Speaker 1: This is Bloomberg business Week inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Masser and Tim Stenebec from Bloomberg Radio.
Speaker 1: I want to get right to our guests. Bill Isaac
Speaker 1: is a former chairman of the FDI se there during
Speaker 1: the eighties nineteen eighties when some three thousand banks and
Speaker 1: thrifts failed. He's now chairman of the consulting firm Secura
Speaker 1: Isaac and a member of the boards of directors of
Speaker 1: Immigrant Bank and New York Private Bank and Trust. Who
Speaker 1: joins us via zoom from Sarasota, Florida. Built so nice
Speaker 1: to have you here with us. How do you see
Speaker 1: what is going on? Silicon Valley Bank, three regional banks
Speaker 1: in the past week here in the US collapsing? You
Speaker 1: got credit suites? Is this great financial crisis banking breakdown
Speaker 1: two point zero or something different? Before? You all know
Speaker 1: what it is right now, and you knows it's not
Speaker 1: a surprise that these things are happening. Why Why Well,
Speaker 1: because the federal government has been out of control for
Speaker 1: a long time. It just reminds me very much of
Speaker 1: the of the nineteen eighties when I was chairman of
Speaker 1: the ft I C of late seventies and through the eighties.
Speaker 1: We had guns and butter approach in the nineteen sixties
Speaker 1: with the Vietnam War that was not paid for by
Speaker 1: taxes and the big deficits, and we had the Great
Speaker 1: Society programs that wind in Johnson and they were not
Speaker 1: paid for, So we had very very high budget deficits,
Speaker 1: and we had a very accommodated, will say, loose fed
Speaker 1: policies monetary policies, and that led to a decade or
Speaker 1: more of very high inflation. And finally Paul Boker was
Speaker 1: appointed chairman in nineteen seventy I was a fund in
Speaker 1: the FDIC in nineteen seventy eight and when he worked together,
Speaker 1: but Paul Hooker was determined and the fenders determined to
Speaker 1: bring down inflation, and they did. They raised rates very high,
Speaker 1: and that led to all sorts of problems. And we're
Speaker 1: repeating that period right now. I don't I don't know
Speaker 1: how long it's going to last. I don't know how
Speaker 1: many firms it's going to happen, but I do think
Speaker 1: we're trying to figure bill if things are different just right,
Speaker 1: what specifically is different this time around? Is the issue
Speaker 1: because of specifically depositors. What's different about about the depositors
Speaker 1: in your mind, well, the issue surrounding depositors with those
Speaker 1: FDIC limits also usually when you'd think back, that was
Speaker 1: more geared toward individuals, but now you're dealing with companies.
Speaker 1: Is that the hurdle this time around versus in past
Speaker 1: crises that you've seen. I don't. I don't think that's
Speaker 1: materially different. We had a lot more depositors back then.
Speaker 1: In terms of numbersity and numbers of banks. We had
Speaker 1: thirteen thousand banks when I was chairman of the FDIs
Speaker 1: and now we have about forty five hundred banks. And
Speaker 1: but we I mean, I'm not saying that things aren't
Speaker 1: different there. It's a lot of different things today, but
Speaker 1: some of the things are not different. Let's take let's
Speaker 1: sake s B, the Silicone Valley Bank, that's not new
Speaker 1: at all. That's that I mean, they were doing new
Speaker 1: types of financing, but it was the same problem we
Speaker 1: had a crisis we had in nineteen seventy nine with
Speaker 1: First Pennsylvania Bank, the largest bank in Pennsylvania, the oldest
Speaker 1: national chartered bank in the country, and they decided they
Speaker 1: had a great idea letten invest in government bombs, which
Speaker 1: they did. They loaded up on government bonds at fixed rates,
Speaker 1: and then Paul Boker became chairman of the FED and
Speaker 1: decided he was going to raise the rates very high
Speaker 1: and kill inflation. So history has shown us that we've
Speaker 1: been here before, is basically what you're saying. We've been
Speaker 1: here before. And why these guys did this again, I
Speaker 1: don't know. It was not very smart. Well, so then
Speaker 1: do you fault regulators here? You were a former regulator?
Speaker 1: I mean, is it regulators in the United States elsewhere, FED, FDIC,
Speaker 1: Treasury and more that have to some extent once again
Speaker 1: failed us. Yeah, I'm not trying to pick on anybody,
Speaker 1: but but this is primarily the problem of a bank,
Speaker 1: a bank that had a board of directors that was
Speaker 1: not doing its job properly, and a bank that had
Speaker 1: managements that was not doing its job properly, and they
Speaker 1: and they did a bunch of things that they should
Speaker 1: not have done, and they weren't they and it failed,
Speaker 1: and now we're trying to clean it up, and the
Speaker 1: FDIC and the FED and so horor will clean it up.
Speaker 1: This is not something we haven't done before, even in
Speaker 1: bigger ways than this, So we will clean it up.
Speaker 1: And should we fault the regulators, of course we should.
Speaker 1: The regulators did not do their jobs. This bank grew
Speaker 1: in two years from sixty billion in size to over
Speaker 1: two hundred billion dollars in size. That's insane. So it
Speaker 1: is that a red flag? So help help us out
Speaker 1: here because oversight obviously lacking. So what stones should we
Speaker 1: as analysts, as investors, as regulators be overturning? What balance sheets?
Speaker 1: What sectors are the financial system? Would you be focusing
Speaker 1: right now and asking lots of questions about since we've
Speaker 1: already missed some big things the red flags were out here.
Speaker 1: You tripled the size of the more than tripled the
Speaker 1: size of the bank in two years. That is a
Speaker 1: huge red flag that every regulator, every analysts, every board member,
Speaker 1: everybody ought to be on top of. Why is this
Speaker 1: thing growing tripling in two years? That's that's that's a
Speaker 1: huge red flag. And and I don't know how, I
Speaker 1: don't know how they got away with it, frankly, without
Speaker 1: being without being brought down faster and sooner. I mean,
Speaker 1: I really don't understand. Yeah, how this took so long
Speaker 1: to find? Bill really have about twenty seconds left? Could
Speaker 1: you tell us should the FDIC limit of two hundred
Speaker 1: and fifty thousand dollars? Should that be changed? I'm sorry
Speaker 1: to do what should the FDIC limit be changed off?
Speaker 1: Two hundred and fifty thousand dollars? So as they kind
Speaker 1: of look forward and think about maybe what we should
Speaker 1: be doing differently. I think there's been a lot of
Speaker 1: conversation about that two hundred and fifty thousand deposit levels?
Speaker 1: Should that be changed? In your view? Well, it shouldn't.
Speaker 1: I don't believe it should be increased. It was, it
Speaker 1: was I think it was forty when I arrived at
Speaker 1: the FCIC, and then it went to one hundred, and
Speaker 1: that went to two fifty, and I don't see why
Speaker 1: it keeps on growing. But there's one thing that we
Speaker 1: really could do, and that is we need to pay
Speaker 1: attention to non interest bearing business accounts. Those those, in
Speaker 1: my opinion, should have much more coverage, much more protection.
Speaker 1: We need to do that because that money is not
Speaker 1: hot money. It's it's money that's been supporting payrolls and
Speaker 1: business and you know, and we really should not have
Speaker 1: that money running and so I believe we really need
Speaker 1: to pay attention to that. I recommended that when I
Speaker 1: was at the FDIC before I left, that we needed
Speaker 1: to increase coverage on nine interest bearing business accounts that
Speaker 1: would be very, very helpful to the economy when times
Speaker 1: gets tough. Well, so appreciate your perspective. I know it's
Speaker 1: a busy day for everybody, including yourself. So Bill, thank
Speaker 1: you so much. Be While Bill Isaac, he's former chairman
Speaker 1: of the FDI see chairman of Secura Isaac It is
Speaker 1: a consulting firm and as we mentioned on the board
Speaker 1: of directors of a few banks. You're listening to the
Speaker 1: Bloomberg Business Week podcast. Catch us live weekdays from two
Speaker 1: to five pm Eastern on Bloomberg Radio, The Bloomberg Business
Speaker 1: a band you two. You can also listen live to
Speaker 1: our flagship New York station, Just Say Alexa, play Bloomberg,
Speaker 1: Eleve and Verdi. So we did talk a lot about
Speaker 1: credit suees today. The stock spiraling as it was unable
Speaker 1: to line up a top shareholder to up at stake
Speaker 1: in the bank, as you know, did cause shivers through
Speaker 1: global banking on top of an already heightened nervousness following
Speaker 1: the laps of three regional banks in the past week,
Speaker 1: most notably Silicon Valley Bank. So let's get into how
Speaker 1: Silicon Valley banks collapse threatens an already fragile economy that's
Speaker 1: storing the upcoming new issue of Bloomberg Business Week on
Speaker 1: newsstands starting tomorrow, already online at Bloomberg dot com, slash
Speaker 1: business Week and on the Bloomberg Let's get to it
Speaker 1: with Bloomberg News Fed and US Economy reporter Chris Condon
Speaker 1: on the phone in Washington, d C. And also with
Speaker 1: us the editor of Bloomberg BusinessWeek, Joel Webber here in
Speaker 1: our Bloomberg Interactive Broker's studio. Joel, you know, we talk
Speaker 1: about black swans or unknowns when we talk about the
Speaker 1: economic outlook. Who would have thought a couple of weeks
Speaker 1: ago that we would be talking about you know, it
Speaker 1: feels like some continued problems in the banking sector, and
Speaker 1: it all started off. It feels like with SVB or
Speaker 1: maybe Jpal or maybe j Yeah. Right, there's that guy
Speaker 1: who you know, been raising interest rates and at some
Speaker 1: point we're maybe going to see some cracks in a facade,
Speaker 1: as as Chris has in his story, and I think
Speaker 1: we were all kind of maybe waiting for something somewhere
Speaker 1: to track, and now we've seen what that looks like.
Speaker 1: And you know, this is also interesting, Chris, because we're
Speaker 1: gonna have maybe some more movement next week. Right, So
Speaker 1: what's on the docket from the FED mating of course
Speaker 1: to I think Jay Powell is going to be testifying again,
Speaker 1: and then if we're not too long, the FMC is
Speaker 1: going to meet and they're going to have to decide
Speaker 1: how to handle their interest rate policy. People had been
Speaker 1: expecting at least a twenty five basis point increase if
Speaker 1: not fifty. Powell signaled the door was opened to fifty
Speaker 1: in his last appearance before Congress. Now the calculations are
Speaker 1: going to have to change. Obviously, the Fed is not
Speaker 1: only focused single mindedly on inflation, but they have to
Speaker 1: worry about financial stability, so that will certainly kind of
Speaker 1: change the entire Next, they have to steal unemployment, because
Speaker 1: that's the other part of that dualmanded. But okay, let's
Speaker 1: say let's stay with it, because there's this lag that
Speaker 1: has been talked about a lot. How much. Does JPOW
Speaker 1: care about that lag? Very much so, because we'll look
Speaker 1: at how much they've already raised, Joel, you know that
Speaker 1: they went from just above zero to where they are here,
Speaker 1: almost at five percent. The full effect of those increases
Speaker 1: has not really been transmitted into the economy. So even
Speaker 1: if they stopped now, you can't expect the economy will
Speaker 1: continue to slow because of that, make financial conditions tighter,
Speaker 1: make it more difficult for firms and households to borrow money,
Speaker 1: purchase things, and invest. So they have to think about,
Speaker 1: you know, how those previous increases will be transmitted to
Speaker 1: the economy and when, and then how much they want
Speaker 1: to add on top of that makes their calculus always
Speaker 1: a pretty complex one, and it's not always clear and
Speaker 1: looking at the economy how much of the past increases
Speaker 1: has been fully realized yet. Well, the good news no,
Speaker 1: there is none. There is some historical precedent for what
Speaker 1: interest rate increases you know, can do and the implications
Speaker 1: that they can have for the economy. Walk us through
Speaker 1: some of what you wrote about in the story. Well,
Speaker 1: the history of rate hiking cycles is not a very
Speaker 1: pretty one. It's not only of course, everybody says it's
Speaker 1: very difficult to pull off the so called soft landing.
Speaker 1: But even more than that, when you don't get the
Speaker 1: soft landing and you get a recession, you almost never
Speaker 1: glide gently into that recession. Generally, the economy is slowing down,
Speaker 1: things start to become fragile, weak points begin to get exposed,
Speaker 1: and then something breaks, something like an SVB or in
Speaker 1: previous cases of the dot com bubble burst or another
Speaker 1: bank failure happened, and then it serves as a trigger point,
Speaker 1: and it shakes the confidence of investors, shakes the confidence
Speaker 1: of consumers and lenders, and you get this retrenchment. And
Speaker 1: so suddenly the economy previously just kind of gently slowing
Speaker 1: down kind of just tips over and turns into a recession,
Speaker 1: and then unemployment can very sharply ramp up after that.
Speaker 1: And so the big question, of course now is is
Speaker 1: this SVB incident going to be that kind of trigger point.
Speaker 1: It's really not certain yet. The credit suee situation is
Speaker 1: greatly complicating it. Of course, it's not really very similar
Speaker 1: to sv being it's but it's suffering from now this
Speaker 1: leaking away of confidence in financial markets, and so I
Speaker 1: don't think it's clear yet that these really will be
Speaker 1: the break point. But we're at a very perilous moment,
Speaker 1: that's for sure. Okay, So maybe I'm trying to find
Speaker 1: the silver lining. If we do see this collapse or
Speaker 1: this triggering of a recession, does that mean inflation Actually,
Speaker 1: Chris gets back down to two percent and the Feds like, whoa,
Speaker 1: I can start cutting rates. Well, yeah, there are a
Speaker 1: couple of things, Carol. In fact, number one, yes, if
Speaker 1: we go into recession, the inflation problem will very likely disintegrate.
Speaker 1: The other thing that is a bit of a silver lining.
Speaker 1: Economists will will point out that, you know, outside certain sectors,
Speaker 1: the economy is in pretty good shape. Balance sheets pretty good.
Speaker 1: The banking sector, particularly the largest banks, are very well capitalized.
Speaker 1: They were forced to be so by the twenty and
Speaker 1: ten Dodd Frank changes. Household balance sheets are also pretty
Speaker 1: darn good shape, and so most economists say that they're
Speaker 1: expecting a recession, but a shallow one. So if that's
Speaker 1: the silver lining, perhaps that's what you're looking for. So, Chris,
Speaker 1: with this week's data, when you're looking at CPI, the
Speaker 1: core coming a little bit hotter than expected, but you're
Speaker 1: seeing these sort of maybe silver linings with producer prices
Speaker 1: easing up again, and then also some softwas in the
Speaker 1: retail sales. Where exactly does this leave the FED as
Speaker 1: we're heading into next week with this big, great decision.
Speaker 1: You know, I do think they're not going to be
Speaker 1: so worried about the latest inflation data points. First of all,
Speaker 1: you know, they are never They're not expecting this to
Speaker 1: be a straight line inflation. The inflation figures month to
Speaker 1: will always be bumpy. They're gonna want to look at
Speaker 1: friendline first of all. And then in the context of
Speaker 1: these bank issues and the financial stability questions, they're just
Speaker 1: going to want to kind of thread the needle here
Speaker 1: and first and foremost, do no more additional harm, do
Speaker 1: not spook the markets with something the markets are not
Speaker 1: expecting on the hawkish side. And at the same time,
Speaker 1: they're going to want to say, look, even if we pause,
Speaker 1: we are we're going to get right you know, once
Speaker 1: things are settled down, we're going to get right back
Speaker 1: to fighting inflation. That job is not done. They're going
Speaker 1: to want to signal that one way or another. Okay, Well,
Speaker 1: just to put a bow on all this, I'm gonna
Speaker 1: give you the quote that Chris has in the story
Speaker 1: from David Wilcox, who's the director of US Economic Research
Speaker 1: at Bloomberg Economics, also a former division director at the FED,
Speaker 1: who said, it's hard to be totally certain of anything
Speaker 1: once a crack has appeared in facade. So yeah, I
Speaker 1: have a glass of wine. Yeah, maybe make a bourbon
Speaker 1: good idea That facade crack is what I think we're
Speaker 1: all watching, That is for sure. All right, Chris Connin,
Speaker 1: thank you so much, FED and US economy reporter at
Speaker 1: Bloomberg News on the phone in Washington, dcar. Thanks to
Speaker 1: the editor of Bloomberg Business Week, Till Webber. Here in
Speaker 1: our interactive broker Student, you're listening to the Bloomberg Business
Speaker 1: Week podcast. Catch us live weekdays from two to five
Speaker 1: pm Eastern on Bloomberg Radio, the Bloomberg Business a band
Speaker 1: you two. You can also listen live to our flagship
Speaker 1: New York station, Just say Alexa, play Bloomberg e Love
Speaker 1: and Dirty. All right, So, yeah, we're trying to figure
Speaker 1: out if the walls are coming tumbling down here. Um,
Speaker 1: you know, we've heard a lot of conversations that this
Speaker 1: isn't another banking crisis, but let's get to the cover
Speaker 1: story of Bloomberg BusinessWeek magazine. It's a new double issue.
Speaker 1: It's available on newstands, Bloomberg dot com, slash business Week.
Speaker 1: He's on the Bloomberg terminal. It's a finance section takeover.
Speaker 1: It could not be more timely. It is about the
Speaker 1: sudden unmaking of Silicon Valley Bank, which for for forty
Speaker 1: years really enmeshed itself in the venture capital community. So
Speaker 1: let's get to it. Lots of facets to this story.
Speaker 1: So with us is Bloomberg Markets Finance editor of BusinessWeek magazine,
Speaker 1: Pat Ragnier. He's in our studio along with the editor
Speaker 1: at large, Eric Shatzker, and the editor of the magazine,
Speaker 1: Joel Weber. And we're gonna start with you, Jael. This
Speaker 1: is a story we continue to track some headlines on
Speaker 1: the Bloomberg about the banking community overall. How did you
Speaker 1: and your editors and your team kind of figure out
Speaker 1: how to actually cover it and put it to bed
Speaker 1: for this week? This was such a significant story and
Speaker 1: it broke it really a crazy time for us because
Speaker 1: of course also Silicon Value Bank not alone in this,
Speaker 1: you know, three banks and three US banks and one
Speaker 1: week was significant obviously of those three, Silicon Value was
Speaker 1: the biggest. And that's why we wanted to really kind
Speaker 1: of like make sure that we looked at that because
Speaker 1: there's a greater meaning to this bank. It relates to
Speaker 1: obviously Silicon Valley venture capital, private equity, and interest rates.
Speaker 1: And so you know, we've I think we spent ten
Speaker 1: years talking about the financial crisis, if not longer. This
Speaker 1: at the moment doesn't look like it's going to become
Speaker 1: quite like that. But you know, on that's balance sheet,
Speaker 1: Silicon Valley had us, As Eric writes, um, you know,
Speaker 1: really kind of strategy that you can call into question now,
Speaker 1: and that has raised a lot of eyebrows, and it's
Speaker 1: meant to me that you know, we might not be
Speaker 1: we might not through all of this yet, and so
Speaker 1: I wanted to make sure that in the magazine we
Speaker 1: we we flagged that in a big way. And Pat
Speaker 1: was the architect that kind of I mean, frankly, he
Speaker 1: hit this structure where it was like, we want to
Speaker 1: talk about Silicon Valley Bank, we want to talk about
Speaker 1: what happened in DC, which we also had as part
Speaker 1: of that package. And then Eric put a bow on
Speaker 1: it just to say, like, you know, there's a great
Speaker 1: meaning here that is about the financialization of everything. And
Speaker 1: so we'll talk about probably all those threams, those three
Speaker 1: themes here. What was the thing that really stood out
Speaker 1: to you in this package of coverage in the magazine.
Speaker 1: One of the things that I really wanted to convey
Speaker 1: was how crazy the weekend felt. M You know, I
Speaker 1: was sitting in a diner in Brooklyn and looking at
Speaker 1: my Twitter feed and watching not just the aftermath of
Speaker 1: a bank failure, but a very loud bank failure. This
Speaker 1: was probably one of the loudest failures of a regional
Speaker 1: bank that that we've ever had. You could see, you
Speaker 1: could see the VC community sort of raising alarms. I
Speaker 1: think in some ways on purpose, um and uh, it
Speaker 1: created a scary weekend, even though I think probably you
Speaker 1: know it, there was there was reason to to think
Speaker 1: all along that this was not going to be allowed
Speaker 1: to get too far. Are people seem to understand it,
Speaker 1: but that but that anxiety, uh, that we came in
Speaker 1: on a Monday morning really said that, you know, we
Speaker 1: really just had to talk about something important has changed
Speaker 1: here that we could have a moment like this. Well,
Speaker 1: and I think what's fascinating about this story. It's not
Speaker 1: like this was a household name in the banking community SVB.
Speaker 1: Now it is, but Pat, I feel like that was
Speaker 1: a big part of telling this story of like who
Speaker 1: is this Pang and why are we also stressed out right? Well, obviously, um,
Speaker 1: it wasn't an unfamiliar name if you were in the valley,
Speaker 1: and so like one of the one of the stories
Speaker 1: we wanted to tell was we have Ellen hewitttum In,
Speaker 1: who's our reporter in the valley, talking about just like
Speaker 1: how essential this was to to to sort of the
Speaker 1: way day to day life work for people in the
Speaker 1: startup community. And she said was like waking up to
Speaker 1: a hell fire in your living in your very own
Speaker 1: living room, Like what you know, what, what's suddenly on
Speaker 1: fire here? Um? And uh, that dynamic was really powerful
Speaker 1: because it was all the same kinds of clients at
Speaker 1: all the same bank, all talking to each other and
Speaker 1: with a lot of cash. We've talked a lot about
Speaker 1: the fact that like there was something happening on the
Speaker 1: asset side of their balance sheet, but but but the
Speaker 1: other thing that was happening was what was going on
Speaker 1: on the liability side of their balance sheet, which was
Speaker 1: they they had people who had who suddenly woke up
Speaker 1: to realize that they had reason to be nervous, which
Speaker 1: is not usually the case with most with most bank
Speaker 1: most banks, half of your half of the people who
Speaker 1: have half the half of your money, like you know you,
Speaker 1: it wouldn't matter which you did in your on your
Speaker 1: assets side. They don't need to run to the bank.
Speaker 1: They're ensure that money's ensured. This was a very different situation. Yeah, Eric,
Speaker 1: I want to bring you in a little bit here
Speaker 1: because I love the headline on your comment on this
Speaker 1: issue arrogance, incompetence or both what spb's failure really means.
Speaker 1: And I think, you know, it's interesting. Whatever we have
Speaker 1: a failure like this, the question often is, well, was
Speaker 1: this incompetence or was their actual sort of criminal behavior here?
Speaker 1: It doesn't seem like that with SVB, But I mean,
Speaker 1: can incompetence be so great that it sort of crosses
Speaker 1: the threshold into criminality? Incompetence is probably the best explanation
Speaker 1: for one half of what happened to SVB, and arrogance
Speaker 1: is probably the best explanation for the other half of
Speaker 1: what happened to SVB. Incompetence applies to the asset side
Speaker 1: of the balance sheet. The fact that they mismanaged duration
Speaker 1: risk is unconscionable for any banker, certainly a bank of
Speaker 1: SVB size. It was the sixteenth largest bank in the country.
Speaker 1: The arrogance, though, applies to the liability side of the
Speaker 1: balance sheet, and what we mean by that is the
Speaker 1: fact that they clearly not just SVB, that they is
Speaker 1: bigger than SVB in its management. It also applies to
Speaker 1: the bank regulators the collective. They failed to recognize or
Speaker 1: appreciate that there was a different kind of concentration risk
Speaker 1: at the bank, and it had to do with the
Speaker 1: nature of the bank's deposits. Over the course of some
Speaker 1: twenty years, SVP SVB, excuse me, changed from being a
Speaker 1: bank that really did focus on the innovation economy, the
Speaker 1: startups in the valley in tech and life sciences, medical devices, biotechnology,
Speaker 1: and became a bank that principally served the VC and
Speaker 1: private equity communities. And those ended up being massive depositors
Speaker 1: at SVB. And we know now that founder collective, Katu Management,
Speaker 1: Founder's fund, Peter Teel's fund, all in a heartbeat withdrew
Speaker 1: those deposits and ordered their portfolio companies to do the same.
Speaker 1: That wouldn't happen. For example, at a fifth third Bank
Speaker 1: Corps that's the next largest bank after Silicon Valley Bank,
Speaker 1: it has six point one seven million visual accounts that
Speaker 1: fall under the two hundred and fifty thousand dollars cap
Speaker 1: for Federal deposit insurance corporation insurance. That means all of
Speaker 1: those six point one seven million accounts effectively were protected.
Speaker 1: And at Silicon Valley Bank that number was it was
Speaker 1: only equivalent to six percent of their deposits. Pet likes
Speaker 1: to talk about hot deposits. You will not find hotter
Speaker 1: deposits than the deposits that were and no longer are
Speaker 1: at Silicon Valley Bank. Jill, come on back in. Okay, So, Erica,
Speaker 1: you I think we're just a guiding presence and in
Speaker 1: a lot of just what we were thinking about in
Speaker 1: this package actually, and I do want to, you know,
Speaker 1: make sure that we spend this forward a little bit
Speaker 1: and think about what this could mean going forward. I mean,
Speaker 1: obviously this interest rate thing that SVB got really wrong.
Speaker 1: Is it a question at this point of like, you know,
Speaker 1: SPB did it wrong, but like who else didn't. And
Speaker 1: you know this lag that we've talked about a little
Speaker 1: bit before with interest rates. How else are you kind
Speaker 1: of just thinking about where else this could show up
Speaker 1: in the financial ecoso Well, I was already thinking about
Speaker 1: First Republic, And just to revisit a few of the
Speaker 1: headlines of the past hour, it just got thirty billion
Speaker 1: dollars of deposits from a number of big banks, including
Speaker 1: Bank of America and JP Morgan. So yes, that was
Speaker 1: a problem, and there may be other regional banks that
Speaker 1: similarly mismanage their interest rate risk. We don't know all
Speaker 1: of the details. It's very important to say that because
Speaker 1: some of these banks actually are smart and do hedge,
Speaker 1: some of that interest rate exposure didn't happen at Silicon
Speaker 1: Valley Bank. Quite probable that it didn't happen elsewhere as well.
Speaker 1: But beyond the quality of the asset side of the
Speaker 1: balance sheet, there are other things to think about that
Speaker 1: we've been talking about and which undoubtedly we will end
Speaker 1: up covering here at Bloomberg. In many different ways, the second, third, fourth,
Speaker 1: and fifth order effects like corporate treasurers asking themselves, do
Speaker 1: I really want to have money in deposit accounts? Any longer.
Speaker 1: Why shouldn't I take the excess cash that I've got
Speaker 1: and sweep it into a money market fund. It'll earn
Speaker 1: a higher yield to begin with, and it will be
Speaker 1: protected because if it's a money market fund that's invested
Speaker 1: in treasuries and agencies, it has the backing of the
Speaker 1: US government. This is not I mean, these things are
Speaker 1: going to play out over the next weeks, months, quarters,
Speaker 1: possibly years, and it might not be a serious issue
Speaker 1: in the short run, because there are so many federal
Speaker 1: facilities now in place to backstock the banking system. But
Speaker 1: these changes will happen, they will take place, they will
Speaker 1: transform the American banking landscape. I wouldn't be surprised if,
Speaker 1: maybe even as little as eighteen months from now, things
Speaker 1: look vastly different. Pat. I want to bring you back
Speaker 1: in here because I do think about this perfect storm
Speaker 1: of think about in a year, what has happened with
Speaker 1: the interest rate environment. That's one thing to think about.
Speaker 1: Also the role of social media and creating a velocity,
Speaker 1: certainly with SVB. And then you've got what Eric writes
Speaker 1: about this financialization of our world and increasingly the role
Speaker 1: of private markets that don't necessarily have the transparency. You
Speaker 1: put that together and you're like, well, of course we're
Speaker 1: gonna have some problems. Yeah, you know, after we closed
Speaker 1: this issue, I called my dad. My dad worked in
Speaker 1: the savings and loan industry during the savings and loan
Speaker 1: crisis and he ended up working for the Resolution Trust Corporation,
Speaker 1: which was the government agency that did the bailout. So
Speaker 1: he called me in. He said, you know, I thought
Speaker 1: we had another five years before another one of these.
Speaker 1: Why do they keep happening so fast? And why don't
Speaker 1: people learn? And I think, you know, that's going to
Speaker 1: be the big question we're gonna be asking ourselves is
Speaker 1: why do we not understand how fundamentally risky a bank is.
Speaker 1: You know, we think of banks as safe. It's actually
Speaker 1: an important part of how banking works is that it
Speaker 1: they project safety. You know, they always used to build
Speaker 1: banks to look like Roman Temple so that they would
Speaker 1: look like they were very safe. But the reason we
Speaker 1: do that and we feel safe is because they're actually
Speaker 1: considerably riskier than putting your money in a money market fund.
Speaker 1: It's backed by t builds. They're actually doing something risky
Speaker 1: and they have to be watched and watched quite carefully,
Speaker 1: but they're doing something essential. Let's not forget about that.
Speaker 1: Without fractional reserve banking, I'm not going to get into
Speaker 1: details about what that means. Please look at up on Google.
Speaker 1: And without credit creation, which something we do understand, the
Speaker 1: transformation of liabilities i e. Deposits into assets ie loans,
Speaker 1: we would not have the economy that we have. You
Speaker 1: couldn't take a dollar for dollar. You need one dollar
Speaker 1: of liabilities effectively transformed into ten dollars of assets, correct
Speaker 1: velocity of money. In addition to economic growth and opportunity,
Speaker 1: if you couldn't borrow to invest in your company, you
Speaker 1: know your hands would be severely tied. You wouldn't all
Speaker 1: of these things that individuals and even and small businesses need.
Speaker 1: So many of those things would be effectively unavail. Can
Speaker 1: I quote Eric here which second graph of the story.
Speaker 1: That's why when a bank fails, it's so essential to
Speaker 1: figure out what happened and ensure the same mistakes won't
Speaker 1: be made again. That's why we did this, and that's
Speaker 1: why we put it on the cover, and that's why
Speaker 1: we'll be talking about it, I think for you know,
Speaker 1: hopefully a little while longer, and to that end, I
Speaker 1: do think that the repercussions of this are still playing out,
Speaker 1: and that's why I also we haven't talked about the
Speaker 1: second piece of this package, which is worth mentioning. But
Speaker 1: it's also why Jamie Diamond was in DC yesterday talking
Speaker 1: with Treasury Secretary Janet Yellen to make sure that you know,
Speaker 1: this thirty billion that ended up in First Republic could
Speaker 1: could happen, right, and that that actually, you know, it
Speaker 1: shows how much attention there is on this stuff. And
Speaker 1: you know, of course you'd call in the guy from
Speaker 1: the financial crisis to make sure that everything goes smoothly. Yeah, Eric,
Speaker 1: I also wonder if he has sort of zoom out
Speaker 1: and look at it from a macro level. Was there
Speaker 1: a bubble in venture capital after a decade of low
Speaker 1: interest rates that just popped? Is the golden age of
Speaker 1: the quote unquote founder over after this and just got
Speaker 1: a bat Well, that's an excellent question. I think you
Speaker 1: can only call a bubble after it's actually happened and
Speaker 1: the dust settles. And I don't think we're quite there yet.
Speaker 1: We're not there where we can look back and see
Speaker 1: it was a bubble. There's no question there was way
Speaker 1: too much liquidity there probably still is. We said it
Speaker 1: the other day, Carol Jee Powell secretly might be not glad,
Speaker 1: but boy, a bank collapsure does help to tighten financial
Speaker 1: conditions and make it easier to get a rein on inflation.
Speaker 1: Now it's a really good point, right, because you've got
Speaker 1: to look at this all the big picture here, right,
Speaker 1: not as preferred filing you guys, all right, we gotta
Speaker 1: run Fat Regney or Mark Markets and Finance editor A
Speaker 1: Bloomberg Business Week Editor at Large, Eric Shats Garb Bloomberg
Speaker 1: News and Joe Weber, Editor Bloomberg Business Week. Folks, it's
Speaker 1: a finance takeover. It's the cover. It's a must read
Speaker 1: for the weekend. This is Bloomberg Radio. You're listening to
Speaker 1: the Bloomberg Business Week Podcast. Catch us live week days
Speaker 1: from two to five pm Eastern Bloomberg Radio, the Bloomberg
Speaker 1: Business vand you two. You can also listen live to
Speaker 1: our flagship New York station. Just say Alexa, play Bloomberg
Speaker 1: You Love and Dirty. Remember the movie Damian. I don't
Speaker 1: know if you remember this. The day after it was
Speaker 1: nineteen eighty three, ABCTV streaming wasn't even on our narrative
Speaker 1: day after a nuclear war, god forbid. Okay, today, very
Speaker 1: different scale, but it does kind of feel like the
Speaker 1: day after. We've had twenty four more hours to kind
Speaker 1: of think about what happened over the weekend, and it
Speaker 1: does feel like some calmness has come in because comin
Speaker 1: has come back to the market. Yeah, but I think,
Speaker 1: you know, the whole episode is definitely revealing popples in
Speaker 1: the US economy right now. We're seeing some things deep down,
Speaker 1: you know. I'm really excited to get Johnson of JP
Speaker 1: Morgan in later in the show. He's going to tell
Speaker 1: us what's going on in US housing. I mean, for me,
Speaker 1: that is the key element here. If you talk about SVB,
Speaker 1: you talk about, you know, what went wrong there. It
Speaker 1: wasn't necessarily that they were lending to venture. It was
Speaker 1: that they had stuff on their balance sheet they shouldn't have. Well,
Speaker 1: speaking of venture, we've got a great knowing perspective with
Speaker 1: us from the venture capital world. Longtime venture capitalist Alan
Speaker 1: patrick Off, chairperson co founder at Primetime Partners, author of
Speaker 1: No Red Lights, Reflections on life, fifty years in venture
Speaker 1: capital and Never Driving Alone. Great book. He joins us
Speaker 1: via Zoom from New York City. I can say great
Speaker 1: because Alan joined us to talk about it before. Alan,
Speaker 1: good to have you here with Damian myself. It is
Speaker 1: twenty four hours you got. You were gracious enough to
Speaker 1: join some of our colleagues on TV yesterday. As you're
Speaker 1: thinking about Silicon Valley and the impact the venture world
Speaker 1: and capital raising fundraising world four startups changed at all, Well,
Speaker 1: clearly it's got to change someway after what happened yesterday.
Speaker 1: And you know, as you just said a second ago,
Speaker 1: that the full wasn't really in with the venture capitalis
Speaker 1: it was the full with the bank itself. And as
Speaker 1: far as I can tell from emails I'm beginning, the
Speaker 1: bank is back in business again and based on their
Speaker 1: own words or lending money. And I've gotten an email
Speaker 1: for another bank besides SBB, and they are lending money.
Speaker 1: And the big question over the weekend, which you know
Speaker 1: unnerved everybody, including me, even though I frankly had very
Speaker 1: little exposure, thank god, so I had a little bit
Speaker 1: less less violent weekend and some but it was the
Speaker 1: concern over the deposits and and I you know, said
Speaker 1: this broadly over the weekend. There was no way the
Speaker 1: banking system. The stock market could open on Monday without
Speaker 1: solving the problem. And I think the government did a
Speaker 1: great job in solving the deposit problem and taking over
Speaker 1: a couple of banks, and so no worri about contagion.
Speaker 1: Do you think we're done? U? Well, no, yes, I
Speaker 1: think contagion a sense you're thinking of. I think the
Speaker 1: contagion is how it's going to affect loans and druid
Speaker 1: ends from banks and what kind of lending they're going
Speaker 1: to do, and how that will affect the industry going forward,
Speaker 1: because venture lending has been a you know, on the
Speaker 1: edge of the traditional banking system, and now you know
Speaker 1: all of these loans and people's nervousness about being able
Speaker 1: to draw down loans in an appropriate fashion timely, and
Speaker 1: whether they really existed The bigger the first question was deposits.
Speaker 1: The second moment was if you had a line, are
Speaker 1: you can be able to draw down on? And obviously
Speaker 1: they are drawing down on all their deposits, assume and
Speaker 1: all their lines and have made a point of setting
Speaker 1: we're open for business. So I would say that we're back.
Speaker 1: We can't be back to normal. People have to have
Speaker 1: some second thoughts. Now is so how they go forward
Speaker 1: and basically in terms of lending lines and how much
Speaker 1: they can depend on it, how much they wanted to.
Speaker 1: I mean, Alan, look, you've had an unbelievable career, right,
Speaker 1: I mean in your autobiography entitled No Red Lights, which
Speaker 1: released last year, you discussed not only the successes of
Speaker 1: your career but also the failures, and one that stood
Speaker 1: out for me was your that you didn't make an
Speaker 1: investment in Starbucks. I want you to take that forward
Speaker 1: to Chair Powell when he writes his autobiography and he
Speaker 1: has to discuss his failures. Is he going to have
Speaker 1: to state that he was late to the game on
Speaker 1: inflation and that the FED is behind the curve or
Speaker 1: do you think that you know they can manage through
Speaker 1: this and we can achieve that soft landing. Well, you
Speaker 1: really are stretching the point of of my making mistake
Speaker 1: of not investing in a coffee like that, one with
Speaker 1: the strengths that affect the world. Yeah. Probably. Uh. You know,
Speaker 1: the acceleration of rate increasing rates didn't help the situation,
Speaker 1: but you have to understand that did not have an
Speaker 1: impact of the venture business per se or on lines
Speaker 1: that were outstanding. I think that that didn't topple anything.
Speaker 1: I would personally say that this would not be the
Speaker 1: best time increased rates again next week. I've let the
Speaker 1: market settle down a little bit here and get used
Speaker 1: to what's happened. But I think the whole the real
Speaker 1: challenge the industry is thinking about venture banking, the venture
Speaker 1: at the sdpiece of the world, which there's more at
Speaker 1: least a dozen or two dozen like that. How what
Speaker 1: what role are they going to play going forward? How
Speaker 1: much are you going to depend on those kind of lines.
Speaker 1: The government has clearly done a great job and that
Speaker 1: the fact, not just the role the deposits is say,
Speaker 1: but the fact that they're telling everybody go forward and
Speaker 1: keep lending on the same basis is really a very
Speaker 1: strong sign that the government is standing behind these banks
Speaker 1: and does not want to see well, you know, Alan
Speaker 1: not just the government coasal Ventures is going to be
Speaker 1: backstopping pay for some of its impacted companies. Is that
Speaker 1: going to be a role that you know, VC funds
Speaker 1: are going to have to take on in the future,
Speaker 1: you know, being that sort of backstop is something should
Speaker 1: go wrong with the bank and should they be Yeah, no,
Speaker 1: you know, it's misleading to say banks their backstop. They're
Speaker 1: not doing that. If they're an investor in a company
Speaker 1: as we are, and you you depended on a line
Speaker 1: and all of a sudden the lines not there, you
Speaker 1: got to figure out how we got to replace it.
Speaker 1: And the easiest way, of course, is to get the
Speaker 1: existing investors to put up additional capital, whether it's in
Speaker 1: an interim or a more long term basis. But they're
Speaker 1: not doing to, you know, act as a backstop for lending.
Speaker 1: Their ACT is a backstop to you know, the alternative
Speaker 1: to these loans was going out and raising more equity capital.
Speaker 1: So I think if anything but this is going to
Speaker 1: do is to put some pressure on companies to build
Speaker 1: up their equity positions, and they in the process, it
Speaker 1: would not surprise me if there were some write downs
Speaker 1: and some reef or financings to build up these balance
Speaker 1: sheets at lower prices than we saw. I mean, the
Speaker 1: market was very very strong in twenty one and twenty
Speaker 1: two for a lot of venture financing, whether it's startup
Speaker 1: or even later stage, and I think that to the
Speaker 1: extent that companies want to improve their overall balance sheet position,
Speaker 1: even if they have these lines, they would probably want
Speaker 1: to build their equity and that may be at a
Speaker 1: lower price in the last round possibly. So Alan, what
Speaker 1: in terms of longer lasting impact, you know, how does it?
Speaker 1: I think you know the doomsday is like, oh, it's
Speaker 1: going to affect innovation, and you know the startup community
Speaker 1: is that overblown. There's money to be made. Investors will
Speaker 1: find a way. No it startups to wind a way.
Speaker 1: I will not use the vernacular, but I don't believe
Speaker 1: that it is going to have very very little impact.
Speaker 1: Will tell you a specific I am involved with one
Speaker 1: company that had a large deposit of one of these
Speaker 1: banks not named, and had a line not used that
Speaker 1: they had not drawn down upon and they were encouraged
Speaker 1: on Monday to draw down that line and they did
Speaker 1: and the money transferred into the bank account of the company.
Speaker 1: So clearly the banks are back providing capital again. But
Speaker 1: if you don't have a line this time, I don't
Speaker 1: know what the attitude is going to be to put
Speaker 1: on new lines at the moment. And I would think
Speaker 1: it will be proven for a company to build up
Speaker 1: its equity base that may come at a discount from
Speaker 1: the last round, because a lot of these last rounds
Speaker 1: were very very high prices in retrospect, and it may
Speaker 1: cause some you know, some type of markdowns, but other
Speaker 1: than that, the business is so healthy and innovation not
Speaker 1: going to be stopped. Well, Alan, I mean you you're
Speaker 1: now with Primetime Partners, right, You founded that along with
Speaker 1: Addy Levy, who was the former SVP of Soul Cycle.
Speaker 1: Your goal, your mandate as a word, is to invest
Speaker 1: in early stage startups that bring products and services to
Speaker 1: individuals above the age of sixty, which of course is
Speaker 1: twenty five percent of the world's population. My question for
Speaker 1: you is those early stage startups that you're investing in,
Speaker 1: would you tell them to bank at some you know,
Speaker 1: made and small sized regional banks going forward, or you
Speaker 1: encourage them to be banking at you know, the big ones,
Speaker 1: the JP Morgan's, the city groups of the world. And
Speaker 1: Alan just got about thirty thirty five seconds. Unfortunately, I
Speaker 1: don't want to answer that question directly, but I would
Speaker 1: say that for the moment, I think they continue bank
Speaker 1: you as usual. But remember, for these early early stage deals,
Speaker 1: they're not doing too much banking. They're really relying almost
Speaker 1: entirely on equity stage. All right, Going to leave it
Speaker 1: on that note, Alan always good to get some time
Speaker 1: with you and so appreciated. Alan Patrikoff is your person
Speaker 1: and co found at Primetime Partners, showing us via new
Speaker 1: Zoom excuse me in New York City. And his book
Speaker 1: is No Red Lights Reflections on life fifty years in
Speaker 1: venture capital and never driving alone. Did you know he
Speaker 1: really likes music, Carol? Did you know Alan ran at
Speaker 1: eight eight years old in New York City Marathon last
Speaker 1: year and he finished, and he finished. He's pretty remarkable,
Speaker 1: unbelievable and so delighted to have him here. And just
Speaker 1: you know, I feel like calm right, like it's not
Speaker 1: like the it's not good. It's got feel better now
Speaker 1: if you're talking to Alan, yeah, yeah, it's good. You're
Speaker 1: listening to the Bloomberg Business Week podcast. Catch us live
Speaker 1: weekdays from two to five pm Easter on Bloomberg Radio,
Speaker 1: The Bloomberg Business a band you two. You can also
Speaker 1: listen live to our flagship New York station Just say
Speaker 1: Alexa play Bloomberg. He love him Verdi all right. We
Speaker 1: did also want to get a check on the auto sector.
Speaker 1: All of these conversations, all of these earnings reports help
Speaker 1: us to give us more clarity about the economic outlook.
Speaker 1: Right now, we have with us and back with us
Speaker 1: the CEO of the online seller of the aftermarket auto
Speaker 1: part company. We're talking about carparks dot Com. David Mignon
Speaker 1: joining us via zoom from Torrens, California. David, nice to
Speaker 1: have you here with Mike Reagan and myself. Welcome back.
Speaker 1: Your stock rallied yesterday following earnings Tuesday night fourth quarter
Speaker 1: revenue beat. Tell us about the quarter, tell us about
Speaker 1: the outlook. Tell us about the environment, the business environment.
Speaker 1: Are you thinking recession or not? Thanks for having me. Yeah,
Speaker 1: I'll tell you even more than the quarter. I'll tell
Speaker 1: you about the year. We know we've been in business
Speaker 1: for twenty five years and twenty twenty two was a
Speaker 1: record year for us, both the top line and the
Speaker 1: bottom line. Our sales were up fourteen percent to six
Speaker 1: hundred and sixty one million. Our adjusted IBADAO was up
Speaker 1: more than fifty percent. And today as we sit, we're
Speaker 1: free cash flow positive, we're growing, and we're virtually debt free. Now.
Speaker 1: As far as the second part of the question, in
Speaker 1: terms of the economy, what we're seeing is that inflation
Speaker 1: is everywhere and the customer is still spending. However, what
Speaker 1: I'm feeling is that they're a lot more discipline as
Speaker 1: to where they spend, how much they spend, and when
Speaker 1: they spend. Yeah, so what does that signal to David?
Speaker 1: You know, I'm trying to wrap my head around where
Speaker 1: a company like yours fits into the economic climate. You know,
Speaker 1: on one hand, you would think, like any business, sales
Speaker 1: would slow down. But on the other hand, is it
Speaker 1: actually a little bit resilient to an economic slowdown because
Speaker 1: people maybe will repair their car rather than buying a
Speaker 1: new one. Yeah, good point. And historically we see that
Speaker 1: our business and our company is you know, it's inflation,
Speaker 1: if inflation and recession resilient, you know, we sell a
Speaker 1: need and not a want. Now, the last three years
Speaker 1: have been an economic boom in terms of spending because
Speaker 1: of all the artificial dollars flowing into the system. But
Speaker 1: what we're seeing today, and at least for us at
Speaker 1: Carparts dot Com, is an opportunity to double down on
Speaker 1: the customer. Like I said, because the customer is still
Speaker 1: very discipline as to where they spend. We have to
Speaker 1: focus on the value that we deliver to the customer.
Speaker 1: So for me, the last three years have been about
Speaker 1: availability and trying to figure out a way to connect
Speaker 1: the dot between the supply and the demand. But today
Speaker 1: it's more about what value can we deliver to the
Speaker 1: customer and how can we be there for them in
Speaker 1: times of needs? You know, Carol, it's funny as we
Speaker 1: talk to David, I'm reminded I have a busted taillight
Speaker 1: on my Toyota Highlander. I think we'll have to talk
Speaker 1: after you can't get it. I know a place quality
Speaker 1: director consumer factory at the warehouse warehouse? Do you Carparts
Speaker 1: dot Com? And I'll give you the VIP pricing? Oh no, no,
Speaker 1: I can't. I can't accept that. But I do want
Speaker 1: to ask about those those warehouses. You know a lot
Speaker 1: of suppliers have struggled to match inventory with the band
Speaker 1: over uh you know, the last three years with the pandemic,
Speaker 1: the supply chain disruptions. How is the inventory situation with
Speaker 1: cap Carparts dot Com? Are you back to sort of
Speaker 1: a normal supplying demand relationship? Are you ever supplied undersupplied?
Speaker 1: You know? Is it a depend on what parts you're
Speaker 1: talking about? What's the sort of big picture there as
Speaker 1: far as inventories with car parts, so you're absolutely right.
Speaker 1: The last couple of years have been around you know,
Speaker 1: longer lead times and the need to carry additional inventory
Speaker 1: to fulfill the demand. And so if you look at
Speaker 1: our inventory position last year, we significantly flexed up in
Speaker 1: a lot of parts. Now today, to your point, we're
Speaker 1: in a much more normalized kind of inventory position. And
Speaker 1: you know, as at the end of last year, we
Speaker 1: sat at you know, about one hundred and thirty eight
Speaker 1: million dollars worth of inventory, and that's the right level
Speaker 1: for the current environment for us. So ultimately, what we
Speaker 1: do is we try to focus on carrying the right
Speaker 1: parts close to the customers so that we could deliver
Speaker 1: that value as quickly as possible. So you guys are
Speaker 1: ahead of pre pandemic levels at this point. We are
Speaker 1: ahead of pre pandemic levels because our business has grown
Speaker 1: so pre pandemic. Actually, pre twenty nineteen, our business was
Speaker 1: sitting at around less than three hundred million dollars in sales,
Speaker 1: and like I said, twenty twenty two was six hundred
Speaker 1: and sixty millions. So we're a different company. We've opened
Speaker 1: a lot of buildings. You know, the last year was
Speaker 1: very exciting for us. We delivered record results. So we're
Speaker 1: in a good spot today. So not pulling back in
Speaker 1: any way in terms of spending, expansion, none of it.
Speaker 1: So what we're doing is trying to be a little
Speaker 1: more intentional as to where we spend the money. And
Speaker 1: so there's a couple of areas where we're kind of
Speaker 1: taking away some of the spend in terms of that
Speaker 1: discretionary spend and reinvesting those dollars into customer centric initiatives.
Speaker 1: So it's intentional the same as being cautious a little bit.
Speaker 1: It's cautious, it's aggressive mindset, but it's a defense playbook. David,
Speaker 1: what keeps you up at night? You know? I think
Speaker 1: what keeps me up at night today is how do
Speaker 1: we become the number one destination for our customer? You know,
Speaker 1: the way I think about our industry is there's three
Speaker 1: hundred billion dollars of parts being sold in the United
Speaker 1: States and only four percent of that or five percent
Speaker 1: of that are online. How do we make it ten percent?
Speaker 1: How do we make it fifteen percent? Like apparel, like electronics,
Speaker 1: We want to be the number one. What keeps me
Speaker 1: up at NiFe is trying to become number one? All right?
Speaker 1: I canna leave it there, David, thanks so much, appreciate
Speaker 1: the time. David Meagnon, CEOT Car Parts dot Com. You're
Speaker 1: listening to the Bloomberg Business Week Podcast. Catch us live
Speaker 1: weekdays from two to five pm Easter on Bloomberg Radio,
Speaker 1: The Bloomberg Business a band you two. You can also
Speaker 1: listen live to our flagship New York station Just Say
Speaker 1: Alexa Play Bloomberg e Love and Dirty. Well. Her next
Speaker 1: guest had, as we said earlier, from OC to five
Speaker 1: decades of technological and social change. It's about eight years
Speaker 1: a CEO of one of the iconic tech firms of
Speaker 1: the past century. We're talking about IBM, and yet, as
Speaker 1: she says in her new book, she's not writing about
Speaker 1: technology or IBM, but rather about how we can all
Speaker 1: drive meaningful change in positive ways for all. She calls
Speaker 1: this good power. We are so delighted to have with us.
Speaker 1: The former chairman and CEO of IBM, Jinny Rometti, her
Speaker 1: new book is good Power, leading positive change in her lives,
Speaker 1: work and world. She's here in our Bloomberg Interactive Broker studio,
Speaker 1: Pens and Needle is so delighted to have you here. Congratulations,
Speaker 1: Thank you very much as big milestone two years in
Speaker 1: the making, right, it's always Oh, yes, I never expected
Speaker 1: how hard it would be. That's what everybody says, I
Speaker 1: have to say, And I think Mike and I would
Speaker 1: both agree that when we started reading this, it started.
Speaker 1: It didn't start like I expected it too. And I'm
Speaker 1: sure everybody who talks to you starts there. But it
Speaker 1: is a very personal story, a very real and revealing story.
Speaker 1: Talk to us about your family and your dad leaving. Yes,
Speaker 1: it's one of the many moments I speak of, but
Speaker 1: because I think we're all shaped like how we lead
Speaker 1: today has a lot to do with what we experienced
Speaker 1: in the past. And I was sixteen when my father
Speaker 1: decided one day that he abandoned my mom and our
Speaker 1: whole family. He didn't realize I walked into the garage
Speaker 1: and heard him, and I heard him say to her,
Speaker 1: I don't care about you. I don't care about any
Speaker 1: of you. You can go work on the street for
Speaker 1: all I care. And how do you process that as
Speaker 1: a sixteen year old, Well, and you had younger siblings.
Speaker 1: I had younger siblings. Yes, I stood there, and I
Speaker 1: think I reacted because I watched my mom and she
Speaker 1: didn't cry, she turned around, she walked out. Effect I
Speaker 1: never saw a cry. And here she was the as
Speaker 1: I think now, thirty four years old, four kids, never
Speaker 1: worked a day in her life, hadn't gone to college,
Speaker 1: just barely through high school. But she was so determined.
Speaker 1: So what I the reason I start there and the
Speaker 1: only reason I wrote a book. Do you know you
Speaker 1: were going to start there? No? I absolutely did not
Speaker 1: know that. In fact, my collaborator helped me to start
Speaker 1: there because it's a very vulnerable moment to start. But
Speaker 1: the reason is to celebrate what she did and how
Speaker 1: she reacted, because it's like I saw my grandmother and
Speaker 1: great grandmother both had big tragedies in their life, and
Speaker 1: I saw that she had power to change something when
Speaker 1: she had nothing else. And that's kind of the premise
Speaker 1: of the book, that we all have more than we think.
Speaker 1: And she was like, I'm not going to be a divorce,
Speaker 1: I'm not going to be someone on food stamps. I'm
Speaker 1: not going to let it end this way. And she
Speaker 1: had a little bit of education, a little bit of education,
Speaker 1: a better job, a little bit better and she never
Speaker 1: did get a degree. But it's the other thing, well,
Speaker 1: two things I learned. She taught us, never let anyone
Speaker 1: define who you are, only you are. He was never
Speaker 1: going to define her as those things. And it's so
Speaker 1: easy to go in the other direction. It is very
Speaker 1: easy to be defined as a victim and feel a victim.
Speaker 1: And the second thing was that you know, someone's access
Speaker 1: to education in their aptitude are not equal, meaning my
Speaker 1: mom really wasn't dumb. She's never had access to anything.
Speaker 1: And that would be a silver thread through my whole
Speaker 1: life that I would find to be true about you know,
Speaker 1: how people can get skills. And to me, why I
Speaker 1: work today on this when I think is so unfair
Speaker 1: in this country and it's very solvable. How many jobs
Speaker 1: have been over credential to require a college degree when
Speaker 1: they don't need one, and so many people in this
Speaker 1: country don't have one, especially when you think in a
Speaker 1: tight labor market, maybe things could be different. I'm hoping
Speaker 1: the absolutely well, Jenny, one of them we're touching things
Speaker 1: in the book to me was and you mentioned, you know,
Speaker 1: your mom was embarrassed that on occasions she would have
Speaker 1: to use food stamps and would actually drive to the
Speaker 1: next town over so no one saw her. Really kind
Speaker 1: of heartwrenching moment in the book. But I wonder, you know,
Speaker 1: having seen the economy from both sides, now, what do
Speaker 1: you think about the social safety net in the US
Speaker 1: right now? Could it be done better? Is there a
Speaker 1: different way? I am a believer in it right that
Speaker 1: it's needed, and it's needed for what I saw with
Speaker 1: my mom. It's to transition people. It's not a permanent thing.
Speaker 1: And that's to me. What can be done better is
Speaker 1: the transition part, to transition you to a better place.
Speaker 1: That's what it did for us. It transitioned us to
Speaker 1: a better place. She had to do it till she
Speaker 1: didn't have to do it, and I really feel accompanying
Speaker 1: it has to be all these things about getting people
Speaker 1: the skill so they can get a decent job. And
Speaker 1: that was really, you know, what my mom fell into.
Speaker 1: But it's such a I think, a very practical I
Speaker 1: find it. I've had a decade of working on this
Speaker 1: topic that with some skill doesn't have to be a degree.
Speaker 1: We can give people lots of new jobs right now.
Speaker 1: So safety net until you get there, all right, So
Speaker 1: talk to us about getting to IBM. In nineteen eighty one,
Speaker 1: my dad was an engineer too, you were an engineer.
Speaker 1: An engineer open arms easy for a woman. Yeah, you know, Okay,
Speaker 1: so this is I'm sorry to have to say that's critical.
Speaker 1: I just meant, yes, I'm going to answer that two
Speaker 1: ways because tech is not known for obviously for its diversity,
Speaker 1: so I would often be the only woman. But my
Speaker 1: first three managers at IBM were women, and so I
Speaker 1: have to just credit it is a company of meritocracy
Speaker 1: and inclusion that goes way back before me. So I
Speaker 1: was really lucky to grow up in a place like
Speaker 1: that that for the most part, although for the times, right,
Speaker 1: I mean, it's all relative. But the only thing I
Speaker 1: remember when I went, I mean, i'd never want a
Speaker 1: suit before I came home from my interview, as I
Speaker 1: wrote it, took my jacket off and my husband's like,
Speaker 1: what's on your arm? I'm like, well, it's my first suit,
Speaker 1: and that is the price to egg Stan. Still, I'm like,
Speaker 1: how gracious they never mentioned it, you know, yeah, absolutely,
Speaker 1: well go ahead, Mike. Oh no, I was gonna say,
Speaker 1: you know, so much has changed in the tech world
Speaker 1: in the last few years, with the trade war and everything,
Speaker 1: and I'm thinking back to a boy, it must be
Speaker 1: twenty years ago when Lenovo bought the PC business for IBM,
Speaker 1: I can't help but think that that deal would ever
Speaker 1: go down today. It was in this climate. So how
Speaker 1: do you see all of that going, This whole tension
Speaker 1: over tech between the US and China. Yeah, and if
Speaker 1: I've been to China once, I've been there fifty times
Speaker 1: and over my life, and to me, this spoiled down.
Speaker 1: I've always said in the past, when people talk about
Speaker 1: it is coopetition and competition. I mean, I've really believed
Speaker 1: that the safest world is an interdependent world. That is
Speaker 1: the safest world, and that right now, I've also felt
Speaker 1: the only reason I was ever in China was if
Speaker 1: I could do something better than than the Chinese could
Speaker 1: do it. So, in other words, your only route is
Speaker 1: to out innovate. And so when we think about what
Speaker 1: to do now, I am really happy to see the
Speaker 1: US finally really take under a serious you know, you
Speaker 1: would call it a technology agenda for the country. Right,
Speaker 1: It's been a long time since we've really had one,
Speaker 1: And I go back in time, you said, Yeah, Unfortunately,
Speaker 1: I've been around it five decades when some of our
Speaker 1: greatest technology innovations all started in the government and then
Speaker 1: we're commercialized by private sector. That was the way it
Speaker 1: was done. So now we finally have a national technology
Speaker 1: agenda and yep, okay, fine, let them go off. Now
Speaker 1: we got to of course protect our intellectual property and
Speaker 1: do it better. And I mean that is to me
Speaker 1: what the focus has to be. And of course some
Speaker 1: of the most sophisticated of course, you know, those not aligned.
Speaker 1: You don't want to have fall into the wrong hands.
Speaker 1: And so that's how it'll be. But I'd love to
Speaker 1: see it more around both competition and cooperation. But do
Speaker 1: you see, Jenny, that there's a clear division between the
Speaker 1: US and it's technology prowess in China doing it like
Speaker 1: it's not the globalization that we've been living for so
Speaker 1: long it is. What do I see a difference between
Speaker 1: the two types? Well, I just meaning that there's going
Speaker 1: to be not the cooperation, yea, not as much cooperation.
Speaker 1: But there are things we can cooperate on the environment, okay,
Speaker 1: and technologies around the environment. I think about that. And
Speaker 1: then on the other side, no, we've got to have
Speaker 1: our own race and really be the best in the world.
Speaker 1: So much of the US prosperity has been driven by
Speaker 1: America being the leader in technology right by far across
Speaker 1: any other country. And that's what we have to continue
Speaker 1: and so, like I said, that's why I'm glad to
Speaker 1: see it, and then so we will continue our out
Speaker 1: innovating part of that. Immigration needs to be part of that. Yes,
Speaker 1: I agree with that. I've always said that, you know,
Speaker 1: skills have no passport, and this idea that ideas flow
Speaker 1: without a passport too. And I really believe in a
Speaker 1: central part of America actually is that ability to bring
Speaker 1: in skills and be a destination for people who want
Speaker 1: to innovate in a country that has rule of law
Speaker 1: protects ip. I mean, that is what brought people here.
Speaker 1: There are other countries in the world that you see
Speaker 1: when they have focused on that they've blossomed. When they close,
Speaker 1: they don't. So that is a that is a concern.
Speaker 1: Carol Master, Mike Regan and our Bloomberg Interactor Brokers Studio
Speaker 1: still with us as Jenny Rometti, of course, former chairman
Speaker 1: and CEO of IBM. Her new book out, Good Power
Speaker 1: Leading positive change in our lives, work and world. Excuse me,
Speaker 1: good power versus bad power? Yeah, great question. What's the
Speaker 1: difference to me. The difference is good power does three
Speaker 1: different things, versus about how to do hard things in
Speaker 1: a good way. In a good way right now, that
Speaker 1: would mean go toward attention, don't polarize yourself. So in
Speaker 1: other words, I really believe, like, embrace tension, that's a
Speaker 1: good thing, do it respectfully, and then just celebrate progress
Speaker 1: not perfection. And so much of what it's like my
Speaker 1: way or your way. Okay, I'm like, okay, we're never
Speaker 1: gonna get anywhere if that's the two views we're going
Speaker 1: to take. And so if you do those three things,
Speaker 1: really practice them in like especially tension. I learned to
Speaker 1: love conflict intension because I always knew something better was
Speaker 1: going to come out the other end if I would
Speaker 1: really go into it and listen, and it was. But
Speaker 1: you know what a tension is today? I know, but
Speaker 1: you know what I mean, Like the divides and I
Speaker 1: a conflicting view, it's gotten so ugly, so polari. So
Speaker 1: I feel like it's its moment that that no, with
Speaker 1: all this division, there is another way to go about
Speaker 1: this that that brings people together and it doesn't divide them.
Speaker 1: And so that's kind of what the book is meant
Speaker 1: to be all these little tips about that I learned
Speaker 1: from watching lots of great people over the years on
Speaker 1: how they did that and that. You know, you ask
Speaker 1: young people today, hey, do you want to be powerful?
Speaker 1: They're like, no, no, no, I want to solve important problems.
Speaker 1: And I'm like, irony is You're going to need power
Speaker 1: to do that, and so it's how you exercise it.
Speaker 1: So actually end the book with a hand written note
Speaker 1: that it says your greatest legacy maybe how you do
Speaker 1: your work, not what you did. You know, Jinny, when
Speaker 1: I think back on your tenure at IBM, what an
Speaker 1: amazing transition that company made during your time, you know,
Speaker 1: really moving from a hardware primarily business to services, cloud,
Speaker 1: everything else. And you retired in twenty twenty. But I
Speaker 1: look at the stock price of IBM, and after an
Speaker 1: awful stock market last year, IBM pretty much reached a
Speaker 1: record high towards at the end of twenty twenty. So
Speaker 1: I feel like there's got to be some things you'd
Speaker 1: want to brag about from that from that era, you know,
Speaker 1: because it wasn't easy that. I'm sure you had some
Speaker 1: fights there to make these changes. What do you think
Speaker 1: the most important changes are what's the sort of top
Speaker 1: line on your resume from from your tenure there that
Speaker 1: allowed IBM to become the company it is. Yeah, I
Speaker 1: mean what I did was give it a foundation for growth.
Speaker 1: I believe in me. The lots of ibmers worked hard,
Speaker 1: and I think this striking point is it's not just
Speaker 1: what I did. We had to change how we worked
Speaker 1: and so, yes, we had to move into all these
Speaker 1: new areas. That's what everyone talks about hybrid cloud. We
Speaker 1: had to move you know, faster into AI, etc. But
Speaker 1: changing how so that you could work faster, that you
Speaker 1: could consumerize stuff, because it's so unfair to say to
Speaker 1: a workforce, you know, hey, run a marathon, but do
Speaker 1: it in hiking boots. I mean, and so I think
Speaker 1: the biggest thing would be around changing how work was
Speaker 1: done and all of our work around diversity and inclusion.
Speaker 1: We had records on all of those. You said the
Speaker 1: magic word there, jinny AI. That's all I was waiting
Speaker 1: for you to talk about right now, So how do
Speaker 1: you see this all playing out? Chat GPT, Yeah, Google's efforts, IBM,
Speaker 1: where's it all going? Well, Look, I am a big
Speaker 1: believer in AI, but I have always believed it would
Speaker 1: make men better man humanity. Yeah, and that you got
Speaker 1: to think of it that way. I've been at this
Speaker 1: for way decades now, and I think finally it's reached
Speaker 1: for us and everyone's conscious. Right, that's what chat GPT did.
Speaker 1: It made it like come to the forefront. Because AI
Speaker 1: has come in and out of interest over many yes,
Speaker 1: winter they call it AI winters, many of them, So
Speaker 1: now it's in front of everyone. To me, it is
Speaker 1: finally teed up the most important issue with technology, which
Speaker 1: is that if we don't build trust into this technology,
Speaker 1: it is going to have a very bad ending. And
Speaker 1: it's a show do we do that. We acquire regulators
Speaker 1: like how do we be I have a very strong
Speaker 1: view trust comes when you manage the up and the
Speaker 1: downsides of something at the same time. So that means,
Speaker 1: all right, I introduced chat all right, do people understand it?
Speaker 1: Is it explainable? We got to get that done quickly?
Speaker 1: Do they know how it's trained? Garbage in, garbage out?
Speaker 1: All right? And it makes sense? And then depending on
Speaker 1: the kind of problem I really tell people to use
Speaker 1: it for, they have a very different tolerance level I
Speaker 1: learned on technology. If it's searching, you get a wrong
Speaker 1: movie back. You don't care. If it's about your health.
Speaker 1: You care you got a bad answer, even though your
Speaker 1: human doctor could be wrong some percentage of depending up
Speaker 1: the doctor of time. So this idea of trust means
Speaker 1: take responsibility for it. So so the onus is on companies.
Speaker 1: It's going to be on companies. The users and the
Speaker 1: builders have even greater responsibility. Out always felt that, and
Speaker 1: so that you are telling people a how to use it,
Speaker 1: be what it's trained with or see let's say I
Speaker 1: train it and it's my proprietary data. I don't want
Speaker 1: that train thing going to the next guy. So we
Speaker 1: had to work on all this at once. Do you
Speaker 1: need regulation? Here's my big point on regulation, precision regulation.
Speaker 1: Do you like that you can open your phone with
Speaker 1: your face? That makes it pretty fast, gloves on you
Speaker 1: don't want to do, okay, But you don't like facial
Speaker 1: recognition for things like racial profiling. So we should regulate
Speaker 1: the uses of it, not the technology itself. Because we
Speaker 1: try doing that. People who make laws don't really understand
Speaker 1: the details of it, that this is going to go nowhere,
Speaker 1: but they do understand the uses, and so that would
Speaker 1: be how I would do the regulation because you want
Speaker 1: it to flourish. I have tried to hold technology trends
Speaker 1: back in the past. You can't stop them. Do you
Speaker 1: think this is like kind of the biggest thing that's
Speaker 1: going to be Just think it's a really big turning point.
Speaker 1: And I actually think it's got the propensity to make
Speaker 1: you and me do our jobs better, and so I
Speaker 1: think it's going to bring and can uplift a lot
Speaker 1: of people into better jobs. At the same time, we
Speaker 1: got to mitigate the downsides. And that's like active just
Speaker 1: like social media. Right, yes, great, great, great, until then
Speaker 1: there were some bad things. You'd like to have pulled
Speaker 1: back the clock and said, let's work on the bad
Speaker 1: at the same time, making it a little nervous though
Speaker 1: that social media has had its problems and it's just
Speaker 1: still working. From all of this we learned, yet we're
Speaker 1: not well. I think that now when you talk about
Speaker 1: all the companies involved, and you know, you talk about
Speaker 1: banks using a telcos, these are mature companies. They recognize
Speaker 1: that the one attribute they have the world cares about
Speaker 1: his trust. And so I think when you think that way,
Speaker 1: you're going to think twice about how you introduce it
Speaker 1: to the world. So I'm hopeful about that. Well, there's
Speaker 1: that risk of backlash too, you know, I'm thinking back too. Yeah.
Speaker 1: If people don't understand something, fear and revolt. Right. Well,
Speaker 1: remember when IBM's Big Blues started beating the chess maskers.
Speaker 1: This is I learned very much trying to introduce technology,
Speaker 1: like introduce AI to doctors. I learned the biggest thing
Speaker 1: was this was not a technology issue. The doctors had
Speaker 1: to make the time to change how they worked. They're
Speaker 1: very busy day in and day out. They didn't necessarily
Speaker 1: trust what data trained it. I mean, there was a
Speaker 1: you we're seeing this play out one more time. Um,
Speaker 1: I keep looking at my list because I have a
Speaker 1: million more questions and we've run out of time. Thirty
Speaker 1: forty seconds, you do? I have to ask you because
Speaker 1: you're you see so much. You're on corporate awards JP Morgan,
Speaker 1: Cargill and others, Northwestern. I'm failing you, No, thirty seconds,
Speaker 1: how would you describe kind of this environment right now?
Speaker 1: You know, in many ways it's a perma crisis. I've
Speaker 1: heard used as a word. Right, there's so many at
Speaker 1: one time, and so it's I think we'll be living
Speaker 1: with that uncertainty for a very long time. And on
Speaker 1: an up note, I think these are the moments when
Speaker 1: you can back to how I started this. Companies and
Speaker 1: people can define who they are in people's minds, and
Speaker 1: so I think right now I put a premium on
Speaker 1: trust if I was a company, on everything I did
Speaker 1: for my customers, my partners, etc. Because this is going
Speaker 1: to be with us for a long time. And when's
Speaker 1: the last time you ate tripe? That's what I want
Speaker 1: to know. You know, in spaghetti sauce. It tastes pretty good,
Speaker 1: very tender. I have to say a couple of decades ago.
Speaker 1: You have to read her book to find out why.
Speaker 1: Jenny Rometti, Thank you so much. Goodpower is the book.
Speaker 1: Check it out, everybody. This is Bloomberg Radio. You're listening
Speaker 1: to the Bloomberg Business Week podcast. Got us live weekdays
Speaker 1: from two to five pm Eastern on Bloomberg Radio, the
Speaker 1: Bloomberg Business app band you two. You can also listen
Speaker 1: live to our flagship New York station. Just say Alexa
Speaker 1: play Bloomberg E Love and Verdi. I have to say, Damian,
Speaker 1: we were thinking about this one of the conversations we've
Speaker 1: all been having following the collapse of Silicon Valley Bank,
Speaker 1: was the uptick in social conversations ahead of the bank's takeover,
Speaker 1: and how that might have contributed to the bank run
Speaker 1: on SVB. It's just kind of part of the narrative.
Speaker 1: We're living in this increasingly digital world with NonStop data
Speaker 1: collection everything we do, everything, we buy, everything we say,
Speaker 1: everything we think right, and we willingly contribute to contribute
Speaker 1: to it, or don't even realize is the data dump
Speaker 1: that we keep doing. Um I came across one measure
Speaker 1: the world generating some two and a half quintillion bites
Speaker 1: per day. I don't even know what It's just gigantic.
Speaker 1: So with that in mind, let's bring in our guest,
Speaker 1: n Parah Honey. She is the author of the Battle
Speaker 1: for Your Brain, Defending the right to think freely at
Speaker 1: the age of Neurotechnology. She's Professor of Law and Philosophy
Speaker 1: at Duke University, founding director of the Duke Initiative for
Speaker 1: Science and Society. Delighted to have with her here via
Speaker 1: zoom Endorament, North Carolina, Nita Welcome, Welcome at Blomberg BusinessWeek
Speaker 1: Carol Master with Damian Sassauer. So tell us about what
Speaker 1: is the Battle for our brains it's been waging for
Speaker 1: a while. First of all, it's so nice to be
Speaker 1: with you here today. But The Battle for a Brain
Speaker 1: is a book that talks about the next step in
Speaker 1: data commodification, which is commodification of her brains. So that's
Speaker 1: already happening in many ways, as all of the different
Speaker 1: platforms that we on that we're on crets genetic profiles
Speaker 1: of us. But there's more coming, which is the coming
Speaker 1: age of consumer brain wearables. People are used to wearing
Speaker 1: already fitbits or Apple watches that have sensors that are
Speaker 1: embedded in them. What they don't have yet, although some
Speaker 1: people use them already, are sensors that track their brain
Speaker 1: activity into code what's happening in their brains. And that's
Speaker 1: what's launching now is multifunctional devices like earbuds and headphones
Speaker 1: and watches that have neural interface pickup into code brain activity. Yeah,
Speaker 1: some of the items you address in the book, I mean,
Speaker 1: for me, wait wait, wait, wait wait, you're telling me
Speaker 1: so wait. So if I put on earbuds, bows, earbuds
Speaker 1: or something, you're telling me they're picking up brain activity.
Speaker 1: Not today, but they will. So the you know kind
Speaker 1: of next Basically like every major tech company from Meta
Speaker 1: that is coming out in early twenty twenty five with
Speaker 1: a watch that the primary way that you'll interact with
Speaker 1: their AAR glasses is neural interface. It'll pick up brain
Speaker 1: activity as it goes for your brain down to your
Speaker 1: rest or. You know, companies like Neurable have headphones where
Speaker 1: they've partnered with a major headphone manufact actor like your
Speaker 1: Bo's headphones that's in the cups that go around the ears.
Speaker 1: They have censors that pick up brain activity. And you know,
Speaker 1: the kind of goal for most of these companies is
Speaker 1: to make neural interface the kind of primary way that
Speaker 1: you interact with the rest of your technology. Like eventually
Speaker 1: you might not need a keyboarder or a mouse, but
Speaker 1: until that day, right until that day, you'll be able
Speaker 1: to track your brain activity for focus and attention and
Speaker 1: mind wandering and help symmetrics. Things that you couldn't do
Speaker 1: before suddenly will become possible and will also become possible
Speaker 1: for companies and governments. And so the battle for your
Speaker 1: brain is the kind of rush to this field to
Speaker 1: see who can really hack and track the human brain. Sanita,
Speaker 1: you mentioned brain biometrics and deciphering, you know, all that
Speaker 1: all that's going on up there, you know, But some
Speaker 1: of the items in the book that you mentioned, I mean,
Speaker 1: it's great out of minority purport. You know. I feel
Speaker 1: like Tom Cruising talking about arresting individuals for even contemplating murder,
Speaker 1: not even committing it. I mean, if that were the case,
Speaker 1: I mean, I've been arrested a long time ago. But
Speaker 1: I mean, how far away are we from having technology
Speaker 1: that can effectively read people's minds? Well, what I say
Speaker 1: to people as a defense of what you think your
Speaker 1: mind is right. So if you think of your mind
Speaker 1: is literally the inner dialogue that you're having, I think
Speaker 1: it's a long ways before these types of technologies will
Speaker 1: decode that complex thought. But already with the technology today,
Speaker 1: your basic emotional levels, your reaction to everything from pictures
Speaker 1: of political candidates, that might be able to suss out
Speaker 1: what your political biases are. Too. If your mind is
Speaker 1: wandering when you're at work and your employer asked you
Speaker 1: to wear one of these neural devices that track your
Speaker 1: fatigue levels, or your attention or your engagement or your gordum,
Speaker 1: that's already possible today, and the technology even enables probing
Speaker 1: the mind for information that's there. And so you mentioned
Speaker 1: the Minority Report, which I talk about it in the
Speaker 1: book and I always talk with my students about but
Speaker 1: it's already being used by law enforcements around the world
Speaker 1: to interrogate criminal suspects for recognition of a crime scene
Speaker 1: detail or a murder weapon or something like that. So
Speaker 1: it's really one of the things I hope to do
Speaker 1: with the book is to just document kind of example
Speaker 1: after example of what's already here and how much of
Speaker 1: the brain can already be decoded, and how much of
Speaker 1: it is already in use already. So within a technology,
Speaker 1: there's a good to bad and the ugly. What's the
Speaker 1: upside to this? It can't all be bad? Or is
Speaker 1: it all that? No, No, it's really not all that.
Speaker 1: I mean right, First of all, I think in the
Speaker 1: hands of individuals who have control over their own brain data,
Speaker 1: suddenly the one area of our bodies that's the most
Speaker 1: important aspect of our well being, our brains, becomes accessible
Speaker 1: to us. So you know, your ability to actually start
Speaker 1: to track brain metrics and metrics of well being in
Speaker 1: health and to know what's happening in your own brain,
Speaker 1: including by the way, how well you pay attention or
Speaker 1: focus if you're working from home or working in the workplace,
Speaker 1: or what your optimal hours are, or how you meditate
Speaker 1: effectively to bring your stress levels down. There's a lot
Speaker 1: that these technologies can do to empower individuals, but it
Speaker 1: all depends on who has access to what's happening in
Speaker 1: your brain, how is it used or how is it misused,
Speaker 1: And that's the kind of balance that we really have
Speaker 1: to be striking. Now. That's what this book is about,
Speaker 1: is a call to action to say we're standing at
Speaker 1: a fork in the road. There is this major inflection
Speaker 1: point at the deployment of this technology as all of
Speaker 1: the major tech companies come out with these products and devices,
Speaker 1: and we have choices to make that could set the
Speaker 1: terms of service in favor of individuals, to make it
Speaker 1: something that's empowering, not the dystopian or reelian possibilities. On
Speaker 1: the other side, NITA, are people using brain biometrics to
Speaker 1: handle real world problems and diseases I'm thinking dementia, Alzheimer's.
Speaker 1: Are there new technologies and treatments that are coming to
Speaker 1: market that can impact that. Yeah, there's some really promising ones.
Speaker 1: There was in the research for the book, I came
Speaker 1: across a company in Israel who are in clinical trials
Speaker 1: for the possibility of detecting epileptic seizures an hour before
Speaker 1: they occur. That could be incredible for people to suffer
Speaker 1: from epilepsy or you know, the ability to be able
Speaker 1: to use it for depression. There's already some companies that
Speaker 1: are using it to provide low levels of electrical stimulation
Speaker 1: that can be transformative or neurofeedback for people who have ADHD.
Speaker 1: They can use the devices to be able to train
Speaker 1: their brains to have better concentration and focus, and in
Speaker 1: some head to head studies against using drugs, the neurofeedback
Speaker 1: is very favorable. Well. So there's a lot of potential
Speaker 1: health applications and ways in which this can be transformational
Speaker 1: for humanity and good ways. There's just also the dystopium
Speaker 1: psabilities that we have to safeguard against, and those aren't minor.
Speaker 1: Because you know what you think, what you feel, it's
Speaker 1: so fundmental to who we are. Having that inner space
Speaker 1: of mental privacy and freedom of thought is so critical
Speaker 1: that we just can't get it wrong this time. We
Speaker 1: can't know what trade over you wore. I feel like, right, well,
Speaker 1: but but you've always thought you had that at least right.
Speaker 1: You thought you at least had your thoughts right well
Speaker 1: right in a related topic. So then how do you
Speaker 1: because you obviously study you know this, I feel like
Speaker 1: falls under your purview. When you think about the work
Speaker 1: that Elon Musk is doing with neurrolink, and he wants
Speaker 1: to build this brain chip interface it can be implanted
Speaker 1: that might help disabled patients ultimately move or communicate again,
Speaker 1: or restraint vision. How does this and we've got about
Speaker 1: a minute left, how does that? How do you think
Speaker 1: about that? So you know, I have a chapter dedicated
Speaker 1: to these implanted technologies. And while I think it'll be
Speaker 1: a long time before a healthy person will choose to
Speaker 1: have implanted neurotechnology, it's just not safe enough for somebody
Speaker 1: who doesn't need it. The possibilities already are transformational for
Speaker 1: people who have everything from neurodegenerative disorders like als to
Speaker 1: be able to communicate again, to being able to move
Speaker 1: and have independence to interact with other technology. I'm very
Speaker 1: bullish on what those companies are doing and developing and
Speaker 1: how thoughtfully they're trying to develop the technology. There's real risks,
Speaker 1: but there's huge upside in that space and it could
Speaker 1: be incredible for so many people. I have to just see.
Speaker 1: My brain hurts a little bit because I'm trying to
Speaker 1: understand there's a lot going on in our world, and
Speaker 1: I'm thinking that the government's listening to me through my earbuds. No,
Speaker 1: it's fascinating. Nita. Hopefully you'll come back soon and we
Speaker 1: can continue this conversation. Nita Fara Honey. She is Professor
Speaker 1: of Law and Philosophy at Duke Law School. Her book
Speaker 1: at is The Battle for Your Brain, Defending the right
Speaker 1: to think freely in the age of neurotechnology. I do
Speaker 1: feel like when it comes to the brain the human body,
Speaker 1: were you still learning so much? Oh? Absolutely? And Carol hopefully,
Speaker 1: if they're not listening to my brain and wondering how
Speaker 1: I'm going to cheat on my taxes, I'm sorry. If
Speaker 1: you're still listening, I would never do that. You're listening
Speaker 1: to the Bloomberg Business Week Podcast. Catch us live weekdays
Speaker 1: from two to five pm Eastern on Bloomberg Radio, the
Speaker 1: Bloomberg Business app band you two. You can also listen
Speaker 1: live to our flagship new York Station. Just say Alexa.
Speaker 1: Play Bloomberg eleven thirty time now for a weekly dive
Speaker 1: into the Pursuit section of the magazine, and our undercover
Speaker 1: reporting expert has outdone himself once again. This time. Bloomberg
Speaker 1: Pursuits contributing writer Brandon Presser has previously embedded himself within
Speaker 1: some of the world's most prestigious brands and destinations everywhere
Speaker 1: from New York's Plaza Hotel to the Las Vegas Strip
Speaker 1: and even Walt Disney World, all to decipher what goes
Speaker 1: on behind the scenes. Well, this time, Brandon has ventured
Speaker 1: out to the Pacific to visit Hawaii's Turtle Bay Resort,
Speaker 1: and no surprise, he has brought back some delicious details.
Speaker 1: Think of the HBO series White Lotus, but in real life.
Speaker 1: Brandon joins us along with Bloomberg Pursuits editor Chris Rouser.
Speaker 1: So Chris set the stage here for us. We always
Speaker 1: look forward when we see Brandon, kind of in the
Speaker 1: brief of the upcoming issue. Why Turtle Bay specifically, we're
Speaker 1: always talking about fun places for Brandon to go and
Speaker 1: work as a staff member and see, you know, all
Speaker 1: the hard work that the staff do to deal with
Speaker 1: these patrons and these luxury communities, and you know, the
Speaker 1: White Lotus has been so popular. We were like, we've
Speaker 1: got to do a big, fancy resort. And Brandon started
Speaker 1: doing his research and Turtle Bays probably the most iconic
Speaker 1: one in Hawaii, and it's big, tons of people come through,
Speaker 1: it's it's luxurious. We were like, this is the perfect opportunity,
Speaker 1: all right, So Brandon, come on in and as you
Speaker 1: started to unfold some of the secrets, the wild secrets
Speaker 1: tell us about your experience there. So Turtle Bay was
Speaker 1: really appealing to me because it's set on one thousand,
Speaker 1: three hundred acres and so to give you a comparison,
Speaker 1: the entire host Hotel Strip of Whiti can fit twice
Speaker 1: into Turtle Based property. So what I really liked is
Speaker 1: that you have all of this space, but in a
Speaker 1: lay you're sort of a cap of audience, but you're
Speaker 1: never really going to leave property to go out for dinner.
Speaker 1: So it was really an opportunity to explore every single
Speaker 1: element that the resort had to offer, everything from golf
Speaker 1: to the you know, the all you can eat buffet.
Speaker 1: There's horseback riding and there's a surf school, as well.
Speaker 1: So it was really fun to pick at all of
Speaker 1: the little sort of distinctly Hawaiian elements, and we even
Speaker 1: found a few ghosts lurking on properties. Can I say
Speaker 1: I had no idea how iconic this property was. I mean,
Speaker 1: it's been around for a long time, but I mean
Speaker 1: a lot of movies right have been filmed there. I
Speaker 1: mean it's a really well known property. Basically, every single
Speaker 1: movie or TV show that you can think of that
Speaker 1: has that jungle, you know that you know, Lost or
Speaker 1: Pirates of the Caribbean, they've all all been shot on
Speaker 1: property in Turtle Bay. I met with the wedding and
Speaker 1: events team and they said that over thirty percent of
Speaker 1: people wanting to have the wedding on property said straight
Speaker 1: up it was because they loved for getting Star Marshall. Unbelievable.
Speaker 1: I have to say that when I first started a
Speaker 1: reader's story, I'm of that generation. I kept thinking about
Speaker 1: the Brady Bunch, which we'll get into later on. Get
Speaker 1: into that, all right, So tell us what you actually
Speaker 1: got to do and see. Yeah, So I spent a
Speaker 1: full week on property, and every day sort of I
Speaker 1: was kind of like an intern, doing a variety of
Speaker 1: different jobs. One day I worked exclusively in housekeeping and
Speaker 1: really understood the process of cleaning rooms. One day I
Speaker 1: sat at the concierge desk and fielded a lot of
Speaker 1: bizarre requests. And then another day I worked with the
Speaker 1: Bellman team, moving luggage to guests rooms and getting people settled.
Speaker 1: And then finally I worked at the first school. All right, So, Chris,
Speaker 1: as you were getting feedback from Brandon, I mean, and
Speaker 1: you were starting to read through, you know, his writing,
Speaker 1: what is it that really jumped out for you that
Speaker 1: you thought was just like, oh my god. Well, you know,
Speaker 1: I remember when I went on my honeymoon, and I
Speaker 1: was like, we should tell everyone we're on our honeymoon
Speaker 1: because they're going to be so happy for us, and
Speaker 1: they're going to give us upgrades and stuff. And what
Speaker 1: you don't realize is that the hotel people might be
Speaker 1: very nice, but up to thirty percent of the people
Speaker 1: checking in or telling them that they're on their honeymoon,
Speaker 1: maybe more or anniversary, So they don't all get upgraded
Speaker 1: to the Pineapple Suite, but they do get you know,
Speaker 1: little like charcuterie boards in their rooms and things like that.
Speaker 1: But what I would surprised me about people who are
Speaker 1: on their honeymoon is that they can complain about a
Speaker 1: lot of things, including the weather. And Brandon said that
Speaker 1: people would even ask for their money back from the
Speaker 1: hotel if the weather was bad. The strangest thing about
Speaker 1: about the weather was that some people would complain that
Speaker 1: it was too sunny. Also, you would get every version
Speaker 1: of the complaint about other And I think there's there's
Speaker 1: really intense feeling about Hawaii. You know, it's paradise for
Speaker 1: all of us who live on the mainland, and so
Speaker 1: people really put all of their hopes and dreams and
Speaker 1: there's one aspirational holiday, all right. So I do want
Speaker 1: to go to the Brady Bonch reference because I'm like,
Speaker 1: I wonder if it's going to be in there. I
Speaker 1: always remember Bobby, right, he gets the tiki that's cursed,
Speaker 1: the idol and like everything starts to come on done.
Speaker 1: But there is a real superstitious aspect to this resort.
Speaker 1: I guess, yeah, there really is. I think that u
Speaker 1: Polituan culture is really in touch with a lot of
Speaker 1: super natural elements. So the idea that there could be
Speaker 1: spirits or ghosts some property is very normal to them
Speaker 1: and there's certain places where some staff members won't go.
Speaker 1: You know, the resort's huge. I'm not talking about you know,
Speaker 1: like specific areas within the hotel, but there's you know,
Speaker 1: sites on property that used to be crowned land, so
Speaker 1: there are little burials that are carefully protected. But almost
Speaker 1: every single staff umber I talked to said that they
Speaker 1: had seen a spirit roaming in some capacity and sometimes
Speaker 1: during their tenure. But you have to say that there
Speaker 1: are people who take stuff home, but there are people
Speaker 1: who actually return it right they get home. They've taken
Speaker 1: something from the resort and they returned it back to
Speaker 1: the hotel because they're like, shoot, you know, I've had
Speaker 1: bad luck. And that was told to me in passing
Speaker 1: and then someone I was like, wait a minute, you
Speaker 1: got to tell me more about this, and they took
Speaker 1: me to the provisioning department where all the purchasing and
Speaker 1: orders are made, and I swear there was a stack
Speaker 1: a mound of boxes full of shells and lava rocks,
Speaker 1: a huge mound that people have to go out and
Speaker 1: take back to shore or return to the sea. So
Speaker 1: one are the craziest things that the staff told you
Speaker 1: they've seen from guests there was a gender revealed party.
Speaker 1: There were the beautiful pink and blue cookies and all
Speaker 1: of them were taking them home to share with their
Speaker 1: kids because they were, you know, they were beautifully wrapped
Speaker 1: still and hadn't been touched. And a few of them
Speaker 1: started beating them during their shift. And then all of
Speaker 1: a sudden they were reporting to their senior you know, manager,
Speaker 1: I'm having weird vision. I've seen things. I don't know
Speaker 1: what's going on. And one of them went to the
Speaker 1: hospital and the talks report came back that they had
Speaker 1: marijuana and their blood stream and they were like, I've
Speaker 1: never used marijuana my entire life. From a gender revealed party. Hey,
Speaker 1: I really confusing. I have to say a couple of
Speaker 1: the things too. And I've always wondered about the throw
Speaker 1: pillows in a hotel or the comforters. I'm like, yeah,
Speaker 1: that thing hasn't been washed in a while. That's the
Speaker 1: reality of it, right, Yeah, I know. That was That
Speaker 1: was the most important question that I needed to ask
Speaker 1: while I was looking at all of the rooms, because honestly,
Speaker 1: I would watch some of the housekeepers pick up grains
Speaker 1: of sand with paint brushes, and so the attention is
Speaker 1: till is huge. But then with the comforters, yeah, you
Speaker 1: always wonder, um, and if there's no sign of visible
Speaker 1: wear and tear, the cycle is a minimum of forty
Speaker 1: five days before it's queen. And those little pillows that
Speaker 1: are on the bed too, actually throw them on the floor.
Speaker 1: Put them on the floor. Yeah, I always put them
Speaker 1: on the floor. You know what's interesting too is and
Speaker 1: I just um, before we wrap up, when you were
Speaker 1: at the concierge, I mean some of the requests I
Speaker 1: too was like, oh my god, you said there was
Speaker 1: a couple who requested a baby monitor so they could
Speaker 1: go off property without hiring a babysitter for they're six
Speaker 1: months old. And then someone who insisted not being picked
Speaker 1: up for dinner on horseback. I mean that actually seems
Speaker 1: reasonable to make like they have stables, they have stables
Speaker 1: on property of And I think it was it was
Speaker 1: the tone with which the couple asked to be picked
Speaker 1: up my horseback. It was completely dead path. You know,
Speaker 1: there's this port to share and all the cars driving,
Speaker 1: so this beautiful opening at the hotel and they were like, oh,
Speaker 1: you know for Jenner tonight, you know it'd be nice
Speaker 1: and sort of our car to have us, you know,
Speaker 1: pick us up. Let's just have some horses. That sounds reasonable.
Speaker 1: Works for me. It works for me, And I'm just
Speaker 1: going to tell you. You You know, folks out there, you
Speaker 1: know you've done this. Those satin hangers and those towels.
Speaker 1: People still five hundred pool towels a month from that hotel.
Speaker 1: You're not alone in doing that. The hotel takes that
Speaker 1: into consideration. Brandon. We have to run. Always fun when
Speaker 1: we get to see your next ventures and where you've
Speaker 1: gone behind the scenes. So really appreciate it. Bloomberg contributor
Speaker 1: Brandon press Or check out his latest work. It is
Speaker 1: the opener in this week's Pursuits section of Bloomberg Business Week.
Speaker 1: Fund it online on newsstands on the terminal some really
Speaker 1: fun artwork as well to accompany this piece, Brandon, Thank you.
Speaker 1: Chris Rousers. Going to stick around with us as we
Speaker 1: go through the rest of the Pursuit section. Wrap up
Speaker 1: our program On the other side, This is Bloomberg. You're
Speaker 1: listening to the Bloomberg Business Week podcast. Catch us live
Speaker 1: weekdays from two to five pm Easter on Bloomberg Radio,
Speaker 1: the Bloomberg Business Band. You too. You can also listen
Speaker 1: live to our flagship New York station. Just say Alexa,
Speaker 1: play Bloomberg, E Loove and Verdi, or it's still with
Speaker 1: us as Bloomberg Pursuits editor Chris Rouser, And let's take
Speaker 1: a run through the rest of the section. So, Chris, Noma.
Speaker 1: This restaurant is iconic. Yes, it is said by many
Speaker 1: to be the greatest restaurant in the world, and many
Speaker 1: times right, many times over. It's won that award five times.
Speaker 1: And it's closing. So the Copenhagen restaurant, the original restaurant,
Speaker 1: is closing. And they've been doing pop ups in Mexico
Speaker 1: and in other places, and they're doing another pop up
Speaker 1: in Japan in Kyoto. The first one was in Tokyo
Speaker 1: in twenty fifteen, and I remember it so vividly because
Speaker 1: our then food critic did an entire review in emojis.
Speaker 1: Oh my God. We sent her to Japan because this
Speaker 1: is such a big deal. It was our first pop
Speaker 1: up and it was so great. And so when the
Speaker 1: Noma team wanted to return to Kyoto to Japan, I
Speaker 1: thought we got to get a preview of this. So
Speaker 1: we had Oscar Boyd, a Bloomberg writer, go talk to
Speaker 1: a neighbor, does that be the chef and other chefs
Speaker 1: and really learn what they're doing this time? What is
Speaker 1: it that's so neat about these pop ups that Noma does.
Speaker 1: Is it just really tapping into the area Sometimes yeah, yah,
Speaker 1: so the sometimes when Noma does a pop up, it's
Speaker 1: kind of like Noma but somewhere else. Yeah, And in
Speaker 1: this case in Japan, it's really looking at Japanese food
Speaker 1: ways using Japanese ingredients. And you know the first time
Speaker 1: they went there, they were too nervous to do rice.
Speaker 1: They were like, it's such a staple, it's such a
Speaker 1: vaunted ingredient. If you like, if you screw, if you
Speaker 1: don't do something spectacular with it, then like people are
Speaker 1: gonna be like, what this is what we eat every day?
Speaker 1: So they're doing rice this time, but they're doing raw shrimp.
Speaker 1: There's a lot of mountain vegetables that they're foraging, a
Speaker 1: lot of seafood from across Japan. If you look at
Speaker 1: the story online, you'll see the pictures. It's really beautiful, forgeous,
Speaker 1: like want to frame each to these pictures. It's stunning.
Speaker 1: And you know, I have not eaten at Noma, but
Speaker 1: several of our team members have and every one of
Speaker 1: them says it has been worth it. Don't people always
Speaker 1: say that? Come on, no, I feel sometimes you go
Speaker 1: to a rushtaurant, You're like, that is not oh okay,
Speaker 1: Well I have to say it looks fascinating, all right,
Speaker 1: from food to running. I can't make a good transition.
Speaker 1: I didn't know about these running shoes that are actually
Speaker 1: it's a subscription. Yeah, so it's very it's relatively new.
Speaker 1: So On is a sportswear company. They make sneakers, and
Speaker 1: they wanted to start a recycled sneaker program, and so
Speaker 1: they have what it's basically a running running shoe subscription
Speaker 1: And for thirty dollars a month, you get a pair
Speaker 1: of shoes, you wear them until they wear out, you
Speaker 1: send them back. This end you another one. So you
Speaker 1: kind of just always have and you can do it
Speaker 1: as as often as you want. So every two months,
Speaker 1: if you want a new pair of shoes, you can
Speaker 1: do it. Yeah. And Noreene Malik, who is a Bloomberg
Speaker 1: reporter who's a big runner. She loves to try out everything.
Speaker 1: She tries a lot of the fitness gadgets and she
Speaker 1: tested them out and So these are called the on
Speaker 1: Cloud NEOs, and it costs thirty dollars a month. As
Speaker 1: I said, so about for every if you were switching
Speaker 1: them every six months, it's about one hundred and eighty dollars,
Speaker 1: which is a little pricey for a running shoe, but
Speaker 1: not crazy. Yeah, but you have to give them back
Speaker 1: and you have to give them back. Yeah, and they
Speaker 1: have those kind of curved soles that make you really
Speaker 1: bounce when you walk, so it takes a minute to
Speaker 1: get used to it. But when Marine started running long
Speaker 1: races again after the pandemic, she said they were very
Speaker 1: forgiving and she really liked them. The issue is on
Speaker 1: hasn't figured out yet what to do with the recycled material,
Speaker 1: so you send it back, and this happens a lot
Speaker 1: in companies like this. UM they're like a business plan
Speaker 1: waiting for a solution. So they'll shred the shoes. It's
Speaker 1: it's usable material, but they haven't found like the final
Speaker 1: use case for them yet. I love it. I love
Speaker 1: the idea and where they're going because this whole idea
Speaker 1: of like we've talked about right fashion, like how waste
Speaker 1: so that they're trying to figure in out running shoes
Speaker 1: are this is I mean, it is a huge It
Speaker 1: ends up being a huge amount of waste. Um, Chris,
Speaker 1: good stuff is always Thank you so much, The editor
Speaker 1: of Bloomberg Pursuits, Chris Rousers. The Bloomberg Business Week podcast
Speaker 1: available on Apple, Spotify, and anywhere else you get your podcasts.
Speaker 1: Listen live each weekday is starting at two pm Eastern
Speaker 1: on Bloomberg dot com, the iHeartRadio app tune In, and
Speaker 1: the Bloomberg Business App. You can also watch us live
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Speaker 1: the Bloomberg terminal