← Masters in Business
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- [02:15]
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Bloomberg Audio
- [02:16]
Sheila Bair
Studios podcasts Radio News this is Masters
- [02:24]
Apple Card Announcer
in Business with Barry Ritholtz on Bloomberg Radio.
- [02:29]
Barry Ritholtz
This week on the podcast, another Extra Extra special guest Sheila Bair, 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 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 Baird.
- [03:24]
Sheila Bair
Thank you for having me.
- [03:26]
Barry Ritholtz
So I want to start with a little bit of background from you. You get a bachelor's in philosophy from the University of Kansas and then go to law school at the same school, University of Kansas, where you got a jd. What was the career plan? Did you want to be a lawyer or what were you thinking?
- [03:45]
Sheila Bair
Well, I'm a native Kansan, grew up in southeast Kansas, traditional Kansas Republican family. We were all Jayhawks. Dad went to medical school, ku. Mom went to nursing, 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 get a very good job with that degree.
- [04:20]
Barry Ritholtz
Well, you could always teach philosophy.
- [04:21]
Sheila Bair
I could do that, but I would have to get a PhD and probably go to school longer than I wanted to 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 good preparation for law school.
- [04:43]
Barry Ritholtz
Yeah, to 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.
- [05:04]
Sheila Bair
Yeah, well, I have been, I've had a. I've done a lot of different things in my career and I young people, I tell them, don't try to pre program your career and don't be narrow minded about opportunities. And a lot of people stay in the same job for 30, 40, 50 years. I respect that. That's fine. That was never for me. I'm always looking for new things. But I guess my first entree to big leagues, or at least adjacent to the big leagues, was when I worked for Bob Dole as his counsel, first on the Senate Judiciary Committee, where I actually, I staffed him on the Voting Rights act compromise to title two of the Voting Rights act, which is pretty much just eviscerated by the Supreme Court, which was very, you know, that was my first big project for him. So that hurts. But anyway, so then I went to the leaders when became majority leader, I went to the majority leader's office with them and handled a broader range of issues. But that's really. And then I was on A. His 88 presidential campaign actually, which obviously started in 1987. 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 1987 market crash during the time 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.
- [06:27]
Barry Ritholtz
Really interesting. I want to focus on, on some of your writing because you're. You've written for very different age groups, demographics, right? So Bull by the Horns, obviously for adults, about the gfc. But the Money Tales book series is aimed at kids, right. And then the new book is really aimed at teenagers, people starting out right. How different is it commun. Somewhat complex ideas to each? Is it the same? Is it just making it understandable or is it a different approach for each group?
- [07:05]
Sheila Bair
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. But yeah, I mean, I think my early need to really start from scratch and learn it helped me later break down and explain things. And then I think also my philosophy major, the logical thinking, breaking things down into their component parts, understanding the causal connection, 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, the. My, you know, Bull by the Horns was definitely. It was written for a general population, but it talks a lot about securitization and topics that might make some people's eyes glaze over. But for industry professionals, I think it was of interest that my children's books. And actually I wrote another book for teens called Bullies of Wall street, which was a book about the financial crisis for teenagers. And then I have, golly, since 2006, I've been as a sideline writing picture books for children. And those are really fun because those are fictionalized stories. I use rhyming verse. They're just fun. You can be creative because they're really about basic concepts. Compounding interest, risk, capital formation. Those are things that really you can't explain at a very basic, 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. 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 I make that very transparent in the book. And they enjoy that.
- [09:24]
Barry Ritholtz
That's very funn. My favorite part of Bull by the Horns is just the really vivid detail you go into in with the clashes with Tim Guy.
- [09:36]
Sheila Bair
Oh, yeah.
- [09:37]
Barry Ritholtz
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?
- [09:51]
Sheila Bair
You mean during the crisis or in the lead up to the crisis?
- [09:54]
Barry Ritholtz
Either, or. What do you think? The big issue. It's never one thing. But 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?
- [10:11]
Sheila Bair
Yeah, well, I think there should have been more accountability. I do think there should have been more accountability.
- [10:15]
Barry Ritholtz
I think, meaning bankers, Wall street, that helped create the crisis.
- [10:19]
Sheila Bair
Yes. We should have at least provided more financial penalties, even if we're 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, stabilize 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 viewpoints. But, yeah, I mean, I think there is a perception of some, that they were kind of the Wall street was the center of the universe and the heartthrob of the economy and we needed to take gender loving care with it and all of that. And 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 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.
- [11:35]
Barry 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 the bankruptcy court, well, great. Take 40% of the company and promise to sell it back to the public markets within a decade.
- [12:06]
Sheila Bair
Right.
- [12:07]
Barry Ritholtz
And it would have cut the cost of bailouts substantially and would have hurt existing shareholders and management who made a. Yeah. Who helped create the whole disaster.
- [12:20]
Sheila Bair
That's exactly right. Yeah. No, I think that was. There was. We did a little bit of that, but not enough because I think there was just a visceral reaction against being too tough.
- [12:31]
Barry Ritholtz
So when the alternative is that those, that handsome building downtown with the tall columns and the judge who basically says, okay, you're now in receivership.
- [12:42]
Sheila Bair
Yeah.
- [12:42]
Barry Ritholtz
Like, when you look at the next. The next best alternative is you're toast. Okay, we'll give up 40% at a substantial discount and stay live to fight another day.
- [12:53]
Sheila Bair
I couldn't agree more. We were, they were looking. Their baseline was what? You know, how these companies 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 and maybe they should have been put in bankruptcy, too, but they were the statute provider for conservatorship, where they still, you know, language. So they, they got punished pretty well. And they didn't, you know, we were still getting. Well, now they're. They're allowed to keep their capital to build their capital base, but the government's made quite a bit of money since then from that AIG port. AIG you know, they were, it's my kid. They were effectively put in conservatorship by the Fed and, and finally emerged from that. But you know, there was an unevenness too with the way some of those entities were treated versus for instance a Citigroup which.
- [13:40]
Barry Ritholtz
Right.
- [13:41]
Sheila Bair
You know, what else can we do to help you? Citigroup.
- [13:43]
Barry Ritholtz
I was for the third time, fourth time.
- [13:46]
Sheila Bair
Yeah.
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Barry Ritholtz
They're like every generation back. They're back with their hat and hands and they need a few billion. Right.
- [13:53]
Sheila Bair
I'm, I'm rooting for. But you know, historically, you know, city's going to be back.
- [13:58]
Barry Ritholtz
So I'm kind of fascinated by. Over the course of your career you have spanned three distinct cycles of deregulation.
- [14:10]
Sheila Bair
Right.
- [14:10]
Barry Ritholtz
So we had Gramm, Leach, Bliley, which certainly was a major factor that led to the gfc.
- [14:17]
Sheila Bair
Yes, it was.
- [14:19]
Barry Ritholtz
We have the entire Dodd Frank deregulation of the decade, the past decade and then everything that's like all the carve outs and then most recently reducing the amount of net cap in reserve that banks have to hold.
- [14:40]
Sheila Bair
Banks have told. Yeah, that's ongoing.
- [14:43]
Barry 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.
- [14:53]
Sheila Bair
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 were funding it. Right. But they were providing the conduit funding to get them into securitizations. But the Fed had the power to stop that and just flat out refute. 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 finance or everybody else is doing it. I think it's going to expand access to credit. I swear to God. Because it is used as an excuse for so many terrible spending decisions.
- [15:35]
Barry Ritholtz
Didn't Greenspan say we don't want to stifle innovation in the finance market.
- [15:40]
Sheila Bair
Those are the interest words too. I don't want to stifle innovation either, but it's just uses an excuse. Oh you know, like we get, 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 screwing out now. So. So, yeah, so it. And derivatives that you said Graham, Leach, Bliley broke down the. Created these too big to fail institutions that all got bailed out. But also derivatives. Their basically decision was that nobody needs to regulate derivatives markets. 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 mortgages going bad, but there were trillions and trillions of financial engineering on top of how those mortgages perform. And that's really what got us at the end of the day. Yeah, there were a lot of mortgages that never should have been made, but the system could have absorbed those underlying losses. It was the derivatives on top of that that really brought things down suddenly.
- [16:44]
Barry Ritholtz
So let's talk a little bit about finance. The world has really gotten kind of interesting in terms of. We still seem to be dealing with the echoes of the financial crisis. It's amazing. It's almost 20 years ago, and yet things like when SVB, Silicon Valley bank and Signature bank failed in 2003, people started to get concerned about systemic risk. Even though these are kind of two minor.
- [17:19]
Sheila Bair
Those are not systemic.
- [17:21]
Barry Ritholtz
Systemically important. They were the financial institutions. And yet in order to cover uninsured depositors.
- [17:28]
Sheila Bair
Yeah.
- [17:29]
Barry Ritholtz
Who are regulators?
- [17:30]
Sheila Bair
Richest people among the richest people in the country.
- [17:33]
Barry Ritholtz
Gee, I wonder if there's. I wonder if that's just a total coincidence or if some upset people made some phone calls.
- [17:40]
Sheila Bair
Yeah. I was appalled because if your local
- [17:42]
Barry Ritholtz
credit union goes out and it's. And you're, you're taking a loss if
- [17:47]
Sheila Bair
you're an uninsured deposit or community bank. Yeah, you bet.
- [17:50]
Barry Ritholtz
But if you're a Silicon Valley VC and you're connected, you, you get stable.
- [17:55]
Sheila Bair
Coin issuer. Yeah, it's. 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 couple, two and a half billion or so of uninsured deposits. 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. It was just this New Jersey 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 like Washington Mutual. Yeah. So, but there is, I think nobody said this, but my suspicion is there is out of this Biden administration religious adversity due to, you know, bank mergers and acquisitions are like, we can't make banks bigger. So instead of, of quickly trying to market and sell it, they didn't do that. But 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 NFC.
- [19:05]
Barry Ritholtz
Didn't someone else come along and buy all the assets anyway?
- [19:07]
Sheila Bair
Yeah. Yeah.
- [19:08]
Barry Ritholtz
So the merger happened regardless.
- [19:11]
Sheila Bair
But it cost the FDIC was $1718 billion. The deposit insurance fund. It was outrageous. I'm still aghast that that even happened. And it, you know, and you know, that annoys me with my Democrat friends who pretend that the Republicans are the ones that are pro industry and pro bailout and then they do something like that. So go figure.
- [19:32]
Barry 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.
- [19:58]
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Sheila Bair
in just 15 minutes.
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Sheila Bair
And I'm Karen Moscow. Join us each morning for curated stories on current events, politics, business and foreign
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Sheila Bair
Subscribe to Bloomberg Daybreak for a precise, thoughtful take on the stories that matter.
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- [21:44]
Barry Ritholtz
I'm Barry Ritholtz. You're listening to Masters in Business Unblocked, Bloomberg Radio. My extra special guest today is Sheila Bair. 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?
- [22:29]
Sheila Bair
Well it is, but not in the way that I think the banks sound bites make it sound. So their sound bite 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 quote unquote over collateralization, 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 at 150% of what your loan is, right. 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 the fund. 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 to 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, packing them up 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. 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.
- [25:17]
Bloomberg Invest Announcer
But it's.
- [25:18]
Sheila Bair
They can use more leverage to lend to the fund directly than to lend to the business itself.
- [25:22]
Barry 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, lending standards had been completely abdicated in all of these. No income check, no job check, just, you know, that's true. Sign and pray and, and it'll all come out in the collateralization and the syndication will spread the risk around. This is, hey, 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. They would never put their reputations or their names at risk by doing anything too stupid. And besides, the default rates have been really low and it's highly spread out across sectors and geographies. Is that a fair argument or.
- [26:29]
Sheila Bair
It is a fair argument, and I'm not Saying private credit is legitimate asset class. 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 they'll have the private credit. 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 a legitimate asset class. You know, gotta understand it's not regulated. You don't really know what the loans are worth. Right. 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&P 500 has been kicking it for several years now. So there are a lot of questions. But for sophisticated investors, go forth and do it. And I don't think it's systemic. And I do worry about these life insurance companies and the annuitants because the again, you've got private equity owned life insurance affiliate, you've got the private credit affiliate, you've got the life insurance affiliate lending into the private credit affiliate. You're using these third party credit raiders to make sure it's all at arm's length.
- [28:03]
Barry Ritholtz
Very incestuous.
- [28:04]
Sheila Bair
Yeah. And the BIS did a study about a year ago on this and 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.
- [28:21]
Barry Ritholtz
So you're not a fan of private equity or private debt in 401s?
- [28:26]
Sheila Bair
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 kkr, go for it. You know, you might check how it's been forming and actually I don't know how it's been performing. But I'm just saying there are public. If you really want exposure, there are publicly traded BDCs. Now they're 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 directly for retail, especially 401ks to start loading up on this asset class I think is really problematic. And I do worry that the plan sponsors, the fund sponsors, the 401 sponsors are going to be getting the hard sell about putting this stuff into people's 401ks. And 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 401s. And I'm very worried about that.
- [29:35]
Barry Ritholtz
And to put some numbers on what you had 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&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.
- [29:58]
Sheila Bair
Yes, exactly.
- [29:59]
Barry Ritholtz
To have access to that.
- [30:00]
Sheila Bair
Yeah. The retail people are not going to be getting the creme de la creme on this. No. And that's a huge issue. They're going to stuff the riskier stuff into the 401ks.
- [30:08]
Barry Ritholtz
It makes a lot of sense. 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. As an example, JPMorgan Chase now has over 4 trillion with a T in assets. Can a bank that size be effectively regulated? Is too big to fail the norm now?
- [30:40]
Sheila Bair
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.
- [31:05]
Barry Ritholtz
You mean normal bankruptcy rules?
- [31:06]
Sheila Bair
Yeah, exactly, yeah. It was similar to the FDIC process, which is basically a bankruptcy process. And Title II and Dodd Frank. Excuse me, 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 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 it again. They already do. They'll set up special lending facilities or ratchet interest rates down. Private equity, 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. But if that sector gets into trouble, the Fed will lend to the banks who can then lend to the funds. That's just the way I think it works. Now, I think a lot of the push for, for ever more deregulation, lower capital rules is based on the assumption of the big bank lobbyist 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 why should they have to operate with all this capital when they can lower their capital and get much higher returns on equity? And I do think that's 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. Capital makes no sense unless you're just banking on a bailout if things get dicey.
- [32:36]
Barry Ritholtz
Let's talk about a financial crisis that really has gotten a lot of short shrift given everything else we just discussed, which is the student debt crisis. We've seen just an explosion of student loans. It was briefly. And default. 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 how did we get here? Why is it so difficult to fix? What is a potential policy solution to the student debt crisis?
- [33:26]
Sheila Bair
Yeah, well, and I think the headline numbers are. In this K shaped economy, I think the headline numbers can be misleading because you 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 one income based 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. 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 income were set so low that people were even some of them were not were paying zero because you had to earn a certain amount of money before, you know, a loan payment, obligation even kicked in. 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, just recapitalized forever. 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, 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, so if, 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 $50 a month to lower your principal. So as long as you're making at least $10 a month. Month, your principal will go down each month. And I think this will be, it's simpler. It will provide better incentives to keep, make loan payments, keep up the loan payments because you'll actually be able to see the principal going down. So I give credit and in full disclosure, my son who's a fellow at the AEI was, was also heavily involved in this. So he's a chip off the old block though. We think a lot of student debt. Yeah. Simplification, more accountability. And those are the things that this bill accomplished. So I'm hoping that this gets straightened up and people 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.
- [36:02]
Barry Ritholtz
Well, $10 a month isn't.
- [36:04]
Sheila Bair
It's not huge.
- [36:04]
Barry Ritholtz
No, it's not. And if the government is kicking in 50.
- [36:08]
Sheila Bair
Yeah.
- [36:08]
Barry Ritholtz
I mean it's not a ton of money, but it's still what, $600 a year. Have we done enough to resolve the student debt crisis or what else can we do to move this along?
- [36:21]
Sheila Bair
Yeah, well, I Do think there needs to be more accountability for colleges to assume some.
- [36:26]
Barry Ritholtz
The schools themselves.
- [36:27]
Sheila Bair
Yes, the colleges themselves. Because it was the classic misaligned economic incentives. So with the best of intentions, the Congress said, okay, from now on, all the student loans can be made. Pretty much all of them are going to be made by the government. Government, because we're worried the 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 loan. 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? They're going to get the money. They're buying for tuition, room and board. So they're going to get the money. They're not on the hook if the student can't repay the loan. So what do you think's gonna happen? And what happened exactly is you could have predicted it, inflation, you know, with tuition, you know, many multiples would, 9%
- [37:22]
Barry Ritholtz
a year for 40 years for whatever.
- [37:25]
Sheila Bair
Yeah. So tuition, as any parent knows or student knows, has skyrocketed, become very unaffordable without borrowing. But, you know, there was all this easy money. And the undergraduate is a problem with the graduates. 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 and professional schools. You know, so somebody like me, oh, I'm gonna go get a PhD in philosophy so I can teach. Right. So I paid $300,000 to get my PhD in philosophy and get a job maybe paying 60,000 a year. Some small college college. Well, that makes sense, but I think that's happened to a lot of people. And I don't think. I don't absolve the borrow 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 money makers for colleges. And degrees frequently do not enhance the earnings potential of the student.
- [38:28]
Barry Ritholtz
So do you have any hope that students are in a better shape, shape financially going forward, or is this still very problematic and needs more help?
- [38:38]
Sheila Bair
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 in 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 or more calculators too that are based on help you figure out how much you can borrow based on what your postgraduate income will likely be in that field at that college. 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 were starting to take a second look, well, do I really need to go to college? For so long there was all this social pressure to go to college. I was a college president, I've taught at 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 might want to go directly into the workforce, learn on the job. You might want to go to a trade school. There are community colleges, got to be careful there too. But many of them provide really good, you know, education that's less expensive and a 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.
- [40:12]
Barry Ritholtz
Last question about college and education. We have thousands and thousands of universities and colleges. Do we have too many?
- [40:24]
Sheila Bair
Yeah, probably.
- [40:25]
Barry Ritholtz
I mean we can going to lose 10 or 20% of the college base over the next decade.
- [40:31]
Sheila Bair
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. It's more high touch, it's more, you know, for some, you know, going to College when you're 17, 18 years old can be pretty traumatic. You've never been away from home, you know, and so, so from 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 gonna. They're gonna close, probably.
- [41:14]
Barry Ritholtz
Really, really fascinating. So you went from writing a crisis memoir for adults to totally the opposite direction. Basic financial literacy for children. What made you decide to aim in between at young adults and teenagers?
- [41:33]
Sheila Bair
Well, actually, it was my editor who, you know, everybody, when I first started running the. The picture books, everybody said, oh, this is too, you know, elementary school children are too young for this, and they're not.
- [41:43]
Barry Ritholtz
They.
- [41:44]
Sheila Bair
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 financial, you know, a lot of people on social media, a lot of curricula, you know, know, sponsored by industry groups. And so I thought, well, you know, I'm gonna. I'm gonna throw my hat in here to try to provide some basic financial advice to teenagers as they're entering adulthood. So that's. That was the. I will have to say, my. My publisher's initiative. But I think it was a good idea and I'm pleased with the way the book came out.
- [42:31]
Barry Ritholtz
So. So I'm glad you brought up social media. Gen Z. And what's the new Generation F? Generation Alpha, 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. How did that impact how you thought about reaching this age group and how did it shape the tone of your book?
- [43:06]
Sheila Bair
Yeah, so it was. I did want to. To get some accurate information out there because there's a big theme of this book is, you know, I say in the introduction, building wealth is not hard. You need to establish a regular saving investing habit. You need to avoid debt. That's really what you need to do. And there's so much advice that's just the opposite. And especially on social media, pushes debt. You know, well, why bother? With a nice, safe index fund, you can go borrow some money and buy a rental property and make way, you know, way more returns than. No, no, no, no. So. But there's crazy stuff like that or borrowing to Invest in crypto or MEM stocks or, you know, gambling, you know, and their kids are getting confused about the difference between gambling and investing. They're very different things. So I wanted to provide some correctives to that and then just basically also address and flag 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 as I was getting all these solicitations from various credit card issuers who had found out that I was now, you know, working for a living somehow. So, yeah, I got in trouble with credit card debt and I made that minimum payment. 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
- [44:42]
Barry Ritholtz
of a sudden, oh, my God, that's a lot.
- [44:44]
Sheila Bair
Well, yeah. Which, if it invests in the S&P 500, would be worth around 240,000, $250,000 now. So there you go. So, 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&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. And. 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 a. On the good, on the right foot, which I did not and a lot of people don't.
- [45:26]
Barry Ritholtz
Coming up, we continue our conversation with Sheila Bair 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.
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- [47:03]
Barry Ritholtz
I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Sheila Bair. She is the former chair of the fdic. Her latest book is out how not to Lose a Million Dollars. A Young Person's guide to Avoiding the Tricks and traps of Our Financial system. So, so you mention a couple of really interesting things that taken together. Howard Lindsay runs a venture fund and he calls it the degenerate economy. Gambling, speculation, end of day options mean stocks, crypto, coins. And all of these have been through through apps and other methods. Yes, of course, the phones have been adopted by teenagers en masse. What do you make of the degen economy and what does it mean to the future health of these young adults?
- [48:00]
Sheila Bair
Well, it's very dangerous and it's particularly a problem with young boys. And oh, by the way, they shouldn't be doing this if they're under 18. But a lot of them are, as we know, they're targeted and they don't understand the worth of money. The apps just make it so easy. They don't make the connection between the financial losses they're experiencing. It's a game for them. And the industry advertises, they do gamify it. So and even, you know, stock trading, some of these online brokers, a big one is they gamify it. And it's not a game, 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. Money, 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 they use their credit card numbers to do all these gaming apps. And I just don't think 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 you're investing, you're supporting capital formation and the real economy, helping businesses who make real goods and real services, raise money and operate, are supporting the secondary market that enables all that. And what are you supporting with gambling or crypto? I mean, some crypto, to the extent it represents the technology, I think crypto technology is, is very valuable. But these, these, these, you know, these different currencies and tokens they have, you
- [49:37]
Barry Ritholtz
can call them a shit coins.
- [49:38]
Sheila Bair
Okay, I'll call them coins because that's, that's nothing. But 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 bitcoin because 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, 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, these gambling platforms, if these. Even if you start winning, well, well, 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 odds are you will always lose money. And Bloomberg came out with some great research recently on prediction markets. 75% of the profits, I believe, are going to 1% of the.
- [50:29]
Barry Ritholtz
Less than 1%.
- [50:29]
Sheila Bair
Less than 1%.
- [50:30]
Barry Ritholtz
It's crazy. It's so, so funny.
- [50:32]
Sheila Bair
The whole game is rigid. Well, even active trading of stuff stocks, very few people can do that and
- [50:37]
Barry Ritholtz
make money consistently over.
- [50:38]
Sheila Bair
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 algorithms and all the things, all the tools you will not have when you try to actively trade stocks.
- [50:50]
Barry Ritholtz
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. Did I read this correctly? You established the Financial Education division within the Treasury Department?
- [51:04]
Sheila Bair
I did. The Office Education 2001.
- [51:07]
Barry Ritholtz
Yeah.
- [51:07]
Sheila Bair
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 a group, it's called flec 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 one of the things that got me interested. And actually my first book was Pre Crisis Rock Rock and the Saving Shock. It actually came out in 2000 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.
- [51:44]
Barry Ritholtz
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 is this not just part of civics and.
- [52:03]
Sheila Bair
Yeah, 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 curricula 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 4% interest a year or whatever. So it does need to be introduced every year. And again, that's one of the reasons my books are. There's supplements to curricula. I don't write educational curricula, but there certainly could be assigned readings to go with those classroom efforts. And I think that's important. And the kids get it, they're interested in it. They absolutely get it. They're not too young.
- [52:51]
Barry Ritholtz
One of my favorite parts of the BBB was the new newborn accounts.
- [52:59]
Sheila Bair
Oh, Trump accounts.
- [53:00]
Barry Ritholtz
Yeah, the baby bonds, which 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 $1,000 to every newborn in an investment account.
- [53:14]
Sheila Bair
Yeah.
- [53:15]
Barry Ritholtz
Is this a good start? Is this going to help kids learn about money?
- [53:20]
Sheila Bair
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 a three year period we'll get the thousand dollars, but it can be matched by employers, a lot of employers.
- [53:32]
Barry Ritholtz
We're hearing already Dell and J. Morgan and a bunch of big employers announced they'll do $1,000 match and the assumption is this will be renewed after three years.
- [53:42]
Sheila Bair
I hope so. I hope it is. 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 or we'd be seeing crypto and MEM stocks or whatever. 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 great. It's a wonderful financial educational tool as well as some additional financial security for low income families and their children.
- [54:23]
Barry Ritholtz
So let's talk about another aspect of money that's so different today than it was was when we were kids. Money is effectively invisible. 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 a credit card than with actually paying greenbacks. Which says a lot about the psychology of, of modern spending.
- [54:57]
Sheila Bair
It does.
- [54:58]
Barry Ritholtz
So how do we recognize that and how do we teach kids the value of a dollar? It's really a challenge when you just tap the card and it's magic.
- [55:11]
Sheila Bair
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 card so that's, they start getting that easy usage. And if they're using their parents credit card, they're not having to, it's not causing them any pain to spend money. So I think the parents can control a lot of this. But the 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, life, raking leaves or whatever, you know. So I think 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.
- [56:11]
Barry Ritholtz
Buy now, pay later.
- [56:12]
Sheila Bair
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 because you 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 the financial.
- [56:46]
Barry Ritholtz
When we were kids, it was called layaway.
- [56:49]
Sheila Bair
That's right.
- [56:49]
Barry 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.
- [57:03]
Sheila Bair
Exactly.
- [57:05]
Barry Ritholtz
This is the opposite lesson.
- [57:06]
Sheila Bair
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, decisions more impulsively. I mean, they don't have the same impulse control adults have. And I think, you know, people know that, retailers know that, commercial entities know that. So they try to encourage them to make snap decisions to buy something. And it just, it's so important. I have a rule. Wait a week. 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 it's your one wants, first of all, don't buy any want that's not within your budget. Even if you do wait a week, you know, just don't buy it on impulse. Wait a week. Come back to it. Do you really want to 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.
- [58:00]
Barry Ritholtz
Every hand goes up.
- [58:00]
Sheila Bair
Every hand goes up. Every hand Goes up. It's amazing. Yeah. Already, you know, at 7 years old, they've got buyer's remorse. It's usually junkie toys.
- [58:07]
Barry Ritholtz
What, what I. Speaking of junkie toys, when there's a car I fixate on, my little hack is I'll buy one of the die cast models and put it on my shelf. So for 60 bucks I like, all right. I feel like, all right. I, I have a little experience in this car.
- [58:25]
Sheila Bair
Yeah.
- [58:26]
Barry Ritholtz
And after a few weeks it's like, all right, I have the toy, I'm good. I don't need to spend a hundred thousand dollars on another stupid thing for the garage.
- [58:34]
Sheila Bair
Well, that's right. There's, there's, there's a trick chapter on buying a car too. I just bought a buy. I just bought a car actually a used car. I didn't want to be shoot so fast, it's going to 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's been a while since I bought a car. He was trying to upsell me with everything and now they're 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.
- [59:03]
Barry Ritholtz
Think that's true anymore?
- [59:04]
Sheila Bair
Maybe not a lot, A lot of
- [59:05]
Barry Ritholtz
kids aren't getting licenses. They can Uber wherever on mom's credit cards.
- [59:10]
Sheila Bair
I think that's true.
- [59:10]
Barry Ritholtz
Right. And it, it's there seem, although there is a renaissance of kids buying, let's call them 20 year old analog as opposed to digital cars with stick, with stick shifts.
- [59:26]
Sheila Bair
Really.
- [59:26]
Barry Ritholtz
There's a whole generation of, of new car enthusiasts coming up that I think a stick shift today is an anti theft device because you know, bring it to a valet, they look at you, you know, go to a restaurant, they're like, would you mind pulling it in over there? Yeah, okay, that's funny. But it's really true.
- [59:45]
Sheila Bair
And it's good because you know, cars are expensive. The average monthly payments were like 700amonth. You know, for a young boy it's
- [59:52]
Barry Ritholtz
$1,000 a month is not uncommon on a lease.
- [59:56]
Sheila Bair
Yeah.
- [59:57]
Barry Ritholtz
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.
- [60:06]
Sheila Bair
Exactly. Right. Yeah. So yeah, it's really expensive for any person to buy a car if they can avoid that.
- [60:11]
Barry 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, finance, and government.
- [60:27]
Sheila Bair
Yeah, well, Bob Dole obviously stands out. He was really. 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, helped him become who he became. So he was really. He really focused on. On. 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 helping the people who use banks. So I. I'm proud of that, and I learned a lot from him. You know, later I got to know Paul Volker. I learned a lot from him. Paul. Yeah, that's right. Elizabeth Dole was someone. I never really had a chance to work with her, but I knew her through. Through this Senator Bob. And have 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.
- [61:45]
Barry Ritholtz
Let's talk about books. What are you reading now? What are some of your favorites?
- [61:49]
Sheila Bair
Yeah, so I love murder mystery. I'm reading Anthony Horowitz's new book, A Deadly Episode. I don't know if we know Anthony Horowitz. He's a British mystery.
- [61:58]
Barry Ritholtz
I know the name.
- [61:59]
Sheila Bair
Yeah.
- [61:59]
Barry Ritholtz
My wife is a fan of those, so she. Yeah, well, she burns through those.
- [62:02]
Sheila Bair
Yeah, he's quite prolific. Yeah, he was, you know, he. He was actually chosen by the Ian Fleming estate to continue writing. He's written two. They're really good. Yeah, I actually like them now.
- [62:12]
Barry Ritholtz
Owned by Amazon, the movie.
- [62:15]
Sheila Bair
That's right. So. And then I'm reading John Hersey's Hiroshima. My family and I are going to Japan at the end of the month, and I wanted to go, yeah, yeah. And the kids kind of balked. I said, we're going to 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 in somebody again. And it still has an impact on me. And especially everything going on in the world now on other countries, even Japan, talking about wanting to have a nuclear capability, because things just don't seem very unsettled on that square right now. So that's. Those are my two. I usually have two books going, one nonfiction and one fiction.
- [62:58]
Barry Ritholtz
So I'm going to recommend a book to you. It's really kind of fascinating. An American who's a professor somewhere in the uk, Brian Kloss with two A's. 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. And when we have to figure out where to drop the A bomb, he absolutely vetoes Kyoto. And Hiroshima is what gets.
- [63:36]
Sheila Bair
What gets chose.
- [63:37]
Barry Ritholtz
Because this couple went there for a honeymoon.
- [63:40]
Sheila Bair
Oh, that country.
- [63:43]
Barry Ritholtz
That city is spared. And then it wasn't supposed to be Nagasaki. It was an. 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. About flukes, how random things are.
- [64:04]
Sheila Bair
Yeah.
- [64:04]
Barry Ritholtz
So Hiroshima gets it because somebody went
- [64:07]
Sheila Bair
there on a honeymoon.
- [64:09]
Barry Ritholtz
Just crazy.
- [64:09]
Sheila Bair
Well, and now you look back and why did any city get it? Couldn't you drop it over the ocean or something? You want 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 the psychology. Yeah.
- [64:24]
Barry Ritholtz
So different.
- [64:24]
Sheila Bair
And the Japanese had been. Everybody been horrible. But the Japanese had done some brutal things.
- [64:29]
Barry Ritholtz
Well. For centuries.
- [64:30]
Sheila Bair
Yeah. Well, okay. All right.
- [64:31]
Barry Ritholtz
Speak to. Speak to China and Korea. They are not. I'm a big fan of Japan.
- [64:38]
Sheila Bair
Yeah.
- [64:39]
Barry Ritholtz
But they were quite a ruthless empire
- [64:41]
Sheila Bair
for a long time. Yeah. So there was a lot of. 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 Hersey's book was so important, because it really underscored the horror of it. But maybe because. Because people then understood how horrible it was and made it even less likely anybody would ever use it again. I'm going to 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 not just the people who probably were killed immediately were the lucky ones. The radiation sickness after the horrors, slow death.
- [65:13]
Barry Ritholtz
I think I signed that same book in high school. Everybody read it, plowed through it and it was just.
- [65:19]
Sheila Bair
It was. Yeah. No, it's very well written. It was. Yeah.
- [65:22]
Barry Ritholtz
Let's shift to. Are you streaming anything these days? You listen to any podcast?
- [65:26]
Sheila Bair
I don't.
- [65:26]
Barry Ritholtz
Or watching anything?
- [65:27]
Sheila Bair
Yeah, I don't stream or podcast that much. I get podcasts or I like to read transcripts of podcasts because I can read a lot.
- [65:36]
Barry Ritholtz
How about Netflix or hbo?
- [65:38]
Sheila Bair
Yeah, but, you know, again, I'm, I'm, you know, one note on this murder. BBC. I'm there. You know, I love the Bartima beard box.
- [65:46]
Barry Ritholtz
Yeah.
- [65:46]
Sheila Bair
The. All the, all the Agatha Christie's I've seen the David Suchet probably are by far the best. Foyle's War was great. Also Anthony Horowitz, the. He did it.
- [65:56]
Barry Ritholtz
The made it into a series or a movie.
- [66:01]
Sheila Bair
Which one the Foils were. 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 really good. I like the, the Morse, you know. Have you ever watched Morse? Inspector Morse? No.
- [66:14]
Barry Ritholtz
That's on PBS at one point.
- [66:17]
Sheila Bair
Yeah. Yeah. It's old, but there are three Morse and then Endeavor, which was about Morrison when he was younger, and then Lewis, who is Morse's sidekick. So BBC did a really good job there. So, yeah, these are old stuff. I recycle them. But yeah, I love BBC and I love British love. Excuse me.
- [66:34]
Barry Ritholtz
I love 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?
- [66:46]
Sheila Bair
Yeah, well, I would say be open minded because I think the job market is, you know, we don't know, AI kind of having a negative impact on entry level white collar jobs. So there you'd 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.
- [67:19]
Barry Ritholtz
I remember Muppets. Yeah.
- [67:22]
Sheila Bair
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.
- [67:49]
Barry Ritholtz
And our final question, what is it that you know about the world of banking regulations, government service, financial industry today? Might have been useful to know way back when when you were first getting started.
- [68:03]
Sheila Bair
Yeah, I thought about that. Markets, right? Not personal finance, but market clearly credit
- [68:09]
Barry Ritholtz
card, go whichever way you want.
- [68:11]
Sheila Bair
Yeah, well, compounding was something I did not understand. And credit card that comes up surprisingly
- [68:17]
Barry Ritholtz
frequently because it's not intuitive.
- [68:19]
Sheila Bair
Yeah, no it's not. And the daily compounding is, you know, it racks 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 $1,000 when she was getting later in life near her death, and she didn't have much, but she was, she wanted to give my sister and I something. So she gave me 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, right. So I, I've made some lucky. I've, I've stuck mainly, I've picked a few stocks, but I've picked mainly diversified index funds of various sorts. And I wish I'd understand better about being brave during the dips though, you know, I think I usually, I buy and hold, so I don't, I don't sell when the market's going down, which is the worst thing you can do. But I think I would have been a little more courageous buying in the
- [69:11]
Barry Ritholtz
dips, you know, buying more into weakness.
- [69:14]
Sheila Bair
Yeah.
- [69:14]
Barry Ritholtz
Well, well, Sheila, thank you for being so generous with your time. As always a delight. We have been speaking with Sheila Baer, 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 Ritholtz. You've been listening to Masters in Business Business on Bloomberg Radio.
- [70:07]
Cincinnati Insurance Narrator
On June 10, Bloomberg Invest is back in Hong Kong. We look at the role Hong Kong plays between China and the world as major powers compete and markets realign. As global investors rethink risk, we'll explore the forces driving Asian demand and the future of private capital. Catch Explorer Exclusive interviews with top newsmakers, plus a live recording of Bloomberg's Odd Lots podcast. Visit Bloomberglive.com investhongkong to learn more. Supporting sponsor Deutsche Bank.