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Viewers like you make
this program possible
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Support your local PBS station.
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♪ ♪
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>> The coronavirus pandemic
has left millions of Americans
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out of work...
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>> People have gone now without
four, five, or six, or seven
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paychecks and it's starting to
catch up-- they need food, it's
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the most basic thing.
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>> JACOBY: Over the past year,
we've seen how many Americans
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are living on the edge.
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>> Have you got any income at
the moment?
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>> No, no-- and we have kids
too, so.
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>> So you're not making any
money at the moment?
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>> No.
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>> JACOBY: But while businesses
were shuttered, and millions
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were left unemployed, one place
has been thriving like never
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before.
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>> Stocks surging even as
America enters its darkest
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chapter yet of this pandemic.
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>> JACOBY: On Wall Street, it
was a banner year.
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>> The market has been open for
30 minutes and we've gone
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straight up.
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>> The Dow rising nearly 18%,
its best performance since 1987.
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>> JACOBY: After a major dive,
markets reached record highs.
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The pandemic would turn out to
be a blip in the longest bull
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market ever.
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The price of stocks have
skyrocketed-- and so has the
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wealth of those who own them.
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>> Elon Musk has added over
$10 billion to his wealth-- just
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this week!
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>> JACOBY: Some see signs of
mania...
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>> This GameStop situation, we
will never encounter a setup
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like this again.
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>> JACOBY: As more Americans try
to get in on the party.
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>> Right now we're in a
raging mania.
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>> JACOBY: Some worry a crash
is to come.
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>> It's the burst of euphoria
that typically brings these
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things to an end.
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>> JACOBY: As the financial
world has been diverging from
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the real world, I've been
trying to understand the many
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forces at play.
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And I found one institution has
been at the center of it all:
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the Federal Reserve-- the
nation's central bank.
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>> It is the most powerful and
least understood institution in
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the country.
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It really is difficult to
overstate how important this
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story is, and how big this story
is, and how much it matters.
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>> JACOBY: I've been speaking
to current and former Fed
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officials...
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Is that really the first
time you're in a suit since
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COVID?
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>> From the waist down.
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>> Can I take my mask off?
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>> JACOBY: ...Economists, and
titans of finance.
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>> Nobody knows how this is
gonna turn out.
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This is an experiment.
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>> JACOBY: I've heard that over
and over-- that we're living
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through an epic experiment run
by the Fed.
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>> I believe this is the
economic story of our time.
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>> JACOBY: An experiment that's
been dramatically changing the
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American economy.
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(overlapping news reports)
>> Right now, breaking news
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here, stocks all around the
world are tanking.
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>> JACOBY: If you want to
understand how today's financial
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world has grown so far removed
from the real world-- and the
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role of the Federal Reserve--
you need to go back to 2008,
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when investors, speculators, and
Wall Street bankers nearly
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brought down the global economy.
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>> Get on the train!
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Otherwise it is gonna leave
the station without you.
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>> Wall Street shaken to its
very foundation today.
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♪ ♪
>> We will need to stabilize,
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repair, and reform our banking
system and get credit flowing
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again to families and
businesses.
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>> JACOBY: The new president and
Congress spent hundreds of
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billions of dollars to restart
the economy, but at the center
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of the rescue effort was the
Federal Reserve.
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Richard Fisher was the head of
the Fed's bank in Dallas at
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the time.
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>> What the Federal Reserve
does is provide the blood supply
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for the body of our capitalist
economy.
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And what happened in 2008 is all
the veins and the capillaries
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and the arteries collapsed.
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So every financial function had
failed.
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It had collapsed and we had to
restore them.
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>> JACOBY: That's when the Fed
stepped in.
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Its job is to promote employment
and keep inflation in check,
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primarily by raising and
lowering short-term interest
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rates.
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In 2008, Fed officials decided
to do something they hadn't done
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in half a century-- they began
dropping rates, eventually to
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almost zero.
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>> Those massive rate cuts have
not been stimulating the
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economy.
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>> JACOBY: With Americans still
suffering and the banking system
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on the verge of collapse, Fed
officials there at the time
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told me they felt compelled to
go even further.
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>> And then the question was,
"What else can we do?"
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And the committee came up with
the idea of quantitative easing.
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>> Quantitative easing, what in
the world is it that?
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>> Quantitative easing, that's
just a Greek term to a lot of
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people.
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>> A lot of people want to know
what they're gonna say about
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what we call quantitative
easing, what are some of the...
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>> JACOBY: Quantitative easing,
or QE, was championed by Ben
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Bernanke, then the Fed chairman.
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>> Mr. Bernanke, what does this
do to the financial crisis?
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>> The Federal Reserve has been
putting the pedal to the metal.
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So we're doing everything we
can to support the economy, and
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we hope that that's going to,
you know, get us going next year
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sometime.
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>> JACOBY: QE was an
experimental way for the Fed to
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inject money into the financial
system and lower long-term
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interest rates.
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The way they did it was to
literally create new money and
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use it to buy huge amounts of
things like mortgage-backed
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securities and government debt
from banks and other
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institutions.
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Their hope was that the lower
rates would spark more spending
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and borrowing throughout the
economy.
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>> It's almost like alchemy.
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You can create money out of thin
air if you're at the Central
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Bank.
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So creating more money puts
more money in the banking
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system, put more money out there
for the economy to take it and
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put it to work and to grow, and
to restore itself.
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>> JACOBY: As news of the Fed's
actions spread throughout the
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financial world, Andrew Huszar,
a former Fed official who'd left
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to work on Wall Street, got the
offer of a lifetime.
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>> I was sitting in a cafeteria
in Stamford, Connecticut, when I
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got the call.
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I was eating a sandwich, I
almost choked on it at the time
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(laughs)
Basically I realized very
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quickly what I was being asked.
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I was being asked if I would
manage the largest financial
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markets intervention by a
government in world history.
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>> JACOBY: The job was to join
the Fed office in Manhattan and
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manage a massive expansion of
its power in the financial
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markets under QE-- buying more
than a trillion dollars in
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mortgage bonds from the banks
as quickly as possible.
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>> The idea was that the Fed
was trying to get more credit
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and cheaper credit into the
hands of the average American.
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There were millions of people
losing their jobs, millions of
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people in mortgages that they
couldn't afford, and how could
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the Fed use its financial tools
to actually help the average
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American?
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>> JACOBY: Is this something
that had ever been attempted
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before?
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>> No.
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You have to realize we were in
the midst of the next Great
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Depression, this was an
incredible collapse of the
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fundamental structure of the
U.S. economy in a very short
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period of time and we were
building the plane while we
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were flying it.
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♪ ♪
>> Everything in the markets
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is a confidence game.
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So, the Fed exists to restore
confidence when all confidence
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is lost.
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>> JACOBY: William Cohan is a
writer and former banker who
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worked with us during our
months reporting this story.
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>> JACOBY: The idea of lowering
interest rates and the idea of
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quantitative easing was
basically pulling out all the
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stops to make it cheaper to
borrow.
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>> Basically by making money
so inexpensive, by suddenly it
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being abundant and cheap and
easy to get, they just flooded
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the zone with capital.
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>> JACOBY: Easy money.
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>> Easy money-- trillions of
dollars of easy money.
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Like, the greatest experiment in
easy money in history.
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(indistinct chatter)
>> JACOBY: All that easy money
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sparked a rally in the stock
market.
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>> We saw it take its effect
almost immediately.
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The market reacted.
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I was a little bit surprised
it took off that fast.
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>> JACOBY: How is that viewed
inside of the boardroom?
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Was that seen as success?
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>> Yes, it validated what we
thought would happen-- that's
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what we thought would happen.
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When you drive interest rates
down all the way out, it forces
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investors into taking bigger
steps on the risk spectrum.
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Cheap money is the fuel for a
financial speculator and for a
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financial investor.
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>> JACOBY: What Fisher and other
former Fed insiders told me is
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that the stock market rally was
no accident.
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By design, the Fed's QE program
effectively lowered long-term
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interest rates, making safer
investments like bonds less
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attractive, and riskier assets
like stocks more attractive.
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It was hard to argue with the
results.
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Stock prices kept going up.
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>> The old saying is don't fight
the Fed.
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>> Don't fight the Fed.
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>> Don't fight the Fed.
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>> Rule number one as a young
trader you're taught is don't
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fight the Fed.
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>> I don't know what the
hangover's gonna look like down
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the road from all this
extraordinary stimulus, but for
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now, the markets love it.
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Don't fight the Fed.
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>> A cam roll one...
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>> JACOBY: You look at me.
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So we're approximating an
in-person interview.
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It'll work, it'll work.
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Mohamed El-Erian remembers it
well.
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He was running the largest bond
fund in the world at the time,
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and made a fortune for his firm
following the Fed's lead.
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>> Don't fight the Fed.
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The Fed is the one institution
that has a printing press in the
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basement, and there's no limits
to how much it can use.
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That is what makes the Fed such
an influential player in the
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marketplace.
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Keep an eye on the treasury
market...
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>> JACOBY: El-Erian's firm
helped advise the Fed on it's QE
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experiment.
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He told me the expectation was
that the low interest rates and
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QE would have a strong knock-on
effect on the wider economy.
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>> That was the theory.
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In practice, the Fed was very
successful, in terms of moving
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asset prices.
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It was much less successful in
moving the economy and the
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result of that is we got the
largest disconnect ever between
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Main Street and Wall Street,
between the economy and finance.
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>> The banks are sitting on
their butts and they're still
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not lending money.
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>> JACOBY: One of the problems
was that the banks were holding
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on to the money instead of
making it available to
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borrowers.
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>> The banking sector is broken.
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>> JACOBY: At the Fed, Andrew
Huszer was disappointed by what
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he was seeing.
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>> I have great respect for the
Fed.
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I never questioned, and I, to
this day, I will never question
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the intention.
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What I question, rather, is
whether their tools are able to
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help the American people in the
way that they believe.
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I came out of QE1 100 percent
believing that it was necessary,
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because we had actually helped
to stabilize the economy, but
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wondering if there wasn't a
fundamental problem with the
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approach, in that the tools of
the Fed worked through the Wall
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Street banks, and in so doing,
were disproportionately
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benefiting the wrong people--
the people who didn't really
241
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need the help.
242
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>> JACOBY: So basically, what
you're saying is that you were
243
00:11:30,291 --> 00:11:33,750
seeing, in practice, something
very different than what was
244
00:11:33,833 --> 00:11:35,250
supposed to happen,
theoretically.
245
00:11:35,333 --> 00:11:41,083
>> Yeah, I saw that Wall Street
is a private sector actor, and
246
00:11:41,166 --> 00:11:44,208
Wall Street has its own
interests, and Wall Street can
247
00:11:44,291 --> 00:11:46,250
do what Wall Street wants.
248
00:11:46,333 --> 00:11:50,750
And the Fed was, on some level,
at the mercy of, of Wall Street.
249
00:11:50,833 --> 00:11:54,291
>> JACOBY: Huszar and others
inside the Fed had been counting
250
00:11:54,375 --> 00:11:58,416
on Congress to step in and help
correct the imbalance-- target
251
00:11:58,500 --> 00:12:01,833
more money to Main Street and
the wider economy.
252
00:12:01,916 --> 00:12:04,750
But then politics took a sharp
turn.
253
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>> We've come to take our
government back!
254
00:12:07,625 --> 00:12:10,375
>> JACOBY: Tea Party supporters
put Republicans in charge of the
255
00:12:10,458 --> 00:12:11,708
House...
256
00:12:11,791 --> 00:12:13,416
>> We need to restore fiscal
sanity to this nation.
257
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>> JACOBY: ...dimming prospects
for Congress and the White House
258
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to work together to stimulate
the economy.
259
00:12:19,875 --> 00:12:22,166
The Fed was on its own.
260
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Was it palpable that the Fed was
sort of the only game in town
261
00:12:28,375 --> 00:12:29,458
here?
262
00:12:29,541 --> 00:12:30,625
>> Yes.
263
00:12:30,708 --> 00:12:33,791
The fact was we were carrying
the load all by ourselves.
264
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>> JACOBY: The day after the
midterm elections, the Fed
265
00:12:38,333 --> 00:12:41,333
announced it would do another
round of quantitative easing--
266
00:12:41,416 --> 00:12:44,416
not just to stabilize the
economy but boost it.
267
00:12:45,166 --> 00:12:48,500
Fed Chair Bernanke promoted the
plan, writing that it would
268
00:12:48,583 --> 00:12:51,208
create a "virtuous" circle, with
with lower mortgage rates making
269
00:12:51,291 --> 00:12:55,291
housing more affordable, and
higher stock prices boosting
270
00:12:55,375 --> 00:12:56,708
consumer wealth.
271
00:12:57,291 --> 00:13:00,583
He went on television to counter
critics who were warning the
272
00:13:00,666 --> 00:13:03,375
decision risked causing
inflation.
273
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>> They're looking at some of
the risks and uncertainties
274
00:13:05,500 --> 00:13:08,041
associated with doing this
policy action.
275
00:13:08,125 --> 00:13:10,750
What I think they're not doing
is looking at the risk of not
276
00:13:10,833 --> 00:13:11,875
acting.
277
00:13:12,708 --> 00:13:14,625
>> JACOBY: I wanted to talk to
Bernanke but he wouldn't agree
278
00:13:14,708 --> 00:13:16,208
to an interview.
279
00:13:16,291 --> 00:13:19,416
But I did speak to Sarah Bloom
Raskin, who was on the Board of
280
00:13:19,500 --> 00:13:20,500
Governors at the time.
281
00:13:20,583 --> 00:13:24,208
>> So, many of these tools had
not been tried before.
282
00:13:24,291 --> 00:13:26,375
They were definitely like break
the glass kind of tools.
283
00:13:26,458 --> 00:13:29,500
Like, what are we going to do in
order to restart the economy
284
00:13:29,583 --> 00:13:32,166
here?
285
00:13:32,250 --> 00:13:35,416
>> JACOBY: You voted for
quantitative easing two.
286
00:13:35,500 --> 00:13:36,583
What was your thinking there?
287
00:13:36,666 --> 00:13:42,750
>> Right, so, my thinking was
that we still had an economy
288
00:13:42,833 --> 00:13:47,750
that was far from its potential.
289
00:13:47,833 --> 00:13:51,250
As QE began, it showed great
promise.
290
00:13:51,333 --> 00:13:58,291
We started to see that people's
sense of economic wellbeing was
291
00:13:58,375 --> 00:14:01,416
ticking up somewhat.
292
00:14:01,500 --> 00:14:05,083
People were finding jobs, people
were finding homes.
293
00:14:05,166 --> 00:14:08,083
The foreclosure rate had slowed.
294
00:14:08,166 --> 00:14:11,583
So there was a sense that
something was working.
295
00:14:11,666 --> 00:14:15,708
And for that reason it was, in
my mind, worth supporting.
296
00:14:17,166 --> 00:14:19,416
>> JACOBY: But outside the Fed,
some were saying that the costs
297
00:14:19,500 --> 00:14:22,500
of quantitative easing might
already outweigh the benefits.
298
00:14:23,333 --> 00:14:26,833
>> A lot of talk about
quantitative easing, QE2-- the
299
00:14:26,916 --> 00:14:31,625
likelihood that that will have a
significant effect is close to
300
00:14:31,708 --> 00:14:32,666
zero.
301
00:14:32,750 --> 00:14:33,833
>> But the markets love it.
302
00:14:33,916 --> 00:14:35,791
>> JACOBY: Joseph Stiglitz is
one of the most well-known
303
00:14:35,875 --> 00:14:38,708
economists in America and a
winner of the Nobel Prize.
304
00:14:39,875 --> 00:14:46,625
>> So you're doing a documentary
on the Fed and monetary policy?
305
00:14:46,708 --> 00:14:47,166
>> JACOBY: We are trying to.
306
00:14:47,250 --> 00:14:48,583
>> (laughing): Okay.
307
00:14:48,666 --> 00:14:49,541
>> JACOBY: Are we insane?
308
00:14:49,625 --> 00:14:50,666
>> No, no, no, I think it's a
great idea.
309
00:14:50,750 --> 00:14:53,000
>> JACOBY: Okay.
310
00:14:53,083 --> 00:14:54,791
Stiglitz told me that while the
Fed was doing some good, he also
311
00:14:54,875 --> 00:14:57,541
had concerns at the time.
312
00:14:58,208 --> 00:15:02,000
>> The main thing I was
concerned about was that the way
313
00:15:02,083 --> 00:15:06,333
they were trying to revive the
economy was a kind of trickle
314
00:15:06,416 --> 00:15:07,500
down economics.
315
00:15:08,000 --> 00:15:11,500
The way quantitative easing
works is that it's a lowering of
316
00:15:11,583 --> 00:15:15,666
the interest rates that leads
stocks to go up.
317
00:15:15,750 --> 00:15:19,666
And so who owns the stocks?
318
00:15:19,750 --> 00:15:22,250
It's the people in the top.
319
00:15:22,333 --> 00:15:25,583
Not just the top ten percent,
one percent, one-tenth of one
320
00:15:25,666 --> 00:15:26,875
percent.
321
00:15:26,958 --> 00:15:32,416
And so it increases enormously
wealth inequality.
322
00:15:32,500 --> 00:15:38,750
We had had increasing inequality
really since the late '70s and
323
00:15:38,833 --> 00:15:41,291
this was putting that on
steroids.
324
00:15:41,375 --> 00:15:46,083
So the immediate objective of
saving the banking system was
325
00:15:46,166 --> 00:15:51,500
achieved, but the broader
objective, which was helping the
326
00:15:51,583 --> 00:15:55,666
economy recovery quickly in a
robust way, in a way with shared
327
00:15:55,750 --> 00:15:58,416
prosperity, total failure.
328
00:15:58,500 --> 00:16:01,541
>> JACOBY: What sort of response
did you get from folks at the
329
00:16:01,625 --> 00:16:03,291
Fed to what you were saying at
the time?
330
00:16:03,375 --> 00:16:07,375
>> "Our mandate is to do what we
can to increase employment, to
331
00:16:07,458 --> 00:16:14,250
use the tools that we have, and
that's what we're doing."
332
00:16:14,333 --> 00:16:17,583
>> JACOBY: Was that even part of
the discussion at the time in
333
00:16:17,666 --> 00:16:22,208
the boardroom, whether there was
any risk of exacerbating wealth
334
00:16:22,291 --> 00:16:22,958
inequality?
335
00:16:23,666 --> 00:16:27,916
>> There were strands of that, I
would... I recall.
336
00:16:28,000 --> 00:16:32,708
The... these kind of costs were
considered speculative, because
337
00:16:32,791 --> 00:16:36,208
again, the tools hadn't been
used before.
338
00:16:36,291 --> 00:16:38,708
So there wasn't a clear sense as
to what would... you know, sort
339
00:16:38,791 --> 00:16:41,083
of what the impact would be.
340
00:16:41,166 --> 00:16:44,625
There was some discussion of it,
but nothing definitive.
341
00:16:44,708 --> 00:16:48,416
>> JACOBY: Some saw wealth
inequality as a trade-off.
342
00:16:48,500 --> 00:16:50,583
>> There was nothing you could
really do about it.
343
00:16:50,666 --> 00:16:56,375
But it was, in my mind, in my
discussion, what I would present
344
00:16:56,458 --> 00:16:59,750
at the table, it would be one of
the consequences we just had
345
00:16:59,833 --> 00:17:00,875
to be mindful of.
346
00:17:00,958 --> 00:17:03,750
That doesn't mean we shouldn't
have done what we did.
347
00:17:03,833 --> 00:17:07,208
>> JACOBY: For Andrew Huszar, it
was time to walk away from the
348
00:17:07,291 --> 00:17:08,416
Fed.
349
00:17:08,500 --> 00:17:10,875
>> It was a while ago, but
whenever I come back here, it's
350
00:17:10,958 --> 00:17:12,291
a very special feeling.
351
00:17:12,375 --> 00:17:13,583
>> JACOBY: I bet.
352
00:17:13,666 --> 00:17:16,833
You were still working in this
building when the second round
353
00:17:16,916 --> 00:17:19,208
of quantitative easing happened.
354
00:17:19,291 --> 00:17:22,416
What was your reaction to it
when that happened?
355
00:17:22,500 --> 00:17:25,583
>> I was not surprised by the
announcement, but I was
356
00:17:25,666 --> 00:17:27,916
incredibly demoralized.
357
00:17:28,000 --> 00:17:32,375
What I was seeing outside of the
Fed was rising demands from Wall
358
00:17:32,458 --> 00:17:37,375
Street that the Fed continue its
stimulus-- the idea that the
359
00:17:37,458 --> 00:17:40,041
sky was gonna fall if the Fed
didn't continue to print money
360
00:17:40,125 --> 00:17:43,208
and give it to the Wall Street
banks.
361
00:17:43,291 --> 00:17:48,083
And yet, nobody was giving a
coherent explanation as to how
362
00:17:48,166 --> 00:17:52,583
the Fed showering trillions of
dollars onto Wall Street banks
363
00:17:52,666 --> 00:17:56,916
was actually directly benefiting
the average American.
364
00:17:57,000 --> 00:17:59,666
And I'll tell you why they
weren't talking about it,
365
00:17:59,750 --> 00:18:01,916
because it doesn't.
366
00:18:02,000 --> 00:18:04,833
We did not see the knock-on
benefits that we had hoped for
367
00:18:04,916 --> 00:18:07,750
the average American, as much
as we wanted to.
368
00:18:07,833 --> 00:18:10,125
>> JACOBY: Why is this kind of
an emotional issue for you?
369
00:18:10,208 --> 00:18:12,833
>> Well, perhaps it's because I
was a true believer of the Fed.
370
00:18:12,916 --> 00:18:15,291
And I worried about what this
meant, in terms of the future,
371
00:18:15,375 --> 00:18:17,666
about how much more the Fed
would double down, and how
372
00:18:17,750 --> 00:18:22,166
addicted the, the... Washington
and the markets would become
373
00:18:22,250 --> 00:18:24,541
to this extraordinary stimulus.
374
00:18:24,625 --> 00:18:27,416
♪ ♪
>> JACOBY: The Fed would keep
375
00:18:27,500 --> 00:18:29,333
the money flowing under
successive rounds of
376
00:18:29,416 --> 00:18:32,833
quantitative easing, injecting
more than $2 trillion into the
377
00:18:32,916 --> 00:18:34,625
financial system.
378
00:18:34,708 --> 00:18:38,750
And by 2013, unemployment was
continuing to fall, and the Fed
379
00:18:38,833 --> 00:18:42,000
saw signs that its policies were
having a positive impact on the
380
00:18:42,083 --> 00:18:43,583
economy.
381
00:18:43,666 --> 00:18:46,416
Fed Chairman Bernanke signaled
that the easy money might start
382
00:18:46,500 --> 00:18:47,666
to taper off.
383
00:18:48,333 --> 00:18:50,958
>> If we see continued
improvement, and we have
384
00:18:51,041 --> 00:18:55,916
confidence that that is going to
be sustained, then we could, in
385
00:18:56,000 --> 00:19:00,791
the next few meetings, we could
take a step down in our pace of
386
00:19:00,875 --> 00:19:02,625
purchases.
387
00:19:02,708 --> 00:19:03,791
>> I was on the trade floor.
388
00:19:03,875 --> 00:19:06,333
I remember Chairman Bernanke
saying that he would taper.
389
00:19:08,500 --> 00:19:10,541
First we had to figure out what
does taper mean?
390
00:19:10,625 --> 00:19:13,375
And the minute people realized
what taper meant, which is that
391
00:19:13,458 --> 00:19:17,125
the Fed would step back from
buying all these securities, and
392
00:19:17,208 --> 00:19:19,416
even though the Fed said it's
gonna be gradual, it's gonna be
393
00:19:19,500 --> 00:19:22,541
measured, the markets had a
massive tantrum.
394
00:19:22,625 --> 00:19:24,708
>> The markets selling off as
the Federal Reserve Chairman
395
00:19:24,791 --> 00:19:26,833
Ben Bernanke said that the
central bank could start
396
00:19:26,916 --> 00:19:27,875
tapering.
397
00:19:27,958 --> 00:19:30,166
>> The markets went into a fit.
398
00:19:30,250 --> 00:19:31,416
Became dysfunctional.
399
00:19:31,500 --> 00:19:33,416
It was known as the taper
tantrum.
400
00:19:33,500 --> 00:19:35,458
>> We all know it, when Ben
Bernanke talks, if the Federal
401
00:19:35,541 --> 00:19:37,416
Reserve speaks, the markets
listen.
402
00:19:37,500 --> 00:19:39,750
Taper tantrum!
403
00:19:39,833 --> 00:19:42,000
>> Markets are like little kids.
404
00:19:42,083 --> 00:19:46,750
They want candy, and the minute
you try to take the candy away,
405
00:19:46,833 --> 00:19:48,791
they have a tantrum.
406
00:19:48,875 --> 00:19:51,208
>> You have big Wall Street
reaction, right?
407
00:19:51,291 --> 00:19:54,250
You have extreme volatility
where Wall Street says, "Whoa,
408
00:19:54,333 --> 00:19:56,958
whoa, no, no!
409
00:19:57,041 --> 00:19:58,416
No, unacceptable!" and values
plunge.
410
00:19:58,500 --> 00:20:01,583
And of course the Fed doesn't
like that, nobody likes that,
411
00:20:01,666 --> 00:20:05,750
that's a... that's a precursor
to instability, right?
412
00:20:05,833 --> 00:20:08,500
But it put the Fed in a real
bind.
413
00:20:08,583 --> 00:20:10,208
>> Chairman Bernanke.
414
00:20:10,291 --> 00:20:14,583
>> And Chairman Bernanke had to
go in a conference in Boston
415
00:20:14,666 --> 00:20:16,291
and say, "No, no, no, we're not
tapering."
416
00:20:16,375 --> 00:20:20,791
>> You can only conclude that
highly accommodative monetary
417
00:20:20,875 --> 00:20:23,916
policy for the foreseeable
future is what's needed in the
418
00:20:24,000 --> 00:20:26,833
U.S. economy.
419
00:20:26,916 --> 00:20:30,083
>> JACOBY: Bernanke's successor,
Janet Yellen, had better luck
420
00:20:30,166 --> 00:20:31,666
the following year.
421
00:20:31,750 --> 00:20:33,333
She was able to pause
quantitative easing without a
422
00:20:33,416 --> 00:20:38,208
tantrum, in part, by promising
to maintain the Fed's massive
423
00:20:38,291 --> 00:20:40,625
balance sheet of assets it had
bought-- and to keep short-term
424
00:20:40,708 --> 00:20:42,958
interest rates low.
425
00:20:43,708 --> 00:20:48,416
>> The F.O.M.C. reaffirmed its
view that the current zero to
426
00:20:48,500 --> 00:20:51,875
one-quarter percent target
range for the federal funds
427
00:20:51,958 --> 00:20:53,250
rate remains appropriate.
428
00:20:54,458 --> 00:20:57,666
>> JACOBY: Low rates spurred
companies and individuals to
429
00:20:57,750 --> 00:20:59,291
borrow in record amounts.
430
00:20:59,375 --> 00:21:02,666
And the Federal government took
full advantage of the low
431
00:21:02,750 --> 00:21:06,333
interest rates as well, running
the national debt up a trillion
432
00:21:06,416 --> 00:21:09,041
dollars a year, to new highs.
433
00:21:09,125 --> 00:21:12,791
>> Good afternoon, everyone,
and welcome.
434
00:21:12,875 --> 00:21:15,708
>> JACOBY: By 2018, the new Fed
chair, Jerome Powell, was
435
00:21:15,791 --> 00:21:18,250
saying the economy was in a
good place, citing historically
436
00:21:18,333 --> 00:21:22,583
low unemployment numbers and the
fact that concerns about
437
00:21:22,666 --> 00:21:24,833
inflation hadn't materialized.
438
00:21:24,916 --> 00:21:27,916
>> The U.S. economy is in a good
place, and we will continue to
439
00:21:28,000 --> 00:21:31,541
use our monetary policy tools to
help keep it there.
440
00:21:31,625 --> 00:21:34,083
>> JACOBY: There was a growing
debate about whether the Fed
441
00:21:34,166 --> 00:21:37,625
should raise interest rates and
slow the flow of easy money.
442
00:21:37,708 --> 00:21:40,500
For those who were saying
during that period of time, you
443
00:21:40,583 --> 00:21:43,083
know, you should've been
concerned about other
444
00:21:43,166 --> 00:21:45,958
side-effects of keeping rates
so low.
445
00:21:46,041 --> 00:21:49,458
Tell me what the downside of
raising rates would've been.
446
00:21:49,541 --> 00:21:51,583
>> The downside is keeping
Americans on the side-line who
447
00:21:51,666 --> 00:21:52,833
want to work.
448
00:21:52,916 --> 00:21:55,791
>> JACOBY: I raised these issues
with Neel Kashkari, president
449
00:21:55,875 --> 00:21:57,583
of the Minneapolis Fed.
450
00:21:57,666 --> 00:22:01,041
He's been outspoken about how
the Fed's policies have helped
451
00:22:01,125 --> 00:22:04,583
lower unemployment and improved
the economy overall.
452
00:22:04,666 --> 00:22:07,416
>> The Fed has been on a
mission, I've been on a mission
453
00:22:07,500 --> 00:22:10,250
to put Americans back to work
and help them get their wages
454
00:22:10,333 --> 00:22:13,083
up, especially for those lowest
income Americans.
455
00:22:13,166 --> 00:22:16,375
And if it has had some effect
on Wall Street, to me, the
456
00:22:16,458 --> 00:22:19,250
trade off is well worth it if we
can put Americans back to work,
457
00:22:19,333 --> 00:22:22,000
so that they can put food on the
table, they can take care of
458
00:22:22,083 --> 00:22:22,916
themselves.
459
00:22:23,000 --> 00:22:25,166
That is profoundly beneficial to
society.
460
00:22:25,250 --> 00:22:27,625
>> JACOBY: One of the things
that we have seen in this
461
00:22:27,708 --> 00:22:29,625
country is a widening wealth
gap.
462
00:22:29,708 --> 00:22:32,083
The question is what role, if
any, the Fed has played in
463
00:22:32,166 --> 00:22:33,791
widening that wealth gap.
464
00:22:33,875 --> 00:22:36,208
>> Well, this is a great point,
and I'm glad you raised it.
465
00:22:36,291 --> 00:22:39,750
Most people who make this
argument ignore the fact that
466
00:22:39,833 --> 00:22:42,791
for many Americans, they don't
own a house, they don't own
467
00:22:42,875 --> 00:22:46,208
stocks, they don't have a 401K,
the most valuable asset they
468
00:22:46,291 --> 00:22:47,583
have is their job.
469
00:22:47,666 --> 00:22:50,333
So by putting people back to
work and helping to boost their
470
00:22:50,416 --> 00:22:54,166
wages, we are actually making
their most valuable asset more
471
00:22:54,250 --> 00:22:56,208
valuable.
472
00:22:56,291 --> 00:22:59,833
>> JACOBY: But the critics I
spoke to questioned the Fed's
473
00:22:59,916 --> 00:23:03,000
success and pointed to other
indicators.
474
00:23:03,083 --> 00:23:07,750
>> Wealth was becoming
increasingly unevenly shared; in
475
00:23:07,833 --> 00:23:12,000
that quote "good place" the one
percent held 32 percent of the
476
00:23:12,083 --> 00:23:15,416
nation's wealth and the
majority of Americans said they
477
00:23:15,500 --> 00:23:16,666
were financially anxious.
478
00:23:16,750 --> 00:23:21,250
40 percent of Americans didn't
have more than a $400 rainy day
479
00:23:21,333 --> 00:23:22,541
fund.
480
00:23:22,625 --> 00:23:27,083
Most Americans were tremendously
fragile economically speaking.
481
00:23:27,166 --> 00:23:29,583
>> JACOBY: Karen Petrou is an
unlikely critic of the central
482
00:23:29,666 --> 00:23:33,208
bank-- she spent her career as
an adviser to banks and large
483
00:23:33,291 --> 00:23:36,583
investors, analyzing how
financial policy played out in
484
00:23:36,666 --> 00:23:38,333
the real world.
485
00:23:38,416 --> 00:23:43,291
>> Despite the quote, "record
employment," when you break
486
00:23:43,375 --> 00:23:47,500
those numbers down, you can see
that more people had jobs and
487
00:23:47,583 --> 00:23:52,208
that's great, but the wages and
the growth in the economy
488
00:23:52,291 --> 00:23:54,625
remained very tepid and very
unequal.
489
00:23:55,500 --> 00:23:58,916
>> JACOBY: When you speak to
the folks from the Fed about the
490
00:23:59,000 --> 00:24:03,416
idea of raising interest rates,
they'll say, "What was the
491
00:24:03,500 --> 00:24:04,041
alternative?"
492
00:24:04,125 --> 00:24:06,750
And you say what to that?
493
00:24:06,833 --> 00:24:10,708
>> I'd say, "What you were doing
wasn't working."
494
00:24:10,791 --> 00:24:14,250
We'll never know whether
lowering rates would have
495
00:24:14,333 --> 00:24:16,583
dampened growth.
496
00:24:16,666 --> 00:24:19,375
We do know that keeping rates
ultra, ultra low didn't raise
497
00:24:19,458 --> 00:24:21,666
growth.
498
00:24:21,750 --> 00:24:24,875
It raised markets.
499
00:24:24,958 --> 00:24:27,375
>> JACOBY: Petrou and other
critics were concerned that the
500
00:24:27,458 --> 00:24:30,750
Fed's low rates and easy money
policies were fueling troubling
501
00:24:30,833 --> 00:24:33,958
trends on Wall Street and in
corporate America.
502
00:24:34,041 --> 00:24:37,458
One in particular was the amount
of corporate borrowing.
503
00:24:38,458 --> 00:24:40,291
>> Valuations are generally
elevated, especially corporate
504
00:24:40,375 --> 00:24:42,625
debt.
505
00:24:42,708 --> 00:24:45,250
>> We have flagged the rise in
corporate debt.
506
00:24:45,333 --> 00:24:47,625
>> We have entirely too much
corporate debt out there.
507
00:24:47,708 --> 00:24:50,625
>> JACOBY: Taking advantage of
low interest rates, corporations
508
00:24:50,708 --> 00:24:52,958
were selling bonds to big
investors.
509
00:24:54,000 --> 00:24:56,708
I saw numerous studies and
reports detailing the extent of
510
00:24:56,791 --> 00:24:59,875
the debt-- and how even marquee
companies were so leveraged,
511
00:24:59,958 --> 00:25:02,208
their credit ratings plummeted.
512
00:25:02,291 --> 00:25:05,708
The Fed had hoped that
companies would put all that
513
00:25:05,791 --> 00:25:08,916
borrowed money to good use and
invest in their workforce and
514
00:25:09,000 --> 00:25:10,583
their infrastructure.
515
00:25:10,666 --> 00:25:12,958
But in reality it was playing
out differently.
516
00:25:13,916 --> 00:25:14,750
>> Buybacks.
517
00:25:14,833 --> 00:25:15,250
>> Buying back stock.
518
00:25:15,333 --> 00:25:16,458
>> Stock buybacks...
519
00:25:16,541 --> 00:25:17,708
>> Stock buybacks...
520
00:25:17,791 --> 00:25:19,500
>> JACOBY: Companies were often
borrowing money to buy back
521
00:25:19,583 --> 00:25:23,250
their own stock, making the
remaining shares more valuable
522
00:25:23,333 --> 00:25:24,500
and the prices higher.
523
00:25:25,125 --> 00:25:27,416
>> As a corporation, you realize
all that matters is the stock
524
00:25:27,500 --> 00:25:28,750
price.
525
00:25:28,833 --> 00:25:31,583
So what do we have to do to
increase the stock price?
526
00:25:31,666 --> 00:25:34,958
And more often that is buying
back the stock.
527
00:25:35,041 --> 00:25:37,333
>> JACOBY: Financial reporter
Dion Rabouin covered the growing
528
00:25:37,416 --> 00:25:39,208
trend.
529
00:25:39,291 --> 00:25:41,583
>> So it used to be that the
Fed would lower interest rates,
530
00:25:41,666 --> 00:25:44,250
businesses would then take on
more debt, they would use that
531
00:25:44,333 --> 00:25:47,916
debt to hire more workers,
build more machines and more
532
00:25:48,000 --> 00:25:49,625
factories.
533
00:25:49,708 --> 00:25:51,625
Now what happens is the
Federal Reserve lowers interest
534
00:25:51,708 --> 00:25:55,750
rates, businesses use that to go
out and borrow more money, but
535
00:25:55,833 --> 00:25:59,708
they use that money to buy back
stock and invest in technology
536
00:25:59,791 --> 00:26:02,333
that will eliminate workers and
reduce employee head counts.
537
00:26:02,416 --> 00:26:06,708
They use that money to give the
CEO and other corporate officers
538
00:26:06,791 --> 00:26:11,750
big bonuses and then eventually
issue more debt and buy back
539
00:26:11,833 --> 00:26:13,166
more stock.
540
00:26:13,250 --> 00:26:15,458
So it's this endless cycle of
things that are designed to
541
00:26:15,541 --> 00:26:21,250
increase the stock price, rather
than improve the actual company.
542
00:26:22,250 --> 00:26:26,833
>> G.E. just authorized a $50
billion stock buyback.
543
00:26:26,916 --> 00:26:29,375
>> JACOBY: The numbers were
astounding-- more than
544
00:26:29,458 --> 00:26:32,583
$6 trillion in corporate
buybacks in the decade after
545
00:26:32,666 --> 00:26:34,458
the financial crisis.
546
00:26:34,541 --> 00:26:36,416
>> Warren Buffett likes Apple's
buybacks.
547
00:26:36,500 --> 00:26:38,083
>> Well, why wouldn't he, he's
a shareholder and they're
548
00:26:38,166 --> 00:26:40,125
buying back a hundred billion
dollars in stock.
549
00:26:40,208 --> 00:26:43,041
>> Buybacks used to-- it's
just another example of things
550
00:26:43,125 --> 00:26:45,666
that used to be viewed as kind
of, ugh, you know, just going
551
00:26:45,750 --> 00:26:47,083
mainstream.
552
00:26:48,125 --> 00:26:50,250
>> JACOBY: Sheila Bair, a former
top banking regulator, was
553
00:26:50,333 --> 00:26:52,375
issuing public warnings at the
time that the Fed was
554
00:26:52,458 --> 00:26:56,833
incentivizing bad behavior on
Wall Street despite its best
555
00:26:56,916 --> 00:26:58,458
intentions.
556
00:26:58,541 --> 00:27:00,833
>> I can't fault the companies
so much, because these interest
557
00:27:00,916 --> 00:27:03,291
rate-- this interest rate
environment creates very strong
558
00:27:03,375 --> 00:27:06,833
economic incentives to do
exactly what they're doing.
559
00:27:06,916 --> 00:27:10,250
It's hard to create a new
product, it's hard to come up
560
00:27:10,333 --> 00:27:13,750
with a new idea for a service,
it's hard to build a plant and
561
00:27:13,833 --> 00:27:15,250
hire people and run the
organization.
562
00:27:15,333 --> 00:27:19,666
It's real easy to issue some
debt and pay it out to your
563
00:27:19,750 --> 00:27:21,708
shareholders to goose your share
price.
564
00:27:21,791 --> 00:27:24,583
That's real easy to do, but it
doesn't create real wealth, it
565
00:27:24,666 --> 00:27:26,000
doesn't create real
opportunity, it doesn't create
566
00:27:26,083 --> 00:27:29,541
jobs, it doesn't improve the
labor market.
567
00:27:29,625 --> 00:27:31,416
It's just another example of how
these very low interest rates
568
00:27:31,500 --> 00:27:35,500
have really distorted economic
activity and frankly been a drag
569
00:27:35,583 --> 00:27:38,583
on our economic growth, not a
benefit.
570
00:27:38,666 --> 00:27:41,583
>> JACOBY: Corporate buybacks,
the elevation of corporate debt,
571
00:27:41,666 --> 00:27:44,083
how was that viewed by you and
others at the Fed?
572
00:27:44,458 --> 00:27:46,250
>> Something we pay a lot of
attention to, but when
573
00:27:46,333 --> 00:27:48,375
companies are buying back their
stock, one of the things they're
574
00:27:48,458 --> 00:27:51,875
telling us is we don't have
profitable places to invest,
575
00:27:51,958 --> 00:27:54,416
and it's easier for us to just
to buy back our stock.
576
00:27:54,500 --> 00:27:57,375
That's concerning in terms of
the future of our economy.
577
00:27:57,458 --> 00:28:00,750
But that's not because of the
Fed, so we pay attention to it,
578
00:28:00,833 --> 00:28:03,000
it really matters, but in my
view, we don't, it's not
579
00:28:03,083 --> 00:28:04,416
something we control.
580
00:28:04,500 --> 00:28:07,875
>> JACOBY: In our conversation,
Kashkari was also quick to
581
00:28:07,958 --> 00:28:09,958
dispute the criticism that the
Fed is really just boosting
582
00:28:10,041 --> 00:28:13,625
financial markets and helping
Wall Street.
583
00:28:13,708 --> 00:28:17,166
There is this idea on Wall
Street that the Fed kind of
584
00:28:17,250 --> 00:28:20,291
has our back and that because
you may have well-intentioned
585
00:28:20,375 --> 00:28:24,916
policies that are trying to get
everybody to work, there is this
586
00:28:25,000 --> 00:28:29,333
side effect, this unintended
side effect of just, kind of,
587
00:28:29,416 --> 00:28:30,708
really helping the rich.
588
00:28:32,291 --> 00:28:35,000
>> That argument ignores the
benefit to the poor.
589
00:28:35,083 --> 00:28:36,375
And if... sure, if you're gonna
ignore the benefit to the poor,
590
00:28:36,458 --> 00:28:38,625
then we're only helping the
rich but, of course, that's an
591
00:28:38,708 --> 00:28:41,291
incomplete analysis.
592
00:28:41,375 --> 00:28:43,583
When you actually sit down and
say, well, let's go through the
593
00:28:43,666 --> 00:28:46,791
trade-offs of the choices that
the Fed has, whether it's
594
00:28:46,875 --> 00:28:49,375
interest rates or it's
quantitative easing, it's not
595
00:28:49,458 --> 00:28:52,291
just about Wall Street, it's not
just about asset prices, it's
596
00:28:52,375 --> 00:28:54,416
also about thinking about the
men and women in America who are
597
00:28:54,500 --> 00:28:58,375
trying to find work and who
want to have higher earnings and
598
00:28:58,458 --> 00:28:59,916
who deserve higher earnings.
599
00:29:00,000 --> 00:29:03,000
If we are benefiting them by
helping them find work and
600
00:29:03,083 --> 00:29:06,583
helping them have higher wages,
I will take that trade off.
601
00:29:06,666 --> 00:29:09,416
>> JACOBY: There's an ongoing
disagreement among people I
602
00:29:09,500 --> 00:29:12,166
spoke to about how much the Fed
has been helping Main Street.
603
00:29:12,250 --> 00:29:16,250
But what most do agree on is
that it's fueled the massive
604
00:29:16,333 --> 00:29:18,666
growth of the financial sector--
a "golden age" for Wall Street,
605
00:29:18,750 --> 00:29:22,208
as some have called it.
606
00:29:22,291 --> 00:29:25,250
Even some of the largest
beneficiaries of this trend told
607
00:29:25,333 --> 00:29:29,750
me it made them uncomfortable,
like legendary investor Jeremy
608
00:29:29,833 --> 00:29:31,000
Grantham.
609
00:29:31,083 --> 00:29:35,291
>> In my career in America,
the percentage of GDP that goes
610
00:29:35,375 --> 00:29:38,625
to finance has gone from
three-and-a-half to
611
00:29:38,708 --> 00:29:40,125
eight-and-a-half.
612
00:29:40,208 --> 00:29:43,875
(laughs) Where in a way, we're
like a giant bloodsucker and we
613
00:29:43,958 --> 00:29:47,750
we have more than doubled in
size and sucking more than twice
614
00:29:47,833 --> 00:29:49,416
the blood out of the rest of the
economy.
615
00:29:49,500 --> 00:29:55,583
And we do not generate any
widgets, we do not generate any
616
00:29:55,666 --> 00:29:58,958
real increase in income.
617
00:29:59,041 --> 00:30:01,208
We are just a cost.
618
00:30:01,291 --> 00:30:03,666
>> JACOBY: When you say "we,"
you mean you and other members
619
00:30:03,750 --> 00:30:08,166
of the financial community have
been this kind of bloodsucker on
620
00:30:08,250 --> 00:30:09,083
the economy?
621
00:30:09,166 --> 00:30:10,416
Is that what you're saying?
622
00:30:10,500 --> 00:30:15,250
>> Yes, collectively we fulfill
a completely necessary service,
623
00:30:15,333 --> 00:30:18,208
but what we have done is created
layers upon layers of more and
624
00:30:18,291 --> 00:30:22,083
more convoluted, expensive
financial instruments.
625
00:30:22,166 --> 00:30:25,125
And that's what makes all the
profits for the financial
626
00:30:25,208 --> 00:30:30,041
industry, and it's taken a lot
of ingenuity and salesmanship to
627
00:30:30,125 --> 00:30:33,416
make this happen and a lot of
lobbying in Congress, etc.,
628
00:30:33,500 --> 00:30:39,583
etc., and we have imposed on the
rest of the economy the idea
629
00:30:39,666 --> 00:30:44,708
that banking and finance are
utterly important at all times.
630
00:30:44,791 --> 00:30:48,666
If you do anything wrong to us,
the entire economy will collapse
631
00:30:48,750 --> 00:30:51,416
in ragged disarray.
632
00:30:51,500 --> 00:30:54,250
>> JACOBY: As finance grew, so
did the risks.
633
00:30:54,333 --> 00:30:57,333
One concern was what would
happen to all those companies
634
00:30:57,416 --> 00:31:00,416
that had gone into debt if there
was a downturn-- and what would
635
00:31:00,500 --> 00:31:04,000
happen to the trillions of
dollars in corporate bonds that
636
00:31:04,083 --> 00:31:07,125
had been sold to investors.
637
00:31:07,208 --> 00:31:10,125
There were also increasing
warnings about a key player in
638
00:31:10,208 --> 00:31:13,500
all the borrowing going on,
little known and unregulated
639
00:31:13,583 --> 00:31:16,500
financial companies that had
been flourishing in the easy
640
00:31:16,583 --> 00:31:21,000
money economy, known as shadow
banks.
641
00:31:21,083 --> 00:31:26,000
>> Shadow banks are large
financial institutions that
642
00:31:26,083 --> 00:31:28,416
don't have bank charters.
643
00:31:28,500 --> 00:31:31,458
So they don't have a special
relationship to the government.
644
00:31:31,541 --> 00:31:35,250
They have other financial
licenses to conduct other types
645
00:31:35,333 --> 00:31:37,375
of financial businesses.
646
00:31:37,458 --> 00:31:39,416
>> JACOBY: Lev Menand, who'd
been an economic advisor to the
647
00:31:39,500 --> 00:31:42,333
Fed and the Treasury Department,
said the biggest source of
648
00:31:42,416 --> 00:31:45,583
worry about the shadow banks was
their lack of a cushion in the
649
00:31:45,666 --> 00:31:49,583
event of a downturn.
650
00:31:49,666 --> 00:31:54,083
>> The core of the problem of
the shadow banking system is
651
00:31:54,166 --> 00:31:56,916
that it's extremely fragile.
652
00:31:57,000 --> 00:31:59,750
Anybody who is an investor in
a shadow bank, who has their
653
00:31:59,833 --> 00:32:02,333
money in a shadow bank, instead
of a real bank, is going to have
654
00:32:02,416 --> 00:32:07,250
an incentive to withdraw in the
face of any uncertainty.
655
00:32:07,333 --> 00:32:13,125
So little economic shocks that
cause asset prices to fall have
656
00:32:13,208 --> 00:32:15,458
the potential to trigger runs
and panics.
657
00:32:15,541 --> 00:32:18,208
And so what we've, what we've
done is, by allowing this shadow
658
00:32:18,291 --> 00:32:21,666
banking system to develop, is
we've inserted a source of
659
00:32:21,750 --> 00:32:24,708
instability in our entire
economic system that doesn't
660
00:32:24,791 --> 00:32:27,666
need to be there and that has
the potential of throwing us
661
00:32:27,750 --> 00:32:30,291
all off course.
662
00:32:30,375 --> 00:32:32,250
>> Let me start by saying that
my colleagues and I...
663
00:32:32,333 --> 00:32:35,208
>> JACOBY: That potential
instability posed by the shadow
664
00:32:35,291 --> 00:32:38,083
banking system was on the Fed's
radar.
665
00:32:38,166 --> 00:32:40,750
>> How are you thinking about
potential risks bubbling up in
666
00:32:40,833 --> 00:32:43,833
the broader shadow banking
system?
667
00:32:43,916 --> 00:32:46,375
>> You know, this is a project
that the Financial Stability
668
00:32:46,458 --> 00:32:49,375
Oversight Council is working on
now, and also the Financial
669
00:32:49,458 --> 00:32:53,125
Stability Board globally is
looking carefully at leveraged
670
00:32:53,208 --> 00:32:56,833
lending and, you know, we think
it is something that requires
671
00:32:56,916 --> 00:32:58,583
serious monitoring.
672
00:32:58,666 --> 00:33:00,958
>> JACOBY: Despite those
concerns, little action was
673
00:33:01,041 --> 00:33:04,750
taken by the Fed, other
regulators, or Congress, and
674
00:33:04,833 --> 00:33:07,375
the system remained vulnerable
to a shock.
675
00:33:07,458 --> 00:33:09,333
It would arrive in early 2020.
676
00:33:09,416 --> 00:33:13,000
>> A preliminary investigation
into a mysterious pneumonia
677
00:33:13,083 --> 00:33:15,958
outbreak in Wuhan, China, has
identified an previously
678
00:33:16,041 --> 00:33:17,250
unknown coronavirus.
679
00:33:17,333 --> 00:33:20,041
>> When the pandemic hit, it was
so unlike anything any of us
680
00:33:20,125 --> 00:33:21,625
have experienced in our
lifetimes.
681
00:33:21,708 --> 00:33:24,250
We'd been paying attention to
what was happening in China for
682
00:33:24,333 --> 00:33:25,416
a few months.
683
00:33:25,500 --> 00:33:28,083
I was calling my contacts,
global businesses that had big
684
00:33:28,166 --> 00:33:30,708
operations in China, to
understand what their employees
685
00:33:30,791 --> 00:33:32,125
and staffs were seeing.
686
00:33:32,208 --> 00:33:34,250
And we were all trying to learn
as much as we can about
687
00:33:34,333 --> 00:33:36,750
pandemics and what it's likely
gonna mean.
688
00:33:36,833 --> 00:33:39,250
>> Major selloff across Europe
this morning...
689
00:33:39,333 --> 00:33:41,625
>> I think we all figured out
very quickly the pandemic and
690
00:33:41,708 --> 00:33:43,750
the virus would drive the
economy.
691
00:33:43,833 --> 00:33:45,708
>> Investors are spooked by the
growing number of infections
692
00:33:45,791 --> 00:33:47,041
outside China.
693
00:33:47,125 --> 00:33:48,416
>> But how fast would it hit us?
694
00:33:48,500 --> 00:33:49,833
How widespread?
695
00:33:49,916 --> 00:33:51,708
What would the health care
response be?
696
00:33:51,791 --> 00:33:53,625
It was maximum uncertainty.
697
00:33:53,708 --> 00:33:55,666
And you were seeing that
uncertainty manifest in
698
00:33:55,750 --> 00:33:57,083
financial markets.
699
00:33:57,166 --> 00:34:01,750
>> What you have here are
concerns, fears, worries, and
700
00:34:01,833 --> 00:34:06,000
deep uncertainties about what's
likely to happen next.
701
00:34:06,083 --> 00:34:07,375
>> People were scared.
702
00:34:07,458 --> 00:34:07,958
Investors were scared.
703
00:34:08,041 --> 00:34:09,041
Individuals were scared.
704
00:34:09,125 --> 00:34:13,375
And they said, you know what, I
just want cash.
705
00:34:13,458 --> 00:34:16,625
>> Markets giving us the worst
two-day point drop ever in
706
00:34:16,708 --> 00:34:18,125
history.
707
00:34:18,208 --> 00:34:20,500
>> I don't even want treasury
bonds, I don't even want
708
00:34:20,583 --> 00:34:23,666
corporate bonds, I don't want
stocks, I just want cash.
709
00:34:23,750 --> 00:34:26,750
And when everybody in the
economy says "I want cash" at
710
00:34:26,833 --> 00:34:30,416
the same time, that leads to
potentially a collapse of
711
00:34:30,500 --> 00:34:31,500
financial markets.
712
00:34:31,583 --> 00:34:32,708
>> On the bell, on the bell!
713
00:34:33,583 --> 00:34:36,166
>> It's the first circuit
breaker, has been triggered.
714
00:34:37,416 --> 00:34:40,041
>> Market functioning was
starting to cascade into
715
00:34:40,125 --> 00:34:41,208
failure.
716
00:34:41,291 --> 00:34:43,375
>> The Dow plunging again
today, the 11-year bull market
717
00:34:43,458 --> 00:34:44,666
has ended.
718
00:34:44,916 --> 00:34:48,416
>> Stocks were just on a
downward freefall.
719
00:34:48,500 --> 00:34:50,916
You had credit markets seizing
up.
720
00:34:51,000 --> 00:34:53,291
People were selling anything
that wasn't nailed down.
721
00:34:53,375 --> 00:34:55,916
>> Investors are really growing
incredibly pessimistic.
722
00:34:56,000 --> 00:34:58,916
>> The U.S. economy, the biggest
economy in the world, is in
723
00:34:59,000 --> 00:35:00,083
freefall.
724
00:35:00,166 --> 00:35:02,916
>> Then comes the realization
that we have to lock down.
725
00:35:04,250 --> 00:35:07,250
>> The list of closings and
activities being suspended is
726
00:35:07,333 --> 00:35:08,916
growing from coast to coast.
727
00:35:09,000 --> 00:35:12,916
>> JACOBY: COVID hit the global
economy hard and fast, but it
728
00:35:13,000 --> 00:35:17,083
wasn't just the pandemic that
was causing a financial crisis--
729
00:35:17,166 --> 00:35:19,500
it was the vulnerabilities of a
now highly leveraged financial
730
00:35:19,583 --> 00:35:21,708
system.
731
00:35:21,791 --> 00:35:25,125
Attention focused on the shadow
banks.
732
00:35:25,208 --> 00:35:27,916
>> What we saw in March of last
year was a full-blown panic in
733
00:35:28,000 --> 00:35:29,333
the shadow banking system.
734
00:35:29,416 --> 00:35:31,916
It wasn't something that you
have when you have a pandemic,
735
00:35:32,000 --> 00:35:32,791
you have a bank panic.
736
00:35:33,250 --> 00:35:36,583
It was, you have a bank panic
because you had some exogenous
737
00:35:36,666 --> 00:35:38,791
shock in the economy and you
have these underlying
738
00:35:38,875 --> 00:35:41,416
vulnerabilities in your monetary
system that you haven't
739
00:35:41,500 --> 00:35:42,250
resolved.
740
00:35:42,333 --> 00:35:43,500
♪ ♪
741
00:35:43,583 --> 00:35:45,541
>> JACOBY: The Fed sprang into
action.
742
00:35:45,625 --> 00:35:48,666
They turned back to quantitative
easing-- buying hundreds of
743
00:35:48,750 --> 00:35:51,750
billions in debt from financial
institutions.
744
00:35:51,833 --> 00:35:54,625
By mid-March they made more than
a trillion dollars available to
745
00:35:54,708 --> 00:35:56,333
the shadow banks.
746
00:35:56,416 --> 00:35:58,666
And they cut interest rates back
down to near zero.
747
00:35:59,208 --> 00:36:02,291
>> The Federal Reserve cut
interest rates to near zero.
748
00:36:02,375 --> 00:36:06,500
>> What that tells all of us is
that the economic impact of the
749
00:36:06,583 --> 00:36:09,291
coronavirus is going to be
crippling.
750
00:36:09,666 --> 00:36:12,333
>> The Federal Reserve lent half
a trillion dollars to securities
751
00:36:12,416 --> 00:36:16,291
dealers, half a trillion dollars
to foreign central banks, bought
752
00:36:16,375 --> 00:36:20,333
$2 trillion of treasury
securities, another trillion
753
00:36:20,416 --> 00:36:22,541
dollars of mortgage-backed
securities.
754
00:36:22,625 --> 00:36:26,250
It flooded the zone with new
government cash to stabilize
755
00:36:26,333 --> 00:36:27,916
this system.
756
00:36:28,000 --> 00:36:29,875
>> JACOBY: But it wasn't enough
to stop the panic.
757
00:36:29,958 --> 00:36:31,500
>> The emergency rate cut failed
to calm investors; in fact, it
758
00:36:31,583 --> 00:36:33,375
did the opposite.
759
00:36:33,458 --> 00:36:36,583
>> JACOBY: The corporate debt
market had frozen up, and
760
00:36:36,666 --> 00:36:39,750
companies were unable to finance
themselves, putting the wider
761
00:36:39,833 --> 00:36:42,500
financial system at risk.
762
00:36:43,166 --> 00:36:45,416
>> There's just this corporate
debt picture out there and we're
763
00:36:45,500 --> 00:36:47,791
just beginning to see how those
dominoes are gonna fall.
764
00:36:48,416 --> 00:36:51,166
>> JACOBY: So, on March 23,
the Fed took its economic
765
00:36:51,250 --> 00:36:54,291
experimentation to a whole new
level.
766
00:36:54,375 --> 00:36:56,708
With Congress' backing, Fed
Chair Powell announced a range
767
00:36:56,791 --> 00:36:58,416
of new loan programs.
768
00:36:58,500 --> 00:37:02,416
He said the Fed, for the first
time, would be willing to buy up
769
00:37:02,500 --> 00:37:03,416
corporate debt.
770
00:37:03,916 --> 00:37:06,750
>> We often talk about the
Federal Reserve using a bazooka
771
00:37:06,833 --> 00:37:09,750
to tackle markets and the
economy.
772
00:37:09,833 --> 00:37:12,458
This is bazooka, cannons, and
tanks all at once.
773
00:37:13,000 --> 00:37:17,583
♪ ♪
>> So this was huge, this was
774
00:37:17,666 --> 00:37:20,208
the Fed stepping in on an
unprecedented scale, and saying
775
00:37:20,291 --> 00:37:24,041
to the market, "We will do
whatever it takes."
776
00:37:24,625 --> 00:37:26,833
>> The motion is adopted.
777
00:37:26,916 --> 00:37:29,250
(cheers and applause)
>> JACOBY: By the end of March,
778
00:37:29,333 --> 00:37:32,250
Congress would also act, passing
the largest economic stimulus
779
00:37:32,333 --> 00:37:36,208
bill ever-- the $2.2 trillion
CARES Act.
780
00:37:36,625 --> 00:37:38,583
>> The bill rushed to the
president after clearing the
781
00:37:38,666 --> 00:37:39,250
House in a voice vote.
782
00:37:39,833 --> 00:37:42,541
>> JACOBY: It provided support
for individuals and small
783
00:37:42,625 --> 00:37:43,416
businesses.
784
00:37:43,500 --> 00:37:45,083
>> I wanted that to be a nice
signature.
785
00:37:45,166 --> 00:37:49,375
(applause)
>> JACOBY: A big portion of the
786
00:37:49,458 --> 00:37:53,375
bill-- nearly half a trillion
dollars-- was earmarked to go to
787
00:37:53,458 --> 00:37:58,083
the Fed to support its lending
programs.
788
00:37:58,166 --> 00:38:00,500
I don't think most people are
aware that we came this close to
789
00:38:00,583 --> 00:38:03,333
a bona fide financial crisis.
790
00:38:03,416 --> 00:38:07,250
>> Yeah, I think a lot of it is
missed for two reasons.
791
00:38:07,333 --> 00:38:09,666
One: there was a lot of other
stuff going on in the news at
792
00:38:09,750 --> 00:38:11,125
the time.
793
00:38:11,208 --> 00:38:13,583
And the other is the Federal
Reserve did an amazingly good
794
00:38:13,666 --> 00:38:18,333
job at putting out the flames of
this panic.
795
00:38:18,416 --> 00:38:22,833
And even though the panic in
March 2020 was more severe along
796
00:38:22,916 --> 00:38:26,833
many metrics than anything we
saw in 2008, the government's
797
00:38:26,916 --> 00:38:32,583
response was more powerful in
certain respects.
798
00:38:32,666 --> 00:38:36,083
And we're lucky that-that the
government was successful or we
799
00:38:36,166 --> 00:38:39,916
could be living through a true
depression.
800
00:38:40,000 --> 00:38:42,291
(bell ringing)
>> And there's the opening bell.
801
00:38:42,375 --> 00:38:44,291
Looks like markets are set to
rally...
802
00:38:44,375 --> 00:38:46,333
>> JACOBY: But in staving off
unemployment and economic
803
00:38:46,416 --> 00:38:49,291
disaster, the Fed had also used
its powers to rescue some of the
804
00:38:49,375 --> 00:38:53,125
riskiest parts of the financial
system, like the junk bond
805
00:38:53,208 --> 00:38:54,125
market.
806
00:38:54,500 --> 00:38:56,750
>> Is this just like a high
yield junk bond bailout?
807
00:38:56,833 --> 00:38:57,583
I mean I don't get...
808
00:38:57,666 --> 00:38:58,875
>> We've got to live with it
now, Tom.
809
00:38:58,958 --> 00:39:00,666
>> ...why is this an emergency?
810
00:39:00,750 --> 00:39:01,166
>> We've got to live with it.
811
00:39:01,958 --> 00:39:04,208
>> JACOBY: To the critics, the
Fed was sending the wrong
812
00:39:04,291 --> 00:39:06,333
message, rewarding the wrong
people.
813
00:39:06,583 --> 00:39:12,250
>> Over the years, we've been
trained to believe that the Fed
814
00:39:12,333 --> 00:39:12,583
is on our side.
815
00:39:13,625 --> 00:39:17,250
What the Fed has trained us to
believe is that if we make a bet
816
00:39:17,333 --> 00:39:23,708
in the market and we win, we're
on our own, we get to keep the
817
00:39:23,791 --> 00:39:25,250
profits.
818
00:39:25,333 --> 00:39:29,291
If we lose, they will bend every
effort and every dollar they can
819
00:39:29,375 --> 00:39:33,958
get their hands on, one way or
another, to bail us out.
820
00:39:34,041 --> 00:39:37,583
This is asymmetry of the most
splendid kind.
821
00:39:37,666 --> 00:39:39,250
>> A speeds, go ahead and clap
it off please.
822
00:39:39,333 --> 00:39:41,375
>> JACOBY: Billionaire bond
investor Howard Marks called the
823
00:39:41,458 --> 00:39:45,541
Fed out at the time, saying it
was undercutting the way the
824
00:39:45,625 --> 00:39:47,458
free market is supposed to work.
825
00:39:47,541 --> 00:39:50,541
>> There are negative
ramifications to this.
826
00:39:50,625 --> 00:39:58,750
One called moral hazard, which
means conditioning people to
827
00:39:58,833 --> 00:40:01,541
believe that if there's a
problem, the government will
828
00:40:01,625 --> 00:40:03,041
bail you out.
829
00:40:03,125 --> 00:40:06,666
And, if people really believe
that, then there's no downside
830
00:40:06,750 --> 00:40:08,250
to risky behavior.
831
00:40:08,333 --> 00:40:11,583
Because if there's a problem, it
won't fall on you, you'll get
832
00:40:11,666 --> 00:40:12,958
bailed out.
833
00:40:13,041 --> 00:40:15,458
If you, if you play it
aggressively and-and succeed,
834
00:40:15,541 --> 00:40:18,583
you make money, if you play it
aggressively and fail you'll get
835
00:40:18,666 --> 00:40:20,875
bailed out.
836
00:40:20,958 --> 00:40:23,208
>> JACOBY: So has moral hazard
gotten worse as a result of this
837
00:40:23,291 --> 00:40:24,625
bailout?
838
00:40:25,250 --> 00:40:28,375
>> There's no barometer of moral
hazard, so I can't give you a
839
00:40:28,458 --> 00:40:29,916
reading.
840
00:40:30,000 --> 00:40:35,541
All I can say is that for the
last year or so, risk-taking has
841
00:40:35,625 --> 00:40:39,666
been rewarded, and that tends to
bring on more risk-taking.
842
00:40:40,541 --> 00:40:42,916
>> JACOBY: Do you see moral
hazard in what has just
843
00:40:43,000 --> 00:40:44,000
happened?
844
00:40:44,250 --> 00:40:45,416
>> Oh, absolutely.
845
00:40:45,500 --> 00:40:50,833
I-I think now, you know, the
entire business community is...
846
00:40:50,916 --> 00:40:54,166
has had a taste of bailouts,
you know.
847
00:40:54,666 --> 00:40:57,416
And-and, boy, doesn't it work
really, really nicely?
848
00:40:57,500 --> 00:40:59,625
Yeah.
849
00:40:59,708 --> 00:41:03,208
So, I-I fear that now, the Fed
stepping in, not just to bail
850
00:41:03,291 --> 00:41:05,333
out Wall Street, but the entire,
you know, corporate America
851
00:41:05,416 --> 00:41:09,250
is-is starting to be embedded
into people's thinking.
852
00:41:09,333 --> 00:41:13,500
People talk about the survival
of capitalism, but this is the
853
00:41:13,583 --> 00:41:15,625
biggest threat to capitalism.
854
00:41:15,708 --> 00:41:17,875
In good times when anybody can
make money you reap those
855
00:41:17,958 --> 00:41:19,000
profits.
856
00:41:19,083 --> 00:41:22,083
In bad times, the Fed, the Fed
just keeps stepping in.
857
00:41:22,166 --> 00:41:24,750
You have this never-ending
ratchet up.
858
00:41:24,833 --> 00:41:26,041
The markets never correct.
859
00:41:26,125 --> 00:41:28,166
>> JACOBY: It's like a no-lose
casino.
860
00:41:28,250 --> 00:41:30,250
>> It is, it is a no-lose
casino.
861
00:41:30,333 --> 00:41:31,541
That's exactly right.
862
00:41:31,625 --> 00:41:33,250
>> JACOBY: This is the second
time in 12 years that you and
863
00:41:33,333 --> 00:41:37,416
your institution have had to
funnel into the financial system
864
00:41:37,500 --> 00:41:41,083
trillions of dollars and there
is this sense that the financial
865
00:41:41,166 --> 00:41:46,000
markets have an iron-clad
backstop from the Fed.
866
00:41:46,541 --> 00:41:49,958
>> Well, I completely agree that
it is unacceptable that 12 years
867
00:41:50,041 --> 00:41:53,541
after 2008, we had to do this
again.
868
00:41:53,625 --> 00:41:55,750
I am proud that we did what we
did, it was the right thing to
869
00:41:55,833 --> 00:41:57,375
do, it was necessary.
870
00:41:57,458 --> 00:42:01,125
But it is unacceptable as an
American citizen that we have a
871
00:42:01,208 --> 00:42:03,958
financial system that is this
risky and this vulnerable.
872
00:42:04,041 --> 00:42:07,291
>> JACOBY: What, if any,
responsibility or accountability
873
00:42:07,375 --> 00:42:11,583
does the Fed have for the
financial system having been so
874
00:42:11,666 --> 00:42:14,375
risky and so vulnerable to a
shock?
875
00:42:14,458 --> 00:42:17,541
>> Well, I think all financial
regulators that have a seat at
876
00:42:17,625 --> 00:42:20,208
the table have a... have
responsibility for what was left
877
00:42:20,291 --> 00:42:25,125
incomplete after 2008, and where
we go from here.
878
00:42:25,208 --> 00:42:28,541
We need to use this crisis to
finish the work that we did not
879
00:42:28,625 --> 00:42:30,958
finish after '08.
880
00:42:31,041 --> 00:42:33,333
>> JACOBY: With all due respect,
I just I wonder if you could be
881
00:42:33,416 --> 00:42:35,416
a little bit more explicit with
me.
882
00:42:35,500 --> 00:42:38,500
What will the Fed own when it
comes to the vulnerability of
883
00:42:38,583 --> 00:42:39,208
the system?
884
00:42:39,291 --> 00:42:41,250
>> Well, I reject the thesis.
885
00:42:41,333 --> 00:42:43,500
I actually don't think it's been
the Fed's monetary policy that
886
00:42:43,583 --> 00:42:45,625
has led to these
vulnerabilities.
887
00:42:45,708 --> 00:42:48,250
I think it's been incomplete
regulatory policy that has led
888
00:42:48,333 --> 00:42:49,458
to these vulnerabilities.
889
00:42:49,541 --> 00:42:51,500
>> JACOBY: That's an idea
Kashkari expressed repeatedly to
890
00:42:51,583 --> 00:42:56,250
me: that there are other actors
responsible and larger economic
891
00:42:56,333 --> 00:42:59,666
forces at play beyond the Fed's
decisions.
892
00:43:00,000 --> 00:43:03,500
>> The shadow of the pandemic is
going to be extremely long.
893
00:43:03,583 --> 00:43:07,625
>> JACOBY: With unemployment
still high, the Fed and Congress
894
00:43:07,708 --> 00:43:10,583
have continued to pump money
into the economy.
895
00:43:10,666 --> 00:43:12,583
>> Let's keep 'em coming this
way.
896
00:43:12,666 --> 00:43:13,583
>> JACOBY: Trillions to
struggling individuals and small
897
00:43:13,666 --> 00:43:15,541
businesses.
898
00:43:15,958 --> 00:43:19,083
And, once again, quantitative
easing to keep the interest
899
00:43:19,166 --> 00:43:22,333
rates low and the cost of
borrowing down.
900
00:43:22,416 --> 00:43:25,208
>> Last March, the Fed announced
that they've just decided it's
901
00:43:25,291 --> 00:43:28,958
gonna be the right thing to do
to drive 100 miles an hour.
902
00:43:29,041 --> 00:43:30,791
Okay, your judgment call.
903
00:43:30,875 --> 00:43:32,916
A year later, they're still
driving 100 miles an hour.
904
00:43:33,000 --> 00:43:38,208
(chuckling)
And you ask them, "Why exactly
905
00:43:38,291 --> 00:43:40,750
are you driving 100 miles an
hour now?"
906
00:43:40,833 --> 00:43:43,416
They say, "Well, you know it was
a good idea last March and we
907
00:43:43,500 --> 00:43:45,958
don't wanna change things too
quickly and so, yeah, we just
908
00:43:46,041 --> 00:43:47,708
think it's a really good idea."
909
00:43:47,791 --> 00:43:50,083
>> JACOBY: Peter Fisher spent
years at the New York Federal
910
00:43:50,166 --> 00:43:54,208
Reserve, and at Blackrock, the
largest asset management firm in
911
00:43:54,291 --> 00:43:55,416
the world.
912
00:43:55,500 --> 00:43:58,333
>> It's pretty basic in-in
medicine that our doctor may
913
00:43:58,416 --> 00:44:04,541
give us a drug, which in a small
punchy dose, for a brief period
914
00:44:04,625 --> 00:44:08,541
of time, might help us recover
from whatever ails us.
915
00:44:08,625 --> 00:44:12,583
But that the same medicine, the
same drug, taken in massive
916
00:44:12,666 --> 00:44:16,916
doses over long periods of time
might kill us, or make us ill,
917
00:44:17,000 --> 00:44:20,041
or have perverse side effects.
918
00:44:20,125 --> 00:44:23,208
♪ ♪
>> JACOBY: Corporate America has
919
00:44:23,291 --> 00:44:26,250
taken on yet more debt, and
investors are gobbling it up.
920
00:44:26,333 --> 00:44:28,833
The housing market and the
millions of people who own some
921
00:44:28,916 --> 00:44:32,625
stocks and bonds are seeing a
boom.
922
00:44:32,958 --> 00:44:34,416
>> Elon Musk has added over $10
billion to his wealth just this
923
00:44:34,500 --> 00:44:36,666
week.
924
00:44:36,750 --> 00:44:40,541
>> JACOBY: And for the richest
Americans, it's been a bonanza.
925
00:44:40,625 --> 00:44:44,875
>> Just the billionaires in the
United States, from March 2020
926
00:44:44,958 --> 00:44:50,416
to February 2021, have grown
their wealth by $1.3 trillion.
927
00:44:50,500 --> 00:44:52,833
$1.3 trillion.
928
00:44:53,666 --> 00:44:56,958
>> Billionaires now hold
two-thirds more in wealth than
929
00:44:57,041 --> 00:44:58,541
the bottom half of the U.S.
930
00:44:58,625 --> 00:44:59,416
population.
931
00:44:59,833 --> 00:45:03,250
>> The thing about wealth is
what creates wealth is wealth.
932
00:45:03,333 --> 00:45:07,458
When you have $100 million to
invest, it's much more easy to
933
00:45:07,541 --> 00:45:11,291
become a billionaire than when
you have $100 to invest.
934
00:45:11,375 --> 00:45:13,958
♪ ♪
>> You ever think about trading
935
00:45:14,041 --> 00:45:15,166
stocks?
936
00:45:15,250 --> 00:45:16,958
>> JACOBY: But that hasn't
stopped many $100 investors from
937
00:45:17,041 --> 00:45:19,500
trying to get a piece of the
action.
938
00:45:19,583 --> 00:45:22,250
>> People like us can trade just
like the big guys.
939
00:45:22,333 --> 00:45:23,583
With Robinhood.
940
00:45:23,666 --> 00:45:28,041
♪ ♪
>> All these brokerage platforms
941
00:45:28,125 --> 00:45:32,500
saw the largest growth of new
users they'd ever seen because
942
00:45:32,583 --> 00:45:36,291
people said, "Now is my
opportunity, I'm gonna invest my
943
00:45:36,375 --> 00:45:38,083
money in the stock market.
944
00:45:38,166 --> 00:45:41,333
I may not understand what the
Fed's doing, or how it works,
945
00:45:41,416 --> 00:45:44,666
or what exactly is going on..."
946
00:45:44,750 --> 00:45:47,083
>> The Dow rising nearly 18%,
its best performance since
947
00:45:47,166 --> 00:45:48,291
1987...
948
00:45:48,375 --> 00:45:51,458
>> "But I understand the Fed
takes action, stock prices go
949
00:45:51,541 --> 00:45:53,208
up, these people get rich."
950
00:45:53,291 --> 00:45:57,333
And it became a very clear
mandate for people, "If I wanna
951
00:45:57,416 --> 00:46:02,000
get in on this economic recovery
we're having, I've gotta buy
952
00:46:02,083 --> 00:46:03,708
stocks."
953
00:46:03,791 --> 00:46:05,958
>> I'm gonna take my stimulus
check and I'm gonna put it in
954
00:46:06,041 --> 00:46:07,250
the stock market.
955
00:46:07,333 --> 00:46:10,083
>> So they're online, they're
trading stocks, they're buying
956
00:46:10,166 --> 00:46:13,250
and selling, and putting money
into these stock accounts.
957
00:46:13,333 --> 00:46:15,500
They started creating their own
communities
958
00:46:15,958 --> 00:46:19,000
>> Welcome Declan, Michael Lee,
so many people, Bob Smith...
959
00:46:19,666 --> 00:46:23,000
>> JACOBY: Jerome Powell has
become a kind of cult figure,
960
00:46:23,083 --> 00:46:25,291
master of the money printer.
961
00:46:25,375 --> 00:46:28,625
>> Money printer go brr...
962
00:46:28,708 --> 00:46:31,208
>> Invest in these four tickers,
I'll put them right above.
963
00:46:31,291 --> 00:46:32,541
>> JACOBY: Billions have been
piling into so-called meme
964
00:46:32,625 --> 00:46:34,500
stocks.
965
00:46:34,875 --> 00:46:37,458
>> This GameStop situation, we
will never encounter a set-up
966
00:46:37,541 --> 00:46:39,000
like this again.
967
00:46:39,083 --> 00:46:43,583
>> JACOBY: New financial assets
like NFTs-- non-fungible tokens.
968
00:46:43,666 --> 00:46:45,958
>> From art to music to sports,
it's a new phenomenon that is
969
00:46:46,041 --> 00:46:48,750
moving quickly, and with big
numbers.
970
00:46:48,833 --> 00:46:50,416
>> JACOBY: And cryptocurrencies.
971
00:46:50,500 --> 00:46:54,541
>> Bitcoin has been on a wild
ride during the past few months.
972
00:46:54,625 --> 00:46:57,958
>> It doesn't really matter if
something is a good buy or if
973
00:46:58,041 --> 00:46:59,416
it's fundamentally sound.
974
00:46:59,500 --> 00:47:01,666
>> The money is crazy and
awesome and I think...
975
00:47:02,250 --> 00:47:05,416
>> There's been so much money
injected into the economy that
976
00:47:05,500 --> 00:47:07,750
people just need things to buy.
977
00:47:07,833 --> 00:47:10,041
>> JACOBY: I mean, what you're
describing is mania.
978
00:47:10,125 --> 00:47:12,750
>> (laughing)
Yeah, yeah, you could call it
979
00:47:12,833 --> 00:47:14,166
mania.
980
00:47:14,250 --> 00:47:16,583
I mean certainly we are in a
mania because, again, the Fed
981
00:47:16,666 --> 00:47:20,875
has put a floor underneath asset
prices.
982
00:47:20,958 --> 00:47:24,083
There's only one direction that
things can go and that's up.
983
00:47:24,166 --> 00:47:28,333
Otherwise, the Fed will step in
and act.
984
00:47:28,416 --> 00:47:32,375
So if things can only go up, why
wouldn't you just buy?
985
00:47:33,416 --> 00:47:36,166
>> When I look out at what's
been going on the last six
986
00:47:36,250 --> 00:47:38,708
months, I see financial mania.
987
00:47:38,791 --> 00:47:42,083
I don't know what the right
value of some companies is.
988
00:47:42,166 --> 00:47:46,041
But when they change by 50% in
six months, I think we should
989
00:47:46,125 --> 00:47:48,875
all recognize, boy, that's hard
to estimate the value of that.
990
00:47:49,500 --> 00:47:53,958
If it's 50% higher now than it
was six months ago, I guess we
991
00:47:54,041 --> 00:47:57,166
were pretty bad on estimating
its value six months ago.
992
00:47:57,250 --> 00:48:00,041
>> JACOBY: I assume you're
somebody who has assets, who's
993
00:48:00,125 --> 00:48:06,916
invested, and that this has been
a good period for someone like
994
00:48:07,000 --> 00:48:11,666
you, in part because you own
assets.
995
00:48:11,750 --> 00:48:14,041
>> The Fed having pumped asset
prices to historically high
996
00:48:14,125 --> 00:48:18,583
levels doesn't make me feel
comfortable.
997
00:48:18,666 --> 00:48:24,000
I'd be... I feel as anxious
today as I've ever felt about
998
00:48:24,083 --> 00:48:32,333
the financial world because of
my belief that the Fed has been
999
00:48:32,416 --> 00:48:38,958
pumping up asset prices in a way
that is creating a bit of an
1000
00:48:39,041 --> 00:48:41,083
illusion.
1001
00:48:41,166 --> 00:48:47,583
I think the odds are now sort of
one in three-- very high-- that
1002
00:48:47,666 --> 00:48:50,916
we will look at this as an epic
mistake and one of the great
1003
00:48:51,000 --> 00:48:54,250
financial calamities of all
time.
1004
00:48:54,833 --> 00:48:57,041
>> They have the housing market,
the stock market, and the bond
1005
00:48:57,125 --> 00:49:01,875
market all overpriced at the
same time.
1006
00:49:01,958 --> 00:49:04,916
And they will not be able to
prevent, sooner or later, the
1007
00:49:05,000 --> 00:49:07,166
asset prices coming back down.
1008
00:49:07,250 --> 00:49:10,333
So we are playing with fire
because we have the three great
1009
00:49:10,416 --> 00:49:15,291
asset classes moving into bubble
territory simultaneously.
1010
00:49:17,750 --> 00:49:19,750
>> JACOBY: There's a growing
conversation right now about the
1011
00:49:19,833 --> 00:49:23,416
Fed's role, about whether it's
driving wealth inequality,
1012
00:49:23,500 --> 00:49:27,708
whether it's driving asset
prices into dangerous territory
1013
00:49:27,791 --> 00:49:30,833
that could pop right in our
faces, and whether the...
1014
00:49:30,916 --> 00:49:32,291
whether the financial system can
withstand that.
1015
00:49:32,375 --> 00:49:36,375
I mean there are these seemingly
legitimate questions about being
1016
00:49:36,458 --> 00:49:40,500
in what seems to be
unchartered territory.
1017
00:49:40,583 --> 00:49:44,666
>> These questions come from
people who are keen Wall Street
1018
00:49:44,750 --> 00:49:46,833
observers or Wall Street.
1019
00:49:46,916 --> 00:49:50,333
I never have once heard this
line of questioning from a
1020
00:49:50,416 --> 00:49:53,625
member of Congress that
represents a low income or
1021
00:49:53,708 --> 00:49:55,583
minority district, never once.
1022
00:49:55,666 --> 00:50:01,041
They come to us and they say,
"Why can't you do more?"
1023
00:50:01,125 --> 00:50:02,375
They never say, "Oh my gosh,
you're just benefiting Wall
1024
00:50:02,458 --> 00:50:05,750
Street, you know, raise
interest rates, because I wanna
1025
00:50:05,833 --> 00:50:07,791
keep Wall Street in check."
1026
00:50:07,875 --> 00:50:09,458
They say, "Help my constituents
find work."
1027
00:50:09,541 --> 00:50:12,583
So that's why, I mean, I find
these questions amusing because
1028
00:50:12,666 --> 00:50:15,250
I hear 'em all the time from
Wall Street.
1029
00:50:15,333 --> 00:50:17,916
And these are folks who don't
care about what's actually
1030
00:50:18,000 --> 00:50:19,250
happening on Main Street.
1031
00:50:19,333 --> 00:50:20,375
I don't hear it from Main
Street.
1032
00:50:20,458 --> 00:50:22,041
I certainly don't hear it from
low-income communities.
1033
00:50:22,125 --> 00:50:24,750
And I've heard all of these
questions before.
1034
00:50:25,291 --> 00:50:27,125
>> The price of virtually
everything seems to be going up.
1035
00:50:27,208 --> 00:50:31,166
>> From used cars to plane
tickets to furniture.
1036
00:50:31,250 --> 00:50:33,125
>> If you're going to get in
your car and drive to work, your
1037
00:50:33,208 --> 00:50:34,416
gas costs more.
1038
00:50:34,500 --> 00:50:36,583
>> JACOBY: There are now signs
of inflation percolating through
1039
00:50:36,666 --> 00:50:38,041
the economy.
1040
00:50:38,125 --> 00:50:40,583
>> Annual inflation is expected
to top 3.5% in the fourth
1041
00:50:40,666 --> 00:50:42,083
quarter.
1042
00:50:42,166 --> 00:50:44,291
So now there's speculation the
Fed may speed up its interest
1043
00:50:44,375 --> 00:50:45,583
rate plans.
1044
00:50:45,666 --> 00:50:48,375
>> JACOBY: The Fed insists it's
temporary but has signaled it
1045
00:50:48,458 --> 00:50:51,583
may taper quantitative easing
and raise interest rates as
1046
00:50:51,666 --> 00:50:54,000
early as 2023.
1047
00:50:54,083 --> 00:50:56,083
>> Fed Chair Jerome Powell said
while the economy has
1048
00:50:56,166 --> 00:50:58,416
rebounded, the job market is
still hurting.
1049
00:50:58,916 --> 00:51:02,333
>> Federal Reserve Chair Jerome
Powell announced that tweaks to
1050
00:51:02,416 --> 00:51:05,000
monetary policy may still be
needed.
1051
00:51:05,083 --> 00:51:08,208
>> It is an awfully daunting
task.
1052
00:51:08,291 --> 00:51:13,583
I pray for Jay Powell and I pray
for the committee.
1053
00:51:13,666 --> 00:51:16,375
Doing this successfully will be
a heck of a hat trick.
1054
00:51:16,458 --> 00:51:19,750
>> I would imagine people at the
Fed are scratching their heads
1055
00:51:19,833 --> 00:51:23,125
about how they are going to be
able to get that faucet
1056
00:51:23,208 --> 00:51:29,125
calibrated to a lower level when
necessary.
1057
00:51:29,208 --> 00:51:31,333
>> JACOBY: And the risk of them
turning off the valve right now
1058
00:51:31,416 --> 00:51:33,375
is what?
1059
00:51:33,458 --> 00:51:35,583
>> The risk of turning the
valve off is-is economic
1060
00:51:35,666 --> 00:51:37,375
collapse, right?
1061
00:51:37,458 --> 00:51:41,416
You would, you would see asset
values actually drop through the
1062
00:51:41,500 --> 00:51:42,625
floor.
1063
00:51:42,708 --> 00:51:45,125
You know, and a complete lack of
confidence.
1064
00:51:45,208 --> 00:51:48,333
The Fed, by the way, would not,
I can't imagine, turn it off in
1065
00:51:48,416 --> 00:51:50,583
one, you know, sort of in one
move.
1066
00:51:50,666 --> 00:51:53,750
But when the Fed does move, it's
going to want to do it probably
1067
00:51:53,833 --> 00:51:55,000
quite gradually.
1068
00:51:55,083 --> 00:51:59,041
And the question is: will they
be able to do it in such a way
1069
00:51:59,125 --> 00:52:03,875
that doesn't create this kind of
massive economic dislocation?
1070
00:52:03,958 --> 00:52:06,875
♪ ♪
>> JACOBY: Whatever the Fed does
1071
00:52:06,958 --> 00:52:09,125
next, the consequences will
affect us all.
87750
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