Krystal and Rachel: Nancy Pelosi’s Inequality Commission Is A Joke

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[Music]
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speaker pelosi with a big announcement
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about her major commitment to fighting
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inequality because that’s something she
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definitely really really cares about
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rachel
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um here’s the announcement she’s
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creating a committee
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a select committee in fact on economic
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inequality
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you see there her official press release
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on the website and this was actually
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something that really jumped down as you
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at you as like part of a normal
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system that is employed here in
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washington to make people
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feel like things are happening and make
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activists feel like they’re really
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engaged in the process but really it’s a
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way of sort of stiff-arming their
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demands and concerns
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yeah it’s all theater here in washington
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but this one in particular is something
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i call the hamster wheel
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right it’s designed to put her most
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activist members the members most likely
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to cause her problems on this issue
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she’s gonna put them on this commission
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they are going to run on this hamster
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wheel and feel like they’re doing
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something really important
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when in reality they’re just being kept
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uh busy away from the house floor the
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only place that actually matters for
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actual change on anything
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they’re gonna be running on the hamster
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wheel of this commission which will
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eventually put out a report that no one
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will read and it will accomplish nothing
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avoid these things like the plague if
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you are someone who cares about change
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and i say this to conservative activists
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i say it out let me say here to
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progressive activists
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don’t do this yeah well i mean it
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reminds me very much
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of the biden sanders task forces
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that you know was the only thing
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that bernie managed to extract from joe
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biden before exiting the race that you
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knew from the jump like
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it didn’t matter who you put on those
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committees it didn’t matter how good the
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recommendations were that were coming
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out of them
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like here we are days away from the
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biden administration and i’m not hearing
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anything about the recommendations that
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came out of the task forces
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whatsoever what pelosi says in this
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press release she says we’re creating
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the select committee
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to be a resource to the congress to make
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policy related
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to economic fairness access to education
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workforce development
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working with the committees of
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jurisdiction the select committee will
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study and recommend
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proposals to make our economy work for
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everyone powering american economic
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growth
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while ensuring that no one is left out
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or left behind in the 21st century
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economy
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all fancy way of saying like like you
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said
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they’re gonna study it they’re gonna put
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on a report and that’ll be the end of
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that so basically your point is here
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when you see these committees purporting
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to be about
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fighting inequality or fighting into
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whatever it is left or right
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what they’re really doing is putting up
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a roadblock putting up like
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a sort of obstacle course to jump
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through rather than actually taking
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issue on that issue
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this commission has two goals the first
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is to make pelosi look like she’s doing
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something and the second
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is to distract you know the act the
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members who actually want to do
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something
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from taking any meaningful action and
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this goes back to something we talked
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about earlier in the week which is
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look the only thing that matters in the
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house is action on the house floor
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progressive activists can learn a lot
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from the freedom caucus who presented
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themselves as a political power block
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by really only focusing on action on the
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house floor they could deliver a block
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of votes or they could withhold them
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and that is where their power came from
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was hanging together on these issues
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they didn’t get distracted
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by commissions they didn’t get
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distracted by other promises because
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this is just one
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tool political leaderships have to
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distract you know their problem members
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my favorite one is the and we’ll vote on
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that at some point or hey
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this bureaucrat will call you or hey can
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we just talk about it on the house floor
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the only thing that matters at the end
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of the day is voting
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and the more you can pressure and push
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action on that front
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the more effective you’re going to be
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because as we’ve learned from this whole
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2000 check
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2 000 check debacle the thing that they
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hate most is going on the record for
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anything because it’s a very
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very powerful tool and can be used
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against them or for them
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uh in any number of ways and your point
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is so well taken
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that progressives really fall prey to
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these types of tactics like they really
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feel like when they get put on the task
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force they
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because there’s this like idealism there
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of like they’re really listening to my
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concerns and they really mean it and
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these are my friends how many times we
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hear bernie sanders they’re like joe my
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friend joe biden you’re like
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ugh um so it reminds me of
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you know the forced to vote debate
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that’s have it happening on the left
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right now because on the one hand you
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have a faction of people who are saying
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we need a vote on this key issue that is
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important to us that’s important to the
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country in the middle of pandemic
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medicare for all like let’s take a vote
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and put everybody on their record
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and what you’re hearing from at least
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some in the progressive wing of the
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party here in dc is like
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let’s not do the voting that voting
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doesn’t really matter that much any
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we’re working behind the scenes to get
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on key
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leadership posts and committees etc etc
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and all of that is ultimately just a way
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to sort of
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make them feel like they’re being heard
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make them feel like they have some
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sway and influence and power within the
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system but ultimately to
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crush them and keep them quiet and keep
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them from causing trouble
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everyone wants to feel like they’re a
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cool kid right that’s how this town runs
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and these positions you know these
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acceptance on these commissions
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everything always feels like oh i’m
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getting invited to the table
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you have to be comfortable not being
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invited to the table because it’s the
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only way you’re actually going to be
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able to force
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you know that kind of political action
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on the floor which is the
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again i’m going to be a broken record on
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this but the only thing that matters at
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the end of the day
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is what you do on the floor it’s voting
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so so true rachel
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rachel thank you so much for being with
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us all week it’s been phenomenal having
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you here
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um always you have such incredible
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insight so thank you so much for that
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and happy new year to you my friend
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happy new year to you as well
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and to all of you risers thanks for
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having me sagar will be back next week
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to talk about aliens i know there’s a
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lot to say
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yeah there’s an alien update we missed
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an epstein update this week as well
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without sauger here so we have been
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falling down on the job a little bit
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but don’t worry friends because sagar
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will be back next week with all of those
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important stories and more
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we’re going to kick off the new year
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with friends of the show chuck rocha
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kyle kalinski brown and joy gray and so
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many more ben smith is going to join us
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to talk about what biden can expect from
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the media versus what trump got from the
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media
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remember to hit that subscribe button so
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you don’t miss any of our videos also
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don’t forget to like and share as well
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happy new years guys appreciate you all
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so much
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you made it you survived 2020 on to
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what’s next
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enjoy everybody

Biden-voting counties equal 70% of America’s economy. What does this mean for the nation’s political-economic divide?

Even with a new president and political party soon in charge of the White House, the nation’s economic standoff continues. Notwithstanding President-elect Joe Biden’s solid popular vote victory, last week’s election failed to deliver the kind of transformative reorientation of the nation’s political-economic map that Democrats (and some Republicans) had hoped for. The data confirms that the election sharpened the striking geographic divide between red and blue America, instead of dispelling it.

Most notably, the stark economic rift that Brookings Metro documented after Donald Trump’s shocking 2016 victory has grown even wider. In 2016, we wrote that the 2,584 counties that Trump won generated just 36% of the country’s economic output, whereas the 472 counties Hillary Clinton carried equated to almost two-thirds of the nation’s aggregate economy.

A similar analysis for last week’s election shows these trends continuing, albeit with a different political outcome. This time, Biden’s winning base in 477 counties encompasses fully 70% of America’s economic activity, while Trump’s losing base of 2,497 counties represents just 29% of the economy. (Votes are still outstanding in 110 mostly low-output counties, and this piece will be updated as new data is reported.)

Table 1. Candidates’ counties won and share of GDP in 2016 and 2020

Year Candidate Counties won Total votes Aggregate share of US GDP
2016 Hillary Clinton 472 65,853,625 64%
Donald Trump 2,584 62,985,106 36%
2020 Joe Biden 477 75,602,458 70%
Donald Trump 2,497 71,216,709 29%

Note: 2020 figures reflect unofficial results from 96% of counties

Source: Brookings analysis of data from the Bureau of Economic Analysis, Dave Leip’s Atlas of U.S. Presidential Elections, The New York Times, and Moody’s Analytics

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So, while the election’s winner may have changed, the nation’s economic geography remains rigidly divided. Biden captured virtually all of the counties with the biggest economies in the country (depicted by the largest blue tiles in the nearby graphic), including flipping the few that Clinton did not win in 2016.

By contrast, Trump won thousands of counties in small-town and rural communities with correspondingly tiny economies (depicted by the red tiles). Biden’s counties tended to be far more diverse, educated, and white-collar professional, with their aggregate nonwhite and college-educated shares of the economy running to 35% and 36%, respectively, compared to 16% and 25% in counties that voted for Trump.

In short, 2020’s map continues to reflect a striking split between the large, dense, metropolitan counties that voted Democratic and the mostly exurban, small-town, or rural counties that voted Republican.  Blue and red America reflect two very different economies: one oriented to diverse, often college-educated workers in professional and digital services occupations, and the other whiter, less-educated, and more dependent on “traditional” industries.

With that said, it would be wrong to describe this as a completely static map. While the metropolitan/ nonmetropolitan dichotomy remained starkly persistent, 2020 election returns produced nontrivial movement, as Biden added modestly to the Democrats’ metropolitan base and significantly to its vote base. Most notably, Biden flipped seven of the nation’s 100 highest-output counties, strengthening the link between these core economic hubs and the Democratic Party. More specifically, Biden flipped half of the 10 most economically significant counties Trump won in 2016, including Phoenix’s Maricopa County; Dallas-Fort Worth’s Tarrant County; Jacksonville, Fla.’s Duval County; Morris County in New Jersey; and Tampa-St. Petersburg, Fla.’s Pinellas County.

Altogether, those losses shaved about 3 percentage points’ worth of GDP off the economic base of Trump counties. That reduced the share of the nation’s GDP produced by Republican-voting counties to a new low in recent times.

Why does this matter? This economic rift that persists in dividing the nation is a problem because it underscores the near-certainty of both continued clashes between the political parties and continued alienation and misunderstandings.

To start with, the 2020’s sharpened economic divide forecasts gridlock in Congress and between the White House and Senate on the most important issues of economic policy. The problem—as we have witnessed over the past decade and are likely to continue seeing—is not only that Democrats and Republicans disagree on issues of culture, identity, and power, but that they represent radically different swaths of the economy. Democrats represent voters who overwhelmingly reside in the nation’s diverse economic centers, and thus tend to prioritize housing affordability, an improved social safety net, transportation infrastructure, and racial justice. Jobs in blue America also disproportionately rely on national R&D investment, technology leadership, and services exports.

By contrast, Republicans represent an economic base situated in the nation’s struggling small towns and rural areas. Prosperity there remains out of reach for many, and the party sees no reason to consider the priorities and needs of the nation’s metropolitan centers. That is not a scenario for economic consensus or achievement.

At the same time, the results from last week’s election likely underscore fundamental problems of economic alienation and estrangement. Specifically, Trump’s anti-establishment appeal suggests that a sizable portion of the country continues to feel little connection to the nation’s core economic enterprises, and chose to channel that animosity into a candidate who promised not to build up all parts of the country, but rather to vilify groups who didn’t resemble his base.

If this pattern continues—with one party aiming to confront the challenges at top of mind for a majority of Americans, and the other continuing to stoke the hostility and indignation held by a significant minority—it will be a recipe not only for more gridlock and ineffective governance, but also for economic harm to nearly all people and places. In light of the desperate need for a broad, historic recovery from the economic damage of the COVID-19 pandemic, a continuation of the patterns we’ve seen play out over the past decade would be a particularly unsustainable situation for Americans in communities of all sizes.

We Have a Question for Jeff Bezos and Other Billionaires

Will you finally let your workers unionize?

As this was unfolding, most of Big Tech, including Amazon, sent white-collar workers home to “flatten the curve” and fight the pandemic. Tim saw company leadership go to great lengths to make sure this new system was working and actively seek feedback from the remote workers. Christy heard from a warehouse employee who said productivity targets made it difficult for workers to take a break even for hand washing without a mark on their record. Pay for warehouse workers starts at $15 an hour with minimal access to time off; in May Amazon ended the unpaid leave policy that for a few weeks allowed them to stay home if they had Covid-19 symptoms.The contrast in the treatment of knowledge and warehouse workers couldn’t be starker. Equally clear is the cause: One group has power, the other doesn’t.

Amazon’s decision to fire the activists was easy to make in the United States, where Amazon workers have no union and are left to fend for themselves. With no right to paid sick leave or protection from unfair dismissal, American workers are among the most vulnerable in the world to pressure from any employer, not just Amazon.

Union-represented Amazon workers in Spain, Italy, France and Germany initially failed to resolve their concerns through negotiation, but with court action, regulatory intervention and strikes, they got their needs addressed.

Let’s look at France: Unions there brought a civil case arguing that Amazon had taken inadequate steps to protect workers from infection risk and that it had sidestepped the unions’ statutory role. The court ordered Amazon to limit its sales to only “essential” items, or face harsh penalties until it could reach a safety agreement with the unions. Rather than negotiate, Amazon closed its French operations and appealed. But the appellate court also sided with the workers, who ultimately negotiated a settlement including mandatory union consultation over safety measures, union hiring of external experts to assess the measures’ effectiveness and a continued increase in workers’ hourly pay. The news from Europe shows that Amazon can work with unions and get good results.

Both of us want Amazon to share the wealth with workers and stop putting the relentless pursuit of revenue growth ahead of all other concerns. One way or another, this requires putting more power in the hands of workers. Regulation and legislation are part of the solution. But there’s no need to wait; power can be taken, not just given. That’s what unions are for.

Amazon is a data-driven company. It should recognize the evidence showing that countries with more collective bargaining have a stronger social fabric and better growth, and are more able to weather economic ups and downs. Businesses with collective bargaining relationships, including Auchan Retail and Carrefour, navigated the Covid-19 crisis with less disruption to their businesses and emerged with their reputations intact and even enhanced.

For its own future and the future of the global economy, Amazon should become more responsive to the women and men who’ve enriched shareholders and be willing to recognize and bargain with their representatives. When it comes to the rights of its workers, it should be a leader, not a laggard.

It’s not just Amazon: The need for more unionization is urgent across Big Tech. Amazon stands out because it combines the extraordinary profit margins of these companies with employing hundreds of thousands of front-line workers. There are fewer of these workers at the other iconic tech companies, but nevertheless their employees also deserve a voice over the issues that matter to them.

The question for Mr. Bezos and the billionaires of the world is: Are they ready to rise to the occasion? Will Big Tech listen to and work with its employees to help the world overcome the worst economic and social crisis in recent history?

Colonialism Made the Modern World. Let’s Remake It.

This is what real “decolonization” should look like.

“Decolonize this place!” “Decolonize the university!” “Decolonize the museum!”

In the past few years, decolonization has gained new political currency — inside the borders of the old colonial powers. Indigenous movements have reclaimed the mantle of “decolonization” in protests like those at Standing Rock against the Dakota Access pipeline. Students from South Africa to Britain have marched under its banner to challenge Eurocentric curriculums. Museums such as the Natural History Museum in New York and the Royal Museum for Central Africa in Brussels have been compelled to confront their representation of colonized African and Indigenous peoples.

But what is “decolonization?” What the word means and what it requires have been contested for a century.

After World War I, European colonial administrators viewed decolonization as the process in which they would allow their imperial charges to graduate to independence by modeling themselves on European states. But in the mid-20th century, anticolonial activists and intellectuals demanded immediate independence and refused to model their societies on the terms set by imperialists. Between 1945 and 1975, as struggles for independence were won in Africa and Asia, United Nations membership grew from 51 to 144 countries. In that period, decolonization was primarily political and economic.

As more colonies gained independence, however, cultural decolonization became more significant. European political and economic domination coincided with a Eurocentrism that valorized European civilization as the apex of human achievement. Indigenous cultural traditions and systems of knowledge were denigrated as backward and uncivilized. The colonized were treated as people without history. The struggle against this has been especially central in settler colonies in which the displacement of Indigenous institutions was most violent.

South Africa, where a reckoning with the persistence of the settler regime has gripped national politics, reignited the latest calls for decolonization in 2015 with the #RhodesMustFall movement. Students at the University of Cape Town targeted the statue of the British imperialist Cecil Rhodes, but saw its removal as only the opening act in a wider struggle to bring white supremacy to an end. Under the banners of “more than a statue” and “decolonize the university,” students called for social and economic transformation to undo the racial hierarchies that persist in post-apartheid South Africa, free university tuition and an Africa-centered curriculum.

Now, partly riding the global surge of Black Lives Matter mobilizations, calls for decolonization have swept Europe’s former imperial metropoles. In Bristol, England, last month, protesters tore down the statue of Edward Colston, the director of the Royal African Company, which dominated the African slave trade in the 17th and 18th centuries. Across Belgium, protesters have focused on statues of King Leopold II, who ruled the Congo Free State (now the Democratic Republic of Congo) as his personal property from 1885 to 1908. King Phillipe II of Belgium recently expressed “regret” for his ancestor’s brutal regime, which caused the death of 10 million people.

Colonialism, the protesters insist, did not just shape the global south. It made Europe and the modern world. Profits from the slave trade fueled the rise of port cities like Bristol, Liverpool and London while the Atlantic economy that slavery created helped to fuel the Industrial Revolution. King Leopold amassed a fortune of well over $1.1 billion in today’s dollars from Congo. His vision of the Royal Museum for Central Africa, which opened in 1910 soon after his death, reproduced a narrative of African backwardness while obscuring the violent exploitation of the Congolese.

By tearing down or defacing these statues, protesters burst open the national narrative and force a confrontation with the history of empire. This is a decolonization of the sensory world, the illusion that empire was somewhere else.

Laying a flag of the Democratic Republic of Congo on the statue of King Leopold or hauling the Colston statue into the sea, where thousands of enslaved women and men lost their lives, tears apart the blinders and boundaries between past and present, metropole and colony. Insisting on the presence of the past, the protests reveal Europe’s romance with itself, unmasking its political and economic achievements as the product of enslavement and colonial exploitation.

This historical reckoning is only the first step. Acknowledging that colonial history shapes the current inequalities and hierarchies that structure the world sets the stage for the next one: reparations and restitution.

Reparations is not a single act. The Caribbean Community has already demanded reparations for slavery and Indigenous genocide from Britain, France, Spain and the Netherlands. Although there is little movement at the level of states, the University of Glasgow agreed last year to pay 20 million pounds (about $25 million) for development research with the University of the West Indies in recognition of how the university benefited from the profits of the trans-Atlantic slave trade.

The Herero of Namibia, who suffered the 20th century’s first genocide at the hands of Germany, have also called for redress. Their efforts follow the successful bid for reparations by the Mau Mau of Kenya, many of whom were tortured during Britain’s brutal suppression of their independence movement in the mid-20th century. In other contexts, activists have focused on the return of the looted artifacts that fill Europe’s great museums. France, for instance, has committed to returning 26 stolen artworks to Benin.

But reparations should not focus only on the former colonies and their relations with European states. Colonialism lives on inside Europe’s borders, and Europe itself must be decolonized. Black Europeans experience discrimination in employment and education, are racially profiled and are subject to racist violence at the hands of the police and fellow citizens.

The European Union recently avowed that “Black lives matter,” but its policies deprive Black people of equal rights, imprison them in camps and drown them in the Mediterranean. Overseas imperialism was once believed to be a political necessity for European states; today, anti-immigrant politics plays the same role. In either case, European policymakers disavow responsibility for the misery they bring about.

Repair and redress is owed as much to Black Europeans as it is to former colonial states. It would mean treating Black Europeans, and all migrants from the colonized world, as equal participants in European society. And this form of reparation cannot be perceived as one-off transactions. Instead, it must be the basis of building an inclusive and egalitarian Europe.

This is no easy task and will not happen overnight. But we should remember that just 80 years ago, colonial rule appeared to be a stable and almost permanent feature of international politics. In just three decades, anticolonial nationalists had transformed the world’s map.

The struggle for racial equality in Europe is a fight for a truly postcolonial condition, and its creation is implied by each dethroned statue. If colonialism made the modern world, decolonization cannot be complete until the world — including Europe — is remade.

The Economy Is A Mess. So Why Isn’t The Stock Market?

We’ve said it before: The stock market is not the economy.

Usually, this simply means that fluctuations in the markets may have little to no real bearing on the underlying realities we think of as making up the economy. Or that there are many important structural factors that make the markets’ outlook different from how ordinary citizens view the country’s overall economic health.

But now, those usual bromides risk wildly understating the disconnect. In the time of COVID-19, the stock market couldn’t be more divorced from the United States’ broader economic situation. Although the S&P 500 tumbled sharply in March, as the coronavirus shut down large swaths of the economy, it had made back almost all of its losses by the first week of June — before dipping again and then quickly rebounding yet again.

Even beyond the markets, there has been some data to suggest that the worst fears about the economy in late March and April were too pessimistic. (Take May’s jobs report, for instance, which showed a surprising decline in unemployment even after accounting for a classification problem with laid-off workers.) But the overall state of unemployment is still quite bad by historical standards, which mirrors numerous important economic indicators that are almost uniformly down — to a significant degree — from last summer:

Obviously, not every core indicator has dropped off a cliff in the face of this recession. Inflation, as measured by the sticky-price consumer price index (excluding ever-volatile food and energy expenditures), has dipped some since February — from 2.8 percent year-over-year to 2.1 percent — but remains in a relatively normal range. New building permits (a sign of construction investment and activity) have rebounded from an initial dip and are almost back at last year’s level. And measures of credit risk, such as the TED spread, have stabilized, indicating a low implied risk of commercial-bank defaults.

But employment ratesoil pricesconsumer confidence and many other measures paint a clear recessionary picture. Even corporate earnings — which in theory help dictate the prices of shares on the market — suffered their worst quarter since 2008. (This is what has driven forward-looking price-earnings ratio forecasts for the S&P skyward.)

And yet stock indices continue to rebound much faster than the rest of the economy.

Why? As is usually the case in economics, it’s complicated — and everyone has a pet theory. A few include the idea that investors are betting on a quick “V-shaped” recovery (rather than the longer, slower “swoosh” shape many economists have predicted) and banking on corporate profits eventually rebounding in the medium and long run. (And why not? The Federal Reserve’s actions have made it clear this is a priority.)

Some prominent tech companies at the top of the market (such as Microsoft, Apple and Alphabet) actually have reason to think the pandemic could shift business in their favor, with so much emphasis placed on digital shopping, communication and entertainment. And the rise of algorithm-based trading has insulated markets somewhat from the shocks that could be created by big news events, such as political developments or the protests against racial injustice currently sweeping across the country, since dispassionate algorithms don’t get worried or scared by the news the way humans do.

But Tara Sinclair, an economics professor at George Washington University and a senior fellow at the Indeed Hiring Lab, told me she thinks the markets are also providing a better place for wealthy people to stash their money than alternatives like bonds or banks.

“People, particularly the rich, have cut back their spending, so they need to park their funds somewhere like the stock market (especially since interest rates are rock bottom),” she said in an email. “Inequality can mean that even with millions out of work, there might still be a glut of funds from the high-earning and/or high-wealth individuals.”

As Paul Krugman of The New York Times pointed out relatively early in the crisis, the yield on Treasury bonds is so low (see the chart above) that stocks are an attractive option — even in the midst of a recession caused by a once-in-a-generation pandemic.

“Recent stock market performance could be more about something like a savings glut rather than optimism on the future value of companies,” Sinclair told me. “It may be more about the S&P 500 being better than anywhere else to put funds rather than about actual optimism.”

That doesn’t necessarily mean there’s no optimism driving investors’ actions, though. “Maybe (hopefully?) people are investing for the longer term and are viewing the current economic situation as substantially temporary,” Sinclair wrote.

And it’s worth noting that, despite everything, the markets are not totally separate from the virus that continues to afflict every corner of the world.

When news of the coronavirus first hit, the VIX — a measure of market volatility perhaps better known as the “fear index” — spiked to 82.7, its highest level ever. (The previous high was 80.9, which it hit in November 2008, when the Great Recession sparked a massive selloff.) News of a COVID-19 resurgence earlier this month caused the VIX to surge to 40.8, another abnormally high number — outside of recessions, the VIX usually floats between 10 and 20. Despite the rising indices, uncertainty rules the stock market right now.

What that means down the line is anybody’s guess. But for now, Wall Street has shown a shocking amount of resilience even as almost every other economic indicator has tanked. If nothing else, let this be the final confirmation that, once and for all, the stock market is not the economy.

The Bizarre Economics of Tax Havens and Pirate Banking: James S. Henry at TEDxRadboudU 2013

James S. Henry introduces a hot topic: offshore banking. The G8 and G20 are planning meetings to discuss it. Even the Netherlands is a tax haven for certain types of companies. The huge amount of numbers and graphs tells us that we are confronted with nothing less than a global tax haven industry. For example, Apple makes 100 billion dollars a year of tax free profits because of the games private bankers know how to play.

In medieval times people couldn’t hide their wealth when tax collectors came to inventory it. Nowadays they can. It is said that 64 percent of the global profits are parked offshore, for an important part by multinationals from the first world.

The third world is the victim of this practise. An example from the banana industry: exporting a banana from the Cayman Islands costs 13 pence. When it arrives in the UK to be consumed, the costs have grown to 60 pence. All of this money goes to other parties than the Cayman Islands.

Because of the tax havens, countries from the Third World are not able to receive the tax incomes they are entitled to. Henry even concludes that the debt problem of the third world is not a debt problem, but a tax problem. Both amount to almost the same.

About TEDx
In the spirit of ideas worth spreading, TEDx is a program of local, self-organized events that bring people together to share a TED-like experience. At a TEDx event, TEDTalks video and live speakers combine to spark deep discussion and connection in a small group. These local, self-organized events are branded TEDx, where x = independently organized TED event. The TED Conference provides general guidance for the TEDx program, but individual TEDx events are self-organized.* (*Subject to certain rules and regulations)

Steve Eisman: “They mistook leverage for genius”


Steve Eisman: Quantitative Easing was a failure: it didn’t get corporations to borrow and invest. Rather, they borrowed and bought up their own stock.

 


Steve Eisman: Inequality was cause of Financial Crisis (10:17)

 

Steve Eisman: They made money because of their leverage (debt ratio) and they mistook their leverage for genius (12:19)

 

Steve Eisman was one of the few who predicted the 2008 financial crisis, and he made his name by foreseeing the collapse of subprime mortgage market.

Michael Lewis portrays him as one of the heroes in the bestselling book The Big Short and Steve Carrell plays an outspoken version of him in the Oscar-winning movie of the same name.

EFN:s Katrine Marçal meets Steve Eisman at Claridges hotel in London.


Transcript

00:00
they’re all getting screwed you know you
00:03
know if they care about they care about
00:04
the ballgame or they care about what
00:06
actresses went into rehab I think you
00:08
should try medication no no we agreed if
00:12
it interferes with work you hate Wall
00:14
Street maybe it’s time to quit I love my
00:15
job you hate your job I love my job
00:18
you’re miserable I love my job I love my
00:21
job honey
00:22
mark Steve Iseman welcome to the offense
00:25
I’m glad to be here so you’ve been
00:27
portrayed in a book and in a film what
00:30
did you prefer I would say they were
both fairly accurate as the way I was
back then and let’s just leave it at
00:38
that okay okay so I’ve heard that some
00:42
Brad Pitt’s almost caladium in the film
00:44
it’s not true I got a phone call from
00:47
Adam McKay who was the author director
00:50
of the movie in November of 2015 to say
00:58
that he was writing the movie and that
01:02
there was a possibility that Brad Pitt
01:04
would play me to which I responded that
01:08
the only thing Brad Pitt and I have in
01:10
common is that we both have really good
01:11
hair okay
01:13
so being one a few people who sold the
01:16
financial crash coming how did it feel
01:18
to have see this big disaster unfold and
01:20
not being able to do anything about it
01:23
the analogy I use it’s a little bit like
Noah in the ark yeah so you know Noah’s
on the ark he’s okay and that he saved
his family but he’s not exactly happy
hearing everybody screaming outside
01:38
that’s was sort of my experience all
01:41
right did you think the financial market
01:44
potential market from the financial
01:46
sector would get back get back to
01:47
business and get back to some kind of
01:49
normal as quickly as it did no I didn’t
01:51
expect it would it would happen that
01:53
quickly you know a lot of that was the
01:57
fact that the government backstop the
01:59
system and once the become a backstop
02:01
the system it was what the financial
02:04
markets did come back but the banking
02:05
system has been changed so in the book
02:08
and the film it becomes very clear that
02:09
you’re you betting against the subprime
02:11
mortgage market is not
02:13
just a trade but it’s kind of a moral
02:15
crusade are you still on this moral
02:17
crusade I’m not because a lot has
02:20
changed
02:22
you know dodd-frank I think really fixed
02:25
a lot of things leverage has come down
02:27
enormous ly the Consumer Financial
02:29
Protection Board has been put in place
02:31
to protect consumers I the world’s very
02:33
different from what it was pre-crisis
02:35
hmm but now many of these things are
02:38
threatening I mean Donald Trump has
02:39
promised to repeal vast parts of the
02:41
dodd-frank act for example it’s not
02:44
something I’m in favor of I think that
02:46
will be a big fight you know it’s
02:48
possible the industry is going to get
02:50
deregulated to a degree we’re not going
02:52
to go back to what we where it was so
02:54
for example you know Citigroup used to
02:56
be levered 35 to 1 today its levered 10
03:00
to 1 I feel if we go into some type of
03:03
deregulation maybe you get 2 to 3 turns
03:05
more leverage it’s not something that
03:07
I’m personally in favor of but I don’t
03:08
think it’s a calamity hmm so do you
03:11
think with Donald Trump be president
03:14
today if more than one banker had gone
03:17
to jail for the financial crisis it’s an
03:19
excellent question and the answer is I
03:22
don’t know you know I don’t know
03:24
I’m cold about it I’ve thought about it
03:26
a lot
03:27
I think there’s a definite very strong
03:30
sentiment that it was wrong that nobody
03:34
went to jail I’m not going to say if
03:36
that sentiment is right or not but
03:39
there’s definitely a very strong
03:40
sentiment in the country that that’s the
03:41
case and I think people are very angry
03:44
that nobody did go to jail again I’m not
03:46
going to say whether that’s right or
03:48
wrong and if people had gone to jail I
03:50
think that would have soothed some of
03:52
the hangar that was seen in the election
03:55
so it’s possible that impact of the
03:57
election but it’s impossible it’s
03:58
impossible to say right so now taxes are
04:01
going to be can’t and Finance regulators
04:03
because the populace to campaign against
04:05
Wall Street 1 correct correct okay so
04:09
what do you do with investment then I
04:11
hear you you are investing quite a lot
04:13
in bank stocks well I mean there’s
04:15
there’s two issues there’s what I think
04:18
about finance the financial system and
04:20
what I think about financial stocks and
04:24
the two don’t necessarily
04:26
correlate so with respect to the
04:28
financial system I think that what’s
04:31
been done has been a good thing but it’s
04:34
been very intense bank the dodd-frank
04:36
act and the Fed forcing people to
04:39
de-lever to de-risk etc so from a
04:43
financial system I’m very happy I could
04:47
say very strongly the United States
financial system has never been held
this healthy in my lifetime but it’s
been very painful for financial stocks
because as you de-lever and do risk you
make less money and therefore it hurts
your stock price so the last six years
05:08
or so have been extremely painful for
05:10
financial stocks especially banks as
05:13
they’ve de-levered and dearest well if
05:16
we’re going to go into world where we’re
05:17
going to deregulate and leverage is
05:19
going to go up at least some just
05:22
reverse the story
05:23
so therefore financial stocks should do
05:25
well right okay
05:27
like I said financial system financial
05:30
stocks but you are not necessarily the
05:32
same an interest rates in America are
05:34
going up yes that’s very good for banks
05:37
all right
05:37
so America is kind of moving from a
05:39
monetary stimulus to a fiscal stimulus
05:41
with something but it’s like that’s
05:43
something I’m in favor of yes I think
05:45
it’s a good thing the infrastructure
05:46
investment yeah that’s right until not
05:48
believe that quantitative easing is a
05:52
successful strategy why not there are
05:55
too many negative impacts for from it to
06:00
I mean look it was a noble experiment
06:02
there was no fiscal expansion there was
06:04
no other game in town so I don’t blame
06:06
the Fed for doing it the idea was that
lowering rates would cause people to go
up or out on the risk curve and vest in
the economy and really the other thing
happened was they went out on the risk
curve by buying back their own stock
they didn’t really invest in the economy
06:22
and with lower rates that hurts consumer
06:25
because they makes us money we pay the
06:26
money in the bank so I haven’t you know
06:30
when we started the monetary policy of
06:33
quantitative easing
06:34
us growth was one-and-a-half to two
06:38
percent and after we did it it’s one and
06:41
a half to two percent so in my view
quantitative easing is a failure
06:45
alright so in November you said to the
06:48
Guardian in Europe but Europe is screwed
06:50
you guys are still screwed referring to
06:53
their non-performing loans in the
06:54
Italian depends of the country yes
06:56
are we in Europe still screwed well my
07:00
wife wish I hadn’t said that
07:01
yes so okay oh we in big trouble not big
07:07
it depends on the country you know Italy
07:10
has a very large non-performing loan
07:11
problem I don’t see the Italian
07:14
government doing anything to really
07:16
solve that problem if they like before
07:18
Christmas that was a nasty suppose that
07:20
was just monte de Paz yeah and you never
07:22
like to say monte de Partie because it’s
07:24
such a great name and the world’s oldest
07:27
bank as the world’s oldest bank correct
07:29
and I don’t you know you could try and
07:31
Simmel to deposit ten times fast it’s
07:33
very hard but it’s not really solving
07:37
the problem I mean this is something
07:39
called a Texas ratio which is a ratio
07:42
that bank analyst Achon myself compute
07:45
which is non-performing loans divided by
07:49
tangible book value plus reserves
07:52
basically the numerators all the bad
07:54
stuff divided by the money you have to
07:57
pay for the bad stuff and one of the
08:00
great lessons about bank analysis is
08:03
that one in Texas ratio gets over a
08:05
hundred percent the bank is done and in
08:08
Italy the two largest banks are in paisa
08:11
and you credit and their Texas ratios
08:15
are at ninety percent and every other
08:17
Bank in Italy is over 100 percent so I
08:21
don’t envy Italy the problem ok famous
08:24
ahma is the country there’s the bigger
08:26
than I think it won’t come and I think
08:28
the problem with the banks generally in
08:30
Europe is that they are still under
08:33
capitalized and they they are they do
08:37
not make enough money per dollar
08:39
employed basically European banks don’t
charge enough for this
services they never have and they’ve
tried to make up the difference with
leverage and in a world where you have
to use less leverage that model doesn’t
work
what about Deutsche Bank quite the same
well don’t you make sort of the poster
child for that let’s think about this
09:01
this way so today if a bank has a 1%
09:08
return on asset and is loved or ten to
09:12
one the return on equity is 10% that’s
09:15
the simple formula so you know Citigroup
09:19
for example doesn’t even have a 1% ROA
09:23
but they’re not that far off but
09:27
Deutsche Bank today has a 30 basis point
09:29
ROA they need to improve their
09:31
profitability by more than three times
09:34
there’s no way Georgia Bank on its own
09:37
can improve its profitability three
09:39
times the entire European banking system
09:41
has to be price you know how that’s
09:44
going to ever happen I don’t know but
09:46
until it does your paint banks it could
09:48
be a problem
09:49
they’re going to be a problem so you’ve
09:50
been in here in London for a few hours
09:52
now and you must have realized already
09:54
that the only thing people talk about
09:55
here with breakfast yes
09:57
so what financial risks do you see
09:59
coming from brexit big question is a big
10:04
question
10:04
okay what will happen in March I have no
10:07
idea you have no I really have no idea
10:08
honestly I don’t think and more
10:11
importantly anybody else has any idea
10:12
that it’s going to be an adventure a not
10:15
so it’s going to be a fun adventure but
10:17
it’s going to be an adventure so you
10:18
said that we’re very bad at dealing with
10:20
crises that develop very slowly and you
put the blame on the big financial
crisis of 2007-2008 on income
distribution really do you see that
10:32
changing at all I mean let me explain
10:35
that yes because it’s not intuitively
10:39
obvious how the two are connected so you
10:42
know my thesis is that one of the
underlying causes of the financial
crisis it was bad income distribution so
you know when I say that people’s eyes
generally clays are like you know what
are you talking about
but I think that there’s a
cause-and-effect relationship in that
you know starting in the 90s when income
distribution started to get really poor
in the United States rather than focus
on that and what the solutions worth of
that problem let credit get democratized
that was the euphemism for will will
make loans to people that we didn’t make
loans to before so rather than get
people’s incomes up they let them lever
themselves [take out more debt] and one of the ways people
lever themselves was by taking out loans
on their homes and loving themselves
that way and so I think one of the
causes of the subprime mortgage crisis
is that you know post dodd-frank hard to
get a mortgage loan yeah you know
incomes have only started to start
growing again we’ll have to see what it
does the new administration can do
anything hmm
so it don’t Frank it’s harder to get a
loan but well it’s hard to get a
mortgage why although I don’t think that
I caused a defect of dodd-frank I think
it’s more of an effect of all the fines
that were imposed on the banks for the
mortgage crisis and so the banks I think
not unjustifiably are kind of worried
12:11
about making mortgage loans that they
12:14
might they might not should or should
12:16
not make so the financial crisis what he
12:19
said the main problem was the products
12:22
the tools available or the culture ah I
would say is one of the unsung aspects
of the financial crisis that people have
definitely not written that up about
which is psychology yes and what I mean
by psychology is you have an entire
generation of Wall Street executives who
grew up in the 90s in the early aughts
who really only had one experience which
is they made more money every single
year now what they didn’t really notice
was that as they were making more money
every single year the leverage of their
various institutions was increasing
every single year
now they thought they were making more
money because it was them but really
what was happening as they were making
more money because their institution was
becoming more levered and really what
happened was they mistook leverage for
genius
I wrote that sentence by the way I read
that I do it’s a good son it’s a good
sentence I don’t write a lot of good
sentences but that’s definitely one of
them tweetable yes it’s very good right
if I tweeted I would tweet listen I am
so let’s imagine you went to a Wall
Street executive in circa 2006 and you
said to the CEO of you know pick the
name of your institution and you’d say
dude listen the entire paradigm of your
career is wrong you have to de-lever so
did you ever have a conversation like
that I did I’ve never told this story
before there’s like AI now it can be
told story okay um so the day is
February 2008 and I have a meeting with
the head of Risk Management and one of
the big Wall Street firms we won’t name
them anyone else today but it wouldn’t
matter because I would have had the same
it would have been the same conversation
with any of them
given what was discussion one so I sit
down with a head of risk management of
one of the big farms it’s one month
before Bear Stearns almost to the day
and I say to him you have got to de-lever
and you’ve got to de-lever now because
Armageddon is coming the point of it is
the direct that’s almost a direct quote
I used the word Armageddon and he looks
at me and he says you know I hear what
you’re saying but you know we at X we
can be much more levered to the bank now
back then there was a bank based in
Detroit called net city it was a
medium-sized regional bank and it had a
lot of subprime mortgages so it was a
bit of the topic of the day and so I
said to him you know do you know what
happens if knacks City goes down and he
says no what happens I said nothing the
regulator’s come in they seize the bank
they pay off the depositors they fix the
bank they sell the bank the government
takes something of a loss end of story
do you know what happens if your firm
goes down planet earth burns who should
be more levered and he looked at me like
I was speaking ancient Greek like he
just it was so outside his paradigm it’s
like he didn’t know I was talking about
and I realized it was over that there
was no way these guys were going to do
what needed to be done before the world
blew up but I think we’re going to see
someone to go to jail right
I mean you can have to break up the bank
partido I don’t know I don’t know I have
a feeling in a few years people are
going to be doing what they always do in
the economy tanks they would be blaming
immigrants and poor people it’s not X
equate from you is that Hollywood’s a
great quote it’s a great mark it’s not
yellow it was written by Adam McKay with
the author and director and but did you
16:26
think in those terms back then oh I
16:28
always think in those times always
16:30
thinks in terms of disaster yes why is
16:33
that just I have a very strange DNA do
16:39
you see this paradigm changing at all
16:40
this culture I was told check it steady
16:42
change they’ve been beaten to a pulp
16:44
yeah
16:45
you know the dodd-frank gave much more
16:49
power to the Fed to regulate the banks
16:53
that power was put in the hand of
16:56
Governor Daniel Tarullo and I think he’s
17:00
done a tremendous job of de-levering the
17:03
banks in the United States you know I
17:05
would say the CEOs of the bank’s fought
17:09
him kicking and screaming but I’d say in
17:12
the last year or two they gave up and I
17:15
know you said before that Europe’s done
17:18
not as good of a job with that that’s
17:21
correct why well it’s what your starting
17:25
point so you know just pre-crisis
17:29
Citigroup is levered thirty five to one
17:31
deutsche bank is lowered over 50 to one
17:35
so today’s Citigroup is levered ten to
17:37
one and deutsche bank depending on how
17:40
you calculate is probably levered twenty
17:41
five to one so everybody’s leverage is
17:44
lower European banks have always been
17:48
much more levered than US banks so
17:51
they’re still more levered they just
17:53
left levered than they were right not
17:57
they’re not de-levered enough to my taste
17:59
yes
18:00
but that again we gets back to the Paula
18:03
Mills they’re not profitable enough per
18:05
dollar employed so the regulator’s in
18:08
Europe let them be more levered I think
18:10
it’s a mistake but that’s the way the
18:12
systems it works okay and everyone’s
18:16
asking you what the next one of the
18:17
crisis is going to be so I don’t have a
18:19
dick I know I’m not going to ask you
18:20
money I will ask you that question I say
18:25
you know everybody’s trying to pick the
18:28
next big short and I’ve done that
18:30
already I’m in no rush
18:31
okay thanks a lot Steve Eisman thank you