Latest / Balance of Power / Fed’s Watchdog Finds No Criminal Violations in Renovations

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Fed’s Watchdog Finds No Criminal Violations in Renovations · Balance of Power

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  Speaker 1: Wednesday edition.
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  Speaker 6: Thanks for joining us on this last day of the
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  Speaker 6: month and the quarter with the market waiting for the
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  Speaker 6: next cue here. In this case, from Micron Technologies with
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  Speaker 6: earnings after the bell and, of course, the Treasury market
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  Speaker 6: driving decisions on Wall Street every day here. I'm Joe
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  Speaker 6: Matthew alongside Kayleigh Lyons in Washington. Thanks for being with
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  Speaker 6: us on Bloomberg TV and Radio Kayleigh. Treasury yields actually
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  Speaker 6: pushing a little bit higher from the recent highs that
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  Speaker 6: we've been seeing here with inflation data on the radar
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  Speaker 6: this morning.
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  Speaker 7: Yeah, cooler than expected core PCE, which may take some
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  Speaker 7: pressure off the notion that the Fed is going to
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  Speaker 7: hike in September. I think the market right now is
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  Speaker 7: only pricing, or October rather, about 40% odds of that happening.
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  Speaker 7: But you also had strong consumption and spending data coming
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  Speaker 7: out as well, which suggests that it could be an
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  Speaker 7: economy that is a bit more willing to tolerate. higher
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  Speaker 7: rates and could still mean inflationary pressures exist, which is
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  Speaker 7: why yields are moving higher today. There's also a red
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  Speaker 7: headline crossing the Bloomberg terminal right now. The IG report
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  Speaker 7: into the Fed building renovation here in Washington is out
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  Speaker 7: and the Fed watchdog finding no criminal violations in that
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  Speaker 7: renovation product.
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  Speaker 1: A red headline on the terminal. This is a big deal.
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  Speaker 6: We're going to stop down and just give this a
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  Speaker 6: minute to breathe here because we're lucky. to have Bloomberg's
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  Speaker 6: Michael McKee with us here in Washington with this breaking
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  Speaker 6: news headline. This is an inspector general report reminding everybody, Mr. McKee,
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  Speaker 6: that this is the Federal Reserve Building, the Eccles Building,
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  Speaker 6: that went over budget in its renovations and endured an
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  Speaker 6: extreme amount of criticism. Jay Powell certainly did and the
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  Speaker 6: rest of the Fed. by the President of the United
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  Speaker 6: States and Congress.
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  Speaker 1: What have we learned?
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  Speaker 8: Well, the Fed is renovating the Eccles Building, the original
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  Speaker 8: Fed building, and another building next door to it, which
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  Speaker 8: is a surplus government building that they're going to use
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  Speaker 8: for offices. And the original estimate was for about a
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  Speaker 8: $ 1. 3 billion cost, and now it's about a $ 2. 8 billion cost.
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  Speaker 8: And you remember last year, the President tried to fire
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  Speaker 8: Jay Powell for the cost overruns.
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  Speaker 1: And the U.S.
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  Speaker 8: Attorney, Jeanine Pirro, said she was going to prosecute him
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  Speaker 8: for the cost overruns. Well, it turns out, according to
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  Speaker 8: the inspector general, and his report is just out now,
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  Speaker 8: that here's the quote. At no point during our evaluation
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  Speaker 8: did we find reasonable grounds to believe that a violation
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  Speaker 8: of federal criminal law occurred during requiring a referral to
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  Speaker 8: the U.S.
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  Speaker 1: Attorney general.
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  Speaker 8: And it's important to note that the law says if
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  Speaker 8: they did, they would have to refer to the AG.
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  Speaker 8: And they did not identify administrative misconduct during our evaluation.
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  Speaker 8: In other words, nobody did anything criminally wrong or to
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  Speaker 8: benefit themselves. They just did not manage this very well.
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  Speaker 8: And the bottom line question here is, Why did the
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  Speaker 8: Fed go ahead with this? Because according to the inspector general,
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  Speaker 8: they were not competent to do so, or at least
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  Speaker 8: according to the report here, they made a lot of mistakes.
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  Speaker 8: The Board of Governors did not set an overall cost
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  Speaker 8: ceiling for the project. They did not execute what's called
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  Speaker 8: a manager at risk contract, which means if you have
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  Speaker 8: cost overruns, The contractor has to absorb those. They did
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  Speaker 8: not get a guaranteed minimum price. Basically, this is what
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  Speaker 8: it's going to cost from the contractor. They did not
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  Speaker 8: get a construction cost estimate until three and a half
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  Speaker 8: years after construction began. They didn't engage in day-to-day management.
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  Speaker 8: They let staff handle it, and staff kept telling them,
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  Speaker 8: project's on track, project is doing fine. They did not
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  Speaker 8: effectively use an outside representative to be a check on
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  Speaker 8: the contractor and what's going on. And the project governance,
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  Speaker 8: the IG report says, was insufficient. They noted that there
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  Speaker 8: were four major factors here, inflation, limited bidding because of
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  Speaker 8: the way they didn't do the contracts correctly, substantial design
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  Speaker 8: changes halfway through by the Fed, and then site conditions.
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  Speaker 8: You've heard about that, the fact that the river runs
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  Speaker 8: underneath there, and they had to do some mitigation for that.
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  Speaker 7: Well, so talk to us about some of the specific
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  Speaker 7: criticisms that this project received other than the cost overruns.
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  Speaker 7: We heard about some of the more decorative elements, things
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  Speaker 7: like fountains and a rooftop terrace and gardens.
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  Speaker 3: Mike, what does the report find about those things?
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  Speaker 8: Most of those things were taken out except for the marble,
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  Speaker 8: which was to replace marble that had been damaged in
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  Speaker 8: the past, although they used some places. They put some
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  Speaker 8: new marble in, but basically... The IG report says that
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  Speaker 8: they determined those features did not materially contribute to subsequent
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  Speaker 8: construction cost increases. The real problem, as far as the
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  Speaker 8: IG was concerned, was the bidding process. Instead of bidding
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  Speaker 8: it out to the contractor who then would hire the subcontractors,
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  Speaker 8: the Fed issued 84 different subcontracting contracts, and the problem
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  Speaker 8: with that was each one started to go over budget.
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  Speaker 8: And so they had to keep raising what they had
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  Speaker 8: to pay for this. And so the majority of what
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  Speaker 8: the overrun is was from the contracting process as opposed
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  Speaker 8: to the things that Congress was criticizing.
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  Speaker 6: We're going to get to Senator Ted Budd in just
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  Speaker 6: a moment. But Mike, we've got a statement from Senator Scott,
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  Speaker 6: of course, the chair of the Banking Committee, who refers
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  Speaker 6: to April calling for a full accounting of what he
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  Speaker 6: says egregious cost overruns the Fed's building renovation. Today, I
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  Speaker 6: welcome the Inspector General's report. He says inflation does not
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  Speaker 6: change the Fed's responsibility to manage its resources prudently and
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  Speaker 6: be accountable to Congress. This committee will continue rigorous oversight
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  Speaker 6: to ensure the Fed is transparent and stays focused on
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  Speaker 6: its mission.
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  Speaker 1: What comes next?
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  Speaker 8: Well, first we have a response from Kevin Warsh who
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  Speaker 8: says that the board is going to get a guaranteed
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  Speaker 8: minimum price now, set fixed metrics for the budget and
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  Speaker 8: for the schedule. They are going to review the project contracts,
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  Speaker 8: and if any malfeasance is found, they'd seek reimbursements. But
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  Speaker 8: most important, they're going to engage an independent auditor. and
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  Speaker 8: the auditor will go through all of these contracts and
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  Speaker 8: look for particular problems that the Fed maybe should have caught. Now,
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  Speaker 8: what happens next is really going to be up to
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  Speaker 8: Kevin Warsh, how they're going to rejigger what they do
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  Speaker 8: at the Fed. Jeanine Pirro, if she can find anything
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  Speaker 8: in here to prosecute. And again, the IG report says
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  Speaker 8: there's no criminal conduct found. And the president, because he
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  Speaker 8: wanted to fire Jay Powell before. The Supreme Court said
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  Speaker 8: he had to have a process and they had to
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  Speaker 8: meet the tests of. the law in terms of whether
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  Speaker 8: you can fire somebody, which is inefficiency, malfeasance, or neglect.
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  Speaker 8: Neglect essentially means you don't show up for work. But malfeasance,
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  Speaker 8: probably not in the sense that they say they didn't
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  Speaker 8: do anything deliberately, but inefficiency. If the president wants to
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  Speaker 8: say Jay Powell meets that standard, then you could have
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  Speaker 8: a fight over what he's going to do about him.
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  Speaker 8: So we've got to watch Truth Social on that and
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  Speaker 8: watch the U.S. Attorney's Office in Washington.
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  Speaker 7: Well, of course, Powell has maintained that he's not going
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  Speaker 7: to leave on his own accord until the investigation into
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  Speaker 7: all this is well and truly over. Does this put
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  Speaker 7: a bow on things, Mike, or are you suggesting that
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  Speaker 7: this could still have a few different legs?
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  Speaker 8: Well, in an ordinary administration, you'd say this would at
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  Speaker 8: least put an end to the criminal aspect of it
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  Speaker 8: that Jay Powell has faced. But we know that the
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  Speaker 8: Justice Department likes to prosecute people on the flimsiest of reasons,
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  Speaker 8: so they could go ahead with something. And as long
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  Speaker 8: as that's the case, I'm sure Jay Powell would stay around.
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  Speaker 8: But it doesn't let him off the hook in terms
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  Speaker 8: of overall management. Now, they don't refer to the chairman
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  Speaker 8: in the IG report. They refer to the Board of Governors.
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  Speaker 8: But he was the boss of the Board of Governors. So,
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  Speaker 8: you know, he's probably going to have to shoulder a
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  Speaker 8: lot of the blame.
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  Speaker 1: He's not leaving tomorrow, though.
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  Speaker 6: Either way, he's waiting for the Lisa Cook dispute to
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  Speaker 6: officially be resolved.
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  Speaker 8: Which is interesting because the Cook people sent a... response
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  Speaker 8: to the administration. And we've never heard anything since from
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  Speaker 8: the administration. Did they give up or have they just
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  Speaker 8: been too busy with other things?
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  Speaker 1: We don't know.
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  Speaker 8: And this all still hangs out there in terms of
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  Speaker 8: what they're going to do.
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  Speaker 7: Well, and it's hanging over their actual practices at the Fed, which,
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  Speaker 7: of course, is setting monetary policy. Just quickly, since we
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  Speaker 7: have our international economics and policy correspondent at the table,
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  Speaker 7: can we talk about the data today?
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  Speaker 3: You have cooler inflation.
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  Speaker 7: You have stronger spending. What does it mean for the Fed?
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  Speaker 8: Well, we don't really have cooler inflation. What we have
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  Speaker 8: is a change in the methodology that they use, which
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  Speaker 8: lowered all of the PCE numbers from 2021 to now.
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  Speaker 8: And so the headline numbers came down. But the inflation
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  Speaker 8: rate on a month-over-month basis went.
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  Speaker 1: Up in August.
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  Speaker 8: And what we saw is the core PCE was revised
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  Speaker 8: down from 3.7 to 3.4 in the methodology change. But
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  Speaker 8: it didn't change in August. It was 3.4%. So you
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  Speaker 8: still have an inflation... that's not getting better. You have
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  Speaker 8: 90,000 jobs created according to ADP, which is a significant amount.
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  Speaker 8: You have the highest consumer spending in years, nine-tenths of
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  Speaker 8: a percent in spending up. So the economy seems to
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  Speaker 8: be getting stronger. Hiring seems to be picking up. Inflation
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  Speaker 8: hasn't gotten better. So I think what you're going to
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  Speaker 8: end up seeing is people watching for the CPI and
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  Speaker 8: PPI reports to see whether the Fed should move in October,
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  Speaker 8: but it does look like they probably are going to
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  Speaker 8: do another move before the.
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  Speaker 1: End of the year.
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  Speaker 9: Yep.
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  Speaker 7: And of course, a jobs report coming on Friday, and
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  Speaker 7: we'll talk to you again then, I'm sure. Michael McKeer,
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  Speaker 7: international economics and policy correspondent. Thank you so much bringing
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  Speaker 7: us this breaking news.
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  Speaker 10: Again, the Fed.
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  Speaker 7: Inspector general finding no criminal violations in its renovation project.
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  Speaker 7: And for more now, we turn to Capitol Hill, where
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  Speaker 7: Republican Senator Ted Budd of North Carolina is joining us.
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  Speaker 7: He's a member of the Intel Intelligence, Armed Services and
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  Speaker 7: Senate Commerce Committees. Senator, it's great to have you back
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  Speaker 7: on Balance of Power, sir. Thank you for the time.
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  Speaker 7: I know you don't sit on the banking committee, but
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  Speaker 7: I would love your reaction just briefly to this IG
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  Speaker 7: report that finds no evidence. criminal violations in the Fed's
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  Speaker 7: renovation project. Would the administration, the Department of Justice, be
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  Speaker 7: wise not to pursue any further criminal lines of inquiry
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  Speaker 7: into this?
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  Speaker 11: Look, it's just now been released. I haven't seen it
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  Speaker 11: in full detail, but it has always been concerning. I
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  Speaker 11: think the biggest concern is that this is taxpayer dollars
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  Speaker 11: that was just spent without guardrails. No one would manage
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  Speaker 11: a real construction project like this. This is significant. I mean,
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  Speaker 11: I've been there. It's very historical. I mean, you're in there,
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  Speaker 11: the rooms where they decided where and how to finance
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  Speaker 11: the Second World War. But the cost overruns are just egregious.
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  Speaker 11: So that's problematic. But incompetence in that project is not criminal, evidently.
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  Speaker 11: I know that Judge Shapiro is going to take a
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  Speaker 11: look at it.
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  Speaker 6: Michael McKee reminds us, Senator, that it's not taxpayer dollars.
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  Speaker 6: This was paid entirely by the Federal Reserve itself without
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  Speaker 6: the use of taxpayer dollars.
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  Speaker 1: Does that change the way we should look at it?
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  Speaker 1: Not at all.
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  Speaker 11: I mean, it's still a U.S.-related entity, and it ultimately
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  Speaker 11: is for the benefit of Americans. So to spend like this,
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  Speaker 11: it will ultimately affect Americans. I just don't think— I think
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  Speaker 11: that's the culture of how it was run, and I
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  Speaker 11: think Kevin Warsh is going to do a.
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  Speaker 1: Much better job.
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  Speaker 7: Well, Senator, we appreciate you weighing in, understanding that you
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  Speaker 7: haven't seen the full report and we are dealing with
• 11:51
  Speaker 7: breaking news here. I also want to talk about something
• 11:53
  Speaker 7: that is breaking right now in the Senate. A vote
• 11:56
  Speaker 7: on cloture for the Ratepayer Protection Act is underway on
• 11:58
  Speaker 7: the floor, as we understand it. This, of course, is
• 12:00
  Speaker 7: being spearheaded by your colleague, John Husted, who is up
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  Speaker 7: for reelection in Ohio. Democrats argue. Senator, that this bill
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  Speaker 7: simply doesn't have teeth. It's either reinforcing existing law or
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  Speaker 7: making suggestions on what should be done on a voluntary basis.
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  Speaker 7: Should it be mandatory that ratepayers are protected as data
• 12:19
  Speaker 7: centers go into their communities?
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  Speaker 3: Why not have language that codifies that?
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  Speaker 11: I think Senator Husted is right in that this should
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  Speaker 11: be left up to the states, including states like Ohio or,
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  Speaker 11: in my case, North Carolina. If Schumer's argument was correct,
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  Speaker 11: then why did almost every single Democrat vote for this?
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  Speaker 11: You know, 200-some Democrats voted for this. So, I think
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  Speaker 11: the argument falls apart. He's just resisting it to try
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  Speaker 11: to get some egg on the face of a political
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  Speaker 11: opponent at the time. But Senator Husted is all about
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  Speaker 11: bringing cost under control. Look, I'm in all across North Carolina,
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  Speaker 11: all 100 counties, and I'm in communities that don't want
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  Speaker 11: data centers for the different fears, whether it's water, whether
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  Speaker 11: it's power, whether it's land usage. But I'm in some
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  Speaker 11: counties as well that actually want these data centers. They
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  Speaker 11: say this is a huge boon to our tax base.
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  Speaker 11: They're largely, they have the excess power. I mean, you
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  Speaker 11: look at Richmond County where Amazon Web Services has put
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  Speaker 11: in a very significant $ 10 billion investment, a thousand simultaneous
• 13:19
  Speaker 11: electricians working in that one rural county, which was known
• 13:22
  Speaker 11: for a chicken plant years ago with disastrous effects. So,
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  Speaker 11: you know, a lot of these counties are very happy
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  Speaker 11: to have these data centers, but not all of them are.
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  Speaker 1: So the more local, the better. You know, it's interesting.
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  Speaker 6: We had a conversation with Senator Ted Cruz who said
• 13:37
  Speaker 6: that the frontier companies ought to go even further if
• 13:41
  Speaker 6: you're building a data center offered to pay the electric
• 13:44
  Speaker 6: bills of the people who live in that community.
• 13:47
  Speaker 1: No more bills.
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  Speaker 6: I don't know if you're willing to go that far,
• 13:50
  Speaker 6: but do you think this passes today or will Democrats
• 13:53
  Speaker 6: block it?
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  Speaker 1: I don't know if they're going to block it or not.
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  Speaker 11: And as soon as we're done here, I'm going to
• 13:58
  Speaker 11: go back there and support my colleagues. I think it's
• 14:01
  Speaker 11: a great framework. And I really think you need to
• 14:04
  Speaker 11: leave it up to the states. I don't want the
• 14:06
  Speaker 11: federal government telling the North Carolina commissioners how they should
• 14:09
  Speaker 11: be setting rates. I think it's tone deaf here and
• 14:12
  Speaker 11: more in touch with what North Carolinians need and Senator
• 14:16
  Speaker 11: Husted's place, what Ohioans need there. So I'm definitely in
• 14:21
  Speaker 11: support of this.
• 14:24
  Speaker 7: Well, we're talking here about the infrastructure that powers artificial
• 14:27
  Speaker 7: intelligence or superintelligence, as the president signed an executive order
• 14:30
  Speaker 7: to rename it yesterday. Senator, he also had a number
• 14:34
  Speaker 7: of tech titans with him at the White House, signing
• 14:36
  Speaker 7: on to a pledge, essentially, to abide by certain guidelines
• 14:40
  Speaker 7: and self-regulating around this technology. The president characterized that pact
• 14:45
  Speaker 7: as being morally binding. Is that adequate for a technology
• 14:49
  Speaker 7: given all of the security risks that these companies themselves
• 14:52
  Speaker 7: have suggested it can pose?
• 14:55
  Speaker 11: Well, think about the inverse. If we were to say
• 14:57
  Speaker 11: we're going to restrain these U.S. frontier models, which, by
• 15:00
  Speaker 11: the way, are leading the world. And there's so many
• 15:02
  Speaker 11: things and benefits that are going to come out of this,
• 15:04
  Speaker 11: including medical discoveries. I mean, this is the way that'll
• 15:08
  Speaker 11: get us closer to curing cancer is the complexity that's
• 15:11
  Speaker 11: loaded in here. So it's going to be working in
• 15:13
  Speaker 11: collaboration with humans. But if we tap the brakes here,
• 15:17
  Speaker 11: China's not going to tap their brakes. They're going to
• 15:20
  Speaker 11: supersede us. And we can't allow that to happen. Because
• 15:23
  Speaker 11: in all technology is an implicit worldview. I want the
• 15:27
  Speaker 11: American worldview of freedom, freedoms of speech, freedom of religion,
• 15:31
  Speaker 11: all these things to be developed here in the U.S.
• 15:34
  Speaker 11: That's why it's so important that we remain in the lead.
• 15:37
  Speaker 11: But we do need to have some responsibility. These frontier
• 15:40
  Speaker 11: models and these companies, they're responsible to the American people.
• 15:44
  Speaker 11: that people aren't harmed by their use. So I think
• 15:47
  Speaker 11: having a light touch agreement on this is good, which
• 15:50
  Speaker 11: means we take safety very, very seriously. But at the
• 15:53
  Speaker 11: same time, we're not going to throttle these companies where
• 15:56
  Speaker 11: they become behind the curve on China. We just can't
• 16:00
  Speaker 11: allow that to happen. For defense reasons, for business reasons.
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  Speaker 2: Go ahead.
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  Speaker 9: Yeah.
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  Speaker 6: Or do you trust Senator or should we trust Jensen, Altman, Dario, Elon,
• 16:13
  Speaker 6: the folks who were with the president? Remarkable optics to
• 16:16
  Speaker 6: see them all in the White House driveway together. Or
• 16:19
  Speaker 6: is your point trust the liability laws that are already
• 16:22
  Speaker 6: on the books?
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  Speaker 11: I think you trust the American framework. You don't have
• 16:25
  Speaker 11: to trust an individual here. Look, I am a tech optimist,
• 16:29
  Speaker 11: but I realize that they can have some harms with it.
• 16:31
  Speaker 11: So you need to make sure you frame around that.
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  Speaker 11: And I think that's what this does. Let them compete.
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  Speaker 11: And one of them does not own the narrative. That's
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  Speaker 11: why they had so many great talents in the room.
• 16:44
  Speaker 11: I think the panel of 10 plus an AI czar
• 16:47
  Speaker 11: would be great, but allow them to compete not only
• 16:51
  Speaker 11: against China, but with each other. I think that's ultimately
• 16:55
  Speaker 11: what's going to surface the truth of how we proceed
• 16:57
  Speaker 11: with AI.
• 16:59
  Speaker 7: Well, this is obviously one global challenge and potential threat
• 17:03
  Speaker 7: that is being dealt with. But there's others as well,
• 17:07
  Speaker 7: including what happened in the U.K. just days ago. Obviously,
• 17:11
  Speaker 7: five individuals who were arrested, then released on bail, who
• 17:14
  Speaker 7: were suspected of moving toward a U.K. Air Force base
• 17:17
  Speaker 7: that the U.S. is using in part to launch attacks.
• 17:20
  Speaker 7: against Iran. The UK Prime Minister Andy Burnham today said
• 17:23
  Speaker 7: that there is a suggestion that these could be Iranian
• 17:25
  Speaker 7: linked individuals. Has the Intelligence Committee received further information in
• 17:29
  Speaker 7: this regard that you can share? And if not just
• 17:32
  Speaker 7: about this specific threat, about the threat levels posed by
• 17:36
  Speaker 7: Iran and its proxies and terrorists it may fund globally?
• 17:41
  Speaker 11: Yeah, some things still remain classified, but again, they are,
• 17:43
  Speaker 11: I would say, the British investigation authorities are actually looking
• 17:48
  Speaker 11: at this. They are differentiating between who those were that
• 17:51
  Speaker 11: were released on bail, what do they know, what do
• 17:54
  Speaker 11: they not know, and then who are the culprits in
• 17:56
  Speaker 11: the crime. or the attempted crime. I'm just grateful for
• 18:00
  Speaker 11: them bringing that to a stop because you never know
• 18:03
  Speaker 11: how bad this could have been. But the threats are
• 18:05
  Speaker 11: all around us all the time and around the world,
• 18:09
  Speaker 11: people that would seek to bring us harm. I'm grateful
• 18:11
  Speaker 11: for the intelligence community. I'm grateful for local law enforcement
• 18:14
  Speaker 11: and our partners overseas as well.
• 18:16
  Speaker 6: I don't know if you've gotten any phone calls this morning, either, Senator,
• 18:20
  Speaker 6: about this flight that had to make an emergency landing
• 18:23
  Speaker 6: in Saudi Arabia. But it is a harrowing tale. A
• 18:27
  Speaker 6: foiled plane hijacking last night. Was this a terror attack?
• 18:31
  Speaker 6: Do you have any information that you can share?
• 18:35
  Speaker 11: I've heard the news just like you've heard. We're hearing
• 18:37
  Speaker 11: from passengers now. We know that an individual is going
• 18:41
  Speaker 11: to be questioned on this between the pilot and the co-pilot.
• 18:47
  Speaker 11: We understood it plunged from a cruising altitude. We can
• 18:51
  Speaker 11: guess what the motives were there, but we don't know.
• 18:54
  Speaker 11: We want to let all the facts get out before
• 18:56
  Speaker 11: we really summarize this.
• 19:00
  Speaker 6: Plunging 17,000 feet in less than two minutes. Kayleigh, it's
• 19:03
  Speaker 6: an absolutely terrifying situation. Senator, we appreciate you rolling with
• 19:06
  Speaker 6: a lot of breaking news today. And it's good to
• 19:08
  Speaker 6: see you back on Bloomberg as well. Thank you, Senator
• 19:11
  Speaker 6: Ted Budd. Stay with us on Balance of Power. We'll
• 19:13
  Speaker 6: have much more coming up after this.
• 19:18
  Speaker 5: You're listening to the Bloomberg Balance of Power podcast. Catch
• 19:21
  Speaker 5: us live weekdays at noon and 5 p.m. Eastern on
• 19:25
  Speaker 5: Apple CarPlay and Android Auto with the Bloomberg Business app.
• 19:28
  Speaker 5: You can also listen live on Amazon Alexa from our
• 19:31
  Speaker 5: flagship New York station. Just say Alexa, play Bloomberg 1130.
• 19:37
  Speaker 7: The Fed's inspector general finding no evidence of criminality in
• 19:40
  Speaker 7: the renovations of the Eccles building. I'll read a quote
• 19:43
  Speaker 7: directly from this 120-page IG report. It says, quote, at
• 19:48
  Speaker 7: no point during our evaluation did we find reasonable grounds
• 19:51
  Speaker 7: to believe that a violation of federal criminal law had occurred,
• 19:54
  Speaker 7: requiring a referral to the U.S. Attorney General in accordance
• 19:58
  Speaker 7: with the Inspector General Act. It goes on to say,
• 20:00
  Speaker 7: while our report outlines deficiencies in the management of the
• 20:03
  Speaker 7: renovation project, we did not identify administrative misconduct. during our evaluation.
• 20:09
  Speaker 7: So perhaps this wasn't handled well, but it also wasn't handled,
• 20:13
  Speaker 7: according to the IG, in a criminal manner that might
• 20:15
  Speaker 7: implicate further criminality investigation into the former chair, Jay Powell.
• 20:20
  Speaker 6: Which is what a lot of lawmakers at the time said,
• 20:22
  Speaker 6: including Senator John Kennedy from Louisiana, suggesting that criminal motivation
• 20:27
  Speaker 6: is a separate matter from letting a renovation project get
• 20:29
  Speaker 6: out of control. Just as a reminder, we were talking
• 20:33
  Speaker 6: about a project estimated to be $ 1. 3 billion in 2020.
• 20:37
  Speaker 6: It ballooned to $ 2. 4 billion by the time President Trump
• 20:42
  Speaker 6: showed up in the hard hat, and this became a
• 20:44
  Speaker 6: political story.
• 20:45
  Speaker 1: And so we play it to our political panel.
• 20:47
  Speaker 6: Bloomberg Politics contributors Rick Davis and Jeanne Shanzano join us
• 20:50
  Speaker 6: on the breaking news. Jeanne is our Democratic analyst and
• 20:53
  Speaker 6: Democracy Visiting Fellow at Harvard Kennedy School's Ash Center. Rick
• 20:56
  Speaker 6: is a Republican strategist and partner at Stonecourt Capital. Jeanne,
• 21:00
  Speaker 6: we've all had projects in our homes go awry, over budget,
• 21:04
  Speaker 6: over schedule. Is it a simple matter of this on
• 21:07
  Speaker 6: a much larger scale when it comes to the dollar figure?
• 21:11
  Speaker 1: Or was there something untoward at work here?
• 21:15
  Speaker 4: No, you know, I think we know, and I'm really
• 21:18
  Speaker 4: glad that this report was done. I haven't read it, obviously.
• 21:20
  Speaker 3: It just broke, but it sounds very thorough.
• 21:23
  Speaker 4: This is obviously, as you were talking about, not public money,
• 21:27
  Speaker 4: but it was controlled by the Fed. And they have
• 21:31
  Speaker 4: an obligation to be transparent about what they did, how
• 21:35
  Speaker 4: they went over and what went wrong. But none of
• 21:38
  Speaker 4: that rises to the level of criminality. And I think
• 21:40
  Speaker 4: that's the key here. The other thing I think to
• 21:43
  Speaker 4: remember is exactly what Jay Powell said in that video.
• 21:47
  Speaker 4: We all remember we're He said, we need to see
• 21:52
  Speaker 4: the DOJ subpoenas in the context in which they were sent,
• 21:56
  Speaker 4: which was a broader attempt by the administration to threaten
• 22:00
  Speaker 4: and pressure the Fed on borrowing costs. That's exactly what
• 22:05
  Speaker 4: this was. If this was a serious look at how
• 22:08
  Speaker 4: the federal government is spending our tax money and the
• 22:12
  Speaker 4: Fed is spending money, we should also look at the
• 22:15
  Speaker 4: Trump administration as the no-bid contracts this year have reached in.
• 22:20
  Speaker 3: The billions of dollars.
• 22:22
  Speaker 4: So that is all fair game, but it doesn't rise
• 22:25
  Speaker 4: to the level of criminality in this case.
• 22:28
  Speaker 7: Well, so, Rick, as we consider some of the points
• 22:31
  Speaker 7: found in this report, that the Fed did not set
• 22:34
  Speaker 7: an overall cost ceiling. They did not get a guaranteed
• 22:37
  Speaker 7: minimum price. They did not get a construction cost estimate
• 22:41
  Speaker 7: until three and a half years after construction began. I
• 22:45
  Speaker 7: would imagine you have some thoughts as to how this
• 22:48
  Speaker 7: was handled. But do we think all of these things
• 22:50
  Speaker 7: were obtained by the Trump administration when they pursued, for example,
• 22:54
  Speaker 7: the reflecting pool, re-stealing and coloring and renovation, or when
• 22:58
  Speaker 7: they're looking at things like the arch? Is this the
• 23:01
  Speaker 7: usual course of business that the Fed diverged from, or
• 23:05
  Speaker 7: is this how a lot more is done in Washington
• 23:08
  Speaker 7: these days than we maybe previously understood?
• 23:12
  Speaker 2: Yeah, I mean, the way I read it, the report
• 23:14
  Speaker 2: is a scathing indictment of incompetence on whoever was running
• 23:19
  Speaker 2: this billed for the Fed. I mean, really, as Michael
• 23:24
  Speaker 2: McKee said earlier in the program, thousands of contractors all
• 23:28
  Speaker 2: were given individual contracts and didn't follow up into a
• 23:31
  Speaker 2: master budget. No wonder it was so overstacked with overruns.
• 23:37
  Speaker 2: The reality is, Though I think the key thing here
• 23:40
  Speaker 2: is the American people already are skeptical of their government institutions, right?
• 23:45
  Speaker 2: Nobody's winning the popularity award with the American public on
• 23:49
  Speaker 2: how government is run. And when they see this headline, one,
• 23:53
  Speaker 2: they shrug their shoulders because they say, yeah, that's what
• 23:55
  Speaker 2: we thought. All these people are just incompetent, wasting money.
• 23:58
  Speaker 2: It doesn't matter whose money it is. It's a waste
• 24:01
  Speaker 2: of money. And that money could be used for other
• 24:03
  Speaker 2: productive purposes. And then two, what is it that anybody
• 24:07
  Speaker 2: is taking responsibility for? Who was fired over this? I mean,
• 24:10
  Speaker 2: was anybody, you know, sort of let go? I mean,
• 24:13
  Speaker 2: who were overseeing this? I mean, where's the accountability within
• 24:17
  Speaker 2: the Fed on what is now seen by this report
• 24:22
  Speaker 2: is real incompetence.
• 24:23
  Speaker 1: And So I don't know.
• 24:24
  Speaker 2: I mean, like you can try to translate this across government.
• 24:27
  Speaker 2: I think every agency is probably in the same category
• 24:31
  Speaker 2: of performing at a very low level. But at the
• 24:34
  Speaker 2: bottom line is this is why we have problems with
• 24:37
  Speaker 2: confidence in our institutions. And this was no, you know,
• 24:41
  Speaker 2: sort of opportunity to say anything positive about the outcome here.
• 24:45
  Speaker 6: Yeah, well, that's a fair take from both of our panelists. Jeannie,
• 24:49
  Speaker 6: if we're going into hearing heaven, if Democrats win the
• 24:53
  Speaker 6: majority in November, will this be looked into? Elizabeth Warren
• 24:58
  Speaker 6: doesn't think terribly highly of Jay Powell or much that
• 25:01
  Speaker 6: goes on at the Fed either, does she?
• 25:04
  Speaker 4: Yeah, Joe, I don't know if it's heaven or the opposite,
• 25:07
  Speaker 4: but I think that's where we're going to head if
• 25:09
  Speaker 4: Democrats take it. And I do think this would be
• 25:13
  Speaker 4: fair game. But again, I also think what should be
• 25:16
  Speaker 4: fair game is federal spending overall. I'm just looking at
• 25:20
  Speaker 4: these numbers. Project on government oversight says no bid contracts,
• 25:24
  Speaker 4: 10 year high in twenty twenty five. $ 300 billion in 2026.
• 25:30
  Speaker 4: And to Kayleigh's point, there was a no-bid contract on
• 25:33
  Speaker 4: the Lincoln Memorial reflecting pool, $ 14. 7 million given to somebody
• 25:38
  Speaker 4: Donald Trump knows, went up to $ 16 million and.
• 25:41
  Speaker 3: Did not work.
• 25:42
  Speaker 4: So I think, yes, look at this in the Fed,
• 25:45
  Speaker 4: but look at it writ large, because our tax money
• 25:48
  Speaker 4: or federal agencies using their own money should not be
• 25:52
  Speaker 4: spending in this way under Congress, it does need to
• 25:57
  Speaker 4: exercise oversight.
• 26:00
  Speaker 7: And finally, Rick, to return to your point about wondering
• 26:03
  Speaker 7: if a head is going to roll over the mismanagement here,
• 26:07
  Speaker 7: would it be wise for the DOJ, for Jeanine Pirro,
• 26:09
  Speaker 7: or anyone else to continue to try to pursue criminal
• 26:12
  Speaker 7: charges against Jerome Powell or anyone involved if an IG
• 26:15
  Speaker 7: finds no criminality here?
• 26:19
  Speaker 2: Yeah, look, I mean, it's pretty clear that, um, DOJ
• 26:23
  Speaker 2: writ large and, and, and, and, and Janine Pero specifically
• 26:28
  Speaker 2: have tried to use the office of, uh, uh, the
• 26:32
  Speaker 2: legal counsel to go after people politically. You'd be missing
• 26:37
  Speaker 2: a lot of headlines if you hadn't seen that.
• 26:40
  Speaker 8: I wouldn't be.
• 26:40
  Speaker 2: Surprised if there isn't some exercise around that. Now they've
• 26:46
  Speaker 2: got the Fed chairman they wanted in Chairman Walsh. And
• 26:50
  Speaker 2: I can't imagine he would particularly want any kind of
• 26:53
  Speaker 2: a witch hunt going on inside the Fed while he's
• 26:56
  Speaker 2: trying to navigate, you know, a difficult economy. So at
• 26:59
  Speaker 2: the end of the day, I would probably err on
• 27:02
  Speaker 2: the side that they will let this moment pass.
• 27:07
  Speaker 4: All right.
• 27:07
  Speaker 7: Rick Davis and Jeanne Shanzano, both of them Bloomberg Politics contributors,
• 27:12
  Speaker 7: joining us on this breaking news today.
• 27:13
  Speaker 3: Thank you so much.
• 27:15
  Speaker 7: And as we just heard from a Republican in the Senate,
• 27:18
  Speaker 7: we also want to talk about some of our top
• 27:19
  Speaker 7: stories today with a Democrat in the House, Democratic Congressman
• 27:24
  Speaker 7: Ami Barra of California, representing the 6th Congressional District there,
• 27:28
  Speaker 7: is joining us now on Bloomberg TV and radio. Congressman,
• 27:31
  Speaker 7: welcome back to Bloomberg. It's good to have you, sir.
• 27:34
  Speaker 7: One of the things we discussed with Ted Budden we've
• 27:36
  Speaker 7: been talking about all week for months here in Washington
• 27:39
  Speaker 7: is the regulation, if at all, of artificial intelligence. President
• 27:45
  Speaker 7: Trump gathered for lunch yesterday some of the richest men
• 27:48
  Speaker 7: in the world, leaders of these tech and AI companies
• 27:51
  Speaker 7: that are paving the way here, and got them to
• 27:53
  Speaker 7: sign on to what he described as a morally binding
• 27:56
  Speaker 7: agreement on self-regulation. Is that enough?
• 28:01
  Speaker 1: It's not enough.
• 28:02
  Speaker 9: And thank you for having me back on. No, we've
• 28:05
  Speaker 9: got to do federal legislation. You know, the states are
• 28:08
  Speaker 9: moving faster than the federal government. And It'd be dangerous
• 28:12
  Speaker 9: to have 50 different policy sets from each of the states.
• 28:16
  Speaker 9: I do think this is something that the House and
• 28:18
  Speaker 9: Senate have to work on with the White House. Again,
• 28:21
  Speaker 9: putting up those guardrails, we don't want to stifle innovation,
• 28:25
  Speaker 9: but we do want to make sure what is coming
• 28:27
  Speaker 9: out is safe, is tested and vetted. And especially if
• 28:31
  Speaker 9: the companies are asking for that oversight, we ought to
• 28:35
  Speaker 9: be doing it.
• 28:37
  Speaker 6: Do you support Congressman? And it's good to have you back.
• 28:40
  Speaker 6: It's been too long. Do you support the governor's approach
• 28:42
  Speaker 6: to data centers? With that said, that seven bill package
• 28:46
  Speaker 6: that would bring more oversight to data centers, the president
• 28:49
  Speaker 6: says could kill the golden goose.
• 28:53
  Speaker 9: No, you've got to listen to the consumers. And they're
• 28:56
  Speaker 9: very worried right now. Their utility prices are going up.
• 29:00
  Speaker 9: They're concerned about how much debt is going into these
• 29:03
  Speaker 9: data centers. I do think slowing it down, getting a
• 29:07
  Speaker 9: sense of where the water is going to come from,
• 29:10
  Speaker 9: where the energy is going to come from, what they
• 29:11
  Speaker 9: look like, and working with industry. But I do think
• 29:16
  Speaker 9: having a slowdown, a pause, and thinking about this in
• 29:20
  Speaker 9: a very intentional way makes a lot of sense.
• 29:24
  Speaker 7: Well, on data centers, the Senate right now is trying
• 29:27
  Speaker 7: to advance the Ratepayer Protection Act that passed your chamber
• 29:30
  Speaker 7: with a massive bipartisan margin. Only three Democrats voted no,
• 29:34
  Speaker 7: but a number of Democrats are voting against advancing this
• 29:37
  Speaker 7: right now at 42 nays, it looks like. this will
• 29:40
  Speaker 7: likely fail on the Senate floor. What are your Democratic
• 29:43
  Speaker 7: colleagues in the Senate missing on this one? Why was
• 29:46
  Speaker 7: there so much support in the House and not in
• 29:48
  Speaker 7: the other chamber?
• 29:49
  Speaker 1: You know, I think it's a good bill.
• 29:51
  Speaker 9: I think it's a good start. I'm going to guess
• 29:53
  Speaker 9: it's politics that are coming into play. I'd put the
• 29:56
  Speaker 9: politics aside and I would say pass the bill, send
• 29:58
  Speaker 9: it to the president's desk.
• 30:00
  Speaker 1: It's a good start.
• 30:01
  Speaker 9: It's not an end point because we do need the
• 30:03
  Speaker 9: ability to compute and compete with the rest of the world.
• 30:08
  Speaker 9: But again, the public's a little bit leery here. You know,
• 30:12
  Speaker 9: it's moving pretty fast. So I would pass that. I
• 30:16
  Speaker 9: would tell my Senate colleagues to pass it.
• 30:19
  Speaker 1: Interesting.
• 30:21
  Speaker 6: Politics in play ahead of the midterm elections. This is
• 30:24
  Speaker 6: John Husted's bill. And that's some of the analysis that
• 30:27
  Speaker 6: we've heard is that Democrats didn't want to give him
• 30:29
  Speaker 6: a win this close to the election. So maybe it
• 30:32
  Speaker 6: reemerges in the lame duck or in the next Congress.
• 30:35
  Speaker 6: We'll have to find out. But I want to ask
• 30:36
  Speaker 6: you with so much talk as we hear every day
• 30:38
  Speaker 6: and even yesterday with with these captains of AI joining
• 30:42
  Speaker 6: the president at the White House. And Ted Budd said
• 30:45
  Speaker 6: it even this hour, the senator from North Carolina, that
• 30:49
  Speaker 6: AI is going to bring a cure to cancer. These
• 30:51
  Speaker 6: are the kind of expectations that many people have who
• 30:54
  Speaker 6: might or might not be worried about an existential threat
• 30:57
  Speaker 6: to humanity. But as someone who was chief medical officer
• 31:00
  Speaker 6: for Sacramento before you became a congressman, do you share
• 31:03
  Speaker 6: those hopes?
• 31:04
  Speaker 1: Does AI make better doctors?
• 31:07
  Speaker 2: You know what?
• 31:08
  Speaker 9: AI in the healthcare space, it's an area that I
• 31:11
  Speaker 9: focused on.
• 31:11
  Speaker 1: I was on the AI task.
• 31:12
  Speaker 9: Force that Speaker Johnson and Hakeem Jeffries put together in
• 31:15
  Speaker 9: the last Congress. It is remarkable the advances that are
• 31:19
  Speaker 9: taking place in the healthcare space, in drug discovery, in
• 31:24
  Speaker 9: improving diagnostics and making diagnosis faster. What we have to
• 31:28
  Speaker 9: be careful about, though, the same tools that AI uses
• 31:32
  Speaker 9: to help us come up with those cures for cancer,
• 31:34
  Speaker 9: discover those new drugs, can also be in the hands
• 31:37
  Speaker 9: of bad actors that want to manufacture bad biotherapeutics, bioweapons, etc.
• 31:45
  Speaker 9: It is an area that we recognize AI is going
• 31:49
  Speaker 9: to do good and help move the world forward. But
• 31:51
  Speaker 9: we also need to have those guardrails. And we've been
• 31:54
  Speaker 9: talking to other players in the field, including I've met
• 31:57
  Speaker 9: with the Chinese ambassador and others. We do have to
• 32:00
  Speaker 9: have an international standard on what's acceptable research, but also
• 32:06
  Speaker 9: what should we not be doing.
• 32:09
  Speaker 7: Well, and on that, especially given your seat on the
• 32:11
  Speaker 7: Intelligence Committee, obviously, President Trump has dismissed some of the
• 32:15
  Speaker 7: most extreme concerns around what artificial intelligence could wreak on
• 32:20
  Speaker 7: humanity as being a hoax. Is there credible reason to
• 32:23
  Speaker 7: believe that this technology itself could act on its own
• 32:28
  Speaker 7: or be used by a nefarious actor to do incredible
• 32:32
  Speaker 7: damage to us here in the U.S., but to people globally?
• 32:38
  Speaker 3: Absolutely.
• 32:38
  Speaker 9: This is incredibly powerful technology that's moving very fast.
• 32:44
  Speaker 1: If you hear the leading AI.
• 32:46
  Speaker 9: Companies saying, hey, it's time for us to slow down
• 32:49
  Speaker 9: on these models, that they're discovering models that are doing
• 32:53
  Speaker 9: things on their own.
• 32:54
  Speaker 1: Yeah, it is time for us to slow down.
• 32:56
  Speaker 9: It is time for us to have a conversation between
• 32:59
  Speaker 9: the policymakers and industry and talk about what is the
• 33:04
  Speaker 9: right legislation. And then I would hope we go to Europe, Asia,
• 33:08
  Speaker 9: and other leading countries around the world and come up
• 33:11
  Speaker 9: with a global regulatory framework. Because, again, once you lose control,
• 33:15
  Speaker 9: AI will be advancing on its own.
• 33:21
  Speaker 1: Congressman, it's great to have you back with us.
• 33:23
  Speaker 6: We'd love to see you when you're back in Washington
• 33:24
  Speaker 6: to continue this conversation, because I'm sure It will only
• 33:27
  Speaker 6: be more pronounced by then. Congressman Ami Berra, Democrat from California,
• 33:31
  Speaker 6: we thank you.
• 33:32
  Speaker 1: Stay with us on Balance of Power. We'll have much
• 33:34
  Speaker 1: more coming up after this.
• 33:40
  Speaker 5: You're listening to the Bloomberg Balance of Power podcast. Catch
• 33:43
  Speaker 5: us live weekdays at noon and 5 p.m. Eastern on
• 33:46
  Speaker 5: Apple CarPlay and Android Auto with the Bloomberg Business app.
• 33:50
  Speaker 5: Listen on demand wherever you get your podcasts or watch
• 33:53
  Speaker 5: us live on YouTube.
• 33:56
  Speaker 7: We're keeping track of a number of other stories here
• 33:58
  Speaker 7: on Bloomberg TV and radio, including a scary one out
• 34:01
  Speaker 7: of the Middle East today. After a jet carrying more
• 34:04
  Speaker 7: than 170 people had to make an emergency landing in
• 34:07
  Speaker 7: Saudi Arabia after an in-flight incident that saw one of
• 34:10
  Speaker 7: the pilots stab his co-pilot. only later to be subdued
• 34:17
  Speaker 7: by a crew member and passenger as the jet plunged
• 34:20
  Speaker 7: more than 14,000 feet in the span of just 30 seconds.
• 34:24
  Speaker 7: This was a plane on Dubai air that was bound
• 34:27
  Speaker 7: for Israel, and the Israeli Prime Minister Benjamin Netanyahu issued
• 34:30
  Speaker 7: a video statement in the aftermath of the incident.
• 34:33
  Speaker 3: Listen.
• 34:34
  Speaker 12: We're in continuous contact with the relevant authorities to ensure
• 34:38
  Speaker 12: the ongoing safety of the passengers, to ensure their open
• 34:42
  Speaker 12: return to the country. I have instructed the security systems
• 34:45
  Speaker 12: to prepare for additional potential threats.
• 34:50
  Speaker 6: This is the stuff of movies that you wouldn't believe
• 34:53
  Speaker 6: if you saw them. Netanyahu said the passengers who intervened,
• 34:57
  Speaker 6: a group of about five, quote, displayed exceptional resourcefulness and
• 35:01
  Speaker 6: courage and saved many lives. We can tell you a
• 35:05
  Speaker 6: repatriation flight has now landed in Tel Aviv with all
• 35:10
  Speaker 6: the passengers on board. remarkable developments, and we're learning more
• 35:14
  Speaker 6: about what happened inside the cockpit and inside the cabin
• 35:17
  Speaker 6: with the help of Sid Phillip, Bloomberg News Chief Correspondent
• 35:20
  Speaker 6: for Global Aviation. Sid, it's great to have you, and
• 35:23
  Speaker 6: thanks for joining us live from New York. One of
• 35:25
  Speaker 6: the first questions we had was how did these people
• 35:28
  Speaker 6: get into the cockpit to help the pilot who had
• 35:31
  Speaker 6: been stabbed? And it seems we've learned now that he
• 35:33
  Speaker 6: unlocked the door for them.
• 35:35
  Speaker 13: That's correct, Joe. So at the moment, we do understand
• 35:38
  Speaker 13: that the pilot unlocked the door for the cockpit, and
• 35:42
  Speaker 13: that allowed the passengers to come in. And subdued the
• 35:45
  Speaker 13: other pilot who was stabbing that pilot. We still don't
• 35:48
  Speaker 13: know much about the identities of the pilots or what
• 35:52
  Speaker 13: the sort of motivations were. And that's going to be
• 35:55
  Speaker 13: the focus in the next coming days and weeks as
• 35:57
  Speaker 13: we move on from this incident.
• 36:00
  Speaker 12: Yeah.
• 36:01
  Speaker 7: Can we talk about how this was recoverable? So doing
• 36:06
  Speaker 7: the pilot who had stabbed the other, but after dropping
• 36:09
  Speaker 7: 14,000 feet, how difficult would it have been to keep
• 36:11
  Speaker 7: this plane airborne, stabilized, and allow for the execution of
• 36:15
  Speaker 7: this emergency landing in Saudi Arabia?
• 36:17
  Speaker 13: It was quite a dramatic rescue of the aircraft. I mean,
• 36:20
  Speaker 13: given the fact that from the images that we've seen
• 36:23
  Speaker 13: of the aircraft, The rudder on the back of the plane,
• 36:27
  Speaker 13: on the tail, that was sheared off. And from flight
• 36:30
  Speaker 13: radar data, we see that the plane dropped 14,000 feet
• 36:34
  Speaker 13: in 30 seconds, approaching the speed of sound. So it
• 36:37
  Speaker 13: was a very serious incident. And it's sort of fortuitous
• 36:41
  Speaker 13: that there were two backup pilots in the aircraft who
• 36:44
  Speaker 13: were able to take controls and get the plane on
• 36:47
  Speaker 13: the ground safely. And we understand that the reason why
• 36:51
  Speaker 13: those backup pilots were on board was in case of
• 36:54
  Speaker 13: operational reasons that would make the aircraft need to be,
• 36:57
  Speaker 13: because of the complicated geopolitics in the region at the
• 37:00
  Speaker 13: moment where there may be diversions or lengthy disruptions to
• 37:03
  Speaker 13: the flights. Wow.
• 37:05
  Speaker 6: Just to think, 14,000 feet in less than 30 seconds
• 37:09
  Speaker 6: approaching the speed of sound. And luckily the wings didn't
• 37:11
  Speaker 6: break off here completely. Sid, this was a 737. Is
• 37:15
  Speaker 6: that right? Boeing 737?
• 37:17
  Speaker 13: That's correct. This is a 737 MAX 8 aircraft.
• 37:19
  Speaker 9: Wow.
• 37:20
  Speaker 6: I'm sure that we'll be learning a lot more about
• 37:23
  Speaker 6: what happened in that period of time. Some of the
• 37:26
  Speaker 6: images that we're seeing from inside the cabin while unverified
• 37:30
  Speaker 6: are pretty terrifying.
• 37:33
  Speaker 1: Do we know the condition of the pilot.
• 37:35
  Speaker 13: At this time? We understand that both the pilots were
• 37:38
  Speaker 13: taken to hospital. We don't really have any update on
• 37:40
  Speaker 13: the status of the pilots at the moment.
• 37:45
  Speaker 7: All right. Sid Phillip, helping us work through the information
• 37:48
  Speaker 7: we know, obviously still a lot that I'm sure will
• 37:50
  Speaker 7: be uncovered as the investigation continues. He covers global aviation
• 37:54
  Speaker 7: for us here at Bloomberg and staying on top of
• 37:56
  Speaker 7: this harrowing incident aboard a fly Dubai plane.
• 38:00
  Speaker 3: Speed of sound.
• 38:01
  Speaker 1: I don't get how they recovered the plane.
• 38:03
  Speaker 7: It's really incredible. A miracle for these more than 170
• 38:07
  Speaker 7: people on board. And it's a story that we continue
• 38:10
  Speaker 7: to follow. And of course, it's happening in the context
• 38:13
  Speaker 7: of A hot conflict in the Middle East, not to
• 38:16
  Speaker 7: draw any conclusions as to whether or not these things
• 38:18
  Speaker 7: were related, but of course it does raise questions given
• 38:22
  Speaker 7: the ongoing conflict with Iran, the status of which is
• 38:25
  Speaker 7: still very much in flux as the president suggests it
• 38:28
  Speaker 7: won't be resolved. until after the midterms. And it's with
• 38:31
  Speaker 7: that in mind now that we turn to Lieutenant General
• 38:33
  Speaker 7: Karen Gibson, who is back with us on Bloomberg TV
• 38:36
  Speaker 7: and radio. She's now a member of Academy Security's Geopolitical
• 38:39
  Speaker 7: Intelligence Group and is former Deputy Director of National Intelligence
• 38:43
  Speaker 7: at the Office of Director. of National Intelligence. Lieutenant General,
• 38:46
  Speaker 7: welcome back to Balance of Power. You may have thoughts
• 38:51
  Speaker 7: on the incident that occurred aboard this aircraft that was
• 38:54
  Speaker 7: bound for Israel today, but take that with information still unknown,
• 38:58
  Speaker 7: the UK air base in which authorities intercepted individuals that
• 39:02
  Speaker 7: they thought might be targeting that base that US forces
• 39:06
  Speaker 7: have been using to deploy attacks.
• 39:08
  Speaker 3: Against Iran.
• 39:09
  Speaker 7: Does this paint a picture to you of potentially an
• 39:13
  Speaker 7: escalating threat level as this conflict drags on?
• 39:18
  Speaker 3: Well, that's a great question, Kayleigh. I think it's a
• 39:20
  Speaker 3: little complicated.
• 39:21
  Speaker 10: One, when the war first began and Iran began to retaliate,
• 39:26
  Speaker 10: there were a number of things they did that were
• 39:28
  Speaker 10: not unexpected, like, frankly, controlling the Strait of Hormuz.
• 39:31
  Speaker 3: And then there was a short list of things.
• 39:33
  Speaker 10: That many analysts expected to see happen that did not,
• 39:36
  Speaker 10: such as the Houthis getting involved to affect the Bab al-Mandeb.
• 39:39
  Speaker 3: That has now occurred.
• 39:41
  Speaker 10: Another would be cyber attacks, significant cyber attacks against critical infrastructure.
• 39:46
  Speaker 10: And then the third would be acts of sabotage or
• 39:48
  Speaker 10: acts by sleeper cells, terror cells.
• 39:50
  Speaker 3: And it's possible that.
• 39:52
  Speaker 10: These are related to these, but we don't know that
• 39:54
  Speaker 10: for a fact. I think in terms of the pilot,
• 39:57
  Speaker 10: he could be a very deranged individual, a psychotic episode, suicidal,
• 40:02
  Speaker 10: or it could be a terror attack. If we look
• 40:05
  Speaker 10: at the last several decades, there have been 10 to
• 40:09
  Speaker 10: 12 such incidents in which someone in the cockpit takes
• 40:12
  Speaker 10: nefarious actions. And none of those has it been tied
• 40:16
  Speaker 10: explicitly to terrorism. That's less of an Iranian MO. But
• 40:21
  Speaker 10: in terms of what may or may not have happened
• 40:24
  Speaker 10: in the UK.
• 40:25
  Speaker 3: At the airbase... That is.
• 40:27
  Speaker 10: More in line with how the Iranians typically act using
• 40:30
  Speaker 10: criminal organizations, cutouts, proxies like Hamas or Hezbollah or the
• 40:36
  Speaker 10: Iranian-aligned militia groups that exist in Iraq to give them
• 40:40
  Speaker 10: some level of deniability when attacks occur.
• 40:46
  Speaker 1: Fascinating.
• 40:46
  Speaker 6: General, I wonder if you are as pessimistic about a
• 40:50
  Speaker 6: potential deal with Iran before the midterms as the president is.
• 40:53
  Speaker 6: There's writing today, research by both JPMorgan Chase and Goldman
• 40:57
  Speaker 6: Sachs that finds oil flows in the Middle East are
• 41:00
  Speaker 6: actually returning to pre-war levels. The headline from JPMorgan, a
• 41:05
  Speaker 6: remarkable recovery for a region still at war. Does this
• 41:08
  Speaker 6: take leverage away from Iran and bring it to the U.S.?
• 41:13
  Speaker 6: It does diminish their leverage.
• 41:15
  Speaker 10: Their chief leverage has been an ability to throttle the
• 41:19
  Speaker 10: flow of oil.
• 41:20
  Speaker 3: And to impact the global economy.
• 41:22
  Speaker 10: And while it has had disruptive effects, I actually don't
• 41:25
  Speaker 10: think it's been as deeply detrimental as the Iranians thought originally.
• 41:30
  Speaker 3: And as additional.
• 41:31
  Speaker 10: Means are found for shipping some of those petrochemicals or
• 41:35
  Speaker 10: other goods in and out of the region, that does
• 41:38
  Speaker 10: diminish the value of the leverage that they hold over
• 41:42
  Speaker 10: the strait.
• 41:45
  Speaker 7: Well, so if their leverage is being diminished, is there
• 41:48
  Speaker 7: reason to believe that this may be resolved shortly after
• 41:51
  Speaker 7: the midterms? It's only a matter of weeks away. General,
• 41:54
  Speaker 7: do you see a real chance that there could be
• 41:57
  Speaker 7: some kind of resolution in that time?
• 42:00
  Speaker 10: So I think if the president had an opportunity to
• 42:03
  Speaker 10: strike a deal that was very much in our favor,
• 42:05
  Speaker 10: he wouldn't wait for the midterms. He would do that
• 42:08
  Speaker 10: now in an effort to affect the midterms. That's possible,
• 42:11
  Speaker 10: but Iran may not be inclined to give him that.
• 42:14
  Speaker 10: So after the midterms, obviously the political calculus— and I'm not
• 42:18
  Speaker 10: a domestic political analyst, but the political calculus changes— I
• 42:22
  Speaker 10: do think that the enduring blockade and the impact of
• 42:27
  Speaker 10: the sanctions, although they are not quite as wholesale as
• 42:30
  Speaker 10: they were originally painted to be, are certainly having an
• 42:33
  Speaker 10: effect on the Iranian economy. I think there aren't a
• 42:36
  Speaker 10: lot of details available yet on this latest seven-day trust-building
• 42:41
  Speaker 10: proposal that's been floated by the Iranians. But I think
• 42:44
  Speaker 10: talks continue through back-channel mediators. And I do think we
• 42:48
  Speaker 10: will get a deal that will affect the Strait of Hormuz.
• 42:52
  Speaker 3: Probably after the midterms.
• 42:54
  Speaker 10: But then the big question is the whole origin of
• 42:57
  Speaker 10: this war, which was looking at Iran's nuclear ambitions, and
• 43:00
  Speaker 10: that will be a much longer process.
• 43:03
  Speaker 6: General, we want to mark this day with you as
• 43:06
  Speaker 6: the United States has formally concluded Operation Inherent Resolve. We're
• 43:10
  Speaker 6: talking about Iraq, the departure of coalition forces and equipment
• 43:15
  Speaker 6: taking place, noted by the Pentagon, a milestone ending the
• 43:19
  Speaker 6: 12-year U.S.
• 43:20
  Speaker 1: Campaign in Iraq. 2014, ISIS.
• 43:24
  Speaker 6: We remember all of this, of course, not to mention
• 43:27
  Speaker 6: our very long history of war in that country.
• 43:30
  Speaker 1: But we also know that the U.S.
• 43:32
  Speaker 6: Has recently bombed Iranian proxies in a corner of Iraq
• 43:37
  Speaker 6: and into Syria.
• 43:37
  Speaker 1: What does all of this mean? And could we return?
• 43:41
  Speaker 10: Well, you know, I got to say, Joe, I'm a
• 43:43
  Speaker 10: proud contributor of Operation Inherent Resolve. I served forward for
• 43:47
  Speaker 10: 13 months as the director of intelligence and supported those
• 43:50
  Speaker 10: operations for another three and a half years from the U.S.
• 43:54
  Speaker 3: There was no moral.
• 43:55
  Speaker 10: Ambiguity about that campaign against ISIS. And I'm very proud
• 43:58
  Speaker 10: of the work that the U.S. military and its countless
• 44:01
  Speaker 10: international partners did in rolling back the ISIS caliphate.
• 44:06
  Speaker 3: I think there will always.
• 44:07
  Speaker 10: Be some disaffected Sunni elements in Iraq, as we see
• 44:10
  Speaker 10: with some of the Shia-aligned militia groups. That will be
• 44:14
  Speaker 10: a persistent threat. And the fact that we are leaving
• 44:17
  Speaker 10: is certainly an accomplishment for them. It is something that
• 44:19
  Speaker 10: they have touted for some time as a goal and objective,
• 44:22
  Speaker 10: both for those militia groups and for the Islamic Republic
• 44:26
  Speaker 10: in Iran. I think whoever is leading the United States,
• 44:30
  Speaker 10: whether it's President Trump or a successor, Should America's vital
• 44:34
  Speaker 10: interests be threatened in Iraq, they would not hesitate to.
• 44:37
  Speaker 3: Redeploy forces there.
• 44:39
  Speaker 10: It remains to be seen what kind of grip these
• 44:42
  Speaker 10: Iranian-aligned militia elements will continue to have in Iraq. The
• 44:47
  Speaker 10: prime minister says he's going to disarm them. I do
• 44:49
  Speaker 10: think that's easier said than done.
• 44:51
  Speaker 9: Hmm.
• 44:53
  Speaker 7: Lieutenant General, I also want to mark something else that's
• 44:55
  Speaker 7: happening today. The Defense Secretary, Pete Headseth, will be giving
• 44:58
  Speaker 7: another address at Quantico. Keeping in mind, last year he
• 45:02
  Speaker 7: gave a speech that in large part was focused on
• 45:04
  Speaker 7: the aesthetics and appearance of America's warfighters. We expect that
• 45:08
  Speaker 7: he's going to detail this announcement that he's cutting senior
• 45:12
  Speaker 7: positions within the DOD ranks like generals and admirals by
• 45:16
  Speaker 7: 20 percent. Do you view this as a matter of
• 45:19
  Speaker 7: efficiency or is it something that could actually be.
• 45:24
  Speaker 3: Degrading on our readiness? Yeah, that is the question of
• 45:28
  Speaker 3: the day, Kaylee.
• 45:29
  Speaker 10: I think, you know, certainly there is room for enhancements
• 45:33
  Speaker 10: and we'll need details on where these are being cut
• 45:37
  Speaker 10: to identify where it really is going to enhance readiness. Personally,
• 45:42
  Speaker 10: I'm a fan of lean organizations. I think bloat reduces inefficiency.
• 45:46
  Speaker 10: But on the other hand, there is a risk with
• 45:48
  Speaker 10: that number. It'll depend on where they're coming from. that
• 45:51
  Speaker 10: you decrease readiness. So we'll need to look at what
• 45:54
  Speaker 10: is the span of control of the remaining generals? Where
• 45:59
  Speaker 10: does it enhance efficiency? Where does it perhaps unduly burden
• 46:03
  Speaker 10: a command structure or diminish oversight on something like an
• 46:07
  Speaker 10: important acquisition program? It's really tough to say without seeing
• 46:11
  Speaker 10: the details on how and where these cuts are.
• 46:14
  Speaker 3: Going to occur.
• 46:16
  Speaker 6: Well, when we consider the potential for brain drain, it
• 46:19
  Speaker 6: could just be a matter of those who are hoping
• 46:21
  Speaker 6: for promotion going somewhere else to make more money in
• 46:24
  Speaker 6: the private sector.
• 46:24
  Speaker 1: Do you worry about that?
• 46:27
  Speaker 10: I don't worry about general officers or admirals leaving to
• 46:31
  Speaker 10: make more money in the private sector. I mean, certainly,
• 46:34
  Speaker 10: you know, as a former general myself, it was not
• 46:36
  Speaker 10: the paycheck that was the draw to service or to
• 46:38
  Speaker 10: continued service. I do think, however, when we look at
• 46:43
  Speaker 10: individual actions that are taken against the general officer corps,
• 46:47
  Speaker 10: the danger is not in each individual action.
• 46:49
  Speaker 3: It's in the aggregate.
• 46:51
  Speaker 10: And what we need to pay attention to is are
• 46:54
  Speaker 10: these truly readiness moves or do firings and removal of
• 46:59
  Speaker 10: people from promotion lists or petty actions like taking General
• 47:04
  Speaker 10: Milley's portrait off the halls of the Pentagon. contribute to
• 47:07
  Speaker 10: an environment in which officers no longer feel they can
• 47:10
  Speaker 10: offer best military advice or honest testimony before Congress without
• 47:15
  Speaker 10: jeopardizing their careers.
• 47:16
  Speaker 3: That's the danger.
• 47:19
  Speaker 6: Lieutenant General Karen Gibson, General, we always appreciate spending some
• 47:22
  Speaker 6: time with you and very much on this day of days.
• 47:26
  Speaker 6: Thank you for your service with operations coming to a
• 47:29
  Speaker 6: conclusion in Iraq. Thanks for listening to the Balance of
• 47:34
  Speaker 6: Power podcast. Make sure to subscribe if you haven't already
• 47:38
  Speaker 6: at Apple, Spotify, or wherever you get your podcasts. And
• 47:41
  Speaker 6: you can find us live every weekday from Washington, D.C.
• 47:44
  Speaker 6: at noontime Eastern at Bloomberg.com.