“President Trump has introduced a tremendous amount of risk into our capital markets and economy.“
William D. Cohan, a former senior Wall Street M&A investment banker at Lazard Frères & Co., Merrill Lynch and JPMorganChase, is the New York Times bestselling author of three non-fiction narratives about Wall Street. He is a special correspondent at Vanity Fair and is hard at work on his new book about the rise and fall of GE. Bill led an unforgettable interview at SALT Las Vegas with Magic Johnson in 2014.
“People love to bask Wall Street,” frequently without fully recognizing what it is Wall Street does and how it keeps the economy going as we know it. Without Wall Street providing capital to businesses around the world, opportunities to create new companies and industries wouldn’t be possible. On the flip side, more needs to be done to support companies like mom-and-pop shops that cannot gain access to this capital, especially during economically distressing times.
Turning to the 2020 election, the relationship has soured between Wall Street and President Trump, who is now viewed as “extremely detrimental at this point.” Follow the money: Vice President Biden has significantly outpaced President Trump in fundraising from Wall Street.
LISTEN AND SUBSCRIBE
SPEAKER
William Cohan
Special Correspondent
Vanity Fair
MODERATOR
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
EPISODE TRANSCRIPT
John Darsie: (00:08)
Hello, everyone. Welcome back to SALT Talks. My name is John Darsie. I'm the managing director of SALT, which is a global thought leadership forum at the intersection of finance, technology and public policy. And today's guest, marries the intersection of those three pillars more effectively than any author maybe out there in journalism today. SALT Talks is a digital interview series that we started during this work from home period. And that we're going to continue even after we hopefully all return to our offices here before long. And it's an interview series with the world's foremost investors, creators and thinkers. And what we're really trying to do with SALT Talks is replicate the experience that we provide at our global conference series, the SALT Conference. And that's to empower what we think are big, important ideas that are shaping the future, as well as provide our audience a window into the mind of subject matter experts.
John Darsie: (00:58)
And we're very excited today to welcome Bill Cohan to SALT Talks. Bill is a former senior Wall Street M&A investment banker of 17 years, where he was at Lazard, Merrill Lynch and JP Morgan Chase. But today he's has long since transitioned into the world of journalism. He's a New York Times bestselling author of three nonfiction books about Wall Street. His newest book Four Friends, talks about what happened to four friends from his high school. And it was published in July of 2019. Bill is a special correspondent at Vanity Fair, but he also writes for ProPublica, the Financial Times, the New York Times, Bloomberg Businessweek, the Atlantic, the Nation, Fortune and Politico. He previously wrote a biweekly opinion column for the New York Times and an opinion column for Bloomberg View, as well as for the DealBook section of the New York times. He also regularly appears in financial television media, including CNN, MSNBC and BBC TV.
John Darsie: (01:56)
He's also appeared three times as a guest on the Daily Show with Jon Stewart, the NewsHour, the Charlie Rose show, the Travis Smiley show and CBS This Morning, as well as numerous times on NPR, BBC and Bloomberg radio programs. He's a graduate of Phillips Academy, Duke university, Columbia University School of Journalism and the Columbia University School of Business. A reminder if you have any questions for Bill during today's SALT Talk, please enter them in the Q&A box at the bottom of your video screen in your Zoom window. And with that I'll turn it over to Anthony Scaramucci, who is the founder and managing partner of SkyBridge Capital, a global alternative investment firm. As well as the chairman of SALT, to conduct today's interview.
Anthony Scaramucci: (02:37)
Bill, great to have you on. John, thank you. I would also point people to Bill's article over the weekend in Barron's. Which I thought was a brilliant article on Bill Ackman. And Bill, I don't know if you remember this, way to segue in the question. Do you remember that Magic Johnson interview that you did at the SALT Conference?
Bill Cohan: (02:58)
Anthony, I'll never forget that. I... Go ahead.
Anthony Scaramucci: (03:01)
Before I go into your background, tell us why you'll never forget. I'll never forget that either, but you were on stage, Magic Johnson, 2,300 people live in the ballroom at the Bellagio. Why would you never forget that Bill?
Bill Cohan: (03:15)
First of all, Magic Johnson, as Anthony knew and as all of us surmised, is like one of the most charismatic people I've ever met. Between Magic Johnson and Barack Obama, I'm not really sure which one was more charismatic. But about halfway into the interview, it's me and Magic up on the stage. And as Anthony said, there's 2,300 people in the audience having lunch. And all of a sudden, Magic Johnson says, "Bill, this is great. You're asking me these questions, but do you mind if I just sort of change this up a little bit. I want to go down into the audience and just start talking and start being with the people and being with everybody." And so he just got up off the stage, went down into the audience. I asked him a few more questions, but then he was literally off to the races talking about what Magic Johnson had done here and there in basketball and business. It was incredible moment. I've never seen 2,300 banker hedge fund types, totally captivated by another human being for more than an hour.
Anthony Scaramucci: (04:19)
There was a woman Bill, who asked him a question. It was a very difficult question. He gave the answer. You could tell she was a little disappointed. You remember what Magic Johnson did in that moment?
Bill Cohan: (04:32)
I hope he hugged her. I don't know.
Anthony Scaramucci: (04:33)
Yeah. That's what he did. He crossed the entire ballroom to go over to her and said, "I know you're feeling bad about what I said, let me give you a hug." I don't know if we're allowed to do that anymore, but he gave her a hug.
Bill Cohan: (04:43)
Probably not. No.
Anthony Scaramucci: (04:43)
Yeah. He gave her a hug to a standing ovation. But anyway, that's one of my fondest memories of the many different people that you've interviewed at SALT for us, including Michael Lewis and others. But let's go back a little bit. Tell us something about your career as an M&A banker before becoming a journalist. What attracted you to M&A Bill? And then why did you leave to become a journalist?
Bill Cohan: (05:08)
Oh well. First of all Anthony, you have to know that before I, because in the bio that John described which is of course accurate. I had been a journalist and I went to Columbia journalism school and left there and was a journalist on a daily paper in Raleigh, North Carolina, covering public schools for two years. Which was of course ironic, because I'd never been to a public school in my life. But I did do that for two years and then I went back to business school. And I kept wanting to go to business, I kept thinking if I went to business school, I could get a job with The Wall Street Journal. And I kept trying and trying to get a job at The Wall Street Journal and they never would hire me. And even to this day, they've never published anything I've written in my long bio that John was reading, there's no mention of The Wall Street Journal. I've never been able to appear in their pages.
Anthony Scaramucci: (06:03)
I don't want to interrupt you, but they've written four negative stories about SkyBridge since COVID-19 started. So maybe we could do a swap. Right? They don't like you Bill, but trust me, they don't like us either. But God, I keep going.
Bill Cohan: (06:14)
And I think they've written six negative reviews of all of my books. So I'm right up there with you, Anthony. So I said, "Either I'm going to go to The Wall Street Journal or I'm going to go to Wall Street." I went instead to Wall Street I think when I graduated from Columbia in May of 1987. All you had to do was breathe to get a job on Wall Street. And so I put the mirror up to my face I was still breathing, and off I went. And at the time, there were no, there were very few hedge funds, there was very few private equity firms. If you wanted to sort of have the most sort of intellectual content on Wall Street, the place to be, I always thought was an M&A banker. And so whereas I, first of all, I couldn't get a job doing that initially. I started my career at GE capital actually, financing leverage buyouts of all things. I had no idea what I was doing, of course.
Bill Cohan: (07:13)
And then two years after that I got to Lazard, which was a place for some reason I always wanted to work. Because it was so mysterious and quirky and kind of clastic and private and French, all those things that I liked. And that's when I started learning how to be an M&A banker, working for the Felix Rohatyns of the world. And it was an incredible experience. Obviously, I wrote my first book about Lazard. And just kept doing that as long as I could, Anthony. And that gig lasted 17 years between Lazard, Merrill Lynch and JP Morgan Chase. And then like any good 44-year-old Wall Street guy, I got zoxed. And after getting zoxed at JP Morgan Chase by some of my favorite people, I decided that one thing that I could still do and be productive was to go back to journalism.
Anthony Scaramucci: (08:14)
So how did the banker career, did it helped you with the journalism, hurt you or? How did that-
Bill Cohan: (08:22)
Well-
Anthony Scaramucci: (08:22)
Feather into the new-
Bill Cohan: (08:23)
It was incredibly-
Anthony Scaramucci: (08:24)
[crosstalk 00:08:24]?
Bill Cohan: (08:24)
Incredibly helpful to me. Obviously, because I was a subject matter expert. Say what you will, 17 years, I did understand what M&A was all about. I understood investment banking, I understood how banks worked. And I didn't just leave Wall Street and suddenly become a journalist again. Actually I thought, well, I will try to write a book about Lazard. And I wrote a proposal, I got an agent, I sold the book. I wrote the book. I had total beginners luck. It was not only a New York Times Best Seller, but it was named the best business book of the year by the FT and Goldman Sachs. And I'll never forget going to London to receive that award. And by the way, I went to London with my wife and the ceremony was at this beautiful library in London. And none of us, none of the five finalists knew who had won. And I was up against Nassim Taleb, who wrote Black Swan. And Alan Greenspan, for his book on being Fed chairman.
Bill Cohan: (09:40)
And I'd heard the story that somehow the word got out that Alan Greenspan had found out as he was crossing the Atlantic in a private jet, that he didn't get it. And they turned the jet around and back he went, he did not come to the ceremony. But I had no idea. I was like in the Oscar ceremony, you're way in the back Anthony, because no one expects you to win. I was way in the back, it took me 10 minutes to get up to the front. And who's standing there, but Lloyd Blankfein, CEO of Goldman Sachs giving me my check for winning. And it was an incredible moment. And as a result of that, it was total beginners luck. Then I started, then Graydon Carter called me and said, "Would you write for Vanity Fair? Would you write for the New York Times? Would you write for the FT?" And sort of, I was off to the races.
Bill Cohan: (10:28)
So to answer your question, had I not been a banker, I could never have written that book about Lazard. Even though I never thought I would be writing a book about Lazard when I was working there, I didn't take a single note or anything about that experience. I had to recreate it all from talking to everybody. But having been a banker, it sort of paved the way for my first three books about Wall Street.
Anthony Scaramucci: (10:51)
And yeah. I want to talk about the Bear Stearns book a little later. But I want to ask you about the recent book, Why Wall Street Matters? Because it's an interesting time for Wall Street. Once again, the economy's in the [inaudible 00:11:07] room, the stock market is rallying. Although it's off today, it's really been rallying since the COVID crisis bottom, March 23rd. Why does Wall Street matter? Why is there such a pull, a gravitational force towards Wall Street, the stock market, et cetera, Bill?
Bill Cohan: (11:25)
Well, when I wrote that book and it came out in February of 2017, when the last thing anybody wanted to focus on was why Wall Street mattered. People were so overwhelmed with the fact that our friend Donald Trump had become president. I had really decided I wanted to write that book because in the years leading up to that, there'd been so much Wall Street bashing. And people were using it as a political football without really understanding all the good things that Wall Street does and can do and does every day. So as you know Anthony, people love to bash Wall Street. It's an easy target. And so they love to bash it and use it as a political football. The Elizabeth Warren's of the world, it's like sport for them. Without really and fully recognizing or being forthright about their knowledge about what Wall Street does that keeps our economy going, which of course is provide capital 24 hours a day, seven days a week to companies all around the world that need it and can afford to pay for it.
Bill Cohan: (12:45)
And so whether it's M&A advice, whether it's capital raising, whether it's incredibly important trading and liquidity and in stocks and bonds, what Wall Street does is obviously invaluable. We can't even imagine what our world would it be like, if there were no Wall Street. The things that we completely take for granted. So I was careful to point out the things that Wall Street does wrong and needed to be fixed. None of which of course, have happened. But I also wanted to make sure that people understood what Wall Street did right and does right. And that's why I wrote that book. Of course, nobody cared. But occasionally, people read it. It's a thin book. It's a primer. It's not like my usual doorstop books. So it's a little easier to read and I think makes an important point about Wall Street.
Anthony Scaramucci: (13:34)
Well, you say it in the book which I think is important for people on this Zoom call. You talk about it being the central artery system for capitalism. And you talk about the nexus between Wall Street and Main Street. And ultimately just to remind people, if we discover a technology like for hacking, it's controversial from an environmental perspective. But lo and behold, without Wall Street and liquid capital markets sending money to that innovation, you don't create that industry, you don't create those jobs. And so that would be the same thing for Zoom for that matter or Facebook or Google. And so it's a very compelling case for Wall Street. I recommend the book to people and I recommend all your books. Price of Silence by the way, was an unbelievable book about the lacrosse scandal at Duke.
Anthony Scaramucci: (14:24)
A little bit off genre for you, but that was a terrific book that people liked reading about factual situation and how it got misinterpreted and politicized. Which is apropos frankly, what's going on today in a lot of ways. It was a precursor Bill. Your book was a precursor for what's going on now in the political world in 2020. But back to Wall Street, US is the financial capital of the world. I think we could both stipulate that. It still seems to be.
Bill Cohan: (14:55)
Absolutely.
Anthony Scaramucci: (14:55)
How has that benefited the US economy in your words?
Bill Cohan: (15:00)
Well, I think it's benefited those companies that can access the capital markets, Anthony. And unfortunately, that's not most companies. That's not most of the working American population who works for those companies. The biggest, most profitable, international and large domestic companies that can access the capital markets, it's a huge competitive advantage. They get capital and especially nowadays, extremely low cost. They get access to equity debt. They can finance their business, they can build new businesses. They can take risks with that capital. They can hire more people, they can build new plant and equipment. It's why in many ways our economy is the most dynamic, the most innovative economy in the world. Why any number of the largest corporations in the world are in America.
Bill Cohan: (16:06)
Why the world's entrepreneurs beat a path to our doors. Because through thick and through thin when people count out, Wall Street, it's really at the end of the day the Wall Street banks, which are the biggest and most powerful in the world. It's really frankly, a lot of politicians would disagree, but it's really a national treasure. It's an unbelievable machine that has been built here, that is clearly the envy of the world. And it benefits people who can make tremendous in many cases too much wealth, but nevertheless it's a free market system. Most of the time, not always. And you can benefit tremendously by creating a great idea and bring it to this country. Or starting it in this country and getting it financed. Companies that can access the capital markets, which is mom and pops and lots and hundreds of thousands of companies where hundreds of millions of people work. That's tough. That's a lot tougher. And that's why you see so many of these businesses really having a tough time right now.
Anthony Scaramucci: (17:22)
It's an interesting restatement of where things are. And sometimes politicians don't understand your life experience, my life experience on Wall Street. We understand that nexus between Main Street, but some politicians probably make it too much of a scapegoat. Let's talk about judgment which I've had my series of flawed judgments in my life. So let's talk about the 2016 challenge for some of our Wall Street friends. Many of them despite president Trump's personal flaws, held their nose proverbially and voted for him because they thought he was a guardian of the free market system. What do you think happens this time in 2020? Do you think they still see it that way? Or do you think that the president's actions over the last three and a half years have changed that?
Bill Cohan: (18:12)
No. I think the bloom is completely off the rose now. I don't... I'm sure they're out there Anthony, just like there are a lot of people who will probably vote for Trump, don't want to tell anybody they're voting for Trump. So there are probably people like that on Wall Street. But I would say, with the exception of somebody like our favorite Ken Langone, most people on Wall Street have completely lost the thread of Trump and view him as extremely detrimental at this point to... If he were a CEO of a company with a board of directors like most Wall Street guys can relate to, he would have been fired long ago. And so I think Wall Street would absolutely wants to fire this guy.
Anthony Scaramucci: (19:09)
And by the way, I will point out that the fundraising on Wall Street for Donald Trump way down, and he's been outpaced by Vice President Biden. So what you're saying, if you follow Wall Street and the money action Bill, speaks louder than words. And so there's evidence of that. So do you think Joe Biden is better for the economy? Is that what the Wall Streeters are thinking? Or what do you think's going on there?
Bill Cohan: (19:41)
Yes, I think. But again, everything's relative. If Trump were a different kind of leader and manager and hadn't exploded the national debt and hadn't exploded the annual budget deficits, or hadn't artificially kept interest rates, bullied the Fed into artificially keeping interest rates near zero and making our economy incredibly risky. Yes. They've made a lot of money during this period because of everybody who can refinance and finance and go public. All of that, yes. It's been true. But they've, Trump has introduced just a tremendous amount of risk into our capital markets and our economy, just like he did in his own businesses when he ran casinos and real estate. So I think that they think somebody like Biden, who's basically a centrist who cares about things like budget deficits, and trying to reduce the national debt and actually putting in an infrastructure proposal that will make sense and trying to resolve the COVID epidemic and unemployment, doing all the things that a normal human being who cared about people does.
Bill Cohan: (21:09)
I think that's why they think... And even if they have to pay more in taxes or even if the corporate tax rate goes up, I think the time has come to... Even on Wall Street, they recognize that Trump is completely out of control and anything is going to be better than Trump right now.
Anthony Scaramucci: (21:30)
Well, we're going to open it up to, we've got tons of audience participation, but we're going to open it up in a second. But I want to ask you about your 2008 crisis book House of Cards, which the subtitle was A Tale of Hubris and Wretched Excess on Wall street. And this was about Bear Stearns. So this was, correct me about the chronology of the books. Lazard was first.
Bill Cohan: (21:50)
Right.
Anthony Scaramucci: (21:50)
Bear Stearns was second. In your trilogy on investment banks, Goldman was third.
Bill Cohan: (21:55)
Correct.
Anthony Scaramucci: (21:56)
Okay. So the, and you probably don't remember how we met. But-
Bill Cohan: (22:00)
Oh, I do.
Anthony Scaramucci: (22:01)
Okay. How did we meet? Do you remember?
Bill Cohan: (22:03)
Well, I do remember because you wrote your book about working at Goldman Sachs.
Anthony Scaramucci: (22:09)
Right.
Bill Cohan: (22:10)
And it came out. And I was coming to the end of writing my book about Goldman Sachs. And you told this incredible story in your book that I tell all the time Anthony.
Anthony Scaramucci: (22:23)
All right.
Bill Cohan: (22:23)
About how at Goldman, it was the Friday before Memorial Day weekend.
Anthony Scaramucci: (22:28)
Yup.
Bill Cohan: (22:28)
And all you new associates were gathered together in a conference room at Goldman Sachs, and just told to wait until you got your next orders. And-
Anthony Scaramucci: (22:37)
Nothing.
Bill Cohan: (22:37)
The hours went by, nothing happened. And four of the associates said-
Anthony Scaramucci: (22:44)
Three.
Bill Cohan: (22:44)
The hell with-
Anthony Scaramucci: (22:44)
Three.
Bill Cohan: (22:45)
Three of them said, "The hell with this. I'm out of here. It's the Friday before Memorial Day weekend, I'm not going to the Hamptons." And the rest of you stuck around until 10:00 PM at night. The partner comes in and says, "All right everybody's signed. Here's a yellow piece of paper, sign your name on it and then you can go." And he took it and he saw that the three of them weren't there. And he said that they were fired immediately. And the message was, "This is a client service business. If the client wants you to be around until 10 o'clock on Friday night before Memorial Day weekend, you do it. And if you can't do that, you don't belong here."
Anthony Scaramucci: (23:20)
Yeah.
Bill Cohan: (23:20)
So I read that, I loved that. I wanted to use that, and I called you up and said-
Anthony Scaramucci: (23:25)
Yeah.
Bill Cohan: (23:25)
"Can I do that?"
Anthony Scaramucci: (23:26)
And he, the gentleman that did that, we won't give out his name. Because he sometimes doesn't like that story now. He loved that story 25 years ago, but he's got a little older and a little bit more gentler, but he was the former mayor of Eagles Mere, Pennsylvania, God bless them. And a terrific guy, still going strong. But he taught me a lot of lessons back then. And that was a hard core moment for a lot of people. And that was a hardcore thing to do or a little bit more sensitive in these workplaces today than back then. But that's how we met. That's a good memory. But I was reading your House of Cards book at the time, which I thought was a sensational book.
Bill Cohan: (24:04)
Thank you.
Anthony Scaramucci: (24:05)
And I would rank your books I'm not going to do it on a SALT Talk, but I'll tell you about it personally, but that was up there. All your books are great, but I'll just say it. That book and Price of Silence, I thought were sensationally gripping because you really got into the personalities of people and what human nature is like. The other books were very good, but they were a little bit less of that for me. I thought that this book was unbelievable. The story that you told about Jimmy Kane and his urinary tract infection. I'm just going to go right there, was one of the more legendary stories. So what was going on at Bear Stearns in 2008 that led to their demise Bill? Because it's a cautionary tale for young people that are listening in.
Bill Cohan: (24:58)
Well, I think what has happened throughout the history of Wall Street and of course, Bear Stearns got caught up in it as did Merrill Lynch, Lehman Brothers. And by the way, banks throughout the history of our country. And that is this pension for borrowing short-term money and lending it long-term. Borrowing short and lending long as it's said in the vernacular. And basically what Bear Stearns did, what Merrill did, what Lehman did, what banks through time immemorial do. What banking is all about is that they borrow in the short-term markets, and how does like JP Morgan borrow? They borrow in a lot of ways but basically they've got one and a half trillion dollars worth of customer deposits, which can be taken away any second of any day, right? You just go to your ATM machine, you pull that money out and it's gone. So they pay nothing for that. They get that raw material for free and then they lend it out for five years, seven years, 10 years, 12 years, whatever it is. For loans, they use it to make markets.
Bill Cohan: (26:14)
So Bear Stearns didn't have deposits but it borrowed over time through the course of 2017 after its two hedge funds went barely up. Basically, their capital markets options became greatly diminished and they were forced into the overnight repo market. They were forced into the short-term overnight secured lending market. And they were using as collateral for those overnight loans, the mortgage backed securities that they couldn't sell that were sticking around on their balance sheet. And we're talking billions and billions and billions of dollars that they were using as collateral. And in March of 2008, what happened was those overnight lenders, which were the fidelities of the world, the federated investors in the world, that provide that financing in that market said, "We don't like this collateral anymore. We won't take this anymore for overnight loans." And so basically Bear Stearns literally, could not finance its business. It had something like $18 billion of cash on its balance sheet, but it needed $75 billion a day to run its business.
Bill Cohan: (27:19)
Covering margin loans, whatever it was making loans, making sure everything was running and it just couldn't do that anymore. And so the classic example of borrowing short and lending long and banks do that forever. And as long as there's no run on the bank, it works. Because that's what fractional banking is all about. If there weren't fractional banking, IE meaning that you can only have a small fraction of the deposits. Actually there, you can lend out the rest. If it weren't like that banks couldn't make money, because they make money on the spread among other things. And it's fine as long as there's no run on the bank. In the 20s, 29, 30 31, there was a run on the bank from individual depositors. In 2008, Bear didn't have any individual depositors. They had some hedge fund money that they were custodians for, but basically it was an institutional run on the bank. Anybody who had more than $250,000 at Bear Stearns took their money out or thought about taking their money out because that was not insured.
Bill Cohan: (28:32)
And so they just said, "Forget it. I'm going to take my money out and ask questions later." And in some cases, these hedge fund guys took their money out and then shorted Bear Stearns. So it's a self-fulfilling prophecy, which we've never really gotten to the bottom of. But again this is in time in memoriam, this is why Anthony, banks get into trouble. They borrow short and lend long and Bear Stearns was no different, Lehman was no different, Merrill was no different, even Morgan Stanley and Goldman had this problem, although not to the same extent. And of course. they were bailed out.
Anthony Scaramucci: (29:10)
Oh, it's just, it also speaks to the self-confidence that sometimes people have at the top. It's a combination of greed and self-confidence. And then-
Bill Cohan: (29:18)
Hubris.
Anthony Scaramucci: (29:19)
Sort of a certainty that they're not, nothing's going to go wrong for them. And of course-
Bill Cohan: (29:22)
Well Bear Stearns, hadn't had a losing quarter in 85 years until the fourth quarter of 2007-
Anthony Scaramucci: (29:31)
Seven.
Bill Cohan: (29:32)
And then boom. March 2008-
Anthony Scaramucci: (29:35)
[crosstalk 00:29:35].
Bill Cohan: (29:35)
They were gone.
Anthony Scaramucci: (29:35)
It's a cautionary tale about when there's no doubt there's usually a trap door in the next room Bill. So let's turn it over to the very lovable John Darsie, who's switched up his room a little bit. He's got some audience questions.
John Darsie: (29:51)
Yeah. This is a follow-up to the question about 2008 you were a student of that time period. What about 2020? Do you think, what did we learn from 2008 that we applied before or during this crisis that allowed us to avert maybe a more long-term and painful type of depression and financial meltdown?
Bill Cohan: (30:12)
You mean what right now of we're trying to avert yeah.
John Darsie: (30:15)
Right now. Yeah.
Bill Cohan: (30:16)
It's not clear that we've averted it yet but-
John Darsie: (30:17)
The world economy is obviously under strain. The banking system is under strain, but it seems like we were a little bit more prepared from a bank balance sheet and a household balance sheet perspective coming into this crisis. And perhaps the Fed was a little bit more confident in its actions in helping us recover from the crisis. I just didn't know your observations if you've studied this time period relative to 2008.
Bill Cohan: (30:39)
Yeah. The banks are obviously much better capitalized now coming into this crisis than they were in 2007. They have a lot more tier one capital. They have more capital. Generally, there also have been severe restrictions on the kinds of assets that they can actually keep on their balance sheet whereas in 2007 it was the Wild West. Now banks talk about being in the storage business and in the moving business, banks are basically in the moving business now. Everything that they can get off their balance sheets, they do as quickly as they can to try to, they're in the fee business. And so the banks are much better capitalized, many fewer riskier assets on their balance sheets now. There are still problems. There are huge loan delinquencies. There've been huge billions and billions of loan loss reserves taken in the first half and probably three quarters of this year.
Bill Cohan: (31:46)
There's probably problems in the credit card portfolios for those banks that have them. And I'm sure there's probably problems in the mortgage portfolio, whether it's commercial mortgages or residential mortgages, they're probably a lot of problems hiding out in all of that. But generally speaking, the banks are much better shape. As far as the Fed, the Fed just went bonkers on March 23rd of this year. And then again on April 7th, just transcending anything that they had done in the years after 2008. When they are already breaking every rule that we knew about. And the Fed just has flooded the capital markets with capital they've backed up, they're buying, they've expanded their balance sheet. It was down to like three and a half trillion now it's up to seven trillion. They've just been buying every piece of paper or implying that they're going to buy every piece of paper that's ever been out there that nobody wants.
Bill Cohan: (32:50)
Which of course is once again, inflated bond prices, lowered bond yields, which I think is going to is injected a huge amount of risk into the capital markets just like it did after 2008, which was why the markets imploded in March of this year. There's linkages to all this, but I think the Fed probably says, "Look, we'll deal with that later. Right now, we've got to reopen the capital markets." And they did that in a huge way, and completely unprecedented way. And so as we talked about before with Anthony, those companies that can tap into the capital markets have been able to do that in a big way. It's benefited Wall Street tremendously in terms of fees, but those companies that can't access the capital markets are struggling immensely right now.
John Darsie: (33:44)
So we have a question about deficits and I think it's in response to a recent piece you wrote in Vanity Fair about some members of the Republican party who are more fiscal purists, have sounded the alarm about the current budget deficit for this year and our rising national debt. Why do you think the reaction hasn't been as loud to that rising deficit within the Republican Party and elsewhere, are we all becoming accidental modern monetary theorists? Or why do you think Wall Street isn't more concerned about this unprecedented deficit in 2020 and rising debt in general?
Bill Cohan: (34:20)
Well, I think there's a Maslow's needs hierarchy thing going on here. And so the national debt, which is whatever $26 trillion and rising and the budget deficits which seem like they're hitting around $4 trillion. Those are big issues, but they're sort of big amorphous issues that are probably of tertiary importance now to curbing the pandemic, making sure people are healthy, getting business back to normal, getting unemployment down, getting the recessionary pressures relieved, getting rid of Donald Trump. There are needs that just outpace that. And part of the reason for that is because there's really no consequences at the moment to $26 trillion of debt and $4 trillion deficits. Interest rates are very low, so the cost of servicing that debt is relatively low and investors all over the world, in an environment where there's a lot of negative interest rates around the world, we have positive interest rates on US government securities which are supposedly the most liquid and secure in the world. Although that probably could be changing with this fiscal irresponsibility that we're involved with.
Bill Cohan: (35:46)
But basically speaking, there's been no consequences. And I think there's a view that, as I think Anthony has said, that we're in... This is a war posture. It's really kind of no different than the deficit spending that had to occur during World War II to win a war. We're trying to win a war against this pandemic, against high unemployment, against struggling economy. We're not doing a very good job of it, but we're trying to do it. And so I think people say, "All right. Well, under these unusual circumstances, we will live with these huge budget deficits and a growing national debt." Which I remind people that when Trump was a candidate, he said he would eliminate. And of course, he's added more to it than almost any other president.
John Darsie: (36:32)
So shifting gears back to 2008 for a moment, we have an audience question about why you think there was a dearth of prosecutions, criminal prosecutions following the 2008 collapse? And what type of moral hazard that creates going forward on Wall Street?
Bill Cohan: (36:50)
Yeah. I've written a lot about this. This is extremely a disturbing topic. Part of it is Eric Holder, who was the attorney general. And before he became attorney general, sort of published a paper and a doctrine if you will, that basically urged prosecutors not to prosecute firms for their wrongdoing because of what happened with Arthur Andersen. The accounting firm, which went out of business and lots of people lost their jobs. So I think that the general sentiment with Holder as the attorney general was to try to find other solutions excide from criminal prosecution. And so what there was instead were these huge civil penalties that were agreed to from the Justice Department and these banks for all of their mistakes they made in the mortgage-backed security business, that they were all huge participants in. And I think it was just decided that slapping these firms with, or their shareholders frankly, with these large huge $10, $15 billion fines would preserve, would make the point without costing these firms to potentially... Because a criminal indictment could, like it did with other firms like Drexel and Enron and others, put them out of business.
Bill Cohan: (38:24)
They decided not to go that route. And I think that was number one and number two. When everybody is a part of a system that is creating these mortgage-backed securities and packaging up mortgages and making them into mortgage-backed securities and selling them all around the world in AAA investments. The whole system people are caught up in, it's very hard to blame it on one or two or three individuals. Even though, if they had done any investigation, if Preet Bharara and the Southern District of New York, instead of investigating insider trading at all these hedge funds, which he was rightly very proud of, he didn't spend any of his political capital investigating wrongdoing at the big Wall Street banks related to the mortgage-backed securities.
Bill Cohan: (39:17)
And there's plenty of memoranda. There's plenty of incidents where this could have been proven if people could have been prosecuted. But I think there between what Holder was saying and Preet Bharara not doing it and losing the Bear Stearns hedge fund case in the Eastern District of New York, I just don't think... And the revolving door between Wall Street and Washington, I just think there was no appetite. And it's frankly, that is the crime right there, that none of these people were prosecuted.
John Darsie: (39:48)
So we'll leave you with one last question from the audience before we let you go Bill, and it's about SPACs. So you've written recently about the SPAC craze that's taking over Wall Street. For those on the call who are unfamiliar, it's a special-purpose acquisition vehicle or a company that basically provides a company a backdoor into a public listing. We had Chamath Palihapitiya on a previous SALT Talk and he's become one of the poster boys for SPACs. He did Virgin Galactic. He recently did Opendoor. And then when he did Opendoor, he simultaneously filed for I think, four more SPACs. You see other copycats across Wall Street that are doing it. Why have SPACs become so popular? And what do you think it says about the current environment we're in from a financial markets perspective?
Bill Cohan: (40:31)
One of the points that I made in one of in the articles, it's sort of like where old investment bankers go to die now. They go to the SPAC wonderland. They take their skills as M&A guys or capital markets guys. They can't stay at their Wall Street firms anymore because they're whatever, too old or they're retired or whatever. So they convince people to give them hundreds of millions of dollars, for two years to try to find a company to buy. I don't really know what it says about the capital markets. They really, I guess, because certainly until they buy a company these things don't really do anything. So I guess it's, there's some downside protection. If they don't find a company to buy they get their money back, if they do find a company to buy and it's a decent deal like Virgin Galactic and some of these others, the stock runs up and everybody makes money. So I guess it means, it's just sort of another one of those ways that at the beginning anyway, it's now it's like $35 billion has been raised this year in SPACs.
Bill Cohan: (41:50)
At the beginning it looks like a gravy train and everybody's going to make money because nobody's really lost big on these things. It's only in retrospect when these things don't work out, when people merge with a company that does not do well and the stock goes to zero and people lose their money, that we begin to reassess these things. It's just another one of the great ways Wall Street figures out to alleviate investors from their money.
John Darsie: (42:20)
Well Bill, it was great having you on and your articles are always immediately bookmarked when they come out from my perspective. Anthony, do you have any final words for Bill before we let him go?
Anthony Scaramucci: (42:29)
Bill, I don't know if you're allowed to talk about it, but what are you working on now in terms of a book? Anything coming out that we should let everybody know about?
Bill Cohan: (42:37)
Well I've been, Anthony, working my butt off all the time, writing my new book about GE. The Rise and Fall of GE. And how the company that was once the most valuable company in the world, once worth $600 billion in August of 2000 Anthony, is now worth 10% of that today. Apple's net worth, Apple's market cap goes up and down $60 billion in a day. At one point, GE was by far the most valuable company in the world. How did it become that valuable under Jack Welch and how did it all come apart under Jeff Immelt? And so that's what I'm working on. Fortunately, I spent many hours interviewing Jack and others before he died. And so it'll be I think, back to my roots Anthony, of writing about big financial companies. And it's really the story of America in the 20th and early 21st century.
Anthony Scaramucci: (43:44)
Somehow is hubris going to get into the subtitle there, Bill? Somehow, right?
Bill Cohan: (43:50)
From your lips to God's ears, Anthony. We'll make it happen.
Anthony Scaramucci: (43:53)
All right. Well, listen, as always fantastic discussion available on Vanity Fair. You're writing for Bloomberg Businessweek. We saw you in Barron's over the weekend. And thank you so much for keeping it real, Bill.
Bill Cohan: (44:08)
Thank you, Anthony.
Anthony Scaramucci: (44:09)
Thanks again, Bill.