Bloomberg Wall Street Week: Bair, Gorsky, Vakil

with David Weston from Bloomberg Radio. Be careful what you wish for. More vaccines and seamulus point toward recovery, but it looks like it's going to be a bumpy ride. This is Bloomberg Wall Street Week. I'm David Weston. Maybe the most important development of the week, not just for markets, but for all of us was Johnson and Johnson joined the elite club of approved vaccine providers, adding its millions

of doses to the battle against COVID. We talked to J and J chairman and CEO Alex Gorski about how they did it and how fast they can get that vaccine into people's arm. Look. From the very beginning, we tried to look at how could we design a the very best possible vaccine in terms of safety, efficacy, dosing, and and frankly administration and logistics and UH. And we had a platform that had been used in more than a hundred thousand patients that gave us a lot of

confidence that the safety profile was very strong. We tested it thoroughly. And what's really important about our test, David, our clinical trials was we didn't start until September, and so just as we had come out of what I would say the low point over the summer and we started seeing cases increased, certainly across the United States, but more importantly around the world, that's when our trial began. So we were really into, you know, the the heat

of the of the virus spread. Number two UH of our patients were in the United States, but we had about in Latin America, and we had about fifteen percent that we're actually in South Africa, so where you know, one of the most difficult strains of the South African straint.

And by the way, of the fifteen thousand patients that we were working on, there are those that were infected actually had the South African variant UH, and so it gave us a lot of data, and what we saw were still very strong effectiveness rates in fact in serious cases and a hundred percent of the time as far as kept patients out of the hospital and kept them from dying. UH. So we know that this is going to be a really important tool for healthcare providers around

the world. And so go forward and take give us a sense of where you're headed. Do you envision a world in which we have different versions of vaccine for different variants or do you think we know enough now to think we'll be able to have one version that will be good enough for all the variants. Well, David, look, I think all of these vaccines work extremely well, and the fact that we've seen these kind of results from

three different platforms now is very encouraging. UM. And my recommendation is everybody needs to get a shot as soon as they possibly can, because every time this virus spreads, it's transmitted and UH it could has the potential to mutate to cause another variant, and so the faster we can get people vaccinated to stop that from happening, the

likely better outcome we're going to have. But the good news is also is because of these new platforms that we have that are so much more adaptable, adaptable that right now companies and ours included as working on next generation should that be necessary. So we're gonna have to see how this plays out over the next sixth the next nine months. We could be in a situation where

we see a precipitous decline in the virus. We could see some surgeons in the fall that we need to stay protective of, or we could see where we could need a booster shot or another shot further down the road, similar to what you do with the flu shot. But that being said, we're in a much better place today based upon all the great science, research and engineering that that we've been doing. But Alex, when you have the four million or who do you call to say worship

ship them? Well, right now it's directly to the government. So in the United States, the government determines it goes from basically our our distribution facility and ups trucks to Macksson, and then the government works very closely to distribute it to the states. They're working closely with the governors as

well as with some of the large retail chains. And you know, the good news is, David, I think now that we have a third vaccine out there, and and by the way, kudos to Fiser and Maderna for also

significantly increasing their output. I would predict that in the second quarter we're no longer going to be near as supply constraint, and as we get more doses out, we're going to be able to open up some of the requirements and restrictions regarding who can get the vaccine and who can't, And as a result, our throughput will go up. And I think we're going to see a big difference about the number of patients being vaccinated in the second

quarter around our country, let alone the world. Finally, Alex, I know you know you think strategically, and it's become a commonplace for all us to say the world's never going be the same as it was pre pandemic. But what about for Johnson and Johnson for your industry. Can you see ways in which you're going to make different decisions about deployment of capital employment going forward? Does it change the nature Johnson Johnson's business, what we've been through

here with this pandemic. We look, I said, there's a few things that are very important strategic considerations for us going forward. And the first is the importance of global public health. I mean, one thing that this pandemic has demonstrated that if we don't have strong resilient public health systems in place, we don't have national security, economics, security,

or frankly security as a society. And so making that investment focusing more on durability, sustainability, and maybe even some redundancy versus just maniacally on effectiveness and efficiency is going to be critical for us. Whether it's storing ppe, creating vaccine capacity, or the way that we even think about handling surgeons in hospital is some isn't a very important lesson,

I believe for our industry. The second one for me, David, is just technology, and whether it's the technology of the science, the way we were able to collect data quickly, take the genomic information, apply it to a platform, have three vaccines in a period of months versus what ordinarily would require years. The way we've been able to share data and information to understand where this virus is and it isn't.

I think it represents just a significant increase in the way we use data and the way that we apply that in decision making and healthcare systems throughout the world. That was Johnson and Johnson chairman and CEO Alex Gorski coming up Walmart as your friendly neighborhood bank. We talked with former f d i C head Sheila Bear about the risks and the opportunities. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with

David Weston from Bloomberg Radio. We don't care what they do as a retailer, but we are concerned about the safety and soundness of the financial system. And this doesn't just relate to Walmart. It's any commercial industrial company getting into banking and the threats that could potentially caused. That was former Ohio Congressman Paul Gilmore in two thousand seven,

after Walmart's failed attempt to get into banking. Fourteen years later, Walmart maybe taking another look at taking on Wall Street, this time with two veterans from Goldman Sachs Consumer Finance division. They left Goldman this week to join a fintech startup backed by Walmart and Ribbit Capital. Omar Isma'il was the head of Goldman's consumer bank named Marcus launched in two sixteen. It was meant to get Goldman into the consumer business,

but it's been slow to gain traction. Here's Stephanie Cohen of Goldman. Sachs. We want to be the leading digital banking platform, and the idea behind this is that we can be someone's holistic bank. Later this year, we planned to launch checking. We really think that's the final staff efforts by retailers and startups to begin offering core banking products. Pits fintech against Wall Street. You have fintech, big tech. You saw Walmart recently, so we just have to be

prepared for intensified competition. We're ready for it. We're very competitive and we expect to win. That's Jamie Diamond of JP Morgan Chase. Walmart has been trying to get into the banking business since the late nineteen nineties. It first tried unsuccessfully to buy a bank in California. Then it tried again in two thousand and five, applying for an industrial bank charter in Utah, which had hoped to use

to process credit and debit card transactions internally. But the retailer faced a firestorm of opposition from lawmakers and banking industry groups. After two years and several delays, Walmart ultimately withdrew its application. Here's Walmart CEO Doug McMillan. You can go away quickly if you're not moving to where the customer wants to be served in the future. So what we're trying to do here is to get people to

be really open to embracing what's next. Sheilabart was the head of the f d i C when the agency temporarily suspended Walmart's banking ambitions and encouraged the retailed to partner with banks instead. I asked her, what is different this time around. I'm not sure much is different. There's a financial technology has uh created new opportunities to provide financial services, especially in the payments space, with with with

larger returns. So it may be that Walmart used this as attractive um as you say that they tried to get an i LC charter in two thousand five and two thousand and six. I was actually chair of the

f d i C when that was attempted. It was already an ongoing issue when I came to the f d i C and I placed a moratorium on their application because there was so much controversy about it and asked Congress to resolve this whether they really want a commercial entity like Walmart to own at an I l C which is essentially a bank, and Congress never really out with it. It's still permitted. Walmart at that point decided to withdraw the application, which I think was wise.

The Great Financial Crisis was, you know, coming, and we had other things to worry about at the fdi C. So a lot of the policy arguments are the same. I think financial technology perhaps makes this more attractive now to Walmart. I can only speculate they haven't really provided much public information about what their plans are. As you say, most of the regulatory agencies disfavor a commercial entity owning a bank. There is an exception in this industrial bank

sort of an interesting phenomenon. What are the risks from not having the full regulatory force applied to something like a Walmart? So yeah, so I think so their concentration of power. I think the traditional prohibition we've had on this is the concentration of power of commercial, very large commercial entities, you know, being able to build banking empires to That's that's a lot of concentrated power. So I

think that's an issue. Also the impact on community banks, you know, given Walmart you know, could provide a lot of competition. Uh. I think there's a fear there that they could really hurt community banks. So that's really uh the policy arguments against it, um but it's you know, in terms of safety and soundness. The other difference with the regular bank charter is that there's no holding company supervision.

So with an i l C, for a regular bank that's owned by another entity, the FED exercises authority regulatory supervisory authority over that holding company. With an i l C, you don't have that. However, in the case of Walmart,

I'm not really sure that's an issue. First, the f D i C always when they prove these I l C charters contractually require the parent to provide financial support to to the i l C. And also, obviously Walmart has very deep pockets, so it's hard to imagine the situation where a bag of theirs would would get in trouble for one of the ability of the parent to

support it. So I think safety and sands is less of an issue in this content X, but certainly consumer protection and the impact of the competition are very, very very real issues you mentioned shield of the possible squeeze

on local and community banks. If the Walmarts of this world get into that business, could there also be a squeeze on the bigger banks as a practical matter, as more and more big commercial energies come into their neighborhood and compete with them, for example, for a deposit taking, Well, they could very well be And you know again it's that may be a benefit. It's uh one you know

we've had with this terrible pandemic. We've had an accelerating trend towards you know, a lot of branches closing remote provision of financial services. It's less cost, it doesn't involve people personally interacting with each other, which has become an issue with this pandemic. But there are still a lot of people who want a physical location to go to for their banking services. And Walmart can provide that with all its stores of elderly people, you know, people lowering

some people who don't have access to the internet. The the ability of also provide not just technology to allogically remote services, but also a physical location, I think is an advantage that that Walmart could provide in a benefit to that segment of the population that still wants wants an actual banking physical space to go to. So yes, and in that context, their their vast array of stores could be highly competitive with these larger banks branch operations.

So as you're right, it's not clear that it would just be an impact to community banks. Well, you raise a very interesting possibility. I think we have talked for some time about the unbanked and the underbanked in the United States, typically in poor communities, suggest and how we address that. We haven't been successful terribly in doing that. Could a Walmart moving in actually help address that problem

in the country. Well, I think they could. I mean, I think lower income and lower middle income Americans are are are very big part of Walmart's UH customer base, and so they're coming to those stores already. So yeah, I mean, I think we need to know what Walmart plans. They just plan to, you know, fatten their profit margins. Well, good for them, but you know, that's not really a public policy reason to provide the charter a group the charter.

But if yeah, if they can leverage that reach that they have with the unbank and undermank populations to provide a fuller panic ply of financial services at low cost, at mainstream cost. Right, So people can go to payday lenders and pawn shops now and get financial services that are very high cost. But if Walmart can democratize for the democratized credit and banking services and provided the same cost that you and I get, and I think that

would be hugely beneficial. So, you know, we need to stay tuned in terms of what Walmart is, what the value proposition is that they're contemplating, But there's certainly a lot of potential there. That was Sheila Bear, former head of the f d i C, coming up what broke the supply chain on chips just when we needed it most. We talked with supply chain expert Ndia Vakil of Wrestling.

That's next on Wall Street Week on Bloomberth. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. The world's manufacturing supply chains are showing signs of strain, and semiconductors or chips, are among the hardest hit. The combination of the pandemic, policy decisions and the growing demand for electric vehicles created a perfect storm for the industry. Here's GM CEO Mary Bara, this is an industry issue.

Of course, we're working every single day with a cross functional team to look for opportunities of how do we minimize the impact. In January, Honda said it will cut domestic output at one of its Japanese factories, while Nissan is adjusting production of its note hatchback model. GM announced this week that it's extending temporary shutdowns that's three of

its North American plants because of the ongoing semiconductor shortage. Well, the first quarter we have had some disruptions and idled some of our plants, but it is still a volatile situation. That's diner CEO Ola COLLINEUS. It's not just harmmakers. A shortage of chips affects everything from five G phones to medical devices. Here's Whahwei's Andy Perdy combination of a coronavirus and the the impact on not to be two technical the entity list, but the ability of American companies to

sell the lesson others. It's really had a very negative effect on us. The shortage has gotten so bad that President Biden stepped in this week with an executive order directing a government wide supply chain review for critical goods. We need to make sure these supply chains are secure and reliable. I'm directing senior officials and my administration to work with industrial leaders to identify solutions to this semiconductor shortfall.

The problem has been brewing since two thousand nine, and President Donald Trump's trade war with China also played a part in the supply crunch. Roughly ten percent of the world's chip production comes from s m i C, a semiconductor company that's partially owned by the Chinese government. In two thousand and twenty, the US restricted American companies from selling to sm i C. So by dealing with the availability of high tech, particularly semi conductors, to AWE and

to ZE, we've slowed that down. That was former Commerce Secretary Wilburt Ross. To get a better sense of just how bad the problem is and what can be done about it. We talked with Benda Vakil, CEO of Resiling, the leading provider of supply chain mapping services, and she said that the problem has been a long time coming. This has been building since last year, and now we

are looking at an extremely constrained environment. It started with two big battery fires at Japanese semiconductor plants, one in July, one in October. Then there were some labor strikes that ship making facilities in Europe, and then you combine that with the upheaval from COVID. We had fired in California record hurricane season winter storm to continue issues that we have experienced container shortages. And then we saw Boeing seven

seven seven grounding, which grounds, which affects airshipment capacity. And just last week we heard that in Taiwan there is a water shortage that is creating constrained water supplies which are very essential for way for fabrication assembly operations. So it's a very interesting situation. Well and is it just a fluke I mean? Or were there fundamental underlying weaknesses and the supply chain because what you just described sounds like who could have predicted all those things would come

together at one time. Um, the world of supply chain risks, I have to say, is it is a constant thing. There are in a given year resuling monitors over three hundred factory buyers alone. Add to that supply chain risks due to hurricanes, arthquakes, labor strike, transportation issues, and what you have is a situation and supply chain where normal is is disrupted. Now we have the bud imustration saying

we're gonna get our arms around this. We're gonna start with information, making sure we know what's going on something I think you may have some insight into and resoling. Is that the right first step? Absolutely? In fact, I would say the direction that the government is going with supply chain right now. They first most critical. They have caused supply chain resilience a matter of national security. This is the first thing that they needed to do and

they have finally done it. Um Understanding the supply chain landscape, who the critical players are, what are the global sites

and regions that are critical to the supply chain. This is the first step in helping us make informed decisions about what are those sources of constraint supply that we need to address, where we need to hold back up supplies, where we need to hold extra inventory, and what it is that we need to do to avoid the similar problems that we experienced in ppech shortages last year that

brought the healthcare industry to their needs. So it's really criticals and and mapping supply chains and understanding those global dependencies is the first step have we been spending too little on our supply chain, because as I listened to you and as you talk about increased inventories, increased capacity, that sounds like money that we in fact, we've been running a two tight a tolerance. Absolutely. But the FoST thing we did in the last twenty years is we

went overseas and globalized. Not the wrong thing to do. You not only globalize your supply chain to take advantage of lower cost supplies, you take advantage of emerging markets and the demand there as well. That has been vacill CEO of residents. Coming up, we wrap up the week as always with our special contributor Larry Summers of Harvard.

This is Wall Street Week on Bloomberg. This is Bloomberg Wall Street with David Weston from Bloomberg Radio, and we're gonna conclude our week as we do every single week, with our special contrainion Larry Summers of Harvard. So Larry, thanks so much for being back. One of the big events of the week was Fitchair J. Pale, speaking in

a Wall Street Journal event. Talked about a lot of things, including the body yield things like that, but one of the things he addressed was inflation, and he admitted is how they're keeping a close eye on it maybe because of some of the things you've said, frankly, uh, and that they are not going to repeat the mistakes of the sixties and seventies as here before I do it.

What does he need to do to avoid that. I sure hope they don't repeat the mistakes to the sixties and seventies, because they were hugely important, not just for inflation, not just for macroeconomics stability, but for the whole politics and attitude of the country. They're gonna need to look in hardheaded ways and to be prepared to not make excuses each month pointing to a different factor when inflation ficks up, and they're gonna need to remember that their

priority is the macro economy. When I see them say they won't raise rates until UM diversity groups unemployment rates are appropriate, I get nervous because the FED can't really control those issues. Those are issues for antidiscrimination law, those are issues for fiscal policy, UH, those are issues for labor market UH programs. And so if the FED sets out to target the unemployment rate of particular groups without regard to inflation, that would be a good way to

make really serious uh inflation. If they take inflation seriously, they monitor closely, and they're prepared to cause pain, they will be able to control inflation. But if instead they say, oh, we've got credibility inflation, expectations are anchored and inflation is not something we have to worry about. Ironically, the more optimistic they are about inflation being under control, the less

likely it is to actually be under control. So fed Cherrich Powell gave us a little bit of a hint about how he's going to approach this because he addressed a couple of things. He said, some of the upticking prices that we're expecting is going to be base effects, as there's a reopening effect as people come back. And also there may be some particular choke points in the supply chain. We're not going to pay much attention to those because that's transient. How do you tell the difference

between transient inflation something more troubling. That's why they've got a staff of a few hundred economists and precisely to make those distinctions, and they got to look at all the data they can. What I'm worried about when I hear that kind of talk is not that it isn't right. He's right about the base here, effects he's right about specific sectors. But every great inflation is made by central

bank that dismisses it as due to transient factors. And so at a certain point, when you start having a transient factor every month, then you maybe got a permanent factor going over going overall. So it takes a lot of worry about inflation to make their not be uh inflation. This is a classic example of self denying prophecy. The more the fat is fearful of inflation, the more likely

they are to avoid it. The more the fat is complacent about inflation, the more likely they are to have So Larry, one of the things that's a big item in the agenda now as we are working our way through the stimulus package is infrastructure. President Biden has said that he wants to go onto that. He had meetings at the White House this week to talk about it. So we've talked in the past about the stimulus package, maybe what should have been done, what could have been

done before we get started. I FRA structure. Give us some advice. How do you do it the right way and how do you do it the wrong way. Here to broad principles, UH, David. One is Democrats are right that we need much more money on infrastructure, and Republicans are right that we need much more efficient regulation, much more rapid environmental approvals, and much more efficient procurement. And we need to do the politics of both add rather

than either or when it comes to infrastructure. The other thing is this is an area where the public sector and the private sector have to UH collaborate. Some infrastructure is public repairing the potholes and the roads in New York City. Some is private building out a five G wireless UH system. Some is UH joint UH toll roads, bridges, electric utility, these UH and the like. We've got to find creative ways to bringing the public and private sectors

together around the infrastructure UH issues. And we need to understand that infrastructure is much more than bricks and mortar. So infrastructure is good for all of us because it makes our lives better presumently, but there's another purpose as well, which is increased productivity as we go forward. It's future growth. Essentially, we're investing in a lot of us haven't had the experience you've had being a macro economist in the US government,

we've run companies or parts of companies. When we make a decision about capital investment, we take a look at the payback. When do we get the payback, what's the long what's the prospects of payback? Do you look at it that way? I mean, how do you decide which projects are the most likely to really increase productivity and increase growth in the outyears. And if you've got to look at the overall social return. Some of that is

the extra money that's going to get produced. Some of that is the carbon that's going to get mitigated that otherwise would have a substantial uh social costs. Some of that is the incremental business activity that's going to be enabled. Some of that is and it's not always easy putting a valuation on amenities that people are going to enjoy. Central Park is a kind of infrastructure. Very hard to put a price on Central Park, but even harder to

imagine New York City than out Central Park. And so we need to think very broadly as we think about the benefits of infrastructure. There's a spack frenzy some people think of the country right now, and so we treat you as an expert, which you certainly are. But let's treat you as a fact witness the way I used to when I put witnesses on in the courtroom. You actually have gotten involved in this. Back here, as I understanding, you're an investor in a company that now is being

acquired by us. Back tell us about It's called the States Title Right, I'm on the I'm on the board and have been uh an investor for a number of years. Our company has the potential to transform title insurance, the type of insurance where most of the time there's the highest ratio of premiums paid two benefits paid out. And this company is going to transform its sufficiency by using

artificial intelligence. It's a huge business opportunity ultimately to transform the process of buying a house and make it pleasant and fast rather than excruciating and slow. This is the most exciting thing that I've been part of in the fintech area, in the business area since I was on

the board of Square before it became a unicorn. And I think there's a similar possibility for financial innovation, not for the benefit of money, but for the benefit of making people's lives better and at at all important juncture for all of us when uh we're buying a home. And I think the spack is going to enable this company to raise more capital, more quickly, for more growth and more transformation than ever would have been possible even several years ago. So let's wrap this up with a

rapid fire. Summer says Number. When we talked about j. Powe the Federal Research here earlier, do you expect him to be reappointed? He should be. He certainly should be. He's done a great job and continuity in that role is a very important thing. On the other side, we learned this week that Near Attendon's nomination to be the Director of Office Manage a Budget has been withdrawn. You know her, Who do you expect to succeed her? Nobody who will be able to do that job as well

as uh she could have. She is a formidable uh talent, a person of great intellectual capacity, great editor, energy and spirit, and I am just really disappointed that the nation's not going to have her in that role. But knowing how resilient she is, I know she will go on to serve and to serve with great distinction UM in President Biden's administration. And finally, A Larry what's the future of the minimum wage. It looks like it's not gonna be

part of this stimulus package. What's the future? My guesses will have a minimum wage that will be way above seven but won't reach fifteen dollars, and I think that's probably the right kind of prudent compromise. Okay, thank you so much, Larry. That's Larry Summers, our special contributor, and

of course he's from Harvard. Finally, one more thought. We lost a giant this week, and by we, I mean those who walk the corridors of power in Washington, those who sit in the boardrooms of our corporations, those who care about racial justice, those of us who care about our country. Vernon Jordan did it all or all it

that truly matters, and he changed it all. First as a civil rights lawyer and leader at the nub A c P, the United Negro College Fund, and the National Urban League, and then when he saw we needed changing from the inside, he became an influential lawyer and lobbyist in Washington, an investment banker in New York, a corporate board director, and a close advisor to presidents. He was

larger than life in every way. In his stature, in his deep baritone voice, and measured tones in that twinkle in his eye, but most of all in his quiet moral authority he brought to every gathering and to every decision, And for those of us blessed to witness it firsthand, it was sometimes as much how he did it as what he did, A loyal and true friend, always there

to listen, to remind us of our true north. At a time of so much division, so much bickering, we need a Vernon Jordan more than ever the grace, the wisdom, and most of all the respect act he showed everyone, respect for those he agreed with, and every bit as much for those with whom he could not agree. Yes, we lost a giant this week. I fear we will not see his like again, but I so hope that I'm wrong, for all of our sakes. That does it for this episode of Wall Street Week. I'm David Weston.

This is Bloomberg. See you next week.