Title: Trump's Trade War and Wall Street

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Brian Lehrer: It's The Brian Lehrer Show on WNYC. Good morning, everyone. I'm not even going to do an intro today about topic number one, the tariffs chaos. You know it's happening and its implications for your financial life. You know the 90-day pause only calmed the markets a bit until they realized the magnitude of what was still in effect. You probably know how much the Dow or the S&P are up or down more than you usually do. You don't need an essay or monologue from me. I'm just going to introduce our guest who is top of the tops on this.

It's William D. Cohan, the longtime finance journalist and recently the co-founder of Puck News. His column there is called Dry Powder, which he'll explain. William D. Cohan wrote maybe the definitive book on the mortgage and financial crisis of 2008, House of Cards: A Tale of Hubris and Wretched Excess on Wall Street, for which he was on the show at the time. Also other books including Money and Power: How Goldman Sachs Came to Rule the World, and his latest from 2022, Power Failure: The Rise and Fall of an American Icon, about GE. His latest article for Puck is called When the Bond Market Panics Like This. With his many contacts, he's been reporting on the inside story of Trump's wild swings over the last few days in articles with titles like Wall Street's Tariff Hunger Games. Bill, thanks for coming on. Welcome back to WNYC.

William Cohan: It's great to be back here, Brian. Thank you.

Brian Lehrer: I was looking at our show archive, and the last time you were on with us was in 2011 when the financial crisis was still in full swing. That says a lot about the moment we're in right now, at least on Wall Street, very least. What would you compare the recent market plunges to, if anything ever?

William Cohan: I think we've talked about this before, Brian. One of the main culprits in 2008, if you look back at it, was the loss of confidence that investors had in both the bond market and the stock market. Wall Street is ultimately a confidence game. I don't mean that in a negative way. I mean that in a positive way, that you have to believe that stocks have value, the equities of companies have value. You have to believe, if you're a creditor of a company, that you're going to get paid back as you contractually agreed to, that you're going to get interest payments as contractually agreed.

When that confidence begins to crack, it can have a momentum and a power all of its own. Once that confidence is lost, you have financial crises. Right now we're testing that confidence. We're testing the confidence that we had and have long had in our financial system. In as recently as last October, The Economist had a cover story that said the US economy was the envy of the world. Now, whatever it is, six months later, we're testing this confidence. I don't think we're at 2008 financial crisis levels because that was truly a systemic meltdown of our key banks, money center banks that are very important to the financial system and the running of the financial system.

What we're testing now is this bizarre situation where one powerful individual, the President of the United States, has this wacky theory about how we've been taken advantage of by our trading partners when really all we've been doing is trading with them in a completely agreeable way and is taking steps that are trying to change that for some reasons that very few people really agree with. It's playing havoc on the confidence that we have in our financial system. That's why you're seeing these wild swings.

Brian Lehrer: Right. It's being done by one person on purpose, Donald Trump. In soccer they call it an own goal, right?

William Cohan: Right.

Brian Lehrer: When a player accidentally puts the ball in his own team's net, scoring one for the opposition. Even that snarky analogy doesn't hold because own goals in soccer are a mistake. Trump crashed the stock market on purpose, but maybe he didn't realize how much they'd react. Here's a clip of Trump after the 90-day pause on most countries' tariffs announced on Wednesday, just hours after he imposed them. Then I want you to explain some of the behind-the-scenes gyrations you reported on, including by the billionaire investor Bill Ackman and some kind of feud with Trump's commerce secretary and whatever else. In this clip, Trump seems to acknowledge the panic and that somebody got to him to reverse course.

President Trump: I saw last night where people were getting a little queasy. The big move wasn't what I did today. The big move was what I did on Liberation Day. Cut the bow and you have to do what you have to do. Right, Roger?

Roger: 90-day pause [unintelligible 00:05:42]

President Trump: I thought that people were jumping a little bit out of line. They were getting yippy. They were getting a little bit yippy, a little bit afraid, unlike these champions.

Brian Lehrer: He said yippy. He said queasy. Was Trump surprised by the extent of Wall Street's yippiness, as he called it?

William Cohan: He acts, Brian, like he's surprised. I don't know why he would be surprised. If he were getting proper advice, look, I think we can stipulate he does not listen to advice. He has not surrounded himself this time with anybody who's going to dissent. He's surrounded by yes men. That's how they got the jobs that they're in because he had laid out during the campaign what he was going to do, and therefore, he selected people who were in total agreement with him, who aren't going to question the thesis behind tariffs, which basically makes no sense to any right thinking economist or anybody I speak to on Wall Street.

The fact that he is even pretending to be surprised is fascinating. His comments make it all about him, of course. "What I did, the power that I have to do this. People are feeling a little yippy." Really, Donald? People are distraught. People are wondering what's happening to their savings. The billionaires that he's surrounded himself with, including himself, if he's a real billionaire, can weather this just fine. Their lifestyle isn't going to take a hit, but there's millions of Americans who've been saving their money for their retirement or for whatever purpose, who are now seeing those savings diminish in value and are facing the prospect that things that were already expensive because of the inflation that we've been experiencing that has come down but now will go back up because we buy so much from China.

They're our third largest trading partner, and now everything we buy from them is going to be what, 145% more expensive. Things that we buy from the European Union are going to be more expensive. For him to be surprised, it reminds me of George H.W. Bush at the checkout counter. I could still remember that, Brian. "This is how this works. This is how a supermarket works."

Brian Lehrer: That's one of the big reasons he lost the election in 1992 to Bill Clinton. He seemed like this rich guy who was so out of touch with the recession of that era. There was a recession in that era-

William Cohan: Totally.

Brian Lehrer: -that he didn't even know how the modern cashiers worked when he was trying to do a photo op.

William Cohan: Right. I don't know what Trump's plans are for future elections. He's certainly started to hint at things like that, which is very disturbing and a topic probably for another day. He doesn't seem to be responsive to the effect that this is having not only on the American people and the American economy but the global economy.

Brian Lehrer: Listeners, we invite you into this, your questions, comments and stories welcome on what our guest, William D. Cohan, calls the tariffs Hunger Games in his article When the Bond Market Panics Like This. 212-433-WNYC. Call us if you work on Wall Street. Call us if you buy or sell anything that gets imported from or exported to China and help us report this story. Or just ask Bill, who knows this world really, really well, a question.

212-433-WNYC, 212-433-9692 call or text. There are so many things you just said that we could follow up on. Let me ask you this. This 145% tariff on goods coming from China, they've now imposed more than 100% tariffs on goods coming from here. What do you expect that will actually mean for the price of what in the United States and the fate of what kinds of US Companies that sell things to the ginormous Chinese consumer market? I have heard some people say 100% tariff does not actually mean the cost of that item will double. Explain as best you can.

William Cohan: As best I can because I'm not an expert on tariffs and how they actually work. I gather they are collected at the border by customs agents. My sense of this, Brian, is that the idea behind this is somehow, by putting tariffs on imported goods, especially in large ones coming from China, we will somehow return manufacturing to the heartland, which seems to be one of Trump's desires here. Closing a manufacturing plant or opening one that has been closed or building a new one, those are capital-intensive decisions.

You have to do spreadsheet analysis, internal rate of return analyses, that those decisions are made over a long period of time. The decision to do that, to invest capital to build or open or reopen a manufacturing plant, you have to look at a 10, 20-year investment horizon. Those decisions are made over a long period of time and are not going to just be made quickly because the president of the United States would like more manufacturing to return to the American heartland. What is going to happen much more quickly is that places like Walmart and Target that sell probably around 80% of their goods that they sell are manufactured one way or another in China.

The prices on those goods are going to go up relatively quickly. I don't know how quickly because, again, I'm no expert on how quickly they work through their inventory that was pre-tariff and how quickly they're going to get new inventory that's post-tariff, but on a much faster timetable than a new manufacturing facility can be built and opened. The people who rely on Walmart to buy what they need are going to end up paying a lot more than they were paying without getting any kind of benefit through a new manufacturing plant or a new manufacturing-related job.

The other thing that I've been particularly concerned about and people on Wall Street are concerned about is that China, in addition to being our third largest trading partner, is also one of our largest creditors. They own $760 billion worth, or did, of US Treasury securities. They can make a lot of noise about wanting to retaliate against our tariffs with their tariffs, and that gets the headlines. What doesn't get the headlines is that they can very quietly and subtly and may have already started to do this, by the way, sell their bond portfolio, which has the effect of putting more supply on the market than can be absorbed.

Whenever there's a supply-demand imbalance, the price will go down and the yield will go up, which is exactly what's been happening in the bond market, which a lot of people feel is what got Trump's attention at least one day this past week. If they alternatively both sell their supply of US Treasury securities and then don't buy at the next big re-financing-- We have $6 trillion worth of Treasury securities that need to be refinanced by June. If they're not in the market buying, then that also is going to lead to lower prices and higher yields. Once the bond market begins to crack, Brian, then that affects every company all over the world.

Brian Lehrer: We're going to come back to the bond market and talk about that a little more a little later in the segment because it is so crucial and a lot of people don't understand the bond market, even if they think they understand the stock market, which is a little more intuitive. The price of equities goes up, the price of the apparent value of a company goes down. The bond market is not intuitive in that way. I want to come back and spend a good few minutes on that a little later in the segment, but take us behind the scenes.

For you, as somebody whose real expertise is Wall Street, you know how they sometimes say take Trump seriously, but not literally? It's one of the reasons we're seeing the markets go up by thousands of points. That's the Dow. The other indexes go proportionately and down by that much. Is one important piece here that Wall Street failed to take Trump literally enough when he campaigned on tariffs being the most beautiful word, as he said, and things like that?

William Cohan: Yes, I do think that that's a big part of this. That, for whatever reason, which I cannot fathom because it was so apparent to me as a New Yorker, I was not exactly thrilled by Trump won, but having lived through Trump won, why you would ever want there to be a Trump 2 just blows my mind. Why Wall Street became so infatuated with the idea, I think they became infatuated with the idea of what he could do because they didn't like what Biden was presumably doing to them. There's a huge disconnect here that I don't understand because I've heard from lots of Wall Street guys who say they didn't like what Biden was doing with regard to re-regulation of Wall Street, preventing deals from happening or slowing them down.

"I couldn't get him on the phone. He was anti-Wall Street, and Kamala Harris was going to be more of the same and/or worse. That was a status quo I couldn't live with, so because I couldn't live with that status quo, I'd much prefer a disruptor like Donald Trump. At least I can get him on the phone. At least I can talk to him. At least he speaks my language. He's going to change the whole regulatory environment. He's going to bring back the deal business." So far, none of that has happened. Of course, he's been talking, as you said, tariff is the most beautiful word in the English language.

Now he's gone forward and is doing all sorts of things now that he doesn't have any guardrails on his behavior, that they're waking up to and thinking, "You know what? This is disastrous for Wall Street. This is disastrous for companies across America. There's really no way to stop him." They're trying, but there's really no way to stop him unless Congress takes back the power that they ceded to the executive branch on the tariff question, which they could do, but requires Republicans to help. They've tried some jawboning. I don't know where they've all been, frankly, but you've seen Jamie Dimon go on Fox News, which of course isn't a natural home for him. I think he's trying to do that so that he can get a message to the president of the United States. Everything is so personal.

Brian Lehrer: The head of JPMorgan Chase, Jamie Dimon.

William Cohan: Right. Everything has become just so personal with Trump and getting off his chest the various grudges that he's been harboring for 4 or 8 years or longer or 40 years because he's been on this tariff thing for 40 years. Congress has basically rolled over and playing dead the Republicans. He's surrounded himself with sycophants. He's got a Supreme Court that's basically in his court because of the appointees they had in Trump 1. I'm not seeing a whole lot of guardrails. I think that's why you're seeing leaders around the world freak out. I think that's why you're seeing the markets being incredibly jittery and going up and down. Janet Yellen said yesterday, the former Treasury secretary and Fed chairman, she's never seen a bigger self-inflicted wound to an economy than has just occurred in the last few weeks.

Brian Lehrer: We're going to get a caller's take on the effect on her business in just a second. Busayo in Brownsville, hang on for a minute. To follow up on what you were just saying, Bill, I usually shy away from psychological analysis of political leaders as opposed to looking at their interests and their beliefs. I will say half our callers and people texting think Trump has a vested interest here, a conflict of interest. He's actually trying to manipulate the market so he himself makes money. We'll get to that theory. Is anyone saying to you that Trump is literally unstable, that not only is there no plan that's this detailed, but he is acting erratically because that's the state of his brain or his emotional health?

William Cohan: Obviously, I'm not a psychiatrist or a psychologist either. I know during Trump 1 there was a group, you'll remember the group of psychiatrists or psychologists who posited theories about him. In my family, we just have an expression of when somebody starts acting wacky your mother did some number on you. I don't know what is driving Donald Trump to behave this way. I don't know whether it's the coming from Queens to Manhattan thing. Maybe he's always felt he's had a chip on his shoulder, I don't know.

There have been a lot of Wall Street types who've told me about their experiences dealing with him, that his behavior has defied their logic and what they think he needs to do to win politically. He's won despite their advice to him to be more centrist or to stop acting so off the wall. I think he's saying to himself, "Look, you're telling me what to do. I'm the one doing what I want to do and I'm winning. I won the election in 2016, I think it was stolen from me in 2020. I've won again in 2024. I'm going to do things my way, and I'm not going to listen to you."

Brian Lehrer: Yes, but there does seem to be this, I think, lie out there that this was planned all along. He was going to freak the markets out, freak the world economy out, and then pull back with the 90-day pause. I think in the clip we played, where he acknowledged that he was doing it because the markets were getting yippy, the markets were getting queasy, as he put it, that he really didn't anticipate what was going to happen. He's really not going according to plan, even though he has all these minions going out there, people on Fox News, some of his sycophants on Wall Street who were freaking out themselves and then going out and saying, "No, no, no, this is part of the plan. The 90-day pause is part of the plan. This is how it works." It does not seem like his strategy is going according to plan, correct?

William Cohan: The strategy is not going according to plan because the markets are freaking out, to put it in technical terms. The equity markets are on a total roller coaster. We were just at all-time highs and everything seemed to be going pretty well. I never quite understood for years people have been complaining about the economy and yet, yes, there was inflation and there's been high prices, which have since started to come down, but both the bond market was quiescent and the equity markets were hitting all-time highs, so I didn't think there was a whole lot to complain about.

Then we have the great disruptor come in and put on the tariffs that he promised. The equity markets just completely lost it. At first, there was a flight to quality in the bond market, and then the bond markets now completely lost it. That's why you've got people like Bill Ackman, as you alluded to before, the hedge fund manager, suggesting a 90-day pause. The day before that it actually happened, where first of his minions came out and said there will be no 90-day pause. There will be no pause. Then the next day there was the pause. The markets jumped upward, the equity markets, not the bond markets, which I think gave people pause.

Brian, I don't think he's got a plan. I don't even think he understands what he's really trying to do. He just has this idea that he's had in his head about tariffs for 40 years. He is not going to let anybody stop him now. There's no one to provide any guardrails. There's no one like Gary Cohn in the first administration, who put the kibosh on it, his national economic adviser and Steve Mnuchin, the Treasury secretary. The people who are around him now were chosen specifically because they were not going to thwart him. Now we see the effects of that.

Brian Lehrer: When you talk about billionaire investor Bill Ackman, the way you reported it on Puck, Ackman was practically on his knees pleading with Trump to put the 90-day pause on because he thought Trump was going so far in the wrong direction. Then Trump did, and then Ackman posted on X, "Brilliant. The plan all along. Classic art of the deal." What?

William Cohan: Yes. Please don't put me in a position where I have to defend the behavior of Bill Ackman who I've known for decades now and has provided me grist for the mill for 20 years as a financial journalist. He was so sycophantic with regard to Trump and Trump's election, completely. He'd gone from supporting Democrats to completely going over to Trump and being MAGA-ized. Then this happened and it was affecting him in his pocketbook because his publicly traded investment firm lost like 15% of its value in the space of a week.

Now he's on his knees pleading. He could have been one of the originators of this 90-day idea of pausing. He was begging on Twitter, X, for that to happen. He gets it, and then he turns around and becomes Sycophantic again. "This was the plan all along." Of course, as we know, on Thursday the markets cracked again and the bond markets are not rallying, so this cannot have been the plan all along. It's just this cannot have been the plan. It makes no sense. It's not working. It's not getting the desired outcomes. This is a man, Donald Trump, who's completely dug in.

He doesn't listen to anybody, any advisers until he's good and ready, and he needs a way to save face. I don't know how he's going to save face in this situation because he may have thought he was saving face with the 90-day pause, but it's not working because then he said to our biggest trading partners and one of our largest creditors essentially, "Take a hike."

Brian Lehrer: 145% tariffs.

William Cohan: Right.

Brian Lehrer: People are texting with political theories. People are texting with economic theories. In response to my psychological question, somebody wrote a two-word text. "Pathological narcissist." Busayo in Brownsville is calling to talk about her business. Busayo, thank you for your patience here on WNYC.

Busayo: Oh, no worry. It was such a great conversation. Thank you. Guest is William, right? Is that your name?

William Cohan: Yes.

Busayo: The guest?

Brian Lehrer: Yes.

Busayo: Okay. Cool. Thank you. Thank you for just your great analysis. I have a clothing business, we import primarily from Nigeria. The tariff rates against Nigeria using that complicated formula, which I do think, or the non-formula formula, is about 14%. The entire sector, our entire retail sector, we sell clothing to small boutiques and we sell at Saks and bigger stores and Bloomingdale. I don't think that there's been enough attention on what will happen to this sector of the economy if these tariffs go through the Chinese ones, but 72% of the apparel in this country is from Southeast Asia or East Asian countries.

The entire sector is essentially going to be cratered, talking to so many of our stores who just don't know what to do. The lack of consistency and the waking up today doing something that's really seismic and huge and then suspending it and then pausing it, the whole chaos of around this, I think more than even what is happening, is really what is-- The problem itself is self-inflicted, but then it's like we're now pouring acid in the wound by just the complete chaos because people can't really plan. I have a lot to say about Trump and I do think that the two-word text is correct, in which case we're actually in big trouble because that means that there's actually no reason behind a lot of what he's doing, aside from his own personal satisfaction.

Two questions for the guest. One is if you could give business owners any advice, and I know this is not business advice, but if you could just give them any advice, especially thinking about your book about GE and blind spots and the breakdown of GE and how these companies that we love make these huge mistakes, you've done a lot of work in this sector and in looking at businesses, what advice would you have for small businesses as they're beginning to try to plan their life and plan their 2025? Then, if you could talk a little bit about the bond issue? You alluded to China being our largest creditor and what would happen if they don't buy our bonds. Then you said, "Oh, it's just going to be really bad." Can you just give us a sense of what you meant by that?

Brian Lehrer: Busayo, thank you very much. Hold the bond market thing, because after the break that we have to take in a couple of minutes, I want to do a little bit of a deep dive with you on that. She's actually asking you for advice amid all this uncertainty for her business. I don't know if you're in that business.

William Cohan: I'm not really in the advice business, but look, I can only imagine how difficult it is to start a small business, to run a small business, to generate customers for a small business that you have in Brooklyn and finding retail outlets in Manhattan that'll take your goods. Then these exogenous factors that you have no control over get dumped on top of you, on top of your business and upset your whole P&L, upset your whole income statement. There are times when, if you have a dollar of debt let alone a lot of debt, that's too much debt. That can put your company into bankruptcy.

It's these exogenous factors that are well beyond anything you could have planned for or thought about or hoped for. It's got to be very, very upsetting. My heart goes out to people who are in that situation, who are just trying to get by, make a living for them and their family and have a business and generate their own wealth. Then the narcissist in the White House who's drunk with this power to be able to do this, by the way, which could be taken back by Congress, as I said before, but hasn't been yet or hopefully it might be. I don't know. That might be too wishful thinking.

Brian Lehrer: Can I jump in on that? Senator Gillibrand, who was here yesterday, has a bill for Congress to take back the tariffs power, which is actually allocated to Congress in the Constitution, but Congress has given a lot of it over the years to the executive branch. Do you think, considering what's going on and who's affected, that Republicans in Congress might go along with a bill like that?

William Cohan: I've seen reporting that says that there are like six or seven senators who are beginning to be willing to sign on to this. I hope that's true six or seven Republican senators, because that's what it's going to take. It's going to take, this is going to be a serious bipartisan issue, but you've got John Thune who's not willing yet to stand up, and he's saying, "You know how I feel about this," but not willing to intervene and whip the troops up. You've got the speaker of the House who's basically saying we got to let the president do what he wants to do because this is what he was elected to do.

He was not elected to destroy our economy. That's what he's in the process of doing because, again, getting back to what we talked about at the beginning, it's a confidence game. Again, not in a bad way, but in a good way, if people lose the confidence in this economy, in the financial markets, it's going to take a very long time to get it back. As we saw in 2008, it took five or six years before people's confidence in the economy was restored.

Brian Lehrer: We're going to take that break now, late as it is. We're going really long with the segment with William Cohan from Puck. Then we're going to do that deep dive into the bond market and why we should care even if we don't understand it, maybe we understand stocks a little bit. More of your calls. Stay with us.

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President Trump: The bond market is very tricky. I was watching it, but if you look at it now, it's beautiful. The bond market right now is beautiful.

Brian Lehrer: "The bond market right now is beautiful," or maybe not. We continue with William D. Cohan, Puck News co-founder and long-time finance journalist. He worked in mergers and acquisitions himself before that and has written books like House of Cards, about the financial crisis of 2008 and Power Failure, about the fall of GE. Bill, to your latest article called When the Bond Market Panics Like This, you wrote that the most reliable clue to what's coming our way is not the stock market, but the bond market. Why is that? Most people probably don't understand the bond market as easily as the ups and downs of stocks.

William Cohan: The bond market is one of the major reflections of what it costs to borrow money to run your business, to buy a house, to buy a car. We borrow money for pretty much everything these days, and there's a cost to that. Number one, the bond market will tell you what the cost of capital is to do those things. If it gets too high, people decide, "Okay, I'm not going to buy that house now because the mortgage rate is too high, and it's going to cost me, in addition to what I have to pay for the house, all of this, what I have to pay for the money."

The same thing happens across every major capital decision. That's what CEOs and CFOs think about too, before they decide to, as I was talking about before, opening and building a new plant or making an acquisition or hiring more people. The debt markets, the debt is what is the rocket fuel behind our economy. When the cost of that debt gets prohibitive, people make the decision not to borrow money, or if they've already borrowed money, and their income statement changes and they can't pay back that debt, as I was talking about too, the potential for going into bankruptcy increases greatly. Donald Trump's comments that the bond market has been beautiful lately is absolutely and completely incorrect. It's actually the exact opposite, which is, and I don't know why he won't say that because that's exactly what got him to do the 90-day pause is what the reaction was in the bond market.

Brian Lehrer: The bond market is part of the market. That sounds obvious, but a lot of people might think the bond market is up to the Fed, the Federal Reserve Board, which had been lowering interest rates because inflation was coming down. Even before the tariffs were announced, the private bond market, the longer bonds had been going up. Right? Interest rates were going up even as the Fed was bringing its interest rates down. People really don't understand that.

William Cohan: The Fed can only affect short-term interest rates through the federal funds rate. The bond market is a reflection of longer-term interest rates as well as short-term interest rates in some cases. The longer-term interest rates are a function of people's views on risk, people's supply and demand, the regular buying and selling of money. People are justified in having some confusion about this, especially since from 2009 to 2022 we were experiencing at the Fed level what was called quantitative easing, which is not a great term and it's a little confusing.

What it essentially meant is that the Fed decided to buy long-term bonds, drove up the price of the bonds. Bond prices and their yields are in inverse proportion, so if the bond price goes up, the yield goes down. For 13 years there, because of what the Fed was buying, almost $9 trillion worth of debt across the debt spectrum, long-term interest rates went to close to zero. We were in the zero interest rate environment and a whole generation of people got used to that. A lot of people on Wall Street made a lot of money because the cost of money was close to zero.

Then they could lend it out and invest it and get big returns. That era ended in 2022. The Fed started raising rates dramatically, but they're not so high. The Fed was raising rates, and then surprisingly, the long-term, the 10-year bond went from like a 5% yield to a 4% yield. Then last week happened, and originally, there was this flight to quality, and the yield went even below 4%. In the last four or five days, the yield has shot up to 4.5%, which is a very big move in a very short period of time and reflective of the fact that either the Chinese are selling their Treasury securities or other big trading creditors like Japan are selling their Treasury securities as a way to say, "Hey guys, we don't like this policy. We don't trust you anymore. If you want us to buy your debt, you're going to have to pay us a lot higher interest rates to do that."

We have so much debt, $37 trillion, that 101% increase in the cost of our borrowing costs is like $100 billion a year, according to Scott Bessent, our Treasury Secretary. We're talking about a lot of money and interest rates are very important. Then, compounding that, Brian, just for one more second here is if the bond market dries up, if the credit markets dries up, if we go into what's called a credit freeze, a credit crunch, which happened in '91 to '95, it happened after 2008, we go through these periods where the bond markets, the credit markets were closed and people really at any interest rate cannot borrow money because banks won't lend it, investors won't lend it. Then we have a serious drying up of access to capital. Then that's why--

Brian Lehrer: The economy freezes.

William Cohan: The economy freezes. That's why Goldman Sachs and others are talking about the risk of a recession has gone up from 40% to 60% or 65%.

Brian Lehrer: Listener writes, "Trump is always marketing himself. When he says the bond market is beautiful, he's telling the Kool-Aid drinkers that all of his decisions have been perfect and there is no damage to the bond market. They will believe him. That's what he's most brilliant at, is marketing." Let me follow up on the scenario that you were just painting with a doomsday question. You write that one of the ways China could retaliate against the 145% tariffs is stop buying as much US debt as it does. I think you were just saying in your last answer that there's an indication that that may already be happening. Is the threat there that no other users can or will step in to fill the void, and then the government might have an actual financial crisis of its own, not just the private markets? Or is that a paranoid thing to be afraid of? Because then they couldn't pay for Social Security and Medicare and tax cuts for billionaires, though maybe that's what they would preserve or anything else. Is that a real risk?

William Cohan: It's probably not a real risk on a practical basis. It's probably true that maybe Japan and China are our two largest creditors or two of our three largest creditors are quietly retaliating against some of this by dumping their Treasury securities, which again, puts more supply on the market, lowers their price and increases their yield, which is what we've seen happen with 10-year treasuries, 30-year treasuries. Then we have to refinance this debt, roll it over, and like I said, we had zero interest rate environment for 13 years. A lot of that debt has very low interest rates, and it's going to have to be refinanced at higher rates of interest.

That's what it looks like at this point if it happens. As a practical matter, at some point, people say, "If you pay me a high enough interest rate, of course, I'll lend you money." That might be a much higher rate of interest than even we're experiencing now, which means a greater portion of our budget is going to go to interest expense, which is already a large portion of our budget. It becomes this self-fulfilling negative loop. We have to pay higher interest rates for the government debt and other debt is based on a spread over government debt. That means companies and individuals have to pay more for this money. It's a very, very spiraling environment and hopefully doesn't get to what we saw in the late '70s and early '80s, where of course Paul Volcker had to raise interest rates very, very high to stamp down inflation and get the economy back on track.

Brian Lehrer: Let me take one more caller. Josh in Brooklyn has a question that I will acknowledge a good number of our callers and texters are asking some version of. Josh, you get to represent the group. Hi, you're on WNYC.

Josh: Yes, hi. As you know, Senator Warren has proposed and asked the SEC to investigate the idea that this is deliberate market manipulation by Trump to the extent that there's any method in his madness that he's saying he'll impose tariffs, the market goes down, he tells his friends to buy, and the next day he announces a 90-day freeze and the market goes up. I know that a lot of people dismiss this as conspiracy theory, but it seems pretty logical to me. I wonder what your guest's idea is about this.

Brian Lehrer: Part of the theory there, to get even more specific, Bill, just so we say it out loud, is that some people think that he might have done something illegal or at least unethical in Wall Street terms, to the extent that Wall Street has ethics, when he posted on Wednesday, "Now is a great time to buy stocks," and then he announced the 90-day pause and the Dow went up by 3,000 points. To that specific charge and to Josh's broader question, and then we're out of time.

William Cohan: Yes, I have a lot of thoughts on this. Number one, where is the SEC in any of this? You know what? For the first time in nearly my adult life, I don't think I can tell you who the head of the SEC is right now because he's been invisible. Whoever it is has been completely invisible throughout this, so far this term. That's number one. I hear from traders on Wall Street who are on the quote floor, which now it's more electronic than anything, who are in the options market and are watching the options trading very closely, and they literally can't believe it.

The way that the market moves, there are clearly people who have information about what Trump is going to do. They could see the market moving and the buying or the selling of these short-dated options that are either way out of the money and then become very valuable. There's a lot of traders who believe that he is manipulating the market or people around him are benefiting from having the information about what he's going to do, which has these wild swings. They're playing this volatility, and they're making fortunes and nobody is investigating it.

Elizabeth Warren, who I don't usually agree with, is actually making a very good point here that this should be investigated. The SEC has been completely AWOL, and instead of saying, "We are going to investigate this, they've been completely neutered and are just going to, like all the other agencies in Washington when they're supposed to be regulating what's going on on Wall Street, are abdicating that role.

Brian Lehrer: William D. Cohan, C-O-H-A-N, the long-time finance journalist and recently the co-founder of Puck News, author of books including maybe the definitive one on the financial crisis of 2008, House of Cards: A Tale of Hubris and Wretched Excess on Wall Street. His latest from 2002, Power Failure: The Rise and Fall of an American Icon about GE and others. Thank you for coming on and sharing, troubling as it was, how much you know about this, which is a lot. Thanks a lot, Bill.

William Cohan: Thank you, Brian. Always a pleasure.

 

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