A Wall Street Fall

Brian Lehrer (0:10)

It's The Brian Lehrer Show on WNYC. Good morning again, everyone. Now I'll turn to a new biography of one of the biggest names on Wall Street, and one of the biggest names in the Epstein files. When the Justice Department released millions of pages in January, a lot of powerful people had explaining to do, right? Few had more to explain than Leon Black, the New York billionaire who co-founded the investment giant Apollo Global Management, chaired the board of MoMA, and as the world learned back in 2021, paid Jeffrey Epstein at least $158 million for tax and estate advice according to the investigation that Apollo's own board commissioned.

Yesterday, Wednesday, the House, the House of Representatives voted unanimously to hold Black in contempt of Congress for defying two subpoenas in its Epstein investigation. My guest interviewed Black for Hours on the record for the book, which is about Black, also the firm he built and what the firm is now doing with a lot of Americans' retirement savings. It also takes a big picture look at the economy and the rules of the economy and who can exploit the rules of the economy really over the last 30 years.

And we're also going to talk about this news of the day from the Fed. So joining us now is William Cohan, co-founder of Puck News and the author of many books, including Money to Burn, The Unvarnished Truth about Leon Black, Apollo and the Rise of the New Wall Street. Bill, always good to have you on the show. Welcome back to WNYC.

William Cohan (1:44)

Thank you for having me, Brian. It's great to be here this morning.

Brian Lehrer (1:46)

Can I get you on the news of the day first? President Trump's handpicked new Fed Chairman, Evan Marsh, led the board to raise interest rates a quarter point yesterday, very much against the wishes of the president. Why did he do it?

William Cohan (2:00)

Well, first of all, I applaud him for striking a note of independence for the Fed, which is very important. And in so doing, he, of course, seems to be defying the president who appointed him not so long ago, which, again, is a great message to be sending to the financial markets. And more importantly, it's actually the right thing to do at this particular moment because inflation has been persistently above the Fed's 2% target rate. It's been running at about 3.5% this year, thanks in large part to Trump's war on Iran, which has raised oil prices dramatically. And that is showing up for consumers at the pump.

And it sends the signal to financial markets that the Fed is actually serious about tackling inflation, which is a very important message to send. And interest rates, long-term interest rates especially, have been moving up dramatically in the last six months or so.

And by raising short-term interest rates, which is what the Fed can control, and sending a message to the markets that it's serious about fighting inflation, that actually has started to ease the increase in long-term interest rates. Bond prices have moved up a little bit, and interest rates, long-term interest rates have moved down. I know it's a little counterintuitive, but that kind of messaging to the markets about a willingness to fight inflation is very important.

Brian Lehrer (3:48)

Right. And it seems to me, and I think to me, this aspect hasn't gotten enough press. You kind of suggested it. The confidence of the financial markets in the federal government of the United States, and the sort of stability of the US dollar as a safe investment. When a lot of our listeners probably cheered Kevin Warsh yesterday for showing his independence from Trump. Some of it was probably at least some, somebody standing up to Trump, who Trump appointed and showing their independence and what's supposed to be an independent agency.

But the financial consequences of that could be really huge because if people thought that the US Fed was just under the control of the political whims of whoever happens to be president, then that destroys trust in the US dollar as a safe currency, right?

William Cohan (4:45)

Well, and the confidence that we have in the financial markets and the treasury markets, which are hugely important to the world economy.

We now have, as I'm sure your listeners know, an astounding $40 trillion of national debt. Our annual budget deficits are running at 6% of the budget, which is an absurd high level. And of course, Congress has packed its bags and gone home instead of trying to focus on solving or beginning to figure out a way to reduce the national debt and the big budget deficits. We're now spending about $1.1 trillion a year on interest payments on our national debt, on these treasury securities, which is more than we spend on our military and national defense, and with interest rates backing up, going higher in the last six months by like 100 basis points, from like roughly 4% on the 10-year treasury to 5% on the 10-year treasury. That means that we're going to continue to pay more and more for interest expense on the national debt, and those budget deficits are going to continue to spiral upward. That's why this was so important yesterday that Kevin Warsh, who said what he had to say to the president to get appointed, is now striking an important note for Fed independence, which nothing, in terms of financial markets and our economy and the way we're perceived, because ultimately, financial markets and the strength of the dollar and our economy generally is a confidence game, and if there's no one willing to stand up to the president who's clearly out of control on the economy and in so many ways, which we don't even have to touch on today, but to have Kevin Warsh stand up to him is very, very important, and today the financial markets are reacting positively to that.