tv On the Money With Maria Bartiromo CNBC September 22, 2013 7:30pm-8:01pm EDT
hi, everybody. a stunning move by the federal reserve. what it didn't do. i'll have a rare interview with a voting member of the open market committee at the fed. we'll find out what happened in that room. then five years after the financial crisis, lessons learned and one woman who was at the center of the storm. why she says more needs to be done. "on the money" begins right now. >> here's a look at what's news
as we head into a new week. for months the markets had been watching and waiting for the week's fed meeting. the fed did what very few expected. nothing. it said it needed more evidence of an improving economy. and citing the continuing resolution in washington. the fed chose not to slow down the bond buying program of $85 million a month. with that the markets soared. the dow and the s&p 500 went to all time highs on wednesday and the nasdaq hit a 13-year high but it pulled back and took a breather on thursday. the markets fell on friday. jpmorgan chase may be hitting its own atm. it is paying a whopping $925 million fine to regulators for the so-called london whale trade. the company admitted wrongdoing. in earnings news, fed-ex beat analysts' expectations. oracle's revenue was light and the company had a disappointing outlook. we'll bring you my interview in
a couple weeks. the federal reserve opted to keep its foot on the accelerator and continue the moyly bond buying program, saying there is not sufficient evidence the economy has recovered to back off just yet. joining me now, a man who was in the room for the feds' two-day meeting. voted for the no taper. james bullard, it is great to have you on the program. >> thanks for having me. >> thank you so much. everybody was waiting and watching for the feds to announce that they were beginning to terrapin. you voted no taper for this time. why? what was behind that decision? >> well, i think it was a close call. but basically, what happened was when we laid out this road map in june, what we said was, we were looking for a stronger economy in the second half of 2013. and so far, you know, we're only part way through the third quarter, most of the way through the third quarter. the data has been mixed and it doesn't really look like the
thing we were for in june are really materializing. at least not yet. and so i think the committee just came down on the side of let's wait and see. and one of the things that helped us, i think, at least for me, is that inflation is running low. so we can afford to be patient here. unemployment has continued to tick down. one of the things about the recent employment report was that unemployment went down but labor force participation went down. so it went down for the wrong reasons. i think that weighed on the committee's mind as well. >> the participation rate is really critical. so the participation rate is at a 30-plus year low. why? >> i think that's a great question. one thing about this issue is you have to keep in mind that the participation rate has been declining since 2000. so this is a 13-year process. this is not just associated with recent recession and recovery. and a lot of that is demographics. you can put a demographic model on that and you'll get most of the decline in labor force
participation. >> how significant would a $10 billion tapering be? going from $85 billion in bonds to $75 billion? is there a chance we could see that next month? >> well, i do think october is alive. meaning we have had press conferences at certain meetings and not at other meetings. but the chairman did say that we could, if we wanted to, arrange a press conference for the october meeting and so i think that part could be handled. i've been one that has said we should have all these meetings should be anti-identical. they should allow the committee to make a decision if the committee feels like the data is there. one thing about october versus now is that people are saying, which is very legitimate, is how much information is really going to come in. in my mine, that's okay. that's always the question in monetary policy. we meet eight time a year and we
only get a little incremental information at each meeting. so as to whether we'll take action there or not, i don't know. it is a live meeting and it is possible we will move. >> let me ask but the mood in the room. there was one dissenting voice in the vote. esther george who has a history of it. when can you tell me being in the room while the debate is happening. is the discussion passionate? were people disagreeing? how did that go down? >> well, i suppose it is passionate. but it is economists being passionate which is probably not very passionate. >> you have to get out more. >> people do have strong views. and you know, they do feel, it is an important decision. and they want to get their views on the table. that's for sure. but i think the chairman guides the discussion very well and people rally around the chairman in the end. >> looking back at the third
go-around, what has been the effectiveness of the program in your mind? >> i think the cumulative evidence from september of 2012 which is when we started qe 3 here, it is pretty strong. the labor markets have improved. so unemployment has come down quite a ways. it will probably continue to tick down if you look at the unemployment claims numbers. they're real low. jock growth has been stronger over the last 12 months than it was in the six months or 12 months before qe 3 came along. so i think we have had an impact there. it is just probably not as much as people might have liked. but it has been a positive impact. you can look at other things. equities are, this idea of keeping risk-free rates fairly low and then pushing people into riskier assets. that has occurred in spades this time. and with the other rounds. >> you make a good point in terms of the stock market. the market has been on a great
run during qe 3. and is that the wealth effect? it makes people feel better. >> and i didn't mention housing prices. the sectors in general have been much stronger over the past year. so i think that's been taken as evidence that this is having a big impact. so autos areber, housing markets are better. and then when rates went up in the summer it looked like the housing data got a little softer. >> let me ask but that. we're watching the ten years so closely. getting to 3%. close to 3%. does that have an impact on the housing market? >> i don't know. i don't know when you got your first mortgage but the rates were much higher historically. they are ridiculously low. when someone was thinking of buying a certain house at a certain interest rate and then the interest rate shoots up, they will to have reform late
their plans. i think the biggest things about housing markets is the notion that was around maybe 18 months or 24 months ago, there was another leg down in housing prices. and the housing market, still more foreclosures coming out of the market. all these stories that the housing market would go down again. the prices would head down again. all of that has been swept away in the last 18 months. and things are up. some markets are up a lot. and so i think the psychology in housing markets has changed quite a bit. >> everybody is asking who will lead the fed next. you've work with janet yellen for years. can you talk to us about the difference between janet yellen versus ben bernanke? would policy be much different? >> i wouldn't want to say what she would do should she get nomination and be confirmed. it is up to the white house to make a decision on this in conjunction with the senate. so we'll see what they do.
if she does get job, she will want to outline her own strategy and not have me doing that. so we'll give her the opportunity to do that. but i will say in general, no matter who the chairman is, i think there will be a lot of continuity in policy. it is not the kind of thing that changes abruptly. it is a big committee. there are a lot of people with a lot of experience and a lot of expertise. so i would see it as a slow changing kind of thing. and obviously, jan has been right in the middle of the action for quite a while. i would expect continuity. >> would you have liked to have work with larry summers? >> i don't know him very well. i don't have much experience working directly with him. >> let me ask you your assessment of the next year. i know it is data dependent. you've said that, ben bernanke has said that. what would be your expectations of the economy in terms of the growth pace in the next year? >> i'm still optimistic. even after my forecasts have
been dashed. >> great to talk to you. we appreciate your time. up next, what does feds' stunning decision mean to your money and the markets? and that's not all that's going on in washington. what might happen, next. and later, we take a walk down memory lane on wall street. what are the lessons learned? what's still left to do? that's coming out. ...amelia... neil and buzz: for teaching us that you can't create the future... by clinging to the past. and with that: you're history. instead of looking behind... delta is looking beyond. 80 thousand of us investing billions... in everything from the best experiences below... to the finest comforts above. we're not simply saluting history... we're making it. building animatronics is all about getting things to work together. the timing,
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the jensen quality growth fun. a four star fund with $6.5 billion in management for the whole firm. good to have you on the program. >> so you were not surprised. you were not expecting tapering. is that right? >> that's correct. they've indicated that employment has to get to 6.5% as a target. and 6.5% versus 10.2 if you use a full participation rate, it is a long ways to go. so they're not even close to getting to where they want to get. >> and greg, i know that you will probably say the 6.5% target was really in terms of moving interest rates. i feel like once ben bernanke came out with a mark he of 6.5%, that's what he was focused on. and i agree, i was not expecting the tapering either. what about you? >> i was surprised. most of the street was surprised. in june bernanke had said that
even though they would keep the short term rate at zero, at least until the unemployment rate came down to 6.5% or lower, they had suggested that their separate program of buying bonds by priping money, what they call kwan tative easing would begin to terrapin. and they hope to be done when unemployment rate was down to 7.5%. the surprise was not that they decided not to go in september but the body language from ben bernanke, that they might not go in november or december either. that leaves us all scratching our heads. >> we just heard from james bullard a few minutes ago at the top of the show. and he said a tapering is possible. does this change over the short term how you invest? >> what doesn't get talked about a lot, there is a sector of the market. a certain part of the market that we invest in that really don't benefit from short term interest rates. in fact if you think about company that have been very profitable through the economic
down cycle and have a high return on equity, they've been generating so much cash that the balance sheets are almost flat and almost too strong in some ways. so for them to have cash and short term investments at very low, maybe artificial rates is a detriment for them. >> let you about what's to come in washington. we'll likely see a battle over the continuing resolution to fund government spending, the debt ceiling to pay that's already occurred. james bullard just told us this is something they discussed behind closed doors. how do you think this plays out? >> it's a pretty important factor, as you just suggested. it matters for the fed, as well, getting past this next period of budget confrontation will be important for the economy staying on a stable path and giving the fed the confidence it needs to taper quantitative easing. right now the signs don't look goods, the president says he'll veto such a bill.
it will be in the laps of the senate to try and take that bill, strip out the obama care language and send it back to the house. really, it will be a test of john boehner's leadership, whether he can be willing to pass with a minority of his own caucus and the help of democrats. i think he will do that, but it's big question marks and that one could come down to the wire again, like the debt ceiling. >> the last time we came down to the wire like this, the markets didn't like it. are you expecting volatility, a selloff going into this moment? >> there's been a lot of volatility, and that will continue. i'm confident once the dust settles, the resolution will occur. there is one interesting point about this quantitative easing and interest rates that usually helps the debtors, and who's the bigger debtor than the u.s. government? you have a situation low rates continue to help the debt service of the u.s., so some degree that's a small benefit that sometimes gets overlooked.
>> greg, the other big story, who will replace ben bernanke next year, janet yellin seems to be the front-runner, how do you think this plays out? >> week full of surprises, larry summers, when most believed was the president's first choice to lead the federal reserve did pull out a week ago. janet yellen is a big front-runner to replace him. janet yellen with the fed for many years, has been part of the decision making process that has given us quantitative easing and all the various signals on short-term interest rates, so i think it's a safe bet if she is a nominee, you'll have continuity in federal reserve policy. >> all right, we'll leave it there. robert, greg, thanks very much. up next "on the money," we hear insights from one of the leading ladies of the financial crisis. she helped in 2008. i'll talk to sheila bayer about
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deposit insurance corporation chair sheila bair, the senior adviser for the pew charitable trust. welcome to the program. >> thanks for having me. >> where are we five years later in terms of regulation? do we have the necessary measures in place to head off another financial crisis? >> no, i don't think we do. the system is safer than it was, but it wasn't very safe leading up to the sub prime crisis. the system still relies on too much leverage, too much short-term debt, money market funds have not been reformed yet, securitization, a big driver of unaffordable loans have not been reformed. there's still a lot of work left that needs to be done. >> the dodd-frank bill was supposed to solve too big to fail and reform the financial industry, yet assets at the ten largest u.s. banks are up, they've grown, what, 28% to more than $11 trillion since the crisis. i guess two-part question, how come dodd-frank has not been implemented? it's only halfway there, and is dodd-frank not enough to rein in
the banks? >> well, i think there's been a lot of tremendous industry lobbying against it. that's frankly one of the fallouts of the bailouts, we propped everybody out, kept them going, no accountability, so that's been a problem, but we need more leadership, frankly, more political support from the president and the congress to get these rules done. >> and yet we're seeing enormous numbers in terms of the cost. what about the expense? jpmorgan paying another $4 billion the second half of this year to comply with the rules. >> that's really the lion's share of the fines there. i think all these enforcement actions are justified against jpmorgan chase, but i don't think they are unusual in some of the things they are doing. frankly, i'd like to see more of these types of actions brought against other institutions, where you have similar problems. on the other hand, i think, you know, some of the regulatory activity, it's not clear how much to me incremental benefit there is to it, but for instance the stress tests have been helpful, but they are spinning out of control now and thousands
of pages, even the smaller regional banks and the hundreds of staff that have to deal with this. and are they focusing the banks on the right things? >> so what about the vocal rule, for example? three years after approval, the vocal rule, supposed to stop banks being an adviser and cred creditor, are not finalized. is the vocal rule too difficult to even write? how are you going to enforce something you can't even explain? >> well, i've written on this before. i think there are ways to simplify and strengthen that rule, that are not hard to do. and the inner agency disagreements, there's really no excuse for that. these are all grownup adult people, senior people confirmed by the senate. they can't get in a room and get this decided, i think, is quite problematic. i don't let them off the hook on that. >> is the idea that the fdic can roll down an institution, is that a game changer.
>> i think it is a game changer. the fdic do have the rules in place, the claims priority, explaining how the process will work. you're seeing some market impacter already, funding costs have gone up a bit. their credit rating agencies have downgraded them somewhat based on the assumption at least government support is less likely. i think there's been tremendous progress, but they are two important things they can do to make sure we have ended this pernicious doctrine. one is use the authorities under title one of dodd-frank, which is joint with the fed and fdic to force these megabanks to signify their legal operations, make it easy to separate from their commercial banks, wall off insured deposits from higher-risk activities and force to issue more long-term debt at the holding company level that can be readily converted into loss-absorbing equity if they fail, so you have enough money to absorb losses and recapitalize whatever clean banks emerges out of the
otm.cnbc.com. i hope you follow me on twitter and google plus. look for me, maria bartiromo. first, on monday, goldman sachs, nike, and visa will be joined to the dow jones average. the bank is kicking out others. on tuesday, we'll see if home prices continue to rise when the index comes out. on wednesday, the report on new home sales for the month of august out. on thursday, the third estimate for the second quarter gdp will be released, that's typically a market mover. that will do it for us today, thank you so much for joining me. next week, former president bill clinton. keep it right here, "on the money." have a great weekend, everybody, i'll see you next weekend.
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