Bloomberg Wall Street Week: Rieder, Davis, Palmisano

in the world. Through the eyes of the most influential voices Larry Summers, the former Treasury Secretary, Starbard, CEO, Kevin Johnson sec Chairman j Clayton, Bloomberg Wall Street Week with David Weston from Bloomberg Radio. Finally almost US stimulus steal is all but done, and at Brexit deal appears to be within reach. But the one thing we know for sure is that we have a vaccine. This is Bloomberg Wall Street Week. I'm David Weston. Well, the Federal Reserve

is going to try and lower interest rates. That will help. That will bring some figger back to the economy, but it can only be mended by an increasing willingness on the part of the public to buy goods, general confidence in the system itself, and much of that has been voted over a number of years. That was Pimco's bill gross back in the Federal Reserve met again this week, but gone in the days when it can restore vigors

the economy by cutting interest rates. Instead, FED chair j pal tried to restore that vigor by assuring the markets that the FED will continue to buy bonds until the economy is substantially better than it is today. We asked black Rocks rick reader whether those words were likely to do the trick. I mean, I mean, they're they're on

a persistent movement to support the economy. I think there was there was a lot of analysis that had said that the FED was hawkish because they didn't increase the weighted average maturity or they didn't actually increase YESID purchase program. Anybody who describes this vet as hawkish is so misguided. This is a fan that is just going to continue to be there and be as accommodative. They know. They said they're going to continue to ask a purchase program

at least as large, both in treasuries and mortgages. By the way, I don't even think they need to increase mortgages out all. I think they can shrink them. But they're gonna They're gonna keep going, and they're going to be incredibly supportive of the new administration and the fiscal stimulus. From here, well, let's pick up on that exactly where why are they sticking with this allocation for mortgages? You know? I mean, I actually, well, I think the Fed is

doing a brilliant job this. I don't think they need to do that. I mean, if you think about more, there aren't enough mortgagees to purchase from what they're what they're doing, the banks are dying for those assets and uh, and the levels are incredibly low. And even if they slowed down, the purchase program rates aren't mortgage rates aren't moving higher. The demand for mortgage product is incredible. And then you take the other side of it. The housing

market is an incredibly good shape. And if you think about it, you know, one of the things that is a risk for a particularly lower and middle income is the housing market is doing so well that you'll continuously increased home prices, which I would argue that is the one part of inflation that I actually think is real. And then quite frankly, it's burdensome to a lot of the economy, a lot of particularly lower middle income. So anyway, that part I don't other than signaling we're just not

gonna we're not gonna pull any accommodation. Um. I don't think they need to do that. So, as I say, the message out of the FED I thought was we think it's going to start getting better, presumably large but because of the vaccine, which we're hoping for so much. At the same time, there's a real divergence, maybe even a bifurcation in the marketplace, but whether it's individuals or its companies between some people who are doing very very well and some people are doing very very badly. Yeah.

I mean, David, you hit the nail on the head. Listen. But I think this is you know what the central bank does is you know, it's tools are blunt and a lot of what happens is it lifts financial assets and it creates a this bifurcation as you describe, and it doesn't you know what the FED can do is it sort of paves the runway for for other policy

to come in. Now you really need the fiscal and the fiscal is where you can direct tax policy, where you can direct where the stimulus gets to things like state and local things like healthcare, spending, education, spending, etcetera. Things that can actually a close that gap. I mean, you know, now we actually are going to get what I think, particularly when you think about chair yelling, I

still call it chair yelling the Treasury secretary. And now you've got functionally two FED chairs that are going to operate in concert with one another. And that's where you get really effective policy when when fiscal monetary work hand to glo up with one another. So is that constructive or does that undermine the independence of the FED? I mean, how closely do you want the two of them to operate together You've called a sort of pilot and copilot. Yeah,

it's a great question. I do believe in the in the independence and I certainly know that people at the FED really believe in the independence of the FED. However, you know, you do create some coordination. By the way, having where they're where they're not talking that is that is a problem, um, but having some coordination coordination makes sense, particularly as you described earlier, we've got a problem in the country that we need to put more people to work.

You know, until vaccine starts to really get implemented, we need to put more people to work, and we need stabilize and account of employment dynamic that is real. And so you know that that idea that the FED is going to neutralize the debt, that the that the that

the fiscal is going to put on. And by the way, you know, I think I think of Larry Summer is gonna talk about this, their paper that they wrote on the system can actually withstand more debt is a hundred percent right and as long as and a big part of it is the FED is keeping rates low, so the interest burden on the economy is not onerous. Yeah,

no question. And this goes to Larry Summer's secular stagnation that the problem we have is too much savings, not too little, that we need to actually be investing in spending some money. The question always is, isn't it how do you spend that money? Okay, you can borrow really cheap, but it depends on how you how you spend it or invest it. It's definitely right. By the way, I think we're at a point in time today. What Larry

says is dead right is the amount of savings. I mean, you think about the liquidity in the system, what's been created, the aging demographic. I know we've talked about for years pensions, life insurance companies that need the ability to fund is extraordinary savings do outweigh the sets by a lot, and that's why you're seeing appreciation and so many assets across across different markets. But you're right, I mean there's different return on equities as it were, uh return on equity

possibility spending on how the government spends the money. I actually think we're at a point in time today that the velocity of tax dollars working their way through that comes on the backside of fiscal um quite tranquility, lowers the bar for what those returns need to be for those government programs. But like you say, some are obviously

much more efficacious than others. And but I truly think that that quite frankly, most of the fiscal stimas you put in today, is gonna It's gonna create a velocity and which impacts the monetary base that the FED is

created in a very positive way. That was Rick Reader's CIO for Global fixed Income and head of the Global Allocation Investment team at black Rock, coming up a major cyber attack on the U. S. Government, pointing out again how vulnerable we are, something that Sam Paulisano, the former head of IBM, knows about that's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with

David Weston from Bloomberg Radio. We learned this week about a massive hack of government computers, and we still don't know, frankly, how many were hacked or how much data was taken. It was bad enough that the National Security Advisor had to come back from his trip overseas to try to assess the situation. To help us assess the situation, we now have the former chairman and CEO of IBM, Sam Paulisano.

Sam also served as the vice chair at Prison Obama's Commission trying to deal with cybersecurity, knows just a little bit about it, and now as an institute to try to address the issues. So when you heard this this week, what did you make of it? My first reaction when I heard about it, quite honestly, I thought it was

the Chinese. And I'll tell you why. I say that, because if you look at his stark, stark pattern of the various types of attacks have occurred in the past, that this is more like the Chinese trying to get access to information and data, and then the Russians had their own strategies and we can talk about you know, uh, election interference and the like, as well as in the financial side of transactions. So however, obviously that's not the case. I mean, this time it was the Russians and whatever

they call themselves, Cozy Bear Apt. Twenty nine, whatever it happens to be. I think that from what I've read and what I hear from my friends in the government, that they're pretty confident that's who it was this time. Now, having said all that, I mean, I think it does wake the nation up to the risk we faced if we don't do something better cybersecurity and our infrastructures. So

how does this happen? Sam? And for those of us who don't understand this world the way you do, this is not the first hack we've told we've heard about, either of government computers or often of private sector computers,

and yet it seems it was quite vulnerable. This organization, solar Wins, a private company, has something like two or seventy five or three hundred thousand different customers, about eighteen thousands they say might have been affected here, but it included things like the Treasury Department and the State Department, and that the Department of Homeland Security. The I R s,

how how can we need that vulnerable at this point? Well, I mean, actually, David, if you if you kind of stand back from this hack, uh, And there's a pattern of this. In fact, we study this in the Obama Commission and my my as you mentioned, my faint Tank is focused on this as well. I think about it as your supply chain. In this particular case. Solar Wind is a provider of services, network services, but services to

all these various entities, and that's the nature of their business. However, there's they're very innovative, they're very good, they're growing very very quickly. But but perhaps they weren't as thorough as they needed to be as far as securing their particular platform itself. I don't know that. But the suspicion is that they were able to get in. Uh. The hackers were able to get in and to what they would call a backdoor or vulnerability, and then through that vulnerability

they were in there for a long time. And that's where they go on detected. Which is the complexity of trying to figure out how this happened and who they are and what the impact is because they've been kind of invisible, the all of a sudden something happens with they become apparent. Uh neither a big data sets start to disappear or wherever that happens to be, or the government sees what's going on and they have to begin to react. But the point of it is is the

key is the vulnerability of people's supply chains. I mean, if you were going to go hack the US government, you wouldn't go hack the military or n s A or c i A. You would hack the civilion side of government, which is not nearly as secure coming through one of their providers, their service providers. No different than if you're going to attack hack a bank. I mean, to go after a bank that's spending billions of dollars or hundreds of millions of dollars to protect their infrastructure

is very challenging. However, if you go through someone within their supply chains, from small innovative company that they're using to either help with technology or just sell their products and those sorts of things, they're the ones that are the most vulnerable, and then therefore you your entity is vulnerable because they're part of your operations. Well, that was the question. How dependent are we in the government on those independent contractors, and not just the contractors, but the

subcontractors and the subcontracts to the subcontractors. We're very dependent on them. And you saw that not just in cyber go back to the pandemic when all of a sudden we couldn't get PPE and those sorts of things. So there's a total dependency on the supply chain and those suppliers within the government. That's not a bad thing, I mean,

quite honestly. But what it what it requires is the government established standards, just like a company would establish standards that if you're going to be a provider of services to us, whether that's software, people, whatever it happens to be, you have to comply with these cyber standards. Now, there's a standard that was established called NISTS by in the

Commerce Department that we worked on years ago. That's a very good standard by the way to secure the infrastructure, and a lot of the privact sector companies are complying with that. What we did in my little think tank would think of the cyber readiest incident. We felt that people were going to focus on these very small businesses so we created a whole set of tools that we distribute for free. I mean they're actually for freeworred nonprofits.

So we can do these sorts of things, and we probably have hundreds of thousands of subscribers now, even small spots with three or four employees, not just companies or government agencies, to give them a basic level of protection when it comes to cyber threats. Now, the point of it again is why are we doing this? Is because if your General Motors or Exonmobile or some large entity, you have all these small little partners involved in your infrastructure,

drilling operation, card dealerships, etcetera, etcetera. So you want to be able to protect yourself from their vulnerabilities, not just your own. From a cyber perspective, we have a president like Biden coming to office January twenty. Who does he have responsible for this? Or who does the current president, President Trump have response to this? Who does he call up when he hears about something like this? Well, that's a great thing. That is a great question, my friend,

that is unbelievably a great question. I would say they should start with somebody within the White House staff. But let's talk about it as it is. Today versus as maybe a point of view, as it should be. As it is today, there is an agency UH called the Cybersecurity and infash Structure Security Agency. It's part of the Department of Homeland Security that it's responsible for these kinds of hacks, for agency protection, pandemics, all sorts of things.

But they are the responsible agency that does these things. As you might recall, there's nobody leading that agency at this point in time because they were all fired. So there's no one in the agency at the agency level who is in charge of leading these operations. There's also no one in the White House staff either, by the way, because as UH it was part of the focus in the National Security Council of all administration. We are proposed in the Executive Order that they elevate it to give

it established a higher set of priorities. That would be a visible way to create priority within the government is elevate that person or that individual. Since then, that actually has been kind of lessen. Their responsibilities have been lessened, and therefore obviously their focused and their impact has been lesson. So I'm the President of the United States, sitting President United States, and I wanted to call somebody from my staff in my office. Is that tell me, hey, what's

going on? What should we be doing? There's no one there. Do we have the people in the United States government somewhere working somewhere who have the technical expertise to deal with this? I mean, this is very special stuff. Certainly I wouldn't know how to go about dealing with it. But do we have the level of sophistication in the people we have employed in the government. Yes, we do, but it's it's it's more and I'll call it the

National Security and the Defense establishment. They really are excellent skills. If you look at what they referred to as dot mill, you know, uh U S Government, Dot Mill, Brouss, dot gov, which is the civilian side, they're very very good at this. They have good infrastructure. They actually do a pretty good job in defending their own infrastructure as well as our country. It's when you get to the civilian side of government.

You know, you mentioned Treasury. The previous acts were hacks, were OPI, the Office of Personnel and Management O p M, I R S, etcetera, etcetera. They don't have the same level as skill and their infrastructure is very antiquated. That was Sam Paulisano, former chairman and CEO of IBM coming up. The vaccine is good news, but how good is it? And what do we need to do until everybody gets it? This is Wall Street Week on Bloomberg. This is Bloomberg

Wall Street Week with David Weston from Bloomberg Radio. Well, every single day seems to bring new news about vaccines, but also new instances of COVID nineteen infections and hospitalizations and yes, deaths. The question then, is how do we get from the current crisis to the time when we can start to get our lives back together again. Well, partners in Health is leading the way in that with its pioneering and the in testing and in tracing across

the country. Welcome to the CEO of Partner's Health. She is Dr Sheila Davis. So, Dr Davis, thank you so much for being with us. Give us a sense of

what you were doing at partners in Health. Yeah, in the US, we've been working closely, certainly through the in the state of Massachusetts at the invitation of Governor Baker, and then in eleven other jurisdictions in the US who have asked us to come in and help, and we've taken lessons learned from our work around the world in Haiti and Sierra Leone in other places on how to actually do contact tracing as one piece of a comprehensive plan.

We really need a strong public health system, and this COVID nineteen has illuminated I think that in the U s we're really lacking a robust public health response. Well, that's one of the interesting things here. I heard someone say, I think Larry Summers actually said we've over invested in private health, under investment in public health, as you say, partners in health. Originally really in Haiti, but you've done an extensive word in other countries, including Rwanda, elsewhere around

the world. What can we learn from some of the less developed countries that can really be applied and we need here in the United States of America. Yeah, I think it's a great question. You know, there's a lot we can learn. We know that other countries that do not have the same investment in health have done much

better through this pandemic. And I think a lot of it is because there is a comprehensive healthcare system that have a public health model that includes contact tracing, that includes much more of people embedded in the community like

community health workers. We still need high tech i c u s in all the places that we work, but we definitely can have lessons learned from Rwanda, which has done a fantastic pantemic control and other places, and how do we infuse those into the US health system and really build a system that's not reliant just on hospitals as the pinnacle of all of the healthcare. We've seen the testing ramp up from very very modest origins, and now it seems to be moving along in most of

the United States. At the same time, I wonder about the tracing part of it, because I know you're very involved in that. We have reports, for example out of New Jersey, for example, where we had reports from Governor Murphy that maybe sev the people contacted don't comply, don't cooperate in helping with the tracing, you know. I think what we've found is that when people are when we're able to also assess up their needs are a lot of people are not able to isolate a quarantine safely

if they don't have the social support that's needed. People

need diapers, people need formula, people need food. So a core component of what we embedded in the Massachusetts program as well as um with other places we're working, is that there's a direct connection to when our contact tracers reach out, which is the advantage of versus a text or some other type of of tech option, and assessing do people need help, that they need a place to say where they can safely isolate from their family members. So it really is has to be a more of

a safety net model. So I think most people do want to comply, but many people don't have the ability to have a separate wing in their home or a separate way to have food brought in. Now that sounds like a pretty labor intensive effort. As you say, it's not just a technological fix to figure out who's got it and who might give it to somebody, But how do we support you in fact you have and you have to isolate or you have to quarantine somehow. How

labor intensive is this? How many people do have working on this, you know in Massachusetts in collaboration with other members of the state agencies, which has been a phenomenal experience for us, and we've learned a lot. We have now over two thousand people who are working on this effort, But really there are people who are picking up the phone talking to people um, you know, assessing what their needs are and connecting them to existing resources in the state.

So a lot of it was not Certainly some new money was infused for the social support efforts, but part of it was also making sure that we're connecting the dots. And if we look at the overall cost of what it costs to have robots public health programs, it's much cheaper in the long run than a few days, weeks or months in a hospital, which is the most expensive place certainly to have care. How widely distributed is this

the United States? I mean you've mentioned Massachusetts. I remember the Governor of Massachusetts at the news conference announcing early on that he was going to turn to partners and help to help them on the tracing how far beyond Massachusetts it's gone. So we're now currently working in eleven different jurisdictions, and it's anywhere from states to counties to

working with mayor's office of offices. And we're also taking lessons learned and having a learning collaborative, which is an open sourced ability for UM lessons learned to be shared from Illinois to North Carolina and in a way that we're continuing to learn from each other. So we have staff embedded in all of these different places and they

are providing technical support. They're looking at um connecting for convening, for knowledge sharing, and also we're really um committed to advocacy and that we're using this moment to also look at how do we have a better health system in the US that really focuses on those who are who need it most and those who have been most disproportionately impacted by COVID nineteen. That was Dr Sheila Davis, CEO

of Partners and Health, coming off. We wrap up our week as we do every week, with Larry Summer's off Harvard. This is Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. As we do every week, we conclude our week with Larry Summers, our special contributor, former treasure Secretary of Harvard. So Larry, great to have you back with us. We finally, finally are gonna get that stimulus about nine billion dollars. What

do you make of it? Better than the alternative? Good insurance against things going wrong? Glad to see more investments in testing. Really sorry to see that we're not supporting state and local governments. It's not a healthy thing that we couldn't reach some kind of compromise on the liability issue and the state and local government issue. That's really a very poor reflection on our system, and I'm not

sure we need it. And across the word set of checks for households at this date, given the vaccine is on the way, given that there's very substantial accumulated savings in large parts of the household sector. So I'm glad to see that stimulus is coming. I'm glad to see help for small business. I'm glad to see continuation of unemployment insurance. But this is not as good a bill as we could have had. Still, it's better than I expected, uh two weeks ago, and we should be grateful for that.

So so pick up on your point about checks going to everybody, regardless of what their particular needs are not. We heard from Chair J. Powell of the Federal Reserve this week saying he thinks overall that the prospects are brightening for these economy in we have a rough patch to go through, but we do have a vaccine coming.

But he also pointed out that really below that top line number or there are some people doing very very well, whether it's individuals or corporations or and other people doing really not well at all. What can we do about that part of the problem. Look, it's a case shaped recovery. There's no question that for people who can sit in the solitary splendor of their homes uh doing their work by zoom, having their groceries uh delivered um with more family around than uh usual, this has not been an

agonizing period. For others who work with their hands, who are providing uh those uh deliveries, who don't have a kind of space to be fully safe, and may not even have a kind of cash flow to be able to buy both their medicines and their food, it's been a very very difficult period. This is why we need a more just and generous society. We need a stronger set of refundable tax credits, particularly the childcare tax credit.

Above all, though, we need to run this economy strong and have an economy where the dominant theme is jobs trying to find workers rather than the dominant theme being workers trying to find jobs. If we do that then the engine of capitalism will be harnessed UH towards fairness. People will be sending buses into disadvantaged communities to find an attract and pull out employees. People will be providing second chance training programs for falons for others who may

not have traditionally attractive credentials for work. But if you can run the economy to the point where people are sufficiently eager for workers, you can cause all kinds of good social things to happen. Larry, as you just laid out, the Biden administration as it comes in next month, has a long list on its agenda economically for the United States.

At the same time, I wonder about globally, can we really succeed in the long term in the United States without having the global economy recover what lessons are there from the vandemic for the global economy. I used to say when I was Treasury Secretary that the world economy couldn't fly forever on a single American UH engine, or that no nation can be an oasis of prosperity in

a troubled world. I think we're going to reap very substantial consequences from the fact that after decades when developing countries were developing and we're catching up with the world's major economies. That trend is going into reverse UH right now, given the difficulties they're having and managing COVID, managing reduced exports, managing heavy debts, managing reduced remittances, and we need to

step up on that. We need to step up with very substantial global financial support provided through the international financial institutions.

We need to UH step up with an SDR special drawing right allocation from the i m F. We need to step up with much more investment in making sure that there's not another pandemic, and while we're at it, making sure that there really are the resources to get vaccine to all the people on the planet, not just the people in the rich countries UM as quickly as possible. We've got to k shaped recovery problems. We need to fight a case shaped recovery problem in America and the

case shaped recovery problem globally. And ultimately it's gonna be cheaper for us to fight that fight to support developing countries sooner rather than to support the UH later. And I hope that one of the first initiatives of the Biden administration will be bringing the global dimension to the COVID recovery effort. So that's a global perspective. Let's go local now we talk about global Wall Street, Let's talk about New York Wall Street and particularly New York City,

the metropolitan area. What is going to happen to some of the vibran cities like New York there are also a high price San Francisco is another example. What's gonna happen as the result of this pandemic. We're seeing surveys now of various people, both people who hire and the workers themselves, saying they think they're gonna be working from

home a lot more. Look, I think in terms of cities, the tendency has been for the last several decades in the United States for the rich to get richer, for the force to be sent center in rather than center out.

I think that may change the combination of people being uncomfortable with density even post COVID, having seen what technology in terms of working at home can enable, the fact that there's no longer state and local tax deductibility means that the tax burdens associated with their major cities are much more burdensome for the affluent people who UH live in them, a sense that people are moving out rather than moving in, which then creates a kind of self

fulfilling prophecy. UH. I would expect that if you look at great cities like New York, like San Francisco, like uh Los Angeles, that it's likely to be a difficult UH few years of declining public services, declining in migration, increasing UH out migration. And so my guesses we're going to see a quite substantial term doesn't give me any pleasure to make that forecasts. And in many ways, I think those concentrations of talent have been what pushed our

country forward. But I think you're gonna see quite dramatic changes in traditional patterns of economic geography. We always like to end the week with a lightning round of Summer says, Let's take a three questions here. Number one, we heard j Powell, the tariff of the Fed, to this week say he's not going to back up bond buying until we really restore a lot of the employment. What are we going to move back to a four percent unemployment rate in this country end of twenty two? And what

about inflation? He also talked about inflation. One won't be back over two percent inflation in the United States sometime during two will see at least several months because of some combination of specific factors where the inflation rate will get above above two percent um would be my guests. I think that may come sooner than people think. And Larry, finally we've seen yet again the markets really hold up no matter what's going on. In the respect of COVID

nineteen as it spreads rapidly throughout the country. Are the marketing equity markets in particular, are they justified right now? Are they price about right? Are they overpriced? Where do you think they are? Many people think they're overpriced because they look at a very strong, very high price earnings ratio.

I think that the kind of analysis the German Powell offered in his testimony on Wednesday UM or his press conference on Tuesday or Wednesday was right when he emphasized you have to look at price earnings ratios in the context of real interest rates, and that with real interest rates low for what I think are quite deep seated structural reasons. My guess is that you're going to uh see markets uh priced uh not unreasonably. That doesn't mean they're going to keep going up as fast as they

have in the last six months. But I don't have a sense of extremely precarious ball. What does that due to price discovery and the equity markets. Is a practical matter because the low interest rates are true for everybody, whether you're a well run company or a poorly run company. Are we sustaining some and sometimes they call hi zombie companies who don't have enough e butit debt? It really

sed to really service the debt. Is there a risk here to economy on the long run that we don't have prices coming really starting out the sheep from the goats, if I can put it that way. Incorporating it may be a bit of that, David, But I actually think the larger effect is probably that low interest rates mean lower discounting of the future, and so everybody is encouraged to take a longer view in their economic decision making, and it's that forward looking activity that's most likely to

deliver large external benefits to the economies. So I think one should see these low interest rates more as an opportunity that is a burden, Okay, Larry Summers, It's always a light to end the week with you. That is our special contribuer to Larry Summers, former treasure Secretary of Harvard. That does it for this episode of Wall String Week. I'm David Weston. This is Bloomberg. See you next week.