>>WELCOME BACK TO "LAST CALL." WE ARE LIVE FROM THE MILKEN GLOBAL CONFERENCIN BEVERLY HILLS, CALIFORNIA. OF COURSE WE TALK TO A LOT OF PEOPLE THEY'RE ICONS. THEY'RE LEGENDS. THEY'RE CEOs YOUR NEXT GUEST IS ALL THREE MICHAEL MILKEN IS ONOF THE MOST, IF NOT THE MOST FLUENTIAL FINANCIERS OF OUR GENERATION MARKET FOR HIGH-YIELD FINANCE. HE ALSO THE FOUNDER OF THE MILKEN INSTITUTE, WHICH IS THE THINK TANK THAT HOSTS CONFERENCES KE THIS ONE, T MILKEN GLOBAL CONFERENCE IT'S NOT AN ACCIDENT HE WAS NAMED ONEF ES SQUIRE'S 75 MOST INFLUENTIAL PEOPLE IN THE 21stENTURY HE'S T AUTHOR OF THE NEW BOOK ASTER CURES: ACCELERATINTHE FUTURE OF HETH." MICHAEL MILKEN JOINS US W. MICHAEL, IE BEEN TO 22 OF THESE CONFERENCES. IS IS THE FIRST TIME WE HA SAT DOWN, SO THANK YOU VERY MUCH >> WELL, GOOD THINGS EVENTUALLY HAPP FOR GOOD PEOPLE, RIGHT? >> HOPEFULLY IT WON'T BENOTHER 22 YOU HAVE A BOOK. I'GOING TO GET TO THE BOOK I WANT TO ASK YOU THREE QUESTIONS. I WILL GET TO THE BOOK OBVIOUSLY YOU KNOW I HAVE TO ASK YOU A BROADER QUESTION ABOUT WHAT'S HAPPENING WITH BANKS, THE FED. AND THIS STATE, SAN FRANSCO.. YOU WOULD BE A GUY THAT PEOPLE WOULD CALL TO GET ADVICE I'M A CEO OF A TROUBLED NK I CALL MICHAEL MILKEN. WHAT DOES HE SAY >> WE SHOULDN'T HAVE BORROWED S. I MEAN FINCE 101 HOW MANY TIMES, HOW MANY DECADES S LESSON OF BORROWING OVERNIGHT AG WHETHER WAS THE 1970sTHE 1980s, THE '90s, AND AGAIN HERE, THE BANKHAVE ENOUGH CRED THEY HAD ENOUGH EQUITY ABSORB CREDIT LOSSES THAT ARE COMING HOWEVER, WHAT THEY DID IS THEY DOUBLED, TRIPL, ADRUPLED THEIR SIZE BY BORROWING OVERNIGHT AT ARTIFICIALLY LOW RATES AND BUYING INTERMEDIATE SECURITIES SO THERE'S 30 TRILLION OF THEM OE WORTH 85 CENTS ON THE DOLLAR WHO HAS AN UNREALIZED LOSS OF $? WE KNOW NUMBER ONE THAT THE FED PROBABLY HAS THE LGEST SHARE OFHAT LOSS, 800 BILLION OR 900 BILLION, BUT THECAN PRINT MONEY, SO THAT ISN'T AN ISSUE. WENOW THAT THE EUROPEAN FEDERAL RESERVES ARE IN AS WHERE THEY'VE BOUGHT THEM. THEY HAVE LOSSES T WHAT WE SAW HERE IS ORGANIZATION GREAT COMPANIES LIKE SILICON VALLEY BANK, LIKE FIRST REPUBLIC, WHAT THEY TURNED THEMSELVES INTO IS ADDING TO THE AND LENDING LONG IN THE CASE OF SILICON VALLEY, REALLY GOVERNMENT AGENCIES, MUNIC MUNICIPALS THE CASE OF FIRSTEPUBLIC, FIXED-RATE MORTGAGESITH FLTING-RATE LIABILITY. SO THIS IS FINANCE 101 PEOPLE A SO FOCUSED ON CREDIT BUT ONE OF THE GREAT RISKS IS INREST RATE RISK AND IN THE PERD OF THE EARLY '80s, YOU HAD VERNMENT BONDS SELLING FOR 50ENTS OTHE DOLLAR EVERY SINGLE INSURCE COMPANY, THEIR A PORTFOLIO MARKET TO MARKET, THEIR LOSSES WERE EATER THAN THEIR EQUITY,UT THEY HAD LONG-TERM LBILITY VERSUS LONG-TERM ASSETS. >> IT FEELS LIKE THERE'S ALMOST TWO ARMS OF THE GOVERNMENT, MIKE, THAT ARE COMPENG WITH EACH OTHER ON ONE HUNDRED, JAY WELL AND THFEDERAL RESERVE AGGRESSIVELY GHTING INFLATION ONE OF THE FASTEST RATE HIKE CYCLES OF L TIME ON THE OTHER HAND, THE TREASURY IS RACING TO RESCUE AND BACKSTOP SOME OF THESE BANKS. AM I LOOKING AT IT THE RIGHT WAY? FEDERAL RESERVE IS TRYING TO BRG INTEREST RATES TO A LEVEL THAT SLOWS DOWN INFLATION. I VISITED WITH CHAIRMAN POWELL LAST YEAR, AND WHAT I TOLD HIM WAS THE OPPOSITE OF WH TEDDY ROOSEVELT ID TEDDY ROOSEVELSAYS, "CARRY A BIG STK AND SPEAK SOFTLY." AND SO WHAT I SAID IS, "SPEAK AS LOUD AS POSSIBLE, AND JUST CARRY SMALL STICK. YOU MIGHT NOT HAVE TO DO IT. IF YOU CAN TELL PEOPLE WHERE YOU'RE GOING, MAE THEY'LL TAKE APPROPRIATE ACTION." BUT THESE DECISIONS BY FINANCIAL INSTITUTIONS AND OTHER GROUPS TO R N INTERMIATE SECURITIES HAVE SOMEWHAT REDUCED THEIR FLEXIBILITY HERE IN THE SHORT RUN. BUT WE SHOULD NOT FORGET WHEN WE'RE TALKING ABOUOUR NANCIAL SYSTEM, THAT THERE'S $5 TRILLION TO $6 TRILLION IN MONEY MARKET FUNDS IT'S NOT LIKE THERE ISN'T A GREAT DEAL OF LIQUIDY IN THIS COUNTRY, ENORMOUS LIQUIDITY. WE SHOULD AL TAKE INTO BANKS, THE LARGEST BANKS, THE TRILLION-DOLLAR BANKS HAVE EXERCISED EXTREME CAUTIOON LIABILITY ANASSET MANAGEMENT SOHIS IS THOSE COMPANIES THAT HAVE GROWN VERY QUICKLY. AND AS Y'VE DISCUSSED ON CNBC, SCHWAB DID THE SAME THING, KING IN THOSE DEPOSITS AT VERY LOW RATES AND BUYING INTERMEDIATE SO IT ISN'T THE CREDIT RISK THAT WE'RE SEEING NOW WHAT WE'RE SEEING IS THE PLAY OUT OF INTEREST RATE RISK AND THE LESSONS THAT WERE REALLY LEARNED THE MID-70s, '74, '75, '76, WHICH CREATED E THOUSANDS OF DIFFERENT KINDS OF SECURITIES, I THINK THE RESU OF THIS WILL BE A SUBSTANTIAL INCREASE IN IVATE CREDIT WHERE THE PENSION FUNDS AND LONG-TERM ASSETS AND FOUNDATIONS, ENDOWMTS, AND SO ON, OR LAE FAMILY OFFICES OR INSURANCE COMPANIES WHO HAVE LONG-TERM ASSETS VIEWS, THEY'LL END UP OWNING THESE LOANS AT E END OF THE DAY. AND I THINK THLESSON TOE LEARNED THIS TIME IS ONCE AGAIN, LET'S GO TO FINANCE 101, AND LET'S MATCH LIABILITIES AND ASSETS >> IT WASN'T JUST BANKS, THOUGH, I DON'T THINK. QUESTI YOU WERE REMARKING THAT EVEN BROKERAGE FIRMS WERE NOT GIVG ANY RETURN ON THE CHECKING ACCOUNT. PEOPLE REALIZED CAN GET 4%N A MONEY MARKET WITH THE ME COMPANY, BUT THE REDUCTION FROM THE CHECKING ACCOUNTS ANTHE COMMERCIAL DEPOSITS REWED UP THEIR BALANCE SHEET FOR LACK OF A BETTER TERM. >> THIS COUNTRY HAS BEEN PRIMARILY FINANCED, SINCE THE 1970s, BY PUBLIC AND PRIVATE MAETS. SO AS YOU KNOW, BANKS IN AMERICA ONLY HOLD 20% OF LOANS 80% ARE OWNED BY UP. I THINK WE'RE JUST GOI TO SEE A DECREASE IN THE PERCENTA OF LOANS THAT AREWNED BY THE BANKINSYSTEM, AND WE WILL BE
