Bloomberg Wall Street Week: Blankfein & Moynihan

with David Weston from Bloomberg Radio. The American economy starts to open its doors, but are consumers ready to come back? This is Bloomberg Wall Street Week. I'm David Weston. Every state in the Union opened its doors this week, at least a little bit, and the markets held their breath to see whether the consumers felt comfortable off to come back outside. The numbers of cases were down, testing was up,

and there was even talk of a possible vaccine. But is this an indication of a true pivot toward recovery or are we just wishing ourselves to success us One thing that everyone could agree on, the answer the question lies with the consumer, and so in the end, it's not an economic question at all. It's a question of public health and whether people feel safe enough to re

enter the marketplace. Former Goldman Sachs chairman and CEO Lloyd blank Find has spent a career assessing and managing risk, and he says that there is health risk to be incurred whenever we open the economy. It's not whether it's when, Well, there's a there's a lot that's unknown and unknowable, and moreover, I know that no one knows, and so that's a that's an aspect of this because you can dig and dig and dig. But basically, I think with this current moment,

we're not so much in the realm of forecasting. I think we're in the realm of contingency planning. And I think one of those contingentis you have to plan for, is, you know, the surprise. Most of the time in my in my former life, surprises were almost always bad surprises. Something would go wrong, and of course we were so big and extensive. There's nothing that could go wrong anywhere in the world that wouldn't affect us um. But I would say, in this particular moment, it was seeing a

little bit of that today. Uh, the tail i e. The possibility of something highly improbable happening, Uh, could actually be good for the market. So somebody announces they're making progress with a vaccine. So it's a funny situation where something flat. I was watching the news and something flashed on and there was some surprise coming. I'm actually looking forward to hear it, hearing it, whereas before it was

almost always going to be negative. One of the aspects we're seeing in this is what appears to be a very difficult choice between the one hand public health, safety, well being, lives and the other hand the economy. Do you think that we're striking that balance more or less the right way. Well, just to question the predicate of that, I think that's a real you know, that juxtaposition is

it's sometimes a bit off. I think there's health issues on both sides, obviously, and a lot has been talked about this now wherein you know, you know, extreme poverty obviously, you know is a is a health risk and all the things that proceed from it, and also you know, depression, uh, drug addiction, UM, I mean suicide had an extreme but basically life expectancy UH comes from uh, you know, a fall off, a collapse in GDP, and this is unprecedented, so this would be off any of those charts. So

I think it's not just health versus economy. It's health. It's economy on both sides. And by the way, the health issues maybe more neutral in some people think, you know, once the curve is you know, the original intent to flatten the curve was just to stretch out the exposures that people would have so it didn't overwhelm the health

care system. But the fact of the matter is, I think unless we're going to hunker down until a vaccine comes up or until the virus is obliterated from the face of the earth, which I think is too long to keep the whole country unwelfare, eventually people are gonna go back, and when they come back, the infection rate is going to go up. So I think we're just postponing the exposures and the infections. Well, that's actually one of my questions, which is whether it's on the health

front or for them on the economic fund. Extraordinary efforts are being made. Are we postponing what happens? We're actually changing what happens. This is a timing matter only well to some degree. Look if d s X makin a vaccine appears, and I know there was some positive news today, but just think it has to go through trials for you know, we have to make sure it doesn't kill people,

make sure it's effective, it has to be manufactured. Just stre that's really the country can't be unwelfare even that long. Even if there was you know that was uh, something that was magical. We are postponing it. But that doesn't mean it's without help. They're learning things about treating viruses. Even if there's not a vaccine, there are treatments that people are aware of, so there is some benefit to it, but not as huge as if there were an ultimate

vaccine that would make people comfortable. So too, I think to a greater extent, we're postponing people's fosure to it, and to some extent, uh, you know, we're eliminating the diarist of risk that would happen if the health care system was overwhelmed while people had it. But I think in the long run, you know, we have to contemplate that people will go back to work, what kind of economy will have face and no matter when you do it.

Look what happened some of these Asian countries where they almost they were high fiving because they the virus, the new exposures were way way down, and notwithstanding that, the second to go back to work, they spike up again. So that's gonna be an expectation no matter when you

do it. I think when we go forward and look back at this from sometime in the future, if we're gonna go through that anyway, people will be very critical if the official sector UH sacrificed more of the economy than they needed to, even because at the end of the day, I think the exposures are going to be, you know, almost the same. We've heard a fair amount of both President Trump and the Federal Reserve, particularly j Pal the chair recently, and it seems from the Chair

how we're hearing two things. One is the Fed will do pretty much whatever it can, whatever it needs to to really support the economy as best it can. But on the other hand, a lot of caution that this may take longer than we think, it may be, more difficulty think and even the possibly of long term damage. How do you assess the possible damage to the U S economy over the longer term. Well, obviously it depends

on how long this goes on. And you know, you could see it's easy to see what damage would be. You know, you have rest certain businesses that come into contact with the public that are going to go away that we're operating at tight margins anyway, Uh, that won't, so that won't that can't afford to wait until they reopen, and some businesses that will reopen at such a reduced level that they won't be profitable, so they won't reopen. That was former chairman and CEO of Goldman Sachs Lloyd

blank find coming up. The head of Bank of America, Brian Wynihan says that government efforts to cushion the blow to the economy are working. The question is how people will react as we start the economy back up. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. We aren't seeing the kinds of stress of the credit markets we might have expected, and that's because the massive fiscal

and monetary support is having at least some effect. But Bank of America chairman and CEO Brian moynihan says that the real test will come as we start the economy back up and we discover whether the consumer is willing to become fully engaged. Our view hasn't changed, but it comes back to what I said before. This is a healthcare crisis. And as you're starting to see the healthcare crisis be mitigated not solved yet, you're starting to see the economy start to recover. And we can talk about that.

But the approach to winning UH, the war against the crisis UH for us has been a customer centric, community centric, employee centric move and so you know, we've been out there driving. We've been supporting our clients and trying to make sure they have the credit and capital to UH to do what they need to do and help them through this trough of activity in the second quarter. And you can see that in a loan balance and extended the P P P loans and how the things we've done.

We've helped our consumer clients through waivers so they have the ability to have better cash flow in the house. We helped our teammates by saying no layoffs so they know their job is secure, and then getting them safe and working from home. And then we've helped our communities by contributions and a hundred million dollars and c d f I investments which are community development financial institutions at two fifty million dollars of which about a D seventy

millions already out. So all that is offsetting the impacts of the current second quarter down drafted you've seen with the unemployment numbers, and we don't see it much differently, It's just that we're starting to see us come out the other side of this. Frankly. So we have heard from the Federal Reserve and they've expressed some concern at least that as this pandemic continues, there may be some threat to the overall system and specifically talks for example

about commercial real estate. Are you seeing some parts of the market that are particularly vulnerable on the credit side. Remember that the US economy is going to be depended on the activity the consumer base, and and so yeah, I always have to start there when you talk about

the US. So even though we have this year from the Bank American research team, which is the best in the world, you know, being minus five percent five and a half percent this year and plus five percent next year, the real question will be how to consumers behave, and in what we've seen since the low point in the second couple first couple weeks of April, in terms of everything in terms of their spending because of the stay at home edicts, in terms of their borrowing activity, UH,

in terms of the transfer of money. UM, you saw all that fall to a lowest level, and obviously things like travel and hotels and things were most affected. But as you've seen steadily as you went through the third week April then on into the first part of May, you're seeing their activities pick up, even in the states that are still under stay from home, and you're seeing the activity pick up much quicker in the places they're

going back to work. And so for the month of May, we're seeing it down about you know, two or three or four percent verst was last year UH for the year today, it's down a couple of percent. And that's the question. The length of this is going to be how the consumers behave given the high levels unemployment that you've seen published when people get back to work, jobs coming back in the stimulus payments which are all hitting the street of the last few weeks, and how all

works together to see if the consumer's behavior changed. And when I hear when you hear Government Chair Pale and others, the concern I have is have we changed consumer behavior as we look out across the next you know, four or five, six quarters. Well, that is a key question, maybe the key question, Brian, clearly when it comes to the consumer. I know you've already taken about four point eight billion dollar reserve against credit possible losses given the

level unemployment, which is really quite stunning. Do you think that's gonna be enough? Well, what you've seen so far is with the consumer help, we've we've granted about a million a half payment deferrals. But if you look at the actual interesting statistics about thirty or five or the people ask for a credit card payment deferral when I

had made the payment. And if you go and a look at those consumers, what you see is because of the UH leave aside the issue of where the money is coming from, you're seeing higher balance in our account.

And that's because the stimulus between you know, the I P payments, between the enhanced unemployment, these measures taken by Congress and by the administration, by the FED have worked offset the unfortunate aspects of very high unemployment, and so so far you're not seeing the delinquent seas and things rise vs. You've seen payment deferrals UH increase, but you're seeing them start to level off and come down in our book, and so we we expect to see you

charge offs coming later on as as as this thing goes on. But the reality is right now you're not seeing the kind of credit damage that you'd expect to see with this amount of down draft and activity. The question is what happens next, and that's we're all watching. And to that very point you said in the past, China to some extent may give us some indication. We've seen numbers coming out at China, Brian and indicate the industrial production has come back pretty quickly. All consumption is

coming back as well. But on the other hand, consumer maybe not so much with the retail sales. Does that give you cause for concern back here in the United States, Well, it does because the question is how did you change behavior?

So when you saw Chinese UH, you know, they went into this earlier, they locked down earlier, they came out earlier, and you know, we're back in our offices in China moving from people back towards so you're starting to see normalization of activity and in the questions what's the underlying activity and restaurants and shopping and things like that. And so you saw an immediate burst of activity as they open back up and the say it fall back down.

And that's what we have to watch in the United States is there will be a burst of activity in some of these places as people who have been do in their homes for six, five, six sevent eight weeks go back out and do things, and then will let sustain And that's where you need to look more fundamentally on things like car purchases and things like house purchases and see where they start to end up over time.

But remember the baseline projection for most people is the economy doesn't get back to its current size until you get to sort of the end of next year. That's the definition of recovery. So but each quarter from this

quarter forward is increased economic activity. In what we have to make sure and all the policies and stimulus have been put in place or making sure is that despite the very hig unemployment, despite the issues of who's unemployed, despite the issues getting that we need to get people back to work in the human toll of all that

these stimulus is off setting. It is an attempt off set that and you have to see that play out of our time, Brian, you have something like a hundred eighty thousand I think people working from home right now. You talked about what you're doing over in Asia. When do you expect him to come back? And how and by the way, how many will they all come back? Well? That the ideas we have. We've always had people who

worked outside the standard office setting, and that's something we do. Um. There's a great debate you know, with us change forever the workforce in America and where they want to work. We'll see that play out. But that is that is further out there. And then your term. We have we have been open every day. We have not shut down except for the branches we closed out of concerns to keep our teammates safe in those in those branches. Um, we which is about the branches. Everything else has been open.

We've been functioning every day and we're beginning to open those branches, especially in the States, are reopening slowly but surely. So we have the ability to operate very well, very much under control. Our technops team under Kathy Bisson's leadership, to the fablished job of putting us a position to have a hundred and eighty thousand people work from home

so we can operate this way. So we have the luxury to go back slowly and with social distancing requirements, with temperature taking while all the policies that all employers want to put in place, you know, the the ability of the luxury putting people back in place carefully also takes the burden off of the communities we operate in, not to have high level of cases or perfections and having people move around and creating pressure on the community. So we will go back slowly. We haven't said any

plans yet. We have a top talent team working on the re entry back to the office. It's not back to work, We're working every day. It's back to the office. That was Brian moynihan, Bank of America Chairman and CEO. Coming up. Speaker Nancy Pelosi thinks she knows what the public needs to feel confident, and it's going to require some more help from the federal government. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street

Week with David Weston from Bloomberg Radio. Congress has already appropriated trillions of dollars to show up the economy, but Speaker of the House Nancy Pelosi says more needs to be done to help those tens of millions of Americans who are out of work and to protect hundreds of millions of Americans across the country as they return to the marketplace. Yes, it, indeed, we want the economy to open up, and the science is the path to that. Testing, tracing, treating, isolating.

It has to be a scientific answer, and of course we hope and pray for vaccine and and some therapies, but in the meantime, we have testing and that's what we need to use to get the handle on the side of the challenge. We have uh to trace it and to treat so that we have fewer deaths. That is the answer now. In addition to that, and we have that a strategic plan and our heroes at a strategic plan to do that with. As you do in business, have a goal, have a timetable, had milestones, have benchmarks.

That's exactly what we have in addition to that, in order to support the economy. We honor our heroes by keeping state, local, territorial, and tribal governments functioning. Uh. These people, many of them on the front line of risking their lives to save other people's lives, now fear losing their jobs. All of these services that are rendered are not only jobs, but they are they meet the needs of the American people. That helps the economy. And then third, putting money into

the pockets of the American people. We all know that issues like unemployment, insurance, food stamps and the rest really are provide stimulus to the economy, and we have to

do that. Uh. And we said we think in our package, the Heroes Act, that we do just exactly that, a scientific path to open the economy safely, safely and soon, supporting our heroes, to keep those jobs in place, which is important, which are important to the economy, and again the stimulus that money in the pockets of the American people provides. Of course, the question on everyone's mind is the prospects of passage of the Heroes Act or something

like it, and when it might happen. We've heard from Secretary Minution that he talked to you at least last week about something he agrees something needs to be done. I'm not sure how quickly. President Trump said he's working with Mitch McConnell as a majority leader on some sort of package. Are you in active negotiations? How much hope do you have the will have something relatively soon? Well, I'm optimistic because American people fully support what we are

doing two to one already just it's just newly passed. Uh. They support the provisions of our bill and oppose the Senate obstructing it. So I have confidence in public opinion also when it's by partisan across the country, we have less than a trillion dollars that goes to states, localities, tribes, and territorial governments that provide jobs for people across the country.

So we have democratic and Republican mayors, governors, county executives and the rest very enthusiastic about the legislation and making their voices known, uh to the members of the United States Senate. This is very unusual that we have such a strong bipartisan advocacy for legislation of this kind, which is meeting resistance in the Senate. But I don't think for long because what we have in the bill is disciplined, it's focused, its own necessary, and it has brought bipartisan

support in the country. It's just a matter of time. They want to pause. But as I've said here before, hunger doesn't take a pause, Losing your job doesn't take a pause. All of the paying the rent doesn't take a pause. We really need to meet the needs of the American people and at the same time provide stimulus

to the economy. You mentioned minuting, but also the head of the FED, the Chairman of the Fed, Powell has said that is responsibility of elected representatives to use the tax and spend responsibilities that we have in a way that helps the economy, and he has indicated that there's need for more. Just one quick thought about China, because another thing that pious to have bipartisan support right now the Capitol Hill is the legislation including possibly delistings some

Chinese company. Is that going to make it. It's been through the Senate, is it gonna make it through the House, and might have ramifications for the markets overall I have this is something we just learned of past uh with unanimous consent, so it isn't much debate or uh, we don't know who voted if unanimous consent, so we'll review it in the House. I've asked my committees to take a look at what that is. I take second place

to No. One UH in the Congress, House or Senate, and my criticisms of China's UH trade policies visit the United States over decades, or human rights policies, or proliferation of weapons of mass destruction right now, whether it's the weed ares, the people of Hong Kong to bet, you name it. They have been very oppressive and even more so. But the fact is that we have to judge every We have to have a relationship with China, and we judge every action as to what it means to us

as well as what it means to them. So I look forward to seeing that. It's interesting that it had such unanimous support, though in the center that was speed of the House. Nancy Pelosi coming up. We wrap up the week with Larry Summers. This is Wall Street Read on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. We wrap up the week this week we do every week with our very special contributor Larry Summers of Harvard so, Larry, we had some experience

this week with some economies starting to open up. We had Georgia start to open up first. We also have Sweden that never really closed very much. What are we learning from that is it doesn't do the consumers come bouncing right back. I think we're learning something um that was quite surprising to me, though perhaps it should not have been. Uh. Lockdown is actually less the issue than

people's fear. If you look at what's happened to consumer spending, it's come back some in Georgia, but it's also come down. It's also come back in New York and to just about exactly the same extent. If you look at Sweden, which never closed down, and Denmark, which closed down pretty rigorously. Many more people have died in Sweden, but there hasn't been much difference in what's happened to consumer spending or

the economy. The Swedish economies dipped eighty percent as much as the Danish economy has the reality is that what this is more about is not the lockdown, but the virus and people's degree of confidence. And if you think about it, that makes sense. If they opened up all

the restaurants to go sit in one. I wouldn't go sit in restaurant now, even though I like UH restaurants, I think most of us are more constrained by our desire to be prudent about our health and prudent about the health of people we might pass a virus onto. Then we are constrained by some law that some governor decrees.

That just underscores what I've been saying for some weeks that ultimately the most important economic policies are the health policies, whether it's testing or therapy or vaccination that or contact tracing, that can put this problem in the rear view mirror. And until we do that, I don't think we're really gonna fix the fundamental economic concern. And when we do that, we've got a prospect of a reasonably rapid UH recovery.

But I think we have learned something important that this great debate about lockdowns is actually less of a debate than we have all thought about it as being, because people who don't believe in the lockdown in the United States don't respect it and honor it, and people who are are scared don't go out even if the lockdown is UH removed. I saw that one of the prominent

Washington think tanks. UM has announced that it's not going to have any visitors until the end of the year, and it's not gonna have anybody back in their offices until September at the earliest. Well, you know, they're not waiting to see what gets decreed by the president or by the mayor of Washington, d C. And you're seeing a lot of that kind of thing. This is going to be based more on decentralized decision making of people who assess risks to themselves. Uh. Is I think what

we've learned here. Yeah, as you say, Larry, consumers are gonna vote with their feet is a practical matter. But you've been a staunch advocate for a much ramped up testing and contact tracing program. Is it possible that could be enough to restore the confidence to the consumer, to the worker or we really have to wait to a vaccine as a practical practical matter. Look, I don't think this is going to be behind us until we have a vaccine or a convincing and highly credible, uh, highly

credible kind of therapy. I do think that if we did the right things with testing, that all kinds of private ways of employers testing their employees before they come back and retesting them on a periodic basis. Universities UH opening to at least some extent based on the fact that they were going to test each student with UH some period some periodicity. UM. I think these kinds of things will start to happen if we have testing, and they'll be a further multiplier from UH testing UH if

we can UH do it more more pervasively. So I do think that ramping up testing should be a very great priority. I suspect the utility of testing will come in a more decentralized way then I probably would have imagined a few weeks ago. It'll be employers, it will be airlines um, not wanting to have anybody with the

virus on their planes. It will be similar things for entering into various kinds of activities, right right, So the Larry, if the markets didn't have enough to worry about with the virus, we also injected growing conflict with China US China UH, and we have of course the People's Congress meeting and taking various actions. We have up on the hill move to delist some Chinese companies passed the Senate

it's depending before the House. And the meantime, we had the Secretary of State Pompeios that we're gonna review the special trade stays for Hong Kong because Hong Kong actually sort of a victim perhaps of Beijing saying we're having new security law. Does that make sense right now given what's going on with the global economy and the U S economy. I don't get it. UM, Hong Kong's a victim,

so why punish. I don't think you're gonna do any important damage to China by fooling around with Hong Kong's trade status, But you're gonna hurt the people of Hong Kong even worse are than UH. They're hurting UH now,

So I don't really see UH the logic. I sympathize I, and I feel for the fact that the warnings that were given at the time when UH I was in I was in government at the time and went to Hong Kong and spoke about the importance of one country, two systems as really a test of China's UH credibility,

and China doesn't appear to be meeting that test. And it's tragic, but it seems like to the extent we want to be taking any action, it should be towards UH China, not towards the victim, which is Hong Kong. I don't really understand why preventing Americans preventing Chinese companies from listing on the American stock market when they meet the relevant capital market requirements is going to serve American interests.

Seems to me that it's going to reduce our degree of influence and leverage over those companies and over China. It's gonna make it harder for Americans to make investments. It's not going to really impact on those countries ability to access capital. It's going to be a great gift UH to stock exchanges in Singapore, to stock exchanges UH in London. Ironically, it may be a big gift to the Hong Kong Stock Exchange. At the same time, other people in the administration are trying to damage UH the

Hong Kong economy. So I don't think we have a policy that's defined by its UH coherence. I think a mature policy would recognize that at this point we are not friends with China and probably not going to be friends or allies or partners in the foreseeable future. We are uh, two very strong individuals in a small lifeboat in a turbulent let's see, a long way from the shore. We don't need to like each other, but we do

need to cooperate with each other. And pursuing tip for tat acts of revenge, even if we're right in some abstract sense that we can anger hers and alienate them, is not going to serve our objective of getting to uh the shore. So we need to find a way of elevating this relationship past at um the adulthood, Yeah, which will be particularly challenge in a presidential election year.

I did dare say thank you so much Larry Summers, our special contributor, of course, former Secretary of Treasury that does it for Wall Street Week. I'm David Weston is Bloomberg. I hopefully see you next week.