Bloomberg Businessweek Weekend - December 28th, 2019

have been there for a long time. We're also going to talk about Boeing halting production of its grounded seven three seven Max. We look into what really went wrong with a guy who has been following that company so closely knows it inside and out for many years. Plus a fascinating feature story from Monte Real. He's our projects and investigations reporter and man. He took us on a trip literally to Madagascar to figure out the wild economics of Vanilla, plain old Vanilla. It's a great story and

adventure story that you probably wouldn't anticipate. But let's start with that big birthday. It's the nine the IF for business Week doesn't look a day over twenty Economics editor Peter Coy discusses the magazine's illustrious history. I was with

the magazine for one third of its life. I'm pretty proud of that, but I was not around in nineteen So the fascinating thing is the magazine was launched in September of nineteen nine, which history bus will recall was just seven weeks before the terrible stock market crash which helped helped usher in the Great Depression. So not an

auspicious time to be launching a magazine. But we survived those tough times and ended up thriving eventually huge success, and at one point they had more advertising pages than any magazine in the country, um and and more circulation than any business magazine in the world. And so what was the idea. From the beginning, it was McGraw hill was the publisher, and they bought a company called A. W. Shaw which had a magazine called System, the Magazine of Business,

and that was a monthly. So they spent about a year tinkering with it and relaunched it as a weekly, which was originally called The Business Week, and it was intended to be in a way very much like what we intend to do today, which is be uh a quick read for people who care about business, whether you're a business person yourself or not, but you're interested. It was as opposed to some of the trade magazines which were very niche, kind of vertical. It was intended to

be for everyone, covering all of business. That's what I always think is great about this magazine because I feel like for most individuals, right they have kind of a core thing that they're very interested in, but they're interested in the world at large, and as we have learned

over the decades, increasingly it's all interconnected. It is. And you know, if you are working for a tech company, you'll be interested in the tech coverage, but you might have would be most almost more interested in the coverage of adjacent areas because you're not following that at a day to day basis, and yet it will impinge on your life or politics. Right I think about how the tech community is really embroiled in political scrutiny right now. So tell us your story. How did you get to

Business Week? I worked for Associated Press and the guy from a p was from Business Week, who covered telecom was leaving and he recommended me for the job and I managed to get it. So my first job was covering telecommunications. This was certainly after the breakup of the Bell system that was still a big story at the time. And then it trans offer into technology, and then there was an opening and covering economics and with a really smart guy named Michael Mandel, and he trained me up.

And so I know, not not an economists, but I've kind of learned and enjoyed learning about economics over the years. And so what was attractive to you at that first blush when you were coming from the a P. Was it sort of a it was a destination in your mind or what were you thinking? The beauty is when you're at a P you're on top of the news, but you're firing out stories all the time. When when

you're at a magazine you craft something. You have time to step back, make sure you get the headline is exactly the way you want it, phrase everything because you have a little bit of time. And we also have obviously we have shorter term coverage too. We have a website with quick hits, but with with a magazine story, a lot of eyes on it, um, a lot of attention to getting it, you know, tuning it up. You can think of it that way for just the way

you may you want to deliver that message. I think it's also interesting and you you really, you guys go into it in terms of the early history in particular about how this magazine, whether it was through some of the economists that were featured in the magazine or some of the stories could really kind of put pressure on the government in terms of policy, really became kind of a must read. I think you're I think you're referring to our early coverage of what do you call today

called Kanesy and economics. John Maynard Keines, the British economist, was not well known in the United States. Business Week was the first, uh and most important publication that sort of champions of his ideas. Remember um, when the the depression hit, people had no idea what to do about it. Economy took extremely steep. Guy. There were a lot of people were saying, Okay, let's let's get rid of the rot.

You know, Uh, if we could just liquidate all these people who took on foolish loans, you know, that'll clean the system. And and what Kane said, and Business Week said that No, that's the wrong solution. That'll just spiral downward and downward and downward. The government needs to come in and support the economy with things like tax cuts and spending until it can get back on its feet.

You don't put a somebody who's just been in a car act stident, you know, um, through vigorous physical exercise. You've got to help and recover, give him ivy fluids and so on. And that's sort of that was the message. That's Peter coy And he's been with Business Week for about thirty years and so fun to talk with him about the history of the magazine, some of the stories

he's covered, and what's really changed in the world of business. Well, and we're reminded how prolific he is because so how much the magazine from an economics perspective, just anticipated so much and really influenced the conversation. This is what Business Week does so well. Jason takes something that many of us probably take for granted. And uh, I'm talking about Vanilla. Yeah, I certainly take it for granted. It's sitting there in the Spice cabinet. Although we have noticed over the last

couple of years. I think anybody who's paying attention to Eve price has spiked at times in a really meaningful way. Well, there's a story behind that Monty reel. He has some of those interesting assignments, goes to some of the most interesting places, and this story took him to Madagascar. Are Luckily for us, he's back home in Chicago. That's where he joins us. So Monty take us to Madagascar and to this market. Yeah, so this is a regional market.

This is the place where vanilla actually enters the international marketplace. And it's really remote, it's really kind of hard to get to. It's basically a hut, a wooden hut in a really small village in northeastern Madagascar, which is the vandilla growing region. And just to give you an idea of how tough it is to get there. So you fly to Madagascar's capital, you take a small plane to a small airport in the northeast. Then you have to drive over really really bad roads um to try to

get to this particular market area. And for example, when we did that, our driver couldn't go any further because the road we were on was actually swallowed by a river,

so we had to wade across the river. Luckily it wasn't very deep, and then walk for a couple of hours beyond that to finally reach this little hut really in a in a village where dozens of farmers would bring their annual harvest of vanilla, and that's where it would be bartered but over by international flavor companies and exporters. And then go out into the wider world. Get to say, there's a great line of your story. How you talk

about where you went. Is this great observation lab that I want to take your words exposes both the genius and the insanity of globalized commerce. I mean, that's exactly what you saw at work. Yes, Um, it's almost hard to imagine some of the things that happen in the vanilla trade in terms of, for example, just how the crop is paid for. It's all cash. It's a cash economy, so the buyers who go to these markets have to get cash, you know, along the same route that we

took to get there. And the biggest denomination bill in Madagascar is worth about five dollars. And these buyers are buying, you know, tons of vanilla beans. And these vanilla beans can when they're cured can cost as much as six dollars per kilo, so they need lots of cash. So there's actually they bring bales and bales of cash to these markets on the back of motorcycles, uh and and

just being carried. And that's just one example of kind of the the strange market that vanilla is because of its isolation there in Madagascar, um and also because of the price wings and so Mantya, I have to say reading this story and Carolin, I've talked a lot about it this week, just between the two of us at our desk, This notion of how is this market so limited to this one really obscure place because this is not one of these things that candidly you read about

in the back of pursuits, where you know, only people who are billionaires can get this. I mean, this is something we both have in our homes. How has it been so limited to this one? Geography? Well, it comes from an orchid. Vanilla grows from the flower of an orchid um and it's actually native to Mexico, but many years ago it was basically transferred to Africa and it

was found that it grew very well in Madagascar. Um and just um, you know, Vanilla is not one of those products that can be grown like soybeans or something like that easily managed commodity. It really is a stubborn crop. As people grow it, describe it um. It likes to grow among other plants um and it's incredibly labor intensive, so every step of the growing and cultivation process is done by hand. Even the pollination of the flowers to get the beans to grow is done by hand. So

um it. Basically, it comes down to one of the main reasons why Madagascar dominates the trade so much is labor costs. Um. The minimum wage in Madagascar for agricultural workers is about eighteen cents an hour. So you know, in talking with people who work for vanilla companies, they talk about trying to grow um start plantations in other tropical areas like um places like Indonesia. There are countries in Africa that have started to develop a vanilla industry.

But they say that, you know, that works well when vanilla prices are at highs, but whenever the prices tank the it becomes financially unstable to invest in those kind of operations. So, Monty, why do the prices swings so much? Is it just a case. I mean, I would think demand was fairly consistent, but I'm just curious why do we see those kind of wild price swings. There are a few reasons, and one of the main reasons is

because Madagascar dominates the trade so much. Um the infrastructure in Madagascar is really undeveloped, and it's also an island there in the Indian Ocean that's that's vulnerable to storm. So, for example, a few years ago, there was a big cyclone that basically leveled the vanilla fields in the northeast. And vanilla is a crop that it takes three years from the time it's planted for the beans too for

the plant to be mature enough to produce beans. So if you have a concentrated area and something happens to that area, it really can set the production and supply back. And that's what happened a few years ago. And ever since that cyclone that came through in the early two thousand's, the market has been really volatile. It's been, you know, spiking up to six hundred dollars or so at a high per kilo, and then it can go down to

as low as twenty or thirty. So it's just an enormous range, And so would you take a step back and think about this story and highly recommend anybody read this, like, you know, sit down, you know, take some time over the holiday and read it, because you'll learn something about economics and politics and trade, aid and all of that. But what do you take away as you sort of come back to the United States about either the state of global trade, the state of demand economics? What is it?

I think this is actually a really good kind of window to look at how global trade works. And the surprising thing for me, I think was just how how wild some of that is at the most elemental level. So that's monte Real. We love catching up with him. He does some wonderful deep dive stories. He's our Projects and Investigations reporter, so he literally took a trip to Madagascar and just wanted to find out Vanilla. We take it for granted, Jason, right, It's in all of our pantries.

We use it for baking and for cooking. But what's interesting is what it takes to get those vanilla beans basically to all of us. Yeah, who would have thought that a story involving vanilla would involve waiting through a river sort of chalkboarding and negotiating and bartering. It's a really cool story. Loved it. Three poll market. Well, it makes some people's eyes glaze over, makes others turn away

from you at a cocktail party. It's a market that always always needs to be explained, Jason, which is why we have Joe Wives. He joins us just about every day on our daily radio show Pizza, keeps us honest about the markets. All right, Joe, you're here with us in New York City. Keep us honest on the repo market. Why do we care about this? Again? The repo market is essentially how various entities, whether it's a bank, whether it's a fun hedge fund, money market fund, how they

financed themselves on an overnight basis. Because nobody wants to just hold cash because cash, you know, it doesn't really earn anything, and so people always want to be maximizing their profits. So what they do when they need liquidity is they borrow it overnight, and they might pledge some collateral like treasury bonds or mortgage bonds or something like that to make the cash bills that they need to pay um so that they can make the bills they

need to pay right. It feels like one of those things that no one really cares about until it stops working, which is essentially what happened and Tember right exactly right. So in September we saw the rates on overnight repo borrowing absolutely sore, and it's important to recognize that prior to that, for most of the time, it moves roughly in line with where the FEDS sets the rate, and it's one way, the one mechanism view which the FED sort of sets short term interest rates and you expect

the repo market to behave. The issue is that with the the cash that banks have is really reserves held at the FED, and the FED, as part of its quantitative tightening trying to quote normalize its operations post crisis, has been reducing the available supply of cash at the FED. At the same time, you have regulators telling banks you have to hold a certain amount of cash as part of post crisis regulations to ensure that you have adequate liquidity.

So what we saw in September was this confluence of multiple things. There's the FED tightening reducing the amount of reserves available. There's the regulatory restraints saying no, you have to hold these reserves even though the FED is eliminating their existence. And then you had this timing issue. We're due to tax payments and treasury auctions and things like that. Suddenly that created a lot of demanding system. That's exactly right.

So this end of quarter payments things like that. There's another issue, which is that at quarter end and year end is when regulators come and they take a look. And the analogy that I like to use is you might have a really messy bedroom, but if you know, like five minutes before your mom or dad gets home, then suddenly you clean up. So occasionally throughout the year, the regulators come like peeking in and they want to see, well, how liquid is your balance sheet? What kind of assets

do you hold? So everybody scrambles to hold the highest quality and most liquid assets right at the same time. The problem is if there's a finite amount of them, then you really have to pay to get them. So should we expect another squeeze coming in in December? Here we're wrapping up not only a quarter but a year. This is a really a really big question. And so the man that everybody listens to en REPO is this

strategistic credit squeeze. His Alton posts are whenever he puts out a note, everybody wants to get it, like what did Sultan say? So he is concerned about this, that there's going to be this major liquidity squeeze, is various entities demand this liquidity ahead of the regulators checking in at the end of the year. The flip side is that the FED seems to be way more cognizant of

the risks this time around. They've certainly stopped shrinking the supply of reserve balances so that eases some of the strain. They've also engaged in some of these operations where our people can borrow essentially liquidity at the FED. So it's kind of unclear right now. But perhaps what we saw in September and Zoltan's warning themselves may have been what kicked regulators in the fit into gear to present a

blow up, but we don't know for sure. Well, and it's interesting, I mean, the number of questions and the amount of time that j Pal had to spend during his last press conference essentially reassuring answering questions from reporters about this. It felt like he did a good job, but it was one of those moments where he thought, man, he really is talking about this a lot. It's extremely complicated stuff, and a lot of people in the market

still don't get it. Actually, Tracy Halloway, one of the authors of the Business Week piece about Postsar and I, we had interviewed him for a podcast, and the most important thing he said to me. The takeaway is reserve balances at the fit. He called them tokens, and so you can. And what I love about that analogy is you could imagine going to an arcade and everybody has enough money to play the games, so no one is actually broke. But if the token machine isn't working, or

maybe some people pocketed tokens, it took him home. You people can't play the game. The game is financed. Everyone might have money, everyone might have solid balance sheets, and you could still have a crisis if the tokens are missing. And that's Joe wisintal. We love catching up with him on our daily show. He's always got a little bit of a quirky perspective, but I have to say he's set the table beautifully for this. I feel like now every conversation I go into about the repo market and

arcade is going to pop into my mind. He really did explain it well, and it's an important story. It really kind of confused the markets, confused investors. But it's been a hot topic when it comes to the Federal Reserve and j Powell specifically, and one that's going to carry us into So definitely check that out. So no doubt about it. Jason me too has impact of the financial community Wall Street, and yet many might argue that

it's day of reckoning has yet to come. Well, and that's what's so interesting about these remarks is that it points out the fact that, yes, there's been a reckoning ish so far. Uh And it really when you look at it versus entertainment especially, it has not really resonated or reverberated, i should say, the way that some expected. Max Abelson, he and Cacha Porta Kinski have the remarks in this week's magazine. Congrats on this. It's very thought provoking.

Max joins this here in New York City. So what do you set out to do here? Well, first of all, I was working with Cachansky and it's basically a fluke that I'm here inside of her because it really should be her she's really thoughtful about this stuff. But you know, sometimes in the news room we sit and look at each other and we're like, you know, where is me too?

In the financial services industry, I mean, we know from years of chronicling headphunds and banks and private equity and asset management that Wall Street, you know, just like lots of other industries, including journalism, has profound imbalances, and women quietly say that they are harassed and discriminated against and assaulted, and that they fear retribution. But we haven't seen that broad moment of change. And what this piece is about is this sort of the system, this machine of silence

that we've discovered piece by piece. That that explains why. All right, well, because I do think after me too in the entertainment world. Think we all thought, okay, Wall Streets next, and it didn't quite happen. I have a word for you, arbitration. Arbitration, I'm embarrassed to say, is one of those things that I mean, if we we've known each other for years, if if you brought that word up to me two and a half years ago, I'm pretty sure I would more or less draw a blank. Right.

In fact, I was on the phone with a Wall Street veteran who said to me, if you really want to understand why we're not seeing me too on Wall Street And this was, you know, more than a year ago. She was like, you have to look at the invisibility cloak. And I was like, invisibility cloak. She was like, the system of arbitration. That's the system that's parallel to the courts,

and it's behind closed doors. It's basically a private justice system that used to be relatively obscure sort of for you know, fights within an industry, and Wall Street itself really helped it expand so that it now covers essentially two out of three workers at big US companies. And Wall Street, unlike other industries, runs its own arbitration hearings, and it's Wall Street. It's definitely a master of arbitration, and it really helps explain a lot. I love this

intens in the story. But the finance industry's mastery of this system, meaning forced arbitration, has prevented the revolution of the past two years from touching it, meaning the meat too revolution. Yes, And look, I mean if a Wall Street executive, we're here with us, um I talked to them about this all the time. They women, Well, the senior executives are all men, but the human resources executives

are some sometimes women. And I've dealt with wall Shoot lawyer's were women foreshore, and so has Katya and so is Gavin Lynch who was and Serena Wilmer, who both contributed reporting to this piece. They say, look, arbitration. They'll say it's quicker, it's cheaper, it's quieter, um, but it's just as fair. That's that's what they'll say. That's their defensive arbitration. You know, women will say it stops us from banning together and from learning about each other, and

from sort of instituting major change. The kind of class action lawsuits that we've written about in the past few years, I can't have those with arbitration. Well, and let's talk about both systemic and cultural aspects as well, because you dig into this two in this heats of the cultures of a lot of these firms are set up in a way both structurally and just ethos wise that it doesn't feel like a safe place to bring these sorts of complaints. Even the advocates that there would be advocates

within the firms. HR for instance, aren't really on the side of the employees. They're sort of on the side of kind of keeping things quiet and keeping it all under wraps. Our story focused on three sort of crystallizing moments. One was Candi fisch Gerald, which has to do with arbitration. Another was Ken Fisher, who of course had those famous comments now at a conference in California. And the third was Lloyd's of London. I mentioned Gavin Finch, who just

did really amazing, amazing work out of London. I mean like jealousy inducing, you know, but what is really upsetting about it? And CONTI and I talked about this with Becca Rebecca Greenfield, our editor, you know what's up sending about the Lloyd's story, and a couple of others like it is not just that it paints a picture of guys behaving like extremely badly. What's profoundly upsetting about the

Lloyd's story. And another one the firm called MG also in London, that also written by Gavin is it gives you a sense that these women went to HR and and talked about being assaulted for example, or being accosted, and that HR was basically like, it'll be bad for your career, if you say anything, you know, don't smile

around him. I think that was a literal response from human resources at a big institution that Gavin Finch found, don't smile around him, but maybe a dressed differently, you know, like change your behavior in order to avoid these situations in the future. Right. Well, And what's interesting too is I love how you guys kind of breakdown. What's different maybe about the financial industry also is that predominantly it's been built by men. Still the senior positions are men.

And there's a lot of money at stake here as well, there sure is, and that money equals power there sure is. Jean Christensen, who is a lawyer and employee side lawyer we door, said to that in almost as well as

you just did. Well, I kind of was taken home fair enough credit where it's but um, listen, you know, to speak honestly with you about sort of the experience of being a Wall Street reporter and trying to cover this stuff like vividly but also fairly right, you know, what this story is about is basically this machine, the system that Catty and I and Sabrina and Gavin and others in the newsroom sort of found ourselves up against.

But you know, one thing that's nice about working with our editor, Rebecca is it she deals with um the gender uh pay gap, and with discrimination across capitalism. And I think that there's a reasonable point to be made that we don't get into the story necessarily, that maybe this isn't a Wall Street problem. You know, maybe it's a capitalism problem, or a power problem, or a gender problem.

What about the rest of corporate America? Like for comparison, I mean, you guys have done incredible reporting over the past couple of years really when it comes to this issue. But I do wonder, like I was thinking about when I read it, I'm like, Okay, here's a Wall Street, but what about the rest of corporate America? Has it come along? It's fair to say that, you know, I think just about sitting at a Bloomberg and reading the

news that comes down the wire. You know, McDonald's CEO leaves you know that you you do see changes that don't necessarily hit Wallstreet. But maybe what we've seen over the past year, in addition to learning about this system of silence, is maybe we're seeing cracks, you know, learning about Ken Fisher, who by all accounts, would say stuff like this so sexual references getting into girls pants. He

tweeted about slavery. People would basically shrug this off, Sabrina told us, or you know, like laugh uncomfortably, but like that's it. This year something changed. I think about reading stories by Annie Massa about Black Rock, literally the biggest asset manager in the world, where apparently Larry Fink sat down his biggest deputies and we're like, was like, guys, like you gotta watch your behavior. Two of the people in that top group are now out because I think

of breaking rules around company relationships. Maybe maybe that means we're starting to see cha just but maybe not. But the arbitration system still exists. The arbitration system still exist. And it's a good question because big tech companies, several big tech companies have moved away from having women who are claiming harassment go to arbitration. They're letting them out

of arbitration agreements. Wall Street is different. Wall Street likes this system and it helped pioneer it, and Wall Street so far is not moving away from it. You closed the piece, I think with a really important point and a name that looked like it might trigger a whole series of revelations and didn't. And that's Jeffrey Epstein. What do we know? And what might we have known had he not died in jail. It just felt like so

much was going to come out. There were those moments this summer where it was like, what huge names are will falling now, because you know, Epstein was close with billionaires and with hedge fund managers and with chief executives. Instead though he passed away, and it feels like maybe that will be um when when I think about whether or not we're going to see change, that feels somehow like a sign that the status quo kind of somehow. Maybe it's arbitration, maybe it's a culture of fear, maybe

it's money, maybe's human resources. Somehow the status quo wins out and maybe it will keep doing that, or maybe we're beginning to see change and it it wins out at least for now. But when you look back at Harvey Weinstein and you think about the times that when you read the books now that have been written about that case and the reporting that went into it, so many times they almost were there, almost were there, and then they were And you wonder if that moment is

coming for what that's right. Well, shout out not only to the journalists who covered Harvey Weinstein and to the reporters in this newsroom, but also reporters at places at are in Bloomberg, and especially shout out to Kasansin, my co writer who couldn't join us. Day All right, great story, thought provoking, a really interesting to head into twenty big questions, more to come for sure, Max Shabelson really appreciate it. Thanks ninety years of Business Week, the magazine so many

changes over the years, including tweks to the name. Someone with deep, deep, deep ties to Business Week is none other than Jim Ellis, all the way back to nineteen eighty. He has seen some things. He's here for us in New York City. Talk about Business Week. When you joined the nineteen eight what was it like. Oh, it was a different magazine. Obviously we were a different place, different owner, but there were a lot of things that were surprisingly the same. And it's always been a big fault that

we do more than simply report the news. What we want to do is add insight and um, you know, add analysis so that the reader can you know, not just sort of chronicle of what happened this week, but also why it's important, why it matters, and what might become of it in the future. And that's the value add that I think has sort of gone all the way through all ninety years. What's really fun is that

there are three people. The section that covers ninety years of Business Week kicks off identifying three people who span the entire lifetime the ninety years of Business Week. You are one of them. Not that you go back ninety years. But what's fascinating is this whole idea of you know, editors and individuals passing down kind of the history of the magazine. That's one of the nice things about our magazine is that, you know, there's a lot of continuity.

I might work with people who I have literally known for thirty years and um, but one of the nice things about that is that we've seen a lot of things happen in business, and there's a lot of context that you know, we already know. We're not inventing, you know, sort of we're not rushing around. Oh my god, I was there at the opening of Disney World. I'm sort of embarrassed to say I covered that, and um, you know, but I covered facult business in the past. I've been

the editorial page editor. I've been a lot of things here, and so a lot of us can easily shift between stories, and we all hopefully can add a lot when we work with younger reporters as well, because we've seen a

lot of these stories. For the surprising thing about business is that as much as it changes a lot of the themes, you know that we thought of when I was young in this business, you know, sort of changing technology, changing roles of you know, who the consumer is, changing roles of women in business, all of those that were

you know, issues thirty forty years ago or issues today. Well, and Jim, one of the roles I believe you played and keep me honest here is you're the chief of correspondence, and so you were dealing with all the outlying bureaus which for so long and obviously now in a different context at Bloomberg, that really feeds the magazine in a lot of ways. That gives it a feel, I should say that is far beyond just a bunch of people in New York putting together in magazine. Tell us about that.

That's one of the strengths that we've always had is being able to have a bureau system or a system of reporters around the world who are you know, sort of close to their companies, but also picking up information that it's often difficult to get if you're seven time

zones away. But um, you know, having people in Asia back before uh, you know, before the handover Hong Kong, before China was completely open, allowed us to be early on stories like that and to understand a lot of why things either happen very fast or they don't happen nearly as fast as a lot of people in New

York seemed to think. We've been We've benefited from you know, having those bureaus back in the day, but we're especially benefiting from that now because Bloomberg has a huge editorial staff that we're able to draw on, you know, for stories, for reporting, for insight, for you know. This is a wonderful place to work simply because you've got you know, over two thousand journalists and analysts who can sort of

you know, throw into a story. If I've got a question or a problem about something, I can call somebody tomorrow in a cross I can call somebody tomorrow in you know, sort of Singapore and we can talk it through. Yeah, you really get a feeling of what's going on on the ground, and it's so important in terms of reporting.

Tell us a little bit about a little bit more about you know, bringing women into the magazine, uh, and the consumer or to like how it's kind of evolved it changed because originally Business Week was heavily um sort

of based on economic coverage. I mean, and you can undersange by man written by Man saying that you know, it started the year of the Great Depression started and so therefore a lot of the early years there was a huge emphasis on the economy, which was you had completely fallen apart, and you know, there were the debates about whether kanziean isn't and you know, and we were

a big player in that. But as the economy strengthened, all of a sudden, you know, the magazine gets an opportunity to shift along with society and looking at other things. First was the notion that you know, the consumer was changing. You know, all of a sudden, we had people who said, oh, one size doesn't fit all. It's not Henry Ford again saying, you know, you can have the model T in any

color as long as it's black. You know, all of a sudden, market segmentation became this big deal, and also new businesses were popping up because technology was suddenly inventing new industries, new things that were more consumer focused. And what happened is that, you know, we had to figure out ways to cover that, but also management had to figure out ways to manage that. So the idea of a professional manager came up, because before you know, you sort of were in a business, you state, in the

general entire life. But then in the fifties and sixties, especially the notion that there could be these nbas, these these professional managers who could learn how to run a business and not have spent thirty years in it. We were early on that we were back in the nineteen fifties. Um, in the early fifties we wrote about, um, you know,

this notion of can a manager be actually trained? And it was pegged to um Alfred P. Sloan who was the CEO of General Motors and famous management guru who who decided to give five million dollars to M I T to open up a business school. And people were like, what in the world is this for, that a general manager can be taught, and we spent a lot of time talking about, you know, what are the positives, what are the negatives, and and sort of we were early

on that and it it's served us well. And obviously in the by the time we got around to the nineteen eighties, we were doing business school rankings and you know, and and the NBA was considered to be wow. But at the time we started covering this, the whole idea of formal management education was was considered to be this sort of fringe thought. That's Jim Ellis, our business editor.

He has been at the magazine for forty years. And what's really fascinating we highlight that through three individuals they basically their tenure at the magazine covers the span of the magazine in its entirety. Jim is one of them. He is and his perspective, having overseen the correspondence for the magazine now looking after the business section, he knows these stories from a lot of different perspective. Tech bubble, housing bubble, a bubble and assets. We've seen a few bubbles, Jason,

in our investment lifetime. The question is, and I love this in the remarks this week, have they become a necessary evil in order for developed nations to grow. Well, it's a big question, and he's always asking big questions. Peter coy is in the magazine and bubble are fascinating in part because it's such a loaded word at this point.

I mean, I did an interview recently with an asset manager and somebody pulled me aside beforehand and said, be really careful if you're going to ask him about a bubble, because it just sets off a whole series of rhetorical and intellectual thoughts and made people's minds that you take on the bubbles here, Well, what when you look back, what's happened over the past thirty or so years of business.

We had the Great economy of the nineteen nineties, the dot com boom and massive investment in telecommunications and so on, and then it turned out to be probably over investment, as was revealed with a big bus that happened right around the year two thousand. Shortly after that, the economy

started to recover again, and this time it was housing. Uh, probably over investment in housing, and that was fueled by the subprime bubble, the bad mortgages, stupid and fraudulent mortgages, and so to two times in a and here we are again. The economy is recovering from the worst financial crisis is the Great Depression. We've had a very long run of growth. But what maybe we're heading into another bubble, as evidenced by the lowest interest rates in the history

of the world. You know, we're in negative territory in Europe and Japan as far as I can tell, somebody can try to disprove me. This has never happened before. And so what happens when rates go so low? Investors are desperate for yield, so they look for wherever they can get it, which means they take on more risk. And that's sort of the definition of a bubble when you when you ignore risks and you you just make a bet that this asset price is going to go

up and up and up. Well as you remind us that investors get you know, kind of stressed out when prices are down in terms of assets. And yet that's the point when there's usually opportunity versus when you've got valuations at higher levels. Right now, it's a holiday season. You know, I'm not gonna sing, but but there's this attitude like, hey, times are really good stock market is hitting new highs. Just there's a lot of jubilation in

the air. Well, that's when you should be worrying, because that's when you know, bad loans get made in good times. And the American economist Time and Minsky said, stability breeds instability is exactly when we overreach. Well, and one thing I love in your story is you talk about here we are ironically low inflation environment, and yet you are seeing riots around the world, especially in developing areas about

the high cost of living. Actually even in our own country where there are cities and so on and so forth. It doesn't quite make sense, does it. Right. A great example actually is Hong Kong. Everybody focuses on how the students are protesting against the mainland China, and that's certainly part of it, but it's also just there people are fed up with the most expensive housing costs in the world. Well, what is that. That's a bubble, that's a real residential

real estate bubble in Hong Kong. And yet here we are in this bullmarket that shows no signs of slowing down. And there is a case to be made, and we've talked about it on this program before. That maybe this has been managed the right way all along, despite all of those headwinds and warning signs that are out there. How do you square that and especially the jubil achan and the enthusiasm that you reference that the consumer stuff.

I'm trying to steer this article away from exactly deciding whether how or how much we're over valued or undervalued today getting back to the bigger concepts of whether economy. The U S economy almost depends on bubbles growth. And you know, bubbles are not entirely bad because sometimes that exuberance can lead people to invest in things that need

to be invested in. So we can go back to the connect hours and railroads in the nineteenth century, radio in the twentieth century, fiber optics in the nineties, or even today some of the dot some of the social media platforms and so on. If taken in a lot of money and good things end up happening for consumers, although sometimes the investors lose out. Uh. But the bad side of a bubble is the wasted resources. And uh go back to all these phantom zombie housing developments that

were built and then um never occupied. UM. Well, and we should point out and maybe this is obvious that bus tend to hurt people, like in the sense of think about, you know, the recession that came right after the dot com bust. Do you think about the Great Recession? You know, people lost their jobs, people lost their homes. When it busts, it can, it can hurt. The unemployment rate is extremely low right now, but um, if we

hit a bust, then it would shoot it up. And of course the last hired first fired, and the people who chose to invest, like I feel so sorry for those people who bought houses in two thousands six, two thousand and seven with bad loans and then we're wiped out very quickly. But go back to the question I posed, and it was really your question, your story about have bubbles become a necessary evil in order for wealthy nations to grow? I mean, is it? Is it? I'm curious

for from the folks that you talked to. There's a guy who appears on Bloomberg Television once in a while, super smart David Levy. He's from the Jerome Levy Forecasting Center, and he's an inheritor of a tradition going back to people like him and Minsky mentioned earlier, who would argue that he has a paper out called Bubble or Nothing where he kind of posites the idea that we all maybe that's true. What what Carol said that maybe, Um, it's almost as though we're geared to it because balance

sheets have gotten so big, so top heavy. Um, people owe so much money that the only way you can relieve some of that debt burden is by kind of the interest rates. So whenever there's a financial crisis, the interest rate comes down, and we see the Federal Reserve of the European Central Bank banker advants on doing that push she rates down and down and down. Each of cycle we go through, they get lower. Well, guess what, they pretty much hit bottom. You cannot go much lower

than somewhat below zero. The US is above that floor, but Europe Japan pretty much as the floor. Right, And so what happens next? Right? And the US is flirting with rates, and certainly the president has advocated to some extent for that. He has h Once you've once you've exhausted that weapon against recessions, then you've got a big

problem in your hands. That's Economics editor Peter Coy and I love this story because we've seen so many different bubbles in our lifetime, whether it's the tech bubble, whether it's the property bubble. And I love that Peter asked the question, and I think many are asking the question. Do we need bubbles in order to bring about growth, especially in a developed economy? Maybe bubbles are kind of good for you who knew climate change? We know jay

and impacts businesses, impacts industries, homes, how people live. But the story in the Economic section notes this week that it may have helped fuel the popular uprising that is seen millions marching on the streets of Chile. This is a fascinating and disturbing story. It takes us, as you say to Chili. Christina Lynn Blad, our economics editor, fearlessly is here talking about this story. There's a lot to kind of be disturbed by here, I have to say.

In the connections that you draw are pretty start Yeah. I mean, I think that most of the coverage of these protests has focused on dissatisfaction over you know, the economic model and how it relates to you know, meager pensions and people feel like, you know, the education system is you know, is producing inequality and the usual suspects exactly. But against But we looked at the backdrop of this,

which is a ten year mega drought. We have now tech mega in front of these events, and that's been affecting central Chile where which is where most of the population is, the north already very arid, and and so we looked at these water fights have been played I mean literally that have been playing out, and how these protests kind of you can't say they literally jumped from rural areas to the city, but there's definitely been this echoes of like unequal access to water, equals unequal access

to education, unequal access to opportunity. You know, we'll tell us about the impact that it's had on on the lifestyle, think about farmers in Chile and so much more. How is it played out? So, I mean we talked to to you know, people who have lost more than half of their livestock, you know, in the last couple of years. And and there's also an area in particular in this valley where avocado farming has um you know spread of course to feed this global demand for avocados, in particular

a lot of exports to the UK that valley. And in that instance, it's because basically the avocado farmers are being accused of exploiting their water rights that they acquired years ago and also tapping verse illegally. And so all the small farmers in the area, um are you know, have have the rainfall has been lacking, so they don't have anything to water. The avocado farmers are fine, Yeah, but I mean if you look at the photos, it is stark. I mean you'll see these hills that are

all brown and on these avocado farms. Avocado is a really water intensive crop, should not really be grown in some of these places. So yeah, that's one of those things, you know. And one of the issues that this brings to mind, I think is income inequality obviously, but also this notion of political and economic choices that favor business over consumers or people, to get down to it, and sort of businesses even over what I think most would

argue is a basic human right. Well, that's right, And I think people were initially surprised about the sort of the violence of these demonstrations in Chili, of all places, because it has so often been cited as a model for the rest of Latin America in terms of how it enshrined uh, this neoliberal model you know, its constitution, and that constitution dates from the time of the dictatorship, and so does a water so and so does a water law that basically gives people water rights in perpetuity,

so companies you know, have them forever, they can trade them. You know, there was once upon a time the thought was like free markets will help people, you know, be careful and the management and use of finite resource. But that really has not been the case as we've seen it. In some places, mining and and sort of and and kind of export oriented agriculture have really kind of priority priory. The government has prioritized those kinds of uses for water.

And so you know, we have now communities in Chile that depends on what are getting tructed. I mean, when they opened the faucet, nothing comes out. Yeah, it's amazing, it's amazing. And I do wonder, you know, what is the political backdrop here, because a lot of this unrest, as you said at the beginning of the conversation, has been tied to the political system. Is there any sense that that may change soon? What what's the latest there? Well,

I mean it's the outcome. It may be quite radical, and that um, legislators have sat and agreed on two possible means of rewriting the constitution. So now this consensus in the country is a fair large consensus that the constitution needs to be written because it enshrines this model that is no longer like you know that is that

has caused distortion, essentially not valid the country. Right, So we may see as part of that, I mean, they haven't started talking about how water is going to play into that because that's a separate law, but we could see changes in that as well. It's a complete rethinking basically of sort of like what do you want to be as a country? Well, and I think, yeah, exactly.

You know, it's interesting. I feel like Chili perhaps the extreme case in terms of climate change, right in the drought and the impact it's had on the people there. But Chile is not the only place where we're seeing climate change, a warming climate lead to political strife and social unrest. We've seen it around the world. Right in Syria. It played a role in the civil war because it was like um crop loss and then that pushed up

the price of bread and the or protests. You know, that's sort of more Again, It's like sometimes it's like something lights a match, and then all these other demands get you know, kind of folded in, you know, but I think I think it's you know, if you think of his water, you know, to be like inalienable, right right, Well, so it like it exercises people that they don't have accent. Christina land Blade, thank you, thank you. In twenty nineteen, we talked a lot about soft Bank, the Vision Fund,

and the Japanese billionaire behind it all, Massa Yoshi San. Now, the Vision Funds mega investments in some of the world's best known and sometimes most controversial startups have captured the attention of everyone. This story in the magazine this week really peels back the layers of the Fund. Sarah McBride joins us from San Francisco to tell us more about this cover story. So, Sarah, I do feel like twenty nine we did talk a lot about the Vision Fund

and its investments. What did you set out to do with this story? Well, we wanted to take a step back and see where they were, especially in the wake of what's become a very controversial investment for them in we Work, and um, how are things looking now? And uh, will they be able to bounce back. Well, and it's interesting, right, because, I mean they've kind of been legendary in terms of the investments we Work Uber and so on and so forth.

But you're right, the we Work investment and the governance issues and so many other issues made us all think, okay, wait, what's going on at the Vision Fund? What is going on? Right? So we Work is actually a very small part of their total investment portfolio. We make the point in the article that Masayashi's son's advisors were much more cautious about we Work than he was, And in fact, the Vision Fund only committed four point four billion tow we Work.

I mean only, but compared to the rest of soft Bank, which overall invested ten billion, more than ten billion dollars in We Work. Uh, the Vision Funds commitment was relatively small. So they've got we Work and then they've got some

much smaller companies that have gone wrong. But because they unfolded around the same time as We Work, people are paying a lot of attention to them, For example, Wag and Brandless, to consumer companies that they really only invested a few hundred million dollars in, but because they're high profile, people are paying a lot of attention to those in a lot of funds. When companies fail, they often fail

pretty early on in the life of the funds. So we're at this interesting inflection point where they also have a number of very promising companies that aren't quite at the point in their lives where we could point to

them and say, wow, these are spectacular companies. But for example, coup Paying, a big retailer in South Korea, has a lot of promise, and another one, Tokopedia, also in Asia, is very promising, but the promise hasn't delivered yet the disasters have so it's just a bad time for them. It is a bad time. What I love about the stories I said at the top is that I feel like you dig into how investment decisions are made, and you also pay some insight into Massa as he is

universally known. Tell us a little bit about it, because sometimes you say, you get one Massa and sometimes you get the other. Right, So Massa can be extremely charming and very interested in engaging, or he can kind of get in a bad mood and pepper people with questions.

And in the lead we tell the story of one time on a call where he berated an investor at soft Bank for not being optimistic enough about a company called Full Chuck Alliance, which is a company based in China that's making good and steady progress, and Massa apparently thought it could grow a lot faster and was telling the investor, you have to figure out a way to make it grow even faster than it is now. And other people on the call were cringing and felt that

that one investor got the brunt of Massa's ire. But then other people, particularly company ceo s who go to pitch Massa, if he likes your company, you can walk out just feeling like you're walking on air. Sometimes he tells young startup found ns, oh, you're the next Jack Ma, and they just leave feeling so good, especially if it's

a company where they've been rejected many times before. I think what's interesting in your story, too, is how you say what kind of sets the Vision Fund apart maybe from some other venture capitalists, is that when the Vision Fund and when Massa decides to kind of be all in on it um, they invest big time and they really do push the founders, the entrepreneurs, you know, to kind of be more aggressive in their business, maybe expand at right right, So they give them the kind of

money where they can expand much much quicker than they would have been able to do otherwise. And sometimes, you know, a company that might have been looking for fifty or sixty million dollars ends up getting several hundred million from soft bank. So soft bank gives a lot of money, but then they want you to deliver. So let's say you've been planning to roll out in one state. Now they want you to do a national roll out and

think about what's your overseas expansion plan. So they do set it up for our company to grow very fast. But not every CEO can deliver on that, so it's a big challenge for the CEO. But a lot of them talk very positively about soft banks big thinking. One CEO told me he got an idea for a whole new business line that he never would have had without

soft banked, So to pivot. Yeah, And at the same time as these entrepreneurs pivot right, the business grows, the valuations grow, right, and Massa and the Vision Fund and soft Bank they tend to profit from those growing valuations. We certainly saw that. Yeah, a lot of the names. That was another interesting thing so we have a situation where the accounting rules seem not quite ready for this era of multi you know, tens of billion dollars worth

of valuations of startups. So it's not illegal if your startup that you've invested in is suddenly on paper worth tens of billions of dollars, to mark it up on your books to reflect that paper valuation. Now Soft Bank marks up some of its companies that told us, you know, we work earlier this year was worth forty seven billion dollars. It says it never marked up we work that high.

But yeah, it marked up some increase in valuation. The same with oil hotels, the same with many other companies, and now they've had to mark some of those back down. So this is the situation. One UH investor to us called it unicorn porn. Where accountants can do this, it's not illegal, and maybe that's where accounting rules need to catch up. Listen. So no doubt about it that Massa

is the central character when it comes to SoftBank. Obviously in the vision fund UH, he's the individual that you're focused on, but you also do point out a couple of other, um, you know, key players. Um you've got Regiev Misera. And you've got some other folks. Tell us about those other individuals, and you know why they're important to what's going on with the Vision Fund. Right, So the Vision Fund is full of larger than life characters.

Regiev Mistra, very charming guy, likes to vape in meetings. He sometimes walks around barefoot. He's just kind of a big thinker who does not feel the need to act in a conservative way or meet other people's UM standards of UH of office UM behavior. Not that he does anything untoward, it's more an eccentricity. UM. There's another investor there, Jeff Housenbold, who's a larger than life character, has a huge wine collection, drives around in a blue Ferrari, but

then sometimes says things that people find controversial or upsetting. UM. The same thing with the CFO of the Vision Fund, who a lot of people think is quite difficult to work for. Some UM people say he once told a former employee who was Mormon to move back to Utah and get more wives, or words to that effect. UM. The employee did leave. So there are a lot of

UM incidents where people end up feeling upset. Sorry, just to wrap up because there's a lot of great details in this story, and I highly recommend that everybody check out the story and read all of it um But just to wrap up just thirty seconds here, Silicon Valley, how do they see the Vision Fund and Massa. I

think there's a lot of jealousy. I think a lot of people wish they had a hundred billion dollars to throw around and invest in companies, and they're upset that it's crowding out other investors, making it harder for everyone to invest in startups and making it harder for startups to compete against Vision Fund backed companies. That's Sarah McBride and man, there was a team of reporters that worked on this story and it is truly a deep dive into Soft Bank, the Vision Fund, and Massa Yoshi Son.

And why you care is because we work with such a big story this year and really the failed IPO, the governance issue, and the Vision Fund a big investor and we work well. And the outsize influence that Soft Bank and its Vision Fund has had on the world of venture capital and therefore the world of technology, it's going to continue to be a big story in well, that's gonna wrap up Bloomberg Business Week from Bloomberg Radio. Thanks so much for joining us. I'm Jason Kelly and

I'm Carol Masser. Be sure to tune into Bloomberg Business Week Radio Live Monday through Friday, starting at two pm Well Street time. And you can't catch us live, get our Day League podcast for the ride home. Wherever you download your podcast, you can get this week's edition of the magazine on newsstands now. We'll be back right here next week at the same time. Happy holidays everyone. This is Bloomberg m