Speaker 1: Masters in Business is brought to you by the American
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Speaker 1: for over ninety years. Learn more at a d R
Speaker 1: dot org. This is Masters in Business with Barry Ridholts
Speaker 1: on Boomberg Radio. This week. On the podcast, I have
Speaker 1: Sebastian Mallaby, and I have to tell you I found
Speaker 1: this to be an absolutely fascinating conversation. We definitely sort
Speaker 1: of go off into the weeds on some wonky um
Speaker 1: history and biography of who Alan Greenspan was and why
Speaker 1: he had such an outsized uh influence. If if you're
Speaker 1: a Federal Reserve watcher or econo geek, you will find
Speaker 1: a lot of this stuff fascinating, and we talked about
Speaker 1: it extensively. I prob belie could have spent another hour
Speaker 1: just on Alan Greenspan, but if I did that, I
Speaker 1: wouldn't have been able to get some more money than God,
Speaker 1: which is a delightful book on hedge fund managers, highly recommended.
Speaker 1: I could babble about this stuff endlessly, but instead of
Speaker 1: me doing that without any further Ado my conversation with
Speaker 1: Sebastian Mallaby. This is Masters in Business with Barry Ridholts
Speaker 1: on Bloomberg Radio. My special guest today is Sebastian Mallaby.
Speaker 1: He is an author and the paul A. Vulgar Fellow
Speaker 1: for International Economics at the Council on Foreign Relations. He
Speaker 1: has contributed to The Washington Post and The Economist, and
Speaker 1: he is the author of More Money Than God Hedge
Speaker 1: Funds in the Making of the New Elite, that won
Speaker 1: the two thousand and eleven Lobe Prize and was a
Speaker 1: New York Times bestseller. His most recent book, The Man
Speaker 1: Who Knew, The Life and Times of Alan Greenspan. Uh
Speaker 1: Sebastian Mallaby. Welcome to Bloomberg. Great to pay with you, Parry,
Speaker 1: So I'm fascinated by both your process and the topics
Speaker 1: you cover. Let's start with The Man Who Knew, a
Speaker 1: title I perhaps might choose to argue with you over,
Speaker 1: but I can't argue with this quote. This sex up
Speaker 1: from the book. No post war figure has loomed over
Speaker 1: global finance as imposingly as Alan Greenspan, America's FED Chairman
Speaker 1: became FED Chairman the month of the crash, and no
Speaker 1: figure has been more paradoxical. A man who preached the
Speaker 1: virtue of the gold standard yet came to embody paper money.
Speaker 1: A man who posed as a dry technocrat yet was
Speaker 1: political to his core. Let's discuss that. Well, he is
Speaker 1: a man of paradox this and I didn't quite understand
Speaker 1: before I began writing quite how deep those paradox has went.
Speaker 1: But he was a person who had lectured in the
Speaker 1: nineteen sixties that the creation of the Federal Reserve was
Speaker 1: and historic disaster. So the man who later embodied the
Speaker 1: Federal Reserve personified the central bank. He didn't believe there
Speaker 1: should be a central bank, which which is which is ironic?
Speaker 1: I always found it fascinating that he was such a
Speaker 1: Fed chairman, interventionist, and yet he very much argued for
Speaker 1: learning the marketplace work things out themselves. Yes, he had
Speaker 1: begun in his earlier life, in his thirties and forties,
Speaker 1: as a very determined libertarian. I mean this idea that
Speaker 1: there shouldn't be a central bank was because he believed
Speaker 1: in a goal standard. Why because he didn't want the
Speaker 1: government to be in the business of making money. He
Speaker 1: thought that that was too much government power. And yet
Speaker 1: when he was FED chairman, of course, not only did
Speaker 1: he move interest rates around quite a lot to try
Speaker 1: to micromanage the level of inflation, but also he was
Speaker 1: willing to intervene when there was a crisis repeatedly and
Speaker 1: bail things out. Literally within his first few weeks of
Speaker 1: joining the FED, the seven Crash occurs down in a
Speaker 1: single day, lots of panic, and he stepped in and
Speaker 1: provided liquidity. Really that set the tone for the rest
Speaker 1: of his his career. It did, so you know, when
Speaker 1: there was the Mexico crisis in the beginning of nineteen five,
Speaker 1: the FED helped to bail out Mexico. When there was,
Speaker 1: you know, the East Asian crisis, green Span was involved
Speaker 1: long term capital management. The hedge fund goes down in
Speaker 1: and the FED, in my view, that's really where they
Speaker 1: really go overboard and cut interest rates no fewer than
Speaker 1: three times to try to stabilize the markets. After that
Speaker 1: hedge fund went down. Then, of course, after the Nasdaq
Speaker 1: bubble bus, you know, another round of super loose policy.
Speaker 1: So yes, repeated interventions to stabilize finance, and and of
Speaker 1: most famously after nine eleven there were fairly radical interest
Speaker 1: rate cuts, the Greenspan FED took rates down to level
Speaker 1: they really hadn't been on, especially for as long as
Speaker 1: they were kept there right now. As I remember, they
Speaker 1: were down at one on the federal funds rate in
Speaker 1: the summer of two thousand three and stuck there for
Speaker 1: a whole year to two thousand four, right below two
Speaker 1: percent for three years, at one percent for a single year,
Speaker 1: and subsequent to that, a number of assets that are
Speaker 1: priced in either dollars or credit, housing, oil, all the commodities, gold,
Speaker 1: they all took off right And I think what that
Speaker 1: points to is the difficulty for the FED on the
Speaker 1: one hand of targeting inflation. So if you're looking at
Speaker 1: consumer price in fashion or however, you measure that that
Speaker 1: can be stable, while asset prices are not a tool stable.
Speaker 1: They're going crazy. And the central dilemma, which still remains
Speaker 1: for the FED and maybe quite relevant actually in the
Speaker 1: next twelve months, is that you can be thinking, Okay,
Speaker 1: I'm doing a good job because inflation is low and stable,
Speaker 1: but you're not getting a good job because all these
Speaker 1: asset prices are bubbling away uncontrollably. The thing that stood
Speaker 1: out to me from another book that takes A similar
Speaker 1: look was Roger Lonstein's Origins of the crash, and he
Speaker 1: talks about the opportunity the Federal Reserve had after long
Speaker 1: term capital management to impose some discipline on market participants
Speaker 1: and say, hey, we don't want to engage in moral hazard.
Speaker 1: You guys mess this up, you figure it out. It's
Speaker 1: not systemic, it's not threatening. And maybe there's a lesson
Speaker 1: to be learned there that that might be asking a
Speaker 1: little too much of the Federal Reserve to think along
Speaker 1: those lines. But do you agree with that assessment that
Speaker 1: this intervention, amongst many help set the stage for the
Speaker 1: future crisis. Definitely. I mean, I think that the expression
Speaker 1: used on wall streets after the long term capital management
Speaker 1: experience was Uncle Allan will take care of us. That
Speaker 1: is not a good way for traders to be feeling,
Speaker 1: because then they're gonna take too much risk. And I
Speaker 1: think it was really ascerbated by the way in the
Speaker 1: two thousand four or five period when the Fed started
Speaker 1: to do a forward guidance that further exacerbated this feeling
Speaker 1: that Uncle Allan was there. He was pretty much telling
Speaker 1: you how quickly interest rates we're going to be raised,
Speaker 1: and therefore you could take a ton of risk because
Speaker 1: you knew you wouldn't be ambushed by a sudden rate
Speaker 1: hike of seventy five basis points. I'm Barry Rihults. You're
Speaker 1: listening to Master's in Business on Bloomberg Radio. My special
Speaker 1: guest today is Sebastian Mallaby. He is the author of
Speaker 1: the highly regarded The Man Who Knew The Life and
Speaker 1: Times of Alan greenspan. Uh. The reviews on this book
Speaker 1: have been wonderful. I've been working my way through it.
Speaker 1: You spent so at first, I have to talk a
Speaker 1: little bit about your process. You spent about five years
Speaker 1: researching and writing. This is that right? Yeah? My kids
Speaker 1: make fun of me that every time I write a
Speaker 1: book it seems to take longer than the last one.
Speaker 1: And this did take a bit over five years. And
Speaker 1: it wasn't that was my plan. But it was so
Speaker 1: fascinating once I got into it. I discovered so much
Speaker 1: new stuff that people didn't know about this very public figure,
Speaker 1: and yet there were private things to be discovered. Give
Speaker 1: us an example, well, you know we remember the sort
Speaker 1: of bursuited sober, pinstriped fed chairman going on about trucking
Speaker 1: capacity utilization in the Midwest. You don't remember that he
Speaker 1: was the guy who bought the Buick Electra convertible automobile,
Speaker 1: you know, and drove it so fast up and down
Speaker 1: Manhattan that, as his girlfriend said, um, you know, it
Speaker 1: wasn't a moderate pace and he got he got plenty
Speaker 1: of speeding tickets. You know. He was not against marriage.
Speaker 1: He did it twice, but he was single between twenty
Speaker 1: seven and seventy one. You describe him as a ladies man.
Speaker 1: Is that an exaggeration or is that a fair description. Well,
Speaker 1: he had a succession of remarkably beautiful girlfriends in this
Speaker 1: as he said, you know, there was this little interim
Speaker 1: between twenty seven and seventy one, and in this period
Speaker 1: and these are his words, not mine, you know, he
Speaker 1: dated news anchors, beauty queens and much in between. So
Speaker 1: there was quite a list there. That's quite that's quite fascinating. Look,
Speaker 1: we were referencing earlier, um, the forward guidance that the
Speaker 1: FED began in two thousand and four. So this was
Speaker 1: with green Spans still as FED chairman, but the new
Speaker 1: kid in town coming in as vice chairman, Ben Bernanke,
Speaker 1: and you argue more or less in the book that
Speaker 1: forward guidance helped set the stage for the financial crisis.
Speaker 1: So let's talk a little bit about this. Why was
Speaker 1: this such a break from past policy and how did
Speaker 1: it impact um the future crisis. Well, in terms of
Speaker 1: the difference from past policy, if you go back to
Speaker 1: the nineteen eighties and you look at the big moments
Speaker 1: in monetary policy, they were remarkably untelegraphed. So Paul volca
Speaker 1: in two gave up monetary targets, big change in the
Speaker 1: Fed's policy. He didn't even announce it when he did that,
Speaker 1: and then he showed up a bit later at a
Speaker 1: conference of bankers and said something like him, well, we
Speaker 1: made a little adjustment and how we approached this stuff,
Speaker 1: but we might go back, and we're not sure if
Speaker 1: we're going to stick with it. I mean, the level
Speaker 1: of communication was very, very low, to the point where
Speaker 1: people didn't know that the Fed wouldn't come out and announced, hey,
Speaker 1: we raised interest rates. It would show up in in
Speaker 1: their actual open market activity, not from a missive And
Speaker 1: that all changed under Greenspan, didn't it exactly? So bit
Speaker 1: by bit there was more openness, and the Fed did
Speaker 1: announce the policy change once it decided it. And then
Speaker 1: in the two thousands you get to this period where
Speaker 1: not only does the Fed announce what it's just decided,
Speaker 1: it also guides the markets about what it's going to
Speaker 1: be doing in the future. And that's the crucial change.
Speaker 1: And to me, what that did to Wall Street was
Speaker 1: that Wall Street suddenly felt it wouldn't be ambushed by
Speaker 1: a sudden jump in the short term interest rate. So
Speaker 1: this change took normally conservative bond managers and traders and
Speaker 1: gave them a little more carde blanche to take more
Speaker 1: risk and embrace a trade that was fraught with the
Speaker 1: potential of the Fed suddenly and unexpectedly raising rates. If
Speaker 1: you compare the two thousand four kind of period to
Speaker 1: four when the FED was in a tightening cycle, and
Speaker 1: at one point it did twenty five basis points, sometimes
Speaker 1: fifty basis points. There was one meeting where they raised
Speaker 1: by seventy five basis points. That cause what one bond
Speaker 1: trader at the time called Hurricane Greenspan. Right, people got
Speaker 1: blown up if they were leveraged. You know, there was
Speaker 1: real market discipline being imposed. Market discipline meaning people weren't
Speaker 1: leveraging up. The carry trades because you never knew when
Speaker 1: a sudden rate increase would come along, and the guys
Speaker 1: who were leveraged, like Michael Steinhardt, the hedge fund trader,
Speaker 1: for example, blew up. You know, he was done enormously
Speaker 1: in punished by the FED for taking too much risk.
Speaker 1: And you've got to do that in markets a bit
Speaker 1: to to remind people that it's risky. So removing that
Speaker 1: potential of the unexpected increase pretty much allowed allowed traders
Speaker 1: to embrace more risk, embrace more leverage, get much further
Speaker 1: out over their skis than they previously had been doing. Yeah,
Speaker 1: and I think it's worth just trying to encapsulate this
Speaker 1: for your listeners in the following way, because it's it's
Speaker 1: it's a misunderstanding and a disagreement that persists even today
Speaker 1: in the debates that I have with policy makers. So
Speaker 1: sometimes there people say to me, look, if you raise
Speaker 1: the short term industrates the FED was raising rates in
Speaker 1: two thousand five, then you know the short term rate
Speaker 1: is more expensive to borrow, so you're gonna have less
Speaker 1: carry trade. And I say, yeah, you have to think
Speaker 1: about the risk adjusted return, not just the return. If
Speaker 1: the sharp ratio, the risk adjusted return on a carry
Speaker 1: trade improves, then Wall Street will do more. One of
Speaker 1: the things that I was aware of and and you
Speaker 1: reference was in the early nineties is when a few
Speaker 1: days before an f O m C meeting, green Span
Speaker 1: on his own decides to cut rates and the governors
Speaker 1: went berserk and subsequently remove the ability of the Federal
Speaker 1: Reserve to act that independently outside of a real emergency.
Speaker 1: Tell us a little bit about that moment. Well, you know,
Speaker 1: Greenspan was always known as the Imperial Fed Chairman. He
Speaker 1: massed massive power unto himself, and if you know, all
Speaker 1: through this period he really dominated the system. And in
Speaker 1: the early period he had this particular device that you're
Speaker 1: talking about, where basically they would have a meeting, they
Speaker 1: wouldn't quite come to a decision about what they should do,
Speaker 1: and so they would end the meeting saying that the
Speaker 1: Fed Chairman had the authority to move into straits in
Speaker 1: between meeting, just on his own authority. And Greenspan of
Speaker 1: course like that because it gave him the power, and
Speaker 1: he used to do that a lot in the first
Speaker 1: few years, until finally his committee had enough of that
Speaker 1: and stopped him. I mean, it was just days before
Speaker 1: a meeting. It seemed like he was snubbing his nose
Speaker 1: at them and they weren't happy with it. Let's let's
Speaker 1: talk about some of the other things. Ben BERNANKEI gave
Speaker 1: you a wonderful He said, it wasn't a review, but
Speaker 1: it was a write up of the book. He disagrees
Speaker 1: with you about green SPAN's role uh in leading up
Speaker 1: to the crisis. Um, let's let's discuss that. What do
Speaker 1: you think about the former Fair chairman's discussion of the book. Well,
Speaker 1: you know, I'm very grateful to Ben Bernankey because he
Speaker 1: did write a very gracious, long response. He said, it's
Speaker 1: highly recommended, So how can I complain. Um. At the
Speaker 1: same time, we we do have a disagreement, and you're right.
Speaker 1: Part of the disagreement is about the interpretation of Greenspan's
Speaker 1: motivation for not raising interest rates more aggressively. I say
Speaker 1: in my book that some of it had to do
Speaker 1: with personality, that green Span didn't like to confront people
Speaker 1: directly and aggressively. I'm Barry Ridholts. You're listening to Master's
Speaker 1: in Business on Bloomberg Radio. My special guest today is
Speaker 1: Sebastian Mallaby. He is the author of More Money Than
Speaker 1: God Hedge Funds and the Making of the New Elite,
Speaker 1: as well as, most recently The Man Who Knew the
Speaker 1: Life and Times of Alan Greenspan. Let's talk a little
Speaker 1: bit about your writing process. You you referenced that it
Speaker 1: took you five years to write this. Is that the
Speaker 1: research that's so time consuming or is it physically the
Speaker 1: process of getting words on paper, um, and then editing
Speaker 1: and re editing that that's so time consuming. It's mostly
Speaker 1: the research. I mean, this was a huge project of
Speaker 1: going to presidential archives and you know, going through what
Speaker 1: the Nixon Library might have about Nixon's involvements with green Span, etcetera, etcetera,
Speaker 1: And and the big I think what really makes this
Speaker 1: kind of book worth doing is you've got to put
Speaker 1: on the table information that people didn't have before. And
Speaker 1: that's not easy with a guy who is literally in
Speaker 1: the public eye and financial television is showing the thickness
Speaker 1: of his briefcase on the way to one f M
Speaker 1: f m C meeting as indication of what might happen.
Speaker 1: He's that closely watched. Yeah, but so you really have
Speaker 1: to go down every moss hole and really hope you
Speaker 1: find something, and sometimes you just get lucky. So, for example,
Speaker 1: I went to see the guy who operated green Spans
Speaker 1: computers when you know, like the technician who was working
Speaker 1: for green Spans consulting company in the nine sixties. And
Speaker 1: I went there on the theory that this is a
Speaker 1: person who would have some color about the culture of
Speaker 1: green SPAN's little company. And so I show up and um,
Speaker 1: it's in the middle of nowhere in the woods in Virginia.
Speaker 1: There's a clearing in the words, a cabin, this guy
Speaker 1: living by himself, and I start talking with him, and
Speaker 1: it turns out he's an Iron Rand follower, and he
Speaker 1: was the person who in his basement had this store
Speaker 1: of green Spans speeches when he was close to Iron
Speaker 1: Rand come on three page transcript on it was called
Speaker 1: the Economics of a Free Society, green SPAN's worldview when
Speaker 1: he was thirty eight years old. So you know, I
Speaker 1: didn't go there expecting to find it there, but I did.
Speaker 1: And you just have to go everywhere and hope you
Speaker 1: find stuff that that's amazing. So did this guy ever
Speaker 1: publish that or did he allow you full access to it?
Speaker 1: He gave me a full three page print out of
Speaker 1: the whole thing a photocopy, and it would have taken
Speaker 1: me five years to read three hundred pages of Queen
Speaker 1: spans ran speeches. Now you get a feeling of why
Speaker 1: it does take a while to do this this work.
Speaker 1: You know. I went to see Pat buchannan on the
Speaker 1: theory that Bricannon was a Nixon speech writer and green
Speaker 1: Span had been involved in the same Nixon campaign. So
Speaker 1: I thought Pat mcannon would tell me if his stories.
Speaker 1: It turns out he didn't just tell me stories. He
Speaker 1: also said, now in my basement, you should come down
Speaker 1: and have a look. And in Pat mcanna's basement there's
Speaker 1: two things, right, there's a fantastic collection of antique firearms,
Speaker 1: and there are all the memos that people wrote to
Speaker 1: Nixon in the sixties seven sixty eight campaign, including green
Speaker 1: Spans memos. So that doesn't go to a presidential library.
Speaker 1: I would assume the law was that has to be archived,
Speaker 1: or maybe that's a ladder piece of legislation. Well, I
Speaker 1: think that the campaign stuff. Yeah, right, So this is
Speaker 1: when green Span was in the war room during Nixon's campaign.
Speaker 1: He begins by writing pure economic advice, then he starts
Speaker 1: to do political advice. He starts to analyze polls for
Speaker 1: Nixon and then he does spin. I mean literally is
Speaker 1: telling Nixon, you know you believe this, but you shouldn't
Speaker 1: emphasize it too much because it won't go over well
Speaker 1: with the with the public um. So you know, how
Speaker 1: about phrasing it this way? That's fascinating. It reveals the
Speaker 1: political side of Alan Greenspan. I need to get some
Speaker 1: more stuff in my basement. So in the description of
Speaker 1: the book, it says you have unlimited You had unlimited
Speaker 1: access to Alan Greenspan. Define unlimited access? Did you really
Speaker 1: spend that much time with him? And how forthcoming was
Speaker 1: he about the writing you were doing. When I would
Speaker 1: go over to his office every week or two, I'd
Speaker 1: spent a couple of hours talking to him. After doing
Speaker 1: this for seventy hours, I stopped counting. I think for
Speaker 1: me it was research and for him it was therapy.
Speaker 1: So it was very open access. And for example, one
Speaker 1: other document that nobody had been able to find before
Speaker 1: was Alan Greenspan's PhD thesis, and I heard about that.
Speaker 1: He gave it to me. Now he gave it to
Speaker 1: me partly because I think, you know, I was asking
Speaker 1: him so many questions about his early intellectual development. And
Speaker 1: after a while he kept on glancing up at a
Speaker 1: shelf and I looked up there and I saw this
Speaker 1: big binder, and I kind of I figured he had
Speaker 1: it there, so he gave it to me. And you know,
Speaker 1: that was fascinating because it was really about how the
Speaker 1: central bank must fight bubbles. So it's one of these
Speaker 1: enormous ironies. Wow, that's amazing. Now. The also famously he
Speaker 1: never got his PhD in economics. What why did he
Speaker 1: not complete his PhD? THEASI, Well, what happened was actually
Speaker 1: that he began the PhD when he was young, in
Speaker 1: the nineteen fift and never completed it. Then he went
Speaker 1: into business. He was a guy who grew up with
Speaker 1: not much money. He wanted to start making money, and
Speaker 1: so he did very well as a paid consultant and
Speaker 1: economics and that was more attractive. But then way later,
Speaker 1: in fact, when he was in his early fifties, he'd
Speaker 1: by this time being President Ford's chairman of the Council
Speaker 1: of Economic Advices, and his old friends at New York
Speaker 1: University said, um, you know, you should really get a
Speaker 1: PhD since you're an economist, and why don't you come
Speaker 1: back and take some classes. So he went back, took
Speaker 1: the classes, did the coursework, and they assembled a collection
Speaker 1: of papers that he'd written over the years, and then
Speaker 1: he did get a PhD. Then I'm Barry Ridholtz. You're
Speaker 1: listening to Master's in Business on Bloomberg Radio. My guest
Speaker 1: today is Sebastian Mallaby. He is the author, amongst other things,
Speaker 1: More Money than God, which won the Lobe Award in
Speaker 1: two thousand eleven. It was a New York Times best seller.
Speaker 1: Let's talk a little bit about this book, um, which
Speaker 1: is really quite fast. And first I have to ask
Speaker 1: explain from whence the title comes. Well, it's a bit
Speaker 1: of a funny one. But the U nickname for JP Morgan,
Speaker 1: the famous banker, was Jupiter. And I looked up how
Speaker 1: much money JP Morgan had when he died um in
Speaker 1: an inflation adjusted dollars, and it came to something like,
Speaker 1: I think one point three billion is a piker exactly.
Speaker 1: I realized that modern hedge fund managers in a single
Speaker 1: year occasionally make more money than Jupiter. Jim sound Simon's
Speaker 1: Ray Dalio. They have two and three billion dollar years
Speaker 1: on a regular basis, right, So I went for the title.
Speaker 1: A lot of people hate the title. They say, oh,
Speaker 1: I love the title it because you know, you're describing
Speaker 1: a very very distinct class of of asset managers who
Speaker 1: have been there's no other way to describe it, wildly compensated.
Speaker 1: And you know, nothing is more expressive than than their phrase.
Speaker 1: So so let's let's discuss this group a little bit.
Speaker 1: Explaining the most secretive subculture of our economy posed an
Speaker 1: irresistible investigative challenge. Uh. You also say the common view
Speaker 1: of hedge funds seemed ripe for correction. So let's let's
Speaker 1: talk about both of those. What was the investigative challenge
Speaker 1: here reviewing a variety of different hedge fund managers. Well,
Speaker 1: I mean, a lot of aspects of the U S
Speaker 1: economy are very transparent. You can look stuff up on
Speaker 1: the Internet and so forth. Hedge fund managers are typically
Speaker 1: quite secretive, and they didn't want to talk about their
Speaker 1: methods because some of it is proprietary, and they just
Speaker 1: want to be discreet because they figured most public attention
Speaker 1: they get is negative, and so persuading people to talk
Speaker 1: to me was quite a challenge, and it took me
Speaker 1: four years but in the end I did get a
Speaker 1: huge amount of access. So, and let's talk about the
Speaker 1: second part of that statement. Common view of hedge funds
Speaker 1: seemed right for a correction. What do you think people misunderstands?
Speaker 1: What is the public perception that's that's erroneous. Well, I
Speaker 1: think people view hedge funds as the wild West of finance,
Speaker 1: the people to take the most leverage, the most risk,
Speaker 1: and they're the craziest and therefore, in some ways the
Speaker 1: scariest and and the opposite is true, isn't I think
Speaker 1: that what you can definitely say all the hedge funds
Speaker 1: do blow up. They do take a risk, of course
Speaker 1: they do. Whereas a lot of banks are too big
Speaker 1: to fail and taxpayers on the hook, hedge funds is
Speaker 1: small enough to fail, and they can fail without getting
Speaker 1: any taxpayer help. And I think that's way more healthy
Speaker 1: for the system. And in fact, hedge funds had nothing
Speaker 1: to do with the financial crisis of oh eight or nine.
Speaker 1: They were a participant, they were an actor, but they
Speaker 1: weren't the players who had completely leveraged up. And and
Speaker 1: the few that crashed, namely the bear Sterns one, the
Speaker 1: losses were limited to their own investors. It didn't become systemic, right.
Speaker 1: I mean, as we were discussing earlier, this Greenspan put
Speaker 1: existed and that encouraged too much risk. But I think
Speaker 1: that encouragement applied especially to the big banks that felt
Speaker 1: they were kind of inviolable. They felt they were so big,
Speaker 1: so powerful, that they could take all this risk and
Speaker 1: be okay. Hedge funds always knew that they were driving
Speaker 1: along rapidly in a rickety car that could just fall
Speaker 1: apart in him, and so they were more careful. I
Speaker 1: love that description. So you have access so not just
Speaker 1: like you had a wonderful access to Alan Greenspan, you
Speaker 1: you received access to a number of legendary hedge fund
Speaker 1: managers who who do you wish you could have gotten
Speaker 1: a conversation with that either was unavailable or unwilling to
Speaker 1: chat with you. Well, you know, the first character in
Speaker 1: my book is Alfred Winslow Jones, who started the hedged Fund,
Speaker 1: as he called it, And you know, he was a
Speaker 1: fascinating guy who in his early life had fallen in
Speaker 1: love with a Marxist beauty in Berlin, and he himself
Speaker 1: enrolled in the Marxist Workers School, which is a funny
Speaker 1: place for the you know, father of hyper capitalist hedge funds,
Speaker 1: or all the best hedge fund managers go through the
Speaker 1: Marxist point. Anyway, he was dead by the time that
Speaker 1: I read the book, so I had to go speak
Speaker 1: to his portfolio managers who told me stories. But I
Speaker 1: never met him in my office. There's an internal debate
Speaker 1: as to whether Winslow or ed Thorpe was the first
Speaker 1: true quant we we've been we've been arguing that, um internally.
Speaker 1: So we know hedge funds have been under performing the
Speaker 1: past decade or so, UM, what what's your your take
Speaker 1: on that? Why do why do we see hedge funds
Speaker 1: as a group under performance? You know? I think one
Speaker 1: point is that yields have been compressed, so risky bonds
Speaker 1: are not paying you much more in interest than unrisky bonds.
Speaker 1: And that's a general point that if the expertise of
Speaker 1: a hedge fund is to finally manage risk and figure out,
Speaker 1: you know, which risk is mispriced. If all of these
Speaker 1: risks are priced very low, you're just not being compensated
Speaker 1: very much for that expertise anymore. So I think that's
Speaker 1: one point. And now the point is that in an
Speaker 1: environment of low returns overall, in in at least in
Speaker 1: fixed income low yields UM. You know, the two and
Speaker 1: two and twenty fee structure is taking a big nut,
Speaker 1: an insane bite right out of the return to the
Speaker 1: final investor. And I think that's the second reason we've
Speaker 1: seen that compressed. We've seen you know, one point five
Speaker 1: and fifteen or one in ten that's coming wrong. You know,
Speaker 1: I'm reminded of UM Jim Chainos's comment. He said thirty
Speaker 1: years ago when when he launched his hedge funds, can
Speaker 1: A Coach Partners, can Coast Associates, there were a few
Speaker 1: hundred hedge funds and they all created alpha. Now there's
Speaker 1: eleven thousand hedge funds and those same two hundred edge
Speaker 1: ones or the alpha generators. How much do we suspect
Speaker 1: the lack of performance is a function of a ton
Speaker 1: of entrance into the space, some of which probably shouldn't
Speaker 1: be in there. I think there's some truth in that UM,
Speaker 1: but I also think that you know, the notion that
Speaker 1: there's a finite amount of alpha maybe understates the way
Speaker 1: that you know, financial markets are being globalized, that there's
Speaker 1: new opportunities of trade, frontier markets that didn't exist before.
Speaker 1: It may understate the way that there are new financial
Speaker 1: instruments being created and you can trade those. There's also
Speaker 1: a new kinds of data and all the kind of
Speaker 1: world of big data and online intelligence that we're getting.
Speaker 1: So I think the world is constantly changing creating new opportunities.
Speaker 1: So I didn't put so much emphasis on the idea
Speaker 1: that there's a natural limit to how many hedge funds
Speaker 1: there ought to be that that that's quite quite interesting.
Speaker 1: And the other data point that I find so fascinating
Speaker 1: since hedge fund assets are up twenty five fold and
Speaker 1: recently crossed the three trillion dollar mark for the first time.
Speaker 1: So what does that tell us about this form of investment. Well,
Speaker 1: I think it shows you that allocators in other ways,
Speaker 1: the professionals who worked for university and diamonds or pension
Speaker 1: funds or what have you, recognize that the incentive structure
Speaker 1: and hedge funds is attractive. So you know, in a
Speaker 1: normal state of the world where returns and not being
Speaker 1: messed around by quantitative easing, you've got hedge funds which
Speaker 1: have a few characteristics. One is that the manager has
Speaker 1: his own money in the fund, so he's incentivised not
Speaker 1: to blow it up. So there's downside risk protection because
Speaker 1: it's you know, some of his own money, the infamous
Speaker 1: skin in the game. Right. The second thing is that
Speaker 1: because he's being paid two and twenty, he wants the twenty,
Speaker 1: he wants to do the research necessary to drive a
Speaker 1: return quite high. Because of that carry the profit share. Uh.
Speaker 1: Then there's the freedom of action. There's the fact that
Speaker 1: you know you can go long and short, you can
Speaker 1: use leverage, and that enables you to kind of combine
Speaker 1: those two things in clever ways to target particular risks
Speaker 1: that you want to take and then screen out other
Speaker 1: risks you don't want to take. So I think there's
Speaker 1: a bunch of freedoms and a bunch of incentives that
Speaker 1: come with the hedge fund structure that ought in normal
Speaker 1: states of the world to make for good returns. So
Speaker 1: there's a famous quip that I tracked down the source,
Speaker 1: and I couldn't find the original source, but I did
Speaker 1: trace the first publication in The Economist, which I'm paraphrasing.
Speaker 1: Hedge funds are a compensation scheme disguised as an asset class.
Speaker 1: You're familiar with that. I don't know if you know
Speaker 1: who originally penned that, But I definitely could go back
Speaker 1: no further than I want to say, oh three or
Speaker 1: oh four in the Economist what what should take on that?
Speaker 1: I'm familiar with that phrase. It's a compensation scheme, not
Speaker 1: an asset class. I didn't know where it came from originally.
Speaker 1: I think, um this truth in that, in the sense
Speaker 1: that there are so many different styles of hedge fund
Speaker 1: one of the fascinations about writing my book was that
Speaker 1: you could explain to the reader what event driven funds do,
Speaker 1: what long short equity to what statistical albertrage funds do.
Speaker 1: There's all these different styles of macro trading and so forth,
Speaker 1: so there's no one style. So in that sense, it's
Speaker 1: not one asset class. So of the various hedge fund managers,
Speaker 1: you spoke with, and you spoke to a large number
Speaker 1: of them, who surprised you the most, Who who either
Speaker 1: in what they said or their personas caused an arched eyebrow. Well,
Speaker 1: I think the character of George Soros is fascinating, and
Speaker 1: I spoke to him, But more importantly, I spoke to
Speaker 1: a ton of people who worked for him, and that's
Speaker 1: often the best way when you're doing a book to
Speaker 1: really get a view of a person is to speak
Speaker 1: to those who interacted and have an outside views. You
Speaker 1: construct a set of many perspectives in one person. We
Speaker 1: have been speaking with Sebastian Mallaby. He is the author
Speaker 1: of More Money Than God and more recently, the Man
Speaker 1: Who Knew the life and times of Alan Greenspan. Be
Speaker 1: sure and check out our podcast extras, where we keep
Speaker 1: the tape rolling and continue discussing all things green Span
Speaker 1: and hedge funds. Be sure to check out my daily
Speaker 1: column on Bloomberg View dot com. You can follow me
Speaker 1: on Twitter at rid Halts. We love your comments and feedback.
Speaker 1: Be sure and write to us at m IB podcast
Speaker 1: at Bloomberg dot net. I'm Barry rid Halts. You've been
Speaker 1: listening to Masters in Business on Bloomberg Radio. If you're
Speaker 1: having a business dispute, the process can be slow and
Speaker 1: drawn out, especially if you rely on litigation in the courts.
Speaker 1: You can wait for years before your case is resolved,
Speaker 1: and the longer your case proceeds, the more your case
Speaker 1: can cost. Not with the American Arbitration Association arbitration or
Speaker 1: mediation with the American Arbitration Association is faster. In fact,
Speaker 1: nearly fifty of our cases settled prior to hearings a
Speaker 1: d r dot org resolve Faster. Welcome to the podcast, Sebastian.
Speaker 1: Thank you so much for for doing this. This has
Speaker 1: really been fascinating stuff. I know some of the Greenspan
Speaker 1: stuff is a little um wonkie for some people, but
Speaker 1: there is a audience for that that absolutely is gonna
Speaker 1: eat that up. And my head of research, Mike Patnick
Speaker 1: in the office loves More Money than God. It's one
Speaker 1: of his favorite books that it helps him on some
Speaker 1: research he's doing on a on another project. There's so
Speaker 1: many questions I didn't get to. I really want to
Speaker 1: um before we get to our standard questions, I have
Speaker 1: to I have to come back back to let's start
Speaker 1: a little bit. We didn't really talk about your time
Speaker 1: at The Economist. You're working in London as a as
Speaker 1: a journalist, as a writer, you're covering international finance, and
Speaker 1: then out of left field, you get a sign to
Speaker 1: South Africa. How does that happen? It was the other
Speaker 1: way around. Actually I went first to South Africa and
Speaker 1: then I came back from London. So you're working in London,
Speaker 1: you and was that where you were first started with
Speaker 1: the economist. I joined the economist, I joined the Foreign
Speaker 1: Department and they put the new kid on the block
Speaker 1: to do Africa because I guess it was the poorest
Speaker 1: part of the world. And so the youngest guy got it.
Speaker 1: And I did that a bit in London, and then
Speaker 1: I insisted on moving there. So I went to live
Speaker 1: in Zimpa. So this this was your choice. This wasn't
Speaker 1: them saying, all right, sent the kids to South Africa.
Speaker 1: Now I wanted to go live there. I was sick
Speaker 1: of being in London after a couple of years and
Speaker 1: trying to follow Africa but not being in Africa. So
Speaker 1: I said, okay, I actually quit, and they kind of
Speaker 1: persuaded me not to quit by persuaded by giving me
Speaker 1: the option of where did you want to go in Africa?
Speaker 1: Where do you want to live? So I picked Zimbabwe,
Speaker 1: which was kind of next to South Africa but not
Speaker 1: in it at the time with apartheid still being there,
Speaker 1: there were travel restrictions if you lived in South Africa,
Speaker 1: and I think it also South Africa was was in
Speaker 1: a boring political phase where they were not going to
Speaker 1: release Mandela, nothing was going to happen, and and of
Speaker 1: course I was totally wrong. So as soon as I
Speaker 1: got to Zimbabwe, political change began in South Africa, and
Speaker 1: I wound out spending a lot of time living out
Speaker 1: of a suitcase, traveling around. And when Mandela came out
Speaker 1: of jail in there, I was twenty five years old
Speaker 1: outside waiting for him to come out, and I knew
Speaker 1: my career would be downhill thereafter because nothing could be
Speaker 1: as exciting. So a UK citizen living in Zimbabwe has
Speaker 1: greater travel freedom than a UK citizen living in South Africa?
Speaker 1: Was that the thinking? Yeah, at the time, that was
Speaker 1: the case, because if you had visa stamps from South
Speaker 1: Africa all over your passport and then you tried to
Speaker 1: go to another country, like I don't know, Tanzania, the
Speaker 1: Tanzanian government as a kind of protest against apartheid might
Speaker 1: give you a hard time. That makes a lot of sense.
Speaker 1: So you're you're you're covering now some Mandela, what was
Speaker 1: that experience, like, did you get to interview him? How
Speaker 1: was your South African experiences? The South African experience was amazing.
Speaker 1: It was an incredible time of political change, and I
Speaker 1: wrote a book called After Apartite, which kind of laid
Speaker 1: down what I thought the future would be like after
Speaker 1: white minority rule ended, and I draw on a lot
Speaker 1: of my travels in the rest of Africa to try
Speaker 1: to understand how post white rule society has tended to develop.
Speaker 1: And all of that was just a great experience in
Speaker 1: my twenties to to have that adventure. Did you did
Speaker 1: you ever get to interview Mandela? I didn't interview Mandela unfortunately.
Speaker 1: That that and then from there you end up getting
Speaker 1: assigned to Japan. Yes, well, I came back to London
Speaker 1: for a couple of years and that's when I started
Speaker 1: to write about finance and it was a total learning experience.
Speaker 1: I remember just asking questions, just going to see fund managers,
Speaker 1: traders whoever. Would see me and say, you know, I've
Speaker 1: got some questions. I'm sorry, and then I would just
Speaker 1: quiz them and quiz them and quiz them until they
Speaker 1: threw me out of their offices because you know, an
Speaker 1: Arab gone by. But by using the name of the economist,
Speaker 1: I got into a lot of offices and I am
Speaker 1: and I abused a lot of people's time to get
Speaker 1: my sort of education in finance. I'll let you in
Speaker 1: on a little secret. I use the name Bloomberg to
Speaker 1: be able to sit with people like Sebastian Maloby and
Speaker 1: talk about stuff like this. So that had to be
Speaker 1: a culture shock. I'm thinking the UK, South Africa, Japan.
Speaker 1: If I asked someone picked three of the most wildly
Speaker 1: disparate cultures and societies, I don't think you can find
Speaker 1: three more different societies around the planet than those three, right,
Speaker 1: And going to Japan in the early nineties was fascinating
Speaker 1: because that was a time when people still believed that
Speaker 1: the Japanese economic model might be superior to the Western one.
Speaker 1: The Japanese miracle absolutely, and although the market had crashed
Speaker 1: in Um, it took a bit of you know that
Speaker 1: one of those cartoon characters that runs off the edge
Speaker 1: of the right and then keeps running, doesn't actually fall
Speaker 1: until he looks down and notices it exactly. And so
Speaker 1: we were in that moment where in Japan is kind
Speaker 1: of off the edge of the cliff but still levitating somehow,
Speaker 1: and some people believe that it would be able to
Speaker 1: scoot right back onto terra firma um and not fall.
Speaker 1: And so there was a fascinating debate about the nature
Speaker 1: of capitalism, which model worked best, and so forth, and
Speaker 1: and so that was a great education. I know I
Speaker 1: missed pronouncing this. Kuritsu is the Japanese model of you.
Speaker 1: You're stacking all these different industries and one vertically integrated company.
Speaker 1: My favorite example Mitsubishi Bank of Mitsubishi, Mitsubishi Heavy Industries,
Speaker 1: Mitsubishi real Estate, and Subisi Aviation. They were building these
Speaker 1: giant companies made it challenging for Japan to allow their
Speaker 1: banks to to go into bankruptcy. It's a whole house
Speaker 1: of cards on top of it. Yes, And I think
Speaker 1: what's fascinating though, is that the kretsu system in Japan
Speaker 1: is sort of cross shareholding banks lending on the basis
Speaker 1: of a relationship. It's not arms length stock market capitalism
Speaker 1: where people are trading bits of paper securities without having
Speaker 1: much direct contact with the companies or the entities that
Speaker 1: issued those securities. So it's a much more kind of
Speaker 1: hands on um. People said long termist version of capitalism,
Speaker 1: and when Japan collapsed, people thought, oh, well, that's obviously
Speaker 1: not a good model. But if you if you substituted
Speaker 1: the word Japan and you said instead Northern California, And
Speaker 1: you think about the way that venture capital has been
Speaker 1: so important in the technology stuff, and when it's venture capital,
Speaker 1: it's long termist. It is direct provision of capital to companies.
Speaker 1: It is not about trading secondary claims and markets. And
Speaker 1: it's been fabulously successful. Yeah, but you those are new
Speaker 1: technologies and small startups. In Japan, it's almost dynastic in
Speaker 1: terms of the giant entities, these giant conglomerates, including many
Speaker 1: of the biggest companies in Japan and in the world.
Speaker 1: It's a fascinating comparison. Um, I think it works better
Speaker 1: with small companies than it does with the big conglomerates. Yeah.
Speaker 1: I think that's a good insight. And I think that um,
Speaker 1: you know, I'm not ready to say that markets and
Speaker 1: financial trading are a bad thing. I mean, I read
Speaker 1: about hedge funds and I believe that they're often a
Speaker 1: good thing. Um. But it is interesting the way that
Speaker 1: venture capital is finance, but without finance, I mean, people
Speaker 1: don't use mathematical models. It's very much based on looking
Speaker 1: at the entrepreneur in the eyes and saying, does this
Speaker 1: person have the stuff it takes to set up a
Speaker 1: company and make it work. So it's a very different
Speaker 1: kind of provision of capital that you get instead of
Speaker 1: con Valley, and it clearly has worked, not to say
Speaker 1: the least. So so we covered um, South Africa. You
Speaker 1: were in Japan for how many years? Three years? Did
Speaker 1: you learn Japanese? I did? Yeah? Are you still fluent
Speaker 1: or or very rapidly after I left Japan? In that
Speaker 1: whole world kind of fed off my mental map. Have
Speaker 1: you been back since I haven't? It's terrible. I should
Speaker 1: go back. It's one of the places on my list.
Speaker 1: It looks like an absolutely fascinating country that that is
Speaker 1: truly so different from from my experiences. It looks utally fascinating.
Speaker 1: Let's talk about something a little closer to home, um,
Speaker 1: the U k And and Brexit. You know, to an
Speaker 1: outside observer, Britain looks spectacularly calm, considering there's a whole
Speaker 1: bunch of big economic changes coming their way. What what's
Speaker 1: your take on this? I know you've written about it
Speaker 1: for the Washington Post. In fact, Brexit Britain seems shockingly calm.
Speaker 1: Is your your headline? So? What is going on in
Speaker 1: in Great Britain? Well? I think the main thing that
Speaker 1: happened is that I had assumed, and most people assumed
Speaker 1: that if the Brexit vote succeeded, everybody would be terrified
Speaker 1: that the uncertainty of leaving Europe would cause consumers to
Speaker 1: quit spending, and in fact, consumers did the opposite. They
Speaker 1: went out and borrowed. Household debt ratios have actually, you know, risen,
Speaker 1: and so people just refused to be scared. And I
Speaker 1: think that it's kind of a behavioral insight that when
Speaker 1: there's a political development that's very complex and it seems
Speaker 1: to be you know, yak yak yak, all those politicians
Speaker 1: talking to each other, the average person just kind of
Speaker 1: zones it out and goes off on a spending spree,
Speaker 1: just ignoring what's coming down the pike. And I think
Speaker 1: when the reality of Brexit hits and you suddenly find that,
Speaker 1: you know, your company cannot export without a customs check,
Speaker 1: or that you yourself cannot travel and work in Spain
Speaker 1: or whatever, I think when the reality hits, then consumers
Speaker 1: will start to reign in their spending and then we'll
Speaker 1: see the cost of Brexit. The expectation is if if
Speaker 1: ah Brexit goes through the way, it's reasonably expected to
Speaker 1: go through, meaning all the things we're referencing actually a car.
Speaker 1: This is a pretty big hit to g d P,
Speaker 1: isn't it. Yes, I mean, you know, Britain joined the
Speaker 1: European Union in the nine three so it's been a
Speaker 1: long time of progressive integration into those markets of British
Speaker 1: exports go to the rest of the European Union, so
Speaker 1: losing full market access in those economies as a big deal.
Speaker 1: And it's arguable that the Great Britain had the best
Speaker 1: of both worlds. They were a full member, but they
Speaker 1: still had their own currency. What I'm perplexed as to
Speaker 1: why they would want to exit a situation that's so
Speaker 1: advantageous to them. Well, I'm perplexed too, and I you know,
Speaker 1: I helped to set up a website that did fact
Speaker 1: checking to point out the lies frankly of the side
Speaker 1: they wanted to get out. Well, you don't. You don't
Speaker 1: think we're gonna get the UK is going to see
Speaker 1: four hundred million pounds a week for the National Institute
Speaker 1: of Health. That's not going to happen. This is one
Speaker 1: of those myths, right that they put out there on
Speaker 1: the side of a bus that they read the post
Speaker 1: truth campaign style. We try to say that truth mattered. Unfortunately,
Speaker 1: not enough people listen to us it. I mean when
Speaker 1: you look at the opinion polls and you say, well,
Speaker 1: why do people vote for exit? The first thing was
Speaker 1: a sort of nebulous belief that you'd get sovereignty back.
Speaker 1: What does sovereignty mean? We live in a globalized world.
Speaker 1: We are dependent on what happens in other countries is
Speaker 1: banned to affect us, And so I think that's a shaimira.
Speaker 1: What about the control of borders. We have an open
Speaker 1: border policy. We want to control, we want to keep
Speaker 1: bad elements out. Yes, so that is a politically potent line,
Speaker 1: both here in the United States as we've seen, and
Speaker 1: in and in Britain um. And you know, if you really,
Speaker 1: really really want to keep foreigners out, I guess that's
Speaker 1: your choice and people can vote like that. But if
Speaker 1: was economically migrants positive, very positive, And I would say
Speaker 1: even culturally. You know, the diversity that you have in London,
Speaker 1: a very melting pot kind of city. You walk on
Speaker 1: the street, you get in the subway, people are speaking French,
Speaker 1: Arabic whatever. I like that. Plus the food is so
Speaker 1: much better between the pizza, the Indian food and the sushi.
Speaker 1: London is now a city you can actually enjoy your meal,
Speaker 1: and that wasn't necessarily true thirty years ago. Yeah. I
Speaker 1: left London to go live in Japan in nineteen two,
Speaker 1: and it was not with that much regret. But when
Speaker 1: I came back to live there in it's a fantastic place.
Speaker 1: It's completely changed, and it's it's far more international and cosmopolitan,
Speaker 1: and um, you would always oh, you would have always
Speaker 1: assumed that about London, given the history of of the UK,
Speaker 1: but that really wasn't necessarily the case for a long time.
Speaker 1: And now you're a UK resident or US resident, I
Speaker 1: now have this funny split existence. My wife annoyingly got
Speaker 1: promoted so much that she has a great job in London,
Speaker 1: editor in chief of the Economist magazine, and so we
Speaker 1: live in London for that very good reason. But my
Speaker 1: writing and my professional interests are mostly in the US.
Speaker 1: So I'm here kind of half the time and in
Speaker 1: London half the New York or d c B alright,
Speaker 1: because I keep him in the phrase Nylon, which is
Speaker 1: the New York London. Um um swap, let's um all right,
Speaker 1: So let's leave the economists behind. But the only other
Speaker 1: thing I have to ask, since you're in London so often,
Speaker 1: I have to ask you about um Europe. How much
Speaker 1: trouble is Europe in? Are we overstating the damage here?
Speaker 1: We look at the banks in Europe, they're selling for
Speaker 1: half of book in the U S it's one to
Speaker 1: two times book. How much trouble is Europe really in
Speaker 1: going forward? Or will they be able to resolve everything?
Speaker 1: I think that the euro Zone um is still a
Speaker 1: disaster waiting to happen. That is huge amounts of debt
Speaker 1: uh and they still haven't gotten to a position where,
Speaker 1: although growth has picked up a little bit, even nominal
Speaker 1: growth is lower than the deficit in some of these countries.
Speaker 1: So public borrowing is adding to the debt um. And
Speaker 1: we're talking to southern Europe. Yeah, I mean in Greece
Speaker 1: is the obvious one is true? Italy? I think Italy
Speaker 1: more than Spain. But you know, I do think those
Speaker 1: countries have a fundamental problem, which is that they are
Speaker 1: locked into a monetary policy that is partly designed to
Speaker 1: suit Germany and um, well, it certainly has helped Germany
Speaker 1: over the past few decades, right, And I think that
Speaker 1: there is no obvious if you just think about the
Speaker 1: debt sustainability dynamics in a place like Italy with negative demographics,
Speaker 1: I'm not sure how they're going to stabilize that, and
Speaker 1: I would be remiss if I did not ask you.
Speaker 1: I've been reading about the increasing chatter that hey, maybe
Speaker 1: when everybody figures out how expensive it's going to be
Speaker 1: for the UK to actually exit um the EU, and
Speaker 1: maybe Scotland reconsiders their vote and is there any realistic
Speaker 1: possibility that they suddenly um get religion and decide to
Speaker 1: stay in the EU with some some minor accommodations or
Speaker 1: is that just a pipe dream? It's a pipe dream.
Speaker 1: If you look at the political line up in Britain
Speaker 1: right now, you have a Labor Party opposition which is
Speaker 1: in total disarray, with a very left wing leader who's
Speaker 1: extremely uncharismatic says it's not gonna come from him. Um.
Speaker 1: Then you've got a bunch of regional parties um, including
Speaker 1: mostly the Scottish National Party, that would like to stay
Speaker 1: in Europe. But they're regional, they're not gonna, you know,
Speaker 1: have much influence in in the heart of Britain, which
Speaker 1: is England and then you're left with the governing Conservative Party,
Speaker 1: and Theresa May is a of rather dug it, not
Speaker 1: terribly imaginative or flexible leader, and she is doggedly proceeding
Speaker 1: towards leaving the European Union, and she's not going to
Speaker 1: be put off. Quite fascinating. There's a ton of questions
Speaker 1: that I still want to get to, but I have
Speaker 1: to get to my favorite questions, UM that I asked
Speaker 1: all of my guests in the remaining fifteen twenty minutes
Speaker 1: we have Before I hit those questions. There's there's one
Speaker 1: other comment I had to ask you about. So your
Speaker 1: father was the United Kingdom ambassador to Germany and later
Speaker 1: an ambassador to France. That's a fascinating UM background. Did
Speaker 1: you spend a lot of time growing up in Germany
Speaker 1: or France? What was what? How did that impact um?
Speaker 1: Your childhood? Well, when I was a kid, there were
Speaker 1: two countries where I remember going on vacation from boarding
Speaker 1: school even living there. In fact, one with New York.
Speaker 1: My dad was in New York when I was between
Speaker 1: the age of seven and ten, So I was a
Speaker 1: Central park baseball playing gum chewing kid. Um. You can
Speaker 1: tell by my accident that it really stuck a lot
Speaker 1: now and so you can't you can't tell where I'm
Speaker 1: from at all. I do such a good job hiding.
Speaker 1: I know you grew up in London. The other thing
Speaker 1: that happened was that we then moved from New York
Speaker 1: to to Russia, to Moscow, and so I have these
Speaker 1: weird memories of communist Russia. And so when when was
Speaker 1: your father ambassador of Germany? Was that before your time
Speaker 1: or or after? You're already out of the household by
Speaker 1: that point, I was the economist correspondent in Africa. I
Speaker 1: remember a funny experience actually sitting with a bunch of
Speaker 1: reporters in Namibia right next to next to South Africa,
Speaker 1: which was having a sort of historic election of independence.
Speaker 1: And every single senior Africa reporter in the world had
Speaker 1: come to Namibia and they were looking forward to getting
Speaker 1: on the front page the next day, and on the
Speaker 1: front page the next day. All there was was the
Speaker 1: collapse of the Berlin Wall. And so Malaby Sor and
Speaker 1: otherwise my dad, who was a master in Germany, was
Speaker 1: in the middle of the biggest story in the world
Speaker 1: of a generation. And Mallaby Jr. That's me was Offen
Speaker 1: Maybia and I'm afraid we're on page seventeen. Oh that's very,
Speaker 1: very funny. So so let's um, let's jump into our
Speaker 1: our favorite questions. Um, So, did you always know you
Speaker 1: wanted to be a writer? Was that something that that
Speaker 1: was in your future or or how did that come about?
Speaker 1: Actually I was asked when I was at high school
Speaker 1: around the age of sixteen to fill in some questionnaire
Speaker 1: saying what would I like to do in the future,
Speaker 1: and I wrote journalism and writing, So I've known it's something.
Speaker 1: It's a combination of being fascinated with the craftsmanship of
Speaker 1: the written word. I actually like fiddling around with semi
Speaker 1: colons and sentences and and language. I just love language.
Speaker 1: Um maybe that comes from having a French mother and
Speaker 1: having grown up with a couple of languages in the house,
Speaker 1: and then learning German and other languages later. So I
Speaker 1: loved language. But I also love discovery. I love going
Speaker 1: out talking to people, figuring out what makes them tick,
Speaker 1: what their ideas are, and so that whole world of
Speaker 1: understanding making sense of current events has been my passion.
Speaker 1: Sounds sounds quite fascinating. Let's talk about some of your
Speaker 1: early mentors who who guided your career when you were younger. Well,
Speaker 1: when I joined the Economist magazine right out of college,
Speaker 1: first as a sort of temporary intern position, and then
Speaker 1: they kept me. Um, there were several older journalists who
Speaker 1: were really terrific in terms of helping me to learn
Speaker 1: how to write, how not to waste the reader's time
Speaker 1: by really getting to the point quickly. I remember one
Speaker 1: exercise where, um, you know, I was terrified when I
Speaker 1: first joined the Economist, and I didn't know if I
Speaker 1: could write stories that they would actually use. So I
Speaker 1: would I would stay late and write a draft and
Speaker 1: give myself basically a full all morning the next day
Speaker 1: to crunch this small piece into an even smaller space
Speaker 1: by taking out every piece of fat in the pros.
Speaker 1: And I would spend four or five hours just taking
Speaker 1: out redundant words. If I said in spite of I
Speaker 1: would say, ah huh. If I changed that despite, I
Speaker 1: can cut it from three words to one word. So
Speaker 1: this obsessive polishing of language or something I learned from
Speaker 1: my colleagues of the Economist. So so was the man
Speaker 1: who knew originally eight words and now it's down to
Speaker 1: six forty or how did that history affect You're writing
Speaker 1: a book like this, so you're talking pages, they're not words,
Speaker 1: But yes, did I say words pages? Yes? This was
Speaker 1: originally so this is six How how large was this?
Speaker 1: Because it's a giant topic and you covered decades in
Speaker 1: the book, I did cut out two hundred pages. Really
Speaker 1: is it painful? Because I know it's the worst thing
Speaker 1: in the world to have to exercise your your precious words.
Speaker 1: You see. The funny thing about me is it's not painful.
Speaker 1: I actually love sitting there with ages at pros and
Speaker 1: figuring out how to make it more beautiful by cutting
Speaker 1: out the ugly bits. Less is more, to say the least.
Speaker 1: Let's let's talk about writers who may have influenced you.
Speaker 1: Who who do you admire? What writing or writers affected
Speaker 1: your approach and your style? Well, I love reading, and
Speaker 1: I'm a bit of a slow reader because I'm always
Speaker 1: trying to learn from the book, both about the style
Speaker 1: and about the content. I mean, Roger Lonstein is somebody
Speaker 1: who when I started to write about hedge funds, you know,
Speaker 1: I read both his Warren Buffett biography and I read
Speaker 1: When Genius Failed. I thought those were both fantastic books
Speaker 1: about and he gave you a delightful blurb for the
Speaker 1: man who knew. He's been good about that. And so
Speaker 1: i've I am getting a blurb from Summer writer that
Speaker 1: you really admire. Sure, it's fantastic. Sure, and um so
Speaker 1: so who else anybody else influence your approach? By the way,
Speaker 1: for those of you who haven't read When Genius Failed,
Speaker 1: it may be one of the all time great financial narratives.
Speaker 1: It's just a wonderful, a fascinating tale, wonderfully told. A
Speaker 1: long time ago, Joe lily Felt, the who became editor
Speaker 1: of The New York Times, wrote a book called Move
Speaker 1: Your Shadow. And this was based on his experience as
Speaker 1: the South Africa correspondent. And that was a model of
Speaker 1: taking a mixture of history analysis but also personal experience,
Speaker 1: you know, describing himself in South Africa and putting himself
Speaker 1: into the book. And I thought that the kind of
Speaker 1: the range of um voices he could blend was a
Speaker 1: lesson in how when you write a book, you've got
Speaker 1: to change gears, right. You You shouldn't just write in
Speaker 1: the same voice and at the same pace all the time.
Speaker 1: You've got to have passages of analysis that you switch up.
Speaker 1: With passages of narrative. Sometimes you cover three years and
Speaker 1: three paragraphs. At the times you have thirty pages about
Speaker 1: one day. It's that, you know, if you think about
Speaker 1: making a movie, sometimes you use a wide angle lens,
Speaker 1: other times it's a telephoto. You've got to think like
Speaker 1: that with a book, to various variety and structure, and
Speaker 1: that's what ultimately impacts what the final book looks like.
Speaker 1: So so let's talk about books. What what are some
Speaker 1: of your favorite books, be they finance or nonfinance fiction
Speaker 1: or nonfinance nonfiction. You said you'd like to read. Tell
Speaker 1: me what you're reading now and what have you enjoyed
Speaker 1: in the past. Actually, I've I've become interested recently in
Speaker 1: Silicon Valley and I read just now a book by
Speaker 1: David Horowitz, who is the co founder with Mark Andres
Speaker 1: and about recent Horowitz, And what's striking about that book
Speaker 1: is how he describes the experience of being an entrepreneur
Speaker 1: setting up companies. The sheer terror when you think you're
Speaker 1: going to go bankrupt and you're gonna lose all your
Speaker 1: investors money and all your friends who have sweated blood
Speaker 1: working late working weekends for you. Um, you I'd have
Speaker 1: to lay them off. And the kind of you know,
Speaker 1: the visceral experience of being an entrepreneur in Silicon Valley
Speaker 1: is something that came across to me very vividly reading
Speaker 1: David Herbert's books called The Hard Thing About Hard Things.
Speaker 1: It's pretty good. Anything else, what else? What else stands
Speaker 1: out to you? Let's see. I read recently a study
Speaker 1: offbeat book by the Austrian writer stefansk Um. I think
Speaker 1: it's called the World of Yesterday, and it's essentially about
Speaker 1: how cosmopolitan Europe of descended into the nightmare of Nazism.
Speaker 1: And of course it's a book which today has a
Speaker 1: certain resonance as you see these political trends appear to
Speaker 1: threaten globalization, and this is about the unraveling of that
Speaker 1: early globalization of the nineteenth century. That seems to be
Speaker 1: a narrower slice than what lie quad Ahmed wrote about
Speaker 1: in Lords of Finance. And he's another person who gave
Speaker 1: you a fantastic blurb. Yes, I mean, Nakamen is a
Speaker 1: fantastic writer, and that was a wonderful, wonderful book, wonderful
Speaker 1: one if I totally agree, you know, brilliantly combining um,
Speaker 1: substantive economic explanation with the color of the zeitgeist, you know,
Speaker 1: the feeling of um, what that belly park was like
Speaker 1: in the nineteen twenties. You know, there's a there's a
Speaker 1: little vignette there. I think of some French socialite arriving
Speaker 1: furious with a French statesman and shooting him with a
Speaker 1: pistol that was disguised in her scarf wrapped around the gun.
Speaker 1: I mean, it's just amazing sort of evocative writing and
Speaker 1: the concept of telling the story of of the post
Speaker 1: war era through four central bankers. I just thought it
Speaker 1: was a brilliant conception and and so well executed. But
Speaker 1: before we leave books, any other any other books you
Speaker 1: want to reference anything, what are you reading right now?
Speaker 1: So I just got done with this David Harrowitz Silicon
Speaker 1: Valley book. I'm a bit of a Silicon Valley kick,
Speaker 1: and I'm going to read. You know, one of the
Speaker 1: famous venture capitalists is William Draper. He's written a memoir
Speaker 1: about his time in the valley. So I'm really trying
Speaker 1: to understand that very dynamic section of the American economy
Speaker 1: and and what was the road of financing that. Have
Speaker 1: you read The New New Thing Michael Lewis. Of course
Speaker 1: I've read The New New Thing. It's an amazing but
Speaker 1: Michael Lewis is the ultimate storyteller, and I have enormous
Speaker 1: respect for his craft. Um. Yeah, I really enjoyed that
Speaker 1: that book as well. UM. So we're down to our
Speaker 1: last two questions, and and let me put both of
Speaker 1: these to you. The first question is, so someone who
Speaker 1: just graduates college or a millennial comes to you and says,
Speaker 1: I'm thinking about becoming a writer or a journalist. What
Speaker 1: sort of a career advice might you give them? I
Speaker 1: would say, don't do it, um, and then I would
Speaker 1: be secretly pleased if they ignored my advice. So I
Speaker 1: think you have to if you're going to be a
Speaker 1: writer or a journalist, you have to really, really really
Speaker 1: want to do it, because it's not the most compensate,
Speaker 1: best compensated form of activity. Um. And you know, sometimes
Speaker 1: if you write a book, it's lonely, you're stuck there
Speaker 1: for a long period by yourself. You have to really
Speaker 1: like it, um. And you know, there are a lot
Speaker 1: of things you can do in life which are more,
Speaker 1: you know, better paid for that amount of Given a
Speaker 1: certain amount of education and skill, you can certainly make
Speaker 1: more money elsewhere, so you have to really want to
Speaker 1: do it. But if you do really want to do it,
Speaker 1: then I think it's a wonderful way to spend your
Speaker 1: life because you're out there understanding things, going off, speaking
Speaker 1: to people, making discoveries. And our final question, what is
Speaker 1: it that you know today about writing and journalism that
Speaker 1: you wish you knew twenty five years ago when you
Speaker 1: were first starting out. I think the main thing is
Speaker 1: that there's no substitute for discovering new stuff. That investigation
Speaker 1: really really matters, because if you're just taking what is
Speaker 1: generally known already and putting your own spin on it,
Speaker 1: then there's you know, a hundred other guys also doing
Speaker 1: that and it's not distinctive. You've got to go find
Speaker 1: I think I wish the profession as a whole had
Speaker 1: more resources to put into investigative reporting. Well, we're starting
Speaker 1: to see things like pro Publica and other forms of
Speaker 1: privately supported nonprofit um support for that, but at one
Speaker 1: point in time it was a thriving business that seems
Speaker 1: to be under assault by both the Internet and and
Speaker 1: alternative facts. Apparently it's too bad that you know, it's
Speaker 1: it's happening that way. I have UM in my Greenspan research,
Speaker 1: I had some young researchers who helped me and they
Speaker 1: went did the work in the archives. And you know,
Speaker 1: one of them, called John Hill, was such an amazing
Speaker 1: researcher that I thought he would immediately be snapped up
Speaker 1: by a news organization after he moved on, and he
Speaker 1: he did work at The Economist a bit. But he's
Speaker 1: telling me that finding a job as an investigative reporter,
Speaker 1: even though he is the best investigator I've ever met,
Speaker 1: is tough. Wow, that that's amazing. We thank you so
Speaker 1: much for being so generous with your your time. Sebastian.
Speaker 1: We have been speaking with Sebastian Mallaby. He is the
Speaker 1: author of The Man Who Knew and More Money Than God.
Speaker 1: He is also UM a pole Vulcer scholar at the
Speaker 1: Council on Foreign Relations. If people want to find your work,
Speaker 1: I know they can access not just the books, but
Speaker 1: you you still contribute to the Washington Post and any
Speaker 1: place else they can find your writings. Well. There's always
Speaker 1: a good collection on the Counsel and Form Relations website
Speaker 1: CFL dot org. But you know, Google is normally the
Speaker 1: to these questions These days, Google is always the answer. UH.
Speaker 1: If you have enjoyed this conversation, be sure and looked
Speaker 1: up an inch or down an inch at any of
Speaker 1: the other hundred and twenty five or so such conversations
Speaker 1: we've had in the past. UM, I would be remiss
Speaker 1: if I did not thank my recording engineer, Medina. UH.
Speaker 1: Taylor Riggs is my booker, and Michael Batnick is our
Speaker 1: head of research. We love your feedback, comments and suggestions.
Speaker 1: Be sure to write to us at m IB podcast
Speaker 1: at Bloomberg dot net. I'm Barry Hults. You've been listening
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