Latest / Look Forward / Economic Insights: Lessons from the Past with Nathan Stovall

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Economic Insights: Lessons from the Past with Nathan Stovall · Look Forward

• 0:06
  Hello, my name's Andy Critchlow.
• 0:07
  I'm head of news at S&P Global Commodity Insights, and welcome to the
• 0:12
  Look Forward Podcast from S&P Global.
• 0:15
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  to navigate uncertainty with confidence.
• 1:09
  Welcome everyone to this edition of the Look Forward Podcast.
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  My name is Andy Critchlow, head of news at S&P Global Commodity
• 1:15
  Insights, and I'm delighted today to be joined by my colleague Nathan
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  Stovall, head of FIG Research at S&P Global Market Intelligence.
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  Um.
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  I've just started reading the book 1929 by, uh, uh, Andrew Ross
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  Sorkin, um, about the great crash.
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  Um, it's a subject that's definitely in the public domain at the moment.
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  People are talking about this, how do they start these financial crises?
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  You know, you as a journalist, you reported on a couple of them,
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  but you, you've got a bit of a historical interest as well, Nathan.
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  I do you, if you're gonna cover the banking sector,
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  you need to think about this.
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  They're thermometers of the economy and really a good lithmus test of
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  when things are getting outta whack.
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  And I think it's really two very simple, high level things.
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  Valuations get completely stretched and often that usually happens
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  because we get over our skis.
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  We borrow more than we have, and I think in both cases what gets us there is that
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  we've convinced ourself that there's something new that changes the narrative,
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  that says that this time is different.
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  That allows us to take excessive levels of risk and allows us to
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  justify one valuations getting to a certain level or two.
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  Borrowing into a certain level.
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  We're having that comp to 29 now, given what we're seeing, you know, in the
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  broad markets right now with valuations going to levels that we saw caught
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  in in the late nineties, early aughts with the the .com bubble, it's a little
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  bit different because you've got real learning power at some of these companies.
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  But a lot of it is rhymes with what you've seen historically, which
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  is the expectation for something to happen, and that we've pumped
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  up valuations on that basis.
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  But, but I often look at it is at the health of the economy,
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  health of the consumer, and health of the banking system.
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  And one positive thing I'll say this time is while there's some flashing
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  yellow out there, particularly when it comes to the US banks, there's
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  a number of reasons to believe that we're not heading towards calamity.
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  That that capital levels are very strong.
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  Leverage is not excessive broadly across the US consumer, though there
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  are pockets of it, uh, and that.
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  Underwriting appears to be better than it has been in the last cycles.
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  The issue is a lot of that risk still exists.
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  It just might be outside of the system.
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  And the question is, if they get it wrong, what are the knock-on effects for
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  the traditional financial institutions?
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  So, you know, people getting in over their heads, irrational exuberance,
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  one area that's a concern.
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  Increasingly, I think, for central bankers for, uh, economists, for policy
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  makers is this area of private lending.
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  Um, and we've seen sort of little flashes of this recently in the US, right?
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  Yes, yes.
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  And effectively you've seen that that asset class grow considerably
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  since the financial crisis.
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  And really a couple reasons.
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  One, a prolonged error of of of lower zero rates.
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  So we do what we do well when it comes to capitalism, capital
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  goes, finds the better return.
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  When rates are real near zero, you're gonna take more risk to get returns.
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  And so a lot of money found its hand in private credit because of that.
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  Outside of traditional fixed income assets and the second being after
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  the financial crisis, you have a, appropriate response to say we
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  weren't regulating this correctly.
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  We didn't have everything under the tent.
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  We needed to, uh, we need to change the way we're doing things, but as a result,
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  you've pushed risk out of the system.
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  So private credit has grown.
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  It's.
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  Almost 2 trillion, uh, globally.
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  They've taken big share from banks, but banks have also decided we're not gonna
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  see share completely and increasingly being lending to those firms as well.
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  And we can dig into further some of the mechanics there, but what
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  you've referred to, what we've seen in third quarter earnings, as you've
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  seen some blips on some of those.
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  Loans from regional banks in particular where they, they were
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  pretty big lumping losses and kind of spooked the investment community.
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  We're not in the camp that, that is gonna be very widespread, but
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  we also, in the camp that things probably get a little bit worse.
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  From here and that, that's one of the areas of concern.
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  And this is the, the area specifically around, you know,
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  some sort consumer finance, so things like car loans, et cetera.
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  Right?
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  That's where we're seeing some of the first cracks that that's right.
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  Where you've seen some of the subprime lenders and, and you've seen also
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  cases of, of fraud and you're starting to see things both within this
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  bucket that could be private credit.
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  Uh, the way it's defined in the US is.
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  Loans to non-depository financial institutions, which have driven
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  a lot of the loan growth, uh, to date, year to date.
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  And there's breakouts within there, and you've seen some lumping losses
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  there, but you've also seen cases of fraud and those are the kind of
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  things you often see early cycle.
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  Everybody in the bank group and much of the sell side community
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  is pointing to it as one-offs.
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  Well, if there's a bunch of one-offs or cases of fraud, those are the
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  kind of things you start to see when people get a little bit stretched.
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  They get a little bit desperate.
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  They, they commit fraud.
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  It doesn't mean that we're headed towards calamity, but those are the
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  kind of things you see early and, and this has gotten plenty of play and it
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  was a great quote, but it's also one that I think is accurate from JPM's CEO,
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  Jamie Dimon saying when you've seen one cockroach, you know there's another, and
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  that's kind of, I think, encapsulates.
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  The, the point there, when you get a series of one-offs, are they really
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  one-offs or are they more sort of a start of a cycle and we think we are
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  heading, we're at least late cycle.
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  And in terms of the, the healthy environment, meaning sort of starting
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  into a credit cycle, but continue to believe that it's one that will
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  be manageable for, for US banks.
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  Uh, but there could, there's gonna be bigger problems
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  outside of the system for sure.
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  So S&P Global recently revised its GDP growth forecast to around
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  1.9% for 2025 and 1.8% for 2026.
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  So these are below historical trend lines.
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  I think given, you know, the vol, is it volatility in the us?
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  I mean, you know, uh, you know, there's been certainly a lot of.
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  Policy surprises, some would say tariffs, um, you know, the geopolitics obviously.
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  Um, you know, and we haven't really fully seen right, the impact of tariffs
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  yet, but, you know, given everything that's happening elsewhere in the world
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  as well, is that a good performance?
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  Is that how, how do you rate that?
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  How, how does it feel?
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  In the US economically at the moment.
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  I, I think volatility is quite fair.
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  Uh, to say that you could set your watch to what we've seen from the
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  policy or geopolitical front, I think would not be a correct statement.
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  And I think your point about.
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  Feeling the impact of tariffs?
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  We haven't yet.
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  A lot, were delayed.
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  We didn't know where they were gonna set.
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  And the line I've been using there is if you think public companies will
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  simply eat a higher cost and let their margins go down and miss earnings
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  over time, you are certainly mistaken.
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  They will either pass it on to their customers or they won't hire as much.
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  And we've seen a number of weak prints in the labor market.
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  Over the last few months and you wonder if some of that's showing up 'cause of that
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  you wonder, some of it is maybe AI and companies, uh, increasingly adopting AI
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  and solutions, deciding they're not gonna hire, uh, as much or a little bit of both.
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  But it feels okay and I think.
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  Part of why it feels okay is two, three months ago you might have thought you
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  might have considered all those things and thought things were gonna be much
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  worse, but we kind of keep chugging along.
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  It's very much a consistent conversation that's been going
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  on for much of this year.
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  Consumer spending is, is holding up the consumers remaining resilient
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  in the face of all this volatility.
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  Uh, but it's split.
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  It's k-shaped recovery, it's middle income, higher income earnings earners
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  driving a lot of the spend and the lower income segment is getting hurt much worse.
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  And part of that is because inflation is a much bigger tax on them.
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  And tariffs, you could say, are a similar tax on them in terms of the
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  potential for higher prices than the higher income earners who've seen,
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  who've really benefited from asset.
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  Assets going up, that's who owns the assets in the US whether
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  you're talking about real estate or stocks, uh, and bonds.
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  So it feels pretty good.
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  The consumer remains resilient, but not great.
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  And what most of the banks we've heard of the last two weeks talk about is that they
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  feel okay heading in the 26th and they're not flashing, you know, any real alarms.
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  And it's, it's pretty surprising.
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  To, to a lot of people when you, when you take a step back and think about
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  all the noise that has occurred, that we are kind of chugging along.
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  But one of the reasons for that, and we we point this out all the time,
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  is the consumer has a pretty strong balance sheet right now and 70% of the
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  US economy is driven by the consumer.
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  If you look at household debt to income, going all the way back to 1990, we're
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  right at that pre pandemic average.
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  If you look at it in oh eight, we were at 13.1%.
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  We're at 11.1%.
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  So we're, we were two percentage points in oh eight above we were out of over
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  our Skis we're not there as much.
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  Part of that is 'cause we threw a bunch of money at the consumer during the pandemic,
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  and it lasted longer than people thought.
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  And the other is 70% of household debt is in mortgages and
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  most of 'em are fixed rates.
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  So when rates went up.
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  That that money didn't, the debt service didn't go up that much.
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  That's a big reason why the consumer has held up more and we're not seeing
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  delinquency trends broadly get much worse.
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  You are seeing it as we talked about earlier on those lower income segments,
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  subprime auto and things like that.
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  That's where you're starting to see the stress and we
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  expect more of that to occur.
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  So kind of that continuation of, call it a K shape for the next few quarters.
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  How does this kind of reflect on, bank balance sheets, you know, how
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  important, I guess is first course of next year in terms of earnings for banks.
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  The, the way it's, it's gonna show up.
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  I mean, it really depends on.
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  The composition for, for most the US banks, it's gonna be fine.
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  At the same time that you have this progression of delinquencies,
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  moderately going higher for the biggest banks, they have other big engines
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  in terms of fee income and their investment banking businesses and
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  their wealth management businesses.
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  And one of the thing that you heard of the last two weeks is investment
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  banking, back backlog are the highest level they've been in three, four years.
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  So you have this weird dynamic of, again, you're seeing stress
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  at the lower end of the consumer.
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  You're seeing delinquencies rising.
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  But corporate America and CEO confidence is is high.
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  They're ignoring a lot of this noise, and they're excited about the prospect
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  of a deregulatory environment.
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  They're excited about fed easing and, and the cost of financing going
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  down, albeit just modestly, but going down and are in somewhat expansion
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  mode, not full scale expansion mode.
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  The one place we're seeing that, you know, is an AI but you're seeing, you
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  know, a real return to, to deal activity.
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  The question's gonna be if you start to see actual, real cracks in the armor,
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  if these one-offs actually pick up more, and, and we haven't seen that yet.
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  And one of the reasons is it's this weird dynamic of, growth
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  has been slower for banks.
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  They haven't grown their own portfolios as much as they want
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  because they face this competition for non-banks, primarily private credit.
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  And at the same time, while they bristle about that, that's actually kind of
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  propped up asset values, particularly when you look at things like commercial
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  real estate where you thought there was gonna be great challenges.
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  One rates are higher.
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  Higher debt service, two challenges on, on remote hybrid work, and
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  everyone's back to the office, right?
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  So
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  well and to a degree, but some of those.
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  Some of those properties are still pretty challenged.
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  I mean, you've got some things underwritten, you know, at 2019
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  levels that when the loan's coming due and they could have five year
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  or six year terms, they'd have to refinance it and, and re underwriting
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  that property at today's levels.
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  Uh, not, not that attractive, but one of the good news for the traditional lenders
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  is the competition that I alluded to.
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  It's coming in from outside the sector.
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  A lot of that money raised from private credit when it came to CRE,
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  they thought they were gonna be able to purchase assets at distress prices,
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  but you haven't seen a lot of that.
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  The banks haven't been forced to blow out their portfolios.
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  They're not likely to do so.
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  And the private credit firms aren't gonna give that money back.
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  So they've been making a lot more direct loans and helping support,
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  uh, the broader CRE market.
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  And you could make the same comment about the broader commercial market.
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  Again, there's plenty of credit availability to borrowers right now.
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  When you get, going back to where we started, when you look at
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  cycles and when things get really ugly is when lenders deliver.
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  And hoard cash and credit's not available and suddenly you can't expand and
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  everybody sits on it and it doesn't grow.
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  We do not have that problem now, in part because of all of this dry powder
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  sitting outside of, uh, the bank space.
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  And all that dry powder I, I imagine wants to get involved in AI data centers.
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  This new part of the economy that, you know, that wasn't there in 2007?
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  Uh, a hundred percent.
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  I mean, it, it's looking at a lot of places, but that is definitely an area
• 15:04
  that's attracted a lot of attention and it makes sense for private credit
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  firms to finance that rather than some banks, big banks can get into it.
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  But I mean, those are big projects and that's the bull case for private credit.
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  Big, large loans that might be a little bit further out the risk curve if only
• 15:23
  just for the size for a traditional lender, uh, something that that might be.
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  Not necessarily hypothetical, but, but based on a, a future expectation, uh,
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  but could be higher reward, uh, and, and would require a, a, a deeper level
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  of attention and, and comfort with having ex a bigger exposure like that.
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  That feels like it checks the box for private credit to me in a really good way.
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  And we've certainly seen them go after the, those kind of credits, but also
• 15:54
  other big lumpy, lumpy credits as well.
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  Who are the biggest players in the private credit space?
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  It's a lot of the big PE firms, honestly.
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  I mean, you've got
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  others.
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  Sure.
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  Apollo, these kind of, yeah.
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  These kind of people.
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  That's right.
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  Apollo, KKR, Aries, Carlisle.
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  You know, if you look at the top 29 are big PE firms and, and one
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  of the wild things is if you look at the size of those firms today.
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  The, the regulations changed a little bit in, in the US but if you look at their
• 16:24
  asset size today, they would be considered systemically important bank based on the
• 16:29
  way Dodd-Frank laid it out, which is a long-winded way, complicated way of saying
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  they'd be effectively a top 15 bank, each one of them on a standalone basis.
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  And I don't know, I know folks in the banking system recognize that.
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  I think regulators recognize that investors do, but I don't think.
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  Main Street really recognizes just how big this has gotten.
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  And, and that's one of the questions we have because when there is
• 16:55
  a cycle, there'll be issues and smart players will, will do okay.
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  But there's also tertiary players who probably won't do Okay.
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  And what are the knock on effects of that?
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  Because one of the things that happens in a cycle too, you always see it.
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  Problems arise, banks get in trouble and they end up in front of, uh, a
• 17:13
  bunch of politicians in Washington.
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  Being asked, how did this happen?
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  Private equity, private credit's not regulated.
• 17:20
  I mean, they'll have to answer to their investors.
• 17:22
  That's right.
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  And, and they don't have depositors.
• 17:25
  So, you know, maybe, maybe it doesn't show up the same way, but.
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  One of the lessons I had coming out of the financial crisis was, which was,
• 17:33
  you know, a housing bubble bursting.
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  And I remember a bank in, in metro Atlanta said this to me, who, who
• 17:39
  got in trouble but made it through.
• 17:41
  And they said, we felt okay about what we were doing from an underwriting
• 17:44
  standpoint, but what we missed was when you're lending against a piece of
• 17:48
  dirt, if the guy next to you is doing something really stupid, you got a
• 17:52
  problem because the value of that piece of dirt's probably not what it should be.
• 17:56
  And that's one of the challenges here.
• 17:58
  While it's.
• 17:59
  Kind of a positive that it's, it's helped support asset values.
• 18:03
  Has it taken things to a level that may be, the values that we're using
• 18:08
  aren't, aren't the correct ones.
• 18:10
  You know, do we need an actual massive correction here because
• 18:13
  of all the money chasing after?
• 18:15
  So a few assets.
• 18:17
  Yeah.
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  My 2007 financial crisis story is around, uh, Dick Fold who was in Dubai.
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  At an event, at the, uh, Dubai International Financial Center
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  and there was a media event.
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  There was a few of us.
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  There was a colleague from the Financial Times.
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  I was at the Wall Street Journal at the time, and, uh.
• 18:35
  Um, a very experienced journalist, uh, Eddie o Sullivan, who was the,
• 18:39
  uh, publisher of Middle East Economic Digest, asked someone who Dick Fold
• 18:44
  would never have heard of, wouldn't have, never have even heard of the, the
• 18:46
  publication asked him a question, you know, what's the biggest risk you see
• 18:51
  to, you know, the global economy and, uh, at the moment and, you know, kind of
• 18:56
  fooled, kind of pondered it, and then, you know, one word answer, um, terrorism.
• 19:02
  Wow.
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  And literally, you know, um, um, um, you know, a month later, um, um, you know,
• 19:08
  the, the, the ceiling collapsed around his head and every other banker's head.
• 19:12
  And, uh, uh, it sticks in my mind as being, you know, slightly, you know,
• 19:19
  either just not answering the question or, you know, just out touch, ignoring.
• 19:24
  Yeah, I outta touch.
• 19:26
  Yeah, exactly.
• 19:27
  Exactly.
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  And I guess that's kind of where I'm going with this is that, you know,
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  with the danger, you know, if you are a bank and you're lending and
• 19:32
  it's open and investors can see it, the risk is more, um, transparent.
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  You are more in touch.
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  You know, you're more in touch with your customer.
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  You're more in touch with the street.
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  You could argue
• 19:44
  you, you could, but one of the things that I continue to talk to folks about,
• 19:47
  I get to go out and talk to bankers across the country and they don't always
• 19:52
  love this message, but I say if you go back to 1945, we've had a recession
• 19:56
  in the US almost every eight years.
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  We're pretty due.
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  It doesn't mean that one is coming tomorrow, but the
• 20:02
  pandemic didn't really count.
• 20:04
  Yes, we papered over it with $5 trillion in stimulus and, and forbearance
• 20:10
  and paycheck protection program, uh, loans, and then another 5 trillion
• 20:15
  in Fed balance sheet expansion.
• 20:16
  But there was not really air let out of the economy, and it wasn't a bubble.
• 20:19
  So it was an unusual time, but you honestly have to
• 20:23
  almost go back to 12 or 13.
• 20:27
  That's pretty long in the tooth.
• 20:29
  And as long as I've been doing this, the good banks had money
• 20:33
  when no one else had money.
• 20:34
  And the way they did that is they didn't chase and run after the new
• 20:37
  thing and they were conservative.
• 20:39
  So I'm increasingly trying to sound the alarm of saying, now is the
• 20:44
  time to be very thoughtful about any new dollar of capital that you're
• 20:48
  extending or, or, or any, any new dollar of, of, of loans you're making.
• 20:54
  Because as, as I said earlier, it sure feels like we've gotta be closer
• 20:58
  to late cycle than early cycle.
• 21:01
  Not just on, only on the length of this expansion, but some of the, the
• 21:05
  things we're starting to see, we've seen stabilization and, and delinquency trends
• 21:11
  that they've rose for 10 straight quarters off of historically low levels, but.
• 21:15
  We're starting to see those one-offs pop up and expect, I mean,
• 21:19
  we've got a forecast out there.
• 21:20
  We expect 'em to go up pretty considerably next year, but nothing
• 21:24
  akin to a really serious event.
• 21:26
  So broadly, space does okay.
• 21:29
  And there'll be outliers though, who absolutely miss that.
• 21:31
  It always happens.
• 21:33
  Everybody thinks they've kind of gotten it figured out and that
• 21:36
  the combination of that of excess and excess excessive valuations.
• 21:41
  Excess leverage and thinking that you're not gonna have a problem, I
• 21:46
  think is what always leads to downturns.
• 21:49
  Yeah, of course.
• 21:50
  You can never see the top.
• 21:52
  Um, you know, I, what, what, what impact does the Fed have in all this?
• 21:56
  In fact, what agency does the Fed have in all of this?
• 21:59
  I'm guessing, 'cause you know, there's, there's more cuts predicted,
• 22:03
  you know, they're under a lot of pressure to cut, certainly.
• 22:05
  Mm-hmm.
• 22:05
  Um, you know, o obviously that's gonna make.
• 22:09
  Lending more affordable for borrowers.
• 22:12
  Um, it helps.
• 22:13
  It helps, right?
• 22:14
  One, one of the weird things about it is that, again, going back to the
• 22:16
  consumer, consumer driven economy, when rates went up, they weren't as
• 22:22
  in as impacted 'cause they had so much fixed rate debt in terms of their
• 22:26
  mortgages, so they weren't as impacted.
• 22:28
  That means they're also not gonna get as much relief as you might think they
• 22:31
  would on the way down for corporates, though it definitely matters.
• 22:35
  You haven't seen, you know, not everything is priced off of short term
• 22:39
  rates though, and you haven't seen the yield curve move down all that much.
• 22:43
  You're kind of seeing it gyrate all over the place, and some
• 22:47
  of that is fed expectations.
• 22:50
  Some of that is things like tariffs.
• 22:51
  Some of that is deficit.
• 22:54
  So there's other things at at at play here, but.
• 22:59
  The Fed can definitely help.
• 23:00
  One of the challenges that they have is I think for some time they've been
• 23:03
  in the camp, that they wanna make sure that inflation is dead, dead, dead below
• 23:08
  the 2% level, and they're not there.
• 23:11
  They haven't gotten there, and they're very fearful of going back
• 23:14
  to the seventies and the lessons of ulca of cutting too fast too soon.
• 23:19
  So I think it's one of the reasons why we haven't been lower sooner.
• 23:23
  Given the weakness that we see in the labor market, we are expecting
• 23:26
  more cuts and that kind of helps.
• 23:28
  But the good news is we've gotten this far, is kind of the way I think about it.
• 23:34
  If, if you had the consumer cracking, we're not even cracking, getting stretched
• 23:41
  to a level that we're seeing today, call it in 23, particularly after the regional
• 23:44
  bank crisis or even early 24, it would be a much tougher place for the Fed to be in.
• 23:51
  The economy's been resilient through that.
• 23:54
  And so we're kind of getting to the other side where inflation is,
• 23:58
  is tampering down, uh, to a degree and cuts should help ease that.
• 24:02
  But I don't think it stops a cycle from happening.
• 24:06
  The, um, you mentioned the, uh, labor market, but I think if I go
• 24:14
  back to 2007, if I might, you know, there wasn't a particular strain
• 24:18
  on the labor market then, right?
• 24:21
  No, and that's one of the weird things.
• 24:22
  It, it doesn't really show up until it sort of does.
• 24:25
  You know, in that case, we had some pretty effective triggers where you had
• 24:32
  huge mispricing of risk, huge mispricing of assets, and then a huge unwinding
• 24:38
  of leverage driven by Wall Street and the banking system getting in trouble.
• 24:44
  The big banks at that time were levered anywhere from 25 to 30 to one.
• 24:48
  They're levered about 10 to one today.
• 24:50
  So when they had helped prop up the housing market with a lot of subprime
• 24:55
  mortgages, or even worse synthetic CDOs that were tracking said mortgages.
• 25:01
  So leverage upon, leverage upon leverage, the unwinding was
• 25:04
  massive because not only sim.
• 25:07
  Property values down considerably, but it meant to, they had to hoard cash.
• 25:12
  As I said, they all suddenly needed to raise money and couldn't extend
• 25:15
  it, and that meant that it put all kinds of stress on all kinds of
• 25:20
  corporates, and they had the hoard cash, which meant accelerated layoffs.
• 25:25
  You don't have that kind of system set up the same way, um,
• 25:30
  at least with the banking system.
• 25:33
  One of the challenges here though is that you've got the shadow banking system
• 25:37
  and private credit propping up a lot of things and what would be the trigger
• 25:43
  that could cause an unwinding there?
• 25:45
  It doesn't work quite the same way, but it's, it's one that we talk a lot
• 25:51
  about and the smartest bankers we know don't really know how to predict that.
• 25:55
  That could you actually see sort of a cascading, they're not
• 25:59
  funded the same way as banks.
• 26:01
  You know, they have committed capital, but they are funded by banks.
• 26:05
  So if you start to see banks really pull back on some of the lending that we,
• 26:10
  we were alluding to earlier on loans to non-depository financial institutions
• 26:15
  and start to say, we're really concerned about that, that would be something
• 26:19
  that could really accelerate stress and maybe have a cascading effect.
• 26:23
  We haven't heard that yet, though.
• 26:25
  Even the banks who had some problems described 'em as one-off and said,
• 26:28
  we feel good about this portfolio.
• 26:32
  Um, Andrew Bailey, the governor of the Bank of England, he was testifying to
• 26:36
  parliament, a parliamentary committee this week, and he flagged this risk
• 26:42
  from some of these more opaque lending markets, um, as a potential, um, risk
• 26:53
  to, to the economy, financial risk.
• 26:57
  Um, what does Jerome Powell say about it?
• 27:00
  I think they're, they're watching it.
• 27:03
  They're also very careful to say too much about it, and one of the challenges is
• 27:08
  here is that they don't know anything more about this than, than we do.
• 27:13
  They're unlike with the banks, they have confidential
• 27:16
  information that we don't have.
• 27:17
  We have great data here at S&P and we can get really granular on the banking system.
• 27:22
  With private credit in particular, it's very high level and the public.
• 27:27
  Companies out there will provide disclosures and so you can
• 27:29
  dig into it to a, to a degree.
• 27:32
  The place you get better is when you look at specific deals that have maybe
• 27:35
  traded and you could tie to a specific company and see there, but it's really
• 27:40
  hard to get a holistic view, and I think it's one of the things that makes banks
• 27:45
  and traditional lender very nervous and quick to say that the problem is
• 27:49
  likely outside of the system because.
• 27:52
  They understand they need to be regulated.
• 27:55
  They, they struggle with that.
• 27:56
  Sometimes it frustrates them, but they will gladly share that.
• 28:01
  They feel like, they feel plenty of pressure from their regulators to focus
• 28:04
  on the quality of what they're doing, but they don't think that that's happening
• 28:08
  at all in the private credit arena.
• 28:10
  And it's not, it's not because they're not regulated.
• 28:12
  They faced.
• 28:14
  Scrutiny from investors, but it's not the same thing.
• 28:15
  They don't have examiners there.
• 28:17
  I mean, JP Morgan has several fours in its headquarters dedicated to
• 28:21
  regulators who are there year round.
• 28:23
  That's, that's the way it works.
• 28:24
  So it's a very different thing.
• 28:26
  And I think it doesn't mean that, I think that they don't have a, an opinion.
• 28:29
  I think they're just careful saying, we know risk has been pushed out of
• 28:33
  the system and we're watching it.
• 28:35
  So the way this ends is that they end up having to testify, are forced into.
• 28:42
  Disclosing far more information and they cease being private in
• 28:45
  the way they operate and being very public in the way that they operate.
• 28:48
  I imagine.
• 28:49
  Well, that's a scenario.
• 28:50
  That's a scenario, but I'll give you another one where maybe this is the
• 28:52
  way post GFC was supposed to work.
• 28:55
  You push risk out of the system.
• 28:57
  You don't have depositors money as much at risk and.
• 29:01
  Wealthy people lose some money.
• 29:04
  Not, not, you know, most of, of, of the globe.
• 29:08
  Uh, and yeah, there are some pension funds who've, who've invested
• 29:11
  here and, and so maybe you could see some dicey things there.
• 29:14
  But if we've pushed risk out to the system and it went to riskier
• 29:19
  investments that were funded by higher net worth individuals and
• 29:23
  there's some lost content there, maybe that's the way it's supposed to work.
• 29:27
  The question is just how ugly.
• 29:30
  Does it get through a cycle and we will have one.
• 29:34
  I'm not saying it's tomorrow, but we will have one.
• 29:36
  How, how ugly does it get?
• 29:37
  And you know, what knock on effects would it have to the economy if,
• 29:41
  if it actually leads to delivering, then yeah, I think you're right.
• 29:44
  I think that's where you get there.
• 29:46
  And Brian Moynihan, the chairman, CEO of B of A said yesterday I was an event,
• 29:50
  the American Bankers uh Association.
• 29:53
  Uh, annual convention where he was calling for the regulation of private credit firms
• 29:56
  for exactly this reason, because banks are worried that there could be a problem
• 30:02
  created outside of the system, and then it'll end up spoiling the party for them.
• 30:08
  Um, Nathan, uh, this has been fantastic.
• 30:11
  Great conversation.
• 30:12
  Um, positive note to end on.
• 30:14
  What should we look forward to?
• 30:17
  I think things are pretty good.
• 30:18
  You know, we focus a lot on how scary things are right now.
• 30:23
  Uh, the line I always come back to is I remember a lot of the silly things I
• 30:26
  saw in oh six and oh seven that I don't feel like I'm seeing as much today.
• 30:30
  Uh, we'll get, we'll get a downturn, but we'll, we'll get through it and people
• 30:34
  are generally cautiously optimistic.
• 30:37
  So let's, let's hope that that continues to carry through the day.
• 30:41
  What doesn't kill you makes you stronger.
• 30:44
  That's right.
• 30:44
  That's right.
• 30:46
  Nathan Stovall, thank you so much.
• 30:48
  Um, uh, for listeners of the Look Forward Podcast, I strongly suggest that you check
• 30:53
  out Nathan's podcast, um, Street Talk.
• 30:58
  Yes.
• 30:59
  That's the one, uh, which is available on, uh, the S&P global .com website.
• 31:05
  It will be also available, I suspect on YouTube, uh, Spotify, and the
• 31:10
  Apple Podcast store, just like this podcast, the Look Forward podcast.
• 31:14
  Thank you so much for joining us, and look forward to the next episode.
• 31:18
  Thanks.