WEBVTT - Mouth Noises: 50y, ISS, HF 0:00:02.720 --> 0:00:09.600 Bloomberg Audio Studios, Podcasts, radio News. I'm gonna eat a bowl. 0:00:10.039 --> 0:00:11.200 I go the Mono soup. 0:00:11.280 --> 0:00:12.000 Wait, what is it? 0:00:12.080 --> 0:00:14.960 I've got the Mono soup Potato and lemon. 0:00:15.040 --> 0:00:18.280 Yea potato and lemon. That sounds lovely. This, of course 0:00:18.320 --> 0:00:20.360 from the Bloomberg Pantry. 0:00:21.800 --> 0:00:22.520 Get that on the mic. 0:00:22.600 --> 0:00:27.560 This is ASMR. If you've ever wanted to if you 0:00:27.600 --> 0:00:30.400 ever want to hear Malvine just inhaling soup. 0:00:30.600 --> 0:00:32.360 I want to be clear that I was exaggerating my 0:00:32.440 --> 0:00:33.319 slurping there for the mic. 0:00:33.400 --> 0:00:36.640 That's what ASMR is, to exaggerate your sounds. At least 0:00:36.760 --> 0:00:39.440 I don't know. I've never actually watched an a SMR video. 0:00:40.080 --> 0:00:41.839 I'm like aware of the SMR with us. 0:00:41.880 --> 0:00:46.640 I see parodies of it on TikTok, like people really 0:00:46.800 --> 0:00:51.519 clicking keyboards. But that's all I got. 0:00:52.600 --> 0:00:55.360 Yeah, I hope that some people get spine tingles out 0:00:55.360 --> 0:00:58.680 of this podcast. 0:00:59.160 --> 0:01:01.280 I just shuddered, got a spine shudder. 0:01:02.800 --> 0:01:05.720 Hello and welcome to the Money Stuff Podcast, your weekly 0:01:05.800 --> 0:01:10.480 podcast where we talked about stuff related to money. I'm 0:01:10.480 --> 0:01:12.640 Matt Levine and I write the Money Stuff column for 0:01:12.720 --> 0:01:13.600 Bloomberg Opinion. 0:01:14.240 --> 0:01:16.840 And I'm Katie greifeld a reporter for Bloomberg News and 0:01:16.880 --> 0:01:20.720 an anchor for Bloomberg Television. You just took a sip 0:01:20.720 --> 0:01:22.399 of water off mic, and I. 0:01:22.360 --> 0:01:24.560 Feel like, yeah, I'm not, in general trying to make 0:01:24.640 --> 0:01:26.039 mouth poises throughout the podcast. 0:01:26.600 --> 0:01:28.320 That's what the podcast is, just mouth. 0:01:30.080 --> 0:01:30.640 That's the title. 0:01:31.760 --> 0:01:39.360 All right, one thing, We're done here. So I don't 0:01:39.360 --> 0:01:43.119 own a home. I would really like to and maybe. 0:01:42.920 --> 0:01:44.839 But you're not forty yet, which is like the median 0:01:44.880 --> 0:01:45.280 age of. 0:01:45.319 --> 0:01:48.200 I know, I know, I think it's thirty nine. 0:01:48.400 --> 0:01:52.240 But you know, anyway, what would make your home more affordable. 0:01:53.760 --> 0:01:56.400 It's probably not a fifty year mortgage. But that's like 0:01:56.480 --> 0:01:57.680 been in the news this week. 0:01:57.760 --> 0:01:58.840 It's been in the news. 0:01:58.840 --> 0:02:00.960 Trump tweeted about our about it or whatever he. 0:02:01.000 --> 0:02:03.560 Did he did. Did you see the Politico story on 0:02:03.640 --> 0:02:05.280 the TikTok of how it came to be? 0:02:05.840 --> 0:02:08.600 It's so good. It's because it's like a political story 0:02:08.639 --> 0:02:11.560 that's like the Trump administration is just a snake pit. 0:02:11.639 --> 0:02:13.320 And so it's like all the people who don't like 0:02:14.200 --> 0:02:17.919 Bill Poulty, who is the head of the Federal Housing 0:02:18.000 --> 0:02:22.360 Regulator and a real you know, publicity hound, Bill Bulting 0:02:22.480 --> 0:02:24.320 like apparently shut up to a golf game with Trump 0:02:24.400 --> 0:02:29.520 with like a giant poster board saying like Franklin Roosevelt 0:02:29.600 --> 0:02:32.080 invented the thirty year mortgage, Donald Trump invented the fifty 0:02:32.160 --> 0:02:34.040 year mortgage. And Trump was like, great, I'll tweet about it. 0:02:34.160 --> 0:02:36.960 I have the details. It was a Saturday evening, it 0:02:37.040 --> 0:02:38.960 was not during a golf game, but it was at 0:02:38.960 --> 0:02:41.920 President Donald Trump's Palm Beach golf club. It was a 0:02:41.960 --> 0:02:44.800 three x five poster board. Sure, and you're right in 0:02:44.840 --> 0:02:49.239 that FDR appeared below thirty year mortgage and there was 0:02:49.280 --> 0:02:51.840 a photo of Trump below fifty year mortgage and the 0:02:51.840 --> 0:02:54.120 headline was great American President. Right. 0:02:54.200 --> 0:02:55.799 So that was enough for Trump to tweet about it 0:02:55.840 --> 0:02:57.760 and be like, oh, yeah, that's all the policy analysays 0:02:57.800 --> 0:02:59.919 I needed to back a fifty year mortgage. And then, 0:03:00.120 --> 0:03:02.160 like other people in Tromp administration, went to political and 0:03:02.160 --> 0:03:04.720 are like he sold potus a bill of goods that 0:03:04.800 --> 0:03:07.440 wasn't necessarily accurate, and I don't know, they said about 0:03:07.440 --> 0:03:09.960 your other nasty things about Pulty, like you know, yeah, 0:03:10.080 --> 0:03:11.040 recorded in Politico. 0:03:11.400 --> 0:03:13.880 Yeah, it's funny because it's showing up in the stock market. 0:03:13.919 --> 0:03:17.600 We're recording this on Thursday and at least right now, 0:03:18.160 --> 0:03:21.480 shares of Fanny May and Freddie Mack apparently they're falling 0:03:21.480 --> 0:03:23.720 in a big way because the word on the street 0:03:23.760 --> 0:03:26.760 is that Pulty is falling out of favor with the administration, 0:03:26.880 --> 0:03:30.920 which is probably I don't know nothing's real until it is. 0:03:31.000 --> 0:03:33.760 But it's funny to see shares actually. 0:03:33.440 --> 0:03:36.360 React, right, And it's such like a bank shot. It's 0:03:36.400 --> 0:03:39.120 not like would a fifty year mortgage be good for Fanny? 0:03:39.160 --> 0:03:42.240 Would it be bad for Fanny? It doesn't matter. Like 0:03:42.240 --> 0:03:45.520 I've written about this for literally a decade, one day 0:03:45.840 --> 0:03:49.120 Fanny and Freddie will be released from government conservatorship. But 0:03:49.200 --> 0:03:52.080 you could always make money by betting against the being 0:03:52.280 --> 0:03:53.960 in the next year. Like for the last ten years 0:03:54.000 --> 0:03:55.920 people said, oh, it can't last forever, they have to 0:03:55.960 --> 0:03:58.360 be released. But so like there was like a thesis 0:03:58.400 --> 0:04:01.040 that Pulty would be the one to crack it open 0:04:01.080 --> 0:04:01.720 and actually. 0:04:01.440 --> 0:04:02.680 Make it happen over the line. 0:04:02.720 --> 0:04:05.760 And now if both out of favor, then I don't know, 0:04:05.800 --> 0:04:07.800 I still think one day they're going to be released. 0:04:07.960 --> 0:04:10.440 Well, it's funny because you saw such a big run 0:04:10.520 --> 0:04:12.400 up and shares on this idea, and to your point 0:04:12.400 --> 0:04:15.160 that you can always make money betting against that idea. Apparently, 0:04:15.160 --> 0:04:17.760 shares of both have lost about fifty percent since their 0:04:17.800 --> 0:04:20.880 September peak, so just in the last two months or so. 0:04:21.360 --> 0:04:25.919 It's pretty amazing, though, that the pushback to the idea 0:04:25.920 --> 0:04:28.760 of a fifty year mortgage has been pretty bipartisan. Oh yeah, 0:04:28.800 --> 0:04:31.280 it's a terribly tell me why. 0:04:31.480 --> 0:04:35.000 Well, Okay, the idea of fifty year mortgage is that 0:04:35.040 --> 0:04:37.119 if you spread out your payments over fifty years instead 0:04:37.120 --> 0:04:39.200 of thirty years, your payments will be lower. 0:04:39.360 --> 0:04:40.520 This sounds good and. 0:04:40.400 --> 0:04:42.680 Like, you know, a normal assumption to like you'd save 0:04:42.839 --> 0:04:46.719 like ten or fifteen percent on your monthly mortgage payment. 0:04:47.279 --> 0:04:50.479 And so if people think about affordability of homes as 0:04:50.480 --> 0:04:53.040 being mainly a matter of the monthly payment they could make, 0:04:53.480 --> 0:04:57.240 then cutting fifteen percent off your monthly payment makes homes 0:04:57.240 --> 0:04:59.719 more affordable. Yeah, and if people are worried about home affordability, 0:04:59.760 --> 0:05:03.480 the is a good policy. There are various problems with that, 0:05:03.640 --> 0:05:05.360 one of which is that you have to have your 0:05:05.360 --> 0:05:07.520 mortgage for fifty years, and so, like you don't build 0:05:07.560 --> 0:05:09.440 up equity, you're spending a lot more on interest. You know, 0:05:09.440 --> 0:05:11.280 people are like it doubles the cost of interest you 0:05:11.320 --> 0:05:13.720 pay over the life of the one and so it 0:05:13.760 --> 0:05:16.359 feels even less like home ownership and more like just 0:05:16.400 --> 0:05:19.200 renting forever. But to me, that's not the big problem. 0:05:19.279 --> 0:05:21.839 To me, the big problem is like, and this is 0:05:21.839 --> 0:05:24.640 biased by my experience living in and around New York, 0:05:25.279 --> 0:05:28.320 but like where I live, housing is a positional good, 0:05:28.720 --> 0:05:31.400 and there are only so many houses, and people compete 0:05:31.440 --> 0:05:33.520 to buy them. And so if you just waved a 0:05:33.520 --> 0:05:37.240 magic wand and said houses will be ten percent more affordable, 0:05:37.560 --> 0:05:39.159 that people would still compete to buy them, and they 0:05:39.200 --> 0:05:41.920 would just bid them up more until they stopped being 0:05:41.920 --> 0:05:44.359 ten percent more affordable. Right, Like, the price of a 0:05:44.400 --> 0:05:47.440 house where I live is not determined by how much 0:05:47.480 --> 0:05:49.359 it costs to build a house. It's determined by, like 0:05:49.360 --> 0:05:51.200 you know, there's only so many houses, there's only so 0:05:51.279 --> 0:05:53.880 much land in desirable areas, and so people bid up 0:05:53.920 --> 0:05:55.800 the price of that. And so if you did something 0:05:55.839 --> 0:05:58.359 to make housing more affordable, you would just raise the 0:05:58.400 --> 0:06:03.479 price of houses till fully eliminate that affordability advantage, and 0:06:03.520 --> 0:06:05.840 so houses would be no more affordable. People like mey 0:06:05.839 --> 0:06:08.240 who own homes would make money because there'd be like 0:06:08.279 --> 0:06:10.680 a windfall one time gain, although then you'd have to 0:06:10.720 --> 0:06:11.920 go buy it. You know, if you moved, you'd have 0:06:11.960 --> 0:06:14.200 to buy a more expensive house, but like all of 0:06:14.240 --> 0:06:16.640 the affordability goals would be eliminated and you'd end up 0:06:16.640 --> 0:06:18.599 just having the same monthly payment but for fifty years 0:06:18.600 --> 0:06:21.520 instead of thirty years, which seems terrible. I think it's 0:06:21.520 --> 0:06:25.839 true everywhere, but like a lot of us housing is 0:06:25.920 --> 0:06:29.400 supply constrained, and you do like see this effect, right, 0:06:29.440 --> 0:06:31.400 Like people talk about student loans, right, Like, if you 0:06:31.480 --> 0:06:35.200 have government subsidies of student loans, what happens is not 0:06:35.279 --> 0:06:37.640 that it gets cheaper to attend college. It's that colleges 0:06:37.720 --> 0:06:40.440 raise their tuition to fully capture that subsidy, and it 0:06:40.440 --> 0:06:42.480 gets to be, you know, the same price to attend college, 0:06:42.520 --> 0:06:45.200 but the government is subsidizing it. And I think you'd 0:06:45.200 --> 0:06:48.000 see that here where if the default mortgage was fifty years, 0:06:48.200 --> 0:06:50.599 you would still kind of be paying the same amount 0:06:50.640 --> 0:06:52.640 per month, but nomeral house prizes will be higher. 0:06:52.880 --> 0:06:55.359 Yeah. Well, I mean make it about myself. I would 0:06:55.400 --> 0:06:57.800 like to buy a home. Rates are really high. 0:06:57.800 --> 0:07:00.559 I don't need they'd be higher for to your markets. 0:07:01.120 --> 0:07:03.520 Yeah, I don't need to buy a home, So we're 0:07:03.560 --> 0:07:06.120 kind of just timing the market waiting for rates to 0:07:06.160 --> 0:07:08.400 go down, but there has to be a bunch of 0:07:08.400 --> 0:07:10.440 people like me and do you think about Okay, rates 0:07:10.440 --> 0:07:12.320 go down, but then the people on the sidelines come 0:07:12.360 --> 0:07:13.840 in and they push up the price of the house, 0:07:13.880 --> 0:07:16.640 and I don't know, it probably ends up in the 0:07:16.840 --> 0:07:19.600 wash in terms of yeah, and how much of saving. 0:07:19.960 --> 0:07:23.120 It's not fully true that like house prices go up 0:07:23.120 --> 0:07:24.840 as rates go down, but it is like kind of 0:07:24.880 --> 0:07:28.240 true that, like, you know, you'd think lower rates would 0:07:28.320 --> 0:07:31.000 lead to more housing affordability, but like the summits that 0:07:31.000 --> 0:07:33.560 that gets washed out by raising the prices of houses. Yeah, 0:07:33.600 --> 0:07:35.320 it's the same basic mechanism. 0:07:35.000 --> 0:07:37.760 To your point that it probably feels like renting forever. 0:07:38.720 --> 0:07:42.120 There's a note from Compass point that was pretty crazy. 0:07:42.280 --> 0:07:44.240 The view of this analyst was that a fifty year 0:07:44.280 --> 0:07:49.000 mortgage offers quote home ownership via an indentured servitude contract, 0:07:49.440 --> 0:07:51.160 calling the concept a bad idea. 0:07:51.560 --> 0:07:53.240 Yeah, I agree with that, but I also like the 0:07:53.280 --> 0:07:55.800 difference in thirty ars and fifty years and that great like. 0:07:56.680 --> 0:07:59.560 Most that's what President Trump said, Yeah, just. 0:07:59.440 --> 0:08:02.200 Like back to use. It's a little thing I don't 0:08:02.440 --> 0:08:04.280 Most people don't live in their homes for thirty years, right, 0:08:04.360 --> 0:08:06.600 Like a thirty year MORTGAGEES is a way to sort 0:08:06.640 --> 0:08:09.800 of adjust the payments and ultimately, like you saw your 0:08:09.800 --> 0:08:12.240 house after seven years and you you know, cash out 0:08:12.240 --> 0:08:14.360 whatever the increase in the equity is. With a fifty 0:08:14.440 --> 0:08:19.760 year mortgage, you'd build the in round numbers zero equity 0:08:19.800 --> 0:08:22.400 in your first you know, seven years, and so you'd 0:08:22.400 --> 0:08:24.400 basically be cashing out the increase in the house price 0:08:24.480 --> 0:08:27.400 rather than you know, actually having a savings device. But 0:08:27.920 --> 0:08:29.920 it's not literal, and you know you don't you don't 0:08:29.960 --> 0:08:30.680 have to stay. 0:08:30.440 --> 0:08:33.160 There for fifty years. I'm sure a lot of people 0:08:33.360 --> 0:08:36.559 opened this analyst's research note though. 0:08:36.520 --> 0:08:38.920 So because it's said indentured it's hurt in the headline. 0:08:39.520 --> 0:08:40.520 Yeah, I would click on that. 0:08:40.600 --> 0:08:42.080 It's pretty good. I Do you want to talk about 0:08:42.120 --> 0:08:44.240 the other Bill Pulty ideas? 0:08:44.360 --> 0:08:45.400 Yeah, tell me about them. 0:08:45.559 --> 0:08:50.400 Well, so they're assumable and portable mortgages. Yes, you didn't 0:08:50.440 --> 0:08:52.080 about these ideas. People have been talking about this forever 0:08:52.120 --> 0:08:55.160 and like they exist in various pockets of the world, 0:08:55.200 --> 0:08:57.720 but they're not like the norm in US mortgages. But 0:08:57.760 --> 0:09:00.400 so in an assumable mortgage is like I move out 0:09:00.400 --> 0:09:02.560 of my house, you buy my house, I give you 0:09:02.640 --> 0:09:05.480 my mortgage and a portal mortrorgage. I move out of 0:09:05.520 --> 0:09:07.920 my house, I buy a different house, and I take 0:09:07.960 --> 0:09:09.840 my mortgage with me. Right, So, like if I have 0:09:09.880 --> 0:09:12.800 a three and a quarter percent mortgage, which. 0:09:12.880 --> 0:09:15.360 Katie, I do, okay less. 0:09:15.840 --> 0:09:17.680 With three and a quarter percent mortgage, and I want 0:09:17.679 --> 0:09:19.760 to move now, like whatever mortgage rates are, you know, 0:09:20.080 --> 0:09:21.280 six and change percent. 0:09:21.120 --> 0:09:21.760 Something like that. 0:09:21.840 --> 0:09:23.920 If I wanted to move, if I could keep my 0:09:23.960 --> 0:09:26.720 three and a quarter percent mortgage, that would be nice 0:09:26.720 --> 0:09:31.439 for me, right, And so in normal US mortgages now 0:09:31.480 --> 0:09:33.200 you can't, but like you know, there are places where 0:09:33.240 --> 0:09:36.720 you can't, and both He has talked about having some 0:09:36.920 --> 0:09:39.240 version of that in the kind of like Fanny and 0:09:39.280 --> 0:09:41.319 Freddie standardized US mortgage market. 0:09:41.720 --> 0:09:44.839 That makes sense, Yeah, sort of. 0:09:45.360 --> 0:09:48.559 It would be nice if you do it. The problem is. 0:09:48.800 --> 0:09:51.360 There might be more inventory because people wouldn't just sit 0:09:51.360 --> 0:09:51.920 on their houses for. 0:09:52.160 --> 0:09:53.920 Ye, that's true. It would like loosen up the market 0:09:53.960 --> 0:09:54.320 a little bit. 0:09:54.480 --> 0:09:54.680 Yeah. 0:09:54.720 --> 0:09:58.680 Problem is that, like the US has a thirty year mortgage, yes, 0:09:59.040 --> 0:10:02.720 which has fast terms. It is a thirty year mortgage 0:10:02.960 --> 0:10:06.760 with a fixed rate. Normal you know people's mortgage thirty 0:10:06.760 --> 0:10:09.480 your mortgage with a fixed rate that is prepayable at 0:10:09.520 --> 0:10:13.240 any time without penalty, and that is a like in theory, 0:10:13.400 --> 0:10:15.520 a very valuable option. Right, if you borrow money for 0:10:15.520 --> 0:10:17.400 thirty years and at any point you can prepay it 0:10:17.400 --> 0:10:20.600 without penalty, then if like market insru's rates go up, 0:10:20.640 --> 0:10:22.720 you keep your mortgage and you're paying a low market rate. 0:10:23.000 --> 0:10:25.400 And if market rates go down, you prepay your mortgage 0:10:25.440 --> 0:10:28.000 and get a new mortgage and you get the lower rate. 0:10:28.400 --> 0:10:32.280 So if you're a mortgage investor, you're always on the 0:10:32.320 --> 0:10:34.959 wrong side of that. If rates go up, you hold 0:10:35.120 --> 0:10:36.960 a low market paper and if rates go down, you 0:10:37.000 --> 0:10:41.840 get you know, prepaid. And that's not really true because 0:10:41.920 --> 0:10:47.760 almost nobody optimally exercises their prepayment option because almost everybody 0:10:47.880 --> 0:10:50.600 who is a thirty year mortgage moves after like seven years, 0:10:51.080 --> 0:10:53.480 and so when they move, they have to prepay their mortgage. 0:10:53.480 --> 0:10:56.360 And so it's not the case that people only prepay 0:10:56.360 --> 0:11:00.280 when rates go down, right, It's like people prepay kind 0:11:00.280 --> 0:11:02.760 of randomly, And sometimes people who have three and a 0:11:02.840 --> 0:11:05.840 quarter percent mortgages move and prepay their mortgage and go 0:11:05.880 --> 0:11:08.160 get another six percent mortgage and grumble about it, but 0:11:08.200 --> 0:11:09.440 they have to do it. Let the move for work, 0:11:09.520 --> 0:11:11.640 or whatever, right, and if you got rid of that, 0:11:11.800 --> 0:11:14.760 then the prepayment option would be a really valuable option, 0:11:15.160 --> 0:11:17.080 and that would make it would be really bad for 0:11:17.120 --> 0:11:20.040 mortgage investors and make mortgages much more expensive, I think, 0:11:20.240 --> 0:11:23.439 because you'd have to price that option right, because people 0:11:23.480 --> 0:11:25.679 would never prepay except when rates went down, and so 0:11:25.760 --> 0:11:28.760 you'd always have kind of the wrong way interest rate 0:11:28.840 --> 0:11:29.679 risk on your mortgage. 0:11:30.640 --> 0:11:33.240 And how do you feel about assumable mortgages. 0:11:33.360 --> 0:11:36.920 It's the same story, but either way, the point is 0:11:36.920 --> 0:11:39.960 that if you have a below market mortgage, someone can 0:11:40.040 --> 0:11:42.600 keep it right. Yeah, And like you know, assumable mortgage 0:11:42.600 --> 0:11:44.439 is like you take my blow market mortgage, but like 0:11:44.440 --> 0:11:46.360 presumably you pay me for that, right, So it's the 0:11:46.360 --> 0:11:47.280 same basic idea. 0:11:47.880 --> 0:11:50.199 I would like to take it without paying you. 0:11:51.120 --> 0:11:51.680 I understand. 0:11:52.000 --> 0:11:55.800 Okay, that could have I mean, something could have happened 0:11:55.840 --> 0:12:00.880 to here anyway. I don't want to move to your house, though, 0:12:01.960 --> 0:12:04.439 I'm sure it's great. It's not dead possums. 0:12:04.480 --> 0:12:07.600 And that's right, we've talked. Its only bad things about 0:12:07.600 --> 0:12:09.079 my house. 0:12:09.360 --> 0:12:11.600 No, I see it on Instagram sometimes. 0:12:11.559 --> 0:12:12.960 You know what, I have a have a really good 0:12:13.200 --> 0:12:13.800 mortgage rate. 0:12:14.040 --> 0:12:17.520 Yeah, yeah, that's probably Yeah, I want to die in 0:12:17.520 --> 0:12:33.880 New Jersey. Though, what do you want to talk about now? 0:12:34.000 --> 0:12:36.160 I don't know, you talk about proxy advisors? 0:12:36.240 --> 0:12:39.000 Yeah, why not? This is a fun conversation on the 0:12:39.000 --> 0:12:43.800 heels of, of course, the Tesla vote Elon Musk's compensation package. 0:12:43.960 --> 0:12:46.560 Yeah, there's two praxy advisors. I mean there's more than two, 0:12:46.600 --> 0:12:49.640 but there's two for practical purposes, and they're called ISS 0:12:49.920 --> 0:12:55.400 IS in Distitutional Shareholders Service and Glass Lewis, and they're 0:12:55.400 --> 0:12:58.520 in the business of telling investors how they should vote 0:12:58.559 --> 0:13:02.400 on proxy vote and you almost never hear about it 0:13:02.440 --> 0:13:05.160 because it doesn't matter. It's like all these like advisory 0:13:05.160 --> 0:13:06.880 practice votes at companies you don't care about. And then 0:13:06.920 --> 0:13:10.320 every once in a while, not that infrequently, Tesla's like, 0:13:10.400 --> 0:13:12.880 we'd like to give Elon Musk at trillion dollars, what 0:13:12.920 --> 0:13:17.280 do you think shareholders? And then Glass Lewis and ISS 0:13:17.440 --> 0:13:20.520 say no. Of course they say no because, like they 0:13:20.520 --> 0:13:27.120 are professionals in the business of corporate governance, and they 0:13:27.160 --> 0:13:32.880 have certain professional norms and expectations, Like they go to conferences, 0:13:32.960 --> 0:13:35.320 they talk to like minded people who are interested in 0:13:35.360 --> 0:13:37.800 corporate governance. And if you ask anyone interested in corporate 0:13:37.840 --> 0:13:41.040 governance should we pay the CEO at trillion dollars. They'll say, no, 0:13:41.320 --> 0:13:43.440 that's not a good thing. And then Tesla is like 0:13:43.480 --> 0:13:45.960 a different kettle of fish. Right, Like, Tesla has investors 0:13:45.960 --> 0:13:47.719 who like Elon Musk, and he's like, I want a 0:13:47.760 --> 0:13:49.679 trillion dollars. I'm like, great, here, I have a trillion dollars. 0:13:50.080 --> 0:13:52.080 But Class Lewis and I as us don't want that, 0:13:52.440 --> 0:13:54.720 and so they say no, and then nobody cares because 0:13:54.880 --> 0:13:57.640 Tesla's investors some of them follow Glass Lewis and Is 0:13:57.840 --> 0:14:01.360 as recommendations, but most of them are And so Tesla 0:14:01.440 --> 0:14:04.080 voted in favor of giving Elms bags of money, but 0:14:04.120 --> 0:14:05.200 el Ms got mad. 0:14:07.000 --> 0:14:07.200 Yeah. 0:14:07.200 --> 0:14:09.840 I think there's a widespread you know, kind of like 0:14:10.000 --> 0:14:13.559 right wing coded being mad at Glass Lewis and Iss 0:14:14.559 --> 0:14:19.320 because they tell people how to vote on corporate shareholder votes. 0:14:19.800 --> 0:14:23.520 And corporate shareholder votes, a lot of them are about 0:14:23.640 --> 0:14:27.480 shareholder proposals, like you should write a report about how 0:14:27.560 --> 0:14:32.080 much carbon you produce. Right, It's very like environmental and 0:14:32.160 --> 0:14:37.680 social coded, and so these firms sometimes tell shareholders you 0:14:37.680 --> 0:14:40.840 should vote in favor of writing a report on carbonations. 0:14:41.400 --> 0:14:44.040 So there's this perception that they're like kind of esg 0:14:44.280 --> 0:14:47.480 ish that they care more about environmental, social, and governance 0:14:47.520 --> 0:14:51.080 issues than like, you know, the Trump administration or the 0:14:51.440 --> 0:14:55.080 Republican Congress people do. And so there's the sense that 0:14:55.120 --> 0:14:57.320 like they have too much power and they push companies 0:14:57.360 --> 0:14:59.800 to be more left wing than they otherwise would be. 0:15:00.080 --> 0:15:01.880 So there's like an effort to rain them in, and 0:15:01.920 --> 0:15:03.600 you've seen that this week with like the Wall Street 0:15:03.680 --> 0:15:07.920 Journal reporting that the Trump White House is contemplating some 0:15:07.960 --> 0:15:10.400 sort of executive order too in some way rein in 0:15:10.440 --> 0:15:12.920 the proxy advisors, right, and then also there's a report 0:15:13.000 --> 0:15:17.040 that the Federal Trade Commission is investigating them for anti 0:15:17.040 --> 0:15:17.880 trust problems. 0:15:18.160 --> 0:15:22.120 Yeah, basically whether they're breaking anti trust laws related to 0:15:22.160 --> 0:15:25.480 how they advise on proxy issues such as climate and 0:15:25.520 --> 0:15:26.680 social related policy. 0:15:26.920 --> 0:15:29.800 Yeah, it's not clear what the anti trust problem is. Yeah, 0:15:29.880 --> 0:15:33.000 there was a House hearing on you know, anti trust 0:15:33.000 --> 0:15:35.480 in the proxy advisors a few months ago. And the 0:15:35.600 --> 0:15:37.360 kind of thrust there is that there are only two 0:15:37.440 --> 0:15:41.560 of them, and they somehow stifle competition or have bought 0:15:41.640 --> 0:15:44.680 up competitors so that there's only two proxy advisors. And 0:15:44.720 --> 0:15:46.320 the world would be a better place if there was 0:15:46.360 --> 0:15:49.760 a lot of proxy advisors. I don't think that's really 0:15:50.920 --> 0:15:53.560 the problem. I think the problem that people worry about 0:15:53.600 --> 0:15:55.800 is that, however many you know, two or three or 0:15:55.800 --> 0:16:01.160 ten proxy advisors, the proxy advisors have theoretically outside impact 0:16:01.200 --> 0:16:05.320 because they tell shareholders of every company how to vote. Like, 0:16:05.400 --> 0:16:07.840 the market is not for proxy advisory services, the market 0:16:07.880 --> 0:16:10.400 is for every public company. I also think that, like, 0:16:11.280 --> 0:16:13.840 there are only two proxy advisory services that are big, 0:16:14.520 --> 0:16:15.680 but how many should there be? 0:16:16.720 --> 0:16:21.240 Kind of reminds me of ratings agencies, because there's three 0:16:21.280 --> 0:16:21.600 of them. 0:16:21.920 --> 0:16:22.600 It's very similar. 0:16:22.680 --> 0:16:27.359 Yeah, yeah, there's more than three, but there. 0:16:26.040 --> 0:16:28.760 Is more competition in ratings agency. People worry that it's 0:16:28.760 --> 0:16:31.760 an olocopoly, but it's more competitive than in proxy advisory 0:16:32.240 --> 0:16:33.680 And I think one reason for that is, like. 0:16:36.680 --> 0:16:38.880 Ratings keep it in. 0:16:40.200 --> 0:16:47.360 I don't even know what that was. Ratings is ratings 0:16:49.200 --> 0:16:54.600 are intuitively important. People care about the credit worthiness of 0:16:54.880 --> 0:16:59.200 their loans and whatnot. I've written this week one reason 0:16:59.280 --> 0:17:04.200 that every investor a sources it's proxy voting decisions to 0:17:04.200 --> 0:17:07.879 to proxy advisory services. The stuff doesn't matter. Like, you 0:17:08.040 --> 0:17:10.080 know you own like zero point one percent of the 0:17:10.119 --> 0:17:12.560 shares of some public company, you know you own five 0:17:12.600 --> 0:17:16.240 hundred companies. They each have like ten share advisory shareholder 0:17:16.280 --> 0:17:19.879 proposals each year, your vote like one, you're not going 0:17:19.960 --> 0:17:21.320 to change the outcome of the vote, and to the 0:17:21.320 --> 0:17:24.400 outcome of the vote doesn't have any practical effect, and 0:17:24.440 --> 0:17:27.159 so it's kind of crazy to spend a lot of 0:17:27.160 --> 0:17:29.919 time thinking about it, and so you outsource it to 0:17:29.960 --> 0:17:33.760 people who can think about it on behalf of everyone, 0:17:34.240 --> 0:17:35.760 and the number of people that you need to do 0:17:35.800 --> 0:17:37.119 that is the high. 0:17:37.359 --> 0:17:41.560 Yeah. Well, when you said it doesn't matter. 0:17:41.760 --> 0:17:44.439 This is like my thesis, like people care about this 0:17:44.520 --> 0:17:44.840 a lot. 0:17:45.000 --> 0:17:46.760 Yeah, but like there's very rarely a. 0:17:46.680 --> 0:17:50.880 Practical implication like mergers. Right, Like mergers, there's a shareholder 0:17:50.960 --> 0:17:53.320 vote and every so often it's contested and like class 0:17:53.400 --> 0:17:56.760 lewists or iss will have a view, but often in 0:17:56.800 --> 0:17:59.159 those cases, like the shares are kind of held by arbitration. 0:17:59.240 --> 0:18:01.920 As anyway, who have there view? You know the Elin 0:18:02.000 --> 0:18:05.120 Muss compensation. Every couple of years, there's a meaningful we'll 0:18:05.119 --> 0:18:08.880 be here, got there, But it's a lot of routine stuff. Yeah, 0:18:09.000 --> 0:18:12.760 it's not like never impactful, but it's almost never impactful. 0:18:12.800 --> 0:18:14.720 Well that made me think of, you know, whether or 0:18:14.760 --> 0:18:18.000 not it even matters whether their recommendations matter or not 0:18:18.080 --> 0:18:21.760 because you think about the experience with Tesla, and Tesla 0:18:21.840 --> 0:18:24.639 is a unique beast. But I've seen stats that like 0:18:24.760 --> 0:18:29.000 thirty percent of their shareholder base is retail. Both of 0:18:29.000 --> 0:18:34.400 these proxy advisors recommended passing this package. It obviously passed regardless, 0:18:34.400 --> 0:18:37.199 So like how much do their recommendations even matter in 0:18:37.200 --> 0:18:37.880 this day and age. 0:18:38.000 --> 0:18:39.680 Well, so a couple of things. One is that their 0:18:39.720 --> 0:18:41.960 recommendations used to matter more, and now like more big 0:18:42.000 --> 0:18:45.240 asset managers because of sort of a pressure campaign about 0:18:45.240 --> 0:18:47.000 this over the last few years. Now more big asset 0:18:47.000 --> 0:18:48.720 managers like no, no, no, we make our own decisions. 0:18:48.760 --> 0:18:51.520 We don't look at ISS our Glass list. Also, ISS 0:18:51.520 --> 0:18:53.440 and Glass Lewis have kind of backed away from having 0:18:53.480 --> 0:18:56.640 a house view and to get ahead of this. And yeah, 0:18:56.640 --> 0:18:58.440 like there's you know, places like Tesla where it's a 0:18:58.480 --> 0:19:01.320 lot of retail shaholders who don't care abouts and classes. 0:19:01.320 --> 0:19:03.879 For the most part, it's really like it's not the 0:19:03.880 --> 0:19:06.840 biggest asset managers, it's not retail. It's kind of smaller 0:19:06.840 --> 0:19:09.480 asset managers in the middle who tend to defer to 0:19:09.640 --> 0:19:12.080 class Lewis and as more. But the other thing is 0:19:12.119 --> 0:19:15.040