Real-life story of "The Big Short"; 2020's economic emergency; Jerome Powell in 2020 | Full Episodes

If you had to choose someone to write the autopsy report on the Wall Street financial collapse 18 months ago, you couldn't do better than Michael Lewis. He is one of the country's leading nonfiction writers and has a gift for getting complicated and mind-numbing. material in fascinating threads, he wrote his first bestseller, Liars Poker, about his experiences as a young Wall Street bond trader while still in his twenties and has since followed up with seven more bestsellers on topics ranging from Silicon Valley to the new . to Big Time Sports on Moneyball and The Blind Side his new book called The Big Short inside the Doomsday Machine comes out later this week and explains how some of the best minds on Wall Street managed to destroy $1.75 trillion of wealth in the subprime mortgage markets that I spent two days briefing him at his home in California.

This was an episode in which capitalism was almost destroyed only by the capitalists and in the most sensational way. um, they were destroyed by their own madness. What happened? The incentives for people on Wall Street. He was so screwed that the people who worked there became blind to their own long-term interests and because of this, their

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-term interests were so overwhelming that they behaved in ways that were emphatic for their own long-term interests. Michael Lewis a The one-time Wall Street Boy Wonder is about to turn 50 and is now ensconced in this Hillside compound in Berkeley, California, which has a main house and three cabins and is much happier writing about businesses than running them.

What was the book he bought this place? This would have been the new thing they bought in this place. How many books have you sold now? Some millions. I don't know how many millions. No, it's not John Grisham Williams, but Millions. He lives here with his wife, former MTV News correspondent Tabitha Soren, and their three children, a three-year-old son and two young daughters, whom he takes to every Cal Berkeley women's basketball game, one of the few breaks he takes. Lewis indulged himself over the past 18 months as he investigated the idiocy and negligence that produced the worst financial crisis since the Great Depression.

I'm afraid our culture will come to the conclusion because it's always easy to conclude that everyone was just a bunch of criminals. I think the

story

is much more interesting than that. I think it's a

story

of mass deception Lewis Forte has always been uncovering little-known facts and characters that change people's perception of a story, so when he finally sat down at his computer with sacks

full

of research to write about This calamity, he had no interest in Treasury Secretary Hank Paulson or Ben Bernanke or the CEOs of the big Wall Street investment banks, who he believes had no idea what was going on while it was happening, wanted to tell the story through the eyes of people who were paying attention and who knew that a financial disaster was inevitable. but there are a handful of characters who actually saw it coming and made a fortune from it and they were so few and there were so many people who had been on the other side that I thought I was wondering who they were and why they got to that position what they saw what they they saw almost more how they saw how many people do you think there were in the world who understood what was happening between 10 and 20 investors uh at most and this is from the universe of tens of thousands of people who could possibly have made that bet the first to see that something was seriously wrong in the booming subprime mortgage market was Dr.

Michael Berry, a California doctor who had only one healthy eye and lost the other to cancer. As a child and also suffering from Asperger's syndrome, a condition related to autism that often causes an aversion to social contact, uncomfortable dealing with patients, Barry left medicine and began investing in hedge funds in Cupertino, spending most part of his time in a dark office glued to his computer screen. Starting in 2003, he did something no one else in America was doing: reading and analyzing the pools of risky subprime mortgage loans that Wall Street had been buying and bundling into highly profitable mortgage-backed securities that they sold to investors of everyone.

I had caught up on the prospectuses and read them and looked at these surveys. I could see credit standards within these groups deteriorating only from quarter to quarter. How could you say that essentially worse mortgages were being placed in these groups and they were? Investors don't seem to care and rating agencies don't seem to care. Do you think a lot of people read these prospectuses? I think the lawyers who put them together to some extent perhaps believed that the executives at Big Wall Street companies that were issuing these bonds had read or understood them. I don't think they read them, no, I think there were probably junior analysts who were assigned the task of reviewing these issues, these documents, however, I think this was a profit center. was a profit center was something the organization wanted to do in effect Lewis writes Michael Berry was doing the first

real

analysis of the creditworthiness of subprime borrowers and the structure of complicated Wall Street mortgage securities the kind of work that Bond rating agencies such as Standard and Poor's and Moody's are supposed to have done so so that investors could accurately judge their risk.

What you were doing seems to me like the work that the rating agency should have been doing and there is no way that the rating agencies would have been around the workforce to review everything that was being issued, yes, but you are one guy and found it, you'd think that even if they'd only looked at a sample, maybe they would have

real

ized it, but in 2005, Michael Berry had come to the realization that the Wall Street bond market had lost its mind. , was purchasing hundreds of millions of dollars in risky loans from unqualified buyers who, in the words of Michael Lewis, were one broken refrigerator away from bankruptcy.

Barry concluded that the subprime market would collapse in 2007. I noticed this for the first time: there are pools, there are mortgage bonds backed by loan pools, and most loans are what are called interest-only negative amortization loans, which means that you, the owner and the buyer, borrow the money and not only do you not have to pay the principal, you have to, you don't have to pay the interest and if you just don't pay anything, they just add to your loan to You can't lose your house, you can't lose your house, in theory, right, and so you realize that we have reached the end of the road in the loan madness, they are scraping the bottom of the barrel, now is the time to place a bet, it is before someone else does it.

Barry realized that these mortgage-backed securities would become worthless if even a small percentage of the risky loans failed, and he wanted to bet against the worst of them; he decided the best way to do this would be to get Wall Street to sell him cheap insurance. contracts on securities that would give huge profits if the contracts failed were called credit default swaps he conceives that they are going to invent on Wall Street credit default swaps on subprime mortgages essentially insurance contracts on the bonds before they even do it and he helps he participates in the creation of this instrument and Michael Berry is the first in Barry assumed that many people would discover what he was doing, but very few did.

The drama took two years to unfold, but the subprime mortgage market finally collapsed in 2007 just as he had predicted, so you made a lot of money, you made a lot of money much more than I ever imagined. You know, he would make 725 million, I think, on the funds in 2007. Michael Berry's advantage was him. he wasn't part of the collective, he was just a guy in a t-shirt and

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s with a glass eyeball and Asperger's syndrome, looking at the numbers, and when no one else was really there, how can they not look at the numbers? I mean, how can Wall Street be selling all of these, buying all of these mortgages and repackaging them and not realizing that they're not very good mortgages?

Wall Street is able to dilute itself, uh, because it's paid to fool itself, that's the, I mean, one of the lesson of this story is that people see what they're incentivized to see, if you pay Someone who does not see the truth will not see the truth and Wall Street was organized so that people would be paid to see something other than the truth, and that is one of the central messages of the story, you have to be very careful with the way to incentivize people because they will respond to incentives and all the incentives in the largely unregulated bond market on Wall Street were geared toward keeping the subprime money machine running shortly after Michael Berry decided that the people there had lost their minds Wall Street's most influential investment bank convinced the financial products division of insurance giant AIG to join the party a move that would destroy the company secured tens of billions of dollars in loans By doing so, Goldman Sachs convinced them to guarantee these stacks of loans without them even investigating what was in them, so there's an added level of incompetence: They didn't even know the mistake they were making. were committing over a period of just a few months in 2005.

Goldman Sachs got AIG to secure $20 billion in subprime mortgages Securities that rating agencies had rated AAA but, in fact, Lewis says the pools They contain some of the worst directs on the market. Do you think big banks like Goldman Sachs scapegoated AIG? that's exactly what they did, I mean, I think even Goldman Sachs would admit it to themselves, which is saying something yes, absolutely using the cover that we're all big in this market, they, the big investment banks, They have been trying to exploit it for a long time. your clients, what role did rating agencies play in this?

They were servants of Wall Street. Augmentation agencies receive money from Wall Street. Merrill Lynch. Citigroup. Morgan Stanley. Goldman Sachs to rate the bonds created by Wall Street. This creates a certain moral hazard. In the book you write that Goldman essentially took the worst stuff they couldn't sell, repackaged it and took it to Moody's and got Moody's to grade it triple A correctly, how did they know Buddhism was going to grade it triple A? Yes. They helped design the models. I'm sure it's what Moody's used to rate the bonds and I talked to people at Morgan Stanley Engelman Sachs who said we help the rating agencies understand these things.

They were the educators, yes, they were the educators. Goldman Sachs is one of the original sins of the impending financial crisis. Other Wall Street firms were so jealous of the Goldman deal that they got AIG to guarantee another $30 billion of what turned out to be worthless securities, but Lewis believes the fiasco had more to do with it. with the stupidity of Wall Street that corruption they didn't understand these things well enough, um uh, I mean, there's a wonderful little vignette in The Big Short about the major bond trade. It was a stop by Morgan Stanley mortgage bond trader, a guy named Howie Hubler, who manages to lose between seven and 12 billion dollars in a matter of six or eight months, more than any trader has ever lost in the world. history of Wall Street and no one knows his name, according to Lewis of the In late 2006 and early 2007, when commercial bank JP Morgan was the first to recognize the danger and flee the subprime mortgage market, Hubler was swallowing $16 billion in subprime mortgage bonds that would lose their value in nine months.

He didn't understand the reason. forces that work in his own market and he is supposed to be the smart guy. I mean, what were the fools doing? I think it is very clear that the companies themselves did not understand the machine they created, which has now happened at Hubler. he was allowed to resign from Morgan Stanley, uh, and he takes with him millions of dollars in back pay, tens of millions of dollars in back pay, it was all silence, basically, most of the people who made these terrible decisions left behind a lot of money, yeah, I did it all, I didn't come across a single character who didn't get rich, no one above a certain level in all these companies made a large sum of money by any standard, and the people who were, I mean, here is where it gets a little creepy.

The people who were instrumental in building the subprime mortgage machine also happened to be the ones who now have the most detailed knowledge of the Securities Under the Rubble and are being paid again to clean up the mess because they are the experts . That's an old Wall Street trick.Generally speaking, people who create disasters make a lot of money by cleaning up the mess because they are the ones who know about the disaster. What about Stan O'Neill's CEOs at Merrill Lynch? and Chuck Prince Citigroup are the most obvious examples, uh uh, but they were paid not tens but hundreds of millions of dollars to ruin their companies in the fall of 2008 with AIG and all the big investment banks at some point. risk of going under, the government stepped in to bail out the same companies that caused the crisis, the decision was made that ARG was too big to let fail and that its gambling debts would be paid at 100 cents on the dollar and the company that benefited The majority was Goldman Sachs.

Do you think it had something to do with his political connections? It's hard to say, there's no evidence, but it certainly didn't hurt, it certainly didn't hurt that the Treasury Secretary was a former Goldman CEO, it certainly didn't hurt that many people at the table were former Goldman employees. It certainly didn't hurt. The air everyone was breathing contained the assumption that we can never do anything to hurt Goldman Sachs, so sure, I mean, I really can't see how their political influence had nothing to do with it when we came back. Look at the Wall Street bonus culture and why Michael Lewis believes it has become unsustainable.

Yes, Wall Street's bad bets nearly brought down the financial system in 2008. One thing that didn't end, according to Michael Lewis, was the bonus culture and sense of entitlement in the financial sector. According to the New York State Comptroller, Wall Street employees handed out $20 billion in bonuses for 2009. This represents a 17 percent increase over last year, but it is not a record - in fact it is a third less than the $33 billion that Wall Street handed out in 2007. The same year that everyone on Wall Street began to acknowledge subprime mortgage losses that would reach $1.75 trillion, the size of the bonuses left to a shocked, but not really surprised, Michael Lewis Solomon Brothers more than 20 years ago.

Lewis collected a couple of bonuses himself as a young Solomon Brothers trader and still can't understand what he did to deserve them. I got my bonus from Wall Street. I received two bonuses in 1986 and 1987 and it was like winning the lottery. The money was so shocking even though In retrospect, it seems so quaint that it was a few hundred thousand dollars, but I was 24 25 years old. It was unbelievable that someone was going to give me a couple hundred thousand dollars for what I just did because I couldn't understand what. was terribly helpful regarding what I just did and Lewis feels the same way about the latest round of bonuses that were paid on $55 billion in Wall Street profits that he believes would not have been obtained without the help of the Uncle Sam once the government decided that banks were too important to fail.

Lewis says the only way to get them back was to give them money. I think they assumed that in response to this gift of

life

that they were giving to these Wall Street firms, the people who ran the Wall Street firms would behave responsibly in a way that didn't attract meaning, which means, they wouldn't pay each other huge sums of money, but maybe they wouldn't even pay each other anything to say thank you, uh um, and they would readjust their compensation systems. They used the market as an excuse to pay themselves, if we don't pay our Goldman Sachs employees huge sums of money, they will leave and go to JP Morgan.

The people at JP Morgan say well, we don't pay huge sums to these special people. Sums of money can even go to Goldman Sachs and, uh, and you want to step back from that and say, well, wait a minute, why are they so valuable in the first place? Really what's happening is the people at the top. The managers of the company want to make a lot of money, and if they want to make a lot of money, they have to pay a lot of money to their subordinates, so it is a very elegant form of theft at this time.

Well, his argument has been: look, us. You are entitled to these bonuses this year because we made all this money. Nobody ever asked them. They never explain how they made all this money. If you look at their businesses right now, they are highly dependent on the government. If you were a Goldman. ax or Morgan Stanley or JP Morgan you have access to a zero percent loan in virtually unlimited amounts from the Federal Reserve, you can take that money and reinvest it in treasury bonds or government agency securities and you will get the spread and you could you could do it a and again, you say you borrowed from the government, you lent to the government and you took a cut, uh, and then the government allowed them to make good money, the government is still subsidizing these companies because the losses were sensational, I mean in In the financial system there are now losses of 1.75 trillion dollars due to the subprime mortgage boom and that is what companies that really seem like, should not exist if the market had been allowed to function, They would not exist, they would be failing.

Companies, I mean. Even now if the government said that we no longer have anything to do with these places we are going to let them fail, if they fail they no longer have an effective guarantee from the government and by the way we are going to cut these subsidies that If we give them under the table, most of them would fail, but none of that has changed Wall Street's bonus culture. Lewis says there is a sense of entitlement to outrageous compensation that, in his opinion, is grossly disproportionate to his contribution to the U.S. economy. How did it happen that someone thinks he's automatically worth millions of dollars? year?

Well, when you're surrounded by a lot of other people who get paid millions of dollars a year, you're not thinking, oh, that's outrageous. For someone to pay me millions of dollars a year, you're thinking it's outrageous that Jim got five hundred thousand dollars more than me. They look at each other as reference points rather than the larger society. Are they worth that type? of money What do you mean? Are they worth that amount of money? Do they deserve all that money? Again, what do you mean, do they deserve it? They did it? They worked very hard.

They spent many hours in the office so that you can. I have no grudge against someone who starts a company and employs a lot of people, etc., etc., for making a lot of money. I don't care if people make a lot of money on Wall Street. Business has obviously become divorced from productivity. of a productive company, so in that sense no, they don't deserve it, they didn't earn it, what they did was, uh, final, uh, they managed, they were very good at putting themselves in the middle of large financial transactions that they probably didn't they should.

What happened in the first place and by taking small pieces of it, they generated trillions of dollars in subprime mortgage loans. It should never have been awarded, but the world would be better off if that entire industry never existed, so that's crazy. Lewis says the more people find out what happened, the angrier they get. What about the reform? I mean, you see anything, you see something happen, there are several things that obviously should be done that haven't been done and you can't explain to my mother why they haven't been done. Only a really smart person on Wall Street can explain why they haven't been done, but, for example, one of the things at the bottom of this crisis was the rating agencies calling a lot of things AAA, uh, gold.

Plated securities that were worthless and, of course, Wall Street companies pay rating agencies for their ratings. Why is that allowed? Why can you buy a rating? That seems like a very obvious thing to change and people talk about it, but I haven't done it. There have been no proper default swaps, insurance contracts that we negotiate freely, but are not classified as insurance. This market is the closest thing to some kind of Ground Zero of the recent Calamity, and yet nothing has been done to change the market, nothing has been done to change it. more transparent nothing has been done to make it more like what an insurance market is uh that's an obvious reform from the time I was at Solomon Brothers, it was amazing to me that the company was able to advise clients with Dubai and sell at the same time as them. bet on the things that they are trying to sell to their clients, so I could call you and say, wow, these subprime mortgage loans look very, very good, this stack here you should invest in that stack and in the meantime, The Traders behind me are betting against it.

Lewis believes the financial industry lives in a world so disconnected from American

life

that it cannot sustain itself. He thinks it may take a while, but he believes that Wall Street, as we know it, has behaved itself in the leaders of Wall Street completely lost any sense of their responsibility towards society and if you know that you are going to blow up AIG investing 20 billion dollars in subprime mortgage risk, although it is going to be very profitable for you, they should stop and say this should not be done, the world economy has never shut down so fast in the US.

Virus-related layoffs are expected to be in the millions, and soon, to get an idea of ​​what's coming, we found someone with responsibilities for the economy now and who helped lead the United States out of the Great Recession of 2008. That person is Neil Kashkari, president of the Federal Reserve Bank of Minneapolis in 2008, was the Treasury official in charge of the $700 billion bailout of the financial system. We met Kashkari last Thursday. for an eye-opening look at the stock market free fall, the near freeze in the bond markets and a prediction for this

economic

emergency

, millions of people are going to lose their jobs and that's what's so scary, are we in a recession yes?

We are not now, we will be soon. My base case is that we will at least have a mild recession like after 9/11. The worst case scenario would be that we would have a deep recession like the 2008 financial crisis, but we don't know. At this time and what prevents us from knowing for sure, no one knows how the virus will progress. How many Americans will get it? How effective will social distancing be? How long will it take the healthcare system to catch up nationally? Next week almost 300,000 people filed their first applications for unemployment benefits. It could be five times that amount next week, maybe more.

Where is the bottom line if it is a three-month shutdown? We will find the bottom very soon if it is a year. A prolonged shutdown could be very detrimental to the American economy and, most importantly, the American people. Neil Kashkari, 46, has been president of the Federal Reserve Bank of Minneapolis since 2016. He is the son of Indian immigrants and literally a rocket scientist as an engineer. He worked on NASA spacecraft after Horton School of Business. He joined investment firm Goldman Sachs in 2008 as deputy secretary of the Treasury. Kashkari led the $700 billion troubled asset relief program known as tarp, which helped end the Great Recession.

Kashkari was also the Republican candidate for governor of California. in 2014. Today he is one of 12 regional Federal Reserve bank presidents who oversee and support the country's largest banks. I heard from a bank in our region that a wealthy customer came in and said: I want to withdraw six hundred thousand dollars of cash now we can supply all the cash the banks need to satisfy their customers' concerns, but this only speaks to the fear and uncertainty that It is spreading through the economy. Will the Fed make sure banks have all the cash they need to meet any withdrawals? may be coming yes this is the fundamental reason why the fed exists we call it lender of last resort this is literally why central banks exist if everyone freaks out at the same time and demands their money back money, so the Federal Reserve is here to make sure that there is liquidity, that there is money to meet those demands, we will absolutely meet them.

Is the Federal Reserve just going to print money? That's literally what Congress has told us to do. That is the authority we have been given to print money and provide liquidity. in the financial system and this is how we do it, we create it electronically and then we can also print it with Treasury Department printing so you can take money out of your ATM. If the banks ring, we are listening right now. large companies across the country, including Minnesota, that large companies are drawing down their lines of credit, they are borrowing money from the banks just because they are nervous and if they are all drawing down these lines of credit at the same time, it creates stress on the banking system and that's where the Federal Reserve comes in to provide that liquidity and make sure that the banks have enough money to reach their customers.

The Dow Jones is down about 35 percent, but something else is wrong. Some investorsThey lost confidence in bonds that typically do well in difficult times, the bond market funds government corporations and by extension home buyers, and the stresses being seen in the bond market are the same that we were seeing this week in the treasury market and in the mortgage-backed securities market, and that's why the FED intervened with this very aggressive action to provide liquidity to those markets: we saw tensions in the commercial paper market, which It's another type of bond market, and we're still seeing tensions in the municipal market, where state governments and cities fund themselves, and in the corporate bond market, so we're not out of the woods yet and tensions. you mean there's just a freeze on new financing for corporations, that's something I'm very focused on, we need to open that market again because we don't want blue-chip American companies that have customers that are operating.

We don't want this virus to get into their businesses because they can't raise money to meet their basic operational needs. We need to keep them running strong. companies are having trouble borrowing money, it's more expensive for them to borrow money they say someone says I'm going to issue a billion dollars of debt to finance my new factory, that's not happening right now, people You are avoiding US Treasuries, which are always thought to be the safest investment possible, now keep in mind that Treasury bond prices are still very high relative to history, they are simply not as high as they were a few weeks ago, so they are still considered to be a very safe investment and very attractive to a lot of people, but this fear of where the virus is going to go is leading people to say: I just want cash.

And if there's cash under my mattress or in my safe, I'll sleep better at night. What will it take to get the bond markets going again? I think it's a combination of factors. I think Congress is taking bold steps to say they are supporting the American economy. The trillion dollar stimulus they're talking about. I think that will help. I think the continued actions of the Federal Reserve will help and I think more. confidence that the health care system is catching up to the crisis last Sunday the FED lowered interest rates to almost zero and then every day last week announced

emergency

loan programs pledged to spend at least 700 billion dollars in mortgage support Banks money market corporate mutual funds bonds and loans to central banks of other countries because the dollar is the currency of World Trade, we are being very aggressive and I believe that our president Jay Powell has learned from the experience of 2008 that we are moving much faster than we did in 2008. we are being more aggressive, there is more we can do, yes, there are more things we can end up doing, yes, but I think we are being very aggressive and I think that's the right thing to do.

Can you characterize everything the FED has done this past week as essentially flooding the system with money, yes, exactly, and their ability to do that is endless, our ability to do that is endless, what did we learn in 2008? , when you were at the Treasury Department, and how does that apply today? When I look back at 2008, we made two big mistakes that I think are relevant today. Number one: we were always too slow and too timid in responding to the crisis. The reason is that we didn't know how bad it was going to be and I didn't want to overreact and it turned out that things got really bad and the correct response should have been to overreact to try to avoid the devastating recession that we ended up happening today.

Whether it's health care policy makers, fiscal policy makers, Congress or the Federal Reserve, we should all be signaling that we're overreacting to try to avoid the worst

economic

outcomes and number two, In 2008 we tried to be very specific in helping homeowners, we only helped homeowners who needed a little help because a lot of Americans were angry at the thought of their neighbor getting bailed out for being irresponsible or so they thought, So we try to focus on our programs and in the end we don't help many people. We would have been much better off if we had been much more.

If we were generous in our support to deserving and undeserving homeowners, we would have had a less severe crisis, so my advice to Congress as they design their programs to help workers and help small businesses is May we be generous when America gets back to work, for how long? you need to recover from this, you know, the economy can recover pretty quickly, it's the workers that take time. I mean, that's another one of the lessons of 2008: It took more than 10 years for the United States to

full

y get back to where it was. before the crisis 10 years and that is what we have to try to avoid having these mass layoffs we cannot have another 10 year recovery the deadline for filing both personal and business taxes has been postponed until July this past week the house and the Senate proposed trillion-dollar emergency spending plans the bills called for sending government checks directly to households expansion of unemployment insurance corporate tax cuts and relief for small businesses Republicans and Democrats are haggling over the details well What do small businesses need?

I think they need something forgivable. Loans like: It is much better if we can support small businesses to retain their workers than to lay them off. What do you mean by forgivable loans? I have heard a proposal that if the government gave a loan to a small business if it retained its workers. the government would forgive the loan after a couple of years just to avoid the mass layoffs that we're starting to see right now, sort of a bridge loan to get the local restaurant or the local mechanic through this period of time right and, what is Most importantly, keep your workers employed, that's much better because once people fall through the cracks, it just takes a long time to get them back.

The Federal Reserve System, as we know it today, was created in the Great Depression to regulate the big banks, set interest rates, and be the source. of all cash that's why every bill in your pocket is inscribed Federal Reserve Note The Federal Reserve's mandate is to provide the highest rate of employment with the lowest inflation rate, but in 2008 it invoked its Authority for the first time to assume the emergency role. first responder if current measures are not enough, what else can the FED do well? We have very broad authorities with our emergency lending authorities that must be done in conjunction with the Secretary of the Treasury.

We've announced a couple of those measures this week on money. markets and commercial paper as an example, some people have suggested that we should provide more support directly to the corporate bond market and I am sympathetic to those views and also the municipal market making sure that states and cities can access capital. the markets too, so there are a number of things that the Federal Reserve could do we are far from running out of ammunition far from running out of ammunition On Sunday the Federal Reserve reduced its reference interest rate to zero can it go below zero in theory? some countries might I don't think many of us, I don't think any of us on the committee think it's a particularly good idea, it creates other challenges for financial markets, but in the last crisis we used something called quantitative easing, buying long term . bonds, we have a lot more experience in how to do it, it didn't cause inflation, so there are other tools that we have used before that I think we could also use again and use again aggressively.

States Face Huge Surge in Jobless Claims In Connecticut alone, which typically has a little more than 2,000 claims per week, 72,000 were logged last week, when the national number of new unemployment claims is released Thursday, it will be He hopes it will be in the millions. The Federal Reserve is now watching China and South Korea, where the outbreak appears to be subsiding, what are you seeing in China? Well, China seems to be turning back on and they are telling a very good story that they have it under control, they have no new cases, but at the same time.

They say a lot of people had the disease without symptoms, so unless you've tested everyone, how do you know you really have this under control and by relaxing economic controls the virus just comes back? I still don't know the person who is about to take your car keys, go to the ATM and take out three thousand dollars, tell you what you don't need, your ATM is safe, your banks are safe, there is enough cash in the financial bank. system and there is an infinite amount of cash the Federal Reserve we will do whatever it takes to make sure there is enough cash in the banking system are you an optimist or pessimist generally unoptimistic after being on the front lines of the crisis financial crisis of 2008 and I saw how devastating it was, we got through it, it was very painful for millions of Americans, we got through it, we will get through this crisis.

Jerome Powell shook Washington Wall Street and the world last week when he warned the pandemic crisis threatens to cause lasting damage to American prosperity as Federal Reserve Chairman Powell is among the most powerful people in the economy; acted quickly in the sharpest collapse since the Great Depression, but fears that Congress's initial $3 trillion bailout will not be enough to save a generation from low growth and stagnant incomes We asked Chairman Powell to what extent point unemployment will increase and how long it will take to see a recovery. He spoke to us last Wednesday after a powerful speech that gave markets a boost.

Mr. president. I just got a Push Notification on my phone The Dow Jones plunges more than 500 points in a sell-off on Wall Street after the Federal Reserve chair warned that the economic recovery will be long and bumpy. You knew that was coming. I've been watching the markets. The truth is that the markets have been watching his speech. Wednesday was a warning and a prayer. He raised the specter of a prolonged recession and weak recovery if the federal government does not use all its power to support businesses and workers. He was really pointing out a risk that I think is important for people. be aware of the risk of long-term damage to the economy and really the good news is that we have the tools to limit that long-term damage by continuing to support households and businesses as we get through this.

What metrics are you looking for? Here, hour after hour, day by day, to Guess what the future will be. What matters more than anything else is the medical metrics, frankly, it's the spread of the virus, the real-time economic data that we're seeing. is just a function of the success of the social distancing measures, so the data that we will see for this quarter ending in June will be very, very bad, it will be, you know, a big drop in economic activity, a big increase in unemployment, so what we're really looking for is for the medical data to be addressed, which is not what we normally see, so that the economic data can start to recover.

Congress already spent $3 trillion on aid, but another $3 trillion was spent last Friday by the House. Democrats are a dead letter in the Senate amid a partisan debate over how much to borrow. Well, we're not in a hurry. Talk of a slow economic response is one of the reasons Powell will speak tonight. He is a Republican appointed by President Trump's Congress. has done a lot and it has done it very quickly, there is no precedent in post-World War II American history that even comes close to what Congress has done and the question is will it be enough and I don't think we know the answer to that. it may well be that the FED has to do more it may be that Congress has to do more as this period of time lengthens what is starting to happen to the economy there is a real risk that if people are out of work for long periods of time periods of time time when their skills atrophy a little and they lose touch with the workforce longer, deeper recessions tend to leave behind damage to people's careers the small and medium-sized businesses that are so important to this country uh yeah have to go through a wave of avoidable insolvencies that has, you have lost something that is more than a few companies, you know thatIt is really the job creation machine that keeps people and companies out of insolvency for only maybe three or six more months while the health authorities do it.

What they can do, with that we can buy time. She was talking to a former Federal Reserve official who said that V-shaped recovery is off the table, there's no chance. Well, I would say the main thing is to get back on the road to recovery and I think that can happen relatively soon, it will probably happen in the second half of the year, it is a reasonable expectation after that, the path will depend on a variety of things, it is It may very well take some time for the economy to gain momentum. Powell in the Federal Reserve board room Washington headquarters was silent his staff worked from home the building dedicated in 1937 by FDR was itself a depression-era project to create construction jobs the FED is the source of all US currency and regulates the economy by setting interest rates during the depression was given great power to lend money in an emergency, used that Authority for the first time in the 2008 crash and for the second time ago nine weeks, has the Federal Reserve done all it can? more we can do, we are not out of ammunition by any means, no, there is really no limit to what we can do with these loan programs that we have in March, when the Dow Jones collapsed 8,000 points and the credit markets began to freeze .

Powell called. In an emergency meeting on a Sunday, he lowered interest rates to near zero and, in partnership with the Treasury, the Federal Reserve offered more than three trillion dollars in loans to banks, businesses, cities and states, with that guarantee, The credit market, essential for daily business, began to function again. It's fair to say that he simply flooded the system with money. Yes we did it. That's another way of thinking about it. We did it. Where does it come from? Do you just print it? We print it digitally so we know that we as a central bank have the ability to create money digitally and we do that by purchasing treasury bills or bonds or other government-guaranteed securities and that actually increases the money supply.

We also print real currency and distribute it through the Federal Reserve Banks, but by law, Chairman Powell's Federal Reserve can only lend money that must be paid back. Congress thinks it should spend money to expand its historic bailout after all. He says this emergency is nothing like 2008. This is not because there was some inherent problem, a housing bubble or something, or the financial system. in trouble nothing like that the economy was fine the financial system was fine we are doing this to protect ourselves from the virus and that means that when the virus outbreak is behind us the economy should be able to recover substantially and what kind of support in Do you think that Congress would like to consider?

I don't give you advice on particular policies, but I would say, if I may, that policies that help companies avoid avoidable insolvencies and that do the same for people keep workers at home. to pay their bills keeps families solvent among the options: extending the increase in unemployment benefits that expires in July and supporting local governments that are struggling with a collapse in tax revenues. Powell believes that trillions of additional federal debt could be paid off over decades that the United States has been spending more than it has been taking in for some time and that's something we're going to have to deal with in time to get it done. is when the economy is strong when unemployment is low when economic activity is high that is when that problem is addressed this is not the time to prioritize that concern we have the ability to borrow at low rates we have the ability to repay that debt and I would argue that this is the time when we can use that strength for our long-term benefit, what economic reality should the American people be prepared for?

Well, I would make a more optimistic cut on that if I could and that is, this is It's a time of great suffering and difficulty and it has come at us so quickly and with such force that you really can't put into words the pain that people are feeling and the uncertainty that they are realizing and it is going to take a while. for us to come back, but I would only say this in the long term and even in the medium term you don't want to bet against the American economy this economy will recover it may take a while it may take a period of time it could extend until the end of next year, really We don't know if there can be a recovery without a reasonably effective vaccine, assuming there is no second wave of the coronavirus.

I think we'll see the economy recover steadily over the second half of this year. Therefore, for the economy to fully recover, people will have to have full confidence and that will have to wait for the arrival of a vaccine, if an effective vaccine arrives, there will likely be millions of doses missing this month, this month the President Trump pressured states to reopen. without a vaccine or proper testing, well I feel about vaccines the same way I feel about testing, this will go away without a vaccine, it will go away and we won't see it again, hopefully, after a period of time, says the president Powell. vaccine development is very uncertain and until then major industries will suffer the parts that involve people being in the same place close together those parts of the economy will be challenged until people feel really safe again sporting events theaters I think those would be very difficult Airlines, it will be quite a challenge for them, but much of the rest of the economy can move forward, but we can't fully recover because those are other parts of the economy that matter, but we can't fully recover until the people feel confident that they are safe, you are a big Washington Capitals fan, when do you think you will feel comfortable returning to a game that you know for sure not before next season, public sporting events, public concerts and things So?

It will be one of the last things that can be resumed. Most states are taking early steps to reopen, even though the U.S. lacks the testing capacity that experts say is indispensable for success if the economy reopens and the infection rate rises, which then the government would have to reintroduce. these social distancing measures and we would have another recession and that would be bad for confidence, so that's a risk we really want to avoid. You know that the virus has not disappeared. The reason cases have decreased and are decreasing is because people have been in their homes and not in their businesses and not in crowds Powell told us that the economy will contract dramatically in the second quarter April May and June at an annualized rate of about 30 percent last week the labor department reported a total of more than 35 million Americans have lost their jobs so far the unemployment rate will be historic and its people are projecting 20 percent 25 there are a variety of perspectives , but those are those numbers that are pretty much correct for what the peak may be 25 percent is the Estimated height of unemployment during the Great Depression Do you think history will look back and call this the Second Great Depression?

No, no, I don't think that's the likely outcome. Two months ago we had a very healthy economy. our financial system is strong, there are governments around the world and central banks around the world that respond very strongly and very quickly and stay that way, so I think all of those things point to what will be a very pronounced recession. . There should be a much shorter recession than you would associate with the 1930s. The third quarter is expected to see growth. It is a reasonable expectation that there will be growth in the second half of the year.

I would say that although we are not going to recover. to where we were quickly we will not return to where we were before the end of the year, that is unlikely to happen in terms of the workforce, Mr. President, who is being the most harmed by this crisis; the people who are being hurt the most are the Most recently hired the lowest paid people, they are women to an extraordinary degree. Of the people who were working in February and making less than forty thousand dollars a year, almost 40 percent lost their jobs in the last month, which gives hope here.

In dark times, we have very hardworking people, we have the most dynamic economy in the world and, you know, we are home to much of the world's big technology, so in the long term I would say the US economy will will recover. We will get back to where we were in February, we will get to a place even better than that. I'm very confident in that, so I think we're going to need to help each other through this. We will do it