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Michael Milken · The David Rubenstein Show

0:01
Speaker 1: There's no one more closely associated with junk bonds than
0:04
Speaker 1: Michael Milkin, who in the nineteen seventies realized that investors
0:08
Speaker 1: could make more money buying bonds from companies with lower
0:11
Speaker 1: credit ratings than they could from companies with triple A
0:14
Speaker 1: rated bonds. Through this realization, Milken and the firm he
0:18
Speaker 1: joined out of graduate school, Drexel Burnham Lambert, revolutionized the
0:23
Speaker 1: way companies and new industries were financed and made Milkin
0:26
Speaker 1: and Drexel wealthy beyond their dreams. However, the same competitive
0:31
Speaker 1: nature that made Milk and millions ended up hurting him
0:34
Speaker 1: in the end. In April of nineteen ninety, after four
0:37
Speaker 1: years of investigation and prosecution, Milkin pled guilty to six
0:41
Speaker 1: counts of violating securities law, spent one year and ten
0:45
Speaker 1: months in prison, and paid a government fine of two
0:48
Speaker 1: hundred million dollars, and put an additional four hundred million
0:51
Speaker 1: in a fund to compensate investors. Both before and after
0:55
Speaker 1: his incarceration, Milkin has been heavily involved in philanthropy and
0:59
Speaker 1: now leads the Milk And Institute, among many other organizations.
1:03
Speaker 1: He recently sat down with Carlisle Group co founder David Rubinstein.
1:08
Speaker 1: They spoke on David Rubenstein's Bloomberg television program Peer to
1:11
Speaker 1: Peer Conversations. You signed the giving pledge Green to get
1:15
Speaker 1: away half your money. What did your children say about that? Well,
1:21
Speaker 1: it's interesting. They've been involved in our philanthropic efforts since
1:25
Speaker 1: they were young. And Uh, my wife, Laurie. Lorie defines
1:30
Speaker 1: wealth is that she can buy any book she wants. Uh,
1:33
Speaker 1: And so I think that's been instilled in our children
1:37
Speaker 1: from the very beginning. You met your wife in high school.
1:39
Speaker 1: We met in seventh grade, seventh grade, and you've been
1:42
Speaker 1: married for how long? Well, we just celebrated our fiftieth
1:46
Speaker 1: Winnie anniversary. Okays a professor? Okay, so you didn't date
1:54
Speaker 1: a round when you were in the seventh grade edition? Well,
1:58
Speaker 1: and who didn't really? We dated maybe once in the
2:01
Speaker 1: ninth grade. But you know, she knew who I was
2:04
Speaker 1: and who she was. She was voted in high school
2:08
Speaker 1: the most likely to succeed. So I wanted to hang
2:11
Speaker 1: around here as much as I did. But what were you?
2:13
Speaker 1: You weren't voted that I was voted the most spirited
2:17
Speaker 1: friendliest at that time. So you grew up in Los Angeles?
2:21
Speaker 1: Is that right? Yes. My father was a lawyer and
2:23
Speaker 1: an accountant, and my mom was a homemaker, and yes
2:27
Speaker 1: I got to work. Anyone who's the child of a
2:31
Speaker 1: person has his own accounting firm. You don't you get
2:33
Speaker 1: to work on balance sheets and tax returns when you're eight?
2:38
Speaker 1: Did you at the early ages where you are pretty
2:40
Speaker 1: good student? Well? I was a very good student. But
2:43
Speaker 1: what they did instill on all of us is that
2:47
Speaker 1: for us to have a meaningful life, at least everyone
2:52
Speaker 1: had to have a chance in a meaningful life. And
2:54
Speaker 1: if our children or our children's children, we're going to
2:58
Speaker 1: have a meaningful life or a good life, then all
3:01
Speaker 1: children had to feel they had that opportunity, and that
3:04
Speaker 1: was instilled with us. So you go to Berkeley and um,
3:08
Speaker 1: you're gonna major in science and be a scientist and
3:11
Speaker 1: so forth. What happened? Why did you change? On August eleven,
3:17
Speaker 1: what became known as the Watts Riots occurred, So I
3:22
Speaker 1: didn't have to go to Vietnam. Their armed personnel carriers
3:25
Speaker 1: on the street, the city is on fire. And it
3:30
Speaker 1: took a while for me to convince my dad to
3:32
Speaker 1: let me go and understand what was happening, because I
3:36
Speaker 1: was convinced I knew everything, and I met a young
3:39
Speaker 1: African American man who had sitting outside looking in a
3:44
Speaker 1: building that had burned down that he worked in. No
3:47
Speaker 1: one would give any financial support to his father or
3:50
Speaker 1: to him because he was an African American. And it
3:54
Speaker 1: struck me that I thought I knew everything and now
3:58
Speaker 1: everything that I believed a chance to succeed based on
4:01
Speaker 1: your ability. No, w your parents were not we went
4:04
Speaker 1: to school, not your religion, not we were there a
4:07
Speaker 1: man or a woman, that this individual had made a
4:11
Speaker 1: irrational decision watching the burning down of the building that
4:16
Speaker 1: employed him, and that he felt he wasn't part of
4:20
Speaker 1: the American chain. So I went back to Berkeley, changed
4:23
Speaker 1: my major to finance in business uh and was determined
4:29
Speaker 1: to change that so that everyone felt that they would
4:33
Speaker 1: have access to capital based on their ability. Majored in
4:36
Speaker 1: finance and then went right to business school at at
4:39
Speaker 1: at Wharton. Is that right, that's correct. You have the
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Speaker 1: highest grades in the history of the school. More or less,
4:43
Speaker 1: there's that that happened. Yes, Okay, So you graduate from
4:47
Speaker 1: Wharton in nineteen seventy and you're working for Drexel, which
4:51
Speaker 1: is a leading prestigious firm. Then, but um it is
4:54
Speaker 1: said that you discovered the idea or helped to propel
4:59
Speaker 1: the idea of that investing in and what's called high
5:02
Speaker 1: yield bonds was a better investment than investing in UM
5:06
Speaker 1: let's say investment grade bonds. Is that more or less?
5:09
Speaker 1: It is. One of the ways I was able to
5:11
Speaker 1: convince the firm was I took a look at the
5:14
Speaker 1: stocks they were recommending, and most of the companies were
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Speaker 1: non investment grade. So here they're suggesting you invest in
5:23
Speaker 1: the equity of businesses, but not suggesting you could buy
5:28
Speaker 1: preferred stocks other part of the capital structure. It's you know,
5:31
Speaker 1: if we look at it today, David, you know the
5:35
Speaker 1: rating agencies about the lowest you can be rated before
5:40
Speaker 1: you go bankrupt, and then you get a D. Is
5:42
Speaker 1: the triple C. Well, let's think of three firms that
5:46
Speaker 1: are in the news today. Uber companies worth tens of
5:51
Speaker 1: billions of dollars, doesn't have a lot of debt relative
5:54
Speaker 1: to its equity, Well, it's rated triple C. Your your
6:00
Speaker 1: talking about Tesla doesn't have a lot of debt relative
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Speaker 1: to its equity. It's rated triple C. And or you
6:09
Speaker 1: can go to we work the rated triple C. So
6:12
Speaker 1: what what I discovered was quite often the future and
6:16
Speaker 1: credit is rated low even though it's the future, and
6:20
Speaker 1: the real risk lies often in companies that we think
6:24
Speaker 1: of his establishment or have paid dividends for a long time.
6:28
Speaker 1: All Right, So you're doing reasonably well living in Philadelphia
6:32
Speaker 1: and you go up to New York. You're commuting back
6:33
Speaker 1: and forth. Well, the person I went to work for,
6:36
Speaker 1: who is the chairman, got in a serious accident, and
6:39
Speaker 1: so they asked me to go to New York and
6:42
Speaker 1: set up the bond department in New York for the firm.
6:45
Speaker 1: So I had my two and a half hour commute
6:47
Speaker 1: each way. And you're doing that at what age were you?
6:50
Speaker 1: I was twenty four. You're twenty four years old, and
6:53
Speaker 1: they're having you set up their operation to lead their
6:56
Speaker 1: effort in New York. Yes, okay, did you like try
6:59
Speaker 1: to look older than twenty four? You know, you know
7:02
Speaker 1: it's funny you say that, David. And in nineteen seventy four,
7:07
Speaker 1: I'm in hard for giving this talk uh to the
7:11
Speaker 1: insurance companies, and a person said, you know, we have
7:14
Speaker 1: a lot of young people coming up here. We generally
7:17
Speaker 1: don't like to listen to anyone under thirty. I said,
7:20
Speaker 1: I fully understand that myself, And so I was thirty
7:26
Speaker 1: for a number of years. You know, so you told
7:30
Speaker 1: people you were thirty. Okay. So, um, you ultimately your
7:34
Speaker 1: father comes down with cancer melanoma, and you decide you'd
7:39
Speaker 1: want to move back to be closer to him. So
7:41
Speaker 1: you went to people at Drexel and said, I'm I'm
7:43
Speaker 1: moving the operation to l A. Whether you like it
7:45
Speaker 1: or not, or is that how it worked? This was
7:47
Speaker 1: an unusual period of time. Um, all these theories that
7:52
Speaker 1: I had at Wharton and at Berkeley, everything that I
7:55
Speaker 1: had studied for from six to seventy four, I was
7:59
Speaker 1: able to apply and all these theories turned out to
8:03
Speaker 1: be true, and the modern capital markets began. But my
8:08
Speaker 1: mother in law and had breast cancer and my father
8:11
Speaker 1: had melanoma, and I could not solve the melanoma problem
8:18
Speaker 1: from my father. So I didn't really get to Basque
8:23
Speaker 1: and the son of your theories and finance and markets
8:28
Speaker 1: and change that occurred because I now faced really the
8:32
Speaker 1: first problem in my life that I could not solve.
8:35
Speaker 1: My father was dying, and I made the decision. We
8:39
Speaker 1: had two young children that they needed to meet my
8:43
Speaker 1: father and spend time with him before he died. And
8:46
Speaker 1: therefore I was either going to take a sabbatical or
8:51
Speaker 1: I was going to move the whole department to Los Angeles. Okay,
8:54
Speaker 1: so everybody moves out to Los Angeles and they fall
8:57
Speaker 1: in love with the California lifestyle, I guess, and they're
9:00
Speaker 1: probably not wearing ties to work or anything like that.
9:02
Speaker 1: Is that true? Or well, they're not wearing ties to work.
9:04
Speaker 1: But you know, I had the clock set on New
9:07
Speaker 1: York times, so when you came in, if you came
9:09
Speaker 1: in at four and said seven, yeah, you know, psychologically
9:13
Speaker 1: he gives you a little boots you have to get
9:15
Speaker 1: up at two to do that or something three. But
9:18
Speaker 1: and then but then at four o'clock you sent them
9:22
Speaker 1: back to l Any time, you get your second win,
9:24
Speaker 1: so you get him back to last. So somebody wanted
9:27
Speaker 1: to start a new company, like Ted Turner or Rupert
9:29
Speaker 1: Murdoch or John Malone, they had to come to somebody
9:33
Speaker 1: like you to get money, and you would give them
9:35
Speaker 1: hi yel bonds. Can you explain how you kind of
9:37
Speaker 1: invented hi yel bonds for people to get new companies
9:41
Speaker 1: off the ground as opposed to traditional today venture capital.
9:44
Speaker 1: I would take you back to seventy four. So what
9:47
Speaker 1: happened in seventy The banking system had to save itself
9:53
Speaker 1: growth companies. They were denied capital in this period of time,
9:58
Speaker 1: and therefore, once you saw the performance, the decision was,
10:04
Speaker 1: you don't want to rely on your financial institution for
10:09
Speaker 1: access to capital, and so to de risk America, to
10:14
Speaker 1: de risk the entire system. You want to have ten thousand,
10:18
Speaker 1: a hundred thousand institutions like your own at Carlisle, who
10:22
Speaker 1: could invest. You don't want to be dependent on a
10:25
Speaker 1: handful of banks. In night, when the Asian crisis started
10:30
Speaker 1: in Thailand, there were five banks that got in trouble,
10:33
Speaker 1: but they were providing the capital to everyone in the country.
10:37
Speaker 1: So to understand the future, So if cable is the
10:42
Speaker 1: future industry, of course it's going to be rated very
10:46
Speaker 1: low at the beginning. But if you can find the
10:49
Speaker 1: most talented people and give them capital to grow, and
10:54
Speaker 1: that was really the mixture. Let us go find people
10:58
Speaker 1: that are talented. So when you mentioned Rupert Murdoch, Rupert
11:03
Speaker 1: wanted to build a company. His passion for what he's done.
11:06
Speaker 1: He almost lost his company when he was in school
11:09
Speaker 1: in England and his father died and adelaide and they
11:12
Speaker 1: tried to take his family company. So he remembered that.
11:16
Speaker 1: But he wanted to build something. Ted Turner wanted to
11:20
Speaker 1: build something. And so you're interacting Craig McCall. His family
11:25
Speaker 1: was in cable, was in radio, was in television. They
11:29
Speaker 1: were willing to give all that up for seller. You
11:33
Speaker 1: wanted to find that individual who had passion for what
11:37
Speaker 1: they were doing, and if you believed in them, finding
11:41
Speaker 1: great people on back him is obviously one of the
11:44
Speaker 1: great decisions. And so bringing capital to them they might
11:48
Speaker 1: be low rated. And there was only five companies in
11:52
Speaker 1: America raided investment grade Sea. You can imagine, I'm coming
11:55
Speaker 1: to Wall Street. I have umpteen million companies and everyone
12:00
Speaker 1: else is focused on five and those five hundred don't
12:04
Speaker 1: create jobs. Did you ever have somebody come to you
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Speaker 1: if you didn't finance them and they actually turned out
12:08
Speaker 1: to be successful? Ever later that ever happened? Or I'm
12:11
Speaker 1: sure there wasn't, But there were plenty where the idea
12:16
Speaker 1: didn't make any sense, you know, I remember we had
12:19
Speaker 1: a presentation on investing in in an oil of drilling
12:24
Speaker 1: business and an oil exploration business, and they brought them
12:28
Speaker 1: in and we wanted to see their data. And about
12:33
Speaker 1: an hour into the meeting, I asked them what technique
12:38
Speaker 1: they use close oology. And I think one on things
12:41
Speaker 1: I've discovered over the years, if you don't understand something,
12:45
Speaker 1: ask what it is. A lot of people don't ask,
12:47
Speaker 1: they don't want to show they don't know. But I
12:49
Speaker 1: had never heard of close oology. And so their drilling
12:52
Speaker 1: technique is they see where others drill and they get
12:56
Speaker 1: as close as possible. There's no there's no geowag gee,
13:00
Speaker 1: there's nothing going on. So we decided not to finance
13:04
Speaker 1: that company. Okay, so you're at the height of your power.
13:08
Speaker 1: You are the most important person in finance in the
13:10
Speaker 1: United States, I think most people would probably say at
13:12
Speaker 1: the time. And then all of a sudden, some people
13:15
Speaker 1: didn't like what you were doing and investigate and ultimately
13:18
Speaker 1: you leave Directel at a very important point in your king.
13:22
Speaker 1: You might have thought that I was the most important person,
13:25
Speaker 1: but you know, I don't view that world. The most
13:28
Speaker 1: important person was the person who is responsible for running
13:32
Speaker 1: that business. We can help create the capital structure, but
13:37
Speaker 1: the other person is responsible for the business. We can
13:39
Speaker 1: coach him, we can talk to him. But yes, long
13:43
Speaker 1: before I left, in the mid nineteen eighties, there was
13:48
Speaker 1: legislation introduced in America to ban the deductibility of entrance
13:53
Speaker 1: for non investment great debt. So if you're one of
13:57
Speaker 1: these five hundred companies, you're entitled to borrow and duct interests.
14:01
Speaker 1: But if you're not, then you're not. We were so
14:05
Speaker 1: surprised by the reaction of congressmen or senators. One told
14:12
Speaker 1: us that, you know, if their state has to sacrifice
14:17
Speaker 1: to get rid of the scourge of junk bonds by
14:20
Speaker 1: that time, they were junk bonds, uh, that they would
14:25
Speaker 1: sacrifice at that time. So the idea that you were
14:28
Speaker 1: going to deny capital two smaller and medium businesses who
14:33
Speaker 1: were creating at this time a d percent of all jobs.
14:37
Speaker 1: The was kind of reminded me of the nobility in
14:41
Speaker 1: England with the mercantile class, where you went to the
14:44
Speaker 1: king and said, Okay, we can no longer compete with
14:48
Speaker 1: these businesses or the people, so therefore you have to
14:52
Speaker 1: deny him access to Camp ultimately left the company and
14:56
Speaker 1: you started different businesses, and then you came down with
14:59
Speaker 1: prost cancer, you were told that you didn't have very
15:02
Speaker 1: long to live? Is that right? It spread through my body.
15:06
Speaker 1: So I actually had to lay down for almost twenty
15:09
Speaker 1: four hours and think about it. I had lost ten
15:13
Speaker 1: relatives to cancer, and so I had to think, Okay,
15:17
Speaker 1: what can I do um differently than they did. So
15:22
Speaker 1: the first thing I decided was I'd stopped eating anything
15:25
Speaker 1: except fruits and vegetables, this idea that maybe something that
15:31
Speaker 1: I was eating was accelerating the growth of cancer. Second,
15:36
Speaker 1: I reduced stress. I had just come out of an
15:39
Speaker 1: extensive stressful period me versus parts of the US government
15:46
Speaker 1: and uh, so I started meditation and I had to
15:51
Speaker 1: do something different to survive. I went and visited she
15:56
Speaker 1: doctors in China, he ers from Russia, which doctors in Africa,
16:04
Speaker 1: Indians in the northwest Amazon. Uh what did you conclude
16:09
Speaker 1: that any of no more than the western doctors. I
16:11
Speaker 1: didn't have a lot of faith in the healers. But
16:14
Speaker 1: the one that I embraced was iravade in medicine from India.
16:19
Speaker 1: And I moved a doctor and Iravated doctor into my
16:22
Speaker 1: house for six months. And the herbs, the meditation, the
16:28
Speaker 1: chanting ah and I took these hormones. I felt that
16:34
Speaker 1: there was an opportunity here using immunology. UH to change
16:41
Speaker 1: my outcoming need to accelerate research. Uh, if I'm going
16:46
Speaker 1: to save myself or I'm going to have to change
16:50
Speaker 1: how medical research has done. We created camp here and
16:53
Speaker 1: the promise was, we're gonna double the money going into
16:57
Speaker 1: medical research. We're going to triple the money going fross
17:01
Speaker 1: cancer research, and we're gonna increase prostate cancer tenfold. But
17:06
Speaker 1: today you you're um in remission. I'm in total suspended
17:11
Speaker 1: animation here, but I'm in you know, you could say remission.
17:16
Speaker 1: I've now celebrated my year. The death rate from projected
17:23
Speaker 1: levels has followed by there's millions of men alive today. Um,
17:30
Speaker 1: I can see the end of cancer as a cause
17:34
Speaker 1: of death with treatment. The changes that have occurred in
17:38
Speaker 1: bioscience are so dramatic, particularly in achnology. What is it
17:42
Speaker 1: that you did that helped to change the way we
17:46
Speaker 1: finance health or look at it? I would say, first
17:49
Speaker 1: you collected data. If you're going to accelerate science, it
17:54
Speaker 1: has to be based on basic science. But first data,
17:58
Speaker 1: let's check your micro am let's sequence. Uh, your disease
18:03
Speaker 1: if you have it, and then let's give you something
18:06
Speaker 1: that will work for you. We talked about health. Are
18:09
Speaker 1: you an exerciser? Yes, I would say it's two thirds
18:14
Speaker 1: what goes in and one third the exercise. And what
18:18
Speaker 1: do you what do you are? Your sports person or
18:20
Speaker 1: you have just jim? What do you do well? Here
18:22
Speaker 1: was one of my problems. Uh, when I was twelve.
18:26
Speaker 1: I was five eleven. Now it's seventy two on five
18:29
Speaker 1: nine and a half, okay, And I did not grow
18:34
Speaker 1: one quarter of an inch from twelve. So I was
18:37
Speaker 1: a star basketball player at twelve, the player of the year.
18:41
Speaker 1: Then something happened and everyone else grew two inches and
18:44
Speaker 1: I didn't. I went from center to forward, to guard,
18:48
Speaker 1: to the bench to the stands. Okay, let's talk about
18:53
Speaker 1: other things you're doing at philanthropy. You've been very involved
18:55
Speaker 1: in education. Why is education so important? When I was
18:59
Speaker 1: in elementary skill in the fifties, only of jobs required
19:04
Speaker 1: a skill. Today, whether it's a skill or a semi skill,
19:10
Speaker 1: eight jobs require some skill, some knowledge. And I think
19:15
Speaker 1: when we studied education in the nineteen seventies, what we
19:19
Speaker 1: discovered was the United States was the most educated country
19:24
Speaker 1: in the world, and so other countries have now caught
19:27
Speaker 1: the United States and passed. And so yes we are
19:31
Speaker 1: the leader and higher it and as you know as
19:34
Speaker 1: the former head of trustee of so many of them today,
19:38
Speaker 1: but we are strained in many ways in education. So
19:41
Speaker 1: our whole emphasis in our foundation was education, and that's
19:46
Speaker 1: why it was launched. And it was really the education.
19:49
Speaker 1: I got that we didn't focus on the schools and
19:53
Speaker 1: for our employees as much as we should have. You
19:57
Speaker 1: look back on your remarkable career, any regrets in your
20:00
Speaker 1: nancial career. Sure, there's a few people I wish I
20:03
Speaker 1: would have never met Okay, or a few phone calls
20:07
Speaker 1: I wish I would have never returned. And but I
20:10
Speaker 1: think also I regret that the American public didn't understand
20:18
Speaker 1: almost every person is high yield junk. You know, when
20:23
Speaker 1: things started coming from Japan in the sixties and seventies,
20:28
Speaker 1: everyone said they were junk. It's junk, And then all
20:32
Speaker 1: of a sudden we felt by the eighties the quality
20:35
Speaker 1: of their products and cars was better. Everything coming on
20:39
Speaker 1: to China was junk. The American public didn't understand they
20:43
Speaker 1: were talking about themselves. Sixty million jobs being created by
20:49
Speaker 1: non investment grade companies in the latter third of the
20:52
Speaker 1: twentieth century minus jobs being created by investment grade companies.
20:58
Speaker 1: And I think going forward, you know, I'm going to
21:03
Speaker 1: devote a large percentage of my time here to the
21:06
Speaker 1: American what I call the living the American dream. Now
21:09
Speaker 1: you're creating a center for the American dream. So why
21:12
Speaker 1: don't we conclude with what do you think the American
21:14
Speaker 1: dream is all about? I think the American dream, which
21:18
Speaker 1: is so unique, is a chance to succeed based on
21:22
Speaker 1: your ability. You're going to work hard, your knowledge, your insight,
21:28
Speaker 1: which is one of the most valuable qualities. Now, I
21:31
Speaker 1: can't tell you how depressed I am when I see
21:35
Speaker 1: that of Americans under thirty. I think they're going to
21:39
Speaker 1: have a better life than their parents. A long time
21:42
Speaker 1: ago it was of Americans. So why do they feel that? Why? Why?
21:47
Speaker 1: Why do fifty of Americans under thirty think socialism might
21:52
Speaker 1: be better? In the free enterprise system, you can see
21:54
Speaker 1: socialism and venezuela playing out, and so something is miss seen.
22:00
Speaker 1: And I think, as I've been focused on it one
22:03
Speaker 1: it's hope. What I see is a large percentage of
22:08
Speaker 1: Americans don't see that hope. They have their student loans
22:13
Speaker 1: that are burdens for their entire life. Even if you
22:16
Speaker 1: go bankrupt, you can't get real your student loans. We
22:19
Speaker 1: have to eliminate student loans. We have to find another
22:22
Speaker 1: way to finance college. Two. Someone try to take their
22:27
Speaker 1: parents home in two thousand eight or nine or ten,
22:30
Speaker 1: or they lost their homes, so their interaction with our
22:33
Speaker 1: financial system, they haven't really seen the benefits of it.
22:38
Speaker 1: We need to make sure that the financial system is
22:42
Speaker 1: working for them. It needs to and it should, and
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Speaker 1: it starts with education, and starts with health, and it
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Speaker 1: starts with access to capital. So for me, I'm going
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Speaker 1: back to where I was fifty years ago. Thank you
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Speaker 1: very much for doing that, and thank you for your
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Speaker 1: time today and very remarkable career. Thank you, Muchell, thank
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Speaker 1: you David, Thanks, thank you, thank you must I, thank
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Speaker 1: h