Speaker 1: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 1: Jason Kelly on Bloomberg Radio. So I'm thinking building and
Speaker 1: perhaps some conversations we've had as of late around this
Speaker 1: table in our Bloomberg and Director Broker studio. UM. I
Speaker 1: want to get to our next guest, because he has
Speaker 1: noted how dangerously disconnected the public is from our financial system.
Speaker 1: It is the subject of his new book. Joining us
Speaker 1: on the phone is Chris Farrell as he's co founder
Speaker 1: of Riverwood Capital. His book How Money Became Dangerous, The
Speaker 1: Inside Story of our Turbulent Relationship with Modern Finance. He
Speaker 1: joins us on the phone from Menlo Park, California. Hey, Chris,
Speaker 1: nice to have you here with Jason and myself. UM,
Speaker 1: tell us a little bit about I mean, you have
Speaker 1: an interesting background. You understand the financial world. Yeah, Hi, Carol,
Speaker 1: thanks thanks for having me on you has spent thirty
Speaker 1: five years in the industry and has traversed many of
Speaker 1: the doctors within the finance were commercial banking, sales and trading,
Speaker 1: investment banking mn A private equity and uh, yeah, I've
Speaker 1: had a long, long career and been fortunate to work
Speaker 1: on some of the more interesting transactions in Wall Street history.
Speaker 1: What's changed about maybe when you started on Wall Street
Speaker 1: and kind of where the financial community financial system is today, Well,
Speaker 1: so much has changed, you know, in just one generation.
Speaker 1: I like to say, my parents only cared about two numbers, right,
Speaker 1: they cared and they were both years. They cared about
Speaker 1: the year they paid off their mortgage in the year
Speaker 1: they qualified for their pension. And since then, you know,
Speaker 1: so much has happened. The complexity of the of the
Speaker 1: financial system has grown dramatically and so many different ways,
Speaker 1: as we pushed for scale, scope and efficiency at the
Speaker 1: expense of the you know, the personnel, of the interaction,
Speaker 1: of the of the knowing, the person of of knowing
Speaker 1: who we're interacting with, even having a person on the
Speaker 1: other side of that, and the complexity of this of
Speaker 1: the system has grown so much, while are under standing
Speaker 1: of it really has gone in many cases down. And
Speaker 1: I think a lot of people have said, you know,
Speaker 1: I can't possibly understand this, so I'm just going to
Speaker 1: step back and sort of you know, disingage completely well.
Speaker 1: And I do wonder what the financial crisis did to
Speaker 1: either reinforce that or to maybe change the direction. What
Speaker 1: what impact ultimately did the crisis have on consumers and
Speaker 1: on behavior? Yeah, you know, it's a great question, um,
Speaker 1: And we think about this a lot. So it initially
Speaker 1: inspired this sort of rage, right the Occupy Wall Street movement.
Speaker 1: What people are like, this is not acceptable, we can't
Speaker 1: have this. We need to do something. But because people
Speaker 1: couldn't articulate the challenge and the problem, and therefore, if
Speaker 1: you can't articulate the challenge, you're not gonna come up
Speaker 1: with solutions. And then it's sort of faded as most
Speaker 1: you know, typically financial crisis do crisis do, and then
Speaker 1: you sort of said, Okay, I'm just gonna walk away.
Speaker 1: And in a sense it almost turned people more we're
Speaker 1: off and more distant from it because I said, oh,
Speaker 1: this is just one of those scary things I just
Speaker 1: don't want to like tankle with. And now we see,
Speaker 1: we see that in all kinds of behaviors, you know,
Speaker 1: we see you know, we see millennials wanting to trade
Speaker 1: off an algorithm when you know, not even deal with
Speaker 1: people because the trust level is so low they'd rather
Speaker 1: trust an algorithm than than a person. And you know
Speaker 1: that this manifests itself in so many ways. I have
Speaker 1: to say, I think about the market all the time
Speaker 1: that how much of it is now you know, driven
Speaker 1: by computers, and what that means for the retail investor. UM.
Speaker 1: You know, sometimes good when everything is going up, but
Speaker 1: you know, I do wonder when we get to a downturn,
Speaker 1: which ultimately we will at some point, but I do
Speaker 1: wonder about the impact on it. What are your biggest
Speaker 1: concerns here? Well, my biggest concerns are we have a
Speaker 1: we have a sort of antiquated system, you know, at
Speaker 1: all levels we're talking about how money has managed UM
Speaker 1: and then we have um, you know, people and complexity
Speaker 1: that that aren't keeping able systems can't manage and we
Speaker 1: most do that, I think in the in the pension system,
Speaker 1: for example. So we have this, you know, we've have
Speaker 1: debt being raised to fund you know, two fund pension
Speaker 1: deficits or any actions that are taken, and the system
Speaker 1: is focused on this, okay, this annual budget challenge of
Speaker 1: how do I pay employees? And you know, look, let's see,
Speaker 1: like I can't meet my cash shortfall, I can't give
Speaker 1: them a race, so you know, let's let's sort of
Speaker 1: promise more more benefits in the future. That I won't
Speaker 1: have to worry about because it's beyond my term of office.
Speaker 1: And so as a result, we have you know, people
Speaker 1: disconnected where they're like, who's holding that system accountable for
Speaker 1: a mismatch and sent a system where I can sort
Speaker 1: of make promises that I'm not going to have to
Speaker 1: be responsible for being you know, being there when it happens.
Speaker 1: I think that's one Another example is, you know, I
Speaker 1: think we have the twenty five anniversary of the ETS
Speaker 1: wonderful mechanism to democratize access to market returns on a
Speaker 1: very efficient, cost based system. And you know, that's been
Speaker 1: a wonderful development and a positive. But when you have
Speaker 1: fifty plus percent of the market who's completely you know,
Speaker 1: passively involved and doesn't doesn't actually engage or care really
Speaker 1: you know what's going on in that system, you know,
Speaker 1: that does create the potential for you know what happens
Speaker 1: when liquidity drives up and you know no one's really
Speaker 1: that invested in any particular ownerships that you know that
Speaker 1: there's there's it's pervasive throughout the system, this challenge and
Speaker 1: that's that's the direction we're going. We're going towards this
Speaker 1: efficiency scale, passive disconnected combination that you know that that
Speaker 1: just creates challenges, systemic challenges that we haven't seen. Right.
Speaker 1: All right, Well, it's incredibly thought provoking. I feel like
Speaker 1: we just barely scratch the surface. You're gonna have to
Speaker 1: come visit us. Uh. Here in New York, Christopher Elist,
Speaker 1: co founder of Riverwood Capital, his book How Money Became Dangerous,
Speaker 1: incredibly timely. Uh as we get into Carol, I just
Speaker 1: feel like, right now people are going to be thinking
Speaker 1: more and more about this. I think about what Elizabeth
Speaker 1: Warren said and didn't say candidly when she spoke with
Speaker 1: our own job. Wasn't all last night? This has become
Speaker 1: a big topic and the debate between capitalism not all bad,
Speaker 1: right if you think about job creations and so forth,
Speaker 1: But how do we get a better understand how do
Speaker 1: we understand exactly how do we under money them out
Speaker 1: there and get our arms around it. It's a great book,
Speaker 1: How Money Became Dangerous? Check it out, put it on
Speaker 1: your Christmas list, stick it in the stocking.