>> PLEASE WELCOME TO THE STAGE FORMER SEC CHAIRMAN JAY CLAYTON AND PANTERA CAPITAL FOUNDER DAN
MOREHEAD WITH BLOOMBERG'S CAROL MASSAR. CAROL: HELLO, EVERYBODY.
WE HAVE A GREAT DUO TO TALK ABOUT A LOT OF THINGS.
WHEN I INITIALLY PLANNED HOW I WAS GOING TO DO IT, I WAS GOING
TO START WITH CRYPTO, BECAUSE THERE HAS BEEN A LITTLE BIT
GOING ON. BUT I NEED TO ASK YOU ABOUT THE
WEATHER AND CLIMATE, BECAUSE WE ARE TALKING ABOUT STRESS IN
SOCIETY AND I FEEL LIKE THE ALTERNATE STRESS IS POTENTIALLY
WHAT IS HAPPENING IN OUR CLIMATE.
I FEEL LIKE I'M SEEING PEOPLE WEAR MASKS AGAIN, STAYING HOME,
KIDS STAYING AWAY FROM SCHOOL. WE ARE NOT GOING OUT OF OUR
OFFICES. I HAVE SEEN THIS MOVIE BEFORE. TWO SUPERSMART FOLKS, START
WITH CLIMATE AS A RISK. HOW DO YOU SEE IT? JAY:
IT IS A RISK AND IT IS A RISK WE HAVE KNOWN ABOUT FOR SOME
TIME. WE TALKED TO PROPERTY INSURERS,
THEY'VE BEEN MONITORING CLIMATE FOR YEARS. CAROL:
PULLING OUT OF CALIFORNIA. JAY: EXACTLY.
WE CAN GET INTO WHY THEY ARE PULLING OUT OF PARTICULAR
STATES AND NOT OTHERS, IT IS NOT JUST CLIMATE RISK BUT
POLITICAL AND LEGISLATIVE RISK. TODAY'S EVENTS SHOW US THIS IS
A GLOBAL ISSUE. WE ARE UNFORTUNATELY TRYING TO
TACKLE A LOT OF GLOBAL ISSUES WITH LOCAL REGULATION.
INCREDIBLY INEFFICIENT, LIKELY INEFFECTIVE.
THIS IS A CANADIAN SOURCED EVENT. MANIFESTING ITSELF. CLIMATE IS OBVIOUSLY A GLOBAL
ISSUE, IT IS NOT SOMETHING THAT CAN BE EFFECTIVELY REGULATED ON
A LOCAL AND INDIRECT LEVEL. CAROL: HOW BIG OF A RISK TO THE
INVESTMENT ENVIRONMENT? IT ALREADY IS. DAN:
IT IS LIKE OTHER GLOBAL RISKS, ONE THAT YOU HAVE TO DEAL WITH. ANY TYPE OF GEOPOLITICAL RISK,
WHICH I THINK CLIMATE FALLS MORE INTO THE SPACE OF
GEOPOLITICAL RISK AS TO WHAT WE ARE DOING ABOUT IT.
THE IDEA THAT A BUSINESS CAN SOMEHOW AFFECTED HIS FANCIFUL
-- EFFECT IT IS FANCIFUL. DEALING WITH IT IS REAL. CAROL:
COME IN WITH HOW YOU SEE IT. DAN:
THE BLOCKCHAIN CAN BE EFFECTIVE WHEN YOU HAVE MULTIPLE PARTIES
DEALING WITH EACH OTHER IN A CENTRAL -- [LAUGHTER] CAROL:
YOU WENT RIGHT FOR IT. DAN: ENERGY CREDITS, RIGHT?
THERE IS A HUGE DESIRE TO COST OUT THE IMPACT.
IT IS ALL GLOBAL, THE CONTRIBUTION TO CLIMATE CHANGE.
IT WOULD BE AMAZING TO HAVE CENTRAL CREDITS FOR YOU COULD
BE TRADING THOSE, WHERE YOU KNOW IF IT IS A RENEWABLE PIECE
OF ENERGY YOU ARE BUYING INSTEAD OF A HUGE AMOUNT THAT
GETS DUMPED INTO THE GRID. CAROL:
DO YOU THINK IN TERMS OF THE IMPACT -- HERE WE ARE.
IT IS BETTER TODAY. ARE WE GIVING IT ENOUGH
ATTENTION? WE ARE GOING TO TALK ABOUT
STRESSES IN BANKING OR CRIB THOUGH -- CRYPTO.
ARE WE GIVING IT ENOUGH ATTENTION AS A STRESS POINT FOR
INVESTORS AND FINANCIAL MARKETS? JAY:
YESTERDAY WAS LIKE A DYSTOPIAN FUTURE. CAROL:
IT IS NOT AN APPLE TV SERIES. DAN:
PEOPLE ARE HARDWOOD ABSTRACT THINGS THAT ARE SLOW-MOVING,
BUT IT IS HARD TO IGNORE. JAY: IF YOU ARE GOING TO SOLVE A
GLOBAL PROBLEM, YOU HAVE TO HAVE COORDINATION MECHANISMS.
ONE OF THEM IS REGULATION. ANOTHER IS INFORMATION IN
MARKETS. IF YOU BELIEVE CARBON REDUCTION
IS AN IF YOU DON’T HAVE A CARBON
MARKET, YOU HAVE AN INEFFICIENT SOLUTION. THERE ARE A NUMBER OF
INDUSTRIES THAT CANNOT CONTINUE UNLESS WE HAVE AN EFFECTIVE
CARBON TRANSFER MARKET. I DON’T THINK ANYBODY TAKES THE
OTHER SIDE OF THAT. >> I’M SPENDING MORE TIME THAN
I THOUGHT I WOULD, SO BASED ON SOME OF THE DIVISIONS WE’RE
SEEING RIGHT NOW, U.S. AND CHINA, BIGGEST IMPORT IN
TERMS OF THE U.S. GLOBAL ECONOMY, BUT ALSO MAJOR
POLLUTERS. I JUST WONDER, IF WE CAN’T GET
THOSE TWO TOGETHER, CAN WE SOLVE IT? >> WELL, THEY ARE TOGETHER.
NO, THEY ARE TOGETHER IN A VERY DEEP ECONOMIC WAY.
YOU HAVE A STARK, WHAT I WOULD SAY IS A STARK METAPHOR THAT
ELON MUSK USED, WITH CONJOINED TWINS. BUT IF YOU THINK ABOUT IT
ANALYTICALLY, WHAT WOULD THE COST OF AN ABRUPT SEPARATION BE
ECONOMICALLY? IT’S EXTREME. SO WE ACTUALLY ARE TOGETHER IN
THIS. ONE OF THE QUESTIONS IS, HOW DO
WE GO FORWARD? I LOOK AT THE LAST 20 YEARS AND
THAT DEEP INTEGRATION, WE ACTUALLY SHIFTED DIRTY ENERGY
OFF SHORE TO CHINA. THAT’S A BIG PART OF THE
INTEGRATION. NOW WHAT DO WE DO ABOUT IT? >> RIGHT, YEAH.
NOW WE HAVE TO KIND OF FIGURE OUT A BETTER WAY, IN A BIG WAY.
ALL RIGHT, LET’S SHIFT TO CRYPTO, BECAUSE I DO WANT TO
GET THERE. WE HAD SOME NEWS THIS WEEK.
HOW ARE WE THINKING ABOUT THIS? OUR DAVID WESTIN TALKED WITH
THE S.E.C. CHAIR, AND HE WAS QUESTIONING
THE ACTUAL VALUE OF CRYPTO TOKENS.
HE ALSO SAID THE RULES ARE ALREADY CLEAR ON
CRYPTOCURRENCIES. DAN, DO YOU AGREE?
I’M ASSUMING NO. >> I THINK IT’S UNCLEAR,
BECAUSE THERE WOULDN’T BE THESE CASES THAT ARE IN COURT IF IT
WERE CLEAR. IT’S NOT YET CLEAR WHAT
COMPANIES SHOULD DO. >> IT’S NOT YET CLEAR WHAT
COMPANIES SHOULD DO, OK, BUT IS IT THE BEGINNING OF THE END? >> I ACTUALLY THINK IT IS THE
BEGINNING OF CLARITY. THERE HAVE BEEN SOME BIG EVENTS
IN OUR INDUSTRY, LIKE F.T.X.’S FAILURE, ALLEGED CRIMES LAST
YEAR, A BUNCH OF FAILURES OF CENTRALIZED LENDING ENTITIES,
AND THEN THE RECENT CASES AGAINST EX-CHANGES IN OUR SPACE.
FOR BETTER OR WORSE, I THINK THEY WILL BRING CLARITY.
I THINK THAT IS GREAT. BLOCK CHAIN IS HERE TO STAY.
THE FEDERAL RESERVE, CHINA ALREADY HAS A COUPLE HUNDRED
MILLION PEOPLE USING THE BLOCK CHAIN. IT’S A VERY IMPORTANT
TECHNOLOGY. U.S. HAS A NATIONAL SECURITY
INTEREST IN HAVING BLOCK CHAIN HAPPEN IN THE U.S.
VERSUS OFF SHORE. IT MIGHT NOT BE PRETTY, BUT
IT’S PROBABLY GOING TO BRING CLARITY SOON. >> JAY, DO YOU AGREE WITH THE
SECRETARY’S MOVE? IF YOU WERE THE CHAIR, WOULD
YOU HAVE TAKEN THESE MOVES? >> LOOK, IT’S HIS LEADERSHIP
NOW. HE’S BEEN IN THIS POSITION FOR
OVER TWO YEARS. WHERE THEY’VE GONE WITH THIS,
YOU KNOW, I’M NOT GOING TO BE THE PERSON WHO THROWS BOMBS OR
SECOND-GUESSES FROM THE SIDELINES.
I AM A SUPPORTER OF THE AGENCY. I’M A SUPPORTER OF THE LAW THE
WAY IT IS. I THINK WHEN I WAS THERE,
PEOPLE WOULD SAY I WAS A CRYPTO HAWK.
I EFFECTIVELY SHOOT DOWN THE I.P.O.
CRAZE, AND MOST OF WHAT I’M SEEING IS SECURITIES ACTIVITY.
BUT I DO THINK WE’RE HAVING A VERY BLUNT CONVERSATION ABOUT
SOMETHING THAT REQUIRES NUANCE. CRYPTO IS REALLY A TECHNOLOGY.
THE USE OF BLOCK CHAIN TECHNOLOGY IN ALL SORTS OF
ASPECTS OF OUR FINANCIAL SYSTEM SHOULD BE NOT CONTROVERSIAL. IF YOU HAVE AN ASSET
REPRESENTED IN TOKENNIZED FORM, THERE OUGHT TO BE A WAY TO
CUSTODY THAT, TRANSFER IT, BECAUSE IT’S PROBABLY GOING TO
BE MORE EFFICIENT THAN WHAT WE’RE DOING TODAY.
SO THERE IS A CRYPTO USE CASE THAT IS CLEAR, UNCONTROVERSIAL.
WE OUGHT TO BE THINKING ABOUT HOW TO DO THAT. I AM REMARKABLY IMPRESSED BY
THE FUNCTIONALITY OF TRUE STABLE COIN.
IT’S NOT THE LIQUIDITY COIN, BUT A TRUE, BACKED BY THE SAME
THING THAT WE BACK BANK ACCOUNTS BY.
LET’S JUST PUT IT THAT WAY, OR BACKED BY THE SAME THING THAT
YOU WOULD BACK A REPO BY. A TRUE STABLE COIN, A
REMARKABLE TECHNOLOGY AT THE RETAIL LEVEL TO BE ABLE TO
TRANSFER DOLLARS AROUND THE WORLD.
I MEAN, WE USE $100 BILLS AND CASH FOR A LOT OF THINGS, I SAY
WE, NOT THE POPULACE, BUT PEOPLE OUTSIDE THE UNITED
STATES. WOULDN’T A STABLE COIN BE A
BETTER WAY TO DO THAT? I THINK SO.
I THINK WE OUGHT TO BE LOOKING AT THAT TECHNOLOGY. >> I WOULD SAY THE IRONY IS THE
ONLY TIME THAT ONE OF THE BEST STABLE COINS BROKE THE BUCK IS
WHEN IT WAS ANNOUNCED THEY WERE A CUSTOMER OF SILICON VALLEY
BANK, TRADED FROM A DOLLAR DOWN TO 87 CENTS.
AND THEN WHEN EVERYONE REALIZED IT WAS COMPLETELY
COLLATERALIZED, IT CAME BACK UP TO PAR. SO I AGREE.
IT’S VERY IMPORTANT. >> WHAT HE WANTS THE WAY
FORWARD, DAN, IN TERMS OF SECRETARY AGAINST HER AND THE
S.E.C. OBVIOUSLY PURSUING THEIR MOVES
AGAINST COIN-BASED AND FINANCE. I MEAN, FIRST OF ALL,
REGULATORS BEHIND, WHERE SHOULD THEY HAVE BEEN MAYBE A FEW
YEARS AGO? >> WELL, AN IMPORTANT POINT,
JUST LIKE CLIMATE, BLOCK CHAIN IS A BORDER, GLOBALNESS THING.
REGULATORS DO NEED TO THINK ABOUT IT AS A GLOBAL CONTEXT,
NOT NATIONAL OR THE U.S. THERE’S EIGHT OR SO DIFFERENT
AGENCIES THAT HAVE PURVIEW. THE THING TO REMEMBER IS MOST
COUNTRIES ARE PRETTY NEUTRAL ON BLOCK CHAIN.
EVEN MOST AGENCIES IN THE U.S., THE FTCT HAVE BEEN VERY
PROGRESSIVE, FAR AHEAD OF THE CURVE.
GLOBALLY SPEAKING, REGULATION HAS BEEN FAIRLY NEUTRAL, AND
BLOCK CHAIN IS NOW USED BY 300 MILLION OR 400 MILLION PEOPLE. >> THEY MAKE A POINT ON THE
CASES. THE ALLEGATIONS IN THE CASES IN
FTC AND BINANCE, IT’S REPREHENSIBLE.
NOBODY WANTS IT IN OUR FINANCIAL SYSTEM.
BUT ACTIVITIES NOT ON THE BLOCK CHAIN. IT’S COMMINGLING.
IT’S FRAUDULENT REPRESENTATION TO THE EXTENT, IT’S NOT AS IF
THE TECHNOLOGY FAILED OR THE TECHNOLOGY HAD SOME SORT OF
FUNDAMENTAL PROBLEM. >> SO THEN HOW DO YOU THINK OF
THE ROLE OF CRYPTO? I KNOW WE KIND OF LUMP A LOT OF
STUFF TOGETHER, BUT DO YOU DO YOU THINK ABOUT IT GOING
FORWARD? IT’S NOT GOING AWAY. THE U.S. DOESN’T HAVE A ROLE. >> WE KNOW BLOCK CHAIN IS
UNLIKELY TO BE GOING AWAY. WE DO NEED TO UPDATE OR
TECHNOLOGY STACK IN THE FINANCIAL SYSTEM.
NO ONE DISAGREES WITH THAT. IT’S NOT GOING AWAY.
WHAT’S ALSO NOT GOING AWAY IS RIGOROUS REGULATION OF RETAIL
INVESTMENT PRODUCTS. THAT’S NOT GOING AWAY.
THOSE TWO THINGS HAVE TO BE RECONCILED.
AND THAT’S WHERE WE STAND TODAY, AND THEY’RE BEING
RECONCILED IN THE COURTS AND OTHER PLACES, BUT I THINK THE
BLUNT APPROACH THAT BLOCK CHAIN, CRYPTO, IS SOMEHOW BAD,
IS WRONG, AND THE BLUNT APPROACH THAT OUR TRADITIONAL
REGULATORY FRAMEWORK IS SOMEHOW COMPLETELY OVERBROAD IS ALSO
WRONG. >> BECAUSE SOME OF THE
REPORTING THAT WE’VE DONE IN THE LAST WEEK OR SO, OR JUST
THIS WEEK, IS THIS THINKING THAT AS THE S.E.C.
IS WIDENING ITS PURSUIT OF CRYPTO PRETTY AGGRESSIVELY,
THAT THE U.S. IS ULTIMATELY TURNING ITS BACK
AND WON’T HAVE A ROLE GLOBALLY. DO YOU SEE IT THAT WAY? >> I THINK IT IS A RISK,
BECAUSE IF YOU THINK ABOUT THE INTERNET, LITERALLY THE
GOVERNMENT LITERALLY BUILD THE INTERNET IN THE U.S., AND ALL
THE MAJOR INTERNET COMPANIES ARE BASED IN THE UNITED STATES
OR CHINESE VERSION OF THEM. AND SO I THINK AS AN AMERICAN
CITIZEN, IT’S GREAT. IT ACCRUES TO OUR COUNTRY.
BLOCK CHAIN IS REALLY THE POLAR OPPOSITE THAT REGULATION IN THE
U.S. HAS BEEN SCARY ENOUGH THAT 19
OUT OF THE TOP 20 PROTOCOLS ARE OUTSIDE THE UNITED STATES, AND
AT THE TIME LAST YEAR, 95% OF ALL TRADING OF CRYPTO ASSETS
WAS OFF SHORE OF THE UNITED STATES. AGAIN, I THINK THERE’S
DEFINITELY SOME BAD ACTORS, LIKE JAY SAID, THAT REALLY NEED
TO BE PROSECUTED. BUT MOST PEOPLE ARE USING
CRYPTO FOR VERY LEGITIMATE, VERY, VERY IMPORTANT REASONS,
AND IT’S BETTER TO HAVE IT HAPPEN IN THE UNITED STATES.
SO I’D LOVE TO HAVE THAT FLIP, WHERE WE PRIORITIZE. >> AND WE HAVE A FEW DATA
POINTS RECENTLY THAT SUPPORT WHAT HE WAS SAYING, OTHER
GOVERNMENTS ARE SUPPORTING BLOCK CHAIN BASED ISSUANCES OF
SOVEREIGN DEBT. AND WE ALL KNOW THAT AT THE
CORE OF EVERY FINANCIAL SYSTEM IS THE SOVEREIGN DEBT.
AND IF YOU’RE GOING TO MODERNIZE, MODERNIZE YOUR
TECHNOLOGY STACK, STARTING WITH SOVEREIGN DEBT, REPO, THAT TYPE
OF THING, IT’S A VERY EFFECTIVE WAY TO DO IT.
IT’S INTERESTING THAT WE’RE TURNING AWAY FROM THAT WHEN
OTHER COUNTRIES ARE NOW TURNING BACK TOWARD IT. >> I DO WONDER, TOO, WHAT’S
INTERESTING IN TERMS OF REGULATORY FRAMEWORK WHEN IT
COMES TO NEW TECHNOLOGY, WE’VE ALL BEEN SPENDING A LOT OF
FOLKS HERE HAVE TALKED ABOUT A.I., THE NEXT LEVEL MACHINE
LEARNING. HOW DO YOU THINK ABOUT THE
F.C.C. NEEDS TO THINK ABOUT NEW TECHNOLOGIES?
IS IT A CASE OF NEW FRAMEWORK FOR NEW TECHNOLOGY, OR IS IT A
CASE OF NEW TECHNOLOGY HAS TO ADJUST TO OLD FRAMEWORK?
OR IS THAT WHAT TRIPPED US UP WITH CRYPTO, JAY? >> I THINK WHAT TRIPPED US UP
WITH CRYPTO WAS THE BELIEF THAT NEW TECHNOLOGY WOULD BEND THE
REGULATORY FRAMEWORK, THAT THE NEW TECHNOLOGY AND THE
FINANCIAL WORLD WOULD DO WHAT THE TECHNOLOGY DO IN THE
TAXICAB WORLD, WHERE IT BASICALLY -- WHERE IT BROKE
DOWN ARCANE REGULATION. BUT THE POINT I MAKE ON THIS IS
THE CORE OF TAXICAB REGULATION WAS PASSENGER SAFETY, OR AT
LEAST IT WAS SUPPOSED TO BE. THE UBER AND LYFTS, THEY DIDN’T
REALLY BREAK DOWN PASSENGER SAFETY, AND THEY WENT THERE,
THEY WERE BREAKING DOWN SOMETHING ELSE.
I THINK A LOT OF WHAT I WOULD SAY IS THE EARLY CRYPTO, WAS
ACTUALLY BREAKING DOWN INVESTOR PROTECTION VERY MUCH SO.
CAN’T DO THAT. >> SO I AM CURIOUS.
I KNOW YOU AND I WERE AT AN EVENT IN ORLANDO YESTERDAY, AND
YOU SAID TO ME YOUR PHONE WAS RINGING OFF THE HOOK THE DAY
BEFORE BECAUSE OF THE GOLF GET-TOGETHER BETWEEN PGA TOUR
AND LIV GOLF, AND THEN, OF COURSE, THE CRYPTO NEWS, AND
DAN, I’M ASSUMING THAT YOUR PHONE HAS BEEN RINGING OFF THE
HOOK BECAUSE OF THE CRYPTO NEWS AS WELL.
WHAT IS IT THAT PEOPLE -- IS IT A FAIR ASSUMPTION?
WHAT WAS IT THAT PEOPLE WANTED TO KNOW FROM YOU ABOUT THE NEWS
THIS WEEK? >> YEAH, I GUESS PEOPLE ARE
TRYING TO PARSE WHAT IS THE ULTIMATE INTENTION OF THESE
REGULATORY ACTIONS. I DO THINK JAY’S POINT IS VERY,
VERY IMPORTANT. THERE WAS SOME ALLEGED CRIMINAL
ACTIVITY THAT IS TOTALLY SEPARATE FROM BLOCK CHAIN
ITSELF, AND SO INVESTORS REALLY DO WANT TO HAVE MORE CLARITY
BEFORE THEY’RE GOING TO COMMIT LARGER AMOUNTS OF MONEY TO THE
SPACE. >> DID YOU SEE A PULLBACK AT
ALL THIS WEEK? >> I THINK SO. >> IN YOUR WORK SPECIFICALLY? >> YEAH, INVESTORS WE TALKED TO
ARE ALL ESSENTIALLY WAITING TO SEE WHERE THE DUST SETTLES, AND
THERE’S DEFINITELY A LOT OF UNCERTAINTY IN THE MARKET RIGHT
NOW. >> JAY, WHAT WERE THE CALLS FOR
YOU? WHAT YOU CAN SHARE. >> NO, I THINK THE THE COMMON
THING IS WHAT’S THE END STATE. OBVIOUSLY THERE’S
DISAGREEMENTS, THERE’S DISAGREEMENTS AROUND
CLASSIFICATION, THERE’S DISAGREEMENTS AROUND METHODS TO
GET THERE. IF WE’RE GOING TO HAVE
TOKENNIZED TRADING OF THINGS THAT ARE SECURITIES, WHICH I
THINK MANY OF THEM ARE, THINGS THAT ARE COMMODITIES, AND
THINGS THAT ARE OTHERS, LET’S JUST PICK ONE.
HOW ABOUT TAYLOR SWIFT TICKETS, OK? LIKE A MARKET THAT’S REALLY
IMPORTANT. A MARKET THAT’S REALLY DEEP. >> THAT’S MY DAUGHTER. >> IT’S AS DEEP AS MANY SHOWS
AS SHE WANTS TO PLAY. LIKE, ARE WE GOING TO REGULATE
THE TRADING OF TICKETS TO A SWIFT CONCERT?
IN THE SAME WAY WE REGULATE SECURITIES? I DON’T THINK SO. >> WHY NOT, SOMEBODY ASKED.
LET ME ASK YOU THIS. DO YOU THINK THAT FOR TAYLOR
SWIFT’S IMMENSE POPULARITY WE SHOULD APPLY THAT TO THE REST
OF THE INDUSTRY? SO IF I’M TELLING 60’S TO A
50-SEAT THEATER, THAT I’VE GOT TO GO THROUGH S.E.C. COMPLIANCE?
BUT NOW WE’RE HAVING A REAL CONVERSATION ABOUT WHERE YOU
DRAW THOSE LINES. IT’S AN IMPORTANT CONVERSATION.
AND I THINK WHAT DAN WILL TELL YOU, HE’S MUCH MORE PROPONENT,
MUCH MORE UNDERSTANDS THE POWER OF BLOCK CHAIN TECHNOLOGY.
THERE’S GOING TO BE A LOT OF THINGS, AND MAYBE IT’S SWIFT
TICKETS, MAYBE IT’S -- WHAT DO YOU EARN WHEN YOU PLAY VIDEO
GAMES, SOMETHING BUCKS? >> ONE OF THE TRADING OF
FUNGIBLE ITEMS THAT ARE NOT SECURITIES, NOT TRADITIONALLY
COMMODITIES, WHAT’S IT GOING TO LOOK LIKE IN THE FUTURE?
IT’S A REALLY GOOD QUESTION. >> I WANT TO SHIFT BECAUSE THE
CLOCK IS GOING REALLY QUICK. ON LENDING AND BANKS, REGIONAL
BANKS, OBVIOUSLY THE OTHER CRISIS, WHAT WAS REALLY
INTERESTING IS THAT AS REGIONAL BANK STOCKS SOLD OFF, CRYPTO
MOVING UP, WE ALL DID, HOW ARE WE SUPPOSED TO THINK ABOUT, I
THINK INITIALLY WE THOUGHT ABOUT THE CRYPTO WORLD, DAN, AS
KIND OF A DISCONNECT, A WAY TO HEDGE STUFF THAT’S GOING ON IN
THE REST OF THE MARKET, ALTHOUGH WE HAVE SEEN SOME
CORRELATION AS WELL BETWEEN REGULAR ASSETS AND TRADITIONAL
ASSETS SELLING OFF IN CRYPTO. WE CERTAINLY SAW THAT LAST YEAR.
SO HOW ARE YOU THINKING ABOUT IT? >> I THINK THIS IS A MORE
BINGER OF THE FUTURE. IF YOU THINK ABOUT IT, BACKES
ARE KIND OF LIKE TERRIBLY DESIGNED STABLE COINS. HERE, I’LL PITCH YOU AN IDEA.
LOOK, BANKS -- BANKS SERVE AN INCREDIBLY IMPORTANT FUNCTION,
AND THEY HAVE BEEN THE SOURCE OF LIQUIDITY TRANSFORMATION
THROUGHOUT THE GROWTH OF OUR ECONOMY. >> UNTIL PRIVATE LENDING. >> BUT WHAT HAVE WE SEEN?
TECHNOLOGY HAZZAN AVAILABLED CREDIT CREATION, AND WE’RE IN
THE MIDDLE OF IT. BANKS ARE GOING TO BE HERE 10,
15, 20, AUTO YEARS FROM NOW. THEY’RE GOING TO PROVIDE
SERVICES. BUT THE BANKING INDUSTRY’S
DOMINANCE OF CREDIT FORMATION, THAT’S A THING OF THE PAST. >>
LET ME NICHE AS A STABLE COIN IDEA.
I INVEST $15 MILLION OF CAPITAL IN MY STABLE COIN PROJECT.
AND THEN I GO SELL THE PUBLIC $19 ON MILLION OF KINDS.
I TAKE THE PROCEEDS AND BUY $210 MILLION WORTH OF RISKY
ASSETS. I PROMISE THE STABLE COIN
PEOPLE INCREDIBLE LIQUIDITY WITH THE SMARTPHONE MAKING IT
BACK THE SAME DAY, UNLIMITED AMOUNT.
I ALSO, WHEN ASKED, ISN’T 13-1 LEVERAGE KIND OF AGGRESSIVE,
HONESTLY, I SAY, HEY, IF THE RISKY ASSETS GO UP, I’M KEEPING
THE PROFITS F. THEY GO DOWN, I’M GOING TO
STIFF THE TAXPAYER. THAT’S WHAT A BANK IS. >> LOOK, I’LL PUT MY BANK HAT
ON. I THINK THAT’S ABOUT AS STARK
AS YOU CAN DO IT, BECAUSE THAT’S WHY WE HAVE BANK
REGULATION. THAT’S WHY WE HAVE -- BECAUSE
WE ACTUALLY NEED LIQUIDITY TRANSFORMATION IN OUR SOCIETY. >> DO WE NEED MORE BANK
REGULATION? GO AHEAD, DAN. >> I WAS GOING TO SAY, THE
STARK RE AGENT OF SOME OF THE THESE REGIONAL BANKS IS U.S.
GOVERNMENT IS ON BOTH SIDES OF THE BALANCE SHEET.
IT’S ALL THE DEPOSITS, AND IT’S HALF THEIR ASSETS.
SO WHY IS A BANK GETTING PAID TO MEDIATE BETWEEN TWO SIDES OF
THE U.S. GOVERNMENT? >> I THINK THAT ASSET LIABILITY
MIX CHANGES OVER TIME, RIGHT? I MEAN, IT JUST HAPPENS TO BE
TREASURIES AT THE MOMENT FOR LOTS OF REASONS.
LOOK, HERE’S ANOTHER THING THAT I WOULD SAY.
REGULATION CHANGES SLOWLY. CHANGE TAKES A LONG TIME.
YOU HAVE TO IDENTIFY A PROBLEM. YOU HAVE TO DEAL WITH IT,
WHETHER IT’S TOO MUCH REGULATION, TOO LITTLE
REGULATION, CHANGING IT TAKES A LOT OF TIME.
BE VERY CAREFUL ABOUT REGULATING BASED ON A SHORT
EVENT IN TIME. THE RAPID INCREASE IN INTEREST
RATES THAT WE HAVE HAD IS VERY UNPRECEDENTED, FOLLOWING WHAT
YOU AND I CALL A CONTROL, ALT, DELETE IN THE ECONOMY.
IF YOU’RE GOING TO BASE THE FUNDAMENTAL REGULATION OF
BANKS, LOOKING BACK OVER THE LAST 24 MONTHS, YOU’RE LIKELY
TO GET IT WRONG. >> YOU’RE SAYING WE DON’T NEED
MORE BANK REGULATION? >> I’M SAYING DON’T DO IT WITH
THE NEAR-TERM BIAS. AND WHEN YOU LOOK AT IT, WHAT
HE WANTS THE OBJECTIVE OF BANKING REGULATION? SAFETY?
FOR THE PRUDENTIAL SYSTEM. BUT ALSO PART OF IT IS CREDIT
CREATION. THE SAFEST BANK IS A BANK THAT
HAS TO HOLD ONE TO ONE. WELL, UP DON’T CREATE ANY
CREDIT. >> HOW MANY PEOPLE BUY DAN’S
EXPLANATION OF THE BANKING SYSTEM? HOW MANY ARE WITH JAY?
MORE TRADITIONAL, OH, A LOT OF PEOPLE DIDN’T GO THERE. >> I’M ALWAYS TRADITIONAL. >> DAN DID WEAR A TIE TODAY. >> THERE WOULD BE PICTURES.
I GUESS WHAT I WANT TO THINK ABOUT, WE’VE ONLY GOT ABOUT
FOUR MINUTES HERE. THE WAY FORWARD, ARE WE PRIVATE
LENDING, BENEFITED FROM THE CRISIS IN REGIONAL BANKS?
DID YOU SEE AN UP TICK? >> I THINK IT’S JUST A FAIRLY
STEADY LONG-TERM TREND, FOR SOME OF THE REASONS THAT DAN
ARTICULATED. YOU HAVE A BETTER, YOU HAVE A
BETTER ASSET LIABILITY MATCH IN PRIVATE LENDING.
ON THE LIABILITY SIDE, IT’S NOT A DAILY LIQUIDITY PRODUCT.
PEOPLE HAVE GIVEN YOU THEIR MONEY FOR A PERIOD OF TIME.
YOU LEND FOR A SIMILAR PERIOD OF TIME WITH VERY LIMITED
LEVERAGE. I THINK WHAT WE’VE ACTUALLY
SEEN THROUGH SOME OF THESE, WHAT I’LL SAY IS STRESSES IN
THE SYSTEM, IS THAT THE PRIVATE CREDIT MARKET FACILITATES
STABILITIES RIGHT NOW. YOU’RE NOT SELLING THOSE ASSETS
INTO THE PERIODS OF INSTABILITY. >> SO DAN, WHAT’S YOUR THINKING
THE LONGER TERM? I DON’T KNOW, DO WE THINK ABOUT
A YEAR FROM NOW, WHAT’S THE DISCUSSION WE’RE HAVING
POTENTIALLY AROUND BLOCK CHAIN? I GET BLOCK CHAIN MORE THAN
CLIP AT THIS, AND I KNOW THEY GO HAND IN HAND.
BUT I KIND OF GET THAT. >> I THINK IT’S GOING TO TAKE A
LONG TIME, BUT I THINK IT IS THE FUTURE THAT BANKS REALLY
ARE THE PAST, THAT THEY USED A VERY NEW THING CALLED DOUBLE
ENTRY BOOKKEEPING TO CREATE BANKS, AND NOW WE HAVE
DISTRIBUTED LEDGER TECHNOLOGY. IT’S THE FUTURE.
AND SO THAT’S WHERE WE’RE HEADING.
WE’RE GOING TO HAVE THESE WILD, HYPERBOLIC UPS AND DOWNS, BUT
LIKE AIER FROM NOW, IT WILL PROBABLY BE BACK ON ITS TREND
OF BITCOIN IS A PROXY FOR INDUSTRY THAT GOES UP ON
AVERAGE FOR THE LAST 12 YEARS, SO I THINK WE’LL KEEP RESUMING
THAT TREND. >> WEAVE LIVED IN A YEAR WHERE
OR A COUPLE OF YEARS WHERE THINGS JUST KEEP HAPPENING THAT
WE THOUGHT WOULD NEVER HAPPEN. PANDEMIC, YOU KNOW, OR YOU JUST
THINK ABOUT EVEN THE LAST COUPLE OF DECADES BETWEEN THE
TECH BOOM AND BUST. THE FINANCIAL CRISIS.
WHAT IS KIND OF THE BLACK SWAN EVENT THAT WE SHOULD BE EVENING
-- WHO WOULD HAVE THOUGHT WE WOULD HAVE GONE THROUGH THIS
PANDEMIC? WHO WOULD THOUGHT WE WOULD LOOK
OUTSIDE OUR WINDOWS AND IT WOULD BE LIKE A MOVIE?
A TERRIFYING ONE. SO DAN, LET ME ASK YOU, WHAT’S
THE BLACK SWAN EVENT THAT YOU THINK, WHEN WE TALK ABOUT
STRESS POINTS, THAT WE SHOULD KEEP ON OUR RADAR? >> YEAH, I USED TO SIT ON THE
WALL STREET A LONG TIME AGO. >> HOW WAS THAT? >> IT WAS FUNNY, SUPER BRIGHT
GUY. EVERYBODY IGNORES BLACK SWANS
TILL ONE HAPPENS, AND THEN EVERYBODY TALKS ABOUT THE NEXT
SHOE TO DROP. THE BIGGEST SURPRISE IS WE GOT
MASSIVE SHOES DROP LAST YEAR, AND IT WILL JUST BE KIND OF
NOTHING CRAZY HAPPENING. IF YOU HAD TO MAKE ME SAY
SOMETHING, REGULATORY CLARITY IS THE ONE THING NOBODY IS
EXPECTING, AND THERE ARE A FEW WAYS THAT COULD HAPPEN. >> AND THAT COULD BE THE BLACK
SWAN. >> THAT COULD BE THE POSITIVE
BLACK SWAN, WE’RE ALL WAITING FOR THE NEXT THING TO DROP. >> NICE SLIP ON THAT.
HOW ABOUT JAY? >> I’M GOING TO AGREE WITH DAN. WE HAVE THESE POSITIVE AND
NEGATIVE INFLEXION POINTS. FRANKLY, I DON’T THINK WE WOULD
HAVE SHUT DOWN THE ECONOMY 30 YEARS AGO, BECAUSE WE DIDN’T
REALLY SHUT DOWN THE ECONOMY. WE WENT TO A REMOTE ECONOMY,
WENT TO AN ECONOMY WHERE WE RELIED EXTENSIVELY ON
TECHNOLOGY, AND WE COULDN’T HAVE DONE THAT, AND THE COST,
THE COST OF THE TYPE OF SHUTDOWN THAT WE DID, WE WOULD
NOT HAVE BEEN ABLE TO BEAR FOR AS LONG AS WE DID.
I THINK THAT’S CLEAR, RIGHT? FOOD WOULDN’T HAVE GOTTEN
DELIVERED. NONE OF THE THINGS THAT WE RELY
ON WOULD HAVE BEEN ABLE TO HAPPEN.
SO WE HAVE A LOT OF WHAT I WILL SAY IS POSITIVE BLACK SWAN
EVENTS. I STILL THINK THE POWER OF
TECHNOLOGY FOR PRODUCTIVITY GLOBALLY IS UNDERESTIMATED, AND
IT IS THE REASON WHY SO MANY MACRO ECONOMISTS CONTINUE TO
FORECAST INEFFECTIVELY. >> I HAVE A MILLION MORE
QUESTIONS, BUT WE’VE RUN OUT OF TIME, SO WE’VE GOT TO RUN.
JAY AND DAN, THANK YOU SO MUCH. WE REALLY APPRECIATE IT.
