Speaker 1: Welcome to odd Lots. I'm Tracy Alloway, Executive editor of
Speaker 1: Bloomberg Markets the Bloomberg News. Max joins me today because
Speaker 1: Joe is still off, but I think, uh, we're going
Speaker 1: to have a good show. Max. Have you been watching
Speaker 1: that new TV series Billions? You know a little known
Speaker 1: fact about me is that my girlfriend Annie and I
Speaker 1: do not own a television really, so no Billions for us.
Speaker 1: All right, then you're gonna find this interesting. It's a
Speaker 1: show basically about a high flying hedge fund manager who's
Speaker 1: dealing with regulators. Let's put it that way. Most of
Speaker 1: it is him wheeling and dealing in stocks, shorting things,
Speaker 1: making short term directional bets, going long or short. Uh,
Speaker 1: maybe it's easier if we just play a clip. Who
Speaker 1: said this deal is going to close? Ben said? This morning,
Speaker 1: Everyone's saying, who is this a new analyst? Well, if
Speaker 1: we hired you must be a genius. Yeah, Stanford, then Wharton, Okay?
Speaker 1: Stanford Warton Electric Sun is controlled by Casuwitz. He also
Speaker 1: owns nineteen point three of Luma Therm back Door through
Speaker 1: his stake in Southern Wind. You see that block trade
Speaker 1: last Thursday come out of Meryl. Yeah, that was Fortress
Speaker 1: cashing out their shorts before the merger, wasn't it traders
Speaker 1: A twelve fifty two when everyone was at lunch, which
Speaker 1: tells me they wanted it to be missed. You guys
Speaker 1: caught it, which is something I guess, but you're looking
Speaker 1: at it backward. Electric Soun's offer was just deployed to
Speaker 1: temporarily prop up Luma Therm. Typical Casuits played a bail
Speaker 1: on a Loseries and animal. The block trade was casuits
Speaker 1: getting out of Southern Wind getting out of Luma therm.
Speaker 1: He wrote the story now he's out, which means you
Speaker 1: need to be out. In fact short, it'll slight to
Speaker 1: thirty two and change after word breaks. Wow, is today's
Speaker 1: episode going to be your view of Billions? No, I
Speaker 1: will spare you all my opinions of Billions. I actually
Speaker 1: wanted to bring it up for two reasons. Um mostly
Speaker 1: because our guest today is Dan's Warren, and he's a
Speaker 1: really well known hedge fund manager, but he's never actually
Speaker 1: done the type of stuff that most people seem to
Speaker 1: think hedge funds do based on clips like the one
Speaker 1: we just heard. In fact, he made his career providing
Speaker 1: capital to thousands of companies with a few other financing options,
Speaker 1: basically going where banks fear to tread. Well, at least
Speaker 1: up until recently, banks were pretty brave about that kind
Speaker 1: of thing. So what he does must be interesting. Yeah,
Speaker 1: and we're going to talk about how that opportunity came up.
Speaker 1: And one of the reasons it is really interesting is
Speaker 1: because we often hear regulators and lots of other people
Speaker 1: talking about non bank financial institutions or providers of credit,
Speaker 1: which sometimes go by the label shadow banks. Right, And
Speaker 1: as soon as you hear the term shadow banks, you think, oh,
Speaker 1: this is a bad thing, it's risky, there's something nefarious
Speaker 1: about it. But actually, as we're going to hear, shadow
Speaker 1: banks can fill a gap, and some times that gap
Speaker 1: needs to be filled. I still get like a small
Speaker 1: shiver up like the small of my back, of my
Speaker 1: spine when I hear shadow banking. So I feel like
Speaker 1: I'm gonna need a little bit of convincing from Dan
Speaker 1: and from you that I that it's that it's you know,
Speaker 1: it's not a shadowy a thing as its name implies.
Speaker 1: All right, well, we'll see if we could do that.
Speaker 1: But before we do, there's one other reason I brought
Speaker 1: up billions. And that is because Dan had his own
Speaker 1: run in with regulators just before the financial crisis, right,
Speaker 1: And I remember that because of the wonderful Bill Cohan,
Speaker 1: my friend known to known to listeners and readers as
Speaker 1: William D. Cohan is violent. He wrote a really long
Speaker 1: and detailed and beautiful story about about those travails not
Speaker 1: too long ago in Bloomberg, right, and I urge all
Speaker 1: our listeners to go read that story. But in the meantime,
Speaker 1: I'm going to summarize very quickly. Basically, it's about how
Speaker 1: Dan's hedge fund ran into some accounting problems and then
Speaker 1: investors started pulling out money. Uh. Dan eventually closed it down.
Speaker 1: It used to have twelve billion worth of assets. Uh. Eventually, however,
Speaker 1: he was cleared of all wrongdoing by the U S
Speaker 1: securities regulator. And since then he's been busy rebuilding a
Speaker 1: different fund. And we're going to find out today what
Speaker 1: exactly he's doing. Let's get started. Dan, thank you so
Speaker 1: much for joining us, Thanks for having me. So let's
Speaker 1: get this out of a way. First. Back in two
Speaker 1: thousand and six, two thousand seven, you were this really
Speaker 1: high flying hedge fund manager. I saw one commentator who
Speaker 1: referred to you as hedge fund perfection. Uh, and then
Speaker 1: this sec thing happened. Tell us what exactly went down? Well, Look,
Speaker 1: we had a we had a wonderful business that made
Speaker 1: seven hundred million dollars in its last year two point
Speaker 1: seven billion dollars overall. We had six billions of equity,
Speaker 1: twelve billion of assets, three hundred good employees and another
Speaker 1: eight hundred associated employees around the world, and did business
Speaker 1: and twe five countries, financing a lot of the companies
Speaker 1: and assets and and consumers and real estate properties that
Speaker 1: otherwise couldn't have been financed. UM. So we were doing well,
Speaker 1: and I think doing good. And Uh, Unfortunately, we had
Speaker 1: a an internal bad egg that we're uh. Some folks
Speaker 1: that I had assigned to tighten the controls of our business,
Speaker 1: UH found out. I directed the firm to turn them in.
Speaker 1: And unfortunately, UM, the process by which it was made
Speaker 1: clear that neither I nor the firm had anything to
Speaker 1: do with that person's activities too longer than otherwise should have.
Speaker 1: And so while we never had any h and an
Speaker 1: audit changed or requalified or amended or any of those things.
Speaker 1: It took so long for that to clear up that
Speaker 1: we had to move along with the firm. Tell us
Speaker 1: what your fund actually did in order to achieve the
Speaker 1: returns that you're known for. Uh. Sure, well, we we
Speaker 1: refer to ourselves as a global chaser of illiquidity UM,
Speaker 1: and so fundamentally we wanted to liquidity being assets that
Speaker 1: might be hard to buy or sell or trade in
Speaker 1: some way correct correct And and it doesn't necessarily mean
Speaker 1: assets that don't trade on a marketplace, because at times
Speaker 1: even assets that are you know, that have an accusive
Speaker 1: number on and trade over bloomberg um, have very little
Speaker 1: bitter offer. And so we like to say that we'll
Speaker 1: we'll run into every house on fire and and stay
Speaker 1: in some of them. And ultimately we want to be
Speaker 1: in a position where both, as we say, both borrower
Speaker 1: and lender, or both buyer and seller have the exact
Speaker 1: same view on value, but the other guy just needs
Speaker 1: our money, as opposed to having a directional view on
Speaker 1: on asset prices. You said a second ago that you
Speaker 1: guys did both well and good, and it sounds like
Speaker 1: you definitely did well while while the going was good.
Speaker 1: Explain to us why you also feel like you were
Speaker 1: doing good? Uh, well, to be clear, unlike some other people,
Speaker 1: I'm not gonna claim to be have have done the
Speaker 1: Lord's work. However, the world is, within finances, a big
Speaker 1: have and have not world, and there are a lot
Speaker 1: of very viable consumers, properties, companies, assets that don't actually
Speaker 1: intrinsically have materially large amount of credit risk in them
Speaker 1: that for non value reasons might not be able to
Speaker 1: access credit. And you know other over time banks have
Speaker 1: done that. And what you find is there's a reflexive
Speaker 1: characterization that sometimes people have. Let's say, well banks aren't
Speaker 1: that smart at what they do and they can't really
Speaker 1: do this thing, etcetera, etcetera. But if you were scaling
Speaker 1: a bank in the level that banks are scaled, and
Speaker 1: you had to create a very set set of rules
Speaker 1: for thousands of employees to follow regarding who should get credit,
Speaker 1: you're necessarily going to have to make some pretty blunt
Speaker 1: instrument rules to allow yourself not to get into problems.
Speaker 1: And so that leaves all of these kind of idiosyncratic,
Speaker 1: funkier things that otherwise should get credit, and if it
Speaker 1: were done one by one would get credit out in
Speaker 1: the cold. So, in other words, you were lending where
Speaker 1: others were were fearing to go or by policy, etcetera,
Speaker 1: couldn't go right. So you might frequently see talk to
Speaker 1: folks at banks who would say, well, jeez, we would
Speaker 1: do this. I would do this, but our institution can't
Speaker 1: do this for some sort of rule that had very
Speaker 1: little do with the credit worthiness of the underlying asset.
Speaker 1: You know, I want to be honest with you and
Speaker 1: tell you where I sit in the newsroom is literally
Speaker 1: physically close to my very good friend Zeke Fox, who
Speaker 1: writes beautifully about the nuances and sometimes the criminality, and
Speaker 1: or at least just that the very gray area of
Speaker 1: hedge funds lending to small businesses sometimes the rates can
Speaker 1: get very very high. I remember in Cohen's piece he
Speaker 1: mentioned um that you lent to a company that least
Speaker 1: slot machines to casinos on Indian reservations. And just speaking
Speaker 1: honestly in the same way that we're gonna we're gonna
Speaker 1: talk about in a while, how shadow banking sometimes makes
Speaker 1: me nervous just from the mere sound of it. Also,
Speaker 1: just have to be honest and say it also makes
Speaker 1: me nervous, even though, mind you, I don't know too
Speaker 1: much about it. When I hear about hedge funds lending
Speaker 1: to things like, you know, Indian casinos and slots. Is
Speaker 1: that something that you felt comfortable with? Can you? Did?
Speaker 1: You have to deal with people who felt less comfortable
Speaker 1: with and explain why this was a good a good thing. No,
Speaker 1: you know, at the at the end of the day,
Speaker 1: Indian reservation gaming facilities are large money makers for those
Speaker 1: reservations in that case, and to the extent that there
Speaker 1: are machines that they have where they don't want to
Speaker 1: deploy capital, but there's you know, perfectly reasonable credit to
Speaker 1: be had. You know, folks like us could do it
Speaker 1: in that particular case. Because those slot machines were on
Speaker 1: Indian reservation property. You needed to have a gaming license
Speaker 1: for that reservation, uh, in order such that if you
Speaker 1: ever had to foreclose on the assets and operate them,
Speaker 1: you have a license to do so. And so we
Speaker 1: had to partner with a very specialized guy who happened
Speaker 1: to have such a license in order to be there
Speaker 1: and provide the capital that a bank wouldn't for them.
Speaker 1: And so to the extent that that gaming facility thrived
Speaker 1: and helped and benefited its tribe, it was a perfectly
Speaker 1: legitimate business. Uh, you know, we don't see an issue
Speaker 1: with that. It worked out in the end, it didn't.
Speaker 1: So your old fund was all about investing in liquid
Speaker 1: assets extending credit to all sorts of different businesses and companies.
Speaker 1: You have this new fund now essentially doing a very
Speaker 1: very similar thing. Walk us through the idea here, and
Speaker 1: if there is actually a bigger gap to be filled now, well,
Speaker 1: I think there's There's two different parts of the story.
Speaker 1: The first is, you know, where is the market today?
Speaker 1: And the answer to that is that, in fact, post
Speaker 1: the crisis, there is, you know, a much larger addressable
Speaker 1: market for the kind of things than we that we
Speaker 1: do then there perhaps ever has been, and arguably the
Speaker 1: people who are addressing that market um are as few
Speaker 1: as they ever have been when we had our prior business.
Speaker 1: The largest competitor we had competitors we had were the
Speaker 1: internal proprietary groups of the investment banks, which are all
Speaker 1: gone now. Which are all gone now. And that's not
Speaker 1: to say all of those people and assets are gone,
Speaker 1: because they a large number of them have migrated to
Speaker 1: a very small number of very large alternative investment firms,
Speaker 1: large in a way that we never dreamed possible at
Speaker 1: that point. Um, there was a time when ten billion
Speaker 1: dollars of assets was a big deal. Uh. And many
Speaker 1: of these folks with whom I competed with with whom
Speaker 1: I competed are now you know, thirty and twenty billion dollars.
Speaker 1: And so what's interesting is that in some ways the
Speaker 1: same gaps are available because they can only write checks
Speaker 1: that are you know, seventy million at a shot. And
Speaker 1: so in the absence of them, the investment banks and
Speaker 1: commercial banks, the number of the very large number of
Speaker 1: smaller opportunities out there to be financed is as big
Speaker 1: as it's ever been. So if you're looking for sort
Speaker 1: of smaller opportunities, how do you actually source your loans?
Speaker 1: Because you and I have spoken about this before, and
Speaker 1: it is an interesting on the ground sort of process. Well. Uh,
Speaker 1: to the extent that things are intermediated by brokers of
Speaker 1: various sorts, they almost by definition tend to be less appealing.
Speaker 1: And so no, it's not that it's just that they
Speaker 1: show with the lots of people because they're looking for
Speaker 1: the fastest path to that fee. Um. And so we
Speaker 1: have found that in the type of things that we do, UM,
Speaker 1: there are frequently people who have very specialized knowledge, whether
Speaker 1: that's sourcing, uh, analysis capability, or even servicing of assets. UH.
Speaker 1: They may not have all three of those, um, and
Speaker 1: they may specialized in very idiosocratic things, but they have
Speaker 1: a special skill. And we like to find those kind
Speaker 1: of folks UH and use that to supplement our our
Speaker 1: team on our our own teams UM where we can
Speaker 1: partner with them in a very highly financially aligned way
Speaker 1: where they're putting up significant amounts of their own money
Speaker 1: UH to go after this unique these unique assets that
Speaker 1: leverage their unique capabilities. I think you're going to find
Speaker 1: over the next few minutes, and our listeners will to
Speaker 1: that Tracy is gonna be the one asking the assistigated
Speaker 1: question because she's really good. You can do it. I'm
Speaker 1: gonna be asking. I have a basic question when when
Speaker 1: in the olden days, when the Wall Street banks were
Speaker 1: allowed to be doing some of the stuff that you're
Speaker 1: good at, do you think just looking at the system
Speaker 1: and worrying about its safety was it a good thing?
Speaker 1: When Golden Sacks, for example, I've written a little bit
Speaker 1: about their special Situations group, which had some brilliant people
Speaker 1: un familiar with them. Yeah, I assume they in those
Speaker 1: good old days are probably your rivals, rivals and partners.
Speaker 1: Was it a good thing that they had so much
Speaker 1: capital to play with? I think one could take the
Speaker 1: view that them having capital and deploying it and itself
Speaker 1: was not particularly problematic. UM. Where I think some people
Speaker 1: might have had issues were situations where it was not
Speaker 1: necessarily clear where they were acting as an intermediary and
Speaker 1: where they were acting as a principle. And in everything
Speaker 1: I've ever done, you know, there's no question we have
Speaker 1: only one thing to do, which is deployed capital and
Speaker 1: make a disproportionate return for unit of UM. So I
Speaker 1: would say, as an example, UM, there was a situation
Speaker 1: with a European bank in the early two thousands that
Speaker 1: had some assets that were a problem, and we went
Speaker 1: and met with them, and they were represented by their
Speaker 1: trusted advisors of golden Sacks, and those guys were in
Speaker 1: the room when we got to meet with the bank,
Speaker 1: and it quickly became clear that three of the four
Speaker 1: people in the room were in fact our competitors, not
Speaker 1: their investment bankers. UM. And so, needless to say, we
Speaker 1: didn't get a chance to do much with that bank,
Speaker 1: and so I think there was perhaps it was overblown,
Speaker 1: but there was a perception that there was a mix
Speaker 1: of principle and agent there that was not always clear.
Speaker 1: And in so far as that perception it was out there,
Speaker 1: it might have caused some issues. But you are talking
Speaker 1: about an incredibly well run business and firm, one that
Speaker 1: made it through the crisis much better than virtually everyone else,
Speaker 1: that had a huge number of really smart people, and
Speaker 1: I think, unlike virtually any other competitor that they had
Speaker 1: um created a culture where there was information flow, information
Speaker 1: sharing that was really unique. Whatever you may say about
Speaker 1: their goals, they were incredibly effective at pursuing them, all right.
Speaker 1: But we did have this confusion about principle versus agent,
Speaker 1: so whether they're doing this as a sort of financial
Speaker 1: intermediary versus trading for their own accounts profiting it from
Speaker 1: it for themselves. That really came to the forefront during
Speaker 1: the financial crisis and afterwards we saw regulators pile in
Speaker 1: all these new rules basically restricting and or making it
Speaker 1: more expensive for banks to undertake some of this activity.
Speaker 1: And simultaneously we saw guys like you and those asset
Speaker 1: managers you mentioned, or alternative managers you mentioned earlier start
Speaker 1: to get big as they picked business off of the banks.
Speaker 1: And then of course we heard from regulators that actually
Speaker 1: they were worried about the growth of the shadow banking
Speaker 1: sectary should we be worried well with any sorts of
Speaker 1: idiosocratic finance. Over time, there are clearly cycles, and I
Speaker 1: would argue that one of the biggest risks in any
Speaker 1: of these activities is the moral hazard that they bring.
Speaker 1: And part of their way we structured our business with
Speaker 1: these joint ventures allowed us to have an extremely variable
Speaker 1: cost of effective infrastructure. So there was nobody out there
Speaker 1: who said, well, I need to do things in order
Speaker 1: to get paid, right, And so we took away that
Speaker 1: moral hazard in our business and it and it importantly
Speaker 1: allowed us to find not only find good things to do,
Speaker 1: but even more importantly avoid things that were not there
Speaker 1: that we're not good to do. Can you give me
Speaker 1: an example of one of those types of things to avoid? Uh? Well,
Speaker 1: So as an example, um um. In the last energy cycle,
Speaker 1: when Enron and Merinth and Aquila and all those firms
Speaker 1: that many of whose names we don't remember anymore, we're
Speaker 1: blowing up uh, and oil and gas prices were low
Speaker 1: this is kind of a tish uh oh. Three, We
Speaker 1: ended up buying the onshore natural gas landing business of
Speaker 1: Mirrant at about sixty cents on the dollar and pretty
Speaker 1: much and so and again we're not macro people, all right,
Speaker 1: so we don't know about oil and gas prices. What
Speaker 1: we knew was that in the high one dollars we
Speaker 1: get our money back, in the low mid twos, we'd
Speaker 1: make a nice return, and beyond that it would be
Speaker 1: really good. And it turned out to be four bucks
Speaker 1: and so it was really good. Um. But more importantly,
Speaker 1: at that point, nobody in town in Houston was making
Speaker 1: on on balance sheet loans the energy companies, and so
Speaker 1: based on that knowledge, we stepped in and actually worked
Speaker 1: with a couple of local folks down there to create
Speaker 1: what then became the most significant on on on shore
Speaker 1: natural gas lender out of Houston. Once banks started to
Speaker 1: reaccustom themselves assuming that risk we couldn't really compete um
Speaker 1: or that those opportunit needs couldn't compete for our capital.
Speaker 1: Uh And so we ended up just doing less and less.
Speaker 1: And so now when prices are back where they are,
Speaker 1: we're now the fact third time around down in Houston
Speaker 1: and Dallas and other places looking at that stuff all
Speaker 1: over again. Um. You know, when I think about shadow banking,
Speaker 1: I think about because I'm a total nerd, I think
Speaker 1: about the repo market. Before two thousand eight, we've been
Speaker 1: talking about shadow banking in the context of non banks
Speaker 1: providing credit intermediation, but the definitions can get really muddled.
Speaker 1: Are there specific types of shadow banks that you would
Speaker 1: be more concerned about, for instance, say a liquid fund
Speaker 1: buying up the kind of illiquid assets that you specialize in. Well,
Speaker 1: I think yeah. First of all, I don't know that
Speaker 1: there's a dictionary definition of shadow banking, other than if
Speaker 1: there is, I'm sure it's a poor one. Yeah. What
Speaker 1: I would say is, if you want to think about
Speaker 1: what risks are significant now in the wake of the
Speaker 1: regular aation that happened, I think it's less about the
Speaker 1: market participants, less about Goldman Sachs participating the markets as principal, etcetera,
Speaker 1: and much more about the provision of liquidity. And so
Speaker 1: what has happened with the new regulations is that there's
Speaker 1: tremendous disincentive for anybody to provide liquidity of any sort.
Speaker 1: And so we have not yet remotely tested what it's
Speaker 1: going to feel like when people who have for many
Speaker 1: years been used to being able to get out of
Speaker 1: things um suddenly don't have a bid. And is that
Speaker 1: basil regulations or Dodd Frank. I think that's a combination
Speaker 1: of vasil, Dodd Frank, and importantly vulcan, because when insofar
Speaker 1: as you preclude what otherwise would be marketing making activities
Speaker 1: and over the counter products by investment banks, you preclude
Speaker 1: them from quote unquote proprietary trading um when you're trading
Speaker 1: for their own accounts. Correct, when you're making markets and
Speaker 1: over the counter products, you can't afford to be a
Speaker 1: willing buyer or seller at a price because your own
Speaker 1: customers will take advantage of you and you will quickly
Speaker 1: get you know, busted and and and put out of business.
Speaker 1: And so you have to have some directional views as
Speaker 1: to what's going on. And so to preclude them from
Speaker 1: quote unquote proprietary trading in the way that has been
Speaker 1: done has basically sucked the liquidity out of virtually every
Speaker 1: OTC trading market, and the effects of that have yet
Speaker 1: to be felt in a material way because since July thirteen,
Speaker 1: when kind of d dragging stepped in with his kind
Speaker 1: of job owning about rates being low forever. Uh. In
Speaker 1: the in the periodic times when that notion has been tested, uh,
Speaker 1: and then kind of we've seen recovery driven by central bankers.
Speaker 1: Since then, we've yet to really feel how utterly devoid
Speaker 1: of liquidity the markets are. Do you think there's a
Speaker 1: chance that what Paul Walker would call, uh, casino banking.
Speaker 1: You know that if there's anythings that by preventing the
Speaker 1: Walsh firms from trading on their own account, Yeah, casino banking,
Speaker 1: you would call that that that is nothing but a
Speaker 1: plus for for society, that that's going to protect tax
Speaker 1: barers from having to bail out banks again, and that
Speaker 1: the downside, the downside will be minimal as it has
Speaker 1: been at least so far, nothing horrible has happened because
Speaker 1: um liquidity isn't as lush as it once once. What's
Speaker 1: do and that's optimistic? Is there any chance things will
Speaker 1: play out that way? Or are you worried that something
Speaker 1: scary as can happen? Uh? I'm you know. Buffett says,
Speaker 1: in the long term, markets are are weighing machines, not
Speaker 1: voting machines, and so credit markets haven't been allowed to
Speaker 1: find their level yet UM, and they've been trying episodically
Speaker 1: for the last couple of years and so UM as
Speaker 1: you saw a little bit in the last little shock
Speaker 1: we had in December of January, what happened then there
Speaker 1: were a series of funds that were investing in corporate
Speaker 1: OTC product that had no liquidity in their assets, but
Speaker 1: had lots of liquidity on their lives ability side, right.
Speaker 1: They were mutual funds, structured funds, exchange traded funds, that
Speaker 1: sort of thing, well, specifically mutual funds that were open
Speaker 1: ended with daily liquidity that were invested in things that
Speaker 1: didn't have a bid and they had to shut down
Speaker 1: and it was very ugly. And that was only a
Speaker 1: little bit of a beginning. That was things like Third Avenue,
Speaker 1: Third Avenue. Yes, yeah, that was an example. And so
Speaker 1: there are a lot of open ended mutual funds. There
Speaker 1: are a lot of you know, monthly or quarterly liquidity
Speaker 1: UM alternative investment funds that are investing in assets that
Speaker 1: in any type of a shock won't have a bid
Speaker 1: or won't have a material bid. And so you'll see
Speaker 1: the beginnings of that when that happens, not unlike what
Speaker 1: happened with BNP in July of oh seven, immediately preceding
Speaker 1: the crisis, where they were simply no bid, no way
Speaker 1: to mark. They had to just freeze to see where
Speaker 1: things leveled out. Remind me, they had a bunch of
Speaker 1: was it structured finance or of some sort? I believe
Speaker 1: it was residential mortgage related to I think it was
Speaker 1: cash mortgage related securities, and then basically word got round
Speaker 1: that they were trying to offload them but couldn't. Is
Speaker 1: that right? Well, by that point there was it was
Speaker 1: very unclear what the bid was for any of that
Speaker 1: stuff because people who were financing it suddenly had to
Speaker 1: pull back all at the same time, a lot of
Speaker 1: people who owned it had to go the same way.
Speaker 1: What happens is suddenly there are these gap downs in
Speaker 1: pricing when everybody's going the same way and something uh.
Speaker 1: And so you don't see that frequently, and you know,
Speaker 1: it's been a several years, so there's not a lot
Speaker 1: of guys who were maybe not at the trigger, if
Speaker 1: you will, at that point, who might now be who
Speaker 1: didn't kind of feel what that felt like when it
Speaker 1: was there, And if you've been through several cycles. You
Speaker 1: know that those are very painful times, and at no
Speaker 1: point has there been as little liquidity as there has
Speaker 1: been now for the last you know, twenty plush years.
Speaker 1: You know, on the one hand, what we're talking about
Speaker 1: here is regulators essentially overstepping their bounds and doing things
Speaker 1: that in the long run you worry aren't gonna be
Speaker 1: great for the markets. And I have to say, it's
Speaker 1: it's hard not to remember that it's also regulators that
Speaker 1: in a way essentially helps shut down DB's worn. Do
Speaker 1: you feel like you learned anything? Do you do you
Speaker 1: feel like you came out of that whole episode more cynical,
Speaker 1: more skeptical about the role of regulators in the United
Speaker 1: States markets, Well, I think, uh, I think there's nothing
Speaker 1: wrong with good regulators and good regulation, and I think
Speaker 1: we are happy to have sufficient or more than sufficient
Speaker 1: numbers of both. But simply making more rules and making
Speaker 1: throwing more bodies at the problem as opposed to taking
Speaker 1: the rules and buys you have and making them better
Speaker 1: is probably not the optimal way to go. And perhaps
Speaker 1: some of that occurred. You know, immediately after the crisis,
Speaker 1: we had a very specific situation um that was unfortunate,
Speaker 1: and you know it it led to uh, you know,
Speaker 1: lots of good people losing lots of great opportunity UM
Speaker 1: that shouldn't have had to do so in a in
Speaker 1: a wonderful business having to go away. But no, I
Speaker 1: think I was skeptical and cynical to begin with, and
Speaker 1: I still am. All right. Uh Dan's weren is CEO
Speaker 1: of Arena Investors. Thank you so much for joining us today.
Speaker 1: You're welcome. Okay, Max, what do you think about that?
Speaker 1: You know, I always find it so interesting when like
Speaker 1: really smart, powerful hedge fund managers want to describe themselves
Speaker 1: as doing well and good. Clearly he aims to um
Speaker 1: bounce back from what happened a few years ago and
Speaker 1: provide liquidity where he feels like it doesn't exist from
Speaker 1: other places. So, you know, I've been covering shadow banking
Speaker 1: for a long time. I've also been covering the liquidity
Speaker 1: question that we just discussed, and I can really see
Speaker 1: it from both sides. I can see, on the one hand,
Speaker 1: how regulators want to de risk bank balance sheets, but
Speaker 1: I can also see how regulators in the aftermath of
Speaker 1: the financial crisis maybe rushed to do a few things
Speaker 1: and potentially unknowingly shifted risk into another sector. And now
Speaker 1: that might be a good thing, right because guy's legs
Speaker 1: were maybe know what they're doing. They have deep pockets,
Speaker 1: they can handle that sort of illiquid credit asset. But
Speaker 1: there are other types of funds, like the mutual funds
Speaker 1: that Dan mentioned that I do worry about. It's lucky
Speaker 1: that we're just journalists and not regulators, because I don't
Speaker 1: I don't know how I would deal with this. I
Speaker 1: agree with you. I feel sympathetic to the idea that
Speaker 1: if you overregulate the banks, this activity will move into
Speaker 1: corners that um, you know, we'll be able to handle
Speaker 1: it well. And on the other hand, I feel worried
Speaker 1: about the big banks getting involved in risky things that
Speaker 1: belong in um entities that aren't backed by government guarantees.
Speaker 1: So I'm glad we're just writers. All right, Let's go
Speaker 1: celebrate the fact that we're not regulators. I'm Tracy Alloway,
Speaker 1: executive editor at Bloomberg Markets. You can catch me on
Speaker 1: Twitter at Tracy Alloway. I'm Maxi Avilison of Bloomberg News
Speaker 1: on Twitter at Max Avilson. Thanks for listening, O