WEBVTT - Bloomberg Businessweek Weekend - December 28th, 2019 0:00:02.520 --> 0:00:06.160 This is Bloomberg Business Week from Bloomberg Radio. Hi. I'm 0:00:06.240 --> 0:00:08.520 Jason Kelly and I'm Carol mass Of the next couple 0:00:08.520 --> 0:00:10.119 of hours, we're gonna bring you news of the week, 0:00:10.160 --> 0:00:13.480 insights from the magazine and more. Well, and we're celebrating 0:00:13.520 --> 0:00:18.239 a birthday ninety years of Bloomberg Business Week, Carol, we are, indeed, 0:00:18.280 --> 0:00:20.520 so we're gonna take you through the decades the history 0:00:20.520 --> 0:00:23.239 of the magazine. The topics that have been covered and 0:00:23.239 --> 0:00:26.279 which I'll find fascinating is some of our editors who 0:00:26.280 --> 0:00:28.639 have been there for a long time. We're also going 0:00:28.680 --> 0:00:32.120 to talk about Boeing halting production of its grounded seven 0:00:32.159 --> 0:00:35.800 three seven Max. We look into what really went wrong 0:00:35.840 --> 0:00:38.760 with a guy who has been following that company so 0:00:38.880 --> 0:00:41.720 closely knows it inside and out for many years. Plus 0:00:41.760 --> 0:00:44.760 a fascinating feature story from Monte Real. He's our projects 0:00:44.800 --> 0:00:47.199 and investigations reporter and man. He took us on a 0:00:47.240 --> 0:00:51.400 trip literally to Madagascar to figure out the wild economics 0:00:51.440 --> 0:00:54.400 of Vanilla, plain old Vanilla. It's a great story and 0:00:54.480 --> 0:00:57.920 adventure story that you probably wouldn't anticipate. But let's start 0:00:57.960 --> 0:01:00.440 with that big birthday. It's the nine the IF for 0:01:00.520 --> 0:01:04.160 business Week doesn't look a day over twenty Economics editor 0:01:04.240 --> 0:01:08.319 Peter Coy discusses the magazine's illustrious history. I was with 0:01:08.400 --> 0:01:11.960 the magazine for one third of its life. I'm pretty 0:01:11.959 --> 0:01:14.720 proud of that, but I was not around in nineteen 0:01:15.440 --> 0:01:19.080 So the fascinating thing is the magazine was launched in 0:01:19.120 --> 0:01:23.640 September of nineteen nine, which history bus will recall was 0:01:24.040 --> 0:01:28.720 just seven weeks before the terrible stock market crash which 0:01:28.720 --> 0:01:32.800 helped helped usher in the Great Depression. So not an 0:01:32.800 --> 0:01:37.840 auspicious time to be launching a magazine. But we survived 0:01:37.920 --> 0:01:43.280 those tough times and ended up thriving eventually huge success, 0:01:43.840 --> 0:01:46.960 and at one point they had more advertising pages than 0:01:46.959 --> 0:01:52.680 any magazine in the country, um and and more circulation 0:01:52.680 --> 0:01:55.080 than any business magazine in the world. And so what 0:01:55.120 --> 0:01:58.559 was the idea. From the beginning, it was McGraw hill 0:01:58.720 --> 0:02:01.960 was the publisher, and they bought a company called A. W. 0:02:02.120 --> 0:02:05.560 Shaw which had a magazine called System, the Magazine of Business, 0:02:06.320 --> 0:02:09.960 and that was a monthly. So they spent about a 0:02:10.040 --> 0:02:13.320 year tinkering with it and relaunched it as a weekly, 0:02:13.760 --> 0:02:17.880 which was originally called The Business Week, and it was 0:02:17.919 --> 0:02:20.160 intended to be in a way very much like what 0:02:20.240 --> 0:02:23.800 we intend to do today, which is be uh a 0:02:23.880 --> 0:02:26.600 quick read for people who care about business, whether you're 0:02:26.600 --> 0:02:31.200 a business person yourself or not, but you're interested. It 0:02:31.280 --> 0:02:33.760 was as opposed to some of the trade magazines which 0:02:33.760 --> 0:02:37.560 were very niche, kind of vertical. It was intended to 0:02:37.560 --> 0:02:40.679 be for everyone, covering all of business. That's what I 0:02:40.680 --> 0:02:42.960 always think is great about this magazine because I feel 0:02:43.000 --> 0:02:45.120 like for most individuals, right they have kind of a 0:02:45.120 --> 0:02:47.120 core thing that they're very interested in, but they're interested 0:02:47.120 --> 0:02:49.320 in the world at large, and as we have learned 0:02:49.400 --> 0:02:54.119 over the decades, increasingly it's all interconnected. It is. And 0:02:54.240 --> 0:02:59.640 you know, if you are working for a tech company, 0:03:00.200 --> 0:03:02.240 you'll be interested in the tech coverage, but you might 0:03:02.240 --> 0:03:05.680 have would be most almost more interested in the coverage 0:03:05.720 --> 0:03:09.440 of adjacent areas because you're not following that at a 0:03:09.520 --> 0:03:11.600 day to day basis, and yet it will impinge on 0:03:11.680 --> 0:03:14.280 your life or politics. Right I think about how the 0:03:14.600 --> 0:03:17.720 tech community is really embroiled in political scrutiny right now. 0:03:17.800 --> 0:03:19.640 So tell us your story. How did you get to 0:03:19.680 --> 0:03:23.600 Business Week? I worked for Associated Press and the guy 0:03:23.720 --> 0:03:27.920 from a p was from Business Week, who covered telecom 0:03:28.160 --> 0:03:30.320 was leaving and he recommended me for the job and 0:03:30.360 --> 0:03:32.240 I managed to get it. So my first job was 0:03:32.280 --> 0:03:35.440 covering telecommunications. This was certainly after the breakup of the 0:03:35.480 --> 0:03:38.240 Bell system that was still a big story at the time. 0:03:38.960 --> 0:03:43.000 And then it trans offer into technology, and then there 0:03:43.080 --> 0:03:46.600 was an opening and covering economics and with a really 0:03:46.680 --> 0:03:50.400 smart guy named Michael Mandel, and he trained me up. 0:03:50.480 --> 0:03:53.520 And so I know, not not an economists, but I've 0:03:53.720 --> 0:03:57.480 kind of learned and enjoyed learning about economics over the years. 0:03:57.520 --> 0:04:00.320 And so what was attractive to you at that first 0:04:00.320 --> 0:04:02.680 blush when you were coming from the a P. Was 0:04:02.760 --> 0:04:05.839 it sort of a it was a destination in your 0:04:05.880 --> 0:04:09.400 mind or what were you thinking? The beauty is when 0:04:09.400 --> 0:04:11.720 you're at a P you're on top of the news, 0:04:11.760 --> 0:04:14.400 but you're firing out stories all the time. When when 0:04:14.440 --> 0:04:17.640 you're at a magazine you craft something. You have time 0:04:17.680 --> 0:04:20.280 to step back, make sure you get the headline is 0:04:20.320 --> 0:04:22.840 exactly the way you want it, phrase everything because you 0:04:22.839 --> 0:04:24.680 have a little bit of time. And we also have 0:04:24.960 --> 0:04:27.359 obviously we have shorter term coverage too. We have a 0:04:27.400 --> 0:04:31.480 website with quick hits, but with with a magazine story, 0:04:32.200 --> 0:04:34.560 a lot of eyes on it, um, a lot of 0:04:34.560 --> 0:04:38.919 attention to getting it, you know, tuning it up. You 0:04:38.920 --> 0:04:41.560 can think of it that way for just the way 0:04:41.600 --> 0:04:43.800 you may you want to deliver that message. I think 0:04:43.839 --> 0:04:46.520 it's also interesting and you you really, you guys go 0:04:46.560 --> 0:04:49.160 into it in terms of the early history in particular 0:04:49.600 --> 0:04:52.320 about how this magazine, whether it was through some of 0:04:52.320 --> 0:04:54.359 the economists that were featured in the magazine or some 0:04:54.400 --> 0:04:57.839 of the stories could really kind of put pressure on 0:04:57.920 --> 0:05:00.760 the government in terms of policy, really became kind of 0:05:00.760 --> 0:05:03.039 a must read. I think you're I think you're referring 0:05:03.080 --> 0:05:06.480 to our early coverage of what do you call today 0:05:06.480 --> 0:05:10.240 called Kanesy and economics. John Maynard Keines, the British economist, 0:05:10.360 --> 0:05:13.400 was not well known in the United States. Business Week 0:05:13.880 --> 0:05:19.600 was the first, uh and most important publication that sort 0:05:19.640 --> 0:05:24.719 of champions of his ideas. Remember um, when the the 0:05:24.839 --> 0:05:27.560 depression hit, people had no idea what to do about it. 0:05:27.600 --> 0:05:30.240 Economy took extremely steep. Guy. There were a lot of 0:05:30.240 --> 0:05:34.080 people were saying, Okay, let's let's get rid of the rot. 0:05:34.120 --> 0:05:37.279 You know, Uh, if we could just liquidate all these 0:05:37.320 --> 0:05:40.960 people who took on foolish loans, you know, that'll clean 0:05:41.080 --> 0:05:44.240 the system. And and what Kane said, and Business Week 0:05:44.279 --> 0:05:48.159 said that No, that's the wrong solution. That'll just spiral 0:05:48.240 --> 0:05:50.840 downward and downward and downward. The government needs to come 0:05:50.839 --> 0:05:54.200 in and support the economy with things like tax cuts 0:05:54.240 --> 0:05:57.480 and spending until it can get back on its feet. 0:05:57.720 --> 0:05:59.440 You don't put a somebody who's just been in a 0:05:59.520 --> 0:06:04.480 car act stident, you know, um, through vigorous physical exercise. 0:06:04.520 --> 0:06:06.880 You've got to help and recover, give him ivy fluids 0:06:06.880 --> 0:06:09.200 and so on. And that's sort of that was the message. 0:06:09.400 --> 0:06:11.320 That's Peter coy And he's been with Business Week for 0:06:11.320 --> 0:06:14.799 about thirty years and so fun to talk with him 0:06:14.839 --> 0:06:17.440 about the history of the magazine, some of the stories 0:06:17.520 --> 0:06:21.000 he's covered, and what's really changed in the world of business. Well, 0:06:21.000 --> 0:06:24.200 and we're reminded how prolific he is because so how 0:06:24.279 --> 0:06:28.560 much the magazine from an economics perspective, just anticipated so 0:06:28.640 --> 0:06:32.719 much and really influenced the conversation. This is what Business 0:06:32.760 --> 0:06:35.680 Week does so well. Jason takes something that many of 0:06:35.760 --> 0:06:39.440 us probably take for granted. And uh, I'm talking about Vanilla. Yeah, 0:06:39.480 --> 0:06:41.520 I certainly take it for granted. It's sitting there in 0:06:41.560 --> 0:06:44.880 the Spice cabinet. Although we have noticed over the last 0:06:44.880 --> 0:06:46.840 couple of years. I think anybody who's paying attention to 0:06:46.960 --> 0:06:51.080 Eve price has spiked at times in a really meaningful way. Well, 0:06:51.080 --> 0:06:53.919 there's a story behind that Monty reel. He has some 0:06:53.960 --> 0:06:56.039 of those interesting assignments, goes to some of the most 0:06:56.080 --> 0:07:00.080 interesting places, and this story took him to Madagascar. Are 0:07:00.240 --> 0:07:03.080 Luckily for us, he's back home in Chicago. That's where 0:07:03.080 --> 0:07:06.520 he joins us. So Monty take us to Madagascar and 0:07:06.640 --> 0:07:10.880 to this market. Yeah, so this is a regional market. 0:07:10.920 --> 0:07:15.080 This is the place where vanilla actually enters the international marketplace. 0:07:15.640 --> 0:07:18.440 And it's really remote, it's really kind of hard to 0:07:18.480 --> 0:07:22.640 get to. It's basically a hut, a wooden hut in 0:07:22.720 --> 0:07:26.080 a really small village in northeastern Madagascar, which is the 0:07:26.160 --> 0:07:29.680 vandilla growing region. And just to give you an idea 0:07:29.680 --> 0:07:32.320 of how tough it is to get there. So you 0:07:32.320 --> 0:07:35.040 fly to Madagascar's capital, you take a small plane to 0:07:35.120 --> 0:07:38.400 a small airport in the northeast. Then you have to 0:07:38.480 --> 0:07:41.800 drive over really really bad roads um to try to 0:07:41.840 --> 0:07:44.920 get to this particular market area. And for example, when 0:07:44.960 --> 0:07:47.480 we did that, our driver couldn't go any further because 0:07:47.520 --> 0:07:49.800 the road we were on was actually swallowed by a river, 0:07:50.080 --> 0:07:53.320 so we had to wade across the river. Luckily it 0:07:53.360 --> 0:07:55.640 wasn't very deep, and then walk for a couple of 0:07:55.680 --> 0:07:59.400 hours beyond that to finally reach this little hut really 0:07:59.440 --> 0:08:02.120 in a in a village where dozens of farmers would 0:08:02.120 --> 0:08:05.320 bring their annual harvest of vanilla, and that's where it 0:08:05.320 --> 0:08:10.880 would be bartered but over by international flavor companies and exporters. 0:08:11.120 --> 0:08:13.640 And then go out into the wider world. Get to say, 0:08:13.640 --> 0:08:15.080 there's a great line of your story. How you talk 0:08:15.120 --> 0:08:18.440 about where you went. Is this great observation lab that 0:08:18.560 --> 0:08:20.880 I want to take your words exposes both the genius 0:08:20.920 --> 0:08:23.960 and the insanity of globalized commerce. I mean, that's exactly 0:08:24.000 --> 0:08:29.239 what you saw at work. Yes, Um, it's almost hard 0:08:29.280 --> 0:08:32.400 to imagine some of the things that happen in the 0:08:32.520 --> 0:08:36.320 vanilla trade in terms of, for example, just how the 0:08:36.360 --> 0:08:39.400 crop is paid for. It's all cash. It's a cash economy, 0:08:39.480 --> 0:08:42.240 so the buyers who go to these markets have to 0:08:42.280 --> 0:08:45.360 get cash, you know, along the same route that we 0:08:45.440 --> 0:08:49.440 took to get there. And the biggest denomination bill in 0:08:49.480 --> 0:08:54.880 Madagascar is worth about five dollars. And these buyers are buying, 0:08:55.040 --> 0:08:58.280 you know, tons of vanilla beans. And these vanilla beans 0:08:58.320 --> 0:09:01.360 can when they're cured can cost as much as six 0:09:01.800 --> 0:09:04.840 dollars per kilo, so they need lots of cash. So 0:09:04.880 --> 0:09:08.320 there's actually they bring bales and bales of cash to 0:09:08.400 --> 0:09:12.240 these markets on the back of motorcycles, uh and and 0:09:12.320 --> 0:09:14.760 just being carried. And that's just one example of kind 0:09:14.800 --> 0:09:19.480 of the the strange market that vanilla is because of 0:09:19.520 --> 0:09:23.280 its isolation there in Madagascar, um and also because of 0:09:23.320 --> 0:09:26.320 the price wings and so Mantya, I have to say 0:09:26.520 --> 0:09:28.600 reading this story and Carolin, I've talked a lot about 0:09:28.600 --> 0:09:30.839 it this week, just between the two of us at 0:09:30.840 --> 0:09:34.679 our desk, This notion of how is this market so 0:09:34.800 --> 0:09:38.360 limited to this one really obscure place because this is 0:09:38.400 --> 0:09:40.920 not one of these things that candidly you read about 0:09:40.920 --> 0:09:44.040 in the back of pursuits, where you know, only people 0:09:44.440 --> 0:09:47.080 who are billionaires can get this. I mean, this is 0:09:47.120 --> 0:09:50.319 something we both have in our homes. How has it 0:09:50.559 --> 0:09:55.000 been so limited to this one? Geography? Well, it comes 0:09:55.000 --> 0:09:57.560 from an orchid. Vanilla grows from the flower of an 0:09:57.640 --> 0:10:02.800 orchid um and it's actually native to Mexico, but many 0:10:02.880 --> 0:10:06.480 years ago it was basically transferred to Africa and it 0:10:06.559 --> 0:10:10.240 was found that it grew very well in Madagascar. Um 0:10:10.400 --> 0:10:14.680 and just um, you know, Vanilla is not one of 0:10:14.720 --> 0:10:18.480 those products that can be grown like soybeans or something 0:10:18.520 --> 0:10:22.600 like that easily managed commodity. It really is a stubborn crop. 0:10:22.679 --> 0:10:25.839 As people grow it, describe it um. It likes to 0:10:25.880 --> 0:10:31.679 grow among other plants um and it's incredibly labor intensive, 0:10:31.920 --> 0:10:35.960 so every step of the growing and cultivation process is 0:10:36.000 --> 0:10:38.440 done by hand. Even the pollination of the flowers to 0:10:38.480 --> 0:10:41.240 get the beans to grow is done by hand. So 0:10:42.080 --> 0:10:46.520 um it. Basically, it comes down to one of the 0:10:46.559 --> 0:10:49.439 main reasons why Madagascar dominates the trade so much is 0:10:49.520 --> 0:10:54.480 labor costs. Um. The minimum wage in Madagascar for agricultural 0:10:54.520 --> 0:10:58.560 workers is about eighteen cents an hour. So you know, 0:10:58.600 --> 0:11:01.640 in talking with people who work for vanilla companies, they 0:11:01.640 --> 0:11:06.480 talk about trying to grow um start plantations in other 0:11:06.559 --> 0:11:12.120 tropical areas like um places like Indonesia. There are countries 0:11:12.160 --> 0:11:15.360 in Africa that have started to develop a vanilla industry. 0:11:16.080 --> 0:11:18.480 But they say that, you know, that works well when 0:11:18.600 --> 0:11:22.680 vanilla prices are at highs, but whenever the prices tank 0:11:23.240 --> 0:11:29.319 the it becomes financially unstable to invest in those kind 0:11:29.360 --> 0:11:32.480 of operations. So, Monty, why do the prices swings so much? 0:11:32.600 --> 0:11:34.200 Is it just a case. I mean, I would think 0:11:34.200 --> 0:11:37.360 demand was fairly consistent, but I'm just curious why do 0:11:37.440 --> 0:11:41.320 we see those kind of wild price swings. There are 0:11:41.320 --> 0:11:43.320 a few reasons, and one of the main reasons is 0:11:43.440 --> 0:11:49.640 because Madagascar dominates the trade so much. Um the infrastructure 0:11:49.640 --> 0:11:53.720 in Madagascar is really undeveloped, and it's also an island 0:11:53.960 --> 0:11:58.960 there in the Indian Ocean that's that's vulnerable to storm. So, 0:11:59.000 --> 0:12:01.520 for example, a few years ago, there was a big 0:12:01.559 --> 0:12:06.000 cyclone that basically leveled the vanilla fields in the northeast. 0:12:06.240 --> 0:12:09.040 And vanilla is a crop that it takes three years 0:12:09.120 --> 0:12:12.800 from the time it's planted for the beans too for 0:12:12.840 --> 0:12:16.160 the plant to be mature enough to produce beans. So 0:12:16.360 --> 0:12:20.200 if you have a concentrated area and something happens to 0:12:20.280 --> 0:12:26.320 that area, it really can set the production and supply back. 0:12:26.559 --> 0:12:28.960 And that's what happened a few years ago. And ever 0:12:29.040 --> 0:12:32.640 since that cyclone that came through in the early two thousand's, 0:12:32.679 --> 0:12:35.480 the market has been really volatile. It's been, you know, 0:12:35.800 --> 0:12:39.640 spiking up to six hundred dollars or so at a 0:12:39.720 --> 0:12:42.400 high per kilo, and then it can go down to 0:12:42.440 --> 0:12:45.360 as low as twenty or thirty. So it's just an 0:12:45.480 --> 0:12:49.040 enormous range, And so would you take a step back 0:12:49.120 --> 0:12:52.760 and think about this story and highly recommend anybody read this, like, 0:12:53.280 --> 0:12:55.240 you know, sit down, you know, take some time over 0:12:55.280 --> 0:12:57.839 the holiday and read it, because you'll learn something about 0:12:57.960 --> 0:13:00.839 economics and politics and trade, aid and all of that. 0:13:01.040 --> 0:13:02.960 But what do you take away as you sort of 0:13:02.960 --> 0:13:05.120 come back to the United States about either the state 0:13:05.160 --> 0:13:08.719 of global trade, the state of demand economics? What is it? 0:13:08.960 --> 0:13:12.360 I think this is actually a really good kind of 0:13:12.440 --> 0:13:17.040 window to look at how global trade works. And the 0:13:17.120 --> 0:13:21.600 surprising thing for me, I think was just how how 0:13:21.720 --> 0:13:24.680 wild some of that is at the most elemental level. 0:13:24.760 --> 0:13:27.000 So that's monte Real. We love catching up with him. 0:13:27.000 --> 0:13:29.800 He does some wonderful deep dive stories. He's our Projects 0:13:29.840 --> 0:13:32.600 and Investigations reporter, so he literally took a trip to 0:13:32.679 --> 0:13:36.560 Madagascar and just wanted to find out Vanilla. We take 0:13:36.559 --> 0:13:39.280 it for granted, Jason, right, It's in all of our pantries. 0:13:39.320 --> 0:13:41.560 We use it for baking and for cooking. But what's 0:13:41.640 --> 0:13:44.679 interesting is what it takes to get those vanilla beans 0:13:44.720 --> 0:13:47.240 basically to all of us. Yeah, who would have thought 0:13:47.280 --> 0:13:51.120 that a story involving vanilla would involve waiting through a 0:13:51.200 --> 0:13:55.280 river sort of chalkboarding and negotiating and bartering. It's a 0:13:55.280 --> 0:13:58.200 really cool story. Loved it. Three poll market. Well, it 0:13:58.240 --> 0:14:00.800 makes some people's eyes glaze over, makes others turn away 0:14:00.800 --> 0:14:02.440 from you at a cocktail party. It's a market that 0:14:02.520 --> 0:14:05.319 always always needs to be explained, Jason, which is why 0:14:05.320 --> 0:14:07.360 we have Joe Wives. He joins us just about every 0:14:07.440 --> 0:14:10.160 day on our daily radio show Pizza, keeps us honest 0:14:10.200 --> 0:14:13.040 about the markets. All right, Joe, you're here with us 0:14:13.040 --> 0:14:15.240 in New York City. Keep us honest on the repo market. 0:14:15.600 --> 0:14:18.760 Why do we care about this? Again? The repo market 0:14:18.920 --> 0:14:24.040 is essentially how various entities, whether it's a bank, whether 0:14:24.120 --> 0:14:27.120 it's a fun hedge fund, money market fund, how they 0:14:27.200 --> 0:14:31.120 financed themselves on an overnight basis. Because nobody wants to 0:14:31.240 --> 0:14:34.000 just hold cash because cash, you know, it doesn't really 0:14:34.040 --> 0:14:36.400 earn anything, and so people always want to be maximizing 0:14:36.680 --> 0:14:40.240 their profits. So what they do when they need liquidity 0:14:40.280 --> 0:14:43.080 is they borrow it overnight, and they might pledge some 0:14:43.240 --> 0:14:46.360 collateral like treasury bonds or mortgage bonds or something like 0:14:46.400 --> 0:14:49.520 that to make the cash bills that they need to 0:14:49.600 --> 0:14:52.800 pay um so that they can make the bills they 0:14:52.800 --> 0:14:54.720 need to pay right. It feels like one of those 0:14:54.720 --> 0:14:58.240 things that no one really cares about until it stops working, 0:14:58.520 --> 0:15:01.720 which is essentially what happened and Tember right exactly right. 0:15:01.760 --> 0:15:05.560 So in September we saw the rates on overnight repo 0:15:05.720 --> 0:15:10.800 borrowing absolutely sore, and it's important to recognize that prior 0:15:10.880 --> 0:15:13.400 to that, for most of the time, it moves roughly 0:15:13.480 --> 0:15:15.920 in line with where the FEDS sets the rate, and 0:15:16.440 --> 0:15:19.800 it's one way, the one mechanism view which the FED 0:15:19.880 --> 0:15:22.360 sort of sets short term interest rates and you expect 0:15:22.360 --> 0:15:26.920 the repo market to behave. The issue is that with 0:15:27.400 --> 0:15:30.880 the the cash that banks have is really reserves held 0:15:31.000 --> 0:15:33.200 at the FED, and the FED, as part of its 0:15:33.240 --> 0:15:38.600 quantitative tightening trying to quote normalize its operations post crisis, 0:15:38.800 --> 0:15:42.800 has been reducing the available supply of cash at the FED. 0:15:43.280 --> 0:15:47.320 At the same time, you have regulators telling banks you 0:15:47.360 --> 0:15:49.520 have to hold a certain amount of cash as part 0:15:49.520 --> 0:15:53.520 of post crisis regulations to ensure that you have adequate liquidity. 0:15:53.600 --> 0:15:56.240 So what we saw in September was this confluence of 0:15:56.320 --> 0:15:59.880 multiple things. There's the FED tightening reducing the amount of 0:16:00.000 --> 0:16:03.640 reserves available. There's the regulatory restraints saying no, you have 0:16:03.760 --> 0:16:06.880 to hold these reserves even though the FED is eliminating 0:16:07.040 --> 0:16:11.000 their existence. And then you had this timing issue. We're 0:16:11.080 --> 0:16:14.560 due to tax payments and treasury auctions and things like that. 0:16:14.840 --> 0:16:20.080 Suddenly that created a lot of demanding system. That's exactly right. 0:16:20.120 --> 0:16:23.320 So this end of quarter payments things like that. There's 0:16:23.360 --> 0:16:27.080 another issue, which is that at quarter end and year 0:16:27.240 --> 0:16:29.960 end is when regulators come and they take a look. 0:16:30.200 --> 0:16:33.120 And the analogy that I like to use is you 0:16:33.200 --> 0:16:35.480 might have a really messy bedroom, but if you know, 0:16:35.560 --> 0:16:37.920 like five minutes before your mom or dad gets home, 0:16:38.200 --> 0:16:42.480 then suddenly you clean up. So occasionally throughout the year, 0:16:42.520 --> 0:16:45.960 the regulators come like peeking in and they want to see, well, 0:16:45.960 --> 0:16:49.000 how liquid is your balance sheet? What kind of assets 0:16:49.080 --> 0:16:52.440 do you hold? So everybody scrambles to hold the highest 0:16:52.480 --> 0:16:55.320 quality and most liquid assets right at the same time. 0:16:56.080 --> 0:16:58.440 The problem is if there's a finite amount of them, 0:16:58.880 --> 0:17:00.640 then you really have to pay to get them. So 0:17:00.680 --> 0:17:03.000 should we expect another squeeze coming in in December? Here 0:17:03.120 --> 0:17:05.520 we're wrapping up not only a quarter but a year. 0:17:05.800 --> 0:17:08.600 This is a really a really big question. And so 0:17:08.680 --> 0:17:12.680 the man that everybody listens to en REPO is this 0:17:12.800 --> 0:17:16.320 strategistic credit squeeze. His Alton posts are whenever he puts 0:17:16.320 --> 0:17:19.239 out a note, everybody wants to get it, like what 0:17:19.280 --> 0:17:22.280 did Sultan say? So he is concerned about this, that 0:17:22.320 --> 0:17:25.520 there's going to be this major liquidity squeeze, is various 0:17:25.600 --> 0:17:29.240 entities demand this liquidity ahead of the regulators checking in 0:17:29.280 --> 0:17:32.000 at the end of the year. The flip side is 0:17:32.040 --> 0:17:34.840 that the FED seems to be way more cognizant of 0:17:34.880 --> 0:17:38.439 the risks this time around. They've certainly stopped shrinking the 0:17:38.520 --> 0:17:42.840 supply of reserve balances so that eases some of the strain. 0:17:43.160 --> 0:17:45.719 They've also engaged in some of these operations where our 0:17:45.760 --> 0:17:51.200 people can borrow essentially liquidity at the FED. So it's 0:17:51.440 --> 0:17:55.400 kind of unclear right now. But perhaps what we saw 0:17:55.440 --> 0:18:00.600 in September and Zoltan's warning themselves may have been what 0:18:01.119 --> 0:18:04.399 kicked regulators in the fit into gear to present a 0:18:04.440 --> 0:18:05.800 blow up, but we don't know for sure. Well, and 0:18:05.840 --> 0:18:08.080 it's interesting, I mean, the number of questions and the 0:18:08.080 --> 0:18:10.840 amount of time that j Pal had to spend during 0:18:10.880 --> 0:18:15.719 his last press conference essentially reassuring answering questions from reporters 0:18:15.760 --> 0:18:18.199 about this. It felt like he did a good job, 0:18:18.280 --> 0:18:20.960 but it was one of those moments where he thought, man, 0:18:21.000 --> 0:18:23.480 he really is talking about this a lot. It's extremely 0:18:23.760 --> 0:18:26.480 complicated stuff, and a lot of people in the market 0:18:26.520 --> 0:18:30.000 still don't get it. Actually, Tracy Halloway, one of the 0:18:30.040 --> 0:18:33.080 authors of the Business Week piece about Postsar and I, 0:18:33.200 --> 0:18:35.120 we had interviewed him for a podcast, and the most 0:18:35.160 --> 0:18:38.040 important thing he said to me. The takeaway is reserve 0:18:38.119 --> 0:18:40.840 balances at the fit. He called them tokens, and so 0:18:40.920 --> 0:18:43.040 you can. And what I love about that analogy is 0:18:43.080 --> 0:18:45.800 you could imagine going to an arcade and everybody has 0:18:45.920 --> 0:18:48.280 enough money to play the games, so no one is 0:18:48.320 --> 0:18:52.159 actually broke. But if the token machine isn't working, or 0:18:52.320 --> 0:18:55.240 maybe some people pocketed tokens, it took him home. You 0:18:55.320 --> 0:18:58.480 people can't play the game. The game is financed. Everyone 0:18:58.600 --> 0:19:01.359 might have money, everyone might have solid balance sheets, and 0:19:01.400 --> 0:19:04.359 you could still have a crisis if the tokens are missing. 0:19:04.480 --> 0:19:06.440 And that's Joe wisintal. We love catching up with him 0:19:06.480 --> 0:19:08.679 on our daily show. He's always got a little bit 0:19:08.680 --> 0:19:11.320 of a quirky perspective, but I have to say he's 0:19:11.320 --> 0:19:13.760 set the table beautifully for this. I feel like now 0:19:13.840 --> 0:19:16.639 every conversation I go into about the repo market and 0:19:16.880 --> 0:19:19.160 arcade is going to pop into my mind. He really 0:19:19.160 --> 0:19:21.159 did explain it well, and it's an important story. It 0:19:21.240 --> 0:19:24.040 really kind of confused the markets, confused investors. But it's 0:19:24.040 --> 0:19:25.880 been a hot topic when it comes to the Federal 0:19:25.960 --> 0:19:28.280 Reserve and j Powell specifically, and one that's going to 0:19:28.359 --> 0:19:32.359 carry us into So definitely check that out. So no 0:19:32.440 --> 0:19:34.159 doubt about it. Jason me too has impact of the 0:19:34.160 --> 0:19:37.159 financial community Wall Street, and yet many might argue that 0:19:37.200 --> 0:19:39.399 it's day of reckoning has yet to come. Well, and 0:19:39.440 --> 0:19:41.919 that's what's so interesting about these remarks is that it 0:19:41.960 --> 0:19:45.560 points out the fact that, yes, there's been a reckoning 0:19:45.960 --> 0:19:49.280 ish so far. Uh And it really when you look 0:19:49.320 --> 0:19:53.960 at it versus entertainment especially, it has not really resonated 0:19:54.080 --> 0:19:57.480 or reverberated, i should say, the way that some expected. 0:19:57.720 --> 0:20:01.040 Max Abelson, he and Cacha Porta Kinski have the remarks 0:20:01.119 --> 0:20:05.400 in this week's magazine. Congrats on this. It's very thought provoking. 0:20:05.760 --> 0:20:08.439 Max joins this here in New York City. So what 0:20:08.480 --> 0:20:10.520 do you set out to do here? Well, first of all, 0:20:10.600 --> 0:20:13.280 I was working with Cachansky and it's basically a fluke 0:20:13.400 --> 0:20:15.359 that I'm here inside of her because it really should 0:20:15.359 --> 0:20:18.080 be her she's really thoughtful about this stuff. But you know, 0:20:18.160 --> 0:20:19.600 sometimes in the news room we sit and look at 0:20:19.640 --> 0:20:23.000 each other and we're like, you know, where is me too? 0:20:23.080 --> 0:20:25.680 In the financial services industry, I mean, we know from 0:20:25.840 --> 0:20:29.639 years of chronicling headphunds and banks and private equity and 0:20:29.680 --> 0:20:33.000 asset management that Wall Street, you know, just like lots 0:20:33.040 --> 0:20:38.600 of other industries, including journalism, has profound imbalances, and women 0:20:38.880 --> 0:20:43.199 quietly say that they are harassed and discriminated against and assaulted, 0:20:43.680 --> 0:20:48.000 and that they fear retribution. But we haven't seen that 0:20:48.119 --> 0:20:50.920 broad moment of change. And what this piece is about 0:20:51.320 --> 0:20:53.760 is this sort of the system, this machine of silence 0:20:53.800 --> 0:20:56.320 that we've discovered piece by piece. That that explains why. 0:20:56.400 --> 0:20:58.760 All right, well, because I do think after me too 0:20:58.800 --> 0:21:01.200 in the entertainment world. Think we all thought, okay, Wall 0:21:01.200 --> 0:21:03.320 Streets next, and it didn't quite happen. I have a 0:21:03.359 --> 0:21:07.520 word for you, arbitration. Arbitration, I'm embarrassed to say, is 0:21:07.520 --> 0:21:09.720 one of those things that I mean, if we we've 0:21:09.720 --> 0:21:11.560 known each other for years, if if you brought that 0:21:11.600 --> 0:21:13.040 word up to me two and a half years ago, 0:21:13.080 --> 0:21:15.760 I'm pretty sure I would more or less draw a blank. Right. 0:21:15.880 --> 0:21:17.360 In fact, I was on the phone with a Wall 0:21:17.359 --> 0:21:19.640 Street veteran who said to me, if you really want 0:21:19.680 --> 0:21:21.600 to understand why we're not seeing me too on Wall 0:21:21.600 --> 0:21:23.840 Street And this was, you know, more than a year ago. 0:21:23.880 --> 0:21:26.439 She was like, you have to look at the invisibility cloak. 0:21:26.480 --> 0:21:28.199 And I was like, invisibility cloak. She was like, the 0:21:28.200 --> 0:21:32.800 system of arbitration. That's the system that's parallel to the courts, 0:21:33.200 --> 0:21:36.479 and it's behind closed doors. It's basically a private justice 0:21:36.520 --> 0:21:39.480 system that used to be relatively obscure sort of for 0:21:40.119 --> 0:21:42.959 you know, fights within an industry, and Wall Street itself 0:21:43.080 --> 0:21:46.480 really helped it expand so that it now covers essentially 0:21:46.480 --> 0:21:49.760 two out of three workers at big US companies. And 0:21:49.800 --> 0:21:53.800 Wall Street, unlike other industries, runs its own arbitration hearings, 0:21:54.160 --> 0:21:58.040 and it's Wall Street. It's definitely a master of arbitration, 0:21:58.040 --> 0:21:59.840 and it really helps explain a lot. I love this 0:22:00.000 --> 0:22:02.440