Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Should I give a really quick bird update? Oh yeah,
Speaker 2: Well we put out the cliff Astness episode, which was
Speaker 2: very well received, but we did get a few comments
Speaker 2: about where they're not being a bird update really quick birds. Yeah,
Speaker 2: the birds doing really well, flying really well. We need
Speaker 2: to work on perching. So he's in a big.
Speaker 1: Room's interesting is regressed on perching?
Speaker 2: Well, the thing is, it's hard. He's very comfortable perching
Speaker 2: on people. He's very comfortable perching on his cage. I
Speaker 2: put in an old cat tree that I had at
Speaker 2: my parents' house in the room where he is. He
Speaker 2: refuses to perch on it. And so if you open, yeah,
Speaker 2: you probably wouldn't purchase the catch. Yeah maybe, I mean
Speaker 2: my cat hasn't touched it in several years, so I
Speaker 2: thought maybe the cats I'll never never. I think I
Speaker 2: need to get.
Speaker 1: Like you owner ever and terror I can tell you
Speaker 1: the cat.
Speaker 2: I think I need to get him like an indoor
Speaker 2: potted tree or something, because if you open the cage
Speaker 2: and then run to the other side of the room,
Speaker 2: he will fly directly to you. He will not land
Speaker 2: on anything other than his cage and humans. So we
Speaker 2: need to work on that. Also. We're calling it a
Speaker 2: heat but it could be a lady bird.
Speaker 1: Is this whole project still in the service of like
Speaker 1: one day releasing or herd into the wild, or is
Speaker 1: it more just like I think, be nice if he
Speaker 1: wasn't clinging to your shoulder all the time.
Speaker 2: I think given that it's so attached to humans, it
Speaker 2: would be very hard to release this bird right now.
Speaker 2: It won't perch. I mean, we'll see when we get
Speaker 2: in a tree if it'll perch on the tree.
Speaker 1: I guess I'll stop asking that question. I guess that's
Speaker 1: just your bird now.
Speaker 2: Yeah, and its name is bird.
Speaker 1: Hello, and welcome to The Money Stuff Podcast. You're a
Speaker 1: weekly podcast where we talk about stuff related to money.
Speaker 1: I'm Matt Levie and I write The Money Stuff Calm
Speaker 1: for Blue Our Opinion, and.
Speaker 2: I'm Katie Greifeld, a reporter for Bloomberg News and an
Speaker 2: anchor for Bloomberg Television.
Speaker 1: Katie, I came to you this week and I was like,
Speaker 1: I want to talk about ETFs, which sounded really sounds great.
Speaker 1: And I was like, I want to talk about autocollable
Speaker 1: ets and You're like, Nah.
Speaker 2: You know that's the thing. It really feels like a
Speaker 2: monkey's paw situation or something. I should be psyched.
Speaker 1: The thing this is the thing. The thing about ETFs
Speaker 1: is that eventually all of financial products and ultimately all
Speaker 1: of human existence will be sucked into an ETF. And
Speaker 1: like you have to be able to roll with all
Speaker 1: of the possible forms of ETF.
Speaker 2: I you know, I'm like super comfortable with the idea
Speaker 2: that you know, there's structured products in ETFs. Yeah, I
Speaker 2: know what for ETF is. The concept of an autocollable
Speaker 2: ETF is a little bit of a tougher too. But
Speaker 2: the first one launched this past week. Yeah, Calamus Kalamos
Speaker 2: with JP Morgan is the swap counterparty.
Speaker 1: Yeah.
Speaker 2: So you did a breakdown in your Money Soff column
Speaker 2: about how's theoretic this would work. You provided an example.
Speaker 2: Some don't quite get it, okay.
Speaker 1: So, like, if you're a JP market, you're in the
Speaker 1: business like manufacturing products that clients want to buy. One
Speaker 1: thing that clients come to with a lot is we
Speaker 1: would like to hedge our stock market risk. It would
Speaker 1: be nice if when the market crashed we could get
Speaker 1: some insurance. And so there's a big business in manufacturing
Speaker 1: insurance against market crushes because like fundamentally most people, most
Speaker 1: investors are long equities and they want to have insurance.
Speaker 1: Someone want to have insurance against the market crush, and
Speaker 1: how do you manufacture that insurance because no one's to
Speaker 1: sell that insurance, right, Like who wants to be in
Speaker 1: the business of saying if the market crashes, I'll give
Speaker 1: you money, Like it's a terrible wrong way situation to
Speaker 1: be in. And so a lot of like the world
Speaker 1: of like equity to rotistrating is figuring out how to
Speaker 1: manufacture that sort of market risk insurance crash insurance. And
Speaker 1: there are ways to do it, like the dispersion trade
Speaker 1: and hedgephones is like a gibeis are closing. It's all
Speaker 1: a complicated way to take single stock ball and turn
Speaker 1: it into index vall so that you can sell people
Speaker 1: insurance against market crashes. But like a classic way to
Speaker 1: do it is to say, we're going to have retail
Speaker 1: investors sell us insurance against market crashes. And the way
Speaker 1: retail investors sell insurance is essentially they buy bonds and
Speaker 1: the bonds, you know, they put it in one hundred dollars,
Speaker 1: they get back one hundred dollars plus like a very
Speaker 1: high rate of interest, except if the market crashes, they
Speaker 1: get back like nothing or they lose money. Right, so
Speaker 1: the thing they buy is sort of a catastrophe bond
Speaker 1: for market crash, Like if the market crashes, they don't
Speaker 1: get back all their money, and the money they don't
Speaker 1: get back gets used to pay someone else's insurance. One
Speaker 1: of the main like the classic form of that is
Speaker 1: called an auto callable. It's just like the name of it,
Speaker 1: but it's basically you put in money. If the market
Speaker 1: stays flat or up or even goes down a little bit,
Speaker 1: you get back like one hundred and fifteen cents on
Speaker 1: a dollar in a year. And if the market goes
Speaker 1: down a lot, you know, you lose the amount of
Speaker 1: the market crash and you know, and JP Morgan sells
Speaker 1: that to you gives them index volatility that they can
Speaker 1: turn around and sell to you know, institutional clients who
Speaker 1: want a hedgeance market crash. So that is the autocoll.
Speaker 1: It is a classic structured note structuring product that like
Speaker 1: banks love to sell to you know, retailer high night
Speaker 1: Worth investors. And now it's going into an ETF, which
Speaker 1: was inevitable.
Speaker 2: I mean buffers have been so popular.
Speaker 1: Yeah, I think actually the press release for this ETF
Speaker 1: said something like, this is the latest play for a
Speaker 1: boomer candy pretty just like just the name of these
Speaker 1: kinds of ETFs. Now. Yeah, And it's like a little
Speaker 1: bit similar to a buffer in that it's like a
Speaker 1: fixed income replacement that like maybe has a little little extra.
Speaker 2: Juice but even still on. And you know, I'm prepared
Speaker 2: to be proven wrong, but I feel like this is
Speaker 2: a tougher sell like buffers, I.
Speaker 1: Should say, it's different from a buffer. And then a
Speaker 1: buffer is buffered, and this is like, yeah, in a crash,
Speaker 1: you lose your money.
Speaker 2: Yeah, a buffer is okay, you're giving up upside, but
Speaker 2: you're going to be cushioned buffered on the downside.
Speaker 1: That it was like you're getting a nice coupon, yeah,
Speaker 1: except in bad states of the world, in which case
Speaker 1: you there's a lot of money. Yeah.
Speaker 2: So I don't know, I mean, who is this for?
Speaker 2: Like I hear them, I love them, I know, I know,
Speaker 2: I just wonder, like.
Speaker 1: Obviously, like you know, I sold the agent high net
Speaker 1: worth investors. And there's a story a while back that
Speaker 1: I remember I quoted about Korean autocollables or some brokers
Speaker 1: as something like no one's ever only bought one. Once
Speaker 1: you buy them, you keep coming back from more because
Speaker 1: they're so great, love them so much, and it's like,
Speaker 1: you know, you think of the profile of it for
Speaker 1: a second and you're like, yeah, of course that's true.
Speaker 2: Right.
Speaker 1: You keep buying them because you get paid a fifteen
Speaker 1: percent yield. You keep buying them until there's one crash
Speaker 1: and then you stop. Right, yeah, maybe, yeah, but right,
Speaker 1: it pays a fifteen percent yield and most of the
Speaker 1: market crash of the crashes.
Speaker 2: Yeah, So Kala Mos is first out the gate. I
Speaker 2: think you have. Innovator and First Trust have also filed
Speaker 2: for similar products. It's interesting that JP Morgan hasn't JP
Speaker 2: Morgan sort of pioneered this category in the ETF space,
Speaker 2: this derivatives power to find outcome space. They have Jeppy,
Speaker 2: which is a household name in my household. Maybe not
Speaker 2: in years, but then you know, there were a bunch
Speaker 2: of Jeffy copycats, and you've also seen buffers rise up
Speaker 2: in the last few years. But I don't know, it's
Speaker 2: somewhat interesting to me that you know, it's not JP.
Speaker 1: Morgan that's well, JP Morgan is the swap count of party. Yeah,
Speaker 1: which means that their vall that is being bought. They're
Speaker 1: buying the vall from the retail customers to sell to
Speaker 1: their institutional customers.
Speaker 2: Yeah. Yeah, but they're not the ones headlining the CTF necessarily.
Speaker 1: Yeah right. I never fully understood the structured nets business.
Speaker 1: But like part of it is like the retail and
Speaker 1: high not worth like private wealth bankers are sitting around saying,
Speaker 1: like what can we sell to our customers to make money?
Speaker 1: And then part of it is like the institutional vault
Speaker 1: traders are sitting around thinking where can we get some
Speaker 1: voll and like there's a meeting of the minds. So
Speaker 1: here like the you know, the JP Morgan valltraders are happy,
Speaker 1: even if they're not like making the DF fee. I mean,
Speaker 1: they're making some sort of fee on your point about
Speaker 1: who's this is four? Yeah, I read about this this
Speaker 1: week and it reader emailed me, so remind me of
Speaker 1: there's a catastrophe bond etf.
Speaker 2: Yes, I love IOLs is the taker iOS and launched
Speaker 2: without a lead market maker.
Speaker 1: Yeah, and there's like a Bloomer article about it from
Speaker 1: April saying the securities can be a hard cell for
Speaker 1: retail investors who have never before had to price the
Speaker 1: risk of a typhoon or earthquake. Ei way, they're not
Speaker 1: pricing it now, they're a price taker. But anyway, they
Speaker 1: quote someone saying the asset class does itself no favors
Speaker 1: by having catastrophe in the name. At least it's clear though.
Speaker 1: At least you kind of know like the basic contours
Speaker 1: of what you're doing when it's this catastrophe in the name. Here,
Speaker 1: it's called an auto callable, which is like tells you nothing,
Speaker 1: and you know it's a big like headline, Yeah, this
Speaker 1: is how much yell do you? And you're like, oh,
Speaker 1: y old to create it. Then you're like, oh, I
Speaker 1: can lose all my money. Yeah. Also, it's like if
Speaker 1: you're into this sort of thing, which I know you're not. No,
Speaker 1: you're into the sort of thing. It's really cool because
Speaker 1: it's like the structure of it is basically you know,
Speaker 1: it's an autocol, so there's like knock in and knockouts
Speaker 1: and stuff. Basically, if the index is down forty percent
Speaker 1: is when you start to lose money. Like instead of
Speaker 1: getting a nice coupon.
Speaker 2: It's like very rarely happens.
Speaker 1: Okay, you say that. Yeah, the reason you say that
Speaker 1: is because you and I and probably mostly who'll buying
Speaker 1: it have an intuition of what the index is. But
Speaker 1: the index that they use is not the S and P.
Speaker 1: The index that they use is a like volatility targeted
Speaker 1: S and P. Oh, So basically they like lever the
Speaker 1: S and P to get you to a thirty five
Speaker 1: percent volatility. Okay, essually in the ballpark of two x
Speaker 1: leverard a little more than two x LeVert So a
Speaker 1: twenty percent drop in the S ANDP is not that
Speaker 1: common either. But it's like it's yeah, and like you
Speaker 1: see forty percent, like forty percent that never happens, but
Speaker 1: like the innex reps like twenty ish percent, you lose
Speaker 1: forty percent of your money. So it's like the structure
Speaker 1: is not like a lot of structure notes. It's like
Speaker 1: you can tell the story and I supposed you know,
Speaker 1: you're like if the market is down twenty percent, you
Speaker 1: lose twenty percent. It's like very easy to understand here.
Speaker 1: It's like you get this nice yield and sometimes you don't.
Speaker 1: And it's not like when the market is down twenty percent,
Speaker 1: it's like, yeah, like it it's like math and like
Speaker 1: sometimes you don't. Yeah, so it's an intuitive product for
Speaker 1: retail investors.
Speaker 2: Yeah, I'm interested to see if. I mean, just given
Speaker 2: how popular these types of ETFs would be if we
Speaker 2: were recording this in twenty nineteen, which we wouldn't, but
Speaker 2: I'd beel like, oh, who's going to buy this? But
Speaker 2: I don't know what could happen. It could see some uptick,
Speaker 2: but I really get it, So we'll see. Like, if
Speaker 2: you can't explain it in an elevator ride.
Speaker 1: You can explain it. It plays a high yield except
Speaker 1: when the market crashes.
Speaker 2: Except when the market crashes. Yeah, but it's you know,
Speaker 2: if the index is about.
Speaker 1: This level, if it's paying numbers, it's hard to explain.
Speaker 1: But well, yeah, a lot of stuff. It's not like
Speaker 1: floors and caps and everything. It's just like phase fifteen percent,
Speaker 1: except when the market's down more than this x percent.
Speaker 2: Something else that was wondering. You know, this has typically
Speaker 2: been the domain of you know, high net worth individuals
Speaker 2: who was making less money as a result of this
Speaker 2: being put in the ETF wrapper, Like does JP Morgan
Speaker 2: care if they're selling these two calamos versus selling this
Speaker 2: in some other structure.
Speaker 1: I always used to have the impression that structured notes
Speaker 1: had very juicy fees. Yeah, but I actually I think
Speaker 1: it's like kind of a competitive business that's not that juicy.
Speaker 2: Yeah, well this ETF charges like seventy four basis points.
Speaker 1: Yeah, but like with anything like this, like there's a
Speaker 1: lot of mouths to feed, and like, yeah, they're doing
Speaker 1: a swap with japing Organ, which is probably a JP
Speaker 1: Morgan expects to make a certain amount of money and
Speaker 1: then swap. I don't know, it's hard to exactly compare
Speaker 1: the pricing of those to a structured note, But I
Speaker 1: don't get the sense that, like I think deserve these
Speaker 1: are a comparable products, right, Like these are sort of
Speaker 1: advisor sold like upper end retail products, and so like
Speaker 1: you know, they're all kind of competitive spaces. But this
Speaker 1: is not like wildly undercutting some super lucrative, uncompetitive business,
Speaker 1: right Like the structured notes is like everyone's kind of
Speaker 1: in on that game.
Speaker 2: Okay, good, you were worried JP Morgan is in losing
Speaker 2: out on anything. Yeah, to move onto the next JP
Speaker 2: Morgan story, I guess the prior credit trading story private
Speaker 2: credit trading.
Speaker 1: It's so good. Yeah, so right. There's a Bloomberg story
Speaker 1: this week by Ellen Schneider and Carmen.
Speaker 2: Araya, A bad how, such a fun read.
Speaker 1: Japi Morgan has stood up this entire private credit trading desk,
Speaker 1: which is so smart, like getting in early on what
Speaker 1: is quite plausibly going to be the next bank line trading,
Speaker 1: like a huge business. But unfortunately they don't do any trade.
Speaker 2: No one wants to trade with them.
Speaker 1: Now you have to start.
Speaker 2: Yeah, yeah, it's.
Speaker 1: Not that no one wants to trade with them. The
Speaker 1: product doesn't trade. Yeah, that's not entirely true. Some of
Speaker 1: it is that no one wants to trade with JP Morgan,
Speaker 1: And like there are some private credit firms trying to
Speaker 1: stand up trading desks, and like maybe it's just the
Speaker 1: competitive dynamic, but I think ninety five percent of it
Speaker 1: is that these loans don't trade and people don't want
Speaker 1: them to trade. Yeah, and so JP Morgan constantly sends
Speaker 1: out runs saying we're looking to buy five million dollar
Speaker 1: chunks of like these forty loans, and here are our bids,
Speaker 1: and everyone's.
Speaker 2: Like thank you, shooting out those runs into the void, and.
Speaker 1: Then they're calling and saying, hey, I just want to
Speaker 1: see if you got my run and I was like, goodbye, God, Yeah,
Speaker 1: it's really bad. It's great.
Speaker 2: The human psychology of that is just brutal, I know,
Speaker 2: but it's what you got to.
Speaker 1: Do, right, And you know that, like the people doing
Speaker 1: that are like, well, this is my shot at like
Speaker 1: being the person who invented a whole new category and
Speaker 1: bringing in, you know, hundreds of millions of dollars of
Speaker 1: revenue and being a superstar. But one, it's not guaranteed
Speaker 1: that will work out. And too, it is guaranteed that
Speaker 1: before it works out, I will spend a lot of
Speaker 1: time could calling people and getting nowhere right.
Speaker 2: Yeah, And I mean as a journalist I sympathize. Yeah, jeez, Louise,
Speaker 2: I hate could.
Speaker 1: As a not very good investment banker in my former life,
Speaker 1: I think about like how long one could have zero
Speaker 1: in one's p and L. Yeah, you know, like they've
Speaker 1: got some run back, right, No one's expecting them to
Speaker 1: do a lot of trade this month. Yeah, at some
Speaker 1: point someone will be like, hey.
Speaker 2: Guys, well there's a few interesting reasons in the article
Speaker 2: that are raised for why JP Morgan is getting shut
Speaker 2: out one is that the private credit firms want big
Speaker 2: banks to stay out of their turf.
Speaker 1: Like, I don't think that's the main reasons presented as
Speaker 1: a reason. That's part of the competitive dynamic of like
Speaker 1: we want to free that bank, and that might be
Speaker 1: part of it. I think the main reasons m hm, Okay,
Speaker 1: So I think like an important reason that the article
Speaker 1: highlights that I think is the second most important reason
Speaker 1: is that this is what Cliff was talking about when
Speaker 1: he came on.
Speaker 2: Like nice callback.
Speaker 1: Private markets are very attractive to a lot of investors
Speaker 1: because they are less volatile than public markets. And if
Speaker 1: you think about that for a fraction of a second,
Speaker 1: or if you talk to Cliff, you'll be like, wait, magic,
Speaker 1: they're not actually less volatiles. They don't trade, so you
Speaker 1: don't see the fluctuations and the values that you see
Speaker 1: in public markets because they trade constantly and so nonetheless,
Speaker 1: like you know, as Cliff has written about, like there
Speaker 1: is for some classes of investors, like a real value
Speaker 1: in not having to mark down your positions. Yeah, and
Speaker 1: if private credit loans traded constantly in a liquid market
Speaker 1: that everyone could see, it would be harder to not
Speaker 1: mark down your positions. When they went down in the market. Yeah,
Speaker 1: and then some of the perceived advantage of private credit
Speaker 1: would go away. And nobody trying to stuff private credit
Speaker 1: into four one case it's going to be all that
Speaker 1: excited about like increasing the volatility of the market. So
Speaker 1: that is I think the second most important reason still.
Speaker 2: I mean, you have Apollo trying to do that, trying
Speaker 2: to make trading a thing, but they're also trying to
Speaker 2: shove private credit into four to one case.
Speaker 1: Yeah, so this is the tension, right, Like you don't
Speaker 1: want volatility, yeah, but like you want retail customers, and
Speaker 1: it is hard to build a retail product that is
Speaker 1: completely a liquid yeah, but it makes sense. There's like
Speaker 1: an economic intuition for like you can put private credit
Speaker 1: into your four oh and K or your target date
Speaker 1: fund and you'll know with certainty that you won't need
Speaker 1: the money for thirty years, so that you can take
Speaker 1: the ill liquidity risk. You don't need liquidity because you're
Speaker 1: a long term saver, right, But nobody actually believes that
Speaker 1: because like retail is like it's hard to lock up
Speaker 1: retail for ten years, right, and so in practice to
Speaker 1: have a retail product, you need something like at least
Speaker 1: an interval fund and maybe an ETF right and an
Speaker 1: ETF if you need trading, right, like you need to
Speaker 1: be able to trade this stuff. So yeah, like there
Speaker 1: is definitely a push for trading a private to get
Speaker 1: it into retail. It's all right, so becuse the other way.
Speaker 1: But I do you think the most important reason that
Speaker 1: it's hard to trade private credit is that the deal
Speaker 1: that private credit firms are offering to borrowers like private
Speaker 1: equity sponsors is we will look you in the eye
Speaker 1: and write you this loan, and we will own that
Speaker 1: loan for the duration of the loan, and if you
Speaker 1: have problems, you come to us, and like, we won't
Speaker 1: be jerks because we're repeat players in this game. And
Speaker 1: so once private credit trades, like you know, there's opportunities
Speaker 1: for vulture funds and activists and like you know, loan
Speaker 1: to own investors, and so it's less pleasant for the
Speaker 1: private equity sponsors. And so you know, as they say
Speaker 1: in the article, you know, unlike most bonds, private credit
Speaker 1: loans require the approval of the lead lender and the
Speaker 1: private equity sponsor to trade. So even if JP Murrien
Speaker 1: could get someone to sell them, they'd have to go
Speaker 1: to the sponsor and say, hey, can we buy this loan?
Speaker 1: The sponsor could.
Speaker 2: Say no, yeah, which they have veto power. Basically, Yeah,
Speaker 2: it's not.
Speaker 1: Just veto power. It's not just like we don't want
Speaker 1: our loans to end up in the hands of like
Speaker 1: activists we're scared of. It's also just like we want
Speaker 1: our loans to be held by five people we negotiated
Speaker 1: with rather than like any random person. Yeah, because we
Speaker 1: want to be able to have a relationship with them
Speaker 1: if we need to you know, extend or refinance the loan,
Speaker 1: or you know, we run into problems or we need
Speaker 1: to restructure, Like, we want to be able to talk
Speaker 1: to people who we know and who like we have
Speaker 1: a long term, repeat relationship with, rather than you know,
Speaker 1: some random CLO manager. Yeah, and so that makes it
Speaker 1: hard to trade re regret it.
Speaker 2: So how does this evolve? I know that you're in
Speaker 2: the camp. It seems that it kind of feels inevitable.
Speaker 1: Yeah, I think so, But there's like a real cut argument.
Speaker 2: Yeah, and you also have I mean, like you said,
Speaker 2: the private equity sponsors don't want this. You also have
Speaker 2: like the likes of Blual who thinks that private should
Speaker 2: stay private. I mean, like, how do you see this evolving?
Speaker 2: Will there be a corner that remains in the shadows,
Speaker 2: or do you think that everything eventually will be out
Speaker 2: in the open and traded.
Speaker 1: You know, I think it's going to be contractual, and
Speaker 1: so like, you know, you see a little of this in
Speaker 1: the probably syndicated load market, where some loans are very
Speaker 1: restrictive about who can buy them. And for the most part,
Speaker 1: people think of the proably syndicated load market as like,
Speaker 1: you know, kind of trading, and like banks have trading
Speaker 1: desks and it's trades and it's you know, you can
Speaker 1: get like marks and stuff, but it's not as like
Speaker 1: what is the bond market, And like some loans you know,
Speaker 1: have long restricted lists where people can't buy it. You
Speaker 1: can have that in private credit, right where like some
Speaker 1: sponsors some deals don't trade very much because they're very restrictive,
Speaker 1: and other people say, I don't really care. I will
Speaker 1: get a better price if I allow more trading with
Speaker 1: my loans, and so I'll just take the better price.
Speaker 1: And it's like interestingly, like there aren't that many private
Speaker 1: credit firms and there aren't that many private aquity sponsors right,
Speaker 1: Like it's all kind of like oligopolistic, and you could imagine,
Speaker 1: like you know, people just come into arrangements and say, okay, fine,
Speaker 1: well well you know, or like you have your reasons
Speaker 1: for borrowing from firms that really don't allow trading, or
Speaker 1: you have your reasons for buying from firms that love trading,
Speaker 1: and like, you know, you could maybe you get a
Speaker 1: better price with more liquidity and you know all the
Speaker 1: other stuff. Yeah. Another possibility then a couple of reader
Speaker 1: emails about this is like you can sort of like
Speaker 1: halfway allow private credit trading where instead of selling the
Speaker 1: loan to someone, you sell like a participation in the
Speaker 1: loan where the original lender keeps like the servicing rights
Speaker 1: and keeps the relationship with the borrower, but someone else
Speaker 1: is buying the economic value of the loan. That's like
Speaker 1: sort of a compromise that might work, and might you know,
Speaker 1: give you some of the things that you want, like
Speaker 1: letting the original lenders cash out a little bit or
Speaker 1: de risk a little bit. It's like a little hard
Speaker 1: to imagine because like with leverage loans, a lot of
Speaker 1: what people do want is like the control rights and
Speaker 1: the servicing rights and the ability to like have a
Speaker 1: seat at the table in the restructuring. But maybe that's
Speaker 1: the way I've heard to.
Speaker 2: Get Yeah, it'll be fun to find out, Katie.
Speaker 1: This is my last podcast.
Speaker 2: Because because you got the call from Mark.
Speaker 1: Zucker from too, I think it was fake.
Speaker 2: There. It's hard to know because apparently we're not alone
Speaker 2: in thinking that our Mark Zuckerberg calls were fake.
Speaker 1: I'm just kidding that in fact it is.
Speaker 2: Oh, I'm not knowing, No, I'm kidding.
Speaker 1: Does seem to be the case that every single day,
Speaker 1: every researcher in the world has gotten Mark Zuckerberg sliding
Speaker 1: into their dms. Yeah, and ninety five percent of them
Speaker 1: have been like, that's not Mark Zuckerberg, which is weird, right, Yeah,
Speaker 1: which is weird because I don't know, it's so weird,
Speaker 1: Like just the concept no, the job market. Oh yeah,
Speaker 1: I was writing a little bit about this, Like I'm
Speaker 1: used to like the financial industry, where the job is
Speaker 1: to pay people enough that they don't live for your competitors,
Speaker 1: but not so much that they leave to like sit
Speaker 1: on a beach, right, Right, you need them to still
Speaker 1: want more money but not be able to get it elsewhere, right,
Speaker 1: And like you know, there's like a range, right, Like
Speaker 1: there's like if you pay them more than X, they
Speaker 1: won't go to your competitors. And if you pay them
Speaker 1: less than why they won't quit to go to the beach,
Speaker 1: And like you know why is go to the next
Speaker 1: In AI, it's like it's flipped in AI. To out
Speaker 1: compete your competitors for the best AI talent, you need
Speaker 1: to pay the best aay Italian one hundred million dollars. Yeah,
Speaker 1: and I'm like to like a twenty eight year old,
Speaker 1: right if I love my job.
Speaker 2: But yeah, for sure if I got a.
Speaker 1: Hundred million dollars, I wouldn't do it anymore.
Speaker 2: Yeah, yeah, that's true.
Speaker 1: That's too much money. So are you don't need to
Speaker 1: work anymore?
Speaker 2: Are you applying it's just more important that they don't
Speaker 2: work at open AI?
Speaker 1: What do you mean?
Speaker 2: Listening to you talk, it sounds like you're saying that
Speaker 2: Mark Zuckerberg is hiring these people just so they're not
Speaker 2: working in a working It's.
Speaker 1: Very bizarre to me. I assume there's some sort of
Speaker 1: like structure on their compensation where they don't just get
Speaker 1: a bag of money on the first day and then
Speaker 1: but no, I don't think he's like hiring them to
Speaker 1: get them out of open AI. I think he's genuinely
Speaker 1: trying to build a giant AI research.
Speaker 2: Project, super intelligent you, and it's.
Speaker 1: Apparently intended to include every AI researcher in the world
Speaker 1: at one hundred million dollars a pop. And it's amazing.
Speaker 2: I think their desks are also going to be close
Speaker 2: to Mark Zuckerberg. They're going to be physically close to
Speaker 2: him as well.
Speaker 1: They're going to be made out of diamonds. I truly like,
Speaker 1: I'm used to finance, but like in tech, it's like
Speaker 1: a famous concept of like resting investing right, Like it's
Speaker 1: famously like there are people who, by virtue of being
Speaker 1: early employees at successful companies, don't need to work anymore. Yeah,
Speaker 1: in an AI there only those people. Every person who
Speaker 1: works that A doesn't need to work anywhere. It's so strange.
Speaker 1: I'll be really motivated by building AI.
Speaker 2: Yeah, I mean, I just find I'm exaggerating.
Speaker 1: I'm sure there're like some listeners who are like, I
Speaker 1: don't think it paid like eight million dollars a year
Speaker 1: and I work in AI, and it's really like, you're
Speaker 1: really exaggerating. I agree, I'm really exaggerating, but you keep
Speaker 1: reading story by Peep forgetting Yeah, really enormous.
Speaker 2: It's super disheartening.
Speaker 1: I find I love when people get paid a lot
Speaker 1: of money. It's just like rising times left all.
Speaker 2: But it's just a good guy. I find Mark Zuckerberg
Speaker 2: just a fascinating individual. I find Meta fascinating as well.
Speaker 2: You know, Meta used to be called Facebook, and then
Speaker 2: he spent so much money on the metaverse tanked the stock.
Speaker 2: This was a huge thing, like how much money he
Speaker 2: was funneling in for no return. Then they had to
Speaker 2: do the Year of Efficiency or whatever. They fired a
Speaker 2: bunch of people. I do wonder if we're watching this
Speaker 2: build up again when it comes.
Speaker 1: Specifically, it's a general matter. I kind of think that
Speaker 1: like AI is the real version of like the meta
Speaker 1: the metaverse, or the fake version, you know, like yeah,
Speaker 1: I don't.
Speaker 2: Know, MANKI is more real than the metaverse, like the
Speaker 2: grown up version.
Speaker 1: I just feel like you can look look at like
Speaker 1: the ll ms and like ask them to do useful things,
Speaker 1: and they do useful things and like oh that was useful, right,
Speaker 1: and then like the metaverse, it's like I don't have
Speaker 1: legs in a video, you know.
Speaker 2: Like here's the Eiffel Tower, right.
Speaker 1: Like the metaverse was obviously intuitively stupid the whole time.
Speaker 2: I don't know, he spent so much money. No, we're
Speaker 2: not cutting this, this is good. I don't know if
Speaker 2: I've made this point on the podcast before, but I truly, truly,
Speaker 2: truly believe that if he had just waited, like a
Speaker 2: year or two, it would be AI Platforms. I feel like,
Speaker 2: in his part of heart, does he regret naming it
Speaker 2: meta platforms.
Speaker 1: I would like it at another like meta platforms is
Speaker 1: a fine name for whatever nonsense you're doing, Like it's fine.
Speaker 1: Metaverse platform is terrible that meta like meta.
Speaker 2: Yeah, I feel like everyone has kind of forgotten that
Speaker 2: the metata I agree that. I do seriously wonder though,
Speaker 2: if we're watching round two of this though this build up,
Speaker 2: and that in a couple of years, maybe we're going
Speaker 2: to be talking about massive layoffs and you know metasi.
Speaker 1: Researcher speakcause like if it stops being fun, they'll just
Speaker 1: leave because they have one hundred million dollars.
Speaker 2: That's true, that's true. It is interesting to contrast how
Speaker 2: hard Mark Zuckerberg and Meta are going at AI versus
Speaker 2: like Apple, where the narrative is very much that they've
Speaker 2: fallen behind. And then you think about Microsoft, which has
Speaker 2: just been shedding thousands and thousands of jobs.
Speaker 1: Like Meta stands, Microsoft has like the open air well
Speaker 1: sort of it's like complicated, but Microsoft sort of has
Speaker 1: like you know, open ai as its AI horse.
Speaker 2: Yeah, yeah, that's true, just simply making the point that
Speaker 2: like Meta is moving in a lot of different ways
Speaker 2: than some of its magnificent seven peers.
Speaker 1: Sure right, No, I'm sure that a lot of the
Speaker 1: piers are having the same thought you are, which is like,
Speaker 1: spending billions and billions of dollars to hire twenty people
Speaker 1: is surely not an efficient, yeah way to do anything.
Speaker 2: But seems like shareholders are on board for the time being. Though.
Speaker 1: I think enough reasonable people think there's some sort of
Speaker 1: like winner take all aspect of this that it's not
Speaker 1: insane to be like we're going to spend billions and
Speaker 1: billions of dollars to hire every AI researchers that no
Speaker 1: one else can have them. I mean, it's a little insane,
Speaker 1: but it's like it's within the parameters. I do want
Speaker 1: to say. I've been talking about people get paid one
Speaker 1: hundred million dollars. But that's not the cap. There's like,
Speaker 1: what is it scale AI that they bought.
Speaker 2: Yeah, that's the other story.
Speaker 1: I've bought for fourteen billion dollars. Yeah, of which not
Speaker 1: all of it goes to the handful of founders they wanted.
Speaker 1: But those people are getting paid more than one hundred
Speaker 1: million dollars to come work from META. It's not called salary,
Speaker 1: it's called like acquisition.
Speaker 2: But I think you jokingly referred to twenty eight year olds,
Speaker 2: but isn't the co founder?
Speaker 1: This is the thing, Like, for one thing, these salaries
Speaker 1: are so much higher than like twenty eight year olds
Speaker 1: usually get paid in like the financial industry. But for
Speaker 1: another thing, like I choked about this, but it's kind
Speaker 1: of true. Like you work in finance, Like you start
Speaker 1: out making like a nice living, but like you see
Speaker 1: everyone around you with like their compounds and amagansett and
Speaker 1: you're like, oh, I want that, And then like as
Speaker 1: you move up the ladder, you get paid like millions
Speaker 1: of dollars, but you're like, I need more millions of
Speaker 1: dollars to have the lifestyle that I've come to expect.
Speaker 1: Right in Hay, like all these people started two years ago,
Speaker 1: they don't need anymore.
Speaker 2: I don't think it's like this are so just retire.
Speaker 1: It's just like finance is a good job of creating
Speaker 1: the wants in people. Yeah, that lead them to want
Speaker 1: to keep working even if they're making tens of millions
Speaker 1: of dollars a year. Yeah. I guess that's true in
Speaker 1: the tech industry too, but it seems less reliable. Like
Speaker 1: all these people are right out of grad school and
Speaker 1: they're getting paid hundred million. They weren't getting paid hundred
Speaker 1: million dollars five years ago. They weren't starting at firms
Speaker 1: where Yeah, like the CEOs of those firms were making
Speaker 1: hundreds of millions of dollars because five years ago the
Speaker 1: AI people weren't making hundreds of millions of dollars.
Speaker 2: This is vaguely reminding me of a conversation I believe
Speaker 2: that we had on this podcast a couple of weeks
Speaker 2: ago about how it feels like every tech founder or
Speaker 2: like social media site, like there has to be like
Speaker 2: some element of like we're saving the world or like
Speaker 2: we're changing humanity or something like that. I wish I
Speaker 2: could remember what exactly we were talking about, And I
Speaker 2: think I made the point, or at least I was thinking,
Speaker 2: like I wish that they would just say I'm making
Speaker 2: a social media site that I'm going to sell ads
Speaker 2: on or something like. I feel like with these people
Speaker 2: that are making so much money, though maybe it is
Speaker 2: true that like they view their mission is like higher than.
Speaker 1: Well, I think that AI, I mean whatever, Like I
Speaker 1: think AI is like there is some level at which
Speaker 1: you are like ultimately selling ads on social media sites,
Speaker 1: but like not that it's not.
Speaker 2: As much Yeah, no, no, no, no.
Speaker 1: I think that like there are a lot of gradios
Speaker 1: claims about like the effects on humanity of like you
Speaker 1: know these l ms, but is something that's true. Yeah,
Speaker 1: it seems like a more fundamental thing to work on then, No.
Speaker 2: This is just seems a little bit more like I
Speaker 2: could see that like.
Speaker 1: A real you know, we're changing the world.
Speaker 2: You can have a real mission statement when it comes
Speaker 2: to this. But I can't remember what exactly.
Speaker 1: Pay one hundred million dollars, that's really important?
Speaker 2: That's true. I would take one year at one hundred
Speaker 2: million dollars and I'd probably leave. What's what I'm saying, Yeah,
Speaker 2: we're in alignment.
Speaker 1: I feel like, Okay, so I feel like that's why we.
Speaker 2: Both picked up the phone call from Mark.
Speaker 1: Zuckerberg, and that was The Money Stuff Podcast.
Speaker 2: I'm Matt Levian and I'm Katie Greifeld.
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