tv Bloomberg Business Week Bloomberg December 8, 2018 3:00pm-4:00pm EST
♪ carol: welcome to "bloomberg businessweek." >> joining you from bloomberg headquarters in new york. >> we dive into the second annual bloomberg 50, the people driving change this year. jason: plus, the cash trade dragging down general electric. >> a rough week for investors. the financial markets in
turmoil. jason: federal reserve officials are in search of the neutral rates. peter explains what that is and why it matters. >> >> the chairman of the fed gave a speech in new york in which he said, interest rates were just below neutral. the stock market took off. the dow jones went up more than 600 points. 2.5% gain. everybody said, maybe the fed is turning dovish, maybe there will be fewer hikes for the interest rate than expected. that is good for stocks. good for the economy. everybody started saying, did he really mean what he said? are we over interpreting? carol: the neutral rate is not an exact number. it can move. we hear this with our guests, about a goldilocks economy, the
perfect spot where everything is moving along. peter: inflation is low and stable. right around the target of 2%. full employment economy. everyone who wants a job has one. we are at a goldilocks economy. why do we need a stimulus anymore? that is the debate the fed is going through right now. if they raise rates abruptly, they could actually knock growth out. inflation could start to fall back down and trigger a recession. carol: the great recession. they didn't need to worry. this was all about, let's just stimulate the economy. >> neutral was irrelevant concept. jason: survival was the concept.
peter: they were not trying to be neutral at the time. they were trying to simulate and stimulate the economy. as they succeeded, they found themselves in this issue where they are forced to confront an unknowable number. jason: it was a pretty clear path into 2019 of consistent rate hikes. the dots and all of that showed that is where the fed had its mind. december feels like a lock. 2019, continually raising interest rates is not necessarily a given. peter: there is a wide dispersion of views about this. goldman sachs predicting four in 2019.
you are hearing other people talk about two, one, some are even saying zero. extreme. jason: which would make the president happy. peter: that is the element of this thing. you can no longer just look at economics. you have to look at politics of the president, saying it was a mistake appointing jay powell chairman of the fed, he worries interest rate decreases are going to kill recovery. jason: wall street to washington. president trump's tweets on trade policy with china, and the subsequent walk backs, fueled this week's market jitters. carol: and for the robert mueller probe, there is a lot to unpack. josh green joining from washington. josh, a lot of things going on. i feel like u.s. and china trade are obviously front and center. a new twist with the arrest of
the cfo of the big chinese company huawei. what are the implications of this? josh: washington is now as riveted by the trade war as the markets have been for quite a while. there was hope into g20 that trump would try and strike a conciliatory tone. there was not any real hope among political folks that there would be any meaningful trade deal. both parties were looking for some sign the trade war was not going to worsen in advance. we got that in the near term. trump saying that it was a positive meeting. trump tweeted claims that the u.s. auto tariffs had been removed. that sort of thing. it was a best case reaction. only one day later, the chinese did not agree. markets fell.
they fell later in the week. with this arrest, it looks as if we are getting the opposite of the desired effect. instead of a truce, we've got what looks more like bad feelings between the two countries and a provocation as a result of the arrest. it looks like it will only make the problem worse. jason: it feels like the robert mueller probe is coming to something of a conclusion. what are you hearing? josh: he is wrapping up loose ends. he is going to do a series of sentencing memos. we saw the one related to michael flynn, earlier this week. it was stunning for two reasons. number one. robert mueller recommended no jail time at all for michael flynn. it was a reflection of the large degree of cooperation. that sent a jolt to the white house.
the other reason it was such a shock, half of that memo was redacted. there were all sorts of things michael flynn talked about that the public doesn't know yet. it made it apparent that there is a lot more coming down the pike. carol: our newsroom was focused on the passing of george h.w. bush. >> that interjected a moment of bipartisan harmony that is rare. markets were closed. the world came together to celebrate the life of the former president. within 24 hours, things looked as if they were back to normal.
♪ carol: welcome back. jason: you can join us every day on the radio. 2:00 to 5:00 wall street time. catch up with our podcast. carol: find us online at businessweek.com. once an afterthought, general electric's insurance is a big cash drain. accounting methods lead the section. jason: as it sells off assets, you see in black the cash thrown
off by portfolios. the gray? cash gets thrown off dramatically through these planned investments. less money they have, simply. carol: the other quandary is how it reports earnings. taylor for another take. taylor: so complicated. with ge, you have to be analyst and accounted. -- accountant. the generally accepted accounting principles gets very complicated because of general electric's structure and how complicated their business is. interesting chart showing net income profitability. -$2.6 billion. on adjusted basis, you make it look positive. interesting. you have to look at profitability.
i try to hedge my bets a bit and to start at the top line. you can't play around with the numbers. carol: great stuff. as ge stumbles, we saw debt fueled buyback under threat as creditors begin to get more demanding. jason: we have more on the company that jack welch built. john flannery did not quite fix it. >> the thing right now is that larry has possibly the hardest job in american business. take a falling star and put it back into the heavens. tough task. his predecessor only lasted 14 months on the job. >> no pressure. >> the board is anxious for somebody to get this right. if you can't get it right, you are going to be out. investors are very upset.
they have tanked the stock. once massive. today you would be crazy to want to have your retirement there. >> dividends down to a penny. >> one cent. investors cannot invest in companies that do not have a dividend. he truly does not have a lot of rope. the thing he has is a license to make big changes. he is going to have to do that quickly. a lot of strategic changes he might want to do are going to be constrained by the debt load. they might have up to $100 billion in liabilities. carol: a lot of that stems from the long-term care insurance business. jim: ge capital once owned a big insurance business and now they are still on the hook for the liabilities from it.
they have 300,000 long-term care insurance policies. ge had to say, we have reserves, $15 billion more set aside. that is an amazing amount of money. for a business that you haven't been a major player in for a decade. ultimate longtail. they are trapped in a business that is now difficult to sell. no one wants to buy a long-term care business. they understand you are looking into a black hole. jason: brooke sutherland has followed this closely. big opinions about what could happen next. what could? jim: what could happen should be
he starts figuring out pieces of ge that could be carved out. each positives could bring cash but also takes away opportunities for the company for the long-term. some valuable assets longer terms are the ones that will bring the most money on the open market. if they sell a piece of the health care business, healthy parts of the health care business, they could get $10 billion. that should be the future. are you doing that to make it now? jason: that was part of the bet that jeff made. he moves from connecticut to boston. this hub of medical and technology thinking he is in the midst of reinvention. jim: that is supposed to be the plan. they went from being a broad conglomerate to an industrial company. the focus was not on the right
things. he made a big bet on energy. they were going to be big in energy turbines. they bought a lot of assets. that business has gone south. they ended up taking a $22 billion write-off in the last year or two. it is amazing how many bad moves were made. people never saw them. jason: i caught up with bain capital's comanaging partner. we talked about a lot of different things. the state of dealmaking in the world. i had to ask them about the dramatic decision made to make some good out of the demise of toys "r" us.
>> it was tough. people forget it was 15 years ago we embarked on a journey to support retail. at that time they had overbilled. we spent over 12 years trying to do everything we could to drive that business. with this location, e-commerce, there were challenges with the internet. we made the decision we wanted to try and do a recapitalization. inside chapter 11. this was not the decision that creditors made. they decided to liquidate. surprising to us but exceptional relative to the choice we made which was, we should probably try to figure out a way to support the workers in this context. kkr and us, decided that was the right thing to do. carol: what does alexandria or
♪ jason: welcome back. carol: you can listen to us on the radio on sirius xm, in new york, boston, washington dc -- >> in the bay area, and on the bloomberg business app. now, our look at the bloomberg 50. people in business, entertainment, finance, politics, science and technology with accomplishments particularly noteworthy.
carol: the features editor. >> these people really made the biggest impact. they are not always heard of. that is what we go for. jason: you point that out. jason: you don't just have jay powell. you have the cohorts. the fed nucleus. >> there is more than one person making these decisions. there is a brain trust. we wanted to understand the decision-making behind these complex processes. look at them holistically. instead of trying to be more open and explain decision-making. jason: this has brian roberts of comcast as well as the ceo of patagonia. you are not going to find those on a lot of lists.
>> they are interesting in their own ways. they are activist. defenders of the environment. they have sued over the decision this year in the national parks. her take is, younger consumers expect this. if you want to have millennial loyalty, you cannot just sit back. people go to stores just for the activism. just to take part in efforts. fascinating. it has not hurt business. that is the other thing. she said they have had their best year. jason: bryan roberts is probably one of the most influential in terms of content distribution. an amazing year for him. bert: the thing with comcast, in the u.s. they are dealing with cord-cutting. it's become a huge issue. in europe, they are adding subscribers. this is a move to insulate themselves against that. carol: talk to us about
politics. bert: in politics, you had people like alexandria ocasio-cortez, everyone saw that image of her looking shocked when she won the primary. that was a bellwether for the midterms. we included jose, a chef, a michelin chef with 31 restaurants. since the hurricane in puerto rico, and going back to the earthquake and haiti, he is the world's foremost expert on how to feed people in disaster
areas. carol: jose is also the owner of the think food group. jason: in the wake of wildfires, hurricanes and earthquakes, his nonprofit has served more than 2.5 million meals to victims and first responders. >> arriving to washington dc in 1993, i saw d.c. central kitchen with a very simple mission, giving hope, one man, one woman at a time, taking homeless off the streets, feeding the hungry in the process. giving opportunity to americans that they never had one opportunity before. carol: you have bought food to so many different people. haiti, california. you spent thanksgiving near the california wildfires. north carolina, florida, guatemala.
how difficult is it to serve thousands at once? jose: i am now going back eight years. we have done over 6 million or 7 million meals. it is no "i". it is "we the people". puerto rico alone, more than 25,000 volunteers. the american people of puerto rico decided to do something about people going hungry. people came together. we opened kitchens. one kitchen to almost 26. 20 friends the first day, to more than 25,000 volunteers. we served 1000 meals the first day and then we went up to 150,000. at the end, puerto rico, 4 million meals.
carol: you have given almost $400,000 to small businesses on the island of puerto rico. you are feeding these people. you are also helping them get back on their feet. jose: over $1 million in total in the beginning of 2019. we are doing what puerto rico needs. we are pushing for it. food needs to be produced on the island. food doesn't always have to be coming from outside the island. our organization, we want to be present in puerto rico for many more years. it is helping the small farmers and infrastructure to be strong. we create the school of farming and in the process, when the farmers come, we began giving grants. we are supporting 25 small farmers in puerto rico alone. carol: you offered help to
another individual on the bloomberg 50. alexandria ocasio-cortez, who is also on our bloomberg 50. she said, i don't know that i can afford a place to stay in washington when i joined congress in january. why did you do that? you offered her a place to stay. jose: my wife, who is in charge, said sure. if someone needs help, we are always here. i think the congresswoman does not need the help of anyone. she is going to show the 21st century is very much going to be run by women. carol: coming up, some men on wall street may be shutting women out. jason: jared kushner's company buying opportunity zones in new jersey. carol: this is "bloomberg
most read stories in a bloomberg terminal this week about what has become a wall street rule for the #metoo era? avoid women at all costs. jason: it is a fascinating story. >> some men are avoiding women entirely either that something that they do is going to be misunderstood or a false accusation lodged against them, so rather than behaving in a more conscious manner, they are cutting women out entirely from the professional relationships. >> they are cutting them out of meetings? >> they are not going to get after-work drinks with them. they are not closing a door during a meeting. they are bringing a third person along to something that should be a private meeting. a woman got kicked out of a
meeting because the meeting was about another woman. we heard stories about blanket rules. no getting dinner with women under 35. that was a rule someone established. these are pretty problematic. there is a gender segregation going on. it is not like, i am not going to get drinks with men or women after work, it is just about the women. that is going to perpetuate a gender imbalance we already have on wall street. jason: in an effort to avoid the sexual harassment, these men and firms may open themselves up to gender discrimination. >> of course. it is something hard to prove in small doses. that is one of the difficulties we found in reporting. it is hard to prove a negative. it is hard to say, i was left out of that meeting or i was not invited to drinks, but when you start aggregating and looking over the course of a long time, and if you can actually look at how one manager deals with multiple subordinates, you can
potentially end up with a lawsuit that is easier to prove. >> you call it the pence effect, remind us about a comment from the vice president in the story. >> his comment went viral a couple of years ago. a commented that vice president mike pence made in a profile about -- about -- about him, where he said he does not have dinner with anybody, any woman that is not his wife, even for professional purposes. it caused an uproar at the time. but men are employing it regardless of the controversy. >> this is about men on wall street and men in other industries being fearful of an accusation or something happening. >> it is a lot of fear. it is consulting, legal, it is
everywhere. we really wanted to take the microscope to finance because of this large gender imbalance and in the fact that there are so few women at the top. what you are really risking is keeping that imbalance forever. carol: if you go to the corporate human relations, what are they saying? katia: death by a thousand paper cuts. how do you regulate this, how do you keep tabs on this? it is about acknowledging this is happening. we spoke with unemployment attorney and he was saying there are these one-off meetings, a lot of them are optional. you take a class and it is over. check the box. it is not a lasting impact.
you need to have a conversation about this icing out and backlash. you need to have a conversation about some of the things that men or bosses may be doing that are threatening to women that they don't recognize are threatening to women. >> those things that are less the tractable. >> now to another top story, the kushner real estate company that is snapping up property in opportunity zones with tax breaks. >> welcome to distressed new jersey. our reporter has all the details. caleb: this was created in president trump's 2017 tax bill. the idea is to incentivize business investment in parts of the country that need it. this is by offering really nice tax breaks for people who do that. as the rules of them coming down over the past year, they seem specifically designed to benefit real estate developers.
and how they were chosen is odd. carol: the president is a real estate developer. [laughter] state the obvious. caleb: how the zones were chosen has turned out to be odd. governor scott has nominated 25% of the impoverished zones under the law. but there are couple of different ways you could do that and it has not always been the case as we have looked at the places that need it most are getting these opportunities own designations. carol: let's roll in the kushner companies because they are involved in this and they are also building a luxury hotel next to this pier village. caleb: since the bill was enacted, they have spent $13 million buying more property in this opportunity zone, the kushner companies, specifically those old houses along the
beachfront. we are not sure what plans they have for them yet. they have been boarded up, so some sort of development is going to replace them. that is the ground up development that would be perfect for getting these opportunities. carol: these are not the only developers buying properties in this area. caleb: no, i expect there are a lot more opportunities throughout 2019. real estate developers are going to want to buy their property in the zones prior to december 2019. carol: to take advantage of these tax breaks, they have to invest big time, a certain amount of money. caleb: you buy a property for $2 million and need to spend at least $2 million more, significantly improving it.
that is where the idea of investment in the community comes from. you hold it for a long time and if you do that, you get a double whammy of capital gains tax breaks. first of all, you can defer capital gains that way and to the zone in the first place, and you can get a discount on those permanently. then, whatever capital gains you get on the new investment, if you hold it for a decade, you will get a capital gains tax break. carol: why did the story get your attention? talk to me a little bit. caleb: you can look at a map of the zones that are designated. some of them, especially new jersey. you know the parts of new jersey that need stuff like this and you can see towns where you go, how did that happen?
that is how we came across this. i expect we will be doing more. trying to answer the question of how different zones got these designations. governors are making the decisions. real estate developers are some of the most important political donors and influences. there is a lot of open questions about how these decisions got made. carol: the designation is interesting, to create an opportunity zone, there needs to be a certain poverty rate. for long branch, was it above the designation? caleb: it just made the cut. for urban areas, there is a secondary standard, 80% of median income for the area. that is a way even less impoverished areas in long branch got their designations. the other interesting thing about any beach town like long branches you have seasonal residents and they are not getting counted with census data.
businessweek.com and on our mobile app. time here to lose everything that, that is the title of a bloomberg investigative series on predatory lending. carol: they have uncovered firms use the new york state court system to squeeze small business borrowers. and they exposed the new york city official who earned 1.7 million dollars last year in fees were covering debt. jason: our reporting team join us on their latest story about a drug smuggler who built a predatory lending empire out on bail. >> the financial crisis, the merchant cash advance industry has been booming. these are people who offer fast money to small businesses. the money comes overnight. interest rates are as high as four and a percent annualized. it is super profitable. it is totally unregulated. all of these shady characters were getting into the industry. carol: how are they able to charge 400% on loans?
>> there aren't any great numbers about the industry because it is not regulated. one industry publication that takes the size of the alternative business lending market that includes merchant cash advance of $15 billion a year. >> how can they charge 400%? >> the way they do it generally is that for merchant cash advances, they will say it is not a loan, it is a sale of future receipts of the business. if you are a coffee shop, you are selling in advance a share of the payments customers are going to make to you. carol: like a future? >> kind of. for that reason, it is not
regulated. carol: you get into some very personal stories. small business owners like janelle duncan. tell us about the story when she realized the money she borrowed came with conditions she was not aware of. >> duncan, they had a real estate brokerage, remax franchise near tampa, florida. they got one of these cash advances, not even really intending to get one. they had been solicited by a broker who offered an $800,000 term loan at an attractive rate. they were interested. he said as a tryout, i will give you this merchant cash advance, make a few payments, and will give you the big loan that you need. they do that. after a month, they ask about the term loan, and they do not hear back. meanwhile, something goes wrong.
apparently, the company, yellowstone capital that may this merchant cash advance to them, accused them of defaulting. they have to make payments every day. they borrowed $36,000. the next day after they got the money, the first payment was due of $800. it was taken directly from their bank account. one day, the bank account clearing transfer did not happen. yellowstone accused them of defaulting because they did not get that $800. they had no idea. they said, it was not us. there is money in the account, we did not block it. but they did not know about any of this. janelle gets a call out of the blue from a debt counselor who says, yellowstone capital will take all the money out of your bank.
she dismisses it as, it must be some kind of weird prank call. it did not make any sense. she asked her lawyer and the bank. both of them said, this could not possibly be true. but in fact, it was true. the company was able to take $50,000 out of their account. that is more money than they ever got. and it turns out, we know that they did not stop payment on the loan. the payment after the one missed payment that no one can explain why did not go through, they continued to make payments after that -- it came out every day after up and to the point where the account was frozen by the cash advance company. >> the crazy thing is she is sitting there thinking, she doesn't know any of this is happening. one day she goes to access her bank account and she cannot.
unbeknownst to her, the loan company has filed a court case and won it, but no one ever told her. carol: you have another story about what is going on in the little courts in upstate new york. tell us about this. it involves something these borrowers sign. >> in the loan application, there is a page called the confession of judgment. by signing it, you are admitting in advance that if the lender says later that you did not pay, they are right. you are giving up your right to challenge them in court. you are basically allowing them to take this confession to court and get it rubberstamped and seize your assets. you are giving up your right to any notice, hearing, and the lender does not have to provide proof. carol: you basically said, i've kind of given away my rights?
>> this is like signing an arbitration agreement. except you are agreeing in advance to lose. carol: the courts are okay with doing this? >> it doesn't ever come before a judge. it is the county clerk or a member of the county clerk staff who receives this paperwork electronically from the lawyer for the cash advance company. they literally rubberstamp it. they collect a $225 fee and make it an official judgment of the court. that official judgment can be used by the cash advance company to go after their bank account, go after their customers and say there is an official judgment. you have to comply. jason: one startup promised customers a global dream job and left them with no way home. carol: startups do fail and often. that story coming up next. this is "bloomberg businessweek." ♪
♪ carol: welcome back. jason: you can listen to us on the radio on sirius xm on channel 119 and in new york, boston, and washington dc. carol: and in the bay area and in london and the bloomberg business app. jason: so much fascinating stuff to cover in this week's technology section. including a company that is making robots to help retailers compete with amazon. we talk about china's government putting restrictions on gene editing. carol: we have to kick it off with a bleak story about startups. a lot of them go bust. and sometimes when they fail, there are real consequences for their customers. >> this startup was a remote
travel startup, we work all over, and they fly you to a new city every month and that you up and housing and with a co-working space, all for a mere $2000 a month plus a deposit -- they pay for your airfare. and unfortunately, it was debt-financed by the two cofounders and ran into a real cash crunch. they had to rebrand in february. as a result, sign-ups quickly dwindled. it found itself with little cash on hand. in april, it left a lot of its customers stranded without a real path home. carol: it is a reminder that a lot of startups do not actually come to fruition.
they fail as companies and also a reminder that for some, like we roam, there are consequences for the customers. jeff: a lot of these customers found themselves stranded. in some cases, month 45 where they put aside a year of their lives for an negotiated with their bosses for, and now they are out thousands of dollars, $100,000 in total, and pretty upset since they are last in line among creditors to get money back. jason: another element of cinematic tech -- robots. amazon has gotten headlines for all it has done in its distribution centers. now robots are coming to the fore for their competitors. jeff: one startup is pitching any amazon competitors it can think of its own robots. they are designed to match and in some cases, take the lead in
front of amazon's warehouse robots. the robotic grabber arms seem to mimic the human hand. carol: there is a story in china that blew us away about a chinese researcher who did some gene editing, took something out, and created two babies. we're talking about designer babies, playing around with genetic composition. it blew the minds of the chinese government. they were not happy. jeff: the government has cracked down hard in ways that were surprising coming from china. they shut down his lab. they are conducting a full investigation and if they find any violations -- before, this had been big chinese rules in
this manner. carol: bloomberg businessweek is available on newsstands now. jason: and on our mobile app. your must-read? carol: my must-read is the pushback of the #metoo era. the broader implications of what is happening across all different industries and the consequences of the #metoo era. some of it we know has been good consequences, bringing these issues to light but there is also negative consequences. jason: and on first seen consequences it feels like. and the ongoing story, this investigation that our reporters are in the midst of, it is having real consequences, investigations at the state and city level. carol: you can also find more stories on businessweek.com over the weekend.
jason: and check out our podcast. carol: we talk with the former ge vice chairman. this is a must read for those thinking about fitting in in this ever-changing world and also the future of ge. jason: we look ahead to wellness and fitness. we caught up with the ceo of strava. carol: join us for a live broadcast monday at 6:00 p.m. wall street time for the bloomberg 50 celebration. jason: more bloomberg television starts right now. ♪
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