WEBVTT - The Odd Lots Variety Show 0:00:06.640 --> 0:00:10.960 Hello, Odd Lots listeners, it's Joe Wisenthal. So on Thursday, 0:00:11.000 --> 0:00:14.600 September nine, Tracy Elloway and I hosted the first ever 0:00:14.840 --> 0:00:17.759 Odd Lots Variety Show at the w n y C 0:00:18.120 --> 0:00:22.840 Green Space in Manhattan. The show featured Sam Antar, Lee 0:00:22.920 --> 0:00:27.120 book Eyed, Brad Setzer, Uh, Stephanie Kelton. We even had 0:00:27.160 --> 0:00:31.040 a surprise guest, one of the Spy Kids. If you 0:00:31.120 --> 0:00:34.040 know that story, you should be excited about that, and 0:00:34.080 --> 0:00:36.159 if you don't, well, then this will be a treat 0:00:36.280 --> 0:00:39.640 for you. And we even had musical guests, so we 0:00:39.680 --> 0:00:44.879 had the country singing economist Merle Hazard and I sing 0:00:44.960 --> 0:00:47.040 a few of my own songs. So on this week's 0:00:47.040 --> 0:00:50.080 Odd Lots, we're going to feature the full length audio 0:00:50.560 --> 0:00:53.240 that we recorded at the live show, so that even 0:00:53.280 --> 0:00:55.320 if you weren't able to make it out that night, 0:00:55.680 --> 0:00:59.360 you can still hear the great conversations and music from 0:00:59.400 --> 0:01:01.920 that night. And if you'd like to see video from 0:01:01.960 --> 0:01:04.400 the event, you can find it on the Bloomberg Markets 0:01:04.400 --> 0:01:08.200 and Finance channel on YouTube or just by searching Odd 0:01:08.240 --> 0:01:11.319 Lots Variety Show will also be featuring video clips and 0:01:11.360 --> 0:01:14.520 teasers from the event on social media. You can check 0:01:14.520 --> 0:01:17.840 it out on Twitter from the handle at Podcasts, and 0:01:18.000 --> 0:01:22.600 I'm sure that Tracy Alloway and I will be tweeting 0:01:22.760 --> 0:01:26.440 links to it plenty. If you missed it, don't worry 0:01:26.480 --> 0:01:30.479 because we are very hopeful and confident that this won't 0:01:30.520 --> 0:01:34.039 have been the last Odd Lot Variety show. So thanks 0:01:34.040 --> 0:02:10.600 everyone for listening and enjoy the show. Hi, thanks everyone 0:02:10.680 --> 0:02:14.840 for coming. I'm Joe Wisenthal and I'm Tracy Alloway, and 0:02:15.080 --> 0:02:17.960 welcome to the Odd Lots Variety Show. It's our first 0:02:18.000 --> 0:02:20.680 ever live event and we're so happy to have you 0:02:20.720 --> 0:02:22.920 all here. Um. I have to say I'm a little 0:02:22.960 --> 0:02:26.240 disappointed because I wanted our first odd LODs live event 0:02:26.280 --> 0:02:29.000 to be an odd LODs Live poker tournament. But this 0:02:29.120 --> 0:02:32.480 is also cool. I'm not disappointed. Uh. Just a couple 0:02:32.520 --> 0:02:34.400 of notes before we start. We have some really really 0:02:34.400 --> 0:02:37.360 great people backstage, some guests that we've been wanting to 0:02:37.400 --> 0:02:40.519 get on the podcast for a very long time. One 0:02:40.560 --> 0:02:44.680 housekeeping note, this is being recorded in audio format. Of course, 0:02:44.720 --> 0:02:47.920 it's also being recorded in video format, so please just 0:02:48.000 --> 0:02:51.560 be mindful of that, and other than that, enjoy the show. 0:02:51.800 --> 0:02:53.280 One other thing, we don't have time for Q and 0:02:53.320 --> 0:02:57.000 A unfortunately, but we'll have cocktails and reception afterwards. Who 0:02:57.040 --> 0:02:59.079 can hang out and mingle and ask questions that you 0:02:59.120 --> 0:03:01.519 didn't get a chance to ask. So let's get started, 0:03:01.680 --> 0:03:05.560 all right. Our first guest is a criminal, is actual 0:03:05.680 --> 0:03:10.160 convicted felon. He is the former CFO of Crazy Eddie, 0:03:10.160 --> 0:03:13.000 which for any long time New Yorker may remember their 0:03:13.080 --> 0:03:18.440 ads in the seventies and eighties, who was an electronics retailer. Uh. 0:03:18.760 --> 0:03:22.680 Also a fraud through and through from the beginning. Uh. 0:03:22.720 --> 0:03:24.679 And so we have the CFO. He now does work 0:03:24.680 --> 0:03:35.200 on forensic accounting. And I want to bring in Samanta. 0:03:39.520 --> 0:03:44.040 Uh So, who are you? What do you do? I'm 0:03:44.040 --> 0:03:49.160 a retired criminal? Are you reformed criminal? Do you think 0:03:49.160 --> 0:03:51.760 i'd be here right now if I didn't get caught? Well, 0:03:51.800 --> 0:03:55.920 maybe I would as a legitimate CEO that hasn't gotten 0:03:55.960 --> 0:04:02.800 caught yet. Do criminals ever truly retire? Yeah, because you know, 0:04:02.880 --> 0:04:05.840 after a while, you know it's um, you know what 0:04:06.000 --> 0:04:08.560 what's what's What's the benefit of doing any more crime? 0:04:08.840 --> 0:04:10.680 Even though at times I feel like I'd love to 0:04:10.720 --> 0:04:12.560 do crime again. After meeting some of the people in 0:04:12.600 --> 0:04:14.760 this room here, I said, oh man, this would be 0:04:14.760 --> 0:04:18.000 easy just to go back into the game. Again, So 0:04:18.080 --> 0:04:20.839 tell us about how you got into the business and 0:04:21.120 --> 0:04:23.679 what was crazy Eddie, and how did you become at CFO. 0:04:24.360 --> 0:04:29.760 Crazy as was a small garden variety electronics operation. Uh. 0:04:30.040 --> 0:04:33.240 We engage mostly in income tax evasions. Stealing the sales 0:04:33.279 --> 0:04:36.320 tax gave us the competitive advantage because that's six or 0:04:36.320 --> 0:04:39.120 seven percent we can steal. Gave us the opportunity to 0:04:39.160 --> 0:04:42.680 discount more to customers and still make money. So we 0:04:42.680 --> 0:04:47.599 were pretty much being competitive by you know, by by 0:04:47.640 --> 0:04:50.680 evading taxes in the old days. Uh. It was a 0:04:50.720 --> 0:04:53.400 family oriented business. We wanted to grow and they wanted 0:04:53.440 --> 0:04:57.680 somebody in the inside family member to to be the 0:04:57.720 --> 0:04:59.919 CFO of the company if the company grew to assert 0:05:00.040 --> 0:05:02.200 and level. So they picked me because I was the 0:05:02.240 --> 0:05:04.839 nerd that read the Wall Street Journal and barons when 0:05:04.839 --> 0:05:07.159 he was twelve years old. So they put me through 0:05:07.200 --> 0:05:09.080 college so I can become an accountant to help them 0:05:09.080 --> 0:05:12.120 commit more sophisticated crimes in the future. So eventually I 0:05:12.120 --> 0:05:14.559 go to brew College right over here in twenty third Street, 0:05:14.839 --> 0:05:16.760 I get my c p A. And of course I 0:05:16.880 --> 0:05:19.839 become a criminal mastermind, you know, doing white collar crime. 0:05:20.400 --> 0:05:23.440 I went to college to become an effective white collar criminal, 0:05:23.680 --> 0:05:26.239 white collar criminal should never cheat themselves out of getting 0:05:26.240 --> 0:05:28.400 a good education. So I was one of those kids 0:05:28.440 --> 0:05:31.200 that cheated in school anything. I earned my grades because 0:05:31.240 --> 0:05:32.680 I wanted to be the best at what I was 0:05:32.720 --> 0:05:34.840 doing in crime. Did you know that was the ultimate 0:05:34.880 --> 0:05:39.000 destination was crime at the time, and you were okay, 0:05:39.160 --> 0:05:42.200 And it was fun a lot of money when I 0:05:42.240 --> 0:05:44.520 was fourteen years old. They got a fifteen hundred dollar 0:05:44.560 --> 0:05:47.599 bonus in nineteen seventy one in cash. Does anybody have 0:05:47.640 --> 0:05:50.600 any fourteen year old kids? Imagine if your kid came 0:05:50.600 --> 0:05:53.799 home with a fifteen hundred dollar cash bonus today even 0:05:54.120 --> 0:05:56.240 and the money, of course is not worth as much 0:05:56.279 --> 0:05:58.719 as it was back then. Go ahead. So what was 0:05:58.720 --> 0:06:01.479 the most useful thing you learned from accounting for a 0:06:01.560 --> 0:06:05.279 life of criminality? Is that people are very, very gullible. 0:06:05.680 --> 0:06:09.440 People are too trusting. Uh. As a criminal, I learned 0:06:09.480 --> 0:06:12.440 to consider your humanity as a weakness to be exploited 0:06:12.440 --> 0:06:14.880 in the execution of my crimes. In other words, your 0:06:14.920 --> 0:06:18.640 good nature. You're wanting to trust people, You wanted to 0:06:18.680 --> 0:06:21.240 give people a benefit of the doubt. That gave me 0:06:21.320 --> 0:06:25.200 the opportunity to execute my crimes. Second part is is 0:06:25.240 --> 0:06:28.080 that people are you steal more with a smile than 0:06:28.120 --> 0:06:30.480 you can without have gone? Anybody knows how I was 0:06:30.520 --> 0:06:33.320 working the crowd. He has shaking hands, smiling, and everybody 0:06:33.400 --> 0:06:37.440 was happy with me. Right. You see, if if people 0:06:37.560 --> 0:06:39.880 like you, it's easy at to steal from them because 0:06:40.200 --> 0:06:43.080 they feel like they're comfortable with you. So let's talk Uh, 0:06:43.279 --> 0:06:46.839 that's nice and theoretical, but let's talk practical. So obviously, 0:06:47.000 --> 0:06:48.640 I'm sure there's a lot of people that would like 0:06:48.720 --> 0:06:51.800 to steal the income tax or the sales tax that 0:06:51.839 --> 0:06:54.280 they owe. But you have auditors who are forced to 0:06:54.360 --> 0:06:56.679 come in. So how do you like dupe the people 0:06:57.080 --> 0:07:00.200 whose job it is to make sure that you're not dealing. 0:07:00.320 --> 0:07:03.560 When it comes to fraud, the distraction is always more 0:07:03.600 --> 0:07:05.760 important than the law. Now, line is not a problem. 0:07:05.760 --> 0:07:07.560 You can ask me any question here and I'll lie 0:07:07.600 --> 0:07:09.120 to you right to your face, as you will know 0:07:09.200 --> 0:07:11.840 the difference. But the point is is that if you 0:07:11.880 --> 0:07:15.600 can distract somebody from doing their job, chances are they're 0:07:15.640 --> 0:07:17.320 not going to ask you the question that you have 0:07:17.400 --> 0:07:20.040 the law about. So in the crazy Eddie case, let's 0:07:20.080 --> 0:07:22.560 take auditors. The audits would be done over a period 0:07:22.560 --> 0:07:25.080 of say eight weeks, so they'd have to be twelve 0:07:25.080 --> 0:07:27.040 and a half percent each week, right, So by week 0:07:27.080 --> 0:07:28.960 six out of eight, they should have seventy five percent 0:07:29.040 --> 0:07:31.000 of the work done in seventy five percent at a 0:07:31.080 --> 0:07:33.320 time and twenty percent of the work left to do 0:07:33.400 --> 0:07:35.680 in twenty five percent at time. My job was to 0:07:35.720 --> 0:07:38.160 store them by having only twenty five percent of the 0:07:38.160 --> 0:07:40.440 work done in seventy five percent at a time, so 0:07:40.480 --> 0:07:42.280 that they had have to do seventy five percent of 0:07:42.280 --> 0:07:44.160 the work and only twenty five percent at a time, 0:07:44.160 --> 0:07:46.960 which is causedn't the cram rush to get things done 0:07:47.120 --> 0:07:49.840 and miss key order procedures? And that worked every single year. 0:07:49.880 --> 0:07:52.280 Do you know why? Because in the nineteen eighties there 0:07:52.320 --> 0:07:55.960 were no females in accounting doing none. It was a 0:07:55.960 --> 0:07:58.960 male dominated profession and most of the leg work was 0:07:59.000 --> 0:08:01.760 done by twenty one twenty five year old kids fresh 0:08:01.760 --> 0:08:04.000 out of college that was single. And what's the easiest 0:08:04.040 --> 0:08:06.520 way to distract the mail order to from doing their 0:08:06.600 --> 0:08:13.120 jobs female accountants is beautiful as you and they would 0:08:13.160 --> 0:08:15.760 they spent most of that time flirting with the females 0:08:15.800 --> 0:08:18.600 instead of doing their jobs. And every single year, like 0:08:18.760 --> 0:08:21.360 Pavlov with the dog, you put the wood in front 0:08:21.360 --> 0:08:23.520 of the dog gets salivates. Well, you put the female 0:08:23.520 --> 0:08:25.320 in front of the account and they salivate. They don't 0:08:25.320 --> 0:08:27.800 even do anything else. That's pretty much how we're able 0:08:27.840 --> 0:08:30.320 to succeed for us. We didn't get caught because of 0:08:30.320 --> 0:08:33.440 our aortors. We got caught because somebody I thought that 0:08:33.520 --> 0:08:36.679 Crazy A's was a goldmine, and they took advantage of 0:08:36.679 --> 0:08:38.760 a dropping the stock price and they took over the 0:08:38.800 --> 0:08:41.000 company right from out under us. In other words, we 0:08:41.000 --> 0:08:43.520 were benefited. We were we were a victim of our 0:08:43.520 --> 0:08:47.360 own fraud. No oh, I was gonna say, talk to 0:08:47.480 --> 0:08:50.520 us about that moment. What happened when when you heard 0:08:50.520 --> 0:08:52.840 that someone was actually interested in the company and you 0:08:52.920 --> 0:08:55.640 knew that it was a fraud. Well, we tried to 0:08:55.640 --> 0:08:57.840 take it over at seven dollars this ship we thought, 0:08:57.880 --> 0:09:00.240 we knew that people were hunting the company to take 0:09:00.280 --> 0:09:02.240 it over. So we've made a bid at seven dollars 0:09:02.280 --> 0:09:04.040 a year and excited, Why are you gonna pay seven 0:09:04.040 --> 0:09:06.960 dollars a share for a company you know it is worthless? 0:09:07.160 --> 0:09:08.959 Because we weren't going to use our money anyway. We're 0:09:08.960 --> 0:09:11.000 gonna defraud the idiots on Wall Street take all the 0:09:11.200 --> 0:09:13.280 money have them finance to take on. We're gonna get 0:09:14.000 --> 0:09:16.200 the company for nothing. So we've got seven dollars a year, 0:09:16.240 --> 0:09:18.600 and guess what submediate out to actually bet eight dollars 0:09:18.679 --> 0:09:21.320 a year, thinking that we were trying to steal the company. 0:09:21.360 --> 0:09:23.960 In fact, the initial investigation into the Crazy Eddy fraud, 0:09:24.160 --> 0:09:28.120 the SEC thought that we deliberately understated on numbers to 0:09:28.240 --> 0:09:31.720 take over the company on the cheap. Well, I want 0:09:31.760 --> 0:09:34.800 to like back up a second, what is the difference? 0:09:34.840 --> 0:09:38.200 And we we uh. Sam was a guest on a 0:09:38.240 --> 0:09:40.200 recorded podcast, and I thought this was one of the 0:09:40.200 --> 0:09:43.880 most key ideas that he said. There is a difference 0:09:43.960 --> 0:09:46.440 in the nature of fraud when you're a private company 0:09:46.520 --> 0:09:50.480 versus public company. The economics of crime change when you 0:09:50.520 --> 0:09:53.920 go public. So what's the difference. You get a better 0:09:54.080 --> 0:10:00.320 bang for the buck overstating your income as a public company, 0:10:00.400 --> 0:10:05.320 even if it means overpaying your taxes then understating your 0:10:05.360 --> 0:10:10.240 income as a private company and evading your taxes. For instance, 0:10:10.280 --> 0:10:13.480 if I steal a million dollars from my own companies 0:10:13.520 --> 0:10:15.400 a private company, in other words, I skim a million 0:10:15.440 --> 0:10:18.040 dollars and I don't show it as income and we 0:10:18.080 --> 0:10:22.400 have at tax rate, I'm evading four hundred thousand dollars 0:10:22.400 --> 0:10:27.360 in taxes. Simple math. Right, one million dollars, four hundred 0:10:27.400 --> 0:10:30.559 thousand dollars. Right. If I now I'm a public company 0:10:30.600 --> 0:10:33.880 and I put that million dollars back into the company, right, 0:10:34.160 --> 0:10:37.480 I have an inflated pre tax income of one million dollars. 0:10:37.679 --> 0:10:41.000 I'm gonna overpay my taxes by four hundred thousand. I'm 0:10:41.000 --> 0:10:45.280 gonna have an inflated net income of six hundred thousand dollars. 0:10:45.360 --> 0:10:47.760 And if my company is trading at a multiple of 0:10:47.760 --> 0:10:51.760 earnings let's say thirty times earnings pe ratio, I'm creating 0:10:51.840 --> 0:10:56.160 eighteen million dollars and fictitious wealth by overpaying my taxes 0:10:56.200 --> 0:10:59.160 by four hundred thousand dollars agains. Who's most stock? Crazy? 0:10:59.200 --> 0:11:03.400 Any people? The hand of family does? We created a 0:11:03.520 --> 0:11:07.280 security screud by going legit. We said it was more 0:11:07.400 --> 0:11:11.200 profitable to screw investors than to than to screw the 0:11:11.200 --> 0:11:14.400 internal revenue service. That was the whole idea behind the 0:11:14.440 --> 0:11:17.679 crazy Eddy for it. Okay, I'm gonna jump forward again. 0:11:18.120 --> 0:11:20.440 What was it like in prison? And did you do 0:11:20.720 --> 0:11:23.360 a Shawshank redemption kind of thing where you started doing 0:11:23.360 --> 0:11:28.600 everyone's tax accounting for the kids, and my kids are here, um, 0:11:28.800 --> 0:11:30.760 believe it or that I didn't. I didn't go to prison. 0:11:30.800 --> 0:11:33.559 I got house arrested when they were young because they 0:11:33.559 --> 0:11:35.920 were too young to be traumatized by what was going on. 0:11:36.360 --> 0:11:38.760 They'd see daddy wearing an ankle bracelet, so they bring 0:11:38.800 --> 0:11:42.960 their friends over if they daddy's ankle bracelet. So did 0:11:43.000 --> 0:11:46.480 you tell on your own family members? Yes, but not 0:11:46.559 --> 0:11:49.400 my immediate family, my cousins. Yes, of course. Absolutely. Do 0:11:49.440 --> 0:11:50.880 you think I'm gonna go to jail for them? Have 0:11:50.960 --> 0:11:54.520 to have some standards? YEA. One thing I'm very curious 0:11:54.559 --> 0:11:56.400 about it. We just have a couple of minutes left. 0:11:56.520 --> 0:11:59.959 Is these days with computers and all kinds of more 0:12:00.000 --> 0:12:03.400 are easy, you know, ease of tracking inventory? Is it 0:12:03.480 --> 0:12:06.719 harder to do? For all these days? Crime evolves? I'll 0:12:06.720 --> 0:12:10.200 give you one one example. Computers and everything. One of 0:12:10.240 --> 0:12:12.920 the things one of the questions raised by Wall Street 0:12:12.920 --> 0:12:14.800 prior to us going public was what we had an 0:12:14.840 --> 0:12:17.480 adequate computer system? Which we didn't. So what do we do? 0:12:17.760 --> 0:12:21.400 We get them? Um? Computer World magazine to bring one 0:12:21.400 --> 0:12:24.640 of their beautiful female reporters over right, and she writes 0:12:24.679 --> 0:12:29.079 this story about crazy at these computer system that tracks inventory, 0:12:29.160 --> 0:12:31.280 and we put a nice lady in with with a 0:12:31.320 --> 0:12:33.520 smini skirt in front of the computers and all of 0:12:33.559 --> 0:12:36.480 the red, orange and yellow lights are going on, and 0:12:36.520 --> 0:12:41.559 people think we have a great computer system. If a 0:12:41.720 --> 0:12:44.120 traction is always more important than the life. If you 0:12:44.160 --> 0:12:47.720 were going to do it fraud today, in modern times, 0:12:47.840 --> 0:12:50.560 what would it be multi level marketing or time shares? 0:12:50.679 --> 0:12:54.040 Because it's legitimate fraud. I see people. I've done work 0:12:54.080 --> 0:12:56.800 on the forensic side on that. I see people getting 0:12:56.800 --> 0:12:59.280 fleeced all the time by these industries pretending to be 0:12:59.400 --> 0:13:03.079 legitimate businesses. I mean they might be good investments for 0:13:03.160 --> 0:13:05.360 Wall Street. I'm not he had to talk about investments, 0:13:05.400 --> 0:13:07.360 And actually I haven't been in the market for over 0:13:07.400 --> 0:13:10.840 a decade, but I will tell you these these these 0:13:10.840 --> 0:13:14.760 companies are the scum of American capitalism, the ruination of 0:13:14.800 --> 0:13:18.440 American capitals. They should not be allowed to exist. All right, 0:13:18.720 --> 0:13:21.800 Sam answer the former CFO of Crazy Eddie, Thank you 0:13:21.920 --> 0:13:35.520 very much for your lessons for us. Thank you all right. 0:13:36.960 --> 0:13:40.480 Moving swiftly along, We're gonna bring up our next panel. 0:13:40.679 --> 0:13:42.439 And those of you that listen to a plots know 0:13:42.559 --> 0:13:45.720 that obviously we talk a lot about financial markets on 0:13:45.760 --> 0:13:48.480 the show, and I think sometimes there's a tendency to 0:13:48.559 --> 0:13:51.679 think that markets are sort of divorced from people's day 0:13:51.679 --> 0:13:54.600 to day lives, when in fact they matter a lot 0:13:54.679 --> 0:13:57.960 to how everyone lives. So for our next panel, we're 0:13:57.960 --> 0:14:00.800 going to focus on some big moments in the debt market, 0:14:00.920 --> 0:14:03.960 specifically UM and big moments in the debt market that 0:14:04.000 --> 0:14:07.920 have actually changed the world in various ways. Our next 0:14:07.960 --> 0:14:12.920 two panelists are Brad Setser, an American economist and former 0:14:12.920 --> 0:14:16.080 staff economist at the Treasury Department. Many of you probably 0:14:16.120 --> 0:14:18.520 follow him on Twitter, and if you don't, you definitely 0:14:18.559 --> 0:14:21.080 should because he has great insights. And we also have 0:14:21.200 --> 0:14:25.640 Lee book Eye, who's been described previously as the philosopher 0:14:25.800 --> 0:14:30.239 King of sovereign debt lawyers. He's represented nearly every country 0:14:30.280 --> 0:14:34.000 that's gone bankrupt since the nineteen eighties and really reshaped 0:14:34.040 --> 0:14:37.240 the way that we think about sovereign debt. His mere 0:14:37.400 --> 0:14:41.280 presence at airports have been known to move a country's 0:14:41.280 --> 0:14:45.120 debt market. Uh, and he's recently retired from the law firm. 0:14:45.160 --> 0:14:47.440 Cleary Gotlieb and we managed to get him out of 0:14:47.520 --> 0:14:51.000 his semi retirement to come talk to us. So very exciting. 0:14:51.080 --> 0:14:57.520 Let's bring them on right. Uh, So we purposefully gave 0:14:57.560 --> 0:15:00.200 ourselves a really sort of a vague intro, which means 0:15:00.240 --> 0:15:02.040 I now have to struggle to think what the first 0:15:02.080 --> 0:15:04.400 question is. But I think we want to focus on 0:15:05.800 --> 0:15:09.400 debt crisis to begin with. Do they all look the same? 0:15:09.600 --> 0:15:12.760 Is there a common thread? How do you actually spot 0:15:12.840 --> 0:15:16.560 a debt crisis coming? Lee? Let's start with you. They 0:15:16.600 --> 0:15:19.480 don't all look the same, but they have one thing 0:15:19.560 --> 0:15:24.240 in common. They're all a crisis um and they never 0:15:25.400 --> 0:15:29.720 come in isolation. A sovereign debt crisis will almost always 0:15:29.760 --> 0:15:34.000 be accompanied by a banking crisis, or trade crisis, a 0:15:34.120 --> 0:15:40.560 currency crisis, sometimes a social crisis. Uh. The pressure on 0:15:40.760 --> 0:15:46.200 the politicians who are there when the crisis begins is 0:15:46.240 --> 0:15:51.240 intense because they all know that history suggests that the 0:15:51.240 --> 0:15:54.680 politicians there when a crisis begins are rarely the ones 0:15:54.800 --> 0:15:59.240 there when it ends. Bread By the way, I just 0:15:59.280 --> 0:16:03.240 want to tell quick anecdote about Brad because we're here. So. 0:16:03.360 --> 0:16:06.840 I think it was probably fourteen years ago and I 0:16:06.880 --> 0:16:09.360 was like unemployed. I hadn't been in New York that long. 0:16:09.600 --> 0:16:13.760 I applied for a job to like blog about economics 0:16:13.840 --> 0:16:17.440 or something, and Brad was my interviewer and I bombed 0:16:17.440 --> 0:16:19.680 the interview and I think at the job, but we 0:16:19.840 --> 0:16:23.640 that's because he asked me about Argentina had just defaulted 0:16:23.680 --> 0:16:26.200 a couple of years ago, and he asked me some 0:16:26.280 --> 0:16:29.080 question about Argentina. Was like, you know, he asked my 0:16:29.080 --> 0:16:31.240 way through. I had no idea, so I bombed. I 0:16:31.240 --> 0:16:34.600 didn't get it. But we're now here and I'm you know, 0:16:34.800 --> 0:16:38.360 he's at the hot seat. So and once again Argentina 0:16:38.920 --> 0:16:43.160 isn't the news. Uh so, Brad, why does Argentina first 0:16:43.200 --> 0:16:48.600 of all? Uh? Second of all, why does Argentina? Why 0:16:48.600 --> 0:16:51.760 did they default so much? What's the deal with that? Well? 0:16:52.080 --> 0:16:54.600 I made probably one of the biggest hiring mistakes in 0:16:54.640 --> 0:16:59.480 my life. Um. We we'd actually hired Felix Salmon, who 0:16:59.480 --> 0:17:04.080 would turned to be a pretty good blog so we 0:17:04.080 --> 0:17:07.439 could have put together Felix and Joe and like, uh, 0:17:07.920 --> 0:17:11.760 probably been a successful blogging firm. Um. So, what does 0:17:11.920 --> 0:17:14.400 Argentina default so much? I guess it's because people lend 0:17:14.440 --> 0:17:19.320 them so much money? Okay, why do people keep lending 0:17:19.359 --> 0:17:22.640 them money? Because this seems to happen literally at this point, 0:17:22.680 --> 0:17:29.000 almost every five years. I think people consistently overestimate Argentina's 0:17:29.040 --> 0:17:39.119 capacity to repay. Yeah, they just kind of gets like 0:17:39.320 --> 0:17:45.560 squonky sovereign debty. Uh, Argentina doesn't have a big export base. 0:17:46.000 --> 0:17:51.120 It exports soybeans and UH soybean oil. It hasn't developed 0:17:51.160 --> 0:17:54.760 other export industries, so exports are very small share of 0:17:54.880 --> 0:17:58.840 Argentina's economy. If you have a small share of exports, 0:17:59.359 --> 0:18:03.359 you have less capacity to support foreign currency debt. Yet 0:18:03.480 --> 0:18:07.320 Argentina keeps borrowing in foreign currency. So I mean essentially 0:18:07.400 --> 0:18:12.879 every time what would normally be a currency move and appreciation, 0:18:13.400 --> 0:18:17.840 it turns into a debt crisis. So I described Lee's 0:18:17.880 --> 0:18:22.560 career saying that he's represented in numerous governments. So give 0:18:22.640 --> 0:18:25.919 us your opinion on why those governments keep tapping the 0:18:25.960 --> 0:18:30.560 market for money that apparently they can't actually afford. Look, 0:18:30.640 --> 0:18:36.480 in the twenty first century, no sovereign borrows money in 0:18:36.520 --> 0:18:39.800 the international markets with the expectation that they'll ever have 0:18:39.880 --> 0:18:45.320 to repay it. If by repay you mean devote current 0:18:45.359 --> 0:18:49.679 resources to settle that liability. They borrow it in the 0:18:49.840 --> 0:18:53.600 sure and certain hope that when it matures they will 0:18:53.640 --> 0:18:56.119 be able to go back into the market and borrow 0:18:56.160 --> 0:19:00.520 from someone else to pay that back, and when that matures, 0:19:00.520 --> 0:19:07.920 they'll do the same so on in perpetuity. I sometimes 0:19:07.920 --> 0:19:11.600 think of sovereign debt that it used to be a 0:19:11.720 --> 0:19:15.280 joke that if you had a pal who was on 0:19:15.359 --> 0:19:19.320 a diet and you saw them about to tuck into 0:19:19.359 --> 0:19:23.280 a chocolate declaire, you were supposed to say to them, Now, 0:19:23.400 --> 0:19:29.080 remember a moment on the lips. A lifetime on the hips. 0:19:30.240 --> 0:19:35.439 Sovereign debt is that when a sovereign borrows money today, uh, 0:19:35.880 --> 0:19:39.960 that debt in a net sense, will probably stay on 0:19:40.040 --> 0:19:46.760 its balance sheet forever. That which is why sovereign debt 0:19:46.800 --> 0:19:53.240 stocks almost always go up. They will occasionally go down, 0:19:53.280 --> 0:19:58.840 but almost always go up relentlessly, remorselessly. Well, Brad, you 0:19:58.920 --> 0:20:02.720 mentioned that argent Tina is particularly ill suited to take 0:20:02.720 --> 0:20:06.840 on foreign currency debt due to its immature export base. 0:20:07.520 --> 0:20:10.199 Why not adopt a different model? Why do they have 0:20:10.320 --> 0:20:16.560 to borrow from borrow from international markets? Well, I mean 0:20:16.600 --> 0:20:20.080 they have at times tried a different model. I mean, 0:20:20.320 --> 0:20:22.920 for better or for worse. The Kushners were frozen out 0:20:22.920 --> 0:20:25.800 of the market for a long period of time. They 0:20:25.800 --> 0:20:28.360 still kind of wanted to run budget deficits, so they 0:20:28.520 --> 0:20:32.720 kind of borrowed from the Central Bank to UH finance 0:20:32.800 --> 0:20:36.639 government spending. Mockery came along and said, I wanted to 0:20:36.680 --> 0:20:40.320 go back to be a more legitimate form of finance. 0:20:41.040 --> 0:20:44.639 UH and Argentina, in addition to having a small export sector, 0:20:44.920 --> 0:20:49.280 has a really small banking sector. Lots of historical reasons, 0:20:49.400 --> 0:20:52.920 the history of inflation, so we couldn't finance the budget 0:20:52.920 --> 0:20:57.680 deficit with the banking sector. The market was there and 0:20:57.840 --> 0:21:04.399 the temptation was strong, Uh Lee should they do? Should 0:21:04.400 --> 0:21:06.359 they do a different approach? And I'm also curious, like 0:21:06.760 --> 0:21:09.960 after Mockery one, everyone's like, yeah, he's going to do 0:21:10.040 --> 0:21:12.679 all the liberal reforms that people want. And the i 0:21:12.800 --> 0:21:15.320 m F is excited because they're gonna do some playbook 0:21:15.520 --> 0:21:17.879 and obviously, as we've seen over the last several months, 0:21:17.880 --> 0:21:21.199 it's completely failed. How much burden is there on the 0:21:21.800 --> 0:21:24.920 or as a responsibility on the international community, whether it's 0:21:25.119 --> 0:21:29.080 organizations like the i m F. Two, try that playbook 0:21:29.119 --> 0:21:31.960 again and sort of think, like, you know, how much 0:21:32.000 --> 0:21:34.560 is it their fault for adopting this pattern that just 0:21:34.760 --> 0:21:38.800 isn't working. Well, here's a curious asymmetry in the international 0:21:38.880 --> 0:21:44.720 financial markets. Organizations like the I m F. Every year 0:21:45.000 --> 0:21:47.520 by their articles of agreement will send a team of 0:21:47.560 --> 0:21:51.919 economists down to every one of their members analyze the 0:21:51.960 --> 0:21:57.360 fiscal policies and usually criticize them, sometimes brutally, but they 0:21:57.400 --> 0:22:01.360 have no power at that stage to get the country 0:22:01.400 --> 0:22:05.280 to change policy. It is only when the country cannot 0:22:05.400 --> 0:22:07.720 pay its debts and comes to the I m F 0:22:07.800 --> 0:22:10.399 and asks for a program that the IMF can begin 0:22:10.800 --> 0:22:15.720 to say, you must adopt these fiscal adjustment measures. It's 0:22:15.720 --> 0:22:21.800 a curious asymmetry. It's as though the medical profession was 0:22:22.040 --> 0:22:28.240 unable to tell patients to avoid smoking cigarettes, that they 0:22:28.240 --> 0:22:31.600 could only help them when they come in with the 0:22:31.680 --> 0:22:35.919 consequences of it. So is the solution to debt crises 0:22:36.040 --> 0:22:39.159 doesn't always have to be fiscal adjustment or austerity or 0:22:39.200 --> 0:22:42.960 are there alternatives that are just never pursued? Well, debt 0:22:43.000 --> 0:22:47.360 crisis you you started this question, Tracy. Debt crisis come 0:22:47.480 --> 0:22:51.960 in different forms. Sometimes often I guess they are caused 0:22:51.960 --> 0:22:57.080 by chronic fiscal mismanagement of the economy, but not always 0:22:57.840 --> 0:23:02.480 um There have been debt is caused by natural disasters, 0:23:02.520 --> 0:23:07.920 the hurricane, the the earthquake, the tidal wave. UH Debt 0:23:07.960 --> 0:23:12.720 crisis can be caused by a Lehman moment in the 0:23:12.760 --> 0:23:18.720 international markets. Debt crisis can be caused by some other sovereign, 0:23:18.880 --> 0:23:26.040 some other place in the world misbehaving or the victim 0:23:26.200 --> 0:23:30.800 of gross misfortune, which causes the investor community to recoil. 0:23:31.600 --> 0:23:36.840 And it's almost like you're seeing them wake up and 0:23:37.440 --> 0:23:41.960 remember the risks of sovereign nothing and then they pull back. 0:23:42.359 --> 0:23:46.240 And when they pull back, Uh, going back to my 0:23:46.359 --> 0:23:52.320 earlier analogy, Uh, when all the debt is assumed to 0:23:52.400 --> 0:23:57.240 be refinanciable and it no longer is refinanciable, then there's 0:23:57.240 --> 0:24:01.320 a debt crisis. Bread. Do you think some other model 0:24:01.720 --> 0:24:03.960 should be pursued? I mean, let's say you could go 0:24:04.000 --> 0:24:07.359 back in time too, after right after Mockery went to 0:24:07.400 --> 0:24:10.520 the election or some other point. Was there another path 0:24:10.600 --> 0:24:15.120 that plausibly could have been taken by Argentina to avoid this? 0:24:15.240 --> 0:24:17.520 And I don't mean like, you know, more austerity per se, 0:24:17.560 --> 0:24:20.320 because whatever, you know, it's tough, But was there like 0:24:20.320 --> 0:24:26.000 a totally different approach they could have taken. I in 0:24:26.160 --> 0:24:31.400 Argentina's particular case, there were choices, but I'm not sure 0:24:31.400 --> 0:24:36.400