WEBVTT - Plant Some Petunias: Hindenburg, 360, ESG 0:00:02.720 --> 0:00:10.239 Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to 0:00:10.280 --> 0:00:13.280 The Money Stuff Podcast, your weekly podcast where we talk 0:00:13.320 --> 0:00:17.840 about stuff related to money. I'm Matt Levin and I 0:00:17.840 --> 0:00:19.720 write The Money Stuff com for Bloomberger Pain. 0:00:20.440 --> 0:00:23.000 I'm Katie Greifeld, a reporter for Bloomberg News and an 0:00:23.000 --> 0:00:24.440 anchor for Bloomberg Television. 0:00:25.440 --> 0:00:27.240 What are we talking about today? 0:00:27.680 --> 0:00:30.560 We're going to talk about the slow death of shorts 0:00:30.600 --> 0:00:33.680 and specifically the retirement of Nate Anderson. We're going to 0:00:33.760 --> 0:00:37.920 talk about evil bankers, my favorite cut. We're going to 0:00:38.000 --> 0:00:46.520 talk about ESG Evil ESG, Hindenburgh, Nate Anderson. This was surprising, 0:00:47.120 --> 0:00:49.559 was it? I was surprised. I mean, I don't know. 0:00:49.560 --> 0:00:52.640 You think about Jim Chainos retiring in twenty twenty three, 0:00:52.800 --> 0:00:56.560 he had a pretty rough run towards the end. Nate Anderson, 0:00:56.560 --> 0:01:00.400 I feel like has had a lot of wins. And 0:01:00.440 --> 0:01:02.880 also he only started Hindenburg in twenty seventeen. 0:01:03.480 --> 0:01:06.440 Yeah, I mean it's a hard business, you know, running 0:01:06.440 --> 0:01:10.400 a short. So Nate Anderson, the founder of short focused 0:01:10.400 --> 0:01:13.640 research from Hindenburg Research, announced that Hindenburg Research is no 0:01:13.720 --> 0:01:15.840 more and he's going to tend to his garden or. 0:01:15.760 --> 0:01:18.679 Something, listen to some medium, listen to some. 0:01:18.680 --> 0:01:23.000 Medim I don't know. It's a hard job. And I 0:01:23.080 --> 0:01:26.920 was trying to think about, like why now. And one 0:01:26.959 --> 0:01:29.360 thing that occurred to me is if you read his letter, 0:01:29.840 --> 0:01:31.160 a lot of these people, a lot of people who 0:01:31.200 --> 0:01:33.919 like run these short research firms, sort of style themselves 0:01:33.920 --> 0:01:35.920 as hedgehund managers, in part because that's like a cool 0:01:35.920 --> 0:01:38.119 thing to say, I'm a Hedgehong manager. And like, actually 0:01:38.120 --> 0:01:41.000 the SEC case against Andrew Left is hilarious because they 0:01:41.040 --> 0:01:43.320 like actually claimed that it was fraud for him to 0:01:43.319 --> 0:01:45.640 call himself a hedgehond manager. Yeah, like imply that he 0:01:45.680 --> 0:01:47.680 had clients because he was like talking about his clients 0:01:47.680 --> 0:01:50.840 when he was just the third person, right, which I 0:01:50.880 --> 0:01:53.560 thought was like a little nasty of the sec Yeah, 0:01:53.600 --> 0:01:55.160 it was like, I good enough, it is the kind 0:01:55.160 --> 0:01:57.360 of a Hedgehne manager. But like you know, it's called 0:01:57.400 --> 0:02:00.400 Hindenburg Research, and when you read his life, he like 0:02:00.440 --> 0:02:02.840 describes it as a research firm. It's not a hedge fund. 0:02:02.880 --> 0:02:05.600 It's not like in the business and making short trades, right, 0:02:05.600 --> 0:02:09.280 it's in the business of discovering bad stuff at companies, 0:02:09.280 --> 0:02:13.760 discovering fraud or accounting malfeisms or whatever, and then generating 0:02:13.800 --> 0:02:16.359 money from that somehow. And I don't know exactly how 0:02:16.480 --> 0:02:20.000 Hindenburg generates money. Like the original way I think he 0:02:20.040 --> 0:02:22.880 was generating money was by going to the SEC and 0:02:23.080 --> 0:02:27.560 submitting like whistleblower, what's the word quast step steps yes, 0:02:27.680 --> 0:02:29.720 And so he would like say to the SEC, hey, 0:02:29.760 --> 0:02:31.840 there's front of this company and they would be like, oh, well, 0:02:31.880 --> 0:02:33.560 there is run at that company. They'd find the company 0:02:33.560 --> 0:02:35.120 a lot of money and they'd give him some of 0:02:35.120 --> 0:02:37.239 the money. Or that was the idea. And I think, 0:02:37.280 --> 0:02:39.000 you know, I don't really know what Hindenburg does, but 0:02:39.040 --> 0:02:40.960 like a lot of these firms will sell research ideas 0:02:40.919 --> 0:02:43.960 to hedge funds, will then, you know, do the short trades. 0:02:44.440 --> 0:02:46.640 They have more capital and more diversification than a short 0:02:46.639 --> 0:02:49.359 only hedge fund would have. And like you know, we've 0:02:49.360 --> 0:02:54.120 talked about Hunter Brook. Hunter is in the business of 0:02:55.000 --> 0:02:57.520 finding bad stuff at companies and publishing them and then 0:02:57.960 --> 0:03:01.120 among other things, bringing securitieslawaw suits. And they team up 0:03:01.160 --> 0:03:04.960 with plaintiffs lawyers to bring lawsuits against these companies. And 0:03:06.000 --> 0:03:08.760 if you were as in the business of like monetizing 0:03:08.919 --> 0:03:12.720 fraudit companies by like having your own capital or your 0:03:12.720 --> 0:03:16.800 investor's capital and doing short sales. Like that's a hard business, right, Yeah, 0:03:16.840 --> 0:03:18.480 that's a lot of ways to blow up. Whereas if 0:03:18.480 --> 0:03:21.760 you're in the business of like monetizing whistleblower rewards, that's 0:03:21.840 --> 0:03:25.320 less capital intensive. It takes kind of a long time. Yeah, uncertain. 0:03:25.600 --> 0:03:27.560 I mean it just seems like a hard way to 0:03:27.560 --> 0:03:28.280 pay the bills. 0:03:28.520 --> 0:03:31.840 What whistle lawer awards, Yeah, yeah it is. It's it's lumpy, 0:03:31.880 --> 0:03:34.760 but like people have kind of professionalized it, more lawyers 0:03:34.800 --> 0:03:37.680 than researchers, but some researchers have professionalized that made up 0:03:38.200 --> 0:03:40.760 money in any case, Like if you think about like 0:03:40.800 --> 0:03:43.600 the landscape of these short research frames, like you kind 0:03:43.600 --> 0:03:46.320 of need all of those options. You read his letter, 0:03:46.360 --> 0:03:48.520 he talks about we've led to more than one hundred 0:03:48.600 --> 0:03:53.040 prosecutions and like investigations, like he is measuring his success 0:03:53.080 --> 0:03:59.400 in getting regulatory and prosecutorial attention on the companies he targets. Right, 0:03:59.520 --> 0:04:01.600 it's not like we've caused stock prices to go down. 0:04:01.800 --> 0:04:05.120 It's we have brought fraud to light and how to 0:04:05.160 --> 0:04:09.640 be investigated. And when I think about what is happening 0:04:09.760 --> 0:04:13.000 right now, Yeah, I've written a lot in the last 0:04:13.040 --> 0:04:15.600 couple of weeks about how there have been a lot 0:04:15.600 --> 0:04:19.680 of like sec prosecutions, sec cases, a lot of other stuff. 0:04:19.680 --> 0:04:22.960 There's a big Justice Department anti trust case against KKR 0:04:23.040 --> 0:04:25.919 filed this week. We're going to talk today about the 0:04:26.000 --> 0:04:29.640 CFPP case against Capital One nice Tia. So a lot 0:04:29.640 --> 0:04:33.640 of stuff that is happening now because it won't happen 0:04:33.640 --> 0:04:35.040 next week, right, Yeah, Like if you were in the 0:04:35.080 --> 0:04:37.960 business of like alerting regulators through fraud, you might think 0:04:38.120 --> 0:04:40.240 that's going to be a bad business starting next week 0:04:40.279 --> 0:04:41.359 and going for four years. 0:04:41.520 --> 0:04:41.919 Yeah. 0:04:42.000 --> 0:04:44.200 I don't know that that's actually his calculation, but it 0:04:44.279 --> 0:04:46.200 just feels like a week ago, if you said, oh, 0:04:46.240 --> 0:04:48.000 this company is a fraud, that would have a big effect, 0:04:48.120 --> 0:04:50.280 and like starting in a week saying oh, this company 0:04:50.320 --> 0:04:51.760 is a fraud might not have a big effect. 0:04:51.880 --> 0:04:54.080 Well. Yeah, the thing is like there's no guarantee that 0:04:54.120 --> 0:04:56.800 the stock will actually go down and your short will work. 0:04:56.839 --> 0:05:02.159 You think about their last report was on Carvana alleging fraud, 0:05:02.200 --> 0:05:05.480 and Carvana stock has done really well so far in January. 0:05:05.720 --> 0:05:08.080 Yeah, they could be wrong, right, They always be wrong. 0:05:08.400 --> 0:05:11.160 They are specifically in the business of waving their hands 0:05:11.200 --> 0:05:13.400 and saying to regulators, Hey, look at this company over here, 0:05:13.440 --> 0:05:15.320 this is a fraud. Right, Sometimes they will be wrong 0:05:15.440 --> 0:05:18.120 and the regulators won't look at it. But like sometimes 0:05:18.160 --> 0:05:20.120 they'll be right and the regulators won't look at it. 0:05:20.160 --> 0:05:23.200 And like, my suspicion is that the incidents of that 0:05:23.400 --> 0:05:26.120 will go up soon because like you will have a 0:05:26.200 --> 0:05:30.760 much less enforcement intensive regulatory regime everywhere in the US 0:05:30.839 --> 0:05:32.279 economy starting next week. 0:05:33.040 --> 0:05:33.719 That's interesting. 0:05:34.480 --> 0:05:35.760 That could be like way off base. 0:05:35.839 --> 0:05:36.320 But I don't know. 0:05:36.400 --> 0:05:38.479 It's like my little sp but perhaps there's a political 0:05:38.520 --> 0:05:39.039 angle here. 0:05:41.200 --> 0:05:42.880 I don't know that he's thinking that. I just think 0:05:42.960 --> 0:05:44.760 I think it like I would, like, you know, i'd 0:05:44.800 --> 0:05:47.680 be worried if my business model was calling regulatory attention 0:05:47.760 --> 0:05:51.800 to frauds because like I don't know, Like I don't 0:05:51.800 --> 0:05:53.760 want to say the name. Never mind, I'm gonna move 0:05:53.839 --> 0:05:58.080 right along. We're not gonna say, like some companies. 0:05:57.600 --> 0:06:00.400 That I don't know, you even name some names. You 0:06:00.400 --> 0:06:08.760 can do anything once anyway, you know, well really don't don't. 0:06:08.839 --> 0:06:10.520 I don't need that matter, all right. 0:06:10.400 --> 0:06:13.040 Well, moving softly along firs all In terms of how 0:06:13.080 --> 0:06:15.520 they make money, there was an FT article talking about 0:06:15.920 --> 0:06:19.120 this small New York based firm called Kingdon Capital that 0:06:19.240 --> 0:06:21.760 works with Hindenberg on a number of its trades. 0:06:22.000 --> 0:06:27.320 So, right, like you sell ideas to or a partner with, yeah, 0:06:27.600 --> 0:06:28.400 somebody who is not. 0:06:28.640 --> 0:06:30.120 And then you're the public face. 0:06:30.560 --> 0:06:32.279 Yeah, you're the public face of the short idea. But 0:06:32.279 --> 0:06:34.599 also like they're the people who have like long short 0:06:34.640 --> 0:06:37.320 capital because like just being a short seller, as Jim 0:06:37.400 --> 0:06:39.520 Chaina has found, is hard because slacks mostly go up. 0:06:39.680 --> 0:06:43.040 Yeah, that is painful. Well related to this. So he's 0:06:43.080 --> 0:06:45.800 winding up the firm, he's working through the last of 0:06:45.920 --> 0:06:47.880 the ideas, and then they're handing off the tips on 0:06:47.920 --> 0:06:51.440 suspected PAZI schemes to regulators. So there's probably some investable 0:06:51.440 --> 0:06:53.800 ideas in there. And also maybe they'll get some of 0:06:53.839 --> 0:06:55.000 these whistleblower rewards. 0:06:55.080 --> 0:06:58.200 Yeah, I assume there's some tell where like like the 0:06:58.200 --> 0:07:00.000 whistleblowers thick, really long time to come. 0:07:00.120 --> 0:07:03.240 How much can you make I'm interested. 0:07:03.680 --> 0:07:07.320 I mean they've given out I believe, several nine digit awards. 0:07:07.400 --> 0:07:10.000 Don't They've hid out hundreds and hundreds of millions of dollars. 0:07:10.080 --> 0:07:11.480 I wonder what the average award is. 0:07:12.160 --> 0:07:14.000 You know, they paid out press basis for the big ones. 0:07:14.040 --> 0:07:15.840 I don't know, but like they're not small. Like this 0:07:15.960 --> 0:07:18.160 sort of the way it works is kind of like 0:07:18.200 --> 0:07:20.360 the sort of the rack rate is kind of fifteen 0:07:20.400 --> 0:07:22.440 to thirty percent of what the SACI covers. 0:07:22.520 --> 0:07:23.040 That's wild. 0:07:23.240 --> 0:07:25.360 Yeah, you always get that and takes a long time 0:07:25.400 --> 0:07:27.640 and it's like controversial. But like if you bring them 0:07:27.640 --> 0:07:29.280 a big fraudt they get a big fund, you get 0:07:29.280 --> 0:07:30.160 a big check. 0:07:30.520 --> 0:07:33.040 Yeah, lumpy, Like you said, it kind of reminds me 0:07:33.080 --> 0:07:35.280 of being a freelance journalist if that's how you make 0:07:35.320 --> 0:07:38.600 your living. I'm too risk averse to ever just rely on. 0:07:38.840 --> 0:07:45.240 Oh but compared to like shorting stocks, yeah, capital. 0:07:44.960 --> 0:07:48.160 Intensive, Yeah, I think I'd rather just be a TV anchor. 0:07:48.440 --> 0:07:50.760 In any case, what I'm excited about is that over 0:07:50.800 --> 0:07:53.120 the next six months, Anderson plans to work on a 0:07:53.160 --> 0:07:56.280 series of videos and materials on Hindenberg's models so that 0:07:56.440 --> 0:08:00.160 others can learn how the firm conducted its investigations. That 0:08:00.200 --> 0:08:03.240 sounds like some good viewing and I don't know, maybe 0:08:03.280 --> 0:08:05.400 more people will be inspired to take up the mantle 0:08:05.520 --> 0:08:07.280 now that they have the tools. 0:08:07.600 --> 0:08:09.400 Is it a Barnes and Noble This weekend go on 0:08:09.520 --> 0:08:11.360 and I went to the business section and they're still 0:08:11.360 --> 0:08:14.000 these like for dummies books like investing for dummies, and 0:08:14.040 --> 0:08:15.480 I was like picking them up and leaving through them. 0:08:15.720 --> 0:08:18.960 I really want like a Nate Anderson activist short selling 0:08:18.960 --> 0:08:21.640 for dummies. It sounds like you, you know, it's like 0:08:21.720 --> 0:08:25.000 he's a good expert to record a series of YouTube 0:08:25.040 --> 0:08:26.600 tutorials on how to be a short seller. 0:08:27.080 --> 0:08:30.679 Well soon, so the firm has eleven employees, and also 0:08:30.720 --> 0:08:33.000 in his letter, he said that for now I will 0:08:33.040 --> 0:08:36.000 be focused on making sure everyone on our team lands 0:08:36.120 --> 0:08:39.800 where they want to be next. So the alumni class 0:08:39.840 --> 0:08:42.240 of Hindenburg Research, I mean, who knows if all of 0:08:42.280 --> 0:08:44.320 them will go into short selling, but it'll be interesting 0:08:44.320 --> 0:08:44.800 to follow that. 0:08:45.080 --> 0:08:47.640 Yeah, I think the letter suggested that I've read between 0:08:47.679 --> 0:08:49.600 the lines a little bit to suggests that like there 0:08:49.600 --> 0:08:51.720 will be a continuation of Hindenburg. It won't be called 0:08:51.800 --> 0:08:54.720 Hindenburg and he won't work there, but like several of 0:08:54.760 --> 0:08:56.959 the people there will continue to kind of do the 0:08:57.000 --> 0:08:58.960 same work in a similar format. 0:08:59.160 --> 0:09:01.640 Yeah, I want to know what he does next. Again, 0:09:01.760 --> 0:09:02.200 only he. 0:09:02.240 --> 0:09:05.400 Suggested like like literal gardening. 0:09:05.000 --> 0:09:08.880 And did he I read the part where he said 0:09:09.080 --> 0:09:12.080 this has been really hard. I'm tired. And also I 0:09:12.120 --> 0:09:15.320 want everyone to go get jobs. Now you think he's 0:09:15.360 --> 0:09:19.440 really gonna get down in the dirt plant some petunias. Yes, 0:09:20.800 --> 0:09:21.439 we should. 0:09:21.160 --> 0:09:23.360 Ask him, Yeah, we should have him. Nate, come on 0:09:23.400 --> 0:09:24.959 the pot. I met him once at a book party. 0:09:25.679 --> 0:09:28.680 Huge. I feel like there's he's at least the fifth 0:09:28.720 --> 0:09:31.120 person I've mentioned and Matt has said, yeah, I saw 0:09:31.160 --> 0:09:32.960 them at a book party. It seems like book parties 0:09:33.000 --> 0:09:36.480 are sort of where you spent your free time. Barnes 0:09:36.520 --> 0:09:38.360 and Nobles and this. 0:09:38.400 --> 0:09:40.520 Podcast and book parties are my social life. 0:09:40.640 --> 0:09:41.040 Wow. 0:09:41.760 --> 0:09:43.719 The Barnes and Noble is like party is like my 0:09:43.800 --> 0:09:46.880 actual social life is children's birthday parties. But like, but 0:09:47.040 --> 0:09:49.360 now I'm in like the drop off phase of children's 0:09:49.360 --> 0:09:51.120 birthday parties. So it's like I go to the children's 0:09:51.120 --> 0:09:54.040 birthday party, I'm angle for two minutes. I leave. Yeah, 0:09:54.040 --> 0:09:55.760 I sit in my car and read a book. I 0:09:55.840 --> 0:09:57.360 drafted Bardes and Noble and read a book. 0:09:57.400 --> 0:09:59.360 You know it's gonna say so if you're looking to 0:09:59.400 --> 0:10:16.000 find Matt out in the wild Capital one, Matt, I 0:10:16.080 --> 0:10:18.080 knew you were a banker, but I didn't know you 0:10:18.080 --> 0:10:18.600 were evil. 0:10:19.480 --> 0:10:23.280 I worked at Goldman at like the peak of Goldman 0:10:23.400 --> 0:10:26.720 is a great vampire squid wrapping its blood funnel around 0:10:26.800 --> 0:10:30.400 humanity or whatever the line is. I was pretty evil, 0:10:30.480 --> 0:10:32.520 but like you know, I was like evil adjacent and 0:10:32.520 --> 0:10:34.079 I always had a soft spot for evil. 0:10:34.280 --> 0:10:36.960 Yeah, I could. It really came through in this column, 0:10:37.440 --> 0:10:41.600 of course, we're talking about the Consumer Financial Protection Bureau. 0:10:41.760 --> 0:10:44.920 It alleged that Capital One cheated customers out of two 0:10:44.960 --> 0:10:47.559 billion dollars by keeping them in the dark about a 0:10:47.720 --> 0:10:51.240 savings program that offered higher interest rates on their deposits. 0:10:51.520 --> 0:10:53.800 There's like really no dispute about what happened. Heret okay. 0:10:53.800 --> 0:10:56.520 There's like three kinds of bank accounts whatever the treat 0:10:56.520 --> 0:10:58.320 guns are like floating red bank acount. There's check accounts 0:10:58.480 --> 0:11:03.280 pay basically you're interested. There's savings accounts which exists which 0:11:03.320 --> 0:11:05.040 also seemed to pay zero interest. Like when I go 0:11:05.120 --> 0:11:07.520 to my bank and I like click on the they're like, oh, 0:11:07.640 --> 0:11:09.240 to open a savings account. I click on it, and 0:11:09.360 --> 0:11:12.400 it's like you could get interest as much as zero 0:11:12.520 --> 0:11:15.960 point zero three percent with a million dollar bounce right. 0:11:16.320 --> 0:11:18.240 And then there's a thing called the highield savings account, 0:11:18.240 --> 0:11:20.240 which is distinguished from a regular savings account by paying 0:11:20.360 --> 0:11:24.840 like something more than nominal interest. And in like twenty thirteen, 0:11:25.240 --> 0:11:29.600 Capital One opened highield SAVIS account called three sixty Savings 0:11:30.080 --> 0:11:31.920 and they were like, this is a highield Savis account. 0:11:31.960 --> 0:11:34.319 You'll get the best interest rate, and so people open 0:11:34.360 --> 0:11:36.840 their accounts and they did this for like seven years, 0:11:36.880 --> 0:11:38.640 and the rate would go up and down with like 0:11:38.800 --> 0:11:42.360 you know, interest rates, and then in twenty twenty, in 0:11:42.440 --> 0:11:46.760 twenty twenty, they like quietly deprecated it, where they basically 0:11:46.800 --> 0:11:49.600 said everyone who was in that account stayed in that account, 0:11:50.040 --> 0:11:53.640 their rate dwindled to like zero point three percent, so 0:11:53.800 --> 0:11:56.160 like a lot more than my bank is offering on 0:11:56.240 --> 0:11:58.400 like regular SAVIS account, but a lot less than like 0:11:58.920 --> 0:12:02.680 fed funds or like yeah, you know, really a lot less. 0:12:03.080 --> 0:12:06.680 And meanwhile they launched a different product called three sixty 0:12:07.440 --> 0:12:11.640 Performance Saving, which is difference from three sixty Savings, and 0:12:11.720 --> 0:12:13.880 three sixty Performance Savings is the new product that they 0:12:13.960 --> 0:12:16.040 marketed to new people, and they're like, oh, this will 0:12:16.040 --> 0:12:17.439 have the highest right and it did in fact have 0:12:17.559 --> 0:12:19.320 like a you know, PID like four percent or whatever. 0:12:20.480 --> 0:12:23.240 And so if you were like looking to open a 0:12:23.320 --> 0:12:26.040 highield Saves account at Capital One in like twenty twenty three, 0:12:26.400 --> 0:12:28.760 they were like, oh, yeah, here's our four percent rate 0:12:29.040 --> 0:12:31.200 opened three sixty performance savings and you did, and they 0:12:31.240 --> 0:12:33.880 got your money. But if you already had a three 0:12:33.960 --> 0:12:37.160 sixty saves account, your rate dwindled to nothing and nobody 0:12:37.320 --> 0:12:40.160 called you to be like, hey, you should move your 0:12:40.200 --> 0:12:44.120 money to the higher yielding exact similar product. And so 0:12:44.320 --> 0:12:46.840 they got a lot of money. They had a lot 0:12:46.880 --> 0:12:49.839 of deposits from people who just didn't notice and kept 0:12:49.880 --> 0:12:52.160 their money at the low yielding thing. And the CFPB 0:12:52.280 --> 0:12:55.120 says they saved two billion dollars in interest sixpence by 0:12:55.200 --> 0:12:55.520 doing this. 0:12:56.160 --> 0:12:58.280 So you seemed pretty sympathizic. 0:12:58.640 --> 0:12:59.680 I'm like, giggling now is. 0:13:01.480 --> 0:13:03.079 Such a good Yeah? 0:13:03.120 --> 0:13:05.280 Well, I mean your position seems to be like dah, 0:13:05.440 --> 0:13:06.600 this is how banking works. 0:13:07.240 --> 0:13:10.960 The point of a bank is like they take cheap deposits, right, yeah, 0:13:11.240 --> 0:13:13.000 Like I don't want to call it my bank. I 0:13:13.040 --> 0:13:14.920 have no problem with them. But they offer me zero 0:13:15.000 --> 0:13:18.120 points zero three percent on savings. Well, you know, because 0:13:18.160 --> 0:13:19.200 like they can do that, I. 0:13:19.240 --> 0:13:21.959 Will say, okay, So this is how banking works. You 0:13:22.040 --> 0:13:25.320 talk about how like the deposit franchise system is based 0:13:25.440 --> 0:13:28.240 on people not knowing what the not checking. 0:13:28.080 --> 0:13:28.760 The interest rates. 0:13:28.880 --> 0:13:32.440 Like banking theory is that when interest rates go up, 0:13:32.880 --> 0:13:35.719 the cost the deposits of banks doesn't go up as 0:13:35.840 --> 0:13:38.640 fast because there's a thing called deposit beta. Like some 0:13:38.800 --> 0:13:40.719 people just don't move their money out or don't ask 0:13:40.760 --> 0:13:43.120 for a higher interest rate, and certain banks can save money. 0:13:43.280 --> 0:13:46.880 And it's like really important to the stability and health 0:13:46.920 --> 0:13:50.439 of banks that people don't demand every last basis point 0:13:50.480 --> 0:13:54.440 of market interest rates on their savings accounts because loosely speaking, 0:13:54.520 --> 0:13:57.040 the collapse of like Silicon Valley Banking twenty three is 0:13:57.120 --> 0:13:59.680 like because people like demands of market rates on their 0:13:59.679 --> 0:14:01.200 interest on their bank deposits. 0:14:01.280 --> 0:14:02.839 I mean you still see the after effects of that, 0:14:02.920 --> 0:14:04.880 because you take a look at money market funds and 0:14:05.320 --> 0:14:08.440 I think they're still close to seven trillion dollars depending 0:14:08.480 --> 0:14:09.079 on what you look like. 0:14:09.679 --> 0:14:12.120 And I like exaggerating when I say because SPV was 0:14:12.160 --> 0:14:14.960 like had like solvency problems. Yeah, but like the aftermath 0:14:15.000 --> 0:14:17.520 of that was very much. People are like, ooh, my 0:14:17.640 --> 0:14:20.440 regional bank, that's weird. And then they're like, oh wait, 0:14:20.520 --> 0:14:22.080 I can get more on a money market fund and 0:14:22.120 --> 0:14:24.560 it's all on treasuries and it's safer than my regional banking. Yeah, 0:14:24.560 --> 0:14:26.400 So like everyone moved their money to money market funds, 0:14:26.400 --> 0:14:28.200 and so the cost of funding for regional banks went 0:14:28.280 --> 0:14:32.320 up so much because like basically all these deposit franchises 0:14:32.400 --> 0:14:34.880 got like rerated to market interest rates. Yeah, and Capital 0:14:34.920 --> 0:14:38.160 One it's not getting rerated to market interest rates because 0:14:38.200 --> 0:14:40.000 it was paying zero point three percent to all these 0:14:40.000 --> 0:14:41.080 people who weren't paying attention. 0:14:41.280 --> 0:14:44.520 Well, quick segue. It seems like that is the dynamic 0:14:44.600 --> 0:14:47.200 that's going to exist for a while because Okay, there's 0:14:47.200 --> 0:14:50.280 seven trillion dollars in money market funds and it's just 0:14:50.440 --> 0:14:52.400 not coming out, even though the FED has lowered rates 0:14:52.480 --> 0:14:54.800 by like one hundred basis points. There's a bunch of 0:14:54.880 --> 0:14:57.280 bullish people in the stock market who are saying that's 0:14:57.360 --> 0:15:00.480 cash on the sidelines that belongs to the market. But 0:15:00.520 --> 0:15:01.960 then you have people on the other side saying, like, 0:15:02.080 --> 0:15:04.600 no trillions of that came in the wake of sb 0:15:04.960 --> 0:15:07.880 BE collapsing because people realize that's a much better way 0:15:08.200 --> 0:15:09.560 to earn interest on their savings. 0:15:09.680 --> 0:15:12.040 I think that's right, and like anecdotally, like that is 0:15:12.120 --> 0:15:14.760 my experience. I had my saviors and accounts, and eventually 0:15:14.840 --> 0:15:16.040 someone was like, you should really put that in the 0:15:16.080 --> 0:15:18.080 money market, but like I'm not, that's not going into equities. 0:15:18.280 --> 0:15:21.080 No, No, that would probably go back to banks. 0:15:21.320 --> 0:15:24.320 But we'll go to the money market plans. 0:15:24.360 --> 0:15:25.520 You're just going to stay there for the rest of 0:15:25.560 --> 0:15:25.920 your life. 0:15:26.560 --> 0:15:30.800 Cool power to unless Capital One or someone else offers me. 0:15:30.840 --> 0:15:33.840 A higher rate on not going to be capital one. 0:15:34.200 --> 0:15:37.040 My question, So what you were saying this I like 0:15:37.120 --> 0:15:41.520 a good trade. This is how banking works. And it 0:15:41.640 --> 0:15:44.240 sounds like they weren't necessarily lying. 0:15:44.560 --> 0:15:47.040 When they were lying at all, They just weren't calling 0:15:47.120 --> 0:15:49.400 their customers proactively to be like, hey, we have a 0:15:49.400 --> 0:15:50.160 better rate elsewhere. 0:15:50.240 --> 0:15:53.760 But doesn't this doesn't this sound bad? It sounds like 0:15:53.840 --> 0:15:56.840 they were basically told to keep this secret because you 0:15:57.000 --> 0:15:59.440 put in block quotes that the bank this is according 0:15:59.440 --> 0:16:03.000 to the cfp BE, the bank told frontline ambassadors associates 0:16:03.040 --> 0:16:06.240 who work in the bank's physical branches, they must they 0:16:06.360 --> 0:16:09.640 must not proactively mention the ability to convert three sixty 0:16:09.680 --> 0:16:14.520 savings accounts to three sixty performance saving accounts to customers. Similarly, 0:16:14.760 --> 0:16:18.080 the bank forbade its ambassadors from forwarding three sixty saving 0:16:18.120 --> 0:16:21.200 account holders to Bank Voice, the bank's units that handles 0:16:21.320 --> 0:16:25.240 account conversions, unless the account holders asked directly about the 0:16:25.280 --> 0:16:27.760 ability to convert accounts. That seems bad, Matt. 0:16:27.920 --> 0:16:30.360 It's like converting to judaism. You have to ask three times. 0:16:32.800 --> 0:16:35.440 It's bad customer service. Yeah, there's no doubt about it. 0:16:35.600 --> 0:16:36.040 Is it fraud? 0:16:37.760 --> 0:16:40.200 Why did they launch three sixty performance Savings in the 0:16:40.240 --> 0:16:40.720 first place? 0:16:40.960 --> 0:16:43.800 It's a great question. I assume the answer is because, like, 0:16:44.640 --> 0:16:48.240 you do want to gather deposits, and the way to 0:16:48.360 --> 0:16:51.160 do that online as a bank is you do, like 0:16:51.720 --> 0:16:54.760 legitimately advertise the best rate. Right, if you say our 0:16:54.800 --> 0:16:57.320 highield save as account, you'ld four point three percent, come 0:16:57.440 --> 0:16:59.880 join us, right, and then people do so. They would 0:17:00.000 --> 0:17:02.480 advertise this new product to get new deposits in, and 0:17:02.560 --> 0:17:03.960 they had to pay a market rate to do that. 0:17:04.560 --> 0:17:07.080 But like, well, I raise the rate on the old deposits. 0:17:07.840 --> 0:17:09.920 So you launched a new product and then the old 0:17:09.960 --> 0:17:12.280 product can pay less and less than less. I was 0:17:12.280 --> 0:17:14.159 also shady, right. 0:17:14.080 --> 0:17:17.560 It seems it smells so stinky, Matt. And I was 0:17:17.600 --> 0:17:19.520 gonna say it seems like false advertising. But you do 0:17:19.640 --> 0:17:21.840 point out that you know they advertise this is the 0:17:21.920 --> 0:17:23.239 best and the highest interest rate. 0:17:23.520 --> 0:17:25.119 I think it was like it's false advertising because in 0:17:25.119 --> 0:17:26.720 twenty nineteen they said it was the best rate and 0:17:26.760 --> 0:17:28.080 then in twenty twenty three, I was like, well, this 0:17:28.160 --> 0:17:29.040 is different. 0:17:28.840 --> 0:17:31.800 Years, I guess, but if you know that, you know 0:17:32.359 --> 0:17:34.520 the vast majority of deposits and who knows if it 0:17:34.640 --> 0:17:36.960 was the vast majority are in there because you advertised 0:17:36.960 --> 0:17:39.760 it as having the higher rates straight and then that changed. 0:17:40.000 --> 0:17:40.880 Shouldn't you tell them? 0:17:42.160 --> 0:17:44.879 Yes, the CFPP says, and yes, if you're like a 0:17:45.160 --> 0:17:47.760 good upsetting vide you're a bank, you know, it's like 0:17:47.880 --> 0:17:49.920 a different story. I had a friend when I was 0:17:49.960 --> 0:17:53.240 at Goldman. I had a friend who managed his family's 0:17:53.280 --> 0:17:56.440 cash balances. He would like put money at Hyta and 0:17:56.880 --> 0:17:59.160 every like month he would check the rates on hoyotav 0:17:59.480 --> 0:18:01.560 And there's always someone who is better than someone else, right, 0:18:01.800 --> 0:18:03.320 because like this is what you do. You advert has 0:18:03.320 --> 0:18:06.040 a high rate, you draw in money, and then you 0:18:06.160 --> 0:18:08.280 figure people aren't going to pay close attention, so you 0:18:08.320 --> 0:18:10.520 could have like not quite the highest rate right now. 0:18:10.920 --> 0:18:13.280 Usually they were all kind of fairly close to each other, 0:18:13.400 --> 0:18:16.680 but like each month someone had a like essentially promotional 0:18:16.800 --> 0:18:18.680 rate to get in money. And so if you move 0:18:18.760 --> 0:18:20.880 your money every month, you could earn a higher rate 0:18:20.920 --> 0:18:23.520 every month. But you had to be kind of weird 0:18:23.600 --> 0:18:25.639 to do that and the banks for keep banking on 0:18:25.720 --> 0:18:28.760 people mostly not being that weird and mostly like leaving 0:18:28.800 --> 0:18:30.639 their money there even if they didn't offer the highest 0:18:30.720 --> 0:18:32.920