1 00:00:02,720 --> 00:00:09,600 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. I'm gonna eat a bowl. 2 00:00:10,039 --> 00:00:11,200 Speaker 1: I go the Mono soup. 3 00:00:11,280 --> 00:00:12,000 Speaker 2: Wait, what is it? 4 00:00:12,080 --> 00:00:14,960 Speaker 1: I've got the Mono soup Potato and lemon. 5 00:00:15,040 --> 00:00:18,280 Speaker 2: Yea potato and lemon. That sounds lovely. This, of course 6 00:00:18,320 --> 00:00:20,360 Speaker 2: from the Bloomberg Pantry. 7 00:00:21,800 --> 00:00:22,520 Speaker 1: Get that on the mic. 8 00:00:22,600 --> 00:00:27,560 Speaker 2: This is ASMR. If you've ever wanted to if you 9 00:00:27,600 --> 00:00:30,400 Speaker 2: ever want to hear Malvine just inhaling soup. 10 00:00:30,600 --> 00:00:32,360 Speaker 1: I want to be clear that I was exaggerating my 11 00:00:32,440 --> 00:00:33,319 Speaker 1: slurping there for the mic. 12 00:00:33,400 --> 00:00:36,640 Speaker 2: That's what ASMR is, to exaggerate your sounds. At least 13 00:00:36,760 --> 00:00:39,440 Speaker 2: I don't know. I've never actually watched an a SMR video. 14 00:00:40,080 --> 00:00:41,839 Speaker 1: I'm like aware of the SMR with us. 15 00:00:41,880 --> 00:00:46,640 Speaker 2: I see parodies of it on TikTok, like people really 16 00:00:46,800 --> 00:00:51,519 Speaker 2: clicking keyboards. But that's all I got. 17 00:00:52,600 --> 00:00:55,360 Speaker 1: Yeah, I hope that some people get spine tingles out 18 00:00:55,360 --> 00:00:58,680 Speaker 1: of this podcast. 19 00:00:59,160 --> 00:01:01,280 Speaker 2: I just shuddered, got a spine shudder. 20 00:01:02,800 --> 00:01:05,720 Speaker 1: Hello and welcome to the Money Stuff Podcast, your weekly 21 00:01:05,800 --> 00:01:10,480 Speaker 1: podcast where we talked about stuff related to money. I'm 22 00:01:10,480 --> 00:01:12,640 Speaker 1: Matt Levine and I write the Money Stuff column for 23 00:01:12,720 --> 00:01:13,600 Speaker 1: Bloomberg Opinion. 24 00:01:14,240 --> 00:01:16,840 Speaker 2: And I'm Katie greifeld a reporter for Bloomberg News and 25 00:01:16,880 --> 00:01:20,720 Speaker 2: an anchor for Bloomberg Television. You just took a sip 26 00:01:20,720 --> 00:01:22,399 Speaker 2: of water off mic, and I. 27 00:01:22,360 --> 00:01:24,560 Speaker 1: Feel like, yeah, I'm not, in general trying to make 28 00:01:24,640 --> 00:01:26,039 Speaker 1: mouth poises throughout the podcast. 29 00:01:26,600 --> 00:01:28,320 Speaker 2: That's what the podcast is, just mouth. 30 00:01:30,080 --> 00:01:30,640 Speaker 1: That's the title. 31 00:01:31,760 --> 00:01:39,360 Speaker 2: All right, one thing, We're done here. So I don't 32 00:01:39,360 --> 00:01:43,119 Speaker 2: own a home. I would really like to and maybe. 33 00:01:42,920 --> 00:01:44,839 Speaker 1: But you're not forty yet, which is like the median 34 00:01:44,880 --> 00:01:45,280 Speaker 1: age of. 35 00:01:45,319 --> 00:01:48,200 Speaker 2: I know, I know, I think it's thirty nine. 36 00:01:48,400 --> 00:01:52,240 Speaker 1: But you know, anyway, what would make your home more affordable. 37 00:01:53,760 --> 00:01:56,400 Speaker 1: It's probably not a fifty year mortgage. But that's like 38 00:01:56,480 --> 00:01:57,680 Speaker 1: been in the news this week. 39 00:01:57,760 --> 00:01:58,840 Speaker 2: It's been in the news. 40 00:01:58,840 --> 00:02:00,960 Speaker 1: Trump tweeted about our about it or whatever he. 41 00:02:01,000 --> 00:02:03,560 Speaker 2: Did he did. Did you see the Politico story on 42 00:02:03,640 --> 00:02:05,280 Speaker 2: the TikTok of how it came to be? 43 00:02:05,840 --> 00:02:08,600 Speaker 1: It's so good. It's because it's like a political story 44 00:02:08,639 --> 00:02:11,560 Speaker 1: that's like the Trump administration is just a snake pit. 45 00:02:11,639 --> 00:02:13,320 Speaker 1: And so it's like all the people who don't like 46 00:02:14,200 --> 00:02:17,919 Speaker 1: Bill Poulty, who is the head of the Federal Housing 47 00:02:18,000 --> 00:02:22,360 Speaker 1: Regulator and a real you know, publicity hound, Bill Bulting 48 00:02:22,480 --> 00:02:24,320 Speaker 1: like apparently shut up to a golf game with Trump 49 00:02:24,400 --> 00:02:29,520 Speaker 1: with like a giant poster board saying like Franklin Roosevelt 50 00:02:29,600 --> 00:02:32,080 Speaker 1: invented the thirty year mortgage, Donald Trump invented the fifty 51 00:02:32,160 --> 00:02:34,040 Speaker 1: year mortgage. And Trump was like, great, I'll tweet about it. 52 00:02:34,160 --> 00:02:36,960 Speaker 2: I have the details. It was a Saturday evening, it 53 00:02:37,040 --> 00:02:38,960 Speaker 2: was not during a golf game, but it was at 54 00:02:38,960 --> 00:02:41,920 Speaker 2: President Donald Trump's Palm Beach golf club. It was a 55 00:02:41,960 --> 00:02:44,800 Speaker 2: three x five poster board. Sure, and you're right in 56 00:02:44,840 --> 00:02:49,239 Speaker 2: that FDR appeared below thirty year mortgage and there was 57 00:02:49,280 --> 00:02:51,840 Speaker 2: a photo of Trump below fifty year mortgage and the 58 00:02:51,840 --> 00:02:54,120 Speaker 2: headline was great American President. Right. 59 00:02:54,200 --> 00:02:55,799 Speaker 1: So that was enough for Trump to tweet about it 60 00:02:55,840 --> 00:02:57,760 Speaker 1: and be like, oh, yeah, that's all the policy analysays 61 00:02:57,800 --> 00:02:59,919 Speaker 1: I needed to back a fifty year mortgage. And then, 62 00:03:00,120 --> 00:03:02,160 Speaker 1: like other people in Tromp administration, went to political and 63 00:03:02,160 --> 00:03:04,720 Speaker 1: are like he sold potus a bill of goods that 64 00:03:04,800 --> 00:03:07,440 Speaker 1: wasn't necessarily accurate, and I don't know, they said about 65 00:03:07,440 --> 00:03:09,960 Speaker 1: your other nasty things about Pulty, like you know, yeah, 66 00:03:10,080 --> 00:03:11,040 Speaker 1: recorded in Politico. 67 00:03:11,400 --> 00:03:13,880 Speaker 2: Yeah, it's funny because it's showing up in the stock market. 68 00:03:13,919 --> 00:03:17,600 Speaker 2: We're recording this on Thursday and at least right now, 69 00:03:18,160 --> 00:03:21,480 Speaker 2: shares of Fanny May and Freddie Mack apparently they're falling 70 00:03:21,480 --> 00:03:23,720 Speaker 2: in a big way because the word on the street 71 00:03:23,760 --> 00:03:26,760 Speaker 2: is that Pulty is falling out of favor with the administration, 72 00:03:26,880 --> 00:03:30,920 Speaker 2: which is probably I don't know nothing's real until it is. 73 00:03:31,000 --> 00:03:33,760 Speaker 2: But it's funny to see shares actually. 74 00:03:33,440 --> 00:03:36,360 Speaker 1: React, right, And it's such like a bank shot. It's 75 00:03:36,400 --> 00:03:39,120 Speaker 1: not like would a fifty year mortgage be good for Fanny? 76 00:03:39,160 --> 00:03:42,240 Speaker 1: Would it be bad for Fanny? It doesn't matter. Like 77 00:03:42,240 --> 00:03:45,520 Speaker 1: I've written about this for literally a decade, one day 78 00:03:45,840 --> 00:03:49,120 Speaker 1: Fanny and Freddie will be released from government conservatorship. But 79 00:03:49,200 --> 00:03:52,080 Speaker 1: you could always make money by betting against the being 80 00:03:52,280 --> 00:03:53,960 Speaker 1: in the next year. Like for the last ten years 81 00:03:54,000 --> 00:03:55,920 Speaker 1: people said, oh, it can't last forever, they have to 82 00:03:55,960 --> 00:03:58,360 Speaker 1: be released. But so like there was like a thesis 83 00:03:58,400 --> 00:04:01,040 Speaker 1: that Pulty would be the one to crack it open 84 00:04:01,080 --> 00:04:01,720 Speaker 1: and actually. 85 00:04:01,440 --> 00:04:02,680 Speaker 2: Make it happen over the line. 86 00:04:02,720 --> 00:04:05,760 Speaker 1: And now if both out of favor, then I don't know, 87 00:04:05,800 --> 00:04:07,800 Speaker 1: I still think one day they're going to be released. 88 00:04:07,960 --> 00:04:10,440 Speaker 2: Well, it's funny because you saw such a big run 89 00:04:10,520 --> 00:04:12,400 Speaker 2: up and shares on this idea, and to your point 90 00:04:12,400 --> 00:04:15,160 Speaker 2: that you can always make money betting against that idea. Apparently, 91 00:04:15,160 --> 00:04:17,760 Speaker 2: shares of both have lost about fifty percent since their 92 00:04:17,800 --> 00:04:20,880 Speaker 2: September peak, so just in the last two months or so. 93 00:04:21,360 --> 00:04:25,919 Speaker 2: It's pretty amazing, though, that the pushback to the idea 94 00:04:25,920 --> 00:04:28,760 Speaker 2: of a fifty year mortgage has been pretty bipartisan. Oh yeah, 95 00:04:28,800 --> 00:04:31,280 Speaker 2: it's a terribly tell me why. 96 00:04:31,480 --> 00:04:35,000 Speaker 1: Well, Okay, the idea of fifty year mortgage is that 97 00:04:35,040 --> 00:04:37,119 Speaker 1: if you spread out your payments over fifty years instead 98 00:04:37,120 --> 00:04:39,200 Speaker 1: of thirty years, your payments will be lower. 99 00:04:39,360 --> 00:04:40,520 Speaker 2: This sounds good and. 100 00:04:40,400 --> 00:04:42,680 Speaker 1: Like, you know, a normal assumption to like you'd save 101 00:04:42,839 --> 00:04:46,719 Speaker 1: like ten or fifteen percent on your monthly mortgage payment. 102 00:04:47,279 --> 00:04:50,479 Speaker 1: And so if people think about affordability of homes as 103 00:04:50,480 --> 00:04:53,040 Speaker 1: being mainly a matter of the monthly payment they could make, 104 00:04:53,480 --> 00:04:57,240 Speaker 1: then cutting fifteen percent off your monthly payment makes homes 105 00:04:57,240 --> 00:04:59,719 Speaker 1: more affordable. Yeah, and if people are worried about home affordability, 106 00:04:59,760 --> 00:05:03,480 Speaker 1: the is a good policy. There are various problems with that, 107 00:05:03,640 --> 00:05:05,360 Speaker 1: one of which is that you have to have your 108 00:05:05,360 --> 00:05:07,520 Speaker 1: mortgage for fifty years, and so, like you don't build 109 00:05:07,560 --> 00:05:09,440 Speaker 1: up equity, you're spending a lot more on interest. You know, 110 00:05:09,440 --> 00:05:11,280 Speaker 1: people are like it doubles the cost of interest you 111 00:05:11,320 --> 00:05:13,720 Speaker 1: pay over the life of the one and so it 112 00:05:13,760 --> 00:05:16,359 Speaker 1: feels even less like home ownership and more like just 113 00:05:16,400 --> 00:05:19,200 Speaker 1: renting forever. But to me, that's not the big problem. 114 00:05:19,279 --> 00:05:21,839 Speaker 1: To me, the big problem is like, and this is 115 00:05:21,839 --> 00:05:24,640 Speaker 1: biased by my experience living in and around New York, 116 00:05:25,279 --> 00:05:28,320 Speaker 1: but like where I live, housing is a positional good, 117 00:05:28,720 --> 00:05:31,400 Speaker 1: and there are only so many houses, and people compete 118 00:05:31,440 --> 00:05:33,520 Speaker 1: to buy them. And so if you just waved a 119 00:05:33,520 --> 00:05:37,240 Speaker 1: magic wand and said houses will be ten percent more affordable, 120 00:05:37,560 --> 00:05:39,159 Speaker 1: that people would still compete to buy them, and they 121 00:05:39,200 --> 00:05:41,920 Speaker 1: would just bid them up more until they stopped being 122 00:05:41,920 --> 00:05:44,359 Speaker 1: ten percent more affordable. Right, Like, the price of a 123 00:05:44,400 --> 00:05:47,440 Speaker 1: house where I live is not determined by how much 124 00:05:47,480 --> 00:05:49,359 Speaker 1: it costs to build a house. It's determined by, like 125 00:05:49,360 --> 00:05:51,200 Speaker 1: you know, there's only so many houses, there's only so 126 00:05:51,279 --> 00:05:53,880 Speaker 1: much land in desirable areas, and so people bid up 127 00:05:53,920 --> 00:05:55,800 Speaker 1: the price of that. And so if you did something 128 00:05:55,839 --> 00:05:58,359 Speaker 1: to make housing more affordable, you would just raise the 129 00:05:58,400 --> 00:06:03,479 Speaker 1: price of houses till fully eliminate that affordability advantage, and 130 00:06:03,520 --> 00:06:05,840 Speaker 1: so houses would be no more affordable. People like mey 131 00:06:05,839 --> 00:06:08,240 Speaker 1: who own homes would make money because there'd be like 132 00:06:08,279 --> 00:06:10,680 Speaker 1: a windfall one time gain, although then you'd have to 133 00:06:10,720 --> 00:06:11,920 Speaker 1: go buy it. You know, if you moved, you'd have 134 00:06:11,960 --> 00:06:14,200 Speaker 1: to buy a more expensive house, but like all of 135 00:06:14,240 --> 00:06:16,640 Speaker 1: the affordability goals would be eliminated and you'd end up 136 00:06:16,640 --> 00:06:18,599 Speaker 1: just having the same monthly payment but for fifty years 137 00:06:18,600 --> 00:06:21,520 Speaker 1: instead of thirty years, which seems terrible. I think it's 138 00:06:21,520 --> 00:06:25,839 Speaker 1: true everywhere, but like a lot of us housing is 139 00:06:25,920 --> 00:06:29,400 Speaker 1: supply constrained, and you do like see this effect, right, 140 00:06:29,440 --> 00:06:31,400 Speaker 1: Like people talk about student loans, right, Like, if you 141 00:06:31,480 --> 00:06:35,200 Speaker 1: have government subsidies of student loans, what happens is not 142 00:06:35,279 --> 00:06:37,640 Speaker 1: that it gets cheaper to attend college. It's that colleges 143 00:06:37,720 --> 00:06:40,440 Speaker 1: raise their tuition to fully capture that subsidy, and it 144 00:06:40,440 --> 00:06:42,480 Speaker 1: gets to be, you know, the same price to attend college, 145 00:06:42,520 --> 00:06:45,200 Speaker 1: but the government is subsidizing it. And I think you'd 146 00:06:45,200 --> 00:06:48,000 Speaker 1: see that here where if the default mortgage was fifty years, 147 00:06:48,200 --> 00:06:50,599 Speaker 1: you would still kind of be paying the same amount 148 00:06:50,640 --> 00:06:52,640 Speaker 1: per month, but nomeral house prizes will be higher. 149 00:06:52,880 --> 00:06:55,359 Speaker 2: Yeah. Well, I mean make it about myself. I would 150 00:06:55,400 --> 00:06:57,800 Speaker 2: like to buy a home. Rates are really high. 151 00:06:57,800 --> 00:07:00,559 Speaker 1: I don't need they'd be higher for to your markets. 152 00:07:01,120 --> 00:07:03,520 Speaker 2: Yeah, I don't need to buy a home, So we're 153 00:07:03,560 --> 00:07:06,120 Speaker 2: kind of just timing the market waiting for rates to 154 00:07:06,160 --> 00:07:08,400 Speaker 2: go down, but there has to be a bunch of 155 00:07:08,400 --> 00:07:10,440 Speaker 2: people like me and do you think about Okay, rates 156 00:07:10,440 --> 00:07:12,320 Speaker 2: go down, but then the people on the sidelines come 157 00:07:12,360 --> 00:07:13,840 Speaker 2: in and they push up the price of the house, 158 00:07:13,880 --> 00:07:16,640 Speaker 2: and I don't know, it probably ends up in the 159 00:07:16,840 --> 00:07:19,600 Speaker 2: wash in terms of yeah, and how much of saving. 160 00:07:19,960 --> 00:07:23,120 Speaker 1: It's not fully true that like house prices go up 161 00:07:23,120 --> 00:07:24,840 Speaker 1: as rates go down, but it is like kind of 162 00:07:24,880 --> 00:07:28,240 Speaker 1: true that, like, you know, you'd think lower rates would 163 00:07:28,320 --> 00:07:31,000 Speaker 1: lead to more housing affordability, but like the summits that 164 00:07:31,000 --> 00:07:33,560 Speaker 1: that gets washed out by raising the prices of houses. Yeah, 165 00:07:33,600 --> 00:07:35,320 Speaker 1: it's the same basic mechanism. 166 00:07:35,000 --> 00:07:37,760 Speaker 2: To your point that it probably feels like renting forever. 167 00:07:38,720 --> 00:07:42,120 Speaker 2: There's a note from Compass point that was pretty crazy. 168 00:07:42,280 --> 00:07:44,240 Speaker 2: The view of this analyst was that a fifty year 169 00:07:44,280 --> 00:07:49,000 Speaker 2: mortgage offers quote home ownership via an indentured servitude contract, 170 00:07:49,440 --> 00:07:51,160 Speaker 2: calling the concept a bad idea. 171 00:07:51,560 --> 00:07:53,240 Speaker 1: Yeah, I agree with that, but I also like the 172 00:07:53,280 --> 00:07:55,800 Speaker 1: difference in thirty ars and fifty years and that great like. 173 00:07:56,680 --> 00:07:59,560 Speaker 2: Most that's what President Trump said, Yeah, just. 174 00:07:59,440 --> 00:08:02,200 Speaker 1: Like back to use. It's a little thing I don't 175 00:08:02,440 --> 00:08:04,280 Speaker 1: Most people don't live in their homes for thirty years, right, 176 00:08:04,360 --> 00:08:06,600 Speaker 1: Like a thirty year MORTGAGEES is a way to sort 177 00:08:06,640 --> 00:08:09,800 Speaker 1: of adjust the payments and ultimately, like you saw your 178 00:08:09,800 --> 00:08:12,240 Speaker 1: house after seven years and you you know, cash out 179 00:08:12,240 --> 00:08:14,360 Speaker 1: whatever the increase in the equity is. With a fifty 180 00:08:14,440 --> 00:08:19,760 Speaker 1: year mortgage, you'd build the in round numbers zero equity 181 00:08:19,800 --> 00:08:22,400 Speaker 1: in your first you know, seven years, and so you'd 182 00:08:22,400 --> 00:08:24,400 Speaker 1: basically be cashing out the increase in the house price 183 00:08:24,480 --> 00:08:27,400 Speaker 1: rather than you know, actually having a savings device. But 184 00:08:27,920 --> 00:08:29,920 Speaker 1: it's not literal, and you know you don't you don't 185 00:08:29,960 --> 00:08:30,680 Speaker 1: have to stay. 186 00:08:30,440 --> 00:08:33,160 Speaker 2: There for fifty years. I'm sure a lot of people 187 00:08:33,360 --> 00:08:36,559 Speaker 2: opened this analyst's research note though. 188 00:08:36,520 --> 00:08:38,920 Speaker 1: So because it's said indentured it's hurt in the headline. 189 00:08:39,520 --> 00:08:40,520 Speaker 2: Yeah, I would click on that. 190 00:08:40,600 --> 00:08:42,080 Speaker 1: It's pretty good. I Do you want to talk about 191 00:08:42,120 --> 00:08:44,240 Speaker 1: the other Bill Pulty ideas? 192 00:08:44,360 --> 00:08:45,400 Speaker 2: Yeah, tell me about them. 193 00:08:45,559 --> 00:08:50,400 Speaker 1: Well, so they're assumable and portable mortgages. Yes, you didn't 194 00:08:50,440 --> 00:08:52,080 Speaker 1: about these ideas. People have been talking about this forever 195 00:08:52,120 --> 00:08:55,160 Speaker 1: and like they exist in various pockets of the world, 196 00:08:55,200 --> 00:08:57,720 Speaker 1: but they're not like the norm in US mortgages. But 197 00:08:57,760 --> 00:09:00,400 Speaker 1: so in an assumable mortgage is like I move out 198 00:09:00,400 --> 00:09:02,560 Speaker 1: of my house, you buy my house, I give you 199 00:09:02,640 --> 00:09:05,480 Speaker 1: my mortgage and a portal mortrorgage. I move out of 200 00:09:05,520 --> 00:09:07,920 Speaker 1: my house, I buy a different house, and I take 201 00:09:07,960 --> 00:09:09,840 Speaker 1: my mortgage with me. Right, So, like if I have 202 00:09:09,880 --> 00:09:12,800 Speaker 1: a three and a quarter percent mortgage, which. 203 00:09:12,880 --> 00:09:15,360 Speaker 2: Katie, I do, okay less. 204 00:09:15,840 --> 00:09:17,680 Speaker 1: With three and a quarter percent mortgage, and I want 205 00:09:17,679 --> 00:09:19,760 Speaker 1: to move now, like whatever mortgage rates are, you know, 206 00:09:20,080 --> 00:09:21,280 Speaker 1: six and change percent. 207 00:09:21,120 --> 00:09:21,760 Speaker 2: Something like that. 208 00:09:21,840 --> 00:09:23,920 Speaker 1: If I wanted to move, if I could keep my 209 00:09:23,960 --> 00:09:26,720 Speaker 1: three and a quarter percent mortgage, that would be nice 210 00:09:26,720 --> 00:09:31,439 Speaker 1: for me, right, And so in normal US mortgages now 211 00:09:31,480 --> 00:09:33,200 Speaker 1: you can't, but like you know, there are places where 212 00:09:33,240 --> 00:09:36,720 Speaker 1: you can't, and both He has talked about having some 213 00:09:36,920 --> 00:09:39,240 Speaker 1: version of that in the kind of like Fanny and 214 00:09:39,280 --> 00:09:41,319 Speaker 1: Freddie standardized US mortgage market. 215 00:09:41,720 --> 00:09:44,839 Speaker 2: That makes sense, Yeah, sort of. 216 00:09:45,360 --> 00:09:48,559 Speaker 1: It would be nice if you do it. The problem is. 217 00:09:48,800 --> 00:09:51,360 Speaker 2: There might be more inventory because people wouldn't just sit 218 00:09:51,360 --> 00:09:51,920 Speaker 2: on their houses for. 219 00:09:52,160 --> 00:09:53,920 Speaker 1: Ye, that's true. It would like loosen up the market 220 00:09:53,960 --> 00:09:54,320 Speaker 1: a little bit. 221 00:09:54,480 --> 00:09:54,680 Speaker 2: Yeah. 222 00:09:54,720 --> 00:09:58,680 Speaker 1: Problem is that, like the US has a thirty year mortgage, yes, 223 00:09:59,040 --> 00:10:02,720 Speaker 1: which has fast terms. It is a thirty year mortgage 224 00:10:02,960 --> 00:10:06,760 Speaker 1: with a fixed rate. Normal you know people's mortgage thirty 225 00:10:06,760 --> 00:10:09,480 Speaker 1: your mortgage with a fixed rate that is prepayable at 226 00:10:09,520 --> 00:10:13,240 Speaker 1: any time without penalty, and that is a like in theory, 227 00:10:13,400 --> 00:10:15,520 Speaker 1: a very valuable option. Right, if you borrow money for 228 00:10:15,520 --> 00:10:17,400 Speaker 1: thirty years and at any point you can prepay it 229 00:10:17,400 --> 00:10:20,600 Speaker 1: without penalty, then if like market insru's rates go up, 230 00:10:20,640 --> 00:10:22,720 Speaker 1: you keep your mortgage and you're paying a low market rate. 231 00:10:23,000 --> 00:10:25,400 Speaker 1: And if market rates go down, you prepay your mortgage 232 00:10:25,440 --> 00:10:28,000 Speaker 1: and get a new mortgage and you get the lower rate. 233 00:10:28,400 --> 00:10:32,280 Speaker 1: So if you're a mortgage investor, you're always on the 234 00:10:32,320 --> 00:10:34,959 Speaker 1: wrong side of that. If rates go up, you hold 235 00:10:35,120 --> 00:10:36,960 Speaker 1: a low market paper and if rates go down, you 236 00:10:37,000 --> 00:10:41,840 Speaker 1: get you know, prepaid. And that's not really true because 237 00:10:41,920 --> 00:10:47,760 Speaker 1: almost nobody optimally exercises their prepayment option because almost everybody 238 00:10:47,880 --> 00:10:50,600 Speaker 1: who is a thirty year mortgage moves after like seven years, 239 00:10:51,080 --> 00:10:53,480 Speaker 1: and so when they move, they have to prepay their mortgage. 240 00:10:53,480 --> 00:10:56,360 Speaker 1: And so it's not the case that people only prepay 241 00:10:56,360 --> 00:11:00,280 Speaker 1: when rates go down, right, It's like people prepay kind 242 00:11:00,280 --> 00:11:02,760 Speaker 1: of randomly, And sometimes people who have three and a 243 00:11:02,840 --> 00:11:05,840 Speaker 1: quarter percent mortgages move and prepay their mortgage and go 244 00:11:05,880 --> 00:11:08,160 Speaker 1: get another six percent mortgage and grumble about it, but 245 00:11:08,200 --> 00:11:09,440 Speaker 1: they have to do it. Let the move for work, 246 00:11:09,520 --> 00:11:11,640 Speaker 1: or whatever, right, and if you got rid of that, 247 00:11:11,800 --> 00:11:14,760 Speaker 1: then the prepayment option would be a really valuable option, 248 00:11:15,160 --> 00:11:17,080 Speaker 1: and that would make it would be really bad for 249 00:11:17,120 --> 00:11:20,040 Speaker 1: mortgage investors and make mortgages much more expensive, I think, 250 00:11:20,240 --> 00:11:23,439 Speaker 1: because you'd have to price that option right, because people 251 00:11:23,480 --> 00:11:25,679 Speaker 1: would never prepay except when rates went down, and so 252 00:11:25,760 --> 00:11:28,760 Speaker 1: you'd always have kind of the wrong way interest rate 253 00:11:28,840 --> 00:11:29,679 Speaker 1: risk on your mortgage. 254 00:11:30,640 --> 00:11:33,240 Speaker 2: And how do you feel about assumable mortgages. 255 00:11:33,360 --> 00:11:36,920 Speaker 1: It's the same story, but either way, the point is 256 00:11:36,920 --> 00:11:39,960 Speaker 1: that if you have a below market mortgage, someone can 257 00:11:40,040 --> 00:11:42,600 Speaker 1: keep it right. Yeah, And like you know, assumable mortgage 258 00:11:42,600 --> 00:11:44,439 Speaker 1: is like you take my blow market mortgage, but like 259 00:11:44,440 --> 00:11:46,360 Speaker 1: presumably you pay me for that, right, So it's the 260 00:11:46,360 --> 00:11:47,280 Speaker 1: same basic idea. 261 00:11:47,880 --> 00:11:50,199 Speaker 2: I would like to take it without paying you. 262 00:11:51,120 --> 00:11:51,680 Speaker 1: I understand. 263 00:11:52,000 --> 00:11:55,800 Speaker 2: Okay, that could have I mean, something could have happened 264 00:11:55,840 --> 00:12:00,880 Speaker 2: to here anyway. I don't want to move to your house, though, 265 00:12:01,960 --> 00:12:04,439 Speaker 2: I'm sure it's great. It's not dead possums. 266 00:12:04,480 --> 00:12:07,600 Speaker 1: And that's right, we've talked. Its only bad things about 267 00:12:07,600 --> 00:12:09,079 Speaker 1: my house. 268 00:12:09,360 --> 00:12:11,600 Speaker 2: No, I see it on Instagram sometimes. 269 00:12:11,559 --> 00:12:12,960 Speaker 1: You know what, I have a have a really good 270 00:12:13,200 --> 00:12:13,800 Speaker 1: mortgage rate. 271 00:12:14,040 --> 00:12:17,520 Speaker 2: Yeah, yeah, that's probably Yeah, I want to die in 272 00:12:17,520 --> 00:12:33,880 Speaker 2: New Jersey. Though, what do you want to talk about now? 273 00:12:34,000 --> 00:12:36,160 Speaker 1: I don't know, you talk about proxy advisors? 274 00:12:36,240 --> 00:12:39,000 Speaker 2: Yeah, why not? This is a fun conversation on the 275 00:12:39,000 --> 00:12:43,800 Speaker 2: heels of, of course, the Tesla vote Elon Musk's compensation package. 276 00:12:43,960 --> 00:12:46,560 Speaker 1: Yeah, there's two praxy advisors. I mean there's more than two, 277 00:12:46,600 --> 00:12:49,640 Speaker 1: but there's two for practical purposes, and they're called ISS 278 00:12:49,920 --> 00:12:55,400 Speaker 1: IS in Distitutional Shareholders Service and Glass Lewis, and they're 279 00:12:55,400 --> 00:12:58,520 Speaker 1: in the business of telling investors how they should vote 280 00:12:58,559 --> 00:13:02,400 Speaker 1: on proxy vote and you almost never hear about it 281 00:13:02,440 --> 00:13:05,160 Speaker 1: because it doesn't matter. It's like all these like advisory 282 00:13:05,160 --> 00:13:06,880 Speaker 1: practice votes at companies you don't care about. And then 283 00:13:06,920 --> 00:13:10,320 Speaker 1: every once in a while, not that infrequently, Tesla's like, 284 00:13:10,400 --> 00:13:12,880 Speaker 1: we'd like to give Elon Musk at trillion dollars, what 285 00:13:12,920 --> 00:13:17,280 Speaker 1: do you think shareholders? And then Glass Lewis and ISS 286 00:13:17,440 --> 00:13:20,520 Speaker 1: say no. Of course they say no because, like they 287 00:13:20,520 --> 00:13:27,120 Speaker 1: are professionals in the business of corporate governance, and they 288 00:13:27,160 --> 00:13:32,880 Speaker 1: have certain professional norms and expectations, Like they go to conferences, 289 00:13:32,960 --> 00:13:35,320 Speaker 1: they talk to like minded people who are interested in 290 00:13:35,360 --> 00:13:37,800 Speaker 1: corporate governance. And if you ask anyone interested in corporate 291 00:13:37,840 --> 00:13:41,040 Speaker 1: governance should we pay the CEO at trillion dollars. They'll say, no, 292 00:13:41,320 --> 00:13:43,440 Speaker 1: that's not a good thing. And then Tesla is like 293 00:13:43,480 --> 00:13:45,960 Speaker 1: a different kettle of fish. Right, Like, Tesla has investors 294 00:13:45,960 --> 00:13:47,719 Speaker 1: who like Elon Musk, and he's like, I want a 295 00:13:47,760 --> 00:13:49,679 Speaker 1: trillion dollars. I'm like, great, here, I have a trillion dollars. 296 00:13:50,080 --> 00:13:52,080 Speaker 1: But Class Lewis and I as us don't want that, 297 00:13:52,440 --> 00:13:54,720 Speaker 1: and so they say no, and then nobody cares because 298 00:13:54,880 --> 00:13:57,640 Speaker 1: Tesla's investors some of them follow Glass Lewis and Is 299 00:13:57,840 --> 00:14:01,360 Speaker 1: as recommendations, but most of them are And so Tesla 300 00:14:01,440 --> 00:14:04,080 Speaker 1: voted in favor of giving Elms bags of money, but 301 00:14:04,120 --> 00:14:05,200 Speaker 1: el Ms got mad. 302 00:14:07,000 --> 00:14:07,200 Speaker 2: Yeah. 303 00:14:07,200 --> 00:14:09,840 Speaker 1: I think there's a widespread you know, kind of like 304 00:14:10,000 --> 00:14:13,559 Speaker 1: right wing coded being mad at Glass Lewis and Iss 305 00:14:14,559 --> 00:14:19,320 Speaker 1: because they tell people how to vote on corporate shareholder votes. 306 00:14:19,800 --> 00:14:23,520 Speaker 1: And corporate shareholder votes, a lot of them are about 307 00:14:23,640 --> 00:14:27,480 Speaker 1: shareholder proposals, like you should write a report about how 308 00:14:27,560 --> 00:14:32,080 Speaker 1: much carbon you produce. Right, It's very like environmental and 309 00:14:32,160 --> 00:14:37,680 Speaker 1: social coded, and so these firms sometimes tell shareholders you 310 00:14:37,680 --> 00:14:40,840 Speaker 1: should vote in favor of writing a report on carbonations. 311 00:14:41,400 --> 00:14:44,040 Speaker 1: So there's this perception that they're like kind of esg 312 00:14:44,280 --> 00:14:47,480 Speaker 1: ish that they care more about environmental, social, and governance 313 00:14:47,520 --> 00:14:51,080 Speaker 1: issues than like, you know, the Trump administration or the 314 00:14:51,440 --> 00:14:55,080 Speaker 1: Republican Congress people do. And so there's the sense that 315 00:14:55,120 --> 00:14:57,320 Speaker 1: like they have too much power and they push companies 316 00:14:57,360 --> 00:14:59,800 Speaker 1: to be more left wing than they otherwise would be. 317 00:15:00,080 --> 00:15:01,880 Speaker 1: So there's like an effort to rain them in, and 318 00:15:01,920 --> 00:15:03,600 Speaker 1: you've seen that this week with like the Wall Street 319 00:15:03,680 --> 00:15:07,920 Speaker 1: Journal reporting that the Trump White House is contemplating some 320 00:15:07,960 --> 00:15:10,400 Speaker 1: sort of executive order too in some way rein in 321 00:15:10,440 --> 00:15:12,920 Speaker 1: the proxy advisors, right, and then also there's a report 322 00:15:13,000 --> 00:15:17,040 Speaker 1: that the Federal Trade Commission is investigating them for anti 323 00:15:17,040 --> 00:15:17,880 Speaker 1: trust problems. 324 00:15:18,160 --> 00:15:22,120 Speaker 2: Yeah, basically whether they're breaking anti trust laws related to 325 00:15:22,160 --> 00:15:25,480 Speaker 2: how they advise on proxy issues such as climate and 326 00:15:25,520 --> 00:15:26,680 Speaker 2: social related policy. 327 00:15:26,920 --> 00:15:29,800 Speaker 1: Yeah, it's not clear what the anti trust problem is. Yeah, 328 00:15:29,880 --> 00:15:33,000 Speaker 1: there was a House hearing on you know, anti trust 329 00:15:33,000 --> 00:15:35,480 Speaker 1: in the proxy advisors a few months ago. And the 330 00:15:35,600 --> 00:15:37,360 Speaker 1: kind of thrust there is that there are only two 331 00:15:37,440 --> 00:15:41,560 Speaker 1: of them, and they somehow stifle competition or have bought 332 00:15:41,640 --> 00:15:44,680 Speaker 1: up competitors so that there's only two proxy advisors. And 333 00:15:44,720 --> 00:15:46,320 Speaker 1: the world would be a better place if there was 334 00:15:46,360 --> 00:15:49,760 Speaker 1: a lot of proxy advisors. I don't think that's really 335 00:15:50,920 --> 00:15:53,560 Speaker 1: the problem. I think the problem that people worry about 336 00:15:53,600 --> 00:15:55,800 Speaker 1: is that, however many you know, two or three or 337 00:15:55,800 --> 00:16:01,160 Speaker 1: ten proxy advisors, the proxy advisors have theoretically outside impact 338 00:16:01,200 --> 00:16:05,320 Speaker 1: because they tell shareholders of every company how to vote. Like, 339 00:16:05,400 --> 00:16:07,840 Speaker 1: the market is not for proxy advisory services, the market 340 00:16:07,880 --> 00:16:10,400 Speaker 1: is for every public company. I also think that, like, 341 00:16:11,280 --> 00:16:13,840 Speaker 1: there are only two proxy advisory services that are big, 342 00:16:14,520 --> 00:16:15,680 Speaker 1: but how many should there be? 343 00:16:16,720 --> 00:16:21,240 Speaker 2: Kind of reminds me of ratings agencies, because there's three 344 00:16:21,280 --> 00:16:21,600 Speaker 2: of them. 345 00:16:21,920 --> 00:16:22,600 Speaker 1: It's very similar. 346 00:16:22,680 --> 00:16:27,359 Speaker 2: Yeah, yeah, there's more than three, but there. 347 00:16:26,040 --> 00:16:28,760 Speaker 1: Is more competition in ratings agency. People worry that it's 348 00:16:28,760 --> 00:16:31,760 Speaker 1: an olocopoly, but it's more competitive than in proxy advisory 349 00:16:32,240 --> 00:16:33,680 Speaker 1: And I think one reason for that is, like. 350 00:16:36,680 --> 00:16:38,880 Speaker 2: Ratings keep it in. 351 00:16:40,200 --> 00:16:47,360 Speaker 1: I don't even know what that was. Ratings is ratings 352 00:16:49,200 --> 00:16:54,600 Speaker 1: are intuitively important. People care about the credit worthiness of 353 00:16:54,880 --> 00:16:59,200 Speaker 1: their loans and whatnot. I've written this week one reason 354 00:16:59,280 --> 00:17:04,200 Speaker 1: that every investor a sources it's proxy voting decisions to 355 00:17:04,200 --> 00:17:07,879 Speaker 1: to proxy advisory services. The stuff doesn't matter. Like, you 356 00:17:08,040 --> 00:17:10,080 Speaker 1: know you own like zero point one percent of the 357 00:17:10,119 --> 00:17:12,560 Speaker 1: shares of some public company, you know you own five 358 00:17:12,600 --> 00:17:16,240 Speaker 1: hundred companies. They each have like ten share advisory shareholder 359 00:17:16,280 --> 00:17:19,879 Speaker 1: proposals each year, your vote like one, you're not going 360 00:17:19,960 --> 00:17:21,320 Speaker 1: to change the outcome of the vote, and to the 361 00:17:21,320 --> 00:17:24,400 Speaker 1: outcome of the vote doesn't have any practical effect, and 362 00:17:24,440 --> 00:17:27,159 Speaker 1: so it's kind of crazy to spend a lot of 363 00:17:27,160 --> 00:17:29,919 Speaker 1: time thinking about it, and so you outsource it to 364 00:17:29,960 --> 00:17:33,760 Speaker 1: people who can think about it on behalf of everyone, 365 00:17:34,240 --> 00:17:35,760 Speaker 1: and the number of people that you need to do 366 00:17:35,800 --> 00:17:37,119 Speaker 1: that is the high. 367 00:17:37,359 --> 00:17:41,560 Speaker 2: Yeah. Well, when you said it doesn't matter. 368 00:17:41,760 --> 00:17:44,439 Speaker 1: This is like my thesis, like people care about this 369 00:17:44,520 --> 00:17:44,840 Speaker 1: a lot. 370 00:17:45,000 --> 00:17:46,760 Speaker 2: Yeah, but like there's very rarely a. 371 00:17:46,680 --> 00:17:50,880 Speaker 1: Practical implication like mergers. Right, Like mergers, there's a shareholder 372 00:17:50,960 --> 00:17:53,320 Speaker 1: vote and every so often it's contested and like class 373 00:17:53,400 --> 00:17:56,760 Speaker 1: lewists or iss will have a view, but often in 374 00:17:56,800 --> 00:17:59,159 Speaker 1: those cases, like the shares are kind of held by arbitration. 375 00:17:59,240 --> 00:18:01,920 Speaker 1: As anyway, who have there view? You know the Elin 376 00:18:02,000 --> 00:18:05,120 Speaker 1: Muss compensation. Every couple of years, there's a meaningful we'll 377 00:18:05,119 --> 00:18:08,880 Speaker 1: be here, got there, But it's a lot of routine stuff. Yeah, 378 00:18:09,000 --> 00:18:12,760 Speaker 1: it's not like never impactful, but it's almost never impactful. 379 00:18:12,800 --> 00:18:14,720 Speaker 2: Well that made me think of, you know, whether or 380 00:18:14,760 --> 00:18:18,000 Speaker 2: not it even matters whether their recommendations matter or not 381 00:18:18,080 --> 00:18:21,760 Speaker 2: because you think about the experience with Tesla, and Tesla 382 00:18:21,840 --> 00:18:24,639 Speaker 2: is a unique beast. But I've seen stats that like 383 00:18:24,760 --> 00:18:29,000 Speaker 2: thirty percent of their shareholder base is retail. Both of 384 00:18:29,000 --> 00:18:34,400 Speaker 2: these proxy advisors recommended passing this package. It obviously passed regardless, 385 00:18:34,400 --> 00:18:37,199 Speaker 2: So like how much do their recommendations even matter in 386 00:18:37,200 --> 00:18:37,880 Speaker 2: this day and age. 387 00:18:38,000 --> 00:18:39,680 Speaker 1: Well, so a couple of things. One is that their 388 00:18:39,720 --> 00:18:41,960 Speaker 1: recommendations used to matter more, and now like more big 389 00:18:42,000 --> 00:18:45,240 Speaker 1: asset managers because of sort of a pressure campaign about 390 00:18:45,240 --> 00:18:47,000 Speaker 1: this over the last few years. Now more big asset 391 00:18:47,000 --> 00:18:48,720 Speaker 1: managers like no, no, no, we make our own decisions. 392 00:18:48,760 --> 00:18:51,520 Speaker 1: We don't look at ISS our Glass list. Also, ISS 393 00:18:51,520 --> 00:18:53,440 Speaker 1: and Glass Lewis have kind of backed away from having 394 00:18:53,480 --> 00:18:56,640 Speaker 1: a house view and to get ahead of this. And yeah, 395 00:18:56,640 --> 00:18:58,440 Speaker 1: like there's you know, places like Tesla where it's a 396 00:18:58,480 --> 00:19:01,320 Speaker 1: lot of retail shaholders who don't care abouts and classes. 397 00:19:01,320 --> 00:19:03,879 Speaker 1: For the most part, it's really like it's not the 398 00:19:03,880 --> 00:19:06,840 Speaker 1: biggest asset managers, it's not retail. It's kind of smaller 399 00:19:06,840 --> 00:19:09,480 Speaker 1: asset managers in the middle who tend to defer to 400 00:19:09,640 --> 00:19:12,080 Speaker 1: class Lewis and as more. But the other thing is 401 00:19:12,119 --> 00:19:15,040 Speaker 1: like they tend not to defer to them as much 402 00:19:15,800 --> 00:19:20,080 Speaker 1: on huge economically meaningful decisions that affect big companies that 403 00:19:20,080 --> 00:19:22,520 Speaker 1: make up big portions of their portfolios. Right, if you believe, 404 00:19:22,520 --> 00:19:24,680 Speaker 1: like Elon Musk is gonna leave Tesla, if you vote 405 00:19:24,680 --> 00:19:28,880 Speaker 1: against the package, then you will make your own decision 406 00:19:28,920 --> 00:19:32,439 Speaker 1: about that. Yeah, not just do whatever iss is. But 407 00:19:32,720 --> 00:19:34,760 Speaker 1: you have four hundred other companies where they're like, oh, 408 00:19:34,800 --> 00:19:37,720 Speaker 1: we have like a shareholder proposal on our greenhouse gas emissions, 409 00:19:37,720 --> 00:19:40,119 Speaker 1: and you just like check a box. Right, So, like 410 00:19:40,160 --> 00:19:43,560 Speaker 1: I think their recommendations have more impact on like lower 411 00:19:43,600 --> 00:19:46,600 Speaker 1: profile votes, and there are just so many lower profile 412 00:19:46,640 --> 00:19:48,800 Speaker 1: votes and those boots are lower profile. But they also 413 00:19:48,920 --> 00:19:52,440 Speaker 1: like they annoy corporate CEOs when like fifty or thirty 414 00:19:52,480 --> 00:19:54,600 Speaker 1: or ten percent of their shareholders vote in favor of 415 00:19:54,720 --> 00:19:57,400 Speaker 1: like having a report on greenhouse gas emissions. Like that's 416 00:19:57,400 --> 00:19:59,960 Speaker 1: annoying to a CEO, and so they complain to like 417 00:20:00,000 --> 00:20:02,760 Speaker 1: their Congress per Center, to the FTC or whatever, like, ah, 418 00:20:02,760 --> 00:20:05,560 Speaker 1: these guys are, you know, interfering in our business, but 419 00:20:05,560 --> 00:20:06,639 Speaker 1: it's not that impactful. 420 00:20:06,880 --> 00:20:11,720 Speaker 2: Yeah, that's funny. Something I wondered in all of this, 421 00:20:11,880 --> 00:20:13,440 Speaker 2: and I didn't take the time to look it up. 422 00:20:13,800 --> 00:20:17,639 Speaker 2: Are Glass Lewis and Iss ever in conflict, Like do 423 00:20:17,720 --> 00:20:20,480 Speaker 2: they ever split or do they always sort of recommend 424 00:20:20,480 --> 00:20:21,000 Speaker 2: as a block. 425 00:20:21,520 --> 00:20:23,119 Speaker 1: I haven't looked at up you there. I'm certain that 426 00:20:23,160 --> 00:20:25,359 Speaker 1: they have split. Yeah, it would be crazy if they 427 00:20:25,400 --> 00:20:25,920 Speaker 1: never split. 428 00:20:26,960 --> 00:20:28,359 Speaker 2: It would be crazy, wouldn't it. 429 00:20:28,400 --> 00:20:32,720 Speaker 1: But as I said, like these people come from a 430 00:20:32,760 --> 00:20:35,439 Speaker 1: professional interest in corporate governance, and there are sort of 431 00:20:35,440 --> 00:20:37,800 Speaker 1: like standard views on what's good governance. Right, I think 432 00:20:37,800 --> 00:20:40,000 Speaker 1: those standard views are not like not everyone agrees with them, right, 433 00:20:40,000 --> 00:20:43,639 Speaker 1: Like it's classically good governance too. For instance, have a 434 00:20:43,920 --> 00:20:46,119 Speaker 1: board chair who is not the CEO, right, so the 435 00:20:46,160 --> 00:20:50,639 Speaker 1: board has more like effective oversight over the CEO, and 436 00:20:50,680 --> 00:20:52,840 Speaker 1: so ISAs in Glass Lives, pretty not always, but pretty 437 00:20:52,880 --> 00:20:56,000 Speaker 1: regularly recommend voting in favor of splitting the board chair. 438 00:20:56,040 --> 00:20:58,200 Speaker 1: And see, yeah, but you know, you look at like 439 00:20:58,480 --> 00:21:00,760 Speaker 1: there are a lot of like various six us whole CEOs. 440 00:21:00,760 --> 00:21:02,080 Speaker 1: We're like, no, I want to be the chair of 441 00:21:02,080 --> 00:21:03,879 Speaker 1: my company because I want to I'm the right person 442 00:21:03,920 --> 00:21:06,040 Speaker 1: to run this company, and I want to supervise the 443 00:21:06,040 --> 00:21:08,080 Speaker 1: board too, And like that's not like a crazy view, 444 00:21:08,119 --> 00:21:10,639 Speaker 1: it's not like quote unquote good governance, but it's a 445 00:21:10,680 --> 00:21:13,400 Speaker 1: thing that like some shareholders and you know, agree makes 446 00:21:13,440 --> 00:21:15,600 Speaker 1: sense with some CEOs. So a lot of stuff like 447 00:21:15,600 --> 00:21:18,400 Speaker 1: that where it's like there's a classic view on good 448 00:21:18,440 --> 00:21:20,800 Speaker 1: governance that is not always applicable and like you know, 449 00:21:20,920 --> 00:21:22,919 Speaker 1: Iss and glass Lewis or a little more on the 450 00:21:22,960 --> 00:21:26,439 Speaker 1: side of you know, classic good governance rather than what 451 00:21:26,720 --> 00:21:29,360 Speaker 1: shareholders want for a particular company. I want to say 452 00:21:29,359 --> 00:21:33,639 Speaker 1: one other thing about so, like this story is like 453 00:21:33,680 --> 00:21:36,000 Speaker 1: a lot of it is about Iss and glass Lewis, 454 00:21:36,160 --> 00:21:39,600 Speaker 1: but not all of it. Like there's also the very 455 00:21:39,640 --> 00:21:43,200 Speaker 1: closely related issue of index fund managers like black Rock 456 00:21:43,240 --> 00:21:45,639 Speaker 1: and Vanguard, who used to defer more to Iss and 457 00:21:45,640 --> 00:21:47,639 Speaker 1: Glass Lewis now kind of have their own house views 458 00:21:48,119 --> 00:21:51,400 Speaker 1: but are kind of similar in that they like affect 459 00:21:51,520 --> 00:21:57,359 Speaker 1: the votes of huge portions of every public company. Yeah reluctantly, Yeah, 460 00:21:57,880 --> 00:22:00,560 Speaker 1: I sas and Glass Lewis too, reluctantly know it collect 461 00:22:00,640 --> 00:22:03,679 Speaker 1: views for like managing voting. No, it's not, it's not 462 00:22:03,800 --> 00:22:04,280 Speaker 1: like they do it. 463 00:22:04,480 --> 00:22:05,119 Speaker 2: They do. 464 00:22:05,160 --> 00:22:06,800 Speaker 1: It's a lot of like administrative work. It's a lot 465 00:22:06,800 --> 00:22:09,560 Speaker 1: of like they help companies like actually do the process 466 00:22:09,560 --> 00:22:12,320 Speaker 1: of voting. Right, So like if they could just like 467 00:22:12,320 --> 00:22:14,760 Speaker 1: flip a coin and be like you should vote, you know, 468 00:22:15,200 --> 00:22:17,359 Speaker 1: for this, or they don't care that much about the 469 00:22:17,400 --> 00:22:20,560 Speaker 1: substantive recommendations. They care about like getting paid to do 470 00:22:20,680 --> 00:22:23,399 Speaker 1: the sort of administrative work, and so they are backing 471 00:22:23,400 --> 00:22:25,760 Speaker 1: away from doing some of the substantive recommendations and having 472 00:22:25,760 --> 00:22:26,320 Speaker 1: a house sept. 473 00:22:26,520 --> 00:22:28,200 Speaker 2: I didn't mean to smirch them. I'm sorry. 474 00:22:29,520 --> 00:22:31,960 Speaker 1: It's so like black Rock and Vanguard and State Street, 475 00:22:32,000 --> 00:22:35,120 Speaker 1: you know, control huge blocks of every public company famously 476 00:22:35,320 --> 00:22:40,600 Speaker 1: and vote, and people get mad at them for how 477 00:22:40,640 --> 00:22:42,600 Speaker 1: they vote, and like there's this view that they're too 478 00:22:42,640 --> 00:22:45,920 Speaker 1: left wing and blah blah blah. And so the reports 479 00:22:45,960 --> 00:22:48,760 Speaker 1: about a potential executive order on this, it's not just 480 00:22:48,840 --> 00:22:52,280 Speaker 1: about the proxy advisors, it's also about index line voting. Yeah, 481 00:22:52,560 --> 00:22:55,800 Speaker 1: and I've never heard like a great solution for what 482 00:22:55,840 --> 00:22:59,240 Speaker 1: they should do. But the report that I saw, like 483 00:22:59,240 --> 00:23:02,200 Speaker 1: the Wall Street Journal, like there's talk of having them 484 00:23:02,720 --> 00:23:06,199 Speaker 1: mirror their voting so that they can ask their you know, 485 00:23:06,240 --> 00:23:08,040 Speaker 1: so if you're a black Rock, you have you know, 486 00:23:08,400 --> 00:23:10,240 Speaker 1: thousands of clients and your index funds, and you ask 487 00:23:10,280 --> 00:23:13,639 Speaker 1: your clients how would you vote? And you know, ninety 488 00:23:13,680 --> 00:23:16,160 Speaker 1: nine point nine percent of them don't return the questionnaire, 489 00:23:16,200 --> 00:23:18,280 Speaker 1: and like zero point one percent say I would vote 490 00:23:18,280 --> 00:23:21,399 Speaker 1: in favorite management or whatever, and then I think the 491 00:23:21,480 --> 00:23:23,919 Speaker 1: idea would be that the Index one managers would have 492 00:23:23,960 --> 00:23:28,760 Speaker 1: to mirror the votes of their clients who responded, which 493 00:23:28,800 --> 00:23:31,719 Speaker 1: is kind of a crazy outcome if you think about it, 494 00:23:31,760 --> 00:23:37,000 Speaker 1: because the people who respond are going to be passionate, passionate. 495 00:23:37,080 --> 00:23:39,840 Speaker 1: I was going to say cranks, passionate and nicer. So 496 00:23:39,960 --> 00:23:42,679 Speaker 1: right now people complain about Black Rock, but black like 497 00:23:42,720 --> 00:23:45,720 Speaker 1: the big index ones, mostly vote with management. Yeah, but 498 00:23:45,720 --> 00:23:47,800 Speaker 1: if they had to ask their investors how would you 499 00:23:47,880 --> 00:23:49,920 Speaker 1: vote and then get weird answers back, they would vote 500 00:23:49,920 --> 00:23:52,040 Speaker 1: a lot more against management, and it would be kind 501 00:23:52,040 --> 00:23:54,439 Speaker 1: of bad for corporate managers and kind of good for 502 00:23:54,480 --> 00:23:55,480 Speaker 1: like activists shareholders. 503 00:23:55,680 --> 00:23:58,919 Speaker 2: Yeah. Well, I wrote this at the end of October. 504 00:23:59,080 --> 00:24:02,000 Speaker 2: Vanguard has this called Investor Choice, and I'm sure that 505 00:24:02,680 --> 00:24:05,360 Speaker 2: Black Crock and State Street have similar initiatives as well. 506 00:24:05,400 --> 00:24:08,399 Speaker 2: But this is recency biased because I wrote this story anyway. 507 00:24:08,480 --> 00:24:14,840 Speaker 2: So basically it asks it's people who own shares of 508 00:24:15,000 --> 00:24:18,560 Speaker 2: the index funds that are in this program, basically how 509 00:24:18,600 --> 00:24:21,200 Speaker 2: they would like management to vote or how they would 510 00:24:21,200 --> 00:24:22,919 Speaker 2: like the fun company to vote. They don't ask them 511 00:24:22,920 --> 00:24:26,560 Speaker 2: about every thing. I believe it's like a range of 512 00:24:26,680 --> 00:24:30,080 Speaker 2: choices as to you know, I want to maximize profits 513 00:24:30,200 --> 00:24:34,000 Speaker 2: or I care about social issues, and then Vanguard votes. 514 00:24:34,840 --> 00:24:37,520 Speaker 2: I think there's some subjectivity to that, but they vote 515 00:24:37,800 --> 00:24:40,760 Speaker 2: based on what that shareholder selected. 516 00:24:41,119 --> 00:24:44,119 Speaker 1: Yeah, but don't they vote that shareholder shares like in 517 00:24:44,119 --> 00:24:46,440 Speaker 1: other words, like if they ask every shareholder and ninety 518 00:24:46,520 --> 00:24:48,960 Speaker 1: nine percent of them don't answer, then the one percent 519 00:24:49,359 --> 00:24:51,520 Speaker 1: get voted the way they want to. But the ninety 520 00:24:51,560 --> 00:24:55,640 Speaker 1: nine percent Vanguard is not just mirroring the one percent, right, 521 00:24:55,640 --> 00:24:56,960 Speaker 1: Like they're making their own decisions. 522 00:24:57,040 --> 00:24:59,639 Speaker 2: I think it's somewhere between them. I don't remember the 523 00:24:59,680 --> 00:25:00,480 Speaker 2: exact details. 524 00:25:00,760 --> 00:25:03,080 Speaker 1: If you do full mirroring, then like the cranks get 525 00:25:03,080 --> 00:25:03,520 Speaker 1: a lot. 526 00:25:03,359 --> 00:25:09,040 Speaker 2: Of Yeah, I do like that. Yeah, but maybe that's 527 00:25:09,040 --> 00:25:11,200 Speaker 2: how it should be. I don't know if you're. 528 00:25:11,800 --> 00:25:14,040 Speaker 1: Argument right, like if you the people who care who 529 00:25:14,080 --> 00:25:16,480 Speaker 1: pay attention to share I just like I come back 530 00:25:16,520 --> 00:25:18,600 Speaker 1: to like, it is kind of irrational to pay attention 531 00:25:18,640 --> 00:25:20,679 Speaker 1: to shareholder voting, so it's not really how it should be. 532 00:25:20,880 --> 00:25:22,800 Speaker 1: To get the worst results if you let the people 533 00:25:22,800 --> 00:25:25,639 Speaker 1: who pay attention to shareolder voting be the ones, this 534 00:25:25,720 --> 00:25:27,760 Speaker 1: lad in the outcome. But there's not another way to 535 00:25:27,760 --> 00:25:29,440 Speaker 1: do it. You need someone to pay attention to do it. 536 00:25:29,720 --> 00:25:32,439 Speaker 2: Yeah, that's true, and maybe you should be rewarded for 537 00:25:33,080 --> 00:25:50,639 Speaker 2: you taking the time to Karen answer the thing. Speaking 538 00:25:50,640 --> 00:25:54,520 Speaker 2: of rewards, competition for talent reaches on. 539 00:25:55,080 --> 00:25:56,879 Speaker 1: Yeah, this is a great story about Bradley Sacks that 540 00:25:56,920 --> 00:26:01,840 Speaker 1: Business Insider about the talent wars at the hedge funds. 541 00:26:02,240 --> 00:26:03,280 Speaker 2: It's like an evergreen story. 542 00:26:03,320 --> 00:26:06,240 Speaker 1: It's an evergreen story. He quotes someone saying, you set 543 00:26:06,280 --> 00:26:09,200 Speaker 1: up something to attract mercenaries, but now you want loyal soldiers. 544 00:26:09,640 --> 00:26:13,080 Speaker 1: It doesn't work because, like, if you went to work 545 00:26:13,080 --> 00:26:16,240 Speaker 1: at a hedgehund because they promised you fifty million dollars, 546 00:26:17,720 --> 00:26:19,560 Speaker 1: you're probably a person who would go work at a 547 00:26:19,560 --> 00:26:22,480 Speaker 1: different hedge fund if they promised you sixty million dollars, right, Like, 548 00:26:22,600 --> 00:26:24,040 Speaker 1: probably you're there for the money, Like. 549 00:26:24,080 --> 00:26:27,520 Speaker 2: Probably, yeah, yeah, that's really safe. That's fine. 550 00:26:27,760 --> 00:26:29,720 Speaker 1: If you're working at a hedgehund for fifty million dollars, 551 00:26:29,720 --> 00:26:31,840 Speaker 1: a lot of reasons to assume that you're there for 552 00:26:31,920 --> 00:26:33,840 Speaker 1: the money, and so you could be lured away by 553 00:26:33,880 --> 00:26:38,240 Speaker 1: a higher bidder. And that makes it frustrating. If you 554 00:26:38,480 --> 00:26:41,000 Speaker 1: are the head of a hedge fund and you want 555 00:26:41,359 --> 00:26:45,760 Speaker 1: to stop having constant bidding wars. I also, I hadn't 556 00:26:45,760 --> 00:26:48,919 Speaker 1: really thought about it, but like he makes the point that, 557 00:26:49,040 --> 00:26:52,680 Speaker 1: like there's an artificial constraint on hedge fund talent caused 558 00:26:52,720 --> 00:26:55,880 Speaker 1: by the fact that everyone has these like super long 559 00:26:55,920 --> 00:27:00,000 Speaker 1: gardening leaves. Yeah, and so basically like half of all 560 00:27:00,000 --> 00:27:02,160 Speaker 1: hedge fund portfolio managers are on the beach at any 561 00:27:02,160 --> 00:27:05,800 Speaker 1: given time, and so the price of hedgemen managers gets 562 00:27:05,800 --> 00:27:07,879 Speaker 1: bid up because you can only get so many of 563 00:27:07,880 --> 00:27:10,200 Speaker 1: them because the rest are on long term gardening leaves. 564 00:27:10,320 --> 00:27:16,120 Speaker 3: Yeah, it's great, creates value, yes, artificial scarcity, and it's 565 00:27:16,160 --> 00:27:19,960 Speaker 3: great because like like a stylized the fact of economic 566 00:27:20,040 --> 00:27:24,439 Speaker 3: history is that after the Black Death in Europe, you know, 567 00:27:24,560 --> 00:27:28,960 Speaker 3: labor or like farm hand wages went up because farmhands 568 00:27:28,960 --> 00:27:32,680 Speaker 3: were so scarce that they could command a much higher wage. 569 00:27:34,040 --> 00:27:37,840 Speaker 1: That's a very bad way to create scarcity in the 570 00:27:37,880 --> 00:27:41,919 Speaker 1: labor market. The hedgemund manager way of half of you 571 00:27:41,960 --> 00:27:43,800 Speaker 1: are on vacation at any time so the other half 572 00:27:43,880 --> 00:27:46,480 Speaker 1: get paid more is like really nice. It's like you 573 00:27:46,480 --> 00:27:48,359 Speaker 1: have a career where you get paid a lot because 574 00:27:48,400 --> 00:27:51,600 Speaker 1: you're scarce, like artificially scarce, and also you get to 575 00:27:51,600 --> 00:27:53,320 Speaker 1: take long vacations every couple of years. 576 00:27:53,520 --> 00:27:56,280 Speaker 2: Yeah, I is. The Englander called it a talent bubble 577 00:27:56,440 --> 00:27:59,679 Speaker 2: that's created by you know, you restrict supply. 578 00:28:01,200 --> 00:28:05,520 Speaker 1: The other thing is like, I don't really understand why 579 00:28:06,040 --> 00:28:11,199 Speaker 1: hedge fund talent is so exogenous and and elastic, like 580 00:28:11,800 --> 00:28:13,720 Speaker 1: the article talks about it. Like some of these big 581 00:28:14,359 --> 00:28:17,800 Speaker 1: multi strategy funds have set up you know, training academies 582 00:28:17,800 --> 00:28:21,000 Speaker 1: they hire out of college. They like try to take 583 00:28:21,480 --> 00:28:25,160 Speaker 1: unmolded clay and turn it into you know, hedge fund managers, 584 00:28:25,440 --> 00:28:28,160 Speaker 1: like that should be possible. Why can't you teach someone 585 00:28:28,200 --> 00:28:29,960 Speaker 1: how to manage a hedge fund? They can understand it's 586 00:28:29,960 --> 00:28:32,160 Speaker 1: like hard, but you know, if you're paying the twenty 587 00:28:32,160 --> 00:28:33,520 Speaker 1: million dollars, you get someone to do it. 588 00:28:33,840 --> 00:28:37,199 Speaker 2: Yeah, I agree with you. You sounded a little bit like 589 00:28:37,240 --> 00:28:39,600 Speaker 2: Elwood's there. So it kind of threw me for a loop. Okay, 590 00:28:40,000 --> 00:28:43,000 Speaker 2: like it's hard, Like it's hard. Yeah, Yeah, I'm. 591 00:28:43,000 --> 00:28:44,680 Speaker 1: Paying me twenty million dollars to manage a hedge fund. 592 00:28:44,680 --> 00:28:46,760 Speaker 1: I'll do it for six months and then take two years. 593 00:28:46,760 --> 00:28:49,680 Speaker 2: Regardingly, Yeah, but I feel like this story, I don't know. 594 00:28:50,360 --> 00:28:52,800 Speaker 2: We talk about talent wars all the time. We talk 595 00:28:52,800 --> 00:28:55,160 Speaker 2: about it when it comes to banking, we talk about it. 596 00:28:55,160 --> 00:28:57,840 Speaker 2: When it comes to hedge funds, talk about it when 597 00:28:57,840 --> 00:29:01,280 Speaker 2: it comes to AI. AI. We've talked about this before. 598 00:29:01,320 --> 00:29:03,240 Speaker 2: It feels like a little bit more pure to your 599 00:29:03,240 --> 00:29:06,640 Speaker 2: point that if a hedge fund pays you fifty million 600 00:29:06,720 --> 00:29:09,360 Speaker 2: dollars to do hedge fund things, that probably you'll take 601 00:29:09,360 --> 00:29:12,520 Speaker 2: an offer for sixty million dollars. But maybe with AI 602 00:29:12,640 --> 00:29:14,320 Speaker 2: there is a little bit more of a mission statement 603 00:29:14,360 --> 00:29:16,400 Speaker 2: and I want to save the world. Yeah, I don't 604 00:29:16,440 --> 00:29:17,600 Speaker 2: know one thing that destroy it. 605 00:29:17,640 --> 00:29:19,800 Speaker 1: One thing about AI is like hedge funds have been 606 00:29:19,840 --> 00:29:21,440 Speaker 1: around and some before them for a long time, and 607 00:29:21,560 --> 00:29:25,440 Speaker 1: like in the modern form for you know, years, maybe decades. 608 00:29:25,920 --> 00:29:28,960 Speaker 1: AI is very new, and so it's very understandable that 609 00:29:29,000 --> 00:29:31,520 Speaker 1: there is a hugely constrained to supply. Right, Like the 610 00:29:31,600 --> 00:29:35,560 Speaker 1: number of people who went and got aiphds is not 611 00:29:35,720 --> 00:29:37,880 Speaker 1: that high because that was kind of a specialized thing 612 00:29:38,000 --> 00:29:39,880 Speaker 1: until it became you know. 613 00:29:40,080 --> 00:29:43,640 Speaker 2: Also, if you got that PhD, how long before it's stale. 614 00:29:44,240 --> 00:29:45,800 Speaker 1: I don't think it gets stale because I think you 615 00:29:45,880 --> 00:29:47,600 Speaker 1: then work in AI and you would like work at 616 00:29:47,640 --> 00:29:49,520 Speaker 1: the cutting edge of the field. But yeah, I mean, like, right, 617 00:29:49,560 --> 00:29:51,480 Speaker 1: if you if you get that PhD and then spend 618 00:29:51,520 --> 00:29:53,920 Speaker 1: twenty years, you know, doing something else. I'll get stuff. 619 00:29:54,520 --> 00:29:57,000 Speaker 1: But I think that like the market did not produce 620 00:29:57,040 --> 00:29:59,440 Speaker 1: that many aiphds because it wasn't a thing that got 621 00:29:59,440 --> 00:30:02,160 Speaker 1: you paid hundred million dollars five years ago, and now 622 00:30:02,160 --> 00:30:04,400 Speaker 1: that it is, I'm sure that one there will be 623 00:30:04,560 --> 00:30:06,160 Speaker 1: you know, in the next ten years, there'll be more 624 00:30:06,160 --> 00:30:11,040 Speaker 1: AI paches, and two they will perhaps have less pure motives, 625 00:30:11,280 --> 00:30:14,560 Speaker 1: right because if you're you know, if you're a sixteen 626 00:30:14,600 --> 00:30:17,960 Speaker 1: year old who's good at math, instead of thinking maybe 627 00:30:17,960 --> 00:30:19,760 Speaker 1: one day or at a hedgehot now you're likeeah, maybe 628 00:30:19,760 --> 00:30:21,680 Speaker 1: one day or at an AI start up and one 629 00:30:21,720 --> 00:30:25,000 Speaker 1: hundred million dollars a year, So you'll get more supply 630 00:30:25,040 --> 00:30:27,200 Speaker 1: and less purity. But like hedgehunts, they've been around for 631 00:30:27,240 --> 00:30:29,320 Speaker 1: a while, Like you should it should equilibrate. I don't know. 632 00:30:29,600 --> 00:30:32,840 Speaker 2: Yeah, Okay, that's foe all I have to say. Apparently 633 00:30:32,880 --> 00:30:35,280 Speaker 2: there's a rocket launch that I forgot was happening. I forgot. 634 00:30:35,480 --> 00:30:45,200 Speaker 1: Okay, I'm gonna just have some delicious And that was 635 00:30:45,200 --> 00:30:46,400 Speaker 1: the Money Stuff podcast. 636 00:30:46,680 --> 00:30:48,720 Speaker 2: I'm Matt Levine and I'm Katie Greifeld. 637 00:30:49,000 --> 00:30:51,800 Speaker 1: You can find my work by subscribing to the Money Stuff. 638 00:30:51,480 --> 00:30:55,240 Speaker 2: Newsletter Bloomberg, and you can find me on Bloomberg TV 639 00:30:55,440 --> 00:30:58,840 Speaker 2: every day on the Clothes between three and five pm Eastern. 640 00:31:00,200 --> 00:31:02,080 Speaker 1: To hear from you, you can send an email to 641 00:31:02,240 --> 00:31:05,600 Speaker 1: Moneypod at Bloomberg dot net. Ask us a question and 642 00:31:05,680 --> 00:31:06,960 Speaker 1: we might answer it on the air. 643 00:31:07,240 --> 00:31:09,840 Speaker 2: You can also subscribe to our show wherever you're listening 644 00:31:09,880 --> 00:31:11,719 Speaker 2: right now and leave us a review. It helps more 645 00:31:11,760 --> 00:31:12,600 Speaker 2: people find the show. 646 00:31:13,240 --> 00:31:16,240 Speaker 1: The Money Stuff Podcast is produced by annam Aserakis and 647 00:31:16,440 --> 00:31:17,080 Speaker 1: rosas Onda. 648 00:31:17,280 --> 00:31:19,280 Speaker 2: Our theme music was composed by Blake. 649 00:31:19,080 --> 00:31:22,800 Speaker 1: Maples Amy keen as our executive producer. 650 00:31:22,840 --> 00:31:25,360 Speaker 2: And Sage Bauman is Bloomberg's head of Podcasts. 651 00:31:26,000 --> 00:31:28,440 Speaker 1: Thanks for listening to The Money Stuff Podcast. We'll be 652 00:31:28,520 --> 00:31:30,200 Speaker 1: back next week with more stuff.