Stopping Poor Financial Decisions with Former FDIC Chair Sheila Bair

Barry sits down with Former FDIC Chair Shelia Bair. They 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 and the rise of Buy Now, Pay Later. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 2:37Speaker 01

  This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

• 2:43Barry Ritholtz?

  This week on the podcast, another extra, extra special guest. Sheila Baer, 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 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

• 3:23Barry Ritholtz?

  all the books she's written for children and young adults about finance. I thought this was fascinating, and I think you will also, with no further ado, my conversation with Sheila Bair.

• 3:38Speaker 04

  Thank you for having me.

• 3:40Barry 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, where you got a JD.

• 3:55Speaker 04

  Yeah.

• 3:55Barry Ritholtz?

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

• 3:59Speaker 04

  Well, I'm a native Kansan, grew up in southeast Kansas, traditional Kansas Republican family, the whole, we were all Jayhawks. Dad went to medical school, KU, mom went to nursing school. My sister was a physical therapist. 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. 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 going to have a very good job with that degree.

• 4:34Barry Ritholtz?

  Well, you could always teach philosophy.

• 4:35Speaker 04

  I could do that, but I would have to get a PhD 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 going to 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.

• 4:57Barry Ritholtz?

  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. What's the through line connecting connecting each of these worlds? Government, regulation, academia, and finance?

• 5:18Speaker 04

  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 preprogram your career. Note me narrow minded about opportunities. And a lot of people stay in the same job for thirty, forty, fifty years. I respect that. 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, or at least adjacent to the big leagues, was when I worked for Bob Doll as his counsel, first on the Senate Judiciary Committee, where I actually I staffed him on the Voting Rights Act compromise to Title II of 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. So that that's that hurts.

• 6:00Speaker 04

  But anyway, so I then I went with to the leaders when I 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 eighty eight presidential campaign, actually, which obviously started in nineteen eighty seven. Those campaigns start a good year before the primaries begin. And that's where I started off as a civil rights lawyer and did civil rights issues and other things for him. But we had the nineteen eighty seven market crash in during the time we were I was working for his presidential campaign, became a big issue. I had to take a crash course in stock markets. And that's when I was first exposed to finance and found that I was really interested in it.

• 6:40Barry Ritholtz?

  Really interesting. And I want to focus on on some of your writing because you're you've written for very different age groups, demographics.

• 6:51Speaker 04

  Right.

• 6:51Barry Ritholtz?

  So Bull by the Horns, obviously, for adults about the GFC. But the MoneyTales book series is aimed at kids.

• 7:02Speaker 04

  Right.

• 7:03Barry Ritholtz?

  And then the new book is really aimed at teenagers, people starting out.

• 7:09Speaker 04

  Right.

• 7:09Barry Ritholtz?

  How different is it communicating somewhat complex ideas to each? Is it the same? Is it just making it understandable? Or is it a different approach for each group?

• 7:19Speaker 04

  It's a bit of a different approach. I think, you know, that the fact that I didn't really start in finance, that I segued into it, working for the stock exchange, then 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. And one of the big issues is the terminology, the jargon that we use 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

• 8:02Speaker 04

  helped me later break down and explain the things. And then I think also my philosophy major, the logical thinking, you know, breaking things down into their component parts, understanding the causal connections, kind of 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, my Bull by the Horns was definitely, it was written for a general population, but it talks a lot about securitization and topics that 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 wrote another book for teens called Bullies

• 8:43Speaker 04

  of Wall Street, which was a book about the financial crisis for teenagers. And then I have, golly, since 2006, I've been, you know, as a sideline, writing picture books for children. And those are really fun, because those are fictionalized stories that use rhyming verse. They're just fun, you can be creative, because 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 basic level for kids. Ponzi schemes is one of them. Asset bubbles is one. I wrote one, it's called Daisy Bubble. It's kind of riff on the tulip bubble that occurred in Hollywood hundreds of years ago. And I was concerned that kids were not going to get this.

• 9:27Speaker 04

  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, you know, I make that very transparent in the book and they enjoy that.

• 9:37Barry 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 Geithner 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?

• 10:04Speaker 04

  You mean during the crisis or in the lead up to the crisis?

• 10:07Barry Ritholtz?

  Either or. What, what do you think, what do you think the big, it's never one thing. But if, if, so let's, since I mentioned Geithner and Paulson, what of their decisions do you think was most problematic that you would have liked to reverse?

• 10:25Speaker 04

  Yeah. Well, I think there should have been more accountability. I, I do think there should have been more accountability.

• 10:30Barry Ritholtz?

  Meaning bankers, Wall Street that helped create the crisis?

• 10:33Speaker 04

  Yes, yes. We should have at least provided more financial penalties, even if we weren't going to send people to jail. I think the bailouts could have been less generous. I am still outraged that we let them pay bonuses at the end of 2009. So I think that was, you know, after giving them all this capital. And then once they, you know, got the benefit of all these other programs and, you know, stabilized themselves to enable them 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 and actually it was more with Tim Geithner than Hank Paulson. Hank and I could usually come to a common ground and we did on issues where we started with different, different viewpoints.

• 11:18Speaker 04

  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. We need to do something. 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 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 perception on Main Street that not only did we bail these guys out, but we bailed them out very generously.

• 11:49Barry Ritholtz?

  I couldn't agree more. 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 big complaint during the bailouts were, hey, if you're going to give these publicly traded companies a bailout and not send them to bankruptcy court, well, great. Take 40% of the company and promise to sell it back to the public markets within a decade.

• 12:20Speaker 04

  Right.

• 12:21Barry Ritholtz?

  And it would have cut the cost of bailouts substantially and would have hurt existing shareholders and management who made a, who helped create the whole disaster.

• 12:34Speaker 04

  That's exactly right. Yeah, no, I think that was, we did a little bit of that, but not enough because I think there was just a visceral reaction against being too tough.

• 12:45Barry Ritholtz?

  When the alternative is that handsome building downtown with the tall columns and the judge who basically says, okay, you're now in receivership?

• 12:56Speaker 04

  Yeah, yeah.

• 12:57Barry Ritholtz?

  Like, when you look at the next best alternative is you're toast. Okay, we'll give up 40% at a substantial discount and live to fight another day.

• 13:07Speaker 04

  I couldn't agree more. They were looking, their baseline was what, you know, how these companies had operated before they got into trouble. And my baseline was, you know, bankruptcy was the alternative. We did, but it was uneven too. So we put Fannie and Freddie into conservatorship.

• 13:21Barry Ritholtz?

  Right.

• 13:22Speaker 04

  And maybe they should have been put in bankruptcy too, but they were, the statute provided for conservatorship, where they still, you know, languished. So they got punished pretty well. And they didn't, you know, we were still getting, well, now they're allowed to keep their capital to build a capital base, but the government's made quite a bit of money since then from that. AIG, poor AIG, you know, they were, effectively put in conservatorship by the Fed 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 Citigroup, which...

• 13:54Barry Ritholtz?

  Right.

• 13:55Speaker 04

  You know, what else can we do to help you, Citigroup? I was, it was pretty embarrassing.

• 13:58Barry Ritholtz?

  For the third time, fourth time?

• 13:59Speaker 04

  Yeah, four times, yeah.

• 14:00Barry Ritholtz?

  They're like every generation.

• 14:01Speaker 04

  Yeah.

• 14:02Barry Ritholtz?

  They're back with their hat in hand.

• 14:04Speaker 04

  And they will be again.

• 14:05Barry Ritholtz?

  We need a few billion, right.

• 14:07Speaker 04

  I'm rooting for, but you know, historically, you know, Citi's gonna be back.

• 14:11Barry Ritholtz?

  So, I'm kind of fascinated by, over the course of your career, you have spanned three distinct cycles of deregulation.

• 14:24Speaker 04

  Right.

• 14:24Barry Ritholtz?

  So we had Graham Leach-Blyly, which certainly was a major factor that led to the GFC.

• 14:31Speaker 04

  Yes, it was.

• 14:33Barry Ritholtz?

  We have the entire Dodd-Frank deregulation of the decade, the past decade, and then everything that's...

• 14:46Speaker 04

  Yeah.

• 14:47Barry Ritholtz?

  Like, all the carve-outs, and then most recently, reducing the amount of net cap in reserve that banks have to hold.

• 14:55Speaker 04

  Yeah, that's ongoing.

• 14:57Barry Ritholtz?

  So, why do we keep having these crises? Is it structural? Is it the American political system? It seems like we're constantly repeating these cycles over and over.

• 15:07Speaker 04

  Well, we are, and deregulation was a big part of the crisis. Nobody wants to say that, or just lack of regulation. The Fed and Bernanke and Greenspan have 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. The banks are funding it, right? But they're providing the conduit funding to get them into securitizations. But the Fed had the power to stop that and just flat-out refuse, "Oh, we don't want to constrain credit." If I hear that once, I think those are, you know, Warren Buffett once said the most dangerous words in finding and sorry, everybody else is doing it. I think it's, "We're gonna expand access to credit." I swear to God, because it is used as an excuse for so many... Terrible lending decisions.

• 15:49Barry Ritholtz?

  Didn't Greenspan say, "We don't want to stifle innovation in the finance markets."

• 15:54Speaker 04

  Those are the interesting words, too. I don't want to stifle innovation either, but it just uses an excuse. "Oh, you know, like, we got to reduce capital to get more lending out there." When I think, I would argue, there's too much lending out there already. We're seeing all the cockroaches scurrying out now. So, uh, so, yeah, so it was, and derivatives, as you said, Graham Leach Bliley broke down the, created these too-big-to-fail institutions, it all got bailed out. But also derivatives, uh, 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. And that did not turn out so well, because the thing about the mortgage crisis was, there were hundreds of billions of, of mortgages going bad.

• 16:37Speaker 04

  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. Uh, yeah, there were a lot of, 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.

• 16:57Barry Ritholtz?

  So, so let's talk a little bit about, um, finance. Uh, the world has really gotten kind of, uh, interesting in terms of, um, we're still seem to be dealing with the echoes of the financial crisis. It's amazing, it's almost 20 years ago, and yet, uh, things like when SVB, Silicon Valley Bank, and, and Signature Bank failed in 2003, people started to get concerned about, um, systemic risk, even though these are kind of too minor.

• 17:32Speaker 04

  Those are not systemic, it was never a reaction, yeah.

• 17:35Barry Ritholtz?

  Systemically important, uh, financial institutions. And yet, in order to cover uninsured depositors.

• 17:42Speaker 04

  Yeah.

• 17:43Barry Ritholtz?

  Um, regulators.

• 17:44Speaker 04

  Who are the richest people, some of the richest people in the country.

• 17:47Barry Ritholtz?

  Gee, I wonder if there's, I wonder if that's just a total coincidence, or if, uh, some upset people made some phone calls.

• 17:54Speaker 04

  Yeah, I, I was appalled.

• 17:55Barry Ritholtz?

  Because if you're low. Local credit union goes out and it's and you're

• 18:00Speaker 04

  Yeah, you're taking a loss if you're an uninsured deposit or a community bank. Yeah, you bet.

• 18:04Barry Ritholtz?

  But if you're a Silicon Valley VC and you're connected, you you get

• 18:09Speaker 04

  Stablecoin issuer, yeah. That was so funny. The Biden administration was doing everything they could to kill crypto on one hand, and then they bail out one of the biggest, the biggest, stablecoin issuers, who had, what, a couple, two and a half billion or so of uninsured deposits. 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. I, you know, it was just this new jerk bailout, bailout, bailout, especially if they're rich, powerful people. I don't, I was just, I was appalled. I'm still appalled. I was, it was, it was 200 billion. It was not systemic. It had good assets. If they had, they should have tried to find a buyer quickly.

• 18:51Barry Ritholtz?

  Like Washington Mutual.

• 18:52Speaker 04

  Yeah, so, but there was, I think, nobody said this, but my suspicion is there is out of this Biden administration, religious adversity to, you know, bank mergers and acquisitions. Oh, like, we can't make banks bigger. So instead of quickly trying to market and sell it, they didn't do that. 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 the insurance.

• 19:19Barry Ritholtz?

  Didn't someone else come along, buy all the assets anyway?

• 19:21Speaker 04

  Well, yeah, yeah.

• 19:22Barry Ritholtz?

  So the merger happened regardless.

• 19:25Speaker 04

  But, but it cost the FDIC, it was 17, 18 billion dollars, the deposit insurance fund. It was, it was outrageous. I'm, I'm still aghast that that even happened. And it, you know, and, you know, they're annoying me with my Democrat friends who pretend that the Republicans are the ones that are pro-industry and pro-bailout, and then they do something like that. So, go figure.

• 19:46Barry Ritholtz?

  Coming up, we continue our conversation with Sheila Bair, former chairperson of the FDIC, discussing regulation and deregulation in the modern financial system. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

• 20:12Speaker 00

  At Brookfield, we invest in the thing behind the thing behind the next big thing. Our focus across infrastructure, energy, real estate, private equity and credit is helping to build the backbone of the global economy. We combine deep operational expertise with disciplined long-term investing, uncovering value and partnering alongside clients to shape tomorrow's economy today. Learn how you can own what's next at Brookfield.com/own. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital.

• 20:47Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 21:29Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 22:13Barry Ritholtz?

  I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is Sheila Baer. 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. 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. Is this just regulatory arbitrage?

• 22:58Speaker 04

  Well, it is, but not in the way that I think the banks' soundbites make it sound. So their soundbite is that the capital regulations are too onerous, much tougher than they are for these private funds, which is nonsense. The private funds are much less levered than banks. Banks are, on a non-risk-weighted basis, these big banks are operating with 6%, 8% capital funding, equity funding. So it's not like they have tougher capital requirements. The problem is these risk-based rules, and this is exactly what was going on in subprime too. The risk-based rules, through the magic of securitization structures and "over-collateralization",

• 23:41Speaker 04

  you can lend to a private fund, and the private fund will give you collateral. They'll give you their loans, and they'll say they'll be valued 150% of what your loan is, so that you're way over-collateralized. And if you do it that way, the capital rules will give you a very favorable capital treatment. So 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 to the fund.

• 24:21Speaker 04

  The 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, peddled so a lot of people didn't understand what they were getting. The banks were funding that through their credit lines and their warehouse funding to, you know, provide the money to the originators, packaging it with securitization and selling them. And again, the capital required for that was much, much less than actually making a mortgage yourself and holding it. So it really is the same basic flaw in how the risk-based capital rules work.

• 25:06Speaker 04

  I would just say you can't fund a loan directly or indirectly that doesn't meet prudent underwriting standards because 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. 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 private funds. That is not true. It's just that it's, they can use more leverage to lend to the fund directly than to lend to the business itself.

• 25:51Barry Ritholtz?

  Here's what the banks say, and I don't necessarily believe this, but it's not completely unconscionable. They say, when we were securitizing loans during the financial crisis,

• 26:06Barry Ritholtz?

  Lending standards had been completely abdicated in all of these. No income check, no job check, just, you know, sign and pray. And then it'll all come out in the collateralization and the syndication. We'll spread the risk around. 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 Carlyle and Blackstone who are trying to get a return on investment. And this sounds a little familiar. You know, they would never put their reputations or their names at risk by doing anything too stupid.

• 26:47Barry Ritholtz?

  And besides, the default rates have been really low and it's highly spread out across sectors and geographies. Is that a fair argument?

• 26:57Speaker 04

  It is a fair argument. And I'm not saying private credit is legitimate asset class. 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. 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'm more, I think this is an investor protection issue more than systemic issue. I really do. And for sophisticated investors, I think private credit is absolutely legitimate asset class, you know. You've got to understand it's not regulated. You don't really know what the loans are worth, right?

• 27:38Speaker 04

  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. And frankly, there's a lot of research questioning whether it really provides better returns. The S and P 500 has been kicking it for several years now. So, you know, so there are a lot of questions, but for sophisticated investors, you know, go forth and do it. 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

• 28:19Speaker 04

  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.

• 28:31Barry Ritholtz?

  They're incestuous.

• 28:32Speaker 04

  Yeah, and the BIS did a study about a year ago on this, and there are others have taken a look at these valuations, and they're finding significant evidence of inflated values. So, I do think we need to protect at the retail level, we need to, there need to be some, not expanding access to this asset class.

• 28:50Barry Ritholtz?

  So you're not a fan of private equity or private debt in 401ks?

• 28:54Speaker 04

  No, I am not. As a matter of fact, I am not. You know what? If you want to, there's a pub, you want to buy a stock in KAK, go for it. You know, you might check how it's been performing, and actually, 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, BDCs now, 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 are ways now. But yeah, opening it up for directly, for retail, especially 401ks, to start, you know, loading up on this, on this asset class, I think is really problematic. And I do worry that, you know, the, the, the plan sponsors, the fund sponsors, the 401k sponsors are going

• 29:38Speaker 04

  to be getting the hard sell about, you know, putting this stuff into people's 401ks. And I, again, I don't think retail, I know I don't, 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 want to do it fine. But no, it's not right for retail, and it shouldn't be going into 401ks. And I'm, yeah, I'm very worried about that.

• 30:04Barry Ritholtz?

  And to put some numbers on what you referenced about the performance, the median alternative fund doesn't do all that great. It's not that diversified, and it doesn't outperform the S and P 500. Hey, if you're lucky enough to get into a top decile fund, you're going to kill it, but it's going to take a couple hundred million dollars to have access to that.

• 30:29Speaker 04

  Yes, exactly. Yeah, the retail people are not going to be getting the crim to the crim on this. No, that's, and that's a huge issue. They're going to stuff the riskier stuff into the 401ks.

• 30:37Barry Ritholtz?

  It makes a lot of sense. So, so we've talked about everything but too big to fail, which was a big part of the lead up to the financial crisis, and how the Fed, the FDIC, everybody dealt with it afterwards.

• 30:55Barry Ritholtz?

  As an example, JP Morgan Chase now has over four trillion with a T in assets. Can a bank that size be effectively regulated? Is too big to fail the norm now?

• 31:08Speaker 04

  Oh, I think so. It absolutely is. I mean, I worked hard in Dodd-Frank to come up with, 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, impose, you know, make the shareholders and bondholders unsecured creditors absorb the losses, all the stuff we didn't do during the crisis.

• 31:34Barry Ritholtz?

  You mean normal bankruptcy rules?

• 31:35Speaker 04

  Yeah, exactly. Yeah, well, it was similar to the FDIC process, which is basically a bankruptcy process. And Title II and Dodd-Frank, Dodd-Frank provides for both, the Title II mechanism, which is FDIC run and a bankruptcy process, a Title I process. So the tools are there, but I don't, I don't think there's any, 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 going to bail out again. They already do. They'll, they'll set up special lending facilities, ratchet interest rates down, you know, they'll, 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 going to shake out, but there's quite a bit of concentration there.

• 32:19Speaker 04

  So, you know, so, but if that sector gets into trouble, you know, the Fed will lend to the banks, so can then lend to the funds. I mean, that's, that's just the way I think it works now. And I think a lot of the push for ever more deregulation, lower capital rules, is based on the assumption of the big bank lobbyists that they're never going to go down. There's another kerfuffle, another problem. The Fed's just going to open up the spigot again. So, you know, why should they have to operate with all this capital when they can lower their capital and get much higher returns in 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.

• 33:01Speaker 04

  Makes no sense unless you're just banking on a bailout if things get dicey.

• 33:05Barry Ritholtz?

  Let's talk about a financial crisis that...

• 33:10Barry Ritholtz?

  Really has gotten a lot of short shrift, given everything else we just discussed, which is the student debt crisis. We've seen just an explosion of student loans. 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. So, so how did we get here? Why is it so difficult to fix? What is a potential policy solution to the student debt crisis?

• 33:55Speaker 04

  Yeah. Well, and I think the headline numbers are, in this K-shaped economy, I think the headline numbers can be misleading, because you've got to look at how all that wealth is being distributed. But I think for student debt, I will give credit to the Trump administration in Congress, 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. They have imposed some accountability on colleges, which desperately needed to be done. And so it's easier to kick colleges now with high default rates out of the loan system. They have gotten rid of negative amortizations.

• 34:37Speaker 04

  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 them were paying zero, because you had to earn a certain amount of money before, you know, a loan payment obligation even kicked in. But what happened was, and they were, for bookkeeping purposes or whatever, they would negatively amortize the loan. So all your unpaid interest was going into your debt principal, and it was getting bigger and bigger.

• 35:08Barry Ritholtz?

  Just recapitalized forever.

• 35:10Speaker 04

  Yeah, so even if you were, even if you were making some payment, you got frustrated because your debt was getting bigger and bigger. That's all gone away with 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. And then there's, and then...

• 35:32Speaker 04

  So if you and if that payment is so low, if your income driven payment is so low that you're not covering your interest, the government will pay fifty dollars a month to lower your principal. So so long as you're making at least ten dollars 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 will 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 AEI, was was also heavily involved in this. So he's a chip off the old block that we think a lot of students, yeah, simplification, more accountability. And those are the things that this bill accomplished. So I'm hoping

• 36:16Speaker 04

  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 three or four year long moratorium. People are going to have to pay now. It's going to hurt. They haven't made room in their budget for these loan payments.

• 36:31Barry Ritholtz?

  Well, ten dollars a month isn't

• 36:33Speaker 04

  It's not huge. No, it's not.

• 36:34Barry Ritholtz?

  Right. And if the government is kicking in fifty.

• 36:36Speaker 04

  Yeah.

• 36:37Barry Ritholtz?

  I mean, it's not a ton of money, but it's still, what, six hundred dollars a year.

• 36:42Speaker 04

  Yeah.

• 36:42Barry Ritholtz?

  Have we done enough to resolve the student debt crisis? Or?

• 36:47Speaker 04

  No.

• 36:47Barry Ritholtz?

  What what else can we do to move this along?

• 36:50Speaker 04

  Yeah. Well, I do think there needs to be more accountability for colleges to assume some of the losses.

• 36:55Barry Ritholtz?

  The schools themselves?

• 36:56Speaker 04

  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, for now on, all the student loans can be made, you know, pretty much all of them are going to be made by the government because we're worried that banks are not treating borrowers as well as they should. So we're going to be doing this. And then the colleges themselves will basically originate the loans. 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 going to get the money. You're buying for tuition, room and board. So they're they're going to get the money. They're not on the hook if the student can't repay the

• 37:39Speaker 04

  loan. So what do you think's going to happen? And and what happened exactly? You could have predicted it. Inflation, you know, with tuition, you know, many multiples.

• 37:50Barry Ritholtz?

  Nine percent a year for forty years.

• 37:53Speaker 04

  For whatever, yeah. So tuition, as any parent knows or student knows, has skyrocketed. Become very unaffordable without borrowing. And, but, you know, there was all this easy money. And the undergraduate is a 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, 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 pay three hundred thousand dollars to get my PhD in philosophy and get a job, maybe paying sixty thousand a year at some small college. Well, that makes sense, but I think that's happened to a lot of people.

• 38:38Speaker 04

  And, and I don't think, you know, I don't absolve the borrower either. They should have known better. But the schools let this happen. These graduate professional schools can be real moneymakers. They are, the graduate schools in particular, real moneymakers for colleges. And degrees are frequently, do not enhance the earnings potential of the student.

• 38:57Barry Ritholtz?

  So do you have any hope that students are in a better shape financially going forward? Or is this still very problematic and needs more help?

• 39:06Speaker 04

  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 current Trump administration continues, is to publish postgraduate outcomes. 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 good jobs after they leave? And so I think more and more parents and student advisors, high school, college advisors are using those tools. There are more calculators, too, that are based on, help you figure out

• 39:50Speaker 04

  how much you can borrow based on what your postgraduate income will likely be in that field at that college. So there is more awareness. And then I think a lot of, you know, ironically, this is coming back to bite a lot of the colleges now because I think it got so expensive. People are 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. I was a college president. I've taught at a university. I think it's a wonderful experience, but it's not for everybody and you don't have to do it and there's no stigma if you don't do it. You know, you might want to go directly into the workforce, learn on the job. You might want to go to a trade school. There are, you know, community colleges. You've got to be careful there too, but many of them provide really good, you know, education

• 40:32Speaker 04

  that's less expensive and has shorter duration. So I think students and their parents are also thinking more broadly that they don't have to go to college. There may be other options available.

• 40:41Barry Ritholtz?

  Last question about college and education. We have thousands and thousands of universities and colleges. Do we have too many?

• 40:53Speaker 04

  Too many, yeah, probably.

• 40:54Barry Ritholtz?

  I mean, are we going to lose 10 or 20% of the college base over the next decade?

• 41:00Speaker 04

  We probably will. And I think the part of it that's really, really struggling are the private liberal arts schools. And they became too pricey. And 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. Very, you know, 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 for 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. And then it's the weaker schools, you know. If they're not proving their worth, they're going to, they're going to close probably.

• 41:42Barry Ritholtz?

  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 young adults and teenagers?

• 42:01Speaker 04

  Well, actually, it was my editor who, you know, everybody, when I first started running 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 they totally get it. But my publisher, everybody said, you need to write a book for teenagers. 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 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 financially, you know, a lot of people on social media, a lot of curricula, you know, sponsored by industry groups. And

• 42:44Speaker 04

  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.

• 43:00Barry Ritholtz?

  So, so I'm glad you brought up social media.

• 43:02Speaker 04

  Yeah.

• 43:03Barry Ritholtz?

  Gen Z and what's the new generation after them, Generation Alpha?

• 43:08Speaker 04

  Yeah.

• 43:09Barry Ritholtz?

  Someone said Generation Jones is another one. I can't keep up with it. But they all seem to get a lot of financial advice from Instagram and YouTube and TikTok rather than, let's say, more professional experienced folks.

• 43:26Speaker 04

  Right.

• 43:27Barry Ritholtz?

  How did that impact how you thought about reaching this age group and how did it shape the tone of, of your book?

• 43:35Speaker 04

  Yeah. So it was, I did want to get some accurate information out there because there's, 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 and investing habit. You need to avoid debt. That's really what you need to do. And, and, but there's so much advice, it's just the opposite, 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 that. No, no, no, no. So, but there's crazy stuff like that, or borrowing to invest in crypto, or meme stocks, or, you know, gambling, you know, and their kids are getting confused about the difference between

• 44:19Speaker 04

  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.

• 44:29Speaker 04

  Common financial behaviors that cost people money, 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 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. I needed to, you know, buy some clothes for work. I needed to get an apartment and furnish my apartment. And so 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. I thought, wow, this is great. I can borrow this money and just this tiny little payment every month. And I ended up, I think it was about $6,000 in interest when all of a sudden.

• 45:11Barry Ritholtz?

  Oh, my God. That's a lot.

• 45:13Speaker 04

  Well, yeah, which if it invested in the S and P 500, it'd be worth around 240, 250,000 dollars now. So, there you go. But I think, you know, just avoiding things like that. The average family pays 1,600 a year in credit card interest. 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. So, that was, I wanted to emphasize that, is the simplicity 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. But basically, I just want to help kids avoid mistakes. I don't want them to have financial problems when they grow up. I want them to get off on the right foot, which I did not, and a lot of people don't.

• 45:54Barry Ritholtz?

  Coming up, we continue our conversation with Sheila Baer, 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.

• 46:30Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume, so writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 47:12Speaker 01

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• 47:56Barry Ritholtz?

  I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Sheila Baer. She is the former chair of the FDIC. Her latest book is out, How Not to Lose $1 Million: A Young Person's Guide to Avoiding the Tricks and Traps of Our Financial System. So you mention a couple of really interesting things that, taken together, Howard Lindzen runs a venture fund, and he calls it the degenerate economy, gambling, speculation, end of day. Options, meme stocks, crypto coins.

• 48:34Speaker 04

  Yeah.

• 48:35Barry Ritholtz?

  And all of these have been through through apps and other methods.

• 48:40Speaker 04

  Yes.

• 48:41Barry Ritholtz?

  Because of the phones have been adopted by teenagers en masse. What do you make of the DGEN economy?

• 48:48Speaker 04

  Yeah.

• 48:48Barry Ritholtz?

  And what does it mean to the future health of of these young adults?

• 48:53Speaker 04

  Well, it's very dangerous and it's particularly a problem with young boys. And by the way, they shouldn't be doing this if they're under 18, but a lot of them are, as we know. They're targeted and they they don't understand the the worth of money. The the apps just make it so easy. You know, you know, they don't make the connection between the financial losses they're experiencing. It's a game for them and and the industry advertises they they do gamify it. So and even, you know, stock trading, some of these online brokers, the big ones, they they gamify it. And it's not a game. It's it's serious. Money's 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.

• 49:39Speaker 04

  It's not just free, easy, you know, because too many kids don't make that connection. And their parents are generous with the credit cards or whatever. 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. Well, there's a big difference in it. You're investing, you're supporting capital formation in 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.

• 50:22Speaker 04

  I think crypto technology is is very valuable. But these these these, you know, these different currencies and tokens, they have nothing behind them.

• 50:30Barry Ritholtz?

  You can call them shitcoins.

• 50:31Speaker 04

  Okay.

• 50:31Barry Ritholtz?

  That's what they are.

• 50:32Speaker 04

  I call them shitcoins because that's that's nothing behind them. I'm amazed that Bitcoin has held up. I think it's just, you know, it's kind of the granddaddy of them all. So if you're going to invest, most people do a Bitcoins. They've they've heard about it and the rest of it is crap. Bitcoin may be too, but it has lasted. I will give it that. But. Yeah, I mean, what are they supporting? 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. And these gambling platforms, if they even if you start winning, well, wow, 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 because the arts are you will always lose money. And Bloomberg

• 51:15Speaker 04

  came out with some great research recently on prediction markets. 75% of the profits, I believe, are going to 1% of the users.

• 51:22Barry Ritholtz?

  Less than 1%.

• 51:22Speaker 04

  Less than 1%.

• 51:23Barry Ritholtz?

  It's crazy. It's so, so.

• 51:25Speaker 04

  You're gonna lose money. The whole game is rigged. Well, even active trading of stocks, very few people can do that and make make money.

• 51:30Barry Ritholtz?

  Consistently over.

• 51:31Speaker 04

  Yeah. And you're going to 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 will not have when you try to actively trade stocks.

• 51:43Barry Ritholtz?

  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. Am I, did I read this correctly? You established the Financial Education Division within the Treasury Department.

• 51:57Speaker 04

  I did, the Office of Financial Education.

• 51:59Barry Ritholtz?

  Early 2000s?

• 51:59Speaker 04

  2001, yeah.

• 52:00Barry Ritholtz?

  Yeah.

• 52:00Speaker 04

  Yeah, yeah. Yeah, I did. I established the Office of Financial Education and it's grown now. It's in the Treasurer's Office now. And I think they held, they held a group, it's called FLAC, and it's basically 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. And I, and actually, my first book was, was pre-crisis, Rock, Rock and the Savings Shock. It actually came out in 2006. Because based on that experience, it inspired me to start writing kids' books because I became aware that there really weren't any resources for elementary age.

• 52:36Barry Ritholtz?

  So, so How Not to Lose a Million Dollars covers basics like savings accounts, student loans, debt avoidance, and retirement planning. It kind of raises a question, why aren't we teaching our kids financial fundamentals at the grade school level? Why, why is this not just part of civics and?

• 52:56Speaker 04

  Yeah. Well, it can and should be. I mean, I think there's a big movement now to have a standalone high school personal finance class, which I think is good. 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 obvious place because I think it makes, it will make math more interesting to kids if you do use money examples, right? So you want to learn about ratios and percentages, let's talk about compounding and how much your money grows at four percentages a year or whatever. So it does need to be introduced every year. And, again, that's one of the reasons my books are, I mean, they're supplements to curriculum. I don't write educational curriculum, but there's certainly could be assigned readings to go with those, those classroom efforts. And I think that's important. And the kids

• 53:41Speaker 04

  get it. They're interested in it. They absolutely get it. They're not too young.

• 53:44Barry Ritholtz?

  One of my favorite parts of the BBB was the new, newborn accounts.

• 53:52Speaker 04

  Oh, Trump accounts, yeah.

• 53:53Barry Ritholtz?

  The baby bonds, which Cory 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.

• 54:07Speaker 04

  Yeah.

• 54:08Barry Ritholtz?

  Is this a good start? Is this going to help kids learn about money?

• 54:13Speaker 04

  Yeah, 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 will get the thousand dollars. But it can be matched by employers, a lot of employers who've.

• 54:25Barry Ritholtz?

  We're hearing already Dell and JP Morgan and a bunch of big employers announced they'll do a thousand dollar match.

• 54:31Speaker 04

  Exactly, yeah.

• 54:32Barry Ritholtz?

  And the assumption is this will be renewed after three years.

• 54:35Speaker 04

  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 because it goes directly. You know where it's going. You know it's helping. And it is, it's a wonderful way to learn about the power of compounding. Congress mandated the money has to be invested in broad-based index funds, which is good. But, you know, we'd be seeing crypto, a meme stocks or whatever.

• 54:58Barry Ritholtz?

  Right.

• 54:58Speaker 04

  So that's, that's good. But you can see over time how it will grow. And I hope, you know, when they're 18, they can, they can take it out, but I hope they leave it there. And it just converts into a regular IRA at that point. But it's, it's great. It's a wonderful financial educational tool, as well as some additional financial security for lower income families and their children.

• 55:16Barry Ritholtz?

  So let's talk about another aspect of money that's so different today than it was when we were kids. Money is effectively invisible.

• 55:27Speaker 04

  Yeah.

• 55:28Barry Ritholtz?

  Credit cards, apps, buy now, pay later, subscriptions, all that. 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.

• 55:50Speaker 04

  It does.

• 55:51Barry Ritholtz?

  So, how do you, how do we recognize that? And how do we teach kids the value of a dollar? It's, it's really a challenge when you just tap the card and it's magic.

• 56:04Speaker 04

  It's not real money, it's funny money, yeah. Well, I think it's important to attach an allowance to jobs. I think helping kids make the connection between having to work and earning money is really, really important because the parents are too generous, they let them use their credit cards, so that's, they start getting that easy usage. And if they're using their parents' credit card, then 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 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?

• 56:45Speaker 04

  So I think it's, it's important to make that connection. And financial education, understanding, you know, I have a chapter on, I spend a lot of time on credit cards because I think it is an early trap for a lot of families and a lot of kids because it's just so easy. And BNPL is the same thing. BNPL, I don't like it.

• 57:04Barry Ritholtz?

  Buy now, pay later.

• 57:05Speaker 04

  Buy now, pay later. The whole idea is to facilitate impulse buying. Let's face it, you know, you're using BNPL when it's really beyond your budget to buy. You weren't thinking about buy it, 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 very high percentage of them, you know, first of all, it's not interest free because it ends up going on your credit card, you just can't pay it off, so you're just carrying the balance on your credit card. Or it's coming out of your checking account and you overdraft and you get an overdraft fee, so. It's not really, they say it's interest rate for a lot of users, it's not really. I get some in a financial trouble.

• 57:40Barry Ritholtz?

  When we were kids, it was called layaway.

• 57:41Speaker 04

  Layaway, that's right.

• 57:42Barry Ritholtz?

  And you didn't get the good or item until you paid it off. And you very much understood, I gotta shovel more sidewalks or more lawns. If I want that bike or whatever it happened to be.

• 57:56Speaker 04

  Exactly, yeah.

• 57:57Barry Ritholtz?

  It was, this is the opposite lesson.

• 57:59Speaker 04

  It is, it totally is. And I, you know, so I think it feeds a lot of overspending. I think impulse, you know, kids are making decisions more impulsively. I mean, they don't have the same impulse control adults have. And, and I think, you know, 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. And it just, it's so important, I, I have a rule, wait a week, when in my chapter on 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. 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.

• 58:42Speaker 04

  Wait a week, come back to it, do 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.

• 58:53Barry Ritholtz?

  Every hand goes up.

• 58:53Speaker 04

  Every hand goes up, every hand goes up, it's amazing, yeah. Already, you know, at seven years old, they've got buyer's remorse. It's usually junky toys.

• 59:00Barry Ritholtz?

  What, what I, speaking of junky 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, alright, I, I have a little experience with this car. And after a few weeks, it's like, alright, I have the toy, I'm good. I don't need to spend a hundred thousand dollars on another stupid thing for the garage.

• 59:27Speaker 04

  Well, that's right. There's, there's, there's a chapter on buying a car too. I just bought a, I just bought a car, actually a used car. I didn't wanna, maybe it depreciates so fast, this is gonna be a second car. But this, this, I couldn't believe it. I mean, I knew this, I've had experience in the past, it'd been a while since I bought a car. He was trying to upsell me with everything. And now there's Trying to sell me, give me all these service contracts that would increase the price of the car by about 25%. It's just, it's just unbelievable that they're, you know, kids want to buy cars. They want their own car.

• 59:54Barry Ritholtz?

  See, I don't think they, I don't think that's true anymore.

• 59:57Speaker 04

  Maybe not.

• 59:57Barry Ritholtz?

  Lot, lot of kids aren't getting licenses. They can Uber wherever on mom's credit card.

• 1:00:03Speaker 04

  I think that's true.

• 1:00:03Barry Ritholtz?

  Right? And it, it's, there seem, although there is um, a renaissance of kids buying, let's call them 20 year old analog as opposed to digital cars with stick, with stick shifts.

• 1:00:19Speaker 04

  Really?

• 1:00:19Barry Ritholtz?

  There's a whole generation of new car enthusiasts coming up that um, I, I think a stick shift today is an anti theft device. Cause you know, 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, okay.

• 1:00:36Speaker 04

  That's funny.

• 1:00:37Barry Ritholtz?

  But it's really true.

• 1:00:38Speaker 04

  And, and it's good because you know, cars are expensive. The average monthly payment is like 700 a month, you know, for a young boy.

• 1:00:45Barry Ritholtz?

  It's a thousand dollars a month is not uncommon on a lease.

• 1:00:49Speaker 04

  Yeah.

• 1:00:49Barry Ritholtz?

  And kids don't understand why, hey, no down payment. Well, yeah, but no, no residual. At the end, you hand it back. It's just the cost.

• 1:00:59Speaker 04

  Exactly right. Yeah. So yeah, it's really expensive for in person to buy a car if they can avoid that.

• 1:01:04Barry Ritholtz?

  So, so I only have you for a few more minutes. So let me jump to my favorite questions I ask all my guests. Starting with, tell us about your mentors who helped shape this career you've enjoyed through academia, uh, finance and government?

• 1:01:20Speaker 04

  Yeah. Well, Bob Dole obviously stands out. He was really, um, 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. You know, he was from a small rural town in Kansas. He was horribly injured during World War II, laid up for years. The townspeople rallied, supported him, got him back to health, uh, 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, who are we helping? We're helping the people who use banks. So I, I'm proud of that and I learned a lot from him.

• 1:02:01Speaker 04

  You know, later I got to know Paul Volcker. I learned a lot from him. Uh, I, yeah, that's right.

• 1:02:08Speaker 04

  Elizabeth Dole was someone I never really had a chance to work with her, but I knew her through Senator Bob and had maintained contact with her over years. Another woman who inspired me, not a mentor, but Sandra Day 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 my prime supporter and mentor in my career.

• 1:02:37Barry Ritholtz?

  Let's talk about books. What are you reading now? What are some of your favorites?

• 1:02:42Speaker 04

  Yeah, so I love murder mysteries. I'm reading Anthony Horowitz's new book, A Deadly Episode. I know Anthony Horowitz, he's a British mystery writer.

• 1:02:51Barry Ritholtz?

  I know the name. My wife is a fan of those, so she burns through those.

• 1:02:55Speaker 04

  Yeah, he's quite prolific. He was actually chosen by the Ian Fleming estate to continue writing books. He's written two, they're really good, yeah. I actually like the better than Ian Fleming.

• 1:03:05Barry Ritholtz?

  Now owned by Amazon, the movie franchise.

• 1:03:08Speaker 04

  That's right. So, and then I'm reading John Hershey's Hiroshima. My family and I are going to Japan at the end of the month and I wanted to take them.

• 1:03:17Barry Ritholtz?

  I'm dying to go.

• 1:03:18Speaker 04

  Yeah, and the kids kind of balked, I said, "We're gonna go to Hiroshima because I think that's an important part of history. You need to, we need to see this and understand it." And I read Hiroshima when I was young, you know, probably, you know, high school, I think, when it came out. And it had such an impact on me and so I'm reading again and it still has an impact on me and especially everything going on in the world now 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.

• 1:03:51Barry Ritholtz?

  So, I'm gonna recommend a book to you.

• 1:03:53Speaker 04

  Okay.

• 1:03:54Barry Ritholtz?

  It's really kind of fascinating. An American who's a professor somewhere in the UK, Brian Klaas 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. Um, and when we have to figure out where to drop the A-bomb, he absolutely vetoes Kyoto. And Hiroshima is what gets

• 1:04:29Speaker 04

  Is what gets

• 1:04:30Barry Ritholtz?

  Because this couple went there for honeymoon.

• 1:04:34Speaker 04

  Oh, that's really

• 1:04:35Barry Ritholtz?

  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. You couldn't see, so they went to the secondary target. And so think about, talk about flukes.

• 1:04:54Speaker 04

  Yeah.

• 1:04:55Barry Ritholtz?

  How random things are.

• 1:04:57Speaker 04

  Yeah.

• 1:04:57Barry Ritholtz?

  So Hiroshima gets it because somebody went there on a honeymoon. Just crazy.

• 1:05:02Speaker 04

  Well, and now you look back and why did any city get it? Couldn't you drop it over the ocean or something? You wanted to make a point. I mean, really, I don't, it's hard for me to understand now. I know, and that's just, you know, we're not there at the time. There was a lot of

• 1:05:15Barry Ritholtz?

  The psychology during wartime. So different.

• 1:05:18Speaker 04

  And the Japanese had been, everybody had been horrible, but the Japanese had done some brutal things.

• 1:05:22Barry Ritholtz?

  Well, for centuries.

• 1:05:23Speaker 04

  Yeah, well, okay, all right.

• 1:05:24Barry Ritholtz?

  Speak to, speak to China and Korea. They are not I'm a big fan of Japan.

• 1:05:31Speaker 04

  Yeah.

• 1:05:31Barry Ritholtz?

  But they were quite a ruthless empire for a long time.

• 1:05:35Speaker 04

  Yeah, so there was a lot of, um, so I understand that. 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 because it really underscored the horror of it. But maybe because people then understood how horrible it was, it made it even less likely anybody would ever use it again. I'm gonna, I'm gonna rationalize it that way, 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. The radiation sickness after the horrors and the slow death.

• 1:06:06Barry Ritholtz?

  I think I got to sign that same book in, in high school.

• 1:06:09Speaker 04

  Everybody read it, yeah.

• 1:06:10Barry Ritholtz?

  And plowed through it and was just

• 1:06:12Speaker 04

  It was, yeah. No, it's very well written. It was, yeah.

• 1:06:14Barry Ritholtz?

  Let, let's shift to, uh, are you streaming anything these days? You listening to any podcasts? Or watching anything?

• 1:06:20Speaker 04

  Yeah. I don't stream a podcast that much. I get podcast, or I like to read transcripts of podcasts because I can read a lot.

• 1:06:27Barry Ritholtz?

  You read a bunch of podcasts? How about Netflix or HBO?

• 1:06:31Speaker 04

  Yeah, 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. BritBox, yeah, the, all the Agatha Christie's I've seen, the David Suchet, prior to her are by far the best. Foils of War was great, also Anthony Hurovitz, he did the.

• 1:06:50Barry Ritholtz?

  They made it into a series or a movie?

• 1:06:53Speaker 04

  Uh, which one? The Foils of War, 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 really good. I like the, the Morse, you know, have you ever watched Morse, Inspector Morse? No, that's.

• 1:07:08Barry Ritholtz?

  That sounds vaguely familiar, it used to be on PBS at one point.

• 1:07:10Speaker 04

  Yeah, yeah, it's old, but there were three Morse and then Endeavor, which was about Morse when he was younger, and then Lewis, who was Morse's sidekick, so BBC did a really good job there, so yeah, these are old stuff, I recycle them. But yeah, I, I love, I love BBC and I love British, I love BritBox, excuse me, I love.

• 1:07:27Barry 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?

• 1:07:39Speaker 04

  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, you need to be thoughtful about that and how to navigate that, 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, if they're an investment firm and they talk about them like Muppets, you probably don't want to work there, but if they talk about them.

• 1:08:12Barry Ritholtz?

  I remember Muppets, way back when, yeah.

• 1:08:15Speaker 04

  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, because I do think long term success is based on having a mutually beneficial relationship with your customers, so I would, you know, just the work ethic, 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.

• 1:08:42Barry 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?

• 1:08:56Speaker 04

  Yeah, I thought about that. Markets, right, not personal finance, but markets.

• 1:09:01Barry Ritholtz?

  Go whichever way you want.

• 1:09:04Speaker 04

  Yeah, well, compounding was something I did not understand in credit card rates.

• 1:09:09Barry Ritholtz?

  That comes up surprisingly frequently because it's not intuitive.

• 1:09:12Speaker 04

  Yeah, no, it's not, and the daily compounding is, you know, it wrecks up pretty quickly. I think for markets, financial markets and investing in particular, I've actually done pretty well over time. 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. And with my dad's help, I put it in the contra fund. It's worth a lot of money now. So I made some lucky, I've stuck mainly, I've picked a few stocks, but I've picked mainly diversified index funds of various sorts. And I wish I'd understand better about being brave during the dips, though.

• 1:09:56Speaker 04

  You know, I think, usually I buy and hold, so I don't sell when the market's going down, which is the worst thing you can do. But I think I would have been a little more courageous buying in the dips, you know.

• 1:10:05Barry Ritholtz?

  Buying more into weakness. Well, Sheila, thank you for being so generous with your time. As always, a delight. We have been speaking with Sheila Bair, 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. 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. I'm Barry Bartholz.

• 1:10:50Barry Ritholtz?

  You've been listening to Masters in Business on Bloomberg Radio.

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