Rich Kinder (3:12)

I applaud Secretary Bessant for doing that. One of the things we always were focused on, the risks to the banking system, the risk for any kind of cyber attack, you're just getting in and change the ones and zeros around in the banking system. So much of it rests on our banking system. So nothing is more important.

IMF Economist (3:32)

We need to do something about it. I don't think there is a framework, you know, everybody is keen to have a framework within which to operate. I don't think there is a governance framework that is there to actually mind those things. We need.

David Westin (3:45)

We need to work on that. Catherine Judge is a professor at Columbia Law School specializing in the Fed. She explained the risks that Mythos could pose for for the banking system and what regulators can do to manage them.

Catherine Judge (3:58)

The big deal is there are real concerns that this new, much more sophisticated form of AI could detect, and likely will detect, very meaningful vulnerabilities in banks software in ways that could expose them to cyber attacks that would disable individual banks and potentially the broader banking system.

David Westin (4:17)

There is the danger of bad actors getting access to it. Is there a flip side to it also that it may give the banking system and banks some defensive tools otherwise might lack?

Catherine Judge (4:27)

Yeah, I mean, this is always the interesting question is like AI fighting AI and what does that look like? And there's also a question of what that looks like for the structure of the banking system. Again, the US has always had a very diffuse banking system. We have lots of small banks, we have regional banks, and they provide different types of services and loans to the real economy. And so one of the interesting questions, if this becomes absolutely vital to be part of the financial system, who's going to have access to that type of technology?

David Westin (4:53)

The financial system is global, last time I checked. So it's not just a US problem we have here, potentially not at all.

Catherine Judge (4:59)

And we've seen both European and Asian regulators speak out and voice significant concerns. And so one of the things that's so interesting about this is you both need clear public private coordination, but there's also the possibility of global coordination to try to understand just what these threats are and then what can be done realistically to try to contain them.

David Westin (5:19)

What exactly can the Federal Reserve do? They have an awful lot of PhD economists. I'm not aware they have a lot of AI engineers.

Catherine Judge (5:25)

Yeah, I mean, one of the real challenges, no bank supervisor is prepared for this. Right. So cyber attacks are nothing new. It's a challenge banks have been dealing with for a long time and supervisors have played a role, helping to make sure that banks are appropriately prepared as part of operational risk and other concerns. But this is a whole different level. It's jumping up the magnitude of the threat in a way that no bank regulator or supervisor is prepared to fully address. And so the question is, can they ask good questions? Can they help provide guidance as they did in Washington? Can they facilitate coordination and conversation?

David Westin (6:01)

Turn to the Fed right now to avoid the problem. But if, heaven forbid, there is a problem, there is a serious hack, what could the Fed's role be in remediation?

Catherine Judge (6:13)

This is one of the key issues. I mean, the government's not going to be able to stop a serious cyber attack. On the other hand, the government can play a very meaningful role, helping to contain the damage. And really when you're worried about the functioning the financial system, a lot of it's on prevention, but things are going to happen and things are going wrong. And the effort then is on containment. And that's where the Fed having strong relationships with the entire banking system and helping to make sure that it's providing liquidity and potentially helping to provide alternatives for affected consumers. And really coming up with a game plan over, well, what can we do and what should we do if things go wrong is going to be, I think, part of the effort going forward to try to make sure that in the really unfortunate event that there is a wide scale malicious attack, that the damage isn't nearly as crippling as the actor might hope.

David Westin (7:04)

Like the rest of us, the Fed may be struggling to understand the benefits and risks of AI. So we turn to the experts, people like Margaret Mitchell, researcher and chief ethics scientist at Hugging Face, an open source AI platform.

Margaret Mitchell (7:19)

Mythos is really on the cutting edge of cybersecurity right now. It's incorporating a lot of things that we've already known that's already common in cybersecurity, but it's within a system also called Mythos, that can operate warp speed. So there's this new sort of paradigm right now within AI called AI agents and agentic computing. Mythos is an autonomous agentic system. It can take sequences of actions without any human oversight and it can do it, you know, while you're asleep and infiltrate tons of different systems.

David Westin (7:54)

If I'm one of the big banks, the Secretary Treasury Bessen called in and I learned about this. What can I do about the. The big banks have been spending a lot of money on cybersecurity for quite a while now.

Public Investing Announcer (8:07)

Right?

Margaret Mitchell (8:08)

I think that that knowledge and that expertise is really important here. You don't necessarily need Mythos to build up appropriate defenses. And actually, this is where the open source world can really help because it's quite possible, or at least we sort of think it's possible within the world of AI to have different models swapped in, in a similar system based, built with deep security expertise to help with probing for vulnerabilities and creating patches, that kind of thing. And so I think it's really important right now for people to recognize A, that this technology is possible and that doesn't have to be siloed to any one company, and B, that you can build up defenses right now using tools that are already available for intruder detection, fuzzing frameworks, these kinds of things where basically it's possible to preempt any sort of attackers and defense extensively set up safeguards against any, you know, malicious problems.

David Westin (9:08)

Part of cybersecurity defense is basically having your own organization or other organizations try to hack into you to see where there might be vulnerabilities. So that's been going on for some time at the banks. But is this different in the sense that it can be running in the background constantly?

Margaret Mitchell (9:24)

The punchline is that Mythos is operating in a way where human oversight can be difficult. That's because it can create action sequences without any sort of human intervention and act on different kinds of things that it sees as possible. And it can do it very fast. And it can spawn what are called sub agents, so little workers that can do the same thing across distributed systems. This is all this new paradigm of agentic computing. So, you know, it's really within this calibration of autonomy that I think we have to think critically about what we want these systems to be doing, where we want to bring in human oversight, how people should be able to interact with these systems in order to approve or deny things, because otherwise, with full autonomy, they can just keep going overnight while you're sleeping, spending tons of different systems, that sort of thing. So you have to put in place those guardrails, those checks, in order to make sure that humans are in the loop and can see into the loop, you know, can really understand what's happening.

David Westin (10:33)

So you, of course, are an expert in this. Give us your best judgment. When you talk about fully autonomous versus semi autonomous, which is better if the

Margaret Mitchell (10:42)

Goal is safety, semi autonomous. I've actually written papers on this and op eds and I'm very opinionated about this actually. So when you have full autonomy that's super flexible, you can do lots of different things and so that's pretty cool. Lots of different things you'd never thought thought of doing. You don't have to pre program it. Right. But from a safety perspective, also within the context of the financial sector, where there's a lot of regulations at play in terms of accountability, in terms of the passage of data, that kind of thing, you want to make sure that you're able to specify specifically the context within which the system can run and that it can't jump out of those contexts.

David Westin (11:20)

If you're a regulator, what do you do in the face of this new technology to try to minimize or prevent systemic risk?

Margaret Mitchell (11:27)

Regulators have one piece to play within the overall accountability chain. And I think that for regulation that focuses more on trying to help ensure reliability, ensure safety, opening up the possibility of third party audits, third party testing. So there's something to be said for companies that share their code, their information, even if they're proprietary, in order to undergo third party auditing, third party testing, that kind of thing, regulators are in a really nice position to try and ensure that people's rights are protected. So what are the rights that should be protected? So this is where security comes in, reliability, safety, privacy, those kinds of things. So I think regulators have a role to play within the overall ecosystem in setting up what kinds of human values should be protected in these systems and how can you ensure that your system does that? Show us run the evaluations, have it undergo third party evaluations where we can actually see from someone without the financial incentives of one institution how well these systems actually work.

David Westin (12:41)

Up next, we look behind the curtain at Chinese automaker BYD to see how it's come so far so fast and the challenge it poses for Western rivals.

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Podcast Host (14:41)

the pulse of every community. They bring people together, create opportunities and drive growth. With a widespread presence in communities across the country, Chase for Business supports small business owners at a local level that makes it possible for you to connect, learn from each other and grow together. There's a real commitment to seeing small businesses succeed. The Chase for Business team has knowledge and expertise that span a wide range of financial areas. They can help you make more informed decisions as you navigate the complexities of running your business. They'll help your business grow with individual guidance and convenient digital tools all in one place. With that guidance and your determination, you can take your business farther and help build a brighter future for your community. Learn more@chase.com business chase for business make more of what's Yours the Chase Mobile app is available for select mobile devices. Message and data rates may apply JPMorgan Chase Bank NA Member FDIC Copyright 2026 JPMorgan Chase Co.

David Westin (15:47)

This is a story about changes that are too big to ignore. For many years, the global car market has been dominated by the same small group countries like Japan, Germany and the United States, but no longer. In the span of five years, China leapfrogged the largest automakers in the world world going from sixth place to first. It now exports more vehicles than the United States and Japan combined. And no company tells that story better than electric carmaker BYD. Bloomberg's Tom MacKenzie reports from Paris

IMF Economist (16:22)

at

Bloomberg Reporter (16:22)

an opera House just north of the Champs Elysees. A lavish debut even for Paris,

Public Investing Announcer (16:29)

the

Bloomberg Reporter (16:30)

star of the show. Not a performance, but a product. This car is the latest creation of byd, a Shenzhen based electric vehicle maker that's taking the world by storm. Today, it's China's biggest car company by sales.

Stella Li (16:44)

I want to be the best valuable brand in the auto industry, but it

Bloomberg Reporter (16:48)

wasn't so long ago that other automakers literally laughed them off. This was Tesla's Elon Musk here on Bloomberg back in 2011.

Margaret Mitchell (16:57)

There's competitors now ramping up, and as you're familiar with byd, which is also on the West Coast, I think they're ramping up production of their electric vehicles. Warren Buffett owns 10% stake in that. Why do you laugh? Trying to compete. Why do you laugh?

David Westin (17:11)

Have you seen their car?

Margaret Mitchell (17:12)

You don't see them at all as a competitor now.

Bloomberg Reporter (17:14)

Since then, a lot has changed. BYD now has almost a million employees. It says it files an average of 452 patents per working day. And in 2025, for the first time, BYD beat Tesla in total car sales, claiming the title of top electric vehicle maker in the world. How would you characterize BYD's growth in recent years?

Ryan Fisher (17:40)

Yeah, explosive.

Bloomberg Reporter (17:42)

Ryan Fisher is the electric vehicle and charging analyst at Bloomberg NEF Today, from

Ryan Fisher (17:47)

2021, gone from like, barely on the map, if you know what I mean. If you look at the chart, to having 4 million plus sales and being in the top 10 automakers in the world.

Bloomberg Reporter (17:57)

You come from the industry. Ryan, how is BYD viewed within the industry?

Ryan Fisher (18:02)

Similar to Musk's comment like, who are these? I think now people are changing it to, oh, yeah, we're kind of scared

Bloomberg Reporter (18:07)

for a better idea of just how seriously BYD and the Chinese auto sector broadly are being taken. And now just listen to Ford CEO Jim Farley speaking last year.

David Westin (18:18)

It's the most humbling thing I've ever seen. Their cost, their quality of their vehicles is far superior to what I see in the West.

Bloomberg Reporter (18:30)

We wanted to get a firsthand look at the battle for the future of automaking. So we went to Paris to see the rollout of BYD's new car. There we spoke with the woman on the front lines of the firm's global expansion. Why Paris?

Stella Li (18:45)

Yeah, very good question. Paris is the city full of energy and also art.

Bloomberg Reporter (18:52)

Stella li has led BYD's charge into markets beyond China, including here in France. As the company's number two after its founder, Li also helped engineer its transformation from a battery Startup into. Into an auto manufacturing powerhouse.

Stella Li (19:08)

So you know, I joined BYD when BYD is a very small company. They started with 20 people, 350,000 US dollar investment. So I joined BYD the second year. My first job is for overseas marketing, promoting manager. So I went to Hong Kong, set up the first like a kind of international office in Hong Kong in 1997 and then came to Europe in 1999 with 30,000 US dollar cash and 140ft container battery. The message is you need to survive to solve the battery and sell the battery.

Bloomberg Reporter (19:46)

She did securing deals with Motorola and Nokia back then, leaders in the mobile phone space. An IPO followed, then a major investment from Berkshire Hathaway. With each step, the company grew and doubled down on research and development and bringing suppliers under their own roof. What do you think the biggest structural advantage is that BYD has over its competitors?

Stella Li (20:11)

Two things. One is technology to today like we have 120,000 R&D engineer, we invent 52 patent per day. The second is BYD have very strong vehicle integration integration capability. What does this mean? It means like we can do innovation much faster. We can do cool stuff much more than any other people. That's the reason you saw BYD in the past two years. We have like you have the sporty car called Yangwan you9. We have 3,000 horsepower. That is the fastest car in the planet.

Bloomberg Reporter (20:45)

It's capable of well over 300 miles an hour.

Rich Kinder (20:49)

This feels like China turning up and

Bloomberg Reporter (20:51)

just saying, yeah, we'll have all the records, thank you. Sadly, BYD didn't let us race their hypercar to the Arc de Triomphe. But we did drive their latest luxury EV, the Denza Z9 GT. Who do you see as your main competitor? Who is the brand that you're really competing with in this premium segment now? The Denzer Z9.

Stella Li (21:13)

Under all the cool technology in this car, I did not see any competition here.

Bloomberg Reporter (21:19)

Given the company's origins, it's no surprise that the carmaker's key feature might be its battery. The range is long and the charge is fast, far faster than anything else on the market if done through their planned system of flash chargers. Fisher says it remains to be seen how quickly BYD can roll those chargers out and whether their new cars will beat the competition in the field. But there's little doubt that their tech is impressive.

Ryan Fisher (21:46)

When you think about their advantage in batteries that they've managed to produce, it does seem kind of like incredible. They've come out with the golden egg. They've Done it incredibly quickly with the best technology at the best price.

Bloomberg Reporter (21:56)

What's more, the new car has the profile of a Porsche and the horsepower of a Bugatti, all at the price of a Subaru Outback. But only, only in China. Here in France, it runs about 115€000 or $135,000.

Stella Li (22:13)

So with this one you can true, it's a 0 to 100 kilometer. 2.7 seconds.

Bloomberg Reporter (22:19)

2.7. Not all of BYD's vehicles target the luxury space. The lowest cost model in the UK, where Chinese cars now account for one in every ten new vehicles sold, goes for under 19,000 pounds, or about 25,000 US dollars. Cheap, but not the cheapest. Nor is that the goal, according to BYD's special advisor, Alfredo Altavia. What do you say to regulators and consumers? How do you convince them that BYD isn't just a low cost disruptor? BYD has never been and will never be a low cost player in any segment.

Public Investing Announcer (23:01)

Our main selling argument is value for money.

Bloomberg Reporter (23:06)

Altavia came to BYD after a career as an executive with the competition. As the former head of Fiat Chrysler's European operations, he was a close aide to former CEO Sergio Marchionne and was considered a top contender to take over his role. What are the real ambitions of BYD in Europe? Is it volume or is it positioning in the premium segment or something else? I want to answer with our volume

David Westin (23:32)

target because you will not believe me, but certainly we. We want to be one of the

Bloomberg Reporter (23:37)

key players in this industry on a global.

Public Investing Announcer (23:42)

On a global scale.

Bloomberg Reporter (23:43)

If you were an auto executive at a European legacy carmaker right now, as you were once, how worried would you be?

David Westin (23:53)

Quite worried.

Bloomberg Reporter (23:55)

About a million units sold last year overseas or International Sales? 1 and a half million is the number that I've seen for 2026.

Stella Li (24:04)

Yes.

Bloomberg Reporter (24:04)

Are you on track to meet that, to beat that?

Stella Li (24:07)

Yeah, easy.

Bloomberg Reporter (24:08)

Easily.

Owen Zeidar (24:09)

Easily.

Bloomberg Reporter (24:09)

Beating one and a half million?

Stella Li (24:10)

Yes.

Kevin Gallagher (24:11)

This year?

Stella Li (24:11)

Easily, yeah.

Bloomberg Reporter (24:14)

In recent weeks, the war in Iran and the soaring fuel prices that have come along with it have added new momentum to electric vehicle demand. China's exports of EVs and hybrids soared to a record high in March, with BYD leading the way. But for all the optimism about international growth, the company has faced major challenges in its largest market back home in China. I want to talk about the here and now in the Chinese market. How would you characterize the current state of the Chinese auto market?

Stella Li (24:46)

Chinese auto market is super competitive.

Bloomberg Reporter (24:48)

BYD recently posting a roughly 20% drop in year on Year profit the first time since 2021. Is that as bad as it gets, do you think?

Stella Li (24:57)

No, it's nothing. Because first, because you need to understand the scenario behind where price war and competing with an EV car, because everything we do, the next day our company will copy. But then for byd, now we bring another. Protection river is our flash charging technology, the second generation blade cell. So this we call the protection river. I think it will keep our competition several years behind us.

Bloomberg Reporter (25:26)

Are you seeing signs of recovery in the Chinese market?

Margaret Mitchell (25:29)

Yes.

Stella Li (25:30)

And the second, the market in China in Q4, Q1 is not good because all the substitutes, even we have a small portion left, is 100% gone.

Bloomberg Reporter (25:41)

Recent moves to wind down government support are a headwind for China's EV makers. But Fisher says subsidies haven't been the only driver of their rise, especially in BYD's case. How much of BYD's success is down to Chinese government support?

Ryan Fisher (25:59)

Over the years there was the investigation from the European Union about which specific automakers were getting the most subsidies and therefore what tariffs they should achieve. BYD was actually on the lower end of the spectrum than some of those. I think what the Chinese government have done and what some people look as maybe I would be jealous of it, is that they aligned everything they were doing. They had an automotive plan, they got involved with the metals and mining, they provided the subsidies. Some of this was about oil independence and some of this was about winning the automotive industry. Right. This is a massive part of GDP in many countries and they've done that successfully. So I don't look at the Chinese and feel like they've done anything massively wrong. I actually feel like we've been a bit naive as policymakers in Europe and places like that.

Bloomberg Reporter (26:43)

Some critics may look at BYD's success and the success of other Chinese automakers in Europe and in other markets outside of China. And so this is a classic example of China shifting excess capacity to other markets. Would that be a fair criticism?

Ryan Fisher (27:01)

I think it's a fair criticism. We see it across industries. China obviously has leverage and you've seen that in the negotiations where they've tariffed different countries. Maybe the French keep them out of their subsidies and then they get hit with tariffs back on brandy or something like that. Fundamentally, consumers want the cheapest products and the best ones, and the Chinese have managed to achieve that so far.

Bloomberg Reporter (27:24)

American consumers have made gotten their hands on China's latest EVs. Biden era tariffs of over 100% have kept BYD and others out of the US car market. But Donald Trump and China's Xi Jinping are set to meet in May, and those trade barriers are likely high on the agenda. US Carmakers might not have long before Chinese cars show up on American shores, something that Ford's Jim Farley was well aware of when he spoke to Wall Street Week.

David Westin (27:51)

I've never seen a competition like this. The government bet on EVs before anyone else in the world. They're the largest market in the world, and now they're the most important market in the world. We can compete and win against them, but we have to bring our A game, and we have to learn a lot of new things.

Bloomberg Reporter (28:07)

In 2027, Ford is set to debut a line of EVs starting at around $30,000, which Farley describes as a response to BYD. But he's also talked to the Trump administration about forming joint ventures with Chinese firms to build cars locally. Volkswagen and Stellantis have already made similar deals, and as each carmaker and country decides how to respond to China's rise, they must grapple with the costs and benefits of protectionism or an alternative. If you can't beat em, join

Podcast Host (28:43)

Coming

David Westin (28:43)

up the IMF was created before World War II was even over in order to provide stability for the global economy. Can it still get the job done in a very different world 80 years later?

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Public Investing Announcer (29:38)

for the show comes from Public. Public is an investing platform that offers access to stocks, options, bonds and crypto, and they've also integrated AI with tools that can assist investors in building customized portfolios. One of these tools is called Generated Assets. It allows you to turn your ideas into investable indexes. So let's say you're interested in something specific, like biotech companies with high R and D spend, small cap stocks with improving operating margins, or the S&P 500 minus high debt companies. Chances are there isn't an ETF that fits your exact criteria, but on public you just type in a prompt and Their AI screens thousands of stocks and builds a one of a kind index. You can even backtest it against the S&P 500. Then you can invest in a few clicks, go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market ad paid for by Public Holdings Brokerage Services by Public Investing Member FINRA SIPC Advisory Services by Public Advisors SEC Registered Advisor crypto services by ZeroHash sample prompts are for illustrative purposes only, not investment advice. All investing involves risk of loss. See complete disclosures@public.com disclosures small businesses are

Podcast Host (30:52)

the pulse of every community. They bring people together, create opportunities and drive growth. With a widespread presence in communities across the country, Chase for Business supports small business owners at a local level that makes it possible for you to connect, learn from each other and grow together. There's a real commitment to seeing small businesses succeed. The Chase for Business team has knowledge and expertise that span a wide range of financial areas. They can help you make more informed decisions as you navigate the complexities of running your business. They'll help your business grow with individual guidance and convenient digital tools all in one place. With that guidance and your determination, you can take your business farther and help build a brighter future for your community. Learn more@chase.com business chase for business make more of what's Yours the Chase Mobile app is available for select mobile devices. Message and data rates may apply JPMorgan Chase Bank NA member FDIC Copyright 2026 JPMorgan Chase and.

David Westin (31:58)

This is a story about being fit for purpose. As the IMF met in Washington last week, its mission of providing global financial stability has never been more important. But one of the fund's key participants expressed doubts about whether it's up to it, whether it is still fit for its very important purpose. I think we need to step back and look at the IMF and World

Bloomberg Reporter (32:22)

bank, their core missions.

David Westin (32:24)

We cannot have these kind of elite beliefs get in the way. An awesome force of a thousand planes and gliders thrusts deep into France. That core mission for the IMF and the World bank was crafted back in 1944 in the White Mountains of Bretton Woods, New Hampshire, less than a month after allied troops helped turn the tide in World War II by storming the beaches of Normandy. Eighty years later, the world is a very different place, and the wars that multilateral organizations like the IMF are contending with are now in places like Iran and Ukraine.

IMF Economist (33:01)

Even if the war ends tomorrow, it would take quite some time for the recovery to kick in, war is in any circumstances the worst outcome.

Margaret Mitchell (33:12)

There are reasons to really worry about the upside.

Catherine Judge (33:15)

Inflation, risk from the war in Iran,

IMF Economist (33:18)

the IMF and the World Bank. I mean, these were institutions that were created even before the end of the Second World War with the basic idea that if countries can work together and cooperate on the economic and the financial front and we can have stability in the world, then we would have less wars. Clearly that is being tested at this current moment.

David Westin (33:40)

Until she joined the Harvard Economics faculty last year, Geeta Gopinath helped countries work together as the first Deputy Managing Director of the imf.

IMF Economist (33:50)

In this current environment that we have right now with the conflict in Iran, the countries that have programs with the imf, many of them are importers of energy and they're getting hit by these increase in prices.

Kevin Gallagher (34:05)

Many countries are in trouble right now because of the price spikes from, from the war.

David Westin (34:10)

Kevin Gallagher is the director of the Global Development Policy center at Boston University. We don't know where this war is going, how long it will last. Covid, as I recall, really hit global growth fairly substantially. Is there any prospect this could reach that sort of level?

Kevin Gallagher (34:27)

Well, the economy, the global economy has been really fragile, especially in emerging market and developing countries since COVID And this shock is yet another one. We've had that. We had interest rate hikes just a couple years ago. Many countries have had sort of climate shocks and droughts and then of course, Covid itself. And so we're nowhere near the growth potential that many countries were on a path before COVID happened. And now this shock is really sending a lot of countries back.

David Westin (34:55)

Since the start of the new millennium, we have lived through a global financial crisis, the recession that followed a pandemic and several wars. But through it all, the IMF has stayed pretty much the same.

Kevin Gallagher (35:08)

The IMF hasn't changed much. It's in a bit of a crisis right now. It still offers a family of emergency financing to countries that are in trouble.

IMF Economist (35:17)

This is the time when the IMF is absolutely critical, given all the instability. First thing I would note is what the IMF is really good at is, is surveillance. And that is super valuable in this environment of very high uncertainty just coming out in terms of forecast of what the impact is going to be of the various shocks on the global economy.

David Westin (35:37)

This comes against a broader backdrop of perhaps increasing dispersion in the approaches of a lot of the member countries for the IMF in their approach to economics. Certainly different from what happened after World War II when the IMF was created. What challenges does that present to the IMF?

IMF Economist (35:54)

The geopolitics of course, matters for the functioning of all of these multilateral institutions. I think the IMF is somewhat better placed because it plays the role of a firefighter. And when you're a firefighter you don't really have the luxury to fuss around. It's not about whether you can have another more trade agreement or you can give money to a country to build a road that will be available in 10 years. But it's about are you going to bail out a country that is otherwise going to plunge into a crisis which is not only going to affect the country, but is also going to spill over into the region.

David Westin (36:31)

A firefighter like the IMF may not be directly driven by politics or differences in economic approaches, but those politics and differences can sometimes create more fires to fight as they affect countries fiscal positions.

IMF Economist (36:46)

We've certainly moved away from the time of ever closer integration and an efficiency driven global trade model to one where national security concerns are becoming important. And I'm not denying that that's not an important one. That certainly is much more salient at this current world we live in. De risking supply chains are an important factor. You know, making sure that you have have strategic inputs in your own country factories for those in your own countries. Those are coming up too. What the IMF cares about is countries fiscal situations. And if you're going to end up in a world where everybody is going to spend a whole lot more on defense spending, whole lot more on building semiconductorship factories, more rare earth discoveries and all of that, then we could end up with this big buildup in debt in the world which already is frankly on an unsustainable path.

David Westin (37:38)

It's not just the economic approaches that have changed since Bretton woods. It's also the relative sizes of some of the economies involved, most notably China, which dramatically rose to become the second strongest economy in the world. Something not reflected in the allocation of quotas that effectively determine who has influence over the fund.

Kevin Gallagher (37:59)

The quota has gone up, but not commensurate to the formula that the United States made, which says that it should go up relative to the size of your economy. So given that China is now the second largest economy in the world, they should have the second most voting. But the US in the last iteration of increasing quotas, they said let's increase quotas, but not without voting power changes because Japan is number two. And both Japan and the United States don't want China to leave Prague over. It's caused a little Bit of a legitimacy issue.

David Westin (38:36)

Whether it's the US or China or the other major players in the imf, like Japan, Germany and France, the wealthy countries are the ones that control a fund whose entire purpose is to help poorer countries when they run out of money. But sometimes that has led to conditions on loans that some find unduly onerous.

Kevin Gallagher (38:57)

The fund was supposed to be there to help countries get a shot in the arm, to get back on their feet. But over time, it's had almost the same policy, which is austerity. Now, it's important to have it in countries that are profligate, like I said. But so many of the crises that have been happening over the past decade have been external shocks to countries that have good fundamentals.

David Westin (39:15)

Is there an inherent, even structural challenge for the IMF in the difference between who needs the emergency funding and who decides and the emerging funding? Because the quotas are determined by how prominent the economy is, how successful it is, how many reserves they have, and the people who need it are the opposite of that. So you have sort of the haves deciding the have nots.

Kevin Gallagher (39:33)

Yeah, you put the nail right on the head there. The countries that receive the programs have no say in what the design looks like. They can request, and they often get what they need, but they don't. They have no say in the terms.

David Westin (39:46)

But Gopinath says from her experience that often structural conditions are required by the situation.

IMF Economist (39:53)

The IMF has evolved as an institution in terms of the policies it recommends and what countries need to do in a crisis, just as the thinking in terms of the intellectual thought too, in terms of what helps a country in a crisis. So there was a time, and I was in East Asian crisis was certainly one of those where there was an excessive focus on just spending cuts. And it was about cutting speed spending across the board without much attention to the details about where the spending cuts would happen. I think that was a strategy that was appropriately rethought. And now the IMF is more targeted in how it spends. In fact, when it goes in and tells countries to reduce overall spending, it very often says that you need to increase spending to the most vulnerable in society because you are in a crisis. And this is a particularly challenging time for. For them so far. More targeted in terms of what's needed in terms of spending reductions. I mean, unfortunately, spending reductions are always a part of the solution because that's the only way for the country to come back to a more stable macro environment without racking up a large amount of debt. These policies are never Easy, they're difficult. But I think the IMF has evolved over time in terms of making it better tailored to country circumstances.

David Westin (41:11)

The world has changed fundamentally since 1944, when the IMF was created. And it appears that one of the largest changes is about to come with artificial intelligence poised to change just about every economy. One of the things that we talk about all the time now is artificial intelligence and how it's going to transform our world. Typically, we don't know exactly how, but we think it's going to. When you look at pursuit, specifically what the IMF does and how it may affect different nations differently, how can the IMF sort of anticipate that if it

IMF Economist (41:43)

needs to air is usually transformative and everybody has to pay attention to it, including the imf. So even though the IMF has a relatively shorter horizon in terms of the kinds of problems it deals with, AI is something that they cannot not pay attention to. So they are in, in the near term, just looking at where most of the AI development is happening and AI adoption is happening, it is happening in the more advanced world, and I would say China among the emerging markets. But everywhere else, it's not as the momentum is not as strong. So at least in the near term, we could see a divergence where you would have more productivity growth coming out of the US relative to, say, developing countries. But hopefully over time, when developing countries figure out how to deploy AI for to close their skill gap, to make sure we know when you have scarcity of doctors and teachers and technicians, you can close the skill gap through AI.

David Westin (42:41)

Whether it's AI or an emerging China or a breakdown in macroeconomic consensus. Gallagher says it's hard for an IMF fit for its purpose in 1944 to remain so today. And that has led some to call for fundamental reform.

Kevin Gallagher (42:57)

It needs to get bigger, it needs to get better, needs to get more inclusive. It's not big enough. The monetary firepower that has only about $400 billion for the poorest countries. And if they all went to the fund like they did during the global financial crisis, we'd be really drained. So one, it just needs to get bigger. Two, it needs to get better. It needs to tailor its programs to country circumstances. If it's an external shock, it should just give short term liquidity without austerity conditions. And it needs to be more inclusive. The countries that are the biggest recipients need more say in the program design. Those are the three things. Make it bigger, make it better, make it more inclusive.

David Westin (43:36)

Up next, the billionaire next door. They may not be as famous as Elon Musk, but there are more of them around than you might suspect.

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Podcast Host (45:23)

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David Westin (46:26)

This is a story about your next door neighbor. They may not look ultra wealthy like a Jeff Bezos or a Kim Kardashian. But sometimes behind that unassuming front door lives someone who's found the secret to attaining great wealth. Princeton economist Owen Zeidar calls them everywhere millionaires. Our colleague Scarlet Fu had the opportunity to sit down with both an everywhere billionaire and a couple that aspires to to be.

Podcast Host (46:53)

You are one of the wealthiest people in America, but you keep a fairly low profile. I know that you are a known entity in Houston, but outside of Houston, there may not be a lot of people who know who Rich kinder is.

Rich Kinder (47:03)

And that's just fine.

Podcast Host (47:04)

Is that by design?

Rich Kinder (47:07)

That's just fine, yeah. I wouldn't say it's by design, but yes, I guess it is in retrospect.

Podcast Host (47:13)

Rich kinder didn't make his billions climbing the corporate ladder. Instead, kinder created the bulk of his wealth by buying boring yet essential assets and then scaling them into what is now one of the largest pipeline companies in North America. Kinder Morgan.

Rich Kinder (47:28)

I like unglamorous businesses, so it never bothered me in the least to be in an unglamorous business.

Podcast Host (47:34)

Kinder is part of a cohort of high net worth yet unassuming individuals that economists call the everywhere millionaires, or in his case, billionaires.

Owen Zeidar (47:43)

Wealthy people don't answer surveys and, you know, some of them are covered by the media, but that's only a small slice of what's truly there. There's basically a hidden world of everywhere millionaires.

Podcast Host (47:53)

Owen Zeider is an economics professor at Princeton University who served on the Council of Economic Advisors during the Obama administration. He now focuses his research on tax policy as it pertains to high net worth individuals. His research will be published in a book titled the Everywhere Millionaire, literally later this year.

Owen Zeidar (48:10)

An everywhere Millionaire is a private business owner who is wildly successful, but usually operates under the radar based on the place or the industry that he or she is operating in. So you should think of a local auto dealer who has a big vacation home and like a really nice boat. And there are a ton of them and they're in basically every neighborhood in America. So the way we measure wealth is two components. We look at assets and people's debts. And so there are five main types of assets. There's pension wealth, private business wealth, public business wealth, fixed income, and housing. And so we basically add this all up for different projects. Then on the debt side, most debt is housing debt. There's some student loans and car payments, that sort of of thing. And what we do is we just take the difference at market values and that's your net worth.

Podcast Host (49:06)

According to Zeider's research, top earners derive most of their wealth from equity in businesses they founded or invested in.

Owen Zeidar (49:12)

If you take dentists, dentists have more revenue than the total revenue of every professional sports team in America. So the NFL, the NBA, mlb, all of their revenue combined is smaller than the revenue dentists make.

Podcast Host (49:28)

Manufacturing drives almost half of all corporate profits, but it makes up just a small share of the income going to millionaire owned private businesses. Instead. These owners cluster in sectors like professional services, construction and finance. What results is a quieter kind of wealth earned through ownership stakes in privately held firms rather than big publicly traded companies.

Owen Zeidar (49:50)

Most people think you have to be in like Jamie Dimon or Elon Musk, these really famous public company CEOs to be really rich. But when you look in the data, there are a thousand private business owners who have at least $10 million in net worth for every public company CEO. You don't have to follow the traditional white collar path.

Podcast Host (50:11)

Kinder is one of those individuals. After studying law and serving in the JAG corps, he transitioned to the private sector. He was general counsel of a small energy company that through a series of mergers, later became Enron. He eventually headed up operations there, which consisted mainly of pipelines. After leaving Enron, kinder decided to double down on that expertise. You bought pipeline assets from Enron and at that time the company treated it as kind of unwanted relics of the old economy. What did you see in the pipelines that perhaps others.

Rich Kinder (50:44)

Well, I saw that there was an opportunity to take midstream assets and if you ran them correctly and really watched the bottom line carefully, had a good mix of debt and equity, that you could build those pipelines in a way that would allow your stock price to grow and then you could use that stock price to make acquisitions of other companies. And that was really our game plan. Yeah, we started with really a tiny company. We had market cap of the company, the value on the stock exchange, about $150 million. And we had about $150 million of debt. So overall, the enterprise value of what we started with was just a little north of $300 million. And we had 175 employees. We had this idea that we would look for assets, we would run them as efficiently as we could, could we would bend over backwards to serve our customers and we would provide a good return to our shareholders. And that's kind of the mantra that we've followed for almost 30 years now.

Podcast Host (51:48)

And you built it through acquisitions?

Rich Kinder (51:49)

Built it through acquisitions and also just Some build out ourselves. We today for example, we spend about between three and three and a half billion dollars a year on building new pipelines. The trick is don't overpay, but do what's fair and right to produce an adequate return for your shareholders.

Podcast Host (52:09)

Sounds like a very predictable business then.

Rich Kinder (52:11)

I think it is. It's, you know, no business without risk. And the old saying that the, it's the unexpected that always gets you. Who could have anticipated what we're going through in the Middle east today? Who could have anticipated Covid? But if your business is built on a solid foundation, you can weather whatever storms come along. We are partnering to develop a pediatric cancer center that's going to be a new 22 story building.

Podcast Host (52:39)

Rishkinder made it into the ranks of the everywhere millionaires and beyond. But what about the rest of us? What are the chances we could join him?

Margaret Mitchell (52:47)

This was the, I think second or

Catherine Judge (52:49)

third place that we saw.

Podcast Host (52:50)

That's the plan for folks like Ray and Dana Cherry. The husband and wife team left their corporate jobs a couple of years ago,

Dana Cherry (52:56)

popular for General Hand Washington to buy

Podcast Host (52:58)

a rather unassuming business in the San Francisco Bay Area. Monsam Portable Sinks.

Margaret Mitchell (53:03)

We assessed hundreds of businesses in this process and when it came down to which ones we were going to buy, it was a very short list, maybe four or five. And for us the focus was on the profitability of the company, that it had consistent profitability, that the business itself was near to where we live and that the product or the service that it was offering was something that was unique and that we felt like we could come into and learn quickly and move to the next level.

Dana Cherry (53:33)

This is a business that was founded by a husband and wife team to solve a food and beverage service problem. They were selling funnel cakes to local festivals and fairs and husband being an engineer, decided to build a unit like this in their garage to help them pass their health insurance inspection. 28 years later, now that couple's retired and this business has since solved these types of problems for over 11,000 unique customers. And that all of that just really excited us.

Podcast Host (54:01)

I'm wondering what led you to leave these corporate jobs, these safe and steady corporate jobs and decide to become owner operators. It's a pretty big leap.

Dana Cherry (54:09)

We had had really successful long standing careers in the corporate world. I was in finance, Dana was in marketing. Entrepreneurship was always a really big goal of ours and we'd considered different startup ideas over the years. We'd always thought, hey, wouldn't this be really cool if we could do something like this together and we came across entrepreneurship through acquisition. We thought this was a great time for us to take a shot at ownership, some autonomy and leveraging our own expertise to building a business on our own.

Margaret Mitchell (54:40)

This felt like a risk adjusted path into entrepreneurship. The opportunity to purchase a business where there was already product market fit that was already established and had a path to having us come in and take it to the next level made perfect sense.

Podcast Host (54:57)

We spoke with an economist, Owen Zeider, and he says that a lot of American wealth is built through private and what he calls boring, often overlooked businesses. Does that idea feel true to your life experience right now?

Dana Cherry (55:09)

Absolutely. As we've dug into this and you start to see which types of businesses are really running things in this country, that just became really clear to us the more time we spent in it.

Margaret Mitchell (55:18)

We're stepping into a world where there's a wave of small businesses and just businesses that are going to need to be transitioned as those owners retire.

Rich Kinder (55:27)

Basically, I think you better understand what you're walking away from and you better understand what you're walking into. And in my case, I understood very well what I was walking into. I knew those assets didn't dream it would be as big as it would become. We've had a lot of luck along the way, but that's how I would view walking away from a corporate life.

Podcast Host (55:49)

The Cherries are still in the early innings of building their business and as they get ready to scale, established owner operators like kinder advise that doing your due diligence is a key.

Rich Kinder (55:59)

Generally, I've always believed that you shouldn't really invest in anything you don't understand. And if it's a business you understand and can run the numbers on and understand the strategic concept involved, I think you generally do okay. It's when you wade off into something that you don't really understand and you're relying on someone else to take tell you, well, yeah, this is something that will really go, just stick with me. That's when you have to be, I think, very, very careful.

Podcast Host (56:32)

What's your advice to someone who wants to build real wealth through their own company, but doing so without the attendant celebrity and white hot spotlight?

Rich Kinder (56:42)

I would say just pay attention to what you're doing and don't get carried away with PR or trying to be something you're not.

Podcast Host (56:52)

How would you advise someone who has a real business idea but is perhaps afraid to walk away from a stable career to go pursue it?

Rich Kinder (57:00)

Well, I think it just depends on your tolerance for risk. You know, I don't think you want to jump out of a plane without a parachute. So I think you want to have a good understanding of that business that you're starting. And in my case, that worked out very well because I knew with this small set of assets we had, I knew we could make those work. You know, the first analyst call we had as Kendra Morgan, there were so few people covering us that we just had an open line. So there were four analysts on all of whom I knew from my Enron days. And so one of them asked, he said, rich, you know, you were COO of this big company and now you're starting this little company you're starting now, what do you expect to accomplish? And I said, well, you know, I hope in four or five years this will be a billion dollar company. And one of those four people I could hear went, ha ha. I confronted all four of those people years later and they all swear they didn't do it. But I know for sure one of them thought I was absolutely nuts.

David Westin (58:00)

That does it for us here at Wall Street Week. I'm David Westin. See you next week for more stories of.

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