At The Money: Blurring the Lines Between Public and Private Investments with Dave Nadig, ETF.com (May 20, 2026)

There used to be a clear distinction between public and private companies. Firms would take years or even decades to grow, build their revenue and profits, and eventually tap the public markets to go national or even global. This is no longer how it works.

Full transcript below.

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About this week’s guest:

Dave Nadig is President and Director of Research at ETF.com, and he shares with us how investors should navigate all of these new products. Dave helped design and market some of the first exchange-traded funds. He is the author of  “A Comprehensive Guide to Exchange-Traded Funds” for the CFA Institute.

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Find all of the previous At the Money episodes here, and in the MiB feed on Apple Podcasts, YouTube, Spotify, and Bloomberg. And find the entire musical playlist of all the songs I have used on At the Money on Spotify

 

 

 

 

TRANSCRIPT:

Barry: There used to be a clear distinction between public and private companies. Firms would take years or even decades to grow, build their revenues and profits, and eventually tap the public markets to go national or even global. That doesn’t seem to happen anymore as endless amounts of capital slosh through the system. More and more companies are staying private, but there’s a group of private investors that are accessing public capital through various wrappers, including ETFs.

To help us unpack all of this and what it means for your portfolio, let’s bring in Dave Nadig. He’s president and director of research at etf.com, and he shares with us how investors should navigate these public-private hybrids. Dave is also the author of the book A Comprehensive Guide to Exchange Traded Funds. So Dave, there was once a very bright line between public and private markets. Has that line disappeared, or has it simply moved into wrappers that investors don’t fully grok?

Dave: I think it’s more the latter. The rules haven’t really changed — that’s important to point out here. It’s not like we passed a law that said everybody can get in. What’s changed is that there’s a willingness by the issuers of product to get a lot more aggressive in what they’re positioning as retail-appropriate vehicles. So there’s not a new wrapper here. What there are are new ways of stretching the edges of wrappers that had been around for almost a hundred years at this point.

Barry: So let’s put some numbers on that. Since 2010, private credit has raised something like $1.8 trillion. Every major firm — Blackstone, Apollo, KKR, Ares, Blue Owl — is building retail channels. There were 314 interval funds and tender offer funds with $277 billion in assets as of January of this year, 2026. A lot of chatter that private is going after the 401(k) market next. What does all this capital mean to investors?

Dave: You know, the thing investors need to realize is that if you are the one being offered a product, you need to ask yourself why. If somebody’s coming to you and saying, “I want to give you access to private credit or private equity,” it’s very smart to say, who is selling this to me, and why are they selling it to me now? And unfortunately the real answer here is — look, we’re in this incredible bull market, let’s just be really honest. Things have been going up for a very, very long time.

And because of that, there is a lot of money looking for exits. At the end of every cycle in my career, it is retail that is looked at to be the exit. Whether that’s buying Beanie Babies, used cars, or stocks, it doesn’t really matter. At the end of the day, the retail investor is the one that the quote-unquote smart money, the big institutional money, is looking to unload their positions onto.

So it’s not surprising to me that we’re seeing a lot of discussion around quote-unquote democratizing private investing — whether it’s venture capital or private credit, it doesn’t really matter. It’s all the same thing. We just have to accept that we are going to be marketed these products, and for the most part, I think investors are not well served by them. But that’s worth poking at.

Barry: So we should all take some advice from that great alternatives investor, Groucho Marx: I don’t want to be a member of any club that would have me.

Dave: Exactly.

Barry: So let’s talk a little bit about how this used to look. In the old days, historically, companies would go public to raise growth capital. Today it seems like a lot of the best-known private firms can stay private indefinitely, and those that do go public seem just to be reaching for liquidity for insiders. Is that what’s happening with these various ’40 Act funds in all sorts of new wrappers?

Dave: Yeah, there are two things going on here. On the one hand, eventually these private companies go public, and there’s a lot of effort to get investors involved in those IPOs. That’s the end state of what we’re talking about. I want to focus a little bit more on the beginning state, which is how the actual money in private equity gets there.

Historically, how that money ends up in a private company is pretty simple. There’s some pool of assets — generally an LLC or a limited partnership — and it collects a billion dollars of money from a bunch of rich people, endowments, institutions, and financial advisors. That money goes into a pool, which then makes a bunch of small investments in, say, 15 different startups in Silicon Valley. The idea is that one of those hits big, and then the payout from that is either that company gets bought or it goes IPO, and all the investors in that limited partnership get a big check.

That’s the structure. How that little pool of private money gets managed can really vary. It’s very common for it to be literally a limited partnership. But the problem with that is you can only get so many investors into it.

When you want to get a lot of investors, you have to go to some sort of regulated vehicle, and then you end up in usually a closed-end fund of some kind — whether it’s a traded closed-end fund, a non-traded closed-end fund, an interval fund, or a tender offer fund. They’re all versions of the same thing. They’re funds that are roach motels: money goes in, money never comes out.

Barry: Define those various things. What’s the difference between a tender offer fund, a closed-end fund, an interval fund — for people who may not be hip to all these different acronyms? Go through the whole list.

Dave: So really the main structure is the closed-end fund, or the CEF, which is part of the ’40 Act — just like an open-ended fund, which is an ETF or a mutual fund. Same rules, same laws, very similar structures at the very high level. The biggest difference is a closed-end fund is basically subscribed to once, like an IPO. You go out, you say, “I want to raise a billion dollars.” You see if you can get a bunch of people to give you that billion dollars.

Now that is a closed pool of money. And whether or not money ever comes out of that pool again depends on how the rules are written for that fund. In the most investor-friendly version, it tends to be a traded closed-end fund, meaning you can go to the NYSE and get a bid for it, and it may be trading at a discount or not. That’s the version that, for instance, Pershing Square just launched. Pershing Square just filed PSUS, which is a fairly traditional closed-end fund. They raised a bunch of money.

Now it trades in the open market, and much to Bill Ackman’s dismay, it’s trading at a 20% discount to what it’s actually worth. That’s pretty common in closed-end funds, because there’s no liquidity. You can only buy it or sell it from other people who happen to want it or own it.

Barry: And to clarify, PSUS — are the holdings private or public, or both?

Dave: At the moment that’s really going to be public equities. I think what people are trying to buy there is Bill Ackman’s high concentration, use of some leverage to get better exposure, special-situations kind of investing. That was a specific offering that he’s tried — I think this is his third tilt at this windmill — and finally got this one to close, albeit not with the pricing he probably would’ve hoped for. But that’s actually a pretty traditional closed-end fund.

You raise a bunch of money, you trade it back and forth with your friends, maybe it throws off dividends, maybe it throws off a capital gain someday if they have a big win. But you’re never expecting to get your money out. You can do the exact same thing and not have it ever be traded — and that’s a non-traded private equity fund.

That’s a pretty common thing. BREIT, a really well-known REIT fund, is one of those non-traded closed-end funds, and we’ve had a bunch of those launched recently also really targeting private equity. So that’s another very common version of it.

Barry: And full disclosure — what I’m about to talk about is something I own. Boaz Weinstein has an ETF, CEFS, that looks for closed-end funds that are trading at a discount to NAV. He buys them and then either agitates for the manager to buy back enough stock so it’s trading at NAV, or to break it up and just sell all the pieces and return the money or give the stock back to the investors. Why do so many of these closed-end funds trade at such a discount that activists are haranguing management for what essentially is a dollar trading at 75 cents?

Dave: Well, the discount comes because of what you just said. There’s no liquidity in it. There’s no way to ever extract real value from the fund. It’s permanent capital, largely from the perspective of the issuer.

That’s why the issuer loves it. They’re just like, “I have a $2 billion portfolio. I never have to worry about providing liquidity. I’m fine.” So if it trades at a discount, that manager really doesn’t care. They’re still getting paid based on NAV — often paid on NAV that’s been goosed by a bunch of leverage.

So they still get paid. The end investor is the one sitting here going, “Why am I sitting here at a discount?” So arb-ing out of the discount is a classic tale. People have been doing that since the sixties.

Barry: But that’s a —

Dave: — story for closed-end funds.

Barry: Right? With ETFs, the arb means there’s no discount, because you could always buy it, open the wrapper, and sell the stock. So it just seems weird that closed-end funds don’t have the same response to arb.

Dave: It’s like an appendix on regulatory structure, right? It’s this vestigial piece of flesh that’s attached to the ’40 Act. And that’s why, as you mentioned at the top of the show, there are only a couple hundred of these things. Generally people only use the closed-end fund structure when they have one of a couple of problems to solve.

One is they’re buying stuff they literally can’t sell. So in the case of USVC — the one that AngelList’s Naval just launched, I’m still trying to get my money into — the whole idea there is that buying stakes in SpaceX and private companies like that, you can’t just liquidate. They need to be able to close the liquidity gate. That’s usually reason number one.

Reason number two is usually leverage. If you’re trying to do some sort of levering up bonds to try to get 15% returns out of them — those kinds of portable alpha strategies, or risk parity strategies where you really need to be able to go long and short and get lots of leverage — you can do that in the closed-end fund structure where you can’t in a traditional mutual fund or ETF. So it does solve a problem.

The issue is, it’s very rarely a problem the normal investor has.

Barry: So you mentioned PSUS, and I remember that fee was not five bips. What was the fee on PSUS?

Dave: I think it’s 2% out of the gate.

Barry: Oh, that’s a chunk of cash. But no 20 — it’s not a two-and-twenty hedge fund. It’s just a two.

Dave: Yes, exactly.

Barry: And what about products like USVC? By the way, I love that these all have the name “US” in them. I guess the plan is they’ll do an overseas version one day as well.

Dave: Look, all of these funds are generally pretty expensive. Something like USPE, which is the one that’s come from Tap — that’s basically just going to buy a bunch of private stuff that they get access to — is charging 2%, but what they’re buying is other funds. So you get a lot of acquired fund expenses. It’s not uncommon to see these expenses creep up toward 3 or 4% when you start rolling all this stuff together.

Barry: Because it’s fees on fees?

Dave: It’s fees on fees. I should point out, though, that USVC is the one that made a big splash lately because they’re basically saying the limit’s $500 — get your money in now. They’re structuring that as a bit more of an interval fund, where once a quarter they’re saying, “We’ll give 5% liquidity to people who want to get out.” That’s, again, a fairly common structure, although none of those things are written in stone. They can say they’re going to do that and then not do it, and there’s no recourse.

Barry: And USVC does not trade on any —

Dave: It won’t trade anywhere. It’s non-traded. So the only way you’ll ever get your money out of it is either they make a distribution because something big happened in the fund, or you sign up for one of these quarterly windows where you can get 5% of your money out.

Barry: So some of these are private and hold non-liquid assets. Some of these are public and hold public assets. Are there public versions of these that hold private assets?

Dave: Well, the equivalent to that would be something like USPE, which is the one coming from Tap. The idea there is that it’ll be trading on the exchange — no, it’s not an ETF, it’s still a closed-end fund, but it’ll be a traded closed-end fund. So it’ll have its big discounts.

The other version of this is you can take an ETF and use the 15% illiquid bucket that all mutual funds are technically allowed to have, and you can try to use that aggressively. There are ETFs doing that. XOVR is the big one — it has a 15% SpaceX chunk in it. Ron Baron’s fund, BRONB, has a big chunk of SpaceX in it right now. So there are more ETFs and mutual funds trying to do that, but it’s obviously fraught with peril. You don’t want to go too far down that road and then have a giant pile of redemptions you can’t meet.

Barry: So here’s the obvious question. USPE — or even better, Pershing Square PSUS with Bill Ackman — these funds convinced savvy institutional investors and others to put a bunch of money in. They launched at a couple of billion dollars. “Wait, I could buy me some Bill Ackman at a 20% discount.” How come more people don’t see this and say, “Oh, I get to buy a premier hedge fund manager at a discount to NAV”? What’s the disconnect? Why haven’t people themselves just said, “I want some of this”? Is the expectation that, hey, if you want to be in Pershing Square, that’s where all the good stuff has taken place, but the PSUS closed-end fund isn’t going to have the same juice?

Dave: Interestingly, part of the reason Ackman had such a hard time getting this capital raise done over the years was exactly that argument. People were like, “I want to be part of the management company. I don’t want to own this garbage fund.” So what they actually floated was the combo platter, where for every — I think it’s every four or five shares of the fund you get one share of —

Barry: One —

Dave: — of the management company, the big GP, the main vehicle.

Barry: So you’re both an LP and a GP. If this was a hedge fund, you’d be an LP and a GP at the same time. Which is a very clever way to do it. How much of the overall GP did Ackman allow outsiders to buy? Or is it just built into the fund?

Dave: It’s built into the structure of the fund. I don’t know exactly —

Barry: Because you’re not getting 20% of the GP.

Dave: Well, you’re certainly not getting a hundred percent of it.

Barry: You’re getting one out of — well, if you’re buying it, you’re only getting one out of five shares or whatever it is. But he could say, “Oh, we’re going to have a hundred million shares and I’m going to put a million into this,” or whatever the float is.

Dave: Right. This is part of the problem with these kinds of funds. You ask why people aren’t storming the gates to try to get into this thing — well, you don’t know that much about it. You’re not getting regular reporting; it’s not super transparent. You don’t really know what the marks are. Obviously if they’re only holding public securities, you can impute the marks yourself, that’s fine. But on anything that’s private, you’re just kind of guessing and taking their word for it.

So yeah, it’s trading at a 20% discount to what you think it’s worth. But is that really even what it’s worth? And how do you value the GP component of this in that 20% discount? So I think the combo platter of lack of transparency and lack of liquidity is enough to scare most rational investors out of something like this.

Barry: So those are the downsides. There obviously has to be an upside. If someone like Bill Ackman is saying, “I have an idea,” and $2 billion worth of smart money theoretically threw some cash into that — what’s the upside?

Dave: The upside is Bill Ackman could be right. He runs high-concentration, somewhat levered portfolios of, I don’t know, a dozen stocks. That’s a high-conviction bet. If he gets those dozen stocks right, he could absolutely blow away the market. I’ve fully acknowledged that there are investors out there —

Barry: And his track record over the years is not bad. Lights out, right?

Dave: Exactly.

Barry: Not necessarily consistent, but mostly pretty good years and a handful of spectacular ones.

Dave: Some flashes of genius, right? So that’s why people are buying into these things — because they believe, in this case for Pershing Square, in Ackman and his prowess and his access to insight, quote-unquote, that other people aren’t getting. In the case of something like USVC, I think what they’re counting on is, “Oh, those are the AngelList guys. They’re getting to see all of this deal flow from Silicon Valley way before everybody else. USVC is going to get these nice little slugs of whatever the next SpaceX or the next big IPO is way before anybody else.”

That’s not insane. I mean, I have some private investments of my own. I’ve chosen to be much more careful and pick exactly what I want to do, but I’m not going to sit here and tell people private investing is a terrible idea. Lots of people have made lots of money doing it. So that’s the allure: hey, USVC — once they finally let people’s money in and start investing, maybe they will in fact carry the whole tailwind of everything going on in Silicon Valley venture, and your $500 becomes $5,000. It’s not impossible.

Barry: Here’s the math on private investing that I think a lot of people overlook. The median fund does okay — doesn’t do great. You’re better off in the S&P. It’s expensive and illiquid versus the S&P. But a top-decile fund does really well — diversified, non-correlated, and very often outperforms the index. The problem is, unless you get into that — I’ll be generous and say top-quartile — fund, the juice isn’t worth the squeeze. I love that expression. So given all of that, how do you think regulators should be treating this private exposure in these various public wrappers?

Dave: So my two big issues are liquidity and transparency. I think we should enforce the liquidity rules. Which means that if you’re sticking something in like an ETF, you should not be able to violate the 15% — if you cannot trade it and get a price on it intraday, it is not liquid, and you should not count it as liquid. So step one: we should actually enforce those liquidity rules.

Barry: Intraday meaning once a day, or anytime throughout the day?

Dave: Well, you’ve got to at least be able to do it once a day. And I would argue, holding an intraday-priced vehicle, you should probably be holding most of your assets in intraday-priced securities.

Barry: 85%.

Dave: 85%, right? So that seems pretty rational. That’s the liquidity side of it.

And then the transparency side. Look, the problem in private equity and private credit — as everybody who’s played in any of this knows — is that the marks don’t matter. We’ve all seen those pitch books that say, “Look, you should invest in privates. They’re so stable, they hardly ever go up or down.”

Barry: I love — Cliff Asness calls that “volatility laundering.” It’s a perfect phrase.

Dave: Right. So you’re taking what would obviously be wildly volatile assets, you’re marking them once a quarter, and you’re marking them based on a lower-vol metric — on what their comps did. So of course those are ridiculous and stupid marks. That would be the next thing I would focus on: independent valuation agents for anything that is going to touch the public hand. If you’re going to touch the 1940 Act, we should have independent verification, and we should at least publish valuation rules. That’s the other big one — they don’t tell you how they value any of these things. The board values whether or not your private thing is worth X or Y. I don’t like that. I would like to know the rules. Why do you think SpaceX is worth $185 instead of $500?

Barry: Really fascinating. Last question: five years from now, how do you think this public-private distinction — these public wrappers around private investments — I love the phrase “liquid alts.” It kind of reminds me of the George Carlin word routine: jumbo shrimp —

Dave: Military intelligence.

Barry: Right, exactly. That’s the exact routine. Listen, either it’s private and illiquid, or public and liquid. But private and liquid doesn’t really — at that point it might as well be public. It doesn’t make any sense. How do you think this distinction is going to show up in the minds of investors and/or regulators?

Dave: I don’t want to be Doomberg about this, but I feel fairly confident suggesting we’re going to have some event in the next couple of years that is going to pull the scales off our eyes around —

Barry: Haven’t we kind of had those sort of events already this year? We’ve had a bunch of privates kind of —

Dave: Oh no, very, very thin — like Blue Owl closing your BDC for redemptions. That’s course of business.

Barry: You’re talking not quite GFC, but in the same neighborhood?

Dave: Yeah, I think we’re going to have a few funds really have to either close — whether it’s a high-profile private equity fund unwinding, whether it’s some of the private credit stuff really coming home to roost. Initially it looks like we may have dodged some of that, like the private credit stuff. There was a lot of concern that that was going to blow up the world. We seem to be being a little more rational about that. On the private equity side, I think most of the money going into private equity is pretty high risk-tolerance money anyway. So until we actually cross that Rubicon of shoving this stuff in 401(k)s — which I think is still going to be a while out, I don’t think that’s happening tomorrow.

Barry: Good. I hope that’s very far out.

Dave: So I think we’ll have some high-profile blowups, but I think they will be good for investors in the sense that they will wake us up and we’ll be more skeptical — which is what’s happened with private credit. There’s not billions and billions and billions of dollars chasing private credit from retail right now. That’s a good thing. I think we dodged a bullet.

Barry: Well, there certainly were billions of dollars chasing it in ’24 and ’25. So to wrap up: for those of you interested in everything from liquid alts to interval funds to M&A funds to what have you — you have to be aware of the downside risks. These things tend to be expensive. They often trade at a discount, assuming they trade at all. They are not especially transparent. There is a lot of good faith in relying on management to tell you what these things are worth.

 

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Find our entire music playlist for At the Money on Spotify.

 

The post At the Money: Blurring the Lines Between Public & Private Investments appeared first on The Big Picture.

My end-of-week morning train WFH reads:

• What’s the Sticker Price of Exorbitant Privilege? A clean Substack walk-through of the dollar’s “exorbitant privilege” — what reserve status earns the US, what it costs, and what would actually shake it. The de-dollarization chatter usually skips the math; this one shows it. That raises the obvious question: what would it take for the US to lose its privilege now? Where is the tipping point? Is it just about the US fiscal and macro fundamentals? Carolin Pflueger (U Chicago) and Pierre Yared (Columbia) don’t think so. (The Two Cents)

• The Dangerous Brew That’s Rattling Bond Markets: The WSJ on the cocktail of fiscal deficits, sticky inflation, and central-bank cross-pressure showing up in the long end. Read with the WaPo piece on what those yields do to households. A mix of debt, inflation and populism has changed the interest rate landscape since 2020. A mix of debt, inflation and populism has changed the interest rate landscape since 2020. (Wall Street Journal) see also Trump’s war is wrecking Trump’s economy: The U.S. war on Iran has upended energy markets and gut-punched the global economy, especially countries in Asia, the Middle East, Africa, and Europe. But the United States is not nearly as immune to the economic fallout from the war as U.S. President Donald Trump seems to think—and it is starting to show. There is a whole slew of economic indicators flashing “check engine” across the dashboard of the U.S. economy that show that the prolonged war in the Middle East is reigniting inflation, fouling supply chains, and dampening hopes of a tax-cut-fueled growth spurt this year. (Washington Post)

• SpaceX not the behemoth everyone thought: The prospectus shows just how much the IPO depends on expectations for future growth and investor servility to Musk — as opposed to the current underlying business. Axios on the leaked SpaceX financials that look a lot less Mag-7 than the secondary market implied. Read alongside the $15B Anthropic deal — both stories are about who is actually paying whom in this AI buildout. (Axios)

• Is Nvidia too big to fail? ‘You’re clearly at the centre of everything’ The global stock market has virtually become “One Big Trade”, according to Goldman Sachs. “AI Is Penetrating Every Corner of Financial Markets”, notes Apollo. Is it really just one big Nvidia trade though? (FT Alphaville free)

• Used EVs Are Now the Most Affordable Cars. Here’s How to Buy a Good One. With rising oil prices and more used EVs coming off leases, the total cost of ownership equation has flipped. The WSJ on the surprising flip: a three-year-old EV with most of its warranty intact is now often the cheapest car on the lot. Useful for anyone with a kid heading to college. Here’s How to Buy a Good One. With rising oil prices and more used EVs coming off leases, the total cost of ownership equation has flipped (Wall Street Journal)

• Why mortgages and car loans are getting more expensive: Yields for some Treasurys hit their highest level since 2007 — and consumers are starting to feel it. A clean WaPo explainer on the long-rate move and what it does to the household balance sheet. Useful for clients who only ever see the headline Fed Funds number. (Washington Post)

• FBI seeks US-wide access to license plate cameras, wants “data in near real time” FBI will pay vendors Flock and Motorola Solutions to help it track and search for vehicles nationwide. Ars on the Bureau quietly asking for a real-time feed from the country’s patchwork of private and municipal plate readers. The surveillance architecture has been built piecemeal for a decade; this is the centralization request. (Ars Technica)

• How the Bird Eye Was Pushed to an Evolutionary Extreme: The bird retina is one of the most energetically expensive tissues in the animal kingdom, yet it doesn’t use the energy advantage of oxygen. New research finally explains how this is possible. (Quanta Magazine)

• Japan is gripped by mass allergies. A 1950s project is to blame: BBC Future on the postwar Japanese reforestation program — millions of cedars planted for timber, no follow-up plan, and now nationwide hay fever as the karmic dividend. A small parable on policy half-lives. A decision made 70 years ago to reforest vast swathes of Japan with just two kinds of tree has come back to haunt the country. (BBC)

•  Retrospective — The Entire Series of MB&F Legacy Machine Watches: Monochrome runs through every Legacy Machine MB&F has built since 2011. A satisfying tour of one of the few independent watchmakers doing genuinely new things rather than re-issuing the 1960s catalogue. (Monochrome Watches)

Video of the day: The Album That Rewired Modern Pop: Believe (1998)

Be sure to check out our Masters in Business interview this weekend with Vimal Kapur, CEO and Chairman of DJIA component Honeywell International. The firm is in the midst of dividing into three companies: Honeywell Automation, Honeywell Aerospace, and Solstice Advanced Materials. The firm has fully integrated AI as the intelligence layer in all of its automation processes and products.

 

America’s Small-Business Boom Comes Without New Jobs

Source: Bloomberg

 

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My morning train WFH reads:

• Before you invest in crypto, watch this film: Mother Jones on a documentary diagnosing crypto as a wealth-transfer machine pointed at retail. The OC star turned skeptic remains an unlikely but effective explainer. Ben McKenzie scorches the cult of cryptocurrency. (Mother Jones)

• Nobody Knows Anything: A market-strategy riff on the Goldman line — humility about forecasting as the only durable edge. Always worth re-reading when the consensus gets loud. (TrendLabs) see also Nobody Knows Anything: Derek Thompson on why a piece of AI science fiction rocked the stock market — and what that tells us about how little anyone actually understands about where technology and the economy are heading. (Derek Thompson) see also Nobody Knows Anything: Barry Ritholtz’s Bloomberg classic on the fundamental unpredictability of markets — and why anyone who claims otherwise is selling something. (Bloomberg)

• The Great 2026 Reset… — Deutsche Bank Research Institute: DB’s macro team takes a swing at framing 2026. Read it for the framework, not the predictions. (Deutsche Bank Research Institute)

• Stories vs. Statistics: Ben Carlson on why narrative beats spreadsheet for most investors even when the spreadsheet is right. The behavioral piece behind half the bad decisions our industry sees. (A Wealth of Common Sense)

• Why Humans Are Obsessed With Numbers Too Big to Understand: Mathematician Richard Elwes discusses humanity’s long-time fascination with ginormous numbers—and what this obsession reveals about us. On our cognitive failure modes around trillions, billions, and parsecs. Relevant to investors, voters, and anyone trying to process the federal budget. (Gizmodo)

• The Iran War Is Crippling One of the World’s Wealthiest Nations: The NYT on Qatar — caught between US bases, Iranian missiles, and a gas-export business that depends on a quiet Strait of Hormuz. Even the rich neighbors are paying for this war. Iranian attacks and the stoppage of seaborne transit have paralyzed Qatar’s vital gas exports, stalling the economic pivots intended to anchor the country’s growth. (New York Times)

• The paradox at the heart of American meat: Vox Future Perfect on the gap between what Americans say about animal welfare and what they buy at the grocery store. The cognitive dissonance is the product. No one likes how animals are treated on factory farms. But no one wants to stop eating them. (Vox)

• The First Atomic Bomb Test in 1945 Created an Entirely New Material: Wired on trinitite — the strange green glass the Trinity test fused out of the desert floor — and what new analysis reveals about its mineral structure. A nice science palate cleanser. The discovery from the Trinity nuclear test site shows how extreme conditions can result in materials never before seen in nature or in the lab. (Wired)

• Everyone Thinks Trump Won Last Night. They’re Wrong: A contrarian read arguing the conventional wisdom missed the actual political signal from last night. Useful as a counterweight regardless of whether the call ages well. Trump’s revenge tour just made the GOP’s midterm problem a whole lot worse.” (The Message Box)

• Jackson Pollock painting sells for record $181 million at auction: Number 7A, 1948, which went under the hammer at the renowned Christie’s auction house on Monday, smashed the previous record for the most a work by the late American artist has taken at auction. The painting, which came from the private collection of media magnate SI Newhouse, is also now the fourth most expensive artwork ever sold at auction, according to ARTnews. (BBC)

Video of the day: Americans Crave Low-Cost Chinese EVs

Be sure to check out our Masters in Business interview this weekend with Vimal Kapur, CEO and Chairman of DJIA component Honeywell International. The firm is in the midst of dividing into three companies: Honeywell Automation, Honeywell Aerospace, and Solstice Advanced Materials. The firm has fully integrated AI as the intelligence layer in all of its automation processes and products.

 

AI Is Fueling a New American Startup Boom

Source: Apollo

 

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The post 10 Thursday AM Reads appeared first on The Big Picture.

 

 

The paperback of “How NOT to Invest” drops this month; to celebrate, I present this excerpt from the book about a BW story that was published exactly 25 years ago!

This short, Apple-related excerpt from the book was a fun chapter to write… Enjoy!

 

 

“Sorry, Steve: Here’s Why Apple Stores Won’t Work”

“Few outsiders think new stores, no matter how well-conceived, will get Apple back on the hot-growth path… Maybe it’s time Steve Jobs stopped thinking quite so differently.”
—BusinessWeek, May 21, 2001

A year after Fortune’s Cisco debacle, BusinessWeek1 published a story on Apple’s foray into retail stores. Not just BusinessWeek, but many naysayers laughed off the inevitable failure of Apple’s push into retail.2 Numerous armchair pontificators freely shared their uninformed opinions as to why this concept was destined to fail. “I give [Apple] two years before they’re turning out the lights on a very painful and expensive mistake,” predicted retail consultant David Goldstein.3

After all, established consumer electronics chains were all in decline, and the writing was on the wall. Gateway would soon close its retail stores (2004), and not long after, CompUSA would shutter its physical locations (2007).

Investors should always be on the alert for structural errors in media stories: Authors operating outside of their expertise; people unaware of recent developments; extrapolators extending present trends far into the future. It is an excellent reminder of exactly the kinds of errors investors should avoid. A fallible human being publishing their uninformed opinion in print should never be the basis for making any intelligent investment decision.

There are many genuinely revolutionary products and services that when they come along, change everything. Pick your favorite: the iPod and iPhone, Tesla Model S, Netflix streaming, Amazon Prime, AI, perhaps even Bitcoin. Radical products break the mold; their difference and unfamiliarity challenge us. We (mostly) cannot foretell the impact of true innovation. Then once it’s a wild success, we have a hard time recalling how life was before that product existed.

The Apple Store was clearly one of those game-changers: By 2020, Apple had opened over 500 stores in 25 countries. They are among top-tier retailers, and the fastest ever to reach a billion dollars per year in sales. They did more in sales per square foot in 2012 than any other retailer.4 By 2017, they were generating $5,546 per square foot in revenues, twice the dollar amount of Tiffany’s, their closest competitor.5 Apple no longer breaks out the specifics of its stores in its quarterly reports, but estimates of store revenue is about $2.4 billion per month.

That guy who wrote, “Sorry, Steve: Here’s Why Apple Stores Won’t Work,” I wonder what the rest of his portfolio looks like…

Finance seems to encourage this kind of future forecasting. We are bad at this, because we often lack awareness of what we do and do not know about the limits of our expertise; we do not truly understand the present, let alone the future. We often wishfully predict what we want to be true, rather than what will come to be.

We look at the Dunning-Kruger effect later, but the key takeaway is most of us are not very good at metacognition—estimating our own skillsets.

Learning what we do and don’t know—working within our capabilities— that’s challenging enough, without other people’s bad forecasts in our heads…6

 

 

Footnotes:
1. Cliff Edwards, “Commentary: Sorry, Steve: Here’s Why Apple Stores Won’t Work,” BusinessWeek (May 21, 2001).

2. Nearly a decade and a half later, those naysayers were recounted here: Ana Swanson, “How the Apple store took over the world,” The Washington Post ( July 21, 2015).

3. Jerry Useem, “Apple: America’s best retailer,” Fortune (March 8 2007).

4. Seth Fiegerman, “Apple Has Twice the Sales Per Square Foot of Any Other U.S. Retailer,” Mashable (November 13, 2012).

5. Chance Miller, “Apple again found to be the world’s top retailer in sales per square foot,” 9TO5Mac ( July 29, 2017). See also: Marianne Wilson, “The most profitable retailers in sales per square foot are….” Chain Store Age (CSA) ( July 31, 2017).

6. If you think the Apple Store cover story was bad, just wait until you see what the media had to say about BlackBerry…

 

 

The paperback of “How NOT to Invest” is out this week at Amazon, Barnes & Noble, Books-AMillion, Bookshop, Hudson, or wherever you buy your favorite books!

If you want to learn more about how the book was made, any related media appearances or background, get unique bonus material, or just ask a question, you can sign up here: HNTI at RitholtzWealth dot com.

 

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My mid-week morning train WFH reads:

• Stock Gains Without All the Taxes? How the Hottest Trade on Wall Street Works: The stock-market surge has propelled the use of a new kind of tax-loss harvesting. We break it down. The WSJ on the surge of direct-indexing and Section 351 ETF conversions that let wealthy investors swap concentrated stock into diversified portfolios without triggering capital gains. A useful explainer for clients asking about it. The stock-market surge has propelled the use of a new kind of tax-loss harvesting. We break it down. (Wall Street Journal)

• Trump’s Investments In Palantir And Nvidia Draw Scrutiny—Here’s What Companies Were Traded. President Donald Trump drew scrutiny Friday over millions of dollars of securities trades made in recent months involving companies his administration has also made deals with — though Trump’s son Eric said the trades were made by a blind trust. Forbes lines up the President’s recent trading activity against companies with direct policy exposure. Read alongside the WSJ pieces on his accounts — it’s a single story being told in pieces. (Forbes) see also See How Trump’s Accounts Were Busy Trading Big Tech Stocks: Trump’s investment accounts had a surge in activity, with more than 3,700 trades in the first quarter. The WSJ’s data-driven look at the trading activity reported across Trump-family accounts — well-timed mega-cap entries and exits clustered around policy news. Make of it what you will. (Wall Street Journal)

• New York Real Estate in the Age of Inherited Wealth. NYC housing no longer tracks real estate fundamentals, it tracks equity portfolios and private equity flows, a concentration that feels durable but has never been historically. On the increasingly visible role of parental cash in Manhattan and Brooklyn closings. The first-time buyer cohort is now functionally two markets — those with family equity and everyone else. (Housing Notes)

• Mapping the household-level transmission of monetary policy: The monetary tightening that followed the post-pandemic inflation episode has revived long-standing debates about how monetary policy affects households. This column uses a survey of more than 25,000 US households, combining hypothetical questions with randomised information experiments, to show that monetary policy has a contractionary impact on consumption, but the transmission mechanism differs substantially from conventional theory. VoxEU on micro-data showing rate hikes hit households very unevenly — by mortgage type, age, and income. Useful corrective to anyone still treating “the consumer” as a single object. (VOXEU CEPR)

• LinkedIn Is Doing What Bluesky Was Supposed to Do: Rebuilding a public square on the platform you least expect. For a brief moment about a year ago, it really did look like Bluesky might work. Researchers and left-of-center intellectuals were flooding in, swapping starter packs, reassembling what felt like a nostalgic reunion of old Twitter. Then everyone arrived, and the center could not hold. A sharp argument that the post-Twitter intellectual conversation didn’t move to Bluesky or Threads — it quietly migrated to LinkedIn, of all places. Uncomfortable for everyone involved, but not wrong. (Popular by Design)

• Why are people so excited about Swatch’s Royal Pop watch? Similar to past sales of its kind, some people queued for days to get their hands on one of the eight models. But the ferocity of interest in the product, both online and on the high street, has split opinions about responsible marketing and whether the watches are even worth it. (BBC)

• Google Chrome silently installs a 4 GB AI model on your device without consent: Including a back-of-envelope on the climate cost at billion-device scale. The ‘opt-out’ fiction continues. At a billion-device scale the climate costs are insane. (That Privacy Guy!)

• Russia’s War Is Going Badly—on the Ground and in the Air. Ukraine’s growing arsenal of long-range drones and domestically produced missiles has been hitting oil infrastructure and military facilities deeper inside Russia. Putin shows no signs he is rethinking his aims The WSJ on a Russian summer offensive that has stalled while drones and long-range strikes are quietly wrecking the air arm. The market narrative on oil and defense names is starting to lag the battlefield. Putin shows no signs he is rethinking his aims (Wall Street Journal)

• New panels produce hydrogen fuel using only water, sunlight and no electricity: This grid-independent system eliminates the need for traditional electrolyzers in green hydrogen production. A direct-solar-to-hydrogen panel design with efficiency numbers that, if they hold up at scale, would matter. Big “if” — but the field has had a quietly good year. This grid-independent system eliminates the need for traditional electrolyzers in green hydrogen production. (Interesting Engineering) see also What It Will Take to Make AI Sustainable? Researcher Sasha Luccioni argues we need better emissions data and a better sense of how people are using AI in the first place. Wired on the brute physics problem the industry is still pretending isn’t one — gigawatt clusters, cooling water, and a power grid that wasn’t built for any of this. Real numbers, no hopium.Researcher Sasha Luccioni argues we need better emissions data and a better sense of how people are using AI in the first place. (Wired)

• US science after a year of Trump: A series of graphics reveals how the Trump administration has sought historic cuts to science and the research workforce. (Nature)

Video of the day: World War II told in 20 Episodes with Tom Hanks

Be sure to check out our Masters in Business interview this weekend with Vimal Kapur, CEO and Chairman of DJIA component Honeywell International. The firm is in the midst of dividing into three companies: Honeywell Automation, Honeywell Aerospace, and Solstice Advanced Materials. The firm has fully integrated AI as the intelligence layer in all of its automation processes and products.

 

Trump’s investment accounts had a surge in activity, with more than 3,700 trades in Q1

Source: Wall Street Journal

 

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My Taco Tuesday morning train strike Lyft reads:

• Words That Mattered: Fed Chair Jay Powell: A close reading of Powell’s most consequential lines, dated and re-contextualized. Excellent reference for the next FOMC parse. (Stay-at-Home Macro)

• How Trump plans to keep tariffs at the center of his economic policy despite stinging court losses: The legal setbacks haven’t shifted the strategy — only the legal authorities being invoked. Tariff policy as a will-to-power exercise. (The Conversation) see also Trump’s Accounts Investment Fund for Babies May Shortchange Them. Here’s a Better Approach.: Barron’s on the so-called MAGA baby accounts and why a $1,000 seed wrapped in fee-heavy mechanics will likely leave kids worse off than a boring old custodial Roth. (Barron’s)

• Under one roof: housing and inflation expectations. Using household surveys for the United States, we find that people tend to overweight their expectations about house prices when thinking about inflation with a coefficient of 25%–45%, significantly above the weight of house prices in the inflation index. Should central banks care about this? The short answer is yes. The Bank of England’s staff blog on how the price of the place you live shapes the inflation you expect. A nice empirical piece for anyone tired of the “inflation is dead” / “inflation is back” pendulum. (Bank Underground)

• A Personal Finance Star on What Millennials Need From Their Boomer Parents: Ramit Sethi in NYT Magazine on the great wealth transfer’s awkward middle act — kids don’t need another inheritance lecture, they need the actual numbers and a willingness to talk before the funeral. (New York Times)

• Kushner Disappoints Mideast Clients Who Spent Millions Seeking Sway: Qatar, Saudi Arabia and the UAE backed Affinity Partners in hopes of gaining White House influence and investment returns. The US war with Iran that they opposed has shown the constraints of that approach. (Bloomberg free)

• CBS Cancels Itself, Not Just Colbert: What I didn’t anticipate was that the foundation of Mr. Colbert’s success was something new to late night: hard-core, point-of-view political comedy. He had developed it while contributing to “The Daily Show” on Comedy Central. A broadcast network, steeped in the traditional “both sides” style of Johnny Carson, was going to expect him to drop that as well as the character. The NYT opinion page on a network deciding it would rather not have an audience than have one with opinions. A useful case study in what happens when corporate parents start managing for the regulator, not the viewer. (New York Times)

• Your iPhone Gets Stolen. Then the Hacking Begins: Wired on the international crews who lift iPhones in the West and then phish the owners overseas to unlock iCloud. The hardware was never the real prize. (Wall Street Journal)

• The surprisingly strong case for feeling great about your coffee habit: Another week, another coffee-is-actually-fine review. The effect sizes are real, the mechanism is still hand-wavy. Drink up. (Vox)

• Attenborough at 100 — A Nature Documentary Archive: Sir David Attenborough just turned 100. In recognition of his brilliant career and life, here’s everything he’s ever worked on, in one place. Nearly 5,000 episodes across 90 series — from Zoo Quest in 1954 to Secret Garden in 2026. Search by animal, habitat, location, natural phenomenon, or theme to find exactly the episode you’re looking for.  A loving fan-built archive of David Attenborough’s seven decades of nature programming, organized for browsing. The closest thing to a centralized index of a body of work that quietly shaped how the world sees wildlife. David Attenborough’s life’s work, searchable. (Attenborough at 100)

• How Nicki Minaj Became Trump’s ‘No. 1 Fan’: The WSJ on the unlikely Minaj–Trump alliance and what it says about celebrity-political brand alignment in 2026. Less about the policy than about the audience each side thinks it’s buying. The rap superstar is throwing her weight behind the White House agenda after being courted by Trump’s 29-year-old celebrity whisperer (Wall Street Journal)

Video of the day: How Concerned Should Boeing and Airbus Be About the New Flying V?

Be sure to check out our Masters in Business this weekend with Sheila Bair, former Chairperson of FDIC from 2006-11. She helped steer the agency through worst financial crisis since the Great Depression. Her new book is aimed at young adults and teenagers, titled “How Not to Lose a Million Dollars”

Stocks are cheaper, but their prices are higher

Source: Mike WIlson via Sam Ro

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The transcript from this week’s, MiB: Shelia Bair, former FDIC Chair, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

 

~~~

 

Masters in Business — Sheila Bair

Hosted by Barry Ritholtz · Bloomberg Radio · May 15, 2026

00:00:02  Announcer: Bloomberg Audio Studios, podcasts, radio News. This is Masters in business with Barry Riol on Bloomberg Radio

00:00:16  Barry Ritholtz: This week on the podcast, another Extra, extra special guest, Sheila Bear, former FDIC, chairperson author. What a fascinating career. She was right in the thick of it through the financial crisis, butting Heads with Tim Geithner and, and working with Hank Paulson. She really has done more than just about anyone in the country to help shore up the financial system, the banking system, and to drive us all towards a better degree of financial education through her work, not only at the FDIC, but at Treasury and through all the books she’s written for children and young adults about finance.

00:01:02  I, I thought this was fascinating, and I think you will also, with no further ado, my conversation with Sheila Bear.

00:01:11  Sheila Bair: Thank you for having me.

00:01:12  Barry Ritholtz: So I want to start with a little bit of background from you. You get a bachelor’s in philosophy from the University of Kansas and then go to law school at the same school, university of Kansas, right. Where you got a jd. Yeah.

00:01:28  What was the career plan? Were you, did you want to be a lawyer or what were you thinking?

00:01:31  Sheila Bair: Well, I’m a native Kansan, grew up in southeast Kansas. Traditional Kansas Republican family, the whole, we were all J Hawks and dad went to medical school. KU mom went to nursing school. My sister was a physical therapist.

00:01:44  I was a, I didn’t choose a medical profession, but did choose ku. So it’s a good school. It was an affordable school, and I really didn’t know what I wanted to do. I was interested in philosophy.

00:01:55  I took a lot of courses in English and economics too, but majored in philosophy and realized pretty much as soon as I graduated, I wasn’t gonna get a very good job with that degree. So, well, you

00:02:07  Barry Ritholtz: Could always teach philosophy.

00:02:08  Sheila Bair: I could do that, but I would have to get a PhD in and probably go to school longer than I wanted to do, do that. So I decided to go to law school, which was a, you know, philosophy is a good major if you’re gonna go into law school, because both disciplines are about logical thinking analysis, you know, good writing skills. And so actually the philosophy major was, was good preparation for law school.

00:02:30  Barry Ritholtz: Yeah, yeah. Say, say the very least. So, so your career spans from government and academia and finance really at the highest levels across all three. Yeah.

00:02:42  What’s the through line? Connecting, connecting each of these worlds? Yeah. Government regulation, academia, and finance.

00:02:51  Sheila Bair: Yeah. Well, I have been, I’ve had a, I’ve done a lot of different things in my career and I, young people, I tell them, don’t try to pre-program your career career and don’t mean narrow minded about opportunities. And a lot of people stay in the same job for 30, 40, 50 years. I respect that.

00:03:05  That’s fine. That was never for me. I’m always looking for new things. But I guess my, my first entree to the big leagues released, adjacent to the big leagues, was when I worked for Bob Dahl as his council first in the Senate Judiciary Committee, where I actually, I staffed him on the Voting Rights Act, compromise to Title two, the Voting Rights Act, which is pretty much just eviscerated by the Supreme Court, which was, which was very, you know, that was my first big project for him.

00:03:31  So that, that’s, that hurts. But anyway, so I, and then I went with, to the leaders when became majority leader, I went to the Majority Leader’s office with them and handled a broader range of issues. But that’s, that’s really, and then I was on his 88 presidential campaign, actually, which obviously started in 1987. Those campaigns start a good year before the primaries began, and that’s where I started off as a civil rights lawyer and did civil rights issues and other things for him.

00:03:59  But we had the 1987 market crash in, during that time we were, I was working for his presidential campaign became a big issue. I had to take a crash course and stock markets. And that’s when I was first exposed to finance and found that I was really interested in it.

00:04:13  Barry Ritholtz: Huh. Really interesting. Is it, and I wanna focus on, on some of your writing, because you are, you’ve written for very different age groups, demographics, right? So, bull by the horns, obviously for adults about the G ffc.

00:04:28  But the Money Tales book series is aimed at kids, right? And then the new book is really aimed at, at teenagers, people starting out, right? How different is it communicating? Yeah.

00:04:45  Somewhat complex ideas to each, or is it the same? Is it just making it understandable or is it a different approach for each group?

00:04:51  Sheila Bair: It’s, no, it, it’s a bit of a different approach. I think, you know, that the fact that I didn’t really start in findings, that I segued into it working for the stock exchange than later many other senior level jobs. I had to start from scratch when I was learning it, and I had to learn it fast. And so, but I think my own experience helped me really break down and understand and understand how to approach understanding finance.

00:05:16  And one of the big issues is the terminology, the jargon that we use in, in the financial industry. And that can be very confusing and intimidating. And I think sometimes weaponized, frankly, by people who are trying to sell a product or service. So, but yeah, I mean, I think my early need to really start from scratch and learn, it helped me later break down and explain things.

00:05:37  And then I think also my philosophy major, the, the logical thinking, you know, breaking things down into their component parts, understanding the causal connections, kinda laying it out, the analysis out for people in an understandable way is something that I’ve always tried hard to do and have refined over the years. So, but yeah, the, my, you know, bull by the horns was definitely, it was written for a general population, but it talks a lot about securitization and, and topics that make, might make some people’s eyes glaze over. But for industry professionals, I think it was of interest. But my children’s books, and actually I, I wrote another book for teens called Bullies of Wall Street, which was a book about the, the financial crisis for teenagers.

00:06:20  And then I have, golly, since 2006, I’ve been on, you know, as a sideline writing picture books for children. And that those are really fun. ’cause those are fictionalized stories. I use rhyming verses.

00:06:32  They’re just fun. You can be creative. ’cause they’re really about basic concepts, you know, compounding interest risk, capital formation. Those are things that really you can’t explain at a very ba basic level for kids.

00:06:46  Ponzi schemes is one of ’em. Asset bubbles is one, I, I wrote one, it’s called Daisy Bubble. It’s kind of riff on the Tula bubble that occurred in Hollywood hundreds of years ago. And I, I was concerned that kids were not gonna get this.

00:06:59  And that’s one of my more popular books, especially with the boys. There’s a character named Sly Seal that’s manipulating the daisy market. And, and, you know, I make that very transparent in the book. And they, they enjoy that.

00:07:10  Barry Ritholtz: That’s very, that’s very funny. My, my favorite part of Bull by the Horns is just the really vivid detail you go into in with the clashes with Tim Geman. Oh, yeah. And Hank Paulson, if you could go back in time and magically change any decision that was made during the GFC, what, what was the wrong decision and how would you fix it?

00:07:38  Sheila Bair: You mean during the crisis or in the lead up to the

00:07:39  Barry Ritholtz: Crisis? Either or. What, what do you think, what do you think the big is? Excuse me.

00:07:45  It’s never one thing, but if, if, so let, let’s, since I mentioned Guyer Paulson, what of their decisions do you think was most problematic that you would’ve liked to reverse?

00:07:57  Sheila Bair: Yeah. Well, I think there should have been more accountability. I, I do think there should have been more accountability, I

00:08:02  Barry Ritholtz: Think, meaning Bankers Wall Street, that helped create

00:08:05  Sheila Bair: The crisis. Yes. We should have let at least provided more financial penalties, even if we weren’t gonna send people to jail. I think the bailouts could have been less generous.

00:08:14  I am still outraged that we let them pay bonuses at the end of 2009. So I think that was, you know, after giving ’em all this capital and then once they, you know, got the benefit of all these other programs and, you know, re stabilize themselves to enable ’em to pay that capital back so they could pay bonuses at the end of 2009 when the rest of the country was reeling in a recession. No, I think we could have been a lot tougher. So, but, you know, these things are all compromises.

00:08:40  And actually it was more with Tim Geer than Hank Pauls. And Hank and I could usually come to a common ground, and we did on issues where we started with different, different viewpoints. But yeah, I mean, I think there is a perception of some that they were kind of, the Wall Street was the center of the universe and the heartthrob of the economy, and we needed to take gender living care with it and all of that. And we need to do something.

00:09:04  I’m not suggesting we shouldn’t have provided some stabilization measures, but we didn’t have to. I think we really went overboard. And, and I do regret that, and I think people are still mad about it. I think a lot of the polarization that we have today stems from the, the perception on Main Street that not only did we bail these guys out, but we bailed them out very generously.

00:09:21  Barry Ritholtz: I, I, I couldn’t agree more. Let, let me shock listeners by saying, I think President Trump got something right, almost accidentally by taking a piece of a company like Intel. My, my big complaint during the bailouts were, Hey, if you’re gonna give these publicly traded companies a bailout and not send them to bankruptcy court, well great. Take 40% of the company Yeah.

00:09:49  And promise to sell it back to the public markets within a decade. Right. And it would’ve cut the cost of bailouts substantially and would’ve hurt existing shareholders and management who made a Yeah. Who helped create the whole disaster.

00:10:06  That’s

00:10:07  Sheila Bair: Exactly right. Yeah. No, I think that was, there was, we did a little bit of that, but not enough, because I think there was just a visceral reaction against being too tough. So

00:10:18  Barry Ritholtz: When the alternative is that those, that Hansen building down town with the tall columns and the judge who basically says, okay, you’re now in receivership. Yeah, yeah. Like, when you look at

00:10:30  Sheila Bair: The next,

00:10:31  Barry Ritholtz: I know the next best alternative is your toast. Oh, okay, we’ll give up 40% at a substantial Exactly. Discount and stay live to fight another day.

00:10:39  Sheila Bair: I, I couldn’t agree more. We were, they were looking, their baseline was what, you know, how these companies that operated before they got into trouble. And my baseline was, you know, bankruptcy was the alternative. We did, but it was uneven too.

00:10:51  So we put Fannie and Freddie into conservatorship. Right. And maybe they should have been put in bankruptcy too, but they were the, the, the statute provided for conservatorship where they still, you know, language still. So they, they got punished pretty well, and they didn’t, you know, we were still getting, well now they’re, they’re allowed to keep their capital, to build a capital base.

00:11:08  But the government’s made quite a bit of money since then from that a IG poor a IG, you know, they were, it’s my, they were effectively put conservatorship by the Fed and, and finally emerged from that. But, you know, there was an unevenness too with the way some of those entities were treated versus, for instance, a Citi group, which Right. You know, what else can we do to help you Citi group? I was, it was

00:11:30  Barry Ritholtz: For the third time. Fourth time. Yeah. Third times.

00:11:32  Yeah. Yeah. They’re like every generation, they’re back. They’re back with their hat in hands.

00:11:36  And they, again, we need a few billion. Right.

00:11:40  Sheila Bair: I’m, I’m, I’m rooting for, but you know, historically you knows that he is gonna be back.

00:11:44  Barry Ritholtz: So, so I, I’m kind of fascinated by, over the course of your car career, you have spanned three distinct cycles of deregulation. Right. So we had Graham Leach Bliley. Right.

00:12:00  Which certainly was a major factor, right. That led to the GFC. Yes. It was, we have the entire Dodd-Frank deregulation of, of the decade, the past decade, and then everything that’s Yeah.

00:12:19  Like all the carve outs and, and then most recently Yeah. Reducing the amount of net cap in reserve that Yeah. Banks have to hold that.

00:12:27  Sheila Bair: Yeah. That’s, that’s ongoing.

00:12:30  Barry Ritholtz: So, so why do we keep having these crises? Yeah. Is it structural? Is it the American political system?

00:12:35  Yeah. It seems like we’re constantly repeating these cycles over and over.

00:12:38  Sheila Bair: Yeah. Yeah. Well, we are, and deregulation was a big part of the crisis. Nobody wants to say that.

00:12:44  Or just lack of regulation. The Fed and Bernanke and Greensman of both said this. The Fed had the authority to write lending standards, mortgage lending standards for the entire industry. Problem is, most of these mortgages are being originated by non-banks.

00:12:57  Right. The banks were funding it. Right. But they were providing the, the conduit funding to get ’em obs securitizations.

00:13:02  But the Fed had the power to, to stop that and just flat out fu Oh, we don’t wanna constrain credit. If I hear that once, I think those are, you know, Warren Buffet once said the most dangerous wor words in, in finance. Everybody else is doing it. I think it’s, we’re gonna expand access to credit.

00:13:16  I swear to God, because it is used as an excuse for so many terrible, terrible, did decisions.

00:13:21  Barry Ritholtz: Didn’t Greenspan say, we don’t wanna stifle innovation in the finance markets.

00:13:26  Sheila Bair: Well, that’s, those are the interest words too, right. I don’t wanna stifle innovation either, but it’s just used as an excuse. Oh. You know, like we got, we gotta reduce capital to get more lending out there.

00:13:36  Right. When I think, I would argue there’s too much lending out there already. We’re seeing all the cockroaches screwing out now. So, so yeah.

00:13:42  So it was, and derivatives that you said, Graham Leach Bly, they broke down the, it created these two big to fail institutions. It all got bailed out, but also derivatives, their basically decision was that nobody needs to regulate derivatives markets. The, the theory was, well, the big banks were dealers, the derivatives dealers, they’re regulated by the bank regulators. So we don’t need market regulation.

00:14:01  And that did not turn out so well because the thing about the mortgage crisis was there were hundreds of billions of, of, of mortgages going bad. But there were trillions and trillions of financial engineering on top of how those mortgages would, would perform. And that’s really what got us at the end of the day. Yeah.

00:14:20  There were a lot of mortgages that never should have been made, but the system could have absorbed those underlying losses. It was, it was the derivatives on top of that that really brought things down suddenly.

00:14:30  Barry Ritholtz: So, so let’s talk a little bit about finance. The world has really gotten kind of interesting in terms of, we’re still seem to be dealing with the echoes of the financial crisis. Yeah. We’re, yeah.

00:14:48  It’s amazing. It’s almost 20 years ago. And yet things like when SVB, Silicon Valley Bank and, and Signature Bank failed in 2003, people started to get concerned about systemic risk, even though these are kind of two minor, that was not,

00:15:05  Sheila Bair: Those are not systemic. It was

00:15:07  Barry Ritholtz: Reaction Yeah. Systemically important they to financial institutions. Yeah. They, and yet, in order to cover uninsured depositors Yeah.

00:15:16  Regulators,

00:15:17  Sheila Bair: Who are the richest people? Some among the richest people in the country.

00:15:20  Barry Ritholtz: Gee, I wonder if there’s, I wonder if that’s just a total coincidence or if some upset people made some phone calls.

00:15:27  Sheila Bair: Yeah, I, I was appalled

00:15:28  Barry Ritholtz: Because if your local credit union Yeah. Goes out Yeah. And it’s, and you’re

00:15:33  Sheila Bair: Yeah. You’re, you’re taking a loss if you’re an uninsured deposit or a community bank. Yeah, you bet.

00:15:37  Barry Ritholtz: But if you’re a Silicon Valley VC and you’re connected, you, you get

00:15:41  Sheila Bair: Stable coin issuer. Yeah. It’s like somebody, the Biden administration was doing everything they could to kill crypto on one hand, and then they bail out. One of the biggest, they the biggest stable coin issuers who had, what, a couple, two and a half billion or so of uninsured deposits.

00:15:57  You’re really irresponsible on their part to put that much of their reserves in uninsured deposits. But they were bailed out. I couldn’t believe it. I wrote a very strong piece in the Financial Times after it happened.

00:16:07  I th you know, it was just this knee jerk bailout, bailout, bailout. Right. Especially if they’re rich, powerful people. I don’t, I was just, I was appalled.

00:16:15  I’m still appalled. I was, it was, it was 200 billion. It was not systemic. It had good assets.

00:16:20  If they had, they should have tried to find a, a buyer quickly

00:16:23  Barry Ritholtz: And like Washington Mutual.

00:16:25  Sheila Bair: Yeah. So, but there was, I think nobody said this, but my suspicion is there is outta this Biden administration religious adversity to, to, you know, bank mergers and acquisitions. Oh, look, we can’t make banks bigger. So instead of quickly trying to market and sell it, they didn’t do that.

00:16:42  And, but if, even if they hadn’t, if they just put it into a bridge bank, they had good assets, they probably could have paid 85 90 cents on the dollar to Didn’t

00:16:51  Barry Ritholtz: Someone else come along, buy all the assets anyway. Yeah. Well, yeah. Yeah.

00:16:55  So the merger happened regardless,

00:16:57  Sheila Bair: But, but it cost, the FDAC was 17, $18 billion the deposit insurance fund. It was, it was outrageous. I’m, I’m still aghast that that even happened. And that, you know, and you know, that annoys me with my Democrat friends who pretend that the Republicans are the ones that are pro industry and pro bail out, and then they do something like that.

00:17:17  So, go figure.

00:17:18  Barry Ritholtz: Coming up, we continue our conversation with Sheila Bear, former chairperson of the FDIC, discussing regulation and deregulation in the modern financial system. I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. I am Barry Ritholtz.

00:17:50  You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is Sheila Bear. She’s the former chair of the FDIC, which she helped steer through the financial crisis, her latest book, how Not to Lose a Million Dollars, aimed at Teenagers and helping them really understand the basics of finance. So let’s talk about something else that’s a potential issue.

00:18:15  Private credit has exploded in the past decade. It’s now over $2 trillion. And while we have all of these private, non-bank credit funds, they’re all being funded by regulated banks. Yeah.

00:18:29  Banks. Yeah. Is this just regulatory arbitrage? Yeah.

00:18:33  Sheila Bair: Well, it is in a not, but not in the way that I think the banks soundbites make it sound. So there’s, their soundbite is, is that the capital regulations are too onerous, much tougher than they are for these private funds, which is, the private funds are much less levered than banks. Right. Banks are, you know, on a, on a non-risk weighted basis, you know, bank, these big banks are operating with six 8% capital funding.

00:18:58  Right. It’s equity fund funding. So it’s not, it’s not like they’re, they have tougher capital requirements. The problem is these risk-based rules, and this is exactly what was going on in subprime two, the risk-based rules through the magic of securitization structures and quote unquote overcollateralization, you can lend to a private fund.

00:19:18  And the private fund will give you collateral. They’ll give you their loans and they’ll say they’ll be valued 150% of, of what your loan is. Right. So that you’re way over collateralized.

00:19:28  And if you do it that way, the capital rules will give you a very favorable capital treatments. You can use a lot of leverage increasing your return on equity with that by lending to the fund. If you make the loan directly to the highly levered business who the fund is lending to, you’ve got a very, very high capital charge. And so the argument is, well, you’re directly exposed to this highly levered business, so you know, you need to have it tougher than if you just lend the fund.

00:19:56  That problem is that you’re basically allowing banks to lend and fund indirectly, highly risky mortgages that they would not do or not be permitted to do, frankly, if they were doing it directly. And that’s exactly what was going on with subprime. These horrible unaffordable mortgages pedal to a lot of people who didn’t understand what they were getting. The banks were funding that through their, their were credit lines and their warehouse funding to, you know, provide the, provide the money to the originators packing about securitization and selling them.

00:20:29  And, and again, the capital refer required for that was much, much less than, than actually making a mortgage yourself and holding it. So it, it really is the same basic flaw in how the risk-based capital rules work. I would just say you can’t fund a mor a loan directly or indirectly that doesn’t meet prudent underwriting standards. ’cause what happens is the banks, from a societal standpoint, the banks are funding a lot of really risky loans that if they go bad, can have broader, bad adverse ramifications for the economy.

00:21:02  But they don’t look at it that way. And in point of fact, there are pending capital rules now that will make it even more favorable for these banks to be lending to these intermediary funds as opposed to lending directly. So that’s what’s driving this, not because banks have much tougher capital rules than, than private funds. That is not true.

00:21:20  It’s just that it’s, they can use more leverage to lend the fund directly than to lend the business

00:21:25  Barry Ritholtz: Itself. Here’s what the banks say, and I don’t necessarily believe this, but it, it, it’s not completely un unconscionable. They say when we were securitizing loans during the financial crisis, lending standards had been completely abdicated in all of these. No income check, no job check, just, yeah.

00:21:50  You know? Yeah, that’s true. Sign and pray. And then, oh, it’ll all come out in the, in the collateralization and the syndication.

00:21:57  Right. We’ll spread the risk around. Right. This is, hey, these are, we’re lending money to firms that have been in operation for 10, 20 years and names like Apollo and Carlisle and Blackstone who are trying to get a return on investment.

00:22:14  And this sounds a little familiar, you know, they would never put their reputations or their names at risk by doing anything too stupid. And besides the, the default rates have been really low and it’s highly spread out across sectors and geographies. Is that a fair argument or It,

00:22:33  Sheila Bair: It is a fair argument. And I’m not saying private credit is legitimate asset class. I I don’t, and I don’t think it’s systemic, primarily because you don’t have all this financial engineering sitting on top of it. I do think they’ve been making some really risky loans.

00:22:46  There are a lot of conflicts of interest involved since a lot of the private credit funds are affiliated with the private equity funds, they’re lending to the private equity portfolio companies. And this is a particular problem, actually. I, I’m more, I think this is an investor protection issue more than systemic issue. I really do.

00:23:03  And for sophisticated investors, I think private credit is absolutely a legitimate asset class. You know, gotta understand it’s not regulated. You don’t really know what the loans are worth. Right.

00:23:13  So there’s, there’s a big problem with getting a proper valuation on the assets. Not a lot of transparency for retail or even high wealth, high net worth individuals. There’s liquidity issue, right. The business model doesn’t really work unless most of the capital is locked in.

00:23:30  And, and frankly, there’s a re a lot of research questioning whether it really provides better returns. You know, the s and p 500 has been kicking it for, for several years now. Right. So, you know, so there, there are a lot of questions, but for sophisticated investors, you know, go forth and do it.

00:23:44  And it’s, I don’t think it’s systemic, but I do, and I do worry about these life insurance companies and the annuities because the, again, you’ve got private equity owned life insurance affiliate. You’ve got the private credit affiliate, you’ve got the life insurance affiliate lending into the private credit affiliate. You’re using these third party credit raters to make sure, you know, it’s all at arm’s length, but very incestuous. Yeah.

00:24:08  And that the BIS did a study about a year ago on this. And there others have taken a look at these valuations and they’re finding significant evidence of inflated values. So I, I do think we need to protect at the retail level. We need to, there need to be some not expanding access to this.

00:24:25  Barry Ritholtz: So you’re not a fan of private equity or private debt in 4 0 1 Ks? No,

00:24:30  Sheila Bair: I am not. As a matter of fact, I am not. You know what, if you wanna, there’s a pub, you, you wanna buy a stock in KKR, go for it. You know, you might check how it’s been forming.

00:24:38  I an actual, I don’t know how it’s been performing, but I’m just saying there are pub, if you really want exposure, there are, you know, publicly traded away BDCs. Now sure, there are publicly traded BDCs, there are public ways to do it. There are some funds, 40 ACT funds that do invest a small percentage in alternatives too. So there, there are ways now, but yeah, opening it up for, directly for retail, especially 4 0 1 Ks, to, to start, you know, loading up on this, on this asset class, I think is really problematic.

00:25:07  And I do worry that, you know, the, the, the, the plan sponsors, the fund sponsors, the 401k sponsors are gonna be getting the hard sell about, you know, putting this stuff into people’s 4 0 1 Ks. And I, and I, again, I don’t think retail, I know I don’t, I I don’t want exposure to it. I’ve read enough to make me really worried about it. So I think really sophisticated big institutions, which have traditionally been their investor base, they wanna do it fine, but no, it’s not right for retail.

00:25:35  And it, it shouldn’t be going into 4 0 1 Ks and I’m, yeah, I’m very worried about that.

00:25:39  Barry Ritholtz: And, and to put some numbers on what you had referenced about the performance, the median alternative funds doesn’t do all that great. No. Doesn’t, it’s not that diversified. No.

00:25:52  And it doesn’t outperform the s and p 500. Hey, if you’re lucky enough to get into a top decile fund Exactly. You, you’re gonna kill it. But it’s gonna take a couple hundred million dollars

00:26:03  Sheila Bair: Yes, exactly. To have access to that. Yeah. That’s, yeah.

00:26:05  The retail people are not gonna be getting the criminal LA crim on this. No, that’s, and that’s a huge issue. They’re gonna stuff the, the riskier stuff into the 401k.

00:26:13  Barry Ritholtz: It makes a lot of sense. So, so we’ve talked about everything, but too big to fail. Right. Which was a big part of the lead up to the financial crisis and how the fed, the FDIC, everybody dealt with it afterwards.

00:26:30  As an example, JP Morgan Chase now has over 4 trillion with a t Yeah. In assets. Can a bank that size be effectively regulated? Is is too big to fail the norm now?

00:26:44  Sheila Bair: Oh, I think so. It absolutely is. I mean, I, I worked hard in Dodd-Frank to come up with res, you know, to instill more, better authorities to put these large institutions into a resolution type process where you would impose that accountability. You could fire the top management, the boards and impose, you know, make the shareholders and bond holders unsecured creditors absorb the losses.

00:27:07  All the stuff we didn’t do during the crisis.

00:27:09  Barry Ritholtz: You mean normal bankruptcy rules?

00:27:11  Sheila Bair: Yeah, exactly. Yeah. It was, it was similar to the FDIC process, which is basically a bankruptcy process. And, and Title two, and Dodd-Frank, excuse Dodd-Frank provides for both the Title two mechanism, which is FDIC run and a bankruptcy process, a Title one process.

00:27:25  So the tools are there, but I don’t, I don’t think there’s any, I i I, I hate to say this, but I don’t think there’s any chance they’d ever use it. I really don’t. I think they’re gonna bail out again. They already, they already do.

00:27:36  They’ll, they’ll set up special lending facilities or ratchet interest rates down. You know, they’ll, if, if, you know, private equity, so actually I worry more about private equity than private credit because private equity funds are heavily exposed to software companies, which we don’t know how that’s gonna shake out. But there’s a quite a bit of concentration there is. So, you know, so, but if that sector gets into trouble, you know, the Fed will lend to the banks who can then lend the funds.

00:28:01  I mean, that’s, that’s just the way I think it works now. And I think a lot of the push for ev ever more deregulation, lower capital rules, is based on the assumption of the big bank lobbyist that they’re never gonna go down. There’s another kerfuffle, another problem. The fed’s just gonna open up the spigot again.

00:28:18  So, you know, why should they have to operate with all this capital when they can lower their capital and get much higher returns on equity? And I do think that’s, that’s the unspoken rationale, because it doesn’t make any sense otherwise. Because we’ve got a lot of uncertainties in the banking system right now to be lowering capital. Makes no sense.

00:28:37  Unless you’re just banking on a bailout if things get dicey.

00:28:40  Barry Ritholtz: Let, let’s talk about a financial crisis that really has gotten a lot of short shrift, given everything else we just discussed, which is the student debt crisis. Yeah. Yeah. We’ve seen just an explosion of student loans.

00:28:57  It was briefly and defaults, it was briefly put on pause during the pandemic. And right afterwards. I just saw a survey earlier today that said 83% of young people say this is a bad economy when by most historical measures, it’s a booming economy. Yeah.

00:29:18  Yeah. So, so how did we get here? Why is it so difficult to fix? What is a potential policy?

00:29:28  Solution to Yeah. The student debt crisis?

00:29:30  Sheila Bair: Yeah. Well, and I do, I think the headline numbers are, in this case shaped economy. I think the headline numbers can be, can be misleading. ’cause you gotta look at how, how that wealth is being distributed, of course.

00:29:39  But I think for student debt, I, I will give credit to the Trump administration in Congress. The, the BBB, the big beautiful bill, I hate that name, but it had some really important reforms to the student loan system. So they’ve dramatically simplified the repayment options. There’s now a standard plan and a one income based repayment plan.

00:29:59  They have imposed some accountability on colleges, which desperately needed to be done. And so it’s easy to kick colleges now with high default rates out of the, out of the loan system. They have gotten rid of negative amortizations. One of the, one of the frustrating things about student loan borrowers was that because in previous administrations, the repayment plans that were based on a percentage of your income were set so low that people were even, some of ’em were not, were paying zero because you had to earn a certain amount of money before, you know, a loan payment obligation even kicked in.

00:30:33  But what happened was, then they, for bookkeeping purposes or whatever, they would negatively amortize the loan. So all your unpaid interest was going into your debt principle and it was getting bigger and bigger. Just

00:30:43  Barry Ritholtz: Recapitalized.

00:30:44  Sheila Bair: Yeah, yeah. Forever. So even if you were, if even if you were making some payment, your got frustrated ’cause your debt was getting bigger and bigger. That’s all gone away with.

00:30:52  Now negative amortization has been abolished. Everybody has to pay at least $10 a month. I don’t think that’s unreasonable. If you got a loan from taxpayers, even if you’re struggling, you can pay $10 a month.

00:31:04  And then there’s, and then, so if you, and if that payment is so low, if you income driven payment is so low that you’re not covering your interest, the government will pay $50 a month to lower your principal. So, so long as you’re making at least $10 a month, your principal will go down each month. And I think this will be, it’s simpler and will provide better incentives to keep, make loan payments, keep up the loan payments, you’ll actually be able to see the principal going down. So I give credit, and in full disclosure, my son, who’s a fellow at the a EI was, was also heavily involved in this.

00:31:40  So he’s a chip off the old block though. We think a lot when it comes to student. Yeah. Simplification, more accountability.

00:31:47  And those are the things that this bill accomplished. So I’m, I’m hoping that this gets straightened up and people are having to pay now. But the transition to going from not paying for years, you know, and Trump did that too. We had this, what, three or four year long moratorium people are gonna have to pay now, it’s gonna hurt.

00:32:04  They haven’t made room in their budget for these lump

00:32:06  Barry Ritholtz: Payments. Well, $10 a month isn’t, isn’t,

00:32:08  Sheila Bair: It’s not huge. No, it’s

00:32:09  Barry Ritholtz: Not. Right. And if the government is kicking in 50, yeah. I mean, it’s not a ton of money, but it’s, no, it’s not, it’s not still, what, $600 a year?

00:32:16  Yeah. Yeah. Have we done enough to resolve the student debt crisis or no? What, what else can we do to move this along?

00:32:25  Yeah.

00:32:25  Sheila Bair: Well, I I do think there needs to be more accountability for colleges to assume some belong The schools themselves. Yes. The colleges themselves, because this is, this was, it was the classic misaligned economic incentives. So with the best of intentions, the Congress said, okay, and from now on, all the student loans can be made.

00:32:44  You know, pretty much all of ’em are gonna be made by the government. ’cause we’re worried the banks are not treating borrowers as well as they should. So we’re gonna be doing this. And then the, the colleges themselves will basically originate the loans.

00:32:56  So you apply to a college, and the college financial aid office will come up with a financial aid package, and they will calculate how much you need to borrow to go to their school. Well now what are their incentives? You know, they’re gonna get the money, right. Buying for a tuition room and board.

00:33:10  So they’re, they’re gonna get the money. They’re not on the hook if the student can’t repay the loan. So what do you think is gonna happen? And, and the the what happened exactly is you, you could have predicted it, inflation, you know, with tuition, you know, many multiples, what, you know,

00:33:26  Barry Ritholtz: 9% a year for 40 years, 50

00:33:28  Sheila Bair: Years for, for whatever. Yeah. So it’s crazy. Tuition is, as any parent knows or student knows, this skyrocketed become very unaffordable without borrowing.

00:33:37  And, but, you know, there was all this easy money. And the grad, the undergraduate is problem with the graduate schools. You know, a lot of young people then sold a bill of goods to get a master’s or a PhD because they’re unlike undergraduate loans. There is some caps on your federal loans, but no effective caps.

00:33:52  That’s been changed now too. There are some caps, thank goodness, on your graduate professional schools, you know, so somebody like me, oh, I’m gonna go get a PhD in philosophy so I can teach. Right? So I paid $300,000 to get my PhD in philosophy and get a job maybe paying 60,000 a year, some small college.

00:34:09  Well, that makes sense. But I think that’s happened to a lot of people. And, and I don’t think, you know, I don’t absolve the borrower either. They should have known better.

00:34:20  But the schools let this happen. These, these graduate professional schools can be real money makers. They are, the graduate schools in particular, real money makers for colleges. And the degrees are frequently do not enhance the earnings potential of the student.

00:34:32  Barry Ritholtz: So do you have any hope that students are, are in a better shape financially going forward? Or is this still very problematic and needs

00:34:41  Sheila Bair: More help? I know, I think things are getting better. And a lot of it is something else that Trump, the first Trump administration did, which Biden continues. And the, and the current Trump administration continues, is to publish postgraduate outcomes.

00:34:53  So you can go on college scoreboard now and put in a college and a degree that you may be thinking about it. And you can see what the graduates are actually making. And you can find out the graduation rate, you can find out the retention rate, you can find out all sorts of information that will tell you is that college graduating students and are they getting job good jobs after they leave? And so I think more and more parents and student advisors, high school, college advisors are using those tools are more calculators too, that are based on help you figure out how much you can borrow based on what your postgraduate income will likely be in that field at that college.

00:35:31  So there is more awareness. And then I think a lot of, you know, ironically this is coming back to buy a lot of the colleges now, because I think it got so expensive. People were starting to take a second look, well, do I really need to go to college? You know, for so long there was all this social pressure to go to college.

00:35:47  I was a college president. I’ve taught a university. I think it’s a wonderful experience, but it’s not for everybody. And you don’t have to do it.

00:35:53  And there’s no stigma if you don’t do it. You know, you might wanna go directly into the workforce, learn on the job, you might wanna go to a, a trade school. There are, you know, community colleges, you gotta be careful there too. But many of them provide really good, you know, education that’s less expensive and a shorter duration.

00:36:10  So I think students in their parents are also thinking more broadly that they don’t have to go to college. There may be other options available.

00:36:16  Barry Ritholtz: La last question about college and education. We have thousands and thousands of, of universities and colleges. Do we have too many? Too

00:36:28  Sheila Bair: Many? Yeah,

00:36:29  Barry Ritholtz: Probably do. I mean, are we gonna lose 10 or 20% of the college base over the next decade? Yeah,

00:36:35  Sheila Bair: We probably will. And I think the, the, the, the, the, the, the part of it that’s really, really struggling are the private liberal arts schools. And they, they became too pricey. And I, I think that’s sad because I used to be the president of one of those colleges and I think they do offer very special educational experience.

00:36:54  A very, you know, it’s, it’s, it’s more high touch. It’s more, you know, for some, you know, going to college when you’re 17, 18 years old can be pretty traumatic. You’ve never been away from home, you know, and so, so some students that small intimate college environment was a good option, but they’re really struggling now. And so I think we’ll still have them, but I think there’ll be a lot of consolidation there.

00:37:13  Hmm. And then it’s the weaker schools, you know, if they, they’re not proving their worth, they’re gonna, they’re gonna close probably, huh.

00:37:18  Barry Ritholtz: Yeah. Really, really fascinating. So you went from writing a crisis memoir for adults to totally the opposite direction, basic financial literacy for children. What made you decide to aim in between at yeah.

00:37:35  Young adults and teenagers? Yeah.

00:37:37  Sheila Bair: Well actually it was my editor who, you know, everybody, when I first started running the, the picture books, everybody said, oh, this is too, you know, elementary school children are too young for this. And they’re not, they absolutely. And the books have sold well, and, and they, they totally get it. But my, my publisher, everybody said, you need to write a book for teenagers.

00:37:54  And my publisher thought that was a good idea as well. And so I thought about it and I thought, yeah, because, you know, there’s more and more financial education being required in high schools. And I, I want, I’m concerned that as schools start offering these courses, that there’s, you know, good quality, accurate content. There’s a lot of people out there providing financial, you know, a lot of people on social media, a lot of curricula, you know, sponsored by industry groups.

00:38:19  And so I thought, well, you know, I’m gonna, I’m gonna throw my hat in here to try to provide some basic financial advice to teenagers as they’re entering adulthood. So that’s, that was the, I will have to say my, my publisher’s initiative, but I think it was a good idea and I’m pleased with the way they came book came out.

00:38:35  Barry Ritholtz: So, so I’m glad you brought up social media. Yeah. Gen Z and what’s the new generation after them? Generation Alpha.

00:38:43  Yeah. I, I can’t get someones generation. Jones is another one. I can’t keep up with it.

00:38:48  But they all seem to get a lot of financial advice from Instagram and YouTube. Yeah. And TikTok. Yeah.

00:38:55  Rather than, let’s say, more professional experienced folks. Right. How did that impact how you thought about reaching this age group and, and how did it shape the tone of, of your book? Yeah,

00:39:11  Sheila Bair: So it was, I did wanna get some accurate information out there because there’s, and a a, a big theme of this book is, you know, I say in the introduction, building wealth is not hard. You need to establish a regular saving investing habit. You need to avoid debt. That’s really what you need to do.

00:39:29  And, and, but there’s so much advice that’s just the opposite. And especially on social media, it pushes debt. You know, well, why bother with a nice safe index fund? You can go borrow some money and buy a rental property and make way, you know, way more returns than No, no, no, no.

00:39:45  So, but there’s crazy stuff like that or, or borrowing to invest in crypto or mim stocks or, you know, gambling, you know, and their kids are getting confused about the difference between gambling and investing. They’re very different things. So I wanted to, to provide some correctives to that. And then just basically also address and flag common financial behaviors that cost people money.

00:40:07  Like carrying a credit card balance that I’m very open in my first chapter about my, I totally got in trouble with credit card debt. I was just, just graduated from law school. I was a civil rights lawyer, then. Didn’t know anything about finance, didn’t care, thought it was beneath me.

00:40:22  I needed to, you know, buy some clothes for work. I needed to get a, an apartment and furnish my apartment as I was getting all these solicitations from various credit card issuers who had found out that I was now, you know, working for a living somehow. So yeah, I got in trouble with credit card debt and I made that minimum payment and I thought, wow, this is great. I can borrow this money and it, this tiny little payment every month.

00:40:43  And I ended up, I think it was about $6,000 in interest when all of a sudden done,

00:40:46  Barry Ritholtz: Oh my god, that’s a lot. Well,

00:40:48  Sheila Bair: Yeah. Which if it invest in the s and p 500, it would be worth around 240, 200 $50,000 now. So there you go. So, but I think, you know, just avoiding things like that, the average family pays 1600 a year in credit card interest.

00:41:01  If that was just put into an s and p 500 index fund, boy, you know, over 30 or 40 years, that’s, you’re talking real money, huh. So that was, I I wanted to emphasize that is the simplicity of, of how to build wealth compounding opportunity costs are big themes. Those are, I think those are so fundamental to understanding how to manage money. And, but I basically, I just wanna help kids avoid mistakes.

00:41:23  I don’t want them to have financial problems when they grow up. I want them to get off on a, on the good, on the right foot, which I did not, and a lot of people don’t.

00:41:29  Barry Ritholtz: Coming up, we continue our conversation with Sheila Bear discussing her latest book, how Not to Lose a Million Dollars, A Young Person’s Guide to Avoiding the Tricks and Traps of Our Financial System. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. I am Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio.

00:42:12  My extra special guest this week is Sheila Bear. She is the former chair of the FDIC. Her latest book is out How Not to Lose a Million Dollars, A Young Person’s Guide to Avoiding the Tricks and Traps of our Financial System. So, so you mentioned a couple of really interesting things that taken together.

00:42:34  Howard Linson runs a venture fund and he calls it the degenerate economy. Gambling speculation. Yeah, yeah. End of day options.

00:42:43  Mean stocks, crypto coins. Yeah. And all of these have been through, through apps and other Yes. Methods, yes.

00:42:51  Because of the phones have been adopted by teenagers en mass. What do you make of the DGen economy and what does it mean to the future health of, of these young adults? Yeah.

00:43:04  Sheila Bair: Well, it’s very dangerous and it’s particularly a problem with young boys. And oh, by the way, they shouldn’t be doing this if they’re under 18, but a lot of ’em, ours, we know they’re targeted and they, they don’t understand the, the worth of money. The, the apps just make it so easy and don’t, you know, they don’t make the connection between the financial losses they’re experiencing. It’s a game for them.

00:43:24  And, and the industry advertises. They, they do gamify it. So, and even, you know, stock trading, some of these online brokers are big ones. They, they gamify it and it’s not a game.

00:43:34  It’s, it’s serious money. Serious. And I think one of the things from early on, if parents give their children allowances, but tie that to work, I think it’s really important for kids to understand early on the connection between work and money. It’s not just free, easy, you know, ’cause too many kids don’t make that connection and their parents are generous with the credit cards or whatever.

00:43:56  And, and they use their credit card numbers to do all these gaming apps. And, and I just don’t think it, the reality of what these kids are doing actually sinks in until they’re really in over their head. And I think it’s purposeful. I think, you know, kids don’t understand the difference between gambling and investing.

00:44:13  Well, there’s a big difference. And you’re investing, you’re supporting capital formation and the real economy helping businesses who make real goods and real services raise money and operate or supporting the secondary market that enables all of that. And what are you supporting with gambling or crypto? I mean, some crypto to the extent it, it represents the technology, I think crypto technology is, is very valuable.

00:44:36  But these, these, these, you know, these different currencies and tokens that have nothing

00:44:41  Barry Ritholtz: Behind them, you can call ’em shit coins.

00:44:42  Sheila Bair: That’s what they’re, how I call ’em shit coins. ’cause that’s, that’s nothing behind them. I’m amazed that Bitcoin is held up. I think it’s just, you know, it’s kind of the, the granddaddy of ’em all.

00:44:50  So if you’re gonna invest, most people do a Bitcoin ’cause they’ve, they’ve heard about it and the rest of it is crap. But Bitcoin may be too, but it has lasted. I will give it that. But yeah, I mean, what are they supporting?

00:45:02  And they’re losing money. You know, there’s a, there was a study done of gambling apps that showed that the people that use gambling apps, only 5% take out more money than they put in. And it’s addictive in these, these gambling platforms. If these, even if you start winning, well wow.

00:45:18  Oh, you’re doing great. Here’s a little money, why don’t you keep going? You know, they want you to keep going until you start losing money. ’cause the yard are, you will always lose money.

00:45:25  And Bloomberg came out with some great research recently on prediction markets. 75% of the profits, I believe are going to 1%

00:45:32  Barry Ritholtz: Of the users. Less than 1%. Yeah. Less than 1%.

00:45:34  It’s crazy. It’s so less money.

00:45:36  Sheila Bair: The whole game is rigged. Well, even active trading of stocks, very few people can do that and make, make money consistently

00:45:42  Barry Ritholtz: Over time.

00:45:42  Sheila Bair: Yeah. And you’re gonna be going against people who do it for a living, have a lot more access to data and expertise and, you know, algorithms and all the things, all the tools you’ll not have when you try to actively trade

00:45:53  Barry Ritholtz: Stocks. So, so this is kind of fascinating. I bet most people don’t know how much of a passion project this has been for you so long. I’m not, did I read this correctly?

00:46:04  You established the financial education division within the Treasury department early. I did

00:46:08  Sheila Bair: The Office of Financial thousand early education early in 2001. Yeah, yeah, yeah, yeah, yeah. Well I did, I still, I established the Office of Financial Education and it’s grown now. It’s in the treasurer’s office now.

00:46:17  And I think they held, they held, they held a group, it’s called fl and it’s basically a, a council of all the different financial education components of the various different regulatory agencies. And it’s a good group. Yeah, I did start it. That’s, that’s one of the things that got me interested in I, and actually my first book I was, was pre-crisis, was Rock.

00:46:37  Rock and the Saving Shock. It actually came out in 2006 because based on that experience, it inspired me to start writing kids books. ’cause I became aware that there really weren’t any resources for elementary age schools.

00:46:48  Barry Ritholtz: So, so how not to lose a million dollars covers basics like savings accounts, right. Student loans, debt avoidance. Right. And retirement planning it.

00:46:55  Yep. It kind of raises a question, why aren’t we teaching our kids financial fundamentals at the grade school level? Yeah. Why, why is this not just part of civics and Yeah.

00:47:07  Sheila Bair: Yeah. Well it can and should be. I mean, I, I think there’s a big movement now to have a standalone high school personal finance class. But I think is good.

00:47:16  But it really, it needs to be more than that. It needs to be, every year it needs to be introduced. And, you know, math curriculum is an, an obvious place. ’cause I think it makes ma it will make math more interesting to kids if you do use money examples, right?

00:47:29  So you wanna learn about ratios and percentages. Let’s talk about compounding and how much your money grows at four percents a year, whatever. So it, it does need to be introduced every year. And, and again, that’s one of the reasons my books are, I mean there’s supplements to curricula.

00:47:44  I don’t write educational curricula, but there’s certainly could be assigned readings to go with those, those classroom efforts. And I think that’s important and the kids get it. They’re interested in it. They absolutely get it.

00:47:54  They’re not too

00:47:55  Barry Ritholtz: Young. One of my favorite parts of the BBB was the new newborn accounts. Oh,

00:48:03  Sheila Bair: It’s Trump accounts.

00:48:04  Barry Ritholtz: Yeah. The baby bonds, which Corey Booker started talking about, drawing a blank on the name of the venture capitalist who suggested something like this years ago. But it’s only a thousand dollars to every newborn in an investment account. Yeah.

00:48:18  Yeah. I Is this a good start? Is this gonna help kids learn about money? Yeah.

00:48:23  Yeah.

00:48:24  Sheila Bair: It absolutely is. It’s, I think, you know, it’s only for, there’s a three year period where children are born within this three year period we’ll get the thousand dollars. But it, it can be matched by employers. A lot of employers who

00:48:36  Barry Ritholtz: We’re hearing already, Dell and JP Morgan and a bunch of big employers. And they’ll do a a thousand dollars match. Exactly. And the assumption is this’ll be renewed after three years.

00:48:46  Sheila Bair: I, I hope so. I hope it is. I’m, you know, I’m kind of a fiscal conservative when it comes to our deficits, but I think this is a good way to spend the money. ’cause it goes directly, you know where it’s going.

00:48:56  You know, it’s helping. And it is, it’s a wonderful way to learn about the power of compounding. Congress mandated the, the money has to be invested in broad based index funds, which is good. Right.

00:49:06  I, you know, or we’d be seeing crypto and mim so, or whatever, right. So that’s, that’s good. But you can see over time how it’ll grow. And I hope, you know, when they’re 18 they can, they can take it out.

00:49:15  But I hope they leave it there and it just converts into a regular, i a at that point. But it’s, it’s great. It’s a wonderful financial educational tool as well as some additional financial security for low income families and their children.

00:49:27  Barry Ritholtz: So let, let’s talk about another aspect of money that’s so different today than it was when we were kids. Money is effectively invisible. Yeah. Credit cards, apps, buy now, pay later, subscriptions, all that.

00:49:42  There, there have been studies that have shown that if you give people a pile of cash to spend or a credit card loaded with the same amount, they spend more with the credit card than with actually paying, you know, greenbacks, which says a lot about the psychology of, you know, modern spending. It does. Yeah. So, so how do you, how do we recognize that and how do we teach kids the value of a dollar?

00:50:10  It’s, it’s, it’s really a challenge when you, you just tap the card and it’s magic.

00:50:15  Sheila Bair: It’s, it’s not real money. It’s funny money. Yeah. Well that’s what, you know, I think it’s important to attach an allowance to jobs.

00:50:23  I think helping kids make the connection between having to work and earning money is really, really important. ’cause the parents are too generous. They let ’em use their credit card. So that’s, they start getting that easy usage.

00:50:33  And if they’re using their parents’ credit card, they’re not having to, it’s not causing them any pain to spend money. So I think the parents can control a lot of this, but the, the kids need to understand the connection between earning money and spending money. And if they make that connection, they will be more judicious and careful with their money because they realize how dear it is because it took that $10, took an hour of their life, raking leaves or whatever, you know. So I, I think it’s, it’s important to make that connection and financial education understanding.

00:51:03  You know, I have a chapter on, I spend a lot of time on credit cards. ’cause I think it is a, an early trap for a lot of families and a lot of kids because it’s just so easy. And bnm PL is the same thing. B-M-P-L-I don’t like it.

00:51:15  Barry Ritholtz: Buy now, pay later,

00:51:16  Sheila Bair: Buy now, pay later. The whole idea is to facilitate impulse buying. Let’s face it, you know, you’re using BMPL when it’s really beyond your budget to buy. You weren’t thinking about buying it.

00:51:25  You don’t really have the money now to buy it, but you really want it. And that’s what BNPL does. And they’re, you know, BNPL users a, a very high percentage of them. You know, first of all it’s not interest free ’cause it ends up going on your credit card ’cause you can’t pay it off.

00:51:38  So you’re just carrying the balance on your credit card or it’s coming outta your checking account and you overdraft and you get an overdraft fee. So it’s not really, they say it’s interest rate, it’s not for a lot of users’, it’s not really, it gets them in a financial

00:51:50  Barry Ritholtz: Trouble. When we were kids it was called layaway lay. That’s right. And you didn’t get the good or item, I tell you until you paid it off.

00:51:57  And you very much understood. Yeah, I gotta shovel more, more sidewalks or, or mom more lawns Yeah. If I want that bike or whatever it happened to be. Exactly.

00:52:08  Yeah. It, it was, this is the opposite lesson.

00:52:10  Sheila Bair: It is. It, it totally is. And I, you know, so I think it feeds a lot of overspending. I think impulse, I, you know, kids are making decisions and decisions more impulsively.

00:52:21  I mean, they don’t have the same impulse control adults have. And, and I think you know it, people know that, retailers know that. Commercial entities know that. So they, they try to encourage them to make snap decisions to, to buy something.

00:52:35  And it just, it’s so important. I, I have a rule, wait a week when my chapter I’m budgeting about buying things. Just wait a week. You know, there’s some things you have to buy your needs, like your rent or whatever.

00:52:44  Right? But if, if it’s your wants, first of all, don’t buy any want that’s not within your budget. And even if you do wait a week, you know, just don’t buy it on impulse. Wait a week, come back to it.

00:52:54  You really wanna, or not? When I go into grade schools and do readings, I, my common question is, raise your hand if you’ve ever bought something you wish you hadn’t bought. Every hand goes up. Every hand goes up.

00:53:05  Yeah. Every hand goes up. It’s amazing. Yeah.

00:53:07  Already, you know, at seven years old, they, they’ve got buyer’s remorse. It’s usually junkie toys. What,

00:53:11  Barry Ritholtz: What I, speaking of junkie toys, when there’s a car I fixate on. My little hack is I’ll buy one of the die cast models and put it on my shelf. So for 60 bucks, I like, alright. I feel like, all right.

00:53:27  I, I have a little experience in this car. Yeah. And after a few weeks, it’s like, all I have the toy, I’m good. I don’t need to spend a hundred thousand dollars on another stupid thing for the garage.

00:53:38  Well,

00:53:38  Sheila Bair: That’s right. There’s a, there’s, there’s a chapter on buying a car too. I just bought a by a, I just bought a car, actually, a used car. I didn’t wanna, they, they proceed so fast, it’s gonna be second car.

00:53:47  But this, this, I couldn’t believe it. I mean, I knew this, I’ve had experience in the past. It’s been a while since I bought a car. He was trying to upsell me with everything.

00:53:54  And now they’re trying to sell me, give me all these service contracts. So would increase the price of the car by about 25%. It’s just, it’s just unbelievable. They’re, you know, kids wanna buy cars.

00:54:04  They want their own cars. That is such,

00:54:05  Barry Ritholtz: Such erritory. I I don’t think that’s true anymore. Anymore.

00:54:08  Sheila Bair: Maybe not,

00:54:09  Barry Ritholtz: Not a lot. A lot of kids aren’t getting licenses. They can uber wherever on mom’s urban. I think that’s true.

00:54:14  Yeah. Right. And it, it’s, there seem, although there is a renaissance of kids buying, let’s call ’em 20-year-old analog as opposed to digital cars with stick, with stick shifts, really. Like there’s a whole generation of new car enthusiast coming up.

00:54:34  Yeah. That I, I think a stick shift today is an anti-theft device because, you know, nobody knows how to drive. You bring it to a valet, they look at you, you go to a restaurant, they’re like, would you mind pulling it in over there? Yeah.

00:54:46  Okay. Nice.

00:54:47  Sheila Bair: That’s funny. But it’s really true. It, and it’s good because, you know, cars are expensive. The average monthly payments, well, like 700 a month, you know, for a young boy party,

00:54:56  Barry Ritholtz: It’s a thousand dollars a month is not uncommon on a lease. Yeah.

00:55:00  Sheila Bair: Well

00:55:00  Barry Ritholtz: Lease. And kids don’t understand why, Hey, no down payment. Yeah. Well, yeah.

00:55:05  But no, no residual at the end, you have the back. Right. It’s just the cost.

00:55:10  Sheila Bair: It’s exactly right. Yeah. So it, yeah. It’s really expensive for in person to buy a car if they can avoid that.

00:55:15  Barry Ritholtz: So, so I only have you for a few more minutes. Yeah. So let me jump to my favorite questions. I ask all my guests.

00:55:22  Starting with, tell us about your mentors who helped shape this Yeah. Career you’ve enjoyed through academia, finance, and government. Yeah.

00:55:31  Sheila Bair: Well, Bob Dole obviously stands out. He was really, he, he really taught me what public service meant. And he was always focused on the public interest. He was a populist in the good sense.

00:55:42  You know, he was from a small rural town in, in Kansas. He was horribly injured during World War ii. Laid up for years. The townspeople rallied, supported him, got him back to health.

00:55:52  Helped him become who he became. So he was really, he really focused on, on the public. And I learned that. And I think later in my career and at the FDIC, we, we kept that focus on the public, the people who are using the banks, not the banks.

00:56:06  Who are we helping? Were we helping the people who use banks? So I, I’m proud of that. And I learned a lot from him.

00:56:12  You know, later I got to know Paul Volker. I learned a lot from him. I, Paul Paul. Yeah, that’s right.

00:56:19  Elizabeth Dole was someone, I never really had a chance to work with her, but I knew her through, through the Senator Bob and had maintained contact with her over years. Another woman who inspired me, not a mentor, but Senator d O’Connor, the first woman, Supreme Court Justice, when I was on the Judiciary committee, I got to handle her confirmation. And she was just a lovely person. So a lot of people I’ve met over the years, but Dole really stands out as, as my, my prime supporter and, and mentor in my career.

00:56:48  Hmm. Yeah.

00:56:49  Barry Ritholtz: Let, let’s talk about books. What are you reading now? What are some of your favorites? Yeah,

00:56:53  Sheila Bair: So I love murder mysteries. I’m reading Anthony Horowitz’s new book, A Deadly Episode. I mean, if we an know Anthony Horowitz, he’s a British mystery brother. I

00:57:02  Barry Ritholtz: Know the name. Yeah. My wife is a fan of those. So she, yeah.

00:57:05  Sheila Bair: Well, she burns through those. Yeah. He’s quite prolific. Yeah.

00:57:07  Right. He, he was the young, he, he was actually chosen by the Ian Fleming estate to continue writing. He’s written two. They’re really good.

00:57:14  Yeah. I actually like

00:57:16  Barry Ritholtz: Tofl owned by Amazon.

00:57:19  Sheila Bair: That’s right. That’s right. So, so yeah. And then I’m reading John Hershey’s Hiroshima.

00:57:25  My family and I are going to Japan at the end of the month. And I wanted to, I’m dying to go take them. Yeah. Yeah.

00:57:29  And I, the kids kind of bought, I said, we’re gonna go to Hiroshima. ’cause I think that’s an important part of history. You need to, we need to see this and, and understand it. And I read Hiroshima when I was young, you know, probably, you know, high school.

00:57:41  Right. I think when it came out and, and it had such an impact on me in so media again. And it still has an impact on me. And especially everything going on in the world now.

00:57:49  And other countries, even Japan talking about wanting to have a nuclear capability because things just don’t seem very unsettled on that score right now. So that’s, those are my two. I usually have two books going. One nonfiction and one fiction.

00:58:02  Barry Ritholtz: So yeah. So I’m gonna recommend a book to you. Okay. It’s just really kind of fascinating.

00:58:06  An American who’s a professor somewhere in, in the uk, Brian Klaus with two As. And the book is called Fluke. And the book starts with this story of a young couple honeymooning in Kyoto. Later in life, the husband becomes the head of the war department.

00:58:29  And when we have to figure out where to drop the abo, he absolutely vetoes Kyoto And Hiroshima is what gets, is what gets true because this couple went there for a honeymoon. Oh, that’s really interesting. That country, that city is spared. And then it wasn’t supposed to be Nagasaki, it was in, I don’t remember what city it was, but there was cloud cover and they couldn’t, back then you were doing visual reads.

00:58:59  Right. You couldn’t see. So they went to the secondary target. Yeah.

00:59:03  And so think about, talk about flukes. Yeah. How random things are. Yeah.

00:59:08  So Hiroshima gets it because somebody went there on a honeymoon.

00:59:12  Sheila Bair: On a honeymoon. Just crazy. Well, and now you look back and why did any city get it? Couldn’t you drop it over the ocean or something?

00:59:17  You wanna make a point? I mean, really. I don’t, it’s hard for me, me to understand now. I know.

00:59:22  And that’s just, you know, we are not there at the time. There was a lot of

00:59:26  Barry Ritholtz: The psychology during

00:59:27  Sheila Bair: War time. Yeah. So different. And the Japanese had been, everybody had been horrible, but the Japanese had done some brutal things.

00:59:33  Well, for

00:59:33  Barry Ritholtz: Centuries.

00:59:34  Sheila Bair: Yeah. Well, okay. All right. Speak

00:59:35  Barry Ritholtz: To speak to China. Korea. Not I’m, no, no. I’m a big fan of Japan.

00:59:42  Yeah. But no, but they were quite a, they in China Ruthless Empire

00:59:45  Sheila Bair: For a long time. Yeah. Yeah. So there was a lot of, so I understand that.

00:59:49  And I think, well, maybe the horror of it when, you know, and the, and I think that’s why John Hershey’s book was so important. ’cause it really underscored the horror of it. But maybe because people then understood how horrible it was, it made it even less likely every anybody would ever use it again. I’m gonna, I’m gonna rationalize it that way.

01:00:05  But it is hard. You know, you look back and, oh my gosh, did we really have to do that to people? Because it was, it was not just the people who probably were killed immediately were the lucky ones. Oh yeah.

01:00:14  The radiation sickness after the horrors

01:00:17  Barry Ritholtz: Slow up. I think I signed that same book in, in high school and

01:00:20  Sheila Bair: Everybody read it. Yeah.

01:00:21  Barry Ritholtz: And plowed through it. And it was just,

01:00:23  Sheila Bair: It was, yeah. No, it’s very well written. It was. Yeah.

01:00:26  Barry Ritholtz: Let, let’s shift to, are you streaming anything these days? You listen to any podcasts? I don’t. Or watching anything.

01:00:31  Yeah.

01:00:32  Sheila Bair: I don’t stream or podcasts that much. I get podcaster, I like to read transcripts of podcasts ’cause I can read a lot Faster. Faster. That’s what I can listen

01:00:39  Barry Ritholtz: Faster. Yeah. How, how about Netflix or HBO or anything like that? Yeah.

01:00:42  Sheila Bair: You know, again, I’m, I’m, you know, one note on this murder, BBC, I’m there, you know, I love the murder mystery box box. Yeah. The, all the, all the agathe IES I’ve seen in the, the David Che prose are by far the best. Foils war was great.

01:00:58  Also, Anthony Horowitz, the, he did a, the, the,

01:01:02  Barry Ritholtz: They made it into a series or a movie.

01:01:05  Sheila Bair: Which one? The Foils War. Foils of War. Foils War.

01:01:07  Actually, that was, that was a TV series. It wasn’t a book. That was one of the few things. But it’s, it’s, it’s, it’s really good.

01:01:13  I like the, the Morse. You know, have you ever watched Morse Inspector Morse? No. That’s, that’s so famous.

01:01:19  Sounds me familiar. It

01:01:20  Barry Ritholtz: Used to be on PBS at one point.

01:01:21  Sheila Bair: Yeah. Yeah. It’s old. But there were three Morse and then Endeavor, which was about Morse when he was younger.

01:01:27  And then Lewis, who was Morse’s sidekick. So BBC did a really good job there. So yeah, these are old stuff. I recycle ’em.

01:01:33  But yeah, I, I love, I love BBC and I love British. I love British Redbox. Excuse me. I love

01:01:38  Barry Ritholtz: Our final two questions. What sort of advice would you give to a recent college grad interested in a career in banking or finance or government service?

01:01:50  Sheila Bair: Yeah. Well, I would say be open-minded, because I think the job market is, you know, we don’t know. AI is kind of having a negative impact on entry level white collar jobs. So they’re need to be thoughtful about that and how to navigate that.

01:02:05  So I think you need to be open-minded. But preferably, if you have options, you know, pick, pick a company that has a good culture. I, you know, ask them how they think about their customers. Right.

01:02:17  If they’re an investment firm and they talk about them like, Muppets, you probably don’t wanna work there. But if they talk, talk about them as

01:02:24  Barry Ritholtz: I remember Muppets

01:02:25  Sheila Bair: Mpe. Yeah. Just to mention an example. So I think, I think it’s important, any business actually, whether it’s finance or any real economy business, how they think about their customers and treat their customers.

01:02:36  ’cause I do think long, long-term success is based on having a mutually beneficial relationship with your customers. So I would, and, you know, just the work ethic and, but, and again, keep an open mind. Sometimes things you weren’t even thinking about come up and they turn out to be really, really good job choices.

01:02:52  Barry Ritholtz: And our final question, what is it that you know about the world of banking regulations, government service, financial industry today might have been useful to know way back when, when you were first getting started. Yeah,

01:03:07  Sheila Bair: I thought about that. Markets, right? Not personal finance, but market. Clearly credit card debt

01:03:14  Barry Ritholtz: Go whichever way you want.

01:03:15  Sheila Bair: Yeah. Well, compounding was something I did or did not understand in credit card rates. That

01:03:20  Barry Ritholtz: Comes up surprisingly

01:03:22  Sheila Bair: Frequently. Yeah. Yeah.

01:03:22  Barry Ritholtz: So because it’s not intuitive.

01:03:23  Sheila Bair: Yeah. No, it’s not. And the, the daily compounding is, you know, it, it, it backs up pretty quickly, I think for markets, financial markets and investing in particular. I, I’ve actually done pretty well over time.

01:03:35  I was, my grandmother gave me a thousand dollars when she was getting later in life near her death. And she didn’t have much, but she wanted to give my sister and I something. So she gave me a thousand dollars and told me to put it in IRA. That was back when IRAs had just gotten started.

01:03:50  And with my dad’s self, I put it in the contra fund. It’s worth a lot of money now. Right. So I, I’ve made some lucky I’ve, I’ve stuck mainly, I’ve picked a few stocks, but I’ve picked mainly diversified index funds of various sorts.

01:04:03  And I wish I’d understand better about being brave during the dips though. You know, I think I usually, I, I, I buy and hold, so I don’t, I don’t sell when the market’s going down, which is the worst thing you can do. But I think I would’ve been a little more courageous buying in the dips,

01:04:15  Barry Ritholtz: You know, buy, buying more into, into weakness. Yeah. Yeah. Well, well, Sheila, thank you for being so generous with your time.

01:04:21  As always, a delight. We have been speaking with Sheila Bear, former chair of the FDIC, author of the new book, how Not to Lose a Million Dollars. If you enjoy this conversation, well check out any of the 600 we’ve done over the past 12 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you find your favorite podcasts.

01:04:44  I would be remiss if I didn’t thank the crack staff that helps put these conversations together each week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is my podcast producer.

01:04:59  I’m Barry Bri Holtz. You’ve been listening to Masters in Business on Bloomberg Radio Video.

 

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My back-to-work morning train WFH reads:

• Trump’s More Than 3,700 Trades Astonish Wall Street Insiders: President Donald Trump’s latest financial disclosures show that he or his investment advisers made more than 3,700 trades in the first quarter, a flurry totaling tens of millions of dollars and involving major companies that have dealings with his administration. The President’s personal trading record, surfaced in disclosures, is itself a market-integrity story. Even by political-class standards, the activity level is remarkable. (Bloomberg/Yahoo Finance)

• Who wins and who loses from fewer corporate earnings reports:. Investors “have come to expect quarterly reporting and will exert pressure on companies to continue to provide quarterly reporting,” Erik Gerding, former director of corporate finance at the SEC. (Axios) see also Good Quarterly Earnings Behavior: Yours truly on what to actually do — and not do — during earnings season. Process beats prediction, every quarter. (The Big Picture)

• Secret Memos, Frantic Texts and Juicy Confessions From the OpenAI-Musk Trial: We sifted through evidence and testimony to figure out how billionaires Elon Musk, Sam Altman and Greg Brockman ended up in a courtroom. (Wall Street Journal)

• 50 Years of Stock Market Returns: Ben Carlson’s annual long-view table. Useful as a sanity check the next time someone tells you ‘this time it’s different.’ (A Wealth of Common Sense)

• The Rich Really Do Pay Lower Taxes Than You: The Saez/Zucman interactive still hits. Refreshed in the head whenever the ‘lazy rich aren’t taxed enough’ debate fires up again. (New York Times)

• Apple Is Making Hit Products and High Profits From Imperfect Chips: The company’s popular, $599 Neo laptop is just one of dozens of Apple devices that use lower-performing processors. (Wall Street Journal)

• The man they call Toad, and his lifetime collection of bikes that no-one wanted: A specialist’s lifetime collection, lovingly profiled. Almost everything about why hobbies matter is in this piece. The man they call Toad, and his lifetime collection of bikes that no-one wanted.  (The Bike Shed Times)

• In northern Ukraine, it was boy vs. Russian drone. The boy won. A soldier taught a 12-year-old how to disable the fiber-optic drones that Russia has been using to hunt Ukrainian civilians in a campaign the U.N. has labeled a war crime. The ‘human safari’ phenomenon — Russian FPV drones hunting civilians on Ukrainian roads — has produced terrible footage and the occasional small victory. (Washington Post) see also Rumors of Instability in Moscow: Drone attacks, internet blackouts, and a sudden downturn in the economy have marked one of the worst stretches for Vladimir Putin since the start of the war in Ukraine. Kremlinology for the post-Wagner era. Reading the signals takes practice; this piece offers a useful framework. (New Yorker)

• YouTube taught a Japanese teen how to kick field goals. Now he’s in the NFL. Kansei Matsuzawa, 27, became the first Japanese-born player ever signed by an NFL team when he agreed to a deal as an undrafted free agent with the Raiders. A lovely ‘distance learning, applied’ story. Specialist positions are the most disrupt-able corner of pro sports. (NBC News)

• Stephen Colbert’s ‘Late Show’ comes to an ironic end: On the strange off-ramp for the late-night format. The economics killed the show; the politics gave the eulogy a louder coda. (Washington Post)

Video of the day: 7 Heritage Brands DESTROYED By Private Equity (And 5 That Survived)

Be sure to check out our Masters in Business this weekend with Sheila Bair, former Chairperson of FDIC from 2006-11. She helped steer the agency through worst financial crisis since the Great Depression. Her new book is aimed at young adults and teenagers, titled “How Not to Lose a Million Dollars”

 

In Credit Markets, Things Are Getting Better, Not Worse

Source: Apollo

 

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Tennis great-turned-philanthropist Roger Federer delivered the Commencement address at Dartmouth on June 9, 2024. The eight-time Wimbledon champion gave pointers on how to win at life. Federer received a Doctor of Humane Letters degree at the Commencement ceremony.

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Avert your eyes! My Sunday morning look at incompetency, corruption and policy failures:

• Trump’s China Trip Underscores How Power Has Shifted East. Given that Trump explodes at even the most trifling perceived affront—pulling 5,000 American troops out of Germany after Chancellor Friedrich Merz said the U.S. had been “humiliated” in Iran—it was telling that Xi felt empowered to lay down the law from the get-go. Indeed, the most enduring image from the entire visit is the two leaders standing outside the Ming Dynasty Temple of Heaven, with Trump remaining curiously tightlipped as reporters enquired whether they had discussed Taiwan. “China is beautiful,” Trump offered instead. (Time)

• Rich Guy Quote Journalism: How the media turns rich guys’ opinions into news. The answer is that there’s an entire genre of media coverage best described as “rich guy has an opinion.” On the journalistic genre that treats anonymous billionaires as primary sources. A useful media-critique read for the next hedge-fund profile. (String in a Maze) see also Pulitzer-winning newsrooms are quietly publishing mountains of gambling slop: A large network of prominent regional newspapers have posted thousands of low-quality articles promoting gambling and prediction markets. Advance Local, which owns The Oregonian, The Cleveland Plain Dealer, The Star-Ledger, and several other award-winning newspapers, has quietly published more than 17,000 online articles since 2022 pushing promo codes for sports books, online casinos and, more recently, prediction markets. Judd Legum on serious newsrooms quietly running gambling content farms for affiliate revenue. The journalism cross-subsidy has gotten unsubtle. (Popular Information)

• Polymarket’s Most Contentious Debates Are Being Decided by Anonymous Crypto Votes: The prediction market outsources its disputed resolutions to an anonymous vote of crypto token holders. Some of those voters have financial incentives that could affect their votes. (Barron’s free)

• Wealth is righteously earned and poverty is righteously dispensed: The cult of the just world: To state the obvious to anyone reading this newsletter every single one of these people mentioned – yes even Beyonce and Taylor Swift :( – got their billions the same way any other did: exploiting the labor of workers in a cruel economic system maximized for the few to be able to do just that. The end. A scathing piece on the moral architecture that makes American inequality feel deserved. Calvinism dies hard. (Welcome to Hell World)

• Profiting From Inflated Hospital Prices: This week’s CPI report shows hospital prices continue to race ahead of price increases in other health care sectors. In the past year, so have hospital profits. The supply-side story of health-care inflation. The cost curve has many parents, but the hospital pricing model is doing more work than most. (Washington Monthly)

• ‘The Biggest Student Data Privacy Disaster in History’: Canvas Hack Shows the Danger of Centralized EdTech: Thursday afternoon, millions of students at thousands of universities and K-12 schools were locked out of Canvas, a piece of catch-all education technology software that has become the de facto core of many classes. ShinyHunters, a ransomware group, hacked Canvas’s parent company and apparently stole “billions” of messages and accessed more than 275 million individuals’ data, according to the hacking group. The group also locked students out of Canvas.  (404)

• Sinister, Malevolent, Venomous: Stephen Miller Is Like No Other White House Aide in Modern US History: On the Miller portfolio. The headline does the work; the body has the institutional detail to back it up. Miller, the deputy White House chief of staff, has never hidden his disfigured and dangerous psyche. But now Donald Trump has empowered him to execute his fascist impulses. (Zeteo)

• The Age of No Innocence: What if all you knew was extremist politics? Welcome to being young in America. An essay on the disappearance of cultural innocence — for kids, for institutions, for ourselves. Heavy lift, worth carrying. This is History 221, The Far Right in America: 1920-2020. For a semester, students immersed themselves in an examination of America’s most ultraconservative political groups and figures, from the Ku Klux Klan, to the John Birch Society, to neo-Nazis, to the far-right creations of the modern political moment, like the Patriot movement and the embrace of Christian nationalism. Welcome to being young in America. (The Western Edge)

• The supreme court’s takedown of American democracy is complete: Austin Sarat with the full arc from Bush v. Gore through the latest term. A useful refresher on how we actually got here. Since the Citizens United decision of 2010, the justices have dismantled Americans’ voices. The only solution is at the ballot box (The Guardian)

• Trump’s Corruption Is Going to Sink Him: On the cumulative corruption headlines as a long-fuse political problem. The base may not care; the persuadable middle increasingly does. Conditions are right for voters to stop turning a blind eye to his greed, grift, and gold leaf. (The Bulwark) see also President Trump’s $TRUMP memecoin is preparing to launch a “Coin Club” membership scheme: Molly White on the latest tier of the Trump memecoin grift. The fact that this requires an SEC division to even parse is itself the joke. The website promises “elite and extraordinary experiences” as part of the newest scheme to revive a token that’s down 97% from its peak and still falling. (Citation Needed)

Video of the day: Tesla Never Stopped Developing The Model S

Be sure to check out our Masters in Business this weekend with Sheila Bair, former Chairperson of FDIC from 2006-11. She helped steer the agency through worst financial crisis since the Great Depression. Her new book is aimed at young adults and teenagers, titled “How Not to Lose a Million Dollars.”

 

The Rich Really Do Pay Lower Taxes Than You

Source: New York Times

 

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This week, I speak with former FDIC Chair Shelia Bair. We discuss the release of her latest book “How Not To Lose A Million Dollars” and the importance of financial literacy across age groups. Bair also discusses her concerns about crypto, gambling, and the rise of Buy Now, Pay Later.

A list of her current reading is here; A transcript of our conversation is available here Monday.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our Masters in Business next week with Vimal Kapur, CEO and Chairman of DJIA component Honeywell International. The firm is in the midst of dividing into three companies: Honeywell Automation, Honeywell Aerospace, and Solstice Advanced Materials. The firm has fully integrated AI as the intelligence layer in all of its automation processes and products.

 

 

 

Authored Books

 

Current Reading/Favorite Books

 

 

Books Barry Recommended

 

 

 

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The weekend is here! Pour yourself a mug of Danish Blend coffee, grab a seat outside, and get ready for our longer-form weekend reads:

• Pay Attention: Essential advice for the class of 2026. It sounds simple. But paying attention is in fact one of the most challenging and meaningful things you can do. Because what you pay attention to shapes what you care about. And what you care about shapes who you become. Jonathan Haidt’s NYU commencement address, in essay form. Familiar themes, sharper delivery. (The Atlantic)

• Words That Mattered: Fed Chair Jay Powell.He was sworn in as Chair in February 2018, with an economy at 4% unemployment and inflation slightly below 2%; he leaves  with unemployment close to 4% and inflation above 3% and rising—a miss on the price stability mandate. The two endpoints do not do justice to the scale of the economic challenges—above all, the pandemic—that Powell navigated. (Stay-At-Home Macro)

• How Warren Buffett Did It By Seth A. Klarman: The Buffett story keeps getting more interesting under scrutiny. The most successful investor of all time retired. Here’s what made him an American role model. On the leverage hiding inside the ‘patient value investor’ brand.  (The Atlantic)

• The Long Revolution: Will capitalism last forever? If capital was viewed as a thing and capitalists as people, capitalism was something else. Blanc described it as an act, the taking of collective wealth and turning it into individual or private profit. Proudhon claimed it was a citadel, casting medieval and military shadows across the land. Despite his obvious interest and extensive writing on the subject, Marx steered clear of the term. Helpful frame for thinking about where the current consolidation cycle fits. (The Nation)

• The Founding Story Behind Japan’s Oldest Whisky Maker: The Suntory origin story — part craft history, part marketing — a satisfying read for whisky drinkers. The House of Suntory is often credited with putting Japanese whisky on the map. (Town & Country)

• I Work in Hollywood. Everyone Who Used to Make TV Is Now Secretly Training AI: For screenwriters like me—and job seekers all over—AI gig work is the new waiting tables. In eight months, The quiet new gig economy: laid-off writers, editors, and showrunners moonlighting as AI-training contractors. The talent doesn’t disappear, it just gets repurposed. I’ve done 20 of these soul-crushing contracts for five different platforms. It’s bad. (Wired)

• 5 Legendary Apple Stories That Reveal the Genius Behind Its Innovation. Apple’s greatest innovations came not just from technology, but from relentless creativity, unconventional thinking, and an obsessive drive to make products feel magical to ordinary people. Five vignettes from the Apple corpus. Hagiographic in tone, but each contains an actual decision worth studying. (Next Big Idea Club)

• The Stephen Colbert Exit Interview: “I Did Not Expect It to End This Way”: Colbert reflects on the abrupt cancellation of The Late Show and what it says about the slow death of network late-night. As ‘The Late Show’ nears its final bow, the host opens up about the cancellation that shocked the industry, the win of going out as a “martyr” and his next act in Middle-earth. (Hollywood Reporter)

• The Astounding Discovery That Could Link Eastern and Western Medicine:  The detection of another circulatory system in the human body could have enormous scientific implications.  (New York Times Magazine)

• Why Steve Kerr stayed with the Warriors.  Kerr loves the game and its history. He’s an obsessive sports fan and has been watching the last acts of sporting lives for the past 40 years. It’s often ugly. The final years of Lute Olson’s life were not the victory lap they should have been. Kerr doesn’t want the Warriors to end up like the New England Patriots, marred by grudges and grievances. He watched Michael Jordan retire, then unretire, then retire, then unretire. His friends used to grill him about MJ. Kerr on loyalty, succession, and the Curry era’s last laps. A nice contrast to most coaching-job pieces, which read like prospectuses. (ESPN)

Video of the day: Wanton Destruction Of CBS Property – Letterman & Colbert Toss Stuff Off The Roof Of The Ed Sullivan

Be sure to check out our Masters in Business this weekend with Sheila Bair, former Chairperson of FDIC from 2006-11. She helped steer the agency through worst financial crisis since the Great Depression. Her new book is aimed at young adults and teenagers, titled “How Not to Lose a Million Dollars”

 

Despite peak Shiller CAPE, if you bought the Nasdaq 100 top in March 2000, you made ~8% per year since

Source: @cullenroche

 

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The SEC has proposed moving to semiannual earnings reporting.

On Monday, we discussed why eliminating quarterly earnings as a basic premise was a bad idea: it reduces transparency, increases volatility, and is likely to create a surge in insider trading, all while accomplishing little to move us away from the short-termism surrounding quarterly earnings today.

Before we do that, let’s consider the best practices of some of the largest and/or smartest companies in America. They have considered this issue on their own, taken a variety of approaches regarding earnings, and have been applauded by their shareholders for how they conduct their business.

Let’s consider some best practices – even without being required to do so by the SEC.

Berkshire Hathaway: does not do a quarterly call at all. The Q1 results historically came out alongside an 8-K and a quick slide at the meeting. Buffett has used the annual meeting Q&A to add whatever color he wanted to the numbers. Greg Abel’s first quarter (Q1 2026) still produced a Saturday earnings release with no accompanying call, just the report. Given that he was selected by Buffett, it is hard to imagine that changing.

Costco: historically refused to provide forward guidance, and the call is famously short and unadorned. To keep their investors informed, the CFO does monthly comp sales updates. This has made COST’s quarterly calls uneventful.

Tootsie Roll: Admittedly, BRK & COST are giant companies with unusually loyal shareholders. Let’s consider a smaller player: Tootsie Roll. Their Q1 2026 release was issued on April 22, 2026. The entire document is a one-page press release. It is filed as Exhibit 99.1 to an 8-K.

That’s it! No conference call, no webcast, no slide deck, no management discussion, no analysis – just the naked release itself. It does not include a balance sheet, a cash flow statement, or a segment breakdown. Chairman Ellen Gordon includes a brief narrative and a four-line summary table. Oh, and precisely zero forward guidance.

Other companies split the difference with pre-recorded calls. The Tisch family runs the Loews Corporation, and instead of a live call, they file a written set of “Earnings Remarks” as an exhibit to the 8-K in PDF form; again, they eschew the live Q&A format and provide no forward guidance. Google similarly pre-records the management remarks via a script recorded up to 48 hours ahead of time. Mark Leonard of Constellation Software is openly disdainful of what he calls “IR theater.” The reclusive billionaire shares few speculative opinions beyond his shareholder letters. (He famously asked the board to reduce his salary to zero.)

Then there is Robinhood, which has reinvented what an earnings call looks like. CEO Vlad Tenev has said he is trying to “improve the branding of being a public company,” which is very on-brand for a brokerage app in an era when fewer and fewer companies are going public. (See, e.g., Q2 2025 Earnings Call, July 30, 2025)

They livestream the video on multiple platforms, including Tenev’s X account, in front of an in-person audience physically at a venue. The Q1 2026 call (April 28) was held outdoors at their Menlo Park HQ – it could be the first-ever outdoor earnings call in history.

Stock ownership is the entry ticket for asking a question – it is a mix of retail shareholders, “finance content creators, analysts, and institutional shareholders. Robinhood begins with the Q&A, via Say Technologies – Shareholders’ questions are submitted in advance and “upvoted” during the week leading to the call.

There are plenty of others: Tesla, Amazon, Opendoor, Netflix, Spotify and Palantir all come to mind.

The bottom line is that the SEC should encourage more information sharing, greater transparency, and more frequent earnings reporting — not less.

Allowing less information, rather than mandating more, is a step in the wrong direction.

 

 

Previously:
Artificial Intelligence and Quarterly Earnings Reports (May 11, 2026)

Report Earnings Daily (Bloomberg, August 20, 2018)

 

 

 

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