1 00:00:11,039 --> 00:00:14,480 Speaker 1: Hello, and welcome to another episode of the Odd Loots Podcast. 2 00:00:14,600 --> 00:00:18,720 Speaker 1: I'm Tracy Alloway and I'm Joe wisnal So. Joe, I 3 00:00:18,760 --> 00:00:23,880 Speaker 1: feel like we've hit probably all the major crunch points 4 00:00:23,960 --> 00:00:29,240 Speaker 1: in the big market sell off recently except one. I'm 5 00:00:29,240 --> 00:00:33,199 Speaker 1: not convinced entirely that we've hit all of them, but 6 00:00:33,400 --> 00:00:37,200 Speaker 1: I do think we have hit several of the major 7 00:00:37,240 --> 00:00:41,560 Speaker 1: crunch the big ones. Okay, that's fair, the big one, 8 00:00:42,200 --> 00:00:45,880 Speaker 1: all right, But there is a pretty big one that 9 00:00:46,040 --> 00:00:49,120 Speaker 1: is looming that we haven't talked about yet, and that 10 00:00:49,280 --> 00:00:53,800 Speaker 1: is what is going on in the mortgage market. That's correct. Um, 11 00:00:53,960 --> 00:00:57,080 Speaker 1: We've you know, it's kind of interesting because, you know, 12 00:00:57,160 --> 00:01:00,640 Speaker 1: there's a lot of comparing contrast to the two thousand 13 00:01:00,680 --> 00:01:04,080 Speaker 1: and eight two thousand nine crisis. We know that two 14 00:01:04,080 --> 00:01:08,039 Speaker 1: thousand and eight two thousand nine crisis more originated within 15 00:01:08,280 --> 00:01:14,520 Speaker 1: housing and mortgages and then spread outward. This one more exogenous, 16 00:01:14,560 --> 00:01:18,600 Speaker 1: but eventually they kind of converge with some some of 17 00:01:18,640 --> 00:01:21,559 Speaker 1: the same pressure points because if the economy shuts down, 18 00:01:22,120 --> 00:01:25,600 Speaker 1: people can't pay their rent at their mortgages right exactly, 19 00:01:25,640 --> 00:01:28,640 Speaker 1: And we've already seen well people who can't actually pay 20 00:01:28,680 --> 00:01:31,399 Speaker 1: their rent and some companies that are also saying that 21 00:01:31,440 --> 00:01:35,760 Speaker 1: they just won't pay their rents. So Subway and Um 22 00:01:35,800 --> 00:01:39,280 Speaker 1: that mattress company that whose name I've forgotten, Mattress Firm 23 00:01:39,480 --> 00:01:42,240 Speaker 1: is that it? I think they said that they're going 24 00:01:42,280 --> 00:01:46,039 Speaker 1: to pay their rent either. So clearly we're sort of 25 00:01:46,160 --> 00:01:48,200 Speaker 1: getting to a point in time where there is going 26 00:01:48,240 --> 00:01:52,320 Speaker 1: to be a big confrontation between landlords and their tenants. 27 00:01:52,480 --> 00:01:55,880 Speaker 1: But the other thing that's happening is just widespread chaos 28 00:01:56,040 --> 00:02:00,760 Speaker 1: within the financial system for mortgages it's self. So we've 29 00:02:00,760 --> 00:02:06,280 Speaker 1: had mortgage bonds, both residential and commercial, just plummet in value. 30 00:02:06,720 --> 00:02:10,280 Speaker 1: And we've also had this thing whereas the bonds plummet 31 00:02:10,320 --> 00:02:16,040 Speaker 1: in value, big banks start making margin calls on funding 32 00:02:16,240 --> 00:02:21,880 Speaker 1: that actually financed those bonds. Yeah, that's exactly right. And 33 00:02:21,960 --> 00:02:26,400 Speaker 1: of course the two brings to mind prior periods of stress, 34 00:02:26,480 --> 00:02:30,120 Speaker 1: because there's always the question of well, how do you 35 00:02:30,200 --> 00:02:33,040 Speaker 1: make a mark in an asset during a period of 36 00:02:33,080 --> 00:02:39,080 Speaker 1: extreme distress, what's fair when our margin calls appropriate? Uh? 37 00:02:39,080 --> 00:02:42,520 Speaker 1: These are very difficult questions to answer, especially in some 38 00:02:42,720 --> 00:02:45,960 Speaker 1: of the you know, very liquid, more esoteric parts of 39 00:02:45,960 --> 00:02:48,600 Speaker 1: the market where there just may not be an obvious 40 00:02:48,880 --> 00:02:52,639 Speaker 1: mark to go on during a period of extraordinary a liquidity, 41 00:02:52,880 --> 00:02:55,160 Speaker 1: right and at the moment a large parts of the 42 00:02:55,200 --> 00:02:59,560 Speaker 1: mortgage market are basically a liquid So today we have 43 00:02:59,639 --> 00:03:02,000 Speaker 1: the perfect a person who's going to talk about this 44 00:03:02,240 --> 00:03:04,800 Speaker 1: with us. We're going to speak to Tom Barrick. He's 45 00:03:04,840 --> 00:03:07,720 Speaker 1: the CEO of Calling Me Capital, one of the biggest 46 00:03:07,760 --> 00:03:11,280 Speaker 1: real estate investors out there. He's also written a post 47 00:03:11,440 --> 00:03:13,639 Speaker 1: up on medium everyone should go check it out that 48 00:03:13,760 --> 00:03:16,360 Speaker 1: sort of talks about the troubles in the mortgage market 49 00:03:16,440 --> 00:03:20,359 Speaker 1: and also some suggestions from him about how to ease 50 00:03:20,639 --> 00:03:23,959 Speaker 1: the pressure. So we're going to get into it. Tom, 51 00:03:24,080 --> 00:03:25,919 Speaker 1: Welcome to the show. Thanks so much for coming on. 52 00:03:26,320 --> 00:03:28,960 Speaker 1: Thanks Racey, great to be with you and Joe. So, 53 00:03:29,000 --> 00:03:31,079 Speaker 1: I guess just to begin with, could you maybe give 54 00:03:31,160 --> 00:03:34,200 Speaker 1: us some color on what the mortgage market or the 55 00:03:34,240 --> 00:03:37,960 Speaker 1: real estate market actually looks like at the moment. Yeah, 56 00:03:38,200 --> 00:03:41,280 Speaker 1: of course, HiT's in in chaos, as is as most 57 00:03:41,320 --> 00:03:46,600 Speaker 1: of our lives. While we have this intersection of two crisises, 58 00:03:48,280 --> 00:03:53,760 Speaker 1: the the unforeseen and and known coronavirus and COVID nineteen 59 00:03:55,000 --> 00:03:58,560 Speaker 1: and and for the first time and anybody's memory or 60 00:03:58,680 --> 00:04:03,520 Speaker 1: history assessation of revenue. So when when we look at 61 00:04:03,560 --> 00:04:09,200 Speaker 1: the setting that we're in, a banking system that became 62 00:04:09,600 --> 00:04:14,960 Speaker 1: well healed and structurally much different than the banking system 63 00:04:15,080 --> 00:04:20,080 Speaker 1: there was the subject of restructuring in two and maybe 64 00:04:20,080 --> 00:04:23,799 Speaker 1: it's worthwhile just to to look at the great Financial Crisis, 65 00:04:23,880 --> 00:04:27,919 Speaker 1: which everybody uses as a metric against which to have 66 00:04:28,120 --> 00:04:32,720 Speaker 1: some historic perspective as to what happened then and what 67 00:04:32,760 --> 00:04:36,160 Speaker 1: we might do now, but a very different set of situations. 68 00:04:36,880 --> 00:04:41,320 Speaker 1: The two thousand eight financial crisis really started in two 69 00:04:41,400 --> 00:04:47,560 Speaker 1: thousand seven from an oversupply of everything and an exogenous 70 00:04:47,600 --> 00:04:52,240 Speaker 1: structural defects and financial instruments that were being created and 71 00:04:53,440 --> 00:04:58,160 Speaker 1: were sent around the world, these weapons of mass destruction, 72 00:04:59,640 --> 00:05:07,360 Speaker 1: which bundled mortgages, which which gave individuals of of residential 73 00:05:07,400 --> 00:05:11,200 Speaker 1: consumption and addiction, and the same in the commercial mortgage markets, 74 00:05:11,200 --> 00:05:14,760 Speaker 1: and the same in the corporate markets. So that collapsed, 75 00:05:14,760 --> 00:05:17,760 Speaker 1: without wasting too much time on on why and when, 76 00:05:18,800 --> 00:05:22,800 Speaker 1: had some of the same resolutions, and that the Fed 77 00:05:22,880 --> 00:05:26,040 Speaker 1: and the Treasury had to step in along with the 78 00:05:26,200 --> 00:05:29,800 Speaker 1: arsenal of other regulatory bodies. So when we think about 79 00:05:30,640 --> 00:05:35,760 Speaker 1: liquidity and banking, we today have a banking system and 80 00:05:35,800 --> 00:05:38,960 Speaker 1: we have a non bank system. We have Main Street, 81 00:05:39,040 --> 00:05:43,359 Speaker 1: and we have the capital markets. And for real estate, 82 00:05:43,480 --> 00:05:46,839 Speaker 1: and most of your listeners are too young to remember, 83 00:05:46,920 --> 00:05:52,279 Speaker 1: but prior to was really no capital markets. Real estate 84 00:05:52,960 --> 00:05:57,960 Speaker 1: was an investment by individuals. There was very little shared 85 00:05:58,040 --> 00:06:04,039 Speaker 1: participation in commercial realists. Say, lenders were a life insurance companies, 86 00:06:04,240 --> 00:06:08,200 Speaker 1: pension funds primarily, and your local bank would make a 87 00:06:08,240 --> 00:06:11,440 Speaker 1: loan to you on a commercial project based on your business. 88 00:06:11,520 --> 00:06:15,880 Speaker 1: But rates had been invented but not widely utilized, and 89 00:06:16,560 --> 00:06:21,160 Speaker 1: there really was no such thing as commercial mortgage backed securitization. 90 00:06:21,320 --> 00:06:24,920 Speaker 1: So on the capital market side, have you thought for quadrants? 91 00:06:25,880 --> 00:06:29,160 Speaker 1: You have public and private equity, and you have public 92 00:06:29,200 --> 00:06:34,080 Speaker 1: and private debt. And what we're what we're watching today 93 00:06:34,400 --> 00:06:36,800 Speaker 1: is the public side, the benefits side of the public. 94 00:06:36,880 --> 00:06:40,960 Speaker 1: What you had liquidity, had transparency, have brought participation. You 95 00:06:41,080 --> 00:06:44,320 Speaker 1: had higher yield so that the individual mom and pop 96 00:06:44,480 --> 00:06:47,800 Speaker 1: was able to participate in things that theretofore they had 97 00:06:47,839 --> 00:06:52,040 Speaker 1: never had the opportunity. And there in lies the benefit, 98 00:06:52,120 --> 00:06:58,000 Speaker 1: and there in lies the problem today is that liquidity, 99 00:06:58,839 --> 00:07:00,600 Speaker 1: which allows you to vote with your feet on a 100 00:07:00,680 --> 00:07:04,560 Speaker 1: daily basis, doesn't really work well for real estate when 101 00:07:04,560 --> 00:07:11,400 Speaker 1: it's reposition because the market for an asset, if you 102 00:07:11,480 --> 00:07:14,000 Speaker 1: just think about a clearing price and and things that 103 00:07:14,040 --> 00:07:16,960 Speaker 1: everybody can touch of your house, if you have a 104 00:07:16,960 --> 00:07:20,520 Speaker 1: willing buyer and a willing seller. Still it takes months 105 00:07:20,520 --> 00:07:24,920 Speaker 1: for commercial property even longer. So to be able to 106 00:07:25,000 --> 00:07:28,440 Speaker 1: trade away of valuation in an hour or an afternoon 107 00:07:29,240 --> 00:07:37,640 Speaker 1: in a unforeseen and unintended crisis is difficult. So if 108 00:07:37,680 --> 00:07:39,960 Speaker 1: we just take the commercial mortgage market in general, it's 109 00:07:39,960 --> 00:07:42,840 Speaker 1: if it's in the United States, it's about five trillion 110 00:07:42,920 --> 00:07:47,800 Speaker 1: dollars in loans, and those loans are held by banks, 111 00:07:47,800 --> 00:07:54,960 Speaker 1: insurance companies, mutual funds, reads, other institutions, endowments, and what 112 00:07:55,280 --> 00:07:59,720 Speaker 1: happens to them is non bank banks. And maybe we 113 00:07:59,760 --> 00:08:01,960 Speaker 1: still up there for a minute. A non bank bank 114 00:08:02,880 --> 00:08:08,320 Speaker 1: is a commercial mortgage read of BBC another institution who 115 00:08:08,320 --> 00:08:17,280 Speaker 1: originates commercial mortgages, pulls them together and creates tranches of securitizations. 116 00:08:17,600 --> 00:08:20,440 Speaker 1: Why does that happen? Why do banks not do that? 117 00:08:21,400 --> 00:08:26,200 Speaker 1: After two eight the regulatory environment for banks changed dramatically, 118 00:08:26,320 --> 00:08:30,560 Speaker 1: and Dodd Frank, which was a needed and worthwhile addition 119 00:08:30,600 --> 00:08:36,000 Speaker 1: to the regulatory sector, put severe capital regulations and restrictions 120 00:08:36,040 --> 00:08:40,040 Speaker 1: on the normal banking sector. And they needed greater equity levels, 121 00:08:40,760 --> 00:08:45,920 Speaker 1: greater enhancements. So if if we if we look at 122 00:08:45,960 --> 00:08:51,160 Speaker 1: it as as oil and vinegar and say that the 123 00:08:50,760 --> 00:08:55,800 Speaker 1: the oil is a securitization part, and what the marketplace 124 00:08:55,880 --> 00:09:01,840 Speaker 1: needed was more credit enhancement. So it it it, it 125 00:09:02,000 --> 00:09:05,640 Speaker 1: needed the vinegar on top, so that in the event 126 00:09:05,640 --> 00:09:09,880 Speaker 1: of a crisis, the first lost period would be the vinegar. 127 00:09:10,679 --> 00:09:16,480 Speaker 1: And after the two thousand and eight Great Financial Crisis, 128 00:09:17,440 --> 00:09:22,679 Speaker 1: the amount of vinegar necessary for those credit enhancements became 129 00:09:22,800 --> 00:09:27,319 Speaker 1: dramatically increased, as did the structural component of these securitizations. 130 00:09:27,720 --> 00:09:32,440 Speaker 1: So all the all the safety toggles that were built 131 00:09:32,440 --> 00:09:34,520 Speaker 1: in them too complicated for us to talk about now, 132 00:09:34,559 --> 00:09:40,160 Speaker 1: but the rating agencies and the structures of safeguards for 133 00:09:40,280 --> 00:09:45,080 Speaker 1: master services and special services. But that was the that 134 00:09:45,200 --> 00:09:47,760 Speaker 1: was the key to the liquidity in the commercial real 135 00:09:47,840 --> 00:09:52,360 Speaker 1: estate lending market. So you now had intermediaries who were 136 00:09:52,520 --> 00:09:55,400 Speaker 1: originating these loans because the bank's no longer wanted to 137 00:09:55,440 --> 00:09:59,600 Speaker 1: do it. Dodd Frank created a regulatory environment for the 138 00:09:59,640 --> 00:10:02,679 Speaker 1: Bank of the f d i C, the o c C, 139 00:10:03,040 --> 00:10:08,600 Speaker 1: the SEC, and the FED that put unbelievable restrictions and 140 00:10:08,640 --> 00:10:13,680 Speaker 1: transparency on on the regulatory framework and what they could 141 00:10:13,679 --> 00:10:16,080 Speaker 1: do and what they couldn't do, So they wanted to 142 00:10:16,120 --> 00:10:21,240 Speaker 1: be much safer. Residential was easier, and that you had 143 00:10:22,040 --> 00:10:24,360 Speaker 1: Fannie and Freddie and the f h A. You had 144 00:10:24,559 --> 00:10:28,960 Speaker 1: quasi governmental entities that could acquire these securities and create liquidity. 145 00:10:28,960 --> 00:10:31,560 Speaker 1: But that didn't exist on the commercial side. So the 146 00:10:31,679 --> 00:10:35,600 Speaker 1: shadow banking industry, which is the framework of what we 147 00:10:35,640 --> 00:10:40,680 Speaker 1: call non bank banks, the the loan market. Remember this 148 00:10:40,679 --> 00:10:44,560 Speaker 1: is mostly for small and medium sized enterprises. So it's 149 00:10:44,640 --> 00:10:48,080 Speaker 1: it's for the the fast food franchise, it's for the 150 00:10:48,080 --> 00:10:51,360 Speaker 1: car wash, it's for the little office building. It's for 151 00:10:51,440 --> 00:10:56,160 Speaker 1: a retail operation who don't have who don't have access 152 00:10:56,240 --> 00:11:00,600 Speaker 1: to large commercial loans. The gigantic office can a subject 153 00:11:00,600 --> 00:11:05,000 Speaker 1: for securitization, but also direct investment on the private side 154 00:11:05,040 --> 00:11:10,520 Speaker 1: for life companies, mutual funds, pension funds, etcetera. So part 155 00:11:10,600 --> 00:11:12,240 Speaker 1: of what we're dealing here, if you if you took 156 00:11:12,280 --> 00:11:17,600 Speaker 1: four quadrants of real estate, we have a public market. 157 00:11:17,760 --> 00:11:20,520 Speaker 1: So the public market are reads on the equity side 158 00:11:20,520 --> 00:11:23,720 Speaker 1: and securitizations on the death side, and we have a 159 00:11:23,760 --> 00:11:27,760 Speaker 1: private market. Is you own your house, you own a building, 160 00:11:27,880 --> 00:11:31,160 Speaker 1: and you get a loan from a life company, and 161 00:11:31,880 --> 00:11:34,240 Speaker 1: on the private side, none of those are tradeable except 162 00:11:34,240 --> 00:11:39,080 Speaker 1: a private pre treating. On the securitization side, everything is tradeable, 163 00:11:39,160 --> 00:11:41,520 Speaker 1: and you vote with your feet every hour. So if 164 00:11:41,520 --> 00:11:44,160 Speaker 1: you own share as any you can trade it any 165 00:11:44,240 --> 00:11:47,360 Speaker 1: day of the week. If you own securitization bonds, you 166 00:11:47,360 --> 00:11:49,160 Speaker 1: can trade those every day of the week. That's the 167 00:11:49,160 --> 00:11:52,679 Speaker 1: good news and the bad news. So what we've come 168 00:11:52,679 --> 00:11:56,840 Speaker 1: into now is in going back to our oil and 169 00:11:56,920 --> 00:12:02,320 Speaker 1: vinegar example, the the commercial mortgage rates and the non 170 00:12:02,360 --> 00:12:07,480 Speaker 1: bank banks originate and bundle all these loans. They package 171 00:12:07,520 --> 00:12:13,120 Speaker 1: them into securitizations with levels of credit enhancement from triple 172 00:12:13,200 --> 00:12:18,720 Speaker 1: A to triple B minus as investment grade. They sell 173 00:12:18,800 --> 00:12:22,080 Speaker 1: those bonds through broker dealers that end up all over 174 00:12:22,080 --> 00:12:25,680 Speaker 1: the world right end of the life companies, endowments, hedge funds, 175 00:12:25,679 --> 00:12:30,920 Speaker 1: corporate treasuries and and mutual funds and et s. And 176 00:12:30,960 --> 00:12:35,839 Speaker 1: then the the originator, let's say the commercial mortgage read 177 00:12:35,880 --> 00:12:41,679 Speaker 1: at the time, in order to keep the the liquidity moving, 178 00:12:41,840 --> 00:12:45,160 Speaker 1: the availability of going to the marketplace and create more loans, 179 00:12:45,960 --> 00:12:50,560 Speaker 1: goes to their primary bank and takes the equity portion 180 00:12:50,760 --> 00:12:53,520 Speaker 1: of what they have in the securities underneath it, and 181 00:12:53,559 --> 00:12:57,240 Speaker 1: they enter into what they call repurchase agreement, and the 182 00:12:57,280 --> 00:13:02,640 Speaker 1: repurchase agreement basically pledges all of those securities that the 183 00:13:02,720 --> 00:13:06,120 Speaker 1: budler has and says we're going to lend you against 184 00:13:06,120 --> 00:13:11,520 Speaker 1: that base x per cent of what they call that 185 00:13:11,520 --> 00:13:16,719 Speaker 1: that that borrowing based basically, and will value those securities 186 00:13:16,720 --> 00:13:21,000 Speaker 1: on a daily base. The terminology of mark to market 187 00:13:22,160 --> 00:13:27,560 Speaker 1: is that they'll take those securities, are those loans, those 188 00:13:28,000 --> 00:13:30,480 Speaker 1: and sometimes their whole loans, and the mark them to 189 00:13:30,559 --> 00:13:34,000 Speaker 1: market on a daily basis and lend to that originator 190 00:13:34,440 --> 00:13:52,440 Speaker 1: a percentage of that I wanted I wanna get into 191 00:13:52,480 --> 00:13:54,840 Speaker 1: a bit on the sort of mark to market question, 192 00:13:55,240 --> 00:13:58,320 Speaker 1: but before we go any further, I'd just like to 193 00:13:58,520 --> 00:14:02,560 Speaker 1: real quickly for listeners who don't know, maybe they only 194 00:14:02,600 --> 00:14:06,920 Speaker 1: know you from having watched your speech at the Republican 195 00:14:07,000 --> 00:14:10,800 Speaker 1: National Convention or a few times on TV. You're as 196 00:14:10,800 --> 00:14:14,880 Speaker 1: you talk about this ecosystem for real estate, where's your 197 00:14:15,040 --> 00:14:19,360 Speaker 1: role so people understand your perspective as the CEO of 198 00:14:19,480 --> 00:14:22,280 Speaker 1: Colony capital where do you play in this entire mix? 199 00:14:23,160 --> 00:14:27,480 Speaker 1: So Colony Capitalists of New York Stock has Change Public 200 00:14:27,520 --> 00:14:33,480 Speaker 1: ret with over fifty billion in assets in a series 201 00:14:33,480 --> 00:14:37,840 Speaker 1: of silos where an owner of legacy businesses and the 202 00:14:37,960 --> 00:14:46,080 Speaker 1: usual food groups, hospitality, healthcare, industrial, um. We also are 203 00:14:46,720 --> 00:14:53,360 Speaker 1: the largest shareholder and a commercial real estate read a 204 00:14:53,560 --> 00:14:59,000 Speaker 1: lender called c l n C. And in the last 205 00:14:59,000 --> 00:15:05,480 Speaker 1: two years we've switched to a digital owners and providers 206 00:15:05,520 --> 00:15:10,920 Speaker 1: of solutions and funding to the digital world, so radio 207 00:15:10,960 --> 00:15:18,040 Speaker 1: cell towers, micro cells, fiber networks, data centers, and smart logistics. 208 00:15:19,400 --> 00:15:25,120 Speaker 1: So we have nineteen around the world. We're we're globally balanced, 209 00:15:25,160 --> 00:15:30,160 Speaker 1: and we've been turning our asset focus from legacy assets. 210 00:15:30,200 --> 00:15:33,480 Speaker 1: Over the last two or three years, we've been selling 211 00:15:34,280 --> 00:15:37,720 Speaker 1: substantial amounts of our legacy assets because prices have been 212 00:15:37,800 --> 00:15:40,840 Speaker 1: quite dear and in our opinion, so we've sold about 213 00:15:40,840 --> 00:15:43,840 Speaker 1: twelve billion dollars of legacy assets and we've invested that 214 00:15:44,360 --> 00:15:49,520 Speaker 1: in the digital framework. We have sixteen silo digital companies 215 00:15:50,200 --> 00:15:55,840 Speaker 1: and about of our balance sheet is is digital. So 216 00:15:55,880 --> 00:16:00,760 Speaker 1: the framework of of looking at this, and my personal 217 00:16:00,800 --> 00:16:06,960 Speaker 1: point of view is the the world of real estate, 218 00:16:07,080 --> 00:16:10,040 Speaker 1: by the way, which which just to give you a 219 00:16:10,040 --> 00:16:12,520 Speaker 1: broad view. If you took in America, if you took 220 00:16:12,960 --> 00:16:19,000 Speaker 1: real estate ownership, real estate services, and all of the 221 00:16:19,040 --> 00:16:25,040 Speaker 1: affiliates around it. It's about of the GDP of America. 222 00:16:25,280 --> 00:16:31,600 Speaker 1: It's huge, and the underpinning of that are owners of 223 00:16:32,080 --> 00:16:36,040 Speaker 1: real estate, suppliers of capital and all the businesses that 224 00:16:36,200 --> 00:16:39,320 Speaker 1: function within them. But it all functions in two markets, 225 00:16:40,040 --> 00:16:43,680 Speaker 1: the Main Street market and the Wall Street market, so 226 00:16:44,120 --> 00:16:50,760 Speaker 1: colonies perspective, as and an owner of of bricks and 227 00:16:51,200 --> 00:16:56,200 Speaker 1: a sponsor of clicks is that is to keep that 228 00:16:56,600 --> 00:17:02,280 Speaker 1: ecosystem moving as an owner and a a receiver of 229 00:17:02,400 --> 00:17:07,400 Speaker 1: income and a provider of both debt and equity, two 230 00:17:07,440 --> 00:17:11,200 Speaker 1: small and middle size businesses and a solution provider to 231 00:17:11,320 --> 00:17:17,639 Speaker 1: the the big digital logos. So in selling our own book, 232 00:17:18,040 --> 00:17:23,080 Speaker 1: so to speak, the the the point of view here 233 00:17:23,200 --> 00:17:28,480 Speaker 1: is I think that the universe of people like us 234 00:17:29,560 --> 00:17:35,399 Speaker 1: have a front row seat to the interconnections on a 235 00:17:35,440 --> 00:17:39,240 Speaker 1: global basis, and how quickly it can go south. And 236 00:17:39,320 --> 00:17:43,000 Speaker 1: it goes south. It's not necessarily good for anybody's business. 237 00:17:43,320 --> 00:17:45,960 Speaker 1: It's not it's not good for our business. But we 238 00:17:46,119 --> 00:17:50,240 Speaker 1: have four or five billion dollars of liquidity, and you 239 00:17:50,400 --> 00:17:54,080 Speaker 1: will survive. The people who don't have the liquidity and 240 00:17:54,160 --> 00:17:58,040 Speaker 1: can survive are the smaller and middle sized businesses. Regardless 241 00:17:58,080 --> 00:18:00,640 Speaker 1: of how good the SBA loans are and how could 242 00:18:00,680 --> 00:18:05,520 Speaker 1: the unemployment benefits maybe, So that's that's really our cancer. 243 00:18:05,880 --> 00:18:08,560 Speaker 1: So can we talk a little bit more about how 244 00:18:08,760 --> 00:18:12,840 Speaker 1: it's going south. You were just discussing REPO funding for 245 00:18:13,000 --> 00:18:16,680 Speaker 1: commercial mortgage backed securities and the mark to market idea. 246 00:18:17,040 --> 00:18:20,720 Speaker 1: What are you actually seeing when it comes to market 247 00:18:20,800 --> 00:18:25,000 Speaker 1: market pricing at the moment. What's happening in that market? Yeah, 248 00:18:25,000 --> 00:18:27,320 Speaker 1: I mean that's then that's a great question, Tracy. So 249 00:18:27,840 --> 00:18:30,440 Speaker 1: what's happening is there is no market. So the market 250 00:18:30,560 --> 00:18:36,119 Speaker 1: market works when you have a smooth and functioning ordinary market. 251 00:18:35,920 --> 00:18:39,639 Speaker 1: At a time like this, there are just no bids 252 00:18:39,680 --> 00:18:44,080 Speaker 1: for those securities, so spreads widened. A bank trading desk, 253 00:18:45,400 --> 00:18:48,720 Speaker 1: So there's an individual based in Delaware, let's say, for 254 00:18:48,760 --> 00:18:54,560 Speaker 1: a major bank, who's valuing these multibillion dollar businesses on 255 00:18:54,600 --> 00:18:58,520 Speaker 1: a daily basis and has a protocol, has a manual 256 00:18:58,560 --> 00:19:00,800 Speaker 1: saying this is this is what you do on a 257 00:19:00,880 --> 00:19:03,360 Speaker 1: daily basis, and if there's an impairment, or if there's 258 00:19:03,359 --> 00:19:07,440 Speaker 1: a threatened improment, or if there's a cessation and revenue anywhere, 259 00:19:08,240 --> 00:19:13,919 Speaker 1: then you you value this bond this way. And they 260 00:19:13,920 --> 00:19:15,840 Speaker 1: go to a broker dealer and they ask for a price. Well, 261 00:19:15,840 --> 00:19:19,520 Speaker 1: the broker dealers don't have any money either, because it's 262 00:19:19,520 --> 00:19:23,960 Speaker 1: completely stopped, right, the system has stopped, so there's no bid. 263 00:19:25,160 --> 00:19:27,680 Speaker 1: So if they happen to market. Let's just take hypothetically 264 00:19:28,320 --> 00:19:32,440 Speaker 1: that you had a a double A bond in which 265 00:19:32,840 --> 00:19:35,880 Speaker 1: the day before there was an embulent market and now 266 00:19:35,880 --> 00:19:38,000 Speaker 1: it's not that there's a market at a spread of 267 00:19:38,560 --> 00:19:41,320 Speaker 1: thirty basis points or fifty basis points where there's a 268 00:19:41,359 --> 00:19:45,040 Speaker 1: temporary cessation of bids because there is in the marketplace 269 00:19:45,119 --> 00:19:50,880 Speaker 1: just saying there is no bid, and the valuation of 270 00:19:50,920 --> 00:19:56,560 Speaker 1: that bond. Everybody believes that when business comes back, not 271 00:19:56,600 --> 00:20:00,960 Speaker 1: necessarily to normal, but when revenues return, whatever that is, 272 00:20:01,000 --> 00:20:08,399 Speaker 1: whether it's days, that bond will come back to parody. 273 00:20:08,440 --> 00:20:12,399 Speaker 1: But that temporary mis mark of that bond causes the 274 00:20:12,400 --> 00:20:16,160 Speaker 1: bank to take those securities, and when they when they 275 00:20:16,160 --> 00:20:21,240 Speaker 1: take those securities, or you have to come up with 276 00:20:21,359 --> 00:20:25,000 Speaker 1: cash to rebalance their loan against what they thought the 277 00:20:25,080 --> 00:20:27,960 Speaker 1: value was. Well, of course the originator can't come up 278 00:20:28,000 --> 00:20:31,879 Speaker 1: with the cash either, because it's a falling knife. So 279 00:20:31,960 --> 00:20:35,720 Speaker 1: everybody's trying to catch a falling knife. And in two 280 00:20:35,760 --> 00:20:38,760 Speaker 1: thousand seven it took a couple of years to clear 281 00:20:38,840 --> 00:20:41,360 Speaker 1: those falling knives because it was a question of credit 282 00:20:41,440 --> 00:20:46,480 Speaker 1: and value. Today, the reason that you hear so much 283 00:20:46,680 --> 00:20:51,199 Speaker 1: dismay in the financial marketplace of saying, don't use the 284 00:20:51,240 --> 00:20:55,680 Speaker 1: market market just forbear for bear for sixty days. Let 285 00:20:55,720 --> 00:21:00,480 Speaker 1: this pass and you won't have these unnecessary whiteouts which 286 00:21:00,520 --> 00:21:05,320 Speaker 1: are starting at the top of that of that intermediary 287 00:21:06,520 --> 00:21:11,800 Speaker 1: causes severe indigestion at the banks. Everybody says, what great 288 00:21:11,840 --> 00:21:14,879 Speaker 1: shapes the banks are in If this continues, the banks 289 00:21:14,920 --> 00:21:17,679 Speaker 1: may not be in that great shape because they're swallowing 290 00:21:17,720 --> 00:21:24,720 Speaker 1: all of these unmarketable pieces of debt. And most importantly, 291 00:21:25,480 --> 00:21:30,760 Speaker 1: the small and middle size borrower who has this is 292 00:21:30,800 --> 00:21:35,040 Speaker 1: on the ropes at a time where they just need 293 00:21:35,040 --> 00:21:38,240 Speaker 1: a break. So what's been happening in the smarket market 294 00:21:38,280 --> 00:21:44,280 Speaker 1: is everybody has been been begging for a regulatory time out. 295 00:21:44,359 --> 00:21:48,920 Speaker 1: Now it's happened on the residential side. So in governmental 296 00:21:49,000 --> 00:21:53,639 Speaker 1: agencies that we're Fannie and Freddie and the f h A, 297 00:21:54,280 --> 00:21:56,840 Speaker 1: let's go to forbearances to the individual and then we'll 298 00:21:56,880 --> 00:21:59,679 Speaker 1: figure out the death stacks on top of that. On 299 00:21:59,720 --> 00:22:04,520 Speaker 1: the rsal side, it hasn't happened because it's it's unbelievably complicated, 300 00:22:04,720 --> 00:22:10,920 Speaker 1: so that the cares empowered the Secretary of Treasury, Steve Manuchen, 301 00:22:11,000 --> 00:22:16,520 Speaker 1: who's sensational with four fifty billion that he can lever 302 00:22:16,600 --> 00:22:21,119 Speaker 1: tend to one at the FED window. And part of 303 00:22:21,119 --> 00:22:25,120 Speaker 1: the discussion is what what can the FED by along 304 00:22:26,200 --> 00:22:34,879 Speaker 1: the securities railroad that will help so TALF. One of 305 00:22:34,880 --> 00:22:38,680 Speaker 1: these acronisms from two thousand seven, which is actually in existence, 306 00:22:39,520 --> 00:22:44,080 Speaker 1: is the ability of the Treasury with their funds lever 307 00:22:44,200 --> 00:22:47,720 Speaker 1: tend to one to buy, advance or lend against these 308 00:22:47,760 --> 00:22:52,000 Speaker 1: securities so that it will create a market. It'll create 309 00:22:52,000 --> 00:22:55,960 Speaker 1: an artificial market with some haircut. But since the FED 310 00:22:56,040 --> 00:22:58,440 Speaker 1: has a thirty year perspective, it's not like a bank 311 00:22:58,480 --> 00:23:01,720 Speaker 1: who's saying, I'm going to bow you this to today's 312 00:23:01,840 --> 00:23:06,720 Speaker 1: value rather than you know, what they call a mark 313 00:23:06,840 --> 00:23:10,560 Speaker 1: to model rather than a marked to mark to market. 314 00:23:11,800 --> 00:23:14,239 Speaker 1: So it's complicated. But if you just looked at it 315 00:23:14,240 --> 00:23:19,480 Speaker 1: as plumbing, the pipeline is fine. There's a clog in 316 00:23:19,480 --> 00:23:22,960 Speaker 1: the system, the pipeline isn't broken. And if you clear 317 00:23:23,080 --> 00:23:27,200 Speaker 1: that clog for five or six inches five or six inches, 318 00:23:27,280 --> 00:23:31,119 Speaker 1: meaning maybe that's two or three or four months on 319 00:23:31,200 --> 00:23:34,680 Speaker 1: the other end that the pipeline will continue to flow. 320 00:23:34,800 --> 00:23:37,439 Speaker 1: If you don't, the whole system could crack. You know, 321 00:23:37,480 --> 00:23:42,200 Speaker 1: the US real estate market is sixteen trillion, and if 322 00:23:42,240 --> 00:23:45,040 Speaker 1: you take all the securitizations, the main street in the 323 00:23:45,040 --> 00:23:48,520 Speaker 1: Wall Street pieces, maybe it's twelve trillion. But it's the 324 00:23:48,560 --> 00:23:52,600 Speaker 1: window to a derivatives market. Right. All these structured products 325 00:23:52,800 --> 00:23:56,720 Speaker 1: rely on each other. So I think what people are 326 00:23:56,760 --> 00:24:03,040 Speaker 1: missing is the act that from the little person who 327 00:24:03,160 --> 00:24:06,919 Speaker 1: has a fast food restaurant to can't pay to the 328 00:24:06,960 --> 00:24:11,879 Speaker 1: most sophisticated Korean life company who's been buying structured financial instruments. 329 00:24:12,480 --> 00:24:14,760 Speaker 1: This could be a fiasco if you don't get liquidity 330 00:24:14,760 --> 00:24:21,119 Speaker 1: into the system. So I think everyone agrees that this crisis, 331 00:24:21,200 --> 00:24:24,840 Speaker 1: this recession, whatever we're calling it, is unlike anything we've 332 00:24:24,840 --> 00:24:27,760 Speaker 1: seen before, because, as you put it, the complete cessation 333 00:24:27,840 --> 00:24:31,040 Speaker 1: of revenue, which is uh partly part of the public 334 00:24:31,080 --> 00:24:33,919 Speaker 1: health crisis. We need everyone to stop doing things for 335 00:24:33,960 --> 00:24:36,920 Speaker 1: a period of time. So we agree on this. There 336 00:24:37,160 --> 00:24:41,120 Speaker 1: is a cynical view would be that, well, look two 337 00:24:41,160 --> 00:24:43,879 Speaker 1: thousand and eight, two thousand nine, there were also calls 338 00:24:44,000 --> 00:24:47,919 Speaker 1: at that time for the suspension of mark to market 339 00:24:47,920 --> 00:24:52,840 Speaker 1: accounting for similar reasons when are what is a good 340 00:24:52,840 --> 00:24:55,800 Speaker 1: time to take a mark? It's always going to be difficult. 341 00:24:55,880 --> 00:24:59,760 Speaker 1: You talked about the inherent liquidity mismatch between some of 342 00:24:59,800 --> 00:25:03,320 Speaker 1: the vehicles that people own versus the liquidity of the 343 00:25:03,400 --> 00:25:07,160 Speaker 1: underlying products. What do you say the cynics that would say, 344 00:25:07,280 --> 00:25:08,960 Speaker 1: you're always going to say that, You're always going to 345 00:25:09,000 --> 00:25:11,480 Speaker 1: say this isn't the right time to take a mark, 346 00:25:11,640 --> 00:25:15,840 Speaker 1: because it will come back at simple. Yeah, it's and angel, 347 00:25:15,960 --> 00:25:19,639 Speaker 1: look it's it's the right question. But here's the here's 348 00:25:19,640 --> 00:25:24,200 Speaker 1: this simple answer to me is in essence, what's happened. 349 00:25:25,440 --> 00:25:30,120 Speaker 1: It's an eminent domain Act. So we can talk about 350 00:25:30,119 --> 00:25:35,200 Speaker 1: how terrible what we're dealing with on a virus and 351 00:25:35,200 --> 00:25:37,600 Speaker 1: in a disease and a crisis that is, and how 352 00:25:37,640 --> 00:25:40,760 Speaker 1: you respond to it. But the bottom line for these 353 00:25:40,800 --> 00:25:43,439 Speaker 1: people is the government said don't go to work. They 354 00:25:43,440 --> 00:25:45,280 Speaker 1: didn't say if you go to work, you're gonna get sick. 355 00:25:45,480 --> 00:25:47,640 Speaker 1: They didn't say if you go if you go to work, 356 00:25:47,680 --> 00:25:51,800 Speaker 1: you're going to die. They said stop. So when you 357 00:25:51,880 --> 00:25:55,080 Speaker 1: do that, that's fine, And the consequences of social consequence 358 00:25:55,119 --> 00:25:57,200 Speaker 1: for all of us right in which we're all saying 359 00:25:57,240 --> 00:26:01,359 Speaker 1: for the greater good. We are going to tech a 360 00:26:01,520 --> 00:26:07,399 Speaker 1: percentage of deaths by stopping the economy. Now that is 361 00:26:07,400 --> 00:26:10,439 Speaker 1: a debate in itself. The way to do it is 362 00:26:10,440 --> 00:26:12,760 Speaker 1: to say, great, the consequence of that is we're not 363 00:26:12,800 --> 00:26:19,560 Speaker 1: going to unnecessarily have another set of unintended consequences as 364 00:26:19,560 --> 00:26:24,640 Speaker 1: a result of that, including deaths. By the way, by 365 00:26:24,680 --> 00:26:28,320 Speaker 1: having a financial system that we're saying, the only thing 366 00:26:28,359 --> 00:26:31,120 Speaker 1: that doesn't stop is the consequences of our own actions, 367 00:26:31,160 --> 00:26:35,199 Speaker 1: the government actions and stopping commerce. It makes no sense. 368 00:26:36,119 --> 00:26:38,159 Speaker 1: So we all have to pay that price. The fed right, 369 00:26:38,200 --> 00:26:40,440 Speaker 1: our kids are going to pay the price. And by 370 00:26:40,440 --> 00:26:43,200 Speaker 1: the way, the stimulus bill and Congress did a great job. 371 00:26:43,320 --> 00:26:45,520 Speaker 1: The administration has done a great job. But it's going 372 00:26:45,560 --> 00:26:49,280 Speaker 1: to be the first and several. Right, we're gonna this 373 00:26:49,440 --> 00:26:51,119 Speaker 1: was three, We're gonna have a four. We're gonna have 374 00:26:51,119 --> 00:26:56,119 Speaker 1: a five for sure. So the point and the point 375 00:26:56,240 --> 00:26:59,840 Speaker 1: is if if you are going to pay for it 376 00:27:00,000 --> 00:27:02,960 Speaker 1: anyhow So, the aftermath of two thousand and eight, when 377 00:27:02,960 --> 00:27:05,360 Speaker 1: they went back and they looked at tup tarp over 378 00:27:05,400 --> 00:27:08,199 Speaker 1: a much longer period of time, the mark to market 379 00:27:08,240 --> 00:27:11,240 Speaker 1: then was as a result of the vagaries of the industry. 380 00:27:11,560 --> 00:27:16,760 Speaker 1: So supply demand was absolutely out of sight, and the 381 00:27:16,840 --> 00:27:21,679 Speaker 1: lack of regulatory confines on the investment banking system was 382 00:27:22,320 --> 00:27:26,159 Speaker 1: part of the problem. So in a market to market 383 00:27:26,640 --> 00:27:29,080 Speaker 1: which is adjusting as a result of the vagaries of 384 00:27:29,160 --> 00:27:32,639 Speaker 1: the capitalistic system, it makes sense when we have a 385 00:27:32,640 --> 00:27:36,880 Speaker 1: governor invention that says stop, it makes no sense. So, 386 00:27:37,080 --> 00:27:40,960 Speaker 1: just on this question of moral hazard, which is the 387 00:27:40,960 --> 00:27:43,359 Speaker 1: theme that we're really touching on right now, we have 388 00:27:43,520 --> 00:27:48,840 Speaker 1: seen the Federal Reserve provide basically unlimited term borrowing for 389 00:27:49,080 --> 00:27:52,040 Speaker 1: the banks. But part of the issue here seems to 390 00:27:52,080 --> 00:27:57,760 Speaker 1: be that that liquidity isn't necessarily making its way into 391 00:27:57,920 --> 00:28:01,240 Speaker 1: the non bank financial sy them. Is that part of 392 00:28:01,280 --> 00:28:04,520 Speaker 1: the problem and how would you go about fixing it? Yeah, 393 00:28:04,920 --> 00:28:08,399 Speaker 1: that's absolutely that is part of the problem. So the 394 00:28:08,440 --> 00:28:12,920 Speaker 1: banks have zero borrowing costs and and they have all 395 00:28:12,920 --> 00:28:15,760 Speaker 1: the liquidity they defend has opened up to them in 396 00:28:15,760 --> 00:28:22,400 Speaker 1: every aspect. The banks, in turn, looking down this pipeline 397 00:28:23,160 --> 00:28:28,840 Speaker 1: um to everybody, have not figured out how to comply 398 00:28:29,080 --> 00:28:34,080 Speaker 1: with the regulatory framework from a series of regulators. If 399 00:28:34,080 --> 00:28:37,080 Speaker 1: you if you look at the chart of a depository bank, 400 00:28:37,119 --> 00:28:42,800 Speaker 1: there's probably ten regulating agencies. So the protocol of going 401 00:28:42,920 --> 00:28:47,680 Speaker 1: from there two forbearance, right, which is the magic world. 402 00:28:47,680 --> 00:28:51,280 Speaker 1: Every everybody wants to forbearance. So a tenant who's living 403 00:28:51,320 --> 00:28:56,440 Speaker 1: in an apartment wants a forbearance for ninety days, hundred 404 00:28:56,440 --> 00:28:59,400 Speaker 1: and twenty days from their landlord. The landlord then in 405 00:28:59,480 --> 00:29:05,520 Speaker 1: turn wants a forbearance from their lender that intermediate packager. 406 00:29:06,080 --> 00:29:11,160 Speaker 1: The intermediate intermediate packager then wants a forbearance from its 407 00:29:11,280 --> 00:29:17,560 Speaker 1: prime bank. And the problem is the regulatory requirements don't 408 00:29:17,640 --> 00:29:21,560 Speaker 1: exist in in a czar right, there's not one person. 409 00:29:22,600 --> 00:29:25,440 Speaker 1: And by the way it's happened, so there's all sorts 410 00:29:25,480 --> 00:29:31,040 Speaker 1: of inter agency memos going around saying lighten up on foreclosures, 411 00:29:31,120 --> 00:29:37,760 Speaker 1: go slowly on on the market markets, encouraging people to 412 00:29:37,840 --> 00:29:41,160 Speaker 1: have this dialogue. But the regulatory framework within the banking 413 00:29:41,200 --> 00:29:46,160 Speaker 1: industry is so complicated that they haven't been able to 414 00:29:46,200 --> 00:29:49,440 Speaker 1: get the wiring correctly yet. And it's and it's a 415 00:29:49,520 --> 00:29:54,160 Speaker 1: fast moving train, so I think that they'll get there. 416 00:29:55,520 --> 00:30:00,960 Speaker 1: But since there's no plenary one stop shopping on top 417 00:30:01,000 --> 00:30:03,720 Speaker 1: of all of them, you have to get all these 418 00:30:03,760 --> 00:30:06,720 Speaker 1: agencies and accounting rules to agree. So you have fas 419 00:30:06,800 --> 00:30:09,120 Speaker 1: vy of the sec have the fd I C of 420 00:30:09,240 --> 00:30:12,480 Speaker 1: O c C. You have the FED, you have the Treasury, 421 00:30:12,560 --> 00:30:16,800 Speaker 1: and you have state superintendence, all with a different, very 422 00:30:16,840 --> 00:30:21,080 Speaker 1: complicated set of regulatory requirements which don't move instantly. So 423 00:30:21,840 --> 00:30:24,680 Speaker 1: I think that they'll get there, and I think the 424 00:30:24,720 --> 00:30:29,479 Speaker 1: banks are are very aware that they need to figure 425 00:30:29,480 --> 00:30:31,640 Speaker 1: out a way to have a pass through of the 426 00:30:32,400 --> 00:30:35,560 Speaker 1: benefit and the largest that they're getting from the Fed 427 00:30:36,120 --> 00:30:39,680 Speaker 1: all the way through to the little borrow. But it 428 00:30:40,440 --> 00:30:44,320 Speaker 1: takes time and it's right just to be clear, is 429 00:30:44,400 --> 00:30:46,800 Speaker 1: your view that I mean, you mentioned we're gonna need 430 00:30:46,840 --> 00:30:49,800 Speaker 1: around four of the stimulus and around five and so forth. 431 00:30:50,160 --> 00:30:53,720 Speaker 1: But at least under current law, do you believe that 432 00:30:53,840 --> 00:30:58,160 Speaker 1: a sort of system wide pause button is at least 433 00:30:58,680 --> 00:31:03,280 Speaker 1: legally capable, even if there's extraordinary complexity and difficulty of 434 00:31:03,360 --> 00:31:06,920 Speaker 1: coordinating among all the different regulators. Look from from the 435 00:31:07,040 --> 00:31:10,880 Speaker 1: cheap seats, just from I'm I'm a user of capital 436 00:31:10,960 --> 00:31:15,120 Speaker 1: and the beneficiary of the capital system, and I've looked 437 00:31:15,120 --> 00:31:20,440 Speaker 1: at other other countries around the world and how they've responded, 438 00:31:21,040 --> 00:31:25,240 Speaker 1: and none of them are great. But I think what 439 00:31:25,440 --> 00:31:30,200 Speaker 1: history has shown is that if you have an indication 440 00:31:30,280 --> 00:31:34,240 Speaker 1: in a statement saying that you're covered, whatever it is, 441 00:31:35,080 --> 00:31:37,880 Speaker 1: So if you're a tenant and you're paying rent and 442 00:31:37,960 --> 00:31:40,760 Speaker 1: you can't pay rent, don't worry. You don't have to 443 00:31:40,800 --> 00:31:45,080 Speaker 1: pay it. If you're paying interest and you can't pay interest, 444 00:31:46,200 --> 00:31:51,600 Speaker 1: don't pay it. If you're receiving a check for a 445 00:31:51,680 --> 00:31:55,160 Speaker 1: thousand dollars a month and have been cut off, you'll 446 00:31:55,200 --> 00:31:58,680 Speaker 1: get eight hundred that that bill, whatever that bill is, 447 00:31:59,360 --> 00:32:01,400 Speaker 1: is cheaper. And what's we're going to end up paying. 448 00:32:01,520 --> 00:32:04,640 Speaker 1: So if you look at the GDP of Americans said 449 00:32:04,680 --> 00:32:09,080 Speaker 1: it's four point nine trillion a quarter something like that, 450 00:32:10,760 --> 00:32:13,360 Speaker 1: and said, to keep this moving, and we don't know 451 00:32:13,400 --> 00:32:16,200 Speaker 1: how long that it goes, but to keep it moving 452 00:32:16,240 --> 00:32:21,120 Speaker 1: for everybody, and and and price is not as complicated 453 00:32:21,160 --> 00:32:24,040 Speaker 1: as how you do it right, because even with the 454 00:32:24,200 --> 00:32:26,760 Speaker 1: SBA loans and looking and saying, how do you get 455 00:32:26,800 --> 00:32:29,440 Speaker 1: those two people quick enough for the unemployment checks? How 456 00:32:29,480 --> 00:32:32,200 Speaker 1: do you do it fast enough? But I think at 457 00:32:32,200 --> 00:32:33,880 Speaker 1: the end of the day, we'll look back and say, 458 00:32:33,920 --> 00:32:37,640 Speaker 1: if you would have plugged this hole for everybody and 459 00:32:37,720 --> 00:32:41,040 Speaker 1: said you're going to do it for sixty year, ninety days. 460 00:32:41,640 --> 00:32:44,800 Speaker 1: And then the crisis science, which I'm not in a 461 00:32:44,840 --> 00:32:48,240 Speaker 1: position even way on these doctors and the scientists are 462 00:32:48,240 --> 00:32:52,840 Speaker 1: doing an amazing job. But whatever the the comeback drill is, 463 00:32:53,000 --> 00:32:56,080 Speaker 1: we need one, right, we have we we have to 464 00:32:56,280 --> 00:32:58,240 Speaker 1: we have to have a comeback story. And the comeback 465 00:32:58,280 --> 00:33:02,520 Speaker 1: story is is contain and in the process of those 466 00:33:02,560 --> 00:33:05,240 Speaker 1: who are healthier, those have been affected in certain areas 467 00:33:05,280 --> 00:33:07,760 Speaker 1: coming back. How long does that take to come You 468 00:33:07,800 --> 00:33:12,960 Speaker 1: can't stop the GDP of America for seven months. It's impossible, 469 00:33:13,800 --> 00:33:17,440 Speaker 1: so to me, the other, the other crisis is the 470 00:33:17,480 --> 00:33:19,480 Speaker 1: Fed commandment saying we can do it all and we'll 471 00:33:19,480 --> 00:33:22,760 Speaker 1: do it all that they're trying to do it in steps, 472 00:33:23,360 --> 00:33:28,480 Speaker 1: and I understand the legislative The legislative dilemma is everybody 473 00:33:28,520 --> 00:33:33,760 Speaker 1: wants to make sure that whatever whatever solution is applied, 474 00:33:33,840 --> 00:33:39,160 Speaker 1: is applied equally to all that the afternat that would 475 00:33:39,160 --> 00:33:41,320 Speaker 1: happen in two thousand and seven, or that perception of 476 00:33:41,400 --> 00:33:45,040 Speaker 1: chronic capitalism, or that it's only the big financial players 477 00:33:45,080 --> 00:33:48,400 Speaker 1: who benefit from this, and the fact cat executives and 478 00:33:48,400 --> 00:33:51,680 Speaker 1: investment banks are going to get gigantic bonuses and the 479 00:33:51,720 --> 00:33:54,320 Speaker 1: big corporations that are that are bailed out are going 480 00:33:54,320 --> 00:33:59,760 Speaker 1: to get more stock grants. Nobody wants that. So it's 481 00:33:59,800 --> 00:34:04,040 Speaker 1: it's complex, But I think it's at the end, it's 482 00:34:04,040 --> 00:34:08,560 Speaker 1: going to cost us the same either way. And I 483 00:34:08,560 --> 00:34:12,840 Speaker 1: I'm just a believer of the FED saying will open 484 00:34:12,920 --> 00:34:16,560 Speaker 1: up the window and buy it's wide a variety of 485 00:34:16,640 --> 00:34:20,000 Speaker 1: securities as we can, because if we bolster, if we 486 00:34:20,080 --> 00:34:22,640 Speaker 1: bolster that, just in our little world of real estate, 487 00:34:22,680 --> 00:34:25,520 Speaker 1: if you bolster at the bottom, it all rises to 488 00:34:25,560 --> 00:34:28,319 Speaker 1: the top. In the investment grade, the big investment grade 489 00:34:28,360 --> 00:34:31,040 Speaker 1: companies don't need help. They can still access the market. 490 00:34:31,320 --> 00:34:34,760 Speaker 1: It's the other companies. So if you said, great, here's 491 00:34:34,800 --> 00:34:36,520 Speaker 1: what we're doing, and you have to keep a few 492 00:34:36,560 --> 00:34:41,200 Speaker 1: people employed at of their salary, and you have to 493 00:34:41,239 --> 00:34:43,680 Speaker 1: continue with benefits, and you have to continue with X, 494 00:34:45,560 --> 00:34:48,160 Speaker 1: I think you start to solve the problem. It's just 495 00:34:48,320 --> 00:34:51,680 Speaker 1: it's it's massively frightening to all of us who are 496 00:34:51,719 --> 00:34:57,239 Speaker 1: sitting on the precipice of this financial tsunami. And and 497 00:34:57,280 --> 00:34:59,760 Speaker 1: we're going to see more right, it's April twod today. 498 00:35:00,560 --> 00:35:03,560 Speaker 1: Payments between April two and April eleven. They're going to 499 00:35:03,640 --> 00:35:06,200 Speaker 1: tell us a lot who's going to pay and who's 500 00:35:06,239 --> 00:35:08,080 Speaker 1: not going to pay, And when they don't pay, what happens? 501 00:35:08,880 --> 00:35:11,920 Speaker 1: Can you imagine something, I mean, a governor or a 502 00:35:11,960 --> 00:35:14,760 Speaker 1: mayor of any city is not going to honor an 503 00:35:14,840 --> 00:35:18,720 Speaker 1: eviction of the tenant, So what is the landlord? Nobody pays, 504 00:35:18,840 --> 00:35:22,839 Speaker 1: nobody's going to get thrown out, right, it's the same 505 00:35:23,160 --> 00:35:26,040 Speaker 1: the resolution that the bankruptcy courts can't handle the amount 506 00:35:26,040 --> 00:35:28,279 Speaker 1: of bankruptcy is they're going to have to have a 507 00:35:28,320 --> 00:35:31,560 Speaker 1: cessation on the process. So it's easier to keep the 508 00:35:31,600 --> 00:35:36,120 Speaker 1: plumbing moving and employ the unintended social consequences of what 509 00:35:36,160 --> 00:35:43,560 Speaker 1: I'm about. If people can't function, Um, I think that's 510 00:35:43,600 --> 00:35:45,920 Speaker 1: actually a good place to leave it. Good will you 511 00:35:46,000 --> 00:35:48,839 Speaker 1: guys sent me the solution. Yeah, what we figured out. 512 00:35:49,400 --> 00:35:52,680 Speaker 1: We'll shoot you an email. Yeah, we'll try. Thank you 513 00:35:52,760 --> 00:35:55,800 Speaker 1: so much, Tom. A really great conversation and we appreciate 514 00:35:55,840 --> 00:35:58,279 Speaker 1: you coming on. No, you guys are great and it's 515 00:35:58,280 --> 00:36:01,080 Speaker 1: great catching up with both of you. Stay safe. Thanks 516 00:36:01,080 --> 00:36:13,880 Speaker 1: you too, Tom. Cheers you too, So, Joe. I found 517 00:36:13,880 --> 00:36:18,640 Speaker 1: that conversation really fascinating. Tom is probably the perfect person 518 00:36:18,719 --> 00:36:21,720 Speaker 1: to really talk about the intricacies of the mortgage market 519 00:36:21,760 --> 00:36:23,560 Speaker 1: at the moment, and I think what comes through the 520 00:36:23,600 --> 00:36:27,240 Speaker 1: most is that it's not as simple as everyone just saying, oh, 521 00:36:27,320 --> 00:36:29,040 Speaker 1: we're not going to pay the rent. For two or 522 00:36:29,080 --> 00:36:32,319 Speaker 1: three months. There is this sort of complicated network or 523 00:36:32,400 --> 00:36:38,680 Speaker 1: ecosystem that is attached to the cash flows from that rent. Well. Absolutely, 524 00:36:38,719 --> 00:36:40,719 Speaker 1: And of course we got into this a little bit 525 00:36:41,200 --> 00:36:44,800 Speaker 1: in our recent episode with Realton Postar and Perry Maryland 526 00:36:44,960 --> 00:36:49,160 Speaker 1: just about this sort of overall you know, the complex 527 00:36:49,160 --> 00:36:52,160 Speaker 1: web and why just if you for if you offer 528 00:36:52,239 --> 00:36:55,879 Speaker 1: forbearance for one entity, then that's another entity on the hook. 529 00:36:56,920 --> 00:37:00,120 Speaker 1: And I think what interested me is not just the 530 00:37:00,160 --> 00:37:03,839 Speaker 1: idea of like a systemic wide pause and whether it's 531 00:37:03,880 --> 00:37:08,319 Speaker 1: theoretically possible, but the as he described, the web of 532 00:37:08,440 --> 00:37:12,360 Speaker 1: different regulators around the world, or at least around the 533 00:37:12,400 --> 00:37:15,279 Speaker 1: country at a minimum, that would have to agree on 534 00:37:15,320 --> 00:37:18,399 Speaker 1: that there's not even there's no entity. Maybe the FED 535 00:37:18,440 --> 00:37:20,799 Speaker 1: could come closest, but there's no one even in a 536 00:37:20,840 --> 00:37:25,480 Speaker 1: position to unilaterally declare that um even if that were 537 00:37:25,560 --> 00:37:29,520 Speaker 1: seen as a best way forward at this point, right, 538 00:37:29,640 --> 00:37:31,880 Speaker 1: And I think his point about just sort of keeping 539 00:37:32,040 --> 00:37:35,880 Speaker 1: things going in the interim might be the cheapest and 540 00:37:35,960 --> 00:37:39,200 Speaker 1: easiest solution in the long run sort of makes a 541 00:37:39,200 --> 00:37:41,520 Speaker 1: lot of sense at this point, especially when you're talking 542 00:37:41,520 --> 00:37:45,920 Speaker 1: about something as heavily legal as US real estate. He 543 00:37:45,960 --> 00:37:49,480 Speaker 1: mentioned the bankruptcy system. Just then, Uh, we know that 544 00:37:49,560 --> 00:37:52,759 Speaker 1: a lot of the mortgage servicers are already full up 545 00:37:52,800 --> 00:37:55,760 Speaker 1: because a lot of people have been refinancing their mortgages 546 00:37:55,800 --> 00:37:58,319 Speaker 1: at ultra low rates. The idea that now we're going 547 00:37:58,360 --> 00:38:01,759 Speaker 1: to be having a bunch of loan works or bankruptcy processes, 548 00:38:02,880 --> 00:38:06,439 Speaker 1: you could see that easily easily overwhelming the system and 549 00:38:06,520 --> 00:38:10,600 Speaker 1: really making life harder for a lot of people. Yeah. Absolutely, 550 00:38:10,680 --> 00:38:14,760 Speaker 1: And of course, you know, a sort of a large 551 00:38:14,800 --> 00:38:17,840 Speaker 1: firm that has a lot of a lot of lawyers 552 00:38:17,880 --> 00:38:20,880 Speaker 1: and accountants can navigate this. You know, there's also a 553 00:38:20,920 --> 00:38:25,359 Speaker 1: lot of sole proprietor commercial real estate landlords out there. 554 00:38:25,480 --> 00:38:28,080 Speaker 1: There's just people who own a home and might rent 555 00:38:28,120 --> 00:38:32,120 Speaker 1: it out to someone else who don't have that capacity. 556 00:38:32,320 --> 00:38:34,759 Speaker 1: But they also aren't going to have the capacity to 557 00:38:34,920 --> 00:38:37,040 Speaker 1: do an eviction. They probably wouldn't even want to go 558 00:38:37,080 --> 00:38:40,920 Speaker 1: into the person's house or into the tenant's house. It 559 00:38:41,080 --> 00:38:43,439 Speaker 1: just you know, in a health crisis to do that. 560 00:38:44,040 --> 00:38:49,360 Speaker 1: So without some sort of systemic wide ability to again 561 00:38:49,480 --> 00:38:53,160 Speaker 1: hit this pause button, the other avenues that we typically 562 00:38:53,200 --> 00:38:55,759 Speaker 1: deal with, or the other avenues that we typically deal 563 00:38:55,760 --> 00:39:00,239 Speaker 1: with for bankruptcies will clearly just get overwhelmed and will 564 00:39:00,239 --> 00:39:03,960 Speaker 1: pay for it one way or another. I think in 565 00:39:04,160 --> 00:39:07,600 Speaker 1: some everything in the mortgage market right now is just 566 00:39:07,800 --> 00:39:12,279 Speaker 1: really really messy. That's my my overriding conclusion from this conversation. 567 00:39:13,080 --> 00:39:16,680 Speaker 1: And I know you know some of the things we've 568 00:39:16,719 --> 00:39:19,160 Speaker 1: recently talked about. If that was interesting, Tom dropping a 569 00:39:19,239 --> 00:39:23,759 Speaker 1: reference to um what is the Korean structured notes right 570 00:39:23,840 --> 00:39:27,600 Speaker 1: or the Taiwanese like buying the so previous odd lots 571 00:39:27,640 --> 00:39:31,520 Speaker 1: that we now have to revisit very soon because you 572 00:39:31,560 --> 00:39:34,239 Speaker 1: said at the beginning, we've caught all the We've hit 573 00:39:34,320 --> 00:39:36,719 Speaker 1: all the big themes, although we still haven't done the 574 00:39:36,760 --> 00:39:39,120 Speaker 1: e m angle, which I think is really big. But 575 00:39:39,160 --> 00:39:40,880 Speaker 1: we've hit all most of the big themes, and now 576 00:39:40,960 --> 00:39:43,080 Speaker 1: you need to get into the micro themes because there's 577 00:39:43,120 --> 00:39:45,839 Speaker 1: just so many aspects of this mess. To this guy, 578 00:39:46,560 --> 00:39:49,319 Speaker 1: all right, we've done macro. The micro is coming up 579 00:39:49,680 --> 00:39:53,160 Speaker 1: very soon, but let's leave it here for for this 580 00:39:53,200 --> 00:39:57,120 Speaker 1: particular episode. I'm Tracy Alloway. You can follow me on 581 00:39:57,160 --> 00:40:00,200 Speaker 1: Twitter at Tracy Alloway, and I'm Joe wi isn't All. 582 00:40:00,239 --> 00:40:03,120 Speaker 1: You can follow me on Twitter at the Stalwart, and 583 00:40:03,160 --> 00:40:05,520 Speaker 1: you should follow our guest on Twitter, Tom Barrett he's 584 00:40:05,640 --> 00:40:09,600 Speaker 1: at Tom Barrett Jr j R. And you should follow 585 00:40:09,600 --> 00:40:12,960 Speaker 1: our producer on Twitter, Laura Carlson. She's at Laura M. 586 00:40:13,000 --> 00:40:17,200 Speaker 1: Carlson followed the Bloomberg Head of Podcasts on Twitter, Francesca 587 00:40:17,280 --> 00:40:19,960 Speaker 1: Leaving at Francesca Today, as well as all of the 588 00:40:19,960 --> 00:40:24,640 Speaker 1: Bloomberg podcasts under the handle at podcasts. Thanks for listening.