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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Chris Whalen is definitive on the American financial system. I'm

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Speaker 2: standing or surrounded by dinosaurs in Houston, and I'm going

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Speaker 2: I think I got Chris Whalen in a couple of days.

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Speaker 3: Musclessen for Global Wall Street. He joins us.

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Speaker 2: Now I can't say enough about his value to the

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Speaker 2: American financial system, his history, his books, and also his

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Speaker 2: work at Whaling Global Advisors.

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Speaker 3: Chris, I'm just going to cut to the chase. First

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Speaker 3: Brands try collar.

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Speaker 2: Have are we living two thousand and six Chris Whalen.

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Speaker 1: Yeah, and we're kind of repeating the same mistakes. You know,

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Speaker 1: if you don't have a trustee to hold the paper,

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Speaker 1: then you have double pledges of collateral. Remember Bear Stearns. Yeah,

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Speaker 1: I'm familiar, same same thing. So it's called fraud. And

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Speaker 1: you know, the terms on a lot of deals in

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Speaker 1: the past ten fifteen years have loosened in favor of

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Speaker 1: the issuers to the disadvantage of investors, and First Brand

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Speaker 1: is a case in point.

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Speaker 2: Chris Waelan, there was no other question at my CFA

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Speaker 2: meeting in Houston, no other question. What's the contagion you're

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Speaker 2: expert at the history of this. Come on, Is it

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Speaker 2: like Continental Illinois? Is it like bear Stearns As you mentioned,

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Speaker 2: what's a contagion factor in October of twenty twenty five.

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Speaker 1: It's brewing. We won't really see it until we do. So.

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Speaker 1: The commercial side of the equation is where the problems

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Speaker 1: are for the banks right now. They are trying to

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Speaker 1: hide them as best they can. We've just changed the

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Speaker 1: accounting rules for loan modifications, by the way, so if

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Speaker 1: it pays for twelve months, we pretend the loan was

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Speaker 1: never modified. How cool is that? And I think that

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Speaker 1: the industry, the regulators are all walking past the graveyard

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Speaker 1: because private eq. Commercial, real estate, all of these sectors

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Speaker 1: are still having significant problems. On the other hand, consumer

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Speaker 1: is quiet. We've been releasing reserves and reducing provisions for

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Speaker 1: loan loss on the consumer side because there's nothing happening

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Speaker 1: yet that may come next year. But the commercial side

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Speaker 1: is where the action is right now.

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Speaker 4: Tom Chris, I've learned a new term, I guess in

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Speaker 4: the last few weeks, and that is the basement trade.

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Speaker 4: Where is my understanding is investors are saying, I'm worried

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Speaker 4: about all this government spending around the world. So maybe

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Speaker 4: I don't want to own government securities like currencies, maybe

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Speaker 4: even the government debt, and that includes the US stuff.

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Speaker 4: Maybe I'll buy some other stuff like gold. What do

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Speaker 4: you make of that.

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Speaker 1: I've been telling my readers to put at least ten

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Speaker 1: to fifteen percent of their total allocation in the gold

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Speaker 1: for most of this year, and I think it's solely

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Speaker 1: beginning to start for the simple reason that there isn't

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Speaker 1: a lot of deliverable supplying gold. People are worried about deficits.

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Speaker 1: They are worried about the dollar, and I think they're

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Speaker 1: right to do so. The dollar is probably going to

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Speaker 1: continue to go down. We have structural problems in this country.

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Speaker 1: You notice Chairman Powell is talking about continuing to shrink

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Speaker 1: the balance sheet. Why. As Bill Nelson at Bank Policy

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Speaker 1: Institute wrote this week, the Fed funds market may collapse

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Speaker 1: thanks to the big balance sheet. So we have a

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Speaker 1: lot of issues. In the background. The markets look great AI.

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Speaker 1: Everybody's still making tons of money. But in the background,

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Speaker 1: people are worried because when you have these old time

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Speaker 1: highs one after another, they tend to not be confirmed

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Speaker 1: after a while.

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Speaker 3: For Global Wall Street worldwide on YouTube, across.

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Speaker 2: All of our audio product Christopher Whalan joins us his

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Speaker 2: one volume on the American financial system, My book of

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Speaker 2: the Year ages ago were begging him, he's going to

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Speaker 2: put a book. DiCaprio's scheduled.

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Speaker 4: Oh I got him signed up.

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Speaker 3: Continue with Chris Whaley about.

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Speaker 4: Liquidity in the marketplace, and I'm thinking about not so

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Speaker 4: much as stock market, but just kind of across the

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Speaker 4: fixed income space, maybe the currency space.

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Speaker 3: Is that a worry for you, Yes.

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Speaker 1: Very much so. It's it's almost like we're back to

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Speaker 1: December twenty eighteen when Jerome Powell almost ran the ship aground.

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Speaker 1: You recall they pivoted very quickly in January nineteen and

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Speaker 1: started easing. That's when they went to this ample reserve

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Speaker 1: policy that they've had since then. And I think that

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Speaker 1: what we're worried about is that the model that the

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Speaker 1: FED uses to judge whether liquidity is adequate or not

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Speaker 1: is based on GDP, which has nothing to do with anything.

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Speaker 1: Liquidity is highly compartmentalized. It does not flow one way

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Speaker 1: and another, so you really don't know until there's not enough.

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Speaker 1: I think that's where we are today.

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Speaker 2: Chris, I got to get two things in here. It's

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Speaker 2: too important. Sweeny's lined up. Sweeny's got notes this morning

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Speaker 2: for Chris Whalen. I have Christopher Waller tomorrow. What is

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Speaker 2: Chris Whalen's question for Governor Waller? A presultive chairman. What's

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Speaker 2: your question? Whalen?

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Speaker 1: He was very bullish on shrinking the balance sheet earlier

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Speaker 1: this year. Ask him how he feels now? Ask him

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Speaker 1: where round is now?

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Speaker 3: I don't have to work.

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Speaker 1: We're landing in the fog. We don't have an altimeter. Okay,

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Speaker 1: where is the ground? Does he know? That's the key question?

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Speaker 2: Brill Yeah, we'll try to get to that again. You're

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Speaker 2: going to see that in the nine o'clock hour tomorrow.

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Speaker 3: With Christopher wall in his speech at.

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Speaker 2: The Council and Foreign Relations, and then I will grill

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Speaker 2: him as best I can. He's really quite He's a

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Speaker 2: prodigious intellect, folks, particularly in the game theory of central banking.

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Speaker 3: Okay, Chris, let's go to it right now.

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Speaker 2: I suggest that the major banks led by JP Morgan

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Speaker 2: and Bank of America.

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Speaker 3: Literally are hiding how profitable they are. In the Whalen history,

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Speaker 3: back to.

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Speaker 2: Great great Grandpa whyaland was with Alexander Hamilton a few

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Speaker 2: years ago. Chris Whalan describe the profitability of this modern

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Speaker 2: era of ginormous big banks.

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Speaker 1: I'm not sure that they're that much more profitable today

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Speaker 1: than they have been in the past. Asset returns are

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Speaker 1: barely one percent. They are giving back capital because they're underutilized.

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Speaker 1: Why are they lending all this money to non bank,

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Speaker 1: non depository institutions because loan demand otherwise is pretty slack.

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Speaker 1: You know, deposits are growing twice as fast as demand

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Speaker 1: for loans. So hopefully when rates fall, we'll see volumes

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Speaker 1: pick up a bit like last September. This September two,

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Speaker 1: by the way, is going to turn out to be

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Speaker 1: a very good month for banks and non banks. But

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Speaker 1: you know, the bottom line is that there are so

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Speaker 1: many alternatives to traditional banks now that have been spawned

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Speaker 1: in the equity markets and are funded with actity and debt,

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Speaker 1: that you have plenty of places to go spawn.

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Speaker 2: Yes, ec way, they would say spawn, private credit was

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Speaker 2: spawned exactly.

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Speaker 4: Heany here's something to get your thoughts on the housing market.

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Speaker 4: Broady defined here that affordability issue continues to be a huge,

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Speaker 4: huge issue for people, particularly young people. I got a

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Speaker 4: mortgage rate, still got a six handle out there, and

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Speaker 4: I've got housing costs that are fifty percent since twenty nineteen.

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Speaker 4: This is a problem, isn't it.

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Speaker 1: It is, But it's a problem that's going to be fixed.

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Speaker 1: Donald Trump is going to goos to housing market with

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Speaker 1: his friend Bill Poulty. They want to support homebuilders at

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Speaker 1: a time when the homebuilders have already got too much inventory.

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Speaker 1: Supply has caught up with demand. And remember the prediction

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Speaker 1: of my good friend Stan Middleman, the founder of Freedom

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Speaker 1: Mortgage Misery on the eighths, I think we see a

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Speaker 1: maxi home price reset in twenty twenty eight. If you've

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Speaker 1: got that high coupon mortgage, wait a little bit and

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Speaker 1: maybe go into a floater, and then you'll be able

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Speaker 1: to refinance it much lower in a couple of years.

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Speaker 4: So, Chris, I guess the question. There seems to be

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Speaker 4: a housing shortage in this country. I'm not sure how

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Speaker 4: we got there. How do you think that happened in.

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Speaker 1: Some parts of the country, not everywhere here in New

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Speaker 1: York in the Blue States where we don't build. Yes,

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Speaker 1: it's astounding to me because this is a market that

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Speaker 1: had very poor volumes before COVID, but the prices keep

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Speaker 1: going up because nobody's building houses down south. We have

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Speaker 1: the opposite problem. Chris Carolina is in Texas, Florida. We

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Speaker 1: are up to our ear lobes and support.

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Speaker 2: Michael Barrowe's equal time. Chris Whalen quickly here. Every Brady

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Speaker 2: undergraduate wants to know when's the new book come out?

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Speaker 1: Well, the second edition suld have inflated is out of course,

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Speaker 1: and I did that for you. David Kotok did the introduction,

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Speaker 1: by the way, very cool, and we're working on a

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Speaker 1: gold book for next year, which will be very good.

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Speaker 3: You'll probably talk to Ike. Agreed.

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Speaker 2: That's the way Chris Whalen rules. Christopher Whalen, thank you

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Speaker 2: so much. I can't say enough, folks the importance of

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Speaker 2: his skepticism about some of the verbiage of our financial system.