WEBVTT - How Money Became Dangerous

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<v Speaker 1>You're listening to Bloomberg Business Week with Carol Messer and

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<v Speaker 1>Jason Kelly on Bloomberg Radio. So I'm thinking building and

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<v Speaker 1>perhaps some conversations we've had as of late around this

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<v Speaker 1>table in our Bloomberg and Director Broker studio. UM. I

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<v Speaker 1>want to get to our next guest, because he has

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<v Speaker 1>noted how dangerously disconnected the public is from our financial system.

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<v Speaker 1>It is the subject of his new book. Joining us

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<v Speaker 1>on the phone is Chris Farrell as he's co founder

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<v Speaker 1>of Riverwood Capital. His book How Money Became Dangerous, The

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<v Speaker 1>Inside Story of our Turbulent Relationship with Modern Finance. He

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<v Speaker 1>joins us on the phone from Menlo Park, California. Hey, Chris,

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<v Speaker 1>nice to have you here with Jason and myself. UM,

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<v Speaker 1>tell us a little bit about I mean, you have

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<v Speaker 1>an interesting background. You understand the financial world. Yeah, Hi, Carol,

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<v Speaker 1>thanks thanks for having me on you has spent thirty

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<v Speaker 1>five years in the industry and has traversed many of

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<v Speaker 1>the doctors within the finance were commercial banking, sales and trading,

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<v Speaker 1>investment banking mn A private equity and uh, yeah, I've

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<v Speaker 1>had a long, long career and been fortunate to work

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<v Speaker 1>on some of the more interesting transactions in Wall Street history.

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<v Speaker 1>What's changed about maybe when you started on Wall Street

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<v Speaker 1>and kind of where the financial community financial system is today, Well,

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<v Speaker 1>so much has changed, you know, in just one generation.

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<v Speaker 1>I like to say, my parents only cared about two numbers, right,

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<v Speaker 1>they cared and they were both years. They cared about

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<v Speaker 1>the year they paid off their mortgage in the year

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<v Speaker 1>they qualified for their pension. And since then, you know,

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<v Speaker 1>so much has happened. The complexity of the of the

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<v Speaker 1>financial system has grown dramatically and so many different ways,

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<v Speaker 1>as we pushed for scale, scope and efficiency at the

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<v Speaker 1>expense of the you know, the personnel, of the interaction,

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<v Speaker 1>of the of the knowing, the person of of knowing

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<v Speaker 1>who we're interacting with, even having a person on the

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<v Speaker 1>other side of that, and the complexity of this of

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<v Speaker 1>the system has grown so much, while are under standing

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<v Speaker 1>of it really has gone in many cases down. And

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<v Speaker 1>I think a lot of people have said, you know,

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<v Speaker 1>I can't possibly understand this, so I'm just going to

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<v Speaker 1>step back and sort of you know, disingage completely well.

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<v Speaker 1>And I do wonder what the financial crisis did to

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<v Speaker 1>either reinforce that or to maybe change the direction. What

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<v Speaker 1>what impact ultimately did the crisis have on consumers and

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<v Speaker 1>on behavior? Yeah, you know, it's a great question, um,

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<v Speaker 1>And we think about this a lot. So it initially

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<v Speaker 1>inspired this sort of rage, right the Occupy Wall Street movement.

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<v Speaker 1>What people are like, this is not acceptable, we can't

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<v Speaker 1>have this. We need to do something. But because people

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<v Speaker 1>couldn't articulate the challenge and the problem, and therefore, if

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<v Speaker 1>you can't articulate the challenge, you're not gonna come up

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<v Speaker 1>with solutions. And then it's sort of faded as most

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<v Speaker 1>you know, typically financial crisis do crisis do, and then

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<v Speaker 1>you sort of said, Okay, I'm just gonna walk away.

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<v Speaker 1>And in a sense it almost turned people more we're

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<v Speaker 1>off and more distant from it because I said, oh,

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<v Speaker 1>this is just one of those scary things I just

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<v Speaker 1>don't want to like tankle with. And now we see,

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<v Speaker 1>we see that in all kinds of behaviors, you know,

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<v Speaker 1>we see you know, we see millennials wanting to trade

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<v Speaker 1>off an algorithm when you know, not even deal with

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<v Speaker 1>people because the trust level is so low they'd rather

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<v Speaker 1>trust an algorithm than than a person. And you know

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<v Speaker 1>that this manifests itself in so many ways. I have

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<v Speaker 1>to say, I think about the market all the time

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<v Speaker 1>that how much of it is now you know, driven

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<v Speaker 1>by computers, and what that means for the retail investor. UM.

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<v Speaker 1>You know, sometimes good when everything is going up, but

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<v Speaker 1>you know, I do wonder when we get to a downturn,

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<v Speaker 1>which ultimately we will at some point, but I do

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<v Speaker 1>wonder about the impact on it. What are your biggest

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<v Speaker 1>concerns here? Well, my biggest concerns are we have a

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<v Speaker 1>we have a sort of antiquated system, you know, at

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<v Speaker 1>all levels we're talking about how money has managed UM

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<v Speaker 1>and then we have um, you know, people and complexity

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<v Speaker 1>that that aren't keeping able systems can't manage and we

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<v Speaker 1>most do that, I think in the in the pension system,

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<v Speaker 1>for example. So we have this, you know, we've have

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<v Speaker 1>debt being raised to fund you know, two fund pension

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<v Speaker 1>deficits or any actions that are taken, and the system

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<v Speaker 1>is focused on this, okay, this annual budget challenge of

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<v Speaker 1>how do I pay employees? And you know, look, let's see,

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<v Speaker 1>like I can't meet my cash shortfall, I can't give

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<v Speaker 1>them a race, so you know, let's let's sort of

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<v Speaker 1>promise more more benefits in the future. That I won't

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<v Speaker 1>have to worry about because it's beyond my term of office.

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<v Speaker 1>And so as a result, we have you know, people

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<v Speaker 1>disconnected where they're like, who's holding that system accountable for

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<v Speaker 1>a mismatch and sent a system where I can sort

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<v Speaker 1>of make promises that I'm not going to have to

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<v Speaker 1>be responsible for being you know, being there when it happens.

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<v Speaker 1>I think that's one Another example is, you know, I

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<v Speaker 1>think we have the twenty five anniversary of the ETS

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<v Speaker 1>wonderful mechanism to democratize access to market returns on a

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<v Speaker 1>very efficient, cost based system. And you know, that's been

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<v Speaker 1>a wonderful development and a positive. But when you have

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<v Speaker 1>fifty plus percent of the market who's completely you know,

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<v Speaker 1>passively involved and doesn't doesn't actually engage or care really

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<v Speaker 1>you know what's going on in that system, you know,

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<v Speaker 1>that does create the potential for you know what happens

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<v Speaker 1>when liquidity drives up and you know no one's really

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<v Speaker 1>that invested in any particular ownerships that you know that

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<v Speaker 1>there's there's it's pervasive throughout the system, this challenge and

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<v Speaker 1>that's that's the direction we're going. We're going towards this

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<v Speaker 1>efficiency scale, passive disconnected combination that you know that that

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<v Speaker 1>just creates challenges, systemic challenges that we haven't seen. Right.

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<v Speaker 1>All right, Well, it's incredibly thought provoking. I feel like

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<v Speaker 1>we just barely scratch the surface. You're gonna have to

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<v Speaker 1>come visit us. Uh. Here in New York, Christopher Elist,

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<v Speaker 1>co founder of Riverwood Capital, his book How Money Became Dangerous,

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<v Speaker 1>incredibly timely. Uh as we get into Carol, I just

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<v Speaker 1>feel like, right now people are going to be thinking

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<v Speaker 1>more and more about this. I think about what Elizabeth

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<v Speaker 1>Warren said and didn't say candidly when she spoke with

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<v Speaker 1>our own job. Wasn't all last night? This has become

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<v Speaker 1>a big topic and the debate between capitalism not all bad,

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<v Speaker 1>right if you think about job creations and so forth,

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<v Speaker 1>But how do we get a better understand how do

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<v Speaker 1>we understand exactly how do we under money them out

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<v Speaker 1>there and get our arms around it. It's a great book,

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<v Speaker 1>How Money Became Dangerous? Check it out, put it on

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<v Speaker 1>your Christmas list, stick it in the stocking.