Greatest Moral Hazard, Says Paul McCulley, Is Austerity Here And Now (Mauldin)

Not too loaded a question.

Almost universally, and I understand why. If I were an active central banker — which I’m not — but if I were, I would know the catechism, which holds that, yes, income inequality or wealth inequality matters for society. But that’s not something that monetary policy can or should affect. It’s the role of the democratic process to make societal decisions. So central banks understandably have a “What me, mon? It’s not my job” attitude. So we’ll be asking the heretical question, Are they innocent bystanders or not? But you notice, I’m not writing that paper. Our other fellow is doing that paper. Anyway, those are the two topics that will be presented in March in Paris by the GIC Society of Fellows.

So you’re trying to stir up a little trouble?

I certainly hope for some reasoned debate. In fact, we are also working to select the discussants for the papers. We will do the program following the model where the authors formally present a paper, and then we’ll probably have two discussants for each paper do a panel. We will try to be even-handed about having discussants who have opposing ideological perspectives but who are willing and capable of truly addressing the issue in the context of the paper.

Good luck in finding those.

Actually, they don’t know it yet, but I’ve got a couple of guys and two women in mind, who will be getting phone calls from me at some juncture in the not-to-distant future to see if they’re willing to participate. Really, an event next March seems a long way off to me, compared with the speed at which my whole work life operated. But I actually like this pace. I don’t look at what I’ve been doing since I retired from PIMCO as leisure as such, but the pace of this work does give me time to let things unfold. I don’t have to force an outcome. I don’t have to decide on a discussant by noon on Monday. I have three or four people in mind and I’ll give them a phone call and we’ll chat about it. I don’t have to reach a conclusion overnight. And that’s kind of fun. I don’t have to necessarily sum up how many decisions I made at the end of the day.

Nor is anyone pressing you incessantly for explanations of why some market moved a couple of bips.

Oh God, that I do not miss. I’ve done TV interviews a couple of times in the last few weeks. And I actually had to sit down beforehand and think a little bit about exactly how to do it again. I hadn’t done any live TV in a talking-head framework for a while.

So you had to practice your sound bites.

Right. Especially when you’ve got 90 seconds and you’re lucky enough to be asked to explain the global macro economy since WWII.

No mean feat—

I do it reasonably well, I think. What the talking-head line of work involves is essentially taking your framework of how the world works and putting whatever the most recent data or policy maneuver is into that context. Effectively expressing that as if on a bumper sticker or as a one-liner. I like that better than thinking of them as takeaways, which has a rather pejorative ring to me. Anyway, I can come up with talking-head bumper stickers when I’m required to do so, but I actually find now that I like being able to express myself in slightly more than 90 seconds.

I guess you’re not on Twitter.

I’m not. I’m not on Facebook. I haven’t got a BlackBerry and I still have an old-fashioned cell phone.

And I thought I was a technophobe.

I do have an automatic transmission on my motor vehicle, which is a Volkswagen by the way.

A classic hippie-mobile — but you told me you’re doing more walking than driving.

Yes. I drive maybe 40 miles a week and I probably walk 60 miles a week. Walking is one of my new pleasures in retirement, not as a mode of transportation but as a mode of life. It’s exercise as well as wonderful contemplative time. And I treasure that these days.

It must be great to take walks without worrying about getting back for your next appointment.

It is. There is only one exception to that. I still mind the clock on walks with Mohamed El-Erian [PIMCO’s CEO and co-CIO]. He and I have walked on weekends, very early, usually at 5:30 or 6:30, for an hour or two for 10 years. We do it whenever we are both in the same time zone. Just because of the pace of our lives, we actually do have to think in terms of the time then — somebody’s family is getting up and breakfast needs to be fixed. But those are delightful times with my dear friend Mohamed, even if we do have to be aware of the time on Sunday mornings. Especially when we were both working, the weekends were our only time to do anything with family. But in general, long walks are one of my new passions.

Does your bunny go with you?

Both my bunnies passed away.

The second one, too? Sorry to hear that.

Yes. Morgan LeFay, I had forever; she’s the famous bunny, if you will. Then I had Bun-Bun for two years; she passed way of a heart attack on the 4th of July. I found out the hard way that animals are vulnerable to shock from firecracker noise. I didn’t know that. I haven’t gotten a new rabbit. But Morgan LeFay will be around for a long time. My charitable foundation carries her name, the Morgan LeFay Dreams Foundation, so she gets to write checks and that’s kind of cool.

Do you sign them “Morgan LeFay”?

Actually I sign my name as president of the Morgan LeFay Dreams Foundation. But I’ve got to talk with my banker. I bet I could get checks made with a paw print on the left hand side just for fun. I would still have to sign them. I’ll dare my banker to turn me down on that!

They’ll do anything for a fee.

Touché.

So your enthusiasms now are walking, fishing and your work with GIC?

I am excited and optimistic — have a sense of boyish enthusiasm — about what I’m doing with the GIC. And I’m glad that I can experience boyish enthusiasm about something that matters; I will be even more involved in the next few months. Fishing has been great here in Maine. And it was fantastic in the Caribbean, where I’ve just spent a few months. I am looking forward to fishing again in Southern California because the tuna are coming up from Mexico soon. I can get on my fishing boat and catch yellow tail and dorado. I am really looking forward to deep sea fishing on the Moral Hazard, which is the name of my boat.

No way!

Actually, yes. My boat’s name generates some funny stories from time to time, when I pull into harbors. People tend to think its name is a statement about activities onboard the boat! But it’s simply a one-liner, stemming from my 30 years of working on Wall Street, the Moral Hazard.

Sailors have such dirty minds —

But it’s a strictly moral boat.

Did you take the Moral Hazard down to the Caribbean?

I did not. I like going maybe 40 miles. My boat’s only a 32-foot boat and also at the end of the journey, I have to clean it. In the Caribbean, on somebody else’s, I didn’t have to clean.

That’s what chartering is for.

Absolutely. There is great pleasure in owning a boat and also great pleasure in chartering a boat, and I do both.

I’m with you there. Thanks, Paul, and good luck fishing, for your young co-author, as well as tuna.

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