YouSaid · the spoken record

Chad Cascarilla

lines on the record: 69
first: 2019-10-29
most recent: 2019-10-29
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

“I think there's really three choices. One is you could have some kind of debt jubilee deflation where everyone's like, you know what? We got to figure out a way to crunch this debt. And that's one choice. The second one is, I think, inflation, which is probably the way you go because it's the one that at least amount of people understand. And that's what we've been doing since the crisis. So our solution to the crisis was let's build up a lot more government debt and just keep doing that. And then I think the third choice, socialism, which is also a possibility, which is basically let's figure out a way to kind of stabilize the system, put a lot of regulation in place. Let's kind of like grind everything a bit to a halt. And we'll just sit here and figure out if we can grow our way out of this or find some other way out. And I think those are really kind of the three options that exist. I don't know exactly which one we're going to go down. I suspect it's probably inflation because the system has a lot of antibodies against going full socialist and it has a lot of antibodies against creating big-time.”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“Brexit, all these things. And I think it's not intuitively understandable that, in fact, I think a lot of that issue is tied to the way we've created the financial system and how it allocates the capital. And so I don't know what the per se solution is, but it's an unbelievably interesting time. I'm not sure that it's the best time to be a financial service investor, or we'll see what exactly happens to how society tries to work this out. It's not a set of easy choices here, but it's going to be unbelievably fascinating to see because I think the choice of the financial system, the fact that it's closed and the fact that it's based on fiat money has allowed us to moderate the cycle, but the costs have not come due yet. And they're going to come due in a way like we've never seen before.”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“Recessions by pulling forward spending from the future, and you hit a point of no return, which appears that we're at, where you can't allow the debt to get paid down because the economy would slow too much. And so you kind of keep spending forward as much as you can, and you're going to reach the end conclusion of that. And we're going to have a real tough day because you've been essentially waking up every morning and instead of having to hangover, you keep drinking more. And I think that's what the debt represents. And I can tell you there's a lot of firsts that we've now had happen that have never happened before. I mean, never. So the first is we've never had debt to GDP globally, which is now like approaching.”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, everything's a double edged sword here. And so, I mean, part of this is like a societal choice. If you look at the average growth rate since the financial crisis, it's easily the lowest growth rate over any 10-year period. So even when you had more recessions, you had a higher average growth rate. And our productivity rate, there's other contributing factors that's not just the monetary system, by the way. But the total factor productivity is easily the lowest it's ever been. And so I think there are some crucial things going on. The first is the level of debt to GDP has never been this high before. So in effect, what is debt? Debt is a decision to spend today rather than tomorrow. And so you've made a time preference choice. And if you continue to accumulate more debt than the economy is growing, which is what we've been doing globally, you're inherently making a time-based decision that's now out of whack. Why is it out of whack? It's out of whack because the interest rate is incentivizing you to spend today versus tomorrow. So maybe what we've done is defer.”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it depends on, yeah, you could pick some time or Bretton Woods or whatever it was, but 44, it's not that long ago. And the reason that might happen, by the way, is not because I think people would just want an open system. I think it's because the closed one might not work anymore. At the end of the day, the terminal value for all fiat currencies is zero historically. None have succeeded because it's just too tempting to continue to print money. And so if you assume history repeats itself because it always has, then you're going to end up at some kind of need for a replacement.”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“Bank. Someone else could have an account, another institution could have an account at the Federal Reserve. Maybe it's not a person, individual consumer, but it could be a business. They have an account at the Federal Reserve and you just interact directly with them and they're not a bank. And so there's all kinds of interesting ways you can create an open system. And then you could get to something that's truly radical. And I don't think that is what would happen. But the way banking used to work before is gold was a ledger. And so gold could be a ledger, or you could say Bitcoin is the ledger. And what does that mean? Well, what do you mean when gold's a ledger? Well, I mean, you hold the gold, you can prove that you own the value. And as you hold the Bitcoin, you can say, I hold the value. You don't need anybody else to maintain the ledger, not the Federal Reserve, not anyone else. And anybody could participate in that ledger by virtue of holding it. So now you can now have an open system and the unit of count is open. Now that starts to get really different than what we're used to, though that's historically how the world has worked.”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“Or even the Treasury. You don't even need a Federal Reserve to act as an intermediary. You could just go, couldn't the Treasury, you can open up a Treasury direct account to buy treasuries? Couldn't you just have an account of the Treasury and the Treasury gives you dollars? Do you need a Federal Reserve? And then you need the Federal Reserve banks. I don't know. Those are questions. I think Governor Brainerd just gave a speech on this last week talking about, oh, maybe there are different ways to intermediate dollars than to go through the current system, but kind of left it all open. I think you could do something quite radical that would be called open banking. Anyone could have an account at the Fed or directly at the Treasury. And you would change the nature of what the Federal Reserve looks like. Maybe they don't need to be issuing money anymore. Maybe the Treasury does and the Fed just acts as oversight or acts as a bank. It could be privatized. Another possibility is you don't necessarily need to be using banks as your intermediary. People are kind of doing that now with Venmo and others where you can change the need for money to just move from commercial bank to commercial.”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“It solved a lot of problems to be set up this way, but now the contradictions of the system that were net benefit before are becoming a net hindrance now. And that's when you have to think of new ways to do things. Every system eventually gets overwhelmed by the contradictions in it because everything continues to change. And I think we're at that point where while having a closed system like that doesn't make sense. So now what does an open system look like? Well, it could be a number of things. You could directly, why couldn't, for instance, the Federal Reserve allow anybody to have an account with them?”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“Money around. But fundamentally, at the end of the day, it's just a database that holds dollars. Why is there so much cost to move these around? Why can it only move nine to five? Why does it take days to move it internationally? It's held up at each stop along the way. There's inefficient steps. And so that's one example of how it's closed. The other is all the stocks and bonds in the US that trade all sit at the DTC, which is the depository trust company. And so there they all sit on exactly the same thing, a Cobalt mainframe. And you have to be a DTC member, by the way, of which we are. And there's maybe a couple hundred firms that can access the DTC ledger where all the stocks and bonds sit. You can't go hold your own stocks unless it's a private company. You want to go get your shares of IBM. You have to go through it through a broker. So it's a closed system. You can't actually interact with the ledger, the end thing. By the way, it completely made sense to have a closed system, I think. You go back to Federal Reserve System. You look at why it's set up this way.”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“So there's a couple different versions of what Open could be versus closed. So, the way it's closed today is all the money that's not in your pocket. So cash that's not physical actually sits at the New York Fed. And so it's just a cobalt mainframe that maintains the balances. Only firms that can access that COBOL mainframe are Federal Reserve members. So you go back to first principles, what is the banking system? It's actually you can't access money unless you're a commercial bank. And so that means there's maybe a couple thousand Federal Reserve members, and I think it's 3,000 or something, whatever it is, 4,000 members, banks. And that's it. They're the ones that can access it. And so effectively, banks are middleware between you and the Federal Reserve. And they're not the most efficient middleware. I think maybe there's less than 10 banks that have APIs. So they're not very modern middleware. And partly that's what Visa Mastercard are able to do is the banks aren't very efficient at talking to each other and neither is a Federal Reserve. So you have Visa MasterCard and other payment networks that basically sit on top of the banks moving.”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“About how you go from closed systems to open systems, whether it was media content, whether it was the way people interact with the retailers. All of this has been about how you get more and more open. And I think financial services has been able to hold off on that because it's so highly regulated. But the benefits to being open are now becoming almost an order of magnitude improvement in cost and capital. And so that shift to an open system and potentially we'll see whether or not that shift is to some type of asset backing that isn't reliant on fiat money. I kind of think it's going to be an open system based on fiat money, but that's where the real debate has happened. That's where you talk about what does something like Bitcoin represent versus what does something like blockchain represent. And so that big change in financial services is going to unleash a completely different way in which the products are delivered. I think you're going to go from financial services to financial products.”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“Financial system. Now, maybe not everyone realizes that because it's so ubiquitous. Like for the everyday person, you might not even think, oh, the system is closed. It just seems like something you can go use. But the reality is if you don't have enough money to open a bank account or if you're trying to access your own stocks or whatever it might be, you have to use some kind of intermediary. And so while the system is very big, the biggest network in the world is still a closed network. And so that's the first issue. You have a closed system. The second is that it's based on obviously fiat money. And you've had interest rates as they head closer and closer towards zero. You've had more and more debt grow. So the system itself is unstable. So you have an unstable closed system. And so what will happen over the next economic cycle is going to be really, really important. And I think the trend is going to be, that's why we create it Paxos. It's going to be about having an open financial system because you have lower costs, you have network effects. Everything that we've seen over the last 20 or 30 years has been”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“Those headwinds are caused by structural need for more capital, structural decline and interest rates. And then I think the last issue is innovation in financial services is not really being driven by the incumbents. So where have you seen it? You've seen innovation in trading. And so you've seen that on the exchange side and certainly been a lot of value created there. You've seen innovation on the payment side, Visa, MasterCard, all kinds of other companies, Venma, wherever it might be, PayPal. There's been a lot of value created there. There's been innovation that's happened on the loan creation side, P2P lending, lending club, and others. So that's where you've seen it. But guess what? None of those happen to be banks or investment banks or even really insurance companies. And so those very large financial institutions still are the main intermediaries that you're relying on. And you've now hit this, I think, the most interesting period for financial services in a very, very long time for, I think two reasons. The first is you have a closed financial services.”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a number of things that have happened since really kind of 99 or 2000s, so I was really starting to get involved. The first is you've had a significant change in interest rate levels. At the end of the day, financial services companies are tied to what their interests are able to earn, the net interest margin spread they're able to have. The second thing that's happened is you've had to hold much more capital as general as a financial institution. And so if you're earning less money and you're holding more capital, your returns go down. And what's happened is you maybe had broadly what I would call financial services that was like 30% of the S&P back in like 2000. And now you're looking at it and it's 15%, maybe even a little bit less. So on a relative basis, it's been very hard to be an investor in financial services over the last 20 years. Now there's ups and downs and there's periods when it was good and bad, but on a general basis, financial services now shrunk significantly, at least from a market cap perspective as the S&P. And that's been, I think, true globally as well.”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it really was fascinating because the subprime trade, I think everyone knows now, was Primistan giving loans that shouldn't have been given for a whole number of different reasons. But even more importantly, it wasn't just that the loan shouldn't be given, but the loans themselves didn't follow like a normal procedure because people were trying to ramp up the loan process and make it go as fast as possible, but it was very antiquated. So the loans themselves were going into securitizations and into trusts incorrectly. And so when you tried to figure out what exactly was in a trust that had supposedly subprime loans in it, you would find out maybe it had something and maybe it had nothing depending on what the legal process was. And when you have a position on where your short subprime or your long subprime,”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“Possibility with blockchain to now have a decentralized system. And that's what really fascinated us because it could be more resilient. It could be more open and accessible. It could be both cheaper and free up capital. So it could really do everything that the financial system is doing now, but better. And that would be a process to transform things. But we caught and understood Bitcoin and blockchain fairly early because of those experiences of understanding what happened with the market structure and then what happened during the crisis.”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“I looked at it and thought, oh man, this is probably a penny stock. Penny stocks go to zero. Maybe it'll go to $10. I didn't know it was going to go to $8,000. And yet not be the ledger of record, which is kind of our original thesis when we looked at it. We said, oh, wow, blockchain is what makes Bitcoin interesting because you could put anything on this public record keeper. In fact, Bitcoin is probably more of a store of value than the record keeper, and Ethereum is right now been the record keeper blockchain, but maybe we can save that for later. But we were intrigued because we said, wow, this is a way of how you could solve the problem in the financial system around how assets move. And so you had all this innovation around how to figure out price discovery and exchanges, but there's been almost no innovation in the back office and post trade. It's still running on Cobalt, mainframes. And for people who don't know what COBOL is, it's basically the equivalent of Latin in commuter programming. So they're still running on COBOL mainframes from the 70s. I mean, 80s, it's ludicrous. And so you have this.”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“And shares in the US and elsewhere. And another really important trend that we caught was subprime and really commercial real estate as well and how that began to unravel. We also ended up doing, I think, a good job of taking advantage in the crisis of investing in subprime too. So we were involved in both directions. And the reason that was really important to our understanding of blockchain is one, we saw how really transformative price discovery and market structure could change on the exchange side. And then secondly, because of subprime and really the whole financial crisis, running an asset manager at that time, we were able to really understand how the plumbing of the financial system worked or in the case of crisis didn't work and in fact exacerbated the crisis. And so when we came across Bitcoin, and this was basically May of 2010, and Bitcoin was only at three or four cents, we were immediately intrigued by it. I have to admit, I thought probably it was going to go to zero because”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so I spent really my whole career as an investor. I worked briefly on the sell side doing research. Then I went to the buy side, public company investor, long, short equity investing, globally in financial services. And then over time started to add private equity vehicles, added a venture capital vehicle. And so that allowed us to invest in the whole life cycle of companies from early stage all the way to public companies and also the entire capital structure. So trading everything from debt to preferred to equity. And so you really got to see and understand financial services in a deep way. And there were a number of trends that I think we did a really good job of catching. And they ended up being very relevant to blockchain. The first was this big change in market structure, which was the move from exchanges as not-for-profit and floor-based institutions to being electronic and for profit. So we are investing around the world and see.”
2019-10-29 · Invest Like the Best · Chad Cascarilla – The Future of Blockchain and Financial Services - [Invest Like the Best, EP.145] · IDENTIFIED FROM THE TRANSCRIPT · source