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Chris Whalen on PPP Loans (Podcast) · Masters in Business

0:02
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
0:07
Speaker 1: This week on the podcast, Chris Whalen, chairman of Whalen
0:11
Speaker 1: Global Advisors, and an old fishing buddy and friends. Chris
0:15
Speaker 1: knows more about the details and back offices of banking
0:21
Speaker 1: and mortgages and credit than just about anybody I know
0:24
Speaker 1: who's not currently running the Federal Reserve. He has a
0:29
Speaker 1: fascinating background and family history. UH. It was through Chris
0:34
Speaker 1: that I got to meet Paul Boker. It was through
0:37
Speaker 1: Chris that I really learned a lot about how the
0:41
Speaker 1: Federal Reserve works, how the mortgage market works, how the
0:44
Speaker 1: securitization market works decades ago. In fact, when I was
0:49
Speaker 1: researching Bailout Nation, a lot of his work found its
0:54
Speaker 1: way into some of the end notes in that book.
0:58
Speaker 1: He is really a health of knowledge when it comes
1:01
Speaker 1: to UH this area of finance. And if you are
1:05
Speaker 1: remotely interested in securitized products, mortgages, banking, UH and banking analysis,
1:13
Speaker 1: you're going to really enjoy this conversation. So, with no
1:16
Speaker 1: further ado, my conversation with Christopher Whalen, this is Masters
1:22
Speaker 1: in Business with Barry Ridholts on Bloomberg Radio. It is
1:26
Speaker 1: still a shelter and home addition, and for this week
1:30
Speaker 1: I brought a very special guest, Christopher Whalen. He is
1:35
Speaker 1: the chairman of will and Global Advisors and has a
1:38
Speaker 1: long and deep background in the financial sector, working at
1:42
Speaker 1: such firms as Bear Stearns and as a researcher for
1:46
Speaker 1: the Federal Reserve. Chris Whalen, Welcome to Bloomberg. Hey, Barry,
1:51
Speaker 1: but a pleasure. So let's start out with a little
1:54
Speaker 1: bit of your background. I know you as a bank
1:57
Speaker 1: analyst and uh an a specialist, but let's go back
2:03
Speaker 1: to when you were at Bear Stearns. What were you
2:05
Speaker 1: doing at Bear and how is that related to your
2:09
Speaker 1: work at the Federal Reserve. Well, I grew up in Washington.
2:14
Speaker 1: My parents, Joan and Richard Whalen, were some of the
2:17
Speaker 1: most interesting Republicans operating in the town, and it was
2:22
Speaker 1: a Democratic town in those days. Bearing the Democrats still
2:25
Speaker 1: ran everything. Um. But that's how I got to know
2:29
Speaker 1: FED chairman, people like Paul Vulker, Arthur Burns, Alan Greenspan.
2:33
Speaker 1: They all came to Mom's parties. In fact, if you
2:36
Speaker 1: didn't get an invitation to Jones Christmas party, there was
2:38
Speaker 1: something seriously wrong with you. So I grew up in
2:41
Speaker 1: this very political household, went to college, went to Villanova,
2:45
Speaker 1: and then when I got out, I worked for Jack
2:47
Speaker 1: Kemp for a couple of years on Capitol Hill, really
2:50
Speaker 1: learned the right. Two brilliant editors used to just pound
2:54
Speaker 1: us because we had to report on different committees. And
2:57
Speaker 1: I eventually ended up moving to New York and I
2:59
Speaker 1: was a man Aagemont trainee at the at the Fete
3:01
Speaker 1: of New York. I worked in bank supervision first for
3:05
Speaker 1: Jerry Minnahan and Bill Rutledge, and then I went across
3:08
Speaker 1: the street and worked in foreign exchange for Gretchen Green
3:12
Speaker 1: and Terry CHECKI one of the great uh FED officers
3:15
Speaker 1: of his age. He was responsible for foreign so all
3:19
Speaker 1: the other central banks would talk to Terry uh In fact,
3:23
Speaker 1: he was probably the only person in the building they
3:24
Speaker 1: would talk to. So that's kind of where I got
3:27
Speaker 1: my start. And then I went to Bear in London
3:29
Speaker 1: fixed income trading and sales, worked with David Setchem and
3:33
Speaker 1: Joey Calvo and a whole bunch of great people who
3:36
Speaker 1: are now at R. W. Pressbridge Special Situation uh Fixed
3:40
Speaker 1: Income Shop here in New York, so that's really where
3:43
Speaker 1: I started in credit and I had to learn about banks. Obviously,
3:46
Speaker 1: I went to night school for accounting. And it was
3:48
Speaker 1: very funny in those days because New York was empty
3:51
Speaker 1: Barry in the eighties. There was no one here, you know,
3:54
Speaker 1: especially oh God. We used to go to Raccoon Lodge
3:59
Speaker 1: and there would be bikes parked up and down the street,
4:01
Speaker 1: you know, two blox of City Hall, middle of the
4:03
Speaker 1: night and there'd be no one there, no one. That's
4:06
Speaker 1: that's amazing, that's amazing. You mentioned Jones parties. I recall
4:11
Speaker 1: a party of yours. I believe it was election night
4:15
Speaker 1: in two thousand and eight, and that was the only
4:18
Speaker 1: time in my life I got to meet Paul Vulker
4:21
Speaker 1: was sitting in your kitchen telling jokes about the Bush
4:25
Speaker 1: administration with tall Paul. The fact that I got Paul
4:29
Speaker 1: to laugh is one of the highlights of of that
4:32
Speaker 1: decade for me. Yeah, he was a great, great guy,
4:36
Speaker 1: and he did have quite a sense of humor. Um.
4:40
Speaker 1: He was a member of the Lotus Club, so I
4:42
Speaker 1: did get to see him a couple of times there
4:45
Speaker 1: before his passing. But he was just a lovely man.
4:48
Speaker 1: There were times we disagreed on things, but I always
4:51
Speaker 1: came around to his point of view because he was
4:54
Speaker 1: such a real guy and he was grounded in in reality.
4:58
Speaker 1: He reminds me a lot out of what my dad
5:00
Speaker 1: said to me years ago. He said, Christy, task of
5:03
Speaker 1: this generation is to pass the bubble onto the next
5:06
Speaker 1: generation intact. And that's what Paul Volker did. I asked
5:10
Speaker 1: him once about the banks. I said, Paul, why did
5:12
Speaker 1: you let this? In two thousand seventeen, which is where
5:16
Speaker 1: that picture I put on Twitter came from. And we
5:19
Speaker 1: had gone to lunch in this little cafeteria right there
5:22
Speaker 1: in Rockefeller Center where he used to go and you know,
5:24
Speaker 1: get his lunch every day. It's very bad, it's very nice, uh,
5:27
Speaker 1: And we're sitting there and I said, like, why did
5:29
Speaker 1: you let the banks do off balance sheet finance? All
5:32
Speaker 1: of these bad things happened subsequently, right, And he said, well,
5:35
Speaker 1: they were broke. What else was I gonna do? So,
5:40
Speaker 1: you know, he was just such a suite and I think,
5:43
Speaker 1: very committed public servant, and I always respected that about him.
5:46
Speaker 1: But he was a family friend, which is why I
5:49
Speaker 1: never asked him for anything. What about some of the
5:52
Speaker 1: other um said chairman that you had relationships with. What
5:57
Speaker 1: can you tell us about Arthur Burns or Alan Greenspan
6:00
Speaker 1: or anybody else on the FMC that that stands out
6:05
Speaker 1: in your mind. Arthur Burns was a very sweet, self
6:10
Speaker 1: effacing man, Um who my dad got to know because
6:14
Speaker 1: Pop was a speechwriter for Richard Nixon and he left
6:18
Speaker 1: the Nixon campaign just as Nixon was going to the
6:21
Speaker 1: White House. So, you know, because of my father's press
6:25
Speaker 1: credentials and connections and everything else, and also because of
6:28
Speaker 1: the fact he was a Republican again in a Democratic
6:31
Speaker 1: dominated town. Um, he quickly got to know people like
6:34
Speaker 1: Burns and Greenspan and became kind of their political counselor
6:38
Speaker 1: in a sense, because the decision by both men to
6:42
Speaker 1: get into the FED and get deeply involved in national
6:46
Speaker 1: economic policy was a very momentous one because it meant
6:50
Speaker 1: a lot of compromises for both Um. You know, I
6:53
Speaker 1: don't remember Burns as well because I was so young,
6:57
Speaker 1: But Greenspan was always a a long uh family friend,
7:02
Speaker 1: and he had gotten to know my pop when Pop
7:05
Speaker 1: was working with Ronald Reagan. When you know, during the
7:08
Speaker 1: seventies six cycle, when Ford eventually got denomination Greenspan was
7:14
Speaker 1: trying to figure out when he was going to go
7:16
Speaker 1: to the Council of Economic Advisors and then end up
7:19
Speaker 1: at the FAT of course, and that was also a
7:22
Speaker 1: very political decision, very because you know, the FET is
7:25
Speaker 1: the most political entity in Washington by far. Fan was
7:30
Speaker 1: very astute political analysts, not a great economist, but really
7:34
Speaker 1: really sharp judge of politics. So you know, it was
7:37
Speaker 1: a fascinating thing for a young man to have access to.
7:41
Speaker 1: I would sit on the stairs in our house in
7:45
Speaker 1: for Sunthern, Maryland, off of Massachusetts Avenue, and just listen
7:49
Speaker 1: to these parties, uh and meet the people sometimes because
7:53
Speaker 1: we were all very little, but as we grew up,
7:55
Speaker 1: these people were part of our lives and we were
7:58
Speaker 1: kind of Washington insiders. That's what Washington was like in
8:02
Speaker 1: the eighties and the nineties. You could actually get stuff done.
8:05
Speaker 1: People would talk to one another, they would have dinner, drinks,
8:09
Speaker 1: you know, a little a little different than today. Yeah,
8:12
Speaker 1: I think we have to restore civility and there by
8:16
Speaker 1: communication that would go a long way. That would go
8:20
Speaker 1: a long way. I have to follow up with one question.
8:23
Speaker 1: You mentioned FED chairman making compromises. Were you talking philosophically
8:30
Speaker 1: or politically, or across the board. I think it's across
8:35
Speaker 1: the board. You cannot survive as FED chairman without the
8:40
Speaker 1: at least the acquiescence of the White House. And you know,
8:43
Speaker 1: Trump brates Powell and says things in public. But as
8:47
Speaker 1: Judy Shelton said, I think so wonderfully, at least he
8:50
Speaker 1: does it in public. What Richard Nixon did Darthur Burns
8:54
Speaker 1: was criminal. His anti Semitism and his just nastiness was
9:00
Speaker 1: was awful. And you know, Reagan, on the other hand,
9:03
Speaker 1: was very affable. My dad got Paul Vulcer reappointed and
9:08
Speaker 1: it was a little cabal between him and Paul Laxolt,
9:11
Speaker 1: the Great Senator UM. One weekend, the Laxalts and the
9:16
Speaker 1: Reagans were at Camp David, and my dad gave Paul,
9:20
Speaker 1: the Paul Laxalt the phone number and said, have Reagan
9:23
Speaker 1: call Vulker. And it happened. And then my dad said
9:27
Speaker 1: to me later, I put this in inflated. This is
9:29
Speaker 1: how stuff gets done. And watching the phone call from
9:35
Speaker 1: gathering at Camp David. Yeah, And you know, Beryl Sprinkle
9:39
Speaker 1: was being pushed very very hard by Don Reagan, the
9:42
Speaker 1: former chairman of Mary Lynch and Dad won. So, you know,
9:47
Speaker 1: kudos to Paul Laxol. Let's talk a little bit about
9:51
Speaker 1: debt and building the American dream. So how have mortgages
9:56
Speaker 1: over time helped to build the American dream? Mortgages, you know,
10:03
Speaker 1: are frequently cited as evidence of the American dream, the
10:07
Speaker 1: ownership of a home, the homestead, right, but the actual
10:12
Speaker 1: marketplace goes back to the Depression. When the government got
10:16
Speaker 1: involved in the mid and late nineteen thirties, uh and
10:20
Speaker 1: created uh Fannie May, which was an agency that would
10:23
Speaker 1: go out and buy loans, long term loans, and hold them,
10:28
Speaker 1: and they funded these operations by issuing government guaranteed debt.
10:33
Speaker 1: Before that, you couldn't get a thirty year mortgage. You
10:35
Speaker 1: couldn't get a ten year mortgage. Berry. My grandmother Vera
10:39
Speaker 1: actually lost her house in the early last century because
10:42
Speaker 1: they had a balloon. In other words, you had small
10:44
Speaker 1: payments initially, and then you owed everything and there was well,
10:49
Speaker 1: there was no such thing as a thirty year fixed mortgage.
10:52
Speaker 1: It was interest only payments, and then you would if
10:56
Speaker 1: you were a borrower in good standing, at the end
10:59
Speaker 1: of the loan period, you would roll it over into
11:02
Speaker 1: a new one. And startle over. If you weren't making
11:05
Speaker 1: principal payments, you still owed exactly what you owed when
11:08
Speaker 1: you begin. That's right correct. And and really if you
11:12
Speaker 1: work in the mortgage business and in the world of
11:14
Speaker 1: fixed income, you understand if we don't really have thirty
11:18
Speaker 1: year mortgages, we have dirty day mortgages with an option
11:22
Speaker 1: to renew, which is held by the homeowner. And so
11:25
Speaker 1: every month the investor has to try and figure out
11:28
Speaker 1: how many of the loans in a given pool, which
11:31
Speaker 1: is how they do bond mortgage bond issuance, are going
11:35
Speaker 1: to prepay, refinance, sell the house, default, whatever. And it's
11:40
Speaker 1: that optionality that makes mortgages so interesting and also so treacherous.
11:46
Speaker 1: It's a huge asset class. It's almost twelve trillion dollars now,
11:49
Speaker 1: but interestingly it didn't grow for ten years after the crisis.
11:54
Speaker 1: It was flat and no surprise there. Yeah, but it's interesting,
11:59
Speaker 1: very because socio logically and in terms of you know,
12:02
Speaker 1: the baby boom and everything else. When you study how
12:04
Speaker 1: the mortgage industry has behaved over time. In the eighties
12:08
Speaker 1: crashed and burned, destroyed all the savings and loans. The
12:11
Speaker 1: nineties was kind of flat, now there were fringe products there,
12:15
Speaker 1: specifically our friends at City Bank who decided they could
12:19
Speaker 1: do no DOC, no income verification mortgages for self employed. Right,
12:23
Speaker 1: that's where subprime mortgages came from, was in the nineties.
12:27
Speaker 1: But then they got out because the results were so horrific.
12:30
Speaker 1: And they did this in the US and other countries too.
12:33
Speaker 1: When I was working at the FED, I was in
12:35
Speaker 1: charge of overseeing city banks foreign adventures in places like Japan. Well, Japan,
12:42
Speaker 1: they have no credit information on individuals, so someone could
12:46
Speaker 1: default and just disappear, and they did. So. You know
12:50
Speaker 1: what's the las of mortgages in Japan, Chris? Oh god,
12:55
Speaker 1: they can be quite long, they can be multi generational
12:59
Speaker 1: mortgages are unheard of, no, no, because the rates are
13:03
Speaker 1: very low. And so what happens is if a young
13:07
Speaker 1: couple is getting married, the family will typically cool their
13:10
Speaker 1: resources go buy them a house, and if they need debt,
13:14
Speaker 1: they'll pay it off as fast as they can. You know,
13:17
Speaker 1: you may have heard of stated income loans. They're prey
13:21
Speaker 1: popular out on the West Coast among the Asian community, Koreans, Chinese,
13:25
Speaker 1: and very typically these loans performed great even though they
13:29
Speaker 1: don't fit in the box for you know, Fannie Mae,
13:31
Speaker 1: Freddie mack j and you make kind of loans, they're
13:33
Speaker 1: they're typically private. The communities hate debt, so you know,
13:38
Speaker 1: if a young couple starts a family, they'll they'll pay
13:41
Speaker 1: it down five years. So all of that has to
13:44
Speaker 1: be factored into your analysis as an investor if you're
13:46
Speaker 1: buying these loans right. You know, like the last few
13:50
Speaker 1: years because of the bondmarket volatility, all of the mortgage
13:54
Speaker 1: loans that were made in eighteen and nineteen are pre
13:56
Speaker 1: pain because they're all in the money now, they can
13:59
Speaker 1: all refin yts and I take over the next year
14:02
Speaker 1: or two, you're going to see the fig gently step
14:04
Speaker 1: on the bottom of the yield curve and force that
14:08
Speaker 1: front coupon down for both government loans and and Fenny
14:12
Speaker 1: and Freddie loans, and we'll see three percent mortgages in
14:15
Speaker 1: this country I think by the end of the year,
14:17
Speaker 1: which means you're gonna have a Jinny May two out there.
14:20
Speaker 1: You're gonna have a two percent coupon. Let's let's talk
14:23
Speaker 1: about that a second, because if I remember, pre crisis,
14:28
Speaker 1: the average length of a mortgage was about seven years,
14:32
Speaker 1: meaning people typically would move into a house their starter home,
14:37
Speaker 1: have the first kid outgrow the house, and by year
14:39
Speaker 1: seven they're selling and trading up to the three bedroom split.
14:44
Speaker 1: And that was fairly typical. Are those numbers about what
14:48
Speaker 1: you recall and what does that look like today? Yeah,
14:52
Speaker 1: it would be seven years or even shorter during periods
14:56
Speaker 1: of very high labor market mobility for example, um, you
15:01
Speaker 1: also have the speculative component. Back in the two thousand's
15:04
Speaker 1: a lot of second homes which would flip quite quite fast. Today,
15:09
Speaker 1: average lives are ten plus years. In fact, the servicing
15:12
Speaker 1: portfolios that are being created right now Barry with refinancings
15:17
Speaker 1: are going to be worth a lot of money because
15:19
Speaker 1: they're gonna have average lives over ten years. Whereas the
15:23
Speaker 1: older strips, like I said, bonds that were sold you know,
15:27
Speaker 1: one and two years ago with much higher coupons, they're
15:29
Speaker 1: going to pre pay. And so the average life of
15:32
Speaker 1: those pools it already has, it's it's shrinking down to
15:35
Speaker 1: like three years. And if you're in Eastern and you
15:38
Speaker 1: paid you know, one oh four for the bond and
15:41
Speaker 1: you're getting redemptions back at par that's kind of painful.
15:46
Speaker 1: That's a loss. So so we don't. We don't really
15:49
Speaker 1: love predictions here. We kind of frown on predictions around
15:54
Speaker 1: these parts. But what I'm hearing from you is that
15:57
Speaker 1: you think, as part of the Corona a virus pandemic response,
16:02
Speaker 1: the FED is going to encourage another wave of refinancing
16:07
Speaker 1: by keeping part of the curve low, not inverted, but
16:11
Speaker 1: low and flat, so that it becomes attractive for homeowners
16:16
Speaker 1: to refinance. Did I hear that right? Oh? Yes, I
16:19
Speaker 1: think you're gonna see what we call streamlined refine that
16:22
Speaker 1: don't require appraisals. In other words, you have an existing borrower,
16:26
Speaker 1: you already know who they are, right, you're lowering their costs.
16:29
Speaker 1: You're typically doing a rate refine rather than having them
16:32
Speaker 1: take cash out. But that's okay. If you lower the
16:35
Speaker 1: household's expenses, you're improving the credit. It's gonna have a
16:39
Speaker 1: lower probability at default. And overall, what you want is
16:43
Speaker 1: to get cash into the economy right now, right, So yeah,
16:46
Speaker 1: I think the FED would love to see a gradual
16:51
Speaker 1: surgeon refines because you know what they have to buy
16:54
Speaker 1: the paper Barry, Uh, their mortgage portfolio is going to
16:57
Speaker 1: prepay in the next six months. It's like a trillion dollars.
17:01
Speaker 1: So just to replace that and keep their balance sheet
17:05
Speaker 1: stable in terms of monetary policy purposes, they're gonna have
17:09
Speaker 1: to buy a lot of paper, and I think the
17:11
Speaker 1: predominant UH source will be the government market. Jennie May,
17:15
Speaker 1: we've had some problems with the Fanny Freddie component for
17:19
Speaker 1: the last couple of weeks. While they're a regulator, Mark
17:21
Speaker 1: Collabria has figured out what to do. But I think
17:24
Speaker 1: the good news this week is he's figuring it out.
17:27
Speaker 1: We're helping him. Um. So hopefully the whole mortgage complex
17:31
Speaker 1: is going to have a solution to both the forbearance
17:35
Speaker 1: with the COVID nineteen and then the resulting defaults. I
17:39
Speaker 1: think a third or more the people who look for
17:41
Speaker 1: forbearance on their mortgages barrier are going to ultimately default.
17:45
Speaker 1: Let's talk a little bit about something that is in
17:48
Speaker 1: the news today, namely the government's Paycheck Protection Program better
17:54
Speaker 1: known as p p P. How are banks handling this?
17:58
Speaker 1: Who's doing this well? Who is not? The banks, like
18:04
Speaker 1: all of us in the world of finance, had this
18:07
Speaker 1: this Cares Act legislation thrown at us. There was no
18:13
Speaker 1: guidance on how we were to implement it, and in
18:15
Speaker 1: many cases it was unfunded. So, for example, the entire
18:20
Speaker 1: mortgage space, whether it's government guaranteed or private, has to
18:23
Speaker 1: figure out how to deal with consumers who've been told
18:26
Speaker 1: they don't have to pay their loans. And this really
18:29
Speaker 1: only applies to government guaranteed loans, but everything autos, you know,
18:33
Speaker 1: if you name it, the rent whatever, So everybody thinks
18:36
Speaker 1: they got a free pass, but it's not. Now. With
18:39
Speaker 1: small businesses, there was a window there where you could
18:43
Speaker 1: go to your bank, typically the bank you use for
18:45
Speaker 1: the business and payroll, and you could get a loan
18:48
Speaker 1: from them, and if you agreed to keep your people
18:51
Speaker 1: on it would eventually be forgiven. There's so much money though,
18:56
Speaker 1: so most of the small business people I know who
18:59
Speaker 1: have tried to act sess these credits have found out
19:01
Speaker 1: that the banks have already run through the money. And
19:05
Speaker 1: I think, what's you know important to realize is that
19:08
Speaker 1: for a lot of small businesses, it's better to just
19:11
Speaker 1: put your people on unemployment and keep their healthcare active
19:15
Speaker 1: because in many cases, especially you know, at the lower
19:18
Speaker 1: level employees, it's a race, so they can stay home
19:22
Speaker 1: with their families, you keep their health insurance intact and
19:26
Speaker 1: you just basically wait. And I think that's what a
19:29
Speaker 1: lot of small businesses have decided to do. So we've
19:33
Speaker 1: heard about a lot of smaller community banks that were
19:37
Speaker 1: very effective at processing these p p P applications, but
19:41
Speaker 1: less so for the big money center banks. Is that
19:44
Speaker 1: simply a function of employee to client ratio. I mean,
19:49
Speaker 1: if you're Wells Fargo UM or Bank America, you have
19:53
Speaker 1: a bajillion clients. But if you're a smaller community bank
19:57
Speaker 1: somewhere in the Midwest, I gotta think it's pretty easy
20:00
Speaker 1: for them to process those applications quickly. That's correct. Very
20:05
Speaker 1: the larger institutions have trouble with processing anything out of
20:10
Speaker 1: the ordinary um In essence, there are no economies of
20:14
Speaker 1: scale and banking, right. So the little community bank, even
20:19
Speaker 1: the regionals, are typically more flexible. They can handle increase
20:23
Speaker 1: at the branch level and they can make decisions because
20:28
Speaker 1: they have a flatter organization the big banks or pyramids,
20:31
Speaker 1: and they do this intentionally to keep them from causing trouble.
20:35
Speaker 1: So essentially, the largest banks are very inefficient by design,
20:40
Speaker 1: and that's why when you call them, they have this
20:43
Speaker 1: very narrow bottleneck of capacity, for example, to take calls
20:48
Speaker 1: because you have to actually talk to someone if you
20:50
Speaker 1: want to get one of these loans. And they had
20:53
Speaker 1: some online presence, but remember they had to put all
20:56
Speaker 1: this up in a matter of days. And banks don't
20:59
Speaker 1: move that quickly, see non bank companies. Because they're flat,
21:03
Speaker 1: they move very quickly, and smaller banks tend to be
21:07
Speaker 1: much more nimble than the larger institutions. So so for
21:11
Speaker 1: these banks, how does participating in the p P P
21:14
Speaker 1: plan benefit them? It certainly doesn't hurt if your clients
21:18
Speaker 1: can survive. But is there any incentive for the banks
21:22
Speaker 1: to do something? Oh? Yeah, they make a couple of
21:25
Speaker 1: points up front gain on sale, and the loan no
21:28
Speaker 1: credit risk. It works, they're all covered credits. It's like
21:33
Speaker 1: a small business administration loans. The banks have a nice
21:37
Speaker 1: little bump in the front because they typically will sell
21:39
Speaker 1: those loans where they can keep me in portfollowing off
21:42
Speaker 1: they want. But they have a number of incentives to
21:45
Speaker 1: do the business. Believe me, what kind of bank was
21:48
Speaker 1: best position for this COVID nineteen crisis? Was it the
21:53
Speaker 1: big money center banks, was it the investment banks? Was
21:56
Speaker 1: it the regional banks or the smaller community banks. Who
21:59
Speaker 1: do you believe EVE is going to come out of
22:01
Speaker 1: this um as having not only survived but thrived. I
22:08
Speaker 1: think first and foremost, you look at JP Morgan simply
22:11
Speaker 1: because of size, you know, a trillion plus and core
22:14
Speaker 1: deposits on one side of the business and a pretty
22:18
Speaker 1: robust capital markets business and also derivatives on the other side.
22:21
Speaker 1: It's about half and half. Well, it's Bank of America likewise,
22:26
Speaker 1: big islands of liquidity, more than a trillion dollars in
22:29
Speaker 1: court deposits. The ones with more consumer exposure like Capital
22:34
Speaker 1: One City. Uh, they've been getting beaten up just for
22:37
Speaker 1: that reason. You know, credit is the concern. And in
22:41
Speaker 1: the investment banks, interestingly, Morgan Stanley during the sell office,
22:46
Speaker 1: the outlier and the whole group, their credit the false
22:49
Speaker 1: swaps were trading more than two d basis points over
22:52
Speaker 1: the curve, which is a lot. Give you an example,
22:55
Speaker 1: before the crisis and the sell off kind of beginning
22:58
Speaker 1: of February, most of these banks or forty fifty bits
23:02
Speaker 1: over the curve for five year credit the fault swap insurance.
23:06
Speaker 1: So they all widened. And Goldman, Morgan Stanley, you know,
23:11
Speaker 1: American Express, they got beat up but today MX is
23:14
Speaker 1: still trained the three times buck. It's a premium property
23:17
Speaker 1: because it's the best performing large bank in the United States,
23:20
Speaker 1: even though it's small, it's only about two billion assets.
23:24
Speaker 1: So I would tell you the consumer exposure is the
23:27
Speaker 1: real pain point. But you're going to see pain on
23:30
Speaker 1: the on the institutional and the commercial side too. I
23:33
Speaker 1: think low losses for banks, it's going to be across
23:36
Speaker 1: the board. Berry. If I recall correctly, Capital One is
23:39
Speaker 1: now the largest credit card issue are in the country.
23:42
Speaker 1: Is that right. Yes. They rolled up several monol lines,
23:47
Speaker 1: you know, ten fifteen years ago, and it's primarily a
23:51
Speaker 1: credit card issuer. Pretty high cost of funds, but they're
23:54
Speaker 1: very efficient. They've gotten into some other areas that got
23:57
Speaker 1: them in trouble, like oil, which was kind of rising.
24:00
Speaker 1: I think people were taken aback by that. But the
24:03
Speaker 1: reality is, you know, these model lines don't do so well.
24:06
Speaker 1: They need to broaden their business and Capital One has
24:09
Speaker 1: not been very good at main street banking. They bought
24:13
Speaker 1: a couple of retail banks for basically for the funding um,
24:17
Speaker 1: but they haven't developed those businesses. In fact, if anything,
24:20
Speaker 1: they've shrunk them down. So they have consumer which is
24:23
Speaker 1: very nice, very high spreads, and then they have a
24:26
Speaker 1: capital markets business that unfortunately it's been in the headlines recently.
24:31
Speaker 1: So you mentioned roll ups and some M and A activity.
24:34
Speaker 1: I have to assume that in that's completely dried up.
24:39
Speaker 1: Or is this still things happening behind the scenes. Well,
24:45
Speaker 1: I think for now yes, because valuations are going to
24:48
Speaker 1: be difficult until we get through the peak of credit costs.
24:53
Speaker 1: It's hard to value a bank if you don't know
24:56
Speaker 1: what the next three to four quarters worth of credit
24:59
Speaker 1: looks like. Um. So we've got to get through that.
25:03
Speaker 1: And there are other assets on bank balance sheets that
25:05
Speaker 1: are also you know, big question marks right now. Um.
25:09
Speaker 1: And I think as we get through that, well, think
25:12
Speaker 1: about servicing portfolios for all kinds of loans. Typically those
25:16
Speaker 1: are annuities, right, you get paid a little fee every month.
25:19
Speaker 1: It's pretty nice. But because of the uncertainty regarding all
25:23
Speaker 1: this forbearance, whether it was legally authorized or not, right,
25:27
Speaker 1: the regulators are forcing all lenders, even private lenders, to
25:30
Speaker 1: give forbearance. You know, ally just reported Earning said the
25:34
Speaker 1: auto lender they basically had to extend a hundred and
25:37
Speaker 1: twenty days of loan forbearance on what are private loans.
25:42
Speaker 1: The bond horns will pay for this. So you know,
25:46
Speaker 1: the regulators essentially threatened all of these non bank lenders
25:50
Speaker 1: who operate outside of the government guarantees space and said
25:53
Speaker 1: you must provide forebearance. So it's just you know, coercion
25:57
Speaker 1: on a national scale, and uh, they'll through it. We
26:00
Speaker 1: have to figure out what those loan portfolios are worth. Now,
26:04
Speaker 1: how many of the people who ask for help are
26:06
Speaker 1: going to get back on track. That's the key question,
26:09
Speaker 1: because then you can value the portfolio. So what do
26:12
Speaker 1: you think will end up happening with all these lenders
26:16
Speaker 1: who suddenly have a four month hold in their revenue
26:19
Speaker 1: um or at least they're cash flows. They're still owed
26:23
Speaker 1: that money. It's just kicked down the road a little bit.
26:27
Speaker 1: In theory, yes, if the consumer cures and for example,
26:31
Speaker 1: and this is private by the way, there's no government
26:33
Speaker 1: mandate here as to how you fix this. Could say, well,
26:37
Speaker 1: we'll push those mispayments to the end of the loan
26:39
Speaker 1: and will modify the loan. Okay, just contract we won't
26:43
Speaker 1: buy the loan back from the bond investor. We just
26:46
Speaker 1: leave it. Because that makes life a little easier. Same
26:49
Speaker 1: thing with the mortgages. They would ideally like to leave
26:51
Speaker 1: those mortgage notes in these pools to back all these securities,
26:56
Speaker 1: because when you buy it out, you have to buy
26:58
Speaker 1: it out at par it's of money. If you're talking
27:00
Speaker 1: about a couple of months interest payments, given how low
27:03
Speaker 1: rates are right now, Barry, that's manageable. And in fact,
27:07
Speaker 1: the regulator for Fan and Freddie just came out and said,
27:10
Speaker 1: you guys have to advance for four months and then
27:13
Speaker 1: we'll come and reimburse you. So we're starting to get
27:16
Speaker 1: some clarity on this, right. But for private investors, private mortgages,
27:20
Speaker 1: commercial mortgages, you know, multi family, all of this stuff,
27:24
Speaker 1: if it doesn't have a government guarantee, then the bond
27:26
Speaker 1: holders will pay. The servicers get reimbursed first. By the way,
27:31
Speaker 1: if there's misspayments, they get their feet. The bond holders
27:34
Speaker 1: basically have to wait. So that's that's how it will work.
27:37
Speaker 1: Back in the line. Back to the line, the triple
27:40
Speaker 1: ais are in front and then the lower trashes. In
27:43
Speaker 1: these deals there tend to be several. Those are the
27:46
Speaker 1: ones who will take the pain. So Chris, let's talk
27:49
Speaker 1: a little bit about the current state of the economy.
27:53
Speaker 1: I don't think many people would deny that we are
27:56
Speaker 1: in a recession today. How bad is it? And how
28:02
Speaker 1: deep and long can this last? For I was on
28:06
Speaker 1: a call yesterday with a bunch of my mortgage buddies,
28:09
Speaker 1: a lot of economists, um, you know, Mark uh uh,
28:13
Speaker 1: Sam Cattery from Freddie Mack and people like this, and
28:16
Speaker 1: they really do excellent research on the demographics, if you will,
28:20
Speaker 1: of housing. And then you looked at bankerings. What were
28:24
Speaker 1: those provision numbers from JP Morgan and Wells Fargo telling us?
28:29
Speaker 1: And it's telling you that the bankers expect a pretty
28:31
Speaker 1: large wave of losses the next couple of quarters. So
28:35
Speaker 1: when I look at GDP estimates of down thirty in
28:38
Speaker 1: the second quarter, which is what I was hearing yesterday,
28:42
Speaker 1: I kind of stepped back as a bank analyst, and
28:45
Speaker 1: I think to myself, this is gonna be worse than
28:47
Speaker 1: two thousand eight. Um to me, I think we will
28:51
Speaker 1: have destroyed a lot of the small business service sector
28:56
Speaker 1: that was so important as a source of marginal employment
28:59
Speaker 1: in the United States. People, you know, look at New York, Marry.
29:02
Speaker 1: The entire entertainment industry has gone. Hospitality restaurants. All of these,
29:09
Speaker 1: you know, areas that were important for for not just
29:12
Speaker 1: for people generally if they needed to find a job
29:15
Speaker 1: or you know, younger people who came to the city
29:17
Speaker 1: who were trying to get involved in, you know, some career.
29:20
Speaker 1: That was the first place they would look for a job.
29:22
Speaker 1: And these people have left. I think it's gonna be
29:25
Speaker 1: very interesting to see the numbers for New York City
29:28
Speaker 1: in the next couple of quarters, because I suspect a
29:30
Speaker 1: lot of people went to live with mom and dad. Anecdotally,
29:34
Speaker 1: we're hearing a lot of people who have an up
29:38
Speaker 1: a second place to live, either a beach house or
29:41
Speaker 1: a second property, or if they're younger, with their parents
29:44
Speaker 1: or siblings, they've they've fled. Large parts of Brooklyn, half
29:48
Speaker 1: the Upper east Side and Upper West Side are supposedly empty.
29:52
Speaker 1: I haven't been back to the city since this started,
29:55
Speaker 1: but from what I'm hearing from people who either live
29:58
Speaker 1: or lived in the city, they are sheltering outside of Manhattan.
30:02
Speaker 1: Are you implying that that might become a permanent situation
30:07
Speaker 1: Because people talked about that post not eleven, but we
30:09
Speaker 1: really didn't see. Whoever left was very quickly replaced by
30:14
Speaker 1: a younger person. Do you think this changes the dynamics
30:18
Speaker 1: of urban density and people living in cities. Well, I
30:22
Speaker 1: think it's going to change the business dynamics in New
30:25
Speaker 1: York for a while, because in you know, in two
30:28
Speaker 1: thousand and eight and after nine eleven, um, Yeah, we
30:31
Speaker 1: had to hunker down, But then the economy restarted. We
30:34
Speaker 1: didn't have the distance from ourselves physically, we didn't have
30:38
Speaker 1: to deal with all of the aspects that that implies.
30:42
Speaker 1: So I think when you're still worried about vulnerable populations
30:46
Speaker 1: and you have to protect them, that means that you're
30:49
Speaker 1: gonna try and let the economy restart to a degree.
30:52
Speaker 1: But I don't think you regrow these service businesses back overnight. Berry.
30:57
Speaker 1: They've been decapitalized, and even if they were helping their
31:00
Speaker 1: eployees with the federal money, they still may not survive
31:04
Speaker 1: because they're going to be facing a diminished revenue stream
31:07
Speaker 1: coming coming back. You know what, what if we have
31:10
Speaker 1: to take half the tables out of the restaurants, right
31:13
Speaker 1: if people doing a Broadway theater where shoulders and shoulders
31:17
Speaker 1: front and back, are they gonna Hamilton's tickets with the
31:21
Speaker 1: audience as you know, we just went through Passover and Easter.
31:26
Speaker 1: Right These are typically times when Europeans Latin Americans would
31:31
Speaker 1: all go to New York for a week with their families.
31:34
Speaker 1: They're not here now, you know. There's there's only New
31:37
Speaker 1: Yorkers in Central Park right now, and it's it's a
31:40
Speaker 1: different scene. In fact, I've been riding my bike around
31:42
Speaker 1: the city. I go all the way down the South
31:44
Speaker 1: Carria back because there's no traffic. How empty is the
31:47
Speaker 1: city compared to uh, what it was like post nine eleven.
31:53
Speaker 1: It's more empty than that, very little traffic, although it
31:56
Speaker 1: is slowly, slowly starting to increase. You can see that
31:59
Speaker 1: there's more will move it around. I think this is
32:03
Speaker 1: going to be a profound economic shock to a lot
32:05
Speaker 1: of big cities that are used to trying to attract
32:08
Speaker 1: people to come in. That's going to be changed. So
32:13
Speaker 1: we've had this enormous monetary response from the Fed. They
32:18
Speaker 1: took rates to zero. They announced they were gonna add
32:21
Speaker 1: two trillion dollars more in lawn furniture and various high
32:27
Speaker 1: yield paper whatever whatever they can buy they're gonna put
32:29
Speaker 1: on the balance sheets. We've also had, at least not
32:33
Speaker 1: over the short term, uh two trillion dollar fiscal stimulus.
32:39
Speaker 1: How does this response compare to what we've seen from
32:43
Speaker 1: crises in the past. Well, the federal response in the
32:48
Speaker 1: thirties was large, but it didn't really do much. In fact,
32:53
Speaker 1: it faltered, and then World War Two kind of saved us. UM.
32:57
Speaker 1: In two thousand eight, you had the financial response obviously
33:01
Speaker 1: to catch some of the banks um, but the industry
33:05
Speaker 1: more or less cleaned up its own mess and the
33:08
Speaker 1: economy healed itself. I mean, the thing I always remind
33:11
Speaker 1: people of Barrier is the fact that we still have
33:13
Speaker 1: a private bond market in this country, and we have
33:15
Speaker 1: a market for different types of assets. Is so important
33:19
Speaker 1: because it restarted by itself. The auto sector restarted by
33:23
Speaker 1: itself in two thousand nine because those were fully secured deals.
33:28
Speaker 1: But today, given the hit the global auto has taken,
33:32
Speaker 1: for example, and you look at sales volume estimates and
33:35
Speaker 1: everything else going forward, you know, I think the whole
33:39
Speaker 1: credit of this industry has changed. Even the exemplartis like
33:42
Speaker 1: the Toyotas and the Daimler's, they've taken a hit. I
33:46
Speaker 1: think you'll see consolidation. By the way, back to your
33:49
Speaker 1: point about M and A definitely because we have an
33:53
Speaker 1: auto bakers. Yeah, if we're doing eleven twelve million units
33:56
Speaker 1: next year, you're gonna see m and a. That's in
34:00
Speaker 1: the post crisis peak of about seventeen UM cars in
34:07
Speaker 1: the US. Yeah, it went down to eleven and it
34:10
Speaker 1: was goose by the FED. You know, we were talking
34:12
Speaker 1: before about different phases. In the period after the eight crisis,
34:17
Speaker 1: you had a lot of fringe products. You had autos,
34:20
Speaker 1: you had you know, marketplace loans of all sorts of
34:23
Speaker 1: non bank lending to business individuals, etcetera, etcetera, all gone,
34:28
Speaker 1: puff gone. In fact, the subprime auto sector is going
34:32
Speaker 1: to go through the ringer now because again the bond
34:34
Speaker 1: holders are going to pay for the forbearance. So I think,
34:38
Speaker 1: you know, it's going to take some time to get
34:40
Speaker 1: people back in the game. You're gonna see spread stake
34:43
Speaker 1: kind of wide for a while on on high yield
34:46
Speaker 1: securities compared to treasuries. And it's just a matter of
34:50
Speaker 1: getting everybody focused. But I'll tell you this, Verry, I
34:52
Speaker 1: think people are much better conditioned this time than they
34:56
Speaker 1: were in O. Eight. I think people are coming back
34:58
Speaker 1: to the market's much fair through than they did No. Eight, No. Nine,
35:01
Speaker 1: when nothing was happening. You remember that? Do you mean
35:04
Speaker 1: do you mean investors or consumers or both institutional investors? O,
35:10
Speaker 1: there's I mean we've got uh, you know, MBS fund.
35:14
Speaker 1: We're getting ready to launch as soon as we have
35:15
Speaker 1: a little more clarity from Washington playing vanilla stuff right.
35:20
Speaker 1: But still there's opportunities out there because the markets are disrupted.
35:23
Speaker 1: People are looking to buy commercial real estate off distress sales.
35:28
Speaker 1: They're looking to buy multi family off distress sales. So
35:31
Speaker 1: though perhaps not New York because of the rent control laws, um,
35:34
Speaker 1: but around the country. Yeah, definitely, I'm thinking too small.
35:39
Speaker 1: I'm looking to buy distressed sheet metal off the auto
35:42
Speaker 1: sites between bring a trailer and classic cars. I've seen
35:47
Speaker 1: prices fall about ten fift over the past month, and
35:53
Speaker 1: I love the idea of buying something at a discount.
35:56
Speaker 1: But that's just me. So. Your first book was Inflated
36:00
Speaker 1: that looked at how debt helped build out the American dream,
36:04
Speaker 1: especially houses. I was kind of surprised by the topic
36:08
Speaker 1: of your recent book, ford Men, from Inspiration to Enterprise.
36:13
Speaker 1: What motivated you to pivot from debt and housing? Two
36:20
Speaker 1: automobiles and Ford I had always been a student of
36:25
Speaker 1: Henry Ford, like many Americans, but particularly his role in
36:29
Speaker 1: the Great Depression. And so one of the things I
36:32
Speaker 1: focused on in the book was how Henry basically uh
36:36
Speaker 1: started the banking crisis in three before FDR took office
36:41
Speaker 1: in March of that year. It's an extraordinary story because
36:44
Speaker 1: he was such a character and quite did you say,
36:48
Speaker 1: did you say started the banking crisis? He initiated it. Yes,
36:53
Speaker 1: he said that he was going to take his money
36:56
Speaker 1: out of the Detroit banks, and when the governor of
36:59
Speaker 1: Michigan and found out about this, he declared the bank
37:02
Speaker 1: holiday in Michigan in February of three. This event then
37:07
Speaker 1: rippled through the rest of the country. So by the
37:10
Speaker 1: time FDR takes office, every bank in the United States
37:13
Speaker 1: is closed and had been. The Detroit banks were really
37:17
Speaker 1: important in those days. Henry Ford was the biggest cash
37:20
Speaker 1: depositor in the country, and he ran the whole company
37:23
Speaker 1: on cash out of his pocket. It was like a plantation.
37:28
Speaker 1: So I got into Ford, you know, first and foremost,
37:31
Speaker 1: because I am a student that that era. And then
37:34
Speaker 1: I had been a contributor to the Washington Times magazine
37:38
Speaker 1: UH Inside on the News, and I had written a
37:40
Speaker 1: whole series of articles about the Explorer rollover, which was
37:44
Speaker 1: quite a mess. It was really the beginnings of giving
37:49
Speaker 1: teeth to consumer regulation in the United States. If that
37:53
Speaker 1: had happened today, a lot of people at Ford would
37:56
Speaker 1: have gone to jail for what happened. Vehicles. Oh yeah,
38:00
Speaker 1: this is the single vehicle rollovers with some of the
38:03
Speaker 1: SUVs that well, the Ranger and you know the bridge
38:07
Speaker 1: Stone Firestone tires. It was quite a mess. Take take
38:13
Speaker 1: a big, big vehicle, raise it, give it a short wheelbase,
38:18
Speaker 1: and uh, that is not a recipe for stability at
38:21
Speaker 1: high speeds. If you have to suddenly cut the wheel. No,
38:26
Speaker 1: it didn't work. And there you know. It was an
38:29
Speaker 1: interesting episode. But what I tried to do with Fordman,
38:32
Speaker 1: just in terms of the overall book Barry was remind
38:35
Speaker 1: people of the rich literature around for people like John Kiss,
38:40
Speaker 1: Call Braith and many others who wrote about the family,
38:43
Speaker 1: and they were such a remarkable family. It was really
38:46
Speaker 1: the first transformational business fortune in American history, more than steel,
38:52
Speaker 1: more than these other types of fortunes that have been
38:55
Speaker 1: made in the past. They made things. They made cars,
38:59
Speaker 1: but into instantly. The first first were built by the
39:02
Speaker 1: Dodge brothers because they were the first great partsmakers in
39:05
Speaker 1: the United States. Both of them died in one of
39:09
Speaker 1: the Spanish flew. Had the Dodge brothers survived, the auto
39:13
Speaker 1: industry would have been dominated by them and not by
39:16
Speaker 1: General Motors and a number of other players. History would
39:20
Speaker 1: have been quite different. So by the time we get
39:23
Speaker 1: to something like Ford versus Ferrari, that's thirty years later. Yeah, Billy,
39:30
Speaker 1: you know, Henry the Deuce, Henry Ford the second had
39:32
Speaker 1: taken over and they they were still uh and also
39:36
Speaker 1: ran compared to GM. They were typically compared to Chevrolet.
39:40
Speaker 1: That's how small Ford was um, but they still uh,
39:45
Speaker 1: you know, had a lot of staying power. And as
39:46
Speaker 1: I've always said, God clearly loves the Fords despite their
39:49
Speaker 1: many sins, because somehow they avoided the fault. They were
39:56
Speaker 1: the only US maker didn't get need to be restructured. Well,
40:01
Speaker 1: they couldn't be restructured as I as I talked about
40:04
Speaker 1: in the book, Goldman Sachs had already helped the family
40:06
Speaker 1: take money out of the company, and if they had
40:09
Speaker 1: been restructured, then the special voting stock held by the
40:11
Speaker 1: family would have gone and they would have lost control.
40:15
Speaker 1: So there's all these little nuances in Goldman Sachs is
40:18
Speaker 1: a very important part of the Ford story. It was
40:21
Speaker 1: their design of the Ford Foundation when the Ford family
40:26
Speaker 1: gave most of the economics in the company to that
40:29
Speaker 1: entity and retain most of the vote in this asymmetrical
40:34
Speaker 1: share transaction that Sydney Weinberg created along with the lawyers
40:38
Speaker 1: for for Edsel Ford, that saved the company from the
40:42
Speaker 1: tax man. Because str hated Henry Ford, and he had
40:46
Speaker 1: passed legislation in Washington specifically to kill the Ford fortune,
40:51
Speaker 1: and so Goldman forwarded that intention. And now the Ford
40:55
Speaker 1: Foundation is a couple of billion dollars and still still active. Well,
41:01
Speaker 1: when they did the I P. O for Ford after
41:03
Speaker 1: World War two, UH, the foundation was the only seller
41:07
Speaker 1: of shares. They didn't have to raise money for the
41:09
Speaker 1: company because they had plenty of money. These are the
41:11
Speaker 1: work at Home abbreviated version of our favorite podcast questions.
41:16
Speaker 1: And let's just start with streaming. What are you streaming
41:18
Speaker 1: these days? What are you watching on Netflix? What are
41:20
Speaker 1: you listening to in podcasts? What's keeping you entertained? I
41:25
Speaker 1: am watching old movies with my beautiful wife, Nicole, who's
41:28
Speaker 1: a recent UH naturalized American citizen, So we're filling in
41:33
Speaker 1: some of the blanks with her. And uh. I stream
41:36
Speaker 1: a lot of music. I spend my time reading Berry,
41:39
Speaker 1: you know, like you, I basically have to consume stuff
41:42
Speaker 1: all day. I watched West World, I watched a couple
41:45
Speaker 1: of other things on tv. Um, but give us a
41:48
Speaker 1: couple of old movie titles for for the youngsters who
41:51
Speaker 1: may not be uh oh, well, yeah, we just watched
41:54
Speaker 1: Bull the Air with Penelope Crews, which is stunning. I
41:58
Speaker 1: could love that movie. So you say old, you're that's
42:02
Speaker 1: not really old. No, Bull of ben hur uh that's
42:06
Speaker 1: taking in the ecstasy. Then commandments we just did. So
42:10
Speaker 1: we're having a lot of quoting. So you're working your
42:13
Speaker 1: way through the thirties and forties along with the Ford
42:16
Speaker 1: and the post depression era in your guys. You know,
42:21
Speaker 1: the girls want buff, right, so they like Tarlton. Charlton
42:24
Speaker 1: was a good looking guy. Who are your early mentors
42:27
Speaker 1: who helped to shape your career? Oh boy, Well, my
42:32
Speaker 1: father first inform us, who taught me how to write
42:34
Speaker 1: with a yellow pad and a pencil um and I
42:38
Speaker 1: think a number of editors over the years, Terry Houser
42:41
Speaker 1: and Karl Flock at the Legislative Digest, the folks at Barns,
42:46
Speaker 1: all the editors at Barns, Tommy Donalin, I wrote many
42:50
Speaker 1: editorials for him. So as a writer, those are the
42:53
Speaker 1: people who really pounded on me and said, you know,
42:56
Speaker 1: editing builds character, right, you know all about that. Working
43:00
Speaker 1: with Bloomberg as much as you have, I have to
43:03
Speaker 1: tell you I wrote one editorial for Barons called a
43:07
Speaker 1: Memo Found on the Street that I thought was brilliant.
43:10
Speaker 1: When I handed an end to Tom Donalin, it was words,
43:15
Speaker 1: and he showed me how to take a scalpel and
43:18
Speaker 1: remove everything that wasn't lean sine, And what came out
43:23
Speaker 1: of that was seven hundred tight words. And he blew
43:27
Speaker 1: me away as that how strong a good editor can
43:32
Speaker 1: make your writing. Oh no, that's quite right, that's quite right, um.
43:37
Speaker 1: And you know the other people in the financial markets,
43:39
Speaker 1: I've had so many teachers, Alan Boyce who taught me
43:42
Speaker 1: about mortgage servicing rights, the guys at Bear who taught
43:46
Speaker 1: me how to do deals. You learned how to do
43:49
Speaker 1: deals by working on deals late at night. You mentioned
43:53
Speaker 1: you mentioned reading. Let's talk about your favorite books. What
43:56
Speaker 1: books have you been staying occupied with during this lovedown.
44:02
Speaker 1: I just finished Dark Towers about Deutsche Bank, because you
44:05
Speaker 1: can imagine David and Rich fabulous. He wrote a book
44:09
Speaker 1: on the label on the Library scandal. The Library Scandal
44:14
Speaker 1: talks a lot about President Trump and how he survived.
44:18
Speaker 1: The guy's got amazing grit. The fact that he was
44:20
Speaker 1: able to bluff his way through all those situations. You've
44:24
Speaker 1: got to hand it to him. What is another title? Uh,
44:31
Speaker 1: you know, there are a lot of books I want
44:33
Speaker 1: to read. I just don't have time. I've been reading
44:35
Speaker 1: legal documents for the past three weeks trying to get
44:39
Speaker 1: a liquidity facility in place for the independent mortgage banks
44:43
Speaker 1: in Washington. So that's taken a lot of my time.
44:46
Speaker 1: And then what's the book the Oh my, well, I
44:51
Speaker 1: want to go through George Moore's book on banking. I
44:56
Speaker 1: desperately want to go back and reread, uh my, George
45:01
Speaker 1: orwell because it's very timely now. And then, you know,
45:05
Speaker 1: there were a couple of other things that I have
45:08
Speaker 1: on the pile. I did go through Red Notice, Bill
45:11
Speaker 1: Browder's book about Russia. I heard that was really interesting.
45:15
Speaker 1: Oh my god, you'd never go to Russia Barry, you
45:17
Speaker 1: have to read that book. My brother in law used
45:22
Speaker 1: to be general counsel for Amaco. That little b p
45:25
Speaker 1: Amaco deal was was his doing, and Amaco had relationships
45:30
Speaker 1: with with many of the Russian oil companies in the
45:34
Speaker 1: Russian government, and that was pretty much his response on So,
45:37
Speaker 1: so what's your take on Russia goes, don't ever go there? Like, okay, right,
45:41
Speaker 1: although I've been to St. Petersburg, so I really I
45:44
Speaker 1: guess I violated that. Um, what sort of advice would
45:48
Speaker 1: you give a millennial who was interested in a career
45:51
Speaker 1: in banking. Go work for a small bank. Learn as
45:55
Speaker 1: much as you can about how the bank operates, particularly
45:58
Speaker 1: the back. You want to learn how they do everything
46:01
Speaker 1: from an operation's perspective, and then you're gonna have a
46:04
Speaker 1: lot of value. And our final question, what do you
46:08
Speaker 1: know about the world of banking today that you wish
46:11
Speaker 1: you knew thirty years or so ago when you were
46:14
Speaker 1: first getting started. I think the evolution of banks in
46:20
Speaker 1: the United States away from business lending to uh focusing
46:24
Speaker 1: on mostly housing related Two thirds of US banks today, Barry,
46:29
Speaker 1: have housing exposure one way or another commercial real estate.
46:33
Speaker 1: So it's become really, really heavy on the real estate side,
46:39
Speaker 1: and I guess that's as as you would expect because
46:42
Speaker 1: most companies just go to capital markets. They don't have
46:45
Speaker 1: to go to a bank, so that's a big change.
46:47
Speaker 1: We have been speaking with Christopher Wallen. He is the
46:50
Speaker 1: chairman of well and Global Advisors and author of several books,
46:54
Speaker 1: most recently Ford Men From Inspiration to Enterprise. If you
46:58
Speaker 1: enjoy this conversation, oh look up or down in in Shawan,
47:01
Speaker 1: Apple iTunes, Spotify, Overcast, wherever you're finer podcasts are found,
47:06
Speaker 1: and you could see any of the previous three hundred
47:09
Speaker 1: and something conversations we've had over the past five and
47:12
Speaker 1: a half years. We love your comments, feedback and suggestions
47:16
Speaker 1: right to us at m IB podcast at Bloomberg dot net.
47:20
Speaker 1: You can follow me on Twitter at rit Halts, check
47:23
Speaker 1: out my daily column on Ridholts dot com, or see
47:26
Speaker 1: my weekly Bloomberg column at Bloomberg dot com slash opinion.
47:31
Speaker 1: I would be remiss if I did not thank the
47:34
Speaker 1: crack staff that helps put this conversation together each week.
47:38
Speaker 1: A tikavl Bron is our product supervisor. Michael Boyle is
47:42
Speaker 1: our producer. Charlie Volmer is my audio engineer, and Michael
47:46
Speaker 1: Batnick is my head of research. I'm Barry Riholts. You've
47:50
Speaker 1: been listening to Masters in Business on Bloomberg Radio.