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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is Wall Street Week.

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Speaker 3: I'm David Weston bringing you stories of capitalism. China has

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Speaker 3: become the number one auto producer in the world. We

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Speaker 3: go to Paris to see how one of its leaders, BYD,

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Speaker 3: plans to take over Europe. Plus, the IMF and World

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Speaker 3: Bank met in Washington last week to wrestle with a

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Speaker 3: whole new set of problems. How much do they need

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Speaker 3: to change to keep up with the times? And it's

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Speaker 3: not just the people we see on the news all

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Speaker 3: the time. That person next door may be one of

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Speaker 3: the new billionaires or at least multimillionaires no one hears about.

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Speaker 3: But we start with the latest AI scare and Tropic

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Speaker 3: has said that its new mythos preview is too dangerous

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Speaker 3: for public release, and Secretuary Vessent and Chair Powell call

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Speaker 3: in the heads of the major banks to warn them

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Speaker 3: about it.

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Speaker 4: I applaud Secretary Bessett for doing that. One of the

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Speaker 4: things we always were focused on the risks to the

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Speaker 4: banking system, the risk for any kind of cyber attack

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Speaker 4: just getting in and change the ones and zeros around

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Speaker 4: in the banking system. So much of it rests on

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Speaker 4: our banking system, so nothing is more important.

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Speaker 1: We need to do something about it. I don't think

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Speaker 1: there is a framework. You know that everybody's came to

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Speaker 1: have a framework within which to operate. I don't think

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Speaker 1: there is a governance framework that is there to actually

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Speaker 1: mind those things. We need to work on that.

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Speaker 3: Catherine Judge is a professor at Columbia Law School specializing

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Speaker 3: in the FAD. She explained the risks that mythos could

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Speaker 3: pose for the banking system and what regulators can do

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Speaker 3: to manage them.

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Speaker 5: The big deal is there are real concerns that this new,

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Speaker 5: much more sophisticated form of AI could detect and like

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Speaker 5: the will Dettack very neat being full of vulnerabilities in

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Speaker 5: banks software in ways that could expose them to cyber

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Speaker 5: attacks that would disable individual banks and potentially the broader

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Speaker 5: banking system.

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Speaker 3: There is the danger of bad actors getting access to it.

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Speaker 3: Is there a flip side to it also that may

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Speaker 3: give the banking system and banks some defensive tools, although

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Speaker 3: as might lack.

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Speaker 5: Yeah, I mean this is always the interesting question is

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Speaker 5: like AI fighting AI and what does that look like?

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Speaker 5: And there's also a question of what that looks like

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Speaker 5: for the structure of the banking system. Again, the US

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Speaker 5: has always had a very diffuse banking system. We have

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Speaker 5: lots of small banks, we have regional banks, and they

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Speaker 5: provide different types of services and loans surreal economy and

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Speaker 5: so one of the interesting questions if this becomes absolutely

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Speaker 5: vital to be part of the financial system, who's going

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Speaker 5: to have access to that type of technology.

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Speaker 3: The financial system is global last time I checked, So

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Speaker 3: it's not just a US problem we have here, potentially.

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Speaker 1: Not at all.

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Speaker 5: And we've seen both European and Asian regulators speak out

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Speaker 5: and voice significant concerns, and so one of the things

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Speaker 5: that's so interesting about this is you both need clear

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Speaker 5: public private coordination, but there's also the possibility of global

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Speaker 5: coordination to try to understand just what these threats are

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Speaker 5: and then what can be done realistically to try to

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Speaker 5: contain them.

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Speaker 3: What exactly can the Federal Reserve do? They have an

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Speaker 3: awful lot of PhD economists. I'm not aware they have

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Speaker 3: a lot of AI engineers.

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Speaker 5: Yeah, I mean one of the real challenges no bank

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Speaker 5: supervisor is prepared for this, right, So cyber attacks are

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Speaker 5: nothing new. It's a challenge banks have been dealing with

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Speaker 5: for a long time, and supervisors have played a role

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Speaker 5: helping to make sure that banks are appropriately prepared as

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Speaker 5: part of operational risk and other concerns. But this is

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Speaker 5: a cool different level. It's jumping up the magnitude of

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Speaker 5: the threat in a way that no bank regulator or

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Speaker 5: supervisor is prepared to fully address. And so the question

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Speaker 5: is can they ask good questions, Can they help provide

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Speaker 5: guidance as they did in Washington? Can they facilitate coordination

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Speaker 5: in conversation.

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Speaker 3: We've turned to the FED right now to avoid the problem,

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Speaker 3: but if Heaven forbid, there is a price problem, there

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Speaker 3: is a serious hack, what could the Fed's role be

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Speaker 3: in remediation?

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Speaker 6: This is one of the key issues.

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Speaker 5: I mean, the government's not going to be able to

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Speaker 5: stop a serious cyber attack. On the other hand, the

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Speaker 5: government can play a very meaningful role helping to contain

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Speaker 5: the damage. And really, when you're worried about the functioning

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Speaker 5: the financial system, a lot of it's on prevention. But

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Speaker 5: things are going to happen and things are going to wrong,

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Speaker 5: and the effort then is on containment. And that's where

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Speaker 5: the FED having strong relationships with the entire banking system

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Speaker 5: and helping to make sure that it's providing liquidity and

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Speaker 5: potentially helping to provide alternatives for effected consumers, and really

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Speaker 5: coming up with a game plan over what can we

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Speaker 5: do and what should we do if things go wrong

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Speaker 5: is going to be I think part of the effort

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Speaker 5: going forward to try to make sure that in the

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Speaker 5: really unfortunate event that there is a wide scale malicious attack,

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Speaker 5: that the damage isn't nearly as crippling as the actor

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Speaker 5: might hope.

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Speaker 3: Like the rest of us, the FED may be struggling

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Speaker 3: to understand the benefits and risks of AI, so we

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Speaker 3: turn to the experts, people like Margaret Mitchell, researcher and

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Speaker 3: chief ethics scientist at hugging Face. An open source AI platform.

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Speaker 7: Mythos is really on the cutting edge of cybersecurity right now.

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Speaker 7: It's incorporating a lot of things that we've already known

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Speaker 7: that's already common in cybersecurity, but it's within a system

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Speaker 7: also called Mythos, that can operate at warp speed. So

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Speaker 7: there's this new sort of paradigm right now within AI

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Speaker 7: called AI agents and agentic computing. Mythos is an autonomous

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Speaker 7: agentic system. It can take sequences of actions without any

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Speaker 7: human oversight, and it can do it, you know, while

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Speaker 7: you're asleep and infiltrate tons of different systems.

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Speaker 3: If I'm one of the big banks, the Secretary Treasury

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Speaker 3: Besin called in and I learned about this, what can

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Speaker 3: I do about? The big banks have been spending a

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Speaker 3: lot of money on cybersecurity for quite a while now.

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Speaker 7: Right I think that that knowledge and that expertise is

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Speaker 7: really important here. You don't necessarily need mythos to build

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Speaker 7: up appropriate defenses. And actually, this is where the open

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Speaker 7: source world can really help, because it's quite possible, or

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Speaker 7: at least we sort of think it's possible within the

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Speaker 7: world of AI to have different models swapped in in

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Speaker 7: a similar system, built with deep security expertise to help

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Speaker 7: with probing for vulnerabilities and creating patches that kind of thing.

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Speaker 7: And so I think it's really important right now for

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Speaker 7: people to recognize a that this technology is possible and

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Speaker 7: that doesn't have to be siloed to any one company,

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Speaker 7: and B that you can build up defenses right now

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Speaker 7: using tools that are already available for intruder detection, fuzzing frameworks,

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Speaker 7: these kinds of things where basically it's possible to preempt

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Speaker 7: any sort of attacker attackers and defensively set up safeguards

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Speaker 7: against any malicious problems.

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Speaker 3: Part of a cybersecurity defense is basically having your own

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Speaker 3: organization or other organs try to hack into you to

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Speaker 3: see where there might be vulnerabilities. So that's been going

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Speaker 3: on for some time at the banks. But is this

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Speaker 3: different in the sense that it can be running in

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Speaker 3: the background constantly.

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Speaker 7: The punchline is that Mythos is operating in a way

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Speaker 7: where human oversight can be difficult, and that's because it

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Speaker 7: can create action sequences without any sort of human intervention

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Speaker 7: and act on different kinds of things that it sees

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Speaker 7: as possible, and it can do it very fast, and

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Speaker 7: it can spawn what are called subagents, so little workers

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Speaker 7: that can do the same thing across distributed systems. This

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Speaker 7: is all just sort of new paradigm of agentic computing.

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Speaker 7: So you know, it's really within this calibration of autonomy

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Speaker 7: that I think we have to think critically about what

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Speaker 7: we want these systems to be doing, where we want

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Speaker 7: to bring in human oversight, how how people should be

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Speaker 7: able to interact with these systems in order to approve

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Speaker 7: or deny things, because otherwise, you know, with full autonomy,

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Speaker 7: they can just keep going overnight while you're sleeping, spanning

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Speaker 7: tons of different systems, that sort of thing. So you know,

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Speaker 7: you have to put in place those guardrails, those checks

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Speaker 7: in order to make sure that humans are in the

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Speaker 7: loop and can see into the loop, you know, can

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Speaker 7: really understand what's happening.

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Speaker 3: So you, of course are an expert in this, give

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Speaker 3: us your best judgment when you talk about fully autonomous

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Speaker 3: versus semi autonomous, which is better if the goal.

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Speaker 7: Is safety semi autonomous. I've actually written papers on this

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Speaker 7: and off eds and I'm very opinionated about this actually.

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Speaker 7: So when you have full autonomy, that's super flexible. You

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Speaker 7: can do lots of different things, and so that's pretty cool,

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Speaker 7: lots of different things you'd never thought of doing. You

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Speaker 7: don't have to pre program it, right, But from a

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Speaker 7: safety perspective, also within the context of the financial sector,

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Speaker 7: where there's a lot of regulations at play in terms

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Speaker 7: of accountability, in terms of the passage of data, that

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Speaker 7: kind of thing, you want to make sure that you're

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Speaker 7: able to specify specifically the context within which the system

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Speaker 7: can run and that it can't jump out of those contexts.

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Speaker 3: If you're a regulator, what do you do in the

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Speaker 3: face of this new technology to try to minimize or

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Speaker 3: prevent systemic risk.

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Speaker 7: Regulators have one piece to play within the overall accountability chain,

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Speaker 7: and I think that for regulation that focuses more on

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Speaker 7: trying to help ensure reliability, ensure safety, opening up the

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Speaker 7: possibility of third party audits, third party testing. So there's

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Speaker 7: something to be said for companies that share their code,

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Speaker 7: their information, even if they're proprietary, in order to undergo

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Speaker 7: third party auditing, third party testing, that kind of thing.

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Speaker 7: Regulators are in a really nice position to try and

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Speaker 7: ensure that people's rights are protected. So what are the

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Speaker 7: rights that should be protected? Is where security comes in, reliability, safety, privacy,

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Speaker 7: those kinds of things. So I think regulators have a

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Speaker 7: role to play within the overall ecosystem in setting up

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Speaker 7: what kinds of human values should be protected in these systems,

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Speaker 7: and how can you ensure that your system does that?

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Speaker 7: Show us run the evaluations, how it undergo third party

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Speaker 7: evaluations where we can actually see from someone without the

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Speaker 7: financial incentives of one institution, how well these systems actually work.

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Speaker 4: Up.

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Speaker 3: Next, we look behind the curtain at Chinese automaker BYD

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Speaker 3: to see how it's come so far, so fast, and

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Speaker 3: the challenge it poses for Western rivals. This is a

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Speaker 3: story about changes that are too big to ignore. For

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Speaker 3: many years, the global car market has been dominated by

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Speaker 3: the same small group countries like Japan, Germany and the

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Speaker 3: United States, but no longer. In the span of five years,

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Speaker 3: China leapfrog the largest automakers in the world, going from

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Speaker 3: sixth place to first. It now exports more vehicles than

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Speaker 3: the United States and Japan combined. And no company tells

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Speaker 3: that story better than electric carmaker BYD. Bloomberg's Tom mackenzie

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Speaker 3: reports from Paris at.

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Speaker 8: An opera house just north of the Hunzialize, a lavish

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Speaker 8: debut even for Paris. The star of the show not

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Speaker 8: a performer, but a product. This car is the latest

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Speaker 8: creation of BYD, a Shenjen based electric vehicle maker that's

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Speaker 8: taking the world by storm. Today it's China's biggest car

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Speaker 8: company by sales.

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Speaker 6: I want to be the best valuable brand in the

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Speaker 6: auto industry.

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Speaker 8: But it wasn't so long ago that other auto makers

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Speaker 8: literally laughed them off. This was Tesla's Elon musk here

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Speaker 8: on Bloomberg back in twenty eleven.

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Speaker 9: There's competitors now ramping up, and as you're familiar with BYD,

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Speaker 9: which is also on the West Coast, I think they're

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Speaker 9: ramping up production of their electric vehicles.

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Speaker 5: Warm Buffet owns ten percent stake in that.

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Speaker 8: Why do you laugh.

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Speaker 2: Trying to compete?

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Speaker 6: Why do you laugh?

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Speaker 2: Have you seen their car? You don't see them at

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Speaker 2: all as a competitor.

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Speaker 8: Since then, a lot has changed. BYD now has almost

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Speaker 8: a million employees. It says it files an average of

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Speaker 8: fifty two patents per working day, and in twenty twenty five,

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Speaker 8: for the first time, BYD beat Tesla in total car sales,

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Speaker 8: claiming the title of top electric vehicle maker in the world.

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Speaker 8: How would you characterize BYD's growth in recent years, Yeah, explosive.

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Speaker 8: Ryan Fisher is the electric vehicle and charging analyst at

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Speaker 8: Bloomberg NEF.

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Speaker 10: They from twenty twenty one gone from like Baily on

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Speaker 10: the map. If you know what I mean, if you

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Speaker 10: look at the chart to having four million plus sales

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Speaker 10: and being in the top ten automakers in the world.

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Speaker 8: You come from the industry, Ryan, How is b WYD

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Speaker 8: viewed within the industry?

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Speaker 10: Similar to Musk's comments, like who are these I think

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Speaker 10: now people are changing it to oh yeah, we're kind

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Speaker 10: of scared.

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Speaker 8: For a better idea of just how seriously BYD and

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Speaker 8: the Chinese auto sector broadly are being taken. Now. Just

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Speaker 8: listen to Ford CEO Jim Farley speaking last year.

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Speaker 11: It's the most humbling thing I've ever seen. Their cars,

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Speaker 11: their quality of their vehicles, that's far superior to what

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Speaker 11: I see in the West.

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Speaker 8: We wanted to get a first hand look at the

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Speaker 8: battle for the future of automaking, so we went to

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Speaker 8: Paris to see the roll out of BYD's new car.

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Speaker 8: There we spoke with the woman on the front lines

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Speaker 8: of the firm's global expansion.

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Speaker 6: It's why Paris, Yeah, very good question. Paris is the

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Speaker 6: country is the city full of energy and the also.

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Speaker 8: Art Stella ly has led BYD's charge into markets beyond China,

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Speaker 8: including here in France as the company's number two after

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Speaker 8: its founder. Lee also helped engineer its transformation from a

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Speaker 8: battery startup into an auto manufacturing powerhouse.

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Speaker 6: So you know, I joined Bid when Bid is a

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Speaker 6: very small company. They started with twenty people, three hundred

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Speaker 6: and fifty thousand US dollar investment. So I joined Bid

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Speaker 6: the second year. My first job was for oversea marketing

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Speaker 6: promoting manager. So I went to Hong Kong, set up

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Speaker 6: for the first like a kind of international office in

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Speaker 6: Hong Kong in nineteen ninety seven and then came to

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Speaker 6: Europe in nineteen ninety nine. Was thirty thousnd US dollar

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Speaker 6: cash and the one forty feet contenter battery. The message

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Speaker 6: is you need to survive to sell the battery.

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Speaker 8: And sell the battery. She did, securing deals with Motorola

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Speaker 8: and Nokia back then leaders in the mobile phone space.

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Speaker 8: An IPO followed, then a major investment from Berkshire half

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Speaker 8: the way. With each step the company grew and doubled

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Speaker 8: down on research and development and bringing suppliers under their

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Speaker 8: own roof. What do you think the biggest structural advantage

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Speaker 8: is that BYD has over its competitors.

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Speaker 6: Two things. Why is the technology to today Like we

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Speaker 6: have one hundred and twenty thousand MD engineer, we invent

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Speaker 6: fifty two pattern per day. The second is a bid

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Speaker 6: have very strong vitical integration capability. What does this mean?

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Speaker 6: It means like we can do InnoVision much faster, or

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Speaker 6: can do cool stuff much more than any other people.

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Speaker 6: That's the reason you're sold bid in the past two

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Speaker 6: you well have like you have the sporty car called

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Speaker 6: a Young one un I will have three suns and horsepower.

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Speaker 6: There's the fastest car in the planet.

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Speaker 8: It's capable of well over three hundred miles an hour.

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Speaker 8: This feels like China turning up and just saying, ye

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Speaker 8: have all the.

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Speaker 2: Records, thank you.

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Speaker 8: Sadly, BYD didn't let us race their hypercar to the

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Speaker 8: ARCT Detrient, but we did drive their latest luxury ev

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Speaker 8: the Denser Z nine GT. Who do you see is

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Speaker 8: your main competitor? Who is the brand that you're that

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Speaker 8: you're really competing with in this premium segment?

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Speaker 6: Now under all the core technology is this car? I

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Speaker 6: did not see any competition here.

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Speaker 8: Given the company's origins, it's no surprise that the car

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Speaker 8: maker's key feature might be its battery. The range is

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Speaker 8: long and the charges fast, far faster than anything else

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Speaker 8: on the market, if done through their planned system of

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Speaker 8: flash chargers. Fisher says it remains to be seen how

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Speaker 8: quickly BYD can roll those charges out and whether their

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Speaker 8: new cars will beat the competition in the field, but

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Speaker 8: there's little doubt that their tech is impressive.

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Speaker 10: When you think about their advantage in batteries that they've

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Speaker 10: managed to produce, it does seem kind of like an

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Speaker 10: incredible They've come out with the golden egg. They've done

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Speaker 10: it incredibly quickly, with the best technology at the best price.

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Speaker 8: What's more, the new car has the profile of a

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Speaker 8: Porsche and the horsepower of a Bughetti, or that the

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Speaker 8: price of a Subaru outback, but only in China. Here

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Speaker 8: in France it runs about one hundred and fifteen thousand

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Speaker 8: euros or one hundred and thirty five thousand dollars.

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Speaker 6: So with this one it can be true. It's a

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Speaker 6: ZILP two one hundred kilometers two point seven second.

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Speaker 2: Two point seven.

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Speaker 8: Not all of BYD's vehicles target the luxury space. The

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Speaker 8: lowest cost model in the UK, where Chinese cars now

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Speaker 8: account for one in every ten new vehicles sold, goes

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Speaker 8: for under nineteen thousand pounds or about twenty five thousand

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Speaker 8: US dollars. Cheap, but not the cheapest, nor is that

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Speaker 8: the goal. According to BYD's special advisor Alfredo Altavilla, what

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Speaker 8: do you say to regulators and consumers? How do you

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Speaker 8: convince them that BYD isn't just a low cost disruptorad He.

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Speaker 12: Has never been and will never be a low course

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Speaker 12: player in any segment. Our main serning argument is value

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Speaker 12: for money.

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Speaker 8: A Davia came to b WHYD after her career as

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Speaker 8: an executive with the competition. As the former head of

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Speaker 8: Fake Chrysler's European operations, he was a close aide to

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Speaker 8: former CEO Sergeio Marcioni and was considered a top contender

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Speaker 8: to take over his role. What are the real ambitions

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Speaker 8: of b WHYD in Europe? Is it volume or is

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Speaker 8: it positioning in the premium segment or something else?

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Speaker 12: I want to answer with our volume target because you

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Speaker 12: will not believe me, but certainly we want to be

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Speaker 12: one of the key players in this industry on a

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Speaker 12: global scale.

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Speaker 8: If you were an auto executive at a European legacy

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Speaker 8: carmaker right now, as you were once, how worried would

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Speaker 8: you be? Quite worried? About a million units sold last

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Speaker 8: year overseas or international sales? One and a half million

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Speaker 8: is the number that I've seen for twenty twenty six. Yes,

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Speaker 8: are you on track to meet that? To beat that?

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Speaker 6: Yeah? Easy?

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Speaker 8: Easily easily beating one and a half million.

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Speaker 13: Yes, this year easily.

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Speaker 5: Yeah.

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Speaker 8: In recent weeks, the war in Iran and the soaring

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Speaker 8: fuel prices that have come along with it have added

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Speaker 8: new momentum to electric vehicle demand. China's exports of evs

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Speaker 8: and hybrid's sar to a record high in March, with

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Speaker 8: BYD leading the way. But for all the optimism about

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Speaker 8: international growth, the company has faced major challenges in its

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Speaker 8: largest market back home in China. I want to talk

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Speaker 8: about the here and now in the Chinese market. How

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Speaker 8: would you characterize the current state of the Chinese auto market.

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Speaker 6: China's automarket is the super competitive.

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Speaker 8: BYD, recently posting a roughly twenty percent drop in year

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Speaker 8: on year profit the first time since twenty twenty one?

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Speaker 8: Is that as bad as it gets? Do you think no?

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Speaker 6: Just nothing? Because first because you need to understand standard

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Speaker 6: the scenario behind. We're price war and competing with an

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Speaker 6: evy car because everything we do the next day our

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Speaker 6: company will copy, but the then for bid. Now we

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Speaker 6: bring another protection river is our flight charging tackleology, the

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Speaker 6: second generation blader cell. So this we call the protection River.

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Speaker 6: I think it will keep our competition several years behind us.

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Speaker 8: Are you seeing signs of recovery in the Chinese market.

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Speaker 6: Yes, and the second the market in China in Q

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Speaker 6: four Q one is not good because all the subsidy,

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Speaker 6: even we have a small portion left, is one hundred percent.

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Speaker 8: Recent moves to wind down government support are ahead wind

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Speaker 8: for China's ev makers, but Fisher says subsidies haven't been

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Speaker 8: the only driver of their rise, especially in by case.

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Speaker 8: How much of BYD's success is down to Chinese government support.

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Speaker 10: Over the years, there was the investigation from the European

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Speaker 10: Union about which specific automakers were getting the most subsidies

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Speaker 10: and therefore what tariffs they should achieve. BYD was actually

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Speaker 10: on the lower end of the spectrum than some of those.

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Speaker 10: I think what the Chinese government have done and what

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Speaker 10: some people, as maybe I would be jealous of it

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Speaker 10: is that they aligned everything they were doing. They had

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Speaker 10: an automotive plan, they got involved with the metals and mining,

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Speaker 10: They provided the subsidies. Some of this was about oil independence,

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Speaker 10: and some of this was about winning the automotive industry right.

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Speaker 10: This is a massive part of GDP in many countries,

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Speaker 10: and they've done that successfully. So I don't look at

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Speaker 10: the Chinese and feel like they've done anything massively wrong.

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Speaker 10: I actually feel like we've been a bit naive as

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Speaker 10: policymakers in Europe and places like that.

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Speaker 8: Some critics may look at BYD's success and the success

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Speaker 8: of other Chinese automatic is in Europe and other markets

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Speaker 8: outside of China and say this is a classic example

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Speaker 8: of China shifting excess capacity to other markets. Would that

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Speaker 8: be a fair criticism.

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Speaker 10: I think it's a fair critism. We see it across industries.

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Speaker 10: China obviously has leverage and you've seen that in the

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Speaker 10: negotiations where they've tariffed different countries. Maybe the French keep

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Speaker 10: them out of their subsidies and then they get hit

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Speaker 10: with tariffs back on Brandy or something like that. Fundamentally,

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Speaker 10: consumers want the cheapest products and the best ones, and

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Speaker 10: the Chinese have managed to achieve that.

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Speaker 8: So far, American consumers haven't gotten their hands on China's

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Speaker 8: latest evs. Biden era tariffs of over one hundred percent

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Speaker 8: of kept BYD and others out of the US car market,

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Speaker 8: But Donald Trump and China Shooting Ping are set to

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Speaker 8: meet in May, and those trade barriers are likely high

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Speaker 8: on the agenda. US car makers might not have long

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Speaker 8: before Chinese cars show up on American shores, something that

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Speaker 8: forwards Jim Farley was well aware of when he spoke

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Speaker 8: to Wall Street Week.

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Speaker 11: I've never seen a carpetition like this. The government bent

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Speaker 11: on EV's before anyone else in the world. They're the

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Speaker 11: largest market in the world, and now they're the most

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Speaker 11: important market in the world. We can compete and win

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Speaker 11: against them, but we have to bring our a game,

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Speaker 11: and we have to learn of a lot of new things.

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Speaker 8: In twenty twenty seven, Ford is set to debut a

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Speaker 8: line of evs starting at around thirty thousand dollars, which

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Speaker 8: Farley describes as a response to BYD But he's also

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Speaker 8: talked to the Trump administration about forming joint ventures with

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Speaker 8: Chinese firms to build cars locally. Volkswagen and Stallantis have

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Speaker 8: already made similar deals, and as each car maker and

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Speaker 8: country decides how to respond to China's rise, they must

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Speaker 8: grapple with the costs and benefits of protectionism or an alternative.

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Speaker 8: If you can't beat them, join them.

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Speaker 3: Coming up. The IMF was created before World War II

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Speaker 3: was even over in order to provide stability for the

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Speaker 3: global economy. Can it still get the job done in

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Speaker 3: a very different world? Eighty years later. This is a

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Speaker 3: story about being fit for purpose. As the IMF met

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Speaker 3: in Washington last week, its mission of providing global financial

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Speaker 3: stability has never been more important, but one of the

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Speaker 3: Fund's key participants express doubts about whether it's up to it,

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Speaker 3: whether it is still fit for its very important purpose.

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Speaker 6: I think we need to step back and look at

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Speaker 6: the IMF and World Bank, the core missions.

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Speaker 8: We cannot have these kind of elite beliefs. They get

442
00:24:45,640 --> 00:24:47,880
Speaker 8: in the way an.

443
00:24:47,840 --> 00:24:50,960
Speaker 13: Awesome force of a thousand planes and riders thrust deep

444
00:24:51,040 --> 00:24:51,600
Speaker 13: into France.

445
00:24:52,080 --> 00:24:54,760
Speaker 3: That core mission for the IMF and the World Bank

446
00:24:54,960 --> 00:24:57,880
Speaker 3: was crafted back in nineteen forty four in the white

447
00:24:57,960 --> 00:25:01,000
Speaker 3: mountains of Bretton Woods, New Hampshire, less than a month

448
00:25:01,040 --> 00:25:03,719
Speaker 3: after Allied troops helped turn the tide in World War

449
00:25:03,800 --> 00:25:07,760
Speaker 3: Two by storming the beaches of Normandy. Eighty years later,

450
00:25:07,920 --> 00:25:10,919
Speaker 3: the world is a very different place, and the wars

451
00:25:10,920 --> 00:25:14,480
Speaker 3: that multilateral organizations like the IMF are contending with are

452
00:25:14,600 --> 00:25:17,440
Speaker 3: now in places like Iran and Ukraine.

453
00:25:17,960 --> 00:25:21,080
Speaker 13: Even if the war ends tomorrow, it would take quite

454
00:25:21,080 --> 00:25:24,480
Speaker 13: some time for the recovery to kick in.

455
00:25:24,920 --> 00:25:28,880
Speaker 1: War is in any circumstances, the worst outcome.

456
00:25:28,640 --> 00:25:31,760
Speaker 7: There are reasons to really worry about the upside inflation

457
00:25:31,880 --> 00:25:33,359
Speaker 7: risks from the war in Iran.

458
00:25:34,359 --> 00:25:36,720
Speaker 13: The IMF and the World Bank. I mean, these were

459
00:25:36,720 --> 00:25:40,200
Speaker 13: institutions that were created even before the end of the

460
00:25:40,240 --> 00:25:44,240
Speaker 13: Second World War with the basic idea that if countries

461
00:25:44,280 --> 00:25:46,760
Speaker 13: can work together and cooperate on the economic and the

462
00:25:46,760 --> 00:25:50,199
Speaker 13: financial front, and we can have stability in the world,

463
00:25:50,680 --> 00:25:53,960
Speaker 13: then we would have less wars. Clearly that is being

464
00:25:54,160 --> 00:25:55,840
Speaker 13: tested at this current moment.

465
00:25:56,760 --> 00:26:00,560
Speaker 3: Until she joined the Harvard Economics Faculty last year, Gita

466
00:26:00,640 --> 00:26:04,880
Speaker 3: Gopinath helped countries work together as the first Deputy Managing

467
00:26:04,920 --> 00:26:06,359
Speaker 3: Director of the IMF.

468
00:26:07,200 --> 00:26:09,919
Speaker 13: In this current environment that we have right now with

469
00:26:10,040 --> 00:26:14,480
Speaker 13: the conflict in Iran. The countries that have programs with

470
00:26:14,600 --> 00:26:18,720
Speaker 13: the IMF, many of them are importers of energy and

471
00:26:18,760 --> 00:26:21,000
Speaker 13: they are getting hit by these increasing prices.

472
00:26:21,760 --> 00:26:23,959
Speaker 14: Many countries are in trouble right now because of the

473
00:26:24,119 --> 00:26:25,160
Speaker 14: price spikes.

474
00:26:25,760 --> 00:26:26,360
Speaker 2: From the war.

475
00:26:27,080 --> 00:26:30,400
Speaker 3: Kevin Gallagher is the director of the Global Development Policy

476
00:26:30,440 --> 00:26:34,040
Speaker 3: Center at Boston University. We don't know where this war

477
00:26:34,119 --> 00:26:36,760
Speaker 3: is going, how long it will last. Covid as I recall,

478
00:26:37,000 --> 00:26:41,240
Speaker 3: really hit global growth fairly substantially. Is there any prospect

479
00:26:41,320 --> 00:26:42,639
Speaker 3: this could reach that sort of level.

480
00:26:43,320 --> 00:26:45,959
Speaker 14: Well, the economy, the global economy has been really fragile,

481
00:26:46,040 --> 00:26:49,320
Speaker 14: especially in emerging market and developing countries since COVID, and

482
00:26:49,440 --> 00:26:52,399
Speaker 14: this shock is yet another one we've had that we

483
00:26:52,520 --> 00:26:54,720
Speaker 14: had interest rate hikes just a couple of years ago,

484
00:26:54,960 --> 00:26:57,640
Speaker 14: many countries have had sort of climate shocks and droughts,

485
00:26:57,680 --> 00:27:00,520
Speaker 14: and then of course COVID itself, and so we're nowhere

486
00:27:00,560 --> 00:27:04,399
Speaker 14: near the growth potential that many countries were on a

487
00:27:04,440 --> 00:27:07,600
Speaker 14: path before COVID happened, and now the shock is really

488
00:27:07,720 --> 00:27:08,920
Speaker 14: sending a lot of countries back.

489
00:27:11,400 --> 00:27:14,040
Speaker 3: Since the start of the new millennium, we have lived

490
00:27:14,040 --> 00:27:18,240
Speaker 3: through a global financial crisis, the recession that followed, a pandemic,

491
00:27:18,720 --> 00:27:22,119
Speaker 3: and several wars. But through it all, the IMF has

492
00:27:22,119 --> 00:27:23,840
Speaker 3: stayed pretty much the same.

493
00:27:24,720 --> 00:27:26,840
Speaker 14: IMF hasn't changed much. It's in a bit of a

494
00:27:26,880 --> 00:27:31,679
Speaker 14: crisis right now. It still offers a family of emergency

495
00:27:31,720 --> 00:27:33,399
Speaker 14: financing to countries that are in trouble.

496
00:27:33,880 --> 00:27:37,040
Speaker 13: This is the time when the IMF is absolutely critical

497
00:27:37,240 --> 00:27:40,840
Speaker 13: given all the instability. First thing I would note is

498
00:27:40,880 --> 00:27:43,840
Speaker 13: what the im OF is really good at is surveillance,

499
00:27:44,080 --> 00:27:46,880
Speaker 13: and that is super valuable in this environment of very

500
00:27:46,960 --> 00:27:50,240
Speaker 13: high uncertainty. Just coming out in terms of focus and

501
00:27:50,320 --> 00:27:52,000
Speaker 13: what the impact is going to be of the very

502
00:27:52,080 --> 00:27:53,560
Speaker 13: shocks on the global economy.

503
00:27:54,200 --> 00:27:57,600
Speaker 3: This comes akin to a broader backdrop of perhaps increasing

504
00:27:57,640 --> 00:28:01,080
Speaker 3: dispersion in the approaches of a lot of the member countries.

505
00:28:01,119 --> 00:28:04,040
Speaker 3: For the IMF in their approach to economics certainly different

506
00:28:04,040 --> 00:28:06,560
Speaker 3: from what happened after World War Two and IMF was created.

507
00:28:07,200 --> 00:28:09,800
Speaker 3: What challenges does that present to the IMF.

508
00:28:10,320 --> 00:28:14,919
Speaker 13: The geopolitics, of course, matters for the functioning of all

509
00:28:14,920 --> 00:28:19,680
Speaker 13: of these multilateral institutions. I think the IMF is somewhat

510
00:28:19,760 --> 00:28:23,200
Speaker 13: better placed because it plays the role of a firefighter,

511
00:28:23,720 --> 00:28:25,520
Speaker 13: and when you're a firefighter, you don't really have the

512
00:28:25,560 --> 00:28:28,719
Speaker 13: luxury to fussen around. It's not about whether you can

513
00:28:28,760 --> 00:28:31,880
Speaker 13: have another more trade agreement, or you can give money

514
00:28:31,920 --> 00:28:34,080
Speaker 13: to a country to build a road that will be

515
00:28:34,160 --> 00:28:37,120
Speaker 13: available in ten years, but it's about are you going

516
00:28:37,200 --> 00:28:40,320
Speaker 13: to bail out a country that is otherwise going to

517
00:28:40,360 --> 00:28:43,280
Speaker 13: plunge into a crisis which is not only going to

518
00:28:43,280 --> 00:28:45,360
Speaker 13: affect the country, but is also going to spill over

519
00:28:45,680 --> 00:28:46,440
Speaker 13: into the region.

520
00:28:47,280 --> 00:28:50,880
Speaker 3: A firefighter, like the IMF may not be directly driven

521
00:28:50,920 --> 00:28:55,680
Speaker 3: by politics or differences in economic approaches, but those politics

522
00:28:55,680 --> 00:28:59,600
Speaker 3: and differences can sometimes create more fires to fight, as

523
00:28:59,600 --> 00:29:01,800
Speaker 3: they have fen country's fiscal positions.

524
00:29:02,480 --> 00:29:05,840
Speaker 13: We've certainly moved away from the time of ever closer

525
00:29:06,080 --> 00:29:12,080
Speaker 13: integration and an efficiency driven global trade model to one

526
00:29:12,160 --> 00:29:15,840
Speaker 13: where national security concerns are becoming important. And I'm not

527
00:29:15,920 --> 00:29:18,320
Speaker 13: denying that that's not an important one. That certainly is

528
00:29:18,520 --> 00:29:20,680
Speaker 13: much more salient at this current world we live in.

529
00:29:20,960 --> 00:29:24,080
Speaker 13: De risking supply chains are an important factor, you know,

530
00:29:24,240 --> 00:29:27,200
Speaker 13: making sure that you have strategic inputs in your own country,

531
00:29:27,480 --> 00:29:29,960
Speaker 13: factories for those in your own countries, those are coming

532
00:29:30,080 --> 00:29:33,040
Speaker 13: up too. What the iim of cares about is country's

533
00:29:33,280 --> 00:29:36,040
Speaker 13: fiscal situations. And if you're going to end up in

534
00:29:36,040 --> 00:29:38,000
Speaker 13: a world where everybody is going to spend a whole

535
00:29:38,040 --> 00:29:40,520
Speaker 13: lot more on defense, spending a whole lot more on

536
00:29:40,640 --> 00:29:45,440
Speaker 13: building semiconductor ship factories, more error discoveries and all of that,

537
00:29:46,360 --> 00:29:48,880
Speaker 13: then we could end up with this big build up

538
00:29:48,880 --> 00:29:51,680
Speaker 13: in debt in the world, which already is frankly on

539
00:29:51,720 --> 00:29:52,920
Speaker 13: an unsustainable path.

540
00:29:55,080 --> 00:29:57,920
Speaker 3: It's not just the economic approaches that have changed since

541
00:29:58,000 --> 00:30:01,160
Speaker 3: Breton Woods. It's also the re relative sizes of some

542
00:30:01,200 --> 00:30:05,960
Speaker 3: of the economies involved, most notably China, which dramatically rose

543
00:30:06,000 --> 00:30:09,160
Speaker 3: to become the second strongest economy in the world, something

544
00:30:09,240 --> 00:30:13,080
Speaker 3: not reflected in the allocation of quotas that effectively determine

545
00:30:13,120 --> 00:30:15,080
Speaker 3: who has influence over the fund.

546
00:30:15,800 --> 00:30:18,880
Speaker 14: The quota has gone up, but not commensurate to the

547
00:30:19,080 --> 00:30:23,360
Speaker 14: formula that the United States made, which says that it

548
00:30:23,400 --> 00:30:25,760
Speaker 14: should go up relative to the size of your economy.

549
00:30:25,800 --> 00:30:28,080
Speaker 14: So given that China is now the second largest economy

550
00:30:28,120 --> 00:30:30,440
Speaker 14: in the world, they should have the second most voting

551
00:30:30,960 --> 00:30:35,680
Speaker 14: but the US in the last iteration of increasing quotas,

552
00:30:36,160 --> 00:30:40,360
Speaker 14: they said, let's increase quotas, but not without voting power

553
00:30:40,560 --> 00:30:45,560
Speaker 14: changes because Japan is number two, and they both Japan

554
00:30:45,600 --> 00:30:46,760
Speaker 14: and the United States.

555
00:30:46,440 --> 00:30:48,280
Speaker 2: Don't want China to leap frog over.

556
00:30:48,880 --> 00:30:52,760
Speaker 14: It's caused a little bit of a legitimacy issue.

557
00:30:52,760 --> 00:30:56,160
Speaker 3: Whether it's the US or China or the other major

558
00:30:56,200 --> 00:31:00,239
Speaker 3: players in the IMF like Japan, Germany and France. The

559
00:31:00,280 --> 00:31:03,240
Speaker 3: wealthy countries are the ones that control a fund whose

560
00:31:03,400 --> 00:31:06,480
Speaker 3: entire purpose is to help poorer countries when they run

561
00:31:06,520 --> 00:31:09,720
Speaker 3: out of money, but sometimes that has led to conditions

562
00:31:09,720 --> 00:31:12,560
Speaker 3: on loans that some find unduly onerous.

563
00:31:13,080 --> 00:31:15,360
Speaker 14: The fund was supposed to be there to help countries

564
00:31:15,400 --> 00:31:16,800
Speaker 14: get a shot in the arm to get back on

565
00:31:16,800 --> 00:31:20,320
Speaker 14: their feet. But over time it's had almost the same policy,

566
00:31:20,360 --> 00:31:22,680
Speaker 14: which is austerity. Now it's important to have it in

567
00:31:22,680 --> 00:31:25,840
Speaker 14: countries that are propagate, like I said, but so many

568
00:31:25,920 --> 00:31:28,120
Speaker 14: of the crises that have been happening over the past

569
00:31:28,160 --> 00:31:31,280
Speaker 14: decade have been external shocks to countries that have good fundamentals.

570
00:31:31,800 --> 00:31:35,240
Speaker 3: Is there an inherent even structural challenge for the IMF

571
00:31:35,720 --> 00:31:38,400
Speaker 3: and the difference between who needs the emergency funding and

572
00:31:38,440 --> 00:31:41,240
Speaker 3: who decides in the emergency funding because the quotas are

573
00:31:41,240 --> 00:31:44,240
Speaker 3: determined by how prominent the economy is, how successful is

574
00:31:44,240 --> 00:31:46,080
Speaker 3: how many reserves they have, and the people who need

575
00:31:46,080 --> 00:31:48,040
Speaker 3: it are the opposite of that. So you have sort

576
00:31:48,040 --> 00:31:50,480
Speaker 3: of the haves deciding that they have not and you

577
00:31:50,600 --> 00:31:51,800
Speaker 3: put the nail right on the head there.

578
00:31:52,040 --> 00:31:54,920
Speaker 14: The countries that receive the programs have no say and

579
00:31:54,920 --> 00:31:58,360
Speaker 14: what the design looks like. They can request and they

580
00:31:58,400 --> 00:32:00,360
Speaker 14: often get what they need, but they don't they have

581
00:32:00,400 --> 00:32:01,800
Speaker 14: no say in the terms.

582
00:32:02,720 --> 00:32:06,600
Speaker 3: But Gopinath says from her experience that often structural conditions

583
00:32:06,640 --> 00:32:08,560
Speaker 3: are required by the situation.

584
00:32:09,560 --> 00:32:13,200
Speaker 13: The IMF has evolved as an institution in terms of

585
00:32:13,240 --> 00:32:16,720
Speaker 13: the policies it recommends and what countries need to do

586
00:32:16,800 --> 00:32:19,720
Speaker 13: in a crisis, just as the thinking in terms of

587
00:32:20,040 --> 00:32:23,040
Speaker 13: the intellectual thought too in terms of what helps the

588
00:32:23,080 --> 00:32:25,640
Speaker 13: country in a crisis. So there was a time, and

589
00:32:25,800 --> 00:32:27,640
Speaker 13: I was at the station crisis was certainly in one

590
00:32:27,680 --> 00:32:31,320
Speaker 13: of those where there was an excessive focus on just

591
00:32:31,720 --> 00:32:35,160
Speaker 13: spending cuts and it was about cutting spending across the

592
00:32:35,200 --> 00:32:38,640
Speaker 13: board without much attention to the details about where the

593
00:32:38,680 --> 00:32:42,360
Speaker 13: spending cuts would happen. I think that was a strategy

594
00:32:42,400 --> 00:32:46,360
Speaker 13: that was appropriately rethought, and now the IMF is more

595
00:32:46,440 --> 00:32:49,000
Speaker 13: targeted in how it spends. In fact, when it goes

596
00:32:49,040 --> 00:32:52,000
Speaker 13: in and tells countries to reduce overall spending, it very

597
00:32:52,040 --> 00:32:54,520
Speaker 13: often says that you need to increase spending to the

598
00:32:54,520 --> 00:32:57,560
Speaker 13: most vulnerable in society because you are in a crisis

599
00:32:57,560 --> 00:33:00,760
Speaker 13: and this is a particularly challenging time for them. So

600
00:33:00,960 --> 00:33:04,160
Speaker 13: far more targeted in terms of what's needed with in

601
00:33:04,200 --> 00:33:07,960
Speaker 13: terms of spending reductions. I mean, unfortunately, spending reductions are

602
00:33:08,000 --> 00:33:10,640
Speaker 13: always a part of the solution because that's the only

603
00:33:10,680 --> 00:33:13,959
Speaker 13: way for the country to come back to a more

604
00:33:14,000 --> 00:33:18,400
Speaker 13: stable macro environment without racking up a large amount of debt.

605
00:33:18,680 --> 00:33:21,400
Speaker 13: These policies are never easy, they're difficult, but I think

606
00:33:21,440 --> 00:33:24,520
Speaker 13: the IMF has evolved over time in terms of making

607
00:33:24,600 --> 00:33:26,760
Speaker 13: it better tailored to country circumstances.

608
00:33:27,520 --> 00:33:31,080
Speaker 3: The world has changed fundamentally since nineteen forty four when

609
00:33:31,120 --> 00:33:33,960
Speaker 3: the IMF was created, and it appears that one of

610
00:33:33,960 --> 00:33:38,080
Speaker 3: the largest changes is about to come with artificial intelligence

611
00:33:38,120 --> 00:33:41,840
Speaker 3: poised to change just about every economy. One of the

612
00:33:41,840 --> 00:33:44,120
Speaker 3: things that we talk about all the time now is

613
00:33:44,200 --> 00:33:46,680
Speaker 3: artificial intelligence and how it's going to transform our world.

614
00:33:47,040 --> 00:33:49,040
Speaker 3: Typically we don't know exactly how, but we think it's

615
00:33:49,080 --> 00:33:52,600
Speaker 3: going to. When you look at specifically what the IMF

616
00:33:52,720 --> 00:33:57,080
Speaker 3: does and how it may affect different nations differently, how

617
00:33:57,080 --> 00:33:59,760
Speaker 3: can the IMF sort of anticipate that if it needs to.

618
00:34:00,480 --> 00:34:04,200
Speaker 13: AI is usually transformative and everybody has to pay attention

619
00:34:04,280 --> 00:34:07,120
Speaker 13: to it, including the IMF. So even though the IMF

620
00:34:07,160 --> 00:34:10,359
Speaker 13: has a relatively short horizon in terms of the kinds

621
00:34:10,360 --> 00:34:13,359
Speaker 13: of problems it deals with, AI is something that they

622
00:34:13,400 --> 00:34:16,800
Speaker 13: cannot not pay attention to. So they are in the

623
00:34:16,880 --> 00:34:20,200
Speaker 13: near term just looking at where most of the I

624
00:34:20,400 --> 00:34:23,480
Speaker 13: development is happening and air adoption is happening. It is

625
00:34:23,520 --> 00:34:26,359
Speaker 13: happening in the more advanced world, and as I would say,

626
00:34:26,480 --> 00:34:29,920
Speaker 13: China among the emerging markets, but everywhere else it's not

627
00:34:30,960 --> 00:34:34,360
Speaker 13: as it's the momentum is not as strong, so at

628
00:34:34,440 --> 00:34:36,680
Speaker 13: least in the near term, we could see a divergence

629
00:34:36,719 --> 00:34:39,520
Speaker 13: where you would have more productivity growth coming out of

630
00:34:39,520 --> 00:34:44,120
Speaker 13: the US relative to say developing countries. But hopefully over

631
00:34:44,200 --> 00:34:48,280
Speaker 13: time when a development countries figure out how to deploy

632
00:34:48,360 --> 00:34:51,759
Speaker 13: AI for to close their skill gap, to make sure

633
00:34:51,920 --> 00:34:54,319
Speaker 13: you know in your scarcity of doctors and teachers and

634
00:34:54,400 --> 00:34:57,080
Speaker 13: technicians that you could close the skill gap through AI.

635
00:34:57,719 --> 00:35:01,000
Speaker 3: Whether it's AI or an emerging China or a breakdown

636
00:35:01,000 --> 00:35:05,279
Speaker 3: in macroeconomic consensus. Gallagher says it's hard for an IMF

637
00:35:05,320 --> 00:35:08,320
Speaker 3: fit for its purpose in nineteen forty four to remain

638
00:35:08,400 --> 00:35:11,880
Speaker 3: so today, and that has led some to call for

639
00:35:12,000 --> 00:35:13,240
Speaker 3: fundamental reform.

640
00:35:13,800 --> 00:35:15,640
Speaker 14: It needs to get bigger, needs to get better, and

641
00:35:15,680 --> 00:35:16,759
Speaker 14: needs to get more inclusive.

642
00:35:17,080 --> 00:35:18,000
Speaker 2: It's not big enough.

643
00:35:18,040 --> 00:35:21,120
Speaker 14: The monetary firepower that has only about four hundred billion

644
00:35:21,200 --> 00:35:24,120
Speaker 14: dollars for the poorest countries, and if they all went

645
00:35:24,719 --> 00:35:28,240
Speaker 14: to the fund like they did during a global financial crisis,

646
00:35:28,320 --> 00:35:29,360
Speaker 14: we'd be really drained.

647
00:35:29,520 --> 00:35:31,400
Speaker 2: So one, it just needs to get bigger. Two, it

648
00:35:31,480 --> 00:35:32,240
Speaker 2: needs to get better.

649
00:35:32,480 --> 00:35:35,680
Speaker 14: It needs to tailor its programs to country circumstances.

650
00:35:35,680 --> 00:35:36,920
Speaker 2: If it's an external shock.

651
00:35:37,239 --> 00:35:40,680
Speaker 14: It should just give short term liquidity without austerity conditions.

652
00:35:40,920 --> 00:35:42,200
Speaker 2: And it needs to be more inclusive.

653
00:35:42,239 --> 00:35:46,439
Speaker 14: The countries that are the biggest recipients need more say

654
00:35:46,440 --> 00:35:48,560
Speaker 14: in the program designed. Those are the three things. Make

655
00:35:48,600 --> 00:35:50,640
Speaker 14: it bigger, make it better, make it more inclusive.

656
00:35:52,920 --> 00:35:56,160
Speaker 3: Up next, the billionaire next door. They may not be

657
00:35:56,200 --> 00:35:58,440
Speaker 3: as famous as Elon Musk, but there are more of

658
00:35:58,440 --> 00:36:13,799
Speaker 3: them around than you might suspect. This is a story

659
00:36:13,840 --> 00:36:17,400
Speaker 3: about your next door neighbor. They may not look ultra wealthy,

660
00:36:17,600 --> 00:36:21,040
Speaker 3: like a Jeff Bezos or a Kim Kardashian, but sometimes

661
00:36:21,080 --> 00:36:24,200
Speaker 3: behind that unassuming front door lives someone who's found the

662
00:36:24,280 --> 00:36:28,879
Speaker 3: secret to attaining great wealth. Princeton economist Owen Zeidar calls

663
00:36:28,920 --> 00:36:33,239
Speaker 3: them everywhere millionaires. Our colleague Scarlet Fu had the opportunity

664
00:36:33,280 --> 00:36:36,520
Speaker 3: to sit down with both an everywhere billionaire and a

665
00:36:36,560 --> 00:36:37,960
Speaker 3: couple that aspires to be.

666
00:36:39,960 --> 00:36:41,960
Speaker 9: You are one of the wealthiest people in America, but

667
00:36:42,040 --> 00:36:44,200
Speaker 9: you keep a fairly low profile. I know that you

668
00:36:44,280 --> 00:36:47,160
Speaker 9: are a known entity in Houston, but outside of Houston,

669
00:36:47,200 --> 00:36:48,759
Speaker 9: there may not be a lot of people who know

670
00:36:48,800 --> 00:36:49,840
Speaker 9: who Rich Kinder is.

671
00:36:50,040 --> 00:36:50,960
Speaker 15: And that's just fine.

672
00:36:51,400 --> 00:36:52,280
Speaker 9: Is that by design?

673
00:36:52,760 --> 00:36:55,920
Speaker 15: Uh? That's just fine. Yeah, I wouldn't say it's by design,

674
00:36:56,040 --> 00:36:58,680
Speaker 15: but yes, I guess it is. In retrospect.

675
00:37:00,120 --> 00:37:03,800
Speaker 9: Rich Kinder didn't make his billions climbing the corporate ladder. Instead,

676
00:37:04,239 --> 00:37:06,720
Speaker 9: Kinder created the book of his wealth by buying boring,

677
00:37:06,920 --> 00:37:10,040
Speaker 9: yet essential assets and then scaling them into what is

678
00:37:10,080 --> 00:37:13,200
Speaker 9: now one of the largest pipeline companies in North America.

679
00:37:13,600 --> 00:37:18,320
Speaker 15: Kinder Morgan, I like unglamorous businesses, so it never bothered

680
00:37:18,320 --> 00:37:20,720
Speaker 15: me in the least to be in an unglamorous business.

681
00:37:21,120 --> 00:37:23,279
Speaker 9: Kinder is part of a cohort of high net worth

682
00:37:23,400 --> 00:37:27,840
Speaker 9: yet unassuming individuals that economists call the everywhere millionaires or

683
00:37:27,840 --> 00:37:29,520
Speaker 9: in his case, billionaires.

684
00:37:29,840 --> 00:37:33,000
Speaker 16: Wealthy people don't answer surveys, and you know, some of

685
00:37:33,000 --> 00:37:34,560
Speaker 16: them are covered by the media, but that's only a

686
00:37:34,600 --> 00:37:37,920
Speaker 16: small slice of what's truly there. There's basically a hidden

687
00:37:37,920 --> 00:37:39,480
Speaker 16: world of everywhere millionaires.

688
00:37:39,800 --> 00:37:43,120
Speaker 9: Owen Zider is an economics professor at Princeton University who

689
00:37:43,239 --> 00:37:46,640
Speaker 9: served on the Council of Economic Advisors during the Obama administration.

690
00:37:47,080 --> 00:37:50,279
Speaker 9: He now focuses his research on tax policy as it

691
00:37:50,320 --> 00:37:53,319
Speaker 9: pertains to high net worth individuals. His research will be

692
00:37:53,320 --> 00:37:56,680
Speaker 9: published in a book titled The Everywhere millionaire later this

693
00:37:56,840 --> 00:37:58,040
Speaker 9: year and everywhere.

694
00:37:58,040 --> 00:38:02,319
Speaker 16: Millionaire as a private business owner who is wildly successful

695
00:38:02,600 --> 00:38:05,880
Speaker 16: but usually operates under the radar based on the place

696
00:38:05,960 --> 00:38:08,279
Speaker 16: or the industry that he or she is operating in.

697
00:38:08,360 --> 00:38:11,279
Speaker 16: So you should think of a local auto dealer who

698
00:38:11,400 --> 00:38:13,799
Speaker 16: has a big vacation home and like a really nice boat,

699
00:38:14,000 --> 00:38:17,360
Speaker 16: and there are a ton of them in there, basically

700
00:38:17,400 --> 00:38:20,640
Speaker 16: every neighborhood in America. So the way we measure wealth

701
00:38:21,440 --> 00:38:26,440
Speaker 16: is two components. We look at assets and people's debts.

702
00:38:26,880 --> 00:38:30,120
Speaker 16: And so there are five main types of assets. There's

703
00:38:30,520 --> 00:38:34,120
Speaker 16: pension wealth, private business wealth, public business wealth, fixed income,

704
00:38:35,000 --> 00:38:39,200
Speaker 16: and housing. And so we basically add this all up

705
00:38:39,800 --> 00:38:43,120
Speaker 16: for different projects. Now, on the debt side, most debt

706
00:38:43,400 --> 00:38:47,280
Speaker 16: is housing debt, there's some student loans and car payments,

707
00:38:47,320 --> 00:38:49,040
Speaker 16: that sort of thing. And what we do is we

708
00:38:49,080 --> 00:38:51,120
Speaker 16: just take the difference at market values, and that's your

709
00:38:51,160 --> 00:38:51,640
Speaker 16: net worth.

710
00:38:52,719 --> 00:38:55,799
Speaker 9: According to Zeider's research, top earners derive most of their

711
00:38:55,800 --> 00:38:58,920
Speaker 9: wealth from equity and businesses they founded or invested in.

712
00:38:59,040 --> 00:39:04,839
Speaker 16: If you take dentists, dentists have more revenue than the

713
00:39:04,880 --> 00:39:08,600
Speaker 16: total revenue of every professional sports team in America. So

714
00:39:08,680 --> 00:39:13,160
Speaker 16: the NFL, the NBA, MLB, all of their revenue combined

715
00:39:13,239 --> 00:39:15,000
Speaker 16: is smaller than the revenue dentists make.

716
00:39:15,200 --> 00:39:18,239
Speaker 9: Manufacturing drives almost half of all corporate profits, but it

717
00:39:18,280 --> 00:39:20,480
Speaker 9: makes up just a small share of the income going

718
00:39:20,480 --> 00:39:24,960
Speaker 9: to millionaire owned private businesses. Instead, these owners cluster in

719
00:39:25,040 --> 00:39:29,800
Speaker 9: sectors like professional services, construction, and finance. What results is

720
00:39:29,840 --> 00:39:32,880
Speaker 9: a quieter kind of wealth earned through ownership stakes in

721
00:39:32,920 --> 00:39:36,480
Speaker 9: privately held firms rather than big, publicly traded companies.

722
00:39:36,760 --> 00:39:39,600
Speaker 16: Most people think you have to be like Jamie Diamond

723
00:39:39,680 --> 00:39:43,400
Speaker 16: or Elon Musk, these really famous public company CEOs to

724
00:39:43,480 --> 00:39:46,040
Speaker 16: be really rich. But when you look in the data,

725
00:39:46,200 --> 00:39:50,120
Speaker 16: there are one thousand private business owners who have at

726
00:39:50,200 --> 00:39:52,760
Speaker 16: least ten million dollars in net worth for every public

727
00:39:52,800 --> 00:39:55,680
Speaker 16: company CEO. You don't have to follow the traditional white

728
00:39:55,760 --> 00:39:56,640
Speaker 16: collar path.

729
00:39:57,640 --> 00:40:00,560
Speaker 9: Kinder is one of those individuals. After studying law and

730
00:40:00,600 --> 00:40:03,640
Speaker 9: serving in the JAG Corps, he transitioned to the private sector.

731
00:40:04,200 --> 00:40:06,759
Speaker 9: He was general counsel of a small energy company that,

732
00:40:07,000 --> 00:40:10,440
Speaker 9: through a series of mergers, later became Enron. He eventually

733
00:40:10,480 --> 00:40:14,359
Speaker 9: headed up operations there, which consisted mainly of pipelines. After

734
00:40:14,440 --> 00:40:17,879
Speaker 9: leaving Enron, Kinder decided to double down on that expertise

735
00:40:18,239 --> 00:40:22,360
Speaker 9: you bought pipeline assets from Enron, and that at that

736
00:40:22,440 --> 00:40:26,280
Speaker 9: time the company treated it as kind of unwanted relics

737
00:40:26,280 --> 00:40:28,360
Speaker 9: of the old economy. What did you see in the

738
00:40:28,400 --> 00:40:31,040
Speaker 9: pipelines that perhaps others didn't.

739
00:40:31,200 --> 00:40:34,000
Speaker 15: Well, I saw that there was an opportunity to take

740
00:40:34,080 --> 00:40:37,720
Speaker 15: midstream assets and if you ran them correctly and really

741
00:40:37,760 --> 00:40:41,279
Speaker 15: watched the bottom line carefully, had a good mix of

742
00:40:41,320 --> 00:40:45,560
Speaker 15: debt and equity, that you could build those pipelines in

743
00:40:45,600 --> 00:40:49,399
Speaker 15: a way that would allow your stock price to grow,

744
00:40:49,440 --> 00:40:51,560
Speaker 15: and then you could use that stock price to make

745
00:40:51,600 --> 00:40:55,279
Speaker 15: acquisitions of other companies. And that was really our game plan. Yeah,

746
00:40:55,560 --> 00:40:58,800
Speaker 15: we started with really a tiny company. We had a

747
00:40:59,239 --> 00:41:01,880
Speaker 15: market cap the company the value on the stock has

748
00:41:01,920 --> 00:41:03,960
Speaker 15: changed about one hundred and fifty million dollars, and we

749
00:41:04,040 --> 00:41:06,640
Speaker 15: had about one hundred and fifty million dollars a debt.

750
00:41:06,719 --> 00:41:10,120
Speaker 15: So overall, the enterprise value of what we started with

751
00:41:10,320 --> 00:41:14,200
Speaker 15: was just a little north of three hundred million dollars

752
00:41:14,239 --> 00:41:17,040
Speaker 15: and we had one hundred and seventy five employees. We

753
00:41:17,560 --> 00:41:22,239
Speaker 15: had this idea that we would look for assets, we

754
00:41:22,280 --> 00:41:24,840
Speaker 15: would run them as efficiently as we could, We would

755
00:41:24,840 --> 00:41:28,600
Speaker 15: bend over backwards to serve our customers, and we would

756
00:41:28,640 --> 00:41:31,040
Speaker 15: provide a good return to our shareholders. And that's kind

757
00:41:31,040 --> 00:41:34,399
Speaker 15: of the mantra that we've followed for almost thirty years now.

758
00:41:34,560 --> 00:41:36,800
Speaker 9: And you built it through acquisitions.

759
00:41:36,280 --> 00:41:40,880
Speaker 15: Built it through acquisitions and also just some build out ourselves.

760
00:41:40,920 --> 00:41:45,880
Speaker 15: We today, for example, we spend about between three and

761
00:41:45,920 --> 00:41:48,760
Speaker 15: three and a half billion dollars a year on building

762
00:41:48,800 --> 00:41:52,040
Speaker 15: new pipelines. The trick is, don't overpay, but do what's

763
00:41:52,080 --> 00:41:55,480
Speaker 15: fair and right to produce an adequate return for your shareholders.

764
00:41:55,680 --> 00:41:57,840
Speaker 9: Sounds like a very predictable business, then.

765
00:41:58,320 --> 00:42:02,919
Speaker 15: I think it is. It's, you know, no business without risk,

766
00:42:03,120 --> 00:42:06,719
Speaker 15: and the old saying that the it's the unexpected that

767
00:42:06,760 --> 00:42:09,239
Speaker 15: always gets you. Who could have anticipated what we're going

768
00:42:09,239 --> 00:42:13,360
Speaker 15: through in the Middle East today? Who could have anticipated COVID?

769
00:42:13,440 --> 00:42:16,640
Speaker 15: But if your business is built on a solid foundation,

770
00:42:17,560 --> 00:42:21,080
Speaker 15: you can weather whatever storms come along. We are partnering

771
00:42:21,120 --> 00:42:23,800
Speaker 15: to develop a pediatric cancer center that's going to be

772
00:42:23,800 --> 00:42:25,360
Speaker 15: a new twenty two story building.

773
00:42:25,800 --> 00:42:28,040
Speaker 9: Rich Kinder made it into the ranks of the everywhere

774
00:42:28,040 --> 00:42:31,120
Speaker 9: millionaires and beyond. But what about the rest of us.

775
00:42:31,400 --> 00:42:33,680
Speaker 9: What are the chances we could join him?

776
00:42:34,040 --> 00:42:36,440
Speaker 17: This was the i think second or third place that

777
00:42:36,480 --> 00:42:36,960
Speaker 17: we saw.

778
00:42:37,320 --> 00:42:39,840
Speaker 9: That's the plan for folks like Ray and Dana Cherry.

779
00:42:40,280 --> 00:42:42,480
Speaker 9: The husband and wife team left their corporate jobs a

780
00:42:42,480 --> 00:42:43,160
Speaker 9: couple of years.

781
00:42:43,000 --> 00:42:45,480
Speaker 18: Ago popular for General handwashing.

782
00:42:44,960 --> 00:42:47,800
Speaker 9: To buy a rather unassuming business in the San Francisco

783
00:42:47,840 --> 00:42:50,080
Speaker 9: Bay area, mon sam Portable six.

784
00:42:50,360 --> 00:42:54,359
Speaker 17: We assessed hundreds of businesses in this process, and when

785
00:42:54,360 --> 00:42:56,200
Speaker 17: it came down to which ones we were going to buy,

786
00:42:56,200 --> 00:42:58,080
Speaker 17: it was a very short list, maybe four or five.

787
00:42:58,640 --> 00:43:03,120
Speaker 17: And for us, the focus on the profitability of the

788
00:43:03,120 --> 00:43:08,080
Speaker 17: company that had had consistent profitability, that the business itself

789
00:43:08,200 --> 00:43:11,400
Speaker 17: was near to where we live, and that the product

790
00:43:11,680 --> 00:43:13,560
Speaker 17: or the service that it was offering was something that

791
00:43:13,680 --> 00:43:16,080
Speaker 17: was unique and that we felt like we could come

792
00:43:16,120 --> 00:43:19,920
Speaker 17: into and learn quickly and move to the next level.

793
00:43:20,080 --> 00:43:22,000
Speaker 18: This is a business that was founded by a husband

794
00:43:22,000 --> 00:43:26,000
Speaker 18: and wife team to solve food and beverage service problem.

795
00:43:26,320 --> 00:43:29,400
Speaker 18: They were selling funnel cakes to local festivals and fairs,

796
00:43:29,480 --> 00:43:32,759
Speaker 18: and a husband, being an engineer, decided to build a

797
00:43:32,840 --> 00:43:35,479
Speaker 18: unit like this in their garage to help them pass

798
00:43:35,520 --> 00:43:38,400
Speaker 18: their health inspection. Twenty eight years later, now that couple's

799
00:43:38,400 --> 00:43:42,280
Speaker 18: are retired and this business has since solved these types

800
00:43:42,280 --> 00:43:46,480
Speaker 18: of problems for over eleven thousand unique customers, and that

801
00:43:46,760 --> 00:43:48,080
Speaker 18: all of that just really excited us.

802
00:43:48,120 --> 00:43:51,000
Speaker 9: I'm wondering what led you to leave these corporate jobs,

803
00:43:51,040 --> 00:43:53,920
Speaker 9: these safe and steady corporate jobs, and decide to become

804
00:43:54,040 --> 00:43:55,919
Speaker 9: owner operators. It's a pretty big leap.

805
00:43:56,239 --> 00:44:01,880
Speaker 18: We had really successful, long standing career in the corporate world.

806
00:44:02,040 --> 00:44:05,040
Speaker 18: I was in finance, Dana was in marketing. Entrepreneurship was

807
00:44:05,080 --> 00:44:08,320
Speaker 18: always a really big goal of ours, and we'd considered

808
00:44:08,960 --> 00:44:11,920
Speaker 18: different startup ideas over the years. We'd always thought, Hey,

809
00:44:11,920 --> 00:44:13,680
Speaker 18: wouldn't this be really cool if we could do something

810
00:44:13,719 --> 00:44:17,080
Speaker 18: like this together. And we came across entrepreneurship through acquisition,

811
00:44:17,280 --> 00:44:18,880
Speaker 18: we thought this was a great time for us to

812
00:44:19,280 --> 00:44:24,160
Speaker 18: take a shot at ownership, some autonomy and leveraging our

813
00:44:24,160 --> 00:44:26,879
Speaker 18: own expertise to building a business on our own.

814
00:44:27,120 --> 00:44:31,279
Speaker 17: This felt like a risk adjusted path into entrepreneurship. The

815
00:44:31,440 --> 00:44:34,760
Speaker 17: opportunity to purchase a business where there was already product

816
00:44:34,760 --> 00:44:38,920
Speaker 17: market fit, that was already established and had a path

817
00:44:39,000 --> 00:44:41,080
Speaker 17: to having us come in and take it to the

818
00:44:41,120 --> 00:44:43,439
Speaker 17: next level made perfect sense.

819
00:44:43,640 --> 00:44:46,360
Speaker 9: We spoke with an economist, Owen Zider, and he says

820
00:44:46,400 --> 00:44:48,920
Speaker 9: that a lot of American wealth is built through private

821
00:44:49,400 --> 00:44:52,840
Speaker 9: and what he calls boring, often overlooked businesses. Does that

822
00:44:52,960 --> 00:44:56,080
Speaker 9: idea feel true to your life experience right now.

823
00:44:56,120 --> 00:44:58,440
Speaker 18: Absolutely, As we've dug into this and you start to

824
00:44:58,480 --> 00:45:01,760
Speaker 18: see which types of businesses really running things in this country,

825
00:45:01,800 --> 00:45:03,600
Speaker 18: that'd be just became really clear to us. The more

826
00:45:03,640 --> 00:45:05,000
Speaker 18: we the more time we spent in it.

827
00:45:05,200 --> 00:45:08,200
Speaker 17: We're stepping into a world where there's a wave of

828
00:45:08,440 --> 00:45:11,200
Speaker 17: small businesses and just businesses that are going to need

829
00:45:11,239 --> 00:45:13,480
Speaker 17: to be transitioned as those owners retired.

830
00:45:13,640 --> 00:45:18,640
Speaker 15: Basically, I think you better understand what you're walking away from,

831
00:45:18,719 --> 00:45:21,160
Speaker 15: and you better understand what you're walking into. And in

832
00:45:21,160 --> 00:45:24,520
Speaker 15: my case, I understood very well what I was walking into.

833
00:45:24,560 --> 00:45:26,680
Speaker 15: I knew those assets, didn't dream it would be as

834
00:45:26,719 --> 00:45:29,759
Speaker 15: big as it would become. We've had a lot of

835
00:45:29,840 --> 00:45:34,040
Speaker 15: luck along the way, but that's how I would view

836
00:45:34,160 --> 00:45:35,880
Speaker 15: walking away from a corporate life.

837
00:45:36,120 --> 00:45:38,400
Speaker 9: The cherries are still in the early innings of building

838
00:45:38,440 --> 00:45:41,640
Speaker 9: their business and as they get ready to scale, established

839
00:45:41,640 --> 00:45:45,160
Speaker 9: owner operators like Kinder advise that doing your due diligence

840
00:45:45,360 --> 00:45:45,839
Speaker 9: is the key.

841
00:45:46,160 --> 00:45:49,840
Speaker 15: Generally, I've always believed that you shouldn't really invest in

842
00:45:49,880 --> 00:45:54,960
Speaker 15: anything you don't understand, and if it's a business you

843
00:45:55,080 --> 00:46:00,080
Speaker 15: understand and can run the numbers on and understand the

844
00:46:00,560 --> 00:46:04,839
Speaker 15: strategic concept involved. I think you generally do okay. It's

845
00:46:04,840 --> 00:46:07,359
Speaker 15: when you wade off into something that you don't really

846
00:46:07,480 --> 00:46:11,319
Speaker 15: understand and you're relying on someone else to tell you, well, yeah,

847
00:46:11,360 --> 00:46:14,560
Speaker 15: this is something that will really go just stick with me.

848
00:46:15,200 --> 00:46:18,480
Speaker 15: That's when you have to be I think, very very careful.

849
00:46:18,680 --> 00:46:21,239
Speaker 9: What's your advice to someone who wants to build real

850
00:46:21,280 --> 00:46:24,480
Speaker 9: wealth through their own company, but doing so without the

851
00:46:24,520 --> 00:46:27,080
Speaker 9: attendant celebrity and white hot spotlight.

852
00:46:28,920 --> 00:46:32,000
Speaker 15: I would say, just pay attention to what you're doing

853
00:46:32,040 --> 00:46:37,080
Speaker 15: and don't get carried away with pr or trying to

854
00:46:37,120 --> 00:46:37,920
Speaker 15: be something or not.

855
00:46:38,440 --> 00:46:41,000
Speaker 9: How do you advise someone who has a real business

856
00:46:41,000 --> 00:46:44,160
Speaker 9: idea but is perhaps afraid to walk away from a

857
00:46:44,480 --> 00:46:47,200
Speaker 9: stable career to go pursue it.

858
00:46:47,280 --> 00:46:51,279
Speaker 15: Well, I think it just depends on your tolerance for risk.

859
00:46:51,760 --> 00:46:53,560
Speaker 15: I don't think you want to jump out of a

860
00:46:53,560 --> 00:46:56,440
Speaker 15: plane without a parachute, So I think you want to

861
00:46:56,480 --> 00:46:59,160
Speaker 15: have a good understanding of that business that you're starting.

862
00:46:59,320 --> 00:47:02,520
Speaker 15: And in my case, that worked out very well because

863
00:47:03,120 --> 00:47:05,719
Speaker 15: I knew with the small set of assets we had,

864
00:47:05,760 --> 00:47:07,640
Speaker 15: I knew we could make those work. You know, the

865
00:47:07,680 --> 00:47:12,520
Speaker 15: first analyst call we had as Kendram Morgan, there were

866
00:47:12,520 --> 00:47:14,640
Speaker 15: so few people covering us that we just had an

867
00:47:14,640 --> 00:47:18,040
Speaker 15: open line. So there were four analysts on all of

868
00:47:18,080 --> 00:47:20,919
Speaker 15: whom I knew from my INRAN days. And so one

869
00:47:20,960 --> 00:47:24,160
Speaker 15: of them asked, he said, Richie, know you were COO

870
00:47:24,320 --> 00:47:26,720
Speaker 15: this big company and now you're starting this little company.

871
00:47:26,760 --> 00:47:28,640
Speaker 15: You're starting now, what do you expect to accomplish? And

872
00:47:28,640 --> 00:47:30,800
Speaker 15: I said, well, you know, I hope in four or

873
00:47:30,840 --> 00:47:33,080
Speaker 15: five years this will be a billion dollar company.

874
00:47:33,360 --> 00:47:34,280
Speaker 2: And one of those.

875
00:47:34,040 --> 00:47:38,080
Speaker 15: Four people I could hear, went ha ha. I confronted

876
00:47:38,080 --> 00:47:40,319
Speaker 15: all four of those people years later, and they all

877
00:47:40,320 --> 00:47:42,279
Speaker 15: swear they didn't do it, but I know for sure

878
00:47:42,440 --> 00:47:45,280
Speaker 15: one of them thought I was absolutely nuts.

879
00:47:47,239 --> 00:47:49,239
Speaker 3: That does it for us. Here at Wall Street Week,

880
00:47:49,480 --> 00:47:52,320
Speaker 3: I'm David Weston. See you next week for more stories

881
00:47:52,440 --> 00:48:08,120
Speaker 3: of capitalism.