WEBVTT - Fruitcakes and Nutcases: ETF, ATIC, DJT 0:00:03.120 --> 0:00:12.960 Bloomberg Audio Studios, Podcasts, Radio News. I'm so tired. My 0:00:13.039 --> 0:00:16.360 body battery is twenty one out of one hundred. 0:00:16.840 --> 0:00:18.320 Is this the thing that I should know what it is? 0:00:18.680 --> 0:00:20.439 Well, if you have a garment, you would know what 0:00:20.520 --> 0:00:21.400 yours is, So that. 0:00:21.440 --> 0:00:23.159 Was a yes, I should know what it is. But 0:00:23.239 --> 0:00:23.640 I don't. 0:00:23.720 --> 0:00:25.440 I don't know what's going to happen when I hit 0:00:25.560 --> 0:00:28.960 zero during this podcast, maybe all time. 0:00:30.160 --> 0:00:32.600 Hello and welcome to The Money Stuff Podcast. You're a 0:00:32.640 --> 0:00:36.440 weekly podcast where we talk about stuff related to money. 0:00:37.560 --> 0:00:39.520 I'm Matt Levine and I write The Money Stuff com 0:00:39.560 --> 0:00:40.479 for Bloomberg Opinion. 0:00:40.760 --> 0:00:43.159 And I'm Katie Greifeld, a reporter for Bloomberg News and 0:00:43.200 --> 0:00:46.120 an anchor for Bloomberg Television. Short week this week, can't 0:00:46.120 --> 0:00:50.000 we short week? Short? Tough week? It's not as bad 0:00:50.040 --> 0:00:53.320 when we're all on Fridays. I love those for Davies. 0:00:53.920 --> 0:00:55.800 When you're off on a Monday, it just feels like 0:00:55.840 --> 0:00:58.560 the rest of the week you're just sliding rapidly down 0:00:58.600 --> 0:00:59.440 a mountain. 0:00:59.440 --> 0:01:03.040 And here we have reached the bottom of the nets. 0:01:03.120 --> 0:01:04.120 We're about to crash. 0:01:04.640 --> 0:01:07.039 Yeah, it was what have we scraped. 0:01:06.680 --> 0:01:08.800 Up for Jack Bogel's nightmares? 0:01:08.840 --> 0:01:10.959 Because we have like a synergy where you read about 0:01:10.959 --> 0:01:12.200 a thing and then I wrote about the thing you 0:01:12.240 --> 0:01:12.720 wrote about. 0:01:12.920 --> 0:01:15.360 Yeah. Yeah, I guess the challenge for us is finding 0:01:15.400 --> 0:01:17.720 things to say beyond that. But we're going to tackle 0:01:17.760 --> 0:01:19.520 that in a minute. We're also going to talk about 0:01:19.480 --> 0:01:23.200 taxicabs and New York's all important industry, and then we're 0:01:23.240 --> 0:01:26.039 going to talk about truth, social. 0:01:26.760 --> 0:01:31.520 Social Left for GTF. Jack Bogel's Nightmare. 0:01:31.840 --> 0:01:34.840 Yeah so you know Jack Bogel. 0:01:35.120 --> 0:01:35.960 Yeah, we're buddies. 0:01:36.120 --> 0:01:36.360 Yeah. 0:01:36.400 --> 0:01:37.360 I actually did meet him once. 0:01:37.560 --> 0:01:39.240 Yeah, I wish I had met him. I mean I 0:01:39.280 --> 0:01:42.760 worked closely with Eric Belgunis from Bloomberg Intelligence, who literally 0:01:42.760 --> 0:01:46.560 wrote the book about Bogel and Vanguard, and he sounds 0:01:46.600 --> 0:01:49.360 like he was a real who to interview and talk 0:01:49.400 --> 0:01:52.040 to up until the end. But he founded Vanguard. He's 0:01:52.160 --> 0:01:56.440 the father of the index fund. He hated ETFs, which 0:01:56.440 --> 0:01:59.560 is really funny since they're sort of the offspring of 0:01:59.600 --> 0:02:03.720 index funds. He said that ETFs they only incentivize trading 0:02:03.840 --> 0:02:08.680 among This is a quote fruitcakes, nutcases, and the lunatic fringe. 0:02:09.240 --> 0:02:13.239 And it's funny that in twenty twenty four, some ETFs 0:02:13.240 --> 0:02:16.240 are being designed to do exactly that just incentivized trading 0:02:16.280 --> 0:02:18.079 them on that cohort of traders. 0:02:18.360 --> 0:02:20.640 He's kind of wrong that, like an SB five hundred, 0:02:20.680 --> 0:02:24.160 ETF is a perfectly good buy and hold product that's 0:02:24.160 --> 0:02:27.080 actually slightly better than an index fund because it has 0:02:27.160 --> 0:02:29.200 tax advantages if you are going to buy and hold it. 0:02:29.720 --> 0:02:31.560 But it is also the case that you can put 0:02:31.560 --> 0:02:34.560 lots of things into an ETF wrapper, and some of 0:02:34.600 --> 0:02:37.320 those things are high octane gambling products. 0:02:37.400 --> 0:02:39.919 I feel like I've ETF pilled you over the course 0:02:40.160 --> 0:02:42.160 of this podcast, which is great. It's nice to hear 0:02:42.240 --> 0:02:43.639 like a full throated defense. 0:02:44.080 --> 0:02:45.880 You know. I was for a long time an investor 0:02:45.919 --> 0:02:48.520 in Vanguard index mutual funds. 0:02:48.720 --> 0:02:51.359 And I would imagine then I was like. 0:02:52.000 --> 0:02:54.480 I know enough about the tax advantages of ETFs that 0:02:54.480 --> 0:02:57.720 I'm going to start being an investor in index ETFs. 0:02:57.760 --> 0:02:59.480 I get it, But I don't like day trade them, 0:02:59.520 --> 0:03:02.160 you know. And I mean Jack Bogel he was a 0:03:02.200 --> 0:03:05.280 principaled guy, so he did. He didn't like literally the 0:03:05.360 --> 0:03:08.320 exchange traded portion, like why why do you need that? 0:03:08.880 --> 0:03:12.000 He also famously didn't want any commodity funds or anything 0:03:12.040 --> 0:03:15.120 like that. He was just stock spawns playing fanilla that 0:03:15.200 --> 0:03:18.160 was his whole thing. And now you look at this 0:03:18.240 --> 0:03:22.560 ETF market that we exist in, and the subject of 0:03:22.840 --> 0:03:28.280 my story specifically was these leverage single stock ETFs, leveraged 0:03:28.320 --> 0:03:31.480 and in verse one point two five all the way 0:03:31.560 --> 0:03:34.079 up to three if you include Europe as well. Europe 0:03:34.080 --> 0:03:36.920 has higher leverage than we do. And uh, I've been 0:03:36.960 --> 0:03:40.720 calling them one day only funds because you're not supposed 0:03:40.720 --> 0:03:42.880 to hold them for more than a single day, in 0:03:42.880 --> 0:03:45.160 some cases not more than a couple hours. 0:03:45.720 --> 0:03:49.640 Right, there's a lot there. One thing is that this 0:03:49.800 --> 0:03:53.040 is not a fund, right, You're getting a levered three 0:03:53.080 --> 0:03:55.680 times return on an n video or whatever. Like. It's 0:03:55.720 --> 0:04:01.080 not in any meaningful sense an excentradmoron. It's a retail 0:04:01.160 --> 0:04:04.040 leverage product. Right, It's a way, Yeah, you get three 0:04:04.080 --> 0:04:07.480 times the returns of a stock without borrowing money from 0:04:07.480 --> 0:04:08.040 your broker. 0:04:08.240 --> 0:04:11.520 Yeah, And if you talk to the CEOs of these firms, 0:04:11.560 --> 0:04:14.440 that's exactly what they say. I've interviewed Will Rind of 0:04:14.480 --> 0:04:17.680 Granite Shares for this article, and that's exactly that they're 0:04:17.839 --> 0:04:23.520 offering institutional grade leverage without the expenses of opening a 0:04:23.560 --> 0:04:24.800 traditional margin account. 0:04:24.960 --> 0:04:27.160 Right. I mean, they probably do get better leverage terms 0:04:27.320 --> 0:04:30.679 than every tilvester, but it does come at the cost, 0:04:31.440 --> 0:04:33.360 as as you and I both read about of like 0:04:33.760 --> 0:04:38.119 they rebalance every day. Yes, so if you borrow money 0:04:38.120 --> 0:04:40.720 to buy a stock, you decide when you want to 0:04:40.720 --> 0:04:42.400 close out that position. I mean, unless you get a 0:04:42.440 --> 0:04:45.920 margin call, but like you know, you decide want to 0:04:45.920 --> 0:04:48.760 close that position. And if you take out a fifty 0:04:48.800 --> 0:04:50.800 percent margin Lon and died, you know, twice as much 0:04:50.839 --> 0:04:53.120 stock you have, like two times leverage, you'll get two 0:04:53.160 --> 0:04:55.039 times the return of the stock for whatever period you 0:04:55.040 --> 0:04:59.479 hold it for. With the leveraged ETFs, it doesn't work 0:04:59.520 --> 0:05:02.240 that way. They rebalance every day, so you get two 0:05:02.320 --> 0:05:05.160 times the daily returns or three times the daily returns 0:05:05.360 --> 0:05:09.000 each day. And as you and I both read about, 0:05:09.640 --> 0:05:14.480 that has like sort of arithmetically paradoxical results, where like 0:05:14.560 --> 0:05:18.080 you read about there's a micro strategy. Micro strategies is 0:05:18.120 --> 0:05:22.280 like insanely volatile sort of bitcoin proxy stock, and there's 0:05:22.279 --> 0:05:25.680 a micro strategy three times ETF micro strategy is ut 0:05:25.720 --> 0:05:27.200 like one hundred and ten percent this year, and that 0:05:27.279 --> 0:05:30.400 ETF is down eighty percent, right, yeah, because three times 0:05:30.440 --> 0:05:32.800 one hundred and ten is negative eighty which is not 0:05:33.320 --> 0:05:34.360 normally how things. 0:05:34.120 --> 0:05:37.600 Work and it's so interesting and you know, the math 0:05:37.680 --> 0:05:39.440 is so much better than me. So that's that's the 0:05:39.480 --> 0:05:43.000 micro strategy dynamic, and you're seeing that play out with 0:05:43.279 --> 0:05:46.640 Nvidia and a lot of these single stock funds are 0:05:46.680 --> 0:05:49.160 based on Invidia. That is the most popular stock to 0:05:49.240 --> 0:05:52.839 launch a single stock fund on. Understandably, it's not as bad. 0:05:52.960 --> 0:05:55.279 You're doing negative right, exactly. 0:05:55.240 --> 0:05:57.200 Lower than three times, but it's it's not nicive. 0:05:57.240 --> 0:06:00.640 Yeah, you're doing pretty okay up to this point. We'll see, 0:06:00.720 --> 0:06:03.720 you know what the next few weeks hold for in video, 0:06:03.760 --> 0:06:05.560 but you're doing pretty okay if you're in a leverage 0:06:05.640 --> 0:06:06.640 long and video product. 0:06:06.800 --> 0:06:09.480 Yeah. It's like the math has to do with basically, 0:06:09.520 --> 0:06:12.360 like the comparison between the sort of returns of the 0:06:12.400 --> 0:06:14.800 stock and the volatility of the stock. So Microshata is 0:06:14.839 --> 0:06:17.960 incredibly volatile and is up a lot, but like in 0:06:18.080 --> 0:06:21.800 Vidia is less volatile and is up more, so that 0:06:21.839 --> 0:06:24.720 effect sort of swamps the volatility effect. But basically, like 0:06:24.960 --> 0:06:27.520 the intuition is, you know, if a stock goes up 0:06:27.760 --> 0:06:30.800 ten percent and then down ten percent, you're subtracting the 0:06:30.800 --> 0:06:33.640 losses from a bigger number. So when it goes up 0:06:33.640 --> 0:06:35.560 to ten percent, you have a bigger number, and then 0:06:35.600 --> 0:06:38.039 down ten percent is like ten percent of a bigger 0:06:38.120 --> 0:06:40.279 number than you started with, and vice versa. If it 0:06:40.279 --> 0:06:42.560 goes down ten percent and up ten percent, you're getting 0:06:42.600 --> 0:06:46.039 like ten percent return on a smaller number. When you 0:06:46.120 --> 0:06:49.640 multiply things, that effect gets amplified, and so you're making 0:06:49.680 --> 0:06:53.400 the downswings worse. Yeah, and therefore you can turn the 0:06:53.440 --> 0:06:57.520 long term returns negative even if the unmultiplied returns are positive. 0:06:57.680 --> 0:07:00.920 So not to toot my own horn, sure, but this 0:07:01.240 --> 0:07:04.919 article was much more widely shared than I anticipated it 0:07:04.960 --> 0:07:07.440 to be, partly because you wrote about it in Money Stuff, 0:07:07.480 --> 0:07:10.440 and it feels like the probability of getting your face 0:07:10.480 --> 0:07:12.400 ripped off is what a lot of people focused on. 0:07:12.520 --> 0:07:15.960 But the surprising thing that I found while looking at 0:07:15.960 --> 0:07:20.280 this was actually that these funds are being broadly used 0:07:20.320 --> 0:07:24.400 as intended, which is interesting. There's a really rough Napkin 0:07:24.480 --> 0:07:28.120 math way to take a look at the average daily 0:07:28.160 --> 0:07:31.040 holding period, and again this is very rough, but basically, 0:07:31.120 --> 0:07:33.920 if you divide the average trading volume by the average 0:07:33.960 --> 0:07:36.400 market cap of one of these funds, you should get 0:07:36.440 --> 0:07:38.320 a pretty rough answer there. So if you take a 0:07:38.360 --> 0:07:41.680 look at the largest single stock ETFs, it's also from 0:07:41.680 --> 0:07:45.640 granted shares, it's two times long. On Nvidia, it's almost 0:07:45.720 --> 0:07:49.240 five billion dollars. It takes under three days for the 0:07:49.360 --> 0:07:52.920 entirety of its shares to flip over, which is not bad, 0:07:53.000 --> 0:07:53.200 you know. 0:07:53.400 --> 0:07:55.840 Yeah, they do a good job of warning people. Yeah, 0:07:56.320 --> 0:07:59.520 and probably if you're finding this sort of thing, you 0:07:59.560 --> 0:08:03.600 know what you doing. But that average probably can seal 0:08:03.760 --> 0:08:05.680 some number of people buy it and forget it and 0:08:05.720 --> 0:08:07.400 then end up down eighty percent or whatever. 0:08:07.640 --> 0:08:10.480 Yeah, it's inevitable that someone's having a really painful time 0:08:10.520 --> 0:08:11.760 and maybe doesn't even know. 0:08:11.880 --> 0:08:16.720 Most likely doesn't even right. Yeah, three times Yeah, I 0:08:16.760 --> 0:08:20.760 think that, like they are probably mostly being used for 0:08:21.200 --> 0:08:24.320 speculative day treading by people who know what they're doing. Yeah, 0:08:24.400 --> 0:08:28.520 but that's Jack Buckle's nightmare, right exactly. And also, I mean, 0:08:28.560 --> 0:08:31.280 in addition to my sharing your piece, I don't know 0:08:31.320 --> 0:08:33.559 if you saw you were, Cliff Asma has put out 0:08:33.559 --> 0:08:37.079 this this paper this week. Oh my god, market inefficiency. 0:08:37.320 --> 0:08:40.480 Old man Wining is he is what he called himself. 0:08:40.480 --> 0:08:42.720 He said something like, I'm gonna sound like a grumpy 0:08:42.760 --> 0:08:45.160 old man because he's like sort of known as a 0:08:45.160 --> 0:08:48.319 as a like quantitative value investor and essentially the point 0:08:48.360 --> 0:08:49.520 of the paper is like, it's hard to be a 0:08:49.600 --> 0:08:53.360 quant value investor these days because like value keeps underperforming, 0:08:53.880 --> 0:08:56.200 which he argues is because the markets are inefficient. And 0:08:56.280 --> 0:08:59.800 one reason markets are inefficient is because people are crazy, 0:09:00.280 --> 0:09:04.360 like retail investors are like crazily chasing like speculative eyes. 0:09:04.800 --> 0:09:08.200 And he does cite one day on the ETFs with 0:09:08.320 --> 0:09:11.480 a little parenthetical Grayfield twenty twenty four. I loved that 0:09:11.559 --> 0:09:13.719 footnote saying what fresh hell is this? 0:09:14.280 --> 0:09:18.000 So he tweeted that on Friday, and like three pm 0:09:18.040 --> 0:09:21.200 on a Friday, I am fried. You know, there's nothing left. 0:09:21.240 --> 0:09:25.120 My body battery is negative. I saw that he tweeted that, 0:09:25.240 --> 0:09:27.320 and I was so scared because all he said was 0:09:27.640 --> 0:09:29.920 what fresh hell is this? With no follow up? And 0:09:29.960 --> 0:09:32.560 I was like, is he gonna rip me? Like what's 0:09:32.600 --> 0:09:33.920 going on? But I'm glad that he said it. 0:09:34.200 --> 0:09:36.480 He's mad not at you, yeah, but at the thing 0:09:36.520 --> 0:09:37.280 you read about. 0:09:37.120 --> 0:09:40.320 Hate the game, not the player. One quick fun fact 0:09:40.440 --> 0:09:43.800 on the average holding period, so less than three days 0:09:43.880 --> 0:09:47.120 is really short. Eric Belchunis was telling me that remember 0:09:47.160 --> 0:09:51.160 those vics ETFs that blew up in Valmageddon. Sure, at 0:09:51.160 --> 0:09:54.040 one point one of the biggest ones had an average 0:09:54.040 --> 0:09:57.440 holding period of literally less than one day. The average 0:09:57.440 --> 0:10:00.000 holding period was less than one day, which is amaz 0:10:00.600 --> 0:10:02.040 So people were holding it for like. 0:10:02.040 --> 0:10:04.199 During the blow up or like weeks before the. 0:10:04.160 --> 0:10:08.000 Book going into it when they still existed. Yeah, now 0:10:08.040 --> 0:10:09.640 there arefs. 0:10:09.640 --> 0:10:13.600 Again, that does suggest professional usage, right, yeah, or they're 0:10:13.679 --> 0:10:14.480 crazy day dreading. 0:10:14.480 --> 0:10:14.920 I don't know. 0:10:15.080 --> 0:10:16.800 The one other thing I would have mentioned is yes, 0:10:17.080 --> 0:10:19.960 that the day after I read about this, the trader 0:10:20.200 --> 0:10:23.400 launched a set of products that are like week long yeah, 0:10:23.640 --> 0:10:24.800 month law liberty. 0:10:24.840 --> 0:10:28.000 That was such funny timing. Yes, And funny timing is 0:10:28.080 --> 0:10:32.079 kind of what we're talking about with the dfs, so 0:10:32.280 --> 0:10:37.239 I so they're trying to solve this problem of volatility, 0:10:37.280 --> 0:10:39.360 drag or decay. I know you don't like those terms, 0:10:39.400 --> 0:10:40.960 but that's what they're trying to do with these. I 0:10:40.960 --> 0:10:43.320 actually spoke to the guy behind it. His name is 0:10:43.720 --> 0:10:47.679 Matt Markuwick's and he said that, I know, we were 0:10:47.679 --> 0:10:49.760 just talking about how less than three days is pretty good. 0:10:49.840 --> 0:10:52.719 He was saying, and they have single stock daily ETFs 0:10:53.120 --> 0:10:55.840 that it's clear people are holding these for more than 0:10:55.880 --> 0:10:58.959 one day, which is not using them as intended. So 0:10:59.160 --> 0:11:02.000 he's not happy with that stat So the idea behind 0:11:02.000 --> 0:11:04.920 this with a weekly reset is that you don't have 0:11:05.000 --> 0:11:08.840 to babysit the funds in your position as closely as 0:11:08.840 --> 0:11:11.199 you would have to with a daily reset. But even 0:11:11.280 --> 0:11:14.040 still it does introduce risk, like you have to show 0:11:14.040 --> 0:11:16.920 it at I know, but you have to time when 0:11:16.920 --> 0:11:18.680 you buy it to get the full effect. 0:11:18.960 --> 0:11:21.920 Right. The reason the one day funds work the way 0:11:21.960 --> 0:11:23.920 they do, even though people get mad about it, is 0:11:23.960 --> 0:11:28.600 because they're giving you exactly the same experience every day. 0:11:28.600 --> 0:11:31.320 They're like, you're getting the one three times daily return 0:11:31.800 --> 0:11:34.040 no matter what day you buy it. With a weekly fund, 0:11:34.040 --> 0:11:36.079 if you buy it on a Tuesday, you're getting slightly 0:11:36.120 --> 0:11:38.720 different eybe more or less, you're getting a slightly different 0:11:38.720 --> 0:11:41.680 than the advertised return. But if you then hold it 0:11:41.679 --> 0:11:43.720 for four days, you get something closer to what you expected, 0:11:43.760 --> 0:11:47.319 Whereas if you hold the single day ETF the daily 0:11:47.360 --> 0:11:50.800 rebouance ETF for four days, you get something very different 0:11:50.960 --> 0:11:54.640 than three times the four day return. Yeah, if people 0:11:54.679 --> 0:11:56.800 hold things more than a day, it doesn't necessarily mean 0:11:56.800 --> 0:11:59.080 they're wrong or not using it as intended. It's just 0:11:59.120 --> 0:12:01.840 they are making a series of bets that are like, 0:12:01.880 --> 0:12:04.440 this is going to go up each of these days. Right, 0:12:04.920 --> 0:12:07.199 if it goes up all of the days, then holding 0:12:07.240 --> 0:12:11.240 the daily rebalancing atf is better than holding that's true, 0:12:11.360 --> 0:12:13.440 the weekly. It's just like it has to go up 0:12:13.440 --> 0:12:15.400 every day. Yeah, maybe it will. 0:12:16.360 --> 0:12:19.480 I feel like that's a in some cases generous interpretation 0:12:19.640 --> 0:12:21.880 of holding the daily one for more than one day, 0:12:21.880 --> 0:12:23.719 that you are choosing clearly, in. 0:12:23.640 --> 0:12:26.120 Some cases, gener clearly. In some cases people just buy 0:12:26.160 --> 0:12:28.880 it for a year and forget about it. Probably someone 0:12:29.040 --> 0:12:30.120 is like, at the end of day, yeah, this is 0:12:30.120 --> 0:12:31.520 getting up again tomorrow. I don't know. 0:12:47.559 --> 0:12:53.000 Taxi caves and the American Transit Insurance Company, Boy, are 0:12:53.080 --> 0:12:54.040 they in trouble. 0:12:54.720 --> 0:12:57.040 Yeah. So this is a Bloomberg News article about the 0:12:57.120 --> 0:12:59.840 American Transit Insurance Company, which like apparently insures. 0:12:59.600 --> 0:13:01.640 Most sixty percent uber. 0:13:01.480 --> 0:13:04.560 Drivers, taxi drivers. If you get if you've like get 0:13:04.559 --> 0:13:06.640 in a car in New York, it's probably insured by them. 0:13:06.840 --> 0:13:07.320 Yeah. 0:13:07.360 --> 0:13:09.199 And there's a reason for that, which is that they 0:13:09.200 --> 0:13:09.959 offered cheap. 0:13:09.840 --> 0:13:11.000 Rates, super cheap. 0:13:11.080 --> 0:13:13.079 And there's a reason for that, which is that they 0:13:13.080 --> 0:13:15.440 were under reserving for their risk and now they are 0:13:15.480 --> 0:13:16.360 apparently insolvent. 0:13:16.720 --> 0:13:21.440 So this is amazing because if Bloomberg News has done 0:13:21.480 --> 0:13:24.280 a great job covering this, and I was reading one 0:13:24.280 --> 0:13:27.199 of the pieces out today that Okay, so this company 0:13:27.559 --> 0:13:32.240 was founded in nineteen seventy two, and in nineteen eighty six, 0:13:32.640 --> 0:13:36.520 state regulators were already describing the company as insolvent by 0:13:36.559 --> 0:13:39.600 six million dollars. That is according to a state examination 0:13:39.679 --> 0:13:43.640 report that was obtained by Bloomberg. So they've been insolvent 0:13:43.800 --> 0:13:47.000 for decades. It was six million dollars in nineteen eighty six, 0:13:47.160 --> 0:13:50.360 and I believe in the second quarter it posted more 0:13:50.400 --> 0:13:53.920 than seven hundred million dollars in net losses. That's according 0:13:53.960 --> 0:13:56.920 to a filing with the National Association of Insurance Commissioners. 0:13:57.440 --> 0:14:00.199 It's amazing how long this has been. 0:14:00.080 --> 0:14:03.160 Going on, right, I mean for years people have been 0:14:03.160 --> 0:14:06.360 saying they're charging too little, yeah, and they're underreserving. And 0:14:07.240 --> 0:14:10.120 you know, it's a great illustration of like a lot 0:14:10.160 --> 0:14:14.720 of financial services, it's very easy to win market share 0:14:15.320 --> 0:14:19.680 by being wrong. Yeah. So the classic is like consumer 0:14:19.800 --> 0:14:22.800 like lending. FinTechs will be like, we have this new 0:14:22.800 --> 0:14:26.000 algorithm to like evaluate people's credit. It's better than regular 0:14:26.040 --> 0:14:28.680 credit scores, and we're going to do such a great 0:14:28.720 --> 0:14:30.160 job and make so many loans. And if they make 0:14:30.200 --> 0:14:32.640 so many loans. That just means they're like mispricing on 0:14:32.640 --> 0:14:34.680 the risk and their algorithm is wrong, and then they 0:14:34.840 --> 0:14:36.920 you know, and like the way it works is that 0:14:36.960 --> 0:14:40.200 if you do that, then you get a lot of 0:14:40.240 --> 0:14:43.640 business and book a lot of profits early on, and 0:14:43.680 --> 0:14:45.960 then later you go insolve it window. It's like don't 0:14:46.000 --> 0:14:48.720 get paid back. It is weirder here just because this 0:14:48.840 --> 0:14:52.200 is a decades long process process where like they keep 0:14:52.560 --> 0:14:53.720 apparently under charging. 0:14:53.840 --> 0:14:57.120 Yeah, this is pretty bad. This is according to Bloomberg News, 0:14:57.160 --> 0:15:01.280 reporting again that New York's insurance regulator issued a report 0:15:01.360 --> 0:15:04.840 on Thursday that shows that state regulators under both Governor 0:15:04.880 --> 0:15:08.000 Kathy Hochel and Andrew Cuomo have been aware for at 0:15:08.080 --> 0:15:11.400 least half a decade about just how bad things were. 0:15:12.160 --> 0:15:14.880 So this has just been festering in plain sight. 0:15:15.080 --> 0:15:20.200 For a while, right, But it's like the fix is rates. 0:15:20.320 --> 0:15:22.320 Yeah, and you know, it's hard. 0:15:22.080 --> 0:15:24.880 To politically unpopular to be like we're going to double 0:15:24.920 --> 0:15:26.880 the price of insurance for ubers, which means we're going 0:15:26.920 --> 0:15:30.320 to push out the price of and ubers And I 0:15:30.320 --> 0:15:32.960 don't know, yeah, we sort of hope that like this 0:15:32.960 --> 0:15:35.240 this is the thing, like this model of like under 0:15:35.320 --> 0:15:37.240 charging for insurance through in market share and then like 0:15:37.640 --> 0:15:39.720 getting out of town when the when the when the 0:15:39.760 --> 0:15:42.600 claims come to goodbye. It's like so obvious, right, there's 0:15:42.680 --> 0:15:45.440 lots and lots of insurance companies in history that have 0:15:45.640 --> 0:15:47.720 kind of done this, and the point of insurance regulation 0:15:47.840 --> 0:15:52.480 is just to prevent that. Right. But in a important 0:15:52.760 --> 0:15:56.040 salient industry like New York City taxi cabs, it can 0:15:56.080 --> 0:15:57.720 be hard for the regulators to say, we have to 0:15:57.760 --> 0:16:01.000 double rates because the insurances be underpriced, and so you 0:16:01.040 --> 0:16:04.280 get this weird dynamic where where it's like the short 0:16:04.320 --> 0:16:07.200 term benefit of everyone and to under charge and then 0:16:07.240 --> 0:16:09.560 it's like, you know, you kick the can down the 0:16:09.600 --> 0:16:11.800 road and yeah, there's not enough money to pay claims. Yeah. 0:16:11.800 --> 0:16:17.400 According to Bloomberg Reporting, drivers insured by the American Transit 0:16:17.400 --> 0:16:21.320 Insurance Company typically pay annual premiums of four thousand dollars 0:16:21.400 --> 0:16:26.040 to six thousand dollars, depending on experience, accident claims, different calculations. 0:16:26.320 --> 0:16:29.480 So I mean jacking that up to eight thousand dollars 0:16:29.480 --> 0:16:31.680 a lot, I mean I assume a lot of drivers 0:16:31.720 --> 0:16:33.720 just wouldn't be able to do that. 0:16:34.440 --> 0:16:36.560 I just think about that's a lot higher than my 0:16:36.760 --> 0:16:41.400 current insurance yeah, but I'm not driving yeah the day. 0:16:41.720 --> 0:16:47.200 So what happens now? According to Bloomberg Reporting, I wonder 0:16:47.240 --> 0:16:49.120 how many times I'm going to say that the New 0:16:49.200 --> 0:16:55.240 York regulator has ordered this company to weigh a sale. 0:16:55.440 --> 0:16:57.880 I don't know what happens here. It seems that a 0:16:57.880 --> 0:16:59.520 lot of people are saying a lot of analysts are 0:16:59.520 --> 0:17:04.080 saying that if they can't keep insuring drivers, it's going 0:17:04.119 --> 0:17:07.080 to be massively painful for people moving around New York 0:17:07.160 --> 0:17:08.080 drivers included. 0:17:08.320 --> 0:17:10.760 But because like some drivers will be forced out of 0:17:10.760 --> 0:17:12.600 the market because they won't be able to get insurance. Yeah, 0:17:12.640 --> 0:17:15.440 and then like prices of ubers will go up, Yeah, 0:17:15.760 --> 0:17:19.280 because they've been underpressed for years, that'll go offer. 0:17:20.000 --> 0:17:23.480 It's horrible, and maybe it's gonna happen. You did compare 0:17:23.520 --> 0:17:26.480 this to that working paper that you reference in money 0:17:26.480 --> 0:17:30.040 stuff about when insurres exit. It was a case study 0:17:30.040 --> 0:17:32.600 looking at Florida red. 0:17:33.040 --> 0:17:35.720 It's so good because it's like half of it is. 0:17:35.760 --> 0:17:38.840 This is just this classic insurance story, which which is, 0:17:38.920 --> 0:17:43.040 you know a lot of houses in Florida are risky, right, 0:17:43.040 --> 0:17:44.800 They're like near the beach and there's hur Again. 0:17:44.840 --> 0:17:49.280 I'm well acquainted with Florida real estate. Sure, yeah, I 0:17:49.520 --> 0:17:50.720 leave that one hanging out there. 0:17:51.800 --> 0:17:55.600 And so you know a lot of insurance companies don't 0:17:55.640 --> 0:17:57.760 want to ensure them or would charge very high rates. 0:17:58.040 --> 0:18:01.120 And so there's this like class of wish insurance companies 0:18:01.119 --> 0:18:05.040 in Florida that will ensure you know, houses in risky. 0:18:04.800 --> 0:18:07.399 Areas, vibrant startup ecosystem. 0:18:07.040 --> 0:18:10.560 And they'll do it at like reasonable seeming rates which 0:18:10.560 --> 0:18:15.320 are probably underpriced. And this paper argues that these insurers 0:18:15.320 --> 0:18:18.879 are under capitalized and risky insurance have to be raided 0:18:19.040 --> 0:18:22.200 by ratings agencies. These insurers tend to be rated by 0:18:22.280 --> 0:18:24.639 like new startup ratings agencies. 0:18:24.359 --> 0:18:26.040 Another rant ecosystems. 0:18:26.040 --> 0:18:29.440 It's like slightly different criteria from the regular more traditional 0:18:29.520 --> 0:18:32.040 ratings agencies. And so you have these insurers that are like, 0:18:32.040 --> 0:18:34.600 according to the others of this paper, under capitalized, that 0:18:34.760 --> 0:18:37.679 get good enough ratings to be like sort of in 0:18:37.720 --> 0:18:41.359 good standing with regulators. But so that's like kind of normal. 0:18:41.359 --> 0:18:43.320 And then like you know, some of these insurers go bankrupt. 0:18:43.400 --> 0:18:45.960 When then when a lot of clampshead and it's like wow, 0:18:46.000 --> 0:18:49.080 you know, they're not really providing insurance. The fascinating thing 0:18:49.160 --> 0:18:52.919 is like it's homeowners insurance right. So like New York 0:18:52.960 --> 0:18:55.640 City taxis it's like this politically scient industry. It would 0:18:55.640 --> 0:18:57.800 like be bad for the government if you couldn't ensure 0:18:57.800 --> 0:19:00.480 your home, and so the regulators have an incentive to 0:19:00.520 --> 0:19:05.199 be okay with these companies. But there's another party, which is, 0:19:05.560 --> 0:19:08.080 you know, these homes tend to have mortgages, and the 0:19:08.080 --> 0:19:11.600 mortgage lender doesn't want them to be uninsured or you know, 0:19:12.000 --> 0:19:16.400 have insolvent insurers. And what the authors find is that 0:19:16.480 --> 0:19:21.439 when these insurers ensure the homes, the mortgage lenders are 0:19:21.480 --> 0:19:24.359 more likely to sell their mortgages to Fanny May and 0:19:24.359 --> 0:19:29.040 Freddie Mack, the government backed mortgage you know kind of 0:19:29.280 --> 0:19:33.439 guarantee firms. And the way it works is just like 0:19:34.119 --> 0:19:37.920 there's a market signal that these insurance companies aren't that good, 0:19:38.160 --> 0:19:39.920 and the market signals the banks don't want to hold 0:19:39.920 --> 0:19:42.320 mortgages that are insured by them or where the houses 0:19:42.320 --> 0:19:45.040 are insured by them, But the banks will sell the 0:19:45.119 --> 0:19:48.000 mortgages to Fanny and Freddy, which like are kind of 0:19:48.040 --> 0:19:50.840 like unthinking, like they don't like send a market signal, 0:19:50.840 --> 0:19:53.120 they just like look at the rating and like there's 0:19:53.119 --> 0:19:56.320 a rating from like this arguably you know, bad rating. 0:19:56.359 --> 0:19:59.640 Agency and they say you meet the ratings criteria, said, 0:19:59.640 --> 0:20:01.760 we'll buy the mortgages, and so all of the like 0:20:02.560 --> 0:20:05.159