Transcripts:
Fast Money Interview: Laura D’Andrea Tyson
Date: November 24, 2008
Dylan Radigan: We are joined now by a member of his (Obama) advisory community, Laura Tyson, former member of the Clinton Administration, joins us now from Berkeley California, where she is a professor at their school of business. And professor, we welcome you to the program.
Laura D’Andrea Tyson: Thanks a lot.
Dylan Radigan: What justifies in your mind the treatment of Citigroup today? In other words…maybe I shouldn’t ask the question that way. What is your opinion of the Citigroup deal today, knowing that, again, this is not your world, necessarily, that you’re not in charge of policy at this point, but you’re obviously an observer.
Laura D’Andrea Tyson: Right, right… Well, as an observer of policy, I think it’s very important to say that we are in an unprecedented, historic capital market crisis. That in such a crisis, and I heard some of the conversation just preceding on your program, uh, it’s not clear at all that market fundamentals are at play, there’s a lot of fear and panic at play. When there’s fear and panic at play, one of the things that must happen is that the large government balance sheet must be used to save institutions at risk, if those institutions are important to the system’s functioning. Citigroup is important to the system’s functioning, both in the United States and around the world. And we have to do whatever is necessary to bring the capital market system back into some normalcy of functioning. And that’s how I interpret what was done, announced over the weekend.
Dylan Radigan: If you look at the sidebar to it, however, which is the cost of capital being attractive to them, and in effect a subsidy many would argue for them, and that many executives including Bob Rubin, who’s one of your colleagues advising Barrack Obama, have managed to make hundreds of millions if not billions of dollars benefitting from this system of credit creation that now is coming out of the taxpayer’s hide. What is your view of that aspect of it?
Laura D’Andrea Tyson: I don’t think it’s appropriate to think about this as coming out of the taxpayer’s hide. I think what we have to say here, and this was said by President-elect Obama this morning. The interests of Wall Street and Main Street are one in this kind of crisis situation. Homeowners can’t get mortgages, students can’t get loans, people can’t get car loans, businesses can’t get loans to run. We need a Wall Street that is functioning…
Dylan Radigan: No one disputes that…
Laura D’Andrea Tyson: We need to look at…we need to look at this as a systemic bailout, I don’t even like the term bailout, an effort to restore normalcy to the system. When we look around the world at previous economic crisis, capital market crisis of this significance, and there are very few, it is normally the case that at some point the government balance sheet has to come in to back up the balance sheets of private institutions, and that’s how we should see this…
Dylan Radigan: Right, and but…my question, understood, and I don’t think…and I don’t contest any of that. What I was asking though, is that the individuals that helped create the structure that created the crisis paid themselves hundreds of millions of dollars, and now have come to the taxpayer for capital.
Laura D’Andrea Tyson: The point is, they haven’t come to the taxpayers for capital.
Dylan Radigan: No, they just created a system that forced their successors to do so.
Laura D’Andrea Tyson: The system… Look, there was a system in which everyone believed that housing prices would never go down. There was a system which allowed people to hedge their risk so that no one believed they had any risk. So you had a system creating an outcome. And I think it’s a mistake, I really think it’s a mistake, to look at individuals or individual institutions and say “there, that’s where the blame lies.”
Dylan Radigan: It’s not about the blame.
Laura D’Andrea Tyson: There is a systemic failure…
Dylan Radigan: no, it’s not about blame. Let me be clear though. It’s not about blame. Just the same as if I buy a house that I can’t afford inside of the system that you describe, the system is set up to remove that house from me because I actually never could afford that house, probably didn’t belong in it…
Laura D’Andrea Tyson: {interrupts} but you see
Dylan Radigan: let me finish, please. The same system allowed me to bonus myself a few hundred million dollars creating 40 Trillion dollars worth of credit for every Trillion that I had, and I really didn’t make that money either.
Laura D’Andrea Tyson: Here’s what I would say, here’s what I would say…It is very important right now, for the United States of America, for the President-elect, for the new Congress, for everyone on Main Street, to solve the problem we face. There is plenty of time in the future to try to un…to piece together how we got here… If we start focusing on that now, and take our eye off the ball of the stimulus package that needs to be passed..
Dylan Radigan: agreed…no contest
Laura D’Andrea Tyson: or of other possible…so…I don’t think the focus should be on individuals and their past compensation, I just don’t think that’s the focus…
Karen Finerman: Miss Tyson, it’s Karen Finerman…
Laura D’Andrea Tyson: I think the focus is the stimulus. Let’s talk about the stimulus, I mean how big should it be?
Karen Finerman: I’d like to talk about the stimulus…Can you tell me about…I’ve seen a bunch of different numbers, about whether it’s $500 Billion, $700 Billion. Can you give me a little more clarity, on what kind of stimulus, whether it’ll be a check right away like they did in May which seemed to have very short-lived results, will it be more of a long-term infrastructure type stimulus that requires a lot of planning to sort of, gear-up, some of both, is it a one-year or two-year package. What are you thinking?
Laura D’Andrea Tyson: Well I think, first of all, as we know the depth of the crisis and challenge we face, uh, is becoming more apparent. So that whereas just a few weeks ago, forecasters may have been predicting a first quarter where GDP, private demand, was down by 2%, now they’re predicting things like private demand is down by 4%. So what’s happening is the estimates of the size of a stimulus that could really make up for the absolute dramatic decline in private demand, the size of the stimulus is rising. People have been marking up the estimates from two to three to four; uh, I saw a recent report by a Goldman Sachs economist saying we should get up to six.
Dylan Radigan: no, and we understand…sorry to interrupt you, but we’re running a clock here. But I think the question everybody wants answered…on the stimulus…we know that there are many variables, and lots of things we do not know. These traders live it every day; we all live it every day.
Laura D’Andrea Tyson: Yes they do.
Dylan Radigan: So, we don’t need that information, quite honestly.
Laura D’Andrea Tyson: Ok, what information would you like?
Dylan Radigan: We would like the mathematical formula or set of principles you are utilizing to try to determine how much money you want to spend on our economy, understanding that it is changeable based on the dynamic nature of the data set.
Laura D’Andrea Tyson: I think we want to, I think my advice would be, we want a size in stimulus, uh, that basically is making up for the shortfall in domestic demand. So between two and four percent, between 300 and 600 billion dollars, would be my personal advice.
Now, what should it be?
President-elect Obama, who was one of the first to call for a second economic stimulus during the campaign, made it very clear what his priorities are, and he said them today. We need to make sure that we can invest in infrastructure. I disagree with the point made that we cannot roll out significant spending on infrastructure quickly. Look around at every local and state government in the country that is being forced to close down projects that are underway. You can keep those projects going, keep people employed.
So, that’s number one.
Number two, is energy, alternative energy. We really can do a lot with households, with businesses, to improve energy efficiency. There’s lots of things one can do with refurbishing buildings, refurbishing households, that cost money, it keeps people employed…
Date: November 24, 2008
Dylan Radigan: We are joined now by a member of his (Obama) advisory community, Laura Tyson, former member of the Clinton Administration, joins us now from Berkeley California, where she is a professor at their school of business. And professor, we welcome you to the program.
Laura D’Andrea Tyson: Thanks a lot.
Dylan Radigan: What justifies in your mind the treatment of Citigroup today? In other words…maybe I shouldn’t ask the question that way. What is your opinion of the Citigroup deal today, knowing that, again, this is not your world, necessarily, that you’re not in charge of policy at this point, but you’re obviously an observer.
Laura D’Andrea Tyson: Right, right… Well, as an observer of policy, I think it’s very important to say that we are in an unprecedented, historic capital market crisis. That in such a crisis, and I heard some of the conversation just preceding on your program, uh, it’s not clear at all that market fundamentals are at play, there’s a lot of fear and panic at play. When there’s fear and panic at play, one of the things that must happen is that the large government balance sheet must be used to save institutions at risk, if those institutions are important to the system’s functioning. Citigroup is important to the system’s functioning, both in the United States and around the world. And we have to do whatever is necessary to bring the capital market system back into some normalcy of functioning. And that’s how I interpret what was done, announced over the weekend.
Dylan Radigan: If you look at the sidebar to it, however, which is the cost of capital being attractive to them, and in effect a subsidy many would argue for them, and that many executives including Bob Rubin, who’s one of your colleagues advising Barrack Obama, have managed to make hundreds of millions if not billions of dollars benefitting from this system of credit creation that now is coming out of the taxpayer’s hide. What is your view of that aspect of it?
Laura D’Andrea Tyson: I don’t think it’s appropriate to think about this as coming out of the taxpayer’s hide. I think what we have to say here, and this was said by President-elect Obama this morning. The interests of Wall Street and Main Street are one in this kind of crisis situation. Homeowners can’t get mortgages, students can’t get loans, people can’t get car loans, businesses can’t get loans to run. We need a Wall Street that is functioning…
Dylan Radigan: No one disputes that…
Laura D’Andrea Tyson: We need to look at…we need to look at this as a systemic bailout, I don’t even like the term bailout, an effort to restore normalcy to the system. When we look around the world at previous economic crisis, capital market crisis of this significance, and there are very few, it is normally the case that at some point the government balance sheet has to come in to back up the balance sheets of private institutions, and that’s how we should see this…
Dylan Radigan: Right, and but…my question, understood, and I don’t think…and I don’t contest any of that. What I was asking though, is that the individuals that helped create the structure that created the crisis paid themselves hundreds of millions of dollars, and now have come to the taxpayer for capital.
Laura D’Andrea Tyson: The point is, they haven’t come to the taxpayers for capital.
Dylan Radigan: No, they just created a system that forced their successors to do so.
Laura D’Andrea Tyson: The system… Look, there was a system in which everyone believed that housing prices would never go down. There was a system which allowed people to hedge their risk so that no one believed they had any risk. So you had a system creating an outcome. And I think it’s a mistake, I really think it’s a mistake, to look at individuals or individual institutions and say “there, that’s where the blame lies.”
Dylan Radigan: It’s not about the blame.
Laura D’Andrea Tyson: There is a systemic failure…
Dylan Radigan: no, it’s not about blame. Let me be clear though. It’s not about blame. Just the same as if I buy a house that I can’t afford inside of the system that you describe, the system is set up to remove that house from me because I actually never could afford that house, probably didn’t belong in it…
Laura D’Andrea Tyson: {interrupts} but you see
Dylan Radigan: let me finish, please. The same system allowed me to bonus myself a few hundred million dollars creating 40 Trillion dollars worth of credit for every Trillion that I had, and I really didn’t make that money either.
Laura D’Andrea Tyson: Here’s what I would say, here’s what I would say…It is very important right now, for the United States of America, for the President-elect, for the new Congress, for everyone on Main Street, to solve the problem we face. There is plenty of time in the future to try to un…to piece together how we got here… If we start focusing on that now, and take our eye off the ball of the stimulus package that needs to be passed..
Dylan Radigan: agreed…no contest
Laura D’Andrea Tyson: or of other possible…so…I don’t think the focus should be on individuals and their past compensation, I just don’t think that’s the focus…
Karen Finerman: Miss Tyson, it’s Karen Finerman…
Laura D’Andrea Tyson: I think the focus is the stimulus. Let’s talk about the stimulus, I mean how big should it be?
Karen Finerman: I’d like to talk about the stimulus…Can you tell me about…I’ve seen a bunch of different numbers, about whether it’s $500 Billion, $700 Billion. Can you give me a little more clarity, on what kind of stimulus, whether it’ll be a check right away like they did in May which seemed to have very short-lived results, will it be more of a long-term infrastructure type stimulus that requires a lot of planning to sort of, gear-up, some of both, is it a one-year or two-year package. What are you thinking?
Laura D’Andrea Tyson: Well I think, first of all, as we know the depth of the crisis and challenge we face, uh, is becoming more apparent. So that whereas just a few weeks ago, forecasters may have been predicting a first quarter where GDP, private demand, was down by 2%, now they’re predicting things like private demand is down by 4%. So what’s happening is the estimates of the size of a stimulus that could really make up for the absolute dramatic decline in private demand, the size of the stimulus is rising. People have been marking up the estimates from two to three to four; uh, I saw a recent report by a Goldman Sachs economist saying we should get up to six.
Dylan Radigan: no, and we understand…sorry to interrupt you, but we’re running a clock here. But I think the question everybody wants answered…on the stimulus…we know that there are many variables, and lots of things we do not know. These traders live it every day; we all live it every day.
Laura D’Andrea Tyson: Yes they do.
Dylan Radigan: So, we don’t need that information, quite honestly.
Laura D’Andrea Tyson: Ok, what information would you like?
Dylan Radigan: We would like the mathematical formula or set of principles you are utilizing to try to determine how much money you want to spend on our economy, understanding that it is changeable based on the dynamic nature of the data set.
Laura D’Andrea Tyson: I think we want to, I think my advice would be, we want a size in stimulus, uh, that basically is making up for the shortfall in domestic demand. So between two and four percent, between 300 and 600 billion dollars, would be my personal advice.
Now, what should it be?
President-elect Obama, who was one of the first to call for a second economic stimulus during the campaign, made it very clear what his priorities are, and he said them today. We need to make sure that we can invest in infrastructure. I disagree with the point made that we cannot roll out significant spending on infrastructure quickly. Look around at every local and state government in the country that is being forced to close down projects that are underway. You can keep those projects going, keep people employed.
So, that’s number one.
Number two, is energy, alternative energy. We really can do a lot with households, with businesses, to improve energy efficiency. There’s lots of things one can do with refurbishing buildings, refurbishing households, that cost money, it keeps people employed…
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