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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to

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Speaker 1: The Money Stuff Podcast, your weekly podcast where we talk

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Speaker 1: about stuff related to money. I'm Matt Levian and I

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Speaker 1: read the Moneys dot Com for Bloomberg Opinion.

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Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and

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Speaker 2: an anchor for Bloomberg Television.

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Speaker 1: You were reporting live from the field this week.

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Speaker 2: I was. I am a studio anchor. I like being

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Speaker 2: in the studio. Boy, boy do I love sitting behind

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Speaker 2: a desk and screaming at a camera. But I had

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Speaker 2: to go into the field this week because JP Morgan

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Speaker 2: was having their ribbon cutting ceremony for their big, beautiful

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Speaker 2: building at two seventy Park Avenue. Beautiful, one big beautiful building.

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Speaker 2: They actually own a bunch of buildings, Yes they do.

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Speaker 1: It's not fun to have a campus, and it is

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Speaker 1: really cool. I joked. I joked this week that the

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Speaker 1: JP Morgan building at a forest ory gold statue of

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Speaker 1: Jamie Diamond in the lobby, which you can now report.

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Speaker 2: They can tell you it's not true. They do. I

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Speaker 2: don't know if they had the three story I don't

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Speaker 2: know if they have this all the time. But when

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Speaker 2: I was there for the ribbon cutting ceremony.

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Speaker 1: They had uh had a live Jamie Diamond.

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Speaker 2: There was a live Jamie Diamond or really convincing AI robot.

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Speaker 2: But they also had a flagpole and they had a

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Speaker 2: fan on the flag so that the flag was waving

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Speaker 2: in the artificial breeze.

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Speaker 1: Wait. Wait, like they had an HVAC system that circulated

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Speaker 1: air in such a way that the end of our

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Speaker 1: flag waved, or they had like a desk fan.

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Speaker 2: I could not see the fan.

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Speaker 1: Everything was it wasn't It wasn't like a guy with

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Speaker 1: a stick with a dusk van.

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Speaker 2: No, No, the fan was hidden. If it was circulating,

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Speaker 2: I didn't feel any of it. But yeah, it was

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Speaker 2: specifically for the flag so that it would flap.

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Speaker 1: That's awesome.

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Speaker 2: It was awesome, and it was fine. A few people,

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Speaker 2: including you, asked me who did you interview there? And

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Speaker 2: I said, no one. I was just there to be like,

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Speaker 2: I'm here the building. Yeah, I'm inside the building, but

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Speaker 2: the thing is Matt to prepare.

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Speaker 1: For Jamie Diamond's physical ribbon cutting, which happened. Of course.

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Speaker 2: I mean, I wasn't going to go there and not

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Speaker 2: see you. No, they wouldn't let me that Close's crazy,

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Speaker 2: but yeah, I know. He held a giant pair of scissors.

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Speaker 2: I believe New York Governor Kathy Hokeel was next to

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Speaker 2: him for that. And he cut the ribbon so it

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Speaker 2: was awesome.

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Speaker 1: Did they have backup ribbons?

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Speaker 2: They must have. They must have.

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Speaker 1: I mean he cut the angle and do it again.

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Speaker 2: Imagine if they spent five billion dollars on this building. Yeah, no, no,

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Speaker 2: they were gonna they were going to get this over

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Speaker 2: the finish line properly. But Matt, to prepare for these

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Speaker 2: hits that I had to do about the building, I

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Speaker 2: accumulated so much knowledge, so many facts about the building.

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Speaker 1: That you're going to tell us, tell me and the listener.

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Speaker 1: I'm going to step that I need.

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Speaker 2: I need to use it somewhere. It's not it's not

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Speaker 2: knowledge that I can build on.

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Speaker 1: You can use it during the hits or not as.

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Speaker 2: Much as you would think. You always you always over

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Speaker 2: prepare and then me and then they ask you, like

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Speaker 2: one question. I forgot what it's like to be a reporter,

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Speaker 2: and you have just these anchors who don't care about

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Speaker 2: what you're saying. No, are all my colleagues are lovely.

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Speaker 1: Okay, some facts, all.

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Speaker 2: Right, So to so Many Park Avenue is the new building,

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Speaker 2: that's what we're talking about. Six years of construction.

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Speaker 1: Yes, so that I noticed that. Yeah, it's on the

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Speaker 1: wactor ground Central.

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Speaker 2: It's not over because their temporary headquarters has been at

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Speaker 2: three eighty three Madison Avenue, which is directly across forty

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Speaker 2: seventh Street. And now now that the new headquarters is open,

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Speaker 2: now they're going to spend a billion dollars to renovate

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Speaker 2: three eighty three Madison. So they're going to close it

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Speaker 2: in twenty twenty six, redo the exterior, redo the interior,

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Speaker 2: and it'll open at the end of twenty twenty seven.

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Speaker 2: So we're just getting started when it comes to JP

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Speaker 2: Morgan doing construction in that specific area of New York City.

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Speaker 2: But let me go on, let me go on. It's

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Speaker 2: sixty stories tall, Okay, a normal number of Well that's

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Speaker 2: the thing. It's nearly fourteen hundred feet tall. So the ceiling,

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Speaker 2: oh yeah, no, the ceilings are super high. And the

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Speaker 2: lobby specifically it's the building itself is raised eighty feet

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Speaker 2: off the ground, so just as a super huge lobby.

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Speaker 2: And the reason why is because they wanted to like

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Speaker 2: have more outdoor space outside of the building, theoretically giving

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Speaker 2: space back to the city. But I don't know. I

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Speaker 2: don't think you're going to be eating your sandwich up

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Speaker 2: against the JP Morgan building necessarily, but it's a nice idea.

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Speaker 1: Yeah, I find the overhang slightly alarming, which it does

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Speaker 1: look like a somewhat precariously balanced building. I understand at

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Speaker 1: an intellectual level that they employed good architectes and the

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Speaker 1: building will not topple over in a slight preece. But

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Speaker 1: i'd like, you know, if you're on that overhanging, yeah,

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Speaker 1: there's a big building above me.

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Speaker 2: Well, those architects were there. Lord Norman Foster designed this building.

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Speaker 2: He's done a bunch of famous buildings over in Europe.

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Speaker 2: But he also did Apple Park in Kupertino, so that's

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Speaker 2: cool park. Yeah, yeah, yeah. Anyway, so I'm just getting started.

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Speaker 2: So six years of construction on this building, matt As,

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Speaker 2: we've established that, includeed demolishing the old building that was there.

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Speaker 2: So in terms of the features, I know that you're

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Speaker 2: dying about the amenities on the thirteenth floor of the building,

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Speaker 2: which I did get to see. They have a pub

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Speaker 2: called Morgan's it's reservation only, so you can't just make your.

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Speaker 1: Reservation three o'clock for the pub or he just immediately fired.

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Speaker 2: That's the thing I was thinking, like, would I be

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Speaker 2: bold enough, Like if Bloomberg had a pub that you

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Speaker 2: had to make reservations at, would I ever do that?

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Speaker 2: I don't know.

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Speaker 1: I would definitely go to the Bloomberg pub all the time.

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Speaker 2: But like, well, you have a certain amount of clout here,

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Speaker 2: so they'd be like, oh, he's thinking his thoughts.

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Speaker 1: I just feel like Jamie Diamond has really gone on

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Speaker 1: record being like everyone in the office all the time.

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Speaker 1: And I understand that the pub is in the office,

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Speaker 1: but still.

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Speaker 2: Yeah, well it's a great way to keep them in

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Speaker 2: the office all the time.

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Speaker 1: Now I think about it, like taking the clients to

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Speaker 1: the JP Morgan and has pub is kind of a

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Speaker 1: nice Oh yeah at all.

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Speaker 2: I would like to go. Invite me please, I'll go.

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Speaker 2: I have to expense it though, So anyway, apparently JP.

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Speaker 1: Morgan, you and I just like into the JP Morgan.

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Speaker 2: That'd be great. Let's do a podcast episode for there

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Speaker 2: from Jamie Diamond. If you're listening, you're our special guest.

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Speaker 1: I think that we could know the guest be like

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Speaker 1: the bartender at Morgan's. Oh true, twelve hours Yeah.

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Speaker 2: Right, yeah, that would be a lot of fun anyway,

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Speaker 2: JP Morgan imported the parts needed to pour a proper

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Speaker 2: pint of guinness at Morgans, so just no, it's quality.

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Speaker 2: There's also a fitness center at two seventy Avenue. I'm

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Speaker 2: reading off the notes that I printed out for TV.

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Speaker 2: I was prepared to say all of this on air.

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Speaker 2: So they have a fitness center and Bloomberg News reported

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Speaker 2: that this was an uphill battle. Apparently Jamie Diamond personally

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Speaker 2: dislikes in office gym's and didn't want it, but eventually

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Speaker 2: he was brought over. Which again, if you're trying to

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Speaker 2: get your employees to live at the office, you need

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Speaker 2: a pub, but you also need a jim.

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Speaker 1: Yeah, I'm not an in office gym guy.

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Speaker 2: But no, I think I would be. I think I

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Speaker 2: would love it. We don't have one.

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Speaker 1: Here, so like this is all like very you know,

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Speaker 1: nostalgic for me because I worked at Goldman when they

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Speaker 1: opened their new office on jenderbut Street, and it did

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Speaker 1: have an office gym. It's been so long as an

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Speaker 1: office gym where people would you know, like you run

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Speaker 1: into like your boss's boss's boss in like you know, a.

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Speaker 2: State of I would love Well, no, not that specifically

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Speaker 2: that specifically. No, I thought you were going to say,

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Speaker 2: like doing doing a chest press, and like, I feel

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Speaker 2: like I would be very good at having a conversation

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Speaker 2: in that scenario.

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Speaker 1: I think you would. Yeah, I think that's why you're

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Speaker 1: a TV anchor. I would be very bad at having

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Speaker 1: a conversation in that scenario. But like there's also the

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Speaker 1: more specific like locker room scenario. And so the other

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Speaker 1: thing that I remember about the Goldman office is that

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Speaker 1: it was very very nice. It's like, yeah, I knew

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Speaker 1: it's shiny, but everyone got a little bit less space

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Speaker 1: than they had in their own office. And I have

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Speaker 1: read that something similar is true at JP Morgan where

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Speaker 1: they have this new big office building, but because the

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Speaker 1: ceilings are so hot, there's less room for desks.

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Speaker 2: Well that's the thing. You have fewer floors, just sixty stories,

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Speaker 2: which is you know, the stories for.

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Speaker 1: All those bankers who did you see.

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Speaker 2: Did you see the things circulating on social media? It's

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Speaker 2: like a photo of one of their trading floors and

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Speaker 2: it's like just stocked with Dell computers, which have four

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Speaker 2: monitors a piece.

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Speaker 1: I think I did see it, and they're all, well.

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Speaker 2: It's exactly as I described.

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Speaker 1: There's there right, because it's they haven't moved into the

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Speaker 1: trading floor yet.

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Speaker 2: It's like, yeah, they've been moving people in gradually, is

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Speaker 2: what I understand. I think the floor is yeah yet Yeah.

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Speaker 2: Shall I tell you about some of their other buildings

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Speaker 2: in their campus. I need somewhere to record this, you know,

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Speaker 2: when I when I podcast, when I sort back through

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Speaker 2: the rubble of my life, I want to remember this. Okay,

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Speaker 2: So we already talked about three eighty three Medison Avenue.

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Speaker 2: Well get this, Matt. They bought two fifty Park Avenue

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Speaker 2: in twenty twenty four for more than three hundred million dollars.

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Speaker 2: Not sure what they're going to do with it right now.

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Speaker 2: The plans are still in flux. They collection kind of

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Speaker 2: They could keep it as is, They could knock it

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Speaker 2: down and build a new office tower, which they now

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Speaker 2: have some experiences, or they could turn it into a

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Speaker 2: hotel for visiting employees. That's not all four to ten

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Speaker 2: Madison Avenue. They're not sure, JP Morgan, according to Bloomberg Reporting,

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Speaker 2: not sure if they're going to keep or sell for

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Speaker 2: ten Madison. They bought that during the worst days of

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Speaker 2: the pandemic in twenty twenty. They've been using it basically

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Speaker 2: as a project office for the headquarters construction. But all told,

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Speaker 2: in these blocks that we're talking about, JP Morgan has

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Speaker 2: nearly six million square feet of office space, which is

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Speaker 2: almost as much as Goldman Sachs has in all of

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Speaker 2: North and South America. So the physical footprint of JP

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Speaker 2: Morgan is pretty stunning. Yeah, yeah, I.

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Speaker 1: Do appreciate that there's a JPA Morgan district in Mindow, Manhattan.

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Speaker 2: Yeah. I think Bloomberg News called it a neighborhood, which

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Speaker 2: I think is cute. Yeah, city within a city to

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Speaker 2: so many Park Avenue. I'm almost done. It's going to

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Speaker 2: house about ten thousand workers all told. In terms of

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Speaker 2: corporate employees, they have more than seventeen thousand. So this

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Speaker 2: is why they need all these buildings. Yeah yeah, all right,

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Speaker 2: big bank walk past it, you know, if you find

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Speaker 2: yourself in your grand center. I do see it from

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Speaker 2: I live in Hoboken now and I run a lot,

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Speaker 2: so you can see it from the waterfront and it

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Speaker 2: lights up in different colors and you know, it's a

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Speaker 2: nice addition to the skyline. Good on you.

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Speaker 1: Okay your architecture criticism, your own record is liking it.

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Speaker 2: I like the building, doesn't it not?

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Speaker 1: I really like it?

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Speaker 2: Yeah? Who doesn't like it? What are their criticisms? I

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Speaker 2: want to know, because I mean, I think it's cool

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Speaker 2: to get new skyscrapers. Sorry, and this one.

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Speaker 1: I see it from street level and it feels threatening

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Speaker 1: to it from the street level.

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Speaker 2: Yeah, it doesn't.

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Speaker 1: Strike me as having to make a sense of lightness

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Speaker 1: or no rightness. It's kind of like a massive, ominous building.

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Speaker 2: I will say that part of my brain that doesn't

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Speaker 2: really understand how airplanes stay in the sky gets nervous

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Speaker 2: about the way.

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Speaker 1: Yeah, it's going in every direction.

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Speaker 2: Yeah, Yeah, it's cool.

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Speaker 1: It is cool, But like, is it cool enough? Like

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Speaker 1: you want to go there every day?

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Speaker 2: I don't know.

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Speaker 1: Actually, I have no basis for architectural criticism. It's fine,

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Speaker 1: it's great. It's a big building. It's cool. It's got

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Speaker 1: a pub.

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Speaker 2: Yeah Morgan for theory, statue beautiful, a waving flag.

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Speaker 1: I mean, he's like got on record second he had

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Speaker 1: some funny CREDI was like, it's a monument to it's

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Speaker 1: something permanent. You know, what do we do? We push

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Speaker 1: paper all day?

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Speaker 2: Yeah, it's really good. You could ask the question, does

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Speaker 2: JP Morgan need all that space because AI is just

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Speaker 2: going to wipe out an entire generation of junior bankers.

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Speaker 1: Well that's why they don't have enough space for all

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Speaker 1: the bankers, right, they need to replace the junior bankers

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Speaker 1: with AI and a monument to yeah, the last to

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Speaker 1: the bankers. Yeah, but yeah, there's a great story this

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Speaker 1: week about open AI as a thing called Project Mercury. Yes,

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Speaker 1: Sydney step back. Like the AI companies, like the first

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Speaker 1: thing they did was sort of train their models on

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Speaker 1: all of the Internet to like understand at some superficial

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Speaker 1: level all of human knowledge.

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Speaker 2: And then you had a Reddit chatbot.

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Speaker 1: Yeah, and now they're like the next step is to

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Speaker 1: get specialist humans to train the models to be really

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Speaker 1: good at specialist things. And so they've had they have

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Speaker 1: a lot of them. They have like you know, astrophysicists

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Speaker 1: and you know, like lawyers and everyone like training out

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Speaker 1: the models. But the story this week was that they

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Speaker 1: also have an army of former investment bankers getting paid

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Speaker 1: on hundred and fifty dollars an hour to build LBO

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Speaker 1: models for open AI, so that chat GPT can build

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Speaker 1: a really good LBO model. And by really good LBO model,

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Speaker 1: I mean not only that it as it's formula is

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Speaker 1: linked correctly and gets it correct result, but also that

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Speaker 1: it has all of the percentages I talicized in the

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Speaker 1: right way. And generally will not make an investment banking

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Speaker 1: VP angry because you don't want when you like, fire

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Speaker 1: all the analysts and replace them with AI, what you

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Speaker 1: don't want is to be annoyed at the formatting of

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Speaker 1: the output. Because if you're an investment banking VP, you've

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Speaker 1: spent your life getting annoyed at the formatting done by

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Speaker 1: investment banking analysts, and like you want the AI to

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Speaker 1: be a strict improvement over that.

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Speaker 2: So I will say I enjoy all the police fix

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Speaker 2: memes as an outsider. I've never worked in banking. I'm

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Speaker 2: a pure play journalist.

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Speaker 1: We have been a banking analyst, yeah, but I've been

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Speaker 1: the recipient of please fix that's yeah.

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Speaker 2: Do people really care that much about formatting?

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Speaker 1: Well, it's like it's a signaling thing, right, It's like

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Speaker 1: your analysts come in and they're humans with hopes and dreams,

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Speaker 1: and you want them to immediately become automative. You can

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Speaker 1: tell to produce a pitch book, and they will produce

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Speaker 1: a perfect pitch book. And if they produce an imperfect pitchbook,

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Speaker 1: you want them to charge. It's reinforcement learning, but it's

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Speaker 1: you know, you want them to quickly be trained out

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Speaker 1: of that so that they produce perfect pitch books for

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Speaker 1: you so you don't have to worry about it anymore. Right,

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Speaker 1: You want the analyst to take the work off your plate,

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Speaker 1: and if they give you bad formatting, then you worry

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Speaker 1: about what else is in the pitch book that's wrong

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Speaker 1: because you can't you want to get to check the

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Speaker 1: numbers necessarily, right, I mean the depends like like you'd

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Speaker 1: like to be at a point where you can trust

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Speaker 1: the analyst and not have to check the numbers, and

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Speaker 1: formatting is a visible sign of something else might be wrong.

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Speaker 1: And it's also like, you know, the people who get

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Speaker 1: to these positions are perfectionists and they get troubled by

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Speaker 1: bad formatting.

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Speaker 2: Yeah, okay, fair enough. It sounds almost am I going

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Speaker 2: to get this wrong? That sounds like broken window theory.

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Speaker 1: It is like recommended theory.

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Speaker 2: Okay, that makes sense. I really want to interview actually

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Speaker 2: the one hundred x investment bankers working on this project

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Speaker 2: in the pub at JP Morgan.

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Speaker 1: Not one hundred, not all at I have a guess.

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Speaker 2: You don't want to interview all one hundred of them,

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Speaker 2: not at once, No, just the funniest ones.

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Speaker 1: I have a guess about what the vibe is. Like,

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Speaker 1: it's interesting to me like these people are clearly putting

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Speaker 1: their successors out of work. Maybe they're not, but like, yeah,

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Speaker 1: that's what it's the vision, right, And you might think

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Speaker 1: that if you went to people in some industry and said, hey,

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Speaker 1: would you like to get paid one hundred fifty dollars

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Speaker 1: an hour for like three months? One month? I don't

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Speaker 1: know how long this project is, but I don't I

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Speaker 1: don't think they envision a decade's kind of thing. Would

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Speaker 1: you like to get paid one hundred and fifty dollars

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Speaker 1: an hour for a month to put everyone in your

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Speaker 1: industry out of work? I think a lot of people

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Speaker 1: in a lot of industries would say no. Like I

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Speaker 1: think if you went to a lot of journalists, they'd

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Speaker 1: be like, no, I don't want to put journalists out

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Speaker 1: of work. I think if you went to a lot

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Speaker 1: of investmentanking analysts. You'd get a pretty good hit rate.

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Speaker 1: You know, you'd be like I hated it, or they'd

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Speaker 1: be like, yeah, I'm out of it now they can

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Speaker 1: move on. Yeah.

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Speaker 2: I do you feel like journalists have a certain affection

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Speaker 2: for the craft of journalism, whereas a burnt out banker

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Speaker 2: might not.

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Speaker 1: I think a lot of bankers do have an appreciation

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Speaker 1: for the craft of building LBO models, and I think

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Speaker 1: that the opportunity to have their LBO model enshrined perpetually

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Speaker 1: as the official CHATCHPT, like the best practice is that

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Speaker 1: chat GPT perpetuates forever. I think that would be kind

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Speaker 1: of cool.

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Speaker 2: Yeah, I could see that, you know, you know, it

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Speaker 2: sounds like, you know, you're raising your hand a little bit.

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Speaker 1: I take it back. I would put journalism out of

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Speaker 1: work now. I think it's like if open A came

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Speaker 1: to me and Zeid, we want whenever people ask a

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Speaker 1: question about a financial topic, we want chat GPT to

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Speaker 1: explain it the way you would. So I spend three

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Speaker 1: months training chat GPT to do that. I'd be a

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Speaker 1: little flattered.

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Speaker 2: You're speaking that into the universe. It could happen anything.

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Speaker 1: Could I feel like they're already trained onized Like that's

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Speaker 1: the thing. They're already just.

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Speaker 2: Like you do, have a public body.

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Speaker 1: Training themselves on my work, whereas the LBO models are

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Speaker 1: not the model of like the best analyst that JP

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Speaker 1: Morgan is not public, right, so they got to hire

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Speaker 1: that guy and type it in.

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Speaker 2: Let's get into some of the details of this article.

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Speaker 2: In terms of the application process, according to a person

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Speaker 2: familiar with the matter, it involves almost no human interaction.

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Speaker 2: The first step is a roughly twenty minute interview with

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Speaker 2: an AI chatbot who asks questions based on the resume,

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Speaker 2: and then the second phase test candidates on their knowledge

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Speaker 2: of financial statements. The final stage is a modeling test,

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Speaker 2: so it's fairly involved.

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Speaker 1: For like three months ago, they hired some major R

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Speaker 1: people to train chat GPT to hire the investment banks. Yeah,

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Speaker 1: get and everything so automated.

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Speaker 2: Apparently, the job expects contractors to submit one model per week.

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Speaker 2: Instructions include writing prompts in simple terms, then executing the models.

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Speaker 2: Receive feedback from a reviewer and are expected to fix

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Speaker 2: any issues before their work is ultimately plugged into opening

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Speaker 2: as systems.

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Speaker 1: Open feedback is a pencil, please fix a fix.

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Speaker 2: Please fix for a job that isn't going to last

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Speaker 2: that long. I mean, I wonder if you could do

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Speaker 2: this as just a side hustle.

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Speaker 1: I am sure that everyone doing it is doing it.

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Speaker 2: You don't think anyone is just I'm just going to

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Speaker 2: devote to some people.

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Speaker 1: I shouldn't say ever. I feel like some of them

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Speaker 1: are like current NBA students who are like, yeah, I'm

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Speaker 1: used to working one hundred hours a week and banking,

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Speaker 1: and now I'm doing two to fifteen minutes of homework

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Speaker 1: a week in my MBA program, and so I could

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Speaker 1: use some free cash, and it's interesting to do.

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Speaker 2: It's funny you bring that up because some current NBA

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Speaker 2: candidates at Harvard and MIT are participating for sure.

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Speaker 1: And then I think probably there are some people who

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Speaker 1: like were burned out and are like, I could do

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Speaker 1: it twenty hour a week job from.

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Speaker 2: Yeah, why not. One of the perks here, in addition

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Speaker 2: to the one hundred and fifty dollars per hour, is

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Speaker 2: that contractors get early act access to the AI that

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Speaker 2: is being created that aims to replace these entry level

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Speaker 2: tasks at investment banks. So that's pretty cool.

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Speaker 1: Too, right, Like I shouldn't be too cynical about this

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Speaker 1: because I think a lot of investment banking analysts do

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Speaker 1: think a lot about how can I automate this work

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Speaker 1: so that it's just, you know, it is button pushing,

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Speaker 1: and like, maybe in the long run that is bad

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Speaker 1: for employment at investment banks, but it's not clear that

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Speaker 1: it is. Right. Yeah, it's like very possible that if

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Speaker 1: you had the ability to push a button and produce

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Speaker 1: a perfect model, you would keep the same number of

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Speaker 1: analysts and they would run more hypothetical scenarios. And the

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Speaker 1: thing people always say is like, move up the value

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Speaker 1: chain and think more creatively and not have to just

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Speaker 1: spend all their time modeling. I'm not sure that's true,

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Speaker 1: but you know they certainly you know, throw more spaghetti

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Speaker 1: against the wall.

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Speaker 2: Yeah, maybe AI could compliment the human experience rather than destroying.

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Speaker 1: But I think it is hard for me to imagine

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Speaker 1: investment banking becoming purely automated. It feels like it's a

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Speaker 1: high dollar, high touch sales business, and so you always

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Speaker 1: need some people to shake the client's hands, and so

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Speaker 1: it is very possible that AI can be complementary to

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Speaker 1: that experience. Now that people do worry about, you know,

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Speaker 1: if the junior bankers don't ever build the models and

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Speaker 1: they just push a button. Do they learn less? And

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Speaker 1: they are they less intuitive about you know, financial analysis

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Speaker 1: when they become senior bankers. And I think that is

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Speaker 1: a hard problem.

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Speaker 2: Yeah, the idea that you're just hollowing out the bench.

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Speaker 2: One of the people who has voiced a concern similar

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Speaker 2: to that is actually the CEO of Bridgewater near Bardea.

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Speaker 2: He said in March, we are well positioned to replace

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Speaker 2: a lot of the basic tasks with machines, but what

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Speaker 2: does that then mean to talent development over the long

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Speaker 2: period of time? And then he continued, you do the

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Speaker 2: tough work, then that leads you to be able to

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Speaker 2: do the higher level, more conceptual things. So I think

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Speaker 2: that's like a nice summary of the concerned there.

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Speaker 1: Yeah, and I tend to believe that, Yeah.

438
00:21:56,240 --> 00:21:57,320
Speaker 2: You have to cut your teeth.

439
00:21:57,440 --> 00:22:00,560
Speaker 1: Yeah, there's a you know, just a period of learning

440
00:22:00,600 --> 00:22:04,520
Speaker 1: that gives you the sort of foundation to think creatively

441
00:22:04,600 --> 00:22:06,640
Speaker 1: later on. And if you just cut that out, it's hard.

442
00:22:06,880 --> 00:22:09,320
Speaker 1: By the way, that's not an investment anything, that's a

443
00:22:09,480 --> 00:22:11,320
Speaker 1: that's a life thing, right, like you see that in

444
00:22:11,359 --> 00:22:14,960
Speaker 1: school now, right, Yeah, you use AI to de Allier homework.

445
00:22:15,000 --> 00:22:16,680
Speaker 2: You never learned how the kids can't read.

446
00:22:16,840 --> 00:22:17,560
Speaker 1: Kids can't read?

447
00:22:17,720 --> 00:22:20,280
Speaker 2: Yeah, I mean, I just relate everything back to myself

448
00:22:20,840 --> 00:22:23,160
Speaker 2: as the center of my own universe. I remember being

449
00:22:23,160 --> 00:22:26,240
Speaker 2: a baby reporter and just doing these bullet point fixtures

450
00:22:26,240 --> 00:22:28,560
Speaker 2: on the Bloomberg terminal that like twelve people read. But

451
00:22:29,119 --> 00:22:31,560
Speaker 2: it taught me a lot and it really serviced those

452
00:22:31,600 --> 00:22:32,200
Speaker 2: twelve people.

453
00:22:32,880 --> 00:22:35,160
Speaker 1: Now AI does a lot of those blood Well.

454
00:22:35,680 --> 00:22:36,440
Speaker 2: That's true though.

455
00:22:51,119 --> 00:22:54,040
Speaker 1: Okay, if credit cockroaches for like five minutes.

456
00:22:53,800 --> 00:22:56,199
Speaker 2: Okay, you talk about it in the same way that

457
00:22:56,800 --> 00:23:00,000
Speaker 2: I told you everything I know about JP Morgan's new

458
00:23:00,040 --> 00:23:03,240
Speaker 2: building a two seventy Park Avenue, Tell me everything you

459
00:23:03,280 --> 00:23:06,120
Speaker 2: know about cockroaches. At this moment, part.

460
00:23:05,960 --> 00:23:09,359
Speaker 1: Of me hates that we just decided that they're called cockroaches.

461
00:23:09,920 --> 00:23:11,480
Speaker 1: Part of me is like I keep leaning into it

462
00:23:11,520 --> 00:23:12,520
Speaker 1: in the columns or whatever.

463
00:23:12,640 --> 00:23:16,440
Speaker 2: That's the thing. It's already it's interesting, it's a useful shorthand.

464
00:23:16,440 --> 00:23:18,840
Speaker 1: But right there's been a number of, you know, credit

465
00:23:18,880 --> 00:23:21,280
Speaker 1: blow ups, and they all kind of have the same flavor,

466
00:23:21,320 --> 00:23:25,960
Speaker 1: which is that someone is or maybe it was, or

467
00:23:26,040 --> 00:23:28,760
Speaker 1: looks like they might have been double pledging collateral, or

468
00:23:28,760 --> 00:23:32,560
Speaker 1: it happens its collateral they didn't have come on, you know,

469
00:23:32,640 --> 00:23:35,920
Speaker 1: all these things, and I think we talked about Tracolor

470
00:23:36,000 --> 00:23:37,000
Speaker 1: and first Browns.

471
00:23:37,040 --> 00:23:39,560
Speaker 2: I'm not even sure we've definitely named dropped them.

472
00:23:39,960 --> 00:23:43,320
Speaker 1: And then I think last week the Zions and Western

473
00:23:43,359 --> 00:23:46,000
Speaker 1: Alliance news had just come out and you mentioned it

474
00:23:46,040 --> 00:23:46,680
Speaker 1: on this podcast.

475
00:23:46,840 --> 00:23:48,120
Speaker 2: Thank god I did well.

476
00:23:48,160 --> 00:23:50,160
Speaker 1: Then I had it cut out because we didn't really

477
00:23:50,200 --> 00:23:51,880
Speaker 1: talk about it.

478
00:23:52,480 --> 00:23:56,360
Speaker 2: Something that's happening today on Thursday is what's going down

479
00:23:56,400 --> 00:23:59,280
Speaker 2: with Western Alliance and Zions. These are two regional banks

480
00:23:59,840 --> 00:24:04,000
Speaker 2: and apparently they disclosed problems with loans involving allegations of

481
00:24:04,119 --> 00:24:08,560
Speaker 2: fraud and currently, at like two twenty three pm last

482
00:24:08,560 --> 00:24:10,560
Speaker 2: sight check, the stock market was kind of freaking out

483
00:24:10,560 --> 00:24:10,919
Speaker 2: about that.

484
00:24:11,080 --> 00:24:11,640
Speaker 1: Who's wrong?

485
00:24:11,840 --> 00:24:15,720
Speaker 2: Let me tell you? Okay, So Zions apparently it disclosed

486
00:24:15,760 --> 00:24:18,320
Speaker 2: a fifty million dollar charge off for a loan underwritten

487
00:24:18,359 --> 00:24:22,639
Speaker 2: by its wholly owned subsidiary, California Bank in Trust Western.

488
00:24:22,960 --> 00:24:26,080
Speaker 2: Their problem is is that it said that it's dealing

489
00:24:26,080 --> 00:24:29,600
Speaker 2: with a borrower that failed quote to provide collateral loans

490
00:24:29,600 --> 00:24:30,360
Speaker 2: in first position.

491
00:24:31,280 --> 00:24:34,600
Speaker 1: Yeah, you know, topy market toppy mark, don't know, let's

492
00:24:34,680 --> 00:24:35,440
Speaker 1: check your collateral.

493
00:24:35,640 --> 00:24:37,000
Speaker 2: Yeah, why would you?

494
00:24:37,920 --> 00:24:42,439
Speaker 1: Yeah, they compete to make the loans. So like Zions

495
00:24:42,440 --> 00:24:44,840
Speaker 1: and Western Alliance both announced that they sort of were

496
00:24:44,880 --> 00:24:48,240
Speaker 1: exposed to what they characterized as fraud, although the people

497
00:24:48,240 --> 00:24:50,359
Speaker 1: who allegedly defront of them said they didn't defrove them.

498
00:24:50,480 --> 00:24:53,960
Speaker 1: But basically they like made some loans to this like

499
00:24:54,280 --> 00:24:57,200
Speaker 1: real estate lending firm, and the real estate lending firm

500
00:24:57,480 --> 00:25:01,760
Speaker 1: they say did not actually own the mortgages that they

501
00:25:01,760 --> 00:25:04,840
Speaker 1: were boring against or like they did and then they

502
00:25:04,880 --> 00:25:07,199
Speaker 1: sold them or they did and the properties were for

503
00:25:07,280 --> 00:25:10,879
Speaker 1: clothes on or they made the loans with they were

504
00:25:10,960 --> 00:25:13,560
Speaker 1: second leans. Like there's all this like stuff where there's

505
00:25:13,760 --> 00:25:16,640
Speaker 1: like sort of sloppiness around collateral. And then the other

506
00:25:16,720 --> 00:25:18,600
Speaker 1: story that came out I think last week was on

507
00:25:19,080 --> 00:25:22,760
Speaker 1: seven seven seven Partners, which is a fascinating company that

508
00:25:22,800 --> 00:25:27,199
Speaker 1: both buys your lottery payments few in the lottery and

509
00:25:27,240 --> 00:25:29,560
Speaker 1: you get twenty years of payments like they'll buy them

510
00:25:29,560 --> 00:25:32,000
Speaker 1: from you and so you get cash upfront. And they

511
00:25:32,040 --> 00:25:34,000
Speaker 1: also buy sports teams like they own a lot of

512
00:25:34,200 --> 00:25:37,680
Speaker 1: like European soccer teams. They own the London Lions, the

513
00:25:37,720 --> 00:25:40,040
Speaker 1: basketball team, and they tried to buy Everton, the big

514
00:25:40,080 --> 00:25:44,640
Speaker 1: Premier League team, and there are some allegations that they

515
00:25:44,680 --> 00:25:48,160
Speaker 1: were at least sloppy with the collateral that they were

516
00:25:48,400 --> 00:25:51,960
Speaker 1: selling on to investors, where they basically were borring against

517
00:25:52,040 --> 00:25:54,840
Speaker 1: these future cash flows of lotteries or structured settlements, and

518
00:25:54,880 --> 00:25:58,239
Speaker 1: they would maybe double pledge them and maybe didn't have

519
00:25:58,320 --> 00:26:00,800
Speaker 1: all the assets that they claimed to have. Think the

520
00:26:00,840 --> 00:26:04,720
Speaker 1: founder was charged criminally last week in part because one

521
00:26:04,720 --> 00:26:08,400
Speaker 1: of the lenders got i think an anonymous whistleblower tip

522
00:26:08,480 --> 00:26:10,960
Speaker 1: saying that they were double pledging assets, and the lender

523
00:26:11,000 --> 00:26:12,960
Speaker 1: called them to be like, what's all this then, and

524
00:26:13,000 --> 00:26:16,840
Speaker 1: the founder, on a recorded line, was like, yeah, we

525
00:26:16,880 --> 00:26:19,320
Speaker 1: did do that, but like it's because our computer systems

526
00:26:19,320 --> 00:26:20,600
Speaker 1: are stoppy and we'll fix it.

527
00:26:20,840 --> 00:26:21,840
Speaker 2: Oh my gosh.

528
00:26:21,920 --> 00:26:23,399
Speaker 1: After I read about this, I got a number of

529
00:26:23,440 --> 00:26:26,679
Speaker 1: emails from readers with anecdotes about their own dealings with

530
00:26:26,720 --> 00:26:29,240
Speaker 1: seven seven seven partners that I think are largely supportive

531
00:26:29,320 --> 00:26:31,720
Speaker 1: of the theory that they might have actually screwed up

532
00:26:31,760 --> 00:26:34,400
Speaker 1: their computer systems. Like there's a lot of like, yeah,

533
00:26:34,400 --> 00:26:37,480
Speaker 1: they were kind of unprofessional, so you never know, but uh,

534
00:26:38,840 --> 00:26:41,520
Speaker 1: it doesn't look good to me. We may have barred

535
00:26:41,520 --> 00:26:42,600
Speaker 1: against our collateral from.

536
00:26:42,480 --> 00:26:45,160
Speaker 2: Two different lenders, So are you holding this up as

537
00:26:45,200 --> 00:26:48,040
Speaker 2: an example of a cockroach potentially.

538
00:26:48,119 --> 00:26:49,720
Speaker 1: This is a reference to Jamie diamond saying when you

539
00:26:49,760 --> 00:26:52,680
Speaker 1: see one cockroach, there will be more. And it's definitely

540
00:26:52,760 --> 00:26:54,120
Speaker 1: since he has said that, there have been a lot

541
00:26:54,119 --> 00:26:57,480
Speaker 1: of like these credit problems that all you know, have

542
00:26:57,600 --> 00:26:58,440
Speaker 1: similar features.

543
00:26:58,560 --> 00:27:02,919
Speaker 2: It's like if you see a missile margin, yeah, in

544
00:27:03,000 --> 00:27:06,080
Speaker 2: a deck, there might be other issues, right, It's.

545
00:27:06,000 --> 00:27:09,679
Speaker 1: Like an indicator of sloppiness. And all of these are

546
00:27:09,720 --> 00:27:12,000
Speaker 1: kind of small. I mean, you know in the scheme

547
00:27:12,040 --> 00:27:15,280
Speaker 1: of like the banking system, right, but like you see

548
00:27:15,280 --> 00:27:15,919
Speaker 1: one cockroache, you.

549
00:27:15,920 --> 00:27:19,080
Speaker 2: See more they can pound potentially potentially.

550
00:27:19,480 --> 00:27:21,159
Speaker 1: The other thing that I think is interesting, and they

551
00:27:21,200 --> 00:27:23,680
Speaker 1: wrote this week, is that another thing that a lot

552
00:27:23,680 --> 00:27:26,560
Speaker 1: of these cases have in common is that the problem

553
00:27:26,800 --> 00:27:30,560
Speaker 1: company is essentially a lender. It's like a financing company,

554
00:27:30,600 --> 00:27:33,840
Speaker 1: it's a trade finance company, or a structed settlement company,

555
00:27:33,960 --> 00:27:36,160
Speaker 1: or a real estate lending firm or something. It's a lender, right,

556
00:27:36,760 --> 00:27:40,560
Speaker 1: And then the people who complain about it, the people

557
00:27:40,560 --> 00:27:44,199
Speaker 1: who take losses are lenders to that lender, right. So

558
00:27:44,240 --> 00:27:47,200
Speaker 1: it's like second order or sometimes third or fourth degree lending,

559
00:27:47,200 --> 00:27:48,800
Speaker 1: where like a bank lends to someone who lends the

560
00:27:48,840 --> 00:27:51,639
Speaker 1: someone who lends to someone and somewhere in that chain

561
00:27:51,880 --> 00:27:56,080
Speaker 1: problems happen. And I think we've talked about on this podcast,

562
00:27:56,080 --> 00:27:58,600
Speaker 1: and I certainly write a lot about like there's been

563
00:27:58,640 --> 00:28:02,040
Speaker 1: this move to banks reach launching where instead of like

564
00:28:02,400 --> 00:28:04,960
Speaker 1: banks making loans, private credit firms make loans, and then

565
00:28:05,040 --> 00:28:07,200
Speaker 1: banks make loans to the private credit firms to make

566
00:28:07,200 --> 00:28:11,240
Speaker 1: the loans. And the upside of that is that the

567
00:28:11,280 --> 00:28:13,720
Speaker 1: banks have more seniority, right, they're cushioned by like the

568
00:28:13,760 --> 00:28:16,080
Speaker 1: private credit firm takes the first loss or the you know,

569
00:28:16,240 --> 00:28:18,720
Speaker 1: the factoring firm, whoever takes the first loss. But the

570
00:28:18,760 --> 00:28:22,359
Speaker 1: downside is like they don't get to see perrectly into

571
00:28:22,400 --> 00:28:25,560
Speaker 1: the loan, Like there are several steps removed from the

572
00:28:25,600 --> 00:28:28,680
Speaker 1: actual car loan or the actual structured settlement or whatever,

573
00:28:28,680 --> 00:28:30,919
Speaker 1: and there's just more opportunity to get this sort of

574
00:28:30,960 --> 00:28:33,679
Speaker 1: cockroage situation where like you were lending against collateral, it

575
00:28:33,680 --> 00:28:35,600
Speaker 1: doesn't exist. Yeah, it's like can you make a mortgage

576
00:28:35,680 --> 00:28:37,760
Speaker 1: lane directly? You're like you see the house, you know, Yeah,

577
00:28:37,840 --> 00:28:40,320
Speaker 1: so this is all sort of indirect And I do

578
00:28:40,360 --> 00:28:42,960
Speaker 1: think it's like, you know, it is both like these

579
00:28:43,000 --> 00:28:49,080
Speaker 1: stories seem symptomatic of like late cycle exuberants, specifically like

580
00:28:49,280 --> 00:28:53,240
Speaker 1: indirect lending, where because it is indirect, it is a

581
00:28:53,280 --> 00:28:56,560
Speaker 1: little bit easier to get hoodwinked out of collateral.

582
00:28:57,880 --> 00:29:00,400
Speaker 2: So let's not cut this out of the podcast in

583
00:29:00,400 --> 00:29:02,880
Speaker 2: case we need to reference back to it a couple

584
00:29:02,920 --> 00:29:03,160
Speaker 2: of weeks.

585
00:29:03,440 --> 00:29:07,800
Speaker 1: Yeah, yeah, sorry, I cut out your crush reference to

586
00:29:08,280 --> 00:29:14,800
Speaker 1: week and that was the Money Stuff Podcast.

587
00:29:15,120 --> 00:29:17,240
Speaker 2: I'm Matt Levine and I'm Katie Greifeld.

588
00:29:17,440 --> 00:29:19,600
Speaker 1: You can find my work by subscribing to the Money

589
00:29:19,600 --> 00:29:21,560
Speaker 1: Stuff newsletter on Bloomberg.

590
00:29:21,160 --> 00:29:23,760
Speaker 2: Dot com, and you can find me on Bloomberg TV

591
00:29:23,960 --> 00:29:27,400
Speaker 2: every day on the Clothes between three and five pm Eastern.

592
00:29:28,120 --> 00:29:30,120
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593
00:29:30,120 --> 00:29:33,440
Speaker 1: email to Moneypod at Bloomberg dot net, ask us a

594
00:29:33,560 --> 00:29:35,400
Speaker 1: question and we might answer it on the air.

595
00:29:35,720 --> 00:29:38,360
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596
00:29:38,400 --> 00:29:40,239
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597
00:29:40,280 --> 00:29:41,120
Speaker 2: people find the show.

598
00:29:41,560 --> 00:29:44,640
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599
00:29:44,680 --> 00:29:46,040
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600
00:29:46,120 --> 00:29:48,240
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601
00:29:48,640 --> 00:29:51,360
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602
00:29:51,320 --> 00:29:53,800
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603
00:29:54,160 --> 00:29:56,640
Speaker 1: Thanks for listening, to the Money Stuff Podcast. We'll be

604
00:29:56,680 --> 00:29:58,360
Speaker 1: back next week with more stuff.

605
00:30:00,920 --> 00:30:05,200
Speaker 2: Bob