Bloomberg Wall Street Week: Romer, Tarullo, Finucane

David Weston from Bloomberg Radio. A glass half full with the new president and a vaccine on the horizon. This is Bloomberg Wall Street Week. I'm David Weston. Four years ago, President Trump committed his administration to undoing much of what came before him, whether it was trade policy, or financial regulation or international agreements. President elect Biden has promised to reverse much of that course, but to grow the economy, even as he pursues his goals on climate change, racial justice,

and inequality. Can you do both? We asked Dan't rule of former Federal Reserve governor who held senior economic policy

roles in the Obama and Clinton administrations. I mean, in the short term, as as we've all been saying for nine months now, uh, getting ahold of the virus, getting a vaccine out is the single most important thing to continue a cyclical recovery, and that in and of itself will provide a substantial boost hopefully through all and into two So there, I think, as again as we've all been saying, the public health issue is the most important

economic issue. In the short term, there is stimulus. I think there's a crying need for stimulus to carry us into the period where the whether the vaccine is going to take effect. But after that you are going to

get some tail winds basically from from their recovery. Longer term, I think it's it's a question of whether the now president elect is going to be able to manage to get Congress to go along with some of the spending priorities that he has as an enormous amount he can do just by having control of the executive branch, but it is going to be important for Congress to at

least be somewhat cooperative. Well, and when you talk Congress as a practical we're probably talking the Senate right because as we sit here we're not gonna until late in January, where the Republicans or Democrats have the majority. Right now, I think you'd probably say it's likely that the Republicans will. Is it possible for a president buying to do business with Mitch McConnell and get some things done that certainly

knows we hadn't gotten done last time? Well, I think I would say, David, if it's possible for any Democrat to do it, it's probably Joe Biden who can do it. He has he's not only a veteran of the Senate, but obviously has a longstanding relationship with the Senator McConnell. Um. But if we step back from personalities a bit, I think there may also be some motivation that at least Republican a handful of Republican members of the Senate may have.

So consider, for example, in infrastructure investment, I mean that that elicits raised eyebrows now in Washington, New York, and just about everywhere else. People have been talking about it as a potential bipartisan um project and it hasn't happened. But I think you've gotten an administration, as we will, that has competence, that coordinates its policies, and that has a consistent set of policy, there are chances of working

something out become much greater. And consider, for example, if the EPA administrator and other heads of agencies in the federal government begin to implement regulations directed towards climate change. So you dealt with ecademy policies, certainly when you remember the Federal Reserve, but also before that in the administration, in the Clint administration, you really dealt with econdic policy. As you look at the economy today, we still have ways to come back. We've come back some, we still

always to come com particularly it comes to jobs. We've still got over ten million people who don't have jobs today who did before the pandemic. Is infrastructure the best, quickest, more sure way to restore some of that in the economy now. Coronavirus vaccine is the quickest, insurest way to do it, because that's what's going to get the service sectors back up. And environment, I would say, David, the

infrastructure investment is the medium to longer term project. It's one that would both improve productivity and create good jobs along the way. But as we've seen it again and again, no matter how many times people say that projects are shovel ready. Yeah, they're they're ready enough that you can start walking to the truck to get the shovel, But they never seem to be ready to have as much

impact as quickly as you'd like them too. So you mentioned earlier, Dan that there are some things that the executive branch can do on its own, pretty much without support through a divided Congress. Give us a sense in the economic sphere, one are the things that this president, President Biden could get done in a reasonably short period

of time. Well, within the labor department, for example, where you've got the uh Fair Labor Standards Act, he can his appointees and make different determinations as to who's covered by minimum wage laws when you have to pay over time, that sort of thing which could have a big effect. Within the gig economy. Um, he can do things on

student debt relief as well. Uh. There there are any number of regulatory actions that he can take, and of course he can also use such spending powers as he has with already appropriated or soon to be appropriated funds to redirect them. So in terms of economic priorities, there's quite a bit that he can do where he needs the cooperation of Congress is obviously in increasing total spending

or total tax reforms. Should we be concerned all about the effect of regulation more regulation on the economic growth? That's always a question, right UM, in any administration, no matter what its ideological leanings. But I think in the areas where the President elect has emphasized most the regulatory agenda, which would be on climate change, which would be on worker protection UH, and to a lesser extent, financial regulation UH.

In each of those areas, I think that it's quite possible to get a set of regulations to achieve your regulatory end, but do so in a sensible way that doesn't create unnecessary disruption. That was Dan Trullo of Harvard Law School. Coming up, we'll talk with Tom Monte, chief operating officer of Bank of America, and and finukin the Bank's co vice chairman about why they're taking the lead in issuing sustainability bonds. That's coming up on Wall Street

Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. E s G. Environmental, social and governance investing is all the rage, But how far can it go. Bank of America has been a leader in sustainable investing, and it's not limited to the environment or to governance. Last month, b of A issued a two billion dollar sustainability bond tied to equality, with proceeds going not just a clean transportation and energy, but also

to alleviating inequalities in Black and Hispanic Latino communities. Tom Monteg, chief operating officer of Bank of America, and and Fanuken, the bank's co vice chairman, explained the how and the why.

You know, we had made our billion dollar pledge for racial equality, and after that, because we've been a leader in the green and social bonds, we decided it would be good to prod a blueprint for everyone else to be able to access this market, and so we put together the two billion dollar sustainability bond, and it was green and social. As you say, the difference for this was the social aspect of it was all for financial empowerment for Black African American Hispanic Latino communities, and so

the entire social aspect is there. And then this is hard work because once you do that, you have to track the things that you're doing and make sure you're doing them, and so there was a lot of work internally and with finance to be able to have the tracking elements and know what we were gonna do. So we track how much we do in affordable housing, we track how much we do for health practices. We tracked supply change for minorities, and so all those things are

part of the social aspect, David. So this was two billion. We had incredible demand across from corporate, corporate treasurers and from investors, and so we were very pleased with it. It's interesting, I think you'd like this that five years ago, in two thousand fifteen, there was thirty eight billion dollars of green social sustainable bonds. This year they'll be almost fo so and we've been so ten times in five years, and so we're really pleased with the bond and what's happened.

And alway, it's part of how we work here. I was looking yesterday at just at affordable housing. Last year we had over eight thousand affordable housing units that we helped finance, and of those eight thousand, over half of them almost half of them, excuse me, we're green themselves. And so we've tried to take green and social and a lot of the things we do. So we we were so excited about this, this bond and what represented

in the blueprint it's set for America. So an as Tom just suggested, this is part of a larger plan, a strategy for Bank of America. Put it in context, how does this fit with the other things that Bank of America is doing. E s G is sort of a good reflection of our strategy of responsible growth. Uh, how could you be responsible if you're not thinking about sustainability in the long term. It's also, as as Tom is laying out, a very good business opportunity for us.

We probably represent about a quarter one fourth of the social or E s G bonds that have been issued and underwritten in the last eight or nine year. Also, it's just been and we meet with maybe the top fifty institutional investors. All of them are asking about this. All of them expect for you to uh be be progressive in this regard and to do more. And our employees care about it too. And I might add that we see a lot of regulation that will be coming out of Europe and the next year or so, so

we think that this is the place to be. There's a big business opportunity, and we're going to have to do it anyway. So Tom pick upout the business opportunity. How do you make money on this bond? How does an investor make money? How do the proceeds come back? Who's making the money can pay off the bond? Well,

it's the bonds proceeds to whoever issues the bond. On one hand, the bonds proceeds are used by us on funding the things that we have written down that we're going to trap, be it green or be at the social aspect. So for that, that's how we invest our money, and that's why it's called a green or social bond. As far as the investor, they like these bonds because there's lots of E s G funds out there are people that want to invest in E s G product.

Uh At times the s G product will trade better than the non E s G product, and so they can make money in that way. And in general, I think there's more and more money that's being used by people to support this and this kind of effort, and that's why so much is being issued this way. And talk about that pricing issue. When you price the bond, do you have to put a premium in to encourage investors come in. And how is it traded SITUATIONE. It's

traded well. I mean the market has been you know, it's been a month and a lot as you know, a lot of things have happened in the month. So it's it's it's traded well. You know. You usually it will come at or slightly tighter than than a normal than a normal bond would at the time. Um, but

you can't see it all the time. And by the way, people are issuing different kinds of bonds too in this in this area in green where things are coupons can go up and down based on how you meet the different hurdles that you put for yourself, for a manufacturer or someone on the paper industry, for example. So there's all sorts of bonds being done in the market right now. So and as you say, thank you, America has been dressing directly investing equity as well as loans into areas

that need the help goodness nokes in this country. How do you coordinate if you coordinate at all, with the proceeds of this bond, the sustainability bond that we've been talking about, with the other efforts do you do it with the same sorts of entities in some of the Hispanic and the Black communities. Yeah, the two are coordinated, but but I think there's even a bigger effort here. This one is a jump start to the other. The one billion dollars is intended to do things that we

might ordinarily not have been able to do. So perhaps concessionary capital, maybe it's philanthropy. It's investigating and investing where we might not have before. So for instance, we've put We've got a program with minority deposit institutions where we will put money, and we have always put deposits into these institutions, but now we're going to put equity, and

we've already done twelve of them. And the idea here is that when we put money into those institutions, they give more, they can lend more at a community level, so one begets the next, and it it just increases the opportunity. The two billion dollar bond just means there's that much more opportunity to land and invest than we might have had otherwise. Tom, what about the accountability for

all this. I'm not even necessarily talking about Bank of America, but in general, there's a lot of people saying they're doing environmental sustainable things, things good for social the social compact. How do we know that that's true because we don't really have standards yet, do we? Well? We well, we have standards and the standards that we we literally have our our auditors come in and make sure we are doing the things that we list that we're going to do.

And so it is a it is a well trapped process. We you know, did we have as I said, ten billion dollars of these type of bonds outstanding, five green bonds to social We did a COVID bond also this year which was one billion, and this two billion sustainable bonds. So all of those bonds, I have a list of things that the proceeds can be used for and that list is tracked and maintain an audited UH to make sure we're doing that in success. In success, does this

create more customers for Bank of America as well? Sure, there's plenty of research to indicate that those companies that are good in E s G also have higher satisfaction levels with their employees, with their customers, with their clients. They're less volatile. Uh. There are any number of reasons why you might do this. I also think, as I mentioned earlier, that we will see legislation and regulation first out of Europe and potentially with the Biden administration here

United States. That was Antonucn, co vice chairman of Bank of America and Tom Monteg, the Bank's chief operating officer coming up. The election may not have gotten us past our partisan disagreements, but economist Paul Wimer says the coronavirus may force us to do just that, because in the world of the pandemic, there are no blue or red states. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.

President like Joe Biden will come to office with a series of policy goals, but may well face a divided Congress. And so we begin to look at the next four years of a Biden administration and what it might hold. We asked n y U economist and Nobel Laureate Paul Romer, what will determine the course of the next four years under a President Biden? And he began with the pandemic. I'm afraid that this might turn into an exercise where people say, well, the Blue States had it right. The

Red States had it wrong. They've got to behave more like the Blue States. Neither of them did that that well. The Blue States had a lower death rate, but they've also had slower recoveries of employment back to where we were in January. So we need a new measure. Uh. That's different from what either side was doing, uh in the last three or four months. And I think it's clear what that measure is. Do what the NBA did,

Do what Harvard and Cornell and NYU were doing. Test people frequently, isolate them, and then let's get back to business. By the way, do what Taiwan did, as I understand, to do what South Korea did as well. So it's pretty basic. We gotta test, we gotta do contact tracing, where a mask, whatever you do. And he said specifically, it doesn't matter who you voted for. Now, that seems pretty simple, but the simple can sometimes be hard because

it's not clear people are going to comply with that. Yeah, well, you know. There was an interesting comparison of how New Jersey responded to an outbreak in the Orthodox Jewish community as opposed to how New York responded. New York responded with the more traditional public health measures mandates, don't group together in big groups, don't do this, don't do that,

wear masks. In New Jersey, they just started testing people and gave people the information and this produced less of a backlash in New Jersey and more compliance because once people started to see how many of them were infected, they they took this much more seriously. So, as you say, we've got to figure out a way to do both walk and chew gum as it were, which is to say, keep the kind as open as we can at the

same time protect people. But beyond that, there are larger issues over the next four years, eight years, twelve years we need to address with the economy, and we have some people saying, look in order to really get growth going again, because as you know well, professor Roma, we've not had really growth rates with the developed countries for

some time the way we did before. We need some massive things, something like a martial plan effectively to really invest in the economy by the way we could use the infrastructure, and we need to move to green technology. At the same time, You're absolutely right if you look at the growth over this entire recovery up until the pandemic, both like the second Obama term and the Trump turn. This had the lowest rate of GDP growth of any

recovery since uh the end of World War two. So there is something deeper structural that we have to address. And you know, this is the time when borrowing is inexpensive. This is the time to go big on borrow and build. So I hope we can reach a consensus on the kinds of things we could borrow and then build to make the country better and profess as I say, you received the Nobel Prize where you're working economics, and in part I understand that was a growth theory that had

to do with information and particularly government investing. We have Arvin Krishna, who's the CEO of IBM, just provided me with a letter that he's written to President elect Biden saying, look at we need to leverage science technology, We can to close the skills gap, We need to modernize digital infrastructure. It sounds like the sorts of things you talk about. Yeah, although you know, you know the joke about economists, there's

always this other hand. I worry just a little bit that this is gonna sound like the scientists saying we told you so like we told you so, we were right. Give us more money, give us more power, and everything will be fine. I think the scientific community, the academic community, has to take ownership of the fact that expertise is not respected in the same way it once was. So we need to figure out what it will take to rebuild the confidence and trust amongst most members of the public.

And we're not going to get there by just rooteful or scolding people. Well, when you talk about expertise, it makes me think a bit about the government itself, the federal government itself, because various experts have written saying that under the Trump administration, there has been a d emphasis if I can put it that way, on expertise, and that perhaps we don't have the same intellectual firepower, the

inectual capital that we had before within the government. Yeah, we we not only haven't promoted people, we've left positions unfilled, but we've also frozen people. We've paralyzed them so that they're afraid to make decisions. I think this poor woman whose job it is at the g O to decide whether there's a consensus that the election is over and then triggers the transition process. This woman is like frozen in place, afraid to make a decision because she's afraid

she'll get yelled at if she does. What's the obvious thing is to recognize the the election is over, and there were people in the f d A, people in the CDC in the same way, they were frozen. They wouldn't take leadership, they wouldn't act, they wouldn't take the kind of bold steps we needed to take. So we need an administration that gives people the confidence to rely

on their professional expertise and do their jobs. Do we know whether that's something the president could do with his administration without the support of the Congress, because it looks like right now it's more likely than that that the Senate will have a majority of Republicans. Yeah. I think that the person who's at the very top of the executive branch exerts an enormous influence over all of the decisions made by all of the people under the executive branch.

And I think the signal from the top that you will be trusted, you will be respected, even if you disagree with some of your peers or some other UH policy statement from within this this um UH this administration that that respect I think can enable the people all up and down the bureaucracy to to do their jobs. That was Professor of economics Paul Rohmer of n y U. Coming up, we wrap up the week with our special contributor Larry Summers. This is Wall Street Week on Bloomberg.

This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. It felt like we took a turn this week toward a new president elect who called for unity.

The selection is over. It's trying to put aside the partners of the partisanship and the rhetoric that designed to demonize one another, toward a new Congress that looks like it won't go too far out on the progressive wing, and toward a promising vaccine candidate from Fiser and beyond Tech that initial data suggested could be much more effective

than we thought. And so the markets were pretty much off to the races and treasury yields signaled better times lay ahead, at least until the end of the week. But is there a half empty part of that glass that we're looking past with continued division in a country still led by a president who won't concede that he's lost for a reality check. We welcome to our rush

All Wall Street. We contributed Larry Summers and Steve Ratner, the chairman and CEUO Will Advisors, which manages the private and philanthropic funds for our founder and majority owner of Michael R. Bloomberg. So welcome to both of you. Letter. Let me start with you. That's the question I've been asking myself all week long. Are the markets getting ahead of themselves? We've got record numbers here at the end of the week from the SMP and the Russell as well.

We got that problems of vaccine, but at the same time we have a hundred and fifty new cases a

day at this point in the United States. Who knows for sure, but I think it's important to remember that at least nine of the value of the market, and probably of the value of the market is from earnings to companies who are going to generate sometime after nine months from now, And as long as that's true, it's really long run prospects that matter more than short run prospects, and I think the vaccine is a big deal in

that regard. I think the fact that we're going to have a transition of power um in America is a deal in that regard. So while I feel much worse about the grimness of the winter than I did a week or ten days ago, I feel better about the long run UH future of the prospects, at least for

corporations UH in UH the United States. I think the combination of the fact that we're going to have a more stable government and whether it's good or bad, ultimately, and I've got reservations about it, they're gonna be more stymied in their abilities to promote inequality UM in the Congress. That combination is pretty benign from the point of view of corporate interests. And that's of course with the stock market reflects and Steve, what about that transition. It's not

as abrupt of transition as we thought. It looks right now at least like this, and it may well remain in repult your hands. What does that say about the positive stimulus which all of it thought we needed rather badly, including to deal with the COVID NINETEAM problem. Yeah, I think I agree with everything like I said, and I think adding stimulus or lack of stimulus into the equation is an important part of trying to understand the market.

I'm not going to make short term predictions either, but I would note that essentially on the same day, we had the announcement of the vaccine, and we had the news that we were going to have divided government, which the market I think correctly interpreted to mean we were going to have a lot less stimulus, and that sent interest rates down, even as the vaccine and theory should

have been more bullish for the economy. And so it was almost like the opposite of a perfect storm for the market, and that I had two good things happened more or less at the same time. Low interest rates, which are very bullish for the market, as well as the prospect, the real prospect for the first time of a vaccine that could be a game changer within a

reasonable time horizon. So so, Larry, what about the interest rate issue, and particularly the yield curve, because it really steep and it's come off that a little bit towards the end of the week. What is that yield curve telling us anything relevant right now? You know, these movements are big in the slope of the yield curve relative to what we've seen lately, but but well, but by

the standards of the longer term of economic history. Uh, These movements of ten twenty points, if that in UH the yield curve, aren't that immense, So I wouldn't overdo uh the significance of those movements. And of course movements in the yield curve are different when they're about real interest rates than when they're about UH nominal interest rates. I do think we're at risk of making a consequential

error in not providing UH more stimulus. It may be that will be okay, because there's a lot of cash that got built up from unspent stimulus in the past, but it may be that we're not okay. And so I think we're taking much more of a risk of

a double dip than he is prudent. And UH, you know, you look at what's happening around the rest of the world, and the risk that they're gonna be some real financial aftershocks here is not something I'm prepared to predict, but it's certainly something that as a policy maker I would want to be UH ensuring the givest steve. As an investor, looking below the top line numbers on the equity indusease, what did we see this week? Because tech had been

driving things up. Then tech came off some of this week, it looked like we were at least flirting with some cyclicals and even some value stocks. What is that telling us about what investors are thinking. Yeah, No, there was a significant rotation in the market uh this week, and again it really related to the vaccine more than anything, because the cyplicals have that You've had the greatest dispersion between growth so called growth stocks and so called value

stocks and cypical stocks. Uh, certainly in my recollection, I think probably in fact, I know essentially in history where like the nine we were at the pile dispersion between those two fundamentally different investment strategies. And when the market perceived that there was a light at the end of the so called tunnel, two interesting things happened. First, the civical stocks rallied enormously. You had airlines up twenty percent in one day, hotel stocks, leisure stocks, everything that has

been really beaten up because of the virus. At the same time, ironically, you had the growth stocks come off because people uh perceived that there was might be less use of these things going forward. So you had Zoom stock go down I think four the first day after

all this hit the news, and so markets. You know, we, Larry and I have had many discussions about the efficiency of markets, but this was a case where the market suddenly woke up and decided the world was going to be different than what I thought it was going to be. And you saw the stock prices, and just accordingly, Larry, we are on the border of a new era here with a new pres in maybe a divideed government, we'll see,

But nonetheless we're turning a chapter here. As a practical matter, what do you think the chances are that the Biden presidency, whether it's one term or two years, could be consequential. I think that it will be made consequential by the magnitude of the events that gonna deal with. It's gonna deal with a reconceptualization of some kind of the U. S relationship with China. These are going to be crucial

years for the global effort on climate change. Make no mistake, uh the expected return time of some kind of pandemic threat. This is nowadays more like a once every fifteen year thing than like a once every fifty year thing. And the world's gonna have to get it together to be ready for the next one. We're not, and that's going

to depend on what happens in a Biden administration. Perhaps most fundamentally, Abraham Lincoln talked about government by the people in government for the people, and he assumed that those two things went together. And you saw in the number of people who voted for Donald Trump, what you saw in Brexit, what you saw in Boston, Naro's election in Brazil, what you've seen with Modi in India, what you see in the greater attraction of the Chinese model to people

around the world. What you see in the number of young people in the United States who professed not to believe in democracy is the best system. Is increasing doubt about the proposition the government by the people will always be the best government for the people. And fundamentally, that's the task of this administration to reconvince people of that central American premise, both in the United States and a around the rest of the world. So I did succeed or fail, This is likely to be a very very

consequential UH presidency. And I'm I'm optimal, I'm apt, but no one can be certain. Well, everyone has a hope for success, Steve, but as a practical matter. Can President Biden deal with a Mitch McConnell if he if he is a majority leader, and make it a government for the people. Whatever one could say about that, it means can he make fundamental change in what we're doing in

this country. That That's exactly my concern about this. And I don't want anything else I say in this show at all to sound partisan, but I would say the following, which is that I understand why the markets to some degree and lots of people that we all know, I think divided government isn't such a bad idea to checks

and balances limitation on what the president could do. But I worry a lot about I grew with everything like said about the fears about democracy, the threats to democracy, that the concerns that there may be a better system that democracies and working. You look at China's success in getting past the virus and the way their economy is going to grow this year, unlike the way any other developed country is going to grow this year. There's a lot to worry about about democracy, and I worry that

divided government isn't going to help. Um. We are living in an ultrapartisan environment. There have been. You could count on one hand probably the number of bills that have been passed by Congress in the last four years that had any kind of bipartisan support of one kind or another. Um Larry will be able to speak to this better

than I can. But we were both in Washington and two thousand and nine when the Democrats had sixty votes in the Senate until Teddy Kennedy died in August the two thousand and nine, and even then it required perculian efforts by by many people in the administration to get even what got passed past. There you have an economist and an investor giving us the balance of hope on the one side and caution on the other. Many many thanks to Larry Some is our special contributor to Wall

Street Week. He is, of course from Harvard and see ratter of will It Advisors, who invests the personal and philmthropic funds of Michael R. Bloomberg. And that does it for this edition of Wall Street Week. I'm David Weston, this is Bloomberg. See you next week.