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♪

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>> Sillicon Valley bank has
collapsed and

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federal regulators have taken
control...

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>> ... any sort of contagion
effect...

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>> Impacting tech startups...

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>> ... leaving customers in
limbo...

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>> ... concerns about the
broader economy.

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>> If we hadn't been driving our
economy with easy money

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Trying to really quickly un-do
that we wouldn't

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be having these problems right
now.

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>> Americans can rest assured

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that our banking system
is safe.

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>> NARRATOR: In a special
Frontline investigation

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>> We're now facing a world of
many potential outcomes.

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>> NARRATOR: The inside story

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of an age of easy money.

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>> Every financial function had
failed and we had to restore
them.

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>> Did you think it was a
radical polocy?

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>> I most certainly did think it
was a radical policy.

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>> ...the fed inject money into
the economy...

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>> ...recent government stimulus
programs.

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>> When the Fed changes to the
primary

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engine of economic growth, it's
supposed to be our

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democratic institutions that do
that, not the central bank.

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>> NARRATOR: And an uncertain
future.

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>> Pain for American families.

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>> It'’s not just that we'’re
getting more calls, it'’s that

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the folks who are calling us are
in greater distress.

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>> NARRATOR: Correspondent James
Jacoby Investigates.

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>> How remote is the possibility
that there could be much higher

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unemployment in the next couple
of years?

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>> I mean, I wouldn'’t say it'’s
remote.

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>> NARRATOR: Now on Frontline...

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>> It really is difficult to
overstate how important this

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story is, and how much it
matters.

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>> I don'’t know if I can safely
say that we'’re at the bottom

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because of what we're
looking back at,

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this age of easy money.

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>> Federal Reserve chairman
Jerome Powell,

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speaking at an annual economic
summit in Jackson Hole, Wyoming.

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>> Yep, we're on with him.

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>> Powell and his colleagues
at the Fed

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are under pressure to
curb inflation.

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Powell could take a harder line
or he could simply

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play his cards
close to the vest.

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>> Here we go, he's on the move.

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>> It's going to be
a tough crowd at Jackson Hole

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because of the fact that he made
a call simply last year

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that didn't age well.

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>> Every year,
the Federal Reserve holds

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an economic symposium

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in Jackson Hole, Wyoming, in
August.

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It's sort of like
the Oscars of the Fed world.

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And, you know, media comes from
all around the world,

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and the Fed chairman
gives a keynote speech

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that gets all the attention.

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>> All eyes on Jackson Hole
this morning.

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>> He's giving a speech
as central banker to the world.

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>> So Jackson Hole
plays a very important role

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in the central bank community,

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because you're basically
bringing

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the central bankers of the world

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and economists to a place
to discuss critical issues.

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So people look to Jackson Hole
to see, is there a reset

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in monetary policy?

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>> The economy has slowed.

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We're likely in recession and
perhaps going deeper into it.

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Are they gonna keep
taking us down this road?

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Are they gonna keep slamming
the breaks on rates?

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Raising 75 basis points
until we've got job cuts

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across the corporate sector?

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>> Central bankers were saviors
post-global financial crisis.

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This time, it was different.

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The mood was more, uh, you know,
for the first time,

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uh, we're failing.

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>> Is Powell ready to risk
recession?

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This is the question.

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>> Chair Powell,
the floor is yours.

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Please come to the podium.

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(audience applauding)

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>> Jackson Hole in 2022
was quite important.

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>> Thank you, Peter,
and good morning, everyone.

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>> The market were feeling
in the summer that maybe the Fed

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would have a pivot,

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would stop raising rates,
and maybe start cutting them.

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>> The markets started talking
about a Fed pivot.

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>> ...the markets, though
maybe they'll,

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they'll just ease up a bit.

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>> The market is, I think,

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anticipating that
they're going to blink.

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>> Reducing inflation is
likely to require

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a sustained period
of below-trend growth.

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>> And what Powell told them
in Jackson Hole is that,

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"Listen, inflation
is still way too high,

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"it's not peaking,
it's not gonna fall fast enough.

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"And if you guys think that
we're gonna stop raising rates,

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or even cutting them,
you are a bit delusional."

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>> The U.S. economy is
clearly slowing

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from the historically high
growth rates of, of 2021.

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>> I think the chair's objective
at Jackson Hole was to deliver

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a very concise message that,

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"We know what our job is,

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"our job is to get inflation
back down to two percent,

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"and we're gonna do what we need
to do

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to get it back down to two
percent."

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>> While higher interest rates,
slower growth,

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and softer labor market
conditions

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will bring down inflation,

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they will also bring some pain
to households and businesses.

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These are the unfortunate costs
of reducing inflation.

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But a failure to restore
price stability

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would mean far greater pain.

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>> His remarks were remarkably
brief for a Jackson Hole speech,

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and that was by design to
deliver a very direct message.

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And I think his message
was very effective.

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>> Pain. >> Pain.

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>> Pain.
>> Some big...

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>> Pain ahead.
>> Pain for American families.

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>> What he calls "some pain"

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means putting people out of
work.

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>> Jay Powell is not messing
around.

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And that is when the market
kind of reacts and says,

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"Oh, my God,
things are gonna change."

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>> Restoring price stability

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will likely require maintaining
a restrictive policy stance

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for some time.

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>> If the Fed puts us into
a higher-interest-rate world,

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it will change everything.

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The financial system globally
has been built around

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extremely low, ultra-low,
interest rates for ten years.

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All of these of things that got
built up over the last decade

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are gonna have to be
dismantled or changed.

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>> We will keep at it until
we're confident the job is done.

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Thank you.

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(audience applauds)

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>> We lived in a bubble,
in a dream,

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and this dream in a bubble
is bursting.

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♪ ♪

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>> Rising interest rates in the
U.S. and many other countries

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are intensifying fears
of a recession.

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>> JAMES JACOBY: Ever since that
Fed meeting at Jackson Hole,

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we've been getting mixed signals
about the economy.

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Is it bound for recession
or is it in a booming recovery?

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>> An economy with such a
strong labor market

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is not in a recession.

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>> JACOBY: At the center of
the debate are the actions

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of the Federal Reserve,

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which seems to have
our economic fate in its hands.

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>> The Fed is trying to stop
inflation.

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But is the medicine
worse than the disease?

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>> JACOBY: Lately, it's been
raising interest rates

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at the fastest pace in decades,

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trying to tamp down
on inflation.

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But for most of the past decade,

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the Fed was keeping
interest rates incredibly low,

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trying to stimulate the economy,

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creating what has been called
an age of easy money.

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>> Tonight,
the economic alarms are blaring.

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>> JACOBY:
For the past two years,

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I've been investigating
the Fed

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and the far-reaching
consequences

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of its easy money policies.
>> I'm game if you are.

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>> JACOBY:
I'm, I'm definitely game.

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I've been speaking to

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current and former
Fed officials.

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Is that really the first time
you're in a suit since COVID?

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>> From the waist down.

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>> Can I take my mask off?
>> JACOBY: Titans of finance.

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You were thinking what?

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>> I, I was thinking
this is the craziest market

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I've seen in 40 years.

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>> JACOBY: Those who follow
the decision making.

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>> None of us think about this,

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because it's boring,

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but it's everything!

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It touches everything.

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>> JACOBY: And those who have
been hit the hardest by it.

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>> It's like choosing between
your rent and your food.

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>> They do not understand
what everybody is going through.

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♪ ♪

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>> JACOBY: The Fed's easy money
experiment traces back

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to pivotal decisions made over
a decade ago, in 2008.

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>> Right now,
breaking news here:

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stocks all around the world
are tanking because...

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>> JACOBY:
When investors, speculators,

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and Wall Street bankers nearly
brought down the global economy.

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>> Right, get on the train,
otherwise it's going to leave

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the station without you.

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>> ...with Wall Street shaken
to its very foundation today.

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>> We are in the midst
of a serious financial crisis.

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And the federal government is
responding with decisive action.

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>> The Bush administration...

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>> JACOBY: The president
and Congress spent

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hundreds of billions of dollars
to restart the economy,

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but at the center of the rescue
effort was the Federal Reserve.

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Richard Fisher was the head
of the Fed's bank

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in Dallas at 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

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and the capillaries
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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>> We're at the precipice
of the apocalypse.

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>> We're on the edge
of the abyss.

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>> We are in the most serious
financial crisis in generations.

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00:09:17,223 --> 00:09:19,191
>> There was nothing but panic
yesterday.

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00:09:19,191 --> 00:09:21,160
There's been panic all week.

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>> The bottom to America's
financial woes

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appear nowhere in sight.

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>> The banks are still not

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00:09:25,398 --> 00:09:26,566
lending to one another,

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00:09:26,566 --> 00:09:28,568
and as long as that's
not happening,

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the system remains stuck
and in peril.

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(news reports overlapping)

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♪ ♪

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>> JACOBY:
In normal times, the Fed's job

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00:09:38,511 --> 00:09:41,681
is to promote employment
and keep inflation in check,

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00:09:41,681 --> 00:09:43,849
primarily by raising
and lowering

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00:09:43,849 --> 00:09:45,217
short-term interest rates,

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00:09:45,217 --> 00:09:48,554
making borrowing cheaper
or more expensive.

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But amid the crisis,
Fed officials decided

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00:09:51,057 --> 00:09:53,926
to do something they hadn't done
in half a century:

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00:09:53,926 --> 00:09:57,363
they began dropping rates,
eventually to almost zero.

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00:09:57,363 --> 00:09:59,098
>> Those massive rate cuts
have not been

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00:09:59,098 --> 00:10:00,633
stimulating the economy,
so it's the other things...

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>> JACOBY:
With Americans still suffering,

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00:10:02,768 --> 00:10:05,104
and the banking system
on the verge of collapse,

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00:10:05,104 --> 00:10:07,907
Fed officials there at the time
told me they felt compelled

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00:10:07,907 --> 00:10:09,542
to go even further.

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00:10:09,542 --> 00:10:13,312
>> And then the question was,
"What else can we do?"

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And the committee came up with

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00:10:14,614 --> 00:10:16,716
the idea of quantitative easing.

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>> Quantitative easing--
what in the world is it that?

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00:10:18,918 --> 00:10:20,252
>> Quantitative easing.

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00:10:20,252 --> 00:10:21,854
That's just a Greek term
to a lot of people.

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00:10:21,854 --> 00:10:23,823
>> A lot of people want to know
what they're going to say

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00:10:23,823 --> 00:10:25,958
about what we call
quantitative easing.

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00:10:25,958 --> 00:10:27,426
>> JACOBY:
Quantitative easing, or QE,

240
00:10:27,426 --> 00:10:30,563
was championed by Ben Bernanke,
then the Fed chairman.

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00:10:30,563 --> 00:10:32,131
>> The Federal Reserve
is committed

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00:10:32,131 --> 00:10:35,901
to using all available tools
to stimulate economic activity

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00:10:35,901 --> 00:10:38,537
and to improve financial market
functioning.

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00:10:38,537 --> 00:10:41,574
>> JACOBY:
QE was an experimental way

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00:10:41,574 --> 00:10:44,043
for the Fed to inject money
into the financial system

246
00:10:44,043 --> 00:10:45,878
and lower long-term
interest rates.

247
00:10:45,878 --> 00:10:47,647
>> It's almost like alchemy.

248
00:10:47,647 --> 00:10:48,881
You can create money
out of thin air

249
00:10:48,881 --> 00:10:50,416
if you're at the central bank.

250
00:10:50,416 --> 00:10:54,320
So creating more money puts more
money in the banking system,

251
00:10:54,320 --> 00:10:57,423
put more money out there
for the economy to take it

252
00:10:57,423 --> 00:11:01,694
and put it to work, and to grow,
and to restore itself.

253
00:11:01,694 --> 00:11:04,864
>> The Federal Reserve has been
putting the pedal to the metal.

254
00:11:04,864 --> 00:11:07,299
So we're doing everything
we can to support the economy,

255
00:11:07,299 --> 00:11:08,801
and we hope that that's
going to,

256
00:11:08,801 --> 00:11:11,704
you know,
get us going next year sometime.

257
00:11:11,704 --> 00:11:14,640
>> JACOBY: Their hope was that
the new money would help

258
00:11:14,640 --> 00:11:16,676
shore up the failing banks and
get them lending again.

259
00:11:16,676 --> 00:11:20,746
It would become the heart
of their easy money policies.

260
00:11:20,746 --> 00:11:22,014
>> It was an emergency measure.

261
00:11:22,014 --> 00:11:24,650
I mean, the economy
was imploding.

262
00:11:24,650 --> 00:11:26,352
I mean, no one would lend
to anyone.

263
00:11:26,352 --> 00:11:28,788
There was no ability to borrow.

264
00:11:28,788 --> 00:11:31,991
There, the, the economy was
going to be, uh, stopped dead.

265
00:11:31,991 --> 00:11:35,628
>> JACOBY: Thomas Hoenig was the
president of the Kansas City Fed

266
00:11:35,628 --> 00:11:38,597
and initially supported
the quantitative easing plan.

267
00:11:38,597 --> 00:11:40,499
>> These are trying times,

268
00:11:40,499 --> 00:11:42,835
and as you just heard,

269
00:11:42,835 --> 00:11:45,271
there is much to be done
as we try and work through

270
00:11:45,271 --> 00:11:46,706
this financial crisis.

271
00:11:46,706 --> 00:11:50,242
When you have a crisis,
that's when you want

272
00:11:50,242 --> 00:11:53,345
your central bank to be willing
to put cash in,

273
00:11:53,345 --> 00:11:56,716
and so to avoid
a major depression,

274
00:11:56,716 --> 00:12:00,920
where everything just stops,
you provide the cash.

275
00:12:00,920 --> 00:12:04,790
So I agreed with, yes,
we need to provide this money

276
00:12:04,790 --> 00:12:07,793
on the expectation that
once we got through the crisis,

277
00:12:07,793 --> 00:12:10,629
we would go back to a more
normal policy.

278
00:12:10,629 --> 00:12:13,766
>> Again, you could tell me
if I'm giving too long answers

279
00:12:13,766 --> 00:12:15,234
or what-have-you.

280
00:12:15,234 --> 00:12:16,769
>> JACOBY: The task of managing
most of the program

281
00:12:16,769 --> 00:12:19,138
went to Andrew Huszar,
a former Fed official

282
00:12:19,138 --> 00:12:21,073
who was then working on
Wall Street.

283
00:12:21,073 --> 00:12:24,043
>> I realized very quickly
what I was being asked.

284
00:12:24,043 --> 00:12:26,278
I was being asked if
I would manage

285
00:12:26,278 --> 00:12:28,280
the largest financial markets
intervention

286
00:12:28,280 --> 00:12:30,182
by a government
in world history.

287
00:12:30,182 --> 00:12:33,586
>> JACOBY: The Fed began
creating hundreds of billions

288
00:12:33,586 --> 00:12:36,322
of dollars to buy things like
mortgage-backed securities

289
00:12:36,322 --> 00:12:40,025
and government bonds from banks
and financial institutions.

290
00:12:40,025 --> 00:12:42,128
>> This was a
$5 trillion market.

291
00:12:42,128 --> 00:12:44,697
This was the largest private
bond market in the world,

292
00:12:44,697 --> 00:12:47,600
and the Fed had never once
before bought a mortgage bond

293
00:12:47,600 --> 00:12:48,734
in its history.

294
00:12:48,734 --> 00:12:52,304
And basically,
in the fall of 2008,

295
00:12:52,304 --> 00:12:54,039
it announced that it would buy

296
00:12:54,039 --> 00:12:58,711
basically 25% of the
entire market within 15 months.

297
00:12:58,711 --> 00:13:01,046
>> JACOBY: And that was your
job, to do that purchasing?

298
00:13:01,046 --> 00:13:02,214
>> That was my job.

299
00:13:02,214 --> 00:13:04,917
To think about how to get
the program done.

300
00:13:04,917 --> 00:13:08,120
>> Many of these tools
had not been tried before.

301
00:13:08,120 --> 00:13:11,090
They were definitely, like,
break-the-glass kind of tools.

302
00:13:11,090 --> 00:13:12,391
Like, what are we going to do

303
00:13:12,391 --> 00:13:15,494
in order to restart
the economy here?

304
00:13:15,494 --> 00:13:18,497
>> JACOBY: Sarah Bloom Raskin
joined the board of governors

305
00:13:18,497 --> 00:13:20,499
while QE was already underway.

306
00:13:20,499 --> 00:13:22,902
>> As QE began,

307
00:13:22,902 --> 00:13:24,770
it showed great promise.

308
00:13:24,770 --> 00:13:26,806
We started to see

309
00:13:26,806 --> 00:13:32,378
that people's sense of
economic well-being

310
00:13:32,378 --> 00:13:35,447
was ticking up somewhat.

311
00:13:35,447 --> 00:13:37,116
People were finding jobs.

312
00:13:37,116 --> 00:13:38,684
People were finding homes.

313
00:13:38,684 --> 00:13:41,487
The foreclosure rate had slowed.

314
00:13:41,487 --> 00:13:45,524
So there was a sense that
something was working.

315
00:13:45,524 --> 00:13:49,795
Now, how it was working was a
different question altogether.

316
00:13:49,795 --> 00:13:52,665
>> Things are not as bad,
we're getting better,

317
00:13:52,665 --> 00:13:54,500
and things will get better--
there's no question about it.

318
00:13:54,500 --> 00:13:55,835
>> You know, view it as, like,

319
00:13:55,835 --> 00:13:59,004
an experimental drug
that actually is doing

320
00:13:59,004 --> 00:14:03,175
some good things,
but nobody quite knows how

321
00:14:03,175 --> 00:14:05,277
or why at the moment.

322
00:14:05,277 --> 00:14:08,848
>> JACOBY: The financial sector
had begun to stabilize,

323
00:14:08,848 --> 00:14:11,784
but there were early signs
that not everything

324
00:14:11,784 --> 00:14:14,186
would go according to plan.

325
00:14:14,186 --> 00:14:16,889
>> The banking industry fat cats
still aren't lending money.

326
00:14:16,889 --> 00:14:18,457
>> Well, the big banks
aren't lending.

327
00:14:18,457 --> 00:14:21,594
>> JACOBY: Despite the money the
Fed was pouring into the banks,

328
00:14:21,594 --> 00:14:23,562
they still weren't back
to lending.

329
00:14:23,562 --> 00:14:26,165
>> The government's not doing
anything to help small business,

330
00:14:26,165 --> 00:14:27,399
and the banks are sitting
on their butts,

331
00:14:27,399 --> 00:14:28,834
and they're still not
lending money.

332
00:14:28,834 --> 00:14:31,804
>> JACOBY: Instead, they were
taking a lot of the money

333
00:14:31,804 --> 00:14:33,639
and investing it themselves.

334
00:14:33,639 --> 00:14:36,442
>> The banking sector is broken.

335
00:14:36,442 --> 00:14:38,577
It is not lending
to small business.

336
00:14:38,577 --> 00:14:40,312
Somebody's got to get
the money there.

337
00:14:40,312 --> 00:14:42,481
The government is the actor
in this.

338
00:14:42,481 --> 00:14:46,051
>> JACOBY: You were injecting
money into the banks,

339
00:14:46,051 --> 00:14:48,354
more than a trillion dollars
worth at that point,

340
00:14:48,354 --> 00:14:51,156
and what were the banks doing
with that money?

341
00:14:51,156 --> 00:14:54,493
>> The Fed's idea was, the banks
would be taking that money

342
00:14:54,493 --> 00:14:55,661
and, and lending it,
effectively,

343
00:14:55,661 --> 00:14:57,062
at lower interest rates.

344
00:14:57,062 --> 00:14:59,265
What the banks were
doing instead

345
00:14:59,265 --> 00:15:00,900
was that they were just
investing in the same bonds

346
00:15:00,900 --> 00:15:02,501
that the Fed was buying.

347
00:15:02,501 --> 00:15:04,570
They were taking that money
and they were turning around

348
00:15:04,570 --> 00:15:06,472
and buying the same
mortgage-backed securities

349
00:15:06,472 --> 00:15:08,540
and other bonds-- why?

350
00:15:08,540 --> 00:15:10,175
Because the Fed had made
very clear

351
00:15:10,175 --> 00:15:12,678
that its goal was to drive up

352
00:15:12,678 --> 00:15:14,580
the price of financial assets.

353
00:15:14,580 --> 00:15:16,348
And so, Wall Street turned
around and thought,

354
00:15:16,348 --> 00:15:18,517
"Why would I go through
the effort

355
00:15:18,517 --> 00:15:20,419
"of making a mortgage,

356
00:15:20,419 --> 00:15:22,888
"when I can just press a button
and buy, you know,

357
00:15:22,888 --> 00:15:24,256
"millions, if not billions,

358
00:15:24,256 --> 00:15:27,726
"dollars of, of bonds,
and, and ride that trade,

359
00:15:27,726 --> 00:15:30,696
"as the price of those, those
assets are

360
00:15:30,696 --> 00:15:35,234
very consciously being inflated
by the Fed?"

361
00:15:35,234 --> 00:15:38,170
>> JACOBY: Huszar grew
increasingly disappointed

362
00:15:38,170 --> 00:15:41,674
by the program, and would
eventually leave in 2011.

363
00:15:41,674 --> 00:15:44,410
>> I hadn't seen the benefits
accrue to the average American,

364
00:15:44,410 --> 00:15:47,880
and I wasn't seeing
larger structural form

365
00:15:47,880 --> 00:15:49,315
in favor of
the average American.

366
00:15:49,315 --> 00:15:50,749
I began to question whether

367
00:15:50,749 --> 00:15:53,752
it was my role anymore
to be at the Fed.

368
00:15:53,752 --> 00:15:56,522
>> JACOBY: Were you seeing that
the banks were gaming the Fed?

369
00:15:56,522 --> 00:15:58,023
That they were, in some ways,

370
00:15:58,023 --> 00:16:01,493
taking advantage of this program
that was intended to

371
00:16:01,493 --> 00:16:03,796
help the real economy?

372
00:16:03,796 --> 00:16:05,998
>> I think you could say
they were gaming the Fed,

373
00:16:05,998 --> 00:16:08,334
or I think you could just say
that they have a different mind,

374
00:16:08,334 --> 00:16:10,069
and they're not part of the Fed,

375
00:16:10,069 --> 00:16:11,337
and they, they have their own
interests.

376
00:16:11,337 --> 00:16:14,173
You know, it's sort of like
the Aesop's fable

377
00:16:14,173 --> 00:16:15,474
of the "Scorpion and the Frog."

378
00:16:15,474 --> 00:16:17,009
You know, on some level,

379
00:16:17,009 --> 00:16:20,346
it's in their nature to do
what's, what's in their nature,

380
00:16:20,346 --> 00:16:22,948
and their nature is to
make the most money possible

381
00:16:22,948 --> 00:16:24,283
in the quickest way possible.

382
00:16:24,283 --> 00:16:26,352
And just because the Fed
wanted to do something,

383
00:16:26,352 --> 00:16:29,621
and wanted to help
the, the average American,

384
00:16:29,621 --> 00:16:31,123
it doesn't necessarily mean
that Wall Street

385
00:16:31,123 --> 00:16:33,258
has the same interests.

386
00:16:35,794 --> 00:16:38,630
>> $20 billion worth of bonuses.

387
00:16:38,630 --> 00:16:40,566
It is shameful.

388
00:16:40,566 --> 00:16:43,369
>> Are these executives
greedy or stupid?

389
00:16:43,369 --> 00:16:45,704
Personally I am, am stumped
for an alternative word.

390
00:16:45,704 --> 00:16:48,374
>> There will be time for them
to make profits.

391
00:16:48,374 --> 00:16:50,309
And there will be time for them
to get bonuses.

392
00:16:50,309 --> 00:16:51,543
Now is not that time.

393
00:16:51,543 --> 00:16:53,545
>> It's socialism for the rich!

394
00:16:53,545 --> 00:16:55,047
>> JACOBY: By the end of 2009,

395
00:16:55,047 --> 00:16:57,049
the banks were back to
making money--

396
00:16:57,049 --> 00:16:59,251
and paying themselves
record bonuses--

397
00:16:59,251 --> 00:17:01,286
while the real economy lagged.

398
00:17:01,286 --> 00:17:02,654
>> Washington loaned them money
at cut rates,

399
00:17:02,654 --> 00:17:03,789
so our thanks is,

400
00:17:03,789 --> 00:17:06,091
they're going to stuff it
in their pockets

401
00:17:06,091 --> 00:17:08,193
even as many Americans
are suffering from unemployment

402
00:17:08,193 --> 00:17:09,461
and reduced wages.

403
00:17:09,461 --> 00:17:11,497
>> People absolutely
ought to be outraged.

404
00:17:11,497 --> 00:17:13,465
I mean, these guys just
don't get it.

405
00:17:13,465 --> 00:17:15,934
>> JACOBY: The inflation rate
was well below

406
00:17:15,934 --> 00:17:17,503
the Fed's target
of two percent,

407
00:17:17,503 --> 00:17:19,071
signaling weak demand.

408
00:17:19,071 --> 00:17:21,240
Unemployment had shot up,

409
00:17:21,240 --> 00:17:24,309
and foreclosures were
continuing across the country.

410
00:17:24,309 --> 00:17:28,280
>> (chanting): Banks got bailed
out, we got sold out!

411
00:17:28,280 --> 00:17:31,016
>> People had lost homes,

412
00:17:31,016 --> 00:17:33,485
household net worth
had plummeted.

413
00:17:33,485 --> 00:17:36,155
It really wasn't
an inclusive recovery.

414
00:17:36,155 --> 00:17:41,026
It was a recovery that benefited
only portions of the economy.

415
00:17:41,026 --> 00:17:42,995
>> I'm here to support
all of the people who want

416
00:17:42,995 --> 00:17:45,431
their taxpayer dollars back,
me included.

417
00:17:45,431 --> 00:17:48,167
>> There was a sense that
the banking sector,

418
00:17:48,167 --> 00:17:51,670
the financial sector,
benefited primarily,

419
00:17:51,670 --> 00:17:55,007
and not so much everybody else.

420
00:17:55,007 --> 00:17:57,509
And that had a,
had a political taste to it,

421
00:17:57,509 --> 00:18:00,946
which became the basis, I think,
for a lot of anger,

422
00:18:00,946 --> 00:18:03,849
and really set the stage for,
you know,

423
00:18:03,849 --> 00:18:06,552
sort of the next chapter in
our country's political history.

424
00:18:06,552 --> 00:18:08,187
>> We have you surrounded!

425
00:18:08,187 --> 00:18:12,925
Come out with the Constitution
intact, you usurpers!

426
00:18:12,925 --> 00:18:15,727
>> Demonstrators opposed to
what they call

427
00:18:15,727 --> 00:18:17,796
out-of-control
government spending

428
00:18:17,796 --> 00:18:19,298
began a series of rallies
this afternoon.

429
00:18:19,298 --> 00:18:22,701
>> JACOBY: The resentment helped
give rise to the Tea Party.

430
00:18:22,701 --> 00:18:25,304
>> ♪ We ain't going away ♪

431
00:18:25,304 --> 00:18:26,805
>> JACOBY: Fueled by the belief

432
00:18:26,805 --> 00:18:28,040
that government spending
and bailouts

433
00:18:28,040 --> 00:18:29,408
had been out of control

434
00:18:29,408 --> 00:18:32,711
and ordinary people
weren't seeing any benefits.

435
00:18:32,711 --> 00:18:35,714
>> Hedge fund bankers,
Bear Stearns,

436
00:18:35,714 --> 00:18:37,382
they didn't build this country.

437
00:18:37,382 --> 00:18:38,750
Workers like us did.

438
00:18:38,750 --> 00:18:43,722
>> The only political constant
in 2010

439
00:18:43,722 --> 00:18:45,991
was volatility and anger.

440
00:18:45,991 --> 00:18:48,327
>> (chanting):
Hell, no, we won't go!

441
00:18:48,327 --> 00:18:50,462
>> Nobama! Nobama!

442
00:18:50,462 --> 00:18:51,997
>> And there was a real
loss of faith

443
00:18:51,997 --> 00:18:54,500
in the political
and economic system.

444
00:18:54,500 --> 00:18:56,969
And that manifests
as the Tea Party.

445
00:18:56,969 --> 00:18:59,671
>> Tea Party Americans,
you're winning.

446
00:18:59,671 --> 00:19:03,976
>> (cheering and applauding)
>> You're winning!

447
00:19:03,976 --> 00:19:05,511
>> JACOBY:
They were especially outraged

448
00:19:05,511 --> 00:19:07,713
by the $800 billion
stimulus package

449
00:19:07,713 --> 00:19:11,683
that President Obama
and Congress had passed in 2009

450
00:19:11,683 --> 00:19:13,785
to get the economy going again.

451
00:19:13,785 --> 00:19:15,921
>> (chanting):
Can you hear us now?

452
00:19:15,921 --> 00:19:17,322
Can you hear us now?

453
00:19:17,322 --> 00:19:19,424
>> The entire principle

454
00:19:19,424 --> 00:19:22,494
of the Tea Party,
the entire platform,

455
00:19:22,494 --> 00:19:25,998
was to stop Washington, D.C.,
from intervening.

456
00:19:25,998 --> 00:19:27,866
>> This is just the beginning.

457
00:19:27,866 --> 00:19:29,902
>> It, it was an agenda of no.

458
00:19:29,902 --> 00:19:33,305
>> We've come to take
our government back.

459
00:19:33,305 --> 00:19:36,542
>> JACOBY: As Republicans swept
the 2010 midterm elections,

460
00:19:36,542 --> 00:19:39,178
aided by the Tea Party's
growing influence...

461
00:19:39,178 --> 00:19:41,914
>> We need to restore
fiscal sanity to this nation.

462
00:19:41,914 --> 00:19:44,483
>> JACOBY: ...the prospects
for Congress and the White House

463
00:19:44,483 --> 00:19:48,687
working together to pass another
stimulus bill were growing dim.

464
00:19:48,687 --> 00:19:51,490
>> Let this serve as a warning
to Congress:

465
00:19:51,490 --> 00:19:54,893
we don't work for you,
you work for us.

466
00:19:54,893 --> 00:19:56,261
(audience cheers and applauds)

467
00:19:57,462 --> 00:19:59,731
>> JACOBY:
Into the political vacuum

468
00:19:59,731 --> 00:20:01,900
stepped the Federal Reserve.

469
00:20:01,900 --> 00:20:04,570
Was it palpable that

470
00:20:04,570 --> 00:20:07,272
the Fed was sort of
the only game in town here?

471
00:20:07,272 --> 00:20:09,074
>> Yes.

472
00:20:09,074 --> 00:20:12,344
The fact was, we were carrying
the load all by ourselves.

473
00:20:19,151 --> 00:20:22,387
>> Resurgent Republicans
racked up huge gains Tuesday.

474
00:20:22,387 --> 00:20:24,122
>> A devastating night
for the Democrats

475
00:20:24,122 --> 00:20:26,391
that fundamentally changes
American politics.

476
00:20:26,391 --> 00:20:27,993
>> People are frustrated,

477
00:20:27,993 --> 00:20:29,328
they're deeply frustrated,

478
00:20:29,328 --> 00:20:31,096
with the pace of our
economic recovery.

479
00:20:31,096 --> 00:20:33,232
>> JACOBY:
The Fed wasted no time.

480
00:20:33,232 --> 00:20:35,067
The day after the midterm
elections,

481
00:20:35,067 --> 00:20:38,737
they took a dramatic step:
another round of QE--

482
00:20:38,737 --> 00:20:41,840
not just to stabilize
the economy, but to boost it.

483
00:20:41,840 --> 00:20:44,142
♪ ♪

484
00:20:44,142 --> 00:20:46,245
>> What happened
on November 3, 2010,

485
00:20:46,245 --> 00:20:49,448
represents a step change in
the Fed's role in our economy.

486
00:20:49,448 --> 00:20:53,685
When the Fed changes from
a central bank

487
00:20:53,685 --> 00:20:55,454
that manages the currency

488
00:20:55,454 --> 00:20:58,991
to the primary engine of
economic growth in America,

489
00:20:58,991 --> 00:21:00,993
whatever your philosophy is--

490
00:21:00,993 --> 00:21:02,794
small government,
limited government,

491
00:21:02,794 --> 00:21:06,031
big government that hires people
to go out and build roads

492
00:21:06,031 --> 00:21:08,166
to stimulate growth,
whatever it is--

493
00:21:08,166 --> 00:21:10,769
it's supposed to be
our democratic institutions

494
00:21:10,769 --> 00:21:12,404
that do that,
not the central bank.

495
00:21:12,404 --> 00:21:14,172
>> JACOBY:
You're basically saying that

496
00:21:14,172 --> 00:21:18,744
because our democratic
institutions are so paralyzed,

497
00:21:18,744 --> 00:21:21,213
and there's so much
political dysfunction,

498
00:21:21,213 --> 00:21:24,182
that we as a society,
we as a country,

499
00:21:24,182 --> 00:21:27,619
have become overly reliant
on the Fed to run things?

500
00:21:27,619 --> 00:21:28,654
>> Totally.

501
00:21:28,654 --> 00:21:30,188
Economic affairs.
>> JACOBY: Yeah.

502
00:21:30,188 --> 00:21:32,891
>> I think one of the most
important things to think about

503
00:21:32,891 --> 00:21:36,862
is that our democratic
institutions in America

504
00:21:36,862 --> 00:21:38,864
are becoming
less and less capable

505
00:21:38,864 --> 00:21:40,332
and less and less effective.

506
00:21:40,332 --> 00:21:42,301
I think that point
is almost undeniable.

507
00:21:42,301 --> 00:21:44,703
So what we're doing
in this country is,

508
00:21:44,703 --> 00:21:47,539
we're relying on
our non-democratic institutions

509
00:21:47,539 --> 00:21:48,874
to take up the burden,

510
00:21:48,874 --> 00:21:50,942
like the central bank
in economic affairs.

511
00:21:50,942 --> 00:21:55,013
Which leads you to the surreal
place where we are today.

512
00:21:55,013 --> 00:21:57,082
Where this committee
of 12 people

513
00:21:57,082 --> 00:22:00,352
is making these decisions
that could very well

514
00:22:00,352 --> 00:22:02,287
plunge our economy into
a deep, deep, deep recession

515
00:22:02,287 --> 00:22:03,855
and cause financial crisis.

516
00:22:03,855 --> 00:22:06,858
>> JACOBY: In the early days
of the easy money experiment,

517
00:22:06,858 --> 00:22:09,895
Fed chair Bernanke promoted
his plan,

518
00:22:09,895 --> 00:22:12,831
saying it would create
a wealth effect.

519
00:22:12,831 --> 00:22:15,033
That boosting the stock market
would make people

520
00:22:15,033 --> 00:22:17,336
feel wealthier
and start spending again.

521
00:22:17,336 --> 00:22:19,671
>> There's no doubt that there's
quite a bit of opposition.

522
00:22:19,671 --> 00:22:22,341
>> JACOBY: But he was met
with some skepticism and concern

523
00:22:22,341 --> 00:22:25,644
that the decision risked causing
runaway inflation.

524
00:22:25,644 --> 00:22:28,280
He went on television
to push back on the critics.

525
00:22:28,280 --> 00:22:30,415
>> ...they're
looking at some of the risks

526
00:22:30,415 --> 00:22:34,086
and uncertainties associated
with doing this policy action.

527
00:22:34,086 --> 00:22:35,554
What I think they're not doing

528
00:22:35,554 --> 00:22:37,856
is, is looking at the risk
of not acting.

529
00:22:37,856 --> 00:22:40,092
>> QE2 has become a punching bag

530
00:22:40,092 --> 00:22:42,527
for everyone from
top-tier economists

531
00:22:42,527 --> 00:22:44,229
to Sarah Palin.

532
00:22:44,229 --> 00:22:45,831
>> JACOBY:
Inside the Fed itself,

533
00:22:45,831 --> 00:22:47,833
Thomas Hoenig
was sounding alarms

534
00:22:47,833 --> 00:22:49,568
about the long-term
consequences.

535
00:22:49,568 --> 00:22:51,870
>> You are the one member
of the Fed

536
00:22:51,870 --> 00:22:54,673
that has been critical of
zero-percent interest rates.

537
00:22:54,673 --> 00:22:56,975
>> JACOBY:
Over the course of 2010,

538
00:22:56,975 --> 00:22:59,778
he argued against Bernanke's
plan at every meeting,

539
00:22:59,778 --> 00:23:03,849
and cast the lone dissenting
vote eight times in a row.

540
00:23:03,849 --> 00:23:07,152
>> It was difficult,
but this was fundamental.

541
00:23:07,152 --> 00:23:09,955
And so I really did think
that it was a wrong policy

542
00:23:09,955 --> 00:23:12,190
and I didn't want to be
associated with it,

543
00:23:12,190 --> 00:23:13,859
so I voted no.

544
00:23:13,859 --> 00:23:15,327
>> JACOBY: Did you think
it was a radical policy?

545
00:23:15,327 --> 00:23:18,029
>> I most certainly did think
it was a radical policy

546
00:23:18,029 --> 00:23:19,197
and I think most people did.

547
00:23:19,197 --> 00:23:20,632
It was meant to be radical.

548
00:23:20,632 --> 00:23:25,036
And so my concern was,
we had come through a crisis,

549
00:23:25,036 --> 00:23:27,973
and we provided the liquidity
necessary to come through it,

550
00:23:27,973 --> 00:23:30,375
and we were on the other side
of that crisis.

551
00:23:30,375 --> 00:23:31,910
The economy was recovering.

552
00:23:31,910 --> 00:23:35,080
And yet we were engaging in
a deliberate effort

553
00:23:35,080 --> 00:23:36,548
to have easy money.

554
00:23:36,548 --> 00:23:38,884
>> JACOBY: What were you most
concerned about

555
00:23:38,884 --> 00:23:40,318
if easy money continued?

556
00:23:40,318 --> 00:23:43,789
>> I thought that
it was unnecessary to do.

557
00:23:43,789 --> 00:23:45,223
I thought it brought
new dangers.

558
00:23:45,223 --> 00:23:48,160
When you keep
interest rates at zero,

559
00:23:48,160 --> 00:23:50,562
and you keep pumping money
into the economy,

560
00:23:50,562 --> 00:23:54,332
you favor the debtor and you
penalize the saver, which...

561
00:23:54,332 --> 00:23:56,535
You, you are saving
for nothing.

562
00:23:56,535 --> 00:23:57,936
I mean,
you get nothing for that.

563
00:23:57,936 --> 00:24:00,338
And if you're a borrower,
well, life is good.

564
00:24:00,338 --> 00:24:02,040
You borrow for nearly nothing.

565
00:24:02,040 --> 00:24:05,510
So you, you actually encourage
speculation.

566
00:24:05,510 --> 00:24:09,281
You encourage
additional risk-taking.

567
00:24:09,281 --> 00:24:11,049
In fact,
that's one of the reasons

568
00:24:11,049 --> 00:24:12,184
they did quantitative easing,

569
00:24:12,184 --> 00:24:14,152
was to encourage
greater risk-taking.

570
00:24:20,792 --> 00:24:23,295
>> The stock market rally
on Wall Street today

571
00:24:23,295 --> 00:24:26,431
pushes the Dow to its highest
level in nearly nine months.

572
00:24:26,431 --> 00:24:28,533
>> That figure includes activity
fueled by

573
00:24:28,533 --> 00:24:29,768
recent government stimulus
programs.

574
00:24:29,768 --> 00:24:31,970
>> JACOBY:
The Fed's quantitative easing

575
00:24:31,970 --> 00:24:34,306
set off what would become
the longest bull run

576
00:24:34,306 --> 00:24:35,774
in the stock market's history.

577
00:24:35,774 --> 00:24:37,375
>> Investors took the good news,

578
00:24:37,375 --> 00:24:38,944
and, well,
they basically ran with it.

579
00:24:38,944 --> 00:24:41,246
>> JACOBY: By design,
QE effectively lowered

580
00:24:41,246 --> 00:24:43,281
long-term interest rates,

581
00:24:43,281 --> 00:24:45,484
making safer investments
like bonds less attractive

582
00:24:45,484 --> 00:24:49,020
and riskier investments
like stocks more attractive.

583
00:24:49,020 --> 00:24:52,157
>> The Fed goes out and buys

584
00:24:52,157 --> 00:24:54,593
certain kinds of assets,

585
00:24:54,593 --> 00:24:56,628
and it kind of puts
a floor under the market,

586
00:24:56,628 --> 00:24:59,197
and it artificially
pushes up prices.

587
00:24:59,197 --> 00:25:01,733
And when I say artificial,
what I really mean is,

588
00:25:01,733 --> 00:25:06,638
nothing changed at Apple,
or IBM, or G.E.

589
00:25:06,638 --> 00:25:08,640
It wasn't like somebody,
you know,

590
00:25:08,640 --> 00:25:12,210
invented the new new thing
post-2008,

591
00:25:12,210 --> 00:25:16,214
but a lot more investors
got bullish in the stock market,

592
00:25:16,214 --> 00:25:18,617
so the stock prices
of those companies go up.

593
00:25:18,617 --> 00:25:20,385
But what's really happening?

594
00:25:20,385 --> 00:25:22,854
Nothing's changed,
nothing new has been invented.

595
00:25:22,854 --> 00:25:26,124
It's a sugar high,
it's like drinking a Coke

596
00:25:26,124 --> 00:25:29,461
instead of, you know,
having a meat and potatoes meal.

597
00:25:29,461 --> 00:25:31,096
>> You've got oil up,

598
00:25:31,096 --> 00:25:32,097
you've got gold up,
you've got copper up,

599
00:25:32,097 --> 00:25:33,698
you've got stocks up.

600
00:25:33,698 --> 00:25:36,434
Stock futures are up,
all because of central banks

601
00:25:36,434 --> 00:25:38,904
and the stimulus that they're
putting into the economies.

602
00:25:38,904 --> 00:25:41,806
>> JACOBY: On Wall Street,
no one seemed to mind.

603
00:25:41,806 --> 00:25:43,742
The stock market rally
continued.

604
00:25:43,742 --> 00:25:45,610
>> The old saying is,
"Don't fight the Fed."

605
00:25:45,610 --> 00:25:47,646
>> Don't fight the Fed.
>> Don't fight the Fed.

606
00:25:47,646 --> 00:25:48,747
>> Rule number one as
a young trader you're taught

607
00:25:48,747 --> 00:25:50,148
is, don't fight the Fed.

608
00:25:50,148 --> 00:25:52,150
>> I don't know what the
hangover's going to look like

609
00:25:52,150 --> 00:25:54,286
down the road from all this
extraordinary stimulus,

610
00:25:54,286 --> 00:25:56,555
but for now,
the markets love it.

611
00:25:56,555 --> 00:25:59,524
Don't fight the Fed.

612
00:25:59,524 --> 00:26:01,259
>> Don't fight the Fed.

613
00:26:01,259 --> 00:26:03,028
The one institution

614
00:26:03,028 --> 00:26:05,497
that has a printing press
in the basement,

615
00:26:05,497 --> 00:26:07,799
and there's no limits
to how much it can use it.

616
00:26:07,799 --> 00:26:10,969
That is what makes the Fed
such an influential player

617
00:26:10,969 --> 00:26:12,304
in the marketplace.

618
00:26:12,304 --> 00:26:15,540
>> JACOBY: Mohamed El-Erian
remembers it well.

619
00:26:15,540 --> 00:26:18,209
He was running the largest bond
fund in the world at the time

620
00:26:18,209 --> 00:26:21,680
and helped advise the Fed
on its QE experiment.

621
00:26:21,680 --> 00:26:24,950
>> Keep an eye
on the Treasury market.

622
00:26:24,950 --> 00:26:26,685
>> JACOBY: He shared with them
his concerns that the markets

623
00:26:26,685 --> 00:26:28,653
were becoming
dangerously addicted

624
00:26:28,653 --> 00:26:30,422
to the Fed's easy money.

625
00:26:30,422 --> 00:26:32,424
>> To taper or not to taper?

626
00:26:32,424 --> 00:26:35,226
>> JACOBY: His prediction
played out in 2013,

627
00:26:35,226 --> 00:26:37,762
when, after multiple rounds
of quantitative easing

628
00:26:37,762 --> 00:26:39,898
totaling more than $2 trillion,

629
00:26:39,898 --> 00:26:42,767
Bernanke signaled the Fed
might start to taper off.

630
00:26:42,767 --> 00:26:44,336
>> If we see
continued improvement,

631
00:26:44,336 --> 00:26:47,806
and we have confidence that
that is, um, uh,

632
00:26:47,806 --> 00:26:49,307
going to be sustained,

633
00:26:49,307 --> 00:26:51,643
then we could,
in, in the next few meetings,

634
00:26:51,643 --> 00:26:56,047
we could take a step down in
our pace of purchases.

635
00:26:56,047 --> 00:26:57,849
>> I was on the trade floor.

636
00:26:57,849 --> 00:27:01,987
I remember Chairman Bernanke
saying that he would taper.

637
00:27:01,987 --> 00:27:04,089
First we had to figure out,
"What does taper mean?"

638
00:27:04,089 --> 00:27:07,525
And the minute people realized
what "taper" meant,

639
00:27:07,525 --> 00:27:09,828
which is that, that the Fed
would step back from buying

640
00:27:09,828 --> 00:27:12,097
all these securities,
and even though the Fed said

641
00:27:12,097 --> 00:27:13,665
it was going to be gradual,
it was going to be measured,

642
00:27:13,665 --> 00:27:16,001
the markets had a massive
tantrum.

643
00:27:16,001 --> 00:27:17,469
>> The market selling off

644
00:27:17,469 --> 00:27:19,004
after Federal Reserve chairman
Ben Bernanke said

645
00:27:19,004 --> 00:27:21,806
that the central bank could
start tapering...

646
00:27:21,806 --> 00:27:25,176
>> It shows you how addicted
the markets are.

647
00:27:25,176 --> 00:27:26,678
The markets went into a fit.

648
00:27:26,678 --> 00:27:28,847
Became dysfunctional.

649
00:27:28,847 --> 00:27:30,715
It was known as
the "taper tantrum."

650
00:27:30,715 --> 00:27:32,517
>> Well, we all know it:
when Ben Bernanke talks,

651
00:27:32,517 --> 00:27:34,686
and the Federal Reserve speaks,
the markets listen.

652
00:27:34,686 --> 00:27:36,788
>> Markets are like little kids.

653
00:27:36,788 --> 00:27:41,292
They want candy, and the minute
you try to take the candy away,

654
00:27:41,292 --> 00:27:42,861
they have a tantrum.

655
00:27:42,861 --> 00:27:45,230
>> You have big
Wall Street reaction, right?

656
00:27:45,230 --> 00:27:48,466
You have extreme volatility,
where Wall Street says,

657
00:27:48,466 --> 00:27:50,468
"Whoa, whoa, whoa, no!

658
00:27:50,468 --> 00:27:53,304
No, no, unacceptable!",
and values plunge.

659
00:27:53,304 --> 00:27:54,606
And of course, the Fed
doesn't like that.

660
00:27:54,606 --> 00:27:56,608
Nobody likes that.

661
00:27:56,608 --> 00:27:59,978
That's a, that's a precursor
to instability, right?

662
00:27:59,978 --> 00:28:02,447
But it put the Fed
in a real bind.

663
00:28:02,447 --> 00:28:05,283
>> Chairman Bernanke.
(audience applauding)

664
00:28:05,283 --> 00:28:08,753
>> And Chairman Bernanke had to
go in a conference in Boston

665
00:28:08,753 --> 00:28:11,289
and say, "No, no, no,
we're not tapering."

666
00:28:11,289 --> 00:28:14,392
>> You can only conclude that

667
00:28:14,392 --> 00:28:16,161
highly accommodative
monetary policy

668
00:28:16,161 --> 00:28:17,929
for the foreseeable future

669
00:28:17,929 --> 00:28:19,731
is what's needed in
the U.S. economy.

670
00:28:19,731 --> 00:28:20,899
>> Every single time

671
00:28:20,899 --> 00:28:22,434
the Fed would start
talking about,

672
00:28:22,434 --> 00:28:24,836
"Okay, we're gonna maybe
taper back faster,

673
00:28:24,836 --> 00:28:26,404
or we're gonna think about
raising rates,"

674
00:28:26,404 --> 00:28:28,139
boom, stocks would correct,

675
00:28:28,139 --> 00:28:32,143
because stocks wanted that
easy money dopamine hit.

676
00:28:32,143 --> 00:28:33,611
(audience applauding)

677
00:28:33,611 --> 00:28:35,714
>> JACOBY: Bernanke's successor,
Janet Yellen,

678
00:28:35,714 --> 00:28:37,315
had better luck
the following year.

679
00:28:37,315 --> 00:28:40,985
She was able to pause
the quantitative easing part

680
00:28:40,985 --> 00:28:43,421
of the easy money policy
without a tantrum.

681
00:28:43,421 --> 00:28:46,157
In part,
by suggesting she'd maintain

682
00:28:46,157 --> 00:28:48,693
the Fed's massive balance sheet
of assets it had bought

683
00:28:48,693 --> 00:28:52,430
and to keep short-term
interest rates low.

684
00:28:52,430 --> 00:28:56,234
>> The F.O.M.C. reaffirmed
its view

685
00:28:56,234 --> 00:28:59,904
that the current zero- to
one-quarter-percent target range

686
00:28:59,904 --> 00:29:02,907
for the federal funds rate
remains appropriate.

687
00:29:02,907 --> 00:29:05,543
>> JACOBY: The Fed
justified its actions in part

688
00:29:05,543 --> 00:29:09,247
because the fears about runaway
inflation hadn't materialized,

689
00:29:09,247 --> 00:29:12,517
and in fact, it was running
below its target of two percent

690
00:29:12,517 --> 00:29:14,753
because economic growth
was still low.

691
00:29:14,753 --> 00:29:18,022
But Yellen's partial
easy money pullback

692
00:29:18,022 --> 00:29:20,725
didn't dampen
concerns and criticisms

693
00:29:20,725 --> 00:29:23,962
about the ill effects of the
Fed's policies.

694
00:29:31,402 --> 00:29:37,876
>> So you're doing a documentary
on the Fed and monetary policy?

695
00:29:37,876 --> 00:29:39,811
>> JACOBY: We are trying to.
>> (laughing): Okay.

696
00:29:39,811 --> 00:29:41,446
>> JACOBY: Are we insane?
>> No, no, no.

697
00:29:41,446 --> 00:29:43,081
I think it's a great idea.
>> JACOBY: Okay.

698
00:29:43,081 --> 00:29:46,718
Joseph Stiglitz is one of
the most well-known economists

699
00:29:46,718 --> 00:29:48,920
in America
and a winner of the Nobel Prize.

700
00:29:48,920 --> 00:29:54,392
>> The intention of the Fed was
to stimulate aggregate demand.

701
00:29:54,392 --> 00:29:57,228
>> JACOBY: He told me that while
the Fed had done some good,

702
00:29:57,228 --> 00:29:58,863
he worried at the time

703
00:29:58,863 --> 00:30:00,665
that by stoking the stock market
so aggressively,

704
00:30:00,665 --> 00:30:04,002
it was exacerbating
economic inequality.

705
00:30:04,002 --> 00:30:06,671
>> The main thing
I was concerned about

706
00:30:06,671 --> 00:30:11,643
was that the way they were
trying to revive the economy

707
00:30:11,643 --> 00:30:13,978
was a kind of
trickle-down economics.

708
00:30:13,978 --> 00:30:17,182
The way quantitative easing
works is that

709
00:30:17,182 --> 00:30:19,584
it's a lowering
of the interest rates.

710
00:30:19,584 --> 00:30:23,855
That leads stocks to go up,
and so...

711
00:30:23,855 --> 00:30:25,924
Who owns the stocks?

712
00:30:25,924 --> 00:30:28,993
It's the people in the top.

713
00:30:28,993 --> 00:30:31,362
Not just the top ten percent,
one percent,

714
00:30:31,362 --> 00:30:33,164
one-tenth of one percent.

715
00:30:33,164 --> 00:30:38,636
And so it increases enormously
wealth inequality.

716
00:30:38,636 --> 00:30:44,943
We had had increasing inequality
really since the late '70s,

717
00:30:44,943 --> 00:30:48,346
and this was putting that
on steroids.

718
00:30:48,346 --> 00:30:51,249
>> JACOBY: What sort of response
did you get from folks

719
00:30:51,249 --> 00:30:53,351
at the Fed to what you were
saying at the time?

720
00:30:53,351 --> 00:30:57,889
>> "Our mandate is to do what
we can to increase employment,

721
00:30:57,889 --> 00:31:02,727
"to use the tools that we have,

722
00:31:02,727 --> 00:31:04,696
and that's what we're doing."

723
00:31:04,696 --> 00:31:06,664
>> JACOBY:
I heard a similar response

724
00:31:06,664 --> 00:31:08,800
when I raised these issues
with the president

725
00:31:08,800 --> 00:31:13,271
of the Minneapolis Fed,
Neel Kashkari, in March of 2021.

726
00:31:13,271 --> 00:31:14,973
He was the only current
Fed official

727
00:31:14,973 --> 00:31:17,242
who agreed to speak to us.

728
00:31:17,242 --> 00:31:19,110
>> The Fed has been on
a mission--

729
00:31:19,110 --> 00:31:21,679
I've been on a mission--
to put Americans back to work

730
00:31:21,679 --> 00:31:23,648
and to help them
get their wages up,

731
00:31:23,648 --> 00:31:25,550
especially for those
lowest-income Americans.

732
00:31:25,550 --> 00:31:28,653
And if it has had some effect
on Wall Street,

733
00:31:28,653 --> 00:31:30,421
to me, the trade-off is
well worth it

734
00:31:30,421 --> 00:31:32,357
if we can put Americans
back to work so that

735
00:31:32,357 --> 00:31:33,491
they can put food on the table,

736
00:31:33,491 --> 00:31:34,792
they can take care of
themselves.

737
00:31:34,792 --> 00:31:37,896
That is profoundly beneficial
to society.

738
00:31:37,896 --> 00:31:39,764
>> JACOBY: One of the things
that we have seen

739
00:31:39,764 --> 00:31:41,766
in this country
is a widening wealth gap.

740
00:31:41,766 --> 00:31:43,768
The question is what role,
if any,

741
00:31:43,768 --> 00:31:46,237
the Fed has played
in widening that wealth gap.

742
00:31:46,237 --> 00:31:48,706
>> Well, this is a great point,
and I'm glad you raised it.

743
00:31:48,706 --> 00:31:52,176
Most people who make
this argument ignore the fact

744
00:31:52,176 --> 00:31:54,913
that for many Americans--
they don't own a house,

745
00:31:54,913 --> 00:31:57,815
they don't own stocks,
they don't have a 401(k)--

746
00:31:57,815 --> 00:31:59,784
the most valuable asset
they have is their job.

747
00:31:59,784 --> 00:32:02,053
So by putting people
back to work

748
00:32:02,053 --> 00:32:03,655
and helping to boost
their wages,

749
00:32:03,655 --> 00:32:05,123
we are actually making

750
00:32:05,123 --> 00:32:07,525
their most valuable asset
more valuable.

751
00:32:07,525 --> 00:32:10,495
>> Middle-class economics works.

752
00:32:10,495 --> 00:32:14,532
>> President Obama today in
Wisconsin fired up over jobs.

753
00:32:14,532 --> 00:32:17,802
Another 223,000 added in June.

754
00:32:17,802 --> 00:32:20,004
>> JACOBY:
In fact, by 2015,

755
00:32:20,004 --> 00:32:23,541
the employment numbers were
improving dramatically.

756
00:32:23,541 --> 00:32:26,511
But critics I spoke to said the
Fed's focus on jobs

757
00:32:26,511 --> 00:32:28,613
was missing the full picture.

758
00:32:28,613 --> 00:32:31,582
I mean, Neel Kashkari told me...
>> Yep?

759
00:32:31,582 --> 00:32:34,285
>> JACOBY:
...that a job is a great asset.

760
00:32:34,285 --> 00:32:36,921
>> (chuckles)
>> JACOBY: That, that

761
00:32:36,921 --> 00:32:38,489
when I...
>> His, his may be.

762
00:32:38,489 --> 00:32:40,258
I'm not so sure that's,

763
00:32:40,258 --> 00:32:41,726
that's true for the folks
working three jobs

764
00:32:41,726 --> 00:32:43,861
behind the counter at
the supermarket.

765
00:32:43,861 --> 00:32:46,965
Sorry, Neel, I think that is

766
00:32:46,965 --> 00:32:51,035
an elitist assumption of
what labor income is good for.

767
00:32:51,035 --> 00:32:53,204
>> JACOBY: Karen Petrou
is an unlikely critic

768
00:32:53,204 --> 00:32:54,572
of the central bank.

769
00:32:54,572 --> 00:32:57,408
We've got, we've got Pete here.

770
00:32:57,408 --> 00:32:59,043
>> Go lie down.

771
00:32:59,043 --> 00:33:01,145
>> JACOBY: She spent her career
inside the financial system...

772
00:33:01,145 --> 00:33:02,547
>> Down!

773
00:33:02,547 --> 00:33:04,849
>> JACOBY: ...advising banks
and big investors.

774
00:33:04,849 --> 00:33:05,950
There we go.

775
00:33:05,950 --> 00:33:08,186
>> Interview here,
take five marker.

776
00:33:08,186 --> 00:33:11,823
>> JACOBY: 2015 to 2020
was actually considered

777
00:33:11,823 --> 00:33:13,024
a time of recovery.

778
00:33:13,024 --> 00:33:15,660
Unemployment
was getting to record lows

779
00:33:15,660 --> 00:33:18,696
and there was kind of a
conventional wisdom

780
00:33:18,696 --> 00:33:22,600
that the economy was in a good
place at that point in time.

781
00:33:22,600 --> 00:33:24,669
So you disagreed with that.

782
00:33:24,669 --> 00:33:28,239
>> I did because most Americans
disagreed with that.

783
00:33:28,239 --> 00:33:31,376
The majority of Americans said
they were economically anxious.

784
00:33:31,376 --> 00:33:34,278
Significant percentages
of people who were

785
00:33:34,278 --> 00:33:37,281
in the statistical middle class
were skipping medical treatments

786
00:33:37,281 --> 00:33:40,118
because they didn't think
they could afford them.

787
00:33:40,118 --> 00:33:45,523
40% of the United States
didn't have $400

788
00:33:45,523 --> 00:33:47,959
in a rainy day fund,
and they were at risk

789
00:33:47,959 --> 00:33:51,863
of imminent financial peril
if a tire blew.

790
00:33:51,863 --> 00:33:54,232
And that's not,
that's not a good place.

791
00:33:54,232 --> 00:33:55,633
>> JACOBY:
What about this idea

792
00:33:55,633 --> 00:33:56,934
that there was
record unemployment?

793
00:33:56,934 --> 00:34:00,204
>> Record unemployment
was judged the way

794
00:34:00,204 --> 00:34:03,674
conventionally the Fed
chooses to judge it,

795
00:34:03,674 --> 00:34:07,645
not by taking into account
the people sitting out working

796
00:34:07,645 --> 00:34:11,382
because they couldn't get
enough wages with their jobs

797
00:34:11,382 --> 00:34:13,651
to make going to work pay.

798
00:34:13,651 --> 00:34:18,656
Employment was fine, so--
by at least some numbers.

799
00:34:18,656 --> 00:34:21,359
Wages weren't.

800
00:34:21,359 --> 00:34:26,130
And people work to eat,
they don't work because of some,

801
00:34:26,130 --> 00:34:28,533
you know, noble ideal.

802
00:34:28,533 --> 00:34:30,268
>> JACOBY:
So just to understand,

803
00:34:30,268 --> 00:34:32,770
what was wrong with the models
that the Fed was using

804
00:34:32,770 --> 00:34:36,140
in order to judge the success
of their programs?

805
00:34:36,140 --> 00:34:38,776
>> Paul Krugman,
a well-known economist,

806
00:34:38,776 --> 00:34:39,977
has a great example.

807
00:34:39,977 --> 00:34:43,714
You've got four guys in a bar,

808
00:34:43,714 --> 00:34:47,552
each one of whom
is making six, $60,000 a year.

809
00:34:47,552 --> 00:34:50,054
Jeff Bezos walks into the bar

810
00:34:50,054 --> 00:34:54,292
and he's making
two gazillion dollars.

811
00:34:54,292 --> 00:34:56,828
Does that mean
that the four guys in the bar

812
00:34:56,828 --> 00:34:58,262
are doing any better?

813
00:34:58,262 --> 00:35:02,533
No, it doesn't,
it's distorting statistics.

814
00:35:02,533 --> 00:35:06,604
You have to look at
how much each person has,

815
00:35:06,604 --> 00:35:08,506
not at what the averages are,

816
00:35:08,506 --> 00:35:11,109
to understand what's going on
in the economy.

817
00:35:11,109 --> 00:35:15,146
And when four out of five guys
in the bar are not doing well,

818
00:35:15,146 --> 00:35:18,616
the country isn't doing well.

819
00:35:25,723 --> 00:35:27,792
(rock music playing)

820
00:35:27,792 --> 00:35:29,961
>> JACOBY: The growing sense
that the system was not working

821
00:35:29,961 --> 00:35:32,930
for the poor and middle class
became a central theme

822
00:35:32,930 --> 00:35:35,399
of Donald Trump's
populist campaign.

823
00:35:35,399 --> 00:35:37,168
>> Sadly,

824
00:35:37,168 --> 00:35:44,142
the American dream is dead.

825
00:35:44,142 --> 00:35:49,580
>> When you have a society
with the middle struggling

826
00:35:49,580 --> 00:35:54,785
and the rich realizing,
like, almost unimaginable gains,

827
00:35:54,785 --> 00:35:58,189
it starts to corrode the
civic foundation.

828
00:35:58,189 --> 00:35:59,524
>> We have to clean up
the country.

829
00:35:59,524 --> 00:36:00,925
Our country is a mess.

830
00:36:00,925 --> 00:36:03,494
>> People start to feel like
this cliché you hear

831
00:36:03,494 --> 00:36:06,097
all the time,
that the system is rigged.

832
00:36:06,097 --> 00:36:07,665
>> Like he says,
I think the system is rigged.

833
00:36:07,665 --> 00:36:08,933
>> You know what?

834
00:36:08,933 --> 00:36:10,601
>> He's just speaking
what we're all thinking.

835
00:36:10,601 --> 00:36:11,903
But he's saying it in
the public domain;

836
00:36:11,903 --> 00:36:13,371
he's saying it in
the political domain.

837
00:36:13,371 --> 00:36:15,940
>> You know, the fact that
a huge portion of Americans

838
00:36:15,940 --> 00:36:19,911
were willing to vote for
a president like Donald Trump,

839
00:36:19,911 --> 00:36:21,112
whose, like, entire campaign

840
00:36:21,112 --> 00:36:22,713
seemed to be burning down
the system...

841
00:36:22,713 --> 00:36:25,082
>> We are going to...

842
00:36:25,082 --> 00:36:27,518
(audience joins in):
...drain the swamp!

843
00:36:27,518 --> 00:36:30,221
>> ...that doesn't just happen
in a vacuum.

844
00:36:30,221 --> 00:36:31,589
>> (chanting):
Drain the swamp!

845
00:36:31,589 --> 00:36:35,893
>> We are going to fix
our inner cities,

846
00:36:35,893 --> 00:36:39,697
and rebuild our highways,
bridges, tunnels, airports,

847
00:36:39,697 --> 00:36:40,898
schools, hospitals.

848
00:36:40,898 --> 00:36:43,167
>> JACOBY:
It was a moment of potential

849
00:36:43,167 --> 00:36:44,569
for the Fed's easy money
policies.

850
00:36:44,569 --> 00:36:48,105
Trump promised to take advantage
of the low interest rates

851
00:36:48,105 --> 00:36:50,942
and create jobs by investing in
new infrastructure.

852
00:36:50,942 --> 00:36:53,211
>> We will create
millions of new jobs

853
00:36:53,211 --> 00:36:56,047
and make millions of American
dreams come true.

854
00:36:56,047 --> 00:36:58,983
>> JACOBY: But once in office,
the political paralysis

855
00:36:58,983 --> 00:37:01,319
in Washington
only intensified...

856
00:37:01,319 --> 00:37:04,021
>> Congress simply hasn't been
willing to

857
00:37:04,021 --> 00:37:07,091
find the amount of money
necessary to do it.

858
00:37:07,091 --> 00:37:08,726
>> JACOBY: ...making big
economic investments

859
00:37:08,726 --> 00:37:11,062
all but impossible.

860
00:37:11,062 --> 00:37:12,930
>> There just wasn't
the political cohesion

861
00:37:12,930 --> 00:37:15,099
to push through
these major programs.

862
00:37:15,099 --> 00:37:18,102
And you saw a lot of op-eds
by a lot of economists.

863
00:37:18,102 --> 00:37:22,540
And even Fed bankers themselves,
after the first or second,

864
00:37:22,540 --> 00:37:25,710
or certainly third and fourth
round of quantitative easing,

865
00:37:25,710 --> 00:37:29,146
they were saying, "Please,
give us some fiscal policy,"

866
00:37:29,146 --> 00:37:30,915
meaning, "Give us
some government action

867
00:37:30,915 --> 00:37:33,217
"to direct this money to the
right places.

868
00:37:33,217 --> 00:37:35,419
"We can't do all this alone--
we can keep rates low,

869
00:37:35,419 --> 00:37:36,787
"we're trying to keep
rates low here,

870
00:37:36,787 --> 00:37:38,756
"trying to keep confidence high.

871
00:37:38,756 --> 00:37:41,525
"But we can't make you
spend on a bridge,

872
00:37:41,525 --> 00:37:44,695
or, or revamp a school."

873
00:37:44,695 --> 00:37:46,364
>> JACOBY: Are you saying that
there was sort of

874
00:37:46,364 --> 00:37:48,165
a, a squandered opportunity
here?

875
00:37:48,165 --> 00:37:50,768
>> 100% it was
a missed opportunity.

876
00:37:50,768 --> 00:37:55,873
We didn't use
the cheapest money in memory--

877
00:37:55,873 --> 00:37:57,775
I don't want to say in history,
but certainly in the last,

878
00:37:57,775 --> 00:37:59,744
you know, several decades--

879
00:37:59,744 --> 00:38:03,581
we didn't use that opportunity
to spend on the things

880
00:38:03,581 --> 00:38:08,085
that would have been
almost free in terms of debt.

881
00:38:08,085 --> 00:38:12,923
We really missed something
that now will be more costly,

882
00:38:12,923 --> 00:38:14,792
because now that
interests rates are going up,

883
00:38:14,792 --> 00:38:16,294
I still think, for example,

884
00:38:16,294 --> 00:38:18,229
we should do more
infrastructure spending.

885
00:38:18,229 --> 00:38:19,597
That we should revamp education.

886
00:38:19,597 --> 00:38:20,998
But it's going to be
more costly to do it now.

887
00:38:20,998 --> 00:38:25,736
(band playing
"Hail to the Chief")

888
00:38:25,736 --> 00:38:28,973
>> It's the largest--
I always say the most massive--

889
00:38:28,973 --> 00:38:33,311
but it's the largest tax cut in
the history of our country

890
00:38:33,311 --> 00:38:35,646
and reform, but tax cut.

891
00:38:35,646 --> 00:38:37,114
>> JACOBY: The marquee
legislative achievement

892
00:38:37,114 --> 00:38:40,985
to the Trump administration
would instead be a tax cut

893
00:38:40,985 --> 00:38:42,887
that further boosted the markets

894
00:38:42,887 --> 00:38:44,655
and deepened
economic inequality.

895
00:38:44,655 --> 00:38:46,524
>> That's your bill.

896
00:38:46,524 --> 00:38:48,759
>> JACOBY: The jury is still out
on whether it contributed

897
00:38:48,759 --> 00:38:51,295
to the economic growth
that had started to tick up

898
00:38:51,295 --> 00:38:53,164
during the Trump presidency.

899
00:38:53,164 --> 00:38:55,166
But to some inside the Fed,

900
00:38:55,166 --> 00:38:57,301
it seemed like an ideal time
to pull back

901
00:38:57,301 --> 00:38:58,836
on the easy money experiment.

902
00:38:58,836 --> 00:39:01,806
One of them was Jerome Powell.

903
00:39:08,546 --> 00:39:11,916
>> It is my pleasure and my
honor to announce my nomination

904
00:39:11,916 --> 00:39:18,055
of Jerome Powell to be the next
chairman of the Federal Reserve.

905
00:39:18,055 --> 00:39:19,757
Congratulations, Jay.

906
00:39:19,757 --> 00:39:21,792
>> Thank you, Mr. President.
(audience applauding)

907
00:39:21,792 --> 00:39:24,328
>> JACOBY: Trump appointed
Powell in late 2017.

908
00:39:24,328 --> 00:39:29,300
>> Jay Powell is a
profoundly competent, smart guy

909
00:39:29,300 --> 00:39:31,569
who has spent his entire career

910
00:39:31,569 --> 00:39:34,138
at the nexus of big money
and big government.

911
00:39:34,138 --> 00:39:36,674
>> In the years since the
global financial crisis ended,

912
00:39:36,674 --> 00:39:40,211
our economy has made substantial
progress toward full recovery.

913
00:39:40,211 --> 00:39:41,846
>> A self-acknowledged
Republican.

914
00:39:41,846 --> 00:39:43,147
He's a conservative.

915
00:39:43,147 --> 00:39:45,116
He tends to embrace
the deregulatory view

916
00:39:45,116 --> 00:39:48,018
of the economy,
and he's also a Wall Street guy

917
00:39:48,018 --> 00:39:50,254
who, who came up through
the business

918
00:39:50,254 --> 00:39:51,622
of corporate debt and
deal-making.

919
00:39:51,622 --> 00:39:53,290
>> The Fed is seen continuing

920
00:39:53,290 --> 00:39:56,026
to raise interest rates
going forward.

921
00:39:56,026 --> 00:39:57,962
>> JACOBY:
The Fed had already begun

922
00:39:57,962 --> 00:40:00,197
raising rates and reversing QE.

923
00:40:00,197 --> 00:40:03,367
They'd call it
quantitative tightening, or QT.

924
00:40:03,367 --> 00:40:06,804
Powell took office
eager to accelerate the effort.

925
00:40:06,804 --> 00:40:11,342
>> The really extraordinarily
accommodative low interest rates

926
00:40:11,342 --> 00:40:13,377
that we needed when
the economy was quite weak,

927
00:40:13,377 --> 00:40:15,813
we don't need those anymore--
they're not appropriate anymore.

928
00:40:15,813 --> 00:40:18,516
>> JACOBY: Once again,
the market threw a tantrum.

929
00:40:18,516 --> 00:40:23,220
>> The Dow closing down
more than 500 points today.

930
00:40:23,220 --> 00:40:24,855
>> A brutal week in the market.

931
00:40:24,855 --> 00:40:26,991
The Dow and the S&P now on track

932
00:40:26,991 --> 00:40:29,727
for their worst December
since the Great Depression.

933
00:40:29,727 --> 00:40:33,164
>> The global financial system
short-circuits.

934
00:40:33,164 --> 00:40:35,166
>> The decline will accelerate

935
00:40:35,166 --> 00:40:36,434
if Jay Powell
doesn't walk things back.

936
00:40:36,434 --> 00:40:37,701
>> Doesn't walk things back.

937
00:40:37,701 --> 00:40:40,671
>> JACOBY: The president
threw a tantrum, too.

938
00:40:40,671 --> 00:40:43,040
>> I think the Fed
has gone crazy.

939
00:40:43,040 --> 00:40:44,909
It's a correction that I think

940
00:40:44,909 --> 00:40:46,544
is caused by
the Federal Reserve.

941
00:40:46,544 --> 00:40:49,413
If the Fed knew what it was
doing,

942
00:40:49,413 --> 00:40:51,315
they would lower rates

943
00:40:51,315 --> 00:40:54,018
and they would stop
quantitative tightening.

944
00:40:54,018 --> 00:40:56,821
>> The president has been
attacking the Fed chair

945
00:40:56,821 --> 00:41:00,658
on Twitter very often
for raising interest rates,

946
00:41:00,658 --> 00:41:02,226
even though the rest of the Fed
is raising rates

947
00:41:02,226 --> 00:41:04,995
along with Jay Powell.
>> In the tweet, he said

948
00:41:04,995 --> 00:41:06,931
"Quantitative tightening
was a killer,

949
00:41:06,931 --> 00:41:08,632
should have done
the exact opposite."

950
00:41:08,632 --> 00:41:12,102
>> JACOBY:
Powell would change course.

951
00:41:12,102 --> 00:41:15,706
>> The Federal Reserve cut a key
short-term interest rate today

952
00:41:15,706 --> 00:41:18,876
after raising it
as recently as December.

953
00:41:18,876 --> 00:41:20,811
>> You see this
complete reversal

954
00:41:20,811 --> 00:41:23,614
and what a lot of investors
and economists saw

955
00:41:23,614 --> 00:41:26,650
as a capitulation
to financial markets.

956
00:41:26,650 --> 00:41:28,786
Financial markets don't
like this

957
00:41:28,786 --> 00:41:30,187
so the Fed's gonna
reverse course.

958
00:41:30,187 --> 00:41:33,824
And that has defined
Chair Powell ever since then.

959
00:41:33,824 --> 00:41:36,760
>> A tricky balancing act
for Chairman Powell.

960
00:41:36,760 --> 00:41:39,530
He'll now face criticism that
the Fed has bowed to pressure

961
00:41:39,530 --> 00:41:41,765
from the White House,
or Wall Street, or both,

962
00:41:41,765 --> 00:41:45,936
sacrificing the central bank's
precious independence.

963
00:41:45,936 --> 00:41:49,206
>> The Fed blinked
and the Fed reversed course

964
00:41:49,206 --> 00:41:51,375
when the market was down
sort of 20%

965
00:41:51,375 --> 00:41:54,545
and went from tightening policy
to easing policy.

966
00:41:54,545 --> 00:41:56,447
And it became very clear
to the market

967
00:41:56,447 --> 00:42:00,117
that saving the stock market
was now one of the Fed mandates.

968
00:42:00,117 --> 00:42:02,286
And I think that had really
ominous

969
00:42:02,286 --> 00:42:04,455
ramifications for the future.

970
00:42:11,128 --> 00:42:14,398
>> JACOBY: By 2019,
the Fed's easy money experiment

971
00:42:14,398 --> 00:42:16,400
had been going on for a decade.

972
00:42:16,400 --> 00:42:17,635
>> ...the Fed's job isn't to
help

973
00:42:17,635 --> 00:42:18,769
the president of the United
States...

974
00:42:18,769 --> 00:42:20,337
>> JACOBY: What had started out

975
00:42:20,337 --> 00:42:22,673
as an emergency measure
to save the economy

976
00:42:22,673 --> 00:42:24,508
had become the status quo.

977
00:42:24,508 --> 00:42:26,076
>> Yes,
quantitative easing is there,

978
00:42:26,076 --> 00:42:27,378
but it's a tool
you don't want to overdo.

979
00:42:27,378 --> 00:42:30,548
>> JACOBY: And it was
deepening the concerns

980
00:42:30,548 --> 00:42:34,552
about how the Fed
was fueling troubling trends.

981
00:42:34,552 --> 00:42:37,154
Taking advantage of
the Fed's low rates,

982
00:42:37,154 --> 00:42:38,489
private equity firms

983
00:42:38,489 --> 00:42:40,724
had been buying up
huge swaths of the economy

984
00:42:40,724 --> 00:42:41,926
with borrowed money...

985
00:42:41,926 --> 00:42:44,895
>> $110,000, $128,000.

986
00:42:44,895 --> 00:42:46,130
>> For multibillion-dollar
private equity firms,

987
00:42:46,130 --> 00:42:47,598
this is a bargain.

988
00:42:47,598 --> 00:42:49,466
>> JACOBY: ...concentrating
wealth and ownership

989
00:42:49,466 --> 00:42:51,969
of everything
from houses to hospitals.

990
00:42:51,969 --> 00:42:54,104
>> Across Blackstone
we own a range of things.

991
00:42:54,104 --> 00:42:56,073
So SeaWorld, Busch Gardens,

992
00:42:56,073 --> 00:42:58,342
Birds Eye Foods,
Michaels stores,

993
00:42:58,342 --> 00:42:59,977
Hilton and Waldorf.

994
00:42:59,977 --> 00:43:03,047
What we like to do is come in

995
00:43:03,047 --> 00:43:05,316
and buy either real estate
or companies.

996
00:43:05,316 --> 00:43:06,684
We see an opportunity

997
00:43:06,684 --> 00:43:08,586
to grow something faster,
to invest capital,

998
00:43:08,586 --> 00:43:11,755
fix whatever that is is broken,
and then sell it.

999
00:43:11,755 --> 00:43:14,425
>> JACOBY: The Fed's policies
had also been fueling a frenzy

1000
00:43:14,425 --> 00:43:15,859
in Silicon Valley.

1001
00:43:15,859 --> 00:43:18,696
>> WeWork has announced
it's received a massive

1002
00:43:18,696 --> 00:43:21,398
$4.4 billion investment from
SoftBank Group.

1003
00:43:21,398 --> 00:43:23,734
>> JACOBY: Leading to all sorts
of excesses.

1004
00:43:23,734 --> 00:43:27,071
>> Venture capitalists pumped
nearly half a billion dollars

1005
00:43:27,071 --> 00:43:29,173
into the food delivery
start-up industry.

1006
00:43:29,173 --> 00:43:31,342
>> Airbnb is now valued

1007
00:43:31,342 --> 00:43:32,977
at $10 billion,

1008
00:43:32,977 --> 00:43:35,112
more than big hotel chains
including Hyatt and Wyndham.

1009
00:43:35,112 --> 00:43:37,381
>> JACOBY: And enabling
certain tech companies

1010
00:43:37,381 --> 00:43:40,017
to disrupt and dominate
entire industries

1011
00:43:40,017 --> 00:43:41,852
without ever turning a profit.

1012
00:43:41,852 --> 00:43:43,187
>> WeWork is saying

1013
00:43:43,187 --> 00:43:47,191
its total opportunity
is $3 trillion.

1014
00:43:47,191 --> 00:43:48,692
I mean, that's three-and-a-half
percent

1015
00:43:48,692 --> 00:43:51,061
of the entire world's GDP.

1016
00:43:51,061 --> 00:43:53,130
♪ ♪

1017
00:43:53,130 --> 00:43:55,065
>> JACOBY: But perhaps the most
destabilizing consequence

1018
00:43:55,065 --> 00:43:57,835
to the economy was how the Fed's
low interest rates

1019
00:43:57,835 --> 00:44:00,004
had been incentivizing
public companies

1020
00:44:00,004 --> 00:44:01,705
to take on more and more debt.

1021
00:44:01,705 --> 00:44:04,241
>> Valuations are
generally elevated,

1022
00:44:04,241 --> 00:44:05,876
especially corporate debt.

1023
00:44:05,876 --> 00:44:08,946
>> We have flagged the rise
in corporate debt.

1024
00:44:08,946 --> 00:44:11,181
>> We have entirely too much
corporate debt out there.

1025
00:44:11,181 --> 00:44:13,951
>> JACOBY: I saw numerous
studies and reports

1026
00:44:13,951 --> 00:44:16,220
detailing the extent
of the debt,

1027
00:44:16,220 --> 00:44:19,390
and how even marquee companies
were becoming so leveraged,

1028
00:44:19,390 --> 00:44:22,459
their credit ratings plummeted.

1029
00:44:22,459 --> 00:44:24,561
The Fed had hoped
that companies would put

1030
00:44:24,561 --> 00:44:26,397
all that borrowed money
to good use

1031
00:44:26,397 --> 00:44:29,299
and invest in their workforce
and their infrastructure.

1032
00:44:29,299 --> 00:44:31,802
But, in reality,
it played out differently.

1033
00:44:31,802 --> 00:44:33,637
>> Buybacks.
>> Buying back stock.

1034
00:44:33,637 --> 00:44:35,706
>> Stock buybacks.
>> Stock buybacks

1035
00:44:35,706 --> 00:44:37,708
robbing the American worker.

1036
00:44:37,708 --> 00:44:39,209
>> JACOBY: Companies were often
borrowing money

1037
00:44:39,209 --> 00:44:40,477
to buy back their own stock,

1038
00:44:40,477 --> 00:44:43,380
making the remaining shares
more valuable

1039
00:44:43,380 --> 00:44:45,582
and the prices higher.

1040
00:44:45,582 --> 00:44:46,884
>> As a corporation, you realize

1041
00:44:46,884 --> 00:44:49,253
all that matters
is the stock price.

1042
00:44:49,253 --> 00:44:52,122
So what do we have to do
to increase the stock price?

1043
00:44:52,122 --> 00:44:55,559
And more often that is
buying back the stock.

1044
00:44:55,559 --> 00:44:58,595
So it used to be, the Fed
would lower interest rates,

1045
00:44:58,595 --> 00:45:00,864
businesses would then
take on more debt,

1046
00:45:00,864 --> 00:45:03,200
they would use that debt
to hire more workers,

1047
00:45:03,200 --> 00:45:05,469
build more machines and
more factories.

1048
00:45:05,469 --> 00:45:08,806
Now what happens is, the Federal
Reserve lowers interest rates,

1049
00:45:08,806 --> 00:45:12,643
businesses use that to go out
and borrow more money,

1050
00:45:12,643 --> 00:45:14,812
but they use that money
to buy back stock

1051
00:45:14,812 --> 00:45:18,182
and invest in technology
that will eliminate workers

1052
00:45:18,182 --> 00:45:20,117
and reduce employee headcounts.

1053
00:45:20,117 --> 00:45:21,952
They use that money
to give the C.E.O.

1054
00:45:21,952 --> 00:45:24,955
and other corporate officers
big bonuses,

1055
00:45:24,955 --> 00:45:26,790
and then eventually,

1056
00:45:26,790 --> 00:45:29,526
issue more debt
and buy back more stock.

1057
00:45:29,526 --> 00:45:32,830
So it's this endless cycle
of things that are designed

1058
00:45:32,830 --> 00:45:34,498
to increase the stock price

1059
00:45:34,498 --> 00:45:38,435
rather than improve the
actual company.

1060
00:45:38,435 --> 00:45:43,373
>> G.E. just authorized
a $50 billion stock buyback.

1061
00:45:43,373 --> 00:45:45,342
>> JACOBY:
The numbers were astounding:

1062
00:45:45,342 --> 00:45:47,511
more than $6 trillion
in corporate buybacks

1063
00:45:47,511 --> 00:45:50,948
during this easy money decade
after the financial crisis.

1064
00:45:50,948 --> 00:45:53,550
>> $50 billion stock buyback.

1065
00:45:53,550 --> 00:45:54,718
That makes a big deal,

1066
00:45:54,718 --> 00:45:56,987
a big difference to the
stock price.

1067
00:45:56,987 --> 00:45:59,656
>> Buybacks
were an embarrassment.

1068
00:45:59,656 --> 00:46:03,327
And so it's just another example
of things that used to be viewed

1069
00:46:03,327 --> 00:46:06,096
as kind of "ew," you know,
just going mainstream.

1070
00:46:06,096 --> 00:46:09,399
>> JACOBY: Sheila Bair,
a former top banking regulator,

1071
00:46:09,399 --> 00:46:12,469
was issuing public warnings
at the time that the Fed

1072
00:46:12,469 --> 00:46:15,305
was incentivizing bad behavior
on Wall Street

1073
00:46:15,305 --> 00:46:17,407
despite its best intentions.

1074
00:46:17,407 --> 00:46:19,243
>> I can't fault
the companies so much

1075
00:46:19,243 --> 00:46:21,745
because these interest rate,
this interest rate environment

1076
00:46:21,745 --> 00:46:23,881
creates very strong
economic incentives

1077
00:46:23,881 --> 00:46:25,816
to do exactly
what they're doing.

1078
00:46:25,816 --> 00:46:28,285
It's hard to create
a new product.

1079
00:46:28,285 --> 00:46:31,221
It's hard to come up with
a new idea for a service.

1080
00:46:31,221 --> 00:46:33,524
It's hard to build a plant,
and hire people,

1081
00:46:33,524 --> 00:46:35,292
and run the organization.

1082
00:46:35,292 --> 00:46:37,628
It's real easy to issue
some debt

1083
00:46:37,628 --> 00:46:38,862
and pay it out
to your shareholders

1084
00:46:38,862 --> 00:46:40,397
to goose your share price.

1085
00:46:40,397 --> 00:46:44,134
That's real easy to do, but it
doesn't create real wealth,

1086
00:46:44,134 --> 00:46:45,502
it doesn't create
real opportunity.

1087
00:46:45,502 --> 00:46:46,770
It doesn't create jobs.

1088
00:46:46,770 --> 00:46:48,472
It doesn't improve
the labor market.

1089
00:46:48,472 --> 00:46:50,374
But it's just another example
of how these very

1090
00:46:50,374 --> 00:46:52,476
low interest rates
have really distorted

1091
00:46:52,476 --> 00:46:53,911
economic activity, and frankly,

1092
00:46:53,911 --> 00:46:57,414
been a drag on our
economic growth, not a benefit.

1093
00:46:57,414 --> 00:46:59,316
>> (chuckling): Warren Buffett
likes Apple's buybacks.

1094
00:46:59,316 --> 00:47:00,818
>> Well, why wouldn't he?
He's a shareholder

1095
00:47:00,818 --> 00:47:03,053
and they're buying back
$100 billion in stock.

1096
00:47:03,053 --> 00:47:05,556
>> When you get an age of easy
money like what we've seen,

1097
00:47:05,556 --> 00:47:07,424
you get a financialized economy

1098
00:47:07,424 --> 00:47:09,960
that's really more in service
to itself.

1099
00:47:09,960 --> 00:47:12,596
So, most of what it's doing

1100
00:47:12,596 --> 00:47:15,132
is buying and selling
existing assets,

1101
00:47:15,132 --> 00:47:16,934
rather than helping
real businesses

1102
00:47:16,934 --> 00:47:20,437
and real people
make real investments.

1103
00:47:20,437 --> 00:47:24,107
But one of the things that's
so diabolical,

1104
00:47:24,107 --> 00:47:26,176
I would say, about easy money,

1105
00:47:26,176 --> 00:47:28,579
and our financialized
economy in general,

1106
00:47:28,579 --> 00:47:29,947
is that we're all in it.

1107
00:47:29,947 --> 00:47:33,217
We're all part of this
Faustian bargain

1108
00:47:33,217 --> 00:47:35,786
of pretending that there's
something wonderful happening

1109
00:47:35,786 --> 00:47:38,655
in the real economy, when really
it's just Wall Street going up.

1110
00:47:38,655 --> 00:47:40,390
But we all kind of want
the market to go up,

1111
00:47:40,390 --> 00:47:42,226
because we're in it,
with our pension funds,

1112
00:47:42,226 --> 00:47:43,727
and with our 401(k)s.

1113
00:47:43,727 --> 00:47:46,196
So everybody's money

1114
00:47:46,196 --> 00:47:50,601
is kind of helping to push
this whole cycle along.

1115
00:47:50,601 --> 00:47:54,004
>> JACOBY: Even some of
the largest beneficiaries

1116
00:47:54,004 --> 00:47:57,107
of this trend told me
it made them uncomfortable,

1117
00:47:57,107 --> 00:48:00,077
like legendary investor
Jeremy Grantham.

1118
00:48:00,077 --> 00:48:01,612
>> In my career in America,

1119
00:48:01,612 --> 00:48:05,582
the percentage of GDP
that goes to finance

1120
00:48:05,582 --> 00:48:08,785
has gone from three-and-a-half
to eight-and-a-half.

1121
00:48:08,785 --> 00:48:12,489
(chuckling): We're, in a way,
we're like a giant bloodsucker,

1122
00:48:12,489 --> 00:48:15,092
and we have more than
doubled in size,

1123
00:48:15,092 --> 00:48:17,761
and sucking more than twice
the blood out of

1124
00:48:17,761 --> 00:48:19,997
the rest of the economy.

1125
00:48:19,997 --> 00:48:23,400
And we do not generate
any widgets.

1126
00:48:23,400 --> 00:48:28,305
We do not generate any,
any real increase in income.

1127
00:48:28,305 --> 00:48:29,873
We are just a cost.

1128
00:48:29,873 --> 00:48:32,943
>> JACOBY: When you say "we,"
you mean you and other members

1129
00:48:32,943 --> 00:48:35,779
of the financial community
have been this kind of

1130
00:48:35,779 --> 00:48:37,681
"bloodsucker" on the economy?

1131
00:48:37,681 --> 00:48:39,316
Is that,
is that what you're saying?

1132
00:48:39,316 --> 00:48:41,785
>> Yes-- collectively,

1133
00:48:41,785 --> 00:48:44,588
we fulfill a completely
necessary service,

1134
00:48:44,588 --> 00:48:47,491
but what we have done
is created layers upon layers

1135
00:48:47,491 --> 00:48:51,028
of more and more convoluted,
expensive financial instruments.

1136
00:48:51,028 --> 00:48:52,996
And that's what makes
all the profits

1137
00:48:52,996 --> 00:48:54,598
for the financial industry.

1138
00:48:54,598 --> 00:48:59,236
And it's, it's taken a lot of
ingenuity and salesmanship

1139
00:48:59,236 --> 00:49:00,737
to make this happen.

1140
00:49:00,737 --> 00:49:04,174
And a lot of lobbying in
Congress, et cetera, et cetera.

1141
00:49:04,174 --> 00:49:07,844
And we have imposed
on the rest of the economy

1142
00:49:07,844 --> 00:49:10,647
the idea that
banking and finance

1143
00:49:10,647 --> 00:49:14,151
are utterly important
at all times.

1144
00:49:14,151 --> 00:49:16,687
If, if you do anything wrong to
us,

1145
00:49:16,687 --> 00:49:19,923
the entire economy will collapse
in ragged disarray.

1146
00:49:19,923 --> 00:49:23,660
>> JACOBY: Corporate buybacks,
the elevation of corporate debt.

1147
00:49:23,660 --> 00:49:26,163
How was that viewed by you
and others at the Fed?

1148
00:49:26,163 --> 00:49:27,497
>> Something we pay a lot
of attention to.

1149
00:49:27,497 --> 00:49:29,633
But when companies
are buying back their stock,

1150
00:49:29,633 --> 00:49:31,335
one of the things
they're telling us is,

1151
00:49:31,335 --> 00:49:33,937
"We don't have
profitable places to invest,

1152
00:49:33,937 --> 00:49:36,139
and it's easier for us
just to buy back our stock."

1153
00:49:36,139 --> 00:49:39,776
That's concerning in terms of
the future of our economy,

1154
00:49:39,776 --> 00:49:41,812
but that's not
because of the Fed.

1155
00:49:41,812 --> 00:49:43,480
So we pay attention to it,
it really matters,

1156
00:49:43,480 --> 00:49:45,983
but I, in my view, we don't,
it's not something we control.

1157
00:49:45,983 --> 00:49:48,352
>> JACOBY: Kashkari and others
have pointed out

1158
00:49:48,352 --> 00:49:50,620
that it's the job of Congress
and regulators

1159
00:49:50,620 --> 00:49:52,789
to address some of these
concerning trends.

1160
00:49:52,789 --> 00:49:56,293
And when we sat down in 2021,
he was quick to dispute

1161
00:49:56,293 --> 00:49:58,528
the criticism
that the Fed's policies

1162
00:49:58,528 --> 00:50:00,864
had really just been
boosting financial markets

1163
00:50:00,864 --> 00:50:02,933
and helping Wall Street.

1164
00:50:02,933 --> 00:50:05,302
We hear it all the time
from Wall Street people,

1165
00:50:05,302 --> 00:50:09,473
that, that, basically, that
prices are of, are

1166
00:50:09,473 --> 00:50:13,143
completely untethered
from some fundamental reality.

1167
00:50:13,143 --> 00:50:15,379
There is this idea
on Wall Street

1168
00:50:15,379 --> 00:50:18,081
that, "The Fed kind of
has our back,"

1169
00:50:18,081 --> 00:50:21,018
and that because you may have
well-intentioned policies

1170
00:50:21,018 --> 00:50:23,387
that are trying to get
everybody to work,

1171
00:50:23,387 --> 00:50:27,324
there is this side effect,
this unintended side effect,

1172
00:50:27,324 --> 00:50:31,595
of just kind of
really helping the rich.

1173
00:50:31,595 --> 00:50:34,431
>> That argument ignores
the benefit to the poor.

1174
00:50:34,431 --> 00:50:36,033
And sure,
if you're going to ignore

1175
00:50:36,033 --> 00:50:38,335
the benefit to the poor, then
we're only helping the rich.

1176
00:50:38,335 --> 00:50:40,771
But, of course,
that's an incomplete analysis.

1177
00:50:40,771 --> 00:50:42,372
When you actually sit down
and say,

1178
00:50:42,372 --> 00:50:43,840
"Well, let's go through
the trade-offs

1179
00:50:43,840 --> 00:50:45,842
"of the choices that
the Fed has,

1180
00:50:45,842 --> 00:50:48,378
whether it's interest rates
or it's quantitative easing,"

1181
00:50:48,378 --> 00:50:50,080
it's not just about Wall Street.

1182
00:50:50,080 --> 00:50:51,948
It's not just about
asset prices.

1183
00:50:51,948 --> 00:50:54,284
It's also about thinking about
the men and women in America

1184
00:50:54,284 --> 00:50:55,786
who are trying to find work,

1185
00:50:55,786 --> 00:50:57,621
and who want to have
higher earnings,

1186
00:50:57,621 --> 00:50:59,256
and who deserve higher earnings.

1187
00:50:59,256 --> 00:51:01,992
If we are benefiting them
by helping them find work

1188
00:51:01,992 --> 00:51:03,927
and helping them have
higher wages,

1189
00:51:03,927 --> 00:51:05,028
I will take that trade-off.

1190
00:51:11,868 --> 00:51:14,504
>> JACOBY: Beyond the debate
over the effects on Main Street,

1191
00:51:14,504 --> 00:51:18,041
there were increasing concerns
about the risks on Wall Street.

1192
00:51:18,041 --> 00:51:20,177
What would happen
to all those companies

1193
00:51:20,177 --> 00:51:23,013
that had gone deep into debt--
and their investors--

1194
00:51:23,013 --> 00:51:24,614
if there was a downturn?

1195
00:51:24,614 --> 00:51:27,150
♪ ♪

1196
00:51:27,150 --> 00:51:29,352
But some of the most dire
warnings were about

1197
00:51:29,352 --> 00:51:31,388
a largely unregulated sector
of the financial world

1198
00:51:31,388 --> 00:51:35,358
that had become a key player in
all the borrowing going on.

1199
00:51:35,358 --> 00:51:37,027
>> Finance was getting
bigger and bigger

1200
00:51:37,027 --> 00:51:38,895
and riskier and riskier.

1201
00:51:38,895 --> 00:51:40,564
And then there was
something else going on

1202
00:51:40,564 --> 00:51:43,533
that was only noticed later on.

1203
00:51:43,533 --> 00:51:47,504
The risk had migrated
to what we call the non-banks,

1204
00:51:47,504 --> 00:51:49,773
so the financial system
that are not banks,

1205
00:51:49,773 --> 00:51:52,809
and it had morphed,
it had changed.

1206
00:51:52,809 --> 00:51:54,311
And in doing so,

1207
00:51:54,311 --> 00:51:58,849
the ability to understand
what was going on came down,

1208
00:51:58,849 --> 00:52:02,185
because the non-banks
are not supervised and regulated

1209
00:52:02,185 --> 00:52:04,121
as well as the banks.

1210
00:52:04,121 --> 00:52:07,357
The phrase that was used at
the time was "shadow banking."

1211
00:52:07,357 --> 00:52:10,260
That there were banking
activities happening,

1212
00:52:10,260 --> 00:52:12,129
but they were happening
in the shadows,

1213
00:52:12,129 --> 00:52:14,598
in the shadows
of the banks themselves.

1214
00:52:14,598 --> 00:52:17,000
These are the
asset management companies,

1215
00:52:17,000 --> 00:52:19,169
these are the hedge funds--
these are not well regulated,

1216
00:52:19,169 --> 00:52:22,272
but suddenly become
systemically important.

1217
00:52:22,272 --> 00:52:24,474
>> JACOBY:
When it comes to shadow banks,

1218
00:52:24,474 --> 00:52:26,643
what was your big concern?

1219
00:52:26,643 --> 00:52:31,214
>> The core of the problem
of the shadow banking system

1220
00:52:31,214 --> 00:52:33,617
is that it's extremely fragile.

1221
00:52:33,617 --> 00:52:36,386
>> JACOBY: Lev Menand,
who'd been an economic adviser

1222
00:52:36,386 --> 00:52:38,622
to the Fed
and Treasury Department,

1223
00:52:38,622 --> 00:52:41,424
was warning that, even though
Congress had imposed regulations

1224
00:52:41,424 --> 00:52:43,994
on big banks
after the financial crisis,

1225
00:52:43,994 --> 00:52:46,796
shadow banks
were largely untouched

1226
00:52:46,796 --> 00:52:48,698
and they were endangering
the whole system.

1227
00:52:48,698 --> 00:52:51,635
>> Anybody who is an investor
in a shadow bank,

1228
00:52:51,635 --> 00:52:54,371
who has their money in a shadow
bank instead of a real bank,

1229
00:52:54,371 --> 00:52:56,907
is going to have an incentive
to withdraw

1230
00:52:56,907 --> 00:52:59,476
in the face of any uncertainty.

1231
00:52:59,476 --> 00:53:04,748
So little economic shocks
that cause asset prices to fall

1232
00:53:04,748 --> 00:53:08,218
have the potential to trigger
runs and panics.

1233
00:53:08,218 --> 00:53:10,120
And so what we've,
what we've done is,

1234
00:53:10,120 --> 00:53:12,689
by allowing this shadow banking
system to develop,

1235
00:53:12,689 --> 00:53:14,624
is, we've inserted
a source of instability

1236
00:53:14,624 --> 00:53:17,761
in our entire economic system
that doesn't need to be there

1237
00:53:17,761 --> 00:53:22,299
and that has the potential
of throwing us all off course.

1238
00:53:22,299 --> 00:53:25,101
>> Let me start by saying that
my colleagues and I strongly...

1239
00:53:25,101 --> 00:53:26,670
>> JACOBY:
That potential instability

1240
00:53:26,670 --> 00:53:30,040
posed by the shadow banking
system was on the Fed's radar.

1241
00:53:30,040 --> 00:53:33,109
>> How are you thinking about
potential risk bubbling up

1242
00:53:33,109 --> 00:53:36,279
in the, in the
broader shadow banking system?

1243
00:53:36,279 --> 00:53:37,814
>> You know, this is,
this is a project

1244
00:53:37,814 --> 00:53:39,749
that the Financial Stability
Oversight Council

1245
00:53:39,749 --> 00:53:40,951
is working on now.

1246
00:53:40,951 --> 00:53:42,586
And also
the Financial Stability Board,

1247
00:53:42,586 --> 00:53:46,223
globally, is looking carefully
at leveraged lending.

1248
00:53:46,223 --> 00:53:48,525
And, you know, we're,
we think it's something

1249
00:53:48,525 --> 00:53:50,327
that requires
serious monitoring.

1250
00:53:50,327 --> 00:53:52,929
>> JACOBY:
But by the end of 2019,

1251
00:53:52,929 --> 00:53:55,031
little action
had been taken by the Fed,

1252
00:53:55,031 --> 00:53:57,334
financial regulators, or
Congress

1253
00:53:57,334 --> 00:54:00,270
to rein in the shadow banks
and other growing risks.

1254
00:54:00,270 --> 00:54:03,807
The system remained vulnerable
to a shock.

1255
00:54:03,807 --> 00:54:05,709
It would arrive in early 2020.

1256
00:54:05,709 --> 00:54:09,980
♪ ♪

1257
00:54:13,650 --> 00:54:15,552
>> A preliminary investigation

1258
00:54:15,552 --> 00:54:18,255
into a mysterious pneumonia
outbreak in Wuhan, China,

1259
00:54:18,255 --> 00:54:20,557
has identified a
previously unknown coronavirus.

1260
00:54:20,557 --> 00:54:22,058
>> When the pandemic hit,
it was so

1261
00:54:22,058 --> 00:54:23,660
unlike anything any of us
have experienced

1262
00:54:23,660 --> 00:54:25,028
in our lifetimes.

1263
00:54:25,028 --> 00:54:27,964
>> Already, 45 cases have been
reported in China,

1264
00:54:27,964 --> 00:54:29,733
including two deaths.

1265
00:54:29,733 --> 00:54:31,901
The victims are thought to have
contracted the virus

1266
00:54:31,901 --> 00:54:33,837
in a meat and seafood market.

1267
00:54:33,837 --> 00:54:35,138
>> We'd been paying attention

1268
00:54:35,138 --> 00:54:36,740
to what was happening in China
for a few months.

1269
00:54:36,740 --> 00:54:38,875
>> There are new images out of
Wuhan

1270
00:54:38,875 --> 00:54:42,345
that purport to show
the dire conditions in hospital.

1271
00:54:42,345 --> 00:54:45,115
>> I was calling my contacts,
global businesses

1272
00:54:45,115 --> 00:54:47,183
that had big operations in
China, to understand

1273
00:54:47,183 --> 00:54:49,352
what their employees and staffs
were seeing.

1274
00:54:49,352 --> 00:54:51,321
And we were all trying to learn
as much as we can

1275
00:54:51,321 --> 00:54:53,423
about pandemics and what it's
likely going to mean.

1276
00:54:53,423 --> 00:54:56,459
>> Major selloff across
Europe this morning.

1277
00:54:56,459 --> 00:54:57,894
>> I think we all figured out
very quickly

1278
00:54:57,894 --> 00:55:00,397
the pandemic and the virus
would drive the economy.

1279
00:55:00,397 --> 00:55:02,132
>> Investors are spooked
by the growing number

1280
00:55:02,132 --> 00:55:04,167
of infections outside China.

1281
00:55:04,167 --> 00:55:05,869
>> But how fast would it hit us?

1282
00:55:05,869 --> 00:55:07,203
How widespread?

1283
00:55:07,203 --> 00:55:09,039
What would the healthcare
response be?

1284
00:55:09,039 --> 00:55:11,007
It was maximum uncertainty.

1285
00:55:11,007 --> 00:55:12,542
And you were seeing that
uncertainty

1286
00:55:12,542 --> 00:55:13,910
manifest in financial markets.

1287
00:55:13,910 --> 00:55:18,815
>> What you have here
are concerns, fears, worries,

1288
00:55:18,815 --> 00:55:23,186
and deep uncertainties about
what's likely to happen next.

1289
00:55:23,186 --> 00:55:24,621
>> People were scared.

1290
00:55:24,621 --> 00:55:25,689
Investors were scared,

1291
00:55:25,689 --> 00:55:27,290
individuals were scared.

1292
00:55:27,290 --> 00:55:28,425
And they said, you know what?

1293
00:55:28,425 --> 00:55:30,593
I just want cash.

1294
00:55:30,593 --> 00:55:33,663
>> Markets giving us the worst
two-day point drop

1295
00:55:33,663 --> 00:55:35,532
ever in history.

1296
00:55:35,532 --> 00:55:36,966
>> I don't even want
treasury bonds,

1297
00:55:36,966 --> 00:55:38,635
I don't even want
corporate bonds.

1298
00:55:38,635 --> 00:55:39,736
I don't want stocks.

1299
00:55:39,736 --> 00:55:41,404
I just want cash.

1300
00:55:41,404 --> 00:55:43,106
And when everybody
in the economy

1301
00:55:43,106 --> 00:55:45,175
says "I want cash"
at the same time,

1302
00:55:45,175 --> 00:55:46,810
that leads to, potentially,

1303
00:55:46,810 --> 00:55:48,578
a collapse of financial markets.

1304
00:55:48,578 --> 00:55:50,146
>> On the bell!
On the bell!

1305
00:55:50,146 --> 00:55:51,648
(bell rings)
>> Means the first circuit

1306
00:55:51,648 --> 00:55:53,550
breaker has been triggered.
>> For whom the bell tolls.

1307
00:55:53,550 --> 00:55:55,819
>> I knew we were going to
(indistinct).

1308
00:55:55,819 --> 00:55:57,721
>> JACOBY: All the weaknesses
of the system

1309
00:55:57,721 --> 00:55:59,422
that had built up over the years

1310
00:55:59,422 --> 00:56:01,157
of easy money were being
exposed.

1311
00:56:01,157 --> 00:56:03,693
>> Market functioning was
starting

1312
00:56:03,693 --> 00:56:05,462
to cascade into failure.

1313
00:56:05,462 --> 00:56:06,830
>> The Dow plunging again today,

1314
00:56:06,830 --> 00:56:09,132
the eleven-year bull market
has ended.

1315
00:56:09,132 --> 00:56:10,266
>> Stocks were just

1316
00:56:10,266 --> 00:56:12,469
on a downward freefall.

1317
00:56:12,469 --> 00:56:14,437
You had credit markets
seizing up.

1318
00:56:14,437 --> 00:56:17,040
People were selling anything
that wasn't nailed down.

1319
00:56:17,040 --> 00:56:18,875
>> I can't do anything,
I'm frozen.

1320
00:56:18,875 --> 00:56:20,477
>> You (indistinct) back in,
you (indistinct) back in.

1321
00:56:20,477 --> 00:56:21,678
>> JACOBY: Attention was focused

1322
00:56:21,678 --> 00:56:23,246
on the highly leveraged
shadow banks.

1323
00:56:23,246 --> 00:56:24,280
>> What we saw was
a full-blown panic

1324
00:56:24,280 --> 00:56:26,049
in the shadow banking system.

1325
00:56:26,049 --> 00:56:28,518
It wasn't something that you
have when you have a pandemic,

1326
00:56:28,518 --> 00:56:29,753
when you have a bank panic.

1327
00:56:29,753 --> 00:56:31,821
It was, you have a bank panic,

1328
00:56:31,821 --> 00:56:34,491
because you had some
exogenous shock in the economy

1329
00:56:34,491 --> 00:56:36,092
and you have these underlying
vulnerabilities

1330
00:56:36,092 --> 00:56:39,829
in your monetary system
that you haven't resolved.

1331
00:56:40,964 --> 00:56:42,899
>> JACOBY: The Fed responded
to this new crisis

1332
00:56:42,899 --> 00:56:44,300
with an old tool--

1333
00:56:44,300 --> 00:56:46,603
once again, quantitative easing.

1334
00:56:46,603 --> 00:56:49,105
>> The Fed will try to steady
the ship after a week

1335
00:56:49,105 --> 00:56:52,342
that echoed the financial crisis
of 12 years ago.

1336
00:56:52,342 --> 00:56:55,145
>> JACOBY: It bought up hundreds
of billions in debt

1337
00:56:55,145 --> 00:56:56,613
from financial institutions.

1338
00:56:56,613 --> 00:56:59,616
>> We have seen the Fed inject
money into the economy

1339
00:56:59,616 --> 00:57:01,651
in the last couple of days.

1340
00:57:01,651 --> 00:57:03,219
>> JACOBY: By mid-March,

1341
00:57:03,219 --> 00:57:04,521
they'd made more than
a trillion dollars available

1342
00:57:04,521 --> 00:57:06,389
to the shadow banks,

1343
00:57:06,389 --> 00:57:09,125
and they cut interest rates
back down to near zero.

1344
00:57:09,125 --> 00:57:12,162
>> What that tells all of us is
that the economic impact

1345
00:57:12,162 --> 00:57:15,198
of the coronavirus is going
to be crippling.

1346
00:57:15,198 --> 00:57:18,535
>> The Federal Reserve lent
half a trillion dollars

1347
00:57:18,535 --> 00:57:19,936
to securities dealers,

1348
00:57:19,936 --> 00:57:22,005
half a trillion dollars
to foreign central banks,

1349
00:57:22,005 --> 00:57:25,074
bought $2 trillion
of Treasury securities,

1350
00:57:25,074 --> 00:57:27,844
another trillion dollars
of mortgage-backed securities.

1351
00:57:27,844 --> 00:57:31,281
It flooded the zone
with new government cash

1352
00:57:31,281 --> 00:57:32,615
to stabilize this system.

1353
00:57:32,615 --> 00:57:34,617
>> Incredible effort
from the Federal Reserve,

1354
00:57:34,617 --> 00:57:36,386
taking major action to...

1355
00:57:36,386 --> 00:57:39,022
>> Everything that
Ben Bernanke's Fed had done

1356
00:57:39,022 --> 00:57:42,425
over the course of the
financial crisis of 2008,

1357
00:57:42,425 --> 00:57:44,561
Jay Powell did
that in a weekend.

1358
00:57:44,561 --> 00:57:47,430
The scary part is
it wasn't enough.

1359
00:57:47,430 --> 00:57:50,366
The crisis continued and they
had to intervene even further.

1360
00:57:50,366 --> 00:57:53,069
>> Good morning, we are here for
you on this morning

1361
00:57:53,069 --> 00:57:54,737
when the stock
market has taken another

1362
00:57:54,737 --> 00:57:56,706
dramatic plunge.

1363
00:57:56,706 --> 00:57:59,309
>> The emergency rate cut failed
to calm investors.

1364
00:57:59,309 --> 00:58:01,177
In fact, it did the opposite.

1365
00:58:01,177 --> 00:58:03,046
Futures immediately dropped...

1366
00:58:03,046 --> 00:58:05,215
>> JACOBY: Despite the Fed's
actions,

1367
00:58:05,215 --> 00:58:07,183
the corporate debt market
froze up,

1368
00:58:07,183 --> 00:58:09,686
and companies were
unable to pay their bills,

1369
00:58:09,686 --> 00:58:12,622
putting the wider
financial system at risk.

1370
00:58:12,622 --> 00:58:15,124
>> There's just this corporate
debt picture out there,

1371
00:58:15,124 --> 00:58:16,493
and we're just beginning to see

1372
00:58:16,493 --> 00:58:18,194
how those dominoes are going
to fall.

1373
00:58:18,194 --> 00:58:20,330
>> Then comes the realization

1374
00:58:20,330 --> 00:58:22,732
that we have to lock down.

1375
00:58:22,732 --> 00:58:25,602
>> The list of closings
and activities being suspended

1376
00:58:25,602 --> 00:58:26,803
is growing from coast to coast.

1377
00:58:27,871 --> 00:58:29,572
>> JACOBY: In the White House,

1378
00:58:29,572 --> 00:58:32,375
Eric Ueland was the Trump
administration's point person

1379
00:58:32,375 --> 00:58:34,544
dealing with Congress
on the response.

1380
00:58:34,544 --> 00:58:36,980
>> Every day,
and into the evening,

1381
00:58:36,980 --> 00:58:38,615
as we're going through

1382
00:58:38,615 --> 00:58:41,017
and hearing more information
and trying to explore

1383
00:58:41,017 --> 00:58:44,220
the health side of
this exploding virus crisis,

1384
00:58:44,220 --> 00:58:47,824
there's also an economic impact
that is just

1385
00:58:47,824 --> 00:58:51,227
getting larger and larger
and more significant, and so,

1386
00:58:51,227 --> 00:58:53,363
what's the impact on a
community

1387
00:58:53,363 --> 00:58:55,732
when suddenly you're telling it

1388
00:58:55,732 --> 00:58:58,301
a significant amount
of economic activity

1389
00:58:58,301 --> 00:59:00,570
needs to slow or actually cease.

1390
00:59:00,570 --> 00:59:02,171
That's pretty dramatic.

1391
00:59:03,306 --> 00:59:07,477
>> 3.4 million people filed
for unemployment last week.

1392
00:59:07,477 --> 00:59:10,346
>> You can't really compare
this to the financial crisis

1393
00:59:10,346 --> 00:59:12,015
or even 9/11.

1394
00:59:12,015 --> 00:59:14,083
There's never been a time
in history

1395
00:59:14,083 --> 00:59:17,854
where the U.S. government told
the economy to shut down.

1396
00:59:17,854 --> 00:59:19,556
>> They were talking about
impacts on businesses,

1397
00:59:19,556 --> 00:59:21,291
from small businessmen

1398
00:59:21,291 --> 00:59:24,761
who are the real heartbeat
of our economy,

1399
00:59:24,761 --> 00:59:30,633
communities, and how to keep
people employed.

1400
00:59:30,633 --> 00:59:32,435
What's the impact on

1401
00:59:32,435 --> 00:59:34,737
industries and significant
economic sectors

1402
00:59:34,737 --> 00:59:35,905
of the American economy?

1403
00:59:37,140 --> 00:59:41,144
But the policy response
that we need to design,

1404
00:59:41,144 --> 00:59:43,179
and hopefully execute here,
inside this crisis,

1405
00:59:43,179 --> 00:59:47,483
is a lot broader than anybody
conceived up to that point.

1406
00:59:47,483 --> 00:59:50,286
>> The motion is adopted.

1407
00:59:50,286 --> 00:59:51,721
(bangs gavel)

1408
00:59:51,721 --> 00:59:54,190
>> JACOBY: In a rare moment
of bipartisanship,

1409
00:59:54,190 --> 00:59:56,693
the Trump administration and
Congress would end up passing

1410
00:59:56,693 --> 00:59:58,828
the largest economic
stimulus ever.

1411
00:59:58,828 --> 01:00:00,496
>> All right, thank you all.

1412
01:00:00,496 --> 01:00:02,865
>> JACOBY: The $2.2 trillion
CARES Act,

1413
01:00:02,865 --> 01:00:05,868
which unlike after the crisis
in 2008,

1414
01:00:05,868 --> 01:00:07,971
was aimed not just at
Wall Street,

1415
01:00:07,971 --> 01:00:11,341
but directly at individuals
and small businesses as well.

1416
01:00:11,341 --> 01:00:15,979
>> You encouraged your team
to be bold, be brave and go big.

1417
01:00:15,979 --> 01:00:19,415
And we've certainly delivered
today, $6.2 trillion.

1418
01:00:19,415 --> 01:00:21,584
>> You ain't seen nothing yet

1419
01:00:21,584 --> 01:00:24,020
from what the Fed is about
to do.

1420
01:00:24,020 --> 01:00:26,089
>> JACOBY: Part of the money
would go to the Fed,

1421
01:00:26,089 --> 01:00:29,392
which announced a new range of
loan programs worth trillions.

1422
01:00:29,392 --> 01:00:33,229
And for the first time, it began
buying up corporate debt.

1423
01:00:34,364 --> 01:00:38,401
The easy money experiment
went into overdrive.

1424
01:00:38,401 --> 01:00:40,003
>> A guy inside the Fed was
telling me that

1425
01:00:40,003 --> 01:00:42,105
what they were doing was not
that sophisticated.

1426
01:00:42,105 --> 01:00:43,573
They were just looking at any
part of the market

1427
01:00:43,573 --> 01:00:44,674
that looked like it was on fire,

1428
01:00:44,674 --> 01:00:46,442
and dumping money on it.

1429
01:00:46,442 --> 01:00:48,645
>> We often talk about the
Federal Reserve

1430
01:00:48,645 --> 01:00:52,115
using a bazooka to tackle
markets and the economy.

1431
01:00:52,115 --> 01:00:55,785
This is bazooka,
cannons, and tanks all at once.

1432
01:00:55,785 --> 01:00:57,353
>> So this was huge.

1433
01:00:57,353 --> 01:01:00,390
This was the Fed stepping in
on an unprecedented scale,

1434
01:01:00,390 --> 01:01:02,158
and saying to the market,

1435
01:01:02,158 --> 01:01:04,560
"We will do whatever it takes."

1436
01:01:04,560 --> 01:01:06,929
>> Many of the programs
that were undertaken

1437
01:01:06,929 --> 01:01:09,565
rely on emergency lending powers
that are available

1438
01:01:09,565 --> 01:01:11,901
only in very unusual
circumstances,

1439
01:01:11,901 --> 01:01:14,170
such as those we find ourselves
in today.

1440
01:01:14,170 --> 01:01:17,540
We will continue to use these
powers forcefully, proactively,

1441
01:01:17,540 --> 01:01:19,776
and aggressively
until we're confident

1442
01:01:19,776 --> 01:01:21,844
that we are solidly
on the road to recovery.

1443
01:01:24,614 --> 01:01:25,782
>> JACOBY: I don't think most
people are aware

1444
01:01:25,782 --> 01:01:28,518
that we came this close to a

1445
01:01:28,518 --> 01:01:30,720
bona fide financial crisis.

1446
01:01:30,720 --> 01:01:33,756
>> Yeah, I think a lot of
it is missed for two reasons.

1447
01:01:33,756 --> 01:01:35,558
One, there was a lot
of other stuff

1448
01:01:35,558 --> 01:01:36,893
going on in the news
at the time.

1449
01:01:36,893 --> 01:01:38,661
The other is,

1450
01:01:38,661 --> 01:01:40,830
the Federal Reserve did an
amazingly good job

1451
01:01:40,830 --> 01:01:42,699
at putting out the flames

1452
01:01:42,699 --> 01:01:45,068
of this panic.

1453
01:01:45,068 --> 01:01:48,104
And even though the panic,
in March 2020,

1454
01:01:48,104 --> 01:01:50,239
was more severe
along many metrics

1455
01:01:50,239 --> 01:01:52,809
than anything we saw in 2008,

1456
01:01:52,809 --> 01:01:56,045
the government's response was

1457
01:01:56,045 --> 01:02:00,149
more powerful in certain
respects, and we're lucky that

1458
01:02:00,149 --> 01:02:01,784
the government was successful,

1459
01:02:01,784 --> 01:02:05,988
or we could be living through
a true depression.

1460
01:02:12,628 --> 01:02:15,465
>> Everything has been thrown at
this market

1461
01:02:15,465 --> 01:02:16,833
to try to keep it floating.

1462
01:02:16,833 --> 01:02:19,802
>> The Federal Reserve now
getting into junk bonds.

1463
01:02:19,802 --> 01:02:22,038
>> It's a joke; the market
is manipulated, you know?

1464
01:02:22,038 --> 01:02:24,707
They're printing trillions of
dollars to pump up the value

1465
01:02:24,707 --> 01:02:26,709
of publicly traded stocks.

1466
01:02:26,709 --> 01:02:29,278
>> JACOBY: In trying to keep
workers employed

1467
01:02:29,278 --> 01:02:33,049
and companies afloat, the Fed
had also used its power

1468
01:02:33,049 --> 01:02:35,485
to rescue some of the riskiest
parts of the financial system,

1469
01:02:35,485 --> 01:02:37,153
like the junk bond market.

1470
01:02:37,153 --> 01:02:40,356
>> Is this just like a
high-yield junk bond bailout?

1471
01:02:40,356 --> 01:02:41,891
I mean, I don't get why this is
an emergency.

1472
01:02:41,891 --> 01:02:44,093
>> We gotta live with it now,
Tom, we gotta live with it.

1473
01:02:44,093 --> 01:02:45,895
>> JACOBY: To the critics,

1474
01:02:45,895 --> 01:02:48,898
the Fed was rewarding
the same players and practices

1475
01:02:48,898 --> 01:02:51,701
that had helped make the system
so fragile in the first place.

1476
01:02:51,701 --> 01:02:54,403
>> Over the years,

1477
01:02:54,403 --> 01:02:58,574
we've been trained to believe
that the Fed is on our side.

1478
01:02:58,574 --> 01:03:02,044
What the Fed has trained us
to believe,

1479
01:03:02,044 --> 01:03:04,881
is that if we make a bet
in the market,

1480
01:03:04,881 --> 01:03:07,617
and we win, we're on our own.

1481
01:03:07,617 --> 01:03:09,552
We get to keep the profits.

1482
01:03:09,552 --> 01:03:12,221
If we lose,

1483
01:03:12,221 --> 01:03:14,023
they will bend every effort

1484
01:03:14,023 --> 01:03:16,159
and every dollar they can get
their hands on,

1485
01:03:16,159 --> 01:03:19,262
one way or another,
to bail us out.

1486
01:03:19,262 --> 01:03:22,098
This is asymmetry
of the most splendid kind.

1487
01:03:22,098 --> 01:03:24,567
>> Hey Steve, go ahead
and clap it off, please.

1488
01:03:24,567 --> 01:03:27,336
>> JACOBY: Billionaire bond
investor Howard Marks

1489
01:03:27,336 --> 01:03:29,906
called the Fed out at the time,
saying it was undercutting

1490
01:03:29,906 --> 01:03:32,875
the way the free market is
supposed to work.

1491
01:03:32,875 --> 01:03:35,511
>> There are negative
ramifications to this.

1492
01:03:35,511 --> 01:03:38,114
One called moral hazard,

1493
01:03:38,114 --> 01:03:40,650
which means, uh,

1494
01:03:40,650 --> 01:03:44,720
conditioning people to believe

1495
01:03:44,720 --> 01:03:47,690
that if there's a problem, the
government will bail you out.

1496
01:03:47,690 --> 01:03:50,326
And if people really
believe that,

1497
01:03:50,326 --> 01:03:54,397
then there's no downside
to risky behavior.

1498
01:03:54,397 --> 01:03:55,698
Because if there's a problem,

1499
01:03:55,698 --> 01:03:57,366
it won't fall on you,
you'll get bailed out.

1500
01:03:58,568 --> 01:04:01,571
If you play it aggressively
and succeed, you make money.

1501
01:04:01,571 --> 01:04:06,075
If you aggressively and fail,
you'll get bailed out.

1502
01:04:06,075 --> 01:04:09,212
>> We are truly getting
to a point of moral hazard.

1503
01:04:09,212 --> 01:04:11,747
>> We want to live in a world,

1504
01:04:11,747 --> 01:04:15,017
do central banks themselves
want to live in a world,

1505
01:04:15,017 --> 01:04:19,388
where their interventions are
so central to the market outlook

1506
01:04:19,388 --> 01:04:21,290
and the market performance?

1507
01:04:21,290 --> 01:04:23,392
>> JACOBY: So has moral hazard
gotten worse

1508
01:04:23,392 --> 01:04:26,028
as a result of this bailout?

1509
01:04:26,028 --> 01:04:28,598
>> There's no barometer of
moral hazard.

1510
01:04:28,598 --> 01:04:30,299
So I can't give you a reading.

1511
01:04:30,299 --> 01:04:34,770
All I can say is that
for the last year or so,

1512
01:04:34,770 --> 01:04:37,940
risk-taking has been rewarded.

1513
01:04:37,940 --> 01:04:41,310
And that tends to bring on
more risk taking.

1514
01:04:41,310 --> 01:04:43,145
>> I don't think it's anything
that investors

1515
01:04:43,145 --> 01:04:44,981
should be applauding
necessarily,

1516
01:04:44,981 --> 01:04:47,250
because it's a nail
in the coffin of capitalism.

1517
01:04:47,250 --> 01:04:49,685
>> This is gonna be a test
for whether or not capitalism

1518
01:04:49,685 --> 01:04:52,889
is just a callsign when CEOs
are looking for bailouts.

1519
01:04:55,258 --> 01:04:57,827
>> Do you see moral hazard in
what has just happened?

1520
01:04:58,895 --> 01:05:00,863
>> Oh, absolutely.

1521
01:05:00,863 --> 01:05:03,332
I think now, you know,

1522
01:05:03,332 --> 01:05:05,368
the entire business community

1523
01:05:05,368 --> 01:05:07,937
has had a taste of bailouts.
(laughs)

1524
01:05:07,937 --> 01:05:12,642
You know, and boy, doesn't
it work really, really nicely?

1525
01:05:12,642 --> 01:05:16,812
Yeah, so I fear that now,
the Fed stepping in,

1526
01:05:16,812 --> 01:05:18,047
not just to bail out
Wall Street,

1527
01:05:18,047 --> 01:05:19,982
but the entire, you know,
corporate America,

1528
01:05:19,982 --> 01:05:23,085
is starting to be embedded
into people's thinking.

1529
01:05:23,085 --> 01:05:27,189
You know, people talk about
the survival of capitalism,

1530
01:05:27,189 --> 01:05:29,525
but this is the biggest threat
to capitalism.

1531
01:05:29,525 --> 01:05:31,594
In good times,
when anybody can make money,

1532
01:05:31,594 --> 01:05:33,362
you reap those profits.

1533
01:05:33,362 --> 01:05:36,332
In bad times, the Fed,
the Fed just keeps stepping in.

1534
01:05:36,332 --> 01:05:38,334
You have this never-ending
ratchet up.

1535
01:05:38,334 --> 01:05:40,002
The markets never correct.

1536
01:05:40,002 --> 01:05:41,837
>> JACOBY: It's like a no-lose
casino.

1537
01:05:41,837 --> 01:05:43,306
>> It is,
it is a no-lose casino.

1538
01:05:43,306 --> 01:05:44,707
That's exactly right.

1539
01:05:44,707 --> 01:05:47,677
>> JACOBY: This is the second
time in 12 years

1540
01:05:47,677 --> 01:05:50,746
that you and your institution
have had to funnel

1541
01:05:50,746 --> 01:05:52,214
into the financial system

1542
01:05:52,214 --> 01:05:56,419
trillions of dollars,
and there is this sense that

1543
01:05:56,419 --> 01:05:59,255
the financial markets have

1544
01:05:59,255 --> 01:06:02,658
an iron-clad backstop
from the Fed.

1545
01:06:02,658 --> 01:06:04,760
>> Well, I completely agree that
it is unacceptable

1546
01:06:04,760 --> 01:06:08,331
that 12 years after 2008,
we had to do this again.

1547
01:06:08,331 --> 01:06:10,866
I am proud that we
did what we did.

1548
01:06:10,866 --> 01:06:12,969
It was the right thing to do,
it was necessary.

1549
01:06:12,969 --> 01:06:15,338
But it is unacceptable as an
American citizen

1550
01:06:15,338 --> 01:06:16,806
that we have a financial system

1551
01:06:16,806 --> 01:06:18,341
that is this risky
and this vulnerable.

1552
01:06:18,341 --> 01:06:21,210
>> JACOBY: But what, if any,
responsibility

1553
01:06:21,210 --> 01:06:25,548
or accountability does the Fed
have for the financial system

1554
01:06:25,548 --> 01:06:28,784
having been so risky
and so vulnerable to a shock?

1555
01:06:28,784 --> 01:06:30,820
>> Well, I think all financial
regulators

1556
01:06:30,820 --> 01:06:34,857
that have a seat at the table
have responsibility

1557
01:06:34,857 --> 01:06:38,094
for what was left incomplete
after 2008

1558
01:06:38,094 --> 01:06:39,795
and where we go from here.

1559
01:06:39,795 --> 01:06:42,832
We need to use this crisis
to finish the work

1560
01:06:42,832 --> 01:06:45,434
that we did not finish
after '08.

1561
01:06:45,434 --> 01:06:47,470
>> JACOBY: With all due respect,
I just, I wonder

1562
01:06:47,470 --> 01:06:49,638
if you could be a little bit
more explicit with me.

1563
01:06:49,638 --> 01:06:51,607
What will the Fed own

1564
01:06:51,607 --> 01:06:54,010
when it comes to the
vulnerability of the system?

1565
01:06:54,010 --> 01:06:55,578
>> Well, I reject the thesis.

1566
01:06:55,578 --> 01:06:58,147
I actually don't think it's
been the Fed's monetary policy

1567
01:06:58,147 --> 01:06:59,849
that has led to these
vulnerabilities.

1568
01:06:59,849 --> 01:07:02,418
I think it's been incomplete
regulatory policy

1569
01:07:02,418 --> 01:07:05,521
that has led
to these vulnerabilities.

1570
01:07:11,994 --> 01:07:14,263
>> The coronavirus pandemic
has left

1571
01:07:14,263 --> 01:07:16,232
millions of Americans
out of work.

1572
01:07:16,232 --> 01:07:17,600
>> The people have gone now

1573
01:07:17,600 --> 01:07:19,335
without four, five,
or six or seven paychecks.

1574
01:07:19,335 --> 01:07:21,070
And it's starting to catch up.

1575
01:07:21,070 --> 01:07:22,972
They need food,
it's the most basic thing.

1576
01:07:22,972 --> 01:07:25,941
>> JACOBY: In the months
following the Fed's rescue,

1577
01:07:25,941 --> 01:07:27,977
we saw a troubling disparity.

1578
01:07:27,977 --> 01:07:29,612
>> Have you got any income
at the moment?

1579
01:07:29,612 --> 01:07:30,780
>> No, no.

1580
01:07:30,780 --> 01:07:32,448
And we have kids too, so.

1581
01:07:32,448 --> 01:07:34,383
>> JACOBY: As businesses
were shuttered,

1582
01:07:34,383 --> 01:07:37,186
and millions of Americans were
living on the edge,

1583
01:07:37,186 --> 01:07:40,656
the markets did indeed
look like a no-lose casino,

1584
01:07:40,656 --> 01:07:42,658
thanks to the Fed's safety net.

1585
01:07:42,658 --> 01:07:44,994
>> The economy may be facing
major hardships,

1586
01:07:44,994 --> 01:07:46,996
but the stock market is
thriving.

1587
01:07:46,996 --> 01:07:49,031
>> The best quarter for the DOW
in 33 years.

1588
01:07:49,031 --> 01:07:52,101
It surged 17%.

1589
01:07:52,101 --> 01:07:54,103
>> We ended up in a world
where bad news was good news.

1590
01:07:54,103 --> 01:07:59,108
>> The unemployment rate is now
a staggering 14.7%.

1591
01:07:59,108 --> 01:08:00,109
>> Bad news for the economy

1592
01:08:00,109 --> 01:08:03,479
was good news for markets-- why?

1593
01:08:03,479 --> 01:08:05,614
>> In the midst of all the
economic turmoil,

1594
01:08:05,614 --> 01:08:10,286
Wall Street actually closed out
it's best week in 45 years.

1595
01:08:10,286 --> 01:08:13,756
>> Because when people saw
bad news, they said,

1596
01:08:13,756 --> 01:08:15,991
"The Fed will have to do more."

1597
01:08:15,991 --> 01:08:18,994
>> And today the markets say,
bring on the next quarter.

1598
01:08:18,994 --> 01:08:20,830
>> Then over the next
few months,

1599
01:08:20,830 --> 01:08:23,799
we saw one record after another
in stock markets.

1600
01:08:23,799 --> 01:08:26,635
>> Stocks surging even as
America enters

1601
01:08:26,635 --> 01:08:28,838
its darkest chapter yet
of this pandemic.

1602
01:08:28,838 --> 01:08:32,374
>> Even after
the initial emergency passed,

1603
01:08:32,374 --> 01:08:36,912
the Fed was pumping $120 billion
a month into the economy

1604
01:08:36,912 --> 01:08:39,815
through quantitative easing,
on an indefinite basis.

1605
01:08:39,815 --> 01:08:43,119
The fire hose was simply
turned on and left on the curb.

1606
01:08:43,119 --> 01:08:46,155
You know, the extraordinary
measures of 2010

1607
01:08:46,155 --> 01:08:49,458
literally become the daily
operating procedure in 2020.

1608
01:08:49,458 --> 01:08:52,461
>> The S&P 500 hitting another
record high today

1609
01:08:52,461 --> 01:08:54,797
after surging 55%.

1610
01:08:54,797 --> 01:08:56,398
>> The stock market didn't
just regain

1611
01:08:56,398 --> 01:08:57,867
all of its losses
in a matter of months,

1612
01:08:57,867 --> 01:09:00,136
but started breaking
new records.

1613
01:09:00,136 --> 01:09:02,738
>> I see quite a bit of green
on the markets this morning.

1614
01:09:02,738 --> 01:09:05,107
Dow, S&P, NASDAQ--
all of them higher.

1615
01:09:05,107 --> 01:09:08,377
>> JACOBY: Over the next two
years, tech stocks would soar.

1616
01:09:08,377 --> 01:09:11,647
>> Apple is now the first
publicly listed U.S. company

1617
01:09:11,647 --> 01:09:13,883
to be valued at $2 trillion.

1618
01:09:13,883 --> 01:09:15,251
>> Tesla shares are soaring.

1619
01:09:15,251 --> 01:09:17,720
>> This company has just gone
through the roof this year

1620
01:09:17,720 --> 01:09:20,256
Stock prices quadrupled.

1621
01:09:20,256 --> 01:09:22,124
>> Right now,
it's a seller's market,

1622
01:09:22,124 --> 01:09:23,759
and homes are selling fast.

1623
01:09:23,759 --> 01:09:25,427
>> JACOBY:
The price of real estate

1624
01:09:25,427 --> 01:09:27,029
would shoot up across
the country.

1625
01:09:27,029 --> 01:09:29,198
>> The housing market has never
been hotter.

1626
01:09:29,198 --> 01:09:31,734
>> JACOBY: And corporate America
would take on even more debt,

1627
01:09:31,734 --> 01:09:33,469
which investors gobbled up.

1628
01:09:33,469 --> 01:09:35,237
>> Massive issuance
of corporate debt...

1629
01:09:35,237 --> 01:09:38,073
>> More than $10.5 trillion...

1630
01:09:38,073 --> 01:09:39,775
>> JACOBY: For the richest
Americans,

1631
01:09:39,775 --> 01:09:41,443
it was an extraordinary time.

1632
01:09:41,443 --> 01:09:45,181
>> Mark Zuckerberg has increased
his wealth during the pandemic

1633
01:09:45,181 --> 01:09:47,216
by more than $37 billion.

1634
01:09:47,216 --> 01:09:49,084
>> Elon Musk has added over
$10 billion to his wealth

1635
01:09:49,084 --> 01:09:50,619
just this week.

1636
01:09:50,619 --> 01:09:53,889
>> Jeff Bezos reportedly earning
over $50 billion this year.

1637
01:09:53,889 --> 01:09:56,158
>> Billionaires now hold

1638
01:09:56,158 --> 01:09:57,927
two-thirds more in wealth

1639
01:09:57,927 --> 01:10:00,462
than the bottom half of the
U.S. population.

1640
01:10:00,462 --> 01:10:02,598
Let that sink in for a moment.

1641
01:10:02,598 --> 01:10:04,633
>> Just the billionaires
in the United States,

1642
01:10:04,633 --> 01:10:09,405
from March 2020
to February 2021,

1643
01:10:09,405 --> 01:10:13,676
have grown their wealth
by $1.3 trillion.

1644
01:10:13,676 --> 01:10:15,844
$1.3 trillion.

1645
01:10:15,844 --> 01:10:17,846
>> It's the burst of euphoria

1646
01:10:17,846 --> 01:10:19,848
that typically brings these
things to an end.

1647
01:10:19,848 --> 01:10:21,750
>> JACOBY: But even some of
those billionaires

1648
01:10:21,750 --> 01:10:24,887
were worried the Fed was fueling
a dangerous bubble.

1649
01:10:24,887 --> 01:10:28,457
>> The housing market, the stock
market, and the bond market

1650
01:10:28,457 --> 01:10:31,126
all overpriced at the same time.

1651
01:10:31,126 --> 01:10:34,029
If the Fed knew what it was
doing, it would not

1652
01:10:34,029 --> 01:10:38,234
allow bubbles of this magnitude
to take place.

1653
01:10:38,234 --> 01:10:40,703
>> Smash the like button, invest
consistently.

1654
01:10:40,703 --> 01:10:44,506
>> JACOBY: If the epic rise in
the markets proved irresistible

1655
01:10:44,506 --> 01:10:46,575
to millions
of new small investors too.

1656
01:10:46,575 --> 01:10:49,044
>> So when a stock does well
because of internal

1657
01:10:49,044 --> 01:10:52,181
or external factors,
you secure the bag, honey.

1658
01:10:52,181 --> 01:10:54,483
>> An app that's changing
the way we do money.

1659
01:10:54,483 --> 01:10:58,354
>> All these brokerage
platforms saw

1660
01:10:58,354 --> 01:11:02,024
the largest growth of new users
they'd ever seen.

1661
01:11:02,024 --> 01:11:05,160
Because people said,
"Now's my opportunity.

1662
01:11:05,160 --> 01:11:06,862
"I'm gonna invest my money
in the stock market.

1663
01:11:06,862 --> 01:11:08,797
"I may not understand

1664
01:11:08,797 --> 01:11:11,000
"what the Fed's doing
or how it works,

1665
01:11:11,000 --> 01:11:13,535
or what exactly is going on."

1666
01:11:13,535 --> 01:11:16,038
>> The S&P 500 now on track
for the best week

1667
01:11:16,038 --> 01:11:17,640
going back since 2008.

1668
01:11:17,640 --> 01:11:19,875
>> "I understand the Fed
takes action,

1669
01:11:19,875 --> 01:11:21,277
"stock prices go up,

1670
01:11:21,277 --> 01:11:23,912
these people get rich."

1671
01:11:23,912 --> 01:11:27,283
And it became a very clear
mandate for people.

1672
01:11:27,283 --> 01:11:30,753
"If I want to get in on this
economic recovery we're having,

1673
01:11:30,753 --> 01:11:32,755
I've gotta buy stocks."

1674
01:11:32,755 --> 01:11:34,323
>> I'm gonna take
my stimulus check

1675
01:11:34,323 --> 01:11:35,624
and I'm gonna put it
in the stock market.

1676
01:11:35,624 --> 01:11:37,359
>> So they're online,

1677
01:11:37,359 --> 01:11:38,861
they're trading stocks,

1678
01:11:38,861 --> 01:11:40,863
they're buying and selling,

1679
01:11:40,863 --> 01:11:42,431
and putting money
in these stock accounts.

1680
01:11:42,431 --> 01:11:44,400
They started creating
their own community.

1681
01:11:44,400 --> 01:11:48,537
>> Welcome Declan, Michael Lee--
ah, so many people, Bob Smith.

1682
01:11:48,537 --> 01:11:50,072
>> Gotta get the Dow Jones up!

1683
01:11:50,072 --> 01:11:51,206
>> JACOBY: Fed Chair Powell

1684
01:11:51,206 --> 01:11:52,775
became a kind of cult figure--

1685
01:11:52,775 --> 01:11:54,576
master of the money printer.

1686
01:11:54,576 --> 01:11:57,413
>> Money printer go "brrr."

1687
01:11:57,413 --> 01:12:00,115
>> Invest in these four tickers,
I'll put it right above.

1688
01:12:00,115 --> 01:12:03,252
>> JACOBY: And billions poured
into so-called meme stocks.

1689
01:12:03,252 --> 01:12:05,220
>> This GameStop situation,

1690
01:12:05,220 --> 01:12:07,256
we will never encounter
a setup like this again.

1691
01:12:07,256 --> 01:12:09,258
>> JACOBY: And new risky asset
classes,

1692
01:12:09,258 --> 01:12:10,726
like cryptocurrency,

1693
01:12:10,726 --> 01:12:12,227
took on a life of their own.

1694
01:12:12,227 --> 01:12:13,495
>> Bitcoin...
>> Bitcoin...

1695
01:12:13,495 --> 01:12:15,331
>> Bitcoin has been
on a wild ride.

1696
01:12:15,331 --> 01:12:17,266
>> It really is the new
currency.

1697
01:12:18,801 --> 01:12:20,936
>> There's just too much money.

1698
01:12:20,936 --> 01:12:22,871
People just have so much money,

1699
01:12:22,871 --> 01:12:25,341
and there's not really places
to put it.

1700
01:12:25,341 --> 01:12:29,011
So what folks started doing
is investing

1701
01:12:29,011 --> 01:12:32,081
in these very speculative
assets,

1702
01:12:32,081 --> 01:12:33,782
things like Bitcoin,

1703
01:12:33,782 --> 01:12:37,553
because they're just seeing
ridiculous rates of return.

1704
01:12:37,553 --> 01:12:39,488
It doesn't really matter

1705
01:12:39,488 --> 01:12:41,523
what the underlying value
of the thing is.

1706
01:12:41,523 --> 01:12:43,759
Just like it doesn't matter what
the underlying value

1707
01:12:43,759 --> 01:12:45,194
of a company is, right?

1708
01:12:45,194 --> 01:12:47,262
As long as the stock price goes
up, you want to buy,

1709
01:12:47,262 --> 01:12:51,367
'cause the stock is gonna keep
going up, and then you'll sell.

1710
01:12:51,367 --> 01:12:54,603
It's the greater fool theory
of investing.

1711
01:12:54,603 --> 01:12:56,939
>> Cryptocurrency...
>> Cryptocurrency...

1712
01:12:56,939 --> 01:12:58,841
>> Cryptocurrency?
>> Cryptocurrency...

1713
01:12:58,841 --> 01:13:00,442
>> Blockchain technology.

1714
01:13:00,442 --> 01:13:01,710
>> That's actually...

1715
01:13:01,710 --> 01:13:03,045
this is actually a very
comfortable chair.

1716
01:13:03,045 --> 01:13:05,147
>> JACOBY: Crypto was all the
rage in Hollywood

1717
01:13:05,147 --> 01:13:06,081
where actor Ben McKenzie saw
celebrities pushing it

1718
01:13:06,081 --> 01:13:08,450
on an unsuspecting public.

1719
01:13:08,450 --> 01:13:12,755
With reporter Jacob Silverman,
he began raising alarms.

1720
01:13:12,755 --> 01:13:15,124
>> Crypto exchanges primarily
were driving

1721
01:13:15,124 --> 01:13:17,226
the advertising dollars here so,

1722
01:13:17,226 --> 01:13:20,696
you know, it's not unreasonable
to think these folks got paid,

1723
01:13:20,696 --> 01:13:23,799
you know, not just multiple
millions of dollars,

1724
01:13:23,799 --> 01:13:27,169
but potentially tens of millions
of dollars to sell this stuff.

1725
01:13:27,169 --> 01:13:29,238
>> Bitcoin is a new kind
of money.

1726
01:13:29,238 --> 01:13:31,340
>> Cash into crypto.

1727
01:13:31,340 --> 01:13:32,708
>> What's up?
>> I'm getting into crypto

1728
01:13:32,708 --> 01:13:34,009
with FTX, you in?

1729
01:13:34,009 --> 01:13:36,945
>> History is filled with
almosts.

1730
01:13:36,945 --> 01:13:39,214
>> When you're talking about
an ad like the Matt Damon ad,

1731
01:13:39,214 --> 01:13:40,616
that went viral,
and not in a good way,

1732
01:13:40,616 --> 01:13:42,117
what does he work, one day?

1733
01:13:42,117 --> 01:13:44,720
He walks around a studio
and points at stuff

1734
01:13:44,720 --> 01:13:47,489
that isn't there, and talks
about how brave you need to be

1735
01:13:47,489 --> 01:13:50,292
to buy crypto, it's a pretty
easy pay... paycheck.

1736
01:13:50,292 --> 01:13:52,928
>> Fortune favors the brave.

1737
01:13:52,928 --> 01:13:55,264
♪ ♪

1738
01:13:55,264 --> 01:13:59,067
>> I certainly understand how
easy it is to get lured in

1739
01:13:59,067 --> 01:14:01,437
to cryptocurrency,
especially when you see,

1740
01:14:01,437 --> 01:14:03,439
at least for one brief,
shining moment,

1741
01:14:03,439 --> 01:14:05,040
all of your friends and
neighbors

1742
01:14:05,040 --> 01:14:07,409
or people you follow on
social media getting rich.

1743
01:14:07,409 --> 01:14:09,144
Of course you're gonna try.

1744
01:14:09,144 --> 01:14:11,480
>> JACOBY: How does the Fed
figure into this?

1745
01:14:11,480 --> 01:14:14,183
Was there just so much money
sloshing around

1746
01:14:14,183 --> 01:14:16,585
that it needed to go somewhere,
and crypto

1747
01:14:16,585 --> 01:14:19,188
was one of those places where it
just was, like, "All right,

1748
01:14:19,188 --> 01:14:21,256
we'll throw it in there"?
>> Yeah.

1749
01:14:21,256 --> 01:14:24,726
You know, when money is cheap,
people gamble.

1750
01:14:24,726 --> 01:14:28,797
It's just undeniable--
and fraud runs rampant.

1751
01:14:28,797 --> 01:14:30,566
>> You would hear even within
crypto circles

1752
01:14:30,566 --> 01:14:35,504
people start talking about Ponzi
schemes in a non-derisive way.

1753
01:14:35,504 --> 01:14:38,974
Saying, "Well, maybe we're doing
new types of economics."

1754
01:14:38,974 --> 01:14:40,242
They're all forms of, kind of,

1755
01:14:40,242 --> 01:14:42,478
irrational thinking
and rationalization also

1756
01:14:42,478 --> 01:14:45,714
that come together to help sort
of conjure this illusion that

1757
01:14:45,714 --> 01:14:49,685
there's value here
until something pops it.

1758
01:14:49,685 --> 01:14:52,721
>> Sound speed.
(indistinct chatter)

1759
01:14:52,721 --> 01:14:55,724
>> JACOBY: The number of serious
investors, like Jim Chanos,

1760
01:14:55,724 --> 01:14:57,759
began speaking out.
(clapboard clacks)

1761
01:14:57,759 --> 01:15:00,095
>> It just became this orgy
of speculation

1762
01:15:00,095 --> 01:15:02,731
by the first half of 2021.

1763
01:15:02,731 --> 01:15:05,501
Anyone who wanted to raise
money for anything could do so.

1764
01:15:05,501 --> 01:15:09,304
You know, the amount of, of
fraud we saw being floated

1765
01:15:09,304 --> 01:15:12,875
on top of legitimate companies
was really concerning.

1766
01:15:12,875 --> 01:15:15,644
Particularly in places like
the crypto space,

1767
01:15:15,644 --> 01:15:20,115
which was sort of not being
regulated.

1768
01:15:20,115 --> 01:15:23,118
People were creating new coins
or NFTs

1769
01:15:23,118 --> 01:15:26,788
and selling them to the public,
who was eager

1770
01:15:26,788 --> 01:15:28,757
to get in on the latest fad.

1771
01:15:28,757 --> 01:15:30,526
And that, that bothered me.

1772
01:15:30,526 --> 01:15:32,928
>> JACOBY: And you would draw a
direct link between

1773
01:15:32,928 --> 01:15:35,397
what the Fed was doing
and the crypto craze?

1774
01:15:35,397 --> 01:15:37,833
>> Well, I just mean,
it was all part

1775
01:15:37,833 --> 01:15:41,970
of speculation that was...
led to, to people doing

1776
01:15:41,970 --> 01:15:43,872
really silly things
with their money.

1777
01:15:43,872 --> 01:15:45,674
At the end of bull markets,

1778
01:15:45,674 --> 01:15:48,610
at the end of speculative
markets, you know,

1779
01:15:48,610 --> 01:15:50,913
all kinds of crazy schemes
get floated

1780
01:15:50,913 --> 01:15:52,414
to separate people
from their money.

1781
01:15:52,414 --> 01:15:53,815
>> At least these
are different questions,

1782
01:15:53,815 --> 01:15:55,317
not the same question
over and over again.

1783
01:15:55,317 --> 01:15:56,818
>> JACOBY: Was last time the
same question over and over?

1784
01:15:56,818 --> 01:15:58,587
>> It was the same question
for 90 minutes.

1785
01:15:58,587 --> 01:15:59,821
>> JACOBY: I don't know about
that.

1786
01:15:59,821 --> 01:16:01,857
>> Yes-- trust me,
I have a tape of it.

1787
01:16:01,857 --> 01:16:03,525
>> JACOBY (voiceover): When I
sat down with Neel Kashkari

1788
01:16:03,525 --> 01:16:06,562
again recently, I asked him how
the madness in the markets

1789
01:16:06,562 --> 01:16:07,996
looked to the Fed.

1790
01:16:07,996 --> 01:16:10,265
It kind of was mania
at the time,

1791
01:16:10,265 --> 01:16:12,868
but the Fed was continuing
to flood the markets

1792
01:16:12,868 --> 01:16:14,870
with liquidity,
with, with money.

1793
01:16:14,870 --> 01:16:18,707
Did you not see all of that
mania as a sign of overheating?

1794
01:16:18,707 --> 01:16:21,543
That an indicator in the markets
was telling you something about,

1795
01:16:21,543 --> 01:16:24,813
you know, what
was happening in the economy?

1796
01:16:24,813 --> 01:16:28,216
>> Yeah, I mean we see froth
in financial markets

1797
01:16:28,216 --> 01:16:30,586
not infrequently--
there've been other times

1798
01:16:30,586 --> 01:16:32,688
when we've seen booms in
financial markets.

1799
01:16:32,688 --> 01:16:35,023
If we are going to try to raise
interest rates

1800
01:16:35,023 --> 01:16:39,261
to control excitement in the
stock market, the cost--

1801
01:16:39,261 --> 01:16:40,495
who's gonna bear the cost of
that?

1802
01:16:40,495 --> 01:16:42,364
The people who are out of work
today.

1803
01:16:42,364 --> 01:16:44,800
If we had said, "Let's go raise
interest rates

1804
01:16:44,800 --> 01:16:46,201
"to try to keep crypto down,

1805
01:16:46,201 --> 01:16:49,371
keep Bitcoin
from going too high,"

1806
01:16:49,371 --> 01:16:52,074
and we're gonna keep millions of
Americans out of work

1807
01:16:52,074 --> 01:16:55,177
as the way to do that,
that strikes me as a bad trade.

1808
01:17:01,883 --> 01:17:03,785
♪ ♪

1809
01:17:03,785 --> 01:17:06,321
>> I think interest rates
and inflation

1810
01:17:06,321 --> 01:17:10,425
are going to rise well above
what the Fed has projected.

1811
01:17:10,425 --> 01:17:12,794
>> JACOBY: As the markets
were heating up,

1812
01:17:12,794 --> 01:17:16,832
so were concerns that the Fed's
policies would fuel inflation.

1813
01:17:16,832 --> 01:17:19,001
>> Prices are rising
at the fastest pace

1814
01:17:19,001 --> 01:17:20,469
in more than a decade.

1815
01:17:20,469 --> 01:17:22,037
>> JACOBY: But it wasn't just
what the Fed was doing.

1816
01:17:22,037 --> 01:17:23,271
>> I'm going to help

1817
01:17:23,271 --> 01:17:25,273
the American people who are
hurting now.

1818
01:17:25,273 --> 01:17:27,175
>> JACOBY: The new Biden
administration was sending

1819
01:17:27,175 --> 01:17:29,911
$1,400 checks to many Americans.

1820
01:17:29,911 --> 01:17:33,015
>> Stimulus money from the
latest COVID relief bill

1821
01:17:33,015 --> 01:17:36,251
is arriving in bank accounts
all over the country.

1822
01:17:36,251 --> 01:17:38,453
>> JACOBY: Extending
unemployment benefits,

1823
01:17:38,453 --> 01:17:41,256
tax credits,
and other relief programs.

1824
01:17:41,256 --> 01:17:42,824
>> I think there's
a real possibility

1825
01:17:42,824 --> 01:17:46,561
that within the year
we're gonna be dealing with

1826
01:17:46,561 --> 01:17:48,096
the most serious

1827
01:17:48,096 --> 01:17:52,267
incipient inflation problem

1828
01:17:52,267 --> 01:17:53,869
that we have faced
in the last 40 years.

1829
01:17:55,270 --> 01:17:58,073
>> JACOBY: Critics like former
Treasury Secretary Larry Summers

1830
01:17:58,073 --> 01:18:01,376
were publicly expressing concern
that all the stimulus money

1831
01:18:01,376 --> 01:18:02,644
from the Fed and the government

1832
01:18:02,644 --> 01:18:05,347
would boost economic demand
at a time

1833
01:18:05,347 --> 01:18:08,750
when supply problems from the
pandemic were still an issue.

1834
01:18:08,750 --> 01:18:11,920
>> People like myself,
like Larry Summers and other,

1835
01:18:11,920 --> 01:18:16,058
saw that, that massive stimulus,
it was unprecedented,

1836
01:18:16,058 --> 01:18:19,628
an order of magnitude greater
than the one we had

1837
01:18:19,628 --> 01:18:22,764
after the global financial
crisis, would lead

1838
01:18:22,764 --> 01:18:26,301
to excessive demand,
overheating and inflation.

1839
01:18:26,301 --> 01:18:30,105
So we had an unprecedented
fiscal stimulus,

1840
01:18:30,105 --> 01:18:32,974
an unprecedented monetary
stimulus,

1841
01:18:32,974 --> 01:18:35,644
we had bail-out checks sent
to everybody,

1842
01:18:35,644 --> 01:18:38,113
every household, every firm,

1843
01:18:38,113 --> 01:18:40,082
every financial institution.

1844
01:18:40,082 --> 01:18:42,884
It was too much, and
should have been more selective.

1845
01:18:42,884 --> 01:18:45,387
>> There really just was all
this money being pushed out

1846
01:18:45,387 --> 01:18:47,022
in the economy--
at the same time,

1847
01:18:47,022 --> 01:18:48,523
you've got the Federal Reserve,

1848
01:18:48,523 --> 01:18:51,426
they're pushing out another
$4 or $5 trillion

1849
01:18:51,426 --> 01:18:52,561
into the economy,

1850
01:18:52,561 --> 01:18:53,962
and so prices rose.

1851
01:18:53,962 --> 01:18:55,864
>> Core CPI inflation is set

1852
01:18:55,864 --> 01:18:57,866
to rise sharply
over the next three months.

1853
01:18:57,866 --> 01:18:59,735
>> This goes back to your
economics 101 textbook, right?

1854
01:18:59,735 --> 01:19:02,104
When there's too much money
chasing too few goods,

1855
01:19:02,104 --> 01:19:03,405
prices go up,

1856
01:19:03,405 --> 01:19:05,674
and that drives inflation
higher.

1857
01:19:05,674 --> 01:19:07,476
>> JACOBY: It only took
a few months

1858
01:19:07,476 --> 01:19:09,144
for the warnings to come true.

1859
01:19:09,144 --> 01:19:11,012
>> It seems like everything
across the board

1860
01:19:11,012 --> 01:19:12,380
is becoming more expensive.

1861
01:19:12,380 --> 01:19:14,950
>> Gas prices going up,
food prices going up.

1862
01:19:14,950 --> 01:19:16,551
>> JACOBY: But the Fed didn't
flinch.

1863
01:19:16,551 --> 01:19:19,654
>> A surge in energy,
housing, and food costs.

1864
01:19:19,654 --> 01:19:21,123
>> JACOBY: It didn't raise
interest rates

1865
01:19:21,123 --> 01:19:23,024
or pull back on
quantitative easing.

1866
01:19:23,024 --> 01:19:25,460
>> The question now
haunting economists

1867
01:19:25,460 --> 01:19:28,063
is whether these price hikes
are a pandemic blip

1868
01:19:28,063 --> 01:19:31,333
or a sign of a long-term threat
to the economy.

1869
01:19:31,333 --> 01:19:33,101
>> JACOBY: And they had a word
for the highest inflation

1870
01:19:33,101 --> 01:19:34,236
in more than a decade.

1871
01:19:34,236 --> 01:19:35,504
>> Transitory...
>> Transitory...

1872
01:19:35,504 --> 01:19:36,872
>> Transitory...
>> Transitory...

1873
01:19:36,872 --> 01:19:38,540
>> I know you believe
this is transitory,

1874
01:19:38,540 --> 01:19:40,842
but everything is transitory,
life is transitory.

1875
01:19:40,842 --> 01:19:43,612
>> This inflation round
is not transitory.

1876
01:19:43,612 --> 01:19:46,448
This is a very hot inflation
environment

1877
01:19:46,448 --> 01:19:50,051
and the longer the central banks
wait, the greater the risk

1878
01:19:51,186 --> 01:19:53,855
I reacted quite
strongly to the assertion

1879
01:19:53,855 --> 01:19:56,191
that inflation was gonna be
transitory.

1880
01:19:56,191 --> 01:19:57,926
I remember warning at that time

1881
01:19:57,926 --> 01:19:59,961
that we simply don't have enough
evidence

1882
01:19:59,961 --> 01:20:02,430
that it's gonna be transitory.

1883
01:20:02,430 --> 01:20:05,500
Transitory is a very
reassuring term,

1884
01:20:05,500 --> 01:20:08,336
because I tell you, "Don't worry
about it, it is temporary,

1885
01:20:08,336 --> 01:20:12,007
"it is reversible, therefore you
don't need to change behavior.

1886
01:20:12,007 --> 01:20:13,742
So, yes, we have inflation,
but don't worry."

1887
01:20:13,742 --> 01:20:15,610
>> JACOBY: What kind of evidence
were you seeing

1888
01:20:15,610 --> 01:20:18,079
that this may be stickier
inflation

1889
01:20:18,079 --> 01:20:19,881
than it is transitory?

1890
01:20:19,881 --> 01:20:21,550
>> One, what companies were
telling us.

1891
01:20:23,118 --> 01:20:26,288
And companies were saying,
"I am not sure it's transitory.

1892
01:20:26,288 --> 01:20:28,056
This is beyond the pandemic."

1893
01:20:28,056 --> 01:20:29,791
I was talking to CEOs,

1894
01:20:29,791 --> 01:20:31,927
and they were giving me

1895
01:20:31,927 --> 01:20:33,428
a very clear message,

1896
01:20:33,428 --> 01:20:36,631
the same message that was in
one earning call

1897
01:20:36,631 --> 01:20:38,834
after another earning call;

1898
01:20:38,834 --> 01:20:43,505
they did not view the
disruptions as being transitory.

1899
01:20:43,505 --> 01:20:45,373
>> JACOBY: Why transitory,
why that word?

1900
01:20:45,373 --> 01:20:46,608
What did you think at the time?

1901
01:20:46,608 --> 01:20:48,343
>> Well, we saw a number of
factors

1902
01:20:48,343 --> 01:20:50,779
that we thought were conspiring
to lead to high prices

1903
01:20:50,779 --> 01:20:53,281
and that many of those factors
would fade away over time.

1904
01:20:53,281 --> 01:20:55,550
So for example,
uh, supply chains,

1905
01:20:55,550 --> 01:20:57,018
we saw were getting gummed up.

1906
01:20:57,018 --> 01:20:59,721
But we also know that businesses
were working very hard

1907
01:20:59,721 --> 01:21:03,758
to un-gum those up, to
untangle those supply chains.

1908
01:21:03,758 --> 01:21:05,126
So we thought that they'd
probably make

1909
01:21:05,126 --> 01:21:06,995
more progress there
than we expected.

1910
01:21:06,995 --> 01:21:08,897
>> JACOBY: The business round
table, for instance,

1911
01:21:08,897 --> 01:21:11,333
was coming out and saying,
polling their CEOs and saying,

1912
01:21:11,333 --> 01:21:14,002
"Look, we're seeing
inflation everywhere

1913
01:21:14,002 --> 01:21:15,503
in what we're doing, okay?

1914
01:21:15,503 --> 01:21:18,907
How does something like that
land for you at that time?

1915
01:21:18,907 --> 01:21:21,643
>> I mean, I take it seriously,
I don't dismiss it,

1916
01:21:21,643 --> 01:21:23,845
but then I, I map it against the
data that we're seeing.

1917
01:21:23,845 --> 01:21:25,313
>> JACOBY: Okay.

1918
01:21:25,313 --> 01:21:26,815
>> But I'll just say,
we did not have an outlier view

1919
01:21:26,815 --> 01:21:30,085
on inflation or the economy
overall.

1920
01:21:30,085 --> 01:21:32,854
If you look at the consensus
or forecasts

1921
01:21:32,854 --> 01:21:35,523
among experts in America, on
Wall Street, around the world,

1922
01:21:35,523 --> 01:21:37,659
they all basically
had the same forecast,

1923
01:21:37,659 --> 01:21:39,227
which is inflation's
gonna be transitory,

1924
01:21:39,227 --> 01:21:41,663
it's gonna come back down--
yes, there were outliers,

1925
01:21:41,663 --> 01:21:43,965
but if you look at
the consensus, uh,

1926
01:21:43,965 --> 01:21:45,500
we were well within
the consensus

1927
01:21:45,500 --> 01:21:46,968
of the experts who study this.

1928
01:21:46,968 --> 01:21:48,670
>> JACOBY: Any regret about

1929
01:21:48,670 --> 01:21:50,138
not taking the foot off
the pedal?

1930
01:21:50,138 --> 01:21:51,539
Seeing what, for instance,

1931
01:21:51,539 --> 01:21:53,375
the federal government was doing
at that point in time?

1932
01:21:53,375 --> 01:21:56,077
>> Well, I think, again, knowing
what I know now, absolutely.

1933
01:21:56,077 --> 01:21:58,980
>> JACOBY: I put the same
questions to Brian Deese,

1934
01:21:58,980 --> 01:22:01,983
one of the chief architects
of the Biden administration's

1935
01:22:01,983 --> 01:22:04,853
$1.9 trillion rescue plan.

1936
01:22:04,853 --> 01:22:07,455
Were the inflation concerns
at the time part

1937
01:22:07,455 --> 01:22:11,159
of your internal deliberation
about doing the, the rescue act?

1938
01:22:11,159 --> 01:22:15,597
>> It was an issue that we were
always aware of and focused on,

1939
01:22:15,597 --> 01:22:17,432
and weighing in the, you know,

1940
01:22:17,432 --> 01:22:19,200
the weighing and balancing that
you have to make

1941
01:22:19,200 --> 01:22:23,138
when you do policymaking
in. in the face of uncertainty.

1942
01:22:23,138 --> 01:22:24,572
>> JACOBY: You're saying that
you knew that

1943
01:22:24,572 --> 01:22:26,808
that could be a
potential tradeoff.

1944
01:22:26,808 --> 01:22:29,477
>> It was always a tradeoff,
it was always a tradeoff

1945
01:22:29,477 --> 01:22:31,613
and the logic behind our actions

1946
01:22:31,613 --> 01:22:33,048
was to get ahead
of the pandemic,

1947
01:22:33,048 --> 01:22:35,917
help bridge for families
and businesses

1948
01:22:35,917 --> 01:22:38,853
and also ensure against the
downside risks to our economy.

1949
01:22:38,853 --> 01:22:42,223
And I think if we look back now
and recognize

1950
01:22:42,223 --> 01:22:45,260
that the inflation challenge
that the U.S. economy faces,

1951
01:22:45,260 --> 01:22:48,129
is not unique;
it is a global challenge.

1952
01:22:48,129 --> 01:22:50,999
Inflation is higher in
Europe, in the U.K., today

1953
01:22:50,999 --> 01:22:52,434
than it is in the United States.

1954
01:22:52,434 --> 01:22:54,703
>> JACOBY: Was there a concern
at the White House

1955
01:22:54,703 --> 01:22:57,872
that the Fed was running the
economy too hot for too long?

1956
01:22:59,441 --> 01:23:02,344
>> That is a question that I
will institutionally not answer.

1957
01:23:02,344 --> 01:23:04,145
>> JACOBY: Why?

1958
01:23:04,145 --> 01:23:06,982
>> Because one of the hallmarks
of our system

1959
01:23:06,982 --> 01:23:10,418
is the independence
of monetary policymaking.

1960
01:23:10,418 --> 01:23:11,987
This has been something that

1961
01:23:11,987 --> 01:23:13,521
you can't take for granted in
our system,

1962
01:23:13,521 --> 01:23:17,292
that prior presidents have not
necessarily honored.

1963
01:23:17,292 --> 01:23:19,060
But this president,
this administration

1964
01:23:19,060 --> 01:23:20,929
is quite committed
to the proposition that

1965
01:23:20,929 --> 01:23:22,764
the strength of our system,

1966
01:23:22,764 --> 01:23:24,332
one of the strengths
of the U.S. economy

1967
01:23:24,332 --> 01:23:26,067
is the trust that people have

1968
01:23:26,067 --> 01:23:29,104
in the independence of our
monetary authority.

1969
01:23:29,104 --> 01:23:33,341
And, therefore,
we make deliberate choices

1970
01:23:33,341 --> 01:23:37,078
to not make comments
on questions like that.

1971
01:23:37,078 --> 01:23:38,613
>> We're going to begin
tonight

1972
01:23:38,613 --> 01:23:41,316
with the rough road to recovery
for America's economy.

1973
01:23:41,316 --> 01:23:44,219
>> JACOBY: Through late 2021
and into 2022,

1974
01:23:44,219 --> 01:23:46,287
stimulus from the Fed
and the government

1975
01:23:46,287 --> 01:23:49,124
would contribute
to a rapid economic recovery.

1976
01:23:49,124 --> 01:23:51,426
>> As our economy has come
roaring back,

1977
01:23:51,426 --> 01:23:53,361
we see some price increases.

1978
01:23:53,361 --> 01:23:55,363
>> JACOBY: But inflation
continued climbing

1979
01:23:55,363 --> 01:23:57,332
at the fastest pace in decades,

1980
01:23:57,332 --> 01:24:00,635
hitting the poor
and middle class the hardest...

1981
01:24:00,635 --> 01:24:02,170
>> You know these price
increases will be a real impact

1982
01:24:02,170 --> 01:24:04,706
on families and they're
not going away anytime soon.

1983
01:24:04,706 --> 01:24:06,441
>> JACOBY: ...the people
the Fed had hoped

1984
01:24:06,441 --> 01:24:09,711
its easy money policies
would help the most.

1985
01:24:15,750 --> 01:24:19,087
>> This is the epicenter
of this rise in inflation.

1986
01:24:19,087 --> 01:24:22,724
>> The highest inflation rate of
any major city in the country...

1987
01:24:22,724 --> 01:24:25,093
>> JACOBY: No city had it worse
than Phoenix,

1988
01:24:25,093 --> 01:24:28,930
which had the highest
inflation rate in the nation.

1989
01:24:30,832 --> 01:24:33,334
When I visited
St. Mary's Food Bank,

1990
01:24:33,334 --> 01:24:36,071
the cars were lined up first
thing in the morning.

1991
01:24:36,071 --> 01:24:37,338
>> Every day,

1992
01:24:37,338 --> 01:24:39,007
my key team, we get an email

1993
01:24:39,007 --> 01:24:40,642
with the number of
people that come through.

1994
01:24:40,642 --> 01:24:43,378
Yesterday was a 1,007
households.

1995
01:24:43,378 --> 01:24:45,580
And it's not people,
it's households coming through,

1996
01:24:45,580 --> 01:24:47,782
they're feeding
four or five people.

1997
01:24:47,782 --> 01:24:49,417
And it's like, wow.

1998
01:24:49,417 --> 01:24:50,819
And that's five days a week.

1999
01:24:50,819 --> 01:24:53,288
They just don't have any other
choice.

2000
01:24:53,288 --> 01:24:55,490
We're, we're hearing
that their budget is, you know,

2001
01:24:55,490 --> 01:24:58,593
is being eaten up by
all the impacts of inflation,

2002
01:24:58,593 --> 01:25:00,161
and it's either that

2003
01:25:00,161 --> 01:25:02,630
or they don't have food
for their children.

2004
01:25:02,630 --> 01:25:04,232
>> I'm a single mom so

2005
01:25:04,232 --> 01:25:06,835
sometimes at the end of the
month, I need the assistance.

2006
01:25:06,835 --> 01:25:08,136
>> JACOBY: Yeah.

2007
01:25:08,136 --> 01:25:09,170
>> 'Cause life has gotten

2008
01:25:09,170 --> 01:25:11,306
a lot more expensive,

2009
01:25:11,306 --> 01:25:13,575
and being a single parent,
I can feel it.

2010
01:25:13,575 --> 01:25:16,611
Like, it's, it's like choosing
between your rent and your food.

2011
01:25:16,611 --> 01:25:18,446
>> Like, yesterday I spent a
hundred bucks

2012
01:25:18,446 --> 01:25:22,083
just to get cereal,
milk and bread and eggs.

2013
01:25:22,083 --> 01:25:24,119
And that was basically it--
and some lunch meat.

2014
01:25:24,119 --> 01:25:25,787
And that was a hundred bucks
and that was

2015
01:25:25,787 --> 01:25:29,023
our week's worth of food, and
that's not gonna feed six kids.

2016
01:25:34,295 --> 01:25:35,964
>> JACOBY: When did you start
seeing

2017
01:25:35,964 --> 01:25:37,298
an increase in people coming?

2018
01:25:37,298 --> 01:25:40,034
>> It was the end of February
this year, 2022.

2019
01:25:40,034 --> 01:25:43,004
We saw a slight uptick,
didn't know if it was real,

2020
01:25:43,004 --> 01:25:45,907
but it kept climbing, and it's
climbed all through summer.

2021
01:25:45,907 --> 01:25:48,877
We thought that was a plateau,
and then at the end of summer,

2022
01:25:48,877 --> 01:25:50,945
it's continued to climb
and here we are today

2023
01:25:50,945 --> 01:25:53,481
with a thousand households
coming through.

2024
01:25:54,983 --> 01:25:58,620
We've seen a 26% increase,

2025
01:25:58,620 --> 01:26:01,523
year over year, in the number of
people coming to us for help.

2026
01:26:01,523 --> 01:26:04,526
>> JACOBY: From 2021 to 2022?
>> Yes.

2027
01:26:04,526 --> 01:26:06,828
And of that, 18% of the people

2028
01:26:06,828 --> 01:26:08,863
are first-time people coming
to the food bank.

2029
01:26:08,863 --> 01:26:10,732
>> JACOBY: Is what you're seeing
now actually worse

2030
01:26:10,732 --> 01:26:12,800
than what you saw at the height
of the pandemic?

2031
01:26:12,800 --> 01:26:16,538
>> It is worse now,
and it's worse because

2032
01:26:16,538 --> 01:26:19,407
the food was more available
during the pandemic.

2033
01:26:19,407 --> 01:26:21,576
We're seeing food availability
going down.

2034
01:26:21,576 --> 01:26:23,244
What was once predictable

2035
01:26:23,244 --> 01:26:25,079
doesn't appear to be
predictable anymore.

2036
01:26:25,079 --> 01:26:26,781
And it's probably gonna get
worse

2037
01:26:26,781 --> 01:26:28,516
before it's gonna get better,
unfortunately.

2038
01:26:28,516 --> 01:26:31,953
♪ ♪

2039
01:26:31,953 --> 01:26:33,922
>> JACOBY: What brings you here?

2040
01:26:33,922 --> 01:26:36,291
>> Just trying to get a little
extra food.

2041
01:26:36,291 --> 01:26:39,561
Can't really-- you know, trying
to stretch the dollar.

2042
01:26:39,561 --> 01:26:40,962
>> JACOBY: Yeah.

2043
01:26:40,962 --> 01:26:43,431
>> It's not hard to spend $200
at the grocery store

2044
01:26:43,431 --> 01:26:45,266
and only have a week's worth
of food

2045
01:26:45,266 --> 01:26:46,701
for two people, you know?

2046
01:26:46,701 --> 01:26:48,203
>> JACOBY: Have you been coming
here a long time

2047
01:26:48,203 --> 01:26:49,470
or this is more recent?

2048
01:26:49,470 --> 01:26:50,872
>> It's more recent since

2049
01:26:50,872 --> 01:26:53,241
probably the last six months
I've been coming here.

2050
01:26:53,241 --> 01:26:54,976
>> JACOBY: Are you working
or are you...?

2051
01:26:54,976 --> 01:26:57,579
>> Yeah, I'm working,
but it's just not enough.

2052
01:26:57,579 --> 01:27:00,615
♪ ♪

2053
01:27:03,818 --> 01:27:05,954
>> JACOBY: We heard similar
stories from credit counselors

2054
01:27:05,954 --> 01:27:09,457
and their clients at a money
management counseling center.

2055
01:27:09,457 --> 01:27:11,326
>> You know, we're getting all
these folks who are telling us

2056
01:27:11,326 --> 01:27:13,294
for the first time, they,
they can't pay their bills,

2057
01:27:13,294 --> 01:27:15,096
they can't make ends meet.

2058
01:27:15,096 --> 01:27:17,065
And often when they say that,
they say

2059
01:27:17,065 --> 01:27:19,901
I, I'm a good person, I've
always paid my bills before.

2060
01:27:19,901 --> 01:27:23,037
>> With the inflation,
they just have eaten away

2061
01:27:23,037 --> 01:27:25,106
their savings, you know.

2062
01:27:25,106 --> 01:27:26,641
People have told me, you know,

2063
01:27:26,641 --> 01:27:28,042
I did the three to six months of

2064
01:27:28,042 --> 01:27:30,111
savings for an emergency fund.

2065
01:27:30,111 --> 01:27:31,546
That's gone.

2066
01:27:31,546 --> 01:27:34,015
>> JACOBY: So you're saying
that it's not just folks

2067
01:27:34,015 --> 01:27:36,851
that you're seeing that have
had chronic problems

2068
01:27:36,851 --> 01:27:39,120
with, with credit or, or...
these are...

2069
01:27:39,120 --> 01:27:41,623
there's a lot of new people
that are coming to you now.

2070
01:27:41,623 --> 01:27:43,658
>> Lot of new people.

2071
01:27:43,658 --> 01:27:46,761
>> Yeah, these are folks who had
been making it before,

2072
01:27:46,761 --> 01:27:49,430
and were solidly
middle class now,

2073
01:27:49,430 --> 01:27:52,000
and today are, are struggling
to make ends meet,

2074
01:27:52,000 --> 01:27:53,635
struggling to keep
their utilities on,

2075
01:27:53,635 --> 01:27:55,103
struggling to stay in their,
their apartment

2076
01:27:55,103 --> 01:27:56,604
or their home.

2077
01:27:56,604 --> 01:27:58,539
And are really in danger of
falling out of the middle class.

2078
01:27:58,539 --> 01:28:01,442
Like, it's a, it's a shrinking
middle class problem.

2079
01:28:01,442 --> 01:28:04,345
>> JACOBY: How real are
rent increases right now?

2080
01:28:04,345 --> 01:28:06,281
>> At a local
shelter here in Phoenix,

2081
01:28:06,281 --> 01:28:09,117
we've seen an uptick of

2082
01:28:09,117 --> 01:28:10,118
new families and individuals

2083
01:28:10,118 --> 01:28:11,419
coming in that just could no

2084
01:28:11,419 --> 01:28:12,453
longer afford

2085
01:28:12,453 --> 01:28:14,255
where they were living.

2086
01:28:14,255 --> 01:28:16,190
Because even
where they were living,

2087
01:28:16,190 --> 01:28:20,762
their rents increase $500
to $1,000 in one month.

2088
01:28:20,762 --> 01:28:24,565
>> Sometimes clients have called
me,

2089
01:28:24,565 --> 01:28:27,502
now and they're angry
when they call,

2090
01:28:27,502 --> 01:28:29,137
they need our help,

2091
01:28:29,137 --> 01:28:31,239
but they're angry and I,

2092
01:28:31,239 --> 01:28:32,974
I understand it.

2093
01:28:32,974 --> 01:28:37,879
They're ashamed and they're
crying and all of that,

2094
01:28:37,879 --> 01:28:41,316
but I was there,
I, I was one of them, you know.

2095
01:28:41,316 --> 01:28:43,451
>> JACOBY: Are your numbers up
in terms of people

2096
01:28:43,451 --> 01:28:45,620
that are
seeking out help at the moment?

2097
01:28:45,620 --> 01:28:47,689
>> So, it's not just that we're
getting more calls,

2098
01:28:47,689 --> 01:28:49,257
it's that the folks who are
calling us

2099
01:28:49,257 --> 01:28:50,858
are in greater distress.

2100
01:28:50,858 --> 01:28:52,927
Now instead of calling us
because they're

2101
01:28:52,927 --> 01:28:54,729
just behind on their credit
cards, they're calling us

2102
01:28:54,729 --> 01:28:56,564
because they're behind
on their credit cards

2103
01:28:56,564 --> 01:28:58,366
and they're
behind on their utilities

2104
01:28:58,366 --> 01:29:00,268
and they're struggling
with their housing payment.

2105
01:29:00,268 --> 01:29:02,937
They are facing greater
economic challenges, I think,

2106
01:29:02,937 --> 01:29:05,106
and more diverse
economic challenges

2107
01:29:05,106 --> 01:29:07,642
than what they faced
just a few years ago.

2108
01:29:07,642 --> 01:29:10,011
>> It's a different world.

2109
01:29:10,011 --> 01:29:11,879
But I have to tell you, I go to

2110
01:29:11,879 --> 01:29:14,315
the store and I am just shocked.

2111
01:29:14,315 --> 01:29:17,385
I'm keeping my nose
above the waves right now,

2112
01:29:17,385 --> 01:29:19,420
but I feel like
that wave is a lot bigger

2113
01:29:19,420 --> 01:29:21,823
than I thought and it's
behind me and it's coming.

2114
01:29:28,162 --> 01:29:29,831
♪ ♪

2115
01:29:29,831 --> 01:29:34,102
>> JACOBY: In the fall of 2021,
with inflation at 6.8%,

2116
01:29:34,102 --> 01:29:36,404
well above the Fed's 2% target,

2117
01:29:36,404 --> 01:29:38,373
Chairman Powell acknowledged

2118
01:29:38,373 --> 01:29:40,675
it might
not be transitory after all.

2119
01:29:40,675 --> 01:29:42,677
>> Um, so I think the word
transitory

2120
01:29:42,677 --> 01:29:44,278
has different
meanings to different people.

2121
01:29:44,278 --> 01:29:48,983
To many it carries a time--
a sense of short-lived.

2122
01:29:48,983 --> 01:29:52,720
We tended to, to use it to mean

2123
01:29:52,720 --> 01:29:55,289
that it won't leave
a permanent mark

2124
01:29:55,289 --> 01:29:56,958
in the form of higher inflation.

2125
01:29:56,958 --> 01:30:00,027
I think it's probably a good
time retire that, that word

2126
01:30:00,027 --> 01:30:01,829
and try to explain more
clearly what we mean.

2127
01:30:02,964 --> 01:30:04,565
>> JACOBY: It would be the start
of a new phase

2128
01:30:04,565 --> 01:30:06,200
in the easy money experiment.

2129
01:30:06,200 --> 01:30:09,504
>> The committee is determined
to take the measures necessary

2130
01:30:09,504 --> 01:30:10,905
to restore price stability.

2131
01:30:10,905 --> 01:30:13,741
Thank you, I look forward to
your questions.

2132
01:30:13,741 --> 01:30:15,910
>> JACOBY: Over several months,
they'd raise interest rates.

2133
01:30:15,910 --> 01:30:19,147
>> Good afternoon, it's nice
to see everyone in person

2134
01:30:19,147 --> 01:30:21,315
for the first time
in a couple years.

2135
01:30:21,315 --> 01:30:23,651
>> JACOBY: In response to the
rising inflation,

2136
01:30:23,651 --> 01:30:26,320
the Fed would also
pause quantitative easing

2137
01:30:26,320 --> 01:30:28,089
and begin tightening.

2138
01:30:28,089 --> 01:30:29,323
>> At today's meeting the
committee raised

2139
01:30:29,323 --> 01:30:30,825
the target range
for the federal funds rate.

2140
01:30:30,825 --> 01:30:33,060
We also decided to begin
the process

2141
01:30:33,060 --> 01:30:35,096
of reducing the size
of our balance sheet.

2142
01:30:35,096 --> 01:30:37,832
>> Neither Powell nor any other
Fed official has explained

2143
01:30:37,832 --> 01:30:40,735
with any precision just how far
the Fed will go.

2144
01:30:40,735 --> 01:30:43,504
>> The Federal Reserve raising a
key interest rate

2145
01:30:43,504 --> 01:30:45,139
three-quarters of a percent.

2146
01:30:45,139 --> 01:30:47,542
>> Its biggest hike in nearly
three decades.

2147
01:30:47,542 --> 01:30:49,110
>> The Federal Reserve has
raised

2148
01:30:49,110 --> 01:30:50,545
its key interest rates again.

2149
01:30:50,545 --> 01:30:52,213
>> In a move that seemed
unfathomable

2150
01:30:52,213 --> 01:30:55,483
to many just months ago has now
happened twice in a row.

2151
01:30:55,483 --> 01:30:56,818
(explosion)

2152
01:30:56,818 --> 01:30:58,920
>> JACOBY: Other events,
like the war in Ukraine...

2153
01:30:58,920 --> 01:31:01,856
>> Russia picking off Ukraine's
military facilities

2154
01:31:01,856 --> 01:31:03,090
one after another.

2155
01:31:03,090 --> 01:31:04,892
>> JACOBY: ...lockdowns
in China...

2156
01:31:04,892 --> 01:31:06,227
>> China has decided to put

2157
01:31:06,227 --> 01:31:07,562
it's southern tech hub Shenzhen

2158
01:31:07,562 --> 01:31:09,030
under a citywide lockdown.

2159
01:31:09,030 --> 01:31:11,032
>> JACOBY: ...and companies
raising prices...

2160
01:31:11,032 --> 01:31:13,734
>> A little bit of inflation is
always good in our business.

2161
01:31:13,734 --> 01:31:15,903
>> JACOBY: ...would all send
inflation even higher,

2162
01:31:15,903 --> 01:31:17,738
and accelerate the Fed's moves.

2163
01:31:17,738 --> 01:31:19,974
>> Chairman Jerome Powell
speaking

2164
01:31:19,974 --> 01:31:22,944
at an annual economic summit in
Jackson Hole, Wyoming.

2165
01:31:22,944 --> 01:31:25,446
>> JACOBY: Which brings us back
to Jackson Hole, Wyoming,

2166
01:31:25,446 --> 01:31:27,515
in August 2022.

2167
01:31:27,515 --> 01:31:28,916
>> Yup, we're on.

2168
01:31:28,916 --> 01:31:31,219
>> JACOBY: An annual meeting of
central bankers...

2169
01:31:31,219 --> 01:31:33,054
>> Here we go, he's on the move.

2170
01:31:33,054 --> 01:31:34,455
>> JACOBY: ...where Jerome
Powell signaled

2171
01:31:34,455 --> 01:31:36,290
that he'd keep the Fed
on course...

2172
01:31:36,290 --> 01:31:38,793
>> He made a call, simply,
last year that didn't age well.

2173
01:31:38,793 --> 01:31:42,530
>> JACOBY: ...raising rates
to try to combat inflation.

2174
01:31:42,530 --> 01:31:45,399
>> While higher interest rates,
slower growth,

2175
01:31:45,399 --> 01:31:47,134
and softer labor market
conditions

2176
01:31:47,134 --> 01:31:49,003
will bring down inflation,

2177
01:31:49,003 --> 01:31:52,406
they will also bring some pain
to households and businesses.

2178
01:31:52,406 --> 01:31:54,642
>> JACOBY: How do
you explain, for instance,

2179
01:31:54,642 --> 01:31:58,779
to someone who is
seeing their gas bills go up,

2180
01:31:58,779 --> 01:32:01,249
their food bills go up,
and groceries,

2181
01:32:01,249 --> 01:32:04,752
their rents go up, how is it
that higher interest rates

2182
01:32:04,752 --> 01:32:07,221
and what you're doing with this
very blunt instrument,

2183
01:32:07,221 --> 01:32:09,457
how do you say that
that's gonna help them,

2184
01:32:09,457 --> 01:32:11,425
with those issues in particular?

2185
01:32:11,425 --> 01:32:12,793
>> Well, one of the reasons

2186
01:32:12,793 --> 01:32:14,195
prices are high,

2187
01:32:14,195 --> 01:32:15,997
is because there's too
much demand in the economy.

2188
01:32:15,997 --> 01:32:18,299
And by raising interest rates,
for example,

2189
01:32:18,299 --> 01:32:21,202
we are gonna slow down demand
for housing,

2190
01:32:21,202 --> 01:32:22,837
people going out
and buying up homes,

2191
01:32:22,837 --> 01:32:25,873
which eventually should prevent
home prices

2192
01:32:25,873 --> 01:32:27,808
and rents from continuing
to climb.

2193
01:32:27,808 --> 01:32:29,610
That should benefit workers.

2194
01:32:29,610 --> 01:32:31,178
But things like gas prices,

2195
01:32:31,178 --> 01:32:33,080
that's not being driven by us.

2196
01:32:33,080 --> 01:32:34,815
I mean that's being driven
by the war,

2197
01:32:34,815 --> 01:32:36,350
Russia invading Ukraine,

2198
01:32:36,350 --> 01:32:38,152
Saudi Arabia cutting back
production,

2199
01:32:38,152 --> 01:32:40,054
big geopolitical forces.

2200
01:32:40,054 --> 01:32:42,823
So there's some pieces of this
that we can directly affect,

2201
01:32:42,823 --> 01:32:44,859
some pieces of this
are out of our control.

2202
01:32:44,859 --> 01:32:47,361
>> JACOBY: I mean some people
have said you're kind of...

2203
01:32:47,361 --> 01:32:49,664
interest rates are
almost like a hammer,

2204
01:32:49,664 --> 01:32:52,133
a sledgehammer,
it's not like a scalpel.

2205
01:32:52,133 --> 01:32:55,202
Can these problems be solved
with a scalpel

2206
01:32:55,202 --> 01:32:56,771
or you really do believe
that you need

2207
01:32:56,771 --> 01:32:58,539
to bring the hammer down
to some extent?

2208
01:32:58,539 --> 01:33:00,341
>> Well, here's the thing, um,

2209
01:33:00,341 --> 01:33:02,677
I would love to be able to bring
it with a scalpel,

2210
01:33:02,677 --> 01:33:05,012
and a year ago, I argued,

2211
01:33:05,012 --> 01:33:07,648
that I thought many of these
factors were transitory,

2212
01:33:07,648 --> 01:33:09,884
meaning you've got
these one-time events,

2213
01:33:09,884 --> 01:33:12,253
they're gonna pass, and
then inflation will come down,

2214
01:33:12,253 --> 01:33:15,056
so let's not bring out
the hammer-- that was my view.

2215
01:33:15,056 --> 01:33:16,424
That didn't happen.

2216
01:33:16,424 --> 01:33:18,659
So, now we have to bring
the hammer,

2217
01:33:18,659 --> 01:33:20,294
because if we don't
bring the hammer,

2218
01:33:20,294 --> 01:33:21,963
this thing
can get out of control.

2219
01:33:21,963 --> 01:33:24,665
>> JACOBY: So to those who point
to the Fed and say,

2220
01:33:24,665 --> 01:33:26,834
"You ran it too hot
for too long,

2221
01:33:26,834 --> 01:33:29,737
and that was an epic mistake,"
you say what?

2222
01:33:29,737 --> 01:33:31,238
>> I say look around the world;

2223
01:33:31,238 --> 01:33:33,641
other central banks adjusted
more quickly than we did,

2224
01:33:33,641 --> 01:33:35,176
to their credit.

2225
01:33:35,176 --> 01:33:36,811
And, unfortunately,
their economies are facing

2226
01:33:36,811 --> 01:33:38,679
very similar inflation.

2227
01:33:38,679 --> 01:33:40,314
And so, yes, with the benefit
of hindsight,

2228
01:33:40,314 --> 01:33:42,083
I wish we had tightened sooner,

2229
01:33:42,083 --> 01:33:44,318
but I'm not kidding myself
to think it would have made

2230
01:33:44,318 --> 01:33:46,287
a big difference in where we are
in inflation today.

2231
01:33:46,287 --> 01:33:47,655
>> Stick around for just a
second

2232
01:33:47,655 --> 01:33:50,358
as we watch the clock here
counting down to 2:30.

2233
01:33:50,358 --> 01:33:52,627
>> JACOBY: A month after
Jackson Hole,

2234
01:33:52,627 --> 01:33:55,062
I caught up with business
reporter Chris Leonard,

2235
01:33:55,062 --> 01:33:57,565
as the Fed was
announcing another rate hike,

2236
01:33:57,565 --> 01:34:00,067
moving at the fastest pace
in 40 years.

2237
01:34:00,067 --> 01:34:02,303
>> Good afternoon.

2238
01:34:02,303 --> 01:34:05,806
Today, the F.O.M.C. raised its
policy interest rate

2239
01:34:05,806 --> 01:34:08,242
by three-quarters
of a percentage point.

2240
01:34:08,242 --> 01:34:09,910
>> It can be
a little bit hard to understand,

2241
01:34:09,910 --> 01:34:12,480
because you hear,
okay, the Fed hiked rates today

2242
01:34:12,480 --> 01:34:14,015
to three-and-a-half percent.
What does that mean?

2243
01:34:14,015 --> 01:34:16,817
That my credit card rate
is gonna be a little bit higher,

2244
01:34:16,817 --> 01:34:18,986
or I'll have to borrow
more money for a house?

2245
01:34:18,986 --> 01:34:22,123
He is talking about
a fundamental restructuring

2246
01:34:22,123 --> 01:34:24,225
of the financial system.

2247
01:34:24,225 --> 01:34:26,327
The financial system, globally,

2248
01:34:26,327 --> 01:34:29,330
has been built
around extremely low,

2249
01:34:29,330 --> 01:34:31,666
ultra-low interest rates
for ten years.

2250
01:34:31,666 --> 01:34:33,901
>> My colleagues and I strongly
committed

2251
01:34:33,901 --> 01:34:36,604
to bringing inflation back down
to our 2% goal.

2252
01:34:36,604 --> 01:34:38,205
>> I think people
don't appreciate

2253
01:34:38,205 --> 01:34:41,876
the magnitude of what the Fed
did over the last decade.

2254
01:34:41,876 --> 01:34:44,912
And so this is gonna be, like,
a long-term thing playing out

2255
01:34:44,912 --> 01:34:47,281
over time,
probably over, like, a year

2256
01:34:47,281 --> 01:34:51,485
or two, of shifting
to a higher rate environment,

2257
01:34:51,485 --> 01:34:53,621
and then the correction
that that's gonna cause.

2258
01:34:53,621 --> 01:34:57,224
So, he's talking
about a huge adjustment,

2259
01:34:57,224 --> 01:34:59,460
that's not gonna be
an adjustment upward.

2260
01:34:59,460 --> 01:35:01,295
Things aren't gonna get easier.

2261
01:35:01,295 --> 01:35:03,130
Things are gonna get harder.

2262
01:35:03,130 --> 01:35:06,333
>> Tonight, the economic alarms
are blaring.

2263
01:35:06,333 --> 01:35:09,203
>> JACOBY: The specter of this
kind of economic upheaval

2264
01:35:09,203 --> 01:35:11,338
has heightened concerns
about a recession.

2265
01:35:11,338 --> 01:35:12,773
>> The Fed has made it clear

2266
01:35:12,773 --> 01:35:16,577
it's number one priority is
fighting inflation,

2267
01:35:16,577 --> 01:35:20,648
even if it means the jobless
rate, unemployment, goes up.

2268
01:35:20,648 --> 01:35:22,550
>> Good evening!

2269
01:35:22,550 --> 01:35:25,219
Are we going to let
this corporation

2270
01:35:25,219 --> 01:35:27,121
stop workers from joining
our union?!

2271
01:35:27,121 --> 01:35:28,422
>> No!

2272
01:35:28,422 --> 01:35:30,091
>> JACOBY: It's also raised
fears of layoffs,

2273
01:35:30,091 --> 01:35:32,827
which has aggravated
the organized labor movement.

2274
01:35:32,827 --> 01:35:35,162
>> I'm here with
12-and-a-half

2275
01:35:35,162 --> 01:35:37,665
million union members.

2276
01:35:37,665 --> 01:35:40,234
>> JACOBY: Liz Shuler leads the
largest union in the country.

2277
01:35:40,234 --> 01:35:42,536
She's been urging the Fed
to slow down.

2278
01:35:42,536 --> 01:35:45,406
>> Listen to your workers!

2279
01:35:45,406 --> 01:35:48,142
(cheers and applause)

2280
01:35:48,142 --> 01:35:49,510
>> We met

2281
01:35:49,510 --> 01:35:53,280
with Chairman Powell
and six board of governors,

2282
01:35:53,280 --> 01:35:56,150
because I think the Fed doesn't
often get to hear

2283
01:35:56,150 --> 01:35:58,719
from actual working people and,

2284
01:35:58,719 --> 01:36:00,588
and how they're seeing
things in the economy.

2285
01:36:00,588 --> 01:36:02,256
>> JACOBY: What was
your message for the Fed

2286
01:36:02,256 --> 01:36:03,791
when they started
to raise rates?

2287
01:36:03,791 --> 01:36:06,360
>> That raising
the interest rates

2288
01:36:06,360 --> 01:36:08,129
is bad for working people.

2289
01:36:08,129 --> 01:36:11,799
That we think it puts the
trajectory that we're on

2290
01:36:11,799 --> 01:36:15,035
at risk, in terms of
coming out of this pandemic.

2291
01:36:15,035 --> 01:36:18,572
We know that we're in a consumer
driven economy, right?

2292
01:36:18,572 --> 01:36:22,009
And if working people
are not able to make ends meet,

2293
01:36:22,009 --> 01:36:24,345
they're not gonna be buying
goods.

2294
01:36:24,345 --> 01:36:27,248
And it's gonna grind
the economy to a halt.

2295
01:36:27,248 --> 01:36:29,784
We can't take aggressive moves

2296
01:36:29,784 --> 01:36:31,685
that are gonna throw people out
of work,

2297
01:36:31,685 --> 01:36:34,255
and basically balance
the economy

2298
01:36:34,255 --> 01:36:35,856
on the backs of working people.

2299
01:36:35,856 --> 01:36:37,591
>> JACOBY: But I mean,
the Fed is tasked

2300
01:36:37,591 --> 01:36:40,094
with controlling inflation,
and, and inflation

2301
01:36:40,094 --> 01:36:42,263
is definitely bad
for working people.

2302
01:36:42,263 --> 01:36:47,468
So why advocate for the Fed
to take its foot off the pedal?

2303
01:36:47,468 --> 01:36:50,971
>> Well, because
the interest rate hikes

2304
01:36:50,971 --> 01:36:53,941
they were implementing
were happening quickly,

2305
01:36:53,941 --> 01:36:56,977
and we thought
it was happening too fast.

2306
01:36:56,977 --> 01:37:01,415
And also, though,
their tools aren't necessarily

2307
01:37:01,415 --> 01:37:05,352
going to impact the things
like gas prices and food prices,

2308
01:37:05,352 --> 01:37:09,190
which is what most working
people are worried about.

2309
01:37:09,190 --> 01:37:12,126
>> The Fed doesn't ever want
to say this out loud

2310
01:37:12,126 --> 01:37:14,395
but their goal is,
quite literally,

2311
01:37:14,395 --> 01:37:16,530
to make businesses
not want to hire people,

2312
01:37:16,530 --> 01:37:19,600
or to get businesses
actually to lay people off.

2313
01:37:19,600 --> 01:37:22,169
The Fed has estimated
that the unemployment rate,

2314
01:37:22,169 --> 01:37:24,438
under their very rosy
projections,

2315
01:37:24,438 --> 01:37:28,342
by the end of this year would
rise to four-and-a-half percent.

2316
01:37:28,342 --> 01:37:31,512
There is no real way
for unemployment to get

2317
01:37:31,512 --> 01:37:33,380
from three-and-half percent
to four-and-a-half percent

2318
01:37:33,380 --> 01:37:35,716
without millions of
people losing their jobs.

2319
01:37:35,716 --> 01:37:37,518
>> JACOBY:
I understand the kind of,

2320
01:37:37,518 --> 01:37:39,753
the best-case scenario
being that

2321
01:37:39,753 --> 01:37:42,957
you bring down inflation
without unemployment going up,

2322
01:37:42,957 --> 01:37:46,660
um, and that somehow
we avoid a recession.

2323
01:37:46,660 --> 01:37:51,832
But if employment does stay
strong and inflation stays high,

2324
01:37:51,832 --> 01:37:55,402
then don't you have to
basically hurt the jobs market?

2325
01:37:55,402 --> 01:37:57,371
I mean, isn't that
the bottom line here?

2326
01:37:57,371 --> 01:37:59,840
>> We do have to... we are gonna
have to keep raising rates

2327
01:37:59,840 --> 01:38:01,308
until we get inflation back
down,

2328
01:38:01,308 --> 01:38:02,943
that is absolutely true.

2329
01:38:02,943 --> 01:38:07,114
And one of the sources of
optimism and it's, you know,

2330
01:38:07,114 --> 01:38:09,783
it's mild optimism,

2331
01:38:09,783 --> 01:38:11,785
is when there have been
recessions that have been caused

2332
01:38:11,785 --> 01:38:13,754
by the central bank raising
interest rates,

2333
01:38:13,754 --> 01:38:16,757
the good news is,
once inflation is in check

2334
01:38:16,757 --> 01:38:18,158
and they reverse the policies,

2335
01:38:18,158 --> 01:38:19,660
the bounce back can be
very quick.

2336
01:38:19,660 --> 01:38:22,329
So we're not trying
to engineer a recession,

2337
01:38:22,329 --> 01:38:24,698
but if one were to happen,
I feel pretty confident

2338
01:38:24,698 --> 01:38:27,401
that we could
have a very fast recovery.

2339
01:38:27,401 --> 01:38:29,103
>> JACOBY: So how remote is
the possibility

2340
01:38:29,103 --> 01:38:31,238
that there could be
much higher unemployment

2341
01:38:31,238 --> 01:38:32,973
in the next couple of years?

2342
01:38:32,973 --> 01:38:34,642
>> I mean,
I wouldn't say it's remote.

2343
01:38:34,642 --> 01:38:37,411
It's, it's hard to put
the odds on it.

2344
01:38:44,852 --> 01:38:46,287
>> JACOBY: Throughout 2022,

2345
01:38:46,287 --> 01:38:48,322
the economy remained strong.

2346
01:38:48,322 --> 01:38:50,524
Unemployment reached
historic lows.

2347
01:38:50,524 --> 01:38:53,327
>> Showing unemployment
at a half-century low.

2348
01:38:53,327 --> 01:38:55,062
>> JACOBY:
Wages were on the rise...

2349
01:38:55,062 --> 01:38:57,698
>> We also saw some wage growth,
about 5% annually.

2350
01:38:57,698 --> 01:38:59,566
>> JACOBY: ...causing the Fed
to continue

2351
01:38:59,566 --> 01:39:02,536
pumping the brakes
to try to cool down inflation.

2352
01:39:02,536 --> 01:39:04,104
>> The Fed has been raising
rates

2353
01:39:04,104 --> 01:39:06,373
in hopes of slowing the economy,

2354
01:39:06,373 --> 01:39:08,275
and with so many businesses
still hiring,

2355
01:39:08,275 --> 01:39:09,777
that means the economy

2356
01:39:09,777 --> 01:39:11,345
isn't really
slowing that quickly.

2357
01:39:11,345 --> 01:39:12,846
>> JACOBY: That riled
Wall Street.

2358
01:39:12,846 --> 01:39:14,281
(bell ringing)

2359
01:39:14,281 --> 01:39:15,849
>> Facing the growing
possibility of a recession,

2360
01:39:15,849 --> 01:39:18,986
Wall Street spent
another day in turmoil.

2361
01:39:18,986 --> 01:39:21,255
>> And you're probably feeling
it in those 401ks.

2362
01:39:21,255 --> 01:39:22,990
>> JACOBY: For the stock market
and bond market,

2363
01:39:22,990 --> 01:39:24,992
it was the worst year since

2364
01:39:24,992 --> 01:39:27,494
the great financial crisis
in 2008.

2365
01:39:27,494 --> 01:39:29,663
>> The NASDAQ down for four
straight quarters

2366
01:39:29,663 --> 01:39:32,466
for the first time since
the dot com bust.

2367
01:39:32,466 --> 01:39:33,934
>> In 2022,

2368
01:39:33,934 --> 01:39:38,005
we've had this very unusual
situation whereby

2369
01:39:38,005 --> 01:39:43,777
you've made double digit losses
on both risky assets--

2370
01:39:43,777 --> 01:39:48,816
stocks-- and risk-free assets--
U.S. treasuries.

2371
01:39:48,816 --> 01:39:50,784
That's not supposed to happen.

2372
01:39:50,784 --> 01:39:53,787
But there's been
absolutely nowhere to hide.

2373
01:39:53,787 --> 01:39:56,724
That is a big issue
for retirement plans,

2374
01:39:56,724 --> 01:39:58,592
pension systems.

2375
01:39:58,592 --> 01:40:02,863
No matter how well you
diversified your portfolio,

2376
01:40:02,863 --> 01:40:05,666
there was no risk
mitigation in it at all.

2377
01:40:05,666 --> 01:40:06,734
>> JACOBY: It was all losses?

2378
01:40:06,734 --> 01:40:08,268
>> It was all losses.

2379
01:40:08,268 --> 01:40:10,537
>> U.S existing home sales

2380
01:40:10,537 --> 01:40:13,073
plunged to a 12-year low
in December.

2381
01:40:13,073 --> 01:40:16,443
>> You've seen a huge impact on
the housing market.

2382
01:40:16,443 --> 01:40:19,046
>> The Federal Reserve's
interest rate hiking cycle

2383
01:40:19,046 --> 01:40:21,215
has pushed housing
into a recession.

2384
01:40:21,215 --> 01:40:23,851
>> Housing prices have started
actually coming down

2385
01:40:23,851 --> 01:40:25,953
for the first time
in a very long time.

2386
01:40:25,953 --> 01:40:28,422
Mortgage applications
have decreased.

2387
01:40:28,422 --> 01:40:29,857
The crypto market,

2388
01:40:29,857 --> 01:40:31,492
you've seen a number
of companies wiped out.

2389
01:40:31,492 --> 01:40:33,494
>> Crypto winter is here.

2390
01:40:33,494 --> 01:40:35,996
That is not unrelated to what's
happened with the Fed.

2391
01:40:35,996 --> 01:40:38,065
>> Sam, hold on to me,
Sam, let's go.

2392
01:40:38,065 --> 01:40:39,800
>> Sam Bankman-Fried

2393
01:40:39,800 --> 01:40:41,335
faces investigation from
U.S. regulators

2394
01:40:41,335 --> 01:40:44,138
and potentially
the Department of Justice.

2395
01:40:44,138 --> 01:40:49,610
>> He invested $3 million into
LUNA.

2396
01:40:49,610 --> 01:40:51,678
And now it's worth a thousand.

2397
01:40:51,678 --> 01:40:54,048
>> You create these
asset bubbles--

2398
01:40:54,048 --> 01:40:57,184
that is bubbles in
stock markets, and bond markets,

2399
01:40:57,184 --> 01:40:59,620
and real estate markets
and art markets--

2400
01:40:59,620 --> 01:41:03,757
whatever people invest their
money in with borrowed money.

2401
01:41:03,757 --> 01:41:07,594
And then those bubbles burst

2402
01:41:07,594 --> 01:41:10,164
and then that causes a downturn.

2403
01:41:10,164 --> 01:41:12,566
>> JACOBY: Steven Pearlstein
has been reporting

2404
01:41:12,566 --> 01:41:16,837
on the financial markets and the
economy for almost 40 years.

2405
01:41:16,837 --> 01:41:19,573
>> Bubbles tend to be
everything bubbles these days,

2406
01:41:19,573 --> 01:41:23,977
because if the source of it
is cheap money,

2407
01:41:23,977 --> 01:41:27,347
then you can be pretty much sure
that it's not just real estate,

2408
01:41:27,347 --> 01:41:30,184
or it's not just stocks, or
it's not just tech and telecom.

2409
01:41:30,184 --> 01:41:33,353
Or it's not just Bitcoin.

2410
01:41:33,353 --> 01:41:35,489
These things are connected

2411
01:41:35,489 --> 01:41:38,325
by rubber bands with each other
in a sort of way,

2412
01:41:38,325 --> 01:41:41,462
and what propels one
propels all of them.

2413
01:41:41,462 --> 01:41:44,698
>> JACOBY: There's a famous line
by investor Warren Buffett...

2414
01:41:44,698 --> 01:41:47,401
>> You know, you don't find out
who's been swimming naked

2415
01:41:47,401 --> 01:41:49,203
until the tide goes out.

2416
01:41:49,203 --> 01:41:50,838
And...
(audience laughter)

2417
01:41:50,838 --> 01:41:53,273
>> JACOBY: Almost everyone
I spoke to repeated that line

2418
01:41:53,273 --> 01:41:54,575
to describe what's been
happening.

2419
01:41:54,575 --> 01:41:56,577
>> When interest rates
start to rise,

2420
01:41:56,577 --> 01:41:59,646
and the tide pulls out,
as Warren Buffet would say...

2421
01:41:59,646 --> 01:42:01,748
>> You don't know
who's swimming naked...

2422
01:42:01,748 --> 01:42:03,283
>> ...until the tide goes out.

2423
01:42:03,283 --> 01:42:04,852
>> You see who's swimming
without a bathing suit...

2424
01:42:04,852 --> 01:42:06,954
>> ...when the tide is receding.

2425
01:42:06,954 --> 01:42:09,089
>> We'll find out
who's wearing their swimsuits

2426
01:42:09,089 --> 01:42:10,257
when the tide goes out.

2427
01:42:10,257 --> 01:42:11,558
>> What's amazing is that

2428
01:42:11,558 --> 01:42:12,926
a lot of people--

2429
01:42:12,926 --> 01:42:14,995
and I would say I'm included in
this-- think that

2430
01:42:14,995 --> 01:42:16,964
there probably will be a bigger
correction at some point.

2431
01:42:16,964 --> 01:42:19,299
>> JACOBY: But, look,
when you... when you say

2432
01:42:19,299 --> 01:42:21,568
you expect there to be
a bigger correction,

2433
01:42:21,568 --> 01:42:22,936
what does that actually mean?

2434
01:42:22,936 --> 01:42:24,972
I mean a lot of people
are gonna see this

2435
01:42:24,972 --> 01:42:27,241
and get concerned about that,
obviously. >> Yeah, yeah, yeah.

2436
01:42:27,241 --> 01:42:29,977
Yeah, let me...
let me try and be honest,

2437
01:42:29,977 --> 01:42:31,645
but not scare people.
(laughs)

2438
01:42:31,645 --> 01:42:33,247
>> JACOBY: Mm-hmm. Yeah.
>> If that's possible.

2439
01:42:33,247 --> 01:42:36,016
So the markets were down

2440
01:42:36,016 --> 01:42:38,385
20% last year.

2441
01:42:38,385 --> 01:42:40,521
That seems like a lot.

2442
01:42:40,521 --> 01:42:45,392
And if we were in
a normal market cycle,

2443
01:42:45,392 --> 01:42:47,961
I'd say,
"Okay, we're done, you know.

2444
01:42:47,961 --> 01:42:49,396
We're probably at the bottom."

2445
01:42:49,396 --> 01:42:53,500
I don't know if I can safely say
that we're at the bottom

2446
01:42:53,500 --> 01:42:56,069
because of what
we're looking back at,

2447
01:42:56,069 --> 01:42:57,738
this age of easy money.

2448
01:42:57,738 --> 01:43:00,073
Not just even since
the financial crisis

2449
01:43:00,073 --> 01:43:01,575
but before that.

2450
01:43:01,575 --> 01:43:03,744
You know, for the decades that
rates have been going

2451
01:43:03,744 --> 01:43:06,847
down and down and down and debt
has been going up and up and up.

2452
01:43:06,847 --> 01:43:09,750
That's a long period of time
where assets

2453
01:43:09,750 --> 01:43:13,187
have arguably been
artificially inflated,

2454
01:43:13,187 --> 01:43:15,556
and so is it possible
that you could see

2455
01:43:15,556 --> 01:43:17,658
a continued correction
at some point?

2456
01:43:17,658 --> 01:43:18,725
It is possible.

2457
01:43:18,725 --> 01:43:21,528
Now, I'm personally
not going out

2458
01:43:21,528 --> 01:43:23,363
and selling my
entire stock portfolio.

2459
01:43:23,363 --> 01:43:24,731
I don't want to scare people,

2460
01:43:24,731 --> 01:43:29,102
but I do wanna say that
I think we are in

2461
01:43:29,102 --> 01:43:31,838
a once-in-a-lifetime
financial transition,

2462
01:43:31,838 --> 01:43:35,442
and I think that everybody needs
to sort of strap in for that.

2463
01:43:35,442 --> 01:43:39,246
And if you need your money
in the next couple of years,

2464
01:43:39,246 --> 01:43:42,115
I would be more cautious
than not.

2465
01:43:42,115 --> 01:43:46,420
>> JACOBY: In these early months
of 2023, on Wall Street,

2466
01:43:46,420 --> 01:43:48,789
some have been betting
that the Fed will relent

2467
01:43:48,789 --> 01:43:50,524
Stop raising
interest rates--

2468
01:43:50,524 --> 01:43:53,093
as inflation cools down.

2469
01:43:53,093 --> 01:43:55,028
Because the higher
it pushes rates

2470
01:43:55,028 --> 01:43:57,798
and the longer it does,
the greater the risks.

2471
01:43:57,798 --> 01:43:59,967
>> And so the marketplace
is saying the Fed

2472
01:43:59,967 --> 01:44:01,368
is gonna go too far

2473
01:44:01,368 --> 01:44:03,203
and it's gonna be forced
to reverse course.

2474
01:44:03,203 --> 01:44:05,772
That is really unusual.

2475
01:44:05,772 --> 01:44:10,177
We've got to a situation now
where the markets dismiss

2476
01:44:10,177 --> 01:44:12,112
what the Fed is telling us.

2477
01:44:12,112 --> 01:44:16,016
It's a moment where there are
many more potential outcomes.

2478
01:44:16,016 --> 01:44:18,685
Some are fine, a soft landing;

2479
01:44:18,685 --> 01:44:21,188
some are not, a hard landing.

2480
01:44:21,188 --> 01:44:26,059
And the truth is you cannot
distinguish enough between them.

2481
01:44:26,059 --> 01:44:27,995
>> JACOBY: One of the most
pessimistic voices

2482
01:44:27,995 --> 01:44:31,431
is economist Nouriel Roubini,
who became famous

2483
01:44:31,431 --> 01:44:35,602
for his accurate prediction
of the financial crisis in 2008.

2484
01:44:35,602 --> 01:44:38,138
>> We have had literally

2485
01:44:38,138 --> 01:44:39,439
a few decades

2486
01:44:39,439 --> 01:44:41,908
of ever-increasing bubbles

2487
01:44:41,908 --> 01:44:43,010
that have been fed

2488
01:44:43,010 --> 01:44:45,212
and supported by central banks.

2489
01:44:45,212 --> 01:44:47,114
And not only
we have had bubbles,

2490
01:44:47,114 --> 01:44:49,349
but we have had bubbles
that have been fed

2491
01:44:49,349 --> 01:44:52,319
by excessive leverage,

2492
01:44:52,319 --> 01:44:54,821
excessive private
and public borrowing,

2493
01:44:54,821 --> 01:44:56,923
and excessive risk-taking.

2494
01:44:56,923 --> 01:44:58,825
The party is over.

2495
01:44:58,825 --> 01:45:00,661
Inflation is high and is rising.

2496
01:45:00,661 --> 01:45:03,263
Central banks have to increase
interest rates

2497
01:45:03,263 --> 01:45:05,465
that is bursting the
asset bubble,

2498
01:45:05,465 --> 01:45:08,201
it's increasing the amount of
the debt servicing,

2499
01:45:08,201 --> 01:45:10,737
of everybody over-borrowed
like crazy.

2500
01:45:10,737 --> 01:45:14,441
So we lived in a bubble,
in a dream,

2501
01:45:14,441 --> 01:45:16,877
and this dream and the bubble
is bursting

2502
01:45:16,877 --> 01:45:18,478
and it's turning into
an economic

2503
01:45:18,478 --> 01:45:21,515
and a financial nightmare.

2504
01:45:21,515 --> 01:45:24,184
(I.D. reader beeps)

2505
01:45:24,184 --> 01:45:25,352
>> JACOBY:
If Roubini's prediction

2506
01:45:25,352 --> 01:45:26,920
of a debt crisis is correct,

2507
01:45:26,920 --> 01:45:31,191
then Jim Millstein would be
on the frontlines of it.

2508
01:45:31,191 --> 01:45:33,760
He's known on Wall Street
as the guy who countries

2509
01:45:33,760 --> 01:45:36,830
and companies turn to
when they run into trouble

2510
01:45:36,830 --> 01:45:38,899
and need their debts
to be restructured.

2511
01:45:38,899 --> 01:45:42,102
Wouldn't a debt crisis actually
be good for your business?

2512
01:45:42,102 --> 01:45:44,004
>> (laughs heartily)

2513
01:45:44,004 --> 01:45:46,473
You know, I'm getting
a little too old for this.

2514
01:45:46,473 --> 01:45:49,009
>> JACOBY: Meaning what?
Too old for what?

2515
01:45:49,009 --> 01:45:50,043
>> (chuckling): This business!

2516
01:45:50,043 --> 01:45:52,412
No, I-I... it...

2517
01:45:52,412 --> 01:45:54,147
Yeah, no, it'll be...
it'll be a boom

2518
01:45:54,147 --> 01:45:55,582
for the restructuring business.

2519
01:45:55,582 --> 01:45:59,219
But I just don't think
it's avoidable at this point.

2520
01:45:59,219 --> 01:46:00,253
I think we're just, you know,

2521
01:46:00,253 --> 01:46:01,254
the-the...

2522
01:46:01,254 --> 01:46:05,058
the bill has come due

2523
01:46:05,058 --> 01:46:07,694
and it, it's gonna have to
be paid.

2524
01:46:07,694 --> 01:46:09,363
>> JACOBY: How worried are you

2525
01:46:09,363 --> 01:46:11,031
about what's happening
right now?

2526
01:46:11,031 --> 01:46:14,568
>> I've never been more worried
in the 42 years

2527
01:46:14,568 --> 01:46:17,404
that I've been a professional,

2528
01:46:17,404 --> 01:46:20,173
either as a lawyer, banker,
or government servant.

2529
01:46:20,173 --> 01:46:24,611
The American corporate sector
has never been more levered

2530
01:46:24,611 --> 01:46:28,882
in American history,
never had more debt.

2531
01:46:28,882 --> 01:46:35,722
And American households are
just about as levered

2532
01:46:35,722 --> 01:46:39,793
as they were heading into
the 2008...

2533
01:46:39,793 --> 01:46:42,696
into the 2008 financial crisis,

2534
01:46:42,696 --> 01:46:45,932
whether it's student loans,
or mortgage loans, or car loans,

2535
01:46:45,932 --> 01:46:49,269
or personal loans
or credit card loans.

2536
01:46:49,269 --> 01:46:51,505
You know, we've borrowed
a lot of money as a people.

2537
01:46:51,505 --> 01:46:53,974
And so the Fed
is absolutely right

2538
01:46:53,974 --> 01:46:56,510
to try and get it under control

2539
01:46:56,510 --> 01:47:00,914
by raising interest rates
and slowing economic activity.

2540
01:47:00,914 --> 01:47:05,852
But the most highly levered
players in our economy

2541
01:47:05,852 --> 01:47:09,990
are, are gonna... are gonna
come under real stress.

2542
01:47:09,990 --> 01:47:13,427
Whether that's households,
or businesses, or governments,

2543
01:47:13,427 --> 01:47:15,362
as interest costs rise.

2544
01:47:15,362 --> 01:47:17,097
>> JACOBY:
Are you basically saying that

2545
01:47:17,097 --> 01:47:18,498
we should be preparing
right now?

2546
01:47:18,498 --> 01:47:20,667
That there would be, you know,

2547
01:47:20,667 --> 01:47:23,236
a bursting of this
massive credit bubble?

2548
01:47:23,236 --> 01:47:25,205
>> It's happening
right in front of us.

2549
01:47:25,205 --> 01:47:29,309
You know, it may...
(inhales)

2550
01:47:29,309 --> 01:47:31,144
it's happening right now.

2551
01:47:31,144 --> 01:47:32,479
>> JACOBY:
Are you usually this gloomy

2552
01:47:32,479 --> 01:47:34,381
or am I just getting you
on a bad day?

2553
01:47:34,381 --> 01:47:36,817
>> You got me on a bad day.
(laughs)

2554
01:47:36,817 --> 01:47:39,152
>> JACOBY: One of the concerns
is that

2555
01:47:39,152 --> 01:47:41,321
there's a kind of
debt bomb out there;

2556
01:47:41,321 --> 01:47:43,657
both in the American economy
as well as the global economy.

2557
01:47:43,657 --> 01:47:48,061
How concerned are you about a
credit bubble popping?

2558
01:47:48,061 --> 01:47:50,797
>> We're looking at
the, the data,

2559
01:47:50,797 --> 01:47:52,999
we're not seeing evidence
of such a popping,

2560
01:47:52,999 --> 01:47:55,302
we're not seeing evidence
of delinquencies taking off.

2561
01:47:55,302 --> 01:47:57,103
It... might it happen
in the future?

2562
01:47:57,103 --> 01:47:58,805
It might, but I'm not seeing
evidence of it.

2563
01:47:58,805 --> 01:48:01,641
Households on average
have very strong balance sheets.

2564
01:48:01,641 --> 01:48:02,876
The big banks, which can be

2565
01:48:02,876 --> 01:48:04,478
very risky for the economy,

2566
01:48:04,478 --> 01:48:08,548
are well capitalized relative
to where they were before 2008,

2567
01:48:08,548 --> 01:48:10,383
so we're not seeing evidence
of it yet.

2568
01:48:10,383 --> 01:48:11,718
You know, can't rule it out.

2569
01:48:11,718 --> 01:48:13,753
>> JACOBY: So, I guess
the question, though, is,

2570
01:48:13,753 --> 01:48:15,655
how much disruption
in the financial markets

2571
01:48:15,655 --> 01:48:19,559
are you willing to tolerate
now that they're adjusting

2572
01:48:19,559 --> 01:48:20,994
to this new interest rate
environment,

2573
01:48:20,994 --> 01:48:24,931
after more than a decade
of, of zero rates?

2574
01:48:24,931 --> 01:48:27,701
>> We live in a market economy
and market participants

2575
01:48:27,701 --> 01:48:29,569
need to find a way to adjust

2576
01:48:29,569 --> 01:48:31,571
to a changing economic
landscape.

2577
01:48:31,571 --> 01:48:34,241
It's not the Fed's job to
bail out Wall Street investors

2578
01:48:34,241 --> 01:48:36,409
if their stock portfolios
go down.

2579
01:48:36,409 --> 01:48:38,645
Obviously,
we need to keep systemic risk

2580
01:48:38,645 --> 01:48:40,747
from spilling across
the whole economy,

2581
01:48:40,747 --> 01:48:43,283
and when those events happen,
we are prepared to act.

2582
01:48:43,283 --> 01:48:45,318
But from, in my view,
the bar of us act...

2583
01:48:45,318 --> 01:48:48,121
the bar from us acting,
it should be quite high.

2584
01:48:48,121 --> 01:48:49,956
>> JACOBY: I mean the Fed has

2585
01:48:49,956 --> 01:48:51,892
come to the rescue
several times,

2586
01:48:51,892 --> 01:48:53,527
and we've talked about
this in the past,

2587
01:48:53,527 --> 01:48:55,161
of the financial markets

2588
01:48:55,161 --> 01:48:58,098
that had grown vulnerable
and brittle.

2589
01:48:58,098 --> 01:49:00,000
So, are you saying...
I'm just, again I'm asking,

2590
01:49:00,000 --> 01:49:03,603
what, what degree of disruption
would you have to see

2591
01:49:03,603 --> 01:49:04,671
in order for the Fed
to intervene?

2592
01:49:04,671 --> 01:49:05,872
>> You know, it's, uh...

2593
01:49:05,872 --> 01:49:07,073
we're a long, long way away
from that.

2594
01:49:07,073 --> 01:49:08,608
I guess I would say it that way.

2595
01:49:08,608 --> 01:49:11,945
We are a long, long way
from any kind of disruption

2596
01:49:11,945 --> 01:49:15,415
that would warrant us
stepping in in that way.

2597
01:49:15,415 --> 01:49:17,817
>> JACOBY: Less than 5 months
after that interview

2598
01:49:17,817 --> 01:49:20,153
the Fed would indeed have to
step in.

2599
01:49:21,221 --> 01:49:22,255
>> In breaking news, the U.S.

2600
01:49:22,255 --> 01:49:23,823
Federal reserve has bailed out

2601
01:49:23,823 --> 01:49:25,058
the Silicon Valley Bank

2602
01:49:25,058 --> 01:49:27,160
which had collapsed over the
weekend.

2603
01:49:27,160 --> 01:49:30,530
>> JACOBY: It enacted emergency
measures to sure up the

2604
01:49:30,530 --> 01:49:32,098
banking system after two banks
collapsed.

2605
01:49:32,098 --> 01:49:34,100
>> This is the biggest bank
collapse

2606
01:49:34,100 --> 01:49:36,236
since the 2008 financial crisis.

2607
01:49:36,236 --> 01:49:38,572
>> There are important questions
of how these banks

2608
01:49:38,572 --> 01:49:40,507
got into these circumstances in
the first place.

2609
01:49:41,374 --> 01:49:44,377
>> We're seeing a potential
fragility in the system

2610
01:49:44,377 --> 01:49:46,112
related to monetary policy.

2611
01:49:46,112 --> 01:49:47,347
If we hadn't been driving our
economy for 14 years

2612
01:49:47,347 --> 01:49:48,949
with easy money

2613
01:49:48,949 --> 01:49:51,151
and then trying to really
quickly un-do that

2614
01:49:51,151 --> 01:49:54,087
We wouldn't be having these
problems now, absolutely not.

2615
01:49:54,588 --> 01:49:56,456
>> What should the Fed do?

2616
01:49:56,456 --> 01:49:58,558
>> So, for a long time

2617
01:49:58,558 --> 01:50:01,061
I have advocated that the Fed
should be raising rates.

2618
01:50:01,061 --> 01:50:03,196
But even I believe now

2619
01:50:03,196 --> 01:50:05,031
they need to hit pause, they've
gone too far too fast,

2620
01:50:05,031 --> 01:50:07,400
they need to hit pause and
assess the impact

2621
01:50:07,400 --> 01:50:10,937
on the financial system and the
economy.

2622
01:50:10,937 --> 01:50:13,506
>> JACOBY It's unclear what the
Fed will do next.

2623
01:50:13,506 --> 01:50:16,376
>> But just days before the
bank failures, Jerome Powell

2624
01:50:16,376 --> 01:50:18,411
appeared before Congress to
answer tough questions

2625
01:50:18,411 --> 01:50:20,513
about the economy.

2626
01:50:20,513 --> 01:50:23,016
>> We actually don't

2627
01:50:23,016 --> 01:50:25,385
think that we need to see

2628
01:50:25,385 --> 01:50:27,220
a sharp or enormous increase in
unemployment

2629
01:50:27,220 --> 01:50:28,555
to get inflation under control.

2630
01:50:28,555 --> 01:50:30,991
>> I'm looking at your
projections.

2631
01:50:30,991 --> 01:50:33,393
Do you call laying off 2 million
people this year

2632
01:50:33,393 --> 01:50:34,494
not a sharp increase?

2633
01:50:34,494 --> 01:50:37,998
>> JACOBY: The hearing was a
showcase of

2634
01:50:37,998 --> 01:50:39,933
partisan politics and government
gridlock.

2635
01:50:39,933 --> 01:50:42,869
>> ...raising interest rates
won't stop senate democrats

2636
01:50:42,869 --> 01:50:47,273
and President Biden from
over-taxing, over-spending...

2637
01:50:47,273 --> 01:50:49,209
>> JACOBY: And it was yet
another reminder of how

2638
01:50:49,209 --> 01:50:50,210
in an era of political
dysfunction

2639
01:50:50,210 --> 01:50:53,446
we'd become so dependent on the
Fed

2640
01:50:53,446 --> 01:50:57,717
and on easy money to drive the
American economy.

2641
01:50:57,717 --> 01:51:00,954
>> The economy needs to get back
into balance and that will

2642
01:51:00,954 --> 01:51:05,291
be painful, and if we keep
putting off the day of reckoning

2643
01:51:05,291 --> 01:51:06,960
we'll just make the day of
reckoning a bigger

2644
01:51:06,960 --> 01:51:08,728
day of reckoning.

2645
01:51:08,728 --> 01:51:11,665
>> How do you think we'll look
back at this era of easy money?

2646
01:51:11,665 --> 01:51:15,335
Unfortunately, I think we may
look back on it as something

2647
01:51:15,335 --> 01:51:17,904
of a golden era, because, you
know, cheap and free money

2648
01:51:17,904 --> 01:51:22,976
without consequences is great.

2649
01:51:22,976 --> 01:51:24,644
But in other ways we will

2650
01:51:24,644 --> 01:51:27,547
think about it as a lesson for
the future.

2651
01:51:27,547 --> 01:51:30,517
which is that it was a mistake.

2652
01:51:30,517 --> 01:51:34,621
♪ ♪

2653
01:51:34,621 --> 01:51:40,260
>> I think that we're going to
look back on this era

2654
01:51:40,260 --> 01:51:42,729
as being totally exceptional
historically

2655
01:51:42,729 --> 01:51:46,533
and one where we didn't fulfill
it's potential

2656
01:51:46,533 --> 01:51:48,301
We lost sight

2657
01:51:48,301 --> 01:51:50,236
of something critical.

2658
01:51:51,204 --> 01:51:52,839
We lost sight of how we grow our
economy

2659
01:51:52,839 --> 01:51:57,043
in a sustainable and inclusive
fashion.

2660
01:51:57,043 --> 01:52:06,553
The world of easy money went way
too far, way way too far.

2661
01:52:06,553 --> 01:52:08,088
Let's do the other stuff that's
needed.

2662
01:52:08,088 --> 01:52:11,591
The stuff that really promotes
genuine, durable,

2663
01:52:11,591 --> 01:52:12,926
inclusive growth

2664
01:52:12,926 --> 01:52:16,496
and not the stuff that creates
artificial growth.

2665
01:52:16,496 --> 01:52:18,431
We are capable of producing
that.

2666
01:52:18,431 --> 01:52:21,234
None of that is in the hands of
the Fed.

2667
01:52:21,234 --> 01:52:23,937
They don't invest in
infrastructure.

2668
01:52:23,937 --> 01:52:26,673
They can't reform the tax
system.

2669
01:52:26,673 --> 01:52:29,509
They can't help labor
retraining.

2670
01:52:29,509 --> 01:52:31,511
♪ ♪

2671
01:52:31,511 --> 01:52:34,447
This is a political problem.

2672
01:52:43,022 --> 01:52:44,891
>> Go to pbs.org/frontline for
more on the silicon valley

2673
01:52:44,891 --> 01:52:46,893
bank collapse.

2674
01:52:46,893 --> 01:52:49,696
>> There's only so much the
system can absorb

2675
01:52:49,696 --> 01:52:52,866
in terms of un-doing all the
damage that was caused.

2676
01:52:52,866 --> 01:52:55,869
>> And what happened to wealth,
wages and inequality during the

2677
01:52:55,869 --> 01:52:57,270
pandemic.

2678
01:52:57,270 --> 01:53:01,641
>> Covid was colliding with an
extra fragile financial system.

2679
01:53:01,641 --> 01:53:04,577
>> Connect with Frontline on
Facebook, Instagram and twitter,

2680
01:53:04,577 --> 01:53:08,414
and stream anytime on the pbs
app, youtube or

2681
01:53:08,414 --> 01:53:18,458
pbs.org/frontline.

2682
01:53:18,458 --> 01:53:30,270
pbs.org/frontline.

2683
01:53:31,571 --> 01:53:35,375
Captioned by Media Access Group
at WGBH access.wgbh.org.

2684
01:53:39,746 --> 01:53:42,816
>> For more on this and other
Frontline programs visit our

2685
01:53:42,816 --> 01:53:44,651
website at pbs.org/frontline.

2686
01:53:44,651 --> 01:53:54,627
♪ ♪

2687
01:53:54,627 --> 01:54:00,700
♪ ♪

2688
01:54:00,700 --> 01:54:04,504
Frontline's "Age of Easy Money"

2689
01:54:04,504 --> 01:54:07,207
is available on
Amazon Prime Video.