Senate Confirmation Hearings

Published Jan 14, 2025, 5:55 PM

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A special edition of Bloomberg Surveillance hosted by Tom Keene & David Gura, January 14th, 2025

Featuring:

Terry Haines, Founder at Pangea Policy

Gautam Mukunda, professor at Yale School of Management

Christopher Smart, Managing Partner at Arbroath Group, and former Special Assistant to the President for International Economics

Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube from Terry.

Haynes provides perspective now with peenjea policy definitive on LinkedIn with good good summaries of what's going on in Washington. Terry, I think we clearly saw these confirmation hearings are different with the protests. How different are they when they finally get down.

To a vote?

They're not very different at all. You know what I would take from the hegseeth statement to illustrate this, frankly, is him stressing his partnership with the Arm Services Committee and with the Senate broadly, because, as you and David were pointing out in the previous hour, you're going to have a defense budget that increases substantially under Trump. From I think you all said eight hundred and fifty billion to possibly do a trillion, and I've been predicting that for quite some time. You know, the question is his ability to partner His question the question is beyond that, isn't really so much about his prior life peccadillos or anything like that. Is he wants to be a change agent, But how does the change agent brief stack up again in a time where readiness in a multi front conflict? Is the mission an immediate readiness? And that's really what I think is going to get probed here more than anything else today.

And David jules that earlier.

Yeah, and Terry, I'm very curious about the picture of the Pentagon at this nominee is painting. So he talked about readiness. He talked about the Defense Department's budget, the need to implement all kinds of forms. How salient are those criticism? How important is it to execute that? When you look at the state of the Pentagon today, is it suffering from difficulty recruiting? Is it suffering from a budget that's not big enough in light of the numbers that you just cited a moment ago.

David, that's a really smart question, and not because that's what interviewees say when they're treading water. I'm not treading water here, and I say, my impression is I'm not going to be an expert on the view of the forces. But my impression from talking to a lot of people who are in and around the forces is that the first couple of paragraphs of hexcess statement are designed to appeal directly to those folks, the in service people, the people that actually do have dust on their boots. There is great concern beyond recruitment about the mission, about what the priorities are. And you know whether or not, for example, you know, other considerations including diversity, equity and all the rest, while important, have subsumed the basic purpose of the fighting forces. And that's what Hagsa's really trying to get at. So you know, like it or hate it, you know there's it's not coded at all. It's right there on the front with.

Us Terry Haynes. And we continue with mister Haynes with Pangaea Policy, a special edition of Bloomberg Surveillance David Gurra and Tom Keane centering on economics, the finance, the investment. The market open now with the Dow up one hundred and ninety three points for Global Wall Street. I note the ten year real yield, the inflation adjusted yield is enjoying two point three three percent. That is a lofty level. We continue with David Gura in.

Mister Haynes Terry, I'm looking at how this hearing is being conducted, and there's some bickering back and forth now between the chair and the ranking member of this committee. Senator Reid of Rhode Island wanted to have multiple rounds of questions, Senator Wicker denying that request from his counterpart on the dais There have been some criticisms here of the deepness or thoroughness of the FBI investigation into the nominee into Pete Hegseath. Talk a bit, if you would, about how this hearing is colored by the majority of the Republicans now have in the Senate and how we're likely to see a response to that from from Democrats on this committee and Democrats in the Senate more broadly.

Well, two things. Let me let me talk about the process first, and then the substance the Uh, the process I think is is kind of standardized.

Now.

This is the first hearing in the new Congress with the new Republican majority. You know, Wicker and Read are both pros. Uh. These are not people who have just you know, just come to power, just come to chairmanships. And uh, and you know, Wicker and Reader bickering about the process and about how things are going to work. My understanding of this is based on what I've heard, which may be a little bit less than you've heard, is that the price, you know, is that he's trying to establish he Wicker is trying to establish standard process. And you know, the the tradition is you start with the chair and the senior member of the minority and then you work down the work down the datus on both sides. You know, on the substance, I think the Senate has insisted upon a pretty standard bureau process all along. There is a wrinkle here where the chairman and the ranker have are getting to look at more of the FBI files than the rank and file and the Senate. I think that'll be a little bit controversial with the rank and file, but frankly, the reason why that happens is to protect against leaks. So I think that's a minor wrinkle here. Generally speaking, this is all being done by the book terry.

As you talk to clients, what are they asking you about the direction of this pentagon? What that direction would be under a secretary? Hegseeth We heard him talking a few moments ago about what seems like something we've heard in the past, a pivot to China, a new focus on potential conflict there, that adversary, potential adversary halfway around the world. What do we know about the direction of the Pentagon, the direction of military strategy, what that would be like under a secretary Hegseth.

Well, I think two things. One is I think the I think markets are not quite ready for the degree of refocused from Biden to Trump on geopolitics. The last few years, geopolitics from Washington has been soft pedaled a little bit, and I think that's going to change greatly starting next Monday, and markets should, I think, are ill prepared for that. So that's first. Second, I don't think we yet know, frankly, and aren't going to know from Hegseeth exactly what new forms, the doctrine and the strategies are going to take. You know, I think that's frankly, because that's largely up in the air. And what these folks need to do is get their feet under them and get their briefings under them, because they're not fully read in. It won't be until next week.

Terry Ayins I talked to earlier about what President Trump's comments, and I'm speaking in a broad sense of his upset over generals and admirals at the Pentagon, and I think mister Hegseth alluded to that in his opening comments, from where you sit, what is the divide between the brass of the Pentagon and the enlisted troops? Discuss that divide.

A lot of what you're hearing, a lot of what you hear from from the people below the brass, frankly is is concerned about mission and focus. Uh and concerned that the brass are being pushed too much to be to be politicized, uh fair or not. And uh, but that is a that is a real thing out there and uh. And what a lot of what Hegseeth is saying this morning initially is that he intends to kind of get back to basics on that and remove a lot of those political filters. So that will be by and large, I think thought of very well by a group that the enlisted group and beyond who thinks let the brass and are concerned about, you know, the politicization.

If we David wants to get in here, I'm going to be quick on this, Terry Aanes. If we go from eight hundred billion up over a trillion in Pentagon spending, what will the new money be spent on.

I think it's going to be spent on two things, more of the same firstly, and secondly on a I think on three things really. Secondly, on a crash basis, I think you're going to see kind of additional drones and an unconventional warfare. And thirdly, I think you're going to see new weapons systems go through the process much more quickly than the current very drawn out process that really is a relic of the Cold War.

You're listening to special coverage on Bloomberg surveillance of the confirmation hearing for Pete hegg Seth, the nominee to be the next Secretary of Defense. Terry Haynes is with us and Tery I want to ask you, were I Telsea Gabbard or Congressman Doug Collins, who was supposed to testify today that hearing has been moved. What am I watching for? What does this hearing tell me about the approach from yes, Democrats, but Republicans as well to the President of X nominees.

I think what it. What it really comes down to, David, is a test of seriousness. I think there's bipartisan concern, frankly, under underneath the kind of partisanship or you know Senator Wicker, Senator Wicker's support of heg Seth, for example, there's bipartisan concern about the ability of the Trump nominees frankly to handle the magnitude of the responsibilities that are in front of them. That that is not a that's not a dissing of basic competence. What that is is a concern that their backgrounds don't haven't yet prepared them for the for the depth and breadth of these sorts of job, and may undermine the seriousness of what Trump's proposing on a defense and national security basis. So you know, these are these are hearings that I think are even more serious, uh for future direction of the United States national security and defense than you might think otherwise.

I am will just ask you here where you see this leading after the Tom and I we were talking about when the vote is going to take place. I gather it's been scheduled for Monday. Describe the importance of this role, yes, to our government, but to the present life to get Pete Hegseth confirmed. What that means to to Donald Trump?

You know, I think hag Seth. The conventional Washington answer about this is that, you know, all nominees are very important, so on and so forth. My sense of Trump is is different. My sense of Trump generally is that, uh, you know, Plan A doesn't work, then we'll do Plan B, and there will be a Plan B. And you can look, no, you can look into his first term for this, but you can look no farther than how quick League Gates was discarded and how quickly the new nominee was was put into place, and how much better everybody felt about the new nominee. Uh, you know, they've they've committed to hag Seth. Hegg Seth hasn't disqualified himself over the last two months. That's important, and that's positive for hag Seth frankly. But you know, if hagg Seth is confirmed, and my sense is this is very much a roll of the dice. If he's confirmed, he's confirmed barely and maybe with a Republican dissenters or two. And you know what that means for Defense and for you know, other contentious nominees like Gabbard and maybe Kennedy isn't good. But for the rest of the nominees, I don't think it matters a lot. Then they proceed to fail on their own merits.

Terry, thank you so much. Can't say enough about his coverage and particularly for us. Go out to LinkedIn and see his complete notes. Agree or disagree, just always with terrific perspective. Mister Haynes, with a bit of experience in Washington.

You're listening to the Bloomberg Surveillance Podcast. Catch us Live weekday afternoons from seven to ten am Eastern. Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.

My knowledge of the cabinet centers around the modern presidency of Abraham Lincoln. Of course team of rivals, the political genius of Abraham Lincoln. Doris Karines Goodwin is iconic and with picking presidents, got Amcondo, got a Maconda looks at picking cabinets, got him. How original would this cabinet be?

It would be original, as with everything Trump, completely unlike anything we've seen before. It's just thinking back the history of the secondary defense, which goes back to the nineteen forty seven National Defense Act. I cannot think of a Secretary Defense who is remotely as unqualified as pet Exit. There's not even anyone in the same.

Universe baring that in mind, describe the mammoth undertaking he would face if he is he is confirmed. So we talk about his unqualifications, and in broad strokes here as you bring them up, we see Republicans casting him as kind of a change agent in the mold of the man who appointed him to this job. What does he face as he walks into the Pentagon in day one should he be confirmed?

Yeah, a change agent is desperately needed.

The you know, the Pentagon needs to change more than just about any other government agency. The problem is, as we all know, not all changes are for the better, and so that's the concern here. But for what he wants to do, At a most basic level, the US military has to reorient itself, not just from switching from focusing on fighting insurgencies in the Middle East to a high intensity warfare, the old school World War two style high intensity warfare. It also needs to reorient its geographic focus to where we're fighting, essentially in Asia as opposed to Europe or the Middle East, although obviously Russia's sol a threat we need to think about and warfare like anything else. Away games are a lot harder than home games. Well, if we worked, you know, God forbid, if we were to fight a conflict with China over Taiwan, we would be doing it in their backyard.

They would have every conceivable advantage.

And so it takes a very very differently structured defense establishment to make that work. And we have not made that transition. We have not even come close to making that transition yet.

We have heard for decades and decades this call to audit the Pentagon. It is an impossible task for anyone to undertake. But I bring it up with some seriousness here because when we talk about reform of the Pentagon, it's something that looms large. There is a lot of ability for us to kind of pillory the department for how it spends money and how it contracts. How difficult would it be to change the day to day of the Pentagon.

You know, extraordinarily difficult.

Many people have tried, and you know, essentially no one has succeeded in the largest extent. When I was in the Pagon, we're advising the Navy. I remember I used to walk around and I in the Army section. That was a big sign op saying this was while we were in a Amistan in Iraq.

We are an army at war.

And I thought this was the most devastating sign you could possibly put up, because what it meant was that you felt that people in the Pentagon had to be reminded, right, that's how different you are, how distant you are, and how insulated the Pentagon bureaucracy can be the change that we're talking about. The Pentagon has more than two million employees. It has a budget, if you roll in sort of you know affiliated cost of that, approaching a trillion dollars.

It covers the entire planet.

No other institution in the world covers the planet the way the US Defense Department does, and it has a civilian side sort of defense expertise that has really been eroded. One of the central reasons why contracting procurement Indiana in the Defense Department is such a catastrophe is that the program management skills that used to be part of the Senior Executive Service were essentially driven out of the government over a couple of generations, where we'd shifted that burden onto the defense con tractors who ran wild with it.

The biggest failure.

Was a thing called concurrence where we saw the catastrophe of the F thirty five and the new aircraft carrier program, where they were built at the same time that they were essentially tested, and of course when they failed the tests, all that building had done and.

Got something like that just as one story. Do you look at that as asymmetric and that it was a Republican failure or a democratic failure or is that just an institutional failure.

It is an institutional failure.

The two sides have failed in different and complementary and disastrous ways. Republicans have failed because they did not value expertise and they kept slashing away at the civilian at the sort of the civilian expertise on contracting, and relied on the on and relied on the contractors. Democrats have flipped on the other side when Barack Obama was When Barack Obama was president in I says, you know, he could have made Richard Danzig Sectary of Defense.

He could have put a real reformer in and he did not chew to do that.

Right like there was a lot of the Defense Department just isn't what we pay attention to.

It's not what we're going to focus on.

We're gonna let it kind of do its thing without going in and getting into the details.

Senator Shaheen questioning that the nominee now on comments he's made in the past, but women in combat. Pete hegxs is saying that his main concern here is readiness on the battlefield. When you look at all of the things that are dogging him or could be potential hurdles to him being confirmed, Your god him, how much does this loom large? There are many members of this committee women who did, in fact serve in the military.

It's a big one. I feel like Pete Hegsett's.

The issue with Pete Hegsuth is there are so many different issues with him, each one of which is individually completely disqualifying, that they're kind of blocking each other, right, Like, you don't want someone who has a huge drinking problem. You don't want someone who doesn't like women in the military. You don't like there's everything compounding all at once. I wonder if people were sort of are unsure where to target their fire. But if you were a woman in the military. Surely having a separate AVENSIS says you shouldn't be there seems like a big problem.

Got him. We're gonna have to leave it there because we've got to do a market over here. Thank you so much for perspective. I can't say enough about the book picking President's got a mccunda Yale University. Thank you so much for that.

This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Corplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty one.

Christopher Smart just a moment to go, a former special assistant to the President who's served from twenty thirteen to twenty fifteen, now with the Arbirth Group, and mister Smart, great to have you with us, and I'd love to just get your thoughts on, yes, how this particular hearing has unfolded, but what it tells us about public service in this Washington at a moment of transition, The way that this nominee has been treated as being treated and the way that the President elect transition team are approaching this process of advice and consent.

Well, I think at every new transition, every president faces a different environment and a different approach to this advice and consent process. I do think, you know, looking at this particular nominee, you know, and remembering all the way back to when President George H. W. Bush nominated Senator John Tower, defense expert and veteran who famously was rejected because of accusations over his alcoholism. And again what in the day we used to call or was called womanizing. This is a nominee, clearly, I think when we saw the first opening statement from Senator Ernst who seems to be sailing his way through to confirmation, and it's hard to see what is going to stand in his way right now in spite of what are likely to be continued set of short questions and the Democrats.

Christopher Smart, you're one of the most qual people. I mean, the title here is former Special Assistant to the President for International Economics, but you've got a sense of geopolitics and the defense extension of America with your decades at Bearings. And I'm not going to mince words, doctor Smart. It's just as simple as this, will the generals and animals rally around this secretary of Defense? Oh?

I think they will. I think most of them, you know, wish that these political side shows would go away so that they could get on with the business of defending our country and ensuring a national security as they have always done through one secretary of Defense after another. I mean, I think the real secret here is that no single secretary of Defense is going to inflict significant change on the behemoth that is the Pentagon. One secretary aft another has tried to make it more efficient, to make it more transparent, to get that audit right. It is not an easy and no single person's going.

To be Chris Wright nails this, David Girl. This is the heart of the matter. The fact is the president elect feels he can change the Pentagon.

That's a fact he does. I think the open question is, and I'd love for Christopher Smart to chime in here, how much does he plan to change it or think it can be changed, or force change on it? All through the morning, Chris, we've been talking about the degree to which there's sort of a script here for this nominee. Should he be confirmed to manage this huge institution. Do we have a sense from him, from the President elect about what actually, notionally would change at the Pentagon were he to be confirmed.

I think that's a very good question. I'm not sure we've had anything other than we're going to make it better from the president at this stage, or from the nominee to be Secretary of Defense. You know, the in finance, you know, the most powerful force in nature is compound interest. In Washington, the most powerful force in nature is bureaucratic inertia. And I think it's very, very hard for a single person at the top to change that without real legislation and a thoughtful plan about how we're going to do these things differently, how we're going to allocate money differently. When everybody wants to have a finger in the pot and everybody wants to have a hand.

On the lever, we're back to where we were a few years ago. That is, looking at social media for indications from the President elect about what he might do. A lot of it is bomb basted, some of it are policy pronouncements. Today, he indicates that he wants to create an external revenue service, as he puts it, to collect our tariff's duties and all revenue that come from foreign sources. We've been charging those that make money off us with trade, and they will start paying finally their fair share. Drawing from your experience at the Treasury Department, we've talked a lot about the Defense Department, the direction that it might take. Your sense of what that looks like under a Scott Bess and should he be confirmed here a little later in the week. I'm struck by how motley a crue it is when you look at the economic team that the President elect has put together, your sense of the direction when it comes to yes, the irs, perhaps the External Revenue Service, should it be created here by this President elect and the Treasury Department More broadly, well.

The Treasury Department, as you may know, used to be in charge of the coast Guard, because the coast Guard would collect a lot of these tariffs as ships would come into our ports, and tariffs were a more important part of our revenue mix. I don't think anybody who seriously looks at this issue believes that tariffs are going to represent a large part of our new revenue stream to cover any deficits that we have. First of all, if there is a tariff that is inflicted, that is imposed on a particular good people are going to find ways to find an alternative. And so, you know, I'm not sure what the President elect has in mind by creating this new service. Whatever it is, probably isn't going to move the needle very much.

Christopher Smart, you have parchment in history from yl I assume you had the honor of lectures with Jonathan Spence that Giana, China and then a Columbia.

I had the book right behind me, one of his.

Yeah, I'm sure one of him, and you're the only person you know. I had the honor of interviewing him once with Orbal's Shell years ago, and I said to him, I said, I've actually read the book cover to cover, and he said, there's only like twelve people that have it was like eight hundred and fifty books. This is the giant Jonathan Spence on China. Christopher Smart, is Nick Burns steps aside as ambassador in China, your thoughts and how President Trump must address Beijing.

Well must or what he will do or it's hard to kind of differentiate between the two. I mean, I think we in the United States and the Chinese government clearly have to figure out a new kind of rule, set of rules for this super pile rivalry that is not going to go away anytime soon. And sort of as the you, as the United States and the Soviet Union did over the course of several decks, there were kind of rules of engagement, things we would argue about, things we would not argue about. That we haven't really set forth with the Chinese government yet. Unfortunately, it's not clear from the current incoming administration what kind of a relationship they want. I mean, appears to be very confrontational, and yet there's this personal wooing of Jijinping that Presidentyle like Trump seems in you to pursue. So I'm not sure what they have in mind. As a country, we're still in a stage of really wanting to kind of wrap the Chinese on the nose with a newspaper and hoping they'll change their ways. What we really need to accept is that they're going to have a big part to play in our new global system, and we have to figure out ways to work with that.

We've got to get you back on, Christopher Smart. It has been way too Thank you. Thank you so much for joining a special edition of Bloomberg Surveillance.

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