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Stopping Poor Financial Decisions with Former FDIC Chair Sheila Bair · Masters in Business

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Masters in
• 0:11
  Speaker 1: Business with Barry Ritholts on Bloomberg Radio.
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  Speaker 2: This week on the podcast, another extra extra special guest, Sheilabert,
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  Speaker 2: former FDIC chairperson, author. What a fascinating career. She was
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  Speaker 2: right in the thick of it, through the financial crisis,
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  Speaker 2: butting heads with Tim Geithner and working with Hank Paulson.
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  Speaker 2: She really has done more than just about anyone in
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  Speaker 2: the country to help shore up the financial system, the
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  Speaker 2: banking system, and to drive us all towards a better
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  Speaker 2: degree of financial education through her work not only at
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  Speaker 2: the FDIC but at Treasury, and through all the books
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  Speaker 2: she's written for children and young adults about finance. I
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  Speaker 2: thought this was fascinating and I think you will also
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  Speaker 2: with no further ado my conversation with Sheila bhar.
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  Speaker 3: Thank you for having me.
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  Speaker 2: So, I want to start with a little bit of
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  Speaker 2: background from you. You get a bachelor's in philosophy from
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  Speaker 2: the University of Kansas and then go to law school
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  Speaker 2: at the same school University of Kansas where you got
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  Speaker 2: a jd. What was the career plan were you? Did
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  Speaker 2: you want to be a lawyer or what were you.
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  Speaker 3: Thinking, Well, I'm a native Kansas and grew up in
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  Speaker 3: Southeast Kansas, traditional Kansas Republican family the whole we were
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  Speaker 3: all Jayhawks to medical school, kau mom went to nursing school.
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  Speaker 3: My sister was a physical therapist. I was.
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  Speaker 4: I didn't choose a medical profession, but did jews KU.
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  Speaker 3: So it's a good school. It was an affordable school,
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  Speaker 3: and I really didn't know what I wanted to do.
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  Speaker 3: I was interested in philosophy. I took a lot of
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  Speaker 3: courses in English and economics too, majored in philosophy and
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  Speaker 3: realized pretty much sin as I graduated, I wasn't going.
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  Speaker 4: To have a very good job with that degree.
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  Speaker 2: So you could always teach philosophy.
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  Speaker 3: I could do that, but I would have to get
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  Speaker 3: a PhD and probably go to school longer than I
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  Speaker 3: wanted to do do that. So I decided to go
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  Speaker 3: to law school, which was a You know, philosophy is
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  Speaker 3: a good major if you're going to go on to
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  Speaker 3: law school because both disciplines are about logical thinking analysis,
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  Speaker 3: you know, good writing skills, and so actually the philosophy
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  Speaker 3: major was good preparation for law.
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  Speaker 2: School, yes, say the very least, So your career spans
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  Speaker 2: from government and academia and finance. Really at the highest
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  Speaker 2: levels across all three. What's the through line connecting connecting
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  Speaker 2: each of these worlds government, regulation, academia, and finance.
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  Speaker 3: Yeah, well, I have been, I've had, I've done a
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  Speaker 3: lot of different things in my career. And I young people,
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  Speaker 3: I tell them, don't try to pre program your career
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  Speaker 3: and note me in near mind about opportunities. And a
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  Speaker 3: lot of people stay in the same job for thirty
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  Speaker 3: forty fifty years. I respect that.
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  Speaker 4: That's fine.
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  Speaker 3: That was never for me.
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  Speaker 4: I'm always looking for new things.
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  Speaker 3: But I guess my first entree to the big leagues,
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  Speaker 3: released adjacent to the big leagues, was when I worked
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  Speaker 3: for Bob Dole as his council first on the Senate
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  Speaker 3: Judiciary Committee, where I actually I staffed him on the
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  Speaker 3: Voting Rightsack compromise to title to the Voting Rights sac
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  Speaker 3: which is pretty much just devstrated by the Supreme Court,
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  Speaker 3: which was which was very you know, that was my
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  Speaker 3: first big project for him.
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  Speaker 4: So that's that hurts. But anyway, so I then I
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  Speaker 4: went with to the leaders.
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  Speaker 3: When we became majority leader, I went to the Majority
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  Speaker 3: Leader's office with them and handled a broader range of issues.
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  Speaker 3: But that's really and then I was on his eighty
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  Speaker 3: eight presidential campaign actually, which obviously started in nineteen eighty seven.
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  Speaker 3: Those campaigns start a good year before the primaries begin,
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  Speaker 3: and that's where I started off as a civil rights
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  Speaker 3: lawyer and did civil rights issues and other things for him.
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  Speaker 3: But we had anting an ease of a market crash
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  Speaker 3: in during the time I was working for his presidential
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  Speaker 3: campaign became a big issue. I had to take a
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  Speaker 3: crash course in stock markets, and that's when I was
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  Speaker 3: first exposed to finance and found that I was really
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  Speaker 3: interested in it.
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  Speaker 2: Really interesting. I want to focus on some of you
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  Speaker 2: writing because you've written for very different age groups demographics. Right,
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  Speaker 2: So Bullbot Horns obviously for adults about the GFC, but
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  Speaker 2: the Money Tails book series is aimed at kids, and
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  Speaker 2: then the new book is really aimed at teenagers people
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  Speaker 2: starting out. How different is it communicating Yeah, somewhat complex
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  Speaker 2: ideas to each Is it the same, is it just
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  Speaker 2: making it understandable or is it a different approach for
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  Speaker 2: each group.
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  Speaker 4: It's a bit of a different approach.
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  Speaker 3: I think you know that the fact that I didn't
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  Speaker 3: really start in finance that I segued into it working
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  Speaker 3: for this exchange then later many other senior level jobs.
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  Speaker 3: I had to start from scratch when I was learning it,
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  Speaker 3: and I had to learn it fast, and so but
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  Speaker 3: I think my own experience helped me really break down
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  Speaker 3: and understand and understand how to approach understanding finance. And
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  Speaker 3: one of the big issues is the terminology, the jargon
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  Speaker 3: that we use in the financial industry, and that can
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  Speaker 3: be very confusing and intimidating and I think sometimes weaponized
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  Speaker 3: frankly by people who are trying to sell a product
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  Speaker 3: or service. So but yeah, I mean I think my
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  Speaker 3: early need to really start from scratch and learn it
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  Speaker 3: help me later break down and explain things. And then
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  Speaker 3: I think also my philosophy major the logical thinking, you know,
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  Speaker 3: breaking things down to the component parts, understanding the causal connections,
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  Speaker 3: kind of laying it out the analysis out for people
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  Speaker 3: in an understandable way is something that I've always tried
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  Speaker 3: hard to do and have refined over the years. So
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  Speaker 3: but yeah, you know, bol By the Horns was definitely
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  Speaker 3: it was written for a general population, but it talks
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  Speaker 3: a lot about securitization and topics that might make some
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  Speaker 3: people's eyes glaze over, but for industry professionals, I think
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  Speaker 3: it was of interest that my children's books. And actually
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  Speaker 3: I wrote another book for teens called Bullies of Wall Street,
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  Speaker 3: which was a book about the financial crisis for teenagers,
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  Speaker 3: and then I have Golli. Since two thousand and six,
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  Speaker 3: I've been on you as a sideline writing picture books
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  Speaker 3: for children. And those are really fun because those are
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  Speaker 3: fictionalized stories that use rhyming verse. They're just fun. You
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  Speaker 3: can be creative because they're really about basic concepts, you know, compounding, interest, risk,
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  Speaker 3: capital formation. Those are things that really you can't explain
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  Speaker 3: at a very basic level for kids. At Ponzi schemes
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  Speaker 3: is one of them. Asset bubbles is one I wrote.
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  Speaker 3: What is called Daisy Bubble is kind of riff on
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  Speaker 3: the Tula bubble that occurred in Hollywood hundreds of years ago,
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  Speaker 3: and I was concerned that kids were not going to
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  Speaker 3: get this.
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  Speaker 4: That's one of my more popular books, and specially with
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  Speaker 4: the boys.
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  Speaker 3: There's a character named Slice Seal this manipulating the daisy market,
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  Speaker 3: and you know, I make that very transparent in the book,
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  Speaker 3: and they enjoy that.
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  Speaker 2: That's very that's very funny. My favorite part of bull
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  Speaker 2: by the Horns is just the really vivid detail you
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  Speaker 2: go into and with the clashes with Tim Guy and
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  Speaker 2: Hank Paulson. If you could go back in time and
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  Speaker 2: magically change any decision that was made during the GFC,
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  Speaker 2: what what was the wrong decision and how would you
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  Speaker 2: fix it?
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  Speaker 4: I mean during the crisis or in the lead up
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  Speaker 4: to the crisis.
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  Speaker 3: Either or what?
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  Speaker 2: What do you think? What do you think the big
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  Speaker 2: It's never one thing, but if if so, let's let's
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  Speaker 2: since I mentioned Guy, Throne Paulson, what of their decisions
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  Speaker 2: do you think was most problematic that you would have
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  Speaker 2: liked to reverse?
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  Speaker 3: Yeah, well, I think there should have been more accountability.
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  Speaker 3: I do think there should have been more accountability.
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  Speaker 2: I think meaning bankers Wall Street helped creates.
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  Speaker 3: We should have at least provided more financial penalties, even
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  Speaker 3: if we're going to send people to jail. I think
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  Speaker 3: the bailouts could have been less generous. I am still
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  Speaker 3: outraged that we let them pay bonuses at the end
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  Speaker 3: of two thousand and nine. So I think that was,
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  Speaker 3: you know, after giving them all as capital, and then
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  Speaker 3: once they got the benefit of all these other programs
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  Speaker 3: and you know, we stabilized themselves to enable them to
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  Speaker 3: pay that capital back so they could pay bonuses at
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  Speaker 3: the end of two thousand and nine when the rest
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  Speaker 3: of the country was reeling in a recession. No, I
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  Speaker 3: think we could have been a lot tougher. So, but
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  Speaker 3: you know, these things are all compromises, and actually it
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  Speaker 3: was more with Tim Geitner than Hank Poles and hey
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  Speaker 3: can I could usually come to a common ground, and
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  Speaker 3: we did on issues where we started with different viewpoints.
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  Speaker 3: But yeah, I mean, I think there is a perception
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  Speaker 3: of some that they were kind of the Wall Street
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  Speaker 3: was the center of the universe and the heart throw
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  Speaker 3: of the economy, and we needed to take tender living
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  Speaker 3: care with it and all of that, and we need
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  Speaker 3: to do something. I'm not suggesting we shouldn't have provided
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  Speaker 3: some stabilization measures.
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  Speaker 4: But we didn't have to.
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  Speaker 3: I think we really went overboard, and I do regret that,
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  Speaker 3: and I think people are still mad about it. I
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  Speaker 3: think a lot of the polarization that we have today
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  Speaker 3: sims from the perception on Main Street that not only
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  Speaker 3: did we bail these guys out, but we bailed them
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  Speaker 3: out very generously.
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  Speaker 2: I couldn't agree more let me shock listeners by saying,
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  Speaker 2: I think President Trump got something right, almost accidentally, by
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  Speaker 2: taking a piece of a company like Intel. My big
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  Speaker 2: complaint during the bailouts were, Hey, if you're going to
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  Speaker 2: give these publicly traded companies a bailout and not send
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  Speaker 2: them the bankruptcy court, well, great, take forty percent of
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  Speaker 2: the company and promise to sell it back to the
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  Speaker 2: public markets within a decade. And it would have cut
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  Speaker 2: the cost of bailouts substantially and would have hurt exist
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  Speaker 2: shareholders and management who made a uh who helped create
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  Speaker 2: the whole disaster.
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  Speaker 4: That's exactly right.
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  Speaker 3: Yeah, no, I think that was there was so we
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  Speaker 3: did a little bit of that, but not not because
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  Speaker 3: I think there was just a visceral reaction against being
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  Speaker 3: too tough.
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  Speaker 2: So when the alternative is that those that handsome building
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  Speaker 2: down town with the toll columns and the judge who
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  Speaker 2: basically says, uh, okay, you're now in receivership, Like when
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  Speaker 2: you look at the next the next best alternative is
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  Speaker 2: your toast. Okay, we'll give up forty percent as a
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  Speaker 2: substantial account and stay lived to fight out of the day.
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  Speaker 4: I couldn't agree more. We were they were looking.
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  Speaker 3: Their baseline was what you know, how these companies were
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  Speaker 3: operated before they got into trouble, and my baseline was,
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  Speaker 3: you know, bankruptcy was the alternative we did. It was
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  Speaker 3: uneven too, so we went Fanny and Freddie into conservators
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  Speaker 3: and maybe they should have been put in bankruptcy too,
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  Speaker 3: but they were the statue provided for conservatives ship where
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  Speaker 3: they still you know language, So they got punished pretty well,
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  Speaker 3: and they didn't you know, we were still getting well.
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  Speaker 3: Now they're allowed to keep their capital to build a
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  Speaker 3: capital base. But the government's made quite a bit of
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  Speaker 3: money since then from that. Aig, poor aig.
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  Speaker 4: You know, they were mine.
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  Speaker 3: They were effectively put in conservatorship by the bed and
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  Speaker 3: and finally emerged from that. But you know, there is
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  Speaker 3: a uneven as too with the way some of those
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  Speaker 3: entities were treated versus Franscance a city group, which, right,
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  Speaker 3: you know, what else can we do to help you
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  Speaker 3: city group?
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  Speaker 2: I was it was the third time, fourth time there. Yeah,
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  Speaker 2: they're like every generation. In fact, they're back with that
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  Speaker 2: hat and hands, and yet they need a few billions, right.
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  Speaker 4: I'm reading for but you know, historically, you know that
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  Speaker 4: he's going to be back so.
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  Speaker 2: I'm kind of fascinated by over the course of your career,
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  Speaker 2: you have spanned three distinct cycles of deregulation. Right, So
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  Speaker 2: we had Graham Leach blindly certainly was a major factor
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  Speaker 2: that led to the GFC.
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  Speaker 3: Yes, it was.
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  Speaker 2: We have the entire Dodd Frank deregulation of the decade,
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  Speaker 2: the past decade, and then everything that's yeah, like all
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  Speaker 2: the carve outs and then most recently reducing the amount
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  Speaker 2: of netcap in reserve that banks have to hold.
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  Speaker 3: Yeah, that's ongoing.
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  Speaker 2: So why do we keep having these crises? Is it structural?
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  Speaker 2: Is it the American political system? It seems like we're
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  Speaker 2: constantly repeating these cycles over and over.
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  Speaker 3: Well, we are, and deregulation was a big part of
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  Speaker 3: the crisis. Nobody wants to say that, or just lack
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  Speaker 3: of regulation.
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  Speaker 1: The FED and.
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  Speaker 3: Bernanki and greensman I both said this. The FED had
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  Speaker 3: the authority to write lending standards, mortgage lending standards for
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  Speaker 3: the entire industry. Problem is, most of these mortgages are
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  Speaker 3: being originated by non banks. The banks were funding it, right,
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  Speaker 3: but they're providing the conduct funding to get them in scuizations.
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  Speaker 3: But the FIT had the power to stop that and
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  Speaker 3: just plat out refu. Oh, we don't want to constrain credit.
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  Speaker 3: If I hear that once, I think those are you know,
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  Speaker 3: warm Buffett once said the most dangerous words, and in
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  Speaker 3: finance everybody else is doing it. I think it's going
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  Speaker 3: to expand access to credit. I swear to God because
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  Speaker 3: it is used as an excuse for so many terrible
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  Speaker 3: didn't green spending decisions, didn't green spins say we don't
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  Speaker 3: want to stifle innovation in the finance market, that those.
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  Speaker 4: Are the interest words too.
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  Speaker 3: I don't want to stifle innovation either, but it just
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  Speaker 3: uses an excuse. Oh, you know, like we've got we've
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  Speaker 3: got to reduce capital to get more lending out there,
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  Speaker 3: when I think I would argue, there's too much lending
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  Speaker 3: out there already. We're seeing all the cockridges screwing out now.
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  Speaker 3: So uh so. Yeah. So it was in derivatives that
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  Speaker 3: you said Gramleach bly Lay broke down. The accreted these
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  Speaker 3: two big defail institutions that all got bailed out, but
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  Speaker 3: also derivatives. They're basically decision was that nobody needs to
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  Speaker 3: regulate dedrivatives markets. The theory was, well, the big banks
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  Speaker 3: were dealers, the derivatives dealers. They're regulated by the bank regularly,
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  Speaker 3: so we don't need market regulation. And that did not
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  Speaker 3: turn out so well because the thing about the mortgage
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  Speaker 3: crisis was there were hundreds and millions of mortgages going bad,
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  Speaker 3: but there were trigons and trillions of financial engineering on
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  Speaker 3: top of how those mortgages would perform, and that's really
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  Speaker 3: what got us at the end of the day. Yeah,
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  Speaker 3: there were a lot of mortgages that never should have
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  Speaker 3: been made, but the system could have absorbed those underlying losses.
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  Speaker 4: It was the drivenes on top of that that really
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  Speaker 4: brought things down suddenly.
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  Speaker 2: So let's talk a little bit about finance. The world
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  Speaker 2: has really gotten kind of interesting in terms of we're
• 14:43
  Speaker 2: still seemed to be dealing with the echoes of the
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  Speaker 2: financial crisis. It's amazing it's almost twenty years ago, and
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  Speaker 2: yet things like when SVB, Silicon Valley Bank, and Signature
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  Speaker 2: Bank failed in two thousand and three, people started to
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  Speaker 2: get con learned about systemic risk, even though these are
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  Speaker 2: kind of two minors, are not systemic right reaction, systemically
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  Speaker 2: important financial institutions, and yet in order to cover uninsured
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  Speaker 2: depositors Yeah, who regulators.
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  Speaker 4: Richest people to the richest people in the country.
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  Speaker 2: Yeah, I wonder if there's I wonder if that's just
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  Speaker 2: a total coincidence, or if some upset people made some
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  Speaker 2: phone calls.
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  Speaker 4: Yeah.
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  Speaker 2: I was appalled because if your local credit union goes
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  Speaker 2: out and it's and you're.
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  Speaker 4: You're taking a loss. If you're an uninsured depositor community bag,
• 15:36
  Speaker 4: yeah you bet.
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  Speaker 2: But if you're a Silicon Valley VC and you're connected,
• 15:41
  Speaker 2: you you get stable cooin issuer. Yah. It's like show somebody.
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  Speaker 3: The Biden administration was doing everything they could to kill
• 15:47
  Speaker 3: crypto money, and and then they bail out one of
• 15:49
  Speaker 3: the biggest, the the biggest stable coin issuers who had
• 15:53
  Speaker 3: a couple of billon or so of uninsured deposits. You're
• 15:57
  Speaker 3: really irresponsible on their part to put that much of
• 16:00
  Speaker 3: their reserves and uninsured deposits, but they were built out.
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  Speaker 4: I couldn't believe it. I wrote a very strong piece
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  Speaker 4: in the Financial Times after it happened.
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  Speaker 3: I think, you know, it was just this new jerk bailout, bailout, bailot,
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  Speaker 3: especially if they're rich, powerful people.
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  Speaker 4: I don't I was just I was appalled. I'm still appalled.
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  Speaker 3: I was.
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  Speaker 2: It was.
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  Speaker 3: It was two hundred billion, It was not systemic, it
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  Speaker 3: had good assets. If they had, they should have tried
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  Speaker 3: to find a.
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  Speaker 2: Buyer quickly, like Washington Mutual.
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  Speaker 3: Yeah, so, but there was I think nobody said this,
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  Speaker 3: But my suspicion is there is kind of this Biden
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  Speaker 3: administration religious adversity due to you know, bank mergers and
• 16:35
  Speaker 3: acquisitions or like, we can't make banks biggers. So instead
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  Speaker 3: of quickly trying to market and sell it, they didn't
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  Speaker 3: do that. But if even if they hadn't, if they
• 16:44
  Speaker 3: just put it into a bridge bank, they had good assets,
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  Speaker 3: they probably could have paid eighty.
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  Speaker 4: Five ninety per cents on the dollars.
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  Speaker 2: Did you someone else come along buy all the assets anyway?
• 16:54
  Speaker 2: Well yeah, yeah, So the merger happened regardless.
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  Speaker 3: But it cost the FDA was seventeen eighteen billion dollars
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  Speaker 3: the deposit insurance fun it was.
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  Speaker 4: It was outrageous. I'm still a guest that that even happened.
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  Speaker 4: And you know, and.
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  Speaker 3: You know, the annoys me with my democraft friends who
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  Speaker 3: pretend the the Republicans are the ones that are pro
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  Speaker 3: industry and pro bail out, and then they do something
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  Speaker 3: like that, so go figure.
• 17:19
  Speaker 2: Coming up, we continue our conversation with Shila bar former
• 17:22
  Speaker 2: chairperson of the FDICE, discussing regulation and deregulation in the
• 17:28
  Speaker 2: modern financial system. I'm Barry Ridhlts. You're listening to Master's
• 17:33
  Speaker 2: Business on Bloomberg Radio. I'm Barry Ridhults. You're listening to
• 17:51
  Speaker 2: Masters in Business on Bloomberg Radio. My extra special guest
• 17:54
  Speaker 2: today is Shila bhar She's the former chair of the FDIC,
• 17:59
  Speaker 2: which she helped steer through the financial crisis. Her latest book,
• 18:03
  Speaker 2: How Not to Lose a Million Dollars, aimed at teenagers
• 18:08
  Speaker 2: and helping them really understand the basics of finance. So
• 18:12
  Speaker 2: let's talk about something else that's a potential issue. Private
• 18:16
  Speaker 2: credit has exploded in the past decade. It's now over
• 18:19
  Speaker 2: two trillion dollars. And while we have all of these
• 18:23
  Speaker 2: private non bank credit funds, they're all being funded by
• 18:28
  Speaker 2: regulated banks. Is this just regulatory arbitrage?
• 18:33
  Speaker 3: Well it is, but not in the way that I
• 18:36
  Speaker 3: think the banks sound bites make it sound. So there's
• 18:40
  Speaker 3: their sound bite is is that the capital regulations are
• 18:43
  Speaker 3: too onerous, much tougher than they are for these private funds,
• 18:47
  Speaker 3: which is non essense. The private funds are much less
• 18:49
  Speaker 3: levered than banks. Banks are, you know, on a non
• 18:53
  Speaker 3: risquated basis. You know, bank these big banks are operating
• 18:56
  Speaker 3: with six to eight percent capital funding equity fund funding,
• 18:59
  Speaker 3: so it's not like they have tougher capital requirements. The
• 19:05
  Speaker 3: problem is these risk based rules, and this is exactly
• 19:08
  Speaker 3: what was going on in subprime too, the risk based rules.
• 19:11
  Speaker 3: Through the magic of securitization structures in quote unquote overclatteralization,
• 19:17
  Speaker 3: you can lend to a private fund and the private
• 19:19
  Speaker 3: fund will give you collateral, they'll give you their loans
• 19:21
  Speaker 3: and they'll say they'll be valued one hundred and fifty
• 19:24
  Speaker 3: percent of what your loan is, right, so that you're
• 19:27
  Speaker 3: way overclatteralized. And if you do it that way, the
• 19:30
  Speaker 3: capital rules will give you a very favorable capital treatment.
• 19:33
  Speaker 3: So you can use a lot of leverage, increasing your
• 19:36
  Speaker 3: return on equity with that by lending to the fund.
• 19:40
  Speaker 3: If you make the loan directly to the highly levered
• 19:43
  Speaker 3: business who the fund is lending to, you've got a
• 19:46
  Speaker 3: very very high capital charge. And so the argument is, well,
• 19:49
  Speaker 3: you're directly exposed to this highly levered business, so you
• 19:52
  Speaker 3: know you need to have it tougher than if you
• 19:54
  Speaker 3: just lend the fund. The problem is that you're basically
• 19:59
  Speaker 3: allowing banks to lend and fund indirectly highly risky mortgages
• 20:05
  Speaker 3: that they would not do or not be permitted to do, frankly,
• 20:08
  Speaker 3: if they were doing it directly. And that's exactly what
• 20:11
  Speaker 3: was going on with subprime, these horrible, unaffordable mortgages pedaled
• 20:16
  Speaker 3: to a lot of people didn't understand what they were getting.
• 20:18
  Speaker 3: The banks were funding that through their credit lines and
• 20:22
  Speaker 3: their warehouse funding to you know, provide the money to
• 20:25
  Speaker 3: the originators, packed them with securitization, is selling them. And
• 20:29
  Speaker 3: again the capital required for that was much much less
• 20:33
  Speaker 3: than actually making the mortgage yourself and holding it. So
• 20:37
  Speaker 3: it really is the same basic flaw in how the
• 20:40
  Speaker 3: risk based capital rules work. I would just say you
• 20:43
  Speaker 3: can't fund a more a loan directly or indirectly that
• 20:47
  Speaker 3: doesn't meet prudent underwriting standards, because what happens is the banks.
• 20:51
  Speaker 3: From a societal standpoint, the banks are funding a lot
• 20:54
  Speaker 3: of really risky loans that if they go bad, can
• 20:58
  Speaker 3: have broader, bad adverse ramifications for the economy. But they
• 21:03
  Speaker 3: don't look at it that way, and in point of fact,
• 21:05
  Speaker 3: there are pending capital rules now that will make it
• 21:08
  Speaker 3: even more favorable for these banks to be lending to
• 21:11
  Speaker 3: these intermediary funds as opposed to lending directly.
• 21:14
  Speaker 4: So that's what's driving this.
• 21:15
  Speaker 3: Not because banks have much tougher capital rules than private funds.
• 21:20
  Speaker 3: That is not true. It's just that it's if they
• 21:22
  Speaker 3: can use more leverage to lend to the fund directly
• 21:24
  Speaker 3: than to lend to the business itself.
• 21:26
  Speaker 2: Here's what the banks say, and I don't necessarily believe this,
• 21:29
  Speaker 2: but it's not completely unconscionable. They say, when we were
• 21:36
  Speaker 2: securitizing loans during the financial crisis, lending standards had been
• 21:43
  Speaker 2: completely abdicated in all of these no income check, no
• 21:48
  Speaker 2: job check, just you know, yes, let's sign and pray
• 21:53
  Speaker 2: and then oh, it'll all come out in the collateralization
• 21:56
  Speaker 2: and the syndication will spread the risk around. This is Hey,
• 22:01
  Speaker 2: these are when lending money to firms that have been
• 22:05
  Speaker 2: in operation for ten twenty years, and names like Apollo
• 22:08
  Speaker 2: and Carlisle and Blackstone, who are trying to get a
• 22:12
  Speaker 2: return on investment. And this sounds a little familiar. You know,
• 22:17
  Speaker 2: they would never put their reputations on their names at
• 22:20
  Speaker 2: risk by doing anything too stupid. And besides, the default
• 22:24
  Speaker 2: rates have been really low and it's highly spread out
• 22:28
  Speaker 2: across sectors and geographies. Is that a fair argument or
• 22:33
  Speaker 2: it is.
• 22:33
  Speaker 4: A fair argument.
• 22:34
  Speaker 3: And I'm not saying private credit is legitimate asset class,
• 22:38
  Speaker 3: and I don't think it's systemic, primarily because you don't
• 22:41
  Speaker 3: have all this financial engineering sitting on top of it.
• 22:43
  Speaker 3: I do think they've been making some really risky loans.
• 22:46
  Speaker 3: There are a lot of conflicts of interest involved since
• 22:49
  Speaker 3: so a lot of the private credit funds are affiliated
• 22:52
  Speaker 3: with the private equity funds. They're lending to the private
• 22:54
  Speaker 3: equity portfolio companies, and this is a particular problem.
• 22:58
  Speaker 2: Actually I'm working.
• 22:59
  Speaker 3: I think this is an investor protection issue more than
• 23:01
  Speaker 3: systemic issue. I really do, And for sophisticated investors, I
• 23:05
  Speaker 3: think private credit is absolutely a legitimate asset class. You know,
• 23:09
  Speaker 3: got to understand it's not regulated. You don't really know
• 23:12
  Speaker 3: what the loans are worth, right, so there's there's a
• 23:14
  Speaker 3: big problem with getting a proper valuation on the assets.
• 23:18
  Speaker 3: Not a lot of transparency for retail or even high
• 23:22
  Speaker 3: wealth height networth individuals.
• 23:24
  Speaker 4: There's liquidity issue, right.
• 23:26
  Speaker 3: The business model doesn't really work unless most of the
• 23:28
  Speaker 3: capital is locked in. And frankly, there's a lot of
• 23:31
  Speaker 3: research questioning whether it really provides better returns. The S
• 23:35
  Speaker 3: and P five hundred has been kicking it for several
• 23:38
  Speaker 3: years now, so you know, so there are a lot
• 23:40
  Speaker 3: of questions.
• 23:41
  Speaker 4: But for sophisticated investors, you know, go forth.
• 23:43
  Speaker 3: And do it. And it's I don't think it's systemic,
• 23:46
  Speaker 3: but I do, and I do worry about these life
• 23:48
  Speaker 3: insurance companies and the annuitance because the again, you've got
• 23:53
  Speaker 3: private equity owned life insurance affiliate, you've got the private
• 23:56
  Speaker 3: credit affiliate, you've got the life insurance affiliate lending into
• 23:59
  Speaker 3: the private credit affiliate. You're using these third party credit
• 24:03
  Speaker 3: raiders to make sure you know, it's all at armous length.
• 24:07
  Speaker 3: But yeah, and that the BI asked it to study
• 24:10
  Speaker 3: about a year ago on this, and others have taken
• 24:12
  Speaker 3: a look at these valuations and they're finding significant evidence
• 24:16
  Speaker 3: of inflated values. So I do think we need to
• 24:19
  Speaker 3: protect at the retail level. We need to there need
• 24:23
  Speaker 3: to be some not expanding.
• 24:24
  Speaker 2: Access to So you're not a fan of private equity
• 24:27
  Speaker 2: or private debt in for one case, no.
• 24:30
  Speaker 4: I am not as a matter of fact, I am not.
• 24:33
  Speaker 3: You know what, if you want to there's a public
• 24:35
  Speaker 3: you want to buy a stock and Kkard, go for it.
• 24:37
  Speaker 3: You know, you might check out it's been forming. And
• 24:39
  Speaker 3: actually I don't know how it's been performing.
• 24:40
  Speaker 2: But I'm just saying they're public.
• 24:42
  Speaker 3: If you really want exposure, there are you know, publicly
• 24:44
  Speaker 3: traded with BDCs.
• 24:45
  Speaker 4: Now, there are publicly traded BDCs. There are public ways
• 24:48
  Speaker 4: to do it.
• 24:49
  Speaker 3: There are some funds forty eight funds that do invest
• 24:53
  Speaker 3: a small percentage, and alternatives too, So there are ways now.
• 24:57
  Speaker 3: But yeah, opening it up for directly for retail, especially
• 25:00
  Speaker 3: for a one case to start, you know, loading up
• 25:03
  Speaker 3: on this on this asset class, I think it's really problematic.
• 25:07
  Speaker 3: And I do worry that, you know, the the the
• 25:10
  Speaker 3: planned sponsors, the fund sponsors, the four to one case
• 25:13
  Speaker 3: sponsors are going to be getting the hard sell about,
• 25:15
  Speaker 3: you know, putting this stuff into people's four one case.
• 25:19
  Speaker 3: And again I don't think retail.
• 25:22
  Speaker 4: I know, I don't. I don't want to exposure to it.
• 25:25
  Speaker 4: I've read enough to make me really worried about it.
• 25:28
  Speaker 4: So I think really.
• 25:28
  Speaker 3: Sophisticated big institutions which have traditionally been their investor base.
• 25:32
  Speaker 3: They want to do it, fine, but no, it's not
• 25:34
  Speaker 3: right for retail and it shouldn't be going into four
• 25:37
  Speaker 3: one case.
• 25:37
  Speaker 4: And yeah, I'm very worried about that.
• 25:39
  Speaker 2: And to put some numbers on what you referenced about
• 25:43
  Speaker 2: the performance, the median alternative funds doesn't do all that great.
• 25:50
  Speaker 2: It's not that diversified, and it doesn't outperform the S
• 25:53
  Speaker 2: and P five hundred. Hey, if you're lucky enough to
• 25:56
  Speaker 2: get into a top death sile fund, you're going to
• 25:59
  Speaker 2: kill it. But it's going to take a couple of
• 26:01
  Speaker 2: hundred million dollars.
• 26:02
  Speaker 3: Yes, yeah, Yeah, the retail people are not going to
• 26:06
  Speaker 3: be getting the criminal at crim on this.
• 26:07
  Speaker 4: No, that's and that's a huge issue.
• 26:09
  Speaker 3: That's going to stuff the risk of your stuff into
• 26:11
  Speaker 3: the four to one case.
• 26:13
  Speaker 2: It makes a lot of sense. So we've talked about
• 26:15
  Speaker 2: everything but too big to fail, which was a big
• 26:20
  Speaker 2: part of the lead up to the fine financial crisis
• 26:24
  Speaker 2: and how the FED, the fd I see everybody dealt
• 26:28
  Speaker 2: with it afterwards. As an example, JP Morgan Chase now
• 26:33
  Speaker 2: has over four trillion with a T in assets. Can
• 26:37
  Speaker 2: a bank that size be effectively regulated? Is too big
• 26:42
  Speaker 2: to fail the norm.
• 26:43
  Speaker 3: Now, Oh, I think so, it absolutely is. I mean
• 26:46
  Speaker 3: I worked hard in dot Frank to come up with
• 26:49
  Speaker 3: RESID you know, to instill more better authorities, to put
• 26:53
  Speaker 3: these large institutions into a resolution type process where you
• 26:57
  Speaker 3: would impose that accountability. You could fire the top manage
• 27:00
  Speaker 3: with the boards and impose you know, make the shareholders
• 27:03
  Speaker 3: and bond holders, unsecured creditors absorb the losses, all the
• 27:07
  Speaker 3: stuff we didn't do during the crisis.
• 27:09
  Speaker 2: You mean normal bankruptcy world.
• 27:11
  Speaker 4: Yeah, exactly, Yeah, it was.
• 27:12
  Speaker 3: It was similar to the FDIC process, which is basically
• 27:15
  Speaker 3: a bankruptcy process, and in Title I and DoD Frank,
• 27:20
  Speaker 3: DoD Frank provised for both the Title two mechanism, which
• 27:22
  Speaker 3: is FDIC run and a bankruptcy process a Title IE process.
• 27:26
  Speaker 3: So the tools are there, but I don't I don't
• 27:28
  Speaker 3: think there's any I hate to say this, but I
• 27:32
  Speaker 3: don't think there's any chance they to re use it.
• 27:33
  Speaker 4: I really don't. I think they're going to be a
• 27:35
  Speaker 4: lot again. They are, they already do.
• 27:36
  Speaker 3: They'll they'll set up special lending facilities or ratchet interest
• 27:40
  Speaker 3: rates down, you know, they'll you know, private equity. So
• 27:44
  Speaker 3: actually I worry more about private equity than private credit
• 27:46
  Speaker 3: because private equity funds are heavily exposed to software companies,
• 27:50
  Speaker 3: which we don't know how that's going to shake out,
• 27:52
  Speaker 3: but there's quite a bit of concentration there is, so
• 27:55
  Speaker 3: you know. So but if that sector gets into trouble,
• 27:58
  Speaker 3: you know, the fedbile into the banks then lend to
• 28:00
  Speaker 3: the funds. I mean, that's just the way I think
• 28:03
  Speaker 3: it works now. And I think a lot of the
• 28:05
  Speaker 3: push for evermore deregulation lower capital rules is based on
• 28:10
  Speaker 3: the assumption of the big bank lobbyist that they're never
• 28:13
  Speaker 3: going to go down. There's another kerfuffle, another problem, the
• 28:17
  Speaker 3: that's just going to open up this pigott again.
• 28:19
  Speaker 4: So you know, why should they have to operate with all.
• 28:21
  Speaker 3: This capital when they can lower their capital and get
• 28:24
  Speaker 3: much higher returns and equity. And I do think that's
• 28:27
  Speaker 3: the unspoken rationale because it doesn't make any sense otherwise,
• 28:31
  Speaker 3: because we've got a lot of uncertainties in the banking
• 28:34
  Speaker 3: system right now, to be lowering capital makes no sense
• 28:37
  Speaker 3: unless you're just banking on a bailout if things get dicey.
• 28:41
  Speaker 2: Let's talk about a financial crisis that really has gotten
• 28:46
  Speaker 2: a lot of short shrift. Given everything else we just discussed,
• 28:50
  Speaker 2: which is the student debt crisis. We've seen just an
• 28:55
  Speaker 2: explosion of student loans. It was briefly and default. It
• 29:00
  Speaker 2: was briefly put on pause during the pandemic and right afterwards.
• 29:06
  Speaker 2: I just saw a survey earlier today that said eighty
• 29:09
  Speaker 2: three percent of young people say this is a bad economy,
• 29:14
  Speaker 2: when by most historical measures, it's a booming.
• 29:18
  Speaker 4: Yeah, so.
• 29:21
  Speaker 2: How did we get here? Why is it so difficult
• 29:24
  Speaker 2: to fix what is a potential policy solution to the
• 29:29
  Speaker 2: student debt crisis?
• 29:30
  Speaker 3: Yeah? Well, and I think the headline numbers are in
• 29:33
  Speaker 3: this case shaped economy. I think the headline numbers can
• 29:36
  Speaker 3: be misleading because you got to look at how all
• 29:38
  Speaker 3: that wealth is being distributed. But I think for student debt,
• 29:41
  Speaker 3: I will give credit to the Trump administration in Congress,
• 29:45
  Speaker 3: the BBB, the Big Beautiful Bill, I hate that name,
• 29:48
  Speaker 3: but it had some really important reforms in the student
• 29:50
  Speaker 3: loans system. So they've dramatically simplified the repayment options. There
• 29:55
  Speaker 3: is now a standard plan and one income based repayment plan.
• 29:59
  Speaker 3: They we have imposed some accountability on colleges which desperately
• 30:03
  Speaker 3: need to be done, so it's easier to kick colleges
• 30:05
  Speaker 3: now with high default rates out of the out of
• 30:08
  Speaker 3: the loan system. They have gotten rid of negative amorizations.
• 30:13
  Speaker 3: One of the one of the frustrating things about student
• 30:15
  Speaker 3: loan borrowers was that because in previous administrations, the repayment
• 30:21
  Speaker 3: plans that were based on a percentage of your income
• 30:23
  Speaker 3: were set so low that people were even some of
• 30:26
  Speaker 3: them were not we're paying zero because you had to
• 30:29
  Speaker 3: earn a certain amount of money before you know, a
• 30:32
  Speaker 3: loan payment obligation even kicked in. But what happened was
• 30:35
  Speaker 3: then they were, for bookkeeping purposes or whatever, they would
• 30:38
  Speaker 3: negatively amortize the loan, so all your unpaid interests was
• 30:40
  Speaker 3: going into your debt principle, and it was getting bigger
• 30:43
  Speaker 3: and bigger. Yes, yeah, even if you were even if
• 30:46
  Speaker 3: you were making some payment, you're got frustrated because your
• 30:49
  Speaker 3: dad was getting.
• 30:50
  Speaker 4: Bigger and bigger.
• 30:51
  Speaker 3: That's all gone away with now negative amorization has been abolished.
• 30:55
  Speaker 3: Everybody has to pay at least ten dollars a month.
• 30:57
  Speaker 3: I don't think that's unreasonable. If you got a loan
• 30:59
  Speaker 3: from taxpayer, even if you're struggling, you can pay ten
• 31:02
  Speaker 3: dollars a month, and then there's and then so if
• 31:08
  Speaker 3: and if that payment is so low, if your income
• 31:10
  Speaker 3: driven payment is so low that you're not covering your interest,
• 31:15
  Speaker 3: the government will pay fifty dollars a month to lower
• 31:18
  Speaker 3: your principles. So, so long as you're making at least
• 31:20
  Speaker 3: ten dollars a month, your principle will go down each month.
• 31:24
  Speaker 3: And I think this will be its simpler. It will
• 31:26
  Speaker 3: provide better incentives to keep make loan payments, keep up
• 31:29
  Speaker 3: the loan payments, you'll actually be able to see the
• 31:32
  Speaker 3: principle going down. So I give credit in full disclosure
• 31:36
  Speaker 3: my son, who's a fellow at the AEI, was also.
• 31:39
  Speaker 4: Heavily involved in this, so he's a chip off the
• 31:42
  Speaker 4: old block that we think a lot when I got
• 31:43
  Speaker 4: a student.
• 31:45
  Speaker 3: Yeah, simplification, more accountability, and those are the things that
• 31:48
  Speaker 3: this bill accomplished. So I'm hoping that this gets straightened
• 31:52
  Speaker 3: up and people are having to pay now. But the
• 31:54
  Speaker 3: transition to going from not paying for years, you know,
• 31:57
  Speaker 3: and Trump did that too, We had this with three
• 32:00
  Speaker 3: for your long moratorium. People are gonna have to pay now.
• 32:03
  Speaker 3: It's going to hurt.
• 32:04
  Speaker 4: They haven't made room and their budget for these lumpings.
• 32:06
  Speaker 2: Well, ten dollars a month, isn't It's not huge?
• 32:09
  Speaker 1: No, right?
• 32:09
  Speaker 2: And if the government is kicking in fifty yeah, I
• 32:12
  Speaker 2: mean it's not a ton of money, but it's still
• 32:15
  Speaker 2: what six hundred dollars a year? Have we done enough
• 32:19
  Speaker 2: to resolve the student debt crisis or what else can
• 32:23
  Speaker 2: we do to move this alone? Yeah?
• 32:26
  Speaker 3: Well, I do think there needs to be more accountability
• 32:28
  Speaker 3: for colleges to the schools themselves. Yes, the colleges themselves,
• 32:32
  Speaker 3: because this was it was the classic misaligned economic incentive.
• 32:39
  Speaker 3: So with the best of intentions, the Congress said, okay,
• 32:42
  Speaker 3: and for now on, all the student loans is going
• 32:44
  Speaker 3: to be made. You know, pretty much all of them
• 32:45
  Speaker 3: are going to be made by the government because we're
• 32:47
  Speaker 3: worried that banks are not treating borrowers as well as
• 32:51
  Speaker 3: they should. So we're going to be doing this. And
• 32:53
  Speaker 3: then the colleges themselves will basically originate the loans. So
• 32:56
  Speaker 3: you apply to a college and the college financial lid
• 32:59
  Speaker 3: office come up with a financial aid package and they
• 33:01
  Speaker 3: will calculate how much you need to borrow to go
• 33:03
  Speaker 3: to their school. Well, now what are there and selves?
• 33:06
  Speaker 3: You know they're going to get the money you're buying
• 33:08
  Speaker 3: for tuition, room and board. So they're going to get
• 33:11
  Speaker 3: the money. They're not on the hook if the student
• 33:14
  Speaker 3: can't repay the loan. So what do you think is
• 33:16
  Speaker 3: going to happen?
• 33:17
  Speaker 4: And what happened exactly is you could have predicted it. Inflation.
• 33:23
  Speaker 3: You know what tuition you know, many multiples, what for forty,
• 33:28
  Speaker 3: it for whatever. So tuition, as any parent knows, the
• 33:32
  Speaker 3: student knows, is skyrocketed become very unaffordable without borrowing. And
• 33:37
  Speaker 3: but you know there is all this easy money. And
• 33:40
  Speaker 3: the undergraduate is problem with the graduate schools. You know,
• 33:43
  Speaker 3: a lot of young people then sold a bill of
• 33:45
  Speaker 3: goods to get a master's or a PhD because they're
• 33:48
  Speaker 3: unlike undergraduate loans. There is some caps on your federal loans,
• 33:52
  Speaker 3: but no effective caps. That's been changed now too. There
• 33:54
  Speaker 3: are some caps, thank goodness, on your graduate professional schools.
• 33:58
  Speaker 3: You know. So somebody like me, oh, I'm going to
• 33:59
  Speaker 3: go get a PhD in philosophy so I can teach. Right,
• 34:02
  Speaker 3: So I pay three hundred thousand dollars to get my
• 34:05
  Speaker 3: PhD in philosophy and get a job, maybe paying sixty
• 34:07
  Speaker 3: thousand years some small college well, that makes sense, but
• 34:11
  Speaker 3: I think that's happened.
• 34:12
  Speaker 4: To a lot of people.
• 34:13
  Speaker 3: And I don't think, you know, I don't absolve the
• 34:18
  Speaker 3: borrow either, they should have known better. But the schools
• 34:21
  Speaker 3: that this happened, these graduate professional schools, can be real moneymakers.
• 34:25
  Speaker 3: They are the graduate schools and particular real money makers
• 34:27
  Speaker 3: for colleges and degrees are frequently do not enhance the
• 34:30
  Speaker 3: earnings potential of the student.
• 34:32
  Speaker 2: So do you have any hope that students are in
• 34:35
  Speaker 2: a better shape financially going forward? Or is this still
• 34:40
  Speaker 2: very problemic.
• 34:42
  Speaker 4: I think things are getting better and a lot of
• 34:43
  Speaker 4: it is.
• 34:44
  Speaker 3: Something else that Trump, the first Trump administration did, which
• 34:47
  Speaker 3: Biden continues and the current Trump administration continues, is to
• 34:51
  Speaker 3: publish postgraduate outcomes. So you can go on college scoreboard
• 34:55
  Speaker 3: now and put into college and a degree that you
• 34:58
  Speaker 3: may be thinking about it, and you can see what
• 35:00
  Speaker 3: the graduates are actually making, and you can find out
• 35:03
  Speaker 3: the graduation rate, you can find out the retention rate,
• 35:06
  Speaker 3: you can find out all sorts of information that will
• 35:08
  Speaker 3: tell you is that college graduating students and are they
• 35:11
  Speaker 3: getting good jobs after they leave? And so I think
• 35:15
  Speaker 3: more and more parents and student advisors high school. College
• 35:18
  Speaker 3: advisors are using those tools or more calculators too that
• 35:23
  Speaker 3: are based on to help you figure out how much
• 35:25
  Speaker 3: you can borrow based on what your postgraduate income will
• 35:28
  Speaker 3: likely be in that field at that college. So there
• 35:31
  Speaker 3: is more awareness. And then I think a lot of
• 35:34
  Speaker 3: you know, ironically this is coming back to buy a
• 35:36
  Speaker 3: lot of the colleges now because I think it got
• 35:38
  Speaker 3: so expensive, people are starting to take a second look, well,
• 35:42
  Speaker 3: do I really need to go to college? You know,
• 35:43
  Speaker 3: for so long there was all this social pressure to
• 35:46
  Speaker 3: go to college. I was a college president, I've taught
• 35:49
  Speaker 3: at university. I think it's a wonderful experience. But it's
• 35:51
  Speaker 3: not for everybody, and you don't have to do it,
• 35:53
  Speaker 3: and there's no stigma.
• 35:54
  Speaker 4: If you don't do it.
• 35:55
  Speaker 3: You know, you might want to go directly into the workforce,
• 35:57
  Speaker 3: learn on the job. You might want to go to
• 35:59
  Speaker 3: it a trade school. There are you know, community colleges
• 36:03
  Speaker 3: got to be careful there too, but many of them
• 36:04
  Speaker 3: provide really good, you know, education that's less expensive and
• 36:08
  Speaker 3: a shorter duration. So I think students and their parents
• 36:12
  Speaker 3: who are also thinking more broadly that they don't have
• 36:14
  Speaker 3: to go to college. There may be other options available.
• 36:17
  Speaker 2: Last question about college and education. We have thousands and
• 36:23
  Speaker 2: thousands of universities and colleges. Do we have too many?
• 36:29
  Speaker 3: Yeah?
• 36:29
  Speaker 4: Probably?
• 36:29
  Speaker 2: I mean, are we going to lose ten or twenty
• 36:32
  Speaker 2: percent of the college base in the next decade.
• 36:35
  Speaker 4: We probably will.
• 36:36
  Speaker 3: And I think the part of it that's really really
• 36:41
  Speaker 3: struggling are the private liberal arts schools, and they became
• 36:44
  Speaker 3: too pricey, and I think that's sad because I used
• 36:48
  Speaker 3: to be the president of one of those colleges, and
• 36:50
  Speaker 3: I think they do offer very special educational experience. You know,
• 36:55
  Speaker 3: it's more high touch, it's more for some you know,
• 36:59
  Speaker 3: going to college when you're seventeen eighteen years old can
• 37:01
  Speaker 3: be pretty traumatic. You've never been away from home, you know,
• 37:03
  Speaker 3: and so so from students, that small, innimate college environment
• 37:07
  Speaker 3: was a good option. But they're really struggling now, and
• 37:09
  Speaker 3: so I think we'll still have them, but I think
• 37:11
  Speaker 3: there'll be a lot of consolidation there.
• 37:13
  Speaker 4: And then this is the weaker schools.
• 37:14
  Speaker 3: You know, if they're not proving they're worth they're going
• 37:17
  Speaker 3: to close probably.
• 37:18
  Speaker 2: Really really fascinating, So you went from writing a crisis
• 37:22
  Speaker 2: memoir for adults to totally the opposite direction. Basic financial
• 37:28
  Speaker 2: literacy for children. What made you decide to aim in
• 37:34
  Speaker 2: between as young adults and teenagers.
• 37:37
  Speaker 3: Well, actually it was my editor who you know, everybody
• 37:41
  Speaker 3: when I first started running the picture books, everybody said, oh,
• 37:44
  Speaker 3: this is too you know, elementary school children are too
• 37:47
  Speaker 3: young for this, and they're not. Absolutely the books have
• 37:49
  Speaker 3: sold well and they totally get it. But my publisher
• 37:52
  Speaker 3: everybody said you need to write a book for teenagers.
• 37:54
  Speaker 3: And my publisher thought that was a good idea as well.
• 37:58
  Speaker 3: And so I thought about it, and I thought, yeah,
• 38:00
  Speaker 3: because you know, there's more and more financial education being
• 38:02
  Speaker 3: required in high schools, and I want I'm concerned that
• 38:06
  Speaker 3: as schools start offering these courses that there's you know,
• 38:09
  Speaker 3: good quality, accurate content.
• 38:11
  Speaker 4: There's a lot of people out there providing financially.
• 38:14
  Speaker 3: You know, a lot of people on social media, a
• 38:16
  Speaker 3: lot of curricula, you know, sponsored by industry groups. And
• 38:19
  Speaker 3: so I thought, well, you know, I'm gonna I'm gonna
• 38:21
  Speaker 3: throw my hat in here to try to provide some
• 38:23
  Speaker 3: basic financial advice to teenagers as they're entering adulthood. So
• 38:27
  Speaker 3: that's that was the I will have to say my
• 38:30
  Speaker 3: publishers initiative, but I think it was a good idea,
• 38:33
  Speaker 3: and I'm pleased with the way they book came out.
• 38:35
  Speaker 2: So so I'm glad you brought up social media gen
• 38:39
  Speaker 2: z and what's the new generation after them? Generation Alphas,
• 38:45
  Speaker 2: Generation Jones. There is another one. I can't keep up
• 38:47
  Speaker 2: with it, but they all seem to get a lot
• 38:50
  Speaker 2: of financial advice from Instagram and YouTube and TikTok rather
• 38:55
  Speaker 2: than let's say, more professional experienced folks. Right, how did
• 39:03
  Speaker 2: that impact how you thought about reaching this age group
• 39:08
  Speaker 2: and how did it shape the tone of your book?
• 39:11
  Speaker 3: Yeah, so it was I did want to get some
• 39:14
  Speaker 3: accurate information out there because there's a big theme of
• 39:19
  Speaker 3: this book is you know, I say in the introduction,
• 39:22
  Speaker 3: building wealth is not hard. You need to establish a
• 39:25
  Speaker 3: regular saving investing habit.
• 39:26
  Speaker 4: You need to avoid debt. That's really what you need
• 39:28
  Speaker 4: to do, and.
• 39:31
  Speaker 3: There's so much advice it's just the opposite, and especially
• 39:34
  Speaker 3: on social media pushes debt. You know, well, why bother
• 39:37
  Speaker 3: with a nice safe index fund, you can go borrow
• 39:39
  Speaker 3: some money and buy a rental property and make wait,
• 39:41
  Speaker 3: you know, way more readers at that. No, no, no, no, so,
• 39:45
  Speaker 3: but there's crazy stuff like that, or are borrowing to
• 39:48
  Speaker 3: invest in crypto or mimstocks or you know, gambling. You know,
• 39:51
  Speaker 3: and their kids are getting confused about the difference between
• 39:54
  Speaker 3: gambling and investing.
• 39:55
  Speaker 4: They're very different things.
• 39:57
  Speaker 3: So I wanted to provide some corrective to that, and
• 40:00
  Speaker 3: then just basically also addressed and flag common financial behaviors
• 40:06
  Speaker 3: that cost people money, like carrying a credit card balance
• 40:09
  Speaker 3: that I'm very open in my first chapter about my
• 40:12
  Speaker 3: I totally got in trouble with credit card debt.
• 40:15
  Speaker 4: I was just just graduating from law school.
• 40:18
  Speaker 3: I was a civil rights layer that I didn't know
• 40:19
  Speaker 3: anything about finance, didn't care, thought it was beneath me.
• 40:22
  Speaker 4: I needed to buy some clothes for work.
• 40:25
  Speaker 3: I needed to get an apartment and furnish my apartment
• 40:28
  Speaker 3: as I was getting all these solicitations from various credit
• 40:31
  Speaker 3: card issuers who had found out that I was now
• 40:33
  Speaker 3: working for a living somehow. So yeah, I got in
• 40:36
  Speaker 3: trouble with credit card debt and I made that minimum payment.
• 40:39
  Speaker 3: I thought, well, this is great, I can borrow this
• 40:41
  Speaker 3: money and it's this tiny little payment every month, and
• 40:43
  Speaker 3: I ended up I think it was about six thousand
• 40:45
  Speaker 3: dollars in interest, when all of a sudden.
• 40:47
  Speaker 2: That's a lot.
• 40:48
  Speaker 3: Well, yeah, which if it invests in the S and
• 40:50
  Speaker 3: P five hundred to be worth around two hundred and
• 40:52
  Speaker 3: forty two hundred fifty thousand dollars.
• 40:53
  Speaker 4: Now, so there you go.
• 40:55
  Speaker 3: So but I think, you know, just avoiding things like that,
• 40:58
  Speaker 3: the average family pays sixteen hundred year in credit card interest.
• 41:01
  Speaker 3: That that was just put into an S and P
• 41:02
  Speaker 3: five ndored Indeg's fund. Boy, you know over thirty or
• 41:05
  Speaker 3: forty years. That's you're talking real many. So that was
• 41:09
  Speaker 3: I wanted to emphasize. That is the simplicity of how
• 41:12
  Speaker 3: to build well. Compounding opportunity costs are big themes. Those
• 41:15
  Speaker 3: are I think those are so fundamental to understanding how
• 41:17
  Speaker 3: to manage money. And I basically I just want to
• 41:22
  Speaker 3: help kids avoid mistakes. I don't want them to have
• 41:24
  Speaker 3: financial problems and they grow up. I want them to
• 41:25
  Speaker 3: get off on the right foot, which I did not
• 41:28
  Speaker 3: and a lot of people don't.
• 41:30
  Speaker 2: Coming up, we continue our conversation with Sheila Bair discussing
• 41:34
  Speaker 2: her latest book, How Not to Lose a Million Dollars,
• 41:38
  Speaker 2: A young Person's Guide to Avoiding the Tricks and Traps
• 41:42
  Speaker 2: of our Financial System. I'm Barry Ritholts. You're listening to
• 41:46
  Speaker 2: Masters of Business on Bloomberg Radio. I'm Barry Rudults. You're
• 42:09
  Speaker 2: listening to Masters in Business on Bloomberg Radio. My extra
• 42:12
  Speaker 2: special guest this week is Sheila Bear. She is the
• 42:15
  Speaker 2: former chair of the FDI. See her latest book is out,
• 42:20
  Speaker 2: How Not to Lose a Million Dollars, a young Person's
• 42:23
  Speaker 2: Guide to Avoiding the tricks and traps of our Financial System.
• 42:27
  Speaker 2: So you mentioned a couple of really interesting things that
• 42:33
  Speaker 2: taken together. Howard Lindzen runs a venture fund and he
• 42:38
  Speaker 2: calls it the degenerate economy. Gambling speculation, end of day
• 42:43
  Speaker 2: options means stocks, crypto coins, and all of these have
• 42:48
  Speaker 2: been through apps and other methods. Because of the phones
• 42:53
  Speaker 2: have been adopted by teenagers and mass What do you
• 42:57
  Speaker 2: make of the djen economy and what is mean to
• 43:00
  Speaker 2: the future health of these young outs.
• 43:04
  Speaker 3: Well, it's very dangerous. It's particularly problem with young boys.
• 43:08
  Speaker 3: And oh, by the way, they shouldn't be doing this
• 43:09
  Speaker 3: if they're under eighteen. But a lot of mars, we
• 43:12
  Speaker 3: know they're targeted and they don't understand the worth of money.
• 43:17
  Speaker 3: The apps just make it so easy, and you know,
• 43:19
  Speaker 3: they don't make the connection between the financial losses they're
• 43:22
  Speaker 3: experiencing it's a game for them, and the industry advertises
• 43:26
  Speaker 3: they do gamify it. So and even you know, stock trading,
• 43:29
  Speaker 3: some of these online brokers are big ones. They gamify
• 43:32
  Speaker 3: it and it's not a game. It's serious.
• 43:35
  Speaker 4: It's money serious.
• 43:36
  Speaker 3: And I think one of the things from early on,
• 43:40
  Speaker 3: if parents give their children allowances but tie that to work,
• 43:44
  Speaker 3: I think it's really important for kids to understand early
• 43:47
  Speaker 3: on the connection between work and money. It's not just
• 43:51
  Speaker 3: free easy, you know, because too many kids don't make
• 43:53
  Speaker 3: that connection. And their parents are genius with the credit
• 43:55
  Speaker 3: cards or whatever, and they use their credit card numbers
• 43:59
  Speaker 3: to do all the gaming apps and and I just
• 44:02
  Speaker 3: don't think the reality of what these kids are doing
• 44:04
  Speaker 3: actually sing sin until they're really in over their head. Uh.
• 44:09
  Speaker 4: And I think it's purposeful.
• 44:10
  Speaker 3: I think you know, kids don't understand the difference between
• 44:12
  Speaker 3: gambling and investing. Well, there's a big difference. And you're investing,
• 44:15
  Speaker 3: you're supporting capital formation and the real economy, helping businesses
• 44:20
  Speaker 3: who make real goods and real services raise money and operate,
• 44:23
  Speaker 3: or supporting the secondary market that enables all of that.
• 44:26
  Speaker 3: And what are you supporting with gambling or crypto I
• 44:30
  Speaker 3: mean some crypto to the extent it represents the technology.
• 44:33
  Speaker 4: I think crypto technology is very valuable.
• 44:36
  Speaker 3: But these these these uh you know, these different currencies
• 44:40
  Speaker 3: and tokens they have even okay coins, because that's there's
• 44:44
  Speaker 3: nothing behind them. I'm amazed that Bitcoin is held up.
• 44:47
  Speaker 3: I think it's just you know, it's kind of the
• 44:49
  Speaker 3: grandiaddy of them all. So if you're going to invest,
• 44:52
  Speaker 3: most people do a bitcoins. They've they've heard about it,
• 44:54
  Speaker 3: and the rest of it is crap. Bitcoin maybe too,
• 44:56
  Speaker 3: but it has lasted. I will give it that. But yeah,
• 45:01
  Speaker 3: I mean, what are they supporting and they're losing money?
• 45:03
  Speaker 3: You know, there's a there was a study done of
• 45:06
  Speaker 3: gambling apps that showed that the people that use gambling
• 45:09
  Speaker 3: apps only five percent take out more money than they
• 45:12
  Speaker 3: put in. And it's addictive in these these gambling platforms
• 45:16
  Speaker 3: if they even if you start winning.
• 45:18
  Speaker 4: Well, well oh you're doing great, here's the little money.
• 45:20
  Speaker 4: Why don't you keep going?
• 45:21
  Speaker 3: You know, they want you to keep going until you
• 45:23
  Speaker 3: start losing money, because the arts are you will always
• 45:25
  Speaker 3: lose money. And Bloomberg came out with some great research
• 45:28
  Speaker 3: recently on prediction markets. Seventy five percent of the profits.
• 45:31
  Speaker 3: I believe we're going to one percent.
• 45:32
  Speaker 2: Of the less than It's crazy, it's so so.
• 45:36
  Speaker 3: I think the whole game is with even active trading
• 45:39
  Speaker 3: of stocks, very few people can do that and make
• 45:41
  Speaker 3: make money. Yeah, and you're going to be going against
• 45:44
  Speaker 3: people who do it for a living, have a lot
• 45:46
  Speaker 3: more access to data and expertise and you know, algorithms
• 45:50
  Speaker 3: and all the things.
• 45:51
  Speaker 4: All the tools you will not have when you try
• 45:53
  Speaker 4: to actively trade stocks.
• 45:54
  Speaker 2: So this is kind of fascinating. I bet most people
• 45:57
  Speaker 2: don't know how much of a passion project this has
• 46:01
  Speaker 2: been for you so long? Did I read this correctly?
• 46:04
  Speaker 2: You established the Financial Education Division within the Treasury Department.
• 46:08
  Speaker 3: I did the early two thousand and one. Yeah, yeah, yeah, yeah,
• 46:13
  Speaker 3: I did established the Office financial Education and it's grown now.
• 46:16
  Speaker 3: It's in the Treasure's office now and I think they
• 46:19
  Speaker 3: hold a group it's called FLECK, and it's basically a
• 46:22
  Speaker 3: council of all the different financial education components of the
• 46:26
  Speaker 3: various different regulatory agencies.
• 46:29
  Speaker 4: And it's a good group.
• 46:30
  Speaker 3: Yeah.
• 46:30
  Speaker 4: I did started.
• 46:31
  Speaker 3: That's one of the things that got me interested in
• 46:34
  Speaker 3: And actually my first book was pre Crisis, Rock, Rock
• 46:37
  Speaker 3: and the Saving Shock. It actually came out in two
• 46:39
  Speaker 3: thousand and six because based on that experience, it inspired
• 46:42
  Speaker 3: me to start writing kids books because I became aware
• 46:45
  Speaker 3: that there really weren't any resources for elementaryes.
• 46:47
  Speaker 2: So how not to lose a million dollars covers basics
• 46:51
  Speaker 2: like savings account student loans, debt avoidance, and retirement planning.
• 46:55
  Speaker 2: It it kind of raises a question, why aren't we
• 46:59
  Speaker 2: teaching are kids financial fundamentals at the grade school level?
• 47:04
  Speaker 2: Why is this not just part of civics?
• 47:07
  Speaker 4: And yeah, yeah, well it can it should be.
• 47:10
  Speaker 3: I mean, I think there's a big movement now to
• 47:12
  Speaker 3: have a standalone high school personal finance class, but I
• 47:15
  Speaker 3: think is good.
• 47:16
  Speaker 4: But it really it needs to be more than that.
• 47:18
  Speaker 4: It needs to be every year. It needs to be introduced.
• 47:21
  Speaker 3: And you know, math curriculus an obvious place because I
• 47:25
  Speaker 3: think it makes me It will make math more interesting
• 47:27
  Speaker 3: to kids if you do use money examples, right, so
• 47:30
  Speaker 3: you want to learn about ratios and percentages, let's talk
• 47:33
  Speaker 3: about compounding and how much your money grows a four
• 47:35
  Speaker 3: percent inches a year or whatever.
• 47:37
  Speaker 4: So it does need to be introduced every year.
• 47:40
  Speaker 3: And again that's one of the reasons my books are
• 47:43
  Speaker 3: and they're supplements to curricula. I don't write educational curricula,
• 47:46
  Speaker 3: but there's certainly could be assigned readings to go with
• 47:49
  Speaker 3: those classroom efforts. And I think that's important. And the
• 47:52
  Speaker 3: kids get it, they're interested in that, they absolutely get it.
• 47:54
  Speaker 4: They're not young.
• 47:55
  Speaker 2: One of my favorite parts of the BBB was the
• 48:01
  Speaker 2: newborn accountsup accounts, Yeah, baby bonds, which Corey Booker started
• 48:07
  Speaker 2: talking about drawing a blank on the name of the
• 48:09
  Speaker 2: venture capitalist who suggested something like this years ago. But
• 48:15
  Speaker 2: it's only one thousand dollars to every newborn and an
• 48:17
  Speaker 2: investment account. Is this a good start? Is this going
• 48:21
  Speaker 2: to help kids learn about money?
• 48:24
  Speaker 4: Yeah, it absolutely is.
• 48:26
  Speaker 3: It's I think, you know, it's only for there's a
• 48:28
  Speaker 3: three year period where ChIL dren are born. Within a
• 48:31
  Speaker 3: three year period, we'll get the thousand dollars, but it
• 48:34
  Speaker 3: can be matched by employers, a lot of employers who.
• 48:36
  Speaker 2: We're hearing already, Dell and JP Morgan and a bunch
• 48:39
  Speaker 2: of big employers, and then they'll do one thousand dollars match.
• 48:43
  Speaker 2: And the assumption is this will be renewed after three years.
• 48:46
  Speaker 4: I hope so, I hope it is.
• 48:48
  Speaker 3: You know, I'm kind of a fiscal conservative when it
• 48:50
  Speaker 3: comes to our deficits, but I think this is a
• 48:52
  Speaker 3: good way to spend the money because it goes directly.
• 48:55
  Speaker 3: You know where it's going, you know it's helping, and
• 48:57
  Speaker 3: it is it's a wonderful way to learn about the
• 49:00
  Speaker 3: pair of compounding. Congress mandated the money has to be
• 49:04
  Speaker 3: invested in broad based in next funds, which is good.
• 49:06
  Speaker 4: You know, or we'll be seeing crypto ammsocks or whatever.
• 49:09
  Speaker 2: So that's good.
• 49:10
  Speaker 4: But you can see over time how it will grow.
• 49:12
  Speaker 4: And I hope, you know, when they're eighteen.
• 49:14
  Speaker 3: They can take it out, but I hope they leave
• 49:16
  Speaker 3: it there and it just converts in them too a
• 49:18
  Speaker 3: regular area at that point. But it's great. It's a
• 49:21
  Speaker 3: wonderful financial educational tool as well as some additional financial
• 49:24
  Speaker 3: security for low income families and their children.
• 49:27
  Speaker 2: So let's talk about another aspect of money that's so
• 49:31
  Speaker 2: different today than it was when we were kids. Money
• 49:36
  Speaker 2: is effectively invisible credit cards, apps, by now pay later subscriptions.
• 49:42
  Speaker 2: There have been studies that have shown that if you
• 49:45
  Speaker 2: give people a pile of cash to spend or a
• 49:49
  Speaker 2: credit card loaded with the same amount, they spend more
• 49:52
  Speaker 2: with a credit card than with actually paying you know, greenbacks,
• 49:56
  Speaker 2: which says a lot about the psychology of you know,
• 50:00
  Speaker 2: modern spending it. So how do you how do we
• 50:05
  Speaker 2: recognize that, and how do we teach kids the value
• 50:09
  Speaker 2: of a dollar. It's it's it's really a challenge when
• 50:13
  Speaker 2: you just tap the card and it's.
• 50:15
  Speaker 4: It's not real money, it's funny money.
• 50:17
  Speaker 3: Yeah. Well, Also, I think it's important to attach and
• 50:22
  Speaker 3: allowance to jobs. I think helping kids make the connection
• 50:25
  Speaker 3: between having to work and earning money is really really important.
• 50:28
  Speaker 3: Because the parents are too generous. They let them use
• 50:30
  Speaker 3: their credit cards, so that's they start getting that easy usage.
• 50:33
  Speaker 3: And if they're using their parents credit card, they're not
• 50:35
  Speaker 3: having to it's not causing them any pain to spend money.
• 50:38
  Speaker 4: So I think the parents can.
• 50:39
  Speaker 3: Control a lot of this, but the kids need to
• 50:41
  Speaker 3: understand a connection between earning money and spending money. And
• 50:45
  Speaker 3: if they make that connection, they will be more judicious
• 50:49
  Speaker 3: and careful with their money because they realize how dear
• 50:51
  Speaker 3: it is because it took that ten dollars took an
• 50:54
  Speaker 3: hour of their life breaking leaves or whatever, you know.
• 50:56
  Speaker 3: So I think it's it's important to make that connection
• 51:01
  Speaker 3: and financial education understanding. You know, I have a chapter
• 51:05
  Speaker 3: on I spent a lot of time on credit cards
• 51:07
  Speaker 3: because I think it is an early trap for a
• 51:09
  Speaker 3: lot of families and a lot of kids, because it's
• 51:11
  Speaker 3: just so easy. And BNPL is the same thing bm PL.
• 51:14
  Speaker 3: I don't like it, fine now pay latter. The whole
• 51:18
  Speaker 3: idea is to facilitate impulse buying. Let's face it, you
• 51:21
  Speaker 3: know you're using BNPL when it's really beyond your budget
• 51:24
  Speaker 3: to buy. You weren't thinking about buy it. You don't
• 51:25
  Speaker 3: really have the money now to buy it, but you
• 51:27
  Speaker 3: really want it, And that's what BMPL does. And there
• 51:30
  Speaker 3: you know BNPL users a very high percentage of them.
• 51:34
  Speaker 3: You know, first of all, it's not interest rate because
• 51:36
  Speaker 3: it ends up going on your credit card because you
• 51:38
  Speaker 3: can't pay it off, so you're just carrying the balance
• 51:39
  Speaker 3: in your credit card, or it's coming out of your
• 51:41
  Speaker 3: checking account and you overdraft and you get an overdraft fee.
• 51:44
  Speaker 3: So it's not really they say it's interest right, for
• 51:48
  Speaker 3: a lot of users, it's not really.
• 51:49
  Speaker 4: I guess something.
• 51:50
  Speaker 2: The funny well, when we were kids, it was called layaway,
• 51:53
  Speaker 2: that's right, and you didn't get the good or I
• 51:55
  Speaker 2: don't until you paid it off, and you very much
• 51:59
  Speaker 2: on understood. I got to shovel more more sidewalks or
• 52:04
  Speaker 2: more more lawns if I want that bike or whatever
• 52:07
  Speaker 2: it happened to be exactly it was. This is the
• 52:09
  Speaker 2: opposite lesson it is.
• 52:11
  Speaker 3: It totally is, and I you know, so I think
• 52:14
  Speaker 3: it feeds a lot of overspending. I think impulse. You know,
• 52:18
  Speaker 3: kids are making decisions and decisions more impulsively. I mean,
• 52:22
  Speaker 3: they don't have the same impulse control adults have. And
• 52:25
  Speaker 3: I think, you know, people know that, retailers know that,
• 52:28
  Speaker 3: commercial entities know that, so they try to encourage them
• 52:32
  Speaker 3: to make snap decisions to buy something. And it's just
• 52:36
  Speaker 3: it's so important. I have a rule, wait a week.
• 52:38
  Speaker 3: In my chapter I'm budgeting about buying things.
• 52:40
  Speaker 4: Just wait a week.
• 52:41
  Speaker 3: You know, there's some things you have to buy your knees,
• 52:43
  Speaker 3: you're in or whatever. But if it's your once, first
• 52:47
  Speaker 3: of all, don't buy any want that's not within your budget.
• 52:49
  Speaker 3: And even if you do, wait a week, you know,
• 52:52
  Speaker 3: just don't buy it on impulse.
• 52:53
  Speaker 4: Wait a week.
• 52:53
  Speaker 3: Come back to it you really want to or not.
• 52:56
  Speaker 3: When I go into Greade schools and do readings, I
• 52:59
  Speaker 3: my common quoest question is raise your hand if you've
• 53:01
  Speaker 3: ever bought something you wish she hadn't bought every hing,
• 53:04
  Speaker 3: every handles up, every hand goes up. It's amazing. Yeah, alrighty,
• 53:07
  Speaker 3: you know it's seven years older. They've got buyer's remorse.
• 53:10
  Speaker 3: It's usually junkie toys.
• 53:11
  Speaker 2: What I speaking of junkie toys. When there's a car
• 53:15
  Speaker 2: I fixate on. My little hack is I'll buy one
• 53:19
  Speaker 2: of the die cast models and put them on my shelf.
• 53:22
  Speaker 2: So for sixty bucks, I like, all right, I feel like,
• 53:26
  Speaker 2: all right, I have a little experience of this car.
• 53:30
  Speaker 2: And after a few weeks it's like, all right, I
• 53:32
  Speaker 2: have the toy. I'm good. I don't need to spend
• 53:34
  Speaker 2: one hundred thousand dollars on another stupid thing for the garage.
• 53:38
  Speaker 3: Well, that's right, there's there's a chapter on buying a
• 53:41
  Speaker 3: car too. I just bought a buy I just bought
• 53:42
  Speaker 3: a car, actually a used car. I didn't want to
• 53:44
  Speaker 3: maybe phoot so fast it's going to be a second car.
• 53:47
  Speaker 3: But this I couldn't believe it. I mean, I knew this.
• 53:50
  Speaker 4: I've had experience in the past. Had been a while
• 53:51
  Speaker 4: since I bought a car.
• 53:52
  Speaker 3: He was trying to upsell me with everything, and now
• 53:54
  Speaker 3: they're trying to sell me give me all these service contracts.
• 53:57
  Speaker 3: It would increase the price of the car by about
• 53:58
  Speaker 3: twenty five percent. It's just it's just unbelievable that the
• 54:03
  Speaker 3: kids want to buy cars, they want their own cars.
• 54:05
  Speaker 2: I don't think I don't think that's true any anymore.
• 54:08
  Speaker 2: A lot of kids aren't getting licenses. They can uber
• 54:12
  Speaker 2: wherever on month, credical. That's true, right, And it's there
• 54:16
  Speaker 2: seems although there is a renaissance of kids buying let's
• 54:24
  Speaker 2: call them twenty year old analogue as opposed to digital
• 54:28
  Speaker 2: cars with stick with stick shifts, Like there's a whole
• 54:31
  Speaker 2: generation of new car enthusias coming up that I think
• 54:37
  Speaker 2: a stick shift today is an anti theft devicecause you know,
• 54:41
  Speaker 2: I bring it to a vale, they look at you.
• 54:43
  Speaker 2: You go to a restaurant, they're like, would you mind
• 54:45
  Speaker 2: pulling it in over there? Yeah, okay, that's but it's
• 54:48
  Speaker 2: really true.
• 54:49
  Speaker 3: It's good because you know, cars are expensive. The average
• 54:52
  Speaker 3: menthal of payments well like seven hundred a month. You know,
• 54:54
  Speaker 3: for a young boy car it's one.
• 54:56
  Speaker 2: Thousand dollars a month. Is not uncommon on a lease. Yeah,
• 55:00
  Speaker 2: well kids don't understand why Hey no down payment? Well yeah,
• 55:05
  Speaker 2: but no no residual at the endst it's just the cast.
• 55:10
  Speaker 4: It's exactly right.
• 55:11
  Speaker 3: Yeah. So yeah, it's really expensive in person to buy
• 55:14
  Speaker 3: a car if they can avoid that.
• 55:15
  Speaker 2: So, so I only have you for a few more minutes,
• 55:18
  Speaker 2: So let me jump to my favorite questions I ask
• 55:20
  Speaker 2: all my guests starting with tell us about your mentors
• 55:24
  Speaker 2: who helped shape this career you've enjoyed through academia, finance,
• 55:30
  Speaker 2: and government.
• 55:31
  Speaker 1: Yeah.
• 55:32
  Speaker 4: Well, Bob Dole obviously stands out.
• 55:34
  Speaker 3: He was really he really taught me what public service meant,
• 55:38
  Speaker 3: and he was always focused on the public interest.
• 55:40
  Speaker 4: He was a populist in the good sense.
• 55:42
  Speaker 2: You know.
• 55:42
  Speaker 3: He was from a small rural town in Kansas. He
• 55:45
  Speaker 3: was horribly injured during World War Two, laid up for years.
• 55:48
  Speaker 3: The townspeople rallied, supported him, got him back to health,
• 55:52
  Speaker 3: helped him become who he became. So he was really
• 55:55
  Speaker 3: he really focused on the public and I learned that
• 55:58
  Speaker 3: and I think in my career at the FD, I
• 56:01
  Speaker 3: see we kept that focus on the public, the people
• 56:04
  Speaker 3: who are using the banks, not the banks. Who are
• 56:06
  Speaker 3: you helping?
• 56:06
  Speaker 4: Are you helping the people use banks.
• 56:08
  Speaker 3: So I'm proud of that, and I learned a lot
• 56:11
  Speaker 3: from him.
• 56:12
  Speaker 4: You know, later I got to know Paul Volker. I
• 56:14
  Speaker 4: learned a lot from him. Yeah, but that's right.
• 56:19
  Speaker 3: Elizabeth Dole was someone I never really had a chance
• 56:21
  Speaker 3: to work with her, but I knew her through the
• 56:23
  Speaker 3: Senator Bob and we have maintained contact with her over years.
• 56:27
  Speaker 3: Another woman who inspired me, not a mentor, but Santo
• 56:30
  Speaker 3: die O'Connor, the first woman.
• 56:32
  Speaker 4: Supreme Court justice.
• 56:34
  Speaker 3: When I was on the Judiciary Committee, I got to
• 56:35
  Speaker 3: handle her confirmation and she was just a lovely person.
• 56:39
  Speaker 3: So a lot of people I've met over the years,
• 56:43
  Speaker 3: but Dole really stands out is my prime supporter and
• 56:47
  Speaker 3: mentor in my career.
• 56:49
  Speaker 2: Let's talk about books. What are you reading now? What
• 56:52
  Speaker 2: are some of your favorites?
• 56:53
  Speaker 4: Yeah, so I love murder mysteries.
• 56:55
  Speaker 3: I'm reading Anthony Krowitz's new book, A Deadly Episode.
• 57:00
  Speaker 4: You know Anthony horowoodz.
• 57:01
  Speaker 2: He's a British mister. Yeah. My wife is a fan
• 57:04
  Speaker 2: of those socials.
• 57:05
  Speaker 4: Yeah, he's quite prolific.
• 57:07
  Speaker 1: Yeah he was.
• 57:08
  Speaker 3: You know, he was actually chosen by the Ian Fleming
• 57:12
  Speaker 3: Estate to continue writing around but he's written to they're
• 57:14
  Speaker 3: really good.
• 57:15
  Speaker 2: Yeah, I actually like that about the now Amazon.
• 57:18
  Speaker 4: That's right, that's right.
• 57:20
  Speaker 2: So to that.
• 57:21
  Speaker 4: And then I'm reading John Hersey's Hiroshima.
• 57:24
  Speaker 2: Uh.
• 57:25
  Speaker 3: My family and I are going into Japan at the
• 57:27
  Speaker 3: end of the month, and I wanted to take them.
• 57:28
  Speaker 4: Yeah, yeah, and I the kids kind of balk.
• 57:31
  Speaker 3: I said, we're going to go to Hiroshima because I
• 57:32
  Speaker 3: think that's an important part of history.
• 57:34
  Speaker 4: You need to we need to see this and understand it.
• 57:36
  Speaker 3: And I read Hiroshima when I was young, you know,
• 57:40
  Speaker 3: probably you know, high school, I think when it came
• 57:42
  Speaker 3: out and uh, and it had such an impact on
• 57:45
  Speaker 3: me and somebody again and it still has an impact
• 57:47
  Speaker 3: on me, and especially everything going on in the world
• 57:49
  Speaker 3: now on other countries, even Japan talking about wanting to
• 57:52
  Speaker 3: have a nuclear capability, because things just don't seem very
• 57:56
  Speaker 3: unsettled on that square right now.
• 57:58
  Speaker 4: So that's those are my two. I usually have to
• 58:00
  Speaker 4: books going one nonfiction on one fiction.
• 58:02
  Speaker 2: So I'm going to recommend a book to you. It's
• 58:04
  Speaker 2: really kind of fascinating. An American who's a professor somewhere
• 58:09
  Speaker 2: in the UK Brian Klass with two a's and The
• 58:13
  Speaker 2: book is called Fluke, and the book starts with the
• 58:18
  Speaker 2: story of a young couple honeymooning in Kyoto. Later in life,
• 58:26
  Speaker 2: the husband becomes the head of the war department, and
• 58:30
  Speaker 2: when we have to figure out where to drop the
• 58:34
  Speaker 2: A bomb, he absolutely vetos Kyoto. And Hiroshima is what
• 58:40
  Speaker 2: gets because this couple went there for honeymoon, that country,
• 58:47
  Speaker 2: that city is spared. And then it wasn't supposed to
• 58:51
  Speaker 2: be Nagasaki. It was an I don't remember what city
• 58:54
  Speaker 2: it was, but it was cloud cover and they couldn't
• 58:57
  Speaker 2: Back then you were doing visual reads, you couldn't see,
• 59:01
  Speaker 2: so they went to the secondary target. And so think
• 59:04
  Speaker 2: about talk about flukes, how randoms are. So Hiroshima gets
• 59:09
  Speaker 2: it because somebody went there on a honeymoon. Just crazy.
• 59:14
  Speaker 3: Well, and now you look back and why did any
• 59:15
  Speaker 3: city get it? Couldn't you drop it over the ocean
• 59:17
  Speaker 3: or somebody You want to make a point, I mean, really,
• 59:19
  Speaker 3: I don't. It's hard for me to understand, now, I know,
• 59:22
  Speaker 3: and that's just you know, we're not there. At the time.
• 59:25
  Speaker 2: There was a lot of the psychology.
• 59:28
  Speaker 3: Yeah, and the Japanese had been everybody been horrible, but
• 59:31
  Speaker 3: the Japanese had done some brutal things.
• 59:33
  Speaker 2: Well for centuries.
• 59:34
  Speaker 4: Yeah, well, okay, speak they are not.
• 59:39
  Speaker 2: I'm a big fan of Japan, but they were quiet.
• 59:44
  Speaker 4: They were for a long time.
• 59:46
  Speaker 3: Yeah, so there was a lot of So I understand that,
• 59:49
  Speaker 3: and I think, well, maybe the horror of it when
• 59:52
  Speaker 3: you know and they and I think that's why John
• 59:54
  Speaker 3: Hersey Spook was so important, because it really underscored the
• 59:57
  Speaker 3: horror of it. But maybe because people then under stood
• 1:00:00
  Speaker 3: how horrible it was and made it even less likely
• 1:00:02
  Speaker 3: anybody would ever use it again. I'm going to rationalize
• 1:00:04
  Speaker 3: it that way, but it is hard. You know, you
• 1:00:06
  Speaker 3: look back and oh, my gosh, did we really.
• 1:00:08
  Speaker 4: Have to do that to people?
• 1:00:09
  Speaker 3: Because it was it was not just the people who
• 1:00:12
  Speaker 3: probably were killed immediately were the lucky ones, the radiation
• 1:00:15
  Speaker 3: sickness after the horrors.
• 1:00:16
  Speaker 2: I think I'm that same book in high school. Everybody
• 1:00:21
  Speaker 2: read it, cloud through.
• 1:00:22
  Speaker 4: It, and it was just it was yeah, no, it
• 1:00:24
  Speaker 4: we've written it was. Yeah.
• 1:00:26
  Speaker 2: Let's shift to are you streaming anything these days? You
• 1:00:29
  Speaker 2: listen to any podcast? We're watching anything? Yeah?
• 1:00:33
  Speaker 4: I don't stream her podcasts that much. I get podcaster.
• 1:00:36
  Speaker 4: I'd like to read transcripts or podcasts because I could read.
• 1:00:40
  Speaker 2: How about Netflix or HBO?
• 1:00:42
  Speaker 4: But you know again, I'm I'm you know, one note
• 1:00:45
  Speaker 4: on this murder BBC, I'm there.
• 1:00:47
  Speaker 3: You know.
• 1:00:48
  Speaker 4: I love the Mister Box.
• 1:00:50
  Speaker 3: Yeah, the all the all the Agathist Christies I've seen.
• 1:00:53
  Speaker 3: The David Toochet pros are by far the best. Foyle's
• 1:00:57
  Speaker 3: War was great. Also Anthony horror Wood's he did the.
• 1:01:01
  Speaker 2: Uh into a series or a movie?
• 1:01:04
  Speaker 3: Uh?
• 1:01:05
  Speaker 4: Which one fors were? Actually?
• 1:01:07
  Speaker 3: That was?
• 1:01:08
  Speaker 4: That was a TV series, It wasn't a book.
• 1:01:10
  Speaker 3: That was one of the few things. But it's it's
• 1:01:11
  Speaker 3: it's it's really good. I like the Morse you know,
• 1:01:15
  Speaker 3: have you ever watched Morse Inspector Morse?
• 1:01:18
  Speaker 4: No, that's sound. Yeah, yeah, it's old.
• 1:01:22
  Speaker 3: But there were three Morse and then Endeavor, which was
• 1:01:26
  Speaker 3: about Morse, Mary's younger, and then Lewis who was Morse's sidekick.
• 1:01:29
  Speaker 3: So BBC did a really good job there. So yeah,
• 1:01:31
  Speaker 3: these are old stuff. I recycle them.
• 1:01:33
  Speaker 4: But yeah, I love I love BBC and I love British.
• 1:01:36
  Speaker 4: I love reer Box. Excuse me, I love them.
• 1:01:38
  Speaker 2: Our final two questions, what sort of advice would you
• 1:01:42
  Speaker 2: give to a recent college grad interested in a career
• 1:01:45
  Speaker 2: in banking or finance or government service.
• 1:01:51
  Speaker 3: Yeah, well, I would say be open minded because I
• 1:01:53
  Speaker 3: think the job market is you know, we don't know
• 1:01:56
  Speaker 3: AI is kind of having a negative impact on entry
• 1:01:59
  Speaker 3: level like color jobs. So there you'd be thoughtful about
• 1:02:03
  Speaker 3: that and how to navigate that. So I think you
• 1:02:06
  Speaker 3: need to be open minded. But preferably if you have options,
• 1:02:10
  Speaker 3: you know, pick pick a company that as a good culture.
• 1:02:14
  Speaker 3: I you know, ask them how they think about their customers. Right,
• 1:02:17
  Speaker 3: if they're an investment firm and they talk about them
• 1:02:20
  Speaker 3: like muppets, you probably don't want to work there. But
• 1:02:22
  Speaker 3: if they talk and talk about them as I remember
• 1:02:24
  Speaker 3: you remembers, just to mention an example. So I think
• 1:02:28
  Speaker 3: I think it's important any business, actually, whether it's finance
• 1:02:31
  Speaker 3: or any real economy business, how they think about their
• 1:02:34
  Speaker 3: customers and treat their customers, because I do think long
• 1:02:37
  Speaker 3: term success is based on having a mutually beneficial relationship
• 1:02:40
  Speaker 3: with your customers. So I would you know just the
• 1:02:43
  Speaker 3: work ethic, but and again keep an open mind. Sometimes
• 1:02:47
  Speaker 3: things you weren't even thinking about come up and they
• 1:02:50
  Speaker 3: turn out to be really really good job choices.
• 1:02:53
  Speaker 2: And our final question, what is it that you know
• 1:02:55
  Speaker 2: about the world of banking regulations them in service financial
• 1:03:02
  Speaker 2: industry today might have been useful to know way back
• 1:03:05
  Speaker 2: when when you were first getting stocked.
• 1:03:07
  Speaker 3: Yeah, I thought about that markets, right, not personal finance,
• 1:03:12
  Speaker 3: but market.
• 1:03:13
  Speaker 2: Clearly credit whichever way you want.
• 1:03:15
  Speaker 3: Yeah, well, compounding was something I did not understand, and
• 1:03:19
  Speaker 3: credit card.
• 1:03:20
  Speaker 2: Comes up surprisingly free. It's not intuitive, Yeah, no, it's not.
• 1:03:24
  Speaker 3: And then the daily compounding is you know it acs
• 1:03:28
  Speaker 3: PT pretty quickly. I think for markets, financial markets, and
• 1:03:31
  Speaker 3: investing in particular, I've actually done pretty well over time.
• 1:03:35
  Speaker 3: I was My grandmother gave me one thousand dollars when
• 1:03:40
  Speaker 3: she was getting later in life, near her death, and
• 1:03:43
  Speaker 3: she didn't have much, but she wanted to give my
• 1:03:45
  Speaker 3: sister and I something, so she gave me thousand dollars
• 1:03:47
  Speaker 3: and told me to put it in IRA. That was
• 1:03:49
  Speaker 3: back when I race just got and started, and with
• 1:03:51
  Speaker 3: my dad's help, I put it in the contra fund.
• 1:03:53
  Speaker 3: It's worth a lot of money, right, So I've made
• 1:03:55
  Speaker 3: some lucky I've stuck mainly. I've picked a few stocks,
• 1:03:59
  Speaker 3: but I've picked mainly diversified index funds of various sorts.
• 1:04:03
  Speaker 3: And I wish I'd understand better about being brave during
• 1:04:06
  Speaker 3: the dips, though, you know, I think I usually I
• 1:04:09
  Speaker 3: buy and hold, so I don't sell when the mark
• 1:04:11
  Speaker 3: is going now, which is the worst thing you can do.
• 1:04:13
  Speaker 3: But I think I would have been a little more
• 1:04:14
  Speaker 3: courageous buying in.
• 1:04:15
  Speaker 2: The dips, you know, buying more into weakness.
• 1:04:18
  Speaker 4: Yeah.
• 1:04:18
  Speaker 2: Well, Sheila, thank you for me so jennerous with your time.
• 1:04:21
  Speaker 2: As always a delight. We have been speaking with Shila Beer,
• 1:04:26
  Speaker 2: former chair of the FDI see author of the new
• 1:04:28
  Speaker 2: book How Not to Lose a Million Dollars. If you
• 1:04:32
  Speaker 2: enjoy this conversation, well check out any of the six
• 1:04:35
  Speaker 2: hundred we've done over the past twelve years. You can
• 1:04:38
  Speaker 2: find those at iTunes, Spotify, YouTube, Bloomberg, wherever you find
• 1:04:43
  Speaker 2: your favorite podcasts. I would be remiss if I didn't
• 1:04:46
  Speaker 2: thank the crack staff that helps put these conversations together
• 1:04:49
  Speaker 2: each week. Alexis Noriega is my video producer. Seean Russo
• 1:04:55
  Speaker 2: is my researcher. Anna Luke is my podcast producer. I'm
• 1:05:00
  Speaker 2: Barry Ridholts. You've been listening to Masters in Business on
• 1:05:04
  Speaker 2: Bloomberg Radio