TAKE IT ON THE CHIN.
CHARLES:  JOINING US NOW,
LAWRENCE WHITE.
PROFESSOR, THANK YOU FOR JOINING
US.
>> THANK YOU.
CHARLES:  YOUR THOUGHTS ON THIS,
THE MEETING YESTERDAY, THE
CONFERENCE CALL, AND THEN AGAIN
THIS CONVENING OF THE SO-CALLED
PLUNGE PROTECTION TEAM TODAY.
>> WELL, IT IS UNUSUAL FOR THE
SECRETARY OF THE TREASURY TO BE
CALLING MAJOR BANKS.
IT FEELS LIKE HE'S FIGHTING THE
LAST WAR OF 10 YEARS AGO WHEN IT
WAS A BANK PROBLEM.
HERE, WE'VE GOT THE ECONOMY
DOING FINE, THE BANKS ARE
BASICALLY OKAY.
IT'S THE MARKETS ARE NERVOUS
ABOUT WHAT LAYS IN FRONT OF US.
MARKETS ARE ALWAYS LOOKING
FORWARD AND THEY'RE WORRIED,
GEE, WE HAVE A GOVERNMENT
SHUTDOWN AND PERHAPS WHAT
HAPPENS IN MARCH WHEN WE HAVE TO
HAVE THE NATIONAL DEBT ROLLED
OVER AND RENEWED.
WE'VE GOT A SECRETARY OF DEFENSE
WHO HAS RESIGNED AND IS BEING
FORCED OUT EARLY.
THERE'S JUST A LOT OF
UNCERTAINTY, A LOT OF WORRY AND
THAT DOESN'T MAKE THE MARKETS
FEEL VERY GOOD.
CHARLES:  FROM AN ECONOMIC POINT
OF VIEW, I MEAN, PRESIDENT OBAMA
HAD THREE DEFENSE SECRETARIES
WHO HAD SHORTER TENURES THAN
MATTIS.
THERE WAS SPECULATION HE WAS
GOING TO BE OUT FOR A WHILE.
AS FAR AS SOME OF THESE OTHER
THINGS, YOU KNOW, THE SHUTDOWN,
ECONOMICALLY THAT'S NOT ENOUGH
TO ROLL A $21 TRILLION ECONOMY,
PARTICULARLY WHEN 75% OF THE
ECONOMY IS FUNDED.
IS THERE SOMETHING WE'RE
MISSING?
HERE'S WHAT I'M ASKING ABOUT,
IT'S CLOs.
I DON'T KNOW WHAT THEY ARE.
WHEN I HEAR ABOUT A NEW
INTERESTING INSTRUMENT THAT WALL
STREET SEEMS TO EMBRACE, WHETHER
IT'S JUNK BONDS OR THE
COLLATERALIZED DEBT OBLIGATIONS,
YOU WONDER IF THERE'S A TICKING
TIME BOMB WE SHOULD KNOW ABOUT.
>> YOU PROBABLY SHOULDN'T INVEST
IN CLOs, STAY AWAY.
STAY AWAY.
[ LAUGHTER ]
>> BUT MORE GENERALLY, LOOK,
MARKETS ARE ALWAYS GOING TO BE
INNOVATING.
THEY ARE LOOKING FOR THE NEW
THING.
SOME OF THEM ARE JUST FINE.
OTHERS NOT SO MUCH.
BUT THE BASIC STRUCTURE OF THE
BANKS ARE IN MUCH BETTER SHAPE
TEN YEARS LATER THAN THEY WERE
BACK IN 2007, 2008.
NOW, WE COULD STILL HAVING COME
OUT OF THE BLUE, OUT OF THE
DEEP, BUT PROBABLY NOT.
IT'S NOT A BANK PROBLEM, AT
LEAST AT THE MOMENT.
>>
.CHARLES:  OTHER COUNTRIES GO OT
AND PROTECT THEIR MARKETS.
CHINA HAS BEEN PROTECTING ITS
MARCH HE GETS.
WE KNOW JAPAN THEY ACTUALLY BUY
EQUITIES.
THEY DON'T BUY FUTURES.
THEY GO OUT AND BUY OPERATOR.
WE KNOW SOME -- BUY OWNERSHIP.
WE KNOW SOME SOVEREIGN WEALTH
FUNDS BUY EQUITIES AND SUPPORT
THEIR MARKETS.
IS IT TIME TO TALK ABOUT DOING
THAT IN THIS COUNTRY?
>> I SURE HOPE NOT.
THAT'S THE LAST THING A MARKETS
ORIENTED ECONOMY, MARKETS
ORIENTED GOVERNMENT OUGHT TO BE
DOING.
LOOK, THIS IS THE SENTIMENT OF
THE BUYERS AND THE SELLERS,
INVESTORS.
AND IT'S NOT ONLY BIG GUYS BUT
PEOPLE THROUGH THEIR PENSION
FUNDS, THROUGH THEIR 401-KS.
THEY EITHER DECIDE IT'S A GOOD
TIME OR A BAD TIME.
THAT SENTIMENT OUGHT TO BE
UNDERSTOOD, OUGHT TO BE
RECOGNIZED.
THE LAST THING WE OUGHT TO SEE
IS GOVERNMENT ACTIONS TO TRY TO
PROP UP MARKETS.
>> PROFESSOR, ONE OF THE THINGS
I WORRY ABOUT, GOING BACK TO THE
COMMENTS YOU MADE EARLIER
TALKING ABOUT COLLATERALIZED
DEBT AND LOAN OBLIGATIONS, IS
CREDIT.
CHARLES ASKED ABOUT THE SMALLER
BANKS.
I DO WORRY THAT AS FOLKS WHO
PROVIDE CREDIT START TO WORRY
ABOUT THE FUTURE OF THE ECONOMY
AND GET TIGHTER, IT BECOMES
SELF-FULFILLING PROPHECY AND THE
ECONOMY BEGINS TO SLOW DOWN.
IS THAT A RISK FOR 2019?
>> I DON'T THINK SO.
BUT EVEN IF IT WERE, THAT'S
WHERE THE FEDERAL RESERVE COMES
IN.
THE FEDERAL RESERVE CAN THEN
SIGNAL BY SAYING WE'RE NOT GOING
TO BE RAISING INTEREST RATES
ANYMORE.
MAYBE EVEN THEY LOWER A LITTLE
BIT.
THAT'S A SIGNAL TO THE MARKETS
AND SIGNAL TO THE BANKS THAT,
LOOK, WE'RE HERE, WE WILL
SUPPORT YOU, WE EXPECT YOU TO BE
LENDING.
CHARLES:  ON THAT NOTE, THEN,
THIS LAST FOMC MEETING LEFT WALL
STREET IN A TAILSPIN.
WE RALLIED UP THAT SAME SESSION
IN ANTICIPATION OF PERHAPS A FED
THAT ECHOED WHAT MOST PEOPLE
THOUGHT THEY WERE SEEING IN THE
ECONOMY.
INSTEAD, IT LOOKED LIKE THE
FEDERAL RESERVE WAS DOING THINGS
THAT THEY WANT, WE'RE GOING TO
STAY ON A STEADY PATTERN.
PEOPLE ARE CONCERNED, I THINK
RIGHTFULLY, THAT THE FEDERAL
RESERVE WILL TRIGGER A
RECESSION.
>> YOU'RE NOT ALONE IN THAT.
BUT THE FED HAS A DUAL MANDATE,
TRUE SINCE 1978.
THEY'RE SUPPOSED TO ENSURE PRICE
STABILITY AND THEY'RE SUPPOSED
TO ENSURE FULL EMPLOYMENT.
AND IT'S REALLY A FINE LINE THAT
THEY HAVE TO WALK.
WE HAVE A ROBUST ECONOMY BUT WE
COULD -- AND SO FAR INFLATION IS
UNDER CONTROL.
CHARLES:  SO FRAGILEITY, IT
WON'T END IN THE ECONOMY,
WHETHER IT'S HOUSING, THE STOCK
MARKET, WHETHER IT'S THE WORLD
AROUND US COLLAPSING, THAT
PEOPLE WONDERING IT SEEMS LIKE
THE FED ISN'T ACKNOWLEDGING.
I WANT TO LET JONAS GET IN.
>> I'M GLAD TO HAVE AN ECONOMICS
PROFESSOR HERE.
LET ME GET TO THIS.
YOU'RE TALKING ABOUT THE FED.
>> PEOPLE START THROWING DARTS
AT ME.
>>
.>> WE WANT TO HIT YOUR MIND.
THAT'S WHY YOU'RE HERE.
DO YOU THINK THE FEDERAL RESERVE
IS LEGITIMATELY CONCERNED ABOUT
INFLATION, FOR LACK OF A BETTER
WORD, 1970s WATCH, THINKING
RATES WILL GO UP, OR ARE THEY ON
BUBBLE WATCH AND THEY DON'T WANT
TO HAVE A BUBBLE HAPPEN THAT
ULTIMATELY CAUSED THE RECESSION.
ARE THEY REALLY THINKING
INFLATION WILL TAKE OFF IN THIS
ECONOMY?
>> GOOD QUESTION AND I DON'T
KNOW THE INNER WORKERS OF
MR. POWELL'S MIND OR EVEN OF HIS
STAFF.
I THINK IT'S INFLATION.
THE ATTITUDE OF THE FEDERAL
RESERVE HAS BEEN THE MARKETS ARE
GOING TO DO WHAT THEY'RE GOING
TO DO.
OF COURSE, WE HAVE TO BE
CONSCIOUS OF WHAT'S GOING ON,
BECAUSE SUBSTANTIAL DECLINE IN
THE MARKETS DOES AFFECT HOW
PEOPLE FEEL ABOUT THE ECONOMY
AND THEIR PURCHASING AND THEIR
INVESTMENTS.
AGAIN, THE DUAL MANDATE, KEEP
INFLATION UNDER CONTROL,
MAINTAIN FULL EMPLOYMENT.
AND THEY'RE CONCERNED, ALL
RIGHT, AT THE MOMENT WE HAVE
FULL EMPLOYMENT.
COULD WE SEE AN OVER-HEATING?
WE NEED TO ANTICIPATE BECAUSE,
AGAIN, GOING BACK TO WHAT YOU
SAID, IN THE 1970s THE FEDERAL
RESERVE WAITED TOO LONG AND IT
TOOK US A LONG
TOOK US A TONG
TOOK US A TIMG
TOOK US A TIME, ALL THE WAY
THROUGH THE 1980s BEFORE THE
FEDERAL RESERVE WAS ABLE TO
BRING INFLATION BACK DOWN.
CHARLES:  ALSO, WE'RE OUT OF
TIME, BUT NEXT TIME WE'LL COME
BACK AND TALK ABOUT THE AMAZON
ECONOMY AND CAN WE EVER FACE THE
KIND OF INFLATIONARY THREAT THAT
WE FACED IN THE 1970s BECAUSE
THERE'S EVIDENCE THAT MAYBE THAT
COULD NEVER HAPPEN AGAIN, AT
LEAST NOT IN THE NEAR TERM.
WE'VE GOT TO LEAVE IT THERE.
>> AS MY GRANDMOTHER WOULD HAVE
SAID, FROM YOUR LIPS TO GOD'S
EARS.
