1 00:00:02,480 --> 00:00:13,920 Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. 2 00:00:18,120 --> 00:00:22,040 Speaker 2: Hello and welcome to another episode of the Odd Lots Podcast. 3 00:00:22,160 --> 00:00:23,840 Speaker 2: I'm Joe Wisenthal. 4 00:00:23,400 --> 00:00:24,560 Speaker 3: And I'm Tracy Alloway. 5 00:00:24,920 --> 00:00:27,920 Speaker 2: So, Tracy, you know, there's obviously a lot of anxiety 6 00:00:28,160 --> 00:00:31,280 Speaker 2: these days, really for a while, but going into the election, 7 00:00:31,400 --> 00:00:33,960 Speaker 2: post about the size of the US debt, the size 8 00:00:34,000 --> 00:00:35,400 Speaker 2: of the US deficit, et cetera. 9 00:00:35,840 --> 00:00:37,599 Speaker 4: And what I the way I like. 10 00:00:37,600 --> 00:00:41,159 Speaker 2: To think of these things is that any discussion of 11 00:00:41,240 --> 00:00:45,639 Speaker 2: federal spending is about a competition for resource allocation. Right, 12 00:00:45,720 --> 00:00:48,959 Speaker 2: So we know that a huge component of what drives 13 00:00:49,000 --> 00:00:55,280 Speaker 2: persistent deficits is the social safety nets, social security, medicare, medicaid, 14 00:00:55,480 --> 00:00:58,720 Speaker 2: et cetera. And when we talk about the debt or 15 00:00:58,760 --> 00:01:01,320 Speaker 2: the deficit in the abstract, and when people talk about 16 00:01:01,360 --> 00:01:04,400 Speaker 2: tackling the debt or the deficit, what they're really talking 17 00:01:04,400 --> 00:01:10,360 Speaker 2: about is freeing up resources somewhere, freeing up consumption somewhere, 18 00:01:10,440 --> 00:01:14,720 Speaker 2: and creating availability for consumption and resources elsewhere in the economy. 19 00:01:14,959 --> 00:01:19,200 Speaker 4: Are they well, I mean, yeah, I think I would say. 20 00:01:19,280 --> 00:01:19,360 Speaker 1: So. 21 00:01:19,880 --> 00:01:22,160 Speaker 3: It seems to me there's a desire to like pay 22 00:01:22,200 --> 00:01:25,040 Speaker 3: down the debt and then not necessarily do anything else, 23 00:01:25,760 --> 00:01:27,080 Speaker 3: like what's the else here? 24 00:01:27,319 --> 00:01:31,600 Speaker 2: Well, So, for example, Secretary of Scott Bestant and some 25 00:01:31,680 --> 00:01:34,640 Speaker 2: of his recent interviews talked about, you know, we want 26 00:01:34,640 --> 00:01:37,039 Speaker 2: to releverage the private sector. It's we want to get 27 00:01:37,120 --> 00:01:42,360 Speaker 2: raids down and therefore that makes investing more appealing for companies, 28 00:01:42,520 --> 00:01:44,920 Speaker 2: et cetera. And so the idea of like, okay, we're 29 00:01:44,959 --> 00:01:49,280 Speaker 2: going to like reduce demand, reduced consumption from various sectors 30 00:01:49,280 --> 00:01:53,040 Speaker 2: of the economy that are perceived to be unproductive, such 31 00:01:53,160 --> 00:01:58,280 Speaker 2: as retirees, et cetera, and then open up expansion so 32 00:01:58,320 --> 00:02:02,600 Speaker 2: then there's less consumption and then that creates resource availability 33 00:02:02,600 --> 00:02:05,360 Speaker 2: for other things which are perceived to be more productive, 34 00:02:05,560 --> 00:02:06,680 Speaker 2: like reindustrialization. 35 00:02:06,880 --> 00:02:09,480 Speaker 3: Okay, maybe what I would say, you know how I 36 00:02:09,600 --> 00:02:12,040 Speaker 3: like to think about those Sure, I like to ask 37 00:02:12,200 --> 00:02:15,840 Speaker 3: like to think about the big picture in bonds, and 38 00:02:16,040 --> 00:02:19,800 Speaker 3: I always say, bonds are built on norms, right, Yeah, 39 00:02:20,040 --> 00:02:23,079 Speaker 3: Government spending is built on norms. So you lend money 40 00:02:23,080 --> 00:02:27,120 Speaker 3: to me and I pay you back. It's basically a promise, 41 00:02:28,160 --> 00:02:30,680 Speaker 3: which means it's a human construct. Yes, and there are 42 00:02:30,720 --> 00:02:34,959 Speaker 3: all these values and norms and narratives that are embedded 43 00:02:35,160 --> 00:02:38,880 Speaker 3: in those constructs, in those promises, and that's what I 44 00:02:38,919 --> 00:02:42,440 Speaker 3: find really fascinating, especially when those values start to change, 45 00:02:42,480 --> 00:02:44,160 Speaker 3: and I think that's what's happening now. 46 00:02:44,240 --> 00:02:48,120 Speaker 2: Yeah, well, you know absolutely, and obviously, you know, we 47 00:02:48,280 --> 00:02:51,160 Speaker 2: did that conversation with Jim Bianco about a you know, 48 00:02:51,840 --> 00:02:55,200 Speaker 2: either a literal or a metanomic moral lago accord, and 49 00:02:55,240 --> 00:02:57,480 Speaker 2: then we talked to Ridalio and he slipped it in there, 50 00:02:57,520 --> 00:02:58,720 Speaker 2: and I thought it was that kind of He's like, well, 51 00:02:58,720 --> 00:03:01,400 Speaker 2: maybe they'll restructure the debt some way or return it out, 52 00:03:01,639 --> 00:03:03,960 Speaker 2: And to me, that screams default, you know. I mean, 53 00:03:04,040 --> 00:03:05,360 Speaker 2: that's just a you know, it's a polite way of 54 00:03:05,360 --> 00:03:06,120 Speaker 2: saying deult. 55 00:03:06,200 --> 00:03:09,960 Speaker 3: But one man's default is another man's restructuring. Jar that's right. 56 00:03:10,040 --> 00:03:12,320 Speaker 2: But I think if I were a treasury holder, I 57 00:03:12,360 --> 00:03:14,760 Speaker 2: would be very upset if the thing that I considered 58 00:03:14,760 --> 00:03:18,000 Speaker 2: to be the most liquid, safe asset of the entire world, 59 00:03:18,040 --> 00:03:20,160 Speaker 2: that the entire finance system runs on, the one thing 60 00:03:20,200 --> 00:03:24,200 Speaker 2: that's perceived to be genuinely risk free from a credit standpoint, 61 00:03:24,720 --> 00:03:27,840 Speaker 2: suddenly gets like, oh, it's this is a five year 62 00:03:27,840 --> 00:03:29,600 Speaker 2: bond and a seven year bond and you're going to 63 00:03:29,639 --> 00:03:31,520 Speaker 2: get the same money in the end. I think that 64 00:03:31,560 --> 00:03:35,720 Speaker 2: would be very disruptive in a way that is not disruptive, say, 65 00:03:35,880 --> 00:03:39,000 Speaker 2: like you know, when a hospital chain has to restructure 66 00:03:39,000 --> 00:03:39,760 Speaker 2: its dead it. 67 00:03:39,760 --> 00:03:42,960 Speaker 3: Is definitely the risk free rate upon which, like all 68 00:03:42,960 --> 00:03:45,800 Speaker 3: the other markets are basically built on. Should I do 69 00:03:45,880 --> 00:03:49,160 Speaker 3: a reminder of what the mar a Lago accord may 70 00:03:49,240 --> 00:03:52,880 Speaker 3: surely says about this point. So the way I think 71 00:03:52,920 --> 00:03:55,720 Speaker 3: about it, it's an attempt to resolve some of the 72 00:03:55,760 --> 00:04:00,360 Speaker 3: tensions embedded in the Trump administration's economic agenda. We about 73 00:04:00,360 --> 00:04:03,760 Speaker 3: it with Jim Bianco, and those tensions are primarily the 74 00:04:03,840 --> 00:04:09,000 Speaker 3: desire to reshore manufacturing and shrink the deficit, and also, 75 00:04:09,320 --> 00:04:12,560 Speaker 3: I guess, address the sort of emotional sense that the 76 00:04:12,720 --> 00:04:16,279 Speaker 3: US isn't getting compensated enough for its role in the 77 00:04:16,279 --> 00:04:21,240 Speaker 3: global economy or global security. Oh wow, all while paying 78 00:04:21,320 --> 00:04:25,480 Speaker 3: down the debt. Right, so having your cake and eating 79 00:04:25,480 --> 00:04:28,960 Speaker 3: it too. And I should just emphasize this isn't a 80 00:04:29,000 --> 00:04:32,920 Speaker 3: hardcore plan. This is based on a paper that Stephn 81 00:04:33,040 --> 00:04:36,600 Speaker 3: Miran put out last year that people started getting very 82 00:04:36,640 --> 00:04:39,160 Speaker 3: interested in and talking about. And that's why we're talking 83 00:04:39,160 --> 00:04:39,520 Speaker 3: about it. 84 00:04:39,560 --> 00:04:40,840 Speaker 2: Well, I want to go to our guess a second. 85 00:04:40,839 --> 00:04:42,680 Speaker 2: But there is something very funny because there's all these 86 00:04:42,720 --> 00:04:45,200 Speaker 2: academic papers that are going out, and it's like, oh, 87 00:04:45,240 --> 00:04:48,680 Speaker 2: there's this big plan, and you know, the exorbitant privilege 88 00:04:48,720 --> 00:04:51,440 Speaker 2: of the dollar makes it so that, you know, it's 89 00:04:51,480 --> 00:04:54,280 Speaker 2: hard to reshore manufacturing in the US, and we need 90 00:04:54,320 --> 00:04:58,159 Speaker 2: to weaken the dollar and decentralize its role. And it's 91 00:04:58,200 --> 00:05:01,240 Speaker 2: like they sort of like intellectualize it five D chests. Meanwhile, 92 00:05:01,360 --> 00:05:04,200 Speaker 2: Trump is like, no, I just want more money from terrorists. 93 00:05:04,240 --> 00:05:07,360 Speaker 2: Like I don't know, he like, there's this intellectual infrastructure 94 00:05:07,400 --> 00:05:10,800 Speaker 2: around it. I'm not sure that Trump himself buys into 95 00:05:10,800 --> 00:05:13,279 Speaker 2: this anyway. We really do have the perfect guest, because 96 00:05:13,279 --> 00:05:15,600 Speaker 2: we're gonna be speaking someone who knows about the intersection 97 00:05:15,800 --> 00:05:18,479 Speaker 2: of finance and politics, someone who knows about debt and 98 00:05:18,520 --> 00:05:22,400 Speaker 2: debt restructuring, someone who actually matters. We've had him on 99 00:05:22,400 --> 00:05:30,719 Speaker 2: the show, sorry my wife, someone whose opinion, someone whose 100 00:05:30,760 --> 00:05:33,839 Speaker 2: opinion actually matters. All of our guests matter, all of 101 00:05:33,839 --> 00:05:36,799 Speaker 2: our guests opinion matters. We're gonna be speaking with Jim Milstein, 102 00:05:37,080 --> 00:05:40,920 Speaker 2: co chair of Googenheim Securities. Jim, thank you so much 103 00:05:40,960 --> 00:05:43,760 Speaker 2: for coming back on ODS My pleasure. We talked about 104 00:05:43,800 --> 00:05:46,680 Speaker 2: your background when we had you on the show last year. 105 00:05:46,760 --> 00:05:49,480 Speaker 2: What do you know about debt restructuring just a little. 106 00:05:50,920 --> 00:05:51,560 Speaker 1: What have you done? 107 00:05:51,880 --> 00:05:52,840 Speaker 2: What have you done in that room? 108 00:05:53,080 --> 00:05:53,760 Speaker 3: You've dabbled. 109 00:05:55,160 --> 00:05:58,480 Speaker 4: Yeah, it's my metier, you know. So I had this 110 00:05:59,080 --> 00:06:02,240 Speaker 4: awful job and a great title called Chief Restructuring Officer 111 00:06:02,279 --> 00:06:04,359 Speaker 4: of the United States Department of the Treasury during the 112 00:06:04,360 --> 00:06:05,200 Speaker 4: Financial crisis. 113 00:06:06,000 --> 00:06:07,000 Speaker 3: That is quite a title. 114 00:06:07,080 --> 00:06:09,960 Speaker 4: It is quite a title. It sounds like they might 115 00:06:09,960 --> 00:06:12,320 Speaker 4: have been hiring me to restructure the federal government. In fact, 116 00:06:12,360 --> 00:06:15,200 Speaker 4: I was there to help restructure the TARP investments we 117 00:06:15,279 --> 00:06:18,720 Speaker 4: made during the financial crisis and AIG and Ally Financial 118 00:06:18,800 --> 00:06:20,599 Speaker 4: and City and b of A and the rest of 119 00:06:21,000 --> 00:06:24,200 Speaker 4: that crowd. But before that, you know, I worked on 120 00:06:24,279 --> 00:06:28,840 Speaker 4: the restructuring of Argentina. The Republic of Argentina's one of 121 00:06:28,839 --> 00:06:32,680 Speaker 4: their many restructurings ye debt in two thousand and five, 122 00:06:32,760 --> 00:06:35,720 Speaker 4: we did a big exchange offer for their international bond 123 00:06:35,760 --> 00:06:38,400 Speaker 4: in net and this I worked on Puerto Rico's debt 124 00:06:38,440 --> 00:06:41,240 Speaker 4: default and restructuring back in the odds. 125 00:06:41,640 --> 00:06:44,400 Speaker 3: Wait, were you on the hedge fund side of Argentina. 126 00:06:44,040 --> 00:06:45,680 Speaker 4: Or the republic side? 127 00:06:45,720 --> 00:06:46,560 Speaker 3: Oh? Okay, yeah. 128 00:06:46,640 --> 00:06:49,200 Speaker 4: And then when I was a lawyer back in the eighties, 129 00:06:50,200 --> 00:06:53,280 Speaker 4: my firm Cleary Gottlie worked on all of the Brady 130 00:06:53,279 --> 00:06:57,520 Speaker 4: bond restructurings across Latin America. So you know, I've done 131 00:06:57,560 --> 00:06:59,200 Speaker 4: a bunch of sovereign. 132 00:07:00,120 --> 00:07:04,280 Speaker 3: Yes, yeah, Okay, Shall I just jump into it and 133 00:07:04,400 --> 00:07:07,960 Speaker 3: ask the obvious question or one of the obvious questions? 134 00:07:08,000 --> 00:07:12,480 Speaker 3: But where is the suggestion coming from? A debt restructuring 135 00:07:12,600 --> 00:07:15,520 Speaker 3: is part of a potential Mara Lago accord? And what 136 00:07:15,680 --> 00:07:17,280 Speaker 3: is the problem we're trying to solve? 137 00:07:17,920 --> 00:07:21,920 Speaker 4: So I think there's a clear I mean, I don't 138 00:07:21,960 --> 00:07:25,840 Speaker 4: want to engage in sanewashing, which, yes, you know, there's 139 00:07:25,920 --> 00:07:29,040 Speaker 4: clearly an impetus by the President to impose tariffs. He's 140 00:07:29,120 --> 00:07:33,240 Speaker 4: tariff man, and around him through Bessent and Moran, there 141 00:07:33,320 --> 00:07:39,280 Speaker 4: is some intellectual architecture that suggests that's just a tactic 142 00:07:39,480 --> 00:07:43,960 Speaker 4: towards an end, and the end is to bring manufacturing 143 00:07:44,040 --> 00:07:47,280 Speaker 4: back to the United States. Yeah. Obviously, during this period 144 00:07:47,280 --> 00:07:51,560 Speaker 4: of globalization, we've been running massive trade deficits, particularly in manufacturers, 145 00:07:51,600 --> 00:07:56,080 Speaker 4: where we're importing a number of critical systems to both 146 00:07:56,120 --> 00:08:00,559 Speaker 4: our defense industry and to our manufacturing industry. We once 147 00:08:00,760 --> 00:08:05,080 Speaker 4: dominated the semiconductor trade. We actually created that industry in 148 00:08:05,080 --> 00:08:08,760 Speaker 4: the nineteen sixties through a series of government policies, research 149 00:08:08,800 --> 00:08:11,520 Speaker 4: and development grants to IBM and AT and T that 150 00:08:11,680 --> 00:08:16,280 Speaker 4: created the semiconductor technology. Then a series of procurement policies 151 00:08:16,360 --> 00:08:21,440 Speaker 4: at NASA and the Defense Department to commercialize that industry, 152 00:08:21,480 --> 00:08:25,000 Speaker 4: and eventually we created, you know, the calculator industry and 153 00:08:25,080 --> 00:08:28,160 Speaker 4: the computer industry and the TV industry and all of that. 154 00:08:29,400 --> 00:08:31,960 Speaker 4: But that was all a byproduct of a coordinated set 155 00:08:32,000 --> 00:08:36,480 Speaker 4: of federal policies. Fast forward forty years, fifty years later, 156 00:08:37,200 --> 00:08:41,000 Speaker 4: and you know, semiconductor manufacturing is mostly being done, particularly 157 00:08:41,040 --> 00:08:47,160 Speaker 4: at the high end, in a strategically vulnerable country across 158 00:08:47,200 --> 00:08:51,560 Speaker 4: the Straits of China from China in Taiwan, and that 159 00:08:51,640 --> 00:08:54,760 Speaker 4: has created a sense now going back in the ten 160 00:08:54,840 --> 00:08:57,640 Speaker 4: years in the defense establishment, that we have a problem, 161 00:08:58,760 --> 00:09:01,920 Speaker 4: and not just in semi conductors, but in a number 162 00:09:01,920 --> 00:09:06,120 Speaker 4: of advanced industries where we're really reliant as a country 163 00:09:06,200 --> 00:09:11,720 Speaker 4: on the importation of critical technologies and critical intermediate inputs. Again, 164 00:09:12,080 --> 00:09:14,600 Speaker 4: you know, if you piece together some of the things 165 00:09:14,600 --> 00:09:16,760 Speaker 4: that Bessint has said and some of the things that 166 00:09:17,360 --> 00:09:21,480 Speaker 4: Moran has said, the goal of the tariff play, which 167 00:09:21,520 --> 00:09:27,320 Speaker 4: is really just a tactic, is to bring manufacturing back 168 00:09:27,360 --> 00:09:30,800 Speaker 4: to the United States to hollow in or build out 169 00:09:30,840 --> 00:09:33,360 Speaker 4: the communities that were hollowed out by the wave of 170 00:09:33,400 --> 00:09:38,240 Speaker 4: globalization that occurred after China's admission to the WTO in 171 00:09:38,280 --> 00:09:44,160 Speaker 4: the early two thousands. One of the critical elements or 172 00:09:44,200 --> 00:09:47,360 Speaker 4: transmission mechanisms that they're trying to affect is the exchange 173 00:09:47,440 --> 00:09:50,720 Speaker 4: rate of the dollar. A high dollar means that our 174 00:09:50,880 --> 00:09:54,920 Speaker 4: exports are more expensive and our imports are less expensive. 175 00:09:55,000 --> 00:09:58,480 Speaker 4: So we have been the beneficiary with a strong dollar 176 00:09:58,720 --> 00:10:04,080 Speaker 4: of very cheap imports, you know, moderating the inflation that 177 00:10:04,160 --> 00:10:08,200 Speaker 4: might otherwise occur from domestic manufacturing. But that said, we've 178 00:10:08,240 --> 00:10:13,240 Speaker 4: lost manufacturing. We used forty years ago we represented twenty 179 00:10:13,280 --> 00:10:16,120 Speaker 4: five percent of the manufacturing industry. Now we're a mere 180 00:10:16,240 --> 00:10:20,160 Speaker 4: fifteen percent of global manufacturing. China was nowhere to be seen. 181 00:10:20,640 --> 00:10:25,200 Speaker 4: Now they're thirty five percent of global manufacturing. The goal 182 00:10:25,320 --> 00:10:28,600 Speaker 4: of this Mari Lago accord is to really weaken the 183 00:10:28,640 --> 00:10:35,000 Speaker 4: dollar without upsetting the financial flows that finance our debt. 184 00:10:35,000 --> 00:10:38,600 Speaker 3: And crucially, the manufacturing buildout is supposed to be done 185 00:10:38,640 --> 00:10:41,920 Speaker 3: by private capital. To Joe's point earlier, it's not. You know, 186 00:10:41,960 --> 00:10:45,000 Speaker 3: we've had efforts from the Biden administration, the Chips Act 187 00:10:45,240 --> 00:10:48,280 Speaker 3: to try to boost some of those industries. But the 188 00:10:48,320 --> 00:10:52,480 Speaker 3: emphasis under Trump is really we want to create a 189 00:10:52,520 --> 00:10:56,280 Speaker 3: beneficial market environment so that private capital moves in. 190 00:10:56,559 --> 00:11:01,720 Speaker 4: Yes, there's obviously a kind of you know, traditionally Republican 191 00:11:01,760 --> 00:11:05,920 Speaker 4: bias in favor of private capital and scaling back the 192 00:11:06,040 --> 00:11:11,360 Speaker 4: use of public investment to promote industrial development. But you know, 193 00:11:12,080 --> 00:11:16,640 Speaker 4: raising a tariff wall, a high tariffall is a bet 194 00:11:17,040 --> 00:11:21,560 Speaker 4: that private capital will invest behind it. Biden administration, you know, 195 00:11:21,800 --> 00:11:25,440 Speaker 4: started something that I actually worked on as a graduate 196 00:11:25,480 --> 00:11:29,719 Speaker 4: student back in the seventies called industrial policy. That is 197 00:11:29,760 --> 00:11:35,920 Speaker 4: to use not only tariff barriers, but investment policy, tax policy, 198 00:11:36,440 --> 00:11:41,760 Speaker 4: procurement policy, and R and D policy to promote domestic industry. So, 199 00:11:42,600 --> 00:11:45,720 Speaker 4: you know, Trump has inherited the Chips Act and it 200 00:11:45,800 --> 00:11:48,840 Speaker 4: is making progress. It has spread terrible, Yeah, I know, 201 00:11:48,880 --> 00:11:52,080 Speaker 4: he said it's terrible. But the reality is that there's 202 00:11:52,080 --> 00:11:54,360 Speaker 4: all sorts of activity now both in the under the 203 00:11:54,440 --> 00:11:58,960 Speaker 4: Chips Act subsidies and through the Inflation Reduction Act, which 204 00:11:59,160 --> 00:12:02,920 Speaker 4: was another one of the Biden administration's policies to promote 205 00:12:03,679 --> 00:12:08,760 Speaker 4: investment in the United States. The reality is that those 206 00:12:08,760 --> 00:12:11,839 Speaker 4: investments have been made and are continuing to be made 207 00:12:12,400 --> 00:12:16,000 Speaker 4: around the fifty States, most particularly in the Red States, 208 00:12:16,520 --> 00:12:19,280 Speaker 4: and so there will be political pushback on the Trump 209 00:12:19,360 --> 00:12:25,120 Speaker 4: administration to just zero those out going forward. So going back, though, 210 00:12:25,400 --> 00:12:33,480 Speaker 4: you know, if we really want to restore American manufacturing dominance, 211 00:12:33,520 --> 00:12:38,680 Speaker 4: particularly in critical industries critical to our defense establishment, we're 212 00:12:38,720 --> 00:12:40,960 Speaker 4: going to have to use a mix not only of 213 00:12:41,040 --> 00:12:44,679 Speaker 4: high tariff barriers, but of R and D subsidies, of 214 00:12:44,920 --> 00:12:50,120 Speaker 4: investment subsidies, and use procurement as a way to create 215 00:12:50,240 --> 00:12:52,839 Speaker 4: demand pull for these new industries. 216 00:13:09,720 --> 00:13:12,800 Speaker 2: You use the word sanewashing, which is a good word, 217 00:13:13,000 --> 00:13:16,280 Speaker 2: because there are there's this sort of intellectual as you said, 218 00:13:16,360 --> 00:13:21,800 Speaker 2: architecture around Trump. It's not clear that Trump himself sees 219 00:13:21,840 --> 00:13:25,440 Speaker 2: it this way that this is that this works, that 220 00:13:25,520 --> 00:13:30,040 Speaker 2: you can sort of like reaccelerate US manufacturing simply via 221 00:13:30,120 --> 00:13:33,599 Speaker 2: some sort of weakening of the dollar in a coordinated 222 00:13:33,640 --> 00:13:36,840 Speaker 2: way or tariffs. What is the gap between what you 223 00:13:36,960 --> 00:13:40,600 Speaker 2: see is actually going on and the sort of like 224 00:13:41,120 --> 00:13:42,880 Speaker 2: the white papers that people put out. 225 00:13:42,720 --> 00:13:46,000 Speaker 4: Of Okay, so so, and this is all coming out 226 00:13:46,040 --> 00:13:48,559 Speaker 4: of Moran's paper. As Tracy indicated at the beginning, I mean, 227 00:13:48,559 --> 00:13:54,080 Speaker 4: he's put together the most kind of comprehensive strategy, and 228 00:13:54,160 --> 00:13:57,679 Speaker 4: he acknowledges this very narrow chord or within which this 229 00:13:57,800 --> 00:14:00,280 Speaker 4: might work, and in some sense the present and it 230 00:14:00,280 --> 00:14:04,800 Speaker 4: has already gotten out ahead with his tariff tactics and 231 00:14:04,880 --> 00:14:10,320 Speaker 4: also his threatening to withdraw the security umbrella from NATO, 232 00:14:10,920 --> 00:14:17,080 Speaker 4: because those are the two critical sticks that Moran advocated 233 00:14:17,280 --> 00:14:23,560 Speaker 4: we use to induce foreign central banks and foreign investors 234 00:14:24,200 --> 00:14:28,040 Speaker 4: to continue to buy treasuries at favorable rates, so it 235 00:14:28,120 --> 00:14:33,120 Speaker 4: is to continue to finance what is really a growing 236 00:14:33,760 --> 00:14:37,720 Speaker 4: and potential as Dalio said in your podcast, debt crisis. 237 00:14:37,880 --> 00:14:42,760 Speaker 4: And then just let me say maybe to frame that problem. Today, 238 00:14:43,360 --> 00:14:47,960 Speaker 4: federal debt to GDP is one to one. Federal debt 239 00:14:48,040 --> 00:14:52,560 Speaker 4: is equal to GDP. We're running deficits at seven percent 240 00:14:52,640 --> 00:14:56,040 Speaker 4: of GDP, and the economy has kind of grown at 241 00:14:56,080 --> 00:15:00,400 Speaker 4: one too little north of two percent. So the debt 242 00:15:00,440 --> 00:15:03,720 Speaker 4: is growing faster as a result of the imbalance in 243 00:15:03,760 --> 00:15:07,560 Speaker 4: the federal budget, where deficits are growing at the rate 244 00:15:07,600 --> 00:15:10,640 Speaker 4: of seven percent of GDP, which means the debt's growing 245 00:15:10,640 --> 00:15:13,480 Speaker 4: at the rate of seven percent of GDP. Where our 246 00:15:13,600 --> 00:15:17,440 Speaker 4: debt is growing now faster than GDP and is becoming 247 00:15:17,520 --> 00:15:21,080 Speaker 4: an increasing overhang to the extent that when you look 248 00:15:21,080 --> 00:15:25,720 Speaker 4: at the federal budget, interest expense has become the second 249 00:15:25,840 --> 00:15:27,600 Speaker 4: largest category of federal spending. 250 00:15:27,960 --> 00:15:29,800 Speaker 3: Issuing bonds to pay off bonds. 251 00:15:29,880 --> 00:15:33,880 Speaker 4: That's right, So we're now we're now issuing bonds to 252 00:15:33,960 --> 00:15:38,320 Speaker 4: pay the interest on our bonds. This is a classic 253 00:15:38,480 --> 00:15:42,000 Speaker 4: recipe for disaster. We're not even treading water. Was now 254 00:15:42,280 --> 00:15:46,960 Speaker 4: slowly sinking behind a huge under a huge pile of debt. 255 00:15:47,160 --> 00:15:50,960 Speaker 4: So we have to get that fiscal imbalance corrected. And 256 00:15:51,000 --> 00:15:53,960 Speaker 4: as you were saying at the beginning of the podcast, Joe, 257 00:15:55,320 --> 00:15:59,080 Speaker 4: you know, now some very tough allocation decisions need to 258 00:15:59,080 --> 00:16:02,760 Speaker 4: be made with regard to federal spending because someone joked 259 00:16:02,760 --> 00:16:04,920 Speaker 4: that the federal when you look at the federal government, 260 00:16:05,000 --> 00:16:09,320 Speaker 4: it's really a retirement program attached to an army, right, 261 00:16:09,800 --> 00:16:15,040 Speaker 4: I mean the largest ever. Yeah, it's exactly. You have 262 00:16:15,200 --> 00:16:17,720 Speaker 4: you have, you know, income security in the form of 263 00:16:17,760 --> 00:16:21,120 Speaker 4: Social Security for retirement, and you have medical security in 264 00:16:21,160 --> 00:16:24,680 Speaker 4: the form of Medicare for retirement. But when you add 265 00:16:24,720 --> 00:16:28,480 Speaker 4: it all up, the parts of the budget that you know, 266 00:16:28,600 --> 00:16:31,760 Speaker 4: Elon musk Is and his merry band of pranksters are 267 00:16:31,800 --> 00:16:36,400 Speaker 4: off trying to slash is a relatively small part of 268 00:16:36,480 --> 00:16:41,360 Speaker 4: federal spending, but it is the stuff that actually you know, 269 00:16:41,560 --> 00:16:48,000 Speaker 4: supports education, transportation, housing, infrastructure, right. 270 00:16:48,280 --> 00:16:51,000 Speaker 3: The wider economy, some sort of stuff. 271 00:16:50,680 --> 00:16:54,840 Speaker 4: That you know, is building human capital, building physical public capital, 272 00:16:54,960 --> 00:16:59,400 Speaker 4: building housing structure. That part of the budget is a 273 00:16:59,440 --> 00:17:03,320 Speaker 4: mere seven hundred billion out of a total spending of 274 00:17:03,520 --> 00:17:07,760 Speaker 4: six point seventy five trillion. The rest of it is 275 00:17:08,560 --> 00:17:14,800 Speaker 4: interest on the debt, retirement, security, defense, and healthcare support. 276 00:17:15,119 --> 00:17:18,400 Speaker 4: And so we're really we're really in a pickle. We're 277 00:17:18,440 --> 00:17:21,159 Speaker 4: going to see in the fall or maybe sooner when 278 00:17:21,200 --> 00:17:24,199 Speaker 4: the reconciliation bills finally make their way to a vote 279 00:17:24,520 --> 00:17:26,800 Speaker 4: on the floor of the House in the Senate, we're 280 00:17:26,800 --> 00:17:29,200 Speaker 4: going to see whether or not this Congress really has 281 00:17:29,280 --> 00:17:34,640 Speaker 4: the courage to deal with the allocation issues that you mentioned. 282 00:17:34,760 --> 00:17:37,639 Speaker 4: Because in the House that in the framework for the 283 00:17:37,640 --> 00:17:41,400 Speaker 4: House Reconciliation Bill, they call for eight hundred and eighty billion. 284 00:17:41,440 --> 00:17:43,720 Speaker 4: That's over ten years, so it's really not a lot. 285 00:17:44,160 --> 00:17:47,280 Speaker 4: It's really like about one hundred billion of spending cuts 286 00:17:47,320 --> 00:17:55,360 Speaker 4: annually in medicaid, transportation, housing, and education. You know, out 287 00:17:55,400 --> 00:17:59,960 Speaker 4: of that Medicaid is about six hundred billion a year, 288 00:18:00,800 --> 00:18:05,080 Speaker 4: and the housing, transportation, education, that part of the budget 289 00:18:05,119 --> 00:18:08,600 Speaker 4: is about seven hundred billion, so there's a they're calling 290 00:18:08,680 --> 00:18:11,399 Speaker 4: for a reduction of one hundred billion a year against 291 00:18:11,480 --> 00:18:16,359 Speaker 4: that one point three billion of medicaid and social the 292 00:18:16,400 --> 00:18:19,919 Speaker 4: other social spending. So it's not it's not a big ticket, 293 00:18:20,720 --> 00:18:23,199 Speaker 4: and it's not going to make a massive change in 294 00:18:23,240 --> 00:18:29,720 Speaker 4: the deficit, particularly if they add incremental tax cuts on tips, 295 00:18:29,160 --> 00:18:33,399 Speaker 4: on over time, on social security as they've talked about. 296 00:18:34,960 --> 00:18:38,760 Speaker 4: You know, they're not really attacking the deficit. So we're 297 00:18:38,800 --> 00:18:43,160 Speaker 4: going to continue to need to sell a lot of debt. 298 00:18:43,480 --> 00:18:47,879 Speaker 3: So you've laid out the pickle problem very well, perfectly 299 00:18:48,080 --> 00:18:50,240 Speaker 3: laid out the pickle problem perfectly. 300 00:18:50,520 --> 00:18:52,680 Speaker 4: Say that. 301 00:18:53,720 --> 00:18:57,920 Speaker 3: The idea here embedded in the mar Lago Accord is 302 00:18:58,000 --> 00:19:01,600 Speaker 3: that the US could bring down its det costs by 303 00:19:02,240 --> 00:19:06,920 Speaker 3: getting foreign investors to swap some of their current treasuries 304 00:19:07,359 --> 00:19:11,359 Speaker 3: into century bonds that would be less expensive for the 305 00:19:11,480 --> 00:19:13,520 Speaker 3: US to actually pay back. 306 00:19:13,800 --> 00:19:16,639 Speaker 4: That's right, And so how do we induce them to 307 00:19:16,840 --> 00:19:22,440 Speaker 4: engage in that exchange? So the two primary tactics that 308 00:19:23,320 --> 00:19:26,600 Speaker 4: Moran lays out in his paper are sort of, you know, 309 00:19:26,640 --> 00:19:29,160 Speaker 4: the way you do exchange offers in the private markets 310 00:19:29,160 --> 00:19:33,000 Speaker 4: that eye traffic in the way you do in exchange 311 00:19:33,000 --> 00:19:38,160 Speaker 4: offers with carrots and sticks. You offer a sweetener and 312 00:19:38,200 --> 00:19:43,080 Speaker 4: you threaten, you know, doom and gloom. So the two 313 00:19:43,280 --> 00:19:47,959 Speaker 4: primary tactics here are that you foreign country are going 314 00:19:48,040 --> 00:19:51,679 Speaker 4: to face, on the one hand, a high tarerfall unless 315 00:19:51,720 --> 00:19:56,320 Speaker 4: you play ball, and on the other hand, the withdrawal 316 00:19:56,480 --> 00:20:00,000 Speaker 4: of our security umbrella. So if you want the protect 317 00:20:00,000 --> 00:20:03,800 Speaker 4: action of the largest and most powerful military in the 318 00:20:03,840 --> 00:20:09,880 Speaker 4: world to protect your borders against a Russian invasion, you're 319 00:20:09,920 --> 00:20:14,160 Speaker 4: going to have to swap your debt that you currently hold, 320 00:20:14,200 --> 00:20:18,639 Speaker 4: which is generally short term bills, into what they're calling 321 00:20:18,720 --> 00:20:22,600 Speaker 4: century bonds, a you know, one hundred year bond at 322 00:20:22,600 --> 00:20:27,680 Speaker 4: a low interest rate, which takes the refinancing risk of 323 00:20:27,720 --> 00:20:30,639 Speaker 4: an indebted country away from it because we don't have 324 00:20:30,680 --> 00:20:33,439 Speaker 4: to touch that debt for underdal, turning out duration, turning 325 00:20:33,480 --> 00:20:38,720 Speaker 4: out duration on the one hand, and reducing the interest 326 00:20:38,800 --> 00:20:42,520 Speaker 4: burden of servicing that debt over time. So there are 327 00:20:42,520 --> 00:20:47,080 Speaker 4: a couple of problems with this. One problem is that 328 00:20:47,680 --> 00:20:52,240 Speaker 4: when you look at who holds US government debt, not 329 00:20:52,320 --> 00:20:56,040 Speaker 4: more than fifteen percent of it today is held offshore 330 00:20:56,600 --> 00:20:59,000 Speaker 4: and mutting down a lot. Yeah, it's come down a 331 00:20:59,000 --> 00:21:01,840 Speaker 4: lot and much of that fifteen percent is not in 332 00:21:01,880 --> 00:21:05,120 Speaker 4: the hands of you know, government instrumentalities, but rather than 333 00:21:05,240 --> 00:21:10,200 Speaker 4: foreign private investors. So inducing that crowd to come in 334 00:21:10,480 --> 00:21:14,280 Speaker 4: to this exchange offer, even if you could succeed, you're 335 00:21:14,320 --> 00:21:16,720 Speaker 4: touching a very small part of the debt. So where's 336 00:21:16,760 --> 00:21:19,040 Speaker 4: the rest of it? Where's the other eighty five percent 337 00:21:19,080 --> 00:21:23,720 Speaker 4: of our thirty six trillion dollars of outstanding debt? It's 338 00:21:23,760 --> 00:21:26,320 Speaker 4: basically owned by us. Some of it's owned and government 339 00:21:26,320 --> 00:21:30,240 Speaker 4: accounts and the Social Security and Medicare trust funds, but 340 00:21:30,359 --> 00:21:32,920 Speaker 4: some of it is owned by banks and insurance companies. 341 00:21:32,960 --> 00:21:37,680 Speaker 4: Some of it's owned by endowments and wealthy individuals. Some 342 00:21:37,760 --> 00:21:40,479 Speaker 4: of it's in the bond in the mutual fund market, 343 00:21:40,640 --> 00:21:45,480 Speaker 4: you know, underwriting our money market funds. So the reality 344 00:21:45,600 --> 00:21:47,919 Speaker 4: is we're to get this done. We're really doing it 345 00:21:47,960 --> 00:21:52,040 Speaker 4: with ourselves. What we really need to do is turn 346 00:21:52,119 --> 00:21:55,240 Speaker 4: out our debt. And the problem we're facing right now 347 00:21:55,880 --> 00:21:58,760 Speaker 4: is that, you know, the debt, the cost of debt, 348 00:21:58,960 --> 00:22:02,520 Speaker 4: the interest cost of our debt is relatively high. You know, 349 00:22:02,640 --> 00:22:07,000 Speaker 4: the ten years at four point three, the thirty year 350 00:22:07,280 --> 00:22:09,560 Speaker 4: put its outis what you'd pay for a century bond. 351 00:22:09,880 --> 00:22:15,200 Speaker 4: Thirty year is even higher. And the current average interest 352 00:22:15,280 --> 00:22:19,080 Speaker 4: rate on our outstanding thirty six trillion dollars of debt 353 00:22:19,160 --> 00:22:23,119 Speaker 4: is three point three percent, So to term it out 354 00:22:23,160 --> 00:22:27,040 Speaker 4: in this market would take that one point one trillion 355 00:22:27,080 --> 00:22:30,560 Speaker 4: dollars of annual interest expence up. You know, if we 356 00:22:30,560 --> 00:22:32,560 Speaker 4: had to term it out at four point three or 357 00:22:32,640 --> 00:22:37,240 Speaker 4: four point six, we'd be talking about increasing the interest 358 00:22:37,280 --> 00:22:41,800 Speaker 4: expense we're facing. So there, you know. So this intellectual 359 00:22:41,880 --> 00:22:46,360 Speaker 4: architecture around the so called Mara Lago accord has many 360 00:22:46,359 --> 00:22:50,879 Speaker 4: flaws now, at least among which is we're in targeting 361 00:22:51,000 --> 00:22:55,040 Speaker 4: foreign holders of our debt, We're targeting a relatively small 362 00:22:55,240 --> 00:22:57,480 Speaker 4: part of it. If the game plan here of that 363 00:22:57,560 --> 00:23:00,800 Speaker 4: Mara lagocord is to weaken the dollar so is to 364 00:23:00,840 --> 00:23:06,280 Speaker 4: improve the competitiveness of US domestic manufacturing. There is another 365 00:23:06,359 --> 00:23:11,119 Speaker 4: approach and that you've also heard rumor of from the 366 00:23:11,119 --> 00:23:14,080 Speaker 4: Trump administration, and that is the creation of a sovereign 367 00:23:14,359 --> 00:23:20,280 Speaker 4: wealth fund to take assets that the US government currently owns, 368 00:23:20,880 --> 00:23:25,000 Speaker 4: dump them in a central fund managed by the Treasury Department, 369 00:23:25,840 --> 00:23:30,720 Speaker 4: and allowing the Treasury Department then to intervene directly into 370 00:23:30,760 --> 00:23:33,399 Speaker 4: the currency of the foreign exchange markets to try and 371 00:23:33,520 --> 00:23:36,000 Speaker 4: push the dollar down. I see. 372 00:23:36,240 --> 00:23:39,320 Speaker 2: It's interesting because so you know, historically, right, like sovereign 373 00:23:39,359 --> 00:23:42,840 Speaker 2: wealth funds in resource rich countries are often about stable 374 00:23:43,000 --> 00:23:47,600 Speaker 2: keeping the currency strong, etcetera, especially for countercyclical elements, and 375 00:23:47,640 --> 00:23:50,280 Speaker 2: so the idea that we would use it to intervene 376 00:23:50,640 --> 00:23:53,600 Speaker 2: and in foreign exchange is interesting twists. You know, you 377 00:23:53,640 --> 00:23:56,080 Speaker 2: said something about restructuring, and you said there's carrots and 378 00:23:56,119 --> 00:23:59,760 Speaker 2: sticks in a typical restructuring, and imagine the sticks are, Look, 379 00:23:59,880 --> 00:24:02,359 Speaker 2: you don't want to go along with this restructuring plan, 380 00:24:02,720 --> 00:24:04,680 Speaker 2: then you're going to end up with like some sort 381 00:24:04,680 --> 00:24:07,040 Speaker 2: of asset and a bankrupt company and it's going to 382 00:24:07,080 --> 00:24:08,920 Speaker 2: be pretty bad for you and you're gonna get less 383 00:24:08,920 --> 00:24:11,040 Speaker 2: money and it's going to take a long time. And 384 00:24:11,080 --> 00:24:13,560 Speaker 2: so come on, go with the deal. It seems to 385 00:24:13,600 --> 00:24:15,840 Speaker 2: be part of the problem. Like just conceptually with the 386 00:24:15,880 --> 00:24:19,600 Speaker 2: carrot and sticks approach is like, you can't really threaten 387 00:24:19,640 --> 00:24:24,760 Speaker 2: a stick if you're the US government without immolating yourself. 388 00:24:24,880 --> 00:24:28,440 Speaker 4: Yeah, I mean the latter you really want to see 389 00:24:28,520 --> 00:24:32,119 Speaker 4: rates blow out? Have the federal government of threatened to 390 00:24:32,119 --> 00:24:36,920 Speaker 4: not pay its debts, that would be uh, that would 391 00:24:36,920 --> 00:24:42,840 Speaker 4: be an event from which the financial markets might not recover. 392 00:24:44,200 --> 00:24:47,919 Speaker 3: Does the carrot hold any water here either, because the 393 00:24:47,960 --> 00:24:51,119 Speaker 3: carrot's supposed to be like, Okay, maybe you don't get tariffs, 394 00:24:51,280 --> 00:24:55,040 Speaker 3: maybe you get US security. But that maybe is really 395 00:24:55,080 --> 00:24:58,400 Speaker 3: important because what we've seen so far, it's only been 396 00:24:58,440 --> 00:25:00,920 Speaker 3: two months, but we've seen Trump go back and forth, 397 00:25:00,960 --> 00:25:03,359 Speaker 3: back and forth, back and forth. I think a lot 398 00:25:03,440 --> 00:25:05,120 Speaker 3: of trust has been lost. 399 00:25:05,560 --> 00:25:08,879 Speaker 4: Yeah. Well, and you know, if you were going to 400 00:25:09,119 --> 00:25:15,840 Speaker 4: use tariffs or the threat of tariffs and the threat 401 00:25:16,000 --> 00:25:20,760 Speaker 4: of the loss of the security umbrella as the inducement 402 00:25:21,080 --> 00:25:24,400 Speaker 4: to the exchange, he's already gotten out ahead of himself, right. 403 00:25:24,440 --> 00:25:27,680 Speaker 4: I mean, he's on again, off again with the tariffs. 404 00:25:28,600 --> 00:25:33,720 Speaker 4: So the threat isn't isn't imminent, it's extant, and as 405 00:25:33,720 --> 00:25:37,119 Speaker 4: you say, the trust that he might change his mind 406 00:25:37,160 --> 00:25:43,080 Speaker 4: the day after the exchange is consummated is real. And similarly, 407 00:25:43,240 --> 00:25:48,160 Speaker 4: with regard to NATO, you know, it's not obvious if 408 00:25:48,200 --> 00:25:50,840 Speaker 4: I were a NATO country that I can rely on 409 00:25:50,880 --> 00:25:54,320 Speaker 4: the United States any longer. You saw what happened in Germany. 410 00:25:54,560 --> 00:25:57,800 Speaker 4: You know, they've gotten rid of their debt limited and 411 00:25:57,880 --> 00:26:01,960 Speaker 4: are now going to massively increase defense spending in order 412 00:26:02,080 --> 00:26:06,040 Speaker 4: to you know, potentially defend themselves without the benefit of 413 00:26:06,080 --> 00:26:09,720 Speaker 4: the United States security umbrella. Poland's already done this their 414 00:26:09,840 --> 00:26:13,040 Speaker 4: way there, increased their defense spending, and basically the countries 415 00:26:13,080 --> 00:26:19,440 Speaker 4: on the border of the of Russia, the Baltics, Poland 416 00:26:20,400 --> 00:26:23,920 Speaker 4: have all increased their defense spending recognizing that they may 417 00:26:23,920 --> 00:26:25,760 Speaker 4: not be able to rely on US any longer. So, 418 00:26:26,760 --> 00:26:30,280 Speaker 4: as you say, Tracy, he may have gotten out ahead 419 00:26:30,280 --> 00:26:32,199 Speaker 4: of this to the point where this really can't be 420 00:26:32,359 --> 00:26:35,400 Speaker 4: used as an inducement for an exchange of short term 421 00:26:35,480 --> 00:26:36,480 Speaker 4: to long term debt. 422 00:26:36,800 --> 00:26:38,880 Speaker 3: Jo, you know what I was just thinking, say more, 423 00:26:39,720 --> 00:26:43,960 Speaker 3: what if China exchanged its bills and treasuries for century 424 00:26:44,000 --> 00:26:46,240 Speaker 3: bonds in exchange for NATO protection. 425 00:26:46,680 --> 00:26:49,840 Speaker 2: First of all, you know, there's obviously that history of 426 00:26:49,880 --> 00:26:52,480 Speaker 2: the fact that at one point in time China perceived 427 00:26:52,480 --> 00:26:56,080 Speaker 2: its main adversaries the Soviet Union and did you know, 428 00:26:56,200 --> 00:26:58,840 Speaker 2: try to have that protection with the United States. So 429 00:26:58,920 --> 00:27:02,560 Speaker 2: there is not zero history for that. Maybe a slightly 430 00:27:02,600 --> 00:27:05,720 Speaker 2: realistic version of that is swap out your debt and 431 00:27:05,760 --> 00:27:08,720 Speaker 2: will let you build byd plants. Then you get that 432 00:27:08,800 --> 00:27:11,360 Speaker 2: technology transfer and you sort of do the whole classic 433 00:27:11,400 --> 00:27:14,640 Speaker 2: thing where the high tech country brings in their manufacturing 434 00:27:14,720 --> 00:27:16,879 Speaker 2: and teaches you how to build giggle plants and stuff. 435 00:27:17,000 --> 00:27:19,760 Speaker 2: I would be into that. Do you see more though, 436 00:27:19,880 --> 00:27:22,840 Speaker 2: about an event from which the markets may never recover. 437 00:27:23,119 --> 00:27:25,520 Speaker 2: That's not a term you hear. They always recover. But 438 00:27:25,680 --> 00:27:29,040 Speaker 2: you know, like when you get into existential questions about 439 00:27:29,200 --> 00:27:32,040 Speaker 2: the sort of safety and risk freeness of US debt, 440 00:27:32,040 --> 00:27:33,040 Speaker 2: what do we talk about here? 441 00:27:33,680 --> 00:27:39,600 Speaker 4: Yeah, I mean the when you think once we went 442 00:27:39,640 --> 00:27:43,080 Speaker 4: off the gold standard, once you know, our currency and 443 00:27:43,160 --> 00:27:48,560 Speaker 4: our debt was not convertible into gold into a hard commodity. 444 00:27:50,080 --> 00:27:59,359 Speaker 4: The reliability of the US government debt is really a 445 00:27:59,359 --> 00:28:03,560 Speaker 4: bet on the US government economy that the economy is 446 00:28:03,600 --> 00:28:08,000 Speaker 4: going to be so strong and generate the capacity to 447 00:28:08,080 --> 00:28:12,000 Speaker 4: pay taxes to support the repayment of the debt. And 448 00:28:12,040 --> 00:28:15,000 Speaker 4: so these two things, now it's a confidence game and 449 00:28:15,040 --> 00:28:20,000 Speaker 4: they're intricately linked. You know, the the dynamism of the 450 00:28:20,119 --> 00:28:24,480 Speaker 4: US economy is ultimately what supports the credit worthiness of 451 00:28:24,560 --> 00:28:27,159 Speaker 4: the debt. But you know, as your debt and this 452 00:28:27,280 --> 00:28:29,920 Speaker 4: is what Dalia was talking about, you know, as your 453 00:28:30,720 --> 00:28:35,840 Speaker 4: debt levels increase to the point where your ability to 454 00:28:36,119 --> 00:28:41,640 Speaker 4: service the debt is called into question, or your ability 455 00:28:41,680 --> 00:28:44,960 Speaker 4: to service the debt is squeezing out the role that 456 00:28:45,000 --> 00:28:52,200 Speaker 4: the government plays in buttressing, undergirding the dynamism of the economy. 457 00:28:54,040 --> 00:28:56,959 Speaker 4: You get to a point where, you know, investors start 458 00:28:57,280 --> 00:29:02,160 Speaker 4: to worry about the ability of the debt, the ability 459 00:29:02,200 --> 00:29:04,640 Speaker 4: of the government to pay the debt, and so the 460 00:29:04,760 --> 00:29:09,840 Speaker 4: debt overhang itself becomes a retardant to economic growth. So 461 00:29:09,960 --> 00:29:13,640 Speaker 4: if if the dynamos of the economy is what undergirds 462 00:29:13,640 --> 00:29:19,280 Speaker 4: people's confidence in our ability to repay our debts when due, 463 00:29:19,400 --> 00:29:22,120 Speaker 4: we're in a world of hurt. I mean, I went 464 00:29:22,200 --> 00:29:26,040 Speaker 4: to the speech of Bessing gave at the Economic Club 465 00:29:26,040 --> 00:29:29,160 Speaker 4: of New York, and he talked a lot about, you know, 466 00:29:29,480 --> 00:29:35,160 Speaker 4: unleashing the private sector, reducing regulation, freeing the banks to 467 00:29:35,280 --> 00:29:39,840 Speaker 4: once again lend to the private sector, and withdrawing the 468 00:29:40,200 --> 00:29:45,000 Speaker 4: Biden stimulus to you know, the various subsidies and procurement 469 00:29:45,040 --> 00:29:49,520 Speaker 4: policies that were his attempt at restoring to withdraw the 470 00:29:49,560 --> 00:29:54,560 Speaker 4: heavy hand of government from overriding the economy the private sector. 471 00:29:55,160 --> 00:29:57,560 Speaker 4: You know, that's all fine and well, but the reality 472 00:29:57,720 --> 00:30:02,640 Speaker 4: is that you know, government's play an important part in 473 00:30:03,040 --> 00:30:07,120 Speaker 4: promoting the growth of their domestic economies as from as 474 00:30:07,120 --> 00:30:11,160 Speaker 4: simple as you know, connecting people and markets through roads 475 00:30:11,200 --> 00:30:17,000 Speaker 4: and airports and railroads, to ensuring that there is a 476 00:30:17,040 --> 00:30:22,680 Speaker 4: healthy and educated workforce for private employers to be able 477 00:30:22,760 --> 00:30:27,600 Speaker 4: to hire. You know, these are really essential functions of government, 478 00:30:28,520 --> 00:30:33,560 Speaker 4: not least and including the develop their investment and research 479 00:30:33,560 --> 00:30:38,040 Speaker 4: and development and novel technologies that the private sector won't 480 00:30:38,080 --> 00:30:42,280 Speaker 4: invest in because the commercial potential of them isn't obvious. Right, 481 00:30:42,320 --> 00:30:46,160 Speaker 4: So the basic research that we do through NIH and 482 00:30:46,200 --> 00:30:47,520 Speaker 4: the National Academy of Science. 483 00:30:47,520 --> 00:30:48,560 Speaker 3: We've done an episode on this. 484 00:30:48,800 --> 00:30:54,120 Speaker 4: Yeah, this is a really essential function. So there's a balance, right, 485 00:30:54,560 --> 00:30:57,080 Speaker 4: I mean, and the success of the United States is 486 00:30:57,480 --> 00:31:03,440 Speaker 4: a demonstration of the balance between private and public investment. 487 00:31:04,640 --> 00:31:10,240 Speaker 4: The risk that we are in now given the massive 488 00:31:10,280 --> 00:31:17,000 Speaker 4: amount of debt we've accumulated, and more importantly, the continuous 489 00:31:17,040 --> 00:31:22,880 Speaker 4: reliance on deficits, on debt to fund our spending is 490 00:31:22,960 --> 00:31:24,760 Speaker 4: putting us in a place where we really do need 491 00:31:24,800 --> 00:31:29,760 Speaker 4: a fiscal consolidation plan. We have to balance revenues and spending. 492 00:31:29,840 --> 00:31:32,520 Speaker 4: It doesn't have to be one to one, but the 493 00:31:32,560 --> 00:31:35,560 Speaker 4: deficit can't be growing faster than the economy or we're 494 00:31:35,600 --> 00:31:38,480 Speaker 4: just you know, piling up debt that will become increasingly 495 00:31:38,560 --> 00:31:39,720 Speaker 4: more difficult to sustain. 496 00:31:56,600 --> 00:31:59,760 Speaker 3: I want to go back to the sovereign wealth fund idea, 497 00:32:00,000 --> 00:32:03,920 Speaker 3: because when I hear that, it sounds like basically a 498 00:32:04,080 --> 00:32:10,440 Speaker 3: shift from the US issuing unsecured treasuries to secured debt. 499 00:32:10,920 --> 00:32:13,560 Speaker 3: And when I hear that, I think back to a 500 00:32:13,720 --> 00:32:16,520 Speaker 3: term that I used to encounter a lot when I 501 00:32:16,560 --> 00:32:21,960 Speaker 3: was covering European covered bonds, encumbrance, like there's a limited 502 00:32:22,160 --> 00:32:25,560 Speaker 3: amount of collateral that you can put up into a 503 00:32:25,600 --> 00:32:28,040 Speaker 3: bond and at some point you start to run out 504 00:32:28,040 --> 00:32:31,800 Speaker 3: of it. How much collateral? I get that the US 505 00:32:31,920 --> 00:32:34,520 Speaker 3: is the biggest economy in the world, and probably if 506 00:32:34,560 --> 00:32:38,240 Speaker 3: anyone's going to collateralize their debt, maybe it's the US. 507 00:32:38,800 --> 00:32:42,880 Speaker 3: But what exactly would they use to secure these things? 508 00:32:43,160 --> 00:32:46,880 Speaker 4: Okay, so you know there's there's loan to value, and 509 00:32:46,920 --> 00:32:52,080 Speaker 4: then there's cash flow coverage. Right, So the ballot tuet 510 00:32:52,080 --> 00:32:55,640 Speaker 4: of the United States has a variety of hidden assets 511 00:32:55,680 --> 00:32:59,240 Speaker 4: that are not really marked to market. You've heard a 512 00:32:59,240 --> 00:33:03,480 Speaker 4: lot of talk recently about our gold stocks, right that 513 00:33:03,600 --> 00:33:06,480 Speaker 4: are I think at forty two dollars an ounce when 514 00:33:06,520 --> 00:33:09,560 Speaker 4: the price of gold is you know, north of three thousand. 515 00:33:10,040 --> 00:33:13,400 Speaker 4: If you we marked the tons of gold at Fort 516 00:33:13,480 --> 00:33:18,120 Speaker 4: Knox that we own to market, it's probably eight nine 517 00:33:18,160 --> 00:33:22,280 Speaker 4: hundred billion dollars. That's against a thirty six trillion dollar 518 00:33:22,360 --> 00:33:25,880 Speaker 4: debt balance. That's a drop in the bucket. But it's 519 00:33:25,920 --> 00:33:31,240 Speaker 4: not nothing. It's not nothing. We own probably a third 520 00:33:31,320 --> 00:33:35,120 Speaker 4: of the land west of the Mississippi. You know, the 521 00:33:35,160 --> 00:33:37,480 Speaker 4: Western States complain about this all the time with the 522 00:33:37,480 --> 00:33:41,280 Speaker 4: federal government and the Bureau of Land Management is an absent. 523 00:33:41,000 --> 00:33:43,520 Speaker 3: Landlord national park backed bond. 524 00:33:44,760 --> 00:33:48,360 Speaker 4: Yeah, god forbid that Teddy Rosselts legacy, great legacy would 525 00:33:48,400 --> 00:33:53,440 Speaker 4: be somehow undone. But put aside the national parks. Yeah, 526 00:33:53,480 --> 00:33:57,440 Speaker 4: I mean Utavada, Wyoming. Right, and then there's the vast 527 00:33:57,560 --> 00:34:00,920 Speaker 4: expanse of Alaska, most of which is owned by the 528 00:34:00,920 --> 00:34:05,280 Speaker 4: federal government. So there are those kinds of resources. Now 529 00:34:05,280 --> 00:34:10,520 Speaker 4: they don't cash flow today, but there are mineral rights 530 00:34:11,000 --> 00:34:15,279 Speaker 4: on these lands that could be like you know, the 531 00:34:15,840 --> 00:34:18,200 Speaker 4: many other countries in the world do with their mineral 532 00:34:18,320 --> 00:34:22,440 Speaker 4: rights that they you know, give private developers the right 533 00:34:22,520 --> 00:34:26,080 Speaker 4: to extract and they create cash flows for the government 534 00:34:27,200 --> 00:34:31,600 Speaker 4: on whose lands they're doing the extraction. We have, you know, 535 00:34:31,640 --> 00:34:35,920 Speaker 4: a variety of enterprises, commercial enterprises that we own equity 536 00:34:35,960 --> 00:34:40,320 Speaker 4: in or own outright. You know, the Tennessee Valley Authority 537 00:34:41,120 --> 00:34:47,600 Speaker 4: is a huge electrical generation and distribution system in Appalachia. 538 00:34:48,000 --> 00:34:53,280 Speaker 4: Fanny and Freddy taken over during the financial crisis where 539 00:34:53,360 --> 00:34:57,280 Speaker 4: the government owns not withstanding what Bill l Ackman is asserting, 540 00:34:57,680 --> 00:35:02,960 Speaker 4: where the government fundamentally owns ninety to ninety five percent 541 00:35:03,000 --> 00:35:06,239 Speaker 4: of the equity value in them. You know, there are 542 00:35:06,440 --> 00:35:10,920 Speaker 4: those sorts of things that the government could try to 543 00:35:11,000 --> 00:35:15,600 Speaker 4: monetize and capitalize a sovereign wealth fund with. Now having 544 00:35:15,640 --> 00:35:21,400 Speaker 4: done that, let's say there's a two trillion dollars of 545 00:35:21,560 --> 00:35:27,720 Speaker 4: land values, mineral rights, ownership, and commercial enterprises that could 546 00:35:27,760 --> 00:35:32,000 Speaker 4: be that could capitalize a sovereign wealth fund, and some 547 00:35:32,040 --> 00:35:34,000 Speaker 4: of those things cashflow, or you could design them to 548 00:35:34,040 --> 00:35:36,760 Speaker 4: cash flow, so the sovereign wealth fund would actually have income. 549 00:35:37,680 --> 00:35:41,719 Speaker 4: And some of those assets could actually be monetized, like 550 00:35:41,760 --> 00:35:43,960 Speaker 4: the equity in Fanny and Ready and the equity and 551 00:35:44,040 --> 00:35:48,960 Speaker 4: the TVA, you could actually privatize them, sell them into 552 00:35:49,000 --> 00:35:52,560 Speaker 4: the public markets and create actual cash and the sovereign 553 00:35:52,640 --> 00:35:56,600 Speaker 4: wealth fund as opposed to just asset value. So there 554 00:35:56,680 --> 00:36:00,319 Speaker 4: you would have, you know, two trillion dollar fund that 555 00:36:00,600 --> 00:36:04,560 Speaker 4: could intervene in the foreign exchange markets to try to 556 00:36:05,120 --> 00:36:08,520 Speaker 4: intentionally weaken the dollar without having to engage in this 557 00:36:08,600 --> 00:36:11,839 Speaker 4: exchange offer and turn out our debt and try to 558 00:36:12,080 --> 00:36:19,080 Speaker 4: you know, browbeat with security umbrellas and tariff walls foreign 559 00:36:19,120 --> 00:36:21,760 Speaker 4: countries to help us in that endeavor. 560 00:36:21,920 --> 00:36:25,560 Speaker 3: It's still a big bet on economic growth, though, right, 561 00:36:25,719 --> 00:36:29,240 Speaker 3: because the US has to grow enough to pay off 562 00:36:29,360 --> 00:36:32,680 Speaker 3: what it owes, and if it doesn't, then at some 563 00:36:32,760 --> 00:36:35,239 Speaker 3: point you have to hand back the collateral. And I 564 00:36:35,280 --> 00:36:39,799 Speaker 3: think people would be sad slash annoyed if they were 565 00:36:39,800 --> 00:36:43,440 Speaker 3: handing over all the gold or national parks, probably not 566 00:36:43,600 --> 00:36:45,719 Speaker 3: national parks, but land and things like that. 567 00:36:45,920 --> 00:36:49,000 Speaker 4: Yeah. No, I you know, first of all, we never 568 00:36:49,040 --> 00:36:52,280 Speaker 4: pay off the debt, right, We just outgrow it. That's 569 00:36:52,360 --> 00:36:55,800 Speaker 4: the key here. The stock of debt is just refinanced 570 00:36:55,840 --> 00:36:59,560 Speaker 4: and rolled over continuously. You know, it'd be great to 571 00:36:59,560 --> 00:37:01,920 Speaker 4: pay it down one day, but we actually don't have 572 00:37:02,000 --> 00:37:04,319 Speaker 4: to do it. We just have to outgrow it. And 573 00:37:04,400 --> 00:37:06,440 Speaker 4: there are a couple of different ways that countries have 574 00:37:06,520 --> 00:37:09,799 Speaker 4: done this, some of which are more dangerous than others. Right, 575 00:37:09,880 --> 00:37:12,239 Speaker 4: you can inflate your way out of the debt. You 576 00:37:12,360 --> 00:37:16,840 Speaker 4: just you know, devalue your currency over time, and the 577 00:37:16,880 --> 00:37:22,440 Speaker 4: debt stock shrinks relative to the then current value of 578 00:37:22,480 --> 00:37:26,799 Speaker 4: your productive enterprises because you've devalued your currency, and so 579 00:37:27,040 --> 00:37:32,040 Speaker 4: the debt stock, which is fixed in amount, shrinks as 580 00:37:32,080 --> 00:37:35,440 Speaker 4: a relative to the size of the economy, now denominated 581 00:37:35,480 --> 00:37:39,319 Speaker 4: in much weaker currencies. You can try this kind of 582 00:37:39,440 --> 00:37:43,400 Speaker 4: marl lago, you know, exchange offer, and then, of course 583 00:37:43,480 --> 00:37:46,239 Speaker 4: the worst of all outcomes is an outright default where 584 00:37:46,280 --> 00:37:47,200 Speaker 4: you restructure the debt. 585 00:37:47,480 --> 00:37:49,560 Speaker 2: You know, it seems to me, and I said in 586 00:37:49,600 --> 00:37:52,400 Speaker 2: the beginning, I sort of conceptualize these things in terms 587 00:37:52,440 --> 00:37:55,439 Speaker 2: of resource allocation and who gets what, and it seems 588 00:37:55,520 --> 00:37:58,480 Speaker 2: to me, you know, yeah, you could revalue the gold 589 00:37:58,880 --> 00:38:01,640 Speaker 2: in Fort Knox, And probably people are sitting here thinking like, 590 00:38:01,640 --> 00:38:03,440 Speaker 2: why wouldn't you do that if it's you know, it's 591 00:38:03,440 --> 00:38:05,759 Speaker 2: three thousand dollars and we have it at forty or whatever. 592 00:38:05,800 --> 00:38:08,600 Speaker 2: Of course, no, just do it. But that doesn't produce 593 00:38:08,640 --> 00:38:11,200 Speaker 2: more doctors, it doesn't produce more beds for hospitals, it 594 00:38:11,239 --> 00:38:14,239 Speaker 2: doesn't produce more food for senior citizens. You know, like 595 00:38:14,280 --> 00:38:17,200 Speaker 2: when we're talking about these resource constraints, which is how 596 00:38:17,200 --> 00:38:19,480 Speaker 2: I sort of think about it, it's an accounting trick, right, 597 00:38:19,520 --> 00:38:23,080 Speaker 2: because it doesn't ultimately it doesn't create any new factories, 598 00:38:23,080 --> 00:38:26,560 Speaker 2: It does not do any of that. Anyway, Let's talk 599 00:38:26,640 --> 00:38:28,960 Speaker 2: a little bit more. You know a lot about Fanny 600 00:38:29,000 --> 00:38:31,160 Speaker 2: and Freddy, and you've made a reference there to Bill 601 00:38:31,280 --> 00:38:33,520 Speaker 2: Ackman and the thing that I'm trying. You know, there's 602 00:38:33,600 --> 00:38:38,040 Speaker 2: obviously big profits being generated by these government owned enterprises, 603 00:38:38,280 --> 00:38:41,440 Speaker 2: and private investors would like access to those profits so 604 00:38:41,480 --> 00:38:44,239 Speaker 2: that they don't just get to the treasury. But then 605 00:38:44,320 --> 00:38:46,480 Speaker 2: to me, there's the question of, like, can you do 606 00:38:46,640 --> 00:38:50,200 Speaker 2: that in a way to avoid the problem, which is 607 00:38:50,239 --> 00:38:53,240 Speaker 2: that investors get access to those cash flows or access 608 00:38:53,280 --> 00:38:58,920 Speaker 2: to those profits without the implicit guarantee of the government. 609 00:38:59,000 --> 00:39:01,960 Speaker 2: Because you know, obvious like you'd love to keep both, right, 610 00:39:02,120 --> 00:39:05,680 Speaker 2: you'd love to privatize the profits and keep that backstop. 611 00:39:06,000 --> 00:39:09,719 Speaker 2: Is there any conceivable way to privatize them and actually 612 00:39:09,760 --> 00:39:11,840 Speaker 2: not have that backstop in place anymore? 613 00:39:11,880 --> 00:39:15,680 Speaker 3: I think the expectation is they would implicitly keep the backstop, 614 00:39:15,880 --> 00:39:19,800 Speaker 3: like that's what investors fare well. This begs the question 615 00:39:19,880 --> 00:39:21,400 Speaker 3: why bother doing it at all? 616 00:39:21,480 --> 00:39:21,760 Speaker 1: Right? 617 00:39:22,080 --> 00:39:23,360 Speaker 2: Is there a way to do it that's not just 618 00:39:23,400 --> 00:39:24,880 Speaker 2: a giveaway? 619 00:39:25,120 --> 00:39:31,040 Speaker 4: Yes there is? Okay, So there's a lot of history here. Yeah, 620 00:39:31,239 --> 00:39:37,360 Speaker 4: So before the financial crisis. These government sponsored, government chartered 621 00:39:37,640 --> 00:39:42,040 Speaker 4: entities had a special charter that enabled them to borrow 622 00:39:42,160 --> 00:39:47,160 Speaker 4: from the Treasury Department, and that was the source of 623 00:39:47,239 --> 00:39:51,960 Speaker 4: their being viewed session ultimately backed by the Treasury Department, 624 00:39:52,000 --> 00:39:55,440 Speaker 4: even though what they could get from the Treasury Department 625 00:39:55,560 --> 00:40:00,239 Speaker 4: was a mere fraction of their balance sheet size. But 626 00:40:00,920 --> 00:40:04,160 Speaker 4: the fact that they had that entitlement gave investors the 627 00:40:04,200 --> 00:40:07,719 Speaker 4: confidence that in a pinch, the government would step in 628 00:40:07,760 --> 00:40:10,520 Speaker 4: and take them over. And we had a pinch in 629 00:40:10,640 --> 00:40:13,480 Speaker 4: two thousand and eight, and the government did in fact 630 00:40:13,560 --> 00:40:17,080 Speaker 4: step in and put them into a conservatorship. The conservatorship 631 00:40:17,880 --> 00:40:24,279 Speaker 4: was structured to make that implicit backstop explicit, and the 632 00:40:24,320 --> 00:40:28,160 Speaker 4: Treasure Department entered into a preferred stock purchase agreement with 633 00:40:28,320 --> 00:40:32,720 Speaker 4: each of the entities under conservatorship pursue it, to which 634 00:40:33,040 --> 00:40:36,760 Speaker 4: the government actually purchased one hundred and ninety two billion 635 00:40:36,880 --> 00:40:41,120 Speaker 4: dollars of preferred stock in the two entities, infusing one 636 00:40:41,160 --> 00:40:43,799 Speaker 4: hundred and ninety two billion dollars worth of cash of 637 00:40:43,880 --> 00:40:47,200 Speaker 4: Treasure Department cash authorized by Congress under the Housing and 638 00:40:47,280 --> 00:40:51,480 Speaker 4: Economic Revery Act of two thousand and eight into the enterprises. 639 00:40:50,920 --> 00:40:52,879 Speaker 3: In exchange for equity as well, right, they. 640 00:40:52,800 --> 00:40:56,759 Speaker 4: Got preferred stock back, right, a senior preferred stock. That 641 00:40:58,280 --> 00:41:02,560 Speaker 4: senior preferred stock carried a fixed dividend which was converted 642 00:41:02,600 --> 00:41:06,919 Speaker 4: into a variable dividend in twenty twelve in order to 643 00:41:07,000 --> 00:41:09,880 Speaker 4: keep them from having just to borrow more prefer to 644 00:41:10,000 --> 00:41:13,040 Speaker 4: pay off the dividend. And so they were only then 645 00:41:13,200 --> 00:41:15,359 Speaker 4: required to pay a dividend to the extent that they 646 00:41:15,560 --> 00:41:20,040 Speaker 4: were profitable out of their net profits. And were they profitable. 647 00:41:20,120 --> 00:41:24,680 Speaker 4: They have paid the Treasury Department back now three hundred 648 00:41:24,760 --> 00:41:30,520 Speaker 4: and two billion dollars on that characterized as dividends on 649 00:41:30,600 --> 00:41:33,759 Speaker 4: that one hundred and ninety two billion dollar par investment. 650 00:41:34,040 --> 00:41:37,600 Speaker 3: Yet not only are they profitable, they've also, as I 651 00:41:37,719 --> 00:41:41,600 Speaker 3: understand it, kind of restructured their business and increased their 652 00:41:41,719 --> 00:41:46,880 Speaker 3: capital basically like gotten ready for a sale while generating 653 00:41:46,880 --> 00:41:48,480 Speaker 3: a profit, which is pretty impressive. 654 00:41:48,600 --> 00:41:52,760 Speaker 4: Yeah, So that the dividend stream to Treasury, which generated 655 00:41:52,760 --> 00:41:56,920 Speaker 4: three hundred and two billion dollars, was turned off in 656 00:41:57,160 --> 00:42:02,000 Speaker 4: twenty eighteen to allow them to build capital in anticipation 657 00:42:02,280 --> 00:42:06,799 Speaker 4: in Trump administration one that they would be privatized, and 658 00:42:06,840 --> 00:42:09,600 Speaker 4: so they allowed them to build capital. And so the 659 00:42:09,640 --> 00:42:13,520 Speaker 4: Treasure Department hasn't received any dividends since twenty eighteen, so 660 00:42:13,719 --> 00:42:17,640 Speaker 4: seven years ago. And during that seven year period, Fanny 661 00:42:17,680 --> 00:42:21,360 Speaker 4: and Freddie have built between the two of them almost 662 00:42:21,840 --> 00:42:25,919 Speaker 4: two hundred billion dollars of capital. That's still short of 663 00:42:25,960 --> 00:42:30,359 Speaker 4: the capital rule, the capital regulation that was created for 664 00:42:30,440 --> 00:42:35,840 Speaker 4: them during the conservatorship, but they're pretty damn close, probably 665 00:42:35,840 --> 00:42:40,439 Speaker 4: two years away from being meeting their minimum capital. There's 666 00:42:40,520 --> 00:42:43,960 Speaker 4: so called cet I capital levels. You know, there are 667 00:42:44,000 --> 00:42:46,279 Speaker 4: many of us who think that the capital rule that 668 00:42:46,360 --> 00:42:50,600 Speaker 4: was created for them grossly oversolved for their how much 669 00:42:50,640 --> 00:42:51,760 Speaker 4: capital they should carry. 670 00:42:51,960 --> 00:42:54,680 Speaker 3: Right after the financial crisis, everyone's nervous. 671 00:42:54,560 --> 00:42:58,440 Speaker 4: Exactly, and so you know, the as with the big banks, 672 00:42:58,480 --> 00:43:02,920 Speaker 4: the so called cithies, Fanny and Freddy have been subject 673 00:43:02,960 --> 00:43:07,560 Speaker 4: to so called stress tests to see how they would 674 00:43:07,600 --> 00:43:15,000 Speaker 4: fare in a severely adverse scenario where you know, the 675 00:43:15,040 --> 00:43:18,279 Speaker 4: financial markets declined by twenty percent, the interest rates go 676 00:43:18,360 --> 00:43:23,319 Speaker 4: up by ten percent, unemployment skyrocks, housing prices collapse, blah 677 00:43:23,320 --> 00:43:26,239 Speaker 4: blah blah. They've been subjected to stress tests over the 678 00:43:26,360 --> 00:43:29,239 Speaker 4: last couple of years, and those stress tests show that 679 00:43:29,360 --> 00:43:34,160 Speaker 4: basically their losses would be less than like ten billion dollars, 680 00:43:34,680 --> 00:43:37,840 Speaker 4: and so to have them carrying around in Fanny's case, 681 00:43:38,000 --> 00:43:40,960 Speaker 4: one hundred and fifty six billion of capital and in 682 00:43:41,040 --> 00:43:44,440 Speaker 4: Freddie's case, one hundred and twenty billion of capital against 683 00:43:44,719 --> 00:43:48,920 Speaker 4: what the stress test show would be negligible losses. Seems 684 00:43:49,000 --> 00:43:54,040 Speaker 4: like pretty a waste of that capital, just grossly over 685 00:43:54,040 --> 00:43:57,360 Speaker 4: solving them. But I'll get off my high hours on that. 686 00:43:58,000 --> 00:44:01,440 Speaker 4: On that leave them with those capital levels one hundred 687 00:44:01,440 --> 00:44:04,160 Speaker 4: and fifty six and one hundred and twenty billion, respectively, 688 00:44:05,360 --> 00:44:08,279 Speaker 4: they will be They would need another four years of 689 00:44:08,320 --> 00:44:12,000 Speaker 4: retained earnings to reach that. So if you were really, 690 00:44:13,360 --> 00:44:15,960 Speaker 4: if you weren't prepared to let them out of conservatorship 691 00:44:17,160 --> 00:44:20,319 Speaker 4: until they were fully capitalized, you'd wait four years and 692 00:44:20,360 --> 00:44:23,080 Speaker 4: then they'd be fully capitalized under that rule. And then 693 00:44:23,120 --> 00:44:27,920 Speaker 4: the question goes to the backstop. You know, why privatize them? 694 00:44:27,920 --> 00:44:33,200 Speaker 4: And can they be privatized without an explicit government guarantee. Well, 695 00:44:33,239 --> 00:44:37,960 Speaker 4: there's no reason in law or fact that would prohibit 696 00:44:38,120 --> 00:44:42,080 Speaker 4: them from carrying that preferred stock purchase agreement, that equity 697 00:44:42,160 --> 00:44:47,480 Speaker 4: backstop out of conservatorship and having the Treasury stand behind 698 00:44:47,520 --> 00:44:51,000 Speaker 4: this two hundred and seventy billion dollars worth of capital 699 00:44:51,520 --> 00:44:54,520 Speaker 4: with a commitment to buy two hundred and fifty billion 700 00:44:54,640 --> 00:44:58,640 Speaker 4: of capital should the need arise. So you know, if 701 00:44:59,400 --> 00:45:02,719 Speaker 4: in my view, Fanny carrying one hundred and sixty and 702 00:45:02,760 --> 00:45:06,480 Speaker 4: Freddy carry one hundred and twenty billion is already over capitalized, 703 00:45:06,480 --> 00:45:09,880 Speaker 4: well we're going to almost double that with the treasury backstop, 704 00:45:10,560 --> 00:45:13,000 Speaker 4: and Treasury should be paid for the privilege of standing 705 00:45:13,040 --> 00:45:17,520 Speaker 4: behind them a commitment fee, and could the earnings would 706 00:45:17,520 --> 00:45:20,719 Speaker 4: support a commitment fee, but that would give comfort to 707 00:45:20,800 --> 00:45:25,919 Speaker 4: the markets that you know, there's enough capital behind them 708 00:45:26,480 --> 00:45:29,560 Speaker 4: to ensure the prompt payment of principle and interest on 709 00:45:29,600 --> 00:45:34,759 Speaker 4: the underlying mortgages, that they guarantee. The benefit to the 710 00:45:34,800 --> 00:45:38,719 Speaker 4: government of doing this of instead of leaving them in 711 00:45:38,800 --> 00:45:45,799 Speaker 4: conservatorship in perpetuity, is that the government owns ninety odd 712 00:45:45,840 --> 00:45:48,240 Speaker 4: percent of the equity. They own the senior preferred stock. 713 00:45:48,320 --> 00:45:50,680 Speaker 4: They have a warrant to purchase eighty percent of the 714 00:45:50,719 --> 00:45:54,960 Speaker 4: stock for a penny you do you know, a classic 715 00:45:55,080 --> 00:45:59,960 Speaker 4: recapitalization turn the preferred stock into common, diluting the exists 716 00:46:00,160 --> 00:46:03,799 Speaker 4: in common and the Treasury Department's warrant, and Fanny, the 717 00:46:03,840 --> 00:46:07,919 Speaker 4: Treasury Department will end up owning ninety to ninety four 718 00:46:07,960 --> 00:46:12,120 Speaker 4: percent of the total common stock of cleanly capitalized companies. 719 00:46:12,160 --> 00:46:17,200 Speaker 4: What's that worth? The CBO did a recent analysis and said, well, 720 00:46:18,239 --> 00:46:22,120 Speaker 4: this is the Congressional Budget Office did a recent analysis, 721 00:46:22,160 --> 00:46:25,080 Speaker 4: and it's filled with lots of assumptions, and you could 722 00:46:25,160 --> 00:46:28,200 Speaker 4: quibble with some of them. But it's a dividend discount model, 723 00:46:28,239 --> 00:46:33,120 Speaker 4: which isn't you know, unheard of in the valuation of 724 00:46:33,280 --> 00:46:38,080 Speaker 4: financial institutions. And you know, they suggested the equity, the 725 00:46:38,080 --> 00:46:40,480 Speaker 4: total equity of which I think the government ends up 726 00:46:40,480 --> 00:46:43,600 Speaker 4: with at least ninety percent when you recapitalize, and the 727 00:46:43,600 --> 00:46:47,320 Speaker 4: total equities were somewhere between three hundred and five hundred 728 00:46:47,360 --> 00:46:48,080 Speaker 4: billion dollars. 729 00:46:48,280 --> 00:46:49,320 Speaker 3: That's a decent number. 730 00:46:49,440 --> 00:46:51,640 Speaker 4: That's a decent number to put in your softign wealth 731 00:46:51,640 --> 00:46:54,080 Speaker 4: fund or to pay down some of the deficit. 732 00:46:55,560 --> 00:46:58,360 Speaker 3: The one question I have is, Okay, if the gsees 733 00:46:58,440 --> 00:47:03,680 Speaker 3: are privatized, the government gets a payout of an unknown amount, 734 00:47:03,680 --> 00:47:06,840 Speaker 3: but it could be pretty decent. As we said, is 735 00:47:06,840 --> 00:47:10,360 Speaker 3: there anything that Fanny and Freddy actually start doing differently 736 00:47:10,800 --> 00:47:15,200 Speaker 3: once they're privatized, so they get an influx of private capital, 737 00:47:15,360 --> 00:47:16,319 Speaker 3: what do they do with it? 738 00:47:16,440 --> 00:47:22,880 Speaker 4: Okay, So this is a critical question of whether they're 739 00:47:23,000 --> 00:47:25,680 Speaker 4: going to be allowed to go back and do the 740 00:47:25,800 --> 00:47:28,480 Speaker 4: kinds of crazy things they did prior to the financial 741 00:47:28,520 --> 00:47:32,319 Speaker 4: crisis that got them into hot water. One of the 742 00:47:32,480 --> 00:47:36,200 Speaker 4: great innovations, along with Dodd Frank, coming out of the 743 00:47:36,200 --> 00:47:39,960 Speaker 4: financial crisis, was a new statute governing both the federal 744 00:47:40,000 --> 00:47:43,960 Speaker 4: home loan banks and Fanny and Freddy. It's this Housing 745 00:47:43,960 --> 00:47:46,319 Speaker 4: and Economic Recovery Act of two thousand and eight, which 746 00:47:46,360 --> 00:47:52,640 Speaker 4: created a new, stronger regulator called the Federal Housing Finance Agency. 747 00:47:53,440 --> 00:47:57,120 Speaker 4: This is the agency to which Bill Pulti has just 748 00:47:57,280 --> 00:48:04,480 Speaker 4: been confirmed as the director. But that agency has significant 749 00:48:04,760 --> 00:48:10,400 Speaker 4: supervisory and regulatory powers to constrain the business model that 750 00:48:10,680 --> 00:48:13,239 Speaker 4: Fanny and Freddy can pursue. So, I mean, just to 751 00:48:13,280 --> 00:48:16,200 Speaker 4: do it just a touch little more history. If you 752 00:48:16,280 --> 00:48:19,440 Speaker 4: look back to two thousand and three through to two 753 00:48:19,520 --> 00:48:22,520 Speaker 4: thousand and eight, you know what really got Fanny and 754 00:48:22,520 --> 00:48:25,799 Speaker 4: Freddy into trouble is they were running hedge funds. They 755 00:48:25,800 --> 00:48:29,120 Speaker 4: were a government sponsored hedge fund. Beyond the basic business 756 00:48:29,120 --> 00:48:36,360 Speaker 4: of securitizing so called conforming mortgages, you know, eighty LTV 757 00:48:36,560 --> 00:48:41,680 Speaker 4: or less safe mortgages, besides packaging them and securitizing them 758 00:48:42,120 --> 00:48:44,680 Speaker 4: and guaranteeing the prompt payment of principle and interest on 759 00:48:44,760 --> 00:48:48,239 Speaker 4: those mortgage backed securities, of which they are now seven 760 00:48:48,320 --> 00:48:50,440 Speaker 4: and a half trillion outstanding, so that they are the 761 00:48:50,560 --> 00:48:54,359 Speaker 4: big factor in that conventional mortgage market. In the run 762 00:48:54,440 --> 00:48:58,360 Speaker 4: up to the crisis, they also expanded their balance sheets. 763 00:48:58,760 --> 00:49:03,040 Speaker 4: They borrowed money at government rates, levered themselves up, and 764 00:49:03,120 --> 00:49:09,120 Speaker 4: bought all day subprime no dock private labeled securities in 765 00:49:09,200 --> 00:49:11,400 Speaker 4: order to goose their earnings, and they did it on 766 00:49:11,440 --> 00:49:14,799 Speaker 4: a highly levered basis. One of the great reforms that 767 00:49:14,840 --> 00:49:18,560 Speaker 4: has occurred during the conservatorships is those portfolios have been 768 00:49:18,600 --> 00:49:23,120 Speaker 4: completely wound down and so today the only balanced sheet 769 00:49:23,200 --> 00:49:28,359 Speaker 4: that they have is to facilitate a securitization business. Therein so, 770 00:49:28,480 --> 00:49:32,080 Speaker 4: they buy mortgages that have been originated by someone else, 771 00:49:32,600 --> 00:49:37,239 Speaker 4: they pull them, and then they securitize them, and with 772 00:49:37,360 --> 00:49:41,480 Speaker 4: the proceeds of the securitization, they repay the debt that 773 00:49:41,520 --> 00:49:44,440 Speaker 4: they incurred to buy the mortgages in the first place. 774 00:49:45,000 --> 00:49:48,560 Speaker 4: And similarly, when mortgages go bad in the MBS and 775 00:49:48,600 --> 00:49:54,280 Speaker 4: the securitizations, in order to fulfill their guarantee of prompt 776 00:49:54,280 --> 00:49:57,600 Speaker 4: payment of principle and interest on those securities, they buy 777 00:49:57,640 --> 00:50:04,680 Speaker 4: the mortgages out of the pools, restructure them, and modify them. 778 00:50:05,040 --> 00:50:08,520 Speaker 3: Which is why agency MBS is treated as a very 779 00:50:08,600 --> 00:50:12,600 Speaker 3: safe and liquid asset for bank capital purposes. 780 00:50:12,320 --> 00:50:15,920 Speaker 4: Exactly because Fanny and Freddie are there to guarantee the 781 00:50:16,239 --> 00:50:18,520 Speaker 4: prompt payment of principle and interest. And now if we 782 00:50:18,560 --> 00:50:23,000 Speaker 4: go back to the privatization, right, what will back that 783 00:50:23,080 --> 00:50:27,960 Speaker 4: guarantee is both the two hundred and eighty billion of 784 00:50:28,000 --> 00:50:31,719 Speaker 4: capital directly on their balance sheets as well as the 785 00:50:31,760 --> 00:50:35,840 Speaker 4: preferred stock purchase agreement with two hundred and fifty billion 786 00:50:35,880 --> 00:50:41,640 Speaker 4: of unused capacity. So behind that guarantee will stand more 787 00:50:41,680 --> 00:50:46,000 Speaker 4: than half a trillion dollars of capital. And so that 788 00:50:46,480 --> 00:50:48,279 Speaker 4: this is you know, when I get into debates with 789 00:50:48,320 --> 00:50:53,280 Speaker 4: people about people who are opposed to the privatizations, about 790 00:50:53,320 --> 00:50:58,480 Speaker 4: whether or not the privatization would create instability in the 791 00:50:58,640 --> 00:51:04,480 Speaker 4: MBS market, because would they suffer a ratings decline and 792 00:51:04,600 --> 00:51:09,319 Speaker 4: therefore attract higher capital for anyone who owned them, and 793 00:51:09,400 --> 00:51:13,960 Speaker 4: therefore higher rates on the mortgage backed securities which translate 794 00:51:14,040 --> 00:51:19,200 Speaker 4: into higher rates on the mortgages themselves. You know, that 795 00:51:19,440 --> 00:51:22,719 Speaker 4: is the big question. Is half a trillion dollars of 796 00:51:23,000 --> 00:51:28,680 Speaker 4: capital standing behind the guarantees enough to keep the credit 797 00:51:28,760 --> 00:51:34,239 Speaker 4: ratings on the MBS stable and in place. I think 798 00:51:34,239 --> 00:51:36,000 Speaker 4: it is. But you know, at the end of the 799 00:51:36,080 --> 00:51:38,520 Speaker 4: day there'll be a conversation with Moody's and S and 800 00:51:38,560 --> 00:51:42,239 Speaker 4: P and Fitch. Then they'll have to decide whether they 801 00:51:42,280 --> 00:51:44,200 Speaker 4: remain near sovereign credit. 802 00:51:44,360 --> 00:51:47,120 Speaker 3: Oh, it's kind of funny that the credit rating agencies 803 00:51:47,160 --> 00:51:49,000 Speaker 3: are like, it's still in control. 804 00:51:49,239 --> 00:51:50,680 Speaker 4: Yeah, exactly. 805 00:51:52,360 --> 00:51:52,680 Speaker 1: Okay. 806 00:51:52,680 --> 00:51:55,799 Speaker 3: So we've talked a lot about creative ways for the 807 00:51:55,960 --> 00:52:01,160 Speaker 3: US government to raise money and pay off its debt. 808 00:52:01,719 --> 00:52:04,640 Speaker 3: There's one we haven't talked about which is one of 809 00:52:04,640 --> 00:52:08,239 Speaker 3: my favorite financial topics of all time, and that is 810 00:52:08,280 --> 00:52:12,440 Speaker 3: the bonds owned by the US issued by other countries, 811 00:52:13,440 --> 00:52:18,359 Speaker 3: really old ones, Oh, like Chinese imperial debt or did 812 00:52:18,400 --> 00:52:21,520 Speaker 3: you know the UK owes the US a lot of 813 00:52:21,520 --> 00:52:23,360 Speaker 3: money from like World War Two loans? 814 00:52:23,480 --> 00:52:24,600 Speaker 4: Oh, stell, I didn't know that. 815 00:52:24,680 --> 00:52:28,840 Speaker 3: I didn't know that now, and as an intellectual curiosity, 816 00:52:28,960 --> 00:52:31,400 Speaker 3: I find it really interesting to think about the question 817 00:52:31,480 --> 00:52:34,960 Speaker 3: of what would happen if Trump decided to go after 818 00:52:35,000 --> 00:52:37,160 Speaker 3: those as a way of raising money. And this actually 819 00:52:37,239 --> 00:52:40,680 Speaker 3: came up in the first Trump administration. The Treasury was 820 00:52:40,719 --> 00:52:43,640 Speaker 3: looking at ways to get a payout on the Chinese bonds, 821 00:52:44,160 --> 00:52:46,440 Speaker 3: and funnily enough, it was doing that at the same 822 00:52:46,520 --> 00:52:51,120 Speaker 3: time that the SEC was prosecuting someone for selling those 823 00:52:51,160 --> 00:52:55,799 Speaker 3: bonds to investors and promising a payout. That's fun. That 824 00:52:55,840 --> 00:52:56,440 Speaker 3: could be fun. 825 00:52:56,719 --> 00:52:59,640 Speaker 4: So these are I don't know anything about this. These 826 00:52:59,640 --> 00:53:04,640 Speaker 4: are bonds is issued by predecessor governments in China. Yeah, 827 00:53:04,719 --> 00:53:09,960 Speaker 4: you know there is some history of I'm aware of 828 00:53:11,480 --> 00:53:18,520 Speaker 4: some Czarist Russia bonds, Yeah, that are out there. Shortly 829 00:53:18,800 --> 00:53:23,400 Speaker 4: after the collapse of the Soviet Union, the French government 830 00:53:23,440 --> 00:53:27,640 Speaker 4: and the British government, representing French and British bond holders, 831 00:53:28,480 --> 00:53:34,560 Speaker 4: got the Russian Federation to acknowledge those bonds and make 832 00:53:34,600 --> 00:53:39,319 Speaker 4: a paud on them because the Russian Federation was desirous 833 00:53:39,360 --> 00:53:42,680 Speaker 4: of having access to the capital markets in Europe, and 834 00:53:42,760 --> 00:53:46,200 Speaker 4: the quid pro quo was to pay off the debts 835 00:53:46,239 --> 00:53:49,200 Speaker 4: of Czarist Russia. 836 00:53:50,040 --> 00:53:55,160 Speaker 2: Well, we're in unshorted territory. This little like intellectual exercise 837 00:53:55,200 --> 00:53:57,799 Speaker 2: at the end of the conversation may one day not 838 00:53:58,000 --> 00:54:01,560 Speaker 2: just be an intellectual curiosity. Jim Millstein, so great to 839 00:54:01,600 --> 00:54:04,320 Speaker 2: have you back. We could just talk to you for hours. 840 00:54:04,480 --> 00:54:05,279 Speaker 3: Thank you so much. 841 00:54:05,360 --> 00:54:08,360 Speaker 2: Yeah, but that was a fantastic conversation. 842 00:54:08,440 --> 00:54:10,799 Speaker 4: I appreciate you coming back on upline into it though. 843 00:54:11,000 --> 00:54:28,640 Speaker 2: That's great, Tracy. I love talking to Jim. 844 00:54:28,680 --> 00:54:31,600 Speaker 3: He's so good. He's great, and he lays everything out 845 00:54:31,840 --> 00:54:34,960 Speaker 3: so clearly, which is very useful when we're talking about 846 00:54:35,000 --> 00:54:38,799 Speaker 3: a hypothetical like this. The one thing, well, there are 847 00:54:38,800 --> 00:54:41,040 Speaker 3: a lot of things that I think are funny or 848 00:54:41,200 --> 00:54:44,279 Speaker 3: ironic in some of this discussion. But one of the 849 00:54:44,320 --> 00:54:48,600 Speaker 3: big ironies I think about is treasuries are kind of 850 00:54:48,640 --> 00:54:53,680 Speaker 3: the US's biggest export. Yeah, and Trump is obsessed with export, 851 00:54:53,760 --> 00:54:57,680 Speaker 3: I know, but he doesn't want to export those particular things, 852 00:54:57,800 --> 00:55:01,120 Speaker 3: even though you could make an argument that debt helps 853 00:55:01,160 --> 00:55:05,239 Speaker 3: to grow the private economy. As Jim was discussing. 854 00:55:05,440 --> 00:55:07,759 Speaker 2: Uh, it is funny. I mean, look, I guess i'd 855 00:55:07,880 --> 00:55:10,840 Speaker 2: rather US export real things that employee. 856 00:55:10,360 --> 00:55:13,400 Speaker 3: People that he could just take the win, right. 857 00:55:13,239 --> 00:55:14,920 Speaker 2: Take the wind. Yeah, we're a big Uh, we're a 858 00:55:14,960 --> 00:55:17,880 Speaker 2: big exporter of these pieces of paper, not even pieces 859 00:55:17,920 --> 00:55:18,680 Speaker 2: of paper anymore. 860 00:55:18,840 --> 00:55:18,920 Speaker 1: No. 861 00:55:19,000 --> 00:55:21,040 Speaker 2: I thought there was like a great conversation. And look 862 00:55:21,120 --> 00:55:24,080 Speaker 2: the way I see it is some of this stuff 863 00:55:24,160 --> 00:55:26,200 Speaker 2: could be playing with fire, like we really don't know 864 00:55:26,239 --> 00:55:28,440 Speaker 2: how some of you know, some of these goals is 865 00:55:28,480 --> 00:55:31,080 Speaker 2: like we're going to like, you know, we're the fact 866 00:55:31,080 --> 00:55:35,200 Speaker 2: that Germany itself is rearming, and that for decades and 867 00:55:35,280 --> 00:55:39,879 Speaker 2: decades and decades, this sort of entire premise of sort 868 00:55:39,880 --> 00:55:43,480 Speaker 2: of Western geopolitics was preventing Germany from rearming. 869 00:55:43,960 --> 00:55:44,759 Speaker 1: That was in. 870 00:55:44,680 --> 00:55:47,000 Speaker 2: Itself this sort of is sort of like this like 871 00:55:47,160 --> 00:55:50,759 Speaker 2: massive pivot in world history feels like for me, and 872 00:55:50,920 --> 00:55:53,800 Speaker 2: you know, who knows decades from now, you know, we don't. 873 00:55:53,960 --> 00:55:57,160 Speaker 2: We might not know how the consequences of the ways 874 00:55:57,520 --> 00:55:59,760 Speaker 2: geopolitics have been reshaped by that decision. 875 00:56:00,080 --> 00:56:03,960 Speaker 3: Well, this is the norm's point, right, Yes, Like norms, 876 00:56:04,040 --> 00:56:08,440 Speaker 3: it turns out, are actually pretty important, and there's a 877 00:56:08,560 --> 00:56:12,000 Speaker 3: risk of what happens once they're gone or they start 878 00:56:12,040 --> 00:56:12,560 Speaker 3: to change. 879 00:56:12,680 --> 00:56:14,880 Speaker 2: Yeah, I would say two points. I mean one is, yes, 880 00:56:15,040 --> 00:56:18,239 Speaker 2: norms themselves I think are pretty important. And then you 881 00:56:18,320 --> 00:56:21,759 Speaker 2: get into things that are sort of beyond norms, questions 882 00:56:22,040 --> 00:56:25,600 Speaker 2: like once you bring in the conversation about and again 883 00:56:25,680 --> 00:56:28,000 Speaker 2: I don't know how serious it, but like restructuring debt 884 00:56:28,040 --> 00:56:29,799 Speaker 2: or et cetera, you're like, go beyond norms and you 885 00:56:29,880 --> 00:56:33,720 Speaker 2: actually like you could trigger trigger formal things. 886 00:56:33,880 --> 00:56:36,480 Speaker 3: No, that's still a norm though, I guess it's like 887 00:56:36,719 --> 00:56:38,879 Speaker 3: historically has not defaulted on its death. 888 00:56:39,000 --> 00:56:41,280 Speaker 2: No, but it's like there are things in pieces of paper, 889 00:56:41,400 --> 00:56:43,480 Speaker 2: right that like when you don't when you like try 890 00:56:43,520 --> 00:56:44,000 Speaker 2: to change. 891 00:56:44,160 --> 00:56:48,840 Speaker 3: There are legalities, yeah, but frankly, legalities are being treated 892 00:56:48,840 --> 00:56:53,240 Speaker 3: as norms now right, I suppose so, yes, I suppose, 893 00:56:53,320 --> 00:56:54,600 Speaker 3: so shall we leave it there? 894 00:56:55,120 --> 00:56:55,879 Speaker 2: Let's leave it there. 895 00:56:56,120 --> 00:56:58,840 Speaker 3: This has been another episode of the ad Thoughts podcast. 896 00:56:58,960 --> 00:57:02,319 Speaker 3: I'm Tracy Alloway. You can follow me at Tracy Alloway and. 897 00:57:02,280 --> 00:57:04,920 Speaker 2: I'm joll Wisenthal. You can follow me at the Stalwart. 898 00:57:05,160 --> 00:57:08,400 Speaker 2: Follow our producers Carmen Rodriguez at Carman armand dash Ol 899 00:57:08,400 --> 00:57:12,040 Speaker 2: Bennett at Dashbot and Keil Brooks at Kelbrooks. More Oddlots 900 00:57:12,080 --> 00:57:15,120 Speaker 2: content go to Bloomberg dot com slash odd Lots. 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