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Bankruptcy Is The Solution to Student Loan Crisis: Joe Nocera · Bloomberg Intelligence

0:01
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
0:04
Speaker 1: with my co host of Bonnie Quinn. Every business day
0:06
Speaker 1: we bring you interviews from CEOs, A, market pros, and
0:09
Speaker 1: Bloomberg experts, along with essential market moving news. Find the
0:12
Speaker 1: Bloomberg Markets Podcast on Apple podcast or wherever you listen
0:16
Speaker 1: to podcasts, and on Bloomberg dot com. It is time
0:20
Speaker 1: for a Bloomberg Opinion, and today we're going to look
0:23
Speaker 1: at student debt. I think it's fair today that nobody
0:25
Speaker 1: really wants to ever declare bankruptcy, but some people do
0:29
Speaker 1: have to declare bankruptcy. The one thing, though, that you
0:31
Speaker 1: won't be able to discharge in bankruptcy is your student loans.
0:34
Speaker 1: You'll carry them around for the rest of your life
0:37
Speaker 1: if you're not able to pay them off. Well, our
0:40
Speaker 1: next guest says bankruptcy is a solution to the student
0:42
Speaker 1: loan crisis. So to get what he means, let's bring
0:46
Speaker 1: in Jon Oh Sarah Bloomberg Opinion columnist Joe. Obviously, you
0:50
Speaker 1: know this idea that you can never discharge your student
0:54
Speaker 1: loans even in bankruptcy is something to be reckoned with.
0:57
Speaker 1: You can spend a fortune getting you know, in education,
1:00
Speaker 1: and then life can intervene. You can end up going bankrupt,
1:04
Speaker 1: which you'll still have those student loans, you know, following
1:09
Speaker 1: you around for the rest of your life. How how
1:11
Speaker 1: do we change that? How can that be changed? Good morning? So,
1:15
Speaker 1: first of all, it's beyond the rest of your life,
1:17
Speaker 1: because once you die, the federal government will come after
1:20
Speaker 1: your state to get to get paid off of the
1:23
Speaker 1: student land. Um. You know, this has been something that's
1:27
Speaker 1: been going on for about forty years, starting in the
1:30
Speaker 1: late sixties, and they made it, the Congress made it
1:33
Speaker 1: more and more difficult, near impossible to discharge the student loans,
1:38
Speaker 1: not only those that are granted by the federal government,
1:40
Speaker 1: which is about but also those that are granted in
1:44
Speaker 1: the private market though by banks and institutions at grant
1:48
Speaker 1: student loans. Um. Uh. So it is a ownerous burden.
1:53
Speaker 1: Uh The average student loan debt is about thirty dollars,
1:57
Speaker 1: but there are plenty of people who have debts of
2:01
Speaker 1: a hundred thousand or a hundred and fifty thou dollars.
2:03
Speaker 1: And you know, in in the economy that we have
2:06
Speaker 1: had for the last you know, fifteen or so years,
2:10
Speaker 1: maybe more, it's been so hard for for those people
2:14
Speaker 1: to get the kind of jobs that allow them to
2:17
Speaker 1: make monthly payments and and and stay straight with their
2:20
Speaker 1: student loans. So, Joe, I think as it relates to
2:23
Speaker 1: the student loan issue, that what we've heard the most
2:26
Speaker 1: out of politicians is actually forgiving the debt. How would
2:30
Speaker 1: you compare and contrast I guess the pros and cons
2:32
Speaker 1: of forgiving the debt versus maybe allowing um a bor
2:36
Speaker 1: or to go into bankruptcy? Right? Um, well, uh, I say,
2:42
Speaker 1: first of all, from a political point of view, forgiving
2:45
Speaker 1: debt is going to be highly contentious. It's just gonna
2:49
Speaker 1: be very controversial. There are gonna be lots and lots
2:52
Speaker 1: of people who say, you know, I had to pay
2:54
Speaker 1: my loan, why does this freeloader get you know, get
2:58
Speaker 1: his loan up and partially um uh, you know, wipe
3:03
Speaker 1: wiped off the board. So so that's point one, it's
3:05
Speaker 1: it's a political it's a political problem. Point number two
3:09
Speaker 1: is that you know, the amounts that are being talked
3:12
Speaker 1: about are being between loan forgiveness between ten thousand and
3:15
Speaker 1: fifty dollars. So for some people that will wipe out
3:18
Speaker 1: their loan. For many others, it won't, and they'll still
3:20
Speaker 1: have a lot of money to pay back, just not
3:23
Speaker 1: as much as they had before. The thing about bankruptcy
3:26
Speaker 1: is number one, it would wipe out the entire loan.
3:31
Speaker 1: But number two, it comes at a price. Nobody, as
3:34
Speaker 1: as as you said at the beginning, nobody wants to
3:37
Speaker 1: file for bankruptcy. You know, it hurts your credit and
3:40
Speaker 1: makes it difficult to buy a house, and maybe it
3:43
Speaker 1: sometimes makes it difficult to buy a car for five, six,
3:46
Speaker 1: seven years, and it takes a while to recover from.
3:49
Speaker 1: So when you file for bankruptcy, you pay a price.
3:52
Speaker 1: So that would help um subdue some of the objections
3:57
Speaker 1: from those who think it's just a program for freeloaders.
4:02
Speaker 1: Is there I mean, is there any appetite for it
4:05
Speaker 1: to be done across the board? So I've definitely seen
4:08
Speaker 1: people talk about maybe doing it for teachers if they
4:10
Speaker 1: put in a certain amount of time of public schools,
4:12
Speaker 1: or doing it for people who go work with the
4:15
Speaker 1: Peace Corps for a while. But hows anybody has just
4:18
Speaker 1: suggested has it got anywhere in Congress? This idea that
4:22
Speaker 1: you know, as a certain amount of student loans we've
4:24
Speaker 1: paid off for every single student no matter what they study. Um,
4:31
Speaker 1: it depends on what you talked to. I mean, in
4:33
Speaker 1: the progressive wing of the Democratic Party, there is an
4:37
Speaker 1: enormous amount of desire to get this done. In the
4:42
Speaker 1: in the in the in the furthest right wing of
4:44
Speaker 1: the Republican Party, there's no appetite for this whatsoever. And
4:49
Speaker 1: that's one of the reasons that I've been suggesting bankruptcy
4:52
Speaker 1: as as a possible middle ground. Um. But let me
4:56
Speaker 1: say something else about what you just said about teachers
4:58
Speaker 1: and so on. Um, there's a second aspect to this.
5:02
Speaker 1: If you file, if you bring back bankruptcy, it means
5:06
Speaker 1: that the lenders, the banks, the government are all going
5:10
Speaker 1: to have to be more careful about making loans. That's
5:13
Speaker 1: one of the big problems. They give the money to anybody,
5:15
Speaker 1: they don't have to care whether the person can pay
5:17
Speaker 1: it back or not, because they're gonna get reimbursed by
5:19
Speaker 1: the federal government. That's a huge problem. That's called moral hazard. Um.
5:25
Speaker 1: And so you know, if they're more careful with their lending,
5:28
Speaker 1: that means that you know, working class and poor kids
5:30
Speaker 1: are going to have a much harder time getting loans.
5:33
Speaker 1: So that's where I proposed the second part of this,
5:36
Speaker 1: which is to make it much easier to get into
5:39
Speaker 1: these income based repayment plans where you pay a percentage
5:44
Speaker 1: of your income for a certain number of years um
5:48
Speaker 1: as your way of paying of paying back your loan.
5:51
Speaker 1: And if you have certain you could you could make
5:54
Speaker 1: it so that, you know, if you are in the
5:55
Speaker 1: Peace Corps, if you are a teacher, or if you
5:58
Speaker 1: do work on an Indian reservation, or you know, any
6:00
Speaker 1: of those kind of things, that that the amount would
6:04
Speaker 1: be reduced just because you're doing you know, what amounts
6:07
Speaker 1: to public service. So I think between bankruptcy and income repayment, uh,
6:14
Speaker 1: you pretty much have the problem solved. Joe, what do
6:17
Speaker 1: we know about President elect Biden and his thoughts about
6:22
Speaker 1: this issue, because presumably this might be one of the
6:24
Speaker 1: things he might want to tackle in this first one days.
6:27
Speaker 1: I doubt he'll tackle it in this first one days
6:29
Speaker 1: because it's con contentious, but I do think he does
6:32
Speaker 1: want to tackle it. He needs to give something to
6:34
Speaker 1: the progressives. Now what I've heard is that, um, what
6:39
Speaker 1: he's looking at. You know, Elizabeth Warren wants fifty uh
6:43
Speaker 1: wiped away. He and he and she and she wants
6:46
Speaker 1: him to do it through executive order. He would like
6:49
Speaker 1: to reduce it simply by ten thousand dollars, and he
6:52
Speaker 1: wants to do it through legislation, so it wouldn't look like,
6:56
Speaker 1: you know, by sea I, it wouldn't look like he's
6:58
Speaker 1: trying to ram something down those throats. Um, whether he
7:02
Speaker 1: could get a past legislation, well, a lot of that
7:04
Speaker 1: depends on what happens in Georgia, you know, in early January.
7:08
Speaker 1: Um uh, And so we'll just shop to see about that. Yeah.
7:13
Speaker 1: And I mean, you know, it doesn't matter what kind
7:16
Speaker 1: of college you go to, you end up with these
7:18
Speaker 1: crushing debts, and then you know, interest rates that are
7:21
Speaker 1: insane for for a lot of young people out there
7:24
Speaker 1: that are just trying to give themselves an education. I
7:27
Speaker 1: know that Joe Biden has definitely talked about pel grounds
7:29
Speaker 1: for everybody, but I mean, that's what the tip of
7:31
Speaker 1: the iceberg, right Jo, Yes, it is. And I would
7:34
Speaker 1: say I'm also about the crushing debt. Don't forget you know,
7:38
Speaker 1: kids who drop out of school because they can't keep paying,
7:41
Speaker 1: you know that they still have that debt. Kids who
7:44
Speaker 1: go to for profit colleges that are turned out to
7:46
Speaker 1: be scammed, they still have that debt. So, I mean,
7:50
Speaker 1: you know, there's a percentage of people for whom the
7:52
Speaker 1: debt is great. They get through college, you know, they
7:54
Speaker 1: have a good life, they have you know, they did
7:57
Speaker 1: a good job. But there's a whole lot of other people,
7:59
Speaker 1: well that doesn't need can happen, and they're still stuck
8:01
Speaker 1: with the dad. Yeah, very big issue for a growing
8:04
Speaker 1: number of people. Jonah Sarah, thanks so much for joining us.
8:06
Speaker 1: Jonah Sarah's a columnist for Bloomberg Opinion. You can read
8:09
Speaker 1: his work and all the work of Bloomberg Opinion at
8:12
Speaker 1: Bloomberg dot com, slash Opinion or on the terminal O
8:15
Speaker 1: P I N go. Well, we got another dose of
8:21
Speaker 1: sobering jobless claims this morning, arguably once again raising the
8:26
Speaker 1: incentive for the Fed remaining accommodative and for Congress to
8:30
Speaker 1: move forward on a meaningful piece of fiscal stimulus. Let's
8:33
Speaker 1: get the latest economic outlook with Lindsay Pegsa, chief economist
8:37
Speaker 1: at Steeple Financial, joining us on the phone from Chicago. Lindsay,
8:40
Speaker 1: thanks so much for joining us here. You know, if
8:43
Speaker 1: we step back a little bit, we can certainly see
8:46
Speaker 1: signs that the economy is through the worst of the
8:49
Speaker 1: pandemic UH disruption, but there's still a lot of work
8:54
Speaker 1: to do. Given what we heard from FED Chairman Pal
8:57
Speaker 1: this week, given what we see on the on the
8:58
Speaker 1: job was front of other eco economic data points, where
9:01
Speaker 1: do you think we are in the recovery? Well, I said,
9:05
Speaker 1: I think we've made it through the first the biggest barrier,
9:08
Speaker 1: the biggest top as we saw the worst of the
9:10
Speaker 1: pandemic in the second quarter. But that's not to say
9:13
Speaker 1: that we're not going to have more difficult times ahead,
9:16
Speaker 1: because even if we do see the second round resurgeon
9:19
Speaker 1: UH snuffed out at a relatively faster pace than the
9:22
Speaker 1: first round. Remember, businesses and individuals are already beginning from
9:27
Speaker 1: an extremely fragile position after months of hardship, so it's
9:31
Speaker 1: going to be increasingly difficult for them to continue to
9:34
Speaker 1: weather a storm without some sort of additional artificial support
9:39
Speaker 1: from officials in Washington. So there really has to be
9:42
Speaker 1: some increased pressure on our representatives on Capitol Hill to
9:45
Speaker 1: really do their job and get some of those funds
9:48
Speaker 1: out to hurting individuals and businesses really struggling at this point.
9:53
Speaker 1: How concerned you think the FLMC is about the situation, Lindsay,
9:58
Speaker 1: I think they're very concerned. I do think that FED
10:00
Speaker 1: chairman struck a very delicate line. On the one hand,
10:03
Speaker 1: he was trying to be optimistic about the improvement that
10:06
Speaker 1: we've seen thus far, particularly in the third quarter, with
10:09
Speaker 1: that stellar rise more than offsetting the decline in the
10:12
Speaker 1: second quarter, at least in percentage terms. But he was
10:15
Speaker 1: also very cautious to say it looks that the virus
10:18
Speaker 1: is going to dictate the path of the recovery. It's
10:20
Speaker 1: still very uncertain, and while we're optimistic, a number of
10:24
Speaker 1: things have to go right, A number of dominoes have
10:26
Speaker 1: to fall just perfectly in line in order to really
10:29
Speaker 1: navigate ourselves out of this, this unprecedented situation. So I
10:34
Speaker 1: do think the FED is increasingly concerned about being able
10:37
Speaker 1: to get the economy back on track, but more importantly,
10:41
Speaker 1: back to a position of a longer run, sustainable improved trajectory.
10:46
Speaker 1: It's not about just a one quarter bounds, but really
10:48
Speaker 1: getting the economy back on a pathway towards potential GDP.
10:53
Speaker 1: There's a nillion dollar fiscal stimus here, do that, lindsay,
10:57
Speaker 1: or do we need even more than that? From your
10:59
Speaker 1: perspective this, I do think it will help. I do
11:03
Speaker 1: think it will help stabilize the economy. But again, it
11:05
Speaker 1: depends on the depth and duration of this second round resurgence.
11:08
Speaker 1: If we continue to see businesses shut down, workers sent
11:12
Speaker 1: home well into the first quarter, billion is not going
11:15
Speaker 1: to do it. So it really depends on how quickly
11:18
Speaker 1: we're able to control the virus and how how really
11:22
Speaker 1: lenient I would say, local officials are in terms of
11:25
Speaker 1: allowing the private market to return to some semblance of
11:29
Speaker 1: normal market activity. Remember, this isn't a market crisis, this
11:32
Speaker 1: is a health crisis. So the best way to control this, uh,
11:37
Speaker 1: this unprecedented scenario is having a meaningful way of separating
11:41
Speaker 1: the healthy from the sick, something that we don't have
11:44
Speaker 1: at this point. What else can the FED do? At
11:47
Speaker 1: this point where you surprised at the fact that the
11:51
Speaker 1: SCP skewed a little more positive, No, I wasn't. I
11:55
Speaker 1: wasn't necessarily surprised by that. We did anticipate a little
11:58
Speaker 1: bit of an upward revision in terms of the Fed's
12:01
Speaker 1: expectation for growth and unemployment because we have seen vast improvements,
12:05
Speaker 1: in fact, faster than expected improvement. As I mentioned in
12:08
Speaker 1: the third quarter, carrying forward through October and somewhat in November.
12:13
Speaker 1: So it does make sense that the FET is reflecting
12:15
Speaker 1: that improved baseline scenario. But going forward, I do think
12:20
Speaker 1: that the FED has put so many tremendous proposals and
12:24
Speaker 1: plans in place that at this point that there's very
12:27
Speaker 1: little additional they can do to support the market or
12:30
Speaker 1: support the economy. It really has to come from fiscal
12:33
Speaker 1: policy support at this point, and the FED all but
12:36
Speaker 1: handed that proverbial batime over to our officials in Washington, saying, look,
12:40
Speaker 1: we've done everything we can up to this point. Now
12:44
Speaker 1: it's up to you guys to again do your job
12:47
Speaker 1: and reach an agreement and get those much needed funds
12:50
Speaker 1: out to those that are hurting the worst, including small
12:52
Speaker 1: businesses and individuals that have lost their job through no
12:56
Speaker 1: faults of their own, but by the government's own design.
12:59
Speaker 1: H lindsay, briefly, what's the steeple four Q GDP call
13:04
Speaker 1: and GDP call. I do think there's enough strength in
13:08
Speaker 1: October and November to carry growth in positive territory in
13:12
Speaker 1: the fourth quarter. So I am looking for low single
13:15
Speaker 1: digit growth around four or five percent for the fourth quarter,
13:18
Speaker 1: certainly a decline from that rebound that we saw on
13:21
Speaker 1: the third quarter, but still a very a very welcomed
13:23
Speaker 1: improvement in terms of growth going forward, however, into the
13:27
Speaker 1: first quarter. Right now, our baseline scenario is less than
13:30
Speaker 1: one percent GDP, with a downside risk of the U
13:33
Speaker 1: S economy falling back into negative territory if we do
13:37
Speaker 1: see a continued drag out of this second round resurgence
13:40
Speaker 1: without additional support from the federal government. Lindsay, you have
13:44
Speaker 1: to live there, but thank you so much for joining us,
13:46
Speaker 1: and uh, maybe speak to you again before the end
13:48
Speaker 1: of the year. If not, we'll talk to you in January.
13:52
Speaker 1: That's Lindsay, pe TV economists add Stephile Nicholas joining us
13:55
Speaker 1: there and pull. It's really just so fascinating to see
13:59
Speaker 1: the data come in and some of it poor, some
14:01
Speaker 1: of it okay. It really is so obviously a caeshaped recovery.
14:04
Speaker 1: It really is. And I think the concern here is
14:07
Speaker 1: is Lindsay suggested not getting a handle in the near
14:09
Speaker 1: term on this pandemic. Another industry that's had a very
14:14
Speaker 1: tough year is the home health business. Those going into
14:17
Speaker 1: people's homes protecting the aging population. And so on. Charlie
14:21
Speaker 1: Young is the CEO of Synergy home Care, located in
14:25
Speaker 1: New Jersey. It's one of the leading in home care
14:28
Speaker 1: organizations that operates in three markets. Charlie, first of all,
14:31
Speaker 1: before we get onto the vaccine vaccine rollout, tell us
14:34
Speaker 1: how your business has been going and what changes you've
14:38
Speaker 1: had to make thanks to the pandemic. Well, first of all, Fanny,
14:41
Speaker 1: it's great to be here. Thanks for having me. I'm
14:44
Speaker 1: actually out in Arizona, so I missed that beautiful snowstorm
14:49
Speaker 1: that you are just that. Uh. The business of home
14:52
Speaker 1: care has has seen quite a bit of demand, as
14:56
Speaker 1: you can imagine obviously. Uh, people are looking to make
15:00
Speaker 1: sure that they are safe and one of the safest
15:04
Speaker 1: places to be is at home. Like many industries, senior care,
15:09
Speaker 1: home care, December this is prime time for us UM
15:13
Speaker 1: and the reason for that is generally this is when
15:16
Speaker 1: families get together. This is when families gather usually for extended,
15:21
Speaker 1: extended areod of time and adult children often times see
15:25
Speaker 1: that mom or dad or another senior love one of
15:27
Speaker 1: theirs needs more care and more more help. Um. We're
15:32
Speaker 1: not having that this year. Um uh, So we're trying
15:35
Speaker 1: to help people understand how that they can support their
15:38
Speaker 1: loved ones and look for the things that they need
15:41
Speaker 1: uh to help them to continue to thrive at home,
15:44
Speaker 1: even though they might not be there in person. But
15:46
Speaker 1: to your to your point, the business has been been
15:49
Speaker 1: doing quite well because the demand for home care during
15:52
Speaker 1: the pandemic is quite high. Charlie, your employees, they are
15:58
Speaker 1: just the definition of frontline workers. Here a couple of
16:01
Speaker 1: points here how to how they've been faring Number one
16:04
Speaker 1: and number two. Um, presumably they will be one of
16:08
Speaker 1: the first to get the vaccine. What if we can
16:09
Speaker 1: you tell us about that? Yeah? Well, first of all,
16:12
Speaker 1: you're absolutely right. I mean, there's no more noble cause
16:16
Speaker 1: than to be a caregiver who goes into another's home
16:20
Speaker 1: UH to take care of them. Our mission at Synergy
16:23
Speaker 1: own cares to help people thrive at home, and that's
16:25
Speaker 1: what these people do every single day. UH. As you know,
16:30
Speaker 1: the response to the pandemic has been decentralized across the country,
16:36
Speaker 1: with states all having different approaches and oftentimes trickling down
16:41
Speaker 1: to local UH and county governmental decisions. So UM, you know,
16:47
Speaker 1: what we're seeing is that our home care workers are
16:49
Speaker 1: being treated as essential. Some places, but not in others.
16:53
Speaker 1: Really encouraged. I did get a call from a franchise
16:55
Speaker 1: e of ours in New Jersey this morning. They were
16:58
Speaker 1: called by their county health department yesterday asking for a
17:02
Speaker 1: list of their caregivers so that they could be put
17:05
Speaker 1: on uh that priority list for the vaccine. And uh,
17:09
Speaker 1: I only uh wish it was that way all over
17:12
Speaker 1: the country. So Charlie talked us about how franchise e
17:17
Speaker 1: that works. Are all of your home all of your
17:20
Speaker 1: businesses in the various dates franchise run and uh and
17:23
Speaker 1: how do they pay you a fee? And what do
17:25
Speaker 1: you provide to them? Yeah? Absolutely so, uh, you know,
17:29
Speaker 1: we are a franchise business. We uh we really offer
17:33
Speaker 1: the promise to help care minded uh compassionate entrepreneurs build
17:38
Speaker 1: a robust business. We do that in four basic ways.
17:41
Speaker 1: We provide a home care platform everything that you need
17:44
Speaker 1: to run a home care business, from the initial training,
17:46
Speaker 1: the software and other tech backbone that you need, uh,
17:51
Speaker 1: and then all the marketing that goes with it. We
17:54
Speaker 1: provide all the local lead generation marketing, referral partnerships with
17:59
Speaker 1: insurance and health organizations, and obviously a network of people
18:04
Speaker 1: who have done this before. Uh, and so when you
18:06
Speaker 1: have over three seventy markets around the country, there's a
18:09
Speaker 1: robust group of people who have experience and can help there.
18:13
Speaker 1: That's another area of our business has grown quite well
18:15
Speaker 1: during the pandemic is the franchising side. We're selling home
18:19
Speaker 1: care franchises. I think that's a function of two things.
18:23
Speaker 1: One is, you know, the the economic situation in the country.
18:26
Speaker 1: Many people have been downsized and are out of work
18:29
Speaker 1: and are looking for a new chapter in their lives.
18:33
Speaker 1: And then I think when you look at the the
18:36
Speaker 1: the upside for home care in the years to come
18:39
Speaker 1: starts with demographics. Uh, it starts with a shift in
18:44
Speaker 1: in in thinking about the whole healthcare continuum. It's a
18:48
Speaker 1: it's a business to be in and so we've done
18:50
Speaker 1: well there over the last nine months as well. So
18:55
Speaker 1: it was I just curious, why would somebody need to
18:58
Speaker 1: buy into a franchise if they want to, you know,
19:00
Speaker 1: be in the home care business. Can they not just
19:03
Speaker 1: do it? You could? You could just do it. You
19:07
Speaker 1: would be faced with a much steeper learning curve and
19:11
Speaker 1: startup curve because when you when you join a synergy
19:14
Speaker 1: of home care franchise, you're gonna have all of your
19:17
Speaker 1: systems in place from day one. So that is a
19:21
Speaker 1: thought process as a business owner that you don't need
19:24
Speaker 1: to go through. You're going to have the software, software
19:27
Speaker 1: platform for billing, for scheduling, for recruiting caregivers, all of
19:33
Speaker 1: that sort of thing. You're gonna have the marketing platform
19:35
Speaker 1: for lead generation. And because we have a national footprint,
19:38
Speaker 1: we have uh, national partners who are bringing referral business
19:42
Speaker 1: to us. Uh you know, and so so it's a
19:46
Speaker 1: it's a it is a way to get up and
19:48
Speaker 1: running and uh uh much more, much more efficiently. Yeah,
19:54
Speaker 1: go ahead. Interesting, Charlie, thanks so much for joining us.
19:56
Speaker 1: It's a really an interesting time for you and your business.
19:58
Speaker 1: I'm sure, Charlie young Ief, executive officer for Synergy Home Care,
20:03
Speaker 1: obviously seeing increased demand during these pandemic times. Now, let's
20:10
Speaker 1: bring in Bloomberg journalist to Molly Smith. A fantastic story
20:14
Speaker 1: on the Bloomberg Today and it relates to minority owned
20:18
Speaker 1: underwriting firms and how they benefited from a new detention
20:22
Speaker 1: on social justice issues, particularly this summer after Floyd's killing.
20:27
Speaker 1: But they say that actual institutional barriers are keeping them
20:31
Speaker 1: from gaining a bigger share of the corporate debt market,
20:33
Speaker 1: and it really is a phenomenal, molly great story. First
20:36
Speaker 1: of all, give us a rundown of some of the
20:38
Speaker 1: firms that you're talking about. Sure, So when we talk
20:41
Speaker 1: about diverse underwriters, these are banks that are owned by minorities, women,
20:46
Speaker 1: and veterans. So we talked to several of the prominent
20:50
Speaker 1: African American owned banks like Luke Capital, playlog Van, We
20:54
Speaker 1: talked to several veteran owned banks like Drexel Hamilton's Academy Securities,
21:00
Speaker 1: and a lot of these banks really trace their roots
21:02
Speaker 1: back to UH the civil rights movement, and that's when
21:06
Speaker 1: a lot of them got started and in underwriting bonds
21:09
Speaker 1: for America's local governments, and that's why they've done so
21:13
Speaker 1: well in the municipal bond market, where where America's leadership
21:17
Speaker 1: at the local government level, excuse me, is tends to
21:21
Speaker 1: be much more diverse in nature itself. You transition them
21:24
Speaker 1: to the corporate market, and America's companies are hardly as
21:27
Speaker 1: diverse in nature at the leadership level than the cities are,
21:31
Speaker 1: and it just hasn't been as integral and natural of
21:33
Speaker 1: emission on the corporate market. So'm only I know historically
21:37
Speaker 1: some of the challenges for some of these minority on
21:40
Speaker 1: banks as it relates to uh, the corporate market is
21:44
Speaker 1: lack of adequate capital and maybe even staffing and so on.
21:47
Speaker 1: So what's the story there. The biggest obstacle that a
21:51
Speaker 1: lot of the banks will point to is that they
21:54
Speaker 1: are set up as solely investment banks, meaning that they
21:56
Speaker 1: don't have commercial banking abilities as well. And that's what
22:00
Speaker 1: makes the biggest banks on wall streets such a formidable
22:04
Speaker 1: force in this space, so that they are able to
22:06
Speaker 1: provide cheap loans to companies with the expectation of winning
22:10
Speaker 1: the more lucrative capital markets business in return. And when
22:14
Speaker 1: you're just an investment bank that's not in your wheelhouse,
22:17
Speaker 1: you don't have, you know, provide these credit facilities to companies.
22:21
Speaker 1: So the lend these diverse underwriters have had to be
22:24
Speaker 1: much more creative and how they get into deals, and
22:28
Speaker 1: that's that's what key obstacle that they pointed to that's
22:32
Speaker 1: keeping them from moving forward. Yeah, I mean earlier this
22:34
Speaker 1: year when by Lackman was ringing his back to sort
22:38
Speaker 1: of the public attention, he pointed to the fact that
22:41
Speaker 1: he used minority owned underwriters for setting up some of
22:45
Speaker 1: the deal, but if you looked at it, it was
22:47
Speaker 1: actually you know, a small sliver of the deal, but
22:49
Speaker 1: they did have permanent capital was going to be you
22:51
Speaker 1: know something, and he was trying to get other people
22:54
Speaker 1: on Mole Street to do this as well. There was
22:56
Speaker 1: no downside according to him. Why are they not doing it?
23:00
Speaker 1: What is the big big setback? Are they afraid of
23:03
Speaker 1: the big banks like David Morgan and Goldman's X I
23:06
Speaker 1: don't I think that they're starting to come around to it,
23:09
Speaker 1: because when the All State deal, at least in my
23:11
Speaker 1: opinion and for definitely a lot of these banks too,
23:14
Speaker 1: was a really big turning point and showing that they
23:17
Speaker 1: that All State had borrowed one point two billion dollars.
23:20
Speaker 1: I believe it was last month, and this was the
23:22
Speaker 1: biggest deal ever managed solely by diverse firms. And all
23:26
Speaker 1: State is a major US companies. Certainly they have banking
23:29
Speaker 1: relationships with the biggest Wall Street banks and they actually
23:33
Speaker 1: consulted with some of those banks before this bond sale,
23:36
Speaker 1: and all of them, including Brian moynihan from Bank of America,
23:40
Speaker 1: said they thought this was a great idea and something
23:43
Speaker 1: that all states should definitely pave the way in doing so.
23:46
Speaker 1: I think there is more receptiveness to us. But certainly
23:50
Speaker 1: there is just that stigma. It's not, you know, a
23:52
Speaker 1: start and set rule in any way, but companies just
23:56
Speaker 1: naturally tend to look at their lending partners when looking
23:59
Speaker 1: at capital markets like ativities. Is there any incentive for
24:02
Speaker 1: companies to change I'm thinking about E s G investing,
24:05
Speaker 1: is that maybe could be a criteria for certain investors
24:09
Speaker 1: to say, hey, we want your advisors, whether it's your
24:13
Speaker 1: legal advisors or your financial advisors, to be more diverse.
24:17
Speaker 1: Is that an angle perhaps, certainly, and that's something that uh,
24:21
Speaker 1: you know, a lot of companies they cannot fulfill D
24:23
Speaker 1: and I mandates through their capital markets group as well.
24:27
Speaker 1: So I think a lot of them are starting to
24:29
Speaker 1: look at this in the new light. And certainly you're
24:32
Speaker 1: seeing as well with Goldman and NASDAC requiring companies to
24:36
Speaker 1: have diverse leadership in the at the board level, that
24:39
Speaker 1: it's becoming much more significant that they're going to be
24:43
Speaker 1: real consequences that if you could be delisted from an
24:46
Speaker 1: exchange if you don't have if you're not inclusive in
24:49
Speaker 1: your board representation, that's a really big deal. So I
24:51
Speaker 1: think companies are really going to be waking up to
24:54
Speaker 1: this more. But certainly that is what these diverse banks
24:57
Speaker 1: are looking for, that this isn't just a thing, it
25:00
Speaker 1: is a sustainable trend. You quote Eric van Standifer, who's
25:04
Speaker 1: the founder and chief executive author of Laylock, saying, they're
25:07
Speaker 1: still giving us qualms and just giving us more crumbs.
25:10
Speaker 1: It seems to be so you know, at the margin,
25:13
Speaker 1: you know it needs to be a much more major
25:17
Speaker 1: sort of movement, doesn't it. That's exactly it, because these firms,
25:21
Speaker 1: that's why all State was so significant that they took
25:23
Speaker 1: on lead manager roles versus in the Google deal which
25:27
Speaker 1: he was talking about. Google brought on fifteen diverse co
25:30
Speaker 1: managers for this deal. So that means that they've walked
25:34
Speaker 1: away with just two hundred sixty thousand dollars in fees
25:36
Speaker 1: each versus the three biggest underwriters got more than seven
25:41
Speaker 1: million dollars each. So it's just like, of course, you
25:44
Speaker 1: want to spread the wealth, so to speak, but when
25:47
Speaker 1: you include so many firms on one deal, it's just
25:51
Speaker 1: being spread out among that many more people. Hey, Molly,
25:54
Speaker 1: thank you so much for joining us and sharing this
25:56
Speaker 1: story really well reported. Molly Smith, corporate finance reporter for
26:00
Speaker 1: Bloomberg News. Thanks for listening to Boomberg Markets podcast. You
26:04
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Speaker 1: Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on
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Speaker 1: Twitter at pt Sweeney. Before the podcast, you can always
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