Bloomberg Wall Street Week: Sachs, Clayton & Panetta

Johnson sec Chairman J Clayton. Bloomberg wool Street Week with David Weston from Bloomberg Radio. A nation recoils in horror and the markets look the other way on hopes of a brighter tomorrow. This is Bloomberg Wall Street Week. I'm David Weston. Just when you thought it couldn't get any worse,

it did. On top of a pandemic and a cratering economy, we faced a week of demonstrations and riots as people took to the streets to protest the brutal killing of a black man in Minneapolis, and President Trump he said he would send in federal troops to quell the disturbances. We asked Columbia Economy Jeffrey Sachs about the causes of this chronic inequality and what could be done about it.

I think digitization has played a big role in both raising overall output but shifting it to a smaller and smaller part of society, and the COVID epidemic is probably going to result in a dramatic increased concentration of wealth. Think about it. Jeffrey Dizos, owner of Amazon, founder of Amazon, has increased his wealth by an estimated thirty five billion dollars since the start of this year, at a time

that we have mass unemployment. We have the greatest unemployment, the largest loss of jobs since the Great Depression, rivaling the Great Depression. And yet the stock market is up and uh some of the big tech UH Titans are booming in their wealth. So what's happening, I think, is that we're seeing this dramatic wiping out of a large part of our economy, the brick and mortar sector, a huge amount of shifting online, and that is part of this digital trend that already has been leading to the

concentration of income and wealth. When the dust settles, I'm afraid we're gonna probably have the greatest increase of inequality that we've ever had in a short period of time, which is saying a good deal because going into this before the pandemic, we were not in great shape, and inequality it was growing to a substantial degree. There are

remarkable statistics. I know you've seen that. For example, back in seventeen, the net worth of the media and African American family was ten percent that of the median white family. So we had a problem going in and then, as you point out, if you look at the COVID loss of jobs, it was greatly disproportionate on Hispanics and on blacks. What can we do to remedy that at this point because what we're seeing right now I think it is

certainly about police brutality, but it's about much more. It's probably the case that when the calculations are made carefully, that the richest twenty Americans or so all white I believe to be the case, have more net worth than all the financial wealth of the African American forty million people in American society. Don't. I don't guarantee the number. I say this has to be looked at. But these are the relative orders of magnitude that we're talking about

the top billionaires. If you take the top twenty thirty, I have well over a trillion dollars of net worth. That's something like the financial wealth in the African American community of forty million people. It's unning what is happening in terms of the shocking, unbelievable, unprecedented wealth at the very very top. He's himself with a hundred fifty billion dollars of net worth, something we cannot get our heads around.

And then people losing jobs by the tens of millions, with absolutely a disproportionate burden being felt by minority communities. This is desperate. What do we have to do about it? We have to become a decent society where everybody has access to healthcare, everybody has access to education. Uh, you don't have a generation of the students with one and a half trillion dollars of debt now completely unpayable because the prospects have worsened dramatically, But it was unpayable beforehand.

And that requires companies like Amazon to pay some taxes, not to ask for tax breaks from around the country, but to pay their taxes. It requires the richest people to pay taxes. It requires, in my view of tax on wealth, which is so concentrated right now, that we're going to wake up. In fact, we're not even waking up.

We know it, we see it. We're awake right now that the budget deficit will be some of GDP perhaps, and then we're going to be told by the Conservatives representing the voices of the richest people, Oh, we can't do anymore. We're gonna have to cut benefits to the poor because of the large budget deficits. So it's an extraordinary time by any standard, David. And the concentration of wealth not a deliberate part of this epidemic, but it seems to be the fallout of the epidemic is extraordinary.

One more point I would add on this. The FED has, of course issue the trillions of dollars of new credits, but the way our system works, it's not credits for broad society. It's credits that go through the already large concentrations of wealth and allow them to buy up even more of the assets on a fire sale basis so easy. FED credits after two thousand and eight was part of

the increased concentration of wealth after two thousand eight. Now we're seeing it again in two thousand twenty that what the FEDS doing to keep the economy from collapsing is also going to have an effect on increasing the already almost unimaginable inequality of wealth. That was Professor Jeffrey Sachs of Columbia. Coming up, we hear from the Chairman of the SEC, J Clayton, about how the markets are working despite all the bad news and the volatility. That's next

on Wall Street Week on bloom Board. This is Bloomberg Will Street Week with David Weston from Bloomberg Radio. The markets have been put through their paces this year so far, from a pandemic to an academic collapse to civil unrest, but through it all, the man responsible for overseeing those markets, SEC Chairman Jay Clayton says that they have held up well.

The bedrock of our system is good financial information UM and this this asymmetry, you can call it, an on level playing field with Chinese listed companies versus other companies from non US jurisdictions listed, has gone on for too long and first step, let's make sure investors understand it. Second step, and the administration is now looking at this. UH Senator Kennedy and Van hollend have a bill that has a very sensible approach to this, which is give

people time to level that asymmetric or on level playing field. Uh, now we know about it. Now we gotta figure out what we're gonna do about it. Well, it is disclosure enough in this situation as a practical letter. I mean there there are now proposals up on the hill as you know, the Senate has passed it would say if a company, I think it's the rules. If you don't allow access to the audit papers for three concent of years, you get delisted. Do you need that kind of power? Well,

first step disclosure. But I but I do think that consider whether more to level the playing field. And I think the bill you mentioned that, the Kennedy van Hollenville, it's very sensible way to look at this if you're going to do more, because it gives people a period of time, uh to level the playing field before you would take any action. Uh. You know, I'm not a guy who wants to take like precipitous Uh, you know, hit the nail on the head with the hammer tomorrow.

But you know, I like the way they've approached it and that there's a period of time to come into compliance and if you don't, then it's time to um take take measures beyond us disclosed j from You're having watched this over some period of time. Uh, And I know you don't want to name any individual companies, so

I won't name any individual companies. But is it across the board with Chinese public trading companies or is it more problem with some of the smaller or maybe up and coming ones as opposed to some of the really big megacap companies that we all know the names of that have been publicly traded for a while. Well, well, David, you you you bring up a good question. Uh, but a point that applies in every market. Financial controls, audit

procedures and the like. They're different for larger companies than they are for smaller companies. And uh, there are a lot of smaller companies from that have operations in China that are listed on our markets, and investors might look at those differently from the multi caaps or or from state owned enterprises. And uh, I'm not I'm not an expert on international investing, but I but I do know enough to know that you shouldn't look at a particular

jurisdiction in a monolithic way. Uh, you shouldn't. You should look at that as to whether you're looking at a smaller company, Uh, an international company that derives a lot of its revenues from outside of that jurisdiction, or a state of enterprises which has its own risks and reward profiles. Jay, do you talk with your counterparts who are security regulars

in Beijing? In China? I mean, there have been times when the Chinese government said, we really want to try to coordinate, we want to harmonize, we want to open up our markets, our securities markets. Is there any prospect of actually some of that harmonization coming about? Uh? Look, we do talk. UM talked to my my counterparts around the world. Um. There's nothing that I have said to you that I that I haven't said to them, and that this is a problem that I believe needs to

be addressed. Um, And Uh, I hope it can be. Are you hopeful do you think it will be? I'm look, I'm an optimistic guy, but I'm but I'm optimistic because I know that at some point, Uh. You know, I hope is not a strato of ge You gotta you gotta do other things as well. So you said the legislations pending has been passed in the Senate. Uh sense, I think you said, sensible way of approaching it? Is it doable? Is it's something as you look at the

SEC could enforce without too much difficulty? Oh? Oh yes, Now it's a it's a it's a sensible piece of legislation and it and it uh captures the issue in a way like I I try very hard not to uh to tell Congress what to do. It's the other way around, they tell what to do. Um. But this is a this is a very sensible way to approach a parliament's been around for a while. What about some of the issues you're working on before the pandemic came up,

talk about like reviving revisions to proxy rules. Do those continue a pace or do you have to put those to one side? Now? We we have not put our policy making agenda to the side. Um. We are we are a very when you talk about organizations um being affected in different ways by the operational constraints of social distancing and uh uh the health and safety uh structures that we live by. We're a very lucky organization where we're we can operate fairly effectively UM in a remote

UH capacity, and we've been doing so. And look the women and men in those policy making divisions. UH, they're committed to improving our markets and modernizing our markets. I'm not going to put that on hold unless i have to. And so, for example, the proxy rules, where do they stand now? We're in there are are there are our agenda to be finished in this fiscal year, and I

expect to haven't finished in this fiscal year. UH. I'm so pleased with the rigor that our staff has applied to all the comments we've received, and I think we're on schedule to finish them UH during the fiscal year. UM. People don't know about the SEC fifical year, so by the end of this by the end of this period. And how do you feel about bringing people back to work at the SEC. I think you said at least until July fifteen. Do you think that that's realistic? Well, David,

I do think it's UM. It is realistic because we are able to function. Every organization is different, and I'm not making choices for other organizations, but this organization functions very well in a virtual environment. There are a number of functions that we have that would improve UM with people on site. There are some functions where you do

need people inside. Look, we live in a we live in a country where due process is important, and we have people whom we're bringing actions against, and if they want the benefit of being interviewed face to face or being able to in as virtual face to face environment as possible, we need to provide that to him. We're you know, we believe in due process. So those types of things, UM, we have to do. But by and law,

we can operate very effectively remotely. And what I want to do is as as things get back to normal, I hope they do. I hope they do bring bring people back in those areas that are most acutely affected by remote working, and then go from there. UM, keeping health and safety front of mind at all times. So I have the luxury of that given the way we work. I know others others don't, UM, but That's how I'm looking at it. Here that was SEC Chairman Jay Clayton

coming up. We ask Washington veteran former Defense Secretary Leon Panetta what the government needs to do to address a pandemic, a steep economic downturn and still unrest coming all at the same time. That's next on Wall Street Weekend on Bloomberger This is Bloomberg Willis week with David Weston from Bloomberg Radio. For the first time in history, the United States faces a pandemic, an economic downturn, and civil unrest

all at the same time. Leon Panetta faced his share of crisis when he served in government, including as chief of Staff to President Clinton when Jesse Jackson was giving those remarks on the Mall. He went on to serve as the Director of the CIA and the Secretary of Defense, and his experience taught him how an administration deals with

a series of crises that come all at the same time. Well, I I always found, uh, chief of Staff and then later at CIA Director and Secretary of Defense, that when facing a crisis, and when facing a series of crisis as we are now, the best approaches to gather the National Security Council together UH and determine what the best strategy is to deal with each of these crises UH, and to develop auctions obviously to present to the President, but to try to develop at least a common strategy

that everybody can support and and that is in the best interests of the country in terms of dealing with that crisis. So I think this is a moment when the president needs to listen to the advice of his most experienced advisers. That's critically important at a time when you're facing this kind of serious threat to the country. Well, we heard from one senior advisor to day in a Secretary Defense, but it was public, it wasn't behind closed doors.

Is there any doubt that the president has the authority of the authority to send in photo troops if he so chooses. There is this Insurrection Act, Well, look, I think it's it's clear that the president could assert the Insurrection Act. But again, uh, this country has recognized that the purpose of our military is to be trained to confront foreign adversaries in combat, not to be used for

a control or law enforcement. A posse Commentatis Act was passed in the eighteen hundreds for the purpose of making clear that the US military ought not to take the place of of law enforcement. And so for that reason, I commend Secretary of the Secretary of Defense esper Or taking the position that he took, because military leaders almost in unison, UH, do not believe that our military ought to be used, uh to to fight our own people. It ought to be used to fight foreign enemies. Our

federal troops even trained to do this. I mean to pick up on your point. Are they trained to deal with crowd control and things like that? Because we have, sadly in our history seen instances where some military brunn and who are not properly trained and we had some tragic results such as can't stay You know the military, well, the federal troops. Are some of the federal troops trained to really be effective in this situation? Is this the

best tool in the tool kit? I don't believe it is, because what why we train our military is to engage in combat with a foreign adversary. That's what they're trained to do. They're not trained on riot control, They're not trained on crowd control, they're not trained on law enforcement.

At the same time, we have a difficult problem here that I'm know I'm sure you appreciate, which is we have I think the vast majority of protesters who are peaceful are exercising their first Amment rights to petition for redressing agreevances. But there are clearly some bad actors in some of these demonstrations who are prone to violence and

trying to instigate something. But put aside the federal military as a tool, what is the best way for the government, the federal government, state governed to sort those two things out, so we maintain law and order, we protect people and property, but we also preserve the rights of those who want

to peacefully protest that horrific instance out in Minneapolis. Well, I think it would be preferable rather than the president asserting that somehow he'll take control of the situation if others don't, I think the president ought to be offering law enforcement assistance to states and local communities so that they can in fact determine whether or not there are criminal elements that are trying to take advantage of these protests. That's a law enforcement issue, that's an FBI issue, that's

an intelligence issue. Frankly, Uh, the federal government gets good intelligence on those that are trying to conduct those kinds of criminal activities, and so that ought to be shared with with state and local law enforcement so that they can play the primary role in trying to maintain order in their communities and in their states. Mrs Secretary, what could we as a country learn from the military on the subject of race, put aside their active involvement in

any peace commum missions. But but the the U. S. Military was there ahead of allow of the rest of the of the society, going back to the days of Harry S. Truman when he was president, in integrating the military, you have a much more integrated, I think military than most companies do across the country. What have you learned from that? What could you teach society? Because goodness knows,

pas we need to learn some things fast. I think the military is a is a good example for the rest of the country in terms of allowing allowing minorities, allowing others to be able to serve their country. Uh, and to be part of a unit working together to accomplish a common mission. UH. My experiences that you know, whether you're whether you're black, or whether you're brown, or whether you're a woman. Uh, that you should have the opportunity to serve this country. That was former Secretary of

Defense Leon Poeta. Coming up, We wrap up the week with our special contributor Larry Summers. This is Wall Street Read on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. We wrap up our week with Harvard's Larry Summers, who, of course was Second of the Treasury and our is our very own special contributor here on Wall Street Week. So, Larry, this has been

a tumultuous week. I think it's very to say. Every day we've seen the video of demonstrations and yes riots and yes looting across the country in response that tragic instance in Minneapolis. At the same time, the equity mark has just kept climbing higher and higher and higher. Why don't the markets pay any attention to the evening news? Look, it's as extraordinary a week as I've ever uh seen.

Someone said that we're living through the pandemic, the nine economic collapse, the nineteen sixty eight civil unrest across America, and the Andrew Jackson presidency all at once. I haven't

seen anything, lie kid. And before we talk about markets, I think we have to acknowledge that the racial injustice that has been pointed up uh by the dramatic events now almost two weeks uh old, is something that our country has been wrestling with for a long time and is going to be wrestling with for a very long uh time, uh to come. What happened on the streets of Minneapolis just can't keep happening, and there's just been

a huge outpouring of anger and upset. And the critical question for our democracy is going to be whether all of that anguish and anger is channeled to instructively UH into positive change or doesn't bring about that kind of progress, in which case the cleavages in our society are only going UH to get worse. The market really doesn't seem like a very big thing relative to all of that. The market's job is to make a judgment about the profits that companies UH will learn, and in approximate sense

is cosmically important. As these events are, they probably don't change UM what those earnings are going to be over some interval. But I would caution that over long time periods this kind of thing makes a very big difference.

If you think back, the country almost unraveled in UH the late nineteen sixties behind the because of cleavage is associated with the Vietnam War, because of strife over issues of racial justice, and not immediately you know, if you look at what happened to the level of stock prices relative to other prices, the real sn p UH five hundred, it had its worst long decade UM in the last

six or seven decades. In the decade that followed what happened in nineteen sixty eight, you saw a huge drop into seventy four or five with the Walster Watergate episode, the oil shocks, all that, and then you saw further, very steep UH decline UH into UH two. And so how America deals with all this is going to be profoundly important, I believe for America's health, and I don't think America's corporations can be healthy if America is not

UM healthy. And I think enlightened business leaders have recognized that. You've seen many many CEOs UH making that point UH this week. UH. So the markets are optimistic, and I hope the markets are right in their optimism about COVID. I hope the markets are right in their optimism about the society UH coming together. UM. I'm not sure they are UH right. It seems to me there's a lot of optimism right now, and I worry that people who were very nervous two months ago are fearful of missing out.

And it's that kind into fomo that may be driving a fair amount of uh this UH market strength. You know, if you think about almost all financial error, David. It comes from people doing today what they wish they had done yesterday. And everybody who was too scared to buy at the end of March regrets it. And there are a lot of people who think they're rectifying that error by buying now, and maybe they'll turn out to be right. But I'm not sure that's something, uh that we can

entirely uh count on. I think we've got a long way to go with respect COVID, and an even longer way to go with respect to having a unified and in a profound sense, uh functional society living to its potential. So, Larry, if we want to talk about people being right and wrong, to take a look at the people who were estimating the jobs numbers this week. They were wildly wrong by ten million jobs, and they thought they were gonna lose

seven point five million in the United States. We actually gained two point five Man, what do you make of that? How could that have happened? What does that tell us about where we're headed? Look, it should give us, all of us who were involved in economic forecasting, a very great sense of uh humility, And obviously it's a welcome development for ten million American families and for America more generally. But I think it would be a mistake two over interpret.

We knew that the whole country was locked down in mid April, late April, or even early May in a way that was not going to be sustained, and so we knew that there was going to be a bounce back. We knew that um businesses that employ millions of people had received grants basically, but in order for those grants to be grants without an obligation to pay back, they

had to rehire a large number of employees. So when I thought about these numbers, as I did through the day, I asked myself how much of this changed my view about where the economy would be at the end of the year, and how much of this what represented an earlier bounced back from the floor then most people had expected. And I think it's more earlier bounds than it is

stronger and bigger bounce. So it's certainly good news. But when the President starts talking about how it's gonna be faster than a v and the economy is going to be a rocket ship and all of that, maybe no one. No one can know h for sure, but the fundamental constraints on the economy. Uh, some sectors aren't going to be able to come back as long as COVID is pervasive.

There's a risk of a second wave of COVID. There's substantial financial overexposure and leverage, and especially in the real estate sector where tenants aren't paying and landlords aren't positions to pay mortgages, and that's putting strain on the financial system. Those problems aren't resolved, and they're not really closer to being resolved because we've got a good employment report. So yes, faster bounce, but I'm not sure the ultimate uh place

we get is going to be very different. Finally, Larry, we need to spend one minute here at the end to connect those two points out. Which is the striking thing to me of these numbers was the unemployment for black Americans did actually went up as it went down for both whites and Hispanics. What causes that? It's the old adage, David, I suspect, uh, last hired, first fired, and in this case it's first fired, last hired, And

that's what we're and uh, that's what we're seeing. I don't know whether we can reach a firm interpretation on the basis of one month's numbers. But God knows, UM, it's not right, um that African Americans are doing as much delivering as they're doing and as little being delivered too as is taking place. And that's got something to do with uh, the patterns uh that we are that we are, that we are seeing, and we're gonna need

to do something about that. And we're gonna need to address uh, these questions of inclusion if we're going to have a kind of economy that we all want. Yeah, and all the weeks for that to happen, this was not the one to have it happen. But so true, Larry, they are larger issues here that we're gonna have to come back and address again and again. Many thanks to our special contresor Larry Summers Harbored, former Secretary of the Treasury.

This has been another edition of Wall Street Week. See you next week.