What Went Wrong in Great Financial Crisis Stimulus with Reporter Jon Hilsenrath

Summary

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Masters in Business – What Went Wrong in Great Financial Crisis Stimulus with Reporter Jon Hilsenrath

Podcast: Masters in Business
Host: Barry Ritholtz (Bloomberg)
Guest: Jon Hilsenrath (former Wall Street Journal Chief Economics Correspondent; “Fed Whisperer”; founder, Serpa Pinto Advisory)
Date: October 31, 2025

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Episode Overview

This episode features an in-depth conversation between Barry Ritholtz and Jon Hilsenrath, renowned journalist and “Fed Whisperer.” Hilsenrath shares war stories from his long career covering the Federal Reserve and financial crises at the Wall Street Journal, and offers insight into the policy missteps surrounding the Global Financial Crisis (GFC) stimulus—what went right, what went wrong, and what the unintended consequences have been. The discussion weaves through Hilsenrath’s background, his unique reporting perspective, the future and independence of the Federal Reserve, and the economic and social ramifications of stimulus policies.

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Key Discussion Points & Insights

Jon Hilsenrath’s Background and Entry into Journalism

• Career Path (03:34–04:30)
  • Hilsenrath grew up on Long Island, began as a sports writer at 16, and intended to stay in journalism.
  • Early ambition: sports, then war correspondent; ended up specializing in economics.
  • He sought an MBA at Columbia to understand corporate finance:

    "Basically, what I wanted to do was learn how a balance sheet worked... I didn't understand anything about what made Wall Street go." (04:56)

• Early International Reporting (06:41–08:18)
  • Started out at Knight Ridder, moved to Hong Kong with the Wall Street Journal in 1997.
  • Covered the 1997 handover to China and the Asian financial crisis.
  • Lessons on bank collapses (e.g., Peregrine Investments) prepared him for covering the 2008 financial crisis.

9/11 and Economic Reporting in New York (10:31–13:55)

• First-person account of being on the ground during September 11th:
  • Ran out into the street with a notebook as the second plane flew overhead.
  • Paul Steiger, editor, told him: "Go figure out what happened and don't get yourself killed." (12:29)
• Emphasized the adrenaline and sense of purpose journalism brings during historic events.

Becoming the “Fed Whisperer” (14:27–30:16)

• Path to Covering the Fed (14:27–16:47)
  • Assigned to the Fed in summer 2008—Lehman collapsed during his first week.
  • Recognized for connecting dots quickly and getting inside information.
• AIG vs. Lehman – Why the Policy Diverged (17:05–19:14)
  • "They had to lend against good collateral. And if it was bad collateral, they couldn't do it." (18:40)
  • Authorities hoped they’d done enough with earlier interventions but were caught off-guard by market panic.
• Favorite Long-Form Stories (20:21–23:36)
  • Highlighted features anticipating the global housing boom’s dangers (2005) and stories connecting global trade using a child’s homework to illustrate US exports of recycled waste to China.

The Hard Work Behind Fed Journalism (25:38–30:16, 44:29–46:42)

• On the “Fed Whisperer” Moniker (26:03–30:16; 44:29–46:42)
  • Dislikes the term initially: "It kind of trivializes what we're trying to do here..." (26:03)
  • Scoops came from triangulating sources, not bat-phone leaks: "You had to do a lot of reporting, a lot of triangulation." (28:06)
  • Drew analogy to sports beat reporting—knowing all the players in the “locker room.”

The Fed, Policy Mistakes, and the Crisis Legacy

Why the GFC Stimulus Missed the Mark (42:22–43:49)

• On Monetary vs. Fiscal Stimulus Post-2008:
  • "What didn’t happen during a normal financial crisis is fiscal stimulus along with monetary stimulus... What happened in the 2010s: you had all that monetary stimulus, very little fiscal stimulus. At least until the pandemic." (42:22)
• Post-Crisis Political Backlash and Inequality:
  • Saw the seeds of social anger and populist revolt from “elites bailing out elites” and the middle class left behind.
  • Received angry, even threatening, reader emails: people saw the Fed as favoring the wealthy (39:33–40:31).

Financial Crisis Case Studies (17:05–20:11)

• Differentiated Lehman and Bear Stearns—solvency vs. liquidity problems.
• Buffett’s offer to Lehman: arrogance or fatal miscalculation by Dick Fuld.

Fed Independence vs. Political Pressure, Today and Going Forward (30:42–38:18)

• Rise of Politicization in the Fed (30:42–33:08)
  • Describes the President’s moves to fill Fed seats with loyalists and the implications for monetary policy.
• Lisa Cook Firing Controversy and SCOTUS (33:35–38:18)
  • Attempts by the President to fire a Fed governor for cause, setting uncharted precedents for central bank independence.
  • "These are revolutionary times... standards and norms get thrown into the air and redefined." (38:18)

The “Revolution” and Economic Inequality

• Populist Blowback Was Inevitable (56:14–57:05)
  • Bernanke expected a populist blowback—just not from the political right.
  • The lesson: strict focus on saving the system had unintended social/economic consequences.
• Why Inequality is the Existential Economic Issue (79:16–81:02)
  • "There is no law, there is no rule in economics that says that wealth and income will be distributed in a fixed or predictable way." (79:41)
  • The industrial era built a middle class, but the “post-industrial/high-tech” era is breaking that social contract.

The Fed, Inflation, and Policy Dilemmas Today

• On the Inflation Target (69:05–71:37)

  • Supports the 2% target as the modern anchor to the dollar: "The 2% inflation target is the gold standard of the past."
  • Critiques on moving the target: "Once you've chosen it, then it's very hard to say, like we choose something else."

• On the Post-Pandemic Policy Mistake (64:05–65:21)

  • "Jay Powell made a mistake, frankly... he misread a supply shock to the economy as a potential demand shock."
  • Combination of overactive monetary and fiscal stimulus produced inflation.

• On Explainability and Accountability in Journalism (45:04–46:42)

  • Hilsenrath outlines his credo:
    1. Break stories.
    2. Explain a complicated world.
    3. Hold powerful people and institutions accountable.

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Memorable Quotes & Moments

• “The great thing about journalism...you're always surfing right on the edge of history.” —Jon Hilsenrath (05:25)
• “It wasn’t like there was some bat phone sitting at my desk and...‘Oh yes, Chairman Bernanke, what would you like me to say today?’” —Jon Hilsenrath (28:07)
• “We got fiscal policy exactly 180 degrees wrong after the financial crisis...What we needed was short-term stimulus and long-term fiscal austerity...they did [the opposite].” —Jon Hilsenrath (43:12)
• “Revolution started a long time ago, and I think we’re pretty well into it.” —Jon Hilsenrath (39:33)
• “If you bail them out, you’re putting off all these hard decisions. Basically...what you’re doing is trying to smooth out the curve.” —Jon Hilsenrath (54:02)
• “The 2% inflation target is the gold standard of the past...once you’ve chosen it, then it’s very hard to say, like we choose something else.” —Jon Hilsenrath (70:46)
• “There’s no rule that I see that says moving into a post-industrial high tech world...is going to distribute income and wealth the same way.” —Jon Hilsenrath (79:41)

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Timestamps for Key Segments

• Hilsenrath’s Background & Early Years: 03:36–08:18
• Reporting on 9/11: 11:24–13:55
• Reporting on the Fed & the GFC: 14:27–20:11
• Feature Stories & “Looking Around Corners”: 20:21–23:36
• Fed Whisperer Reality: 26:03–30:16, 44:29–46:42
• Fed Consensus, Politicization, Lisa Cook Case: 30:42–38:18
• Populist Backlash and the “Revolution”: 38:18–42:12
• Fiscal vs. Monetary Stimulus, Inequality: 42:22–44:27, 79:16–81:02
• Explaining the 2% Inflation Target: 69:05–71:37
• Advice to Aspiring Journalists: 91:20–93:25

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Thematic Flow & Tone

Hilsenrath and Ritholtz trade observations with a balance of insider humor (media’s process, Fed folklore), candor, and concern for the larger ramifications of policy choices. The overall tone is thoughtful, self-aware, and occasionally bemused at the ironies of history and the repetitive mistakes of elite institutions.

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Final Takeaways

Jon Hilsenrath’s core message: Effective journalism is hard, patient work—about breaking news, explaining the complicated, and holding power accountable. The financial crisis stimulus failed to fully account for political and distributional consequences. Today, Fed independence, inequality, and our economic future are threatened not just by technical policy errors, but by shifting political and technological revolutions reminiscent of 18th-century France.

"We're living through historically changing times on several levels...an abundance of information includes an abundance of really bad information and misinformation. We're living through all of that right now." (61:47–63:37)

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For listeners seeking clear-eyed context on central banking, policy, and the deeper roots of today’s populist turbulence, this episode delivers perspective, story, behind-the-scenes process, and a warning: the real costs of crisis-fighting are sometimes political and social, not just economic.

Transcript

[Barry Ritholtz]

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[Barry Ritholtz]

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[John Hilsonrath]

Insights based decisions ready to bring your visions to life. Learn [e-mail] Bloomberg Audio Studios podcasts Radio News this is Masters in Business with Barry Ritholtz on Bloomberg Radio.

[Barry Ritholtz]

This week on the podcast, another extra special guest. John Hilsonrath was a reporter for the Wall Street Journal covering everything from September 11th to the Federal Reserve for 26 years. His coverage at the Journal of the Fed got him nicknamed the Fed Whisperer for his many, many page one scoops. He's now running Serpa Pinto Advisory multiple Pulitzer Prize nomination. Author of a book about Janet Yellen. Just a whirlwind of information about the economy, markets and the Fed. I thought the conversation was absolutely fascinating and I think you will also, with no further ado, my conversation with the Wall Street Journal's John Hilsonrath.

[John Hilsonrath]

It is my extra special honor to be here.

[Barry Ritholtz]

Does it feel like you're in the enemy's territory? Competitive?

[John Hilsonrath]

No. I've crossed over. I've crossed over.

[Barry Ritholtz]

You're now on the private side, right?

[John Hilsonrath]

Yeah, yeah, yeah, yeah. So I wanna talk and I should say on the Wall Street Journal page one story is it was. I'm a former editor too. I had that many. I don't have that many anymore because I left The Journal.

[Barry Ritholtz]

Well, but those. Those headlines.

[John Hilsonrath]

Like, that number isn't growing anymore.

[Barry Ritholtz]

Right, but it's. But it's not going down either. That number is a permanent record.

[John Hilsonrath]

Yeah. I appreciate it.

[Barry Ritholtz]

So you. You have that many, you know, that many poll positions, and you're. You're good to go.

[John Hilsonrath]

And there were that many battles with editors at the Wall Street Journal over, you know, structure that story and what headline to put on it.

[Barry Ritholtz]

That's a whole nother conversation we're going to get to. I am constantly reminding people, hey, you know, the writer, they don't get to pick the headline.

[John Hilsonrath]

That's the editor.

[Barry Ritholtz]

And people seem shocked by that.

[John Hilsonrath]

Yeah, it's a process.

[Barry Ritholtz]

Let's just say the very least.

[John Hilsonrath]

It's definitely a process.

[Barry Ritholtz]

Before we get to your writing and editing, let's talk a little bit about your background. Duke University undergrad, eventually an MBA from Columbia. What was the career plan?

[John Hilsonrath]

The career plan for me was always journalism. I actually like you. I'm a Long island boy.

[Barry Ritholtz]

Are you from Long island or from 6th grade on?

[John Hilsonrath]

Straight on. Okay. I grew. I grew up there.

[Barry Ritholtz]

Where? What town?

[John Hilsonrath]

Manhasset, Long Island.

[Barry Ritholtz]

Oh, and in Locust Valley. That's. We could play jewish geography. That's 2015, 20 minutes from me.

[John Hilsonrath]

Although Manhasset was a Catholic town, but, yes, very much so. Like, the career plan for me was always journalism. I started writing for the Manhasset Press when I was 16 years old. I started out as a sports writer. The original plan was sports writer.

[Barry Ritholtz]

Ah.

[John Hilsonrath]

And then the next plan was war correspondent. And then somehow I ended up becoming an economics writer. But I stuck to the plan of journalism.

[Barry Ritholtz]

So if journalism was always the plan, why an mba, why not a journalism degree?

[John Hilsonrath]

Well, so I about. Excuse me. About five years into my journalism career, I went back and did a fellow. When I decided I want to do economics and finance, I went back and did a fellowship at Columbia. It was called a Knight Badgett Fellowship.

[Barry Ritholtz]

Yep.

[John Hilsonrath]

Great program. And what they did is they took a few working journalists, and then they put them through the business school for a year.

[Barry Ritholtz]

That's interesting.

[John Hilsonrath]

And then after a year of that, I decided to do a few extra courses and get the mba. But I was really there for the fellowship to kind of. Basically, what I wanted to do was learn how a balance sheet worked, learn how corporate finance worked. I had spent a bunch of years covering macro, but I didn't understand anything about what made Wall street go. So that was why I went back there.

[Barry Ritholtz]

So what was it that drew you to journalism?

[John Hilsonrath]

Oh, wow. I just, you know, so I hated English class in high school. I don't know how you felt, but. But, you know, these four. And they're still teaching it the same way, by the way. These four paragraph essays of, you know, introduction. Supporting paragraph one. Supporting paragraph.

[Barry Ritholtz]

That was never a problem, Zoe. Subject, predicate. What's an adverb?

[John Hilsonrath]

Why do I need to know what an adverb? And then it's like, why am I, you know, why am I learning to do literary reviews of To Kill a Mockingbird anyway? I never thought I would have anything to do with writing, but then I got involved in covering the local sports teams, and I was like, this is really interesting. This is fun. I'm, like, right in the middle of the action and, like, right on the sideline, and people are paying attention and they care about it. And it just felt. It was just. I had. I had. I had fun. And I've come to see over my career that, like, the great thing about journalism and like, here we are in the Bloomberg newsroom is like, you're always surfing right on the edge of history. Right. And so that's really what ended up drawing it to me. I mean, there's the reporting aspect and the writing aspect, but just the idea of being, like, right in the middle of things as they're happening and trying to make sense of them and explain them was an addiction that I didn't get over for a long time.

[Barry Ritholtz]

And right out of Columbia, straight to the Wall Street Journal. Was that your first gig?

[John Hilsonrath]

Well, so I started out as a newswire in the early 1990s. Here we are back in Bloomberg. It was called Knight Ridder Financial News.

[Barry Ritholtz]

Oh, sure, yeah. Any relationship to the Knight Big Hotel?

[John Hilsonrath]

No, there was no relationship, except for the fact that the Knight family was really rich and could fund something.

[Barry Ritholtz]

Right.

[John Hilsonrath]

But Bloomberg was, like, up and coming at the time, and people weren't taking it as seriously as they should have. But I did that a few years, moved to Hong Kong with a newlywed on an exchange with my newlywed on an exchange program with Columbia, and then I signed up with the Journal over there.

[Barry Ritholtz]

How long were you in Hong Kong for?

[John Hilsonrath]

Five years. About five years, yeah. And that was a great.

[Barry Ritholtz]

This was when the UK was running the city and before I was there.

[John Hilsonrath]

Right. For the handover. Oh, really? You know, so, like, it's. I mean, this is another great thing about journalism is wherever I went, it seemed like stuff started blowing up. So I started with the Wall Street Journal in Hong Kong in July of 1997. That was the week that the UK handed the city over to China. And it was also the week that the Thai baht devalued and started the Asian financial crisis. So I got in there and I was like flying from day one on these stories. It turned out that the Asian financial crisis, particularly in given what I was doing, was a much bigger event than the handover. The handover was. Had long term implications obviously, but yeah, so I was there for all of it.

[Barry Ritholtz]

So how long after the handover did you start seeing the heavier hand of China in day to day life in Hong Kong?

[John Hilsonrath]

I think it's been a very slow and corrosive process. And frankly, when I was there from 96 through 2000, it was really the economic events that were driving the city at the time. So the first one was the Asian financial crisis and a property crisis that swept through Asia. One of my formative experiences as a journalist was covering an investment bank called Peregrine Investments that blew up. And I learned some important lessons that came back to help me in 2008 about how banks explode and, you know, or implode.

[Barry Ritholtz]

So when you came back to tell you it was Peregrine.

[John Hilsonrath]

Yeah. So one of the formative experiences of my career in Hong Kong was covering the collapse of an investment bank called Peregrine Investments. And you know, I saw, you know, why banks collapse and what causes these kinds of runs. It came in really handy 10 years later when Bear Stearns and Lehman Brothers were blowing up. And I had insights that kind of got me ahead of those stories in ways that surprised some people at the Journal. I don't know if you remember when those Bear Stearns hedge funds blew up.

[Barry Ritholtz]

Oh, I remember.

[John Hilsonrath]

I told my colleague Kate Kelly, who was all over that story, I said, they're gonna blow up this weekend. We need to have a 2000 word story ready to go Saturday. She's like, you're overreacting. I was like, watch. Cuz I saw what happens when creditors of banks get nervous. And I learned all that in Asia. The other big event in Asia in the late 1990s was of course, the handover. But for people in Hong Kong, it's a very entrepreneurial city. They were thinking, well, how do we get money? How do we make money off of this? How do we tire? The Chinese economy had been booming. It was a growth story. And so people were looking for ways to advance themselves economically. I think what we've seen happen to Hong Kong since, and this is perhaps a lesson, is that these attacks on democracy have been and free Speech and all that have been slow and corrosive. And it's a different city today than it was 25 years ago. But after the handover, it was just people trying to make better lives for themselves.

[Barry Ritholtz]

Right. Really, really fascinating. How do you get from Hong Kong.

[John Hilsonrath]

To D.C. to D.C. well, there was a stop in the middle in New York, so I was in Hong Kong for five years. Moved back to the US in early 2001. Right in time for the tech bubble to burst. And of course, 9, 11 again. Wherever I went, it seemed like terrible things were going on.

[Barry Ritholtz]

You seem to be an unlucky charm.

[John Hilsonrath]

And I used to joke that Wall street should just pass its hat around to retire me because then I just get out of everybody's bad news. But, yeah, came back. Was in the New York office for seven years writing about economics. I was our markets editor during the credit bubble and the credit bust and learned a lot in that experience about the interactions of economics and finance.

[Barry Ritholtz]

Where was your office in 2001?

[John Hilsonrath]

Our office was across the street from.

[Barry Ritholtz]

Right. Not the Fox, Wall street journal office on 6th Avenue.

[John Hilsonrath]

We moved up there after Murdoch took over.

[Barry Ritholtz]

That's right. This was. You guys were right in the middle of it.

[John Hilsonrath]

Yeah. So we were across the street in the World Financial center, the southernmost tower, I guess that World Financial Center 3. So I would walk across the west side highway on this land bridge every day.

[Barry Ritholtz]

Right. Right next to the Palm Court, if I recall correctly. That big glass enclosure.

[John Hilsonrath]

Yeah, yeah, yeah. We were across the street from that too. Anyway, I happened to be in early that morning trying to finish a story and I was heading over to the World Trade center for NABE conference. And, you know, Journal reporters tended to get in a little bit after nine because we tended to have late deadlines. I was in early. Was there for the first plane to hit. And then I ran out into the street with a notebook. Second plane flew right over my head.

[Barry Ritholtz]

Wow.

[John Hilsonrath]

Yeah.

[Barry Ritholtz]

And were you interviewing people? Like, what did you do that day?

[John Hilsonrath]

So, well, so I'll tell you exactly what I did. The first thing I did when I saw the inferno from the first plane is I ran downstairs to. I was where the reporters were stationed. I knew the top editors were down a floor. So I ran down there to see who was here and who was organizing things. I ran to Paul Steiger. Oh, I remember, the managing editor of the paper. I said, hey, I'm here. I'm here early. You know, I'm on it. What. What do you want me to do? And his advice was, go figure. Out what happened and don't get yourself killed. So, like, he immediately understood that something serious was at hand. So I grabbed a notebook and ran over that pedestrian bridge, saw a lot of carnage in the street, and started kind of writing. Well, the next thing I did was call my wife to let her know that there was a fire and I was okay because I figured it was going to be on the news within a matter of minutes and she knew where I was. So I called her to let her know I was okay. And then a few minutes later, as I'm in the street, the cops are trying to clear me out. They're saying, you can't be here. This is a dangerous place. So they're trying to move me out of the street. I walk, and then as I'm walking, kind of to follow the police's orders, the second plane flies right over my head. And I stuck around and interviewed witnesses and bystanders, and it was a pretty harrowing day.

[Barry Ritholtz]

Yeah. To say the very least. Let's bring it back to something a little less harrowing or more traditional. You have a really unusual career trajectory at the Wall Street Journal. You start, you know, fairly green, and eventually you're running what's probably the hottest desk in economics, which is covering the Fed, showing up at meetings, interviewing Fed governors, Fed presidents, and the chair of the fomc. What was that process like to get there?

[John Hilsonrath]

Yeah, well, you know, like, my goal at the Journal was always, well, I just wanted to write good stories, right. And the Journal, back when I started at the place was, ironically, you think of it as a finance, economics, markets kind of paper. And that's how I, you know, I grew up reading the New York Times and watching my dad read the Wall Street Journal. And, like, that stuff just didn't interest me. But what I discovered over time was that you had to be able to write long feature stories to succeed. Page one stories, we called them leaders. So, like, that's what I was focused on doing. What happened was by 2008, I had learned a lot, basically in part from my experiences in Asia, where I covered these banks collapsing and I saw a financial crisis, and I kind of felt like I had a roadmap for how it worked. And then obviously in 2008, I mean, the US markets were imploding. It was very complicated. It was credit driven. Our star Fed reporter left the paper that summer to go to the Economist magazine. Greg Yipp. He was a legend. And the guy that my future boss really wanted for the paper had just moved to London. A guy Named Mark Whitehouse, who's a Bloomberg Opinion.

[Barry Ritholtz]

Yep, I know that for sure.

[John Hilsonrath]

Brilliant, brilliant guy. And he was, I think, seen as the heir apparent. But he had just moved to London, so they had no one else.

[Barry Ritholtz]

And.

[John Hilsonrath]

And, like, I had learned a lot about markets. I had been writing about economics. I was just well placed. So they asked me to go to move down to Washington in the summer of 2008 to cover the Fed. And my first week on the job, Lehman Brothers blew up. So I'm on the phone that weekend with the top leadership of the Fed, trying to understand, you know, when Tim Geithner is talking to me about foam on the Runway after, like these, a day of intense meetings collapsed. You know, some of these officials wanted to talk to reporters to kind of keep us informed, because the next day was gonna be a big deal, and they just kind of wanted to have their story out there. So I was talking to top people six days into the job.

[Barry Ritholtz]

You're the perfect person to ask this question that I have never gotten a good answer to, which was, why was it that AIG was saved and Lehman was not? I have my own theory, but I haven't spoken to very many Fed officials in real time.

[John Hilsonrath]

I think it was sequential. I mean, remarkably right. So, I mean, what they were telling me Sunday night was that they hoped that they had enough of these facilities, rescue facilities, in place. You know, boy, I can't even remember all the acronyms anymore, but, you know, the liquidity that they were pumping into the other investment banks, and they hoped that they had enough of these facilities in place in order to keep the system stable the next day. You know, people forget. The Fed had a policy meeting on Tuesday. They didn't cut interest rates two days later. Like, Bernanke had a view that he thought that he had the situation under control. And they realized, you know, before AIG on Tuesday, on Monday, there was the money market mutual funds that broke the box.

[Barry Ritholtz]

That's right.

[John Hilsonrath]

And then all hell broke loose, and they realized that if they didn't do something, that things were gonna get much worse. So it was. The markets were in a panic, and I think the policymakers panicked, and at that point, they just were doing whatever they could to put out fires wherever they could.

[Barry Ritholtz]

I have two pet theories on Lehman, and I want to run them by you.

[John Hilsonrath]

Okay?

[Barry Ritholtz]

One is they looked at the balance sheets, the whole repo 105 and moving money off. Someone looked at the balance sheets and said, hey, you could rescue these guys, but they're insolvent and not just a little insolvent.

[John Hilsonrath]

Yeah.

[Barry Ritholtz]

They're tens of billions of dollars insolvent.

[John Hilsonrath]

Yeah.

[Barry Ritholtz]

So that was the Lehman Brother issue. Bear Stearns, it's like they weren't insolvent, they just had too much money tied up in illiquid assets. Was a liquidity issue, not a solvency issue.

[John Hilsonrath]

Yeah. And the rules that the Fed was trying to abide by at the very ed of its authority was that they had to lend against good collateral.

[Barry Ritholtz]

Right.

[John Hilsonrath]

And if it was bad collateral, they couldn't do it. And then the other problem that weekend was that they were starting to worry about who was going to be the next one to fail.

[Barry Ritholtz]

Aig.

[John Hilsonrath]

You had a lot of, you know, if, if they bailed out Lehman, then the market's target was going to point to Merrill Lynch. Right. So like, so they were just happy to get Merrill lynch bought that week. Right, right.

[Barry Ritholtz]

That's right. So the John thing, that was a great last minute deal he pulled off and it worked out well for everybody.

[John Hilsonrath]

Yeah. And they, and, and, and you know, it was coming at them fast and furious. And I mean what's kind of remarkable is that they had all summer to prepare for it and it still blew up in everybody's face.

[Barry Ritholtz]

The other, the other thing that I would have loved to be a fly on the wall for was at one point in time, Warren Buffett reached out to Dick Fuld at Lehman Brothers. And we don't really know the details, but it kind of looks like Buffett made an offer to Lehman and he kind of to Fuld and he kind of turned up his nose at a low ball offer. Eventually Buffett makes a similar offer to Goldman Sachs and Goldman was smart enough to take it. So you can imagine how Bernanke was thinking, wait, they turned down Buffett? Why do we have to get.

[John Hilsonrath]

Well, I mean, I think a lot matters in kind of when, at what price. Right. So I know that they were working very hard all summer to raise capital and a number of deals, including with Korean investors, fail to develop.

[Barry Ritholtz]

So, so we mentioned 319 page one bylines. What stands out as some of your favorite pieces?

[John Hilsonrath]

Well, I am most attached to those longer magazine feature stories. One of my favorites was a piece I wrote in 2005, the spring of 2005, I actually had just been beaten badly by the New York Times on another story and was a little frustrated and disappointed with myself that I had gotten beaten.

[Barry Ritholtz]

What was the topic that you were beaten on?

[John Hilsonrath]

Oh, that's, I mean that's a long story. It was about an academic economist with an unusual background that it's too complicated to get into. I mean, if you want to, we can get into it, but it's a.

[Barry Ritholtz]

All right, well, I'll take your word for it.

[John Hilsonrath]

It's a long story. But anyway, I worked on a story with a colleague in Thailand about how there was a global housing boom going on that was being funded by a global credit boom and increasingly complex credit, not just through banks, but through more sophisticated vehicles and sophisticated investor groups. And I quoted Robert Shiller in it, this is in June maybe of 2005, saying this was going to end in a global recession. And it connected the dots on something that was building, and it took a couple more years for it to really develop. I did another story, and the stories I love were the ones that were kind of looking around corners. But I did a piece. I think it was maybe 2003, 2004, looking at US China trade. I had figured out an economist had told me, everyone's talking about all these imports coming from China and how damaging it is for the US you should look at what the US Is exporting to China. Our exports to China are booming, and you should do a story about that.

[Barry Ritholtz]

Agriculture, right?

[John Hilsonrath]

So I looked at what was booming, and it turned out that our number three export in value and our number one export in volume was trash. We were the Saudi Arabia well, we were sending them recycled paper, we were sending them recycled plastic, we were sending them recycled metal, and they were turning that into the boxes and containers and packaging that all the toys and books and microwave ovens came back in. And I kind of pieced this together and actually used a little boy's piece of trash to tell the story. I went to a recycling facility in New Jersey where I still remember their name, the Zazaro Brothers in New Jersey, right near the chipping containers, they had a container of recycled paper that was going off to China that let me pick through it, find a little boy's homework assignment that I made a photocopy of. I put the homework assignment back in the container where it belonged, and I tracked the kid down. And then I was able to track this one boy's homework assignment from the Cesaro brothers backwards and then all the way to a paper, a newsprint facility in China. And I kind of used this boy's homework assignment to tell how global trade was changing the face of the economy.

[Barry Ritholtz]

Coming up, we continue our conversation with John Hilsonrath, former chief economics correspondent for the Wall Street Journal. Today he runs Serpa Pinto Advisory, discussing his Wall Street Journal Experience and Serpa Pinto. I'm Barry Ritholtz. You're listening, listening to Masters in Business on Bloomberg Radio. Masters in Business is proud to be brought to you by A. Lange and Sona. Inseparable from the history of fine watchmaking In Saxony since 1845, the Lange philosophy, defined by Walter Lange himself, is simple. Never stand still. Their commitment to detail is so rare, so exquisite, that every watch movement is assembled twice, the first time to ensure perfect mechanical function. Then it gets completely disassembled, fully decorated by hands, and brought together again with meticulous finishing and hand engraving. The result, a timepiece built not just to keep time, but to honor it. A. Lange and Sona, a dedication to craftsmanship and tradition that never stands still.

[John Hilsonrath]

Join Bloomberg in Houston or via livestream on November 4th. For the future investor finding the opportunities. This 2025 event series will examine how companies are investing in their businesses to.

[Barry Ritholtz]

Create efficiencies, innovating their products and services.

[John Hilsonrath]

And improving the customer experience. This series is presented by Invesco. Q. Q. Q. [e-mail] FutureInvestorHouston that's Bloomberglive.com FutureInvestorHouston.

[Barry Ritholtz]

I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is John Hilsonrath. He is the former chief economics correspondent for the Wall Street Journal, where he was dubbed the Fed Whisperer for all his many scoops on the Fed. So let's talk about that. You were thought of as the Fed Whisperer. What does that mean? How do you get that nickname?

[John Hilsonrath]

Well, it's funny you ask. It actually used to really bother me when people said that. Cause I thought, you know, my feeling when I was covering the Fed is it kind of trivializes what we're trying to do here and the hard reporting that went into getting stories out of the institution and, you know, following the journalistic mission. So maybe I was a little righteous about being called the Fed Whisperer back then. You know, Wall street loves to attach these kind of two word names to everything. So when I was covering the Fed, it was like the Taper tantrum, right? And QE Infinity.

[Barry Ritholtz]

This year we had the Tariff tantrum.

[John Hilsonrath]

And the Fed Pivot. And, you know, so for me, it was the Fed Whisperer. But, you know, since I left journalism and started my own business, now I'll use whatever I can to my advantage. So now I'm like, yeah, you can call me the Fed Whisperer. I'll Take that. But yeah, back in the day when people said it, I was like, fed reporter.

[Barry Ritholtz]

I don't think Fed Whisperer is as trivial as something like, do you remember the Greenspan briefcase indicator? How thick or thin? It was just a dumb thing. Yeah, I don't remember if CNBC started it. Somebody started it. And it was just one of those dumb, like, really, Are we really doing this? But you were the one that was getting all the Fed scoops that when they wanted to publicize something, they had a variety of outlets that they would reach out to. So 10 outlets would all get the same story, but one outlet would have a much more in depth personal detail.

[John Hilsonrath]

Here's Barry, here's where we got to demystify.

[Barry Ritholtz]

Okay, so let's hear.

[John Hilsonrath]

Yeah, I mean, we could talk for a long time about that, but I wouldn't say that that was exactly the way it worked. So, you know, and this is kind of why I had, you know, was a little uppity about the Fed Whisperer. Thing is it wasn't like there was some bat phone sitting at my desk and like the phone rang and it was like, oh, yes, Chairman Bernanke, what would you like me to say today? There was, you know, and my successor, Nick Timros is great at this. There was a lot of reporting that went into this.

[Barry Ritholtz]

A lot of work.

[John Hilsonrath]

A lot of it wasn't, it wasn't like a spoon feeding kind of process. It was a very kind, it was a. Process is a key word and it was dynamic and complex. So I mean, we could talk in some more detail about that, but it wasn't the kind of thing that. Well, first of all, they only started doing press conferences sometime after, I guess it was around 2012.

[Barry Ritholtz]

It was post 09. Right.

[John Hilsonrath]

Four years. Four years into the beat. Maybe it was 2010, I can't even remember anymore. But what went into the process of writing a Fed story was like you had to do a lot of reporting, a lot of triangulation. You had to figure out where the debate was going inside the room and put enough pieces of the puzzle together in order to say this is what they're likely to do. And it was also very important. You know, people used to say, oh, how could this, how could his stories always be right? He's clearly being spoon fed stuff. Well, there's like, there's a reason for that because I didn't report stuff I didn't know. So, you know, you had to do a lot of reporting to get to a point where you could say, all right, this is where they are and what they're going and, and where you could say, you know, this is what we know about the kind of state of the debate or how certain. You know, there were some meetings where they weren't sure what they were doing going into it. And I wasn't gonna get over my skis on that stuff. So it was, you know, so there was reporting that went into that. There was understanding the institution. I became very good friends with the New York Giants beat reporter. I'm a big football fan, New York Giants beat reporter in those years. And we used to compare notes. Like I saw my job in some way similar to what she was doing. Like I needed to know what was going on in the locker room. Right, right. And I needed to know kind of who the players were, what the game plans were, who the trainers were, like every angle of the, of the locker room in order to get a whole picture and in order to say with authority what I thought was happening and what was going to go on next. So that, you know, by game day was an FOMC meeting. By then I had already done the hard reporting. It was just a matter of saying, all right, here's what happened on the field.

[Barry Ritholtz]

Fed reporting is a sports analogy.

[John Hilsonrath]

Well, I started out as a sports.

[Barry Ritholtz]

Writer, so yeah, it makes perfect sense. So let's talk a little bit about the Fed today versus when you were covering them. Now you're covering them as a researcher and an analyst. Then you were covering them as a reporter. You wrote, the era of consensus and comedy at the US Central bank is ending.

[John Hilsonrath]

Yeah, explain. Well, so, I mean, the Fed is a very consensus driven institution. When I was covering the Fed back in the financial crisis period, 2008, 2009, 2010, there was actually a lot of disagreement at the time. The disagreement was internal and mostly in the regional Fed banks. So I actually spent a lot of time talking to these regional Fed bank hawks to understand what their case was against programs like QE and interest rate cuts and things like that, financial repression. And there were a lot of unknowns. For sure, there were a lot of unknowns. And Bernanke and Yellen and then Powell spent a lot of time trying to building processes to build consensus around their decisions. What's happening now is the disagreement and division is politically driven. Right. We all know that. But what the President has a clear view of where he wants interest rates going, he wants all interest rates going down. I'm afraid a little more complicated than what he perhaps thinks he's going to get out of that because he might cut short term interest rates and get higher long term interest rates, which happened very recently. It happened with the Fed's cuts last year. And so he's putting on people in the institution who were, you know, he expects to be loyal to him. Stephen Mirren is the latest. So we're, and there's a lot at stake and there's turnover happening at the Fed right now. There's, we all know there's going to be a new chairman appointed by the President next year. There are tests of loyalty. The really big issue is if the President gets four people who are loyal or even closely loyal to his views, he has an opportunity to remake the entire system. Because with a majority on the Fed board, there's seven board governors. With a majority of four on the Fed board, then the board can start firing and restructuring the regional banks that might oppose some of the policies that the President wants to pursue. So there's a lot at stake right now on two levels. One, with the succession of Jay Powell and two, with the construction of who the other governors are going to be on the Fed board and how loyal they'll be to the President's vision of how monetary policy should be run in the United States.

[Barry Ritholtz]

So let's talk about that. You wrote a piece early in the summer of 2025, the fourth seat, meaning once the President gets a hold of that fourth seat, he is essentially running the supposedly independent Fed. Tell us a little bit about that and we'll eventually talk about Lisa Cook and what this pretense firing really looks like, an attempt to get an early grab at that fourth seat.

[John Hilsonrath]

Yeah, and I'm actually going to go straight into Lisa Cook in a moment. Moment. But so there's the President appointed Chris Waller, he's a Fed governor, he might get the chairman's job. He appointed Michelle Bowman, these were in his first terms and she was given a promotion to vice Chair of Supervision. He's now appointed Steven Mirren, who's made the President's case for much lower interest rates just last week. And so he's in theory one seat away from having four governors and a majority on the board, an opportunity to move the Fed in a whole new direction. And what's happened, it looked like that fourth governor job might be Jay Powell's job next year when his chairmanship ends. But what happened is now, and this gets a little complicated, but the chair of the FHFA is accusing the Federal Home Finance Administration or agency is accusing Lisa Cook, another Fed governor, of fraud and mortgage applications that she submitted to her banks in 2021. It's an unproven allegation. But if they, they're trying to remove her for cause. The President has effectively announced that he's firing her for cause and she's challenging that it could be in the Supreme Court.

[Barry Ritholtz]

Now, there's a whole concept of Fed independence, right? And the Fed board can fire someone from cause. There doesn't seem to be any precedent for the President firing. Let's hold a side effect. Wink, wink, nudge, nudge. We all know that this mortgage thing is nonsense and it's just a pretense. Let's just hold that aside. We're talking about governmental power. Who has the power to hire and fire Fed guys?

[John Hilsonrath]

Oh, the President has power. The power to fire a Fed governor for cause.

[Barry Ritholtz]

Right.

[John Hilsonrath]

Then we get to. It hasn't happened. No president has tried. But then you get to. Our question was of, well, how, A, how do you define cause and B, do you have to prove it first? What is the process for defining cause and then going through the process of firing a Fed governor? This is all unchartered ground and it's moving to the Supreme Court to make some decisions. Now, there are a whole other set of decisions the Supreme Court Court has made where it has found that the President can fire heads of other agencies at his discretion. And one of the questions is whether firing a Fed official for cause is held to a higher standard than, you know, firing a participant in the National Labor Relations Board. And the Supreme Court, for reasons I can't say I fully understand, seems to be ready to draw a circle around the Fed. But there are big questions of how do you define cause and what's the process? And we don't know where they're gonna go with it. They might kick it back a little more.

[Barry Ritholtz]

It's not just putting out something on social, on any social media order. You actually have to have a process.

[John Hilsonrath]

Well, I don't know. I mean, the Supreme Court might decide that the President can do it at his discretion on X.

[Barry Ritholtz]

So if it's at discretion. But then what does it say?

[John Hilsonrath]

Lisa Cook's argument is that, well, so there's definition of for cause and I don't have the specific language in front of me, but it has to be for discreet malfeasance or neglect on the job. And one of her defenses is that he isn't accusing me of doing anything wrong on the job. These were applications I submitted years ago. But then there's some fuzzy language that, you know, or, or the like or Something to that effect. And so there's a question of whether there's enough gray area for the President to define what for cause means on the first two things of, you know, you know, malfeasance on the job or neglect on the job, they don't seem to hold up. But there's some gray area on the third piece of that, you know, and that's that. That's kind of legal precedent that's been set over many years.

[Barry Ritholtz]

It's fascinating. Cause the government, when they were defending the tariffs, kind of said, well, IPA says emergency. They don't say anything about tariffs. What's an emergency? And the government's position was whatever the President says it is.

[John Hilsonrath]

Yeah.

[Barry Ritholtz]

All these words that theoretically have actual meaning, once you start saying it's subjective at the President's discretion for cause, emergency, things like that go out the window.

[John Hilsonrath]

Right.

[Barry Ritholtz]

It's gonna be interesting to see if the Supreme Court Court contorts themselves to acquiesce to the President or follows what we think of as traditional legal theory.

[John Hilsonrath]

It's another big year for the Supreme Court for sure. And I mean, if you want to get really philosophical and pull the lens way back, I mean, I personally think we're living through revolutionary times akin to the French Revolution and the American Revolution. And one of the things we know is that in revolutionary times, standards and norms get thrown into the air and redefined.

[Barry Ritholtz]

Which came first? Did. Did the throwing of the norms away lead to the revolution? Or was the revolutionary setup in place and norms or just collateral damage?

[John Hilsonrath]

The revolution has been building for years, and I'll take this back to my Fed beat. It's a little off the subject, but when I was covering The Fed By 2013, 2014, I was regularly getting emails from really angry readers who saw the Fed as being at the center of America's problems. An example of an elite Wall street institution hurting the little guy in favor of rich guys. An insider's game. And they saw me as a reporter at the Wall street covering the institution, tearing their water.

[Barry Ritholtz]

Yeah.

[John Hilsonrath]

As carrying their water. And I routinely got emails from people saying, there's a revolution coming. And, like, they told me, like, as a warning, they said, there's a revolution coming. And when we come, you're gonna be one of the people we string up on, you know, on pitchforks, on field day. On pitchforks, they used imagery of the French Revolution. I was seeing this back in 2014. It actually led me to write a series, a collection of stories with actually the most prolific Wall Street Journal page One reporter of all time, a guy named Bob Davis about the economic roots of what we call the economic roots of political discontent. By 2016, by 2015, I was getting death threats. And we saw that there was something going on in the country that was kind of deeper than your normally agitated reporter. And so we went out and wrote a bunch of stories called the great unraveling in 2016.

[Barry Ritholtz]

I recall that.

[John Hilsonrath]

I recall that it was all about how kind of trade had gone the wrong way for many Americans, how finance had gone the wrong way for many Americans and technology, and that people were angry and they were angry at the elites. And so to answer your question, the revolution started a long time ago, and I think we're pretty well into it. And I think a lot of this revolution has been, you know, we, we have digital guillotines now, right, where like we'll cut off your. Your head by your reputation. But sadly and disturbingly, it's now getting somewhat bloody.

[Barry Ritholtz]

Yeah, no, to say the very least. You know, it's kind of fascinating. When I was writing Bailout Nation, one of the things that kept coming up when you look at the history of who is Treasury Secretary, they seem to be pulled from two different groups. They were either pulled from Wall street and banking, or they were pulled from manufacturing and industry. And throughout history, if you had an industrialist as treasury secretary, when things hit the fan, well, a whole bunch of banks are going to have to go under. Sorry, flip that. When you have someone from Wall street, well, then we're going to rescue the banks. And ironically, I don't disagree with anything you said about the history. I think some of the anger is misplaced because it wasn't. The Fed basically stepped in when Congress threw their hands up and said, we can't do anything.

[John Hilsonrath]

Well, and it was a financial crisis.

[Barry Ritholtz]

Right.

[John Hilsonrath]

And it is the lender of last resort. So.

[Barry Ritholtz]

Right. It's their role. They were supposed to do that.

[John Hilsonrath]

That's why they were created in 1913.

[Barry Ritholtz]

That's right. What, what didn't happen during a normal financial crisis is fiscal stimulus along with monetary stimulus. Monetary stimulus benefits the holders of capital you own. Stocks, bonds, real estate rates go down. You do great when the government does a big fiscal stimulus that tends to land on the middle class. Hey, we're going to build an interstate commerce system, an interstate highway system. We're going to, you know, create weaponized Keynesianism and build up defense that tended in the past to find its way to the middle class. What happened in the 2010s were you had all that monetary Stimulus, very little fiscal stimulus. At least until the pandemic. And for a brief period of time, it looked like the middle class was bought off.

[John Hilsonrath]

Yeah, well, I mean, there's a lot of economics in history here. What I'll say is, I agree with you. We got fiscal policy exactly 180 degrees wrong after the financial crisis in the sense that what we needed was, and there was some fiscal stimulus right after the fact, but it wasn't sustained. We went to fiscal austerity within a year or two. What we needed was short term stimulus and long term fiscal austerity in order to get the budget under control. And what they did was short term austerity and nothing about the long term.

[Barry Ritholtz]

Right.

[John Hilsonrath]

And I'm still waiting, by the way, for the bond market to recognize this. And it doesn't seem to do that.

[Barry Ritholtz]

It's kind of fascinating that the bond vigilantes, I keep hearing those names come up and they don't really seem to exist anymore. Anymore.

[John Hilsonrath]

They seem to flutter their eyes and wake up and then go back to sleep again.

[Barry Ritholtz]

I have a pet theory that there's just a shortage of quality sovereign paper. And so even a damaged high debt United States is still going to make good on its debts. So there's still appetite.

[John Hilsonrath]

Right. And I think that helps to explain why spreads are so tight right now, because people will buy whatever paper they can get.

[Barry Ritholtz]

Right, Right. Absolutely true.

[John Hilsonrath]

Hey, I know that you have a bunch more things you want to ask about the Fed. Can I? You were asking a few minutes ago about the, about covering the Fed and being the Fed whisperer.

[Barry Ritholtz]

Right.

[John Hilsonrath]

And being spoon fed, so to speak.

[Barry Ritholtz]

Right. That you didn't want to do. No shoe leather, no heavy research, no investigative journalism. They just handed you your stories.

[John Hilsonrath]

And I pushed back and said there's a lot, there's a lot of, there's a lot of reporting that went into those stories. I just wanted to say, I don't know if this was among the things you wanted to ask, but I just wanted to describe for a second, like what my mentality was about, like what my job was.

[Barry Ritholtz]

Right, Right.

[John Hilsonrath]

So. And I used to preach this to colleagues all the time. As a beat reporter, I felt like this is really important to me. I had three responsibilities. One responsibility was to break stories.

[Barry Ritholtz]

Right.

[John Hilsonrath]

That was those Fed scoops. And it mattered, you know, if people were gonna pay to subscribe to the Wall Street Journal, they want something different in there. The other responsibility I had was to explain a complicated world. There were a lot of complicated things going on. When I was covering the Fed with QE and zero interest rates. And I had to understand it and try to explain it to people. But then the third piece was holding powerful people and institutions accountable. And you know, I think that from the outside, maybe people would look at this and say, oh, he's getting spoon fed these scoops and he's pulling his punches, he's not holding them accountable. But that third part was important to me and I mean, I'd be happy to talk about stuff that we did on that front and you know, what, what we did to try to hold the Fed accountable.

[Barry Ritholtz]

Well, let's zoom out.

[John Hilsonrath]

And there's also this sense that those, that those two things are in conflict. Right? That, well, you know, if they're holding their feet to the fire, they're not going to, you know, they're not going to give you the next scoop. And my response is, first of all, they weren't spoon feeding me scoops. I had to work to get the information and put them in positions where they would tell me things that didn't happen by accident. I had to leverage information how I could. But also, you know, I had a responsibility to do the accountability stuff and I couldn't let, you know, fear get in my way of doing that that it was going to undermine. And you know, there were times when I made them uncomfortable and I just had to do that.

[Barry Ritholtz]

So let's, let's zoom out and take like a 10,000 foot view. A Fed chair has a story he wants to inform the market of. And that's always been my thought process. When the Fed is communicating, it's not about image or pr. They want the market to do some of their work for them or at least not shock or surprise the market. They want the market to understand what's coming and be prepared for it. So how would a Bernanke or Yellen go about communicating? Hey, you guys don't understand. There are, after you left in 2022, there was a bunch of increases coming, but let's stick with the 2010s.

[John Hilsonrath]

Yeah.

[Barry Ritholtz]

Hey, rates are going to, are low and they're going to stay low for the next right for the foreseeable future. How does that get disseminated out to the public and then to the bond traders so that the street knows what's coming up next, right?

[John Hilsonrath]

Yeah. Okay, so there are a lot of pieces to this. The first one is, you're right. There are two really important imperatives from their perspective, especially in the 2010s because the short term interest rate had gotten to zero. What they realized was the only way they're going to affect financial conditions in a way that helps the economy is if they convince the markets that they're going to keep interest rates really low for a long time, then you get long term rates down in addition. And so projecting a stance of dovishness for a long time became part of the mission. Right. And that was part of what they wanted to do to influence the economy and financial conditions. But then the other thing, as you said, is they don't want to freak the markets out because that causes in their mind unnecessary turbulence that can be really damaging. And they're still haunted to this day. By 1994, when Greenspan raised rates, I think by three quarters of a point and the market started pricing in a succession of three quarter point increases. And then the next thing, you know, Orange County, California blew up in Mexico blew up, right. So like they, they, they want their view of the world to be understood and they do a lot of different things along those lines. They give speeches, they become more, you know, back in the early 90s when I started on this beat, the Fed didn't tell anybody anything, right?

[Barry Ritholtz]

There wasn't, it's so funny, I've told people this, you get an announcement, we've raised rates. The only way you knew the Fed did something was from the open market activity in the bond market. Oh, the Fed must have done something. What's going on?

[John Hilsonrath]

Yeah, right, yeah, that was, I was going to say like they weren't putting out announcements in 1989 when they did something. You had Fed watchers, that's what the original term was, Fed watcher. You had people in the markets who looked at what were going on with money market rates and the Fed injected X billion dollars and they're like, oh, they just pushed up interest rates and then it took you three days to figure out if that was their intention or an accident. And then so over a course of 30 plus years they've become more and more transparent. Right. So they started, Greenspan started putting out statements. Oh, and by the way, you know, Alan Greenspan just delighted in how obscure he could be and what he said, cuz he wanted to confuse people. And they came to see over time that there was a benefit to just being clear. So they put out statements, they, you know, they put out minutes. Obviously they started doing press conferences. Is there interaction between Fed officials and reporters that doesn't show up? You know, like onto. Yes, Fed officials talk to reporters on background in certain circumstances. And so like yeah, we did talk to Fed officials. You know, not for attribution, but it was part of a very dynamic process. When I said, you know, like when I was writing stories about for instance, QE2 stands out to me, like that was a, that, that was a situation where like they were moving towards making a decision about QE2 over several months. It took them like six to nine months to get there. And that was a case where I was putting pieces, very kind of, I was putting pieces of a puzzle together to be able to figure out how they didn't even know where they were going at the time. And so there was a lot of reporting that had to go into understanding what was going on behind the scenes and which words that they used mattered and how they used them.

[Barry Ritholtz]

My recollection of QE2, and this is 10 + years ago, was, I think it was before where I even launched my own firm. We had maybe it was a double line bond fund that was primarily mortgage backed and it used to be 90% mortgage backed and then it was 80% and then it was 70%. And what was going on is the Fed was just sucking up all of the mortgage backed bonds out there that the private sector had very little of it. And eventually this went from a substantially mortgage backed fund to just another treasury fund. And that was QE2.

[John Hilsonrath]

Exactly what they wanted to happen. It's kind of crazy because it took down risk free rates, right?

[Barry Ritholtz]

They wanted you to.

[John Hilsonrath]

So I don't know if you or other investors in your funds decided, all right, well if we want to get a return, we got to move further out on the risk curve. That was exactly what they were trying. You just, you just explained QE to an action like the way they wanted to do it.

[Barry Ritholtz]

And the ironic thing is the first person who said that to me about risk capital was Jim bianco, summer of 09 in a canoe. Maybe it was 10 in Maine.

[John Hilsonrath]

Now you were at the David Kotak.

[Barry Ritholtz]

That's right. And he had said the purpose of quantitative easing is to get people out of the safe. All of the risk aversion that people develop during the financial crisis, flooding into money market and bonds, hey, in order for the economy to work, we need this money to move up the risk.

[John Hilsonrath]

By the way, the purpose, this is another thing is like I was always amused by how people on Wall street reacted to stories because they very often thought the stories were for and about them. But the purpose wasn't to get like the end goal wasn't to get you guys to move out the risk curve. It was to ease financial conditions in a way that economic activity that was being put off for five years from now would take place now instead. Right. It was to get people to, it was to generate economic activity today that was being deferred because people were so underwater or uncertain.

[Barry Ritholtz]

So it's funny you use the word underwater. I always assumed that the way to recover from a crisis is the mistake wasn't letting Lehman Brothers collapse. The mistake was many more banks should have been allowed to collapse, tear the band aid off, have the government provide debtor and possession financing. So all these companies, you know, the joke was there's no such thing as toxic paper, only toxic prices at the right price. These pools of bad mortgages had value.

[John Hilsonrath]

That's the age old debate in finance.

[Barry Ritholtz]

Right.

[John Hilsonrath]

If you bail them out, you're putting off all these hard decisions. Basically. I remember talking to Bill Dudley about this. But basically what you're doing is trying to smooth out the curve so that there isn't as much damage today. You're bringing forward some activity, but by design you're actually putting off some of the damage for the future. The alternative is you tear the band aid off, you get to the right price. But the worry at the Fed at the moment was that they were replaying the Great Depression. And in the Great Depression what happened was the price didn't correct and readjust. The whole process of destruction fed on itself and it became its own self feeding equilibrium that took a decade to get out. And so that's the choice they made, was that they didn't, they didn't want to go down this path where banks start collapsing, there's no credit, businesses start collapsing, people get laid off, people have no money to spend more, banks collapse more. You know, so like they were trying to short circuit that kind of process.

[Barry Ritholtz]

Although obviously we have the fdic, we have all these other structures in place to prevent.

[John Hilsonrath]

But that, but that wasn't enough. Lehman Brothers was an FDIC insured.

[Barry Ritholtz]

Right.

[John Hilsonrath]

And that was. So here's my analogy.

[Barry Ritholtz]

But city, Chase, Wells Fargo go through all the list, there were plenty of banks, Chase was fine, but Wells Fargo ran into trouble. And bank. Yeah, well, but they're an insurer, not a bank.

[John Hilsonrath]

Right, but that's what I'm saying. The thing, what they recognized was that they were replaying potentially the Great Depression, but the old story of a bank run had been altered and now we were dealing with very exotic instruments and institutions that didn't fall under the institutions that were, that didn't fall under the neat categories. Yeah, that were created during the Great Depression. And, you know, they were potentially going back, so.

[Barry Ritholtz]

So as we were speaking earlier, and it's a little ironic they avoided the Great Depression, but sort of an unintended consequence was they helped lead us to the French Revolution.

[John Hilsonrath]

Well, yeah, yeah. In fact, I remember a conversation I had with Bernanke way back then where he said, like, he expected a populist blowback.

[Barry Ritholtz]

Really?

[John Hilsonrath]

Yeah, he expected a populist, just not.

[Barry Ritholtz]

As far as it went.

[John Hilsonrath]

Well, I mean, I think he was surprised by where it came from.

[Barry Ritholtz]

Right.

[John Hilsonrath]

I don't think he would have expected it to have come from the Right.

[Barry Ritholtz]

Well, that whole Rick Santelli, you know, Tea Party nonsense.

[John Hilsonrath]

Yeah, no, I had my own run in with Rick during that whole thing.

[Barry Ritholtz]

I mean, wait, we're bailing out banks to the tunes of tens of billions of dollars, but the people who applied for mortgages, you're just gonna cut them loose? That seemed to be what took place.

[John Hilsonrath]

Yeah. And there were a lot of consequences for that. It's funny you mentioned Rick, because Rick. I went on with Rick on CNBC and he lectured me that I needed to be more opinionated in my questions at press conferences and reporting.

[Barry Ritholtz]

I was like, it's like, you don't understand what a journalist. Right. It's like you're missing. You seem to think.

[John Hilsonrath]

I'll give you a little analogy since we're talking about the Depression. My analogy for Ben Bernanke is imagine that you are a Civil War historian at Wake Forest University and you're an expert on the battlefields of the Civil War, actually let's call it University of Virginia, because Virginia was more center place and you're an expert on the artillery and the battlefields and, and the personnel and you know everything about the Civil War. And then you got a job as a consultant at the Pentagon and you did such a good job as a consultant at the Pentagon that they made you the Defense Secretary. And then a new civil war broke out, but it was being fought with drones and laser guided missiles. That's what happened to Ben Bernanke. He was a Great Depression historian who knew about all the battles and wrote decisive histories of it. And then he got the job at the Fed and he, he was refighting what he thought was a Great Depression moment, but he was doing it with these really high tech financial instruments like credit default swaps and credit, you know, collateralized debt obligations and the like.

[Barry Ritholtz]

Coming up, we continue our conversation with John Hilson Rath, former Wall Street Journal reporter and current research advisor at Serpa Pinta, Advisory. Discussing rates, politics, and the Fed today. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. Hello and welcome.

[John Hilsonrath]

This is the Michelle Hussain Show. I'm Michelle Hussain. I speak with people like Elon Musk.

[Barry Ritholtz]

I think I've done enough. And Shonda Rhimes.

[John Hilsonrath]

That's so cute. This will be a place where every weekend you can count on one essential conversation to help make sense of the world.

[Barry Ritholtz]

So please join me, listen and subscribe.

[John Hilsonrath]

To the Michael Hussain show from Bloomberg Weekend. Wherever you get your podcasts, you certainly ask interesting questions.

[Barry Ritholtz]

I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. And some of you are watching us on YouTube. My extra special guest today, John Hilson Rath, former chief economics correspondent and Fed whisperer for the Wall Street Journal, now an analyst and researcher at his own shop, Serpa Pinto, advisory. So. So let's talk about where we are today in the world, starting with a quote of yours. The old normal is dead. The new normal is here. What does that mean?

[John Hilsonrath]

Wow. I'll be honest with you. I don't even remember writing that.

[Barry Ritholtz]

All right, so let me. Let me remove that.

[John Hilsonrath]

So. But, I mean, we could. But let me redefine that.

[Barry Ritholtz]

Okay.

[John Hilsonrath]

Go back to our French Revolution story.

[Barry Ritholtz]

Sure.

[John Hilsonrath]

Which is. I think there's a new old Normal setting in which is that, you know, I mean, I think we're living through historically changing times on several levels. So one of those is just is information. Right. And this brings me again, I've been obsessed with the French Revolution ever since people started telling me they're gonna stick my head in a guillotine. But, you know, there was an information revolution happening during the French Revolution, too. There were printing presses everywhere, relatively new. There were pamphleteers. I mean, the printing press had been around for a couple of centuries, but it wasn't being mass produced. And in every village and every neighborhood in Paris, but loggers of the 18th century. If you read histories of the French Revolution, there were pamphleteers everywhere giving their version of events on every street corner. And they were basically tearing down the old institutions of the church and the aristocracy who defined the story for the public as they saw fit. And, you know, the United States, too. The Declaration of Independence was a pamphlet. They signed the thing in Philadelphia. They fled because the British were coming, found their way to a printing facility in Baltimore and started mass producing the Declaration of Independence. So, you know, I think we're going through something like that now. Where the Old institutions of power in the media are being redefined. I mean, for goodness sake, podcasters had a bigger influence on the last election than CNN did. It's amazing to me.

[Barry Ritholtz]

Yeah, no, no doubt about it.

[John Hilsonrath]

So I think that, you know, that's an old normal, but the new normal is, you know, this technological revolution in my mind is mind boggling. I mean, I'm happy to sit at the table with a contemporary. When you and I were young men, if you wanted to take a picture.

[Barry Ritholtz]

You know, you had to get a camera.

[John Hilsonrath]

You had a black box called a camera with something called film, a canister called film in it. And then, you know, you would take 36 snaps and then you had to take it to a store or a.

[Barry Ritholtz]

Photo mat, a little yellow booth. Yeah, yeah.

[John Hilsonrath]

And it had to get, you know, it took a week in the store to get developed and you had to pay some amount of money. If you wanted to do research, you went to a library. If you wanted to write a letter, you wrote it with a piece of pen on a paper, you stuck it in an envelope, put a stamp on it, put in a blue box and waited a month for a. All of that stuff is now instantaneous, infinite, and practically costless. And so, you know, and like I ride the subway in New York, you look like every, every, you know, three out of every four people sitting next to you is staring at their phones. I think the, the information we're living through right now is quantums of magnitude of what they were going through I think, during the French Revolution. So an interesting time to be alive.

[Barry Ritholtz]

To say nothing about bad information. Misinformation, propaganda, a whole nother thing, bad information.

[John Hilsonrath]

The word libel has its root in part in the French word libel, which were these scandalous pamphlets that were being put out about Marie Antoinette on, I think it was called Grub street in London. So, yeah, an abundance of information includes an abundance of really bad information and misinformation information. So we're living through all of that right now.

[Barry Ritholtz]

So, so let's talk about.

[John Hilsonrath]

It's not quite the central bank stuff you're talking about.

[Barry Ritholtz]

Not quite, but let's talk about what all this means for the economy, which, as you have noted, has proven to be much more resilient than most forecasters have predicted. So where are we in the economy today? What sort of job does the Fed have to do balancing their dual mandate in the, in the post pandemic economy we are living through?

[John Hilsonrath]

Yeah, I mean, I think, I think the, the, the Fed is in a tough spot and it's prone to making some costly mistakes right now, do you.

[Barry Ritholtz]

Think they make mistakes or are they just always late to the party?

[John Hilsonrath]

No, I think they missed. I think they make mistakes. They clearly made a mistake after Covid. And I understand, I understand what happened. And so this is the thing. Like people attacked the QE programs that Bernanke did. I think in the moment that he implemented them, the net benefits were greater than the net costs in those moments. What happened, I think was we went into another shock after Covid and I think Jay Powell made a mistake, frankly, he's not an economist and he misread a supply shock to the economy as a potential demand shock. So we took all these tools off the shelves that Bernanke and Yellen had created and threw them at the COVID shock, which was a supply shock, overstimulated demand, and we got inflation. So yes, that was a mistake.

[Barry Ritholtz]

You're putting more of that on the Fed than the massive fiscal stimulus from Cares Act 1 and 2 under Trump, Cares Act 3 and all the various spending bills under Biden. You think that was more monetary than fiscal?

[John Hilsonrath]

I think it was all of these things combined.

[Barry Ritholtz]

Okay, that's fair.

[John Hilsonrath]

It was. And by the way, the other thing that the Fed and the Trump administration did intentionally was decided we're not just gonna bail out the banks this time, we're gonna bail out the little guys. That's why everybody got those checks. Everyone was reliving the trauma of the 2008 financial crisis when they made these decisions that created a whole new trauma. My mom was a historian and she talked about the kaleidoscope of history. So the configuration is constantly turning and growing out of whatever last configuration we were in. The Feds made a mistake, a discrete mistake. And the mistake in 2000, I'm sorry, 20, 20, 2021, was overstimulating in the face of a supply shock. But to get to come more, you know, and I think one of the problems that economists have is they call certain things like a law or a rule and they think when they once it's called a law or rule, then it must always be true. Right? The, the SAHM rule. Claudia Sahm, brilliant economist, wonderful person. You know, she noticed a correlation between that, you know, at certain moments when the unemployment rate rises a certain amount, I think a half percentage point over a six month period, it tends to keep going up. That's like in a store. In a historical observation, it's not a law written into the rules of never.

[Barry Ritholtz]

From a 0% interest rate and a sub 4% unemployment rate. Like when you where the SAHM rule didn't work was coming from levels that historically had never existed.

[John Hilsonrath]

Yeah.

[Barry Ritholtz]

So yes, it's a correlation.

[John Hilsonrath]

You have to look at the situation you're in right now and these rules of thumb and people do, you know, they're like, oh, GDP contracted, you know, we're close to a risk. I think you have to look at the situation you're in and make the most sense of it that you can. So where are we right now? So, so growth has proven to be more resilient than a lot of people expected. But employment is slowing down. Inflation is above the Fed's 2% target. What sense do I make of this? I think that the economy has slowed down a little bit, but coinciding with all this uncertainty from the tariff shock is we're going through an investment boom. We're going through a technology driven investment boom right now, which by the way, could hurt laborers and workers in the long run. And maybe we're seeing some of that as we speak. By the way, I also think that if the demand for capital is rising for investment in AI and data centers, higher demand for capital should mean a higher equilibrium interest rate, a higher cost of capital. Right. If the demand for capital is higher, then the price for capital should be higher. But the Fed is being asked to respond to a labor market that's softening. My own concern is that the Fed is going to ease into the slowdown in the job market when the financial markets are on fire, when it thinks the risk free rate is lower than it actually is, and when there's still an inflation problem and they're going to light even more of a fire into these markets, which might feel good for a few months for, you know, as we saw in the early 2000s, late 90s go on for years. But those situations often don't end well.

[Barry Ritholtz]

So, so you. I want to combine two of the things you said. You mentioned. We're above the Fed's 2% inflation target. But why is that a rule? If you look at the 2000s, 2010s era, 2% was an upside monetary target from below. Now we've kind of pivoted into a fiscal stimulus era.

[John Hilsonrath]

Yeah.

[Barry Ritholtz]

2% is a downside target. Yeah. Should you have the same inflation target in the 2000s that you had in the 2000s and 2000s?

[John Hilsonrath]

Yes, 100%. It should be immutable. So it should always be 2%, because it is now. And it's in everybody's interest to keep it there. And here's why. So we have a fiat currency, right? And so, you know, if you go back 200 years, 300 years, the anchor for that currency was gold. You know, people would say your money is as good as gold. If you, if you had a dollar today, you could buy X number of ounces with that dollar today. That was the anchor for the currency. Gold doesn't work as an anchor for the currency, in my humble opinion. Do you know that American, Americans spend about the last time I looked at this, about as much money every year on dry cleaning as they spend on gold?

[Barry Ritholtz]

Yeah, no, that makes sense.

[John Hilsonrath]

And do you know that the largest producers of gold in the world include countries like Russia and South Africa and Venice? Not the most stable producers. So like, so why would we anchor our currency to an idea like gold? What, you want to have an anchor now? So the inflation target, what inflation is, is an anchor that your dollar is going to be worth a known and set amount every single year. The 2% inflation target is the gold standard of the past. And in my mind, it's a more sensible gold standard because it touches a wider array of what it costs us to live. So then the question becomes, well, why 2%?

[Barry Ritholtz]

Right.

[John Hilsonrath]

Well, so the answer is because that's what they chose. Because. And you know, and this, actually I go through this in my book about Yellen, but, you know, well, why shouldn't it be zero? Well, the fear is, the fear was that if your anchor is zero, then interest rates are always very low. And when you get to a point where the economy is slowing down, like a depression or a recession, unemployment is rising, the central bank can't do anything. Exactly what we lived through in the 08 period. You need to have the inflation number a little bit above zero. We want, you want it low, but you want it something above zero so that the Fed has a little wiggle room to support the economy in a crisis. That's the idea. So you could say, well, it should have been 3%, it should have been 4%. Okay, but we chose 2%. And once you've chosen it, then it's very hard to say, like we choose something else.

[Barry Ritholtz]

Now, I read a paper by former Fed vice chair Roger Ferguson about the 2% target. And Ferguson said it's a random number that came out of New Zealand where someone just happened to be talking about inflation in the 1980s and they tossed out 2%. And that's the history of it. It traces to a New Zealand Banker discussion 50 years.

[John Hilsonrath]

First mover advantage. Yeah, there was certainly an element to it. But I want to say something else about it because people sometimes make this argument that, you know, why should you accept any inflation where we're debasing our currency? The currency today is worth 5% of what it was worth.

[Barry Ritholtz]

I hate that.

[John Hilsonrath]

Of what it was worth in, you know, in 1913 when the Fed was creative. But like you, like, in my mind, what matters is the purchasing power of an hour of your labor. Right, so exactly. If inflation is going up 2% a year, okay, that's one thing. If you're earning 3% of year for your labor, if you're earning 5% a year for your capital, then you're getting ahead. And it would be impossible for anyone to argue to me that the human condition is, I mean, on many levels, maybe psychological, I can't make this case. But the human condition is worse today than it was in 1913. Of course, like, America became a world superpower in 1930. Like, so it's just, it doesn't make sense to me when people say you're debasing the currency. Like, what I want to say is, against what measure? Here's another. Like when I was covering the Fed.

[Barry Ritholtz]

The dollar is not supposed to be a permanent store of value. It's a medium of exchange. If you're holding on to a dollar for a century, you've made some financial errors. That's not what you're supposed to do.

[John Hilsonrath]

People used to always say to me, and I used to hear them say when I was covering the Fed, that the Fed is destroying the value of the dollar. And I spent a lot of time. This gets to something I think we're going to think about. Well, so what does that mean when the Fed. One of my principles for writing was I need to be able to break things down to their core. Meaning what does it mean when you say that the Fed is destroying the value of the currency?

[Barry Ritholtz]

They're debasing it. I love that. But like, it's a metal, a precious.

[John Hilsonrath]

Metal, you know, so you couldn't say that like, kind of relative to other currencies because the dollar was going up. And while it's, you know, the purchasing power of a dollar today was going down, the purchasing power of your income.

[Barry Ritholtz]

Exactly.

[John Hilsonrath]

Is long. And this again brings me back to the revolution because this is also a technological revolution. A lot of working class Americans got left behind during this era of technology and globalization.

[Barry Ritholtz]

Absolutely.

[John Hilsonrath]

And what happened was the purchasing power of their labor declined. It wasn't the Fed that did that from inflation. Inflation was Very stable. The purchasing power of the labor declined because they were competing against, you know, low wage workers in Mexico and China and because they were competing against machines that were replacing them in the workplace. And so it is true, it is a fact. We, and this is another part of the revolution which is related and potentially intensifying. We've lived, we're 25 years into this kind of post industrial information driven economy. And what we know about this is that it exaggerates inequality, it concentrates wealth among very few people, and a lot of people are being left behind. And the question is, and how do you preserve the value of the dollar? It's how do you preserve the value of an hour of your work? How do you find work that's going to keep you, keep your family fed and get your kids through school and you know, get you your trip to Disneyland every year?

[Barry Ritholtz]

You know, the federal government dropped the ball and we see it in some specific industries, like if you're shutting coal mines in West Virginia, well, you have to retrain those people to do something else.

[John Hilsonrath]

Yeah.

[Barry Ritholtz]

And if you work in a furniture factory, a garment factory, any of the low end manufacturing businesses that all left, those people have to be retrained.

[John Hilsonrath]

Well, but so, yeah, so I mean, I kind of dropped, I wrote, I wrote a lot about this and we did, but it's not, it wasn't as if we didn't recognize we. I mean, all right, I'll just say it. The elites who were driving the bus didn't recognize that there was a challenge there. You know, there was Trade Adjustment Act. Right. There were facilities that were meant to get people retrained. And then there was a vast American community college system, which was meant to be a vehicle to get people retrained. But I talked to people from manufacture, from furniture plants in Hickory, which is one of my favorite analogies for America, because Hickory, North Carolina is right next to Charlotte. One's a banking center, one was a furniture center, one went one way, one went red, one went white, blue, one did better, one did worse. Anyway, yeah, I talked to people in these plants in Hickory and they're like, you know, I didn't finish high school, now you're telling me to go out. I'm 50 years old. I got, I got to go and re educate myself. And then like for the people who actually went through it and did it, you're like, I was making $25 an hour with bent, with, with a pension and health benefits. Now I'm a phlebotomist. You know, I'm pulling blood out of people's veins, making $12 an hour at a hospital. It didn't work for them. And the, you know, this was one of the great errors of the economics and economic policy profession over the last 25 years is they didn't think that stuff through and the politics didn't really weren't conducive to addressing that problem. But it, and this is my, this is one of my kind of warning sign warnings for politicians say I don't see how anyone is fixing that underlying problem. Problem that we live in a post industrial economy that bifurcates wealth and income. And frankly I don't think it's realistic to expect we're going to re industrialize this country.

[Barry Ritholtz]

Even if we do, it'll all be automated.

[John Hilsonrath]

Exactly. It's going to be machines and we're moving out of an industrial year. So my question is how do you. I talked to an economist, David Otter, who's thought a lot about this stuff. He wrote the papers about the China shock. You know, our work is not only a source of kind of fulfillment and income, but the way we work is also the way we distribute wealth and income. And so if the whole nature of work is changing because of technology, then like, are we thinking about how we're going to manage the distributional effects of that? And I'm not like saying this as some kind of, you know, screaming bleeding heart liberal. I mean, Donald Trump actually got elected because of the disaffected American working class. And I don't think either party has actually gotten their hands around it. I wrote a book about Janet Yellen. I talked a lot of time, spent a lot of time talking to Democrats about this. I don't think any of these people have gotten their hands around how do we navigate this like this revolution that we're going through, the economic post industrial revolution.

[Barry Ritholtz]

So, so I have one last question I want to ask you before we get to our favorite questions we ask all guests. Okay, but you've been alluding at it, so feel free to go back to a previous conversation. What do you think investors are not talking about but should be. It could be a policy issue, an asset class a data point that, that, that's it. But I think it's, yeah, that's why.

[John Hilsonrath]

It'S the, it's the inequality issue. Because, and when I said I don't want to use, I don't want to use the word inequality in like the kind of conventional, politically divisive way, what I mean is that, you know, an economy creates Income and wealth and how that income and wealth is distributed, distributed across the population is a result of the way. And by the way, there is looking.

[Barry Ritholtz]

For a chart on this exact.

[John Hilsonrath]

There is no law, there is no rule in economics that says that wealth and income will be distributed in a fixed or predictable way. You know, the agricultural era did not create an economic system that distributed wealth and income equally. It was very unequal. You had kings and queens and peasants. Right. It just so happened that the industrial economy created a vast middle class because you needed people attached to machines to make the stuff that made our lives more comfortable. But there's no rule that I see that says moving into a post industrial high tech world, that this whole new world is going to distribute income and wealth in the same way. And so my question is what are we doing about that? And by the way, I think the institutions, we talked about norms before, the institutions that we've created over the last 200 years were built for an industrial economy. Our tax base, our voting systems, everything is built for an industrial. So to me the big existential question is how are we going to manage the distributional effects of income and wealth creation in a high tech, high information economy.

[Barry Ritholtz]

I saw a table this morning, I can't find it now, but it basically shows a number of industrialized countries and what percentage of their workforce is below the median income. And the US and UK are substantially, I think it's something like 23, 24% substantially below. You look at other countries like Japan, the difference between the mean and the median isn't that big. And when you have a very skewed distribution like you're describing, that gap gets bigger and bigger. So I'll dig up that table.

[John Hilsonrath]

Well, you said it to me.

[Barry Ritholtz]

I'd love to. Yeah, I'll say I'll share it with you and I'll, I'll post it when we, when we this goes live. But it's kind of fascinating because you don't think of the country that way. And when you look at what was it, the Z1 flow of funds that the Fed puts out.

[John Hilsonrath]

Good one.

[Barry Ritholtz]

You can see that gap getting bigger and bigger, especially since the 90s. I mentioned unintended consequences. Some legislation passed by the Clinton administration to cap executive compensation at. I want to say it was $1 million or $2 million that just led to massive equity compensation.

[John Hilsonrath]

Right. Helped drive and by the way, accounting fraud.

[Barry Ritholtz]

That's right, that's right. So not only did you were you driving people to hyper focus on the quarterly calls leading to some Quarterly earnings leading to some monkey business, but people were getting paid in equity. We're making tens of millions.

[John Hilsonrath]

So that from political perspective, for Republicans, how are you going to take care of the working class? Are these promises about re industrialization, can you realize them? And for the Democrats, how are you going to win people back? Because they lost them. Donald Trump took them from him.

[Barry Ritholtz]

Well, the question is, and by the.

[John Hilsonrath]

Way, in terms of the Fed, all the Fed can ever do is make a mistake stake. It's like his job is to prevent financial crises and keep inflation stable. Like, people love to attack the Fed because, you know, you only notice it when it's screwing something up. So, and by the way, one of.

[Barry Ritholtz]

Getting things right, one other, one other.

[John Hilsonrath]

Thing about the Fed is, you know, I Live in Washington, D.C. it's this place where like people, like 90% of people, what they're doing, you know, 90% of the time is spinning you and trying to get you to believe is story that's in their personal or institutional or economic interest. The Fed is out there trying to tell people what it thinks it's going to do. Like you could give them a hard time for making mistakes. I just said I think Jay Powell made mistakes. But like, at least they're trying to be honest about what they're up to.

[Barry Ritholtz]

I got to ask, when so many.

[John Hilsonrath]

Other people in Washington are trying to mislead you, you know, I admire them for trying to be straight.

[Barry Ritholtz]

I got to ask you a question. You, you've lived in New York, you've lived in Washington D.C. which town is more transactional?

[John Hilsonrath]

Oh, oh, that's a good question. I didn't think you were going in that. They're both transactional, but the difference is in New York is a transactional town and everyone's looking out for their own interests. And, and, and everybody knows that, right? And everybody knows that and accepts that is like the rules of the game, right? In Washington, it's all transactional and everyone's out for their own interests, but they're trying to make you believe that they're doing it for you. And, and that's why it all looks so, so hypocritical because like, yes, they're totally transactional and they're totally trying to advance their party or their power or their, their, you know, fundraising, but they're trying to make you believe that they're doing it for you, to help you so that your children will be better off.

[Barry Ritholtz]

Right.

[John Hilsonrath]

I'm sorry, I've, I've grown a little cynical about. No, I Much prefer being in New York.

[Barry Ritholtz]

I asked that question cuz I had a feeling you were gonna go that way. New York, there's no pretending.

[John Hilsonrath]

Yeah.

[Barry Ritholtz]

It's transactional because it's the center of US capitalism. DC Is something else in town. Yeah.

[John Hilsonrath]

Like New York is traitors and it always has been. Washington is lawyers. Here's my other New York Washington analogy. If you're driving down the street in New York, although you can't anymore because there's so much traffic, if you kind of move in and out of one lane, if you kind of overstep your bounds, someone will honk the horn, give you the finger, and keep driving.

[Barry Ritholtz]

Right.

[John Hilsonrath]

If you do that in Washington, instead of giving you their middle finger, they'll point their pointing finger. They'll wag their finger at you and tell you you broke a rule and then like threatened to turn you in. And then, by the way, there's speed cameras everywhere. It's. It's a little bit more oppressive of a place, I think.

[Barry Ritholtz]

Really amusing. All right, so I only have you for a certain amount of time. Let's jump to our favorite questions we ask all of our guests, starting with who are your mentors who helped shape your career?

[John Hilsonrath]

Well, so I'd have to say one of my most important mentors at the Journal was a guy named David Wessel who covered the. I remember David Wessel covered the fed in the 1990s. Was just like an institution in economics and economic policy coverage. He gave me chances and he was usually nice to me. So, you know, he's a tough boss too. Dave Wessel was a great guy. And my. My best friend at the Journal all those years was a guy named Bob Davis. Gentleman, good guy, great reporter.

[Barry Ritholtz]

Number one in terms of page one bylines.

[John Hilsonrath]

Yep. And by the way, Nick Timrose is gonna pass me pretty soon, I'm sure. I don't know the numbers, but Nick is my successor covering the Fed. He'll pass me, but I don't know if he's gonna catch Bob Davis.

[Barry Ritholtz]

That's amazing. Let's talk about books. What are some of your favorites? What are you reading?

[John Hilsonrath]

Well, I've been reading. I've alluded to this. I've been reading a bunch about the French Revolution. I'm also reading the book Sapiens by. I can't remember his full name. Harari.

[Barry Ritholtz]

Yuval.

[John Hilsonrath]

Yeah, Yuval Harari. It's a pretty bleak perspective on humanity.

[Barry Ritholtz]

Very.

[John Hilsonrath]

I think I. I'm a little more optimistic about our species and its intentions, but there's interesting insights in there. Like I, I, the reason I picked it up is I think that humans have these kind of primitive brains with primitive magdala and emotion centers. We have an industrial era, economic and political structures and we're living with 23rd century technology. And I'm trying to understand the primitive parts and how that might interact with all this other stuff.

[Barry Ritholtz]

You keep bringing stuff up. I have chapters and a book for you that you're gonna love.

[John Hilsonrath]

Good.

[Barry Ritholtz]

What do you remember the name of the French Revolution book?

[John Hilsonrath]

You know, you're putting.

[Barry Ritholtz]

Email it to me, I'll dig it up. And you crack me up. Comparing D.C. to a city of lawyers versus New York as a city of traders. I'm gonna share a book title with you called Breakneck China's Rush to Build the Future by Dan Wang. And he compares China versus the US The US as a country of lawyers, China as a country of engineers, which is why they could put up as much stuff as they do as fast as they do.

[John Hilsonrath]

But we're also a country of entrepreneurs for sure.

[Barry Ritholtz]

For sure.

[John Hilsonrath]

We're not just lawyers.

[Barry Ritholtz]

Although I was gonna say not a state dictated industrial policy, but that's changed.

[John Hilsonrath]

So this is another thing that I didn't just haven't having a hard time getting my head around. So like China's economy is really struggling right now. They definitely pushed us, they challenged us. You know, we were, our workers were hurt by the incursion of China imports. But we're, you know, on many measures, you know, we're still doing all right and winning, but we basically conceded to China's economic model. It's like we're moving, we're moving towards a state run capital is state run capitalism, which is, you know, it's hard for me to get my head around the idea that we've given up on a system and a project of democratic capitalism and that that's actually, is this permanent change, I should say democratic free market capitalism. You know, we seem to be having our doubts about it. I guess what I would hope is that we don't give up on it too fast.

[Barry Ritholtz]

I'm curious, is this a permanent pivot or is this, hey, let the president have his 10% of intel. But he's, this is his second term and he's almost 80 and this is an apparent change. Like I've heard that sort of vibe from people and I don't know how serious.

[John Hilsonrath]

I think he and his followers and the leaders who are working with him are vulnerable on the issue of inflation and the cost of living. He got in There in part because people were angry about the inflation of the post Covid period.

[Barry Ritholtz]

Back then, it was eggs.

[John Hilsonrath]

Now we're doing a lot of. We're doing a lot of things right now. It's not just tariffs, but with monetary policy pushing, I guarantee you, if we get the interest rate down to where the president wants it, we're going to have inflation. And if we don't get inflation, there's going to be an asset price boom where, again, this inequality thing, there's a few people who are going to make a lot of money off of that. So, I mean, I think that they have a little bit of an Achilles heel on that issue.

[Barry Ritholtz]

Let's talk about streaming. What are you listening to in terms of podcasts or watching on Netflix or Amazon Prime?

[John Hilsonrath]

I watched a really cool show called Tehran, which was about Israeli Mossad agents infiltrating Tehran. It was put out a couple of two, three years ago, infiltrating Tehran to blow up their nuclear reactors. I watched it, like a couple of months before they went and blew up their nuclear. You know, so that was really interesting. I'm also just. I'm a sports fanatic. So I don't really.

[Barry Ritholtz]

More.

[John Hilsonrath]

Well, I don't have. I'll tell you what, I've stopped watching cable television after been participating in it for a long time. But if there's a game on them, you're right there. Yeah, I'm a football fanatic.

[Barry Ritholtz]

Final two questions. What advice would you give a recent college grad interested in a career in financial journalism?

[John Hilsonrath]

Financial journalism. All right, so I've had this talk. This is getting back to the whole printing press, French Revolution thing. I mean, I think it's clear that journalism is going through a period of exceptional disruption right now. Right. And so the choices that I was looking at when I was coming in into the field of, like, you know, how do I get to the Wall Street Journal? How do I get to the New York Times? Like, it's a different set of choices. And if you use the kind of pamphleteers analogy, you know, when you see what's going on, look at you. You know, you started a podcast and, you know, this has become this great thing for you. I say this to young people all the time. Be. Think expansively and creatively about where these interests might take you. The core skill set of getting information, distilling and making sense of the information and conveying information, that's the core of journalism. That's more essential than ever. But the way you're gonna practice those skills is gonna be different than what I did. And I had a young student that I was working with and talking to at Duke a few years ago. She was going down the whole newspaper route. She's now doing a true crime broadcast in the Midwest. And so, you know, I think that there's a lot of opportunity out there for people who are willing to kind of take chances and be nimble. And it's scary, but there's a lot of opportunity for people who can be flexible and find the opportunities and go for it. And I love being a journalist. I would not take. There's this ritual that journalists go through where like experienced journalists are constantly trying to tell young journalists that don't do this, it's a terrible field, it's a dying profession and go become a lawyer. You know, blah, blah. I had a great experience. Like I'm never going to tell someone not to pursue that dream or that interest because it was so good to me. But you've got to be willing to, you know, kind of take chances and go down some roads you might not expect to go down.

[Barry Ritholtz]

Recognize how the business model has changed. And our final question, what do you know about the world of economics, finance, central banks today might have been helpful 25 or so years ago when you were starting out. 30 years ago.

[John Hilsonrath]

Well, I mean, I guess the basic thing is just that it's so much more interesting than I expected. I didn't want to get into economics writing. I did by accident and I stayed in it. I wanted to be a war correspondent. And what I came to see was that like, or a sports writer that the great battlefields and the great arenas that really affected the human condition were in markets and economics. So I guess what I would tell myself now was to go into it with even more conviction because it turned out to be so fascinating.

[Barry Ritholtz]

Really, really interesting. Thank you, John, for being so generous with your time. We have been speaking with John Hilsonrath, former chief economics correspondent for the Wall Street Street Journal. Today he runs Serpa Pinto Advisory. If you enjoy this conversation, check out any of the 567 we've done over the past 11 years. You can find those at Bloomberg, iTunes, Spotify, YouTube. Wherever you find your favorite podcast, be sure to check out my new book, how not to Invest. The Ideas, numbers and behaviors that destroy wealth and how to avoid them. How not to Invest at your favorite bookseller. Now, I would be remiss if I didn't thank the crack team that helps with these conversations together each week. Alexis Noriega is my video producer. Anna Luke is my audio producer. Sean Russo is my head of research. Sage Bauman is the head of podcasts here at Bloomberg. I'm Barry Ritholtz. You've been listening to Masters in Business Business on Bloomberg Radio.

[John Hilsonrath]

Bloomberg Daybreak is your best way to get informed first thing in the morning, right in your podcast feed. Hi, I'm Karen Moscow. And I'm Nick. Nathan Hager. Each morning we're up early putting together the latest episode of Bloomberg Daybreak US Edition. It's your daily 15 minute podcast on the latest in global news, politics and international relations. Listen to the Bloomberg Daybreak US Edition podcast each morning for the stories that matter with the context you need. Find us on Apple, Spotify, or anywhere you listen.