WEBVTT - Chris Whalen Talks Finance

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Chris Whalen is definitive on the American financial system. I'm

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<v Speaker 2>standing or surrounded by dinosaurs in Houston, and I'm going

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<v Speaker 2>I think I got Chris Whalen in a couple of days.

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<v Speaker 3>Musclessen for Global Wall Street. He joins us.

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<v Speaker 2>Now I can't say enough about his value to the

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<v Speaker 2>American financial system, his history, his books, and also his

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<v Speaker 2>work at Whaling Global Advisors.

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<v Speaker 3>Chris, I'm just going to cut to the chase. First

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<v Speaker 3>Brands try collar.

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<v Speaker 2>Have are we living two thousand and six Chris Whalen.

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

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<v Speaker 1>if you don't have a trustee to hold the paper,

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<v Speaker 1>then you have double pledges of collateral. Remember Bear Stearns. Yeah,

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

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<v Speaker 1>you know, the terms on a lot of deals in

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<v Speaker 1>the past ten fifteen years have loosened in favor of

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<v Speaker 1>the issuers to the disadvantage of investors, and First Brand

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<v Speaker 1>is a case in point.

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<v Speaker 2>Chris Waelan, there was no other question at my CFA

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

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<v Speaker 2>expert at the history of this. Come on, Is it

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<v Speaker 2>like Continental Illinois? Is it like bear Stearns As you mentioned,

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<v Speaker 2>what's a contagion factor in October of twenty twenty five.

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

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<v Speaker 1>The commercial side of the equation is where the problems

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<v Speaker 1>are for the banks right now. They are trying to

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<v Speaker 1>hide them as best they can. We've just changed the

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<v Speaker 1>accounting rules for loan modifications, by the way, so if

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<v Speaker 1>it pays for twelve months, we pretend the loan was

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<v Speaker 1>never modified. How cool is that? And I think that

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<v Speaker 1>the industry, the regulators are all walking past the graveyard

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<v Speaker 1>because private eq. Commercial, real estate, all of these sectors

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<v Speaker 1>are still having significant problems. On the other hand, consumer

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<v Speaker 1>is quiet. We've been releasing reserves and reducing provisions for

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<v Speaker 1>loan loss on the consumer side because there's nothing happening

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<v Speaker 1>yet that may come next year. But the commercial side

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<v Speaker 1>is where the action is right now.

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<v Speaker 4>Tom Chris, I've learned a new term, I guess in

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<v Speaker 4>the last few weeks, and that is the basement trade.

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<v Speaker 4>Where is my understanding is investors are saying, I'm worried

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<v Speaker 4>about all this government spending around the world. So maybe

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<v Speaker 4>I don't want to own government securities like currencies, maybe

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<v Speaker 4>even the government debt, and that includes the US stuff.

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<v Speaker 4>Maybe I'll buy some other stuff like gold. What do

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<v Speaker 4>you make of that.

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<v Speaker 1>I've been telling my readers to put at least ten

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<v Speaker 1>to fifteen percent of their total allocation in the gold

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<v Speaker 1>for most of this year, and I think it's solely

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<v Speaker 1>beginning to start for the simple reason that there isn't

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<v Speaker 1>a lot of deliverable supplying gold. People are worried about deficits.

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<v Speaker 1>They are worried about the dollar, and I think they're

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<v Speaker 1>right to do so. The dollar is probably going to

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<v Speaker 1>continue to go down. We have structural problems in this country.

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<v Speaker 1>You notice Chairman Powell is talking about continuing to shrink

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<v Speaker 1>the balance sheet. Why. As Bill Nelson at Bank Policy

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<v Speaker 1>Institute wrote this week, the Fed funds market may collapse

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<v Speaker 1>thanks to the big balance sheet. So we have a

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<v Speaker 1>lot of issues. In the background. The markets look great AI.

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

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<v Speaker 1>people are worried because when you have these old time

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<v Speaker 1>highs one after another, they tend to not be confirmed

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<v Speaker 1>after a while.

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<v Speaker 3>For Global Wall Street worldwide on YouTube, across.

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<v Speaker 2>All of our audio product Christopher Whalan joins us his

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<v Speaker 2>one volume on the American financial system, My book of

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<v Speaker 2>the Year ages ago were begging him, he's going to

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<v Speaker 2>put a book. DiCaprio's scheduled.

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<v Speaker 4>Oh I got him signed up.

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<v Speaker 3>Continue with Chris Whaley about.

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<v Speaker 4>Liquidity in the marketplace, and I'm thinking about not so

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<v Speaker 4>much as stock market, but just kind of across the

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<v Speaker 4>fixed income space, maybe the currency space.

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<v Speaker 3>Is that a worry for you, Yes.

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

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<v Speaker 1>December twenty eighteen when Jerome Powell almost ran the ship aground.

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<v Speaker 1>You recall they pivoted very quickly in January nineteen and

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<v Speaker 1>started easing. That's when they went to this ample reserve

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<v Speaker 1>policy that they've had since then. And I think that

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<v Speaker 1>what we're worried about is that the model that the

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<v Speaker 1>FED uses to judge whether liquidity is adequate or not

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<v Speaker 1>is based on GDP, which has nothing to do with anything.

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<v Speaker 1>Liquidity is highly compartmentalized. It does not flow one way

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

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<v Speaker 1>I think that's where we are today.

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

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<v Speaker 2>too important. Sweeny's lined up. Sweeny's got notes this morning

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<v Speaker 2>for Chris Whalen. I have Christopher Waller tomorrow. What is

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

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<v Speaker 2>your question? Whalen?

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<v Speaker 1>He was very bullish on shrinking the balance sheet earlier

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<v Speaker 1>this year. Ask him how he feels now? Ask him

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<v Speaker 1>where round is now?

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<v Speaker 3>I don't have to work.

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

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<v Speaker 1>where is the ground? Does he know? That's the key question?

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

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<v Speaker 2>going to see that in the nine o'clock hour tomorrow.

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<v Speaker 3>With Christopher wall in his speech at.

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<v Speaker 2>The Council and Foreign Relations, and then I will grill

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<v Speaker 2>him as best I can. He's really quite He's a

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<v Speaker 2>prodigious intellect, folks, particularly in the game theory of central banking.

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<v Speaker 3>Okay, Chris, let's go to it right now.

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<v Speaker 2>I suggest that the major banks led by JP Morgan

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<v Speaker 2>and Bank of America.

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<v Speaker 3>Literally are hiding how profitable they are. In the Whalen history,

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<v Speaker 3>back to.

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<v Speaker 2>Great great Grandpa whyaland was with Alexander Hamilton a few

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<v Speaker 2>years ago. Chris Whalan describe the profitability of this modern

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<v Speaker 2>era of ginormous big banks.

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<v Speaker 1>I'm not sure that they're that much more profitable today

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<v Speaker 1>than they have been in the past. Asset returns are

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

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<v Speaker 1>Why are they lending all this money to non bank,

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<v Speaker 1>non depository institutions because loan demand otherwise is pretty slack.

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<v Speaker 1>You know, deposits are growing twice as fast as demand

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

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<v Speaker 1>pick up a bit like last September. This September two,

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<v Speaker 1>by the way, is going to turn out to be

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<v Speaker 1>a very good month for banks and non banks. But

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<v Speaker 1>you know, the bottom line is that there are so

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<v Speaker 1>many alternatives to traditional banks now that have been spawned

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<v Speaker 1>in the equity markets and are funded with actity and debt,

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<v Speaker 1>that you have plenty of places to go spawn.

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<v Speaker 2>Yes, ec way, they would say spawn, private credit was

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<v Speaker 2>spawned exactly.

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

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<v Speaker 4>Broady defined here that affordability issue continues to be a huge,

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<v Speaker 4>huge issue for people, particularly young people. I got a

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<v Speaker 4>mortgage rate, still got a six handle out there, and

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

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<v Speaker 4>This is a problem, isn't it.

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

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<v Speaker 1>Donald Trump is going to goos to housing market with

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<v Speaker 1>his friend Bill Poulty. They want to support homebuilders at

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<v Speaker 1>a time when the homebuilders have already got too much inventory.

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<v Speaker 1>Supply has caught up with demand. And remember the prediction

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<v Speaker 1>of my good friend Stan Middleman, the founder of Freedom

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<v Speaker 1>Mortgage Misery on the eighths, I think we see a

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<v Speaker 1>maxi home price reset in twenty twenty eight. If you've

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<v Speaker 1>got that high coupon mortgage, wait a little bit and

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<v Speaker 1>maybe go into a floater, and then you'll be able

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<v Speaker 1>to refinance it much lower in a couple of years.

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<v Speaker 4>So, Chris, I guess the question. There seems to be

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<v Speaker 4>a housing shortage in this country. I'm not sure how

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<v Speaker 4>we got there. How do you think that happened in.

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<v Speaker 1>Some parts of the country, not everywhere here in New

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

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<v Speaker 1>it's astounding to me because this is a market that

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<v Speaker 1>had very poor volumes before COVID, but the prices keep

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<v Speaker 1>going up because nobody's building houses down south. We have

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<v Speaker 1>the opposite problem. Chris Carolina is in Texas, Florida. We

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<v Speaker 1>are up to our ear lobes and support.

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<v Speaker 2>Michael Barrowe's equal time. Chris Whalen quickly here. Every Brady

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<v Speaker 2>undergraduate wants to know when's the new book come out?

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<v Speaker 1>Well, the second edition suld have inflated is out of course,

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<v Speaker 1>and I did that for you. David Kotok did the introduction,

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<v Speaker 1>by the way, very cool, and we're working on a

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<v Speaker 1>gold book for next year, which will be very good.

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<v Speaker 3>You'll probably talk to Ike. Agreed.

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<v Speaker 2>That's the way Chris Whalen rules. Christopher Whalen, thank you

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

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<v Speaker 2>his skepticism about some of the verbiage of our financial system.