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Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.

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Speaker 1: This week on Masters in Business on Bloomberg Radio, I

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Speaker 1: have a very special edition. It is the fifth anniversary

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Speaker 1: of Dodd Frank and I thought what better time than

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Speaker 1: right now to have a thoughtful conversation about regulation and

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Speaker 1: the perils of deregulation and the perils of excess regulation.

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Speaker 1: Then with former SEC Chairman Arthur Lovitt. Uh, there are

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Speaker 1: few people who know as much about the ins and

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Speaker 1: outs of the stock market and the regulatory apparatus that

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Speaker 1: sit on top of it, as well as the politics

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Speaker 1: and all of the various nuances that go with regulating

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Speaker 1: one of the largest, most robust financial systems in the world.

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Speaker 1: And so Arthur and I had a wide ranging conversation.

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Speaker 1: We covered every thing from Dodd Frank to the vocal rule,

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Speaker 1: to the fiduciary standard, to whether or not your IRA

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Speaker 1: and four oh one case should be governed by the

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Speaker 1: same sets of regulations or whether there should be different

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Speaker 1: rules for each. We talked about a lot of different things,

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Speaker 1: and I find Arthur to be a fascinating guy. Be

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Speaker 1: sure and check out our podcast extras, which if you're

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Speaker 1: listening to this now hang around till the ends. The

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Speaker 1: last fifteen twenty minutes of our conversation was really Arthur

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Speaker 1: talking about how he finds technology in general and fintech

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Speaker 1: specifically to be absolutely fascinating and why it makes him

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Speaker 1: so confident about the future of the United States. Really

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Speaker 1: very interesting conversation. I know regulation may not be the

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Speaker 1: sort of thing that you think, uh, really is exciting, um,

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Speaker 1: but it's important part of of markets and it's certainly

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Speaker 1: something that's interesting, uh and significant to what goes on

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Speaker 1: to the day to day workings of the markets. So

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Speaker 1: who better than a conversation with Arthur Levitt about regulation

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Speaker 1: in America. This is Master's in Business with Barry Ridholts

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Speaker 1: on Bloomberg Radio. Welcome to Masters in Business on Bloomberg Radio.

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Speaker 1: Today we have a very special guest. Our show today

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Speaker 1: is all about regulation, as we just passed the fifth

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Speaker 1: anniversary of the Dodd Frank Legislation. My guest today is

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Speaker 1: the and longest serving chairman of the SEC, Arthur Levitt.

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Speaker 1: He ran the agency from to two thousand and one.

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Speaker 1: I'm sure you're familiar with his works. He is our

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Speaker 1: first returning guest on Masters in Business. Arthur welcome back

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Speaker 1: to the show. Glad to be with you, Barry. So

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Speaker 1: for those of you who somehow may not be familiar

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Speaker 1: with Chairman Levitt Um, he ran a brokerage firm back

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Speaker 1: in the early sixties, Old Carter Berlin and while with

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Speaker 1: a young whipper snapper named Sandy. While in nine seventy eight,

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Speaker 1: he was chairman of the American Stock Exchange. In nine

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Speaker 1: he became chairman of the New York City Economic Development Corporation,

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Speaker 1: and he was appointed chairman of the sec UH by

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Speaker 1: President Clinton. UH. And I recall you once telling me

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Speaker 1: that you found out you were up for the position, Um,

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Speaker 1: that you had gotten the position by reading about it

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Speaker 1: in the Wall Street Journal. The first I had heard

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Speaker 1: about it was a rumor reported in the Wall Street

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Speaker 1: Journal of it. I was the choice. I think that

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Speaker 1: they had probably somebody else in mind that didn't pass

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Speaker 1: through the various traps, and they ran around the White

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Speaker 1: House and said, gee, who who can we choose now

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Speaker 1: to fill that job? And someone said, hey, what about

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Speaker 1: guy that ran the stock Exchange? And that's how it happened. Wow, fascinating.

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Speaker 1: And Um, you come from a family of people who

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Speaker 1: have served the finance industry. Your dad was also one

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Speaker 1: of the longest serving New York State controllers, Right, he

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Speaker 1: was in a job for four years, and um he

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Speaker 1: was sole trustee of the at the time, what was

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Speaker 1: the largest pension fund in America. Yes, that's fascinating. So

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Speaker 1: so we have Finance Royalty. So we're here. It's the

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Speaker 1: fifth anniversary of Dodd Frank. There have been lots of

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Speaker 1: things happening in the world of financial regulation, all sorts

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Speaker 1: of interesting things, and I thought you would be the

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Speaker 1: perfect person to have a conversation UM about this with. So,

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Speaker 1: so let's begin with what came before this era. When

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Speaker 1: we look at the period before you became SEC chair

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Speaker 1: and after, we were really in a period of fairly

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Speaker 1: robust deregulation. We saw the repeal of Glass Stiegel. We

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Speaker 1: saw the passage of the Commodities um Modernization Act, which

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Speaker 1: really allowed derivatives to be freely um traded without any

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Speaker 1: sort of regulatory oversight. In fact, the general sense of

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Speaker 1: that era of the nine eighties and nineties was less

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Speaker 1: regulation was better. Is that a fair assessment. I think

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Speaker 1: it is a fair assessment, And I think that Sandy

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Speaker 1: Wild had a good deal to do with that in

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Speaker 1: terms of lobbying the Congress, with whom he had been

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Speaker 1: particularly close in terms of reducing eliminating the strictures of

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Speaker 1: the Glass Stiegel Act. Subsequently, he said that he wasn't

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Speaker 1: sure that that was a good move. Glass Stiegel's removal

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Speaker 1: may have created unintended consequences, and I certainly agree with that,

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Speaker 1: although at the time, the general feeling in the financial

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Speaker 1: community was that we were an overregulated body and that

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Speaker 1: we needed relief, and the most likely area of relief

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Speaker 1: would have been to allow the banks to do much

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Speaker 1: more than they had ever done before. And then came

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Speaker 1: two thousand and eight, and if I recall correctly, the

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Speaker 1: Travelers City Court merger was sort of presented to Congress

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Speaker 1: as a fatal complete and either you repeal Glass Steagle

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Speaker 1: or we have to unwind this big merger. Exactly put

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Speaker 1: put a gun to Congress's head. So so we have

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Speaker 1: the Commodity Futures Modernization Act, we have the repeal of

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Speaker 1: Glass Stiegel. And then you said, comes two thousand and eight.

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Speaker 1: Now did it take a full blown financial crisis to

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Speaker 1: make people rethink regulation or was this something that was

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Speaker 1: just eventually going to bite us in the behind? And

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Speaker 1: we had to do something. Well, a lot of regulation

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Speaker 1: that occurs at times of market exuberance, market highs uh

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Speaker 1: generally goes towards deregulatory steps. Nobody has hurt, nobody has bothered,

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Speaker 1: everybody's a winner. Why not relieve the regulatory pressures and

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Speaker 1: really let the animal spirits prevail. Well, two thousand and

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Speaker 1: eight came along, and a lot of people were hurt,

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Speaker 1: and a lot of members of Congress began to have

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Speaker 1: second thoughts about the deregulatory moves of the past, and

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Speaker 1: that gave birth to a whole host of rules and

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Speaker 1: ideas and ultimately the Dodd Frank Rule. Personally, I believe

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Speaker 1: that the lessons of the market of two thousand and

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Speaker 1: eight did more to curb the exuberance of banking interests

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Speaker 1: than any possible regulation that we could have put through. Nevertheless,

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Speaker 1: the Congress fell all over themselves to come up with

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Speaker 1: ways to punish the markets and the people who operated

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Speaker 1: in those markets for bringing about what they regarded to

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Speaker 1: be the horrors of two thousand and eight. You're listening

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Speaker 1: to Masters in Business on Bloomberg Radio. My special guest

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Speaker 1: for the special episode about the pros and cons of

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Speaker 1: financial regulation is Arthur Lovitt, former chairman of the SEC.

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Speaker 1: And I want to take the other side of an

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Speaker 1: argument from you. You said earlier the crash and OH

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Speaker 1: eight taught everybody that write lessons and and people will

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Speaker 1: would learn from that. But but isn't the history of

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Speaker 1: Wall Street, in the history of finance that they burn

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Speaker 1: their hand and they go out for a little while,

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Speaker 1: and then a few years later it's all forgotten. Think

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Speaker 1: back to the nifty fifty, what took place in the

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Speaker 1: sixties and seventies, Think back to the dot com collapse

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Speaker 1: in two thousand. None of these episodes are hidden, It's

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Speaker 1: all there. No one seems to want to learn from history. Well,

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Speaker 1: I agree with you, Barry. The lessons learned as a

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Speaker 1: result of an event such as the crash don't last forever,

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Speaker 1: but they do last long enough to change behavior for

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Speaker 1: a period of years, not just a period of weeks

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Speaker 1: or months. Believe me, Uh, Jamie Diamond is very much

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Speaker 1: aware of what happened to OH eight, along with every

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Speaker 1: other head of major banking institutions. They're paying the price

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Speaker 1: for it even today. Litigation has yet to be settled.

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Speaker 1: So I think that in many ways that's more effective

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Speaker 1: than rules and regulations, which invariably have a perverse and

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Speaker 1: unexpected results. Dodd Frank certainly has a battery of facets

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Speaker 1: of that ruling that UH are misunderstood or are not

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Speaker 1: doing the job that they expected them to do. So

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Speaker 1: let's let's talk about that exactly. This month is the

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Speaker 1: fifth year anniversary of the legislation being passed. It's still

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Speaker 1: a work in progress. There are still things that have

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Speaker 1: to be put into effect. What has been the positive

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Speaker 1: consequences of Dodd Frank and what are what are some

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Speaker 1: of the negatives? Well, I think in the first place,

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Speaker 1: Dodd Frank represents the abdication on the part of the

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Speaker 1: Congress two regulators to fulfill a myriad of requirements in

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Speaker 1: a limited period of time which is long since gone,

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Speaker 1: and still various regulatory agencies having fulfilled all the mandates

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Speaker 1: of god Frank. I think God Frank has been useful

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Speaker 1: in terms of setting certain ground rules of behavior. I

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Speaker 1: think it incorporated the Vulcan rule, for instance, which I

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Speaker 1: think was constructive that banks that were insured by the

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Speaker 1: federal government could not gamble with those funds. I think

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Speaker 1: that was the principle behind the Vulcan rule, and Dodd

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Speaker 1: Frank tried to convert that principle into UH specific actionable steps.

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Speaker 1: And here we are five years after Dodd Frank was

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Speaker 1: put into effects, and literally this week that you and

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Speaker 1: I are sitting here having this conversation was the rollout

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Speaker 1: of the Vocal Rule. Why did it take five years

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Speaker 1: for something as obvious as hey, if you're federally insured,

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Speaker 1: if if the fd i C guarantees your depositors, you

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Speaker 1: can't speculate with with insured capital. Why did take so

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Speaker 1: long for that to take place? Well, financial UH entities

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Speaker 1: can't shift on a dime, and it took them a

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Speaker 1: certain number of years to close down UH these operations

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Speaker 1: such as hedge funds or private equity funds or real

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Speaker 1: estate ventures. It took them a number of years. We

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Speaker 1: could argue whether it should be five or should be three,

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Speaker 1: but they certainly couldn't do it in six months or

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Speaker 1: a year. And the net effect of it has been

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Speaker 1: an orderly liquidation of many of the programs that the

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Speaker 1: Vocal Rule contemplated as being risky. I think there are

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Speaker 1: many others that weren't included, nor should be included. We're

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Speaker 1: in a a risk business and to squeeze all the

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Speaker 1: risk out of our markets, I think would destroy the market.

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Speaker 1: So I think this was a reasonable step. The banks

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Speaker 1: would argue and certainly did argue against it, but it

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Speaker 1: was a reasonable step. It took the agency's much too

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Speaker 1: much time to deal with it because they simply didn't

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Speaker 1: have the resources. There were hundreds of pages of regulations

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Speaker 1: left to the CFTC and the SEC to define in

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Speaker 1: terms of specific regulations, exposed for public comment and vetted

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Speaker 1: and litigated, and finally they've come up with a semblance

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Speaker 1: of what the expectations were for the original Dodd Frank.

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Speaker 1: So so here we are. We we have Dodd Frank

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Speaker 1: in place, it's not quite fully in place. We have

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Speaker 1: the volcal rule taking effects if we didn't pass legislation

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Speaker 1: such as Dodd Frank. What sort of alternatives do we have?

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Speaker 1: And do you want to address? You raised an interesting

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Speaker 1: point I shouldn't let slip. How significant isn't that Congress

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Speaker 1: didn't pass this themselves the rules, but handed it off

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Speaker 1: to a committee rather than do what used to be

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Speaker 1: considered their jobs. Well, Congress doesn't understand the business. And

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Speaker 1: to have a group of congressmen, no matter how smart

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Speaker 1: they are and senators deal with the complexity of our

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Speaker 1: markets in a finite period of time with an election pending,

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Speaker 1: you're going to get a result something like this. They're

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Speaker 1: going to say, here are the problems we've defined as

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Speaker 1: a result of many hearings, now SEC and CFTC, here

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Speaker 1: are the broad outlines of what we think should be fixed.

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Speaker 1: Fix it. And then they unleashed upon these same agencies,

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Speaker 1: the the lobbyists on behalf of the banks and the

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Speaker 1: brokerage firms who fought every line that went into Dodd

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Speaker 1: Frank and didn't fund the agencies appropriately to deal with

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Speaker 1: these issues. They needed staffs that were almost fifty larger

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Speaker 1: than the market read staffs that they already had to

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Speaker 1: deal with the complexity of the issues presented by Dodd Frank.

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Speaker 1: This wasn't clear, lucid efficient writing. This was broad generalizations

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Speaker 1: out of which the regulators had to create something which

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Speaker 1: was politically approved and acceptable in terms of public basic

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Speaker 1: public understanding. So so, Arthur, in the last minute, we

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Speaker 1: have what is the alternative to something like Dodd Frank?

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Speaker 1: What could have Congress done in its stead? You know,

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Speaker 1: I think that at a time of such economic travail,

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Speaker 1: the best thing Congress could have done was to study

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Speaker 1: the issue longer and work with existing regulators on coming

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Speaker 1: up with a plan that had a finite objective, uh,

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Speaker 1: and implement that plan step by step. You're listening to

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Speaker 1: Masters in Business on Bloomberg Radio, a special edition focusing

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Speaker 1: on regulation during the fifth year anniversary of the Dodd

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Speaker 1: Frank legislation, and and who better to speak to about

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Speaker 1: this than my guest, former SEC Chairman Arthur Levitt. Before

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Speaker 1: the break, we were talking a little bit about the

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Speaker 1: Volca rule, and for people who are not familiar with

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Speaker 1: the vocal rule, it bans taxpayer ensured banks from making

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Speaker 1: speculative bets with their own money. And I think we

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Speaker 1: both agree that's a reasonable thing to do. Yes, it is.

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Speaker 1: So the alternative is, hey, you don't have to have

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Speaker 1: FDIC insurance if if you're that confident that your reputation

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Speaker 1: is that good, see how far it goes, or spin

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Speaker 1: out those separate hedge funds and other entities. And it

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Speaker 1: seems all the banks actually have done that. You know,

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Speaker 1: it's interesting, Barry, that only one person in America could

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Speaker 1: have stood behind a rule and gotten it past as

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Speaker 1: seamlessly as Paul Vulker. There probably is no other American

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Speaker 1: with the reputation for probity and integrity that gave him

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Speaker 1: the power to create a rule which had a profound

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Speaker 1: change in the way American banking business is being done.

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Speaker 1: What what does that say about us and what as

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Speaker 1: a nation? And what does it say about Congress that

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Speaker 1: it took one of the people with the most amount

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Speaker 1: of credibility after the crisis to get something like this done. Well,

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Speaker 1: it says that there is an international crisis of leadership.

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Speaker 1: That I would defy almost anyone in our audience to

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Speaker 1: name three people that they think are outstanding leaders known

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Speaker 1: to the general public for integrity and probity. Nobody comes

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Speaker 1: close to Paul Wulker. In a former era, we had

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Speaker 1: the Irving Shapiro's, the Walter Riston's, the DuPonts, the John Whiteheads.

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Speaker 1: You couldn't come up with a cluster of people of

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Speaker 1: that caliber today. What why is that that? That's kind

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Speaker 1: of a telling observation. Well, I think our society has

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Speaker 1: become h a millisecond by millisecond society and sound bites

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Speaker 1: and television bits have defined people in ways which are

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Speaker 1: less profound and deep than the era which spawned the

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Speaker 1: white Heads and the Vulcars. And uh, I'm not certain

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Speaker 1: that in a society of sound bites you can really

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Speaker 1: develop the sort of leadership skills that took Vulcar many

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Speaker 1: years working at the Federal Reserve and the rest of

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Speaker 1: his career. But we certainly don't have that in politics.

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Speaker 1: We don't have it in business, we don't have it

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Speaker 1: in religion. We simply lack that core of leadership that

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Speaker 1: was part of our society for a long time. So

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Speaker 1: so let me push back a little bit um the pope.

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Speaker 1: This Pope seems to be very out there, generating all

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Speaker 1: sorts of interesting taking positions not typical. I totally agree

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Speaker 1: with you. I think there no generalizations are applicable to

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Speaker 1: total society. But I'm talking about well dership in the

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Speaker 1: business and political communities. That's where we need it the most.

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Speaker 1: And he seems to be an exception. You know, the

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Speaker 1: changes that have taken place in Vatican City seems to

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Speaker 1: be very significant. We're not seeing that in the rest

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Speaker 1: of the business or political community. We never really saw

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Speaker 1: it before either. Yeah, this is this is really a

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Speaker 1: fascinating situation. So so let's move back to the SEC.

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Speaker 1: There was a big New York Times article over criticism

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Speaker 1: about the SEC use of in house judges, and I

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Speaker 1: heard you on your radio show describe why the SEC

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Speaker 1: has practically been forced into this because of their budget situation.

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Speaker 1: What is first of all, what is an in house

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Speaker 1: SEC judge? The in house judge is appointed by the

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Speaker 1: Commission itself to hear a number of cases and to

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Speaker 1: supplement the general judicial system, which is so crowded with

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Speaker 1: cases that it takes many years for a case to

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Speaker 1: be heard. The judges within the SEC or any other

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Speaker 1: agency that also has administrative judges, are familiar with the

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Speaker 1: Securities laws in ways that the other levels of judiciary

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Speaker 1: perhaps are not so starved for resources. The only way

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Speaker 1: the Commission can meet the case load of cases that

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Speaker 1: are brought before them is to supplement the use of

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Speaker 1: the federal judiciary with in house judges that our experience,

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Speaker 1: that are independent of the Commission except for the appointing

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Speaker 1: power of the commission author. How much of the use

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Speaker 1: of these judges is driven by budget concerns? I think

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Speaker 1: it is probably driven by budget concerns. That that's fascinating.

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Speaker 1: You're listening to Masters in Business on Bloomberg Radio. Today

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Speaker 1: we have a special edition Financial Regulation during the fifth

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Speaker 1: year of Dodd Frank, and I have a very special guest,

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Speaker 1: former SEC Chairman Arthur Levitt. One of the things that

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Speaker 1: has been fascinating over the past couple of years has

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Speaker 1: been the debate about the standard of care owed two investors.

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Speaker 1: In fact, as part of Dodd Frank, the SEC how

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Speaker 1: to issue a set of suggested guidelines, and effectively the

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Speaker 1: SEC said everybody should have to adhere to the fiduciary standard,

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Speaker 1: but that was not put into place. What what are

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Speaker 1: your thoughts on that. I think that there is no

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Speaker 1: earthly reason why a broker should live by different standards

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Speaker 1: than an investment advisor. Now, the argument made, of course,

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Speaker 1: is that brokers don't give advice, they simply execute orders.

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Speaker 1: Having been a broker for nearly twenty years, I don't

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Speaker 1: think there was ever a transaction that I ever didn't

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Speaker 1: have some comment to make about. So I reject the

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Speaker 1: notion that a broker doesn't talk to a customer. He

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Speaker 1: or she certainly does. And I personally believe that the

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Speaker 1: standards of accountability should apply equally to brokers and to

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Speaker 1: investment advisors, and and for those people who may not

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Speaker 1: be familiar. The fiduciary standard is a much higher standard

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Speaker 1: which says you can only do what is in the

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Speaker 1: best interest of the client. It makes for a very

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Speaker 1: simple UH compliance decision making process. Hey, is this in

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Speaker 1: the best interest of the client or is this in

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Speaker 1: the best interest of some but he else? And if

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Speaker 1: the answer is it's not the client's best interest, you

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Speaker 1: you can't do it. But there certainly has been a

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Speaker 1: lot of pushback on that from from the brokerage industry

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Speaker 1: and and from FINRA as well. I think the pushback

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Speaker 1: is understandable. Not only is it UH private interests that

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Speaker 1: are involved here, but the various suggestions have been drafted

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Speaker 1: in such a complex way that neither the opponents are

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Speaker 1: proponents of this proposal have really defined what it means,

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Speaker 1: I think, and it's simplest form. If you could create

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Speaker 1: a rule which level the compensation that didn't incentivize a

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Speaker 1: broker to go to product A because he or she

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Speaker 1: was being paid more for product A than product B,

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Speaker 1: there's your rule. That's all you really need. It's the

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Speaker 1: disparities and compensation that create a complexity. Where the industry

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Speaker 1: is opening is arguing that they're opening themselves up to

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Speaker 1: private rights of action now that they never experienced before

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Speaker 1: because of this indefinite complex rule. And there's something to

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Speaker 1: that argument. The rule is presented by the Department of Labor.

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Speaker 1: I certainly support, but it certainly could have been more

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Speaker 1: efficiently effectively worded. So so let's talk a little bit

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Speaker 1: about that. So the SEC says, where the entity that

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Speaker 1: governs brokers and markets, and we suggest a fiduciary standard

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Speaker 1: for everybody, but it doesn't go anywhere either with the

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Speaker 1: Commission itself or Congress. And then the Department of Labor says,

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Speaker 1: you guys have your own conversation about that rule. But we,

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Speaker 1: as the Labor Department, we regulate four oh one case

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Speaker 1: and four oh three B ease and other tax deferred

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Speaker 1: savings for retirement because these are considered wages. These are

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Speaker 1: considered part of compensation, and so we get to regulate.

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Speaker 1: And while you guys are diddling around with that, we're

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Speaker 1: gonna state you must follow the fiduciary standard for this.

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Speaker 1: It's too important to people's retirements. Marry you have it

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Speaker 1: absolutely right. The likelihood of the SEC getting a fiduciary

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Speaker 1: standard was extraordinarily remote. The Commission is split. The Congress,

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Speaker 1: which oversees the Commission, doesn't want to see a fiduciary standard,

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Speaker 1: and it never could have been done. That's why Congress

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Speaker 1: is now pressuring take it away from the Department of

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Speaker 1: Labor give it to the sec because they know that's

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Speaker 1: burying the fiduciary standard. And I don't really see that

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Speaker 1: happening anytime soon because it's all stop and think about this.

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Speaker 1: It's all part of the compensation package, is all part

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Speaker 1: of wages. And why would you want to remove that

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Speaker 1: fiduciary standard over somebody's wage package and give it to

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Speaker 1: somebody who may be offering conflicted advice. It doesn't make

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Speaker 1: any sense to proceed that way. Well, I think it

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Speaker 1: goes to the issue of inducements, and are we hurting

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Speaker 1: investors by offering greater inducements to handle product AID than

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Speaker 1: product B. It's as simple as that. That clearly creates

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Speaker 1: a conflict of interest, or at least so the broker

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Speaker 1: has an incentive to go to the highest commission product

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Speaker 1: that's not in the investor's best interests. Absolutely, Barry. So

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Speaker 1: So let's think about this a little further. When we

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Speaker 1: look at the overall um alternative standards. So on the

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Speaker 1: one hand, the brokerage industry has suitability, UM, when you

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Speaker 1: look at the fiduciary standards, it's much higher. Suitability is vague. UM.

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Speaker 1: I've always said suitability is don't sell Grandma Facebook. I

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Speaker 1: p oh. I mean you can take it to an extreme.

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Speaker 1: I'm saying that if you have the same level of

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Speaker 1: compensation for whatever product you're selling, that's fine. That's simple,

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Speaker 1: that's easy. So when you look at around the world,

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Speaker 1: one of the things that in the United Kingdom did

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Speaker 1: a few years ago was basically mandate a lower fee

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Speaker 1: on all of their retirement accounts and a full disclosure

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Speaker 1: and transparency, because the Brits basically said, hey, if if

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Speaker 1: people aren't making money, if these fees are high and

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Speaker 1: not disclosed, if they're hidden, that's ultimately going to impact

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Speaker 1: years down the road our retirees. And if there's a shortfall,

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Speaker 1: we the government are going to have to make that up,

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Speaker 1: which means you, the taxpayer, are gonna have to make

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Speaker 1: that up. I thought that would be an argument that

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Speaker 1: would carry the day, even amongst conservatives, but it seems

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Speaker 1: that I was too optimistic. Politicians tend to have tactical

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Speaker 1: responses and the strategy of long term investing is just

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Speaker 1: beyond their ability to deal with because they're not long

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Speaker 1: term players. There two year players in the next election.

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Speaker 1: So we've been talking about four oh one ks and

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Speaker 1: other tax deferred compensation packages. There's another tax deferd entity

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Speaker 1: called the individual retirement account the i r A that

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Speaker 1: doesn't get covered by the Department of Labor fiduciary standard.

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Speaker 1: Should it? Yes? Uh, I wish that it was covered

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Speaker 1: by some sort of fiduciary standard. Whether it's to be

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Speaker 1: the Department of Labor or the SEC, I'm not sure,

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Speaker 1: but these are people who really need the protection. Much

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Speaker 1: smaller accounts four oh one ks can scale up to

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Speaker 1: be fairly substantial. The maximum contribution to iras or it's

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Speaker 1: it's indexed in um inflation indexed, but it's not. It's

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Speaker 1: five six thousand dollars a year. It's not that much

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Speaker 1: money compared to what you can A four oh one

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Speaker 1: K is eighteen thousand if you're under fifty thousand, if

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Speaker 1: you're over fifty, it's a huge juge difference between the two.

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Speaker 1: And if the abuses of a runaway market can ever

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Speaker 1: be felt, it's in the area of these small investors

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Speaker 1: who tend to be more emotional, tend not to focus

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Speaker 1: on the impact of fees on their portfolios, tend to

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Speaker 1: have a herd mentality and buying when others are selling

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Speaker 1: and certainly being victimized at markets that uh, go up

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Speaker 1: and they're buying, and go down and they're selling. You know,

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Speaker 1: Vanguard put out a um white paper a couple of

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Speaker 1: years ago that showed the impact of a one percentage

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Speaker 1: additional fee above some low modest level and over the

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Speaker 1: course of twenty or thirty years, enormous. It's compounding. It's amazing,

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Speaker 1: amazing impact, and it's so difficult to get investors to

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Speaker 1: focus on that rather than on the advice that they

432
00:31:21,440 --> 00:31:25,280
Speaker 1: heard from someone at the Bridge Club. It's it's an

433
00:31:25,320 --> 00:31:29,080
Speaker 1: ongoing issue. I'm fond of saying the best advisors are

434
00:31:29,320 --> 00:31:34,320
Speaker 1: behavioral counselors as well as financial advisors, because the biggest

435
00:31:34,360 --> 00:31:38,600
Speaker 1: impediment to success seems to be investors own behavior. Well,

436
00:31:38,600 --> 00:31:41,840
Speaker 1: I'm kind of a Jack Bogel acolyte in terms of

437
00:31:42,680 --> 00:31:47,600
Speaker 1: small investors should be involved in funds rather than picking stocks.

438
00:31:49,080 --> 00:31:53,000
Speaker 1: And there's a reason that Vanguard has risen to over

439
00:31:53,200 --> 00:31:57,120
Speaker 1: three trillion with the t trillion dollars. Over the past

440
00:31:57,120 --> 00:31:59,360
Speaker 1: few years, a lot of people have come to that

441
00:31:59,400 --> 00:32:02,920
Speaker 1: same real as issue. They've stayed faithful to the Bogel rule.

442
00:32:03,520 --> 00:32:06,160
Speaker 1: We've been speaking with Arthur Levite, the former Chairman of

443
00:32:06,200 --> 00:32:10,680
Speaker 1: the Securities Exchange Commission, during this fifth anniversary of Dodd Frank,

444
00:32:10,800 --> 00:32:14,640
Speaker 1: talking about regulation. If you enjoy this conversation, be sure

445
00:32:14,680 --> 00:32:18,200
Speaker 1: and listen to our podcast Extras, where the discussion continues

446
00:32:18,320 --> 00:32:20,840
Speaker 1: for as long as as our guests have time for

447
00:32:21,320 --> 00:32:24,400
Speaker 1: Be sure and check out my daily column on Bloomberg

448
00:32:24,440 --> 00:32:28,080
Speaker 1: View dot com. Follow me on Twitter at rid Halts Arthur,

449
00:32:28,200 --> 00:32:34,040
Speaker 1: I know you tweet your Your Twitter handle is at

450
00:32:34,200 --> 00:32:37,560
Speaker 1: A Levitt. I'm Barry Rihults. You've been listening to Masters

451
00:32:37,560 --> 00:32:41,600
Speaker 1: in Business on Bloomberg Radio. Welcome to the podcast Extras.

452
00:32:41,640 --> 00:32:45,520
Speaker 1: I'm Barry Rihults. My special guest today is Arthur Levitt.

453
00:32:46,000 --> 00:32:50,400
Speaker 1: He is the former chairman of the Securities and Exchange Commission,

454
00:32:50,720 --> 00:32:53,960
Speaker 1: and indeed you were the longest serving chairman, weren't you. Yes?

455
00:32:54,600 --> 00:32:58,160
Speaker 1: And Arthur is for those of you who know your

456
00:32:58,160 --> 00:33:01,160
Speaker 1: way around a radio dial. Arthur is a regular rum

457
00:33:01,160 --> 00:33:04,760
Speaker 1: Bloomberg Radio has his own shows where he voices his

458
00:33:04,800 --> 00:33:09,479
Speaker 1: opinion and chats with various guests on on weekends. Uh,

459
00:33:09,560 --> 00:33:13,120
Speaker 1: it's always a fascinating conversation. There were a number of

460
00:33:13,160 --> 00:33:16,080
Speaker 1: subjects we didn't get to in the earlier part of

461
00:33:16,120 --> 00:33:19,680
Speaker 1: our conversation, and before I get too far, let's let's

462
00:33:20,160 --> 00:33:23,600
Speaker 1: click through those and get to the rest of our

463
00:33:24,480 --> 00:33:28,280
Speaker 1: of questions. First, A lot of people may not realize

464
00:33:28,440 --> 00:33:30,520
Speaker 1: we're here in New York City, which is part of

465
00:33:30,520 --> 00:33:35,160
Speaker 1: the great State of New York, and after the financial crisis,

466
00:33:35,760 --> 00:33:38,680
Speaker 1: it looked like New York State really beefed up their

467
00:33:38,720 --> 00:33:46,800
Speaker 1: own state financial regulatory apparatus because hey, we're here in

468
00:33:46,800 --> 00:33:49,760
Speaker 1: New York and all of these big banks are are

469
00:33:49,800 --> 00:33:52,640
Speaker 1: located here as well. What does the New York State

470
00:33:52,680 --> 00:33:58,040
Speaker 1: Department of Financial Services have to say about regulation of

471
00:33:58,040 --> 00:34:02,320
Speaker 1: of big financial brokers and big banks. Well, they took

472
00:34:02,360 --> 00:34:06,520
Speaker 1: over the responsibility of the Banking Commission and added to

473
00:34:06,600 --> 00:34:12,399
Speaker 1: that the banks and brokerage firms. So just pretend you're

474
00:34:12,520 --> 00:34:16,520
Speaker 1: a financial institution in New York. You're regulated by the

475
00:34:16,560 --> 00:34:21,200
Speaker 1: Attorney General, by the New Department of Financial Services, by

476
00:34:21,239 --> 00:34:25,360
Speaker 1: the SEC, by the United States Department of Justice, and

477
00:34:25,400 --> 00:34:32,279
Speaker 1: the New York City UH District attorney. That's quite a

478
00:34:32,320 --> 00:34:35,399
Speaker 1: mouthful of regulation. You would think that would keep people

479
00:34:35,440 --> 00:34:39,600
Speaker 1: on the straight and narrow. I think that the state

480
00:34:39,840 --> 00:34:45,120
Speaker 1: probably looks upon regulators as a source of revenue, and

481
00:34:45,239 --> 00:34:50,680
Speaker 1: I think that creates unintended consequences. Couldn't couldn't we say

482
00:34:50,719 --> 00:34:53,240
Speaker 1: the same thing about the Look at all the massive

483
00:34:53,320 --> 00:34:56,320
Speaker 1: fines we've seen. Isn't that the same true about Treasury?

484
00:34:56,320 --> 00:34:59,280
Speaker 1: It wasn't even Justice, it was Treasure Department and sec

485
00:34:59,400 --> 00:35:02,880
Speaker 1: issuing these giant fight. I don't think the federal regulators

486
00:35:03,760 --> 00:35:06,360
Speaker 1: look upon it so much as a source of revenue

487
00:35:07,040 --> 00:35:12,440
Speaker 1: as they do a measure of punishment. But nevertheless, I

488
00:35:12,480 --> 00:35:16,279
Speaker 1: think financial institutions in the State of New York are

489
00:35:16,320 --> 00:35:21,240
Speaker 1: probably overregulated, overregulated and spend a massive amount of money

490
00:35:22,160 --> 00:35:29,440
Speaker 1: on defending themselves and fending off the various competing interests

491
00:35:29,480 --> 00:35:34,440
Speaker 1: that seek to regulate them. Because regulators are there to

492
00:35:34,480 --> 00:35:38,799
Speaker 1: take action, to extract fines, to punish, They're not there

493
00:35:38,840 --> 00:35:41,919
Speaker 1: to praise good behavior, not a pat on the top

494
00:35:41,920 --> 00:35:43,680
Speaker 1: of the head and then keep doing what you're doing.

495
00:35:43,800 --> 00:35:47,919
Speaker 1: Regulators want to be recognized by scalps, and I think

496
00:35:47,960 --> 00:35:50,799
Speaker 1: doing business in the State of New York is a

497
00:35:50,800 --> 00:35:55,040
Speaker 1: pretty punishing experience for people in financial services. So we

498
00:35:55,080 --> 00:36:00,560
Speaker 1: went from radical deregulation and the shedding of all these

499
00:36:01,160 --> 00:36:05,960
Speaker 1: prophylactic measures to the opposite extreme. Now there's too much regulation. Ironical,

500
00:36:06,040 --> 00:36:09,360
Speaker 1: isn't it? And so what is will Will the pendulum

501
00:36:09,400 --> 00:36:13,080
Speaker 1: swing back to a balanced middle? Or we compel to

502
00:36:13,200 --> 00:36:16,520
Speaker 1: always be at one absurd extreme or the other? Well,

503
00:36:16,520 --> 00:36:20,719
Speaker 1: look at the pressures that are pro regulation and the

504
00:36:20,760 --> 00:36:24,719
Speaker 1: pressures that oppose regulation. In the state of New York.

505
00:36:25,600 --> 00:36:30,000
Speaker 1: Regulation is a source of revenue, and it's cloaked in

506
00:36:30,640 --> 00:36:36,160
Speaker 1: the garb of protecting investors. And that's suggesting that the

507
00:36:36,239 --> 00:36:40,960
Speaker 1: regulatory agencies aren't capable of doing the job. The SEC,

508
00:36:41,239 --> 00:36:44,920
Speaker 1: the CFTC, or the New York Attorney General or even

509
00:36:45,680 --> 00:36:49,879
Speaker 1: the New York State District Attorney or even the New

510
00:36:49,960 --> 00:36:56,080
Speaker 1: York State Attorney General. Uh, let's kill that ask the

511
00:36:56,160 --> 00:36:58,520
Speaker 1: question against what was it? What was the question? I

512
00:36:58,920 --> 00:37:02,320
Speaker 1: had asked? Oh, the extreme? We've gone from one extreme

513
00:37:02,320 --> 00:37:07,479
Speaker 1: to another. So are we compelled to always swing from

514
00:37:07,560 --> 00:37:10,640
Speaker 1: one ridiculous extreme to the other? Can we ever get

515
00:37:10,640 --> 00:37:15,239
Speaker 1: a balance in the middle. Well, we're certainly not compelled, Barry,

516
00:37:15,560 --> 00:37:21,080
Speaker 1: But why do we have a new state agency regulating

517
00:37:21,120 --> 00:37:25,360
Speaker 1: financial services if we already have the district attorney, the

518
00:37:25,440 --> 00:37:30,440
Speaker 1: State Attorney General, the U S Attorney, and the sec. Well,

519
00:37:30,440 --> 00:37:35,800
Speaker 1: the argument that the state made was during periods of exuberance,

520
00:37:36,360 --> 00:37:41,200
Speaker 1: everybody seems to forget their regulatory responsibility and back away

521
00:37:41,200 --> 00:37:44,080
Speaker 1: and not getting the way of a happy market. Well

522
00:37:44,080 --> 00:37:48,279
Speaker 1: why stop here? Why not say this new financial regulator

523
00:37:48,360 --> 00:37:52,719
Speaker 1: won't do the same thing when the next blow up occurs?

524
00:37:52,760 --> 00:37:54,880
Speaker 1: No reason the things they want, no, of course not.

525
00:37:55,200 --> 00:38:00,000
Speaker 1: But the point is the coordination between these various agencies

526
00:38:00,719 --> 00:38:03,680
Speaker 1: I think is not what it should be. And to

527
00:38:03,719 --> 00:38:07,719
Speaker 1: look upon regulation as a source of revenue, I think

528
00:38:07,840 --> 00:38:11,680
Speaker 1: is a mistake and hurts our markets and we'll drive

529
00:38:11,760 --> 00:38:14,120
Speaker 1: business out of the state of New York. So let's

530
00:38:14,239 --> 00:38:18,840
Speaker 1: my personal view. So let's talk about another new regulatory entity,

531
00:38:19,480 --> 00:38:24,960
Speaker 1: the Consumer Financial Protection Board. This was Elizabeth Warren's brainchild

532
00:38:25,160 --> 00:38:28,160
Speaker 1: while she was still a professor at Harvard Law School,

533
00:38:28,440 --> 00:38:32,080
Speaker 1: and UM ultimately was passed. What are your thoughts on

534
00:38:32,080 --> 00:38:37,080
Speaker 1: on that new agency. I think that new agency has

535
00:38:37,120 --> 00:38:42,839
Speaker 1: had a positive impact on our markets. I think that

536
00:38:43,400 --> 00:38:46,640
Speaker 1: so much of an agency is determined by its leadership.

537
00:38:47,280 --> 00:38:50,040
Speaker 1: If you get a bad leader and inept leader, or

538
00:38:50,120 --> 00:38:55,479
Speaker 1: a politicized leader, Uh, you'll run into problems. I think

539
00:38:55,840 --> 00:39:01,359
Speaker 1: Richard Cordray has been a balanced leader that has been

540
00:39:01,400 --> 00:39:09,280
Speaker 1: able to determine the difference between unre unreasonable regulation and

541
00:39:10,400 --> 00:39:14,600
Speaker 1: investor protection. I think he's implemented a number of changes

542
00:39:14,680 --> 00:39:20,000
Speaker 1: with respect to banking, the relationship between banks and consumers

543
00:39:20,000 --> 00:39:22,759
Speaker 1: that have been constructive. And I think the very dialogue

544
00:39:23,200 --> 00:39:27,480
Speaker 1: that he has created his healthy and makes our financial

545
00:39:27,520 --> 00:39:32,600
Speaker 1: institutions more sensitive to the small investor in supportive of

546
00:39:32,640 --> 00:39:35,400
Speaker 1: the agent. There was a lot of abuses that took

547
00:39:35,400 --> 00:39:40,279
Speaker 1: place beforehand that I thought it was a very obvious

548
00:39:41,000 --> 00:39:45,560
Speaker 1: set of circumstances. Forty pages of boilerplate for a credit card,

549
00:39:45,640 --> 00:39:48,319
Speaker 1: nobody knew what they were really signing, all sorts of

550
00:39:48,320 --> 00:39:51,759
Speaker 1: fees hidden and banking and checking accounts. And then my

551
00:39:51,840 --> 00:39:54,799
Speaker 1: favorite was the last. Even though they're all these disclosure

552
00:39:54,840 --> 00:39:59,080
Speaker 1: documents on mortgages, when they got when they got crazy,

553
00:39:59,120 --> 00:40:02,040
Speaker 1: when they got created of during the sub prime I

554
00:40:02,040 --> 00:40:04,400
Speaker 1: don't think people realize what they were really getting into.

555
00:40:04,600 --> 00:40:07,560
Speaker 1: I think that was the singular event that probably brought

556
00:40:07,560 --> 00:40:12,120
Speaker 1: about the creation of this agency, which was fought and

557
00:40:12,239 --> 00:40:17,880
Speaker 1: maligned by many in the Congress and Elizabeth Warren, to

558
00:40:17,960 --> 00:40:22,640
Speaker 1: her credit, stayed the course and really was useful in

559
00:40:22,680 --> 00:40:26,719
Speaker 1: bringing this about. But they do have a competent and

560
00:40:26,880 --> 00:40:30,920
Speaker 1: fair minded leader. If that changes, I think the rationale

561
00:40:30,920 --> 00:40:35,040
Speaker 1: for the agency becomes questionable. So many of these agencies

562
00:40:35,400 --> 00:40:41,799
Speaker 1: are a function of sound, effective, balanced regulation, not runaway

563
00:40:41,880 --> 00:40:48,200
Speaker 1: punitive regulation. So you mentioned Senator Warren, who has grown

564
00:40:48,200 --> 00:40:51,840
Speaker 1: in popularity for quite a while. Some people think in

565
00:40:52,000 --> 00:40:55,880
Speaker 1: subsegments of the population. There was a number of people

566
00:40:55,920 --> 00:40:58,840
Speaker 1: who thought she was going to run for presidents, or

567
00:40:58,840 --> 00:41:01,719
Speaker 1: at least for the nomination and against Hillary Clinton. She

568
00:41:01,760 --> 00:41:04,880
Speaker 1: said she wasn't running, and so far it um seems

569
00:41:04,880 --> 00:41:09,160
Speaker 1: like she's not running. But she recently raised some objections

570
00:41:09,239 --> 00:41:15,200
Speaker 1: to some nominees for the commission for the SEC Commission.

571
00:41:15,920 --> 00:41:18,480
Speaker 1: What's going on with with that? What? Why is she

572
00:41:18,600 --> 00:41:21,640
Speaker 1: objecting to some people? And we could talk a little

573
00:41:21,640 --> 00:41:24,360
Speaker 1: bit more how the commission has changed. This is a

574
00:41:24,440 --> 00:41:29,880
Speaker 1: very good issue because the responsibility for naming commissioners of

575
00:41:29,960 --> 00:41:35,840
Speaker 1: the SEC, which constitutionally is the President's responsibility. President nominates

576
00:41:35,840 --> 00:41:39,040
Speaker 1: the commission and the Senate approves. It is that the process, okay,

577
00:41:39,640 --> 00:41:46,359
Speaker 1: that has morphed into the Senate taking over the nominating process. Wait,

578
00:41:46,400 --> 00:41:49,680
Speaker 1: the Senate is nominating commissioners and then the Senator proves it.

579
00:41:49,800 --> 00:41:52,200
Speaker 1: That's uh, that's not what I learned in law school.

580
00:41:52,239 --> 00:41:57,400
Speaker 1: In effect, that's what's happening because commissioners of the SEC

581
00:41:57,719 --> 00:42:04,640
Speaker 1: now are coming from Congress staffs or certainly ideologically they

582
00:42:04,719 --> 00:42:09,920
Speaker 1: must coincide with the views of the leading party in

583
00:42:09,960 --> 00:42:13,320
Speaker 1: the Senate. Let me interrupt you there, because and again

584
00:42:13,360 --> 00:42:16,400
Speaker 1: I haven't been in grad school for many a decade,

585
00:42:16,880 --> 00:42:22,400
Speaker 1: but I learned that most when I studied securities regulation,

586
00:42:22,480 --> 00:42:27,439
Speaker 1: when I studied corporate law, it was always people who

587
00:42:27,520 --> 00:42:33,440
Speaker 1: were market structure experts, accounting experts, legal professors with a

588
00:42:33,560 --> 00:42:38,200
Speaker 1: background in securities law. That was when you were chairman.

589
00:42:38,560 --> 00:42:41,320
Speaker 1: That was certainly the case. And you're telling you're saying,

590
00:42:41,320 --> 00:42:43,600
Speaker 1: this is not how it is any longer. I'm saying

591
00:42:43,640 --> 00:42:48,000
Speaker 1: that the tension and friction and animosity that has colored

592
00:42:48,000 --> 00:42:53,040
Speaker 1: our political process in the past twelve to fifteen years

593
00:42:53,280 --> 00:42:58,360
Speaker 1: has transferred itself into the process of appointing not just

594
00:42:58,680 --> 00:43:04,640
Speaker 1: SEC commissioners but to every regulatory agency, so that those

595
00:43:04,680 --> 00:43:08,960
Speaker 1: agencies have now become far more ideological than ever before.

596
00:43:09,280 --> 00:43:14,120
Speaker 1: And I think the consumer in our markets are the

597
00:43:14,239 --> 00:43:18,840
Speaker 1: victims of this kind of polarization. A three to vote

598
00:43:19,360 --> 00:43:21,960
Speaker 1: is the norm. When I was at the commission, a

599
00:43:22,080 --> 00:43:24,839
Speaker 1: unanimous vote was the norm. So let me push back

600
00:43:24,880 --> 00:43:26,959
Speaker 1: against you a little bit. I'm gonna I'm gonna play

601
00:43:26,960 --> 00:43:32,200
Speaker 1: Devil's advocate and say, look, we elect presidents, and he's

602
00:43:32,239 --> 00:43:35,520
Speaker 1: either Let's look at the past two presidents. We elected

603
00:43:35,520 --> 00:43:39,759
Speaker 1: George W. Bush use of fiscal concern, a fairly conservative guy.

604
00:43:40,080 --> 00:43:44,200
Speaker 1: I'm gonna redo that. Um, Charlie just added it forward

605
00:43:44,239 --> 00:43:48,879
Speaker 1: to this, So let's look at at the politics of this.

606
00:43:49,480 --> 00:43:53,799
Speaker 1: We elect somebody who's conservative, like George Bush, isn't he

607
00:43:54,000 --> 00:43:59,520
Speaker 1: entitled to fill um, these appointees with conservative ideologies to

608
00:43:59,680 --> 00:44:03,200
Speaker 1: various commissions? And fast forward, we elect somebody who's more

609
00:44:03,280 --> 00:44:07,160
Speaker 1: left of center, like Barack Obama. Isn't he entitled to

610
00:44:07,239 --> 00:44:12,000
Speaker 1: have his political ideology represented on these commissions? Well? Remember

611
00:44:12,040 --> 00:44:16,279
Speaker 1: the law says that at least three members must be

612
00:44:16,960 --> 00:44:22,799
Speaker 1: from the party in power. But what is happening very

613
00:44:22,880 --> 00:44:28,680
Speaker 1: often is that you get Democratic Republicans and Republican Democrats

614
00:44:28,719 --> 00:44:34,960
Speaker 1: in these positions. Certainly ideologically they have to pass a test. Now,

615
00:44:35,400 --> 00:44:39,600
Speaker 1: you asked me before about Elizabeth Warren objecting to a

616
00:44:39,680 --> 00:44:43,880
Speaker 1: Democratic nominee. That's unusual when a senator from the same

617
00:44:43,960 --> 00:44:49,160
Speaker 1: party objects to a nominee of her president. And she's

618
00:44:49,160 --> 00:44:52,239
Speaker 1: certainly entitled to do that, and it's happened before. I

619
00:44:52,280 --> 00:44:55,440
Speaker 1: wish that it hadn't gone out to the media and

620
00:44:55,480 --> 00:44:59,920
Speaker 1: that this is something discussed. A president will undoubtedly consult

621
00:45:00,200 --> 00:45:07,560
Speaker 1: with his party members to decide whether a particular appointee

622
00:45:08,440 --> 00:45:12,680
Speaker 1: meets the test of fidelity to party principles. But why

623
00:45:12,760 --> 00:45:15,800
Speaker 1: why did Warren object to a nominee from her own party?

624
00:45:15,840 --> 00:45:18,960
Speaker 1: I mean, I understand she is a former Harvard law

625
00:45:19,680 --> 00:45:23,799
Speaker 1: professor and understands the legalities of the Commission as well

626
00:45:23,840 --> 00:45:27,120
Speaker 1: as anybody, but that's kind of unusual. Why why would

627
00:45:27,120 --> 00:45:30,000
Speaker 1: she raise an objection. I have not discussed this with her,

628
00:45:30,000 --> 00:45:32,960
Speaker 1: but what I read in the press was she objected

629
00:45:33,000 --> 00:45:38,359
Speaker 1: to the history of this appointee being one who represented

630
00:45:38,440 --> 00:45:43,279
Speaker 1: corporate interests and she felt that CONSU reported that she

631
00:45:43,440 --> 00:45:47,640
Speaker 1: felt that we needed commissioners who were more aligned with

632
00:45:47,719 --> 00:45:52,080
Speaker 1: consumer interests than corporate interests. And I understand that, so

633
00:45:52,120 --> 00:45:55,759
Speaker 1: that's that's not an unfair objection, But to me, it's

634
00:45:55,800 --> 00:45:59,360
Speaker 1: more fascinating she's objecting to the Democrat but happens to

635
00:45:59,360 --> 00:46:03,319
Speaker 1: the Republican. Having it emblazoned on the business pages just

636
00:46:03,719 --> 00:46:09,440
Speaker 1: fuels the continuing fight over commissioners and the determination of

637
00:46:09,520 --> 00:46:16,359
Speaker 1: Republican members of the Senate to get their candidates selected

638
00:46:16,520 --> 00:46:21,680
Speaker 1: rather for their ideological fidelity than for their knowledge of

639
00:46:21,719 --> 00:46:25,120
Speaker 1: our security laws. I just wish that Congress could take

640
00:46:25,120 --> 00:46:31,520
Speaker 1: a step backwards and appoint individuals who may be ideologically

641
00:46:31,560 --> 00:46:37,040
Speaker 1: aligned with their beliefs, but are experts in the security

642
00:46:37,120 --> 00:46:40,160
Speaker 1: laws and are balanced in their judgments so that the

643
00:46:40,160 --> 00:46:47,239
Speaker 1: Commission isn't perpetually locked in an ideologic uh blockage. So

644
00:46:47,280 --> 00:46:51,480
Speaker 1: it's three to Republican Democrat when it's a Republican in

645
00:46:51,520 --> 00:46:54,799
Speaker 1: the White House, and three to Democrat Republican when there's

646
00:46:54,840 --> 00:46:57,760
Speaker 1: a when there's a Democrat in the White House. So,

647
00:46:57,760 --> 00:47:00,040
Speaker 1: so how do you get past that log jam? Is

648
00:47:00,080 --> 00:47:05,000
Speaker 1: it really just finding structural experts and accounting experts and

649
00:47:05,000 --> 00:47:09,680
Speaker 1: and sec law experts or what's the alternative? I would

650
00:47:09,760 --> 00:47:15,880
Speaker 1: hope that the Senators, in approving the nominees of the President,

651
00:47:16,560 --> 00:47:22,719
Speaker 1: would take greater consideration of the individual's experience with securities

652
00:47:22,800 --> 00:47:27,920
Speaker 1: matters and the individual's balance. I think for any regulator,

653
00:47:28,040 --> 00:47:31,719
Speaker 1: balance is the key word, the ability to determine what

654
00:47:31,920 --> 00:47:36,840
Speaker 1: is overregulation and what is fair and reasonable regulation. That

655
00:47:37,040 --> 00:47:42,560
Speaker 1: probably is the most important critical characteristic of any regulator

656
00:47:42,640 --> 00:47:47,640
Speaker 1: in any regulatory body, rather than having them chosen for

657
00:47:47,800 --> 00:47:52,880
Speaker 1: party loyalty. So it's got to be expertise and pragmatism,

658
00:47:52,920 --> 00:47:59,160
Speaker 1: not balance, balance, not merely being ideologically pure. Yes, you

659
00:47:59,200 --> 00:48:02,919
Speaker 1: seem to be very very enthusiastic about this, Summle. I've

660
00:48:03,040 --> 00:48:07,799
Speaker 1: I've lived with a commission that had at one point

661
00:48:07,880 --> 00:48:12,040
Speaker 1: three Republicans and two Democrats and at one point three

662
00:48:12,040 --> 00:48:16,719
Speaker 1: Democrats and two Republicans, and we worked in a cooperative

663
00:48:16,760 --> 00:48:21,880
Speaker 1: way for eight years. Not one single time was a

664
00:48:21,920 --> 00:48:26,560
Speaker 1: recommendation overruled in eight years that worked. Were they three

665
00:48:26,560 --> 00:48:32,280
Speaker 1: two votes? You know? There were? They were almost always five?

666
00:48:32,400 --> 00:48:35,320
Speaker 1: Oh so, how much of that is a reflection of

667
00:48:35,320 --> 00:48:38,680
Speaker 1: of how the world has changed since the late nineties,

668
00:48:38,719 --> 00:48:41,319
Speaker 1: how the United States has changed, and how much of

669
00:48:41,360 --> 00:48:44,920
Speaker 1: it is just, you know, politics has become coarser and

670
00:48:45,600 --> 00:48:52,040
Speaker 1: more divisive and extended everywhere. Barry, I think that's probably true.

671
00:48:52,719 --> 00:48:55,239
Speaker 1: I think part of it is a function of leadership,

672
00:48:55,280 --> 00:48:58,440
Speaker 1: whether the head of an agency is the kind of

673
00:48:58,520 --> 00:49:03,239
Speaker 1: person that and make common cause with the commissioners that

674
00:49:03,320 --> 00:49:05,879
Speaker 1: work with him. I think part of it is luck.

675
00:49:05,920 --> 00:49:09,760
Speaker 1: If you run into commissioners who are looking for political gain,

676
00:49:09,840 --> 00:49:14,600
Speaker 1: they will try to harass the leadership, whoever the opposition.

677
00:49:14,640 --> 00:49:18,760
Speaker 1: Maybe there are a variety of factors that bring this about.

678
00:49:18,840 --> 00:49:23,080
Speaker 1: But I would ask the Congress and the administration again

679
00:49:23,719 --> 00:49:28,439
Speaker 1: to choose experts for these agencies rather than ideologues. So

680
00:49:29,040 --> 00:49:32,080
Speaker 1: politics is fine for Congress, but when it comes to

681
00:49:32,160 --> 00:49:36,320
Speaker 1: something as important as the SEC, put the ideology aside

682
00:49:36,360 --> 00:49:39,400
Speaker 1: and be pragmatic and get the job done. I would

683
00:49:39,400 --> 00:49:44,920
Speaker 1: be hopeful for this, which I think is probably unrealistic

684
00:49:44,960 --> 00:49:50,200
Speaker 1: in the political environment we are now experiencing. Okay, so

685
00:49:50,280 --> 00:49:54,160
Speaker 1: that seems um unrealistic. Hope, all right, we can we

686
00:49:54,160 --> 00:49:57,520
Speaker 1: can work with that. It seems that this has been

687
00:49:57,560 --> 00:50:01,040
Speaker 1: an ongoing problem, not just as SEC, but it's been

688
00:50:01,080 --> 00:50:05,840
Speaker 1: an issue across all the various regulatory entities from NASA,

689
00:50:06,239 --> 00:50:09,560
Speaker 1: even things like NASA and the e p A, as

690
00:50:09,560 --> 00:50:12,600
Speaker 1: well as the Department of Education and and other Maybe

691
00:50:14,560 --> 00:50:16,879
Speaker 1: just this at a certain point we have to get

692
00:50:16,880 --> 00:50:21,279
Speaker 1: beyond politics and just focus on doing the job. That

693
00:50:21,360 --> 00:50:23,960
Speaker 1: would be the goal. All right, So let me shift

694
00:50:24,000 --> 00:50:29,360
Speaker 1: gears um with you. We've talked about We've talked about

695
00:50:29,360 --> 00:50:32,080
Speaker 1: Dodd Frank. We've talked about the vulcal rule. We've talked

696
00:50:32,080 --> 00:50:35,640
Speaker 1: about who should be overseeing four oh one ks and

697
00:50:36,000 --> 00:50:40,719
Speaker 1: iras and the difference between the fiduciary standard and the

698
00:50:40,760 --> 00:50:45,680
Speaker 1: suitability standard. UM, We've we've talked about the commission itself.

699
00:50:46,400 --> 00:50:49,520
Speaker 1: I consider you're obviously an expert. I know very little

700
00:50:49,560 --> 00:50:52,560
Speaker 1: about this, so I hope I asked you good questions

701
00:50:53,280 --> 00:50:56,200
Speaker 1: about that subject. But let's let's shift gears a little bit.

702
00:50:56,640 --> 00:51:00,440
Speaker 1: One of the things I really enjoyed about our first

703
00:51:00,440 --> 00:51:03,400
Speaker 1: conversation the first time you were on it was almost

704
00:51:03,440 --> 00:51:07,480
Speaker 1: a year ago, as last summer, was how optimistic you

705
00:51:07,520 --> 00:51:13,440
Speaker 1: were about the future and how much you were hopeful

706
00:51:13,840 --> 00:51:17,640
Speaker 1: that this generation was going to find their way into

707
00:51:17,680 --> 00:51:21,799
Speaker 1: the labor market and start doing good things. Are you

708
00:51:21,840 --> 00:51:24,640
Speaker 1: still as optimistic as you were a year ago? Probably

709
00:51:24,680 --> 00:51:30,960
Speaker 1: more so, Barry. Where the political system may be broken,

710
00:51:31,120 --> 00:51:37,480
Speaker 1: where there may be a disharmony at that level, and

711
00:51:37,520 --> 00:51:40,400
Speaker 1: where we may look back and say, boy, this is

712
00:51:40,680 --> 00:51:45,680
Speaker 1: the most poisonous, the most corrupt environment that I've ever seen.

713
00:51:46,200 --> 00:51:49,360
Speaker 1: It really isn't. So if you look back in history,

714
00:51:49,520 --> 00:51:54,160
Speaker 1: we've had many periods in history much worse than the

715
00:51:54,239 --> 00:51:58,480
Speaker 1: period that we're in. And I'm involved in my personal life.

716
00:51:59,440 --> 00:52:03,880
Speaker 1: You know, broad variety of high tech companies on both

717
00:52:03,920 --> 00:52:06,640
Speaker 1: the East and the West Coast, and what I see

718
00:52:06,719 --> 00:52:12,600
Speaker 1: there in terms of the intelligence and commitment and dedication

719
00:52:13,520 --> 00:52:19,640
Speaker 1: of people involved in new technologies, in taking enormous risks,

720
00:52:20,200 --> 00:52:27,120
Speaker 1: in developing educational backgrounds that are far better than anything

721
00:52:27,160 --> 00:52:32,680
Speaker 1: that we experienced in our years. I'm very hopeful that

722
00:52:33,280 --> 00:52:37,600
Speaker 1: America will be leading, not following, in terms of business

723
00:52:37,640 --> 00:52:44,360
Speaker 1: and in terms of morality. I'm extremely optimistic about the future.

724
00:52:44,880 --> 00:52:48,160
Speaker 1: So I don't really think of you as a tech

725
00:52:48,360 --> 00:52:51,160
Speaker 1: sort of guy. But here you are that looks like

726
00:52:51,200 --> 00:52:54,959
Speaker 1: an Apple Watch on your wrist. How much of a

727
00:52:55,040 --> 00:52:59,560
Speaker 1: tech gadgethead are you? Oh? I'm total. I'm absolutely consumed

728
00:52:59,560 --> 00:53:02,759
Speaker 1: by it. Uh. I know we're charging your iPhone right

729
00:53:02,760 --> 00:53:06,920
Speaker 1: outside of the studio. How do you like the Apple Watch? Uh?

730
00:53:07,080 --> 00:53:09,520
Speaker 1: I like the Apple Watch, but it took me nearly

731
00:53:09,560 --> 00:53:12,360
Speaker 1: eight hours to learn how to use it, and I

732
00:53:12,400 --> 00:53:16,080
Speaker 1: think most consumers are not going to invest eight hours

733
00:53:16,120 --> 00:53:18,480
Speaker 1: in it. So I think we're going to have to

734
00:53:18,480 --> 00:53:21,920
Speaker 1: see iterations of the watch if it's really going to

735
00:53:21,960 --> 00:53:26,880
Speaker 1: take off. It's too complicated now for most people. The rule,

736
00:53:27,040 --> 00:53:29,400
Speaker 1: the good rule of thumb is, unless you're willing to

737
00:53:29,440 --> 00:53:32,479
Speaker 1: put the time and effort in, don't never, never, never

738
00:53:32,520 --> 00:53:36,240
Speaker 1: by the first one point oh of anything. You always

739
00:53:36,239 --> 00:53:39,719
Speaker 1: have to wait to subsequent iterations. It always becomes look

740
00:53:39,760 --> 00:53:43,440
Speaker 1: at Tesla. The first Tesla car was kinda yeah. The

741
00:53:43,480 --> 00:53:47,240
Speaker 1: new one is it looks spectacular right zero to sixty

742
00:53:47,239 --> 00:53:50,239
Speaker 1: and two point eight seconds. That's those are crazy. Those

743
00:53:50,280 --> 00:53:55,360
Speaker 1: are Bugatti viron one point six million dollar numbers are

744
00:53:55,400 --> 00:54:02,000
Speaker 1: the most visible of technology. Think about those aspects of technology.

745
00:54:02,160 --> 00:54:07,080
Speaker 1: One company that I'm involved with is developing a derivatives

746
00:54:07,160 --> 00:54:13,000
Speaker 1: contract which will enable banks to layoff consumer loan risks,

747
00:54:13,560 --> 00:54:21,200
Speaker 1: which are capital intensive risks. Another company is an online

748
00:54:22,200 --> 00:54:25,799
Speaker 1: um It's called motif. Oh, I'm familiar with them. Sure,

749
00:54:26,080 --> 00:54:31,000
Speaker 1: you can create your own composite basket of stocks following

750
00:54:31,040 --> 00:54:33,880
Speaker 1: any given theme you want, and you push one button

751
00:54:33,960 --> 00:54:36,279
Speaker 1: and you buy all the stocks at a very inexpensive

752
00:54:36,800 --> 00:54:41,799
Speaker 1: transaction costs. Another one is bit pay, which uses bitcoin

753
00:54:41,920 --> 00:54:48,240
Speaker 1: as a transaction to buy merchandise. Microsoft is among companies

754
00:54:48,280 --> 00:54:52,839
Speaker 1: that will accept bitcoin for merchandise. So the gentleman who

755
00:54:52,920 --> 00:54:56,799
Speaker 1: runs motif, what is his name are Deep Walley. He

756
00:54:56,880 --> 00:55:00,000
Speaker 1: and I are on a board together of another technolog

757
00:55:00,000 --> 00:55:03,200
Speaker 1: algy company, and since it's private, I don't want to

758
00:55:03,200 --> 00:55:06,480
Speaker 1: talk about it. But what they do is it's not

759
00:55:06,640 --> 00:55:09,200
Speaker 1: peer to peer like you see where people are making

760
00:55:09,239 --> 00:55:13,800
Speaker 1: small loans. It's a more commercial peer to peer lending

761
00:55:13,880 --> 00:55:17,080
Speaker 1: for real estate, where a buyer and a seller of

762
00:55:17,120 --> 00:55:20,399
Speaker 1: real estate loans big commercial loans are able to get

763
00:55:20,440 --> 00:55:25,160
Speaker 1: together and actually be much more productive efficient. Um. It's

764
00:55:25,200 --> 00:55:29,279
Speaker 1: really fascinating and I both are on their board of advisors.

765
00:55:29,640 --> 00:55:33,919
Speaker 1: The changes that technology and it's the phrase these days

766
00:55:34,400 --> 00:55:39,959
Speaker 1: is called fintech, the financial technology world that's changing. It's

767
00:55:40,000 --> 00:55:42,920
Speaker 1: fascinating what's taking place in that space. It really is,

768
00:55:43,080 --> 00:55:48,719
Speaker 1: and as a source of lending, not not just one company,

769
00:55:48,760 --> 00:55:51,960
Speaker 1: but there are dozens and dozens of companies that are

770
00:55:52,000 --> 00:55:56,200
Speaker 1: taking the banks on directly, and the banks themselves are

771
00:55:56,239 --> 00:55:59,759
Speaker 1: looking at some of these services. They're examining bitcoin rather

772
00:56:00,360 --> 00:56:05,240
Speaker 1: than rejecting it, and I think the consumer is the beneficiary.

773
00:56:05,320 --> 00:56:11,520
Speaker 1: There are I'm on I'm an advisor to another remarkable

774
00:56:11,560 --> 00:56:18,080
Speaker 1: company called a firm, which provides alternative lending for millennials

775
00:56:18,120 --> 00:56:22,520
Speaker 1: who really reject the notion of credit cards. And bank loans,

776
00:56:23,280 --> 00:56:27,000
Speaker 1: and a firm has developed the technology of approving credit

777
00:56:27,560 --> 00:56:33,080
Speaker 1: within seconds after the consumer goes online to make a purchase,

778
00:56:33,840 --> 00:56:37,359
Speaker 1: and the consumer then is able to take a loan

779
00:56:37,480 --> 00:56:40,360
Speaker 1: from a firm that they'd have to fill out lots

780
00:56:40,360 --> 00:56:44,120
Speaker 1: of forms and papers to do it in more conventional ways.

781
00:56:44,200 --> 00:56:46,640
Speaker 1: So a friend of mine used to work for a firm.

782
00:56:46,920 --> 00:56:49,520
Speaker 1: They got bought by Yahoo. He moved out to California.

783
00:56:49,880 --> 00:56:53,520
Speaker 1: He's a serial entrepreneur's built and sold. This is his

784
00:56:53,640 --> 00:56:57,120
Speaker 1: third or fourth company. What this company did? You mentioned

785
00:56:57,160 --> 00:57:00,840
Speaker 1: bit pay. So there's a huge issue with entity fraud

786
00:57:01,000 --> 00:57:04,880
Speaker 1: and the ability to know who's really who and what

787
00:57:05,160 --> 00:57:10,279
Speaker 1: underlines bitcoin is something called the blockchain, which is how

788
00:57:10,400 --> 00:57:13,640
Speaker 1: the mathematical way that you can tell this is really

789
00:57:13,640 --> 00:57:18,640
Speaker 1: this person's transaction and this coin was sold to this person. Well,

790
00:57:18,840 --> 00:57:22,960
Speaker 1: they're in the midst of creating this technology that allows

791
00:57:23,160 --> 00:57:28,680
Speaker 1: banks to instantly authenticate a person by this blockchain, and

792
00:57:28,720 --> 00:57:33,520
Speaker 1: in theory, it's gonna do wonders for stopping identity theft,

793
00:57:33,600 --> 00:57:37,640
Speaker 1: stopping those sorts of frauds, allowing banks and brokerage firms

794
00:57:37,680 --> 00:57:42,080
Speaker 1: and other large financial institutions. Sounds like life Masters, which

795
00:57:42,280 --> 00:57:46,440
Speaker 1: is which life Masters. Now I know that name. She

796
00:57:46,640 --> 00:57:49,520
Speaker 1: was at JP Morgan and now has formed a company

797
00:57:49,600 --> 00:57:53,440
Speaker 1: that sounds like it's doing the very thing you're talking about. Okay,

798
00:57:53,440 --> 00:57:55,439
Speaker 1: that's where I know the name from JP Morgan. What's

799
00:57:55,440 --> 00:57:59,280
Speaker 1: the name of our company? Okay, I'll look that up.

800
00:57:59,320 --> 00:58:02,240
Speaker 1: That's really interesting. But when you stop and think about

801
00:58:02,240 --> 00:58:07,640
Speaker 1: that underlying chain, which you know you couldn't issue coins

802
00:58:07,680 --> 00:58:10,560
Speaker 1: if there wasn't a way to to validate and verify

803
00:58:10,680 --> 00:58:14,960
Speaker 1: it mathematically, turning that into a form of identity is

804
00:58:15,040 --> 00:58:18,480
Speaker 1: really quite fascinating. Yes, it is, and I think that

805
00:58:19,000 --> 00:58:22,400
Speaker 1: it's been rejected by the banks for years, but I

806
00:58:22,440 --> 00:58:27,040
Speaker 1: think they now regard it quite seriously, so that Goldman

807
00:58:27,080 --> 00:58:30,720
Speaker 1: Sachs made an investment in several of these companies, And

808
00:58:30,760 --> 00:58:35,920
Speaker 1: I know every major banking institution is aware of the

809
00:58:35,920 --> 00:58:41,120
Speaker 1: implications of bitcoin and is studying its applicability to all

810
00:58:41,200 --> 00:58:44,680
Speaker 1: financial services. You know, there's a conference I go to

811
00:58:45,120 --> 00:58:47,200
Speaker 1: every couple of years. I don't want to go every

812
00:58:47,280 --> 00:58:50,240
Speaker 1: year because it's overwhelming, but I go every two or

813
00:58:50,240 --> 00:58:52,560
Speaker 1: three years, and it's out in San Diego, and it's

814
00:58:52,680 --> 00:58:59,360
Speaker 1: a run of either college students or recent college grads. Uh,

815
00:58:59,600 --> 00:59:05,360
Speaker 1: most technology, some fin tech some actual tech, and you

816
00:59:05,440 --> 00:59:10,320
Speaker 1: see the creativity and the innovation and the drive that

817
00:59:10,440 --> 00:59:13,560
Speaker 1: these kids have. And it's hard not to be optimistic

818
00:59:14,000 --> 00:59:19,320
Speaker 1: about the future when that generation that, you know, when

819
00:59:19,400 --> 00:59:23,800
Speaker 1: I grew up, the Internet was not really fully formed

820
00:59:23,880 --> 00:59:27,240
Speaker 1: until many years later. These kids not only grew up

821
00:59:27,280 --> 00:59:31,040
Speaker 1: with the Internet, but they've you know, the most of

822
00:59:31,120 --> 00:59:36,560
Speaker 1: their adult life. There's always been smartphones there, there's laptops

823
00:59:36,560 --> 00:59:40,640
Speaker 1: were ubiquitous. It wasn't what's this computer thing, I should

824
00:59:40,680 --> 00:59:43,640
Speaker 1: really learn how to use use this. It's second nature.

825
00:59:43,680 --> 00:59:46,320
Speaker 1: It's like the telephone to the rest of us. And

826
00:59:46,840 --> 00:59:52,200
Speaker 1: starting from that base, their outlook and their creativity really

827
00:59:52,280 --> 00:59:56,400
Speaker 1: quite amazing. If we're thinking about a new form of currency,

828
00:59:56,520 --> 01:00:01,720
Speaker 1: whether it's bitcoin or some iteration of that, I'm not sure.

829
01:00:02,240 --> 01:00:06,280
Speaker 1: If we're thinking about space travel, if we're thinking about

830
01:00:07,280 --> 01:00:13,600
Speaker 1: automated transportation in the form of driverless cars, and these

831
01:00:13,600 --> 01:00:18,600
Speaker 1: are all being done by people in their forties and fifties,

832
01:00:19,680 --> 01:00:24,960
Speaker 1: that says something about Americans. It says something about the future,

833
01:00:25,040 --> 01:00:30,000
Speaker 1: and I find it enormously exciting. It's so hard to

834
01:00:30,120 --> 01:00:33,200
Speaker 1: know what fifty years hence is going to look like.

835
01:00:33,760 --> 01:00:37,480
Speaker 1: Someone showed me this article about from the New York

836
01:00:37,520 --> 01:00:40,280
Speaker 1: Times from like thirty years ago, and it was one

837
01:00:40,320 --> 01:00:43,960
Speaker 1: of these early looks at self driving cars. And the

838
01:00:44,000 --> 01:00:48,040
Speaker 1: funniest part about the self driving cars the little cartoon

839
01:00:48,120 --> 01:00:50,920
Speaker 1: graphic with it a little um animated, I don't want

840
01:00:50,920 --> 01:00:54,720
Speaker 1: to say animated, but just just illustration. And there's a

841
01:00:54,760 --> 01:00:57,760
Speaker 1: person sitting in the self driving car reading an open

842
01:00:57,800 --> 01:01:02,400
Speaker 1: paper like a New York Times on on print matter.

843
01:01:02,480 --> 01:01:05,439
Speaker 1: It's it's they got the self driving car part right.

844
01:01:05,840 --> 01:01:08,160
Speaker 1: But the idea that all these things are going to

845
01:01:08,240 --> 01:01:11,520
Speaker 1: flat screens and kindles and things like that was so

846
01:01:11,560 --> 01:01:15,439
Speaker 1: far beyond the comprehension of people just twenty years ago.

847
01:01:15,840 --> 01:01:17,600
Speaker 1: So the question I have to ask you is what

848
01:01:17,760 --> 01:01:22,600
Speaker 1: is beyond our comprehension twenty years Hence, oh, travel to

849
01:01:22,680 --> 01:01:31,280
Speaker 1: the moon, travel to other other planets. Uh, I'll tell

850
01:01:31,320 --> 01:01:35,680
Speaker 1: you what is ahead? T plus zero? How about that?

851
01:01:36,120 --> 01:01:39,680
Speaker 1: In terms of settling transactions, like you do a trade

852
01:01:39,720 --> 01:01:43,600
Speaker 1: and it settles instantly. We're fighting now about T plus two? Right?

853
01:01:43,880 --> 01:01:48,640
Speaker 1: Why not plus one the next day? Listen, you deposit

854
01:01:48,680 --> 01:01:52,360
Speaker 1: a check. It's clear. I remember depositing checks and it

855
01:01:52,400 --> 01:01:55,720
Speaker 1: would take forever, days and days and days. That's what

856
01:01:55,800 --> 01:01:58,680
Speaker 1: the bitcoin is. So so now you deposit a check

857
01:01:58,840 --> 01:02:02,240
Speaker 1: in the bank and the money shows up the next day.

858
01:02:02,280 --> 01:02:07,040
Speaker 1: It's it's amazing, it's such People don't realize how much

859
01:02:07,080 --> 01:02:10,840
Speaker 1: of a huge improvement that is over what we saw

860
01:02:11,840 --> 01:02:14,680
Speaker 1: ten twenty years ago. Barry. We've seen more in the

861
01:02:14,760 --> 01:02:19,720
Speaker 1: past twelve years and probably the past fifty years have

862
01:02:19,880 --> 01:02:25,360
Speaker 1: experienced in terms of dramatic technological change. And I think

863
01:02:25,400 --> 01:02:31,040
Speaker 1: we've got the people, the brain power, the dedication to

864
01:02:31,240 --> 01:02:40,040
Speaker 1: deliver on it. I'm really uh surprised, amazed and enthusiastic

865
01:02:40,120 --> 01:02:44,160
Speaker 1: about the quality of people being turned out by our

866
01:02:44,280 --> 01:02:49,840
Speaker 1: educational institutions and involving themselves not just in trading pieces

867
01:02:49,880 --> 01:02:54,040
Speaker 1: of paper, but coming up with applications that will change

868
01:02:54,160 --> 01:02:57,480
Speaker 1: lives and change society. You change the world. A couple

869
01:02:57,480 --> 01:02:59,919
Speaker 1: of years ago, we we talked earlier about Paul Volke

870
01:03:00,280 --> 01:03:03,680
Speaker 1: and and what a man of integrity um he is.

871
01:03:04,640 --> 01:03:08,360
Speaker 1: He had given a speech where he jokingly said, the

872
01:03:08,440 --> 01:03:11,280
Speaker 1: only financial innovation there has been in the past fifty

873
01:03:11,360 --> 01:03:14,200
Speaker 1: years has been the A T M. And that was

874
01:03:14,240 --> 01:03:18,080
Speaker 1: a little tongue in cheek, but the truth is, in

875
01:03:18,160 --> 01:03:23,520
Speaker 1: the intervening five years we've seen a run of financial technology.

876
01:03:23,680 --> 01:03:27,480
Speaker 1: He's it's almost like he shot the starting gun, and

877
01:03:27,520 --> 01:03:31,240
Speaker 1: all these little things that were kind of in development

878
01:03:31,280 --> 01:03:34,080
Speaker 1: before they all came running out very very quickly. I

879
01:03:34,120 --> 01:03:39,280
Speaker 1: think he's surprised when he here's about a bitcoin, when

880
01:03:39,320 --> 01:03:44,800
Speaker 1: he hears about various payment systems and transfer systems. I

881
01:03:44,840 --> 01:03:50,440
Speaker 1: think even he's amazed by what's happening on the software side,

882
01:03:51,040 --> 01:03:56,840
Speaker 1: whether it's the automated algorithmic um asset managers derisively called

883
01:03:56,920 --> 01:04:02,080
Speaker 1: robo advisors, to the variety of different ways that funding can.

884
01:04:02,240 --> 01:04:07,200
Speaker 1: You look at the crowdsource fundings for something like Oculus Rift.

885
01:04:07,920 --> 01:04:10,440
Speaker 1: This is a company that you know, was putting together

886
01:04:10,560 --> 01:04:15,200
Speaker 1: a handful of of virtual reality headsets and just scraping by.

887
01:04:15,320 --> 01:04:19,680
Speaker 1: They do a uh Kickstarter campaign, and the next thing

888
01:04:19,720 --> 01:04:22,480
Speaker 1: you know, they're bought by Facebook for billions of dollars.

889
01:04:22,920 --> 01:04:26,640
Speaker 1: That sort of thing was not possible ten years ago.

890
01:04:27,600 --> 01:04:30,440
Speaker 1: That's true, and there are some downsides to that as well.

891
01:04:30,480 --> 01:04:36,480
Speaker 1: The protections that kept uh, this kind of thing from

892
01:04:36,520 --> 01:04:42,320
Speaker 1: happening in the past were intended to protect investors from scamsters,

893
01:04:43,360 --> 01:04:46,080
Speaker 1: and there's certainly are plenty of scammers all over the

894
01:04:46,120 --> 01:04:48,840
Speaker 1: place these days. They don't they don't go away. They're

895
01:04:48,960 --> 01:04:51,520
Speaker 1: like roaches. You flick on the light. They just find

896
01:04:51,560 --> 01:04:54,959
Speaker 1: a different crevice to to hide in. But I think

897
01:04:55,000 --> 01:05:01,400
Speaker 1: in balancing those interests with the benefits of having greater employment,

898
01:05:01,800 --> 01:05:10,640
Speaker 1: greater technological advancement, I think the kickstarter campaigns probably are

899
01:05:10,680 --> 01:05:15,920
Speaker 1: a net benefit and acknowledging the risks that are involved,

900
01:05:16,560 --> 01:05:21,640
Speaker 1: I think our society is still better off with more

901
01:05:21,680 --> 01:05:24,920
Speaker 1: people doing more things than they ever did before. So

902
01:05:24,920 --> 01:05:27,360
Speaker 1: so let's sum up our conversation, because I know you

903
01:05:27,440 --> 01:05:32,120
Speaker 1: have places to go and people to see. UM. On

904
01:05:32,160 --> 01:05:35,760
Speaker 1: the one hand, we went from a regulatory extreme of

905
01:05:35,960 --> 01:05:40,440
Speaker 1: radical deregulation to excess of regulation. We really need to

906
01:05:40,480 --> 01:05:44,880
Speaker 1: be somewhere in the middle. You seem frustrated by the

907
01:05:44,920 --> 01:05:52,000
Speaker 1: political politicalization of the process of nominating commissioners and indeed

908
01:05:52,040 --> 01:05:57,920
Speaker 1: how divisive politics has become across many regulatory entities. But

909
01:05:58,640 --> 01:06:02,840
Speaker 1: clearly you are very optimistic about the future of finance

910
01:06:03,320 --> 01:06:07,480
Speaker 1: and the future of America given given where we are today.

911
01:06:07,640 --> 01:06:11,400
Speaker 1: Is that a fair fair assessment? That's a fair assessment, Arthur.

912
01:06:11,560 --> 01:06:15,400
Speaker 1: I can't thank you enough for for your time and

913
01:06:15,440 --> 01:06:20,440
Speaker 1: your insight and your ability to really flesh out a

914
01:06:20,520 --> 01:06:25,880
Speaker 1: discussion UM on regulations. I hope our listeners have enjoyed

915
01:06:26,000 --> 01:06:30,360
Speaker 1: listening to our conversation about regulation. If you enjoy these

916
01:06:30,400 --> 01:06:33,520
Speaker 1: sorts of discussions, be sure and look up an intro

917
01:06:33,640 --> 01:06:36,840
Speaker 1: Down an Inch on Apple iTunes. You can see all

918
01:06:37,000 --> 01:06:42,120
Speaker 1: fifty two of our previous conversations. You're actually the first

919
01:06:42,240 --> 01:06:46,000
Speaker 1: um Masters in Business of our second year. The show

920
01:06:46,040 --> 01:06:48,640
Speaker 1: has now been on a year and a week, so

921
01:06:49,000 --> 01:06:51,960
Speaker 1: thank you so much for being our inaugural guest for

922
01:06:52,000 --> 01:06:55,280
Speaker 1: our second year. Be sure and check out my daily

923
01:06:55,400 --> 01:07:00,000
Speaker 1: column on Bloomberg View dot com. Follow me on Twitter

924
01:07:00,000 --> 01:07:03,360
Speaker 1: her at rid Halts Uh special thanks to my researcher

925
01:07:03,480 --> 01:07:09,040
Speaker 1: Mike Batnick, to our engineer Matt and to our producer

926
01:07:09,120 --> 01:07:12,360
Speaker 1: Charlie Valmer. I'm Barry Rid Halts. You've been listening to

927
01:07:12,440 --> 01:07:14,920
Speaker 1: Masters in Business on Bloomberg Radio.