Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to
Speaker 1: The Money Stuff Podcast, your weekly podcast where we talk
Speaker 1: about stuff related to money. I'm Matt Levian and I
Speaker 1: read the Moneys dot Com for Bloomberg Opinion.
Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and
Speaker 2: an anchor for Bloomberg Television.
Speaker 1: You were reporting live from the field this week.
Speaker 2: I was. I am a studio anchor. I like being
Speaker 2: in the studio. Boy, boy do I love sitting behind
Speaker 2: a desk and screaming at a camera. But I had
Speaker 2: to go into the field this week because JP Morgan
Speaker 2: was having their ribbon cutting ceremony for their big, beautiful
Speaker 2: building at two seventy Park Avenue. Beautiful, one big beautiful building.
Speaker 2: They actually own a bunch of buildings, Yes they do.
Speaker 1: It's not fun to have a campus, and it is
Speaker 1: really cool. I joked. I joked this week that the
Speaker 1: JP Morgan building at a forest ory gold statue of
Speaker 1: Jamie Diamond in the lobby, which you can now report.
Speaker 2: They can tell you it's not true. They do. I
Speaker 2: don't know if they had the three story I don't
Speaker 2: know if they have this all the time. But when
Speaker 2: I was there for the ribbon cutting ceremony.
Speaker 1: They had uh had a live Jamie Diamond.
Speaker 2: There was a live Jamie Diamond or really convincing AI robot.
Speaker 2: But they also had a flagpole and they had a
Speaker 2: fan on the flag so that the flag was waving
Speaker 2: in the artificial breeze.
Speaker 1: Wait. Wait, like they had an HVAC system that circulated
Speaker 1: air in such a way that the end of our
Speaker 1: flag waved, or they had like a desk fan.
Speaker 2: I could not see the fan.
Speaker 1: Everything was it wasn't It wasn't like a guy with
Speaker 1: a stick with a dusk van.
Speaker 2: No, No, the fan was hidden. If it was circulating,
Speaker 2: I didn't feel any of it. But yeah, it was
Speaker 2: specifically for the flag so that it would flap.
Speaker 1: That's awesome.
Speaker 2: It was awesome, and it was fine. A few people,
Speaker 2: including you, asked me who did you interview there? And
Speaker 2: I said, no one. I was just there to be like,
Speaker 2: I'm here the building. Yeah, I'm inside the building, but
Speaker 2: the thing is Matt to prepare.
Speaker 1: For Jamie Diamond's physical ribbon cutting, which happened. Of course.
Speaker 2: I mean, I wasn't going to go there and not
Speaker 2: see you. No, they wouldn't let me that Close's crazy,
Speaker 2: but yeah, I know. He held a giant pair of scissors.
Speaker 2: I believe New York Governor Kathy Hokeel was next to
Speaker 2: him for that. And he cut the ribbon so it
Speaker 2: was awesome.
Speaker 1: Did they have backup ribbons?
Speaker 2: They must have. They must have.
Speaker 1: I mean he cut the angle and do it again.
Speaker 2: Imagine if they spent five billion dollars on this building. Yeah, no, no,
Speaker 2: they were gonna they were going to get this over
Speaker 2: the finish line properly. But Matt, to prepare for these
Speaker 2: hits that I had to do about the building, I
Speaker 2: accumulated so much knowledge, so many facts about the building.
Speaker 1: That you're going to tell us, tell me and the listener.
Speaker 1: I'm going to step that I need.
Speaker 2: I need to use it somewhere. It's not it's not
Speaker 2: knowledge that I can build on.
Speaker 1: You can use it during the hits or not as.
Speaker 2: Much as you would think. You always you always over
Speaker 2: prepare and then me and then they ask you, like
Speaker 2: one question. I forgot what it's like to be a reporter,
Speaker 2: and you have just these anchors who don't care about
Speaker 2: what you're saying. No, are all my colleagues are lovely.
Speaker 1: Okay, some facts, all.
Speaker 2: Right, So to so Many Park Avenue is the new building,
Speaker 2: that's what we're talking about. Six years of construction.
Speaker 1: Yes, so that I noticed that. Yeah, it's on the
Speaker 1: wactor ground Central.
Speaker 2: It's not over because their temporary headquarters has been at
Speaker 2: three eighty three Madison Avenue, which is directly across forty
Speaker 2: seventh Street. And now now that the new headquarters is open,
Speaker 2: now they're going to spend a billion dollars to renovate
Speaker 2: three eighty three Madison. So they're going to close it
Speaker 2: in twenty twenty six, redo the exterior, redo the interior,
Speaker 2: and it'll open at the end of twenty twenty seven.
Speaker 2: So we're just getting started when it comes to JP
Speaker 2: Morgan doing construction in that specific area of New York City.
Speaker 2: But let me go on, let me go on. It's
Speaker 2: sixty stories tall, Okay, a normal number of Well that's
Speaker 2: the thing. It's nearly fourteen hundred feet tall. So the ceiling,
Speaker 2: oh yeah, no, the ceilings are super high. And the
Speaker 2: lobby specifically it's the building itself is raised eighty feet
Speaker 2: off the ground, so just as a super huge lobby.
Speaker 2: And the reason why is because they wanted to like
Speaker 2: have more outdoor space outside of the building, theoretically giving
Speaker 2: space back to the city. But I don't know. I
Speaker 2: don't think you're going to be eating your sandwich up
Speaker 2: against the JP Morgan building necessarily, but it's a nice idea.
Speaker 1: Yeah, I find the overhang slightly alarming, which it does
Speaker 1: look like a somewhat precariously balanced building. I understand at
Speaker 1: an intellectual level that they employed good architectes and the
Speaker 1: building will not topple over in a slight preece. But
Speaker 1: i'd like, you know, if you're on that overhanging, yeah,
Speaker 1: there's a big building above me.
Speaker 2: Well, those architects were there. Lord Norman Foster designed this building.
Speaker 2: He's done a bunch of famous buildings over in Europe.
Speaker 2: But he also did Apple Park in Kupertino, so that's
Speaker 2: cool park. Yeah, yeah, yeah. Anyway, so I'm just getting started.
Speaker 2: So six years of construction on this building, matt As,
Speaker 2: we've established that, includeed demolishing the old building that was there.
Speaker 2: So in terms of the features, I know that you're
Speaker 2: dying about the amenities on the thirteenth floor of the building,
Speaker 2: which I did get to see. They have a pub
Speaker 2: called Morgan's it's reservation only, so you can't just make your.
Speaker 1: Reservation three o'clock for the pub or he just immediately fired.
Speaker 2: That's the thing I was thinking, like, would I be
Speaker 2: bold enough, Like if Bloomberg had a pub that you
Speaker 2: had to make reservations at, would I ever do that?
Speaker 2: I don't know.
Speaker 1: I would definitely go to the Bloomberg pub all the time.
Speaker 2: But like, well, you have a certain amount of clout here,
Speaker 2: so they'd be like, oh, he's thinking his thoughts.
Speaker 1: I just feel like Jamie Diamond has really gone on
Speaker 1: record being like everyone in the office all the time.
Speaker 1: And I understand that the pub is in the office,
Speaker 1: but still.
Speaker 2: Yeah, well it's a great way to keep them in
Speaker 2: the office all the time.
Speaker 1: Now I think about it, like taking the clients to
Speaker 1: the JP Morgan and has pub is kind of a
Speaker 1: nice Oh yeah at all.
Speaker 2: I would like to go. Invite me please, I'll go.
Speaker 2: I have to expense it though, So anyway, apparently JP.
Speaker 1: Morgan, you and I just like into the JP Morgan.
Speaker 2: That'd be great. Let's do a podcast episode for there
Speaker 2: from Jamie Diamond. If you're listening, you're our special guest.
Speaker 1: I think that we could know the guest be like
Speaker 1: the bartender at Morgan's. Oh true, twelve hours Yeah.
Speaker 2: Right, yeah, that would be a lot of fun anyway,
Speaker 2: JP Morgan imported the parts needed to pour a proper
Speaker 2: pint of guinness at Morgans, so just no, it's quality.
Speaker 2: There's also a fitness center at two seventy Avenue. I'm
Speaker 2: reading off the notes that I printed out for TV.
Speaker 2: I was prepared to say all of this on air.
Speaker 2: So they have a fitness center and Bloomberg News reported
Speaker 2: that this was an uphill battle. Apparently Jamie Diamond personally
Speaker 2: dislikes in office gym's and didn't want it, but eventually
Speaker 2: he was brought over. Which again, if you're trying to
Speaker 2: get your employees to live at the office, you need
Speaker 2: a pub, but you also need a jim.
Speaker 1: Yeah, I'm not an in office gym guy.
Speaker 2: But no, I think I would be. I think I
Speaker 2: would love it. We don't have one.
Speaker 1: Here, so like this is all like very you know,
Speaker 1: nostalgic for me because I worked at Goldman when they
Speaker 1: opened their new office on jenderbut Street, and it did
Speaker 1: have an office gym. It's been so long as an
Speaker 1: office gym where people would you know, like you run
Speaker 1: into like your boss's boss's boss in like you know, a.
Speaker 2: State of I would love Well, no, not that specifically
Speaker 2: that specifically. No, I thought you were going to say,
Speaker 2: like doing doing a chest press, and like, I feel
Speaker 2: like I would be very good at having a conversation
Speaker 2: in that scenario.
Speaker 1: I think you would. Yeah, I think that's why you're
Speaker 1: a TV anchor. I would be very bad at having
Speaker 1: a conversation in that scenario. But like there's also the
Speaker 1: more specific like locker room scenario. And so the other
Speaker 1: thing that I remember about the Goldman office is that
Speaker 1: it was very very nice. It's like, yeah, I knew
Speaker 1: it's shiny, but everyone got a little bit less space
Speaker 1: than they had in their own office. And I have
Speaker 1: read that something similar is true at JP Morgan where
Speaker 1: they have this new big office building, but because the
Speaker 1: ceilings are so hot, there's less room for desks.
Speaker 2: Well that's the thing. You have fewer floors, just sixty stories,
Speaker 2: which is you know, the stories for.
Speaker 1: All those bankers who did you see.
Speaker 2: Did you see the things circulating on social media? It's
Speaker 2: like a photo of one of their trading floors and
Speaker 2: it's like just stocked with Dell computers, which have four
Speaker 2: monitors a piece.
Speaker 1: I think I did see it, and they're all, well.
Speaker 2: It's exactly as I described.
Speaker 1: There's there right, because it's they haven't moved into the
Speaker 1: trading floor yet.
Speaker 2: It's like, yeah, they've been moving people in gradually, is
Speaker 2: what I understand. I think the floor is yeah yet Yeah.
Speaker 2: Shall I tell you about some of their other buildings
Speaker 2: in their campus. I need somewhere to record this, you know,
Speaker 2: when I when I podcast, when I sort back through
Speaker 2: the rubble of my life, I want to remember this. Okay,
Speaker 2: So we already talked about three eighty three Medison Avenue.
Speaker 2: Well get this, Matt. They bought two fifty Park Avenue
Speaker 2: in twenty twenty four for more than three hundred million dollars.
Speaker 2: Not sure what they're going to do with it right now.
Speaker 2: The plans are still in flux. They collection kind of
Speaker 2: They could keep it as is, They could knock it
Speaker 2: down and build a new office tower, which they now
Speaker 2: have some experiences, or they could turn it into a
Speaker 2: hotel for visiting employees. That's not all four to ten
Speaker 2: Madison Avenue. They're not sure, JP Morgan, according to Bloomberg Reporting,
Speaker 2: not sure if they're going to keep or sell for
Speaker 2: ten Madison. They bought that during the worst days of
Speaker 2: the pandemic in twenty twenty. They've been using it basically
Speaker 2: as a project office for the headquarters construction. But all told,
Speaker 2: in these blocks that we're talking about, JP Morgan has
Speaker 2: nearly six million square feet of office space, which is
Speaker 2: almost as much as Goldman Sachs has in all of
Speaker 2: North and South America. So the physical footprint of JP
Speaker 2: Morgan is pretty stunning. Yeah, yeah, I.
Speaker 1: Do appreciate that there's a JPA Morgan district in Mindow, Manhattan.
Speaker 2: Yeah. I think Bloomberg News called it a neighborhood, which
Speaker 2: I think is cute. Yeah, city within a city to
Speaker 2: so many Park Avenue. I'm almost done. It's going to
Speaker 2: house about ten thousand workers all told. In terms of
Speaker 2: corporate employees, they have more than seventeen thousand. So this
Speaker 2: is why they need all these buildings. Yeah yeah, all right,
Speaker 2: big bank walk past it, you know, if you find
Speaker 2: yourself in your grand center. I do see it from
Speaker 2: I live in Hoboken now and I run a lot,
Speaker 2: so you can see it from the waterfront and it
Speaker 2: lights up in different colors and you know, it's a
Speaker 2: nice addition to the skyline. Good on you.
Speaker 1: Okay your architecture criticism, your own record is liking it.
Speaker 2: I like the building, doesn't it not?
Speaker 1: I really like it?
Speaker 2: Yeah? Who doesn't like it? What are their criticisms? I
Speaker 2: want to know, because I mean, I think it's cool
Speaker 2: to get new skyscrapers. Sorry, and this one.
Speaker 1: I see it from street level and it feels threatening
Speaker 1: to it from the street level.
Speaker 2: Yeah, it doesn't.
Speaker 1: Strike me as having to make a sense of lightness
Speaker 1: or no rightness. It's kind of like a massive, ominous building.
Speaker 2: I will say that part of my brain that doesn't
Speaker 2: really understand how airplanes stay in the sky gets nervous
Speaker 2: about the way.
Speaker 1: Yeah, it's going in every direction.
Speaker 2: Yeah, Yeah, it's cool.
Speaker 1: It is cool, But like, is it cool enough? Like
Speaker 1: you want to go there every day?
Speaker 2: I don't know.
Speaker 1: Actually, I have no basis for architectural criticism. It's fine,
Speaker 1: it's great. It's a big building. It's cool. It's got
Speaker 1: a pub.
Speaker 2: Yeah Morgan for theory, statue beautiful, a waving flag.
Speaker 1: I mean, he's like got on record second he had
Speaker 1: some funny CREDI was like, it's a monument to it's
Speaker 1: something permanent. You know, what do we do? We push
Speaker 1: paper all day?
Speaker 2: Yeah, it's really good. You could ask the question, does
Speaker 2: JP Morgan need all that space because AI is just
Speaker 2: going to wipe out an entire generation of junior bankers.
Speaker 1: Well that's why they don't have enough space for all
Speaker 1: the bankers, right, they need to replace the junior bankers
Speaker 1: with AI and a monument to yeah, the last to
Speaker 1: the bankers. Yeah, but yeah, there's a great story this
Speaker 1: week about open AI as a thing called Project Mercury. Yes,
Speaker 1: Sydney step back. Like the AI companies, like the first
Speaker 1: thing they did was sort of train their models on
Speaker 1: all of the Internet to like understand at some superficial
Speaker 1: level all of human knowledge.
Speaker 2: And then you had a Reddit chatbot.
Speaker 1: Yeah, and now they're like the next step is to
Speaker 1: get specialist humans to train the models to be really
Speaker 1: good at specialist things. And so they've had they have
Speaker 1: a lot of them. They have like you know, astrophysicists
Speaker 1: and you know, like lawyers and everyone like training out
Speaker 1: the models. But the story this week was that they
Speaker 1: also have an army of former investment bankers getting paid
Speaker 1: on hundred and fifty dollars an hour to build LBO
Speaker 1: models for open AI, so that chat GPT can build
Speaker 1: a really good LBO model. And by really good LBO model,
Speaker 1: I mean not only that it as it's formula is
Speaker 1: linked correctly and gets it correct result, but also that
Speaker 1: it has all of the percentages I talicized in the
Speaker 1: right way. And generally will not make an investment banking
Speaker 1: VP angry because you don't want when you like, fire
Speaker 1: all the analysts and replace them with AI, what you
Speaker 1: don't want is to be annoyed at the formatting of
Speaker 1: the output. Because if you're an investment banking VP, you've
Speaker 1: spent your life getting annoyed at the formatting done by
Speaker 1: investment banking analysts, and like you want the AI to
Speaker 1: be a strict improvement over that.
Speaker 2: So I will say I enjoy all the police fix
Speaker 2: memes as an outsider. I've never worked in banking. I'm
Speaker 2: a pure play journalist.
Speaker 1: We have been a banking analyst, yeah, but I've been
Speaker 1: the recipient of please fix that's yeah.
Speaker 2: Do people really care that much about formatting?
Speaker 1: Well, it's like it's a signaling thing, right, It's like
Speaker 1: your analysts come in and they're humans with hopes and dreams,
Speaker 1: and you want them to immediately become automative. You can
Speaker 1: tell to produce a pitch book, and they will produce
Speaker 1: a perfect pitch book. And if they produce an imperfect pitchbook,
Speaker 1: you want them to charge. It's reinforcement learning, but it's
Speaker 1: you know, you want them to quickly be trained out
Speaker 1: of that so that they produce perfect pitch books for
Speaker 1: you so you don't have to worry about it anymore. Right,
Speaker 1: You want the analyst to take the work off your plate,
Speaker 1: and if they give you bad formatting, then you worry
Speaker 1: about what else is in the pitch book that's wrong
Speaker 1: because you can't you want to get to check the
Speaker 1: numbers necessarily, right, I mean the depends like like you'd
Speaker 1: like to be at a point where you can trust
Speaker 1: the analyst and not have to check the numbers, and
Speaker 1: formatting is a visible sign of something else might be wrong.
Speaker 1: And it's also like, you know, the people who get
Speaker 1: to these positions are perfectionists and they get troubled by
Speaker 1: bad formatting.
Speaker 2: Yeah, okay, fair enough. It sounds almost am I going
Speaker 2: to get this wrong? That sounds like broken window theory.
Speaker 1: It is like recommended theory.
Speaker 2: Okay, that makes sense. I really want to interview actually
Speaker 2: the one hundred x investment bankers working on this project
Speaker 2: in the pub at JP Morgan.
Speaker 1: Not one hundred, not all at I have a guess.
Speaker 2: You don't want to interview all one hundred of them,
Speaker 2: not at once, No, just the funniest ones.
Speaker 1: I have a guess about what the vibe is. Like,
Speaker 1: it's interesting to me like these people are clearly putting
Speaker 1: their successors out of work. Maybe they're not, but like, yeah,
Speaker 1: that's what it's the vision, right, And you might think
Speaker 1: that if you went to people in some industry and said, hey,
Speaker 1: would you like to get paid one hundred fifty dollars
Speaker 1: an hour for like three months? One month? I don't
Speaker 1: know how long this project is, but I don't I
Speaker 1: don't think they envision a decade's kind of thing. Would
Speaker 1: you like to get paid one hundred and fifty dollars
Speaker 1: an hour for a month to put everyone in your
Speaker 1: industry out of work? I think a lot of people
Speaker 1: in a lot of industries would say no. Like I
Speaker 1: think if you went to a lot of journalists, they'd
Speaker 1: be like, no, I don't want to put journalists out
Speaker 1: of work. I think if you went to a lot
Speaker 1: of investmentanking analysts. You'd get a pretty good hit rate.
Speaker 1: You know, you'd be like I hated it, or they'd
Speaker 1: be like, yeah, I'm out of it now they can
Speaker 1: move on. Yeah.
Speaker 2: I do you feel like journalists have a certain affection
Speaker 2: for the craft of journalism, whereas a burnt out banker
Speaker 2: might not.
Speaker 1: I think a lot of bankers do have an appreciation
Speaker 1: for the craft of building LBO models, and I think
Speaker 1: that the opportunity to have their LBO model enshrined perpetually
Speaker 1: as the official CHATCHPT, like the best practice is that
Speaker 1: chat GPT perpetuates forever. I think that would be kind
Speaker 1: of cool.
Speaker 2: Yeah, I could see that, you know, you know, it
Speaker 2: sounds like, you know, you're raising your hand a little bit.
Speaker 1: I take it back. I would put journalism out of
Speaker 1: work now. I think it's like if open A came
Speaker 1: to me and Zeid, we want whenever people ask a
Speaker 1: question about a financial topic, we want chat GPT to
Speaker 1: explain it the way you would. So I spend three
Speaker 1: months training chat GPT to do that. I'd be a
Speaker 1: little flattered.
Speaker 2: You're speaking that into the universe. It could happen anything.
Speaker 1: Could I feel like they're already trained onized Like that's
Speaker 1: the thing. They're already just.
Speaker 2: Like you do, have a public body.
Speaker 1: Training themselves on my work, whereas the LBO models are
Speaker 1: not the model of like the best analyst that JP
Speaker 1: Morgan is not public, right, so they got to hire
Speaker 1: that guy and type it in.
Speaker 2: Let's get into some of the details of this article.
Speaker 2: In terms of the application process, according to a person
Speaker 2: familiar with the matter, it involves almost no human interaction.
Speaker 2: The first step is a roughly twenty minute interview with
Speaker 2: an AI chatbot who asks questions based on the resume,
Speaker 2: and then the second phase test candidates on their knowledge
Speaker 2: of financial statements. The final stage is a modeling test,
Speaker 2: so it's fairly involved.
Speaker 1: For like three months ago, they hired some major R
Speaker 1: people to train chat GPT to hire the investment banks. Yeah,
Speaker 1: get and everything so automated.
Speaker 2: Apparently, the job expects contractors to submit one model per week.
Speaker 2: Instructions include writing prompts in simple terms, then executing the models.
Speaker 2: Receive feedback from a reviewer and are expected to fix
Speaker 2: any issues before their work is ultimately plugged into opening
Speaker 2: as systems.
Speaker 1: Open feedback is a pencil, please fix a fix.
Speaker 2: Please fix for a job that isn't going to last
Speaker 2: that long. I mean, I wonder if you could do
Speaker 2: this as just a side hustle.
Speaker 1: I am sure that everyone doing it is doing it.
Speaker 2: You don't think anyone is just I'm just going to
Speaker 2: devote to some people.
Speaker 1: I shouldn't say ever. I feel like some of them
Speaker 1: are like current NBA students who are like, yeah, I'm
Speaker 1: used to working one hundred hours a week and banking,
Speaker 1: and now I'm doing two to fifteen minutes of homework
Speaker 1: a week in my MBA program, and so I could
Speaker 1: use some free cash, and it's interesting to do.
Speaker 2: It's funny you bring that up because some current NBA
Speaker 2: candidates at Harvard and MIT are participating for sure.
Speaker 1: And then I think probably there are some people who
Speaker 1: like were burned out and are like, I could do
Speaker 1: it twenty hour a week job from.
Speaker 2: Yeah, why not. One of the perks here, in addition
Speaker 2: to the one hundred and fifty dollars per hour, is
Speaker 2: that contractors get early act access to the AI that
Speaker 2: is being created that aims to replace these entry level
Speaker 2: tasks at investment banks. So that's pretty cool.
Speaker 1: Too, right, Like I shouldn't be too cynical about this
Speaker 1: because I think a lot of investment banking analysts do
Speaker 1: think a lot about how can I automate this work
Speaker 1: so that it's just, you know, it is button pushing,
Speaker 1: and like, maybe in the long run that is bad
Speaker 1: for employment at investment banks, but it's not clear that
Speaker 1: it is. Right. Yeah, it's like very possible that if
Speaker 1: you had the ability to push a button and produce
Speaker 1: a perfect model, you would keep the same number of
Speaker 1: analysts and they would run more hypothetical scenarios. And the
Speaker 1: thing people always say is like, move up the value
Speaker 1: chain and think more creatively and not have to just
Speaker 1: spend all their time modeling. I'm not sure that's true,
Speaker 1: but you know they certainly you know, throw more spaghetti
Speaker 1: against the wall.
Speaker 2: Yeah, maybe AI could compliment the human experience rather than destroying.
Speaker 1: But I think it is hard for me to imagine
Speaker 1: investment banking becoming purely automated. It feels like it's a
Speaker 1: high dollar, high touch sales business, and so you always
Speaker 1: need some people to shake the client's hands, and so
Speaker 1: it is very possible that AI can be complementary to
Speaker 1: that experience. Now that people do worry about, you know,
Speaker 1: if the junior bankers don't ever build the models and
Speaker 1: they just push a button. Do they learn less? And
Speaker 1: they are they less intuitive about you know, financial analysis
Speaker 1: when they become senior bankers. And I think that is
Speaker 1: a hard problem.
Speaker 2: Yeah, the idea that you're just hollowing out the bench.
Speaker 2: One of the people who has voiced a concern similar
Speaker 2: to that is actually the CEO of Bridgewater near Bardea.
Speaker 2: He said in March, we are well positioned to replace
Speaker 2: a lot of the basic tasks with machines, but what
Speaker 2: does that then mean to talent development over the long
Speaker 2: period of time? And then he continued, you do the
Speaker 2: tough work, then that leads you to be able to
Speaker 2: do the higher level, more conceptual things. So I think
Speaker 2: that's like a nice summary of the concerned there.
Speaker 1: Yeah, and I tend to believe that, Yeah.
Speaker 2: You have to cut your teeth.
Speaker 1: Yeah, there's a you know, just a period of learning
Speaker 1: that gives you the sort of foundation to think creatively
Speaker 1: later on. And if you just cut that out, it's hard.
Speaker 1: By the way, that's not an investment anything, that's a
Speaker 1: that's a life thing, right, like you see that in
Speaker 1: school now, right, Yeah, you use AI to de Allier homework.
Speaker 2: You never learned how the kids can't read.
Speaker 1: Kids can't read?
Speaker 2: Yeah, I mean, I just relate everything back to myself
Speaker 2: as the center of my own universe. I remember being
Speaker 2: a baby reporter and just doing these bullet point fixtures
Speaker 2: on the Bloomberg terminal that like twelve people read. But
Speaker 2: it taught me a lot and it really serviced those
Speaker 2: twelve people.
Speaker 1: Now AI does a lot of those blood Well.
Speaker 2: That's true though.
Speaker 1: Okay, if credit cockroaches for like five minutes.
Speaker 2: Okay, you talk about it in the same way that
Speaker 2: I told you everything I know about JP Morgan's new
Speaker 2: building a two seventy Park Avenue, Tell me everything you
Speaker 2: know about cockroaches. At this moment, part.
Speaker 1: Of me hates that we just decided that they're called cockroaches.
Speaker 1: Part of me is like I keep leaning into it
Speaker 1: in the columns or whatever.
Speaker 2: That's the thing. It's already it's interesting, it's a useful shorthand.
Speaker 1: But right there's been a number of, you know, credit
Speaker 1: blow ups, and they all kind of have the same flavor,
Speaker 1: which is that someone is or maybe it was, or
Speaker 1: looks like they might have been double pledging collateral, or
Speaker 1: it happens its collateral they didn't have come on, you know,
Speaker 1: all these things, and I think we talked about Tracolor
Speaker 1: and first Browns.
Speaker 2: I'm not even sure we've definitely named dropped them.
Speaker 1: And then I think last week the Zions and Western
Speaker 1: Alliance news had just come out and you mentioned it
Speaker 1: on this podcast.
Speaker 2: Thank god I did well.
Speaker 1: Then I had it cut out because we didn't really
Speaker 1: talk about it.
Speaker 2: Something that's happening today on Thursday is what's going down
Speaker 2: with Western Alliance and Zions. These are two regional banks
Speaker 2: and apparently they disclosed problems with loans involving allegations of
Speaker 2: fraud and currently, at like two twenty three pm last
Speaker 2: sight check, the stock market was kind of freaking out
Speaker 2: about that.
Speaker 1: Who's wrong?
Speaker 2: Let me tell you? Okay, So Zions apparently it disclosed
Speaker 2: a fifty million dollar charge off for a loan underwritten
Speaker 2: by its wholly owned subsidiary, California Bank in Trust Western.
Speaker 2: Their problem is is that it said that it's dealing
Speaker 2: with a borrower that failed quote to provide collateral loans
Speaker 2: in first position.
Speaker 1: Yeah, you know, topy market toppy mark, don't know, let's
Speaker 1: check your collateral.
Speaker 2: Yeah, why would you?
Speaker 1: Yeah, they compete to make the loans. So like Zions
Speaker 1: and Western Alliance both announced that they sort of were
Speaker 1: exposed to what they characterized as fraud, although the people
Speaker 1: who allegedly defront of them said they didn't defrove them.
Speaker 1: But basically they like made some loans to this like
Speaker 1: real estate lending firm, and the real estate lending firm
Speaker 1: they say did not actually own the mortgages that they
Speaker 1: were boring against or like they did and then they
Speaker 1: sold them or they did and the properties were for
Speaker 1: clothes on or they made the loans with they were
Speaker 1: second leans. Like there's all this like stuff where there's
Speaker 1: like sort of sloppiness around collateral. And then the other
Speaker 1: story that came out I think last week was on
Speaker 1: seven seven seven Partners, which is a fascinating company that
Speaker 1: both buys your lottery payments few in the lottery and
Speaker 1: you get twenty years of payments like they'll buy them
Speaker 1: from you and so you get cash upfront. And they
Speaker 1: also buy sports teams like they own a lot of
Speaker 1: like European soccer teams. They own the London Lions, the
Speaker 1: basketball team, and they tried to buy Everton, the big
Speaker 1: Premier League team, and there are some allegations that they
Speaker 1: were at least sloppy with the collateral that they were
Speaker 1: selling on to investors, where they basically were borring against
Speaker 1: these future cash flows of lotteries or structured settlements, and
Speaker 1: they would maybe double pledge them and maybe didn't have
Speaker 1: all the assets that they claimed to have. Think the
Speaker 1: founder was charged criminally last week in part because one
Speaker 1: of the lenders got i think an anonymous whistleblower tip
Speaker 1: saying that they were double pledging assets, and the lender
Speaker 1: called them to be like, what's all this then, and
Speaker 1: the founder, on a recorded line, was like, yeah, we
Speaker 1: did do that, but like it's because our computer systems
Speaker 1: are stoppy and we'll fix it.
Speaker 2: Oh my gosh.
Speaker 1: After I read about this, I got a number of
Speaker 1: emails from readers with anecdotes about their own dealings with
Speaker 1: seven seven seven partners that I think are largely supportive
Speaker 1: of the theory that they might have actually screwed up
Speaker 1: their computer systems. Like there's a lot of like, yeah,
Speaker 1: they were kind of unprofessional, so you never know, but uh,
Speaker 1: it doesn't look good to me. We may have barred
Speaker 1: against our collateral from.
Speaker 2: Two different lenders, So are you holding this up as
Speaker 2: an example of a cockroach potentially.
Speaker 1: This is a reference to Jamie diamond saying when you
Speaker 1: see one cockroach, there will be more. And it's definitely
Speaker 1: since he has said that, there have been a lot
Speaker 1: of like these credit problems that all you know, have
Speaker 1: similar features.
Speaker 2: It's like if you see a missile margin, yeah, in
Speaker 2: a deck, there might be other issues, right, It's.
Speaker 1: Like an indicator of sloppiness. And all of these are
Speaker 1: kind of small. I mean, you know in the scheme
Speaker 1: of like the banking system, right, but like you see
Speaker 1: one cockroache, you.
Speaker 2: See more they can pound potentially potentially.
Speaker 1: The other thing that I think is interesting, and they
Speaker 1: wrote this week, is that another thing that a lot
Speaker 1: of these cases have in common is that the problem
Speaker 1: company is essentially a lender. It's like a financing company,
Speaker 1: it's a trade finance company, or a structed settlement company,
Speaker 1: or a real estate lending firm or something. It's a lender, right,
Speaker 1: And then the people who complain about it, the people
Speaker 1: who take losses are lenders to that lender, right. So
Speaker 1: it's like second order or sometimes third or fourth degree lending,
Speaker 1: where like a bank lends to someone who lends the
Speaker 1: someone who lends to someone and somewhere in that chain
Speaker 1: problems happen. And I think we've talked about on this podcast,
Speaker 1: and I certainly write a lot about like there's been
Speaker 1: this move to banks reach launching where instead of like
Speaker 1: banks making loans, private credit firms make loans, and then
Speaker 1: banks make loans to the private credit firms to make
Speaker 1: the loans. And the upside of that is that the
Speaker 1: banks have more seniority, right, they're cushioned by like the
Speaker 1: private credit firm takes the first loss or the you know,
Speaker 1: the factoring firm, whoever takes the first loss. But the
Speaker 1: downside is like they don't get to see perrectly into
Speaker 1: the loan, Like there are several steps removed from the
Speaker 1: actual car loan or the actual structured settlement or whatever,
Speaker 1: and there's just more opportunity to get this sort of
Speaker 1: cockroage situation where like you were lending against collateral, it
Speaker 1: doesn't exist. Yeah, it's like can you make a mortgage
Speaker 1: lane directly? You're like you see the house, you know, Yeah,
Speaker 1: so this is all sort of indirect And I do
Speaker 1: think it's like, you know, it is both like these
Speaker 1: stories seem symptomatic of like late cycle exuberants, specifically like
Speaker 1: indirect lending, where because it is indirect, it is a
Speaker 1: little bit easier to get hoodwinked out of collateral.
Speaker 2: So let's not cut this out of the podcast in
Speaker 2: case we need to reference back to it a couple
Speaker 2: of weeks.
Speaker 1: Yeah, yeah, sorry, I cut out your crush reference to
Speaker 1: week and that was the Money Stuff Podcast.
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