What Went Wrong in Great Financial Crisis Stimulus with Reporter Jon Hilsenrath

Barry speaks with Jon Hilsenrath, founder of Serpa Pinto Advisory. They discuss Jon's career at the Wall Street Journal as a reporter, earning him the title of "Fed Whisperer," and the response to the Great Financial Crisis. They also discussed his belief the US is undergoing the post-industrial economic revolution. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 2:44Speaker 01

  This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

• 2:51Barry Ritholtz?

  This week on the podcast, another extra special guest, John Hilsenrath was reporter for the Wall Street Journal, covering everything from September 11th to the Federal Reserve for 26 years. His coverage at the Journal of the Fed got him nicknamed the Fed Whisperer for his many, many Page One scoops. He's now running Serpa Pinto Advisory, multiple Pulitzer Prize nomination, author of a book about Janet Yellen. Just a whirlwind of information about the economy, markets and the Fed. I thought the conversation was absolutely fascinating, and I think you will also,

• 3:34Barry Ritholtz?

  with no further ado, my conversation with the Wall Street Journal's John Hilsenrath.

• 3:40Speaker 04

  It is my extra special honor to be here.

• 3:43Barry Ritholtz?

  Does it feel like you're in the enemy's territory, competitive?

• 3:47Speaker 04

  No, I've crossed over. I've crossed over.

• 3:49Barry Ritholtz?

  You're now on the private side, right?

• 3:50Speaker 04

  Yeah, yeah, yeah, yeah. So.

• 3:53Barry Ritholtz?

  I want to talk.

• 3:53Speaker 04

  And I should say on the Wall Street Journal Page One stories, it was, I'm a former editor, too. I had that many. I don't have that many anymore because I left the Journal.

• 4:04Barry Ritholtz?

  Well, but those headlines.

• 4:06Speaker 04

  Isn't growing anymore.

• 4:07Barry Ritholtz?

  Right, but it's it but it's not going down either. That number is a permanent record.

• 4:11Speaker 04

  Yeah, I appreciate that.

• 4:12Barry Ritholtz?

  So you you you have that many um, you know, that many poll positions and you're you're good to go.

• 4:18Speaker 04

  And there were that many battles with editors at the Wall Street Journal over how to structure that story and what headline to put on it.

• 4:25Barry Ritholtz?

  That's a whole nother conversation we're going to get to.

• 4:28Speaker 04

  Yeah.

• 4:28Barry Ritholtz?

  I I am constantly reminding people, hey, you know, the writer, they don't get to pick the headline, that's the editor. And people seem shocked by that.

• 4:37Speaker 04

  Yeah, it's a process. Let's just let's just say that. It's definitely a process.

• 4:41Barry Ritholtz?

  Before we get to your writing and editing, let's talk a little bit about your background. Duke University undergrad, eventually an MBA from Columbia. What was the career plan?

• 4:54Speaker 04

  The career plan for me was always journalism. I I actually, like you, I'm a Long Island boy. Uh, are you from Long Island or?

• 5:01Barry Ritholtz?

  Uh, from sixth grade on, from Plainview.

• 5:03Speaker 04

  Sixth grade on, okay. I grew I grew up there.

• 5:05Barry Ritholtz?

  Where, what town?

• 5:05Speaker 04

  Manhasset, Long Island.

• 5:06Barry Ritholtz?

  Oh, I'm in Locust Valley, that's, we could play Jewish geography, that's twenty, fifteen, twenty minutes from me.

• 5:12Speaker 04

  Although Manhasset was a Catholic town, but I like the career plan for me was always journalism. I started writing for the Manhasset Press when I was sixteen years old. I was I started out as a sports writer. The original plan was sports writer.

• 5:25Barry Ritholtz?

  Ah.

• 5:26Speaker 04

  And then the the next plan was war correspondent. And then somehow I ended up becoming an economics writer, but I stuck to the plan of journalism.

• 5:35Barry Ritholtz?

  So if journalism was always the plan, why an MBA? Why not a journalism degree?

• 5:40Speaker 04

  Well, so I about, excuse me, about five years into my journalism career, I went back and did a fellow, when I decided I want to do economics and finance, I went back and did a fellowship at Columbia, it was called a Knight Badgett Fellowship.

• 5:54Barry Ritholtz?

  Yep.

• 5:54Speaker 04

  Great program. And what they did is they took a few working journalists and they put them through the business school for a year.

• 6:00Barry Ritholtz?

  That's interesting.

• 6:01Speaker 04

  And then after a year of that, I decided to do a few extra courses and and get the MBA. But I was really there for the fellowship to kind of to basically, what I wanted to do was learn how a balance sheet worked, you know, learn how corporate finance worked. I had spent a bunch of years covering like macro, but I didn't understand anything about what made Wall Street go. So that was why I went back there.

• 6:23Barry Ritholtz?

  So what was it that drew you to journalism?

• 6:25Speaker 04

  Oh, wow. Uh, I just, you know, so. I hated English class in high school. I don't know how you felt. But, but, you know, these four, and they're still teaching it the same way, by the way. These four paragraph essays of, you know, introduction, supporting paragraph one, supporting paragraph.

• 6:43Barry Ritholtz?

  That was never a problem. It's always subject predicate. What's an adverb? Why do I need to know what an adverb is?

• 6:48Speaker 04

  And then it's like, why am I, you know, why am I learning to do literary reviews of To Kill a Mockingbird? Anyway, I never thought I would have anything to do with writing. But then I got involved in covering the local sports teams and I was like, this is really interesting. This is fun. I'm like right in the middle of the action. And like right on the sideline and people are paying attention and they care about it. And it just felt, it was just, I had, I had, I had fun and I've come to see over my career that like the great thing about journalism, like here we are in the Bloomberg newsroom. It's like you're always surfing right on the edge of history.

• 7:25Barry Ritholtz?

  Right.

• 7:25Speaker 04

  And so that's really what ended up drawing it to me. I mean, there's the reporting aspect and the writing aspect, but just the, the idea of being like right in the middle of things as they're happening and trying to make sense of them and explain them was an addiction that I didn't get over for a long time.

• 7:42Barry Ritholtz?

  And, and right out of Columbia, straight to the Wall Street Journal, was that your first gig?

• 7:46Speaker 04

  Well, so I, I started out as, at a news wire service in, in the early 1990s. Here we are back in Bloomberg. It was called Knight Ritter Financial News.

• 7:55Barry Ritholtz?

  Oh, sure.

• 7:56Speaker 04

  Yeah. And

• 7:58Barry Ritholtz?

  Any relationship to the Knight, big, hot?

• 8:00Speaker 04

  No, there was no, there was no relationship, except for the fact that the Knight family was really rich and could fund something. But Bloomberg was like up and coming at the time and people weren't taking it as seriously as they should have. But I did that a few years, moved to Hong Kong with a newlywed on, in exchange, with my newlywed on the, on an exchange program with Columbia and then I signed up with the journal over there.

• 8:25Barry Ritholtz?

  How long were you in Hong Kong for?

• 8:27Speaker 04

  Five years, about five years. Yeah.

• 8:28Barry Ritholtz?

  And this was, this was when the UK was running the city and before China?

• 8:33Speaker 04

  I was there right for the handover. So, you know, so it's, I mean, this is another great thing about journalism. Wherever I went, it seemed like stuff started blowing up.

• 8:42Barry Ritholtz?

  Right.

• 8:42Speaker 04

  I started with the Wall Street Journal in Hong Kong in July of nineteen ninety seven. That was the week that the UK handed the city over to China. And it was also the week that the Thai baht devalued and started the Asian financial crisis. So I got in there and I was like flying from day one on these stories. It turned out that the Asian financial crisis, particularly in, given what I was doing, was a much bigger event than the handover. The handover was, had much, had long-term implications, obviously. But yeah, so I was there for all of it.

• 9:16Barry Ritholtz?

  So how long after the handover did you start seeing the heavier hand of China in day to day life in Hong Kong?

• 9:23Speaker 04

  You know, I think it's been a very slow and corrosive process. And frankly, when I was there from ninety six through two thousand, it was really the economic events that were driving the city at the time. So the first one was the Asian financial crisis and the property crisis that swept through Asia. One of my formative experiences as a journalist was covering an investment bank called Peregrine Investments that blew up. And I learned some really important lessons that came back to help me in two thousand eight about how banks explode and were implode.

• 9:58Barry Ritholtz?

  So when you came back to tell you it was Peregrine.

• 10:01Speaker 04

  Yeah, so one of the formative experiences of my career in Hong Kong was covering the collapse of an investment bank called Peregrine Investments. And, you know, I saw, you know, why banks collapse and what causes these kinds of runs. It came in really handy ten years later when Bear Stearns and Lehman Brothers were blowing up. And I had insights that kind of got me ahead of those stories in ways that surprised some people at the journal. I would, you know, when, I don't know if you remember when those Bear Stearns hedge funds blew up.

• 10:32Barry Ritholtz?

  Oh, I remember.

• 10:32Speaker 04

  I told my, I told my colleague Kate Kelly, who was all over that story. I said, they're going to blow up this weekend. We need to have a two thousand word story ready to go Saturday. She's like, you're overreacting. I was like, watch, because I saw what happens when creditors of banks get nervous. And I learned all that in Asia. The other big event in Asia in the late 1990s was, of course, the handover. But for people in Hong Kong, it's a very entrepreneurial city. They were thinking, well, how do we get money? How do we make money off of this? You know, how do we tire? You know, the Chinese economy had been booming. It was a growth story. And so people were looking for ways to advance themselves economically.

• 11:12Speaker 04

  I think what we've seen happen to Hong Kong since, and this is perhaps a lesson, is that, you know, these attacks on democracy have been, and free speech and all that have been slow and corrosive. And it's a different city today than it was 25 years ago. But after the handover, it was just people trying to make better lives for themselves.

• 11:36Barry Ritholtz?

  Right, really fascinating. How do you get from Hong Kong to DC?

• 11:41Speaker 04

  To DC? Well, there was a stop in the middle in New York. So I was in Hong Kong for five years, moved back to the US in early 2001, right in time for the tech bubble to burst and, of course, 9/11. Again, wherever I went, it seemed like terrible things were going on.

• 12:01Barry Ritholtz?

  You seem to be an unlucky charm.

• 12:03Speaker 04

  And I used to joke that, like, Wall Street should just pass its hat around to retire me. Because, you know, then I'd just get out of everybody's bad news. But, yeah, I came back, I was in the New York office for seven years, writing about economics. I was our markets editor during the credit bubble and the credit bust and learned a lot in that experience about the interactions of economics and finance.

• 12:29Barry Ritholtz?

  Where was your office in 2001?

• 12:31Speaker 04

  Our office was across the street from...

• 12:33Barry Ritholtz?

  Right, not the Fox, Wall Street Journal office on Sixth Avenue.

• 12:38Speaker 04

  No, we moved up there after Murdoch took over the business.

• 12:40Barry Ritholtz?

  That's right. This was, you guys were right in the middle of it.

• 12:43Speaker 04

  We were, yeah, so what, so we were across the street in the World Financial Center, the southernmost tower, I guess that was World Financial Center 3. So I would walk across the West Side Highway on this land bridge every day.

• 12:54Barry Ritholtz?

  Right, next to the Palm Court, if I recall correctly, that big glass enclosure.

• 12:59Speaker 04

  Yeah, right, yeah, yeah, yeah. We were across the street from that, too. Anyway, I happened to be in early that morning trying to finish a story and I was heading over to the World Trade Center for NABE conference. And...

• 13:16Speaker 04

  You know, Journal reporters tended to get in a little bit after nine because we tended to have late deadlines. I was in early, was there for the first plane to hit, and then I ran out into the street with a notebook. Second plane flew right over my head.

• 13:30Barry Ritholtz?

  Wow. And were you interviewing people? What like, what did you do that day?

• 13:34Speaker 04

  So, uh, well, so I'll tell you exactly what I did. The first thing I did when I saw the Inferno, uh, from the first plane is I ran downstairs to, I was where the reporters were stationed. I knew the top editors were down a floor, so I ran down there to see who was here and who was organizing things. I ran to Paul Steiger.

• 13:55Barry Ritholtz?

  Oh, I recall the name.

• 13:56Speaker 04

  The managing editor of the paper. I said, hey, I'm here, I'm here early, you know, I'm on it. What do you want me to do? And his advice was, go figure out what happened and don't get yourself killed.

• 14:07Barry Ritholtz?

  Right.

• 14:08Speaker 04

  So, like, he immediately understood that something serious was at hand. So I grabbed a notebook and, uh, ran over that pedestrian bridge, saw a lot of carnage in the street and started kind of writing. Well, the next thing I did was call my wife to let her know that there was a fire and I was okay, because I figured it was going to be on the news within a matter of minutes and she knew where I was. So I called her to let her know I was okay, and then a few minutes later, as I'm in the street, the cops are trying to clear me out. They're saying, you can't be here, this is a dangerous place. So they're trying to move me out of the street. I walk, and then as I'm walking, kind of to, um, follow the police's orders, the second plane flies right over my head.

• 14:52Speaker 04

  And, you know, I stuck around and, uh, interviewed witnesses and bystanders, and it was a pretty harrowing day.

• 15:00Barry Ritholtz?

  Yeah, to say, to say the very least. Let's bring it back to something a little less harrowing or, or, um, more traditional. Um, you have a really unusual career trajectory at the Wall Street Journal. You start, you know, fairly green, and eventually you're running what's probably the hottest desk in economics, which is covering the Fed, showing up at meetings, interviewing Fed governors, Fed presidents, and the chair of the FOMC. What was that process like to get there?

• 15:32Speaker 04

  Yeah, well, um, you know, like, my, my goal at the Journal was always, I, well, I just wanted to write good stories, right? And the journal back when I started at the place was, ironically, you think of it as a finance, economics, markets kind of paper. And that's how I, you know, I grew up reading the New York Times and watching my dad read the Wall Street Journal. And I, like, that stuff just didn't interest me. But what I discovered over time was that the, you had to be able to write long feature stories to succeed. Page one stories, we called them leaders. So, like, that's what I was focused on doing.

• 16:12Speaker 04

  What, what happened was by 2008, I had, I had learned a lot, basically, in part from my experiences in, in Asia, you know, where I covered these banks collapsing and I saw a financial crisis. And I kind of felt like I had a roadmap for how it worked. And then, obviously, in 2008, I mean, the US markets were imploding. It was very complicated. It was credit, it was credit-driven. Our star Fed reporter left the paper that summer to go to The Economist magazine, Greg Ip. He was a legend.

• 16:46Barry Ritholtz?

  Yup.

• 16:47Speaker 04

  And the, um, the, the guy that, that, that, that my future boss really wanted for the paper had just moved to London, a guy named Mark Whitehouse, who's a Bloomberg opinion.

• 16:58Barry Ritholtz?

  Yup, I know that name, for sure.

• 16:59Speaker 04

  Brilliant, brilliant guy. And he was, I think, seen as the heir apparent, but he had just moved to London, so they had no one else. And, uh, like, I had learned a lot about markets, I'd been writing about economics. I was just well-placed. So, they asked me to go, to move down to Washington in the summer of 2008 to cover the Fed. And my first week on the job, Lehman Brothers blew up. So, I, I'm, I'm on the phone that weekend with the top leadership of the Fed, trying to understand, you know, and Tim Geithner is talking to me about foam on the runway after, like, these, a day of intense, uh, meetings collapsed. You know, some of these officials wanted to talk to reporters to kind of keep us informed

• 17:42Speaker 04

  because the next day was going to be a big deal, and they just kind of wanted to have their story out there. So, I was talking to top people six days into the job.

• 17:52Barry Ritholtz?

  You're, you're the perfect person to ask this question that I have never gotten a good answer to. Which was, why was it that AIG was saved and Lehman was not? I have my own theory.

• 18:06Speaker 04

  Yeah.

• 18:06Barry Ritholtz?

  But I haven't spoken to very many Fed officials in real time.

• 18:11Speaker 04

  I, I think it was sequential, uh, I mean remarkably, right? So, I mean, what they were telling me Sunday night was that they hoped that they had enough of these facilities, rescue facilities in place. You know, boy, I can't even remember all the acronyms and, and anymore. But, you know, the, the liquidity that they were pumping into the other investment banks. And they hoped that they had enough of these facilities in place in order to keep the system stable the next day. You know, people forget, the Fed had a policy meeting on Tuesday. They didn't cut interest rates two days later. Like Bernanke had a view that he thought that he had the situation under control.

• 18:51Speaker 04

  And they, they realized, you know, before AIG on Tuesday, on Monday, there was the, uh, the, the money market mutual funds that broke the buck.

• 19:00Barry Ritholtz?

  That's right.

• 19:01Speaker 04

  And then all hell broke loose. And they realized that if they didn't do something, that things were going to get much worse. So I, so it was, the markets weren't a panic and I think the policymakers panicked. And at that point, they, they just were doing whatever they could to put out fires wherever they could.

• 19:14Barry Ritholtz?

  I have two pet theories on Lehman and I want to run them by you.

• 19:18Speaker 04

  Okay.

• 19:19Barry Ritholtz?

  One is, they looked at the balance sheets, the whole repo 105 and moving money off. Someone looked at the balance sheets and said, hey, you could rescue these guys, but they're insolvent. And not just a little insolvent.

• 19:31Speaker 04

  Yeah.

• 19:31Barry Ritholtz?

  They're tens of billions of dollars insolvent.

• 19:34Speaker 04

  Yeah.

• 19:34Barry Ritholtz?

  So that was the Lehman brother issue. Bear Stearns, it's like, they weren't insolvent. They just had, uh, too much money tied up in illiquid assets. It was a liquidity issue, not a solvency issue.

• 19:45Speaker 04

  Yeah. And the, the, the rules that the Fed was trying to abide by at the very edge of its authority was that they had to lend against good collateral.

• 19:54Barry Ritholtz?

  Right.

• 19:54Speaker 04

  And if it was bad collateral, they couldn't do it. And then the other problem that weekend was that they, they were starting to worry about who was going to be the next one to fail.

• 20:03Barry Ritholtz?

  With AIG, you had a lot of cascades.

• 20:05Speaker 04

  You know, if, if they bailed out Lehman, then And the market's target was gonna point to Merrill Lynch, right?

• 20:11Barry Ritholtz?

  Right.

• 20:12Speaker 04

  So they were just happy to get Merrill Lynch bought that weekend, right?

• 20:14Barry Ritholtz?

  Right, that's right.

• 20:15Speaker 04

  So the thing was-

• 20:16Barry Ritholtz?

  John Thane, that was a great last-minute deal he pulled off and it worked out well for everybody.

• 20:20Speaker 04

  Yeah, and they survived, so, uh, you know, it was coming at them fast and furious. And, I mean, what's kind of remarkable is that they had all summer to prepare for it, and it still blew up in everybody's face.

• 20:32Barry Ritholtz?

  The other thing that I would have loved to be a fly on the wall for was, at one point in time, Warren Buffett reached out to Dick Fuld at Lehman Brothers. And we don't really know the details, but it kinda looks like Buffett made an offer to Lehman and he kinda, to Fuld, and he kinda turned up his nose at a low-ball offer.

• 20:53Speaker 04

  Yeah.

• 20:54Barry Ritholtz?

  Eventually Buffett makes a similar offer to Goldman Sachs, and Goldman was smart enough to take it.

• 20:59Speaker 04

  Yeah.

• 20:59Barry Ritholtz?

  So you can imagine how Bernanke was thinking, "Wait, they turned down Buffett? Why do we have to get him?"

• 21:05Speaker 04

  Well, I mean, I think a lot matters in kind of when and at what price, right?

• 21:08Barry Ritholtz?

  Right.

• 21:08Speaker 04

  So I know that they were working very hard all summer to raise capital, and a number of deals, including with Korean investors, failed to develop, so...

• 21:18Barry Ritholtz?

  So we mentioned 319 Page 1 bylines. What stands out as some of your favorite pieces?

• 21:27Speaker 04

  Well, uh, I am most attached to those longer magazine feature stories. Uh, one of my favorites was a piece I wrote in 2005, the spring of 2005. I actually had just been beaten badly by the New York Times on another story and was a little frustrated and disappointed with myself that I had gotten beaten.

• 21:49Barry Ritholtz?

  What was the topic that you were beaten on?

• 21:51Speaker 04

  Oh, that's, I mean, that's a long story. It was about an academic economist with an unusual background that it's too complicated to get into. I mean, if you want to, we can get into it, but- It's a

• 22:04Barry Ritholtz?

  All right, I'll take your word.

• 22:05Speaker 04

  It's a long story. But anyway, I worked on a story with a colleague in Thailand about how there was a global housing boom going on that was being funded by a global credit boom, an increasingly complex credit, not just through banks, but through more sophisticated vehicles and sophisticated investor groups. And I quoted Robert Schiller in it, this is in June, maybe of 2005, saying this was going to end in a global recession. So, and it connected the dots on something that was building and it took a couple more years for it to really develop. I did another story, and the stories I love were the ones that were kind of looking around

• 22:49Speaker 04

  corners, but I did a piece, I think it was maybe 2003, 2004, looking at US-China trade. I had figured out, an economist had told me, you know, everyone's talking about all these imports coming from China and how damaging it is for the US. You should look at what the US is exporting to China. Our exports to China are booming, and you should do a story about that.

• 23:14Barry Ritholtz?

  Agriculture, right?

• 23:15Speaker 04

  So, I looked at what was booming and it turned out that our number three export in value and our number one export in volume was trash. We were the Saudi Arabia

• 23:27Barry Ritholtz?

  For what purpose?

• 23:28Speaker 04

  Well, we were sending them recycled paper, we were sending them recycled plastic, we were sending them recycled metal, and they were turning that into the boxes and containers and packaging that all the toys and books and microwave ovens came back in. And I kind of pieced this together and actually used a little boy's piece of trash to tell the story. I found, I went to a recycling facility in New Jersey. Uh, where the, I still remember their name, the Zazzaro Brothers.

• 24:02Barry Ritholtz?

  Uh huh.

• 24:02Speaker 04

  In New Jersey, right near the, um, shipping containers. They had a container of recycled paper that was going off to China. They'll let me pick through it, find a little boy's homework assignment. That I made a photocopy of, I put the homework assignment back in the container where it belonged. And I tracked the kid down. And then I was able to track this one boy's, uh, homework assignment. Uh, from the Zazzaro Brothers backwards and then all the way to a paper, uh, um, uh, paper, a newsprint facility in China. And I kind of used this boy's homework assignment to tell how global trade was, was, was changing the face of the economy.

• 24:41Barry Ritholtz?

  Coming up, we continue our conversation with John Hilsenrath, former chief economics correspondent for the Wall Street Journal. Today he runs Serpa Pinto Advisory, discussing his Wall Street Journal experience and Serpa Pinto. I'm Barry Ritholtz, you're listening to Masters in Business on Bloomberg Radio.

• 25:14Speaker 00

  At Brookfield, we invest in the thing behind the thing behind the next big thing. Our focus across infrastructure, energy, real estate, private equity and credit is helping to build the backbone of the global economy. We combine deep operational expertise with disciplined long-term investing, uncovering value and partnering alongside clients to shape tomorrow's economy today. Learn how you can own what's next at Brookfield.com slash own. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital.

• 25:48Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to. SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs. And hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 26:32Speaker 01

  But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 27:15Barry Ritholtz?

  I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is John Hilsonrath. He is the former chief economics correspondent for The Wall Street Journal, where he was dubbed "the Fed Whisperer" for all his many scoops on the Fed. So let's talk about that.

• 27:34Barry Ritholtz?

  You were thought of as "the Fed Whisperer." What does that mean? How do you get that nickname?

• 27:39Speaker 04

  Well, it's funny you ask. It actually used to really bother me when people said that because I thought, you know, my feeling when I was covering the Fed is it kind of trivializes what we're trying to do here. And the hard reporting that went into getting stories out of the institution and, you know, following the journalistic mission. So maybe I was a little righteous about being called "the Fed Whisperer" back then. You know, Wall Street loves to attach these kind of two-word names to everything. So when I was covering the Fed, it was like the taper tantrum.

• 28:15Barry Ritholtz?

  Right.

• 28:15Speaker 04

  And QE infinity.

• 28:17Barry Ritholtz?

  This year, we had the tariff tantrum.

• 28:18Speaker 04

  And the Fed pivot. And, you know, so for me, it was "the Fed Whisperer." But, you know, since I left journalism and started my own business, now I'll use whatever I can to my advantage. So now I'm like, "Yeah, you can call me 'the Fed Whisperer.' I'll take that." But back in the day when people said it, I was like, "Ah."

• 28:35Barry Ritholtz?

  I don't think Fed Whisperer is as trivial as something like, do you remember the Greenspan briefcase indicator? How thick or thin it was, just a dumb thing. I don't remember if CNBC started it, somebody started it. And it was just one of those dumb, like, really? Are we really doing this? But you were the one that was getting all the Fed scoops, that when they wanted to publicize something, they had a variety of outlets that they would reach out to. So 10 outlets would all get the same story, but one outlet would have a much more in-depth, personal.

• 29:09Speaker 04

  Here's where we gotta demystify some.

• 29:12Barry Ritholtz?

  Okay, so let's hear.

• 29:13Speaker 04

  Yeah, I mean, we could talk for a long time about that, but I wouldn't say that that was exactly the way it worked. So, you know, and this is kinda why I had, you know, was a little uppity about the Fed Whisperer thing, is it wasn't like there was some bat phone sitting at my desk, and like the phone rang and it was like, oh, yes, Chairman Bernanke, what would you like me to say today? There was, you know, and my successor, Nick Timros, is great at this. There was a lot of reporting that went into.

• 29:42Barry Ritholtz?

  Lot of work, lot of.

• 29:44Speaker 04

  It wasn't like a spoon-feeding kind of process. It was a very, it was, process is a key word, and it was dynamic and complex. So, I mean, we could, we could talk in some more detail about that, but it wasn't, it wasn't the kinda thing that, well, first of all, they only started doing press conferences sometime after, I guess it was around, was 2012?

• 30:11Barry Ritholtz?

  It was post 09, right.

• 30:12Speaker 04

  Four years, four years into the beat, maybe it was 2010, I can't even remember anymore. But what went into the process of writing a Fed story was like, you had to do a lot of reporting, a lot of triangulation, you had to figure out where the debate was going inside the room, and put enough pieces of the puzzle together in order to say, this is what they're likely to do. And it was also very important, you know, people used to say, oh, how could his, how could his stories always be right? He's clearly being spoon-fed stuff. Well, there's, like, there's a reason for that. Because I didn't report stuff I didn't know. So, you know, you had to do a lot of reporting to get to a point where you could say, all right, this is where they are and what they're going.

• 30:53Speaker 04

  And and where you could say, you know, this is what we know about the kind of state of the debate or how certain, you know, there were some meetings where they weren't sure what they were doing going into it. And I wasn't going to get over my skis on that stuff. So it was, you know, so there was reporting that went into that. There was understanding the institution. I became very good friends with the New York Giants beat reporter. I'm a big football fan, New York Giants beat reporter in those years. And we used to compare notes like I saw my job in some way similar to what she was doing. It like I needed to know what was going on in the locker room.

• 31:28Barry Ritholtz?

  Right.

• 31:28Speaker 04

  Right. And I needed to know kind of who the players were, what the game plans were, who the trainers were, like every angle of the of the locker room in order to get a whole picture. And in order to say with authority what I thought was happening and what was gonna go on next. So that, you know, by game day was an FOMC meeting. By then I had already done the hard reporting. It was just a matter of saying, all right, here's what happened on the field.

• 31:52Barry Ritholtz?

  Fed reporting as a sports analogy.

• 31:55Speaker 04

  Well, I started out as a sports writer, so yeah.

• 31:57Barry Ritholtz?

  It it makes perfect sense. So so let's talk a little bit about the Fed today versus when you were covering them. Now you're covering them as a researcher and an analyst. Then you were covering them as as a reporter. You wrote, "The era of consensus and comedy at the US central bank is ending."

• 32:18Speaker 04

  Yeah.

• 32:18Barry Ritholtz?

  Explain.

• 32:19Speaker 04

  Well, so, I mean, the Fed is a very consensus driven institution.

• 32:27Speaker 04

  When I was covering the Fed back in the financial crisis period, 2008, 2009, 2010, there was actually a lot of disagreement. At the time, the disagreement was internal and mostly in the regional Fed banks. So I actually spent a lot of time talking to these regional Fed Bank hawks to understand what their case was against programs like QE and interest rate cuts and things like that.

• 32:53Barry Ritholtz?

  Financial repression.

• 32:54Speaker 04

  And there were there were a lot of unknowns. For sure, there were a lot of unknowns. So and Bernanke and Yellen and then Powell spent a lot of time trying to building processes to build consensus around their decisions. What's happening now is, is it's the disagreement and division is politically driven. Right, we all know that, but what the president has a clear view of where he wants interest rates going. He wants all interest rates going down. It's, I'm afraid, a little more complicated than what he perhaps thinks he's going to get out of that, because he might cut short-term interest rates and get higher long-term interest rates.

• 33:35Barry Ritholtz?

  Which, which happened very recently, the last September cut.

• 33:38Speaker 04

  It happened with the Fed's cuts last year. And so, you know, he's putting on people in the institution who were, you know, he expects to be loyal to him. Stephen Mirren is the latest. So, we're, and there's a lot at stake. So, and there's turnover happening at the Fed right now. There's, we all know there's going to be a new chairman appointed by the president next year. There are tests of loyalty. The really big issue is if the president gets four people who are loyal, or even closely loyal to his views, he has an opportunity to remake the entire system. Because with a majority on the Fed board, there are seven board governors, with a majority of four on the Fed board, then the board can

• 34:20Speaker 04

  start firing and restructuring the regional banks that might oppose some of the policies that the president wants to pursue. So, there's a lot at stake right now on two levels. One with the succession of Jay Powell, and two with the construction of who the other governors are going to be on the Fed board, and how loyal they'll be to the president's vision of how monetary policy should be run in the United States.

• 34:44Barry Ritholtz?

  So, let's talk about that. You wrote a piece early in the summer of 2025, "The Fourth Seat," meaning, once the president gets a hold of that fourth seat, he is essentially running the supposedly independent Fed. Tell us a little bit about that, and we'll eventually talk about Lisa Cook.

• 35:04Speaker 04

  Yeah.

• 35:04Barry Ritholtz?

  And what this pretense firing. Really looks like an attempt to get an early grab at that fourth seat.

• 35:11Speaker 04

  Yeah, and I'm actually gonna go straight into Lisa Cook in a moment. But so, there's, the President appointed Chris Waller. He's a Fed Governor. He might get the Chairman's job. He appointed Michelle Bowman. These were in his first terms. And she was given a promotion to Vice Chair of Supervision. He's now appointed Stephen Mirren, who's made the President's case for much lower interest rates just last week. And so, he's in theory, one seat away from having four Governors and a majority on the Board, an opportunity to move the Fed in a whole new direction. And what's happened, it looked like that fourth Governor job might be Jay Powell's job next year when his chairmanship ends.

• 35:54Speaker 04

  But what happened is now, and this gets a little complicated, but

• 36:01Speaker 04

  the Chair of the FHFA is accusing the Federal Home Finance Administration, or Agency, is accusing Lisa Cook, another Fed Governor, of fraud in mortgage applications that she submitted to her banks in 2021. It's an unproven allegation, but they're trying to remove her for cause. The President has effectively announced that he's firing her for cause, and she's challenging that. It could be in the Supreme Court.

• 36:31Barry Ritholtz?

  Now, there's a whole concept of Fed independence.

• 36:35Speaker 04

  Right.

• 36:35Barry Ritholtz?

  And the Fed Board can fire someone from cause. There doesn't seem to be any precedent for the President firing, let's hold aside a fact, wink, wink, nudge, nudge, we all know that this mortgage thing is nonsense and it's just a pretense. Let's just hold that aside. We're talking about governmental power. Who has the power to hire and fire Fed Governors?

• 37:00Speaker 04

  Oh, the President has power, the power to fire a Fed Governor for cause.

• 37:05Barry Ritholtz?

  Right.

• 37:06Speaker 04

  Then we get to, it hasn't happened. No President has tried. But then you get to a question was of, well, how, A, how do you define cause? And B, what is the, what is? The process for defining cause and then going through the process of firing a Fed governor. This is all on charter ground and it's moving to the Supreme Court to make some decisions. Now, there are a whole other set of decisions the Supreme Court has made where it has found that the president can fire heads of other agencies at his discretion. And one of the questions is whether firing a Fed official for cause is held to a higher standard than, you know, firing a participant in the National Labor Relations Board.

• 37:48Barry Ritholtz?

  Right.

• 37:49Speaker 04

  And the Supreme Court, for reasons I can't say I fully understand, seems to be ready to draw a circle around the Fed, but there are big questions of how do you define cause and what's the process? And we don't know where they're going to go with it. They might kick it back to lower courts.

• 38:04Barry Ritholtz?

  It's not just tweeting, it's not just putting out something on social, on any social media order, you actually have to have a process?

• 38:11Speaker 04

  Well, I don't know. I mean, the Supreme Court might decide that the president can do it at his discretion on X.

• 38:19Barry Ritholtz?

  So if it's at discretion, then it...

• 38:21Speaker 04

  But Lisa Cook's argument is that, well, so there's a definition of for cause, and I don't have the specific language in front of me, but it has to be for discreet malfeasance or neglect on the job. And one of her defenses is that he isn't accusing me of doing anything wrong on the job. These were applications I submitted years ago. Or, but then there's some fuzzy language that, you know, or the like, or something to that effect. And so there's a question of whether there's enough gray area for the president to define what for cause means. On the first two things of, you know, malfeasance on the job or neglect on the job, they don't

• 39:05Speaker 04

  seem to hold up, but there's some gray area on the third piece of that. You know, and that's kind of legal precedent that's been said over many years.

• 39:13Barry Ritholtz?

  It's fascinating because the government, when they were defending the tariffs, kind of...

• 39:20Barry Ritholtz?

  Said, well, AIPA says emergency. They don't say anything about tariffs. What's an emergency in the government's position was whatever the president says it is.

• 39:29Speaker 04

  Yeah.

• 39:30Barry Ritholtz?

  All these words that theoretically have actual meaning. Once you start saying it's subjective at the president's discretion.

• 39:38Speaker 04

  Yeah.

• 39:38Barry Ritholtz?

  Fore cause, emergency, things like that go out the window.

• 39:41Speaker 04

  Right.

• 39:42Barry Ritholtz?

  It's going to be interesting to see if the Supreme Court contorts themselves to acquiesce to the president or follows what we think of as traditional legal theory.

• 39:53Speaker 04

  It's another big year.

• 39:55Barry Ritholtz?

  Yeah.

• 39:56Speaker 04

  For the Supreme Court, for sure. And, I mean, if you want to get really philosophical and pull the lens way back. I mean, I personally think we're living through revolutionary times.

• 40:06Barry Ritholtz?

  Agreed.

• 40:06Speaker 04

  Akin to the French Revolution, the American Revolution. And one of the things we know is that in revolutionary times, standards and norms get thrown into the air and redefined.

• 40:18Barry Ritholtz?

  Which came first? Did, did the throwing of the norms away lead to the revolution? Or was the revolutionary setup in place? And norms are just collateral damage?

• 40:33Speaker 04

  The revolution has been building for years.

• 40:35Barry Ritholtz?

  Mm-hmm.

• 40:35Speaker 04

  And I'll take this back to my Fed beat. It's a little off the subject. But when I was covering the Fed by 2013, 2014, I was regularly getting emails from really angry readers who saw the Fed as being at the center of America's problems. An example of an elite Wall Street institution hurting the little guy in favor of rich guys. An insider's game. And they saw me as a reporter at the Wall Street covering the institution.

• 41:08Barry Ritholtz?

  Carrying their water.

• 41:09Speaker 04

  As, yeah, as carrying their water. And I routinely got emails from people saying, there's a revolution coming. And like, they told me, like, as a warning. They said, there's a revolution coming. And when we come, you're going to be one of the people we string up on, on. Uh, you know, on pitchforks.

• 41:28Barry Ritholtz?

  That's Steel Day.

• 41:29Speaker 04

  On pitchforks, they were, they used imagery of the French Revolution. I was seeing this back in 2014. It actually led me to write a series, a collection of stories with actually the most prolific, uh, Wall Street Journal Page One reporter of all time, a guy named Bob Davis, about the economic roots of what, what we call the economic roots of political discontent. By 2016, by 2015, like, I was getting death threats and we saw that there was like something going on in the country that was kind of deeper than your normally agitated reporter. And so we went out and wrote a bunch of stories, uh, called The Great Unraveling in 2016.

• 42:07Barry Ritholtz?

  I recall that, I recall that.

• 42:08Speaker 04

  That, it was, it was all about how kind of trade had gone the wrong way for many Americans, how finance had gone the wrong way for many Americans, and technology, and that people were angry, and they were angry at the elites. And, and so, so to answer your question, the revolution started a long time ago, and I think we're, we're pretty well into it. And, you know, I think a lot of this revolution has been, um, you know, we had, we have digital guillotines now, right? Where, like, we'll, we'll, we'll, we'll, we'll cut off your, your head by your reputation. Uh, but sadly, and, uh, disturbingly, it's now getting somewhat bloody.

• 42:48Barry Ritholtz?

  Yeah, no, to say the very least. You know, it's kind of fascinating, when I was writing Bailout Nation, one of the things that kept coming up, when you look at the history of, um, who is Treasury Secretary, they seem to be pulled, pulled from two different groups. They were either pulled from Wall Street and Banking, or they were pulled from manufacturing and industry. And throughout history, if you had an industrialist as Treasury Secretary, when things hit the fan, well, a whole bunch of banks are gonna have to go under, sorry. Flip that, when you have, uh, someone from Wall Street, well, then we're gonna rescue the banks.

• 43:31Barry Ritholtz?

  And ironically, I, I don't, I don't disagree with anything you've said about... Uh, the history, I think some of the anger is misplaced. Um, cause it wasn't, the Fed basically stepped in when Congress threw their hands up and said, "We, we can't do anything."

• 43:48Speaker 04

  Well, it was a financial crisis.

• 43:49Barry Ritholtz?

  Right.

• 43:50Speaker 04

  And it is, it is the lender of last resort, so.

• 43:53Barry Ritholtz?

  Right. It's their role. They were supposed to do that.

• 43:56Speaker 04

  That's why they were created in 1913.

• 43:58Barry Ritholtz?

  That's right. What, what didn't happen during a normal financial crisis is fiscal stimulus along with monetary stimulus.

• 44:06Speaker 04

  Yeah.

• 44:06Barry Ritholtz?

  Monetary stimulus benefits the holders of capital. You own stocks, bonds, real estate, rates go down, you do great. When the government does a big fiscal stimulus, that tends to land on the middle class. "Hey, we're gonna build an interstate commerce system, an interstate highway system. We're gonna, you know, create weaponized Keynesianism and, and build up defense." That tended in the past to find its way

• 44:33Speaker 04

  Yeah.

• 44:33Barry Ritholtz?

  to the middle class. What happened in the 2010s were you had all that monetary stimulus, very little fiscal stimulus, at least until the pandemic.

• 44:43Speaker 04

  Yeah.

• 44:43Barry Ritholtz?

  And for a brief period of time, it looked like, uh, the middle class was bought off.

• 44:48Speaker 04

  Yeah. Well, there's, I mean, there's a lot of economics in history here. What, what I'll say is I, I agree with you. We got fiscal policy exactly 180 degrees wrong after the financial crisis.

• 45:00Barry Ritholtz?

  Yeah.

• 45:00Speaker 04

  In the sense that what we needed was, and there was some fiscal stimulus right after the fact, but it wasn't sustained. We went, you know, we, we went to fiscal austerity within a year or two. What we needed was short-term stimulus.

• 45:14Barry Ritholtz?

  Right.

• 45:14Speaker 04

  And long-term fiscal austerity in order to get the budget under control. And what they did was short-term austerity and nothing about the long-term.

• 45:26Barry Ritholtz?

  Right.

• 45:26Speaker 04

  And, uh, I'm still waiting, by the way, for the bond market to recognize this, and it doesn't seem to do that.

• 45:32Barry Ritholtz?

  It's kind of fascinating that the bond vigilantes, I keep hearing those names come up, and they don't really seem to exist anymore.

• 45:41Speaker 04

  They seem to flutter their eyes and wake up and then go back to sleep again.

• 45:44Barry Ritholtz?

  I have a pet theory that there's just a shortage of quality sovereign paper. And so even a damaged, high-debt United States is still going to make good on its debts, so there's still appetite.

• 45:57Speaker 04

  Right, and I think that helps to explain why spreads are so tight right now, because people will buy whatever paper they can get.

• 46:03Barry Ritholtz?

  Right, right, that's absolutely true.

• 46:05Speaker 04

  Hey, I know that you have a bunch more things you want to ask about the Fed. You were asking a few minutes ago about covering the Fed and being the Fed whisperer, and being spoon-fed, so to speak.

• 46:18Barry Ritholtz?

  Right, you did no shoe leather, no heavy research, no investigative journalism. They just handed you your stories written.

• 46:25Speaker 04

  And I pushed back and said, "There's a lot of reporting that went into those stories." I just wanted to say, I don't know if this was among the things you wanted to ask, but I just wanted to describe for a second what my mentality was about, like what my job was.

• 46:40Barry Ritholtz?

  Right.

• 46:41Speaker 04

  And I used to preach this to colleagues all the time. As a beat reporter, I felt like, this is really important to me. I had three responsibilities. One responsibility was to break stories, right? That was those Fed scoops. And it mattered, you know? If people were going to pay to subscribe to the Wall Street Journal, they want something different in there. The other responsibility I had was to explain a complicated world. There were a lot of complicated things going on when I was covering the Fed with QE and zero-interest rates, and I had to understand it and try to explain it to people. But then the third piece was holding powerful people and institutions accountable. And, you know, I think that from the outside, maybe people would look at this and say,

• 47:25Speaker 04

  "Oh, he's getting spoon-fed these scoops, and he's pulling his punches, he's not holding them accountable." But that third part was important to me, and, I mean, I'd be happy to talk about stuff that we did on that front, and, you know, what we did to try to hold the Fed accountable.

• 47:41Barry Ritholtz?

  Well, let's zoom in.

• 47:42Speaker 04

  And there's also this sense that those that those two things are in conflict, right? That, well, you know, if they're holding their feet to the fire, they're not going to, you know, they're not going to give you the next scoop. And my response is, first of all, they weren't spoon feeding me scoops. I had to work to get the information and put them in positions where they would tell me things. Uh, that didn't happen by accident. I had to leverage information how I could. But also, uh, you know, I had a responsibility to do the accountability stuff. And I couldn't let, you know, fear get in my way of doing that, that it was going to undermine. And, you know, there were times when I made them uncomfortable and I just had to do that.

• 48:18Barry Ritholtz?

  So, so let's, let's zoom out and, and take like a 10,000 foot view.

• 48:22Speaker 04

  Okay.

• 48:24Barry Ritholtz?

  A Fed chair has a story he wants to inform the market of. And, and that's always been my thought process. When the Fed is communicating, it's not about image or PR. They want the market to do some of their work for them. Or at least not shock or surprise the market.

• 48:41Speaker 04

  Yeah.

• 48:42Barry Ritholtz?

  They want, they want the market to understand what's coming and, and be prepared for it. So, so how would a Bernanke or a Yellen go about communicating, hey, you guys don't understand there are, uh, after you left in 2022, there was a bunch of increases coming, but let's stick with the 2010s.

• 49:04Speaker 04

  Yeah.

• 49:05Barry Ritholtz?

  Hey, rates are gonna, are low and they're going to stay low for the next.

• 49:09Speaker 04

  Right.

• 49:09Barry Ritholtz?

  Uh, for the foreseeable future. How does that get disseminated out to the public and then to the bond traders? So that, uh, the street knows what's coming up next.

• 49:20Speaker 04

  Right. Yeah. Okay. So there are a lot of pieces to this. The first one is, you're, you're right. There's, there, there are two really important imperatives from their perspective, especially in the 2010s. Because the short-term interest rate had gotten to zero, what they realized was, the only way they're going to like affect financial conditions in a way that helps the economy is if they convince the markets that they're going to keep interest rates really low for a long time. Then you get long-term rates down, uh, in, in addition. And so projecting a stance of dovishness for a long. Long time became part of the mission, right? And that was part of what they wanted to do to influence the economy and financial conditions. But then the other thing, as you said, is they don't want to freak the markets out

• 50:04Speaker 04

  because that causes in their mind unnecessary turbulence that can be really damaging. And they're still haunted to this day by 1994. When Greenspan raised rates, I think by three quarters of a point and the market started pricing in a succession of three quarter point increases. And then the next thing you know, Orange County, California blew up and Mexico blew up, right? So like they, they, they want their view of the world to be understood. And they do a lot of different things along those lines. They give speeches, uh, they've become more, you know, back in the early nineties, when I started on this beat, the Fed didn't tell anybody anything.

• 50:42Barry Ritholtz?

  Right, there wasn't, it's so funny, I've told people this. You get an announcement, we've raised rates. The only way you knew the Fed did something was from the open market activity in the bond market.

• 50:52Speaker 04

  Right.

• 50:52Barry Ritholtz?

  Oh, the Fed must have done something, what's going on?

• 50:55Speaker 04

  Yeah, right, yeah, that was, that was gonna say, like, they weren't putting out announcements in 1989 when they did something. You, you had Fed watchers, that's what the original term Fed watcher meant. You had people in the markets who looked at what were going on with money market rates and the Fed injected X billion dollars. And they're like, oh, they just pushed up interest rates. And then it took you three days to figure out if that was their intention or an accident. And then so over a course of 30 plus years, they've become more and more transparent, right? So they started, Greenspan started putting out statements. Oh, and by the way, you know, Alan Greenspan just delighted in how obscure he could be and what he said, because he wanted to confuse people. And they came to see over time that there was a benefit to just being clear.

• 51:39Speaker 04

  So they put out statements, uh, they, you know, they put out minutes, obviously. They started doing press conferences. Uh, is there interaction between Fed officials and reporters that doesn't show up? You know, like onto, yes, Fed officials talk to reporters on background in certain circumstances. And so like, yeah, we. We did talk to Fed officials, you know, not for attribution. But it was part of a very dynamic process. When I say, like, when I was writing stories about, for instance, QE2 stands out to me. Like, that was a, that was a situation where, like, they were moving towards making a decision about QE2 over several months. It took them like six to nine months to get there.

• 52:24Speaker 04

  And that was a case where I was putting pieces, very kind of,

• 52:30Speaker 04

  I was putting pieces of a puzzle together to be able to figure out how that, they didn't even know where they were going at the time. And so there was a lot of reporting that had to go into understanding what was going on behind the scenes and which words that they used matter mattered and how they, and how they use them.

• 52:48Barry Ritholtz?

  My, my recollection of QE2, and this is 10 plus years ago, was, um, I think it was before I even launched my own firm. We had, maybe it was a double line, uh, bond fund that was primarily mortgage backed. And it used to be 90% mortgage backed, and then it was 80%, then it was 70%. And what was going on is the Fed was just sucking up all of the mortgage backed bonds out there.

• 53:15Speaker 04

  Yeah.

• 53:16Barry Ritholtz?

  That the private sector had very little of it. Um, and eventually this went from a substantially mortgage backed fund to just another treasury fund. And that was QE2.

• 53:28Speaker 04

  Exactly what they wanted to happen.

• 53:31Barry Ritholtz?

  It's kind of crazy.

• 53:33Speaker 04

  Because it brought, it took down risk free rates.

• 53:35Barry Ritholtz?

  Right. They wanted you to embrace risk capital.

• 53:38Speaker 04

  So I don't know if you or others, other investors in your funds decided, all right, well, if we want to get a return, we got to move further out on the risk curve. That was exactly what they were trying, you just, you just explained QE2 in action, like,

• 53:52Barry Ritholtz?

  Right.

• 53:52Speaker 04

  The way they wanted to do it.

• 53:53Barry Ritholtz?

  And, and the ironic thing is, the first person who said that to me about risk capital was Jim Bianco, uh, summer of,

• 54:04Barry Ritholtz?

  Oh nine in a canoe, maybe it was ten in Maine.

• 54:09Speaker 04

  No, you're you're at the David Kotok fishing.

• 54:11Barry Ritholtz?

  That's right, and and he had said, the purpose of quantitative easing is to get people out of the safe, all of the risk aversion that people developed during the financial crisis flooding into money market and bonds. Hey, in order for the economy to work, we need this money to move up the risk curve.

• 54:29Speaker 04

  And by the way, the purpose, this is another thing is like, I was always amused by how like people on Wall Street reacted to stories because they very often thought the stories were for and about them. But the purpose wasn't to get, like, the end goal wasn't to get you guys to move out the risk curve. It was to ease financial conditions in a way that economic activity that was being put off for five years from now would take place now instead. Right? It was to get people to, it was to generate economic activity today that was being deferred because people were so underwater or uncertain.

• 55:05Barry Ritholtz?

  So it's funny you use the word underwater. I always assumed that the way to recover from a crisis is, the mistake wasn't letting Lehman Brothers collapse. The mistake was many more banks should have been allowed to collapse.

• 55:21Speaker 04

  Right.

• 55:22Barry Ritholtz?

  Tear the Band-Aid off, have the have the government provide debt and possession financing so all these companies, you know, the joke was, there's no such thing as toxic paper, only toxic prices. At the right price, these pools of bad mortgages had value.

• 55:38Speaker 04

  That's the age old debate in finance, right? Is, you know, if you bail them out, you're putting off all these hard decisions. Basically, I remember talking to Bill Dudley about this, but, you know, basically what you're doing is trying to smooth out the curve so that there isn't as much damage today. You're bringing forward some activity, but by by design, you're actually putting off some of the damage for the future. The alternative is you tear the Band-Aid off, you get to the right price. But the worry at the Fed at the moment was that they were replaying the Great Depression. And in the Great Depression, what happened was, the price didn't correct and readjust, the whole process of destruction.

• 56:22Speaker 04

  Fed on itself and it became its own self feeding equilibrium that took a decade to get out and so that's the choice they made was that they didn't they didn't want to go down this path where banks start collapsing, there's no credit, businesses start collapsing, people get laid off, people have no money to spend, more banks collapse, more, you know, so like they were trying to short circuit that kind of process.

• 56:45Barry Ritholtz?

  Although obviously we have the FDIC, we have all these other structures in place to prevent a replay.

• 56:51Speaker 04

  But that wasn't enough, Lehman Brothers was an FDIC insurer.

• 56:54Barry Ritholtz?

  Right, right.

• 56:55Speaker 04

  So here's my analogy.

• 56:56Barry Ritholtz?

  Bud, Citi, Chase, Wells Fargo, go through all the list, there were plenty of banks, Chase was fine, but Wells Fargo ran its trouble and.

• 57:05Speaker 04

  AIG?

• 57:06Barry Ritholtz?

  Yeah, well, but they're an insurer, not a bank.

• 57:08Speaker 04

  Right, but that's what I'm saying, the thing, what they what they recognized was that they were replaying the, potentially the Great Depression, but the old story of a bank run had been had been altered and now we're dealing with very exotic instruments and institutions that didn't fall under the institutions that were, that didn't fall under the.

• 57:32Barry Ritholtz?

  Need categories, yeah.

• 57:33Speaker 04

  That were created during the Great Depression and, you know, they were potentially going back there.

• 57:38Barry Ritholtz?

  So, so as we were speaking earlier, and it's a little ironic, they avoided the Great Depression, but sort of an unintended consequence was they helped lead us to the French Revolution.

• 57:49Speaker 04

  Well, yeah, yeah, in fact, I remember a conversation I had with with Bernanke way back then where, you know, he said, like, he expected a populist blowback.

• 57:59Barry Ritholtz?

  Really?

• 58:00Speaker 04

  Yeah, he expected.

• 58:01Barry Ritholtz?

  Just not as far as it went.

• 58:02Speaker 04

  Well, I mean, I think he was surprised by where it came from.

• 58:05Barry Ritholtz?

  Right.

• 58:06Speaker 04

  I don't think he would have expected it to have come from the right.

• 58:08Barry Ritholtz?

  Well, that whole Rick Santelli, you know, Tea Party nonsense.

• 58:12Speaker 04

  Yeah, no, I had my own run in with Rick during that whole thing.

• 58:15Barry Ritholtz?

  I mean, wait, we're bailing out banks to the tunes of tens of billions of dollars, but the people who applied for mortgages, you're just gonna cut them loose?

• 58:25Speaker 04

  Right.

• 58:25Barry Ritholtz?

  That seemed to be what took place.

• 58:28Speaker 04

  Yeah, and, and there were a lot of. Consequences for that. It's funny you mentioned Rick, because Rick, I went on with Rick on CNBC and he lectured me that I needed to be more opinionated in my questions at press conferences and reporting.

• 58:42Barry Ritholtz?

  It's like, you don't understand what a journalist does, right? It's like, you seem to think I'm a...

• 58:47Speaker 04

  I'll give you one little analogy, since we're talking about the Depression. My analogy for Ben Bernanke is, imagine that you are a Civil War historian at Wake Forest University, and you're an expert on the battlefields of the Civil War, actually, let's call it University of Virginia, because Virginia was more center place. And you're an expert on the artillery and the battlefields and the personnel, and you know everything about the Civil War, and then you got a job as a consultant at the Pentagon. And you did such a good job as a consultant at the Pentagon that they made you the Defense Secretary. And then a new Civil War broke out, but it was being fought with drones and laser-guided missiles. That's what happened to Ben Bernanke.

• 59:32Speaker 04

  He was a Great Depression historian who knew about all the battles and wrote decisive histories of it, and then he got the job at the Fed, and he was fighting, he was refighting what he thought was a Great Depression moment, but he was doing it with these really high-tech financial instruments, like credit default swaps and credit, you know, collateralized debt obligations and the like.

• 59:57Barry Ritholtz?

  Coming up, we continue our conversation with John Hillson-Rath, former Wall Street Journal reporter and current research advisor at Serpa Pinta Advisory, discussing rates, politics, and the Fed today. I'm Barry Ritholtz, you're listening to Masters in Business on Bloomberg Radio.

• 1:00:28Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume, so writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 1:01:10Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 1:01:54Barry Ritholtz?

  I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio, and some of you are watching us on YouTube. My extra special guest today, John Hilson-Rath, former chief economics correspondent and Fed whisperer for The Wall Street Journal, now an analyst and researcher at his own shop, Serpa Pinto Advisory. So, so let's talk about where we are today in the world, starting with a quote of yours, "The old normal is dead, the new normal is here." What does that mean?

• 1:02:26Speaker 04

  Wow, uh, I'll be honest with you, I don't even remember writing that.

• 1:02:29Barry Ritholtz?

  Alright, so let me, let me remove that.

• 1:02:31Speaker 04

  So, but, but I mean, we could, but, but lemme redefine that.

• 1:02:35Barry Ritholtz?

  Okay.

• 1:02:35Speaker 04

  And we can go back to our French Revolution story.

• 1:02:37Barry Ritholtz?

  Sure.

• 1:02:38Speaker 04

  Which is, I think there's a new old normal setting in, which is that, you know, I mean, I think we're, we're, we're living through historically changing times, uh, on, on several levels, um, so, one of those is just, is information, right? And this brings me again, but I've become, I've been obsessed with the French Revolution ever since people started telling me they're gonna stick my head in a guillotine. But, uh, but you know, there was an information revolution happening during the French Revolution too. There were printing presses everywhere.

• 1:03:09Barry Ritholtz?

  Relatively new.

• 1:03:10Speaker 04

  There were pamphleteers. I mean, the printing press had been around for a couple of centuries, but it wasn't being mass-produced and in every village and, and every, you know, neighborhood in Paris, but, uh...

• 1:03:23Barry Ritholtz?

  Loggers of the 18th century.

• 1:03:25Speaker 04

  If you read histories, if you read histories of the French Revolution, there were pamphleteers everywhere, giving their version of events on every street corner. And they were basically tearing down the old institutions of the church and the aristocracy who defined the story for the public as they saw fit. And, you know, the United States too, the, the Declaration of Independence was a pamphlet. They signed the thing in Philadelphia, they fled because the British were coming, found their way to a printing, um, facility in Baltimore, and started mass-producing the Declaration of Independence. So, you know, I think we're going through something like that now, where the old institutions of, of power in the media are, uh, are being redefined.

• 1:04:09Speaker 04

  I mean, for goodness sake, podcasters had a bigger influence on the last election than CNN did. It's amazing to me.

• 1:04:17Barry Ritholtz?

  Yeah, no, no doubt about it.

• 1:04:18Speaker 04

  So I think that, you know, that's an old normal, but the new normal is, you know, there, this technological revolution, in my mind, is mind-boggling. I mean, I'm happy to sit at the table with a contemporary. When you and I were young men, if you wanted to take a picture... You know.

• 1:04:35Barry Ritholtz?

  You had to get a camera.

• 1:04:35Speaker 04

  You had a black box called a camera with something called film, a canister called film in it. And then, you know, you would take thirty six snaps and then you had to take it to a store.

• 1:04:46Barry Ritholtz?

  Or a photo mat, a little yellow booth.

• 1:04:48Speaker 04

  Yeah, yeah. And it had to get, you know, it took a week in the store to get developed and you had to pay some amount of money. If you wanted to do research, you went to a library. If you wanted to write a letter, you wrote it with a piece of pen on a paper. You stuck it in an envelope, put a stamp on it, put in a blue box and waited a month for a rea- All of that stuff is now instantaneous, infinite and practically costless. And so, you know, and like I ride the subway in New York, you look like every, every, you know, three out of every four people sitting next to you is staring at their phones.

• 1:05:22Barry Ritholtz?

  Right.

• 1:05:22Speaker 04

  I think the, the information we're living through right now is, uh, quantums of magnitude of what they were going through, I think, during the French Revolution. So it's an interesting time to be alive doing what we do.

• 1:05:38Barry Ritholtz?

  To say nothing about bad information, misinformation, propaganda, a whole nother thing.

• 1:05:45Speaker 04

  Bad information, the word libel has its root in part in the French word libel, which were these scandalous pamphlets that were being put out about Marie Antoinette on, I think it was called Grub Street in London.

• 1:05:57Barry Ritholtz?

  Uh huh.

• 1:05:58Speaker 04

  So, yeah, an abundance of information includes an abundance of really bad information and misinformation. So, we're living through all of that right now.

• 1:06:07Barry Ritholtz?

  So, so let's talk about what-

• 1:06:09Speaker 04

  It's not quite the central bank stuff you're talking about.

• 1:06:10Barry Ritholtz?

  Not quite, but let's talk about what all this means, um, for the economy, which, as you have noted, has proven to be much more resilient than most forecasters have predicted. So where are we, uh, in the economy today? What sort of job does the Fed have to do balancing their dual mandate in the, in the post pandemic economy we are living through?

• 1:06:35Speaker 04

  Yeah, I mean, I think, I think the, the Fed is in a tough spot and is prone to making- Some costly mistakes right now.

• 1:06:44Barry Ritholtz?

  Do you think they make mistakes or are they just always late to the party?

• 1:06:48Speaker 04

  No, I think they miss, I think they make mistakes. They clearly made a mistake after COVID. And I understand, I understand what happened. So, so this is the thing, like people attacked the QE programs that Bernanke did. I think, you know, in the moment that he implemented them, they, they were, the, the net benefits were greater than the net costs. In those moments, what happened, I think, was we went into another shock after COVID and I think, you know, Jay Powell made a mistake. He's, he's frankly, he's not an economist. And he misread a supply shock to the economy as a potential demand shock. So he took all these tools off the shelves that Bernanke and Yellen had created

• 1:07:28Speaker 04

  and threw them at the COVID shock, which was a supply shock, overstimulated demand and we got inflation. So yes, that was a mistake.

• 1:07:36Barry Ritholtz?

  You're putting more of that on the Fed than the massive fiscal stimulus from CARES Act 1 and 2 under Trump, CARES Act 3 and all the various spending bills under Biden? You think that was more monetary than fiscal?

• 1:07:48Speaker 04

  I think it was all of these things combined.

• 1:07:50Barry Ritholtz?

  Okay, that's fair.

• 1:07:51Speaker 04

  It was, and, and by the way, the other thing that, that the Fed and the Trump administration did intentionally was decided, we're not just going to bail out the banks this time, we're going to bail out the little guys. That's why everybody got those checks. Everyone was reliving the trauma of the 2008 financial crisis? When they made these decisions that created a whole new trauma. My, my mom was a historian and she talked about the kaleidoscope of history. So the, the configuration is constantly turning and growing out of whatever last configuration we were in. The feds made a mistake, a discreet mistake, and the mistake in 2000, uh, I'm sorry, 2020, 2021 was overstimulating in the face of a supply shock, but.

• 1:08:34Speaker 04

  To get to come more, you know, and I think one of the problems that economists have is they they call certain things like a law or a rule and they think when they once it's called a law or a rule, then it must always be true, right? The Sa the the Saum rule, Claudia Saum, brilliant economist, wonderful person. You know, she noticed a correlation between that's, you know, at certain moments when the unemployment rate rises a certain amount, I think a half percentage point over a six month period, it tends to keep going up. That's like in a stor in a historical observation. It's not a law written into the rules of economics.

• 1:09:09Barry Ritholtz?

  And never from a 0% interest rate and a and a sub 4% unemployment rate. Like when you with a Saum rule didn't work was coming from levels that historically had never existed.

• 1:09:21Speaker 04

  Yeah.

• 1:09:22Barry Ritholtz?

  So so, yes, it's a correlation.

• 1:09:25Speaker 04

  You have to look at the situation you're in right now. And these rules of thumb and people do, you know, they're like, oh, GDP contracted, you know, we're close to a, I think you have to look at the situation you're in and make the most sense of it that you can. So where are we right now? So growth has proven to be more resilient than a lot of people expected, but employment is slowing down. Inflation is above the Fed's 2% target. What what sense do I make of this? I think that the economy has slowed down a little bit, but coinciding with all this uncertainty from the tariff shock is we're going through an investment boom. We're going through, you know, a technology driven investment boom right now, which by

• 1:10:08Speaker 04

  the way, could hurt laborers and workers in the long run. And maybe we're seeing some of that as we speak. By the way, I also think that if the demand for capital is rising for investment in AI and data centers, higher demand for capital should mean a higher equilibrium interest rate, a higher cost of capital, right? If the demand for capital is higher, then the price for capital should be higher. And, you know, but the Fed is being asked to respond to a labor market that's softening. But, you know, my my own.

• 1:10:41Speaker 04

  Concern is that the Fed is that the Fed is going to ease into the slowdown in the job market when it when the financial markets are on fire, when it thinks the the risk-free rate is lower than it actually is, and when there's still an inflation problem and they're going to light even more of a fire into these markets, which might feel good for a few months for, you know, as we saw in the early 2000s, late 90s, go on for years.

• 1:11:08Barry Ritholtz?

  Mm-hmm.

• 1:11:09Speaker 04

  But those situations often don't end well.

• 1:11:11Barry Ritholtz?

  So so you I want to combine two of the things you said. You mentioned we're above the Fed's 2% inflation target.

• 1:11:19Speaker 04

  Mm-hmm.

• 1:11:19Barry Ritholtz?

  But why is that a rule? If you look at the 2000s, 2010, 10s era, 2% was an upside monetary target.

• 1:11:30Speaker 04

  Yeah.

• 1:11:30Barry Ritholtz?

  From below. Now we've kind of pivoted into a fiscal stimulus era.

• 1:11:35Speaker 04

  Yeah.

• 1:11:36Barry Ritholtz?

  And 2% is a downside target.

• 1:11:38Speaker 04

  Yeah.

• 1:11:39Barry Ritholtz?

  Should you have the same inflation target in the 2020s that you had in the 2000s and 2010s?

• 1:11:45Speaker 04

  Yes, 100%. It should be immutable.

• 1:11:49Barry Ritholtz?

  So it should always be 2%?

• 1:11:50Speaker 04

  Because it is now, and it's in everybody's interest to keep it there, and here's why. So we have a fiat currency, right? And so, you know, if you go back 200 years, 300 years, the anchor for that currency was was gold.

• 1:12:06Barry Ritholtz?

  Mm-hmm.

• 1:12:06Speaker 04

  Uh, you know, people would say your money is as good as gold. If you if you had a dollar today, you could buy X number of ounces with that dollar today. That was the anchor for the currency. Gold doesn't work as an anchor for the currency, in my humble opinion. Do you know that Americans spend about, the last time I looked at this, about as much money every year on dry cleaning as they spend on gold?

• 1:12:29Barry Ritholtz?

  Yeah, no, that makes sense.

• 1:12:30Speaker 04

  And do you know that the that the that the largest producers of gold in the world include countries like Russia and South Africa and Venice, not the most stable producers? So like, so why would we anchor our currency to to an idea like like gold? What you want to have an anchor now, so the inflation target. What inflation is, is an anchor that, you know, your dollar is going to be worth a known and set amount every single year. It is, the 2% inflation target is the gold standard of the past. And in my mind, it's a more sensible gold standard because it touches

• 1:13:11Speaker 04

  a wider array of what it costs us to live. So then the question becomes, well, why 2%?

• 1:13:16Barry Ritholtz?

  Right.

• 1:13:16Speaker 04

  Well, so the answer is because that's what they chose. Because, and you know, and this actually, I go through this in my book about Yellen, but, you know, well, why shouldn't it be zero? Well, the fear is, the fear was that if your anchor is zero, then interest rates are always very low. And, and when you get to a point where the economy is slowing down like a depression or recession, unemployment is rising, the central bank can't do anything. Exactly what we lived through in the 08 period. You need to have the inflation number a little bit above, uh, zero. Uh, we want, you want it low, but you want it something above zero so that the Fed has a little wiggle room to support the economy in a crisis. That's the idea. So you could say, well, it should have been 3%, it should have been 4%. Okay,

• 1:14:00Speaker 04

  but we chose 2%. And once you've chosen it, then it's very hard to say, like, we choose something else now.

• 1:14:07Barry Ritholtz?

  I, I read a paper by former Fed Vice Chair Roger Ferguson about the 2% target. And Ferguson said, it's a random number that came out of New Zealand, where someone just happened to be talking about inflation in the 1980s, and they tossed out 2%. And that's the history of it. It traces to a New Zealand banker discussion 50 years ago.

• 1:14:33Speaker 04

  First mover advantage. There was, yeah, there was, there was certainly an element to it. But I want to say something else about it, because people sometimes make this argument that, you know, why should you accept any inflation? We're, we're debasing our currency. The currency today is worth 5% of what it was worth.

• 1:14:48Barry Ritholtz?

  I hate that argument.

• 1:14:49Speaker 04

  2% of what it was worth in, you know, in 1913, when the Fed was creative. But like, you had, like, in my mind, what matters is the purchasing power of, of an hour of your labor, right?

• 1:15:00Barry Ritholtz?

  Exactly.

• 1:15:02Speaker 04

  Is going up 2% a year. Okay, that's one thing. If you're earning 3% of year for your labor, if you're earning 5% a year for your capital, then you're you're getting ahead and it would be impossible for anyone to argue to me that the human condition is, I mean, on many levels, maybe psychological, I can't make this case, but the human condition is is is worse today than it was in 1913.

• 1:15:28Barry Ritholtz?

  Of course.

• 1:15:28Speaker 04

  You know, like, America became the world superpower in 1913. So it's just, it doesn't make sense to me when people say you're debasing the currency. You're like, what I want to say is, against what measure? Here's another, like, when I was covering the Fed.

• 1:15:41Barry Ritholtz?

  The dollar is not supposed to be a permanent store of value. It's a medium of exchange. If you're holding on to a dollar for a century, you've made some financial errors. That's not what you're supposed to do.

• 1:15:53Speaker 04

  People used to always say to me, and I used to hear them say when I was covering the Fed, that the Fed is destroying the value of the dollar. And like, I spent a lot of time, this gets to something I think we're going to think about, like, well, so what does that mean? When the Fed, like, one of my principles for writing was, like, I need to be able to break things down to their, to their, like, their core meaning. Like, what does it mean when you say that the Fed is destroying the value of the currency?

• 1:16:20Barry Ritholtz?

  They're debasing it. I love that. Like, it's a metal, a precious metal.

• 1:16:24Speaker 04

  You know, so you couldn't say that, like, kind of relative to other currencies, because the dollar was going up. And while it's, you know, the purchasing power of a dollar today was going down, the purchasing power of your income.

• 1:16:35Barry Ritholtz?

  Exactly.

• 1:16:36Speaker 04

  Is long, and this, again, brings me back to the revolution. Because this is also a technological revolution. A lot of working-class Americans got left behind during this era of technology and globalization.

• 1:16:48Barry Ritholtz?

  Absolutely.

• 1:16:48Speaker 04

  And what happened was, the purchasing power of their labor declined. It wasn't the Fed that did that from inflation. Inflation was very stable. The purchasing power of the labor declined because they were competing against, you know, low-wage workers in Mexico and China, and because they were competing against machines that were replacing them in the workplace. And so it is true, it is a fact. We, and this is another part of the revolution, which is related and potentially intensifying. We're lit, we've lived, we're 25 years into this kind of post-industrial information.

• 1:17:23Speaker 04

  Driven economy and what we know about this is that it it exaggerates inequality. It concentrates wealth among very few people and a lot of people are being left behind. And the question is, and how do you like preserve the value of the dollar? It's how do you preserve the value of an hour of your work? You know, how do you find work that's going to keep you, keep your family fed and get your kids through school? And, you know, gets you your trip to Disneyland.

• 1:17:52Barry Ritholtz?

  You know, the federal government dropped the ball and we we see it in some specific industries. Like if you're shutting coal mines in West Virginia, well, you have to retrain those people to do something else.

• 1:18:04Speaker 04

  Yeah.

• 1:18:04Barry Ritholtz?

  And if you work in a furniture factory, a garment factory, any of the low end manufacturing businesses that all left, those people have to be retrained.

• 1:18:16Speaker 04

  Well, but so, yeah, so I mean, I actually, I wrote, I wrote a lot about this and and we did, but it's not, it wasn't as if. We didn't recognize we, I mean, all right, I'll just say it. The elites who were driving the bus didn't recognize that there was a challenge there. You know, there was a Trade Adjustment Act, right? There were facilities that were meant to get people retrained. And then, and there was a vast American community college system, which was meant to be a vehicle to get people retrained. But I talked to people from manufact, you know, from furniture plants in Hickory, which is one of my favorite analogies for America. Cause Hickory, North Carolina is right next to Charlotte.

• 1:19:00Speaker 04

  One's a banking center, one was a furniture center. One went one way, one went red, one went blue, one did better, one did worse. Anyway, yeah, I talked to people in these plants in Hickory and they're like, you know, I didn't finish high school. Now you're telling me to go out, I'm 50 years old. I got, I gotta go and re-educate myself. And then like for the people who actually went through it and did it, you're like, I was making $25 an hour with bet, with, with a pension and health benefits. Now I'm a phlebotomist, you know, I'm pulling blood out of people's veins, making $12 an hour at a hospital.

• 1:19:36Speaker 04

  It didn't work for them and the, you know, this was one of the great errors of the economics and economic policy profession of the last 25 years is they didn't think that stuff through. And the politics didn't really warrant conducive to addressing that problem. But it, and this is my, this is one of my kind of warning signs, warnings for politicians. See, I don't see how anyone is fixing that underlying problem that we live in a post-industrial economy that bifurcates wealth and income. And frankly, I don't think it's realistic to expect we're going to re-industrialize this country.

• 1:20:13Barry Ritholtz?

  Even if we do, it'll all be automated robotics.

• 1:20:16Speaker 04

  Exactly. It's, it's, it's going to be machines and we're moving out of an industrial era. You know, so the, so the, so my question is like, how do you, I talked to an economist, David Autor, who's thought a lot about this stuff. He wrote the papers about the China shock. You know, our work is, is not only a source of kind of fulfillment and income, but, but the way we work is also the way we distribute wealth and income. And so if the whole nature of work is changing because of technology, then like, are we thinking about how we're going to manage the distributional effects of that? And I'm not like saying this as some kind of, you know, screaming, bleeding heart liberal.

• 1:20:57Speaker 04

  I mean, it, Donald Trump actually got elected because of the disaffected American working class. And I don't think either party has, has actually gotten their hands around it. I wrote a book about Janet Yellen. I talked a lot of time, spent a lot of time talking to Democrats about this. I don't think any of these people have gotten their hands around, how do we navigate this, like this revolution that we're going through, the economic post-industrial revolution?

• 1:21:21Barry Ritholtz?

  So, so I have one last question I want to ask you before we get to our favorite questions we ask all guests.

• 1:21:28Speaker 04

  Okay.

• 1:21:28Barry Ritholtz?

  But you've been alluding at it, so feel free to go back to a previous conversation. What do you think investors are not talking about but should be? It could be a policy issue, an asset class, a data point.

• 1:21:43Speaker 04

  That, that, that's it.

• 1:21:44Barry Ritholtz?

  But I think it's.

• 1:21:45Speaker 04

  Yeah. It's the inequality issue.

• 1:21:48Barry Ritholtz?

  And but this is been around.

• 1:21:49Speaker 04

  I don't want to use the word inequality in like the kind of conventional politically divisive way. What I mean is that, you know, an economy creates income and wealth. And how that income and wealth is distributed across the population is a result of the way and by the way, there is.

• 1:22:10Barry Ritholtz?

  I'm looking for a chart on this exact thing.

• 1:22:12Speaker 04

  There is no law. There is no rule in economics that says that wealth and income will be distributed in a fixed or predictable way. You know, the agricultural era did not create an economic system or that distributed wealth and income equally. It was very unequal. You had kings and queens and peasants, right? It just so happened that the industrial economy created a vast middle class because you needed people attached to machines to make the stuff that made our lives more comfortable. But there's no rule that I see that says moving into a post-industrial, high-tech world

• 1:22:56Speaker 04

  that this whole new world is going to distribute income and wealth in the same way. And so my question is, what are we doing about that? And by the way, I think the institutions, we talked about norms before, the institutions that we've created over the last 200 years were built for an industrial economy. Our tax base, our voting systems, everything is built for an industrial, you know, so to me, the big existential question is, you know, how are we going to manage the distributional effects of of income and wealth creation in a high-tech, high-information economy?

• 1:23:32Barry Ritholtz?

  I saw a table this morning, I can't, I can't find it now. But it basically shows a number of industrialized countries and what percentage of their workforce is below the median income. And the US and the UK are substantially, I think it's something like. Twenty-three, twenty-four percent, substantially below. You look at other countries like Japan. The difference between the mean and the median isn't that big.

• 1:24:05Speaker 04

  Mm-hmm.

• 1:24:05Barry Ritholtz?

  And when you have a very skewed distribution like you're describing, that gap gets bigger and bigger. So I'll dig up that table.

• 1:24:13Speaker 04

  Well, you said it to me. I'd love to see it.

• 1:24:14Barry Ritholtz?

  Yeah, I'll share it with you and I'll post it when this goes live. But it's kind of fascinating because you don't think of the country that way. And when you look at, what was it, the Z1 flow of funds that the Fed puts out?

• 1:24:29Speaker 04

  Good one.

• 1:24:29Barry Ritholtz?

  You can see that gap getting bigger and bigger, especially since the 90s. I mentioned unintended consequences. Some legislation passed by the Clinton administration to cap executive compensation at, I want to say it was a million dollars or two million dollars. That just led to massive equity compensation.

• 1:24:50Speaker 04

  Right.

• 1:24:51Barry Ritholtz?

  Helped drive a lot of this.

• 1:24:52Speaker 04

  And by the way, accounting fraud.

• 1:24:53Barry Ritholtz?

  That's right. That's right. So not only were you driving people to hyper-focus on the quarterly calls, leading to some quarterly earnings, leading to some monkey business, but people getting paid in equity were making tens of millions of dollars.

• 1:25:07Speaker 04

  And so from a political perspective, for Republicans, how are you going to take care of the working class? Are these promises about reindustrialization?

• 1:25:17Speaker 04

  Can you realize them? And for the Democrats, how are you going to win people back? Because they lost them. Donald Trump took them from him.

• 1:25:23Barry Ritholtz?

  Well, the question is...

• 1:25:24Speaker 04

  And by the way, in terms of the Fed, all the Fed can ever do is make a mistake. It's like his job is to prevent financial crises and keep inflation stable. Like, people love to attack the Fed because, you know, you only notice it when it's screwing something up. So, and by the way...

• 1:25:41Barry Ritholtz?

  No credit for getting things right.

• 1:25:42Speaker 04

  One other thing about the Fed is, you know, I live in Washington, D.C. It's this place where, like...

• 1:25:51Speaker 04

  People, like 90% of people, what they're doing, you know, 90% of the time is spinning you and trying to get you to believe a story that's in their personal or institutional or economic interest. The Fed is out there trying to tell people what it thinks it's gonna do. Like, you could give them a hard time for making mistakes. I just said, I think Jay Powell made mistakes. But like, at least they're trying to be honest about what they're up to.

• 1:26:18Barry Ritholtz?

  I gotta ask you a question.

• 1:26:19Speaker 04

  When so many other people in Washington are trying to mislead you, you know, I admire them for trying to be straight.

• 1:26:24Barry Ritholtz?

  I gotta ask you a question. You've lived in New York, you've lived in Washington DC. Which town is more transactional?

• 1:26:30Speaker 04

  Oh, oh, that's a good question. I didn't think you were going in that. They're both transactional, but the difference is, in New York is a transactional town and everyone's looking out for their own interests. And everybody knows that. And everybody knows that and accepts that as like the rules of the game, right? In Washington, it's all transactional and everyone's out for their own interests, but they're trying to make you believe that they're doing it for you. And that's why it all looks so hypocritical. Because like, yes, they're totally transactional and they're totally trying to advance their party or their power or their fundraising. But they're trying to make you believe that they're doing it for you, to help you, so

• 1:27:14Speaker 04

  that your children will be better off.

• 1:27:16Barry Ritholtz?

  Right.

• 1:27:17Speaker 04

  I'm sorry, I've grown a little cynical about it. I much prefer being a New Yorker.

• 1:27:21Barry Ritholtz?

  I asked that question because I had a feeling you were gonna go that way. New York, there's no pretending. It's transactional because it's the center of US capitalism. DC is something else entirely.

• 1:27:34Speaker 04

  Yeah, like, New York is traders and it always has been. Washington is lawyers. Here's my other New York/Washington analogy. You're driving down the street in New York, although you can't anymore because there's so much traffic. If you kind of move in and out of one lane, if you kind of overstep your bounds, someone will honk the horn, give you the finger and keep driving, right? If you do that in Washington... Instead of giving you their middle finger, they'll point their pointing finger, they'll wag their finger at you and tell you you broke a rule and then like threaten to turn you in. And then by the way, there are speed cameras everywhere. It's a, it's, it's a little bit more oppressive of a place, I think.

• 1:28:10Barry Ritholtz?

  Really amusing. All right. So I only have you for a certain amount of time. Let's jump to our favorite questions. We ask all of our guests, starting with, who are your mentors who helped shape your career?

• 1:28:23Speaker 04

  Well, so I'd have to say one of my most important mentors at the Journal was a guy named David Wessel, who covered the Fed.

• 1:28:30Barry Ritholtz?

  I remember David Wessel.

• 1:28:31Speaker 04

  Uh, covered the Fed in the 1990s, was just like an institution in economics and economic policy coverage. He gave me chances and he was usually nice to me. So, uh, yeah, he's a tough boss too. Uh, David Wessel was a great guy and my, my best friend at the Journal all those, all those years was a guy named Bob Davis. Gentleman, good guy, great reporter.

• 1:28:54Barry Ritholtz?

  Number one in terms of page one bylines.

• 1:28:57Speaker 04

  Yep. And I, and, and by the way, Nick Timrose is gonna pass me pretty soon, I'm sure.

• 1:29:01Barry Ritholtz?

  Uh huh.

• 1:29:02Speaker 04

  I have, I don't know the numbers, but I'm, Nick, Nick is my successor, uh, covering the Fed. He'll pass me, but I don't know if he's gonna catch Bob Davis.

• 1:29:11Barry Ritholtz?

  That's amazing. Um, let's talk about books. What are some of your favorites? What are you reading?

• 1:29:15Speaker 04

  Well, I've been reading, I've alluded to this, I've been reading a bunch about the French Revolution. Um, I'm also reading the book Sapiens, but I can't remember his full name, Harari.

• 1:29:24Barry Ritholtz?

  Uh, Yuval?

• 1:29:25Speaker 04

  Yeah, Yuval Harari. It's a pretty bleak perspective on humanity.

• 1:29:29Barry Ritholtz?

  Very.

• 1:29:30Speaker 04

  Uh, I think I, I think I, I'm a little more, um, optimistic about our species and its intentions. But there's an interesting insights in there. Like I, I, the reason I picked it up is I think that humans have these kind of primitive brains with primitive, um, Magdala and emotion centers. We have an industrial area, era, um, economic and political structures and we're living with 23rd century technology.

• 1:30:00Barry Ritholtz?

  Mm-hmm.

• 1:30:01Speaker 04

  And I'm trying to understand the primitive parts and how that might interact with all this other stuff.

• 1:30:06Barry Ritholtz?

  You keep bringing stuff up. I have chapters in a book for you that you're gonna love.

• 1:30:10Speaker 04

  Good.

• 1:30:11Barry Ritholtz?

  Um, what, do you remember the name of the French Revolution book?

• 1:30:14Speaker 04

  You know, you're putting me on the spot.

• 1:30:16Barry Ritholtz?

  Email it to me. I'll dig it up. And you cracked me up comparing DC to a city of lawyers versus New York as a city of traders. I'm going to share a book title with you called Breakneck.

• 1:30:31Barry Ritholtz?

  China's Rush to Build the Future by Dan Wang. And he compares China versus the US, the US as a country of lawyers, China as a country of engineers, which is why they could put up as much stuff as they do as fast as they do.

• 1:30:49Speaker 04

  But we're also a country of entrepreneurs.

• 1:30:51Barry Ritholtz?

  For sure, for sure.

• 1:30:52Speaker 04

  We're not just lawyers.

• 1:30:54Barry Ritholtz?

  Dictate, although I was going to say not a state dictated industrial policy, but that's changing.

• 1:31:00Speaker 04

  You know, so this is another thing that I just have having a hard time getting my head around. So like China's economy is really struggling right now. They definitely pushed us. They challenged us. You know, we were, our workers were hurt by the incursion of China imports. But we're, you know, on many measures, you know, we're still doing all right and winning. But we basically conceded to China's economic model. It's like we're moving, we're moving towards a state-run capitalism, state-run capitalism, which is, you know, it's hard for me to get my head around the idea that we've given up on a system and a project of democratic capitalism.

• 1:31:39Speaker 04

  And that that's, I should let me, democratic, I should say democratic, free market capitalism. You know, we seem to be having our doubts about it. I guess what I would hope is that we don't give up on it too fast.

• 1:31:53Barry Ritholtz?

  I'm curious, is this a permanent pivot? Or is this, hey, let, let the president have his 10% of intel. But he's, this is his second term and he's almost 80 and this isn't a permanent change. Like I've heard that sort of vibe from people and I don't know how serious they are.

• 1:32:12Speaker 04

  I think, I think he and his followers and his leaders who are working with him are vulnerable on the issue of inflation and the cost of living. He got, he got in there in part because. We're angry about the inflation of the post covid period.

• 1:32:27Barry Ritholtz?

  Back then it was eggs, now it's beef.

• 1:32:29Speaker 04

  We're doing a lot of, we're doing a lot of things right now. It's not just tariffs, but with monetary policy pushing. I guarantee you, if we get the interest rate down to where the president wants it, we're gonna have inflation. And if we don't get inflation, there's gonna be an asset price boom where, again, this inequality thing. There's a few people who are gonna make a lot of money off of that. So, I mean, I, I, I think that, that they have a little bit of an Achilles heel on that issue.

• 1:32:54Barry Ritholtz?

  Um, let's talk about, uh, streaming. What are you listening to in terms of podcasts or watching on Netflix or Amazon Prime?

• 1:33:00Speaker 04

  Uh, I watched a really cool show called Tehran, which was about Israeli Mossad agents infiltrating Tehran. It was put out a couple, two, three years ago, uh, in, infiltrating Tehran to blow up, uh, their nuclear reactors. I watched it like a couple of months before they, they went and blew up their nuclear, you know, so that was really interesting. I'm also just, I'm a sports fanatic, so I don't really.

• 1:33:28Barry Ritholtz?

  More bad TV than streaming?

• 1:33:30Speaker 04

  I'll tell you what, I've stopped watching cable television, uh, after been participating in it for a long time. Uh, but if there's a game on, I'm there. Yeah. Um, I'm a football fanatic.

• 1:33:42Barry Ritholtz?

  Fi- final two questions. What advice would you give a recent college grad interested in a career in financial journalism?

• 1:33:50Speaker 04

  Financial journalism. Alright, so I, I've had this talk. This is getting back to the whole printing press, French Revolution thing. I mean, I, I think it's, it's clear that, that, that journalism is going through a period of exceptional disruption right now, right? And so the choices that I was looking at when I was coming into the field of like, you know, how do I get to the Wall Street Journal? How do I get to the New York Times? Like, it's a different set of choices. And if you use the kind of pamphleteers analogy, you know, when you see what's going on, look at you. You know, you started a podcast and, you know, this has become this great thing for you. I, I, I say this to young people all the time, be, uh...

• 1:34:33Speaker 04

  Think expansively and creatively about where these interests might take you. You know, the core skill set of getting information, distilling and making sense of the information and conveying information, like that's the core of journalism. That's like, that's more essential than ever. But the, the, the way you're going to practice those skills is going to be different than, than what I did. And, you know, like I had a, a young student that I was working with and talking to at Duke a few years ago. You know, she was going down the whole newspaper route. She's now doing a true crime podcast in the Midwest. And so, you know, I, I think that there's a lot of opportunity out there for people

• 1:35:14Speaker 04

  who are willing to kind of take chances and be nimble and it's scary, but there's a lot of opportunity for people who can be flexible and find the opportunities and go for it. And, and I love being a journalist. I, I would not take, you know, there's this ritual that journalists go through where like experienced journalists are constantly trying to tell young journalists, don't do this. It's a terrible field. It's a dying profession and go become a lawyer, you know, blah, blah. I had a great experience, like I'm never going to tell someone not to pursue that, that, that dream or that interest because it was so good to me, but you've got to be willing to, you know, kind of take chances and go down some roads you might not expect to go down.

• 1:35:55Barry Ritholtz?

  Recognize how the business model has changed.

• 1:35:57Speaker 04

  Yeah.

• 1:35:57Barry Ritholtz?

  And our final question, what do you know about the world of economics, finance, central banks today? Might've been helpful 25 or so years ago when you were starting out, 30 years ago.

• 1:36:08Speaker 04

  Well, I mean, I guess the basic thing is just that it's so much more interesting than I expected. I didn't want to get into economics writing. I did, I did by accident and I, I stayed in it. I wanted to be a war correspondent and what I came to see was that like, or a sports writer, that the great battlefields and the great arenas that really affected the human condition were in markets and economics. So I, I guess what I would tell myself. Now was to go into it with even more conviction because it turned out to be so fascinating.

• 1:36:45Barry Ritholtz?

  Really, really interesting. Thank you, John, for being so generous with your time. We have been speaking with John Hilson Rath, former chief economics correspondent for The Wall Street Journal. Today, he runs Serpa Pinto Advisory. If you enjoy this conversation, check out any of the 567 we've done over the past 11 years. You can find those at Bloomberg, iTunes, Spotify, YouTube, wherever you find your favorite podcasts. Be sure to check out my new book, How Not to Invest: The Ideas, Numbers, and Behaviors That Destroy Wealth and How to Avoid Them. How not to invest at your favorite bookseller now. I would be remiss if I didn't thank the crack team that helps with these conversations together

• 1:37:30Barry Ritholtz?

  each week. Alexis Noriega is my video producer, Anna Luke is my audio producer, Sean Russo is my head of research, Sage Baumann is the head of podcasts here at Bloomberg. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

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