Latest / Bloomberg Intelligence / Boeing Listened to Trump's F-35 Pentagon Calls, Capaccio Says

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Boeing Listened to Trump's F-35 Pentagon Calls, Capaccio Says · Bloomberg Intelligence

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  Speaker 1: at Bloomberg dot com. Well, you know, one of the
• 0:43
  Speaker 1: big issues that we've been talking about is the F
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  Speaker 1: thirty five Joint Strike Fighter and the cost that has
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  Speaker 1: drawn the attention of President Donald Trump. Yes, and some
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  Speaker 1: of President Trump's tweets and comments and negotiations. Yes. Well,
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  Speaker 1: to help us understand this all a little bit better,
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  Speaker 1: as Tony capacity, he is our Pentagon and National Security
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  Speaker 1: reporter for Bloomberg and Tony, can you just lay out
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  Speaker 1: exactly the facts what happened do with the Trump call.
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  Speaker 1: On two occasions when he was president elect, he called
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  Speaker 1: directly to the program manager of the Pentagon's largest program
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  Speaker 1: to join the F thirty five. This is unprecedented because
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  Speaker 1: there's a chain of command. Presidents don't call program managers directly.
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  Speaker 1: And one of the calls Boeing CEO Dennis Muhlenberg was
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  Speaker 1: in the room. There's nothing to suggest something improper happened,
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  Speaker 1: but I think the way it was described to Muhlenberg
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  Speaker 1: was bemused and pretty surprised when Trump called the program
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  Speaker 1: manager and said, I have Dennis Muhlenberger here and we're
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  Speaker 1: on speakerphone. Yeah, hold on second, just back up a
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  Speaker 1: little bit. So the program manager is responsible correct for ordering, uh,
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  Speaker 1: some of the airplanes that the Air Force uses, including
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  Speaker 1: the F thirty five, which is made by the lock
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  Speaker 1: Ye Martin Corps. Right, the program manager in this case
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  Speaker 1: is in charge of the entire thirty five program. He's
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  Speaker 1: been in the office like five years, Lieutenant General Chris Boden,
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  Speaker 1: So he's in charge of the cradle to grave buying,
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  Speaker 1: making sure they're delivered, making sure they're tested right and
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  Speaker 1: delivered to the warfighter. So he's the main cahuna. Okay,
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  Speaker 1: that's his official his official title. So it's it's very
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  Speaker 1: unusual for a president. In fact, it is unprecedented. Is that?
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  Speaker 1: Is that correct? I've been carving this for like thirty
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  Speaker 1: years Defense and there's no no occasion. Do I remember
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  Speaker 1: the president Carter Bush Clinton calling a program manager that's
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  Speaker 1: done by the Secretary of Defense. This does demonstrate Trump's
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  Speaker 1: some might say impulsive management style if you like what
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  Speaker 1: he does, hands on management style, but it doesn't fly
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  Speaker 1: in the military because the acquisition system is guarded, is
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  Speaker 1: guarded and surrounded by rules and regulations to prevent undue
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  Speaker 1: influence of the award of multibillion dollar programs. Okay, and
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  Speaker 1: just sort of to back off to sort of re
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  Speaker 1: emphasize the point that that you unearthed and the story
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  Speaker 1: that was published today on the Bloomberg where you have Boeing,
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  Speaker 1: which is a direct competitor to Lockheed Martin Boeing's head
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  Speaker 1: sitting in the room with President or President elect Trump,
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  Speaker 1: I should say, speaking with the program manager for this
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  Speaker 1: F thirty five program. What did they talk about? Were
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  Speaker 1: they talking about the details of the financing of plans
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  Speaker 1: for purchase? What what did the Boeing CEO learn? We're
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  Speaker 1: talking very general details that Trump asked General Boden about
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  Speaker 1: the F eight teen Boeing's plane versus the F thirty five,
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  Speaker 1: very rudimentary questions. There was no contractual issue. There was
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  Speaker 1: no there is no contract for a competition. That's for
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  Speaker 1: it right now and very much in the very much
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  Speaker 1: in the analysis stage. So basically, Trump, I think the
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  Speaker 1: way it was described me was kind of trying to
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  Speaker 1: get a sense of the difference between the F teen
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  Speaker 1: and the F thirty five kind of vote airplane one
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  Speaker 1: oh one, as opposed to trying to get into the
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  Speaker 1: nitty gritty of how do you compete the F a
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  Speaker 1: teen against the F thirty five. Well, Tony, maybe you
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  Speaker 1: can do that, because that may also shed a little
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  Speaker 1: bit of light on I don't know. We've got a
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  Speaker 1: new Defense secretary, uh, former Marine Corps. I don't know
• 4:31
  Speaker 1: if you can never really be former Marine Corps uh.
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  Speaker 1: And the kind of aircraft that go off of carriers
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  Speaker 1: is not necessarily the same kind of aircraft that the
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  Speaker 1: Air Force wants or our allies have already committed. I
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  Speaker 1: would imagine billions of dollars to producing right, did the
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  Speaker 1: bulk of the two thousand ft three thirty five is
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  Speaker 1: going to the Air Force in the conventional airplane model.
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  Speaker 1: The name me he is going to buy something like
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  Speaker 1: three F the C model that that goes off carriers.
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  Speaker 1: But the C model is a stealthy fifth gen or
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  Speaker 1: what they call fifth generation fighter. The F eighteen Hornets
• 5:14
  Speaker 1: is what they call a fourth generation fighter. It lacks
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  Speaker 1: a lot of the software's sensors and the fusion capability,
• 5:20
  Speaker 1: the ability to take a lot of data melded, put
• 5:23
  Speaker 1: it in display, and push it out to other points.
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  Speaker 1: It's a good point for what it is designed to do,
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  Speaker 1: but it's not. It doesn't have the same capabilities as
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  Speaker 1: the F thirty five, Tony. I want to get back
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  Speaker 1: to a point that you made earlier when we were talking.
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  Speaker 1: When you said that, you know, you quoted somebody an analysa.
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  Speaker 1: When a president ignores the chain of command by going
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  Speaker 1: directly to a program manager, it creates chaos in the system.
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  Speaker 1: Can you explain how? Because it sends a signal if
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  Speaker 1: a three star general gets called by the president. If
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  Speaker 1: I'm a major or lieutenant colonel, you know, I might
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  Speaker 1: be shaking in my boots. I might be wondering I
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  Speaker 1: to get a call from the White House asking what
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  Speaker 1: am I up to? With my program. There's injects an
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  Speaker 1: element of uncertainty into a process that is governed by
• 6:09
  Speaker 1: a number of regulations. Defense contractor say too many, but
• 6:13
  Speaker 1: those are all in place because the past pro German
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  Speaker 1: scandals and the need to protect the integrity of the system.
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  Speaker 1: Are there any practical implications of this? I mean you
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  Speaker 1: said that there were no kind of details that were
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  Speaker 1: talked about. It was much more of a tutorial with
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  Speaker 1: the highest level of people. But you know, is there
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  Speaker 1: any other ramification from this? The only ramification I can
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  Speaker 1: see immediately is that there's the plants the seat of
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  Speaker 1: doubt in other program offices that heck, will I get
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  Speaker 1: a call from the White House about my program versus
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  Speaker 1: getting a call from the Defense secretary or the Navy
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  Speaker 1: secretary or the Air Force secretary. I don't see an
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  Speaker 1: immediate practical intact. This is more an illustration though, of
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  Speaker 1: President Trump's management style. Right. No response from Bogden's spokes
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  Speaker 1: uh spokesman Joel dove Uh. I sent them detailed emails.
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  Speaker 1: I called them. I explained to them, we're going to
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  Speaker 1: run the story. You should give us the memos for
• 7:08
  Speaker 1: the record, because if we don't, if you don't. We're
• 7:10
  Speaker 1: gonna run a story, and then we're going to run
• 7:12
  Speaker 1: a story after we get the memos from the Freedom
• 7:14
  Speaker 1: of Information Act, and then others are going to chase
• 7:17
  Speaker 1: the story, and it's going to string out for a while.
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  Speaker 1: But they didn't want to talk. Tony Capacio Pentagon, a
• 7:23
  Speaker 1: national security reporter for Bloomberg News with a terrific important
• 7:27
  Speaker 1: story about just how much Donald Trump is bucking the norm.
• 7:44
  Speaker 1: We've got Ward McCartney. He's the chief financial economist Bard
• 7:46
  Speaker 1: Jeffreies Award. You know, we're looking at small and midcaps stocks.
• 7:51
  Speaker 1: That's the domestic economy, um, at least that is the
• 7:55
  Speaker 1: way it's traditionally viewed. Okay, what can you tell us
• 7:57
  Speaker 1: about the current state of the domestic economy and is
• 8:00
  Speaker 1: that performance jibe with what you're you're seeing. Well, the
• 8:06
  Speaker 1: US itself is overwhelmingly a domestic economy. Our exports sector
• 8:11
  Speaker 1: is relatively small. The service sector of the U. S
• 8:15
  Speaker 1: economy accounts for over of of total payrolls, and it's
• 8:21
  Speaker 1: been doing well for quite a while here, and there
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  Speaker 1: are a number of indications of that, one of which
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  Speaker 1: is that service inflation has been running at three percent
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  Speaker 1: or a little bit higher for the past year. So
• 8:35
  Speaker 1: if you're looking at the domestic um component of the U.
• 8:38
  Speaker 1: S economy, it's really doing quite well. You know, or
• 8:42
  Speaker 1: how likely do you think it is that the Federal
• 8:45
  Speaker 1: raise rates too quickly and could end up causing some
• 8:50
  Speaker 1: sort of policy error. Well, you know, based on what
• 8:54
  Speaker 1: we've seen so far, and that would include at least
• 8:58
  Speaker 1: some of the comments from Seed officials this week, I
• 9:01
  Speaker 1: think it's highly unlikely that the FED raises rates too quickly.
• 9:07
  Speaker 1: I think that it is much more likely that the
• 9:10
  Speaker 1: Fed is on the verge of falling behind the curve.
• 9:14
  Speaker 1: The picture on the inflation side has accelerated really quite rapidly,
• 9:20
  Speaker 1: and if we get an increase of five tenths of
• 9:23
  Speaker 1: one in the PC to flator later this month, then
• 9:26
  Speaker 1: the Fed will have hit it to present target on
• 9:30
  Speaker 1: its primary inflation objectives. So, you know, hold on one second.
• 9:34
  Speaker 1: I just have to say, because PIMCO came out and
• 9:36
  Speaker 1: they said that that we are on the brink of
• 9:38
  Speaker 1: potential policy mistake for FED officials to raise rates too
• 9:42
  Speaker 1: quickly and end up cutting off the recovery word. What
• 9:45
  Speaker 1: you're saying is not unpopular. Frankly, it's it's it's probably
• 9:49
  Speaker 1: the more popular theory right now, which is that the
• 9:51
  Speaker 1: Fed is falling behind the curve. Um. Why are we
• 9:55
  Speaker 1: in such a different scenario now that we have moved
• 9:58
  Speaker 1: away from a slow growth and vironment and we could
• 10:01
  Speaker 1: be heating and heating up into this sort of a
• 10:04
  Speaker 1: higher inflationary environment. Well, when when you look at the
• 10:09
  Speaker 1: data that we've had over the less of the weeks,
• 10:11
  Speaker 1: for the most part, it's been rock solid um. You know,
• 10:14
  Speaker 1: it's not as if the growth trajectory is going to
• 10:18
  Speaker 1: accelerate UM substantially in the absence of of fiscal stimulus.
• 10:25
  Speaker 1: What is different, uh, and I think it is quite significant.
• 10:29
  Speaker 1: Significant is that the inflation environment has changed quite a
• 10:33
  Speaker 1: lot over the last year and a half. If you
• 10:35
  Speaker 1: recall in September, the year over year change in the
• 10:40
  Speaker 1: CPI was zero UH, and now we're running it two
• 10:43
  Speaker 1: and a half percent, And of course the PCE deflator
• 10:46
  Speaker 1: is falling in that direction. And if you recall earlier
• 10:49
  Speaker 1: this week, Jenny Yellen was talking about what the tailor
• 10:53
  Speaker 1: rules would suggest for the Fed funds rate, and the
• 10:57
  Speaker 1: tailor rules would suggest that the Fed funds rate should
• 11:00
  Speaker 1: be substantially higher than it is right now. So I
• 11:03
  Speaker 1: think the FED objective has been to continue to nurture
• 11:07
  Speaker 1: the economy along with a very accommodative policy. But I
• 11:12
  Speaker 1: think that what's happening on the inflation side is has
• 11:17
  Speaker 1: been a surprise to them, and I think that it
• 11:19
  Speaker 1: would behoove them to acknowledge that by making a rate
• 11:23
  Speaker 1: hike in in March or just quickly. Are there any
• 11:27
  Speaker 1: specific indicators or tools that you use now that you
• 11:32
  Speaker 1: did not use, let's say, ten years ago, and trying
• 11:35
  Speaker 1: to figure out what is going on, because things seem
• 11:37
  Speaker 1: to be happening with much greater irregularity but also speed. Well.
• 11:42
  Speaker 1: I think the primary UH difference in terms of the
• 11:46
  Speaker 1: way I've come to look at the economy over a
• 11:48
  Speaker 1: period of time is to acknowledge the structural change that
• 11:52
  Speaker 1: we have had in the US economy, and that is UM,
• 11:56
  Speaker 1: the you know, become so overwhelmingly dominated by the server
• 12:00
  Speaker 1: side of the economy, and that has what has made
• 12:03
  Speaker 1: the US not impervious, but you know, very um able
• 12:08
  Speaker 1: to withstand some of the shocks that we've seen UM
• 12:12
  Speaker 1: from overseas in terms of growth UM. And it also
• 12:15
  Speaker 1: helps to explain why US inflation is very is really
• 12:19
  Speaker 1: more responsive to overseas economic developments, and the growth rate
• 12:24
  Speaker 1: is because we import so much of what we knew
• 12:28
  Speaker 1: it too well. Thank you so much for being with us.
• 12:30
  Speaker 1: Unfortunately have to leave it there ward. McCarthy, chief financial
• 12:33
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  Speaker 1: com Custom shirts made Smarter. Paul Ryan, the House Speaker,
• 13:27
  Speaker 1: was just talking earlier to reporters. Kneeds that Congress will
• 13:31
  Speaker 1: act on Obamacare after February, although we are getting some
• 13:36
  Speaker 1: details about what a revision to a c A or
• 13:40
  Speaker 1: Obamacare might look like. I want to bring in Dr
• 13:42
  Speaker 1: Jonathan Gruber, economics professor at m I T from Cambridge, Massachusetts. Uh.
• 13:48
  Speaker 1: Dr Gruber was a key architect of Obamacare, and Dr Gruber,
• 13:52
  Speaker 1: can we just start with a sense of how Republicans
• 13:56
  Speaker 1: are proposing to change Obamacare? Well, I can't give you
• 14:00
  Speaker 1: that sense because we don't know. Republicans you know, it's
• 14:04
  Speaker 1: been said many times before are sort of the dogs
• 14:06
  Speaker 1: that caught the car at this point. Uh. They've been
• 14:09
  Speaker 1: barking after for many years, saying we don't like this law,
• 14:12
  Speaker 1: we could do better, but they've never actually proposed what
• 14:14
  Speaker 1: we could do better it looks like. And the problem
• 14:17
  Speaker 1: is they're in a tough box because essentially there is
• 14:21
  Speaker 1: no Republican alternative to the Affordable Care Act which does
• 14:26
  Speaker 1: not lead to more people being uninsured, increased discrimination insurance markets,
• 14:32
  Speaker 1: uh or and or raise raise government costs. So they're
• 14:36
  Speaker 1: a bit stuck right now. Dr Gruber, After seeing how
• 14:40
  Speaker 1: the implementation of Obamacare went, are there things that you
• 14:43
  Speaker 1: would change to make it better and to prevent health
• 14:48
  Speaker 1: insurers from backing out? Yeah? I mean, I think first
• 14:52
  Speaker 1: of all the two things I would change with Obamacare,
• 14:54
  Speaker 1: most are that actually the law would be implemented implemented
• 14:58
  Speaker 1: as written. The first of those, the Medicaid expansions. Most
• 15:01
  Speaker 1: of the states that have seen the most extreme increases
• 15:04
  Speaker 1: in premiums are states that haven't expanded Medicaid, and that
• 15:07
  Speaker 1: means that there are sick people still left in the
• 15:10
  Speaker 1: private exchange pools rather than be pulled out into Medicaid.
• 15:13
  Speaker 1: That would help a lot. The one thing would help
• 15:15
  Speaker 1: a lot is the law put in a well functioning
• 15:18
  Speaker 1: reinsurance program or risk order program for insurers, where they
• 15:23
  Speaker 1: to date should have gotten about eight billion dollars in
• 15:25
  Speaker 1: payments that Republicans have blocked. That would have offset a
• 15:28
  Speaker 1: lot of insurer losses and allowed them to stay in
• 15:31
  Speaker 1: the market. So the first things we could do was
• 15:33
  Speaker 1: just go back to honoring with the law set up.
• 15:35
  Speaker 1: So it just explain to the first thing to make
• 15:37
  Speaker 1: sure that I understood it's in another word, it's just
• 15:40
  Speaker 1: a matter of how people are accounted for and if
• 15:43
  Speaker 1: they get sick enough, they should get shifted under the
• 15:45
  Speaker 1: Medicare budget, which would actually come out directly from government
• 15:49
  Speaker 1: budget rather than from the insurance. Sure. Yeah, so it's
• 15:52
  Speaker 1: it's so. The way the law tried to help cover
• 15:55
  Speaker 1: low income people is expanding the Medicaid program, which your
• 15:58
  Speaker 1: program for low income Americans, to everyone up to a
• 16:01
  Speaker 1: hundred and thirty three percent of the poverty line, or
• 16:03
  Speaker 1: about like fifteen tho dollars for an individual um. The
• 16:07
  Speaker 1: idea was, those people are generally sicker than are people
• 16:11
  Speaker 1: at hire incomes, Let's have the government absorbed those costs
• 16:14
  Speaker 1: and let's leave insure. Let's pull them out of the
• 16:16
  Speaker 1: insurance pool. Unfortunately, due to Supreme Court decision that was
• 16:20
  Speaker 1: made optional for states, and a number of states have chosen,
• 16:23
  Speaker 1: despite full federal financing, not to expand their Medicaid programs.
• 16:27
  Speaker 1: That's horrific along a number of dimensions which we could
• 16:29
  Speaker 1: get into, but the imensement's relevant here is that it
• 16:33
  Speaker 1: leaves those low income, sicker individuals in the exchange pool,
• 16:37
  Speaker 1: are raising the insurance costs for everyone else. I'm just
• 16:41
  Speaker 1: trying to get my head around this because looking at
• 16:44
  Speaker 1: the provisions, it should be noted and maybe you can
• 16:48
  Speaker 1: do so that the Affordable Care Act and Patient Protection
• 16:53
  Speaker 1: Act has a lot of different elements to it, is
• 16:58
  Speaker 1: not just this exchange, which of is maybe the most
• 17:01
  Speaker 1: public and facing experience. Can you describe maybe three provisions
• 17:08
  Speaker 1: of the the A c A that you believe will
• 17:12
  Speaker 1: in some form stay in whatever kind of new wrapping
• 17:17
  Speaker 1: it comes in. That's a great question. So you're right,
• 17:20
  Speaker 1: I'm sort of getting a bit into the weeds. Let
• 17:21
  Speaker 1: me back up a little bit. There's three key parts
• 17:25
  Speaker 1: of the Affordable Care Act that work in conjunction, the
• 17:28
  Speaker 1: so called three legged stool. The first and most popular,
• 17:32
  Speaker 1: what we might call the dessert of the law, is
• 17:34
  Speaker 1: ending discrimination insurance markets. America was the only developed nation
• 17:39
  Speaker 1: in the world where insurers could literally say, you're sick,
• 17:42
  Speaker 1: I'm not giving you insurance. Are you sick, I'm going
• 17:43
  Speaker 1: to charge you ten thousand dollars a month. That ended
• 17:46
  Speaker 1: on January and that's wildly popular. The problem is, you
• 17:50
  Speaker 1: can't tell insurers to do that without helping them pay
• 17:54
  Speaker 1: the costs of accepting those sickest patients. We did that
• 17:58
  Speaker 1: in Affordable Care Act in two ways. The second legged
• 18:01
  Speaker 1: stool was the individual mandate, which brought healthier patients and
• 18:04
  Speaker 1: to help absorb the costs of the sicker patients. The
• 18:07
  Speaker 1: third was to actually subsidize the cost of insurance so
• 18:12
  Speaker 1: that people would want to come into this pool, even
• 18:14
  Speaker 1: if maybe they weren't uh, they weren't sick. So that's
• 18:17
  Speaker 1: the three legged stool. Those are the key parts Republicans
• 18:20
  Speaker 1: have already talked about and are taking steps to weaken
• 18:23
  Speaker 1: one leg of that stool, which is individual mandate. But
• 18:26
  Speaker 1: really even that is more confusing that needs to be
• 18:28
  Speaker 1: if we step back, it's all just about who pays
• 18:31
  Speaker 1: for the sick in America. Of the spending is done
• 18:35
  Speaker 1: by the sickest people. They can't pay their own bills,
• 18:39
  Speaker 1: they don't have the money. So health insurance is all
• 18:42
  Speaker 1: about redistribution, and the question is who is going to
• 18:45
  Speaker 1: bear the costs of helping subside? Who is going to
• 18:48
  Speaker 1: help society absorb the cost of paying for those sickest Americans? Okay,
• 18:53
  Speaker 1: so just stop right there. So based on your experience
• 18:56
  Speaker 1: and you can give the unvarnished answer. So what do
• 19:00
  Speaker 1: you think, at least ideologically the Republicans believe will solve
• 19:07
  Speaker 1: or maybe not even address this problem. I believe the
• 19:10
  Speaker 1: Republicans that do not have a solution to this problem
• 19:13
  Speaker 1: because basically, fundamentally, they they have to. If you look
• 19:18
  Speaker 1: at what they've discussed and proposed, they have a set
• 19:21
  Speaker 1: of principles they've laid out which, taken together, lead this
• 19:24
  Speaker 1: problem to be unsolvable. So if they're going to solve it,
• 19:27
  Speaker 1: they're going to have to either, for example, let the
• 19:30
  Speaker 1: mandate stay or throw more money it insurers which they've
• 19:34
  Speaker 1: already rejected as an insurer bailout or subsidized individuals more
• 19:38
  Speaker 1: to participate, which they've are rejected, is stistically irresponsible. Basically,
• 19:43
  Speaker 1: the Republicans are in a box of their own making
• 19:45
  Speaker 1: that cannot be escaped without breaking one of their existing
• 19:48
  Speaker 1: policy positions. Dr. Gruber. Even given the current form of
• 19:53
  Speaker 1: a c A, the cost is set to increase meaningfully
• 19:58
  Speaker 1: in the coming years. Is any way to provide healthcare
• 20:01
  Speaker 1: for the sake to do what you said and redistribute
• 20:04
  Speaker 1: who pays for it without incurring a very big cost
• 20:08
  Speaker 1: that will inevitably expand our deficit. So you know, we're
• 20:13
  Speaker 1: now stepping back even further and talking about the overall
• 20:15
  Speaker 1: costs of healthcare system. You're absolutely right. Recent projections say
• 20:19
  Speaker 1: that healthcare costs over the next ten years are going
• 20:21
  Speaker 1: to expand to be from seventeen and a half percent
• 20:24
  Speaker 1: to our economy. That is largely not about the c A.
• 20:28
  Speaker 1: That's about the underlying drivers of healthcare costs, which have
• 20:31
  Speaker 1: risen inexorably uh since World War Two in the US. Indeed,
• 20:37
  Speaker 1: the last seven or eight years of actually in the
• 20:39
  Speaker 1: slowest period of healthcare cost growth in our nation's history.
• 20:42
  Speaker 1: Many for that's about to end. That's a much much
• 20:45
  Speaker 1: bigger and harder discussion. Well, we're gonna, you know, and
• 20:47
  Speaker 1: we're gonna look forward to having it with you. I
• 20:49
  Speaker 1: beg your pardon. We've got to just move on. But
• 20:53
  Speaker 1: Jonathan Grouper, economics professor at the Massachusetts Institute of Technology,
• 20:58
  Speaker 1: talking about that, Yes, we're gonna have him back. Talking
• 21:01
  Speaker 1: about the affordable care Analysts have been feverishly trying to
• 21:16
  Speaker 1: assess just how much money the biggest US banks could
• 21:19
  Speaker 1: save if we do get some kind of rollback of
• 21:22
  Speaker 1: the Dodd Frank Act as well as uh these corporate
• 21:26
  Speaker 1: taxes that President Donald Trump has promised. Yelloman owner On
• 21:30
  Speaker 1: is one uh such reporter who has been crunching the
• 21:32
  Speaker 1: numbers here at Bloomberg News, and Yellman is here with us. Yellman,
• 21:36
  Speaker 1: you wrote a story estimating that banks, the six biggest
• 21:41
  Speaker 1: US banks, stand to earner earn more by about twelve
• 21:47
  Speaker 1: billion dollars a year if Trump does come through with
• 21:50
  Speaker 1: the tax cuts. First of all, why does this matter
• 21:54
  Speaker 1: more money for shareholders? Right? I mean, would it all?
• 21:57
  Speaker 1: Would it all go directly to shareholders. UM possibly of course, UM,
• 22:03
  Speaker 1: who knows they could. They could also improve their capital
• 22:06
  Speaker 1: levels as they've done over the years, but you know
• 22:10
  Speaker 1: capital level capital levels in the banking them are excellent.
• 22:13
  Speaker 1: So so actually any extra money probably will go to
• 22:16
  Speaker 1: shareholders because they they've they've been waiting for that money. UM.
• 22:20
  Speaker 1: Banks have been very stingy on dividends in the last
• 22:24
  Speaker 1: since the crisis because the regulators have told them to
• 22:27
  Speaker 1: be stingy and haven't hasn't let them really, UM really
• 22:32
  Speaker 1: pay pay back their their shareholders because the capital levels
• 22:35
  Speaker 1: have to build up, but they have built up, so
• 22:38
  Speaker 1: so any extra money we'll probably go to shareholders. That's
• 22:40
  Speaker 1: why why share investors like it, and that's why the
• 22:43
  Speaker 1: shares are going up. How did you get the actual number? Though?
• 22:46
  Speaker 1: Oh my god, it took me a while. It's a
• 22:48
  Speaker 1: lot of number crunching, But I basically I guess just
• 22:54
  Speaker 1: stuff that I tried to look at. UM there what
• 22:56
  Speaker 1: they're paying in the US for they say, are their
• 23:01
  Speaker 1: US earnings. So what are we talking about? A tax
• 23:04
  Speaker 1: rate for some of them or no, UM, I mean
• 23:06
  Speaker 1: the effective rate in the US for the big banks,
• 23:10
  Speaker 1: UM is about which is double the big corporation average
• 23:17
  Speaker 1: that the Government Accountabuild Office has found. Um. So you know,
• 23:22
  Speaker 1: and so wait that you got me there, because that's
• 23:24
  Speaker 1: things pent is the effective tax rate for the banking
• 23:28
  Speaker 1: industry or the big banking industry in the United States.
• 23:31
  Speaker 1: And you're saying that is at percent, that is double
• 23:35
  Speaker 1: the effective tax rate that corporations in the United States pay.
• 23:39
  Speaker 1: It is because the banks don't get all kinds of deductions,
• 23:43
  Speaker 1: um that non non financial companies get planned equipment and
• 23:47
  Speaker 1: capital and expenditures and all kinds of things. So they
• 23:51
  Speaker 1: are much closer to the thirty five percent top rate.
• 23:53
  Speaker 1: And and uh so when the rate goes down and
• 23:56
  Speaker 1: the deductions are eliminated as part of that reform, they'll
• 24:00
  Speaker 1: benefit more. Okay, yeah, man, Before everybody runs out and
• 24:04
  Speaker 1: waits for money to fall from their bank shares, how
• 24:08
  Speaker 1: likely is it that President Trump will get through the
• 24:12
  Speaker 1: tax proposal that would deliver this twelve billion dollar boon
• 24:15
  Speaker 1: to the six biggest US banks. Well, of course that's
• 24:18
  Speaker 1: hard to know, um, but you know, as as the
• 24:22
  Speaker 1: lead the person mentioned in the story recording and the
• 24:25
  Speaker 1: story says, tax reform is hard to do, but tax
• 24:28
  Speaker 1: cuts are easier to do, and and they you know,
• 24:31
  Speaker 1: governments in the past have managed to cut taxes, so
• 24:35
  Speaker 1: they could they could cut taxes by maybe not as
• 24:38
  Speaker 1: much as they promised, but they could cut taxes so well.
• 24:41
  Speaker 1: The reason why I ask is because we've seen this
• 24:43
  Speaker 1: phenomenal rally and financials and there has to be this
• 24:46
  Speaker 1: nagging question of you know, what happens if if this
• 24:50
  Speaker 1: doesn't come to pass. Of course, and it's baked in
• 24:54
  Speaker 1: it and and all of these things. And it's not
• 24:56
  Speaker 1: just tax reform, as you said, there are all the
• 24:58
  Speaker 1: things that are being priced in to the into the
• 25:00
  Speaker 1: stock prices of banks and other sectors. You know, some
• 25:05
  Speaker 1: of these things might not happen um, but you know
• 25:08
  Speaker 1: the pricing in, you know, it's very it's a it's
• 25:10
  Speaker 1: a hard science. It's not easy to see how much
• 25:13
  Speaker 1: of all this stuff is priced in, but none of
• 25:16
  Speaker 1: it is probably priced then so so I I you know,
• 25:19
  Speaker 1: when when I write the article or some analysts as
• 25:22
  Speaker 1: a report that says, you know, here's the the actual
• 25:25
  Speaker 1: dollars that banks might get at this, you know, tax
• 25:28
  Speaker 1: rate investors don't say, okay, let's just put that in
• 25:31
  Speaker 1: and then now go and buy at that price. But
• 25:33
  Speaker 1: they say, okay, that's another you know, five percent bumped
• 25:37
  Speaker 1: to the to the share price now and then another
• 25:39
  Speaker 1: news comes out and I said, well that's another five percent.
• 25:41
  Speaker 1: So so incrementally, all these all these hopeful things are
• 25:45
  Speaker 1: building into the share prices. But how much of them,
• 25:48
  Speaker 1: in what shape and form will actually come out? You
• 25:51
  Speaker 1: write that those are all unknown still, I mean, there's uncertain.
• 25:54
  Speaker 1: But I was just looking at some of the bank
• 25:56
  Speaker 1: stocks and thinking, well, you can actually get paid to
• 25:59
  Speaker 1: wait till this happen, right because JP Morgan Chase, even
• 26:02
  Speaker 1: though the stock is up four and a half percent
• 26:04
  Speaker 1: just this year, it's paying a two percent two point
• 26:07
  Speaker 1: one percent dividends. So you can get paid to wait
• 26:11
  Speaker 1: until or you hope perhaps as an investor, that these
• 26:14
  Speaker 1: profits will flow back to you, either by share repurchases
• 26:18
  Speaker 1: or by increased dividends. You know, I just have to say,
• 26:22
  Speaker 1: Gary Cone is the one who is helping shape this
• 26:26
  Speaker 1: tax reform for president of the Council of Economic Advisers,
• 26:32
  Speaker 1: right correct. And he is a former chief operating officer
• 26:34
  Speaker 1: and president of Goldman Sachs, whose stock has done also
• 26:37
  Speaker 1: very well, along with a lot of other financials hitting
• 26:40
  Speaker 1: record highs. You have to wonder how much he's going
• 26:43
  Speaker 1: to weigh in and say, look, you know, these banks
• 26:45
  Speaker 1: need to pay their shareholders a lot more money. I mean,
• 26:48
  Speaker 1: what's the argument or they can't they make the level
• 26:50
  Speaker 1: playing field argument and say, look, you know we've done
• 26:53
  Speaker 1: what you've said, you you've asked us to do. We've
• 26:56
  Speaker 1: increased those capital ratios. Um, here's where we can do
• 27:01
  Speaker 1: and work together. And and you know, on tax reform,
• 27:04
  Speaker 1: Colin doesn't need to say we need to do this
• 27:07
  Speaker 1: for banks because the whole concept of tax reform, you know,
• 27:11
  Speaker 1: it's been debated for years. Everybody wants some tape tax reform.
• 27:15
  Speaker 1: It's complicated, it's horrible. We have a million deductions. Oh
• 27:18
  Speaker 1: my god, nobody can figure it out. Of course, if
• 27:20
  Speaker 1: you think about it, for corporations, it really doesn't matter
• 27:23
  Speaker 1: because they have the lawyers. They can do the deductions.
• 27:26
  Speaker 1: It's the little guys who need a simpler text. Well,
• 27:29
  Speaker 1: I'm glad we've got you to help us. Yeah, I'm
• 27:31
  Speaker 1: an owner on of Bloomberg News. Check out his story
• 27:33
  Speaker 1: on Bloomberg dot com. Thanks for listening to the Bloomberg
• 27:43
  Speaker 1: P and L Podcast. You can subscribe and listen to
• 27:46
  Speaker 1: interviews at iTunes, SoundCloud, or whatever podcast platform you prefer.
• 27:51
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• 27:55
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