WEBVTT - How Facebook Enabled Scam Advertisers Via Affiliate Marketers 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:33.120 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Facebook 0:00:33.120 --> 0:00:35.920 heady brief for previow yesterday, but shares are down nearly 0:00:36.080 --> 0:00:41.040 one percent again today after losing nearly fourteen percent uh 0:00:41.080 --> 0:00:44.800 IF their shares last week. Here to join us to 0:00:44.840 --> 0:00:47.480 talk a little bit about a behind the scenes look 0:00:47.920 --> 0:00:53.040 at how Facebook approached marketing and how they attracted certain 0:00:53.680 --> 0:00:57.160 shady advertisers is Robert Friedman, Senior editor on the Projects 0:00:57.160 --> 0:01:00.480 and Investigations team here at Bloomberg News. This is an 0:01:00.480 --> 0:01:02.920 amazing story. It's going to be in Business Week. It's 0:01:03.120 --> 0:01:06.160 written by Zeke Fox. I recommend everybody read it. Can 0:01:06.160 --> 0:01:09.319 you just give us a sense of where it begins 0:01:09.400 --> 0:01:13.280 this conference at why it's notable. Well, Zeke is on 0:01:13.319 --> 0:01:16.280 a well deserved vacation this week, UM, so I'm here 0:01:16.319 --> 0:01:18.560 to uh to speak for him. This story has been 0:01:18.560 --> 0:01:21.560 in the works for over a year. UM. And Zeke 0:01:21.640 --> 0:01:23.920 came to me last spring and said, I want to 0:01:23.959 --> 0:01:28.520 go to this conference in Berlin for affiliate marketers. And 0:01:28.560 --> 0:01:31.280 I said, what is that. I just want to go 0:01:31.280 --> 0:01:32.920 to Berlin and DC And then he said, and there's 0:01:32.920 --> 0:01:34.920 also an after party and abissa which I want to 0:01:34.959 --> 0:01:37.120 go to. And I said, Zeke, are you scamming me? 0:01:38.360 --> 0:01:41.240 And um. But the more he told me about this 0:01:41.319 --> 0:01:44.320 strange world of affiliate marketing, UM, I the more I 0:01:44.360 --> 0:01:47.119 got interested. So affiliate marketing is basically just a bunch 0:01:47.160 --> 0:01:49.520 of middleman who buy clicks and views from Facebook and 0:01:49.520 --> 0:01:51.400 sell them to people who try to sell stuff. A 0:01:51.480 --> 0:01:54.200 lot of it's legitimate. UM. Plenty of companies use this 0:01:54.760 --> 0:01:59.400 as an advertising tool. But UM, all the shady advertisers 0:01:59.400 --> 0:02:03.320 who sell uh stuff through you know, free iPhone offers 0:02:03.440 --> 0:02:08.000 or diet pills approved by Oprah Winfrey or Elon Musk's 0:02:08.120 --> 0:02:13.280 UM smart pills, UM, fake endorsements, UM, stuff that pops 0:02:13.360 --> 0:02:18.480 up and pollutes your your your Internet experience. UM. They 0:02:18.520 --> 0:02:21.840 all actually um take advantage of this affiliate marketing deal. 0:02:21.919 --> 0:02:25.640 And they all congregate around this conference, which is hosted 0:02:25.639 --> 0:02:30.520 by a suspiciously sounded group called Stack that money. So 0:02:31.520 --> 0:02:34.880 Zeke Z stack that mine. So Zeke went out there 0:02:34.919 --> 0:02:37.560 and the first thing he noticed was all the Facebook 0:02:37.600 --> 0:02:39.760 people that were there. They were on stage, they were 0:02:40.360 --> 0:02:43.959 moderating panels, they were out mingling with the with the crowds. 0:02:44.000 --> 0:02:46.239 And he said, what is going on here? And u 0:02:47.120 --> 0:02:50.440 uh And thus began an investigation into the strange relationship 0:02:50.480 --> 0:02:55.400 between these affiliate marketers and Facebook. Um. Facebook um, as 0:02:55.520 --> 0:02:59.639 you know, has built a very very powerful tool to 0:03:00.000 --> 0:03:02.679 a good people. Um and and based on all the 0:03:02.760 --> 0:03:04.799 data that you and I and everybody else gives them 0:03:05.040 --> 0:03:09.799 two point to billion people and the advertising community figured 0:03:09.840 --> 0:03:13.960 out pretty quickly that this was a valuable tool for 0:03:14.000 --> 0:03:17.360 them to let Facebook find the suckers for them. And 0:03:17.560 --> 0:03:21.120 that began this, uh, this adventure. Okay, So this sort 0:03:21.160 --> 0:03:25.679 of brings us to a fork in the metaphorical road 0:03:25.760 --> 0:03:29.760 here for Facebook, because on one hand, uh, they have 0:03:29.880 --> 0:03:33.040 said that they try to fare it out bad actors, 0:03:33.040 --> 0:03:35.600 people who are trying to sell miracle pills that don't 0:03:35.640 --> 0:03:39.080 work or iPhone iPhones that are free to end up 0:03:39.240 --> 0:03:41.160 charging you EIGHTI six dollars a month for the rest 0:03:41.160 --> 0:03:45.760 of your life. UM. I'm just wondering what they knew 0:03:45.920 --> 0:03:48.800 about the bad actors, what they did to stop them 0:03:49.320 --> 0:03:52.560 or is there evidence that they've been actively recruiting them. 0:03:52.960 --> 0:03:55.200 So Facebook has certain rules about things you're not supposed 0:03:55.200 --> 0:03:58.080 to advertise on on it, and they have reviewers who 0:03:58.560 --> 0:04:02.680 somewhere overseas or reviewing content and UH. For years they 0:04:02.680 --> 0:04:05.760 had a very small skeletal crew of three engineers they 0:04:05.800 --> 0:04:09.560 were set to sort of combat this UH you know, 0:04:09.840 --> 0:04:13.160 fraud on advertising fraud. But it was a half hearted effort. 0:04:13.200 --> 0:04:16.040 And at the same time their marketing people were attending 0:04:16.080 --> 0:04:19.760 conferences and UH and recruiting trying to sell these ads. 0:04:19.760 --> 0:04:22.039 It's hundreds of millions of dollars of advertising revenue. So 0:04:22.200 --> 0:04:26.279 they had they had at best a complicated, um bifurcated 0:04:26.320 --> 0:04:29.160 relationship with with this world, but they were looking the 0:04:29.240 --> 0:04:32.400 other way in in in my view, it's only recently 0:04:32.480 --> 0:04:34.560 in the last year that they're beginning to think this 0:04:34.600 --> 0:04:37.080 more seriously. They hired a new person to sort of 0:04:37.680 --> 0:04:40.279 come up with and they've they and lots more reviewers 0:04:40.320 --> 0:04:42.760 and they've done But the the the ad scammeras are 0:04:42.800 --> 0:04:45.920 smart and they have developed a program and that's in 0:04:46.200 --> 0:04:49.680 this story. UM a guy named Rob Grin who became 0:04:49.720 --> 0:04:52.200 sort of the king of these affiliate marketers developed a 0:04:52.240 --> 0:04:56.600 program that allows you to cloak your ads. Um cloaking 0:04:56.640 --> 0:04:59.600 means that when they can figure out when a Facebook 0:04:59.640 --> 0:05:02.279 reviewer is reviewing the ad, and when they and the 0:05:02.320 --> 0:05:05.000 Facebook reviewer clicks on the add they get an innocuous 0:05:05.120 --> 0:05:10.520 um landing page, but everybody else falls on a on 0:05:10.279 --> 0:05:15.120 on the actual uh scam add So so um, they 0:05:15.120 --> 0:05:19.000 were just much smarter than Facebook. Um was able to 0:05:19.080 --> 0:05:21.880 keep up with whatever efforts they were making. And um, 0:05:22.680 --> 0:05:26.000 uh yeah, so that's Are there any laws that were 0:05:26.000 --> 0:05:29.080 broken here? Because on one hand, you know, people are 0:05:29.279 --> 0:05:33.839 free to try to portray their objects, they're their their 0:05:34.040 --> 0:05:36.880 wears as as positive as possible, and that's not considered 0:05:37.200 --> 0:05:40.120 a clear violation. This is a clear violation of FTC 0:05:40.320 --> 0:05:43.800 rules about fraudulent advertising. Yeah, so who's liable here? So 0:05:43.839 --> 0:05:47.320 the FTC occasionally makes a case. They busted a ring 0:05:47.400 --> 0:05:51.440 that in San Diego that was selling you know, fraudulent 0:05:51.560 --> 0:05:54.520 diet pills and made they had made a undred and 0:05:54.560 --> 0:05:58.200 seventy nine million dollars off of their their scam. Um, 0:05:58.240 --> 0:06:01.480 but it's it's it's it's a half hearted effort on 0:06:01.480 --> 0:06:04.479 the regulatory agencies, half hearted effort on the part of 0:06:04.520 --> 0:06:08.600 the technology companies and a great opportunity for all these 0:06:08.800 --> 0:06:12.440 uh scamming marketers. This is an amazing story. I recommend 0:06:12.560 --> 0:06:15.640 everybody read it. The main character, Grant, who's sort of 0:06:15.680 --> 0:06:20.320 the king of these, uh, these sort of shady advertisers 0:06:20.320 --> 0:06:23.440 and the intermediaries of them, said that when he first 0:06:23.480 --> 0:06:26.279 realized how much money he could make, he almost felt 0:06:26.320 --> 0:06:29.359 ill with excitement, panic, he described, panics. Yeah, but was 0:06:29.400 --> 0:06:31.200 he minting money? And then you know, he tries to 0:06:31.200 --> 0:06:33.720 sort of pedal back and wonder whether he should do 0:06:33.800 --> 0:06:36.479 something better with his life. And then thanks better of that? 0:06:36.520 --> 0:06:39.120 And thanks? What am I a communist? Robert Friedman, thank 0:06:39.120 --> 0:06:42.159 you so much for being with me. And really I 0:06:42.200 --> 0:06:44.960 recommend people read the story. Robert Friedman, Senior editor of 0:06:45.160 --> 0:06:49.360 the Projects and Investigations team for Bloomberg News. The story 0:06:49.640 --> 0:06:53.960 how Facebook helps shady advertisers sell fake Ellen smart pills 0:06:54.279 --> 0:07:11.120 by Zeke Fox. There has been a lot of turnover 0:07:11.280 --> 0:07:16.400 in President Trump's cabinet. Mike Pompeo going to be elevated, 0:07:16.640 --> 0:07:20.600 leading President Trump to nominated Gina has Belt to replace 0:07:20.800 --> 0:07:25.360 Pompeo as c A c I A director here with us, 0:07:25.440 --> 0:07:29.400 Jack Divine founding partner and president of the ark And Group, 0:07:29.560 --> 0:07:32.760 also former acting director of the c i A and 0:07:33.040 --> 0:07:37.360 a very familiar person with Gina Haspell. Jack, Thanks so 0:07:37.440 --> 0:07:39.880 much for being here. So Gina has been a very 0:07:39.880 --> 0:07:42.840 controversial pick. A lot of people have said that she 0:07:42.960 --> 0:07:47.120 was in charge of torture programs, that she discarded evidence 0:07:47.160 --> 0:07:50.040 tied to video tapes. You want to be on record 0:07:50.080 --> 0:07:53.600 supporting her absolutely. I've known her for many, many years, 0:07:54.280 --> 0:07:56.400 and I think the first thing you think of is 0:07:56.760 --> 0:08:00.360 a professional and frankly, even though I've known I can't 0:08:00.360 --> 0:08:02.800 tell you whether she would vote Republican or Democrats. She's 0:08:02.840 --> 0:08:05.679 in that category of so many of us that don't 0:08:05.680 --> 0:08:08.800 carry our politics into place. But when you look at 0:08:08.880 --> 0:08:12.040 the the panorama today of who's available here, you have 0:08:12.120 --> 0:08:14.679 someone who's been at the top of the operational director 0:08:14.800 --> 0:08:17.920 and now the top of the agency and working apparently 0:08:18.560 --> 0:08:23.560 very well with the Trump administration. Downtown and the workforce 0:08:23.640 --> 0:08:25.920 is very high on her. I think she's been painted 0:08:26.080 --> 0:08:30.560 and as more of a as a symbol of something 0:08:30.600 --> 0:08:32.880 that is not a reality. I think the hearings are 0:08:32.880 --> 0:08:37.040 actually going to be very conducive to straightening this out. 0:08:37.240 --> 0:08:41.880 I mean, I think the confirmation process, while grueling one, 0:08:42.440 --> 0:08:44.520 I think when the facts are surface, it's going to 0:08:44.600 --> 0:08:48.640 be far less dramatic and we're understandable when they get down, 0:08:48.720 --> 0:08:51.440 as they are now getting down and asking specifics. I 0:08:51.480 --> 0:08:54.120 think she will show extremely well. And I also want 0:08:54.160 --> 0:08:56.520 want to forget the fact which I think is getting lost, 0:08:56.920 --> 0:08:59.439 how big a deal it is to have the first 0:08:59.480 --> 0:09:02.960 woman to actor of CIA. I watched it over forty years. 0:09:03.000 --> 0:09:05.800 It's really quite an amazing development. Why is that a 0:09:05.800 --> 0:09:09.200 big deal? Well, when when I first joined the agency 0:09:09.200 --> 0:09:13.600 many years ago, the workforce had on our training class 0:09:13.640 --> 0:09:16.440 fifty people too women, None of them went in operations. Today, 0:09:16.480 --> 0:09:19.880 half of the agency's operators are now women, holding key 0:09:19.920 --> 0:09:23.839 positions that are reflective of the time. Um, but they've 0:09:23.880 --> 0:09:26.120 never been at the very top of the service. In fact, 0:09:26.120 --> 0:09:29.400 she'll be the only the second person in the history 0:09:29.400 --> 0:09:32.400 of the agency that's been in the operational part that 0:09:32.480 --> 0:09:34.920 has made it all the way to become the director. 0:09:34.960 --> 0:09:38.160 The other was Stick Helmels back in the sixties. I 0:09:38.200 --> 0:09:41.680 think that mindset of being a careerist and having those 0:09:41.720 --> 0:09:45.280 operational background steeped in it and at the policy level 0:09:45.760 --> 0:09:48.600 is critical today when we're looking at what Russia is 0:09:48.679 --> 0:09:52.840 doing either meddling in elections and taking out people with 0:09:53.000 --> 0:09:56.040 nerve agents. I mean, we got a really tough wear world. 0:09:56.160 --> 0:09:59.440 We better have somebody in that job that understands that world. 0:10:00.040 --> 0:10:03.120 Want to pick up on the Russia point because we 0:10:03.160 --> 0:10:07.720 did see earlier this week President Trump ejected sixty Russian 0:10:07.760 --> 0:10:11.760 diplomats over the UK poisoning incident. That was more than 0:10:11.800 --> 0:10:15.640 people had expected. How did you interpret this? Well, I 0:10:15.679 --> 0:10:18.280 know the Russians will be living. I mean I have 0:10:18.480 --> 0:10:22.319 seen and seen folks P and GD we called, you know, 0:10:22.760 --> 0:10:26.520 persona non grata, you're thrown out. I mean people have kids, 0:10:26.600 --> 0:10:29.440 they have schools that they running agents, they're doing business 0:10:29.480 --> 0:10:32.240 at pack up out of there back home. It is 0:10:32.280 --> 0:10:37.000 a very disruptive thing. So the institutions and my bed 0:10:37.400 --> 0:10:39.200 I don't have the names in front of me, but 0:10:39.320 --> 0:10:41.280 you can bet there's a high number of the sixty 0:10:41.400 --> 0:10:45.000 that are intelligence oriented. So they are going to be 0:10:45.040 --> 0:10:48.920 losing capability. They're closing Seattle. It's a big it's a 0:10:48.920 --> 0:10:51.480 big deal and a big blow, and then it creates 0:10:51.520 --> 0:10:57.439 such a h an international development. The Russians will probably respond. 0:10:57.600 --> 0:11:02.080 So there's some toughening of the lines between the Western 0:11:02.120 --> 0:11:04.480 Allies and Russian and I don't think this is a 0:11:04.520 --> 0:11:06.640 good This is not going to play well for Putin 0:11:06.720 --> 0:11:11.120 over the long haul. So one theory was that President 0:11:11.160 --> 0:11:16.280 Trump took a harder than expected stance on Russia in 0:11:16.360 --> 0:11:18.800 order to sort of pledge allegiance to the Allies in 0:11:18.880 --> 0:11:22.319 return for some support as h he goes ahead with 0:11:22.400 --> 0:11:24.680 ripping up the Iran Deal. What do you make of 0:11:24.679 --> 0:11:26.440 that theory. I don't put a lot of stock in 0:11:27.080 --> 0:11:29.760 that theory. I mean, you know, Tip and Neil used 0:11:29.760 --> 0:11:33.760 to say politics is all local. I think President Trump 0:11:33.800 --> 0:11:36.960 was looking at the winds of war, if you will. 0:11:37.559 --> 0:11:40.400 And I think the American people are starting to get 0:11:40.440 --> 0:11:46.400 increasingly um agitated and concerned about Russian behavior and are 0:11:47.720 --> 0:11:50.640 going back to a mindset that's more closer to the 0:11:51.040 --> 0:11:54.239 to the Cold War, which I think is most unfortunate. 0:11:54.360 --> 0:11:58.040 But Putent seems to be determined to push this. And 0:11:58.120 --> 0:12:01.559 I must say my own estimate of of Putin he 0:12:01.559 --> 0:12:05.040 would have been flattered. I thought he was a great strategist. 0:12:05.040 --> 0:12:08.040 Now I have great doubts about that. I really, yes, 0:12:08.160 --> 0:12:11.480 I have. I have changed my views. And the Econdis 0:12:11.600 --> 0:12:14.120 magazine had him on the cover is a great chess player. 0:12:14.200 --> 0:12:17.000 I really, I'm not even sure he's a good checkers 0:12:17.000 --> 0:12:21.079 player whoa really interesting and other uh checkers or chess player. 0:12:21.080 --> 0:12:23.200 We're not sure Kim Jong un. And I'd love to 0:12:23.200 --> 0:12:27.200 get your opinion on the surprise visit to Beijing. What 0:12:27.240 --> 0:12:29.520 do you think that's about and is there any relationship 0:12:29.600 --> 0:12:32.160 between some of the tariff talk that we've heard between 0:12:32.160 --> 0:12:35.440 the US and China and this visit. Well, I think, 0:12:35.960 --> 0:12:37.600 first of all, I would say Kim is at least 0:12:37.600 --> 0:12:40.240 a good checkers player. I mean, they've they've been playing 0:12:40.280 --> 0:12:43.160 this game for a long time where they move their 0:12:43.200 --> 0:12:45.760 programs forward and then where they get to a plateau, 0:12:45.880 --> 0:12:50.040 they say, well, let's let's negotiate. So I'm for the negotiations. 0:12:50.080 --> 0:12:53.240 I've been urging it for a long time. You know, 0:12:53.320 --> 0:12:58.160 there's no real military option here, so you've got to 0:12:58.200 --> 0:13:00.440 get back to the table. Who comes to the able 0:13:00.880 --> 0:13:04.520 And as you point out, the Chinese are a major factor. 0:13:04.559 --> 0:13:07.400 I think they're less so than many people realize, in 0:13:07.440 --> 0:13:10.280 the sense that the Chinese had great influence for many 0:13:10.280 --> 0:13:13.480 many decades, were the last fifteen twenty years. It's less 0:13:13.480 --> 0:13:16.640 but more than anybody else, certainly, And they can be 0:13:17.679 --> 0:13:22.920 very helpful. I think the Chinese are are torn on 0:13:22.960 --> 0:13:24.560 this one, but I don't think they want to be 0:13:24.640 --> 0:13:26.560 left on the sideline. So I think that's what we're 0:13:26.559 --> 0:13:30.040 looking at here. Um, just taking a little bit of 0:13:30.040 --> 0:13:34.120 a step back home. I'd love to just get your impression. 0:13:34.120 --> 0:13:35.840 In some of the turnover that we've had in the 0:13:35.880 --> 0:13:41.320 White House cabinet with John Bolton becoming National Security Advisor, 0:13:41.679 --> 0:13:45.640 a lot of people were saying this brings us closer 0:13:45.800 --> 0:13:48.600 to having a war, with Ian Bremer saying that this 0:13:48.679 --> 0:13:52.320 was the single worst day for geopolitical risk in a 0:13:52.480 --> 0:13:56.040 long time. What's your take, Well, I think you know, again, 0:13:56.080 --> 0:13:58.880 there's been a number of changes, and this is very common. 0:13:58.920 --> 0:14:02.040 As you know new administrations. The end of the first year, 0:14:02.080 --> 0:14:06.400 there's usually significant trends, and normally they move more to 0:14:06.440 --> 0:14:09.160 the center. If there to the left, the move center left. 0:14:09.200 --> 0:14:11.440 If they're to the right, they move center right. And 0:14:11.480 --> 0:14:15.040 I think that's UM and the bureaucracies themselves and the 0:14:15.080 --> 0:14:19.040 civil servants begin to gain more and more influence, and consequently, 0:14:19.040 --> 0:14:21.640 when I look at Pompeo, the move of Pompeo, who 0:14:21.640 --> 0:14:24.320 has been a very successful director of CIA and and 0:14:24.440 --> 0:14:26.480 a confidant of the President, and I don't think they 0:14:26.560 --> 0:14:29.080 knew each other very well when it started. It's now 0:14:29.200 --> 0:14:30.800 going to be over a state. This is a good 0:14:30.840 --> 0:14:33.840 thing for the State Department. Gina. We talked about moving 0:14:33.840 --> 0:14:36.400 her up. You now have a team that knows Trump 0:14:36.440 --> 0:14:39.440 works with them, and I think they're pragnantists and realists. 0:14:40.080 --> 0:14:44.360 The Monkey, the Wrench, the person you have not mentioned 0:14:44.360 --> 0:14:46.880 and I we're just going to say the tricky one here, 0:14:46.880 --> 0:14:49.280 and I must tell you I'm sitting back and looking 0:14:49.320 --> 0:14:53.720 at it doesn't seem to fit. Is his Bolton, And 0:14:53.880 --> 0:14:56.600 I wish I knew him and could size it up 0:14:56.640 --> 0:14:59.880 face to face. But on the surface, my big concern 0:15:00.120 --> 0:15:03.440 with the administration early on, and it looked like the 0:15:03.600 --> 0:15:06.080 neo cons might be making a way back into the 0:15:06.080 --> 0:15:10.840 White House and that stopped. Yeah. Now I worry whether 0:15:10.920 --> 0:15:15.000 if Bolton sticks to his position, whether or not we're 0:15:15.040 --> 0:15:20.600 going to see a more oct We're gonna have to 0:15:20.640 --> 0:15:22.480 leave it there. Founding partner and president of the ark 0:15:22.560 --> 0:15:41.680 And Group, also former acting c I a chief. Another 0:15:41.840 --> 0:15:47.640 grocery store chained Southeastern Grocers Chapter four filed four Chapter 0:15:47.720 --> 0:15:52.360 eleven bankruptcy today in Delaware, Delaware, it is similar in 0:15:52.400 --> 0:15:55.480 some ways declare Stores and Toys r US in that 0:15:55.680 --> 0:15:58.440 it has a lot of debt linked to a two 0:15:58.600 --> 0:16:01.760 thousand and five buy out, and here to kind of 0:16:01.840 --> 0:16:04.440 draw the links together for us. As Jared Dillion, a 0:16:04.480 --> 0:16:07.800 columnist for Bloomberg View, Jared, thank you so much for 0:16:07.880 --> 0:16:10.800 being with us. He is also an editor and publisher 0:16:10.880 --> 0:16:14.040 of The Daily Dirt Nap. Jared, can you talk a 0:16:14.040 --> 0:16:17.000 little bit about how we should sort of view the 0:16:17.440 --> 0:16:21.800 growing volume of bankruptcies that we've seen with LVO financed 0:16:21.840 --> 0:16:27.400 or bought out companies UM like claires, like Toys r 0:16:27.520 --> 0:16:32.160 US now Southeastern Grocers. You know, I think I think 0:16:32.200 --> 0:16:34.880 that you know, it's just a small trickle at this point. 0:16:35.400 --> 0:16:37.760 But the alarming thing is is that, you know, we're 0:16:37.800 --> 0:16:41.640 really at the top of the expansion um and we're 0:16:41.640 --> 0:16:44.840 seeing some of these bankruptcies, and you know, usually that's 0:16:44.880 --> 0:16:48.800 not when you see bankruptcies like these. Now the retail 0:16:48.920 --> 0:16:52.280 environment has changed a lot for Claires and Toys r 0:16:52.440 --> 0:16:56.320 US and also for groceries, but you shouldn't be seeing 0:16:56.360 --> 0:16:59.320 these deals fall apart at the top of the cycle. 0:17:00.320 --> 0:17:03.320 So what do you make of that? Well, you know, 0:17:03.440 --> 0:17:07.520 I think if you look at some of these individual deals. Uh, 0:17:07.520 --> 0:17:10.240 it's just too much debt. And you know, in the 0:17:10.280 --> 0:17:13.600 case of Claire's, they had over two billion, and this 0:17:13.720 --> 0:17:16.520 is not it's not a big business, you know. Uh, 0:17:16.600 --> 0:17:19.639 two billion is a lot. I just I think from 0:17:19.680 --> 0:17:22.679 an outsider looking in, it just doesn't pass the common 0:17:22.720 --> 0:17:26.880 sense test. Uh, toys r Rust had fion going out 0:17:26.880 --> 0:17:29.720 the door every year and interest expense. I mean this 0:17:29.840 --> 0:17:33.680 is you know, it depends on what your philosophy of 0:17:33.880 --> 0:17:38.000 debt is. What a lot of people think that businesses 0:17:38.359 --> 0:17:42.040 should borrow as much as they possibly can without going 0:17:42.119 --> 0:17:47.359 bankrupt to maximize profits. So you're the the title of 0:17:47.359 --> 0:17:50.360 your column was private equity, it's more like pirate equity. 0:17:50.359 --> 0:17:53.720 And you seem to place the blame on private equity 0:17:53.760 --> 0:17:58.840 companies for basically forcing these companies to incur as much 0:17:58.920 --> 0:18:01.159 debt as they have. Of you know, a lot of 0:18:01.160 --> 0:18:04.800 people would say private equity companies have some misses, this 0:18:04.840 --> 0:18:06.920 is to be expected, but they need a lot more 0:18:07.320 --> 0:18:13.320 wins in order to deliver good profits. Explain where llain here. 0:18:13.600 --> 0:18:17.280 I think I think the issue here is really one 0:18:17.400 --> 0:18:21.240 of public opinion. I think that the private equity industry 0:18:21.359 --> 0:18:25.240 has to be careful. Um, you know, after the Toys 0:18:25.280 --> 0:18:28.160 r US deal, I saw some uh you know, left 0:18:28.200 --> 0:18:32.040 leaning stuff on social media just blaming the private equity 0:18:32.080 --> 0:18:37.480 companies for thirty three thousand job losses, which is not trivial. 0:18:37.800 --> 0:18:41.119 And if we have a recession, if we have you know, 0:18:41.160 --> 0:18:42.960 an honest to go to this downturn and we get 0:18:43.000 --> 0:18:47.080 more PD deals fall apart and more layoffs, it is 0:18:47.160 --> 0:18:51.680 going to point back directly at the private equity industry. 0:18:51.800 --> 0:18:54.199 Um So, really like the point of the piece was 0:18:54.680 --> 0:18:58.800 about how public opinion can turn on an industry very fast, 0:18:58.840 --> 0:19:00.960 and I think we're already seeing the beginnings of that. 0:19:01.560 --> 0:19:04.000 And and this sort of is analogous to what we 0:19:04.040 --> 0:19:07.439 saw with Wall Street after the two says an innate 0:19:07.520 --> 0:19:12.199 financial crash. I'm wondering what will be the implication if, say, 0:19:12.320 --> 0:19:16.600 there is a rash of private equity sponsored companies that 0:19:16.680 --> 0:19:20.200 do go bankrupt and that does do result in many 0:19:20.280 --> 0:19:24.280 job losses. What will be the consequences if public opinions hours? 0:19:24.320 --> 0:19:27.480 Is it more regulation? Well? I don't, I don't. I 0:19:27.520 --> 0:19:32.040 don't see how regulation would really uh benefit the situation. 0:19:32.080 --> 0:19:34.879 But I think that you know this, it's not just 0:19:34.960 --> 0:19:38.560 Wall Street, it's the academic community. It's the c f 0:19:38.640 --> 0:19:42.080 A program. It's it really is going to result in 0:19:42.119 --> 0:19:46.359 a see change about how people think about debt and 0:19:46.400 --> 0:19:49.800 how it should be used. Um, right now people are 0:19:49.880 --> 0:19:52.920 using it to maximize profits. In the future, they might 0:19:52.960 --> 0:19:57.040 try to minimize debt in order to maximize safety. You know, 0:19:57.080 --> 0:19:58.879 one of the people I mentioned in the piece was 0:19:59.720 --> 0:20:03.280 d Ramsey, And Dave Ramsey is a personal finance expert 0:20:03.440 --> 0:20:06.240 who has a following of millions of people, and he 0:20:06.320 --> 0:20:11.359 advocates at the consumer level to pay off your mortgage, 0:20:11.440 --> 0:20:13.840 to pay off your car loan, to pay off your 0:20:13.880 --> 0:20:16.760 credit card debts, and to live debt free. And it's 0:20:16.760 --> 0:20:21.280 the corporate sector that has leveraged up massively while consumers 0:20:21.320 --> 0:20:23.919 have de leveraged. I guess what I was trying to 0:20:23.920 --> 0:20:26.560 get at is for Wall Street, the consequences of souring 0:20:26.600 --> 0:20:31.199 public opinion were huge finds or more regulation and frankly 0:20:31.240 --> 0:20:34.000 a brain drain, with a certain number of people who 0:20:34.119 --> 0:20:36.600 would have otherwise gone to Wall Street going to say 0:20:36.720 --> 0:20:40.000 Silicon Valley. What will be the sort of analogous consequence 0:20:40.080 --> 0:20:43.920 for private equity. Well, you know, I think that, uh, 0:20:44.920 --> 0:20:48.280 you know, public opinion will turn against private equity much 0:20:48.320 --> 0:20:49.760 in the same way that it did in Wall Street. 0:20:49.760 --> 0:20:51.680 And it could result in a brain drain. It could 0:20:52.119 --> 0:20:55.320 you know, it could result in the government talking about 0:20:55.920 --> 0:20:59.440 some you know, reasonable limits that can be placed on debt. 0:20:59.480 --> 0:21:01.760 I really, you know, I can't speculate as to how 0:21:01.760 --> 0:21:04.040 it's going to turn out. I mean I think that, um, 0:21:04.040 --> 0:21:07.879 we're still probably a year or two away from this 0:21:08.040 --> 0:21:10.720 cycle playing out. Jared Dillion, Thank you so much for 0:21:10.760 --> 0:21:13.240 being with us. It's really an interesting column. Jared Dillion, 0:21:13.560 --> 0:21:17.600 columnist with Bloomberg View, also editor and publisher of The 0:21:17.720 --> 0:21:22.280 Daily Dirt Nap and investment strategist also at Malden Economics. 0:21:37.160 --> 0:21:40.159 Right now, I want to turn the attention to deals. 0:21:40.160 --> 0:21:42.199 There are a couple of big ones joining us now. 0:21:42.280 --> 0:21:45.680 Chris Hughes, deal's columnist for Bloomberg gad Fly. It's a 0:21:45.720 --> 0:21:49.840 commentary section for Bloomberg View in Bloomberg LP. Thank you 0:21:49.880 --> 0:21:52.080 so much for being with us, Chris. I want to 0:21:52.080 --> 0:21:54.840 thank your take. I want to start with the Glaxo 0:21:54.880 --> 0:21:58.000 Smith Klein and Novartists deal. It's a thirteen billion dollar 0:21:58.119 --> 0:22:02.080 deal to buy some consumer mere brands from Novartis. This 0:22:02.160 --> 0:22:05.760 is already a joint venture. Shares of both companies went up. 0:22:05.960 --> 0:22:08.440 How is this possible that it is so universally thought 0:22:08.480 --> 0:22:11.240 to be good for both of them? Well, I think 0:22:11.440 --> 0:22:14.760 um Black has really gone up today and the vats 0:22:15.000 --> 0:22:18.600 up a bit. Obviously the market helps. I mean for 0:22:18.680 --> 0:22:21.760 both sides, it gives them certainty. For a while they've 0:22:21.800 --> 0:22:25.760 been in this joint venture. Earlier this month, Novartis gained 0:22:25.800 --> 0:22:29.199 the right to sell its share of it to the 0:22:29.240 --> 0:22:32.240 blackso side everyone's been wondering, you know, when is that 0:22:32.280 --> 0:22:35.359 going to happen, on what price? And so we know 0:22:35.440 --> 0:22:37.560 it's happening now and we know the price. So there's 0:22:37.560 --> 0:22:40.280 I think relief all around that we know what the 0:22:40.280 --> 0:22:43.960 side of this is. From Blacks perspectives, there's a sort 0:22:43.960 --> 0:22:47.199 of double release because the market also knows that if 0:22:47.200 --> 0:22:49.880 they're doing this, they're going to be a bit more 0:22:49.920 --> 0:22:52.760 constrained from doing other big deals. And the one that 0:22:52.800 --> 0:22:56.680 everyone's been focusing on is the possible deal for Fizers 0:22:56.720 --> 0:22:59.800 consumer healthcare business that could have cost up to twenty billions. 0:22:59.840 --> 0:23:03.119 So I think blackst Shells in particular, thinking well, we 0:23:03.119 --> 0:23:05.760 know what they're doing here with the joint venture buy out. 0:23:05.960 --> 0:23:08.200 They're probably not going to go for Fiser in the 0:23:08.280 --> 0:23:11.199 short term. And I think that's what's what's pleasing Clacko 0:23:11.280 --> 0:23:13.320 shareholders today. So it's going to keep them from doing 0:23:13.359 --> 0:23:16.960 something stupid. Well in the short term, I mean, one 0:23:16.960 --> 0:23:18.760 would hope that shareholders are going to be on their 0:23:18.840 --> 0:23:22.200 toes here and keeping management from doing something stupid whatever. 0:23:22.280 --> 0:23:24.679 But UM, certainly in the short term this is this 0:23:24.720 --> 0:23:26.879 is this is sort of big deal for clacks so 0:23:27.320 --> 0:23:30.400 but further out they're probably going to be in quite 0:23:30.400 --> 0:23:33.480 a good space later in the year. They're also talking 0:23:33.520 --> 0:23:38.200 today about UM selling off some of the consumer brands 0:23:39.240 --> 0:23:42.400 within this within this business, so that's going to sort 0:23:42.440 --> 0:23:45.240 of shrink the deal a bit. And they're talking to 0:23:45.440 --> 0:23:51.520