WEBVTT - Bloomberg Businessweek Weekend - March 17th, 2023 0:00:01.280 --> 0:00:05.640 This is Bloomberg business Week inside from the reporters and 0:00:05.840 --> 0:00:09.400 editors who bring you America's most trusted business magazine, plus 0:00:09.480 --> 0:00:13.640 global business, finance and tech news. The Bloomberg Business Week 0:00:13.680 --> 0:00:18.600 Podcast with Carol Masser and Tim Stenebec from Bloomberg Radio. 0:00:19.800 --> 0:00:21.799 I want to get right to our guests. Bill Isaac 0:00:21.880 --> 0:00:23.960 is a former chairman of the FDI se there during 0:00:24.000 --> 0:00:27.520 the eighties nineteen eighties when some three thousand banks and 0:00:27.640 --> 0:00:30.720 thrifts failed. He's now chairman of the consulting firm Secura 0:00:30.840 --> 0:00:33.159 Isaac and a member of the boards of directors of 0:00:33.200 --> 0:00:35.760 Immigrant Bank and New York Private Bank and Trust. Who 0:00:35.840 --> 0:00:39.040 joins us via zoom from Sarasota, Florida. Built so nice 0:00:39.360 --> 0:00:42.040 to have you here with us. How do you see 0:00:42.080 --> 0:00:45.040 what is going on? Silicon Valley Bank, three regional banks 0:00:45.040 --> 0:00:47.760 in the past week here in the US collapsing? You 0:00:47.880 --> 0:00:52.240 got credit suites? Is this great financial crisis banking breakdown 0:00:52.520 --> 0:00:56.520 two point zero or something different? Before? You all know 0:00:56.560 --> 0:01:00.720 what it is right now, and you knows it's not 0:01:00.760 --> 0:01:04.960 a surprise that these things are happening. Why Why Well, 0:01:05.040 --> 0:01:07.880 because the federal government has been out of control for 0:01:07.920 --> 0:01:10.399 a long time. It just reminds me very much of 0:01:10.520 --> 0:01:15.720 the of the nineteen eighties when I was chairman of 0:01:15.760 --> 0:01:20.160 the ft I C of late seventies and through the eighties. 0:01:20.600 --> 0:01:25.240 We had guns and butter approach in the nineteen sixties 0:01:25.280 --> 0:01:28.640 with the Vietnam War that was not paid for by 0:01:28.680 --> 0:01:32.759 taxes and the big deficits, and we had the Great 0:01:32.800 --> 0:01:37.480 Society programs that wind in Johnson and they were not 0:01:37.560 --> 0:01:41.399 paid for, So we had very very high budget deficits, 0:01:41.480 --> 0:01:48.640 and we had a very accommodated, will say, loose fed 0:01:48.960 --> 0:01:53.680 policies monetary policies, and that led to a decade or 0:01:53.760 --> 0:01:57.640 more of very high inflation. And finally Paul Boker was 0:01:57.680 --> 0:02:01.200 appointed chairman in nineteen seventy I was a fund in 0:02:01.240 --> 0:02:06.240 the FDIC in nineteen seventy eight and when he worked together, 0:02:07.160 --> 0:02:09.880 but Paul Hooker was determined and the fenders determined to 0:02:09.919 --> 0:02:12.919 bring down inflation, and they did. They raised rates very high, 0:02:12.960 --> 0:02:16.480 and that led to all sorts of problems. And we're 0:02:16.480 --> 0:02:18.480 repeating that period right now. I don't I don't know 0:02:18.520 --> 0:02:20.720 how long it's going to last. I don't know how 0:02:20.720 --> 0:02:22.720 many firms it's going to happen, but I do think 0:02:22.720 --> 0:02:25.679 we're trying to figure bill if things are different just right, 0:02:26.080 --> 0:02:29.079 what specifically is different this time around? Is the issue 0:02:29.120 --> 0:02:35.559 because of specifically depositors. What's different about about the depositors 0:02:35.560 --> 0:02:40.919 in your mind, well, the issue surrounding depositors with those 0:02:40.960 --> 0:02:44.000 FDIC limits also usually when you'd think back, that was 0:02:44.000 --> 0:02:46.560 more geared toward individuals, but now you're dealing with companies. 0:02:46.720 --> 0:02:49.519 Is that the hurdle this time around versus in past 0:02:49.639 --> 0:02:52.840 crises that you've seen. I don't. I don't think that's 0:02:53.000 --> 0:02:56.799 materially different. We had a lot more depositors back then. 0:02:57.080 --> 0:03:00.280 In terms of numbersity and numbers of banks. We had 0:03:00.320 --> 0:03:02.720 thirteen thousand banks when I was chairman of the FDIs 0:03:03.160 --> 0:03:06.880 and now we have about forty five hundred banks. And 0:03:07.080 --> 0:03:09.200 but we I mean, I'm not saying that things aren't 0:03:09.200 --> 0:03:11.839 different there. It's a lot of different things today, but 0:03:12.280 --> 0:03:14.119 some of the things are not different. Let's take let's 0:03:14.120 --> 0:03:19.839 sake s B, the Silicone Valley Bank, that's not new 0:03:19.919 --> 0:03:22.840 at all. That's that I mean, they were doing new 0:03:22.880 --> 0:03:27.440 types of financing, but it was the same problem we 0:03:27.520 --> 0:03:30.840 had a crisis we had in nineteen seventy nine with 0:03:30.919 --> 0:03:35.600 First Pennsylvania Bank, the largest bank in Pennsylvania, the oldest 0:03:35.760 --> 0:03:40.160 national chartered bank in the country, and they decided they 0:03:40.200 --> 0:03:44.320 had a great idea letten invest in government bombs, which 0:03:44.320 --> 0:03:47.800 they did. They loaded up on government bonds at fixed rates, 0:03:48.480 --> 0:03:50.960 and then Paul Boker became chairman of the FED and 0:03:51.000 --> 0:03:54.360 decided he was going to raise the rates very high 0:03:54.400 --> 0:03:58.240 and kill inflation. So history has shown us that we've 0:03:58.240 --> 0:04:00.480 been here before, is basically what you're saying. We've been 0:04:00.520 --> 0:04:02.760 here before. And why these guys did this again, I 0:04:02.800 --> 0:04:05.600 don't know. It was not very smart. Well, so then 0:04:05.800 --> 0:04:08.840 do you fault regulators here? You were a former regulator? 0:04:08.880 --> 0:04:12.840 I mean, is it regulators in the United States elsewhere, FED, FDIC, 0:04:13.080 --> 0:04:16.000 Treasury and more that have to some extent once again 0:04:16.000 --> 0:04:19.440 failed us. Yeah, I'm not trying to pick on anybody, 0:04:19.520 --> 0:04:23.599 but but this is primarily the problem of a bank, 0:04:23.960 --> 0:04:26.320 a bank that had a board of directors that was 0:04:26.360 --> 0:04:29.240 not doing its job properly, and a bank that had 0:04:29.320 --> 0:04:32.440 managements that was not doing its job properly, and they 0:04:32.520 --> 0:04:35.400 and they did a bunch of things that they should 0:04:35.400 --> 0:04:38.839 not have done, and they weren't they and it failed, 0:04:39.080 --> 0:04:42.800 and now we're trying to clean it up, and the 0:04:42.839 --> 0:04:45.640 FDIC and the FED and so horor will clean it up. 0:04:46.560 --> 0:04:49.240 This is not something we haven't done before, even in 0:04:49.320 --> 0:04:52.040 bigger ways than this, So we will clean it up. 0:04:52.600 --> 0:04:55.520 And should we fault the regulators, of course we should. 0:04:55.920 --> 0:04:59.919 The regulators did not do their jobs. This bank grew 0:05:00.640 --> 0:05:04.040 in two years from sixty billion in size to over 0:05:04.080 --> 0:05:06.960 two hundred billion dollars in size. That's insane. So it 0:05:07.320 --> 0:05:09.640 is that a red flag? So help help us out 0:05:09.680 --> 0:05:13.880 here because oversight obviously lacking. So what stones should we 0:05:15.000 --> 0:05:19.480 as analysts, as investors, as regulators be overturning? What balance sheets? 0:05:19.480 --> 0:05:22.000 What sectors are the financial system? Would you be focusing 0:05:22.080 --> 0:05:24.200 right now and asking lots of questions about since we've 0:05:24.240 --> 0:05:29.400 already missed some big things the red flags were out here. 0:05:30.120 --> 0:05:32.320 You tripled the size of the more than tripled the 0:05:32.320 --> 0:05:34.680 size of the bank in two years. That is a 0:05:34.760 --> 0:05:39.720 huge red flag that every regulator, every analysts, every board member, 0:05:39.760 --> 0:05:42.080 everybody ought to be on top of. Why is this 0:05:42.120 --> 0:05:46.240 thing growing tripling in two years? That's that's that's a 0:05:46.360 --> 0:05:49.800 huge red flag. And and I don't know how, I 0:05:49.880 --> 0:05:52.159 don't know how they got away with it, frankly, without 0:05:52.200 --> 0:05:56.000 being without being brought down faster and sooner. I mean, 0:05:56.160 --> 0:05:59.080 I really don't understand. Yeah, how this took so long 0:05:59.160 --> 0:06:02.560 to find? Bill really have about twenty seconds left? Could 0:06:02.560 --> 0:06:04.839 you tell us should the FDIC limit of two hundred 0:06:04.839 --> 0:06:08.200 and fifty thousand dollars? Should that be changed? I'm sorry 0:06:08.200 --> 0:06:10.719 to do what should the FDIC limit be changed off? 0:06:10.720 --> 0:06:12.440 Two hundred and fifty thousand dollars? So as they kind 0:06:12.440 --> 0:06:14.240 of look forward and think about maybe what we should 0:06:14.279 --> 0:06:15.800 be doing differently. I think there's been a lot of 0:06:15.839 --> 0:06:19.360 conversation about that two hundred and fifty thousand deposit levels? 0:06:19.360 --> 0:06:22.120 Should that be changed? In your view? Well, it shouldn't. 0:06:22.120 --> 0:06:25.240 I don't believe it should be increased. It was, it 0:06:25.320 --> 0:06:27.480 was I think it was forty when I arrived at 0:06:27.480 --> 0:06:29.400 the FCIC, and then it went to one hundred, and 0:06:29.400 --> 0:06:32.360 that went to two fifty, and I don't see why 0:06:32.400 --> 0:06:35.039 it keeps on growing. But there's one thing that we 0:06:35.080 --> 0:06:37.760 really could do, and that is we need to pay 0:06:37.800 --> 0:06:43.640 attention to non interest bearing business accounts. Those those, in 0:06:43.680 --> 0:06:46.920 my opinion, should have much more coverage, much more protection. 0:06:47.800 --> 0:06:49.919 We need to do that because that money is not 0:06:50.040 --> 0:06:53.960 hot money. It's it's money that's been supporting payrolls and 0:06:54.080 --> 0:06:57.440 business and you know, and we really should not have 0:06:57.560 --> 0:07:00.680 that money running and so I believe we really need 0:07:00.680 --> 0:07:03.320 to pay attention to that. I recommended that when I 0:07:03.400 --> 0:07:05.920 was at the FDIC before I left, that we needed 0:07:05.960 --> 0:07:10.200 to increase coverage on nine interest bearing business accounts that 0:07:10.240 --> 0:07:13.400 would be very, very helpful to the economy when times 0:07:13.400 --> 0:07:16.080 gets tough. Well, so appreciate your perspective. I know it's 0:07:16.080 --> 0:07:18.600 a busy day for everybody, including yourself. So Bill, thank 0:07:18.640 --> 0:07:21.400 you so much. Be While Bill Isaac, he's former chairman 0:07:21.440 --> 0:07:25.080 of the FDI see chairman of Secura Isaac It is 0:07:25.160 --> 0:07:27.920 a consulting firm and as we mentioned on the board 0:07:27.920 --> 0:07:30.440 of directors of a few banks. You're listening to the 0:07:30.480 --> 0:07:34.440 Bloomberg Business Week podcast. Catch us live weekdays from two 0:07:34.480 --> 0:07:38.000 to five pm Eastern on Bloomberg Radio, The Bloomberg Business 0:07:38.080 --> 0:07:40.840 a band you two. You can also listen live to 0:07:40.880 --> 0:07:45.000 our flagship New York station, Just Say Alexa, play Bloomberg, 0:07:45.080 --> 0:07:48.480 Eleve and Verdi. So we did talk a lot about 0:07:48.480 --> 0:07:51.080 credit suees today. The stock spiraling as it was unable 0:07:51.080 --> 0:07:53.600 to line up a top shareholder to up at stake 0:07:53.640 --> 0:07:55.920 in the bank, as you know, did cause shivers through 0:07:55.960 --> 0:07:59.720 global banking on top of an already heightened nervousness following 0:07:59.720 --> 0:08:01.720 the laps of three regional banks in the past week, 0:08:01.880 --> 0:08:05.840 most notably Silicon Valley Bank. So let's get into how 0:08:06.000 --> 0:08:10.080 Silicon Valley banks collapse threatens an already fragile economy that's 0:08:10.120 --> 0:08:12.720 storing the upcoming new issue of Bloomberg Business Week on 0:08:12.880 --> 0:08:16.520 newsstands starting tomorrow, already online at Bloomberg dot com, slash 0:08:16.560 --> 0:08:18.800 business Week and on the Bloomberg Let's get to it 0:08:18.920 --> 0:08:22.280 with Bloomberg News Fed and US Economy reporter Chris Condon 0:08:22.760 --> 0:08:24.720 on the phone in Washington, d C. And also with 0:08:24.800 --> 0:08:27.960 us the editor of Bloomberg BusinessWeek, Joel Webber here in 0:08:28.000 --> 0:08:31.480 our Bloomberg Interactive Broker's studio. Joel, you know, we talk 0:08:31.560 --> 0:08:34.280 about black swans or unknowns when we talk about the 0:08:34.280 --> 0:08:36.240 economic outlook. Who would have thought a couple of weeks 0:08:36.240 --> 0:08:38.920 ago that we would be talking about you know, it 0:08:39.000 --> 0:08:42.000 feels like some continued problems in the banking sector, and 0:08:42.000 --> 0:08:45.400 it all started off. It feels like with SVB or 0:08:45.440 --> 0:08:48.160 maybe Jpal or maybe j Yeah. Right, there's that guy 0:08:48.720 --> 0:08:51.920 who you know, been raising interest rates and at some 0:08:52.000 --> 0:08:57.200 point we're maybe going to see some cracks in a facade, 0:08:57.320 --> 0:09:03.080 as as Chris has in his story, and I think 0:09:03.120 --> 0:09:06.040 we were all kind of maybe waiting for something somewhere 0:09:06.160 --> 0:09:08.360 to track, and now we've seen what that looks like. 0:09:09.920 --> 0:09:13.640 And you know, this is also interesting, Chris, because we're 0:09:13.640 --> 0:09:16.320 gonna have maybe some more movement next week. Right, So 0:09:16.360 --> 0:09:22.319 what's on the docket from the FED mating of course 0:09:22.320 --> 0:09:25.240 to I think Jay Powell is going to be testifying again, 0:09:26.480 --> 0:09:30.360 and then if we're not too long, the FMC is 0:09:30.400 --> 0:09:32.160 going to meet and they're going to have to decide 0:09:32.600 --> 0:09:37.640 how to handle their interest rate policy. People had been 0:09:37.679 --> 0:09:41.160 expecting at least a twenty five basis point increase if 0:09:41.240 --> 0:09:45.800 not fifty. Powell signaled the door was opened to fifty 0:09:46.040 --> 0:09:50.360 in his last appearance before Congress. Now the calculations are 0:09:50.400 --> 0:09:52.800 going to have to change. Obviously, the Fed is not 0:09:53.120 --> 0:09:57.480 only focused single mindedly on inflation, but they have to 0:09:57.520 --> 0:10:01.200 worry about financial stability, so that will certainly kind of 0:10:01.480 --> 0:10:04.160 change the entire Next, they have to steal unemployment, because 0:10:04.160 --> 0:10:06.240 that's the other part of that dualmanded. But okay, let's 0:10:06.240 --> 0:10:10.160 say let's stay with it, because there's this lag that 0:10:10.559 --> 0:10:13.520 has been talked about a lot. How much. Does JPOW 0:10:13.720 --> 0:10:17.280 care about that lag? Very much so, because we'll look 0:10:17.280 --> 0:10:20.240 at how much they've already raised, Joel, you know that 0:10:21.040 --> 0:10:23.680 they went from just above zero to where they are here, 0:10:23.760 --> 0:10:28.920 almost at five percent. The full effect of those increases 0:10:29.400 --> 0:10:34.160 has not really been transmitted into the economy. So even 0:10:34.160 --> 0:10:38.640 if they stopped now, you can't expect the economy will 0:10:38.679 --> 0:10:44.880 continue to slow because of that, make financial conditions tighter, 0:10:45.800 --> 0:10:50.439 make it more difficult for firms and households to borrow money, 0:10:50.679 --> 0:10:54.960 purchase things, and invest. So they have to think about, 0:10:55.720 --> 0:11:00.040 you know, how those previous increases will be transmitted to 0:11:00.120 --> 0:11:02.400 the economy and when, and then how much they want 0:11:02.440 --> 0:11:06.520 to add on top of that makes their calculus always 0:11:06.520 --> 0:11:09.120 a pretty complex one, and it's not always clear and 0:11:09.240 --> 0:11:12.640 looking at the economy how much of the past increases 0:11:12.920 --> 0:11:17.240 has been fully realized yet. Well, the good news no, 0:11:17.400 --> 0:11:22.920 there is none. There is some historical precedent for what 0:11:23.320 --> 0:11:28.679 interest rate increases you know, can do and the implications 0:11:28.679 --> 0:11:30.600 that they can have for the economy. Walk us through 0:11:31.080 --> 0:11:34.600 some of what you wrote about in the story. Well, 0:11:34.640 --> 0:11:39.760 the history of rate hiking cycles is not a very 0:11:39.840 --> 0:11:44.600 pretty one. It's not only of course, everybody says it's 0:11:44.720 --> 0:11:48.120 very difficult to pull off the so called soft landing. 0:11:49.200 --> 0:11:54.280 But even more than that, when you don't get the 0:11:54.320 --> 0:11:57.440 soft landing and you get a recession, you almost never 0:11:57.640 --> 0:12:03.240 glide gently into that recession. Generally, the economy is slowing down, 0:12:03.640 --> 0:12:08.040 things start to become fragile, weak points begin to get exposed, 0:12:08.360 --> 0:12:13.720 and then something breaks, something like an SVB or in 0:12:13.800 --> 0:12:17.240 previous cases of the dot com bubble burst or another 0:12:17.320 --> 0:12:22.520 bank failure happened, and then it serves as a trigger point, 0:12:22.800 --> 0:12:27.920 and it shakes the confidence of investors, shakes the confidence 0:12:27.960 --> 0:12:32.680 of consumers and lenders, and you get this retrenchment. And 0:12:32.760 --> 0:12:36.440 so suddenly the economy previously just kind of gently slowing 0:12:36.480 --> 0:12:40.600 down kind of just tips over and turns into a recession, 0:12:40.840 --> 0:12:44.520 and then unemployment can very sharply ramp up after that. 0:12:44.600 --> 0:12:47.960 And so the big question, of course now is is 0:12:48.000 --> 0:12:53.040 this SVB incident going to be that kind of trigger point. 0:12:55.080 --> 0:12:59.040 It's really not certain yet. The credit suee situation is 0:12:59.080 --> 0:13:03.240 greatly complicating it. Of course, it's not really very similar 0:13:03.280 --> 0:13:06.920 to sv being it's but it's suffering from now this 0:13:08.520 --> 0:13:13.560 leaking away of confidence in financial markets, and so I 0:13:13.559 --> 0:13:16.880 don't think it's clear yet that these really will be 0:13:16.960 --> 0:13:20.360 the break point. But we're at a very perilous moment, 0:13:20.600 --> 0:13:23.160 that's for sure. Okay, So maybe I'm trying to find 0:13:23.400 --> 0:13:27.120 the silver lining. If we do see this collapse or 0:13:27.160 --> 0:13:30.079 this triggering of a recession, does that mean inflation Actually, 0:13:30.200 --> 0:13:33.280 Chris gets back down to two percent and the Feds like, whoa, 0:13:33.679 --> 0:13:36.040 I can start cutting rates. Well, yeah, there are a 0:13:36.080 --> 0:13:39.200 couple of things, Carol. In fact, number one, yes, if 0:13:39.200 --> 0:13:46.240 we go into recession, the inflation problem will very likely disintegrate. 0:13:47.120 --> 0:13:49.679 The other thing that is a bit of a silver lining. 0:13:50.160 --> 0:13:55.200 Economists will will point out that, you know, outside certain sectors, 0:13:57.040 --> 0:14:00.439 the economy is in pretty good shape. Balance sheets pretty good. 0:14:00.679 --> 0:14:05.679 The banking sector, particularly the largest banks, are very well capitalized. 0:14:06.000 --> 0:14:08.360 They were forced to be so by the twenty and 0:14:08.440 --> 0:14:13.720 ten Dodd Frank changes. Household balance sheets are also pretty 0:14:13.800 --> 0:14:18.000 darn good shape, and so most economists say that they're 0:14:18.000 --> 0:14:23.360 expecting a recession, but a shallow one. So if that's 0:14:23.360 --> 0:14:27.600 the silver lining, perhaps that's what you're looking for. So, Chris, 0:14:27.640 --> 0:14:29.720 with this week's data, when you're looking at CPI, the 0:14:29.760 --> 0:14:31.720 core coming a little bit hotter than expected, but you're 0:14:31.720 --> 0:14:35.000 seeing these sort of maybe silver linings with producer prices 0:14:35.040 --> 0:14:37.520 easing up again, and then also some softwas in the 0:14:37.520 --> 0:14:40.240 retail sales. Where exactly does this leave the FED as 0:14:40.240 --> 0:14:42.840 we're heading into next week with this big, great decision. 0:14:43.720 --> 0:14:45.760 You know, I do think they're not going to be 0:14:45.920 --> 0:14:52.160 so worried about the latest inflation data points. First of all, 0:14:52.240 --> 0:14:54.640 you know, they are never They're not expecting this to 0:14:54.720 --> 0:15:00.200 be a straight line inflation. The inflation figures month to 0:15:00.360 --> 0:15:03.280 will always be bumpy. They're gonna want to look at 0:15:03.560 --> 0:15:07.800 friendline first of all. And then in the context of 0:15:07.840 --> 0:15:13.600 these bank issues and the financial stability questions, they're just 0:15:13.640 --> 0:15:15.760 going to want to kind of thread the needle here 0:15:16.400 --> 0:15:21.280 and first and foremost, do no more additional harm, do 0:15:21.400 --> 0:15:24.960 not spook the markets with something the markets are not 0:15:25.080 --> 0:15:28.160 expecting on the hawkish side. And at the same time, 0:15:28.160 --> 0:15:30.240 they're going to want to say, look, even if we pause, 0:15:30.920 --> 0:15:32.560 we are we're going to get right you know, once 0:15:32.600 --> 0:15:34.680 things are settled down, we're going to get right back 0:15:35.520 --> 0:15:38.960 to fighting inflation. That job is not done. They're going 0:15:39.000 --> 0:15:43.440 to want to signal that one way or another. Okay, Well, 0:15:43.480 --> 0:15:45.160 just to put a bow on all this, I'm gonna 0:15:45.200 --> 0:15:47.680 give you the quote that Chris has in the story 0:15:47.680 --> 0:15:51.360 from David Wilcox, who's the director of US Economic Research 0:15:51.360 --> 0:15:54.680 at Bloomberg Economics, also a former division director at the FED, 0:15:55.720 --> 0:15:58.120 who said, it's hard to be totally certain of anything 0:15:58.120 --> 0:16:01.480 once a crack has appeared in facade. So yeah, I 0:16:01.520 --> 0:16:04.560 have a glass of wine. Yeah, maybe make a bourbon 0:16:07.040 --> 0:16:09.840 good idea That facade crack is what I think we're 0:16:09.840 --> 0:16:12.240 all watching, That is for sure. All right, Chris Connin, 0:16:12.280 --> 0:16:14.640 thank you so much, FED and US economy reporter at 0:16:14.640 --> 0:16:17.040 Bloomberg News on the phone in Washington, dcar. Thanks to 0:16:17.080 --> 0:16:19.960 the editor of Bloomberg Business Week, Till Webber. Here in 0:16:20.040 --> 0:16:27.120 our interactive broker Student, you're listening to the Bloomberg Business 0:16:27.120 --> 0:16:30.400 Week podcast. Catch us live weekdays from two to five 0:16:30.480 --> 0:16:34.200 pm Eastern on Bloomberg Radio, the Bloomberg Business a band 0:16:34.280 --> 0:16:37.200 you two. You can also listen live to our flagship 0:16:37.240 --> 0:16:40.920 New York station, Just say Alexa, play Bloomberg e Love 0:16:40.960 --> 0:16:44.600 and Dirty. All right, So, yeah, we're trying to figure 0:16:44.640 --> 0:16:47.640 out if the walls are coming tumbling down here. Um, 0:16:48.280 --> 0:16:50.040 you know, we've heard a lot of conversations that this 0:16:50.080 --> 0:16:53.960 isn't another banking crisis, but let's get to the cover 0:16:54.040 --> 0:16:57.120 story of Bloomberg BusinessWeek magazine. It's a new double issue. 0:16:57.200 --> 0:16:59.840 It's available on newstands, Bloomberg dot com, slash business Week. 0:17:00.000 --> 0:17:02.760 He's on the Bloomberg terminal. It's a finance section takeover. 0:17:02.840 --> 0:17:04.919 It could not be more timely. It is about the 0:17:04.960 --> 0:17:09.359 sudden unmaking of Silicon Valley Bank, which for for forty 0:17:09.440 --> 0:17:12.600 years really enmeshed itself in the venture capital community. So 0:17:12.680 --> 0:17:15.919 let's get to it. Lots of facets to this story. 0:17:16.000 --> 0:17:20.760 So with us is Bloomberg Markets Finance editor of BusinessWeek magazine, 0:17:20.800 --> 0:17:23.240 Pat Ragnier. He's in our studio along with the editor 0:17:23.280 --> 0:17:26.360 at large, Eric Shatzker, and the editor of the magazine, 0:17:26.440 --> 0:17:28.960 Joel Weber. And we're gonna start with you, Jael. This 0:17:29.040 --> 0:17:31.560 is a story we continue to track some headlines on 0:17:31.560 --> 0:17:34.919 the Bloomberg about the banking community overall. How did you 0:17:35.040 --> 0:17:37.600 and your editors and your team kind of figure out 0:17:37.640 --> 0:17:41.160 how to actually cover it and put it to bed 0:17:41.640 --> 0:17:44.240 for this week? This was such a significant story and 0:17:44.320 --> 0:17:48.159 it broke it really a crazy time for us because 0:17:49.000 --> 0:17:51.760 of course also Silicon Value Bank not alone in this, 0:17:52.560 --> 0:17:56.560 you know, three banks and three US banks and one 0:17:56.560 --> 0:17:59.800 week was significant obviously of those three, Silicon Value was 0:17:59.840 --> 0:18:02.000 the biggest. And that's why we wanted to really kind 0:18:02.000 --> 0:18:04.080 of like make sure that we looked at that because 0:18:04.119 --> 0:18:07.679 there's a greater meaning to this bank. It relates to 0:18:07.880 --> 0:18:12.880 obviously Silicon Valley venture capital, private equity, and interest rates. 0:18:12.960 --> 0:18:15.719 And so you know, we've I think we spent ten 0:18:15.760 --> 0:18:19.440 years talking about the financial crisis, if not longer. This 0:18:19.840 --> 0:18:21.720 at the moment doesn't look like it's going to become 0:18:22.119 --> 0:18:24.840 quite like that. But you know, on that's balance sheet, 0:18:25.080 --> 0:18:28.679 Silicon Valley had us, As Eric writes, um, you know, 0:18:28.840 --> 0:18:33.480 really kind of strategy that you can call into question now, 0:18:33.560 --> 0:18:36.920 and that has raised a lot of eyebrows, and it's 0:18:37.040 --> 0:18:39.280 meant to me that you know, we might not be 0:18:39.760 --> 0:18:42.320 we might not through all of this yet, and so 0:18:42.359 --> 0:18:44.480 I wanted to make sure that in the magazine we 0:18:44.680 --> 0:18:47.639 we we flagged that in a big way. And Pat 0:18:47.680 --> 0:18:49.919 was the architect that kind of I mean, frankly, he 0:18:50.000 --> 0:18:51.560 hit this structure where it was like, we want to 0:18:51.560 --> 0:18:53.920 talk about Silicon Valley Bank, we want to talk about 0:18:53.920 --> 0:18:55.880 what happened in DC, which we also had as part 0:18:55.920 --> 0:18:58.080 of that package. And then Eric put a bow on 0:18:58.119 --> 0:18:59.960 it just to say, like, you know, there's a great 0:19:00.280 --> 0:19:04.680 meaning here that is about the financialization of everything. And 0:19:04.720 --> 0:19:08.040 so we'll talk about probably all those threams, those three 0:19:08.080 --> 0:19:10.840 themes here. What was the thing that really stood out 0:19:10.880 --> 0:19:13.840 to you in this package of coverage in the magazine. 0:19:14.280 --> 0:19:16.320 One of the things that I really wanted to convey 0:19:16.560 --> 0:19:20.080 was how crazy the weekend felt. M You know, I 0:19:20.160 --> 0:19:23.000 was sitting in a diner in Brooklyn and looking at 0:19:23.040 --> 0:19:28.639 my Twitter feed and watching not just the aftermath of 0:19:28.920 --> 0:19:31.399 a bank failure, but a very loud bank failure. This 0:19:31.520 --> 0:19:34.200 was probably one of the loudest failures of a regional 0:19:34.320 --> 0:19:37.639 bank that that we've ever had. You could see, you 0:19:37.680 --> 0:19:41.719 could see the VC community sort of raising alarms. I 0:19:41.760 --> 0:19:46.880 think in some ways on purpose, um and uh, it 0:19:47.080 --> 0:19:50.679 created a scary weekend, even though I think probably you 0:19:50.760 --> 0:19:54.960 know it, there was there was reason to to think 0:19:55.200 --> 0:19:58.640 all along that this was not going to be allowed 0:19:58.680 --> 0:20:01.919 to get too far. Are people seem to understand it, 0:20:01.960 --> 0:20:05.639 but that but that anxiety, uh, that we came in 0:20:05.680 --> 0:20:07.480 on a Monday morning really said that, you know, we 0:20:07.520 --> 0:20:10.639 really just had to talk about something important has changed 0:20:10.680 --> 0:20:12.560 here that we could have a moment like this. Well, 0:20:12.560 --> 0:20:15.120 and I think what's fascinating about this story. It's not 0:20:15.200 --> 0:20:20.439 like this was a household name in the banking community SVB. 0:20:20.760 --> 0:20:22.800 Now it is, but Pat, I feel like that was 0:20:22.800 --> 0:20:25.359 a big part of telling this story of like who 0:20:25.480 --> 0:20:29.919 is this Pang and why are we also stressed out right? Well, obviously, um, 0:20:30.119 --> 0:20:34.040 it wasn't an unfamiliar name if you were in the valley, 0:20:34.080 --> 0:20:35.280 and so like one of the one of the stories 0:20:35.320 --> 0:20:38.679 we wanted to tell was we have Ellen hewitttum In, 0:20:38.840 --> 0:20:41.399 who's our reporter in the valley, talking about just like 0:20:41.560 --> 0:20:45.280 how essential this was to to to sort of the 0:20:45.280 --> 0:20:47.320 way day to day life work for people in the 0:20:47.320 --> 0:20:49.240 startup community. And she said was like waking up to 0:20:49.280 --> 0:20:50.920 a hell fire in your living in your very own 0:20:50.920 --> 0:20:54.119 living room, Like what you know, what, what's suddenly on 0:20:54.600 --> 0:20:59.560 fire here? Um? And uh, that dynamic was really powerful 0:20:59.600 --> 0:21:03.679 because it was all the same kinds of clients at 0:21:03.680 --> 0:21:07.160 all the same bank, all talking to each other and 0:21:07.960 --> 0:21:10.040 with a lot of cash. We've talked a lot about 0:21:10.040 --> 0:21:13.040 the fact that like there was something happening on the 0:21:13.080 --> 0:21:16.159 asset side of their balance sheet, but but but the 0:21:16.200 --> 0:21:18.320 other thing that was happening was what was going on 0:21:18.320 --> 0:21:20.560 on the liability side of their balance sheet, which was 0:21:20.960 --> 0:21:24.360 they they had people who had who suddenly woke up 0:21:24.920 --> 0:21:29.040 to realize that they had reason to be nervous, which 0:21:29.119 --> 0:21:31.320 is not usually the case with most with most bank 0:21:31.440 --> 0:21:33.680 most banks, half of your half of the people who 0:21:33.760 --> 0:21:35.919 have half the half of your money, like you know you, 0:21:36.320 --> 0:21:38.040 it wouldn't matter which you did in your on your 0:21:38.040 --> 0:21:39.600 assets side. They don't need to run to the bank. 0:21:39.720 --> 0:21:43.720 They're ensure that money's ensured. This was a very different situation. Yeah, Eric, 0:21:43.760 --> 0:21:45.479 I want to bring you in a little bit here 0:21:45.520 --> 0:21:48.880 because I love the headline on your comment on this 0:21:48.920 --> 0:21:54.040 issue arrogance, incompetence or both what spb's failure really means. 0:21:54.280 --> 0:21:57.240 And I think, you know, it's interesting. Whatever we have 0:21:57.359 --> 0:22:00.600 a failure like this, the question often is, well, was 0:22:00.640 --> 0:22:05.440 this incompetence or was their actual sort of criminal behavior here? 0:22:05.560 --> 0:22:07.920 It doesn't seem like that with SVB, But I mean, 0:22:07.960 --> 0:22:12.800 can incompetence be so great that it sort of crosses 0:22:12.840 --> 0:22:18.000 the threshold into criminality? Incompetence is probably the best explanation 0:22:18.040 --> 0:22:21.800 for one half of what happened to SVB, and arrogance 0:22:21.880 --> 0:22:24.119 is probably the best explanation for the other half of 0:22:24.119 --> 0:22:29.080 what happened to SVB. Incompetence applies to the asset side 0:22:29.080 --> 0:22:32.120 of the balance sheet. The fact that they mismanaged duration 0:22:32.240 --> 0:22:37.320 risk is unconscionable for any banker, certainly a bank of 0:22:37.400 --> 0:22:40.200 SVB size. It was the sixteenth largest bank in the country. 0:22:41.200 --> 0:22:43.720 The arrogance, though, applies to the liability side of the 0:22:43.760 --> 0:22:47.400 balance sheet, and what we mean by that is the 0:22:47.480 --> 0:22:51.200 fact that they clearly not just SVB, that they is 0:22:51.720 --> 0:22:54.119 bigger than SVB in its management. It also applies to 0:22:54.160 --> 0:22:58.480 the bank regulators the collective. They failed to recognize or 0:22:58.560 --> 0:23:03.320 appreciate that there was a different kind of concentration risk 0:23:03.960 --> 0:23:05.480 at the bank, and it had to do with the 0:23:05.560 --> 0:23:09.199 nature of the bank's deposits. Over the course of some 0:23:09.359 --> 0:23:13.760 twenty years, SVP SVB, excuse me, changed from being a 0:23:13.840 --> 0:23:17.560 bank that really did focus on the innovation economy, the 0:23:17.680 --> 0:23:22.640 startups in the valley in tech and life sciences, medical devices, biotechnology, 0:23:23.200 --> 0:23:27.359 and became a bank that principally served the VC and 0:23:27.520 --> 0:23:33.000 private equity communities. And those ended up being massive depositors 0:23:33.000 --> 0:23:38.480 at SVB. And we know now that founder collective, Katu Management, 0:23:39.000 --> 0:23:43.200 Founder's fund, Peter Teel's fund, all in a heartbeat withdrew 0:23:43.240 --> 0:23:46.680 those deposits and ordered their portfolio companies to do the same. 0:23:47.480 --> 0:23:51.280 That wouldn't happen. For example, at a fifth third Bank 0:23:51.320 --> 0:23:54.720 Corps that's the next largest bank after Silicon Valley Bank, 0:23:55.359 --> 0:24:01.439 it has six point one seven million visual accounts that 0:24:01.600 --> 0:24:04.440 fall under the two hundred and fifty thousand dollars cap 0:24:04.760 --> 0:24:08.879 for Federal deposit insurance corporation insurance. That means all of 0:24:08.920 --> 0:24:13.639 those six point one seven million accounts effectively were protected. 0:24:14.000 --> 0:24:17.240 And at Silicon Valley Bank that number was it was 0:24:17.320 --> 0:24:20.760 only equivalent to six percent of their deposits. Pet likes 0:24:20.800 --> 0:24:23.520 to talk about hot deposits. You will not find hotter 0:24:23.600 --> 0:24:27.080 deposits than the deposits that were and no longer are 0:24:27.119 --> 0:24:31.000 at Silicon Valley Bank. Jill, come on back in. Okay, So, Erica, 0:24:31.359 --> 0:24:35.560 you I think we're just a guiding presence and in 0:24:35.600 --> 0:24:38.199 a lot of just what we were thinking about in 0:24:38.240 --> 0:24:40.439 this package actually, and I do want to, you know, 0:24:40.520 --> 0:24:44.000 make sure that we spend this forward a little bit 0:24:44.040 --> 0:24:47.919 and think about what this could mean going forward. I mean, 0:24:47.960 --> 0:24:54.000 obviously this interest rate thing that SVB got really wrong. 0:24:55.400 --> 0:24:57.199 Is it a question at this point of like, you know, 0:24:57.359 --> 0:25:01.119 SPB did it wrong, but like who else didn't. And 0:25:01.400 --> 0:25:04.280 you know this lag that we've talked about a little 0:25:04.320 --> 0:25:07.400 bit before with interest rates. How else are you kind 0:25:07.400 --> 0:25:10.080 of just thinking about where else this could show up 0:25:10.119 --> 0:25:13.240 in the financial ecoso Well, I was already thinking about 0:25:13.240 --> 0:25:16.800 First Republic, And just to revisit a few of the 0:25:16.800 --> 0:25:19.080 headlines of the past hour, it just got thirty billion 0:25:19.119 --> 0:25:22.240 dollars of deposits from a number of big banks, including 0:25:22.840 --> 0:25:26.000 Bank of America and JP Morgan. So yes, that was 0:25:26.040 --> 0:25:28.280 a problem, and there may be other regional banks that 0:25:28.640 --> 0:25:31.800 similarly mismanage their interest rate risk. We don't know all 0:25:31.840 --> 0:25:33.840 of the details. It's very important to say that because 0:25:33.840 --> 0:25:36.360 some of these banks actually are smart and do hedge, 0:25:36.720 --> 0:25:39.080 some of that interest rate exposure didn't happen at Silicon 0:25:39.160 --> 0:25:42.840 Valley Bank. Quite probable that it didn't happen elsewhere as well. 0:25:43.560 --> 0:25:46.840 But beyond the quality of the asset side of the 0:25:46.880 --> 0:25:49.040 balance sheet, there are other things to think about that 0:25:49.080 --> 0:25:51.639 we've been talking about and which undoubtedly we will end 0:25:51.680 --> 0:25:55.560 up covering here at Bloomberg. In many different ways, the second, third, fourth, 0:25:55.560 --> 0:26:00.239 and fifth order effects like corporate treasurers asking themselves, do 0:26:00.280 --> 0:26:04.280 I really want to have money in deposit accounts? Any longer. 0:26:04.320 --> 0:26:07.800 Why shouldn't I take the excess cash that I've got 0:26:07.840 --> 0:26:10.160 and sweep it into a money market fund. It'll earn 0:26:10.200 --> 0:26:13.080 a higher yield to begin with, and it will be 0:26:13.160 --> 0:26:15.560 protected because if it's a money market fund that's invested 0:26:15.560 --> 0:26:18.480 in treasuries and agencies, it has the backing of the 0:26:18.560 --> 0:26:21.840 US government. This is not I mean, these things are 0:26:21.840 --> 0:26:25.040 going to play out over the next weeks, months, quarters, 0:26:25.119 --> 0:26:29.240 possibly years, and it might not be a serious issue 0:26:29.240 --> 0:26:31.600 in the short run, because there are so many federal 0:26:31.640 --> 0:26:34.719 facilities now in place to backstock the banking system. But 0:26:34.760 --> 0:26:38.440 these changes will happen, they will take place, they will 0:26:38.440 --> 0:26:44.160 transform the American banking landscape. I wouldn't be surprised if, 0:26:44.160 --> 0:26:46.240 maybe even as little as eighteen months from now, things 0:26:46.320 --> 0:26:48.920 look vastly different. Pat. I want to bring you back 0:26:48.920 --> 0:26:51.040 in here because I do think about this perfect storm 0:26:51.160 --> 0:26:53.760 of think about in a year, what has happened with 0:26:53.840 --> 0:26:56.440 the interest rate environment. That's one thing to think about. 0:26:57.240 --> 0:27:00.000 Also the role of social media and creating a velocity, 0:27:00.000 --> 0:27:02.920 certainly with SVB. And then you've got what Eric writes 0:27:02.960 --> 0:27:06.600 about this financialization of our world and increasingly the role 0:27:06.640 --> 0:27:09.679 of private markets that don't necessarily have the transparency. You 0:27:09.760 --> 0:27:11.760 put that together and you're like, well, of course we're 0:27:11.760 --> 0:27:14.760 gonna have some problems. Yeah, you know, after we closed 0:27:14.760 --> 0:27:18.440 this issue, I called my dad. My dad worked in 0:27:18.480 --> 0:27:20.760 the savings and loan industry during the savings and loan 0:27:20.800 --> 0:27:23.640 crisis and he ended up working for the Resolution Trust Corporation, 0:27:23.640 --> 0:27:26.800 which was the government agency that did the bailout. So 0:27:26.840 --> 0:27:28.920 he called me in. He said, you know, I thought 0:27:28.920 --> 0:27:30.880 we had another five years before another one of these. 0:27:31.840 --> 0:27:33.920 Why do they keep happening so fast? And why don't 0:27:33.920 --> 0:27:37.359 people learn? And I think, you know, that's going to 0:27:37.400 --> 0:27:39.639 be the big question we're gonna be asking ourselves is 0:27:40.560 --> 0:27:46.199 why do we not understand how fundamentally risky a bank is. 0:27:46.720 --> 0:27:49.000 You know, we think of banks as safe. It's actually 0:27:49.160 --> 0:27:51.240 an important part of how banking works is that it 0:27:51.320 --> 0:27:54.200 they project safety. You know, they always used to build 0:27:54.200 --> 0:27:56.240 banks to look like Roman Temple so that they would 0:27:56.240 --> 0:27:59.160 look like they were very safe. But the reason we 0:27:59.240 --> 0:28:03.359 do that and we feel safe is because they're actually 0:28:04.119 --> 0:28:06.800 considerably riskier than putting your money in a money market fund. 0:28:06.840 --> 0:28:10.160 It's backed by t builds. They're actually doing something risky 0:28:10.240 --> 0:28:12.880 and they have to be watched and watched quite carefully, 0:28:12.920 --> 0:28:15.480 but they're doing something essential. Let's not forget about that. 0:28:15.600 --> 0:28:18.160 Without fractional reserve banking, I'm not going to get into 0:28:18.160 --> 0:28:20.320 details about what that means. Please look at up on Google. 0:28:21.119 --> 0:28:24.040 And without credit creation, which something we do understand, the 0:28:24.080 --> 0:28:29.600 transformation of liabilities i e. Deposits into assets ie loans, 0:28:29.960 --> 0:28:32.359 we would not have the economy that we have. You 0:28:32.359 --> 0:28:35.160 couldn't take a dollar for dollar. You need one dollar 0:28:35.240 --> 0:28:39.480 of liabilities effectively transformed into ten dollars of assets, correct 0:28:39.560 --> 0:28:44.360 velocity of money. In addition to economic growth and opportunity, 0:28:44.400 --> 0:28:47.920 if you couldn't borrow to invest in your company, you 0:28:47.960 --> 0:28:51.480 know your hands would be severely tied. You wouldn't all 0:28:51.480 --> 0:28:56.680 of these things that individuals and even and small businesses need. 0:28:57.520 --> 0:29:00.360 So many of those things would be effectively unavail. Can 0:29:00.400 --> 0:29:03.160 I quote Eric here which second graph of the story. 0:29:03.280 --> 0:29:05.880 That's why when a bank fails, it's so essential to 0:29:05.880 --> 0:29:08.880 figure out what happened and ensure the same mistakes won't 0:29:08.920 --> 0:29:11.840 be made again. That's why we did this, and that's 0:29:11.840 --> 0:29:13.320 why we put it on the cover, and that's why 0:29:13.680 --> 0:29:16.440 we'll be talking about it, I think for you know, 0:29:17.000 --> 0:29:19.640 hopefully a little while longer, and to that end, I 0:29:19.680 --> 0:29:23.320 do think that the repercussions of this are still playing out, 0:29:23.360 --> 0:29:26.000 and that's why I also we haven't talked about the 0:29:26.000 --> 0:29:28.719 second piece of this package, which is worth mentioning. But 0:29:28.760 --> 0:29:32.040 it's also why Jamie Diamond was in DC yesterday talking 0:29:32.160 --> 0:29:34.800 with Treasury Secretary Janet Yellen to make sure that you know, 0:29:34.880 --> 0:29:37.680 this thirty billion that ended up in First Republic could 0:29:37.800 --> 0:29:40.280 could happen, right, and that that actually, you know, it 0:29:40.360 --> 0:29:43.320 shows how much attention there is on this stuff. And 0:29:43.600 --> 0:29:45.120 you know, of course you'd call in the guy from 0:29:45.160 --> 0:29:49.720 the financial crisis to make sure that everything goes smoothly. Yeah, Eric, 0:29:49.760 --> 0:29:51.720 I also wonder if he has sort of zoom out 0:29:51.760 --> 0:29:53.920 and look at it from a macro level. Was there 0:29:53.960 --> 0:29:57.680 a bubble in venture capital after a decade of low 0:29:57.720 --> 0:30:01.280 interest rates that just popped? Is the golden age of 0:30:01.320 --> 0:30:04.400 the quote unquote founder over after this and just got 0:30:04.400 --> 0:30:06.960 a bat Well, that's an excellent question. I think you 0:30:07.000 --> 0:30:09.520 can only call a bubble after it's actually happened and 0:30:09.560 --> 0:30:11.800 the dust settles. And I don't think we're quite there yet. 0:30:11.880 --> 0:30:13.520 We're not there where we can look back and see 0:30:13.560 --> 0:30:15.480 it was a bubble. There's no question there was way 0:30:15.520 --> 0:30:18.920 too much liquidity there probably still is. We said it 0:30:19.000 --> 0:30:23.000 the other day, Carol Jee Powell secretly might be not glad, 0:30:23.040 --> 0:30:26.200 but boy, a bank collapsure does help to tighten financial 0:30:26.200 --> 0:30:28.600 conditions and make it easier to get a rein on inflation. 0:30:28.720 --> 0:30:30.360 Now it's a really good point, right, because you've got 0:30:30.360 --> 0:30:32.640 to look at this all the big picture here, right, 0:30:32.680 --> 0:30:36.680 not as preferred filing you guys, all right, we gotta 0:30:36.720 --> 0:30:40.440 run Fat Regney or Mark Markets and Finance editor A 0:30:40.520 --> 0:30:43.840 Bloomberg Business Week Editor at Large, Eric Shats Garb Bloomberg 0:30:43.880 --> 0:30:46.920 News and Joe Weber, Editor Bloomberg Business Week. Folks, it's 0:30:46.920 --> 0:30:50.320 a finance takeover. It's the cover. It's a must read 0:30:50.640 --> 0:30:54.400 for the weekend. This is Bloomberg Radio. You're listening to 0:30:54.480 --> 0:30:58.160 the Bloomberg Business Week Podcast. Catch us live week days 0:30:58.200 --> 0:31:01.760 from two to five pm Eastern Bloomberg Radio, the Bloomberg 0:31:01.800 --> 0:31:04.960 Business vand you two. You can also listen live to 0:31:05.000 --> 0:31:09.160 our flagship New York station. Just say Alexa, play Bloomberg 0:31:09.200 --> 0:31:12.320 You Love and Dirty. Remember the movie Damian. I don't 0:31:12.360 --> 0:31:13.640 know if you remember this. The day after it was 0:31:13.760 --> 0:31:17.720 nineteen eighty three, ABCTV streaming wasn't even on our narrative 0:31:18.520 --> 0:31:23.440 day after a nuclear war, god forbid. Okay, today, very 0:31:23.480 --> 0:31:25.400 different scale, but it does kind of feel like the 0:31:25.480 --> 0:31:28.240 day after. We've had twenty four more hours to kind 0:31:28.240 --> 0:31:30.160 of think about what happened over the weekend, and it 0:31:30.240 --> 0:31:32.840 does feel like some calmness has come in because comin 0:31:33.080 --> 0:31:34.720 has come back to the market. Yeah, but I think, 0:31:34.760 --> 0:31:36.800 you know, the whole episode is definitely revealing popples in 0:31:36.800 --> 0:31:39.240 the US economy right now. We're seeing some things deep down, 0:31:39.280 --> 0:31:41.080 you know. I'm really excited to get Johnson of JP 0:31:41.240 --> 0:31:42.880 Morgan in later in the show. He's going to tell 0:31:42.920 --> 0:31:45.239 us what's going on in US housing. I mean, for me, 0:31:45.560 --> 0:31:47.600 that is the key element here. If you talk about SVB, 0:31:47.720 --> 0:31:49.560 you talk about, you know, what went wrong there. It 0:31:49.640 --> 0:31:51.800 wasn't necessarily that they were lending to venture. It was 0:31:51.800 --> 0:31:53.840 that they had stuff on their balance sheet they shouldn't have. Well, 0:31:53.840 --> 0:31:57.240 speaking of venture, we've got a great knowing perspective with 0:31:57.360 --> 0:32:00.800 us from the venture capital world. Longtime venture capitalist Alan 0:32:00.840 --> 0:32:04.280 patrick Off, chairperson co founder at Primetime Partners, author of 0:32:04.320 --> 0:32:06.960 No Red Lights, Reflections on life, fifty years in venture 0:32:06.960 --> 0:32:10.080 capital and Never Driving Alone. Great book. He joins us 0:32:10.400 --> 0:32:12.960 via Zoom from New York City. I can say great 0:32:12.960 --> 0:32:16.320 because Alan joined us to talk about it before. Alan, 0:32:16.400 --> 0:32:18.840 good to have you here with Damian myself. It is 0:32:18.920 --> 0:32:21.600 twenty four hours you got. You were gracious enough to 0:32:21.680 --> 0:32:25.520 join some of our colleagues on TV yesterday. As you're 0:32:25.600 --> 0:32:29.920 thinking about Silicon Valley and the impact the venture world 0:32:30.120 --> 0:32:36.400 and capital raising fundraising world four startups changed at all, Well, 0:32:36.840 --> 0:32:40.640 clearly it's got to change someway after what happened yesterday. 0:32:40.640 --> 0:32:43.120 And you know, as you just said a second ago, 0:32:43.160 --> 0:32:46.720 that the full wasn't really in with the venture capitalis 0:32:46.760 --> 0:32:49.640 it was the full with the bank itself. And as 0:32:49.680 --> 0:32:52.720 far as I can tell from emails I'm beginning, the 0:32:52.800 --> 0:32:57.440 bank is back in business again and based on their 0:32:57.440 --> 0:33:00.960 own words or lending money. And I've gotten an email 0:33:01.040 --> 0:33:04.240 for another bank besides SBB, and they are lending money. 0:33:05.360 --> 0:33:07.960 And the big question over the weekend, which you know 0:33:08.120 --> 0:33:12.200 unnerved everybody, including me, even though I frankly had very 0:33:12.240 --> 0:33:16.360 little exposure, thank god, so I had a little bit 0:33:16.960 --> 0:33:22.440 less less violent weekend and some but it was the 0:33:22.520 --> 0:33:26.560 concern over the deposits and and I you know, said 0:33:26.600 --> 0:33:28.960 this broadly over the weekend. There was no way the 0:33:28.960 --> 0:33:32.160 banking system. The stock market could open on Monday without 0:33:32.160 --> 0:33:34.520 solving the problem. And I think the government did a 0:33:34.520 --> 0:33:40.280 great job in solving the deposit problem and taking over 0:33:40.360 --> 0:33:43.880 a couple of banks, and so no worri about contagion. 0:33:44.000 --> 0:33:48.320 Do you think we're done? U? Well, no, yes, I 0:33:48.600 --> 0:33:51.280 think contagion a sense you're thinking of. I think the 0:33:51.360 --> 0:33:57.360 contagion is how it's going to affect loans and druid 0:33:57.480 --> 0:33:59.719 ends from banks and what kind of lending they're going 0:33:59.760 --> 0:34:04.360 to do, and how that will affect the industry going forward, 0:34:04.440 --> 0:34:08.640 because venture lending has been a you know, on the 0:34:08.760 --> 0:34:13.759 edge of the traditional banking system, and now you know 0:34:14.040 --> 0:34:17.600 all of these loans and people's nervousness about being able 0:34:17.640 --> 0:34:22.440 to draw down loans in an appropriate fashion timely, and 0:34:22.520 --> 0:34:27.080 whether they really existed The bigger the first question was deposits. 0:34:27.120 --> 0:34:29.920 The second moment was if you had a line, are 0:34:29.960 --> 0:34:32.360 you can be able to draw down on? And obviously 0:34:32.800 --> 0:34:36.520 they are drawing down on all their deposits, assume and 0:34:36.640 --> 0:34:39.240 all their lines and have made a point of setting 0:34:39.520 --> 0:34:44.760 we're open for business. So I would say that we're back. 0:34:45.320 --> 0:34:47.960 We can't be back to normal. People have to have 0:34:48.040 --> 0:34:51.320 some second thoughts. Now is so how they go forward 0:34:51.560 --> 0:34:54.279 and basically in terms of lending lines and how much 0:34:54.320 --> 0:34:56.239 they can depend on it, how much they wanted to. 0:34:57.480 --> 0:35:00.000 I mean, Alan, look, you've had an unbelievable career, right, 0:35:00.040 --> 0:35:02.239 I mean in your autobiography entitled No Red Lights, which 0:35:02.280 --> 0:35:04.640 released last year, you discussed not only the successes of 0:35:04.640 --> 0:35:06.600 your career but also the failures, and one that stood 0:35:06.640 --> 0:35:09.560 out for me was your that you didn't make an 0:35:09.600 --> 0:35:11.560 investment in Starbucks. I want you to take that forward 0:35:11.560 --> 0:35:14.480 to Chair Powell when he writes his autobiography and he 0:35:14.520 --> 0:35:16.759 has to discuss his failures. Is he going to have 0:35:16.840 --> 0:35:18.600 to state that he was late to the game on 0:35:18.640 --> 0:35:20.799 inflation and that the FED is behind the curve or 0:35:20.840 --> 0:35:22.480 do you think that you know they can manage through 0:35:22.520 --> 0:35:26.040 this and we can achieve that soft landing. Well, you 0:35:26.160 --> 0:35:30.400 really are stretching the point of of my making mistake 0:35:30.480 --> 0:35:34.279 of not investing in a coffee like that, one with 0:35:34.360 --> 0:35:40.880 the strengths that affect the world. Yeah. Probably. Uh. You know, 0:35:40.960 --> 0:35:45.120 the acceleration of rate increasing rates didn't help the situation, 0:35:45.200 --> 0:35:47.560 but you have to understand that did not have an 0:35:47.600 --> 0:35:51.200 impact of the venture business per se or on lines 0:35:51.280 --> 0:35:54.840 that were outstanding. I think that that didn't topple anything. 0:35:55.480 --> 0:35:59.279 I would personally say that this would not be the 0:35:59.320 --> 0:36:02.799 best time increased rates again next week. I've let the 0:36:02.840 --> 0:36:05.319 market settle down a little bit here and get used 0:36:05.320 --> 0:36:10.520 to what's happened. But I think the whole the real 0:36:10.840 --> 0:36:15.280 challenge the industry is thinking about venture banking, the venture 0:36:15.360 --> 0:36:19.160 at the sdpiece of the world, which there's more at 0:36:19.239 --> 0:36:23.960 least a dozen or two dozen like that. How what 0:36:24.400 --> 0:36:27.359 what role are they going to play going forward? How 0:36:27.400 --> 0:36:29.440 much are you going to depend on those kind of lines. 0:36:30.640 --> 0:36:34.920 The government has clearly done a great job and that 0:36:35.320 --> 0:36:38.040 the fact, not just the role the deposits is say, 0:36:38.120 --> 0:36:41.719 but the fact that they're telling everybody go forward and 0:36:41.880 --> 0:36:45.319 keep lending on the same basis is really a very 0:36:45.400 --> 0:36:50.760 strong sign that the government is standing behind these banks 0:36:50.760 --> 0:36:53.040 and does not want to see well, you know, Alan 0:36:53.120 --> 0:36:55.000 not just the government coasal Ventures is going to be 0:36:55.000 --> 0:36:57.360 backstopping pay for some of its impacted companies. Is that 0:36:57.400 --> 0:36:59.360 going to be a role that you know, VC funds 0:36:59.360 --> 0:37:01.280 are going to have to take on in the future, 0:37:01.360 --> 0:37:03.359 you know, being that sort of backstop is something should 0:37:03.400 --> 0:37:07.080 go wrong with the bank and should they be Yeah, no, 0:37:07.440 --> 0:37:11.279 you know, it's misleading to say banks their backstop. They're 0:37:11.320 --> 0:37:14.160 not doing that. If they're an investor in a company 0:37:14.560 --> 0:37:18.720 as we are, and you you depended on a line 0:37:18.800 --> 0:37:20.840 and all of a sudden the lines not there, you 0:37:20.920 --> 0:37:23.120 got to figure out how we got to replace it. 0:37:23.480 --> 0:37:26.080 And the easiest way, of course, is to get the 0:37:26.120 --> 0:37:29.960 existing investors to put up additional capital, whether it's in 0:37:30.040 --> 0:37:33.560 an interim or a more long term basis. But they're 0:37:33.560 --> 0:37:37.200 not doing to, you know, act as a backstop for lending. 0:37:37.200 --> 0:37:41.480 Their ACT is a backstop to you know, the alternative 0:37:41.560 --> 0:37:44.520 to these loans was going out and raising more equity capital. 0:37:44.840 --> 0:37:47.200 So I think if anything but this is going to 0:37:47.280 --> 0:37:52.400 do is to put some pressure on companies to build 0:37:52.480 --> 0:37:57.160 up their equity positions, and they in the process, it 0:37:57.200 --> 0:38:02.240 would not surprise me if there were some write downs 0:38:02.640 --> 0:38:06.520 and some reef or financings to build up these balance 0:38:06.560 --> 0:38:09.000 sheets at lower prices than we saw. I mean, the 0:38:09.040 --> 0:38:12.600 market was very very strong in twenty one and twenty 0:38:12.640 --> 0:38:15.480 two for a lot of venture financing, whether it's startup 0:38:15.560 --> 0:38:18.839 or even later stage, and I think that to the 0:38:18.880 --> 0:38:23.160 extent that companies want to improve their overall balance sheet position, 0:38:23.680 --> 0:38:28.080 even if they have these lines, they would probably want 0:38:28.080 --> 0:38:31.040 to build their equity and that may be at a 0:38:31.120 --> 0:38:35.960 lower price in the last round possibly. So Alan, what 0:38:36.600 --> 0:38:40.600 in terms of longer lasting impact, you know, how does it? 0:38:40.680 --> 0:38:42.480 I think you know the doomsday is like, oh, it's 0:38:42.520 --> 0:38:45.840 going to affect innovation, and you know the startup community 0:38:46.040 --> 0:38:50.480 is that overblown. There's money to be made. Investors will 0:38:50.520 --> 0:38:53.000 find a way. No it startups to wind a way. 0:38:53.400 --> 0:38:56.360 I will not use the vernacular, but I don't believe 0:38:56.400 --> 0:38:59.520 that it is going to have very very little impact. 0:39:00.000 --> 0:39:03.120 Will tell you a specific I am involved with one 0:39:03.160 --> 0:39:06.359 company that had a large deposit of one of these 0:39:06.400 --> 0:39:10.520 banks not named, and had a line not used that 0:39:10.560 --> 0:39:14.240 they had not drawn down upon and they were encouraged 0:39:14.640 --> 0:39:18.560 on Monday to draw down that line and they did 0:39:18.840 --> 0:39:22.880 and the money transferred into the bank account of the company. 0:39:23.160 --> 0:39:28.400 So clearly the banks are back providing capital again. But 0:39:29.000 --> 0:39:32.040 if you don't have a line this time, I don't 0:39:32.040 --> 0:39:34.160 know what the attitude is going to be to put 0:39:34.200 --> 0:39:36.920 on new lines at the moment. And I would think 0:39:36.920 --> 0:39:38.840 it will be proven for a company to build up 0:39:38.880 --> 0:39:43.399 its equity base that may come at a discount from 0:39:43.400 --> 0:39:45.760 the last round, because a lot of these last rounds 0:39:45.760 --> 0:39:49.839 were very very high prices in retrospect, and it may 0:39:50.280 --> 0:39:55.640 cause some you know, some type of markdowns, but other 0:39:55.680 --> 0:40:00.239 than that, the business is so healthy and innovation not 0:40:00.239 --> 0:40:02.840 going to be stopped. Well, Alan, I mean you you're 0:40:02.880 --> 0:40:05.480 now with Primetime Partners, right, You founded that along with 0:40:05.480 --> 0:40:07.960 Addy Levy, who was the former SVP of Soul Cycle. 0:40:08.040 --> 0:40:10.280 Your goal, your mandate as a word, is to invest 0:40:10.320 --> 0:40:13.440 in early stage startups that bring products and services to 0:40:13.440 --> 0:40:16.160 individuals above the age of sixty, which of course is 0:40:16.160 --> 0:40:18.400 twenty five percent of the world's population. My question for 0:40:18.440 --> 0:40:21.200 you is those early stage startups that you're investing in, 0:40:21.239 --> 0:40:24.239 would you tell them to bank at some you know, 0:40:24.440 --> 0:40:26.759 made and small sized regional banks going forward, or you 0:40:26.840 --> 0:40:29.200 encourage them to be banking at you know, the big ones, 0:40:29.239 --> 0:40:31.200 the JP Morgan's, the city groups of the world. And 0:40:31.239 --> 0:40:35.759 Alan just got about thirty thirty five seconds. Unfortunately, I 0:40:35.760 --> 0:40:39.440 don't want to answer that question directly, but I would 0:40:39.440 --> 0:40:42.399 say that for the moment, I think they continue bank 0:40:42.440 --> 0:40:45.440 you as usual. But remember, for these early early stage deals, 0:40:45.680 --> 0:40:49.360 they're not doing too much banking. They're really relying almost 0:40:49.520 --> 0:40:54.120 entirely on equity stage. All right, Going to leave it 0:40:54.160 --> 0:40:56.520 on that note, Alan always good to get some time 0:40:56.560 --> 0:40:59.479 with you and so appreciated. Alan Patrikoff is your person 0:40:59.480 --> 0:41:02.440 and co found at Primetime Partners, showing us via new 0:41:03.160 --> 0:41:05.200 Zoom excuse me in New York City. And his book 0:41:05.320 --> 0:41:07.719 is No Red Lights Reflections on life fifty years in 0:41:07.800 --> 0:41:10.960 venture capital and never driving alone. Did you know he 0:41:11.000 --> 0:41:13.399 really likes music, Carol? Did you know Alan ran at 0:41:13.400 --> 0:41:15.279 eight eight years old in New York City Marathon last 0:41:15.320 --> 0:41:18.280 year and he finished, and he finished. He's pretty remarkable, 0:41:18.360 --> 0:41:21.279 unbelievable and so delighted to have him here. And just 0:41:21.480 --> 0:41:23.239 you know, I feel like calm right, like it's not 0:41:23.280 --> 0:41:25.640 like the it's not good. It's got feel better now 0:41:25.640 --> 0:41:28.439 if you're talking to Alan, yeah, yeah, it's good. You're 0:41:28.480 --> 0:41:32.080 listening to the Bloomberg Business Week podcast. Catch us live 0:41:32.200 --> 0:41:35.560 weekdays from two to five pm Easter on Bloomberg Radio, 0:41:35.719 --> 0:41:38.640 The Bloomberg Business a band you two. You can also 0:41:38.719 --> 0:41:42.000 listen live to our flagship New York station Just say 0:41:42.080 --> 0:41:45.920 Alexa play Bloomberg. He love him Verdi all right. We 0:41:45.960 --> 0:41:48.720 did also want to get a check on the auto sector. 0:41:48.800 --> 0:41:52.000 All of these conversations, all of these earnings reports help 0:41:52.080 --> 0:41:54.880 us to give us more clarity about the economic outlook. 0:41:54.960 --> 0:41:56.839 Right now, we have with us and back with us 0:41:56.840 --> 0:41:59.719 the CEO of the online seller of the aftermarket auto 0:41:59.760 --> 0:42:03.280 part company. We're talking about carparks dot Com. David Mignon 0:42:03.440 --> 0:42:06.799 joining us via zoom from Torrens, California. David, nice to 0:42:06.840 --> 0:42:10.399 have you here with Mike Reagan and myself. Welcome back. 0:42:10.560 --> 0:42:14.320 Your stock rallied yesterday following earnings Tuesday night fourth quarter 0:42:14.400 --> 0:42:17.040 revenue beat. Tell us about the quarter, tell us about 0:42:17.080 --> 0:42:20.400 the outlook. Tell us about the environment, the business environment. 0:42:20.440 --> 0:42:24.239 Are you thinking recession or not? Thanks for having me. Yeah, 0:42:24.280 --> 0:42:26.080 I'll tell you even more than the quarter. I'll tell 0:42:26.120 --> 0:42:28.400 you about the year. We know we've been in business 0:42:28.440 --> 0:42:30.840 for twenty five years and twenty twenty two was a 0:42:30.880 --> 0:42:33.319 record year for us, both the top line and the 0:42:33.360 --> 0:42:36.439 bottom line. Our sales were up fourteen percent to six 0:42:36.560 --> 0:42:39.520 hundred and sixty one million. Our adjusted IBADAO was up 0:42:39.520 --> 0:42:42.440 more than fifty percent. And today as we sit, we're 0:42:42.440 --> 0:42:46.440 free cash flow positive, we're growing, and we're virtually debt free. Now. 0:42:46.480 --> 0:42:48.080 As far as the second part of the question, in 0:42:48.200 --> 0:42:52.240 terms of the economy, what we're seeing is that inflation 0:42:52.320 --> 0:42:55.840 is everywhere and the customer is still spending. However, what 0:42:55.920 --> 0:42:58.359 I'm feeling is that they're a lot more discipline as 0:42:58.360 --> 0:43:01.000 to where they spend, how much they spend, and when 0:43:01.040 --> 0:43:03.920 they spend. Yeah, so what does that signal to David? 0:43:03.920 --> 0:43:06.280 You know, I'm trying to wrap my head around where 0:43:06.320 --> 0:43:09.400 a company like yours fits into the economic climate. You know, 0:43:09.760 --> 0:43:13.600 on one hand, you would think, like any business, sales 0:43:13.600 --> 0:43:15.560 would slow down. But on the other hand, is it 0:43:15.600 --> 0:43:19.000 actually a little bit resilient to an economic slowdown because 0:43:19.120 --> 0:43:22.920 people maybe will repair their car rather than buying a 0:43:22.960 --> 0:43:26.560 new one. Yeah, good point. And historically we see that 0:43:26.600 --> 0:43:29.680 our business and our company is you know, it's inflation, 0:43:30.000 --> 0:43:33.360 if inflation and recession resilient, you know, we sell a 0:43:33.480 --> 0:43:36.000 need and not a want. Now, the last three years 0:43:36.000 --> 0:43:39.080 have been an economic boom in terms of spending because 0:43:39.080 --> 0:43:42.000 of all the artificial dollars flowing into the system. But 0:43:42.080 --> 0:43:44.160 what we're seeing today, and at least for us at 0:43:44.160 --> 0:43:46.960 Carparts dot Com, is an opportunity to double down on 0:43:47.000 --> 0:43:49.840 the customer. Like I said, because the customer is still 0:43:50.160 --> 0:43:52.560 very discipline as to where they spend. We have to 0:43:52.600 --> 0:43:55.240 focus on the value that we deliver to the customer. 0:43:55.480 --> 0:43:57.319 So for me, the last three years have been about 0:43:57.400 --> 0:44:00.000 availability and trying to figure out a way to connect 0:44:00.000 --> 0:44:02.360 the dot between the supply and the demand. But today 0:44:02.400 --> 0:44:04.759 it's more about what value can we deliver to the 0:44:04.800 --> 0:44:07.160 customer and how can we be there for them in 0:44:07.239 --> 0:44:09.480 times of needs? You know, Carol, it's funny as we 0:44:09.480 --> 0:44:11.520 talk to David, I'm reminded I have a busted taillight 0:44:11.600 --> 0:44:13.640 on my Toyota Highlander. I think we'll have to talk 0:44:13.640 --> 0:44:18.600 after you can't get it. I know a place quality 0:44:19.000 --> 0:44:22.840 director consumer factory at the warehouse warehouse? Do you Carparts 0:44:22.840 --> 0:44:26.880 dot Com? And I'll give you the VIP pricing? Oh no, no, 0:44:26.920 --> 0:44:29.440 I can't. I can't accept that. But I do want 0:44:29.480 --> 0:44:32.480 to ask about those those warehouses. You know a lot 0:44:32.600 --> 0:44:37.520 of suppliers have struggled to match inventory with the band 0:44:37.719 --> 0:44:41.040 over uh you know, the last three years with the pandemic, 0:44:41.120 --> 0:44:44.920 the supply chain disruptions. How is the inventory situation with 0:44:45.040 --> 0:44:47.799 cap Carparts dot Com? Are you back to sort of 0:44:47.840 --> 0:44:52.560 a normal supplying demand relationship? Are you ever supplied undersupplied? 0:44:53.000 --> 0:44:54.879 You know? Is it a depend on what parts you're 0:44:54.880 --> 0:44:57.640 talking about? What's the sort of big picture there as 0:44:57.640 --> 0:45:01.239 far as inventories with car parts, so you're absolutely right. 0:45:01.320 --> 0:45:03.440 The last couple of years have been around you know, 0:45:03.600 --> 0:45:07.120 longer lead times and the need to carry additional inventory 0:45:07.440 --> 0:45:09.840 to fulfill the demand. And so if you look at 0:45:09.880 --> 0:45:13.680 our inventory position last year, we significantly flexed up in 0:45:13.760 --> 0:45:16.120 a lot of parts. Now today, to your point, we're 0:45:16.120 --> 0:45:19.560 in a much more normalized kind of inventory position. And 0:45:19.640 --> 0:45:21.200 you know, as at the end of last year, we 0:45:21.280 --> 0:45:23.160 sat at you know, about one hundred and thirty eight 0:45:23.200 --> 0:45:26.239 million dollars worth of inventory, and that's the right level 0:45:26.280 --> 0:45:29.040 for the current environment for us. So ultimately, what we 0:45:29.120 --> 0:45:30.879 do is we try to focus on carrying the right 0:45:30.920 --> 0:45:33.480 parts close to the customers so that we could deliver 0:45:33.560 --> 0:45:36.440 that value as quickly as possible. So you guys are 0:45:36.480 --> 0:45:40.520 ahead of pre pandemic levels at this point. We are 0:45:40.560 --> 0:45:43.120 ahead of pre pandemic levels because our business has grown 0:45:43.160 --> 0:45:46.640 so pre pandemic. Actually, pre twenty nineteen, our business was 0:45:46.680 --> 0:45:49.440 sitting at around less than three hundred million dollars in sales, 0:45:49.640 --> 0:45:52.120 and like I said, twenty twenty two was six hundred 0:45:52.120 --> 0:45:54.880 and sixty millions. So we're a different company. We've opened 0:45:54.880 --> 0:45:56.920 a lot of buildings. You know, the last year was 0:45:57.040 --> 0:46:00.359 very exciting for us. We delivered record results. So we're 0:46:00.400 --> 0:46:02.319 in a good spot today. So not pulling back in 0:46:02.440 --> 0:46:05.520 any way in terms of spending, expansion, none of it. 0:46:06.640 --> 0:46:08.400 So what we're doing is trying to be a little 0:46:08.400 --> 0:46:10.920 more intentional as to where we spend the money. And 0:46:10.960 --> 0:46:13.520 so there's a couple of areas where we're kind of 0:46:13.719 --> 0:46:15.480 taking away some of the spend in terms of that 0:46:15.560 --> 0:46:19.800 discretionary spend and reinvesting those dollars into customer centric initiatives. 0:46:19.800 --> 0:46:22.040 So it's intentional the same as being cautious a little bit. 0:46:22.800 --> 0:46:27.440 It's cautious, it's aggressive mindset, but it's a defense playbook. David, 0:46:27.440 --> 0:46:30.319 what keeps you up at night? You know? I think 0:46:30.320 --> 0:46:32.360 what keeps me up at night today is how do 0:46:32.440 --> 0:46:35.560 we become the number one destination for our customer? You know, 0:46:35.600 --> 0:46:37.640 the way I think about our industry is there's three 0:46:37.719 --> 0:46:41.600 hundred billion dollars of parts being sold in the United 0:46:41.600 --> 0:46:44.240 States and only four percent of that or five percent 0:46:44.239 --> 0:46:46.840 of that are online. How do we make it ten percent? 0:46:46.920 --> 0:46:50.840 How do we make it fifteen percent? Like apparel, like electronics, 0:46:51.000 --> 0:46:52.880 We want to be the number one. What keeps me 0:46:52.960 --> 0:46:55.880 up at NiFe is trying to become number one? All right? 0:46:55.880 --> 0:46:57.840 I canna leave it there, David, thanks so much, appreciate 0:46:57.840 --> 0:47:04.600 the time. David Meagnon, CEOT Car Parts dot Com. You're 0:47:04.640 --> 0:47:08.239 listening to the Bloomberg Business Week Podcast. Catch us live 0:47:08.360 --> 0:47:11.680 weekdays from two to five pm Easter on Bloomberg Radio, 0:47:11.880 --> 0:47:14.800 The Bloomberg Business a band you two. You can also 0:47:14.840 --> 0:47:18.160 listen live to our flagship New York station Just Say 0:47:18.239 --> 0:47:22.839 Alexa Play Bloomberg e Love and Dirty. Well. Her next 0:47:22.840 --> 0:47:25.680 guest had, as we said earlier, from OC to five 0:47:25.719 --> 0:47:28.640 decades of technological and social change. It's about eight years 0:47:28.640 --> 0:47:30.759 a CEO of one of the iconic tech firms of 0:47:30.800 --> 0:47:33.719 the past century. We're talking about IBM, and yet, as 0:47:33.760 --> 0:47:35.479 she says in her new book, she's not writing about 0:47:35.480 --> 0:47:38.759 technology or IBM, but rather about how we can all 0:47:38.840 --> 0:47:42.120 drive meaningful change in positive ways for all. She calls 0:47:42.239 --> 0:47:45.080 this good power. We are so delighted to have with us. 0:47:45.080 --> 0:47:47.680 The former chairman and CEO of IBM, Jinny Rometti, her 0:47:47.680 --> 0:47:51.040 new book is good Power, leading positive change in her lives, 0:47:51.040 --> 0:47:54.040 work and world. She's here in our Bloomberg Interactive Broker studio, 0:47:54.600 --> 0:47:57.480 Pens and Needle is so delighted to have you here. Congratulations, 0:47:57.680 --> 0:48:00.080 Thank you very much as big milestone two years in 0:48:00.120 --> 0:48:03.960 the making, right, it's always Oh, yes, I never expected 0:48:04.000 --> 0:48:06.440 how hard it would be. That's what everybody says, I 0:48:06.480 --> 0:48:07.919 have to say, And I think Mike and I would 0:48:07.960 --> 0:48:10.880 both agree that when we started reading this, it started. 0:48:10.880 --> 0:48:13.359 It didn't start like I expected it too. And I'm 0:48:13.400 --> 0:48:15.640 sure everybody who talks to you starts there. But it 0:48:15.719 --> 0:48:19.080 is a very personal story, a very real and revealing story. 0:48:19.160 --> 0:48:22.560 Talk to us about your family and your dad leaving. Yes, 0:48:22.920 --> 0:48:24.560 it's one of the many moments I speak of, but 0:48:24.600 --> 0:48:26.719 because I think we're all shaped like how we lead 0:48:26.760 --> 0:48:28.880 today has a lot to do with what we experienced 0:48:28.920 --> 0:48:31.920 in the past. And I was sixteen when my father 0:48:32.000 --> 0:48:35.200 decided one day that he abandoned my mom and our 0:48:35.200 --> 0:48:37.880 whole family. He didn't realize I walked into the garage 0:48:37.920 --> 0:48:39.600 and heard him, and I heard him say to her, 0:48:40.239 --> 0:48:42.160 I don't care about you. I don't care about any 0:48:42.200 --> 0:48:43.880 of you. You can go work on the street for 0:48:43.920 --> 0:48:46.480 all I care. And how do you process that as 0:48:46.480 --> 0:48:48.640 a sixteen year old, Well, and you had younger siblings. 0:48:48.680 --> 0:48:51.080 I had younger siblings. Yes, I stood there, and I 0:48:51.160 --> 0:48:53.560 think I reacted because I watched my mom and she 0:48:53.600 --> 0:48:56.680 didn't cry, she turned around, she walked out. Effect I 0:48:56.719 --> 0:48:59.560 never saw a cry. And here she was the as 0:48:59.600 --> 0:49:02.520 I think now, thirty four years old, four kids, never 0:49:02.560 --> 0:49:04.560 worked a day in her life, hadn't gone to college, 0:49:04.640 --> 0:49:08.280 just barely through high school. But she was so determined. 0:49:08.360 --> 0:49:10.600 So what I the reason I start there and the 0:49:10.640 --> 0:49:11.960 only reason I wrote a book. Do you know you 0:49:12.000 --> 0:49:14.239 were going to start there? No? I absolutely did not 0:49:14.400 --> 0:49:16.839 know that. In fact, my collaborator helped me to start 0:49:16.840 --> 0:49:19.799 there because it's a very vulnerable moment to start. But 0:49:19.840 --> 0:49:22.399 the reason is to celebrate what she did and how 0:49:22.440 --> 0:49:26.040 she reacted, because it's like I saw my grandmother and 0:49:26.080 --> 0:49:29.200 great grandmother both had big tragedies in their life, and 0:49:29.280 --> 0:49:32.640 I saw that she had power to change something when 0:49:32.640 --> 0:49:35.720 she had nothing else. And that's kind of the premise 0:49:35.760 --> 0:49:38.080 of the book, that we all have more than we think. 0:49:38.280 --> 0:49:40.840 And she was like, I'm not going to be a divorce, 0:49:41.000 --> 0:49:42.719 I'm not going to be someone on food stamps. I'm 0:49:42.719 --> 0:49:44.840 not going to let it end this way. And she 0:49:44.920 --> 0:49:47.080 had a little bit of education, a little bit of education, 0:49:47.120 --> 0:49:49.680 a better job, a little bit better and she never 0:49:49.719 --> 0:49:52.440 did get a degree. But it's the other thing, well, 0:49:52.520 --> 0:49:55.840 two things I learned. She taught us, never let anyone 0:49:55.880 --> 0:49:58.120 define who you are, only you are. He was never 0:49:58.160 --> 0:50:00.920 going to define her as those things. And it's so 0:50:00.960 --> 0:50:02.520 easy to go in the other direction. It is very 0:50:02.520 --> 0:50:05.400 easy to be defined as a victim and feel a victim. 0:50:05.520 --> 0:50:08.320 And the second thing was that you know, someone's access 0:50:08.680 --> 0:50:12.319 to education in their aptitude are not equal, meaning my 0:50:12.400 --> 0:50:15.160 mom really wasn't dumb. She's never had access to anything. 0:50:15.600 --> 0:50:18.279 And that would be a silver thread through my whole 0:50:18.280 --> 0:50:21.040 life that I would find to be true about you know, 0:50:21.080 --> 0:50:23.440 how people can get skills. And to me, why I 0:50:23.480 --> 0:50:25.600 work today on this when I think is so unfair 0:50:25.640 --> 0:50:29.080 in this country and it's very solvable. How many jobs 0:50:29.120 --> 0:50:31.440 have been over credential to require a college degree when 0:50:31.440 --> 0:50:33.239 they don't need one, and so many people in this 0:50:33.239 --> 0:50:34.840 country don't have one, especially when you think in a 0:50:34.880 --> 0:50:36.959 tight labor market, maybe things could be different. I'm hoping 0:50:37.000 --> 0:50:40.760 the absolutely well, Jenny, one of them we're touching things 0:50:41.120 --> 0:50:43.319 in the book to me was and you mentioned, you know, 0:50:43.360 --> 0:50:46.279 your mom was embarrassed that on occasions she would have 0:50:46.360 --> 0:50:49.600 to use food stamps and would actually drive to the 0:50:49.640 --> 0:50:52.359 next town over so no one saw her. Really kind 0:50:52.360 --> 0:50:55.520 of heartwrenching moment in the book. But I wonder, you know, 0:50:55.560 --> 0:50:58.920 having seen the economy from both sides, now, what do 0:50:58.920 --> 0:51:02.000 you think about the social safety net in the US 0:51:02.120 --> 0:51:04.560 right now? Could it be done better? Is there a 0:51:04.600 --> 0:51:08.440 different way? I am a believer in it right that 0:51:08.520 --> 0:51:10.640 it's needed, and it's needed for what I saw with 0:51:10.680 --> 0:51:14.040 my mom. It's to transition people. It's not a permanent thing. 0:51:14.120 --> 0:51:15.920 And that's to me. What can be done better is 0:51:15.960 --> 0:51:18.800 the transition part, to transition you to a better place. 0:51:19.000 --> 0:51:20.840 That's what it did for us. It transitioned us to 0:51:20.880 --> 0:51:23.120 a better place. She had to do it till she 0:51:23.239 --> 0:51:26.719 didn't have to do it, and I really feel accompanying 0:51:26.760 --> 0:51:28.839 it has to be all these things about getting people 0:51:28.840 --> 0:51:31.399 the skill so they can get a decent job. And 0:51:31.440 --> 0:51:34.240 that was really, you know, what my mom fell into. 0:51:34.320 --> 0:51:36.759 But it's such a I think, a very practical I 0:51:36.800 --> 0:51:38.719 find it. I've had a decade of working on this 0:51:38.760 --> 0:51:42.040 topic that with some skill doesn't have to be a degree. 0:51:42.360 --> 0:51:44.680 We can give people lots of new jobs right now. 0:51:44.840 --> 0:51:47.960 So safety net until you get there, all right, So 0:51:48.000 --> 0:51:50.440 talk to us about getting to IBM. In nineteen eighty one, 0:51:50.560 --> 0:51:53.000 my dad was an engineer too, you were an engineer. 0:51:53.040 --> 0:51:58.640 An engineer open arms easy for a woman. Yeah, you know, Okay, 0:51:58.640 --> 0:52:00.640 so this is I'm sorry to have to say that's critical. 0:52:00.680 --> 0:52:02.480 I just meant, yes, I'm going to answer that two 0:52:02.520 --> 0:52:05.640 ways because tech is not known for obviously for its diversity, 0:52:05.800 --> 0:52:08.359 so I would often be the only woman. But my 0:52:08.440 --> 0:52:12.120 first three managers at IBM were women, and so I 0:52:12.160 --> 0:52:14.759 have to just credit it is a company of meritocracy 0:52:14.760 --> 0:52:17.480 and inclusion that goes way back before me. So I 0:52:17.520 --> 0:52:19.440 was really lucky to grow up in a place like 0:52:19.480 --> 0:52:21.799 that that for the most part, although for the times, right, 0:52:21.840 --> 0:52:25.200 I mean, it's all relative. But the only thing I 0:52:25.239 --> 0:52:26.719 remember when I went, I mean, i'd never want a 0:52:26.719 --> 0:52:29.600 suit before I came home from my interview, as I 0:52:29.640 --> 0:52:31.600 wrote it, took my jacket off and my husband's like, 0:52:31.600 --> 0:52:33.319 what's on your arm? I'm like, well, it's my first suit, 0:52:33.360 --> 0:52:36.719 and that is the price to egg Stan. Still, I'm like, 0:52:37.120 --> 0:52:40.560 how gracious they never mentioned it, you know, yeah, absolutely, 0:52:40.880 --> 0:52:43.120 well go ahead, Mike. Oh no, I was gonna say, 0:52:43.120 --> 0:52:45.560 you know, so much has changed in the tech world 0:52:45.560 --> 0:52:48.480 in the last few years, with the trade war and everything, 0:52:48.520 --> 0:52:51.040 and I'm thinking back to a boy, it must be 0:52:51.080 --> 0:52:55.560 twenty years ago when Lenovo bought the PC business for IBM, 0:52:55.600 --> 0:52:57.839 I can't help but think that that deal would ever 0:52:57.880 --> 0:53:00.680 go down today. It was in this climate. So how 0:53:00.719 --> 0:53:04.440 do you see all of that going, This whole tension 0:53:04.560 --> 0:53:07.480 over tech between the US and China. Yeah, and if 0:53:07.520 --> 0:53:09.640 I've been to China once, I've been there fifty times 0:53:10.200 --> 0:53:12.480 and over my life, and to me, this spoiled down. 0:53:12.520 --> 0:53:14.280 I've always said in the past, when people talk about 0:53:14.560 --> 0:53:18.759 it is coopetition and competition. I mean, I've really believed 0:53:19.000 --> 0:53:21.960 that the safest world is an interdependent world. That is 0:53:22.000 --> 0:53:25.759 the safest world, and that right now, I've also felt 0:53:25.760 --> 0:53:27.239 the only reason I was ever in China was if 0:53:27.239 --> 0:53:29.359 I could do something better than than the Chinese could 0:53:29.360 --> 0:53:30.880 do it. So, in other words, your only route is 0:53:30.880 --> 0:53:33.600 to out innovate. And so when we think about what 0:53:33.640 --> 0:53:35.840 to do now, I am really happy to see the 0:53:35.920 --> 0:53:38.759 US finally really take under a serious you know, you 0:53:38.800 --> 0:53:41.839 would call it a technology agenda for the country. Right, 0:53:41.920 --> 0:53:44.440 It's been a long time since we've really had one, 0:53:44.560 --> 0:53:46.600 And I go back in time, you said, Yeah, Unfortunately, 0:53:46.640 --> 0:53:49.480 I've been around it five decades when some of our 0:53:49.520 --> 0:53:52.239 greatest technology innovations all started in the government and then 0:53:52.239 --> 0:53:54.640 we're commercialized by private sector. That was the way it 0:53:54.760 --> 0:53:57.360 was done. So now we finally have a national technology 0:53:57.400 --> 0:54:00.399 agenda and yep, okay, fine, let them go off. Now 0:54:00.440 --> 0:54:03.160 we got to of course protect our intellectual property and 0:54:03.239 --> 0:54:05.400 do it better. And I mean that is to me 0:54:05.480 --> 0:54:07.040 what the focus has to be. And of course some 0:54:07.080 --> 0:54:10.520 of the most sophisticated of course, you know, those not aligned. 0:54:10.800 --> 0:54:13.040 You don't want to have fall into the wrong hands. 0:54:13.040 --> 0:54:14.560 And so that's how it'll be. But I'd love to 0:54:14.600 --> 0:54:18.840 see it more around both competition and cooperation. But do 0:54:18.840 --> 0:54:21.120 you see, Jenny, that there's a clear division between the 0:54:21.200 --> 0:54:24.520 US and it's technology prowess in China doing it like 0:54:24.560 --> 0:54:27.359 it's not the globalization that we've been living for so 0:54:27.360 --> 0:54:29.439 long it is. What do I see a difference between 0:54:29.440 --> 0:54:31.279 the two types? Well, I just meaning that there's going 0:54:31.280 --> 0:54:33.840 to be not the cooperation, yea, not as much cooperation. 0:54:33.880 --> 0:54:36.279 But there are things we can cooperate on the environment, okay, 0:54:36.280 --> 0:54:38.960 and technologies around the environment. I think about that. And 0:54:38.960 --> 0:54:40.960 then on the other side, no, we've got to have 0:54:41.160 --> 0:54:43.800 our own race and really be the best in the world. 0:54:44.480 --> 0:54:47.160 So much of the US prosperity has been driven by 0:54:47.640 --> 0:54:50.680 America being the leader in technology right by far across 0:54:50.719 --> 0:54:53.200 any other country. And that's what we have to continue 0:54:53.280 --> 0:54:55.000 and so, like I said, that's why I'm glad to 0:54:55.000 --> 0:54:58.120 see it, and then so we will continue our out 0:54:58.200 --> 0:55:01.440 innovating part of that. Immigration needs to be part of that. Yes, 0:55:01.680 --> 0:55:03.799 I agree with that. I've always said that, you know, 0:55:03.840 --> 0:55:06.960 skills have no passport, and this idea that ideas flow 0:55:07.000 --> 0:55:09.800 without a passport too. And I really believe in a 0:55:10.200 --> 0:55:12.839 central part of America actually is that ability to bring 0:55:12.880 --> 0:55:15.359 in skills and be a destination for people who want 0:55:15.400 --> 0:55:17.479 to innovate in a country that has rule of law 0:55:17.600 --> 0:55:20.640 protects ip. I mean, that is what brought people here. 0:55:20.760 --> 0:55:22.319 There are other countries in the world that you see 0:55:22.320 --> 0:55:24.800 when they have focused on that they've blossomed. When they close, 0:55:25.080 --> 0:55:27.720 they don't. So that is a that is a concern. 0:55:28.480 --> 0:55:31.480 Carol Master, Mike Regan and our Bloomberg Interactor Brokers Studio 0:55:31.520 --> 0:55:33.640 still with us as Jenny Rometti, of course, former chairman 0:55:33.680 --> 0:55:36.200 and CEO of IBM. Her new book out, Good Power 0:55:36.280 --> 0:55:39.840 Leading positive change in our lives, work and world. Excuse me, 0:55:40.400 --> 0:55:43.400 good power versus bad power? Yeah, great question. What's the 0:55:43.400 --> 0:55:47.239 difference to me. The difference is good power does three 0:55:47.320 --> 0:55:49.279 different things, versus about how to do hard things in 0:55:49.280 --> 0:55:51.840 a good way. In a good way right now, that 0:55:51.880 --> 0:55:55.279 would mean go toward attention, don't polarize yourself. So in 0:55:55.280 --> 0:55:58.440 other words, I really believe, like, embrace tension, that's a 0:55:58.520 --> 0:56:02.839 good thing, do it respectfully, and then just celebrate progress 0:56:02.840 --> 0:56:05.239 not perfection. And so much of what it's like my 0:56:05.360 --> 0:56:07.279 way or your way. Okay, I'm like, okay, we're never 0:56:07.280 --> 0:56:09.080 gonna get anywhere if that's the two views we're going 0:56:09.120 --> 0:56:11.760 to take. And so if you do those three things, 0:56:12.080 --> 0:56:15.520 really practice them in like especially tension. I learned to 0:56:15.680 --> 0:56:19.000 love conflict intension because I always knew something better was 0:56:19.040 --> 0:56:20.560 going to come out the other end if I would 0:56:20.680 --> 0:56:23.200 really go into it and listen, and it was. But 0:56:23.280 --> 0:56:25.680 you know what a tension is today? I know, but 0:56:25.719 --> 0:56:28.120 you know what I mean, Like the divides and I 0:56:28.239 --> 0:56:31.799 a conflicting view, it's gotten so ugly, so polari. So 0:56:32.120 --> 0:56:34.839 I feel like it's its moment that that no, with 0:56:34.880 --> 0:56:37.440 all this division, there is another way to go about 0:56:37.480 --> 0:56:40.319 this that that brings people together and it doesn't divide them. 0:56:40.320 --> 0:56:42.080 And so that's kind of what the book is meant 0:56:42.080 --> 0:56:44.040 to be all these little tips about that I learned 0:56:44.040 --> 0:56:46.400 from watching lots of great people over the years on 0:56:46.440 --> 0:56:48.239 how they did that and that. You know, you ask 0:56:48.320 --> 0:56:50.320 young people today, hey, do you want to be powerful? 0:56:50.360 --> 0:56:52.680 They're like, no, no, no, I want to solve important problems. 0:56:52.680 --> 0:56:55.320 And I'm like, irony is You're going to need power 0:56:55.360 --> 0:56:58.000 to do that, and so it's how you exercise it. 0:56:58.080 --> 0:57:00.520 So actually end the book with a hand written note 0:57:00.520 --> 0:57:03.560 that it says your greatest legacy maybe how you do 0:57:03.640 --> 0:57:06.239 your work, not what you did. You know, Jinny, when 0:57:06.280 --> 0:57:08.920 I think back on your tenure at IBM, what an 0:57:08.960 --> 0:57:11.799 amazing transition that company made during your time, you know, 0:57:11.880 --> 0:57:17.400 really moving from a hardware primarily business to services, cloud, 0:57:17.440 --> 0:57:20.120 everything else. And you retired in twenty twenty. But I 0:57:20.160 --> 0:57:22.680 look at the stock price of IBM, and after an 0:57:22.680 --> 0:57:26.120 awful stock market last year, IBM pretty much reached a 0:57:26.200 --> 0:57:28.400 record high towards at the end of twenty twenty. So 0:57:28.400 --> 0:57:31.120 I feel like there's got to be some things you'd 0:57:31.120 --> 0:57:34.000 want to brag about from that from that era, you know, 0:57:34.040 --> 0:57:36.760 because it wasn't easy that. I'm sure you had some 0:57:37.000 --> 0:57:39.200 fights there to make these changes. What do you think 0:57:39.240 --> 0:57:42.720 the most important changes are what's the sort of top 0:57:42.760 --> 0:57:45.000 line on your resume from from your tenure there that 0:57:45.040 --> 0:57:47.800 allowed IBM to become the company it is. Yeah, I 0:57:47.840 --> 0:57:49.800 mean what I did was give it a foundation for growth. 0:57:49.880 --> 0:57:52.520 I believe in me. The lots of ibmers worked hard, 0:57:52.560 --> 0:57:54.520 and I think this striking point is it's not just 0:57:54.920 --> 0:57:57.200 what I did. We had to change how we worked 0:57:57.480 --> 0:57:58.840 and so, yes, we had to move into all these 0:57:58.880 --> 0:58:01.240 new areas. That's what everyone talks about hybrid cloud. We 0:58:01.280 --> 0:58:04.200 had to move you know, faster into AI, etc. But 0:58:04.320 --> 0:58:07.680 changing how so that you could work faster, that you 0:58:07.720 --> 0:58:11.440 could consumerize stuff, because it's so unfair to say to 0:58:11.440 --> 0:58:14.040 a workforce, you know, hey, run a marathon, but do 0:58:14.120 --> 0:58:16.640 it in hiking boots. I mean, and so I think 0:58:16.680 --> 0:58:19.840 the biggest thing would be around changing how work was 0:58:19.880 --> 0:58:22.960 done and all of our work around diversity and inclusion. 0:58:23.120 --> 0:58:25.160 We had records on all of those. You said the 0:58:25.200 --> 0:58:28.600 magic word there, jinny AI. That's all I was waiting 0:58:28.640 --> 0:58:30.800 for you to talk about right now, So how do 0:58:30.840 --> 0:58:35.120 you see this all playing out? Chat GPT, Yeah, Google's efforts, IBM, 0:58:35.320 --> 0:58:37.520 where's it all going? Well, Look, I am a big 0:58:37.560 --> 0:58:40.000 believer in AI, but I have always believed it would 0:58:40.000 --> 0:58:43.400 make men better man humanity. Yeah, and that you got 0:58:43.400 --> 0:58:44.760 to think of it that way. I've been at this 0:58:44.840 --> 0:58:48.919 for way decades now, and I think finally it's reached 0:58:48.920 --> 0:58:51.360 for us and everyone's conscious. Right, that's what chat GPT did. 0:58:51.360 --> 0:58:53.680 It made it like come to the forefront. Because AI 0:58:53.800 --> 0:58:57.400 has come in and out of interest over many yes, 0:58:57.840 --> 0:59:00.400 winter they call it AI winters, many of them, So 0:59:00.480 --> 0:59:02.720 now it's in front of everyone. To me, it is 0:59:02.760 --> 0:59:06.520 finally teed up the most important issue with technology, which 0:59:06.560 --> 0:59:09.480 is that if we don't build trust into this technology, 0:59:10.040 --> 0:59:11.840 it is going to have a very bad ending. And 0:59:11.840 --> 0:59:15.000 it's a show do we do that. We acquire regulators 0:59:15.200 --> 0:59:17.120 like how do we be I have a very strong 0:59:17.240 --> 0:59:20.200 view trust comes when you manage the up and the 0:59:20.240 --> 0:59:23.840 downsides of something at the same time. So that means, 0:59:23.960 --> 0:59:27.120 all right, I introduced chat all right, do people understand it? 0:59:27.160 --> 0:59:29.400 Is it explainable? We got to get that done quickly? 0:59:29.560 --> 0:59:33.080 Do they know how it's trained? Garbage in, garbage out? 0:59:33.120 --> 0:59:36.400 All right? And it makes sense? And then depending on 0:59:36.480 --> 0:59:38.840 the kind of problem I really tell people to use 0:59:38.880 --> 0:59:41.440 it for, they have a very different tolerance level I 0:59:41.560 --> 0:59:44.400 learned on technology. If it's searching, you get a wrong 0:59:44.480 --> 0:59:46.800 movie back. You don't care. If it's about your health. 0:59:46.960 --> 0:59:48.880 You care you got a bad answer, even though your 0:59:48.920 --> 0:59:52.360 human doctor could be wrong some percentage of depending up 0:59:52.360 --> 0:59:55.200 the doctor of time. So this idea of trust means 0:59:55.200 --> 0:59:57.520 take responsibility for it. So so the onus is on companies. 0:59:57.520 --> 1:00:00.200 It's going to be on companies. The users and the 1:00:00.240 --> 1:00:03.520 builders have even greater responsibility. Out always felt that, and 1:00:03.560 --> 1:00:06.480 so that you are telling people a how to use it, 1:00:06.520 --> 1:00:08.760 be what it's trained with or see let's say I 1:00:08.840 --> 1:00:11.480 train it and it's my proprietary data. I don't want 1:00:11.480 --> 1:00:13.720 that train thing going to the next guy. So we 1:00:13.720 --> 1:00:15.760 had to work on all this at once. Do you 1:00:15.800 --> 1:00:19.760 need regulation? Here's my big point on regulation, precision regulation. 1:00:20.600 --> 1:00:22.280 Do you like that you can open your phone with 1:00:22.280 --> 1:00:24.520 your face? That makes it pretty fast, gloves on you 1:00:24.560 --> 1:00:26.840 don't want to do, okay, But you don't like facial 1:00:26.880 --> 1:00:29.840 recognition for things like racial profiling. So we should regulate 1:00:29.960 --> 1:00:33.160 the uses of it, not the technology itself. Because we 1:00:33.240 --> 1:00:35.640 try doing that. People who make laws don't really understand 1:00:35.640 --> 1:00:37.400 the details of it, that this is going to go nowhere, 1:00:37.560 --> 1:00:40.160 but they do understand the uses, and so that would 1:00:40.160 --> 1:00:42.560 be how I would do the regulation because you want 1:00:42.600 --> 1:00:45.040 it to flourish. I have tried to hold technology trends 1:00:45.080 --> 1:00:47.520 back in the past. You can't stop them. Do you 1:00:47.520 --> 1:00:49.160 think this is like kind of the biggest thing that's 1:00:49.160 --> 1:00:51.959 going to be Just think it's a really big turning point. 1:00:52.160 --> 1:00:54.360 And I actually think it's got the propensity to make 1:00:54.480 --> 1:00:56.760 you and me do our jobs better, and so I 1:00:56.800 --> 1:00:58.520 think it's going to bring and can uplift a lot 1:00:58.560 --> 1:01:01.480 of people into better jobs. At the same time, we 1:01:01.520 --> 1:01:04.080 got to mitigate the downsides. And that's like active just 1:01:04.120 --> 1:01:07.520 like social media. Right, yes, great, great, great, until then 1:01:07.560 --> 1:01:09.520 there were some bad things. You'd like to have pulled 1:01:09.520 --> 1:01:11.120 back the clock and said, let's work on the bad 1:01:11.320 --> 1:01:13.840 at the same time, making it a little nervous though 1:01:13.840 --> 1:01:15.680 that social media has had its problems and it's just 1:01:15.720 --> 1:01:18.439 still working. From all of this we learned, yet we're 1:01:18.480 --> 1:01:20.919 not well. I think that now when you talk about 1:01:20.960 --> 1:01:23.240 all the companies involved, and you know, you talk about 1:01:23.240 --> 1:01:26.600 banks using a telcos, these are mature companies. They recognize 1:01:26.600 --> 1:01:29.200 that the one attribute they have the world cares about 1:01:29.200 --> 1:01:31.840 his trust. And so I think when you think that way, 1:01:32.120 --> 1:01:34.280 you're going to think twice about how you introduce it 1:01:34.320 --> 1:01:36.840 to the world. So I'm hopeful about that. Well, there's 1:01:36.840 --> 1:01:39.640 that risk of backlash too, you know, I'm thinking back too. Yeah. 1:01:39.680 --> 1:01:42.960 If people don't understand something, fear and revolt. Right. Well, 1:01:43.000 --> 1:01:46.360 remember when IBM's Big Blues started beating the chess maskers. 1:01:46.960 --> 1:01:49.640 This is I learned very much trying to introduce technology, 1:01:49.960 --> 1:01:53.280 like introduce AI to doctors. I learned the biggest thing 1:01:53.360 --> 1:01:56.040 was this was not a technology issue. The doctors had 1:01:56.040 --> 1:01:57.959 to make the time to change how they worked. They're 1:01:58.040 --> 1:02:00.600 very busy day in and day out. They didn't necessarily 1:02:00.600 --> 1:02:02.440 trust what data trained it. I mean, there was a 1:02:02.720 --> 1:02:05.440 you we're seeing this play out one more time. Um, 1:02:05.920 --> 1:02:07.280 I keep looking at my list because I have a 1:02:07.280 --> 1:02:09.800 million more questions and we've run out of time. Thirty 1:02:09.840 --> 1:02:12.080 forty seconds, you do? I have to ask you because 1:02:12.080 --> 1:02:15.160 you're you see so much. You're on corporate awards JP Morgan, 1:02:15.680 --> 1:02:24.640 Cargill and others, Northwestern. I'm failing you, No, thirty seconds, 1:02:24.640 --> 1:02:27.160 how would you describe kind of this environment right now? 1:02:28.280 --> 1:02:30.800 You know, in many ways it's a perma crisis. I've 1:02:30.800 --> 1:02:33.360 heard used as a word. Right, there's so many at 1:02:33.400 --> 1:02:35.959 one time, and so it's I think we'll be living 1:02:35.960 --> 1:02:38.560 with that uncertainty for a very long time. And on 1:02:38.640 --> 1:02:41.240 an up note, I think these are the moments when 1:02:41.320 --> 1:02:43.800 you can back to how I started this. Companies and 1:02:43.840 --> 1:02:46.680 people can define who they are in people's minds, and 1:02:46.720 --> 1:02:49.440 so I think right now I put a premium on 1:02:49.480 --> 1:02:51.520 trust if I was a company, on everything I did 1:02:51.560 --> 1:02:54.480 for my customers, my partners, etc. Because this is going 1:02:54.560 --> 1:02:57.200 to be with us for a long time. And when's 1:02:57.200 --> 1:02:58.920 the last time you ate tripe? That's what I want 1:02:58.920 --> 1:03:02.919 to know. You know, in spaghetti sauce. It tastes pretty good, 1:03:03.120 --> 1:03:06.880 very tender. I have to say a couple of decades ago. 1:03:07.120 --> 1:03:09.080 You have to read her book to find out why. 1:03:09.200 --> 1:03:11.800 Jenny Rometti, Thank you so much. Goodpower is the book. 1:03:11.880 --> 1:03:15.520 Check it out, everybody. This is Bloomberg Radio. You're listening 1:03:15.560 --> 1:03:19.360 to the Bloomberg Business Week podcast. Got us live weekdays 1:03:19.400 --> 1:03:22.400 from two to five pm Eastern on Bloomberg Radio, the 1:03:22.440 --> 1:03:25.600 Bloomberg Business app band you two. You can also listen 1:03:25.720 --> 1:03:29.240 live to our flagship New York station. Just say Alexa 1:03:29.480 --> 1:03:33.720 play Bloomberg E Love and Verdi. I have to say, Damian, 1:03:34.160 --> 1:03:36.240 we were thinking about this one of the conversations we've 1:03:36.240 --> 1:03:38.640 all been having following the collapse of Silicon Valley Bank, 1:03:38.720 --> 1:03:42.440 was the uptick in social conversations ahead of the bank's takeover, 1:03:42.800 --> 1:03:45.000 and how that might have contributed to the bank run 1:03:45.080 --> 1:03:47.840 on SVB. It's just kind of part of the narrative. 1:03:48.280 --> 1:03:52.320 We're living in this increasingly digital world with NonStop data 1:03:52.320 --> 1:03:54.959 collection everything we do, everything, we buy, everything we say, 1:03:55.040 --> 1:03:59.360 everything we think right, and we willingly contribute to contribute 1:03:59.360 --> 1:04:02.240 to it, or don't even realize is the data dump 1:04:02.280 --> 1:04:05.040 that we keep doing. Um I came across one measure 1:04:05.440 --> 1:04:08.080 the world generating some two and a half quintillion bites 1:04:08.120 --> 1:04:12.720 per day. I don't even know what It's just gigantic. 1:04:13.000 --> 1:04:14.680 So with that in mind, let's bring in our guest, 1:04:14.880 --> 1:04:18.440 n Parah Honey. She is the author of the Battle 1:04:18.520 --> 1:04:20.720 for Your Brain, Defending the right to think freely at 1:04:20.760 --> 1:04:24.080 the age of Neurotechnology. She's Professor of Law and Philosophy 1:04:24.120 --> 1:04:26.760 at Duke University, founding director of the Duke Initiative for 1:04:26.840 --> 1:04:30.960 Science and Society. Delighted to have with her here via 1:04:31.040 --> 1:04:35.840 zoom Endorament, North Carolina, Nita Welcome, Welcome at Blomberg BusinessWeek 1:04:35.840 --> 1:04:39.320 Carol Master with Damian Sassauer. So tell us about what 1:04:39.440 --> 1:04:42.920 is the Battle for our brains it's been waging for 1:04:42.960 --> 1:04:44.640 a while. First of all, it's so nice to be 1:04:44.680 --> 1:04:47.720 with you here today. But The Battle for a Brain 1:04:48.280 --> 1:04:50.640 is a book that talks about the next step in 1:04:50.800 --> 1:04:55.000 data commodification, which is commodification of her brains. So that's 1:04:55.000 --> 1:04:57.640 already happening in many ways, as all of the different 1:04:57.640 --> 1:05:00.920 platforms that we on that we're on crets genetic profiles 1:05:00.960 --> 1:05:04.680 of us. But there's more coming, which is the coming 1:05:04.680 --> 1:05:08.840 age of consumer brain wearables. People are used to wearing 1:05:08.880 --> 1:05:12.320 already fitbits or Apple watches that have sensors that are 1:05:12.320 --> 1:05:15.640 embedded in them. What they don't have yet, although some 1:05:15.640 --> 1:05:18.840 people use them already, are sensors that track their brain 1:05:18.920 --> 1:05:21.800 activity into code what's happening in their brains. And that's 1:05:22.760 --> 1:05:26.880 what's launching now is multifunctional devices like earbuds and headphones 1:05:26.960 --> 1:05:32.760 and watches that have neural interface pickup into code brain activity. Yeah, 1:05:32.920 --> 1:05:34.760 some of the items you address in the book, I mean, 1:05:34.800 --> 1:05:37.439 for me, wait wait, wait, wait wait, you're telling me 1:05:38.000 --> 1:05:43.200 so wait. So if I put on earbuds, bows, earbuds 1:05:43.280 --> 1:05:45.560 or something, you're telling me they're picking up brain activity. 1:05:46.200 --> 1:05:50.000 Not today, but they will. So the you know kind 1:05:50.000 --> 1:05:53.400 of next Basically like every major tech company from Meta 1:05:53.600 --> 1:05:56.240 that is coming out in early twenty twenty five with 1:05:56.720 --> 1:06:00.000 a watch that the primary way that you'll interact with 1:06:00.040 --> 1:06:02.880 their AAR glasses is neural interface. It'll pick up brain 1:06:02.920 --> 1:06:05.880 activity as it goes for your brain down to your 1:06:05.920 --> 1:06:09.880 rest or. You know, companies like Neurable have headphones where 1:06:09.920 --> 1:06:13.120 they've partnered with a major headphone manufact actor like your 1:06:13.160 --> 1:06:16.720 Bo's headphones that's in the cups that go around the ears. 1:06:16.760 --> 1:06:20.000 They have censors that pick up brain activity. And you know, 1:06:20.040 --> 1:06:22.400 the kind of goal for most of these companies is 1:06:22.840 --> 1:06:26.280 to make neural interface the kind of primary way that 1:06:26.320 --> 1:06:28.640 you interact with the rest of your technology. Like eventually 1:06:28.680 --> 1:06:30.840 you might not need a keyboarder or a mouse, but 1:06:31.480 --> 1:06:36.120 until that day, right until that day, you'll be able 1:06:36.160 --> 1:06:39.400 to track your brain activity for focus and attention and 1:06:39.520 --> 1:06:43.320 mind wandering and help symmetrics. Things that you couldn't do 1:06:43.360 --> 1:06:46.480 before suddenly will become possible and will also become possible 1:06:46.520 --> 1:06:48.840 for companies and governments. And so the battle for your 1:06:48.880 --> 1:06:52.360 brain is the kind of rush to this field to 1:06:52.400 --> 1:06:57.680 see who can really hack and track the human brain. Sanita, 1:06:57.720 --> 1:07:00.240 you mentioned brain biometrics and deciphering, you know, all that 1:07:00.680 --> 1:07:02.240 all that's going on up there, you know, But some 1:07:02.280 --> 1:07:04.440 of the items in the book that you mentioned, I mean, 1:07:04.480 --> 1:07:06.560 it's great out of minority purport. You know. I feel 1:07:06.560 --> 1:07:10.919 like Tom Cruising talking about arresting individuals for even contemplating murder, 1:07:11.000 --> 1:07:12.840 not even committing it. I mean, if that were the case, 1:07:12.880 --> 1:07:14.760 I mean, I've been arrested a long time ago. But 1:07:14.840 --> 1:07:17.600 I mean, how far away are we from having technology 1:07:17.640 --> 1:07:22.800 that can effectively read people's minds? Well, what I say 1:07:22.840 --> 1:07:24.160 to people as a defense of what you think your 1:07:24.160 --> 1:07:26.439 mind is right. So if you think of your mind 1:07:26.560 --> 1:07:29.080 is literally the inner dialogue that you're having, I think 1:07:29.080 --> 1:07:32.320 it's a long ways before these types of technologies will 1:07:32.360 --> 1:07:35.880 decode that complex thought. But already with the technology today, 1:07:36.440 --> 1:07:42.480 your basic emotional levels, your reaction to everything from pictures 1:07:42.520 --> 1:07:44.760 of political candidates, that might be able to suss out 1:07:44.800 --> 1:07:47.720 what your political biases are. Too. If your mind is 1:07:47.760 --> 1:07:50.320 wandering when you're at work and your employer asked you 1:07:50.400 --> 1:07:54.240 to wear one of these neural devices that track your 1:07:54.240 --> 1:07:57.600 fatigue levels, or your attention or your engagement or your gordum, 1:07:57.640 --> 1:08:02.400 that's already possible today, and the technology even enables probing 1:08:02.400 --> 1:08:04.800 the mind for information that's there. And so you mentioned 1:08:04.840 --> 1:08:06.760 the Minority Report, which I talk about it in the 1:08:06.760 --> 1:08:09.320 book and I always talk with my students about but 1:08:09.680 --> 1:08:14.000 it's already being used by law enforcements around the world 1:08:14.120 --> 1:08:18.840 to interrogate criminal suspects for recognition of a crime scene 1:08:18.920 --> 1:08:22.400 detail or a murder weapon or something like that. So 1:08:22.760 --> 1:08:24.240 it's really one of the things I hope to do 1:08:24.280 --> 1:08:26.040 with the book is to just document kind of example 1:08:26.080 --> 1:08:28.960 after example of what's already here and how much of 1:08:29.000 --> 1:08:31.120 the brain can already be decoded, and how much of 1:08:31.120 --> 1:08:34.720 it is already in use already. So within a technology, 1:08:34.800 --> 1:08:36.680 there's a good to bad and the ugly. What's the 1:08:36.760 --> 1:08:39.240 upside to this? It can't all be bad? Or is 1:08:39.280 --> 1:08:41.360 it all that? No, No, it's really not all that. 1:08:41.520 --> 1:08:44.519 I mean right, First of all, I think in the 1:08:44.520 --> 1:08:48.720 hands of individuals who have control over their own brain data, 1:08:49.000 --> 1:08:52.799 suddenly the one area of our bodies that's the most 1:08:52.880 --> 1:08:57.680 important aspect of our well being, our brains, becomes accessible 1:08:57.680 --> 1:09:00.400 to us. So you know, your ability to actually start 1:09:00.439 --> 1:09:03.960 to track brain metrics and metrics of well being in 1:09:04.040 --> 1:09:06.280 health and to know what's happening in your own brain, 1:09:06.600 --> 1:09:09.439 including by the way, how well you pay attention or 1:09:09.479 --> 1:09:13.320 focus if you're working from home or working in the workplace, 1:09:13.400 --> 1:09:16.080 or what your optimal hours are, or how you meditate 1:09:16.080 --> 1:09:20.480 effectively to bring your stress levels down. There's a lot 1:09:20.520 --> 1:09:23.720 that these technologies can do to empower individuals, but it 1:09:23.760 --> 1:09:27.519 all depends on who has access to what's happening in 1:09:27.520 --> 1:09:29.960 your brain, how is it used or how is it misused, 1:09:30.320 --> 1:09:32.920 And that's the kind of balance that we really have 1:09:32.960 --> 1:09:35.080 to be striking. Now. That's what this book is about, 1:09:35.280 --> 1:09:37.800 is a call to action to say we're standing at 1:09:37.840 --> 1:09:40.600 a fork in the road. There is this major inflection 1:09:40.680 --> 1:09:43.519 point at the deployment of this technology as all of 1:09:43.520 --> 1:09:46.280 the major tech companies come out with these products and devices, 1:09:46.840 --> 1:09:49.280 and we have choices to make that could set the 1:09:49.360 --> 1:09:51.600 terms of service in favor of individuals, to make it 1:09:51.720 --> 1:09:56.560 something that's empowering, not the dystopian or reelian possibilities. On 1:09:56.600 --> 1:10:00.200 the other side, NITA, are people using brain biometrics to 1:10:00.240 --> 1:10:04.600 handle real world problems and diseases I'm thinking dementia, Alzheimer's. 1:10:04.600 --> 1:10:06.640 Are there new technologies and treatments that are coming to 1:10:06.720 --> 1:10:10.599 market that can impact that. Yeah, there's some really promising ones. 1:10:10.680 --> 1:10:12.160 There was in the research for the book, I came 1:10:12.200 --> 1:10:15.960 across a company in Israel who are in clinical trials 1:10:16.000 --> 1:10:20.759 for the possibility of detecting epileptic seizures an hour before 1:10:20.800 --> 1:10:24.080 they occur. That could be incredible for people to suffer 1:10:24.120 --> 1:10:27.840 from epilepsy or you know, the ability to be able 1:10:27.880 --> 1:10:30.680 to use it for depression. There's already some companies that 1:10:30.720 --> 1:10:34.000 are using it to provide low levels of electrical stimulation 1:10:34.120 --> 1:10:40.000 that can be transformative or neurofeedback for people who have ADHD. 1:10:40.280 --> 1:10:43.000 They can use the devices to be able to train 1:10:43.120 --> 1:10:45.760 their brains to have better concentration and focus, and in 1:10:45.840 --> 1:10:49.880 some head to head studies against using drugs, the neurofeedback 1:10:49.960 --> 1:10:53.360 is very favorable. Well. So there's a lot of potential 1:10:53.360 --> 1:10:56.560 health applications and ways in which this can be transformational 1:10:56.600 --> 1:10:59.759 for humanity and good ways. There's just also the dystopium 1:10:59.760 --> 1:11:02.799 psabilities that we have to safeguard against, and those aren't minor. 1:11:02.920 --> 1:11:06.120 Because you know what you think, what you feel, it's 1:11:06.120 --> 1:11:09.200 so fundmental to who we are. Having that inner space 1:11:09.240 --> 1:11:12.640 of mental privacy and freedom of thought is so critical 1:11:13.479 --> 1:11:15.760 that we just can't get it wrong this time. We 1:11:15.800 --> 1:11:19.400 can't know what trade over you wore. I feel like, right, well, 1:11:19.960 --> 1:11:22.439 but but you've always thought you had that at least right. 1:11:22.479 --> 1:11:25.559 You thought you at least had your thoughts right well 1:11:26.000 --> 1:11:29.559 right in a related topic. So then how do you 1:11:29.560 --> 1:11:32.000 because you obviously study you know this, I feel like 1:11:32.040 --> 1:11:34.719 falls under your purview. When you think about the work 1:11:34.800 --> 1:11:37.439 that Elon Musk is doing with neurrolink, and he wants 1:11:37.439 --> 1:11:41.120 to build this brain chip interface it can be implanted 1:11:41.160 --> 1:11:44.800 that might help disabled patients ultimately move or communicate again, 1:11:44.880 --> 1:11:48.080 or restraint vision. How does this and we've got about 1:11:48.120 --> 1:11:49.479 a minute left, how does that? How do you think 1:11:49.479 --> 1:11:52.240 about that? So you know, I have a chapter dedicated 1:11:52.240 --> 1:11:54.720 to these implanted technologies. And while I think it'll be 1:11:55.720 --> 1:11:58.280 a long time before a healthy person will choose to 1:11:58.320 --> 1:12:01.439 have implanted neurotechnology, it's just not safe enough for somebody 1:12:01.439 --> 1:12:06.080 who doesn't need it. The possibilities already are transformational for 1:12:06.120 --> 1:12:09.640 people who have everything from neurodegenerative disorders like als to 1:12:09.680 --> 1:12:12.519 be able to communicate again, to being able to move 1:12:12.600 --> 1:12:16.040 and have independence to interact with other technology. I'm very 1:12:16.080 --> 1:12:19.680 bullish on what those companies are doing and developing and 1:12:19.720 --> 1:12:23.559 how thoughtfully they're trying to develop the technology. There's real risks, 1:12:24.760 --> 1:12:26.880 but there's huge upside in that space and it could 1:12:27.000 --> 1:12:29.679 be incredible for so many people. I have to just see. 1:12:29.720 --> 1:12:31.240 My brain hurts a little bit because I'm trying to 1:12:31.320 --> 1:12:33.720 understand there's a lot going on in our world, and 1:12:33.800 --> 1:12:37.240 I'm thinking that the government's listening to me through my earbuds. No, 1:12:37.360 --> 1:12:41.000 it's fascinating. Nita. Hopefully you'll come back soon and we 1:12:41.000 --> 1:12:45.040 can continue this conversation. Nita Fara Honey. She is Professor 1:12:45.240 --> 1:12:49.120 of Law and Philosophy at Duke Law School. Her book 1:12:49.120 --> 1:12:51.040 at is The Battle for Your Brain, Defending the right 1:12:51.080 --> 1:12:53.640 to think freely in the age of neurotechnology. I do 1:12:53.720 --> 1:12:55.439 feel like when it comes to the brain the human body, 1:12:55.439 --> 1:12:58.559 were you still learning so much? Oh? Absolutely? And Carol hopefully, 1:12:58.560 --> 1:13:00.679 if they're not listening to my brain and wondering how 1:13:00.720 --> 1:13:03.160 I'm going to cheat on my taxes, I'm sorry. If 1:13:03.160 --> 1:13:09.360 you're still listening, I would never do that. You're listening 1:13:09.400 --> 1:13:13.240 to the Bloomberg Business Week Podcast. Catch us live weekdays 1:13:13.280 --> 1:13:16.280 from two to five pm Eastern on Bloomberg Radio, the 1:13:16.320 --> 1:13:19.439 Bloomberg Business app band you two. You can also listen 1:13:19.560 --> 1:13:23.120 live to our flagship new York Station. Just say Alexa. 1:13:23.320 --> 1:13:27.479 Play Bloomberg eleven thirty time now for a weekly dive 1:13:27.520 --> 1:13:30.120 into the Pursuit section of the magazine, and our undercover 1:13:30.200 --> 1:13:34.200 reporting expert has outdone himself once again. This time. Bloomberg 1:13:34.240 --> 1:13:38.240 Pursuits contributing writer Brandon Presser has previously embedded himself within 1:13:38.320 --> 1:13:42.000 some of the world's most prestigious brands and destinations everywhere 1:13:42.040 --> 1:13:44.599 from New York's Plaza Hotel to the Las Vegas Strip 1:13:44.880 --> 1:13:47.800 and even Walt Disney World, all to decipher what goes 1:13:47.800 --> 1:13:50.599 on behind the scenes. Well, this time, Brandon has ventured 1:13:50.600 --> 1:13:53.599 out to the Pacific to visit Hawaii's Turtle Bay Resort, 1:13:53.960 --> 1:13:56.800 and no surprise, he has brought back some delicious details. 1:13:57.240 --> 1:14:01.200 Think of the HBO series White Lotus, but in real life. 1:14:01.400 --> 1:14:04.280 Brandon joins us along with Bloomberg Pursuits editor Chris Rouser. 1:14:04.520 --> 1:14:07.160 So Chris set the stage here for us. We always 1:14:07.200 --> 1:14:09.519 look forward when we see Brandon, kind of in the 1:14:09.560 --> 1:14:13.559 brief of the upcoming issue. Why Turtle Bay specifically, we're 1:14:13.560 --> 1:14:16.559 always talking about fun places for Brandon to go and 1:14:16.640 --> 1:14:18.880 work as a staff member and see, you know, all 1:14:18.880 --> 1:14:21.040 the hard work that the staff do to deal with 1:14:21.080 --> 1:14:25.000 these patrons and these luxury communities, and you know, the 1:14:25.040 --> 1:14:26.800 White Lotus has been so popular. We were like, we've 1:14:26.800 --> 1:14:30.479 got to do a big, fancy resort. And Brandon started 1:14:30.520 --> 1:14:33.679 doing his research and Turtle Bays probably the most iconic 1:14:33.720 --> 1:14:37.120 one in Hawaii, and it's big, tons of people come through, 1:14:37.280 --> 1:14:41.200 it's it's luxurious. We were like, this is the perfect opportunity, 1:14:41.240 --> 1:14:43.800 all right, So Brandon, come on in and as you 1:14:43.840 --> 1:14:47.040 started to unfold some of the secrets, the wild secrets 1:14:47.560 --> 1:14:50.519 tell us about your experience there. So Turtle Bay was 1:14:50.560 --> 1:14:53.200 really appealing to me because it's set on one thousand, 1:14:53.240 --> 1:14:56.200 three hundred acres and so to give you a comparison, 1:14:56.479 --> 1:15:01.320 the entire host Hotel Strip of Whiti can fit twice 1:15:01.760 --> 1:15:04.720 into Turtle Based property. So what I really liked is 1:15:04.760 --> 1:15:06.880 that you have all of this space, but in a 1:15:06.960 --> 1:15:08.800 lay you're sort of a cap of audience, but you're 1:15:08.840 --> 1:15:11.599 never really going to leave property to go out for dinner. 1:15:12.000 --> 1:15:15.160 So it was really an opportunity to explore every single 1:15:15.200 --> 1:15:19.320 element that the resort had to offer, everything from golf 1:15:19.720 --> 1:15:21.800 to the you know, the all you can eat buffet. 1:15:22.200 --> 1:15:27.320 There's horseback riding and there's a surf school, as well. 1:15:27.479 --> 1:15:29.800 So it was really fun to pick at all of 1:15:29.840 --> 1:15:34.160 the little sort of distinctly Hawaiian elements, and we even 1:15:34.200 --> 1:15:37.000 found a few ghosts lurking on properties. Can I say 1:15:37.040 --> 1:15:40.680 I had no idea how iconic this property was. I mean, 1:15:40.720 --> 1:15:42.280 it's been around for a long time, but I mean 1:15:42.320 --> 1:15:45.320 a lot of movies right have been filmed there. I 1:15:45.360 --> 1:15:49.040 mean it's a really well known property. Basically, every single 1:15:49.600 --> 1:15:51.880 movie or TV show that you can think of that 1:15:52.040 --> 1:15:57.600 has that jungle, you know that you know, Lost or 1:15:57.800 --> 1:16:00.760 Pirates of the Caribbean, they've all all been shot on 1:16:00.800 --> 1:16:04.280 property in Turtle Bay. I met with the wedding and 1:16:04.360 --> 1:16:09.160 events team and they said that over thirty percent of 1:16:09.200 --> 1:16:12.080 people wanting to have the wedding on property said straight 1:16:12.160 --> 1:16:15.160 up it was because they loved for getting Star Marshall. Unbelievable. 1:16:15.240 --> 1:16:16.519 I have to say that when I first started a 1:16:16.520 --> 1:16:19.639 reader's story, I'm of that generation. I kept thinking about 1:16:19.640 --> 1:16:22.040 the Brady Bunch, which we'll get into later on. Get 1:16:22.040 --> 1:16:26.080 into that, all right, So tell us what you actually 1:16:26.120 --> 1:16:29.120 got to do and see. Yeah, So I spent a 1:16:29.160 --> 1:16:33.479 full week on property, and every day sort of I 1:16:33.560 --> 1:16:36.120 was kind of like an intern, doing a variety of 1:16:36.120 --> 1:16:40.240 different jobs. One day I worked exclusively in housekeeping and 1:16:40.320 --> 1:16:43.400 really understood the process of cleaning rooms. One day I 1:16:43.479 --> 1:16:46.240 sat at the concierge desk and fielded a lot of 1:16:46.520 --> 1:16:50.800 bizarre requests. And then another day I worked with the 1:16:50.840 --> 1:16:55.160 Bellman team, moving luggage to guests rooms and getting people settled. 1:16:55.200 --> 1:16:58.880 And then finally I worked at the first school. All right, So, Chris, 1:16:58.920 --> 1:17:01.320 as you were getting feedback from Brandon, I mean, and 1:17:01.360 --> 1:17:03.679 you were starting to read through, you know, his writing, 1:17:03.800 --> 1:17:05.439 what is it that really jumped out for you that 1:17:05.479 --> 1:17:08.160 you thought was just like, oh my god. Well, you know, 1:17:08.439 --> 1:17:11.120 I remember when I went on my honeymoon, and I 1:17:11.160 --> 1:17:13.360 was like, we should tell everyone we're on our honeymoon 1:17:13.760 --> 1:17:15.920 because they're going to be so happy for us, and 1:17:15.960 --> 1:17:18.960 they're going to give us upgrades and stuff. And what 1:17:19.040 --> 1:17:22.040 you don't realize is that the hotel people might be 1:17:22.160 --> 1:17:25.080 very nice, but up to thirty percent of the people 1:17:25.320 --> 1:17:27.639 checking in or telling them that they're on their honeymoon, 1:17:27.680 --> 1:17:31.160 maybe more or anniversary, So they don't all get upgraded 1:17:31.160 --> 1:17:33.720 to the Pineapple Suite, but they do get you know, 1:17:33.800 --> 1:17:36.479 little like charcuterie boards in their rooms and things like that. 1:17:36.800 --> 1:17:39.680 But what I would surprised me about people who are 1:17:39.680 --> 1:17:41.560 on their honeymoon is that they can complain about a 1:17:41.600 --> 1:17:45.360 lot of things, including the weather. And Brandon said that 1:17:45.439 --> 1:17:47.880 people would even ask for their money back from the 1:17:47.920 --> 1:17:50.679 hotel if the weather was bad. The strangest thing about 1:17:50.840 --> 1:17:54.599 about the weather was that some people would complain that 1:17:54.680 --> 1:17:59.120 it was too sunny. Also, you would get every version 1:17:59.120 --> 1:18:01.200 of the complaint about other And I think there's there's 1:18:01.600 --> 1:18:05.640 really intense feeling about Hawaii. You know, it's paradise for 1:18:05.680 --> 1:18:07.599 all of us who live on the mainland, and so 1:18:07.720 --> 1:18:10.000 people really put all of their hopes and dreams and 1:18:10.040 --> 1:18:13.599 there's one aspirational holiday, all right. So I do want 1:18:13.600 --> 1:18:17.000 to go to the Brady Bonch reference because I'm like, 1:18:17.040 --> 1:18:18.400 I wonder if it's going to be in there. I 1:18:18.439 --> 1:18:22.320 always remember Bobby, right, he gets the tiki that's cursed, 1:18:22.960 --> 1:18:25.240 the idol and like everything starts to come on done. 1:18:25.320 --> 1:18:28.799 But there is a real superstitious aspect to this resort. 1:18:28.840 --> 1:18:31.960 I guess, yeah, there really is. I think that u 1:18:32.439 --> 1:18:36.400 Polituan culture is really in touch with a lot of 1:18:36.680 --> 1:18:40.800 super natural elements. So the idea that there could be 1:18:40.880 --> 1:18:43.800 spirits or ghosts some property is very normal to them 1:18:43.800 --> 1:18:46.360 and there's certain places where some staff members won't go. 1:18:47.000 --> 1:18:49.760 You know, the resort's huge. I'm not talking about you know, 1:18:49.800 --> 1:18:54.120 like specific areas within the hotel, but there's you know, 1:18:54.400 --> 1:18:58.040 sites on property that used to be crowned land, so 1:18:58.120 --> 1:19:02.479 there are little burials that are carefully protected. But almost 1:19:02.560 --> 1:19:05.639 every single staff umber I talked to said that they 1:19:05.640 --> 1:19:09.519 had seen a spirit roaming in some capacity and sometimes 1:19:09.560 --> 1:19:11.479 during their tenure. But you have to say that there 1:19:11.479 --> 1:19:13.599 are people who take stuff home, but there are people 1:19:13.600 --> 1:19:16.519 who actually return it right they get home. They've taken 1:19:16.560 --> 1:19:18.240 something from the resort and they returned it back to 1:19:18.280 --> 1:19:20.599 the hotel because they're like, shoot, you know, I've had 1:19:20.640 --> 1:19:23.520 bad luck. And that was told to me in passing 1:19:23.720 --> 1:19:26.280 and then someone I was like, wait a minute, you 1:19:26.360 --> 1:19:28.559 got to tell me more about this, and they took 1:19:28.600 --> 1:19:31.760 me to the provisioning department where all the purchasing and 1:19:31.880 --> 1:19:34.719 orders are made, and I swear there was a stack 1:19:34.960 --> 1:19:40.160 a mound of boxes full of shells and lava rocks, 1:19:40.479 --> 1:19:44.000 a huge mound that people have to go out and 1:19:44.080 --> 1:19:46.960 take back to shore or return to the sea. So 1:19:47.000 --> 1:19:49.639 one are the craziest things that the staff told you 1:19:49.720 --> 1:19:54.400 they've seen from guests there was a gender revealed party. 1:19:54.439 --> 1:19:56.960 There were the beautiful pink and blue cookies and all 1:19:57.000 --> 1:19:58.800 of them were taking them home to share with their 1:19:58.880 --> 1:20:02.200 kids because they were, you know, they were beautifully wrapped 1:20:02.240 --> 1:20:04.240 still and hadn't been touched. And a few of them 1:20:04.240 --> 1:20:07.479 started beating them during their shift. And then all of 1:20:07.520 --> 1:20:10.400 a sudden they were reporting to their senior you know, manager, 1:20:10.800 --> 1:20:14.120 I'm having weird vision. I've seen things. I don't know 1:20:14.160 --> 1:20:15.880 what's going on. And one of them went to the 1:20:15.920 --> 1:20:19.000 hospital and the talks report came back that they had 1:20:19.439 --> 1:20:21.559 marijuana and their blood stream and they were like, I've 1:20:21.640 --> 1:20:27.719 never used marijuana my entire life. From a gender revealed party. Hey, 1:20:28.000 --> 1:20:31.479 I really confusing. I have to say a couple of 1:20:31.479 --> 1:20:35.800 the things too. And I've always wondered about the throw 1:20:35.920 --> 1:20:39.320 pillows in a hotel or the comforters. I'm like, yeah, 1:20:39.360 --> 1:20:41.240 that thing hasn't been washed in a while. That's the 1:20:41.280 --> 1:20:44.320 reality of it, right, Yeah, I know. That was That 1:20:44.400 --> 1:20:47.200 was the most important question that I needed to ask 1:20:47.280 --> 1:20:50.479 while I was looking at all of the rooms, because honestly, 1:20:50.520 --> 1:20:54.880 I would watch some of the housekeepers pick up grains 1:20:54.920 --> 1:20:59.800 of sand with paint brushes, and so the attention is 1:21:00.040 --> 1:21:02.800 till is huge. But then with the comforters, yeah, you 1:21:02.800 --> 1:21:07.160 always wonder, um, and if there's no sign of visible 1:21:07.280 --> 1:21:11.719 wear and tear, the cycle is a minimum of forty 1:21:11.760 --> 1:21:15.080 five days before it's queen. And those little pillows that 1:21:15.080 --> 1:21:18.840 are on the bed too, actually throw them on the floor. 1:21:19.800 --> 1:21:21.960 Put them on the floor. Yeah, I always put them 1:21:21.960 --> 1:21:24.640 on the floor. You know what's interesting too is and 1:21:24.680 --> 1:21:27.920 I just um, before we wrap up, when you were 1:21:27.920 --> 1:21:30.080 at the concierge, I mean some of the requests I 1:21:30.160 --> 1:21:32.280 too was like, oh my god, you said there was 1:21:32.280 --> 1:21:34.519 a couple who requested a baby monitor so they could 1:21:34.520 --> 1:21:37.639 go off property without hiring a babysitter for they're six 1:21:37.760 --> 1:21:40.800 months old. And then someone who insisted not being picked 1:21:40.880 --> 1:21:43.880 up for dinner on horseback. I mean that actually seems 1:21:43.880 --> 1:21:49.360 reasonable to make like they have stables, they have stables 1:21:49.360 --> 1:21:52.240 on property of And I think it was it was 1:21:52.280 --> 1:21:54.320 the tone with which the couple asked to be picked 1:21:54.360 --> 1:21:56.880 up my horseback. It was completely dead path. You know, 1:21:56.920 --> 1:21:59.920 there's this port to share and all the cars driving, 1:22:00.080 --> 1:22:02.680 so this beautiful opening at the hotel and they were like, oh, 1:22:02.720 --> 1:22:04.800 you know for Jenner tonight, you know it'd be nice 1:22:04.800 --> 1:22:07.400 and sort of our car to have us, you know, 1:22:07.439 --> 1:22:10.280 pick us up. Let's just have some horses. That sounds reasonable. 1:22:10.560 --> 1:22:11.960 Works for me. It works for me, And I'm just 1:22:12.000 --> 1:22:14.160 going to tell you. You You know, folks out there, you 1:22:14.240 --> 1:22:17.320 know you've done this. Those satin hangers and those towels. 1:22:17.600 --> 1:22:21.120 People still five hundred pool towels a month from that hotel. 1:22:21.640 --> 1:22:24.120 You're not alone in doing that. The hotel takes that 1:22:24.160 --> 1:22:27.760 into consideration. Brandon. We have to run. Always fun when 1:22:27.760 --> 1:22:30.880 we get to see your next ventures and where you've 1:22:30.920 --> 1:22:34.120 gone behind the scenes. So really appreciate it. Bloomberg contributor 1:22:34.160 --> 1:22:36.400 Brandon press Or check out his latest work. It is 1:22:36.439 --> 1:22:39.519 the opener in this week's Pursuits section of Bloomberg Business Week. 1:22:39.720 --> 1:22:42.880 Fund it online on newsstands on the terminal some really 1:22:42.880 --> 1:22:46.439 fun artwork as well to accompany this piece, Brandon, Thank you. 1:22:46.680 --> 1:22:48.519 Chris Rousers. Going to stick around with us as we 1:22:48.560 --> 1:22:50.640 go through the rest of the Pursuit section. Wrap up 1:22:50.640 --> 1:22:54.679 our program On the other side, This is Bloomberg. You're 1:22:54.720 --> 1:22:58.320 listening to the Bloomberg Business Week podcast. Catch us live 1:22:58.400 --> 1:23:01.759 weekdays from two to five pm Easter on Bloomberg Radio, 1:23:01.920 --> 1:23:05.200 the Bloomberg Business Band. You too. You can also listen 1:23:05.320 --> 1:23:08.840 live to our flagship New York station. Just say Alexa, 1:23:09.080 --> 1:23:12.479 play Bloomberg, E Loove and Verdi, or it's still with 1:23:12.520 --> 1:23:15.040 us as Bloomberg Pursuits editor Chris Rouser, And let's take 1:23:15.040 --> 1:23:18.640 a run through the rest of the section. So, Chris, Noma. 1:23:18.840 --> 1:23:22.800 This restaurant is iconic. Yes, it is said by many 1:23:22.840 --> 1:23:25.439 to be the greatest restaurant in the world, and many 1:23:25.479 --> 1:23:28.479 times right, many times over. It's won that award five times. 1:23:28.800 --> 1:23:33.120 And it's closing. So the Copenhagen restaurant, the original restaurant, 1:23:33.160 --> 1:23:36.120 is closing. And they've been doing pop ups in Mexico 1:23:36.200 --> 1:23:38.680 and in other places, and they're doing another pop up 1:23:38.720 --> 1:23:42.519 in Japan in Kyoto. The first one was in Tokyo 1:23:42.600 --> 1:23:45.800 in twenty fifteen, and I remember it so vividly because 1:23:45.800 --> 1:23:48.960 our then food critic did an entire review in emojis. 1:23:49.280 --> 1:23:52.599 Oh my God. We sent her to Japan because this 1:23:52.640 --> 1:23:53.920 is such a big deal. It was our first pop 1:23:54.040 --> 1:23:57.479 up and it was so great. And so when the 1:23:58.080 --> 1:24:01.120 Noma team wanted to return to Kyoto to Japan, I 1:24:01.120 --> 1:24:03.040 thought we got to get a preview of this. So 1:24:03.160 --> 1:24:06.400 we had Oscar Boyd, a Bloomberg writer, go talk to 1:24:06.439 --> 1:24:08.439 a neighbor, does that be the chef and other chefs 1:24:08.479 --> 1:24:10.720 and really learn what they're doing this time? What is 1:24:10.720 --> 1:24:13.040 it that's so neat about these pop ups that Noma does. 1:24:13.160 --> 1:24:16.320 Is it just really tapping into the area Sometimes yeah, yah, 1:24:16.479 --> 1:24:19.120 so the sometimes when Noma does a pop up, it's 1:24:19.160 --> 1:24:22.080 kind of like Noma but somewhere else. Yeah, And in 1:24:22.080 --> 1:24:26.439 this case in Japan, it's really looking at Japanese food 1:24:26.439 --> 1:24:29.800 ways using Japanese ingredients. And you know the first time 1:24:29.840 --> 1:24:32.880 they went there, they were too nervous to do rice. 1:24:33.320 --> 1:24:35.600 They were like, it's such a staple, it's such a 1:24:35.680 --> 1:24:38.479 vaunted ingredient. If you like, if you screw, if you 1:24:38.479 --> 1:24:40.320 don't do something spectacular with it, then like people are 1:24:40.360 --> 1:24:42.160 gonna be like, what this is what we eat every day? 1:24:43.280 --> 1:24:47.080 So they're doing rice this time, but they're doing raw shrimp. 1:24:47.240 --> 1:24:50.640 There's a lot of mountain vegetables that they're foraging, a 1:24:50.640 --> 1:24:54.040 lot of seafood from across Japan. If you look at 1:24:54.040 --> 1:24:57.600 the story online, you'll see the pictures. It's really beautiful, forgeous, 1:24:58.240 --> 1:25:00.400 like want to frame each to these pictures. It's stunning. 1:25:01.240 --> 1:25:03.360 And you know, I have not eaten at Noma, but 1:25:03.400 --> 1:25:05.600 several of our team members have and every one of 1:25:05.600 --> 1:25:07.960 them says it has been worth it. Don't people always 1:25:08.000 --> 1:25:10.120 say that? Come on, no, I feel sometimes you go 1:25:10.160 --> 1:25:12.600 to a rushtaurant, You're like, that is not oh okay, 1:25:13.240 --> 1:25:15.760 Well I have to say it looks fascinating, all right, 1:25:16.000 --> 1:25:18.680 from food to running. I can't make a good transition. 1:25:19.439 --> 1:25:22.759 I didn't know about these running shoes that are actually 1:25:22.800 --> 1:25:25.760 it's a subscription. Yeah, so it's very it's relatively new. 1:25:25.920 --> 1:25:29.680 So On is a sportswear company. They make sneakers, and 1:25:29.720 --> 1:25:33.599 they wanted to start a recycled sneaker program, and so 1:25:33.840 --> 1:25:37.280 they have what it's basically a running running shoe subscription 1:25:37.439 --> 1:25:39.320 And for thirty dollars a month, you get a pair 1:25:39.360 --> 1:25:41.840 of shoes, you wear them until they wear out, you 1:25:41.880 --> 1:25:44.080 send them back. This end you another one. So you 1:25:44.360 --> 1:25:46.200 kind of just always have and you can do it 1:25:46.200 --> 1:25:48.040 as as often as you want. So every two months, 1:25:48.040 --> 1:25:49.360 if you want a new pair of shoes, you can 1:25:49.360 --> 1:25:53.680 do it. Yeah. And Noreene Malik, who is a Bloomberg 1:25:53.680 --> 1:25:56.960 reporter who's a big runner. She loves to try out everything. 1:25:56.960 --> 1:25:59.240 She tries a lot of the fitness gadgets and she 1:25:59.320 --> 1:26:01.280 tested them out and So these are called the on 1:26:01.720 --> 1:26:05.120 Cloud NEOs, and it costs thirty dollars a month. As 1:26:05.120 --> 1:26:06.679 I said, so about for every if you were switching 1:26:06.680 --> 1:26:08.400 them every six months, it's about one hundred and eighty dollars, 1:26:08.439 --> 1:26:10.400 which is a little pricey for a running shoe, but 1:26:10.439 --> 1:26:13.000 not crazy. Yeah, but you have to give them back 1:26:13.240 --> 1:26:15.160 and you have to give them back. Yeah, and they 1:26:15.840 --> 1:26:18.519 have those kind of curved soles that make you really 1:26:18.560 --> 1:26:21.040 bounce when you walk, so it takes a minute to 1:26:21.040 --> 1:26:23.880 get used to it. But when Marine started running long 1:26:23.960 --> 1:26:26.000 races again after the pandemic, she said they were very 1:26:26.000 --> 1:26:29.040 forgiving and she really liked them. The issue is on 1:26:29.280 --> 1:26:32.040 hasn't figured out yet what to do with the recycled material, 1:26:32.080 --> 1:26:34.400 so you send it back, and this happens a lot 1:26:34.439 --> 1:26:37.559 in companies like this. UM they're like a business plan 1:26:37.640 --> 1:26:39.680 waiting for a solution. So they'll shred the shoes. It's 1:26:39.720 --> 1:26:42.080 it's usable material, but they haven't found like the final 1:26:42.200 --> 1:26:43.920 use case for them yet. I love it. I love 1:26:43.960 --> 1:26:46.479 the idea and where they're going because this whole idea 1:26:46.479 --> 1:26:48.639 of like we've talked about right fashion, like how waste 1:26:49.000 --> 1:26:50.679 so that they're trying to figure in out running shoes 1:26:50.680 --> 1:26:52.920 are this is I mean, it is a huge It 1:26:53.000 --> 1:26:54.960 ends up being a huge amount of waste. Um, Chris, 1:26:55.000 --> 1:26:57.080 good stuff is always Thank you so much, The editor 1:26:57.120 --> 1:27:01.800 of Bloomberg Pursuits, Chris Rousers. The Bloomberg Business Week podcast 1:27:01.920 --> 1:27:06.080 available on Apple, Spotify, and anywhere else you get your podcasts. 1:27:06.520 --> 1:27:09.439 Listen live each weekday is starting at two pm Eastern 1:27:09.560 --> 1:27:12.880 on Bloomberg dot com, the iHeartRadio app tune In, and 1:27:13.000 --> 1:27:15.880 the Bloomberg Business App. You can also watch us live 1:27:15.960 --> 1:27:19.600 on Bloomberg Quicktake every weekday on YouTube and always on 1:27:19.640 --> 1:27:20.719 the Bloomberg terminal