90. Major Changes to Housing & Education—What You Need to Know

Ready? I'm playing some music. [Music] [Music] [Music] [Music] [Music] Hey there. Welcome to episode 90 of Drunk Real Estate. I am Kyle Wilson, Ashley Wilson's husband. And what do you think, guys? Is that? Is that going to be our new new intro replace what we got before. I thought that

was pretty cool. So. So for those who are wondering, that theme song, I guess you could call it for lack of a better term, came from one of our listeners, Rob Army, just out of the blue, put together a theme song for the show. I guess he didn't like our intro or something, and, sent that to us, and it's actually about three full minutes. I, we cut it up a little bit, but, so the thing. Is that all is that. Is that all I generated? I assume so he he he he indicated that that it was.

So the fact that he probably just he probably uploaded a bunch of our episodes or transcripts or whatever, and then the frickin AI spits out the whole jingle, which is just crazy. Well, Rob does a lot of AI stuff, and he sends me emails every once in a while, just giving me some tips on, like Dre daily, the newsletter I do every day and how to automate that.

And so I'm thinking we might want to ask him if he wants to come on a future episode and talk a little bit about AI and, how we as real estate. Are you going are you going to post the full thing for us? Jay yeah, I'll post in the, in the YouTube description. I will post a link to that full audio. Okay. Because it is, there are some pretty funny parts where like it calls out like our, you know, how we pretend to be people and stuff. So, where are we at least transcribe it?

Because I want it to be out there. But, Jay, how's it going, man? Other than that. Going. Well? It's we're we're recording early today. Normally we recorded like, 730, 7:00 my time, and here we are at 330. And so you've got me drinking in the afternoon. Yeah. You can actually see back behind me my. There's light coming in through my windows. It's crazy. What what are you drinking? I just grabbed the first thing I found, which is this, Lobo EFL valve seal. How do you pronounce that? Mauricio.

I don't know if it's from Costco. I don't give a rat's ass. That's not. It's, Wolf and Falcon 2021 from Portugal. No idea where it's from, but it was not Costco. Do you think I'm from Portugal? That I would understand Portuguese? And she's. She's like, just. They're all the same age. Yeah. Just it's, you know, just you've got your white privilege. Just just stay over there. Same as Spanish. It's actually beautiful. It's, a language that is complex and rich. Yes, it is. It is is not beautiful.

I mean, romantic. That's exactly what I'm saying. Yes, exactly what I'm saying. How's it going, Mauricio? Dude, I'm drinking. I mean, it's like. It's like just the morning just ended over here because I'm on the West coast, so I'm, I'm drinking my little coffee. Yeah, but it isn't. Isn't it your fault that that we're having to record this early, so I can't. You can't really complain. Like. It is definitely not my fault. And it was AJ.

Somebody else had a conflict scheduled, a scheduling conflict. It was not me. Well, you're the you're the reason we have to do it. No, I like that. We're just throwing him under the bus, so I'm going to stick with that. I'm not going to answer. It really. Is. What? What are you drinking, Mauricio? I'm drinking coffee. Some Nespresso. Nespresso? Just coffee. Yeah, I got I got stuff to do, guys. I mean, this ends at like, 2:00 in the afternoon, I got work. Oh, geez.

I gotta go get one of those episodes. Real estate syndicators. They depend on me. All right, agent, go. Tell us about your caffeine and your dinosaur Diet Coke. Red solo. Doesn't matter if it's early morning, afternoon, night. I'm good. I'm sticking with it. And Ernie is sticking by me. Kyle, you drink of that. That, that, nonsense thing again. The clear, whatever it's called. Yeah. I'm just going to try and keep as much energy even though we're so early, but, Yeah, it's perfect. It's just like.

It's like drinking, like flavor. Just a little hint flavored water, actually. You guys ever have that hint water? It's excellent. It's like Costco, by the way. Jay, you should be able to get some hint water. I love it. All right, should we get into this? I know people have time crunches, and we gotta. We got a lot of cool stuff to talk about, especially Fannie and Freddie. Cool topic. Right, guys?

Fannie and Freddie are names most people never really even heard of until the great Financial crisis in 2008, but they are hybrid public private entities. And these government sponsored enterprises, they're called GSEs, if you ever want to look it up, have been the cornerstone of American real estate mortgages since the Great Depression. Well, now they've been highly profitable entities for a number of years. So people are saying it's time for them to step out of Under Big Brother's shadow.

But many are believing it could spell disaster for the cost of real estate prices here. So Jay is privatizing Fannie and Freddie really a good idea? Yeah, I think there's actually a good debate to be had here. And I'm not even sure which way I fall on this. And hopefully by the end of the episode, I'll have an opinion.

But let's start with a little bit of history, because I think this will be important moving forward, because, we're kind of moving back to where we have been at a previous point if we're if we privatize. So Fannie Mae was created in 1938. Freddie Mac was was a couple of decades later, the reason Fannie Mae was created was during the Great Depression. Basically, it was really tough to get mortgages you couldn't get. Lenders were tightening up. Nobody wanted to lend money.

Homeownership rates plummeted. And so the government basically wanted to create a stable and reliable source for funding mortgages at the tail end of the Great Depression. So 1938, Fannie Mae was created. The goal was basically Fannie Mae would buy mortgages from lenders. So a lender like a Wells Fargo bank, I don't know if they had, well, Wells Fargo back then, but Wells Fargo Bank makes a loan at Wells do.

They came in wagons from the East Coast and they went to the Wells Fargo was like with horse and carriage. Dude. Come on. Thank you. Okay. Good point. Yeah. So well, there's an example. So Wells Fargo, would originate a loan to make a loan to a homeowner, and then, Fannie Mae would come in and they would backstop that loan. They would they would repay Wells. So Wells could then recapitalize and go make a loan to somebody else. And this was a essentially a government agency.

1968 comes along and I think was 1968, 1968 comes along. And the government decided, let's make Fannie Mae private. So made them a private company, listed them on the New York Stock Exchange, still regulated by HUD. But it was basically the goal was for this organization to make money. Well, now that it was a private organization, it needed competition because we like competition in this country. And there were no other organizations nearly the size of Fannie Mae that could compete.

So the government created a second organization called Freddie Mac in, somewhere around 1970, I think, and Freddie Mac was basically a brother company to, to Fannie Mae, with the goal of essentially being competition for Fannie Mae. So two private companies, Freddie Mac was originally owned by like a dozen banks, as opposed to being listed on the stock exchange.

But basically, these two companies were private companies buying up all the mortgages or most of the mortgages in the country, so the banks could continue to lend and lend and lend. So, Jay, when you say when you say, I just say just a curiosity here because you said they're the private company, but we said that the government created it. So like, which one is the government create the Freddie in 1970 or is that a private company?

So the government created or originated Freddie Mac again under the under the regulation of HUD, but they created it as a private company. So they, they Congress enacted a law that put it into existence, gave it over to 12 banks that were the big 12 home lenders at the time, and those banks ran it and it was regulated by, just like Fannie Mae. But Fannie Mae was on the stock exchange and owned by everybody. But they were two private companies by 1970.

And again, their job was to buy mortgages from lenders, pull those mortgages up, and then sell them off to investors as what we call mortgage backed securities, which you may have heard that term, if you were paying attention in 2008, where you basically pull lots of loans together and sell them to investors. And one of the nice things about Fannie and Freddie, is it kind of it really it stabilizes mortgage rates because there's less risk to the lenders.

If Wells Fargo thinks they have to hold a loan for 30 years, they're going to charge a higher interest rate than if they know that they can originate alone. And then two weeks later, a month later, sell it to Fannie because there's no interest rate risk. They don't have to worry about rates going up and then having their money out at 3% when they could get 6% later. So they really stabilize mortgage rates.

2008 comes around, and I mentioned that Fannie Mae, Freddie Mac took all these loans and packages them up into mortgage backed securities, MBS and in 2008, if you recall, we had this issue where all of these bad loans were made, all these all these subprime loans were made. And so all of these packages of loans, these MBS basically became worthless. And so all the banks that had bought these MBS, we're screwed. They lost lots of money.

The government had to bail them out at the same time, Fannie Mae and Freddie Mac, they were doing really poorly. They couldn't like they again, private companies, they couldn't support themselves. And so the government had to basically bail them out as well. And government didn't want them to go away. They wanted them to to to stick around because, again, they served a very important function in, in the housing market.

So the government basically bailed them out by buying about 80% of them in terms of equity, warrants, which is, just a way to make an investment in a company. But for the most part, the government owned about 80% of these two companies since 2008. The goal was always, hey, we should privatize these companies again at some point in the future. But the Fannie Mae and Freddie Mac owed so much money to the government. And things were actually going pretty well the last 15, 17 years.

That hasn't been a high priority. Trump in his first term talked about doing it, but it just there was so much, so much other stuff going on. It just didn't become a priority. Biden administration didn't even talk about it. And now Trump coming back into office one of the big discussions is do is now the right time to take Fannie Mae and Freddie Mac private again? But my question is why? Like, why do they want to get rid of Fannie and Freddie? Like what? Like what's what's the push?

Like whenever I hear people talking about it, like in the, you know, government officials and stuff and they say like, oh, we should do this, but I've never really heard a compelling argument for why the government should get rid of them. Like they're a profitable company. They're doing fine. Like, why why do we need to privatize them? I could be I could be skeptical and say the same reason that I think this administration is looking to privatize a bunch of different functions of the government.

It provides tremendous financial opportunity to those people that come in and end up running the companies. Basically you you get some billionaires, the opportunity, to, to run some potentially very profitable companies. The problem is to make certain things profitable. And I'm not saying Fannie Mae and Freddie Mac is in this in this, the. Government owns it. How does it give control to the billionaires then to take it? So the government right now can well, they own about 80%. They can sell it.

So they. Can. You were saying to the government, take it over. Well, so then is the question that is this is this a cash grab? Like if they were going to sell Fannie and Freddie and they're going to make money off it and pay down our deficit or. Like, well, here's the here's the problem. So right now, Fannie and Freddie are still in conservatorship, which means the government is still controlling them.

Fannie and Freddie control about six and a half, $7 trillion in loans, 50% of all the housing debt out there. They don't have enough money on hand to run privately right now. They're still relying on the fed to backstop them. So every year they need about $325 billion to, to make to, to run to up in operational cash.

They've got about 125 billion on hand, which means they're about 175 billion short, which they can rely if they have cash flow issues on the Treasury and the fed to basically backstop them and give them that cash. They are profitable. They make about 25 billion a year, but they don't have enough cash on hand to deal with a cash flow shortage. So the thought is one they could IPO. And if you IPO you basically raise lots of capital, hundreds of billions of dollars potentially.

And that could raise the capital that they need. Second issue is that, again, the Treasury owns about 80% of Fannie Mae and Freddie Mac to the tune of about 340 billion. If they were. They own the rights. So they own the rights to take over it. Correct? They own warrants and stock. So they own some stock and they own some warrants. Warrants are basically a type of debt option.

Yes. And so if they were to roll off Fannie and Freddie, basically whoever bought them in order to make taxpayer whole because again, they're owed money, basically they made a lot of loans. They made a lot of investment into Fannie and Freddie back in 2008. And the value of what they bought is about $340 billion. And so if they took them private, somebody owes the taxpayers the Treasury, the fed, this $340 billion that that their equity and warrants are worth.

And so in theory, if somebody were to take over Fannie Mae and Freddie Mac, they would owe us taxpayers $340 billion. Could the government forgive that? Sure they could. They could say, hey, just take it. We don't need our 340 billion. But I think it's going to be hard to argue right now. To the American. The market value, you said they're making 25 billion a year. Like what's their market value then? Like that's. I mean, you could capitalize that at whatever. There's considered.

There's considered triple A credit rating. Right. So well that's and that's the other issue. They're considered Triple-A credit rating because right now they're backed by the full faith and credit of the U.S government. Right. So if they became private, that's actually one of the issues. If they became private now, they're no longer backed by the full faith and credit of the U.S government. And now their credit rating could drop, they would become a higher risk.

And so it may be harder for them to raise money. They may have to raise rates. We may see we would likely see higher mortgage rates because again, we don't have the. Explaining to explain to me the argument against that, because people like there are people on both sides. I heard someone arguing the other day that it would actually be better for the mortgage industry, and mortgage rates could go down, but I don't like it. Like I don't see how this doesn't lead all roads to me.

Leads to higher and higher interest rates for mortgages. Yeah, higher interest rates likely higher, tighter lending as well because as a private company, again, they need to make decisions not based on what's in the best interest of Americans, which they can do if they're a government controlled entity. The government can say, hey, even if we're making some bad decisions, even if we're making some bad loans, if we're helping out Americans, we can justify where the government.

We can somehow justify ways to somehow justify ways to. Argue that Fannie and Freddie may have helped out Americans in any way, shape or form, considering they basically were a key part of imploding our entire economy. Well, no. So they weren't really I mean, they didn't make loans. They guaranteed loans that other banks made. That's the key, though.

The key is that these aren't really private companies, even though even though they're technically private, because they it's the guarantee that makes it all work, like the Wall Street bankers did. His point if these if they didn't have a Freddie or Fannie that was guaranteeing those loans, they wouldn't have they wouldn't have been able to packages or wouldn't have wanted to packages because they wouldn't have been able to get the right price. The fact that these are guaranteed.

So the reason why we had to bail out Fannie and Freddie made it so that cancer was attached to all of them. The bankers came. And if Fannie and Freddie fell, all the banks would come down. They were like the keychain. So it's once again, it is not even arguable.

Fannie and Freddie, due to the position they were in, they literally locked up our financial system in a way that the only way we could not have our country be destroyed was to bail out all the banks, even banks that didn't want the bailouts. They didn't make the loans, but they they more or less did, like they gave the guidelines under what the banks should make the loans to and like they were overseeing. And the and it's literally just like it's the same thing for us for large apartments.

We get Fannie and Freddie loans. And when we get a a loan from Fannie and Freddie, we're not getting it from Fannie and Freddie. We get it from Arbor or from what, like whatever these dust lenders are. And but it's the same forms. It's the exact same process and it's the exact same requirements. So you're basically whenever someone says, what kind of loan do you have? You say Fannie and Freddie, but depending on what it is, because that's.

But it's the same, but because they're guaranteeing it's like if I said, hey, Jay, let me money, but Warren Buffett's guaranteeing the loan. It's a it's basically, relying on Warren Buffett because he's guaranteeing, you know, the loan because I know Jay can't pay off a loan. So it's the guarantee part. That's that's the big issue right now. I want to go back. Well, if you want to finish up, but I want to go back to a more basic concept.

There's there's one other there's one other player in this that's worth mentioning. There's an organization, a government agency called FAA. So Federal Housing Finance Authority, and they're actually the ones that make the lending requirements. They're the ones that say you're allowed to make a loan, a conventional loan down to this credit, score. You can make a conventional loan at this DTI. You can make a conventional loan on these types of properties.

It's not Fannie Mae, Fannie Mae and Freddie Mac who make those decisions today. It's FHA f f HFA that makes those decisions. And again, because Fannie Mae, Freddie Mac, or backstopped by the government, they don't have a lot of risk by saying, okay, we'll take we'll buy loans no matter what the how bad the loans are.

We'll buy them because they know that if for some reason all hell breaks loose, hits the fan, Fed's going to step in, Treasury is going to step in and they're going to give them the $5 trillion that they need to bail them out, just like they did in 2008. So I'm not saying that, Fannie Mae and Freddie Mac, I did say I apologize because I did say that they weren't responsible for 2008. I still contend that they didn't have the bulk of the responsibility. But you're certainly right.

That they the banks, FHA, Congress, who made a lot of lending laws. I mean, they were all responsible and certainly Fannie Mae and Freddie Mac were part of that, but I wouldn't give them personally. I wouldn't say that they're the bulk of the the issue back then. It's probably equal across all these agencies. But they had the trillions of dollars of mortgage backed securities that were held. And I think that was the real leveraging point.

And it connected all the other banks that they were buying from for Fannie and Freddie. And so I think the only to the point just being as that centralized connection. So when you have governments, white entities, what you do is you it creates systematic risk lots of times because it's a centralized, noncompetitive market driven that has an, moral hazard of endlessly being backed up.

So there mistakes and things that they do can be leveraged massively, whereas the other banks individually, like they let a couple of the banks go, but they couldn't let Fannie and Freddie go because of that reason. Yeah. I mean, it's a bedrock of of our low interest rates, right.

Like point like because you guys made a point that I'd love to hear what the rationale is for it, but I mean, you've got to answer a fundamental question, I guess, which is, are you okay with the government or the centralized, parties sub I mean, subsidizing interest, right? I mean, I don't I would argue that when you say interest rates would go up, I would agree, but it's more like it's not like they would go up. They would just go to market conditions.

And market conditions are higher than they are today. Like if you just let the market do its thing, interest rates would be at eight and I don't know what there would be eight and 9%. This is subsidizing that and that you could argue that's a good thing. That's a bad thing. But at the end of the day, the government is subsidy izing the mortgage industry. And the question you have to ask you, do you want to do that? So that's number one. And then my second for real quick. I do want to be clear.

They're not technically subsidizing Fannie Mae. And Freddie Mac. What they are doing is they are they are backstopping risk. Of course, but they're guaranteeing the like, who's going to make the nobody's going to make the loan at 5%. I absolutely didn't know for a fact that that Fannie Mae was going to buy it because because if we weren't sure they're going to buy it or they're going to buy it at a higher rate, then you wouldn't make the you wouldn't give the loan.

The only reason you're extending the loan is because you know, you're going to be able to sell it in the secondary market. And the investors who were buying that mortgage backed securities know that if for whatever reason they default, the government is going to pay them. It's almost like a risk free. And I would actually argue, mortgage backed securities based off of residential mortgages are ship products without the government backing, in my opinion. But we can we can get back to it.

Yeah. And again, I'm being a little pedantic, but I'm doing it for the listeners because I want them to understand Fannie Mae and Freddie Mac are profitable. They do run like they they it's not like the it's not it's not like the post office. For now, when we're having interest rates that have continually been going up. And not paying back what was lent to them. So it's easy to be profitable if you give them $1 billion and they don't have to pay it back. That's right.

The problem is these these, these quasi governmental companies, they're the they're private when they make profits, but when they lose, it all gets socialized. And so yeah, it's great that you make $25 billion every year. But then if every ten years you lose 700 billion and you have the government to bail you out, that's not a profitable company. Well, and it's not a profitable company like it, where it's only certain market conditions where they're going to win. So think about it this way.

If your options are to buy a government bond or treasury note, let's say let's even say 30 year because you can get a 30 year Treasury note right now. When you buy that, you know, you're getting your interest rate 4% or whatever. And for as long as you hold it, it's going to be 4%. But you have the upside. If all of a sudden interest rates go down, you could turn around and sell that, get the upside right. But the downside, if the interest rates go up, you just hold hold it.

If you look at these mortgage backed securities, they technically have 30 year terms. But like the what they're securitized by could end at any time. Like I can go and turn around and I could sell my house. And it's a requirement of the loan that I could just pay off the loan anytime I want. I don't even have to have to. I could refi, I could do whatever I want, I could just get out of that.

So if you're buying that mortgage backed security, you basically you have no upside and no downside or you have no upside and all downside, like you don't know how long your term is going to be and you don't have the upside that if interest rates go down, it's actually going to be worse. Because when interest rates go down, everyone's going to sell and get rid of those securities. So like it's it's a lose. Lose in the artificial loans. Like are the artificial interest rates.

What that does I think every homeowner would agree at this point that holding interest rates artificially low low, whether that's by the fed or by Fannie and Freddie packaging up housing loans and not taking on any risk has not only not helped any of us, but it has created the worst financial crisis and then led to a point where people can't even buy homes because housing prices were driven up artificially.

So the reason why we had a disconnect of housing prices was largely driven because interest was free. And so all of a sudden you could pay a multiple that you could normally pay. Well, that that that's so artificial that it affects and makes one group of people really wealthy. While it makes others not only really poor, it creates mass barriers of entries because it's artificial, it's not real. It's not tied to like income levels. It's necessarily it's not tied to other things.

And I think that this quasi government stuff, where they're where they're pushing the market to do things they want it to do, the implications of what we see is not it's catastrophic on one end, but it also really, really hurts people that want to be homeowners. So although the idea's good, we're going to make it available for more homeowners. But at the same time, then what happens is prices go up. So the people that need the insurance can't even get them. And the challenges.

They do, the challenges that you the the system now is kind of addicted to that. So it's not as easy as saying, well, we don't. Pay more interest rates a pleasure. Let's just unwind it all. Let's go back to like let's just have all the pricing go back down 50% and let's go interest rates go in and whatever.

That just causes so much, you know, issues with the economy that unless you wean off of it slowly and you say, okay, this is this is a 20 year plan where we're slowly going to get off of this, just suddenly eliminating, for example, family or friend, because I think that's the discussion you eliminate. It's not a discussion of whether it should be a private or government owned, it's whether you should have it or not.

That's really I think that the main discussion, I think having it private is really it's almost like a slap in the face, because we all know that if if we have a big downturn and there's a huge economy, and even if they're private, the government will come in and bail them out. So it's really the same thing. But if there the question. Is, wouldn't that cause it's because like, you know what Jay was talking about?

How if you're backstopping those interest rates with the government, it leads you to be able to take on more? If it's a private institution, they're going to go we we're not going to do that. Yeah. But but that was the thing AJ, remember because we you and I are old enough to remember the stuff. But like prior to 2008, there was almost like this question of like, I will they will the government bail them out?

Well, if there's this financial crisis will it was like we didn't really know, but that was priced in like it wasn't 100% sure they would, but it wasn't 100%. So it was like a 5050 would the government step in. And we got the answer, which is they will. And so investors coming in when they're raising capital to recapitalize these companies, there's going to be a factor in there.

That's like, hey, if we do lose money or if we do have a downturn, that usually would wipe us all out, I feel pretty decent that the government is going to come in and bail us out. Otherwise, it's just a catastrophic thing for all of it. But here's another way to think about this. You're certainly I think you guys are certainly right. I mean, they're always going to get bailed out. The question is, is a bailout in this situation that bad of of an idea?

If you think about it, we are all I assume we're all in agreement that bailing out the big banks in 2008 was was horrendous, both from a how much it cost the government from a capitalist standpoint, from a, from from all different standpoint, bailing out big banks was probably not a good thing to do. Bailing out a big bank who benefits the big bank benefits?

There are plenty of other smaller banks that are going to step in and and provide the same service at pretty much the substantially the same price and all that. But if Fannie Mae and Freddie Mac went out of business, not only would nobody else step in, but it doesn't just hurt Fannie Mae and Freddie Mac. It's not like it just hurts JPMorgan Chase when when they or when when they go out of business.

Fannie Mae and Freddie Mac going out of business, not getting bailed out is bad for tens, hundreds of millions of Americans who, you know. I don't think if JP Morgan had gone under, you wouldn't have lost anything that was above your FDIC insurance back then, which was like a. Hundred grand. I mean, the government could have done something in the middle where they said, we're going to bail out the depositors without bailing out the bank.

We're going to let we're going to let Chase and the sheriff, we're run out. The shareholders lose money. We're not going to let the depositors lose money. They could have done that. They did that. Well, they did that with Silicon Valley Bank last year. That's exactly what they did. They said, we're going to bail out. I mean, there are plenty of depositors that had millions of dollars, lots of of startup companies and VCs that had millions of dollars in Silicon Valley Bank.

They bailed out all the depositors, but they let the shareholders go down. And that's the moral hazard, though, that we keep talking about. The moral hazard is you keep doing that, then people don't care what bank they put in. They're not going to pay any attention to where the banks are. Good bank, a bad bank if they're concerned, if they're aggressive because they know it doesn't matter. Like if I put money in this bank of that bank, I'm insured. I'm going to get covered.

Versus if you don't cover them now, you've got to I don't think. I don't think it changes the fact, though, that if they were to go private, their credit rating would take a hit. Like basically their credit rating is the exact same as the US government. You saw that back in 2023, like in 2023. There was that time where Fitch or Filch whatever, like they downgraded the US government from triple AA down to double AA plus.

And what happened at the exact same time Fannie and Freddie got downgraded to the same rating. And when asked why they literally said that the downgrade was due to the US government being downgraded. So like their their credit rating is literally tied to the US government. So if they were to become private, they would have to separate those two. Regardless of the fact that we we know that they would get bailed out and they're creating that rating would take a hit.

With now, I still think it would affect interest rates. Well, I guess that's what I'm saying, is that if you like, if you're having to. So they package up these mortgage or these mortgage backed securities and then resell them, like if you have a credit down rating of of your product, then the price that you're going to have to to give that out, that goes up. And if the price goes up they're going to have to charge higher fees. You're going to have the. Cost of capital, right?

Is that's going to increase because they're so Fannie and Freddie would have to onboard way more capital. They don't have to right now. Right. And it would also have to then provide, profit to shareholders. It would have to attract investors that have to provide a lot more of those business functionalities, which it doesn't have to do.

So the interest rates would have to rise because you also have so anything smaller you take 30 year, for example, like not commercial but 30 year fixed only it really is the 30 year mortgage, is it? It is only viable because of the U.S government. Let's just be it. So it's not. One of like three countries to offer it. Even Canada doesn't offer it. So imagine your payment. Imagine your payment if you had to just get a 15 year mortgage, which is what the market may may be willing to give you.

Now you got to buy the house with only a 15 year. Your payment is basically almost done in most countries. The Max is ten. So so so here, here are three kind of risks that that we face that we haven't gotten into that are probably worth mentioning to to round out this discussion. One is if this were privatized, if you guys owned Fannie Mae, Freddie Mac, and your goal was to reduce risk and maximize profit, we probably all get rid of that 30 year mortgage. We probably all raise rates.

We probably all make tighter lending requirements. We would lend a whole lot less money. And so it's harder to get a loan. All those things. Number two, and this is kind of in the weeds a little bit, but it's kind of important in this particular market. In the bond market there's this thing called the to be announced.

The TBA market and TBA bond markets are basically this thing where and I'm not that familiar with them, but they're basically where somebody says, I'm going to issue bonds at some point in the future. It might be 24 hours, might be five days, might be a week. Whatever. I don't know exactly what those bonds are going to look like, but I want you to give me a price on those today.

And this happens a lot in the mortgage market, especially with MBS, because with MBS, one package of of mortgage backed securities for houses is pretty much the same as another package of mortgage backed securities for houses. So nobody needs to look at the package to say, this is what I'll pay for. And I'm happy to pay the same in three days as I am today.

This is what allows us to lock rates in the mortgage industry, this TBA market, and the reason we have this TBA market is because Fannie Mae and Freddie Mac do so much volume that they can say, we're going to give you substantially the same MBS packages, today, tomorrow, next month, next year, because we have so much volume that they're all statistically going to look the same.

If Fannie Mae were privatized, it's very likely that whoever is running it isn't going to want to say, I'm going to lock a rate for you a week in advance or a month in advance. And now suddenly we can't lock our rates. And that changes the calculus as well, because if you can't lock rates, that changes. How? How did it work in 2007? Were they not locking rates in oh seven when they were private? They were still doing it. So how were they doing it if they were because.

The government was forcing them to and maybe the government continues to force them to. And so that's what we're going back to. Oh, this is they came private in 1937 where everything was I mean, this is literally right before the it's because of the financial crisis of oh 8 in 2007 or the week before the financial crisis. They were that's what we would be going back to. Yeah, it'd be the same way we were. Except except when they were private before 2008, nobody saw those risks.

Basically, we had seen a stable housing market since 1935, and so nobody said we need to mitigate risk by not locking rates. We need to mitigate risk by not having 30 year mortgage just because what's going to happen? It's been 100 years and nothing bad is going to happen. Well, now we know something really bad can happen. And so it's going to change the way whoever's running those companies, again, if any of the four of us were running it, we'd be thinking about 2008 all the time.

And were you thinking then, I don't want to get in that situation again. What do I have to do to avoid that? But once again, though, if it's so, because I think there's if we can already the the fundamental category of 30 year mortgages, the government can still force. So it's not like you privatize and it's got no they can still do what they did prior. But I think what we're really talking about here is interest rates being really low due to the fact that they're not a private company.

They have those backstops, they have everything else. The 30 more year mortgages aren't going to go away. None of that's going to happen because the government would do just like they did prior to, oh, wait. And I think my argument is that then privatization is better than having literally a mortgage industry that is artificially low and not does not coincide with real market functioning risks and everything else. That doesn't make sense.

And so I think you can say we did learn from 2008, but what we learned then created the worst housing environment we've ever had because we totally went the other way. So it's like we need to have 30 year mortgages, but having the government artificially keep rates down at levels that I mean technically cause inflation, housing prices that are way too high, right? And on and on on. I just I think it's better if it's aligned with the market.

As long as they as long as a Congress, as long as Congress passes the law at the same time that says in the event that these guys blow up and screw up and BC that the government's not going to step up, step in and bail them out, that's really what the. Problem is that they get away with it.

Like you could you can then say there's no downside to me making, you know, pushing all the way as far as I can and taking these risky loans and doing all this stuff because they know worst case scenario, they're just going to get bailed out. You do exactly like Silicon Valley, bank and do, once again, all banks in the United States, all the big five, they are all too big to fail. There is no way the United States government will let one of them fail.

So the risk we're talking about already exists with the banks. That's not that's already done. They are so much bigger than they were in 2008. It's crazy. So like that risk in 2008 has gone up ten x. So that those banks are they already have it. So privatizing I think like we we don't we don't hold that risk that is not already there. I don't think we disagree that it wouldn't be like good just for a free market reasons.

But at the same time, I don't I don't think any of us can say that it won't lead to higher interest rates. It's going to it's going to produce a less desirable product on the free market. So less desirable means you're going to have to charge. You're just going to have to be a higher rate in order for someone to buy it. It's going to have we I don't think we even talked about like insurance, like insuring those. Like it's not just one level insurance.

Once you get to that big A level for these mortgage backed securities, you got to insure the top line. And then the person who who does that insurance, they get reinsurance. And then like all of these insurance rates for to buy these are going to go up. So they're going to put a bigger spread on that. There will be higher rates. Right. They're all going to lead to higher interest rates.

So like are we willing to accept that in the in our in the right now in this point in time where we already have high mortgage rates compared to the last, you know, 20 years. And why do we have such high interest rates and mortgage rates, compared to in our lifetime? That was purely due to government intervention and holding down interest rates. Right. But I guess like, why now? Like I feel like our like our economy's teetering a bit.

We are our housing affordability is already like in like as low as it's ever been. Like why right now? Like let's let's why mess with it now. Let's, let's. Housing may lose 40% of its value, which makes it more affordable for everybody else. Now, if you own real estate, that's not a good that's not a good thing if you own real estate. But if you if you're trying to get real estate and you're arguing, hey, there's no housing could make it more affordable.

Like you're assuming that like, yeah, maybe in the long term if the entire market like housing market collapses, but in the short term, like everything's going to be less affordable, you're going to have no ones. First of all, you can't just get rid of all the current Fannie and Freddie loans. They have to keep those and they have to back those. And you can't change those. So no one's going to move. Everyone's going to keep their their current loans.

If you put your house up in the market for a million bucks, and which is right now, let's say, and it's a seven, 6.5% interest rate, and now interest rates are at 9%. You're not going to be able to sell your house for a million bucks. You I'll tell you. Right. So you're not going to sell what. The spread though is like 200 basis points prior to what it was. Right. And then after. So you have a 200 basis, spread. We've already seen that in the last two years.

Well, first thing is going to happen, it's going to take FHA loans, right? Because like the moment Fannie and Freddie go private, then it's like everyone's going to be like, I can't like Fannie, and Freddie is too expensive. I'm going to go for an FHA. So it's going to tank those loans because it's going to be overwhelming. How many people want to go for those?

And then so like, like the whole thing is just going to be like a huge cluster that's going to lead to higher, higher prices in the beginning. And then the only thing that's going to alleviate higher prices is to. So it's going to be like a crash. So like what do we want here. You lower interest rates. How in the world is that going to affect lowering interest rates won't make prices go down. They'll make prices. Go up by lowering interest. We're talking about interest rates going up I know.

But what he's saying is that you're like okay, so interest rates go up right. That's going to make it more unaffordable. No interest rates going down will make it, just as much unaffordable because every time you go down, half of percent interest, you open up to 30,000 new buyers. We have a limited supply. We can't change the amount of houses. Right. So if you lower interest rates, all these people that need houses need to get in.

So and that's kind of why I look at it and go, well you're affecting at a 200 basis point spread. We can't affect the supply. So affecting that demand it's already there. We already have it. We got here because of the low artificial interest rates. It wasn't a line. It didn't move with markets. Well then why not go to that now. And the idea that it becomes less affordable. I actually agree with Mauricio. You're right. It does. So you have less people buying because we can only affect demand.

And that is a short term problem that everybody already has anyways. But but I guess my point is, is it's just going to lead to a crash, which okay, we can argue whether or not that's a good thing, but who's going to. How lead to a crash. Just because the like if you if you take it that next step further if you go higher because interest rates are going to get higher, right. Mortgage rates. Sorry, mortgage rates are going to get higher.

And even when people run to fan or run to FHA, it's still going to it's going to rise all the all all the ties for higher interest rates. And then the problem is you still have all of these sitting mortgages from before that. Nobody's going to want to sell. Like everyone's just going to sit and we're going to have no transactions. That's what's happening right now. But it's but that's my point. It's going to get worse. We at least we at least got. Already down 200 basis points.

So like that's what I'm saying. Like you're talking about. Oh it's not like we're going to something we haven't seen or don't know. Right. If we're on a downside interest rate. So the economy's slowing down. When was when was the last time we saw rates that low and then go up this high. This quickly is the point where we're in an unprecedented time where we have we still have what what percentage was it 80% of people still have mortgage rates below 4%?

Like it's just the higher our mortgage rates get, the more people are just going to not move, and the more it's just going to like the housing market needs to move for it all to work like we need people. No one's going to build anymore. If there's no transactions, no, it's just going to get worse the higher these rates get. But right now we are on the opposite side of higher interest. Interest rates are coming down.

So why don't you rather do this in a time where the overall interest rate is going down, as opposed to when it's 3% and all the sudden you go to 5%, you kill the market? I would say when you say going down like we're that's debatable right now we're kind of just down a little bit, up a little bit. We're kind of just hanging around. I would, I would argue, let's wait for a time where we are moving significantly down, where we can cushion that a little bit.

And it's not just going to be a make it all worse a bit. Right now. I just I just don't think now's the right time. I don't I don't disagree that it would be good long term. I just don't think now's the right time. Why are we focusing on this now? We have a system that's working. We have a system that's like no one's really complaining about, like in the sense that, yeah, they can they can complain about it for the wrong reasons.

They can say, okay, you know, mortgage rates are too high, and Fannie and Freddie are the ones who do mortgage mortgage rates. But like, that's not the real reason. But like, no one's really complaining about how this system is working right now. Like we've got so many other issues. Let's focus on that. When things are a little bit better, a little bit more stable in the housing market, and then talk about privatized, like when they talked about it last time like that.

To me, that was a better time to talk about it, right? When the last Trump administration, when they talked about it going up into before the pandemic, rates were relatively low, like things were going well, we weren't talking about, okay. Like, our inflation being a big issue. We weren't talking about jobs being being a big issue. Like to me, that was the time to talk about it to me now. Like, why, why are we bringing this up now? No one needs to bring it up.

Let's just let it be for now and we'll revisit it when it's a better time. All right. I guess I get the last point there. That was nice. Thanks, guys. We all fell asleep five minutes ago. Did you. Did you say something, Kyle? I usually make a point. Disagrees with me. Is it? We stopped, paid attention about ten minutes ago. Oh, come on, you had nothing to say, Jay. Just admit it. I got you once. All right, let's talk about Department of Education.

Last week, executive order was signed dismantling the Department of Education. Since the department has come under increasing scrutiny since our education ranking worldwide fallen significantly since Covid. Critics point out the department's allocation has increased from historically, around 2% of the federal budget. Now it's up to around 4% of the federal budget in 2024, with no real results. Many argue that 90% of school funding already comes from state and local funds.

So what's the point of doing this? As someone personally in our company, we use school districts as one of our top criteria for picking areas where to invest. I want to ask Mauricio, is this something that could lead to big changes, or is this just another big argument that's going to end in having little effect on anybody doing anything?

Yeah. First of all, I don't think the numbers you I know where you got the numbers, I think I think the numbers now that's about 1% of, of it's actually been coming down quite a bit since 2020. It peaked to like 600 billion. Now they're at about 100 billion. But this is interesting to me because I've been on both sides of this, discussion. And the first time I heard about this, I think, was in Trump's it must have been during the campaign. And Trump's first, first time around.

And he was talking about potentially getting rid of the Department of Education. And I was like, I preposterous. How do you get rid of that? So that doesn't make any sense. Why are you getting rid of it? Like education is important and all of this cool stuff. And, what I didn't realize and what I started researching back then is that, yeah, USA facts is that you're just distracting me now. I'm putting stuff up. Well, I'll. Let you call me out to where I got my facts from. There you go.

And so what I didn't realize, for example, for example, is that the Department of Education only came into an existence in 1980. It's a relatively new I mean, I guess it's been now 40 something years. But like if you talk to your, you know, parents or maybe if you're a little bit younger, your grandparents. They went to Skylab, came into existence around 1980. Yeah. Cow came into existence. But like your parents or your grandparents maybe.

Like for me, it's like, well, my parents were in a different country, but in my wife's height. His parents, they went to school like in the 1970s. There was no Department of Education. Right. And so maybe you should go to your grandparents and say, hey, grandpa, like, how in the world did you go to school in 1970 without a Department of Education? How did you how did you survive? Oh my God, it must have been awful. Like, what's going on?

Well, and, There was it was kind of just under the another department with Department of Health and Human Services. Right. Like they just separated it and. That's part of the funny part. I'm kind of blending my other argument. But then what I really realized I thought was really fascinating is that and I assume it's in every state, but I was gonna give you the exact example of me specifically.

I live here in Southern California, so you've got the the Department of Education, right, which is the federal Department of Education. That's I'm not quite sure exactly what they do, but there's the Department of Education. Right. Then there's each state has its own Department of education. So California, for example, has a California Department of corporation. All right. Cool. So we got the US Department Corporation. We got California. Then the county itself has a department of a corporation.

There's an Orange County because I live in Rose County. Orange County Department of organizational I got the federal I got the state, I got the county. And then you. Got slow down. You're you're saying Department of corporation, Department of organization. You're saying, so. Me do this right. Let me just clarify. Every time he said that he meant Department

of Education. Yeah. So I've got the federal Department of Education, I've got the state California Department of Education, I've got the Orange County Department of Education. And then I've got the local districts that have their own frickin thing, in addition to the Department of Corporation, the dependent. So anyway, we just have bureaucracy over bureaucracy, bureaucracy, bureaucracy. And so you start asking yourself, like what? Why? Like why?

Why do we have some all of these different layers of bureaucracy to. It, really all the great results that the education has done in the. That's right. That's right. You put up like, what have we gotten for this 40 years of, of an additional layer of bureaucracy. Have we really gone oh my God. We were kind of pretty good. And now we're top of the world. We're number one in math and science and reading. Also. We got civil rights. That's what we got. We basically got what we need.

You said that in a very dismissive way. I think that's got kind of it's kind of report. Kyle's pissed about that. He's like, if it wasn't for that, we wouldn't have to deal with civil rights. No, no. No, I was saying it the other way because everyone's always like, I keep hearing this argument. Department of education doesn't do any it don't do anything.

Well, you know, like we have this little thing called civil rights that need that or is like a national like program that like it's kind of important. There's no civil rights at the state level. Not for schools. And that's not something they can do either. It doesn't exist. And also you can't do that if you don't have the Department of Education. You cannot have civil rights. I mean, yeah, I mean, those are the I mean, I. Was they're being sarcastic. I mean, that's okay. Yeah. It's okay.

I mean, we have a lot of laws at the federal level because we don't necessarily trust states to do the right thing. I think if we go back to the Civil War, I can give you an example of. Have you ever been in Florida like you expect Florida to be doing the right thing? Come on. You can't even get a Texas can in Florida for. Granted. Expecting like each individual state to do good. We just said you're all going to suck together.

In fact, you're going to perform so bad that you're going to have third world countries that are going to outperform you. We don't want one of you to do good. You're all let's yeah, let's let's let Mauricio finish this because we're we're definitely not arguing that the Department of Education does a good job. We're just saying there are a few things that the Department of Education does that are kind of important. Yeah, I mean, it all kind of got blown together.

Maybe just a kind of I'll put a bow on it and give you maybe the top 2 or 3 reasons that I'm in favor of getting rid of the Department of Education, a couple of reasons why we shouldn't get rid of it. So so the first argument about getting rid of it is actually that that idea that there's first of all, there's nothing in the US Constitution, for example, which is what's supposed to be, you know, limiting the federal government. There's nothing about schools.

There's nothing about, you know, education at all. And then the argument is like, do we really want one size fits all? I mean, do I really want the person making the decision of what my kid is going to be learning that if I live here in Southern California versus living in Lincoln, Nebraska, which is more of a more of a rural versus Pittsburgh versus like everybody has different needs.

And I have one group of individuals or a group of people in Washington, DC dictating what what, you know, at the local level. To me, that's one issue that gets brought up. The second is, again, this redundancy of red tape. I mean, we we were doing just fine with it before the 1980s and nobody can I don't think anybody can come and say, oh my goodness. The results have been staggeringly well.

If we look at their performance over the next 40 last 40 years that somehow our schools have gotten better. I think if you go, I think if you ask pretty much everybody and say, do you think schools have gotten better lately or gotten worse? Most will argue they've either stay the same or gone worse. And then the the results are just are just not there. Now, the argument against that obviously is, well, first of all, they do provide some funding. Right? So they've got it right now.

Their budget has been going down, by the way, since 20th May. It peaked at like 600 and something billion dollars that my statistics, which I can't throw it on this thing but that we were at it peaked at 600 and something billion dollars, 600. I forget the date, but it back in 2020 and it's come all the way down to 103, which is only about 1% of the total federal budget. Most of that is student aid. So that gets distributed to, you know, really and I'm not even sure it's K through 12.

It's really more like college and stuff. About 15 billion gets to K through K through 12. And then 13 billion is about for special education. Yeah. The highest was 637,000,000,000 in 2022. So only about 10%, about 8 to 9% of the total budget comes from the federal government. Thank you sir. So it has collapsed there, there that there's collapsing in there. But, so it's not a huge percentage, but there is a significant number, right? There are billions.

And for some people and for some districts, it will be tens of billions of dollars. So the question becomes, how are we going to fill that gap? I mean, you if you pull this under the rug, there are some communities, some school districts, some states that are getting significant amount of federal funding. How is that going to get replaced? Is that going to now the state going to step up and raise taxes? Or how are they going to get the money to fit that in?

So that's one of the the arguments about like, hey, why are we getting rid of this or what's the plan if we do get rid of it, what's going to happen with that funding? There's been no clarity as to what the plan would be. And then to Kyle, to your point, I know you didn't seem that interested in it, but yes, there are some federal. Right. You know, those pesky federal rights that, that come into play.

And that's something that, the federal government, does enforce, protect civil, safe civil rights, civil rights and equal access. But the question is, again, is is there any reason why the states can't can't do it? There's actually a couple of states that already have proposed regulations or statute. I think Tennessee's one of them that just don't want to.

They don't want to take any federal funding and then want to they want to fill that gap at the state level, because I guess they just don't want to have that control.

So anyway, lots of pros and cons, but I to me, just to wrap it all up, the fact that this entity didn't exist prior to 1980 and our fathers and grandfathers and grandmother, our grandparents did just fine, if not better, coupled with the fact that we already have layer upon, layer upon layer, whether it's the Department of Education, Department or corporations, layer upon layer upon layer, like we get, we're only literally just getting rid of one layer and now we're everybody.

Every state has its own already has its own. Department of Education. Admin has outpaced students and teachers by ten. It's crazy. It's like, why that doesn't even make sense. But here's the here's the thing that I'm, I, I haven't heard, like, I keep hearing we've got all these layers. And I'm also hearing that all the problems are the fault of one particular layer. Do we have any data that that indicates that?

Because as far as I know, the stuff that the Department of Education does isn't stuff that you would think conceptually common sense wise. I'm not saying common sense doesn't always apply. But from a common sense standpoint, the stuff that that the Department of Education does shouldn't hurt education.

For example, a lot of the money that that the department of Education spends is for title one, which is basically ensuring that there's money for poor people and that kids who wouldn't have the opportunity to as good an education because of their financial situation, can making sure kids actually get breakfast and lunch in schools, because we know that there's a direct correlation between being able to eat and staying alive, and also being able to eat and and being able to learn efficiently.

So title one is huge. Kyle one does way more than that. So title one and two, I don't mean that in a good way. Title one is literally the ability that they hold and use force to get things that they want. In the school, it's become basically a batting, you know, a bat that they used to beat over the head and say, if you don't do the things we want, we're going to smack you with title one.

So it's become this stick weapon that they use to enforce what they want over the over the entire school districts of the state. And I'm, I'm open to having a discussion about these things that that they want that are hurting education. But in general. And again, I'm not saying you're wrong. I'm just saying the idea if implemented right, if it's being implemented incorrectly, obviously that's horrendously bad.

But if implemented correctly, title one has no ill effects on education, and it should only just. Just the entire concept of like, we're going to give you less money and it's going to make our education in the US better. We're we're going to stop. We're going to stop, like helping poor kids that that need to learn. This is the problem. Why do you think it would do that.

Yeah. That in in 1979 they were there actually we're doing better from an educational point in 1979 like the results have been going down. So why would it we act like we're going to there first of all, all indicators of what we're trying to get output. All of them have gone down in the United States as far as schooling goes. Even mental health you're talking about, I mean, we we have like graduation rates.

Like when you look at this and say output, okay, why do we think then taking a federal body that is forcing things down to. What kind of what we're talking about giving money for poor kids. But that's what I'm talking about. So why do we think that that because that won't happen there. It doesn't it won't happen at the state level. Like I guess I don't understand why that that doesn't make sense. It's so and so I can't I can't speak for your state, but it's not happening in my state.

In my state, they've actually taken away funding for for kids breakfast and lunch. Ed does it. No, there's not enough money from the fed. So basically there's they've had to cut programs here in Florida. Kids aren't eating here in Florida because all they get is the federal money, because the state refuses to participate. If the federal government, I have no reason to believe that the federal government stop giving any money, there would be zero money.

So if the fed, though, if it's their responsibility and I'm a state and I say you're the one that's supposed to provide it, you're that's your whole existence. Why am I now have to end in interject when that is the reason you exist? No, we're not going to do it. You should do your job and give us more funding. You need to provide more to us. So in that case, why isn't the fed providing your state more funding? Because we just said that it is. You see what I'm saying?

Like it's it's their response. Money is providing funding for specific things. And so I do I'm happy to argue. Which. By the way, the Congress Congress is the one who actually approves the funding for these things. So it's not like the Department of Education is just coming up with these things, paint paying their money. So like, even if we got rid of the Department of Education, all of these programs would still be funded.

If we want to have a discussion about whether the federal government should be spending more money to make sure kids eat, let's have that discussion, because I'll tell you what side I'm going to come down on. We should be spending as much money. Like, I don't think that's what I get. Absolutely the state and local government should be doing. But if the state. But what if the state won't do it? Who are you. Voting for over there in Florida where your state doesn't do this?

Like, wouldn't you vote for people that want to do it? The federal government is going to make decisions on my local kids and the funding that we give in our school system, everything else. So let's let's go, let's go back. Let's go back to what Kyle was saying at the beginning of this. In the 60s. We didn't have civil rights, we didn't have integrated schools. Were the states doing it without the federal government stepping in and saying, we are going to force you to do this?

No, because some states people don't care about civil rights. Some states people don't care about poor kids eating. Okay. But you what you're saying, though, Jay, is that we're taking away the rights, abilities and options because you don't think that another state will do what you want. Now, once again, I'm not saying you can enforce law and say you can't have segregation without having the federal government to say the states, you have to do this. Why?

Why can why do the states can only do it if the Department of Education exists is the only way we won't have segregation. I'm saying that there are certain, let's call them inalienable rights that people have. I think segregation is one. People have the right to be integrated and and not be forcibly segregated. So I have no problem with the government saying we're going to force states to do this because it's the right thing to do.

I'm going to put feeding kids and making sure that poor kids that don't have enough money to eat, I put them in the exact same category. Now, I'm not saying the government should be giving money for other things. We can talk about other things. Right now I'm talking about total one, which a big portion of total one is ensuring the kids eat. And as far as I'm concerned, that's just as important as civil rights. It's just as important.

But honestly, what's happening here is, is that like because Trump's done this a few times and like this is a huge, complex issue and the right way to go through this is say, hey, obviously the Department of Education's broken. They're not doing their job the way they should be.

And the proper way would be is to like go through this forensically and figure out which programs are working, which programs aren't working, which one should get funding, where are we overspending doing all those things. But like that would take a short amount of time. And we don't have that time if you're if you're just the executive branch right now. So the easier way is to just say, hey, let's break it first.

And then like people are going to fight it and then we'll figure out what's actually important on the back end. That's kind of like the M.O. right now. And so like to say like, yes, we're going to pick out all these things that are important for the Department of Education that like, should get funded. But at the end of the day, like the things that should be get funded and the things that shouldn't get funded are all mixed together right now.

And they're all just under the department of Education and they're they're getting lumped together. So when someone argues one side, like AJ saying, like, the state should take care of this, and Jay's saying like, well, what about the funding for food? Honestly, the funding for food should come. It should probably not even be on the Department of Education. I don't understand why these school meals are under the Department of Education. Why isn't it under, you know, the the what's the other one?

The how the. Health and Human Services. Happened is exactly why isn't it not under that service? Why are they the ones providing that? Why is it the Department of Education. That's a that's a that's a 100% reasonable discussion that we could have. But it's not layers. I mean we're talking about one department versus another. I'm not arguing that. Great. Maybe it's in the wrong place. But that but if it's in the wrong place, let's talk about moving it not getting getting rid of it.

Yeah. Well, that's part of the problem is that you're getting it's kind of like the what is that the repeal and replace thing where it's like you're getting rid of something, but you don't have a plan in place, like, okay, well here's we're getting rid of it's going to cause some issues here and here. So we're going to put some funding and have that covered somewhere else. So we're going to give some more funding to the states. Or the states gonna have to do it. There's no plan in place.

It's just right now let's just take it out and figure it out later. Right? I mean, that's a concern. Yeah. So I think the disconnect too, at the at the beginning with Mauricio, the how much they get for funding, I think you might have been taking out the Office of Federal Student Aid because there's office. College. Loans. Is the student loans. Yeah. And that's 100 and so of their 268 billion budget, 160 of that's like 60% of that is just a federal money. Mine showed 68. Yeah, mine showed 68.

In student and student aid. And right. So but in theory that's profitable if they get paid back with interest in theory. But also once again like that doesn't need to be Department of Education like that could, you know, that could be run by someone else. And then they already Trump already came came I think it was the last couple of days he came out and said that, Bobby Kennedy could take care of the, of the of the meals if they, if they dismantled this. So they're like.

But once again, as I said, what they're doing is they're saying, hey, let's break and see what happens on the back end. And so they broke it. And everyone's like, well, what about this? What about this? What about this? And they're like, okay, they're basically outsourcing. They're they're their for thought of this. They're outsourcing it to the, the public, saying like, okay, this is what we're doing, what are going to be the effects. And everyone's like, what about this?

So like, okay, well, here's a plan to do this. And they're they're making the plan. They're, they're jumping in the water and building the ship from the water is kind of I don't know what the the analogy is there, but. Building building the airplane on the way down. And let me just say before we go any further, because I, because I know I'll get mean comments about this. I am not arguing we should be keeping or not keeping the Department of Education. I don't care about titles.

I don't care about agencies. I don't care about people. All I'm saying is that there are things that the Department of Education does that I think are very important for this country, and we need to ensure that those things are not don't fall through the cracks. And so if that is done, I don't care, I don't care. But yeah, there's way too much I agree with AJ. AJ will point out all day that there's too much bureaucracy. He's right. There's way too much bureaucracy.

There's too many too much administrative cost, too many people. Let's let's get rid of that. But also at the same time, don't just use a stupid phrase, throw out the baby with the bathwater. Don't, don't just, I think, stop cutting 100%. And I think the reason why to me, the States, what we had it you had problems with as things went up to the federal level where things like the after they started to get in, you have Hartford now that gets $686 million. Ridiculous. From the federal government.

How big is Harvard's endowment? It's ridic. And that's a that's a whole different episode. Or maybe we did want read. Still, it's what we're talking about is education at the federal level. What they start doing then is they start picking and it becomes a black box us down here, our tax, taxes going to a magical thing. Now they have a department that is making decisions. They're allocating capital. There's redundancies. It is not being effective at the local level. Right.

And so I think the sources that I agree with Jay, we need to have them. I just think they're distributed better needs met better at a local level as opposed to going up. And we have this just mass waste and bureaucracy giving, you know, hundreds and hundreds of millions of dollars to some of what are essentially the biggest hedge funds in the world. It doesn't make sense in colleges. I think you saw that flash up there. I flashed the I guess I was the the 2024 was at the 241 billion.

It sounds like the 2025 is where it got to 103. So they keep cutting. It's definitely going down in terms of their funding. So that's interesting because that's obviously been happening over the last three years. So the way I look at it is here I'm just going to pull up a map. And this is the the how much each state spends on education.

And so I guess my point is, is that it's, it's fine for us to say like, oh, the state should take care of this, but just demographically of what where people live. Like if you think about like so we're the reason I moved into my school district, is because our, our funding per student is over $30,000 a student per year. So I know my kids are going to get a good education because they get that.

But I also know if you go to the next township, in the next county in the wrong direction, that it's half of that. So how are you saying that kids are good? And the problem is, is that they can only collect so much from their from their demographics. And in order to to facilitate that, I, I, I think I saw a stat where Detroit, there's a county in Detroit that they get half of their funding from the federal level, half of it.

And so if you look at this map, you can look so like in New York, Pennsylvania, like New York, they get 27,000 per pupil pupil for public schools. Right. But if you're making you're making a big assumption I want to challenge that because the what and I don't have any specifically. But you're making the assumption that more money equals better education. And I don't know if that's true or not. I don't think. Okay, that that is an assumption.

But if you want to look at the difference between AJ over here in Idaho, where he's he's getting 9000. Percent, if he's getting better results and he's getting a better education, who cares? So then two, I also want to challenge that. I know that's not true because in our state, that's not actually how it works. I don't know what they're bringing in. I've owned a school. We allocated $8,000 in a private school per student, and that was half of the state's allocation.

And we got double the results with still 50 teachers. We had hundreds of students. We did. We did way more obviously extracurriculars. They did all the stuff, way more private school. They had it advanced. They were almost two grades at advanced at half of what the public school system provides. And their results were not even close to being met in Seattle this year. Enrollments of white and Asians were down 50%. Whites and Asians because they were moving them out to private schools.

This is private schools are exploding across the United States, right. So what's happening is our public school system is really flawed and broken, and it is not being handled on a local level. And the local we're trying to make changes locally, but you have no impact, no effect. You just can't do it. And it's a big problem. And I agree, I don't think cost equals results because I've seen it, I've done it. But there's also to me there's also a base level of requirements.

So like I'll throw one one more up. And this is what I was referring to with with Detroit, like there are just areas where like you think about it, you can there are certain areas where if you if you're below the poverty level for the area, like you don't pay federal taxes, you don't pay taxes in general. If you're if your income level is a certain level, how are they going to fund their schools?

Like how like their township, their county isn't going to fund their schools and therefore the state it's on the it would be on the state to make that up. And the state currently relies on federal funding to make up for these underprivileged, low income areas in order to do this. So what we would be taking away originally would be all of these these basically subsidies for lower income and marginalized and these areas that need the need, those effects.

Is there a better way to do this where the federal funding is maybe less targeted and just given to the states in order for them to, you know, distribute it as they see fit? Maybe, but at the same time, just getting rid of this, like if you look like Detroit, Michigan has 48% of their school funding from from federal funds. So like, what's going to happen to Detroit if all of a sudden this is gone? Like, it's like it's not something you could just get rid of and not find a solution for.

Their their scores will go will double. That's gonna happen. Like I think they're the worst performing, district in the nation, too. And I guess I think it's the final point in this, too, is like, can this even happen? Like, I don't, I think, is this to me, it's just another thing. As I said, I think this is just not necessarily a negotiation tactic, but more of the lines of like, hey, this is problems. And it's kind of in Trump's M.O. if there's a problem, I'm just going to take the extreme.

It's almost like when you're negotiating, you take the extreme anchor and then so that you can work your way down from there. So like I like. And we didn't talk about we didn't really talk about that, but and I and I haven't looked it up but I can't imagine he has that. You mentioned something at the beginning, like he just wrote an executive order and got rid of the department. I don't think it works that way. I think it's got to be a congressional.

He can he can do an executive order to study, study the impact of the getting rid of the education. But he can't unilaterally sign a executive order and get rid of. Anything short of sort of he cannot disband the agency because the agency was created through federal law. So only Congress can get rid of the agency. But what he can do is he can basically say exactly what what AJ and I were discussing earlier.

He can say, so we're going to move this budget from the Department of Education to Health and Human Services. We're going to move this one over to, to the Department of Justice. We can move loans over to whoever the loans move over to. And basically at the end of the day, the the Department of Education has a budget of zero as opposed to 600 billion. The agency still exists, but it's not being funded because all that money is moved to other places.

Now, he can't say, I'm going to just cut this program. I'm going to stop funding this. I'm gonna stop funding that. But he can move it over to another agency if he moves it. For example, title one over to Health and Human Services. Now, what's his face? RFK can say, well, I am the head of this agency. I choose to defund it. And so he can no longer he can say to Congress next year, I don't want any money for this.

And so now that's how that's how Trump potentially saves money, without having to force Congress to do anything. So so to wrap this up, are we like as investors, as I said, we take it really seriously. Our school districts like where we invest like school districts. Is this something we're going to see any changes? So like should I stop looking at any areas? Should I start looking at federal funding for school districts as an as a

as a indication? Okay. If you believe that more or less federal funding will affect the quality of the schools, right. Because because that's the assumption you're making. Right? So it's more about the quality. And people are moving to those school districts. They have great schools, right? If the school itself is great, it regardless of the funding. So you're making an assumption. I'm not saying it probably. I mean, the only.

Reason I'm making that assumption is I send my kids to, which is number one, elementary school in the state, and they're also the highest funded. So yes, there's not always going to be a correlation, but there will be some correlation in my opinion. We literally got an email ten minutes before this podcast started. My wife showed it to me, as I was getting ready for the podcast that, Florida State legislature is proposing, significant budget cuts around education.

And both of my kids are in an advanced academic program called the International Baccalaureate, the IB program that could get cut at their school. And literally if those programs get cut, we'll leave the state because that's for us, that's how important education is for the kids. And so I think this could be interesting if we start seeing major cuts. If it's going to impact people moving to different states, for, for educational purposes. As they should. Yeah. Yeah, they should.

Absolutely. So I guess don't freak out as of now. The thing is the is the too long. Didn't read good. Ready to move on to a top ten. Okay. How about top five? We skipped. It's already 3:00. Let's can we skip the top ten or do you have a good one? Let's do a top three. I'm negotiating. Good. What's your calendar? It's a it's a fast top ten. I'm just I thought it was. Come back to top seven. We were talking about how Fannie Mae might get downgraded as far as their ratings.

And so I thought it might be a little bit of a it would be nice to see what other companies you could invest in or get that have higher actual ratings than Fannie Mae or even similar ratings. And Fannie Mae, I thought, okay. I'll just I'll go up to top four. You come down to top six, we'll go to top five. I'm tired of this, man. I'm out of here. I'm not I'm not going to listen to your top ten one more time. I'm absolutely done with this. They're they're lame.

I want I boycott, I boycott your top ten. Make sure you upload before you leave. I'm out. Actually, it. That would be kind of funny. All right. This is great. I'll do the top five companies by S&P credit rating. So actually, it's one of those things where, the U.S. government and Fannie Mae currently only have a plus. So back in 2023, they got downgraded from triple AA to double A plus. So there are right now two companies with higher credit ratings than the U.S government and Fannie Mae.

Any guesses? And anyone. Two companies, higher credit ratings. I wouldn't have guessed. So I'm not going to make a guess if you and, Microsoft and Johnson and Johnson both have triple A credit rating. So theoretically, if you were to get corporate bonds from those two companies, they would be higher credit ratings and safer than Fannie Mae and had Fannie Mae plus they're in third place. Apple also double AA plus alphabet,

also double A+. Yes. And then you have a bunch of double A's where you're talking about, Amazon, Berkshire Hathaway, Walmart, Accenture, Exxon, those, those people. So anyway, I just thought it was interesting that there are companies that are higher credit rating in the U.S government. J you got any, hypotheticals for. Us? $1 million a year? Okay. But you can only drink water. Oh. A million a year. Nope. Not enough, can I? Can I turn it off? I think I do.

I was going to have to go two different ones with you and AJ, because I knew AJ was going to say no really quickly. I figured this is going to be a good one for you because. Can I turn it off? Could I like, do it for a year? When you stop, you're done. So like when I so that's what I mean. So like I could just do one year, take a million bucks and then. Yeah. Yeah, I think I would do that. My wife's been trying to say we got to drink less anyway.

So now I would give it a year, try it out, see if my life gets better, and if it doesn't take my million and then then go back to the way I was. There you go. I would suspect it wouldn't get better. It would get significantly worse. I the only thing I drink is basically water and wine. And so yeah, I think I could easily do that. Yeah. Well wines water and wine that that second one's a big one there. Jameson, you got to take that into consideration. So fun fact Mauricio did leave.

So that's interesting. He's gone. So, on the raw on the plugs, there's, no plug for Mauricio. Let's start with Jay. What do you got the plug? I don't really. What do I have? I don't have any. RJ, what do you have? I'll let you go first. I'm sticking with, one I've been doing more often, and I'm not talking on YouTube. That's been the to what I'm doing. Drew daily. So, I've been plugging that over the last little while. You guys check it out, make sure you guys are on it. It's awesome.

It just emails you every day and you get to see the news articles. You get to see a description under it. It's super easy and very, very informative. You could go through most of it in under a minute and you get all the everything you need to know for the day. Exactly. And it's really keeping up to speed. I like to say basically it's the information you need to sound smart at parties. Yeah. Yeah, exactly.

Yeah. And even if, even if you read every single word, the whole thing, it's still under three minutes. So like. It's it's really good. It's great. I was going to just I was just going to plug whatever AJ did, but he did the daily. I'll do AJ YouTube channel. Actually I plugged it on my Facebook the other day along with Moriscos. Imagine. You had like a pretty viral one the other day, right? Yeah. It's been going. How many it to get on that one? I don't know. The first week we had one that was.

We had a couple nine figure ones. Yeah, yeah. Yeah, it was like a couple I thought I saw like $200 or something. That's crazy man. Congrats on that. And it was just you. Your face. It was it I know like, why would people it. Maybe something must have been broken on YouTube. I'm not sure. Yeah. You didn't even have like, Elon Musk talking to with or anything. It was just you. So that's, congrats on that. Yeah. So go check out AJ. So you see why he got 200,000 likes?

I mean, nobody's going to comment on my haircut. I got a haircut two, so. No, I couldn't tell the hair. And you're wearing a hat. Geez. We were supposed to call it like, what is this? I feel like you're like, I got to pay attention when you got haircuts now. So I make sure when you get home. Because I'm just treating you the way you. Treat nice. Honey looks great, honey. If I have to do a. Good job today, you do. With me. All right, I'm going to plug my wife. Actually, not.

I'm not going to plug my wife. I'm going to plug conference connect. Just launch ticket sales. So if you're if you're, if you're an event organizer, you could already you could have posted your event on the, on the site and get all those benefits. But now you could sell tickets to sold me. I just sold tickets. I saw AJ selling tickets to Conference Connect. There we go. Anybody there? Anybody that sells any tickets on conference connect is going to get a drunk real estate mug.

So if you have an event, if you have a conference or an event. Did they start selling drunk real estate mugs at Costco? Because the amount of times you throw it that people can get drunk. Real estate mugs, I they got to be a Costco by far. You know. They don't. My, my my wife has a hook up. By the way. I didn't even know until I tried it today. Costco delivers awesome. Through. Instacart for them, so. I didn't know that. Don't.

Oh, I mean, I know they marked it up and I had to, you know, tip the delivery driver 15 bucks or whatever, but like, no, it's Costco. It's Costco these days can be a nightmare. Like just getting it in the parking lot. You could five minutes just sitting in the parking lot waiting for a spot. Next week, I'll I'll tell you what's going on at my Costco. It's a crazy story. All right. Cool. It's all I got up. So 90 were getting close to 100 boys. Got to figure out what we're doing there.

And he suggestions something cool for us to do. Episode 100. It's got to be epic. So, throw that down in the comments. Yeah. Mauricio, any thoughts? Oh, nothing from Rachel. Okay. All right. Well, at least you two. I will see you next Thursday. See you guys.