1 00:00:02,720 --> 00:00:07,840 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:20,320 --> 00:00:23,120 Speaker 2: This is Wall Street Week. I'm David Weston bringing you 3 00:00:23,200 --> 00:00:27,160 Speaker 2: stories of capitalism. President Trump has made it a priority 4 00:00:27,240 --> 00:00:30,160 Speaker 2: to get gas prices down below two dollars a gallon. 5 00:00:30,600 --> 00:00:33,440 Speaker 2: What are the chances he'll meet his goal and at 6 00:00:33,479 --> 00:00:36,920 Speaker 2: what cost? Plus money makes the world go round, and 7 00:00:37,000 --> 00:00:40,400 Speaker 2: particularly the money wealthy people bring to their home countries, 8 00:00:40,760 --> 00:00:43,239 Speaker 2: which is why the United Kingdom has to be careful 9 00:00:43,400 --> 00:00:47,520 Speaker 2: about changing incentives to move abroad. And the growing world 10 00:00:47,520 --> 00:00:50,159 Speaker 2: of alternative investments is on the brink of adding another 11 00:00:50,240 --> 00:00:53,680 Speaker 2: asset class investing in the four hundred billion dollar business 12 00:00:54,040 --> 00:00:57,600 Speaker 2: of law firms. But we start with China and the 13 00:00:57,680 --> 00:01:01,320 Speaker 2: United States and how bad things could get from two 14 00:01:01,360 --> 00:01:05,720 Speaker 2: different perspectives. Macroacon Instant special contributor Larry Summers of Harvard 15 00:01:06,000 --> 00:01:12,880 Speaker 2: and economic historian Neil Ferguson of the Hoover Institution. The 16 00:01:12,920 --> 00:01:16,360 Speaker 2: world's biggest economies, the United States and China, have had 17 00:01:16,360 --> 00:01:20,800 Speaker 2: a complicated economic and geopolitical relationship that relies on competition 18 00:01:21,000 --> 00:01:21,759 Speaker 2: and cooperation. 19 00:01:22,200 --> 00:01:25,720 Speaker 3: At the same time, I'm in favor of maintaining a 20 00:01:26,000 --> 00:01:30,080 Speaker 3: working relationship with China. It is too important a country. 21 00:01:30,480 --> 00:01:35,920 Speaker 3: It had made good progress in the economic reform, and 22 00:01:36,080 --> 00:01:39,440 Speaker 3: I think we should not lightly sacrifice the relationship with 23 00:01:39,760 --> 00:01:44,000 Speaker 3: the country with the longest continuing history in Asia, with 24 00:01:44,160 --> 00:01:45,839 Speaker 3: the cultural influence. 25 00:01:45,400 --> 00:01:45,960 Speaker 4: That it has. 26 00:01:47,240 --> 00:01:50,320 Speaker 2: China joined the World Trade Organization in two thousand and one, 27 00:01:50,800 --> 00:01:53,880 Speaker 2: setting the stage for a tumultuous relationship between the United 28 00:01:53,920 --> 00:01:56,360 Speaker 2: States and China that continues today. 29 00:01:57,120 --> 00:02:00,200 Speaker 5: We have a trillion down a trade everythy with China, 30 00:02:00,760 --> 00:02:03,440 Speaker 5: hundreds of millions of downas a year we lose with China, 31 00:02:03,880 --> 00:02:06,360 Speaker 5: and unless we solve that problem, I'm not going to 32 00:02:06,400 --> 00:02:09,120 Speaker 5: make a deal now. I would like to deal with China, 33 00:02:09,280 --> 00:02:11,160 Speaker 5: but they have to solve this surplus. 34 00:02:11,160 --> 00:02:14,080 Speaker 4: With the tariff program, we had a plan, we have 35 00:02:14,200 --> 00:02:17,520 Speaker 4: a process, and now we have a mechanism with our 36 00:02:17,600 --> 00:02:22,200 Speaker 4: Chinese counterparts to prevent an escalation. Again. We're going to 37 00:02:22,280 --> 00:02:25,960 Speaker 4: go into a series of negotiations. They're going to be 38 00:02:26,120 --> 00:02:30,400 Speaker 4: fulsome and we have a lot to talk about. But 39 00:02:30,480 --> 00:02:33,040 Speaker 4: I think over the next ninety days we can accomplish 40 00:02:33,120 --> 00:02:33,399 Speaker 4: a lot. 41 00:02:34,440 --> 00:02:37,720 Speaker 2: President Trump has continued the efforts of his first administration 42 00:02:37,840 --> 00:02:41,040 Speaker 2: to make the economic relationship between the two countries fair, 43 00:02:41,680 --> 00:02:44,480 Speaker 2: initially imposing tariffs as high as one hundred and forty 44 00:02:44,520 --> 00:02:49,600 Speaker 2: five percent before suspending them pending negotiations. Neil Ferguson has 45 00:02:49,639 --> 00:02:51,520 Speaker 2: called it a second Cold War. 46 00:02:52,000 --> 00:02:55,600 Speaker 6: It's eighteen years since I used the term chi America 47 00:02:55,680 --> 00:02:58,120 Speaker 6: for the first time, and the argument back then was 48 00:02:58,680 --> 00:03:02,200 Speaker 6: China and the United States are in a symbiotic relationship, 49 00:03:02,560 --> 00:03:06,080 Speaker 6: but it's not symmetrical. The US does the importing, China 50 00:03:06,160 --> 00:03:09,680 Speaker 6: does the exporting, the US does the consuming, and China 51 00:03:09,720 --> 00:03:12,960 Speaker 6: does the saving. And the argument that I made back 52 00:03:13,000 --> 00:03:14,799 Speaker 6: in two thousand and seven was that this was not 53 00:03:15,360 --> 00:03:18,720 Speaker 6: really sustainable and that at some point Chimerica would turn 54 00:03:18,760 --> 00:03:21,960 Speaker 6: out to be a chimera. It actually took longer than 55 00:03:22,120 --> 00:03:26,440 Speaker 6: I expected to turn sour, but certainly by twenty seventeen 56 00:03:26,560 --> 00:03:29,760 Speaker 6: eighteen we had the beginnings of Cold War II, when 57 00:03:29,800 --> 00:03:33,600 Speaker 6: the rise of China finally elicited a response from the 58 00:03:33,720 --> 00:03:37,960 Speaker 6: United States. The interesting thing, David, is that somehow Chimerica 59 00:03:38,000 --> 00:03:41,240 Speaker 6: and Cold War two seemed capable of coexisting, because despite 60 00:03:41,240 --> 00:03:44,320 Speaker 6: a trade war and a tech war both continued by 61 00:03:44,360 --> 00:03:47,320 Speaker 6: the Biden administration and ramped up by Donald Trump in 62 00:03:47,360 --> 00:03:51,320 Speaker 6: his second term, the United States still imports an enormous 63 00:03:51,360 --> 00:03:57,560 Speaker 6: amount from China. The relationship has been extraordinarily persistent despite 64 00:03:57,600 --> 00:04:01,000 Speaker 6: the growing conflict and the escalation of Cold War two. 65 00:04:01,480 --> 00:04:06,960 Speaker 7: I'd call it hostile codependence. We're codependent with them, We 66 00:04:07,120 --> 00:04:13,240 Speaker 7: depend on them, they depend on us, But our interests 67 00:04:13,320 --> 00:04:17,600 Speaker 7: in the way the world is shaped going forward are 68 00:04:18,000 --> 00:04:22,240 Speaker 7: very different. There can only be one leader in technology, 69 00:04:22,680 --> 00:04:28,360 Speaker 7: so there are also important zero sum competitive aspects in 70 00:04:28,440 --> 00:04:32,000 Speaker 7: the relationship, and the challenge is going to be to 71 00:04:32,160 --> 00:04:32,680 Speaker 7: manage it. 72 00:04:33,240 --> 00:04:35,719 Speaker 2: As much as Larry Summers agrees that the US and 73 00:04:35,800 --> 00:04:38,520 Speaker 2: China need each other, he does think we may be 74 00:04:38,720 --> 00:04:41,719 Speaker 2: wrong about the extent of Chinese economic power. 75 00:04:42,279 --> 00:04:46,320 Speaker 7: I think the big change that from my mind, people 76 00:04:46,320 --> 00:04:54,480 Speaker 7: are underestimating is that China has immense challenges ahead of it. Yes, 77 00:04:54,640 --> 00:05:00,080 Speaker 7: they have done very well in a number of key technology, 78 00:05:00,920 --> 00:05:07,839 Speaker 7: but their population is going to shrink, their debts are immense. 79 00:05:08,680 --> 00:05:14,479 Speaker 7: Their economic adjustment towards a more consumption oriented economy would 80 00:05:14,520 --> 00:05:17,360 Speaker 7: force the Communist Party to give up a lot of power, 81 00:05:17,839 --> 00:05:22,040 Speaker 7: which I don't think they're going to do. You know, David, 82 00:05:22,080 --> 00:05:26,599 Speaker 7: here's a rule. When the American elite tell their children 83 00:05:26,720 --> 00:05:30,320 Speaker 7: to learn a language, it's time to bet against the 84 00:05:30,360 --> 00:05:34,359 Speaker 7: country in question. That was right about Russia in nineteen 85 00:05:34,440 --> 00:05:39,640 Speaker 7: fifty nine. That was right about Japan in nineteen eighty nine, 86 00:05:40,360 --> 00:05:44,240 Speaker 7: and I think it's been right about China in recent years. 87 00:05:44,680 --> 00:05:49,479 Speaker 7: And so I think the key priority for the United 88 00:05:49,480 --> 00:05:55,800 Speaker 7: States is to maintain our strength, but also not to 89 00:05:55,920 --> 00:05:59,880 Speaker 7: put so much pressure on China that we elicit as 90 00:06:00,000 --> 00:06:06,520 Speaker 7: spasmodic response. Neil's the historian, and he's the great expert, 91 00:06:07,080 --> 00:06:11,599 Speaker 7: but many people see this through the prism of Germany 92 00:06:11,640 --> 00:06:15,400 Speaker 7: and Britain before the First World War. I think it's 93 00:06:15,440 --> 00:06:19,039 Speaker 7: also helpful to think about Japan and the United States 94 00:06:19,600 --> 00:06:26,360 Speaker 7: before the Second World War, where a very successful set 95 00:06:26,400 --> 00:06:32,560 Speaker 7: of American economic policies in holding back the Japanese economy 96 00:06:33,520 --> 00:06:40,760 Speaker 7: pushed the Japanese into nationalists desperation, and that was behind 97 00:06:40,920 --> 00:06:44,359 Speaker 7: Pearl Harbor. So I think in the United States we 98 00:06:44,480 --> 00:06:50,240 Speaker 7: need to be very careful and not see this in 99 00:06:50,360 --> 00:06:55,880 Speaker 7: terms of trying to win some great victory against China, 100 00:06:56,560 --> 00:07:01,760 Speaker 7: and not forgetting that codependence probably an inevitability. 101 00:07:02,120 --> 00:07:05,080 Speaker 2: After growing over fourteen percent a year as recently as 102 00:07:05,120 --> 00:07:09,320 Speaker 2: twenty seventeen, China's growth has slumped to an estimated four 103 00:07:09,400 --> 00:07:12,960 Speaker 2: percent in twenty twenty five according to the IMF. But 104 00:07:13,040 --> 00:07:17,520 Speaker 2: the US may not have the economic upper hand China. 105 00:07:17,400 --> 00:07:20,320 Speaker 6: Is a much larger economy relative to the United States 106 00:07:20,360 --> 00:07:25,240 Speaker 6: than any previous challenger. On a current dollar basis, it's 107 00:07:25,280 --> 00:07:30,280 Speaker 6: got to within around seventy percent of US GDP. More strikingly, 108 00:07:30,840 --> 00:07:34,680 Speaker 6: China's manufacturing value added is now twice that of the 109 00:07:34,800 --> 00:07:38,240 Speaker 6: United States, And if you just go back twenty years, 110 00:07:38,800 --> 00:07:42,400 Speaker 6: the roles were reversed. US manufacturing value added around at 111 00:07:42,440 --> 00:07:45,080 Speaker 6: the time that China joined the World Trade Organization was 112 00:07:45,240 --> 00:07:48,520 Speaker 6: roughly twice that of China's. Let's view this from China's 113 00:07:48,640 --> 00:07:52,120 Speaker 6: advantage point. How did the Chinese see the American response 114 00:07:52,600 --> 00:07:57,400 Speaker 6: to their rise. They see it as a rather brutal 115 00:07:57,560 --> 00:08:01,960 Speaker 6: trade war that began with Donald Trump's first term and 116 00:08:02,000 --> 00:08:05,800 Speaker 6: has escalated dramatically at the beginning of his second term. 117 00:08:06,360 --> 00:08:09,680 Speaker 6: But that escalation turned into a game of chicken. And 118 00:08:09,720 --> 00:08:12,560 Speaker 6: in that game of chicken, it was Donald Trump who swerved. 119 00:08:12,600 --> 00:08:15,400 Speaker 6: It was Trump who had to step down, who had 120 00:08:15,440 --> 00:08:18,360 Speaker 6: to pull back from the incredibly high tariffs that he 121 00:08:18,440 --> 00:08:22,119 Speaker 6: imposed in a series of steps on China after being 122 00:08:22,680 --> 00:08:26,080 Speaker 6: sworn in for a second term. So the Chinese look 123 00:08:26,440 --> 00:08:28,720 Speaker 6: at the United States, and I think they often say 124 00:08:28,760 --> 00:08:32,240 Speaker 6: to themselves, these guys have really passed their peak, and 125 00:08:32,280 --> 00:08:35,360 Speaker 6: they don't have a keyherence strategy to deal with us. 126 00:08:35,800 --> 00:08:39,280 Speaker 7: I'm a bit more optimistic than Neil about the relative 127 00:08:39,400 --> 00:08:41,200 Speaker 7: strength of the two economies. 128 00:08:41,840 --> 00:08:42,959 Speaker 8: I think a. 129 00:08:43,040 --> 00:08:48,120 Speaker 7: Large GDP achieved simply by having a large number of 130 00:08:48,200 --> 00:08:54,120 Speaker 7: people doesn't always make you stronger. Ask yourself if Mexico 131 00:08:54,320 --> 00:08:57,040 Speaker 7: was part of the United States, we would have a 132 00:08:57,120 --> 00:09:00,840 Speaker 7: higher GDP as a country, But I think we'd actually, 133 00:09:01,240 --> 00:09:05,880 Speaker 7: in toto and aggregate, probably have a weaker economy in 134 00:09:06,000 --> 00:09:12,679 Speaker 7: terms of our ability to project power. So I am 135 00:09:12,760 --> 00:09:18,640 Speaker 7: a bit more optimistic about the hand the United States 136 00:09:18,720 --> 00:09:23,160 Speaker 7: has to play than Neil, but a bit more disappointed 137 00:09:23,760 --> 00:09:29,040 Speaker 7: by the skill with which we are playing it. I 138 00:09:29,080 --> 00:09:39,560 Speaker 7: share his concern about a potentially very dangerous situation in Taiwan, 139 00:09:40,440 --> 00:09:47,440 Speaker 7: though I would caution that probably to maintain deterrence, it's 140 00:09:47,520 --> 00:09:51,200 Speaker 7: not that we need a capacity to win. We need 141 00:09:51,240 --> 00:09:58,600 Speaker 7: a capacity to inflict enormous and problematic and risky damage 142 00:09:58,880 --> 00:10:05,480 Speaker 7: while maintaining credibility to deter imprudence. And I think that's 143 00:10:05,520 --> 00:10:08,960 Speaker 7: a bit more achievable than Neil suggests. 144 00:10:09,160 --> 00:10:11,720 Speaker 6: Well, there's certainly a risk. I've argued for some time 145 00:10:11,760 --> 00:10:15,680 Speaker 6: that a Taiwan semiconductor crisis would be the equivalent of 146 00:10:15,720 --> 00:10:19,520 Speaker 6: the Cuban missile crisis in Cold War two. But let's 147 00:10:19,600 --> 00:10:22,800 Speaker 6: remember that there's something very distinctive about the US China 148 00:10:22,840 --> 00:10:26,200 Speaker 6: relationship that makes it quite different from the twentieth century 149 00:10:26,200 --> 00:10:30,440 Speaker 6: conflicts and challenges that Larry talked about. China really had 150 00:10:30,840 --> 00:10:33,240 Speaker 6: caught up or was very close to catching up in 151 00:10:33,760 --> 00:10:39,280 Speaker 6: key domains, including artificial intelligence and constant computing. China has 152 00:10:39,320 --> 00:10:42,559 Speaker 6: shown that technological containment of the sort that Jake Sullivan 153 00:10:42,600 --> 00:10:45,840 Speaker 6: recommended when he was National Security Advisor hasn't really worked. 154 00:10:46,280 --> 00:10:50,600 Speaker 7: I am far more worried about dependent shawan China for 155 00:10:50,800 --> 00:10:55,839 Speaker 7: debt than I am dependent on China for rare earths 156 00:10:55,960 --> 00:10:58,800 Speaker 7: or any other specific. 157 00:10:58,280 --> 00:11:03,280 Speaker 2: Product, whether it's competition to technology or dependence on foreign 158 00:11:03,280 --> 00:11:07,040 Speaker 2: investment in US debt. Both Larry and Neil agree that 159 00:11:07,080 --> 00:11:09,840 Speaker 2: the tax and spending bill currently working its way through 160 00:11:09,880 --> 00:11:13,280 Speaker 2: Congress will do little to improve the United States position 161 00:11:13,559 --> 00:11:14,840 Speaker 2: when it comes to China. 162 00:11:15,320 --> 00:11:19,480 Speaker 7: It's not a big, beautiful bill. It's a prescription for 163 00:11:19,600 --> 00:11:27,480 Speaker 7: deadly dangerous. To Cline, it's ill advised, it's imprudent. It 164 00:11:27,600 --> 00:11:32,960 Speaker 7: fails to recognize at all a basic truth that the 165 00:11:33,000 --> 00:11:38,480 Speaker 7: world's greatest debtor is unlikely to stay the world's greatest power. 166 00:11:38,760 --> 00:11:43,840 Speaker 7: We are making a very serious mistake by continuing on 167 00:11:44,440 --> 00:11:49,080 Speaker 7: the phiscal path that we are on. And it's not 168 00:11:49,280 --> 00:11:53,679 Speaker 7: even clear that if we're given more rope, if the 169 00:11:53,800 --> 00:11:58,280 Speaker 7: debts are allowed to grow, that may just be ultimately 170 00:11:59,000 --> 00:12:04,839 Speaker 7: increasing hour of vulnerability. Neil and I are in complete 171 00:12:05,480 --> 00:12:07,080 Speaker 7: agreement on that. 172 00:12:07,360 --> 00:12:10,920 Speaker 6: Well, these relationships are complex, but you could simplify the 173 00:12:10,960 --> 00:12:12,920 Speaker 6: story a bit by just saying, as long as the 174 00:12:13,040 --> 00:12:17,040 Speaker 6: United States consistently runs a large budget deficit, it's probably 175 00:12:17,120 --> 00:12:20,280 Speaker 6: going to run a rather large current account deficit, and 176 00:12:20,480 --> 00:12:27,720 Speaker 6: attacking bilateral trade imbalances is unlikely to overcome that fundamental problem. 177 00:12:28,040 --> 00:12:31,520 Speaker 6: There's nothing in President Trump's big beautiful bill that's currently 178 00:12:31,559 --> 00:12:35,160 Speaker 6: going through Congress that seems likely to reduce the US 179 00:12:35,200 --> 00:12:40,720 Speaker 6: federal deficit from around six or thereabouts percent of GDP up. 180 00:12:40,760 --> 00:12:44,240 Speaker 2: Next is Milan starting to look a bit more British 181 00:12:44,679 --> 00:12:47,520 Speaker 2: a story of how the wealthy are responding to changes 182 00:12:47,559 --> 00:13:02,680 Speaker 2: in British tax law. This is a story about setting goals, 183 00:13:03,040 --> 00:13:06,240 Speaker 2: goals that are realistic, but also that are the right ones. 184 00:13:06,800 --> 00:13:09,319 Speaker 2: Our colleagues Alex Steele and Michael McKee take a look 185 00:13:09,360 --> 00:13:13,000 Speaker 2: at the President's goal of getting gasoline below two bucks 186 00:13:13,040 --> 00:13:13,520 Speaker 2: a gallon. 187 00:13:15,920 --> 00:13:20,720 Speaker 9: A cornerstone of President Trump's economic agenda is lower gasoline prices. 188 00:13:21,080 --> 00:13:22,000 Speaker 10: Energy is going down. 189 00:13:22,080 --> 00:13:23,959 Speaker 5: I see that we had a couple of states where 190 00:13:24,200 --> 00:13:27,800 Speaker 5: gasolene was it a dollar and ninety eight cents a gallon. 191 00:13:28,120 --> 00:13:30,960 Speaker 9: A dollar ninety nine might be a stretch. Now, if 192 00:13:30,960 --> 00:13:33,680 Speaker 9: President Trump gets his wish of forty dollars oil, it 193 00:13:33,720 --> 00:13:34,680 Speaker 9: could be a reality. 194 00:13:34,920 --> 00:13:37,600 Speaker 11: The number one thing that sets the price of gasoline 195 00:13:37,800 --> 00:13:40,640 Speaker 11: is the price of crude oil. And as we've seen 196 00:13:41,040 --> 00:13:44,160 Speaker 11: gasoline prices drop over the past year or so, the 197 00:13:44,200 --> 00:13:46,760 Speaker 11: thing that's driven above all is a price of crude 198 00:13:46,760 --> 00:13:48,520 Speaker 11: oil coming down. So simple as that really. 199 00:13:49,080 --> 00:13:51,760 Speaker 9: Ed Crooks is vice chair of the America's at Wood Mackenzie, 200 00:13:51,800 --> 00:13:54,800 Speaker 9: a leading data and analytics firm. Crooks says, it's possible 201 00:13:54,840 --> 00:13:56,760 Speaker 9: we get another oil price crash like the one we 202 00:13:56,800 --> 00:13:59,559 Speaker 9: had in twenty sixteen, which dragged oil down to twenty 203 00:13:59,600 --> 00:14:02,600 Speaker 9: six dollars a barrel and pump prices to a dollar seventy. 204 00:14:02,920 --> 00:14:05,040 Speaker 11: It's certainly possible that we can get back to a 205 00:14:05,080 --> 00:14:08,280 Speaker 11: point like the situation we were in twenty fifteen twenty sixteen, 206 00:14:08,280 --> 00:14:11,160 Speaker 11: where we had very low oil prices down below forty 207 00:14:11,160 --> 00:14:14,040 Speaker 11: dollars a barrel, and that led to very cheap gasoline. 208 00:14:14,120 --> 00:14:16,920 Speaker 11: So we might have a period maybe a year or 209 00:14:17,000 --> 00:14:21,040 Speaker 11: two with very low oil prices, very low gasoline prices. 210 00:14:21,240 --> 00:14:23,040 Speaker 9: Why is it always feel like prices that the pump 211 00:14:23,120 --> 00:14:25,200 Speaker 9: go up faster than they go down. 212 00:14:25,720 --> 00:14:28,080 Speaker 11: There is some evidence on that. If you think about it, though, 213 00:14:28,440 --> 00:14:30,200 Speaker 11: take a step back, you think about the big picture. 214 00:14:30,240 --> 00:14:34,080 Speaker 11: Then people will say, well, because of these movements, because 215 00:14:34,120 --> 00:14:38,120 Speaker 11: gasoline prices going up fast than they come down, therefore, 216 00:14:38,760 --> 00:14:40,920 Speaker 11: refiners must be making fantastic profits. 217 00:14:41,280 --> 00:14:44,120 Speaker 9: The reality is the price of oil only accounts for 218 00:14:44,280 --> 00:14:47,240 Speaker 9: half of the price of a gallon of gasoline. About 219 00:14:47,240 --> 00:14:50,040 Speaker 9: thirty percent is an equally split between federal and state 220 00:14:50,080 --> 00:14:53,280 Speaker 9: taxes and distribution and marketing moving the gasoline around the 221 00:14:53,280 --> 00:14:55,840 Speaker 9: country and selling it at the gas station. The rest 222 00:14:55,960 --> 00:14:58,400 Speaker 9: are those refining costs and profits. 223 00:14:58,760 --> 00:15:04,200 Speaker 11: Refining is not a hugely lucrative business. In fact, particularly 224 00:15:04,280 --> 00:15:08,240 Speaker 11: right now, profit margins and refining have been squeezed right down. 225 00:15:08,280 --> 00:15:12,240 Speaker 11: It's really hard to make a good return in the 226 00:15:12,280 --> 00:15:13,160 Speaker 11: refining business. 227 00:15:13,840 --> 00:15:17,400 Speaker 9: No one knows that better than Andy Walls, president of Downstream, 228 00:15:17,520 --> 00:15:19,280 Speaker 9: Midstream and Chemicals at Chevron. 229 00:15:19,560 --> 00:15:22,360 Speaker 8: We're trying to buy low and sell high. Is It's 230 00:15:22,400 --> 00:15:24,840 Speaker 8: just like if you were to run a restaurant. The 231 00:15:25,200 --> 00:15:27,880 Speaker 8: raw maateurs you buy and the meals you sell to people, 232 00:15:27,920 --> 00:15:31,200 Speaker 8: that's there the restaurant's crackspread. Same exact concept in refining. 233 00:15:31,920 --> 00:15:34,240 Speaker 9: It's Andy's job to make sure the one point eight 234 00:15:34,280 --> 00:15:36,920 Speaker 9: million barrels of oil products a day that Chevron produces 235 00:15:37,040 --> 00:15:40,520 Speaker 9: flows safely, efficiently, and profitably. More than half of that 236 00:15:40,680 --> 00:15:43,840 Speaker 9: comes from the US. I mean, this is huge. Give 237 00:15:43,840 --> 00:15:45,600 Speaker 9: me some perspective on how bingosal is. 238 00:15:45,800 --> 00:15:49,120 Speaker 8: Yeah, So the whole property is about three thousand acres. 239 00:15:49,680 --> 00:15:52,320 Speaker 8: Most of the processing stuff is on about one thousand acres. 240 00:15:52,320 --> 00:15:54,720 Speaker 8: So it's a really big facility and a lot of 241 00:15:54,720 --> 00:15:56,120 Speaker 8: complex things going on here. 242 00:15:56,480 --> 00:15:59,920 Speaker 9: Chevron's refinery in Pasca Goula, Mississippi, runs twenty four to seven, 243 00:16:00,080 --> 00:16:02,480 Speaker 9: takes thirty five different types of crude and turns it 244 00:16:02,520 --> 00:16:07,040 Speaker 9: mostly into gasoline, diesel fuel for jets, ships, railroads and 245 00:16:07,120 --> 00:16:09,960 Speaker 9: farm equipment, and even propane what you may use for 246 00:16:10,040 --> 00:16:10,760 Speaker 9: your barbecue. 247 00:16:10,800 --> 00:16:14,160 Speaker 8: We're either breaking down molecules, putting molecules back together. We're 248 00:16:14,160 --> 00:16:16,760 Speaker 8: taking some product out of it. Maybe it's sulfur, maybe 249 00:16:16,760 --> 00:16:20,200 Speaker 8: it's a metal. We're squeezing it, we're making it very hot. 250 00:16:20,240 --> 00:16:22,720 Speaker 8: But we're doing a lot of chemical things to take 251 00:16:23,000 --> 00:16:25,720 Speaker 8: a raw material and turn it into a thing like gasoline. 252 00:16:25,880 --> 00:16:28,800 Speaker 9: The oil is separated, pressurized, and heated more than a 253 00:16:28,840 --> 00:16:32,560 Speaker 9: dozen times to keep changing the molecules. It's complicated work 254 00:16:32,720 --> 00:16:34,280 Speaker 9: with razor thin margins. 255 00:16:34,480 --> 00:16:36,360 Speaker 8: And I wish I had more control over margins. I 256 00:16:36,400 --> 00:16:39,280 Speaker 8: really don't. It's based on supply and demand, and if 257 00:16:39,320 --> 00:16:41,280 Speaker 8: margins are good, we really want to run. If margins 258 00:16:41,320 --> 00:16:42,840 Speaker 8: are bad, we still need to run. 259 00:16:43,800 --> 00:16:46,480 Speaker 11: And so I think when people kind of take that 260 00:16:46,600 --> 00:16:50,320 Speaker 11: jump to say this is outrageous the oil companies ripping 261 00:16:50,400 --> 00:16:53,440 Speaker 11: us off and they're making so much money out of refining, 262 00:16:53,720 --> 00:16:55,800 Speaker 11: that's not really accurate at all. 263 00:16:55,960 --> 00:16:58,480 Speaker 9: If refiner greed isn't a hurdle to sub two dollars 264 00:16:58,520 --> 00:17:02,200 Speaker 9: gasoline supply, it might be. Over the past decade, ten 265 00:17:02,240 --> 00:17:05,120 Speaker 9: refiners have closed, either because of damage or because they 266 00:17:05,160 --> 00:17:07,280 Speaker 9: transitioned to process renewable fuels. 267 00:17:07,640 --> 00:17:09,920 Speaker 12: Refineris have been closing down, as you know in the 268 00:17:10,040 --> 00:17:12,879 Speaker 12: US Alon line. Dell shut down earlier this year. So 269 00:17:13,000 --> 00:17:15,760 Speaker 12: this is another problem that, yes, while crude oil prices 270 00:17:15,800 --> 00:17:18,720 Speaker 12: are going to be low. It's not necessarily the same 271 00:17:18,760 --> 00:17:20,879 Speaker 12: case for what we you and I consume, which is 272 00:17:21,280 --> 00:17:22,320 Speaker 12: gasoline and diesel. 273 00:17:22,800 --> 00:17:25,200 Speaker 9: Emory to Sen is the founder and director of Market 274 00:17:25,240 --> 00:17:28,560 Speaker 9: Intelligence and Energy Aspects, a global data and intelligence firm. 275 00:17:28,800 --> 00:17:31,639 Speaker 9: Sen is one of the most prolific voices in the industry. 276 00:17:31,880 --> 00:17:34,320 Speaker 12: The one thing I'm very very confident about is on 277 00:17:34,359 --> 00:17:38,119 Speaker 12: that refined products markets because the volume of refineries we 278 00:17:38,160 --> 00:17:41,600 Speaker 12: are continuing to shut down and just modest demand growth 279 00:17:41,840 --> 00:17:44,520 Speaker 12: for gasoline, diesel and jet will lead us to some 280 00:17:44,560 --> 00:17:46,280 Speaker 12: significantly higher pump prices. 281 00:17:46,760 --> 00:17:49,160 Speaker 9: COVID also did permanent damage to the industry. 282 00:17:49,400 --> 00:17:51,440 Speaker 8: Yeah, COVID was a challenging time for our industry. 283 00:17:51,560 --> 00:17:52,159 Speaker 13: That was hard. 284 00:17:52,400 --> 00:17:55,359 Speaker 8: Running the plant at minimum was hard. In fact, it 285 00:17:55,480 --> 00:17:59,000 Speaker 8: ended up making several refineries in the United States close. 286 00:17:59,080 --> 00:18:02,840 Speaker 8: It was either impossible, uneconomic or super difficult, and we 287 00:18:02,920 --> 00:18:05,040 Speaker 8: lost a lot of refiners in the US and they're 288 00:18:05,080 --> 00:18:07,119 Speaker 8: probably never going to come back. Once you close a refiner, 289 00:18:07,119 --> 00:18:08,800 Speaker 8: I think it's kind of it's kind of the end 290 00:18:08,840 --> 00:18:11,240 Speaker 8: of the line, and it's sad, but that's what happens. 291 00:18:11,280 --> 00:18:13,720 Speaker 9: So what does that do for a supply demand dynamic 292 00:18:13,800 --> 00:18:16,080 Speaker 9: When it comes to say gasoline. 293 00:18:15,400 --> 00:18:17,600 Speaker 8: It makes it tighter. Yeah, if somebody that used to 294 00:18:17,600 --> 00:18:20,920 Speaker 8: make gasoline is no longer making it, others have to 295 00:18:20,920 --> 00:18:21,880 Speaker 8: pick up the slack and have. 296 00:18:21,880 --> 00:18:22,239 Speaker 14: To do it. 297 00:18:22,520 --> 00:18:25,359 Speaker 9: The US hasn't seen a new large refiner since nineteen 298 00:18:25,400 --> 00:18:28,800 Speaker 9: seventy seven. Smaller ones have been built and existing plans 299 00:18:28,800 --> 00:18:32,320 Speaker 9: have expanded. US capacity is now at eighteen point four 300 00:18:32,320 --> 00:18:36,400 Speaker 9: million barrels a day. The real problem is coming. California 301 00:18:36,400 --> 00:18:39,320 Speaker 9: will see almost one fifth of its crude processing capacity 302 00:18:39,400 --> 00:18:41,919 Speaker 9: vanish in the next twelve months after Valero and Phillip 303 00:18:42,040 --> 00:18:45,280 Speaker 9: sixty six IDL combined two hundred and eighty four thousand 304 00:18:45,280 --> 00:18:47,000 Speaker 9: barrels of daily refining capacity. 305 00:18:47,520 --> 00:18:49,639 Speaker 12: The problem is from twenty twenty seven on was if 306 00:18:49,680 --> 00:18:52,280 Speaker 12: you look at our refining kind of global landscape, it 307 00:18:52,359 --> 00:18:56,160 Speaker 12: only gets worse. We've got more closures coming because refining 308 00:18:56,240 --> 00:18:58,639 Speaker 12: is such a slow moving industry right seven years it 309 00:18:58,720 --> 00:19:00,880 Speaker 12: kind of takes to build, and there are no new 310 00:19:00,880 --> 00:19:04,880 Speaker 12: bills in the West anyways. So I think we are 311 00:19:05,119 --> 00:19:08,600 Speaker 12: in for a period of very high refined products prices, 312 00:19:08,840 --> 00:19:11,480 Speaker 12: even if crude doesn't go out, by the way, regardless 313 00:19:11,480 --> 00:19:13,359 Speaker 12: of what you think crude's going to do, And you 314 00:19:13,359 --> 00:19:15,320 Speaker 12: could disagree with me and say, oh no, demand's not 315 00:19:15,359 --> 00:19:17,639 Speaker 12: going to be great, and you know, shale will bounce 316 00:19:17,720 --> 00:19:19,920 Speaker 12: back whatever. We can disagree on that. 317 00:19:19,920 --> 00:19:22,440 Speaker 9: Two dollars gasoline is definitely not a good sign for 318 00:19:22,480 --> 00:19:25,400 Speaker 9: the oil industry. The US is now the largest producer 319 00:19:25,520 --> 00:19:28,840 Speaker 9: in the world, a different dynamic than previous oil sell offs. 320 00:19:29,760 --> 00:19:33,680 Speaker 11: The crude price that you'd need to get gasoline down 321 00:19:33,720 --> 00:19:37,440 Speaker 11: to dollar ninety nine is one that would be absolutely 322 00:19:37,520 --> 00:19:41,280 Speaker 11: miserable for people in the US oil industry. For oil producers, 323 00:19:41,760 --> 00:19:45,280 Speaker 11: it's certainly a level that would lead to job cutsits 324 00:19:45,600 --> 00:19:48,680 Speaker 11: level that would lead to rigs being laid down, people 325 00:19:48,800 --> 00:19:50,000 Speaker 11: drilling less, and so on. 326 00:19:50,680 --> 00:19:54,399 Speaker 13: Most Americans agree they would like lower gasoline prices, but 327 00:19:54,560 --> 00:19:56,960 Speaker 13: that might not actually be good for the country. 328 00:19:57,560 --> 00:20:00,600 Speaker 11: I think, though, you've got to think about gasoline as 329 00:20:00,640 --> 00:20:06,480 Speaker 11: being a bit like a health check brometer, temperature check. 330 00:20:06,560 --> 00:20:10,960 Speaker 11: If you do see gasoline prices really kind of starting 331 00:20:11,000 --> 00:20:14,320 Speaker 11: to plumb the depths and go significantly below where they 332 00:20:14,320 --> 00:20:17,199 Speaker 11: are today, that's probably a sign that oil is not 333 00:20:17,280 --> 00:20:18,400 Speaker 11: well in the world economy. 334 00:20:18,560 --> 00:20:20,679 Speaker 15: We need to think about what's this cycle going to 335 00:20:20,680 --> 00:20:24,200 Speaker 15: look like. Because again, it was not some fundamental shift 336 00:20:24,200 --> 00:20:28,080 Speaker 15: in the market for oil that caused this particular cycle 337 00:20:28,359 --> 00:20:31,280 Speaker 15: to be intensified. It was some tariff policies that may 338 00:20:31,400 --> 00:20:33,760 Speaker 15: or may not be permanent. We don't know how that's 339 00:20:33,800 --> 00:20:36,960 Speaker 15: all going to shake out. The most typical economic reaction 340 00:20:37,000 --> 00:20:40,360 Speaker 15: to uncertainty is to do nothing. You don't buy that car, 341 00:20:40,400 --> 00:20:42,719 Speaker 15: don't buy that house, don't bring out that new product, 342 00:20:42,800 --> 00:20:45,400 Speaker 15: don't make that investment, all of those things. We tend 343 00:20:45,480 --> 00:20:47,960 Speaker 15: to just lay back and do nothing. If the uncertainty 344 00:20:47,960 --> 00:20:49,639 Speaker 15: as to some extent, I think it was a global 345 00:20:49,640 --> 00:20:52,080 Speaker 15: demand coming back pretty quickly. This may be a fairly 346 00:20:52,119 --> 00:20:53,440 Speaker 15: short cycle if that happens. 347 00:20:53,960 --> 00:20:56,880 Speaker 13: Ray Perryman is an economist who's been studying the economic 348 00:20:56,880 --> 00:20:59,359 Speaker 13: effects of oil prices for forty years. 349 00:21:00,000 --> 00:21:03,520 Speaker 15: Most recent study indicated that today if you take the 350 00:21:03,960 --> 00:21:05,920 Speaker 15: oil that's produced in the Permian and then you look 351 00:21:05,920 --> 00:21:09,680 Speaker 15: at the downstream, the upstream, and everything else that happens 352 00:21:09,080 --> 00:21:12,760 Speaker 15: with the oil produced in this region, if responsible for 353 00:21:13,000 --> 00:21:14,760 Speaker 15: about a million jobs to the United States. 354 00:21:15,080 --> 00:21:18,040 Speaker 13: Texas is an intersection of the economic fallout from low 355 00:21:18,080 --> 00:21:21,400 Speaker 13: oil prices and producers taking their foot off the gas. 356 00:21:21,880 --> 00:21:24,119 Speaker 13: Kirk Edwards is an oil and gas producer who is 357 00:21:24,160 --> 00:21:27,280 Speaker 13: seeing the ripple effects in the Permian basin firsthand. 358 00:21:27,760 --> 00:21:29,679 Speaker 16: It's the rest of the country that benefits from the 359 00:21:29,680 --> 00:21:33,480 Speaker 16: gasoline price. Again, people in the middle of Odessa. We 360 00:21:33,520 --> 00:21:36,119 Speaker 16: would rather see higher gasoling process because it means the 361 00:21:36,160 --> 00:21:37,960 Speaker 16: oil process is good and the economy is going to 362 00:21:37,960 --> 00:21:41,200 Speaker 16: be good. But it is a side effect for everybody, 363 00:21:41,720 --> 00:21:44,560 Speaker 16: because everybody has to use gasoline in their cars right 364 00:21:44,600 --> 00:21:47,640 Speaker 16: now to go to work and fly and do things 365 00:21:47,760 --> 00:21:48,120 Speaker 16: like that. 366 00:21:48,400 --> 00:21:50,840 Speaker 13: And that's where we turn next week on Wall Street 367 00:21:50,880 --> 00:21:53,680 Speaker 13: Week when we go to Midland Odessa, the heart of 368 00:21:53,720 --> 00:21:54,679 Speaker 13: the Permian Basin. 369 00:21:56,600 --> 00:22:00,000 Speaker 2: Up next is Milan starting to look a bit more British, 370 00:22:00,760 --> 00:22:03,560 Speaker 2: a story of how the wealthy are responding to changes 371 00:22:03,640 --> 00:22:19,440 Speaker 2: in British tax law. This is a story about the 372 00:22:19,560 --> 00:22:22,719 Speaker 2: rich and famous, or at least about the rich and 373 00:22:22,840 --> 00:22:26,840 Speaker 2: their migratory habits. Global elites are constantly on the move, 374 00:22:27,080 --> 00:22:30,399 Speaker 2: but where they choose to call home or dessert is 375 00:22:30,480 --> 00:22:33,800 Speaker 2: often dictated less by lifestyle than by what they pay 376 00:22:33,880 --> 00:22:37,280 Speaker 2: in taxes. As our London colleague Lizzie Burden reports in 377 00:22:37,359 --> 00:22:41,200 Speaker 2: this global Shuffle of Fortune's, one Italian city is coming 378 00:22:41,200 --> 00:22:41,920 Speaker 2: out on top. 379 00:22:43,960 --> 00:22:46,640 Speaker 1: Nestled away on a leafy street in one of Milan's 380 00:22:46,640 --> 00:22:50,159 Speaker 1: most stylish neighborhoods, lies the former home of famed fashion 381 00:22:50,240 --> 00:22:54,119 Speaker 1: executive Santo Versace. Take a step inside and you'll enter 382 00:22:54,160 --> 00:22:57,560 Speaker 1: The Wild, the private club catering to Milan's rapidly growing 383 00:22:57,720 --> 00:22:58,600 Speaker 1: wealthy class. 384 00:23:00,160 --> 00:23:02,040 Speaker 17: About Milan, it's an hour and a half by plane 385 00:23:02,040 --> 00:23:04,679 Speaker 17: from London. You can drive to the south of France 386 00:23:04,760 --> 00:23:06,560 Speaker 17: in two and a half hours. You can drive to 387 00:23:06,640 --> 00:23:08,320 Speaker 17: the beach in a couple of hours. You can be 388 00:23:08,359 --> 00:23:09,520 Speaker 17: in sam Ritz in an hour. 389 00:23:09,480 --> 00:23:09,960 Speaker 11: And a half. 390 00:23:10,640 --> 00:23:14,240 Speaker 1: Gary Landsberg's been heavily involved in private clubs in London. 391 00:23:14,920 --> 00:23:18,359 Speaker 17: So my first foray into private clubs was with a 392 00:23:18,359 --> 00:23:22,760 Speaker 17: great club, the Arts Club, which was founded in eighteen 393 00:23:22,840 --> 00:23:26,440 Speaker 17: sixty three by Charles Dickens, and I was fortunate enough 394 00:23:26,480 --> 00:23:29,800 Speaker 17: to be able to with my partners acquire the business. 395 00:23:29,960 --> 00:23:33,320 Speaker 17: It's got an amazing history and clubs go back to 396 00:23:33,359 --> 00:23:37,320 Speaker 17: the late eighteen hundreds in London. You have Brooks, Whites, 397 00:23:38,400 --> 00:23:41,120 Speaker 17: all these amazing clubs, Boodles. 398 00:23:41,720 --> 00:23:45,120 Speaker 1: But Gary opened The Wild last year, a club emblematic 399 00:23:45,160 --> 00:23:48,760 Speaker 1: of a global wealth movement into places like Milan, Monaco 400 00:23:48,920 --> 00:23:52,679 Speaker 1: and the Middle East away from London private clubs. 401 00:23:52,720 --> 00:23:54,880 Speaker 17: If you go back to the eighteen hundreds, I think 402 00:23:54,880 --> 00:23:57,440 Speaker 17: there were like three hundred clubs at the time, there 403 00:23:57,480 --> 00:23:59,959 Speaker 17: was a lot and you know over the years Aviv 404 00:24:00,640 --> 00:24:03,640 Speaker 17: in twenty twenty five. In London people still like going 405 00:24:03,680 --> 00:24:06,200 Speaker 17: to private clubs, but unfortunately a lot of the clear 406 00:24:06,240 --> 00:24:08,440 Speaker 17: untail have actually left. 407 00:24:09,320 --> 00:24:12,159 Speaker 1: And that's due in part to the UK government abolishing 408 00:24:12,160 --> 00:24:14,000 Speaker 1: the so called non dom regime. 409 00:24:14,920 --> 00:24:17,640 Speaker 11: We will raise specific taxes. 410 00:24:17,880 --> 00:24:20,760 Speaker 8: We want to win the non dom status completely. 411 00:24:20,800 --> 00:24:23,280 Speaker 2: I think that the super rich trips paid their tax. 412 00:24:25,240 --> 00:24:28,600 Speaker 18: It is a term relatively unique to the UK and 413 00:24:28,880 --> 00:24:32,520 Speaker 18: it's short for non domiciled, so it refers to people 414 00:24:32,560 --> 00:24:36,399 Speaker 18: who have or until very recently have had special tax 415 00:24:36,440 --> 00:24:40,560 Speaker 18: treatment because they were considered non domiciled in the UK, 416 00:24:40,720 --> 00:24:44,200 Speaker 18: meaning that their permanent home is in a different country. 417 00:24:44,880 --> 00:24:47,520 Speaker 1: Nina Scerrow is the CEO at the Center for Economics 418 00:24:47,520 --> 00:24:50,960 Speaker 1: and Business Research in London. Previously a non dom would 419 00:24:50,960 --> 00:24:53,520 Speaker 1: avoid UK tax on foreign income and pay a small 420 00:24:53,560 --> 00:24:56,720 Speaker 1: fee after a few years. Now they won't pay tax 421 00:24:56,760 --> 00:24:59,359 Speaker 1: for the first four years, but then there'll be tax 422 00:24:59,480 --> 00:25:01,600 Speaker 1: like everybody else on their worldwide income. 423 00:25:02,359 --> 00:25:04,320 Speaker 18: In short, it's the beginning of the end of the 424 00:25:04,359 --> 00:25:07,399 Speaker 18: non arm regime. So it is a big tightening of 425 00:25:07,600 --> 00:25:10,760 Speaker 18: the of the rules. The previous big change was in 426 00:25:10,800 --> 00:25:15,200 Speaker 18: twenty seventeen under the Conservative government, where they essentially capped 427 00:25:15,240 --> 00:25:17,800 Speaker 18: the period of fifteen years. They said, if you've been 428 00:25:17,800 --> 00:25:20,840 Speaker 18: here for fifteen of the past twenty years, you can't 429 00:25:21,119 --> 00:25:25,240 Speaker 18: really genuinely say that you're not a non arm But 430 00:25:25,320 --> 00:25:28,119 Speaker 18: this is now making the rules all the title. 431 00:25:29,240 --> 00:25:33,639 Speaker 1: Manchester United owner Jim Ratcliffe famously relocated from Britain to 432 00:25:33,720 --> 00:25:36,400 Speaker 1: Monaco in twenty twenty, in a move that was expected 433 00:25:36,440 --> 00:25:39,919 Speaker 1: to save him four billion pounds in tax payments. 434 00:25:40,320 --> 00:25:42,720 Speaker 10: I wasn't a fan of the non dome change. I 435 00:25:42,800 --> 00:25:45,440 Speaker 10: thought that was very foolish. I mean, you've got sixty 436 00:25:45,520 --> 00:25:47,480 Speaker 10: zersand very wealthy people in London. I do want to 437 00:25:47,520 --> 00:25:49,800 Speaker 10: encourage them to leave and make any sense to me 438 00:25:50,760 --> 00:25:54,200 Speaker 10: because they all bring, you know, enormous value to that economy. 439 00:25:55,000 --> 00:25:57,800 Speaker 1: And now he's being joined by fellow football club owners, 440 00:25:57,880 --> 00:26:02,600 Speaker 1: banking executives and real estate in departing Britain. Last year, 441 00:26:02,640 --> 00:26:06,199 Speaker 1: the UK had a net loss of almost eleven thousand millionaires, 442 00:26:06,240 --> 00:26:08,280 Speaker 1: a one hundred and fifty seven percent jump from a 443 00:26:08,359 --> 00:26:11,160 Speaker 1: year before, which was already the highest number in a decade. 444 00:26:11,640 --> 00:26:13,880 Speaker 17: I think the numbers that will come out in twenty 445 00:26:13,960 --> 00:26:17,520 Speaker 17: twenty five will be shocking, really I think will be shocking. 446 00:26:17,640 --> 00:26:22,359 Speaker 17: The trickle down effect on the economy is huge. Everyone 447 00:26:22,359 --> 00:26:25,840 Speaker 17: who leaves will have people that work from whether it's 448 00:26:26,000 --> 00:26:28,760 Speaker 17: in their business, in their office, in their home. 449 00:26:29,480 --> 00:26:33,320 Speaker 19: And how is it directly impacting your business your investment strategy. 450 00:26:33,920 --> 00:26:36,840 Speaker 17: Well, I think you know, for someone that was pretty 451 00:26:36,920 --> 00:26:40,800 Speaker 17: much heavily invested in London, I'm completely divested from London. 452 00:26:41,080 --> 00:26:44,560 Speaker 17: I have nothing here. I have a few real estate investments, 453 00:26:44,600 --> 00:26:47,679 Speaker 17: but I'm certainly not looking at this stage to invest 454 00:26:47,720 --> 00:26:50,200 Speaker 17: back in to London in the short term. 455 00:26:50,359 --> 00:26:53,520 Speaker 1: But the government is confident it's made the right decision. 456 00:26:54,160 --> 00:26:56,800 Speaker 19: Are you concerned that your non dom tax changes will 457 00:26:56,840 --> 00:26:58,359 Speaker 19: cost more than they raise? 458 00:26:58,720 --> 00:27:01,600 Speaker 20: No, I'm not concerned. We made a Manifesto commitment to 459 00:27:01,760 --> 00:27:04,320 Speaker 20: ensure that non doms do pay their fair share of 460 00:27:04,400 --> 00:27:07,560 Speaker 20: tax in the UK, but combined with a temporary repatriation 461 00:27:07,680 --> 00:27:11,000 Speaker 20: facility which makes it easier for people to bring money 462 00:27:11,080 --> 00:27:14,720 Speaker 20: into the UK without facing punative tax. This is a 463 00:27:14,800 --> 00:27:17,400 Speaker 20: highly mobile group of people. But as well as people 464 00:27:17,520 --> 00:27:20,119 Speaker 20: leaving the UK for a whole variety of reasons, we 465 00:27:20,200 --> 00:27:23,040 Speaker 20: have every year thousands of people, including some of the 466 00:27:23,040 --> 00:27:25,880 Speaker 20: wealthiest people, come to the UK because they can see 467 00:27:25,920 --> 00:27:27,840 Speaker 20: that this is a great place to do business, a 468 00:27:27,840 --> 00:27:29,400 Speaker 20: great place to grow a business. 469 00:27:30,119 --> 00:27:34,400 Speaker 1: The government's Independent Office for Budget Responsibility estimates that twelve 470 00:27:34,440 --> 00:27:37,600 Speaker 1: percent of non doms will leave the UK, but that 471 00:27:37,680 --> 00:27:41,280 Speaker 1: the new regime will offset that by raising almost thirty 472 00:27:41,400 --> 00:27:45,360 Speaker 1: four billion pounds over the next five years. Nina Scerrow 473 00:27:45,520 --> 00:27:46,320 Speaker 1: isn't so sure. 474 00:27:47,119 --> 00:27:49,000 Speaker 18: I think there is a very very good reason to 475 00:27:49,080 --> 00:27:53,879 Speaker 18: think that the government departments are underestimating the extent to 476 00:27:53,920 --> 00:27:56,800 Speaker 18: which people are going to either leave the UK or 477 00:27:56,800 --> 00:27:59,560 Speaker 18: people that would have come to the UK otherwise aren't 478 00:27:59,600 --> 00:28:02,640 Speaker 18: going to common What we have found is that tipping 479 00:28:02,760 --> 00:28:06,760 Speaker 18: point where is the government making money is the government 480 00:28:06,960 --> 00:28:10,880 Speaker 18: losing money? Net is around one in four. So if 481 00:28:11,040 --> 00:28:14,639 Speaker 18: more than a quarter of non doms people currently claiming 482 00:28:14,640 --> 00:28:17,840 Speaker 18: the status are no longer in the UK, that is 483 00:28:17,880 --> 00:28:21,080 Speaker 18: the point at which the government actually starts losing money. 484 00:28:21,640 --> 00:28:24,520 Speaker 18: And looking at the obr's own estimates and some other 485 00:28:24,960 --> 00:28:28,040 Speaker 18: external estimates for how many people might consider leaving the 486 00:28:28,119 --> 00:28:30,959 Speaker 18: UK as a result, twenty five percent is very very 487 00:28:31,040 --> 00:28:34,399 Speaker 18: much within the realm of possibilities. So if you're asking yourself, 488 00:28:34,440 --> 00:28:35,919 Speaker 18: do I want to go to the UK? Do I 489 00:28:35,920 --> 00:28:37,320 Speaker 18: want to stay in the UK? Is this a good 490 00:28:37,320 --> 00:28:40,080 Speaker 18: place to start a business, to grow a business. There 491 00:28:40,160 --> 00:28:42,840 Speaker 18: is more and more ticks in the no column. 492 00:28:43,000 --> 00:28:45,520 Speaker 19: Are you saying that it could affect London status as 493 00:28:45,560 --> 00:28:46,880 Speaker 19: a global financial hoob? 494 00:28:47,440 --> 00:28:47,640 Speaker 11: Yeah? 495 00:28:47,640 --> 00:28:51,560 Speaker 18: And I think absolutely changes to non doms is putting 496 00:28:51,560 --> 00:28:53,960 Speaker 18: a bit of a damper on the status of London globally. 497 00:28:54,160 --> 00:28:56,120 Speaker 18: And that's kind of a continuation, a little bit of 498 00:28:56,160 --> 00:28:56,600 Speaker 18: a trend. 499 00:28:57,520 --> 00:29:02,880 Speaker 1: So if not London, why That's where Marco Characto comes in. 500 00:29:03,520 --> 00:29:07,880 Speaker 21: I'm an Italian tax lawyer, so specialized on tax and 501 00:29:08,000 --> 00:29:12,120 Speaker 21: in that field that it means ever, taxation of corporation, 502 00:29:12,320 --> 00:29:16,360 Speaker 21: taxation of individuals. I would say that my personal practice 503 00:29:16,480 --> 00:29:21,320 Speaker 21: increased towards taxation of individuals in the past years because 504 00:29:21,760 --> 00:29:25,000 Speaker 21: of the new rules. 505 00:29:25,600 --> 00:29:28,320 Speaker 1: The new rules to which he refers are Italy's flat 506 00:29:28,400 --> 00:29:32,000 Speaker 1: tax regime. Individuals pay a flat two hundred thousand euros 507 00:29:32,040 --> 00:29:34,480 Speaker 1: a year on foreign income for up to fifteen years, 508 00:29:34,840 --> 00:29:37,640 Speaker 1: a figure that was doubled last year. We've got all 509 00:29:37,640 --> 00:29:40,520 Speaker 1: of the fiscal pressures, not just in Italy but across. 510 00:29:40,160 --> 00:29:42,840 Speaker 19: Europe and around the world. How likely is it that 511 00:29:42,880 --> 00:29:45,440 Speaker 19: this flat tax can endure? Because of course it's already 512 00:29:45,440 --> 00:29:47,520 Speaker 19: gone u from one hundred thousand to two hundred thousand 513 00:29:48,000 --> 00:29:48,720 Speaker 19: can it last? 514 00:29:49,480 --> 00:29:53,400 Speaker 21: The decision of the government back in August twenty twenty 515 00:29:53,400 --> 00:29:55,880 Speaker 21: four to double the tax from one hundred thousand to 516 00:29:55,920 --> 00:30:01,360 Speaker 21: two hundred thousand has been indeed considered by foreign observers 517 00:30:01,400 --> 00:30:05,680 Speaker 21: from my field as a confirmation of the willingness of 518 00:30:05,720 --> 00:30:09,640 Speaker 21: the government to keep the regime, rather than an indicator 519 00:30:09,720 --> 00:30:12,920 Speaker 21: that the gin might be unstable. Consider that this regime 520 00:30:13,000 --> 00:30:17,080 Speaker 21: is there since twenty seventeen, has never been changed apart 521 00:30:17,120 --> 00:30:21,520 Speaker 21: from this increase, which as an inflation component, because don't 522 00:30:21,520 --> 00:30:23,840 Speaker 21: forget it was introduced eighty years ago, so there was 523 00:30:23,880 --> 00:30:28,320 Speaker 21: an inflationary period. And also there was the willingness of 524 00:30:28,360 --> 00:30:33,560 Speaker 21: the government to contain discussions or debates about the fairness 525 00:30:33,600 --> 00:30:37,480 Speaker 21: of this regime because by increasing and doubling the tax, 526 00:30:37,960 --> 00:30:43,280 Speaker 21: they have willingly restricted the amount of a network individual's 527 00:30:43,600 --> 00:30:48,280 Speaker 21: moving to Milan, thereby reducing the discussion about the furnace. 528 00:30:49,240 --> 00:30:51,960 Speaker 1: Cerato spent most of his life in Milan and has 529 00:30:52,000 --> 00:30:54,120 Speaker 1: watched the city evolved well. 530 00:30:54,240 --> 00:30:58,200 Speaker 21: Milana changed a lot in the last fifty years. At 531 00:30:58,200 --> 00:31:01,840 Speaker 21: the beginning it was an industrial seat. During their years, 532 00:31:01,880 --> 00:31:05,080 Speaker 21: it became a service city. It attracted a lot of people, 533 00:31:05,680 --> 00:31:08,760 Speaker 21: so fifty years ago, most of the people, at least 534 00:31:08,800 --> 00:31:13,640 Speaker 21: the people were wealthy, were MILLENISA. Now it's very difficult 535 00:31:13,720 --> 00:31:16,719 Speaker 21: to find somebody who is purely Milanisa. 536 00:31:17,640 --> 00:31:20,840 Speaker 1: Yet an influx poses its own problems. Real estate in 537 00:31:20,880 --> 00:31:24,000 Speaker 1: Milan has comfortably outpaced wage growth over the past decade, 538 00:31:24,040 --> 00:31:27,800 Speaker 1: with prices rising forty nine percent, while other major Italian 539 00:31:27,800 --> 00:31:30,480 Speaker 1: cities have stayed largely flat or even decreased. 540 00:31:31,320 --> 00:31:34,840 Speaker 17: It's quite small city, it's quite condensed, so they don't 541 00:31:34,880 --> 00:31:38,480 Speaker 17: have a lot of huge developments going on. There's been 542 00:31:38,480 --> 00:31:42,040 Speaker 17: a big influx of expats. They all pretty much want 543 00:31:42,080 --> 00:31:45,720 Speaker 17: to live in the same area, which makes it quite 544 00:31:45,760 --> 00:31:50,840 Speaker 17: difficult first for them to find actually spaces, and second 545 00:31:50,840 --> 00:31:53,960 Speaker 17: of all, because there's not a lot of supply and 546 00:31:54,000 --> 00:31:56,640 Speaker 17: there's a huge amount of demand. What's happening in the 547 00:31:56,680 --> 00:31:59,640 Speaker 17: local community actually is getting out priced because they haven't 548 00:31:59,640 --> 00:32:03,880 Speaker 17: seen She's like this before. The good quality mel real 549 00:32:04,000 --> 00:32:07,560 Speaker 17: estate is certainly seeing a huge increase in values. 550 00:32:08,280 --> 00:32:10,479 Speaker 19: Would you say that Italy is more aware that it's 551 00:32:10,560 --> 00:32:13,960 Speaker 19: in a global competition to attract high network individuals than, 552 00:32:14,080 --> 00:32:15,520 Speaker 19: for example, the UK government. 553 00:32:16,200 --> 00:32:20,479 Speaker 21: I'm not so sure the government is so keen in 554 00:32:21,200 --> 00:32:25,960 Speaker 21: entering into a global competition protect these people. They just 555 00:32:26,240 --> 00:32:29,720 Speaker 21: realized that it's good to have people from abroad with 556 00:32:30,040 --> 00:32:36,440 Speaker 21: high pending capacity making investment. This regime was introduced by 557 00:32:36,480 --> 00:32:40,200 Speaker 21: a left wing government. This counter government is a right 558 00:32:40,240 --> 00:32:44,960 Speaker 21: wing Meanwhile, there weare I think seven governments of different colors. 559 00:32:45,480 --> 00:32:49,040 Speaker 21: All the different parties looked at this regime and decided 560 00:32:49,080 --> 00:32:53,680 Speaker 21: to keep it. So paradoxically, the political instability of Italy 561 00:32:53,760 --> 00:32:58,160 Speaker 21: has been the best test to consider this as a 562 00:32:58,200 --> 00:32:59,680 Speaker 21: stable tax regen. 563 00:33:00,560 --> 00:33:03,400 Speaker 1: Italy's government might not consider itself in a competition to 564 00:33:03,400 --> 00:33:06,280 Speaker 1: attract the wealthy, but it is doing just that, and 565 00:33:06,400 --> 00:33:09,600 Speaker 1: Lansburg says the UK faces an uphill battle to load 566 00:33:09,640 --> 00:33:10,080 Speaker 1: them back. 567 00:33:10,840 --> 00:33:13,160 Speaker 17: You'll get the results of twenty five in twenty six. 568 00:33:13,400 --> 00:33:17,720 Speaker 17: They'll start talking about it. They'll start probably tweaking with 569 00:33:17,800 --> 00:33:20,560 Speaker 17: it by twenty seven, and then everyone will be worried 570 00:33:20,560 --> 00:33:23,880 Speaker 17: about an election in I think twenty nine. And if 571 00:33:23,920 --> 00:33:26,000 Speaker 17: you've kind of been around long enough, you kind of 572 00:33:26,000 --> 00:33:28,280 Speaker 17: see the patterns, and you know, I think you know 573 00:33:28,560 --> 00:33:32,600 Speaker 17: they're they're not going to turn the ship round today, and. 574 00:33:32,520 --> 00:33:35,479 Speaker 1: In the meantime they can always look east to Italy. 575 00:33:36,040 --> 00:33:38,880 Speaker 21: I keep repeating my clients that Italy is a very 576 00:33:38,880 --> 00:33:43,040 Speaker 21: bed place to work if you're in Italian professional or employee, 577 00:33:43,040 --> 00:33:45,000 Speaker 21: because you pay a lot of taxes on your income. 578 00:33:45,040 --> 00:33:48,240 Speaker 21: But it's a very nice place to die because there 579 00:33:48,320 --> 00:33:52,640 Speaker 21: is a net of the flat tax regime. There is 580 00:33:52,680 --> 00:33:57,720 Speaker 21: a very favorable regime on inhericans and gifts. 581 00:33:58,520 --> 00:34:01,400 Speaker 2: Coming next, and you thought lawyers were only a drag 582 00:34:01,440 --> 00:34:04,240 Speaker 2: on the bottom line, Now they may be the next 583 00:34:04,280 --> 00:34:07,800 Speaker 2: big alternative for your investments. Next on Wall Street Week, 584 00:34:19,320 --> 00:34:22,160 Speaker 2: this is a story about turning a cost center into 585 00:34:22,200 --> 00:34:26,759 Speaker 2: an investment opportunity. For generations, lawyers have been a necessary 586 00:34:26,840 --> 00:34:30,399 Speaker 2: cost to be managed and minimized, but now that may 587 00:34:30,480 --> 00:34:33,399 Speaker 2: be changing. 588 00:34:35,680 --> 00:34:40,520 Speaker 22: The legal industry as a whole has become a big business, 589 00:34:41,000 --> 00:34:44,439 Speaker 22: and we've got firms. I think there are fifty eight 590 00:34:44,520 --> 00:34:48,240 Speaker 22: firms that have more than a billion dollars in revenue. 591 00:34:48,719 --> 00:34:51,400 Speaker 2: Lisa Smith is head of the Washington, d c. Office 592 00:34:51,400 --> 00:34:55,480 Speaker 2: of Fairfax Associates, which advises law firms on business strategy. 593 00:34:55,840 --> 00:34:59,920 Speaker 22: The investment opportunity is high. I think the question is 594 00:35:00,160 --> 00:35:04,280 Speaker 22: is how to how to add value, How outside investors 595 00:35:04,320 --> 00:35:05,440 Speaker 22: could add value. 596 00:35:05,840 --> 00:35:08,359 Speaker 2: In the past, when you were looking for exciting new 597 00:35:08,400 --> 00:35:11,600 Speaker 2: investment opportunities, American law firms weren't on the top of 598 00:35:11,600 --> 00:35:15,080 Speaker 2: the list. There's no question that the overall market is big, 599 00:35:15,480 --> 00:35:18,320 Speaker 2: with revenues estimated to total just over three hundred and 600 00:35:18,320 --> 00:35:21,520 Speaker 2: forty three billion dollars in twenty twenty two, up almost 601 00:35:21,520 --> 00:35:24,600 Speaker 2: one hundred billion dollars from ten years before, according to 602 00:35:24,600 --> 00:35:27,800 Speaker 2: the Saint Louis fed But until recently, all that money 603 00:35:27,920 --> 00:35:30,520 Speaker 2: was more or less kept within the protected guild of 604 00:35:30,560 --> 00:35:32,840 Speaker 2: those who'd gone to law school and been called to 605 00:35:32,880 --> 00:35:36,160 Speaker 2: the bar. We lawyers worked for Wall Street, but we 606 00:35:36,160 --> 00:35:39,480 Speaker 2: were something separate and distinct from Wall Street. Just ask 607 00:35:39,560 --> 00:35:41,800 Speaker 2: Professor David Wilkins of Harvard Law School. 608 00:35:42,280 --> 00:35:44,000 Speaker 23: So you and I went to law school because we 609 00:35:44,200 --> 00:35:46,600 Speaker 23: didn't want to do business. It's not just that we 610 00:35:46,600 --> 00:35:48,480 Speaker 23: were not going to business school. It was a sort 611 00:35:48,520 --> 00:35:52,359 Speaker 23: of an oppositional idea, as I think your Justice pile 612 00:35:52,560 --> 00:35:56,680 Speaker 23: one said, but at least distant from business. 613 00:35:57,239 --> 00:35:59,000 Speaker 2: As much as we tend to think of the legal 614 00:35:59,080 --> 00:36:02,040 Speaker 2: profession as tied to traditions going back hundreds of years 615 00:36:02,040 --> 00:36:05,960 Speaker 2: in Anglo Saxon jurisprudence, it has made some fundamental changes 616 00:36:06,000 --> 00:36:09,600 Speaker 2: through the years, starting with who was let into the tribe. 617 00:36:10,000 --> 00:36:13,160 Speaker 2: So we're in this wonderful Casperson Room, which is filled 618 00:36:13,239 --> 00:36:16,560 Speaker 2: largely with the portraits of old white men. But this 619 00:36:16,600 --> 00:36:17,360 Speaker 2: is a big exception. 620 00:36:17,480 --> 00:36:18,319 Speaker 16: Tell us about this. 621 00:36:18,440 --> 00:36:21,879 Speaker 23: It is this is the first class of women who 622 00:36:21,920 --> 00:36:25,520 Speaker 23: came to Harvard Law School, which is both a thing 623 00:36:25,560 --> 00:36:28,640 Speaker 23: to celebrate and also a little to be embarrassed about, 624 00:36:28,719 --> 00:36:31,680 Speaker 23: because these women did not come until nineteen fifty. In 625 00:36:31,719 --> 00:36:35,000 Speaker 23: other words, Harvard Law School had no women prior to 626 00:36:35,080 --> 00:36:39,640 Speaker 23: nineteen fifty, and this is a portrait of that remarkable 627 00:36:40,000 --> 00:36:42,879 Speaker 23: group of women, many of whom went on to do 628 00:36:43,080 --> 00:36:47,239 Speaker 23: quite remarkable things. It's important for us to remember, in 629 00:36:47,320 --> 00:36:52,279 Speaker 23: other words, that it wasn't so long ago that the 630 00:36:52,320 --> 00:36:57,640 Speaker 23: definition of merit did not include fifty percent of the population. 631 00:36:58,120 --> 00:37:00,920 Speaker 2: Social pressures led to changes in the setae sixties and seventies, 632 00:37:01,280 --> 00:37:04,520 Speaker 2: but now it's a new kind of pressure, the financial kind, 633 00:37:04,920 --> 00:37:07,560 Speaker 2: that is pointing to fundamental changes in the way lawyers 634 00:37:07,600 --> 00:37:10,719 Speaker 2: do their work, brought on by an enormous growth in 635 00:37:10,760 --> 00:37:13,600 Speaker 2: the size and complexity of the matters lawyers are taking. 636 00:37:13,600 --> 00:37:20,920 Speaker 14: On the cost of litigation, the time litigation takes, the 637 00:37:20,960 --> 00:37:25,160 Speaker 14: amount of investment a either a law firm. 638 00:37:25,040 --> 00:37:27,320 Speaker 24: Or the plaintive has to make to even be able 639 00:37:27,360 --> 00:37:30,280 Speaker 24: to figure out is that a good enough case? 640 00:37:31,400 --> 00:37:32,560 Speaker 14: How can I win this case? 641 00:37:32,880 --> 00:37:34,040 Speaker 7: It just is. 642 00:37:34,080 --> 00:37:38,759 Speaker 24: Cost prohibitive for the average person and frankly for the 643 00:37:38,840 --> 00:37:43,359 Speaker 24: average firm, because a law firm that takes a contingency case, 644 00:37:43,400 --> 00:37:45,080 Speaker 24: that's not their only contingency case. 645 00:37:45,520 --> 00:37:48,719 Speaker 2: Boris Zeisser is a partner at shirlti Roth, where he 646 00:37:48,840 --> 00:37:51,840 Speaker 2: is cohed of its finance and derivatives practice. 647 00:37:52,080 --> 00:37:54,840 Speaker 24: I think it's the need for the capital, given how 648 00:37:55,440 --> 00:38:01,879 Speaker 24: expensive it is to litigate, that has created this, this 649 00:38:02,040 --> 00:38:04,840 Speaker 24: need for this, for this outside investment. 650 00:38:05,440 --> 00:38:08,520 Speaker 2: As the cases have gotten bigger and more expensive, so 651 00:38:08,640 --> 00:38:10,480 Speaker 2: have the law firms that handle them. 652 00:38:11,040 --> 00:38:15,680 Speaker 23: Top law firm partners are being recruited from one law 653 00:38:15,719 --> 00:38:19,880 Speaker 23: firm to another, and they're being paid something like twenty 654 00:38:20,000 --> 00:38:24,359 Speaker 23: million dollars a year, guaranteed for five years. I used 655 00:38:24,400 --> 00:38:28,200 Speaker 23: to joke that law firm partners are paid like middle relievers. 656 00:38:28,280 --> 00:38:32,120 Speaker 23: They're now being paid like starting pitchers. You start to 657 00:38:32,440 --> 00:38:37,480 Speaker 23: have that in global enterprises, in dozens of locations with 658 00:38:38,239 --> 00:38:40,879 Speaker 23: tens of thousands of people. If you count all the 659 00:38:41,360 --> 00:38:44,000 Speaker 23: you know, the people who are not lawyers who work 660 00:38:44,040 --> 00:38:47,960 Speaker 23: in these organizations, and pretty soon you realize that if 661 00:38:48,000 --> 00:38:51,240 Speaker 23: you're running one of these things, you need not only 662 00:38:51,360 --> 00:38:55,400 Speaker 23: the skills of an excellent lawyer, you need to also 663 00:38:55,719 --> 00:38:59,160 Speaker 23: understand how to manage a complex business. 664 00:38:59,560 --> 00:39:02,840 Speaker 2: The information in the practice of law has already brought 665 00:39:02,880 --> 00:39:06,680 Speaker 2: with it outside investment, largely in the form of litigation finance, 666 00:39:07,000 --> 00:39:10,480 Speaker 2: where investors take an interest in individual cases or groups 667 00:39:10,520 --> 00:39:11,160 Speaker 2: of cases. 668 00:39:11,600 --> 00:39:19,279 Speaker 23: Litigation funding is just the securitization of litigation assets, and 669 00:39:19,320 --> 00:39:23,839 Speaker 23: again it started out as a kind of cottage industry, 670 00:39:23,880 --> 00:39:28,400 Speaker 23: mostly focused frankly on plaintiffs firms who are looking for 671 00:39:28,520 --> 00:39:32,719 Speaker 23: ways to defray the big investment. Increasingly, what we're going 672 00:39:32,760 --> 00:39:37,200 Speaker 23: to see is by the way companies bringing them in 673 00:39:37,280 --> 00:39:42,600 Speaker 23: to bundle cases together. So just like subprime mortgages, for 674 00:39:42,840 --> 00:39:47,920 Speaker 23: better and for worse, we are now seeing litigation as 675 00:39:47,920 --> 00:39:52,080 Speaker 23: an aggregate asset in which people are bundling cases together 676 00:39:52,520 --> 00:39:57,160 Speaker 23: because from the company's point of view, it's an aggregate risk. 677 00:39:58,040 --> 00:40:01,200 Speaker 2: But now there's the possibility of pri financing, not just 678 00:40:01,280 --> 00:40:04,560 Speaker 2: for individual cases or groups of cases, but for the 679 00:40:04,640 --> 00:40:06,000 Speaker 2: law firms themselves. 680 00:40:06,520 --> 00:40:09,359 Speaker 24: Law firms borrow money all the time, and there are 681 00:40:09,400 --> 00:40:13,440 Speaker 24: restrictions in every state on how a law firm can 682 00:40:13,520 --> 00:40:16,759 Speaker 24: take on capital, if you want to call it generically. 683 00:40:17,640 --> 00:40:20,439 Speaker 24: The more recent development was that a few years ago. 684 00:40:20,960 --> 00:40:26,600 Speaker 24: Arizona and Utah as well have created a new structure, 685 00:40:27,080 --> 00:40:31,120 Speaker 24: alternative business structure ABS. It's actually not new. It's new 686 00:40:31,120 --> 00:40:33,480 Speaker 24: in the United States. It has actually existed in the 687 00:40:33,600 --> 00:40:37,960 Speaker 24: UK for over a decade, but it's new here. And 688 00:40:38,120 --> 00:40:39,800 Speaker 24: what that allows a law. 689 00:40:39,640 --> 00:40:40,040 Speaker 14: Firm to do. 690 00:40:40,080 --> 00:40:42,080 Speaker 24: It's still a law firm. It's important to understand an 691 00:40:42,120 --> 00:40:45,200 Speaker 24: ABS is still a law firm, but it's a law 692 00:40:45,200 --> 00:40:48,560 Speaker 24: firm that has obtained a license, has gone through a 693 00:40:48,640 --> 00:40:52,600 Speaker 24: rigorous licensing process with a committee that operates under the 694 00:40:52,640 --> 00:40:56,200 Speaker 24: auspices of the Supreme Court of that state. 695 00:40:56,440 --> 00:40:59,360 Speaker 23: The best example of this is in the UK, which 696 00:41:00,160 --> 00:41:05,360 Speaker 23: shortly after the global financial crisis, began to deregulate what 697 00:41:05,560 --> 00:41:11,160 Speaker 23: its legal structures and markets could look like. One of 698 00:41:11,200 --> 00:41:15,719 Speaker 23: the things that they did was take off the restriction 699 00:41:16,640 --> 00:41:20,240 Speaker 23: that the only capital that could be an a llegal 700 00:41:20,320 --> 00:41:23,120 Speaker 23: organization had to come from lawyers. In other words, you 701 00:41:23,160 --> 00:41:26,960 Speaker 23: couldn't have external capital. They also took off the restriction 702 00:41:27,080 --> 00:41:32,360 Speaker 23: that only lawyers could be partners in legal organizations. Now 703 00:41:32,400 --> 00:41:36,880 Speaker 23: you can have multidisciplinary partnerships. That's meant, for example, the 704 00:41:36,960 --> 00:41:43,040 Speaker 23: Big four accountancy firms are now licensed to practice law 705 00:41:43,360 --> 00:41:44,080 Speaker 23: in the UK. 706 00:41:44,640 --> 00:41:47,600 Speaker 2: The prospect of attracting outside investmental law firms may be 707 00:41:47,680 --> 00:41:50,400 Speaker 2: attractive for the partners and the firms, but it's not 708 00:41:50,520 --> 00:41:54,560 Speaker 2: without its complications. Nearly all states in the US forbid 709 00:41:54,640 --> 00:41:58,680 Speaker 2: lawyers from sharing ownership with non lawyers or even sharing fees, 710 00:41:58,920 --> 00:42:01,280 Speaker 2: except under certain limited circumstances. 711 00:42:01,920 --> 00:42:04,799 Speaker 23: It's not just any business. In other words, it's not 712 00:42:05,600 --> 00:42:09,080 Speaker 23: the same as running a manufacturing company or even running 713 00:42:09,080 --> 00:42:13,440 Speaker 23: an investment bank or edgement, because the people who are 714 00:42:13,480 --> 00:42:18,000 Speaker 23: at the core of this business, who are lawyers, also 715 00:42:18,239 --> 00:42:22,600 Speaker 23: have a set of professional obligations that are not just 716 00:42:22,880 --> 00:42:29,680 Speaker 23: maximizing shareholder profit or short term return. They have larger 717 00:42:30,320 --> 00:42:35,720 Speaker 23: duties and responsibilities to protect and preserve the rule of law, 718 00:42:36,160 --> 00:42:40,920 Speaker 23: which is core to American business, to American society, to 719 00:42:41,000 --> 00:42:44,120 Speaker 23: our freedoms as a nation, to democracy. 720 00:42:44,440 --> 00:42:46,799 Speaker 2: For the profession, the question comes down to whether it 721 00:42:46,840 --> 00:42:50,440 Speaker 2: can pursue both the raising of outside capital and adhere 722 00:42:50,480 --> 00:42:53,879 Speaker 2: to the professional obligations each lawyer pledges to uphold when 723 00:42:53,920 --> 00:42:57,240 Speaker 2: we are sworn into the bar, or as Seisser thinks 724 00:42:57,280 --> 00:42:57,880 Speaker 2: that it can. 725 00:42:58,160 --> 00:43:01,200 Speaker 24: There is a real difference between in the practice of law, 726 00:43:01,239 --> 00:43:04,240 Speaker 24: I think in the business of law and quite frankly, 727 00:43:04,719 --> 00:43:07,800 Speaker 24: having somebody who's not a lawyer, who has the financial 728 00:43:07,840 --> 00:43:12,040 Speaker 24: acumen to help a law firm be more efficient, more profitable, 729 00:43:13,200 --> 00:43:17,920 Speaker 24: function more smoothly, take advantage of the technological whether it's 730 00:43:17,960 --> 00:43:23,239 Speaker 24: AI or any other technological advancement. I think only in 731 00:43:23,320 --> 00:43:26,960 Speaker 24: yours to the benefit of the clients, and the lawyers 732 00:43:27,000 --> 00:43:31,640 Speaker 24: are still subject to the same disciplinary rules, ethics rules. 733 00:43:31,239 --> 00:43:33,640 Speaker 24: Nothing changes based on. 734 00:43:33,760 --> 00:43:36,400 Speaker 2: That, despite some concerns about what it could do to 735 00:43:36,440 --> 00:43:39,760 Speaker 2: the profession. It looks like private investment of various forms 736 00:43:39,880 --> 00:43:43,000 Speaker 2: is coming to law. But is it a good investment? 737 00:43:43,560 --> 00:43:47,280 Speaker 2: As with most investments, the answer is a resounding maybe. 738 00:43:47,719 --> 00:43:50,000 Speaker 24: I would say, could Could it be a good investment? Well, 739 00:43:50,040 --> 00:43:52,640 Speaker 24: it could be. You know, not every investment is ends 740 00:43:52,719 --> 00:43:55,319 Speaker 24: up being a good investment, but that's also in some 741 00:43:55,400 --> 00:43:58,720 Speaker 24: ways similar to investing in any other service business. 742 00:43:59,160 --> 00:44:02,160 Speaker 2: Professor Wilkins recently put the question whether law firms could 743 00:44:02,160 --> 00:44:05,879 Speaker 2: be good investments to some lawyers who also are venture capitalists. 744 00:44:06,360 --> 00:44:10,680 Speaker 23: We did a wonderful two hours on exactly this, in 745 00:44:10,719 --> 00:44:15,080 Speaker 23: which both of the venture capitalists said, I'd be very 746 00:44:15,120 --> 00:44:20,000 Speaker 23: hesitant to invest in a law firm for exactly the 747 00:44:20,080 --> 00:44:21,400 Speaker 23: reasons that you sit. 748 00:44:21,840 --> 00:44:25,240 Speaker 2: And those reasons that make investing in law tricky include 749 00:44:25,280 --> 00:44:28,360 Speaker 2: the fact that the major drivers of revenue, partners and 750 00:44:28,440 --> 00:44:31,080 Speaker 2: their clients can simply walk out the door. 751 00:44:31,320 --> 00:44:36,480 Speaker 24: Lawyers are free to leave. But can it be efficient 752 00:44:36,680 --> 00:44:40,960 Speaker 24: enough and profitable enough to retain the talent that it 753 00:44:41,040 --> 00:44:45,520 Speaker 24: needs in order to thrive and will the investment actually 754 00:44:45,600 --> 00:44:47,800 Speaker 24: help it do those things? 755 00:44:48,160 --> 00:44:52,440 Speaker 22: I think that's the biggest risk factor, and there's I 756 00:44:52,480 --> 00:44:55,440 Speaker 22: think that and that raises the question of what value 757 00:44:55,760 --> 00:45:01,120 Speaker 22: outside of the people side could an investor bring. Is 758 00:45:01,160 --> 00:45:05,839 Speaker 22: it technology know how? Is it building a brand where 759 00:45:05,880 --> 00:45:10,680 Speaker 22: the brand is bigger than the individual partners? And so 760 00:45:10,760 --> 00:45:14,280 Speaker 22: I think there's the question that private equity in particular 761 00:45:14,400 --> 00:45:16,600 Speaker 22: needs to be able to answer, which is what's the 762 00:45:16,719 --> 00:45:19,759 Speaker 22: know how that they're bringing that firms can't do themselves. 763 00:45:20,320 --> 00:45:23,560 Speaker 2: Whatever the risks are hurdles, it looks like private investments 764 00:45:23,560 --> 00:45:26,600 Speaker 2: in the business of law are inevitable. It may not 765 00:45:26,719 --> 00:45:29,520 Speaker 2: be in the room yet, but it's certainly knocking on 766 00:45:29,560 --> 00:45:31,600 Speaker 2: the door of the legal establishment. 767 00:45:32,120 --> 00:45:34,359 Speaker 22: I mean I get calls probably once a month from 768 00:45:34,360 --> 00:45:38,480 Speaker 22: a private equity firm looking to understand the legal industry. 769 00:45:38,840 --> 00:45:41,600 Speaker 22: So there's no question that they are interested in this, 770 00:45:41,719 --> 00:45:44,160 Speaker 22: and they're trying to figure out how to make it work. 771 00:45:44,320 --> 00:45:47,120 Speaker 22: I think unless it can be two plus two equals five, 772 00:45:47,200 --> 00:45:50,239 Speaker 22: there's really no reason to do it. And I think 773 00:45:50,320 --> 00:45:53,280 Speaker 22: that's where you also see the rub. 774 00:45:54,400 --> 00:45:56,359 Speaker 2: That does it for us. Here at Wall Street Week, 775 00:45:56,560 --> 00:45:59,440 Speaker 2: I'm David Weston. See you next week for more stories 776 00:45:59,600 --> 00:46:00,440 Speaker 2: of adolism.