Legal System Not Capable Of Regulating Tech: Gibney

Peter till. He has so much with respect to the tech world, and yet he just wrote a book about the American legal system and what's wrong with it. Bruce Giveney joining us here author and venture capitalist, normally based in San Francisco, but he is currently joining us here in our Bloombergetter Active Brokers Studios. The author of a new book, The Nonsense Factory, The Making and Breaking of the American Legal Law. So why why did you write

this book? Well, I had I had been a lawyer, which was the most miserable thirteen months of my life. And uh boy, we've heard that before. Haply, Yeah, but

I got out thanks to PayPal. Um and then I became a client and sort of one of the things I've been trained to sort of understand as a lawyer is that you know, the law makes sense, and it's you know, it's as all this cohesive hall and presided by this higher authority and you know, this mechanical universe god operating out of the constitution, everything is just going

to be fine. And then as a client, I realized I couldn't get a straight answer to any question worth asking, and that drove me insane so um over the years, I just collected sort of stories and problems and anecdotes about the legal systems failings. Every time you go to a lawyer, you'll bounce around twelve two different departments, you'll get a bill, and the result is always it depends and you're not even sure what it depends on half the time. And I found this as a client to

be somewhat unsatisfying. So I wondered, why is that? And I decided to write a book about the legal system as a result. And I think that I'm in a good position to do this, having been on both sides of the legal divide, and also because I'm not captive to the legal system you know, sort of Unlike professors, I don't have to defend law schools, Unlike judges, I don't have to pretend that courts always make rational decisions.

Unlike Congressman, I don't have to pretend that our legislature has any idea what it's doing, because he invested in early on, and he made a lot of really really lucrative bets exactly, So it's not just about bed billing. I mean, you argue in your book that the entire legal factory, would you call it, from law schools to judges, to bureaucracies, to the police to maybe even the presidency is completely falling apart. So what's your basic thesis about

what's going on? Sure, so laws of cooperative endeavor, just like making a car on an assembly line is a cooperative endeavor. But for that to work, each part of the legal system has to understand each other. So when Congress makes a law, it has to understand the sort of industries it's attempting to regulate, and how the bureaucracies will interpret those regulations or will interpret the law to

make regulations. Courts have to understand how Congress works in order to interpret those laws and you know, and so on down the line. Um, you know, law firms have to understand what their clients actually want that they don't.

But so as each part of the legal process, you know, sort of as the product moves through the assembly line, you start to see defects compounding because no one sort of takes a holistic view, right, because laws is specialist occupations, like, well, I'm just working on my arbitration provision in this contract. The tax provision is someone else's problem, and so all these things actually do interact and clients businesses know this.

Lawyers don't. It's always someone else's problem. Quite literally, legally, it is someone else's problem, and that person, that other person is the client, and that is not acceptable. I've got to say what you're saying definitely, uh seems true on every level. I mean, we've definitely talked to a

lot of people about this. I want to shift gears a little bit because you are still an investor in many of the technology companies that we all hear about and talk about every day, and I'm just wondering from your perspective what you make of this latest I P O wave and sort of the state of the tech world, Right, now as people talk about breaking up Facebook and breaking

up some of the monopolies. Right. So, the predominant legal strategy when I was coming up in Silicon Valley, which was fifteen years ago, i e. Forever in technology terms, was that you could ignore Washington because it was filled with dinosaurs and some mammal would come out now compete them, and they would go away. And that turns out to

be wrong. The dinosaurs are actually quite powerful. They don't know what they're doing all the time, but they can still well I'm not sure that we have mamially, yet we have like a fish with legs um. So that's that's sort of where we are. Uh. Technology has started to invest over the past six or seven years in lobbying and trying to understand Washington, what have you. I

think it is actually almost too late. The great difficulty is now that public sentiment has shifted, or at least political sentiment is shifted, there will be a huge push for regulation of all aspects of technology, things that were left alone for you know, the first fifteen years of the of the presence sort of you know, dot com technology resurgence, and I think the regulations are going to be clunky, ill advised, and I don't think they're going

to work. I think they're going to be self defeating. And again, this all goes back to the fact that legal system has no idea collectively what it's doing. So it's sort of you know, retail sanity wholesale madness as my as my old friend Peter used to say. And and I think it's going to be a disaster for tech and I think actually it's going to be a disaster for consumers as well. You can't just step in and say we're going to break things up just for

the sake of breaking things up. And we actually have already seen some of this because some of the rules have been put in place in Europe have actually had the exact opposite effect, where smaller tech companies don't have the capacity to comply with them, and so they actually give more market share to the big companies. That that's exactly right, right, So again you know, this is sort of self defeeding. It's like, well, we're going to solve this problem, and then you know they don't sort of

fully appreciate that they might engender other problems. Um, you know, for examply Apple case, which just came down today, although it's you know, I'm sorry on Monday. It's a technically a terror narrow legal issue right about who is standing to sue? And by the way, this statute was passed a hundred and thirty years ago. How did we not figure this out until today? Um, you know there's another

case about tender offers. We're just figuring out fifty years after the fact, you know, who can sue on that. So the legal system is not a vision of lightning action. But um, you know, again with these unintended consequences the application.

You know, one of the things that people really like about Apple is you don't have to think about anything, and everything is pretty high quality within its sort of you know walled garden, right, and so as you sort of say, well, listen, we're going to tear down those walls, right, and we're going to you know, impose all units of these you know, pro competitive things from the class action planeiffs go wild and you know, just let's all have

at it and let's see how it works out. I don't think it's going to be great for the average Apple consumer. The average Apple consumer really just wants to click on a button and just not think about it. I mean, I'm an Apple consumer, and that's what I want to do. I don't want to think about antivirus software or you know which app story I have to

go to the download stuff and what have you. So whatever the sort of you know, narrow anti competitive merits are of of the issue, whatever the narrow legal issues are, it's probably actually not going to work out that well for the average Apple consumer, because I gotta tell you the truth. And it's not just because they did well off people. I really don't care about the last All right, we'll tell us. I'm gonna give you twenty seconds for this one. What should the regulators do with techs? Okay,

they should hire people who understand the industry. They should ask Congress for the budget to hire people who can understand the industry, and then they should think about things seriously before promulgating regulations. Very good, are you volunteering yourself? I would rather die. And that was conviction, ladies and gentlemen on the face of Bruce Gibney. Bruce Giveney author venture capitalists and not a d C inside or not a regulator. He's based in San Francisco, but he joined

is here in our Bloomberg Interactor Broker Studio. He is also the author of a new book, The Nonsense Factory, The Making and Breaking of the American legal System. He has insights from, as he would say, both sides of the aisle as an attorney, relatively short one certainly, but certainly as a client. And then he was rescued. I

think that was the key takeaway here. Thirteen months president Trump speaks, The market responds, we are getting word that President Trump, while he was departing the White House en route to Joint Base Andrews in the South Lawn of uh in Washington, d C, said that his relationship with China's j Ping is extraordinary. He referred to the US China trade dispute as a little squabble, and he said

that trade talks with China have not collapsed. In response, we are looking currently at a NASDAC that is up at one point three percent, doubling the gains in percentage terms from earlier today. We will bring you those comments when we get them. Right now, we want to bring in our own Mike mcdonnoh to understand what the latest is with respect to the trade negotiations between the US

and China. Mike mcdonnah, chief economist for financial Products at Bloomberg LP, joining us here in our interactive broker studios. So how likely is it that President Trump simply having a more positive, constructive tone is actually going to get a fast resolution to what it seems to be an escalating trade dispute, given given the issues we have, I don't see how you have a fast resolution. I think some of President Trump's comments maybe a function of what

he's seeing in the markets. Right, I think that the the bar for as we've we've discussed this many times, right, so the bar first discussed it again. The bar, the bar for trade deal is somewhat a function of how the US economy is doing and how markets are doing. Uh, you know in Q four things look pretty bad, you remember around Christmas time, So I think the bar had gone down. Subsequently things picked back up a bit, Sentiments

picked up a bit, markets were doing well. So I think that bar might have gone back up a little bit more. But I think this is even deeper than that. Um. Right, if if what we read is true and there are now these structural differences, or China had promised X, Y and Z and they're now pulling those back. A lot of it had to do. It's it's said, with changing walls. I don't see how we have an easy fix to this,

and you know we're talking about what's next. There was this um uh image that was going around Chinese social media that said negotiate sure, war, we're game bullying, no way. So I mean that's the scenarios they're looking at right there. Uh. It was. It was quite popular and we chat so it's hard to say what direction it goes in. But

I don't see how. And last time I was on I said this again, you know, based on the volatility we're seeing now and how close everyone thought we were to a deal based on rhetoric, we need more than rhetoric, I think for people to really feel confident we're getting somewhere. Yeah, because I'm looking at markets that are setting their games, so Paul, I don't know. It seems like the markets

actually saying okay, thanks for the rhetoric. So Mike, what I mean is this going to take presidency and President Trump getting together in June of the G twenty to hammer something out? Is that the only way the thing gets done? Interestingly, it was that was it was It was when they met last year in Argentina where things kind of got smoothed over when the idea markets. That's when markets and investors got the idea that this was going to go away because there was threats of tariffs.

They were going to go up in UM the start of the year. But then they decided, we're going to have these talks. It's not going to happen. The talks continued UM thirteen. Two weeks ago. We were hearing that they were, you know, the sentiment was they were nearing completion, and then all of a sudden we had that Sunday tweet that indicated the exact opposite. We are looking at equity markets broadly higher NAZDAC leading the charge up one point four percent, SMP and down both one point two percent.

Still with us here in our Bloomberger Interactive Broker Studios is Mike McDonough, chief economist for Financial Products with Bloomberg, and I'm trying to understand what he's saying with respect to China breaking this off. Was there some from what you gather, I know you do speak with a lot of people. From what you gather, did China suddenly do

it about face here. The sense I got is yes, I mean, I I don't I don't know anything for sure, but just that you know, if you look at the concessans, what has read No one's really taken the other side that they haven't. There seems to be agreement that there was some things that had been agreed upon that, at least from the US perception, had changed over the past couple of months. So I do think that is what caused,

you know, obviously the spat. I think that going back to the bar, maybe the Chinese perceived that the bar had gone lower than it actually had, and maybe they thought that meant that they could reneeg on some of the things that they had agreed upon. I mean, I don't know, but that certainly would justify this sort of action. So Michael, what do you think China realistically once or

expects at this stage. That's that's a good question. I mean, uh, I think they would like to get this uncertainty removed from the market. But I think the thing that they would like most that they may not be able to get is some certainty that this isn't going to come back. As we get closer to the elections. You can imagine

you have some enforcement mechanisms in place. They could be used as a pivot point to say, hey, you're not meeting this criteria, or something entirely new could come up and they could say, well, yeah, we had that a deal, that deal for trade, but these tariffs are because you're doing X, which wasn't a part of that. So I think they're concerned, and I don't think they know how to mitigate it. Is how do we make sure that in lead up to this elections this doesn't come back.

I think that's a big concern. So President Trump has talked a lot about his relationship with Ji Jimpang, saying it's excellent. One question that has arisen over the past few weeks is how much does that matter? How much pressure is Jim ping under uh internally in China to perhaps retrace some of the things he's given up in

his conversations with President Trump. Well, you know, I certainly you know, in the past when there have been issues with Apple, there's been signs that maybe there's been a kind of nationalistic sort of boycott on Apple products within China. So I do think that this is going to stir some nationalism with China, because back to that um image I was talking about where we're not going to be bullied. I think that that they, the Chinese do feel that way, right.

They they definitely want some stability, they want to maintain growth, they want to maintain good relationships with the US, but they want to come out looking like they're both winners. I think that there's this perception that the you, the deal the US is angling for, the u S comes out of this, they look like a winner, China looks like a loser. I think China wants a deal that they could both say we've both won uh, and the

US isn't necessarily taking that agreeing with that. So it sounds like, I mean, you know, at one point we were talking about g the Marco would be happy just with they know, a headline type of deal, nothing doesn't really have to be substantive. It sounds like maybe that is kind of back on the table because it sounds like from what you're saying, what others are saying, there

really are some fundamental challenges, here's some fundamental differences. There are fundamental and and a good deal would benefit both countries. There's no doubt about that. Right. There are some Chinese companies do have some unfair advantages versus foreign companies, especially those operating within China UM. And you know that that

is a pretty obvious place to start. So I think both sides give a little bit up, Like you're not going through the trade balance with China is not going to go to neutral, It's not going to go to zero, right So I think the US needs to realize that we will certainly have a deficit with China UM. You know. But I think that, you know, if it were easier for US companies to operate within China, some of that

would be forgiven, I think within the Trump administration. But I guess they're feeling they're not giving enough up right now. Mike mcdonnah, thanks so much for joining and staying with this. Mike mcdonnah, chief economists for Financial Products for Bloomberg, joining us here in a Bloomberg even three Oh studios talking

off things trade. Uber an exercise in pain and exercise in suffering, at least since it went public, although today it's shares are actually gating up almost one percent, joining us here to talk about the debacle that was the Uber I p O at least so far as Shanelli Bossi the investment banking reporter for Bloomberg. So you know,

there's a question what happened here. Is it just terrible timing in terms of coming to market when everything was falling out of bed on trade concerns, or was there some mispricing miscalculation on the part of the main underwriter. So that's the big question looming on Wall Street right now, and certainly Uber and certainly Morgan Stanley, the lead underwriter, want to blame it on the market, and they all

do blame it on the market. Um. But when you have investors that are more than ten dollars in the run right now, or you know, as some are more than ten based on the two sixteen pre i P evaluation, they're looking around and say, why did you price this i P O so high? You knew that the trade talks were coming, you knew that there could be some market actility. Why couldn't you do more to support the stock. So certainly, what we haven't seen really is the company

blame their investment banker. Um. Is that surprising? The reason it's not surprising is because at forty five dollars to share in the ip O price um and of course since then, it's plunged at forty five dollars a share, they still raised billions of dollars by that point. They have the money, right, and so really, what now is a bunch of investors that are sitting on stock that's falling um. Uber of course doesn't like the stock price, but they don't blame the bankers for a botched IPO

by any means. Why isn't there more sort of blame about Lift. Oh, there's a lot of blame on Lift alright, Okay, there's plenty of them on Lifting. There are plenty of lawsuits, they're already and emerged for Lift. Um. So now we're just focusing on Uber. But couldn't you say that since all of the underwriters got it so wrong, if there was just a more broad based miscalculation on the part of the markets UH and and bankers more broadly on

what ride sharing services really are worth. That's a really important thing because it's not like every I p O that went out this year is doing poorly. Pinterest is doing okay, right, So it is these rides sharing firms that are plunging, And there's that's the question. Is this these companies that's a problem or you know, there's a worry about whether the I p o s are a

problem at all. Well, and then and also the bankers roll in it, right, I mean, how much should they have known if you did have all these investors and not just the ones that they told to invest in these companies, who did value these companies at a much higher level, especially without a profit right. And so the thing that the question moving forward is we've seen Morgan Stanley. We reported on Friday, some of them internally called this

the new Fang stock. Uh So, clearly they're still holding onto this dream of Uber becoming one day this huge technology company, but right now it's hard to see that Futureationally, do we have any knowledge of what extent or if Morgan Staley is still in the market as the stabilizing agent trying to support the stock, or is this stock just free trading here. So what we've reported, um at least overnight, is that they've started to stabilize the stock

a little bit. So as an underwriter, it's kind of difficult because you don't want to use that entire overall otment immediately because there's another you know, there's thirty days in full, there's something else that could happen next week. So you know, we don't know what to expect about where the stock goes in the short term, but the short term does give investor's confidence to either hold on for the longer term or sell. And of course we're

seeing a lot of selling right now. So the shares down at sixteen point four per cent since going public, and actually on May eighth, the I p O is conducted after hours then started treating on the New York Stock Exchange on May nine. I'm just wondering what the potential liability is from Morgan Stanley at this point, well, right now, not much. Right well, the question is moving forward is how does this keep going. We had mentioned that this is kind of a reputational moment for Morgan Stanley.

Obviously they worked on Google and Facebook, and those were not considered great I p o s either. They actually really had a lot of trouble getting off the ground. However, um, if you held onto them for the longer term, you did really well. And now Morgan Stanly uses both of those as examples to a new I p o s And so really it depends on how Uber keeps on performing. I'll tell you the investment bank who might be kind of grinning a little bit here is Goldman Sachs. They

missed the lift. That's JP Morgan Morgan Stanley takes the hit for Uber. Goldman Sacks is saying, hey, I didn't screw up any deal here, so have you if we heard any Do you think there'll be some posturing and as they go out and pitch future deals. I mean, however, I mean, let's not recuse them here. They were definitely on the I p. O. They were the second to the leads you, so it's not like they weren't involved in this um as well. But there definitely will be

posturing moving forward. I love the rhetorical question. Seriously, will there be posturing? That's something exactly. It's interesting, it's there looking for any edge. But when you think about tech, you know, you think about tech I p O S, You think Morgan Stanley, They've done all these great big marquee deals, They've got the great bankers out in Silicon Valley. But you know, I think what maybe what we're seeing here is that the markets, as at least to suggested,

maybe just having a hard time valuing these companies. You just don't have a good sense so it's it's really interesting. Shanali Bosting, thanks so much for joining a Shonalis investment banking reporter for Bloomberg News with us here on our interactive broker studio. And I will note that Lift is up about five percent today, so again maybe these stocks are getting a little bit of a floor to see

Lift bidding. There we go. Well, first quarter economic growth here in the US came in at three point two percent, well above consensus. Took an a gauge of how the economy may play out for the remainder of the year. Returned to our next guest, Joel Stern, Joel's chairman, chief executive officer of Stern Value Management, joining us live here in our Bloomberg Interactive Broker studio. Joel, thanks for joining us. First question is three. That was much better than a

lot of most economis were looking for. What did they get wrong? All economists okay, yes, In fact, some of them were expecting negative growth negative growth in the first quarter. So when I heard that, I said, I want to be back on the program with you people so that we can talk about what are these people thinking when they come up with our forecasts. Just because we we we we all like to pick on economists, can we

get no, no, no, this can't I tell you something. Yes, The real reason why they thought the growth rate would be low or negative is because all interest rates were falling like crazy. That would mean that the demand is relatively weak. But I didn't fall for that. What really happened is that the consumer finally stepped up to the plate. The other parts of the economy we're weak, that's true,

but not the consumer. There's there's actually a question though right now, especially with that first quarter, read about how much of the activity was brought forward, how much this was in part ahead of tariffs, how much this was, you know, in response to sort of the last gasps of what we saw from the tax cuts. I mean, there are a lot of things that people have basically said that this is more idiosyncratic and isn't gonna necessarily have lasting effects through the rest of the year. But

you could say that all the time. What's the reason. Well, because the uncertainties that surround where we are in the world today call as different economic agents to perform differently from what they would perform if the rest of the world we're doing well. Okay, so that consumers might have said, oh, I better do this before Donald Trump does something else. Okay, it's a possibility. I'm not going to say it isn't,

but it is not my view of the world. All right, So what is your view of economic growth for the remainder of this year? Do we continue so that strength you saw on the first quarter, it's not just the strength. The weak parts of the first quarter will become stronger during the rest of the year. So if the consumers don't change their behavior and they just maintain where they are, then I believe that the growth rate on average for the year as a whole will be somewhere between three

and a half and three or three quarters. If that's the case, that may be the most disruptive scenario that we could possibly imagine, because right now we are looking at a market that is pricing in at least one rate cut through the remainder of the year, that's what they say, and and you're more abound inflation and slow growth and people are positioned for that. It would really turn things on its head if you got the other

way around, and it could really discrubt markets. I believe what really happened here was that Donald Trump's analysis of that fourth quarter increase in rates is essentially correct. We would have been around four percent for this year, but that one quarter increase. It's not that the that small and increase makes that much of a difference. What it does do is it affects expectations going forward, what is likely to happen in the second quarter and the fourth,

third quarter and so on. The markets were very concerned about that, and I believe that businessmen were very concerned about it especially. That's why it was so weak. To what extent are you concerned about what we're dealing with over the last week or so in terms of rising trade tensions with China for your economic outlook? Well, this is going to surprise you. I'm a Chicago boy. I went to school at the University of Chicago Economics, Business School of the Works. What do we believe out there?

Is there anything sensible to our view? We think so. We think that markets at the margin are rational, that people behave in their own self interests. But they're looking not your short term, they're looking intermediate term as well. At the same time, and it is my view that the policies that were implemented three things were done they were around six d onerous regulations that will put on business by the Obama administration sufficient to get people to

do business overseas instead of here. We don't have those regulations overseas, So let's do business in Singapore, or let's do business in Africa or whatever. They said. This is not for me. Second, tax rates were way too high if you include city and state, thirty eight percent overseas. So we had to get the tax rate down at least to the same level as they have overseas. And the third thing, we had something like six trillion dollars

simply frozen outside the United States. Think of the number of jobs that would create if the if the Trump administration simply said we'll have a minor penalty but not a huge penalty, and that money will come back. And all of these things have happened. So the economy is doing well because actually the after tax rate of return on investment is the key driver of the U. S economy. So we just have about a minute left. Why aren't we seeing inflation? Ah, because the feed is not printing money.

Milton treatment was right. After all. Some people say, wow, the oil price goes up. Let me tell you if the oil price goes up, consumers have less to spend on everything else, so the prices of other things then come down to offset the oil price. In praise. It is my view that as long as the money supply is not excessive, we're not going to have anything to worry about inflation. And what you should be looking at is not the ten year note, it's the thirty year note.

The thirty year note is yielding. That means for the next thirty years. The markets are not expecting in places, yeah, but they do expect, or perhaps they should be expecting a little bit more of a robust economy in the meantime, even without inflation. Why is that? Because the stock market has been so strong, it's telling us a message about the next twelve months. Joel Stern, thank you so much

for being here. As always, Joel Stern, Chairman and CEO of Stern Value Management, joining us here in our Bloomberg Interactive Brokers Studios. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa abram Woyds. I'm on Twitter at Lisa A. Bramwoit's one before the podcast. You can always catch us worldwide on Bloomberg Radio