WEBVTT - Kelleher on FinReg, ‘Kangaroo’ Courts 0:00:13.240 --> 0:00:15.800 Hello, and welcome to the Votes and Verdicts podcast, hosted 0:00:15.800 --> 0:00:18.639 by the litigation and policy team at Bloomberg Intelligence. We 0:00:18.760 --> 0:00:22.360 are the investment research platform of Bloomberg LP. This podcast 0:00:22.440 --> 0:00:25.760 series examines the intersection of business policy and law. I'm 0:00:25.840 --> 0:00:28.600 Nathan Dean and analysts with BI covering financials policy. 0:00:29.040 --> 0:00:31.320 And my name is Elliott Stein and I'm an analyst 0:00:31.320 --> 0:00:33.320 with BI covering financials litigation. 0:00:33.920 --> 0:00:36.199 So our topic for today is the current state of 0:00:36.320 --> 0:00:39.680 US financial regulation. And look, if you follow in financial 0:00:39.720 --> 0:00:42.840 regulation or in my case, have been in financial regulations 0:00:42.840 --> 0:00:45.400 for fifteen years, you know who our next guest is. 0:00:45.880 --> 0:00:49.320 This is Dennis Keller, co founder, president, and chief executive 0:00:49.360 --> 0:00:51.879 officer of Better Markets. And for those of you who 0:00:51.880 --> 0:00:55.720 aren't aware, Better Markets is Washington, DC based nonprofit organization 0:00:56.120 --> 0:00:58.720 whose goals are to make finance and government serve society, 0:00:58.760 --> 0:01:02.720 fight and justice and any and promote economic security, opportunity, 0:01:02.720 --> 0:01:06.240 and prosperity for all Americans. Prior to co founding Better Markets, 0:01:06.240 --> 0:01:08.560 Dennis worked for eight years and senior staff positions in 0:01:08.560 --> 0:01:11.280 the United States Senate, including as chief counsel and Senior 0:01:11.360 --> 0:01:14.920 Leadership Advisor to the Chairman of Senate Democratic Policy Committee. 0:01:15.040 --> 0:01:17.440 And earlier in his career, mister Keller was a partner 0:01:17.480 --> 0:01:20.360 with the international law firm as Garden, Armed, Slate, Meager 0:01:20.400 --> 0:01:22.840 and Flom. So with all that, Dennis, thank you very 0:01:22.920 --> 0:01:24.840 much and welcome to the Votes in Verdicts podcast. 0:01:25.480 --> 0:01:26.479 Thanks happy to be here. 0:01:26.920 --> 0:01:28.920 Oh, thank you, And I'm just going to nerd out. 0:01:28.959 --> 0:01:31.160 This is exciting for me because I've been following all 0:01:31.200 --> 0:01:34.399 of your work for the last fifteen years, and you know, 0:01:34.440 --> 0:01:37.160 we're really excited to have you on today's show because 0:01:37.920 --> 0:01:40.920 you know, ever since the Dodd Frank Act, any rulemaking 0:01:41.040 --> 0:01:43.200 that I've looked at, Better Markets has been there in 0:01:43.280 --> 0:01:47.760 terms of providing their comments and their thoughts, and you know, 0:01:47.800 --> 0:01:49.400 we'll get to some of those comments in the bit, 0:01:49.560 --> 0:01:51.360 but before we do, we'd like to always ask our 0:01:51.400 --> 0:01:53.800 guests a little bit about their background. So could you 0:01:53.800 --> 0:01:55.520 tell us a little bit more about your career and 0:01:55.560 --> 0:01:57.560 Better Markets and why you decided to create it. 0:01:59.040 --> 0:02:02.080 Sure you hit most of the highlights, you know. I 0:02:02.120 --> 0:02:04.360 was a partner at scaton Arks for a long time. 0:02:04.400 --> 0:02:07.440 I was there for almost two decades. I then served 0:02:07.520 --> 0:02:10.600 in three senior staff positions in the Senate, including five 0:02:10.639 --> 0:02:13.160 and a half years as a chief counsel and senior 0:02:13.240 --> 0:02:16.280 leadership advisor to the Chairman of the Democratic Policy Committee, 0:02:16.280 --> 0:02:21.119 so as a leadership staff position. And when President Obama 0:02:21.240 --> 0:02:25.080 signed the Dodd Frank Financial Reform Law in July of 0:02:25.120 --> 0:02:29.880 twenty ten, about a year and a half after close 0:02:29.919 --> 0:02:33.040 to two years after the two thousand and eight crash, 0:02:33.080 --> 0:02:35.720 it was pretty clear that the financial industry was going 0:02:35.800 --> 0:02:39.040 to try and win in the regulatory process what they 0:02:39.080 --> 0:02:42.880 had lost in the legislative process, and it was also 0:02:43.000 --> 0:02:47.519 clear that there was no effective counterweight to the financial 0:02:47.520 --> 0:02:52.920 industry in the regulatory process. So I decided, along with 0:02:53.000 --> 0:02:56.480 Mike Masters, who was a hedge fund manager in Atlanta, 0:02:57.440 --> 0:03:00.800 we both thought that the public interest or organization that 0:03:01.000 --> 0:03:05.960 prioritized and focused on the public interest with some substantive expertise, 0:03:07.000 --> 0:03:10.680 participated in the rule making process, which is how a 0:03:10.760 --> 0:03:13.680 law like Dodd Frank becomes a reality in the world. 0:03:14.240 --> 0:03:17.079 And we thought it was setting up to be kind 0:03:17.080 --> 0:03:19.720 of a one sided rule making process, and we thought 0:03:19.720 --> 0:03:23.880 the public interest deserved its own organization to participate in that, 0:03:23.919 --> 0:03:27.359 and that's why we founded Better Markets, and we founded 0:03:27.400 --> 0:03:32.160 it as frankly a different organization than normally see in Washington. 0:03:33.320 --> 0:03:36.560 We from the beginning, wanted to hire people who were 0:03:36.920 --> 0:03:43.440 derivative securities, commodities banking experts with ten, fifteen or decades 0:03:43.520 --> 0:03:47.240 worth of experience to be able to engage on a 0:03:47.280 --> 0:03:50.920 substantive expert level, whether it was at the FED or 0:03:50.960 --> 0:03:53.760 the FDIC or the occ of the SEC, the c FDC, 0:03:53.880 --> 0:03:58.920 the alphabet souper financial regulatory agencies to provide the public 0:03:58.920 --> 0:04:02.840 interest perspective to be a substantive counterweight to the financial industry. 0:04:03.080 --> 0:04:05.000 I mean, one of the things people talk about a lot, 0:04:05.040 --> 0:04:07.000 and I'm sure you hear this, Nathan all the time, 0:04:07.120 --> 0:04:11.279 is well, you know, the financial industries active with lobbyists 0:04:11.280 --> 0:04:14.520 in Washington, and that's true, and they're entitled to do that, 0:04:15.200 --> 0:04:18.520 but they are all like all private sector businesses, looking 0:04:18.560 --> 0:04:24.320 to promote their interest, maximizing profits, maximizing revenue, expanding their business, 0:04:24.400 --> 0:04:29.000 maximizing bonuses. You're entitled to do that, but the law 0:04:29.120 --> 0:04:32.440 dot Franklaw was actually passed to prioritize the public interests, 0:04:32.480 --> 0:04:35.359 not the maximization of profits of anybody in particular. So 0:04:36.360 --> 0:04:39.920 we have built a team of experts. As you indicated, 0:04:39.960 --> 0:04:42.880 we've actually participated in more than four hundred rule makings 0:04:43.440 --> 0:04:46.440 since October of twenty ten, as well as dozens of 0:04:46.520 --> 0:04:50.120 litigations associated with those rules. We testify quite a bit 0:04:50.120 --> 0:04:54.800 and provide expert advice in Congress, and we're pretty engaged 0:04:55.080 --> 0:04:58.800 across the entire range of policymaking as it relates to 0:04:58.839 --> 0:05:02.440 the financial industry frankly, the economy at large, across all 0:05:02.480 --> 0:05:03.600 of Washington. 0:05:03.240 --> 0:05:07.200 You know, speaking of litigation and you know, the financial 0:05:07.240 --> 0:05:10.599 industry lobby, you know, we certainly see no shortage of 0:05:10.680 --> 0:05:17.400 lawsuits currently challenging rules that are promulgated by agencies. One 0:05:17.440 --> 0:05:18.800 of one of the recent rules we want to ask 0:05:18.839 --> 0:05:21.599 you about is the SEC's climate disclosure rule, which of 0:05:21.640 --> 0:05:26.520 course was released on March sixth. And you know, as 0:05:26.520 --> 0:05:29.440 we've seen very you know, time and time again recently, 0:05:30.040 --> 0:05:34.760 lawsuits came swiftly thereafter. There were multiple lawsuits that have 0:05:34.839 --> 0:05:38.480 now been consolidated in the Eighth Circuit Court of Appeals. 0:05:38.960 --> 0:05:42.680 I just wanted to get your thoughts on that particular litigation. 0:05:43.720 --> 0:05:46.080 You know, how you see it playing out, you know, 0:05:46.160 --> 0:05:48.560 courts like the Eighth Circuit, the Fifth Circuit, and the 0:05:48.600 --> 0:05:52.240 Supreme Court too. Now are you know, very skeptical of 0:05:52.279 --> 0:05:56.039 government overreach? And it feels like there's always you know, 0:05:56.160 --> 0:05:58.159 sort of a thumb on the scale of the challenge, 0:05:58.160 --> 0:06:01.599 you know, in favor of the challenger challenging these rules. 0:06:01.720 --> 0:06:03.640 So I just get wanted to get we wanted to 0:06:03.640 --> 0:06:06.560 get your thoughts on, you know, whether whether it's think 0:06:07.320 --> 0:06:10.440 this SEC climate disclosure rule will actually survive the litigation. 0:06:12.000 --> 0:06:14.440 Oh sure, I'd like to take a step back and 0:06:14.600 --> 0:06:18.200 address the broader issue and then answer your specific question 0:06:18.240 --> 0:06:23.479 if I could, Elliott, Absolutely, Yeah, the broader issue, and 0:06:23.520 --> 0:06:26.520 it's really a very serious issue, no matter what side 0:06:26.560 --> 0:06:30.240 you're on. Is we have you know, we had during 0:06:30.240 --> 0:06:33.800 the Trump administration, frankly court packing with judges who are 0:06:33.839 --> 0:06:37.039 ideologically driven and they were chosen to be put on 0:06:37.080 --> 0:06:40.480 the bench for ideological reasons. And we have a whole 0:06:40.520 --> 0:06:45.479 variety of judges now in effect whole courts where facts 0:06:45.960 --> 0:06:49.920 merits policy actually do not matter very much at all, 0:06:50.960 --> 0:06:56.240 and these courts are basically rubber stamping lawsuits against the 0:06:56.279 --> 0:07:00.440 government independent of the facts. Better Market is going to 0:07:00.480 --> 0:07:02.080 put out a report, We've been working on it for 0:07:02.080 --> 0:07:04.800 a couple of weeks now to kind of show what 0:07:05.120 --> 0:07:07.920 some of these decisions. I mean, anybody I was a lawyer, 0:07:07.960 --> 0:07:10.520 it's gotten offers. For twenty years, I litigated cases all 0:07:10.560 --> 0:07:13.680 across the country. I you know, one some I shouldn't 0:07:13.680 --> 0:07:15.440 have won, lost some I shouldn't have lost. But I 0:07:15.480 --> 0:07:17.560 never sat around thinking, you know, well that was just 0:07:17.560 --> 0:07:20.200 a judge. Before I went in the courthouse door, you 0:07:20.720 --> 0:07:22.840 would know almost with certainty how the case was going 0:07:22.880 --> 0:07:26.800 to come out. Nowadays, you know, Corporate America in the 0:07:26.840 --> 0:07:30.240 financial industry know how the case is coming out almost 0:07:30.240 --> 0:07:33.440 to a certainty if they're in the Fifth Circuit. And 0:07:33.520 --> 0:07:36.200 some of the cases in the Fifth Circuit are shockingly 0:07:38.360 --> 0:07:44.760 completely devoid of precedent, facts and merit, and that should 0:07:44.760 --> 0:07:50.119 trouble everyone, regardless of what side you're on. There's also 0:07:50.160 --> 0:07:52.960 a second, really bad outcome of that, which is it 0:07:53.040 --> 0:07:58.880 incentivizes the financial industry and corporate America to litigate file lawsuits. 0:07:59.760 --> 0:08:03.920 There likelihood of winning has gone up dramatically, again regardless 0:08:03.960 --> 0:08:07.360 of the facts of the law. And so as a result, 0:08:07.840 --> 0:08:11.440 there's almost a free option. If you're the industry, you'd 0:08:11.440 --> 0:08:13.720 be a damn fool not to soe nowadays, because your 0:08:13.720 --> 0:08:15.840 odds of winning, even if you've got a bad case 0:08:15.840 --> 0:08:19.720 are actually quite high. And that's what we're seeing kind 0:08:19.720 --> 0:08:22.280 of across the board, So you're seeing lawsuits that you 0:08:22.440 --> 0:08:25.160 never would have seen five years ago. They wouldn't even 0:08:25.200 --> 0:08:28.040 have been thought about five years ago. And that's not 0:08:28.240 --> 0:08:31.000 just bad because of there's more litigation and you've got 0:08:31.040 --> 0:08:34.960 adverse decisions. But you know, the way the financial regulatory 0:08:35.000 --> 0:08:38.880 system has worked is the regulated entities and the regulators 0:08:39.720 --> 0:08:44.959 have this you know, it's supposed to be a professional relationship, 0:08:45.000 --> 0:08:47.800 but one that has tension. Right, regulated entities don't want 0:08:47.840 --> 0:08:51.440 to be regulated. Being regulated costs money. On the other hand, 0:08:51.480 --> 0:08:55.400 being regulated protects the public interest, protects investors, protect the customers, 0:08:55.600 --> 0:08:59.680 protects financial stability. So historically there's been a push and 0:08:59.720 --> 0:09:03.480 all and a healthy tension there that sometimes spills over 0:09:03.559 --> 0:09:06.840 to unhealthy tension, but by and large there's been a 0:09:06.880 --> 0:09:11.360 working relationship between regulated entities and regulators, and that is 0:09:11.400 --> 0:09:15.840 deteriorating significantly because regulated entities know, we don't actually have 0:09:15.960 --> 0:09:19.080 to work with the regulators anymore. We can just go 0:09:19.160 --> 0:09:22.880 to court and win. So that's the broader context. The 0:09:22.920 --> 0:09:28.120 specific question as it relates to the SEC case, I 0:09:28.160 --> 0:09:31.720 think anybody would be a fool to think that the 0:09:31.760 --> 0:09:36.280 odds are not dramatically in favor of the industry winning 0:09:36.480 --> 0:09:40.040 the lawsuits here. It's just as I said earlier, it's 0:09:40.080 --> 0:09:43.280 basically a free option when you look at some of 0:09:43.320 --> 0:09:45.920 these cases and it's in the Eighth Circuit, not the 0:09:45.920 --> 0:09:50.320 Fifth Circuit. If it's the Fifth Circuit, I mean, you know, 0:09:50.400 --> 0:09:53.600 it's almost not worth litigating if you're you know you're 0:09:53.640 --> 0:09:57.120 being sued by the financial industry. The Eighth Circuit is 0:09:58.160 --> 0:10:00.000 the only thing you can say about the Eighth Circuit 0:10:00.120 --> 0:10:01.880 right now is that it's not as bad as the 0:10:01.920 --> 0:10:04.920 Fifth Circuit. That's not saying much. 0:10:04.960 --> 0:10:05.040 So. 0:10:05.160 --> 0:10:08.360 I think anybody who has followed the way these courts 0:10:08.400 --> 0:10:13.720 are ruling, thinking that the industry is not almost certain 0:10:13.760 --> 0:10:17.640 to win, are fooling themselves. That doesn't mean the SEC 0:10:17.720 --> 0:10:21.280 should not defend the case. It doesn't even mean the 0:10:21.320 --> 0:10:24.160 SEC did a bad job on the rule. Frankly, if 0:10:24.200 --> 0:10:28.640 you compare the proposed climate rule to the final climate rule, 0:10:29.480 --> 0:10:34.560 is really difficult to see how anybody in the industry 0:10:34.600 --> 0:10:42.280 could be legitimately and meritoriously harmed here. It's a disclosure rule, 0:10:42.679 --> 0:10:47.080 a disclosure rule by an agency that exists to ensure 0:10:47.160 --> 0:10:53.560 investors have disclosure, and every investor out there from the 0:10:53.600 --> 0:10:58.120 small single investor somewhere, you know, looking at stocks for 0:10:58.160 --> 0:11:01.040 themselves to trade or for for one k, all the 0:11:01.080 --> 0:11:03.960 way up to the big dogs, whether you're Black Rock 0:11:04.080 --> 0:11:09.079 or Fidelity or Pimco or CalPERS. If you're an investor, 0:11:09.120 --> 0:11:11.280 you ought to really start being concerned about some of 0:11:11.280 --> 0:11:15.280 these decisions, because these courts are basically saying that you're 0:11:15.480 --> 0:11:19.679 right to have some very basic information, even apart from climate. 0:11:20.120 --> 0:11:23.439 It's going to apply to climate here a very very weak, 0:11:23.640 --> 0:11:27.880 gutted climate rule. And to beyond, anybody honest it looks 0:11:27.920 --> 0:11:30.080 at the proposed rule and looks at the final rule, 0:11:30.480 --> 0:11:33.160 has to conclude that this is a pretty skeletal rule, 0:11:33.760 --> 0:11:39.679 pretty minimal rule focused exclusively on disclosure of material information 0:11:40.080 --> 0:11:44.920 to information material to investors. Investors are getting the short 0:11:45.000 --> 0:11:48.240 end of the stick here, and our entire capital markets 0:11:48.320 --> 0:11:53.959 in capital formation capital allocation system depends upon investors having 0:11:54.040 --> 0:11:57.360 trust and confidence in our markets that they can get 0:11:57.400 --> 0:12:01.720 all material information, that they canvaluate the information, and they 0:12:01.760 --> 0:12:05.600 can decide intelligently where to put their hard earned money 0:12:05.920 --> 0:12:09.880 or the money that they're fiduciaries for. When investors start 0:12:09.960 --> 0:12:14.320 concluding that they can't get that information or the information 0:12:14.440 --> 0:12:18.199 they're getting is inadequate, Our capital markets are going to suffer. 0:12:19.440 --> 0:12:22.000 We are the pre eminent capital markets in the world, 0:12:22.240 --> 0:12:24.959 but it's not preordained that we're going to stay there. 0:12:25.800 --> 0:12:28.280 We are the pre eminent capital markets in the world 0:12:28.320 --> 0:12:31.800 because they are well regulated, they are well policed, and 0:12:31.920 --> 0:12:35.960 investors have trust and confidence in those markets and in 0:12:36.040 --> 0:12:39.840 the regulators. And that's really what's at stake right now, 0:12:40.040 --> 0:12:45.200 and it's getting completely lost in the litigation onslaught of 0:12:45.440 --> 0:12:51.760 financial industry. Actors who pursuing their individual profit maximization motives 0:12:52.559 --> 0:12:55.320 are going to win the battle, but they risk losing 0:12:55.320 --> 0:12:56.000 the war here. 0:12:57.520 --> 0:12:59.800 And do you think I mean you talked about the 0:12:59.880 --> 0:13:03.080 s you see, you know, watering down its climate disclosure rule. 0:13:03.160 --> 0:13:06.320 It took out the scope three disclosures for example. I mean, 0:13:06.360 --> 0:13:09.000 do you think this is something that regulators should be 0:13:09.000 --> 0:13:11.640 taken into account when they promulgate these rules? You know 0:13:11.800 --> 0:13:16.280 just how anti government some of these courts are, or 0:13:16.320 --> 0:13:19.920 anti administrative action some of these courts are, Or do 0:13:19.960 --> 0:13:23.640 you think you know that an agency should expect to 0:13:23.640 --> 0:13:25.480 be sued and so it might as well continue to 0:13:25.520 --> 0:13:27.960 put out an aggressive rule rather than watering it down 0:13:28.000 --> 0:13:30.400 since it's going to get sued anyways. 0:13:30.960 --> 0:13:32.600 Well, I think it's a little bit of a false 0:13:32.679 --> 0:13:34.800 choice elite if I can, If I can say that, 0:13:36.040 --> 0:13:39.360 And it's important to realize that the change between the 0:13:39.400 --> 0:13:42.840 SEC's proposed climate rule and its finalized rule is not 0:13:43.000 --> 0:13:45.240 The changes are not limited to Scope three. It is 0:13:45.320 --> 0:13:48.240 true Scope three is not in the rule, but the 0:13:48.280 --> 0:13:51.960 provisions as to Scope one and two were also dramatically changed, 0:13:53.040 --> 0:14:00.400 and so you cannot be a responsible regulator promulgating rules 0:14:00.400 --> 0:14:05.960 for any industry without taking into account litigation risk. On 0:14:06.000 --> 0:14:09.200 the other hand, you can't let an our view and 0:14:09.240 --> 0:14:14.280 there are reasonable people can disagree about how government should 0:14:14.320 --> 0:14:22.680 approach the current state of the courts, and some people think, well, 0:14:22.720 --> 0:14:25.120 you should just continue doing whatever you were doing in 0:14:25.240 --> 0:14:30.160 terms of promulgating rules. Our view is that these agencies 0:14:30.240 --> 0:14:34.440 exist for really really important public policy purposes. I mean 0:14:34.480 --> 0:14:37.600 they exist. We can disagree. Reasonable people can disagree about 0:14:37.640 --> 0:14:41.840 whether or not they calibrate the way they discharge their rulemaking, 0:14:41.920 --> 0:14:45.320 their regulation, their supervision, their enforcement. Are they actually doing 0:14:45.320 --> 0:14:47.960 it optimally? Should they do more, should they do less? 0:14:47.960 --> 0:14:50.840 Should they do different? Reasonable people can have those discussions, 0:14:51.160 --> 0:14:54.520 but nobody can challenge the fact that they exist to 0:14:54.640 --> 0:14:59.800 protect investors to protect financial customers and to protect financials 0:14:59.800 --> 0:15:02.920 to ability, and that's their mission, and they have a 0:15:03.000 --> 0:15:06.280 mandate to actually do that. It's not discretionary. The SEC 0:15:06.440 --> 0:15:09.400 isn't just making stuff up, just like the banking regulators 0:15:09.400 --> 0:15:15.280 aren't making stuff up. They have a mandate to protect investors' markets, customers, 0:15:15.280 --> 0:15:18.440 and financial stability. And so our view is that they 0:15:18.440 --> 0:15:21.760 should continue to discharge that duty, and that means rule making, 0:15:22.200 --> 0:15:24.800 and they should promulgate their rules that are in the 0:15:24.840 --> 0:15:28.800 best public policy, consistent with that mandate and the strongest 0:15:28.840 --> 0:15:33.360 form possible in a way that maximizes their likelihood of 0:15:33.440 --> 0:15:37.800 success before a court that actually cares about the facts 0:15:37.800 --> 0:15:40.360 and the law, and if they end up in a 0:15:40.400 --> 0:15:42.720 court that doesn't care about the facts in the law, 0:15:42.840 --> 0:15:46.200 like the Fifth Circuit, which frankly, you know, I practice 0:15:46.240 --> 0:15:49.440 law for a long time, and I don't I'm not 0:15:49.720 --> 0:15:52.760 usually negative or pejorative about judges or courts. I have 0:15:52.800 --> 0:15:56.120 a very high respect for lawyers, judges and courts. But 0:15:56.160 --> 0:15:58.640 I have to tell you that it's hard not to 0:15:58.640 --> 0:16:01.440 come to the conclusion that the Circuit is actually becoming 0:16:01.480 --> 0:16:05.520 a kangaroo court. But you can't let a court like 0:16:05.600 --> 0:16:12.800 that that such an outlier drive public policy decisions at 0:16:13.040 --> 0:16:16.880 financial regulatory agencies that are mandated to protect the public interest. 0:16:17.680 --> 0:16:19.800 So what our view is, what you should do is 0:16:19.880 --> 0:16:24.080 promulgate the right rules, the best rules you can take 0:16:24.200 --> 0:16:27.560 after going through the Administrative Procedures Act, following all the procedures, 0:16:27.560 --> 0:16:30.280 getting all the input, listening to the industry, listening to 0:16:30.320 --> 0:16:34.280 the stakeholders, taking it all into account, making your best judgment, 0:16:34.640 --> 0:16:38.600 and acting a rule. Finalizing a rule that actually is 0:16:38.680 --> 0:16:42.840 sufficiently robust that you believe that a fair minded court 0:16:42.880 --> 0:16:46.840 would uphold your rule as consistent with the APA, the facts, 0:16:46.840 --> 0:16:48.840 and the law. And if you end up in a 0:16:48.920 --> 0:16:50.920 kangaroo court where they don't care about it and they 0:16:50.920 --> 0:16:53.680 throw it out, that's going to happen. But you can't 0:16:53.760 --> 0:16:57.560 let that drive your policymaking. You can't let that drive 0:16:58.000 --> 0:17:01.040 your mandate because it will undermine your mandate and you 0:17:01.040 --> 0:17:04.000 would end up essentially handing the pen over to the 0:17:04.040 --> 0:17:09.720 industry that's being regulated, and that would be detrimental to everyone. 0:17:09.800 --> 0:17:11.880 And that's part of the problem that we have right 0:17:11.880 --> 0:17:14.840 now is that people kind of think, oh, well, these 0:17:14.840 --> 0:17:19.600 are government agencies that are for some reason, like engaging 0:17:19.640 --> 0:17:23.280 in crazy rules. I mean, you said earlier there were 0:17:23.280 --> 0:17:27.840 courts skeptical of government overreach many of these rules. Nobody, 0:17:28.000 --> 0:17:30.600 no fair minded person who wasn't on the payroll of 0:17:30.640 --> 0:17:33.800 a financial industry would think these rules are overreaching anything. 0:17:35.520 --> 0:17:38.359 And when it comes to rules that are pure disclosure rules, 0:17:39.480 --> 0:17:43.800 the SEC was created for that purpose and was populated 0:17:43.800 --> 0:17:46.240 with experts for that purpose. And it doesn't mean that 0:17:46.280 --> 0:17:48.720 they can't make a mistake. It doesn't mean that they 0:17:48.720 --> 0:17:50.879 can't get things wrong. I'm not, you know, I'm not 0:17:51.600 --> 0:17:55.520 in any way suggesting that the financial regulatory agencies are 0:17:55.560 --> 0:17:59.800 always right. And frankly, you know, Nathan earlier said that 0:17:59.840 --> 0:18:02.560 he has been following us for some time, and I 0:18:02.600 --> 0:18:06.000 appreciate that, but then he knows because anybody who follows 0:18:06.040 --> 0:18:07.919 us for sometimes and we are some pretty we are 0:18:07.960 --> 0:18:10.720 pretty brutal on these agencies sometimes and when we don't 0:18:10.720 --> 0:18:13.280 think they're doing the right thing, we let them know it. So, 0:18:14.440 --> 0:18:18.600 but we all have a vested interest in financial regulatory 0:18:18.680 --> 0:18:23.200 agencies fulfilling their mission as best as they can, taking 0:18:23.240 --> 0:18:26.480 into account the many stakeholders that they should and fulfilling 0:18:26.520 --> 0:18:31.600 that mission. And unfortunately it's all being you know, significantly 0:18:31.600 --> 0:18:33.639 impaired and not just at the SEC but kind of 0:18:33.640 --> 0:18:34.399 across the board. 0:18:34.840 --> 0:18:37.439 Yeah, when you mentioned that first vision, I had the 0:18:37.560 --> 0:18:40.400 S twenty one to fifty five issues from twenty eighteen 0:18:41.000 --> 0:18:43.879 on the saity thresholds. So, but you know, you mentioned 0:18:43.880 --> 0:18:46.320 the banking regulators, and this is a good good segue 0:18:46.359 --> 0:18:49.000 to talk about the Bozzle three endgame. And you know, 0:18:49.040 --> 0:18:51.760 for the listeners who don't know what I'm talking about, 0:18:51.800 --> 0:18:53.680 this is the last remaining piece of the Bazzle three 0:18:53.680 --> 0:18:58.960 accords that you know, the American regulators had to implement, 0:18:59.000 --> 0:19:01.240 and they put out a propose last year. This is 0:19:01.240 --> 0:19:03.439 the FED, the FDIC, and the Office of the Comptrol 0:19:03.520 --> 0:19:07.800 or the Currency, which would increase capital requirements probably around 0:19:07.880 --> 0:19:10.920 nineteen percent for the globally systemic banks like Bank America, 0:19:10.960 --> 0:19:14.040 City Group and JP Morgan, and the regional lenders could 0:19:14.040 --> 0:19:15.520 see around five to six percent. 0:19:16.119 --> 0:19:16.320 You know. 0:19:16.359 --> 0:19:20.199 But there's been intense industry pushback to the proposal, and 0:19:20.240 --> 0:19:22.920 the banking industry has gotten some of the moderate Democrats 0:19:22.960 --> 0:19:26.040 even to question this, and as a result, we've started 0:19:26.080 --> 0:19:28.600 to see statements from FED Vice Chairmichael Barr and FED 0:19:28.680 --> 0:19:32.320 Chairman Jerome Powell. Then insinuated that changes are coming. So 0:19:32.480 --> 0:19:34.720 what would you say to them if you were advising them, 0:19:34.960 --> 0:19:37.640 should the proposal drastically changed? Do you think that there 0:19:37.720 --> 0:19:40.119 should be a reproposal in the cards or do you 0:19:40.119 --> 0:19:41.520 think they got it right on the first time. 0:19:43.200 --> 0:19:46.320 Well, you know, we'll share with you we've said to 0:19:46.359 --> 0:19:48.359 them face to face, which is that we think this 0:19:48.520 --> 0:19:52.600 is a good, solid role. Again, it's not a perfect role. 0:19:52.680 --> 0:19:55.399 People should you know know I assume they know this, 0:19:55.520 --> 0:19:58.000 but you know, I believe this is true. But I 0:19:58.040 --> 0:20:01.760 can't think of a single rule that was finalized that 0:20:01.880 --> 0:20:06.680 didn't have changes from the rule that was proposed. And frankly, 0:20:06.760 --> 0:20:09.359 that's the way the process is supposed to work. The 0:20:09.400 --> 0:20:11.600 agencies proposed a rule and then they put it out 0:20:11.640 --> 0:20:16.520 for public comment, which typically means being overwhelmingly industry comment, 0:20:16.920 --> 0:20:19.080 and the agency is supposed to take the comments into 0:20:19.160 --> 0:20:22.800 account and then finalize a rule. And as I say, 0:20:22.840 --> 0:20:25.800 we participated in four hundred rules. I haven't systematically gone 0:20:25.840 --> 0:20:28.040 back and looked at this, but I can't think of 0:20:28.080 --> 0:20:32.040 a single rule that was finalized that wasn't different and 0:20:32.280 --> 0:20:34.520 to some degree from what was proposed. So the mere 0:20:34.560 --> 0:20:36.280 fact that there are going to be changes in the 0:20:36.320 --> 0:20:40.840 capital rule. That's just ordinary course of business, and nonetheless 0:20:40.840 --> 0:20:45.000 we think it's a very good, strong, and importantly necessary rule. 0:20:45.880 --> 0:20:48.840 You know, people don't understand what basil is, what the 0:20:48.960 --> 0:20:53.239 endgame is, but people understand capital crashes and bailouts. And 0:20:53.280 --> 0:20:56.160 as you know, in twenty twenty three, just literally twelve 0:20:56.240 --> 0:20:59.600 months ago, three of the four largest bank failures in 0:20:59.600 --> 0:21:02.359 the history of the United States happened twelve months ago. 0:21:02.920 --> 0:21:06.680 And they happened because those banks did not have enough capital. 0:21:07.280 --> 0:21:10.640 If those banks had enough capital, they would not have failed. 0:21:11.080 --> 0:21:13.359 If they didn't fail, they wouldn't have been bailed out. 0:21:13.840 --> 0:21:16.000 And one of the things people really need to understand 0:21:16.040 --> 0:21:18.959 is what is a bailout. What a bailout is is 0:21:19.000 --> 0:21:23.320 the government, after the fact, providing banks with capital that 0:21:23.400 --> 0:21:27.159 they should have had before they failed. You know, the 0:21:27.320 --> 0:21:29.880 direct cost of those failures are going to be between 0:21:30.640 --> 0:21:33.840 forty billion dollars. That's the amount of money the United 0:21:33.880 --> 0:21:37.879 States government had to put into those banks capital to 0:21:37.960 --> 0:21:41.320 prevent them from failing and prevent the depositors ending up 0:21:41.359 --> 0:21:43.720 with no money or at least depositors under the two 0:21:43.800 --> 0:21:47.040 hundred and fifty thousand dollars sealing for the guarantee from 0:21:47.080 --> 0:21:52.119 the FDIC. They failed because they didn't have capital. The 0:21:52.560 --> 0:21:56.440 government then injected capital to save the bailout those banks. 0:21:56.960 --> 0:21:59.760 So what this rule is, in the simplest form, is 0:21:59.800 --> 0:22:03.040 to make sure banks have enough capital so that if 0:22:03.080 --> 0:22:06.919 something happens, regardless of why it happens, it could because 0:22:06.920 --> 0:22:10.560 of deficient boards and executives. It could because it's taking 0:22:10.680 --> 0:22:13.719 reckless risks. It could because there's something else going on 0:22:13.800 --> 0:22:17.600 in the world that changes the dynamic, whether it's you know, war, 0:22:18.520 --> 0:22:22.159 an epidemic, or just you know, a downturn in the 0:22:22.240 --> 0:22:26.200 business cycle which causes loan defaults to go up and 0:22:26.280 --> 0:22:30.120 people to no longer pay on their obligations to banks. 0:22:30.640 --> 0:22:34.000 Capital is nothing more than a cushion that a bank 0:22:34.119 --> 0:22:38.119 has to save it from failing, and importantly, people need 0:22:38.160 --> 0:22:41.880 to understand capital of banks. Capital is the only thing 0:22:42.040 --> 0:22:48.720 standing between a failing bank and a taxpayer bailout. It's 0:22:48.720 --> 0:22:52.280 also important to remember that when banks fail, everybody pays 0:22:52.320 --> 0:22:55.000 the price. So the three banks that failed in twenty 0:22:55.080 --> 0:22:58.800 twenty three, the direct costs are between thirty and forty 0:22:58.840 --> 0:23:01.439 billion dollars. That was the capital the government had to 0:23:01.480 --> 0:23:04.639 put into those banks to fill the capital hole that 0:23:04.680 --> 0:23:07.400 the banks didn't have in the first place, right, So. 0:23:07.320 --> 0:23:10.760 The issue in capital is who's going to have it 0:23:10.800 --> 0:23:12.320 and when is it going to be Our view is 0:23:12.400 --> 0:23:16.160 banks should have enough capital so they don't fail, rather 0:23:16.200 --> 0:23:19.120 than having the government and taxpayers have to shovel capital 0:23:19.160 --> 0:23:23.360 in after they failed to prevent greater damage to society and. 0:23:23.400 --> 0:23:25.760 Last year, so you get thirty to forty billion dollars 0:23:25.760 --> 0:23:28.679 in direct costs for paying the capital. But Golden Sacks 0:23:28.680 --> 0:23:32.560 and JP Morgan Chase both estimated that the credit contraction 0:23:32.760 --> 0:23:35.639 due to those failures was going to be between point 0:23:35.680 --> 0:23:38.639 five and one percent of GDP. Well, one percent of 0:23:38.720 --> 0:23:43.360 GDP is two hundred and seventy billion dollars. In addition 0:23:43.400 --> 0:23:46.560 to that, you have the collateral consequences of contagion that 0:23:46.680 --> 0:23:50.040 rippled through both community and regional banks as well as 0:23:50.040 --> 0:23:54.240