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tv   Whatd You Miss  Bloomberg  October 5, 2021 4:30pm-5:01pm EDT

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caroline: i'm caroline hyde. sonali: -- romaine: we will focus on the intersection of politics, economy amend business. you had a facebook whistleblower testifying in washington today, saying the company is well aware of the risk posed by its platforms but want lawmakers to think the problems are too difficult to fix. u.s. senator elizabeth warren continuing criticism of fed
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chair jay powell. she added to her opposition of a second term for powell by calling him "a failed leader." she is one of the most powerful people in washington, sits on the banking and finance committee. we will have a live interview with her in just a moment. caroline: i am sure there will be plenty of fighting talk when it comes to the leadership she thinks has failed at the fed. these are the trading situations that occurred. perhaps compliance to not expand at the same rate. is that something powell is dealing with at the right sort of speed or lagging behind? all of these things i am sure elizabeth warren will be discussing. our guest joins us covers the fed. you have been focusing in on jay powell, the testimony given, and what we seem to be learning that
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there were traits going on that perhaps makes you -- trades going on that perhaps makes you wonder should they have been allowed. is he tackling things swiftly enough to fend off opposition like elizabeth warren? >> that is a good question. this trading has been going on for years. it has been recently highlighted in the context of the covid recession because you had such volatile markets last year, so you had a lot of people who were shifting money around at a time in which the markets either went way up or way down, making a lot of money or losing it. that, in retrospect, looks very questionable. in fact, jay powell at the last press conference said he did not like it at all. you had two of the people
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involved in the trading resign. you have investigations. it has muddied the water in terms of powell's reappointment possibility. romaine: we will hear from the senator elizabeth warren and a second. most republicans on the banking committee appear to be in support. this is one of the few areas of bipartisanship in regards to support for his new term. steve: exactly. a majority of the republicans support powell. in fact, powell has a pretty clear road to confirmation if he is re-nominated. the real question would be how much of a fight with the democrats put up to a re- nomination if president biden chooses him? the case for powell is he has
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done well in terms of monetary policy, the economy has done reasonably well. in terms of this recent controversy over stock trading, there has been action. you can argue, as senator warren argues, that it has not been fast enough. you did have two people resign almost instantly within a week of the issues coming up. so they are out. you have the review going on by the fed, an internal investigation. things are happening. romaine: there will be a lot to talk about. steve matthews covering all things fed in the economy for us. we are looking ahead to whenever those confirmation hearings begin, whenever we get more of that back-and-forth between powell and the members of these
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committees, including senator warren. sonali: senator jon ossoff told congress it should be probing this issue among fed officials. romaine: we have been promising you senator warren. we want to send it to bloomberg's david westin, standing by right now with the senator. david: we are on capitol hill with senator elizabeth warren from massachusetts. sen. warren: i am delighted to be here with you. david: there is a lot going on capitol hill, but some does not involve the federal reserve. -- some revolves around the federal reserve. it seems like every day and we learn something new. should we delay the time for appointing the next chair until we sort through all this? sen. warren: i already said i can't support jay powell for re- nomination. my view is he ends his term, we put somebody else in place. i think the fed will be better off and our economy will be
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safer. david: let's talk about who that somebody else might be. are you giving the white house any suggestions? you told me about a no-brainer. sen. warren: i will not talk about conversations -- about private conversations. powell, to nominate or not re-nominate, i will not do this. david: i did not hear sherrod brown take a position. some republicans say they support jay powell. are you hearing from colleagues that they are open to resisting jay powell? sen. warren: i don't want to represent anybody else's point of view, but i am not the only person who has been concerned about his approach to regulation. i want to put this in context. i think back to 2007, 2008, when
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the fed would not step up and regulate the giant financial institutions. good on monetary policy, but not regulate financial institutions, afraid to rein them in. a bit at a time they kept loosening regulations until those giant institutions took on too much risk and crashed the whole economy. i came to washington to make sure that have -- that never happens again. i want to see a fed chair who cares about both parts of the job, monetary policy, but willingness to regulate giant financial institutions equally important. david: i have not talked to anyone who was around in 2007 who wants to repeat that. my law school classmate can tell you about it. how close are we to that now? how far have we come back from where we were when we had the height of regulation? sen. warren: here is what troubles me the most, is that
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during the past years while powell has been chair of the fed, every regulatory move has been in the same direction. that has been to weaken the regulations. not huge headline grabbing every time, although there have been a couple. it has always been in the direction of weakening. that makes nominating him for another five-year term a real risk. we know that some of the risks are already building up. when the economy hit choppy waters last year during 2020 and the fed had to put a lot of support into that economy, the fed's own report said afterwards big banks would have lost $300 billion if had i not been the case that taxpayer dollars had been used. i think that is a real problem.
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david: what you just referred to was short-term funding problems. that has been a problem for some time. why hasn't that gotten fixed? sen. warren: this is what troubles me right now. we need a fed that is willing to stand up to the giant financial institutions. we need a fed that is willing to push back. i want to talk about the stress test. the stress tests are kind of like finals in school. it used to be the case when the stress test first came out after the 2008 crash, they were tough. a lot of the financial institutions flunked. they had to go back and clean up their balance sheets, they had to divest from a lot of risky undertakings they had. what has happened over the past few years is the fed under
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powell's leadership has basically shown the banks the test in advance, then the banks -- they are not dumb, they reverse engineer so their balance sheet looks just right to match the stress test, but that also means maybe all kinds of other risks. i always remember that in 2007, everyone said banks are doing great, they are so profitable, nothing is ever going to go wrong -- until it did. david: that is the banks. open book exam, as you suggest, is what the stress test is now. sen. warren: come back when you are ready to take it. [laughter] david: what about shadow banking? is that a larger risk at this point than the banks? sen. warren: referring to what happened in the 2008 crash, it was the nonbanks as well that drove us over the cliff. it was the nonbanks that failed
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and started taking down the whole economy. the shadow banks we still have not done a good job of getting our arms around. the increasing risk posed by crypto, and how slow the fed and how other financial regulators are to get their arms around this. the parallels keep multiplying. you may remember in 2008, money markets, safest in the world, right until they broke the dollar and the federal government was put in the position of having to backup the money markets or watch the economy go further over the cliff. now we've got something called stable coins. unregulated, but surely they are safe, or that is what we keep hearing. no regulation, no controls around this. as more money flows into it, the
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parallel to what happened with money markets has to be in front of the regulators. we need regulators who are willing to step up. david: the regulators, which regulators? we heard jay powell at the hearings last week say they are a little like money markets. where is the best place for regulation to come from for stable going? -- for stable coin? sen. warren: they have some authority right now. i think the fed should step up, the sec should step up. the treasury has put several working groups around this, around bitcoin, all the pieces. i think the financial consumer protection bureau should be there because of the risk of trading -- the risk trading on unregulated markets could pose
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to consumers. this is a time when we need all of our regulators to get smarter faster. david: we heard from a whistleblower from facebook on the hill today, who has a lot of disturbing claims about what facebook knows, what it does. give us your insight into regulating a social media companies. let me go back to the 1930's, disclosure is basically the mechanism of the 1934 act. do we need substantive regulation? sen. warren: i will back you up in history even before the 1930's. i will take you back to teddy roosevelt. that is how i look at this. teddy roosevelt talked about break 'em up. you break them up so they have multiple competitors, so that multiple competitors can offer different services. that is not true right now with facebook. one example -- your phone number, you and i don't have to be on the same phone exchange to
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call each other, but if you want to access somebody's facebook page, you all have to be in facebook. it gives facebook the monopoly that makes them grow more. a point that teddy roosevelt made back when is to get markets to function and insulate them from pressuring washington for protection. break 'em up. when we've got lots of competitors in this market, no one dominates in that same way. that is where i start. david: let's go to that, keep them from pressuring washington. we have seen a fair number of hearings on capitol hill involving facebook and social media companies. a lot of information gathered. i don't think we have seen a lot of activity. sen. warren: no, we have not. david: where is the market failure in that? do you think we will see activity and when? sen. warren: the loudest voice is facebook and the other giant
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corporations. they hire the lobbyists. even more importantly, they fund dark money. the part that you never even see their fingerprints on it. they are the ones that undermine basic premise of democracy, that everyone is welcome here, that everyone has an equal voice. we are seeing that play out right now. i'm hopeful a lot of people will push back. that may start to move congress. david: senator elizabeth warren, thank you for your time. back to you. sonali: david westin with elizabeth warren. we will be sticking with that subject on technology coming up. we will talk about facebook, evidence given on the hill and indeed the future of the business model. our guest is an author on all things facebook. this is bloomberg. ♪
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>> a unique role in the tech industry in that he holds over 55% of all the voting shares for facebook. there are no similarly powerful companies that are unilaterally controlled. in the end, the buck stops with mark. caroline: a former product manager at facebook who testified in front of a senate committee. she said the complete prioritized profit while stoking division. we have the editor-in-chief and the author of "the facebook affect" written -- effect" written in 2010. did you ever see these
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implications coming? you know mark zuckerberg. does the buck stop with him when it comes to this? david: the buck definitely stops with mark. did i see it coming? i wish i saw more than i did. i knew something would go wrong, but i certainly didn't do not -- did not think it would come to this. that clip was well chosen. the single biggest source of the problem that is facebook in my opinion is the fact that there is no real governance in that company. one person has 55% voting control, as frances pointed out. that means he can do whatever he wants. i have taken to calling him more of an emperor than a ceo. because he has very little humility and so much complete confidence in his own judgments and own virtue, he basically refuses to do the right thing. romaine: he refuses to do the right thing, but investors have
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given this company a pass because of $100 billion in revenue, profitability that would be the envy of a lot of companies, and a certainn pull -- certain pull on people that they just can't quite facebook, instagram, whatever. he gets credit for that until you start to see an impact on users, on advertisers. will there be any way people will push back on his power? david: users -- users generally love his service. when we heard stories about businesses all over the world that could not operate, this is essentially essential infrastructure for the planet, not just the united states. i think facebook does a tremendous amount of good and should not be omitted from the analysis. just because you do a lot of good as a human being does not mean that if you murder someone
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you should not be prosecuted. nothing are murdering someone, but it almost equivalent. if we had appropriate laws, facebook is committing what would be crimes in my opinion, especially with the impact on democracy and social civility around the world. i really appreciate the fact that frances made a point of emphasizing that facebook's impact in many countries where it essentially has no oversight, because it does not even have people who speak the language, is one of its biggest flaws. wall street is not going to be the reforming tool, absolutely not. government may be. this could be a catalytic moment to lead to that. romaine: facebook put out a statement today with regard to the testimony. today, a senate cumbersome
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committee held a hearing that talked about the former project manager here. basically said she had no direct reports, never attended a decision point meeting with c-level executives and testified more than six times to not working on the subject matter in question. basically they don't agree with her characterization and that despite all this they agree it is time to create standards and rules with regards to the internet. facebook saying they are not buying into the allegations, but saying they are willing to work with congress on some sort of rule. sonali: these issues, mental health, we have seen them come up all year, though this hearing was an echo chamber in terms of how pronounced it was felt. david, i'm wondering what you see in terms of tangible change that will come out of these discussions. david: i think they are making a
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mistake to shoot the messenger here. people are starting to say that haugen's role as facebook may be analogous to susan fowler's role at uber. in other words, she is such a credible spokesperson so genuinely concerned with the matters at hand -- she has defended the company on a number of points. she is incredibly credible. she is what they most fear -- incredibly credible. she is what they most fear, an attractive personality who can specify what is wrong. when she demands transparency, that is what they most fear. they fear it because they don't really want the world to know what would be seen if there were transparency. caroline: playing devils advocate, may we say facebook can't fix human nature, and yet there is an awful lot of good that goes on, not all humans are
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good. they don't want to stifle free speech. is there an element that something suffers at facebook? we have seen the share price off a bit. to the main point, investors give them a pass. is in the talent given them -- is it the talent giving them a pass? what stakeholder is it that finds them self-regulating? david: the talent is not giving them a pass. i have a talented nephew who passed up a job at facebook and is now working on search google. there is a lot of people like that. even haugen today made the point they are having trouble getting the quality of people they want, which is one of the reasons she says many of the teams are understaffed, leading to errors that they have to clean up. it would be more -- if their
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inability to get quality engineers would get mark zuckerberg's attention faster than anything, and i believe his attention has been drawn to that. that could be a reforming factor. the problem is, even though we can do transparency, there is a lot of remediation -- the problem is almost any of it would require less paid views, probably slower growth, and as a result potentially slower profits. therefore, a declining stock price. wall street would not like it. then we have the kind of thing that the new york times wrote about this week, the possibility of a slow-motion implosion that eventually leads to the destruction of the company. caroline: sorry, so well said. hate to cut you off short. david kirkpatrick, wrote "the
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facebook effect." we see biden talking about his confidence in fed chair powell. quite the well-rounded show. that is it for "what'd you miss? ." -- you miss?" romaine: have a great evening, everyone. ♪
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>> from the heart of where innovation, money, and power collide, in silicon valley and beyond, this is "bloomberg technology" with emily chang. ♪ emily: i'm emily chang in san francisco and this is "bloomberg technology>' profits before people. -- is bloomberg technology." frances haugen tells congress


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