1 00:00:02,720 --> 00:00:10,239 Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to 2 00:00:10,280 --> 00:00:13,280 Speaker 1: The Money Stuff Podcast, your weekly podcast where we talk 3 00:00:13,320 --> 00:00:17,840 Speaker 1: about stuff related to money. I'm Matt Levin and I 4 00:00:17,840 --> 00:00:19,720 Speaker 1: write The Money Stuff com for Bloomberger Pain. 5 00:00:20,440 --> 00:00:23,000 Speaker 2: I'm Katie Greifeld, a reporter for Bloomberg News and an 6 00:00:23,000 --> 00:00:24,440 Speaker 2: anchor for Bloomberg Television. 7 00:00:25,440 --> 00:00:27,240 Speaker 1: What are we talking about today? 8 00:00:27,680 --> 00:00:30,560 Speaker 2: We're going to talk about the slow death of shorts 9 00:00:30,600 --> 00:00:33,680 Speaker 2: and specifically the retirement of Nate Anderson. We're going to 10 00:00:33,760 --> 00:00:37,920 Speaker 2: talk about evil bankers, my favorite cut. We're going to 11 00:00:38,000 --> 00:00:46,520 Speaker 2: talk about ESG Evil ESG, Hindenburgh, Nate Anderson. This was surprising, 12 00:00:47,120 --> 00:00:49,559 Speaker 2: was it? I was surprised. I mean, I don't know. 13 00:00:49,560 --> 00:00:52,640 Speaker 2: You think about Jim Chainos retiring in twenty twenty three, 14 00:00:52,800 --> 00:00:56,560 Speaker 2: he had a pretty rough run towards the end. Nate Anderson, 15 00:00:56,560 --> 00:01:00,400 Speaker 2: I feel like has had a lot of wins. And 16 00:01:00,440 --> 00:01:02,880 Speaker 2: also he only started Hindenburg in twenty seventeen. 17 00:01:03,480 --> 00:01:06,440 Speaker 1: Yeah, I mean it's a hard business, you know, running 18 00:01:06,440 --> 00:01:10,400 Speaker 1: a short. So Nate Anderson, the founder of short focused 19 00:01:10,400 --> 00:01:13,640 Speaker 1: research from Hindenburg Research, announced that Hindenburg Research is no 20 00:01:13,720 --> 00:01:15,840 Speaker 1: more and he's going to tend to his garden or. 21 00:01:15,760 --> 00:01:18,679 Speaker 2: Something, listen to some medium, listen to some. 22 00:01:18,680 --> 00:01:23,000 Speaker 1: Medim I don't know. It's a hard job. And I 23 00:01:23,080 --> 00:01:26,920 Speaker 1: was trying to think about, like why now. And one 24 00:01:26,959 --> 00:01:29,360 Speaker 1: thing that occurred to me is if you read his letter, 25 00:01:29,840 --> 00:01:31,160 Speaker 1: a lot of these people, a lot of people who 26 00:01:31,200 --> 00:01:33,919 Speaker 1: like run these short research firms, sort of style themselves 27 00:01:33,920 --> 00:01:35,920 Speaker 1: as hedgehund managers, in part because that's like a cool 28 00:01:35,920 --> 00:01:38,119 Speaker 1: thing to say, I'm a Hedgehong manager. And like, actually 29 00:01:38,120 --> 00:01:41,000 Speaker 1: the SEC case against Andrew Left is hilarious because they 30 00:01:41,040 --> 00:01:43,320 Speaker 1: like actually claimed that it was fraud for him to 31 00:01:43,319 --> 00:01:45,640 Speaker 1: call himself a hedgehond manager. Yeah, like imply that he 32 00:01:45,680 --> 00:01:47,680 Speaker 1: had clients because he was like talking about his clients 33 00:01:47,680 --> 00:01:50,840 Speaker 1: when he was just the third person, right, which I 34 00:01:50,880 --> 00:01:53,560 Speaker 1: thought was like a little nasty of the sec Yeah, 35 00:01:53,600 --> 00:01:55,160 Speaker 1: it was like, I good enough, it is the kind 36 00:01:55,160 --> 00:01:57,360 Speaker 1: of a Hedgehne manager. But like you know, it's called 37 00:01:57,400 --> 00:02:00,400 Speaker 1: Hindenburg Research, and when you read his life, he like 38 00:02:00,440 --> 00:02:02,840 Speaker 1: describes it as a research firm. It's not a hedge fund. 39 00:02:02,880 --> 00:02:05,600 Speaker 1: It's not like in the business and making short trades, right, 40 00:02:05,600 --> 00:02:09,280 Speaker 1: it's in the business of discovering bad stuff at companies, 41 00:02:09,280 --> 00:02:13,760 Speaker 1: discovering fraud or accounting malfeisms or whatever, and then generating 42 00:02:13,800 --> 00:02:16,359 Speaker 1: money from that somehow. And I don't know exactly how 43 00:02:16,480 --> 00:02:20,000 Speaker 1: Hindenburg generates money. Like the original way I think he 44 00:02:20,040 --> 00:02:22,880 Speaker 1: was generating money was by going to the SEC and 45 00:02:23,080 --> 00:02:27,560 Speaker 1: submitting like whistleblower, what's the word quast step steps yes, 46 00:02:27,680 --> 00:02:29,720 Speaker 1: And so he would like say to the SEC, hey, 47 00:02:29,760 --> 00:02:31,840 Speaker 1: there's front of this company and they would be like, oh, well, 48 00:02:31,880 --> 00:02:33,560 Speaker 1: there is run at that company. They'd find the company 49 00:02:33,560 --> 00:02:35,120 Speaker 1: a lot of money and they'd give him some of 50 00:02:35,120 --> 00:02:37,239 Speaker 1: the money. Or that was the idea. And I think, 51 00:02:37,280 --> 00:02:39,000 Speaker 1: you know, I don't really know what Hindenburg does, but 52 00:02:39,040 --> 00:02:40,960 Speaker 1: like a lot of these firms will sell research ideas 53 00:02:40,919 --> 00:02:43,960 Speaker 1: to hedge funds, will then, you know, do the short trades. 54 00:02:44,440 --> 00:02:46,640 Speaker 1: They have more capital and more diversification than a short 55 00:02:46,639 --> 00:02:49,359 Speaker 1: only hedge fund would have. And like you know, we've 56 00:02:49,360 --> 00:02:54,120 Speaker 1: talked about Hunter Brook. Hunter is in the business of 57 00:02:55,000 --> 00:02:57,520 Speaker 1: finding bad stuff at companies and publishing them and then 58 00:02:57,960 --> 00:03:01,120 Speaker 1: among other things, bringing securitieslawaw suits. And they team up 59 00:03:01,160 --> 00:03:04,960 Speaker 1: with plaintiffs lawyers to bring lawsuits against these companies. And 60 00:03:06,000 --> 00:03:08,760 Speaker 1: if you were as in the business of like monetizing 61 00:03:08,919 --> 00:03:12,720 Speaker 1: fraudit companies by like having your own capital or your 62 00:03:12,720 --> 00:03:16,800 Speaker 1: investor's capital and doing short sales. Like that's a hard business, right, Yeah, 63 00:03:16,840 --> 00:03:18,480 Speaker 1: that's a lot of ways to blow up. Whereas if 64 00:03:18,480 --> 00:03:21,760 Speaker 1: you're in the business of like monetizing whistleblower rewards, that's 65 00:03:21,840 --> 00:03:25,320 Speaker 1: less capital intensive. It takes kind of a long time. Yeah, uncertain. 66 00:03:25,600 --> 00:03:27,560 Speaker 2: I mean it just seems like a hard way to 67 00:03:27,560 --> 00:03:28,280 Speaker 2: pay the bills. 68 00:03:28,520 --> 00:03:31,840 Speaker 1: What whistle lawer awards, Yeah, yeah it is. It's it's lumpy, 69 00:03:31,880 --> 00:03:34,760 Speaker 1: but like people have kind of professionalized it, more lawyers 70 00:03:34,800 --> 00:03:37,680 Speaker 1: than researchers, but some researchers have professionalized that made up 71 00:03:38,200 --> 00:03:40,760 Speaker 1: money in any case, Like if you think about like 72 00:03:40,800 --> 00:03:43,600 Speaker 1: the landscape of these short research frames, like you kind 73 00:03:43,600 --> 00:03:46,320 Speaker 1: of need all of those options. You read his letter, 74 00:03:46,360 --> 00:03:48,520 Speaker 1: he talks about we've led to more than one hundred 75 00:03:48,600 --> 00:03:53,040 Speaker 1: prosecutions and like investigations, like he is measuring his success 76 00:03:53,080 --> 00:03:59,400 Speaker 1: in getting regulatory and prosecutorial attention on the companies he targets. Right, 77 00:03:59,520 --> 00:04:01,600 Speaker 1: it's not like we've caused stock prices to go down. 78 00:04:01,800 --> 00:04:05,120 Speaker 1: It's we have brought fraud to light and how to 79 00:04:05,160 --> 00:04:09,640 Speaker 1: be investigated. And when I think about what is happening 80 00:04:09,760 --> 00:04:13,000 Speaker 1: right now, Yeah, I've written a lot in the last 81 00:04:13,040 --> 00:04:15,600 Speaker 1: couple of weeks about how there have been a lot 82 00:04:15,600 --> 00:04:19,680 Speaker 1: of like sec prosecutions, sec cases, a lot of other stuff. 83 00:04:19,680 --> 00:04:22,960 Speaker 1: There's a big Justice Department anti trust case against KKR 84 00:04:23,040 --> 00:04:25,919 Speaker 1: filed this week. We're going to talk today about the 85 00:04:26,000 --> 00:04:29,640 Speaker 1: CFPP case against Capital One nice Tia. So a lot 86 00:04:29,640 --> 00:04:33,640 Speaker 1: of stuff that is happening now because it won't happen 87 00:04:33,640 --> 00:04:35,040 Speaker 1: next week, right, Yeah, Like if you were in the 88 00:04:35,080 --> 00:04:37,960 Speaker 1: business of like alerting regulators through fraud, you might think 89 00:04:38,120 --> 00:04:40,240 Speaker 1: that's going to be a bad business starting next week 90 00:04:40,279 --> 00:04:41,359 Speaker 1: and going for four years. 91 00:04:41,520 --> 00:04:41,919 Speaker 2: Yeah. 92 00:04:42,000 --> 00:04:44,200 Speaker 1: I don't know that that's actually his calculation, but it 93 00:04:44,279 --> 00:04:46,200 Speaker 1: just feels like a week ago, if you said, oh, 94 00:04:46,240 --> 00:04:48,000 Speaker 1: this company is a fraud, that would have a big effect, 95 00:04:48,120 --> 00:04:50,280 Speaker 1: and like starting in a week saying oh, this company 96 00:04:50,320 --> 00:04:51,760 Speaker 1: is a fraud might not have a big effect. 97 00:04:51,880 --> 00:04:54,080 Speaker 2: Well. Yeah, the thing is like there's no guarantee that 98 00:04:54,120 --> 00:04:56,800 Speaker 2: the stock will actually go down and your short will work. 99 00:04:56,839 --> 00:05:02,159 Speaker 2: You think about their last report was on Carvana alleging fraud, 100 00:05:02,200 --> 00:05:05,480 Speaker 2: and Carvana stock has done really well so far in January. 101 00:05:05,720 --> 00:05:08,080 Speaker 1: Yeah, they could be wrong, right, They always be wrong. 102 00:05:08,400 --> 00:05:11,160 Speaker 1: They are specifically in the business of waving their hands 103 00:05:11,200 --> 00:05:13,400 Speaker 1: and saying to regulators, Hey, look at this company over here, 104 00:05:13,440 --> 00:05:15,320 Speaker 1: this is a fraud. Right, Sometimes they will be wrong 105 00:05:15,440 --> 00:05:18,120 Speaker 1: and the regulators won't look at it. But like sometimes 106 00:05:18,160 --> 00:05:20,120 Speaker 1: they'll be right and the regulators won't look at it. 107 00:05:20,160 --> 00:05:23,200 Speaker 1: And like, my suspicion is that the incidents of that 108 00:05:23,400 --> 00:05:26,120 Speaker 1: will go up soon because like you will have a 109 00:05:26,200 --> 00:05:30,760 Speaker 1: much less enforcement intensive regulatory regime everywhere in the US 110 00:05:30,839 --> 00:05:32,279 Speaker 1: economy starting next week. 111 00:05:33,040 --> 00:05:33,719 Speaker 2: That's interesting. 112 00:05:34,480 --> 00:05:35,760 Speaker 1: That could be like way off base. 113 00:05:35,839 --> 00:05:36,320 Speaker 3: But I don't know. 114 00:05:36,400 --> 00:05:38,479 Speaker 2: It's like my little sp but perhaps there's a political 115 00:05:38,520 --> 00:05:39,039 Speaker 2: angle here. 116 00:05:41,200 --> 00:05:42,880 Speaker 1: I don't know that he's thinking that. I just think 117 00:05:42,960 --> 00:05:44,760 Speaker 1: I think it like I would, like, you know, i'd 118 00:05:44,800 --> 00:05:47,680 Speaker 1: be worried if my business model was calling regulatory attention 119 00:05:47,760 --> 00:05:51,800 Speaker 1: to frauds because like I don't know, Like I don't 120 00:05:51,800 --> 00:05:53,760 Speaker 1: want to say the name. Never mind, I'm gonna move 121 00:05:53,839 --> 00:05:58,080 Speaker 1: right along. We're not gonna say, like some companies. 122 00:05:57,600 --> 00:06:00,400 Speaker 2: That I don't know, you even name some names. You 123 00:06:00,400 --> 00:06:08,760 Speaker 2: can do anything once anyway, you know, well really don't don't. 124 00:06:08,839 --> 00:06:10,520 Speaker 1: I don't need that matter, all right. 125 00:06:10,400 --> 00:06:13,040 Speaker 2: Well, moving softly along firs all In terms of how 126 00:06:13,080 --> 00:06:15,520 Speaker 2: they make money, there was an FT article talking about 127 00:06:15,920 --> 00:06:19,120 Speaker 2: this small New York based firm called Kingdon Capital that 128 00:06:19,240 --> 00:06:21,760 Speaker 2: works with Hindenberg on a number of its trades. 129 00:06:22,000 --> 00:06:27,320 Speaker 1: So, right, like you sell ideas to or a partner with, yeah, 130 00:06:27,600 --> 00:06:28,400 Speaker 1: somebody who is not. 131 00:06:28,640 --> 00:06:30,120 Speaker 2: And then you're the public face. 132 00:06:30,560 --> 00:06:32,279 Speaker 1: Yeah, you're the public face of the short idea. But 133 00:06:32,279 --> 00:06:34,599 Speaker 1: also like they're the people who have like long short 134 00:06:34,640 --> 00:06:37,320 Speaker 1: capital because like just being a short seller, as Jim 135 00:06:37,400 --> 00:06:39,520 Speaker 1: Chaina has found, is hard because slacks mostly go up. 136 00:06:39,680 --> 00:06:43,040 Speaker 2: Yeah, that is painful. Well related to this. So he's 137 00:06:43,080 --> 00:06:45,800 Speaker 2: winding up the firm, he's working through the last of 138 00:06:45,920 --> 00:06:47,880 Speaker 2: the ideas, and then they're handing off the tips on 139 00:06:47,920 --> 00:06:51,440 Speaker 2: suspected PAZI schemes to regulators. So there's probably some investable 140 00:06:51,440 --> 00:06:53,800 Speaker 2: ideas in there. And also maybe they'll get some of 141 00:06:53,839 --> 00:06:55,000 Speaker 2: these whistleblower rewards. 142 00:06:55,080 --> 00:06:58,200 Speaker 1: Yeah, I assume there's some tell where like like the 143 00:06:58,200 --> 00:07:00,000 Speaker 1: whistleblowers thick, really long time to come. 144 00:07:00,120 --> 00:07:03,240 Speaker 2: How much can you make I'm interested. 145 00:07:03,680 --> 00:07:07,320 Speaker 1: I mean they've given out I believe, several nine digit awards. 146 00:07:07,400 --> 00:07:10,000 Speaker 1: Don't They've hid out hundreds and hundreds of millions of dollars. 147 00:07:10,080 --> 00:07:11,480 Speaker 2: I wonder what the average award is. 148 00:07:12,160 --> 00:07:14,000 Speaker 1: You know, they paid out press basis for the big ones. 149 00:07:14,040 --> 00:07:15,840 Speaker 1: I don't know, but like they're not small. Like this 150 00:07:15,960 --> 00:07:18,160 Speaker 1: sort of the way it works is kind of like 151 00:07:18,200 --> 00:07:20,360 Speaker 1: the sort of the rack rate is kind of fifteen 152 00:07:20,400 --> 00:07:22,440 Speaker 1: to thirty percent of what the SACI covers. 153 00:07:22,520 --> 00:07:23,040 Speaker 2: That's wild. 154 00:07:23,240 --> 00:07:25,360 Speaker 1: Yeah, you always get that and takes a long time 155 00:07:25,400 --> 00:07:27,640 Speaker 1: and it's like controversial. But like if you bring them 156 00:07:27,640 --> 00:07:29,280 Speaker 1: a big fraudt they get a big fund, you get 157 00:07:29,280 --> 00:07:30,160 Speaker 1: a big check. 158 00:07:30,520 --> 00:07:33,040 Speaker 2: Yeah, lumpy, Like you said, it kind of reminds me 159 00:07:33,080 --> 00:07:35,280 Speaker 2: of being a freelance journalist if that's how you make 160 00:07:35,320 --> 00:07:38,600 Speaker 2: your living. I'm too risk averse to ever just rely on. 161 00:07:38,840 --> 00:07:45,240 Speaker 1: Oh but compared to like shorting stocks, yeah, capital. 162 00:07:44,960 --> 00:07:48,160 Speaker 2: Intensive, Yeah, I think I'd rather just be a TV anchor. 163 00:07:48,440 --> 00:07:50,760 Speaker 2: In any case, what I'm excited about is that over 164 00:07:50,800 --> 00:07:53,120 Speaker 2: the next six months, Anderson plans to work on a 165 00:07:53,160 --> 00:07:56,280 Speaker 2: series of videos and materials on Hindenberg's models so that 166 00:07:56,440 --> 00:08:00,160 Speaker 2: others can learn how the firm conducted its investigations. That 167 00:08:00,200 --> 00:08:03,240 Speaker 2: sounds like some good viewing and I don't know, maybe 168 00:08:03,280 --> 00:08:05,400 Speaker 2: more people will be inspired to take up the mantle 169 00:08:05,520 --> 00:08:07,280 Speaker 2: now that they have the tools. 170 00:08:07,600 --> 00:08:09,400 Speaker 1: Is it a Barnes and Noble This weekend go on 171 00:08:09,520 --> 00:08:11,360 Speaker 1: and I went to the business section and they're still 172 00:08:11,360 --> 00:08:14,000 Speaker 1: these like for dummies books like investing for dummies, and 173 00:08:14,040 --> 00:08:15,480 Speaker 1: I was like picking them up and leaving through them. 174 00:08:15,720 --> 00:08:18,960 Speaker 1: I really want like a Nate Anderson activist short selling 175 00:08:18,960 --> 00:08:21,640 Speaker 1: for dummies. It sounds like you, you know, it's like 176 00:08:21,720 --> 00:08:25,000 Speaker 1: he's a good expert to record a series of YouTube 177 00:08:25,040 --> 00:08:26,600 Speaker 1: tutorials on how to be a short seller. 178 00:08:27,080 --> 00:08:30,679 Speaker 2: Well soon, so the firm has eleven employees, and also 179 00:08:30,720 --> 00:08:33,000 Speaker 2: in his letter, he said that for now I will 180 00:08:33,040 --> 00:08:36,000 Speaker 2: be focused on making sure everyone on our team lands 181 00:08:36,120 --> 00:08:39,800 Speaker 2: where they want to be next. So the alumni class 182 00:08:39,840 --> 00:08:42,240 Speaker 2: of Hindenburg Research, I mean, who knows if all of 183 00:08:42,280 --> 00:08:44,320 Speaker 2: them will go into short selling, but it'll be interesting 184 00:08:44,320 --> 00:08:44,800 Speaker 2: to follow that. 185 00:08:45,080 --> 00:08:47,640 Speaker 1: Yeah, I think the letter suggested that I've read between 186 00:08:47,679 --> 00:08:49,600 Speaker 1: the lines a little bit to suggests that like there 187 00:08:49,600 --> 00:08:51,720 Speaker 1: will be a continuation of Hindenburg. It won't be called 188 00:08:51,800 --> 00:08:54,720 Speaker 1: Hindenburg and he won't work there, but like several of 189 00:08:54,760 --> 00:08:56,959 Speaker 1: the people there will continue to kind of do the 190 00:08:57,000 --> 00:08:58,960 Speaker 1: same work in a similar format. 191 00:08:59,160 --> 00:09:01,640 Speaker 2: Yeah, I want to know what he does next. Again, 192 00:09:01,760 --> 00:09:02,200 Speaker 2: only he. 193 00:09:02,240 --> 00:09:05,400 Speaker 1: Suggested like like literal gardening. 194 00:09:05,000 --> 00:09:08,880 Speaker 2: And did he I read the part where he said 195 00:09:09,080 --> 00:09:12,080 Speaker 2: this has been really hard. I'm tired. And also I 196 00:09:12,120 --> 00:09:15,320 Speaker 2: want everyone to go get jobs. Now you think he's 197 00:09:15,360 --> 00:09:19,440 Speaker 2: really gonna get down in the dirt plant some petunias. Yes, 198 00:09:20,800 --> 00:09:21,439 Speaker 2: we should. 199 00:09:21,160 --> 00:09:23,360 Speaker 1: Ask him, Yeah, we should have him. Nate, come on 200 00:09:23,400 --> 00:09:24,959 Speaker 1: the pot. I met him once at a book party. 201 00:09:25,679 --> 00:09:28,680 Speaker 2: Huge. I feel like there's he's at least the fifth 202 00:09:28,720 --> 00:09:31,120 Speaker 2: person I've mentioned and Matt has said, yeah, I saw 203 00:09:31,160 --> 00:09:32,960 Speaker 2: them at a book party. It seems like book parties 204 00:09:33,000 --> 00:09:36,480 Speaker 2: are sort of where you spent your free time. Barnes 205 00:09:36,520 --> 00:09:38,360 Speaker 2: and Nobles and this. 206 00:09:38,400 --> 00:09:40,520 Speaker 1: Podcast and book parties are my social life. 207 00:09:40,640 --> 00:09:41,040 Speaker 2: Wow. 208 00:09:41,760 --> 00:09:43,719 Speaker 1: The Barnes and Noble is like party is like my 209 00:09:43,800 --> 00:09:46,880 Speaker 1: actual social life is children's birthday parties. But like, but 210 00:09:47,040 --> 00:09:49,360 Speaker 1: now I'm in like the drop off phase of children's 211 00:09:49,360 --> 00:09:51,120 Speaker 1: birthday parties. So it's like I go to the children's 212 00:09:51,120 --> 00:09:54,040 Speaker 1: birthday party, I'm angle for two minutes. I leave. Yeah, 213 00:09:54,040 --> 00:09:55,760 Speaker 1: I sit in my car and read a book. I 214 00:09:55,840 --> 00:09:57,360 Speaker 1: drafted Bardes and Noble and read a book. 215 00:09:57,400 --> 00:09:59,360 Speaker 2: You know it's gonna say so if you're looking to 216 00:09:59,400 --> 00:10:16,000 Speaker 2: find Matt out in the wild Capital one, Matt, I 217 00:10:16,080 --> 00:10:18,080 Speaker 2: knew you were a banker, but I didn't know you 218 00:10:18,080 --> 00:10:18,600 Speaker 2: were evil. 219 00:10:19,480 --> 00:10:23,280 Speaker 1: I worked at Goldman at like the peak of Goldman 220 00:10:23,400 --> 00:10:26,720 Speaker 1: is a great vampire squid wrapping its blood funnel around 221 00:10:26,800 --> 00:10:30,400 Speaker 1: humanity or whatever the line is. I was pretty evil, 222 00:10:30,480 --> 00:10:32,520 Speaker 1: but like you know, I was like evil adjacent and 223 00:10:32,520 --> 00:10:34,079 Speaker 1: I always had a soft spot for evil. 224 00:10:34,280 --> 00:10:36,960 Speaker 2: Yeah, I could. It really came through in this column, 225 00:10:37,440 --> 00:10:41,600 Speaker 2: of course, we're talking about the Consumer Financial Protection Bureau. 226 00:10:41,760 --> 00:10:44,920 Speaker 2: It alleged that Capital One cheated customers out of two 227 00:10:44,960 --> 00:10:47,559 Speaker 2: billion dollars by keeping them in the dark about a 228 00:10:47,720 --> 00:10:51,240 Speaker 2: savings program that offered higher interest rates on their deposits. 229 00:10:51,520 --> 00:10:53,800 Speaker 1: There's like really no dispute about what happened. Heret okay. 230 00:10:53,800 --> 00:10:56,520 Speaker 1: There's like three kinds of bank accounts whatever the treat 231 00:10:56,520 --> 00:10:58,320 Speaker 1: guns are like floating red bank acount. There's check accounts 232 00:10:58,480 --> 00:11:03,280 Speaker 1: pay basically you're interested. There's savings accounts which exists which 233 00:11:03,320 --> 00:11:05,040 Speaker 1: also seemed to pay zero interest. Like when I go 234 00:11:05,120 --> 00:11:07,520 Speaker 1: to my bank and I like click on the they're like, oh, 235 00:11:07,640 --> 00:11:09,240 Speaker 1: to open a savings account. I click on it, and 236 00:11:09,360 --> 00:11:12,400 Speaker 1: it's like you could get interest as much as zero 237 00:11:12,520 --> 00:11:15,960 Speaker 1: point zero three percent with a million dollar bounce right. 238 00:11:16,320 --> 00:11:18,240 Speaker 1: And then there's a thing called the highield savings account, 239 00:11:18,240 --> 00:11:20,240 Speaker 1: which is distinguished from a regular savings account by paying 240 00:11:20,360 --> 00:11:24,840 Speaker 1: like something more than nominal interest. And in like twenty thirteen, 241 00:11:25,240 --> 00:11:29,600 Speaker 1: Capital One opened highield SAVIS account called three sixty Savings 242 00:11:30,080 --> 00:11:31,920 Speaker 1: and they were like, this is a highield Savis account. 243 00:11:31,960 --> 00:11:34,319 Speaker 1: You'll get the best interest rate, and so people open 244 00:11:34,360 --> 00:11:36,840 Speaker 1: their accounts and they did this for like seven years, 245 00:11:36,880 --> 00:11:38,640 Speaker 1: and the rate would go up and down with like 246 00:11:38,800 --> 00:11:42,360 Speaker 1: you know, interest rates, and then in twenty twenty, in 247 00:11:42,440 --> 00:11:46,760 Speaker 1: twenty twenty, they like quietly deprecated it, where they basically 248 00:11:46,800 --> 00:11:49,600 Speaker 1: said everyone who was in that account stayed in that account, 249 00:11:50,040 --> 00:11:53,640 Speaker 1: their rate dwindled to like zero point three percent, so 250 00:11:53,800 --> 00:11:56,160 Speaker 1: like a lot more than my bank is offering on 251 00:11:56,240 --> 00:11:58,400 Speaker 1: like regular SAVIS account, but a lot less than like 252 00:11:58,920 --> 00:12:02,680 Speaker 1: fed funds or like yeah, you know, really a lot less. 253 00:12:03,080 --> 00:12:06,680 Speaker 1: And meanwhile they launched a different product called three sixty 254 00:12:07,440 --> 00:12:11,640 Speaker 1: Performance Saving, which is difference from three sixty Savings, and 255 00:12:11,720 --> 00:12:13,880 Speaker 1: three sixty Performance Savings is the new product that they 256 00:12:13,960 --> 00:12:16,040 Speaker 1: marketed to new people, and they're like, oh, this will 257 00:12:16,040 --> 00:12:17,439 Speaker 1: have the highest right and it did in fact have 258 00:12:17,559 --> 00:12:19,320 Speaker 1: like a you know, PID like four percent or whatever. 259 00:12:20,480 --> 00:12:23,240 Speaker 1: And so if you were like looking to open a 260 00:12:23,320 --> 00:12:26,040 Speaker 1: highield Saves account at Capital One in like twenty twenty three, 261 00:12:26,400 --> 00:12:28,760 Speaker 1: they were like, oh, yeah, here's our four percent rate 262 00:12:29,040 --> 00:12:31,200 Speaker 1: opened three sixty performance savings and you did, and they 263 00:12:31,240 --> 00:12:33,880 Speaker 1: got your money. But if you already had a three 264 00:12:33,960 --> 00:12:37,160 Speaker 1: sixty saves account, your rate dwindled to nothing and nobody 265 00:12:37,320 --> 00:12:40,160 Speaker 1: called you to be like, hey, you should move your 266 00:12:40,200 --> 00:12:44,120 Speaker 1: money to the higher yielding exact similar product. And so 267 00:12:44,320 --> 00:12:46,840 Speaker 1: they got a lot of money. They had a lot 268 00:12:46,880 --> 00:12:49,839 Speaker 1: of deposits from people who just didn't notice and kept 269 00:12:49,880 --> 00:12:52,160 Speaker 1: their money at the low yielding thing. And the CFPB 270 00:12:52,280 --> 00:12:55,120 Speaker 1: says they saved two billion dollars in interest sixpence by 271 00:12:55,200 --> 00:12:55,520 Speaker 1: doing this. 272 00:12:56,160 --> 00:12:58,280 Speaker 2: So you seemed pretty sympathizic. 273 00:12:58,640 --> 00:12:59,680 Speaker 1: I'm like, giggling now is. 274 00:13:01,480 --> 00:13:03,079 Speaker 3: Such a good Yeah? 275 00:13:03,120 --> 00:13:05,280 Speaker 2: Well, I mean your position seems to be like dah, 276 00:13:05,440 --> 00:13:06,600 Speaker 2: this is how banking works. 277 00:13:07,240 --> 00:13:10,960 Speaker 1: The point of a bank is like they take cheap deposits, right, yeah, 278 00:13:11,240 --> 00:13:13,000 Speaker 1: Like I don't want to call it my bank. I 279 00:13:13,040 --> 00:13:14,920 Speaker 1: have no problem with them. But they offer me zero 280 00:13:15,000 --> 00:13:18,120 Speaker 1: points zero three percent on savings. Well, you know, because 281 00:13:18,160 --> 00:13:19,200 Speaker 1: like they can do that, I. 282 00:13:19,240 --> 00:13:21,959 Speaker 2: Will say, okay, So this is how banking works. You 283 00:13:22,040 --> 00:13:25,320 Speaker 2: talk about how like the deposit franchise system is based 284 00:13:25,440 --> 00:13:28,240 Speaker 2: on people not knowing what the not checking. 285 00:13:28,080 --> 00:13:28,760 Speaker 3: The interest rates. 286 00:13:28,880 --> 00:13:32,440 Speaker 1: Like banking theory is that when interest rates go up, 287 00:13:32,880 --> 00:13:35,719 Speaker 1: the cost the deposits of banks doesn't go up as 288 00:13:35,840 --> 00:13:38,640 Speaker 1: fast because there's a thing called deposit beta. Like some 289 00:13:38,800 --> 00:13:40,719 Speaker 1: people just don't move their money out or don't ask 290 00:13:40,760 --> 00:13:43,120 Speaker 1: for a higher interest rate, and certain banks can save money. 291 00:13:43,280 --> 00:13:46,880 Speaker 1: And it's like really important to the stability and health 292 00:13:46,920 --> 00:13:50,439 Speaker 1: of banks that people don't demand every last basis point 293 00:13:50,480 --> 00:13:54,440 Speaker 1: of market interest rates on their savings accounts because loosely speaking, 294 00:13:54,520 --> 00:13:57,040 Speaker 1: the collapse of like Silicon Valley Banking twenty three is 295 00:13:57,120 --> 00:13:59,680 Speaker 1: like because people like demands of market rates on their 296 00:13:59,679 --> 00:14:01,200 Speaker 1: interest on their bank deposits. 297 00:14:01,280 --> 00:14:02,839 Speaker 2: I mean you still see the after effects of that, 298 00:14:02,920 --> 00:14:04,880 Speaker 2: because you take a look at money market funds and 299 00:14:05,320 --> 00:14:08,440 Speaker 2: I think they're still close to seven trillion dollars depending 300 00:14:08,480 --> 00:14:09,079 Speaker 2: on what you look like. 301 00:14:09,679 --> 00:14:12,120 Speaker 1: And I like exaggerating when I say because SPV was 302 00:14:12,160 --> 00:14:14,960 Speaker 1: like had like solvency problems. Yeah, but like the aftermath 303 00:14:15,000 --> 00:14:17,520 Speaker 1: of that was very much. People are like, ooh, my 304 00:14:17,640 --> 00:14:20,440 Speaker 1: regional bank, that's weird. And then they're like, oh wait, 305 00:14:20,520 --> 00:14:22,080 Speaker 1: I can get more on a money market fund and 306 00:14:22,120 --> 00:14:24,560 Speaker 1: it's all on treasuries and it's safer than my regional banking. Yeah, 307 00:14:24,560 --> 00:14:26,400 Speaker 1: So like everyone moved their money to money market funds, 308 00:14:26,400 --> 00:14:28,200 Speaker 1: and so the cost of funding for regional banks went 309 00:14:28,280 --> 00:14:32,320 Speaker 1: up so much because like basically all these deposit franchises 310 00:14:32,400 --> 00:14:34,880 Speaker 1: got like rerated to market interest rates. Yeah, and Capital 311 00:14:34,920 --> 00:14:38,160 Speaker 1: One it's not getting rerated to market interest rates because 312 00:14:38,200 --> 00:14:40,000 Speaker 1: it was paying zero point three percent to all these 313 00:14:40,000 --> 00:14:41,080 Speaker 1: people who weren't paying attention. 314 00:14:41,280 --> 00:14:44,520 Speaker 2: Well, quick segue. It seems like that is the dynamic 315 00:14:44,600 --> 00:14:47,200 Speaker 2: that's going to exist for a while because Okay, there's 316 00:14:47,200 --> 00:14:50,280 Speaker 2: seven trillion dollars in money market funds and it's just 317 00:14:50,440 --> 00:14:52,400 Speaker 2: not coming out, even though the FED has lowered rates 318 00:14:52,480 --> 00:14:54,800 Speaker 2: by like one hundred basis points. There's a bunch of 319 00:14:54,880 --> 00:14:57,280 Speaker 2: bullish people in the stock market who are saying that's 320 00:14:57,360 --> 00:15:00,480 Speaker 2: cash on the sidelines that belongs to the market. But 321 00:15:00,520 --> 00:15:01,960 Speaker 2: then you have people on the other side saying, like, 322 00:15:02,080 --> 00:15:04,600 Speaker 2: no trillions of that came in the wake of sb 323 00:15:04,960 --> 00:15:07,880 Speaker 2: BE collapsing because people realize that's a much better way 324 00:15:08,200 --> 00:15:09,560 Speaker 2: to earn interest on their savings. 325 00:15:09,680 --> 00:15:12,040 Speaker 1: I think that's right, and like anecdotally, like that is 326 00:15:12,120 --> 00:15:14,760 Speaker 1: my experience. I had my saviors and accounts, and eventually 327 00:15:14,840 --> 00:15:16,040 Speaker 1: someone was like, you should really put that in the 328 00:15:16,080 --> 00:15:18,080 Speaker 1: money market, but like I'm not, that's not going into equities. 329 00:15:18,280 --> 00:15:21,080 Speaker 2: No, No, that would probably go back to banks. 330 00:15:21,320 --> 00:15:24,320 Speaker 1: But we'll go to the money market plans. 331 00:15:24,360 --> 00:15:25,520 Speaker 2: You're just going to stay there for the rest of 332 00:15:25,560 --> 00:15:25,920 Speaker 2: your life. 333 00:15:26,560 --> 00:15:30,800 Speaker 1: Cool power to unless Capital One or someone else offers me. 334 00:15:30,840 --> 00:15:33,840 Speaker 2: A higher rate on not going to be capital one. 335 00:15:34,200 --> 00:15:37,040 Speaker 2: My question, So what you were saying this I like 336 00:15:37,120 --> 00:15:41,520 Speaker 2: a good trade. This is how banking works. And it 337 00:15:41,640 --> 00:15:44,240 Speaker 2: sounds like they weren't necessarily lying. 338 00:15:44,560 --> 00:15:47,040 Speaker 1: When they were lying at all, They just weren't calling 339 00:15:47,120 --> 00:15:49,400 Speaker 1: their customers proactively to be like, hey, we have a 340 00:15:49,400 --> 00:15:50,160 Speaker 1: better rate elsewhere. 341 00:15:50,240 --> 00:15:53,760 Speaker 2: But doesn't this doesn't this sound bad? It sounds like 342 00:15:53,840 --> 00:15:56,840 Speaker 2: they were basically told to keep this secret because you 343 00:15:57,000 --> 00:15:59,440 Speaker 2: put in block quotes that the bank this is according 344 00:15:59,440 --> 00:16:03,000 Speaker 2: to the cfp BE, the bank told frontline ambassadors associates 345 00:16:03,040 --> 00:16:06,240 Speaker 2: who work in the bank's physical branches, they must they 346 00:16:06,360 --> 00:16:09,640 Speaker 2: must not proactively mention the ability to convert three sixty 347 00:16:09,680 --> 00:16:14,520 Speaker 2: savings accounts to three sixty performance saving accounts to customers. Similarly, 348 00:16:14,760 --> 00:16:18,080 Speaker 2: the bank forbade its ambassadors from forwarding three sixty saving 349 00:16:18,120 --> 00:16:21,200 Speaker 2: account holders to Bank Voice, the bank's units that handles 350 00:16:21,320 --> 00:16:25,240 Speaker 2: account conversions, unless the account holders asked directly about the 351 00:16:25,280 --> 00:16:27,760 Speaker 2: ability to convert accounts. That seems bad, Matt. 352 00:16:27,920 --> 00:16:30,360 Speaker 1: It's like converting to judaism. You have to ask three times. 353 00:16:32,800 --> 00:16:35,440 Speaker 1: It's bad customer service. Yeah, there's no doubt about it. 354 00:16:35,600 --> 00:16:36,040 Speaker 1: Is it fraud? 355 00:16:37,760 --> 00:16:40,200 Speaker 2: Why did they launch three sixty performance Savings in the 356 00:16:40,240 --> 00:16:40,720 Speaker 2: first place? 357 00:16:40,960 --> 00:16:43,800 Speaker 1: It's a great question. I assume the answer is because, like, 358 00:16:44,640 --> 00:16:48,240 Speaker 1: you do want to gather deposits, and the way to 359 00:16:48,360 --> 00:16:51,160 Speaker 1: do that online as a bank is you do, like 360 00:16:51,720 --> 00:16:54,760 Speaker 1: legitimately advertise the best rate. Right, if you say our 361 00:16:54,800 --> 00:16:57,320 Speaker 1: highield save as account, you'ld four point three percent, come 362 00:16:57,440 --> 00:16:59,880 Speaker 1: join us, right, and then people do so. They would 363 00:17:00,000 --> 00:17:02,480 Speaker 1: advertise this new product to get new deposits in, and 364 00:17:02,560 --> 00:17:03,960 Speaker 1: they had to pay a market rate to do that. 365 00:17:04,560 --> 00:17:07,080 Speaker 1: But like, well, I raise the rate on the old deposits. 366 00:17:07,840 --> 00:17:09,920 Speaker 1: So you launched a new product and then the old 367 00:17:09,960 --> 00:17:12,280 Speaker 1: product can pay less and less than less. I was 368 00:17:12,280 --> 00:17:14,159 Speaker 1: also shady, right. 369 00:17:14,080 --> 00:17:17,560 Speaker 2: It seems it smells so stinky, Matt. And I was 370 00:17:17,600 --> 00:17:19,520 Speaker 2: gonna say it seems like false advertising. But you do 371 00:17:19,640 --> 00:17:21,840 Speaker 2: point out that you know they advertise this is the 372 00:17:21,920 --> 00:17:23,239 Speaker 2: best and the highest interest rate. 373 00:17:23,520 --> 00:17:25,119 Speaker 1: I think it was like it's false advertising because in 374 00:17:25,119 --> 00:17:26,720 Speaker 1: twenty nineteen they said it was the best rate and 375 00:17:26,760 --> 00:17:28,080 Speaker 1: then in twenty twenty three, I was like, well, this 376 00:17:28,160 --> 00:17:29,040 Speaker 1: is different. 377 00:17:28,840 --> 00:17:31,800 Speaker 2: Years, I guess, but if you know that, you know 378 00:17:32,359 --> 00:17:34,520 Speaker 2: the vast majority of deposits and who knows if it 379 00:17:34,640 --> 00:17:36,960 Speaker 2: was the vast majority are in there because you advertised 380 00:17:36,960 --> 00:17:39,760 Speaker 2: it as having the higher rates straight and then that changed. 381 00:17:40,000 --> 00:17:40,880 Speaker 2: Shouldn't you tell them? 382 00:17:42,160 --> 00:17:44,879 Speaker 1: Yes, the CFPP says, and yes, if you're like a 383 00:17:45,160 --> 00:17:47,760 Speaker 1: good upsetting vide you're a bank, you know, it's like 384 00:17:47,880 --> 00:17:49,920 Speaker 1: a different story. I had a friend when I was 385 00:17:49,960 --> 00:17:53,240 Speaker 1: at Goldman. I had a friend who managed his family's 386 00:17:53,280 --> 00:17:56,440 Speaker 1: cash balances. He would like put money at Hyta and 387 00:17:56,880 --> 00:17:59,160 Speaker 1: every like month he would check the rates on hoyotav 388 00:17:59,480 --> 00:18:01,560 Speaker 1: And there's always someone who is better than someone else, right, 389 00:18:01,800 --> 00:18:03,320 Speaker 1: because like this is what you do. You advert has 390 00:18:03,320 --> 00:18:06,040 Speaker 1: a high rate, you draw in money, and then you 391 00:18:06,160 --> 00:18:08,280 Speaker 1: figure people aren't going to pay close attention, so you 392 00:18:08,320 --> 00:18:10,520 Speaker 1: could have like not quite the highest rate right now. 393 00:18:10,920 --> 00:18:13,280 Speaker 1: Usually they were all kind of fairly close to each other, 394 00:18:13,400 --> 00:18:16,680 Speaker 1: but like each month someone had a like essentially promotional 395 00:18:16,800 --> 00:18:18,680 Speaker 1: rate to get in money. And so if you move 396 00:18:18,760 --> 00:18:20,880 Speaker 1: your money every month, you could earn a higher rate 397 00:18:20,920 --> 00:18:23,520 Speaker 1: every month. But you had to be kind of weird 398 00:18:23,600 --> 00:18:25,639 Speaker 1: to do that and the banks for keep banking on 399 00:18:25,720 --> 00:18:28,760 Speaker 1: people mostly not being that weird and mostly like leaving 400 00:18:28,800 --> 00:18:30,639 Speaker 1: their money there even if they didn't offer the highest 401 00:18:30,720 --> 00:18:32,920 Speaker 1: rate all the time. And Capital One did a sort 402 00:18:32,960 --> 00:18:34,320 Speaker 1: of extreme version of them. Yeah. 403 00:18:34,640 --> 00:18:37,639 Speaker 2: Well, they report earnings next week. It'll be interesting to 404 00:18:37,680 --> 00:18:39,560 Speaker 2: see if there's any commentary on this on the call. 405 00:18:40,000 --> 00:18:42,240 Speaker 1: Yeah. I'm gonna say two other things about Capitol one. 406 00:18:42,480 --> 00:18:45,840 Speaker 1: On one is that before the pandemic, I would meet 407 00:18:45,880 --> 00:18:47,680 Speaker 1: people for coffee and they'd be like, where can we 408 00:18:47,760 --> 00:18:49,800 Speaker 1: meet for coffee near Bloomberg? And I had a whole 409 00:18:49,840 --> 00:18:52,520 Speaker 1: list of places, and they all close during the pandemic. 410 00:18:52,880 --> 00:18:55,320 Speaker 1: And now when people say where can we meet for 411 00:18:55,359 --> 00:18:58,080 Speaker 1: coffee near Bloomberg, I'm like, well, there is a Capital 412 00:18:58,119 --> 00:19:00,600 Speaker 1: One cafe in our building, and that is the only 413 00:19:00,640 --> 00:19:04,119 Speaker 1: place I meet people for coffee. And it used to 414 00:19:04,240 --> 00:19:07,320 Speaker 1: have the advantage that it was kind of like large 415 00:19:07,359 --> 00:19:09,200 Speaker 1: and quiet and so you could always find a seat. 416 00:19:09,240 --> 00:19:11,760 Speaker 1: But then that stopped having that. Everyone meets at the 417 00:19:11,800 --> 00:19:12,560 Speaker 1: Capitol One cafe. 418 00:19:12,720 --> 00:19:14,159 Speaker 2: Oh my god, So it used to be in h 419 00:19:14,160 --> 00:19:16,840 Speaker 2: and M. It's literally in the Bloomberg building. I love 420 00:19:16,920 --> 00:19:19,080 Speaker 2: the Capital One And I met your brother for coffee 421 00:19:19,240 --> 00:19:21,760 Speaker 2: isn't that bizarre. Yeah, we have a memory together at 422 00:19:21,760 --> 00:19:24,760 Speaker 2: the Capital One Cafe. Uh Viil Donna Hirich was also 423 00:19:24,800 --> 00:19:26,800 Speaker 2: there and my brother Greg and some other guy. That 424 00:19:27,000 --> 00:19:31,520 Speaker 2: was quite a strange meeting of the mines. Capital One Cafe. 425 00:19:31,600 --> 00:19:34,000 Speaker 2: It's a great place to get a kind of soggy sandwich. 426 00:19:34,160 --> 00:19:36,280 Speaker 1: You don't have to bank there, but I believe you 427 00:19:36,359 --> 00:19:40,600 Speaker 1: get a disc of you do great stuff. I feel, 428 00:19:40,680 --> 00:19:42,480 Speaker 1: you know, in addition to loving a good trade, I 429 00:19:42,840 --> 00:19:45,920 Speaker 1: sympathize at the Capital One because they provide me my 430 00:19:47,080 --> 00:19:49,440 Speaker 1: meeting space. The other thing I want to say is 431 00:19:49,760 --> 00:19:52,239 Speaker 1: that what happened is the CFP brought a case right 432 00:19:52,520 --> 00:19:54,440 Speaker 1: and like next week you'll be a new CFPV. This 433 00:19:54,680 --> 00:19:57,440 Speaker 1: is like they are rushing to get everything out the 434 00:19:57,520 --> 00:20:00,240 Speaker 1: door before the new administration comes in. And you know 435 00:20:00,320 --> 00:20:01,959 Speaker 1: a lot of the defendants in these cases are kind 436 00:20:01,960 --> 00:20:03,400 Speaker 1: of saying that they're like, ah, this is the last 437 00:20:03,480 --> 00:20:06,280 Speaker 1: ditch effort by the CFPB to bring a politically motivated 438 00:20:06,359 --> 00:20:08,639 Speaker 1: case and like it won't really stand up and there 439 00:20:08,720 --> 00:20:10,600 Speaker 1: might be something to do to that. Like, I think 440 00:20:10,720 --> 00:20:13,479 Speaker 1: this is a this is kind of a novel theory here, 441 00:20:13,520 --> 00:20:16,200 Speaker 1: because like the CFPB is not really alleging that they lied. 442 00:20:17,600 --> 00:20:20,480 Speaker 1: They should have been proactively telling customers about it. And 443 00:20:20,760 --> 00:20:23,280 Speaker 1: we'll see like what the new CFPB does and and 444 00:20:23,640 --> 00:20:25,840 Speaker 1: sort of where this goes. But like this might go nowhere, 445 00:20:25,960 --> 00:20:28,280 Speaker 1: and Capital one on the call might say this is nothing, 446 00:20:28,320 --> 00:20:29,000 Speaker 1: and they might be right. 447 00:20:29,080 --> 00:20:33,240 Speaker 2: Wow, Perhaps Nate Anderson had some political considerations in mind. 448 00:20:33,440 --> 00:20:35,720 Speaker 2: Perhaps CFPB did as well. 449 00:20:36,480 --> 00:20:38,879 Speaker 1: We're not going to talk about the SEC case against 450 00:20:38,880 --> 00:20:40,760 Speaker 1: the Elon Musk no on this podcast. 451 00:20:40,920 --> 00:20:58,600 Speaker 3: Thanks, we're short out time, but yeah, well you know 452 00:20:58,640 --> 00:20:58,760 Speaker 3: what we. 453 00:20:58,840 --> 00:21:02,640 Speaker 2: Are going to talk about ESG, Yes and American Airlines. 454 00:21:02,720 --> 00:21:04,560 Speaker 1: Turns out if I had did an AUTO like we're 455 00:21:04,560 --> 00:21:05,679 Speaker 1: gonna talk about Elon. 456 00:21:05,680 --> 00:21:08,639 Speaker 2: Would be crazy. I would just stare at you, slackshod 457 00:21:08,840 --> 00:21:15,720 Speaker 2: and walk out of the room. So American Airlines pilots 458 00:21:15,880 --> 00:21:21,399 Speaker 2: are assuming American Airlines in Texas for ESG. As you 459 00:21:21,480 --> 00:21:25,240 Speaker 2: point out, this plan by black Rock didn't have any. 460 00:21:25,840 --> 00:21:27,640 Speaker 1: American Airlines runs like a four O one K fund 461 00:21:27,800 --> 00:21:29,879 Speaker 1: Yes pro one K plan for its pilots. Right and 462 00:21:30,680 --> 00:21:35,200 Speaker 1: one pilot brought a class action saying that this plan 463 00:21:35,800 --> 00:21:40,760 Speaker 1: violates its fiduciary duties to the beneficiaries to the pilots 464 00:21:41,520 --> 00:21:47,080 Speaker 1: because it is ESG and ESG environmental, social and governance 465 00:21:47,119 --> 00:21:50,240 Speaker 1: investing is not putting the financial best interests of the 466 00:21:50,359 --> 00:21:54,960 Speaker 1: pilots first. It is enacting Americans or black Rocks like 467 00:21:55,440 --> 00:21:59,800 Speaker 1: evil social goals rather than caring only about financial returns 468 00:22:00,160 --> 00:22:02,720 Speaker 1: the pilots. As I pointed out in my column, there 469 00:22:02,760 --> 00:22:03,720 Speaker 1: are no ESG funds. 470 00:22:03,840 --> 00:22:05,360 Speaker 3: Yeah, this four on K plan. 471 00:22:05,560 --> 00:22:07,960 Speaker 1: They's just like, at no point does anyone make any 472 00:22:08,040 --> 00:22:10,320 Speaker 1: investment decision that's like, oh, we can't buy coal plants 473 00:22:10,320 --> 00:22:13,159 Speaker 1: because like they're not ESGA. Right, no ESG funds. But 474 00:22:13,200 --> 00:22:16,440 Speaker 1: what there is, though, is that there's regular index funds, 475 00:22:16,640 --> 00:22:18,399 Speaker 1: and the index ones are managed by black Rock and 476 00:22:18,520 --> 00:22:22,840 Speaker 1: Blackrock for a while not anymore. For a while, Larry 477 00:22:22,920 --> 00:22:25,120 Speaker 1: think the CEO of Blackrock would send like a yearly letter, 478 00:22:25,280 --> 00:22:29,040 Speaker 1: like a public letter to CEOs of public companies saying 479 00:22:29,560 --> 00:22:32,240 Speaker 1: you need to care about your impact on communities and 480 00:22:32,960 --> 00:22:35,560 Speaker 1: we're going to be very focused on climate change and 481 00:22:35,800 --> 00:22:39,600 Speaker 1: all these things that seemed in the very different days 482 00:22:39,640 --> 00:22:41,640 Speaker 1: of like twenty twenty one to be like really good 483 00:22:41,680 --> 00:22:44,280 Speaker 1: marketing for Blackrock. Yeah. Oh, look at Blackrock. It's like 484 00:22:44,280 --> 00:22:47,119 Speaker 1: a socially responsible long term steward of capital, and it 485 00:22:47,200 --> 00:22:49,480 Speaker 1: thinks about things like climate change and social impact of 486 00:22:49,520 --> 00:22:52,359 Speaker 1: businesses and like, now that's all not allowed. And so 487 00:22:53,000 --> 00:22:56,440 Speaker 1: these pilots, you know, sued and the argument was that 488 00:22:58,040 --> 00:23:03,000 Speaker 1: by Blackrock out these letters and thinking about ESG and 489 00:23:03,080 --> 00:23:06,760 Speaker 1: sometimes of voting like in favor of like climate proposals 490 00:23:06,800 --> 00:23:11,720 Speaker 1: at portfolio companies, it threw its beneficiaries under the bus 491 00:23:11,920 --> 00:23:15,160 Speaker 1: and it wasn't putting their interests first. And also American 492 00:23:15,640 --> 00:23:19,240 Speaker 1: by hiring Blackrock and by not yelling at them to 493 00:23:19,240 --> 00:23:22,880 Speaker 1: stop doing ESG violated its duties of loyalty to its pilots, 494 00:23:23,200 --> 00:23:26,200 Speaker 1: and therefore, you know, is liable for like not running 495 00:23:26,200 --> 00:23:28,800 Speaker 1: its four h one k plan under the law. And 496 00:23:29,240 --> 00:23:31,800 Speaker 1: they brought this case in like this federal court in 497 00:23:31,880 --> 00:23:35,280 Speaker 1: Texas with like a sort of famous conservative judge who like, 498 00:23:35,359 --> 00:23:38,120 Speaker 1: you bring your conservative cases in Texas because he'll ruin 499 00:23:38,200 --> 00:23:41,880 Speaker 1: your favor. And he said, that's right. ESG by definition 500 00:23:42,160 --> 00:23:46,040 Speaker 1: doesn't prioritize investors' financial returns and so it's not allowed. 501 00:23:46,080 --> 00:23:48,240 Speaker 1: And uh, an American violated its duty of loyalty. 502 00:23:48,480 --> 00:23:51,400 Speaker 2: Yeah, that's really interesting. I mean we've talked about ESG 503 00:23:51,520 --> 00:23:55,080 Speaker 2: on the podcast before obviously, and the question that I 504 00:23:55,160 --> 00:23:57,280 Speaker 2: always ask is like, what are the motivations of ESG. 505 00:23:57,480 --> 00:23:59,960 Speaker 2: Are you investing to do good or because you think 506 00:24:00,119 --> 00:24:02,720 Speaker 2: that if you don't invest to do good eventually things 507 00:24:02,760 --> 00:24:05,120 Speaker 2: will happen to your business that are bad. 508 00:24:05,400 --> 00:24:10,280 Speaker 1: I think that most mainstream ESG investors, certainly including black Rock, 509 00:24:10,880 --> 00:24:15,000 Speaker 1: would say it's the latter. They would say, formally, what 510 00:24:15,200 --> 00:24:17,920 Speaker 1: we are doing is considering long term risks to the 511 00:24:18,000 --> 00:24:20,639 Speaker 1: businesses that we invest in. Climate change, and like the 512 00:24:20,720 --> 00:24:24,000 Speaker 1: transition away from fossil fuels is a giant long term 513 00:24:24,840 --> 00:24:26,920 Speaker 1: risk that we are analyzing and predicting, and so we 514 00:24:27,040 --> 00:24:30,280 Speaker 1: want companies to be positioned for it. We want airlines 515 00:24:30,320 --> 00:24:32,200 Speaker 1: to think about how to you just feel more efficiently. 516 00:24:32,240 --> 00:24:35,879 Speaker 1: We want oil companies to think about transitioning to cleaner 517 00:24:36,040 --> 00:24:38,760 Speaker 1: energy because like that's the long term future. Yeah, And 518 00:24:39,160 --> 00:24:42,280 Speaker 1: like similarly with like social issues, right, it's like diverse 519 00:24:42,320 --> 00:24:45,800 Speaker 1: companies perform better, and diverse companies, like in a more 520 00:24:45,840 --> 00:24:48,480 Speaker 1: diverse world will perform better. And so when we take 521 00:24:48,520 --> 00:24:51,120 Speaker 1: the long view, we think that diversity is important, even 522 00:24:51,160 --> 00:24:54,479 Speaker 1: if it's like expensive. Now, I think that this has 523 00:24:54,560 --> 00:24:58,040 Speaker 1: always been the mainstream of how people who work in 524 00:24:58,320 --> 00:25:01,399 Speaker 1: ESG have described. Now there are two big cavists that 525 00:25:01,560 --> 00:25:03,280 Speaker 1: one is that a lot of people don't believe that. 526 00:25:03,880 --> 00:25:05,399 Speaker 1: And the judge talks about this, he's like, yeah, they 527 00:25:05,440 --> 00:25:07,840 Speaker 1: pay lip service to the idea that it improves financial returns, 528 00:25:07,960 --> 00:25:11,119 Speaker 1: but it's not real. And I think that, you know, 529 00:25:11,480 --> 00:25:13,600 Speaker 1: there is kind of evidence both ways, and like the 530 00:25:13,680 --> 00:25:16,639 Speaker 1: performance of ESCH funds is hard to untangle from like 531 00:25:16,760 --> 00:25:18,760 Speaker 1: influence into es CHI funds. You know, he cites like 532 00:25:19,280 --> 00:25:21,520 Speaker 1: ESG funds underperformed the S and P like in twenty 533 00:25:21,560 --> 00:25:24,280 Speaker 1: twenty three or whatever. Again, no ESG funds in this portfolio, 534 00:25:24,320 --> 00:25:26,400 Speaker 1: so it's an irrelevance iation but whatever, ye yah, yeah. 535 00:25:27,280 --> 00:25:30,720 Speaker 1: But the other problem with this is that I think 536 00:25:30,880 --> 00:25:34,280 Speaker 1: everyone who worked in ESG, if you like pressed them 537 00:25:34,760 --> 00:25:38,040 Speaker 1: on this issue, would say it's about considering long term 538 00:25:38,119 --> 00:25:42,080 Speaker 1: risks to the portfolio. They also definitely benefited from, like 539 00:25:42,440 --> 00:25:45,320 Speaker 1: creating the impression that they were investing to do good. Right. 540 00:25:45,680 --> 00:25:48,119 Speaker 1: I think as an advertising matter, as a you know, 541 00:25:48,200 --> 00:25:51,920 Speaker 1: accumulating of assets matter, blackrock positioning itself as like a 542 00:25:51,960 --> 00:25:55,080 Speaker 1: steward of the environment was appealing to some people, whether 543 00:25:55,200 --> 00:25:57,439 Speaker 1: or not it improved their returns, right, Like they wanted 544 00:25:57,720 --> 00:26:00,360 Speaker 1: the world to you know, they wanted like to fight 545 00:26:00,400 --> 00:26:02,640 Speaker 1: against climate change, and they had like the vague impression 546 00:26:02,800 --> 00:26:04,720 Speaker 1: that putting their money at Blackrock would help in the 547 00:26:04,760 --> 00:26:08,480 Speaker 1: fight against climate change. And I think that like confusing 548 00:26:08,560 --> 00:26:11,439 Speaker 1: those two issues, confusing like are you investing for social good? 549 00:26:11,480 --> 00:26:13,879 Speaker 1: Are you considering long term risks to your portfolio? Was 550 00:26:13,920 --> 00:26:19,000 Speaker 1: like really beneficial to ESG investors during the rise of ESG. Yeah, 551 00:26:19,080 --> 00:26:21,000 Speaker 1: And like there's really bad for them now because they're 552 00:26:21,000 --> 00:26:23,480 Speaker 1: getting lawsuits like this and they're getting pushed back from 553 00:26:23,560 --> 00:26:26,560 Speaker 1: like politicians saying, well, you're not actually putting your clients 554 00:26:26,600 --> 00:26:28,960 Speaker 1: interest first, You're like only trying to do, you know, 555 00:26:29,040 --> 00:26:31,720 Speaker 1: achieve your social goals, which I think is not what 556 00:26:32,080 --> 00:26:33,800 Speaker 1: they would have like officially said, but it's kind of 557 00:26:33,840 --> 00:26:35,600 Speaker 1: what they implied a little bit, So it's not on 558 00:26:35,680 --> 00:26:36,320 Speaker 1: them in trouble now. 559 00:26:36,840 --> 00:26:38,480 Speaker 2: I do want to go back to the lip service thing, 560 00:26:38,520 --> 00:26:40,760 Speaker 2: because that just don't I don't, I don't know. So 561 00:26:41,480 --> 00:26:44,720 Speaker 2: the judge said that oftentimes Blackrock couched its ESG investing 562 00:26:44,760 --> 00:26:47,679 Speaker 2: in language that specifically pledge allegiance to an economic interest, 563 00:26:47,920 --> 00:26:50,840 Speaker 2: but Blackrock never gave more than lip service to show 564 00:26:51,320 --> 00:26:53,800 Speaker 2: how I mean, how do you distinguish what is actually 565 00:26:53,840 --> 00:26:55,720 Speaker 2: a lip service. What if they were giving lip service 566 00:26:56,280 --> 00:26:58,879 Speaker 2: to the ESG part but actually only cared about the 567 00:26:58,960 --> 00:27:01,119 Speaker 2: economic impact. I feel like we can't know that. 568 00:27:02,160 --> 00:27:05,080 Speaker 1: Yeah, And like what I wrote is the Black cair 569 00:27:05,320 --> 00:27:07,600 Speaker 1: complex has a lot of skin in this game, right, Yeah, 570 00:27:07,760 --> 00:27:10,159 Speaker 1: Like Blackrock and plays a lot of investment professionals who 571 00:27:10,200 --> 00:27:13,480 Speaker 1: are like rewarded for doing well, right, And so if 572 00:27:13,600 --> 00:27:16,400 Speaker 1: like they were constantly undermining the economic interests that they're 573 00:27:16,400 --> 00:27:19,879 Speaker 1: trillions of dollars of funds, they might stop doing that, right. 574 00:27:20,160 --> 00:27:22,240 Speaker 1: Blackrock also like has a lot of clients, right, And 575 00:27:22,400 --> 00:27:24,840 Speaker 1: like it's clients range from you know, individuals to like 576 00:27:25,200 --> 00:27:28,520 Speaker 1: very sophisticated pension funds who have like you know, principle 577 00:27:28,520 --> 00:27:31,120 Speaker 1: Asian problems, to like you know, big endowments, like all 578 00:27:31,160 --> 00:27:33,840 Speaker 1: sorts of clients who you know, it's the biggest asset 579 00:27:33,880 --> 00:27:37,800 Speaker 1: manager in the world. Presumably those clients like think it's 580 00:27:38,040 --> 00:27:42,240 Speaker 1: helping them make money, right, Like, like maybe they're all deluded, 581 00:27:42,359 --> 00:27:43,720 Speaker 1: but it's weird to be like, you know, the people 582 00:27:43,720 --> 00:27:45,440 Speaker 1: who invested like trillions and trillions of dollars to the 583 00:27:45,480 --> 00:27:47,840 Speaker 1: black crack are all wrong about it trying to make 584 00:27:47,880 --> 00:27:50,199 Speaker 1: them money. And I a judge in Texas am right, 585 00:27:50,240 --> 00:27:52,440 Speaker 1: and I know that those people are all that like 586 00:27:52,480 --> 00:27:54,920 Speaker 1: Blackrock is actually not looking after them. It's a strange 587 00:27:55,040 --> 00:27:57,320 Speaker 1: like like, what's the evidence that that it was only 588 00:27:57,400 --> 00:27:59,680 Speaker 1: lip service? Well, he doesn't really say, you know, there's 589 00:27:59,680 --> 00:28:01,400 Speaker 1: like test the money in a trial. Maybe he heard 590 00:28:01,440 --> 00:28:06,119 Speaker 1: something very convincing. But to me, like if Blackrock was 591 00:28:06,200 --> 00:28:08,479 Speaker 1: not trying to make money for its investors, it's kind 592 00:28:08,520 --> 00:28:09,920 Speaker 1: of weird that it's got so many investors. 593 00:28:10,200 --> 00:28:13,880 Speaker 2: I do wonder what this means reputationally for Blackrock going forward, 594 00:28:14,119 --> 00:28:15,679 Speaker 2: especially the thing like on. 595 00:28:15,760 --> 00:28:18,440 Speaker 1: That point, like Blackrock is not involved in this lawsuit. Yeah, 596 00:28:18,480 --> 00:28:20,720 Speaker 1: it's like a weird because it's like, right, like black 597 00:28:20,800 --> 00:28:22,320 Speaker 1: Rock is getting its name drive through the mud and 598 00:28:22,359 --> 00:28:23,600 Speaker 1: it's not even still. 599 00:28:23,600 --> 00:28:25,960 Speaker 2: I mean, you you raise the point that it's possible 600 00:28:26,000 --> 00:28:28,800 Speaker 2: in twenty twenty one corporate managers who might have been 601 00:28:28,840 --> 00:28:31,560 Speaker 2: afraid to be critical of ESG might have you know, 602 00:28:31,800 --> 00:28:35,920 Speaker 2: hired Blackrock for four one ks to curry favor with Blackrock. 603 00:28:36,080 --> 00:28:37,919 Speaker 1: A point in this lawsuit that's important. It's like Blackrock 604 00:28:37,960 --> 00:28:40,040 Speaker 1: is one of the biggest shareholders of American and so 605 00:28:40,200 --> 00:28:43,560 Speaker 1: like can American criticized BlackRock's THEESGV. 606 00:28:43,280 --> 00:28:45,960 Speaker 2: Is I mean you. You could on the flip side, 607 00:28:46,000 --> 00:28:49,000 Speaker 2: see a company considering, you know, who to hire for 608 00:28:49,040 --> 00:28:51,120 Speaker 2: their for one k, see what's happening in Texas and 609 00:28:51,200 --> 00:28:53,400 Speaker 2: be like, maybe we should just go with Vanguard or 610 00:28:53,480 --> 00:28:56,440 Speaker 2: like Fidelity or something because we don't want this rhcstoria or. 611 00:28:57,280 --> 00:29:01,040 Speaker 1: Like the anti woke right right? Who I really like? 612 00:29:01,080 --> 00:29:03,480 Speaker 1: You know, there's all these people like springing up to 613 00:29:03,600 --> 00:29:05,560 Speaker 1: like oh up this pie right, get all the. 614 00:29:05,520 --> 00:29:10,120 Speaker 2: Anti Yes, But yeah, I don't know. I would love 615 00:29:10,160 --> 00:29:12,320 Speaker 2: to talk to Larry Think. Just sometimes I think about 616 00:29:12,320 --> 00:29:13,760 Speaker 2: who are the people I would love to talk to 617 00:29:14,480 --> 00:29:19,880 Speaker 2: in a completely honest setting like this? Yeah, I come on, 618 00:29:20,160 --> 00:29:22,160 Speaker 2: just like, do you regret it? I know that black 619 00:29:22,240 --> 00:29:24,480 Speaker 2: Rock is backed away ESG. 620 00:29:25,400 --> 00:29:29,040 Speaker 1: I could answer for that. Heats it. Yeah, he regrets 621 00:29:29,080 --> 00:29:31,640 Speaker 1: it because he's a businessman, you know. 622 00:29:31,960 --> 00:29:33,640 Speaker 2: Like he's a business common man. 623 00:29:34,360 --> 00:29:37,120 Speaker 1: Yeah. Like the story in this case that like Larry 624 00:29:37,200 --> 00:29:40,000 Speaker 1: Think is like a crusader for my environmental justice. Who 625 00:29:40,000 --> 00:29:43,520 Speaker 1: will put that over the interests of money is like crazy? 626 00:29:43,960 --> 00:29:44,200 Speaker 2: Yeah. 627 00:29:44,800 --> 00:29:47,040 Speaker 1: I know, back leaned into ESG because it was great 628 00:29:47,080 --> 00:29:49,320 Speaker 1: marketing and now they're leaning way out of ESG because it's. 629 00:29:49,280 --> 00:29:51,640 Speaker 2: Terrible market But you know, if we asked Larry on 630 00:29:51,760 --> 00:29:54,000 Speaker 2: this podcast or in any other public forum, he would 631 00:29:54,040 --> 00:29:56,560 Speaker 2: be like, he wouldn't say that he regrets it necessarily, 632 00:29:56,720 --> 00:29:58,080 Speaker 2: he would say fancy words. 633 00:29:58,320 --> 00:30:02,120 Speaker 1: He would say, I think we are stewards of our investors' capital, 634 00:30:02,360 --> 00:30:05,760 Speaker 1: and we consider the long term risks of that capital. 635 00:30:06,360 --> 00:30:09,960 Speaker 1: We thought and think that, like things like social contribution 636 00:30:10,240 --> 00:30:14,520 Speaker 1: and climate change are material long term risks, and so 637 00:30:14,680 --> 00:30:18,080 Speaker 1: as sensible stewards of capital, we considered those risks, and 638 00:30:18,840 --> 00:30:23,000 Speaker 1: I tried to convey that financial motivation and some letters 639 00:30:23,080 --> 00:30:25,800 Speaker 1: and people are misinterpreting those letters. So I think it's 640 00:30:25,840 --> 00:30:28,240 Speaker 1: all true, but like those letters are kind of written 641 00:30:28,240 --> 00:30:28,920 Speaker 1: to be misinterpreted. 642 00:30:29,120 --> 00:30:31,160 Speaker 2: Larry Fink, come on the podcast, Go do It. 643 00:30:36,480 --> 00:30:37,920 Speaker 1: And that was the Money Stuff Podcast. 644 00:30:38,120 --> 00:30:40,240 Speaker 2: I'm Matt Livian and I'm Katie Greifeld. 645 00:30:40,480 --> 00:30:42,520 Speaker 1: You can find my work by subscribing to the money 646 00:30:42,560 --> 00:30:44,400 Speaker 1: Stuff newsletter on Bloomberg. 647 00:30:44,000 --> 00:30:46,560 Speaker 2: Dot com, and you can find me on Bloomberg TV 648 00:30:46,760 --> 00:30:50,400 Speaker 2: every day on Open Interest between nine to eleven am Eastern. 649 00:30:50,600 --> 00:30:52,280 Speaker 1: We'd love to hear from you. You can send an 650 00:30:52,280 --> 00:30:55,480 Speaker 1: email to moneypot at Bloomberg dot net, ask us a 651 00:30:55,560 --> 00:30:56,920 Speaker 1: question and we might answer it on air. 652 00:30:57,640 --> 00:30:59,720 Speaker 2: You can also Subscribe to our show wherever you're listening 653 00:30:59,800 --> 00:31:01,880 Speaker 2: right now, and leave us a review. It helps more 654 00:31:01,920 --> 00:31:02,760 Speaker 2: people find the show. 655 00:31:03,320 --> 00:31:06,080 Speaker 1: The Money Stuff Podcast is produced by Ana Mazerakus and 656 00:31:06,200 --> 00:31:06,880 Speaker 1: Moses and On. 657 00:31:07,360 --> 00:31:09,400 Speaker 2: Our theme music was composed by Blake Maples. 658 00:31:09,560 --> 00:31:11,840 Speaker 1: Brandon Francis Newdham is our executive. 659 00:31:11,440 --> 00:31:14,280 Speaker 2: Producer, and Stage Bauman is Bloomberg's head of podcasts. 660 00:31:14,480 --> 00:31:16,760 Speaker 1: Thanks for listening to The Money Stuff Podcast. We'll be 661 00:31:16,880 --> 00:31:18,280 Speaker 1: back next week with Mors Time