Chris Whalen on PPP Loans (Podcast)

that I got to meet Paul Boker. It was through Chris that I really learned a lot about how the Federal Reserve works, how the mortgage market works, how the securitization market works decades ago. In fact, when I was researching Bailout Nation, a lot of his work found its way into some of the end notes in that book. He is really a health of knowledge when it comes to UH this area of finance. And if you are remotely interested in securitized products, mortgages, banking, UH and banking analysis,

you're going to really enjoy this conversation. So, with no further ado, my conversation with Christopher Whalen, this is Masters in Business with Barry Ridholts on Bloomberg Radio. It is still a shelter and home addition, and for this week I brought a very special guest, Christopher Whalen. He is the chairman of will and Global Advisors and has a long and deep background in the financial sector, working at such firms as Bear Stearns and as a researcher for

the Federal Reserve. Chris Whalen, Welcome to Bloomberg. Hey, Barry, but a pleasure. So let's start out with a little bit of your background. I know you as a bank analyst and uh an a specialist, but let's go back to when you were at Bear Stearns. What were you doing at Bear and how is that related to your work at the Federal Reserve. Well, I grew up in Washington. My parents, Joan and Richard Whalen, were some of the most interesting Republicans operating in the town, and it was

a Democratic town in those days. Bearing the Democrats still ran everything. Um. But that's how I got to know FED chairman, people like Paul Vulker, Arthur Burns, Alan Greenspan. They all came to Mom's parties. In fact, if you didn't get an invitation to Jones Christmas party, there was something seriously wrong with you. So I grew up in this very political household, went to college, went to Villanova, and then when I got out, I worked for Jack Kemp for a couple of years on Capitol Hill, really

learned the right. Two brilliant editors used to just pound us because we had to report on different committees. And I eventually ended up moving to New York and I was a man Aagemont trainee at the at the Fete of New York. I worked in bank supervision first for Jerry Minnahan and Bill Rutledge, and then I went across the street and worked in foreign exchange for Gretchen Green and Terry CHECKI one of the great uh FED officers

of his age. He was responsible for foreign so all the other central banks would talk to Terry uh In fact, he was probably the only person in the building they would talk to. So that's kind of where I got my start. And then I went to Bear in London fixed income trading and sales, worked with David Setchem and Joey Calvo and a whole bunch of great people who are now at R. W. Pressbridge Special Situation uh Fixed Income Shop here in New York, so that's really where

I started in credit and I had to learn about banks. Obviously, I went to night school for accounting. And it was very funny in those days because New York was empty Barry in the eighties. There was no one here, you know, especially oh God. We used to go to Raccoon Lodge and there would be bikes parked up and down the street, you know, two blox of City Hall, middle of the night and there'd be no one there, no one. That's that's amazing, that's amazing. You mentioned Jones parties. I recall

a party of yours. I believe it was election night in two thousand and eight, and that was the only time in my life I got to meet Paul Vulker was sitting in your kitchen telling jokes about the Bush administration with tall Paul. The fact that I got Paul to laugh is one of the highlights of of that decade for me. Yeah, he was a great, great guy, and he did have quite a sense of humor. Um. He was a member of the Lotus Club, so I did get to see him a couple of times there

before his passing. But he was just a lovely man. There were times we disagreed on things, but I always came around to his point of view because he was such a real guy and he was grounded in in reality. He reminds me a lot out of what my dad said to me years ago. He said, Christy, task of this generation is to pass the bubble onto the next generation intact. And that's what Paul Volker did. I asked him once about the banks. I said, Paul, why did

you let this? In two thousand seventeen, which is where that picture I put on Twitter came from. And we had gone to lunch in this little cafeteria right there in Rockefeller Center where he used to go and you know, get his lunch every day. It's very bad, it's very nice, uh, And we're sitting there and I said, like, why did you let the banks do off balance sheet finance? All of these bad things happened subsequently, right, And he said, well,

they were broke. What else was I gonna do? So, you know, he was just such a suite and I think, very committed public servant, and I always respected that about him. But he was a family friend, which is why I never asked him for anything. What about some of the other um said chairman that you had relationships with. What can you tell us about Arthur Burns or Alan Greenspan or anybody else on the FMC that that stands out

in your mind. Arthur Burns was a very sweet, self effacing man, Um who my dad got to know because Pop was a speechwriter for Richard Nixon and he left the Nixon campaign just as Nixon was going to the White House. So, you know, because of my father's press credentials and connections and everything else, and also because of the fact he was a Republican again in a Democratic

dominated town. Um, he quickly got to know people like Burns and Greenspan and became kind of their political counselor in a sense, because the decision by both men to get into the FED and get deeply involved in national economic policy was a very momentous one because it meant a lot of compromises for both Um. You know, I don't remember Burns as well because I was so young, But Greenspan was always a a long uh family friend, and he had gotten to know my pop when Pop

was working with Ronald Reagan. When you know, during the seventies six cycle, when Ford eventually got denomination Greenspan was trying to figure out when he was going to go to the Council of Economic Advisors and then end up at the FAT of course, and that was also a very political decision, very because you know, the FET is the most political entity in Washington by far. Fan was very astute political analysts, not a great economist, but really

really sharp judge of politics. So you know, it was a fascinating thing for a young man to have access to. I would sit on the stairs in our house in for Sunthern, Maryland, off of Massachusetts Avenue, and just listen to these parties, uh and meet the people sometimes because we were all very little, but as we grew up, these people were part of our lives and we were kind of Washington insiders. That's what Washington was like in the eighties and the nineties. You could actually get stuff done.

People would talk to one another, they would have dinner, drinks, you know, a little a little different than today. Yeah, I think we have to restore civility and there by communication that would go a long way. That would go a long way. I have to follow up with one question. You mentioned FED chairman making compromises. Were you talking philosophically or politically, or across the board. I think it's across the board. You cannot survive as FED chairman without the

at least the acquiescence of the White House. And you know, Trump brates Powell and says things in public. But as Judy Shelton said, I think so wonderfully, at least he does it in public. What Richard Nixon did Darthur Burns was criminal. His anti Semitism and his just nastiness was was awful. And you know, Reagan, on the other hand, was very affable. My dad got Paul Vulcer reappointed and it was a little cabal between him and Paul Laxolt,

the Great Senator UM. One weekend, the Laxalts and the Reagans were at Camp David, and my dad gave Paul, the Paul Laxalt the phone number and said, have Reagan call Vulker. And it happened. And then my dad said to me later, I put this in inflated. This is how stuff gets done. And watching the phone call from gathering at Camp David. Yeah, And you know, Beryl Sprinkle was being pushed very very hard by Don Reagan, the former chairman of Mary Lynch and Dad won. So, you know,

kudos to Paul Laxol. Let's talk a little bit about debt and building the American dream. So how have mortgages over time helped to build the American dream? Mortgages, you know, are frequently cited as evidence of the American dream, the ownership of a home, the homestead, right, but the actual

marketplace goes back to the Depression. When the government got involved in the mid and late nineteen thirties, uh and created uh Fannie May, which was an agency that would go out and buy loans, long term loans, and hold them, and they funded these operations by issuing government guaranteed debt. Before that, you couldn't get a thirty year mortgage. You couldn't get a ten year mortgage. Berry. My grandmother Vera actually lost her house in the early last century because

they had a balloon. In other words, you had small payments initially, and then you owed everything and there was well, there was no such thing as a thirty year fixed mortgage. It was interest only payments, and then you would if you were a borrower in good standing, at the end of the loan period, you would roll it over into a new one. And startle over. If you weren't making principal payments, you still owed exactly what you owed when

you begin. That's right correct. And and really if you work in the mortgage business and in the world of fixed income, you understand if we don't really have thirty year mortgages, we have dirty day mortgages with an option to renew, which is held by the homeowner. And so every month the investor has to try and figure out how many of the loans in a given pool, which is how they do bond mortgage bond issuance, are going

to prepay, refinance, sell the house, default, whatever. And it's that optionality that makes mortgages so interesting and also so treacherous. It's a huge asset class. It's almost twelve trillion dollars now, but interestingly it didn't grow for ten years after the crisis. It was flat and no surprise there. Yeah, but it's interesting, very because socio logically and in terms of you know, the baby boom and everything else. When you study how

the mortgage industry has behaved over time. In the eighties crashed and burned, destroyed all the savings and loans. The nineties was kind of flat, now there were fringe products there, specifically our friends at City Bank who decided they could do no DOC, no income verification mortgages for self employed. Right, that's where subprime mortgages came from, was in the nineties. But then they got out because the results were so horrific. And they did this in the US and other countries too.

When I was working at the FED, I was in charge of overseeing city banks foreign adventures in places like Japan. Well, Japan, they have no credit information on individuals, so someone could default and just disappear, and they did. So. You know what's the las of mortgages in Japan, Chris? Oh god, they can be quite long, they can be multi generational mortgages are unheard of, no, no, because the rates are

very low. And so what happens is if a young couple is getting married, the family will typically cool their resources go buy them a house, and if they need debt, they'll pay it off as fast as they can. You know,

you may have heard of stated income loans. They're prey popular out on the West Coast among the Asian community, Koreans, Chinese, and very typically these loans performed great even though they don't fit in the box for you know, Fannie Mae, Freddie mack j and you make kind of loans, they're they're typically private. The communities hate debt, so you know, if a young couple starts a family, they'll they'll pay

it down five years. So all of that has to be factored into your analysis as an investor if you're

buying these loans right. You know, like the last few years because of the bondmarket volatility, all of the mortgage loans that were made in eighteen and nineteen are pre pain because they're all in the money now, they can all refin yts and I take over the next year or two, you're going to see the fig gently step on the bottom of the yield curve and force that front coupon down for both government loans and and Fenny and Freddie loans, and we'll see three percent mortgages in

this country I think by the end of the year, which means you're gonna have a Jinny May two out there. You're gonna have a two percent coupon. Let's let's talk about that a second, because if I remember, pre crisis, the average length of a mortgage was about seven years, meaning people typically would move into a house their starter home, have the first kid outgrow the house, and by year seven they're selling and trading up to the three bedroom split.

And that was fairly typical. Are those numbers about what you recall and what does that look like today? Yeah, it would be seven years or even shorter during periods of very high labor market mobility for example, um, you also have the speculative component. Back in the two thousand's a lot of second homes which would flip quite quite fast. Today,

average lives are ten plus years. In fact, the servicing portfolios that are being created right now Barry with refinancings are going to be worth a lot of money because they're gonna have average lives over ten years. Whereas the older strips, like I said, bonds that were sold you know, one and two years ago with much higher coupons, they're going to pre pay. And so the average life of those pools it already has, it's it's shrinking down to

like three years. And if you're in Eastern and you paid you know, one oh four for the bond and you're getting redemptions back at par that's kind of painful. That's a loss. So so we don't. We don't really love predictions here. We kind of frown on predictions around

these parts. But what I'm hearing from you is that you think, as part of the Corona a virus pandemic response, the FED is going to encourage another wave of refinancing by keeping part of the curve low, not inverted, but low and flat, so that it becomes attractive for homeowners to refinance. Did I hear that right? Oh? Yes, I think you're gonna see what we call streamlined refine that

don't require appraisals. In other words, you have an existing borrower, you already know who they are, right, you're lowering their costs. You're typically doing a rate refine rather than having them take cash out. But that's okay. If you lower the household's expenses, you're improving the credit. It's gonna have a

lower probability at default. And overall, what you want is to get cash into the economy right now, right, So yeah, I think the FED would love to see a gradual surgeon refines because you know what they have to buy the paper Barry, Uh, their mortgage portfolio is going to prepay in the next six months. It's like a trillion dollars. So just to replace that and keep their balance sheet stable in terms of monetary policy purposes, they're gonna have to buy a lot of paper, and I think the

predominant UH source will be the government market. Jennie May, we've had some problems with the Fanny Freddie component for the last couple of weeks. While they're a regulator, Mark Collabria has figured out what to do. But I think the good news this week is he's figuring it out. We're helping him. Um. So hopefully the whole mortgage complex is going to have a solution to both the forbearance

with the COVID nineteen and then the resulting defaults. I think a third or more the people who look for forbearance on their mortgages barrier are going to ultimately default. Let's talk a little bit about something that is in the news today, namely the government's Paycheck Protection Program better known as p p P. How are banks handling this? Who's doing this well? Who is not? The banks, like all of us in the world of finance, had this

this Cares Act legislation thrown at us. There was no guidance on how we were to implement it, and in many cases it was unfunded. So, for example, the entire mortgage space, whether it's government guaranteed or private, has to figure out how to deal with consumers who've been told they don't have to pay their loans. And this really only applies to government guaranteed loans, but everything autos, you know, if you name it, the rent whatever, So everybody thinks

they got a free pass, but it's not. Now. With small businesses, there was a window there where you could go to your bank, typically the bank you use for the business and payroll, and you could get a loan from them, and if you agreed to keep your people on it would eventually be forgiven. There's so much money though, so most of the small business people I know who have tried to act sess these credits have found out

that the banks have already run through the money. And I think, what's you know important to realize is that for a lot of small businesses, it's better to just put your people on unemployment and keep their healthcare active because in many cases, especially you know, at the lower level employees, it's a race, so they can stay home with their families, you keep their health insurance intact and you just basically wait. And I think that's what a

lot of small businesses have decided to do. So we've heard about a lot of smaller community banks that were very effective at processing these p p P applications, but less so for the big money center banks. Is that simply a function of employee to client ratio. I mean, if you're Wells Fargo UM or Bank America, you have a bajillion clients. But if you're a smaller community bank somewhere in the Midwest, I gotta think it's pretty easy

for them to process those applications quickly. That's correct. Very the larger institutions have trouble with processing anything out of the ordinary um In essence, there are no economies of scale and banking, right. So the little community bank, even

the regionals, are typically more flexible. They can handle increase at the branch level and they can make decisions because they have a flatter organization the big banks or pyramids, and they do this intentionally to keep them from causing trouble. So essentially, the largest banks are very inefficient by design, and that's why when you call them, they have this very narrow bottleneck of capacity, for example, to take calls because you have to actually talk to someone if you

want to get one of these loans. And they had some online presence, but remember they had to put all this up in a matter of days. And banks don't move that quickly, see non bank companies. Because they're flat, they move very quickly, and smaller banks tend to be much more nimble than the larger institutions. So so for these banks, how does participating in the p P P plan benefit them? It certainly doesn't hurt if your clients can survive. But is there any incentive for the banks

to do something? Oh? Yeah, they make a couple of points up front gain on sale, and the loan no credit risk. It works, they're all covered credits. It's like a small business administration loans. The banks have a nice little bump in the front because they typically will sell those loans where they can keep me in portfollowing off they want. But they have a number of incentives to do the business. Believe me, what kind of bank was best position for this COVID nineteen crisis? Was it the

big money center banks, was it the investment banks? Was it the regional banks or the smaller community banks. Who do you believe EVE is going to come out of this um as having not only survived but thrived. I think first and foremost, you look at JP Morgan simply because of size, you know, a trillion plus and core deposits on one side of the business and a pretty robust capital markets business and also derivatives on the other side.

It's about half and half. Well, it's Bank of America likewise, big islands of liquidity, more than a trillion dollars in court deposits. The ones with more consumer exposure like Capital One City. Uh, they've been getting beaten up just for that reason. You know, credit is the concern. And in the investment banks, interestingly, Morgan Stanley during the sell office, the outlier and the whole group, their credit the false swaps were trading more than two d basis points over

the curve, which is a lot. Give you an example, before the crisis and the sell off kind of beginning of February, most of these banks or forty fifty bits over the curve for five year credit the fault swap insurance. So they all widened. And Goldman, Morgan Stanley, you know, American Express, they got beat up but today MX is

still trained the three times buck. It's a premium property because it's the best performing large bank in the United States, even though it's small, it's only about two billion assets. So I would tell you the consumer exposure is the real pain point. But you're going to see pain on the on the institutional and the commercial side too. I think low losses for banks, it's going to be across

the board. Berry. If I recall correctly, Capital One is now the largest credit card issue are in the country. Is that right. Yes. They rolled up several monol lines, you know, ten fifteen years ago, and it's primarily a credit card issuer. Pretty high cost of funds, but they're very efficient. They've gotten into some other areas that got them in trouble, like oil, which was kind of rising. I think people were taken aback by that. But the reality is, you know, these model lines don't do so well.

They need to broaden their business and Capital One has not been very good at main street banking. They bought a couple of retail banks for basically for the funding um, but they haven't developed those businesses. In fact, if anything, they've shrunk them down. So they have consumer which is very nice, very high spreads, and then they have a capital markets business that unfortunately it's been in the headlines recently. So you mentioned roll ups and some M and A activity.

I have to assume that in that's completely dried up. Or is this still things happening behind the scenes. Well, I think for now yes, because valuations are going to be difficult until we get through the peak of credit costs. It's hard to value a bank if you don't know what the next three to four quarters worth of credit looks like. Um. So we've got to get through that. And there are other assets on bank balance sheets that

are also you know, big question marks right now. Um. And I think as we get through that, well, think about servicing portfolios for all kinds of loans. Typically those are annuities, right, you get paid a little fee every month. It's pretty nice. But because of the uncertainty regarding all this forbearance, whether it was legally authorized or not, right, the regulators are forcing all lenders, even private lenders, to

give forbearance. You know, ally just reported Earning said the auto lender they basically had to extend a hundred and twenty days of loan forbearance on what are private loans. The bond horns will pay for this. So you know, the regulators essentially threatened all of these non bank lenders who operate outside of the government guarantees space and said you must provide forebearance. So it's just you know, coercion on a national scale, and uh, they'll through it. We

have to figure out what those loan portfolios are worth. Now, how many of the people who ask for help are going to get back on track. That's the key question, because then you can value the portfolio. So what do you think will end up happening with all these lenders who suddenly have a four month hold in their revenue um or at least they're cash flows. They're still owed that money. It's just kicked down the road a little bit.

In theory, yes, if the consumer cures and for example, and this is private by the way, there's no government mandate here as to how you fix this. Could say, well, we'll push those mispayments to the end of the loan and will modify the loan. Okay, just contract we won't buy the loan back from the bond investor. We just leave it. Because that makes life a little easier. Same

thing with the mortgages. They would ideally like to leave those mortgage notes in these pools to back all these securities, because when you buy it out, you have to buy it out at par it's of money. If you're talking about a couple of months interest payments, given how low rates are right now, Barry, that's manageable. And in fact, the regulator for Fan and Freddie just came out and said, you guys have to advance for four months and then we'll come and reimburse you. So we're starting to get

some clarity on this, right. But for private investors, private mortgages, commercial mortgages, you know, multi family, all of this stuff, if it doesn't have a government guarantee, then the bond holders will pay. The servicers get reimbursed first. By the way, if there's misspayments, they get their feet. The bond holders basically have to wait. So that's that's how it will work. Back in the line. Back to the line, the triple ais are in front and then the lower trashes. In

these deals there tend to be several. Those are the ones who will take the pain. So Chris, let's talk a little bit about the current state of the economy. I don't think many people would deny that we are in a recession today. How bad is it? And how

deep and long can this last? For I was on a call yesterday with a bunch of my mortgage buddies, a lot of economists, um, you know, Mark uh uh, Sam Cattery from Freddie Mack and people like this, and they really do excellent research on the demographics, if you will, of housing. And then you looked at bankerings. What were those provision numbers from JP Morgan and Wells Fargo telling us? And it's telling you that the bankers expect a pretty

large wave of losses the next couple of quarters. So when I look at GDP estimates of down thirty in the second quarter, which is what I was hearing yesterday, I kind of stepped back as a bank analyst, and I think to myself, this is gonna be worse than two thousand eight. Um to me, I think we will have destroyed a lot of the small business service sector that was so important as a source of marginal employment in the United States. People, you know, look at New York, Marry.

The entire entertainment industry has gone. Hospitality restaurants. All of these, you know, areas that were important for for not just for people generally if they needed to find a job or you know, younger people who came to the city who were trying to get involved in, you know, some career. That was the first place they would look for a job.

And these people have left. I think it's gonna be very interesting to see the numbers for New York City in the next couple of quarters, because I suspect a lot of people went to live with mom and dad. Anecdotally, we're hearing a lot of people who have an up a second place to live, either a beach house or a second property, or if they're younger, with their parents or siblings, they've they've fled. Large parts of Brooklyn, half the Upper east Side and Upper West Side are supposedly empty.

I haven't been back to the city since this started, but from what I'm hearing from people who either live or lived in the city, they are sheltering outside of Manhattan. Are you implying that that might become a permanent situation Because people talked about that post not eleven, but we really didn't see. Whoever left was very quickly replaced by a younger person. Do you think this changes the dynamics

of urban density and people living in cities. Well, I think it's going to change the business dynamics in New York for a while, because in you know, in two thousand and eight and after nine eleven, um, Yeah, we had to hunker down, But then the economy restarted. We didn't have the distance from ourselves physically, we didn't have to deal with all of the aspects that that implies.

So I think when you're still worried about vulnerable populations and you have to protect them, that means that you're gonna try and let the economy restart to a degree. But I don't think you regrow these service businesses back overnight. Berry. They've been decapitalized, and even if they were helping their eployees with the federal money, they still may not survive because they're going to be facing a diminished revenue stream

coming coming back. You know what, what if we have to take half the tables out of the restaurants, right if people doing a Broadway theater where shoulders and shoulders front and back, are they gonna Hamilton's tickets with the audience as you know, we just went through Passover and Easter. Right These are typically times when Europeans Latin Americans would all go to New York for a week with their families.

They're not here now, you know. There's there's only New Yorkers in Central Park right now, and it's it's a different scene. In fact, I've been riding my bike around the city. I go all the way down the South Carria back because there's no traffic. How empty is the city compared to uh, what it was like post nine eleven. It's more empty than that, very little traffic, although it is slowly, slowly starting to increase. You can see that

there's more will move it around. I think this is going to be a profound economic shock to a lot of big cities that are used to trying to attract people to come in. That's going to be changed. So we've had this enormous monetary response from the Fed. They took rates to zero. They announced they were gonna add two trillion dollars more in lawn furniture and various high yield paper whatever whatever they can buy they're gonna put

on the balance sheets. We've also had, at least not over the short term, uh two trillion dollar fiscal stimulus. How does this response compare to what we've seen from crises in the past. Well, the federal response in the thirties was large, but it didn't really do much. In fact, it faltered, and then World War Two kind of saved us. UM. In two thousand eight, you had the financial response obviously to catch some of the banks um, but the industry more or less cleaned up its own mess and the

economy healed itself. I mean, the thing I always remind people of Barrier is the fact that we still have a private bond market in this country, and we have a market for different types of assets. Is so important because it restarted by itself. The auto sector restarted by itself in two thousand nine because those were fully secured deals.

But today, given the hit the global auto has taken, for example, and you look at sales volume estimates and everything else going forward, you know, I think the whole credit of this industry has changed. Even the exemplartis like the Toyotas and the Daimler's, they've taken a hit. I think you'll see consolidation. By the way, back to your point about M and A definitely because we have an

auto bakers. Yeah, if we're doing eleven twelve million units next year, you're gonna see m and a. That's in the post crisis peak of about seventeen UM cars in the US. Yeah, it went down to eleven and it was goose by the FED. You know, we were talking before about different phases. In the period after the eight crisis, you had a lot of fringe products. You had autos, you had you know, marketplace loans of all sorts of non bank lending to business individuals, etcetera, etcetera, all gone,

puff gone. In fact, the subprime auto sector is going to go through the ringer now because again the bond holders are going to pay for the forbearance. So I think, you know, it's going to take some time to get people back in the game. You're gonna see spread stake kind of wide for a while on on high yield securities compared to treasuries. And it's just a matter of getting everybody focused. But I'll tell you this, Verry, I think people are much better conditioned this time than they

were in O. Eight. I think people are coming back to the market's much fair through than they did No. Eight, No. Nine, when nothing was happening. You remember that? Do you mean do you mean investors or consumers or both institutional investors? O, there's I mean we've got uh, you know, MBS fund. We're getting ready to launch as soon as we have a little more clarity from Washington playing vanilla stuff right. But still there's opportunities out there because the markets are disrupted.

People are looking to buy commercial real estate off distress sales. They're looking to buy multi family off distress sales. So though perhaps not New York because of the rent control laws, um, but around the country. Yeah, definitely, I'm thinking too small. I'm looking to buy distressed sheet metal off the auto sites between bring a trailer and classic cars. I've seen prices fall about ten fift over the past month, and I love the idea of buying something at a discount.

But that's just me. So. Your first book was Inflated that looked at how debt helped build out the American dream, especially houses. I was kind of surprised by the topic of your recent book, ford Men, from Inspiration to Enterprise. What motivated you to pivot from debt and housing? Two automobiles and Ford I had always been a student of Henry Ford, like many Americans, but particularly his role in

the Great Depression. And so one of the things I focused on in the book was how Henry basically uh started the banking crisis in three before FDR took office in March of that year. It's an extraordinary story because he was such a character and quite did you say, did you say started the banking crisis? He initiated it. Yes, he said that he was going to take his money out of the Detroit banks, and when the governor of Michigan and found out about this, he declared the bank

holiday in Michigan in February of three. This event then rippled through the rest of the country. So by the time FDR takes office, every bank in the United States is closed and had been. The Detroit banks were really important in those days. Henry Ford was the biggest cash depositor in the country, and he ran the whole company on cash out of his pocket. It was like a plantation. So I got into Ford, you know, first and foremost,

because I am a student that that era. And then I had been a contributor to the Washington Times magazine UH Inside on the News, and I had written a whole series of articles about the Explorer rollover, which was quite a mess. It was really the beginnings of giving teeth to consumer regulation in the United States. If that had happened today, a lot of people at Ford would

have gone to jail for what happened. Vehicles. Oh yeah, this is the single vehicle rollovers with some of the SUVs that well, the Ranger and you know the bridge Stone Firestone tires. It was quite a mess. Take take a big, big vehicle, raise it, give it a short wheelbase, and uh, that is not a recipe for stability at high speeds. If you have to suddenly cut the wheel. No, it didn't work. And there you know. It was an

interesting episode. But what I tried to do with Fordman, just in terms of the overall book Barry was remind people of the rich literature around for people like John Kiss, Call Braith and many others who wrote about the family, and they were such a remarkable family. It was really the first transformational business fortune in American history, more than steel, more than these other types of fortunes that have been made in the past. They made things. They made cars,

but into instantly. The first first were built by the Dodge brothers because they were the first great partsmakers in the United States. Both of them died in one of the Spanish flew. Had the Dodge brothers survived, the auto industry would have been dominated by them and not by General Motors and a number of other players. History would have been quite different. So by the time we get

to something like Ford versus Ferrari, that's thirty years later. Yeah, Billy, you know, Henry the Deuce, Henry Ford the second had taken over and they they were still uh and also ran compared to GM. They were typically compared to Chevrolet. That's how small Ford was um, but they still uh, you know, had a lot of staying power. And as I've always said, God clearly loves the Fords despite their many sins, because somehow they avoided the fault. They were

the only US maker didn't get need to be restructured. Well, they couldn't be restructured as I as I talked about in the book, Goldman Sachs had already helped the family take money out of the company, and if they had been restructured, then the special voting stock held by the family would have gone and they would have lost control. So there's all these little nuances in Goldman Sachs is

a very important part of the Ford story. It was their design of the Ford Foundation when the Ford family gave most of the economics in the company to that entity and retain most of the vote in this asymmetrical share transaction that Sydney Weinberg created along with the lawyers for for Edsel Ford, that saved the company from the tax man. Because str hated Henry Ford, and he had passed legislation in Washington specifically to kill the Ford fortune,

and so Goldman forwarded that intention. And now the Ford Foundation is a couple of billion dollars and still still active. Well, when they did the I P. O for Ford after World War two, UH, the foundation was the only seller of shares. They didn't have to raise money for the company because they had plenty of money. These are the work at Home abbreviated version of our favorite podcast questions. And let's just start with streaming. What are you streaming

these days? What are you watching on Netflix? What are you listening to in podcasts? What's keeping you entertained? I am watching old movies with my beautiful wife, Nicole, who's a recent UH naturalized American citizen, So we're filling in some of the blanks with her. And uh. I stream a lot of music. I spend my time reading Berry, you know, like you, I basically have to consume stuff all day. I watched West World, I watched a couple

of other things on tv. Um, but give us a couple of old movie titles for for the youngsters who may not be uh oh, well, yeah, we just watched Bull the Air with Penelope Crews, which is stunning. I could love that movie. So you say old, you're that's not really old. No, Bull of ben hur uh that's taking in the ecstasy. Then commandments we just did. So we're having a lot of quoting. So you're working your way through the thirties and forties along with the Ford

and the post depression era in your guys. You know, the girls want buff, right, so they like Tarlton. Charlton was a good looking guy. Who are your early mentors who helped to shape your career? Oh boy, Well, my father first inform us, who taught me how to write with a yellow pad and a pencil um and I think a number of editors over the years, Terry Houser and Karl Flock at the Legislative Digest, the folks at Barns, all the editors at Barns, Tommy Donalin, I wrote many

editorials for him. So as a writer, those are the people who really pounded on me and said, you know, editing builds character, right, you know all about that. Working with Bloomberg as much as you have, I have to tell you I wrote one editorial for Barons called a Memo Found on the Street that I thought was brilliant. When I handed an end to Tom Donalin, it was words, and he showed me how to take a scalpel and remove everything that wasn't lean sine, And what came out

of that was seven hundred tight words. And he blew me away as that how strong a good editor can make your writing. Oh no, that's quite right, that's quite right, um. And you know the other people in the financial markets, I've had so many teachers, Alan Boyce who taught me about mortgage servicing rights, the guys at Bear who taught me how to do deals. You learned how to do deals by working on deals late at night. You mentioned

you mentioned reading. Let's talk about your favorite books. What books have you been staying occupied with during this lovedown. I just finished Dark Towers about Deutsche Bank, because you can imagine David and Rich fabulous. He wrote a book on the label on the Library scandal. The Library Scandal talks a lot about President Trump and how he survived. The guy's got amazing grit. The fact that he was able to bluff his way through all those situations. You've

got to hand it to him. What is another title? Uh, you know, there are a lot of books I want to read. I just don't have time. I've been reading legal documents for the past three weeks trying to get a liquidity facility in place for the independent mortgage banks in Washington. So that's taken a lot of my time. And then what's the book the Oh my, well, I want to go through George Moore's book on banking. I desperately want to go back and reread, uh my, George

orwell because it's very timely now. And then, you know, there were a couple of other things that I have on the pile. I did go through Red Notice, Bill Browder's book about Russia. I heard that was really interesting. Oh my god, you'd never go to Russia Barry, you have to read that book. My brother in law used

to be general counsel for Amaco. That little b p Amaco deal was was his doing, and Amaco had relationships with with many of the Russian oil companies in the Russian government, and that was pretty much his response on So, so what's your take on Russia goes, don't ever go there? Like, okay, right, although I've been to St. Petersburg, so I really I guess I violated that. Um, what sort of advice would you give a millennial who was interested in a career

in banking. Go work for a small bank. Learn as much as you can about how the bank operates, particularly the back. You want to learn how they do everything from an operation's perspective, and then you're gonna have a lot of value. And our final question, what do you know about the world of banking today that you wish you knew thirty years or so ago when you were

first getting started. I think the evolution of banks in the United States away from business lending to uh focusing on mostly housing related Two thirds of US banks today, Barry, have housing exposure one way or another commercial real estate. So it's become really, really heavy on the real estate side, and I guess that's as as you would expect because most companies just go to capital markets. They don't have to go to a bank, so that's a big change.

We have been speaking with Christopher Wallen. He is the chairman of well and Global Advisors and author of several books, most recently Ford Men From Inspiration to Enterprise. If you enjoy this conversation, oh look up or down in in Shawan, Apple iTunes, Spotify, Overcast, wherever you're finer podcasts are found, and you could see any of the previous three hundred and something conversations we've had over the past five and

a half years. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. You can follow me on Twitter at rit Halts, check out my daily column on Ridholts dot com, or see my weekly Bloomberg column at Bloomberg dot com slash opinion. I would be remiss if I did not thank the crack staff that helps put this conversation together each week. A tikavl Bron is our product supervisor. Michael Boyle is our producer. Charlie Volmer is my audio engineer, and Michael

Batnick is my head of research. I'm Barry Riholts. You've been listening to Masters in Business on Bloomberg Radio.