many may plead guilty to criminal charges. can european banks operate in the united states? stocks surge ever higher. the fed releases minutes. they do that within the fed double. baghdad loses ramani. -- loses ramadi. we are live from our world headquarters in new york. it is wednesday, may 20. i'm tom keene. joining me, brendan greeley, and everything pushed aside by almost the cacophony of news and numbers and tangents. brendan: i was just worried about david letterman leaving. i mean, it is very hard to disentangle because you had a lot more settlement, now you have the four x settlement. i think we lose sight of what actually happened. tom: we will give you clarity on that, important ramifications for the european and american banks. let's get to top headlines with vonnie quinn.

brendan:vonnie: more detail on what brendan was just saying. ubs is going to pay more than half $1 billion in penalties to settle two u.s. government investigations. from guilty to fraud -- playing -- pleading guilty to fraud. the bank will pay $342 million in another probe into currency rigging. four other large banks will plead guilty in the foreign exchange case today. jason morgan, -- jpmorgan citigroup. the fines are expected to total in the billions. it is the biggest auto recall in u.s. history. the japanese airbag maker toccakata. ever bag are blamed for six deaths. they will work with -- >> they have agreed to answer to

a consent order with ntsa. ntsa is launching a legal process that will allow us to bring together on a manufacturers whose vehicles are affected, along with takata and other parts suppliers. vonnie: u.s. regulators say because there are 11 different carmakers and a shortage of parts, it could take years to make all the cars safe. hillary clinton has broken her silence. after 29 days in which she took no questions from the press. she talked to reporters while campaigning in iowa. this coming the day after a federal judge ordered the state department to move quicker on releasing clinton's e-mails. the government was set to release e-mails from a private server. clinton agrees that it is not

quickly enough. hillary clinton: i have said repeatedly i want those e-mails out. no one has a bigger interest in getting them released than i do. i respect the state department. they have their process, but anything they might do to expedite that process, i heartily support. vonnie: clinton has been under fire since it was revealed she used a private e-mail address for official business. the telecom company based in luxembourg is expanding into view askew markets. often these has -- altice. at the same time, bloomberg is reporting that alteice has made a takeover approach to time warner cable. talks are said to be an early stage. it is the end of an era in late-night television. david letterman closed out his career after 33 years hosting. that is more than 6000 episodes.

no word on who will be letterman's final guest. all that cbs says is that tonight's show will be full of surprises. i'm thinking brad pitt and jennifer aniston? brendan: i am thinking he might make up with john mccain. at 8:00 we get results from target. at 2:00 p.m., we get the fed's latest minutes. at 4:00 p.m. eastern, l brands reports earnings. tom: here is a quick data check. i will make it very quick this morning. the euro 1.1117. crude off .60. there is the dow record i s&p surging forward.

this is the cleveland fed series. 4% long-ago than we had years, a good 10 years plus of 2.7% roughly of inflation. this is a concern, brendan. taking out their core definition, not just energy and food, down to about -- brendan: they are looking at median cpi. that is basically throwing out the outliers. there happens to be a changing clothing and one morning -- and one quarter, they throw that out. tom: it is a nice picture of inflation, the challenge that we have as we get the fed minutes. ethan harris will join us from bank of america. we have to rip up the script and look at this banking story. for those of you not focused, it is the real deal. ubs will pay two fines. there are levels of guilt and criminal behavior, all of it overshadowed by speculation the jpmorgan, citigroup, barclays,

and ubs, may pony up over $5 billion. those announcements could come today, sometime before christmas. what is the negotiation point right now between u.s. banks and justice on this. the reuters story last night clearly states that there is still a lot of discussion going on. >> we expect the settlement to be announced today. at this point the ink is pretty much likely dried on the settlements. it has gotten to be a complicated story. we first started looking at this almost 24 months ago when the investigation started. for ubs, because they had side what is a non-deferred prosecution agreement from an appealing interest rates back in 2012, they are now pleading guilty to that crime, as opposed to the foreign exchange. they have immunity on the foreign exchange.

tom: i looked down yesterday on michael corbat of citigroup listening to mr. roach and of india. is he a criminal? keri: he is not a criminal but they were likely plead guilty to criminal charges today. we are expecting roughly $4 billion to $5 billion in fines for the last couple of months. brendan: kind of criminal, but with your fingers crossed behind your back. the banks are seeking waivers, so they say -- they will cop to -- keri: there is no plan, there is basically no game on how to do this. what banks have to -- they want

to continue operating certain texas businesses, fund management, capital raising. they have to seek waivers from regulators and how they are doing that now is they are seeking those waivers before settlements and immediately after so they can continue doing business with no problem. tom: let's bring our guest host in. we will address iraq later in the hour. ambassador, your book is about a strong u.s. going out to the world. how can you have a strong u.s. with the criminal banking system? this is not a confidence builder this morning, is it? >> no, except the fact that things are getting dealt with. all the people have been complaining that we have had no legal machinery operating and now you have something to point to. i do not need to be pollyanna

but there have been lessons learned, there have been changes made. so where we are in 2015 is not where we were in 2008. brendan: we have learned that there will be a 10:00 a.m. presser with the justice department. do you think the culture has changed one thing that we hear? finance culture has to change. when and how is that going to happen? ambassador haass: i don't get the sense it is business as usual. people have had to adjust their propensity for appetite for risk. people are not skating as close to the edge anymore. tom: what are the ramifications of the some of these fines. i took the operating income of this in dollars -- it is 23 days of operating income. is this a slap on the wrist?

keri: we are operating in uncharted territory right now. we have five, in the last years, eight of the world's largest banks, pleading guilty. we do not know with a long-term consequences are. we also do not know what the consequences of a repeat offender. some of these banks are under investigation for other things as well. we do not know what happens when you get two guilty pleas. this is a brand-new world in terms of how banking is being prosecuted. brendan: i want to read you a quote from a great piece of bloomberg reporting from this morning. this is from a lawyer to credit suisse to the labor department. it is thank you, thank you, thank you, 600 thank yous in that e-mail. that was getting a waiver despite getting -- we did not have a good answer. what leverage to the banks have? as they are seeking these waivers, they in theory said

stop doing business in certain lines, but they get these waivers. how do they get them? keri: the waivers come from the regulators and the regulators do not have -- they have been a little vocal about this. they do not want the waivers to be enforcement tool. that is also a new issue that the regulators and the banks have to figure out. it is not clear that the banks have any leverage when it comes to this. the regulators will issue the so they can continue doing business. tom: what will you look for at 10:00 a.m. this morning? keri: i think we want to listen for clues on what is next. this is an unprecedented case on wall street. tom: will you go back before drexel vernon more? keri: drexel was a drop in the bucket compared to the spirit we want to see what is going to happen next. tom: kerry gardner will be with

us -- kerry geithner -- ker i geiger will be with us in the next hour, as well. tom: this is "bloomberg surveillance" on bloomberg television streaming on your tablet, your phone, and bloomberg.com. good morning. ♪

tom: good morning, everyone. an incredibly busy day. "bloomberg surveillance" from new york city. vonnie: los angeles has become the first u.s. city to raise its minimum wage to $15 an hour. it is expected to boost the salaries of about 800,000 workers in l.a. seattle and san francisco have approved similar pay hikes. the chamber of commerce says it

should be phased in over a longer time period. atm -- credit card data is being stolen at atm's at the highest level in 20 years. debit card crime at bank atm's almost tripled in the first quarter. in pro football nfl owners have voted to move the line of scrimmage on to point from the two yard line to the 15th. last year, more than 99% of the extra point kicks were successful. tom: thank you so much. we look forward to "bloomberg surveillance." we will address with richard haass the fall of ramadi.

we will look at the feedback loops. this is glorious schiller, with -- this is gloria schiller. will speak about the new debate over a desperate china. but the not so desperate currency. brendan: let's take a look at earnings. target reports earnings at 8:00 this morning. matt townsend is here to tell us what to expect. we have the first quarter results from lowe's. analyst estimates were for $.74. top sales were up 75% but trailing estimates. is this a result about the u.s. economy or about lowe's? >> it looks like a company issue. home depot reported yesterday. lowe's pale by comparison. they missed on sales.

one thing that is interesting about these two companies. lowe's has narrowed the gap on comps sales growth. they did not beat home depot but they narrowed a little bit. it looks like lowe's has its own issues. brendan: this was expected. let's go on to target. stern ag basically says stay neutral in theory. in reality, we are aware of the inordinate amount of patience required for deep organizational changes. what is the organizational change that is happening? eswar: a hatchet has been taken to the core in minneapolis. he said we are way too bloated, too bureaucratic.

we are not nimble enough. he is going about what you could basically call a turnaround. brendan: wages are slowly rising but he still -- bloomberg intelligence pointed out that we have wage pressure as he is cutting staff. he can make that work? eswar: in general some of the white-collar positions are increasing. he is all about changing the culture. tom: pretty good numbers. i guess it is a nominal gdp play. what is the back of their desperation? is it business as usual for these big boxes? or are they in full-scale panic about the american consumer? eswar: i think it depends on the category you are in. home depot was gloating yesterday. people are spending more on

their homes and on consumables. wal-mart's numbers are disappointing yesterday. they missed on their u.s. sales. target is supposed to be about 2.3%. tom: greatly appreciated. in our next hour, ethan harris will join us. he has absolutely nailed the slower growth trajectory. it is amazing, looking back four years, what his team has done. we will get an update on dr. harris. stay with us from new york. it is "bloomberg surveillance." ♪

tom: good wednesday morning everyone.

at 10:00 a.m. this morning, we expect a department of justice announcement on those banking fines. we will have that on bloomberg television and radio worldwide eerie let's get to the morning must read. brendan: when we find something from john stuckey ms we read it. "each barrel burned inside the kingdom is one that cannot betray did for hard currency." "yet big sport-utility vehicle still ply the desert highways, guzzling petrol at a cost of just $.45 a gallon." they are starting to run deficits. two questions -- one, how long can they keep it up, and is that economy capable of being changed? >> we have been talking about diversification for a long time. they do not have the labor force

to get the support that is necessary for a much more diverse economy. immigration -- they have been helping with things that -- they need to -- diversification will require a more diversified labor force. tom: there are some sunnis west of baghdad looking for a place to live this morning. brendan: richard haass, i got some skepticism from your end of the table. they have been making this progress to diversify for a long term. -- for a long time. can they pull it off? amb. haass: the short answer is no. the idea that they will yank away the big subsidies no way. you have massive corruption, massive unemployment and underemployment. i do not see it. tom: both of you are expert at the institution attempting to

assist these regions. dr. prasad, which institution will help the middle east? >> this is a key issue. the big question is whether the whole moral can be changed away from one, where the country supported by oil revenues which will decline -- tom: are we having a dialogue with them? with saudi arabia? brendan: i think that is a bigger question. we could take an entire hour to answer. what i am hearing from richard haass is that we need to look at the microeconomics. we will not get the entrepreneurship until these subsidies get removed. dr . prasad: you need a financial system that supports the spirit of that.

you need institutions, the finance, and the labor, and none of that is working. amb. haass: this is a risk-averse government in the best of times. these are the worst of times. no way that is going to happen. brendan: for most of this segment, richard haass has been shaking his head. can the islamic state be contained? we are looking at developments by the hour in iraq. ♪

tom: good morning, everyone. "bloomberg surveillance." futures up seven after those closings yesterday. vonnie: it will cost ubs more

than half $1 billion to resolve two big legal problems in the u.s. they pled guilty to fraud from manipulating benchmark interest rates. ubs has filed an agreement that has allowed it to avoid prosecution there. the bank will pay $42 billion in another probe into currency rating. jpmorgan citigroup, barclays and royal bank of scotland fines are expected to total in the billions of dollars. the fed releases minutes this afternoon from last month's policy makers meeting. said officials may reiterate they expect the economy to bounce back after a dismal first quarter. u.s. stocks begin the day at record levels. the dow jones industrials set at an all-time high yesterday. down slightly from monday's reco senator elizabeth warren want congress to play rdball on the

asian trade deal. she saicongress should demand that president obama release the draft of the deal before he gets fast-track approval authority. the president has criticized warren for opposing the deal but says it was not personal. warren echoed that statement. senator warren: this is not personal. for me, this is about protecting american workers, protecting american abity to write environmental regulations, to write food regulations, health and safety regulations for the american people. vonnie: she has become the most prominent critic of the trade de and the democratic party. barclays says auto sales may drop 40% in the next 25 year that families will go back to one car because driving cars will transport each family member during the da team the first

pick in next month's draft. they had 16 wins, 66 losses last season. the los angeles lakers will have the second pick, followed by philadelphia and the new york knicks. stephen curry scored 34 points to lead golden state to a 110-106 win over houston. those are your top headlines. tom: the serious matter of iraq. a senior police officer in ramad i says that the u.s. hope for strategy leads to -- totes. house speaker john boehner says it is time for a rethink. john boehner: we know that hope is not a strategy.

the president's plan is not working. it is time for him to come with a real overarching strategy to defeat the ongoing terrorist threat. tom: richard haass as president of the council on foreign relations and the ambassador is familiar with the hope of linking strategy with tactical execution. we are all dismayed. what is the to do list for the administration to regroup after the fall of romeamadi. amb. haass: iraq remains a largely sectarian government, largely relying on iran and shia. tom: can we amend the formula or is it so steeped in a 12-year history that we are not part of the dialogue gekko? amb. haass: stop funneling u.s. support through that government.

the time has come for the united states to accept reality. tom: do you see a three-part iraq? amb. haass: three separate countries. you have a shia dominated area and then west of iraq, and then east of syria the border is irrelevant. that is a sunni area. we need to build relations with those tribes. but you will not put humpty dumpty back together again. the old multiethnic iraq is older -- is over. the old rand mcnally map is over. brendan: foreign policy does not happen in a vacuum. as we approach primary season do you see any tendency among candidates to let the rand mcnally atlas go? amb. haass: as i suggested, you will see direct support for the kurds, for some of the sunni tribes, and yes, probably a greater american role on the

ground. brendan: we just heard from john boehner that essentially hope is not a strategy, and the sense we got from republicans is that the administration is not doing enough, which means republicans will have to advocate for more. do you see them able to turn more into -- amb. haass: you will have people like rand paul being very suspicious. it is not just doing more, it is also doing different. we are doing a lot in iraq but we are backing a government that cannot succeed. i think the united states has to accept the reality. just remember, ramadi is what, 60, 70, 80 miles from the outskirts of baghdad? we cannot allow this group that calls itself the caliphate to gain control of one of the great cities of the arab world, because that is when the caliphate he comes a reality. isis is a momentum play.

we have to find a way to stop the momentum. brendan: is there any part of the current administration's drones strategy working? amb. haass: it works in a tactical sense, but it is not a strategic posture or a policy. it is something that you do in the absence of a larger -- tom: the people around you on the council of foreign relations, what do your fellows say who are experts in the middle east, on the leadership from the sunni world to a more stable iraq? how do we get them to solve their problem? amb. haass: the problem is, we cannot. there ought to be a multinational force in the sunni countries that is on the ground in a place like syria. we do not have a ground partner in syria. in iraq, we potentially do with the kurds and the arabs. tom: how does this make more complex our negotiations with iraq?

to review this, iran is supporting the shias to the south and east of baghdad and in baghdad, right? amb. haass: absolutely. the answer is that nuclear negotiations with iran are compartmentalized. tom: interesting. brendan: moving back to the u.s. equities have record levels, and the economy is showing signs of life. everything is great, right? wrong. we are going to talk with robert schill who says we need to get a grip to make the economy grow. this is "bloomberg surveillance ." that is coming up on bloomberg television. ♪

tom: good morning, everyone. "bloomberg surveillance." we get to a single best persuasive chart with brendan greeley. brendan: it was written yesterday that we are in a vicious cycle of despair. to prove his point, we look to link listing analysis. that is the subject of our single best chart. google has this amazing service

where you can look at the frequency of a word's appearance. this is the phrase "feedback loop." it did not exist until the 1930's. then we saw a spike. anyone trying to explain what happened with the depression, they are using the phrase "feedback loop." as far per side -- eswar prasad says we're looking at rock-bottom interest rates without booming investment. should we be looking at psychology? dr. prasad: so far what the fed has been able to engineer these equity prices, if they are somewhat disconnected from the u.s. economy and feeding into consumer confidence, whether this can be filed into the economy with all of the policies working in the same direction,

the tricky thing is to get them working in the right direction. tom: what are the feedback loops right now of international relations? brendan: he is making a skeptical face. amb. haass: the only thing we seem to have is monetary policy. there is no serious fiscal policy or economic reform. jobs are disappearing. those are real issues. brendan: this is a copout. i think it is a good point. we speak so much about what central banks are doing and we forget they are doing things in the absence of other things we used to be able to do. amb. haass: that is the big point. we are asking central bankers to carry all the weight and do more then they are able to do. they cannot do it alone. tom: part of the theory of the feedback loop is that if i do this simple math we will be

lucky if we get 6% with china getting 16% growth. the vectors of change in the emerging markets are really quite positive versus what we have in america. dr. prasad: most of the emerging markets are facing a lot of difficulty. the u.s. and the u.k. are among the advanced economies and the ones showing some sign of strength. but there is a question as to whether there -- as to whether this is artificial strength. i think there is a commonality between the advanced economies and the emerging markets. it is the monetary policy doing the heavy lifting and there is a limit as to how far that can go. tom: three sterling photos this morning. brendan: number 3 --in london, a claim of the discovery

of the first authentic portrait of shakespeare. that would have made shakespeare a very bearded 33 before he wrote "hamlet." it was coated with an mimetic flowers and motif. number two, in london, the claims have been -- duck lanes have been installed. ducks will temporarily have designated space from bikes. amb. haass: that is hard-hitting stuff. brendan: cambridge university -- a time lapse university shows how t cells kill cancer cells. these are green. they inject cancer with a deadly

protein called cytotoxin. that gives researchers insight on the order of events leading to injection. the green are the good cells. coming up china's currency -- can it serve as a reserve currency? this is bloomberg surveillance. ♪

tom: good morning, everyone. "bloomberg surveillance." let's get to top headlines with vonnie quinn. vonnie: vice president joe biden's son has been hospitalized in washington. he's being treated for an undisclosed illness. he is 46 and suffered a stroke five years ago plus he had surgery in 2013 at a cancer center to remove lesions. a broken pipe has caused an oil spill along the california coast. the spill went in four directions. the coast guard says the leak has been stopped.

at least 21,000 gallons of oil has been spilled. marcus kruger scored in the third overtime and joe to give the blackhawks a three-to -- a three-3-2 win. tom: i will be honest, i did not stay up to see it. these are serious changing for both teams. brendan: do you know how to keep from being exhausted? you do not pay attention to hockey at all. tom: there was a game 20 years ago of this length, and you never recover. this is game two. you never recover back to game seven. the legs just go. front and center, kerry geithner -- keri geiger will join us.

and governor raghuram. brendan: chinese leaders have been lobbying the imf to add the renminbi to its basket of reserve currency. this would be good not just for china but for the world. let me ask -- our chinese institutions ready for this? dr. prasad: they are not quite ready, but that is the whole point of this push. they hope making it a reserve currency will give them a framework. they need better and deeper financial markets, a better regulatory system, a more flexible currency. making the renminbi a powerful currency gives him a framework. i think it is domestic rather than international.

brendan: why should we support this as well? >> it will make china a much more balanced economy. it will generate employment and increase more demand. plus, if they start opening up the capital account, it gives opportunities for american financial firms to show those company's banks to do more business there, and ultimately make china a much better partner internet -- and commercial finance because they will have a more vested interest in maintaining the privacy of things like the imf. tom: they will say that they have done their fair sure. their fair share. i extrapolated out, given all the goings-on there and got to a 5.70. does china use the currency to assist their economy? what is the relationship of beijing to that managed currency? dr. prasad: it used to be a part

of the strategy maintaining the build -- the stability of the currency. since the dollar, the renminbi has risen up against the dollar. they see it as important, this approach of convincing the world that the renminbi is relatively stable. if they did -- it would probably depreciate, not appreciate. money goes out and for good reasons, because they want chinese households to have the opportunity to diversify abroad. if households are not held captive by the domestic banking system, banks have two up their game. -- banks have to up their game. this is why i argue ultimately this will be good for china and the world. irrespective of what happens to the renminbi in the future.

it is a good organizing framework for what they need to do domestically. brendan: richard haass, how does the treasury and the white house get diplomacy right? amb. haass: you do not want to resist it in principle. china needs to be a responsible stakeholder, and we need to bring them in and have them meet responsibilities. they need reform and we will have to be conditionally supportive. layout terms. brendan: what is the set of terms that we should be asking for? amb. haass: certain transparency, the rule of law. they will have to do things that they -- they will have to stop doing things that they did in the past. they will have to open up their economies in ways that meet international banking and regulatory standards. brendan: the chinese do not just want to be part of this basket of currencies they also want the imf to change.

can that also happen as a part of this negotiation? dr. prasad: two countries have not verified it, the u.s. and venezuela. it is an embarrassment for the u.s., and ultimately if countries like china and emerging markets do not see the imf as the institution, i think it plays into the whole debate. tom: with a show at the metropolitan museum right now on many emperors of china and there illustrates past, how far are we removed from 1943 or 1843? it is still "over there," isn't it? amb. haass: i will just make one other point about this. all of this is happening at an odd time which is the chinese

economy, i think is on the precipice of some very rough times. china is not performing nearly as well as the official statistics. it is ironic that you see china potentially getting brought into a larger role in the world economy just at a time where it's domestic economy will suffer from lower growth rates and potential dislocation. tom: so will the renminbi be weaker? dr. prasad: they will not do that for two reasons. the renminbi as part of -- it is very important. they will allow the renminbi to float more. brendan: what i want to know is where is the renminbi being used outside of china? dr. prasad: it is actually being used for a lot of trade settlements. abouta a quarter of china --

the renminbi is being set up in frankfurt and in london. right now there is not that much demand for the renminbi given where the economy is, but everybody knows china is a big economy. it will continue growing. they want the renminbi to play a bigger role, and the markets wanted to. brendan: so it is fair to say that this is a ratification of -- dr. prasad: it is a very nice symbol to have and the chinese understand that. tom: professor, thank you so much for coming. ambassador, thank you for joining us from the council on foreign relations. socgen out with a smart nuanced program note, saying this is all euro-based, much less dollar dynamics and much more urodynamics.

1.1106. you see it with euro-yen as well. stay with us. another hour of "bloomberg surveillance." ♪

tom: ubs barclays, jpmorgan and citigroup combined. emmanuel will plead guilty to criminal charges. say what you will, the stock surges ever higher. india faces the fault lines of a new capitalism, can the model work? good morning everyone, this is "bloomberg surveillance," i am tom keene. joining me is brendan greeley and 10:00 a.m. is when we will get some kind of department of justice announcement. this is different than the many other things we see. brendan: for me what i will be looking for is exactly what kind of waivers they got. we have been waiting and waiting to break them. we will see what they get in

exchange for copping a guilty plea. right now our top headlines vonnie quinn. >> ubs will pay half of billion dollars. and the swiss bank is pleading guilty to fraud for manipulating restraints. ubs has a deal to avoid operation by the deal but broke it. guilty fleas are expected today in the foreign exchange case from four other banks. jpmorgan, citigroup and the royal bank of scotland. experts say it will take years to fix all of the cars with defective airbags. the nation's biggest auto recall ever. at least six have been killed as the airbags exploded. >> takata has agreed to enter

into a deal and requires the full cooperation going forward. this is launching a legal process that will allow us to bring together manufacturers whose vehicles are defective along with other hearts and suppliers are you >> regulators saying they sometimes inflate with too much force. 11 foreign and domestic automakers are involved. hillary clinton breaks her silence after taking no questions from the media for 29 days. it happened the day after a judge ordered the state department to make her in a records public. the department says -- the judge says that is not fast enough and clinton agrees. clinton: i have said that i want those e-mails out.

no one has a bigger interest in getting them released than i do. i respect the state department and they had a process they do for everybody but anything that they might do to ask that you process i heartily support. >> mrs. clinton has been criticized for using private e-mail server for official is this. agreeing to buy 77% of southerly medications. you have 1.5 million customers in a dozen states. time warner's merger lands with comcast fell apart late last month. and david letterman is signing off areas is late-night show tonight will be his last areas of dylan serenaded him tonight and he has hosted more than 6000 shows.

brendan: we will go to the morning brief. looking at retail more broadly the fed's greatest minutes and tom will put on his spectacles for himself and martini. 4:00 p.m., l brands reports earnings. tom: ubs will pay two fines. there will be pressure of some form at the department of justice with billion dollars in fines scheduled at least that is speculation. keri geiger is with bloomberg news and she and her team have followed this tick. if you would look back six months ago, what was the story that caught your attention to how many were involved in getting this point, how many screwed up.

>> this really has been an incredible interesting tale of how these banks colluded to fix the foreign exchange market. a handful of traders in these small chat rooms call the bandit chat rooms and sometimes there were only four or five people at any one time. tom: has this always gone on and we just finally caught up to it? >> the chat rooms and e-mails always seem to be the downfall where the evidence plays on a lot of these issues. you cannot typically prosecute a case in just e-mails and chat room so it is likely for cooperating however there does seem to be kind of a deafness of people on wall street that they are still doing this stuff in chat rooms and getting over e-mail and their employers are paying these huge fines and

pleading guilty. brendan: low-level collusion wasn't really possible before. what has changed on wall street? >> it seems to be this culture of way together what the client orders are doing a sharing that information and trading to their advantage. i don't know if this was happening before or if it just allow them to get caught in tom: we want to make clear that dr. harris does not comment on these matters for bank of america. i want you to comment on what the word criminal means to i'm like yeah yeah, see you in the food court i am bored. i cannot board's morning. what does criminal mean to someone like citigroup? >> it is just a label. we saw --

tom: doesn't criminal mean you can go to jail? >> you absolutely can dash cam. >> if you personally or to get a criminal charge you might go to jail. but you cannot exactly spend a bank to jail. unless they're going to prosecute individuals. there are only still developing the cases but there are plenty of individuals there are going after three brendan: there is a waterfall of consequences to the institution if they flee guilty. they can't do business in the u.s. and there are certain things i cannot do. >> as you said earlier they have to go to regulators and beg and plead to get waivers to continue doing certain types of business. fund management, capital raising and all of these things that are fundamental to an investment bank. tom: full coverage at 10:00 a.m.

and for those of you on global wall street look at your bloomberg headlines streaming out at 10:00 a.m.. let's turn to something that dr. harris and speak about i will sell him to you no one had the courage in the middle of a v-shaped recovery to say that the was not very v. they nailed that call and we continue in a less than robust american economy right now. what will you look for this morning to show a glimmer of economic hope? guest: the problem with the minutes is at the fed is chasing the economy. tom: housing starts were bad. guest: housing starts were good

but the general flow of data has been on the soft side. the fed keeps saying it is temporary and it is only when they get to a meeting and talk each other that they say this is lasting longer than we thought. so i think the minutes will sound optimistic relative to the general tone in numbers. let's stick with housing for a second, which indicator should i didn't looking at. which has the most meeting? >> right now we had this date controversy when they seem to collapse and this seems to be surreal statistical adjustment problems but the other kind of see monthly numbers are things like payroll and housing starts among all of this housing indicators. those are reliable indicators in their consistent with an economy that is slow but they are not

showing the same kind of collapse you see in the gdp days. brendan: you mentioned vacation home sales, is that a sign of buoyant confidence? guest: there are some 1% is feeling pretty good. brendan: the people that we refer to as our audience. i tend :00 a.m. we will bring it -- at 10:00 a.m. we will bring it to you live. the total of the fines and what waivers are going to be given. for the twitter question of the day we will ask should actual people go to actual jail for four x -- for ex manipulation?

tom: bloomberg surveillance. tom keene in brendan greeley. let's look at something positive and constructive. this is really good by justin fox of bloomberg from the harvard business review, what makes dinner such a star? he began as a hodgepodge of opportunistic acquisitions. he has come to have a coherent and effective culture. his relentless and numbers

oriented that transparent and straight forward and absolutely nails we talked about with that merger and every other company out there wants to be like this. brendan: culture matters and is really important. the other thing we have been learning his operations are important. they're not just a thing that magically happens you have to get in there and make the operations efficient. any such an obvious lesson. tom: you will not comment on culture equivalent but i can ask you about your believability and the strength and earnings and cash flows on an economic basis. as a new corporate america where earnings and cash flows can keep the american machine running? guest: we are past the peak of the boom earnings that we can still get growth areas companies

still have pretty effective cost controls in place. the dollar should be more stable. one of the things but the last six months that has been most puzzling. we got all of this volatility in the markets and then capex made it again. brendan: is this psychology or something else at play? guest: i think it is mainly psychology. companies just don't believe in the underlying growth of the economy so you need that confidence to make those big-ticket commitments and i think it is a negative feedback loop. if you don't invest the economy isn't strong and if it isn't strong you don't invest.

what's up they get out of the cave at some point in the next year. tom: what an event yesterday, a celebration not only the indian community but all of economics. speaking at the economic club of new york we will speak about how it is over, the honeymoon is over. this is "bloomberg surveillance. futures up one and dow futures of 13 or it. ♪

tom: good morning everyone let's get right to our top headlines. >> raising its minimum hourly wage. the biggest city yet to make the move. the increase will be phased in over five years. data from atms at a 20 year high.

the credit scoring firm sees them as vulnerable. such theft tripled in the first quarter at bank atms. the nfl wants to get more kicks. point after touchdown kicks will be 30 yards longer. takers barely missed last year and the owners think that is dull. tom: very good football talk. about time they did this and move it back to make some tension. let's look forward to the rest of bloomberg surveillance. an important conversation with senator elizabeth warren, i don't know if they mentioned hillary. we will find out. previewing target earnings and u.s. inflation woes. home depot doing better than

good. u.s. inflation woes, an important conversation with ethan on the lack of inflation out there. the reserve bank of india governor addressed the economic club of new york. he said he is still figuring out the best way to boost his india 's economy. >> a variety of policies are being undertaken today. many of them on monetary policy and i would argue that we need to look at these and figure out what is legitimate and what is not. what is shifting growth and what is creating growth? tom: we absolutely nailed that. thank you for getting the money quote. ethan is with us, i'm hearing the word desperate a lot. this desperate search for growth. it is a miss treat back to robert solow at m.i.t..

guest: in these countries growth comes from reform. india has a lot of inefficiencies so they have the potential to become a juggernaut away china has been. whether they can pull it off is another question. right now we also have a cyclical problem in that things look very slow. not just in the u.s. but globally. governments are moving and the chinese government is trying to get there economy going. it is kind of a soft path. tom: my morning must read this morning projects in a get saying the honeymoon is over. the government's failings have become so startlingly apparent so early. brendan: another technocrat who returned to india to do the same

kind of work that is being done at the central bank. my question to you is, did you get any sense of his relationship with modi? tom: you are dead on. john lipsky addressed that as well and he was very subtle about that. robert hormats and him have plated questions exactly on that and i don't think it was that visible. brendan: in the last six months there has been a move i haven't seen anywhere else which is that he lowered interest rates in response the policy decisions that he thought would be good for the economy. what came out of this speech is that the imf needs to take a bigger role in coordinating central-bank policies so that emergency economies don't get dinged.

is that the right role? guest: it is understandable why he would want that but i don't think it would happen. the fed does not in any way want to be constrained by some international organization, but you have to be sympathetic because the fed is such a powerful player in global markets that they can really create a tougher environment for other central banks. tom: the backdrop on this is kersey. does that benefit an emerging-market? guest: right now you have weak economies around the world and week currency is one way to promote growth. it is not the only way. look at the debate in india, you cannot just rely on your currency. ultimately it is about market reform and having a more efficient economy.

if you're leaning too much on that you have a serious problem. brendan: indian officials are talking about 1% above what china has been promising, is that a good statistic? guest: it is ambitious. you have to question china's 7%. is that real or is it something less? these big round numbers are not representative. tom: five days ago into this mass of money in china, is there a monetary or velocity deflation to all of the money out there? guest: i think the problem and many of these countries is they rely too much on credit creation and not enough on economic reform or healthier long-run growth. it creates a problem of

ineffectiveness. brendan: peter cook spoke to elizabeth warren yesterday. she has been a thorn in the side of the president over trade. that interview is next. ♪

[beeping] ooo come on everybody, i think this is my grandson. [lip syncing] ♪little girl you look so lonesome oh my goodness. ♪i see you are feeling blue ♪come on over to my place ♪hey girl ♪we're having a party happy birthday, grandma! ♪we'll be swinging ♪dancing and singing ♪baby come on over tonight tom: let's go right to the bloomberg terminal. taking a look at a most interesting inflation series. this is a different inflation series. the cleveland fed median cpi.

they decide should they take out sailboats clothing, cosmetics whatever. here is the old days, 30 years ago 4% down to 2.7%. here is that magical line that you will explain in a moment. we are there right now and persistent. is this a good place to be or do we want to be higher or lower? guest: what the fed is saying is they are looking at a slightly different measure which tends to run a little lower. you would be down here. with the fed is we have had enough good news on inflation and we don't want to go lower. we would like it to come up. we want to create a cushion away from deflation. they won the war and they don't want to overdo it. tom: i like the way you phrased

that but to the point of create a cushion, is there any academic literature that says institution can do that? guest: they can't do it with any real precision but they can have a broad goal that they achieve over many years and they can try to manage expectations and make people feel comfortable with the idea that we will stay at 2%. stability and expectations is good. tom: where are they right now? i look at something like five year and five years forward and they tell me lower inflation. tom:guest: one of the challenges is there questioning whether the fed can achieve 2% in the long run. tom: the new rate could be lower. guest: that creates a problem for the fed. they don't want people to believe in the target. tom: we will continue this deflation later in the hour.

right now our trump headlines, here is vonnie quinn. vonnie: it will cost ubs $2 trillion to resolve legal problems. paying more than $200 million for manipulating interest rates. separately, the bank will pay 400 $2 million in currency market ratings. guilty verdicts are expected in the foreign exchange banks. they will pay billions of dollars in fines. this afternoon the federal reserve will release minutes from the policy meeting. fed officials may reiterate that they expect the economy to bounce back from a dismal first quarter. the dow industrial reached an all-time high yesterday.

shares of lows are lower in the pre-quarter market. the company's earnings were four cents per share lower than forecast. they have been putting more emphasis on seasonal goods but analysts say they may have been beaten to the punch by home depot. driverless cars could threaten the u.s. auto industry. barclays says the auto industry may drop 40% in the next 25 years. they said families could come back to one car because self driving would transport each family member during the day which would mean ford and general motors would/output to survive. pro basketball's biggest loser was the winner last night. the minnesota timberwolves win the lottery. the makers will pick second followed by philadelphia. the wolves won 16 of their 82

games this season. the winningest team, golden state won the first game of the western conference finals beating houston. those are the top headlines. tom: would you explain to me why when they show driverless car videos they always show one car on the road? no one will drive that way. vonnie: it is not even on our road. brendan: that cool car is only just barely ventured out onto the road. tom: they have not gone through the potholes on 59th street between madison and third. brendan: it would swallow that entire car. tom: thank you for the update on the fiction of driverless cars. i believe i just editorialized. the euro is a story, stronger dollar and greece quite absent with a little bit of a

discussion. rbs saying that maybe june we get the euro-dollar at 1.11096 as a weaker dollar gets stronger. crude nicely at $60 per barrel. brendan: this is "bloomberg surveillance," with tom keene. he never editorializes and i do sometimes. democrats remain defiant over the terms of the tpp. peter cook the hardest working man in washington caught up with senator warren yesterday. under what set of conditions which he approve this deal? >> if the deal was ripped up and thrown into the fireplace and started from scratch is the message i got from elizabeth warren. she is no fan of the transpacific ownership. she has really been willing to take on her own president. she insisted that it is not

personal and she doesn't feel disrespected cola -- disrespected, but it doesn't mean she is on board. sen. warren: for me this is about core issues and a problem with the trade agreement. one big part is the lack of transparency. we are being asked to grace the skin to move these trade deals forward without showing what it is. >> that is one of her big arguments that they are voting for fast track trade authority before the transpacific ownership has been put on the table or everyone. basically they are putting the cart before the horse and the country and congress should be able to see this deal before it gets voted on. one of her many criticisms. brendan: what is the size and strength of her coalition? >> i don't think they can prevail at this point.

they might be able to make some minor changes but if this fight will be lost for the president it will be in the house of representatives. even there you get the sense the momentum is moving in his direction. it will be tight. tom: the other thing we heard yesterday, secretary clinton spoke 28 days since we heard from her, were you able to speak to senator warren about a candidate for president? >> i was able to ask senator warren about a certain candidate for president named hillary clinton, who hasn't taken a position. i asked repeatedly if that would affect senator warren's willingness to endorse hillary clinton. i will say that while she has been more than happy to take on her president, she was not ready to go after hillary clinton. giving her a lot of latitude. tom: let me ask you the

question. does senator warren raise money for the democratic party? is she a fundraiser? a legit star coast to coast are democrats? >> she is well past that. she is clearly a central focus for the national party's efforts to try to raise money across the country, to raise interest in the electorate, to try and get people excited about 2016 even though she is not running. this is a big role for her. she is in leadership in the senate which forces her to balance her fights with the president more carefully. elizabeth warren is a busy person not just because of her actions. it will be because she is out there raising money for democrats and raising her own stature. brendan: it is interesting you say she has to balance her opposition.

i have been trying to figure out if this rift is real or are they playing theater? >> i was listening carefully yesterday. the president said this is not personal with senator warren. she insisted it is not personal but the language used has been tough on both sides. we forget that when she was in her job she had differences with this administration. she has not been afraid to throw elbows out there. the president is feeling them right now and is -- there is a certain sense that her criticism has not been founded on all fronts and they feel that she has been undermining his efforts. if this blows up it will be because of elizabeth warren. brendan: peter on elizabeth and her objections to the transpacific trade pact. the only way it will work for

her is if it is set on fire and i quote peter cook. we will bring you more live on bloomberg television. the twitter question of the day can actual people go to actual jail for fx manipulation? ♪

tom: it is a new york city of time warner cable. rich greenfield of be tig minces -- of btig minces no words. that time warner cable merger, he says they should go it alone and stick as an independent agency to keep their options open. brendan: a big week for retail earnings. we have a miss from lowes and first quarter results from target at 8:00 a.m. eastern. what is the state of retail in the household? were you part of the lines outside the door? >> there is nothing i want to see less than a grown woman wearing a toddler's dress in a hue of magenta, green and bright yellow. a company i am looking at is burberry.

since angela aaron stepped down and made her way over to apple where she became the highest paid female corporate executive on the planet. the man who took her seat is having a much harder time. something that stood out to me is that currency fluctuations are really hurting. what does it mean? in hong kong and china they lowered prices on those same goods and raise them and europe and it is because of those travelers who take advantage of a week euro and that price crap. tom: you get 14 trenchcoats from rotary. it is much more than a trenchcoat company but you are right about this geographic challenge that all of these luxury brands face. >> is not that they had up ad season and reselling products people didn't like, people love

their products. in the luxury goods space it is getting harder to sell at retail prices when you have people trying to take advantage. brendan: is it fair to say that a story of luxury is the story of china? >> without a doubt. brendan: how do we look at the u.s. consumer? do we have to divide it between high-end and low end? guest: that has been the story for a while. the 1% or's -- 1%'ers -- if you can do well in that space. brendan: use a bargain, that means cheaper than walmart. tom: alan murray did great research when he was at pew that the 1% is 7%. that is a lot of good thinking about how much that amount is. stephanie dressed her two sons head to toe in burberry. >> not hebdo but they have one

or two items. brendan: -- not head to toe, but they have one or two items. brendan: stick around coming up at 9:00 a.m. eastern. our twitter question of the day, should actual people go to actual jail for fx manipulation? ♪

tom: good morning everyone. "bloomberg surveillance." thank you for your comments on twitter and ethan harris here on deflation. let's get to our top headlines. vonnie: the union claimed that the deadly amtrak crash point to a major problem. they should have another crew member. police are showing up in google searches on mobile devices. part of twitter's push to attract new users. google is getting access to half

a million tweets every day. president obama goes from tweeting newbie to record setter. right after getting his account he reached one million followers in five hours. that smashes the mark set by robert downey junior. he needed 24 hours. how long did it take you to get to one million, tom? tom: it was like 2040. a linear function. brendan: i am just bumping up against 2000. tom: joe weisenthal crushing me on twitter. let's look at the chairman. not the blog writing bernanke but alan greenspan at the peterson institute. here is the chairman talking down to thousand 15 gross. -- 2015 gross. >> i don't believe the -1% is

accurate. the problem exists that it is very difficult to envisage going up to 3.5%. tom: greenspan saying we are heading toward where ethan harris is. the cohead of global economic research at bank of america. where is the old 3%? array going to get back to 3% or is there a new number -- are we going to get back to 3% or is there a new number? guest: we can bounce back from an awful first quarter but on a sustained basis the 3% is long gone. tom: politically we don't want to accept that and our kids don't want to accept that. it is unacceptable. guest: it is the nature of the world. lower growth and activity is not

as strong as it used to be and we have to accept that the speed limit is lower. tom: brendan, it is simple yellen at the zero bound. brendan: what is the natural rate of inflation? guest: i think what the fed is trying to do makes perfect sense. they want to wait as long as possible to allow a little bit of inflation to work its way into the system. that is a sensible policy. brendan: 2% is the universal target? guest: it makes perfect sense. brendan: so many countries right now having a tough time getting to 1%. guest: we never had a recovery from the crisis. we had the devastating great recession and never recovered. the u.s. has a chance of

recovering now if we can get a couple more years of ok growth. tom: michelle myers did backbreaking work on housing. tuesday, how do we manufacture a lift in housing? guest: it is partly wage growth and partly confidence. you look at the job market of the last six years. and the volatility of home prices, allegedly home prices never go down but suddenly they do. so that generation is hesitating. tom: we had chairman greenspan moments ago always linking enthusiasm into optimism about the economy. does ethan harris's economy follow from down 20,000? guest: i think the stock market

is telling you there is a tremendous amount of liquidity and those zero interest rates are forcing people into the stock market areas it doesn't have the same strong signal that we normally have it is more of a financial signal. the gains in the stock market are helpful and people have restored their net worth and they feel a little more comfortable about the world. it has been a healthy improvement but i don't think it is a strong signal. tom: we mentioned retail earlier. brendan: the long shallow trough. is this recovery or psychology? guest: both. the decision about how much debt you want to have depends on whether you think your income will support it. if you don't have confidence in growth you don't want a lot of debt. i think we have made tremendous drug dress a country in working our way through the bad debts getting in a better alan's sheet

for the corporate sector and household sector. the fed success has not been to get 3% to 4% growth to get balance sheet repair. fundamentally we are less vulnerable to shock then we were a few years ago. tom: you talk about ronald reagan and elizabeth warren as a new voice in politics everyone is searching, where is it. guest: it will depend if there is a new wave of powerful technology. we know that waves of better technology give you strong growth. from 1995 to 2005 we had a wave of massive technology. she said exactly that eight years ago. guest: we don't know. brendan: the standard growth models rely on technology so i

hear some hope from you that there is more yet to come. guest: some people see great inventions and others say the good stuff has already happened. tom: might is the fed looking at what miss yellen will do. what i find fascinating is that no one expects anything. no big deal. and i'm like, maybe not. i will be leaning forward more acutely than usual. vonnie: i will be leaning forward with you because on my agenda is 10 a clock a.m. when we hear about the fx settlement. i want to hear what ubs has to say because they almost got away without pleading guilty. tom: what is the subplot you're interested in? vonnie: the ubs part of the story. they are effectively the whistleblower and got immunity

on the fx thing. tom: then lost -- brendan: then lost immunity to be the whistleblower on the next round. this takes john oliver to explain. tom: can you imagine vonnie on the fx desk? vonnie: paul giamatti and matthew mcconaughey. we have the twitter question of the day. should actual people go to jail for fx and of elation? it will reduce the incentive to cheat. i vote yes. brendan: fines are paid by stockholders. vonnie: it is global and includes food, medication and education for being beyond greedy. -- reach. of course criminal should go to jail and start a new series orange is the new pinstripe. tom: i will state, yeah, yeah

big deal. today is a big deal. brendan: you know what is a big deal now? may. one man's thoughts turn to the water and the seed brees hills up the sound -- and the sea breeze fills up with the sound -- jfk's boat failed to fill the auction. this one belonged to jfk. tom: the actual boat? brendan: the actual boat. the reserve price was $100,000. tom: for those of you not on bloomberg radio this is the boat you used to see off of hyannis? brendan: i went and looked and was curious to see how much these cost new. you can get them for $10,000. you can get a racing-ready start. tom: i can have one in central park. brendan: you will have to tack

every 30 seconds. brendan: bloomberg surveillance will continue on radio. tom is dumbstruck.

arket makers," with erik schatzker and stephanie ruhle. stephanie: good test this

department morning. it is wednesday, may 20 and you are watching "market makers" at 8:00 erik: eastern. i stephanie ruhle. i am erik schatzker. billions of dollars in fines. stephanie: we will learn much more in the next two hours when the justice apartment officially makes the announcement expected at 10:00 a.m. eastern. the banks involved sitting -- citigroup, barclays, rbs. erik: the fifth bank is ubs and we have heard from that bank this morning. we would get back to banks in a moment that let's talk about target because they reported earnings. julie hyman has the details. it looks like target had a good quarter. julie: it did. if you look at the earnings pressure, they reported $1.10 and $1.2. they have been emphasizing its children's and baby and wellness items. that strategy seems to work.