't tell him it was a bunch of nonsense. Uh, you know, like like everything, there are things I like, what I like, parts they don't like. Jason will let you go. It's always great to catch you with the Jayson firm and that of the Hobbit Kennedy School. Daniel lives. These would Wedbush Securities, and as you know, folks has been quite optimistic. You know, it's by the dip, Dan, It's all there is to it. Where do you buy a dip? How do you judge that? As a fundamental analyst, Yeah,

it's a great question. And I fundamentally view that the stocks in terms of fang and tech, there's still a twenty plus move higher over the next six to nine months. It looks at the secular growth stories and right now, if you look at cloud, e commerce and some other areas of tech, you're really seeing a lot of these growth stories accelerated by twelve et months and in my opinion,

the rereading protect is still in the middle innings. So Dan, let's go exactly the are to a cloud computing is that the main driver of some of the gains to come that you're expecting. And of course this comes ahead of IBM reporting earnings after the bell Microsoft Wednesday, and then the week after with Google and Amazon and the rest. I think right now the post of job for cloud continues to be in the Dell and Microsoft, and that's why I think that's a stock. Ultimately it's gonna be

two trillion as we go into next year. You look what's happening in terms of growth, the only of workwords from the cloud today that's going to next two years getting accelerated because of the COVID pandemic. You look at Microsoft, the a wuspiece for Amazon, look at GCP for Google. These are keys to some of the reratings on valuations of big tech, and it speaks to a broader theme.

There's a lack of secular growth stories out there, and that's why, in my opinion, tech the path still much higher even despite some of these speed bumps, and of course the haters will continue to hate the route. Dan some people saying that Amazon's growth leaves it out of path to be bigger than the entire global retail sector combined. Question is this a retail company or is this a cloud computing company? Given where its profits are coming from.

I mean, from a profit it's obviously cloud. Uh. You know, of course e commerce and claud that's been one two punch and that's why what's made them so unique and obviously will be a focus next week where when they're in front of Congress. But I think if you look at the next leg of the story, and I think part of the rerating. It's not just the e commerce, it is cloud in terms of on the A w S side, we believe a trillion hours is going to

be spending cloud over the next decade. And that's why you're seeing not just Microsoft AWS, but the whole work from home space and a lot even cybersecurity memes that continue to see all time hives here, Dann, I look at Apple, but I know they each got their own story. Are these companies under owned or over owned by institutions? I think institutionally speaking, it's still a bit under own.

I think many have been skeptical of the rallies, and I think when I look at Apple, I think that is the next leg because when you go into iPhone twelve, but I still think the super psycho and extended one. I ultimately think from a rerating perspective, that's something where both case were at five five on Apple, and I think institutionally you're starting to start seem more buying as you get some of these quarters. Let's stop here. This

is really important. Dan I has explained to our audience the pressure to own a given stay how blue chip company et cetera, like Apple, whatever, the pressure to own it if you're an institution, how does that work on June thirty, September thirty or twelve thirty one? Yeah, I mean especially look so much waiting on the index, you underperform, and if you make the bet going against some of

these names, which has been the wrong bet. Ultimately, as a fund manager, you're trying to figure out what fond you're using on your resume. So I think that's been the issue here, is that the path continues to be higher even though the valuation during a new stratosphere. It comes down to this is really a new age for technology, and that's why you're seeing the strong get stronger in terms of the fang names, strong and stronger and a

lot bigger. At what point does regulatory risk return? And I think that's the drum rollings next week when you have appearing in front of Congress with Cook, Bezos and

the others. And I do think that drummill starts to increase going into the fall right now streaks you and his background noise, but a lot that's also going to be the political makeup if you have a Biden presidency and the Democratic controlled Senate, that starts to become more of a risk right now a background risk because of fines that I think next week we'll get a better sense in terms of how sharp teeth are in terms

of pressing this issue. And Dan, we've heard about regulatory risk for a long time and it hasn't come to the fore in any real policy, certainly not in the United States. Which company do you think is most susceptible to actual regulatory risk in the next year? Well, I think right now it is Amazon and Google. I mean those are the one front and center. Of course Apple been on the App Store, but especially also what's happening in terms of the EU, because it's on both sides

of the pond in terms of the threats. And I think that's also why preemptively you're going to see these CEOs get in front of Congress, because I think they will be ending a lot of time physically, as was virtually in the two or two area code, over the next three or six months. Jana, I have thank you so much. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

whichever podcast platform you prefer. I'm on Twitter at Tom Keane. Before the podcast you can always catch us worldwide. I'm Bloomberg Radio.