1 00:00:02,200 --> 00:00:06,800 Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio. 2 00:00:07,320 --> 00:00:11,119 Speaker 1: This week on the podcast, Chris Whalen, chairman of Whalen 3 00:00:11,160 --> 00:00:15,040 Speaker 1: Global Advisors, and an old fishing buddy and friends. Chris 4 00:00:15,160 --> 00:00:20,840 Speaker 1: knows more about the details and back offices of banking 5 00:00:21,000 --> 00:00:24,720 Speaker 1: and mortgages and credit than just about anybody I know 6 00:00:24,840 --> 00:00:29,200 Speaker 1: who's not currently running the Federal Reserve. He has a 7 00:00:29,360 --> 00:00:34,680 Speaker 1: fascinating background and family history. UH. It was through Chris 8 00:00:34,720 --> 00:00:37,440 Speaker 1: that I got to meet Paul Boker. It was through 9 00:00:37,560 --> 00:00:41,040 Speaker 1: Chris that I really learned a lot about how the 10 00:00:41,080 --> 00:00:44,400 Speaker 1: Federal Reserve works, how the mortgage market works, how the 11 00:00:44,479 --> 00:00:49,680 Speaker 1: securitization market works decades ago. In fact, when I was 12 00:00:49,760 --> 00:00:54,880 Speaker 1: researching Bailout Nation, a lot of his work found its 13 00:00:54,920 --> 00:00:57,800 Speaker 1: way into some of the end notes in that book. 14 00:00:58,240 --> 00:01:01,480 Speaker 1: He is really a health of knowledge when it comes 15 00:01:01,520 --> 00:01:05,640 Speaker 1: to UH this area of finance. And if you are 16 00:01:05,680 --> 00:01:12,520 Speaker 1: remotely interested in securitized products, mortgages, banking, UH and banking analysis, 17 00:01:13,440 --> 00:01:15,959 Speaker 1: you're going to really enjoy this conversation. So, with no 18 00:01:16,040 --> 00:01:22,839 Speaker 1: further ado, my conversation with Christopher Whalen, this is Masters 19 00:01:22,880 --> 00:01:26,840 Speaker 1: in Business with Barry Ridholts on Bloomberg Radio. It is 20 00:01:26,880 --> 00:01:30,399 Speaker 1: still a shelter and home addition, and for this week 21 00:01:30,600 --> 00:01:34,920 Speaker 1: I brought a very special guest, Christopher Whalen. He is 22 00:01:35,440 --> 00:01:38,479 Speaker 1: the chairman of will and Global Advisors and has a 23 00:01:38,520 --> 00:01:42,479 Speaker 1: long and deep background in the financial sector, working at 24 00:01:42,480 --> 00:01:46,200 Speaker 1: such firms as Bear Stearns and as a researcher for 25 00:01:46,240 --> 00:01:51,640 Speaker 1: the Federal Reserve. Chris Whalen, Welcome to Bloomberg. Hey, Barry, 26 00:01:51,720 --> 00:01:54,840 Speaker 1: but a pleasure. So let's start out with a little 27 00:01:54,840 --> 00:01:57,720 Speaker 1: bit of your background. I know you as a bank 28 00:01:57,840 --> 00:02:03,200 Speaker 1: analyst and uh an a specialist, but let's go back 29 00:02:03,200 --> 00:02:05,680 Speaker 1: to when you were at Bear Stearns. What were you 30 00:02:05,720 --> 00:02:09,000 Speaker 1: doing at Bear and how is that related to your 31 00:02:09,040 --> 00:02:14,320 Speaker 1: work at the Federal Reserve. Well, I grew up in Washington. 32 00:02:14,639 --> 00:02:17,760 Speaker 1: My parents, Joan and Richard Whalen, were some of the 33 00:02:17,800 --> 00:02:22,640 Speaker 1: most interesting Republicans operating in the town, and it was 34 00:02:22,680 --> 00:02:25,600 Speaker 1: a Democratic town in those days. Bearing the Democrats still 35 00:02:25,680 --> 00:02:28,960 Speaker 1: ran everything. Um. But that's how I got to know 36 00:02:29,080 --> 00:02:33,120 Speaker 1: FED chairman, people like Paul Vulker, Arthur Burns, Alan Greenspan. 37 00:02:33,560 --> 00:02:36,120 Speaker 1: They all came to Mom's parties. In fact, if you 38 00:02:36,120 --> 00:02:38,680 Speaker 1: didn't get an invitation to Jones Christmas party, there was 39 00:02:38,720 --> 00:02:41,720 Speaker 1: something seriously wrong with you. So I grew up in 40 00:02:41,760 --> 00:02:45,640 Speaker 1: this very political household, went to college, went to Villanova, 41 00:02:45,880 --> 00:02:47,720 Speaker 1: and then when I got out, I worked for Jack 42 00:02:47,800 --> 00:02:50,440 Speaker 1: Kemp for a couple of years on Capitol Hill, really 43 00:02:50,600 --> 00:02:53,919 Speaker 1: learned the right. Two brilliant editors used to just pound 44 00:02:54,000 --> 00:02:57,200 Speaker 1: us because we had to report on different committees. And 45 00:02:57,240 --> 00:02:59,520 Speaker 1: I eventually ended up moving to New York and I 46 00:02:59,600 --> 00:03:01,800 Speaker 1: was a man Aagemont trainee at the at the Fete 47 00:03:01,800 --> 00:03:05,280 Speaker 1: of New York. I worked in bank supervision first for 48 00:03:05,639 --> 00:03:08,720 Speaker 1: Jerry Minnahan and Bill Rutledge, and then I went across 49 00:03:08,760 --> 00:03:11,760 Speaker 1: the street and worked in foreign exchange for Gretchen Green 50 00:03:12,280 --> 00:03:15,760 Speaker 1: and Terry CHECKI one of the great uh FED officers 51 00:03:15,840 --> 00:03:19,560 Speaker 1: of his age. He was responsible for foreign so all 52 00:03:19,560 --> 00:03:23,000 Speaker 1: the other central banks would talk to Terry uh In fact, 53 00:03:23,040 --> 00:03:24,960 Speaker 1: he was probably the only person in the building they 54 00:03:24,960 --> 00:03:27,680 Speaker 1: would talk to. So that's kind of where I got 55 00:03:27,680 --> 00:03:29,760 Speaker 1: my start. And then I went to Bear in London 56 00:03:29,919 --> 00:03:33,799 Speaker 1: fixed income trading and sales, worked with David Setchem and 57 00:03:33,880 --> 00:03:36,440 Speaker 1: Joey Calvo and a whole bunch of great people who 58 00:03:36,440 --> 00:03:40,600 Speaker 1: are now at R. W. Pressbridge Special Situation uh Fixed 59 00:03:40,600 --> 00:03:43,440 Speaker 1: Income Shop here in New York, so that's really where 60 00:03:43,440 --> 00:03:46,200 Speaker 1: I started in credit and I had to learn about banks. Obviously, 61 00:03:46,240 --> 00:03:48,720 Speaker 1: I went to night school for accounting. And it was 62 00:03:48,800 --> 00:03:51,040 Speaker 1: very funny in those days because New York was empty 63 00:03:51,080 --> 00:03:54,120 Speaker 1: Barry in the eighties. There was no one here, you know, 64 00:03:54,200 --> 00:03:59,080 Speaker 1: especially oh God. We used to go to Raccoon Lodge 65 00:03:59,160 --> 00:04:01,440 Speaker 1: and there would be bikes parked up and down the street, 66 00:04:01,480 --> 00:04:03,720 Speaker 1: you know, two blox of City Hall, middle of the 67 00:04:03,840 --> 00:04:06,480 Speaker 1: night and there'd be no one there, no one. That's 68 00:04:06,560 --> 00:04:11,320 Speaker 1: that's amazing, that's amazing. You mentioned Jones parties. I recall 69 00:04:11,400 --> 00:04:15,080 Speaker 1: a party of yours. I believe it was election night 70 00:04:15,240 --> 00:04:18,479 Speaker 1: in two thousand and eight, and that was the only 71 00:04:18,520 --> 00:04:21,360 Speaker 1: time in my life I got to meet Paul Vulker 72 00:04:21,560 --> 00:04:25,960 Speaker 1: was sitting in your kitchen telling jokes about the Bush 73 00:04:25,960 --> 00:04:29,840 Speaker 1: administration with tall Paul. The fact that I got Paul 74 00:04:29,920 --> 00:04:32,760 Speaker 1: to laugh is one of the highlights of of that 75 00:04:32,839 --> 00:04:36,760 Speaker 1: decade for me. Yeah, he was a great, great guy, 76 00:04:36,880 --> 00:04:40,000 Speaker 1: and he did have quite a sense of humor. Um. 77 00:04:40,120 --> 00:04:42,320 Speaker 1: He was a member of the Lotus Club, so I 78 00:04:42,400 --> 00:04:44,280 Speaker 1: did get to see him a couple of times there 79 00:04:45,080 --> 00:04:48,279 Speaker 1: before his passing. But he was just a lovely man. 80 00:04:48,640 --> 00:04:51,480 Speaker 1: There were times we disagreed on things, but I always 81 00:04:51,520 --> 00:04:54,760 Speaker 1: came around to his point of view because he was 82 00:04:54,800 --> 00:04:58,320 Speaker 1: such a real guy and he was grounded in in reality. 83 00:04:58,760 --> 00:05:00,719 Speaker 1: He reminds me a lot out of what my dad 84 00:05:00,760 --> 00:05:03,400 Speaker 1: said to me years ago. He said, Christy, task of 85 00:05:03,480 --> 00:05:06,279 Speaker 1: this generation is to pass the bubble onto the next 86 00:05:06,320 --> 00:05:10,559 Speaker 1: generation intact. And that's what Paul Volker did. I asked 87 00:05:10,600 --> 00:05:12,600 Speaker 1: him once about the banks. I said, Paul, why did 88 00:05:12,600 --> 00:05:16,040 Speaker 1: you let this? In two thousand seventeen, which is where 89 00:05:16,040 --> 00:05:19,400 Speaker 1: that picture I put on Twitter came from. And we 90 00:05:19,400 --> 00:05:22,159 Speaker 1: had gone to lunch in this little cafeteria right there 91 00:05:22,160 --> 00:05:24,520 Speaker 1: in Rockefeller Center where he used to go and you know, 92 00:05:24,600 --> 00:05:27,880 Speaker 1: get his lunch every day. It's very bad, it's very nice, uh, 93 00:05:27,920 --> 00:05:29,560 Speaker 1: And we're sitting there and I said, like, why did 94 00:05:29,560 --> 00:05:32,280 Speaker 1: you let the banks do off balance sheet finance? All 95 00:05:32,320 --> 00:05:35,479 Speaker 1: of these bad things happened subsequently, right, And he said, well, 96 00:05:35,600 --> 00:05:40,120 Speaker 1: they were broke. What else was I gonna do? So, 97 00:05:40,440 --> 00:05:43,159 Speaker 1: you know, he was just such a suite and I think, 98 00:05:43,240 --> 00:05:46,960 Speaker 1: very committed public servant, and I always respected that about him. 99 00:05:46,960 --> 00:05:49,279 Speaker 1: But he was a family friend, which is why I 100 00:05:49,400 --> 00:05:52,520 Speaker 1: never asked him for anything. What about some of the 101 00:05:52,600 --> 00:05:57,680 Speaker 1: other um said chairman that you had relationships with. What 102 00:05:57,720 --> 00:06:00,600 Speaker 1: can you tell us about Arthur Burns or Alan Greenspan 103 00:06:00,839 --> 00:06:05,719 Speaker 1: or anybody else on the FMC that that stands out 104 00:06:05,760 --> 00:06:10,000 Speaker 1: in your mind. Arthur Burns was a very sweet, self 105 00:06:10,040 --> 00:06:14,360 Speaker 1: effacing man, Um who my dad got to know because 106 00:06:14,480 --> 00:06:17,719 Speaker 1: Pop was a speechwriter for Richard Nixon and he left 107 00:06:18,040 --> 00:06:21,000 Speaker 1: the Nixon campaign just as Nixon was going to the 108 00:06:21,000 --> 00:06:25,279 Speaker 1: White House. So, you know, because of my father's press 109 00:06:25,320 --> 00:06:28,320 Speaker 1: credentials and connections and everything else, and also because of 110 00:06:28,360 --> 00:06:31,120 Speaker 1: the fact he was a Republican again in a Democratic 111 00:06:31,240 --> 00:06:34,720 Speaker 1: dominated town. Um, he quickly got to know people like 112 00:06:34,760 --> 00:06:38,680 Speaker 1: Burns and Greenspan and became kind of their political counselor 113 00:06:38,680 --> 00:06:42,320 Speaker 1: in a sense, because the decision by both men to 114 00:06:42,400 --> 00:06:46,200 Speaker 1: get into the FED and get deeply involved in national 115 00:06:46,279 --> 00:06:50,159 Speaker 1: economic policy was a very momentous one because it meant 116 00:06:50,160 --> 00:06:53,599 Speaker 1: a lot of compromises for both Um. You know, I 117 00:06:53,640 --> 00:06:56,400 Speaker 1: don't remember Burns as well because I was so young, 118 00:06:57,480 --> 00:07:02,120 Speaker 1: But Greenspan was always a a long uh family friend, 119 00:07:02,160 --> 00:07:05,200 Speaker 1: and he had gotten to know my pop when Pop 120 00:07:05,320 --> 00:07:08,520 Speaker 1: was working with Ronald Reagan. When you know, during the 121 00:07:08,560 --> 00:07:14,720 Speaker 1: seventies six cycle, when Ford eventually got denomination Greenspan was 122 00:07:14,720 --> 00:07:16,600 Speaker 1: trying to figure out when he was going to go 123 00:07:16,680 --> 00:07:19,560 Speaker 1: to the Council of Economic Advisors and then end up 124 00:07:19,600 --> 00:07:22,080 Speaker 1: at the FAT of course, and that was also a 125 00:07:22,160 --> 00:07:25,520 Speaker 1: very political decision, very because you know, the FET is 126 00:07:25,560 --> 00:07:29,720 Speaker 1: the most political entity in Washington by far. Fan was 127 00:07:30,280 --> 00:07:34,520 Speaker 1: very astute political analysts, not a great economist, but really 128 00:07:34,600 --> 00:07:37,920 Speaker 1: really sharp judge of politics. So you know, it was 129 00:07:37,960 --> 00:07:41,360 Speaker 1: a fascinating thing for a young man to have access to. 130 00:07:41,520 --> 00:07:43,960 Speaker 1: I would sit on the stairs in our house in 131 00:07:45,040 --> 00:07:48,960 Speaker 1: for Sunthern, Maryland, off of Massachusetts Avenue, and just listen 132 00:07:49,520 --> 00:07:53,160 Speaker 1: to these parties, uh and meet the people sometimes because 133 00:07:53,200 --> 00:07:55,880 Speaker 1: we were all very little, but as we grew up, 134 00:07:55,960 --> 00:07:58,280 Speaker 1: these people were part of our lives and we were 135 00:07:58,360 --> 00:08:02,080 Speaker 1: kind of Washington insiders. That's what Washington was like in 136 00:08:02,120 --> 00:08:04,680 Speaker 1: the eighties and the nineties. You could actually get stuff done. 137 00:08:05,280 --> 00:08:08,760 Speaker 1: People would talk to one another, they would have dinner, drinks, 138 00:08:09,080 --> 00:08:12,520 Speaker 1: you know, a little a little different than today. Yeah, 139 00:08:12,760 --> 00:08:16,280 Speaker 1: I think we have to restore civility and there by 140 00:08:16,400 --> 00:08:20,480 Speaker 1: communication that would go a long way. That would go 141 00:08:20,480 --> 00:08:23,320 Speaker 1: a long way. I have to follow up with one question. 142 00:08:23,440 --> 00:08:30,200 Speaker 1: You mentioned FED chairman making compromises. Were you talking philosophically 143 00:08:30,560 --> 00:08:35,520 Speaker 1: or politically, or across the board. I think it's across 144 00:08:35,559 --> 00:08:40,040 Speaker 1: the board. You cannot survive as FED chairman without the 145 00:08:40,160 --> 00:08:42,960 Speaker 1: at least the acquiescence of the White House. And you know, 146 00:08:43,120 --> 00:08:47,760 Speaker 1: Trump brates Powell and says things in public. But as 147 00:08:47,800 --> 00:08:50,560 Speaker 1: Judy Shelton said, I think so wonderfully, at least he 148 00:08:50,640 --> 00:08:54,640 Speaker 1: does it in public. What Richard Nixon did Darthur Burns 149 00:08:54,760 --> 00:09:00,520 Speaker 1: was criminal. His anti Semitism and his just nastiness was 150 00:09:00,520 --> 00:09:03,160 Speaker 1: was awful. And you know, Reagan, on the other hand, 151 00:09:03,280 --> 00:09:07,960 Speaker 1: was very affable. My dad got Paul Vulcer reappointed and 152 00:09:08,000 --> 00:09:11,800 Speaker 1: it was a little cabal between him and Paul Laxolt, 153 00:09:11,840 --> 00:09:16,440 Speaker 1: the Great Senator UM. One weekend, the Laxalts and the 154 00:09:16,440 --> 00:09:19,640 Speaker 1: Reagans were at Camp David, and my dad gave Paul, 155 00:09:20,160 --> 00:09:23,160 Speaker 1: the Paul Laxalt the phone number and said, have Reagan 156 00:09:23,280 --> 00:09:27,480 Speaker 1: call Vulker. And it happened. And then my dad said 157 00:09:27,480 --> 00:09:29,839 Speaker 1: to me later, I put this in inflated. This is 158 00:09:29,880 --> 00:09:34,960 Speaker 1: how stuff gets done. And watching the phone call from 159 00:09:35,240 --> 00:09:39,440 Speaker 1: gathering at Camp David. Yeah, And you know, Beryl Sprinkle 160 00:09:39,600 --> 00:09:42,560 Speaker 1: was being pushed very very hard by Don Reagan, the 161 00:09:42,640 --> 00:09:47,360 Speaker 1: former chairman of Mary Lynch and Dad won. So, you know, 162 00:09:47,760 --> 00:09:50,840 Speaker 1: kudos to Paul Laxol. Let's talk a little bit about 163 00:09:51,120 --> 00:09:55,760 Speaker 1: debt and building the American dream. So how have mortgages 164 00:09:56,679 --> 00:10:03,120 Speaker 1: over time helped to build the American dream? Mortgages, you know, 165 00:10:03,160 --> 00:10:07,600 Speaker 1: are frequently cited as evidence of the American dream, the 166 00:10:07,600 --> 00:10:11,920 Speaker 1: ownership of a home, the homestead, right, but the actual 167 00:10:12,040 --> 00:10:15,920 Speaker 1: marketplace goes back to the Depression. When the government got 168 00:10:16,000 --> 00:10:20,240 Speaker 1: involved in the mid and late nineteen thirties, uh and 169 00:10:20,400 --> 00:10:23,880 Speaker 1: created uh Fannie May, which was an agency that would 170 00:10:23,880 --> 00:10:27,440 Speaker 1: go out and buy loans, long term loans, and hold them, 171 00:10:28,160 --> 00:10:31,880 Speaker 1: and they funded these operations by issuing government guaranteed debt. 172 00:10:33,000 --> 00:10:35,959 Speaker 1: Before that, you couldn't get a thirty year mortgage. You 173 00:10:35,960 --> 00:10:39,040 Speaker 1: couldn't get a ten year mortgage. Berry. My grandmother Vera 174 00:10:39,080 --> 00:10:42,480 Speaker 1: actually lost her house in the early last century because 175 00:10:42,480 --> 00:10:44,920 Speaker 1: they had a balloon. In other words, you had small 176 00:10:44,920 --> 00:10:49,079 Speaker 1: payments initially, and then you owed everything and there was well, 177 00:10:49,559 --> 00:10:52,160 Speaker 1: there was no such thing as a thirty year fixed mortgage. 178 00:10:52,320 --> 00:10:56,040 Speaker 1: It was interest only payments, and then you would if 179 00:10:56,080 --> 00:10:59,000 Speaker 1: you were a borrower in good standing, at the end 180 00:10:59,000 --> 00:11:02,439 Speaker 1: of the loan period, you would roll it over into 181 00:11:02,520 --> 00:11:05,200 Speaker 1: a new one. And startle over. If you weren't making 182 00:11:05,240 --> 00:11:08,520 Speaker 1: principal payments, you still owed exactly what you owed when 183 00:11:08,520 --> 00:11:12,360 Speaker 1: you begin. That's right correct. And and really if you 184 00:11:12,400 --> 00:11:14,439 Speaker 1: work in the mortgage business and in the world of 185 00:11:14,520 --> 00:11:17,960 Speaker 1: fixed income, you understand if we don't really have thirty 186 00:11:18,040 --> 00:11:22,000 Speaker 1: year mortgages, we have dirty day mortgages with an option 187 00:11:22,080 --> 00:11:25,480 Speaker 1: to renew, which is held by the homeowner. And so 188 00:11:25,559 --> 00:11:28,160 Speaker 1: every month the investor has to try and figure out 189 00:11:28,720 --> 00:11:31,480 Speaker 1: how many of the loans in a given pool, which 190 00:11:31,559 --> 00:11:35,320 Speaker 1: is how they do bond mortgage bond issuance, are going 191 00:11:35,400 --> 00:11:40,800 Speaker 1: to prepay, refinance, sell the house, default, whatever. And it's 192 00:11:40,880 --> 00:11:45,719 Speaker 1: that optionality that makes mortgages so interesting and also so treacherous. 193 00:11:46,080 --> 00:11:49,880 Speaker 1: It's a huge asset class. It's almost twelve trillion dollars now, 194 00:11:49,920 --> 00:11:54,000 Speaker 1: but interestingly it didn't grow for ten years after the crisis. 195 00:11:54,280 --> 00:11:58,880 Speaker 1: It was flat and no surprise there. Yeah, but it's interesting, 196 00:11:59,000 --> 00:12:02,120 Speaker 1: very because socio logically and in terms of you know, 197 00:12:02,160 --> 00:12:04,920 Speaker 1: the baby boom and everything else. When you study how 198 00:12:04,920 --> 00:12:08,400 Speaker 1: the mortgage industry has behaved over time. In the eighties 199 00:12:08,520 --> 00:12:11,440 Speaker 1: crashed and burned, destroyed all the savings and loans. The 200 00:12:11,559 --> 00:12:15,559 Speaker 1: nineties was kind of flat, now there were fringe products there, 201 00:12:15,600 --> 00:12:19,280 Speaker 1: specifically our friends at City Bank who decided they could 202 00:12:19,280 --> 00:12:23,360 Speaker 1: do no DOC, no income verification mortgages for self employed. Right, 203 00:12:23,840 --> 00:12:27,200 Speaker 1: that's where subprime mortgages came from, was in the nineties. 204 00:12:27,400 --> 00:12:30,520 Speaker 1: But then they got out because the results were so horrific. 205 00:12:30,559 --> 00:12:33,320 Speaker 1: And they did this in the US and other countries too. 206 00:12:33,640 --> 00:12:35,840 Speaker 1: When I was working at the FED, I was in 207 00:12:35,960 --> 00:12:42,040 Speaker 1: charge of overseeing city banks foreign adventures in places like Japan. Well, Japan, 208 00:12:42,520 --> 00:12:46,160 Speaker 1: they have no credit information on individuals, so someone could 209 00:12:46,200 --> 00:12:50,800 Speaker 1: default and just disappear, and they did. So. You know 210 00:12:50,960 --> 00:12:54,760 Speaker 1: what's the las of mortgages in Japan, Chris? Oh god, 211 00:12:55,320 --> 00:12:58,040 Speaker 1: they can be quite long, they can be multi generational 212 00:12:59,200 --> 00:13:03,560 Speaker 1: mortgages are unheard of, no, no, because the rates are 213 00:13:03,640 --> 00:13:07,320 Speaker 1: very low. And so what happens is if a young 214 00:13:07,400 --> 00:13:10,600 Speaker 1: couple is getting married, the family will typically cool their 215 00:13:10,640 --> 00:13:14,520 Speaker 1: resources go buy them a house, and if they need debt, 216 00:13:14,600 --> 00:13:17,360 Speaker 1: they'll pay it off as fast as they can. You know, 217 00:13:17,440 --> 00:13:20,920 Speaker 1: you may have heard of stated income loans. They're prey 218 00:13:21,040 --> 00:13:25,520 Speaker 1: popular out on the West Coast among the Asian community, Koreans, Chinese, 219 00:13:25,840 --> 00:13:29,480 Speaker 1: and very typically these loans performed great even though they 220 00:13:29,480 --> 00:13:31,840 Speaker 1: don't fit in the box for you know, Fannie Mae, 221 00:13:31,880 --> 00:13:33,760 Speaker 1: Freddie mack j and you make kind of loans, they're 222 00:13:33,800 --> 00:13:38,480 Speaker 1: they're typically private. The communities hate debt, so you know, 223 00:13:38,679 --> 00:13:41,160 Speaker 1: if a young couple starts a family, they'll they'll pay 224 00:13:41,160 --> 00:13:43,960 Speaker 1: it down five years. So all of that has to 225 00:13:44,000 --> 00:13:46,839 Speaker 1: be factored into your analysis as an investor if you're 226 00:13:46,840 --> 00:13:50,679 Speaker 1: buying these loans right. You know, like the last few 227 00:13:50,760 --> 00:13:54,400 Speaker 1: years because of the bondmarket volatility, all of the mortgage 228 00:13:54,559 --> 00:13:56,679 Speaker 1: loans that were made in eighteen and nineteen are pre 229 00:13:56,840 --> 00:13:59,400 Speaker 1: pain because they're all in the money now, they can 230 00:13:59,440 --> 00:14:02,160 Speaker 1: all refin yts and I take over the next year 231 00:14:02,240 --> 00:14:04,400 Speaker 1: or two, you're going to see the fig gently step 232 00:14:04,440 --> 00:14:07,640 Speaker 1: on the bottom of the yield curve and force that 233 00:14:08,000 --> 00:14:12,199 Speaker 1: front coupon down for both government loans and and Fenny 234 00:14:12,240 --> 00:14:15,200 Speaker 1: and Freddie loans, and we'll see three percent mortgages in 235 00:14:15,200 --> 00:14:17,400 Speaker 1: this country I think by the end of the year, 236 00:14:17,800 --> 00:14:20,080 Speaker 1: which means you're gonna have a Jinny May two out there. 237 00:14:20,120 --> 00:14:23,320 Speaker 1: You're gonna have a two percent coupon. Let's let's talk 238 00:14:23,360 --> 00:14:27,480 Speaker 1: about that a second, because if I remember, pre crisis, 239 00:14:28,080 --> 00:14:32,000 Speaker 1: the average length of a mortgage was about seven years, 240 00:14:32,520 --> 00:14:36,440 Speaker 1: meaning people typically would move into a house their starter home, 241 00:14:37,080 --> 00:14:39,920 Speaker 1: have the first kid outgrow the house, and by year 242 00:14:39,960 --> 00:14:43,960 Speaker 1: seven they're selling and trading up to the three bedroom split. 243 00:14:44,120 --> 00:14:48,320 Speaker 1: And that was fairly typical. Are those numbers about what 244 00:14:48,360 --> 00:14:52,720 Speaker 1: you recall and what does that look like today? Yeah, 245 00:14:52,880 --> 00:14:56,400 Speaker 1: it would be seven years or even shorter during periods 246 00:14:56,440 --> 00:15:01,240 Speaker 1: of very high labor market mobility for example, um, you 247 00:15:01,280 --> 00:15:04,280 Speaker 1: also have the speculative component. Back in the two thousand's 248 00:15:04,280 --> 00:15:08,920 Speaker 1: a lot of second homes which would flip quite quite fast. Today, 249 00:15:09,040 --> 00:15:12,840 Speaker 1: average lives are ten plus years. In fact, the servicing 250 00:15:12,920 --> 00:15:17,200 Speaker 1: portfolios that are being created right now Barry with refinancings 251 00:15:17,240 --> 00:15:19,280 Speaker 1: are going to be worth a lot of money because 252 00:15:19,320 --> 00:15:23,080 Speaker 1: they're gonna have average lives over ten years. Whereas the 253 00:15:23,200 --> 00:15:26,920 Speaker 1: older strips, like I said, bonds that were sold you know, 254 00:15:27,000 --> 00:15:29,920 Speaker 1: one and two years ago with much higher coupons, they're 255 00:15:29,920 --> 00:15:32,560 Speaker 1: going to pre pay. And so the average life of 256 00:15:32,560 --> 00:15:35,880 Speaker 1: those pools it already has, it's it's shrinking down to 257 00:15:35,960 --> 00:15:38,640 Speaker 1: like three years. And if you're in Eastern and you 258 00:15:38,720 --> 00:15:40,960 Speaker 1: paid you know, one oh four for the bond and 259 00:15:41,000 --> 00:15:45,360 Speaker 1: you're getting redemptions back at par that's kind of painful. 260 00:15:46,040 --> 00:15:49,680 Speaker 1: That's a loss. So so we don't. We don't really 261 00:15:49,800 --> 00:15:54,400 Speaker 1: love predictions here. We kind of frown on predictions around 262 00:15:54,440 --> 00:15:57,520 Speaker 1: these parts. But what I'm hearing from you is that 263 00:15:57,680 --> 00:16:01,720 Speaker 1: you think, as part of the Corona a virus pandemic response, 264 00:16:02,360 --> 00:16:07,560 Speaker 1: the FED is going to encourage another wave of refinancing 265 00:16:07,720 --> 00:16:11,520 Speaker 1: by keeping part of the curve low, not inverted, but 266 00:16:11,720 --> 00:16:16,359 Speaker 1: low and flat, so that it becomes attractive for homeowners 267 00:16:16,360 --> 00:16:19,600 Speaker 1: to refinance. Did I hear that right? Oh? Yes, I 268 00:16:19,640 --> 00:16:22,640 Speaker 1: think you're gonna see what we call streamlined refine that 269 00:16:22,720 --> 00:16:26,080 Speaker 1: don't require appraisals. In other words, you have an existing borrower, 270 00:16:26,600 --> 00:16:29,680 Speaker 1: you already know who they are, right, you're lowering their costs. 271 00:16:29,680 --> 00:16:32,800 Speaker 1: You're typically doing a rate refine rather than having them 272 00:16:32,840 --> 00:16:35,920 Speaker 1: take cash out. But that's okay. If you lower the 273 00:16:35,920 --> 00:16:39,840 Speaker 1: household's expenses, you're improving the credit. It's gonna have a 274 00:16:39,840 --> 00:16:43,200 Speaker 1: lower probability at default. And overall, what you want is 275 00:16:43,240 --> 00:16:46,560 Speaker 1: to get cash into the economy right now, right, So yeah, 276 00:16:46,960 --> 00:16:51,080 Speaker 1: I think the FED would love to see a gradual 277 00:16:51,520 --> 00:16:54,120 Speaker 1: surgeon refines because you know what they have to buy 278 00:16:54,120 --> 00:16:57,840 Speaker 1: the paper Barry, Uh, their mortgage portfolio is going to 279 00:16:57,920 --> 00:17:01,520 Speaker 1: prepay in the next six months. It's like a trillion dollars. 280 00:17:01,560 --> 00:17:05,040 Speaker 1: So just to replace that and keep their balance sheet 281 00:17:05,119 --> 00:17:09,200 Speaker 1: stable in terms of monetary policy purposes, they're gonna have 282 00:17:09,240 --> 00:17:11,359 Speaker 1: to buy a lot of paper, and I think the 283 00:17:11,440 --> 00:17:15,320 Speaker 1: predominant UH source will be the government market. Jennie May, 284 00:17:15,840 --> 00:17:19,080 Speaker 1: we've had some problems with the Fanny Freddie component for 285 00:17:19,119 --> 00:17:21,880 Speaker 1: the last couple of weeks. While they're a regulator, Mark 286 00:17:21,920 --> 00:17:24,840 Speaker 1: Collabria has figured out what to do. But I think 287 00:17:24,880 --> 00:17:27,440 Speaker 1: the good news this week is he's figuring it out. 288 00:17:27,760 --> 00:17:31,560 Speaker 1: We're helping him. Um. So hopefully the whole mortgage complex 289 00:17:31,640 --> 00:17:35,120 Speaker 1: is going to have a solution to both the forbearance 290 00:17:35,640 --> 00:17:39,000 Speaker 1: with the COVID nineteen and then the resulting defaults. I 291 00:17:39,359 --> 00:17:41,920 Speaker 1: think a third or more the people who look for 292 00:17:41,920 --> 00:17:45,000 Speaker 1: forbearance on their mortgages barrier are going to ultimately default. 293 00:17:45,359 --> 00:17:48,040 Speaker 1: Let's talk a little bit about something that is in 294 00:17:48,119 --> 00:17:54,200 Speaker 1: the news today, namely the government's Paycheck Protection Program better 295 00:17:54,200 --> 00:17:58,440 Speaker 1: known as p p P. How are banks handling this? 296 00:17:58,720 --> 00:18:04,320 Speaker 1: Who's doing this well? Who is not? The banks, like 297 00:18:04,400 --> 00:18:06,720 Speaker 1: all of us in the world of finance, had this 298 00:18:07,400 --> 00:18:12,480 Speaker 1: this Cares Act legislation thrown at us. There was no 299 00:18:13,400 --> 00:18:15,760 Speaker 1: guidance on how we were to implement it, and in 300 00:18:15,800 --> 00:18:19,439 Speaker 1: many cases it was unfunded. So, for example, the entire 301 00:18:20,000 --> 00:18:23,720 Speaker 1: mortgage space, whether it's government guaranteed or private, has to 302 00:18:23,760 --> 00:18:26,640 Speaker 1: figure out how to deal with consumers who've been told 303 00:18:26,640 --> 00:18:29,440 Speaker 1: they don't have to pay their loans. And this really 304 00:18:29,440 --> 00:18:33,280 Speaker 1: only applies to government guaranteed loans, but everything autos, you know, 305 00:18:33,280 --> 00:18:36,359 Speaker 1: if you name it, the rent whatever, So everybody thinks 306 00:18:36,359 --> 00:18:39,560 Speaker 1: they got a free pass, but it's not. Now. With 307 00:18:39,680 --> 00:18:43,120 Speaker 1: small businesses, there was a window there where you could 308 00:18:43,160 --> 00:18:45,560 Speaker 1: go to your bank, typically the bank you use for 309 00:18:45,640 --> 00:18:48,720 Speaker 1: the business and payroll, and you could get a loan 310 00:18:48,800 --> 00:18:51,439 Speaker 1: from them, and if you agreed to keep your people 311 00:18:51,480 --> 00:18:56,280 Speaker 1: on it would eventually be forgiven. There's so much money though, 312 00:18:56,520 --> 00:18:59,160 Speaker 1: so most of the small business people I know who 313 00:18:59,200 --> 00:19:01,880 Speaker 1: have tried to act sess these credits have found out 314 00:19:01,960 --> 00:19:04,640 Speaker 1: that the banks have already run through the money. And 315 00:19:05,040 --> 00:19:08,440 Speaker 1: I think, what's you know important to realize is that 316 00:19:08,640 --> 00:19:11,199 Speaker 1: for a lot of small businesses, it's better to just 317 00:19:11,280 --> 00:19:15,480 Speaker 1: put your people on unemployment and keep their healthcare active 318 00:19:15,840 --> 00:19:18,320 Speaker 1: because in many cases, especially you know, at the lower 319 00:19:18,400 --> 00:19:22,280 Speaker 1: level employees, it's a race, so they can stay home 320 00:19:22,280 --> 00:19:26,080 Speaker 1: with their families, you keep their health insurance intact and 321 00:19:26,160 --> 00:19:29,439 Speaker 1: you just basically wait. And I think that's what a 322 00:19:29,480 --> 00:19:33,240 Speaker 1: lot of small businesses have decided to do. So we've 323 00:19:33,240 --> 00:19:36,880 Speaker 1: heard about a lot of smaller community banks that were 324 00:19:37,040 --> 00:19:41,159 Speaker 1: very effective at processing these p p P applications, but 325 00:19:41,560 --> 00:19:44,679 Speaker 1: less so for the big money center banks. Is that 326 00:19:44,960 --> 00:19:49,640 Speaker 1: simply a function of employee to client ratio. I mean, 327 00:19:49,680 --> 00:19:53,560 Speaker 1: if you're Wells Fargo UM or Bank America, you have 328 00:19:53,640 --> 00:19:57,000 Speaker 1: a bajillion clients. But if you're a smaller community bank 329 00:19:57,080 --> 00:20:00,240 Speaker 1: somewhere in the Midwest, I gotta think it's pretty easy 330 00:20:00,320 --> 00:20:05,200 Speaker 1: for them to process those applications quickly. That's correct. Very 331 00:20:05,080 --> 00:20:10,320 Speaker 1: the larger institutions have trouble with processing anything out of 332 00:20:10,359 --> 00:20:14,439 Speaker 1: the ordinary um In essence, there are no economies of 333 00:20:14,440 --> 00:20:19,080 Speaker 1: scale and banking, right. So the little community bank, even 334 00:20:19,119 --> 00:20:23,720 Speaker 1: the regionals, are typically more flexible. They can handle increase 335 00:20:23,760 --> 00:20:28,000 Speaker 1: at the branch level and they can make decisions because 336 00:20:28,000 --> 00:20:31,600 Speaker 1: they have a flatter organization the big banks or pyramids, 337 00:20:31,640 --> 00:20:35,280 Speaker 1: and they do this intentionally to keep them from causing trouble. 338 00:20:35,800 --> 00:20:39,920 Speaker 1: So essentially, the largest banks are very inefficient by design, 339 00:20:40,560 --> 00:20:42,879 Speaker 1: and that's why when you call them, they have this 340 00:20:43,080 --> 00:20:48,199 Speaker 1: very narrow bottleneck of capacity, for example, to take calls 341 00:20:48,240 --> 00:20:50,879 Speaker 1: because you have to actually talk to someone if you 342 00:20:50,920 --> 00:20:53,040 Speaker 1: want to get one of these loans. And they had 343 00:20:53,280 --> 00:20:56,520 Speaker 1: some online presence, but remember they had to put all 344 00:20:56,520 --> 00:20:59,440 Speaker 1: this up in a matter of days. And banks don't 345 00:20:59,480 --> 00:21:03,120 Speaker 1: move that quickly, see non bank companies. Because they're flat, 346 00:21:03,680 --> 00:21:07,080 Speaker 1: they move very quickly, and smaller banks tend to be 347 00:21:07,200 --> 00:21:10,919 Speaker 1: much more nimble than the larger institutions. So so for 348 00:21:11,000 --> 00:21:14,359 Speaker 1: these banks, how does participating in the p P P 349 00:21:14,600 --> 00:21:18,520 Speaker 1: plan benefit them? It certainly doesn't hurt if your clients 350 00:21:18,640 --> 00:21:21,959 Speaker 1: can survive. But is there any incentive for the banks 351 00:21:22,000 --> 00:21:25,399 Speaker 1: to do something? Oh? Yeah, they make a couple of 352 00:21:25,400 --> 00:21:28,840 Speaker 1: points up front gain on sale, and the loan no 353 00:21:28,920 --> 00:21:32,960 Speaker 1: credit risk. It works, they're all covered credits. It's like 354 00:21:33,000 --> 00:21:36,760 Speaker 1: a small business administration loans. The banks have a nice 355 00:21:37,040 --> 00:21:39,480 Speaker 1: little bump in the front because they typically will sell 356 00:21:39,520 --> 00:21:42,400 Speaker 1: those loans where they can keep me in portfollowing off 357 00:21:42,440 --> 00:21:44,800 Speaker 1: they want. But they have a number of incentives to 358 00:21:45,200 --> 00:21:48,840 Speaker 1: do the business. Believe me, what kind of bank was 359 00:21:48,920 --> 00:21:53,240 Speaker 1: best position for this COVID nineteen crisis? Was it the 360 00:21:53,280 --> 00:21:56,000 Speaker 1: big money center banks, was it the investment banks? Was 361 00:21:56,040 --> 00:21:59,400 Speaker 1: it the regional banks or the smaller community banks. Who 362 00:21:59,440 --> 00:22:01,280 Speaker 1: do you believe EVE is going to come out of 363 00:22:01,320 --> 00:22:08,520 Speaker 1: this um as having not only survived but thrived. I 364 00:22:08,600 --> 00:22:11,600 Speaker 1: think first and foremost, you look at JP Morgan simply 365 00:22:11,640 --> 00:22:14,720 Speaker 1: because of size, you know, a trillion plus and core 366 00:22:14,800 --> 00:22:18,000 Speaker 1: deposits on one side of the business and a pretty 367 00:22:18,119 --> 00:22:21,720 Speaker 1: robust capital markets business and also derivatives on the other side. 368 00:22:21,720 --> 00:22:26,280 Speaker 1: It's about half and half. Well, it's Bank of America likewise, 369 00:22:26,320 --> 00:22:29,280 Speaker 1: big islands of liquidity, more than a trillion dollars in 370 00:22:29,359 --> 00:22:33,960 Speaker 1: court deposits. The ones with more consumer exposure like Capital 371 00:22:34,000 --> 00:22:37,919 Speaker 1: One City. Uh, they've been getting beaten up just for 372 00:22:37,960 --> 00:22:41,119 Speaker 1: that reason. You know, credit is the concern. And in 373 00:22:41,200 --> 00:22:45,720 Speaker 1: the investment banks, interestingly, Morgan Stanley during the sell office, 374 00:22:46,480 --> 00:22:49,000 Speaker 1: the outlier and the whole group, their credit the false 375 00:22:49,000 --> 00:22:52,640 Speaker 1: swaps were trading more than two d basis points over 376 00:22:52,680 --> 00:22:55,600 Speaker 1: the curve, which is a lot. Give you an example, 377 00:22:55,720 --> 00:22:58,959 Speaker 1: before the crisis and the sell off kind of beginning 378 00:22:58,960 --> 00:23:02,040 Speaker 1: of February, most of these banks or forty fifty bits 379 00:23:02,080 --> 00:23:05,639 Speaker 1: over the curve for five year credit the fault swap insurance. 380 00:23:06,080 --> 00:23:10,720 Speaker 1: So they all widened. And Goldman, Morgan Stanley, you know, 381 00:23:11,000 --> 00:23:14,359 Speaker 1: American Express, they got beat up but today MX is 382 00:23:14,359 --> 00:23:17,600 Speaker 1: still trained the three times buck. It's a premium property 383 00:23:17,640 --> 00:23:20,760 Speaker 1: because it's the best performing large bank in the United States, 384 00:23:20,800 --> 00:23:24,440 Speaker 1: even though it's small, it's only about two billion assets. 385 00:23:24,440 --> 00:23:27,760 Speaker 1: So I would tell you the consumer exposure is the 386 00:23:27,800 --> 00:23:30,479 Speaker 1: real pain point. But you're going to see pain on 387 00:23:30,520 --> 00:23:33,600 Speaker 1: the on the institutional and the commercial side too. I 388 00:23:33,680 --> 00:23:36,520 Speaker 1: think low losses for banks, it's going to be across 389 00:23:36,520 --> 00:23:39,879 Speaker 1: the board. Berry. If I recall correctly, Capital One is 390 00:23:39,960 --> 00:23:42,880 Speaker 1: now the largest credit card issue are in the country. 391 00:23:42,960 --> 00:23:47,399 Speaker 1: Is that right. Yes. They rolled up several monol lines, 392 00:23:47,680 --> 00:23:51,119 Speaker 1: you know, ten fifteen years ago, and it's primarily a 393 00:23:51,119 --> 00:23:54,440 Speaker 1: credit card issuer. Pretty high cost of funds, but they're 394 00:23:54,520 --> 00:23:57,400 Speaker 1: very efficient. They've gotten into some other areas that got 395 00:23:57,400 --> 00:24:00,439 Speaker 1: them in trouble, like oil, which was kind of rising. 396 00:24:00,680 --> 00:24:03,480 Speaker 1: I think people were taken aback by that. But the 397 00:24:03,520 --> 00:24:06,840 Speaker 1: reality is, you know, these model lines don't do so well. 398 00:24:06,880 --> 00:24:09,920 Speaker 1: They need to broaden their business and Capital One has 399 00:24:09,960 --> 00:24:13,040 Speaker 1: not been very good at main street banking. They bought 400 00:24:13,040 --> 00:24:17,760 Speaker 1: a couple of retail banks for basically for the funding um, 401 00:24:17,800 --> 00:24:20,800 Speaker 1: but they haven't developed those businesses. In fact, if anything, 402 00:24:20,800 --> 00:24:23,600 Speaker 1: they've shrunk them down. So they have consumer which is 403 00:24:23,720 --> 00:24:26,199 Speaker 1: very nice, very high spreads, and then they have a 404 00:24:26,240 --> 00:24:30,160 Speaker 1: capital markets business that unfortunately it's been in the headlines recently. 405 00:24:31,280 --> 00:24:34,400 Speaker 1: So you mentioned roll ups and some M and A activity. 406 00:24:34,960 --> 00:24:39,080 Speaker 1: I have to assume that in that's completely dried up. 407 00:24:39,200 --> 00:24:43,960 Speaker 1: Or is this still things happening behind the scenes. Well, 408 00:24:45,040 --> 00:24:48,359 Speaker 1: I think for now yes, because valuations are going to 409 00:24:48,480 --> 00:24:53,160 Speaker 1: be difficult until we get through the peak of credit costs. 410 00:24:53,240 --> 00:24:56,080 Speaker 1: It's hard to value a bank if you don't know 411 00:24:56,160 --> 00:24:59,159 Speaker 1: what the next three to four quarters worth of credit 412 00:24:59,520 --> 00:25:02,600 Speaker 1: looks like. Um. So we've got to get through that. 413 00:25:03,080 --> 00:25:05,399 Speaker 1: And there are other assets on bank balance sheets that 414 00:25:05,440 --> 00:25:09,040 Speaker 1: are also you know, big question marks right now. Um. 415 00:25:09,080 --> 00:25:12,200 Speaker 1: And I think as we get through that, well, think 416 00:25:12,200 --> 00:25:16,800 Speaker 1: about servicing portfolios for all kinds of loans. Typically those 417 00:25:16,800 --> 00:25:19,800 Speaker 1: are annuities, right, you get paid a little fee every month. 418 00:25:19,840 --> 00:25:23,560 Speaker 1: It's pretty nice. But because of the uncertainty regarding all 419 00:25:23,600 --> 00:25:26,960 Speaker 1: this forbearance, whether it was legally authorized or not, right, 420 00:25:27,000 --> 00:25:30,879 Speaker 1: the regulators are forcing all lenders, even private lenders, to 421 00:25:30,960 --> 00:25:34,600 Speaker 1: give forbearance. You know, ally just reported Earning said the 422 00:25:34,760 --> 00:25:37,879 Speaker 1: auto lender they basically had to extend a hundred and 423 00:25:37,880 --> 00:25:41,800 Speaker 1: twenty days of loan forbearance on what are private loans. 424 00:25:42,200 --> 00:25:46,679 Speaker 1: The bond horns will pay for this. So you know, 425 00:25:46,720 --> 00:25:49,920 Speaker 1: the regulators essentially threatened all of these non bank lenders 426 00:25:50,040 --> 00:25:53,240 Speaker 1: who operate outside of the government guarantees space and said 427 00:25:53,280 --> 00:25:56,719 Speaker 1: you must provide forebearance. So it's just you know, coercion 428 00:25:57,119 --> 00:26:00,879 Speaker 1: on a national scale, and uh, they'll through it. We 429 00:26:00,920 --> 00:26:03,960 Speaker 1: have to figure out what those loan portfolios are worth. Now, 430 00:26:04,480 --> 00:26:06,800 Speaker 1: how many of the people who ask for help are 431 00:26:06,800 --> 00:26:09,520 Speaker 1: going to get back on track. That's the key question, 432 00:26:09,600 --> 00:26:12,879 Speaker 1: because then you can value the portfolio. So what do 433 00:26:12,960 --> 00:26:16,040 Speaker 1: you think will end up happening with all these lenders 434 00:26:16,080 --> 00:26:19,560 Speaker 1: who suddenly have a four month hold in their revenue 435 00:26:19,880 --> 00:26:23,119 Speaker 1: um or at least they're cash flows. They're still owed 436 00:26:23,200 --> 00:26:25,760 Speaker 1: that money. It's just kicked down the road a little bit. 437 00:26:27,280 --> 00:26:31,400 Speaker 1: In theory, yes, if the consumer cures and for example, 438 00:26:31,760 --> 00:26:33,800 Speaker 1: and this is private by the way, there's no government 439 00:26:33,840 --> 00:26:36,840 Speaker 1: mandate here as to how you fix this. Could say, well, 440 00:26:37,080 --> 00:26:39,560 Speaker 1: we'll push those mispayments to the end of the loan 441 00:26:39,640 --> 00:26:43,800 Speaker 1: and will modify the loan. Okay, just contract we won't 442 00:26:43,800 --> 00:26:46,040 Speaker 1: buy the loan back from the bond investor. We just 443 00:26:46,119 --> 00:26:49,120 Speaker 1: leave it. Because that makes life a little easier. Same 444 00:26:49,160 --> 00:26:51,800 Speaker 1: thing with the mortgages. They would ideally like to leave 445 00:26:51,880 --> 00:26:56,800 Speaker 1: those mortgage notes in these pools to back all these securities, 446 00:26:56,800 --> 00:26:58,360 Speaker 1: because when you buy it out, you have to buy 447 00:26:58,359 --> 00:27:00,960 Speaker 1: it out at par it's of money. If you're talking 448 00:27:00,960 --> 00:27:03,760 Speaker 1: about a couple of months interest payments, given how low 449 00:27:03,840 --> 00:27:07,400 Speaker 1: rates are right now, Barry, that's manageable. And in fact, 450 00:27:07,840 --> 00:27:10,359 Speaker 1: the regulator for Fan and Freddie just came out and said, 451 00:27:10,680 --> 00:27:13,760 Speaker 1: you guys have to advance for four months and then 452 00:27:13,800 --> 00:27:16,160 Speaker 1: we'll come and reimburse you. So we're starting to get 453 00:27:16,200 --> 00:27:20,280 Speaker 1: some clarity on this, right. But for private investors, private mortgages, 454 00:27:20,520 --> 00:27:24,159 Speaker 1: commercial mortgages, you know, multi family, all of this stuff, 455 00:27:24,200 --> 00:27:26,960 Speaker 1: if it doesn't have a government guarantee, then the bond 456 00:27:26,960 --> 00:27:31,240 Speaker 1: holders will pay. The servicers get reimbursed first. By the way, 457 00:27:31,520 --> 00:27:34,760 Speaker 1: if there's misspayments, they get their feet. The bond holders 458 00:27:34,800 --> 00:27:37,400 Speaker 1: basically have to wait. So that's that's how it will work. 459 00:27:37,960 --> 00:27:40,679 Speaker 1: Back in the line. Back to the line, the triple 460 00:27:40,760 --> 00:27:43,399 Speaker 1: ais are in front and then the lower trashes. In 461 00:27:43,440 --> 00:27:46,199 Speaker 1: these deals there tend to be several. Those are the 462 00:27:46,200 --> 00:27:49,680 Speaker 1: ones who will take the pain. So Chris, let's talk 463 00:27:49,720 --> 00:27:53,160 Speaker 1: a little bit about the current state of the economy. 464 00:27:53,359 --> 00:27:56,680 Speaker 1: I don't think many people would deny that we are 465 00:27:56,760 --> 00:28:01,919 Speaker 1: in a recession today. How bad is it? And how 466 00:28:02,200 --> 00:28:06,679 Speaker 1: deep and long can this last? For I was on 467 00:28:06,760 --> 00:28:09,479 Speaker 1: a call yesterday with a bunch of my mortgage buddies, 468 00:28:09,480 --> 00:28:13,320 Speaker 1: a lot of economists, um, you know, Mark uh uh, 469 00:28:13,560 --> 00:28:16,399 Speaker 1: Sam Cattery from Freddie Mack and people like this, and 470 00:28:16,400 --> 00:28:20,920 Speaker 1: they really do excellent research on the demographics, if you will, 471 00:28:20,920 --> 00:28:24,960 Speaker 1: of housing. And then you looked at bankerings. What were 472 00:28:24,960 --> 00:28:28,560 Speaker 1: those provision numbers from JP Morgan and Wells Fargo telling us? 473 00:28:29,040 --> 00:28:31,600 Speaker 1: And it's telling you that the bankers expect a pretty 474 00:28:31,680 --> 00:28:35,119 Speaker 1: large wave of losses the next couple of quarters. So 475 00:28:35,200 --> 00:28:38,440 Speaker 1: when I look at GDP estimates of down thirty in 476 00:28:38,480 --> 00:28:41,640 Speaker 1: the second quarter, which is what I was hearing yesterday, 477 00:28:42,920 --> 00:28:45,320 Speaker 1: I kind of stepped back as a bank analyst, and 478 00:28:45,360 --> 00:28:47,760 Speaker 1: I think to myself, this is gonna be worse than 479 00:28:47,760 --> 00:28:51,880 Speaker 1: two thousand eight. Um to me, I think we will 480 00:28:51,960 --> 00:28:55,840 Speaker 1: have destroyed a lot of the small business service sector 481 00:28:56,280 --> 00:28:59,440 Speaker 1: that was so important as a source of marginal employment 482 00:28:59,480 --> 00:29:02,640 Speaker 1: in the United States. People, you know, look at New York, Marry. 483 00:29:02,960 --> 00:29:08,760 Speaker 1: The entire entertainment industry has gone. Hospitality restaurants. All of these, 484 00:29:09,160 --> 00:29:12,280 Speaker 1: you know, areas that were important for for not just 485 00:29:12,360 --> 00:29:14,880 Speaker 1: for people generally if they needed to find a job 486 00:29:15,000 --> 00:29:17,240 Speaker 1: or you know, younger people who came to the city 487 00:29:17,280 --> 00:29:20,360 Speaker 1: who were trying to get involved in, you know, some career. 488 00:29:20,800 --> 00:29:22,640 Speaker 1: That was the first place they would look for a job. 489 00:29:22,680 --> 00:29:25,520 Speaker 1: And these people have left. I think it's gonna be 490 00:29:25,600 --> 00:29:28,440 Speaker 1: very interesting to see the numbers for New York City 491 00:29:28,440 --> 00:29:30,520 Speaker 1: in the next couple of quarters, because I suspect a 492 00:29:30,560 --> 00:29:34,400 Speaker 1: lot of people went to live with mom and dad. Anecdotally, 493 00:29:34,440 --> 00:29:37,640 Speaker 1: we're hearing a lot of people who have an up 494 00:29:38,360 --> 00:29:41,520 Speaker 1: a second place to live, either a beach house or 495 00:29:41,560 --> 00:29:44,800 Speaker 1: a second property, or if they're younger, with their parents 496 00:29:44,880 --> 00:29:48,880 Speaker 1: or siblings, they've they've fled. Large parts of Brooklyn, half 497 00:29:48,880 --> 00:29:52,440 Speaker 1: the Upper east Side and Upper West Side are supposedly empty. 498 00:29:52,240 --> 00:29:55,120 Speaker 1: I haven't been back to the city since this started, 499 00:29:55,560 --> 00:29:58,280 Speaker 1: but from what I'm hearing from people who either live 500 00:29:58,600 --> 00:30:02,400 Speaker 1: or lived in the city, they are sheltering outside of Manhattan. 501 00:30:02,760 --> 00:30:06,680 Speaker 1: Are you implying that that might become a permanent situation 502 00:30:07,040 --> 00:30:09,720 Speaker 1: Because people talked about that post not eleven, but we 503 00:30:09,800 --> 00:30:14,120 Speaker 1: really didn't see. Whoever left was very quickly replaced by 504 00:30:14,160 --> 00:30:18,280 Speaker 1: a younger person. Do you think this changes the dynamics 505 00:30:18,320 --> 00:30:22,680 Speaker 1: of urban density and people living in cities. Well, I 506 00:30:22,720 --> 00:30:25,240 Speaker 1: think it's going to change the business dynamics in New 507 00:30:25,280 --> 00:30:28,000 Speaker 1: York for a while, because in you know, in two 508 00:30:28,040 --> 00:30:31,000 Speaker 1: thousand and eight and after nine eleven, um, Yeah, we 509 00:30:31,040 --> 00:30:34,600 Speaker 1: had to hunker down, But then the economy restarted. We 510 00:30:34,600 --> 00:30:38,719 Speaker 1: didn't have the distance from ourselves physically, we didn't have 511 00:30:38,840 --> 00:30:42,040 Speaker 1: to deal with all of the aspects that that implies. 512 00:30:42,760 --> 00:30:46,640 Speaker 1: So I think when you're still worried about vulnerable populations 513 00:30:46,680 --> 00:30:49,200 Speaker 1: and you have to protect them, that means that you're 514 00:30:49,240 --> 00:30:52,480 Speaker 1: gonna try and let the economy restart to a degree. 515 00:30:52,960 --> 00:30:56,959 Speaker 1: But I don't think you regrow these service businesses back overnight. Berry. 516 00:30:57,080 --> 00:30:59,800 Speaker 1: They've been decapitalized, and even if they were helping their 517 00:31:00,000 --> 00:31:03,360 Speaker 1: eployees with the federal money, they still may not survive 518 00:31:04,160 --> 00:31:07,000 Speaker 1: because they're going to be facing a diminished revenue stream 519 00:31:07,080 --> 00:31:10,360 Speaker 1: coming coming back. You know what, what if we have 520 00:31:10,400 --> 00:31:12,920 Speaker 1: to take half the tables out of the restaurants, right 521 00:31:13,000 --> 00:31:16,800 Speaker 1: if people doing a Broadway theater where shoulders and shoulders 522 00:31:17,320 --> 00:31:21,720 Speaker 1: front and back, are they gonna Hamilton's tickets with the 523 00:31:21,720 --> 00:31:26,680 Speaker 1: audience as you know, we just went through Passover and Easter. 524 00:31:26,880 --> 00:31:31,400 Speaker 1: Right These are typically times when Europeans Latin Americans would 525 00:31:31,440 --> 00:31:33,720 Speaker 1: all go to New York for a week with their families. 526 00:31:34,120 --> 00:31:37,640 Speaker 1: They're not here now, you know. There's there's only New 527 00:31:37,720 --> 00:31:40,239 Speaker 1: Yorkers in Central Park right now, and it's it's a 528 00:31:40,280 --> 00:31:42,680 Speaker 1: different scene. In fact, I've been riding my bike around 529 00:31:42,680 --> 00:31:44,160 Speaker 1: the city. I go all the way down the South 530 00:31:44,160 --> 00:31:47,880 Speaker 1: Carria back because there's no traffic. How empty is the 531 00:31:47,920 --> 00:31:51,800 Speaker 1: city compared to uh, what it was like post nine eleven. 532 00:31:53,120 --> 00:31:56,160 Speaker 1: It's more empty than that, very little traffic, although it 533 00:31:56,240 --> 00:31:59,320 Speaker 1: is slowly, slowly starting to increase. You can see that 534 00:31:59,400 --> 00:32:03,120 Speaker 1: there's more will move it around. I think this is 535 00:32:03,120 --> 00:32:05,719 Speaker 1: going to be a profound economic shock to a lot 536 00:32:05,800 --> 00:32:08,200 Speaker 1: of big cities that are used to trying to attract 537 00:32:08,280 --> 00:32:13,040 Speaker 1: people to come in. That's going to be changed. So 538 00:32:13,320 --> 00:32:18,680 Speaker 1: we've had this enormous monetary response from the Fed. They 539 00:32:18,680 --> 00:32:21,880 Speaker 1: took rates to zero. They announced they were gonna add 540 00:32:21,920 --> 00:32:26,960 Speaker 1: two trillion dollars more in lawn furniture and various high 541 00:32:27,000 --> 00:32:29,760 Speaker 1: yield paper whatever whatever they can buy they're gonna put 542 00:32:29,800 --> 00:32:33,840 Speaker 1: on the balance sheets. We've also had, at least not 543 00:32:33,960 --> 00:32:38,560 Speaker 1: over the short term, uh two trillion dollar fiscal stimulus. 544 00:32:39,000 --> 00:32:43,200 Speaker 1: How does this response compare to what we've seen from 545 00:32:43,320 --> 00:32:48,640 Speaker 1: crises in the past. Well, the federal response in the 546 00:32:48,720 --> 00:32:53,360 Speaker 1: thirties was large, but it didn't really do much. In fact, 547 00:32:53,400 --> 00:32:57,920 Speaker 1: it faltered, and then World War Two kind of saved us. UM. 548 00:32:57,960 --> 00:33:01,120 Speaker 1: In two thousand eight, you had the financial response obviously 549 00:33:01,320 --> 00:33:05,400 Speaker 1: to catch some of the banks um, but the industry 550 00:33:05,440 --> 00:33:08,000 Speaker 1: more or less cleaned up its own mess and the 551 00:33:08,040 --> 00:33:11,200 Speaker 1: economy healed itself. I mean, the thing I always remind 552 00:33:11,240 --> 00:33:13,160 Speaker 1: people of Barrier is the fact that we still have 553 00:33:13,240 --> 00:33:15,880 Speaker 1: a private bond market in this country, and we have 554 00:33:15,960 --> 00:33:19,800 Speaker 1: a market for different types of assets. Is so important 555 00:33:19,840 --> 00:33:23,760 Speaker 1: because it restarted by itself. The auto sector restarted by 556 00:33:23,760 --> 00:33:28,120 Speaker 1: itself in two thousand nine because those were fully secured deals. 557 00:33:28,160 --> 00:33:32,680 Speaker 1: But today, given the hit the global auto has taken, 558 00:33:32,720 --> 00:33:35,720 Speaker 1: for example, and you look at sales volume estimates and 559 00:33:35,720 --> 00:33:39,040 Speaker 1: everything else going forward, you know, I think the whole 560 00:33:39,080 --> 00:33:42,600 Speaker 1: credit of this industry has changed. Even the exemplartis like 561 00:33:42,600 --> 00:33:46,800 Speaker 1: the Toyotas and the Daimler's, they've taken a hit. I 562 00:33:46,840 --> 00:33:49,600 Speaker 1: think you'll see consolidation. By the way, back to your 563 00:33:49,640 --> 00:33:52,959 Speaker 1: point about M and A definitely because we have an 564 00:33:53,040 --> 00:33:56,240 Speaker 1: auto bakers. Yeah, if we're doing eleven twelve million units 565 00:33:56,280 --> 00:34:00,040 Speaker 1: next year, you're gonna see m and a. That's in 566 00:34:00,160 --> 00:34:06,960 Speaker 1: the post crisis peak of about seventeen UM cars in 567 00:34:07,000 --> 00:34:10,080 Speaker 1: the US. Yeah, it went down to eleven and it 568 00:34:10,120 --> 00:34:12,600 Speaker 1: was goose by the FED. You know, we were talking 569 00:34:12,640 --> 00:34:17,440 Speaker 1: before about different phases. In the period after the eight crisis, 570 00:34:17,440 --> 00:34:20,000 Speaker 1: you had a lot of fringe products. You had autos, 571 00:34:20,040 --> 00:34:23,040 Speaker 1: you had you know, marketplace loans of all sorts of 572 00:34:23,120 --> 00:34:28,200 Speaker 1: non bank lending to business individuals, etcetera, etcetera, all gone, 573 00:34:28,560 --> 00:34:31,960 Speaker 1: puff gone. In fact, the subprime auto sector is going 574 00:34:32,000 --> 00:34:34,480 Speaker 1: to go through the ringer now because again the bond 575 00:34:34,520 --> 00:34:38,319 Speaker 1: holders are going to pay for the forbearance. So I think, 576 00:34:38,360 --> 00:34:40,799 Speaker 1: you know, it's going to take some time to get 577 00:34:40,800 --> 00:34:43,879 Speaker 1: people back in the game. You're gonna see spread stake 578 00:34:43,960 --> 00:34:46,640 Speaker 1: kind of wide for a while on on high yield 579 00:34:46,640 --> 00:34:50,440 Speaker 1: securities compared to treasuries. And it's just a matter of 580 00:34:50,440 --> 00:34:52,880 Speaker 1: getting everybody focused. But I'll tell you this, Verry, I 581 00:34:52,880 --> 00:34:56,040 Speaker 1: think people are much better conditioned this time than they 582 00:34:56,040 --> 00:34:58,560 Speaker 1: were in O. Eight. I think people are coming back 583 00:34:58,560 --> 00:35:01,600 Speaker 1: to the market's much fair through than they did No. Eight, No. Nine, 584 00:35:01,719 --> 00:35:04,000 Speaker 1: when nothing was happening. You remember that? Do you mean 585 00:35:04,360 --> 00:35:10,680 Speaker 1: do you mean investors or consumers or both institutional investors? O, 586 00:35:10,760 --> 00:35:14,040 Speaker 1: there's I mean we've got uh, you know, MBS fund. 587 00:35:14,080 --> 00:35:15,719 Speaker 1: We're getting ready to launch as soon as we have 588 00:35:15,760 --> 00:35:19,799 Speaker 1: a little more clarity from Washington playing vanilla stuff right. 589 00:35:20,000 --> 00:35:23,680 Speaker 1: But still there's opportunities out there because the markets are disrupted. 590 00:35:23,840 --> 00:35:27,960 Speaker 1: People are looking to buy commercial real estate off distress sales. 591 00:35:28,400 --> 00:35:30,920 Speaker 1: They're looking to buy multi family off distress sales. So 592 00:35:31,000 --> 00:35:34,919 Speaker 1: though perhaps not New York because of the rent control laws, um, 593 00:35:34,960 --> 00:35:39,120 Speaker 1: but around the country. Yeah, definitely, I'm thinking too small. 594 00:35:39,160 --> 00:35:42,560 Speaker 1: I'm looking to buy distressed sheet metal off the auto 595 00:35:42,960 --> 00:35:47,759 Speaker 1: sites between bring a trailer and classic cars. I've seen 596 00:35:47,880 --> 00:35:52,319 Speaker 1: prices fall about ten fift over the past month, and 597 00:35:53,440 --> 00:35:56,279 Speaker 1: I love the idea of buying something at a discount. 598 00:35:56,719 --> 00:36:00,640 Speaker 1: But that's just me. So. Your first book was Inflated 599 00:36:00,719 --> 00:36:03,919 Speaker 1: that looked at how debt helped build out the American dream, 600 00:36:04,040 --> 00:36:08,200 Speaker 1: especially houses. I was kind of surprised by the topic 601 00:36:08,360 --> 00:36:12,960 Speaker 1: of your recent book, ford Men, from Inspiration to Enterprise. 602 00:36:13,719 --> 00:36:20,480 Speaker 1: What motivated you to pivot from debt and housing? Two 603 00:36:20,800 --> 00:36:25,680 Speaker 1: automobiles and Ford I had always been a student of 604 00:36:25,760 --> 00:36:29,040 Speaker 1: Henry Ford, like many Americans, but particularly his role in 605 00:36:29,080 --> 00:36:31,880 Speaker 1: the Great Depression. And so one of the things I 606 00:36:32,040 --> 00:36:36,520 Speaker 1: focused on in the book was how Henry basically uh 607 00:36:36,920 --> 00:36:41,400 Speaker 1: started the banking crisis in three before FDR took office 608 00:36:41,440 --> 00:36:44,880 Speaker 1: in March of that year. It's an extraordinary story because 609 00:36:44,920 --> 00:36:48,000 Speaker 1: he was such a character and quite did you say, 610 00:36:48,160 --> 00:36:53,200 Speaker 1: did you say started the banking crisis? He initiated it. Yes, 611 00:36:53,960 --> 00:36:56,359 Speaker 1: he said that he was going to take his money 612 00:36:56,400 --> 00:36:59,520 Speaker 1: out of the Detroit banks, and when the governor of 613 00:36:59,560 --> 00:37:02,000 Speaker 1: Michigan and found out about this, he declared the bank 614 00:37:02,120 --> 00:37:07,120 Speaker 1: holiday in Michigan in February of three. This event then 615 00:37:07,239 --> 00:37:10,239 Speaker 1: rippled through the rest of the country. So by the 616 00:37:10,280 --> 00:37:13,640 Speaker 1: time FDR takes office, every bank in the United States 617 00:37:13,719 --> 00:37:17,560 Speaker 1: is closed and had been. The Detroit banks were really 618 00:37:17,600 --> 00:37:20,440 Speaker 1: important in those days. Henry Ford was the biggest cash 619 00:37:20,480 --> 00:37:23,640 Speaker 1: depositor in the country, and he ran the whole company 620 00:37:23,680 --> 00:37:27,600 Speaker 1: on cash out of his pocket. It was like a plantation. 621 00:37:28,160 --> 00:37:31,360 Speaker 1: So I got into Ford, you know, first and foremost, 622 00:37:31,360 --> 00:37:34,319 Speaker 1: because I am a student that that era. And then 623 00:37:34,680 --> 00:37:38,239 Speaker 1: I had been a contributor to the Washington Times magazine 624 00:37:38,680 --> 00:37:40,680 Speaker 1: UH Inside on the News, and I had written a 625 00:37:40,680 --> 00:37:44,800 Speaker 1: whole series of articles about the Explorer rollover, which was 626 00:37:44,880 --> 00:37:49,400 Speaker 1: quite a mess. It was really the beginnings of giving 627 00:37:49,480 --> 00:37:53,360 Speaker 1: teeth to consumer regulation in the United States. If that 628 00:37:53,480 --> 00:37:56,200 Speaker 1: had happened today, a lot of people at Ford would 629 00:37:56,200 --> 00:37:59,520 Speaker 1: have gone to jail for what happened. Vehicles. Oh yeah, 630 00:38:00,000 --> 00:38:03,200 Speaker 1: this is the single vehicle rollovers with some of the 631 00:38:03,320 --> 00:38:07,880 Speaker 1: SUVs that well, the Ranger and you know the bridge 632 00:38:07,880 --> 00:38:13,160 Speaker 1: Stone Firestone tires. It was quite a mess. Take take 633 00:38:13,239 --> 00:38:18,319 Speaker 1: a big, big vehicle, raise it, give it a short wheelbase, 634 00:38:18,560 --> 00:38:21,880 Speaker 1: and uh, that is not a recipe for stability at 635 00:38:21,960 --> 00:38:26,600 Speaker 1: high speeds. If you have to suddenly cut the wheel. No, 636 00:38:26,880 --> 00:38:29,319 Speaker 1: it didn't work. And there you know. It was an 637 00:38:29,360 --> 00:38:32,120 Speaker 1: interesting episode. But what I tried to do with Fordman, 638 00:38:32,719 --> 00:38:35,800 Speaker 1: just in terms of the overall book Barry was remind 639 00:38:35,920 --> 00:38:40,160 Speaker 1: people of the rich literature around for people like John Kiss, 640 00:38:40,160 --> 00:38:42,760 Speaker 1: Call Braith and many others who wrote about the family, 641 00:38:43,120 --> 00:38:46,240 Speaker 1: and they were such a remarkable family. It was really 642 00:38:46,280 --> 00:38:52,040 Speaker 1: the first transformational business fortune in American history, more than steel, 643 00:38:52,480 --> 00:38:55,920 Speaker 1: more than these other types of fortunes that have been 644 00:38:55,920 --> 00:38:58,880 Speaker 1: made in the past. They made things. They made cars, 645 00:38:59,560 --> 00:39:01,960 Speaker 1: but into instantly. The first first were built by the 646 00:39:02,000 --> 00:39:05,680 Speaker 1: Dodge brothers because they were the first great partsmakers in 647 00:39:05,719 --> 00:39:09,080 Speaker 1: the United States. Both of them died in one of 648 00:39:09,160 --> 00:39:13,280 Speaker 1: the Spanish flew. Had the Dodge brothers survived, the auto 649 00:39:13,320 --> 00:39:15,879 Speaker 1: industry would have been dominated by them and not by 650 00:39:16,120 --> 00:39:20,120 Speaker 1: General Motors and a number of other players. History would 651 00:39:20,120 --> 00:39:23,600 Speaker 1: have been quite different. So by the time we get 652 00:39:23,680 --> 00:39:29,960 Speaker 1: to something like Ford versus Ferrari, that's thirty years later. Yeah, Billy, 653 00:39:30,160 --> 00:39:32,440 Speaker 1: you know, Henry the Deuce, Henry Ford the second had 654 00:39:32,440 --> 00:39:36,520 Speaker 1: taken over and they they were still uh and also 655 00:39:36,640 --> 00:39:40,160 Speaker 1: ran compared to GM. They were typically compared to Chevrolet. 656 00:39:40,520 --> 00:39:45,080 Speaker 1: That's how small Ford was um, but they still uh, 657 00:39:45,160 --> 00:39:46,839 Speaker 1: you know, had a lot of staying power. And as 658 00:39:46,840 --> 00:39:49,960 Speaker 1: I've always said, God clearly loves the Fords despite their 659 00:39:49,960 --> 00:39:56,440 Speaker 1: many sins, because somehow they avoided the fault. They were 660 00:39:56,480 --> 00:40:01,160 Speaker 1: the only US maker didn't get need to be restructured. Well, 661 00:40:01,200 --> 00:40:04,000 Speaker 1: they couldn't be restructured as I as I talked about 662 00:40:04,000 --> 00:40:06,520 Speaker 1: in the book, Goldman Sachs had already helped the family 663 00:40:06,560 --> 00:40:08,960 Speaker 1: take money out of the company, and if they had 664 00:40:09,000 --> 00:40:11,840 Speaker 1: been restructured, then the special voting stock held by the 665 00:40:11,880 --> 00:40:14,800 Speaker 1: family would have gone and they would have lost control. 666 00:40:15,800 --> 00:40:18,400 Speaker 1: So there's all these little nuances in Goldman Sachs is 667 00:40:18,440 --> 00:40:21,560 Speaker 1: a very important part of the Ford story. It was 668 00:40:21,680 --> 00:40:26,440 Speaker 1: their design of the Ford Foundation when the Ford family 669 00:40:26,520 --> 00:40:29,560 Speaker 1: gave most of the economics in the company to that 670 00:40:29,719 --> 00:40:33,800 Speaker 1: entity and retain most of the vote in this asymmetrical 671 00:40:34,760 --> 00:40:38,840 Speaker 1: share transaction that Sydney Weinberg created along with the lawyers 672 00:40:38,920 --> 00:40:42,279 Speaker 1: for for Edsel Ford, that saved the company from the 673 00:40:42,280 --> 00:40:45,879 Speaker 1: tax man. Because str hated Henry Ford, and he had 674 00:40:46,000 --> 00:40:50,719 Speaker 1: passed legislation in Washington specifically to kill the Ford fortune, 675 00:40:51,360 --> 00:40:55,400 Speaker 1: and so Goldman forwarded that intention. And now the Ford 676 00:40:55,440 --> 00:41:01,000 Speaker 1: Foundation is a couple of billion dollars and still still active. Well, 677 00:41:01,000 --> 00:41:02,960 Speaker 1: when they did the I P. O for Ford after 678 00:41:03,000 --> 00:41:06,640 Speaker 1: World War two, UH, the foundation was the only seller 679 00:41:07,080 --> 00:41:09,000 Speaker 1: of shares. They didn't have to raise money for the 680 00:41:09,040 --> 00:41:11,680 Speaker 1: company because they had plenty of money. These are the 681 00:41:11,719 --> 00:41:16,080 Speaker 1: work at Home abbreviated version of our favorite podcast questions. 682 00:41:16,080 --> 00:41:18,640 Speaker 1: And let's just start with streaming. What are you streaming 683 00:41:18,640 --> 00:41:20,600 Speaker 1: these days? What are you watching on Netflix? What are 684 00:41:20,600 --> 00:41:25,120 Speaker 1: you listening to in podcasts? What's keeping you entertained? I 685 00:41:25,160 --> 00:41:28,840 Speaker 1: am watching old movies with my beautiful wife, Nicole, who's 686 00:41:28,920 --> 00:41:33,160 Speaker 1: a recent UH naturalized American citizen, So we're filling in 687 00:41:33,200 --> 00:41:36,240 Speaker 1: some of the blanks with her. And uh. I stream 688 00:41:36,239 --> 00:41:39,040 Speaker 1: a lot of music. I spend my time reading Berry, 689 00:41:39,160 --> 00:41:42,360 Speaker 1: you know, like you, I basically have to consume stuff 690 00:41:42,400 --> 00:41:45,359 Speaker 1: all day. I watched West World, I watched a couple 691 00:41:45,400 --> 00:41:48,640 Speaker 1: of other things on tv. Um, but give us a 692 00:41:48,719 --> 00:41:51,480 Speaker 1: couple of old movie titles for for the youngsters who 693 00:41:51,520 --> 00:41:54,400 Speaker 1: may not be uh oh, well, yeah, we just watched 694 00:41:54,400 --> 00:41:57,920 Speaker 1: Bull the Air with Penelope Crews, which is stunning. I 695 00:41:58,480 --> 00:42:02,640 Speaker 1: could love that movie. So you say old, you're that's 696 00:42:02,640 --> 00:42:06,279 Speaker 1: not really old. No, Bull of ben hur uh that's 697 00:42:06,280 --> 00:42:10,799 Speaker 1: taking in the ecstasy. Then commandments we just did. So 698 00:42:10,920 --> 00:42:13,279 Speaker 1: we're having a lot of quoting. So you're working your 699 00:42:13,280 --> 00:42:16,680 Speaker 1: way through the thirties and forties along with the Ford 700 00:42:16,800 --> 00:42:21,080 Speaker 1: and the post depression era in your guys. You know, 701 00:42:21,160 --> 00:42:24,320 Speaker 1: the girls want buff, right, so they like Tarlton. Charlton 702 00:42:24,480 --> 00:42:27,560 Speaker 1: was a good looking guy. Who are your early mentors 703 00:42:27,560 --> 00:42:32,120 Speaker 1: who helped to shape your career? Oh boy, Well, my 704 00:42:32,239 --> 00:42:34,719 Speaker 1: father first inform us, who taught me how to write 705 00:42:34,719 --> 00:42:38,160 Speaker 1: with a yellow pad and a pencil um and I 706 00:42:38,200 --> 00:42:41,680 Speaker 1: think a number of editors over the years, Terry Houser 707 00:42:41,760 --> 00:42:46,040 Speaker 1: and Karl Flock at the Legislative Digest, the folks at Barns, 708 00:42:46,680 --> 00:42:49,879 Speaker 1: all the editors at Barns, Tommy Donalin, I wrote many 709 00:42:50,000 --> 00:42:53,200 Speaker 1: editorials for him. So as a writer, those are the 710 00:42:53,239 --> 00:42:55,480 Speaker 1: people who really pounded on me and said, you know, 711 00:42:56,239 --> 00:43:00,320 Speaker 1: editing builds character, right, you know all about that. Working 712 00:43:00,360 --> 00:43:03,200 Speaker 1: with Bloomberg as much as you have, I have to 713 00:43:03,239 --> 00:43:07,640 Speaker 1: tell you I wrote one editorial for Barons called a 714 00:43:07,760 --> 00:43:10,880 Speaker 1: Memo Found on the Street that I thought was brilliant. 715 00:43:10,880 --> 00:43:15,520 Speaker 1: When I handed an end to Tom Donalin, it was words, 716 00:43:15,600 --> 00:43:18,879 Speaker 1: and he showed me how to take a scalpel and 717 00:43:18,920 --> 00:43:23,160 Speaker 1: remove everything that wasn't lean sine, And what came out 718 00:43:23,200 --> 00:43:27,080 Speaker 1: of that was seven hundred tight words. And he blew 719 00:43:27,120 --> 00:43:32,160 Speaker 1: me away as that how strong a good editor can 720 00:43:32,200 --> 00:43:37,440 Speaker 1: make your writing. Oh no, that's quite right, that's quite right, um. 721 00:43:37,480 --> 00:43:39,560 Speaker 1: And you know the other people in the financial markets, 722 00:43:39,560 --> 00:43:42,520 Speaker 1: I've had so many teachers, Alan Boyce who taught me 723 00:43:42,520 --> 00:43:46,920 Speaker 1: about mortgage servicing rights, the guys at Bear who taught 724 00:43:46,920 --> 00:43:48,960 Speaker 1: me how to do deals. You learned how to do 725 00:43:49,080 --> 00:43:53,400 Speaker 1: deals by working on deals late at night. You mentioned 726 00:43:53,480 --> 00:43:56,160 Speaker 1: you mentioned reading. Let's talk about your favorite books. What 727 00:43:56,239 --> 00:44:01,160 Speaker 1: books have you been staying occupied with during this lovedown. 728 00:44:02,239 --> 00:44:05,000 Speaker 1: I just finished Dark Towers about Deutsche Bank, because you 729 00:44:05,040 --> 00:44:09,279 Speaker 1: can imagine David and Rich fabulous. He wrote a book 730 00:44:09,360 --> 00:44:14,160 Speaker 1: on the label on the Library scandal. The Library Scandal 731 00:44:14,400 --> 00:44:17,959 Speaker 1: talks a lot about President Trump and how he survived. 732 00:44:18,239 --> 00:44:20,920 Speaker 1: The guy's got amazing grit. The fact that he was 733 00:44:20,960 --> 00:44:24,560 Speaker 1: able to bluff his way through all those situations. You've 734 00:44:24,600 --> 00:44:30,919 Speaker 1: got to hand it to him. What is another title? Uh, 735 00:44:31,040 --> 00:44:33,080 Speaker 1: you know, there are a lot of books I want 736 00:44:33,080 --> 00:44:35,600 Speaker 1: to read. I just don't have time. I've been reading 737 00:44:35,680 --> 00:44:39,240 Speaker 1: legal documents for the past three weeks trying to get 738 00:44:39,280 --> 00:44:43,360 Speaker 1: a liquidity facility in place for the independent mortgage banks 739 00:44:43,400 --> 00:44:45,919 Speaker 1: in Washington. So that's taken a lot of my time. 740 00:44:46,360 --> 00:44:51,000 Speaker 1: And then what's the book the Oh my, well, I 741 00:44:51,080 --> 00:44:55,920 Speaker 1: want to go through George Moore's book on banking. I 742 00:44:56,800 --> 00:45:01,160 Speaker 1: desperately want to go back and reread, uh my, George 743 00:45:01,280 --> 00:45:05,759 Speaker 1: orwell because it's very timely now. And then, you know, 744 00:45:05,840 --> 00:45:08,200 Speaker 1: there were a couple of other things that I have 745 00:45:08,400 --> 00:45:11,640 Speaker 1: on the pile. I did go through Red Notice, Bill 746 00:45:11,680 --> 00:45:14,960 Speaker 1: Browder's book about Russia. I heard that was really interesting. 747 00:45:15,400 --> 00:45:17,880 Speaker 1: Oh my god, you'd never go to Russia Barry, you 748 00:45:17,880 --> 00:45:22,319 Speaker 1: have to read that book. My brother in law used 749 00:45:22,360 --> 00:45:25,440 Speaker 1: to be general counsel for Amaco. That little b p 750 00:45:25,560 --> 00:45:30,320 Speaker 1: Amaco deal was was his doing, and Amaco had relationships 751 00:45:30,960 --> 00:45:34,239 Speaker 1: with with many of the Russian oil companies in the 752 00:45:34,320 --> 00:45:37,719 Speaker 1: Russian government, and that was pretty much his response on So, 753 00:45:37,719 --> 00:45:41,399 Speaker 1: so what's your take on Russia goes, don't ever go there? Like, okay, right, 754 00:45:41,760 --> 00:45:44,520 Speaker 1: although I've been to St. Petersburg, so I really I 755 00:45:44,560 --> 00:45:48,000 Speaker 1: guess I violated that. Um, what sort of advice would 756 00:45:48,000 --> 00:45:51,080 Speaker 1: you give a millennial who was interested in a career 757 00:45:51,360 --> 00:45:55,840 Speaker 1: in banking. Go work for a small bank. Learn as 758 00:45:55,920 --> 00:45:58,640 Speaker 1: much as you can about how the bank operates, particularly 759 00:45:58,640 --> 00:46:01,560 Speaker 1: the back. You want to learn how they do everything 760 00:46:01,680 --> 00:46:04,880 Speaker 1: from an operation's perspective, and then you're gonna have a 761 00:46:04,880 --> 00:46:08,360 Speaker 1: lot of value. And our final question, what do you 762 00:46:08,400 --> 00:46:11,440 Speaker 1: know about the world of banking today that you wish 763 00:46:11,480 --> 00:46:14,440 Speaker 1: you knew thirty years or so ago when you were 764 00:46:14,480 --> 00:46:19,960 Speaker 1: first getting started. I think the evolution of banks in 765 00:46:20,000 --> 00:46:24,600 Speaker 1: the United States away from business lending to uh focusing 766 00:46:24,680 --> 00:46:29,280 Speaker 1: on mostly housing related Two thirds of US banks today, Barry, 767 00:46:29,640 --> 00:46:33,160 Speaker 1: have housing exposure one way or another commercial real estate. 768 00:46:33,719 --> 00:46:39,600 Speaker 1: So it's become really, really heavy on the real estate side, 769 00:46:39,960 --> 00:46:42,360 Speaker 1: and I guess that's as as you would expect because 770 00:46:42,440 --> 00:46:45,279 Speaker 1: most companies just go to capital markets. They don't have 771 00:46:45,360 --> 00:46:47,080 Speaker 1: to go to a bank, so that's a big change. 772 00:46:47,320 --> 00:46:50,040 Speaker 1: We have been speaking with Christopher Wallen. He is the 773 00:46:50,120 --> 00:46:53,920 Speaker 1: chairman of well and Global Advisors and author of several books, 774 00:46:54,120 --> 00:46:58,640 Speaker 1: most recently Ford Men From Inspiration to Enterprise. If you 775 00:46:58,760 --> 00:47:01,520 Speaker 1: enjoy this conversation, oh look up or down in in Shawan, 776 00:47:01,600 --> 00:47:06,600 Speaker 1: Apple iTunes, Spotify, Overcast, wherever you're finer podcasts are found, 777 00:47:06,840 --> 00:47:09,320 Speaker 1: and you could see any of the previous three hundred 778 00:47:09,360 --> 00:47:12,480 Speaker 1: and something conversations we've had over the past five and 779 00:47:12,520 --> 00:47:15,920 Speaker 1: a half years. We love your comments, feedback and suggestions 780 00:47:16,440 --> 00:47:20,440 Speaker 1: right to us at m IB podcast at Bloomberg dot net. 781 00:47:20,760 --> 00:47:23,279 Speaker 1: You can follow me on Twitter at rit Halts, check 782 00:47:23,320 --> 00:47:26,640 Speaker 1: out my daily column on Ridholts dot com, or see 783 00:47:26,680 --> 00:47:30,880 Speaker 1: my weekly Bloomberg column at Bloomberg dot com slash opinion. 784 00:47:31,600 --> 00:47:33,960 Speaker 1: I would be remiss if I did not thank the 785 00:47:34,080 --> 00:47:37,759 Speaker 1: crack staff that helps put this conversation together each week. 786 00:47:38,200 --> 00:47:42,279 Speaker 1: A tikavl Bron is our product supervisor. Michael Boyle is 787 00:47:42,320 --> 00:47:46,560 Speaker 1: our producer. Charlie Volmer is my audio engineer, and Michael 788 00:47:46,600 --> 00:47:50,680 Speaker 1: Batnick is my head of research. I'm Barry Riholts. You've 789 00:47:50,680 --> 00:47:53,920 Speaker 1: been listening to Masters in Business on Bloomberg Radio.