1 00:00:02,200 --> 00:00:06,800 Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg Radio. 2 00:00:09,720 --> 00:00:12,799 Speaker 1: This week on the podcast, I have an extra special guest. 3 00:00:12,920 --> 00:00:17,640 Speaker 1: His name is Jim Milstein, and he has a fascinating history, uh, 4 00:00:18,120 --> 00:00:22,000 Speaker 1: not just in the worlds of corporate restructuring, but related 5 00:00:22,040 --> 00:00:25,520 Speaker 1: to the financial crisis and the restructuring of A I 6 00:00:25,680 --> 00:00:30,480 Speaker 1: G and a variety of other um debacles. He's had 7 00:00:30,520 --> 00:00:33,199 Speaker 1: a front row seat to. Uh. If you are at 8 00:00:33,280 --> 00:00:37,599 Speaker 1: all a student of how companies go bad and what 9 00:00:37,680 --> 00:00:40,559 Speaker 1: we do with them afterwards, you're going to find this 10 00:00:41,200 --> 00:00:45,400 Speaker 1: to be an absolutely fascinating conversation. He has a deep 11 00:00:45,520 --> 00:00:50,040 Speaker 1: expertise in this space, starting out at Cleary Gottlieb, going 12 00:00:50,080 --> 00:00:55,160 Speaker 1: to Lazard Frere's, launching his own firm, Milstein and Company, 13 00:00:55,160 --> 00:00:59,440 Speaker 1: which was recently purchased by Guggenheim Securities, and Dead Center 14 00:00:59,560 --> 00:01:02,880 Speaker 1: in the middle of that being the chief restructuring officer 15 00:01:02,920 --> 00:01:06,280 Speaker 1: at the Treasury Department, in the middle of the bailouts 16 00:01:06,400 --> 00:01:09,880 Speaker 1: um oh nine ten eleven. So I found this to 17 00:01:09,920 --> 00:01:13,960 Speaker 1: be an absolutely intriguing conversation, and I suspect you will 18 00:01:14,000 --> 00:01:18,240 Speaker 1: as well. With no further ado my conversation with Jim Milstein, 19 00:01:21,720 --> 00:01:25,039 Speaker 1: I'm Barry Ridholts. You're listening to Master's in Business on 20 00:01:25,080 --> 00:01:29,360 Speaker 1: Bloomberg Radio. My special guest this week is Jim Milstein. 21 00:01:29,840 --> 00:01:33,560 Speaker 1: He is the co chairman of Guggenheim's Securities Uh. He 22 00:01:33,640 --> 00:01:36,400 Speaker 1: comes to us with a bachelor's from Princeton a master's 23 00:01:36,400 --> 00:01:40,440 Speaker 1: from Berkeley. He graduated with a degree in law from Columbia. 24 00:01:40,959 --> 00:01:45,160 Speaker 1: Currently he's an adjunct professor at Georgetown University Law Center. 25 00:01:45,640 --> 00:01:50,160 Speaker 1: But perhaps most interesting for our purposes, he was the 26 00:01:50,240 --> 00:01:54,360 Speaker 1: Chief Restructuring Officer at Treasury from two thousand nine to 27 00:01:54,440 --> 00:01:58,640 Speaker 1: two thousand eleven, responsible for oversight and management of Uncle 28 00:01:58,720 --> 00:02:04,360 Speaker 1: Sam's la just financial sector rescues. Indeed, he was the 29 00:02:04,400 --> 00:02:09,959 Speaker 1: principal architect of the restructuring of American International Group. Jim Milstein, 30 00:02:10,360 --> 00:02:13,560 Speaker 1: Welcome to Bloomberg. Great to be here. Thanks. So you 31 00:02:13,680 --> 00:02:17,280 Speaker 1: have a fascinating background. You begin your career as a 32 00:02:17,360 --> 00:02:21,320 Speaker 1: lawyer at Cleary Gottlieb. What did you imagine your career 33 00:02:21,400 --> 00:02:25,000 Speaker 1: was gonna look like when you first started as an attorney. Well, 34 00:02:25,040 --> 00:02:27,320 Speaker 1: like many attorneys, I kind of wandered into my first 35 00:02:27,400 --> 00:02:30,280 Speaker 1: job without a real clear vision of what I was 36 00:02:30,320 --> 00:02:33,799 Speaker 1: gonna do. But um, you know, Reagan had gotten elected. 37 00:02:33,880 --> 00:02:37,280 Speaker 1: I had spent a couple of years out of Berkeley 38 00:02:37,360 --> 00:02:40,079 Speaker 1: being a policy analyst and working on what was then 39 00:02:40,120 --> 00:02:44,040 Speaker 1: called industrial policy, which was something that the United States 40 00:02:44,600 --> 00:02:48,440 Speaker 1: probably implements only through the Defense Department UH and UM, 41 00:02:49,600 --> 00:02:51,679 Speaker 1: but we had been part of a small group of 42 00:02:51,720 --> 00:02:54,360 Speaker 1: scholars who were trying to urge the United States to 43 00:02:54,480 --> 00:02:57,800 Speaker 1: deal with the then Japanese threat to our electronics and 44 00:02:57,840 --> 00:03:03,840 Speaker 1: semiconductor and steele an automobile industry is by actually coordinating tariff, trade, tax, 45 00:03:04,280 --> 00:03:09,160 Speaker 1: and investment policy the way Trump is doing that. Well yeah, 46 00:03:09,200 --> 00:03:13,639 Speaker 1: maybe not quite not so coordinated. Yeah, but the basic 47 00:03:13,720 --> 00:03:17,040 Speaker 1: premises we should be proactive here. Yeah, well, you know 48 00:03:17,120 --> 00:03:19,440 Speaker 1: other countries are right. We were dealing with the mercantist 49 00:03:19,560 --> 00:03:23,119 Speaker 1: nation in Japan, really Germany the same after World War Two. 50 00:03:23,280 --> 00:03:27,000 Speaker 1: China is obviously now engaged in the signal signs of yeah, 51 00:03:27,000 --> 00:03:28,760 Speaker 1: the same kinds of behavior. But they've all learned from 52 00:03:28,800 --> 00:03:31,200 Speaker 1: each other. You know, the Koreans learned from the Japanese, 53 00:03:31,200 --> 00:03:33,360 Speaker 1: the Chinese learned from both of them, and they have 54 00:03:33,400 --> 00:03:38,640 Speaker 1: a coordinated policy of credit, investment, tax, trade, UH in 55 00:03:38,720 --> 00:03:42,440 Speaker 1: order to promote domestic employment and production. And you know, 56 00:03:42,440 --> 00:03:45,400 Speaker 1: the United States, we've taken a more free market hands off. 57 00:03:45,480 --> 00:03:48,040 Speaker 1: Le's a fair approach, and you can see the consequences now, 58 00:03:48,880 --> 00:03:52,480 Speaker 1: um as we find ourselves in a much more competitive environment. Anyway, 59 00:03:52,960 --> 00:03:55,040 Speaker 1: low story short spent a lot of a couple of 60 00:03:55,120 --> 00:03:58,440 Speaker 1: years working on those kinds of issues. Reagan gets elected, 61 00:03:58,440 --> 00:04:03,440 Speaker 1: we're now in the You know, Reagan Thatcher dismantle the 62 00:04:03,520 --> 00:04:08,200 Speaker 1: welfare state. UH, industrial policy is probably the never going 63 00:04:08,240 --> 00:04:10,360 Speaker 1: to be on that agenda. So I determined, instead of 64 00:04:10,360 --> 00:04:13,360 Speaker 1: going back to Washington and working in the government, I'm 65 00:04:13,400 --> 00:04:17,080 Speaker 1: gonna work for a liberal international law firm, Cleary Gottlieb 66 00:04:18,080 --> 00:04:22,520 Speaker 1: that helped create the predecessor to the European Union after 67 00:04:22,560 --> 00:04:24,919 Speaker 1: World War Two. A group of it was founded by 68 00:04:24,960 --> 00:04:29,440 Speaker 1: a group of State Department UM officials in Paris and 69 00:04:29,480 --> 00:04:33,120 Speaker 1: Washington simultaneously, and they helped create the Iron and Steel Union, 70 00:04:33,160 --> 00:04:36,120 Speaker 1: which was the precursor of the EU. So how do 71 00:04:36,160 --> 00:04:40,040 Speaker 1: you transition from Cleary Gottlieb to Lezard Freres. That doesn't 72 00:04:40,080 --> 00:04:42,919 Speaker 1: seem like a natural path. Well, I had been working 73 00:04:43,000 --> 00:04:47,440 Speaker 1: on the Lazard and clearly shared a client called Pan 74 00:04:47,480 --> 00:04:51,239 Speaker 1: American Airways, which was the dominant international carrier in the fifties, 75 00:04:51,240 --> 00:04:55,720 Speaker 1: sixties and seventies and inside PanAm and disappeared into the 76 00:04:55,760 --> 00:04:58,760 Speaker 1: dustbin of history. But in the fifties, sixties, seventies, and 77 00:04:59,160 --> 00:05:02,880 Speaker 1: eighties it was the dominant international carrier for the United States. 78 00:05:03,040 --> 00:05:06,599 Speaker 1: It fell on hard times as markets were deregulated and 79 00:05:06,640 --> 00:05:10,400 Speaker 1: they found themselves uh subject to competition they really couldn't 80 00:05:10,440 --> 00:05:14,200 Speaker 1: handle because they were a product of a regulated industry, 81 00:05:14,800 --> 00:05:20,040 Speaker 1: and they ultimately went bankrupt. Blazard and Cleary shared it. 82 00:05:20,040 --> 00:05:22,560 Speaker 1: It was my first big debtor case as a lawyer, 83 00:05:23,640 --> 00:05:26,840 Speaker 1: running in effect and orderly liquidation of Panama, selling its 84 00:05:26,920 --> 00:05:29,760 Speaker 1: roots off to United and to American and hither and 85 00:05:29,880 --> 00:05:33,880 Speaker 1: yon and uh. And at the end of the case, 86 00:05:34,560 --> 00:05:36,360 Speaker 1: Felix wrote and called me and said during the wrong 87 00:05:36,400 --> 00:05:39,520 Speaker 1: business she really should be a banker. And I resisted 88 00:05:39,560 --> 00:05:43,600 Speaker 1: then that was like nine two or nine. I resisted 89 00:05:43,720 --> 00:05:48,320 Speaker 1: changing my career then. But in nineteen nine they came 90 00:05:48,360 --> 00:05:51,760 Speaker 1: calling again. And after I was working on a large 91 00:05:51,760 --> 00:05:56,679 Speaker 1: restructuring in Korea called day Wu. They had giant company 92 00:05:56,720 --> 00:05:59,960 Speaker 1: they again one of the one of the Korean kiddets. 93 00:06:00,040 --> 00:06:04,520 Speaker 1: So their version UH and you know, trading company of 94 00:06:04,520 --> 00:06:10,160 Speaker 1: steel company, electronics company, textile company, finance, real estate. The 95 00:06:10,200 --> 00:06:12,599 Speaker 1: whole nine yards ten percent of the Korean economy and 96 00:06:12,680 --> 00:06:15,440 Speaker 1: one company under one roof what could go wrong with that? 97 00:06:15,600 --> 00:06:17,599 Speaker 1: What can go wrong with that? And they borrowed sixty 98 00:06:17,640 --> 00:06:20,560 Speaker 1: billion dollars and all over God's Green Earth, and you know, 99 00:06:20,640 --> 00:06:22,560 Speaker 1: fell on hard times as a result of the Tai 100 00:06:22,640 --> 00:06:25,200 Speaker 1: Bak crisis, which became the Korean law crisis in the 101 00:06:25,279 --> 00:06:30,640 Speaker 1: late nineties, and so they hired, They hired clearly, and 102 00:06:30,680 --> 00:06:34,000 Speaker 1: then I was in charge of that, and I hired 103 00:06:34,120 --> 00:06:37,839 Speaker 1: Lizard to help me with it because they had restructuring 104 00:06:37,920 --> 00:06:40,760 Speaker 1: and they had presence all over God's Green Earth where 105 00:06:40,800 --> 00:06:42,760 Speaker 1: we had to restructure various debts. So I got to 106 00:06:42,800 --> 00:06:45,400 Speaker 1: know the guys running that practice very well. At the 107 00:06:45,480 --> 00:06:47,800 Speaker 1: end of it, they leaned over across the aisle from 108 00:06:47,920 --> 00:06:52,320 Speaker 1: some god awful flight from Tokyo to New York and said, 109 00:06:52,360 --> 00:06:53,840 Speaker 1: you know, you're in the wrong business. And I said, 110 00:06:53,880 --> 00:07:00,200 Speaker 1: I've heard this, so this time I succumbed to the 111 00:07:00,200 --> 00:07:02,599 Speaker 1: the offer. So you're there from two thousand to two 112 00:07:02,640 --> 00:07:06,560 Speaker 1: thousand eight, and we had a couple of little things 113 00:07:07,160 --> 00:07:10,680 Speaker 1: happened in oh eight. How did you go from Lazard 114 00:07:10,880 --> 00:07:16,040 Speaker 1: to incorporate restructuring to working with Uncle Sam, who was 115 00:07:16,040 --> 00:07:18,400 Speaker 1: a little concerned about Lehman and a I G and 116 00:07:18,440 --> 00:07:23,480 Speaker 1: everything else. So I answered, the phone is basically the 117 00:07:23,880 --> 00:07:27,200 Speaker 1: is basically the answer to that. I had a you know, 118 00:07:27,200 --> 00:07:29,160 Speaker 1: it's funny how the world works. I had a friend, 119 00:07:29,880 --> 00:07:33,440 Speaker 1: a guy had worked with when he was a young, 120 00:07:34,240 --> 00:07:39,400 Speaker 1: UH policy analyst in the Carter administration, when I was 121 00:07:40,000 --> 00:07:42,400 Speaker 1: a young whipper snapper lawyer. Well now, when I was, 122 00:07:42,880 --> 00:07:45,280 Speaker 1: you know, graduate student at a Berkeley and I was 123 00:07:45,360 --> 00:07:48,280 Speaker 1: writing things on industrial policy, and he was reading them 124 00:07:48,280 --> 00:07:54,000 Speaker 1: and helping promote them across the Carter administration. And uh, anyway, 125 00:07:54,240 --> 00:07:57,120 Speaker 1: I picked up, you know, shortly after the election, like 126 00:07:57,320 --> 00:08:01,200 Speaker 1: ten minutes after the election of President in Obama, then 127 00:08:01,280 --> 00:08:03,640 Speaker 1: to be President Obama. I got a call from him 128 00:08:03,680 --> 00:08:05,480 Speaker 1: and he said, you might have noticed we're doing a 129 00:08:05,560 --> 00:08:09,160 Speaker 1: couple of restructurings down here. The admitted the new administration 130 00:08:09,200 --> 00:08:11,280 Speaker 1: could use someone with your background. Would you be willing 131 00:08:11,320 --> 00:08:14,320 Speaker 1: to come? And you know, I've always had an interest 132 00:08:14,360 --> 00:08:17,120 Speaker 1: and who would have believed that the country needed my 133 00:08:17,200 --> 00:08:21,560 Speaker 1: expertise in particular, but there it was quite quite fascinating. 134 00:08:21,920 --> 00:08:24,880 Speaker 1: So you mentioned you got a phone call. What made 135 00:08:24,960 --> 00:08:28,280 Speaker 1: you decide to take what sounded like a pretty thankless 136 00:08:28,400 --> 00:08:31,400 Speaker 1: role well that's you know, that's what I do for 137 00:08:31,440 --> 00:08:35,040 Speaker 1: a living, pretty thankless roles. But um, you know, I 138 00:08:35,080 --> 00:08:37,840 Speaker 1: think the I thought I might be able to make 139 00:08:37,880 --> 00:08:41,880 Speaker 1: a modest contribution given my background and uh and I 140 00:08:41,960 --> 00:08:45,000 Speaker 1: had been, you know, a student of the financial crisis 141 00:08:45,040 --> 00:08:47,559 Speaker 1: as it was unfolding. We at Lazard, you know, we're 142 00:08:47,640 --> 00:08:50,000 Speaker 1: running the leading restructuring practice. We had a lot of 143 00:08:50,000 --> 00:08:53,720 Speaker 1: these the front end of the subprime crisis running and 144 00:08:53,800 --> 00:08:58,400 Speaker 1: you know coming through our doors America mortgage companies, originators 145 00:08:58,400 --> 00:09:01,079 Speaker 1: and distributors coming through. I mean the you know, they 146 00:09:01,120 --> 00:09:03,000 Speaker 1: were the first to fail, right at the front end 147 00:09:03,080 --> 00:09:04,880 Speaker 1: of the system, with the first to fail, and that 148 00:09:04,960 --> 00:09:09,200 Speaker 1: was enough seven Uh. And you know, I'm a curious fellow, 149 00:09:09,240 --> 00:09:11,800 Speaker 1: and I was. There was a plethora of these companies 150 00:09:11,840 --> 00:09:14,319 Speaker 1: coming in. It was like what's going on. There was 151 00:09:14,360 --> 00:09:19,520 Speaker 1: a website called mortgage implode dot com and it tracked 152 00:09:19,679 --> 00:09:22,400 Speaker 1: something like four hundred of them, but it would track 153 00:09:22,440 --> 00:09:24,439 Speaker 1: it in real time and kept a running list. It 154 00:09:24,520 --> 00:09:27,040 Speaker 1: was quite astonishing. And some of the biggest ones, you know, 155 00:09:27,160 --> 00:09:29,720 Speaker 1: new century American home mortgage showed up at our doors 156 00:09:29,720 --> 00:09:32,200 Speaker 1: as our clients. We were you know, presided over and 157 00:09:32,240 --> 00:09:36,800 Speaker 1: helped them liquidate themselves in effect, and uh so, I 158 00:09:37,320 --> 00:09:39,760 Speaker 1: you know, my antenna went up. I got smart about 159 00:09:39,760 --> 00:09:43,280 Speaker 1: the subprime crisis and the leveraging of the financial system 160 00:09:43,400 --> 00:09:48,320 Speaker 1: and how they were levering themselves around these products and others. Um. 161 00:09:48,400 --> 00:09:51,400 Speaker 1: So when this call came, you know, having become a 162 00:09:51,440 --> 00:09:54,360 Speaker 1: student of what had gone on in the American financial 163 00:09:54,400 --> 00:09:58,400 Speaker 1: industry between two thousand and two thousand eight, um, you know, 164 00:09:58,679 --> 00:10:01,880 Speaker 1: with my curiosity alone drove me to Washington. So so 165 00:10:01,960 --> 00:10:04,959 Speaker 1: the news crosses, A I G gets a hundred and 166 00:10:05,120 --> 00:10:09,520 Speaker 1: eighty two billion dollar bail out. What's your immediate response 167 00:10:09,559 --> 00:10:12,080 Speaker 1: when you see these These are hard We're kind of 168 00:10:12,200 --> 00:10:15,520 Speaker 1: used to them today, but at the time, these numbers 169 00:10:15,559 --> 00:10:18,720 Speaker 1: were just unfathomable. Yeah. I mean by the time I 170 00:10:18,800 --> 00:10:23,200 Speaker 1: got there, Um, A I G had already um borrowed 171 00:10:23,320 --> 00:10:26,480 Speaker 1: from the Fed in one pocket or another a hundred 172 00:10:26,520 --> 00:10:29,120 Speaker 1: and thirty two billion dollars. So that was in over 173 00:10:29,360 --> 00:10:33,040 Speaker 1: the course of eight weeks between September eighteenth, when the 174 00:10:33,040 --> 00:10:37,160 Speaker 1: first loan was initially in was inked, to the time, 175 00:10:37,320 --> 00:10:39,040 Speaker 1: you know, the transition team was in place and we 176 00:10:39,040 --> 00:10:42,280 Speaker 1: were now trying to figure out what we're going on. Um, 177 00:10:42,800 --> 00:10:44,720 Speaker 1: they had borrowed a hundred and thirty two billion dollars, 178 00:10:44,880 --> 00:10:48,520 Speaker 1: and that's when you know the restructuring first began. Right 179 00:10:48,600 --> 00:10:54,080 Speaker 1: that the in in most cases with the exceptional demon brothers, 180 00:10:54,120 --> 00:10:56,120 Speaker 1: what the federal government, the FED, the Treasury, and the 181 00:10:56,160 --> 00:11:00,480 Speaker 1: fdi C did during the um course of two thousand 182 00:11:00,600 --> 00:11:03,760 Speaker 1: eight was just refinance the balance sheets, the short term 183 00:11:03,760 --> 00:11:05,520 Speaker 1: debt coming due on the balance sheets of all of 184 00:11:05,520 --> 00:11:09,520 Speaker 1: these companies, basically saying, these companies are effectively solvent, but 185 00:11:09,640 --> 00:11:13,480 Speaker 1: they have a very short term liquidity issue and if 186 00:11:13,480 --> 00:11:17,000 Speaker 1: we could free that up, well, these are companies worth 187 00:11:17,320 --> 00:11:20,520 Speaker 1: worth saving and if they crash it causes a big 188 00:11:20,559 --> 00:11:23,240 Speaker 1: problem otherwise well, and insalvency expert would say, they're two 189 00:11:23,280 --> 00:11:26,320 Speaker 1: definitions in its solvency. There's a balance sheet in solvency 190 00:11:26,360 --> 00:11:29,520 Speaker 1: where your liabilities exceedure fair market value of your assets, 191 00:11:29,960 --> 00:11:32,360 Speaker 1: and then there's illiquidity. You're an inability to pay your 192 00:11:32,360 --> 00:11:34,800 Speaker 1: debts win due. It was clear at the time that 193 00:11:34,920 --> 00:11:36,800 Speaker 1: none of these companies could pay their debts win due. 194 00:11:36,840 --> 00:11:39,920 Speaker 1: They needed, in effect what the FED was established to do, 195 00:11:40,000 --> 00:11:42,440 Speaker 1: to be a lender of last resort, an emergency provider 196 00:11:42,480 --> 00:11:45,200 Speaker 1: of liquidity when the markets freeze up. In their panics, 197 00:11:45,280 --> 00:11:47,400 Speaker 1: and the FED and the fdi C and the Treasury 198 00:11:47,400 --> 00:11:49,440 Speaker 1: Department did this to a fairly well during the Bush 199 00:11:49,440 --> 00:11:53,240 Speaker 1: administration under the leadership of Secretary Paulson and Ben Bernanky 200 00:11:53,280 --> 00:11:57,720 Speaker 1: at the FED. UM. So by the time we get there, 201 00:11:58,400 --> 00:12:00,800 Speaker 1: uh in you know later, oh ay, we haven't yet 202 00:12:00,800 --> 00:12:02,960 Speaker 1: assumed the powers. But there's a transition going on, a 203 00:12:02,960 --> 00:12:06,560 Speaker 1: baton passing exercise going on between the Pauls and Treasury 204 00:12:06,559 --> 00:12:09,960 Speaker 1: Department and the guid Treasury Department UM, and those guys 205 00:12:10,000 --> 00:12:13,160 Speaker 1: had worked together previously, so it wasn't like they were strangers. 206 00:12:14,040 --> 00:12:16,360 Speaker 1: Was at the president of the New York FED. So 207 00:12:16,400 --> 00:12:18,760 Speaker 1: everybody kind of knew each Yeah, no, no, that there 208 00:12:18,800 --> 00:12:21,640 Speaker 1: was a very seamless transition. And you know, sometimes you 209 00:12:21,640 --> 00:12:23,880 Speaker 1: get lucky as a country. Right, we have the leading 210 00:12:24,080 --> 00:12:27,640 Speaker 1: economic historian of the Great Depression saying, as the chairman 211 00:12:27,679 --> 00:12:29,880 Speaker 1: of the Federal Reserve, he may not have had a 212 00:12:29,920 --> 00:12:31,680 Speaker 1: playbook as to what to do, but he knew what 213 00:12:31,720 --> 00:12:34,200 Speaker 1: the FED did wrong in the thirties and he was 214 00:12:34,280 --> 00:12:37,360 Speaker 1: dedicated not to doing that again. Hey, learning what not 215 00:12:37,440 --> 00:12:39,439 Speaker 1: to do was half the battle and put your way 216 00:12:39,480 --> 00:12:42,080 Speaker 1: ahead of people. So so you mentioned the difference between 217 00:12:42,080 --> 00:12:46,400 Speaker 1: the liquidity event and a solvency event. And you mentioned 218 00:12:46,400 --> 00:12:49,800 Speaker 1: in passing Lehman Brothers. Let's talk about that a second. 219 00:12:50,000 --> 00:12:53,439 Speaker 1: There have been some academic studies that said, at the 220 00:12:53,559 --> 00:12:57,560 Speaker 1: time Lehman Brothers went belly up, their value was somewhere 221 00:12:57,600 --> 00:13:02,880 Speaker 1: between a negative hundred billion dollars and negative two billion dollars. 222 00:13:02,960 --> 00:13:06,520 Speaker 1: Of all the companies out there, they really seem to 223 00:13:06,559 --> 00:13:11,520 Speaker 1: be completely insolvent. Fair statement. Well, so if you took 224 00:13:11,520 --> 00:13:15,000 Speaker 1: a snapshot, I would venture to say, if you took 225 00:13:15,040 --> 00:13:18,599 Speaker 1: a snapshot and mark to market the balance sheets of 226 00:13:18,679 --> 00:13:23,760 Speaker 1: any of the major financial institutions, particularly the broker dealers Goldman, Morgan, Stanley, 227 00:13:24,840 --> 00:13:30,760 Speaker 1: Meryl Lynch Ah on September one, maybe make it September ninth, 228 00:13:30,800 --> 00:13:33,960 Speaker 1: the day after Fanny and Freddie are taken into conservatorship, 229 00:13:34,000 --> 00:13:38,240 Speaker 1: and panic runs through the entire conventional and subprime already 230 00:13:38,280 --> 00:13:41,040 Speaker 1: run through the subprime market, but now you take the 231 00:13:41,240 --> 00:13:46,760 Speaker 1: largest mortgage so can exactly and you put them in 232 00:13:46,760 --> 00:13:50,280 Speaker 1: a conservationship on the on the theory that either they're 233 00:13:50,320 --> 00:13:53,400 Speaker 1: illiquid and need the government support, or they're insolvent and 234 00:13:53,480 --> 00:13:57,680 Speaker 1: need the government's balance sheet to back them. Ah, if 235 00:13:57,720 --> 00:14:01,560 Speaker 1: you took a snapshot of the balance sheets of any 236 00:14:01,600 --> 00:14:03,880 Speaker 1: of the major financial institutions in the the United States on 237 00:14:03,920 --> 00:14:07,040 Speaker 1: September nine, and said, mark this all to market right now, 238 00:14:07,600 --> 00:14:10,200 Speaker 1: where anything is trading, I dare say in a balance 239 00:14:10,200 --> 00:14:13,360 Speaker 1: sheet basis, they'd all look and solvent. But and that 240 00:14:13,440 --> 00:14:16,000 Speaker 1: was sort of the thing is, there's a relationship between 241 00:14:16,000 --> 00:14:19,520 Speaker 1: your ability to maintain a position and your solvency. So, 242 00:14:19,640 --> 00:14:22,600 Speaker 1: you know, Kaine's famously said, the markets can stay irrational 243 00:14:22,640 --> 00:14:25,000 Speaker 1: longer than you can stay solvent. But if you can 244 00:14:25,040 --> 00:14:29,600 Speaker 1: stay solvent that is liquid, through a downturn, you're okay. 245 00:14:29,680 --> 00:14:32,400 Speaker 1: And so in fact better come out the other side 246 00:14:32,480 --> 00:14:34,880 Speaker 1: actually pretty good. So in the case of Lehman, right, 247 00:14:34,960 --> 00:14:37,200 Speaker 1: so you have Lehman Weekend. You know this story has 248 00:14:37,240 --> 00:14:42,240 Speaker 1: been told many times, but the FED, at the New 249 00:14:42,280 --> 00:14:44,880 Speaker 1: York Fed, they're trying to figure out if they can 250 00:14:44,920 --> 00:14:47,800 Speaker 1: broke her a marriage between Lehman and Barkley's or Lehman 251 00:14:47,840 --> 00:14:51,640 Speaker 1: and Bank of America, and each of those institutions prospective 252 00:14:51,640 --> 00:14:54,160 Speaker 1: buyers is doing diligence as fast as they can on 253 00:14:54,280 --> 00:14:56,760 Speaker 1: Lehman's book to try and figure out which part of 254 00:14:56,760 --> 00:14:59,200 Speaker 1: the bank, if maybe the entire part of the bank, 255 00:14:59,240 --> 00:15:02,600 Speaker 1: they will take and um. In particular, b of A 256 00:15:02,720 --> 00:15:05,280 Speaker 1: has done as good a job as could be done 257 00:15:05,280 --> 00:15:09,000 Speaker 1: in the circumstances and analysis of Lehman's real estate portfolio, 258 00:15:09,440 --> 00:15:13,360 Speaker 1: and they conclude that the marks that the that the 259 00:15:13,440 --> 00:15:17,680 Speaker 1: last marks on the portfolio vastly overstate the value fabricated 260 00:15:17,760 --> 00:15:20,280 Speaker 1: completely fabricaly well, who knows where there's fabricator? The market 261 00:15:20,280 --> 00:15:23,320 Speaker 1: was can collapse if you could have held onto it, 262 00:15:23,640 --> 00:15:27,680 Speaker 1: So who knows? So lets let me share my pet peeves, 263 00:15:28,200 --> 00:15:31,160 Speaker 1: which is the will will hold aside the fast by 264 00:15:31,320 --> 00:15:34,680 Speaker 1: rule change that no longer required mark to market. Will 265 00:15:34,680 --> 00:15:38,200 Speaker 1: discuss that later. But the REPO one oh five. If 266 00:15:38,320 --> 00:15:42,320 Speaker 1: if you have to every quarter a few days before 267 00:15:42,360 --> 00:15:45,280 Speaker 1: you report your earnings and you have to square up 268 00:15:45,320 --> 00:15:49,240 Speaker 1: your quarterly numbers, you have to move fifty plus billion 269 00:15:49,280 --> 00:15:53,560 Speaker 1: dollars of liability off your balance sheet, that kind of 270 00:15:53,600 --> 00:15:57,920 Speaker 1: implies that not only is your accounting not somewhat opaque, 271 00:15:58,520 --> 00:16:02,600 Speaker 1: but it implies that you were committing accounting fraud on 272 00:16:02,680 --> 00:16:06,720 Speaker 1: your investors. And you're probably either in bad shape or 273 00:16:06,800 --> 00:16:10,760 Speaker 1: deeply insolvent. And we've since found that forget the market 274 00:16:10,760 --> 00:16:14,200 Speaker 1: to market, they're deeply insolvent. Yeah, okay, so that was 275 00:16:14,240 --> 00:16:17,840 Speaker 1: the conclusion the federal reached, and they concluded that they 276 00:16:17,880 --> 00:16:20,120 Speaker 1: really didn't have a statutory based on which to be 277 00:16:20,160 --> 00:16:25,200 Speaker 1: able to fund provide emergency lending to Lehman. Um. You know, 278 00:16:25,240 --> 00:16:28,280 Speaker 1: I think in retrospect, given the fallout that immediately occurred 279 00:16:28,320 --> 00:16:30,840 Speaker 1: upon the filing of that bankruptcy, maybe we should have 280 00:16:30,880 --> 00:16:36,200 Speaker 1: been more creative. We could have foisted losses on the shareholders. 281 00:16:36,200 --> 00:16:41,000 Speaker 1: We could have foisted right well that we had a bankruptcy. Um. 282 00:16:41,040 --> 00:16:43,720 Speaker 1: You know, we could have achieved the kind of you know, 283 00:16:43,880 --> 00:16:48,760 Speaker 1: anti moral hazard problem with bailouts potentially in the way 284 00:16:48,800 --> 00:16:52,120 Speaker 1: we structured alone to the broker dealer so as to 285 00:16:52,160 --> 00:16:54,760 Speaker 1: avoid the kind of adverse impacts that I mean that 286 00:16:55,200 --> 00:16:59,360 Speaker 1: the filing of Lehman Brothers created a panic. Well, okay, 287 00:16:59,480 --> 00:17:01,800 Speaker 1: I'm not going to disagree with that. And so you 288 00:17:01,840 --> 00:17:06,600 Speaker 1: know that the whole the whole script of the rescue 289 00:17:06,920 --> 00:17:09,960 Speaker 1: from you know, the beginning of with Bear Stearns to 290 00:17:10,040 --> 00:17:12,400 Speaker 1: the opening of the f X lines to make sure 291 00:17:12,480 --> 00:17:16,480 Speaker 1: that the European banks didn't default against their on their 292 00:17:16,480 --> 00:17:19,800 Speaker 1: own debt and therefore default on their American counterparties, which 293 00:17:19,840 --> 00:17:22,919 Speaker 1: would have created a liquid crisis here to the you know, 294 00:17:23,000 --> 00:17:25,960 Speaker 1: putting a Fannie and Freddie into conservatorship, the saving of 295 00:17:26,000 --> 00:17:29,280 Speaker 1: a I G. A series of emergency the alphabet soup 296 00:17:29,320 --> 00:17:33,639 Speaker 1: of emergency lending programs, the Fed instituted um, you know, 297 00:17:33,680 --> 00:17:37,800 Speaker 1: the prime dealer credit facility, the TALF, the TAFF, the 298 00:17:38,520 --> 00:17:41,080 Speaker 1: you know, commercial paper facility. I mean, you know, there 299 00:17:41,160 --> 00:17:44,879 Speaker 1: was every market that had frozen up. They intervened in 300 00:17:44,960 --> 00:17:48,159 Speaker 1: and tried to restart in order to provide liquidity to 301 00:17:48,240 --> 00:17:50,919 Speaker 1: the system. And so the question is, you know, in 302 00:17:50,920 --> 00:17:56,199 Speaker 1: the midst of that just tsunami of credit support and liquidity, 303 00:17:56,320 --> 00:17:59,560 Speaker 1: you decide to take one company down. My my pet 304 00:17:59,600 --> 00:18:02,760 Speaker 1: thesis is Dick Fold said no to Warrn Buffett's offer 305 00:18:02,840 --> 00:18:07,000 Speaker 1: to inject capital over the summer. And I wish I 306 00:18:07,080 --> 00:18:09,000 Speaker 1: was a fly on the wall in that room, because 307 00:18:09,160 --> 00:18:12,920 Speaker 1: I have to imagine between Paulson and BERNANKI and guys 308 00:18:12,920 --> 00:18:16,119 Speaker 1: and there someone said this, This idiot said no to 309 00:18:16,119 --> 00:18:20,040 Speaker 1: Warren Buffett. How can we possibly save him? They had 310 00:18:20,080 --> 00:18:23,000 Speaker 1: an opportunity. He was a pig, He's always been a pig, 311 00:18:23,200 --> 00:18:24,920 Speaker 1: and now he should be in an orange jumpsuit. But 312 00:18:25,000 --> 00:18:30,640 Speaker 1: let's we're not automatons. Personalities and personal histories matter, and 313 00:18:30,680 --> 00:18:32,840 Speaker 1: I So I don't think there's uh, I don't think 314 00:18:32,880 --> 00:18:36,280 Speaker 1: you're crazy in that thought. So let's talk a little 315 00:18:36,320 --> 00:18:41,359 Speaker 1: about what's going on currently in your career. Um, after 316 00:18:41,480 --> 00:18:44,280 Speaker 1: you leave Treasury, you go to work as a bank 317 00:18:44,359 --> 00:18:47,280 Speaker 1: run an investor, and you pretty much decided to hang 318 00:18:47,280 --> 00:18:50,280 Speaker 1: out your own Shingle Millstein and Company. UM tell us 319 00:18:50,280 --> 00:18:52,520 Speaker 1: about the launch of that firm and what the thinking 320 00:18:52,680 --> 00:18:57,560 Speaker 1: was as opposed to being attached to another giant financial entity. Yeah, 321 00:18:57,560 --> 00:18:59,560 Speaker 1: I mean, one thing working in the government cures you 322 00:18:59,640 --> 00:19:03,720 Speaker 1: of is the desire to have a boss. So, UM, 323 00:19:03,760 --> 00:19:06,199 Speaker 1: I decided I would set up my own shop. I 324 00:19:06,240 --> 00:19:10,720 Speaker 1: really had no you know, grand plans, but um uh 325 00:19:10,800 --> 00:19:13,880 Speaker 1: we went from you know, one answering one another call 326 00:19:13,960 --> 00:19:16,000 Speaker 1: to another call to another column before I knew it. 327 00:19:16,720 --> 00:19:18,720 Speaker 1: You know, I had offices in New York and Washington, 328 00:19:18,760 --> 00:19:21,639 Speaker 1: and we were working on large corporate restructurings and sovereign 329 00:19:21,640 --> 00:19:26,159 Speaker 1: restructurings again and uh and also you know, reinvesting the 330 00:19:26,160 --> 00:19:28,720 Speaker 1: profits of the business. The partners, the guys who joined 331 00:19:28,720 --> 00:19:31,000 Speaker 1: me and galleys and gals who joined me, you know, 332 00:19:31,080 --> 00:19:34,639 Speaker 1: we all agreed that, uh, the advisory business is a 333 00:19:34,680 --> 00:19:37,440 Speaker 1: business that goes up and down. The revenue is volatile, 334 00:19:37,480 --> 00:19:40,480 Speaker 1: whereas if we could actually make some solid investments, we 335 00:19:40,560 --> 00:19:43,600 Speaker 1: might be able to provide ourselves with a little more 336 00:19:43,680 --> 00:19:47,160 Speaker 1: secure income in a manner and to generate wealth, particularly 337 00:19:47,200 --> 00:19:49,760 Speaker 1: for the young kids who were working for me. So anyway, 338 00:19:50,520 --> 00:19:53,720 Speaker 1: seven years into this, we ended up with thirty five 339 00:19:53,760 --> 00:19:57,880 Speaker 1: people doing corporate and sovereign restructuring and you know, fifteen 340 00:19:57,920 --> 00:20:02,960 Speaker 1: people doing investing. We had raised some third party funds. Uh. 341 00:20:03,040 --> 00:20:06,320 Speaker 1: And you know, I'm not getting any younger. I'm sixty 342 00:20:06,320 --> 00:20:09,520 Speaker 1: three years old. And the people who had joined me 343 00:20:09,600 --> 00:20:12,560 Speaker 1: were all in their thirties and forties. And you know 344 00:20:12,640 --> 00:20:16,199 Speaker 1: I turned to them and said, uh, we have a 345 00:20:16,240 --> 00:20:20,040 Speaker 1: strategic problem. Uh. To strategic problems one where a small 346 00:20:20,080 --> 00:20:22,919 Speaker 1: boutique entering what I think will be a tsunami of 347 00:20:22,960 --> 00:20:26,600 Speaker 1: restructuring to come. Uh. And we really could use the 348 00:20:26,680 --> 00:20:29,280 Speaker 1: leverage of a larger firm with you know, arms and 349 00:20:29,359 --> 00:20:34,960 Speaker 1: legs in various industries with real industry expertise as opposed 350 00:20:35,000 --> 00:20:39,080 Speaker 1: to our sort of products specialty UH called restructuring. On 351 00:20:39,119 --> 00:20:41,479 Speaker 1: the one hand, and the other strategic challenge was, you know, 352 00:20:42,040 --> 00:20:45,879 Speaker 1: We've built a franchise and and I'm not getting any younger. 353 00:20:45,960 --> 00:20:49,840 Speaker 1: So eventually we concluded that merging with a larger financial 354 00:20:49,840 --> 00:20:52,960 Speaker 1: services firm made sense. Alan Shortz and I had been 355 00:20:52,960 --> 00:20:56,919 Speaker 1: talking for three or four years. Former bear Stone CEO 356 00:20:57,080 --> 00:20:59,000 Speaker 1: is a bear Stone CEO and really one of the 357 00:20:59,040 --> 00:21:04,720 Speaker 1: most widely respected bankers investment bankers in the United States. 358 00:21:04,760 --> 00:21:07,920 Speaker 1: I mean he's you know, Disney's banker, Verizons banker, he's 359 00:21:07,960 --> 00:21:13,359 Speaker 1: a he's a very well respected boardroom banker, UH and 360 00:21:13,720 --> 00:21:16,800 Speaker 1: tactician and strategists. So, and he and I had become 361 00:21:16,840 --> 00:21:20,720 Speaker 1: friends after the crisis, um and so it became it 362 00:21:20,760 --> 00:21:22,440 Speaker 1: was a natural fit. They have, you know, a full 363 00:21:22,520 --> 00:21:26,560 Speaker 1: hundred bankers who do you know, tech, media, telecom, power 364 00:21:26,560 --> 00:21:31,200 Speaker 1: and energy, real estate and the whole uh landscape, waterfront 365 00:21:32,240 --> 00:21:34,320 Speaker 1: as well as sales and trading. So they're kind of, 366 00:21:34,440 --> 00:21:37,560 Speaker 1: you know, where what Morgan's Stanley and Goldman Sacks were 367 00:21:37,600 --> 00:21:41,200 Speaker 1: back in the early nineties. Uh. They've built an independent 368 00:21:41,240 --> 00:21:44,159 Speaker 1: investment bank but before they went public, before they went 369 00:21:44,200 --> 00:21:48,119 Speaker 1: public and expanded their balance sheets enormously. Right. So you 370 00:21:48,200 --> 00:21:51,760 Speaker 1: mentioned something in passing I can't let go by. You 371 00:21:51,800 --> 00:21:54,879 Speaker 1: think we're at the leading edge of a wave of 372 00:21:55,000 --> 00:21:59,920 Speaker 1: future structurings. Is that global? Is that industry specific where 373 00:22:00,000 --> 00:22:05,159 Speaker 1: where do you see that happening? Well, let's do some stats. UM. 374 00:22:05,200 --> 00:22:08,320 Speaker 1: You know, corporate to GDP is the highest it's been 375 00:22:08,520 --> 00:22:12,960 Speaker 1: in American history. So we have a very lever corporate sector. 376 00:22:13,000 --> 00:22:14,919 Speaker 1: And part of that is, you know, they're financial re 377 00:22:15,000 --> 00:22:17,919 Speaker 1: engineering of their own balance sheets, stocked by backs funded 378 00:22:17,920 --> 00:22:20,840 Speaker 1: with debt UM. Part of that is, you know, the 379 00:22:20,880 --> 00:22:26,919 Speaker 1: buyout waves and leveraging generally that's associated with the buyouts UM, 380 00:22:27,000 --> 00:22:29,800 Speaker 1: and part of that is UM. You know, just the 381 00:22:29,840 --> 00:22:33,280 Speaker 1: general tend to the credit has been so cheap that 382 00:22:33,280 --> 00:22:36,439 Speaker 1: that corporations have re engineered their own So that was 383 00:22:37,119 --> 00:22:39,440 Speaker 1: that was the question I immediately popped into my mind 384 00:22:39,520 --> 00:22:42,439 Speaker 1: if you said that was, well, is there a reason 385 00:22:42,480 --> 00:22:44,960 Speaker 1: for them not to be leveraged up when money is 386 00:22:45,720 --> 00:22:49,320 Speaker 1: almost not quite free? And as long as there, I 387 00:22:49,359 --> 00:22:54,320 Speaker 1: hope everyone learned the lesson about UM fixed versus variable 388 00:22:55,200 --> 00:22:57,960 Speaker 1: lending in the financial crisis. As long as those rates 389 00:22:57,960 --> 00:23:01,679 Speaker 1: are locked in, it seems like their debt servicing is 390 00:23:01,760 --> 00:23:06,960 Speaker 1: fairly affordable. It is, uh, but there are two sides 391 00:23:07,000 --> 00:23:08,800 Speaker 1: of that, right, And you know, if your cash flows 392 00:23:08,840 --> 00:23:12,479 Speaker 1: declined because of a recession, suddenly your leverage codes from 393 00:23:12,480 --> 00:23:15,960 Speaker 1: manageable to unmanageable. And if you're an a rising interest 394 00:23:16,040 --> 00:23:19,399 Speaker 1: rate environment, forget about floating rate. You know, a lot 395 00:23:19,480 --> 00:23:21,800 Speaker 1: of bank debt is floating rate, but that's at a 396 00:23:21,880 --> 00:23:24,239 Speaker 1: leverage level. It is generally two to three times, so 397 00:23:24,320 --> 00:23:27,000 Speaker 1: it's not going to sink a company even into cline 398 00:23:27,000 --> 00:23:30,280 Speaker 1: and cash loow environment. But the real risk is refinancing risk, 399 00:23:30,320 --> 00:23:32,680 Speaker 1: which is exactly what we saw during the financial crisis 400 00:23:32,880 --> 00:23:35,640 Speaker 1: with the financial In other words, they have to roll 401 00:23:35,720 --> 00:23:38,120 Speaker 1: that debt over and now it's at a much higher rate, 402 00:23:38,400 --> 00:23:41,000 Speaker 1: or maybe they can't roll it over at all. Exactly so, 403 00:23:41,119 --> 00:23:44,000 Speaker 1: with a very highly leveled, levered corporate sector. And if 404 00:23:44,000 --> 00:23:46,440 Speaker 1: you look at credit quality, Barry, I mean, I'm sure 405 00:23:46,480 --> 00:23:50,399 Speaker 1: you know these stats of the so called investment grade 406 00:23:50,440 --> 00:23:55,320 Speaker 1: debt is the body is the lowest investment grade ranking, 407 00:23:55,920 --> 00:23:59,800 Speaker 1: and the non investment grade debt now constitutes more than 408 00:23:59,840 --> 00:24:02,560 Speaker 1: half of all debt on the corporate sector in the 409 00:24:02,640 --> 00:24:04,919 Speaker 1: United States. So you have a highly leveled sector with 410 00:24:05,119 --> 00:24:09,159 Speaker 1: very low credit quality. Um, you know we could, and 411 00:24:09,200 --> 00:24:12,520 Speaker 1: you have a FED raising interest rates, the federal government 412 00:24:12,680 --> 00:24:18,600 Speaker 1: borrowing um like a drunken sailor on leave. I always 413 00:24:18,600 --> 00:24:23,840 Speaker 1: object to that metaphor because drunken sailors spend their own 414 00:24:23,880 --> 00:24:28,280 Speaker 1: money exactly. Okay, you're right, the federal government borrowing like 415 00:24:28,320 --> 00:24:32,160 Speaker 1: there was no tomorrow. How about that? Fair enough? You've 416 00:24:32,200 --> 00:24:35,760 Speaker 1: had a ringside seat to some of the most fascinating 417 00:24:35,880 --> 00:24:40,760 Speaker 1: restructurings of recent memory. You either worked on these or 418 00:24:40,880 --> 00:24:43,720 Speaker 1: near these, or people in the firm um did some 419 00:24:43,800 --> 00:24:48,080 Speaker 1: work on them. US Airways, Charter Communications, the auto workers, 420 00:24:48,160 --> 00:24:52,760 Speaker 1: the car makers bail out and reboot, even countries like 421 00:24:52,800 --> 00:24:56,040 Speaker 1: Cyprus and Greece and in the United States Puerto Rico. 422 00:24:56,200 --> 00:24:59,320 Speaker 1: So I have to ask you what do all these 423 00:24:59,359 --> 00:25:02,720 Speaker 1: things have in common and what are the important differences 424 00:25:03,080 --> 00:25:07,840 Speaker 1: when when you look at these big financial snaff foos, 425 00:25:07,840 --> 00:25:10,679 Speaker 1: What what should we make of these? Yeah? So uh 426 00:25:10,960 --> 00:25:14,159 Speaker 1: Tolstoy and Anna Karnina says that all happy families are alike, 427 00:25:14,240 --> 00:25:17,080 Speaker 1: and each unhappy family is unhappy in its own way, 428 00:25:17,280 --> 00:25:20,440 Speaker 1: and each restructuring, you know, is unique in its own way. 429 00:25:20,480 --> 00:25:23,800 Speaker 1: There's sometimes it's management that just you know, went off 430 00:25:23,800 --> 00:25:26,159 Speaker 1: on a frolic and detour, spend too much money, levered 431 00:25:26,240 --> 00:25:30,440 Speaker 1: up and on a mistake and strategy. Other times, Uh, 432 00:25:30,480 --> 00:25:33,879 Speaker 1: it's you know, a change in the business cycle. Uh. 433 00:25:33,920 --> 00:25:37,120 Speaker 1: And highly levered balance sheet that takes a perfectly good 434 00:25:37,119 --> 00:25:40,760 Speaker 1: company that uh, in ordinary times to generate even in 435 00:25:40,800 --> 00:25:43,360 Speaker 1: bad times of generating cash flow, but it's just got 436 00:25:43,359 --> 00:25:45,760 Speaker 1: the wrong balance sheet for the kinds of cash flow 437 00:25:45,800 --> 00:25:48,479 Speaker 1: is capable of generating through a cycle. And so you're 438 00:25:48,520 --> 00:25:52,440 Speaker 1: doing a balance sheet restructuring of a good business, um, 439 00:25:52,480 --> 00:25:55,760 Speaker 1: you know. And other times it's a business that you know, 440 00:25:55,800 --> 00:25:58,760 Speaker 1: whose time has come, whose mission has long since passed. 441 00:25:58,800 --> 00:26:04,080 Speaker 1: Hypothetically company like Sears exactly. Um, and so we're not 442 00:26:04,160 --> 00:26:08,520 Speaker 1: so hypothetically yeah, so world apparently yeah uh, you know, 443 00:26:08,560 --> 00:26:14,960 Speaker 1: in the case of countries, it's some combination of investor enthusiasm, 444 00:26:15,200 --> 00:26:19,160 Speaker 1: misplaced enthusiasm for sovereign debt, and a failure to really 445 00:26:19,160 --> 00:26:24,240 Speaker 1: look at the underlying dynamics of the country's economy. Um. 446 00:26:24,280 --> 00:26:26,800 Speaker 1: I was just in Iceland, and the story there is 447 00:26:26,920 --> 00:26:32,080 Speaker 1: just it's crazy. It's now it's it's crazy again. Right. 448 00:26:32,280 --> 00:26:36,480 Speaker 1: It's an island of you know, Boston, right, And and 449 00:26:36,560 --> 00:26:41,400 Speaker 1: they were levered like eight one against GDP s just nuts. Well, 450 00:26:41,440 --> 00:26:46,800 Speaker 1: they were a product of you know, open capital, no 451 00:26:46,960 --> 00:26:54,359 Speaker 1: capital controls and capitals you know, swishing swashing through the system. Um. 452 00:26:54,440 --> 00:26:56,840 Speaker 1: So how is that different from Greece re Puerto Rico. 453 00:26:57,040 --> 00:27:01,640 Speaker 1: Well support I mean Puerto Rico, the capital markets were open. Uh. 454 00:27:01,680 --> 00:27:03,320 Speaker 1: And as long as they were open, you could do 455 00:27:03,440 --> 00:27:07,640 Speaker 1: deficit financing. Even those states and cities are not supposed 456 00:27:07,640 --> 00:27:10,199 Speaker 1: to do deficit finance, that's right, but there. But you know, 457 00:27:11,320 --> 00:27:14,040 Speaker 1: municipal bankers at which I do not count myself as one, 458 00:27:14,119 --> 00:27:19,920 Speaker 1: have found lots of ways to us well, to find 459 00:27:19,920 --> 00:27:25,240 Speaker 1: ways to finance deficits that are not completely transparent. Uh 460 00:27:25,280 --> 00:27:28,600 Speaker 1: and so uh. Puerto Rico went into a recession in 461 00:27:28,680 --> 00:27:31,000 Speaker 1: two thousand six as a result in change in federal 462 00:27:31,080 --> 00:27:36,200 Speaker 1: law that had formally subsidized pharmaceutical production on the island. 463 00:27:37,040 --> 00:27:39,879 Speaker 1: They had had a twenty year tax break that encouraged 464 00:27:39,880 --> 00:27:43,160 Speaker 1: pharmaceuticals to do their final packaging on the island and 465 00:27:43,760 --> 00:27:47,120 Speaker 1: created three fifty thousand jobs and lots of tax revenues. 466 00:27:47,160 --> 00:27:49,080 Speaker 1: And that expired in two thousand and six. Puerto Rico 467 00:27:49,160 --> 00:27:51,720 Speaker 1: went into a recession that they still have not come 468 00:27:51,720 --> 00:27:55,560 Speaker 1: out of, you know, decade plus later, decade plus later. 469 00:27:56,320 --> 00:28:01,280 Speaker 1: And they financed the decline at tax revenues with that, uh, 470 00:28:01,520 --> 00:28:04,400 Speaker 1: lots of it. So they by the time they got 471 00:28:04,440 --> 00:28:08,879 Speaker 1: to us mill Steining Company then in two thousand fourteen, 472 00:28:08,920 --> 00:28:11,159 Speaker 1: they had seventy five billion dollars of debt for an 473 00:28:11,200 --> 00:28:13,960 Speaker 1: island of three and a half million people. They had 474 00:28:14,560 --> 00:28:17,680 Speaker 1: pension systems that were underfunded at the tune of thirty 475 00:28:17,760 --> 00:28:22,400 Speaker 1: or forty billion dollars UH and UH, and a real 476 00:28:22,440 --> 00:28:25,359 Speaker 1: inability to pay their debts win due and particularly as 477 00:28:25,400 --> 00:28:28,479 Speaker 1: the capital markets shut to them. As long as you're 478 00:28:28,480 --> 00:28:32,040 Speaker 1: gonna roll that debt over, doesn't matter. It doesn't matter. UM. 479 00:28:32,040 --> 00:28:34,000 Speaker 1: But if you can't roll it over, because you know, 480 00:28:34,040 --> 00:28:36,440 Speaker 1: suddenly you're borrowing what you would the debt you would 481 00:28:36,440 --> 00:28:39,160 Speaker 1: incurred at two percent in the muni market, you're now 482 00:28:39,200 --> 00:28:43,040 Speaker 1: having to pay eight percent tax free. UM. You know, 483 00:28:43,160 --> 00:28:46,280 Speaker 1: it just makes it unsustainable. Right. I was on in 484 00:28:46,360 --> 00:28:50,120 Speaker 1: Puerto Rico, I want to say, fourteen or fifteen, and 485 00:28:50,240 --> 00:28:54,000 Speaker 1: already there was a brain drain going on. There were people, forget, 486 00:28:54,120 --> 00:28:57,000 Speaker 1: it's not a different country. You could hop on an 487 00:28:57,000 --> 00:28:59,880 Speaker 1: American Airlines flight and go anywhere in the United States, 488 00:29:00,240 --> 00:29:03,400 Speaker 1: no passport required, right, and lots of people did UM 489 00:29:03,400 --> 00:29:07,440 Speaker 1: and have UH and so in any event, so you know, 490 00:29:07,600 --> 00:29:11,880 Speaker 1: countries are much more complex. UH. And you know we're 491 00:29:11,880 --> 00:29:14,080 Speaker 1: seeing I frankly, we're doing a lot of work now 492 00:29:14,600 --> 00:29:16,480 Speaker 1: in the United States, because you have a series of 493 00:29:16,560 --> 00:29:20,680 Speaker 1: states that, um don't look all that much better than 494 00:29:20,720 --> 00:29:23,200 Speaker 1: Puerto Rico did to Illinois has to be a giant 495 00:29:23,240 --> 00:29:26,760 Speaker 1: Leinois Connecticut, I mean, all of the how did Connecticut 496 00:29:26,800 --> 00:29:29,240 Speaker 1: go south so fast? I mean, at one point they 497 00:29:29,240 --> 00:29:31,240 Speaker 1: were one of the wealthier states in the country. Well, 498 00:29:31,280 --> 00:29:33,080 Speaker 1: there's still one of the welfare states in the country. 499 00:29:33,080 --> 00:29:35,440 Speaker 1: Of the problem is is that they've their economy is 500 00:29:35,560 --> 00:29:39,760 Speaker 1: growing slower than the rest of the surrounding states, and 501 00:29:39,840 --> 00:29:43,920 Speaker 1: they've levered themselves up and deferred pension contributions for twenty years. 502 00:29:44,440 --> 00:29:47,600 Speaker 1: And as we right, I mean, you know, this is 503 00:29:47,640 --> 00:29:52,320 Speaker 1: the responsible handling of the commitments who make as a 504 00:29:52,400 --> 00:29:56,320 Speaker 1: state is critical to the financial stability of the state. 505 00:29:56,480 --> 00:29:59,760 Speaker 1: So if you're a fill in the blank teacher, police 506 00:29:59,840 --> 00:30:03,480 Speaker 1: off for sir firemen in any of these states, are 507 00:30:03,560 --> 00:30:05,760 Speaker 1: you gonna get a hundred cents on the dollar of 508 00:30:05,800 --> 00:30:10,760 Speaker 1: your expected pension retirement or everything's on the table in 509 00:30:10,920 --> 00:30:13,240 Speaker 1: order to make these states solving again, you know, it 510 00:30:13,360 --> 00:30:17,600 Speaker 1: seems unlikely. Yeah, there's a three and a half trillion 511 00:30:17,680 --> 00:30:22,000 Speaker 1: dollar deficiency in the funding of state employee pensions nationwide, 512 00:30:22,000 --> 00:30:26,240 Speaker 1: three and a half trillion dollars. Uh. And the you know, 513 00:30:26,400 --> 00:30:32,680 Speaker 1: the the problem for these public employees is that, um, 514 00:30:32,720 --> 00:30:37,280 Speaker 1: you know, the at least today, even in Trump's America, Uh, 515 00:30:37,280 --> 00:30:41,560 Speaker 1: there are no walls built between the boundaries of different states. 516 00:30:41,560 --> 00:30:45,200 Speaker 1: So if a state starts over taxing compared to other states, 517 00:30:45,280 --> 00:30:49,800 Speaker 1: it's it's employed, it's citizens and under serving them in 518 00:30:49,920 --> 00:30:52,960 Speaker 1: terms of the provision of current services in the form 519 00:30:53,080 --> 00:30:58,479 Speaker 1: of good infrastructure, good schools. Um. If people people believe, 520 00:30:58,680 --> 00:31:01,120 Speaker 1: and when they leave, can what a mess they made 521 00:31:01,120 --> 00:31:03,160 Speaker 1: over that they take them When they leave, they take 522 00:31:03,200 --> 00:31:06,880 Speaker 1: their tax revolues and property taxes and income taxes with them, 523 00:31:06,960 --> 00:31:09,960 Speaker 1: and it becomes an adverse feedback loop. A fewer and 524 00:31:10,040 --> 00:31:13,360 Speaker 1: fewer number of citizens are supporting a greater and growing 525 00:31:13,440 --> 00:31:18,120 Speaker 1: liability for legacy costs. And so you know this is 526 00:31:19,440 --> 00:31:23,320 Speaker 1: there's going to have to be a reckoning here. That's 527 00:31:23,360 --> 00:31:28,000 Speaker 1: the name of your next book. I like that. So 528 00:31:28,080 --> 00:31:30,720 Speaker 1: let's talk about something that's a little more cheerful. I 529 00:31:30,800 --> 00:31:35,680 Speaker 1: know you are a fan of watching the financial sector 530 00:31:36,120 --> 00:31:40,200 Speaker 1: and looking at some of the dominant players which have 531 00:31:40,280 --> 00:31:45,120 Speaker 1: become very concentrated post crisis. UH. And I know you're 532 00:31:45,120 --> 00:31:48,719 Speaker 1: a fan of fintech what when you look at this 533 00:31:49,920 --> 00:31:53,800 Speaker 1: are are these big companies gonna stay entrenched and keep 534 00:31:53,800 --> 00:31:57,640 Speaker 1: putting up walls to prevent competition or can the new 535 00:31:57,680 --> 00:32:02,880 Speaker 1: financial technologies? Um, can these new upstart companies break that 536 00:32:03,280 --> 00:32:09,360 Speaker 1: hegemony from from the big finance companies. The answer to 537 00:32:09,440 --> 00:32:12,000 Speaker 1: that is, um, it's going to depend on government policy 538 00:32:12,480 --> 00:32:15,880 Speaker 1: because what is going on with the financials and fintech 539 00:32:16,000 --> 00:32:18,440 Speaker 1: is similar to what's going on with Facebook and Snapchat 540 00:32:18,480 --> 00:32:21,640 Speaker 1: and Google and every other you know, high flying startup 541 00:32:21,680 --> 00:32:25,200 Speaker 1: technology company. Now, why aren't those tech companies just thought 542 00:32:25,200 --> 00:32:28,480 Speaker 1: of as aggressively competing in the marketplace? And you have Apple, 543 00:32:28,520 --> 00:32:30,280 Speaker 1: and you have Amazon, You've Google, your face, we have 544 00:32:30,320 --> 00:32:34,160 Speaker 1: all these companies. Granted there are four giant winners, but 545 00:32:34,360 --> 00:32:37,680 Speaker 1: still any you know, you could look at how many 546 00:32:38,040 --> 00:32:41,600 Speaker 1: search engines were there before Google became dominant, right, so so, 547 00:32:41,720 --> 00:32:46,680 Speaker 1: but these companies are rolling up you know, potential threats 548 00:32:46,680 --> 00:32:49,680 Speaker 1: to their competition. Uh. And it's a great exit for 549 00:32:49,720 --> 00:32:52,640 Speaker 1: a venture capitalist and for an entrepreneur has a great idea, 550 00:32:53,400 --> 00:32:58,960 Speaker 1: um to sell yourself to Google to Amazon, to Apple 551 00:32:59,640 --> 00:33:02,840 Speaker 1: to Facebook. And the big banks are doing the same thing. 552 00:33:02,880 --> 00:33:06,720 Speaker 1: In fintech. There have been you know, a multitude of 553 00:33:06,760 --> 00:33:11,800 Speaker 1: startups in and around the financial services space, and the 554 00:33:11,840 --> 00:33:14,920 Speaker 1: big banks recognize the potential threats. So they're doing a 555 00:33:14,920 --> 00:33:16,680 Speaker 1: lot of in house R and D, but they're also 556 00:33:16,720 --> 00:33:20,760 Speaker 1: acquiring a lot of the new startups. And so government 557 00:33:20,760 --> 00:33:22,600 Speaker 1: policy will really make a difference. And here's the thought 558 00:33:22,600 --> 00:33:25,640 Speaker 1: experiment that I I urge you and your listeners to 559 00:33:25,680 --> 00:33:30,840 Speaker 1: think about. So, today we have a bank centric deposit system. Right, 560 00:33:30,960 --> 00:33:35,560 Speaker 1: if you want to store your money, have immediate access 561 00:33:35,560 --> 00:33:39,640 Speaker 1: to your cash liquidity right, a trade off from liquidity 562 00:33:39,720 --> 00:33:42,080 Speaker 1: versus return. You're gonna have a deposit account to bank 563 00:33:42,880 --> 00:33:46,720 Speaker 1: UH to meet your ordinary and mediate spending needs. Um, 564 00:33:46,760 --> 00:33:50,240 Speaker 1: it's safe because it's guaranteed by the federal government. UM. 565 00:33:50,280 --> 00:33:52,520 Speaker 1: The banks in turn take your deposits and deposit them. 566 00:33:52,600 --> 00:33:54,760 Speaker 1: There are excess reserves at the FAT, and the FEED 567 00:33:54,880 --> 00:33:57,680 Speaker 1: is now paying them seventy five basis points for the 568 00:33:57,720 --> 00:34:00,600 Speaker 1: privilege of having those exercis serves onto positive the FED. 569 00:34:00,640 --> 00:34:03,960 Speaker 1: The FED is basically a clearing house among all the banks. Well, 570 00:34:03,960 --> 00:34:07,920 Speaker 1: what if you, Barry Ridholtz, could have a deposit account 571 00:34:07,920 --> 00:34:10,880 Speaker 1: at the FED. You could get seventy five basis points 572 00:34:10,920 --> 00:34:13,600 Speaker 1: and you could direct the FED to transfer your money, 573 00:34:13,640 --> 00:34:16,960 Speaker 1: to your mutual fund, to your utility bill, to your 574 00:34:17,640 --> 00:34:20,040 Speaker 1: wherever you wanted it to go. In other words, what 575 00:34:20,120 --> 00:34:23,320 Speaker 1: if you had a bank account at the FED UM 576 00:34:23,400 --> 00:34:27,880 Speaker 1: If I could become a systemically important financial institution, I 577 00:34:27,920 --> 00:34:29,520 Speaker 1: know they'll they'll be able to bail me out with 578 00:34:30,400 --> 00:34:34,400 Speaker 1: Well maybe that that wouldn't come with your deposit. But 579 00:34:34,400 --> 00:34:39,279 Speaker 1: but the the facility with which monetary policy could then 580 00:34:39,320 --> 00:34:42,440 Speaker 1: be conducted is extraordinary, right, because if they want to 581 00:34:42,560 --> 00:34:46,360 Speaker 1: encourage savings to be if they want to encourage savings 582 00:34:46,360 --> 00:34:48,479 Speaker 1: and reduce the money supply, they would increase the interest 583 00:34:48,560 --> 00:34:51,200 Speaker 1: rate in your deposit account. If they want to encourage 584 00:34:51,239 --> 00:34:55,200 Speaker 1: investment and spending, they would reduce the interest rate, maybe 585 00:34:55,200 --> 00:34:58,200 Speaker 1: even have a negative interest rate to force your money out. 586 00:34:58,640 --> 00:35:01,400 Speaker 1: But the point is is that it would disintermediate the 587 00:35:01,440 --> 00:35:06,440 Speaker 1: banks uh and banks arguably would have to go find 588 00:35:06,520 --> 00:35:11,880 Speaker 1: other sources of funding other than subsidized deposits from the 589 00:35:11,880 --> 00:35:15,080 Speaker 1: federal government. And you're implying fintech is going to play 590 00:35:15,160 --> 00:35:17,600 Speaker 1: this role, well, potentially can't play this role. I don't 591 00:35:17,640 --> 00:35:21,200 Speaker 1: know where you are on the cryptocurrency debate. I'm of 592 00:35:21,440 --> 00:35:26,040 Speaker 1: full blown meth as opposed to Neureel who is you know, 593 00:35:26,080 --> 00:35:30,439 Speaker 1: a full time still okay, but in effect the FED 594 00:35:30,480 --> 00:35:33,320 Speaker 1: could issue with digital currency. You have a trusted agent 595 00:35:33,400 --> 00:35:38,280 Speaker 1: issuing a digital currency that allows individuals to in effect 596 00:35:38,280 --> 00:35:42,760 Speaker 1: transact uh in electronic form as opposed to just allowing 597 00:35:42,960 --> 00:35:45,839 Speaker 1: via the blockchain. Is that what you're might implement it 598 00:35:46,239 --> 00:35:49,359 Speaker 1: via plain but right now the implementation itself is quite 599 00:35:49,360 --> 00:35:52,320 Speaker 1: expensive in blockchain. The processing costs, you know, far exceed 600 00:35:52,360 --> 00:35:56,799 Speaker 1: with the the antiquated networks of Visa and MasterCard. UH 601 00:35:56,880 --> 00:35:59,720 Speaker 1: they're processing costs. But it may get there. Now people 602 00:36:00,160 --> 00:36:04,319 Speaker 1: something like of all cryptocurrencies have been lost and if 603 00:36:04,360 --> 00:36:07,160 Speaker 1: I lose my credit card, my liability is capped at 604 00:36:07,200 --> 00:36:10,320 Speaker 1: fifty dollars. So until we find a way around that, yeah, no, 605 00:36:10,440 --> 00:36:13,160 Speaker 1: I think there are lots of problems with this. But 606 00:36:13,239 --> 00:36:18,200 Speaker 1: the biggest problem, the biggest problem with any currency, fiat currency, 607 00:36:18,480 --> 00:36:21,560 Speaker 1: is whether it's legal tender and so, you know, until 608 00:36:21,840 --> 00:36:25,200 Speaker 1: until it's accepted as a form of payment by the 609 00:36:25,239 --> 00:36:29,920 Speaker 1: federal government. It's really just a speculative tool. Quite quite fascinating. 610 00:36:29,960 --> 00:36:31,440 Speaker 1: Can you stick around a little bit. I have a 611 00:36:31,480 --> 00:36:35,960 Speaker 1: million more questions for you. We've been speaking with Jim Milstein. 612 00:36:36,160 --> 00:36:39,759 Speaker 1: He is the co chairman of Guggenheim Securities. Uh. If 613 00:36:39,800 --> 00:36:42,399 Speaker 1: you enjoy this conversation, we'll be sure and come back 614 00:36:42,440 --> 00:36:44,880 Speaker 1: for the podcast extras, where we keep the tape rolling 615 00:36:45,239 --> 00:36:49,719 Speaker 1: and continue discussing all things restructuring. You can find that 616 00:36:49,920 --> 00:36:55,560 Speaker 1: at iTunes, Stitcher, overcast, Bloomberg dot com, wherever your finer 617 00:36:55,760 --> 00:36:59,759 Speaker 1: podcasts are sold. We love your comments, feedback and suggestions 618 00:37:00,239 --> 00:37:04,120 Speaker 1: right to us at m IB podcast at Bloomberg dot net. 619 00:37:04,560 --> 00:37:07,560 Speaker 1: You can check out my daily column on Bloomberg dot 620 00:37:07,600 --> 00:37:11,400 Speaker 1: com Slash Opinion, or follow me on Twitter at Riolts. 621 00:37:11,880 --> 00:37:15,279 Speaker 1: I'm Barry Rihults. You're listening to Master's in Business on 622 00:37:15,400 --> 00:37:32,200 Speaker 1: Bloomberg Radio. Welcome to the podcast, Jim. Thank you so 623 00:37:32,280 --> 00:37:35,359 Speaker 1: much for doing this. I am not only fascinated by 624 00:37:35,360 --> 00:37:41,120 Speaker 1: the entire financial crisis overcod that that was my doctoral 625 00:37:41,160 --> 00:37:47,040 Speaker 1: thesis um sort of um, but there's so much minutia 626 00:37:47,160 --> 00:37:50,640 Speaker 1: in that space that I think so many people don't know. 627 00:37:50,920 --> 00:37:55,319 Speaker 1: And you were literally table right there. You were. You 628 00:37:55,320 --> 00:37:58,040 Speaker 1: have a seat at the table right in the middle 629 00:37:58,080 --> 00:38:01,360 Speaker 1: of that of the beast, and and never any interest 630 00:38:01,400 --> 00:38:05,400 Speaker 1: in writing, uh a book going out. I mean, for 631 00:38:05,600 --> 00:38:11,000 Speaker 1: posterity's sake, there should be a full data dump on 632 00:38:11,440 --> 00:38:17,840 Speaker 1: everything you we we have, but not from the perspective 633 00:38:17,840 --> 00:38:22,600 Speaker 1: of a central banker. I'm glad Bernankey had his expertise, 634 00:38:22,760 --> 00:38:26,239 Speaker 1: although you know, whenever they screw up in surgery and 635 00:38:26,280 --> 00:38:28,680 Speaker 1: they have to send someone in to fix it, it's 636 00:38:28,719 --> 00:38:31,040 Speaker 1: never the original surgeon because he is a vest and 637 00:38:31,120 --> 00:38:36,160 Speaker 1: interest in protecting his own reputation. My my thought process was, Hey, 638 00:38:36,280 --> 00:38:40,320 Speaker 1: Larry Summers was there, you know, was the guy who 639 00:38:41,040 --> 00:38:45,000 Speaker 1: repealed glass steel and passed the Commodities Future Modernization Act. 640 00:38:45,360 --> 00:38:51,000 Speaker 1: Tim Geithner was the UM New York uh Federal Reserve President, 641 00:38:51,160 --> 00:38:54,880 Speaker 1: and Bernanke was kind of there cheering green span along 642 00:38:54,920 --> 00:38:59,880 Speaker 1: to doing all of his UM talk about a reputation collapse, 643 00:39:00,080 --> 00:39:03,560 Speaker 1: but all of his ideology. Bernaky was right there with him. 644 00:39:03,560 --> 00:39:07,000 Speaker 1: So I wonder if this really was the optimal Maybe 645 00:39:07,000 --> 00:39:09,920 Speaker 1: that's the right word, the optimal crew to go on 646 00:39:09,960 --> 00:39:15,520 Speaker 1: and rescue. That said, I completely appreciate Bernankee having had 647 00:39:15,640 --> 00:39:18,680 Speaker 1: his expertise, and perhaps of all of them, he was 648 00:39:18,760 --> 00:39:21,960 Speaker 1: the right guy in the right time. Yeah, well, Tim, 649 00:39:21,960 --> 00:39:24,279 Speaker 1: Tim had his own qualifications, right, He had lived through 650 00:39:24,400 --> 00:39:26,399 Speaker 1: I mean people thought he had worked at Goldman sax 651 00:39:26,480 --> 00:39:30,520 Speaker 1: or something. He've been a long term treasury, right, he said, 652 00:39:30,640 --> 00:39:33,319 Speaker 1: And he had gone through the Thai bot crisis, he 653 00:39:33,360 --> 00:39:36,120 Speaker 1: had seen the crisis in Latin America in the eighties 654 00:39:36,160 --> 00:39:38,640 Speaker 1: when he was a young man, So you know, I 655 00:39:38,680 --> 00:39:42,000 Speaker 1: think he he came to the crisis, this crisis with 656 00:39:42,080 --> 00:39:44,680 Speaker 1: some background and experience and understood the tools and the 657 00:39:44,880 --> 00:39:50,320 Speaker 1: importance of doing what we did. So all that said, Um, 658 00:39:50,360 --> 00:39:52,080 Speaker 1: you know, when I got out of the government, um, 659 00:39:52,280 --> 00:39:56,319 Speaker 1: having been a corporate restructuring guy rather than a financial 660 00:39:56,360 --> 00:40:02,200 Speaker 1: regulation financial industry banker, you know, I determined that I 661 00:40:02,239 --> 00:40:05,080 Speaker 1: needed to go teach a course on financial regulation and 662 00:40:05,080 --> 00:40:07,000 Speaker 1: the crisis in order to figure out what I had 663 00:40:07,040 --> 00:40:10,319 Speaker 1: just gone through. And you know, you write in order 664 00:40:10,360 --> 00:40:12,040 Speaker 1: to figure out what you think in your case, you 665 00:40:12,120 --> 00:40:14,600 Speaker 1: teach in order to figure out exactly so, and you're 666 00:40:14,600 --> 00:40:18,240 Speaker 1: still doing that at Georgetown. Yeah, I just finished the 667 00:40:18,280 --> 00:40:21,160 Speaker 1: third semester of teaching on that with Tim Massett, who 668 00:40:21,239 --> 00:40:26,080 Speaker 1: ran the CFTC under the last in the last Obama administration, 669 00:40:26,760 --> 00:40:28,400 Speaker 1: and he had also been a treasury with us in 670 00:40:28,400 --> 00:40:30,800 Speaker 1: the tar program, and so he and I taught that together, 671 00:40:30,840 --> 00:40:32,400 Speaker 1: which was, you know, was it was fun to do 672 00:40:32,480 --> 00:40:37,480 Speaker 1: it with him my third time around. But um, I 673 00:40:37,520 --> 00:40:40,040 Speaker 1: think it's still too fresh, you know, from the point 674 00:40:40,040 --> 00:40:43,799 Speaker 1: of viewing it. Yeah, but I think it's still too fresh. 675 00:40:43,840 --> 00:40:45,600 Speaker 1: I mean, you have a lot of kind of you know, 676 00:40:45,840 --> 00:40:48,640 Speaker 1: from the front line accounts that have already been written, 677 00:40:49,280 --> 00:40:51,439 Speaker 1: and those were written pretty much in real time. They 678 00:40:51,480 --> 00:40:53,799 Speaker 1: came out within a year or two exactly. And then 679 00:40:53,880 --> 00:40:57,880 Speaker 1: you know, Secretary Guytner wrote his book, and Brananki wrote 680 00:40:57,960 --> 00:41:00,840 Speaker 1: his book, and Paulson's written his book. Can there have 681 00:41:00,920 --> 00:41:03,480 Speaker 1: been a couple of you know, lieutenants and sergeants have 682 00:41:03,640 --> 00:41:07,239 Speaker 1: written their books, but I think plus random idiots who 683 00:41:07,239 --> 00:41:11,200 Speaker 1: had to do with it out and spilled their point. 684 00:41:11,680 --> 00:41:15,120 Speaker 1: I'm actually in the middle of reading um two's book, 685 00:41:15,160 --> 00:41:18,120 Speaker 1: which I think is Adam two is. It's called Crashed. 686 00:41:18,320 --> 00:41:21,480 Speaker 1: It just came out. Yeah, it's very good because it 687 00:41:21,520 --> 00:41:24,840 Speaker 1: takes a it situates the crisis and the kind of 688 00:41:24,880 --> 00:41:30,440 Speaker 1: macro economic environment of the early two thousands, of the 689 00:41:30,480 --> 00:41:32,960 Speaker 1: early adds, and you know, if you've just cast you know, 690 00:41:32,960 --> 00:41:35,359 Speaker 1: the thing about the crisis is it kind of overwhelmed 691 00:41:35,360 --> 00:41:38,560 Speaker 1: everything else that might we might have been thinking and 692 00:41:38,680 --> 00:41:41,080 Speaker 1: using as a frame of reference. It overwhelmed you know, 693 00:41:41,120 --> 00:41:44,120 Speaker 1: the introduction of the iPhone, which has had at least 694 00:41:44,160 --> 00:41:46,759 Speaker 1: as an important and impact of our culture and society 695 00:41:46,840 --> 00:41:49,400 Speaker 1: as the crash itself had in two thousand eight. You know, 696 00:41:49,440 --> 00:41:52,360 Speaker 1: the iPhone introduced in two thousand seven. But you know 697 00:41:52,400 --> 00:41:55,880 Speaker 1: what two highlights is and it's relevant today to the 698 00:41:55,920 --> 00:41:59,440 Speaker 1: existing problems with Chinese. You know, we had a savings glut. 699 00:41:59,800 --> 00:42:02,040 Speaker 1: It we were all worried about that. We thought that, 700 00:42:02,160 --> 00:42:05,719 Speaker 1: you know that I've always hated that. But but but 701 00:42:05,880 --> 00:42:11,800 Speaker 1: it's true, having run deficits and trade deficits, run deficits 702 00:42:11,840 --> 00:42:15,680 Speaker 1: since the Clinton administration, and run trade deficits since the sixties. 703 00:42:16,480 --> 00:42:19,800 Speaker 1: You know, we've been exporting dollars around the globe for 704 00:42:19,800 --> 00:42:23,480 Speaker 1: forty years at the same time that we're deregulating the 705 00:42:23,520 --> 00:42:28,200 Speaker 1: financial system and the largest holder of dollars where you know, 706 00:42:28,239 --> 00:42:33,080 Speaker 1: there were two pools, huge pools of dollars offshore in Europe, China, 707 00:42:33,480 --> 00:42:39,480 Speaker 1: Japan and in Europe, right, and that savings glut was 708 00:42:39,640 --> 00:42:43,120 Speaker 1: the you know, was the concern of the Fed and 709 00:42:43,280 --> 00:42:46,279 Speaker 1: of all the Macronan wrote a white paper on that. 710 00:42:47,320 --> 00:42:52,760 Speaker 1: I thought it was just the horrific, just completely clueless 711 00:42:52,880 --> 00:42:57,239 Speaker 1: argument from people who were It's a classic example. I 712 00:42:57,280 --> 00:43:01,480 Speaker 1: have a lot of respect for academic research and writing um. 713 00:43:01,520 --> 00:43:06,839 Speaker 1: But often when you get into the real world situations, 714 00:43:06,920 --> 00:43:10,440 Speaker 1: sometimes the academics take an idea and they go off. 715 00:43:10,560 --> 00:43:16,560 Speaker 1: So what's what's more significant? The savings glut or rates 716 00:43:16,560 --> 00:43:20,400 Speaker 1: at zero and bond managers scrambling for any sort of 717 00:43:20,480 --> 00:43:26,080 Speaker 1: yield and telling their existing um traders and managers go 718 00:43:26,200 --> 00:43:28,440 Speaker 1: find me some yield and if you can, I'll fire 719 00:43:28,480 --> 00:43:31,719 Speaker 1: you and find someone who can. What's what's this all day? 720 00:43:31,719 --> 00:43:35,560 Speaker 1: In some prime security stuff that is safe as treasuries 721 00:43:35,560 --> 00:43:38,040 Speaker 1: and paying a few hundred basis points higher. Why don't 722 00:43:38,080 --> 00:43:40,640 Speaker 1: we have more of that? That's a real world thing 723 00:43:40,680 --> 00:43:43,920 Speaker 1: that the academics have a tendency to miss until until 724 00:43:44,000 --> 00:43:46,319 Speaker 1: after the fact. Yeah, but you know, but they're in 725 00:43:46,360 --> 00:43:50,080 Speaker 1: defense of some academics. My friends Gary Gordon and Andrew 726 00:43:50,120 --> 00:43:53,040 Speaker 1: Metric at Yale have done, you know, great writing about 727 00:43:53,120 --> 00:43:57,960 Speaker 1: the confluence of events that led to the great innovation 728 00:43:58,040 --> 00:44:03,120 Speaker 1: of a subprime mortgage of you know, two year teaser 729 00:44:03,280 --> 00:44:07,520 Speaker 1: interest or the three seven. I could have saved them 730 00:44:07,560 --> 00:44:09,879 Speaker 1: a lot of paper and said, you have no real 731 00:44:09,920 --> 00:44:12,640 Speaker 1: wage gains for thirty years, and people are going to 732 00:44:12,760 --> 00:44:16,920 Speaker 1: do to maintain their living standard even though their incomes 733 00:44:16,920 --> 00:44:20,200 Speaker 1: are much lower, so that means debt and restruct So 734 00:44:20,239 --> 00:44:22,520 Speaker 1: here's another book, that obscure book that you might want 735 00:44:22,520 --> 00:44:29,719 Speaker 1: to read called Capitalizing on Crisis. It's written by Krippner. 736 00:44:29,800 --> 00:44:32,719 Speaker 1: I think it's her name, Greta Grippner, and it's all 737 00:44:32,760 --> 00:44:38,280 Speaker 1: about the political um origins of of modern American finance 738 00:44:38,840 --> 00:44:41,560 Speaker 1: and the story she tells, which I think is you 739 00:44:41,600 --> 00:44:43,399 Speaker 1: and I lived through. I think you're a little younger 740 00:44:43,400 --> 00:44:45,880 Speaker 1: than me, but not you got about five six years 741 00:44:46,440 --> 00:44:49,600 Speaker 1: UM was that, you know, the stagflation of the nineteen 742 00:44:49,640 --> 00:44:54,560 Speaker 1: seventies created political crisis because lasting impact that people were 743 00:44:54,600 --> 00:44:57,840 Speaker 1: unaware of and and the one of the biggest policy 744 00:44:57,840 --> 00:45:02,680 Speaker 1: initiatives of the Reagan administration every administration since has been 745 00:45:02,719 --> 00:45:08,359 Speaker 1: to UH expand the provision of credit where income, where 746 00:45:08,400 --> 00:45:13,400 Speaker 1: incomes were lagging and failing and falling behind. UM, we 747 00:45:13,480 --> 00:45:18,360 Speaker 1: substituted credit, no doubt why. It sped credit availability, and 748 00:45:18,480 --> 00:45:21,000 Speaker 1: you know, levered up both the government to do so, 749 00:45:21,680 --> 00:45:25,600 Speaker 1: levered up the households in order to UH turn their 750 00:45:25,600 --> 00:45:30,120 Speaker 1: homes into cash machines to supplement, so they could supplement 751 00:45:30,200 --> 00:45:34,160 Speaker 1: their incomes with the increase in the value of their 752 00:45:34,160 --> 00:45:37,799 Speaker 1: homes to finance the purchase of everything under the sun 753 00:45:37,960 --> 00:45:42,920 Speaker 1: from every consumer durable available through credit cards and installment credit. 754 00:45:43,080 --> 00:45:45,120 Speaker 1: A lot of that goes back to post World War 755 00:45:45,200 --> 00:45:48,400 Speaker 1: two fifties and sixties, but really the seventies is what 756 00:45:49,040 --> 00:45:53,640 Speaker 1: flipped that when suddenly giant inflation. No, that was the 757 00:45:53,680 --> 00:45:57,520 Speaker 1: beginning of of no real wage gains, and then the 758 00:45:57,560 --> 00:46:02,440 Speaker 1: whole Reagan era forward. It's clear that capital had a 759 00:46:02,480 --> 00:46:06,080 Speaker 1: better seat at the government policy table than labor did. 760 00:46:06,239 --> 00:46:09,279 Speaker 1: And thirty or forty years later we've seen what do 761 00:46:09,360 --> 00:46:15,360 Speaker 1: we now night The the percentage of UM corporate profits 762 00:46:15,400 --> 00:46:17,839 Speaker 1: as a percentage of GDP is at its all time high, 763 00:46:17,960 --> 00:46:22,560 Speaker 1: which means that labor is getting less. I pretend to 764 00:46:22,600 --> 00:46:24,680 Speaker 1: be a free market capitalist, but I can't help but 765 00:46:24,800 --> 00:46:28,040 Speaker 1: look at those numbers and say, hey, this is problematic. 766 00:46:28,040 --> 00:46:30,880 Speaker 1: We keep this up, and we're gonna elect some crazy 767 00:46:30,960 --> 00:46:33,960 Speaker 1: populist as president and then what? Okay? And then what? 768 00:46:34,120 --> 00:46:36,759 Speaker 1: And So here's another book for your listeners. It is 769 00:46:36,760 --> 00:46:40,480 Speaker 1: called Can Capitalism Be Saved? By my good friends Steve Perlstein, 770 00:46:40,560 --> 00:46:43,080 Speaker 1: who's the chief economics writer at the Washington Post, and 771 00:46:43,080 --> 00:46:47,440 Speaker 1: he's written a really thoughtful book about is greed good? No? 772 00:46:48,560 --> 00:46:52,319 Speaker 1: Is fairness? Going? To make us poor. No, um, you know, 773 00:46:52,360 --> 00:46:55,680 Speaker 1: it's a very serious treatment of the questions that we're 774 00:46:55,680 --> 00:46:58,080 Speaker 1: now confronting as a nation with the highest inequality in 775 00:46:58,120 --> 00:47:01,360 Speaker 1: American history. So does he conclude capitalism can be saved 776 00:47:01,440 --> 00:47:04,319 Speaker 1: or capitalism gonna be saved? But but we what we 777 00:47:05,120 --> 00:47:07,400 Speaker 1: I mean? This has been true, you know, really since 778 00:47:07,440 --> 00:47:10,439 Speaker 1: the progressive era. You know, the this is a joint 779 00:47:10,520 --> 00:47:14,480 Speaker 1: venture between government and capital to come up with a 780 00:47:14,520 --> 00:47:17,799 Speaker 1: society that is productive and just. So I have a 781 00:47:18,400 --> 00:47:21,960 Speaker 1: this will be my last pet thesis. Europe began as 782 00:47:21,960 --> 00:47:24,640 Speaker 1: a feudal system where the king owned everything and you 783 00:47:24,680 --> 00:47:26,279 Speaker 1: were allowed to work on the land and if he 784 00:47:26,400 --> 00:47:29,480 Speaker 1: threw you a little bit of wheat and some food 785 00:47:29,520 --> 00:47:33,880 Speaker 1: to survive. That was up from zero. And the reason 786 00:47:34,160 --> 00:47:38,080 Speaker 1: Europeans are so much more comfortable with some aspect of 787 00:47:38,160 --> 00:47:41,960 Speaker 1: socialism with their capitalism is they started out with zero 788 00:47:42,200 --> 00:47:45,680 Speaker 1: and as they went higher and higher, to them, oh wait, 789 00:47:45,719 --> 00:47:49,560 Speaker 1: we we get to own land, We get to have 790 00:47:50,120 --> 00:47:52,440 Speaker 1: well since you used to since the government used to 791 00:47:52,480 --> 00:47:57,400 Speaker 1: provide everything, food protection, what have you? Having the government 792 00:47:57,440 --> 00:48:03,040 Speaker 1: pay for healthcare and tournament and education seems to make sense. 793 00:48:03,080 --> 00:48:05,520 Speaker 1: The US, on the other hand, started with the exact opposite. 794 00:48:05,840 --> 00:48:08,240 Speaker 1: Government did nothing, and you're responsible for a hundred percent 795 00:48:08,239 --> 00:48:10,480 Speaker 1: in your own safety. So one starting from zero and 796 00:48:10,520 --> 00:48:12,080 Speaker 1: going up, in the other starting from a hundred and 797 00:48:12,120 --> 00:48:16,759 Speaker 1: going down, and there's resistance in both directions. But well, 798 00:48:16,760 --> 00:48:19,279 Speaker 1: the myths by which we live, right, I mean, you 799 00:48:19,320 --> 00:48:24,319 Speaker 1: and I are are immediate parents, their grandparents. You have 800 00:48:24,360 --> 00:48:27,440 Speaker 1: to go probably back four generations before you have someone 801 00:48:27,560 --> 00:48:32,960 Speaker 1: homesteading right and you know, protecting themselves and fending for themselves. 802 00:48:32,960 --> 00:48:36,799 Speaker 1: And yet this myth of the American frontier is very 803 00:48:36,840 --> 00:48:41,040 Speaker 1: powerful in our political ideology and therefore in our social policy. 804 00:48:41,160 --> 00:48:44,279 Speaker 1: But the reality, you know, four generations later from the 805 00:48:44,360 --> 00:48:48,200 Speaker 1: last homestead of the last frontiers woman and man um 806 00:48:48,360 --> 00:48:52,279 Speaker 1: is a is a multi ethnic, multi racial society. You know, 807 00:48:52,360 --> 00:48:55,160 Speaker 1: we have one of the greatest challenges, I think in 808 00:48:55,440 --> 00:48:58,920 Speaker 1: human history, which is can we create a tribe, one 809 00:48:59,000 --> 00:49:02,160 Speaker 1: tribe out of many you know e players them? And 810 00:49:02,800 --> 00:49:07,400 Speaker 1: it really is it befalls to us as Americans to 811 00:49:07,440 --> 00:49:10,040 Speaker 1: figure out whether we can make this a democracy out 812 00:49:10,080 --> 00:49:12,640 Speaker 1: of you know, many tribes. I think we need to 813 00:49:12,680 --> 00:49:16,960 Speaker 1: do a better job of educating our students, not just 814 00:49:17,080 --> 00:49:22,919 Speaker 1: teaching them to attest as as middle school and high 815 00:49:22,960 --> 00:49:26,200 Speaker 1: school students, but having them have a better understanding of 816 00:49:26,239 --> 00:49:29,120 Speaker 1: all these forces and and teaching them how to think, 817 00:49:29,520 --> 00:49:33,680 Speaker 1: as opposed to teaching them to memorize. Because we've created 818 00:49:34,160 --> 00:49:36,920 Speaker 1: several generations of people. So you and I both have 819 00:49:36,920 --> 00:49:42,000 Speaker 1: an advantage of illegal education, which to me, the most 820 00:49:42,040 --> 00:49:46,600 Speaker 1: important thing law school teaches you is not case law 821 00:49:46,719 --> 00:49:50,799 Speaker 1: is not specific, but the entire process of here's the 822 00:49:50,840 --> 00:49:54,399 Speaker 1: basic syllogism here. So you don't know what the law 823 00:49:54,480 --> 00:49:55,879 Speaker 1: is going to look like in the future. You don't 824 00:49:55,920 --> 00:49:59,120 Speaker 1: know what sort of random fact pattern human encounter. How 825 00:49:59,160 --> 00:50:04,360 Speaker 1: can you, regardless of circumstances, apply some specific fact pattern 826 00:50:04,400 --> 00:50:08,040 Speaker 1: to whatever the case law happens to be at that moment. 827 00:50:08,600 --> 00:50:11,319 Speaker 1: You have to learn how to think. It's very flexible 828 00:50:11,800 --> 00:50:14,279 Speaker 1: and it's it's very open minded. And I don't know 829 00:50:14,320 --> 00:50:17,560 Speaker 1: of a lot of other industries that teach that. And 830 00:50:17,600 --> 00:50:19,600 Speaker 1: I agree with you. I think the legal education and 831 00:50:19,640 --> 00:50:21,399 Speaker 1: maybe it's I think it goes on maybe a year 832 00:50:21,480 --> 00:50:27,080 Speaker 1: too long, but I think the training is unsurpassed. It's 833 00:50:27,280 --> 00:50:30,160 Speaker 1: it's not what to think, but how to think. And 834 00:50:30,320 --> 00:50:33,799 Speaker 1: I make fun of my m b A buddies who 835 00:50:33,880 --> 00:50:37,040 Speaker 1: are taught what to think or they're taught the canon 836 00:50:37,200 --> 00:50:41,160 Speaker 1: of financial literacy, but not necessarily. And now here's how 837 00:50:41,200 --> 00:50:44,239 Speaker 1: to analyze when either this stops working or this goes 838 00:50:44,320 --> 00:50:46,279 Speaker 1: wrong or and it's I don't want to make this 839 00:50:46,320 --> 00:50:48,640 Speaker 1: a j D versus an m B A, but they're 840 00:50:48,640 --> 00:50:52,360 Speaker 1: two very different philosophical approaches. And in the modern world 841 00:50:52,360 --> 00:50:56,080 Speaker 1: where everything is topsy turvy, I have come to the 842 00:50:56,120 --> 00:51:00,560 Speaker 1: conclusion that learning how to think is a tremendous skill 843 00:51:00,640 --> 00:51:02,920 Speaker 1: to have. Yeah, but I also think I I agree 844 00:51:02,960 --> 00:51:06,000 Speaker 1: with that, and and surely our schools can do a 845 00:51:06,000 --> 00:51:10,960 Speaker 1: better job, um of developing that, you know, emotional intelligence 846 00:51:10,960 --> 00:51:16,120 Speaker 1: and analytic ability, the ability to handle new facts uh 847 00:51:16,160 --> 00:51:20,360 Speaker 1: and put them in find new patterns. Um. But I 848 00:51:20,400 --> 00:51:24,960 Speaker 1: also think that the social media has isolated in a 849 00:51:25,040 --> 00:51:28,680 Speaker 1: funny way, has isolated people from one another. It's isolating 850 00:51:28,719 --> 00:51:33,719 Speaker 1: communities as much as it's creating a cross community the 851 00:51:33,760 --> 00:51:38,240 Speaker 1: possibility of cross community communication. And so I've come around 852 00:51:38,280 --> 00:51:41,360 Speaker 1: to the view that we really need national service that 853 00:51:41,640 --> 00:51:44,400 Speaker 1: in order to works in Israel. Yeah, it works in 854 00:51:44,440 --> 00:51:47,440 Speaker 1: Israel for and it and it made sense of us 855 00:51:47,560 --> 00:51:50,840 Speaker 1: from all over the world, different ethnic and um national 856 00:51:50,880 --> 00:51:55,279 Speaker 1: backgrounds into one little desert country. Uh. And it was 857 00:51:55,320 --> 00:51:57,600 Speaker 1: a way of forging a national identity, and I think 858 00:51:57,640 --> 00:51:59,799 Speaker 1: we have that problem in the United States now. We 859 00:52:00,080 --> 00:52:04,920 Speaker 1: really we've we're separating into into separate tribes, and not 860 00:52:05,040 --> 00:52:09,000 Speaker 1: just Democrat and Republican, but you know, the identity policy 861 00:52:12,239 --> 00:52:14,600 Speaker 1: with a million splits, and I think, you know, I 862 00:52:14,640 --> 00:52:17,960 Speaker 1: think two or three years of mandatory national service is 863 00:52:18,040 --> 00:52:20,680 Speaker 1: the best hope for the future of this country. I 864 00:52:20,719 --> 00:52:23,960 Speaker 1: have a buddy who's an American citizen at UBS, but 865 00:52:24,040 --> 00:52:27,239 Speaker 1: he grew up in Switzerland. And I don't know if 866 00:52:27,280 --> 00:52:30,640 Speaker 1: they're still doing this, but not all that long ago, 867 00:52:31,520 --> 00:52:36,720 Speaker 1: every every citizen and every resident was obligated to serve 868 00:52:36,760 --> 00:52:39,680 Speaker 1: at least one year in the military or some other right. 869 00:52:39,719 --> 00:52:41,520 Speaker 1: It doesn't have to be a military here. I mean, 870 00:52:41,600 --> 00:52:44,400 Speaker 1: I think, I think there's lots of need in America 871 00:52:45,680 --> 00:52:49,279 Speaker 1: that could be met by a national corps. And I 872 00:52:49,320 --> 00:52:52,520 Speaker 1: think having you know, the experience before you go to 873 00:52:52,560 --> 00:52:58,120 Speaker 1: college of actually having to live and work with people 874 00:52:58,160 --> 00:53:00,920 Speaker 1: different to yourself, but all of whom are American, would 875 00:53:00,920 --> 00:53:04,839 Speaker 1: be a great national unifier. That's quite fascinating. In two 876 00:53:04,840 --> 00:53:07,200 Speaker 1: thousand and eleven, I found this interesting quote of yours. 877 00:53:07,680 --> 00:53:11,040 Speaker 1: The need for a Chief Restructuring Officer is really part 878 00:53:11,040 --> 00:53:13,880 Speaker 1: of the past. So how did you realize, Hey, my 879 00:53:13,960 --> 00:53:16,800 Speaker 1: work here is done, It's time to move on and 880 00:53:16,800 --> 00:53:20,239 Speaker 1: and um the lone Rangers goes off into the sunset. 881 00:53:20,320 --> 00:53:23,680 Speaker 1: How what made you come to that conclusion? Well, I 882 00:53:23,719 --> 00:53:29,799 Speaker 1: think the the macro economic condition Shirley had eased, so 883 00:53:30,440 --> 00:53:34,360 Speaker 1: the FED had embarked on its quantitative easing. The markets 884 00:53:34,400 --> 00:53:37,760 Speaker 1: had rallied. Uh. You know the depth of the market, 885 00:53:38,120 --> 00:53:40,600 Speaker 1: the equity market and the credit market. Where in May 886 00:53:40,640 --> 00:53:42,480 Speaker 1: of two thousand nine, by the time you got to 887 00:53:42,600 --> 00:53:45,640 Speaker 1: the end of two thousand ten, you had seen a 888 00:53:45,760 --> 00:53:48,800 Speaker 1: rally back. The rallies had both started in both markets, 889 00:53:48,880 --> 00:53:52,279 Speaker 1: and most importantly, by the end of two thousand nine, 890 00:53:52,520 --> 00:53:55,240 Speaker 1: the inter bank lending market opened up again. The banks 891 00:53:55,239 --> 00:54:00,200 Speaker 1: were actually comfortable enough with each other to start ending 892 00:54:00,239 --> 00:54:02,840 Speaker 1: to each other overnight. And uh. And that was a 893 00:54:02,840 --> 00:54:08,040 Speaker 1: pretty real sign of that that the crisis had passed. Um. 894 00:54:08,120 --> 00:54:09,919 Speaker 1: But you know, I was part of the cleanup crew, 895 00:54:10,120 --> 00:54:14,200 Speaker 1: and part of my job was to um get the 896 00:54:14,239 --> 00:54:18,440 Speaker 1: taxpayers money back. Um. You know, by the time, by 897 00:54:18,440 --> 00:54:24,840 Speaker 1: the time two thousand ten had ended, we had struck 898 00:54:25,480 --> 00:54:28,000 Speaker 1: a deal with a I. G. S Board for a 899 00:54:28,040 --> 00:54:32,480 Speaker 1: complete recapitalization of the company. We had converted some dead 900 00:54:32,520 --> 00:54:35,239 Speaker 1: into tarbe equity, some fed dead into talk equity along 901 00:54:35,280 --> 00:54:39,279 Speaker 1: the way in two thousand nine, UM, and then we 902 00:54:39,400 --> 00:54:42,759 Speaker 1: did a series of asset sales and restructurings from a 903 00:54:42,880 --> 00:54:44,840 Speaker 1: I G. We reduced its balance sheet from a trillion 904 00:54:44,880 --> 00:54:47,240 Speaker 1: dollars of assets to half a trillion of assets, selling 905 00:54:47,280 --> 00:54:51,359 Speaker 1: off its Asian life insurance operations, it's Middle East life 906 00:54:51,360 --> 00:54:55,520 Speaker 1: insurance operations, it's Middle European life insurance operations, and a 907 00:54:55,640 --> 00:54:58,799 Speaker 1: hundred other businesses along the way that they were involved in. 908 00:54:59,040 --> 00:55:01,160 Speaker 1: So what is a I G look like today? So 909 00:55:01,520 --> 00:55:03,080 Speaker 1: I do today? Is still the large one of the 910 00:55:03,160 --> 00:55:08,040 Speaker 1: largest property casualty insurers in the world. UM, it's one 911 00:55:08,040 --> 00:55:12,759 Speaker 1: of the largest domestic life insurance companies. Uh, and UH 912 00:55:12,920 --> 00:55:15,840 Speaker 1: not a lot else. We sold off the aircraft leasing business, 913 00:55:15,840 --> 00:55:18,319 Speaker 1: the consumer finance business, as I said, all these other 914 00:55:18,360 --> 00:55:21,400 Speaker 1: worldwide life insurance operations. They had a ton of assets 915 00:55:21,400 --> 00:55:24,200 Speaker 1: that were very savable. They were very savable, and as 916 00:55:24,200 --> 00:55:26,480 Speaker 1: a result of the assets sales, we managed to use 917 00:55:26,480 --> 00:55:29,840 Speaker 1: the st sales to pay off the FEDS loans, leaving 918 00:55:29,960 --> 00:55:33,560 Speaker 1: the federal government with you know, fifty billion dollars of 919 00:55:33,760 --> 00:55:39,120 Speaker 1: preferred stock. We converted the preferred stock UM into the 920 00:55:39,120 --> 00:55:42,040 Speaker 1: common stock, and so we now had a liquid market, 921 00:55:42,400 --> 00:55:44,800 Speaker 1: and eventually we had a liquid market into which to 922 00:55:45,120 --> 00:55:49,439 Speaker 1: offload the treasuries shares of common stocks. So so that 923 00:55:49,520 --> 00:55:53,400 Speaker 1: brings up another peeve of mine. I think that process 924 00:55:53,680 --> 00:55:57,920 Speaker 1: where the rescuer gets most of the equity is a 925 00:55:58,000 --> 00:56:00,520 Speaker 1: reasonable one. Hey, we're taking all the risk, we're putting 926 00:56:00,560 --> 00:56:03,279 Speaker 1: up all this money. Maybe this works out, maybe it 927 00:56:03,320 --> 00:56:10,040 Speaker 1: doesn't UM, And so there's a big upside at the 928 00:56:10,160 --> 00:56:11,839 Speaker 1: end of it. Not that the government is doing this 929 00:56:11,920 --> 00:56:15,480 Speaker 1: for the trade. They want to prevent the next Great depression, 930 00:56:15,560 --> 00:56:19,520 Speaker 1: but it seems fair. We didn't seem to do that 931 00:56:19,600 --> 00:56:24,000 Speaker 1: with anybody else. We rescued Bank America, Merrow Lynch City 932 00:56:24,200 --> 00:56:26,960 Speaker 1: for I don't know the fourteen time city has been 933 00:56:27,000 --> 00:56:29,239 Speaker 1: bailed out. I think it's three or four over the 934 00:56:29,239 --> 00:56:32,080 Speaker 1: past century. They have a long history of that. Go 935 00:56:32,160 --> 00:56:35,480 Speaker 1: down the list of other companies that were that needed 936 00:56:35,480 --> 00:56:40,000 Speaker 1: bailing out UM, and we're rescued and we're a liquid 937 00:56:40,080 --> 00:56:44,239 Speaker 1: But their balance sheet was transparent. You know. The one 938 00:56:44,320 --> 00:56:48,120 Speaker 1: lesson everybody forgets from Lehman Brothers is if you're gonna 939 00:56:48,120 --> 00:56:53,960 Speaker 1: have an opaque balance sheet, that's forget the insolvency, just 940 00:56:54,120 --> 00:56:55,960 Speaker 1: the inability for anyone to figure out what the hell 941 00:56:56,040 --> 00:57:00,400 Speaker 1: is going on there? If you need to rescue, you're trouble, 942 00:57:00,560 --> 00:57:03,200 Speaker 1: and and that's a big part of that. So why 943 00:57:03,400 --> 00:57:06,520 Speaker 1: didn't we take a similar approach to a I G. 944 00:57:06,800 --> 00:57:11,799 Speaker 1: Where effectively Uncle Sam was the dead rain possession financer 945 00:57:12,440 --> 00:57:15,440 Speaker 1: and when that worked out, they captured whatever upside there 946 00:57:15,520 --> 00:57:17,960 Speaker 1: was to be captured. Yeah, So I think, Look, I 947 00:57:18,000 --> 00:57:23,520 Speaker 1: think the the structure of the TART program UM, which 948 00:57:23,640 --> 00:57:27,640 Speaker 1: was where we and few ultimately determined to infuse preferred 949 00:57:27,680 --> 00:57:30,200 Speaker 1: stock equity into the balance sheets of all the major 950 00:57:30,200 --> 00:57:34,880 Speaker 1: financial institutions UM, I think there could be some serious 951 00:57:34,920 --> 00:57:37,600 Speaker 1: criticism of the way it was done, particularly by I 952 00:57:37,640 --> 00:57:40,160 Speaker 1: think it may have created more of a political backlash 953 00:57:40,400 --> 00:57:42,720 Speaker 1: for sure against the program that it ted party and 954 00:57:42,760 --> 00:57:46,480 Speaker 1: everything else. Well, I mean they're the origins of the 955 00:57:46,480 --> 00:57:48,440 Speaker 1: two party or something we could made for a while. 956 00:57:48,520 --> 00:57:50,640 Speaker 1: But no doubt the crisis had something to do with it. 957 00:57:50,680 --> 00:57:54,680 Speaker 1: But I think the one, I mean, the one criticism 958 00:57:54,720 --> 00:57:57,640 Speaker 1: I would have of the initial TART program was that 959 00:57:57,720 --> 00:58:01,800 Speaker 1: the UM as long as the preferred stock was outstanding, 960 00:58:03,000 --> 00:58:05,040 Speaker 1: the company should not have been permitted to pay the 961 00:58:05,120 --> 00:58:07,560 Speaker 1: kinds of bonuses that they paid, right, I mean, as 962 00:58:07,560 --> 00:58:10,240 Speaker 1: long as you're beholden to the federal government for equity 963 00:58:10,880 --> 00:58:16,320 Speaker 1: on your balance and would have to sign off on bonuses. Eventually, 964 00:58:16,920 --> 00:58:19,520 Speaker 1: they didn't sign off on the two thousand nine bonuses. 965 00:58:19,640 --> 00:58:21,880 Speaker 1: Two thousand eight bonuses, and I think that was the one. 966 00:58:21,920 --> 00:58:25,479 Speaker 1: Those are the bonuses that provoked the enormous political because 967 00:58:25,800 --> 00:58:28,720 Speaker 1: most of the back bonuses not paying Yeah, and I 968 00:58:28,800 --> 00:58:31,200 Speaker 1: think most Americans were kind of, you know, right in 969 00:58:31,240 --> 00:58:33,520 Speaker 1: the view of like, wait a second, you're paying yourself 970 00:58:33,560 --> 00:58:38,840 Speaker 1: billions of dollars of bonuses with taxpayer money for bankrupting 971 00:58:38,840 --> 00:58:42,320 Speaker 1: the company. Nice work, here's a bonus, now the counter. 972 00:58:42,600 --> 00:58:45,920 Speaker 1: You know what Secretary Paulson would say, who designed this 973 00:58:46,160 --> 00:58:50,680 Speaker 1: these preferred is it was important that everyone participated. Every 974 00:58:50,760 --> 00:58:54,120 Speaker 1: all the major institutions participate, because we couldn't permit the 975 00:58:54,160 --> 00:58:57,000 Speaker 1: negative inference that if Jamie Diamond held out that he 976 00:58:57,080 --> 00:59:00,760 Speaker 1: was the only solid bank in America. Uh. And so 977 00:59:00,880 --> 00:59:04,080 Speaker 1: they had to make the terms of the preferred as 978 00:59:04,240 --> 00:59:08,600 Speaker 1: relatively benign and painless as possible in order to induce 979 00:59:09,040 --> 00:59:13,120 Speaker 1: widespread participation by all of the institutions, so there could 980 00:59:13,160 --> 00:59:15,800 Speaker 1: be no picking and choosing of winners and losers. And 981 00:59:15,960 --> 00:59:19,360 Speaker 1: so so here's where I make fun of academics again. 982 00:59:20,440 --> 00:59:23,120 Speaker 1: And you don't want to be too heavy handed, but 983 00:59:23,880 --> 00:59:28,400 Speaker 1: you could have had a less egregious set up. And 984 00:59:28,440 --> 00:59:31,840 Speaker 1: if Jamie Diamond doesn't want to participate, well then Bernaki 985 00:59:31,960 --> 00:59:36,800 Speaker 1: has to say to him full new Jersey bent nose accents. Hey, 986 00:59:37,320 --> 00:59:39,920 Speaker 1: nice bank, you got their shame if anything were to 987 00:59:39,960 --> 00:59:42,600 Speaker 1: happen to it. How much more do you have to 988 00:59:42,640 --> 00:59:45,480 Speaker 1: say to say, listen, this is a disaster. We're about 989 00:59:45,480 --> 00:59:48,520 Speaker 1: to have the Great Depression. Either you participate in this 990 00:59:49,120 --> 00:59:51,080 Speaker 1: or I have a feeling that the next time you 991 00:59:51,200 --> 00:59:54,640 Speaker 1: come to the normal transaction process at the FED, which 992 00:59:54,680 --> 00:59:58,880 Speaker 1: is what every single day. Yeah, good luck with that. Yeah, 993 00:59:58,960 --> 01:00:01,120 Speaker 1: so I I are you on that? I mean, I 994 01:00:01,160 --> 01:00:03,800 Speaker 1: mean I actually got into a fight with Elizabeth Warren 995 01:00:03,920 --> 01:00:07,320 Speaker 1: during a public hearing when I was testifying about what 996 01:00:07,360 --> 01:00:09,360 Speaker 1: we were doing with the I G and Ally Financial 997 01:00:10,040 --> 01:00:13,480 Speaker 1: and she she was beating me up that we should 998 01:00:13,560 --> 01:00:17,480 Speaker 1: have tried to extract a discount from a I G. 999 01:00:17,640 --> 01:00:21,720 Speaker 1: S counterparties on their um uh CDs on c d 1000 01:00:21,720 --> 01:00:25,560 Speaker 1: O s, which your audience probably understands what I just 1001 01:00:25,760 --> 01:00:31,000 Speaker 1: meant In those acronyms, uh and um, sort of counterproductive 1002 01:00:31,040 --> 01:00:34,480 Speaker 1: if you want to reliquefy the system and encourage some 1003 01:00:34,480 --> 01:00:39,240 Speaker 1: some counterparty. But you had the power, she said, you 1004 01:00:39,400 --> 01:00:43,600 Speaker 1: had the power to get Goldman Sacks to give up 1005 01:00:43,600 --> 01:00:46,040 Speaker 1: a discount rather than to pay them off in full. 1006 01:00:46,160 --> 01:00:48,440 Speaker 1: Wasn't this a backdoor ball out of Goldman's Act? And 1007 01:00:48,520 --> 01:00:51,920 Speaker 1: I was like, okay, secretary, but she wasn't secretary, And 1008 01:00:52,040 --> 01:00:57,920 Speaker 1: I was you know, um, professor Warren. If so, you 1009 01:00:58,040 --> 01:01:00,280 Speaker 1: tell me how I'm supposed to as a over in 1010 01:01:00,280 --> 01:01:02,919 Speaker 1: the United States, how I'm supposed to play that hand. 1011 01:01:03,000 --> 01:01:06,480 Speaker 1: I'm supposed to benefit a i G S shareholders by 1012 01:01:06,520 --> 01:01:09,400 Speaker 1: taking it out of Goldman Sex, when in fact we're 1013 01:01:09,480 --> 01:01:12,560 Speaker 1: standing behind both of these companies. The whole point was 1014 01:01:12,600 --> 01:01:15,919 Speaker 1: to avoid defaults across the system and to avoid ai 1015 01:01:16,080 --> 01:01:18,760 Speaker 1: G defaulting on any of its obligations, because if it 1016 01:01:18,840 --> 01:01:21,320 Speaker 1: defaulted on any of its obligations, it's credit rating would 1017 01:01:21,320 --> 01:01:23,040 Speaker 1: have been impaired and we would have been started had 1018 01:01:23,080 --> 01:01:31,520 Speaker 1: to write even bigger checks um a political response. But 1019 01:01:31,520 --> 01:01:37,400 Speaker 1: but meanwhile, the the you know, there's there was no 1020 01:01:38,040 --> 01:01:41,560 Speaker 1: good solution. That was just what was the least bad solution, 1021 01:01:41,640 --> 01:01:45,520 Speaker 1: and ultimately even though we've recovered, there's been a cost 1022 01:01:45,600 --> 01:01:50,280 Speaker 1: to this recovery between income inequality and the rise of populism. 1023 01:01:50,320 --> 01:01:55,240 Speaker 1: And you know, it's um it's one of those things 1024 01:01:55,240 --> 01:01:57,840 Speaker 1: that it could have been a whole lot worse, but 1025 01:01:58,000 --> 01:02:00,560 Speaker 1: part of me feels like it it would have been, 1026 01:02:00,880 --> 01:02:02,919 Speaker 1: it could have been a lot better. Yeah, I think 1027 01:02:02,960 --> 01:02:08,440 Speaker 1: the big mistake politically was the stimulus. If you look 1028 01:02:08,480 --> 01:02:12,000 Speaker 1: with the Chinese, too small the Chinese, you know, and 1029 01:02:12,040 --> 01:02:13,760 Speaker 1: if you look at what the federal government's doing now 1030 01:02:13,880 --> 01:02:18,520 Speaker 1: right these Republicans who were um totally opposed to the 1031 01:02:18,520 --> 01:02:21,960 Speaker 1: Obama stimulus have just enacted you know, one of the 1032 01:02:22,040 --> 01:02:26,360 Speaker 1: largest tax a trillion dollars at way higher in the 1033 01:02:26,400 --> 01:02:29,680 Speaker 1: economic cycle and as opposed to right in and by 1034 01:02:29,680 --> 01:02:32,520 Speaker 1: the way, for those of you who don't like that 1035 01:02:33,120 --> 01:02:37,880 Speaker 1: comment about a Republican controlled Congress affecting a giant stimulus, 1036 01:02:37,920 --> 01:02:42,080 Speaker 1: be sure and send your emails to Jim Millstein at 1037 01:02:42,120 --> 01:02:46,040 Speaker 1: Yahoo dut com. Ye, but it's true. You know, if 1038 01:02:46,440 --> 01:02:50,120 Speaker 1: Kane's had this right in the middle of a financial crisis, 1039 01:02:50,120 --> 01:02:53,480 Speaker 1: you cut taxes, you deficit spends, and when you have 1040 01:02:53,560 --> 01:02:56,720 Speaker 1: a robust economy, that's when you can stop your deficit. 1041 01:02:56,760 --> 01:03:00,320 Speaker 1: Spending and and raise taxes and balance the budget. We've 1042 01:03:00,360 --> 01:03:03,360 Speaker 1: done it totally aspect right and and so you know, 1043 01:03:03,440 --> 01:03:08,640 Speaker 1: in the two thousand nine we got Democratic controlled Congress 1044 01:03:09,240 --> 01:03:13,240 Speaker 1: to do a stimulus bent, but Obama. But Obama went 1045 01:03:13,320 --> 01:03:16,040 Speaker 1: back to the well in two thousand and ten, after 1046 01:03:16,080 --> 01:03:20,480 Speaker 1: the Tea Party took the Republican Congress in eleven, I 1047 01:03:20,640 --> 01:03:24,200 Speaker 1: just couldn't get it done, went back with an infrastructure program, 1048 01:03:24,240 --> 01:03:28,800 Speaker 1: could never get anything from the Republicans. McConnell uh specifically said, 1049 01:03:29,240 --> 01:03:31,240 Speaker 1: my role is to make sure he gets nothing else 1050 01:03:31,280 --> 01:03:34,000 Speaker 1: done going right. So for you know, so we you 1051 01:03:34,080 --> 01:03:36,960 Speaker 1: reap what you're so, I guess we do. So. I 1052 01:03:37,000 --> 01:03:39,080 Speaker 1: have a million other questions, but I want to get 1053 01:03:39,120 --> 01:03:44,200 Speaker 1: to our favorite questions before and and uh so let's 1054 01:03:44,280 --> 01:03:47,600 Speaker 1: jump let's jump right into this. Um, what's the most 1055 01:03:47,640 --> 01:03:55,400 Speaker 1: important thing that people don't know about Jim Milstein? God, Um, 1056 01:03:55,440 --> 01:03:58,560 Speaker 1: I'm a horrible golfer. Really yeah, me too. But I 1057 01:03:58,560 --> 01:04:02,360 Speaker 1: don't play golf, Okay that I don't know. I'm I'm 1058 01:04:02,400 --> 01:04:05,000 Speaker 1: a glutton for punishment. But you play regularly, you know, 1059 01:04:05,120 --> 01:04:07,760 Speaker 1: I try. I don't can't play regularly, but I try. 1060 01:04:08,520 --> 01:04:13,400 Speaker 1: That's very funny. Tell us about your early mentors. UM, 1061 01:04:13,440 --> 01:04:16,040 Speaker 1: I had a professor at Princeton, a guy named Sheldon 1062 01:04:16,040 --> 01:04:20,120 Speaker 1: Woland who recently passed, who is a political theorist, UM 1063 01:04:20,160 --> 01:04:24,480 Speaker 1: and a historian of political theory. And you know that's 1064 01:04:24,480 --> 01:04:28,280 Speaker 1: what I did my first years as an academic. So 1065 01:04:28,360 --> 01:04:33,160 Speaker 1: he had a very important influence on my intellectual development. UM. 1066 01:04:33,200 --> 01:04:35,920 Speaker 1: As a career, I had a had a partner Clary 1067 01:04:35,920 --> 01:04:38,880 Speaker 1: Gotliam nim Al and Applebam who really taught me how 1068 01:04:38,920 --> 01:04:43,800 Speaker 1: to be a lawyer. Uh, taught me the whole how 1069 01:04:43,840 --> 01:04:47,040 Speaker 1: to deal with clients, how to analyze the situation, had 1070 01:04:47,080 --> 01:04:53,080 Speaker 1: to take a multi parties with conflicting interests and uh 1071 01:04:53,480 --> 01:04:56,920 Speaker 1: and produce a common result. It was acceptable to you know, 1072 01:04:56,960 --> 01:05:00,520 Speaker 1: we haven't even discussed your dad, who is a renown attorney. 1073 01:05:00,600 --> 01:05:03,400 Speaker 1: How how did he impact your career decision? Did you 1074 01:05:03,480 --> 01:05:04,960 Speaker 1: know you were always going to be a lawyer? And 1075 01:05:05,320 --> 01:05:07,760 Speaker 1: it was like a residency requirement in my in my family, 1076 01:05:07,920 --> 01:05:10,800 Speaker 1: I kind of had the same thing. He UM. You know, 1077 01:05:10,840 --> 01:05:14,480 Speaker 1: my father loves He's still alive and still you know, 1078 01:05:14,600 --> 01:05:22,040 Speaker 1: practicing here and there, still practicing, still practicing, still getting advice, 1079 01:05:22,280 --> 01:05:25,680 Speaker 1: still giving advice to people he's consulted. And the thing 1080 01:05:25,720 --> 01:05:28,760 Speaker 1: is he loved when I was growing up, he just 1081 01:05:29,040 --> 01:05:32,560 Speaker 1: loved what he did, right. So I mean it was hard, 1082 01:05:33,040 --> 01:05:35,439 Speaker 1: you know, to look at him and be with him 1083 01:05:35,480 --> 01:05:40,439 Speaker 1: and not see the law as something that was incredibly engaging. UM. 1084 01:05:40,520 --> 01:05:42,560 Speaker 1: And because it and for him it was and as 1085 01:05:42,640 --> 01:05:45,880 Speaker 1: has been for me, a mix of um, you know, 1086 01:05:46,640 --> 01:05:50,000 Speaker 1: a crossing between private sector and public sector. I mean, 1087 01:05:50,040 --> 01:05:52,320 Speaker 1: the law, the rule of law is what governs our 1088 01:05:52,360 --> 01:05:55,960 Speaker 1: private relations. But someone has to create that. Yeah, somebody 1089 01:05:55,960 --> 01:05:59,240 Speaker 1: has to create that law and um, and that's a 1090 01:05:59,360 --> 01:06:03,600 Speaker 1: public policy, the exercise. So what maybe this is a 1091 01:06:03,800 --> 01:06:07,480 Speaker 1: good point to ask this question. What attorneys uh and 1092 01:06:07,640 --> 01:06:13,280 Speaker 1: other professionals have influenced the way you approach both legal banking, 1093 01:06:13,440 --> 01:06:21,680 Speaker 1: banking and public service. Um. You know there's been lots 1094 01:06:21,680 --> 01:06:23,640 Speaker 1: of influences on that, but I mean, I think the 1095 01:06:24,120 --> 01:06:28,160 Speaker 1: I think the important point here is that, UM, the 1096 01:06:29,480 --> 01:06:34,480 Speaker 1: I have found that, UM, there's really no upside to dishonesty. 1097 01:06:35,440 --> 01:06:38,200 Speaker 1: UH and that you know, people who can't be trusted 1098 01:06:38,760 --> 01:06:40,760 Speaker 1: are people who are not going to get stuff done 1099 01:06:40,920 --> 01:06:44,800 Speaker 1: except in dark rooms and back alleys. UH. And so 1100 01:06:44,840 --> 01:06:48,280 Speaker 1: if you want to work in the social, political, legal 1101 01:06:48,400 --> 01:06:52,960 Speaker 1: business world, UH, you know, your reputation is the most 1102 01:06:52,960 --> 01:06:58,040 Speaker 1: important thing you have, and and observance of ethics and honesty. 1103 01:06:58,440 --> 01:07:01,600 Speaker 1: I know this is a counterfactual and this administration, but 1104 01:07:01,760 --> 01:07:06,720 Speaker 1: the observance of ethics and honesty is extremely important to 1105 01:07:06,800 --> 01:07:11,600 Speaker 1: your long term success. I'm looking for a response to that, 1106 01:07:11,680 --> 01:07:13,760 Speaker 1: and the only thing I could come up with is 1107 01:07:14,560 --> 01:07:19,400 Speaker 1: it's funny how each subsequent administration's popularity gets revisited in 1108 01:07:19,440 --> 01:07:23,960 Speaker 1: the future. Not only has George Bush's reputation gone up 1109 01:07:24,040 --> 01:07:29,080 Speaker 1: during this administration, but the Obama administration's ratings have all 1110 01:07:29,120 --> 01:07:33,920 Speaker 1: gone up, especially because you know, drama free, no scandals. 1111 01:07:34,480 --> 01:07:37,439 Speaker 1: The key word that keeps coming up is integrity and 1112 01:07:38,480 --> 01:07:41,680 Speaker 1: hopefully that will matter again at one point in our future. Yes, 1113 01:07:41,800 --> 01:07:45,520 Speaker 1: I'm sure it will. Um, you mentioned a couple of books. 1114 01:07:45,560 --> 01:07:47,520 Speaker 1: Tell us what your favorite books are? What do you 1115 01:07:47,560 --> 01:07:51,640 Speaker 1: read for fun fiction nonfiction? A nonfiction reader? And you know, again, 1116 01:07:51,680 --> 01:07:56,320 Speaker 1: after after having gone through a major historical event and 1117 01:07:56,360 --> 01:07:59,959 Speaker 1: had a ringside seat, I'm I've been reading lots around, 1118 01:08:00,160 --> 01:08:04,640 Speaker 1: did um, But I think the most interesting nonfiction book 1119 01:08:04,680 --> 01:08:07,160 Speaker 1: I've read non unrelated to the financial crisis is a 1120 01:08:07,160 --> 01:08:13,960 Speaker 1: book called Sapiens and Uh by Harari, and I think 1121 01:08:14,000 --> 01:08:18,760 Speaker 1: it's an extremely important book. Um. Have you seen the 1122 01:08:18,760 --> 01:08:22,599 Speaker 1: follow up? I haven't read the He's Gotten More. It's 1123 01:08:22,800 --> 01:08:25,920 Speaker 1: much darker, much more. This book is very interesting. I 1124 01:08:25,960 --> 01:08:29,000 Speaker 1: don't agree with everything in it, um, but at least 1125 01:08:29,040 --> 01:08:35,800 Speaker 1: there's some recognition that humanity is special. And Homodaeus is like, 1126 01:08:36,120 --> 01:08:38,160 Speaker 1: all right, now here's how everything goes to hell in 1127 01:08:38,200 --> 01:08:40,559 Speaker 1: the future. But I think I think the fundamental inside 1128 01:08:40,600 --> 01:08:45,599 Speaker 1: of Sapiens is Um, it's really important, which is, you know, 1129 01:08:45,640 --> 01:08:48,720 Speaker 1: the success of the species has been our ability to 1130 01:08:48,920 --> 01:08:54,479 Speaker 1: collaborate around abstract concepts. Are you know, our communications obviously key, 1131 01:08:54,479 --> 01:08:56,280 Speaker 1: the development of language and all of that, but then 1132 01:08:56,360 --> 01:09:00,639 Speaker 1: the ability to collaborate and coordinate our behavior. You're around 1133 01:09:00,800 --> 01:09:06,559 Speaker 1: abstract concepts, concepts of God, concepts of nation, of state, 1134 01:09:07,080 --> 01:09:10,840 Speaker 1: of community. I mean, these are all abstractions. Um, you 1135 01:09:10,920 --> 01:09:14,639 Speaker 1: couldn't you know, you can't visualize the nation except through 1136 01:09:14,680 --> 01:09:18,400 Speaker 1: symbols and through uh, you know, a summary of its 1137 01:09:18,479 --> 01:09:22,840 Speaker 1: history and UH a set of objectives that you might 1138 01:09:22,920 --> 01:09:27,719 Speaker 1: believe are important to it to achieve in the future. UM. 1139 01:09:28,000 --> 01:09:32,800 Speaker 1: And you know, to me, that's the big challenge of 1140 01:09:32,880 --> 01:09:36,040 Speaker 1: the that the country faces is an ability again to 1141 01:09:36,120 --> 01:09:39,599 Speaker 1: figure out how to collaborate together on a common future 1142 01:09:40,560 --> 01:09:45,479 Speaker 1: across this very diverse country. Quite quite interesting. Um, what 1143 01:09:45,520 --> 01:09:47,760 Speaker 1: are you excited about right now? What? What do you 1144 01:09:47,800 --> 01:09:53,120 Speaker 1: think is a fascinating UM issue or topic these days? 1145 01:09:53,520 --> 01:09:55,679 Speaker 1: You know, with the New York Giants having gone one 1146 01:09:55,720 --> 01:10:00,960 Speaker 1: and four to start this season. I'm I'm just so pressed. Um, 1147 01:10:01,680 --> 01:10:04,559 Speaker 1: it's very hard to focus on anything other than that 1148 01:10:04,640 --> 01:10:09,000 Speaker 1: for the moment, still licking my wounds. So let's talk 1149 01:10:09,120 --> 01:10:11,800 Speaker 1: about a time you failed and what you learned from 1150 01:10:11,800 --> 01:10:19,599 Speaker 1: that experience. UM. Yeah, So I I was in as 1151 01:10:19,640 --> 01:10:22,600 Speaker 1: a young lawyer, not so young. I was handling my 1152 01:10:22,680 --> 01:10:27,320 Speaker 1: first major cross border restructuring and um, the creditors are 1153 01:10:27,320 --> 01:10:30,680 Speaker 1: represented by one of the greats of the bankruptcy bar 1154 01:10:31,000 --> 01:10:34,400 Speaker 1: Leonard Rosen. It walked out Rosen, Lipton and Cats. He's 1155 01:10:34,439 --> 01:10:36,479 Speaker 1: the Rosen and walked out. Yeah. And he was just 1156 01:10:36,640 --> 01:10:40,120 Speaker 1: a gentleman of a scholar and a wonderful person. And 1157 01:10:40,400 --> 01:10:42,240 Speaker 1: we were having a dialogue as to how we were 1158 01:10:42,240 --> 01:10:45,679 Speaker 1: going to land this company and restructuring. He representing the credits, 1159 01:10:45,800 --> 01:10:51,080 Speaker 1: me representing the debtors, and and we were we had, 1160 01:10:51,120 --> 01:10:52,920 Speaker 1: as you can only have with Leonard, a kind of 1161 01:10:52,960 --> 01:10:56,880 Speaker 1: gentlemanly disagreement with regard to sort of what the endgame was, 1162 01:10:56,880 --> 01:10:58,600 Speaker 1: who was going to end up owning the company, and 1163 01:10:58,600 --> 01:11:03,240 Speaker 1: how we were gonna restrict trip and uh, we were 1164 01:11:03,280 --> 01:11:07,400 Speaker 1: resisting putting the company in front of a judge too 1165 01:11:07,400 --> 01:11:09,679 Speaker 1: soon until we had an agreement with the creditors, because 1166 01:11:09,680 --> 01:11:18,680 Speaker 1: most bankruptcies are less expensive and less time consuming prepacted right. 1167 01:11:18,760 --> 01:11:21,680 Speaker 1: The judges there to confirm what everyone's agreed, rather than 1168 01:11:21,760 --> 01:11:26,360 Speaker 1: to mediate the dispute on going. And so we were 1169 01:11:26,360 --> 01:11:29,680 Speaker 1: resisting filing it. And Leonard thought that, you know, we 1170 01:11:29,680 --> 01:11:36,400 Speaker 1: were being irrational and impudent and um and so he 1171 01:11:36,439 --> 01:11:39,559 Speaker 1: did something that I didn't believe could be done. He 1172 01:11:39,680 --> 01:11:44,000 Speaker 1: filed an involuntary petition. He the creditors put the company 1173 01:11:44,040 --> 01:11:47,559 Speaker 1: into bankruptcy in Canada, and under Canadian law, I had 1174 01:11:47,600 --> 01:11:51,160 Speaker 1: been advised by my Canadian co council this was not 1175 01:11:51,800 --> 01:11:55,880 Speaker 1: a procedure available to creditors. And so Leonard picked up 1176 01:11:55,920 --> 01:11:58,720 Speaker 1: the phone. So he called me one morning. He said, 1177 01:11:58,760 --> 01:12:01,840 Speaker 1: I think you need be in Toronto this afternoon and 1178 01:12:01,880 --> 01:12:04,400 Speaker 1: I said why. He said, because we have put the 1179 01:12:04,479 --> 01:12:08,640 Speaker 1: company into a CC double a proceeding in UM the 1180 01:12:08,720 --> 01:12:12,240 Speaker 1: Ontario Superior Courts this morning. And I said, you can't 1181 01:12:12,280 --> 01:12:17,160 Speaker 1: do that. He said, well he just did. Uh and 1182 01:12:17,280 --> 01:12:21,160 Speaker 1: so um, you know the lesson. The failure was a 1183 01:12:21,240 --> 01:12:25,519 Speaker 1: failure of imagination, a failure to realize that the law 1184 01:12:25,800 --> 01:12:29,400 Speaker 1: is not a given but something that is created and 1185 01:12:29,560 --> 01:12:32,959 Speaker 1: constantly created every day, a little, a little more flexible 1186 01:12:33,000 --> 01:12:36,320 Speaker 1: than you imagine exactly. That. That's that's quite quite interesting. 1187 01:12:37,120 --> 01:12:38,840 Speaker 1: So what do you do for fun other than be 1188 01:12:38,880 --> 01:12:42,760 Speaker 1: a terrible golfer? So I hike. Um, I've got a 1189 01:12:42,760 --> 01:12:45,080 Speaker 1: group of friends that we've gone on various you know, 1190 01:12:45,120 --> 01:12:50,760 Speaker 1: trips across around the world, you know, hiking and exhausting ourselves. Um, 1191 01:12:52,000 --> 01:12:55,519 Speaker 1: that's been uh interesting. We went to we went to 1192 01:12:55,600 --> 01:12:58,240 Speaker 1: Norway last two last year or the year before, and 1193 01:12:58,240 --> 01:13:02,320 Speaker 1: we're just discussing Norway last night. That's up and down 1194 01:13:02,400 --> 01:13:06,439 Speaker 1: the Fiord country. It was gorgeous, food was spectacular and 1195 01:13:06,479 --> 01:13:10,400 Speaker 1: we had a stopover on the way to the hike 1196 01:13:10,479 --> 01:13:12,800 Speaker 1: and Oslo and on the back on and then on 1197 01:13:13,240 --> 01:13:17,200 Speaker 1: coming back in Stockholm. And Stockholm is just an amazing city, 1198 01:13:17,640 --> 01:13:20,559 Speaker 1: an amazing city. And these two countries, and these two 1199 01:13:20,560 --> 01:13:29,400 Speaker 1: countries actually really um for for Americans, um, and particularly 1200 01:13:29,560 --> 01:13:32,360 Speaker 1: you know, given our current dispute about the role of 1201 01:13:32,479 --> 01:13:37,360 Speaker 1: government and inequality. A trip to these countries should be 1202 01:13:37,400 --> 01:13:43,880 Speaker 1: mandatory because they have UM national healthcare, they have UM, 1203 01:13:44,000 --> 01:13:49,519 Speaker 1: you know, subsidized higher education, they have UM where, they 1204 01:13:49,560 --> 01:13:55,760 Speaker 1: have affordable housing, subsidies, paternal all of that, all of 1205 01:13:55,800 --> 01:14:00,320 Speaker 1: those basic social system supports. And yet they're dying ynamic 1206 01:14:00,360 --> 01:14:04,280 Speaker 1: economies with entrepreneurship and growth rates that rival ours. Now, 1207 01:14:04,280 --> 01:14:08,240 Speaker 1: they're small, homogeneous countries, they don't have the UM many 1208 01:14:08,280 --> 01:14:13,080 Speaker 1: of the challenges we have in establishing common commonality. But 1209 01:14:13,880 --> 01:14:17,439 Speaker 1: but these are you know, what the right would call 1210 01:14:17,520 --> 01:14:22,840 Speaker 1: social welfare states that are functioning UM where the gap 1211 01:14:22,920 --> 01:14:26,559 Speaker 1: between the richest and the poorest is only three times, 1212 01:14:26,640 --> 01:14:31,280 Speaker 1: not the three hundred times it is in the United States. UM. 1213 01:14:31,360 --> 01:14:35,080 Speaker 1: And yet they've maintained a sense of entrepreneurialism and dynamism 1214 01:14:35,080 --> 01:14:38,160 Speaker 1: in their economy. The the the nanny state is not 1215 01:14:38,320 --> 01:14:45,040 Speaker 1: necessarily um, you know, deterring dynamism and entrepreneurship in the economy. 1216 01:14:45,840 --> 01:14:49,080 Speaker 1: Sound sounds fast. I've been to Helsinki, I've been to Copenhagen. 1217 01:14:49,120 --> 01:14:52,479 Speaker 1: I've never never been to Stockholm. Um, I assume you 1218 01:14:52,520 --> 01:14:56,240 Speaker 1: do that in the summer and not yes, exactly. UM. 1219 01:14:56,360 --> 01:15:00,559 Speaker 1: So if some young lawyer, recent college grad, a millennial 1220 01:15:00,600 --> 01:15:02,439 Speaker 1: came to you and said they were thinking about a 1221 01:15:02,520 --> 01:15:06,800 Speaker 1: career in restructuring and that aspect of banking. What sort 1222 01:15:06,800 --> 01:15:09,400 Speaker 1: of advice would you give them. Well, it's a choice, 1223 01:15:09,439 --> 01:15:11,000 Speaker 1: is just just as we were talking about before, is 1224 01:15:11,040 --> 01:15:13,040 Speaker 1: a choice between business school and law school. It's a 1225 01:15:13,080 --> 01:15:17,519 Speaker 1: good law school, Um, get firm grounding in uh in 1226 01:15:17,640 --> 01:15:21,000 Speaker 1: the law. Um. You know, it's been a great career 1227 01:15:21,040 --> 01:15:26,160 Speaker 1: for me. You're the I like being a problem solver. 1228 01:15:26,880 --> 01:15:29,760 Speaker 1: And you know, each of these restructurings as different as 1229 01:15:29,800 --> 01:15:32,639 Speaker 1: I said before. But you know, an effect, you're taking 1230 01:15:32,720 --> 01:15:36,160 Speaker 1: something and uh and you know, making something out of 1231 01:15:36,160 --> 01:15:40,200 Speaker 1: a failure and um, you know, and sometimes this something 1232 01:15:40,320 --> 01:15:44,000 Speaker 1: is just redeploying the capital, liberating the capital that's involved 1233 01:15:44,000 --> 01:15:47,759 Speaker 1: in a bad business. Um. But most of the time, 1234 01:15:48,080 --> 01:15:51,400 Speaker 1: you know, you're you're figuring out what went wrong and 1235 01:15:51,520 --> 01:15:56,240 Speaker 1: fixing it uh and saving you know, capital and jobs 1236 01:15:56,280 --> 01:15:59,640 Speaker 1: and uh. And you know, so you can kind of 1237 01:15:59,640 --> 01:16:03,160 Speaker 1: feel like you did something good. Quite quite interesting. And 1238 01:16:03,240 --> 01:16:06,160 Speaker 1: our final question, what do you know about the world 1239 01:16:06,240 --> 01:16:10,679 Speaker 1: of corporate restructuring today that you wish you knew thirty 1240 01:16:10,760 --> 01:16:13,960 Speaker 1: years ago when you were really first getting started. Well, 1241 01:16:14,000 --> 01:16:17,519 Speaker 1: it's you know, this has been we talked a little 1242 01:16:17,560 --> 01:16:19,800 Speaker 1: bit about the deregulation and the financial system. I mean 1243 01:16:19,840 --> 01:16:24,240 Speaker 1: the consequence of that is we went into the ninet 1244 01:16:24,360 --> 01:16:28,560 Speaker 1: eighties with a bank centric financial system where credit intermediation 1245 01:16:28,760 --> 01:16:33,200 Speaker 1: was primarily conducted by banks. We ended, Uh, we came 1246 01:16:33,200 --> 01:16:35,720 Speaker 1: out of the financial crisis after forty years of de 1247 01:16:35,840 --> 01:16:40,360 Speaker 1: regulation with a market centered funding system. And UM, the 1248 01:16:40,439 --> 01:16:44,960 Speaker 1: development of the secondary markets and the secondary credit markets. UM, 1249 01:16:45,280 --> 01:16:48,640 Speaker 1: the shadow banking, the shadow banking system starting with you know, 1250 01:16:48,720 --> 01:16:52,639 Speaker 1: the junk bonds created by Mike Milliken in the late eighties. UM. 1251 01:16:52,720 --> 01:16:55,440 Speaker 1: You know, we have a bond market that now dominates 1252 01:16:55,479 --> 01:16:58,880 Speaker 1: credit and intermediation, and we and the bond market has 1253 01:16:58,920 --> 01:17:01,760 Speaker 1: greater and greater transparent ency with secondary you know, with 1254 01:17:02,200 --> 01:17:06,840 Speaker 1: traits all the time and prices. So there's a there's 1255 01:17:06,840 --> 01:17:10,960 Speaker 1: the illusion of fair value created by you know, the 1256 01:17:11,080 --> 01:17:14,559 Speaker 1: day to day pricing of a given bond. UM that 1257 01:17:14,560 --> 01:17:17,479 Speaker 1: that pricing may not hold, and that prices may not hold, 1258 01:17:17,520 --> 01:17:20,599 Speaker 1: and it may it may reflects applied demand dynamics rather 1259 01:17:20,640 --> 01:17:23,960 Speaker 1: than fundamental value. UM, it may reflect you know, the 1260 01:17:24,080 --> 01:17:26,840 Speaker 1: interest rate policy of the Federal Reserve as compared to 1261 01:17:26,880 --> 01:17:31,080 Speaker 1: where it was at a when the bond was originally issued. UM. 1262 01:17:31,120 --> 01:17:34,240 Speaker 1: There are lots of it. But but but market participants 1263 01:17:34,360 --> 01:17:37,880 Speaker 1: today who live by their marks and are judged by 1264 01:17:37,920 --> 01:17:40,439 Speaker 1: their marks, and are measured by their marks, and are 1265 01:17:40,479 --> 01:17:44,240 Speaker 1: compensated by their marks. Um that is that that is 1266 01:17:44,280 --> 01:17:46,679 Speaker 1: the biggest difference. Right. I used to sit in rooms 1267 01:17:46,720 --> 01:17:49,960 Speaker 1: in the nineteen eighties with banks and insurance companies and 1268 01:17:50,000 --> 01:17:54,760 Speaker 1: talk about fundamental value and the mark didn't matter. What 1269 01:17:54,800 --> 01:17:57,640 Speaker 1: they were trying to do is maximize the recovery of 1270 01:17:57,680 --> 01:18:01,599 Speaker 1: their position. And today room with traders who are trying 1271 01:18:01,640 --> 01:18:06,439 Speaker 1: to who are trying to maximize their liquidity, and there 1272 01:18:06,760 --> 01:18:10,400 Speaker 1: and and their mark and very different from fundamental That 1273 01:18:10,960 --> 01:18:15,360 Speaker 1: quite fascinating. We have been speaking with Jim Milstein. He 1274 01:18:15,600 --> 01:18:19,879 Speaker 1: is currently the co chairman of Guggenheim Securities, an adject 1275 01:18:19,880 --> 01:18:25,280 Speaker 1: professor at Georgetown University Law, and former Chief Restructuring officer 1276 01:18:25,479 --> 01:18:28,720 Speaker 1: at Treasury. If you enjoy this conversation, we'll be sure 1277 01:18:28,760 --> 01:18:34,120 Speaker 1: and look up an inch or down an inch on Apple, iTunes, overcast, Stitcher, 1278 01:18:34,240 --> 01:18:36,280 Speaker 1: Bloomberg dot com and you can see any of the 1279 01:18:36,320 --> 01:18:39,840 Speaker 1: other two hundred and twenty five such conversations we've had 1280 01:18:39,840 --> 01:18:43,679 Speaker 1: over the past four plus years. We love your comments, 1281 01:18:43,720 --> 01:18:48,120 Speaker 1: feedback and suggestions. Right to us at m IB podcast 1282 01:18:48,120 --> 01:18:51,120 Speaker 1: at Bloomberg dot Net. I would be remiss if I 1283 01:18:51,160 --> 01:18:53,559 Speaker 1: did not thank the crack staff that helps put together 1284 01:18:54,000 --> 01:18:58,120 Speaker 1: these conversations each week. Michael Batnick is my head of research. 1285 01:18:58,439 --> 01:19:02,280 Speaker 1: Medina Parwana is my producer. Taylor Riggs is our booker. 1286 01:19:02,720 --> 01:19:07,360 Speaker 1: Attica val Bron is our project manager. I'm Barry Ridholts. 1287 01:19:07,400 --> 01:19:10,800 Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.