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How Brazil's Corruption Crises Are Roiling Markets · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
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  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Right now,
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  Speaker 1: I want to get a sense of what's going on
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  Speaker 1: in up markets. We are dealing obviously with the fallout
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  Speaker 1: from a Brazilian political crisis, and to give us more
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  Speaker 1: color on what exactly happened there, Vivian Rodriguez is joining us.
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  Speaker 1: She's a Latin American economy and government editor for Bloomberg.
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  Speaker 1: Also here with us is Dave Wilson, Bloomberg Stocks editor,
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  Speaker 1: columnist and blogger m Live Go on the Bloomberg Vian,
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  Speaker 1: I'd like to start with you. Can you just give
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  Speaker 1: us a sense of what actually happened? We do know
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  Speaker 1: that on Wednesday, a major uh newspaper in Brazil reported
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  Speaker 1: that the current president, Michelle Tamare, was embroiled in u
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  Speaker 1: or sort of endorsing some kind of Briberry scheme. Can
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  Speaker 1: you explain in the library. Sure, it is quite a
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  Speaker 1: shocking development that that really, you know, sent the country
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  Speaker 1: back into a crisis that we've seen last year. Right. Basically,
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  Speaker 1: what we know is that there is a tape, I mean,
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  Speaker 1: a couple of very high profile executives, I mean recorded
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  Speaker 1: a conversation with Tamor in March in which basically Tamer
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  Speaker 1: you know, again, this is all allegedly the newspapers that
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  Speaker 1: transcripts are not out, but in this recording, Tamor just
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  Speaker 1: basically gave the okay or endorsed some briberries in a
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  Speaker 1: big covert up scheme involving the former leader of the
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  Speaker 1: of the House, which was a mastermind behind the impeachment
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  Speaker 1: of his predecessor, decept. So it's pretty bad. Yeah, this
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  Speaker 1: is pretty bad. And the response in markets has been
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  Speaker 1: pretty fierce. Dave, Can you give us a sense of
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  Speaker 1: just you know what we are seeing? Oh? Absolutely, I
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  Speaker 1: mean you look down to Brazil. You see the vestment
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  Speaker 1: index down ten and a half percent. In early trading.
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  Speaker 1: A circuit breaker kicked in in the local market that
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  Speaker 1: basically put off buying and selling for half an hour.
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  Speaker 1: There's possibility of other circuit breakers if you get a
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  Speaker 1: steeper decline, and it's showing up here in the US
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  Speaker 1: in terms of what's going on with for example, the
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  Speaker 1: Ice Shares MSCI Brazil Exchange Trading Fund, which is down
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  Speaker 1: sixteen percent at the moment, and then you look through
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  Speaker 1: the American depository receipts of Brazilian company to trade here
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  Speaker 1: and they're taking quite the hit as well. Uh. One example,
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  Speaker 1: the government controlled the energy company petrol Bra, which is
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  Speaker 1: down about fourteen and a half percent at the moment. Yeah. Well,
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  Speaker 1: and remember that Petro braw is also involved with some
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  Speaker 1: allegations of a scandal and taking and having some kind
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  Speaker 1: of corruption probe is ongoing to this day. Vivian, can
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  Speaker 1: you give us a sense of what the fallout could
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  Speaker 1: be from the allegation from Michelle Tamayor and how this
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  Speaker 1: would bleed out into markets in a practical sense. Okay,
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  Speaker 1: So I mean bottom line, I mean the government. We
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  Speaker 1: don't know if we're going to have a government in
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  Speaker 1: this shape and form a week from now. So in
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  Speaker 1: markets are really responding I mean to that reality, right,
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  Speaker 1: if Timer is found, really, if these tapes you know,
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  Speaker 1: are proving to be legitimate, and if the Supreme Court
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  Speaker 1: opens an investigation. I mean pressure will mount for him
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  Speaker 1: to potentially I mean at the bottom line of all this,
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  Speaker 1: he might even have to resign. We are too far.
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  Speaker 1: I mean, there's there's a lot of things can happen there,
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  Speaker 1: but it is a possibility. What is what is tragic here?
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  Speaker 1: You mentioned Petro Bras, right, Yes, it was involved in
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  Speaker 1: all that corruption scandal. They started cleaning up the company.
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  Speaker 1: It posted a very good quarter recently, but now you
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  Speaker 1: just sent them all back down again. And it's worth
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  Speaker 1: reminding that some of these Brazilian companies are some of
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  Speaker 1: the especially in agrie business in emerging markets, are some
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  Speaker 1: of the largest companies in the world. So yes, he
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  Speaker 1: has the potential for a ripple effect in emerging market
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  Speaker 1: dedicated funds. Yes, and Vivian to that point, I was
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  Speaker 1: looking at the biggest emerging markets bond et F today
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  Speaker 1: it's an eleven point three billion dollars I shared JPMorgan
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  Speaker 1: U S dollar emerging markets bond et F and it
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  Speaker 1: is down the most since December. And you know, I
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  Speaker 1: was just looking at the composition and Brazilian assets or
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  Speaker 1: the fifth account for the fifth most UH of any
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  Speaker 1: nation in this particular e t F. So you could
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  Speaker 1: potentially see ripple effect. Are you seeing that, Dave elsewhere? Well,
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  Speaker 1: I mean to an extent, but when you turn to
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  Speaker 1: the stock market. We actually got a reminder on the
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  Speaker 1: Markets Live blog earlier from Cameron christ who's a macro strategist.
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  Speaker 1: Just when you go through the MSc I Emerging Markets Index,
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  Speaker 1: you see that nine of the ten biggest companies are
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  Speaker 1: based in Asia. We're talking about the likes of you know,
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  Speaker 1: Ali Baba Group, for example, and they had earnees out
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  Speaker 1: that word so great, But then there a whole lot
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  Speaker 1: of others, you know, Samsung, Electrocs and so on, so
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  Speaker 1: to that ext and I mean sure there was going
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  Speaker 1: to be a knock on effect, it may not be
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  Speaker 1: quite what you might expect, given that, you know, while
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  Speaker 1: Brazilian companies are certainly substantial and market value, it's not
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  Speaker 1: like they dominate the index in the same sense that
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  Speaker 1: you know, you think about you know, Apple or Facebook
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  Speaker 1: here in the US. Thank you so much for for
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  Speaker 1: that perspective. I'm sure we'll be talking again about this.
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  Speaker 1: This isn't going away anytime soon. Vivian Rodriguez, Latin American
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  Speaker 1: Economy and Government editor for Bloomberg as well as Dave Wilson,
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  Speaker 1: Bloomberg Stocks editor, columnist and Bloggert m Live go on
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  Speaker 1: at the Bloomberg Thank you so much. We want to
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  Speaker 1: more at Bloomberg dot com slash lens. Max Abelson has
• 6:21
  Speaker 1: been listening to the testimony. Max Abelson as a finance
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  Speaker 1: reporter for Bloomberg News and Business Week, and he joins
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  Speaker 1: me here in our Bloomberg eleven three oh studio. Is
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  Speaker 1: quite a wide ranging testimony, from everything from tax reform
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  Speaker 1: to banking regulations. What stood out most to you? You know,
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  Speaker 1: as a reporter, we're trained not to ever express opinions,
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  Speaker 1: but I think it's probably fair to share this opinion that,
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  Speaker 1: you know, hearings in the Senate can sometimes be boring,
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  Speaker 1: But when we just saw something that was definitely not boring.
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  Speaker 1: It was Stephen Mnuchin versus Elizabeth Warren one on one,
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  Speaker 1: and then you can tell they just really see the
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  Speaker 1: world differently, and they really want at it, and they
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  Speaker 1: want at it on a subject that is absolutely central
• 7:02
  Speaker 1: to the shape of the American banking system, which is
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  Speaker 1: Glass Stiegel. Right. They basically we're arguing she was saying,
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  Speaker 1: how can you say that you support a modern Glass
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  Speaker 1: Steagle while not supporting a breakup of the major banks. Yeah.
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  Speaker 1: I mean I have seen a bunch of Senate hearings
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  Speaker 1: in my time, and I think I've never heard a
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  Speaker 1: more memorable quote than what Stephen Nuchin told Elizabeth Elizabeth Warren,
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  Speaker 1: which is, we've been very consistent, we support century glass Stiegel,
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  Speaker 1: but not Glass Stegl. And that is going to be
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  Speaker 1: a really hard, hard needle for these for this administration
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  Speaker 1: to thread, because what they want to say is that
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  Speaker 1: they are populous who support reining in dangerous banking. But
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  Speaker 1: on the other hand, the people who make up the administration,
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  Speaker 1: like Steven Manucin himself form a partner from Goldman Sex
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  Speaker 1: or Wall Street alumni who don't want to hurt the
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  Speaker 1: big banks. They want to they want to cut back
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  Speaker 1: back rules, not add to them. And obviously, when Elizabeth
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  Speaker 1: Warren says the century Glass egle, she's talking about something
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  Speaker 1: very different. Well, you know, I thought that it was
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  Speaker 1: interesting and a lot of the questions there seemed to
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  Speaker 1: be a divide, and as sort of a quest to
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  Speaker 1: find out whether Treasury Secretary Manuchin has talked with anyone
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  Speaker 1: other than banking elite, right, I mean, because that was
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  Speaker 1: sort of one question that that someone just asked you,
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  Speaker 1: who are you surrounding yourself by When you talk to
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  Speaker 1: people on Wall Street, do they feel like they have
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  Speaker 1: a pretty direct line to Treasure Secretary Manuchion, Lisa, you
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  Speaker 1: better believe it. And if it's not Stephen Manton himself,
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  Speaker 1: it's Craig Phillips, who comes from I believe it's Blackstone,
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  Speaker 1: it's um Justin musen It who comes from. I think
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  Speaker 1: it's Morgan Stanley. Wall Street is really really excited that
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  Speaker 1: instead of sort of fighting with their regulators and fighting
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  Speaker 1: with the officials in Treasury and the federal Reserve and
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  Speaker 1: the o c C and the f d i C
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  Speaker 1: and the sec. The people that Donald Trump is putting
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  Speaker 1: in those positions and the Stephen Manuchin is putting in
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  Speaker 1: those positions come from Wall Street. And the crazy irony
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  Speaker 1: here is that the phrase century glass segel comes from
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  Speaker 1: Elizabeth Warren. She used that phrase in her in her
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  Speaker 1: bill with McCain, which and of course what does she
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  Speaker 1: want to do. She wants to break up the big banks,
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  Speaker 1: and that exact phrase was adopted by the Trump administration,
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  Speaker 1: and they mean something entirely different. But I just have
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  Speaker 1: to add in that, like a curveball. On top of
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  Speaker 1: that curveball, is that breaking up the banks is something
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  Speaker 1: that Trump himself has talked about. It was part of
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  Speaker 1: the Republican platform, right, and I think that they brought
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  Speaker 1: that up trying to say, how can we correlate these
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  Speaker 1: two Max Abilson, thank you so much for the instant
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  Speaker 1: reaction to what we've been hearing with the testimony of
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  Speaker 1: Stephen Nuchin, head of the Treasure Department in front of
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  Speaker 1: the Senate Banking Committee. Thanks for listening to the Bloomberg
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