Decoding what the King said to Congress and how President Trump responded — BBC News

[0:00] well james landale is here and i see james you've printed off a sheath of um regal speech regal [0:05] texts yeah i always like to do that because although you you can watch them and you've [0:10] really got to watch them just to sort of hear and see the delivery but also you want to sometimes [0:14] just go back and count how many times you mentioned nato and how many jokes there were [0:18] and things like that and i you know i'm just old-fashioned i'd like a bit of paper rather [0:21] than constantly scrolling up it's not on vellum though is it it's not it's not on vellum but you [0:27] know i forgot to bring my new my note my vellum notebook with me well where would you like to [0:30] start would you like to start as sort of theater critic or as diplomatic correspondent whatever [0:35] well let's do theater critic first because actually these things are a lot about the the [0:40] performance and the theater and there was a load of that in both the speeches the one to congress [0:44] and the one to the state banquet wasn't there what's really interesting is the the the congress [0:49] speech is really hard because of the constant interruption yeah right speeches are are living [0:57] breathing things they're lectures and and they have a rhythm and a pace to them and when you're sort [1:03] of rehearsing them uh there's uh you know i've given a few of my time not to congress um yeah yeah [1:09] there's a sort of flow but if you deliver a sentence then suddenly the entire audience stands up and [1:13] claps for sort of 30 seconds this is standing you sort of there's an endless stop start and you could [1:18] see there are a couple of times where the king sort of went so come on just just let me get [1:22] it and he has a way of putting his hand up where he's sort of acknowledging it but also saying sit [1:26] down yes yeah yeah you know sit down sit down sit down you're rocking the boat uh and so i think that [1:31] uh you know there was a little bit of that going on but he sort of he you know he pressed on because [1:36] sometimes you know you they they interrupted a sentence to applaud but he was quite clever i noticed [1:43] that he would he would nip back and repeat the previous half sentence before diving into the [1:49] next one just to sort of keep the stitch going so i thought he's someone who knows what a sign by is [1:53] exactly exactly um and so i thought that was good i i mean you know he the king is very good at [1:59] delivering jokes he knows how to do sort of deadpan self-deprecation um he also knows how to keep going [2:07] when a joke doesn't land because not every joke lands um there's always a slight sort of [2:15] you know gap between you know english human or american humor and and however good you are there [2:20] are always going to be moments where you know people just simply won't understand what you're [2:23] talking about and there were a couple of occasions where you could tell the audience didn't understand [2:27] what he was talking about um you know there's a certain element of of irony of sarcasm um that just [2:34] doesn't quite cross the atlantic um but by and large as as pieces of theater uh they were well [2:41] written and well delivered um and uh you know landed in in a performative way and then there was a great [2:49] bit of theater in the state banquet speech where he revealed the bell from the submarine that the uk [2:55] had given australia in the 1940s that was the original orcas pact uh and it was called the hms trump [3:03] yeah i mean genius is gold it's got his name on it it's about it but it also cemented an alliance [3:09] that looked a little bit shaky ideal uh and the you know the official who discovered that found it [3:16] obtained it um you know top marks absolutely which was that's diplomacy isn't it right oh daniela ralph [3:22] is on the line hi daniela hi adam where are you right now and i should just say we've we've got to [3:28] about 5 p.m uk time as we're recording this yes i am in downtown manhattan i am standing at the 9 11 [3:36] memorial here which is a really really moving somber place to be waiting for the arrival of the [3:42] king and queen who will be here shortly for their first engagement in new york so a different tone [3:47] and a different mood to events today um and um do we know what they're actually going to be doing [3:53] there daniela is it going and visiting that that that um there's a sort of big water feature isn't [3:59] it which is the how they've commemorated that yeah that's what i'm actually just looking down into it [4:03] now it's like uh i mean it's a sort of bit like a how you would imagine a reservoir rather beautiful [4:09] it's sort of all the water pouring into this central point with the names of those almost 3 000 [4:14] people who died engraved all around the entire memorial um and the king and queen are coming here [4:21] they will lay a wreath here it is this year 25 years since the 9 11 attacks so they will also [4:28] be meeting um some of the families who lost loved ones and some of the emergency workers who worked [4:34] that day so they'll be spending some time here as well as meeting local politicians including the [4:39] city's democratic mayor soran mandani and james i mean the king and queen would never be so disrespectful [4:45] to try and make a political point out of a a giant tragedy for for their host country but thinking [4:53] back to the king's speech in congress he did refer to the international response to 9 11 um which was [5:00] a big international coming together which was a political point he was making yeah well no he was [5:05] reminding congress that uh that was the one time when article 5 of uh you know the the north atlantic [5:12] treaty was uh triggered namely of collective military defense to defend an ally that had been attacked [5:20] uh and he said you know he also noted at the same time that the united united nations security [5:25] council also agreed unanimously that they should take military action as a result of that uh standing [5:31] shoulder to shoulder so yes he wouldn't make it on in situ but definitely the point was made [5:37] politically in congress um and daniela just tell us what sort of vibes you're getting from the palace [5:42] about how they feel these various speeches have gone down and in particular the the quite political [5:48] interventions that the king was making at various points whether it's about uh the importance of nato [5:54] the importance of europe and america working together i think they're feeling quite pleased with [6:01] themselves to be honest um uh looking at the expression that some of the palace teams faces [6:06] during uh the delivery of the congress speech yesterday i think they were pretty pleased with [6:12] how it has landed and how the king delivered some of those points that you mentioned i mean there is no [6:18] question in my mind and you know like james and i have sat in on a lot of the king's speeches um and [6:25] sometimes he can get sort of a bit wordy and a bit lost in the anecdote or the historical [6:31] reference or the literary quote or whatever it is it can be a little bit dense and a bit hard to kind [6:35] of kick apart and get to i mean that really wasn't the case yesterday i thought actually the way he [6:40] stood and delivered um the speech was really interesting i think he was energized i think he really [6:47] liked the applause and the standing ovations and the laughs at his gags i just think the whole thing [6:54] um was a really confident delivery from him where perhaps it's not always it doesn't always feel that [7:00] way and um those around him are very pleased i think there was a bit of nervousness last night [7:06] after that reference by the president in the speech at the state dinner about you know we we [7:12] charles agrees with me about iran not having a nuclear weapon i think there was because there [7:16] were a lot of questions to the palace about that um but you know they were very clear that [7:20] they felt this absolutely fine for the president to say that but it was um you know the the position [7:26] is of the uk government and yvette cooper the foreign secretary was there nodding away as as um [7:31] the president said this so they sort of tried to dilute any um questions and controversy around that [7:37] moment but i think they are generally just really thrilled with the mood the look and how things are [7:44] being received here and james just decode one of those moments that daniella was nodding to there [7:49] in the speech in congress where he made a reference to magna carta and this idea of checks and balances [7:56] on executive power um and that got a big laugh in the in the chamber the u.s supreme court historical [8:03] society has calculated that magna carter is cited in at least 160 supreme court cases in 1789 not least [8:16] as the foundation of the principle that executive power is subject to checks and balances what's your [8:27] take on what was going on there well on on one level he was referring back to you know core documents [8:36] that are the foundation of our rule of law that that um apply equally to the united kingdom as they do [8:42] to the united states in terms of you know and huge you know he cited the number of references to [8:48] magna carta and supreme court judgments and things like that uh so he was talking about the joint [8:53] heritage of both countries and and the the the sort of the sort of not so subtle point was you know [9:00] we've been around together for a long time we have a lot of shared culture and yes we might have [9:04] disagreed a lot over the years but ultimately the reason that we the the the relationship is so [9:09] important is because it endures despite those um the differences but then then suddenly as you say he [9:15] mentioned the importance of you know constitutional checks and balances of executive power and [9:22] instantly all the democrats presumed that that was a reference to donald trump because obviously um under [9:28] the trump presidency there has been this uh thesis this idea even an ideology of the accretion of [9:37] presidential power in other words that actually the system of checks and balances that we naturally [9:43] presume exists in the united states and has done for many many years there are many in the maga world [9:49] who challenge that thesis and think actually the law has been misinterpreted and the executive the [9:56] president has far more power than is than the system lets on maga carter you call it exactly exactly [10:02] and that therefore president trump is you know quite right to um uh impose his authority over the courts in [10:10] a way that previous presidents have to have done imposes authority of a part of a congress and [10:15] sidestepped congress by having massively a number of executive orders um using uh his very limited fiscal [10:24] powers um over tariffs to almost trump the basic idea which is that congress does the money in american [10:32] politics and he has pushed that so the democrats liked that reference because they thought that was a nod to [10:38] to to that to you know to their comfort zone and their argument that they've been making [10:42] against the administration but daniela that bit of the speech in congress is a classic bit of regal [10:46] rhetoric isn't it because when you you read it in writing you're like well he's not really saying [10:50] anything there there isn't just a historical fact or just the law of the land in america he's not he's [10:55] not doing a gag or a political soundbite there there's nothing you can really argue with well uh yeah exactly and [11:02] as ever with these things you know you are you are hearing what you want to hear from your own position in it and that was very obvious [11:08] as james has touched on when you watched happy how various sides of the political divide were [11:13] responding during the congress speech it was very much along party lines at time you you know you [11:17] heard what you want to hear you felt positive depending on on what you heard from the king's [11:21] words i think as well that um in terms of both the times we heard from the king yesterday i think [11:27] we have to see it almost as as one big speech rather than two separate ones a little bit it was almost as [11:32] if that first speech to congress that's where the kind of hard and dirty stuff happened where [11:37] there was a little bit of a poke and a nudge and you know he he really sort of delved into the [11:42] politics in a way that we don't normally see and then when you got to the evening that was the bit [11:46] to make everyone feel better and not to worry too much there was a lot of stroking of the president [11:51] how proud his parents would have been of him we know how great america is how important it is so they [11:56] they really did sort of complement each other and were very much seen as two separate speeches that were [12:02] very much part of the same project and and james i'm thinking back to um okay donald trump hasn't [12:08] said many controversial things in this visit in the last few days but he said a lot of controversial [12:14] things about britain's role in the world in the recent past for example british troops not being at [12:20] the front line uh in the in the fight in afghanistan the king sort of responded to quite a lot of that [12:26] stuff in his own way as well didn't he well simply by you know reminding the fact that british and american [12:32] forces have fought alongside each other throughout throughout history uh his family he cited his [12:37] own family he cited you know he referred to his own service in the royal navy after donald trump [12:43] referred to you know some britain's two aircraft carriers as toys uh he did name check afghanistan [12:49] um and certainly you know if you talk to diplomats they say that you know when donald trump made those [12:56] remarks they said it was made you know the king's displeasure was was made clear through you know [13:03] discrete back channels um and um you know that that was seen as one of the reasons why the president [13:10] you know conducted a reverse ferret on that pretty fast um because that displeasure was and the thing [13:17] is for the palace that's a real you know when you when you deploy a little bit of political capital like [13:22] that it's you it's very judicious i mean daniel will tell you that you know kind of you know when [13:26] has the king done this very very rarely that was one occasion perhaps another was over canada when [13:32] donald trump sort of you know made acquisitive noises over canada um you know that there were that people [13:38] were inferring why why the the king is wearing a sort of canadian flag and so you know suddenly canadians [13:44] are being invited to sandering and then things like john i mean there are ways that messages can be [13:49] conveyed daniela yes the other thing that actually struck me on a more personal note from the king [13:57] um in terms of when we're looking at the things that perhaps have upset him his talk of his personal [14:03] faith during the speech i think was really important because we know um from those working around him [14:08] that he there is a degree of discomfort from the king in the way the conversation around religion at the [14:15] white house has played out between particularly with um the pope and the relationship between [14:20] president trump and what he has said um about the pope and i think there is definite upset on the king [14:27] side about that and it was interesting to me that he chose to give a pretty chunky amount of time to [14:33] talking about the importance of his own faith of diversity in faith of understanding how other people think [14:39] about kindness i suppose and it was that was very personal but also in a slightly different way to [14:45] some of the harder politics quite pointed and daniela you could see the political differences across [14:50] the atlantic playing out in one bit in particular in the congressional speech which is when he talked [14:55] about his passion for nature and protecting the environment and jd vance the vice president uh who [15:01] was basically sort of the chair of the event did not clap no uh i mean it was quite silent generally at [15:08] that point compared to other moments during the speech but yeah jd vance in particular did not [15:13] look at all pleased with that element um of the speech and was very uh you know it was just sort [15:19] of i mean it was you just couldn't really read in there was like nothing nothing to see here um [15:25] but yeah i mean that element i would say probably the environment the nature parts of what he had to [15:29] say to congress probably with the bits that didn't land quite as well as others quite the opposite of [15:34] drill baby drill um james you're flicking through your sheaf of non-vellum documents anything else you [15:40] want to flag to us well i the thing that impressed me most or you know it hasn't it was impressed upon [15:46] me most was just the sheer um ruthless relentless riposte to trumpism that these speeches uh involved [15:58] you know amidst all the charm and the flattery and the the jokes and the humor and the praise and the [16:03] joint history and all the rest of it you know this was a the king speaking up for alliances this was [16:09] alliances first not america first um he spoke up in favor of nato in favor of europe in favor of the [16:15] commonwealth he praised international law international rules that the the that this administration have [16:22] um overtly uh rhetorically and in practice completely denigrated uh you know he made it absolutely clear [16:31] and say said that you know you cannot take on the world's challenges one nation alone uh and the [16:38] point is is that that is a complete uh the complete opposite of what donald trump does and says uh and [16:45] i think he was able to make that argument and the fact that he was able to ate that make that argument [16:50] without the administration reacting to it um was i thought amazing because uh very few politicians ever [17:00] come near to that and of course the king's not a politician but in terms of making an argument [17:07] in favor and it wasn't just it wasn't just the environmental stuff it was a it was a piece by [17:11] piece block by block argument against the core ideology of donald trump and his administration [17:20] um and i so i think the real test for this trip is not you know does donald trump's genuine [17:28] warmth and affection for the king sort of begin to smooth over some of the cracks between the two [17:35] governments i think it's does the white house allow some of these arguments to sink in do they [17:42] think actually hang on a minute um there is an advantage here you know do we need to think differently [17:50] because of the way the whole iran thing's gone do we need to think differently about alliances blah blah [17:54] blah um do we need to you know if if america for example wants to focus on china and a bit on the [18:01] middle east is it not better to have allies in europe kind of doing what the americans want [18:05] you know sort of on as a form of an alliance um now you know the the realist will go this trip's not [18:13] going to make a blind bit of notice and a difference and that actually donald trump will carry on being [18:17] donald trump and this is this is you can should this is separate this is about you know the soft [18:22] soap and the the the emotion and and it and it doesn't touch the american concerns over lack of [18:28] british military firepower at the moment um but i thought that was the interesting question is do [18:34] does the white house think the president likes the king the king makes an argument should we therefore [18:41] listen to that argument i don't know the answer to that question yet yeah daniela what's your take on [18:45] that because it's about what's this visit meant to achieve because sometimes it feels like it was [18:50] just meant to achieve not going wrong um and not being a disaster and trump not blowing it all up [18:55] but then also sometimes it seems like oh this was about trying to move to a new page of uk us relations [19:02] but then equally some people saying oh yeah this was an attempt to try and change donald trump's mind [19:07] about like how he how he engages with the world what's what's your your take and buckingham [19:12] palace's take as well on just what they were sort of trying to get out of this well we've been told a [19:17] number of times by some of the diplomats involved in um setting up the trip and working on the planning [19:23] that they do not view this as a reset and they don't like that kind of language they've also said [19:28] that the government didn't go into this trip with big objectives to come out the other end like we often [19:34] have on these state visits around trade and things that there aren't big objectives here it is much more [19:40] as we know about the mood music and how everyone feels about each other and the state of the [19:44] relationship but it's interesting listening there because the thing that strikes me about the state [19:49] visit is sometimes it definitely doesn't um cover up the cracks it really highlights um where the [19:56] the joins are splitting i suppose in many ways and it doesn't and i feel that has done this a bit because [20:02] when you look at the two men as individuals i mean have you know the king and donald trump ever felt [20:08] further apart as they do at the moment you know you have this brash shoots from the hip kind of you [20:13] know loves the cameras loves the attention kind of president with this quiet really restrained [20:21] thinks really thinks very carefully about everything he says human being they are just polar opposites and [20:26] i think ultimately the job here was just to try and soften the edges of that relationship and try and [20:32] find a way that perhaps others working with them can now move forward more politically and diplomatically [20:37] um but yeah i mean it has really struck me that it hasn't necessarily um brought people together [20:43] it's just really emphasized you know how different uh those administrations are and daniela just the the [20:50] the jeffrey epstein situation how is that being addressed either indirectly or directly yeah it isn't [20:58] really there was that very short um line in the congress speech yesterday about victims of society's [21:06] ills which was we are told by buckingham palace a reference to victims of sexual abuse so that was [21:12] the closest that the king has come to any direct reference um to um jeffrey epstein or his victims [21:20] and survivors so i mean it isn't being addressed as the palace has said you know that it isn't that they [21:25] um don't want to it's just that they can't because legal advice says that should they step in [21:30] and lean into the epstein conversation while they are here that there is a chance it could jeopardize [21:35] the legal process for the victims who are still in pursuit of justice around that and then daniela [21:41] the the us part of the visit is drawing to a close soon and then the king and queen get on separate [21:46] planes they do yeah we've got this day in new york today where um just a a day trip here where the king [21:55] will have the 9-11 memorial the king then goes up to harlem and the queen is going to new york public [21:59] library where she'll be there with the author harlan coburn and the actress sarah jessica parker [22:04] as a literary event there then the final day in washington tomorrow there'll be a big goodbye in [22:09] the morning and then the king and queen will do some events that are more public facing um in virginia [22:14] which will be a sort of different mood there'll be walkabouts they're going to a blocked party and um [22:20] so a different i think the sort of bit of the tension will have eased um tomorrow and yet then [22:25] for the king it is bermuda a british overseas territory he'll spend a couple of days there [22:29] in the sunshine on events around the environment around cultural ties and community engagement [22:35] oh well daniela thank you very much for bringing us up to date and thanks for fitting in newscaster [22:40] and you've got so many other bits of the bbc to do as well so thank you always here for you adam oh [22:45] thank you are you a big harlan coburn fan james mid-range thrillers yeah i i'm i'm more jack reacher [22:55] guy that's another kind of mid-range thriller though isn't it yeah in that genre that that's [23:00] that's where i sort of land and of course sarah jessica parker was the judge of the book her prize [23:04] wasn't she so she's not just it's not just random show business there's a literary i think she's she's [23:09] probably better known for other roles now in other um institutions based on primogeniture um today is [23:17] a big day in parliamentary history in the uk isn't it because the last hereditary peers so the people [23:22] who inherit their titles from their dads and then get to sit in the house of lords as a result [23:26] are are going they've been chucked out it is it it does feel like an end of an era um it's only [23:33] an end of an era in my career because many many years ago i was the house of lords correspondent for [23:38] the times newspaper remember it well and i spent a lot of time there talking to hereditary peers but [23:44] what was interesting was during the blair election of 97 um the two things that always got a good which [23:51] i was on blair's bus and the two things that always got a big cheer was getting rid of the royal yacht [23:57] um which was considered a waste in those days and the royal family was very popular in those days [24:02] and secondly getting rid of hereditary peers that was seen as a sort of it was a sort of physical [24:07] manifestation of of oldness yeah that new labor was the solution to um and then they i remember [24:14] them all telling me oh we're going to get rid of the whole house of lords we're going to go to rule [24:17] the flummery and all this and of course the moment they got in they fell in love with it and sort of [24:20] rather liked it um as everybody always does and then realized they could create their own peers too [24:25] and could create their appears and i remember and then so tony blair sort of set off to sort of get [24:29] rid of hereditary peers and then of course the peers brilliantly fought a rear guard action as as the [24:36] british aristocracy had done ever since um the early 1800s you know during the reform acts and all [24:42] those where they ceded power inch by inch bill by bill you know from the you know the the the reform [24:51] acts and then up to you know the the legislation in the early 1900s when the house of lords had some of [24:57] its powers constrained and um all and all of this sort of thing and exactly the same thing happened in the [25:04] late 1990s and tony blair thought he was getting rid of the hereditaries then but a guy called at the [25:10] time his name was robert cranbourne lord cranbourne he's now robert salisbury or lord salisbury um uh [25:16] and uh he was the leader of the uh the conservative leader in the house of lords and uh this was the [25:22] era when william haig was prime minister and he basically did william haig was leader of the [25:27] opposition yes to be prime minister exactly and robert cranbourne as he then was um basically went [25:34] behind william haig's back and did a deal private deal with downing street and blair when basically [25:38] said okay we will eventually let your reforms through but you are going to save 92 hereditaries [25:44] who are going to carry on and um he did this deal without telling haig and so haig had to [25:50] had to sack him um and um uh robert cranbourne famously said uh in his statement to the media [25:57] that i have been behaving like uh an ill i have run in like an ill-trained spaniel um which is a [26:05] shooting reference that that needed some explanation to the wider audience uh and um but what was [26:11] fascinating about it was the reason blair gave into that was because he was just so bored of the whole [26:16] thing there was a there was a you know there was a story i remember once about how it was being [26:22] brought this issue we've been brought up again at at cabinet and blair started publicly yawning because [26:26] he found the whole thing so so boring but that's why the heredities have survived for so long um and [26:33] here we all are and they're only now um leaving a parliament yeah and i also just people i can imagine [26:39] people going oh why do you even care about this but i just think it's it's a metaphor for like why [26:43] people it's easy to say you'll modernize our state but actually the reality of doing that is much [26:48] harder and can take a lot longer than anyone thought maybe even like 30 years i have written [26:54] so many stories about house of lords reform about turning it into a regional uh representative body [27:00] a national representative body a body that has um different elections different electoral systems [27:06] different um uh all of these things and you have we have gone around the houses endless time and you [27:13] know what yeah it just never happens and all that happens is it just gets bigger and bigger [27:20] um and more and more people pile in well yeah because it's just it's just a perfect kind of petri [27:26] dish of conservatism versus radicalism versus realism isn't it all the things we're actually discussing in [27:34] our coverage of the king's speech james thank you very much for bringing us up to date with that long [27:38] running story thank you now as promised we're going to catch up with bbc business editor simon jack who's [27:45] written a piece of the bbc news website today on the in-depth section about some of the little [27:51] tremors some people are noticing in the world economy right now so here's my conversation from earlier [27:57] with simon jack hello simon hello adam what made you think back to 2008 so i remember covering that and [28:05] i think we all do yes i mean i didn't think i'd ever cover a bigger story in my life and of course [28:09] then we had covid blah blah anyway the point was is that before the kind of earthquake that happened [28:14] in 2008 and lehman brothers going bust and the world going into financial crisis there were a couple [28:21] of tremors that happened before that and some of the tremors that happened then some people have [28:27] identified as happening now so you've got three things going on which have echoes of that time [28:33] one is you've got surging energy costs back in 2007 you saw very high rising energy prices [28:39] you had the stress in some parts of the financial system back then it was a couple of funds that were [28:46] investing in subprime mortgages suddenly closed down and said investors couldn't get their money out [28:51] right now you see a couple of things called private credit which i'm sure we'll get into what that is [28:57] saying you can't have all your money out it's a bit like a slow motion run on a bank like northern rock [29:01] for example which was in september 2007 and then you had also some stretch valuations you had you [29:08] know the stock market at or near all-time highs now you look at the financial headlines now they look [29:14] a bit like that you've got surging energy prices you've got distress in some of the financial system [29:19] and you've got what what some people case call stretch valuations in terms of particularly the amount [29:25] of money that's going into ai now if you add all of those things together [29:29] do you have the ingredients for another financial crisis and how might it resemble the one in 2008 [29:37] and i've been speaking to the deputy governor of the bank of england other people um mohammed el [29:42] arian you know esteemed economist and they say they do see some echoes of that and you know they agree [29:50] there are some risks which are being underappreciated okay so you spell out the three kind of [29:55] tremors there let's look at each one individually and try and work out what they each mean the first one [29:59] oil prices i suppose actually that's quite that's quite simple to get your head around isn't it [30:03] yeah because that's just we've been talking about it a lot because the street of hormones we now know [30:07] actually these things take a while to filter down and they can pop up in all sorts of different [30:11] bits of the the economy rather than just things that are dominated by oil yes exactly and and what [30:16] they tend to do is push inflation generally up which in turn can begin to push interest rates up [30:24] and rising interest rates places place stress on the financial system because basically it makes [30:30] it more expensive for people for businesses to borrow rising inflation at the same time takes money [30:36] out of people's pockets it's generally a bad thing because i know i'm sometimes guilty of this [30:40] of like i see a headline about oil prices going up and i think well i don't have a car so i don't [30:44] have to worry about the price of petrol but then i realize that's a very naive view of how the global economy works [30:47] do you eat food i do eat food yes sometimes sometimes quite a lot of it no exactly so then [30:52] my second thought is no no i am directly affected by this um so then the second tremor you're talking [30:56] about was this whole thing about private markets now that is almost like a label designed to make [31:01] you switch off and go oh that sounds boring but just explain what that actually is and what's going [31:04] on in these markets okay so after the financial crisis of 2008-9 banks had lots of rules applied to [31:11] them so they couldn't get into risky lending so they were much more cautious about lending money [31:15] um and now into that void sprung up a whole new industry where basically rather than banks lending [31:22] money um these funds would collect money and they would lend directly to businesses they're like [31:29] mimicking banks and they're called non-banks or sometimes shadow banks so that is private credit [31:35] and this industry has grown from zero in 2008 to about two and a half trillion dollars today [31:41] um and it and because it they are not banks they're not regulated in the same way as banks [31:47] and no one really quite has a microscope on them so no one really knows what they're doing but they [31:53] are lending money at a pace to lots of companies and the fear is is that some of the money that goes [31:59] into these funds which then gets lent onto business is borrowed in the first place itself so you have [32:05] what they call you know the debt is leverage they call it and so you've got this layer cake of leverage [32:10] leverage upon leverage and when you have all those things going on they can interact in really [32:15] unpredictable that really reminds me of 2008 leverage upon leverage leverage so so so you've [32:21] got private credit which is misunderstood poorly regulated pretty opaque quite complex and very [32:27] likely highly leveraged and it's never been tested this new market through a distressing time which [32:33] is what we potentially have now and just in terms of the the name for it private credit when we talk [32:39] when we say the word private that sort of makes us think of like rich individuals or rich families [32:44] but it's not it's not that is it they're not the they're not the source of the credit of the funds [32:48] no there are some institutions like pension funds who'll put a bit of money into private credit [32:52] but there are also retail investors particularly in the us who will say oh i'm going to put some money [32:57] into that and what that's where the stress has been uh you we've seen that because there's a couple of [33:04] blue owl blackrock apollo these are quite big names in the us and some of them have retail investors [33:10] who've seen some of these scares and now want their money out and what we've seen is it's a bit like [33:15] a slow motion run on a bank they want their money out but the point is is that the money they want out [33:21] has already been lent to somebody else just that's what leverage is just like a bank yeah and so they've [33:26] had some of those funds have either had to say sorry you can't have your money out you want all your [33:32] money out you can have five percent of it now you can have five percent of it blah blah blah [33:35] or they've marked up big losses and in some cases gated their funds completely which means like i'm [33:41] sorry until further notice you can't get your money out now of course when people see that because well [33:46] i better get my money you know those things you know like we see a run on a bank it's like a slow [33:52] motion one of those and that is the distress we're seeing in the private credit market now private [33:57] credit is quite small compared to the overall market but it's as big now as the us subprime [34:05] mortgage market was in 2008 right just because it's small doesn't mean doesn't have tentacles [34:10] that spread out in other places correct because once people think you've got some nasties that you [34:14] know lurking somewhere they go well i might not you know i'm bank a i might not lend money to bank b [34:20] because i think bank b has lent money to one of these private credit funds and i don't know what so all [34:24] you know it's basically the the you know fearful whispers get around now we're not at that stage [34:29] yet i want to make that just to be clear yeah perfectly clear but you know is there distress [34:34] in some parts of the financial system yes there is and a lot of people talk about now no i did an [34:39] interview a couple of weeks ago with larry fink who's the world's biggest money manager he runs [34:43] blackrock and he says i see zero similarities with 2007 just put that on the record a lot of people saying [34:49] there's nothing to see here other people say you know it's not enough to bring down the financial [34:54] system but it's a risk which is flashing on the dashboard and also it's always worth remembering [34:58] back to 2008 before 2008 there was 2007 obviously which is when we had what was known as the credit [35:04] crunch yeah when banks stopped lending to each other correct people sort of conflate the credit crunch [35:10] and the global financial crisis but actually there were there was two separate bits there weren't [35:14] there well the credit crunch in a way sort of brought about the the financial crisis because once you [35:19] shut off the supply of credit banks aren't like normal companies they're like the bloodstream of [35:25] the economy they make sure that wages get paid that companies can borrow money that things get [35:31] financed all that kind of stuff so if if banks get sort of infected and sclerotic the whole body economy [35:39] sort of seizes up now the good news is right now is the banks because of the lessons we learned in 2008 [35:46] are much better capitalized they've got much more shock absorbing capital they're not so you know it [35:51] takes much more to knock them off their perch than it did today and it's not and that in and private [35:57] credit on its own i don't think would be enough to bring about the kind of crisis we saw back in 2008 but [36:03] there are other factors and then the third kind of uh tremor you're identifying is yeah the valuation of [36:10] bits of the economy and in this case tech companies and in particular how much they've spent on ai which [36:16] is eye-wateringly mind-bogglingly enormous well they spent about two trillion dollars on pouring [36:22] money into ai and a lot of that has been focused on quite a few big companies and here's a staggering [36:28] statistic we have this thing called the s p 500 which is a an index of the 500 biggest publicly traded [36:35] companies in the in america now the entire value of the s p 500 35 to 40 of it is concentrated in [36:44] seven companies and they are the ones that you would expect nvidia microsoft amazon etc google [36:52] well the parent company alphabet so whether people like it or not even people who put their money in [36:58] index trackers or whatever and a lot of people in the us do that and a lot of pension funds here in the [37:03] uk because you can just you can just buy a fund that matches which matches in that index and you [37:07] think well i've got a nice diversified portfolio i'm tracking 500 companies well actually whether [37:13] you like it or not you're taking a pretty big one-way bet on the future of ai and that with the tons [37:20] of money going into it lots of people have said a lot of that money will end up wasted yes it's going [37:25] to change the world that doesn't mean just like the railroad changed the world doesn't mean there [37:29] wasn't some massive busts there along the way just like we had the dot com boom and then bust the nasdaq [37:36] tech heavy nasdaq uh back in 2001 lost 80 of its value in about a year and a half's time now no one [37:44] is suggesting that's going to happen but once again when you if you were to get you know somebody just [37:49] the market changing its mind we've all got a bit too excited about ai we don't think it's going to get [37:54] the returns to justify this investment if you get a fall in that you get a fall in avril stock [37:59] markets and that dense confidence and just adds the o you know the overall sense of uncertainty [38:04] um and as part of your kind of you look at all of this stuff you spoke to say we're breeding the [38:08] deputy governor of the bank of england who's kind of her job is stability so she must be thinking [38:12] about this a lot yeah she does and she says look you know um and again she says there's none of these [38:20] single risks is enough to create a 2008 style crisis but what she said in her own words and you can [38:26] go back and listen to this is that what keeps me awake at night is the risk of these all these [38:31] different things crystallizing at the same time and whether the financial system is resilient enough [38:37] to cope with it now again she says that the real thing that can infect the whole the whole economy [38:42] is if the bank's not going bad and she says the banks are in much better shape so that's the good [38:46] news the bad news is the deputy governor of the bank of england concerned for financial stability is [38:51] being kept awake what i was gonna say like if you're a regular okay she's not a regulator in the [38:55] strict sense of things but she is she's one of them she's a guardian yeah um uh being kept awake [39:00] and i mean maybe there are other things going on in her household i don't know um but yeah that is [39:04] a concerning thing for her to have said yeah so so i think the verdict is in a way is that you know [39:09] there's no one single risk which poses the same kind of risk that the banking crisis did for the for [39:14] the world economy but there are the ingredients there that if combined could create a pretty severe [39:22] financial and economic shock to the world economy and it comes at a time when if you cast your mind [39:28] back to 2008 2009 gordon brown for example alistair darling they were one of the leaders of what was [39:34] an international response to that crisis they did things like they would cut interest rates at the same [39:39] time in different countries they would bail out banks at the same time it was very coordinated [39:44] let's all get around the table both government and central banks and try and fix this in a kind of you [39:49] know howitzer kind of way we're going to you know throw the kitchen sink at this i think with you [39:54] know geopolitical tensions with trade tensions with china versus the us kind of tensions the idea of the [40:01] world coming together to tackle a financial crisis is much harder to imagine now than it was back then [40:07] and also there's going to be a big newcomer on the the world financial scene with the new head of the [40:11] fed yeah in america just tell us a bit more about him and what his mindset is so his name is kevin [40:16] wash he's donald trump's pick to be the next fed governor and he's gone through the first hurdle [40:22] of being appointed now he is somebody who is not a fan of printing money indiscriminately to basically [40:29] bail out everyone he thinks that when you print money what you do is that you you one you can stoke [40:37] inflation and when you've got high oil prices you don't want to be doing that and second that what it [40:42] does is artificially um it inflates the value of assets and what that does is the people who the [40:49] haves get you know have more in terms of people who own assets so it actually stokes inequality [40:55] so he is you know he's good for people who are already on the housing ladder but not great for [41:00] people who want to get on it exactly so recent history has shown so his ideology what we know of [41:05] it so far is that he's much less inclined to sort of start the printing presses of money to kind of [41:12] flood the market with new printed money which helped back then he's much less likely to do that than [41:18] his predecessor ben benanke at that time and therefore we can't rely on that particular hose [41:23] pipe and as mohammed el-errien esteemed economist and chief chief economic advisor to a german alliance [41:29] and used to be the head of a the world's biggest bond investor so he knows what he's talking about [41:33] he said it's a bit like a fire brigade that's run out of water because he points if you look at [41:38] government's ability to intervene look what we've been through well the bailout of the banks and all [41:42] the stuff we just talked about we then had covid where we were paying millions of people's wages [41:47] you then have the last energy crisis where energy energy bills are being subsidized in 2008 debt in [41:54] the uk as a percentage of the whole economy national income was 40 percent it's now 100 pretty much [42:01] so the government's ability to respond is much has been eroded much more and i know you're not being [42:07] a cassandra here you're just pointing out some of the things that people are saying and some of the [42:10] potential consequences but it does still surprise me that things like the american stock market has [42:16] gone back to exactly where it was if not higher than it was before the war in the gulf the war which [42:22] is not over yet and most of the economic consequences have not actually been felt in real life yet yeah so [42:28] you've got that is absolutely staggering and this is a point that i put directly to sarah breed and [42:32] the deputy governor of the bank of england i said hang on a second you know you macroeconomic shock [42:38] so that means something that really shocks the financial system and energy crisis is it don't [42:42] forget that fatty birol who's the boss of the international energy agency said that what we're [42:46] seeing now the ongoing shut of the strait of hormuz is the biggest energy shock we've seen in our lifetime [42:53] worse than 1973 doesn't he say it's like all the other ones all the other ones put together he does [42:57] say that like everyone who's ever been alive hasn't experienced cumulatively what we're about [43:02] to go through now he does say that um and now and at the same time you say the stock market is it's [43:09] actually set an all-time high you know earlier this week or at the end of last week so again so [43:14] the similarities come in you know stocks at or near all-time highs surging energy prices potential [43:21] you know economic shock there stretch valuations and what was interesting about sarah breed and i sort of [43:26] pushed her i said she said i expect to see an adjustment in stock market said when you say [43:30] adjustment do you mean stocks go down yeah she said yes i do mean stocks go down now that's pretty [43:34] unusual language for a central banker usually they say talking code alan greenspan's favorite expression [43:40] was irrational exuberance yes like we said or the risks are to the downside all that kind of stuff [43:47] she actually said i expect stock markets to go down because they're not fully reflecting the number of [43:53] risks that we've just talked about are being reflected in those prices and also talking about [43:57] bankers talking in code there's an interest rate decision tomorrow is there there is so we'll get [44:01] some more code from the bank of england we will get some code and when i say tomorrow i mean thursday [44:04] because we're recording this on wednesday yes on thursday and that's a it's a toss-up at the moment [44:09] i think the prevailing betting is that they will keep interest rates unchanged because often [44:17] bankers try and look through what they see as short-term volatility saying okay what's going [44:24] to happen in six months or nine months or whatever and so they'll try and look through this but you [44:28] know there's a lot of people thinking that this war you know the us uh the pentagon and the white [44:33] house thinking what was going on iran would be over by now it is still resolutely shut the strait of [44:39] hormuz so you know we'll see um and also we got a you know got a federal reserve rate decision the [44:44] central bank in the us um also later this week so um lots of data points and could i just also point [44:50] out yes um just after around around 9 p.m on wednesday tonight we will get earnings from microsoft [44:59] nvidia amazon and others uh four of the big seven if you like and that will be seen everyone is [45:07] literally holding their breath because as bloomberg put it the fate of the entire stock market depends [45:13] on how these companies do so every single thing they say and is being watched minutely so by the [45:20] time you're hearing this we'll probably know a bit more we could all be richer or poorer simon thank you [45:25] very much we're definitely richer for listening to you intellectually thank you adam nice to be here