Pod Insights The Prof G Pod with Scott Galloway Prof G Markets: Will Tesla Reward Elon and Move to Texas? + Bank Earnings and Basel Endgame About this episode Scott takes a look at Tesla’s new shareholder vote and speaks with Charles Elson, Founding Director of the Weinberg Center for Corporate Governance at the University of Delaware, about the original ruling on Elon’s pay package and whether the superstar CEO will get his way this time around. Then Scott and Ed break down the latest big bank earnings and discuss “Basel III endgame,” a proposal for stricter capital requirements at banks following last year’s banking crisis.
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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0:59 Scott Galloway? This week's number, 8.3 million. That's how many people are on China's personal debt delinquency blacklist, meaning they can't purchase luxury items such as high-speed train tickets or nice hotel rooms. Ed, it's not true that China doesn't have free speech. As no one says so, ever.
1:28 Scott Galloway? Get it, Ed? Little geopolitical humor there.
1:31 Ed Elson? Yeah, I get it.
1:32 Scott Galloway? Little geopolitical...
1:32 Ed Elson? Sort of a change of pace this week.
1:34 Scott Galloway? Yeah, a little. We're mixing it up a little bit.
1:36 Ed Elson? How was your TED Talk?
1:36 Scott Galloway? I love being here. My talk went well. I was really happy with it. I spent a lot of time on it, specifically Mia spent a lot of time on it. And it just kinda, occasionally it all comes together. And it was really nice because I was super fucking nervous. I really like Chris Anderson, I like his wife, Jacqueline Novogratz, and I wanted, and you know, TED's, for what we do, TED's kind of the, sort of the Super Bowl, if you will. And so it was important to me and I was more nervous than usual and I followed Andrew Yang and Bari Weiss. But the thing that's amazing about Ted, and literally in the last 15 minutes, I've had a coffee with one of my role models, Sam Harris, who I just adore. I think Sam got me off of Twitter. Sam is just, I just think the world of him. I love
2:21 Scott Galloway? how courageous and just how fucking smart he is. I think he's going to go down as one of the great philosophers of our time. Did you realize that at the time, people never think a philosopher is a philosopher? It's not until they're dead. So I think Sam, after he's gone, is going to be remembered as one of the great kind of thinkers of our time. And then five minutes later, this woman comes running up to me and I'm like, who's this good-looking brunette? I mean, quite frankly, that was my first thought. That seems to want to know me. And it was Monica Lewinsky. And she and I are Twitter friends. She's got a really fantastic Twitter feed and she's super smart. I've always really admired her and we became kind of, she's sort of my second Twitter friend. George and I started, George Hahn and I started corresponding on Twitter. We felt as if we knew each other and we talked, but she's a super impressive woman. I was glad to meet her. But I've had
3:04 Scott Galloway? a wonderful time. Vancouver's beautiful. I forgot about how beautiful Vancouver is. And I'm just really, I'm just in a good place right now. The talk went well. Everyone's been super nice to me. I've just had a really, I've had a really nice, because the thing about, you know, I don't like the public because when I go out in public, I have to deal with the public. But everyone's been so friendly and so nice.
3:27 Ed Elson? And they're all famous people, which helps, right?
3:28 Scott Galloway? Yeah. Well, but no, there's a, there's a whole band of like, young people doing vertical farming or saving the planet from volcano radiation or like, all these, I call them rich kids. Other people would call them socially minded. I mean, I literally listened to someone saying, well, I'm trying to figure out a way to turn volcano ash into something that cools the earth. And I'm like, oh, so you're, I think what you're saying is you have rich parents. Is that, is that wrong? Anyways, it's a lot of very impressive people. But enough of that, let's talk about today. What are we talking about? What are the headlines?
4:03 Ed Elson? Let's start with our weekly review of market vitals.
4:12 Ed Elson? The S and P 500 declined, the dollar was stable, bitcoin dropped to its lowest level since February, and the yield on 10 year treasuries climbed. Shifting to the headlines, the IMF forecasted that the US economy will grow by 2.7% this year, as higher than previously predicted, and double the rate of any other G7 nation. Microsoft is investing one and a half billion dollars in G42, an Abu Dhabi based AI company, which the US government has scrutinized for its ties to China. As part of the deal, G42 will use Microsoft's cloud platform Azure, and also add Microsoft's President Brad Smith to the board. United Airlines shares rose more than 17% after the company delivered a stronger than
4:55 Ed Elson? expected forecast for the second quarter. The airline also posted a beat for the first quarter, despite a $200 million loss in potential earnings from the grounding of some Boeing 737s. United announced it expects 40 fewer planes from Boeing this year than previously planned, and will turn to Airbus for new planes in 2026. Truth Social's stock has fallen as much as 70% from its all time high. Shares dropped sharply following announcements last week about an expansion into streaming and the sales of millions of additional shares. The stock then rebounded more than 15% in a single day to break its losing streak. And finally, TikTok debuted its Instagram competitor TikTok Notes in Australia and
5:37 Ed Elson? Canada. The company said the new app, which is a dedicated space for photo and text content, is in the early phases of distribution. Scott, thoughts?
5:46 Scott Galloway? US economy is just, it's a phenomenon right now globally. And the article I read that has, everyone is blowing everyone's mind, is that everyone assumed that higher interest rates would actually dampen the economy. That's the, kind of one of the principles of economics, right? It makes the cost to borrow money more expensive, so you're less aggressive about new investments and the economy slows down. And what they think might be happening is the acceleration in interest rates that there's actually more money in money market vehicles than there is consumer debt owed. So the amount of money being garnered by households from the additional interest they're getting on their short-term deposits and their money market funds is greater than
6:28 Scott Galloway? the incremental cost of higher interest rates, which has put more money in the hands of consumers who are fueling the economy. And it's blowing everyone's mind that the idea that higher interest rates actually might be stimulative to the economy. I just find that fascinating. Consumers seem to be fairly confident, but it's it's an absolute phenomenon. And it just strikes me that Biden's not more popular.
6:51 Ed Elson? That's the most interesting thing to me, that 60% of Americans still think Biden is doing a bad job on the economy. So I think the IMF has published an important number here. It's a testament to the great job the Biden administration has done. But the shame is that Americans either won't read it, or if they even do, they probably won't take it seriously. Because as we've learned, when it comes to the economy, politics almost always trumps the actual data. Do you have any thoughts on on Microsoft's investment in G42, the AI company?
7:23 Scott Galloway? I love this. I want to pull as many Gulf nations westward and towards capitalism as possible. If we can get some of the Arab nations sort of looking west as opposed to partnering with China on AI or what have you, I think it's good, a good thing, adding Brad Smith to the board. I'm excited about that.
7:44 Ed Elson? Do you, on Brad Smith joining the board, I mean, this is relates to what we discussed last week, which is, you know, interlocking board seats. I find it pretty remarkable that a week later, this has happened again. Brad Smith, president of Microsoft, Microsoft on the board of OpenAI, invested in OpenAI inflection Mistral, and literally the week after we discussed that, the president joins the board of a different AI company. Do you have any concerns about that?
8:12 Scott Galloway? I think this is different, Ed. I think it's a matter of whether you're using quote unquote, a board seat to have implicit and explicit control of the company without triggering. A DOJ review, or you're just, this is a big corporate investment. We want representation on the board. I think that's, this feels like a different situation to me.
8:31 Ed Elson? I'm surprised you say that because what we've been focusing on is this soft power that they have with all of these different AI companies. And the other side to this is that Microsoft is now going to be G42's primary cloud service provider. So that's the other string that's attached to these investments. It feels like every time we see an announcement on one of these investments, it's like, oh, and they're also announcing a partnership where they're going to use Microsoft or Amazon as their dominant infrastructure provider. And there's just one stat that really drives this home for me, which is that last year, Microsoft and Amazon alone accounted for two thirds of all AI investment globally. That's roughly $20 billion.
9:12 Ed Elson? And Microsoft alone invested more in AI than every other VC firm in the world combined. So it is the biggest VC firm in the world for AI. Does that not, I'll just say it now, it concerns me. I'm surprised it doesn't concern you.
9:30 Scott Galloway? What it comes down to for me, and I have been on a couple of boards where there's a corporate investor, they invest, they go on the board, and then we get an offer from a competitor. And if it's good corporate governance, you ask that person to recuse himself from the conversation. I was on the board of Gateway Computer, and I said to Gateway when they were raising money, the hedge fund I'm working with would be interested in providing financing. And they said, okay, there's a conflict here because you want the price to be as high as possible for the, for the money we're borrowing from you. We want the price to be as low as possible. So you're conflicted. So I recuse myself from conversations. So if there's good governance here, and they're minority shareholders, they should be able to, for example, sell to another company, make moves that are not in Microsoft's best interest,
10:14 Scott Galloway? but in the interests of G42. So you can have, you know, I would call decent corporate governance here. What you're talking about is really interesting in the sense that at some point, do all of these investments mean that they are this multi-tentacled Hydra, or multi-headed Hydra, where the market becomes ossified because no one can sell to anybody else? Every deal benefits Microsoft.
10:40 Scott Galloway? And if a plaintiff's attorney or someone at the DOJ says, we have evidence that all of these investments are disadvantaging the market and creating a less competitive market, then they'll have a case, but they should be able to handle this with good corporate governance. Truth Social, I think that that is, I mean, this is a meme stock now, right? It has absolutely nothing to do with the underlying business, $4 million business. Prop G will be a bigger business than Truth Social. And everyone says, oh, the stock is down 70%. It's still worth $4 billion or a thousand times revenue. So it's a meme stock. It's trading on things other than anything to do with the underlying business or the fundamentals. Now, the thing about meme stocks is they always return to gravity.
11:23 Scott Galloway? Michael Jordan, when he jumps from the free throw line, looks like, oh, this guy can defy gravity. Every time, 100% of the time, he hits the ground again. Gravity is unnegotiable, it's non-negotiable. And I feel the same way about the markets with respect to meme stocks. And that's whether it's Bad Bath and Beyond, AMC, GameStop. Yeah, they might, they might stay airborne for a while at some point. At some point, gravity kicks in. This company is not worth 50 million, much less 4 billion. And so the question is, when does gravity kick in? And I think it's going to kick in sooner rather than later because I think that the people who went into this, even if they went into it to support Trump, and every week
12:08 Scott Galloway? it's, they could see all these headlines that their $1,000 is off 30%. I think that's a decent amount of pain. And I think after a while, at some point, they go, you know what? I'm, you know, I'm the idiot. It's like that thing, if you're in a room and you don't know who the stupidest person is, that means it's you. I think at some point, a lot of these investors are going to go, what am I doing? Why am I, why am I the dumb one? Especially when they see headlines like Trump is doing everything he can, obviously, to try and sell shares and he's suing the founders. So this is nothing. It's, it's off 70%. It's still More to go. Oh, my God. This thing hasn't even really started its deceleration. Probably the most interesting story that people aren't talking about is the TikTok one. I think that's just why, I think TikTok has such unbelievable technology, has executed
12:53 Scott Galloway? so well. They have such a built-in consumer base. This is going to be very interesting. This is them going up and saying, hey, Meta, we're not as scared of you. As a matter of fact, we're coming for your lunch. And how this translates is I actually Despite the fact that I think TikTok is a defense threat, I do think it's going to be divested. And from a pure capitalist standpoint, I think this is a great time to go into the secondary market and buy TikTok shares. Because I do think this thing is gonna, I do think that the divestment is going to happen. The geopolitical cloud will be lifted. And if this thing works, I don't think there's any reason why you wouldn't look at TikTok and say, well, they're kind of in the same weight class as Meta,
13:37 Scott Galloway? growing faster, not as big, but growing faster, which might get them, you know, I think what's Meta 1.3 trillion, might get them a trillion dollar market cap, or, you know, four times what it is now.
13:48 Ed Elson? We'll be right back after the break with a look at Tesla's new shareholder vote.
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16:35 Scott Galloway? The regentech trust platform is built to scale with you, not slow you down. With over 1,400 automated tests across 400-plus integrations, Vanta collects evidence and monitors your controls year-round, cutting your audit prep by 82%. Plus, you can access the Vanta agent everywhere you work, whether your team is in Vanta every day or living in tools including Claude or Cursor. Want proof? Over 16,000 fast-growing companies like Ramp, Ryder, and Harvey save time and resources while scaling fast with Vanta. Learn more at vanta.com/profg and get $1,000 off. That's spelled V-A-N-T-A dot com slash profg for $1,000 off.
17:23 Ed Elson? We're back with Prof G Markets. Tesla's board is asking shareholders to vote on Elon's $56 billion pay package again. As we discussed back in February, a Delaware judge rejected that payment plan, finding that the board failed to engage in a meaningful negotiation over the package's terms. Now shareholders will vote on whether to reinstate the package anyway, and they'll also vote on whether Tesla should leave Delaware and reincorporate in Texas. This is an awkward time to solicit shareholder opinions. Earlier last week, the company announced it will lay off 10% of its workforce and two senior executives departed. Shares are also down 39% this year, making Tesla the worst performing stock in the S and P 500.
18:07 Ed Elson? Here to help us break down what this new vote means for Tesla and beyond is Charles Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware. You might have noticed that Charles and I share the same name. That is because Charles also happens to be my uncle, but don't let that color your opinion of him. He is a leading expert in the field of corporate governance and we're very happy to have him. Charles, thank you for joining us.
18:31 Speaker 04 I'm very happy to be with you all today.
18:34 Ed Elson? So about two months ago, Scott and I were discussing this ruling by the Delaware Court that found Elon's compensation plan, that it found that it was invalid. Before we discuss this recent proposal from Tesla, could you just remind us why that original compensation plan was, according to the courts, unacceptable?
18:53 Speaker 04 The court concluded a couple of interesting things in a ruling back in February. It was done by Chancellor McCormick, who is the chief judge, if you will, of the Delaware Court of Chancery. What she said is, first of all, the directors who awarded this to him were not independent of him, which is really important in a compensation decision. In this case, she found that there really wasn't any negotiation, that there was no effort done to really compare the comp to peer groups and things like that, and that the committee itself was clearly, in her view, not independent and did not carry out an effective process of negotiation.
19:34 Speaker 04 In fact, Musk himself effectively in depositions and testimony basically said he was negotiating with himself on the plan. It was his idea and that was that. She then found that the plan as disclosed to the investors wasn't appropriately done. That when they voted to approve the plan, that all of these details that she discovered in the trial or found and had occurred in the trial weren't disclosed to them and therefore their vote was not effective. Now, this is the key to the decision. She, in the decision, says, "Look, awful process, not independent directors, and I find that the result of this was an unfair plan."
20:17 Speaker 04 That, that the, and she made the argument, interestingly enough, that, "Look, he had 20% of the company itself, its equity. Giving him another gosh knows how many shares really doesn't get you anywhere, doesn't incent him to do anything differently than if he had the same equity he held, holding with none of these extra shares." If you have a transaction, even if a majority of shareholders approve it, if it has nothing to do with the company, doesn't match corporate purpose, which she suggested this plan did not, that it basically is a gift. Shareholders can always approve a gift to, of company money to someone, but everyone has to do it.
20:58 Speaker 04 It has to be unanimous shareholder approval, which obviously didn't happen here. That's why she said, "The plan is not equitable, and I'm ordering rescission." In other words, canceling the whole thing out. That's the sticky wicket today, is what, how you fit a new vote, even if informed, so to speak, by the shareholders, fit into that paradigm. And I don't think it does. It's certainly helpful for a company to have independent shareholders vote on something, but ultimately, if it's not fair, it's, it, it, it has to be unanimous.
21:34 Scott Galloway? Mr. Nelson, nice to meet you. Thanks for being here. So, the, the problem I find is the word equitable. And some of the things that I think are a bit misleading here is, okay, $55 billion pay package. Well, right away, that doesn't sound equitable. It sounds like an insider job where the board directors aren't representing the fiduciary interests of all shareholders, meaning that they could have paid him $5 billion and he probably still would have showed up for work, you know, 20% of the time, which is what he's kind of doing now. But isn't the correct number to evaluate around equitable? And it's distinct to the corporate governance around their obligation to do a market check, negotiate with them. But the number sort of the headline news here that it's really the value of the options package that was awarded to him at the time of award.
22:19 Scott Galloway? And actually, that number is much lower, right? Because the stock, the stock went up five or 10x. So wouldn't the right number to look at whether or not they were serving their shareholders be sort of in the billions? And again, and I hate defending Elon Musk, but if someone said, if Tim Cook said, I'm going to take Apple from three trillion to 30 trillion, and you're going to pay me $1 trillion, wouldn't shareholders approve that?
22:49 Speaker 04 You know, they may. But again, is it, what she found was, was this an incentive plan? In other words, suppose you didn't do anything at all, wouldn't he have had the same incentive to in fact bring it to that value? They, this wasn't a little stock award, ignoring the quote value. This was giving him a nice chunk of the company. I can remember years ago, I was on a board of a company called Sunbeam. We had a superstar CEO. So they said, Al Dunlap.
23:19 Scott Galloway? Chainsaw Al.
23:20 Speaker 04 Chainsaw Al. Yes, I was actually had to make the motion to fire Chainsaw Al. But Chainsaw Al made a similar request and that, well, you know, I, I produce so much value and I should take home so many percent of what I, I produce. Well, that was kind of a misnomer. He didn't really produce it. It were the other people, the company working with him who produced it. And he had a lot of equity in the company anyway. And, and I've always been suspicious of those kinds of demands for mega, mega grants to begin with. This one was not, this one was, you know, significant. It wasn't one or 2%. It was huge.
24:01 Speaker 04 And I think that you have to remember too, the Court of Chancery is a court of equity, not a court of law, a court of equity. And an equity court has the right and responsibility to make equity in a given situation. That's their power. And it was not equitable, in her view, in that you were awarding him so much of the company for something that he was already incented to do. And it's also interesting to note that Mr. Musk did sell a lot of his 20% to fund the purchase of X. What was he doing selling his stock in Tesla, right? Which is not a great sign for an investor, you know, the CEO is dumping stock to deploy
24:45 Speaker 04 his assets somewhere else where he feels he will make more money rather than keeping it in his own company. That's kind of not a great sign, one way or the other. As it turns out, Mr. Musk, as you correctly point out, doesn't spend all his time at Tesla. In fact, very recently, if I recall, that he demanded another enormous equity grant if he were going to allow Tesla to develop AI. Otherwise, he'd say, I'll just set something else up. Well, he has a duty of loyalty to the company who employs him, to the board, the shareholders who he serves. And threatening to take, take this corporate opportunity theoretically somewhere else
25:25 Speaker 04 to a business that he would own 100% of is really not the way a fiduciary, which he is, as the CEO, should operate. So anyone who can ask you for that kind of money and threaten to blow themselves up if you don't, isn't, in my view, worth ultimately keeping on. Remember this, Tesla, the shareholders of Tesla believe it's a perpetual organization. In other words, it goes way beyond the career of Elon Musk. And if someone can hold you over a barrel like that and threaten to go and make unreasonable demands, which I think she thought this was, particularly the way it was handled within
26:07 Speaker 04 the board, that at some point you have to say enough because your obligation as a director isn't to Mr. Musk, it is to the shareholders of the organization. And if Mr. Musk gets hit by a bus, decides he'd rather live on an island somewhere, the company doesn't disappear. There are other people out there who can do the same thing. And I think that was the mistake of the board. And I think that certainly factored into her decision. I also think that after this happened, interestingly enough, as companies do compensation by comparing to other companies, we began to see in Silicon Valley, another group of CEOs asking for the same thing. These megagrams of the damage wasn't just to the Tesla shareholders, it
26:52 Speaker 04 became industry-wide, or Silicon Valley-wide, I guess, which was the disadvantage of shareholders in other companies. It became a peer model. And I think that that, I think, factored into decisions. She had mentioned, I did an Amicus brief, and that was the point I made, and she adopted the brief, seemingly. But, you know, that was a problem, too.
27:14 Scott Galloway? We're both brothers from another mother on this. And that is, I'd call us old school, for lack of a better term, boomers on corporate governance. And that is, when I was the CEO of companies, and I would occasionally say, well, we're giving up all these options, I'd like some more. They'd say, Scott, you're the founder, you're the largest shareholder. We think you're fully staked. We're not giving you additional equity. And I thought that was reasonable. And I never threatened to leave the company. I was incentivized. What I have found is that the cult of the founder has grown, that that's no longer common practice, that CEOs expect regardless of how many shares they already have, that they expect to get more and more. Shares and quite frankly, sometimes the board does that.
27:55 Scott Galloway? And what is also problematic is now what's different is when I was the CEO of a company, you were, it was very discouraged for you to sell any shares until everyone else got out first. Now CEOs sell their shares all the time and they come back and say, well, I only own 3% of the company. I said, well, boss, that's because you sold $40 million of shares in the last three or four years. And what I have found is that the leverage has swung back to the CEO. And as a result, boards are approving stuff that I never, I never would have thought of. The only place I would push back on you, Mr. Elson, is that I get it theoretically that an enterprise should be bigger than any one individual. But I'm not sure the market believes that when it comes to Tesla.
28:37 Scott Galloway? I do think the market correctly or incorrectly feels that Musk and Tesla are synonymous. And that there's an argument to be made that this guy is different. He is exceptional. We should give him, you know, a big award. And the other thing is my sense is I'm speculating here and I'm curious. If they reincorporate in Texas and they do a quote unquote benchmarking study, kind of get their shit together from a governance standpoint or just a process standpoint, that they will probably approve the comp package. But I do think the reason why this decision was so important is because I think they will decide, the board will decide, it is a bridge too far to give this guy another 20% of the company because he's asked for it.
29:22 Scott Galloway? So anyways, speculation hypothesis, you respond. The newly incorporated company in Texas approves the comp package. They get their governance cleaned up. But this ridiculous notion that I should just have another 20% because I'm Elon Musk and I want control of the company. The time to ask for a control was a dual shareholder class company way back when. That was what I would speculate what happens from this point forward. What are your thoughts, Mr. Elson?
29:48 Speaker 04 I think it's going to be very tough for them to reincorporate in Texas. It doesn't make this suit go away. To do so, you have to have significant shareholder approval. And think of it this way, he says, first of all, he won the Solar City case in Delaware, which a lot of people thought was insider-driven and problematic. So he won one, X, you never decided, or Twitter, and this one, he lost. And he's saying, I lost, therefore, I want to leave because I don't want these people deciding my fate again. Telling a shareholder, look, I want to leave a regime that protects your interests. It is a shareholder-friendly
30:33 Speaker 04 regime that thought that what was happening was unfair, not just to those who approved it, but unfair to everybody, those who voted against the plan. Delaware protects minority shareholders, and if you don't, you'll never raise minority capital. And that, I think, is the key to this whole thing. So he's telling them, okay, I want to move to a place that will not protect you. Isn't that a great idea? Well, I don't think the large institutions who do have a presence in this company, index funds and whatnot, are going to allow that. If they allow it here, then any company can do that. You're also assuming that a Texas judge would say, okay, which would suggest that there are political influences in Texas,
31:17 Speaker 04 ala he, big employer, that would swing the vote. Why would any shareholder from somewhere else want to subject themselves to that? And that's why I'm really thinking that this is more of a more ego-driven, let's say, as opposed to rationally thought out, is appropriate. Because Texas has same corporate law as Delaware, basically, just different judiciary, I guess. But it would certainly be against the shareholder's self-interest to make that sort of decision and vote to reincorporate. Look, this all comes back to the notion of the superstar P CEO. That was a theory that was very big. In the eighties, remember the eighties, nineties, it was, you know, there was a lot of academic
31:58 Speaker 04 literature on that. I've written a piece on the superstar and compensation. And yeah, theory was the superstar needs to be paid so much because they'll jump to a similar company. We looked at 1,500 companies over 15 years. We only found 17 lateral moves. And most of those 17, they were flops. They did not do well. As CFOs, they do move around a lot. General counsel, their skills are are much broader. But a CEO is much more company specific. And I think this notion, whether the board or the street itself, I think they make a mistake. And they find out, and they always do in the end, the superstars always blow themselves up. Because yes, they're certainly highly skilled. But their skill
32:43 Speaker 04 set is usually A, usually company specific, and B, they make mistakes and they're they dominate their boards in through either, you know, sheer personality or dual class stock. Problem is, human beings are fallible. We all make mistakes. And a good board helps you avoid the bad, the mistake you you're about to make. But in these situations, you're not, it's not going to happen. They'll never challenge you. And that was the point that the judge was making here. That that a board that effectively gives a CEO willy nilly something, because they, if they don't, they get replaced. That's not the most effective way to run the company, not for the CEO, but for everybody else. Listen, if Mr. Musk
33:26 Speaker 04 is really as good as he believes he is, and he's obviously been talented, that instead of doing something like this, instead, he would buy everyone out, take it private, as he did with Twitter. Twitter is completely run by him, and he can do what he wishes. But when anytime you take someone else's money. You're a fiduciary and that's the rub here.
33:49 Scott Galloway? So, Mr. Elson, just as we wrap up here, I want to ask the question that all our listeners are thinking. What was Ed like as an eight-year-old boy?
33:58 Speaker 04 He was, he was always interested, talkative, curious.
34:04 Speaker 04 And a lot of fun.
34:05 Ed Elson? That's right.
34:05 Scott Galloway? What was the trauma that resulted in the dysfunctional adult that is Ed Elson? What, what happened?
34:12 Speaker 04 You'll have to ask his dad and his grandfather.
34:16 Scott Galloway? Well, Mr. Elson, we very much appreciate your time and expertise and thanks for joining us today.
34:21 Speaker 04 That was fun.
34:30 Scott Galloway? Ed, I just don't get it. So, brain skip a generation. Your uncle seems very smart.
34:36 Ed Elson? He is very smart. I'm glad we got him on.
34:38 Scott Galloway? He seems like kind of a nice, sweet man.
34:40 Ed Elson? Yeah, he is.
34:40 Scott Galloway? That kind of shocked me when I saw it in the notes. A corporate governance expert, Ed's uncle. I'm like, that's how deep we have to go into the barrel here. That's literally, that's, that's how, that's kind of our go-to.
34:53 Ed Elson? That's the trajectory here, yeah.
34:55 Scott Galloway? Around guests is we have to go with family.
34:58 Ed Elson? Well, he was just on CNBC discussing this issue. I saw him.
35:01 Scott Galloway? Oh, no, he's very proud of it.
35:02 Ed Elson? We should, we should get him on.
35:03 Scott Galloway? I just think that's, I think that's hilarious. I'm going to bring in for, you know, analysis on the macroeconomic environment. I'm going to bring in my personal trainer.
35:12 Ed Elson? You should bring on your, your kid, like Cara.
35:15 Scott Galloway? Oh, God. Every fucking week.
35:20 Ed Elson? We'll be right back after the break with a look at big bank earnings.
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37:46 Ed Elson? We're back with Prof G Markets. Big bank earnings are in for the first quarter, and across the board, they were stronger than expected. Despite a slight drop-off in profits, the six largest US banks registered a combined revenue increase of 4% from a year ago. The biggest driver of that growth was investment banking, which surged everywhere. JP Morgan's investment banking revenue rose 21%, Goldman's and Citigroup's rose 32%, and Bank of America's rose 38%. Scott, decent quarter overall. What can we learn from these earnings, particularly this increase in the investment banking business?
38:24 Scott Galloway? Well, so collectively, investment banking sales of the five big banks, they increased 27% year on year. So that's, that's, that's big. All segments of iBanking were strong this year, led by underwriting. And Goldman's debt underwriting revenue grew nearly 40%, while JP Morgan's grew 58% and Citi's grew 62%, but I bet that's off a lower base. Debt sales accelerated this quarter on the back of diminished expectations for rate cuts, and their equity capital markets grew 45% at Goldman, 51% at JP Morgan, and 57% at Citi. So the investment banking is, is doing really well. In sum, between consolidation, more capital inflows from some of the weaker regionals,
39:05 Scott Galloway? and a renewal in investment banking business, it's just a good time to be a bank or bank with Wall Street. Consumer banks are down a little bit. I thought net interest income would be up, but I was wrong. The difference between what banks pay out for deposits and charge on loans shrank on a quarterly basis at JP Morgan for the first time since 2021. I was not expecting that, I got that wrong. Americans are starting to realize the value of higher yield savings account and CDs are moving into higher interest rate stuff, so that net interest margin has been a bit starched out. I also wonder if they're enjoying renewed revenue growth and more business on top of a rationalized customer base, and that is banks had kind of enough cloud cover in difficult
39:50 Scott Galloway? earnings seasons to justify, you know, more quote unquote efficiency, which is Latin for layoff people and pay them less. And when they grow back off of a smaller cost base, more of it hits the bottom line. Do you have any thoughts on banks?
40:02 Ed Elson? Well, I also thought it was interesting that the low light for all of them was the net interest income. And I guess the thing that we underestimated is how smart consumers are. Because what we're seeing is that they're all finally moving their deposits out of low yield checking accounts and regular savings accounts into high yield savings accounts. In other words, they're earning more interest on their assets, which the banks are now having to pay out. Something else we should mention is this new bank regulation proposal that's just come out of the Fed. Or it's been in discussion for a few months, but Jerome Powell spoke on it last week. It's known as Basel Endgame. And these new proposed rules would increase capital requirements for large banks across America.
40:46 Ed Elson? Now, those requirements are dependent on the amount of assets that you hold as a bank. But on average, capital requirements would increase 16%. Now, why is the Fed doing this? Well, it's a reaction to the Silicon Valley Bank collapse from a little over a year ago. Which, as you remember, that was a result of a pretty standard bank run. And the idea from the Fed is that the more assets you hold, the more resilient you are to these types of black swan events. So the banks are very upset about this because they believe they're already sufficiently capitalized. And they argue that by increasing those requirements, it's going to restrict their ability to take on more risk. It's going to restrict their ability to lend.
41:31 Ed Elson? Put simply, it'll just make everything they do more expensive. And as you'd expect, they'd argue, they're saying that those higher costs would likely be passed down on to consumers. I'm wondering if you have any thoughts on this proposal? And perhaps whether you would pick a side here between the Fed and the banks?
41:49 Scott Galloway? First off, I'm in favor of this only because I think the term Basel Endgame is just so fucking gangster. If I had, so one of my big regrets had is that I didn't have a third. So I imagine if I'd agreed to have a third, you know what would have happened? Thinking I was going to have a daughter, would have a son. And as compensation for my disappointment around having another son, I would have named him Basel Endgame. I just think that'd be an awesome name.
42:09 Ed Elson? Basel Endgame Galloway.
42:11 Scott Galloway? Anyways, I haven't been listening. What do you think of this legislation or whatever the fuck it is?
42:15 Ed Elson? Oh my God. People want to hear your thoughts on this. Increasing capital requirements because of the Silicon Valley Bank collapse. Do you think that that is reasonable legislation for the banks?
42:29 Scott Galloway? No, I look. It bugs the shit out of me when Bernie Sanders and Senator Warren, when they say banking should be a boring business and there should never be a bank failure and capital reserve ratios should be one to one. My sense is that SVB showed that the banking system is resilient and the FDIC is amazing. They didn't, you know, it took a big, the FDIC reserve account took a big hit, but it's already been built back up. The more capital requirements you put on the banking system, the slower the growth of the economy. At the same time, you have to have enough bank requirements such that when shit gets real, the banks can stand a stress test. You know, it's, it's like, okay, it's, you know, it's like, how much risk do you want to take?
43:12 Scott Galloway? And my sense is, based on the fact that a bunch of, you know, 50-plus incel panic room Twitter shit of, you know, use your phone and get your, you get your assets out of SVB now. If it can withstand that, then I personally don't think that the crisis, I think the crisis last year shows that this system is resilient and we don't need additional requirements. Because, keep in mind, you increase the requirements, you decrease the likelihood of a banking crisis, but you decrease growth in the United States. The miracle of modern banking in the United States, and it is a miracle, is that if people deposit a hundred dollars, but it's different people who need the money back at different
43:53 Scott Galloway? times, you can loan out a hundred and twenty or a hundred and thirty dollars and grow the economy. I mean, it's just, it sounds so simple and so obvious, but it's a miracle that we can do this. Now, if you start saying, well, no, for every hundred dollars, you can't lend out a hundred and thirty, you have to only lend out a hundred and twenty. Okay, you decrease the likelihood of the impact of a run on the bank, but the economy's not going to grow as fast because that means fewer businesses and people are going to be able to borrow money to start businesses or buy cars or what have you. So, when I look at what happened last year with this massive quote unquote panic being fomented by people who are looking for attention, and the, the market seemed to, you know, absorb
44:35 Scott Galloway? it just fine, that says to me that we don't need additional banking requirements. And I find that these arguments are populist and that it's lazy thinking to think, oh, increase the requirement. I don't think people understand there's a downside there.
44:50 Ed Elson? All right, let's take a look at the week ahead. We'll see earnings from Google, Meta, Microsoft, Boeing and Tesla. We'll also see US GDP data for the first quarter and the personal consumption expenditures index for March. And finally, it is a big week for us because your book, The Algebra of Wealth officially launches tomorrow. So before we get your prediction, Scott, let's just talk about the book for a minute. What inspired you to write this book and why do you think people should read it?
45:19 Scott Galloway? You know that study that says you are the sum of your five closest friends and the average? There's all these studies showing that your peer group's more important than where your, you know, your school, your parents, that you become the sum and then the average. So the five people who hang out, you end up being the same weight, the same political affiliation. You make about the same amount of money, same college attendance. Where there's variance is that if you have five people, even if they make the same amount of money, three will end up in the same place, one will end up economically struggling and one will end up wealthy. And so I wanted to figure out what are the behaviors and strategies for people across a similar income trajectory in terms of who ends up wealthy and who doesn't.
46:02 Scott Galloway? And there's just some basics I wish I had applied, some basic lessons and principles. It's easy to say, well, be a baller and make more money. That's important, but actually the distinction between who ends up economically secure and those who don't is not about how much money you make, it's about how much you save and then your approach to deploying that capital and basic diversification, letting time take over, low cost index funds. And when you're younger, developing a savings muscle, bringing your full self. And I love what Jason Stavro said, that wealth is a full person project, being a good person, showing up with character. I have found in our research that the myth of really rich people being bad people is in fact not only incorrect,
46:45 Scott Galloway? but it's wrong, that if you want to be really wealthy, the key is bringing generosity and forgiveness to relationships. The most economically ruinous things are divorce personally. Where you lose 60% of your wealth overnight because you have to cut your assets in half and then you lose more because now you're supporting two households and you're a forced seller of assets, which is a never good thing. But also, when you get divorces from people professionally, show me a great small firm that implodes and I'll show you partners and owners that get divorced from each other that aren't getting along. So what I did was I looked at, you know, this book's about basic financial literacy and a basic sort of lessons through different stages of your life such that you can end up in a better place than I did earlier. I got lucky, I got bailed out, I employed, I deployed all of these strategies but later
47:30 Scott Galloway? in life. And if I had just employed some basic strategies when I was your age, I would have ended up financially secure and had a much more stress-free life at a much younger age. So this is really kind of a book I wish I had read when I was 25 or 30. This is not a book for people who are struggling with credit card debt, it's not cut up your credit cards and pay cash. This is a book for people who think I'm going to make a decent living, maybe even a very good living with a little bit of discipline. It's like working out. A little bit of effort gets you such dramatic gains around working out. So that's the basics of the book. I want more young people to, at an early age, think I can spend more time with my
48:09 Scott Galloway? family, I can spend more time focusing on relationships, I can have stress over things that matter, stress around my relationships or people not doing well as opposed to stress around money. And I think you can get there. And some, what I say about the book is, the good news is, I know how to get you economic security. I really do think I know how to get you there. The bad news is, the answer is slowly, but I take you through a series of steps and disciplines to establish economic security.
48:37 Ed Elson? I'd love to end there because that was so great, but we, we need to hear a prediction from you. Do you have any predictions for us?
48:44 Scott Galloway? Yeah, I made it earlier. True Social is below 10 bucks, a single-digit stock within 30 or 60 days, and there's actually a decent chance it's below 4, 3, 2, 1 bucks in about, you know, sooner rather than later. This, gravity always wins.
49:02 Ed Elson? This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producers are Jennifer Sanchez and Alison Weiss. Our executive producers are Jason Stavers and Catherine Dillon. Mia Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. Join us on Wednesday for office hours and we'll be back with a fresh take on markets every Monday.
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