YouSaid · the spoken record

Anat Admati

lines on the record: 132
first: 2022-08-05
most recent: 2022-08-05
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Levered and interconnected. Create through all these contagion mechanisms that we explained in the book a perfect storm from a small decline in housing prices. I mean, the correction, the price correction itself was, you know, much smaller than internet bubble burst, you know, which wiped out a lot of paper wealth.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“The lady in the hat in the big short saying she's got five houses. That's right. You know, exactly. So the question is, no, exactly. So that's why I used subprime to kind of as a parallel. Yes. So reckless loans were made to people who couldn't pay liars loans who clearly couldn't pay because of the commissions of the sellers. The whole structure was the whole structure. And you still had the Fed assuring us everything was fine there and you had a system incredibly”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“Inter European thing. You know, Europe had enough to be able to resolve this. They just didn't want to. So IMF being led by French people, you know, Dominique Klaas Kahn, and then later by Lagarde, who had to deal with it later in 2015, when they were kind of the adult in the room, if you want to call it.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes. And Greece only did a little bit of restructuring after the banks pretty much got out, left the Troika creditors to be a bailout fund of ECB and IMF, those were the Troika. Now why did IMF invest oh because IMF was led by some French? No, because IMF should not have intervened in a European”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“Under the eyes of their regulators, under the eyes of their regulators. So the regulators are not being called to why they allowed these loans to be made by Tubik to fail French and German banks. French banks had in 2010 40% of Greek bond government bonds.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“And it was a small one by comparison. I mean, this was the biggest bankruptcy at the time, but there were a fraction of JPMorgan Chase, so city or all of these that they tell you now can fail without, and they have them do living with all kinds of stupid things. No way. No, because we don't even...”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. Thousands of subsidiaries Do you know? Do you know that the Lehman bankruptcy is not even over yet? Every year I go back and check still going on. So this is how unresolvable these. Now, in the first.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“Show me that it works. Show me that it works outside the crisis where everybody's failing. You know, I was on this FDIC systemic resolution advisory committee, which part of Dodd-Frank was saying, oh, if Lehman Brothers was sent to the FDIC for resolution because FDIC knows so well how to do the small bank resolutions, just come over the weekend, take over small bank, and the people don't even know.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“Both of them. Bay Alman Onor and Zombie Banks. I mean, I believe that. They were the examples where if you wanted to have this systemic resolution through the FDIC, we could have tried it, not in a crisis.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, they paid a teeny sliver, but the French banks just went and lent them a ton. And when they couldn't pay, the European Union and all these other countries and the regulators who allowed these banks to make these reckless loans who had just bail out these banks from investing in our real estate bubble couldn't admit to their citizens that they would bail out their banks again if Greece default. So that they blame all the things on the lazy Greeks and they kept bailing out Greece. So Greece could pay the banks until the banks got out. So that was the zero risk rate for sovereign lending in Europe. And it's just one example of how awful, awful the regulation was pre-crisis. And then you tell me that, oh, they recapitalized and did all of that. I'm not so impressed. Yes, you know, first of all, Bank of America and City were...”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“Lending to Greek government in Europe. I mean, the banks in Europe basically fed this, you know, subprime lending to the Greek government.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“And there's research that showed that banks in Germany that were allowed to use this advanced approach to this fancy scientific approach to regulation were misrepresenting their own risk and making more loans with less risk weights, in other words, inappropriately low risk weights. That much more leverage. Yes. And of course, the epitome of the failure of this regulation is assets that had zero risk weights but were risky, like AAA rated security, like Greek government.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“They were investment banks Argulated by the SEC, which also Lehman was, and at that time, the commercial banks, so Citibank within Citigroup, were regulated among others by the FDIC and the FDIC had Sheila Bear, and Sheila Bear refused to implement this Basel II that had fancy risk weights. Manipulable ways, model based ways to allow the banks to tell us how risky they are and therefore determine their equity requirements.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“That's it. In other words, their entire funding. So, what they do on the asset side, anybody can do, zero NPV, commercial real estate, whatever. And how they found it where they are privileged. Now, what happens my model of basic safety nets is that the big banks may well be overpaying for the deposit insurance part To the FDAC. And the FDIC, and they pass on some subsidies down to the small banks so they keep happy enough. And because the big banks have implicit guarantees that are priceless because they have access to the Fed. And that is worth a ton in the financial crisis. Let's remember Goldman Sachs and Morgan Stanley became bank holding companies.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“No banquets. So we solve the problem Some small cliches. And basically, I once asked a 40-year veteran of banking in all the biggest banks, you know, through the 60s, 70s, 80s, 90s, who was basically came out of retirement to be in a private equity firm that was buying distressed banks from the And he said to me, Ornot, you're looking at the big banks. Let me tell you what goes on in the small banks. And then I asked him the following simple question, because there are thousands of small banks in this country. I said, what's the business model of a small bank? The answer was three words, the business model, in other words, the positive net present value of the bank. He said, subsidize deposit insurance.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. And so the FDIC, which is a seize for cooperation, is totally backed by the government. However, in practice, they can, they have a line to treasury for, I think, $500 billion or something. But should something actually happen, so we're all on trust with this system. They tell us don't run, don't rush, your money is safe.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“No, they don't. I Exactly because they stopped charging, also because there were no defaults before the crisis, they stopped charging deposit insurance. And all of a sudden there was a lot of bank failures, not the big ones, except for Lehman, but Lehman wasn't an FDS insured bank. But when other banks, small banks, started failing, what can the FDIC do in general? Well, they can go back to the large banks and just assess them more because they have no way, and I can assert this to you, no good way to risk adjust their deposit insurance fees. There's supposed to be self-financing the FDIC through fees, but, you know, they really are taking a huge leap for insuring what by now must be like, I don't know, $13 trillion, and more will come if there were tremors because money moves back in deposits for money market funds and all of that.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“The depositors, they don't have collateral. Okay, so it's the FDIC that's holding the bag there Now, does the FDAC even know how much risk they're bearing when all the assets are so encumbered that they are all pledged collateral?”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“But then the question is how do you fund those assets? And so the question is how much gets funded by making promises to investors by debt? Any kind collateral, non-collateral, non-deposits are very unique because deposits are unsecured debt to the bank.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“With no, no, no cash, not cash. Capital is not cash. It's on the other side of the balance sheet. Capital is about how you fund. It's not cash reserve. Okay, so that's really important. Let's delve into that because that's very, very confusing. To this day, you can find people saying, set aside cash. That's not what capital is about. Katil is about, obviously there is the measurements of it at a given point of time, but when you take a snapshot and you talk about capital ratios or risk-weighted capital ratios or all of that, they are entirely on the funding side. So you got your assets, whatever they are, they have some risk and however you put numbers on that through accounting or what's allowed and not allowed and all of that is like a big can of worms actually. But in netting of derivatives and all of that”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, the banking, especially because the creditors in banking are particularly passive. And so therefore the usual market forces that push against high leverage in other companies that just naturally with no regulation would limit. There's no corporation that lives, it's healthy unless they're on their way to bankruptcy that lives with single digit equity numbers. Of course, it depends how you measure it in there's book, market, all kinds of other things that we can discuss. But the banks basically got used and got stuck and it's very addictive to be there, especially at this extremely low equity level, from that vantage with the overhang of debt being so, so heavy that you're effectively insolvent all the time, but you're just not recognizing as such, then you hate equity, you want to take money out.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“Change completely. You're no longer maximizing total value of the firm, you're maximizing the value of equity in the firm. And from that perspective, equity seems expensive to all heavily indebted corporations, banks in particular, because for other corporations, if they take on more and more debt, the creditors will start pushing back. The creditors would start putting covenants, the creditors will jack up the rates because the creditors will worry about all the distorted incentives of the borrower lender that happen. Gamble the money in Las Vegas or underinvest in things because there's not enough upside. All of those things that characterize sort of the frictions heavy indebtedness.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“Increase in safety nets, implicit and explicit with deposit insurance, with all of that, they became able and obviously interested in living more and more and more in debt. Now, in my research, even after the book we were already beginning to do this research, I understood a lot better stuff that we teach in basic courses as very static theory of how companies fund. And it's like one round of funding, debt and equity, and then the world is over. But for real living, you know, breathing companies, any company, the funding decision, as well as investment decisions, are always made by shareholders or managers on behalf of shareholders, maybe, in light of previous commitment. So in the dynamics of it, once you took debt, your preference...”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“You get, but it's their incentives. So the key to understanding it is it's not like essential or efficient. It's just that that's how they want it. So the thing is that banking is sort of inherently fragile because banking is inherently inefficient that way or forever poorly regulated or poorly controlled by their investors, including the depositors. So to that you add expansion in the business model that allows taking more risk, hiding more risk with derivatives, with universal banking, all of that, and”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“No longer dead. So, in the book we go through a lot of the history of banking, including the basic banking model, which is sort of it's a wonderful life kind of 363 boring banking model, and that too had a crisis in savings and loan and in many other banking crises. So it's not like banking is inherently risky because inherently the bank's taking risk with depositors' money and the depositors are unable to really”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“Sciences and law and all of that. So we're each in our little silo little journals, all this stuff. So I just got curious. Wait a minute, I teach corporate finance. The bank is also a corporation. Now, why does it have like almost no equity funding? What's going on there? I teach people capital structure theory and how are banks so different? Why are they so different? They hate equity with this passion. And so the more I dug, the weirder it got. It really like I fell in a rabbit hole. totally was rabbit hole like curious or curious or you know that kind of thing well”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“And then I got more interested in kind of governance, but governance in the narrow sense, corporate governance and contract, which was all about the problems between shareholders and managers. So that was that, and then comes the financial crisis. So until the financial crisis of 2007-9 or however you go, you actually time it, I was in this finance bubble. Teaching corporate finance Research, theoretical research Little mathematical model. And analyze them. And I lived in that little bubble thinking all is well until this crisis was like, what just happened? And so I never was interested in banking particularly. We have a lot of silos, you know, even within economics, let alone in all this.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“One day glitch, sure. 19% decline in one day. 22. 22 point something. Yeah. Yeah. So it was program trading and insurance, the portfolio insurance and all these replication strategies and all this stuff. And so that was kind of the little crisis of the day right in the little details. And that's before high frequency trading and all the rest of it. But then I worked on trading mechanisms and our information gets into prices and informed and uninformed trading and markets for information and newsletters and managed money portfolio theory.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“Background comes from, I'll tell you. So that all, I was totally in the. Sort of finance bubble, first kind of market microstructure, you know, trading mechanisms. This is the quaint 1987 litt Black Monday, you know, small black Monday, not just”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“A programming finance, the School of Management was just created. This was back in the late 70s, early 80s, and he was just teaching people all they needed to know about finance, which was just coming up. It had become pro.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“But I got an opportunity to go to Yale, and these degrees were just kind of simultaneously gotten. I mean, I was out of Yale in three and a half years with all these degrees. And I just, an opportunity landed on my lap to go to this program in Operations Research at Yale, and I was promised that Yale is very interdisciplinary. And once you pass your qualifying exams, you can do whatever you want. But never taken an economics course before that. But when I got to Yale, my advisor said, why don't you take microeconomics and take mathematical economics and take some economics? And by the end of the first year, I kind of knew a new language. And it was all much more interesting because there was interactions between people and equilibrium and, you know, all of that. And by second year, I took the course that was absolutely a mistake in the crowd that I was hanging with, which was Steve Ross Financial Economics. Yale didn't even have.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source
“So, my journey starts where I took a lot of math. I was good in math and I loved math. It was very pretty. It was all, but I decided I probably won't be good enough to be a mathematician. So it was kind of, in my romantic mind when I was, you know, in my early 20s, I was going to take but not give back to math, you know, that kind of thing. And so I had to find something. And at first, it was going to be sort of applied math, like operations research, which was the worst kind of math, like optimization. And it's kind of boring.”
2022-08-05 · Masters in Business · Anat Admati on Banking Regulations and Techlash · IDENTIFIED FROM THE TRANSCRIPT · source