Transcripts For FBC Markets Now 20140116 : vimarsana.com

FBC Markets Now January 16, 2014

Dissembling based entirely on political reasons. Technology is binary, somethings vulnerable or not. This was shown to be vulnerable back in november, its now been further demonstrated, and weve got a lot more testimony, a lot more Expert Opinion on there showing that, in fact, there are some very serious vulnerabilities with healthcare. Gov. Connell all right, tell us a little bit about them as you understand them. As this testimony continues today or throughout the day or after the hearing is over well have a summary of it and find out what they found out. However, you say it was vulnerable, and then as we went on it actually got more vulnerable. Youd think the opposite would be true. In other words, if we saw that a web site, this target storys been in the news and other stories related to it in the news, somethings vulnerable, you fix it and it gets better. Why has that not happened . Um, i dont actually know why its not happened. I can speculate that, you know, as we heard happens quite a bit in the recent book by secretary gates, were finding that Political Considerations outweigh other considerations. In this case, the Political Considerations to get the site going, to push things farther faster might have meant a deemphasis on what were clearly vulnerabilities, and so moving forward i think what we had was a sort of rhetorical approach as opposed to a technical approach to address very, very fundamental flaws in the technology to secure the web site. As an example be, this is not complex stuff, right . You can actually surf to a specific address on healthcare. Gov, and you can expose be names, email addresses and other information. You can trick peoples browsers into displaying other information or actually going to other places. Its very, very fundamental stuff. Connell and in the most practical and, to use your word, fundamental way, for someone watching, you know, who needs to make use or has already made use of this site, they should be worried about what, their identity being exposed quite simply . Or are there other things they should be worried about . I think, you know, the government has said many times there is no hipaa Information Available on health healthcare. Thats technically true. However, it doesnt mention that all the information a person would need to demonstrate that they are that person to get hipaa be information is retained by the site. Thats what you have to do when you identify yourself to healthcare. Gov. Its a very serious problem. So i think that people should be looking at their credit report, they should be looking he govert actually now says that theres no evidence that there was a security breach, i would go so far as to say, and im very confident in this, that the government does not have the capability to say that because they dont have the telemetry and the understand understandine actual inner workings of the back end. Connell thank you, nick, for coming on today with us. As i said, this hearings going on, so next hour well get through the ben bernanke commentary, and well have a oneonone with the cyber expert behind the revelations today, trusted sec ceo David Kennedy will be on with dennis and cheryl, thats next hour. Hes testifying now up on capitol hill, and dennis and cheryl will talk about that next hour on markets now. Dagen and it is Quarterly Earnings season. Goldman sachs and citi reporting Quarterly Earnings before the bell this morning. Goldmans profit topping estimates, citi says profit more than double from a year earlier, but it still came up short of analyst expectations. What to make of those numbers and the entire be financial industry, lets bring in Capital Advisers president anton schutz. Finally in studio, my man. So far the reports you have gotten from the big banks, whats your assessment, your take . Well, i think, actually, good enough. I think people were expecting a moderately weak dagen because of mortgage . Well, because of mortgage, because of legal reserve building, because credit spreads are still a little light in terms of the margin, and Revenue Growth isnt that high, so some of them had some long growth, margin expansion, thats good. Reserve build continued, as far as legal reserves, goldman, you know, put money aside, bank of america put money aside, and credit keeps Getting Better other than at citi. Dagen your biggest disappointment would be citi . Yeah, its disappointing. Its something we do own. Its cheapest in terms of tangible book value s so that matters eventually. Theyll probably be able to return a lot of capital, that matters. Theyre using their tax benefit which will also allow them to accelerate their return of capital, dividends, buybacks. So i think citi continues to have some pretty good upside when they start getting the numbers right. Dagen most impressive so far . Bank of america be, clearly. They really looked like they were getting costs in line, loan growth. That stock really performed dagen right. I was going to say that its, has the stock fully factored in all the good news thats out there . I mean, i was looking at it, its up, its outperformed your other major financials glrmt bigtime. I think near term perhaps. I think longer term Brian Moynihan still has a lot more work that hes doing. I think theyre going to continue to get costs in line, and the thing bank of america has had to focus on is kicking the can down the road, settling all the mortgage issues. I think they can focus on building business, and i think thats a big deal. I think they can start being offensive again. Dagen wheres the most upside for growth at bac . I really think just getting back down to it, you know . Merrill lynch, capital markets, obviously, are picking up. The economys doing reasonably well, we dont have fiscal drag this year which i think really matters. We can have a chance to post some real gdp this year. Dagen lets hope. Safe travels, usually in rochester. Please come back here more often, anton schutz. Thank you. Connell all right. Any moment now well have the outgoing Federal Reserve chairman ben bernanke one last time expected to steal the spotlight before he leaves office, so well get you set for that. Dagen and so many investors hot on 3d printers, but a related group of stocks is expected to benefit as well. vo you are a business pro. Seeker of the sublime. You can separate runway diculousness. From fashionhat flies off the shelves. And you. Rent from national. Because only national lets you choose any car in the aisle. And go. And only national isanked highest in car rental Customer Satisfaction by j. D. Power. natalie ooooh, i like your style. vo so do we, busins pro. So do we. Go national. Go like pro. Dagen and we are waiting with baited breath for ben bernanke and what will be his final Public Comments before he exits as the Federal Reserve chief and janet yellen steps into his shoes. Connell hell take some questions, from what we understand, at the Brookings Institute. Dagen i wonder if he cuts loose and starts telling jokes . Connell which one of them, ben . Won the Pulitzer Prize, and dan henninger, you should win a Pulitzer Prize for something. I was part of one for the 9 11 coverage, wall street journal. Connell Editorial Page Editor of the journal. I felt confident in saying that even not knowing the answer. Im glad i was able to give you that answer. Don. Connell basically, the pregame show is going to start any minute, what might be interesting, do you think, coming out of it . And well, you know, central Bank Chairmen normally dont say things that are all that interesting, that kind of comes with the job. Connell even if theyre on their way out . Even if theyre on their or way out. I dont think hes going to put janet yellen in a spot. Whats kind of interesting is hes down there at the brookings institution, and theyre opening the hutchens center, and theyre having a group of academics come in today, and theyre going the deliver papers on bernankes tenure which is to say what he did, quantitative easing, i think, has to be described as the greatest Monetary Policy experiment in the history of the world. And it it has now generated an entire area of Academic Research trying to figure out what he did, did it work, and whats going to happen in the future. There are so many unknowables around what the bernanke tenure did to the economy, and, i mean, you can see things like growth rates in unemployment, but did it work or didnt it work . Should we have had stronger growth, or should 2 be all that we could have expected . Those kinds of questions, i think, are what is going to pursue ben bernanke in the years ahead. Dagen we do, the fed had a period, though, in the late 40s into the early 50s where it was buying treasury debt as well. Do they go back and look at that period . Because you see this as a complete experiment be, but its not completely foreign to what the central bank used to do. Well, volume was unprecedented, 85 billion in bond purchases per month. And, you know, the fed Balance Sheet is now just so huge dagen right. Its never held this much, these many bonds. And i think that the question is ben bernanke, as everyone knows, is a student of the depression. Connell right. And you came out of this terrible experience in 2008, and he was determined not to let the u. S. Economy slip into a serious deflation. And so they created all of this liquidity in the economy. That, i think, was the basic idea behind what he was doing. The question is, did it work . Or should we have had greater growth than we have had . And weve had very weak, tepid growth for the last five years. I think thats one of the Big Questions that will surround the bernanke tenure. Connell you may have noticed on the screen, no, i was just noticing that bernanke is in the room, theyve sat down, and im sure theyll get started officially in a minute or two, and once they do, well take it live. In all of these discussions, we never know what would have happened had he not done that, so isnt it almost i wont say impossible, but its difficult to judge and grade people when you cant say, well, if you didnt do that, we would have fallen off a cliff. I think most economists can see at that point in 2008 when we were in the crisis that the fed needed to step in and provide some liquidity into the system. I mean, there is an argument that they shoulded not have intervened at all, but i think that was a risk most people feel it was just too great to take. The question is, should they have continued the quantitative easing and the liquidity as they have ever since 2008, keeping Interest Rates nearly at zero or at zero . Thats whats so unique about this. To have an economy the size of the United States operate with Interest Rates at zero for so long, has this created distortions, bubbles that were going to have to reckon with in the years ahead . Dagen when is the days, weeks and months of reckoning . How long are we going to wait for in . How long will it take to really know any damage done by this policy . Serious damage . Dagen, i dont think well know until it happens really. I mean, thats the nature of bubbles. You had a stock market set record highs in the last year, and many people were very nervous about the heights that the stock market was getting to even as there was so little growth in the economy. How could you explain that . I mean, one explanation was that a lot of of people finally decided they had to be in the stock market rather than not be in it, and there was no other way to make money on your deposits. I mean, savers, retirees could not simply put money in certificates of deposits because there was no money to be made on it. What assets were available went into the stock market. Connell the two of them are sitting down to start this discussion. Once again, back in 2006 or just pick a year a lot of people said, oh, yeah, reality, prices keep going up, theres no problem in the real estate market. Dagen generally, they mic you before you come out. They do that off camera. Connell an inside television thing. Theyre going to start it off. Dan, as always, thank you very much. Again, ben bernanke. Lets listen. One of your signature achievements. So let me start with that. Youve said somewhere that the playbook that you relied on was essentially given by a british economist in the 1860s, walter badger, and his victim was in a financial crisis the Central Banks should lend unlimited amounts to solvent institutions against good collateral at a penalty rate. How useful in practice was that rule in guiding you . It was excellent advice. This was the advice thats been used by Central Banks going back to the at least the 1700s. When you have a market or a Financial System that is short of liquidity and theres a lack of confidence, a panic, then the central bank is the lender of last resort. Its the institution that can provide the cash liquidity to calm the panic and to make sure that depositors and other shortterm lenders are able to get their money. Um, in the context of the crisis of 2008, the main difference was that, um, the Financial System that we have today, obviously, looked very different in its details if not in its conceptual structure from what walter badget saw in the 19th century. And so the challenge for us at the fedded was to at the fed was to adapt his advice to the context of a modern Financial System. So, for example, instead of having retail toes fors depress to haves standing in line out the doors as was the case in the 1907 panic, for example, in the United States, we had instead runs by wholesale shortterm lenders like repo lenders or commercial paper lenders, and we had to, um, find ways to essentially provide liquidity to stop those runs. So it was a different institutional context but very much, um, a, an approach that was entirely consistent, i think, with badgets recommendations. Now, you also rather than lending only to institutions, you intervened in markets. Uhhuh. Is there a sort of similarlypithy dictum, i dont know, a bernanke rule that you can come up with about when the fed should intervene in markets and when it shouldnt . Well, the if were talking about the crisis period, i would say that all the interventions we did fit under the badget heading. For example, the commercial paper facility that we set up was essentially designed to prevent, um, a run on this particular form of financing. Um, so it was a different institutional structure, but it was, again, essentially the same badget rule being applied in a different institutional context. Now, we have done, um, other interventions, if you will, with our asset purchase program, for example. But that i would call the Monetary Policy part of our response. So, again, while the analogies between, um, its a wonderful life and people running on the thrift are not always immediately obvious, there was, in fact, a very close parallel throughout the whole response. Now, the crisis began in august of 2007 when there was actually a problem with a french Money Market Fund run by a french bank. And if you trace through it, it actually continued until the spring of 2009. So that was a long time. And despite major interventions, you know, after lehman, despite t. A. R. P. You still had a run on citibank, you still had a run on bank of america. Why did it take so long to get it under control . Well, it was not a continuous crisis of equal intensity for that entire period that you described. In the fall of 2007, we were seeing, obviously, a lot of stress in markets. But at that point it was not obvious whether it this was goig to be the start of something bigger or whether it was something more comparable, say, to some of the disruptions we see in the 90s, for example, around the russian debt crisis, for example. There was a critical point that occur inside march of occurred in march of 2008 with the bear stearns episode, and that was a period of very intense stress this the repo markets and some other parts of the Financial Markets. After bear stearns, Financial Conditions calmed fairly notably for a while. Obviously, we remained very alert. We were beginning to, the Federal Reserve was beginning to supervise the investment banks together with the sec over the summer. So we were not complacent about the crisis being over, but conditions were certainly more stable after bear stearns for a number of months. And there at least was some hope given that, for example, that the Bush Administration was undertaking a fiscal expansionary policy, there was some hope that things might calm. But, again, we were very attentive. I think the real, the real intense phase, i think everyone would agree, began with the takeover the putting into conservatorship of fannie and freddie in, i think, Early September of 2008 that was followed through this very intense period of lehman and aig, the t. A. R. P. , etc. So i think that very intense period from, say, september 1st until the latter part of the year, that was the period of greatest stress and gr risk. And the combination of our lending programs and the injection of government capital, the fiscal aspect of that, brought the crisis down considerably by the end of the year. Of course, into the next year we were still working to stabilize the system with our stress testing, addressing some concerns of specific institutions with our Monetary Policy the like. And the like. But i dont think its fair to characterize the crisis as being something that was continuous, you know, for a year and a half. Rather, there were

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