Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Hello. Hi, welcome to
Speaker 1: The Money Stuff Podcast, your weekly podcast where we talk
Speaker 1: about stuff related to money. I'm Matt Levian and I
Speaker 1: write The Money dot Com for Bloomberg Opinion.
Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and
Speaker 2: an anchor for Bloomberg Television.
Speaker 1: I like Apostle merger fight, but like, yeah, I don't
Speaker 1: like a media deal because everyone pays attention to the
Speaker 1: media deals, and the Warner Brothers merger fight has been
Speaker 1: wall to wall coverage everywhere, including the Money Stuff newsletter,
Speaker 1: and it's like, I don't know, I can't keep up
Speaker 1: with it.
Speaker 2: Yeah, it was going to say, when we were talking
Speaker 2: about topics and I suggested Warner Brothers, it seems like
Speaker 2: you were not psyched, and it's like, I don't know
Speaker 2: your column that you write would suggest differently. I agree
Speaker 2: with you, though I don't really get jazz talking about media,
Speaker 2: and obviously we're covering it on Bloomberg Television as well.
Speaker 2: This one. The fact that it's become this bidding war
Speaker 2: does make it kind of fun and interesting.
Speaker 1: Oh yeah, right, Like I merge your bidding war is
Speaker 1: interesting although it's like a strange bidding war. Yeah, recruiting
Speaker 1: is on like Thursday afternoon, who knows. But basically the
Speaker 1: deal is that on Friday, Warner announced they signed a
Speaker 1: merger agreement with Netflix fair price, let's call it like
Speaker 1: twenty nine or thirty dollars in a mix of cash
Speaker 1: and two different flavors of stock, mostly cash, but a
Speaker 1: fair amount of the value comes from two flavors of stock.
Speaker 1: And then on Monday, Paramot Skydance jumped in with a
Speaker 1: thirty dollars cash tender offer. And one thing that's worried
Speaker 1: about the bidding war is that, like those bids are
Speaker 1: pretty close, and a Warner's board did determine that the
Speaker 1: Netflix bid was higher because they valued some of the
Speaker 1: stock higher. So I think that the bid is our
Speaker 1: thirty one on our thirty two dollars to share. But
Speaker 1: also like they did an auction, they head advisors, they
Speaker 1: took bids, Netflix bid whatever the number, and Paramount bid
Speaker 1: thirty dollars in cash, and Warner looked at that and
Speaker 1: we're like, we're gonna take the Netflix bid because we
Speaker 1: think it's higher. And Paramount went to shareolders with the
Speaker 1: same bid that got rejected. It's like kind of an
Speaker 1: unusual move, Like you normally you raise your bid to
Speaker 1: like to be like, look at how great this bid is.
Speaker 1: And here they're like going with the same bid and
Speaker 1: arguing the value of the stub stock on the Netflix pid. It's,
Speaker 1: I guess, strange way to connect a bidding. More. They've
Speaker 1: also gone on TV. I mean like this is not
Speaker 1: our best and final offer, which is a crazy way
Speaker 1: to connect a shipping more Like, ordinarily you don't negotiate
Speaker 1: against yourself, and if you do negotiate against yourself, you
Speaker 1: do it. You know, You're like like I haven't got
Speaker 1: to raise the bid, but instead they're like, we're not
Speaker 1: going to raise the bid, but this is not our
Speaker 1: best and final offer. Like how could you tender to that?
Speaker 1: How could you be like, okay, you can have it
Speaker 1: for not your best and final offer.
Speaker 2: Well you too that. It's also an interesting strategy since
Speaker 2: they need this to be a friendly situation with Warner
Speaker 2: Brothers as well.
Speaker 1: And they don't like strictly need it, but like they
Speaker 1: kind of need it, like they've conditioned their offer on
Speaker 1: it becoming a friendly Yeah, it's not that weird, Like
Speaker 1: people don't usually do hostile deals all the way through
Speaker 1: in twenty twenty five, you know, like you do a
Speaker 1: hostile deal, the pressure of the board into coming to
Speaker 1: the table with a friendly deal like this is you know,
Speaker 1: this is kind of how Twitter worked out, right, It's
Speaker 1: like a normal playbook. Yeah, but they're not doing a
Speaker 1: pure hostile deal. They're not tendering to share elders and saying,
Speaker 1: you know, give us your shares and we're clothing and
Speaker 1: never mind what the board says. They need the board
Speaker 1: on side, and so it is a negotiation where they
Speaker 1: are like waging a public pressure campaign on the Warner board,
Speaker 1: but they're not just like doing a pure hostile offer.
Speaker 2: So what happens here? I mean, does Netflix now raise
Speaker 2: their bid?
Speaker 1: I don't know who has to move first. Yeah, right now,
Speaker 1: Warner has said they're sticking with the Netflix deal. Paramount
Speaker 1: can close it thunder and it's all just sort of
Speaker 1: like a limbo and you could imagine Netflix just waiting
Speaker 1: it out. But I think given that Paramount has said
Speaker 1: things like this is not our best and planal offer,
Speaker 1: probably the next move is for Paramount to raise. But
Speaker 1: I don't know. I think they're sort of seeing what
Speaker 1: the shaholders said, if all of the shareholders are tendering
Speaker 1: into their offer and like calling up warners bored and
Speaker 1: saying the Paramount deal is so much better, then maybe
Speaker 1: Paramount can get away with it. But it's just hard
Speaker 1: to imagine them paying thirty dollars a share when they
Speaker 1: said they'd pay more. Yeah, so I think they have
Speaker 1: to raise. But then Netflix has there ra is you know,
Speaker 1: it's like and forth.
Speaker 2: There's also the detail that Paramount is for the entirety
Speaker 2: of Warner Brothers Discovery, including the cable networks, whereas the
Speaker 2: Netflix offer is not. It excludes the cable networks including CNN,
Speaker 2: So I mean it also depends on how you value
Speaker 2: the cable networks.
Speaker 1: Yeah, this is why the Netflix deal is of uncertain
Speaker 1: value because like in that deal, the cable networks stay
Speaker 1: with Warner shareolders, which Yeah says is worth about a
Speaker 1: dollar per share, and you know the board thinks it's
Speaker 1: worth three four.
Speaker 2: Yeah, it seems like consensus would say that one dollar
Speaker 2: shares low on the lower end.
Speaker 1: Yeah, Like I think if you add it up, the
Speaker 1: Netflix bit is worth right around thirty dollars, is like
Speaker 1: kind of market consensus and then like the board is
Speaker 1: a little high and Paramoun's a little low, but like
Speaker 1: it's not like vastly more, right, It's like around thirty.
Speaker 2: There's also the Ellison of it all because Paramount is
Speaker 2: a pretty small company.
Speaker 1: It's like it's an LBO. Right, It's like it's like
Speaker 1: there happens to be a Paramount attached to it. But
Speaker 1: like basically it's like we're going to borrow a lot
Speaker 1: of money against the Warner assets. Paramount does not on
Speaker 1: its own have the capacity to raise like, you know,
Speaker 1: fifty billion dollars of debt, right, Yeah, it would raise
Speaker 1: fifty billion dollars a debt against Warner, and then it
Speaker 1: would have a big equity check from you know, they
Speaker 1: have like commitments lined up from Jared Kushner and like
Speaker 1: some Middle Eastern investors. But it seems that owner's board
Speaker 1: expressed uncertainty about the quality of those commitments, and so
Speaker 1: they also have a backstop from Larry Ellison's personal trust
Speaker 1: or like he'll pay the equity check with his PA
Speaker 1: if he has to.
Speaker 2: Yeah, there's been a lot of good succession flavored memes
Speaker 2: on social media about this situation.
Speaker 1: It is very weird to have your dad by several
Speaker 1: companies for you, whatever it's it.
Speaker 2: Is, I think it's cool.
Speaker 1: An expression like, of course my dad would.
Speaker 2: Buy that was an editorial comment by.
Speaker 1: Matt You didn't see the expression. Yeah it's weird. Yeah,
Speaker 1: it's weird to be the CEO of a public copany
Speaker 1: and feel like my company is going to buy this
Speaker 1: prized asset with my dad's tech book. I don't know.
Speaker 2: There's also I mean, so Larry Elson's check book is
Speaker 2: a factor here, but also Larry Ellison's relationship with the
Speaker 2: White House.
Speaker 1: I don't know. I try to write about this too much,
Speaker 1: but it is like the very depressing backdrop to this
Speaker 1: is that like Donald Trump does not like CNM, he
Speaker 1: would like his friends to buy CNN and change it
Speaker 1: to be friendlier to him. And the way merger regulation
Speaker 1: in the United States in twenty twenty five works is
Speaker 1: that to get a merger done, you have to commit
Speaker 1: to making television news friendlier to Donald Trump.
Speaker 2: Yeah, it's really bad.
Speaker 1: Yeah, it's not like, that's not how it used to be.
Speaker 2: I'm trying to find exactly what Trump said on Wednesday
Speaker 2: as it relates to CNN.
Speaker 1: I mean, Trump is he doesn't like CNN.
Speaker 2: Yeah, well he said, like when it comes to a
Speaker 2: potential deal here, I believe he said that CNN needs
Speaker 2: to be included.
Speaker 1: I don't think he really like has been paying attention
Speaker 1: to the mechanics of this merger.
Speaker 2: Yeah, you don't think he's like following along reading money
Speaker 2: stuff and like watching me on Bleep.
Speaker 1: He's watching you on gleen Berger. He's reading money's too.
Speaker 1: I mean he wants changes at CNN, right, and so
Speaker 1: if the Paramount deal, then Paramount will own CNN and
Speaker 1: we'll make it, you know, twenty four hour praise Donald
Speaker 1: Trump network, because like that's a small price to pay
Speaker 1: to get the deal done, right. I mean they're valuing
Speaker 1: They're valuing not CNN. They're valuing the entire cable package,
Speaker 1: including CNN, at like one dollar per share. It's like, yeah, yeah,
Speaker 1: turn CNN into the propaganda channel. Who cares, it's not
Speaker 1: a major part of the business investment. If the Netflix
Speaker 1: still gets done, then CNN will be part of Discovery Global,
Speaker 1: which will be a much smaller, more leveried public company
Speaker 1: run by you know, existing Warner Discovery Management. But is
Speaker 1: that going to be an acquisition target? Jared Kushner by
Speaker 1: that it's not obvious that CNN remains independent and with
Speaker 1: the same editorial posture that it has now even in
Speaker 1: the Netflix deal. Yeah, it just doesn't go to Netflix.
Speaker 1: And by the way, like you know, a lot of
Speaker 1: the reporting on this is that, like Larry Ellison is
Speaker 1: friendlier with Trump, and therefore we'll win, right, And by
Speaker 1: will win, I mean like Trump will tell the Justice
Speaker 1: Department you have to find an anti trust pretext to
Speaker 1: prevent the Netflix deal from closing, and therefore the only
Speaker 1: way to get the deal done is to sell the
Speaker 1: paramam because the Netflix deal can't close. But there's also
Speaker 1: been reporting that Netflix's management have done a good job
Speaker 1: of closing after Trump, Like, is one possible outcome here
Speaker 1: that like Netflix says, fine, fine, we'll buy a CNN
Speaker 1: two and make it into the Trump propaganda channel. Maybe
Speaker 1: change the deal. I should say, Also, like I said,
Speaker 1: it feels like, because like this is so much about
Speaker 1: Trump's feelings about CNN that he could tell the Justice
Speaker 1: Department to find a pretext, to find an antro trust
Speaker 1: reason to start the deal. Separately, everyone thinks they're like
Speaker 1: real assyss problems, Like yeah, it's not like you don't
Speaker 1: need a pretext, like it's a real concern when like
Speaker 1: the biggest streamer buys HPOE And it's also a real
Speaker 1: you know, people in the media industry have real concerns,
Speaker 1: you know, about both, but especially about the idea of
Speaker 1: Netflix taking over like all these iconic films.
Speaker 2: Yeah. No, it's fascinating, I mean relative to most media
Speaker 2: news because we've been discussing the media angle on Bloomberg
Speaker 2: TV heading up into the Netflix deal getting announced. And
Speaker 2: for Netflix, i mean, Netflix is so dominant in streaming,
Speaker 2: you know, talking to analysts about this, they were like,
Speaker 2: this is really a nice to have for Netflix, you know,
Speaker 2: versus paramount. This is more of a need to have.
Speaker 2: So it's an interesting move by Netflix to even pursue this.
Speaker 2: But you think about the anti trust concerns. It's also
Speaker 2: built into the deal that they announced, like they accounted
Speaker 2: for a lot of time to work through all the.
Speaker 1: Different time right, I'm sure you.
Speaker 2: Know whether or not at all. And then well that's
Speaker 2: part of the record breakup fee, rights fee.
Speaker 1: It's like two miks of share you want a deal,
Speaker 1: they get done.
Speaker 2: Yeah, it's a nice consolation prize though, Okay.
Speaker 1: No, Warner Schralder is going to be like, let's take
Speaker 1: the Netflix deal because at least we'll get two bucks
Speaker 1: to share in eighteen months when the deal falls apart.
Speaker 1: Like they want certainty, right, like Netflix, part of their
Speaker 1: job here is to get on sherolders that their deal
Speaker 1: will close and like that's not. Yeah, it's like some
Speaker 1: amount of like you know, economic analysis and some amount
Speaker 1: of like photo ops with Trump.
Speaker 2: Yeah, I do wonder, like just to bring it back
Speaker 2: to the employees, like in a situation where your company
Speaker 2: is in this deal limbo for eighteen months, I have
Speaker 2: to imagine that the company is kind of in suspended animation.
Speaker 2: Like things will get done obviously, but that's a lot
Speaker 2: of uncertainty to hang over there.
Speaker 1: I don't know about suspended animation, but yeah, it's.
Speaker 2: Depressing, slightly dramatic.
Speaker 1: I think if you work in media, you're work in media.
Speaker 1: Like the time between now and eighteen months from now
Speaker 1: is it's a perilous time, whether or not you're at
Speaker 1: Warner Brothers.
Speaker 2: The only sure thing is podcasts. It's true, shall we
Speaker 2: talk about SpaceX?
Speaker 1: Yeah, another eighteen month. Remember it's not eighteen months. It's
Speaker 1: like they wouldn't an ip it's.
Speaker 2: Twenty If it's in twenty twenty six, it will be
Speaker 2: six months fewer than eighteen months. I just remember, you know,
Speaker 2: we spent so much time talking about how private markets
Speaker 2: are the new public markets. But now all these mega
Speaker 2: companies that were the poster child of staying private forever
Speaker 2: potentially coming public.
Speaker 1: Yeah. First of all, it hasn't happened.
Speaker 2: Right, Yeah, it hasn't happened.
Speaker 1: But it's an I don't like, the private markets are
Speaker 1: the new public markets like thesis. I mean, look, I
Speaker 1: have said in my column on this podcast, Yeah you
Speaker 1: can stay private forever, right, and like why not? Why not?
Speaker 1: But if it is the case that SpaceX, Open Air, Anthropic,
Speaker 1: other names go public in twenty twenty six, then that
Speaker 1: might suggest that you count they private forever. But it
Speaker 1: will be like really different from previous I p honly
Speaker 1: ye going public at a one point five trillion dollar valuation,
Speaker 1: which is like the number that SpaceX is banding around.
Speaker 2: Depending on what second you're checking, it's bigger than Tesla.
Speaker 1: Yeah, but like that's not how was used to work
Speaker 1: back when public markets were the public markets. Go public,
Speaker 1: when you were like you know, there was there was
Speaker 1: growth still to come, but like going public at a
Speaker 1: one point tried trillion dollar valuation is like, okay, it's
Speaker 1: wild in two ways. One is that ordinarily you go
Speaker 1: from zero in a garage to one hundred million or
Speaker 1: a billion or a ten billion dollar valuation, and then
Speaker 1: you go a public and then the next leg up
Speaker 1: to like becoming a trillion dollar company, public investors capture, right,
Speaker 1: So public investors can invest not early, but like you know,
Speaker 1: in like the growth trajectory of a company that will
Speaker 1: eventually become large, right, Like that's part of the promise
Speaker 1: of an IPI was like, this is a fairly immature
Speaker 1: company and you can get in not on the ground floor,
Speaker 1: but on like the third floor. You can public get
Speaker 1: a one point five trillion dollar valuation, so much of
Speaker 1: the upside has been captured already, I mean by private
Speaker 1: market investors.
Speaker 2: Maybe you're just thinking small you know, no, I know,
Speaker 2: I hear.
Speaker 1: You, right, Like then this is like every elon musk
Speaker 1: com package, right, Like, well, it's really one hundred trillion
Speaker 1: dollar company, so like going probably at one point.
Speaker 2: Five tracking the final frontier.
Speaker 1: But the other thing, and this is related in the
Speaker 1: SpaceX case, is like if SpaceX goes public next year
Speaker 1: at a one point five trillion dollar valuation. In one sense,
Speaker 1: the private markets have captured most of the upside. In
Speaker 1: another sense, it is not a mature company. Blomberg reported
Speaker 1: that they're expecting twenty two to twenty four billion dollars
Speaker 1: in revenue in twenty twenty six, which is a lot
Speaker 1: of money. It's a big company to go public or whatever.
Speaker 1: But like they can public it at what seventy times revenue? Yeah,
Speaker 1: like that's really big. That is what has happened here
Speaker 1: is not they've grown into an enormous company and then
Speaker 1: gone public at their enormous valuation. What happens is they've
Speaker 1: not grown into an enormous company and they've they're going
Speaker 1: public at a huge valuation that reflects the next ten
Speaker 1: years of growth, which is a crazy thing to do.
Speaker 2: Yeah, well, let's talk about why they potentially need to
Speaker 2: do it, Like why now do they need to do it?
Speaker 2: I mean, you think about some of the things that
Speaker 2: they're going to.
Speaker 1: Build data centers in space, So they need thirty billion
Speaker 1: dollars to build.
Speaker 2: Data centers on the moon, not actually on the moon, just.
Speaker 1: Sustainable data centers.
Speaker 2: Yeah, that's great. It's such a sign of the times.
Speaker 1: Like one theme of the financial markets this year is
Speaker 1: that everyone is building data centers and they have tapped
Speaker 1: every possible source of financing for data centers, and at
Speaker 1: some point, selling thirty billion dollars of SpaceX stock is
Speaker 1: one way away to fill the whole of need for
Speaker 1: building data centers. And so like space I can raise
Speaker 1: a lot of money staying private. And by the way,
Speaker 1: it's like cash flow positive and doesn't need to raise
Speaker 1: a lot of money to shoot rockets into space. But
Speaker 1: the capital expenses are required to build data centers on
Speaker 1: every inch of the Earth, and also in space is
Speaker 1: so enormous that even space like has to go public. Yeah,
Speaker 1: and even open eyes.
Speaker 2: But maybe, well that's the thing, like I feel like,
Speaker 2: you know, when we really do think big and you
Speaker 2: don't really put our thinking caps on in terms of
Speaker 2: how ridiculous things could get, there is a limit to
Speaker 2: how long you can stay private.
Speaker 1: Yeah, right, right, Like one possibility is that, like I've
Speaker 1: been writing about you know, private markets or the new
Speaker 1: public markets for you know, a decade or whatever. And
Speaker 1: that was in the context of the biggest, hottest like
Speaker 1: most sort of household name tech companies were kind of
Speaker 1: at bottom, like capital light consumer tech right, Like, it's
Speaker 1: a lot of Like you wouldn't have said Face had
Speaker 1: a lot of CAPAX needs because it was a website.
Speaker 1: Right now, Facebook has a lot of CAPEX, but like
Speaker 1: for a long time it didn't. You know, Uber is like, yeah,
Speaker 1: we're going to match drivers and writers. We don't have
Speaker 1: to have anything, you know. Yeah, it was a real
Speaker 1: like capital light model. And now in that context it
Speaker 1: was fairly you know, you have capital light and very scalable.
Speaker 1: It's very easy to stay private. You need to spend
Speaker 1: a trillion dollars a year putting data centers on the moon.
Speaker 1: You have to, like, the private markets are really big,
Speaker 1: but they're not big enough for that.
Speaker 2: And even before we get there, like before we get
Speaker 2: to the moon, SpaceX has a lot of rockets to build.
Speaker 2: That's right.
Speaker 1: They're not capital light, and yet they've but they've managed
Speaker 1: the private markets to be large and build a lot
Speaker 1: of rockets. You know.
Speaker 2: The point that has been made is the fact that
Speaker 2: you know, they have been able to raise large amounts
Speaker 2: of money in the private markets. We cover rocket launches
Speaker 2: on Bloomberg TV all the time. A lot of the
Speaker 2: rockets blow up, a lot of the tests fail. If
Speaker 2: SpaceX is a public company, it's going to be really
Speaker 2: interesting to have, you know, a split screen of the
Speaker 2: rocket of a test launch potentially failing and also the stock.
Speaker 1: That's so true, right, Like you know, I write all
Speaker 1: the time that every bad thing that happens to a
Speaker 1: public company of security is for it. But like every
Speaker 1: time a rocket blows up and they it, it's really
Speaker 1: awesome to think about.
Speaker 2: We didn't talk about the wrinkle of Elon Musk potentially
Speaker 2: being the CEO of two public companies too.
Speaker 1: Yeah, but you can do that. I mean whatever the
Speaker 1: er companies, they're big, now, I know. I'm just like,
Speaker 1: I'm I'm I'm curious, like what the dynamic is of
Speaker 1: pricing at one point five trillion dollar IPO because on
Speaker 1: the one hand, it's like so big, right, and it's like,
Speaker 1: you know, like the talk is like they'd raise thirty
Speaker 1: billion dollars. That's the trades, like thirty billion dollars or
Speaker 1: stock good day, right, Like at some level, like you
Speaker 1: just suspend disbelief and you're like, this is not an IPR.
Speaker 1: This is just like an Elon Msk public company that
Speaker 1: happened to not be public and now it's public and
Speaker 1: then like you know, they work it out in a
Speaker 1: couple of days, Like it's not I don't know. There's
Speaker 1: something like when you get to this level of bigness
Speaker 1: and constantly doing tender offers and price transparency, it's like
Speaker 1: no one needs a deck to be introduced to SpaceX.
Speaker 2: Like yeah, it's just like yeah, yeah, the roadshow.
Speaker 1: Owns it in like weird vehicles anyway, it's like it's SpaceX, man.
Speaker 2: Yeah, I hope it does go public because yeah, it's cool.
Speaker 2: That would be fun.
Speaker 1: There was a thing where he tried to take Tesla private,
Speaker 1: right and like he complains about the public markets and
Speaker 1: it'll be interesting to the Yeah, it'll be interesting to
Speaker 1: see what like a public SpaceX looks like. It'd be
Speaker 1: interesting when he gets sued for the fourth time at a.
Speaker 2: Rocket plank, I mean, to be fair, it happens.
Speaker 1: Yeah, I'm not saying that it's actually a securities route
Speaker 1: to blow up a rocket, or that he should be
Speaker 1: sued for blowing up a rocket, and like the investors
Speaker 1: in the current private SpaceX understand that that's part of
Speaker 1: the deal and they don't sue him when he blows
Speaker 1: up a rocket. All that's wrong. Should talking about private
Speaker 1: credits and new public credit. Yeah, there's this fascinating Wall
Speaker 1: Street Journal story this week about how it is harder
Speaker 1: to know how consumers are doing because the way you
Speaker 1: traditionally look at how consumers are doing is bank data,
Speaker 1: credit card data, like bank reports. Banks say things like
Speaker 1: people are charging a lot of money on their credit cards,
Speaker 1: or like we have a lot of delinquencies on our
Speaker 1: credit cards, and you get a sense of like what
Speaker 1: consumer credit looks like and consumer spending, and what is
Speaker 1: happening is that some consumer spending it's like marginal bit's
Speaker 1: real has moved away from credit cards and into other stuff.
Speaker 1: Alternative consumer lending, which I think I shorthand is like
Speaker 1: buy now, pay later, So it's like a firm and
Speaker 1: things like this where it's like you charge something, but
Speaker 1: instead of charging it to a credit card, you charge
Speaker 1: it to a buy now pay letter lender. And the
Speaker 1: money for that doesn't usually come from banks. It comes
Speaker 1: from other people, and there are a variety of lenders,
Speaker 1: but like a lot of it is what you'd call
Speaker 1: private credit. It's like insurance companies and private credit firms
Speaker 1: that are providing their balance sheet to like FinTechs that
Speaker 1: are the front end for these loans, that like make
Speaker 1: the buyout pay letter credit decisions right. And so the
Speaker 1: thing that you're seeing is that instead of banks with
Speaker 1: credit cards providing credit for consumer spending, you have private
Speaker 1: credit providing credit for consumer spending, which is kind of
Speaker 1: a weird development. And also like a thing that I've
Speaker 1: been writing about for a long time now is that
Speaker 1: banking is getting narrow. Private credit is taking over from
Speaker 1: the banks. But like a lot of that has been
Speaker 1: in LBO lending, business lending, data center lending, and now
Speaker 1: it's also in consumer lending. It's sort of an interesting shift.
Speaker 2: Yeah. Absolutely, And you point out, as the Wall Street
Speaker 2: Journal did, this makes data worse, you know, in terms
Speaker 2: of tracking.
Speaker 1: But I don't care that much about that.
Speaker 2: I care a little bit, I guess.
Speaker 1: Yeah. It's like I read about stuff, but I don't
Speaker 1: ever write about like, oh, consumer credit as well. I
Speaker 1: don't care about this data. Other people care about this
Speaker 1: data Like that's bad. But like, I mean, the broader
Speaker 1: point I would make is that the worsening of data
Speaker 1: is because bank regulators collect a lot of data from
Speaker 1: banks and make it public in some form, and so
Speaker 1: you can see stuff about what banks are doing. Also,
Speaker 1: a lot of you know, the big banks are largely
Speaker 1: publicly traded, and so we'll talk about you know, consumer
Speaker 1: credit weakness on their runnings calls. Yeah, private credit is private,
Speaker 1: and so they don't do those earnings calls. I mean,
Speaker 1: there's a publicly traded manager, so you get a little bit,
Speaker 1: but like it's not the same level of interest in that,
Speaker 1: and like they're not reporting to regulators in the same
Speaker 1: way that banks to it. And the point I make
Speaker 1: is that, like the whole point of financial regulation in
Speaker 1: the last twenty years is that the banking funding model
Speaker 1: is systemically important and risky, right, Like banks have runs.
Speaker 1: When there's runs on banks, credit titans, and like the
Speaker 1: economy gets worse. And if you can replace a runnable
Speaker 1: banking system with a long term funded, equity funded private
Speaker 1: credit system, then that is structurally better. And the tradeoff
Speaker 1: for that is that that's less regulated, right, Like that's
Speaker 1: what happens. Like banks are highly regulated because their funding
Speaker 1: model is risky. If you just like have a pot
Speaker 1: of your own money and make loans out of it,
Speaker 1: you're less regulated. And people get nervous about that because
Speaker 1: it's less regulated. But it's like that's the trade off
Speaker 1: that like the regulator is meant to strike mostly is
Speaker 1: that always thinking about it, and it's like a sensible
Speaker 1: trade off, and it just makes people real nervous.
Speaker 2: Well, I mean, does it become more regulated?
Speaker 1: I have to no, man, the people keep talking about it,
Speaker 1: but we're not in an environment that is like gung
Speaker 1: ho and making anything more regulated. That's true, And like
Speaker 1: my point is that it doesn't makes sense. I mean
Speaker 1: whatever makes it. Like there's a reason this stuff is
Speaker 1: less regulated, which is that it is less risky, Like
Speaker 1: just as a baseline funding model is less risky. And
Speaker 1: so when a private credit firm wants to make bad loans,
Speaker 1: it's like, all right, that's your mistake, man, it's your money, right.
Speaker 1: When a bank wants to make bad loans is like, no, no,
Speaker 1: that's the depositors money. That's like taxpayers money, Like we
Speaker 1: need to make sure they don't make bad loans. So
Speaker 1: you know, the regulatory pressure is less. But we'll see.
Speaker 1: But like for now, nothing's getting more regulated. Banks are
Speaker 1: getting less regulated.
Speaker 2: This is a turn. But did you see that piece
Speaker 2: in the Ft about Apollo and it quoted an Apollo
Speaker 2: executive saying we're becoming a bank. It truly sucks. It
Speaker 2: was an unnamed person. It sounds like you didn't see
Speaker 2: this piece. No, it was kind of funny. I'll send
Speaker 2: it to you. Yeah, look, I mean see if you
Speaker 2: were still on Twitter, you would have seen it.
Speaker 1: But there's like a long running history of like banks
Speaker 1: get regulated, things that are not banks move into the business,
Speaker 1: they become big, they move into risky you're in risk
Speaker 1: of your funding models, they blow up, they get built
Speaker 1: up by the fat and they become banks. Right, Like
Speaker 1: that's kind of the story of two thousand and eight,
Speaker 1: Like could that be the story of private credit?
Speaker 2: Like yeah, maybe I'm excited to find out. Truly as
Speaker 2: a consumer of news, Yeah, I.
Speaker 1: Don't have in my mind a picture of what it
Speaker 1: looks like to have like like the crypto crisis in
Speaker 1: twenty twin tiers. It's like truly like a replay of
Speaker 1: two thousand and eight, Right, I don't have a picture
Speaker 1: in my mind of what that looks like in the
Speaker 1: private credit version, Like I don't have a picture of
Speaker 1: like runs on private credit firms, but like it would
Speaker 1: be cool, yeah, well to write about not like for
Speaker 1: the world or whatever. But it would be like an
Speaker 1: interesting development. But I again I can't quite visualize it yet.
Speaker 1: Who will get there? And that was the Money Stuff Podcast.
Speaker 2: I'm Matt Levine and I'm Katie Greifeld.
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