Speaker 1: This is Bloomberg Business Week from Bloomberg Radio. I'm Jason
Speaker 1: Kelly and I'm Carol Masser. Welcome to the Bloomberg Business
Speaker 1: Week Extra. It's our weekly podcast bringing you an in
Speaker 1: depth interview you will not hear anywhere else. There are
Speaker 1: some individuals who live a life that often finds them
Speaker 1: in the center of high profile events. That includes Michael Ainslee.
Speaker 1: He has done so many things and found himself really
Speaker 1: at moments in our history. Well, we talked so much
Speaker 1: about being in the room where it happens, of course,
Speaker 1: but so many rooms and some amazing places that he's been.
Speaker 1: He's got a new book out, it's called A Nose
Speaker 1: for Trouble, and we're so delighted he's here with us
Speaker 1: in New York City. First of all, Michael, congrats on
Speaker 1: the book. Welcome back to Bloomberg. Thank you. It's nice
Speaker 1: to be here. So why do it? You know? Two reasons.
Speaker 1: I have a lot of young people that I care about,
Speaker 1: five kids, eight grandkids, scores of posse scholars that I've
Speaker 1: mentored over the years. I want them to know that
Speaker 1: life is not easy. There are a lot of bad
Speaker 1: things happened to all of us, and the question is
Speaker 1: how do you deal with it, how do you learn
Speaker 1: from it? Where do you go next? So my nose
Speaker 1: for trouble got me into some difficulty every decade of
Speaker 1: my life, and I think I've made some pretty good
Speaker 1: choices afterwards. Second reason, there's a whole story about Lehman
Speaker 1: that's never been told. We were muzzled as directors for
Speaker 1: five six years by the lawyers saying we couldn't talk,
Speaker 1: and I have views on that. The rest of that story, Well, Jason,
Speaker 1: I would go through the galleys, and I think both
Speaker 1: of us were like, all right, where's the Lehman party?
Speaker 1: Because I do think you were in the room where
Speaker 1: it happened. When it came to the vote on whether
Speaker 1: or not Lehman should file for bankruptcy. Take us there.
Speaker 1: It was incredibly scary. Uh. It happened so fast. We
Speaker 1: thought the Fed would continue to lend to us, We
Speaker 1: thought there might be a merger, and yet that weekend
Speaker 1: it became clear the government was backing out. They were
Speaker 1: not going to do their job as a lender of
Speaker 1: two financial institutions, and the biggest bankruptcy in world history
Speaker 1: was facing us. We considered not doing it. We said,
Speaker 1: let's see if they'll really flinch. Will they lend tomorrow
Speaker 1: morning if we don't declare? But what a terrible game
Speaker 1: of chicken to be playing it was if if if
Speaker 1: we had said no and they had said no, we'd
Speaker 1: probably all not be here right now. It would have
Speaker 1: been awful. And so as you've had time to both
Speaker 1: think about it yourself, obviously you put a lot of
Speaker 1: it down in the book, as you've had a chance
Speaker 1: to talk to to other people, what were those sort
Speaker 1: of catalytic moments, both in your board room and in
Speaker 1: Washington that ultimately led to the fate of Lehman. Well,
Speaker 1: Hank Paulson, Well, not like my book. Yeah, but he's
Speaker 1: got a tough skin. Uh. First of all, it was
Speaker 1: Bernankee's decision. The Federal Reserve is supposed to lend to
Speaker 1: financial institutions. They abdicated and turned it over to Paulson.
Speaker 1: Paulson made a political decision. It was not an economic decision.
Speaker 1: He was not based on Lehman's collateral. There was plenty
Speaker 1: of collateral there. I want to promote not only my book,
Speaker 1: but this book. This is by Lawrence Ball, the dean
Speaker 1: of economics at Johns Hopkins. This is the ultimate book
Speaker 1: about the Lehman bankruptcy. It's two hundred pages of data
Speaker 1: and very very thoughtful prose about what went on. And
Speaker 1: I really recommended anyone that's serious about financial history take
Speaker 1: a look at Larry Ball's book. He's a very very
Speaker 1: good scholar. In any event, um, we were we were
Speaker 1: left with no alternative. Uh did you realize that in
Speaker 1: the last week of Lehman existence, our clearing bank JP
Speaker 1: Morgan Chase demanded and got eight point six billion of
Speaker 1: our cash collateral to shore themselves up against Lehman possible losses. Well,
Speaker 1: they had the right to do that. Apparently the fine
Speaker 1: print of their loan agreement let them do that, because
Speaker 1: we lost that lawsuit four years later. However, it drained
Speaker 1: the liquidity out of Lehman. We were solvent until literally
Speaker 1: three or four days before the bankruptcy. So why why
Speaker 1: did it happen to Lehman? Why was why was Lehman
Speaker 1: the one firm that was allowed to fall? Here's my explanation.
Speaker 1: We all know that A I G was much bigger
Speaker 1: than Lehman. If they had gone under, the world would
Speaker 1: have changed. A I G oed Goldman sacks billions and
Speaker 1: billions of dollars for various commitments. In my belief, Paulson said,
Speaker 1: I can't get both done. I can't save Lehman and
Speaker 1: save I G. And if I can only save one,
Speaker 1: I'll save a G. And I think we were collateral damage.
Speaker 1: We had done nothing wrong. That's why nobody went to jail.
Speaker 1: The examiner's suit. The bankruptcy examiners said, there's no colorable
Speaker 1: crime here and no colorable violation. Value their management for
Speaker 1: the board. But when the FED closes its window, you
Speaker 1: can't function. Michael, one of the things you talk about
Speaker 1: in your book, both explicitly and implicitly, is that ultimately,
Speaker 1: these are people making these decisions. These are people with relationships,
Speaker 1: longstanding relationships, some good, some bad, and at the very
Speaker 1: least complicated. What do you make of the role that
Speaker 1: some of those relationships played in the ultimate demise of Lehman.
Speaker 1: I think they were important. I think Paulson liked and
Speaker 1: was close to his successor at Goldman. He didn't like
Speaker 1: Dick Fold. They had had very contentious relations over the years.
Speaker 1: Lehman had stolen some of Goldman's best people. John Walker
Speaker 1: had just come over to run asset management for Lehman.
Speaker 1: Uh Fold had turned down a request to put a
Speaker 1: lot of money into long term capital management back in
Speaker 1: the late nineties. We were asked to put into fifty million.
Speaker 1: Dick finally, very late in the game, put in a
Speaker 1: hundred million for for Lehman. Paulson was furious. Paulson felt
Speaker 1: Fold wasn't trying hard enough to find a takeover partner
Speaker 1: or a merger partner, so there were a lot of
Speaker 1: frictions there. Michael, was there any point in the stage
Speaker 1: leading up to September when Lehman filed for bankruptcy? I
Speaker 1: know that date, It's my anniversary, so it's kind of
Speaker 1: in my brain forever and ever. But I do wonder
Speaker 1: do you recall in those days leading up where there
Speaker 1: was the possibility that they could have been bought at,
Speaker 1: that there could have been a partnership or a combination
Speaker 1: that would have really changed the future of Lehman, That
Speaker 1: Lehman would still be around today, maybe in some form,
Speaker 1: maybe not in name, but in some form. Well, I
Speaker 1: mean it is still kind of around if you think
Speaker 1: about the assets and how they were distributed, but in
Speaker 1: a different way. The closest we came to a merger
Speaker 1: was with Berkeley's and that should have happened. Uh. The
Speaker 1: Chancellor of the Exchequer in in London said we won't
Speaker 1: give you a waiver of a shareholder vote. That killed
Speaker 1: the deal. But he could have done that, we believe,
Speaker 1: and uh, that should have happened and Berkeley's would be
Speaker 1: you know, some form of combination of Barkley's and Lehman
Speaker 1: would still exist. What were the American officials helping you
Speaker 1: was in terms of that process as as much as
Speaker 1: they could have, because because at that point everybody had
Speaker 1: to come together because it was a global crisis. I
Speaker 1: think they were. I think Paulson really did want to
Speaker 1: see that happen. The sad thing is that Alistair Darling,
Speaker 1: the Chancellor of the Exchequer, said we don't want to
Speaker 1: import your cancer, not knowing that as soon as the
Speaker 1: bankruptcy occurred, London's Leahman operation, which was huge, would be
Speaker 1: bankrupt also. So they did get the cancer. And you
Speaker 1: write about this in the book, Michael, sort of the aftermath,
Speaker 1: and obviously you've had some years to reflect on it.
Speaker 1: As as we've talked about so as a businessman is
Speaker 1: a very successful businessman. As a human being, what do
Speaker 1: you take away from what do you internalize that either
Speaker 1: changes your worldview, changes your view of the financial system,
Speaker 1: changes your view of maybe the next crisis um less
Speaker 1: leverage all the banks, we were right there with them,
Speaker 1: we were too leveraged, more equity UM. So that's been
Speaker 1: a good thing coming out of the financial I think,
Speaker 1: and we should not be rolling back those regulations. However,
Speaker 1: the Fed's ability to act has been severely restricted by
Speaker 1: Dodd Frank for example, and I only recently learned this.
Speaker 1: Any refinancing that the FED approves now has to be
Speaker 1: approved by the Secretary of the Treasury, which makes it
Speaker 1: back to political politics. I don't think that's a good rule.
Speaker 1: The FED should focus on the banking system, not on
Speaker 1: the politics at the moment. What about is a human being?
Speaker 1: What what do you take away from it? Because that
Speaker 1: is a harrowing experience, as harrowing probably as anything from
Speaker 1: a financial or a business perspective that anyone's gone through
Speaker 1: in in in our lifetime. You see those people carrying
Speaker 1: their boxes out like it's it's hard not to have
Speaker 1: an impact, right, it's uh, you know you realize how
Speaker 1: you know how many people were affected. And I study economics.
Speaker 1: I love the field, and that's why I became a
Speaker 1: real fan of Lawrence Ball. He has done a study
Speaker 1: of the post ten years after Lehman, of the twenty
Speaker 1: three countries of the O E c D, the growth
Speaker 1: rates in those countries are still dramatically suppressed because of
Speaker 1: the Lehman bankruptcy. It's still hurting our world. Why do
Speaker 1: you think the German bond ten year German bond is
Speaker 1: selling at minus point six or whatever it is negative yield.
Speaker 1: The world's economies have not recovered today, twelve years later
Speaker 1: from the Lehman bankruptcy. That's why I think it was
Speaker 1: a huge policy mistake. I think Paulson should have fought
Speaker 1: to save, at least for the moment, wipe out all
Speaker 1: the equity holders, dilute, don't give the shareholders anything or
Speaker 1: next to nothing, but don't let this this company go
Speaker 1: into bankruptcy. All right, Well, we'd be remiss if we
Speaker 1: had you and didn't talk a little bit about soth Bees.
Speaker 1: That was also an interesting chapter, to say the least,
Speaker 1: in your life, what's the most notable thing that that
Speaker 1: you remember, that that you take away from that experience?
Speaker 1: Because you write extensively about it in the book. UM.
Speaker 1: Sotheby's is a great, great institution. It's just been sold
Speaker 1: again recently to a Frenchman Pratt Patrick Rockey. Private, private,
Speaker 1: which it should be. It's not a business that should
Speaker 1: be in the public markets. It's two seasonal and cyclical
Speaker 1: and uh subject of short sellers telling stories and so fixing.
Speaker 1: That's that's the story that is so painful. The auction
Speaker 1: business has two sides to its revenue. The buyer's pay
Speaker 1: part called the buyer's premium. After the recession in the
Speaker 1: early nineties, I changed the buyer's premium to a sliding
Speaker 1: scale and that has really really sustained the business. After
Speaker 1: I left, my successor looked at the other side of
Speaker 1: the commission structure, what's called the selling commission, seller's commission
Speaker 1: illegally with Christie's working for several years, she built up
Speaker 1: a file of five hundred pages of illegal documents. It's
Speaker 1: incredible to me that they did this and thought it
Speaker 1: could be gotten away with UM. In any event, that
Speaker 1: almost took Sethby's down and almost put the company out
Speaker 1: of business. With the fines, the penalties, the client relationships
Speaker 1: that were lost in damage and you had no idea
Speaker 1: you were there to ninety four think for a decade,
Speaker 1: no idea, no idea. I stayed on the board for
Speaker 1: three more years, uh Taubman's request, and UH saw some
Speaker 1: of the changes happening, some of which I didn't like,
Speaker 1: but I was no longer CEO. But um it came
Speaker 1: out in two thousand and the way it came out
Speaker 1: as interesting. The Christie CEO Christopher Damage was fired by
Speaker 1: UH French Saspino that the owner of Christie's. He gave
Speaker 1: a few pages of these documents, these illegal documents to Pino,
Speaker 1: and said, if you want more of these, you're going
Speaker 1: to have to pay me. And so Pino obviously weighed
Speaker 1: his options and chose to pay him ten million I
Speaker 1: think it was ten million pounds. He got the five
Speaker 1: page package of illegal agreements, sent them to an American
Speaker 1: lawyer where they were known as the hot Potato, and
Speaker 1: that led the race to the Justice Department because the
Speaker 1: first one in gets immunity, and Christie's apparently beat Dede
Speaker 1: Brooks by a day or two and they got immunity.
Speaker 1: Although Anthony Tennant, their chairman, could never leave England because
Speaker 1: he was implicated in any event. It was high drama
Speaker 1: and really a tragedy, and it just shows, you know,
Speaker 1: a moral compass is the most important thing in business
Speaker 1: in my view. I love that you say that. Jason
Speaker 1: and I have so many conversations, and we were talking
Speaker 1: about you say in your book how much you learned
Speaker 1: from your father in terms of how to treat people?
Speaker 1: And we both said the same thing. You know that
Speaker 1: my dad didn't matter whether you were the head of
Speaker 1: a company or you know, somebody at a grocery store.
Speaker 1: And I feel like we've gotten away from that in
Speaker 1: terms of treatment of people, and also the moral compass,
Speaker 1: whether you're a politician, whether you're a business person. What's happened?
Speaker 1: You know from the varsity blues like what has happened?
Speaker 1: Am I just being an older person looking back to
Speaker 1: the sweeter days? What has happened? I wish I had
Speaker 1: a good answer. I wish I knew, and I wish
Speaker 1: I could help go back to the way we we
Speaker 1: did things. And I think most people still do. I
Speaker 1: think too much. This is a money yes, yes, And
Speaker 1: I say that in my book. After I left Sotherby's,
Speaker 1: I looked at where I wanted to put my energy.
Speaker 1: I was in my fifties, I still had a lot
Speaker 1: of energy left and the money that was chasing art.
Speaker 1: It was really not about buying art. It was about
Speaker 1: the buyer of the art getting a high profile, wanting
Speaker 1: to be visible, wanting to be known. Overnight. You could
Speaker 1: become a world celebrity by paying a hundred million dollars
Speaker 1: for a Picasso. You still can, and they do. Um.
Speaker 1: So I put my efforts into into my Posse Foundation.
Speaker 1: I'd love to tell you about possee tell us about it.
Speaker 1: It was a really online about it. When you're helping
Speaker 1: other kids right get opportunities education. Thirty years ago, I'm
Speaker 1: still at Southern Bey's. I met a woman named Debbie Beale.
Speaker 1: Debbie was a twenty four year old young, idealistic great
Speaker 1: UH community leader and she was interviewing a bunch of
Speaker 1: kids who had dropped out of college but had the
Speaker 1: ability to do the work. And one of them spoke
Speaker 1: up and he said, I would never have dropped out
Speaker 1: if I'd had my POSSE with She said, Posse, it's
Speaker 1: at me. What's that? He said? My guys, my gals
Speaker 1: that backed me up, my buddies. She Debbie is an
Speaker 1: amazing woman. She's now one of the MacArthur Genius Awards.
Speaker 1: She's still CEO and president of POSSE. She called up
Speaker 1: a friend at Vanderbilt, where I was an alumnus and
Speaker 1: a board member, and asked him, would you take a
Speaker 1: big gamble on a bunch of New York kids that
Speaker 1: can't measure up on your s A T s because
Speaker 1: they can't afford SA T prep courses and they don't
Speaker 1: go to the great schools. But they are leaders. They
Speaker 1: will be leaders and they will change your culture on
Speaker 1: your campus. Fortunately, this professor went to the Dean of
Speaker 1: of of Education at Vanderbilt, to Peabody School of Education,
Speaker 1: and they said, let's do it. We need some more
Speaker 1: kids from New York. Suddenly six kids. The first POSSE
Speaker 1: was six kids arrives in Nashville, and they were a
Speaker 1: Dominican and African American and you know whatever, and they
Speaker 1: hit the campus by storm. The star of that little
Speaker 1: group was a woman named Shirley Collado. Shirley I almost
Speaker 1: get terry when I started talking about it as Shirley
Speaker 1: Dominican cab driver's daughter, mother worked in a factory or
Speaker 1: a pharmacist. Actually, um, they did not want her to
Speaker 1: go to Nashville to Vanderbilt. She went on to be
Speaker 1: a star at Vanderbille, get her PhD at Duke in
Speaker 1: clinical psychology. When into academ was the dean of the
Speaker 1: college at Middlebury. She's now the president of Ithaca College,
Speaker 1: and she's on the board of Vanderbilt University. And she
Speaker 1: was just on the search committee to pick the new
Speaker 1: chancellor Vanderbille. Now that's what changing someone's life will do
Speaker 1: and and change our institutions. We need more kids and
Speaker 1: people of diverse backgrounds, all kinds of backgrounds on boards
Speaker 1: making decisions in the room. As you said, then the
Speaker 1: destations are better. It's all about access. And we've seen
Speaker 1: the research about the importance of diversity. We've got to
Speaker 1: leave it there. There's so much more we want to
Speaker 1: talk to you about. So come back enjoining you and
Speaker 1: everybody should check out the book because it really is
Speaker 1: inspiring and trouble. Thank you, Michael Ansley. Thank you, And
Speaker 1: you've been listening to Bloomberg Business Week Extra, be sort
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Speaker 1: Friday at two pm Wall Street Time. I'm Bloomberg Radio.
Speaker 1: I'm Carol Masser, and I'm Jason Kelly. This is Bloomberg