1 00:00:06,080 --> 00:00:08,920 Speaker 1: Welcome to odd Lots. I'm Tracy Alloway, Executive editor of 2 00:00:08,960 --> 00:00:13,920 Speaker 1: Bloomberg Markets the Bloomberg News. Max joins me today because 3 00:00:14,000 --> 00:00:17,200 Speaker 1: Joe is still off, but I think, uh, we're going 4 00:00:17,239 --> 00:00:19,880 Speaker 1: to have a good show. Max. Have you been watching 5 00:00:19,960 --> 00:00:23,440 Speaker 1: that new TV series Billions? You know a little known 6 00:00:23,480 --> 00:00:25,680 Speaker 1: fact about me is that my girlfriend Annie and I 7 00:00:25,760 --> 00:00:30,120 Speaker 1: do not own a television really, so no Billions for us. 8 00:00:30,280 --> 00:00:32,960 Speaker 1: All right, then you're gonna find this interesting. It's a 9 00:00:33,000 --> 00:00:36,040 Speaker 1: show basically about a high flying hedge fund manager who's 10 00:00:36,120 --> 00:00:39,080 Speaker 1: dealing with regulators. Let's put it that way. Most of 11 00:00:39,080 --> 00:00:42,479 Speaker 1: it is him wheeling and dealing in stocks, shorting things, 12 00:00:42,560 --> 00:00:46,760 Speaker 1: making short term directional bets, going long or short. Uh, 13 00:00:47,080 --> 00:00:49,440 Speaker 1: maybe it's easier if we just play a clip. Who 14 00:00:49,479 --> 00:00:51,920 Speaker 1: said this deal is going to close? Ben said? This morning, 15 00:00:53,000 --> 00:00:57,279 Speaker 1: Everyone's saying, who is this a new analyst? Well, if 16 00:00:57,320 --> 00:01:02,160 Speaker 1: we hired you must be a genius. Yeah, Stanford, then Wharton, Okay? 17 00:01:02,160 --> 00:01:06,559 Speaker 1: Stanford Warton Electric Sun is controlled by Casuwitz. He also 18 00:01:06,600 --> 00:01:09,320 Speaker 1: owns nineteen point three of Luma Therm back Door through 19 00:01:09,319 --> 00:01:12,160 Speaker 1: his stake in Southern Wind. You see that block trade 20 00:01:12,240 --> 00:01:15,080 Speaker 1: last Thursday come out of Meryl. Yeah, that was Fortress 21 00:01:15,080 --> 00:01:19,039 Speaker 1: cashing out their shorts before the merger, wasn't it traders 22 00:01:19,040 --> 00:01:21,160 Speaker 1: A twelve fifty two when everyone was at lunch, which 23 00:01:21,160 --> 00:01:23,600 Speaker 1: tells me they wanted it to be missed. You guys 24 00:01:23,640 --> 00:01:26,200 Speaker 1: caught it, which is something I guess, but you're looking 25 00:01:26,240 --> 00:01:29,080 Speaker 1: at it backward. Electric Soun's offer was just deployed to 26 00:01:29,120 --> 00:01:32,600 Speaker 1: temporarily prop up Luma Therm. Typical Casuits played a bail 27 00:01:32,640 --> 00:01:35,759 Speaker 1: on a Loseries and animal. The block trade was casuits 28 00:01:35,760 --> 00:01:38,880 Speaker 1: getting out of Southern Wind getting out of Luma therm. 29 00:01:38,920 --> 00:01:40,840 Speaker 1: He wrote the story now he's out, which means you 30 00:01:40,880 --> 00:01:43,560 Speaker 1: need to be out. In fact short, it'll slight to 31 00:01:43,600 --> 00:01:48,280 Speaker 1: thirty two and change after word breaks. Wow, is today's 32 00:01:48,320 --> 00:01:52,320 Speaker 1: episode going to be your view of Billions? No, I 33 00:01:52,360 --> 00:01:56,400 Speaker 1: will spare you all my opinions of Billions. I actually 34 00:01:56,400 --> 00:01:59,880 Speaker 1: wanted to bring it up for two reasons. Um mostly 35 00:02:00,000 --> 00:02:02,800 Speaker 1: because our guest today is Dan's Warren, and he's a 36 00:02:02,880 --> 00:02:06,400 Speaker 1: really well known hedge fund manager, but he's never actually 37 00:02:06,440 --> 00:02:09,239 Speaker 1: done the type of stuff that most people seem to 38 00:02:09,360 --> 00:02:12,280 Speaker 1: think hedge funds do based on clips like the one 39 00:02:12,320 --> 00:02:15,560 Speaker 1: we just heard. In fact, he made his career providing 40 00:02:15,639 --> 00:02:20,359 Speaker 1: capital to thousands of companies with a few other financing options, 41 00:02:20,400 --> 00:02:24,160 Speaker 1: basically going where banks fear to tread. Well, at least 42 00:02:24,480 --> 00:02:27,200 Speaker 1: up until recently, banks were pretty brave about that kind 43 00:02:27,200 --> 00:02:29,800 Speaker 1: of thing. So what he does must be interesting. Yeah, 44 00:02:29,800 --> 00:02:32,760 Speaker 1: and we're going to talk about how that opportunity came up. 45 00:02:33,120 --> 00:02:35,440 Speaker 1: And one of the reasons it is really interesting is 46 00:02:35,440 --> 00:02:38,400 Speaker 1: because we often hear regulators and lots of other people 47 00:02:38,480 --> 00:02:43,840 Speaker 1: talking about non bank financial institutions or providers of credit, 48 00:02:44,160 --> 00:02:47,760 Speaker 1: which sometimes go by the label shadow banks. Right, And 49 00:02:47,800 --> 00:02:50,280 Speaker 1: as soon as you hear the term shadow banks, you think, oh, 50 00:02:50,320 --> 00:02:53,800 Speaker 1: this is a bad thing, it's risky, there's something nefarious 51 00:02:53,840 --> 00:02:57,520 Speaker 1: about it. But actually, as we're going to hear, shadow 52 00:02:57,520 --> 00:03:00,760 Speaker 1: banks can fill a gap, and some times that gap 53 00:03:00,919 --> 00:03:04,320 Speaker 1: needs to be filled. I still get like a small 54 00:03:04,400 --> 00:03:07,960 Speaker 1: shiver up like the small of my back, of my 55 00:03:08,000 --> 00:03:10,519 Speaker 1: spine when I hear shadow banking. So I feel like 56 00:03:10,520 --> 00:03:13,639 Speaker 1: I'm gonna need a little bit of convincing from Dan 57 00:03:13,720 --> 00:03:15,560 Speaker 1: and from you that I that it's that it's you know, 58 00:03:15,680 --> 00:03:18,120 Speaker 1: it's not a shadowy a thing as its name implies. 59 00:03:18,160 --> 00:03:19,600 Speaker 1: All right, well, we'll see if we could do that. 60 00:03:19,639 --> 00:03:22,320 Speaker 1: But before we do, there's one other reason I brought 61 00:03:22,400 --> 00:03:25,200 Speaker 1: up billions. And that is because Dan had his own 62 00:03:25,280 --> 00:03:29,600 Speaker 1: run in with regulators just before the financial crisis, right, 63 00:03:29,880 --> 00:03:34,600 Speaker 1: And I remember that because of the wonderful Bill Cohan, 64 00:03:34,720 --> 00:03:37,280 Speaker 1: my friend known to known to listeners and readers as 65 00:03:37,320 --> 00:03:41,480 Speaker 1: William D. Cohan is violent. He wrote a really long 66 00:03:41,560 --> 00:03:44,560 Speaker 1: and detailed and beautiful story about about those travails not 67 00:03:44,600 --> 00:03:47,560 Speaker 1: too long ago in Bloomberg, right, and I urge all 68 00:03:47,600 --> 00:03:50,200 Speaker 1: our listeners to go read that story. But in the meantime, 69 00:03:50,200 --> 00:03:53,720 Speaker 1: I'm going to summarize very quickly. Basically, it's about how 70 00:03:53,800 --> 00:03:58,040 Speaker 1: Dan's hedge fund ran into some accounting problems and then 71 00:03:58,080 --> 00:04:02,240 Speaker 1: investors started pulling out money. Uh. Dan eventually closed it down. 72 00:04:02,280 --> 00:04:06,360 Speaker 1: It used to have twelve billion worth of assets. Uh. Eventually, however, 73 00:04:06,400 --> 00:04:09,080 Speaker 1: he was cleared of all wrongdoing by the U S 74 00:04:09,080 --> 00:04:14,320 Speaker 1: securities regulator. And since then he's been busy rebuilding a 75 00:04:14,320 --> 00:04:16,880 Speaker 1: different fund. And we're going to find out today what 76 00:04:17,040 --> 00:04:23,359 Speaker 1: exactly he's doing. Let's get started. Dan, thank you so 77 00:04:23,440 --> 00:04:26,000 Speaker 1: much for joining us, Thanks for having me. So let's 78 00:04:26,040 --> 00:04:28,560 Speaker 1: get this out of a way. First. Back in two 79 00:04:28,560 --> 00:04:32,240 Speaker 1: thousand and six, two thousand seven, you were this really 80 00:04:32,440 --> 00:04:36,080 Speaker 1: high flying hedge fund manager. I saw one commentator who 81 00:04:36,120 --> 00:04:41,880 Speaker 1: referred to you as hedge fund perfection. Uh, and then 82 00:04:42,480 --> 00:04:47,120 Speaker 1: this sec thing happened. Tell us what exactly went down? Well, Look, 83 00:04:47,120 --> 00:04:49,560 Speaker 1: we had a we had a wonderful business that made 84 00:04:49,560 --> 00:04:51,760 Speaker 1: seven hundred million dollars in its last year two point 85 00:04:51,800 --> 00:04:54,320 Speaker 1: seven billion dollars overall. We had six billions of equity, 86 00:04:54,360 --> 00:04:57,160 Speaker 1: twelve billion of assets, three hundred good employees and another 87 00:04:57,200 --> 00:04:59,719 Speaker 1: eight hundred associated employees around the world, and did business 88 00:04:59,720 --> 00:05:02,520 Speaker 1: and twe five countries, financing a lot of the companies 89 00:05:02,560 --> 00:05:05,360 Speaker 1: and assets and and consumers and real estate properties that 90 00:05:05,400 --> 00:05:08,400 Speaker 1: otherwise couldn't have been financed. UM. So we were doing well, 91 00:05:08,440 --> 00:05:11,480 Speaker 1: and I think doing good. And Uh, Unfortunately, we had 92 00:05:11,520 --> 00:05:16,440 Speaker 1: a an internal bad egg that we're uh. Some folks 93 00:05:16,440 --> 00:05:20,000 Speaker 1: that I had assigned to tighten the controls of our business, 94 00:05:20,240 --> 00:05:23,600 Speaker 1: UH found out. I directed the firm to turn them in. 95 00:05:24,120 --> 00:05:28,360 Speaker 1: And unfortunately, UM, the process by which it was made 96 00:05:28,360 --> 00:05:30,720 Speaker 1: clear that neither I nor the firm had anything to 97 00:05:30,760 --> 00:05:33,080 Speaker 1: do with that person's activities too longer than otherwise should have. 98 00:05:33,520 --> 00:05:35,919 Speaker 1: And so while we never had any h and an 99 00:05:35,960 --> 00:05:39,200 Speaker 1: audit changed or requalified or amended or any of those things. 100 00:05:39,640 --> 00:05:41,159 Speaker 1: It took so long for that to clear up that 101 00:05:41,200 --> 00:05:43,400 Speaker 1: we had to move along with the firm. Tell us 102 00:05:43,440 --> 00:05:46,560 Speaker 1: what your fund actually did in order to achieve the 103 00:05:46,640 --> 00:05:50,360 Speaker 1: returns that you're known for. Uh. Sure, well, we we 104 00:05:50,400 --> 00:05:53,240 Speaker 1: refer to ourselves as a global chaser of illiquidity UM, 105 00:05:53,279 --> 00:05:56,960 Speaker 1: and so fundamentally we wanted to liquidity being assets that 106 00:05:57,080 --> 00:05:59,240 Speaker 1: might be hard to buy or sell or trade in 107 00:05:59,279 --> 00:06:02,880 Speaker 1: some way correct correct And and it doesn't necessarily mean 108 00:06:03,000 --> 00:06:06,000 Speaker 1: assets that don't trade on a marketplace, because at times 109 00:06:06,440 --> 00:06:09,360 Speaker 1: even assets that are you know, that have an accusive 110 00:06:09,440 --> 00:06:13,119 Speaker 1: number on and trade over bloomberg um, have very little 111 00:06:13,200 --> 00:06:15,800 Speaker 1: bitter offer. And so we like to say that we'll 112 00:06:15,839 --> 00:06:18,240 Speaker 1: we'll run into every house on fire and and stay 113 00:06:18,240 --> 00:06:20,719 Speaker 1: in some of them. And ultimately we want to be 114 00:06:20,760 --> 00:06:23,719 Speaker 1: in a position where both, as we say, both borrower 115 00:06:23,760 --> 00:06:26,000 Speaker 1: and lender, or both buyer and seller have the exact 116 00:06:26,040 --> 00:06:28,520 Speaker 1: same view on value, but the other guy just needs 117 00:06:28,520 --> 00:06:32,200 Speaker 1: our money, as opposed to having a directional view on 118 00:06:32,200 --> 00:06:34,840 Speaker 1: on asset prices. You said a second ago that you 119 00:06:34,880 --> 00:06:37,719 Speaker 1: guys did both well and good, and it sounds like 120 00:06:37,720 --> 00:06:40,120 Speaker 1: you definitely did well while while the going was good. 121 00:06:40,440 --> 00:06:43,360 Speaker 1: Explain to us why you also feel like you were 122 00:06:43,360 --> 00:06:47,440 Speaker 1: doing good? Uh, well, to be clear, unlike some other people, 123 00:06:47,440 --> 00:06:49,159 Speaker 1: I'm not gonna claim to be have have done the 124 00:06:49,200 --> 00:06:53,960 Speaker 1: Lord's work. However, the world is, within finances, a big 125 00:06:54,000 --> 00:06:56,560 Speaker 1: have and have not world, and there are a lot 126 00:06:56,640 --> 00:07:03,400 Speaker 1: of very viable consumers, properties, companies, assets that don't actually 127 00:07:03,440 --> 00:07:07,560 Speaker 1: intrinsically have materially large amount of credit risk in them 128 00:07:07,720 --> 00:07:10,720 Speaker 1: that for non value reasons might not be able to 129 00:07:10,720 --> 00:07:14,960 Speaker 1: access credit. And you know other over time banks have 130 00:07:15,080 --> 00:07:18,440 Speaker 1: done that. And what you find is there's a reflexive 131 00:07:19,160 --> 00:07:21,840 Speaker 1: characterization that sometimes people have. Let's say, well banks aren't 132 00:07:21,880 --> 00:07:23,680 Speaker 1: that smart at what they do and they can't really 133 00:07:23,680 --> 00:07:27,000 Speaker 1: do this thing, etcetera, etcetera. But if you were scaling 134 00:07:27,240 --> 00:07:30,360 Speaker 1: a bank in the level that banks are scaled, and 135 00:07:30,400 --> 00:07:32,960 Speaker 1: you had to create a very set set of rules 136 00:07:33,280 --> 00:07:36,280 Speaker 1: for thousands of employees to follow regarding who should get credit, 137 00:07:36,680 --> 00:07:38,960 Speaker 1: you're necessarily going to have to make some pretty blunt 138 00:07:38,960 --> 00:07:42,320 Speaker 1: instrument rules to allow yourself not to get into problems. 139 00:07:42,720 --> 00:07:45,920 Speaker 1: And so that leaves all of these kind of idiosyncratic, 140 00:07:45,960 --> 00:07:48,720 Speaker 1: funkier things that otherwise should get credit, and if it 141 00:07:48,720 --> 00:07:51,120 Speaker 1: were done one by one would get credit out in 142 00:07:51,160 --> 00:07:53,440 Speaker 1: the cold. So, in other words, you were lending where 143 00:07:53,440 --> 00:07:57,440 Speaker 1: others were were fearing to go or by policy, etcetera, 144 00:07:57,480 --> 00:08:00,840 Speaker 1: couldn't go right. So you might frequently see talk to 145 00:08:01,040 --> 00:08:03,640 Speaker 1: folks at banks who would say, well, jeez, we would 146 00:08:03,640 --> 00:08:07,280 Speaker 1: do this. I would do this, but our institution can't 147 00:08:07,320 --> 00:08:10,120 Speaker 1: do this for some sort of rule that had very 148 00:08:10,120 --> 00:08:12,600 Speaker 1: little do with the credit worthiness of the underlying asset. 149 00:08:13,240 --> 00:08:15,880 Speaker 1: You know, I want to be honest with you and 150 00:08:15,920 --> 00:08:19,040 Speaker 1: tell you where I sit in the newsroom is literally 151 00:08:19,040 --> 00:08:22,040 Speaker 1: physically close to my very good friend Zeke Fox, who 152 00:08:22,040 --> 00:08:29,520 Speaker 1: writes beautifully about the nuances and sometimes the criminality, and 153 00:08:29,680 --> 00:08:32,679 Speaker 1: or at least just that the very gray area of 154 00:08:33,240 --> 00:08:37,160 Speaker 1: hedge funds lending to small businesses sometimes the rates can 155 00:08:37,160 --> 00:08:40,040 Speaker 1: get very very high. I remember in Cohen's piece he 156 00:08:40,080 --> 00:08:42,240 Speaker 1: mentioned um that you lent to a company that least 157 00:08:42,240 --> 00:08:46,320 Speaker 1: slot machines to casinos on Indian reservations. And just speaking 158 00:08:46,360 --> 00:08:49,360 Speaker 1: honestly in the same way that we're gonna we're gonna 159 00:08:49,360 --> 00:08:51,600 Speaker 1: talk about in a while, how shadow banking sometimes makes 160 00:08:51,600 --> 00:08:53,440 Speaker 1: me nervous just from the mere sound of it. Also, 161 00:08:53,520 --> 00:08:55,760 Speaker 1: just have to be honest and say it also makes 162 00:08:55,800 --> 00:08:58,200 Speaker 1: me nervous, even though, mind you, I don't know too 163 00:08:58,280 --> 00:09:00,320 Speaker 1: much about it. When I hear about hedge funds lending 164 00:09:00,360 --> 00:09:03,640 Speaker 1: to things like, you know, Indian casinos and slots. Is 165 00:09:03,640 --> 00:09:05,959 Speaker 1: that something that you felt comfortable with? Can you? Did? 166 00:09:05,960 --> 00:09:08,120 Speaker 1: You have to deal with people who felt less comfortable 167 00:09:08,120 --> 00:09:12,200 Speaker 1: with and explain why this was a good a good thing. No, 168 00:09:12,720 --> 00:09:14,040 Speaker 1: you know, at the at the end of the day, 169 00:09:14,040 --> 00:09:18,560 Speaker 1: Indian reservation gaming facilities are large money makers for those 170 00:09:18,720 --> 00:09:21,720 Speaker 1: reservations in that case, and to the extent that there 171 00:09:21,720 --> 00:09:23,760 Speaker 1: are machines that they have where they don't want to 172 00:09:23,760 --> 00:09:27,880 Speaker 1: deploy capital, but there's you know, perfectly reasonable credit to 173 00:09:27,920 --> 00:09:30,040 Speaker 1: be had. You know, folks like us could do it 174 00:09:30,040 --> 00:09:32,800 Speaker 1: in that particular case. Because those slot machines were on 175 00:09:32,920 --> 00:09:36,920 Speaker 1: Indian reservation property. You needed to have a gaming license 176 00:09:36,960 --> 00:09:40,720 Speaker 1: for that reservation, uh, in order such that if you 177 00:09:40,800 --> 00:09:44,360 Speaker 1: ever had to foreclose on the assets and operate them, 178 00:09:44,520 --> 00:09:46,920 Speaker 1: you have a license to do so. And so we 179 00:09:46,960 --> 00:09:49,240 Speaker 1: had to partner with a very specialized guy who happened 180 00:09:49,280 --> 00:09:51,160 Speaker 1: to have such a license in order to be there 181 00:09:51,160 --> 00:09:53,520 Speaker 1: and provide the capital that a bank wouldn't for them. 182 00:09:53,760 --> 00:09:57,120 Speaker 1: And so to the extent that that gaming facility thrived 183 00:09:57,480 --> 00:10:00,600 Speaker 1: and helped and benefited its tribe, it was a perfectly 184 00:10:00,640 --> 00:10:03,920 Speaker 1: legitimate business. Uh, you know, we don't see an issue 185 00:10:03,960 --> 00:10:06,240 Speaker 1: with that. It worked out in the end, it didn't. 186 00:10:06,880 --> 00:10:09,720 Speaker 1: So your old fund was all about investing in liquid 187 00:10:09,760 --> 00:10:14,199 Speaker 1: assets extending credit to all sorts of different businesses and companies. 188 00:10:14,559 --> 00:10:17,440 Speaker 1: You have this new fund now essentially doing a very 189 00:10:17,559 --> 00:10:21,760 Speaker 1: very similar thing. Walk us through the idea here, and 190 00:10:22,040 --> 00:10:26,200 Speaker 1: if there is actually a bigger gap to be filled now, well, 191 00:10:26,280 --> 00:10:28,480 Speaker 1: I think there's There's two different parts of the story. 192 00:10:28,760 --> 00:10:31,160 Speaker 1: The first is, you know, where is the market today? 193 00:10:31,240 --> 00:10:33,640 Speaker 1: And the answer to that is that, in fact, post 194 00:10:33,720 --> 00:10:37,120 Speaker 1: the crisis, there is, you know, a much larger addressable 195 00:10:37,120 --> 00:10:38,760 Speaker 1: market for the kind of things than we that we 196 00:10:38,840 --> 00:10:43,720 Speaker 1: do then there perhaps ever has been, and arguably the 197 00:10:43,760 --> 00:10:46,880 Speaker 1: people who are addressing that market um are as few 198 00:10:46,920 --> 00:10:50,360 Speaker 1: as they ever have been when we had our prior business. 199 00:10:50,400 --> 00:10:52,840 Speaker 1: The largest competitor we had competitors we had were the 200 00:10:52,880 --> 00:10:55,679 Speaker 1: internal proprietary groups of the investment banks, which are all 201 00:10:55,720 --> 00:10:58,480 Speaker 1: gone now. Which are all gone now. And that's not 202 00:10:58,559 --> 00:11:01,040 Speaker 1: to say all of those people and assets are gone, 203 00:11:01,080 --> 00:11:04,000 Speaker 1: because they a large number of them have migrated to 204 00:11:04,080 --> 00:11:07,400 Speaker 1: a very small number of very large alternative investment firms, 205 00:11:07,880 --> 00:11:10,160 Speaker 1: large in a way that we never dreamed possible at 206 00:11:10,200 --> 00:11:12,920 Speaker 1: that point. Um, there was a time when ten billion 207 00:11:13,000 --> 00:11:16,400 Speaker 1: dollars of assets was a big deal. Uh. And many 208 00:11:16,440 --> 00:11:18,800 Speaker 1: of these folks with whom I competed with with whom 209 00:11:18,800 --> 00:11:22,920 Speaker 1: I competed are now you know, thirty and twenty billion dollars. 210 00:11:23,440 --> 00:11:27,000 Speaker 1: And so what's interesting is that in some ways the 211 00:11:27,080 --> 00:11:31,360 Speaker 1: same gaps are available because they can only write checks 212 00:11:31,400 --> 00:11:34,440 Speaker 1: that are you know, seventy million at a shot. And 213 00:11:34,480 --> 00:11:37,480 Speaker 1: so in the absence of them, the investment banks and 214 00:11:37,480 --> 00:11:40,920 Speaker 1: commercial banks, the number of the very large number of 215 00:11:40,920 --> 00:11:43,679 Speaker 1: smaller opportunities out there to be financed is as big 216 00:11:43,720 --> 00:11:46,240 Speaker 1: as it's ever been. So if you're looking for sort 217 00:11:46,240 --> 00:11:49,760 Speaker 1: of smaller opportunities, how do you actually source your loans? 218 00:11:49,800 --> 00:11:51,920 Speaker 1: Because you and I have spoken about this before, and 219 00:11:51,960 --> 00:11:56,880 Speaker 1: it is an interesting on the ground sort of process. Well. Uh, 220 00:11:56,920 --> 00:12:00,520 Speaker 1: to the extent that things are intermediated by brokers of 221 00:12:00,600 --> 00:12:04,120 Speaker 1: various sorts, they almost by definition tend to be less appealing. 222 00:12:04,640 --> 00:12:08,120 Speaker 1: And so no, it's not that it's just that they 223 00:12:08,160 --> 00:12:10,240 Speaker 1: show with the lots of people because they're looking for 224 00:12:10,280 --> 00:12:14,000 Speaker 1: the fastest path to that fee. Um. And so we 225 00:12:14,080 --> 00:12:19,400 Speaker 1: have found that in the type of things that we do, UM, 226 00:12:19,440 --> 00:12:22,679 Speaker 1: there are frequently people who have very specialized knowledge, whether 227 00:12:22,720 --> 00:12:27,679 Speaker 1: that's sourcing, uh, analysis capability, or even servicing of assets. UH. 228 00:12:27,720 --> 00:12:30,440 Speaker 1: They may not have all three of those, um, and 229 00:12:30,480 --> 00:12:34,560 Speaker 1: they may specialized in very idiosocratic things, but they have 230 00:12:34,600 --> 00:12:37,160 Speaker 1: a special skill. And we like to find those kind 231 00:12:37,160 --> 00:12:40,280 Speaker 1: of folks UH and use that to supplement our our 232 00:12:40,360 --> 00:12:44,360 Speaker 1: team on our our own teams UM where we can 233 00:12:44,600 --> 00:12:48,359 Speaker 1: partner with them in a very highly financially aligned way 234 00:12:48,400 --> 00:12:50,520 Speaker 1: where they're putting up significant amounts of their own money 235 00:12:50,800 --> 00:12:53,360 Speaker 1: UH to go after this unique these unique assets that 236 00:12:53,440 --> 00:12:56,079 Speaker 1: leverage their unique capabilities. I think you're going to find 237 00:12:56,160 --> 00:12:57,880 Speaker 1: over the next few minutes, and our listeners will to 238 00:12:57,960 --> 00:12:59,760 Speaker 1: that Tracy is gonna be the one asking the assistigated 239 00:12:59,800 --> 00:13:02,960 Speaker 1: question because she's really good. You can do it. I'm 240 00:13:02,960 --> 00:13:05,920 Speaker 1: gonna be asking. I have a basic question when when 241 00:13:05,960 --> 00:13:08,080 Speaker 1: in the olden days, when the Wall Street banks were 242 00:13:08,120 --> 00:13:09,760 Speaker 1: allowed to be doing some of the stuff that you're 243 00:13:09,800 --> 00:13:13,240 Speaker 1: good at, do you think just looking at the system 244 00:13:13,320 --> 00:13:15,720 Speaker 1: and worrying about its safety was it a good thing? 245 00:13:15,880 --> 00:13:18,880 Speaker 1: When Golden Sacks, for example, I've written a little bit 246 00:13:18,920 --> 00:13:21,480 Speaker 1: about their special Situations group, which had some brilliant people 247 00:13:21,679 --> 00:13:24,520 Speaker 1: un familiar with them. Yeah, I assume they in those 248 00:13:24,520 --> 00:13:27,520 Speaker 1: good old days are probably your rivals, rivals and partners. 249 00:13:28,720 --> 00:13:30,800 Speaker 1: Was it a good thing that they had so much 250 00:13:30,800 --> 00:13:34,240 Speaker 1: capital to play with? I think one could take the 251 00:13:34,320 --> 00:13:38,000 Speaker 1: view that them having capital and deploying it and itself 252 00:13:38,120 --> 00:13:42,199 Speaker 1: was not particularly problematic. UM. Where I think some people 253 00:13:42,280 --> 00:13:45,960 Speaker 1: might have had issues were situations where it was not 254 00:13:46,040 --> 00:13:49,960 Speaker 1: necessarily clear where they were acting as an intermediary and 255 00:13:50,000 --> 00:13:52,560 Speaker 1: where they were acting as a principle. And in everything 256 00:13:52,640 --> 00:13:55,360 Speaker 1: I've ever done, you know, there's no question we have 257 00:13:55,440 --> 00:13:57,920 Speaker 1: only one thing to do, which is deployed capital and 258 00:13:58,000 --> 00:14:02,320 Speaker 1: make a disproportionate return for unit of UM. So I 259 00:14:02,360 --> 00:14:06,200 Speaker 1: would say, as an example, UM, there was a situation 260 00:14:06,240 --> 00:14:09,920 Speaker 1: with a European bank in the early two thousands that 261 00:14:10,040 --> 00:14:12,880 Speaker 1: had some assets that were a problem, and we went 262 00:14:12,960 --> 00:14:16,160 Speaker 1: and met with them, and they were represented by their 263 00:14:16,520 --> 00:14:20,080 Speaker 1: trusted advisors of golden Sacks, and those guys were in 264 00:14:20,080 --> 00:14:21,760 Speaker 1: the room when we got to meet with the bank, 265 00:14:22,680 --> 00:14:25,360 Speaker 1: and it quickly became clear that three of the four 266 00:14:25,400 --> 00:14:27,960 Speaker 1: people in the room were in fact our competitors, not 267 00:14:28,000 --> 00:14:31,320 Speaker 1: their investment bankers. UM. And so, needless to say, we 268 00:14:31,360 --> 00:14:33,120 Speaker 1: didn't get a chance to do much with that bank, 269 00:14:33,600 --> 00:14:36,000 Speaker 1: and so I think there was perhaps it was overblown, 270 00:14:36,000 --> 00:14:38,400 Speaker 1: but there was a perception that there was a mix 271 00:14:38,600 --> 00:14:41,480 Speaker 1: of principle and agent there that was not always clear. 272 00:14:41,960 --> 00:14:43,840 Speaker 1: And in so far as that perception it was out there, 273 00:14:43,920 --> 00:14:47,080 Speaker 1: it might have caused some issues. But you are talking 274 00:14:47,080 --> 00:14:51,240 Speaker 1: about an incredibly well run business and firm, one that 275 00:14:51,560 --> 00:14:55,800 Speaker 1: made it through the crisis much better than virtually everyone else, 276 00:14:56,240 --> 00:14:59,720 Speaker 1: that had a huge number of really smart people, and 277 00:14:59,800 --> 00:15:03,160 Speaker 1: I think, unlike virtually any other competitor that they had 278 00:15:03,520 --> 00:15:07,239 Speaker 1: um created a culture where there was information flow, information 279 00:15:07,280 --> 00:15:12,280 Speaker 1: sharing that was really unique. Whatever you may say about 280 00:15:12,480 --> 00:15:18,000 Speaker 1: their goals, they were incredibly effective at pursuing them, all right. 281 00:15:18,080 --> 00:15:21,640 Speaker 1: But we did have this confusion about principle versus agent, 282 00:15:22,120 --> 00:15:24,400 Speaker 1: so whether they're doing this as a sort of financial 283 00:15:24,440 --> 00:15:28,000 Speaker 1: intermediary versus trading for their own accounts profiting it from 284 00:15:28,000 --> 00:15:31,840 Speaker 1: it for themselves. That really came to the forefront during 285 00:15:31,840 --> 00:15:35,360 Speaker 1: the financial crisis and afterwards we saw regulators pile in 286 00:15:35,680 --> 00:15:39,440 Speaker 1: all these new rules basically restricting and or making it 287 00:15:39,520 --> 00:15:42,800 Speaker 1: more expensive for banks to undertake some of this activity. 288 00:15:43,080 --> 00:15:46,920 Speaker 1: And simultaneously we saw guys like you and those asset 289 00:15:46,960 --> 00:15:50,680 Speaker 1: managers you mentioned, or alternative managers you mentioned earlier start 290 00:15:50,720 --> 00:15:54,280 Speaker 1: to get big as they picked business off of the banks. 291 00:15:54,840 --> 00:15:57,920 Speaker 1: And then of course we heard from regulators that actually 292 00:15:57,920 --> 00:16:00,720 Speaker 1: they were worried about the growth of the shadow banking 293 00:16:00,760 --> 00:16:06,040 Speaker 1: sectary should we be worried well with any sorts of 294 00:16:06,400 --> 00:16:11,320 Speaker 1: idiosocratic finance. Over time, there are clearly cycles, and I 295 00:16:11,320 --> 00:16:13,560 Speaker 1: would argue that one of the biggest risks in any 296 00:16:13,640 --> 00:16:16,800 Speaker 1: of these activities is the moral hazard that they bring. 297 00:16:17,520 --> 00:16:19,800 Speaker 1: And part of their way we structured our business with 298 00:16:19,840 --> 00:16:23,080 Speaker 1: these joint ventures allowed us to have an extremely variable 299 00:16:23,120 --> 00:16:26,920 Speaker 1: cost of effective infrastructure. So there was nobody out there 300 00:16:26,960 --> 00:16:29,160 Speaker 1: who said, well, I need to do things in order 301 00:16:29,160 --> 00:16:32,040 Speaker 1: to get paid, right, And so we took away that 302 00:16:32,160 --> 00:16:35,280 Speaker 1: moral hazard in our business and it and it importantly 303 00:16:35,280 --> 00:16:37,560 Speaker 1: allowed us to find not only find good things to do, 304 00:16:37,600 --> 00:16:40,800 Speaker 1: but even more importantly avoid things that were not there 305 00:16:40,880 --> 00:16:42,240 Speaker 1: that we're not good to do. Can you give me 306 00:16:42,240 --> 00:16:45,560 Speaker 1: an example of one of those types of things to avoid? Uh? Well, 307 00:16:45,640 --> 00:16:50,160 Speaker 1: So as an example, um um. In the last energy cycle, 308 00:16:51,240 --> 00:16:55,280 Speaker 1: when Enron and Merinth and Aquila and all those firms 309 00:16:55,320 --> 00:16:58,200 Speaker 1: that many of whose names we don't remember anymore, we're 310 00:16:58,200 --> 00:17:01,680 Speaker 1: blowing up uh, and oil and gas prices were low 311 00:17:01,760 --> 00:17:04,959 Speaker 1: this is kind of a tish uh oh. Three, We 312 00:17:05,200 --> 00:17:08,879 Speaker 1: ended up buying the onshore natural gas landing business of 313 00:17:09,400 --> 00:17:13,399 Speaker 1: Mirrant at about sixty cents on the dollar and pretty 314 00:17:13,480 --> 00:17:16,280 Speaker 1: much and so and again we're not macro people, all right, 315 00:17:16,320 --> 00:17:18,480 Speaker 1: so we don't know about oil and gas prices. What 316 00:17:18,560 --> 00:17:21,919 Speaker 1: we knew was that in the high one dollars we 317 00:17:22,080 --> 00:17:24,760 Speaker 1: get our money back, in the low mid twos, we'd 318 00:17:24,760 --> 00:17:26,639 Speaker 1: make a nice return, and beyond that it would be 319 00:17:26,680 --> 00:17:28,200 Speaker 1: really good. And it turned out to be four bucks 320 00:17:28,240 --> 00:17:31,560 Speaker 1: and so it was really good. Um. But more importantly, 321 00:17:32,480 --> 00:17:35,960 Speaker 1: at that point, nobody in town in Houston was making 322 00:17:36,480 --> 00:17:39,160 Speaker 1: on on balance sheet loans the energy companies, and so 323 00:17:39,240 --> 00:17:43,119 Speaker 1: based on that knowledge, we stepped in and actually worked 324 00:17:43,119 --> 00:17:45,000 Speaker 1: with a couple of local folks down there to create 325 00:17:45,040 --> 00:17:48,280 Speaker 1: what then became the most significant on on on shore 326 00:17:48,359 --> 00:17:53,080 Speaker 1: natural gas lender out of Houston. Once banks started to 327 00:17:53,480 --> 00:17:58,320 Speaker 1: reaccustom themselves assuming that risk we couldn't really compete um 328 00:17:58,920 --> 00:18:01,480 Speaker 1: or that those opportunit needs couldn't compete for our capital. 329 00:18:02,040 --> 00:18:04,200 Speaker 1: Uh And so we ended up just doing less and less. 330 00:18:04,760 --> 00:18:07,280 Speaker 1: And so now when prices are back where they are, 331 00:18:07,480 --> 00:18:10,719 Speaker 1: we're now the fact third time around down in Houston 332 00:18:10,760 --> 00:18:13,200 Speaker 1: and Dallas and other places looking at that stuff all 333 00:18:13,240 --> 00:18:17,040 Speaker 1: over again. Um. You know, when I think about shadow banking, 334 00:18:18,240 --> 00:18:20,600 Speaker 1: I think about because I'm a total nerd, I think 335 00:18:20,640 --> 00:18:24,080 Speaker 1: about the repo market. Before two thousand eight, we've been 336 00:18:24,119 --> 00:18:27,120 Speaker 1: talking about shadow banking in the context of non banks 337 00:18:27,200 --> 00:18:31,920 Speaker 1: providing credit intermediation, but the definitions can get really muddled. 338 00:18:32,240 --> 00:18:35,640 Speaker 1: Are there specific types of shadow banks that you would 339 00:18:35,680 --> 00:18:40,600 Speaker 1: be more concerned about, for instance, say a liquid fund 340 00:18:40,960 --> 00:18:45,280 Speaker 1: buying up the kind of illiquid assets that you specialize in. Well, 341 00:18:45,320 --> 00:18:48,600 Speaker 1: I think yeah. First of all, I don't know that 342 00:18:48,600 --> 00:18:52,440 Speaker 1: there's a dictionary definition of shadow banking, other than if 343 00:18:52,440 --> 00:18:54,639 Speaker 1: there is, I'm sure it's a poor one. Yeah. What 344 00:18:54,720 --> 00:18:56,440 Speaker 1: I would say is, if you want to think about 345 00:18:56,480 --> 00:18:59,639 Speaker 1: what risks are significant now in the wake of the 346 00:18:59,640 --> 00:19:03,639 Speaker 1: regular aation that happened, I think it's less about the 347 00:19:03,640 --> 00:19:07,840 Speaker 1: market participants, less about Goldman Sachs participating the markets as principal, etcetera, 348 00:19:07,880 --> 00:19:10,840 Speaker 1: and much more about the provision of liquidity. And so 349 00:19:11,160 --> 00:19:14,800 Speaker 1: what has happened with the new regulations is that there's 350 00:19:14,840 --> 00:19:19,080 Speaker 1: tremendous disincentive for anybody to provide liquidity of any sort. 351 00:19:19,680 --> 00:19:24,360 Speaker 1: And so we have not yet remotely tested what it's 352 00:19:24,359 --> 00:19:27,120 Speaker 1: going to feel like when people who have for many 353 00:19:27,200 --> 00:19:29,239 Speaker 1: years been used to being able to get out of 354 00:19:29,280 --> 00:19:32,280 Speaker 1: things um suddenly don't have a bid. And is that 355 00:19:32,320 --> 00:19:36,200 Speaker 1: basil regulations or Dodd Frank. I think that's a combination 356 00:19:36,359 --> 00:19:41,400 Speaker 1: of vasil, Dodd Frank, and importantly vulcan, because when insofar 357 00:19:41,520 --> 00:19:45,399 Speaker 1: as you preclude what otherwise would be marketing making activities 358 00:19:45,440 --> 00:19:49,200 Speaker 1: and over the counter products by investment banks, you preclude 359 00:19:49,240 --> 00:19:54,080 Speaker 1: them from quote unquote proprietary trading um when you're trading 360 00:19:54,080 --> 00:19:56,840 Speaker 1: for their own accounts. Correct, when you're making markets and 361 00:19:56,920 --> 00:20:00,399 Speaker 1: over the counter products, you can't afford to be a 362 00:20:00,400 --> 00:20:03,280 Speaker 1: willing buyer or seller at a price because your own 363 00:20:03,280 --> 00:20:06,520 Speaker 1: customers will take advantage of you and you will quickly 364 00:20:06,560 --> 00:20:09,760 Speaker 1: get you know, busted and and and put out of business. 365 00:20:10,080 --> 00:20:13,640 Speaker 1: And so you have to have some directional views as 366 00:20:13,640 --> 00:20:16,880 Speaker 1: to what's going on. And so to preclude them from 367 00:20:17,040 --> 00:20:19,760 Speaker 1: quote unquote proprietary trading in the way that has been 368 00:20:19,800 --> 00:20:23,480 Speaker 1: done has basically sucked the liquidity out of virtually every 369 00:20:23,480 --> 00:20:27,400 Speaker 1: OTC trading market, and the effects of that have yet 370 00:20:27,440 --> 00:20:32,160 Speaker 1: to be felt in a material way because since July thirteen, 371 00:20:32,640 --> 00:20:35,200 Speaker 1: when kind of d dragging stepped in with his kind 372 00:20:35,200 --> 00:20:37,800 Speaker 1: of job owning about rates being low forever. Uh. In 373 00:20:37,840 --> 00:20:41,800 Speaker 1: the in the periodic times when that notion has been tested, uh, 374 00:20:41,840 --> 00:20:44,600 Speaker 1: and then kind of we've seen recovery driven by central bankers. 375 00:20:44,840 --> 00:20:49,240 Speaker 1: Since then, we've yet to really feel how utterly devoid 376 00:20:49,280 --> 00:20:51,520 Speaker 1: of liquidity the markets are. Do you think there's a 377 00:20:51,640 --> 00:20:57,359 Speaker 1: chance that what Paul Walker would call, uh, casino banking. 378 00:20:57,400 --> 00:20:59,679 Speaker 1: You know that if there's anythings that by preventing the 379 00:20:59,680 --> 00:21:04,720 Speaker 1: Walsh firms from trading on their own account, Yeah, casino banking, 380 00:21:04,800 --> 00:21:07,960 Speaker 1: you would call that that that is nothing but a 381 00:21:08,440 --> 00:21:11,040 Speaker 1: plus for for society, that that's going to protect tax 382 00:21:11,080 --> 00:21:12,800 Speaker 1: barers from having to bail out banks again, and that 383 00:21:12,880 --> 00:21:15,680 Speaker 1: the downside, the downside will be minimal as it has 384 00:21:15,720 --> 00:21:18,880 Speaker 1: been at least so far, nothing horrible has happened because 385 00:21:19,520 --> 00:21:22,040 Speaker 1: um liquidity isn't as lush as it once once. What's 386 00:21:22,080 --> 00:21:24,200 Speaker 1: do and that's optimistic? Is there any chance things will 387 00:21:24,200 --> 00:21:26,320 Speaker 1: play out that way? Or are you worried that something 388 00:21:26,359 --> 00:21:30,240 Speaker 1: scary as can happen? Uh? I'm you know. Buffett says, 389 00:21:30,240 --> 00:21:34,000 Speaker 1: in the long term, markets are are weighing machines, not 390 00:21:34,080 --> 00:21:38,000 Speaker 1: voting machines, and so credit markets haven't been allowed to 391 00:21:38,040 --> 00:21:41,640 Speaker 1: find their level yet UM, and they've been trying episodically 392 00:21:41,680 --> 00:21:45,800 Speaker 1: for the last couple of years and so UM as 393 00:21:45,840 --> 00:21:47,840 Speaker 1: you saw a little bit in the last little shock 394 00:21:47,920 --> 00:21:50,840 Speaker 1: we had in December of January, what happened then there 395 00:21:50,840 --> 00:21:53,720 Speaker 1: were a series of funds that were investing in corporate 396 00:21:54,000 --> 00:21:58,480 Speaker 1: OTC product that had no liquidity in their assets, but 397 00:21:58,560 --> 00:22:00,879 Speaker 1: had lots of liquidity on their lives ability side, right. 398 00:22:00,920 --> 00:22:04,639 Speaker 1: They were mutual funds, structured funds, exchange traded funds, that 399 00:22:04,720 --> 00:22:07,560 Speaker 1: sort of thing, well, specifically mutual funds that were open 400 00:22:07,680 --> 00:22:10,000 Speaker 1: ended with daily liquidity that were invested in things that 401 00:22:10,040 --> 00:22:11,760 Speaker 1: didn't have a bid and they had to shut down 402 00:22:11,800 --> 00:22:13,720 Speaker 1: and it was very ugly. And that was only a 403 00:22:13,800 --> 00:22:16,600 Speaker 1: little bit of a beginning. That was things like Third Avenue, 404 00:22:16,640 --> 00:22:19,440 Speaker 1: Third Avenue. Yes, yeah, that was an example. And so 405 00:22:19,600 --> 00:22:21,600 Speaker 1: there are a lot of open ended mutual funds. There 406 00:22:21,600 --> 00:22:24,520 Speaker 1: are a lot of you know, monthly or quarterly liquidity 407 00:22:24,600 --> 00:22:27,840 Speaker 1: UM alternative investment funds that are investing in assets that 408 00:22:28,000 --> 00:22:30,320 Speaker 1: in any type of a shock won't have a bid 409 00:22:30,440 --> 00:22:33,200 Speaker 1: or won't have a material bid. And so you'll see 410 00:22:33,760 --> 00:22:36,199 Speaker 1: the beginnings of that when that happens, not unlike what 411 00:22:36,240 --> 00:22:39,399 Speaker 1: happened with BNP in July of oh seven, immediately preceding 412 00:22:39,440 --> 00:22:41,960 Speaker 1: the crisis, where they were simply no bid, no way 413 00:22:41,960 --> 00:22:44,480 Speaker 1: to mark. They had to just freeze to see where 414 00:22:44,480 --> 00:22:46,600 Speaker 1: things leveled out. Remind me, they had a bunch of 415 00:22:46,840 --> 00:22:49,720 Speaker 1: was it structured finance or of some sort? I believe 416 00:22:49,760 --> 00:22:53,040 Speaker 1: it was residential mortgage related to I think it was 417 00:22:53,240 --> 00:22:58,560 Speaker 1: cash mortgage related securities, and then basically word got round 418 00:22:58,600 --> 00:23:00,560 Speaker 1: that they were trying to offload them but couldn't. Is 419 00:23:00,560 --> 00:23:03,800 Speaker 1: that right? Well, by that point there was it was 420 00:23:03,920 --> 00:23:07,240 Speaker 1: very unclear what the bid was for any of that 421 00:23:07,280 --> 00:23:10,359 Speaker 1: stuff because people who were financing it suddenly had to 422 00:23:10,400 --> 00:23:12,080 Speaker 1: pull back all at the same time, a lot of 423 00:23:12,080 --> 00:23:13,680 Speaker 1: people who owned it had to go the same way. 424 00:23:13,960 --> 00:23:16,760 Speaker 1: What happens is suddenly there are these gap downs in 425 00:23:16,800 --> 00:23:20,159 Speaker 1: pricing when everybody's going the same way and something uh. 426 00:23:20,160 --> 00:23:23,959 Speaker 1: And so you don't see that frequently, and you know, 427 00:23:24,000 --> 00:23:25,679 Speaker 1: it's been a several years, so there's not a lot 428 00:23:25,720 --> 00:23:29,000 Speaker 1: of guys who were maybe not at the trigger, if 429 00:23:29,000 --> 00:23:31,480 Speaker 1: you will, at that point, who might now be who 430 00:23:31,480 --> 00:23:34,040 Speaker 1: didn't kind of feel what that felt like when it 431 00:23:34,080 --> 00:23:36,560 Speaker 1: was there, And if you've been through several cycles. You 432 00:23:36,600 --> 00:23:40,639 Speaker 1: know that those are very painful times, and at no 433 00:23:40,760 --> 00:23:43,080 Speaker 1: point has there been as little liquidity as there has 434 00:23:43,119 --> 00:23:46,040 Speaker 1: been now for the last you know, twenty plush years. 435 00:23:46,480 --> 00:23:48,240 Speaker 1: You know, on the one hand, what we're talking about 436 00:23:48,280 --> 00:23:53,040 Speaker 1: here is regulators essentially overstepping their bounds and doing things 437 00:23:53,040 --> 00:23:54,840 Speaker 1: that in the long run you worry aren't gonna be 438 00:23:54,840 --> 00:23:56,600 Speaker 1: great for the markets. And I have to say, it's 439 00:23:56,680 --> 00:23:59,280 Speaker 1: it's hard not to remember that it's also regulators that 440 00:24:00,119 --> 00:24:03,719 Speaker 1: in a way essentially helps shut down DB's worn. Do 441 00:24:03,760 --> 00:24:05,560 Speaker 1: you feel like you learned anything? Do you do you 442 00:24:05,600 --> 00:24:08,720 Speaker 1: feel like you came out of that whole episode more cynical, 443 00:24:08,920 --> 00:24:11,040 Speaker 1: more skeptical about the role of regulators in the United 444 00:24:11,080 --> 00:24:16,720 Speaker 1: States markets, Well, I think, uh, I think there's nothing 445 00:24:16,840 --> 00:24:20,000 Speaker 1: wrong with good regulators and good regulation, and I think 446 00:24:20,040 --> 00:24:23,640 Speaker 1: we are happy to have sufficient or more than sufficient 447 00:24:23,720 --> 00:24:27,800 Speaker 1: numbers of both. But simply making more rules and making 448 00:24:27,920 --> 00:24:30,480 Speaker 1: throwing more bodies at the problem as opposed to taking 449 00:24:30,520 --> 00:24:32,359 Speaker 1: the rules and buys you have and making them better 450 00:24:32,720 --> 00:24:34,600 Speaker 1: is probably not the optimal way to go. And perhaps 451 00:24:34,640 --> 00:24:37,320 Speaker 1: some of that occurred. You know, immediately after the crisis, 452 00:24:37,520 --> 00:24:41,240 Speaker 1: we had a very specific situation um that was unfortunate, 453 00:24:41,240 --> 00:24:44,879 Speaker 1: and you know it it led to uh, you know, 454 00:24:45,200 --> 00:24:48,480 Speaker 1: lots of good people losing lots of great opportunity UM 455 00:24:48,520 --> 00:24:50,040 Speaker 1: that shouldn't have had to do so in a in 456 00:24:50,080 --> 00:24:53,359 Speaker 1: a wonderful business having to go away. But no, I 457 00:24:53,400 --> 00:24:55,879 Speaker 1: think I was skeptical and cynical to begin with, and 458 00:24:55,920 --> 00:24:59,760 Speaker 1: I still am. All right. Uh Dan's weren is CEO 459 00:24:59,840 --> 00:25:02,720 Speaker 1: of Arena Investors. Thank you so much for joining us today. 460 00:25:02,760 --> 00:25:08,119 Speaker 1: You're welcome. Okay, Max, what do you think about that? 461 00:25:09,119 --> 00:25:12,000 Speaker 1: You know, I always find it so interesting when like 462 00:25:12,200 --> 00:25:16,440 Speaker 1: really smart, powerful hedge fund managers want to describe themselves 463 00:25:16,480 --> 00:25:22,480 Speaker 1: as doing well and good. Clearly he aims to um 464 00:25:22,640 --> 00:25:26,240 Speaker 1: bounce back from what happened a few years ago and 465 00:25:26,480 --> 00:25:28,800 Speaker 1: provide liquidity where he feels like it doesn't exist from 466 00:25:28,840 --> 00:25:32,800 Speaker 1: other places. So, you know, I've been covering shadow banking 467 00:25:32,800 --> 00:25:36,240 Speaker 1: for a long time. I've also been covering the liquidity 468 00:25:36,320 --> 00:25:38,840 Speaker 1: question that we just discussed, and I can really see 469 00:25:38,840 --> 00:25:41,359 Speaker 1: it from both sides. I can see, on the one hand, 470 00:25:41,520 --> 00:25:44,840 Speaker 1: how regulators want to de risk bank balance sheets, but 471 00:25:44,880 --> 00:25:47,520 Speaker 1: I can also see how regulators in the aftermath of 472 00:25:47,560 --> 00:25:51,480 Speaker 1: the financial crisis maybe rushed to do a few things 473 00:25:51,960 --> 00:25:58,040 Speaker 1: and potentially unknowingly shifted risk into another sector. And now 474 00:25:58,080 --> 00:26:00,480 Speaker 1: that might be a good thing, right because guy's legs 475 00:26:00,520 --> 00:26:03,560 Speaker 1: were maybe know what they're doing. They have deep pockets, 476 00:26:03,840 --> 00:26:07,040 Speaker 1: they can handle that sort of illiquid credit asset. But 477 00:26:07,119 --> 00:26:10,200 Speaker 1: there are other types of funds, like the mutual funds 478 00:26:10,200 --> 00:26:13,080 Speaker 1: that Dan mentioned that I do worry about. It's lucky 479 00:26:13,359 --> 00:26:16,200 Speaker 1: that we're just journalists and not regulators, because I don't 480 00:26:16,280 --> 00:26:18,280 Speaker 1: I don't know how I would deal with this. I 481 00:26:18,280 --> 00:26:20,159 Speaker 1: agree with you. I feel sympathetic to the idea that 482 00:26:20,600 --> 00:26:23,720 Speaker 1: if you overregulate the banks, this activity will move into 483 00:26:23,960 --> 00:26:26,520 Speaker 1: corners that um, you know, we'll be able to handle 484 00:26:26,520 --> 00:26:28,600 Speaker 1: it well. And on the other hand, I feel worried 485 00:26:28,640 --> 00:26:32,679 Speaker 1: about the big banks getting involved in risky things that 486 00:26:32,800 --> 00:26:37,200 Speaker 1: belong in um entities that aren't backed by government guarantees. 487 00:26:37,240 --> 00:26:40,760 Speaker 1: So I'm glad we're just writers. All right, Let's go 488 00:26:40,880 --> 00:26:44,640 Speaker 1: celebrate the fact that we're not regulators. I'm Tracy Alloway, 489 00:26:44,720 --> 00:26:47,240 Speaker 1: executive editor at Bloomberg Markets. You can catch me on 490 00:26:47,280 --> 00:26:50,960 Speaker 1: Twitter at Tracy Alloway. I'm Maxi Avilison of Bloomberg News 491 00:26:51,080 --> 00:27:01,280 Speaker 1: on Twitter at Max Avilson. Thanks for listening, O