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Speaker 1: This is Master's in Business with Barry Ridholds on Bloomberg Radio.

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Speaker 1: This week on the podcast, I have an extra special guest.

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Speaker 1: Gretchen Morgensen is the Pulitzer Prize winning investigative journalist for

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Speaker 1: The Wall Street Journal and The New York Times. She

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Speaker 1: currently works at NBC News as an investigative reporter. She

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Speaker 1: has worked at Money Magazine, Forbes, worth all over the place.

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Speaker 1: Her last book was a bestseller, Reckless Endangerment is all

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Speaker 1: about the mortgage crisis. The current book is called These

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Speaker 1: Are the Plunderers. How private Equity runs and recks America.

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Speaker 1: That's a little bit of a sensationalistic headline. When we spoke,

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Speaker 1: the focus and conversation is really emphasizes the largest of

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Speaker 1: the large private equity firms. Yes, there's a legitimate need

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Speaker 1: and use for private equities, especially in mid markets where,

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Speaker 1: to be blunt, Wall Street has just abandoned that space

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Speaker 1: and gone up market, creating a vacuum. But we talk

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Speaker 1: about some really fascinating things. Thirty percent of operating rooms

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Speaker 1: are managed and run by doctors employed by private equity.

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Speaker 1: That's a shocking number. We looked at everything from retail

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Speaker 1: to nursing, homes, to hospitals, to insurance companies to manufacturers. Really,

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Speaker 1: private equity used to be a small, outperforming sector of alternatives.

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Speaker 1: It's now become giant, dominated by four firms, and no

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Speaker 1: longer generating outsize returns. It's really a kind of fascinating

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Speaker 1: aspect of this. As it's become more and more mainstream,

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Speaker 1: it appears some of the performance advantages may have gone away. Anyway,

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Speaker 1: Gretchen is a legend on Wall Street. She's won Lobe

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Speaker 1: Awards and just about every other journalistic award there is.

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Speaker 1: So when she dives into a space, really she does

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Speaker 1: not any stone on turn. I found this to be

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Speaker 1: really interesting conversation, and I think you will also, so,

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Speaker 1: with no further ado, my conversation with NBC's Gretchen Morgansen.

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Speaker 1: So let's talk a little bit about your kind of

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Speaker 1: interesting career. You start as an assistant editor at Vogue

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Speaker 1: magazine in the late seventies. How do you go from

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Speaker 1: that to being a financial columnist?

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Speaker 2: Okay, well, first of all, assistant editor is a little strong.

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Speaker 2: I was a secretary, and I got the job because

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Speaker 2: I could type more than thirty five words a minute. Okay,

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Speaker 2: So I was just out of college, brand new to

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Speaker 2: New York. I had graduated from a small liberal arts

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Speaker 2: college in the Midwest, and my eyes were as big

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Speaker 2: as saucers as I came into New York. It was

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Speaker 2: the only job I could get. I wanted to be

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Speaker 2: a journalist. This was back in the Watergate days, and

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Speaker 2: you know, it was kind of exciting to think about

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Speaker 2: possibly being a reporter. So that's my idea. Of course,

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Speaker 2: the silence from my job applications to the New York Times,

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Speaker 2: to Daily News, you name it was it was the

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Speaker 2: silence was deafening. So Vogue was it?

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Speaker 1: So you didn't stay a secretary of Vogue for very

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Speaker 1: long though.

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Speaker 2: Well, I sort of worked my way up, if you

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Speaker 2: can call it that, to writing their personal finance column,

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Speaker 2: which nobody read, by the way, at Vogue.

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Speaker 1: At Vogue, why they just wanted to have a little Hey,

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Speaker 1: let's speak to women in our magazine.

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Speaker 2: Yes, so I think they sold it against an ad page,

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Speaker 2: to be honest with you. But anyway, so it was

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Speaker 2: very you know, basic instruction, and I really enjoyed doing that.

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Speaker 2: And so I interviewed people, met a lot of folks,

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Speaker 2: and then I was making very ten thousand dollars a year.

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Speaker 1: That's big money in the seven No really, not really,

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Speaker 1: that wasn't even big money in the fifties years. Yeah,

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Speaker 1: thing is that? Is that what led you to your

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Speaker 1: interest in Wall Street?

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Speaker 2: Yes, so I said to myself, I don't have a

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Speaker 2: rich dad, I don't have a rich husband. I'm going

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Speaker 2: to have to make it on my own, and so

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Speaker 2: what can I do? At about that time, Wall Street

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Speaker 2: was battling a sex discrimination case with the EEOC. They

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Speaker 2: had not hired enough women on the street this is

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Speaker 2: the early eighties.

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Speaker 1: Returned, Oh, thank goodness that got resolved. Yeah, now that

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Speaker 1: we have gender parody.

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Speaker 2: Well not quite, but it's better than it was anyways,

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Speaker 2: definitely better. So they had to hire they had to

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Speaker 2: start hiring women because they lost that case. And so

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Speaker 2: I applied to the big brokerage firms as a salesman

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Speaker 2: Dean Witter, Merrill Lynch Prudential Base at the time, and

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Speaker 2: I got a job at Dean Witter. And the reason

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Speaker 2: I got the job was because I killed it on

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Speaker 2: the phone test.

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Speaker 1: Really, well, you had been doing some journalism beforehand, so

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Speaker 1: you're not afraid to ask people questions, right, So this

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Speaker 1: is in the eighties and the beginning of the huge

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Speaker 1: bull market, not that anyone knew in eighty two that

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Speaker 1: strap yourself in the next eighteen years are going to

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Speaker 1: be a rocket ship.

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Speaker 2: Wait wait, wait. When I sat down in my chair

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Speaker 2: at Dean Witter Reynolds, the Dow Jones Industrial average was

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Speaker 2: at seven hundred and eighty one.

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Speaker 1: Still under a thousand. That's unbelievable.

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Speaker 2: So by the way, it made it hard to sell

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Speaker 2: stocks because people were still in the looking backward phase.

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Speaker 2: They weren't looking forward. But August nineteen eighty two, you're

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Speaker 2: too young to remember that.

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Speaker 1: Oh no, I have a vivid recollection.

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Speaker 2: Was when the turn came and it was sort of like, okay,

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Speaker 2: stocks are way too cheap. This is where you want to.

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Speaker 1: Be seven pe back then, right seven.

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Speaker 2: Pe on the SMP, and it was, you know, that

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Speaker 2: was the turning point. So I was really well positioned

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Speaker 2: for that move.

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Speaker 1: And you stayed at Dean Water for what three four years?

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Speaker 1: How long were you there?

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Speaker 2: I stayed three years. I lived through the bear market

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Speaker 2: that you don't remember of nineteen eighty three in tech

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Speaker 2: stocks when there were this sort of you know, initial

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Speaker 2: phase of personal computters and computing was becoming big, and

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Speaker 2: they just got way ahead of themselves.

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Speaker 1: Even calling them tech stocks back then, what was the phrase, you.

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Speaker 2: Know, I don't know. I think it was text stocks.

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Speaker 2: I mean, anyway, so.

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Speaker 1: I don't recall that bear market.

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Speaker 2: Yes, it was bad, it was vicious. It was over

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Speaker 2: the summer of nineteen eighty three, and so I learned

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Speaker 2: the hard way what happens when the stocks that you

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Speaker 2: recommended to people because your firm was saying they would

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Speaker 2: be goodbyes go down and those people lose money.

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Speaker 1: And I felt bad. It was just not in the

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Speaker 1: next six months.

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Speaker 2: That's you know, they were ahead of themselves. You know,

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Speaker 2: the euphoria, the momentum was getting too.

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Speaker 1: Was there euphoria in eighty three?

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Speaker 2: Yeah? Sure, no kidding, Oh yeah, Eagle Computer. I mean,

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Speaker 2: some of these things were high flyers. And so when

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Speaker 2: you had customers calling you up and saying, oh my gosh,

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Speaker 2: what happened to all my money? It was such a

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Speaker 2: huge trauma for me. I really felt bad, and I

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Speaker 2: sort of felt like, if you have too much of

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Speaker 2: a capacity for guilt, maybe not the right business.

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Speaker 1: So is that what set you back into journalists?

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Speaker 2: That's what sent me back. However, I did have it

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Speaker 2: are I was now armed with a lot of information

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Speaker 2: about how the world works on Wall Street.

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Speaker 1: So that's exactly where I was going to go next.

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Speaker 1: You have a knack for finding some of Wall Street's

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Speaker 1: shadier operations. You've done this your whole career. How important

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Speaker 1: was working as a broker to giving you insight of, Hey,

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Speaker 1: here's how this stuff really works.

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Speaker 2: Very important, very I mean you really saw the inner workings.

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Speaker 2: You know, how the sausage is made, as they say,

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Speaker 2: And so I would see how the over the counter desk,

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Speaker 2: over the counterstock desk would push stocks and you know,

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Speaker 2: encourage brokers to sell them, put a lot of commission

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Speaker 2: in them to move them because some big seller was

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Speaker 2: coming into the market. And you know, it just struck me.

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Speaker 2: There were a couple of things about it that I

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Speaker 2: just kept seeing how it really was. The customer was

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Speaker 2: not being put first, and there were, of course the

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Speaker 2: conflicted analysts that I then wrote about years later. I

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Speaker 2: saw that firsthand and was, you know, my customers were

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Speaker 2: harmed by that as well.

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Speaker 1: So let's put a little sunshine. Let's put a little

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Speaker 1: lipstick on this pig here it is. It's forty years later,

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Speaker 1: the fiduciary side of the street, which was tiny in

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Speaker 1: the eighties, is now not only large, but one of

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Speaker 1: the fastest growing segments. While we're not even remotely close

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Speaker 1: to gender parody, it's certainly better than it was.

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Speaker 2: It's better than it was to spare. You don't have

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Speaker 2: strippers coming in for people's birthday parties like I saw

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Speaker 2: when I was a broker.

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Speaker 1: Okay, unbelievable.

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Speaker 2: Yeah, yeah, I saw it with my own eyes.

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Speaker 1: I tell people who are the younger guys in the office,

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Speaker 1: go watch boiler Room, go watch Wolf of Wall Street.

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Speaker 1: They it's cinema verite. It just rings so and that

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Speaker 1: world is gone. It's like the bad part. It's good

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Speaker 1: that it's gone. But there were some good aspects of that,

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Speaker 1: Like there were training programs. They taught people what's a stock,

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Speaker 1: what's a bond. They used to do that at the

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Speaker 1: bigger firms. Those are like tiny classes. Now, oh really,

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Speaker 1: they don't do that anymore. Yeah, they do it, but

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Speaker 1: just not what it was. So around the same time

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Speaker 1: you transition from Wall Street to journalism, the LBL boom

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Speaker 1: starts to take off. It becomes all the rage. What

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Speaker 1: were you thinking at the time, Hey, I'm gonna write

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Speaker 1: a book in forty years or were you thinking this

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Speaker 1: is interesting or here comes problems? How did you see

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Speaker 1: it back then?

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Speaker 2: Back then? You know, it really just looked like a

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Speaker 2: very reasonable response to a decade or so of undervalued stocks,

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Speaker 2: right the nineteen seventies stocks were in the tank, you know,

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Speaker 2: the death of equities, you remember to cover, and so

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Speaker 2: it looked like it was really a pretty reasonable reaction

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Speaker 2: to what had been years of undervalue in the stock market.

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Speaker 2: So the initial phase of LBOs were not as not

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Speaker 2: as pernicious as they are now because they were actually

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Speaker 2: taking over companies that had value. You know, they're sitting

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Speaker 2: there in the stock price that you could see, like

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Speaker 2: you mentioned the seven price earnings ratio. Yeah, so it

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Speaker 2: really was a little it was reasonable, It made sense.

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Speaker 2: It was a natural kind of outcome of what had

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Speaker 2: happened before.

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Speaker 1: So we're going to talk a lot more about the book.

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Speaker 1: These are the plunderers, but I have to mention the

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Speaker 1: run of names that you really focus on in the book.

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Speaker 1: These obviously aren't all of private equity. There's a whole

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Speaker 1: lot hundreds of other companies, but Apollo, Blackstone, Carlisle and

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Speaker 1: KKR really seems to be the key focus. Is it

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Speaker 1: their size, their sector, the way they practice their business?

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Speaker 1: What led you to those four?

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Speaker 2: Well, it's their size first, Barry. I mean, these are

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Speaker 2: the leaders of the pack. These are the folks that

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Speaker 2: and the firms that set the tone, lead the way

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Speaker 2: other people mimic them. I mean, KKR was behind the

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Speaker 2: big Cahuna deal of the nineteen late nineteen eighties, r

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Speaker 2: j R Nibisco. So this is a group of firms

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Speaker 2: and people that really were there at the creation of

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Speaker 2: what we now call private equity, and they do it

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Speaker 2: in such size and in such scope that they have

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Speaker 2: enormous impact. And that's why we're focusing on them. Yes,

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Speaker 2: there are many, many private equity firms, but these really

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Speaker 2: are the folks who set the tone.

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Speaker 1: And you mentioned barbarians at the Gate in the book,

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Speaker 1: which focused on the KKR takeover of RJR Nimbisco. That

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Speaker 1: was sort of unfathomable at the time that someone could

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Speaker 1: buy a giant publicly traded company strictly with low cost debt.

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Speaker 1: Did that change the game going forward at that Once

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Speaker 1: r J or Nabisco was in play, does that mean

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Speaker 1: anybody is in play? How did that affect what took

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Speaker 1: place over the next few decades.

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Speaker 2: Yeah, and it also concerned Congress, as you remember, they

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Speaker 2: had hearings about it. I mean, it was such a

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Speaker 2: gargantuan deal at the time that it really made a

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Speaker 2: lot of people nervous. And you know, there were studies

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Speaker 2: done about what these deals would mean for workers, for pensions,

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Speaker 2: and it really was sort of the beginning of questioning

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Speaker 2: what the impact of these deals would be. But they

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Speaker 2: just kept going, kept going, and there really was a

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Speaker 2: sense during the late eighties, especially after the crash of

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Speaker 2: nineteen eighty seven, that we really don't want to meddle

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Speaker 2: with this. Let's just let the market take its course.

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Speaker 2: In fact, I think Secretary of the Treasury at the

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Speaker 2: time said the Mark it will, you know, work out

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Speaker 2: these things and they will not become a problem.

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Speaker 1: Yeah, the market always works these things out eventually, but

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Speaker 1: that eventually can take longer right then expected. You mentioned

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Speaker 1: they had a big impact, and they had a large

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Speaker 1: effect that they also generated a lot of fees and

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Speaker 1: a lot of moneies. What were the dollars like for

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Speaker 1: these mega deals like r j AR Nibisco.

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Speaker 2: Well, at the time, it sounded big but if you

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Speaker 2: look back on it now, I don't know. I think

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Speaker 2: there was there's a number we have in the book,

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Speaker 2: maybe seventy million dollars or something in fees tokake care.

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Speaker 2: I mean, that's like not even around the right, that's

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Speaker 2: pocket chat, that's not that's walking around money.

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Speaker 1: Right.

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Speaker 2: So, you know, it's just gotten so so so much

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Speaker 2: bigger erys as you know, the markets and the capitol

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Speaker 2: pools have gotten so much bigger.

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Speaker 1: Well we'll talk a little bit later about how as

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Speaker 1: these companies got bigger, Wall Street got bigger, and it's

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Speaker 1: kind of created a void underneath. But it's really really

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Speaker 1: interesting to see where all this began at a time

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Speaker 1: and when nobody really wanted a lot of these companies.

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Speaker 1: They were some of these firms were, you know, all

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Speaker 1: but left for debt. So you start the book with

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Speaker 1: the line that kind of cracked me up. Let the

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Speaker 1: looting begin. So let's start there. Where did this all begin?

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Speaker 1: And when did it move from hey, we're going to

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Speaker 1: help finance these companies that can't seem to get finance

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Speaker 1: to full on piracy and looting.

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Speaker 2: Well, there are a couple of things that happen early

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Speaker 2: on that sort of you see the beginnings of that.

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Speaker 2: These are that these takeovers are not only designed to

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Speaker 2: find companies that are maybe undervalued or underperforming, we can

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Speaker 2: whip them into shape and then sell them later. That

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Speaker 2: while they're doing that, while they're monitoring them, while they

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Speaker 2: are looking at them, streamlining them, you know, improving their operations,

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Speaker 2: there are a lot of fees to be extracted from

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Speaker 2: these companies. So for starters, private equity firms will often

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Speaker 2: put people on the company's board, and sometimes those board

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Speaker 2: memberships will deliver earnings to those board members. Okay, you

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Speaker 2: also had this thing called monitoring fees, where a company

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Speaker 2: that was purchased by a private equity fund or firm

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Speaker 2: would have to pay the firm fees for its monitoring,

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Speaker 2: for its oversight, for its management expertise that it was

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Speaker 2: providing to the company. Now, that makes sense because you know,

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Speaker 2: they took over the company. There's presumably plus they're presumably

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Speaker 2: very good at managing, and they know what they're doing,

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Speaker 2: and they have a goal of selling it, you know,

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Speaker 2: at a profit later. However, the monitoring fees had this

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Speaker 2: really kind of abusive element to them. They typically structured

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Speaker 2: as ten year contracts, so the company would agree to

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Speaker 2: pay over ten years a certain amount of monitoring fees

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Speaker 2: every year to the private equity.

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Speaker 1: Firm, regardless of profitability or.

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Speaker 2: Oh yes, no, it was absolutely de rigor. They did

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Speaker 2: it every year top line. So if the private equity

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Speaker 2: firm sold the company after five years, the company still

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Speaker 2: had to pay, still had to cough up the remaining

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Speaker 2: five year contractual obligation of paying those monitorings.

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Speaker 1: Now, wouldn't that just whoever's a purchaser knows this is happening.

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Speaker 1: Doesn't that just lower the cost the purchase price by

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Speaker 1: that much? Maybe it's a liaity on the books, but.

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Speaker 2: Still it goes to these people. It is money for nothing.

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Speaker 1: It's good to be the case.

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Speaker 2: They are not doing the monitoring, and yet they're being

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Speaker 2: paid to do the monitoring.

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Speaker 1: So there are other fees like that that just sort

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Speaker 1: of away at the stability of a company.

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Speaker 2: Well I think I'm trying to think, oh well, okay, Well,

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Speaker 2: first of all, the big fee that really ends up

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Speaker 2: and this is not a fee to the private equity firm.

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Speaker 2: But the big problem with many of these deals is

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Speaker 2: the debt interest costs. Okay, so when the private equity

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Speaker 2: firm takes over a company, they pile on a lot

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Speaker 2: of debt on the company. It's expenses increase dramatically to

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Speaker 2: pay those debt expenses, and oftentimes the companies will extract

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Speaker 2: the firms, I mean, will extract money in the form

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Speaker 2: of what's called dividend recapitalizations. They will load the company

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Speaker 2: with debt and then they'll take money out almost immediately,

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Speaker 2: and that's just kind of a way of stripping the

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Speaker 2: company of well.

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Speaker 1: In other words, when you say that they load the

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Speaker 1: company with debt, they're borrowing a lot of capital. So

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Speaker 1: now the company is sitting with this cash with an

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Speaker 1: offsetting liability, meaning the company that's been purchased and the

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Speaker 1: pe owner slash manager will take fees out of that.

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Speaker 2: Well, they take the dividend recapitalization, meaning that they take

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Speaker 2: a portion of what debt they've raised in cash for

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Speaker 2: themselves as a payout to themselves.

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Speaker 1: And who's lending this money to the company.

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Speaker 2: The banks could be Wall Street, could be private debt folks, but.

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Speaker 1: It's this is very often securitized and sold off into

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Speaker 1: the market.

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Speaker 2: It can be collateralized loan obligations. Now it's big private debt.

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Speaker 2: But so you had these dividend recaps. In two thousand

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Speaker 2: and seven, firms extracted the private equity firms extracted twenty

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Speaker 2: billion dollars from companies in the form of dividend recapitalizations,

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Speaker 2: and by twenty twenty one they were extracting seventy billion

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Speaker 2: in div and recapitalizations. Now that's money that a company

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Speaker 2: has to pay back, right the debt that was raised

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Speaker 2: to cover it.

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Speaker 1: And it's not going into what the company's doing.

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Speaker 2: And it's not going into the company's operations, and it

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Speaker 2: has an interest cost associated with it. So that's another

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Speaker 2: piece of the puzzle that I think is worth.

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Speaker 1: So we talked earlier about RJ or Nibisco. When you

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Speaker 1: look at the history of the eighties and even nineties

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Speaker 1: era LBOs, they seem to be a lot of lesser known,

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Speaker 1: not necessarily consumer facing companies, transport and logistics and manufacturing

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Speaker 1: like r JR is kind of one of the first

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Speaker 1: names that the average person would know. How did that

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Speaker 1: transition take place? What were most of the eighties era

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Speaker 1: LBOs focused on. These were really way under the radar

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Speaker 1: sort of things. It's only later, or at least in

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Speaker 1: the book you described that it's only later that it's

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Speaker 1: household brands and retailers and names we know. Explain that

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Speaker 1: a little bit if you would.

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Speaker 2: Well, I think what was going on again we talked

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Speaker 2: a little bit about this earlier, is that these were

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Speaker 2: the companies that were most undervalued. Remember, we were coming

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Speaker 2: out of a very bad recession, and so probably what

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Speaker 2: you had at that time, or you know, the industrial

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Speaker 2: companies were the ones that were harmed, you know, very

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Speaker 2: very much by the recession, and so their price earnings

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Speaker 2: ratios were probably below the S and P average of seven,

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Speaker 2: and so that might have been why they were taking

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Speaker 2: over and focusing more on them. But again, as this

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Speaker 2: practice and process sort of morphed into something else, it

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Speaker 2: became more about some of the big name companies that

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Speaker 2: you know. Now. A big pivotal moment was when the

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Speaker 2: junk bond market crashed in the early nineties. This was

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Speaker 2: after the SNL crisis. SNL's had been persued to buy

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Speaker 2: a lot of junk bonds. The market turned. Milkin and

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Speaker 2: Drexel Burnham collapsed and failed. So you had this huge

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Speaker 2: market maker and junk bonds disappear. Junk bond market went

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Speaker 2: really into the toilet, and that also then created a

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Speaker 2: lot of distress in the market for companies that had

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Speaker 2: borrowed from the junk bond market, and now you had

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Speaker 2: those companies trading at very low prices. So again it

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Speaker 2: was a distress situation that these companies took advantage of.

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Speaker 1: So how do you draw a distinction between LBO brands

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Speaker 1: of private equity, the thing that some people call vulture capitalism,

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Speaker 1: and credible mid market banking and merchant banking that is

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Speaker 1: really one of the few sources of capital for these

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Speaker 1: mid sized companies. Given that Wall Street started chasing all

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Speaker 1: the big.

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Speaker 2: Firms, Well, I think you know, there is a right

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Speaker 2: way and the wrong way to do this business, and

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Speaker 2: certainly there are many firms doing the right thing. As

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Speaker 2: far as what that might mean, Okay, less debt. Okay,

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Speaker 2: the debt that is levied onto these companies is can

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Speaker 2: be very damaging. And right now, Barry, we're going through

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Speaker 2: a period of rising interest rates and companies are experiencing

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Speaker 2: distress because much of this debt is floating, it's not fixed.

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Speaker 2: And so what you need to remember is that the

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Speaker 2: costs associated with borrowing money as a company when interest

391
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Speaker 2: rates are zero is a different story than when interest

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Speaker 2: rates are five so that is a huge part of

393
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Speaker 2: the puzzle. So how about putting a little more equity

394
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Speaker 2: into these deals instead of so much debt. How about

395
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Speaker 2: putting more of your own skin in the game kind

396
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Speaker 2: of a thing. And I think, you know, the massive

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Speaker 2: layoffs that often occur her are very detrimental. I think

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Speaker 2: that the asset stripping that has also occurred. Pensions, for instance,

399
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Speaker 2: are sold off. Overfunded pensions get sold off and that goes,

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Speaker 2: you know, into the private equity firm instead of into

401
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Speaker 2: the company itself. So I think you can avoid some

402
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Speaker 2: of these practices very easily. You don't maybe get the

403
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Speaker 2: returns that you do when you have all those pieces

404
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Speaker 2: of the puzzle in place. But I think right now

405
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Speaker 2: we have to think about this as is it a

406
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Speaker 2: sustainable business model that you fire a lot of workers,

407
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Speaker 2: that you strip pensions and health benefits, that you levy

408
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Speaker 2: the debt on these companies, and that you want to

409
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Speaker 2: sell them in five years, which is short termism you

410
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Speaker 2: know that we often sort of deplore in the stock market.

411
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Speaker 2: Is that is that really a business model that can

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Speaker 2: work for the long haul.

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Speaker 1: So when private equity really was ramping up in the

414
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Speaker 1: eighties and nineties. It was essentially an institutional allocation. This

415
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Speaker 1: wasn't a mom and pop investment. Today that's changed. It's

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Speaker 1: really attracting a lot of retail dollars. How is that

417
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Speaker 1: working out?

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Speaker 2: Well, you know, it's interesting. For years decades, as you say,

419
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Speaker 2: this was a investing strategy that was limited to sophisticated investors,

420
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Speaker 2: you know, high network individuals, people who could you know,

421
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Speaker 2: take it stand the fact that it's opaque, that it

422
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Speaker 2: has high fees, that it is you know, not quite

423
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Speaker 2: as investing in an S and P five hundred stock

424
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Speaker 2: fund and not that simple. But now it is encroaching

425
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Speaker 2: onto the mom and pop in four O one k's

426
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Speaker 2: the Labor Department under Donald Trump did open the door

427
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Speaker 2: for private equity to get into for a one case.

428
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Speaker 2: It had been prevented, had been barred from that before

429
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Speaker 2: because of this fiduciary duty idea and also because of

430
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Speaker 2: the opacity of these instruments. But so yes, you have

431
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Speaker 2: it starting to seep into what we might call the

432
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Speaker 2: high net worth retail market. You know, some of these

433
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Speaker 2: the Blackstone b reat is a perfect example of that.

434
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Speaker 2: That's a real estate investment trust that is a Blackstone entity,

435
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Speaker 2: and it has really done a lot to attract the

436
00:25:34,840 --> 00:25:38,960
Speaker 2: kind of high net worth retail customers into that. So,

437
00:25:39,520 --> 00:25:42,239
Speaker 2: you know, I think the private equity sees this as

438
00:25:42,240 --> 00:25:49,120
Speaker 2: an opportunity because they're not really growing the institutional aspect

439
00:25:49,119 --> 00:25:52,440
Speaker 2: of their business. Pension funds perhaps maybe aren't growing as

440
00:25:52,480 --> 00:25:54,879
Speaker 2: much as they need them to, and so this is

441
00:25:54,960 --> 00:25:56,440
Speaker 2: a ripe market for them.

442
00:25:56,720 --> 00:26:00,320
Speaker 1: Yeah, clearly four oh one K is now much estra

443
00:26:00,359 --> 00:26:08,200
Speaker 1: growing part of the allocation landscape then, either direct benefits

444
00:26:08,280 --> 00:26:11,960
Speaker 1: or pensions that that, if anything, that side of the

445
00:26:11,960 --> 00:26:16,840
Speaker 1: street is treating shrinking dramatically. Let's talk about some of

446
00:26:16,880 --> 00:26:21,160
Speaker 1: the new areas that private equity seems to be playing

447
00:26:21,200 --> 00:26:26,119
Speaker 1: in the book talks about emergency care and er rooms

448
00:26:26,160 --> 00:26:32,600
Speaker 1: that have been privatized. I always think of er and

449
00:26:32,680 --> 00:26:37,199
Speaker 1: those sort of emergency services as a service as a

450
00:26:37,240 --> 00:26:41,440
Speaker 1: community good, not a for profit model. Am I naive

451
00:26:41,560 --> 00:26:46,720
Speaker 1: and not realizing we could monetize emergencies or should this

452
00:26:46,960 --> 00:26:52,159
Speaker 1: be kept out of private asset allocators hands?

453
00:26:52,280 --> 00:26:56,399
Speaker 2: This is a really really crucial question for the whole

454
00:26:56,440 --> 00:27:00,240
Speaker 2: private equity industry. Now they have seized on healthcare as

455
00:27:00,280 --> 00:27:04,840
Speaker 2: a huge industry to really dive into to invest in

456
00:27:05,040 --> 00:27:07,760
Speaker 2: and you know why that is because it's seventeen percent

457
00:27:07,920 --> 00:27:13,120
Speaker 2: of gross domestic products. So it's a big, big pool, okay,

458
00:27:13,200 --> 00:27:16,560
Speaker 2: of potential money. So you have private equity rolling up

459
00:27:16,600 --> 00:27:21,439
Speaker 2: doctors practices, you have private equity going into dermatology practices,

460
00:27:21,840 --> 00:27:28,040
Speaker 2: imaging MRI Mriyes, anesthesiology is another big one, and yes,

461
00:27:28,119 --> 00:27:34,159
Speaker 2: emergency departments. Emergency departments is another. And the difficulty with

462
00:27:34,520 --> 00:27:39,040
Speaker 2: healthcare is that you are not supposed to put profits

463
00:27:39,160 --> 00:27:40,720
Speaker 2: ahead of patients.

464
00:27:40,760 --> 00:27:43,479
Speaker 1: So let's talk about hospitals. I don't understand how all

465
00:27:43,560 --> 00:27:47,720
Speaker 1: these not for profit hospitals get purchased and rolled up

466
00:27:48,080 --> 00:27:51,440
Speaker 1: into a chain of not for profit hospitals that are

467
00:27:51,800 --> 00:27:57,840
Speaker 1: managed for profitability. That seems to be, you know, counterintuitive.

468
00:27:57,960 --> 00:27:59,240
Speaker 1: Tell us a little bit about what's.

469
00:27:59,080 --> 00:28:02,280
Speaker 2: Going on now we're really talking about, Perry, is the

470
00:28:03,280 --> 00:28:08,880
Speaker 2: staffing companies that staff the hospitals. Okay, So private equity

471
00:28:08,920 --> 00:28:12,679
Speaker 2: is not buying the emergency departments. What private equity is

472
00:28:12,680 --> 00:28:15,640
Speaker 2: doing is operating the emergency departments.

473
00:28:15,720 --> 00:28:18,600
Speaker 1: Similar hotels operate for the hospital.

474
00:28:18,920 --> 00:28:22,040
Speaker 2: Okay. And it's like any staffing company. You know, you're

475
00:28:22,080 --> 00:28:24,720
Speaker 2: a big whatever, you hire a staff and company to

476
00:28:24,960 --> 00:28:28,280
Speaker 2: help you find people. Okay, So there are two major

477
00:28:28,320 --> 00:28:32,040
Speaker 2: players in emergency departments. One is Team Health and the

478
00:28:32,080 --> 00:28:35,679
Speaker 2: other is in Vision. Envision is owned by KKR and

479
00:28:35,760 --> 00:28:40,200
Speaker 2: Team Health is Blackstone, and they control and other smaller

480
00:28:40,240 --> 00:28:45,480
Speaker 2: private equity firms control forty percent of the nation's emergency departments.

481
00:28:46,160 --> 00:28:49,520
Speaker 2: Now you don't know this. When you go to the

482
00:28:49,560 --> 00:28:54,200
Speaker 2: emergency department, the hospital hires them. Of course, they say

483
00:28:54,240 --> 00:28:57,680
Speaker 2: to the hospital, we're going to improve your profitability. We're

484
00:28:57,680 --> 00:29:00,600
Speaker 2: going to help you, you know, make more money. We're

485
00:29:00,600 --> 00:29:04,800
Speaker 2: gonna you know, they'll say, improve patient care. But the

486
00:29:04,880 --> 00:29:08,000
Speaker 2: doctors that I have spoken to in emergency medicine say

487
00:29:08,040 --> 00:29:11,080
Speaker 2: that's absolutely not the case. That when the private equity

488
00:29:11,080 --> 00:29:14,680
Speaker 2: firms come in, they tell them how to do their business,

489
00:29:14,720 --> 00:29:18,240
Speaker 2: They tell them how to code for patient billings.

490
00:29:18,360 --> 00:29:21,440
Speaker 1: Well, they're medical experts, aren't they private equity. Don't they

491
00:29:21,520 --> 00:29:23,720
Speaker 1: have a specialty in emergency care?

492
00:29:24,040 --> 00:29:25,120
Speaker 2: I know, I think they have.

493
00:29:25,720 --> 00:29:27,600
Speaker 1: They have a special so they're financers.

494
00:29:27,600 --> 00:29:30,680
Speaker 2: I'm sorry, Yes, they have a specialty financing.

495
00:29:30,960 --> 00:29:33,520
Speaker 1: But and you know, this is a horrife. I have

496
00:29:33,600 --> 00:29:35,840
Speaker 1: to tell you. I don't have problem with private equity

497
00:29:35,840 --> 00:29:39,680
Speaker 1: pushing into real estate and other areas, but emergency rooms

498
00:29:40,120 --> 00:29:41,480
Speaker 1: seems if.

499
00:29:41,360 --> 00:29:44,640
Speaker 2: You're talking about you know, the coffee and donut, you know,

500
00:29:44,840 --> 00:29:47,440
Speaker 2: the private equity owns. Okay, if you don't like the

501
00:29:47,440 --> 00:29:50,160
Speaker 2: coffee and the donut, you'll go somewhere else. But if

502
00:29:50,200 --> 00:29:53,000
Speaker 2: you're in need of an emergency department and this is

503
00:29:53,040 --> 00:29:55,800
Speaker 2: the only one in your town and you have to

504
00:29:55,800 --> 00:29:59,720
Speaker 2: go there and it's run by a private equity firm

505
00:29:59,760 --> 00:30:03,600
Speaker 2: that is putting profits ahead of patients, that's a problem.

506
00:30:03,720 --> 00:30:08,280
Speaker 1: And this has become very big, not necessarily in big cities,

507
00:30:08,720 --> 00:30:12,160
Speaker 1: but in the South, in rural areas, in places that

508
00:30:12,400 --> 00:30:16,960
Speaker 1: have very limited healthcare options and a shortage of doctors.

509
00:30:17,360 --> 00:30:20,440
Speaker 1: It's not like there's the option of saying, oh, I

510
00:30:20,480 --> 00:30:24,080
Speaker 1: don't like Southwestern General, I'm going to go to Northeastern

511
00:30:24,160 --> 00:30:27,920
Speaker 1: General and that's a better emergency room. This is usually

512
00:30:28,920 --> 00:30:30,240
Speaker 1: one of the only games in town.

513
00:30:30,320 --> 00:30:34,120
Speaker 2: Is absolutely. Absolutely rural hospitals have really been hit by

514
00:30:34,160 --> 00:30:37,720
Speaker 2: this practice. The other thing very is that they don't

515
00:30:37,720 --> 00:30:40,320
Speaker 2: put the name on the door now over the emergency department.

516
00:30:40,360 --> 00:30:43,240
Speaker 2: They don't say Team Health is here, or they don't

517
00:30:43,280 --> 00:30:47,239
Speaker 2: say Envision or KKR or Blackstone is running this, And

518
00:30:47,320 --> 00:30:50,720
Speaker 2: so try to find out if your emergency department is

519
00:30:50,840 --> 00:30:53,920
Speaker 2: run by one of these companies. It's very difficult to

520
00:30:53,960 --> 00:30:58,920
Speaker 2: do so again, it's opaque. Again, the consumer does not

521
00:30:59,200 --> 00:31:01,960
Speaker 2: know that this is happening. And so much of what

522
00:31:02,040 --> 00:31:05,120
Speaker 2: private equity has taken over is kind of like this

523
00:31:05,240 --> 00:31:08,200
Speaker 2: a stealth takeover because they don't put their names on

524
00:31:08,200 --> 00:31:08,560
Speaker 2: the door.

525
00:31:08,680 --> 00:31:12,800
Speaker 1: So let's talk about senior living. Since when are old

526
00:31:12,840 --> 00:31:15,600
Speaker 1: folks homes? A profit center? Tell us about that?

527
00:31:16,200 --> 00:31:21,240
Speaker 2: This is perhaps the biggest crisis I think, and it

528
00:31:21,440 --> 00:31:26,680
Speaker 2: really became very evident in a twenty twenty one study

529
00:31:27,120 --> 00:31:32,040
Speaker 2: by academics I think University of Chicago, you pen NYU

530
00:31:32,640 --> 00:31:37,080
Speaker 2: that studied long term mortality at nursing homes that were

531
00:31:37,360 --> 00:31:40,720
Speaker 2: owned by private equity and compared that with nursing homes.

532
00:31:40,800 --> 00:31:43,840
Speaker 1: There's so much more efficient. Their mortality rates have to

533
00:31:43,840 --> 00:31:45,080
Speaker 1: be much better, right.

534
00:31:45,400 --> 00:31:48,360
Speaker 2: There's so much more efficient because maybe they hire fewer

535
00:31:48,400 --> 00:31:51,880
Speaker 2: people to take care of the residents, that the mortality

536
00:31:51,960 --> 00:31:55,200
Speaker 2: rate is higher, the mortality a little higher. Ten percent.

537
00:31:55,560 --> 00:31:57,640
Speaker 1: Really, that's a big number.

538
00:31:57,640 --> 00:32:01,920
Speaker 2: Ten percent. And so these academics found that there were

539
00:32:01,960 --> 00:32:08,480
Speaker 2: twenty thousand lives that they said were lost because at

540
00:32:08,560 --> 00:32:13,520
Speaker 2: private equity owned nursing homes, nursing facilities, and so you

541
00:32:13,600 --> 00:32:17,960
Speaker 2: have the situation the academic said, where the focus, the

542
00:32:18,000 --> 00:32:21,880
Speaker 2: extreme focus on cost cutting meant lower staffs meant you know,

543
00:32:22,080 --> 00:32:27,000
Speaker 2: lesser care essentially translated to lesser care. And this was

544
00:32:27,160 --> 00:32:31,880
Speaker 2: just a striking, striking study of the difference between and

545
00:32:31,960 --> 00:32:35,280
Speaker 2: they were comparing it to other for profit nursing homes.

546
00:32:35,320 --> 00:32:40,240
Speaker 2: So this was not just for profit versus nonprofit. This

547
00:32:40,400 --> 00:32:43,720
Speaker 2: was private equity for profit and nonprofit.

548
00:32:43,880 --> 00:32:48,040
Speaker 1: How did private equity healthcare, senior living nursing homes eers

549
00:32:48,080 --> 00:32:51,200
Speaker 1: hospitals do during the COVID pandemic.

550
00:32:51,480 --> 00:32:53,800
Speaker 2: Well, they did very well because they got a lot

551
00:32:53,840 --> 00:32:56,760
Speaker 2: of cares Act money from the government.

552
00:32:56,960 --> 00:33:01,120
Speaker 1: I mean, how did the care itself, how did they

553
00:33:01,560 --> 00:33:03,960
Speaker 1: perform during the pandemic?

554
00:33:04,400 --> 00:33:11,040
Speaker 2: Well, as you know, healthcare was a disaster, and partly

555
00:33:11,080 --> 00:33:15,840
Speaker 2: because we were so unprepared for the pandemic. And I

556
00:33:15,880 --> 00:33:18,360
Speaker 2: would argue Barry that one of the reasons we were

557
00:33:18,400 --> 00:33:23,360
Speaker 2: so unprepared was because healthcare had been a focus of

558
00:33:23,360 --> 00:33:27,400
Speaker 2: private equity since really the mid two thousands. Okay, so

559
00:33:28,560 --> 00:33:33,280
Speaker 2: HCA perfect example, that's a company that went private in

560
00:33:33,360 --> 00:33:38,320
Speaker 2: an LBO. And so what you had is these firms,

561
00:33:38,400 --> 00:33:41,440
Speaker 2: again focusing on cost cutting, and so they were not

562
00:33:41,840 --> 00:33:49,800
Speaker 2: likely to you know, stockpile ppe masks to buy ventilators

563
00:33:49,840 --> 00:33:52,880
Speaker 2: to prepare for a pandemic, and inform.

564
00:33:52,720 --> 00:33:53,880
Speaker 1: That's the full cost money.

565
00:33:54,520 --> 00:33:57,360
Speaker 2: That costs money, and it's money that sits on a shelf.

566
00:33:57,480 --> 00:33:59,880
Speaker 2: And these guys don't like money sitting on a shelf.

567
00:34:00,440 --> 00:34:03,200
Speaker 2: And so you know, you have this. You actually had

568
00:34:03,200 --> 00:34:07,280
Speaker 2: a study in Congress that had, you know, what might

569
00:34:07,360 --> 00:34:10,799
Speaker 2: happen if we were to experience a pandemic, and it's

570
00:34:10,960 --> 00:34:13,080
Speaker 2: this is back in two thousand and five or six,

571
00:34:13,320 --> 00:34:16,400
Speaker 2: and it said we need to stockpile more than you

572
00:34:16,400 --> 00:34:17,160
Speaker 2: know when.

573
00:34:17,080 --> 00:34:19,560
Speaker 1: You had the Gate study in what twenty fifteen saying

574
00:34:19,600 --> 00:34:22,719
Speaker 1: the same thing, just in time. Inventory doesn't work during

575
00:34:22,760 --> 00:34:25,120
Speaker 1: a pandemic. You can't get things. It turned out to

576
00:34:25,160 --> 00:34:26,680
Speaker 1: be very accurate, right.

577
00:34:26,480 --> 00:34:29,480
Speaker 2: And so, but all those years leading up to twenty twenty,

578
00:34:29,560 --> 00:34:32,920
Speaker 2: when the whole you know, world collapsed in March, all

579
00:34:32,960 --> 00:34:35,440
Speaker 2: those years leading up to it, we had kind of

580
00:34:35,520 --> 00:34:42,800
Speaker 2: a draining of healthcare, a bleeding of healthcare companies because

581
00:34:43,600 --> 00:34:46,280
Speaker 2: getting the fat out, cutting the costs down.

582
00:34:46,520 --> 00:34:49,160
Speaker 1: So I'm going to ask you a question now, but

583
00:34:49,280 --> 00:34:53,480
Speaker 1: it applies to insurance also, which we haven't we'll talk

584
00:34:53,520 --> 00:34:59,080
Speaker 1: about in a minute, But there are regulatory agencies at

585
00:34:59,080 --> 00:35:02,760
Speaker 1: the federal level. Well, every state has a medical board.

586
00:35:03,800 --> 00:35:08,520
Speaker 1: How does this sort of four care profit with a

587
00:35:08,640 --> 00:35:13,960
Speaker 1: much worse mortality rate and much worse health outcomes, how

588
00:35:14,000 --> 00:35:17,160
Speaker 1: do they get by the state regulators? It would you

589
00:35:17,200 --> 00:35:24,120
Speaker 1: would imagine that statewide regulatory medical boards wouldn't really tolerate this.

590
00:35:24,120 --> 00:35:27,279
Speaker 2: This is a sixty four trillion dollar question, Barry, and

591
00:35:27,560 --> 00:35:31,520
Speaker 2: I would love for you to ask every state attorney general,

592
00:35:31,560 --> 00:35:36,719
Speaker 2: for instance, why haven't you gone after for profit medicine.

593
00:35:37,280 --> 00:35:41,520
Speaker 2: There is there are statutes in more than thirty states

594
00:35:41,600 --> 00:35:46,560
Speaker 2: across the country that bar what's called the corporate practice

595
00:35:46,760 --> 00:35:50,600
Speaker 2: of medicine. And these laws came into effect, you know,

596
00:35:51,560 --> 00:35:54,240
Speaker 2: one hundred years ago when you had you know, quack

597
00:35:54,400 --> 00:35:57,799
Speaker 2: medicine show guys you know, out there selling you know,

598
00:35:57,960 --> 00:36:02,480
Speaker 2: crazy chures for everything, and they decided, these states decided

599
00:36:02,480 --> 00:36:07,000
Speaker 2: that you can't have profits potentially coming ahead of patient care.

600
00:36:07,400 --> 00:36:12,000
Speaker 2: And so doctors actually have to run these organizations. And

601
00:36:12,120 --> 00:36:17,440
Speaker 2: that is supposedly going to keep from a problem of

602
00:36:17,480 --> 00:36:22,000
Speaker 2: putting profits ahead of patients. But very very very few

603
00:36:22,640 --> 00:36:28,120
Speaker 2: state ags have enforced laws against the corporate practice of medicine.

604
00:36:28,800 --> 00:36:32,000
Speaker 2: And when they do bring cases. They are so tiny

605
00:36:32,120 --> 00:36:38,120
Speaker 2: and so minimalistic in the risk slap that they deliver

606
00:36:38,239 --> 00:36:40,560
Speaker 2: to these companies that it really is not even a

607
00:36:40,600 --> 00:36:43,840
Speaker 2: cost of doing business. And so it's just like, okay, fine,

608
00:36:43,880 --> 00:36:45,879
Speaker 2: I'll do it again and even bigger next time.

609
00:36:46,080 --> 00:36:51,200
Speaker 1: So let's talk insurance. The insurance policy stuff seems just

610
00:36:51,560 --> 00:36:58,680
Speaker 1: absolutely egregious. How did private equity step into the insurance area? Again?

611
00:36:59,040 --> 00:37:05,680
Speaker 1: A very heavy regulated industry with separate, very robust statewide

612
00:37:06,480 --> 00:37:09,600
Speaker 1: oversight panels and boards. What's going on in the world

613
00:37:09,600 --> 00:37:10,239
Speaker 1: of insurance.

614
00:37:11,160 --> 00:37:13,839
Speaker 2: Well, I'm very interested to hear you say. It's very

615
00:37:13,920 --> 00:37:15,680
Speaker 2: robust on the state side.

616
00:37:15,560 --> 00:37:19,480
Speaker 1: At least that's how it's presented. Talk to people who

617
00:37:19,560 --> 00:37:23,840
Speaker 1: try and get licensed to do insurance things, or if

618
00:37:23,880 --> 00:37:26,120
Speaker 1: there's a failure to pay out a policy in the

619
00:37:26,160 --> 00:37:33,920
Speaker 1: litigation that follows, there seems to be some options for policyholders,

620
00:37:35,080 --> 00:37:39,200
Speaker 1: especially if you have a receptive governor or a state

621
00:37:39,280 --> 00:37:43,600
Speaker 1: attorney general who can apply pressure through these insurance boards.

622
00:37:43,920 --> 00:37:46,640
Speaker 1: Although maybe I'm living in the past.

623
00:37:46,760 --> 00:37:49,160
Speaker 2: Well, I think it's spotty. Let's just say that there

624
00:37:49,200 --> 00:37:54,319
Speaker 2: are some states where the regulation is aggressive, but there

625
00:37:54,360 --> 00:37:57,160
Speaker 2: are a lot where it is not. And as you

626
00:37:57,239 --> 00:37:59,920
Speaker 2: might guess some of these companies flock to the one

627
00:38:00,360 --> 00:38:05,759
Speaker 2: to the states where the oversight is more of the minimalistic. Now,

628
00:38:05,880 --> 00:38:09,880
Speaker 2: the problem with insurance companies being owned by private equity

629
00:38:10,040 --> 00:38:13,359
Speaker 2: is that you can understand why they want to own

630
00:38:13,400 --> 00:38:17,480
Speaker 2: them because this is a pool of assets. It's a

631
00:38:17,520 --> 00:38:22,960
Speaker 2: pool of money that they can really generate immense profits on.

632
00:38:23,320 --> 00:38:29,200
Speaker 2: And it's unlike banks. It's not fast money or hot money.

633
00:38:29,440 --> 00:38:33,319
Speaker 2: It isn't likely to leave quickly berry like we've seen

634
00:38:33,360 --> 00:38:38,520
Speaker 2: in some of the recent bank problems. So insurance companies

635
00:38:38,640 --> 00:38:46,800
Speaker 2: are really huge pools of very stable money for these companies,

636
00:38:46,840 --> 00:38:51,759
Speaker 2: for these private equity companies. And it's interesting because you're

637
00:38:51,800 --> 00:38:58,680
Speaker 2: supposed to in insurance be very conservative and most I

638
00:38:58,719 --> 00:39:03,440
Speaker 2: think most people who buy insurance policies really would prefer

639
00:39:03,600 --> 00:39:08,480
Speaker 2: that they're ensure be a conservative entity that not taking risks.

640
00:39:08,520 --> 00:39:12,200
Speaker 2: We're not swinging for the fences here. You know. Yeah,

641
00:39:12,320 --> 00:39:15,400
Speaker 2: if I can get a higher yield, that's awesome, but

642
00:39:16,000 --> 00:39:18,480
Speaker 2: I really want to know that I'm going to get

643
00:39:18,480 --> 00:39:22,040
Speaker 2: a payout when it comes time for my claim. So

644
00:39:22,880 --> 00:39:27,040
Speaker 2: what these companies are doing is buying these insurance companies.

645
00:39:27,760 --> 00:39:32,320
Speaker 2: They're also buying up pension assets very So a corporation

646
00:39:32,600 --> 00:39:36,600
Speaker 2: has a pension, let's say it's Lockheed, Bristol Myers or

647
00:39:36,640 --> 00:39:41,520
Speaker 2: a couple, and the private equity firm will buy those

648
00:39:41,640 --> 00:39:47,040
Speaker 2: pension obligations. Lockheed or Bristol Myers gets it off their books,

649
00:39:47,200 --> 00:39:51,839
Speaker 2: they're happy. They transfer the risk that those obligations had

650
00:39:51,880 --> 00:39:56,840
Speaker 2: for them, and the private equity firm takes over that risk.

651
00:39:57,160 --> 00:40:00,920
Speaker 2: But now you don't have the pension benefit gearing corporation

652
00:40:01,560 --> 00:40:03,840
Speaker 2: backing you if the pension should fail.

653
00:40:04,160 --> 00:40:06,839
Speaker 1: So a company could just get out from under the

654
00:40:07,120 --> 00:40:10,120
Speaker 1: PBG by selling it to a third party.

655
00:40:10,239 --> 00:40:13,960
Speaker 2: Correct. It's called a pension risk transfer, and they have

656
00:40:14,040 --> 00:40:18,080
Speaker 2: been happening like crazy. And private equity firms are the

657
00:40:18,120 --> 00:40:20,719
Speaker 2: ones doing a lot of the pension risk transfers.

658
00:40:20,920 --> 00:40:21,840
Speaker 1: That's really interesting.

659
00:40:21,840 --> 00:40:25,000
Speaker 2: And so you have pensioners at Bristol Myers or Lockheed

660
00:40:25,200 --> 00:40:31,120
Speaker 2: or Cores as another who are really relying on private

661
00:40:31,160 --> 00:40:37,600
Speaker 2: equity to do the right thing for their pensions going forward,

662
00:40:37,880 --> 00:40:41,399
Speaker 2: for their retirement, for their payouts when they need them.

663
00:40:41,880 --> 00:40:44,760
Speaker 2: And that I think is something that we really don't

664
00:40:44,840 --> 00:40:49,879
Speaker 2: understand the entire nature of. And unfortunately we'll see we

665
00:40:50,000 --> 00:40:54,160
Speaker 2: may see some problems with rising interest rates if some

666
00:40:54,200 --> 00:40:57,280
Speaker 2: of the investments that these private equity firms have made

667
00:40:57,840 --> 00:41:01,480
Speaker 2: in their insurance companies start having problems.

668
00:41:01,520 --> 00:41:05,399
Speaker 1: Are these arms length investments meaning you manage this as

669
00:41:05,440 --> 00:41:08,839
Speaker 1: a fiduciary on behalf of the pensioner. You can't then

670
00:41:08,920 --> 00:41:13,760
Speaker 1: turn around and festoon that pension filled with whatever junk

671
00:41:13,760 --> 00:41:17,600
Speaker 1: paper you're selling to the street, or does that happen?

672
00:41:17,719 --> 00:41:21,319
Speaker 2: That does happen? Now, they do have to disclose in

673
00:41:21,440 --> 00:41:25,759
Speaker 2: their statutory filings with the insurance regulators how much of

674
00:41:25,920 --> 00:41:31,880
Speaker 2: their investment portfolio in the insurance company is related transactions

675
00:41:32,080 --> 00:41:37,040
Speaker 2: or related stocks or bonds or mortgages or whatever. So

676
00:41:37,080 --> 00:41:40,240
Speaker 2: they do have to disclose that. But I'm gonna guess

677
00:41:40,280 --> 00:41:43,080
Speaker 2: that very few people read those disclosures.

678
00:41:43,160 --> 00:41:48,239
Speaker 1: Huh. Quite interesting. Let's talk about the insurance deal of

679
00:41:48,239 --> 00:41:52,920
Speaker 1: the century. What's going on with Executive Life, What happened

680
00:41:52,960 --> 00:41:55,760
Speaker 1: there and how did that go off the rails.

681
00:41:56,280 --> 00:42:00,239
Speaker 2: Executive Life is where we start sort of the book,

682
00:42:00,400 --> 00:42:04,880
Speaker 2: because it was such a such a massive failure, and

683
00:42:05,000 --> 00:42:06,800
Speaker 2: of course it was coming at the time of the

684
00:42:06,880 --> 00:42:08,440
Speaker 2: junk bond collapse.

685
00:42:08,120 --> 00:42:13,920
Speaker 1: But this was a triple a highly regarded insurance company beforehand, this.

686
00:42:14,080 --> 00:42:17,240
Speaker 2: Was a highly rated insurance company had the highest rating,

687
00:42:18,560 --> 00:42:21,560
Speaker 2: but it was run by a guy who was kind

688
00:42:21,600 --> 00:42:23,360
Speaker 2: of what we used to call in the old days

689
00:42:23,400 --> 00:42:26,480
Speaker 2: a gunslinger. He was a guy who was more of

690
00:42:26,520 --> 00:42:30,239
Speaker 2: a risk taker than your average insurance company executive. And

691
00:42:30,360 --> 00:42:33,799
Speaker 2: he bought a ton of junk bonds from Drexel. He

692
00:42:34,000 --> 00:42:37,720
Speaker 2: was one of their top clients when they were selling,

693
00:42:37,840 --> 00:42:42,240
Speaker 2: you know, these bonds of slightly you know, lower quality, lesser, slightly,

694
00:42:42,880 --> 00:42:45,759
Speaker 2: lesser known companies. He was there to buy. Okay, so

695
00:42:46,160 --> 00:42:50,000
Speaker 2: his firm, his insurance company, had a ton of junk bonds,

696
00:42:50,040 --> 00:42:53,960
Speaker 2: and when that market turned it was dire.

697
00:42:54,440 --> 00:42:58,600
Speaker 1: So this was really separate from private equity. This was

698
00:42:58,760 --> 00:43:03,280
Speaker 1: just bad stud ward ship by an insurance executive who

699
00:43:03,440 --> 00:43:07,279
Speaker 1: should be conservative. And again the question where the regulators

700
00:43:07,360 --> 00:43:12,640
Speaker 1: when a conservative insurance company is buying junk I mean,

701
00:43:12,640 --> 00:43:14,680
Speaker 1: it's right there in the name. They don't even hide it,

702
00:43:15,160 --> 00:43:19,279
Speaker 1: junk bonds. What happened with the executive life they blow up?

703
00:43:19,760 --> 00:43:24,359
Speaker 2: They blow up. The Department of Insurance for the State

704
00:43:24,400 --> 00:43:28,640
Speaker 2: of California was at the time run by John Garrimndi,

705
00:43:28,719 --> 00:43:32,080
Speaker 2: who is now a representative in the House of Representatives

706
00:43:32,080 --> 00:43:37,560
Speaker 2: from California in Washington, and he was just brand new

707
00:43:37,560 --> 00:43:40,000
Speaker 2: in the job. It was a new elected position. Prior

708
00:43:40,040 --> 00:43:42,920
Speaker 2: to that it had been appointees of the government of governor.

709
00:43:43,000 --> 00:43:46,440
Speaker 1: But we have to run to ye to run that

710
00:43:46,520 --> 00:43:48,720
Speaker 1: could go right anyway.

711
00:43:48,800 --> 00:43:51,360
Speaker 2: So he won the big job, and the minute he

712
00:43:51,400 --> 00:43:53,920
Speaker 2: got in the door, it was, you know, junk bonds

713
00:43:53,920 --> 00:43:57,880
Speaker 2: were you know, cratering, and everybody was concerned about executive

714
00:43:57,880 --> 00:44:00,919
Speaker 2: life and would it be able to to pay its

715
00:44:01,000 --> 00:44:05,279
Speaker 2: policy holders, and so he seized the company. Now keep

716
00:44:05,280 --> 00:44:08,640
Speaker 2: in mind, Burry, that he seesed it probably at or

717
00:44:08,800 --> 00:44:12,840
Speaker 2: very near the bottom. Okay, So junk bonds were starting

718
00:44:12,840 --> 00:44:16,520
Speaker 2: to come back after he seized it. And so if

719
00:44:16,520 --> 00:44:20,960
Speaker 2: it had been worked out another way, it's possible, like

720
00:44:21,000 --> 00:44:25,239
Speaker 2: a reorganization, it's possible that the policy holders might not

721
00:44:25,280 --> 00:44:26,800
Speaker 2: have lost what they ended up losing.

722
00:44:27,040 --> 00:44:28,600
Speaker 1: What was the haircut the policy holder?

723
00:44:28,719 --> 00:44:30,960
Speaker 2: You know, it's still to this day we don't know,

724
00:44:31,320 --> 00:44:34,400
Speaker 2: but it certainly is in the three or four billion

725
00:44:34,480 --> 00:44:37,560
Speaker 2: dollar maybe.

726
00:44:37,320 --> 00:44:41,759
Speaker 1: Does that look like a third half a big chunk

727
00:44:41,800 --> 00:44:42,359
Speaker 1: though it was.

728
00:44:42,320 --> 00:44:44,440
Speaker 2: A big chunk for many people, you know, I mean

729
00:44:44,560 --> 00:44:47,280
Speaker 2: I know of some cases where it was forty percent

730
00:44:47,360 --> 00:44:51,360
Speaker 2: haircut for some policy holders. Right, it's very hard to

731
00:44:51,440 --> 00:44:54,000
Speaker 2: you know, getting numbers on this stuff. They really don't

732
00:44:54,000 --> 00:44:54,640
Speaker 2: want to help.

733
00:44:54,719 --> 00:44:57,880
Speaker 1: Tell us about the crazy rule that said, okay, now

734
00:44:57,920 --> 00:45:00,359
Speaker 1: we're going to shred all the documents related to this.

735
00:45:00,640 --> 00:45:01,279
Speaker 1: What the hell was that?

736
00:45:01,560 --> 00:45:04,960
Speaker 2: Well, okay, so let's just remember this happened in nineteen

737
00:45:05,000 --> 00:45:07,400
Speaker 2: ninety one. Okay, the insurance department took it over in

738
00:45:07,440 --> 00:45:12,960
Speaker 2: nineteen ninety one. Then we had Apollo Leon Black's new

739
00:45:13,000 --> 00:45:16,000
Speaker 2: firm after he flees from Drexel.

740
00:45:16,520 --> 00:45:21,719
Speaker 1: The record is burning Grexel collapse, Grexel collapse, which arguably

741
00:45:21,840 --> 00:45:24,520
Speaker 1: he didn't have anything to do with that was mostly Milkin's.

742
00:45:25,040 --> 00:45:27,520
Speaker 2: No, he was not in the junk bond area. He

743
00:45:27,600 --> 00:45:30,360
Speaker 2: was a corporate finance person, so he was raising money

744
00:45:30,360 --> 00:45:31,120
Speaker 2: for these companies.

745
00:45:31,160 --> 00:45:33,759
Speaker 1: So did he flee or did he just say, hey,

746
00:45:33,840 --> 00:45:35,480
Speaker 1: let's go launch our own Yeah, let's.

747
00:45:35,280 --> 00:45:37,319
Speaker 2: Go launch our own company, right, But I mean, it

748
00:45:37,440 --> 00:45:43,200
Speaker 2: was obviously a dire circumstance. So anyway, long story short,

749
00:45:43,560 --> 00:45:47,839
Speaker 2: he ends up getting a hold of this huge junk

750
00:45:47,880 --> 00:45:50,680
Speaker 2: bond portfolio, which was a lot of paper that he

751
00:45:50,760 --> 00:45:53,719
Speaker 2: had put into Fred Carr's that's the name of the

752
00:45:53,719 --> 00:45:58,640
Speaker 2: guy who ran Executive Life that paper that Apollo really

753
00:45:58,719 --> 00:45:59,520
Speaker 2: knew what it was.

754
00:45:59,719 --> 00:46:02,920
Speaker 1: They was a salesperson and a financer.

755
00:46:03,120 --> 00:46:06,040
Speaker 2: He was the finance guy, right, and so he knew

756
00:46:06,080 --> 00:46:08,400
Speaker 2: the numbers, he knew the companies, and so he knew

757
00:46:08,440 --> 00:46:12,279
Speaker 2: that they were just distressed and that they could be

758
00:46:12,360 --> 00:46:15,600
Speaker 2: restructured and reorganized. And so he buys this portfolio of

759
00:46:15,640 --> 00:46:16,239
Speaker 2: John so Way.

760
00:46:16,320 --> 00:46:19,520
Speaker 1: He's New York based, right, he's New York based and

761
00:46:19,840 --> 00:46:24,120
Speaker 1: executive life is in California. But because of the relationship

762
00:46:24,160 --> 00:46:29,520
Speaker 1: with Drexel, he approaches California and says, we'd like to

763
00:46:29,520 --> 00:46:31,600
Speaker 1: buy this junk paper or did they hold an auction?

764
00:46:31,880 --> 00:46:32,360
Speaker 1: How did it go?

765
00:46:32,560 --> 00:46:36,080
Speaker 2: Well, it was with a French bank. Actually they were

766
00:46:36,600 --> 00:46:40,600
Speaker 2: representing the bank. They were acting as the investment manager

767
00:46:40,719 --> 00:46:42,319
Speaker 2: for the bank, and so it was going to be

768
00:46:42,360 --> 00:46:46,520
Speaker 2: taken over by this French bank. But anyway, so the

769
00:46:46,560 --> 00:46:51,200
Speaker 2: Department of Insurance sold it, sold the company cheap to

770
00:46:51,560 --> 00:46:55,480
Speaker 2: on the cheap absolutely absolutely, and so the people that

771
00:46:55,560 --> 00:46:59,760
Speaker 2: bought it in this case, the French bank and Apollo

772
00:47:00,080 --> 00:47:03,440
Speaker 2: were able to ride the recovery of those junk bonds.

773
00:47:03,520 --> 00:47:07,600
Speaker 1: So when California sells this is there on behalf of

774
00:47:07,640 --> 00:47:11,120
Speaker 1: the policyholder, right, that's right? Is there any mandate? Hey,

775
00:47:11,160 --> 00:47:13,560
Speaker 1: you have to pay ninety cents on the dollar at least,

776
00:47:13,680 --> 00:47:18,799
Speaker 1: or or there any requirements. They're selling it inexpensively. What

777
00:47:18,960 --> 00:47:22,359
Speaker 1: riders is California attaching it to the new owners on

778
00:47:22,440 --> 00:47:26,280
Speaker 1: behalf of the people the California Insurance Board is supposed

779
00:47:26,280 --> 00:47:26,759
Speaker 1: to be operating on.

780
00:47:26,960 --> 00:47:30,040
Speaker 2: Well, California at the time said we think this is

781
00:47:30,040 --> 00:47:32,240
Speaker 2: a great deal. You're going to get at least ninety

782
00:47:32,280 --> 00:47:34,200
Speaker 2: cents on the dollar. Everybody is going to get at

783
00:47:34,280 --> 00:47:37,560
Speaker 2: least ninety cents on the dollar. And that is their story,

784
00:47:37,600 --> 00:47:40,120
Speaker 2: and they're sticking to that, and that's what they say.

785
00:47:40,160 --> 00:47:42,880
Speaker 1: They didn't require that as part of the purchase.

786
00:47:43,719 --> 00:47:46,399
Speaker 2: Well, that's what they said was going to happen as

787
00:47:46,440 --> 00:47:47,240
Speaker 2: part of the purchase.

788
00:47:47,239 --> 00:47:49,200
Speaker 1: I can't say all sorts of things. But until I

789
00:47:49,239 --> 00:47:52,160
Speaker 1: sign a contract that says I guarantee that I will

790
00:47:52,160 --> 00:47:55,440
Speaker 1: pay ninety cents out to each shareholder at a minimum,

791
00:47:55,880 --> 00:47:56,800
Speaker 1: it's just words.

792
00:47:57,000 --> 00:47:59,759
Speaker 2: Yeah. Well, what happened was a lot of people did

793
00:47:59,800 --> 00:48:03,160
Speaker 2: not get ninety cents on the dollar. And there were

794
00:48:03,239 --> 00:48:05,279
Speaker 2: quite a few people who are very who are up

795
00:48:05,280 --> 00:48:07,880
Speaker 2: in arms, who wanted, you know, to be this to

796
00:48:07,920 --> 00:48:13,120
Speaker 2: be investigated. But you know, it is sort of a

797
00:48:13,200 --> 00:48:15,719
Speaker 2: moment in time that you look at and you say,

798
00:48:15,760 --> 00:48:19,040
Speaker 2: this is what can happen if an insurance company takes

799
00:48:19,360 --> 00:48:21,960
Speaker 2: risks with their policyholders' money.

800
00:48:22,320 --> 00:48:25,440
Speaker 1: Right, This all goes back to the gunslinger as opposed

801
00:48:25,480 --> 00:48:28,759
Speaker 1: to a conservative operator. There are a couple of other

802
00:48:28,840 --> 00:48:32,279
Speaker 1: regulatory questions that come up that I'm always sort of

803
00:48:32,360 --> 00:48:38,000
Speaker 1: fascinated about. The first is the performance reporting for private equity.

804
00:48:38,920 --> 00:48:42,280
Speaker 1: There have been lots of criticism from within Wall Street

805
00:48:42,800 --> 00:48:47,520
Speaker 1: that at best it's aggressive and at worst it's just

806
00:48:47,560 --> 00:48:51,759
Speaker 1: a fantasy. If you're committing capital to private equity, you

807
00:48:51,760 --> 00:48:54,520
Speaker 1: don't care when they do the purchase the sort of

808
00:48:54,560 --> 00:48:58,680
Speaker 1: internal rate of return to the endowments and pensions who

809
00:48:58,680 --> 00:49:02,000
Speaker 1: put money into private equity. They don't care about that,

810
00:49:02,080 --> 00:49:04,560
Speaker 1: But that seems to be the way they report. Tell

811
00:49:04,600 --> 00:49:09,359
Speaker 1: us a little bit about how performance numbers are ginned up.

812
00:49:09,360 --> 00:49:11,120
Speaker 1: I don't even know how to describe it.

813
00:49:11,640 --> 00:49:15,200
Speaker 2: Well, these are private companies, not the firms themselves. They're

814
00:49:15,239 --> 00:49:18,279
Speaker 2: publicly traded, as you know, but when they buy a

815
00:49:18,320 --> 00:49:21,520
Speaker 2: company and put it into a fund, it's a private company.

816
00:49:21,560 --> 00:49:25,760
Speaker 2: And so how they mark the value of that company

817
00:49:26,520 --> 00:49:29,600
Speaker 2: is you know, there's leeway there, Barry. They can value

818
00:49:29,640 --> 00:49:32,440
Speaker 2: it a certain way that. Let's just say the stock

819
00:49:32,480 --> 00:49:34,120
Speaker 2: market wouldn't value it.

820
00:49:34,239 --> 00:49:38,719
Speaker 1: But you're valuing it specifically how you're purchasing it, and

821
00:49:38,760 --> 00:49:41,400
Speaker 1: then if it's sold five years later, that's a hard dollar.

822
00:49:41,560 --> 00:49:42,000
Speaker 2: Correct.

823
00:49:42,640 --> 00:49:44,560
Speaker 1: Why is there so much wiggle room in.

824
00:49:44,480 --> 00:49:48,319
Speaker 2: Between because you haven't had a mark, you haven't had

825
00:49:48,360 --> 00:49:51,760
Speaker 2: a buyer, I tell you exactly what it's worth until

826
00:49:51,760 --> 00:49:53,719
Speaker 2: the end of the line when you actually do buy

827
00:49:53,719 --> 00:49:54,280
Speaker 2: the company.

828
00:49:54,760 --> 00:50:00,279
Speaker 1: Huh. Really interesting. And let's talk about tax loopholes. How

829
00:50:00,320 --> 00:50:03,720
Speaker 1: on earth is there still a carried interest tax loophole

830
00:50:03,840 --> 00:50:08,000
Speaker 1: for private equity, hedge funds and venture capital. You're talking

831
00:50:08,040 --> 00:50:12,640
Speaker 1: about a teeny tiny fraction of old taxpayers. Why the

832
00:50:12,680 --> 00:50:13,560
Speaker 1: special treatment?

833
00:50:14,960 --> 00:50:18,440
Speaker 2: It started out I think as a special treatment for

834
00:50:18,480 --> 00:50:22,920
Speaker 2: real estate, and it sort of morphed into this bigger,

835
00:50:23,840 --> 00:50:29,839
Speaker 2: bigger thing as the private equity venture world expanded. And

836
00:50:30,040 --> 00:50:34,880
Speaker 2: it essentially is that the managers executives of these companies

837
00:50:35,239 --> 00:50:38,680
Speaker 2: just to end up paying a far far lower rate

838
00:50:38,960 --> 00:50:44,040
Speaker 2: on their very beneficent payouts than you or I do.

839
00:50:44,800 --> 00:50:48,480
Speaker 2: And it's a loophole that people have tried to get

840
00:50:48,560 --> 00:50:53,359
Speaker 2: rid of for decades. We've had congressional hearings about it,

841
00:50:54,320 --> 00:50:58,319
Speaker 2: and yet it continues to stay on the books, and

842
00:50:58,960 --> 00:51:02,040
Speaker 2: boy they cry blood murder when it comes time for

843
00:51:02,080 --> 00:51:04,839
Speaker 2: people to say, look, maybe we should rethink this and

844
00:51:04,880 --> 00:51:07,080
Speaker 2: not let these guys be I mean, it's like a

845
00:51:07,120 --> 00:51:10,560
Speaker 2: billionaire minting machine to have this kind of a lower

846
00:51:10,640 --> 00:51:12,120
Speaker 2: tax rate on these folks.

847
00:51:13,239 --> 00:51:15,399
Speaker 1: Who wants to pay thirty seven percent when you could

848
00:51:15,400 --> 00:51:19,320
Speaker 1: pay essentially twenty three percent. Right, of course they're spending

849
00:51:19,400 --> 00:51:22,279
Speaker 1: money on lobbyists, right, cut my taxes in half? Where

850
00:51:22,320 --> 00:51:23,160
Speaker 1: do I sign up for that?

851
00:51:23,400 --> 00:51:23,640
Speaker 2: Yeah?

852
00:51:23,680 --> 00:51:25,319
Speaker 1: Oh wait, I don't have access to that.

853
00:51:25,600 --> 00:51:28,719
Speaker 2: Really, start a private equity firm, Barry.

854
00:51:28,800 --> 00:51:31,360
Speaker 1: So here's what we'll do. We'll start a private equity farm.

855
00:51:31,800 --> 00:51:34,759
Speaker 1: We'll buy pensions and just put it in the S

856
00:51:34,760 --> 00:51:37,600
Speaker 1: and P five hundred and cost us five BIPs to

857
00:51:37,640 --> 00:51:40,080
Speaker 1: manage it. It'll be there's a lot of fat there

858
00:51:40,400 --> 00:51:43,760
Speaker 1: if he approaches it that way. So let's talk about

859
00:51:43,800 --> 00:51:48,879
Speaker 1: a little bit of pushback. I've seen some criticisms and

860
00:51:48,960 --> 00:51:52,720
Speaker 1: some stuff. I want to get your your take on it. First.

861
00:51:52,760 --> 00:51:57,279
Speaker 1: We touched on this earlier. Aren't the big firms and

862
00:51:57,320 --> 00:52:02,480
Speaker 1: the LBOs the lever buyouts very different than the middle

863
00:52:02,560 --> 00:52:08,080
Speaker 1: market smaller private equity firms that provide capital and equity

864
00:52:08,560 --> 00:52:11,560
Speaker 1: to small companies. How do we you know, aren't you

865
00:52:11,600 --> 00:52:14,239
Speaker 1: painting with too broad a brush? Goes some of the criticism.

866
00:52:14,440 --> 00:52:19,120
Speaker 2: Well, if you look at these firms, these folks, these

867
00:52:19,280 --> 00:52:23,680
Speaker 2: these really titans of industry, right, They're celebrated in the

868
00:52:23,719 --> 00:52:29,200
Speaker 2: business pages, they are you know, on TV all the time.

869
00:52:29,239 --> 00:52:31,799
Speaker 2: I mean, these are the people leading the way on

870
00:52:31,840 --> 00:52:35,399
Speaker 2: this industry. Now, again, there are others who are doing

871
00:52:35,440 --> 00:52:37,560
Speaker 2: it right and doing it in a better way, yes,

872
00:52:38,200 --> 00:52:41,160
Speaker 2: but what you want to focus on. These are the

873
00:52:41,160 --> 00:52:43,600
Speaker 2: folks that's at the tone. These are the folks that say,

874
00:52:43,640 --> 00:52:47,640
Speaker 2: here's how we're going to operate this. And these are

875
00:52:47,719 --> 00:52:52,719
Speaker 2: the folks that do have the biggest impact Barry because

876
00:52:52,800 --> 00:52:56,239
Speaker 2: of their size, and so that's why we really want

877
00:52:56,280 --> 00:52:59,279
Speaker 2: to focus on them. So when you have, you know,

878
00:52:59,400 --> 00:53:05,280
Speaker 2: two firms controlling thirty percent of emergency departments in this country,

879
00:53:05,440 --> 00:53:08,080
Speaker 2: that's a lot, you know, That's why you focus on

880
00:53:08,120 --> 00:53:11,880
Speaker 2: the big firms. They have the big impact, and so

881
00:53:12,040 --> 00:53:13,120
Speaker 2: that's why we're doing that.

882
00:53:13,239 --> 00:53:16,880
Speaker 1: So let's talk about wealth inequality. You guys put a

883
00:53:16,880 --> 00:53:19,960
Speaker 1: lot of blame on private equity for making it worse,

884
00:53:20,360 --> 00:53:24,360
Speaker 1: But I look at wealth inequality and wage inequality and

885
00:53:24,400 --> 00:53:26,719
Speaker 1: it's a lot of things. It's it's low wages and

886
00:53:26,760 --> 00:53:29,520
Speaker 1: a low minimum wage that hasn't gone up in forever.

887
00:53:29,760 --> 00:53:33,600
Speaker 1: It's corporate tax avoidance, it's the shifting of the tax

888
00:53:33,640 --> 00:53:37,560
Speaker 1: burden away from the wealthy and away from corporations to

889
00:53:37,640 --> 00:53:41,400
Speaker 1: the middle class. Aren't we putting too much blame on

890
00:53:41,440 --> 00:53:45,440
Speaker 1: private equity for exacerbating wealth inequality in America?

891
00:53:45,520 --> 00:53:48,600
Speaker 2: Well, the reason we think it's important to include them

892
00:53:48,800 --> 00:53:52,200
Speaker 2: in the mix is that we haven't really had that discussion.

893
00:53:52,360 --> 00:53:55,759
Speaker 2: I mean, private equity was not really mentioned as a

894
00:53:55,840 --> 00:53:59,560
Speaker 2: force in the inequality in the Gulf between rich and poor.

895
00:53:59,640 --> 00:54:03,280
Speaker 2: In am you know, you would hear about offshoring of jobs.

896
00:54:03,360 --> 00:54:07,880
Speaker 2: You would hear about companies going to Ireland so that

897
00:54:07,960 --> 00:54:10,040
Speaker 2: they wouldn't have to pay you know, the high.

898
00:54:09,840 --> 00:54:13,359
Speaker 1: Taxes, the double Dutch whatever.

899
00:54:13,239 --> 00:54:17,239
Speaker 2: Whatever, and so there has been a lot of discussion.

900
00:54:17,280 --> 00:54:22,520
Speaker 2: And of course the you know, uh, the defanging or

901
00:54:22,680 --> 00:54:27,960
Speaker 2: the the diminishment of unions, so you don't have a

902
00:54:28,000 --> 00:54:31,480
Speaker 2: balance of power between the worker and the corporation. But

903
00:54:31,600 --> 00:54:35,640
Speaker 2: you look at some of the forces behind those forces, right,

904
00:54:35,800 --> 00:54:41,040
Speaker 2: So pensions, great example, if you're starting to see private

905
00:54:41,080 --> 00:54:45,759
Speaker 2: equity firms taking over pensions, you know, and and or

906
00:54:46,360 --> 00:54:51,600
Speaker 2: stripping the pensions of the companies that they bankrupt. That

907
00:54:51,840 --> 00:54:57,400
Speaker 2: is a definite wealth gulf, right, That is a definite

908
00:54:57,480 --> 00:55:02,960
Speaker 2: impact on every day people main street America that I

909
00:55:03,080 --> 00:55:06,239
Speaker 2: just don't think we've really examined. So you just have

910
00:55:06,320 --> 00:55:11,440
Speaker 2: to look behind some of the practices when you have retailing.

911
00:55:12,080 --> 00:55:15,360
Speaker 2: You know, that's a big force, that a big area

912
00:55:15,440 --> 00:55:18,680
Speaker 2: that private equity has been very forceful in. You know,

913
00:55:19,400 --> 00:55:23,879
Speaker 2: almost six hundred thousand jobs lost in retailing. Now, yes,

914
00:55:23,960 --> 00:55:26,799
Speaker 2: some of that would have happened with the shift online,

915
00:55:27,239 --> 00:55:31,239
Speaker 2: but honestly, you know, there have been consequences like that.

916
00:55:31,520 --> 00:55:33,680
Speaker 2: So you look at that, and then you look at

917
00:55:33,760 --> 00:55:37,520
Speaker 2: the problems with healthcare and what it's doing to patients,

918
00:55:37,560 --> 00:55:40,880
Speaker 2: and so I do think that it is a force

919
00:55:40,960 --> 00:55:42,160
Speaker 2: to be reckoned with here.

920
00:55:42,040 --> 00:55:44,960
Speaker 1: Right, So I'm glad you brought up retail. Some of

921
00:55:45,000 --> 00:55:48,520
Speaker 1: the pushback I've seen is the United States has been

922
00:55:48,640 --> 00:55:53,080
Speaker 1: wildly over retailed twenty I think in two thousand and

923
00:55:53,640 --> 00:55:59,720
Speaker 1: seven we had twenty four square feet per capita versus Europe,

924
00:55:59,760 --> 00:56:02,880
Speaker 1: which was like fourteen and Japan which was like nine.

925
00:56:03,400 --> 00:56:06,520
Speaker 1: So we really had far more retailers than we knew

926
00:56:06,560 --> 00:56:09,359
Speaker 1: what to do. We built way too many malls, and

927
00:56:10,120 --> 00:56:13,560
Speaker 1: ultimately this was going to go through a huge set

928
00:56:13,560 --> 00:56:18,719
Speaker 1: of changes anyway. Private equity maybe it accelerated a little bit,

929
00:56:19,600 --> 00:56:24,880
Speaker 1: but we certainly can't blame the shrinking retail footprint on

930
00:56:25,080 --> 00:56:27,720
Speaker 1: pe can we.

931
00:56:26,840 --> 00:56:30,640
Speaker 2: We could maybe put some of it on them, right? Yeah?

932
00:56:30,680 --> 00:56:35,160
Speaker 2: And obviously you know, the shift online hurt some folks.

933
00:56:35,239 --> 00:56:37,040
Speaker 2: Toys r Us as an example of that.

934
00:56:37,760 --> 00:56:40,640
Speaker 1: But you know, more recently, Bedbath and Beyond that was

935
00:56:40,680 --> 00:56:44,920
Speaker 1: a publicly traded company. They hit the wall without private

936
00:56:44,920 --> 00:56:50,280
Speaker 1: equities help, That's right. So the biggest pushback I've seen

937
00:56:50,640 --> 00:56:54,400
Speaker 1: is go back to the eighties and nineties when LBOs

938
00:56:54,400 --> 00:56:59,080
Speaker 1: were first ramping up. Companies went from big to really big.

939
00:56:59,560 --> 00:57:02,879
Speaker 1: And as as these big, publicly traded mega companies went

940
00:57:02,960 --> 00:57:06,680
Speaker 1: up market, the banks, the brokers, all Wall Street chased

941
00:57:06,719 --> 00:57:10,280
Speaker 1: them and they just created this air pocket, this void

942
00:57:10,920 --> 00:57:15,520
Speaker 1: underneath where there used to be national banks and national

943
00:57:16,040 --> 00:57:21,080
Speaker 1: lenders servicing that industry. And they have nobody left to

944
00:57:21,120 --> 00:57:26,560
Speaker 1: service them. And that vacuum is into what good private

945
00:57:26,560 --> 00:57:30,080
Speaker 1: equity has stepped. If it wasn't for the private equity

946
00:57:30,080 --> 00:57:33,320
Speaker 1: below the four biggest companies, there's very little sources of

947
00:57:33,360 --> 00:57:37,439
Speaker 1: capital for these one hundred five hundred seven hundred million

948
00:57:37,520 --> 00:57:39,680
Speaker 1: dollar firms that Wall Street ignores.

949
00:57:40,760 --> 00:57:43,400
Speaker 2: Well, I think you have to say then if you're

950
00:57:43,440 --> 00:57:45,640
Speaker 2: going to say, Okay, they're not these companies are not

951
00:57:45,720 --> 00:57:50,520
Speaker 2: being banked properly, then that's great if you can get

952
00:57:50,760 --> 00:57:54,800
Speaker 2: money from private equity, but let's not bankrupt them in

953
00:57:55,000 --> 00:57:58,200
Speaker 2: the process. I mean, you have studied a study that

954
00:57:58,320 --> 00:58:03,240
Speaker 2: shows that bankruptcies her you know, far more with companies

955
00:58:03,280 --> 00:58:06,320
Speaker 2: that are private equitized than it does with other companies.

956
00:58:06,920 --> 00:58:10,440
Speaker 2: So I think that you, yes, if you want to

957
00:58:10,600 --> 00:58:14,960
Speaker 2: have the resources, you know, the capital is not being

958
00:58:15,000 --> 00:58:17,600
Speaker 2: assigned to these companies, but that doesn't mean that they

959
00:58:17,640 --> 00:58:22,959
Speaker 2: should be you know, abused, or that some of these

960
00:58:23,000 --> 00:58:25,360
Speaker 2: practices can't be questioned.

961
00:58:26,360 --> 00:58:29,000
Speaker 1: And my one of my favorite parts of the book.

962
00:58:29,200 --> 00:58:32,800
Speaker 1: You talk about equity ownership and wealth ownership in the

963
00:58:32,880 --> 00:58:37,520
Speaker 1: United States. In nineteen thirteen, the bottom ninety percent of

964
00:58:37,560 --> 00:58:42,280
Speaker 1: incomes owned about fifteen percent of the wealthy United States.

965
00:58:42,640 --> 00:58:46,400
Speaker 1: This is real estate businesses and publicly traded companies. By

966
00:58:46,440 --> 00:58:49,600
Speaker 1: the eighties that had more than doubled to thirty five

967
00:58:49,640 --> 00:58:54,000
Speaker 1: percent of the wealth in the US. Was that the peak.

968
00:58:54,040 --> 00:58:57,040
Speaker 1: What happened with that going forward?

969
00:58:57,200 --> 00:59:01,040
Speaker 2: That was the peak. And one of the reasons for

970
00:59:01,160 --> 00:59:04,720
Speaker 2: that very big, considerable growth, and that was the you know,

971
00:59:05,080 --> 00:59:08,640
Speaker 2: people were able to have a family without having two

972
00:59:08,760 --> 00:59:11,880
Speaker 2: wage earners, right, you were able to buy a house,

973
00:59:12,000 --> 00:59:17,040
Speaker 2: et cetera that moment in time. Also a huge contributor

974
00:59:17,080 --> 00:59:22,160
Speaker 2: to that was pensions, so corporate pensions that gave a

975
00:59:22,240 --> 00:59:29,880
Speaker 2: worker reasonable shot at a prosperous retirement, and those started

976
00:59:29,960 --> 00:59:34,600
Speaker 2: disappearing in the mid to late eighties. And so that's

977
00:59:34,720 --> 00:59:41,880
Speaker 2: a big factor in why the wealth held by the

978
00:59:41,920 --> 00:59:48,280
Speaker 2: main street America, the middle class, the big broad brush America.

979
00:59:49,160 --> 00:59:51,080
Speaker 2: That's why that has declined.

980
00:59:51,440 --> 00:59:55,840
Speaker 1: So here's I think my favorite pushback to the conversation

981
00:59:55,920 --> 00:59:59,080
Speaker 1: about wealth inequality. And I'm curious as to your thoughts.

982
00:59:59,520 --> 01:00:02,680
Speaker 1: It's not the top ten percent versus the bottom ninety

983
01:00:02,680 --> 01:00:05,760
Speaker 1: percent where that big disparity has opened up. It's not

984
01:00:05,840 --> 01:00:09,600
Speaker 1: even the top one percent versus the bottom ninety nine percent,

985
01:00:09,920 --> 01:00:14,400
Speaker 1: although that's certainly pretty meaty. It's the top point zero

986
01:00:14,520 --> 01:00:19,040
Speaker 1: one percent versus even within the top one percent. There's

987
01:00:19,080 --> 01:00:23,680
Speaker 1: this massive disparity. We didn't used to have that many

988
01:00:23,720 --> 01:00:27,120
Speaker 1: billionaires in uber wealthy today versus I don't know, fifty

989
01:00:27,120 --> 01:00:30,560
Speaker 1: one hundred years ago, how has the distribution of wealth

990
01:00:30,960 --> 01:00:35,360
Speaker 1: shift in the United States, and what might come out

991
01:00:35,360 --> 01:00:36,360
Speaker 1: of that going forward.

992
01:00:36,920 --> 01:00:39,000
Speaker 2: I just don't think it's a good thing to have

993
01:00:39,320 --> 01:00:45,560
Speaker 2: this coterie of extreme, extreme wealth at the top of

994
01:00:45,600 --> 01:00:50,920
Speaker 2: the pyramid. I mean, it's just not healthy. An economy

995
01:00:50,960 --> 01:00:55,320
Speaker 2: does better if the most people are prosperous, right, and

996
01:00:55,400 --> 01:01:03,200
Speaker 2: so these you know, multi multi, multi billionaires are really outliers.

997
01:01:03,720 --> 01:01:07,560
Speaker 2: But it points to a problem with the entire society.

998
01:01:07,760 --> 01:01:13,120
Speaker 2: And perhaps it's because we lawd wealthy people. But part

999
01:01:13,160 --> 01:01:16,880
Speaker 2: of it is this tax loophole that really is unfair.

1000
01:01:17,800 --> 01:01:21,600
Speaker 2: Part of it is some of the practices that really

1001
01:01:21,760 --> 01:01:26,480
Speaker 2: are aggressive and that end up harming companies and workers

1002
01:01:27,120 --> 01:01:31,320
Speaker 2: and pensioners. And let's not forget the huge fees that

1003
01:01:31,400 --> 01:01:36,960
Speaker 2: pensions pay to buy into private equity funds. And for

1004
01:01:37,120 --> 01:01:41,400
Speaker 2: years those private equity funds outperformed the S and P

1005
01:01:42,080 --> 01:01:43,800
Speaker 2: but they no longer do.

1006
01:01:44,240 --> 01:01:47,360
Speaker 1: So let's hit on that, because that's really interesting. This

1007
01:01:47,560 --> 01:01:51,800
Speaker 1: was a small asset class that, whether it was the

1008
01:01:52,320 --> 01:01:56,360
Speaker 1: ill liquidity premium or just the ability to go places

1009
01:01:56,400 --> 01:02:00,880
Speaker 1: where public markets couldn't, actually did better than the markets.

1010
01:02:01,400 --> 01:02:04,439
Speaker 1: That risk premia seems to have evaporated.

1011
01:02:05,080 --> 01:02:10,240
Speaker 2: It stopped out performing in like the mid two thousand so,

1012
01:02:10,600 --> 01:02:14,560
Speaker 2: or you know, towards two thousand and eight, and so

1013
01:02:14,680 --> 01:02:18,480
Speaker 2: you really have to wonder what the purpose of the

1014
01:02:18,800 --> 01:02:22,760
Speaker 2: continued infatuation with private equity among pensions is if they

1015
01:02:22,760 --> 01:02:25,800
Speaker 2: can get the same return in a S and P

1016
01:02:25,960 --> 01:02:29,080
Speaker 2: five hundred with five basis points as a cost and

1017
01:02:29,200 --> 01:02:33,160
Speaker 2: total transparency by the way, and a mark to market

1018
01:02:33,240 --> 01:02:35,320
Speaker 2: that you see at the end of every business day

1019
01:02:35,760 --> 01:02:37,880
Speaker 2: and so you know where you stand. So it's not

1020
01:02:38,120 --> 01:02:41,080
Speaker 2: one of these fuzzy math situations where you don't really

1021
01:02:41,120 --> 01:02:43,520
Speaker 2: know what the value of the fund is because it's

1022
01:02:43,800 --> 01:02:48,440
Speaker 2: got private companies in it that are being marked by individuals,

1023
01:02:48,520 --> 01:02:51,440
Speaker 2: you know, who have an ax to grind in the mark.

1024
01:02:51,960 --> 01:02:54,640
Speaker 1: Really quite interesting, So let me give you one of

1025
01:02:54,680 --> 01:02:59,160
Speaker 1: my curveball questions I like to surprise guests with. So

1026
01:02:59,360 --> 01:03:02,680
Speaker 1: your care your history is Money Magazine in the early

1027
01:03:02,960 --> 01:03:07,520
Speaker 1: mid eighties and then Forbes and then Worth Magazine. But

1028
01:03:08,120 --> 01:03:12,440
Speaker 1: while you were at Forbes in nineteen ninety five, you

1029
01:03:12,480 --> 01:03:16,640
Speaker 1: get tapped to be press secretary for then presidential election

1030
01:03:16,800 --> 01:03:20,440
Speaker 1: candidate Steve Forbes. What was that? Like, how different are

1031
01:03:20,480 --> 01:03:23,320
Speaker 1: political campaigns from covering finance?

1032
01:03:24,160 --> 01:03:27,040
Speaker 2: Well, when Steve asked me to be his press secretary.

1033
01:03:28,120 --> 01:03:31,160
Speaker 2: It was I thought, wow, this is going to be interesting.

1034
01:03:31,960 --> 01:03:33,880
Speaker 2: You know, I even maybe thought this is going to

1035
01:03:33,960 --> 01:03:36,680
Speaker 2: be fun. Right now, I'm a financial reporter, I am

1036
01:03:36,680 --> 01:03:40,240
Speaker 2: not a Washington reporter, not a political reporter, and so

1037
01:03:40,560 --> 01:03:42,680
Speaker 2: it was I had a different, you know, idea of

1038
01:03:42,720 --> 01:03:45,920
Speaker 2: what it might be like. But anyway, it was a

1039
01:03:46,240 --> 01:03:50,320
Speaker 2: very very tough six months, I can imagine, and you

1040
01:03:50,320 --> 01:03:54,760
Speaker 2: know it was. So Steve was a candidate that had

1041
01:03:54,960 --> 01:04:00,560
Speaker 2: economic ideas, okay, and one of them was the flat tax, which,

1042
01:04:00,600 --> 01:04:02,520
Speaker 2: by the way, would have gotten rid of lobbyists.

1043
01:04:02,640 --> 01:04:05,360
Speaker 1: That was big benefles and all.

1044
01:04:05,240 --> 01:04:09,920
Speaker 2: Those loopholes, right, flat tax. He was also for you know,

1045
01:04:10,000 --> 01:04:13,800
Speaker 2: medical savings accounts and health savings accounts anyway, and so

1046
01:04:14,040 --> 01:04:17,600
Speaker 2: I would have I would explain these concepts. And he

1047
01:04:17,720 --> 01:04:20,760
Speaker 2: was against the double taxation of dividends, which of course

1048
01:04:20,800 --> 01:04:23,919
Speaker 2: we have gotten rid of I think. Anyway, So those

1049
01:04:23,960 --> 01:04:28,480
Speaker 2: were sort of three of his initial ideas, and I

1050
01:04:28,520 --> 01:04:31,720
Speaker 2: would have to explain these to the Washington press corps.

1051
01:04:32,400 --> 01:04:37,320
Speaker 2: The Washington press corps not being financially oriented and probably

1052
01:04:37,360 --> 01:04:40,000
Speaker 2: not that interested. They were just interested in the horse race.

1053
01:04:40,760 --> 01:04:44,400
Speaker 2: Now you know, Now we had he did very well

1054
01:04:44,520 --> 01:04:48,160
Speaker 2: in New Hampshire, and so for a frenzied moment, it was,

1055
01:04:48,200 --> 01:04:50,680
Speaker 2: you know, like this, you know, maybe he has a

1056
01:04:50,760 --> 01:04:54,160
Speaker 2: chance or a shot. But anyway, it was it was

1057
01:04:54,360 --> 01:04:58,280
Speaker 2: a very trying time for me, but I really became

1058
01:04:58,320 --> 01:04:59,920
Speaker 2: a better journalist because of it.

1059
01:05:00,080 --> 01:05:02,040
Speaker 1: Well that I was going to go there with that question,

1060
01:05:02,120 --> 01:05:05,480
Speaker 1: what was it like being on the other side of

1061
01:05:05,520 --> 01:05:09,760
Speaker 1: the clamoring that scrum that you always see the photos of.

1062
01:05:10,360 --> 01:05:14,760
Speaker 1: How did that change how you do journalism and view journalists?

1063
01:05:15,280 --> 01:05:20,720
Speaker 2: Well, I really after that decided that I really wanted

1064
01:05:20,760 --> 01:05:25,320
Speaker 2: to give people a lot more time to respond to

1065
01:05:25,680 --> 01:05:30,400
Speaker 2: my questions. And because I would be asked to answer

1066
01:05:30,800 --> 01:05:34,680
Speaker 2: questions that were quite you know, comprehensive and or tricky,

1067
01:05:34,760 --> 01:05:37,480
Speaker 2: difficult to come up with the answer in you know,

1068
01:05:37,640 --> 01:05:41,520
Speaker 2: like minutes, and so it was very frustrating to not

1069
01:05:41,560 --> 01:05:43,720
Speaker 2: be able to do that. And so I came away

1070
01:05:43,720 --> 01:05:45,760
Speaker 2: from that experience saying, Okay, from now on, I'm going

1071
01:05:45,840 --> 01:05:49,000
Speaker 2: to give everybody that I'm writing about more time to

1072
01:05:49,120 --> 01:05:51,520
Speaker 2: respond because I don't want to be in that put

1073
01:05:51,600 --> 01:05:53,240
Speaker 2: them in the situation that I was in.

1074
01:05:53,320 --> 01:05:55,400
Speaker 1: Huh, all right, we only have you for a few

1075
01:05:55,400 --> 01:05:58,480
Speaker 1: more minutes. Let me jump to my favorite questions that

1076
01:05:58,560 --> 01:06:02,040
Speaker 1: we asked all of our guests, starting with tell us

1077
01:06:02,080 --> 01:06:04,960
Speaker 1: what you're streaming, what are you watching listening to? What's

1078
01:06:05,000 --> 01:06:06,040
Speaker 1: keeping you entertained?

1079
01:06:07,080 --> 01:06:10,280
Speaker 2: What am I streaming? Well, gosh, I really like the

1080
01:06:10,520 --> 01:06:13,320
Speaker 2: BBC show Happy Valley. I don't know if you've seen that.

1081
01:06:13,320 --> 01:06:16,560
Speaker 2: It's a kind of a detective, a pretty tough female

1082
01:06:16,600 --> 01:06:20,880
Speaker 2: detective like that. I like Ted Lasso. I know that's

1083
01:06:21,040 --> 01:06:25,919
Speaker 2: very mundane, but so those are the two right now.

1084
01:06:26,080 --> 01:06:29,160
Speaker 1: Tell us about mentors who helped shape your career.

1085
01:06:30,160 --> 01:06:34,880
Speaker 2: Jim Michaels, who was the editor of Forbes magazine. He

1086
01:06:35,200 --> 01:06:41,680
Speaker 2: was a very tough, old newspaper reporter. He was at

1087
01:06:41,800 --> 01:06:44,200
Speaker 2: UPI and he was the guy who broke the story

1088
01:06:44,200 --> 01:06:48,520
Speaker 2: of Gandhi's assassination, so really knew how to do that

1089
01:06:48,680 --> 01:06:51,840
Speaker 2: kind of you know, reporting. But he took his expertise

1090
01:06:51,880 --> 01:06:56,080
Speaker 2: to business and really taught me how to look at businesses,

1091
01:06:56,280 --> 01:07:03,360
Speaker 2: analyze balance sheets, income statements, really do contrarian reporting. He

1092
01:07:03,440 --> 01:07:06,200
Speaker 2: was a guy who didn't want, you know, the conventional wisdom.

1093
01:07:06,240 --> 01:07:09,240
Speaker 2: He wanted to question the conventional wisdom. He was very difficult,

1094
01:07:09,400 --> 01:07:12,720
Speaker 2: very irascible, very demanding, but you really learned a lot.

1095
01:07:12,960 --> 01:07:16,080
Speaker 1: Huh interesting. Let's talk about books. What are some of

1096
01:07:16,080 --> 01:07:18,560
Speaker 1: your favorites and what have you been reading recently.

1097
01:07:19,640 --> 01:07:25,760
Speaker 2: I like nineteenth century fiction, so Anthony Twallop The Way

1098
01:07:25,800 --> 01:07:29,320
Speaker 2: We Live Now, which is a really wonderful book about

1099
01:07:29,360 --> 01:07:34,560
Speaker 2: a tycoon who is, you know, sort of a scoundrel

1100
01:07:35,360 --> 01:07:39,760
Speaker 2: who sells shares in a railroad company that doesn't really

1101
01:07:39,760 --> 01:07:40,680
Speaker 2: exist anyway.

1102
01:07:41,600 --> 01:07:44,560
Speaker 1: Well, if you want the railroad to exist, that'll cost

1103
01:07:44,600 --> 01:07:44,919
Speaker 1: you more.

1104
01:07:45,480 --> 01:07:50,919
Speaker 2: Yes, Right now, I'm actually reading a biography of Genghis Khan.

1105
01:07:51,440 --> 01:07:56,120
Speaker 1: Oh, which one Weatherford Jack Weatherford. It's I'm not sure

1106
01:07:56,120 --> 01:07:57,880
Speaker 1: if that's the one I read, but it's amazing.

1107
01:07:58,720 --> 01:08:02,040
Speaker 2: Yeah, And you know, that's a who's been kind of us.

1108
01:08:03,480 --> 01:08:05,800
Speaker 2: He was kind of slimed, you know, and you know,

1109
01:08:05,920 --> 01:08:09,240
Speaker 2: as being this terrible you know, marauder and everything, and

1110
01:08:09,440 --> 01:08:13,680
Speaker 2: it's it's a different story altogether. So I'm really enjoying that.

1111
01:08:14,080 --> 01:08:17,280
Speaker 1: Our last two questions, what sort of advice would you

1112
01:08:17,280 --> 01:08:20,160
Speaker 1: give to a recent college grad who was interested in

1113
01:08:20,240 --> 01:08:24,839
Speaker 1: a career in either investigative journalism or finance.

1114
01:08:25,920 --> 01:08:30,520
Speaker 2: Well, I would, of course say go with investigative reporting,

1115
01:08:30,680 --> 01:08:33,719
Speaker 2: because I think we need more of it in this country.

1116
01:08:33,800 --> 01:08:36,519
Speaker 2: I think we don't have as much as we need.

1117
01:08:37,360 --> 01:08:41,280
Speaker 2: We have seen newspapers hollowed out, of course, closed down.

1118
01:08:41,360 --> 01:08:44,800
Speaker 2: We've also seen that the costs of you know, associated

1119
01:08:44,800 --> 01:08:47,680
Speaker 2: with investigative reporting. It's not easy. It's not something that

1120
01:08:47,720 --> 01:08:50,479
Speaker 2: happens overnight. So it really is costly, and we've seen

1121
01:08:50,520 --> 01:08:53,559
Speaker 2: that fewer and fewer of those folks. So I would say,

1122
01:08:54,040 --> 01:08:56,080
Speaker 2: gung ho, if you can get a job doing that,

1123
01:08:56,080 --> 01:08:58,200
Speaker 2: that it is going to be the most fun that

1124
01:08:58,280 --> 01:09:01,920
Speaker 2: you're going to have. And also, so I'm doing a service.

1125
01:09:02,400 --> 01:09:05,440
Speaker 1: And what do you know about the world of investigative

1126
01:09:05,479 --> 01:09:09,400
Speaker 1: reporting and finance today you wish you knew back in

1127
01:09:09,439 --> 01:09:11,639
Speaker 1: the early eighties when you were first getting started.

1128
01:09:12,479 --> 01:09:15,479
Speaker 2: Well, let's see, So what's about the world of finance

1129
01:09:15,479 --> 01:09:17,760
Speaker 2: that I wish I knew thirty years ago? Is that

1130
01:09:17,840 --> 01:09:20,440
Speaker 2: it isn't as hard as you think that it isn't.

1131
01:09:20,560 --> 01:09:22,360
Speaker 2: You know, A lot of people come out of college

1132
01:09:22,400 --> 01:09:25,240
Speaker 2: if they're not a financial person, like I was a

1133
01:09:25,360 --> 01:09:28,479
Speaker 2: humanities major, you know, and you have this mental block

1134
01:09:28,520 --> 01:09:31,400
Speaker 2: about numbers. I can't do numbers, or you know, it's

1135
01:09:31,439 --> 01:09:34,679
Speaker 2: not that hard. It really isn't that hard. It's common sense.

1136
01:09:34,960 --> 01:09:37,240
Speaker 2: Now there are people who are really extra special good

1137
01:09:37,240 --> 01:09:39,920
Speaker 2: at it, but you know it's something that you can

1138
01:09:40,840 --> 01:09:43,559
Speaker 2: can tackle. Don't feel like you have a mental block

1139
01:09:43,600 --> 01:09:47,280
Speaker 2: against finance, and don't think that finance isn't important. Finance

1140
01:09:47,360 --> 01:09:52,000
Speaker 2: is not a backwater is. It touches everyone. It touches

1141
01:09:52,040 --> 01:09:56,120
Speaker 2: everybody in this country. It is political, it is everywhere,

1142
01:09:56,200 --> 01:09:59,600
Speaker 2: and so just don't discount the importance of finance.

1143
01:10:00,240 --> 01:10:03,559
Speaker 1: Really interesting. Thank you Gretchen for being so generous with

1144
01:10:03,600 --> 01:10:06,960
Speaker 1: your time. We have been speaking with Gretchen Morgensen. She

1145
01:10:07,120 --> 01:10:10,240
Speaker 1: is the author of These Are the Plunderers, How Private

1146
01:10:10,280 --> 01:10:14,840
Speaker 1: Equity Runs and RECs America. If you enjoy this conversation,

1147
01:10:15,280 --> 01:10:17,519
Speaker 1: well be sure and check out any of the previous

1148
01:10:17,600 --> 01:10:20,840
Speaker 1: five hundred we've done over the past I don't know

1149
01:10:20,880 --> 01:10:25,480
Speaker 1: eight years. You can find those on YouTube, iTunes, Spotify,

1150
01:10:26,040 --> 01:10:30,000
Speaker 1: or wherever you find your favorite podcasts. Sign up for

1151
01:10:30,120 --> 01:10:32,840
Speaker 1: my daily reading list at Rid Halts dot com, follow

1152
01:10:32,840 --> 01:10:37,080
Speaker 1: me on Twitter at Ridholt's follow all of the Bloomberg

1153
01:10:37,120 --> 01:10:41,040
Speaker 1: Family of podcasts at Podcasts. I would be remiss if

1154
01:10:41,040 --> 01:10:43,080
Speaker 1: I did not thank the crack team that helps put

1155
01:10:43,080 --> 01:10:47,679
Speaker 1: these conversations together each week. Sarah Livesey is my audio

1156
01:10:47,760 --> 01:10:52,160
Speaker 1: engineer at Tika of albrun is my project manager. Paris

1157
01:10:52,240 --> 01:10:57,000
Speaker 1: Walt is my producer. Sean Russo is my researcher. I'm

1158
01:10:57,040 --> 01:11:01,280
Speaker 1: Barry Ridholts. You've been listening to Mass in Business on

1159
01:11:01,439 --> 01:11:02,439
Speaker 1: Bloomberg Radio.