Surveillance: Aramco Has Built-In Resiliency, Wald Says

with us in New York. Let's begin with the I p O that Watson and may not be for a long long time. What's your takeaway from this whole SANKA over the last few months. It started Jonathan before then, first of all, thank you for having me on. It started well before the we Works budding fiasco. Zoom and Slack have been crucified in the market recently. These are two companies that came out of private equity. Venture capital had treated it historically crazy numbers relative to their sales,

which had been growing rapidly. But as we saw with Uber, Uber I think may have been the genesis of some of this U S German drying because people were projecting the growth in revenues to be something that would somehow relate to growth and earnings, which never occurred. There are no earnings, and when companies like Slack and Zoom should know show no indication of earnings in our lifetimes, people

begin to question the valuations at thirty times revenues. What's been interesting about this drama as we focused almost exclusively over the last couple of weeks on the governance issues. But this guy's way beyond government's issues, isn't it? Michael. You don't go from a forty seven billion dollar evaluation to ten to fifty in a number of months just because of governance issues. So you're right, you're absolutely right. Now we're talking mania. Go ahead, town, thank you, you're

running the show now. Um cricket. Cricket took three minutes from Michael to appreciate what I got through exactly. Michael, where are the bankers on this? These these I gotta be careful here, these good people, these young turks doing financial innovation and unicorn nous. They're supposed to have advisors that give counsel on pricing. What was the one the other day's Smile Dental Dental smile, smile, direct, that's it. So do I need it? What do you think you do?

But where are the bankers here? Where are the Goldmen, Sects, Morgan, Stanleys, JP Morgan to lend advice? So these embarrassments don't happen. Nobody's listening to them, from what I can tell, correct and think the nineties where the bankers are. Unfortunately for too many of them, they're in the line collecting fees and that's their job. And when they have no earnings

to price things from, they can just use comparable. So if some if if one company is trading it twenty five times of the news, you can praise at a three and say it's cheap at the praise. Meanwhile, Microsoft is it seven times revenues? What's new about all of this? You're a banker, You go to a company, the private they want to go public. You look at the last funding ground, you make up the story to get the feet, turn around and say, you know what, I think we

can take this a sixty. You give us the fee, we'll take the Did you see cutting in Illinois coming? Actually knew? I knew George Baker, Yeah I know, But did you see the debacco coming, And the answer is no, it was pretty ugly. It was ugly, But did we see the reason it was so ugly because no inside coming. I mean, that's in our collective memory. That's a deep misty past, John. It was like Northern Rock, frankly, I mean, did anybody no? And perhaps we should have done, because

looking back, all the signs were there. Let's focus on what's happening in private markets. That's the concern for many people. How did we ever get to evaluation of forty seven billion dollars for this company? And Michael, how distorted is that market still distorted, Jonathan, because you have you have companies still trading at extreme valuations. Albeit the prices are down in the friend the public market, but anyone who owns a private firm is now looking at very suspect

valuations for their home portfolio. Do you own Amazon? You own Amazon? Everybody wants to be Amazon. I think the root, the root, the root. Yeah, And Doug has written beautifully, thank God, about the long term. He's out in a a Holland time frame on that don't like as his usual date trading that he does. Michael Holland on Amazon. The root caused John of this UNICORNUS and we dog is. They all want to be Amazon, right, but you can't rationalize the actual business plan of cardboard boxes in a

lobby was some of these other unicorn this products right? Correct. Software in the case of Zoom and slack is is very different because you have Microsoft there. Amazon never had a Microsoft. They became Microsoft. What's really going on here? His kids told him, Dad, lone up, load up on slack out. Kids got into this whenever Michael comes by, But I want to just talk about single names. I'd like to lean on his experience in China as well. Let's just get the macro back drop ready as well, Michael,

the dates when China is really not improving. This stimulus effort so far has been targeted and gradual, and I just wonder whether it stays that way as they try and stabilize the situation, or whether we're about to get something new, something different. What's your reading? What's happening there right now? Michael Jonathan that you've watch says as I have this current regime, UH doesn't like to be bullied into doing things, so they don't want to appear that

they're being frantic. And what they do read that Hong Kong or what's going on with Trump in the case of Mr she and I think that when you get the reserve ratio requirement residuced a little bit and you get different things going on, those are minor things that they're doing. I think they are very concerned about as they always are, about unemployment and the economy. They that's a big problem for them and if they if they

can't get this economy moving better. And they say they have lots of tools, and they have some, but I don't think they've used a lot of them yet. I think they have to do what you're talking about. I think we will see sometimes then they're not too distant future. Uh, if they don't do a deal with Trump, which I don't think they're gonna do, but if they do. Um, if they don't do it, they're gonna have to come

up with a lot of things. Final theme, banks banks for John Can we say banks for disappointment for two thousand and eighteen. In the last couple of weeks, banks, I mean the American financial institutions prospered out of the crisis, unlike the European banks. Do you buy the value trap or the value of deeply discounted Europe or do you

climb on board the existing American banking structure. Europe's a big stretch for me, Tom, I don't really understand the problems and how when it can solve them over there. I think the US banks, led by Jamie diamond are where I want to be, and Jamie Diamonds Bank is

one of my larger holdings. So and and once again, as we were talking a little bit earlier this morning, very reasonably priced twelve times runnings and two and a half times, how do you respond to the actual assumption of four point one percent the United Kingdom annuities right now? It just keeps coming down, down down. Do you have single digit gloom about equities or they can they do better than that? I don't know, but I think we would be foolish to presume we're going to have the

next ten years like the last TURS. Doesn't make any sense to me. It could happen, but I don't think so. Yeah, Muhamma Hilarian just uh emailed and he says, say please say hello to Michael holl And. He wants to know could you be a quarterback for the New York Jets. Who it's too bad. Odell Beckham Jr. Did a number last night. They went through Michael Barr. Would they go through four or five quarterbacks? Oh? That that was awful.

First you have and then then the I mean the mono, then you have the injury to the back up and for the third string. Monday. Miss you missed, missed this You miss jeffs Browns. Lucky you miss Jeff Browns. I'm sorry. What do we go on? Michael Holland, thank you very much. Tom a word on the banks just quickly, Jp Morgan. This year City City up. So it might feel bad, but it's actually been pretty deep. So drinks around. Michael definitely on Michael and Michael get to see you. Thank you.

It's an important book, John Ferrell diving into it cover to cover, and it's on a set of narratives. He joins us. Now the author of that book, Robert Shillen University Professor, Bold Prize winner and the author of Narrative Economics, How Stories Go viral and drive major economic events. Professor, let's just begin with how important this field is, and how relatively new it is, and how much work still

needs to be done. Just talk to us about it. Well, I think there's a revolution going on in economics starting with the new UH data on. You can now search you can search everything, newspapers, magazines, shows, um diaries, sermons all over, and so we we we can now get closer to reality than before when we just had aggregates like GDP to to study. Now we can get into

what I think really drives the economy. It's changing patterns of thinking and changing narratives that interpret the events for us and also give an emotional color to it and can shape the events as well. And I think that's what's crucial to the to the field you're talking about at the moment. Talk to me about how this is different to say, the theory of reflexivity that George Sorice has really pushed along for markets, that markets can influence

and shape the events they anticipate this feedback leak. There's two way loops. Why is this different and how does this build on that work in any way shape or form. Well, I read Sorrows book years ago and I thought that it was uh, it was intuitive and on target. I thought he wasn't good at citing earlier people who said similar things. It goes back to For example, in the nineteen forties, Robert K. Merton, sociologist, invented the term self fulfilling prophecy. So it goes it goes back to the

nineteenth century if you searched properly. This is my habit. I always try to find win an idea appeared, So Reflectivity wasn't. It was a good book because it was written by a successful man who was writing it from the straight from the heart. He really believed this, and I think he was on target. You focus on a range of things. What I'd like to focus on with you this morning is how public confidence is shaped and

influenced and where we are now. For those of you that don't get hold of the book, there was a great article of the weekend altered by you, I believe in the New York Times, setting off a recession with words I believe that came out last week told to me about how public opinion is right now, and used that as an example to explain to our listeners why this field is so important. It's an important new field.

That doesn't mean that I've conquered it. I think it will take decades for research to really give us some kind of accounting of the impact of narrative. There's always many narratives. A lot of them are not what I call economic narratives. They don't have anything to do with economic activity, but it's certain ones of them do have. So. For example, the best example of a narrative is our president Donald Trump. He has captured the imagination of the entire world. It's all over. Uh, And why is it

so fascinating? This is this is Uh? Why is he so fascinating? Well, obviously he got elected president, but how did he get there? I think that these things are poorly understood. And also the direct impact act that he has on economic confidence and on willingness to spend are

also complicated. But did we get President Trump in the many new populisms that we have simply because of a new damp and GDP growth and indeed possibly a generational terminal value that's less than acceptable for society and for politicians. GDP growth first became popular in the nineteen thirties. That's a narrative, uh, and uh, it's a religion now Uh yeah, well, uh. I think narratives tap into our deep feelings. And you

might sometimes think of narratives as representing a religion. So the idea that GDP growth is the primal measurement of success is obviously wrong because GDP growth is highest in wartime, when we're generally not happy at all, or maybe some people are happy in wartime. I don't know. I mentioned

it increasingly polarized at times of war. Professor, Let's just finish up by talking about a news event this week, the Federal Reserve, and then fold in this field that you're starting to explore in a much deeper way, how policymakers can influence beliefs and shape outcomes. How the chairman of the Federal Reserve can identify what the popular narrative

is right now in the public and then influence shape outcomes. Well, I think Federal Reserve chair people know that it's very important not just what they do, but what they say, uh and uh and so the problem is they don't have a discipline. They don't have scholarly research that will help them know what. In stense, you have to read history. So a lot of people are a major in history in college because you learn examples, and if it's good history,

it gets into the narratives and the stories. So in the past, uh, people have made miss So I'll give you an example of what might have been a mistake, and that is cutting the lower bound for the federal funds rate to zero uh in right after the financial crisis. That might have been considered as completing the job, but it also brings on a scary narrative. It reminds us of Japan and it's lost decade, and the narrative might have been more. Maybe they shouldn't have cut it all

the way to zero. We need to think about that. We'll come back Robert Schiller with this. We have another conversation with him coming up in the weeks on negative interest rates in Europe. John True and Tom Keenan, this is great. We love when our team goes out and finds good conversation without hysterics on whatever the issue of the moment is. John, what was cool is years ago you were cool on campus if you walked around with

something Robert Lacey wrote, and then you were cool. And this took forever where you had the prize by Daniel Jurgen and only twelve people read it because it was so thick. Let me tell you you were walking around with that book, you were shredded that that waits so much. Yeah, really I was cutting chiseled back then, but aways you

you carried around Jurgen's surprise. Recently the book is ellen walled Saudi Inc. And it's just only like a year two old, and it's just become definitive on the machinery of the oil combine in Saudi, the Arabian Kingdom's pursuit of profit and power. Place to say that anam world is with us here in the studio of the Atlantic Council Global Energy Center. Good Monituellen, Good morning. Let's just believe we'll have a look into this story right in front of our face right now, which is what is

happening with Saudi Aramco and Saudi Arabian all production. There was a little bit of daylight between what the Kingdom is towning us about the output and when it comes back online and what a Ramco is town Guess it does seem that we're getting some conflicting signals that the Kingdom is really talking about very severe damage possibly months

to get back online. And then we're also hearing though from the company that they see a production coming back much more quickly and also potentially by the end of September, even most of production returning. Who's that is the question of the hour and in charge of the company. We've got Amnoster who's the CEO. Very reliable, very very professional people. This is a very professional company. It's run like an American company based on its its American roots. They really

pride themselves in working basically like like Exxon. But then on the other side, you've got the Saudi royal family. You've got the government, the monarchy, and of course Mohammad bin Salman, who has other priorities in mind. Potentially you nail it with your epilog page tune in fifty three. For their sons, there's been this trance for a royal power and royal prerogative. Do the son's in your book? Did they look at a Ramco and all that oil

is ours? Or is there really any understanding of spinning it off to some public ownership. And this is the real question. And I actually addressed that in a new epilogue that has just been written and comes out with the paperback version of the book, which is that's the plunk, that's the um. It's actually available now in bookstores wherever

good books are sold. That's enough anyway. But but the question is is really really gets a heart of the matter, because for many years the Saudi royal family saw this company as their life blood. Do they stage well, that is the question. Do we know well? Prince Mohammed and Salma has said that he sees the company as an asset to be sold, which is very different from how his forefathers and forebears saw the company. When when you're got a RAM call, what's your knowledge of the pipes

of valves? I mean, have you been out there and actually seen these refineries? Um, I've seen some of them. Yes, they're all modern, state of the art, right. Oh, this is this is top of the line equipment. This is top of the line stuff. If a RAM who is the best that? Why can't they fix this quickly? I mean, I understand there was colossal damage and we don't know yet,

John Dewey, we really don't. But come on, I mean, you know, you bring in the U. S Military and the Kuwaiti Navy or whatever and you get this fixed, right. So part of the issue is that they're very concerned about safety and the sites that were hit UM contained very volatile material and so they had to shut down the entire facility in order to assess the damage. But only some of the particular goosps the gas oil separation

plans were damaged. Others are completely undamaged, and it's expected that they're going to bring that back online very quickly. And then the other thing that a RAMCO does is they have a lot of built in resiliency and they know how to have the parts and bring the parts in and repair it, so we can I think we can expect that they may bring production back online faster

than is expected. I've always found diplomacy within OPAQUE absolutely fascinating how countries like Saudi Arabia and Iran can get along with each other within OPEC, and then obviously outside of OPEC there's major issues. I just wonder how much more complicated it gets now Alpha has gone and he's been replaced by Prince Amtulasie has been sellow. How complicated there things now that someone a member of the family

is running energy policy within OPEQ. And that's an entirely new area to get into because the Saudis have never had a royal family member running oil policy and oil diplomacy. They've always had a professional, either someone from a RAMCO or really someone dedicated in the ministry who's not a family member. So that OPEC meeting in December in Vienna is going to be a big, big deal. Are seeing

how Iran and Saudi Arabia get along there? If you're just joining us, ellen Wald, with us out of Jacksonville University, and also with the Atlantic Council of course the important book Saudi inc The Arabian Kingdom's pursuit of profit and power. Thrilled that she could join John and uh Me this morning.

Your future is flat, allen Wald, if if we look at the sum total of Saudi, there's always been and this is where your Middle East history expertise really comes in a narrowness or separateness to their religious Islamic experiment versus the adjacent Arab states. Is that at play here in their response or are they communicating with their adjacent

states in a new more modern way. Well, believe it or not, we just had news that this howdy government is instructing the leaders in mosques to discuss what happened with a Ramco in their Friday sermons and what is

the symbolism of them. Well, it's a symbolism that you really cannot totally disconnect one from the other, and that the importance of the mosque and the importance of the relationship between the Saudi monarchy and the Islamic clerical establishment is really still key and plays a key role in how they communicate with their people. Explain, I'm going to understand that the distance from Yemen to Saudi means it's

clearly this was not an attack from Yemen. But explain the triangulation of riod Yemen and Tehran, so they're clearly pretty close to each other. Um, Iran is across the Gulf, and Yemen is is now below. But there is this association between the rebels and Yemen, the Hoothies and the Iranians, and for a while that that connection was a bit suspect.

But I've even heard of American military people have told me that when they were on tour in the Gulf, they saw the little boats ferrying things from Iran to Yemen right across across the Gulf and ferrying the supplise. So it's it's clear that, Um, you know that there is an association between Iran and the rebels in Yemen, and that there is coordination involved in these attacks on Saudi Arabia. Why do you think we'll end up in the blame game? Just read the Ta Leaves force as

you see things right now. Yeah, this is this is a big question. The US is pretty firmly identifying Iran as the culport here, but Saudi Arabia seems to be taking a step back and saying, well, we think the equipment came from Iran, but we're not going to go

ahead and blame them entirely. Let's bring in the U n And I think that this is a recognition of the fact that NBS doesn't want to go to war against Iran, and if he comes out and says Iran attacked us, he would be incumbent upon him to respond, and he can't or he knows he doesn't want to get into that. We mentioned the heritage here of all of our reading on air the Arab States, Robert Lacey

and Daniel Jurgen and others. How far removed are we from our myths and our stereotypes of our relationship and oil in the Arab States. In Saudi Arabia, so oil has always operated kind of outside of a lot of the traditional issues in terms of say, Sunnisia conflict. Oil has always been been kind of outside of that. And like you said, Iran and Saudi Arabia can work together in oil, whereas in other respects they can't. But they

don't always get along in oil. The countries have different objectives, so they are able to step step out of that context at times. Okay, we we've learned that you're Our entourage has learned that you're a New York Giants fan. I am. Here's Manning done. I don't think he's done yet. I think he's got at least another season in him. Okay, there we go. Now we've got some real information we can use. And then thank you. I'm getting them screaming in my ass. She's got to go dr Wild. Thank

you so much. Wonderful books. The Arabian Kingdom's pursuit of profits. Now, don't they don't talk to me. They just talk to you and tell me anything. Oh, I think she's going to the TV chat. Well it's good. I don't know. I'm not distressed because in the studio is the right guy to talk about oil supply and demand. Here is Paul Sanky with missol. Paul, I've got to ask you this question. I've got an Oxford Institute twenty one page uh paper on the dynamics of supply and demand as

we go into Saudian and a Ramco. How tight was the market on Friday? On Friday, the market wasn't tight at all. Everyone was worried about Actually we did see inventory's drawing in the second half now um, but we had a really significant non opaque, non US growth in the market as well as the US growth, and that was looking overwhelming for all this happened. The thrust of the paper is demand really matters? What's the backdrop of

global oil demand? Given what the shock that Saudi's head, well, I think the numbers were drifting as low as only six hundred thousand barrels a day of demand growth next year. That was sort of the new paradigm of concerns about the economy. All the various indicators that we see slowing down economically globally, the major agencies are still above a million of growth next year. It is very obviously very

GDP sensitive, so we'll have to see. For example, these attacks are obviously a challenge for China in terms of their dependence on imported Middle Eastern oil so we'll have to see how things roll through. We're still at around a million barrels a day of growth for next year. What we've done is we've aggressively cut our Saudi numbers obviously, so Paul, it's in a sense getting a sense of

where to cut your Saudi numbers. It seems like the news coming out of day out of the Kingdom is this might be a little bit longer than a that maybe what we thought yesterday, This might be in terms of disruption to play a little bit longer. Yeah, the new the new Oil Minister is doing a press conference at one fifteen Eastern New York time this afternoon, so presumably we'll get an update there. We're all struck by the accuracy of the attacks. Every tank was hit almost

identical spot. Yeah. What we're also hearing is that some of the missiles didn't make it. So they have the missiles, so they're going to be able to do a lot of intelligence on the ones that didn't explode. But everyone right now is pointing towards the border of Iran Iraq as the source of the missile, so we'll see if they have anything to add on that. When the All Minister speaks no doubt the all Minister given Saudi has

been very good at communicating to the market. We'll be talking about the outage and how long it's going to last. But as noted by Tom, it seems a sorry by you. It seems it seems that this outage is gonna Actually, my anti missile defenses are up, Tom, whenever I come on the radio with you, nervously waiting for you to

put a humbling around me. But no, you know, I think the first reports were it's going to be back by Monday were inexplicable, inexplicable, couldn't cann't work that out at all, And we were very skeptical were coming into this particular issue. I had a kind of felt like what was really driving oil? Talking to people like you as more of the demand side of the equation, and and you know, thinking about maybe perhaps a global recession

coming and that's really pushing down oil prices. But now that you have to that's the supply side of the equation of your business comes much more into play now. Yeah, all things being equal, and I'm thinking back to the global financial crisis. But let's say a normal recession, there isn't that much range on demand. You know, let's say it's between a half a million in a very bad year this population pressure obviously, and then one one and a half you know, million of growth would be a

very good year. So there's only a one million range arguably. And as you know, what we've seen here is a five point seven million loss of supply from the Central Bank of Oil. You know, that's kind of far bigger than anything that will happen on the demand side, although demand can be weak too here of course on a

substitute basis. Can people at the margin just put it on where we're in or Nigeria or Kuwait or Russia or America put it on at the margins, so it's the gap evapiate evaporates quickly, No, because there's no spell capacity. I mean, the only specupacity we have is in U A E and Q eight right right around where the action is. Because what we're all terrified and on tents hooks about here is what's the Saudi response is going

to be. I mean, are they just going to sit back and take this or is there going to be some sort of military response? And what will the US do in that context? So there's no specpassion and Venezuela. There is maybe some in Nigeria, but they've been producing full on. There's none in One risk is Libya, which is performing quite well right now, that could go down and then of course a doubt that sanctions are going to be alleviated on Iran given the current news play.

What does Kuwait do to defend those fields? I mean, this is a Falklands work question. After the exercise missile took how does Kuwait defend themselves into this this Tuesday evening into Wednesday? As a mayor, your question, if Saudi has spent as much as Saudi has spent on defense, um, you know, puts towards a hundred billion dollars of spending on on we thought defense against this kind of attack, and it seems like there was zero defense when it hits.

So I'm sure the quwaities and others are all reviewing everything that you know, everything that they're doing in terms of safety because this was a totally shocking and very dramatically impactful attack. Give us a sense for here in the US, we always hear about shale shale share. We can flood the market with crewe, but that's not the issue. As you mentioned, it's just the refining capacity, it's just not there. Is that also true here in the US,

And well, we're okay. For the main problem in refining at the moment is actually the type of crew that's available. So we've got too much light sweet basically and not enough heavy sour and a big part of that sweet versus heavy sour. Yeah, So essentially the refining system in the US is optimized to use a harder to refine higher sulfur barrel, which is typically cheaper than the US shale growth, which is a it's easier to refine low

self for barrel. It's not the end of the world because you can actually refine light sweet in a heavy sour refinery. It's just not optimal. But you can't refine heavy sour and a light sweet refinery. So, you know, we watched carefully for for for the capacity issues that we're facing. The capex of the industry in general refining

and e MP is constrained at the moment. It's a new theme for e MP, and we're urging the companies not to go out and chase the higher price, but to please finally generate free cash FLA I got twenty seconds left. What will you listen for this one pm press conference? Well he's new, so that's interesting. We know him, but it is his first major announcement as energy minister. We want to know how long this stuff is out for, you know, how when are the when are what barrel's

coming back and what time frame. At the moment, we're forecasting seven million a day of Staudy production in Q four, so that's are over under For what we take away from this definitive Paul Sanky, missour, we are thrilled you could find time to come by to Mr Sank. He has been doing this for a few years. It's far back. I remember him and Adams Saminsky at Deutsche Bank. It comes to just stopped. They had a spreadsheet on the back, Paul, and you read it like gosp Of course, the Saminsky

Sanky brilliance here he is. You get lucky and we do with the Natamadi. She's Parker Professor of Economics and Finance as Stanford University, squirming here uncontrollably listening to the capitalist gates James Madison. If memory angels, no government would be necessary. Is it necessary to break up the tech companies? Well, I agree with with the the gates here in the sense that we have to see what it is we don't like and we have to go at that. So

breaking up by itself, it's the same for banks. It's just that sort of quickie SoundBite, but exactly what problem. In other ways, the size becomes a symptom of the problem, and so treating just a symptom is not going to necessarily take care of the underlying problem. So if the underlying problem anti competitive behaviors or dark pattern use of contract or whatever, we have to outload that. Where are

the shadows right now? In banking Even your harshest critics hang on your every word so they can think smarter about what's out there. Where are the shadows in two thousand twenty, Well, I mean we have a lot of places where fragilities can can hit the banking system. I mean there's a lot of rumbling in Europe, there's uh all kinds of trade wars going on, there's lots of there's cyber always there. There could be anything that could

hit a deck of cards that power um Tom. I also to bring our viewers and of course the professor up to date with what's going on right now in the nind Kingdom, which is Boris Johnson and his lawyers, though he's not actually going there himself at the High Court, but his strategy certainly is coming under scrutiny at the Supreme Court of the UK. Hearings have become in London

and they will laugh about three days. The court actually has not given a ruling date, but of course we'll continuing will be continuing to watch this live stream and bring you up to date with anything that we're hearing. Let's get back to and at Mty the finance and economics professor at Stanford and professor when you look at some of the concerns right, it's basically that we still have a fragile and unhealthy financial system. What would make

it better? What regulation would you look at so that we feel safer in the next crisis. Well, one thing I've been arguing for is that we have to first of all assess the level of fragility and indebtedness and interconnectedness in this market, and then that we have to act reduce it. Because the incentives in the system are to remain fragile. People within it benefit from that, and the rest of us are endangered. So a fragile system is sort of inherent in banking, but not for good reasons.

So just basically, once you fragile, you want to just basically live on debt all the time, and it just gets ratcheted up and shortened maturities, and not all of it is for for for good. Everybody chasing yields now and and and going for their short term you know, dividends or pay out on their co cot securities or whatever it is, and so all of that ends up building up more fragility in the system. So I think,

but we need to take care of that. The professor is the right person to regulate this, right, because I keep on being told that actually, you know, no matter what, bankers don't want to out of regulate themselves because they always try and get away with as much as they can, and regulators, you know, probably don't understand as much as

the complex issues as they should it. That's right. So so regulators are using all kinds of metrics for safety and stress tess and a lot of complicated things that involve a lot of assumptions. And we saw that before the financial crisis, and I'm sorry to say that in principle. They're using some of the same approaches to this system and the same structure of the flawed structure of the regulation, and that's that's kind of dismaying. Let's say negative interest rates.

You've got a lot of smart people out of Stanford. We were talking to Professor Schulder of a school on the East coast earlier about this. How do you fold a not a body, the shadows in the dynamics of the balance sheets into this thing. You didn't study it Yale when you took your PhD. You're a negative interest rates, the negative interest it's not in our textbook. We're gonna have to rewrite. That's a social extory, isn't it not?

Clear markets? Right, it's upside down. Everything about negative interest rate is kind of but on a hiacheon basis we have a fear of loss, don't we? Yes? I mean we. It's it's all like, you know, puts you in a territory that we don't. I'm not sure you know your next week title. Extend and pretend. That's what we're doing here, right,

Very good one, because the kicking camps down road. Extending and pretending is just the name been the name of the game in in certainly in the financial sector for forever alright, a professor does the next recession or is the next financial crisis? You know, is it around the corner? And is it because of what you've just laid out quite clearly, you know, a frangile system is just prone to to you know, something happening and triggering a collapse

potentially or panic and runs. Uh. You know. Jamie Diamond told the Financial Crisis Inquiry Commission that he told his daughter around the time of the financial crisis um when she asked him what that, what's a financial crisis? He said, Oh, it's just something that happens every know what he said, five seven, ten years So by that count, we're kind of doful one since it was the big one ten years ago, and we are kind of uh extending and

pretending since then. So I now have in my slides, you know, I take the latest headlines of where it's going to come from, and you know, people are gonna say it's gonna come from the same place as before, leverage loans or clos or something else. And you know, so it's not clear. Are you in New York to see James Diamond that you came. He came to talk to Mr Diamond about the future banking. No, but but there were there were bankers in a conference and to

big to faime financial stability bodies. Professor, wonderful to catch up in. Congratulations on your continuing research at Stanford, Professor Body Partner, Professor at Stanford GSP. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Winter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio