WEBVTT - SCOTUS and School Diversity & Mega Merger Mania 0:00:03.120 --> 0:00:07.920 This is Bloomberg Law with June Brusso from Bloomberg Radio. 0:00:10.960 --> 0:00:15.040 Last year's Supreme Court decision barring universities from using race 0:00:15.080 --> 0:00:18.840 and admissions has left a lot of open questions about 0:00:18.880 --> 0:00:24.520 admissions policies that don't explicitly consider race but nonetheless affect 0:00:24.600 --> 0:00:29.160 a school's racial composition. But on Tuesday, the Supreme Court 0:00:29.240 --> 0:00:33.320 decided not to step into the fray again, refusing to 0:00:33.360 --> 0:00:36.600 review a Virginia public high school's use of its admissions 0:00:36.640 --> 0:00:41.400 policies to achieve more socioeconomic diversity in the student body 0:00:41.640 --> 0:00:45.760 over the descents of Justices Samuel Alito and Clarence Thomas. 0:00:46.280 --> 0:00:49.080 Joining me is Audrey Anderson, head of the higher education 0:00:49.280 --> 0:00:54.360 practice at Bassbarian Simms. So, the high school here claimed 0:00:54.360 --> 0:00:59.160 that its admissions standards were race neutral. Explain the policy 0:00:59.360 --> 0:01:01.400 change that led to this lawsuit. 0:01:01.920 --> 0:01:04.000 Yeah, Jan, there was really no question but that the 0:01:04.040 --> 0:01:08.200 policy that the high school Thomas Jefferson are called TJ, 0:01:09.080 --> 0:01:12.399 was using before the change and after the change was 0:01:12.600 --> 0:01:16.840 race neutral all the time. But the change that happened 0:01:16.880 --> 0:01:20.200 was that for many years TJ had used a series 0:01:20.319 --> 0:01:24.840 of entrance tests, which were the major way that they 0:01:24.959 --> 0:01:28.880 chose students. For admission to the high school, the students 0:01:28.880 --> 0:01:33.360 had to take something like four different tests, and the 0:01:33.400 --> 0:01:37.680 school board was looking at data and saw that the 0:01:37.760 --> 0:01:40.920 students who were going to TJ, who were selected for 0:01:41.040 --> 0:01:46.840 TJ were not racially diverse. There were not many black 0:01:46.959 --> 0:01:51.320 or Hispanic students. But also, in fact more importantly probably 0:01:51.360 --> 0:01:55.560 for the district, they came primarily from only eight of 0:01:55.640 --> 0:02:01.200 the twenty six middle schools that TJ served. Also, the 0:02:01.280 --> 0:02:06.520 TJ population did not have very many low income students, 0:02:06.600 --> 0:02:10.040 so the district was something like twenty three percent students 0:02:10.040 --> 0:02:13.519 who qualified for free and price meals, and at TJ 0:02:13.840 --> 0:02:17.720 was something like one percent of students qualified for free 0:02:17.840 --> 0:02:21.480 price meals. So the board wanted to see what they 0:02:21.520 --> 0:02:25.320 could do in order to make the population at TJ 0:02:25.520 --> 0:02:32.040 more diverse in a lot of different ways geographically, racially, socioeconomically, 0:02:32.320 --> 0:02:35.240 and then also on students who speak English as a 0:02:35.280 --> 0:02:40.040 second language. So the policy they put in place got 0:02:40.120 --> 0:02:43.440 rid of the entrance exams. There was still one problem 0:02:43.520 --> 0:02:47.639 solving exercise students had to do, but the main change 0:02:48.040 --> 0:02:52.600 was that they allocated seats by middle school, so every 0:02:52.639 --> 0:02:56.519 middle school got a certain number of seats at TJ, 0:02:56.760 --> 0:03:00.600 so students were competing with their peers at their middle 0:03:00.639 --> 0:03:04.680 school primarily, and then after those seats were allocated, there 0:03:04.720 --> 0:03:08.400 were some seats left over for all applicants who had 0:03:08.400 --> 0:03:11.560 not gotten in through their middle school process. And in 0:03:11.600 --> 0:03:15.639 addition to this problem solving exercise, they also looked at 0:03:15.680 --> 0:03:19.840 some factors, you know, teacher recommendations, grade point average, and 0:03:19.840 --> 0:03:23.079 they actually raised the grade point average that was necessary 0:03:23.080 --> 0:03:25.240 in order to apply from a three to zero to 0:03:25.320 --> 0:03:27.800 a three point five. And then they also looked at 0:03:27.840 --> 0:03:33.880 what they called experiential factors, which were socioeconomic status, whether 0:03:33.919 --> 0:03:36.880 the student came from a family that spoke English as 0:03:36.920 --> 0:03:40.520 their first language, and whether their school was a school 0:03:40.520 --> 0:03:44.600 that had traditionally not sent a lot of students to teach. 0:03:46.160 --> 0:03:49.080 So the changes did seem to though, have an effect 0:03:49.120 --> 0:03:52.960 on the racial composition of the student body. After they 0:03:53.000 --> 0:03:56.800 went into effect, the percentage of Asian American students dropped 0:03:56.800 --> 0:04:00.400 from offered admissions, dropped from seventy three percent of fifty 0:04:00.480 --> 0:04:04.280 four percent. The percentage of Black students grew from no 0:04:04.360 --> 0:04:07.080 more than two percent to eight percent, the percentage of 0:04:07.200 --> 0:04:10.920 Hispanic students grew from three percent to eleven percent, and 0:04:10.960 --> 0:04:14.520 the percentage of white students from eighteen percent to twenty 0:04:14.560 --> 0:04:18.520 two percent. So it did have an effect on the 0:04:18.640 --> 0:04:21.080 racial composition of the student body. 0:04:21.600 --> 0:04:24.440 Yes, and that can be expected. I don't really know 0:04:24.839 --> 0:04:28.760 in the demographics of the Falls Church area, but we 0:04:28.839 --> 0:04:32.040 know generally in the United States there's a lot of 0:04:32.080 --> 0:04:37.239 residential segregation, so people tend to live in neighborhoods by race. 0:04:37.440 --> 0:04:43.279 So anytime that you choose admissions policy that's going to 0:04:44.240 --> 0:04:49.159 equalize opportunity across a whole school district, you're likely to 0:04:49.240 --> 0:04:52.800 get more racial diversity than if you're only getting it 0:04:52.839 --> 0:04:56.760 from some parts of the district. So by adopting a 0:04:56.800 --> 0:04:59.919 policy that said, hey, look what we're getting now is 0:05:00.000 --> 0:05:03.880 students only from these eight middle schools. Let's do something 0:05:03.920 --> 0:05:06.440 so that we get them from all the middle schools 0:05:06.440 --> 0:05:09.560 in the county, anyone would expect that that would give 0:05:09.600 --> 0:05:14.200 you greater racial diversity. It would more match the racial 0:05:14.240 --> 0:05:18.120 diversity of your district, rather than of just some neighborhoods. 0:05:18.880 --> 0:05:22.720 The appeals court narrowly divided found the parents group had 0:05:22.720 --> 0:05:25.880 and established that the board adopted its race neutral policy 0:05:25.920 --> 0:05:27.520 with any discriminatory intent. 0:05:27.960 --> 0:05:29.159 Is that the right standard? 0:05:29.680 --> 0:05:33.440 Yes, I think that everybody agrees to that the right 0:05:33.960 --> 0:05:37.599 legal standard was used. I think that where the disagreement 0:05:37.880 --> 0:05:43.200 is is in how they applied and looked at that standard. 0:05:43.960 --> 0:05:47.400 So the biggest question, and the thing that Justice Alito 0:05:48.080 --> 0:05:51.320 took issue with, is one of the things that you 0:05:51.480 --> 0:05:53.720 look at when you're trying to figure out whether a 0:05:53.760 --> 0:05:57.360 policy that is rased neutral on its base, does it 0:05:57.400 --> 0:06:01.719 nonetheless violate the equal protection clause? Because because it's racially discriminatory, 0:06:02.360 --> 0:06:04.839 one of the things you look at is did the 0:06:04.880 --> 0:06:10.840 policy have a disproportionate impact on one race rather than another? 0:06:11.080 --> 0:06:14.240 Because if it did, that's one piece of evidence that 0:06:14.279 --> 0:06:18.200 would show that there might have been racially discriminatory intent. 0:06:19.200 --> 0:06:22.599 You can't show that violates the equal protection clause just 0:06:22.760 --> 0:06:25.919 based on that, but that's one important piece of evidence. 0:06:26.040 --> 0:06:30.120 So the question, though, is how do you determine whether 0:06:30.200 --> 0:06:36.440 a policy has a racially disproportionate effect. What Justice Alito 0:06:36.520 --> 0:06:38.160 says you have to do is you have to look 0:06:38.200 --> 0:06:41.640 at how did that racial group faire under the old policy, 0:06:42.080 --> 0:06:44.680 and now how do they fare under the new policy. 0:06:45.040 --> 0:06:47.599 What the Fourth Circuit said and what the school district 0:06:47.680 --> 0:06:50.240 says is that's the wrong way to look at it. 0:06:50.279 --> 0:06:52.719 What you have to look at is when you've got 0:06:52.800 --> 0:06:56.120 two different policies that are both race neutral, you have 0:06:56.240 --> 0:06:59.479 to just look at the new policy and say, how 0:06:59.520 --> 0:07:05.960 do different racial groups fair under this new policy. Does 0:07:06.040 --> 0:07:10.840 this new policy put any barriers based on race? And 0:07:11.440 --> 0:07:15.880 the Court of Appeal said it doesn't, because even though 0:07:15.920 --> 0:07:20.120 the percentages of Asians went down under the new policy, 0:07:20.680 --> 0:07:26.360 Asians as a group, their applications were forty five percent 0:07:26.400 --> 0:07:30.200 of the application pool and they got fifty four percent 0:07:31.040 --> 0:07:35.520 of the offers to attend TJ. So that would show 0:07:35.640 --> 0:07:40.080 that they're not being disproportionately affected based on their race 0:07:40.480 --> 0:07:43.800 under this new policy. That's the biggest thing that Justice 0:07:43.800 --> 0:07:45.400 Alito is upset about. 0:07:45.920 --> 0:07:49.560 And Justice Thomas and Justice Thomas not a surprise because 0:07:49.600 --> 0:07:55.160 these two are justices who have been consistently anti affirmative action. 0:07:55.440 --> 0:07:58.160 Right, And I think what's also underlying this and it 0:07:58.240 --> 0:08:00.920 comes out in the end of Justice Alito's opinion. And 0:08:00.960 --> 0:08:03.440 if you look at the district court opinion here the 0:08:03.520 --> 0:08:07.880 trial court judge who found that the policy was unconstitutional, 0:08:08.280 --> 0:08:12.480 he was very concerned that the school board was talking 0:08:12.680 --> 0:08:17.040 about racial diversity at all. There is no evidence in 0:08:17.080 --> 0:08:20.600 the record that any school board member wanted to hurt 0:08:20.720 --> 0:08:24.760 Asian Americans with the new policy, that they had a 0:08:24.960 --> 0:08:29.080 goal of lessening the percentage of Asian Americans in the 0:08:29.160 --> 0:08:32.760 school there's in fact evidence saying that they were concerned 0:08:33.640 --> 0:08:36.080 that would look like or that they would be hurting 0:08:36.120 --> 0:08:39.960 Asian Americans, But there's lots of evidence saying that they 0:08:40.040 --> 0:08:44.840 wanted to increase the diversity. So I'm including diversity by race. 0:08:45.120 --> 0:08:48.880 But Judge Hilton, the district court judge, said that just 0:08:48.960 --> 0:08:53.079 the discussion that they wanted to increase diversity by race 0:08:53.360 --> 0:08:57.920 infected the whole process, and he used that word infected, 0:08:58.280 --> 0:09:02.480 and Justice Alito uses the same kind of language that 0:09:02.559 --> 0:09:06.040 it infects things. So the question that some of us 0:09:06.040 --> 0:09:09.959 were really concerned about with this case is can a 0:09:10.000 --> 0:09:17.480 governmental body even consider the racial diversity? What the outcome 0:09:17.480 --> 0:09:23.080 will be of a racially neutral policy on the demographics 0:09:23.120 --> 0:09:26.720 of something. Is it okay if a school board is saying, 0:09:26.840 --> 0:09:30.840 if we adopt this policy which is racially neutral, it's 0:09:30.920 --> 0:09:35.120 going to affect the demographics of our schools in this way? 0:09:35.320 --> 0:09:38.800 Can they do that now? At TJ As it turns out, 0:09:38.840 --> 0:09:43.280 actually for the policy that they adopted, they ran no 0:09:43.440 --> 0:09:47.559 racial statistics. They did not run a simulation of if 0:09:47.600 --> 0:09:51.440 we adopt this policy, the policy that it adopted, what 0:09:51.559 --> 0:09:55.640 will the racial demographics of TJ look like. Their folks 0:09:55.679 --> 0:09:59.400 told them they could not run that simulation because there 0:09:59.440 --> 0:10:03.160 were two many questions about who would apply or I 0:10:03.160 --> 0:10:04.840 don't remember what they all were, but they said they 0:10:04.880 --> 0:10:08.160 couldn't run that. So the choice that was actually made 0:10:08.160 --> 0:10:10.720 by the school board was made without looking at what 0:10:11.360 --> 0:10:16.360 the racial demographics would be. Choices they voted down. There 0:10:16.400 --> 0:10:19.880 were racial simulations run for, but the choice they voted 0:10:19.920 --> 0:10:22.959 for it approved. No racial simulation was done, which is 0:10:23.000 --> 0:10:25.760 also part of the evidence here that I think might 0:10:25.800 --> 0:10:28.600 have made some on the Supreme Court say, you know, 0:10:28.679 --> 0:10:30.640 even if we were interested in this, this is not 0:10:30.760 --> 0:10:32.640 really the right case for us to take. 0:10:33.559 --> 0:10:36.120 What does it tell you that the Supreme Court turned 0:10:36.240 --> 0:10:39.520 this case away and at the beginning of the month 0:10:39.920 --> 0:10:43.400 the Court decided to allow West Point to continue using 0:10:43.559 --> 0:10:45.199 race as an admissions factor. 0:10:46.360 --> 0:10:48.439 I think that the decisions made by the Court are 0:10:48.480 --> 0:10:52.040 actually quite different. You know, as we discussed, what they 0:10:52.080 --> 0:10:56.840 turned away at West Point was emergency relief on a 0:10:57.000 --> 0:11:01.160 completely undeveloped record. I think that the Court will still 0:11:01.200 --> 0:11:04.280 be very interested in the West Point case after it 0:11:04.320 --> 0:11:07.920 makes its way through the whole system. This case they've 0:11:07.920 --> 0:11:10.160 turned it away and now they will have no chance 0:11:10.320 --> 0:11:12.880 to review it. It is done, it is on the books. 0:11:13.040 --> 0:11:16.960 I think that they're turning it away says that they're 0:11:17.000 --> 0:11:19.920 just not interested in taking it up so quickly after 0:11:20.320 --> 0:11:23.800 students for fair admissions, and they do want to allow 0:11:24.080 --> 0:11:27.960 this area of the law to what we say, percolate 0:11:28.360 --> 0:11:31.040 a little bit. But as I said, this record is 0:11:31.120 --> 0:11:34.240 not a great record for them to take. If there 0:11:34.240 --> 0:11:36.439 are some on the court that we know that there are, 0:11:36.480 --> 0:11:39.200 we know that Alito and Thomas are interested in this question. 0:11:39.600 --> 0:11:41.720 If there are others who are interested in it on 0:11:41.760 --> 0:11:44.080 the court, this case I think does not have a 0:11:44.120 --> 0:11:49.520 great record for it because the policy actually adopted by 0:11:49.520 --> 0:11:52.480 the school district that's being challenged, they did not run 0:11:52.520 --> 0:11:57.160 any racial simulations for and because it is not only 0:11:57.679 --> 0:12:03.080 race neutral, it's completely race blind. They take all the 0:12:03.200 --> 0:12:07.439 names off of the applications and assign them numbers, so 0:12:07.600 --> 0:12:11.720 the people making the decisions can't even guess by students' 0:12:11.800 --> 0:12:16.800 names what race they might be. So the lengths that 0:12:16.920 --> 0:12:19.880 the school district has gone to to make this really 0:12:20.679 --> 0:12:24.480 race blind, I think also is another factor that would 0:12:24.559 --> 0:12:26.480 make some on the Court say this isn't the right 0:12:26.520 --> 0:12:28.000 case for us to take up. 0:12:28.400 --> 0:12:33.240 And just remind us what question is left open after 0:12:33.320 --> 0:12:35.440 the Harvard and North Carolina decisions. 0:12:36.160 --> 0:12:38.400 Well, I mean, that's the other thing here. This, of 0:12:38.400 --> 0:12:42.240 course is K twelve, which is different than higher education. 0:12:43.400 --> 0:12:47.360 So there are a number of questions left open. One 0:12:47.360 --> 0:12:50.600 of the questions is a question that will be posed 0:12:50.640 --> 0:12:53.640 by the West Point case, which is are there other 0:12:53.880 --> 0:12:57.920 interests other than the educational benefits of diversity that the 0:12:57.960 --> 0:13:02.040 Court may find compelling enough to support the use of race. 0:13:02.200 --> 0:13:04.400 And in the West Point case, the United States is 0:13:04.440 --> 0:13:08.560 saying that the military academies have a compelling interest supported 0:13:08.559 --> 0:13:12.720 by national defense goals that are compelling that support the 0:13:12.800 --> 0:13:15.840 use of race. But we also have to remember, and 0:13:15.880 --> 0:13:19.080 this has really gotten me thinking about this, the court 0:13:19.400 --> 0:13:26.240 in Harvard and North Carolina did not technically over rule Grutterer. 0:13:26.480 --> 0:13:30.480 It is still on the books that the benefits of 0:13:30.679 --> 0:13:35.920 diversity in higher education, not K twelve, is a compelling interest. Now, 0:13:35.920 --> 0:13:38.559 they wrote the opinion in such a way that no 0:13:38.800 --> 0:13:42.520 college or university can use that interest in order to 0:13:42.520 --> 0:13:45.560 support the use of race. But if it's still on 0:13:45.640 --> 0:13:49.200 the books that it's a compelling interest. I think it 0:13:49.240 --> 0:13:57.000 makes it harder for someone to say it is constitutionally 0:13:57.640 --> 0:14:03.680 improper for a school board to even talk about what 0:14:03.760 --> 0:14:07.400 the racial composition of their school is going to be 0:14:07.920 --> 0:14:12.320 when they use race neutral measures. I think that there 0:14:12.320 --> 0:14:15.120 are some on the Supreme Court and certainly some advocates 0:14:15.640 --> 0:14:20.080 who do believe that universities and K twelve schools should 0:14:20.160 --> 0:14:25.880 just not be able to look at consider what the 0:14:25.960 --> 0:14:29.360 racial demographics of their classes look like at all. That 0:14:29.520 --> 0:14:33.680 even to think about that violates the equal Protection Clause. 0:14:34.240 --> 0:14:39.000 And if it's a compelling interest to have diversity, well 0:14:39.000 --> 0:14:41.760 then it's hard to say that you can't even see 0:14:41.800 --> 0:14:45.960 what your race neutral measures will do to achieve that goal. 0:14:46.560 --> 0:14:52.960 So anti affirmative action groups are testing these restrictions in 0:14:53.000 --> 0:14:56.440 a lot of different ways. Are they making progress in 0:14:56.480 --> 0:14:58.800 any particular area or is it too soon? 0:14:59.360 --> 0:15:01.640 You know, we know that they had the early cases 0:15:01.880 --> 0:15:07.360 against some law firms for internship programs that were limited 0:15:07.400 --> 0:15:12.040 to applicants based on their race, and they brought lawsuits 0:15:12.080 --> 0:15:15.280 and law firms change those programs to open them up 0:15:15.320 --> 0:15:18.240 to people of all races. So I think that those 0:15:18.280 --> 0:15:22.720 are some victories, and I think that by just bringing 0:15:22.800 --> 0:15:27.400 those kinds of lawsuits, it has made institutions in all 0:15:27.520 --> 0:15:31.160 kinds of fields take a look at their programs to say, 0:15:31.760 --> 0:15:37.680 are our programs really open to everyone, regardless of their race. 0:15:37.920 --> 0:15:39.960 We need to make sure that, regardless of what the 0:15:40.040 --> 0:15:43.560 goals are of our program everybody has to be able 0:15:43.600 --> 0:15:47.480 to have a place in them. And so I think 0:15:47.560 --> 0:15:50.280 that even if they haven't had a lot of legal 0:15:50.360 --> 0:15:53.320 victories yet, they have already made a lot of change 0:15:53.480 --> 0:15:56.840 in society for how entities are looking at these kinds 0:15:56.880 --> 0:15:57.600 of programs. 0:15:57.880 --> 0:16:01.560 More of these cases certainly short. Thanks so much, Audrey. 0:16:01.800 --> 0:16:05.040 That's Audrey Anderson, head of the higher education practice at 0:16:05.040 --> 0:16:11.520 Bassbarian Simms. Coming up Mergermania. This is Bloomberg from Capital 0:16:11.600 --> 0:16:15.800 One's thirty five billion dollar plan to take over Discover Financial, 0:16:16.120 --> 0:16:20.359 Kroger's twenty four point six billion dollar acquisition of Albertson's 0:16:20.720 --> 0:16:24.840 to Disney, Fox and Warner's streaming deal. The question is 0:16:24.920 --> 0:16:30.200 always which deal will survive antitrust scrutiny by federal regulators 0:16:30.400 --> 0:16:33.040 and which we'll go to court. And it appears the 0:16:33.080 --> 0:16:36.200 Federal Trade Commission and a group of states are poised 0:16:36.200 --> 0:16:38.840 to sue as soon as next week to block the 0:16:38.920 --> 0:16:43.200 tie up between Kroger's and Albertson's. According to Bloomberg sources, 0:16:43.600 --> 0:16:47.000 the scrutiny seems to come from the top. Remember back 0:16:47.000 --> 0:16:50.720 in July of twenty twenty one, President Joe Biden signed 0:16:50.760 --> 0:16:55.480 an executive order directing the federal government to aggressively enforce 0:16:55.560 --> 0:16:57.400 the nation's anti trust laws. 0:16:57.960 --> 0:17:01.960 No more tolerance for abusive actions I monopolist, No more 0:17:02.120 --> 0:17:07.200 bad mergers that lead to mass layoffs, higher prices, fewer 0:17:07.200 --> 0:17:09.600 options for workers and consumers alike. 0:17:10.240 --> 0:17:13.800 Joining me to discuss these deals is a leading antitrust expert, 0:17:14.119 --> 0:17:15.600 Harry First, a professor at. 0:17:15.640 --> 0:17:16.719 NYU Law School. 0:17:17.440 --> 0:17:21.160 Harry Capital One and Discover would form the largest US 0:17:21.280 --> 0:17:25.040 credit card issuer. And I've been reading many legal experts 0:17:25.080 --> 0:17:29.840 say this will reveal whether regulators are serious about policing 0:17:30.000 --> 0:17:32.360 consolidation in the financial sector. 0:17:33.040 --> 0:17:35.920 Do you agree, Well, it shows that they're serious. Well, 0:17:35.960 --> 0:17:39.080 first of all, they have to examine this, so in 0:17:39.080 --> 0:17:43.880 that sense they'll be serious. There haven't been very many challenges, 0:17:44.119 --> 0:17:49.800 I guess to bank mergers. This really isn't a bank merger. Historically, 0:17:50.040 --> 0:17:53.800 Justice Department and any trust and forces have paid attention 0:17:53.920 --> 0:17:59.040 to payment systems, particularly to Visa and MasterCard. So I'm 0:17:59.080 --> 0:18:01.200 not sure test this is the right word. They're being 0:18:01.280 --> 0:18:06.160 tested in many different areas. But what it may test 0:18:06.359 --> 0:18:09.840 is whether I think it's the Office of the Controller 0:18:10.119 --> 0:18:13.119 that has jurisdiction one of the banking regulators, and whether 0:18:13.200 --> 0:18:17.200 they will stop it because they've been fairly lacked themselves. 0:18:17.720 --> 0:18:20.840 But even if they don't, the Justice Department can still 0:18:20.880 --> 0:18:24.000 step in. So yes, I think it will be a 0:18:24.080 --> 0:18:29.040 test to see how we're going to analyze this, And apparently, 0:18:29.440 --> 0:18:33.640 at least early views are somewhat split on how this 0:18:33.720 --> 0:18:36.359 is going to come out in terms of whether it 0:18:36.400 --> 0:18:40.240 will pass MUSTER after anti trust review. 0:18:40.880 --> 0:18:43.840 Capital One is arguing that the deal will lead to 0:18:43.960 --> 0:18:49.320 more robust competition among credit card networks currently dominated as 0:18:49.320 --> 0:18:53.359 you mentioned by Visa and MasterCard, with American Express and 0:18:53.440 --> 0:18:54.879 Discover in the mix. 0:18:54.960 --> 0:18:57.879 There is that a solid argument in this case. 0:18:58.520 --> 0:19:01.760 This is an argument that often put forward and certainly 0:19:01.840 --> 0:19:04.520 has been put forward in a lot of cases. Please 0:19:04.640 --> 0:19:07.639 let us harm competition so that we can help it. 0:19:07.640 --> 0:19:10.440 It's sort of you have to draw on Vietnam experience 0:19:10.480 --> 0:19:12.840 when they said we had to destroy that village so 0:19:12.920 --> 0:19:16.399 we could save it. So the idea that we're going 0:19:16.440 --> 0:19:20.320 to end competition between these two firms so that there 0:19:20.359 --> 0:19:24.240 can be more competition is one that any trust people 0:19:24.280 --> 0:19:27.679 tend to look at skeptically. So the first question is 0:19:27.920 --> 0:19:31.840 will it lessen competition? And before we get to whether, 0:19:32.200 --> 0:19:35.080 well it might lessen it in some ways but increase 0:19:35.119 --> 0:19:38.600 it in others, that's the skeptical argument for any trust, 0:19:39.080 --> 0:19:43.080 The first question is will it lessen competition at all? Now, 0:19:43.119 --> 0:19:47.879 this is in credit card issuance, given discovers rather small 0:19:48.000 --> 0:19:52.399 market share, so you don't get to the justification unless 0:19:52.440 --> 0:19:55.840 it's harmful in the first place. One thing that seems 0:19:55.920 --> 0:19:58.800 to me to be true about Discover. Discover has always 0:19:58.840 --> 0:20:02.080 been sort of the map in some ways. I think 0:20:02.240 --> 0:20:05.879 we wouldn't have cash back credit cards if it weren't 0:20:05.880 --> 0:20:10.120 for Discover. So this was Discover's business model when Visa 0:20:10.240 --> 0:20:13.919 MasterCard weren't doing it. So they've been a sort of 0:20:14.000 --> 0:20:18.600 competitive upstart. Now how that's going to look to any 0:20:18.680 --> 0:20:23.200 trust enforcers at the moment, I'm not certain, but that's 0:20:23.240 --> 0:20:26.400 a little wrinkle in this particular case. Now, it may 0:20:26.440 --> 0:20:31.360 be that putting those two firms together doesn't in itself 0:20:31.440 --> 0:20:34.600 raise problems, although I think it probably will in the 0:20:34.720 --> 0:20:39.520 card issuance market, but that's not the only market. So 0:20:39.600 --> 0:20:41.639 there are a lot of banks that issue cards, but 0:20:41.760 --> 0:20:47.080 there are only as you mentioned, four processing networks or 0:20:47.080 --> 0:20:52.480 really three Visa, MasterCard and Discover, which processes the credit 0:20:52.480 --> 0:20:55.640 card payments on the merchant side. And this may cause 0:20:55.720 --> 0:21:00.760 some problems because Discover is an independent process. So I 0:21:00.760 --> 0:21:03.280 think the Justice Department is going to look at that 0:21:03.720 --> 0:21:06.960 in terms of payment systems, how it works for processors 0:21:06.960 --> 0:21:11.760 because merchants pay good money for this, and how this 0:21:11.920 --> 0:21:14.800 merger will affect that I think is going to be important. 0:21:15.440 --> 0:21:16.160 I assume that. 0:21:16.160 --> 0:21:20.000 The Office of the Controller of the Currency and the 0:21:20.040 --> 0:21:23.639 Federal Reserve looking at different things than the Justice Department is. 0:21:24.359 --> 0:21:29.320 That's a great assumption. So the banking agencies are supposed 0:21:29.359 --> 0:21:34.040 to in some ways look at bank stability, convenience, and needs. 0:21:34.280 --> 0:21:39.960 This doesn't involve depositors because Discovery only has one bank outlet. 0:21:40.000 --> 0:21:44.159 I think, so, yes, they have some overall responsibility for 0:21:44.240 --> 0:21:49.280 public interests, but they do apply a competition standard, and 0:21:50.160 --> 0:21:54.160 one of the questions has always been whether they're applying 0:21:54.480 --> 0:21:57.760 maybe a more lenience standard. But then the Justice Department 0:21:57.840 --> 0:22:01.040 can come in and go to court and apply the 0:22:01.080 --> 0:22:05.360 standard that's applied in all other industries. So that's one 0:22:05.359 --> 0:22:07.960 of the interesting wrinkles of this, is to see where 0:22:08.000 --> 0:22:12.360 the banking regulators will be. But then we may get 0:22:12.400 --> 0:22:15.200 to see where the Justice Department is if they approve 0:22:15.720 --> 0:22:19.680 the transaction. So there's a lot to be seen yet, 0:22:19.920 --> 0:22:21.760 you know, in terms of how this will go. But 0:22:21.840 --> 0:22:26.360 it is a very big deal in dollar terms, and 0:22:26.560 --> 0:22:30.760 discoverers played an important competitive role, and what they had 0:22:30.880 --> 0:22:34.080 envisioned for the future, and what you know, capital one's 0:22:34.200 --> 0:22:37.119 vision for the future might be in all this, I 0:22:37.119 --> 0:22:40.159 think will be important once the government starts looking at 0:22:40.200 --> 0:22:41.080 those documents. 0:22:41.320 --> 0:22:47.040 Okay, let's turn to the next possible Okay, antitrust problem. 0:22:47.480 --> 0:22:50.600 The Federal Trade Commission and a group of states are 0:22:50.720 --> 0:22:53.679 poised to sue as soon as next week to block 0:22:53.720 --> 0:22:58.359 the tie up between supermarket giants Kroger and Albertson. 0:22:58.640 --> 0:23:00.359 According to Bloomberg source is. 0:23:00.640 --> 0:23:04.120 The supermarkets here again saying that the deal is needed 0:23:04.480 --> 0:23:07.560 so that they can better compete with their bigger rivals 0:23:08.119 --> 0:23:12.639 Amazon and Walmart, and the FTC in the state attorneys 0:23:12.640 --> 0:23:15.600 general are concerned that it would lead to lower wages 0:23:15.720 --> 0:23:18.920 for workers, higher prices for groceries. 0:23:18.760 --> 0:23:20.960 But Walmart and Amazon are rather big. 0:23:21.440 --> 0:23:23.959 Well they are, of course, A lot of this depends 0:23:24.000 --> 0:23:28.520 on how you want to think about the market. Amazon's big, 0:23:29.119 --> 0:23:33.159 But do you consider online sales as being in the 0:23:33.200 --> 0:23:38.000 same market as grocery store sales? So if you don't, 0:23:38.640 --> 0:23:42.240 then you're talking whole foods. So that's one wrinkle of it. 0:23:42.359 --> 0:23:47.600 Walmart is very big, and sometimes in these supermarket mergers 0:23:47.640 --> 0:23:50.399 firms argue that shouldn't be in the market at all, 0:23:50.760 --> 0:23:54.439 But they probably look like number one in terms of 0:23:54.680 --> 0:23:59.080 retail sales of food in physical stores. Of course, they 0:23:59.119 --> 0:24:02.240 also sell things lawn. Again another wrinkle of this that 0:24:02.320 --> 0:24:06.240 I think Kroger and Albertsons might pursue in litigation. But 0:24:06.480 --> 0:24:10.119 however we slice it. Do we slice food mergers, chop 0:24:10.160 --> 0:24:15.400 food mergers? However we slice the supermarket mergers. These are 0:24:15.520 --> 0:24:18.399 two of the biggest players. We haven't talked about the 0:24:18.520 --> 0:24:23.159 warehouse clubs, specifically Costco, which are often in any trust 0:24:23.160 --> 0:24:28.000 cases not included in supermarket mergers because they're business models 0:24:28.000 --> 0:24:32.320 so sort of different. So if they aren't, then Kroger 0:24:32.480 --> 0:24:35.760 and Albertson's are number two in number three in the 0:24:35.880 --> 0:24:40.200 United States if you include Costco, it's two and four. 0:24:40.600 --> 0:24:43.200 But in any event, these are the major chains. Now, 0:24:43.240 --> 0:24:46.399 the idea that they need to consolidate so as to 0:24:46.480 --> 0:24:50.119 compete with Walmart is another version of we have to 0:24:50.240 --> 0:24:54.880 kill competition so that we can have competition. Because these 0:24:54.960 --> 0:24:58.440 chains compete against each other. They are major players, and 0:24:58.840 --> 0:25:04.040 they compete presumable in many ways for sources, for private 0:25:04.880 --> 0:25:07.000 sorts of things, and if they say they have to 0:25:07.040 --> 0:25:14.560 get bigger, it seems factually to perhaps be problematic. So again, 0:25:14.960 --> 0:25:19.119 as I mentioned before, the first question is is it 0:25:19.160 --> 0:25:23.159 any competitive? Not what their justification is, So how is 0:25:23.160 --> 0:25:28.119 it any competitive? Exactly? And even though they're big, a 0:25:28.160 --> 0:25:33.199 lot of times for supermarkets, enforcers look at local markets, 0:25:33.440 --> 0:25:36.240 sometimes very small markets, you know, three to five mile 0:25:36.359 --> 0:25:40.560 radius around stores, which is where most consumers do most 0:25:40.600 --> 0:25:44.280 of their shopping in most places. How's that I put 0:25:44.400 --> 0:25:47.359 in plenty of most. So if any of us say no, 0:25:47.480 --> 0:25:49.040 I don't do it that way, I say, well, other 0:25:49.080 --> 0:25:52.119 people do. But that's sort of the default way of 0:25:52.200 --> 0:25:56.640 how it's looked at. So the discussion generally starts out 0:25:56.640 --> 0:26:01.680 with what are the geographic overlaps between these two chains? 0:26:02.560 --> 0:26:06.479 And then can that be cured? You know, so sell 0:26:06.560 --> 0:26:10.600