1
00:00:02,000 --> 00:00:07,160
Speaker 1: This is Mesters in Business with Very Results on Bloomberg Radio.

2
00:00:09,720 --> 00:00:13,000
Speaker 1: This week on the podcast, I have yet another extra

3
00:00:13,039 --> 00:00:17,520
Speaker 1: special guest. Professor at Mahdi teaches at the Stanford Graduate

4
00:00:17,560 --> 00:00:21,239
Speaker 1: School of Business. She is an expert in so many

5
00:00:21,280 --> 00:00:25,720
Speaker 1: fascinating areas that you wouldn't think are related, but they

6
00:00:25,760 --> 00:00:29,840
Speaker 1: really are. Why has technology developed the way it has

7
00:00:30,320 --> 00:00:34,519
Speaker 1: and more or less exempt from from a lot of

8
00:00:34,560 --> 00:00:39,800
Speaker 1: government regulations or protected by regulations. Turns out their business

9
00:00:39,840 --> 00:00:42,120
Speaker 1: model is a little similar to the way the banking

10
00:00:42,159 --> 00:00:45,800
Speaker 1: industry has managed to capture a lot of regulators and

11
00:00:46,400 --> 00:00:51,479
Speaker 1: UH continue to operate fairly freely without the sort of

12
00:00:52,800 --> 00:00:57,920
Speaker 1: regulation and capital requirements and equity requirements UH that would

13
00:00:57,920 --> 00:01:03,800
Speaker 1: make banking safer. Really fascinating conversation about everything from misinformation

14
00:01:04,319 --> 00:01:10,520
Speaker 1: to technology, to banking and financial fragility. I found the

15
00:01:10,520 --> 00:01:13,119
Speaker 1: discussion to be quite fascinating, and I think you will

16
00:01:13,160 --> 00:01:17,679
Speaker 1: also with no further ado. My interview with Professor are

17
00:01:17,680 --> 00:01:21,320
Speaker 1: not at Mahdi of the Stanford Graduate School of Business.

18
00:01:21,640 --> 00:01:24,319
Speaker 1: So let's talk a little bit about your background. You

19
00:01:24,360 --> 00:01:26,679
Speaker 1: have a lot of degrees. You you have a bachelor's

20
00:01:26,720 --> 00:01:30,200
Speaker 1: from Hebrew University, then a master's in arts, a master's

21
00:01:30,240 --> 00:01:34,200
Speaker 1: in philosophy and a PhD from Yale University. Tell us

22
00:01:34,240 --> 00:01:37,520
Speaker 1: a little bit about your academic journey. So my journey

23
00:01:37,520 --> 00:01:41,440
Speaker 1: starts where I took a lot of math. I was

24
00:01:41,560 --> 00:01:44,600
Speaker 1: good in math, and I loved math. That was very pretty,

25
00:01:44,840 --> 00:01:47,080
Speaker 1: it was all. But I decided I probably won't be

26
00:01:47,560 --> 00:01:49,920
Speaker 1: good enough to be a mathematician. So it was kind

27
00:01:49,920 --> 00:01:52,560
Speaker 1: of in my romantic mind when I was, you know,

28
00:01:52,720 --> 00:01:55,680
Speaker 1: in my early twenties, I was gonna take but not

29
00:01:55,760 --> 00:01:57,920
Speaker 1: to give back to math, you know, that kind of thing.

30
00:01:58,200 --> 00:02:00,600
Speaker 1: And and so I had to find something. And at

31
00:02:00,640 --> 00:02:02,320
Speaker 1: first it was going to be sort of applied math,

32
00:02:02,360 --> 00:02:05,080
Speaker 1: like operations research, which was the worst kind of math,

33
00:02:05,240 --> 00:02:09,720
Speaker 1: that optimization, and it's kind of boring. And but I

34
00:02:09,760 --> 00:02:12,200
Speaker 1: got an opportunity to go to Yale, and these degrees

35
00:02:12,200 --> 00:02:14,440
Speaker 1: were just kind of simultaneously gotten. I mean, I was

36
00:02:14,440 --> 00:02:16,520
Speaker 1: out of Yale in three and a half years with

37
00:02:16,560 --> 00:02:20,480
Speaker 1: all these degrees um and I just an opportunity landed

38
00:02:20,520 --> 00:02:23,919
Speaker 1: on my lap to go to uh this program in

39
00:02:23,960 --> 00:02:26,400
Speaker 1: operations research at Yale. And I was promised that Yale

40
00:02:26,520 --> 00:02:29,840
Speaker 1: is very interdisciplinary and once you pass your qualifying exams,

41
00:02:29,840 --> 00:02:32,519
Speaker 1: you can do whatever you want. And had never taken

42
00:02:32,560 --> 00:02:35,760
Speaker 1: an economics course before that. But when I got to Yale,

43
00:02:36,160 --> 00:02:39,200
Speaker 1: my advisor said, whyn't you take microeconomics and take you know,

44
00:02:39,280 --> 00:02:41,840
Speaker 1: mathematical economics, and take some economics. And by the end

45
00:02:41,840 --> 00:02:43,799
Speaker 1: of the first year I kind of knew a new

46
00:02:43,919 --> 00:02:47,360
Speaker 1: language like and it was all much more interesting because

47
00:02:47,360 --> 00:02:52,000
Speaker 1: there was interactions between people and equilibrium and you know,

48
00:02:52,639 --> 00:02:55,360
Speaker 1: all of that. And by second year I took the

49
00:02:55,440 --> 00:02:58,920
Speaker 1: course that was absolutely a mustake in the crowd that

50
00:02:58,960 --> 00:03:02,680
Speaker 1: I was hanging with, which was Steve Ross financial economics.

51
00:03:03,240 --> 00:03:06,120
Speaker 1: Yale didn't even have a program in finance. The School

52
00:03:06,120 --> 00:03:08,440
Speaker 1: of Management was just created. This was back in the

53
00:03:08,520 --> 00:03:12,600
Speaker 1: late seventies early eighties, and he was just teaching people

54
00:03:12,639 --> 00:03:14,560
Speaker 1: all they needed to know about finance, which was just

55
00:03:14,680 --> 00:03:18,280
Speaker 1: coming up. It had become professionalized, when before it was

56
00:03:18,360 --> 00:03:21,720
Speaker 1: just a bunch of disparate theories. So you find your

57
00:03:21,720 --> 00:03:25,360
Speaker 1: calling in in economics, but you really take some of

58
00:03:25,400 --> 00:03:31,799
Speaker 1: your background and dig pretty deep into financial regulations and technology.

59
00:03:31,800 --> 00:03:33,760
Speaker 1: We did the tech background come from, I'll tell you

60
00:03:34,000 --> 00:03:37,440
Speaker 1: so that all I was totally in the sort of

61
00:03:37,480 --> 00:03:41,600
Speaker 1: financial bubble first, kind of you know market microstructure, you know,

62
00:03:41,640 --> 00:03:47,560
Speaker 1: trading mechanisms, this is the coint seven little black Monday,

63
00:03:47,600 --> 00:03:50,320
Speaker 1: you know, small black Monday, not just that little one

64
00:03:50,440 --> 00:03:56,400
Speaker 1: day glitch decline in one day something. Yeah. Yeah. So

65
00:03:56,440 --> 00:04:00,680
Speaker 1: it was programmed trading and insurance insurance and all its replications,

66
00:04:00,680 --> 00:04:04,360
Speaker 1: strategies and all this stuff. Um, and so that was

67
00:04:04,440 --> 00:04:06,880
Speaker 1: kind of the little crisis of the day, right in

68
00:04:06,920 --> 00:04:10,000
Speaker 1: the little details. And that's before high frequency trading and

69
00:04:10,040 --> 00:04:12,080
Speaker 1: all the rest of it. But then I worked on

70
00:04:12,120 --> 00:04:15,360
Speaker 1: trading mechanisms and information get into prices, and informed and

71
00:04:15,400 --> 00:04:19,320
Speaker 1: uninformed trading, and markets for information and newsletters and managed

72
00:04:19,400 --> 00:04:23,600
Speaker 1: money portfolio theory. And then and then I got more

73
00:04:23,600 --> 00:04:26,479
Speaker 1: interested in in kind of governance, but governance in the

74
00:04:26,600 --> 00:04:30,720
Speaker 1: narrow sense corporate governance and contract which was all about

75
00:04:30,720 --> 00:04:33,760
Speaker 1: the problems between shareholders and managers. So that was that,

76
00:04:33,880 --> 00:04:36,279
Speaker 1: and then comes the financial crisis. So until the financial

77
00:04:36,320 --> 00:04:38,640
Speaker 1: crisis of two thousand seventy nine or however you go,

78
00:04:39,240 --> 00:04:43,839
Speaker 1: actually you know time it, I was in this financial bubble.

79
00:04:43,839 --> 00:04:48,880
Speaker 1: I was teaching corporate finance. I did research, theoretical research,

80
00:04:49,000 --> 00:04:53,120
Speaker 1: so I built little mathematical models and analyzed them and uh,

81
00:04:53,120 --> 00:04:55,440
Speaker 1: and I lived in that little little bubble thinking all

82
00:04:55,560 --> 00:04:59,839
Speaker 1: is well, Uh, until this crisis was like what just happened?

83
00:05:00,160 --> 00:05:03,599
Speaker 1: And so I I never was interested in banking particularly.

84
00:05:03,680 --> 00:05:07,080
Speaker 1: We have a lot of silos, you know, even within economics,

85
00:05:07,200 --> 00:05:09,600
Speaker 1: lest and alone in all the social sciences and law

86
00:05:09,640 --> 00:05:11,520
Speaker 1: and all of that. So we're eaching our little silo

87
00:05:11,560 --> 00:05:14,240
Speaker 1: with our little journals all this stuff. So I just

88
00:05:14,279 --> 00:05:16,880
Speaker 1: got curious. Wait a minute. I teach corporate finance. The

89
00:05:16,920 --> 00:05:19,240
Speaker 1: bank is also a corporation. Now why does it have

90
00:05:19,400 --> 00:05:22,760
Speaker 1: like almost no equity funding? What's going on there? I

91
00:05:22,880 --> 00:05:27,640
Speaker 1: teach people capital structure theory, and how are banks so different?

92
00:05:27,880 --> 00:05:31,360
Speaker 1: Why are they so different? They hate equity with this passion,

93
00:05:32,120 --> 00:05:35,880
Speaker 1: and so the more doug the weirder it got. It

94
00:05:36,040 --> 00:05:38,760
Speaker 1: really like a fell in a rabbit hole. It totally

95
00:05:38,839 --> 00:05:42,080
Speaker 1: was a rabbit hole, like curious or and curious, or

96
00:05:42,160 --> 00:05:44,200
Speaker 1: you know that kind of thing. Well, well, tell me

97
00:05:44,240 --> 00:05:50,120
Speaker 1: if I'm oversimplifying banking, because what we've seen over the

98
00:05:50,160 --> 00:05:55,880
Speaker 1: past half century before the financial crisis was simply banks

99
00:05:55,880 --> 00:05:59,080
Speaker 1: figured out that the less capital they keep on the books,

100
00:05:59,800 --> 00:06:04,680
Speaker 1: the better their profit margins appear, even though they're essentially

101
00:06:04,800 --> 00:06:08,880
Speaker 1: just assuming more risk. And the better the profit margins are,

102
00:06:09,000 --> 00:06:12,359
Speaker 1: the richer everybody got. And so we've seen a half

103
00:06:12,520 --> 00:06:19,599
Speaker 1: century of first deregulation, then fairly radical deregulation, all of

104
00:06:19,640 --> 00:06:24,520
Speaker 1: which worked to the bank's advantages until suddenly it no

105
00:06:24,600 --> 00:06:27,400
Speaker 1: longer dead. So in the book we go through a

106
00:06:27,440 --> 00:06:31,080
Speaker 1: lot of the history of banking, including the basic banking model,

107
00:06:31,279 --> 00:06:33,720
Speaker 1: which is sort of it's a wonderful life kind of

108
00:06:33,760 --> 00:06:37,080
Speaker 1: three six three boring banking model, and that too had

109
00:06:37,080 --> 00:06:39,320
Speaker 1: a crisis in savings and loan and in many other

110
00:06:39,360 --> 00:06:42,760
Speaker 1: banking crisis. So it's not like banking. Banking is inherently

111
00:06:43,120 --> 00:06:47,720
Speaker 1: risking because inherently the bank's taking risk with uh with

112
00:06:48,040 --> 00:06:52,680
Speaker 1: depositors money, and the depositors are unable to really behave

113
00:06:52,800 --> 00:06:55,320
Speaker 1: like normal creditor. And that's really sort of the beginning

114
00:06:55,360 --> 00:06:57,720
Speaker 1: of the sort of original sin in banking, that they're

115
00:06:57,800 --> 00:07:01,280
Speaker 1: always over leveled all the way. They are never efficient

116
00:07:01,440 --> 00:07:04,520
Speaker 1: in in providing any of the services on both sides

117
00:07:04,520 --> 00:07:07,120
Speaker 1: of the balance sheet, because they always have the temptation

118
00:07:07,279 --> 00:07:10,000
Speaker 1: and the ability to take just a little bit more

119
00:07:10,200 --> 00:07:12,880
Speaker 1: risk on both sides of the balances. The nature of

120
00:07:13,160 --> 00:07:16,680
Speaker 1: fractional reserve landing well. But but but it's their incentives.

121
00:07:16,680 --> 00:07:18,840
Speaker 1: So the key to understand it is it's not like

122
00:07:19,000 --> 00:07:22,360
Speaker 1: essential or efficient. It's just that that's how they want it.

123
00:07:22,800 --> 00:07:24,840
Speaker 1: So so the thing is that banking is sort of

124
00:07:24,880 --> 00:07:28,360
Speaker 1: inherently fragile because banking is inherently in efficient that way

125
00:07:28,720 --> 00:07:34,239
Speaker 1: or forever poorly regulator, poorly controlled by their investors, including

126
00:07:34,280 --> 00:07:38,040
Speaker 1: the depositors. So to that you add expansion in the

127
00:07:38,080 --> 00:07:42,040
Speaker 1: business model that allows taking more risk, hiding more risk

128
00:07:42,120 --> 00:07:45,320
Speaker 1: with derivatives, with universal banking, all of that, and the

129
00:07:45,920 --> 00:07:51,080
Speaker 1: increase in safety net implicit and explicit, with the positive insurance.

130
00:07:51,200 --> 00:07:56,480
Speaker 1: With all of that, they became able and obviously interested

131
00:07:56,880 --> 00:07:59,560
Speaker 1: in living more and more and more in debt. Now,

132
00:07:59,760 --> 00:08:03,920
Speaker 1: in my research, even after the first after the book,

133
00:08:04,080 --> 00:08:07,160
Speaker 1: we were already beginning to do this research, I understood

134
00:08:07,200 --> 00:08:10,200
Speaker 1: a lot better. Stuff that we teach in basic courses

135
00:08:10,520 --> 00:08:14,640
Speaker 1: is very static theory of how companies fund. And it's

136
00:08:14,680 --> 00:08:18,240
Speaker 1: like one round of funding debt and equity and then

137
00:08:18,280 --> 00:08:25,160
Speaker 1: the world is over. But for real living, you know, breathing. Uh. Companies,

138
00:08:25,600 --> 00:08:29,320
Speaker 1: any company, the funding decision as well as investment decisions

139
00:08:29,360 --> 00:08:33,240
Speaker 1: are always made by shareholders or people managers on behalf

140
00:08:33,280 --> 00:08:37,120
Speaker 1: of shareholders, maybe in light of previous commitment. So in

141
00:08:37,160 --> 00:08:41,120
Speaker 1: the dynamics of it, once you took debt, your preferences

142
00:08:41,200 --> 00:08:44,000
Speaker 1: changed completely. You're no longer maximizing in total value of

143
00:08:44,040 --> 00:08:46,520
Speaker 1: the firm. You're maximizing the value of equity in the firm.

144
00:08:46,880 --> 00:08:50,559
Speaker 1: And from that perspective, equity seems expensive to all to

145
00:08:50,840 --> 00:08:56,000
Speaker 1: all heavily indebted corporations. Banks in particular because for other corporations,

146
00:08:56,040 --> 00:08:59,160
Speaker 1: if they take on more and more debt, the creditors

147
00:08:59,200 --> 00:09:02,720
Speaker 1: will start pushing, the creditors will start putting covenants, the

148
00:09:02,760 --> 00:09:05,400
Speaker 1: creditors will will will jack up the rates because the

149
00:09:05,440 --> 00:09:08,440
Speaker 1: creditors will worry about all the distorted incentives of the

150
00:09:08,480 --> 00:09:11,680
Speaker 1: border lender that happen gamble the money in Las Vegas,

151
00:09:11,800 --> 00:09:14,480
Speaker 1: or under investing things because there's not enough upside all

152
00:09:14,520 --> 00:09:18,520
Speaker 1: of those things that characterize sort of the frictions that

153
00:09:19,280 --> 00:09:23,240
Speaker 1: characterized heavy indebtedness. So that makes the finance sector very

154
00:09:23,280 --> 00:09:25,960
Speaker 1: different than the rest of the well, the banking, especially

155
00:09:26,000 --> 00:09:32,120
Speaker 1: because the creditors in banking are particularly passive and and

156
00:09:32,240 --> 00:09:35,439
Speaker 1: so therefore the the usual market forces that push against

157
00:09:35,559 --> 00:09:39,080
Speaker 1: high leverage in other companies that just naturally, with no

158
00:09:39,200 --> 00:09:44,560
Speaker 1: regulation would limit. There's no corporation that lives it's healthy

159
00:09:44,679 --> 00:09:47,160
Speaker 1: unless they're on their way to bankruptcy that lives with

160
00:09:47,200 --> 00:09:49,720
Speaker 1: single digit equity numbers. Of course, it depends how you

161
00:09:49,760 --> 00:09:52,000
Speaker 1: measure it, and there's book market all kinds of other

162
00:09:52,040 --> 00:09:55,640
Speaker 1: things that we can discuss. But the bank's basically got

163
00:09:55,800 --> 00:09:58,960
Speaker 1: used to and got stuck, and it's very addictive to

164
00:09:59,080 --> 00:10:02,560
Speaker 1: be there, especial really at this extremely low equity level.

165
00:10:02,840 --> 00:10:06,559
Speaker 1: From that vantage, with the overhang of debt being so

166
00:10:06,559 --> 00:10:11,080
Speaker 1: so heavy that you're effectively insolvent all the time, but

167
00:10:11,160 --> 00:10:15,160
Speaker 1: you just not recognize as such. Then you hate equity,

168
00:10:15,240 --> 00:10:17,360
Speaker 1: you want to take money out. So so let's stay

169
00:10:17,360 --> 00:10:20,160
Speaker 1: with that point, because that's pretty fascinating. Uh. It was

170
00:10:20,200 --> 00:10:24,720
Speaker 1: pretty clear to observers that the reason Lehman Brothers didn't

171
00:10:24,800 --> 00:10:29,040
Speaker 1: get bailed out is they were not just a little insolvent,

172
00:10:29,120 --> 00:10:33,000
Speaker 1: but deeply insolving. The Rest of the banks that were

173
00:10:33,000 --> 00:10:37,520
Speaker 1: out there that survived seemed to recapitalize. They sold equity,

174
00:10:37,559 --> 00:10:40,160
Speaker 1: They brought more money in Goldman Sachs, took a big

175
00:10:40,240 --> 00:10:44,160
Speaker 1: chunk of money from more in Buffett, uh JP, Morgan Chase,

176
00:10:44,200 --> 00:10:47,880
Speaker 1: Sport Washington Mutual. They did more capital reserves and they

177
00:10:47,960 --> 00:10:50,440
Speaker 1: ended up bear Stearns as well. When you say capital

178
00:10:50,520 --> 00:10:53,280
Speaker 1: reserve again, I mean people get very confused about what

179
00:10:53,360 --> 00:10:56,840
Speaker 1: that is that you mean more Actually, no, no, no,

180
00:10:56,960 --> 00:11:00,720
Speaker 1: cash not cash is not equity. Capital is not cash.

181
00:11:00,720 --> 00:11:02,200
Speaker 1: It's on the other side of the balance sheet. Capital

182
00:11:02,280 --> 00:11:04,720
Speaker 1: is about how you fund It's not cash reserve. Okay,

183
00:11:04,720 --> 00:11:08,960
Speaker 1: so it's it's it's really important. It's let's delve into that,

184
00:11:09,000 --> 00:11:11,440
Speaker 1: because it's very, very confusing. To this day you can

185
00:11:11,480 --> 00:11:14,480
Speaker 1: find people saying, set aside cash, that's not what capital

186
00:11:14,559 --> 00:11:18,120
Speaker 1: is about. Capitalist about Obviously there is the measurements of

187
00:11:18,160 --> 00:11:20,360
Speaker 1: it at a given point of time. But when you

188
00:11:20,480 --> 00:11:22,640
Speaker 1: when you take a snapshot and you say talk about

189
00:11:22,640 --> 00:11:25,160
Speaker 1: capital ratios or risk graded capital ratios and all of that,

190
00:11:25,280 --> 00:11:27,520
Speaker 1: they are entirely on the funding side. So you've got

191
00:11:27,520 --> 00:11:30,840
Speaker 1: your assets, whatever they are, they have some risk and whatever.

192
00:11:31,120 --> 00:11:35,000
Speaker 1: However you put numbers on the on that accounting or

193
00:11:35,120 --> 00:11:36,920
Speaker 1: and what's allowed and not allowed, and all of that

194
00:11:37,080 --> 00:11:39,960
Speaker 1: is like a big can of worms. Actually, but you know,

195
00:11:40,000 --> 00:11:42,880
Speaker 1: a netting of derivatives and all of that. But then

196
00:11:42,880 --> 00:11:45,440
Speaker 1: the question is how do you fund those assets? And

197
00:11:45,480 --> 00:11:47,679
Speaker 1: so the question is how much gets funded by making

198
00:11:47,800 --> 00:11:52,360
Speaker 1: promises to investors, by debt any kind collateral, non collaoral

199
00:11:52,440 --> 00:11:56,559
Speaker 1: no deposits are very unique because deposits are unsecured debt

200
00:11:56,679 --> 00:12:00,679
Speaker 1: to the bank, but to the depositors. To the depositors,

201
00:12:00,679 --> 00:12:03,880
Speaker 1: they don't have collateral. Okay, so it's the fda SEE

202
00:12:03,920 --> 00:12:07,040
Speaker 1: that's holding the bag there. Now does the FDA SEE

203
00:12:07,040 --> 00:12:09,199
Speaker 1: even know how much rache they're bearing when all the

204
00:12:09,240 --> 00:12:12,160
Speaker 1: assets are so encumbered that they're all pleased collateral? Do they?

205
00:12:12,200 --> 00:12:16,120
Speaker 1: Because well, they don'tsume they have a very vivid recollection.

206
00:12:16,559 --> 00:12:19,360
Speaker 1: During the financial crisis of the f d I C

207
00:12:19,559 --> 00:12:23,679
Speaker 1: talking about their reserves dropping from nine d to sixty

208
00:12:23,920 --> 00:12:26,320
Speaker 1: I think it dropped as low as forty billion dollars

209
00:12:26,760 --> 00:12:30,000
Speaker 1: and hey, if we get a bunch more disasters, well

210
00:12:30,080 --> 00:12:32,360
Speaker 1: we're not gonna be able to cover the depositors exactly

211
00:12:32,400 --> 00:12:34,959
Speaker 1: because they stopped charging. Also because there were no defaults

212
00:12:35,000 --> 00:12:38,920
Speaker 1: before the crisis, they stopped charging deposit insurance. And all

213
00:12:38,960 --> 00:12:40,640
Speaker 1: of a sudden there was a lot of bank failures,

214
00:12:40,720 --> 00:12:43,400
Speaker 1: not the big ones except for Lehman. But Lehman wasn't

215
00:12:43,600 --> 00:12:47,360
Speaker 1: an FDS in short bank and so but when other banks,

216
00:12:47,400 --> 00:12:50,680
Speaker 1: small banks started failing, what do they What can the

217
00:12:50,880 --> 00:12:53,120
Speaker 1: fda C do in general, Well, they can go back

218
00:12:53,120 --> 00:12:56,080
Speaker 1: to the large banks and just assess them more because

219
00:12:56,080 --> 00:12:58,360
Speaker 1: they have no way and I can assert this to you,

220
00:12:58,880 --> 00:13:02,440
Speaker 1: no good way to risk adjust their their deposit insurance fees.

221
00:13:02,440 --> 00:13:05,680
Speaker 1: They're supposed to be self financing the fda C through fees,

222
00:13:06,200 --> 00:13:10,840
Speaker 1: but you know, they really are taking a huge leap

223
00:13:10,960 --> 00:13:14,320
Speaker 1: for the posits for ensuring what by now must be like,

224
00:13:14,360 --> 00:13:17,880
Speaker 1: I don't know, thirteen trillion dollars and more will come

225
00:13:18,000 --> 00:13:20,800
Speaker 1: if there were tremors because money moves back in deposits

226
00:13:20,800 --> 00:13:22,920
Speaker 1: for money market funds and all of that. So they

227
00:13:24,200 --> 00:13:27,680
Speaker 1: ensure exactly. And so the f d a C, which

228
00:13:27,720 --> 00:13:32,600
Speaker 1: is a cease for corporation, is totally backed by the government. However,

229
00:13:32,679 --> 00:13:37,119
Speaker 1: in practice they can They have a line to Treasury

230
00:13:37,240 --> 00:13:40,679
Speaker 1: for I think five billion or something, but if should

231
00:13:40,760 --> 00:13:44,280
Speaker 1: something actually happen, so we're all on trust with the system.

232
00:13:44,360 --> 00:13:47,680
Speaker 1: They tell us don't run, don't rush, your money is safe,

233
00:13:47,880 --> 00:13:51,800
Speaker 1: and I that no bank runs, so we solve the problem.

234
00:13:51,960 --> 00:13:54,880
Speaker 1: When you say that they stopped charging fees, I've been

235
00:13:55,000 --> 00:13:58,000
Speaker 1: under the impression that the banks that have that nice

236
00:13:58,000 --> 00:14:03,199
Speaker 1: little logo, the emblem FDURED aren't those banks paying some

237
00:14:03,240 --> 00:14:08,119
Speaker 1: small Usually they do, And basically I once asked a

238
00:14:08,240 --> 00:14:11,920
Speaker 1: forty year veteran of banking in all the biggest banks,

239
00:14:12,000 --> 00:14:15,560
Speaker 1: you know, through the sixties, seventies, eighties, ninety who was

240
00:14:15,880 --> 00:14:19,160
Speaker 1: basically came out of retirement to be in a private

241
00:14:19,360 --> 00:14:22,120
Speaker 1: equity firm that was buying distressed banks from the f

242
00:14:22,240 --> 00:14:24,280
Speaker 1: d i C. And he said to me, oh or not,

243
00:14:24,360 --> 00:14:26,920
Speaker 1: you're looking at the big banks. Let me tell you

244
00:14:26,960 --> 00:14:28,600
Speaker 1: what goes on in the small banks. And then I

245
00:14:28,640 --> 00:14:31,360
Speaker 1: asked him the following simple question, because there are thousands

246
00:14:31,360 --> 00:14:34,080
Speaker 1: of small banks in this country. I said, what's the

247
00:14:34,120 --> 00:14:38,480
Speaker 1: business model of a small bank? And the answer the

248
00:14:38,520 --> 00:14:41,480
Speaker 1: answer was three words. The business model in other words,

249
00:14:41,480 --> 00:14:44,920
Speaker 1: the positive Knight present value of the bank, he said, subsidized,

250
00:14:44,960 --> 00:14:48,400
Speaker 1: the positive insurance subsidized. That's it. In other ways, their

251
00:14:48,560 --> 00:14:50,840
Speaker 1: entire funding. So what they do on the asset side,

252
00:14:51,080 --> 00:14:53,800
Speaker 1: anybody can do zero and pivot, commercial realist or whatever.

253
00:14:54,720 --> 00:14:58,080
Speaker 1: And how they fund is where they where they are privileged. Now,

254
00:14:58,160 --> 00:15:02,280
Speaker 1: what happens my model of banking, you know, safety basic

255
00:15:02,320 --> 00:15:06,280
Speaker 1: safety nets, is that the big banks may well be

256
00:15:06,800 --> 00:15:10,960
Speaker 1: overpaying for the past insurance part to the f d

257
00:15:11,080 --> 00:15:13,080
Speaker 1: C and the f d i C, and they pass

258
00:15:13,160 --> 00:15:15,240
Speaker 1: on some subsidies down to the small bank, so they

259
00:15:15,320 --> 00:15:20,080
Speaker 1: keep happy enough and because the big banks have implicit

260
00:15:20,080 --> 00:15:25,200
Speaker 1: guarantees that are priceless because they have access to the FED,

261
00:15:25,600 --> 00:15:28,480
Speaker 1: and that is worth a ton. In the financial crisis,

262
00:15:28,520 --> 00:15:33,400
Speaker 1: Let's remember Goldman, Sachs and Morgan Stanley became bank holding companies.

263
00:15:34,440 --> 00:15:38,560
Speaker 1: They were farms, they were investment banks are delated by

264
00:15:38,560 --> 00:15:44,400
Speaker 1: the SEC, which which also Lehman was. And at that

265
00:15:44,440 --> 00:15:48,200
Speaker 1: time the commercial banks, so City Bank within City Group,

266
00:15:48,640 --> 00:15:51,280
Speaker 1: were regulated, among others, by the f d i C

267
00:15:51,520 --> 00:15:54,440
Speaker 1: and the fda C had Sheila Beart, and Sheila Beart

268
00:15:54,480 --> 00:15:59,280
Speaker 1: refused to implement this buzzle too, that had fancy schmancy

269
00:15:59,640 --> 00:16:06,080
Speaker 1: risk weights, manipulable ways, model based ways to uh to

270
00:16:06,080 --> 00:16:07,960
Speaker 1: to allow the banks to tell us how risky they

271
00:16:08,040 --> 00:16:11,480
Speaker 1: are and therefore determined their equity requirements, in other words,

272
00:16:11,480 --> 00:16:14,920
Speaker 1: mislead regulators. And there is the research that showed that

273
00:16:15,040 --> 00:16:18,600
Speaker 1: banks in Germany that were allowed to use this advanced

274
00:16:18,600 --> 00:16:22,920
Speaker 1: approach to this, you know, fancy scientific approach to regulation,

275
00:16:23,320 --> 00:16:27,040
Speaker 1: were you know, misrepresenting their own risk and making more

276
00:16:27,160 --> 00:16:31,600
Speaker 1: loans with less risk weights, in other words, inappropriately low

277
00:16:31,800 --> 00:16:35,680
Speaker 1: risk weights. And then and then yes, and of course

278
00:16:35,800 --> 00:16:39,640
Speaker 1: the epitome of of the failure of this regulation is

279
00:16:39,720 --> 00:16:42,720
Speaker 1: assets that had zero risk weights. But we're risky like

280
00:16:42,760 --> 00:16:46,760
Speaker 1: triple A rated security, like Greek government lending to Greek

281
00:16:46,800 --> 00:16:50,680
Speaker 1: government in Europe. I mean the banks in Europe basically

282
00:16:51,040 --> 00:16:55,600
Speaker 1: fed this, you know, subprime lending to to to the

283
00:16:55,640 --> 00:16:59,360
Speaker 1: Greek government. Why should Greece pay more in interest rates

284
00:16:59,360 --> 00:17:02,600
Speaker 1: than another country like Germany. That doesn't make any Well,

285
00:17:02,640 --> 00:17:06,120
Speaker 1: they paid a teeny sliver, but the French banks just

286
00:17:06,280 --> 00:17:09,639
Speaker 1: went and lent them a ton. And when they couldn't pay,

287
00:17:09,800 --> 00:17:13,000
Speaker 1: the European Union and all these other countries and the

288
00:17:13,040 --> 00:17:17,120
Speaker 1: regulators that who allowed these banks to make this reckless loans,

289
00:17:17,240 --> 00:17:19,919
Speaker 1: who had just bail out these banks from investing in

290
00:17:19,960 --> 00:17:24,359
Speaker 1: our real estate bubble, uh couldn't admit to their citizens

291
00:17:24,400 --> 00:17:27,320
Speaker 1: that they would bail out their banks again if Greece default,

292
00:17:27,480 --> 00:17:30,400
Speaker 1: so that they blame all the things on the lazy Greeks,

293
00:17:30,680 --> 00:17:32,840
Speaker 1: and they kept bailing out Greece so Greece could pay

294
00:17:32,840 --> 00:17:35,159
Speaker 1: the banks until the banks got out. So that was

295
00:17:35,359 --> 00:17:38,080
Speaker 1: the zero risk rate for sovereign landing in Europe. And

296
00:17:38,080 --> 00:17:42,040
Speaker 1: it's just one example of how awful awful the regulation

297
00:17:42,200 --> 00:17:46,080
Speaker 1: was pre crisis. And then you tell me that, oh,

298
00:17:46,119 --> 00:17:48,679
Speaker 1: they were capitalized and did all of that. I'm not

299
00:17:48,760 --> 00:17:51,800
Speaker 1: so impressed. Yes, you know, first of all, Bank of

300
00:17:51,840 --> 00:17:55,520
Speaker 1: America and the City were zombies coming out of the crisis,

301
00:17:55,560 --> 00:18:01,440
Speaker 1: despite multiple bailouts, both of them by almor and zombie banks.

302
00:18:01,560 --> 00:18:04,560
Speaker 1: I mean, I believe that they were the examples where

303
00:18:04,560 --> 00:18:07,520
Speaker 1: if you wanted to have this systemic resolution through the

304
00:18:07,560 --> 00:18:09,480
Speaker 1: f d i C, we could have tried it in

305
00:18:09,520 --> 00:18:12,880
Speaker 1: a you know, not in a crisis, into a package.

306
00:18:13,080 --> 00:18:16,480
Speaker 1: Show me that it works. Show me that it works. Uh,

307
00:18:16,520 --> 00:18:19,280
Speaker 1: you know, outside the crisis where everybody is failing. You know,

308
00:18:19,320 --> 00:18:22,120
Speaker 1: I was on this FDA S Systemic Resolution Advisory Committee,

309
00:18:22,160 --> 00:18:24,720
Speaker 1: was part of Dodd Frank was saying, oh, if Lehman

310
00:18:24,840 --> 00:18:28,200
Speaker 1: Brothers was sent to the f d i C for resolution,

311
00:18:28,240 --> 00:18:30,800
Speaker 1: because FDC knows so well how to do the small

312
00:18:30,800 --> 00:18:33,320
Speaker 1: bank resolution. Just come over the weekend, take over a

313
00:18:33,320 --> 00:18:35,840
Speaker 1: small bank, and the people don't even know because the

314
00:18:37,160 --> 00:18:41,439
Speaker 1: exactly one oh five where they were moving all of

315
00:18:41,480 --> 00:18:45,600
Speaker 1: this risk thousands of city areas, right, just just hundreds

316
00:18:45,600 --> 00:18:49,119
Speaker 1: of billions of dollars and misrepresents. Do you know to

317
00:18:49,200 --> 00:18:51,119
Speaker 1: the regulators and to the do you know that the

318
00:18:51,200 --> 00:18:53,359
Speaker 1: Leman bankruptcy is not even over yet every year I

319
00:18:53,400 --> 00:18:56,280
Speaker 1: go back and check still going on. So this is

320
00:18:56,320 --> 00:18:59,800
Speaker 1: how unresolvable these now. In the first affair, it was

321
00:19:00,040 --> 00:19:03,440
Speaker 1: only fifteen years ago, so it was a small but

322
00:19:03,560 --> 00:19:05,159
Speaker 1: it was a small one by compared. I mean, this

323
00:19:05,200 --> 00:19:07,520
Speaker 1: was the biggest bankruptcy at the time, but there were

324
00:19:07,560 --> 00:19:09,680
Speaker 1: there were a fraction of JP Morgan, Chase, so City

325
00:19:09,760 --> 00:19:11,439
Speaker 1: or all of these that they tell you now can

326
00:19:11,520 --> 00:19:14,159
Speaker 1: fail with without and they have them do living with

327
00:19:14,280 --> 00:19:17,480
Speaker 1: an all kind of stupid things. No way, no, because

328
00:19:17,560 --> 00:19:19,400
Speaker 1: we don't. Even if they did, it would just be

329
00:19:19,600 --> 00:19:23,520
Speaker 1: incredibly exactly So I'm not even blaming for bailing out.

330
00:19:23,640 --> 00:19:27,200
Speaker 1: I am blaming for not for not doing basic prevention.

331
00:19:27,440 --> 00:19:31,120
Speaker 1: So so that raises a really interesting point. You mentioned

332
00:19:31,160 --> 00:19:35,119
Speaker 1: the French banks and the lazy Greeks. When you offer

333
00:19:35,200 --> 00:19:40,800
Speaker 1: people free money or dramatically discounted money, we shouldn't blame

334
00:19:40,920 --> 00:19:43,560
Speaker 1: the Greeks who took Hey, this is a great deal.

335
00:19:43,560 --> 00:19:45,840
Speaker 1: We're gonna take this. You have to look at the

336
00:19:45,880 --> 00:19:48,199
Speaker 1: banks that lent it to them and said, why are

337
00:19:48,200 --> 00:19:51,919
Speaker 1: these banks being so irresponsible and reckless to make such

338
00:19:52,560 --> 00:19:57,440
Speaker 1: cheap loans to under the eyes of their regulators, Under

339
00:19:57,480 --> 00:19:59,840
Speaker 1: their eyes of their regulators so their regulators are not

340
00:20:00,080 --> 00:20:04,240
Speaker 1: being called too. Why they allowed these loans to be

341
00:20:04,400 --> 00:20:06,639
Speaker 1: made for two by two week to fail, you know,

342
00:20:06,680 --> 00:20:09,320
Speaker 1: French and German banks. French banks had in two thousand

343
00:20:09,359 --> 00:20:15,000
Speaker 1: and ten Greek band government yes, and and and and

344
00:20:15,080 --> 00:20:18,200
Speaker 1: Greece only did a little bit of restructuring after the

345
00:20:18,240 --> 00:20:22,200
Speaker 1: banks pretty much got out, left the TROYKA creditors to

346
00:20:22,359 --> 00:20:26,000
Speaker 1: be a bailout fund of European nations E c B

347
00:20:26,160 --> 00:20:28,720
Speaker 1: and I m F. Those were the TROYKA. Now why

348
00:20:28,720 --> 00:20:30,879
Speaker 1: did I am F invest? Oh, because I am was

349
00:20:30,960 --> 00:20:34,399
Speaker 1: led by some French because I AM should not have

350
00:20:34,560 --> 00:20:39,679
Speaker 1: intervened in a European uh, into European thing. You know,

351
00:20:39,960 --> 00:20:42,920
Speaker 1: Europe had enough to be able to resolve that. They

352
00:20:42,920 --> 00:20:45,560
Speaker 1: just didn't want to. So I am F being led

353
00:20:45,680 --> 00:20:49,639
Speaker 1: by you know French people, uh, you know, Dominique class

354
00:20:49,680 --> 00:20:52,479
Speaker 1: Can and then by the later by Le Guard who

355
00:20:52,600 --> 00:20:55,480
Speaker 1: had to deal with it later in two thousand and fifteen,

356
00:20:55,720 --> 00:20:57,480
Speaker 1: when they were kind of the adult in the room

357
00:20:57,560 --> 00:21:00,240
Speaker 1: if you want to go. So let's dwar the ranch

358
00:21:00,280 --> 00:21:03,800
Speaker 1: banks and the Greek borrowers. There's a lot of people

359
00:21:04,119 --> 00:21:09,960
Speaker 1: criticizing in the two thousands the U S homeowners who

360
00:21:10,000 --> 00:21:16,000
Speaker 1: were taking helocks and refinancing and taking loans. And I

361
00:21:16,080 --> 00:21:20,480
Speaker 1: looked at it as it's not the responsibility of the consumers.

362
00:21:20,560 --> 00:21:24,240
Speaker 1: When when an institution like a large bank says we're

363
00:21:24,280 --> 00:21:26,200
Speaker 1: gonna loan you money and we're not going to charge

364
00:21:26,200 --> 00:21:28,919
Speaker 1: you interest for three years and then we'll reset, but

365
00:21:28,960 --> 00:21:33,560
Speaker 1: don't worry about it, the individual consumer doesn't understand that, Wait,

366
00:21:33,720 --> 00:21:36,879
Speaker 1: free cash, where do I sign? It's the banks and

367
00:21:36,960 --> 00:21:39,320
Speaker 1: their regulations. It's the lady in the come in the

368
00:21:39,320 --> 00:21:43,439
Speaker 1: big short saying she's got five houses. You know, you

369
00:21:43,480 --> 00:21:48,240
Speaker 1: know exactly so so the question no, exactly so degree.

370
00:21:48,320 --> 00:21:51,120
Speaker 1: That's why I used subprime to kind of as a parley. Yes,

371
00:21:51,320 --> 00:21:54,960
Speaker 1: so reckless loans were made to people who couldn't pay, liars,

372
00:21:55,000 --> 00:21:58,000
Speaker 1: loans who were clearly couldn't pay because of the commissions

373
00:21:58,000 --> 00:22:02,800
Speaker 1: of the mortgage, and you know the whole structure, and

374
00:22:02,840 --> 00:22:06,960
Speaker 1: you still had the FED assuring us everything was fine there,

375
00:22:07,200 --> 00:22:13,200
Speaker 1: and you had a system incredibly levered and interconnected create

376
00:22:13,520 --> 00:22:16,200
Speaker 1: through all these contagient mechanisms that we explained in the book,

377
00:22:17,119 --> 00:22:20,200
Speaker 1: a perfect storm from a small decline in housing prices.

378
00:22:20,240 --> 00:22:23,680
Speaker 1: I mean, this should the correction. The price correction itself

379
00:22:23,760 --> 00:22:27,840
Speaker 1: was you know, much smaller than then. Then then the

380
00:22:28,040 --> 00:22:32,000
Speaker 1: Internet bubble burst, you know, which wiped out a lot

381
00:22:32,160 --> 00:22:35,119
Speaker 1: of you know, paper wealth. And to put some numbers

382
00:22:35,119 --> 00:22:39,440
Speaker 1: on that, the Internet peak to trough was about decline

383
00:22:39,440 --> 00:22:44,200
Speaker 1: in the Nasdack camp, whereas I think houses fell about

384
00:22:45,720 --> 00:22:48,320
Speaker 1: some sectors something and then there was some of the faults. Okay,

385
00:22:48,320 --> 00:22:51,639
Speaker 1: but I mean the amounts were trivial, really, And how

386
00:22:51,680 --> 00:22:54,800
Speaker 1: do they create a global financial crisis from a little

387
00:22:54,800 --> 00:22:59,040
Speaker 1: housing bubble bursts in the US? Securitization spread it through

388
00:22:59,320 --> 00:23:02,800
Speaker 1: and and and so per duper triple securitization that our

389
00:23:02,880 --> 00:23:07,280
Speaker 1: side beats basically on on on the mortgages and only

390
00:23:07,320 --> 00:23:10,320
Speaker 1: the you know, the big short they made money. Quite amazing.

391
00:23:10,560 --> 00:23:13,520
Speaker 1: One of your research pieces really caught my eye. I

392
00:23:13,560 --> 00:23:17,600
Speaker 1: love this title, is the Internet Broken? Tell us about

393
00:23:17,880 --> 00:23:20,880
Speaker 1: That was actually the title of course that I taught

394
00:23:21,400 --> 00:23:27,240
Speaker 1: with one of the producers of h M HBO Silicon Valley.

395
00:23:27,560 --> 00:23:29,919
Speaker 1: Well we'll talk more about later, which, yeah, which I

396
00:23:29,960 --> 00:23:32,720
Speaker 1: got to be involved in in the last season only

397
00:23:33,400 --> 00:23:35,720
Speaker 1: uh and and and and therefore it was you know,

398
00:23:35,720 --> 00:23:37,119
Speaker 1: it was one of the one of the ones I

399
00:23:37,200 --> 00:23:39,879
Speaker 1: streamed kind of had to bench stream sort of, but

400
00:23:40,000 --> 00:23:43,080
Speaker 1: to see also the season I ended up at also

401
00:23:43,200 --> 00:23:47,399
Speaker 1: being a cameo in the last last show with middle

402
00:23:47,440 --> 00:23:49,480
Speaker 1: Ditch the whole thing and being there in the Stanford

403
00:23:49,480 --> 00:23:54,199
Speaker 1: graduation and decorating his office and all that stuff. Anyway,

404
00:23:54,400 --> 00:23:59,239
Speaker 1: banking is super regulated but poorly regulated. But it's like

405
00:23:59,480 --> 00:24:03,600
Speaker 1: born kind of born tided the hip with the the state,

406
00:24:03,840 --> 00:24:06,679
Speaker 1: with the government because the central banks because of you know,

407
00:24:06,760 --> 00:24:09,520
Speaker 1: so they're just because they are about money, they're kind

408
00:24:09,520 --> 00:24:13,040
Speaker 1: of intertwined with government in why is it not everybody

409
00:24:13,119 --> 00:24:16,840
Speaker 1: understands because there's still private corporations, but they are super

410
00:24:17,000 --> 00:24:20,600
Speaker 1: duper connected. And just to put a little context about that.

411
00:24:20,720 --> 00:24:23,520
Speaker 1: In the in the first I don't know century of

412
00:24:23,720 --> 00:24:28,320
Speaker 1: American history, they weren't They were completely independent, and they

413
00:24:28,440 --> 00:24:31,720
Speaker 1: failed with shocking regularly because they were all because we

414
00:24:31,800 --> 00:24:36,199
Speaker 1: had regulations that also prevented them from from diversifying, so

415
00:24:36,240 --> 00:24:40,399
Speaker 1: they were very subject to local, you know, calamities, and

416
00:24:40,440 --> 00:24:43,119
Speaker 1: they just kept failing. And they're privately issued. Money was

417
00:24:43,320 --> 00:24:45,560
Speaker 1: good as long as it was good, and then it wasn't.

418
00:24:45,880 --> 00:24:47,919
Speaker 1: So then we decided to have a currency, and the

419
00:24:48,000 --> 00:24:51,720
Speaker 1: whole history of banking, etcetera, until we got to have

420
00:24:51,880 --> 00:24:55,080
Speaker 1: you know, national banks and these mammoth banks that consolidated

421
00:24:55,119 --> 00:24:58,440
Speaker 1: and consolidated, and and and and still thousands of other

422
00:24:58,680 --> 00:25:02,240
Speaker 1: of other banks. So just the bloated, huge system. But anyway,

423
00:25:02,320 --> 00:25:06,320
Speaker 1: so I was basically I've seen banking since I started

424
00:25:06,320 --> 00:25:09,600
Speaker 1: looking at it in two thousand and nine, and then

425
00:25:09,880 --> 00:25:14,560
Speaker 1: becoming involved in that, consumed with that, lobbying for policy.

426
00:25:14,720 --> 00:25:18,320
Speaker 1: You know, how I get from banking to technology and internet.

427
00:25:18,600 --> 00:25:22,040
Speaker 1: So here's what happened. So then it's two thousand and fifteen,

428
00:25:22,160 --> 00:25:25,719
Speaker 1: I'm kind of I've already spent like literally five years

429
00:25:25,760 --> 00:25:29,080
Speaker 1: of my life full time on banking where I just

430
00:25:29,119 --> 00:25:31,320
Speaker 1: came to look, you know, and and here I was,

431
00:25:31,520 --> 00:25:34,520
Speaker 1: you know, just just and and it's just kind of,

432
00:25:35,040 --> 00:25:37,639
Speaker 1: you know, it's a bit sickening to kind of be

433
00:25:37,680 --> 00:25:39,639
Speaker 1: in that environment. I'm like, wait a minute, I'm in

434
00:25:39,680 --> 00:25:43,160
Speaker 1: Silicon Valley. And now at that point, there was already

435
00:25:43,200 --> 00:25:46,679
Speaker 1: the first round of what's called tech lash. You know,

436
00:25:46,720 --> 00:25:49,480
Speaker 1: that was Canbrae Analytic Care. That was you know, that

437
00:25:49,600 --> 00:25:52,760
Speaker 1: was when all these tech companies stopped being you know,

438
00:25:52,800 --> 00:25:55,040
Speaker 1: the ones we love the most, and we started being

439
00:25:55,080 --> 00:25:57,880
Speaker 1: a little bit suspicious. You started having the people saying

440
00:25:57,920 --> 00:26:00,520
Speaker 1: it's addictive, and you know, that was the restaurant, not

441
00:26:00,640 --> 00:26:02,920
Speaker 1: Francis Hogan, which is more there, you know, the more

442
00:26:02,960 --> 00:26:06,199
Speaker 1: recent after you know, the election or whatever. But this

443
00:26:06,280 --> 00:26:11,760
Speaker 1: was kind of after two sixteen, you know, and into seventeen. So, um,

444
00:26:11,800 --> 00:26:15,560
Speaker 1: I became curious about this sector as a sector just

445
00:26:15,640 --> 00:26:19,200
Speaker 1: two because I come from my original interests in corporate governance.

446
00:26:19,240 --> 00:26:23,199
Speaker 1: Generally corporations run on behalf of shareholders and what's the implication,

447
00:26:23,359 --> 00:26:27,040
Speaker 1: which in banking I saw were disastrous, you know, because

448
00:26:27,040 --> 00:26:28,840
Speaker 1: they could get away with all this stuff they got

449
00:26:28,840 --> 00:26:32,320
Speaker 1: away with which was extremely inefficient and and included all

450
00:26:32,400 --> 00:26:35,240
Speaker 1: kinds of bad policies, tax subsidies of debt, all kinds

451
00:26:35,240 --> 00:26:37,720
Speaker 1: of things that I saw no reason for and just

452
00:26:37,800 --> 00:26:41,960
Speaker 1: somehow stuck bad bankruptcy any better. Well, so I wanted

453
00:26:42,000 --> 00:26:44,840
Speaker 1: to check. So I'm like, here is a sector that

454
00:26:45,240 --> 00:26:48,920
Speaker 1: has an sort of an origin that's completely different. In

455
00:26:49,280 --> 00:26:53,960
Speaker 1: other words, born free, born free in the sense that

456
00:26:54,240 --> 00:26:56,440
Speaker 1: you know, they got started in the private sector. A

457
00:26:56,480 --> 00:26:59,840
Speaker 1: lot of the even the innovations, the things that are

458
00:27:00,040 --> 00:27:01,880
Speaker 1: unful that we take for granted, the fact that our

459
00:27:01,960 --> 00:27:04,480
Speaker 1: email goes for free, that all of a sudden we

460
00:27:04,520 --> 00:27:08,920
Speaker 1: have all these all these communication technologies and Let's remember though,

461
00:27:09,040 --> 00:27:12,320
Speaker 1: that the Internet itself started with you know, with the

462
00:27:12,359 --> 00:27:16,080
Speaker 1: government started with dark bar and all of that set

463
00:27:16,320 --> 00:27:19,359
Speaker 1: began with NASA, right exactly. So let's remember that that

464
00:27:19,560 --> 00:27:22,200
Speaker 1: the government got it sort of started. And then obviously

465
00:27:22,200 --> 00:27:24,480
Speaker 1: there were a lot of innovations. There was a mouse,

466
00:27:24,640 --> 00:27:26,920
Speaker 1: and there was there of course, the browser, the first

467
00:27:26,960 --> 00:27:30,600
Speaker 1: search engines, all of that in the nineties. So it's

468
00:27:30,760 --> 00:27:35,200
Speaker 1: very young sector, uh, the Internet, and now we're all

469
00:27:35,240 --> 00:27:37,920
Speaker 1: digital now, all the way to mobile. So first it's

470
00:27:37,960 --> 00:27:41,040
Speaker 1: desktops and internet. When I sort of in the eighties,

471
00:27:41,760 --> 00:27:44,680
Speaker 1: we were writing emails in the eighties already, but it

472
00:27:44,720 --> 00:27:48,720
Speaker 1: was then there was laptop, and then there was mobile,

473
00:27:49,000 --> 00:27:51,920
Speaker 1: and so this whole move to you know, we got

474
00:27:51,920 --> 00:27:56,200
Speaker 1: our digital everywhere and we're so connected in the Worldwide Web,

475
00:27:56,240 --> 00:28:00,280
Speaker 1: which was pretty recent innovation sort of, you know, two

476
00:28:00,280 --> 00:28:04,800
Speaker 1: thousand early two thousand's UM was fascinating to me in

477
00:28:04,920 --> 00:28:08,920
Speaker 1: terms of how it interacts or not with with government

478
00:28:08,920 --> 00:28:12,320
Speaker 1: because people were beginning to think something's wrong with it.

479
00:28:12,960 --> 00:28:16,240
Speaker 1: Privacy issues, you know, net neutrality, I mean, there were

480
00:28:16,240 --> 00:28:18,879
Speaker 1: all these topics. I had no clue what the policy was.

481
00:28:19,000 --> 00:28:21,800
Speaker 1: I ended up taking a dip into banking regulation and

482
00:28:21,880 --> 00:28:25,960
Speaker 1: now what is there any what is the regulation of

483
00:28:26,240 --> 00:28:29,080
Speaker 1: How is it different from telephone? How is it different

484
00:28:29,119 --> 00:28:32,800
Speaker 1: from newspaper? How is it different from TV? You know what?

485
00:28:32,800 --> 00:28:36,760
Speaker 1: What sector does it disrupt? So let me jump in

486
00:28:36,800 --> 00:28:39,560
Speaker 1: and ask a question about that. Section to thirty is

487
00:28:39,600 --> 00:28:44,120
Speaker 1: a big regulation that tech companies get to use to say,

488
00:28:44,440 --> 00:28:47,960
Speaker 1: we're not a media company and we're not responsible for misinformation.

489
00:28:48,040 --> 00:28:51,200
Speaker 1: We're a platform. Tell us about section two thirty and

490
00:28:51,200 --> 00:28:52,960
Speaker 1: what we should know. Yeah, so I didn't know about

491
00:28:53,000 --> 00:28:56,240
Speaker 1: section to thirty until I started delving into this section

492
00:28:56,280 --> 00:28:58,480
Speaker 1: to thirty. What is it? There's a whole book about

493
00:28:58,520 --> 00:29:02,280
Speaker 1: the nineteen words that inched the Internet, and they are

494
00:29:02,640 --> 00:29:08,560
Speaker 1: and they are the government cannot you know, regulate, uh,

495
00:29:08,800 --> 00:29:12,600
Speaker 1: you know, cannot tell these companies they are immune from

496
00:29:12,640 --> 00:29:15,720
Speaker 1: any litigation on content now proceeding this, there were a

497
00:29:15,760 --> 00:29:19,840
Speaker 1: lot of lawsuits that were targeted at companies that actually

498
00:29:19,840 --> 00:29:23,920
Speaker 1: tried to moderate content, like compus that so you had,

499
00:29:24,000 --> 00:29:28,360
Speaker 1: you had, you had these servers, these platforms, and the

500
00:29:28,480 --> 00:29:32,640
Speaker 1: ones that claimed to do some moderation like to keep

501
00:29:32,680 --> 00:29:35,920
Speaker 1: it you know, family friendly or this, or that we're

502
00:29:36,280 --> 00:29:39,959
Speaker 1: getting sued for content that was left up you know,

503
00:29:40,160 --> 00:29:43,800
Speaker 1: some enemy of mind posted something that you know that

504
00:29:43,840 --> 00:29:47,120
Speaker 1: I was related to Columbine or some nude pictures of

505
00:29:47,160 --> 00:29:50,520
Speaker 1: me or whatever, and they constantly had to deal with

506
00:29:50,520 --> 00:29:55,800
Speaker 1: with being sued and so they wanted, uh, but the government.

507
00:29:55,880 --> 00:29:57,680
Speaker 1: So there was this sort of a bargain made with

508
00:29:57,720 --> 00:30:01,760
Speaker 1: them that we will give your immunity from lawsuits. And

509
00:30:01,800 --> 00:30:05,680
Speaker 1: the idea was that they would enable you to moderate.

510
00:30:06,640 --> 00:30:09,400
Speaker 1: In other words, you're a platform, not a creator of

511
00:30:09,440 --> 00:30:13,600
Speaker 1: original because people just post, okay, so you're not responsible

512
00:30:13,640 --> 00:30:16,120
Speaker 1: for that content. But of course then comes the slippery slope,

513
00:30:16,560 --> 00:30:20,760
Speaker 1: which is news feed, which is the data gathering that happens.

514
00:30:21,240 --> 00:30:25,040
Speaker 1: You know that that you know that that Facebook, for example,

515
00:30:25,160 --> 00:30:30,480
Speaker 1: collects and then ultimately misinformation and disinformation. Exactly are these

516
00:30:30,520 --> 00:30:34,520
Speaker 1: companies being responsible members of society or they hiding behind

517
00:30:36,200 --> 00:30:40,960
Speaker 1: when they they they're obviously for profit. I mean when

518
00:30:41,000 --> 00:30:43,600
Speaker 1: Google started, you know, and in that class we dug

519
00:30:43,640 --> 00:30:46,600
Speaker 1: into it. When Google started, the creators of Google where

520
00:30:46,600 --> 00:30:51,040
Speaker 1: at Stanford, uh, and they said at the time they

521
00:30:51,080 --> 00:30:55,920
Speaker 1: didn't like advertisements. They thought search should be run as

522
00:30:55,920 --> 00:30:59,680
Speaker 1: a nonprofit in the academic domain. And the Google started

523
00:30:59,720 --> 00:31:02,760
Speaker 1: with a Stanford Google search and then a web search,

524
00:31:02,960 --> 00:31:05,360
Speaker 1: so it started right at standard, just like you know

525
00:31:05,400 --> 00:31:08,400
Speaker 1: Facebook was was for you know, for college students to

526
00:31:08,440 --> 00:31:12,560
Speaker 1: meet people. And so then you know, Internet bubble bursts,

527
00:31:12,560 --> 00:31:16,000
Speaker 1: and they wanted to you know, get funding and go

528
00:31:16,160 --> 00:31:18,120
Speaker 1: public and all kinds of things like that. And then

529
00:31:18,120 --> 00:31:21,280
Speaker 1: investors who tried to buy them for a million dollars

530
00:31:21,400 --> 00:31:23,760
Speaker 1: and they said, let us think about it, and it didn't.

531
00:31:24,320 --> 00:31:26,680
Speaker 1: The deal never went down, and it turned out to

532
00:31:26,680 --> 00:31:30,440
Speaker 1: be quite financially remunerative to them, to the Google yes,

533
00:31:30,520 --> 00:31:33,400
Speaker 1: And so then they have their venture capitalists and they

534
00:31:33,400 --> 00:31:36,560
Speaker 1: have the people breathing down their necks to produce, uh,

535
00:31:36,680 --> 00:31:39,479
Speaker 1: and all of a sudden, all their nice words about

536
00:31:39,560 --> 00:31:43,360
Speaker 1: how they're against advertisers, then they were sort of you know,

537
00:31:44,000 --> 00:31:47,000
Speaker 1: uh they they that was then, and then they found

538
00:31:47,040 --> 00:31:51,280
Speaker 1: more and more and more ways to monetize the predictiveness

539
00:31:51,480 --> 00:31:55,040
Speaker 1: of where people are going and sell that to advertisers

540
00:31:55,040 --> 00:31:58,240
Speaker 1: and targeted ad and all of that by then also

541
00:31:58,360 --> 00:32:04,479
Speaker 1: destroying NewSpace papers, especially local newspapers, and therefore becoming and

542
00:32:04,520 --> 00:32:08,480
Speaker 1: then of course the way they curate. So now you're

543
00:32:08,480 --> 00:32:11,240
Speaker 1: gonna say, I didn't create this content. It's not my content.

544
00:32:11,600 --> 00:32:14,160
Speaker 1: You know, I will have some filters to remove you know,

545
00:32:14,280 --> 00:32:19,200
Speaker 1: naked people or whatever else and um, but but now

546
00:32:19,240 --> 00:32:22,360
Speaker 1: I'm gonna I'm going to curate a news feed to

547
00:32:22,520 --> 00:32:25,160
Speaker 1: you that I think is what you want to see. Now,

548
00:32:25,200 --> 00:32:27,120
Speaker 1: maybe what you want to see is the things that

549
00:32:27,360 --> 00:32:31,680
Speaker 1: you know you're gonna get aroused by that create engagement,

550
00:32:32,120 --> 00:32:34,560
Speaker 1: which became sort of the mantra for what they were

551
00:32:34,600 --> 00:32:38,920
Speaker 1: looking for is to get you to spend more time

552
00:32:39,080 --> 00:32:41,720
Speaker 1: and therefore give them more information. So you kind of

553
00:32:41,720 --> 00:32:44,480
Speaker 1: trace the business models and you step back and ask

554
00:32:44,600 --> 00:32:47,760
Speaker 1: what has that working out for us? And uh and

555
00:32:47,800 --> 00:32:52,000
Speaker 1: this surveillance capitalism, what will do with calls, etcetera? You know,

556
00:32:52,160 --> 00:32:54,840
Speaker 1: was beginning to not not work very well already in

557
00:32:54,880 --> 00:32:59,200
Speaker 1: two thousand, seventeen eighteen, and and the Silicon Valley HBO

558
00:32:59,240 --> 00:33:02,760
Speaker 1: series in the last season was sort of seeing that trend,

559
00:33:02,840 --> 00:33:05,680
Speaker 1: and they wanted to kind of capture the fact that

560
00:33:05,720 --> 00:33:08,040
Speaker 1: all of a sudden, Zuckerberg is in front of you know,

561
00:33:08,440 --> 00:33:12,040
Speaker 1: of congressional committees and and they're the sort of beginning

562
00:33:12,320 --> 00:33:15,440
Speaker 1: rumbling about what's going on there. So so let's break

563
00:33:15,480 --> 00:33:17,840
Speaker 1: this down to a couple of different topics, because there's

564
00:33:17,840 --> 00:33:20,360
Speaker 1: a lot of things going on, especially when we're talking

565
00:33:20,400 --> 00:33:24,760
Speaker 1: about Google and Facebook. So hold a side. Local newspapers

566
00:33:24,760 --> 00:33:30,320
Speaker 1: and others that were hurt by Google, Facebook, Craigslist, eBay,

567
00:33:30,400 --> 00:33:32,960
Speaker 1: go down all the lists of things that they used

568
00:33:33,000 --> 00:33:37,600
Speaker 1: to generate revenue from and a lot Zillo is another

569
00:33:37,600 --> 00:33:41,640
Speaker 1: one thing. All the ad revenue streams. For now, it's

570
00:33:41,640 --> 00:33:44,880
Speaker 1: pretty much subscription and a little bit of advertising. Um.

571
00:33:44,920 --> 00:33:47,240
Speaker 1: But let's talk about some of the big things you

572
00:33:47,240 --> 00:33:52,959
Speaker 1: you've brought up. Um. One is misinformation. The other is

573
00:33:54,120 --> 00:34:00,920
Speaker 1: the engagement that the algorithms are driving outrage not information.

574
00:34:02,200 --> 00:34:05,760
Speaker 1: What are the responsibilities of of these companies and what

575
00:34:05,800 --> 00:34:09,960
Speaker 1: are the responsibilities of regulators to to look over these

576
00:34:09,960 --> 00:34:13,520
Speaker 1: companies and say are they doing a good job or

577
00:34:13,640 --> 00:34:18,160
Speaker 1: are they causing societal damage? So I deve deeply into it,

578
00:34:18,160 --> 00:34:20,279
Speaker 1: and I'll give you just the brief answers. First of all,

579
00:34:20,440 --> 00:34:22,880
Speaker 1: you know, there is some debate about whether you know

580
00:34:22,960 --> 00:34:27,000
Speaker 1: why our ecosystem of sort of just engagement, you know,

581
00:34:27,040 --> 00:34:29,799
Speaker 1: with each other has gotten so toxic. And you know,

582
00:34:29,840 --> 00:34:32,319
Speaker 1: you can you know it doesn't It's not all from

583
00:34:32,320 --> 00:34:34,960
Speaker 1: the Internet. I mean you can talk about you know,

584
00:34:35,040 --> 00:34:38,720
Speaker 1: cable television and you know Rush, Limbo and and Fox

585
00:34:38,760 --> 00:34:42,480
Speaker 1: News or whatever whoever is your your you know, uh

586
00:34:42,719 --> 00:34:47,960
Speaker 1: channel that you think is is America's news network news Max.

587
00:34:48,400 --> 00:34:51,840
Speaker 1: So some of it is extremists have really got extreme.

588
00:34:52,400 --> 00:34:55,160
Speaker 1: So so exactly so, we had a certain polarization with

589
00:34:55,280 --> 00:34:58,600
Speaker 1: all the proliferation of of of of media outlets and

590
00:34:58,640 --> 00:35:01,680
Speaker 1: people choosing you know, their silos. So it's no longer

591
00:35:01,800 --> 00:35:06,120
Speaker 1: the evening news you know that gives you the truth anymore.

592
00:35:06,440 --> 00:35:09,080
Speaker 1: Everybody has their own truth and the Internet is just

593
00:35:09,160 --> 00:35:13,799
Speaker 1: one place where that happens. Now, the problem with with

594
00:35:13,920 --> 00:35:16,200
Speaker 1: the internet, and I think what what needs to happen.

595
00:35:16,200 --> 00:35:19,240
Speaker 1: So first of all, this country has a First Amendment,

596
00:35:19,400 --> 00:35:23,120
Speaker 1: which means that the government can't do much, can't stop

597
00:35:23,200 --> 00:35:27,040
Speaker 1: you from criticizing the government or engaging in political speech.

598
00:35:27,360 --> 00:35:30,360
Speaker 1: There are areas that can be restricted, but very little.

599
00:35:30,920 --> 00:35:35,760
Speaker 1: Well yeah, we're we're at the mercy of these private companies. Now.

600
00:35:36,440 --> 00:35:39,600
Speaker 1: The what we can do and what we can regulate

601
00:35:39,840 --> 00:35:45,759
Speaker 1: is just, first of all, what happens behind you know,

602
00:35:45,800 --> 00:35:49,360
Speaker 1: what is actually going on? What are people seeing? Let's see,

603
00:35:49,560 --> 00:35:55,440
Speaker 1: let's you have researchers unable to access the data to

604
00:35:55,600 --> 00:35:59,960
Speaker 1: even know how much misinformation? What are people reading? I mean,

605
00:36:00,000 --> 00:36:03,719
Speaker 1: you don't you know even in companies, yes, because they

606
00:36:03,719 --> 00:36:06,399
Speaker 1: don't release it because they do not they are not

607
00:36:06,800 --> 00:36:13,200
Speaker 1: forced to disclose relevant information to to the public, to researchers,

608
00:36:13,400 --> 00:36:16,600
Speaker 1: anonymized at all, but just so we can understand what

609
00:36:16,920 --> 00:36:20,000
Speaker 1: their impact on our lives. That seems like a pretty

610
00:36:20,040 --> 00:36:22,719
Speaker 1: fair trade for the government to say, we're going to

611
00:36:22,840 --> 00:36:27,279
Speaker 1: continue giving you Section to thirty protections, but in order

612
00:36:27,280 --> 00:36:29,440
Speaker 1: to qualify you have to release all this data. A

613
00:36:29,480 --> 00:36:34,720
Speaker 1: lot of data is the absolute starting point of that.

614
00:36:34,719 --> 00:36:38,439
Speaker 1: That seems like a fair amendment to keeping all these

615
00:36:39,200 --> 00:36:41,680
Speaker 1: So there are a few there are people more involved

616
00:36:41,719 --> 00:36:46,319
Speaker 1: in that policy debate. I basically became conversant enough at

617
00:36:46,400 --> 00:36:48,319
Speaker 1: least to teach a course. I haven't done a lot

618
00:36:48,320 --> 00:36:51,560
Speaker 1: of writing on it. I basically took it into my

619
00:36:51,719 --> 00:36:56,560
Speaker 1: examples of two sectors banking and the Internet that sort

620
00:36:56,560 --> 00:36:59,759
Speaker 1: of seemed to have some kind of a clash with

621
00:37:00,160 --> 00:37:05,560
Speaker 1: democracy basically because of the the need for government exemptions

622
00:37:05,560 --> 00:37:10,160
Speaker 1: and regulation and support in some way versus just the

623
00:37:10,200 --> 00:37:14,920
Speaker 1: wild West unfettered, because because you know, the government is

624
00:37:15,000 --> 00:37:18,240
Speaker 1: always there. It's what it does and what it doesn't

625
00:37:18,239 --> 00:37:21,360
Speaker 1: do for all sectors. It's the rules of the game

626
00:37:21,600 --> 00:37:25,640
Speaker 1: for the economy, and they affect all companies. That's labor

627
00:37:25,760 --> 00:37:29,440
Speaker 1: law environmental laws, you know, all kinds of consumer protection laws,

628
00:37:29,760 --> 00:37:33,120
Speaker 1: you know, and some specific regulations you know, airline regulation

629
00:37:33,360 --> 00:37:36,200
Speaker 1: or you know in others the rules, the speed limits,

630
00:37:36,200 --> 00:37:39,080
Speaker 1: that the rules of the road for for companies and

631
00:37:39,120 --> 00:37:41,440
Speaker 1: for people. Okay, you know, are you allowed to do

632
00:37:41,520 --> 00:37:44,520
Speaker 1: mandator arbitration or not? You know, there's just thousands of

633
00:37:44,600 --> 00:37:49,000
Speaker 1: things that were the law in general, not specialized to

634
00:37:49,040 --> 00:37:53,440
Speaker 1: a sector, but just the laws that exist, interdiscrimination or

635
00:37:53,480 --> 00:37:56,160
Speaker 1: you name it. I mean Facebook got in trouble for

636
00:37:56,239 --> 00:38:00,080
Speaker 1: allowing people to to mark race as as as a

637
00:38:00,080 --> 00:38:04,360
Speaker 1: as a thing in and put housing ads in front

638
00:38:04,360 --> 00:38:06,840
Speaker 1: of the people from certain race that was there. Was

639
00:38:07,160 --> 00:38:12,239
Speaker 1: against its supposed to be. Yeah, so they got against

640
00:38:12,600 --> 00:38:16,920
Speaker 1: basic civil rights law. Uh. That so they have to

641
00:38:16,960 --> 00:38:19,560
Speaker 1: interact with all laws. They have to obey all laws,

642
00:38:19,680 --> 00:38:22,799
Speaker 1: minimum wage, you know, all kinds of laws. And so

643
00:38:22,880 --> 00:38:26,799
Speaker 1: now that's my current interest, which is the corporation as

644
00:38:26,800 --> 00:38:29,720
Speaker 1: a legal person. They are not a set of assets

645
00:38:29,719 --> 00:38:33,480
Speaker 1: owned by shareholders. They are a separate thing, right, Twitter

646
00:38:33,640 --> 00:38:35,719
Speaker 1: is a thing. They have a board, they have shareholders,

647
00:38:35,719 --> 00:38:39,200
Speaker 1: They have various stakeholders. Everybody has some claim or some

648
00:38:39,360 --> 00:38:42,960
Speaker 1: control in some cases. How do they how does the

649
00:38:43,080 --> 00:38:45,520
Speaker 1: corporation as a legal person interact with the rule of

650
00:38:45,600 --> 00:38:50,400
Speaker 1: law in general, they have rights, they have responsibilities. Whose

651
00:38:50,440 --> 00:38:53,239
Speaker 1: home to get more and more rights? They send the

652
00:38:53,280 --> 00:38:55,240
Speaker 1: lawyers to get more and more rights in the courts,

653
00:38:55,800 --> 00:38:58,759
Speaker 1: political speech rights, religious rights. You know, they get more

654
00:38:58,800 --> 00:39:01,879
Speaker 1: and more rights in the courts, and responsibilities. There's kind

655
00:39:01,880 --> 00:39:04,440
Speaker 1: of nobody home when you come for you know, you

656
00:39:04,560 --> 00:39:07,320
Speaker 1: caused harm when you come for say Bowing or Purdue

657
00:39:07,719 --> 00:39:10,400
Speaker 1: or you know, p Jenny, all these companies. You know,

658
00:39:10,840 --> 00:39:14,240
Speaker 1: that's where I'm interested in now, a corporation living in

659
00:39:14,280 --> 00:39:19,200
Speaker 1: a legal environment. Who are they? What if they harm?

660
00:39:19,320 --> 00:39:22,160
Speaker 1: What happens? What can we do? Well? You name some

661
00:39:22,200 --> 00:39:25,640
Speaker 1: companies that have run a foul of the government because

662
00:39:25,680 --> 00:39:30,040
Speaker 1: they engaged in some pretty bad and sometimes reckless or

663
00:39:30,120 --> 00:39:34,759
Speaker 1: even illegal activity. So you mentioned Boeing, Um, they didn't

664
00:39:34,760 --> 00:39:38,359
Speaker 1: do a great job with their seven X right that

665
00:39:38,360 --> 00:39:41,680
Speaker 1: that was problematic. They took a bunch of shortcuts. Arguably

666
00:39:41,800 --> 00:39:44,799
Speaker 1: they did not follow their own internal when they were

667
00:39:44,800 --> 00:39:48,840
Speaker 1: competing with air Bus. Right. Um, you mentioned Purdue engaged

668
00:39:48,920 --> 00:39:51,520
Speaker 1: in all sorts of behavior where it was pretty clear,

669
00:39:52,040 --> 00:39:55,080
Speaker 1: hey we can't ship this much now that ship that

670
00:39:55,080 --> 00:39:57,799
Speaker 1: that was all the enablers around them the McKesson and

671
00:39:57,840 --> 00:40:01,320
Speaker 1: all the pharmacies and all of that Purdue other internal

672
00:40:02,080 --> 00:40:04,359
Speaker 1: This is a town of people. Why are they get

673
00:40:04,840 --> 00:40:08,480
Speaker 1: that was a distribution. They were marketing it through the

674
00:40:08,560 --> 00:40:13,440
Speaker 1: doctors and to the public, using false claims and misleading

675
00:40:13,560 --> 00:40:18,000
Speaker 1: deceptive marketing. Now what happened, No individual in Purdue was

676
00:40:18,200 --> 00:40:21,840
Speaker 1: you know, the three were criminally charged a couple of library.

677
00:40:21,960 --> 00:40:25,239
Speaker 1: So so you got that that's a problem. But yeah,

678
00:40:25,400 --> 00:40:27,799
Speaker 1: but you know, the Sacklers took away a whole bunch

679
00:40:27,800 --> 00:40:30,720
Speaker 1: of money to a private company, and then they sought

680
00:40:31,040 --> 00:40:36,200
Speaker 1: release from the bankruptcy of Purdue, not themselves, released from

681
00:40:36,200 --> 00:40:40,440
Speaker 1: all civiliabilities, which a court above bankruptcy court, you know,

682
00:40:40,800 --> 00:40:44,000
Speaker 1: struck down and now where we were nowhere. It's a mess.

683
00:40:44,160 --> 00:40:48,040
Speaker 1: That company, you know, cannot possibly make up for all

684
00:40:48,040 --> 00:40:51,680
Speaker 1: the harm they cost and what the Sackler's name is

685
00:40:51,719 --> 00:40:54,359
Speaker 1: obviously not as prestigious as it used to be. There

686
00:40:54,400 --> 00:40:56,800
Speaker 1: should be some claw back of the billions of dollars

687
00:40:56,800 --> 00:40:59,400
Speaker 1: that were extracted. This is like fraudulent conveyance. I mean,

688
00:40:59,440 --> 00:41:03,719
Speaker 1: you know, in bancruptcy usually you say you took money out,

689
00:41:03,760 --> 00:41:07,480
Speaker 1: you diverted money, you know, knowing that this thing is

690
00:41:07,640 --> 00:41:11,120
Speaker 1: gonna collapse. Yeah, so ahead of bankruptcy they can look

691
00:41:11,160 --> 00:41:14,280
Speaker 1: back acting on behalf of the but they were the owners,

692
00:41:14,400 --> 00:41:16,799
Speaker 1: I mean so exactly, so the creditors can. But now

693
00:41:16,840 --> 00:41:20,759
Speaker 1: the creditors of Purdue are, you know, mostly victims and

694
00:41:20,840 --> 00:41:23,400
Speaker 1: insurance companies and the government. And you know, so in

695
00:41:23,440 --> 00:41:27,320
Speaker 1: the bankruptcy court all these stort victims, including people whose

696
00:41:27,320 --> 00:41:31,600
Speaker 1: family members died, people who are addicted, you know, Medicare,

697
00:41:32,000 --> 00:41:34,720
Speaker 1: all the insurance companies that had to pay, all the municipalities,

698
00:41:34,760 --> 00:41:37,319
Speaker 1: all the states. I mean, you've got claimants from here

699
00:41:37,360 --> 00:41:39,520
Speaker 1: to and and the Department of Justice comes and says, well,

700
00:41:39,560 --> 00:41:42,760
Speaker 1: you you call Medicare fraud. You know, we want billions

701
00:41:42,760 --> 00:41:45,759
Speaker 1: of dollars. Who gets the little pie that that's for

702
00:41:45,840 --> 00:41:50,160
Speaker 1: the judge to assess. But you can't assess those damages

703
00:41:50,640 --> 00:41:54,279
Speaker 1: without having access to the capital. They said, we'll throw

704
00:41:54,360 --> 00:41:57,040
Speaker 1: in four billion dollars and give us a release and

705
00:41:57,160 --> 00:41:59,520
Speaker 1: we're out of here. And where is that right now?

706
00:42:00,320 --> 00:42:03,320
Speaker 1: It's it's nowhere. I mean, the bankruptcy court is back

707
00:42:03,440 --> 00:42:05,960
Speaker 1: to They had this sort of an agreement and it

708
00:42:06,040 --> 00:42:09,080
Speaker 1: was thrown out, which is very rare, and it tells

709
00:42:09,080 --> 00:42:12,479
Speaker 1: you how agreed. Just the behavior was. It's really rare.

710
00:42:12,560 --> 00:42:14,080
Speaker 1: You have to really go out of your way to

711
00:42:14,200 --> 00:42:17,360
Speaker 1: mess up for a bankruptcy court to say that, No,

712
00:42:17,440 --> 00:42:20,400
Speaker 1: it wasn't the bankrupt st they chose. They chose a

713
00:42:20,440 --> 00:42:24,600
Speaker 1: particular bankruptcy court, a particular bankruptcy judge. This is shopping

714
00:42:25,000 --> 00:42:28,759
Speaker 1: exactly form shopping. And then that judge was favorable to

715
00:42:28,840 --> 00:42:33,000
Speaker 1: these master agreements and and gave them that, and the

716
00:42:33,080 --> 00:42:37,160
Speaker 1: other courts said that doesn't make and so now it

717
00:42:37,360 --> 00:42:41,279
Speaker 1: got the bankruptcy agreement is back at the bankruptcy court.

718
00:42:41,560 --> 00:42:45,279
Speaker 1: And the victims, by the way, I'm not sure, but

719
00:42:45,560 --> 00:42:49,279
Speaker 1: the victims anyway, we're publishing saying, well, I wasn't going

720
00:42:49,320 --> 00:42:51,160
Speaker 1: to get very much. Maybe I was going to get,

721
00:42:51,200 --> 00:42:55,400
Speaker 1: you know, three thousand dollars or one thousand dollars, and

722
00:42:55,480 --> 00:42:58,520
Speaker 1: now I may not get anything. So they were even

723
00:42:58,560 --> 00:43:00,360
Speaker 1: they signed because it was so little they were going

724
00:43:00,440 --> 00:43:06,840
Speaker 1: to get anyway. Uh so it's it's all full speed ahead, litigated,

725
00:43:06,880 --> 00:43:09,760
Speaker 1: and well the question is so, so here's the question

726
00:43:09,760 --> 00:43:12,799
Speaker 1: for the victims. You know, can they actually go after

727
00:43:12,840 --> 00:43:15,600
Speaker 1: the sacklers? The sackler's money is abroad, how can you

728
00:43:15,640 --> 00:43:17,920
Speaker 1: actually find it? This is like the discussion we have today.

729
00:43:17,960 --> 00:43:20,239
Speaker 1: You could track that down and claude back if if

730
00:43:20,239 --> 00:43:24,080
Speaker 1: it's complicated, it's complicated. I mean that's like how we's

731
00:43:24,160 --> 00:43:27,760
Speaker 1: now say, Well, you know, can Delaware you know, chancery

732
00:43:27,840 --> 00:43:31,120
Speaker 1: court make Elon Musk you know by Twitter? It's like, okay,

733
00:43:31,120 --> 00:43:33,520
Speaker 1: the court can decide, but what muscle does the court

734
00:43:33,600 --> 00:43:36,080
Speaker 1: even happen? I want to talk about Elon Musk and

735
00:43:36,120 --> 00:43:43,399
Speaker 1: Twitter because the question becomes our contracts enforceable? When when

736
00:43:43,440 --> 00:43:46,160
Speaker 1: someone says can they make him do this? I don't

737
00:43:46,160 --> 00:43:48,880
Speaker 1: know his ascess from in the United States. He signed

738
00:43:48,880 --> 00:43:52,160
Speaker 1: a binding agreement. It's up to the court to just

739
00:43:52,440 --> 00:43:55,759
Speaker 1: to either enforce that agreement. You know how these things

740
00:43:55,760 --> 00:43:59,000
Speaker 1: happen in the eleventh hour, there'll be a deal cut

741
00:43:59,200 --> 00:44:01,600
Speaker 1: because no one wants to take a risk of finding

742
00:44:01,640 --> 00:44:06,480
Speaker 1: that out. Well, the question is what actual you know,

743
00:44:07,160 --> 00:44:13,480
Speaker 1: literal power does that Delaware chord have. Uh, you know

744
00:44:14,239 --> 00:44:19,759
Speaker 1: on Ellen Musk, he's known for you for saying the

745
00:44:19,960 --> 00:44:25,200
Speaker 1: rules don't apply to me and mocking SEC and making

746
00:44:25,200 --> 00:44:30,160
Speaker 1: a joke out of SEC. Whatever Delaware courts want to

747
00:44:30,239 --> 00:44:36,200
Speaker 1: continue people incorporating in Delaware and enforcing contract law, then

748
00:44:36,239 --> 00:44:39,560
Speaker 1: they have to really think about how they're gonna enforce

749
00:44:39,640 --> 00:44:42,040
Speaker 1: this because if he walks away Scott free from this,

750
00:44:42,719 --> 00:44:47,640
Speaker 1: then Delaware just lost. Yeah. I mean, you know, among

751
00:44:47,960 --> 00:44:50,560
Speaker 1: the books, there's a book called what's the Matter with Delaware?

752
00:44:50,920 --> 00:44:54,359
Speaker 1: And uh, and so that's quite I mean the fact,

753
00:44:54,400 --> 00:44:57,040
Speaker 1: you know, if you start going back to the origins

754
00:44:57,040 --> 00:44:59,640
Speaker 1: of incorporation and why we even have corporate law in

755
00:44:59,680 --> 00:45:03,080
Speaker 1: this eight and why Delaware you know, is sort of

756
00:45:03,160 --> 00:45:06,520
Speaker 1: the state that matters to the whole world on an

757
00:45:06,560 --> 00:45:11,040
Speaker 1: uncorporate law. That's that's the only business model it has

758
00:45:11,080 --> 00:45:13,759
Speaker 1: for the state is these fees. You can become a

759
00:45:13,800 --> 00:45:16,440
Speaker 1: corporation ten minutes if you if you paid it's not

760
00:45:16,600 --> 00:45:19,840
Speaker 1: that very much without even identifying yourself. And that's like

761
00:45:19,840 --> 00:45:23,320
Speaker 1: a whole other kind of warms. Why is the US

762
00:45:23,400 --> 00:45:28,520
Speaker 1: so slow in in in you know, basic basic transparencies

763
00:45:28,520 --> 00:45:33,040
Speaker 1: that you have more transparency in China. You know, David

764
00:45:33,120 --> 00:45:36,520
Speaker 1: Barboza was able to track the wealth of the top

765
00:45:36,600 --> 00:45:40,040
Speaker 1: Chinese people through chains of corporate ownerships because for it's

766
00:45:40,040 --> 00:45:41,680
Speaker 1: a little bit of money, you can find out the

767
00:45:41,719 --> 00:45:45,080
Speaker 1: actual beneficial owners of every private corporation. And that's another

768
00:45:45,080 --> 00:45:47,040
Speaker 1: corporation that you can pay a little bit more in

769
00:45:47,120 --> 00:45:49,920
Speaker 1: pain until you get to a person not in the US.

770
00:45:50,000 --> 00:45:52,880
Speaker 1: In the US, you know, because Delaware likes it, and

771
00:45:52,960 --> 00:45:55,080
Speaker 1: because other states to compete with Delaware like it, and

772
00:45:55,080 --> 00:45:58,160
Speaker 1: because the legal professional likes it, we somehow sign on

773
00:45:58,200 --> 00:46:01,759
Speaker 1: all kinds of agreements that are sort of you know,

774
00:46:01,800 --> 00:46:04,920
Speaker 1: for transparency. After all the scandals, the Pandora paper, the

775
00:46:05,560 --> 00:46:08,279
Speaker 1: Panama paper and all of that, and then and where

776
00:46:08,320 --> 00:46:11,080
Speaker 1: the laggards in the world. So right now, finally because

777
00:46:11,080 --> 00:46:15,239
Speaker 1: of sanctions on on Ukraine, etcetera, we have a law

778
00:46:15,320 --> 00:46:18,839
Speaker 1: going through the Enablers Act, and that is expansion of

779
00:46:18,880 --> 00:46:21,960
Speaker 1: the bank Secrecy Law, which is basically your know your customers.

780
00:46:22,000 --> 00:46:24,680
Speaker 1: But we had you know, Finns and uh. You know

781
00:46:24,760 --> 00:46:27,280
Speaker 1: that the Department and Treasury that gets all these suspicious

782
00:46:27,280 --> 00:46:31,480
Speaker 1: activity report you know, leak and we saw what happens

783
00:46:31,719 --> 00:46:35,279
Speaker 1: to all these banks that file suspicious activity report and

784
00:46:35,320 --> 00:46:38,760
Speaker 1: still process the transaction and nobody has enough resources in

785
00:46:38,760 --> 00:46:43,520
Speaker 1: the Party and Treasury go over and the money laundering

786
00:46:43,640 --> 00:46:47,040
Speaker 1: is just pervasive. So dirty money. When we talk about

787
00:46:47,080 --> 00:46:50,400
Speaker 1: jurisdictions taking dirty money, you know, it's a competition between

788
00:46:50,480 --> 00:46:53,839
Speaker 1: US and UK. You have American cryptocracy on one hand,

789
00:46:54,160 --> 00:46:56,759
Speaker 1: you have you know, Butler to the World and all

790
00:46:56,800 --> 00:47:00,359
Speaker 1: kinds of other books money, land and and cliptalk see

791
00:47:00,680 --> 00:47:03,960
Speaker 1: um Lecto Mania saying that the UK is the winner

792
00:47:04,080 --> 00:47:07,839
Speaker 1: on this. You know which one is more um over

793
00:47:07,920 --> 00:47:10,359
Speaker 1: Home to dirty money but Ler to the world is like,

794
00:47:10,400 --> 00:47:13,120
Speaker 1: you know, we were no longer an empire. But also

795
00:47:13,160 --> 00:47:15,520
Speaker 1: if you want something hidden, you want something taken care of,

796
00:47:15,600 --> 00:47:18,839
Speaker 1: the butler will take care of it. Quite quite fascinating.

797
00:47:19,280 --> 00:47:24,080
Speaker 1: So we already talked about borrowing and how that magnifies risk,

798
00:47:24,320 --> 00:47:27,520
Speaker 1: tell us some of the dark side of borrowing and

799
00:47:27,680 --> 00:47:31,359
Speaker 1: what we should be doing about that. So the use

800
00:47:31,400 --> 00:47:34,200
Speaker 1: of debt to fund things, meaning I give you money,

801
00:47:34,520 --> 00:47:38,120
Speaker 1: then I get an IOU from you, okay, uh is

802
00:47:38,239 --> 00:47:40,440
Speaker 1: pervasive throughout the economy. I mean it's sort of a

803
00:47:40,440 --> 00:47:45,080
Speaker 1: particular contract that that gets signed all the time, and

804
00:47:45,239 --> 00:47:49,919
Speaker 1: a lot happens by using that funding, okay. And we

805
00:47:50,040 --> 00:47:53,960
Speaker 1: seem to encourage it unnecessarily for buying houses or for

806
00:47:53,960 --> 00:47:57,440
Speaker 1: funding corporations against other forms of funding. Well, when you

807
00:47:57,480 --> 00:48:00,520
Speaker 1: say for buying housing, how else can you buy, Well,

808
00:48:00,920 --> 00:48:02,560
Speaker 1: it depends if you want to subsidize it or not.

809
00:48:02,640 --> 00:48:07,600
Speaker 1: In this country, we subsidize homeownership only if you borrow

810
00:48:08,440 --> 00:48:12,640
Speaker 1: through taxes. So we don't need, we don't need that deduction.

811
00:48:12,719 --> 00:48:15,319
Speaker 1: That deduction has got doing nothing good. If you want

812
00:48:15,320 --> 00:48:18,640
Speaker 1: to subsidize homeownership, choose the people you want to subsidize,

813
00:48:18,719 --> 00:48:20,399
Speaker 1: and then for example, you can give them a little

814
00:48:20,440 --> 00:48:24,360
Speaker 1: tax credit for their down payment. So in other words,

815
00:48:24,360 --> 00:48:28,080
Speaker 1: instead of making the interest you pay on your mortgage deductible,

816
00:48:28,400 --> 00:48:31,560
Speaker 1: you can make the down payment deductible. And that would

817
00:48:31,680 --> 00:48:35,960
Speaker 1: encourage for homeownership. But but specific people, not the rich,

818
00:48:36,160 --> 00:48:40,280
Speaker 1: because right now housing subsidies, even with poor people, specific

819
00:48:40,320 --> 00:48:43,239
Speaker 1: housing subsidies and vouchers that nobody takes, and all of that,

820
00:48:43,800 --> 00:48:46,920
Speaker 1: the most of the subsidies for housing go to rich people.

821
00:48:47,200 --> 00:48:49,920
Speaker 1: I mean that makes sense. The more the bigger the

822
00:48:49,960 --> 00:48:53,920
Speaker 1: house to be bigger the deduction. It's a regressive places

823
00:48:53,920 --> 00:48:56,279
Speaker 1: it's been capped, but it should be canceled, and many

824
00:48:56,360 --> 00:48:59,880
Speaker 1: countries don't have it now. For corporations across the world,

825
00:49:00,320 --> 00:49:05,280
Speaker 1: the historical mistake was made to allow tax doctibility of interest.

826
00:49:05,560 --> 00:49:09,120
Speaker 1: Where you know that funding is a funding expense not

827
00:49:09,239 --> 00:49:12,200
Speaker 1: a business expense, should not be considered a business expense.

828
00:49:12,640 --> 00:49:15,280
Speaker 1: We should not favor that over equity funding for corporations

829
00:49:15,280 --> 00:49:18,279
Speaker 1: because they can always have access to their own profits

830
00:49:18,320 --> 00:49:22,319
Speaker 1: and two investors. Because that's global, that's pretty global. Some

831
00:49:22,360 --> 00:49:24,560
Speaker 1: countries try to fix that. So there are some papers

832
00:49:24,600 --> 00:49:28,319
Speaker 1: about that tax bias. Well, I think that, you know,

833
00:49:28,680 --> 00:49:32,480
Speaker 1: I think Belgium's tried to have some there were other

834
00:49:32,520 --> 00:49:36,160
Speaker 1: countries that were giving impure, you know, something to dividends

835
00:49:36,160 --> 00:49:38,719
Speaker 1: and try to fix that bias, that tax bias. It

836
00:49:38,840 --> 00:49:43,719
Speaker 1: is well known that the tax bias, UH of that

837
00:49:44,000 --> 00:49:47,400
Speaker 1: over equity is a distortion and the economy, the economies

838
00:49:47,440 --> 00:49:51,640
Speaker 1: had periodically starts and even Bloomberg here Bloomberg view UH

839
00:49:51,719 --> 00:49:55,560
Speaker 1: screams every so often to stop that, uh, and somehow

840
00:49:55,560 --> 00:49:59,520
Speaker 1: nobody is listening. So it's just this persistent distortion that

841
00:49:59,560 --> 00:50:02,960
Speaker 1: we never fixed. In the United States, the bias towards

842
00:50:03,000 --> 00:50:08,120
Speaker 1: debt over equity is distorting capital structures in corporate America

843
00:50:08,280 --> 00:50:11,040
Speaker 1: because debt has a dark side, precisely for that reason,

844
00:50:11,800 --> 00:50:13,800
Speaker 1: they're the dark side of that. I mean, I already

845
00:50:13,840 --> 00:50:16,960
Speaker 1: mentioned the sort of addictiveness of debt at high levels, okay,

846
00:50:16,960 --> 00:50:19,920
Speaker 1: which is especially true for banking because they are heavily

847
00:50:19,920 --> 00:50:23,160
Speaker 1: indebted fundamentally and because they have all the safety nets

848
00:50:23,200 --> 00:50:27,080
Speaker 1: that make their creditors more passive. UM, and that allow

849
00:50:27,120 --> 00:50:29,000
Speaker 1: them to wratch it up the debt. So I have

850
00:50:29,080 --> 00:50:31,520
Speaker 1: a theory paper that I learned a lot from called

851
00:50:31,680 --> 00:50:36,680
Speaker 1: leverage ratchet effect and Jona Fanesce two has an eighteen. Anyway,

852
00:50:36,960 --> 00:50:39,440
Speaker 1: so what's a dark side? You know? When I teach

853
00:50:39,520 --> 00:50:42,040
Speaker 1: this and I also teach undergraduates. And by the way,

854
00:50:42,200 --> 00:50:44,560
Speaker 1: I'm not even teaching finance and economics anymore. I'm teaching

855
00:50:44,560 --> 00:50:47,880
Speaker 1: so interdisciplinary that it's it's listed in political science and

856
00:50:47,920 --> 00:50:50,520
Speaker 1: it sort of has a lot of law. It's it's

857
00:50:50,680 --> 00:50:54,759
Speaker 1: very out of silo, it's very very crost disciplinary. Um So,

858
00:50:54,880 --> 00:50:56,960
Speaker 1: I took my class out of the financial listing. It's

859
00:50:57,040 --> 00:51:00,360
Speaker 1: kind of a general kind of class. Let's call power

860
00:51:00,400 --> 00:51:03,759
Speaker 1: in finance or business and government, power and engagement, those

861
00:51:03,840 --> 00:51:06,040
Speaker 1: kinds of courses where I start with like human rights

862
00:51:06,080 --> 00:51:08,360
Speaker 1: and I talk about corruption and all kinds of words

863
00:51:08,400 --> 00:51:10,840
Speaker 1: that usually are not to be heard in the business

864
00:51:10,880 --> 00:51:14,840
Speaker 1: courl But anyway, there uh back to the dark side

865
00:51:14,840 --> 00:51:19,520
Speaker 1: of borrowing of that. Um So, you know, as long

866
00:51:19,680 --> 00:51:25,680
Speaker 1: as you keep your promise, everybody is happy. Okay, what if? So? So,

867
00:51:25,719 --> 00:51:28,960
Speaker 1: there are different terminologies that are important to distinguish. There's

868
00:51:29,200 --> 00:51:32,160
Speaker 1: the issue of default. What if you just don't pay

869
00:51:32,200 --> 00:51:35,040
Speaker 1: you promise, and you don't keep your promise. Now you know,

870
00:51:35,120 --> 00:51:37,840
Speaker 1: stuff can happen. You might end up filing for bankruptcy.

871
00:51:37,880 --> 00:51:39,800
Speaker 1: But bankruptcy is a legal process, so it has to

872
00:51:39,840 --> 00:51:43,160
Speaker 1: be separated from default. It can happen before default. You know,

873
00:51:43,200 --> 00:51:46,560
Speaker 1: Pigeon I filed for bankruptcy. Companies filed for bankruptcy without

874
00:51:46,600 --> 00:51:50,840
Speaker 1: defaulting to seek protection from their creditors. Okay, So bankruptcy

875
00:51:50,880 --> 00:51:54,640
Speaker 1: is like an legal option that is for for you know,

876
00:51:54,719 --> 00:51:57,200
Speaker 1: to to kind of get from from all the overhangs

877
00:51:57,200 --> 00:52:00,000
Speaker 1: of that that prevent you from breathing. Okay. It's more

878
00:52:00,040 --> 00:52:04,000
Speaker 1: of a full repreemptive restructure. It's supposed to be. It's

879
00:52:04,040 --> 00:52:06,959
Speaker 1: supposed to be sort of forgiving, not for an individual. Again,

880
00:52:07,000 --> 00:52:09,600
Speaker 1: it's like a fresh restart or forgiving of taking too

881
00:52:09,680 --> 00:52:11,760
Speaker 1: much that. But if you use it as a shield

882
00:52:12,040 --> 00:52:15,000
Speaker 1: like we discussed the Sacklers, etcetera. Or if you start

883
00:52:15,040 --> 00:52:17,120
Speaker 1: spinning off a subsidiary, is it's going to take off

884
00:52:17,239 --> 00:52:20,520
Speaker 1: your talcoum liability. If you're Johnson and Johnson using some

885
00:52:20,640 --> 00:52:23,960
Speaker 1: to Texas to step track or whatever, or your visor

886
00:52:24,160 --> 00:52:26,759
Speaker 1: and you know, and they found you guilty of some

887
00:52:26,880 --> 00:52:31,560
Speaker 1: fraud and you just put it, yes, Fiser, Yeah, we

888
00:52:31,840 --> 00:52:34,680
Speaker 1: asked Jode drake Off about that. Well, uh, and he'll

889
00:52:34,680 --> 00:52:37,359
Speaker 1: take you their own recidivist. In the Southern district, there

890
00:52:37,400 --> 00:52:39,840
Speaker 1: are a cidivice corporation. He loves to give the example

891
00:52:39,880 --> 00:52:43,480
Speaker 1: of Viser even after the after the COVID and and

892
00:52:43,520 --> 00:52:45,319
Speaker 1: he says they would keep coming back. They would be

893
00:52:45,360 --> 00:52:48,680
Speaker 1: a deferred persecution, So why we keep deferring it? And

894
00:52:48,719 --> 00:52:53,040
Speaker 1: then once I insisted they admit guilt, they send the liability,

895
00:52:53,360 --> 00:52:56,080
Speaker 1: the criminal ability to a subsidiary and they failed that

896
00:52:56,160 --> 00:52:59,760
Speaker 1: subsidiary and go and completely continue. And does that shield

897
00:52:59,760 --> 00:53:03,200
Speaker 1: the company from liability? They managed to find tricks to

898
00:53:03,280 --> 00:53:06,319
Speaker 1: shield from liability all the time, or two to just

899
00:53:06,400 --> 00:53:09,160
Speaker 1: sort of shift the liabilities around kind of in between

900
00:53:09,200 --> 00:53:11,319
Speaker 1: all the contracts and the covenants and all of that.

901
00:53:11,400 --> 00:53:14,799
Speaker 1: So there's a lot of shielding, uh going on. But

902
00:53:14,840 --> 00:53:17,000
Speaker 1: in any case, that's if you're clever, if you're an

903
00:53:17,040 --> 00:53:20,520
Speaker 1: individual or small business, you know it's hard, it's it's harder,

904
00:53:20,520 --> 00:53:23,680
Speaker 1: it's harder for you to play those games of liability

905
00:53:23,760 --> 00:53:27,719
Speaker 1: shifting anyway. So you know the dark side is that

906
00:53:27,800 --> 00:53:31,960
Speaker 1: you have that your decisions once indebted are very different

907
00:53:32,000 --> 00:53:35,880
Speaker 1: and potentially very inefficient relative to if you're just doing

908
00:53:35,920 --> 00:53:39,000
Speaker 1: things on your in your own money versus that that

909
00:53:39,120 --> 00:53:41,400
Speaker 1: board money and a little bit of your own money,

910
00:53:41,480 --> 00:53:45,040
Speaker 1: because you're gonna take excessive risk, You're gonna gamble for insurrection,

911
00:53:45,080 --> 00:53:47,439
Speaker 1: take excessive risks. So you're based in favor of risks,

912
00:53:47,640 --> 00:53:51,879
Speaker 1: in favor of more boring, and against certain boring investments

913
00:53:51,960 --> 00:53:54,880
Speaker 1: because they benefit from those, and that present value of

914
00:53:54,920 --> 00:53:57,960
Speaker 1: those kind of first goes to the creditor because you're

915
00:53:58,000 --> 00:54:00,799
Speaker 1: after So you might be based again making a boring

916
00:54:00,840 --> 00:54:03,000
Speaker 1: business loan if you're a bank, because you want to

917
00:54:03,000 --> 00:54:06,160
Speaker 1: go play derivative instead. So so you talk about the

918
00:54:06,239 --> 00:54:11,960
Speaker 1: problem of working with other people's money, meaning whether it's banks,

919
00:54:12,480 --> 00:54:15,160
Speaker 1: funds or private actually it doesn't matter. They get to

920
00:54:15,239 --> 00:54:18,759
Speaker 1: speculate with op M, keep the gains, but if there

921
00:54:18,760 --> 00:54:22,759
Speaker 1: are losses, it goes to rights. So how do we

922
00:54:23,360 --> 00:54:25,600
Speaker 1: how do we deal with that in our financial system?

923
00:54:25,600 --> 00:54:29,160
Speaker 1: How do we make our system less fragile than it

924
00:54:29,200 --> 00:54:31,360
Speaker 1: appears to be, the first thing to do is to

925
00:54:31,560 --> 00:54:36,720
Speaker 1: counter the forces of that intense desire to keep leveraging,

926
00:54:37,160 --> 00:54:41,600
Speaker 1: which you know, I sometimes say the more they hate equity,

927
00:54:41,760 --> 00:54:43,359
Speaker 1: the more I know they have too little of it.

928
00:54:44,080 --> 00:54:47,200
Speaker 1: You know, it's like their intense hate of it says,

929
00:54:47,520 --> 00:54:50,480
Speaker 1: I can't live unless you give me cheap debt to

930
00:54:50,800 --> 00:54:54,200
Speaker 1: keep rolling my my debt. You know all default, terrible

931
00:54:54,200 --> 00:54:58,040
Speaker 1: things will happen or whatever. So they have always access

932
00:54:58,040 --> 00:54:59,960
Speaker 1: to funding, especially if you're a two big to fail bank.

933
00:55:00,239 --> 00:55:03,439
Speaker 1: The creditors will just not think, especially if they lend

934
00:55:03,480 --> 00:55:06,279
Speaker 1: to you with collateral in short term, that that they

935
00:55:06,280 --> 00:55:08,680
Speaker 1: will be harmed. You know, once they think they are harmed,

936
00:55:08,719 --> 00:55:11,160
Speaker 1: you know, they'll start running off, etcetera. So you have

937
00:55:11,239 --> 00:55:15,040
Speaker 1: fragile funding. The only counter to that is not you know,

938
00:55:15,200 --> 00:55:17,520
Speaker 1: clever death that converts to equity that nobody's going to

939
00:55:17,560 --> 00:55:21,600
Speaker 1: ever trigger, which because we've seen that is playing old equity.

940
00:55:21,800 --> 00:55:24,640
Speaker 1: Your earnings, you know what I mean, You have profits

941
00:55:24,640 --> 00:55:27,360
Speaker 1: that you pay out. How will the world be harmed?

942
00:55:27,600 --> 00:55:30,080
Speaker 1: You know, for ten years now, the book is almost

943
00:55:30,160 --> 00:55:33,799
Speaker 1: ten years old, we've been asking every so often, you know,

944
00:55:33,920 --> 00:55:36,520
Speaker 1: macro economies. All kinds of people speak in this space,

945
00:55:36,640 --> 00:55:40,319
Speaker 1: even academics, saying, just tell me one thing, as an economist,

946
00:55:40,800 --> 00:55:43,880
Speaker 1: how will the world society be harmed? If the banks

947
00:55:43,920 --> 00:55:48,680
Speaker 1: retain their earnings, there's still their money, never played. But

948
00:55:48,800 --> 00:55:50,919
Speaker 1: they but you put the money to good used, don't

949
00:55:50,920 --> 00:55:53,680
Speaker 1: burn it, you know, invested. You know, if you're invested

950
00:55:53,800 --> 00:55:56,040
Speaker 1: something safe, the risks of the shareholders will go down

951
00:55:56,200 --> 00:55:59,239
Speaker 1: and they require return accordingly, because we know financiers can

952
00:55:59,280 --> 00:56:02,040
Speaker 1: return our into two wind risk and required return. Why

953
00:56:02,120 --> 00:56:05,080
Speaker 1: is Warren Buffet never paying dividends because he's investing the

954
00:56:05,080 --> 00:56:07,080
Speaker 1: money on behalf of his shaholders. So are we not

955
00:56:07,160 --> 00:56:10,200
Speaker 1: so one Buffet himself when he invested in paying I

956
00:56:10,239 --> 00:56:13,000
Speaker 1: know when he well, yeah, because that's a more texted

957
00:56:13,280 --> 00:56:16,959
Speaker 1: advantageous and comes back. You know, it's funny, you keep

958
00:56:17,239 --> 00:56:21,680
Speaker 1: it keeps circling around. It often comes back to what's

959
00:56:21,800 --> 00:56:27,480
Speaker 1: most tax advantaged. How you can to somebody else, If

960
00:56:27,520 --> 00:56:30,200
Speaker 1: you can shift the downside to somebody and you can

961
00:56:30,200 --> 00:56:33,160
Speaker 1: beat the upside. That's the bright side of leverage for

962
00:56:33,200 --> 00:56:36,000
Speaker 1: those who take it, if they can avoid the downside.

963
00:56:36,320 --> 00:56:39,319
Speaker 1: So the homeowner may or may not, you know, be

964
00:56:39,360 --> 00:56:42,880
Speaker 1: able to avoid the downside. But homeowners levered up took

965
00:56:43,239 --> 00:56:46,320
Speaker 1: you know, cash at refinancing and re levered and basically

966
00:56:46,520 --> 00:56:49,439
Speaker 1: cash a refinancing when the housing prices when the house

967
00:56:49,440 --> 00:56:51,560
Speaker 1: price goes up, is the same as paying dividends when

968
00:56:51,560 --> 00:56:53,720
Speaker 1: you make profit. It's the same. I ask my students,

969
00:56:53,840 --> 00:56:56,919
Speaker 1: what's the equivalent of cash our refinancing? Bethany McLean wrote,

970
00:56:56,920 --> 00:56:58,360
Speaker 1: the house is not a credit card. But that was

971
00:56:58,400 --> 00:57:01,240
Speaker 1: the ads, you know, take him, take your home on vacation,

972
00:57:01,520 --> 00:57:04,080
Speaker 1: you know, before the financial crisis. So this is like

973
00:57:04,160 --> 00:57:07,520
Speaker 1: the dividends that their regulators are allowing banks to keep

974
00:57:07,520 --> 00:57:11,120
Speaker 1: paying even though they live on pathetically low equity meaningful

975
00:57:11,160 --> 00:57:13,840
Speaker 1: equity levels. Now they don't default, so you don't see

976
00:57:14,000 --> 00:57:18,120
Speaker 1: that they may well be insolvent. We just don't know

977
00:57:18,200 --> 00:57:22,439
Speaker 1: it because the accounting disclosures don't really show you. How

978
00:57:22,520 --> 00:57:26,120
Speaker 1: should we fix this? What should banks and financial institutions

979
00:57:26,560 --> 00:57:29,400
Speaker 1: be doing differently? How should we change the task code

980
00:57:29,400 --> 00:57:31,520
Speaker 1: and the regulatory You know, first of all, you have

981
00:57:31,600 --> 00:57:35,080
Speaker 1: to ease out of that of that tax preferences, and

982
00:57:35,080 --> 00:57:39,920
Speaker 1: and secondly you just against what their incentives are. You know,

983
00:57:40,000 --> 00:57:43,120
Speaker 1: if it's a tax subsidy, it comes out of somewhere.

984
00:57:43,440 --> 00:57:46,760
Speaker 1: I'm even willing to settle on the tax bill as

985
00:57:46,880 --> 00:57:50,120
Speaker 1: an amount of cash that they owe, that's a function

986
00:57:50,240 --> 00:57:52,160
Speaker 1: or that's the same as right now, except if they

987
00:57:52,200 --> 00:57:54,240
Speaker 1: didn't level as much in order to get that same

988
00:57:54,280 --> 00:57:56,560
Speaker 1: tax bill in other ways to lower their tax bill,

989
00:57:56,920 --> 00:58:00,840
Speaker 1: because it's the fragility of that overhang, the inefficiency of

990
00:58:00,880 --> 00:58:05,360
Speaker 1: that overhang, that is making the entire system fragile because

991
00:58:05,680 --> 00:58:08,680
Speaker 1: in the dynamics of contagion, which we explained the banking dominoes,

992
00:58:08,840 --> 00:58:10,880
Speaker 1: you know, one default on another like we're seeing in

993
00:58:10,880 --> 00:58:15,160
Speaker 1: crypto right now, and and um. And then there's the

994
00:58:15,200 --> 00:58:18,520
Speaker 1: information contagion where you know, I'm now worried that this

995
00:58:18,560 --> 00:58:21,000
Speaker 1: whole sector or is going to fail. You know, Leman fails,

996
00:58:21,000 --> 00:58:23,960
Speaker 1: and the next thing to fall is some other banks

997
00:58:24,000 --> 00:58:25,960
Speaker 1: in the same business. And that was, by the way,

998
00:58:26,000 --> 00:58:27,960
Speaker 1: a concern of some people in the FED, even like

999
00:58:28,040 --> 00:58:32,240
Speaker 1: Kevin Walsh Uh after Bear Sterns was bailed out of

1000
00:58:32,560 --> 00:58:35,480
Speaker 1: that's because they all owned, they all own the same thing.

1001
00:58:36,200 --> 00:58:39,720
Speaker 1: They were to one another exactly. So people talk about

1002
00:58:39,800 --> 00:58:43,160
Speaker 1: Lehman like it's a domino that sent it off. I

1003
00:58:43,200 --> 00:58:45,840
Speaker 1: love to describe Lehman Brothers as the first house in

1004
00:58:45,880 --> 00:58:49,320
Speaker 1: the trailer park that the tornadoes. I have visuals in

1005
00:58:49,320 --> 00:58:51,880
Speaker 1: my ted X talk that basically have tall buildings and

1006
00:58:51,920 --> 00:58:54,480
Speaker 1: a color code them red for that grain for equity

1007
00:58:54,560 --> 00:58:56,959
Speaker 1: very little, and then the green disappears and they top

1008
00:58:57,000 --> 00:58:59,600
Speaker 1: along one another, and then there's Uncle Sam kind of

1009
00:58:59,640 --> 00:59:02,439
Speaker 1: trying to trying to kind of uh so it all

1010
00:59:02,480 --> 00:59:06,480
Speaker 1: comes back to insufficient equity relative to way too much that.

1011
00:59:06,960 --> 00:59:09,600
Speaker 1: Oh yeah, that's that's just the most obvious thing. That's

1012
00:59:09,640 --> 00:59:12,560
Speaker 1: like the no brainer thing. So when you look at it,

1013
00:59:12,600 --> 00:59:15,280
Speaker 1: as I came and looked at it, I'm like, why

1014
00:59:15,280 --> 00:59:19,320
Speaker 1: are we here. There's a simple, like costless fix. You

1015
00:59:19,480 --> 00:59:23,320
Speaker 1: just rearrange the financial claims in the economy so where

1016
00:59:23,320 --> 00:59:26,440
Speaker 1: the upside, the people with the upside also bear the downside.

1017
00:59:26,480 --> 00:59:28,080
Speaker 1: That's the way it's supposed to be. It's not supposed

1018
00:59:28,120 --> 00:59:31,080
Speaker 1: to be, you know, it's privatized gain socialized losses. It's

1019
00:59:31,080 --> 00:59:35,200
Speaker 1: supposed to be. And this is a basic thing, bipartisan

1020
00:59:35,240 --> 00:59:39,840
Speaker 1: and everything. Didn't DoD Frank fix some of this, or

1021
00:59:39,920 --> 00:59:42,760
Speaker 1: it was reputed to have fixed some of this, or

1022
00:59:42,880 --> 00:59:45,920
Speaker 1: was it watered down that much so dot Frank. So

1023
00:59:46,000 --> 00:59:48,040
Speaker 1: let's just be clear on what dot Frank was. Dot

1024
00:59:48,040 --> 00:59:51,720
Speaker 1: Frank was a massive law with you know, a thousand pages.

1025
00:59:52,400 --> 00:59:57,400
Speaker 1: Dodd Frank gave authority to regulators. DoD Frank gave in

1026
00:59:57,600 --> 01:00:01,600
Speaker 1: Title one to the FED to solve the too big

1027
01:00:01,600 --> 01:00:04,680
Speaker 1: to fail problem, to do whatever they need for financial stability,

1028
01:00:04,760 --> 01:00:07,920
Speaker 1: and the FED is still failing to do that. Really, yes,

1029
01:00:08,680 --> 01:00:12,360
Speaker 1: so why have the bank's been relatively stable for it?

1030
01:00:12,440 --> 01:00:16,480
Speaker 1: Just because they don't It doesn't mean they're healthy, I guess,

1031
01:00:16,520 --> 01:00:20,320
Speaker 1: I guess, just doesn't mean if you if you're bloated

1032
01:00:20,320 --> 01:00:23,040
Speaker 1: and inefficient and taking up much of more of the

1033
01:00:23,080 --> 01:00:26,880
Speaker 1: economy than we need because you can. And meanwhile, you

1034
01:00:26,920 --> 01:00:29,360
Speaker 1: know you you're paying yourself and all these people, all

1035
01:00:29,400 --> 01:00:32,600
Speaker 1: these salaries where we should have a more efficient financial

1036
01:00:32,640 --> 01:00:36,360
Speaker 1: sector and instead it's so bloated and so profitable it

1037
01:00:36,440 --> 01:00:40,640
Speaker 1: comes out of somewhere. So you know, to to me,

1038
01:00:40,760 --> 01:00:43,960
Speaker 1: the banking sector is not healthy just because it exists

1039
01:00:43,960 --> 01:00:48,240
Speaker 1: in profitable. It doesn't necessarily mean yeah, you're you're you know,

1040
01:00:48,320 --> 01:00:52,600
Speaker 1: you're you're you're overweight and unhealthy, but you have the

1041
01:00:52,640 --> 01:00:56,480
Speaker 1: feeding tube, you know what I mean? Whatever analogy, what

1042
01:00:56,480 --> 01:00:58,320
Speaker 1: do you think is going to happen? So not I'm

1043
01:00:58,320 --> 01:01:00,840
Speaker 1: not gonna ask you for rate for casked or what

1044
01:01:00,960 --> 01:01:05,120
Speaker 1: the Fed's going to do the era of cheap capital

1045
01:01:05,200 --> 01:01:08,600
Speaker 1: and free money and zero interest rate clearly is coming

1046
01:01:08,600 --> 01:01:11,280
Speaker 1: to an end, are we is the tide going out

1047
01:01:11,320 --> 01:01:13,440
Speaker 1: and we're going to find out who's been swimming naked

1048
01:01:13,960 --> 01:01:16,840
Speaker 1: in banking? I don't think so for banks. Actually, you know,

1049
01:01:16,920 --> 01:01:19,880
Speaker 1: higher interest rates could be very profitable. Yeah, more spreads.

1050
01:01:19,920 --> 01:01:25,280
Speaker 1: So they're actually having some trouble with squeezed you know, yields.

1051
01:01:25,520 --> 01:01:29,520
Speaker 1: Uh So the pushback to that, Hey, they weren't making

1052
01:01:29,560 --> 01:01:33,440
Speaker 1: big spreads on lending and they still managed to not implode.

1053
01:01:33,480 --> 01:01:36,040
Speaker 1: If they could survive zero, they should do well at

1054
01:01:36,080 --> 01:01:38,919
Speaker 1: two or three. But these but these banks have so much,

1055
01:01:39,000 --> 01:01:40,920
Speaker 1: so many ways to make money. I mean, look at

1056
01:01:40,960 --> 01:01:43,520
Speaker 1: look at you know, look at the COVID. Okay, look

1057
01:01:43,520 --> 01:01:46,520
Speaker 1: at how how they made money through COVID with the

1058
01:01:46,600 --> 01:01:49,560
Speaker 1: supports to everybody, I mean banks, with the vehicle through

1059
01:01:49,600 --> 01:01:52,920
Speaker 1: which we gave p P longs and what was But

1060
01:01:53,040 --> 01:01:57,360
Speaker 1: it went fall for the banks they were given. I

1061
01:01:57,400 --> 01:01:59,960
Speaker 1: think they they took the money at the quarter percent

1062
01:02:00,040 --> 01:02:02,600
Speaker 1: and were paid one percent. So that's the spread right

1063
01:02:02,640 --> 01:02:06,200
Speaker 1: there on hundreds of billions of dollars. And then there

1064
01:02:06,280 --> 01:02:09,640
Speaker 1: was fees, and it was riskless, it was guaranteed and forgiven,

1065
01:02:10,040 --> 01:02:12,400
Speaker 1: and so they took no rice. They did hardly any

1066
01:02:12,520 --> 01:02:14,600
Speaker 1: credit worthiness because we were rushing to give the money

1067
01:02:14,600 --> 01:02:18,080
Speaker 1: out and and they were not liable for for for

1068
01:02:18,560 --> 01:02:21,720
Speaker 1: checking the papers because it was also rushed, they gave

1069
01:02:21,840 --> 01:02:23,920
Speaker 1: a lot of it to their favorite clients and then

1070
01:02:23,960 --> 01:02:25,520
Speaker 1: we needed to give more of it. Was a lot

1071
01:02:25,600 --> 01:02:28,840
Speaker 1: of fraud also built in that too, and uh and

1072
01:02:28,880 --> 01:02:31,680
Speaker 1: a lot of companies that shouldn't have it wasn't meant

1073
01:02:31,920 --> 01:02:36,080
Speaker 1: to God. And then the Fed was standing ready and

1074
01:02:36,160 --> 01:02:39,400
Speaker 1: started buying corporate bonds and that was a huge that

1075
01:02:39,600 --> 01:02:43,400
Speaker 1: spray for the entire corporate sector, which again the investment

1076
01:02:43,400 --> 01:02:46,880
Speaker 1: banks benefited from from all this. That party that went on,

1077
01:02:47,320 --> 01:02:51,120
Speaker 1: and so you know, it was it was wonderful life.

1078
01:02:51,200 --> 01:02:54,200
Speaker 1: And during COVID in the in the banking section. You know,

1079
01:02:54,280 --> 01:02:57,680
Speaker 1: it's funny you you brought that up because in the

1080
01:02:57,760 --> 01:03:03,600
Speaker 1: United States, we have a tendency to ask the corporate

1081
01:03:03,640 --> 01:03:07,520
Speaker 1: side to do things that should be government business. So

1082
01:03:07,560 --> 01:03:10,840
Speaker 1: if the whole idea behind PPP was to keep people

1083
01:03:10,880 --> 01:03:15,360
Speaker 1: employed in small and medium businesses, why get the business involved.

1084
01:03:15,360 --> 01:03:18,520
Speaker 1: Why isn't that directly from the government. And the same

1085
01:03:18,520 --> 01:03:22,360
Speaker 1: thing with healthcare. Why is so much healthcare through businesses

1086
01:03:22,800 --> 01:03:28,480
Speaker 1: instead of directly through some government entity. Please leave businesses

1087
01:03:28,520 --> 01:03:32,920
Speaker 1: out of it. Do let the government do its responsibility

1088
01:03:33,040 --> 01:03:36,240
Speaker 1: directly with the citizens. So around at the start of

1089
01:03:36,280 --> 01:03:39,400
Speaker 1: the finite of the COVID crisis, there were there was

1090
01:03:39,440 --> 01:03:43,480
Speaker 1: a letter organized a few hundred academics and law, finance,

1091
01:03:43,560 --> 01:03:47,400
Speaker 1: economics signed it telling the government before the right around

1092
01:03:47,400 --> 01:03:50,880
Speaker 1: the time of the Cares Act, first one, to not

1093
01:03:51,320 --> 01:03:55,160
Speaker 1: give money to corporations, to give it to people who

1094
01:03:55,280 --> 01:03:57,800
Speaker 1: needed so. In other and part of it was logistical

1095
01:03:57,880 --> 01:04:00,760
Speaker 1: in this country because you know, you basically you have

1096
01:04:00,880 --> 01:04:04,400
Speaker 1: the data in i RS and everything, you on social security,

1097
01:04:04,440 --> 01:04:09,720
Speaker 1: every you get a wtube, so you take over and

1098
01:04:09,760 --> 01:04:12,640
Speaker 1: that's what governments did in Europe, you take over the payroll.

1099
01:04:12,880 --> 01:04:15,960
Speaker 1: So this way it's not that their discretion to kind

1100
01:04:15,960 --> 01:04:18,960
Speaker 1: of their good will to to now they can't hire

1101
01:04:19,000 --> 01:04:22,360
Speaker 1: again in the airlines, etcetera. So you know, they came

1102
01:04:22,480 --> 01:04:25,320
Speaker 1: for bailouts. And the airlines are a classic example, after

1103
01:04:25,400 --> 01:04:29,800
Speaker 1: having paid every virtually everything in dividends right before that

1104
01:04:30,080 --> 01:04:34,120
Speaker 1: and now have if they were airlines in particular, bankruptcy

1105
01:04:34,120 --> 01:04:37,080
Speaker 1: has traditionally worked great. You don't ground the planes you

1106
01:04:37,120 --> 01:04:40,480
Speaker 1: want them, and you just renegotiate some contracts. We have

1107
01:04:40,560 --> 01:04:43,160
Speaker 1: plenty of time to do that. During the crisis, why

1108
01:04:43,200 --> 01:04:45,240
Speaker 1: are we you know, why are we bailing out the

1109
01:04:45,280 --> 01:04:48,080
Speaker 1: investors have just got a huge reward. We're not like

1110
01:04:48,160 --> 01:04:52,000
Speaker 1: effectively you know, at least zeroing them, if not, you know,

1111
01:04:52,040 --> 01:04:54,600
Speaker 1: clowing back some of this money. Right. They old joke

1112
01:04:54,680 --> 01:04:57,600
Speaker 1: about airlines as they haven't been profitable since Kittie Hawk.

1113
01:04:57,840 --> 01:05:01,840
Speaker 1: But let's stick with government payments to co operations. We

1114
01:05:01,920 --> 01:05:05,840
Speaker 1: saw something very similar in the financial crisis, where the

1115
01:05:05,920 --> 01:05:09,640
Speaker 1: banks who were bad lenders were bailed out, but really

1116
01:05:09,680 --> 01:05:12,640
Speaker 1: the borrowers didn't see there was some release, but not

1117
01:05:12,720 --> 01:05:16,600
Speaker 1: a lot. Yes, so so there was clearly a huge

1118
01:05:16,640 --> 01:05:20,160
Speaker 1: bias towards bailing out the banks, you know, forming the

1119
01:05:20,240 --> 01:05:23,439
Speaker 1: runway all of that. And you know the person who

1120
01:05:23,480 --> 01:05:28,440
Speaker 1: wrote most eloquently about this is Nil Browski, of course bailout.

1121
01:05:28,480 --> 01:05:31,120
Speaker 1: More specific, Nil Borowski wrote a book about bailout. He

1122
01:05:31,160 --> 01:05:36,200
Speaker 1: was Inspector General of the TARP trouble that said, uh,

1123
01:05:36,600 --> 01:05:42,000
Speaker 1: you know, relief of program and um he was complaining

1124
01:05:42,040 --> 01:05:46,479
Speaker 1: and describing and other people did too. How little uh

1125
01:05:46,720 --> 01:05:49,640
Speaker 1: the programs did? I mean remember from that they bailed

1126
01:05:49,680 --> 01:05:53,120
Speaker 1: out a g they bailed out the auto manufacturers, but

1127
01:05:53,560 --> 01:05:58,120
Speaker 1: homeowners didn't get relief and it had collateral harm. Uh

1128
01:05:58,160 --> 01:06:02,120
Speaker 1: So the programs for homeowners were voluntary to the lenders.

1129
01:06:02,200 --> 01:06:05,680
Speaker 1: Now the loans were securitized, so now you you know,

1130
01:06:05,760 --> 01:06:09,080
Speaker 1: there's no lender to negotiate with, and it's much more

1131
01:06:09,080 --> 01:06:14,240
Speaker 1: efficient to renegotiate the loan than to uh, to foreclose. Instead,

1132
01:06:14,480 --> 01:06:17,640
Speaker 1: you had a massive housing crisis in which there were

1133
01:06:17,720 --> 01:06:20,920
Speaker 1: a lot of foreclosures, a lot of people misplaced, very

1134
01:06:20,960 --> 01:06:24,200
Speaker 1: traumatic experience for a lot of people whose mortgages should

1135
01:06:24,200 --> 01:06:27,480
Speaker 1: have been restructured basically, and again it was the lenders

1136
01:06:27,560 --> 01:06:30,480
Speaker 1: that were doing it. And then the lenders that just

1137
01:06:30,520 --> 01:06:33,680
Speaker 1: didn't choose. I mean you had you had in the

1138
01:06:33,720 --> 01:06:38,040
Speaker 1: accounting of say City Group, you had them not want

1139
01:06:38,120 --> 01:06:41,920
Speaker 1: to you know, not want to restructure you know, second

1140
01:06:41,960 --> 01:06:45,840
Speaker 1: mortgages which were clearly in a to declare on their accounting,

1141
01:06:46,560 --> 01:06:51,720
Speaker 1: which were clearly total loss because there were second junior votyages. Uh.

1142
01:06:51,840 --> 01:06:54,240
Speaker 1: Even so they were rescued, they were bailed out of

1143
01:06:54,280 --> 01:06:58,000
Speaker 1: this exactly, and so they were not even acknowledging their losses.

1144
01:06:58,040 --> 01:07:00,400
Speaker 1: I mean you could see this on their book to market.

1145
01:07:00,440 --> 01:07:02,320
Speaker 1: I mean you could see that they were exaggerating their

1146
01:07:02,360 --> 01:07:05,160
Speaker 1: books hugely. And for for people who not may not

1147
01:07:05,360 --> 01:07:08,080
Speaker 1: remember Neil Barowski, he was the n y U law

1148
01:07:08,120 --> 01:07:14,800
Speaker 1: professor for the Special Inspector General for the troubled asset

1149
01:07:15,080 --> 01:07:17,280
Speaker 1: and he wrote this book about how they bail out

1150
01:07:17,280 --> 01:07:21,680
Speaker 1: Wall Street and left Main Street and now on the show. Yeah,

1151
01:07:21,720 --> 01:07:23,800
Speaker 1: he's a partner in a law firm. And one of

1152
01:07:23,840 --> 01:07:26,400
Speaker 1: the things he did afterwards was Ben Lowsky, who was

1153
01:07:26,480 --> 01:07:33,240
Speaker 1: the regulator in New York. Uh employed him, Yeah, dinner, yes,

1154
01:07:33,520 --> 01:07:35,880
Speaker 1: and employed him for a few years. He was a

1155
01:07:35,920 --> 01:07:39,320
Speaker 1: full time monitor of Credit Swiss, Credit Swiss being now

1156
01:07:39,720 --> 01:07:41,360
Speaker 1: one of the poster childs. I mean, you know, if

1157
01:07:41,360 --> 01:07:44,440
Speaker 1: you want to talk about reckless banks, you know you

1158
01:07:44,760 --> 01:07:47,640
Speaker 1: had the bid image. I think you know credit you

1159
01:07:47,680 --> 01:07:50,680
Speaker 1: know Credit Swiss right now, but Deutsche Bank being the

1160
01:07:50,680 --> 01:07:54,919
Speaker 1: poster child, and you know, they all seemed to be

1161
01:07:55,080 --> 01:08:02,600
Speaker 1: slowly recovering um from their original online your zombie, your zombie,

1162
01:08:02,680 --> 01:08:05,120
Speaker 1: and we feed you enough and we give your time,

1163
01:08:05,240 --> 01:08:08,560
Speaker 1: and you come out from years ten years absolutely so

1164
01:08:08,680 --> 01:08:10,959
Speaker 1: if you never can die, you know you come back.

1165
01:08:11,080 --> 01:08:13,800
Speaker 1: Well that that's no, that's no surprise. And and they've

1166
01:08:13,840 --> 01:08:18,360
Speaker 1: all essentially come back. So one last piece of research

1167
01:08:18,400 --> 01:08:21,160
Speaker 1: of yours I have to ask about, Uh, it takes

1168
01:08:21,160 --> 01:08:24,840
Speaker 1: a village to maintain a dangerous financial system. Why does

1169
01:08:24,880 --> 01:08:27,360
Speaker 1: it take a village, how many entities have to be

1170
01:08:27,880 --> 01:08:31,840
Speaker 1: involved to keep financed dangerous. So I will talk a

1171
01:08:31,880 --> 01:08:34,880
Speaker 1: little bit about this was This was my kind of, uh,

1172
01:08:35,160 --> 01:08:40,160
Speaker 1: my own summary of my experience over the five years

1173
01:08:40,160 --> 01:08:43,840
Speaker 1: in which I really was devoted entirely to this little

1174
01:08:43,880 --> 01:08:47,760
Speaker 1: policy battle where the book and and and writings that

1175
01:08:47,800 --> 01:08:51,599
Speaker 1: we did afterwards, we're sort of debunking a whole set

1176
01:08:51,680 --> 01:08:54,759
Speaker 1: of flawed claims what we call we call them bankers

1177
01:08:54,760 --> 01:08:57,120
Speaker 1: new clothes. But it's not just bankers, it's policy makers.

1178
01:08:57,120 --> 01:09:00,200
Speaker 1: It's even academics who say things that fall under the

1179
01:09:00,200 --> 01:09:05,519
Speaker 1: category of uh, fallacious, false or than kind of true

1180
01:09:05,520 --> 01:09:08,840
Speaker 1: but false, or just ignorant. But I don't know what

1181
01:09:08,920 --> 01:09:12,880
Speaker 1: goes on in people's head. I I can say, I

1182
01:09:12,920 --> 01:09:16,439
Speaker 1: can say, you know, this person should know better than

1183
01:09:16,720 --> 01:09:21,240
Speaker 1: other that nonsense. Sometimes I'm told people whispering in my

1184
01:09:21,280 --> 01:09:23,160
Speaker 1: ear they don't understand and I'm like, wait a minute,

1185
01:09:23,160 --> 01:09:25,559
Speaker 1: bread and butter finance. They don't understand leverage and risk

1186
01:09:25,640 --> 01:09:27,960
Speaker 1: ris can return. They don't understand. That doesn't make any

1187
01:09:27,960 --> 01:09:30,479
Speaker 1: sense to me. You know, uh, you know, I write,

1188
01:09:30,520 --> 01:09:32,880
Speaker 1: you know, open letter to JPMorgan Chase, you know, reading

1189
01:09:33,000 --> 01:09:35,679
Speaker 1: this letter to shareholders. I write all these different beds.

1190
01:09:35,760 --> 01:09:37,920
Speaker 1: I just did this for five years straight, including the

1191
01:09:37,960 --> 01:09:39,559
Speaker 1: year and a half in the bunker writing the book.

1192
01:09:40,200 --> 01:09:42,800
Speaker 1: And in two thousand and fifteen I decided, Okay, what

1193
01:09:43,120 --> 01:09:47,960
Speaker 1: happened to me here? Why is it so difficult? And um,

1194
01:09:48,000 --> 01:09:50,519
Speaker 1: you know who didn't meet along the way? Who kind

1195
01:09:50,560 --> 01:09:54,679
Speaker 1: of led to this situation that I encountered. And so

1196
01:09:54,920 --> 01:09:58,519
Speaker 1: at the time two two movies came out, I was

1197
01:09:58,560 --> 01:10:01,840
Speaker 1: actually in New York for for a month or two,

1198
01:10:02,000 --> 01:10:04,680
Speaker 1: staying at n y U and uh, and it was

1199
01:10:04,760 --> 01:10:06,760
Speaker 1: kind of you know, in town for various things. There

1200
01:10:06,800 --> 01:10:08,719
Speaker 1: are many stories I can tell you about that period.

1201
01:10:09,120 --> 01:10:11,599
Speaker 1: And uh. The two movies that came out and competed

1202
01:10:11,680 --> 01:10:16,040
Speaker 1: for the Oscar that year were the big short and

1203
01:10:16,120 --> 01:10:18,400
Speaker 1: I came to see it with Adam McKay and some

1204
01:10:18,520 --> 01:10:21,679
Speaker 1: of you know, pre showing because he wanted to see

1205
01:10:21,880 --> 01:10:25,360
Speaker 1: what financed people, academics will say to the movie. And

1206
01:10:25,439 --> 01:10:27,439
Speaker 1: later he recorded a session with us because people were

1207
01:10:27,439 --> 01:10:29,040
Speaker 1: asking him what to do. Of course, he finished the

1208
01:10:29,040 --> 01:10:31,400
Speaker 1: book right now now nobody goes to jail, which was

1209
01:10:31,479 --> 01:10:33,519
Speaker 1: kind of most of what he showed was legal, So

1210
01:10:33,560 --> 01:10:35,920
Speaker 1: it was kind of not the end that Michael Lewis

1211
01:10:35,960 --> 01:10:37,920
Speaker 1: had in the book Michael Lewis by the way in

1212
01:10:37,960 --> 01:10:40,759
Speaker 1: the book The Big Short ends by saying the problem

1213
01:10:40,840 --> 01:10:43,360
Speaker 1: was not that Lehman was allowed to fail. The problem

1214
01:10:43,400 --> 01:10:45,960
Speaker 1: was that Lehman was allowed to succeed for as long

1215
01:10:46,000 --> 01:10:48,479
Speaker 1: as it is yes, so he will. He went back

1216
01:10:48,520 --> 01:10:51,599
Speaker 1: to partnerships, moving to limited liability co operations, and becoming

1217
01:10:51,640 --> 01:10:54,479
Speaker 1: correct less with other people's money. But anyway, So I

1218
01:10:54,520 --> 01:10:57,439
Speaker 1: was asked to write an essay for a book that

1219
01:10:57,560 --> 01:11:03,480
Speaker 1: was edited by a philosopher that was called Just Financial

1220
01:11:03,520 --> 01:11:07,560
Speaker 1: Market Finance in a Just Society. So it was about justice,

1221
01:11:08,080 --> 01:11:10,400
Speaker 1: and so I had to connect what I've seen in

1222
01:11:10,439 --> 01:11:14,200
Speaker 1: finance in the banking area to some sense of justice,

1223
01:11:14,560 --> 01:11:20,320
Speaker 1: of who inflicts injustice and so and so the way

1224
01:11:20,360 --> 01:11:22,799
Speaker 1: in which people cause harm is sort of by doing

1225
01:11:22,880 --> 01:11:26,439
Speaker 1: and by not doing is by being willfully blind by

1226
01:11:26,439 --> 01:11:29,000
Speaker 1: all these terms from psychology about how you can cause

1227
01:11:29,000 --> 01:11:33,120
Speaker 1: harm and sleep overnight, you know. So it was basically

1228
01:11:33,120 --> 01:11:37,439
Speaker 1: I started asking why has it been hard to get

1229
01:11:37,479 --> 01:11:42,000
Speaker 1: through with my simple message? Uh? Who were all the

1230
01:11:42,040 --> 01:11:45,280
Speaker 1: people who were trying to be on the other side

1231
01:11:45,280 --> 01:11:48,000
Speaker 1: of this? So you start with the bankers, they benefit,

1232
01:11:48,680 --> 01:11:51,519
Speaker 1: you know. You then go to all the different private

1233
01:11:51,560 --> 01:11:57,280
Speaker 1: sector gatekeepers, accountants, the credit rating agencies, you know, consulting

1234
01:11:57,320 --> 01:11:59,760
Speaker 1: companies that you know, a lot of people that want

1235
01:11:59,760 --> 01:12:02,080
Speaker 1: their relation to be very complicated because it creates a

1236
01:12:02,080 --> 01:12:04,720
Speaker 1: lot of jobs, you know, doing stresses and all kinds

1237
01:12:04,720 --> 01:12:08,040
Speaker 1: of fancy things, even if they're not really good on

1238
01:12:08,200 --> 01:12:12,599
Speaker 1: and on the people who are enabling the situation. So

1239
01:12:12,600 --> 01:12:17,080
Speaker 1: the keyword is enablers. Okay. Now, the title came from

1240
01:12:17,120 --> 01:12:20,200
Speaker 1: the movie Spotlight, which was the other movie that came out.

1241
01:12:20,760 --> 01:12:24,360
Speaker 1: Spotlight was a movie about sexual harassment in the church,

1242
01:12:24,560 --> 01:12:27,880
Speaker 1: Catholic church, and it was about journalists in Boston uncovering

1243
01:12:28,560 --> 01:12:34,160
Speaker 1: how sexual harassment in the church persisted and how once

1244
01:12:34,200 --> 01:12:40,080
Speaker 1: they investigated the abusers moving around the systems, they were

1245
01:12:40,120 --> 01:12:45,080
Speaker 1: able to see the problem as much more systemic than

1246
01:12:45,840 --> 01:12:50,240
Speaker 1: then the one one at a time. Little story in

1247
01:12:50,360 --> 01:12:53,599
Speaker 1: the story in the movie Spotlight, the lawyer to some

1248
01:12:53,680 --> 01:12:56,400
Speaker 1: of the victims, who, of course, even if there was

1249
01:12:56,439 --> 01:12:59,080
Speaker 1: a settlement, they were told to shut up just like

1250
01:12:59,120 --> 01:13:02,599
Speaker 1: a lot of settle meants that I've been looking at

1251
01:13:02,720 --> 01:13:06,479
Speaker 1: all the NBA. The lawyer says to the journalist, if

1252
01:13:06,479 --> 01:13:08,760
Speaker 1: it takes a village to raise a child, it takes

1253
01:13:08,760 --> 01:13:12,519
Speaker 1: a village to abuse a child. Yes, and it takes

1254
01:13:12,520 --> 01:13:14,960
Speaker 1: a village to raise the child is the title of Hills,

1255
01:13:15,000 --> 01:13:17,479
Speaker 1: an African saying that hillarically intern adopted for a title

1256
01:13:17,479 --> 01:13:19,680
Speaker 1: of her book. Takes a village to abuse the child

1257
01:13:19,800 --> 01:13:22,639
Speaker 1: is all the enablers who look away, all the people

1258
01:13:22,680 --> 01:13:27,040
Speaker 1: who kind of make the situation a wrong persist, and

1259
01:13:27,160 --> 01:13:29,919
Speaker 1: you know, go to all kinds of things, go to Weinstein,

1260
01:13:30,000 --> 01:13:31,920
Speaker 1: go to a lot of wrongdoings that persist. There were

1261
01:13:32,000 --> 01:13:35,040
Speaker 1: enablers along the way. So I wanted to see the

1262
01:13:35,160 --> 01:13:39,160
Speaker 1: enablers in my world, in which may maybe not even

1263
01:13:39,240 --> 01:13:44,040
Speaker 1: crimes were committed, but there were sort of legal deceptions. Uh,

1264
01:13:44,120 --> 01:13:47,240
Speaker 1: there was a you know, capturing of the regulators. There

1265
01:13:47,360 --> 01:13:50,320
Speaker 1: was sort of you know capturing of the politicians. There

1266
01:13:50,360 --> 01:13:53,280
Speaker 1: was confusing the politicians, There was confusing the public who

1267
01:13:53,320 --> 01:13:56,120
Speaker 1: all did that? And so I went all the way

1268
01:13:56,600 --> 01:13:59,840
Speaker 1: to academics, all the way to people whose job is

1269
01:14:00,439 --> 01:14:04,760
Speaker 1: to to the regulators and their narratives, and basically said,

1270
01:14:05,080 --> 01:14:07,840
Speaker 1: here is what they're saying, and here is why it's

1271
01:14:08,040 --> 01:14:12,479
Speaker 1: flawed and wrong and misleading, and this this enables this

1272
01:14:12,600 --> 01:14:14,960
Speaker 1: system to persist. At the same time, there was a

1273
01:14:15,000 --> 01:14:18,960
Speaker 1: book by a Dutch journalist who did uh called yours

1274
01:14:19,160 --> 01:14:22,000
Speaker 1: something called swimming with sharks. It was a bad banking culture.

1275
01:14:22,240 --> 01:14:24,080
Speaker 1: And all he did was he interviewed a bunch of

1276
01:14:24,080 --> 01:14:26,800
Speaker 1: people in the city of London about their jobs anonymously.

1277
01:14:27,360 --> 01:14:29,759
Speaker 1: And he was just trying to map out how people

1278
01:14:29,800 --> 01:14:32,439
Speaker 1: felt about their jobs and who's getting paid, and who's

1279
01:14:32,439 --> 01:14:35,160
Speaker 1: getting fired, and and and and whether they think it's

1280
01:14:35,160 --> 01:14:38,040
Speaker 1: a fair relative to their high school friends or whatever.

1281
01:14:38,280 --> 01:14:42,120
Speaker 1: And he became so alarmed with the financial system that

1282
01:14:42,320 --> 01:14:45,880
Speaker 1: he started having these analogies of an empty cockpit. You know,

1283
01:14:45,960 --> 01:14:49,200
Speaker 1: Oh my god, you know all these people, nobody is taken.

1284
01:14:49,439 --> 01:14:52,240
Speaker 1: I told him. We took a walk in London along

1285
01:14:52,240 --> 01:14:54,360
Speaker 1: the river, and I said, you know what, it's worse.

1286
01:14:54,840 --> 01:14:57,760
Speaker 1: I mean, he's an anthropologist by training. I come from

1287
01:14:57,800 --> 01:14:59,880
Speaker 1: the Ivory Tower and finance down to the ground and

1288
01:15:00,000 --> 01:15:03,200
Speaker 1: we meet in the same place. This is crazy, okay.

1289
01:15:03,400 --> 01:15:05,559
Speaker 1: And I said to him, it's worse than a you know,

1290
01:15:05,640 --> 01:15:07,880
Speaker 1: an empty cockpit. He has a nightmare where he walks

1291
01:15:07,880 --> 01:15:10,080
Speaker 1: in the cockpit and it's empty. I said, you know what.

1292
01:15:10,360 --> 01:15:13,360
Speaker 1: The pilots of the airplane are paid to do flips

1293
01:15:13,360 --> 01:15:15,840
Speaker 1: and to fly low, and they have their own parachutes,

1294
01:15:16,160 --> 01:15:19,040
Speaker 1: so they don't care about the passengers, So it's it's

1295
01:15:19,080 --> 01:15:21,839
Speaker 1: it's kind of worse. The people who control this system

1296
01:15:22,120 --> 01:15:25,519
Speaker 1: are benefit from its fragility, and so you can't fix

1297
01:15:25,560 --> 01:15:28,160
Speaker 1: it until you you know. That's what the book tries

1298
01:15:28,200 --> 01:15:30,800
Speaker 1: to do is educate the public. So right now, it's

1299
01:15:30,840 --> 01:15:33,920
Speaker 1: gonna be ten years since the book. In February two,

1300
01:15:34,400 --> 01:15:37,760
Speaker 1: twenty three will be ten years and we're considering right

1301
01:15:37,800 --> 01:15:44,360
Speaker 1: now republishing this book with a sort of one epilogue chapter,

1302
01:15:44,600 --> 01:15:49,479
Speaker 1: maybe a preface explaining how the book still relevant to COVID,

1303
01:15:49,479 --> 01:15:53,160
Speaker 1: bailout to Crypto, which we didn't get to discuss. Okay,

1304
01:15:53,160 --> 01:15:56,280
Speaker 1: we I'm happy to talk about it, and uh and

1305
01:15:56,479 --> 01:15:59,600
Speaker 1: to the frame of democracy is so so before we

1306
01:15:59,680 --> 01:16:03,040
Speaker 1: get my favorite questions, I have to ask you my

1307
01:16:03,160 --> 01:16:07,960
Speaker 1: curveball question, which is you're an advisor to HBO Silicon Valley,

1308
01:16:08,080 --> 01:16:11,800
Speaker 1: a show I just adored. Tell us about that experience.

1309
01:16:11,840 --> 01:16:14,040
Speaker 1: How did they find you other than the fact that

1310
01:16:14,040 --> 01:16:16,120
Speaker 1: you're at Stanford and what you do for them? So

1311
01:16:16,200 --> 01:16:20,400
Speaker 1: how they found me was that they originally found my neighbor,

1312
01:16:20,520 --> 01:16:24,760
Speaker 1: who is an electrical engineering professor, and he is his

1313
01:16:24,800 --> 01:16:27,920
Speaker 1: last name is Wiseman, so he is the one after

1314
01:16:27,920 --> 01:16:33,439
Speaker 1: which the Wiseman score, uh compression score is and on

1315
01:16:33,479 --> 01:16:39,000
Speaker 1: the show. And this was research because this co producer,

1316
01:16:39,040 --> 01:16:44,439
Speaker 1: Jonathan dutton Um was was sort of scouting the Silicon

1317
01:16:44,520 --> 01:16:47,400
Speaker 1: Valley to kind of find a believable story to capture

1318
01:16:47,520 --> 01:16:51,080
Speaker 1: the spirit of Silicon Valley and you know, the looking

1319
01:16:51,120 --> 01:16:54,519
Speaker 1: for storylines and concepts. And then he came across this

1320
01:16:54,680 --> 01:16:57,400
Speaker 1: and then this professor and a couple of other professors

1321
01:16:57,400 --> 01:17:01,320
Speaker 1: from computer science and engineering helped the show be as

1322
01:17:01,320 --> 01:17:04,160
Speaker 1: believable as it as it was now as it went

1323
01:17:04,200 --> 01:17:06,280
Speaker 1: through and it was all out there in the garage

1324
01:17:06,320 --> 01:17:10,280
Speaker 1: and all this stuff. Uh, it got to the sixth season. Now,

1325
01:17:10,439 --> 01:17:13,559
Speaker 1: my neighbor said to me, knowing what I was doing about,

1326
01:17:13,720 --> 01:17:16,920
Speaker 1: you know, financial system and my general interests in corporations

1327
01:17:16,920 --> 01:17:21,000
Speaker 1: in society, you got to meet this guy Ponytail, and

1328
01:17:21,040 --> 01:17:24,600
Speaker 1: we're sitting around coffee and later he says, you know,

1329
01:17:24,640 --> 01:17:26,519
Speaker 1: you ought to teach a course with him. And that

1330
01:17:26,600 --> 01:17:29,160
Speaker 1: was when I became I said, you know, I'm curious

1331
01:17:29,160 --> 01:17:33,320
Speaker 1: about this sector. Guy knows everybody, okay, because everybody was

1332
01:17:33,320 --> 01:17:36,559
Speaker 1: a cameo in in uh, in Silicon Valley, and he

1333
01:17:36,560 --> 01:17:38,439
Speaker 1: knows about the history of the Internet. And all of

1334
01:17:38,479 --> 01:17:41,880
Speaker 1: those things. And he's not an economists, you know, an

1335
01:17:41,920 --> 01:17:45,960
Speaker 1: anthropologist by training on the sort of a producer a writer.

1336
01:17:46,479 --> 01:17:51,160
Speaker 1: And uh, so we embark on this NBA course and

1337
01:17:51,160 --> 01:17:54,439
Speaker 1: and while they were writing the sixth season, so they

1338
01:17:54,560 --> 01:17:57,120
Speaker 1: end up putting me as as an advisor. I mean,

1339
01:17:57,120 --> 01:17:58,880
Speaker 1: they didn't pay me anything. I just signed a bunch

1340
01:17:58,880 --> 01:18:00,519
Speaker 1: of paper and they gave me two hundred hours, which

1341
01:18:00,560 --> 01:18:02,519
Speaker 1: is like a bottle of wine for all of this,

1342
01:18:02,880 --> 01:18:04,840
Speaker 1: just because they didn't want me to later claim that,

1343
01:18:04,880 --> 01:18:08,240
Speaker 1: you know, I gave them some idea copyright because they

1344
01:18:08,400 --> 01:18:12,439
Speaker 1: it was impacting their coverage of pul of governance issues,

1345
01:18:12,520 --> 01:18:16,719
Speaker 1: mission statements. They mocked mission statement and plagiarism of mission statement,

1346
01:18:16,760 --> 01:18:20,439
Speaker 1: these kinds of things because it's like, you know, mission statement.

1347
01:18:20,800 --> 01:18:23,559
Speaker 1: So so talk is cheap, as as I said. And

1348
01:18:23,880 --> 01:18:27,160
Speaker 1: so we taught this course to NBA entitled the Internet

1349
01:18:27,200 --> 01:18:30,679
Speaker 1: Broken and uh and then this was the spring quarter

1350
01:18:30,800 --> 01:18:35,200
Speaker 1: of two thousand eighteen something like that. And then so

1351
01:18:35,400 --> 01:18:38,000
Speaker 1: as they were doing and they fall, they finished, they

1352
01:18:38,000 --> 01:18:40,960
Speaker 1: were showing the thing, and they were filming, like early

1353
01:18:41,000 --> 01:18:43,280
Speaker 1: in the fall, they were filming the last episode. And

1354
01:18:43,320 --> 01:18:46,880
Speaker 1: so he caused and says, okay, you guys. I got

1355
01:18:46,960 --> 01:18:50,479
Speaker 1: them to fly four of you down to l A

1356
01:18:51,400 --> 01:18:54,360
Speaker 1: and be cameo in the very last episode and hang

1357
01:18:54,360 --> 01:18:56,320
Speaker 1: out here for the day and see how we film it.

1358
01:18:56,479 --> 01:18:58,920
Speaker 1: See all the scenes, see the prison scene, and see

1359
01:18:58,920 --> 01:19:01,040
Speaker 1: this all these different things. It was a it was

1360
01:19:01,080 --> 01:19:06,120
Speaker 1: an abandoned uh kind of car manufacturing of some sort.

1361
01:19:06,200 --> 01:19:08,519
Speaker 1: It was just like a bunch of like warehouses where

1362
01:19:08,560 --> 01:19:11,680
Speaker 1: they had it. I've never seen a show, you know,

1363
01:19:11,960 --> 01:19:17,880
Speaker 1: non fictional show uh being filmed. Cameras there all the

1364
01:19:17,960 --> 01:19:21,599
Speaker 1: room and never wrapped up in right. That was exactly

1365
01:19:21,600 --> 01:19:24,439
Speaker 1: so this. So so this is two thousand spring into fall,

1366
01:19:24,960 --> 01:19:28,000
Speaker 1: and so we were there. We flew down to l

1367
01:19:28,040 --> 01:19:30,120
Speaker 1: A and we we had to bring our cap and

1368
01:19:30,120 --> 01:19:33,000
Speaker 1: gown if we had it, or they would put on us.

1369
01:19:33,040 --> 01:19:35,640
Speaker 1: They had a whole thing of cap and gowns for

1370
01:19:35,680 --> 01:19:40,680
Speaker 1: this graduation uh thing event that we were sort of

1371
01:19:40,760 --> 01:19:42,680
Speaker 1: part of. So we they had all these people that

1372
01:19:42,760 --> 01:19:45,519
Speaker 1: recruited for the day to be just sitting there and

1373
01:19:45,560 --> 01:19:47,360
Speaker 1: then uh. And you know, as long as you don't

1374
01:19:47,439 --> 01:19:50,000
Speaker 1: utter a word. So if we uttered one word in

1375
01:19:50,040 --> 01:19:53,280
Speaker 1: the movie, we would have to be unionized. But if

1376
01:19:53,360 --> 01:19:57,080
Speaker 1: we were just silent, then they could film us and

1377
01:19:57,120 --> 01:19:59,400
Speaker 1: we could be there. So they had another scene that

1378
01:19:59,439 --> 01:20:01,759
Speaker 1: they filmed in the hallways of the sort of standard

1379
01:20:01,840 --> 01:20:05,640
Speaker 1: university offices, and we got white boards to decorate, so

1380
01:20:05,680 --> 01:20:08,559
Speaker 1: I have certain corner in the white board behind middle

1381
01:20:08,560 --> 01:20:10,880
Speaker 1: diach when he was kind of you know, reflecting at

1382
01:20:10,880 --> 01:20:13,240
Speaker 1: the very final scene and we saw it being filmed

1383
01:20:13,280 --> 01:20:14,479
Speaker 1: and then we hung out with him. So it was

1384
01:20:14,560 --> 01:20:16,400
Speaker 1: kind of my reward. I'm like, you know, when I

1385
01:20:16,439 --> 01:20:18,200
Speaker 1: teach banking, I don't get to have so much fun.

1386
01:20:18,400 --> 01:20:20,320
Speaker 1: But when I thought about the Internet, I actually got

1387
01:20:20,360 --> 01:20:23,840
Speaker 1: to see. And my point there was only here in

1388
01:20:23,880 --> 01:20:26,559
Speaker 1: this whole discussion is I have come to appreciate how

1389
01:20:26,600 --> 01:20:29,880
Speaker 1: important media is, all forms of media. So even a movie,

1390
01:20:29,920 --> 01:20:33,400
Speaker 1: it shapes how people think. There was a scene there

1391
01:20:33,400 --> 01:20:35,160
Speaker 1: where the guys in front of Congress and then he

1392
01:20:35,240 --> 01:20:37,479
Speaker 1: rips the mic and you know, this whole thing, and

1393
01:20:37,479 --> 01:20:40,000
Speaker 1: that was modeled after Marcus Zuckerberg going through Congress. It

1394
01:20:40,080 --> 01:20:42,200
Speaker 1: kind of looks like him. So much fun. So let

1395
01:20:42,200 --> 01:20:45,160
Speaker 1: me jump to our speed round our favorite questions, which

1396
01:20:45,200 --> 01:20:49,920
Speaker 1: will blow through pretty quickly, starting with aside from Silicon Valley,

1397
01:20:49,960 --> 01:20:52,760
Speaker 1: what have you been streaming? Tell us what's kept you entertained?

1398
01:20:53,080 --> 01:20:55,640
Speaker 1: So I'm a little bit of a latecomer to finish it.

1399
01:20:55,720 --> 01:21:00,000
Speaker 1: But I've loved the Succession, which I finally finished very recently,

1400
01:21:00,640 --> 01:21:04,360
Speaker 1: and now I'm intent on finishing boorgan because I had

1401
01:21:04,800 --> 01:21:07,200
Speaker 1: borgan Ism about Danish. It's like the It's like the

1402
01:21:07,280 --> 01:21:10,439
Speaker 1: West Wing for Denmark, and I had this female for

1403
01:21:10,479 --> 01:21:13,360
Speaker 1: a minister, etcetera. Anyway, it's kind of a few seasons

1404
01:21:13,400 --> 01:21:18,599
Speaker 1: of a Netflix serious borgan and um so it's very good.

1405
01:21:18,680 --> 01:21:20,439
Speaker 1: I mean, I know there's you know, We Crush and

1406
01:21:20,479 --> 01:21:23,479
Speaker 1: other things, so but that's that's enough for for I

1407
01:21:23,560 --> 01:21:25,840
Speaker 1: just started We Crashed. It's actually very good. I heard

1408
01:21:25,880 --> 01:21:29,439
Speaker 1: that my coach tells me, and I love that. I

1409
01:21:29,160 --> 01:21:30,800
Speaker 1: read read so much about we work. I'm kind of

1410
01:21:30,800 --> 01:21:36,760
Speaker 1: sick of it, especially being Israeli and the Washing h

1411
01:21:38,080 --> 01:21:41,600
Speaker 1: very true. And there was podcast Yeah yeah, tell us

1412
01:21:41,640 --> 01:21:44,720
Speaker 1: about your mentors who helped to shape your career. So

1413
01:21:44,960 --> 01:21:48,880
Speaker 1: this advisor, Steve Rossity Yale, was very important to getting

1414
01:21:48,920 --> 01:21:51,519
Speaker 1: me interested in finance and in some respect in this

1415
01:21:51,640 --> 01:21:54,599
Speaker 1: sort of cosmic view of where I am today and

1416
01:21:54,640 --> 01:21:57,560
Speaker 1: my transformation of my where he was there. Unfortunately he

1417
01:21:57,640 --> 01:21:59,360
Speaker 1: died a few years ago, but he was there to

1418
01:21:59,400 --> 01:22:02,400
Speaker 1: sign my editions and encourage me all the way to

1419
01:22:02,680 --> 01:22:06,479
Speaker 1: to take the village. Um was there to kind of

1420
01:22:06,479 --> 01:22:08,320
Speaker 1: tell me I'm not going mad when I hear all

1421
01:22:08,320 --> 01:22:10,680
Speaker 1: this nonsense, and to and to approve of what I

1422
01:22:10,720 --> 01:22:13,200
Speaker 1: was doing, even though in some of my criticism of academics,

1423
01:22:13,280 --> 01:22:16,479
Speaker 1: I criticized some of my academic brothers who are also

1424
01:22:16,520 --> 01:22:18,519
Speaker 1: his students. But he sided with me. So that was

1425
01:22:18,600 --> 01:22:21,439
Speaker 1: very meaningful to me. Uh yeah, so he was my

1426
01:22:21,479 --> 01:22:24,800
Speaker 1: main advisor. Got me because right now, for knowing all

1427
01:22:24,840 --> 01:22:26,920
Speaker 1: the finances I know, I'm able to call the book.

1428
01:22:27,360 --> 01:22:30,639
Speaker 1: That's great. Um, tell us about some of your favorite books.

1429
01:22:30,640 --> 01:22:32,080
Speaker 1: What are you reading now and what are your all

1430
01:22:32,080 --> 01:22:34,519
Speaker 1: time favorites? Oh my god, so my all time favorite

1431
01:22:34,560 --> 01:22:39,800
Speaker 1: is a Little Prince. That's just the book. Uh. I'm

1432
01:22:39,840 --> 01:22:42,760
Speaker 1: reading a lot and now I'm listening, so that makes

1433
01:22:42,760 --> 01:22:44,720
Speaker 1: it faster because I don't read as fast as I

1434
01:22:44,720 --> 01:22:47,080
Speaker 1: would like to, but I have read lots of books.

1435
01:22:47,200 --> 01:22:50,120
Speaker 1: Right at the moment, I sort of finished direct and

1436
01:22:50,120 --> 01:22:52,720
Speaker 1: I was like the World for sale and freezing order

1437
01:22:52,800 --> 01:22:56,920
Speaker 1: to discuss flying Blind on Boeing. You know, Sickening is

1438
01:22:56,920 --> 01:22:58,920
Speaker 1: a book on the healthcare sector and how we know

1439
01:22:59,040 --> 01:23:01,960
Speaker 1: all our health courses. Very scary Porson and banking into

1440
01:23:01,960 --> 01:23:05,559
Speaker 1: some extent American clyptocracy. Right now, I'm reading a book

1441
01:23:05,720 --> 01:23:08,800
Speaker 1: very close to home called Who Killed Jane James Stanford,

1442
01:23:09,160 --> 01:23:13,439
Speaker 1: which is like whoa. I mean, all the stories we

1443
01:23:13,479 --> 01:23:17,880
Speaker 1: tell that Stanford and that history of Stanford going back

1444
01:23:17,920 --> 01:23:21,599
Speaker 1: to the nineteenth century and Gilded Age and the Stanford's whoa.

1445
01:23:22,320 --> 01:23:24,760
Speaker 1: So that's a history professor at Stanford who wrote a

1446
01:23:24,800 --> 01:23:28,200
Speaker 1: book Who Killed James Stanford. James Stanford was very important

1447
01:23:28,200 --> 01:23:29,920
Speaker 1: to the creation of Stanford. But right now, of course

1448
01:23:29,960 --> 01:23:32,920
Speaker 1: Stanford is way off from what she wanted. And yesterday

1449
01:23:32,960 --> 01:23:36,920
Speaker 1: I got the bonking from Mary Child. So that's my

1450
01:23:37,360 --> 01:23:41,760
Speaker 1: next Um. That's a bunch. Yeah, that's a that's a

1451
01:23:41,760 --> 01:23:44,400
Speaker 1: really good list. What sort of advice would you give

1452
01:23:44,439 --> 01:23:47,600
Speaker 1: to a recent college grad who was interested in a

1453
01:23:47,720 --> 01:23:55,679
Speaker 1: career in either investing, finance, academia, or technology. My first advice,

1454
01:23:55,760 --> 01:23:57,840
Speaker 1: because I've learned it kind of the hard way, is

1455
01:23:58,120 --> 01:24:01,040
Speaker 1: watch out for the assumptions are making and other people

1456
01:24:01,040 --> 01:24:04,480
Speaker 1: are making. So when people say things, there's often implicit

1457
01:24:04,479 --> 01:24:07,040
Speaker 1: assumptions that are making, and there's some bad assumptions can

1458
01:24:07,080 --> 01:24:09,479
Speaker 1: take you down. Even LTCM with all the brilliant pictures

1459
01:24:09,600 --> 01:24:13,400
Speaker 1: went down on bad assumptions, So bad assumptions are very dangerous.

1460
01:24:13,640 --> 01:24:15,400
Speaker 1: And then of course you know you have to kind

1461
01:24:15,400 --> 01:24:18,400
Speaker 1: of be careful not to uh, to maintain the big picture,

1462
01:24:18,640 --> 01:24:21,439
Speaker 1: to to be aware of losing yourself in in in

1463
01:24:21,520 --> 01:24:25,320
Speaker 1: certain certain activities. So so maintained a big picture and

1464
01:24:25,439 --> 01:24:28,320
Speaker 1: check for assumption is kind of my main advice. Good

1465
01:24:28,360 --> 01:24:31,240
Speaker 1: good advice. And our final question, what do you know

1466
01:24:31,320 --> 01:24:35,920
Speaker 1: about the world of banking and finance and regulations today

1467
01:24:35,960 --> 01:24:38,360
Speaker 1: that you wish you knew thirty or so years ago

1468
01:24:38,360 --> 01:24:41,080
Speaker 1: when you were first getting started. I had no idea

1469
01:24:41,160 --> 01:24:47,200
Speaker 1: but how much politics, laws, and law enforcement matter to

1470
01:24:47,360 --> 01:24:50,040
Speaker 1: economic outcomes. I just lived in the little bubble of

1471
01:24:50,040 --> 01:24:53,479
Speaker 1: economics where we make assumptions. And when I sort of

1472
01:24:53,520 --> 01:24:56,360
Speaker 1: realized what was going on in banking, I started questioning

1473
01:24:56,400 --> 01:24:59,400
Speaker 1: all the assumptions that I made before. And it's been

1474
01:24:59,479 --> 01:25:03,200
Speaker 1: my sort of journey ever since. It's like, huh, that's

1475
01:25:03,200 --> 01:25:07,080
Speaker 1: sort of interesting, is this true? And you know what's

1476
01:25:07,080 --> 01:25:09,240
Speaker 1: actually going on? So I've become a sort of real

1477
01:25:09,360 --> 01:25:12,920
Speaker 1: explorer of of what happens when I don't make the

1478
01:25:12,960 --> 01:25:15,600
Speaker 1: assumptions that I may go When I question people's assumptions,

1479
01:25:15,640 --> 01:25:21,320
Speaker 1: did you spend any time researching the Canadian banking regulation,

1480
01:25:21,439 --> 01:25:24,920
Speaker 1: because when I was writing Bailout Nation, that was my

1481
01:25:25,080 --> 01:25:29,360
Speaker 1: compare and contrast. It's so different from the U S system.

1482
01:25:29,400 --> 01:25:31,280
Speaker 1: It is, and I know a little bit about it,

1483
01:25:32,000 --> 01:25:34,559
Speaker 1: but you know, it is a very different system because

1484
01:25:34,560 --> 01:25:38,439
Speaker 1: the US is very fragmented system and the Canadian system

1485
01:25:38,520 --> 01:25:41,439
Speaker 1: is basically a system of five banks or something like that,

1486
01:25:41,960 --> 01:25:46,120
Speaker 1: all pretty tightly regulated but also very profitable. So essentially,

1487
01:25:46,160 --> 01:25:48,880
Speaker 1: the way, one of the ways I formulate the difference

1488
01:25:49,200 --> 01:25:53,360
Speaker 1: is that we we subsidize debt for banking, and they

1489
01:25:53,439 --> 01:25:56,479
Speaker 1: essentially subsidize equity by giving them a big charter value

1490
01:25:57,160 --> 01:26:01,040
Speaker 1: because they're because they're so you know, entrenched, their oligopoli

1491
01:26:01,520 --> 01:26:06,200
Speaker 1: quite quite fascinating. We have been speaking with professor are

1492
01:26:06,240 --> 01:26:09,840
Speaker 1: Not at Mahdi. Thank you, professor for being so generous

1493
01:26:10,200 --> 01:26:14,120
Speaker 1: with your time. If you enjoy this podcast, well be

1494
01:26:14,240 --> 01:26:17,320
Speaker 1: sure and check out any of our previous four hundred

1495
01:26:17,439 --> 01:26:21,120
Speaker 1: or so. You can find those at Spotify, iTunes, wherever

1496
01:26:21,240 --> 01:26:25,519
Speaker 1: you get your favorite podcast from. We love your comments,

1497
01:26:25,520 --> 01:26:30,200
Speaker 1: feedback and suggestions right to us at m IB podcast

1498
01:26:30,240 --> 01:26:33,640
Speaker 1: at Bloomberg dot net. Sign up from my Daily Reads

1499
01:26:33,680 --> 01:26:36,840
Speaker 1: at rid Holts dot com. Uh follow me on Twitter

1500
01:26:37,040 --> 01:26:39,920
Speaker 1: at rit Halts. I would be remiss if I did

1501
01:26:39,920 --> 01:26:42,160
Speaker 1: not thank the crack team that helps us put these

1502
01:26:42,200 --> 01:26:47,320
Speaker 1: conversations together each week. My audio engineer is Justin Milliner.

1503
01:26:47,720 --> 01:26:51,519
Speaker 1: Paris Wald is my producer. Sean Russo is my head

1504
01:26:51,520 --> 01:26:56,120
Speaker 1: of research. Attica val Bron is my project manager. I'm

1505
01:26:56,160 --> 01:26:59,760
Speaker 1: Barry rid Holts. You've been listening to Masters and Business

1506
01:26:59,760 --> 01:27:00,920
Speaker 1: on Bloomberg Radio.