Fed Watchdog Finds Renovations Legal

>> LIVE FROM WASHINGTON, D.C., THIS IS "BALANCE OF POWER" WITH JOE MATHIEU AND KAILEY LEINZ. JOE: WEDNESDAY EDITION. THANKS FOR JOINING US ON THIS LAST DAY OF THE MONTH AND A QUARTER, WITH THE MARKET WAITING FOR THE NEXT Q HERE -- IN THIS CASE FROM MICRON TECHNOLOGIES, WITH EARNINGS AFTER THE BELL, AND THE TREASURY MARKET DRIVING DECISIONS ON WALL STREET EVERY DAY. I'M JOE MATHIEU, ALONGSIDE KAILEY LEINZ IN WASHINGTON. KAILEY, TREASURY YIELDS A LITTLE HIGHER FROM THE RECENT HIGHS WE HAVE BEEN SEEING WITH INFLATION DATA ON THE RADAR THIS MORNING. KAILEY: COOLER THAN EXPECTED CORE PCE, WHICH MAY TAKE PRESSURE OFF THE NOTION THAT THE FED IS GOING TO HIKE IN SEPTEMBER -- OR IN OCTOBER. THE MARKET IS PRICING AND 40% ODDS OF THAT HAPPENING. YOU HAD STRONG CONSUMPTION DATA AS WELL, INDICATING IT MIGHT BE AN ECONOMY WILLING TO TOLERATE HIGHER RATES. INFLATIONARY. --INFLATIONARY PRESSURES EXIST. THE IG REPORT INTO THE FED BUILDING RENOVATION IN WASHINGTON IS OUT IN WASHINGTON IS OUT AND THE FED WATCHDOG FINDING NO CRIMINAL VIOLATIONS IN THAT PRODUCT. JOE: RED HEADLINE ON THE TERMINAL. WE WILL STOP AND GIVE THIS A MINUTE TO BREATHE HERE BECAUSE WE ARE LUCKY TO HAVE BLOOMBERG'S MICHAEL MCKEE WITH US IN WASHINGTON WITH THIS BREAKING NEWS HEADLINE. THIS IS AN INSPECTOR GENERAL REPORT THE MONEY EVERYBODY, MR. MCKEE, THE FEDERAL RESERVE BUILDING THAT WENT OVER BUDGET IN ITS RENOVATIONS AND ENDURED AN EXTREME AMOUNT OF CRITICISM, JAY POWELL DID AND THE REST OF THE FED, BY THE PRESIDENT OF THE UNITED STATES AND THE CONGRESS. WHAT DID WE LEARN? MICHAEL: THE FED IS RENOVATING THE ORIGINAL FED BUILDING IN ANOTHER BUILDING NEXT DOOR, A SURPLUS GOVERNMENT BUILDING THEY WILL USE FOR OFFICES. THE ORIGINAL ESTIMATE WAS FOR ABOUT A .3 BILLION COST, AND NOW IT IS A $2.8 BILLION COST. LAST YEAR THE PRESIDENT TRIED TO FIRE JAY POWELL FOR COST OVERRUNS, AND U.S. ATTORNEY JEANINE PIRRO SAID SHE WAS GOING TO PROSECUTE HIM FOR THE COST OVERRUNS. ACCORDING TO THE INSPECTOR GENERAL -- AND HIS REPORT IS JUST OUT NOW -- "AT NO POINT DURING OUR EVALUATION DID WE FIND REASONABLE GROUNDS TO BELIEVE THAT A VIOLATION OF FEDERAL CRIMINAL LAW OCCURRED DURING -- REQUIRING A REFERRAL TO THE U.S. ATTORNEY GENERAL." IT IS IMPORTANT TO KNOW THAT IF THEY DID, THEY WOULD HAVE TO REFER TO THE AG. THEY DID NOT IDENTIFY ADMINISTRATIVE MISCONDUCT "DURING OUR EVALUATION." NO ONE DID ANYTHING CRIMINALLY WRONG OR TO BENEFIT THEMSELVES. THEY JUST DID NOT MANAGE THIS VERY WELL. THE BOTTOM-LINE QUESTION HERE IS WHY DID THE FED GO AHEAD WITH THIS. ACCORDING TO INSPECTOR GENERAL, THEY WERE NOT CONFIDENT TO DO SO , OR AT LEAST ACCORDING TO THE REPORT, THEY MADE A LOT OF MISTAKES. THE BOARD OF GOVERNORS DID NOT SET AN OVERALL COST CEILING FOR THE PROJECT. THEY DID NOT EXECUTE WHAT IS CALLED A MANAGER AT RISK CONTRACT, WHICH MEANS IF YOU HAVE COST OVERRUNS, THE CONTRACTOR HAS TO ABSORB THOSE. THEY DID NOT GET A GUARANTEED MINIMUM PRICE -- BASICALLY, THIS IS WHAT IT IS GOING TO COST FROM THE CONTRACTOR. THEY DID NOT GET A CONSTRUCTION COST ESTIMATE UNTIL 3.5 YEARS AFTER CONSTRUCTION BEGAN. THEY DIDN'T ENGAGE IN DAY-TO-DAY MANAGEMENT. THEY LET STAFF HANDLE IT, AND STAFF CAP TELLING THEM--KEPT TELLING THEM PROJECT IS ON TRACK, PROJECT IS DOING FINE. THEY DO NOT USE AN OUTSIDE REPRESENTATIVE TO BE A CHECK ON THE CONTRACTOR ON WHAT IS GOING ON. PROJECT GOVERNANCE, THE IG REPORT SAYS, WAS INSUFFICIENT. THERE WERE FOUR MAJOR FACTORS -- INFLATION, LIMITED BIDDING BECAUSE OF THE WAY THEY DID INTO THE CONTRACTS CORRECTLY, SUBSTANTIAL DESIGN CHANGES HALFWAY THROUGH BY THE FED, AND THEN SITE CONDITIONS. YOU HEARD ABOUT THAT, THE FACT THAT THE RIVER UNDERNEATH THAT AND THEY HAD TO DO MITIGATION. KAILEY: TALK ABOUT THE SPECIFIC CRITICISMS THIS PROJECT RECEIVED OTHER THAN THE COST OVERRUNS. WE HEARD ABOUT THE MORE DECORATIVE ELEMENTS, THINGS LIKE FOUNTAINS AND A ROOFTOP TERRACE AND GARDENS. WHAT IS THE REPORT FIND ABOUT THOSE THINGS? MICHAEL: MOST OF THOSE THINGS WERE TAKEN OUT EXCEPT FOR THE MARBLE TO REPLACE MARBLE THAT HAD BEEN DAMAGED IN THE PAST. THEY PUT SOME NEW MARBLE AND. THE IG REPORT SAID THEY DETERMINED TO THOSE FEATURES DID NOT MATERIALLY BOOST THE SUBSEQUENT -- MATERIALLY CONTRIBUTE TO SUBSEQUENT INCREASES. THE REAL PROBLEM AS FAR AS THE IG WAS CONCERNED WITH THE BIDDING PROCESS. INSTEAD OF BIDDING OUT TO A CONTRACTOR WHO WOULD HIRE SUBCONTRACTORS, THE FED ISSUED 84 DIFFERENT SUBCONTRACTING CONTRACTS. THE PROBLEM WITH THAT WAS EACH ONE STARTED TO GO OVER BUDGET. THEY HAD TO KEEP RAISING WHAT THEY HAD TO PAY FOR THIS. THE MAJORITY OF WHAT THE OVERRUN IS WAS FROM THE CONTRACTING PROCESS, AS OPPOSED TO THINGS THAT CONGRESS WAS CRITICIZING. JOE: WE WILL GET TO SENATOR TED BUDD IN A MOMENT. WE GOT A STATEMENT FROM SENATOR SCOTT, THE CHAIR OF THE BANKING COMMITTEE, WHO PREFERS TO APRIL GOING FOR A FULL ACCOUNTING OF WHAT HE SAYS ARE EGREGIOUS COST OVERRUNS AND THE FED'S BUILDING RENOVATION. "WELCOME THE INSPECTOR GENERAL'S REPORT.INFLATION DOES NOT CHANGE THE FED 'S RESPONSIBILITY TO MANAGE RESOURCES PRUDENTLY AND BE ACCOUNTABLE TO CONGRESS. THIS COMMITTEE WILL CONTINUE RIGOROUS OVERSIGHT TO ENSURE THE COMMITTEE IS TRANSPARENT AND STAYS FOCUSED ON ITS MISSION." WHAT COMES NEXT? MICHAEL: FIRST, WE HAVE THE RESPONSIVE KEVIN WARSH, WHO SAID THAT THE FED WILL GET GUARANTEED MINIMUM PRICE NOW, SET FIXED METRICS FOR THE SCHEDULE. THEY ARE GOING TO REVIEW THE PROJECT CONTRACTS AND IF ANY MALFEASANCE IS FOUND, SEEK REIMBURSEMENT. THEY WILL ENGAGE AN INDEPENDENT AUDITOR, AND THE AUDITOR WILL GO THROUGH THESE CONTRACTS AND LOOK FOR PROBLEMS THAT THAT THAT MAYBE SHOULD HAVE CAUGHT. WHAT HAPPENS NEXT IS GOING TO BE UP TO KEVIN WARSH, HOW THEY'RE GOING TO REJIGGER WHAT THEY DO AT THE FED, JEANINE PIRRO, IF SHE CAN FIND ANYTHING HERE TO PROSECUTE -- AGAIN, THE IG REPORT SAID THERE WAS NO CRIMINAL CONDUCT FOUNDED -- AND THE PRESIDENT, BECAUSE HE WANTED TO FIRE JAY POWELL BEFORE. THE SUPREME COURT SAID HE HAD TO HAVE PROCESS AND THEY HAD TO MEET THE TESTS OF THE LAW IN TERMS OF WHETHER YOU CAN FIRE SOMEBODY, WHICH IS INEFFICIENCY, MALFEASANCE, OR NEGLECTED -- NEGLECT ESSENTIALLY MEANS YOU DON'T SHOW UP FOR WORK. MALFEASANCE, PROBABLY NOT IN THE SENSE THAT THEY SAY HE DIDN'T -- THEY DIDN'T DO ANYTHING DELIBERATELY. INEFFICIENCY -- IF THE PRESIDENT WANTS TO SAY JAY POWELL MEETS THAT STANDARD, YOU COULD HAVE A FIGHT OVER WHAT HE IS GOING TO DO ABOUT IT. GOT TO WATCH TRUTH SOCIAL ON THAT AND THE U.S. ATTORNEY'S OFFICE IN WASHINGTON. KAILEY: POWELL HAS MAINTAINED HE IS NOT GOING TO LEAVE ON HIS OWN ACCORD UNTIL THE INVESTIGATION INTO ALL OF THIS IS WELL AND TRULY OVER. DOES THIS PUT A BOW ON THINGS, OR ARE YOU SUGGESTING THIS COULD HAVE A FEW DIFFERENT LEGS? MICHAEL: IN AN ORDINARY ADMINISTRATION THIS WOULD AT LEAST PUT AN END TO THE CRIMINAL ASPECT THAT JAY POWELL HAS FACED. BUT WE KNOW THAT THE JUSTICE DEPARTMENT LIKES TO PROSECUTE PEOPLE ON THE FLIMSIEST OF REASONS. THEY COULD GO AHEAD WITH SOMETHING, AND AS LONG AS THAT IS THE CASE, I'M SURE JAY POWELL WOULD STAY AROUND. HE DOES NOT LET HIM OFF THE HOOK IN TERMS OF OVERALL MANAGEMENT. THEY DON'T REFER TO THE CHAIRMAN IN THE IG REPORT. THEY REFER TO THE BOARD OF GOVERNORS. BUT HE WAS THE BOSS OF THE BOARD OF GOVERNORS, SO HE IS PROBABLY GOING TO HAVE TO SHOULDER A LOT OF THE BLAME. JOE: HE'S NOT LEAVING TOMORROW, EITHER WAY. HE IS WAITING FOR THE LISA COOK DISPUTE TO BE RESOLVED. MICHAEL: WHICH IS INTERESTING, BECAUSE THE COOK PEOPLE SENT A RESPONSE TO THE ADMINISTRATION AND WE HAVE NEVER HEARD ANYTHING SINCE FROM THE ADMINISTRATION. DID THEY GIVE UP, OR HAVE THEY BEEN TOO BUSY WITH OTHER THINGS? WE DON'T THIS ALL HANGS OUT THERE -- WE DON'T KNOW. THIS ALL HANGS OUT THERE. KAILEY: IT IS HANGING OVER THEIR ACTUAL PRACTICES OF THE FED, SETTING MONETARY POLICY. SINCE WE HAVE OUR ECONOMICS AND POLICY CORRESPONDENT, CAN YOU TALK ABOUT THE DATA? STRONGER SPENDING. WHAT DOES THAT MEAN FOR THE FED? MICHAEL: WE DON'T HAVE COOLER INFLATION -- KAILEY: COOLER THAN EXPECTED. MICHAEL: WE HAVE A CHANGE IN THE METHODOLOGY THEY USED, WHICH LOWERED ALL THE PCE NUMBERS FROM 2021 TO NOW. THE HEADLINE NUMBERS CAME DOWN. THE INFLATION RATE ON A MONTH OVER MONTH BASIS WENT UP IN AUGUST. WHAT WE SAW IS THE CORE PCE WAS REVISED DOWN FROM 37 234 IN THE METHODOLOGY CHANGE, BUT HE DID NOT CHANGE IN AUGUST. IT WAS 3.4%. YOU STILL HAVE AN INFLATION ISSUE THAT IS NOT GETTING BETTER. YOU HAVE 90,000 JOBS CREATED, ACCORDING TO ADP, WHICH IS A SIGNIFICANT AMOUNT. YOU HAVE THE HIGHEST CONSUMER SPENDING IN YEARS, .9% IN SPENDING. THE ECONOMY SEEMS TO BE GETTING STRONGER. HIRING SEEMS TO BE PICKING UP. INFLATION HASN'T GOTTEN BETTER. WHAT YOU'LL END UP SEEING IS PEOPLE WATCHING FOR THE CPI AND PPI REPORTS TO SEE WHETHER THE FED SHOULD MOVE IN OCTOBER. IT DOES LOOK LIKE THEY WILL DO ANOTHER MOVE BEFORE THE END OF THE YEAR. KAILEY: JOBS REPORT ON FRIDAY. WE WILL TALK TO YOU AGAIN THEN, I'M SURE. MICHAEL MCKEE, THANK YOU SO MUCH, BRINGING US THIS BREAKING NEWS, THE FED INSPECTOR GENERAL FINDING NO CRIMINAL VIOLATIONS IN ITS RENOVATION PROJECT. FOR MORE, WE TURN TO CAPITOL HILL, WHERE REPUBLICAN SENATOR TED BUDD OF NORTH CAROLINA IS JOINING US. HE IS A MEMBER OF THE INTELLIGENCE, ARMED SERVICES, AND SENATE COMMERCE COMMITTEES. IT'S GREAT TO HAVE YOU BACK ON "BALANCE OF POWER," THANK YOU FOR THE TIME. I KNOW YOU DON'T SIT ON THE BANKING COMMITTEE, BUT I WOULD LOVE YOUR REACTION TO THIS IG REPORT THAT FINDS NO CRIMINAL VIOLATIONS IN THE FED'S RENOVATION PROJECT. WITH THE ADMINISTRATION -- WITH THE ADMINISTRATION AND DEPARTMENT OF JUSTICE BE WISE NOT TO PURSUE ANY FURTHER CRIMINAL LINES OF INQUIRY? SEN. BUDD: IT HAS NOT BEEN RELEASED, I HAVE NOT SEEN IT IN FULL DETAIL, BUT IT IS ALWAYS CONCERNING. THE BIGGEST CONCERN IS THIS IS TAXPAYER DOLLARS THAT WAS SPENT WITHOUT GUARDRAILS. NO ONE WOULD MANAGE A REAL CONSTRUCTION PROJECT LIKE THIS. THIS IS SIGNIFICANT. I'VE BEEN THERE, IS VERY HISTORICAL. YOU ARE IN THERE, THE ROOMS WHERE THEY DECIDED WHERE AND HOW TO FINANCE THE SECOND WORLD WAR. BUT THE COST OVERRUNS ARE JUST EGREGIOUS. THAT IS PROBLEMATIC. BUT INCOMPETENCE IN THAT PROJECT IS NOT CRIMINAL, EVIDENTLY. I KNOW THAT JUDGE PIRRO IS GOING TO TAKE A LOOK AT IT. JOE: MICHAEL MCKEE REMINDS US, SENATOR, IT IS NOT TAXPAYER DOLLARS. THIS WAS PAID ENTIRELY BY THE FEDERAL RESERVE ITSELF WITHOUT THE USE OF TAXPAYER DOLLARS. DOES THAT CHANGE THE WAY WE SHOULD LOOK AT IT? SEN. BUDD: NOT AT ALL. IT IS STILL A U.S.-RELATED ENTITY. IT ULTIMATELY IS FOR THE BENEFIT OF AMERICANS. SO TO SPEND LIKE THIS, IT WILL ULTIMATELY AFFECT AMERICANS. I THINK THAT IS THE CULTURE OF HOW IT WAS RUN. I THINK KEVIN WARSH IS GOING TO DO A MUCH BETTER JOB. KAILEY: SENATOR, WE APPRECIATE YOU WEIGHING IN, UNDERSTANDING YOU HAVE NOT SEEN THE FULL REPORT AND WE ARE DEALING WITH BREAKING NEWS. I WANT TO TALK ABOUT SOMETHING BREAKING IN THE SENATE, A VOTE ON CLOTURE FOR THE RATEPAYER PROTECTION ACT UNDERWAY ON THE FLOOR. THIS IS BEING SPEARHEADED BY YOUR COLLEAGUE JOHN WHO STOOD -- JON HUSTED, UP FOR REELECTION IN OHIO. DEMOCRATS ARGUE THIS BILL DOESN'T HAVE TEETH. IT IS REINFORCING EXISTING LAW OR MAKING SUGGESTIONS ON WHAT SHOULD BE DONE ON A VOLUNTARY BASIS. SHOULD IT BE MANDATORY THAT RATEPAYERS ARE PROTECTED AS DATA CENTERS GO INTO THEIR COMMUNITIES? WHY NOT HAVE LANGUAGE THAT CODIFIES THAT? SEN. BUDD: I THINK SENATOR HUSTED IS RIGHT, THIS SHOULD BE LEFT TO THE STATES, INCLUDING STATES LIKE OHIO AND FOR THAT CASE, NORTH CAROLINA. WHY DID ALMOST EVERYTHING A DEMOCRAT VOTE FOR THIS?--EVERY SINGLE DEMOCRAT VOTE FOR THIS? THE ARGUMENT FALLS APART. HE IS RESISTING IT TO GET EGG ON THE FACE OF A POLITICAL OPPONENT, BUT SENATOR HUSTED IS ABOUT BRINGING COSTS UNDER CONTROL. I AM IN COMMUNITIES THAT DON'T WANT DATA CENTERS FOR DIFFERENT FEARS, WHETHER IT IS WATER, POWER, LAND USAGE. BUT I AM IN SOME COUNTIES THAT ACTUALLY WANT THESE DATA CENTERS , WHO SAY THIS IS A HUGE BOON TO OUR TAX BASE. THEY HAVE THE EXCESS POWER. YOU LOOK AT RICHMOND COUNTY, WHERE AMAZON WEB SERVICES HAS PUT IN A 0 BILLION INVESTMENT, 1000 SIMULTANEOUS ELECTRICIANS WORKING IN THAT ONE RURAL COUNTY. A LOT OF THESE COUNTIES ARE HAPPY TO HAVE THESE DATA CENTERS, BUT NOT ALL OF THEM ARE. THE MORE LOCAL, THE BETTER. JOE: IT'S INTERESTING, WE HAD A CONVERSATION WITH SENATOR TED CRUZ, WHO SAID THAT THE FRONTIER COMPANIES OUGHT TO GO EVEN FURTHER -- IF YOU ARE BUILDING A DATA CENTER, OFFERED TO PAY THE ELECTRIC BILLS OF THE PEOPLE WHO LIVE IN THAT COMMUNITY. NO MORE BILLS. I DON'T KNOW IF YOU ARE WILLING TO GO THAT FAR, BUT DO YOU THINK THIS PASSES TODAY, OR WILL DEMOCRATS BLOCK IT? SEN. BUDD: I DON'T KNOW IF THEY ARE GOING TO BLOCK IT OR NOT. AS SOON AS WE'RE DONE HERE, I'M GOING TO SUPPORT MY COLLEAGUE. I THINK IT IS A GREAT FRAMEWORK. YOU NEED TO LEAVE IT UP TO THE STATES. I DON'T WANT THE FEDERAL GOVERNMENT TELLING NORTH CAROLINA COMMISSIONERS HOW THEY SHOULD BE SETTING RATES. IT IS TONE DEAF HERE, AND MORE IN TOUCH WITH WHAT NORTH CAROLINIANS NEED. SENATOR HUSTED'S PLACE, WHAT OHIOANS NEED THERE. I'M DEFINITELY IN SUPPORT OF THIS. KAILEY: WE ARE TALKING ABOUT THE INFRASTRUCTURE THAT POWERS ARTIFICIAL INTELLIGENCE, OR SUPER INTELLIGENCE, AS THE PRESIDENT SIGNED AN EXECUTIVE ORDER TO RENAME IT YESTERDAY. HE HAD A NUMBER OF TECH TITANS AT THE WHITE HOUSE SIGNING ON TO A PLEDGE TO ABIDE BY CERTAIN GUIDELINES AND SELF-REGULATING AROUND THIS TECHNOLOGY. THE PRESIDENT CHARACTERIZED THAT PACT AS BEING MORALLY BINDING IS THAT ADEQUATE FOR A TECHNOLOGY GIVEN ALL OF THE SECURITY RISKS THESE COMPANIES THEMSELVES HAVE SUGGESTED IT CAN POSE? SEN. BUDD: WELL, THINK ABOUT THE INVERSE. IF WE SAY WE ARE GOING TO CONSTRAIN THESE 20 MODELS, WHICH ARE LEADING THE WORLD--THESE FRONTIER MODELS, WHICH ARE LEADING THE WORLD, AND THERE ARE SO MANY BENEFITS OUT OF THIS, MEDICAL DISCOVERIES, THIS IS THE WAY WE WILL GET CLOSER TO CURING CANCER, THE COMPLEXITY LOADED IN HERE. IT WILL BE WORKING IN COLLABORATION WITH HUMANS. IF WE TAP THE BRAKES HERE, CHINA IS NOT GOING TO TAP THEIR BRAKES. THEY WILL SUPERSEDE US, WE CANNOT ALLOW THAT TO HAPPEN. I WANT THE AMERICAN WORLDVIEW OF FREEDOM, FREEDOMS OF SPEECH, RELIGION, ALL THESE THINGS TO BE DEVELOPED HERE IN THE U.S. THAT IS WHY IT IS SO IMPORTANT THAT WE REMAIN IN THE LEAD. WE DO NEED TO HAVE SOME RESPONSIBILITY. THESE FRONTIER MODELS AND THESE COMPANIES, THEY ARE RESPONSIBLE TO THE AMERICAN PEOPLE, THAT PEOPLE AREN'T HARMED BY THEIR USE. I THINK HAVING A LIGHT-TOUCH AGREEMENT IS GOOD, WHICH MEANS WE TAKE SAFETY VERY SERIOUSLY, BUT AT THE SAME TIME WE ARE NOT WANT TO THROTTLE THESE COMPANIES WHERE THEY BECOME BEHIND THE CURVE ON CHINA. WE JUST CAN'T ALLOW THAT TO HAPPEN -- JOE: DO YOU TRUST -- SEN. BUDD: GO AHEAD. JOE: DO YOU TRUST, SENATOR, OR SHOULD WE TRUST JENSEN, ATLMAN, -- ALTMAN, DARIO, ELON -- REMARKABLE OPTICS TO SEE THEM ALL INTO WHITE HOUSE DRIVEWAY TOGETHER -- OR TRUST THE LIABILITY LAWS ON THE BOOKS? SEN. BUDD: I THINK YOU TRUST THE AMERICAN FRAMEWORK. YOU DON'T HAVE TO TRUST IN INDIVIDUAL. I AM A TECH OPTIMIST, BUT I REALIZE THEY CAN HAVE SOME HARMS WITH IT, SO YOU FRAME AROUND THAT, AND I THINK THAT IS WHAT THIS DOES. LET THEM COMPETE. ONE OF THEM DOES NOT OWN THE NARRATIVE. THAT IS WHY THEY HAD SO MANY GREAT TALENTS IN THE ROOM. THE PANEL OF 10 PLUS AN AI CZAR WOULD BE GREAT. ALLOW THEM TO COMPETE NOT ONLY AGAINST CHINA, BUT WITH EACH OTHER, THAT IS WHAT IS GOING TO SERVICE THE TRUTH AND HOW WE PROCEED WITH AI. KAILEY: THIS IS OBVIOUSLY ONE GLOBAL CHALLENGE AND POTENTIAL THREAT THAT IS BEING DEALT WITH, BUT THERE IS OTHERS AS WELL, INCLUDING WHAT HAPPENED IN THE U.K. DAYS AGO. FIVE INDIVIDUALS WERE ARRESTED, THEN RELEASED ON BAIL, WHO WERE SUSPECTED OF MOVING TOWARD U.K. AIR FORCE BASE THE U.S. IS USING IN PART TO LAUNCH ATTACKS AGAINST IRAN. U.K. PRIME MINISTER ANDY BURNHAM SAID THERE IS A SUGGESTION THESE COULD BE IRANIAN-LINK INDIVIDUALS. HAS THE INTELLIGENCE COMMITTEE RECEIVED FURTHER INFORMATION THAT YOU CAN SHARE, AND IF NOT ABOUT THIS SPECIFIC THREAT, ABOUT THE THREAT LEVELS POSED BY IRAN AND ITS PROXIES AND TERRORISTS IT MAY FUND GLOBALLY? SEN. BUDD: SOME THINGS REMAIN CLASSIFIED, BUT THEY ARE -- I'D SAY THE BRITISH INVESTIGATION AUTHORITIES ARE LOOKING AT THIS. THEY ARE DIFFERENTIATING BETWEEN WHO THOSE WERE RELEASED ON BAIL, WHAT DID THEY KNOW, WHAT DID THEY NOT KNOW, WHO WERE THEIR COHORTS IN THE ATTEMPTED CRIME. I'M GRATEFUL FOR THEM BRINGING THAT TO A STOP, BECAUSE YOU NEVER KNOW HOW BAD IT COULD GET. THE THREATS ARE ALL AROUND US ALL THE TIME AROUND THE WORLD, PEOPLE THAT WOULD SEEK TO BRING US HARM. AM GRATEFUL FOR THE INTELLIGENCE COMMUNITY, GRATEFUL FOR LOCAL LAW ENFORCEMENT AND OUR PARTNERS OVERSEAS. JOE: I DON'T KNOW IF YOU HAVE GOTTEN PHONE CALLS THIS MORNING, SENATOR, ABOUT THIS FLIGHT THAT HAD TO MAKE AN EMERGENCY LANDING IN SAUDI ARABIA. BUT IT IS A HARROWING TALE. A FOILED PLANE HIJACKING LAST NIGHT. WAS THIS A TEMUR ATTACK -- TERROR ATTACK? SEN. BUDD: I HEARD THE NEWS JUST LIKE YOU ARE HEARING, HEARING FROM PASSENGERS NOW. AN INDIVIDUAL IS GOING TO BE QUESTIONED ON THIS, BETWEEN THE PILOT AND COPILOT. WE UNDERSTAND IT LAUNCHED FROM A CRUISING ALTITUDE. WE CAN GUESS AS WHAT THE MOTIVES WERE, BUT WE DON'T KNOW, AND I WENT ALL THE FACTS TO GO OUT BEFORE WE SUMMARIZE THIS. JOE: PLUNGING 17,000 FEET, ABSOLUTELY TERRIFYING SITUATION. SEN. BUDD: GLAD THERE SAFE. JOE: YOU ARE ROLLING WITH A LOT OF BREAKING NEWS AND IS IS GOOD TO SEE YOU BACK ON BLOOMBERG AS WELL. SENATOR TED BUDD, REPUBLICAN WITH US ON CAPITOL HILL. I'M JOE MATHIEU ALONGSIDE KAILEY LEINZ IN WASHINGTON. WE WILL HEAR FROM A DEMOCRATIC MEMBER OF THE HOUSE OF REPRESENTATIVES. WE WILL HEAR FROM OUR POLITICAL PANEL, RICK DAVIS AND JEANNE SHEEHAN ZAINO, AFTER WE CHECK WALL STREET WITH CHARLIE PELLETT. CHARLIE: JOE MATHIEU, WE ARE LOOKING AT A DOWN DAY FOR THE INDUSTRIALS, UP DAY FOR THE S&P 500 INDEX. NASDAQ, NASDAQ 100 INDEX, MUSCLE 2000 INDEX BARELY. 7700 EVEN RIGHT NOW, GAIN OF 29 POINTS, UP .4%. DOW DOES REMAIN LOWER, A DROP OF JUST .2%. NASDAQ SURGING, UP .8%. NASDAQ 100 INDEX UP .6%. TRADERS ARE DRIVING STOCKS HIGHER AFTER A SLOWER THAN ANTICIPATED INFLATION DATA THIS MORNING REINFORCING BETS THE FED WILL REFRAIN FROM RAISING RATES IN OCTOBER. FINAL DAY OF THE QUARTER, VIX JUST BELOW 16. TWO-YEAR, 4.88%. 10-YEAR, 5.29%. 30-YEAR NOW YIELDING 5.64%. 30-YEAR HIGHEST SINCE 2002. GOLD IS $30 THE OUNCE, .7%. CRUDE UP 1.7%. 90.88 A BARREL ON A WTI GRANT. BMW IS PLANNING TO DEPLOY AI TO ELIMINATE A FIFTH OF MANAGEMENT ROLES BY THE MIDDLE OF NEXT YEAR, ALL PART OF AN AGREED BUYOUT PLAN. UP 1.1%. TESLA HAS LINED UP 30 BILLION OF NEW LOANS AND CREDIT LINES AS THE EV MAKER DIALS UP INVESTMENTS IN AI AND ROBOTICS. TESLA SHARES DOWN .4%. AS WE TOLD YOU AT THE TOP OF THE HOUR, THE FEDERAL RESERVE'S INTERNAL WATCHDOG, THE OFFICE OF INSPECTOR GENERAL, FOUND NO EVIDENCE OF CRIMINAL WRONGDOING IN THE CENTRAL BANK'S RENOVATION OF ITS WASHINGTON HEADQUARTERS, A $2.4 BILLION PROJECT. S&P UP .3%. 30-YEAR, 5.64%. WTI UP 1.7%. FOR ON-DEMAND NEWS 24 HOURS A DAY, SUBSCRIBE TO "BLOOMBERG NEWS NOW" WHEREVER YOU GET YOUR PODCASTS. I'M CHARLIE PELLETT. THAT IS A BLOOMBERG BUSINESS FLASH. KAILEY: CHARLIE PELLETT, THANK YOU SO MUCH. MENTION TO THE BREAKING HEADLINES WE ARE DEALING WITH THIS HOUR, THE FED'S INSPECTOR GENERAL FINDING NO EVIDENCE OF CRIMINALITY IN THE RENOVATIONS OF THE ECCLES BUILDING. I WILL READ A QUOTE FROM THIS 120-PAGE IG REPORT. "AT NO POINT DURING OUR EVALUATION DID WE FIND REASONABLE GROUNDS TO FIND THAT A VIOLATION OF LAW REQUIRING A REFERRAL TO THE ATTORNEY GENERAL. WHILE THE REPORT OUTLINES DEFICIENCIES IN THE MANAGEMENT OF THE RENOVATION PROJECT, WE DID NOT IDENTIFY ADMINISTRATIVE'S CONDUCT DURING OUR EVALUATION." PERHAPS THIS WASN'T HANDLED WELL, BUT IT WASN'T HANDLED, ACCORDING TO THE IG, AND A CRIMINAL MANNER THAT MIGHT IN-FLIGHT CRIMINALITY-- IMPLY CRIMINALITY BY JAY POWELL. JOE: SENATOR JOHN KENNEDY OF LOUISIANA SAID THAT A CRIMINAL MATTER IS SEPARATE FROM LETTING RENOVATION GETTING OUT OF CONTROL. .3 TRILLION IN 2020, IT HAS BALLOONED TO $2.4 BILLION BY THE TIME PRESIDENT SHOWED UP IN THE HARDHAT, AND THIS BECAME A POLITICAL STORY. WE PLAY INTO OUR POLITICAL PANEL, RICK DAVIS AND JEANNE SHEEHAN ZAINO. JEANNE IS A DEMOCRATIC ANALYST AND VISITING FELLOW AT HARVARD KENNEDY SCHOOL'S ASH CENTER, RICK IS A REPUBLICAN AND PARTNER AT STONECOURT CAPITAL. WE HAVE ALL HAD PROJECTS AT OUR HOMES GO AWRY, OVERBUDGET, OVERSCHEDULED. IS IT A SIMPLE MATTER OF THIS ON A LARGER SCALE WHEN IT COMES TO THE DOLLAR FIGURE, OR WAS THERE SOMETHING UNTOWARD AT WORK? JEANNE: NO, YOU KNOW, I THINK WE KNOW -- I'M REALLY GLAD THAT THIS REPORT WAS DONE. I HAVEN'T READ IT, IT JUST BROKE, BUT IT SOUNDS VERY THOROUGH. THIS IS OBVIOUSLY, AS YOU WERE TALKING ABOUT, NOT PUBLIC MONEY, BUT IT WAS CONTROLLED BY THE FED . THEY HAVE AN OBLIGATION TO BE TRANSPARENT ABOUT WHAT THEY DID, HOW THEY WENT OVER, WHAT WENT WRONG. BUT NONE OF THAT RISES TO THE LEVEL OF CRIMINALITY, AND THAT IS THE KEY HERE. THE OTHER THING TO REMEMBER IS EXACTLY WHAT JAY POWELL SAID IN THAT VIDEO WE ALL REMEMBER, WHERE HE SAID WE NEEDED TO SEE THE DOJ SUBPOENAS IN THE CONTEXT IN WHICH THEY WERE SENT, WHICH WAS A BROADER ATTEMPT BY THE ADMINISTRATION TO THREATEN AND PRESSURE THE FED ON BORROWING COSTS. THAT IS EXACTLY WHAT THIS WAS. IF THIS WAS A SERIOUS LOOK AT HOW THE FEDERAL GOVERNMENT IS SPENDING AND TAX MONEY AND THE FED IS SPENDING MONEY, WE SHOULD LOOK AT THE TRUMP ADMINISTRATION AS THE NO-BID CONTRACTS THIS YEAR HAVE REACHED IN THE BILLIONS OF DOLLARS. SO THAT IS ALL FAIR GAME, BUT IT DOESN'T RISE TO THE LEVEL OF CRIMINALITY IN THIS CASE. KAILEY: RICK, AS WE CONSIDER SOME OF THE POINTS FOUND IN THIS REPORT, THAT THE FED DID NOT SET AN OVERALL COST CEILING, THEY DID NOT GET AN GUARANTEED MINIMUM PRICE, THEY DID NOT GET A CONSTRUCTION COST ESTIMATE UNTIL 3.5 YEARS AFTER CONSTRUCTION BEGAN, I IMAGINE YOU HAVE SOME THOUGHTS AS TO HOW THIS WAS HANDLED. BUT DO WE THINK ALL OF THESE THINGS WERE OBTAINED BY THE TRUMP ADMINISTRATION WHEN THEY PURSUED, FOR EXAMPLE, THE REFLECTING POOL RESEALING AND COLORING AND RENOVATION OR THINGS LIKE THE ARCH? IS THIS THE USUAL COURSE OF BUSINESS THE FED DIVERGED FROM, OR IS THIS HOW MORE WORK IS DONE IN WASHINGTON THESE DAYS THAN WE PREVIOUSLY UNDERSTOOD? RICK: THE WAY I READ THE REPORT IS A SCATHING INDICTMENT OF INCOMPETENCE, WHOEVER WAS RUNNING THIS BUILD FOR THE FED. REALLY, AS MICHAEL MCKEE SAID EARLIER IN THE PROGRAM, THOUSANDS OF CONTRACTORS WERE GIVEN INDIVIDUAL CONTRACTS AND DIDN'T FOLD UP INTO A MASTER BUDGET? NO WONDER IT WAS SO OVER STACKED WITH OVERRUNS. THE REALITY IS I THINK THE KEY THING IS THE AMERICAN PEOPLE ALREADY ARE SKEPTICAL OF GOVERNMENT INSTITUTIONS NOBODY IS WINNING THE POPULARITY AWARD WITH THE AMERICAN PUBLIC ON HOW GOVERNMENT IS RUN. WHEN THEY SEE THIS HEADLINE, ONE, THEY SHRUGGED THEIR SHOULDERS, BECAUSE THEY SAY, YEAH, THAT'S WHAT WE THOUGHT, THESE PEOPLE ARE INCOMPETENT, WASTING MONEY. IT DOESN'T MATTER WHOSE MONEY IT IS, IT IS A WASTE OF MONEY, AND THAT MONEY COULD BE USED FOR OTHER PRODUCTIVE PURPOSES. AND TWO, WHAT IS ANYBODY TAKING RESPONSIBILITY FOR? WHO WAS FIRED OVER THIS? WAS ANYBODY LET GO WHO WERE OVERSEEING THIS? WHERE IS THE ACCOUNTABILITY WITHIN THE FED ON WHAT IS NOW SEEN BY THIS REPORT AS REAL INCOMPETENCE? I DON'T KNOW. YOU CAN TRY TO TRANSLATE THIS ACROSS GOVERNMENT. I THINK EVERY AGENCY IS IN THE SAME CATEGORY OF PERFORMING AT A VERY LOW LEVEL. BUT THE BOTTOM LINE IS THIS IS WHY WE HAVE PROBLEMS WITH CONFIDENCE IN OUR INSTITUTIONS, AND THIS IS NO SORT OF OPPORTUNITY TO SAY ANYTHING POSITIVE ABOUT THE OUTCOME EURO. JOE: WELL, THAT IS A FAIR TAKE FROM BOTH OF OUR PANELISTS. JEANNE, IF WE ARE GOING INTO HEARING HEAVEN, IF DEMOCRATS WIN THE MAJORITY IN NOVEMBER, WILL THIS BE LOOKED INTO? ELIZABETH WARREN DOESN'T THINK TERRIBLY HIGHLY OF JAY POWELL OR MUCH THAT GOES ON AT THE FED EITHER. JEANNE: JOE, I DON'T KNOW IF IT IS HEAVEN OR THE OPPOSITE, BUT I THINK THAT IS WHERE WE ARE GOING TO HEAD IF DEMOCRATS TAKE IT. I THINK THIS WOULD BE FAIR GAME. BUT AGAIN, I ALSO THINK WHAT SHOULD BE FAIR GAME IS FEDERAL SPENDING OVERALL. I'M JUST LOOKING AT THESE NUMBERS, PROJECT ON GOVERNMENT OVERSIGHT SAYS NO-BID CONTRACTS, 10-YEAR HIGH IN 2025, $300 BILLION IN 2026. TO POINT KAILEY'S--ACHILLES POINT, -- TO KAILEY' S POINT, NO-BID CONTRACT ON THE REFLECTING POOL. YES, LOOK AT THIS IN THE FED, BUT LOOK AT IT WRITTEN LARGE, BECAUSE OUR TAX MONEY -- WRIT LARGE, BECAUSE OUR TAX MONEY OR FEDERAL AGENCIES USING THEIR MONEY SHOULD NOT BE SPENDING IN THIS WAY UNDER CONGRESS. IT DOES NEED TO EXERCISE OVERSIGHT. KAILEY: FINALLY, RICK, TO RETURN TO YOUR POINT ABOUT WONDERING IF A HEAD IS GOING TO ROLL OVER MISMANAGEMENT HERE, WOULD IT BE WISE FOR JEANINE PIRRO OR ANYONE ELSE TO PURSUE CRIMINAL CHARGES AGAINST JEROME POWELL OR ANYONE INVOLVED IF THE IG FINDS NO CRIMINALITY HERE? RICK: YEAH, LOOK, IT'S PRETTY CLEAR THAT DOJ WRIT LARGE AND JEANINE PIRRO SPECIFICALLY HAVE TRIED TO USE THE OFFICE OF LEGAL COUNSEL TO GO AFTER PEOPLE POLITICALLY. IT WOULD BE MISSING A LOT OF HEADLINES IF YOU HADN'T SEEN THAT. I WOULDN'T BE SURPRISED IF THERE WASN'T SOME EXERCISE AROUND THAT. BUT NOW THEY HAVE GOT THE FED CHAIRMAN THEY WANTED IN CHAIRMAN WARSH, AND I CAN'T IMAGINE HE WOULD PARTICULARLY WANT ANY KIND OF A WITCH HUNT GOING ON INSIDE THE FED WHILE HE IS TRYING TO NAVIGATE A DIFFICULT ECONOMY. AT THE END OF THE DAY, I WOULD PROBABLY ERR ON THE SIDE THAT THEY WILL LET THIS MOMENT PASS. KAILEY: ALL RIGHT, RICK DAVIS AND JEANNE SHEEHAN ZAINO, BOTH OF THEM BLOOMBERG POLITICS CONTRIBUTORS, TRIP JOINING US ON THIS BREAKING. THANK YOU SO MUCH. AS WE HEARD FROM A REPUBLICAN IN THE SENATE, WE WANT TO TALK ABOUT TOP STORIES WITH A DEMOCRAT IN THE HOUSE. A DEMOCRATIC CONGRESSMAN FROM CALIFORNIA REPRESENTING THE SIXTH CONGRESSIONAL DISTRICT IS JOINING US ON BLOOMBERG TV AND RADIO. WELCOME BACK TO BLOOMBERG. IT'S GOOD TO HAVE YOU, SIR. ONE OF THE THINGS WE DISCUSSED WITH THE TED BUDD AND HAD BEEN TALKING ABOUT FOR MONTHS IN WASHINGTON IS THE REGULATIONS, IF AT ALL, OF ARTIFICIAL INTELLIGENCE. PRESIDENT TRUMP GATHERED FOR LUNCH YESTERDAY SOME OF THE RICHEST MEN IN THE WORLD, LEADERS OF THESE TECH AND AI COMPANIES THAT ARE PAVING THE WAY, AND GOT THEM TO SIGN ON TO WHAT HE DESCRIBED AS A MORALLY BINDING AGREEMENT ON ITSELF-REGULATION-- ON SELF-REGULATION. IS THAT ENOUGH? >> IT'S NOT ENOUGH, AND THANK YOU FOR HAVING ME BACK ON. NO, WE HAVE GOT TO DO FEDERAL LEGISLATION. THE STATES ARE MOVING FASTER THAN THE FEDERAL GOVERNMENT. IT WOULD BE DANGEROUS TO HAVE 50 DIFFERENT POLICY SETS FROM EACH OF THE STATES. THIS IS SOMETHING THAT THE HOUSE AND SENATE HAVE TO WORK ON WITH THE WHITE HOUSE, PUTTING UP THOSE GUARDRAILS. WE DON'T WANT TO STIFLE INNOVATION, BUT WE DO WANT TO MAKE SURE WHAT IS COMING OUT IS A SAFE, IS TESTED, VETTED, ESPECIALLY IF THE COMPANIES ARE ASKING FOR THAT OVERSIGHT. JOE: DO YOU SUPPORT, CONGRESSMAN -- IT'S GOOD TO HAVE YOU BACK, IT'S BEEN TOO LONG -- DO YOU SUPPORT THE GOVERNOR'S APPROACH TO DATA CENTERS? THAT SEVEN-BILL PACKAGE WOULD BRING MO MORE OVERSIGHT THE DATA CENTERS THE PRESIDENT SAYS COULD KILL THE GOLDEN GOOSE. >> YOU'VE GOT TO LISTEN TO THE CONSUMERS AND THEY ARE VERY WORRIED RIGHT NOW. THEY ARE CONCERNED ABOUT HOW MUCH DEBT IS GOING INTO THESE DATA CENTERS. I DO THINK SLOWING IT DOWN, GETTING A SENSE OF WHERE THE WATER IS GOING TO COME FROM, WHAT THEY LOOK LIKE AND WORKING WITH INDUSTRY, I DO THINK HAVING A SLOWDOWN IN THINKING ABOUT THIS IN A VERY INTENTIONAL WAY MAKES A LOT OF SENSE. >> FUND DATA CENTERS, THE SENATE RIGHT NOW IS TRYING TO ADVANCE THE RATEPAYER PROTECTION ACT PASSED YOUR CHAMBER WITH MASSIVE BIPARTISAN, MARGINALLY THREE DEMOCRATS VOTED NOBODY NUMBER OF VOTING AGAINST ADVANCING THIS RIGHT NOW. IT LOOKS LIKE THIS WILL LIKELY FAIL ON THE SENATE FLOOR. WHAT ARE YOUR DEMOCRATIC COLLEAGUES IN THE SENATE MISSING ON THIS ONE? WHY WAS THERE SO MUCH SUPPORT IN THE HOUSE AND NOT THE OTHER CHAMBER? >> I THINK IT IS A GOOD BILL, A GOOD START. I'M GOING TO GUESS IT'S POLITICS COMING INTO PLAY. POLITICS ASIDE, I WOULD SAY SEND IT TO THE PRESIDENT'S DESK. WE DO NEED THE ABILITY TO COMPUTE AND COMPETE WITH THE REST OF THE WORLD BUT AGAIN, THE PUBLIC IS A LITTLE BIT WEARY HERE. IT'S MOVING PRETTY FAST. I WOULD TELL MY SENATE COLLEAGUES TO PASS IT. >> INTERESTING. POLITICS AND FLIGHT HAD THE MIDTERM ELECTIONS, THAT IS SOME OF THE ANALYSIS THAT WE'VE HEARD IS THAT DEMOCRATS DIDN'T WANT TO GIVE HIM A WIN THIS CLOSE TO THE ELECTION. MADE IT REEMERGES IN THE LAME-DUCK FOR THE NEXT CONGRESS. BUT I WANT TO ASK YOU WITH SO MUCH TALK, EVEN YESTERDAY WITH THESE TITANS OF AI JOINING THE PRESIDENT AT THE WHITE HOUSE, THE SENATOR FROM NORTH CAROLINA SAID THAT AI IS GOING TO BRING A CURE TO CANCER. THESE OTHER KINDS OF EXPECTATIONS THAT MANY PEOPLE HAVE WHO MIGHT OR MIGHT NOT BE WORRIED ABOUT AN EXISTENTIAL THREAT TO HUMANITY. BUT AS SOMEONE WHO WAS CHIEF MEDICAL OFFICER FOR SACRAMENTO, DO YOU SHARE THOSE HOPES? DOES AI MAKE BETTER DOCTORS? >> YOU KNOW WHAT, AI IN THE HEALTH CARE SPACE , IT IS REMARKABLE THE ADVANCES TAKING PLACE IN THE HEALTH CARE SPACE. IMPROVING DIAGNOSTICS AND MAKING DIAGNOSIS FASTER. WHAT WE HAVE TO BE CAREFUL ABOUT, THE SAME TOOLS THAT AI USES TO HELP US COME UP WITH THOSE PEERS -- CURES COULD ALSO BE IN THE HAND OF BAD ACTORS THAT WANT TO MANUFACTURE BAD BIOTHERAPEUTICS, BIOWEAPON'S, ETC. IT IS AN AREA THAT WE RECOGNIZE AI IS GOING TO HELP MOVE THE WORLD FORWARD BUT WE ALSO NEED TO HAVE THOSE GUARDRAILS. WE'VE BEEN TALKING TO OTHER PLAYERS INCLUDING THE CHINESE AMBASSADOR AND OTHERS. WE DO HAVE TO HAVE AN INTERNATIONAL STANDARD ON WHAT IS ACCEPTABLE RESEARCH, BUT ALSO WHAT SHOULD WE NOT BE DOING. >> FORMAT, OBVIOUSLY PRESIDENT TRUMP HAS DISMISSED SOME OF THE MOST EXTREME CONCERNS AROUND WHEN ARTIFICIAL INTELLIGENCE COULD WREAK ON HUMANITY AS BEING A HOAX. IS THERE A CREDIBLE REASON TO BELIEVE THAT THIS TECHNOLOGY ITSELF COULD ACT ON ITS OWN OR BE USED BY A NEFARIOUS ACTOR TO DO INCREDIBLE DAMAGE TO US HERE IN THE U.S., BUT THE PEOPLE GLOBALLY? >> ABSOLUTELY. THIS IS INCREDIBLY POWERFUL TECHNOLOGY. IT'S MOVING VERY FAST. IF YOU HEAR THE LEADING AI COMPANIES SAY THAT THEY ARE DISCOVERING MODELS THAT ARE DOING THINGS ON THEIR OWN, IT IS TIME FOR US TO SLOW DOWN. IT IS TIME FOR US TO HAVE A CONVERSATION BETWEEN THE POLICYMAKERS AND THE INDUSTRY AND TALK ABOUT WHAT IS THE RIGHT LEGISLATION. AND EUROPE, ASIA, OTHER LEADING COUNTRIES AROUND THE WORLD CAN COME UP WITH A GLOBAL AND REGULATORY FRAMEWORK. ONCE YOU LOSE CONTROL, AI WILL BE ADVANCING ON ITS OWN. >> CONGRESSMAN, IT'S GREAT TO HAVE YOU BACK WITH US. I'M SURE IT WILL ONLY BE MORE PRONOUNCED BY THEN. DEMOCRAT FROM CALIFORNIA, WE THANK YOU. COMING UP, WE ARE GOING TO CHECK IN WITH OUR AVIATION REPORTER SID PHILIP FOR THE LATEST ON THIS APPARENT ATTEMPTED HIJACKING THAT GROUNDED AN AIRCRAFT OVERNIGHT IN SAUDI ARABIA. AS WE CONTINUE ON, KAREN GIBSON, LIEUTENANT GENERAL, FORMER DOECHII DIRECTOR OF NATIONAL INTELLIGENCE WITH GEOPOLITICS. THE LATEST IN IRAN AND THE STRAIT OF HORMUZ. JOE: WE DO CHECK MARKETS ALL DAY LONG HERE. RIGHT NOW WE'VE GOT THE S&P, UP BY ABOUT 4/10 OF 1%. 30 YEAR BONDS REMAINING AT THE HIGHEST SINCE 2002. NASDAQ PUSHING HIGHER, UP 237 NOW. THE DOW DOES REMAIN NEGATIVE. DOW INDUSTRIALS DOWN 91 POINTS. NASDAQ 100 INDEX HIGHER BY 7/10 OF 1%. THE PHILADELPHIA SEMICONDUCTOR INDEX DOWN TO TENTHS OF 1%. THE VIX JUST BELOW 16. THE 2, 4 .88%. THE FIVE-YEAR, 5.09%. AND THE THIRTY-YEAR CERTAINLY GETTING OUR ATTENTION, 5.64%. GOLD DOWN 7/10 OF 1%. 90.86 FOR A BARREL OF WTI. A BARREL OF BRENT, 103.65. THE FEDERAL RESERVE'S INTERNAL WATCHDOG FOUND NO EVIDENCE OF CRIMINAL WRONGDOING IN THE CENTRAL BANK'S RENOVATION OF ITS WASHINGTON HEADQUARTERS, A $2.4 BILLION PROJECT. AND FOR ON-DEMAND USE 24 HOURS A DAY, SUBSCRIBE TO BLOOMBERG VIEWS NOW WHEREVER YOU GET YOUR PODCASTS. THAT IS A BLOOMBERG BUSINESS FLASH. >> CHARLIE KEEPING TRACK OF THE MARKETS FOR US ON THIS LAST DAY OF THE QUARTER, THANK YOU SO MUCH. AND WE ARE KEEPING TRACK OF A NUMBER OF OTHER STORIES HERE ON BLOOMBERG TV AND RADIO INCLUDING A SCARY ONE OUT OF THE MIDDLE EAST TODAY AFTER A JET CARRYING MORE THAN 170 PEOPLE HAD TO MAKE AN EMERGENCY LANDING IN SAUDI ARABIA AFTER AN IN-FLIGHT INCIDENT THAT SAW ONE OF THE PILOTS STABBED HIS COPILOT ONLY LATER TO BE SUBDUED BY A CREW MEMBER AND PASSENGER AS THE JET PLUNGED MORE THAN 14,000 FEET IN THE SPAN OF JUST 30 SECONDS. THIS WAS A PLANE ON THE DUBAI AIR. A VIDEO STATEMENT IN THE AFTERMATH OF THE INCIDENT. LISTEN. >> WE ARE IN CONTINUOUS CONTACT WITH THE AUTHORITIES TO ENSURE THE ONGOING SAFETY OF THE PASSENGERS, TO ENSURE THE OPEN RETURN TO THE COUNTRY. I'VE INSTRUCTED THE SECURITY SYSTEMS TO PREPARE TRADITIONAL POTENTIAL THREATS. >> THIS IS THE STUFF OF MOVIES THAT YOU WOULDN'T BELIEVE IF YOU SAW THEM. NETANYAHU SAID THE PASSENGERS INTERVENED. A GROUP OF ABOUT FIVE DISPLAYED EXCEPTIONAL RESOURCEFULNESS AND COURAGE AND SAVED MANY LIVES. WE CAN TELL YOU A REPATRIATION FLIGHT HAS NOW LANDED IN TEL AVIV WITH ALL THE PASSENGERS ON BOARD. REMARKABLE DEVELOPMENTS AS WE ARE LEARNING MORE ABOUT WHAT HAPPENED INSIDE THE COCKPIT AND INSIDE THE CABIN WITH THE HELP OF SID PHILIP. IT IS GREAT TO HAVE YOU AND THANKS FOR JOINING US LIVE FROM NEW YORK. ONE OF THE FIRST QUESTIONS WE HAD WAS HOW DID THESE PEOPLE GET INTO THE COCKPIT TO HELP THE PILOT WHO HAD BEEN STABBED? IT SEEMS WE'VE LEARNED NOW THAT HE UNLOCKED THE DOOR FOR THEM. >> AT THE MOMENT WE DO UNDERSTAND THAT THE PILOT UNLOCKED THE DOOR AND THAT ALLOWED THE PASSENGERS TO COME IN AND SUBDUE THE OTHER PILOT WHO WAS STANDING THAT PILOT. WE STILL DON'T KNOW MUCH ABOUT THE IDENTITY OF THE PILOTS OR WHAT THE MOTIVATIONS WERE, AND EVENTS GOING TO BE THE FOCUS IN THE COMING DAYS AND WEEKS AS WE INVESTIGATE THIS INCIDENT. >> CAN WE TALK ABOUT HOW THIS WAS RECOVERABLE? SUBDUING THE PILOT WHO HAD STABBED THE OTHER BUT AFTER DROPPING 14,000 FEET, HOW DIFFICULT WOULD IT HAVE BEEN TO KEEP DISPLAYED -- THIS PLANE AIRBORNE? >> IT WAS QUITE A DRAMATIC RESCUE OF THE AIRCRAFT. FROM THE IMAGES THAT WE'VE SEEN OF THE AIRCRAFT, ON THE BACK OF THE PLANE, THAT WAS SHEARED OFF AND FROM FLAYED RADAR DATA WE SEE THAT THE PLANE DROPPED 14,000 FEET IN 30 SECONDS, APPROACHING THE SPEED OF SOUND, SO IT WAS A VERY SERIOUS INCIDENT. FORTUITOUS THAT THERE WERE TWO BACKUP PILOTS IN THE AIRCRAFT WHO ARE ABLE TO TAKE CONTROL AND GET THE PLANE ON THE GROUND SAFELY. AND WE UNDERSTAND THAT THE REASON WHY THOSE BACKUP PILOTS WERE ON BOARD WAS A CASE OF OPERATIONAL REASONS THAT WOULD MAKE THE AIRCRAFT BECAUSE OF COMPLICATED GEOPOLITICS IN THE REGION THE MOMENT. BUT THERE MAY JOE: JUST TO THINK, 14,000 NEAT IN LESS THAN 30 SECONDS, APPROACHING THE SPEED OF SOUND. THEY’RE LUCKY THE WINGS DIDN’T BREAK OFF HERE, SID. THIS WAS A 737, IS THAT RIGHT? BOEING 737? SID: THAT’S CORRECT. THE 737 AIRCRAFT. JOE: I’M SURE WE’LL BE LEARNING MORE ABOUT WHAT HAPPENED IN THAT PERIOD OF TIME, SOME OF THE IMAGES WE’RE SEEING FROM INSIDE THE CABIN WHILE UNVERIFIED, ARE PRETTY TERRIFYING. DO WE KNOW THE CONDITION OF THE PILOT AT THIS TIME? SID: WE UNDERSTAND THAT BOTH THE PILOTS WERE TAKEN TO HOSPITAL. WE DON’T REALLY HAVE ANY UPDATE ON THE STATUS OF THE PILOTS AT THE MOMENT. KAILEY: SID PHILIPS, HELPING US WORK THROUGH THE INFORMATION, OBVIOUSLY STILL A LOT THAT I’M SURE WILL BE UNCOVERED ADS THE INVESTIGATION CONTINUES. HE COVERS GLOBAL AVIATION FOR US HERE AT BLOOMBERG, AND STAYING ON TOP OF THE HARROWING INCIDENT ABOARD A FLIGHT, DUBAI PLANE, THE SPEED OF SOUND. JOE: I DON’T GET HOW THEY RECOVERED THE PLANE. KAILEY: IT’S REALLY INCREDIBLE, A MIRACLE FOR MORE THAN 170 PEOPLE ON BOARD. IT’S A STORY THAT WE CONTINUE TO FOLLOW AS, OF COURSE, IT’S HAPPENING IN THE CONTEXT OF A HOT CONFLICT IN THE MIDDLE EAST, NOT TO DRAW ANY CONCLUSIONS AS IT WHETHER OR NOT THESE THINGS WERE RELATED, BUT OF COURSE, IT DOES RAISE QUESTIONS GIVEN THE ONGOING CONFLICT WITH IRAN, THE STATUS OF WHICH IS STILL VERY MUCH IN FLUX, AS THE PRESIDENT SUGGESTED, IT WON’T BE RESOLVED UNTIL AFTER THE MIDTERMS. IT’S WITH THAT IN MIND THAT WE TURN TO LIEUTENANT GENERAL KAREN GIBSON, BACK WITH US ON BLOOMBERG TV AND RADIO. SHE’S A MEMBER OF THE GEOPOLITICAL INTELLIGENCE GROUP AND IS FORMER DEPUTY DIRECTOR OF NATIONAL INTELLIGENCE AT THE OFFICE OF DIRECTOR OF NATIONAL INTELLIGENCE. LIEUTENANT GENERAL, WELCOME BACK TO "BALANCE OF POWER." YOU MAY HAVE THOUGHTS ON THE INCIDENT THAT OCCURRED ABOARD THIS AIRCRAFT THAT WAS BOUND FOR ISRAEL TODAY, BUT TAKE THAT WITH INFORMATION STILL UNKNOWN, THE U.K. AIR BASE IN WHICH AUTHORITIES INTERCEPTED INDIVIDUALS THAT THEY THOUGHT MIGHT BE TARGETING THAT BASE THAT U.S. FORCES HAVE BEEN USING TO DEPLOY ATTACKS AGAINST IRAN. DOES THIS PAINT A PICTURE TO YOU OF POTENTIALLY AN ESCALATING THREAT LEVEL AS THIS CONFLICT DRAGS ON? >> WELL, THAT’S A GREAT QUESTION, KAILEY. I THINK IT’S A LITTLE COMPLICATED. ONE, WHEN THE WAR FIRST BEGAN AND IRAN BEGAN TO RETALIATE, THERE WERE A NOVEMBER THINGS THEY DID THAT WERE NOT UNEXPECTED, LIKE, FRANKLY, CONTROLLING THE STRAIT OF HORMUZ. AND THEN THERE WAS A SHORTLIST OF THINGS THAT MANY ANALYSTS EXPECTED TO SEE HAPPEN BUT DID NOT. SUCH AS THE HOUTHIS GETTING INVOLVED. ANOTHER WOULD BE CYBERATTACKS, SIGNIFICANT CYBERATTACKS AGAINST CRITICAL INFRASTRUCTURE. AND THEN THE THIRD WOULD BE ACTS OF SABOTAGE OR ACTS BY SLEEPER CELLS, TERROR CELLS. IT’S POSSIBLE THAT THESE ARE RELATED, BUT WE DON’T KNOW THAT FOR A FACT. I THINK IN TERMS OF THE PILOT, HE COULD BE A VERY DERANGED INDIVIDUAL, A PSYCHOTIC EPISODE, SUICIDES, OR IT COULD BE A TERROR ATTACK. IF WE LOOK AT THE LAST SEVERAL DECADES, THERE HAS BEEN 10 TO 12 SUCH INCIDENTS IN WHICH SOMEONE IN THE COCKPIT TAKES NEFARIOUS ACTIONS. NONE HAS BEEN TIED EXPLICITLY TO TERRORISM. THAT’S LESS OF AN IRANIAN M.O. BUT IN TERMS OF WHAT MAY OR MAY NOT HAVE HAPPENED IN THE U.K. AT THE AIR BASE, THAT IS MORE IN LINE WITH HOW THE IRANIANS TYPICALLY ACT, USING CRIMINAL ORGANIZATIONS, CUTOUTS, PROXIES LIKE HAMS OR HEZBOLLAH, OR THE IRANIAN-ALIGNED MILITIA GROUPS THAT EXIST IN IRAQ, TO GIVE THEM SOME LEVEL OF DENNABILITY WHEN ATTACKS OCCUR. JOE: FASCINATING. I WONDER IF YOU ARE AS PESSIMISTIC ABOUT A POTENTIAL DEAL WITH IRAN BEFORE THE MIDTERMS, AS THE PRESIDENT IS. THERE’S RESEARCH BY BOTH J.P. MORGAN CHASE AND GOLDMAN SACHS THAT FINDS OIL NOLES IN THE MIDDLE EAST ARE ACTUALLY RETURNING TO PREWAR LEVELS. THE HEADLINE FROM J.P. MORGAN, A REMARKABLE RECOVERY FOR A REGION STILL AT WAR. DOES THIS TAKE LEVERAGE AWAY FROM IRAN AND BRING IT TO THE U.S.? >> IT DOES DIMINISH THEIR LEVERAGE. THEIR CHIEF LEVERAGE HAD BEEN AN ABILITY TO THROTTLE THE FLOW OF OIL AND TO IMPACT THE GLOBAL ECONOMY. WHILE IT HAS HAD DISRUPTIVE EFFECTS, I DON’T THINK IT’S BEEN AS DEEPLY DETRIMENTAL AS THE IRANIANS THOUGHT ORIGINALLY. AND AS ADDITIONAL MEANS ARE FOUND FOR SHIPPING SOME OF THOSE PETRO CHEMICALS OR OTHER GOODS IN AND OUT OF THE REGION, THAT DOES DIMINISH THE VALUE OF THE LEVERAGE THAT THEY HOLD OVER THE STRAIT. KAILEY: IF THEIR LEVERAGE IS BEING DIMINISHED, IS THERE REASON TO BELIEVE THAT THIS MAY BE RESOLVED SHORTLY AFTER THE MIDTERMS? IT’S ONLY A MATTER OF WEEKS AWAY. GENERAL, DO YOU SEE A REAL CHANCE THERE COULD BE SOME KIND OF RESOLUTION IN THAT TIME? >> SO I THINK IF THE PRESIDENT HAD AN OPPORTUNITY TO STRIKE A DEAL THAT WAS VERY MUCH IN OUR FAVOR, HE WOULDN’T WAIT FOR THE MIDTERMS. HE WOULD DO THAT NOW IN AN EFFORT TO AFFECT THE MIDTERMS. THAT’S POSSIBLE. BUT IRAN MAY NOT BE INCLINED TO GIVE HIM THAT. ON AFTER THE MIDTERMS, THE POLITICAL CALCULUS, THE POLITICAL CALCULUS CHANGES. AT THIS DO THINK THE ENDURING BLOCKADE AND THE IMPACT OF THE SANCTIONS, ALTHOUGH THEY ARE NOT QUITE AS WHOLESALE AS THEY WERE ORIGINALLY PAINTED TO BE, ARE CERTAINLY HAVING EFFECT ON THE IRANIAN ECONOMY. THERE AREN’T A LOT OF DETAILS YET ON THIS LATEST SEVEN-DAY PROPOSAL THAT’S BEEN FLOATED BY THE IRANIANS, BUT I THINK CONTINUES TALK THROUGH BLACK CHANNEL MEDIATORS, AND I DO THINK WE WILL GET A DEAL THAT WILL AFFECT THE STRAIT OF HORMUZ PROBABLY AFTER THE MIDTERMS. BUT THEM THE BIG QUESTION IS, THE WHOLE ORIGIN OF THIS WAR, WHICH WAS LOOKING AT IRAN’S NUCLEAR AMBITIONS, AND THAT WILL BE A MUCH LONGER PROCESS. JOE: GENERAL, WE WANT TO MARK THIS DAY WITH YOU AS THE UNITED STATES HAS FORMALLY CONCLUDED OPERATION INHERENT RESOLVE. WE’RE TALKING ABOUT IRAQ. THE DEPARTURE OF COALITION FORCES AND EQUIPMENT NOTED BY THE PENTAGON, A MILESTONE ENDING THE 12-YEAR U.S. CAMPAIGN IN IRAQ. 2014, ISIS, WE REMEMBER ALL OF THIS, OF COURSE, NOT TO MENTION OUR VERY LONG HISTORY OF WAR IN THAT COUNTRY. BUT WE ALSO KNOW THE U.S. HAS RECENTLY BOMBED PROXIES IN A CORNER OF IRAQ AND INTO SYRIA. WHAT DOES ALL OF THIS MEAN, AND COULD WE RETURN? >> WELL, YOU KNOW, I GOT TO SAY, I’M A PROUD CONTRIBUTOR OF OPERATION INHERENT RESOLVE. I SERVED FORWARD FOR 13 MONTHS AS THE DIRECTOR OF INTELLIGENCE AND SUPPORTED THOSE OPERATIONS FOR ANOTHER 3 1/2 YEARS FROM THE U.S. THERE WAS NO MORAL AMBIGUITY ABOUT THAT CAMPAIGN AGAINST ISIS. I’M VERY PROUD OF THE WORK THAT THE U.S. MILITARY AND ITS COUNTERLESS INTERNATIONAL PARTNERS DID IN ROLLING BACK THE ISIS CALIPHATE. I THINK THERE WILL ALWAYS BE DISAFFECTED SUNNI ELEMENTS IN IRAQ, ALWAYS WE SEE WITH SOME OF THE SHIA-ALIGNED MILITIA GROUPS. THAT WILL BE A PERSISTENT THREAT. THE FACT THAT WE ARE LEAVING IS CERTAINLY AN ACCOMPLISH AM FOR THEM. IT IS SOMETHING THEY HAVE TOUTED FOR SOME TIME AS A GOAL AND OBJECTIVE, BOTH FOR THOSE MILITIA GROUPS AND FOR THE ISLAMIC REPUBLIC IN IRAN. YOU KNOW, I THINK WHOEVER IS LEADING THE UNITED STATES, WHETHER IT’S PRESIDENT TRUMP OR A SUCCESSOR, SHOULD AMERICA’S VITAL INTEREST BE THREATENED IN IRAQ, THEY WOULD NOT HESITATE TO REDEPLOY FORCES THERE. IT REMAINS TO BE SEEN WHAT KIND OF GRIP THESE ELEMENTS WILL CONTINUE TO BE IN IRAQ. THE PRIME MINISTER SAYS HE’S GOING TO DISARM THEM. I DO THINK THAT’S EASIER SAID THAN DONE. KAILEY: I ALSO WANT TO MARK SOMETHING ELSE THAT’S HAPPENING TODAY. THE DEFENSE SECRETARY, PETE HEGSETH, WILL BE GIVING ANOTHER ADDRESS AT QUANTICO, KEEPING IN MIND LAST YEAR HE GAVE A SPEECH THAT IN LARGE PART WAS FOCUSED ON THE AESTHETICS AND APPEARANCE OF AMERICA’S WAR FIGHTERS. WE EXPECT THAT HE’S GOING TO DETAIL THIS ANNOUNCEMENT THAT HE’S CUTTING SENIOR POSITIONS WITHIN THE D.O.D., RANKS LIKE GENERALS AND ADMIRABLES, BY 20%. DO YOU VIEW THIS AS A MATTER TV EFFICIENCY, OR IS IT SOMETHING THAT COULD ACTUALLY BE DEGRADING ON OUR READINESS? >> THAT IS THE QUESTION OF THE DAY, KAILEY. I THINK CERTAINLY THERE IS ROOM FOR ENHANCEMENTS, AND WE’LL NEED DETAILS ON WHERE THESE ARE BEING CUT TO IDENTIFY WHERE IT REALLY IS GOING TO ENHANCE READINESS. PERSONALLY, I’M A FAN OF LEAN ORGANIZATIONS. I THINK BLOAT REDUCES EFFICIENCY. BUT ON THE OTHER HAND, THERE IS A RISK WITH THAT NUMBER. IT WILL DEPEND ON WHERE THEY’RE COMING FROM, THAT YOU DECREASE READINESS. WE’LL NEED TO LOOK AT WHAT IS THE SPAN OF CONTROL OF THE REMAINING GENERALS. WHERE DOES IT ENHANCE EFFICIENCY? WHERE DOES IT PERHAPS UNDULY BURDEN A COMMAND STRUCTURE? OR DIMINISH OVERSIGHT ON SOMETHING LIKE AN IMPORTANT ACQUISITION PROGRAM. IT’S REALLY TOUGH TO SAY WITHOUT SEEING THE DETAILS ON HOW AND WHERE THESE CUTS ARE GOING TO OCCUR. JOE: WHEN WE CONSIDER THE POTENTIAL FOR BRAIN DRAIN, IT COULD JUST BE A MATTER OF THOSE HOPING FOR PROMOTION GOING SOMEWHERE ELSE TO MAKE MORE MONEY IN THE PRIVATE SECTOR. DO YOU WORRY ABOUT THAT? >> I DON’T WORRY ABOUT GENERAL OFFICERS OR ADMIRALS LEAVING TO MAKE MORE MONEY IN THE PRIVATE SECTOR. CERTAINLY AS A FORMER GENERAL MYSELF, IT WAS NOT THE PAYCHECK THAT WAS THE DRAW TO SERVICE, OR CONTINUED SERVICE. I DO THINK, HOWEVER, WHEN WE LOOK AT INDIVIDUAL ACTIONS THAT ARE TAKEN AGAINST THE GENERAL OFFICER CORE, THE DANGER IS NOT IN EACH INDIVIDUAL ACTION, IT’S IN THE AGGREGATE. WHAT WE NEED TO PAY ATTENTION TO IS ARE THESE TRULY READINESS MOVES, OR DO FIRINGS AND REMOVAL OF PEOPLE FROM PROMOTION LISTS OR, YOU KNOW, PETTY ACTIONS LIKE TAKING GENERAL MILLEY’S PORTRAIT OFF THE HALLS OF THE PENTAGON CONTRIBUTE TO AN ENVIRONMENT IN WHICH OFFICERS NO LONGER FEEL THEY CAN OFFER BEST MILITARY ADVISOR HONEST TESTIMONY BEFORE CONGRESS WITHOUT JEOPARDIZING THEIR CAREERS. THAT’S THE DANGER. JOE: LIEUTENANT GENERAL KAREN GIBSON, GENERAL, WE ALWAYS APPRECIATE SPENDING SOME TIME WITH YOU, VERY MUCH ON THIS DAY OF DAYS, THANK YOU FOR YOUR SERVICE WITH OPERATIONS COMING TO A CONCLUSION IN IRAQ. KAILEY AND I WILL BE BACK ON THE LATE EDITION OF "BALANCE OF POWER." ♪