1 00:00:02,720 --> 00:00:10,000 Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Katie, it is ominous 2 00:00:10,000 --> 00:00:10,399 Speaker 1: out there. 3 00:00:11,039 --> 00:00:13,160 Speaker 2: The skies are darkening as we speak. 4 00:00:13,320 --> 00:00:18,919 Speaker 1: It's Thursday at two o'clock and change. And will I 5 00:00:18,960 --> 00:00:19,439 Speaker 1: get home? 6 00:00:19,800 --> 00:00:20,680 Speaker 2: Will you get home? 7 00:00:20,720 --> 00:00:21,400 Speaker 1: Will you get home? 8 00:00:21,720 --> 00:00:26,120 Speaker 2: Gosh? I hope so one or more reversed, that's true. 9 00:00:26,160 --> 00:00:28,280 Speaker 2: There are bodies of water to ford. 10 00:00:29,480 --> 00:00:31,880 Speaker 1: Hello, and welcome to the Money Stuff Podcast. You're a 11 00:00:31,920 --> 00:00:35,479 Speaker 1: weekly podcast where we talk about stuff related to money. 12 00:00:36,520 --> 00:00:38,800 Speaker 1: I'm Matt Levine and I write the Money Stuff column 13 00:00:38,800 --> 00:00:39,800 Speaker 1: for Bloomberg Opinion. 14 00:00:40,040 --> 00:00:42,600 Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and 15 00:00:42,640 --> 00:00:44,120 Speaker 2: an anchor for Bloomberg Television. 16 00:00:46,120 --> 00:00:47,800 Speaker 1: I feel like we got feedback last week that people 17 00:00:47,800 --> 00:00:51,120 Speaker 1: are like, please more ETF stuff, which is unusual for us. 18 00:00:51,280 --> 00:00:53,519 Speaker 2: I feel like maybe the people who leave comments are 19 00:00:53,560 --> 00:00:57,120 Speaker 2: actually just contrarians. Like message. 20 00:00:57,680 --> 00:01:00,000 Speaker 1: They know that the default view is nowhere. 21 00:01:00,720 --> 00:01:03,120 Speaker 2: Yeah, And we messaged so heavily that people don't like 22 00:01:03,160 --> 00:01:06,040 Speaker 2: this that they were compelled to write, actually we like this, 23 00:01:06,120 --> 00:01:08,600 Speaker 2: and here are our thoughtful thoughts on them. But we're 24 00:01:08,600 --> 00:01:09,600 Speaker 2: not talking about utfs. 25 00:01:09,640 --> 00:01:15,400 Speaker 1: No, No, we're talking about funds, which are really ETF 26 00:01:15,440 --> 00:01:17,240 Speaker 1: is a term of art. But is it a fun 27 00:01:17,319 --> 00:01:19,760 Speaker 1: The treads on expan uar. But yeah, we talk a 28 00:01:19,760 --> 00:01:22,240 Speaker 1: lot about I read a lot about people who are 29 00:01:22,280 --> 00:01:30,559 Speaker 1: trying to jam private stuff into retail investors. The people 30 00:01:30,800 --> 00:01:32,840 Speaker 1: doing most of the jamming are the people doing like 31 00:01:32,840 --> 00:01:36,080 Speaker 1: private credit funds. But the thing that the retail investors 32 00:01:36,120 --> 00:01:40,160 Speaker 1: want the most is probably like SpaceX and Mai, right, Like. 33 00:01:40,120 --> 00:01:43,720 Speaker 2: I don't want private bonds, just give me SpaceX. 34 00:01:43,959 --> 00:01:47,520 Speaker 1: Yeah, private credit is like sold by financial advisors, but 35 00:01:47,600 --> 00:01:50,760 Speaker 1: like SpaceX has bought and it's hard because you need 36 00:01:50,800 --> 00:01:53,280 Speaker 1: to like go find shares of that. And I think 37 00:01:53,280 --> 00:01:56,600 Speaker 1: a lot of people have, in various ways had the thought, 38 00:01:56,760 --> 00:01:59,360 Speaker 1: what if we didn't find shares? Right, what if we 39 00:01:59,560 --> 00:02:04,400 Speaker 1: just did naked derivatives on SpaceX or open ai stock 40 00:02:04,520 --> 00:02:07,720 Speaker 1: or whatever. Right. And the idea is you find someone 41 00:02:07,760 --> 00:02:10,320 Speaker 1: who wants to be short open Ai, and they run 42 00:02:10,360 --> 00:02:12,600 Speaker 1: a contract saying I'll give you the returns on open 43 00:02:12,600 --> 00:02:15,120 Speaker 1: Ai and package that into a box and you sell 44 00:02:15,160 --> 00:02:18,000 Speaker 1: it to retail investors, and then the retail investors get 45 00:02:18,040 --> 00:02:19,840 Speaker 1: long open Ai, and whoever wants to be short it 46 00:02:19,880 --> 00:02:20,840 Speaker 1: gets short open Aya. 47 00:02:21,000 --> 00:02:26,000 Speaker 2: Yeah, you're just only exposed to the price action theoretically, and. 48 00:02:26,240 --> 00:02:27,840 Speaker 1: A certain amount of categorty risks. 49 00:02:27,960 --> 00:02:29,519 Speaker 2: Right right, right right. 50 00:02:29,880 --> 00:02:31,799 Speaker 1: I've written about We've tied about people who do like 51 00:02:31,840 --> 00:02:35,560 Speaker 1: various tokenizations, various things. And I wrote this week about 52 00:02:35,840 --> 00:02:39,800 Speaker 1: River North doing these paired clothed un funds, which is 53 00:02:39,800 --> 00:02:42,120 Speaker 1: like really the way to do this, Like ultimately it's 54 00:02:42,160 --> 00:02:46,079 Speaker 1: a paired clothed un fund and it's on this index 55 00:02:46,120 --> 00:02:48,760 Speaker 1: of it's like the Prime Unicorn Index, which is sort 56 00:02:48,800 --> 00:02:52,240 Speaker 1: of an index of big private companies sort of sort 57 00:02:52,240 --> 00:02:54,200 Speaker 1: of sort of, there's some public companies in there too. 58 00:02:54,240 --> 00:02:54,760 Speaker 1: To keep it on. 59 00:02:54,800 --> 00:02:57,560 Speaker 2: Two of its top ten holdings are public companies. 60 00:02:57,840 --> 00:02:59,360 Speaker 1: They don't update that frequently or something. 61 00:02:59,600 --> 00:03:02,800 Speaker 2: This is July sixteenth. No, no, no, but like oh they 62 00:03:02,800 --> 00:03:03,480 Speaker 2: don't rebalance. 63 00:03:03,600 --> 00:03:06,000 Speaker 1: Yeah yeah, like you know you have some unicorns in 64 00:03:06,040 --> 00:03:07,000 Speaker 1: your index they go public? 65 00:03:07,440 --> 00:03:08,359 Speaker 2: Yeah sure sure. 66 00:03:08,600 --> 00:03:10,560 Speaker 1: But right, so it's got like SpaceX, it's got some 67 00:03:10,639 --> 00:03:14,040 Speaker 1: anthropic it's got some of the heads. And what they're 68 00:03:14,080 --> 00:03:19,480 Speaker 1: doing is they are writing cash settled swaps on that index. Right. 69 00:03:19,520 --> 00:03:22,600 Speaker 1: The index measures let's say, the value of these private 70 00:03:22,600 --> 00:03:25,600 Speaker 1: stocks and public stocks. Right, there's some questions about how 71 00:03:25,639 --> 00:03:27,840 Speaker 1: you measure the value of private stacks for these companies. 72 00:03:27,840 --> 00:03:31,359 Speaker 1: There's like secondary trading. There's funding rounds all the time. 73 00:03:31,400 --> 00:03:33,960 Speaker 1: It's fine. You can like get a value and then 74 00:03:34,240 --> 00:03:36,120 Speaker 1: they have the index, so they have the price and 75 00:03:36,240 --> 00:03:40,720 Speaker 1: they have just cash settled swaps on that index. And 76 00:03:41,240 --> 00:03:43,520 Speaker 1: you can go long or short. So there's a long 77 00:03:43,560 --> 00:03:46,560 Speaker 1: fund that gives you exposure to this unicorn index, and 78 00:03:46,600 --> 00:03:49,360 Speaker 1: there's a short fund that gives you negative exposure to 79 00:03:49,400 --> 00:03:54,600 Speaker 1: this unicorn index. And the obvious trick is they completely offset, 80 00:03:54,880 --> 00:03:57,880 Speaker 1: so net nothing happens, right net. It's like if someone 81 00:03:57,880 --> 00:03:59,360 Speaker 1: wants to go along and someone wants to go short, 82 00:03:59,400 --> 00:04:01,760 Speaker 1: the issues to each of them and bof we have 83 00:04:02,640 --> 00:04:05,160 Speaker 1: both a way to invest in private companies and a 84 00:04:05,200 --> 00:04:07,600 Speaker 1: way to short private companies. Some people want right, some 85 00:04:07,640 --> 00:04:10,840 Speaker 1: people think it's a bubble et cetera. And so you 86 00:04:10,960 --> 00:04:16,480 Speaker 1: get two delightful products the Selta retail without doing any 87 00:04:16,720 --> 00:04:18,120 Speaker 1: economic activity outside of it. 88 00:04:18,240 --> 00:04:18,360 Speaker 2: Right. 89 00:04:18,480 --> 00:04:19,960 Speaker 1: You don't have to buy shares, you don't have to 90 00:04:20,360 --> 00:04:23,800 Speaker 1: do anything, just offset retail bets against each other. 91 00:04:24,040 --> 00:04:26,400 Speaker 2: So typically when we talk about closed end funds on 92 00:04:26,440 --> 00:04:28,120 Speaker 2: this podcast, we talk. 93 00:04:27,960 --> 00:04:29,000 Speaker 1: About you do what you do? 94 00:04:29,120 --> 00:04:32,160 Speaker 2: We do? You know, we dabble. We often talk about 95 00:04:32,160 --> 00:04:34,360 Speaker 2: how they trade a discounts. Does that matter at all 96 00:04:34,360 --> 00:04:36,520 Speaker 2: here that these are going to launch and then probably 97 00:04:36,520 --> 00:04:37,480 Speaker 2: trade it a discount. 98 00:04:37,880 --> 00:04:40,600 Speaker 1: I have no idea how they'll trade. In fact, there 99 00:04:40,640 --> 00:04:44,400 Speaker 1: is a history of unicorny closed end funds trading at huge. 100 00:04:44,160 --> 00:04:46,839 Speaker 2: Premiums, right, right, So they'll trade at some dislocation. 101 00:04:46,920 --> 00:04:50,320 Speaker 1: Maybe it's not a discount, right if you look at 102 00:04:50,320 --> 00:04:53,080 Speaker 1: the structure of this, there's like some stuff that suggests 103 00:04:53,080 --> 00:04:55,520 Speaker 1: it shouldn't be too dislocated. So one one thing is 104 00:04:55,560 --> 00:05:00,680 Speaker 1: like they are termed cash settled swaps, so settles in 105 00:05:00,720 --> 00:05:03,560 Speaker 1: twenty twenty seven. I think the termination date is not clear, 106 00:05:03,600 --> 00:05:06,560 Speaker 1: but it's twenty twenty seven is in the name. So 107 00:05:06,800 --> 00:05:08,880 Speaker 1: this is the thing that like you buy it and 108 00:05:08,920 --> 00:05:12,919 Speaker 1: in two years you get a payoff, So only so 109 00:05:13,120 --> 00:05:16,839 Speaker 1: much discount you should really demand because you'll hopefully get 110 00:05:17,000 --> 00:05:19,080 Speaker 1: you'll get your cash back in two years. And then 111 00:05:19,120 --> 00:05:22,240 Speaker 1: the other thing that is interesting for discounts and premiums 112 00:05:22,320 --> 00:05:25,000 Speaker 1: is like there are these two offsetting funds, right, so 113 00:05:25,160 --> 00:05:28,559 Speaker 1: like if they both traded at a discount, you could 114 00:05:29,000 --> 00:05:31,160 Speaker 1: buy both of them, and then you have a really 115 00:05:31,240 --> 00:05:33,600 Speaker 1: interesting instrument. Right if you buy the long fund and 116 00:05:33,640 --> 00:05:36,760 Speaker 1: you buy the short fund both at a discount, then 117 00:05:36,800 --> 00:05:39,040 Speaker 1: you basically have captured the discount, but you have two 118 00:05:39,080 --> 00:05:43,599 Speaker 1: years of counterparty risk weirdness risk, yeah, swabs risk, but 119 00:05:43,720 --> 00:05:47,520 Speaker 1: like you know, fundamentally no market risk. I think probably 120 00:05:47,839 --> 00:05:49,040 Speaker 1: this is not investment advice. 121 00:05:49,160 --> 00:05:51,840 Speaker 2: I hope these lunch I mean, and. 122 00:05:51,800 --> 00:05:54,320 Speaker 1: If they do trade at a discount like my first 123 00:05:54,320 --> 00:05:59,320 Speaker 1: PA trade and twenty years, will be buying. 124 00:05:59,000 --> 00:06:01,440 Speaker 2: Both of them, don't yourself. 125 00:06:02,160 --> 00:06:04,320 Speaker 1: I will definitely not do that, And it's not investment advice. 126 00:06:04,360 --> 00:06:05,920 Speaker 1: I might do that. I might do that just for 127 00:06:06,160 --> 00:06:10,480 Speaker 1: just for giggles. Last weeking about auction rate securities, which 128 00:06:10,560 --> 00:06:13,600 Speaker 1: is like my only PA trade ever was when I 129 00:06:13,680 --> 00:06:16,080 Speaker 1: was a banker, and like the auction rate securities market 130 00:06:16,080 --> 00:06:19,400 Speaker 1: got dislocated, and so I bought one lot of auction 131 00:06:19,520 --> 00:06:21,960 Speaker 1: rate securities. Yeah you did not like a seven percent 132 00:06:22,040 --> 00:06:24,359 Speaker 1: yield as a look at me living dangerously? 133 00:06:24,520 --> 00:06:26,240 Speaker 2: God that did work out for you though? 134 00:06:26,320 --> 00:06:28,279 Speaker 1: Oh yeah, I made seven percent for a week. 135 00:06:28,600 --> 00:06:32,160 Speaker 2: All right, that's pretty good. Half a thought I had 136 00:06:32,360 --> 00:06:34,960 Speaker 2: because I live in etf Land. Is you know, we 137 00:06:35,040 --> 00:06:39,760 Speaker 2: talk about inverse single stock ETFs and there's some element 138 00:06:39,800 --> 00:06:41,800 Speaker 2: of volatility drag there and if you hold these long 139 00:06:41,960 --> 00:06:44,760 Speaker 2: term then it could be painful. Is there any funkiness 140 00:06:44,760 --> 00:06:46,040 Speaker 2: that could happen on the short side. 141 00:06:46,080 --> 00:06:50,039 Speaker 1: Here the inverse ETF problem, the volatility drag problem comes 142 00:06:50,040 --> 00:06:55,360 Speaker 1: from rebalancing. Yeah, the rebalancing exists because every day you 143 00:06:56,160 --> 00:06:58,640 Speaker 1: are offering the ETF to people, and you want to 144 00:06:58,640 --> 00:07:02,200 Speaker 1: give them down from today, right, and so you're rebalancing 145 00:07:02,800 --> 00:07:07,040 Speaker 1: to get the right amount of exposure with this thing. 146 00:07:07,360 --> 00:07:11,080 Speaker 1: It's just swaps. It's a little easier. They're not leveraged, 147 00:07:11,640 --> 00:07:15,600 Speaker 1: and you are not giving them like down from today, 148 00:07:15,640 --> 00:07:17,800 Speaker 1: you're giving them like, you know, the total return over 149 00:07:17,840 --> 00:07:19,720 Speaker 1: the period. So I don't think there's too much in 150 00:07:19,720 --> 00:07:22,880 Speaker 1: the way of volatility drag. There's some possibility that's something 151 00:07:22,880 --> 00:07:24,800 Speaker 1: you can get funky if like the index goes up 152 00:07:24,840 --> 00:07:27,080 Speaker 1: a lot, there's like a cap on returns. Like there's 153 00:07:27,080 --> 00:07:28,920 Speaker 1: some possibility of weirdness where if you buy the thing 154 00:07:28,960 --> 00:07:31,760 Speaker 1: in six months, you're not getting quite the negative one 155 00:07:31,800 --> 00:07:35,280 Speaker 1: times exposure you wanted, which is like the opposite of volatility. 156 00:07:35,320 --> 00:07:37,920 Speaker 1: The volatility drag exists because every day you're getting exactly 157 00:07:37,920 --> 00:07:41,320 Speaker 1: the same proposition, which is like negative one or two 158 00:07:41,320 --> 00:07:44,800 Speaker 1: times or whatever the ETFs exposure, And like here there's 159 00:07:44,800 --> 00:07:47,920 Speaker 1: not that here, there's just like there's a term to swap, 160 00:07:47,920 --> 00:07:49,720 Speaker 1: and you can buy it at any time to the swap, 161 00:07:51,080 --> 00:07:52,560 Speaker 1: or even you can't buy it anytime. It's a little 162 00:07:52,560 --> 00:07:54,800 Speaker 1: close and fund so they don't have to continuous offering. 163 00:07:55,200 --> 00:08:01,040 Speaker 1: But no, it's very simple, and you know, like it's 164 00:08:01,080 --> 00:08:03,880 Speaker 1: based on this index. Yeah, I think in large part 165 00:08:03,960 --> 00:08:07,840 Speaker 1: because it's nice to have a third party calculated index 166 00:08:07,880 --> 00:08:10,080 Speaker 1: for your cash settled swaps, so you can be like, oh, 167 00:08:10,160 --> 00:08:12,880 Speaker 1: the things settle that whatever the price of the indexes today, 168 00:08:13,160 --> 00:08:15,880 Speaker 1: like and someone else is doing the index. But if 169 00:08:15,920 --> 00:08:19,840 Speaker 1: this works, you could do it for single names. You 170 00:08:19,840 --> 00:08:21,720 Speaker 1: could do it for open air. You could have the 171 00:08:21,760 --> 00:08:24,880 Speaker 1: inverse open AI fund and the yes open AI fund, 172 00:08:25,000 --> 00:08:28,720 Speaker 1: and you should offer that to people with no financials. 173 00:08:28,920 --> 00:08:31,600 Speaker 1: I don't know. It seems like a stretch, but we're 174 00:08:31,640 --> 00:08:33,920 Speaker 1: in a brave new world of like it's not clear 175 00:08:33,960 --> 00:08:37,360 Speaker 1: what securities regulations apply to anything anymore. And if you 176 00:08:37,400 --> 00:08:40,600 Speaker 1: wanted to do a single stock closed end fund, that's 177 00:08:40,679 --> 00:08:44,800 Speaker 1: just like betting on and against a private company. Could 178 00:08:44,840 --> 00:08:46,840 Speaker 1: you do that? I mean, I mean two years ago 179 00:08:46,840 --> 00:08:48,840 Speaker 1: I would have said no. Now I'm like, yeah, I 180 00:08:48,840 --> 00:08:49,240 Speaker 1: don't know. 181 00:08:49,320 --> 00:08:51,520 Speaker 2: Maybe these closed un funds do seem like a stepping 182 00:08:51,559 --> 00:08:56,280 Speaker 2: stone to that reality. So yeah, I mean we talked 183 00:08:56,280 --> 00:08:58,200 Speaker 2: about X Y Z right or the Destiny type. 184 00:08:58,240 --> 00:09:00,800 Speaker 1: Yeah, that's the close in fund. The trays has private 185 00:09:00,800 --> 00:09:02,400 Speaker 1: companies and trades are a huge premium. 186 00:09:02,520 --> 00:09:04,720 Speaker 2: And we talked about how like Stripe for example, or 187 00:09:04,720 --> 00:09:08,440 Speaker 2: some of these private companies would not love this, So 188 00:09:08,480 --> 00:09:11,600 Speaker 2: I would imagine that they would also theoretically not love 189 00:09:11,720 --> 00:09:13,920 Speaker 2: this either, even though we're talking about swaps here. 190 00:09:14,120 --> 00:09:15,319 Speaker 1: I mean with Destiny, like. 191 00:09:15,360 --> 00:09:16,520 Speaker 2: Are they using forwards? 192 00:09:16,600 --> 00:09:19,120 Speaker 1: They owned various cats and dogs, but like one thing 193 00:09:19,160 --> 00:09:21,120 Speaker 1: they owned is like forwards on stock, which is like 194 00:09:21,640 --> 00:09:24,720 Speaker 1: those forwards are physically settled, right. Those forwards are basically 195 00:09:24,760 --> 00:09:27,559 Speaker 1: someone who owns strip stock signs of contracts saying I 196 00:09:27,559 --> 00:09:30,839 Speaker 1: will give Destiny my Stripe stock as soon as I'm 197 00:09:30,840 --> 00:09:34,800 Speaker 1: allowed to, right, and when Stripe goes public, And the 198 00:09:34,840 --> 00:09:36,520 Speaker 1: reason they do that rather than just selling the shares 199 00:09:36,520 --> 00:09:38,320 Speaker 1: is because Stripe doesn't let them sell their shares, right, 200 00:09:38,320 --> 00:09:42,240 Speaker 1: they have some transfer restrictions. Stripe and probably every private 201 00:09:42,280 --> 00:09:46,439 Speaker 1: company that transfer restricts that shares probably says you can't 202 00:09:46,480 --> 00:09:49,360 Speaker 1: do a forward contract, right, Like forwards are to Stripe 203 00:09:49,520 --> 00:09:51,840 Speaker 1: no better than selling the shares right now. And so 204 00:09:51,920 --> 00:09:54,959 Speaker 1: it's not clear whether these forward contracts are valid, and 205 00:09:55,480 --> 00:09:58,280 Speaker 1: if they're not valid, then bad things could happen, like 206 00:09:58,520 --> 00:10:00,960 Speaker 1: Stripe saying no, we get that stock instead of it 207 00:10:01,000 --> 00:10:03,440 Speaker 1: going to destiny. When you know, Stripe goes public and 208 00:10:03,480 --> 00:10:06,640 Speaker 1: they settle the forward. Here there's like Stripe gets no, 209 00:10:06,720 --> 00:10:09,640 Speaker 1: say that's RCT. The private companies getting no says they're 210 00:10:09,679 --> 00:10:11,720 Speaker 1: not involved at all. There's no contract on their stock. 211 00:10:11,960 --> 00:10:13,840 Speaker 1: Nobody has to own their stock at any point. It's 212 00:10:13,880 --> 00:10:16,920 Speaker 1: just purely a cash settled side back between two people 213 00:10:17,280 --> 00:10:19,320 Speaker 1: that don't involve the private company. So there's not a 214 00:10:19,320 --> 00:10:19,959 Speaker 1: lot they can do. 215 00:10:20,280 --> 00:10:21,760 Speaker 2: Yeah, and that's sort of what I was getting. 216 00:10:21,840 --> 00:10:23,600 Speaker 1: You put out a statement being like we're not involved 217 00:10:23,600 --> 00:10:25,719 Speaker 1: and shouldn't do it, but they can't stop it. 218 00:10:25,720 --> 00:10:28,360 Speaker 2: It might be like an annoyance rather Yeah. 219 00:10:28,400 --> 00:10:30,200 Speaker 1: I mean, they're not going to change their lives at 220 00:10:30,240 --> 00:10:31,000 Speaker 1: Stripper or whatever. 221 00:10:31,040 --> 00:10:33,080 Speaker 2: But I did like that. You make the point though, 222 00:10:33,120 --> 00:10:35,800 Speaker 2: that if you're buying into this closing fund, you're not 223 00:10:35,880 --> 00:10:39,320 Speaker 2: funding a private company. You're not giving your money and 224 00:10:39,400 --> 00:10:44,959 Speaker 2: put it. Yeah, exactly, it's just the price. Yeah, that's 225 00:10:45,120 --> 00:10:47,520 Speaker 2: truly the reality that we're stepping towards. 226 00:10:47,920 --> 00:10:51,719 Speaker 1: I mean, it very much is and people want to 227 00:10:51,760 --> 00:10:53,000 Speaker 1: gamble on private companies. 228 00:10:53,160 --> 00:11:14,240 Speaker 2: God blessom you know who doesn't want to gamble UVS 229 00:11:14,280 --> 00:11:17,319 Speaker 2: clients on range target profit. 230 00:11:17,080 --> 00:11:18,920 Speaker 1: Forward, you don't know because they lost. 231 00:11:19,120 --> 00:11:23,319 Speaker 2: That's true bigly. Apparently the ft has really owned this story. 232 00:11:23,840 --> 00:11:26,760 Speaker 1: Yeah, so UVS. I don't know. I don't want to 233 00:11:26,760 --> 00:11:30,360 Speaker 1: blame VS. As a former derivative salesperson, I said withouts, 234 00:11:30,920 --> 00:11:34,959 Speaker 1: banks sell derivative products, right, Like you work in FX, right, 235 00:11:34,960 --> 00:11:36,719 Speaker 1: and like the thing you do is like clients come 236 00:11:36,720 --> 00:11:38,120 Speaker 1: to you and are like, I would like to change 237 00:11:38,160 --> 00:11:40,960 Speaker 1: my Swiss francs for dollars. Sure, You're like okay, and 238 00:11:41,000 --> 00:11:42,400 Speaker 1: they'll be like how much will that be? And you'll 239 00:11:42,440 --> 00:11:45,600 Speaker 1: be like zero points zero zero zero one basis pins 240 00:11:45,679 --> 00:11:47,880 Speaker 1: or whatever. Right, you've charged them. The teen's not you me, 241 00:11:48,600 --> 00:11:50,960 Speaker 1: And so you spend all day in the lab cooking 242 00:11:51,040 --> 00:11:53,120 Speaker 1: up things that can be more expensive, right. You're like 243 00:11:53,240 --> 00:11:56,280 Speaker 1: what if? And you try to like give them a 244 00:11:56,360 --> 00:11:59,360 Speaker 1: product that sounds cool, and there's only so many products 245 00:11:59,400 --> 00:12:01,720 Speaker 1: I can time cool. But like what they were doing 246 00:12:02,000 --> 00:12:03,880 Speaker 1: is I don't know, it's got names. It's like a 247 00:12:03,880 --> 00:12:06,960 Speaker 1: conditional target redemption forward or a range target profit. 248 00:12:06,679 --> 00:12:10,360 Speaker 2: Forward all yess yeah, whatever anyway household name. 249 00:12:10,440 --> 00:12:13,360 Speaker 1: The thing they were doing is basically like, we will 250 00:12:13,360 --> 00:12:16,199 Speaker 1: sell you dollars. It seems to have been like European 251 00:12:17,200 --> 00:12:20,240 Speaker 1: whatever client's buying dollars, right, So UBS is like, we 252 00:12:20,280 --> 00:12:23,400 Speaker 1: will sell you dollars at like three tens of percent 253 00:12:23,480 --> 00:12:26,120 Speaker 1: below the like forward price, so you're getting a bargain. 254 00:12:26,320 --> 00:12:28,200 Speaker 1: But if the actual price in a month or whatever 255 00:12:28,240 --> 00:12:30,600 Speaker 1: goes below that target price, we will sell it to 256 00:12:30,600 --> 00:12:34,160 Speaker 1: you at that target price. So you'll get not a bargain, 257 00:12:34,200 --> 00:12:36,600 Speaker 1: you'll get like a bad deal. You'll be buying above market, 258 00:12:36,960 --> 00:12:38,920 Speaker 1: and we'll sell you twice as much in that situation 259 00:12:39,000 --> 00:12:42,200 Speaker 1: as in the good situation. So basically like we will 260 00:12:42,240 --> 00:12:47,240 Speaker 1: sell you dollars at a better than market price most 261 00:12:47,280 --> 00:12:48,839 Speaker 1: of the time, and then some of the time will 262 00:12:48,840 --> 00:12:51,000 Speaker 1: sell you many more dollars at a much worse on 263 00:12:51,040 --> 00:12:51,640 Speaker 1: the market price. 264 00:12:51,840 --> 00:12:52,080 Speaker 2: Right. 265 00:12:52,400 --> 00:12:55,160 Speaker 1: So basically, the clients get a good deal in like 266 00:12:55,240 --> 00:12:57,440 Speaker 1: eighty or ninety percent of scenarios, so you have a 267 00:12:57,440 --> 00:12:59,160 Speaker 1: good thing to sell them. You're like, oh, look, you're 268 00:12:59,160 --> 00:12:59,839 Speaker 1: getting a good deal. 269 00:13:00,040 --> 00:13:00,520 Speaker 2: I want to go. 270 00:13:00,960 --> 00:13:04,240 Speaker 1: Scenarios, and then they get a terrible deal. They get 271 00:13:04,240 --> 00:13:07,200 Speaker 1: like really hosed in like ten percent of scenarios, and 272 00:13:07,440 --> 00:13:10,000 Speaker 1: unfortunately the bad scenario came true and all the clients 273 00:13:10,000 --> 00:13:11,800 Speaker 1: were like, we didn't know what were signing up for. 274 00:13:12,360 --> 00:13:16,560 Speaker 1: And UVS is sad and sorry and has made apparently 275 00:13:16,559 --> 00:13:18,920 Speaker 1: the after you reported, made more than one hundred good 276 00:13:18,960 --> 00:13:22,840 Speaker 1: will payments, yeah, which basically is like a refund of 277 00:13:22,880 --> 00:13:24,320 Speaker 1: the money they lost or we're so. 278 00:13:24,200 --> 00:13:26,800 Speaker 2: Sorry, please don't leave us, we won't do it again. 279 00:13:27,280 --> 00:13:29,680 Speaker 1: It's not just the money. It's like the UVS banker 280 00:13:29,720 --> 00:13:33,040 Speaker 1: has to go to the client and like the internet 281 00:13:33,160 --> 00:13:35,160 Speaker 1: client is like, you didn't even bring any materials. Like 282 00:13:35,400 --> 00:13:38,680 Speaker 1: it's like they just go and like look you in 283 00:13:38,720 --> 00:13:41,320 Speaker 1: the eye and like very sincerely sorry, and they're like, 284 00:13:41,360 --> 00:13:44,080 Speaker 1: we're not even pitching a different derivative today. Today, we're 285 00:13:44,120 --> 00:13:46,559 Speaker 1: here to just talk about how sorry we are. It's 286 00:13:46,559 --> 00:13:48,680 Speaker 1: a really like touching moment. Yeah. And they also have 287 00:13:48,720 --> 00:13:51,840 Speaker 1: internal trainings where they're like being told not to scam 288 00:13:51,840 --> 00:13:52,400 Speaker 1: clients and. 289 00:13:52,280 --> 00:13:55,000 Speaker 2: Also role playing like how these meetings should go from 290 00:13:55,080 --> 00:13:56,520 Speaker 2: now on when you're pitching. 291 00:13:56,520 --> 00:14:00,760 Speaker 1: Right, it's this great tension in investment banking where obviously 292 00:14:01,360 --> 00:14:04,560 Speaker 1: you want the client who when you come to them 293 00:14:05,000 --> 00:14:08,760 Speaker 1: with some crazy derivative, they're like, Okay, sure sounds good, 294 00:14:09,440 --> 00:14:11,720 Speaker 1: and they don't like bit it out to get the 295 00:14:11,720 --> 00:14:14,440 Speaker 1: price down or like model it up themselves or just 296 00:14:14,480 --> 00:14:16,559 Speaker 1: like sure you would, I trust you, right, But like 297 00:14:16,600 --> 00:14:18,760 Speaker 1: those people are really good clients and they make you 298 00:14:18,800 --> 00:14:21,160 Speaker 1: a lot of money until something goes wrong and then 299 00:14:21,240 --> 00:14:24,080 Speaker 1: like it looks bad in court. You know, Yeah, the 300 00:14:24,120 --> 00:14:26,040 Speaker 1: client who really trusted you, the client who was not 301 00:14:26,120 --> 00:14:29,960 Speaker 1: sophisticated at modeling you know FX volatility, like, those are 302 00:14:30,000 --> 00:14:32,920 Speaker 1: not the clients that you want to go to court with. 303 00:14:33,560 --> 00:14:39,280 Speaker 1: So it's a delicate balancing act where two years ago, yes, 304 00:14:39,360 --> 00:14:41,080 Speaker 1: I was probably rewarding the people who were. 305 00:14:40,960 --> 00:14:43,119 Speaker 2: Out in the Yeah, definitely gated. 306 00:14:42,880 --> 00:14:44,680 Speaker 1: Clients and large size, and now it's like no more 307 00:14:44,720 --> 00:14:44,960 Speaker 1: of that. 308 00:14:45,760 --> 00:14:48,600 Speaker 2: Well, the FT gave some great examples of the harm 309 00:14:48,640 --> 00:14:52,040 Speaker 2: that was wrought by some of these trades really kind 310 00:14:52,040 --> 00:14:55,800 Speaker 2: of blowing up. One client lost more than three million 311 00:14:55,840 --> 00:14:59,800 Speaker 2: Swiss franc which equates to like three point seven million dollars. 312 00:15:00,160 --> 00:15:03,280 Speaker 2: Another person said that they lost fifteen percent of their assets. 313 00:15:03,320 --> 00:15:05,240 Speaker 2: They also asked the bank to exit the investment a 314 00:15:05,240 --> 00:15:10,240 Speaker 2: few days after Trump's Liberation Day, and apparently, according to 315 00:15:10,360 --> 00:15:15,040 Speaker 2: FT reporting, UVS sold these products to customers with the 316 00:15:15,080 --> 00:15:19,760 Speaker 2: equivalent of fewer than eight hundred thousand dollars or so. 317 00:15:19,760 --> 00:15:23,440 Speaker 2: So I don't know. It's just a weird trade in general. 318 00:15:23,560 --> 00:15:25,640 Speaker 2: To put on like this sounds like something like if 319 00:15:25,640 --> 00:15:29,080 Speaker 2: you were a big business trying to hedge your currency exposure, 320 00:15:29,120 --> 00:15:33,320 Speaker 2: maybe this would make sense. But selling it to even 321 00:15:33,360 --> 00:15:35,000 Speaker 2: like very wealthy individuals is weird. 322 00:15:35,440 --> 00:15:35,680 Speaker 1: Yeah. 323 00:15:36,040 --> 00:15:39,000 Speaker 2: Like the way that the Ft describes it is that 324 00:15:39,120 --> 00:15:43,080 Speaker 2: these products offer limited upside but exposed clients to potentially 325 00:15:43,160 --> 00:15:44,120 Speaker 2: unlimited losses. 326 00:15:44,360 --> 00:15:46,920 Speaker 1: It's everything that's like accumulators. It's like everything, right, It's 327 00:15:46,960 --> 00:15:48,240 Speaker 1: like the trade is. 328 00:15:48,160 --> 00:15:49,680 Speaker 2: Everything except buffer ETFs. 329 00:15:49,680 --> 00:15:52,160 Speaker 1: Maybe I know, but like for so many wealthy clients, 330 00:15:52,160 --> 00:15:53,680 Speaker 1: the trade is like you can get two percent more 331 00:15:53,680 --> 00:15:57,080 Speaker 1: on your money by like taking some black hole of risk, 332 00:15:58,240 --> 00:16:00,920 Speaker 1: and then you know you have the meat, and they're like, 333 00:16:01,200 --> 00:16:02,600 Speaker 1: but what do you think the chances are of that 334 00:16:02,600 --> 00:16:03,800 Speaker 1: black hole frisk happening? 335 00:16:03,840 --> 00:16:03,920 Speaker 2: Right? 336 00:16:04,000 --> 00:16:05,480 Speaker 1: And the clans like, oh, it sounds good, right, and 337 00:16:05,560 --> 00:16:07,920 Speaker 1: they buy it and they get two percent extra yield 338 00:16:07,920 --> 00:16:10,000 Speaker 1: and then like the black hole happens and they're very up. 339 00:16:10,080 --> 00:16:10,920 Speaker 2: Yeah, hear the. 340 00:16:10,840 --> 00:16:14,160 Speaker 1: Black hole with libation day tars and the dollar plunging. 341 00:16:14,360 --> 00:16:17,240 Speaker 2: I will say, you were talking about the sympathy that 342 00:16:17,320 --> 00:16:20,760 Speaker 2: you feel towards you know, these bankers who make these 343 00:16:20,760 --> 00:16:25,800 Speaker 2: derivative products. I don't know. I think that's cool and aesome. 344 00:16:26,520 --> 00:16:28,320 Speaker 1: But I was one of them. I only saw this 345 00:16:28,360 --> 00:16:30,680 Speaker 1: investigated clients right for sure of them got their faces 346 00:16:31,120 --> 00:16:33,400 Speaker 1: I'm not even kidding really, no, well I'm kidding a little, 347 00:16:33,400 --> 00:16:34,680 Speaker 1: but like none of them got their faces. True. 348 00:16:34,720 --> 00:16:37,920 Speaker 2: Wow, someone's going to write in and say, Matt. 349 00:16:37,760 --> 00:16:41,480 Speaker 1: Levine face off, but I really didn't. I was also 350 00:16:41,520 --> 00:16:42,960 Speaker 1: very ineffectual, so it's fine. 351 00:16:43,000 --> 00:16:46,560 Speaker 2: My first beat at Bloomberg was covering FX as a 352 00:16:46,600 --> 00:16:50,120 Speaker 2: little baby journalist, and the period that I was covering FX, 353 00:16:50,160 --> 00:16:53,160 Speaker 2: there was no volatility in currency markets. You had to 354 00:16:53,160 --> 00:16:55,680 Speaker 2: beg people to read your stories and also like really 355 00:16:55,720 --> 00:16:58,200 Speaker 2: scrape the bottom of the barrel to find stuff to 356 00:16:58,200 --> 00:17:01,040 Speaker 2: write about. I joined Bloomberg in like twin sixteen and 357 00:17:01,040 --> 00:17:04,119 Speaker 2: stop covering currencies in twenty nineteen. So President Trump's first 358 00:17:04,200 --> 00:17:07,439 Speaker 2: term actually gave us something to write about. But you know, 359 00:17:07,480 --> 00:17:12,200 Speaker 2: this trade probably wasn't as risky, like it probably really 360 00:17:12,480 --> 00:17:14,960 Speaker 2: was fine ninety percent of the time because the type 361 00:17:14,960 --> 00:17:18,879 Speaker 2: of volatility that we saw in you know, the Swiss 362 00:17:18,920 --> 00:17:23,119 Speaker 2: franc dollar exchange rate on Liberation Day, Like that wasn't 363 00:17:23,119 --> 00:17:25,080 Speaker 2: happening for a long time. Like, I mean you saw 364 00:17:25,119 --> 00:17:26,240 Speaker 2: it a cross as cyclasses. 365 00:17:26,320 --> 00:17:27,840 Speaker 1: It's like what did that tell you, right? I mean 366 00:17:28,000 --> 00:17:30,760 Speaker 1: like if this trade had been perfectly explained to like 367 00:17:31,960 --> 00:17:35,560 Speaker 1: clients who were not professional effects traders but were smart 368 00:17:35,600 --> 00:17:38,280 Speaker 1: and sophisticated you know, financial people, this trade had been 369 00:17:38,320 --> 00:17:42,480 Speaker 1: perfectly explained, Like the perfect explanation is in the ballpark 370 00:17:42,520 --> 00:17:44,800 Speaker 1: of like you will get some extra you know, the 371 00:17:44,840 --> 00:17:48,120 Speaker 1: older profit or whatever most of the time. But if 372 00:17:48,160 --> 00:17:52,480 Speaker 1: the dollar plunges like it does not usually plunge, then 373 00:17:52,680 --> 00:17:54,879 Speaker 1: you will get your face ripped off. Yeah, And like 374 00:17:54,880 --> 00:17:56,320 Speaker 1: some people would have been like, okay, I'll take that 375 00:17:56,359 --> 00:17:58,480 Speaker 1: bet and then the dollar plunge and then got their 376 00:17:58,520 --> 00:18:01,760 Speaker 1: faces ripped off. Yeah. It's like I've read about this before, 377 00:18:01,760 --> 00:18:04,920 Speaker 1: Like there are clearly some customers who did not understand 378 00:18:05,000 --> 00:18:09,119 Speaker 1: what they're getting into, and Naudio ubs to solve them 379 00:18:09,160 --> 00:18:11,800 Speaker 1: something they didn't understand. But also like probably some people 380 00:18:11,800 --> 00:18:13,320 Speaker 1: were like, I will make the bet that the dollar 381 00:18:13,320 --> 00:18:15,520 Speaker 1: will not be super volatile, and the dollar is super. 382 00:18:15,280 --> 00:18:16,840 Speaker 2: Valatle yeah yeah. 383 00:18:17,359 --> 00:18:19,480 Speaker 1: But like look, everyone else is getting a good will payment. 384 00:18:19,480 --> 00:18:20,920 Speaker 1: I actually get a good will payment too. 385 00:18:21,080 --> 00:18:23,200 Speaker 2: Yeah, I mean you would think that they would happen 386 00:18:23,720 --> 00:18:26,879 Speaker 2: potentially across asset classes, like every asset class had an 387 00:18:26,920 --> 00:18:29,160 Speaker 2: outsized move on Liberation Day. 388 00:18:29,200 --> 00:18:32,840 Speaker 1: Right, And there's something about FCX where people people smaller 389 00:18:32,880 --> 00:18:36,119 Speaker 1: customers get sold weirder stuff like I mean, they're definitely 390 00:18:36,160 --> 00:18:38,639 Speaker 1: equity trades like this, right, Like we've talked about like 391 00:18:38,880 --> 00:18:42,240 Speaker 1: is it the cocumulator. We've talked about like structured note 392 00:18:42,280 --> 00:18:44,560 Speaker 1: trades that kind of have this shape, right, Yeah, but 393 00:18:44,760 --> 00:18:47,320 Speaker 1: I don't know. In FX, it does seem like people 394 00:18:47,720 --> 00:18:50,320 Speaker 1: take more random gambles. And also like people don't expect 395 00:18:50,359 --> 00:18:52,919 Speaker 1: as much as relativity and then you know, they get volatility. 396 00:18:52,960 --> 00:18:57,040 Speaker 2: Like they're very strange market. It was a fun trip 397 00:18:57,080 --> 00:18:58,480 Speaker 2: being there for like two and a half years. 398 00:18:58,920 --> 00:19:01,520 Speaker 1: Right. If you're in I think the business of selling equities, 399 00:19:01,640 --> 00:19:03,679 Speaker 1: there's a lot of like you know, you do puppers 400 00:19:03,720 --> 00:19:05,040 Speaker 1: and stuff, but there's a lot of just like oh, 401 00:19:05,200 --> 00:19:07,320 Speaker 1: by open a eye, it's a good stuck. Right, here's 402 00:19:07,359 --> 00:19:11,320 Speaker 1: the business fax Like you're kind of instantly going to 403 00:19:11,320 --> 00:19:12,040 Speaker 1: where de rods. 404 00:19:12,240 --> 00:19:32,359 Speaker 2: Yeah yeah, book which is just too insurance. 405 00:19:32,080 --> 00:19:33,439 Speaker 1: Insurance sometimes blows up too. 406 00:19:33,640 --> 00:19:37,119 Speaker 2: Yeah, well, trying to get us to hurricanes somehow, but 407 00:19:37,200 --> 00:19:42,280 Speaker 2: I can't quite make the oracle jump. So anyway, ten minutes. 408 00:19:42,000 --> 00:19:44,520 Speaker 1: I'm going to make a literal jump into the hurricane. Here. 409 00:19:46,160 --> 00:19:47,520 Speaker 2: It's raining in New York. 410 00:19:47,720 --> 00:19:52,080 Speaker 1: New York, and like they've already preamptively shut down. 411 00:19:52,440 --> 00:19:55,520 Speaker 2: Well, all the subways keep breaking, right, I have to take. 412 00:19:55,400 --> 00:19:58,040 Speaker 1: A subway and then a train. It's gonna be bad. 413 00:19:58,200 --> 00:20:01,040 Speaker 2: My dad is picking me up today, so I'm happy. 414 00:20:01,920 --> 00:20:06,919 Speaker 1: Okay, So Florida, Florida. So there are a lot of 415 00:20:06,920 --> 00:20:10,920 Speaker 1: houses in hurricane zones. It's hard and expensive to buy 416 00:20:10,920 --> 00:20:13,359 Speaker 1: insurance on your house if it's in a hurricane zone. 417 00:20:14,560 --> 00:20:18,680 Speaker 1: There is people have jumped into the gap to meet 418 00:20:18,680 --> 00:20:21,520 Speaker 1: that market of failure. Conceptually, the way you do it 419 00:20:21,960 --> 00:20:25,040 Speaker 1: is you start an insurance company and you don't have 420 00:20:25,040 --> 00:20:28,720 Speaker 1: any money, and you start selling insurance policies to raise money. Right, 421 00:20:29,440 --> 00:20:32,480 Speaker 1: And if you do this for twenty years without a hurricane, 422 00:20:32,520 --> 00:20:34,560 Speaker 1: you'll have so much money that you can pay off 423 00:20:34,560 --> 00:20:36,439 Speaker 1: any claims. Right. But if you do it for one 424 00:20:36,480 --> 00:20:37,960 Speaker 1: year and then there's a hurricane, you will not have 425 00:20:38,000 --> 00:20:40,000 Speaker 1: so much money they can pay it any claims. And 426 00:20:40,080 --> 00:20:44,000 Speaker 1: so there's a risk in starting a new I'm derradically 427 00:20:44,040 --> 00:20:46,600 Speaker 1: oversimplifying and in fact, insurance companies are supposed to be 428 00:20:46,600 --> 00:20:49,960 Speaker 1: well capitalized. But yeah, conceptually, you start a new insurance company, 429 00:20:50,000 --> 00:20:53,920 Speaker 1: you've raised money by selling premiums, and then if there's 430 00:20:53,960 --> 00:20:56,160 Speaker 1: no hurricanes, you're great, and if there's lots of hurricanes, 431 00:20:56,200 --> 00:20:59,280 Speaker 1: you go to zero. And that's hard to do because 432 00:20:59,640 --> 00:21:02,000 Speaker 1: insurance companies have to be rated. There's a couple of 433 00:21:02,040 --> 00:21:05,440 Speaker 1: like big ratings agencies, and there have been a number 434 00:21:05,440 --> 00:21:06,920 Speaker 1: of stories or something. There's one in the Wall Street 435 00:21:06,960 --> 00:21:10,600 Speaker 1: Journal this week, and read about it last year. There's 436 00:21:10,640 --> 00:21:13,160 Speaker 1: a ratings agency it's like a mom and pop operation 437 00:21:13,280 --> 00:21:16,800 Speaker 1: called Demo Tech that rates a lot of smaller, less 438 00:21:16,800 --> 00:21:19,760 Speaker 1: well capitalized insurance companies and it gives a lot of 439 00:21:19,760 --> 00:21:22,520 Speaker 1: them A ratings and they have a higher incidence of 440 00:21:22,560 --> 00:21:25,480 Speaker 1: their A rated companies becoming insolvent with them, you know, 441 00:21:25,640 --> 00:21:26,600 Speaker 1: there is a period of. 442 00:21:26,520 --> 00:21:28,720 Speaker 2: Time thirty times more likely, thirty times more. 443 00:21:28,640 --> 00:21:31,080 Speaker 1: Likely than the other ratings agencies that use more traditional 444 00:21:31,080 --> 00:21:34,960 Speaker 1: methods mean And it's like why does this exist? Well, well, well, 445 00:21:35,280 --> 00:21:39,080 Speaker 1: people want to buy insurance. Someone sent me there's a 446 00:21:39,160 --> 00:21:42,560 Speaker 1: there's a Monty Python skit where like a reverend comes 447 00:21:42,560 --> 00:21:44,920 Speaker 1: into the insurance office and says like, why aren't you 448 00:21:44,960 --> 00:21:47,040 Speaker 1: paying my claim? And he's like, oh, you see, you 449 00:21:47,160 --> 00:21:49,639 Speaker 1: bought the never pay policy, which never pays off. It's 450 00:21:49,640 --> 00:21:51,080 Speaker 1: a great policy if you don't have a claim, but 451 00:21:51,119 --> 00:21:53,600 Speaker 1: if you have a claim, it never pays. It seems 452 00:21:53,640 --> 00:21:56,000 Speaker 1: like people want to never pay policy. Yeah, you know, 453 00:21:56,040 --> 00:21:59,160 Speaker 1: I've written a little bit about why, and like it's 454 00:21:59,200 --> 00:22:01,960 Speaker 1: an interesting, like stemic answer, which the answer is that 455 00:22:02,640 --> 00:22:08,000 Speaker 1: these insurance companies have enough money that if you like 456 00:22:09,119 --> 00:22:12,080 Speaker 1: burn your house time by accident, they'll pay your claim. 457 00:22:12,359 --> 00:22:14,320 Speaker 1: Have that kind of money, Yeah, what they don't have 458 00:22:14,520 --> 00:22:17,640 Speaker 1: is the money to pay off everyone's claim if there's 459 00:22:17,640 --> 00:22:18,280 Speaker 1: a big hurricane. 460 00:22:18,359 --> 00:22:19,600 Speaker 2: It's like a town is wiped out. 461 00:22:20,359 --> 00:22:23,920 Speaker 1: And why would you want to buy insurance that protects 462 00:22:23,920 --> 00:22:26,400 Speaker 1: against you accidentally burning your house time but not a hurricane. 463 00:22:27,240 --> 00:22:34,800 Speaker 1: The answer I think is that you probably correctly believe 464 00:22:35,320 --> 00:22:37,520 Speaker 1: that there's some sort of bailout coming if your time 465 00:22:37,560 --> 00:22:39,679 Speaker 1: gets whipped up. Yeah, and like an insurance like this 466 00:22:39,760 --> 00:22:42,520 Speaker 1: is really quite literal where there's like state guarantee funds 467 00:22:42,520 --> 00:22:46,280 Speaker 1: that basically will step in to cover wiped out insurers. 468 00:22:47,280 --> 00:22:49,480 Speaker 1: So if you're a homeowner, you can buy the bad 469 00:22:49,480 --> 00:22:51,720 Speaker 1: insurance policy figuring you know, either it'll pay out or 470 00:22:51,760 --> 00:22:53,359 Speaker 1: if it doesn't pay out, someone else will step in 471 00:22:53,359 --> 00:22:55,920 Speaker 1: to pay it out. And then like there's a question 472 00:22:56,000 --> 00:23:01,160 Speaker 1: of why do states allow this, like the state's fund 473 00:23:01,240 --> 00:23:03,680 Speaker 1: the guarantee funds, and like, you know, they're on the 474 00:23:03,720 --> 00:23:06,000 Speaker 1: hook of this insured doesn't pay out. Yeah, I think 475 00:23:06,000 --> 00:23:08,960 Speaker 1: the answer is that's a problem for another day, and 476 00:23:09,080 --> 00:23:11,080 Speaker 1: right now, it's nice to have insurance, right So, if 477 00:23:11,119 --> 00:23:14,520 Speaker 1: you're like a Florida politician and people can't get insurance 478 00:23:14,680 --> 00:23:17,320 Speaker 1: to buy houses in Florida, that's really bad. 479 00:23:17,119 --> 00:23:18,119 Speaker 2: For you, right, Yeah. 480 00:23:18,160 --> 00:23:20,199 Speaker 1: And if they can get insurance, that's good for you. 481 00:23:20,520 --> 00:23:23,120 Speaker 1: And if the insurance doesn't pay out and the state 482 00:23:23,160 --> 00:23:25,560 Speaker 1: government has to step in to guarantee the insurance, that's 483 00:23:25,600 --> 00:23:27,880 Speaker 1: a problem for later. Yeah. And so there's a certain 484 00:23:27,920 --> 00:23:30,560 Speaker 1: amount of short sighted it's where regulators politicians are all 485 00:23:30,600 --> 00:23:33,199 Speaker 1: happy to go with the system where you know, the 486 00:23:33,240 --> 00:23:37,280 Speaker 1: insurers are not necessarily all that well capitalized, because that's 487 00:23:37,320 --> 00:23:39,359 Speaker 1: a problem for someone else to figure out later on. 488 00:23:39,720 --> 00:23:43,720 Speaker 2: Yeah, this is not the same thing, but it kind 489 00:23:43,760 --> 00:23:46,399 Speaker 2: of reminded me of the conversation we were having about 490 00:23:46,440 --> 00:23:49,560 Speaker 2: Egan Jones a couple of months ago. That is the 491 00:23:49,760 --> 00:23:54,000 Speaker 2: ratings agency that basically gives pretty high ratings to private 492 00:23:54,040 --> 00:23:57,880 Speaker 2: credit investments and has a track record of a lot 493 00:23:57,880 --> 00:24:01,520 Speaker 2: of those private credit investments not going so well or 494 00:24:01,800 --> 00:24:04,639 Speaker 2: you know, you think about it. Gave pretty good ratings 495 00:24:04,680 --> 00:24:06,840 Speaker 2: to Chicken Soup for the Soul. It gave good ratings 496 00:24:06,880 --> 00:24:09,560 Speaker 2: to Red Box and those went belly up. But there 497 00:24:09,640 --> 00:24:12,840 Speaker 2: is a space for these rating agencies. 498 00:24:13,200 --> 00:24:16,280 Speaker 1: Yeah, it's a similar dynamic in that, like ratings are 499 00:24:16,280 --> 00:24:20,800 Speaker 1: not really for the consumer of the ratings, right, Like 500 00:24:21,160 --> 00:24:23,639 Speaker 1: you're not getting insurance from an A rated insurance company 501 00:24:23,640 --> 00:24:26,000 Speaker 1: because you want insurance from an aerrated insurance company. There's 502 00:24:26,000 --> 00:24:29,600 Speaker 1: some sort of like regulatory backdrop, and so if ratings 503 00:24:29,600 --> 00:24:31,960 Speaker 1: are kind of generous, like a lot of people are 504 00:24:32,040 --> 00:24:34,359 Speaker 1: very happy to have generous ratings, and so there's a 505 00:24:34,400 --> 00:24:36,919 Speaker 1: market niche for people who are willing to provide generous ratings. 506 00:24:37,119 --> 00:24:40,240 Speaker 2: Yeah, and I mean it's all just future problems to 507 00:24:40,240 --> 00:24:40,560 Speaker 2: deal with. 508 00:24:40,680 --> 00:24:44,280 Speaker 1: So, yeah, everything is a rated now. Yeah, it hasn't 509 00:24:44,280 --> 00:24:47,480 Speaker 1: defaulted yet. Yeah, who knows what'll happen. 510 00:24:49,440 --> 00:24:52,640 Speaker 2: Hey, So this episode is coming out on August first, 511 00:24:52,760 --> 00:24:56,879 Speaker 2: and in August, people including Matt Levine take vacation, So 512 00:24:57,520 --> 00:25:00,400 Speaker 2: We're going to do another mail bag episode, so make 513 00:25:00,440 --> 00:25:03,800 Speaker 2: sure you send us your cool questions money Pod at 514 00:25:03,840 --> 00:25:07,280 Speaker 2: Bloomberg dot net, and there's a pretty high likelihood that 515 00:25:07,440 --> 00:25:10,000 Speaker 2: will answer some of them. 516 00:25:10,240 --> 00:25:15,040 Speaker 1: Matt, I might do a mail bag episode, Weser. 517 00:25:13,400 --> 00:25:16,879 Speaker 2: If your questions are good enough, Gons. If your questions 518 00:25:16,880 --> 00:25:18,840 Speaker 2: are good enough, we will do a mail bag So 519 00:25:18,880 --> 00:25:19,359 Speaker 2: it's up to you. 520 00:25:21,680 --> 00:25:27,879 Speaker 1: Yeah, sure, yeah, it's alrighty on you. And that was 521 00:25:27,880 --> 00:25:28,960 Speaker 1: the Money Stuff Podcast. 522 00:25:29,119 --> 00:25:31,040 Speaker 2: I'm Matt Leuvian and I'm Katie Greifeld. 523 00:25:31,480 --> 00:25:33,520 Speaker 1: You can find my work by subscribing to the money 524 00:25:33,560 --> 00:25:35,440 Speaker 1: Stuff newsletter on Bloomberg. 525 00:25:35,000 --> 00:25:37,720 Speaker 2: Dot com, and you can find me on Bloomberg TV 526 00:25:37,920 --> 00:25:41,600 Speaker 2: every day on Open Interest between nine to eleven am Eastern. 527 00:25:41,840 --> 00:25:43,520 Speaker 1: We'd love to hear from you. You can send an 528 00:25:43,560 --> 00:25:45,840 Speaker 1: email to money Pod at Bloomberg dot net. 529 00:25:46,480 --> 00:25:48,639 Speaker 2: You can also subscribe to our show wherever you're listening 530 00:25:48,720 --> 00:25:50,719 Speaker 2: right now and leave us a review. It helps more 531 00:25:50,760 --> 00:25:51,639 Speaker 2: people find the show. 532 00:25:52,400 --> 00:25:55,159 Speaker 1: The Money Stuff Podcast is produced by Anna Masarakus and 533 00:25:55,280 --> 00:25:56,320 Speaker 1: Moses onam Our. 534 00:25:56,359 --> 00:25:59,160 Speaker 2: Theme music was composed by Blake Maples and Stage Bauman 535 00:25:59,200 --> 00:26:00,600 Speaker 2: is Bloomberg's had of podcasts. 536 00:26:00,960 --> 00:26:03,320 Speaker 1: Thanks for listening to the Muney Stuff Podcast. We'll be 537 00:26:03,359 --> 00:26:04,840 Speaker 1: back next week with more stuff.