WEBVTT - Bloomberg Businessweek Weekend - October 19th, 2019 0:00:02.520 --> 0:00:06.480 This is Bloomberg Business Week from Bloomberg Radio. Hello, I'm 0:00:06.559 --> 0:00:08.920 Jason Kelly and I'm Carol Masser. Welcome to the weekend 0:00:09.080 --> 0:00:11.959 edition of Bloomberg Business Week. Over the next couple of hours. Well, 0:00:11.960 --> 0:00:14.480 we've got a special couple of hours in fact for you, 0:00:14.760 --> 0:00:18.319 because we spent Jason spent some time in Atlanta and 0:00:18.360 --> 0:00:19.919 we really got to check in with some of the 0:00:19.960 --> 0:00:23.439 academic leaders, the business leaders that are there and really 0:00:23.480 --> 0:00:26.080 got a taste of what's going on in that city, 0:00:26.120 --> 0:00:29.120 because it has become quite a hot spot. You know, Carol, 0:00:29.160 --> 0:00:32.120 I told people in Atlanta. I wasn't just being flattering 0:00:32.159 --> 0:00:33.960 that if you want to get a look at the 0:00:34.000 --> 0:00:37.520 American economy sort of where it is and where it's going, 0:00:37.600 --> 0:00:40.480 what a future city of America looks like, you really 0:00:40.600 --> 0:00:43.559 need look no further than Atlanta. As you say, the 0:00:43.600 --> 0:00:47.320 academic element, the tech element even talked a little bit 0:00:47.360 --> 0:00:50.880 about Jamba. Yeah, exactly. And of course we've got insights 0:00:50.920 --> 0:00:54.000 from the magazine. It's a double issue, so we continue on. 0:00:54.400 --> 0:00:58.040 Among those stories is one called Faked Alaska. It's the 0:00:58.080 --> 0:01:01.200 promise of a trans Arctic data a cable that would 0:01:01.240 --> 0:01:03.800 speed up the web for much of the planet. It 0:01:03.920 --> 0:01:07.559 raised hopes, it created dreams and attracted investors, and created 0:01:07.600 --> 0:01:10.399 a company that was just Jason built on fraud. We're 0:01:10.440 --> 0:01:13.679 also going to look at the world of fees going 0:01:13.920 --> 0:01:16.600 way down, really down to zero when it comes to 0:01:16.640 --> 0:01:20.800 your brokerage account. But how are those firms making money. 0:01:21.240 --> 0:01:23.680 We're going to tell you the secret they're making money 0:01:23.760 --> 0:01:26.520 on you. And we've got a company called Suited No Jason. 0:01:26.560 --> 0:01:30.160 It's not about a cool company that's making nice jackets 0:01:30.200 --> 0:01:33.520 and pants, sorry, but it's actually about a company that's 0:01:33.560 --> 0:01:36.880 using AI and algorithms to recruit for Wall Street. And 0:01:36.920 --> 0:01:39.360 we're also gonna have some of those fun conversations I 0:01:39.440 --> 0:01:41.560 had down in Atlanta. But first we got to talk 0:01:41.560 --> 0:01:44.480 about the global economy and when you try to understand 0:01:44.880 --> 0:01:48.160 where the US may be going, where other major economies 0:01:48.160 --> 0:01:52.240 are going. One of the cautionary tales out there is Japan. 0:01:52.760 --> 0:01:55.560 So we talk often about the low rate and negative 0:01:55.640 --> 0:01:58.040 right world that we live in what happens after it. 0:01:58.240 --> 0:02:00.800 So we've got a country that really ernear to all 0:02:00.840 --> 0:02:04.240 of this to look to. Yeah, it's probably not something 0:02:04.280 --> 0:02:07.360 that you want to brag about necessarily, but Japan has 0:02:07.400 --> 0:02:10.520 been in this state for quite some time, and where 0:02:10.560 --> 0:02:13.480 they go next may portend what the rest of the 0:02:13.520 --> 0:02:16.880 world does next. Christina Lyndblad is here with us. It's 0:02:16.880 --> 0:02:19.840 a great story in this week's edition of Business Week, 0:02:20.320 --> 0:02:24.280 all about Japan Mr Kuroda and what he may end 0:02:24.360 --> 0:02:26.639 up doing next. What's going on there? Well, I kind 0:02:26.639 --> 0:02:29.240 of think of Banko Japan now is a center of 0:02:29.360 --> 0:02:33.880 desperate innovation because it's sort of like by necessity, they're 0:02:33.960 --> 0:02:37.720 leading the world, um, you know, into this new area 0:02:37.800 --> 0:02:41.200 and trying to basically, you know, nudge up growth. And 0:02:41.280 --> 0:02:44.240 so this is a country that brought us negative interest 0:02:44.320 --> 0:02:49.440 rates and QUI quantitative easing UM and now they're doing 0:02:49.520 --> 0:02:52.280 something that some people say may actually be impossible. Well, 0:02:52.320 --> 0:02:54.880 don't tell us that yet, because just remind us about 0:02:54.919 --> 0:02:57.520 how long Japan has been why they are the poster 0:02:57.720 --> 0:03:01.080 child for negative rates and kuwi, because they're they've been 0:03:01.080 --> 0:03:03.800 doing this for a long time, right, So they tried 0:03:04.520 --> 0:03:08.320 uh sending the UM sorry rates negative, you know, and 0:03:08.360 --> 0:03:10.959 then when they didn't succeed, they did QUIE in two 0:03:11.000 --> 0:03:15.520 thousand one, right, so way ahead of everybody else. Right, 0:03:15.800 --> 0:03:19.200 And remind us also because I think it's important the 0:03:19.280 --> 0:03:23.440 economic backdrop for Japan because you know, when we think back, 0:03:23.960 --> 0:03:27.079 you go back to the early nineties, the late eighties, 0:03:27.120 --> 0:03:30.560 early nineties, I mean, this was an economic beheamoth that 0:03:30.880 --> 0:03:35.800 Americans were terrified of in many ways, and the intervening 0:03:35.920 --> 0:03:39.440 couple decades have been ugly economically, right. I mean there 0:03:39.520 --> 0:03:42.760 was a big property bubble that burst, and acid bubble, 0:03:43.280 --> 0:03:47.440 and then you know, deflation set in. And basically, I 0:03:47.440 --> 0:03:50.800 mean they've been fighting deflation and it's not just deflation, 0:03:50.840 --> 0:03:54.360 but the country is aging rapidly, so it's basically kind 0:03:54.400 --> 0:03:58.920 of downshifted. Growth has down shifted in a permanent way. Um. 0:03:59.040 --> 0:04:01.960 So they've been trying into you know, kind of you know, 0:04:02.000 --> 0:04:05.320 sort of juice the economy by any means possible. Uh. 0:04:05.320 --> 0:04:07.720 And they've succeeded somewhat. I mean there used to be 0:04:07.760 --> 0:04:10.240 sort of this pattern of falling into recession you know, 0:04:10.680 --> 0:04:15.400 every other year almost um. But um. So this latest attempt, 0:04:15.760 --> 0:04:20.240 you know, basically is designed to to attack a problem 0:04:20.360 --> 0:04:24.200 that is basically is twofold. One is confidence, the confidence 0:04:24.240 --> 0:04:27.279 of the consumer, consumer and business. So the issue is 0:04:27.320 --> 0:04:31.040 that yields on low on long term bonds have fallen 0:04:31.080 --> 0:04:35.120 to a level where basically the message that that's that 0:04:35.120 --> 0:04:38.839 that gives you know, to the market, to consumers. Is 0:04:38.880 --> 0:04:42.000 that out in the long term, we still don't see 0:04:42.040 --> 0:04:46.279 any inflation, we don't see much growth. So Bank of 0:04:46.360 --> 0:04:50.400 Japan wants to nudge up long term meals. Also for 0:04:50.440 --> 0:04:54.320 another reason, there are forty million pensioners in Japan and 0:04:54.360 --> 0:04:56.880 that number is only going to keep growing. So those 0:04:56.920 --> 0:04:59.760 people are being penalized in their savings by those very 0:04:59.760 --> 0:05:03.039 low low yields. The question, though, is how can you 0:05:03.560 --> 0:05:07.120 nudge up long term yields on long term you know, 0:05:07.360 --> 0:05:11.000 um maturities well at the same time telling the markets 0:05:11.080 --> 0:05:14.080 that you are, you know, in a stimulus position and 0:05:14.120 --> 0:05:18.560 you want to keep short term rates low. So it's 0:05:18.560 --> 0:05:21.919 an experiment, it is, but some people believe that it 0:05:22.000 --> 0:05:25.440 really cannot be done because the thing is that so 0:05:25.920 --> 0:05:28.520 by O j has said they're willing to even stop 0:05:28.600 --> 0:05:33.360 buying certain kinds of bonds with twenty maturities of twenty 0:05:33.440 --> 0:05:37.240 years or and over. But the feeling is though when 0:05:37.320 --> 0:05:40.080 when they do that, though, other actors may step into 0:05:40.160 --> 0:05:43.480 the market to buy so then basically that will be 0:05:43.520 --> 0:05:46.400 just foiling their attempts, you know, to sort of you know, 0:05:46.520 --> 0:05:48.640 have prices go down and you'ld go out. I mean 0:05:48.680 --> 0:05:51.360 the concern is too that by keeping long term rates 0:05:51.400 --> 0:05:55.120 so low, the signal or message that sends to the 0:05:55.160 --> 0:05:57.320 world at large and certainly to their folks in their 0:05:57.320 --> 0:06:00.880 economy that the outlook is not great. So they tend 0:06:00.920 --> 0:06:03.279 to be savers rather than spenders. Which that's right. You 0:06:03.320 --> 0:06:05.760 can't jump start the economy there. Yeah, if you feel 0:06:05.760 --> 0:06:08.039 like the economy's can't flat on its back for that long, 0:06:08.040 --> 0:06:11.000 you're going to think, like, you know, is my retirement safe? 0:06:11.080 --> 0:06:13.600 Like you know, I shouldn't be spending. But everybody's watching, right, 0:06:13.600 --> 0:06:15.560 because I think about how often we talk on our 0:06:15.560 --> 0:06:18.080 show about this low rate or negative rate world in 0:06:18.160 --> 0:06:21.080 places we never thought would happen. The US hasn't quite 0:06:21.160 --> 0:06:23.680 gotten there yet, but we do wonder how do we 0:06:23.760 --> 0:06:27.159 come out of this period of either negative rates or 0:06:27.200 --> 0:06:29.159 low rates and how what what's the outcome? And I 0:06:29.160 --> 0:06:31.080 guess we're all watching Japan. Well, I think what you 0:06:31.120 --> 0:06:33.040 said is we all used to be afraid of Japan 0:06:33.080 --> 0:06:35.120 as a competitor. I think now we're all afraid that 0:06:35.160 --> 0:06:38.280 we will become Japan. And that's Christina Lynn lad talking 0:06:38.320 --> 0:06:42.120 about Bank of Japan Mr Kuroda. We talked to Kathleen 0:06:42.160 --> 0:06:45.040 Hayes about him a lot. He's got a tough job. Yeah, 0:06:45.040 --> 0:06:47.760 he absolutely does. But when we're looking for maybe what 0:06:47.880 --> 0:06:49.640 does it mean to come out of a low rate 0:06:49.720 --> 0:06:52.400 or negative yield environment, we're all kind of keeping an 0:06:52.400 --> 0:06:57.240 eye on Japan to see how they do. I want 0:06:57.240 --> 0:07:00.279 to make sure our investors get the best deal passable, 0:07:00.600 --> 0:07:04.120 and that's called free free trade. And so I've been 0:07:04.200 --> 0:07:08.159 on that pursuit a mission basically for almost forty years 0:07:08.200 --> 0:07:10.960 because I cut the commission's way back when when the 0:07:11.120 --> 0:07:15.000 regulation was permissible. And I've been on that quest for 0:07:15.280 --> 0:07:18.200 now forty years. So now we finally made it happen 0:07:18.200 --> 0:07:22.160 in zero commission for transactions. Now you might have to 0:07:22.160 --> 0:07:25.280 pay for other thing, but for transactions it's zero. And 0:07:25.360 --> 0:07:28.320 that's Charles Schwab. We caught up with him earlier this week. 0:07:28.360 --> 0:07:31.720 He's a pioneer clearly in the discount brokerage space, and 0:07:31.760 --> 0:07:34.040 now there are some questions about how they make money 0:07:34.080 --> 0:07:37.600 going forward. For more on that fee fight, we bring 0:07:37.640 --> 0:07:40.280 in Mike Reagan to talk about his story and what 0:07:40.400 --> 0:07:43.560 the elimination of fees really means. So Mike break it 0:07:43.600 --> 0:07:45.960 down for us. No one was shocked here, but there 0:07:46.000 --> 0:07:49.400 are some big implications. Yeah. I mean it certainly has 0:07:49.440 --> 0:07:51.840 been trending towards zero for years. I mean, when you 0:07:51.880 --> 0:07:54.400 think back to the seventies, it costs twinter bucks and 0:07:54.400 --> 0:07:56.960 commissions to trade of stock. I mean it's mind boggling 0:07:56.960 --> 0:07:59.160 when you think of it today. And Schwab came in. 0:07:59.200 --> 0:08:01.679 There was start it with a really a regulation change 0:08:01.720 --> 0:08:04.120 in the seventies that sort of ended this what they 0:08:04.160 --> 0:08:07.000 called fixed commissions, you know, fixed price commissions, and it 0:08:07.120 --> 0:08:10.880 allowed brokerages to set their own commissions. So Schwab said, 0:08:10.880 --> 0:08:13.640 I'm gonna cut mine. Uh. He was a newsletter writer 0:08:13.720 --> 0:08:15.560 by then, he was running a brokerage. He said, I'm 0:08:15.560 --> 0:08:19.240 gonna cut mine a seventy dollars, and the discount brokerage 0:08:19.280 --> 0:08:22.520 era was born. Obviously, when computers took over later in 0:08:22.520 --> 0:08:25.760 the nineties, it just chiseled away at those fees. I 0:08:25.760 --> 0:08:28.080 think it's like thirteen bucks to trade on Schwab in 0:08:28.120 --> 0:08:31.680 two thousand and five is less than five bucks most recently. 0:08:32.280 --> 0:08:35.840 But on the margins, new startups were coming in robin Hood. 0:08:35.840 --> 0:08:39.600 The robin Hood app allowed investors to trade for free. Uh. 0:08:40.240 --> 0:08:43.080 Some of the brokerages started allowing certain ETFs to be 0:08:43.080 --> 0:08:46.280 traded for free. So it's clear that this pressure was building. 0:08:46.480 --> 0:08:48.480 UM to me, I think that the interesting thing if 0:08:48.520 --> 0:08:51.440 you're a customer of one of these firms is the 0:08:51.440 --> 0:08:53.480 important thing to ask is, well, how are they making 0:08:53.520 --> 0:08:55.559 money exactly if they're not charging me a commission. So 0:08:55.600 --> 0:08:56.960 that's a little bit of what we get into in 0:08:57.000 --> 0:08:58.520 the story there. Well, I think that was the question 0:08:58.559 --> 0:09:00.880 everybody asked when it first hit. We did definitely see 0:09:00.880 --> 0:09:03.319 their stock prices, you know, go down, but it's like, okay, 0:09:03.320 --> 0:09:05.760 so how are they making money? They do have other 0:09:05.760 --> 0:09:08.320 ways that yeah, don't worry. Don't worry about them, they're 0:09:08.320 --> 0:09:10.520 not you know. And the sort of line we use 0:09:10.559 --> 0:09:13.800 in the story is that if you don't know how 0:09:13.920 --> 0:09:16.320 company is making money, chances are you're the product. Right. 0:09:17.280 --> 0:09:19.720 It's what's been true of Facebook and Google, you know, 0:09:19.800 --> 0:09:23.600 free services, but it's you, your eyeballs and your personal 0:09:23.679 --> 0:09:26.840 data that is valuable to the companies. So for Schwab, 0:09:27.559 --> 0:09:30.800 one of the most and for all the discount brokerages UM, 0:09:30.920 --> 0:09:33.760 one of the most important ways they make money is 0:09:33.880 --> 0:09:36.880 on the cash that you currently do not have invested 0:09:36.920 --> 0:09:39.040 in the stock. They make money with your money they 0:09:39.040 --> 0:09:41.720 make money with with your spare money, your cry powder 0:09:41.760 --> 0:09:43.720 as they called on the wall streets. So Swab has 0:09:43.760 --> 0:09:48.200 something like three point seven trillion dollars in client assets 0:09:48.240 --> 0:09:51.920 on its platform as of August, that is, and you know, 0:09:51.920 --> 0:09:54.800 about two sixty five billion of that is just cash. 0:09:54.880 --> 0:09:57.920 It's not invested in the markets, so a small chunk 0:09:57.960 --> 0:10:01.439 of a huge pie that allows job to to invest 0:10:01.480 --> 0:10:05.240 it out um and make money off of that idle cash. UM. 0:10:05.280 --> 0:10:09.760 And they do pay the customer client's interest on that cash, 0:10:09.800 --> 0:10:12.080 but it's a it's a relatively low as much as 0:10:12.120 --> 0:10:15.640 about half of one percent for big balances, is low 0:10:15.640 --> 0:10:18.720 as about zero point one percent, so one tenth of 0:10:19.240 --> 0:10:23.160 one percent. Obviously, yields are low. Um. You can make 0:10:23.240 --> 0:10:26.600 better return on your cash elsewhere and money market funds 0:10:26.640 --> 0:10:31.200 in traditional bank deposit accounts um. But it's not convenient 0:10:31.240 --> 0:10:33.760 then for a trader. So um. You know, people will 0:10:33.880 --> 0:10:36.160 keep some amount of cash in there in case they 0:10:36.160 --> 0:10:37.719 see a stock and all of a sudden they want 0:10:37.720 --> 0:10:39.800 to buy, and Schwab is happy to take it and 0:10:40.120 --> 0:10:43.160 reinvest it. UM. And there's other ways. Uh. They make 0:10:43.200 --> 0:10:45.240 money when they make loans to write to folks who 0:10:45.240 --> 0:10:47.600 want to do trades too, if that part is right. Yeah, 0:10:47.760 --> 0:10:50.120 marginal lending. Uh. You know, if you if you want 0:10:50.120 --> 0:10:53.839 to lever up, there's services like that. If you want 0:10:53.840 --> 0:10:56.360 a short at stock, they will loan you the securities 0:10:56.400 --> 0:10:59.480 and charge you a percentage on on that. UM. But 0:10:59.640 --> 0:11:02.199 what are the really interesting ways that all these companies 0:11:02.240 --> 0:11:05.760 make money? UM. And it's been somewhat controversial in the industry, 0:11:05.800 --> 0:11:08.559 but it's called payment for order flow. So basically what 0:11:08.600 --> 0:11:11.559 they do is if if you or I place orders 0:11:11.600 --> 0:11:14.839 to buy and sell certain stocks. UM. There are companies 0:11:15.200 --> 0:11:20.120 like Citadel, like Virtue Financial, financial electronic market makers or 0:11:20.160 --> 0:11:23.280 wholesalers they call them. Uh. A few years ago, they 0:11:23.320 --> 0:11:26.880 would be referred to more as high frequency traders. They 0:11:26.880 --> 0:11:29.800 will basically buy up the order flow from these companies 0:11:29.920 --> 0:11:33.160 and match it internally, so they don't even take it 0:11:33.200 --> 0:11:37.000 to the stock market. Uh. Say Jason, you want to 0:11:37.040 --> 0:11:40.480 buy a stock for ten dollars and Caroline you're selling 0:11:40.480 --> 0:11:44.640 it for. Well, they'll internalize that trade and they'll make 0:11:44.640 --> 0:11:47.520 a cent per share. Uh. It doesn't sound like a lot, 0:11:47.559 --> 0:11:49.560 but if you do it enough over and over again, 0:11:49.600 --> 0:11:51.959 it at those pennies add up. You see something like that, 0:11:52.120 --> 0:11:54.880 you start thinking about flash bullys, and you started thinking 0:11:54.880 --> 0:11:58.440 about all these different sort of elements of Wall Street 0:11:58.559 --> 0:12:02.320 that are a little bit more mysterious to the everyday investor, 0:12:02.440 --> 0:12:04.720 less mysterious to you because you know so much about 0:12:04.800 --> 0:12:07.400 the markets. But play this out for us, I mean, 0:12:07.480 --> 0:12:10.160 where does this end and does it lead to a 0:12:10.200 --> 0:12:14.320 different kind of collection of of firms that have the 0:12:14.360 --> 0:12:17.200 most power on Wall Street? Well, it certainly is a 0:12:17.240 --> 0:12:22.120 super competitive industry right now, um, And it's that sort 0:12:22.160 --> 0:12:25.920 of electronic market making is very much a black box. 0:12:25.920 --> 0:12:28.680 It's hard to understand exactly what's going on it, but 0:12:28.760 --> 0:12:30.360 you have to sort of, you know, step back and 0:12:30.440 --> 0:12:33.040 compare it to again back in the days when it 0:12:33.040 --> 0:12:36.040 costs two dollars to trade, and stocks were quoted in 0:12:36.559 --> 0:12:40.200 UH fractions rather than decimals, so you were paying a 0:12:40.280 --> 0:12:42.600 much bigger spread than one cent. You know, where you're 0:12:42.600 --> 0:12:45.160 paying the difference between an eighth and a quarter or 0:12:45.160 --> 0:12:49.200 whatever the quotes were UH price. And so the overall 0:12:49.240 --> 0:12:52.120 trend I think has been great for the average show 0:12:52.520 --> 0:12:55.320 for the investor. There are still questions on the margin 0:12:55.800 --> 0:12:59.800 about how this all works. Um. But again, if you 0:12:59.840 --> 0:13:02.880 if you're paying zero dollars for a service, um, how 0:13:03.000 --> 0:13:06.560 much can you really complain? Uh, there is a question 0:13:06.800 --> 0:13:09.480 on Uh, Like I said, how are they making money? 0:13:09.520 --> 0:13:11.360 And think it's just important for the users to know 0:13:11.800 --> 0:13:15.280 to understand how the companies are making money off of them, 0:13:15.280 --> 0:13:16.480 and that's what we try to set out to do 0:13:16.480 --> 0:13:19.559 in the well. And I do think especially the comparison 0:13:19.600 --> 0:13:23.319 you make with Facebook and Google and others probably does 0:13:23.360 --> 0:13:26.000 make people set up a little straighter these days, sort 0:13:26.040 --> 0:13:28.880 of knowing what we know about candidly how our data 0:13:29.040 --> 0:13:30.760 is being used and listen to you talk and I 0:13:30.760 --> 0:13:33.720 feel like this is totally a lesson in scale and users, right, 0:13:34.320 --> 0:13:36.520 the Amazon model, right, for how long did they not 0:13:36.600 --> 0:13:38.600 make money? But look at all of the users they 0:13:38.640 --> 0:13:41.160 now have and can tap into them for so many 0:13:41.200 --> 0:13:43.400 different things. And that's what this is about, right. It's 0:13:43.559 --> 0:13:46.000 it's making a little bit of money on a large 0:13:46.120 --> 0:13:49.360 chunk assets, which is you know, that's why it's so competitive. 0:13:49.400 --> 0:13:51.480 They want to have They want to gather all those 0:13:51.520 --> 0:13:54.240 assets as much as they can, and their power is 0:13:54.240 --> 0:13:57.479 in having as many users and as much assets, right, Absolutely, 0:13:57.640 --> 0:14:00.560 And sort of one interesting angle as up as a 0:14:00.600 --> 0:14:03.760 result of this is all of a sudden if it costs, uh, 0:14:03.800 --> 0:14:06.199 someone zero to trade of stock is not going to 0:14:06.280 --> 0:14:08.800 influence on the trade more. Right, then that than that 0:14:08.960 --> 0:14:11.960 order flow that they're selling to these other firms gets bigger, 0:14:12.000 --> 0:14:13.719 they make a little bit more money on that. A 0:14:13.720 --> 0:14:16.480 lot of financial planners will say, you know, being a 0:14:16.559 --> 0:14:20.520 sort of hyperactive trader isn't necessarily the best thing for 0:14:20.640 --> 0:14:22.920 your long term results. That's Mike Reagan. He keeps a 0:14:22.960 --> 0:14:26.200 watch on the financial markets, equities, in particular for us 0:14:26.200 --> 0:14:28.480 here at Bloomberg. He wrote this story with Annie Massa 0:14:29.000 --> 0:14:31.440 and Uh. I think it's fascinating to kind of look 0:14:31.520 --> 0:14:35.080 at what's going on in the digital social world to 0:14:35.120 --> 0:14:37.600 get an idea of maybe what these online brokerages are 0:14:37.680 --> 0:14:40.520 up to. Yeah, I really understood the business more after 0:14:40.680 --> 0:14:42.600 talking to him, and where they're going to be able 0:14:42.880 --> 0:14:48.600 at least they think make some money. It probably won't 0:14:48.600 --> 0:14:50.400 come as a surprise. It has more Wall Street firm 0:14:50.440 --> 0:14:53.600 stress diversity and inclusion in hiring that someone has come 0:14:53.680 --> 0:14:55.960 up with an app for that. Well, it's not really 0:14:56.000 --> 0:14:59.080 an app, but it is an AI powered recruiting tool. Well, 0:14:59.120 --> 0:15:03.960 it's bringing the world of online dating to hiring bankers. 0:15:04.080 --> 0:15:07.480 Eric Shatzker joins us from London with this story. It 0:15:07.680 --> 0:15:11.480 spans the globe, as you do, Eric, but really taking 0:15:11.480 --> 0:15:15.480 technology to a very human centric business. Tell us about suited. Well, 0:15:15.520 --> 0:15:18.840 it's about time, you might say, Jason and Carol, that 0:15:18.960 --> 0:15:22.440 somebody brought artificial intelligence to the Wall Street recruiting process. 0:15:22.560 --> 0:15:26.080 Because this industry, for all its efforts to become more 0:15:26.120 --> 0:15:30.160 diverse and to become more inclusive, UH is still dominated 0:15:30.640 --> 0:15:35.760 by white men who are typically elite, college educated, and 0:15:35.800 --> 0:15:37.960 that's going to need to change. It needs to change 0:15:38.000 --> 0:15:40.800 not just because we live in changing times, but because 0:15:40.840 --> 0:15:45.240 these firms, like so many other companies, recognize that the 0:15:45.360 --> 0:15:50.120 bigger your talent pool, the better the quality of your recruiting, 0:15:50.120 --> 0:15:54.040 and ultimately the better your employees. We're talking about investment bankers. 0:15:54.040 --> 0:15:56.280 Here are people who do mergers and acquisitions, people who 0:15:56.280 --> 0:16:00.000 do capital markets, people who do restructuring. But the same ladge, 0:16:00.000 --> 0:16:04.240 because I say that applies the companies worldwide, applies to 0:16:04.280 --> 0:16:08.360 Wall Street. The challenge, of course, is volume. It's very 0:16:08.400 --> 0:16:12.040 difficult to fan out across hundreds of universities in the 0:16:12.120 --> 0:16:15.720 United States and open up the recruiting process to the 0:16:15.760 --> 0:16:19.240 degree that it can capture everybody unless you put technology 0:16:19.320 --> 0:16:22.040 to work. And that's what this tool is designed to do. 0:16:22.080 --> 0:16:27.680 It's a screening process that surfaces candidates regardless of their 0:16:27.720 --> 0:16:31.920 skin color, background, or any other traits that might sway 0:16:31.960 --> 0:16:34.960 a campus recruiter. So what specifically tell us a little 0:16:34.960 --> 0:16:37.040 bit more eric about this algorithm? I mean, all right, 0:16:37.080 --> 0:16:39.880 as you said, it takes out um any kind of 0:16:39.920 --> 0:16:43.280 you know, what color, their ethnic backgrounds, what sex. But 0:16:43.520 --> 0:16:48.360 what conscious Biascious is the word that's used in the 0:16:48.400 --> 0:16:54.000 recruiting industry because if you sit down with someone, you 0:16:54.080 --> 0:16:59.720 might find that person appealing for reasons other than qualifications. 0:16:59.760 --> 0:17:02.960 That person may sound like you, that person may enjoy 0:17:03.080 --> 0:17:05.360 some of the same things you enjoy. That person may 0:17:05.400 --> 0:17:08.720 have played lacrosse, and if you played lacrosse, then you 0:17:08.800 --> 0:17:11.080 might be more inclined to want to hire that person, 0:17:11.119 --> 0:17:12.919 to want to work with that person. But that person 0:17:12.960 --> 0:17:16.159 may not have all of the right attributes to become 0:17:16.200 --> 0:17:19.320 a top performing banker. He or she might just be 0:17:19.400 --> 0:17:23.159 appealing to you as a human being, and that's not 0:17:23.240 --> 0:17:25.600 really a good way to recruit. And so you bring 0:17:25.680 --> 0:17:30.840 artificial intelligence into the process by designing a model, and 0:17:30.880 --> 0:17:34.480 the model is built using the characteristics of the top 0:17:34.520 --> 0:17:39.160 performing employees at each firm, having candidates fill out comprehensive 0:17:39.240 --> 0:17:43.879 profiles and then running those profiles against the models. That 0:17:44.040 --> 0:17:47.600 is the algorithm in action, and it spits out a score. 0:17:48.160 --> 0:17:51.080 The higher the score, the better the fit the candidate 0:17:51.280 --> 0:17:55.440 is for that individual firm, and the models vary by firm. 0:17:55.520 --> 0:17:57.520 Not every firm is looking for the same things, not 0:17:57.600 --> 0:18:01.200 every firm values the same things. Not all bankers at 0:18:01.240 --> 0:18:04.680 one firm do the same things as bankers at another firm, 0:18:04.720 --> 0:18:07.679 and so you need to customize it to make it effective. 0:18:08.160 --> 0:18:10.639 And so Eric tell us about some of the founders 0:18:10.680 --> 0:18:13.440 here and where they came from, because it feels notable 0:18:13.960 --> 0:18:17.840 that these folks are coming from firms who are trying 0:18:17.880 --> 0:18:20.920 to be competitive, maybe with some of the bigger bulge 0:18:20.920 --> 0:18:24.560 bracket banks, trying to get an edge, which is how 0:18:24.680 --> 0:18:28.000 so many good ideas come about. Right, that's a very 0:18:28.000 --> 0:18:31.080 good point. We know that firms like JP Morgan and 0:18:31.119 --> 0:18:34.000 Goldman Sacks and Bank of American City Group have gigantic 0:18:34.080 --> 0:18:38.960 recruiting operations, but the smaller firms, firms, like more specialized 0:18:39.000 --> 0:18:41.720 investment banking firms like Mulis and Company, for example, or 0:18:41.720 --> 0:18:45.359 PJT Partners or Hulahan Loki Uh need to find different 0:18:45.359 --> 0:18:48.760 ways to compete, uh, in order to win those you know, 0:18:48.960 --> 0:18:51.679 M and A mandates or corporate finance mandates away from 0:18:51.680 --> 0:18:54.520 the bulge bracket banks. And so that's why they've embraced 0:18:55.040 --> 0:18:59.840 this artificial intelligence powered recruiting tool, perhaps sooner than some 0:19:00.119 --> 0:19:03.040 of the larger firms might have. They're a little more nimble, 0:19:03.640 --> 0:19:06.000 they're a little more creative. We've seen that, and that's 0:19:06.000 --> 0:19:08.479 how they've been successful in taking market share away from 0:19:08.480 --> 0:19:12.040 the big banks. And now they're taking this leap perhaps 0:19:12.080 --> 0:19:15.119 a little earlier than others might, in an effort to 0:19:15.200 --> 0:19:17.200 be that much further ahead of the game and to 0:19:17.400 --> 0:19:21.000 raise their talent game so that so that they are 0:19:21.000 --> 0:19:23.480 in fact as good as they want to be. There 0:19:23.520 --> 0:19:26.720 are nine firms in total on the Suited platform. It's 0:19:26.800 --> 0:19:29.960 likely to grow, but all of them qualify as independent 0:19:30.040 --> 0:19:33.600 investment banks. There aren't any bulge bracket firms. They're just yet. 0:19:33.880 --> 0:19:35.680 You know what's interesting about this, Eric, and I think 0:19:35.720 --> 0:19:38.359 how often Jason nine, I know you do too. We 0:19:38.560 --> 0:19:41.920 increasingly talk about the role of technology in the financial 0:19:41.960 --> 0:19:44.879 community on Wall Street, whether it's trading algorithms, you know, 0:19:44.960 --> 0:19:46.879 having a bigger, bigger role. But when it comes to 0:19:46.960 --> 0:19:50.360 investment banking, you still need people involved, right, So what 0:19:50.400 --> 0:19:54.000 you want is you want the best people that hopefully 0:19:54.040 --> 0:19:56.400 are doing the biggest deals that ultimately bringing the most 0:19:56.440 --> 0:19:58.879 fees to the firm. This is a human capital business. 0:19:58.960 --> 0:20:02.200 There is no killer app, there's no shiny new product. 0:20:02.680 --> 0:20:06.800 You know. The tantalizes the client. The client is persuaded 0:20:07.600 --> 0:20:10.560 uh to do business with a firm and ultimately to 0:20:10.600 --> 0:20:13.879 do repeat business with the firm by the quality of 0:20:13.920 --> 0:20:17.720 the advice that that company gets. And that's Eric Schatzker 0:20:17.880 --> 0:20:23.760 talking about suited, really taking us inside how Wall Street 0:20:23.840 --> 0:20:27.200 is thinking about a really important issue, which is how 0:20:27.280 --> 0:20:30.040 not to be a bunch of old white dudes. Yeah, exactly, 0:20:30.080 --> 0:20:34.920 create diversity, bring diversity into the recruiting pool, and potentially 0:20:35.400 --> 0:20:37.320 maybe get a better return when it comes to some 0:20:37.359 --> 0:20:43.240 of those investment bankers. The promise of a trans Arctic 0:20:43.359 --> 0:20:45.320 data cable that would speed up the web for much 0:20:45.359 --> 0:20:47.960 of the planet raised hopes, attracted investors, and made a 0:20:47.960 --> 0:20:50.359 company that was built on dreams and fraud. This is 0:20:50.400 --> 0:20:52.880 a story that will come blow your mind a little bit. 0:20:52.920 --> 0:20:56.159 It will, and it's pretty complicated, to be honest. Austin 0:20:56.200 --> 0:20:59.200 Carr wrote it. He's here, he has traveled the globe 0:20:59.200 --> 0:21:01.119 in many ways the story have gone to places that 0:21:01.240 --> 0:21:03.040 probably none of the rest of us have been. Are 0:21:03.160 --> 0:21:05.240 very few the rest of us have been. But let's 0:21:05.240 --> 0:21:08.080 start with a very basic question, Austin, which is what's 0:21:08.160 --> 0:21:11.320 this cable all about? What's the dream that everybody is pursuing. 0:21:11.760 --> 0:21:14.280 So I think that's one of the biggest misconceptions about 0:21:14.320 --> 0:21:16.760 the web is that everything is in the cloud. It's 0:21:16.760 --> 0:21:19.960 actually all underwater. The vast majority of the Internet, anything 0:21:20.000 --> 0:21:23.240 you're streaming on Netflix or YouTube, it all goes underwater 0:21:23.359 --> 0:21:26.320 from different servers around the planet. So all these massive 0:21:26.359 --> 0:21:29.840