Bloomberg Wall Street Week: Clayton, Cantor, Baicker

with David Weston from Bloomberg Radio. Another week of waiting for stimulus, for Brexit, and for COVID to peak. Welcome to Bloomberg Wall Street Week. I'm David Weston. Getting a vaccine that works in so short a time maybe nothing short of a miracle, but now that we're on the cusp of getting it, Katherine Baker, dean of the Harris School of Public Policy at the University of Chicago, says, we made in another miracle to get it distributed to

those who need it. It would be a herculean task under any circumstances, but I think it's made all the more challenging by the fact that this is the same health care system that's going to have to be caring for lots and lots of people who still get COVID. We're gonna need to do all that we can to suppress transmission of the disease during this period and also

to introduce new therapeutics. It's going to be months and months and months before everyone is vaccinated, and in that time, unfortunately, hundreds of thousands of people are going to be getting COVID at this point, two hundred thousand a day. What is that require of the system? I mean, is that money. There's talk about further money coming from Congress. Is it people? Do we have enough trained personnel to actually be administering this kind of system, As you say, it's vaccines plus

your therapeutics plus dealing with people who have the disease. Yeah, I think it takes money, but I think you're right that people are probably going to be in the shortest

supply right now. Our healthcare system is incredibly strained just caring for the people who have COVID, So adding on the layer of distribution of vaccine is going to be an added complication by unfortunately, the kind of trainting that's required to administer a vaccine is not nearly as intensive as the kind of training that's required to be qualified to care for somebody in the I see you. So the hope is that we're going to be reducing the number of people in the hospital at the same time

that we're ramping up vaccine distribution. But we can't take our eyes off of suppressing transmission, the masking, the washing hands, and keeping distance. If we forget about those while we focus on vaccine administration, we're going to be in big problem. I also wonder whether, as happened last spring, frankly, some of the people who are most vulnerable, most hit, are the people with the least resources to deal with it.

We're talking about low income people, we're talking about noority groups, particularly in urban centers, but also for that matter, Native Americans. We've had disproportionate problems. These people didn't have that great healthcare system supporting them to begin with, didn'y. This is

compounding all sorts of disparities in our system. Of course, in healthcare, where the people with the most health vulnerabilities such as diet, abetes, high blood pressure, they're the most likely to get COVID and the least likely to have access to the healthcare resources. But that's only part of it. There are also the economic disparities that line up as well. People who are least likely to be able to do their jobs from their homes are also and that's more

likely to be exposed to the disease. Are also the ones with the biggest disease burden and then the fewest economic resources to weather a recession that's been generated by the pandemics. So people who are losing their jobs, maybe losing their health insurance. This is all exacerbating disparities that line up for the most vulnerable populations. They may also

be the people least likely to take a vaccine. There is some longstanding distrust of the health care system that has been well justified by past inequities that I think will make people differentially likely to take up a vaccine that's offered. What do you make of the team that president elected is now announced? So for the people, even now he's announced, have clearly demonstrated that they take the pandemic very seriously and that they're very concerned with addressing

the inequities in the system. I think the concerted attention to the message that people receive about how to prevent transmission, the efficacy of a vaccine, as well as the focus on the economic disparities that have been exacerbated by the disease, is bound to be helpful for addressing some of the challenges that vulnerable populations have based over the last months.

How big a difference can they make at this point, Well, I wish that somebody had a magic wand to make all of this go away, but that is clearly just not possible, and so I think we're in under the best of circumstances for many months more of wrestling with the pandemic. My hope is that by spring things will start to look better on the disease front, and that

that will enable war economic activity. I also think all along the way to maximize economic activity, to keep businesses open, to keep people at work, paying attention to the disease helps with that. And so if we had been more consistently reducing transmission by having people keep social distance and wearing masks, we could have had a lot more economic activity without the surge that we're wrestling with right now. As an expert in this area, what worries you the

most over the next two to three months. You said until we get to the spring. People are talking to two or three months. It's going to get worse before it gets better. What is the thing that worries you the very most. I think it is the fatigue with the pandemic and with the restrictions that we've all been talking about so much. I think it's real, and I think that people are letting their guard down, especially around

the holidays as people focus on the coming vaccine. I worry that the spike that we're seeing is going to overwhelm the healthcare system and we're gonna end up with much more loss of life and well being that we otherwise would have had. We also don't know what the long term consequences of COVID are there. We're learning more about the long haulers, people who wrestle with u symptoms

of the disease, or downstream consequences for months afterwards. It's been around for less than a year, so we don't know what two, three, four years out looks like. So the more we can reduce the spread of the disease now, not only the more economic activity and well being can we have now, but perhaps health consequences in the future can be a birth thanks to Dean Katherine Baker of the Harris School of Public Policy at the University of Chicago.

Coming up, SEC Chairman j Clayton on what he's accomplished during his tenure and what is left to be done That's next on Wall Street Weight on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. Jay Clayton is nearing the end of his four years as Chairman of the SEC, leaving behind a record number of new regulations and over fourteen billion dollars in monetary remedies. One of his goals was to reinforce the attractiveness of

the public markets in raising capital. So it's only fitting that even as he counts down the days until his departure, he saw this week the remarkable I d os of door Dash and then Airbnb, something we asked about even as they were happening. Well, David, in this in this job, you always have to be active, because our markets are ever active. If we're not modifying, updating, modernizing, as I like to say, our regulations, we're falling behind. And so

you have to be activists. And what we've what we've tried to do is be activists for the benefit of our main street investors, really getting main street investors better products, cheaper, making sure they have better protections, and in the event that our main street investors unfortunately fall victim UH to fosters, getting them their money back as quickly as we can UM.

And in addition, trying to modernize our our framework around the functioning of markets so that markets function efficiently UM in a modern age. And you know, yeah, you have to be you have to be engaged to do those things you've put down as one of your principles. That really a protection of the main street investor as you call them. You also sometimes say long term main street investor. You add that in there. What can the SEC do to address the issue of long term versus short term?

It's a terrific question. It's a it's a question not just for the SEC, but but across our economy. UM. Look, markets thirst for information, the thirst for information by the micro second. So markets are always going to be focusing on short term changes. The culture of investing for the long term is something that we need to foster across

are regulatory infrastructure. The SEC is is here to help with the way that we try to talk about trends on certainties, opportunities, getting companies to disclose that kind of forward looking information. I think disclosure of that type of forward looking information helps foster a long term attitude. But David, one thing I've learned in Washington is that is that this needs to be sort of a whole of government

approach to more long term ism. Uh. For for investment, are you concerned at all about the growth of private h private capital as opposed to public capital, because there's an awful lot that's being done on the private side now that used to be done in publicly. Well, let me say this. People talk about that as a dichotomy.

It's not a dichotomy. If you're a company that say, under pick a number, David, a hundred million, two hundred million, the private markets are really your only viable source of growth capity. So we need to preserve that private market and foster that private market. It is part of the

dynam ism of America. It's part of innovation. Then you get above that two hundred million dollar valuation level, you get up into the types of companies that you were just talking about there, you do want to encourage those companies to become public companies for the reasons we talked about greater participation UM from the American retail investor, and and that's how I look at it. You, but we need vibrant private markets up through and well above that

two hundred million dollar level. It's so contributes to the nimble nature of American capitalism as you pursued your goal of really protecting the long term mainstream investor. One thing you talked about was I think you referred to as corporate hygiene, one aspect of which is insider trading. And I have a very specific question because you had to deal with a COVID uh pandemic which none of us ever thought we'd anticipate, and affects your business as well.

Have you seen instances of questions at least being raised about insiders perhaps selling securities and some of the companies that could benefit from vaccine or treatment. Sure, David, Look, when you have any time you have UM a new information environment, and COVID has certainly created a new information environment across many companies, including UM, most notably pharmaceutical companies.

You have the much greater risk that there's an asymmetry of information between the company's insiders and the market more generally, and in those circumstances, you know, companies need to up their game. They need to up up their controls to ensure that no one is taking advantage of or I would say, even be perceived to be taking advantage of that kind of information asymmetry. And now we've been very

vocal about this. Follow your internal procedures, you know, have your have your checks with your general counsel's office on whether it's appropriate to be selling stock. And then just ask yourself, does this look right or not? I mean, look, we're going to get through this, I believe, um, you know, and if you're in it for the long term. Um. Now I'm not telling people you have to, but think

about stay for the long term. M John. I want to look forward here just a little bit and some things that will actually come up after you've left office, and one of them is in the area of E. S G. You've spoken out about that quite a few times, environmental, social, and government, saying they're not all the same sort of thing. You refer to Kevin Kenneth Arrow, your favorite economist in that connection. But I want to talk actually about governance,

not the environmental part. There's a proposal now from Nasdaq basically to impose some diversity requirements on board. That's not gonna come up in your tenure. But if you were giving some private advice to your successor, would you be inclined to say that's a good idea. It would be inappropriate for me to comment on it order to bind in any way, UM, about my successor. But what I do want to say is, UM, this is this is an area that we we have decided at the Commission.

We are focused on this, and we've actually focused on here at the Commission diversity, inclusion and opportunity and making sure that we're cognizant of it through all of our hiring decisions, UM, and the way we approached the marketplace. UM. And I believe that we've done a good job of shining a spotlight on the fact that in the asset management industry, UM. You know, uh, it's not as inclusive as it should be. Actually, the numbers are stock and we need to do a better job of having our

asset management industry reflect UM. Uh, the diversity in our society. You sort of mentioned this obliquely just the moment, is it equally important for the leadership of the SEC, whoever

it is, to also reflect America more broadly. Look, I think I think these types of things, uh, you you have to have them in your mind as you're making decisions that no one who's been in a in a diverse board room or a diverse decision making body um comes away with it without understanding that it adds um, it enhances decision making, it makes for better decisions, and so of course anybody who's forming that kind of body

wants a diversity of experience and perspective. Mr Sherman, I'm gonna save the toughest one for last, I suspect, and that's money market underformed. Because we've heard a lot about short term funding. There's been various attempts to try to address it. We had it as a crisis. Really, I think it's fair to say this spring again with a FETE had to step in. We don't seem to have

arms arms right. I talked with Dan to Roll, a former fit UH member, recently, and he said he thinks it's up to the SEC in the next round to do that. What could be done on the short term funding front, Well, you know, you as usual you you frame this in the right way, which is, you know, the short term funding markets and the money markets are inexplicably length. The short term funding markets um are different

depending on the underlying instrument. So our our treasury market and there are money market treasury funds, is far different from the short term municipal paper market, which also has money money market funds. That was Jake Layton, Chairman of the SEC. Coming up, former House Majority Leader Eric Canter on how prospects of our recovery are affecting his business at Molis and Company. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David

Weston from Bloomberg Radio. Those who thought that if anything so horrible as the election of a Democrat should occur, the bond market would panic and gold would soar turned out to be suffering from just another superstition. That was Lewis Ruckheiser on Wall Street Week back in just after Bill Clinton was elected president. Now we have a different Democrat elected to the presidency in a very different time.

But once again reports of possible adverse effects on business or the markets appear to have been greatly exaggerated, as reported by a Republican former House Majority Leader Eric Canter, now vice chairman of Molus and Company. We had seen a dramatic resurgence of M ANDEG globally and has been across sectors. Uh, it is in our view and which has been dominant about what we're calling the power middle.

You know, these are the mid marketing companies, the seven eight hundred million dollars to four or five billion dollar companies. Things are just very active. Obviously, there's a lot of activity amongst the sponsors, product equity community, and really the breadth of participation has been, as you suggest, beyond just the COVID winners, beyond just the digital and the tech arena. We're seeing it in the chemical arena. We're seeing in the energy utility arena, we're seeing in TMT. So it

is broad participation. And I think the striking thing about what we're seeing is the timing um has been a huge factor in terms of the process, and what we're seeing is deals get to exclusivity a lot faster than what was otherwise the case. A lot of it is sort of brought about by the digital infusion of communications and the way people are interacting right now and I also think you can attribute some of the resurgence back to the cost of cattle and the cost of capital

is extremely low. We saw the federal reserves step in immediately after the pandemic really hit UM. That's can that effect has continued to benefit. I think some of this activity. We are seeing a shift to U from stock back to cash because of this and many of the deals that we're involved with, and and on the upside for investors and certainly for our clients UM, what we're seeing is evaluations continue to go up, and evaluations that we're

seeing are even exceeding those from pre COVID level. So all of this is sort of it's it's very interesting given the fact that we are in this unpressed and in one under year pandemic. And I don't I don't say this likely, but I do think that for many UM times seem to be very promising as people are looking beyond the pandemic, but there is a reality here.

There are many small businesses that are really suffering. And I do think that the sort of aftermath of all this and maybe UM continued sort of collapse in certain sectors UH and the ability to go and restructure to try and allow folks to get back on their feet. Do you see any frothiness? I mean, as you say, the cost of capital is approaching zero's breaco matter, that's really great if you own an asset, if you want to buy an asset. Is there any sticker shock? There's

no question valuations. And when I speak to my partners at Molis and Company who have been in the market's a lot longer than I have, and in these sectors that are surgeon um, you know, they do say, look, things are definitely very competitive in these deals out there. I think a lot of that has to do with the supply of capital. That they reduced costs of capital um. That's fueling the fact that money has got to go somewhere,

and there's plenty of potential. I think that people see beyond just this pandemic you indicated earlier in the economy, the fact that vaccines, you know, are here, and I do think that light is going to be at the end of the tunnel. Let's hope that we can minimize the actual human casualty and focus on the act that we can see an economy going again, and hopefully the policymakers in Washington will be able to wrestle with this notion of getting some of those who have been laid

off from work back into the workforce. I do think that that's gonna be a big challenge given the transformation that this pandemic has brought about economically. And finally, Eric, are you picking up in any concern in the c suite about what might happen with regulation or with taxation in a Biden administration with David, I think that's thought on and a lot of our conversations with our client have to do with the fact and what to expect in this next congress. Uh. Clearly there's been a side

of relief on the taxation issue. Again, assuming the Republicans maintain control of the Senate, we'll see, I think, for the rest of the two years, no significant changes in taxes when most people expect them to go up. But there will be some regulatory actions undertaken by the Biden administration immediately, very analogous to those moves made by the Trump administration in seventeen the Obio administration nine, which basically

will undo the prior administration's regulations. And we'll see a real shift left word in terms of things like the environment, the labor laws, financial institution oversight, and the rest. Very briefly, and do you have hopes for that that unicorn we've

been searching for, which is of course infrastructure. Well, you know, I would hope that we could probably have some some effort to try and promote more public private partnerships because there's so much capital and sidelines waiting to invest in in some of the infrastructure that's needed just so desperately across our country. Again, I'll have to see whether there's going to be some agreement. Real questionnaire is whether the

Congress will reinstate earmarks. If the Congress reinstates earmarks, I think that the potential for an infrastructure bill will go up pretty dramatically. That was Eric Cantor, vice chairman of Mullus in Company. Coming up, we wrap up the week as we always do, with our special contributor Larry Summers of Harvard. This is wal Free Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. We're gonna wrap up the week as we do every week,

with our special contributor Larry Summers of Harvard. So, Larry, maybe the biggest story on Wall Street this week were these I p o S. We had door Dash first, then we have Airbnb come out. Airbnb ends up with a market kevil like a hundred billion dollars, just astronomical numbers. What is that telling us about our economy as well as our financial system. Look, the fact that we're creating these very valuable, terrific companies says something very special about

American capitalism, and that's a strength. The process coveted shares of I p o S popping by seventy dollars to share, people getting rich very quick, flipping the stock. That's a travesty. That's why people don't like the morality of our financial services industry, and this kind of gilded age stuff in the midst of COVID. When children in our country are going hungry, when mothers aren't able to take care of their kids and support uh their families, this is a

symptom of terrible excess. And I hope that those who support entrepreneurship will want to have a much better process than the process we have today. It's a very unseemly and ugly spectacle what we're watching, even if it is surrounding really impressive achievements in the form of companies like Airbnb and DoorDash. So so you make a really powerful point. I mean, there's a moral point, to be sure, but

is there also an economic point? Because even as we're watching Congress take us up to something about fiscal cliff, here with millions of Americans potentially losing on one and other benefits, you have those people were worried about putting food in the table, brook on their heads, and then you have this enormous wealth being created. You reported the guilded age. What is that? To the sure there is David. I have enormous respect for uh Hank Paulson, and I

think he served the country in really great ways. But when on the very day this was happening, he called for making strengthening America's financial services sector some kind of major priority, and he implicitly advocated cutting back people's social security benefits in the name of fiscal discipline and calling for entitlement UH controls and the rhetoric of long term

fiscal discipline. I thought to myself, there, I cannot uh go that what we are witnessing is a kind of financial sector hyper trophy that I think is very dangerous and that really demands a lot of soul searching. Um Again, I have all four venture capital I have all four of the entrepreneurial companies. But selling something for seventy dollars and enabling people to flip it at a hundred and

forty dollars, that I think is appalling. How much of this is a result of the federal reserves practic matter, because there's so much liquidity in the marketplace. I mean, certainly that's sustaining an awful lot of these evaluations. I think the questions you can ask about the long term valuations. But the fact that the stock was sold at sixty eight dollars and then immediately jumped to a hundred and forty dollars, making those who were lucky enough to get

access billions of dollars. That error has nothing to do with liquidit. That has to do with the way our Wall Street is organized, and that ought to be a priority for somebody to clean up. Larry referred to the guilded age. One of the phenomenon guilded ages I recalled there was no income tax effect. They had to have

been the constitution. I think, in order to have an income tax, we have an income tax now, but you actually have written about and now you've tweeted about the fact that we don't collect the taxes that were owed. Seven three dollars that is owed won't be collected over the next decade. It will be disproportionately among people at

the high end. And I have to say it's a warped set of social values that lead us to wander at higher rates in African American areas of Mississippi where people get the e I T C, then in the richest zip codes on Park Avenue. The idea that you're more likely to get audited if you're collecting the earned income tax Credit then if you're collecting carried interest has

something very badly wrong with it. My hope would be that the new administration will immediately reallocate resources within the i r S, which is its prerogative, that over time we will get the i r S back to some level of effort like the one it had a generation ago, so that we can keep up with these inequities. Look, this is not some kind of partisan progressive to uh. Charlie Rosatti, who was the commissioner of the i r S,

who's a lifelong Republican. Uh. He is right there that it is scandalous the things we are not doing that could collect substantial uh taxes. I really hope this is something that Secretary yell At and her colleagues will move uh very aggressively on because it's a real injustice and it's a symbol of deeper and more profound injustices in our society. Well, and the piece that you wrote with in Society actually pointed out that it would be a

smart investment. For a relatively modest increase in the U in the resources AVAILB of the I R S, we would get something like tenfolds. This is this is this is easy. If you have one more auditing hour directed at high income people, that will raise four thousand, five hundred dollars according to the I R S as estimates without taking account of deterrenth effects. And I can assure you that no I R S agent is paid anything

and like four thousand, five hundred dollars an hour. Frankly, they're not paid anything like four hundred and fifty dollars um an hour. So this is a terrific investment. It is standing up for the law, the rule of law, and I hope some of the voices in our country that are concerned with getting tough on crime could think about these crimes among the others. Why haven't we done it already? Is this is this political? I mean, you were Secretary Treasury and then you were in the Obama

White House. Was this a problem, Bann or is this a reasonably recent phenomenon? This is a longstanding This is a longstanding problem, and one that in my Treasury we worked very hard on our a whole variety of things, strengthening the I R S UH computer systems UH in particular, and that President Obama and his team pushed while I

was in the White House. Part of it is a myopia on the part of the way we calculate budgets, where you don't get any credit for the revenue benefit from the investment, and so it looks just like a cost, even though it's a major revenue item. It's like trying to run McDonald's and not giving yourself any credit for revenue from selling UH milkshakes. Well, it'll cause you to stop selling milkshakes, but it doesn't really make any sense.

It's that kind of score keeping error, And let's be honest, Uh, there's some people who don't want the tax law enforced because they don't want to pay what they owe and they don't want to face the possibility of being audited. And we've got too many congress people who see their job as working for those scoff laws. So it's wrap it up with a rapid fire around a summer, says, Let's start where it's beginning to see the economic team around president like Biden. You know, these people pick one

that will turn out to be a real star. It's a great team. It's a great team across the board. I think my old colleague Briandese is gonna be much better known the year from now than he is today, and that he's going to be a driving force behind much more effective and much more green economic policies in our country. Okay, Brian Days will keep her eyes on him. Okay,

give us a number now for us GDP growth. What do you think what the percentage growth will have, because right now it kind of things it's gonna be a rough first half of the year, then we'll come back, and all likely because of the vaccine. I think between the vaccine and between the fact that there's a lot of pent up savings from the money people couldn't spend. I'm an optimist. I think we're gonna have a good year in the five percent range. Oh good, that's that

is good news. Okay, And bring it back to New York City right here or we are right now. When will be the date that the New York City economy returns to where it was before the pandemic. I'm not sure it's ever going to be quite the same, Between the blow to theater and restaurants, between the far larger number of employers who are going to have people working at home, between the risks people are going to attach

to the subway system. I didn't the arcle be a great city, but maybe not with quite the same sense of dense energy that it had before. So I'm not sure we're gonna see anytime in the foreseeable future a return to life as it was, not as happy enough. But thank you so much that, as Summer says from the man himself, are especially when trimity Larry Summers, oh Harvard, thank you so much. Thanks David. That does it for this episode of Wall Street Week. I'm David Weston. This

is Bloomberg. See you next week.