Q&A: Meredith Whitney, Financial Analyst

this week on Q&A our guest is Meredith Whitney financial analyst and chief executive officer of Meredith Whitney Advisory Group LLC Meredith Whitney in Michael Lewis's book the big short he says and then came Meredith Whitney with news Whitney was an obscure analyst of financial firms for an obscure financial firm Oppenheimer and company who on October the 31st 2007 ceased to be obscure on that day she predicted that Citigroup has so mismanaged its affairs that it would need to slice its dividend or go bust when you surprised it how much Michael Lewis relied on you for starting his book I'm surprised that I would even be on the you know on a Michael a page of Michael Lewis's book because first of all he's an incredible author and probably one of the most important authors journaling the Financial Times as we know them so I'd always been a big fan and when he called me in March of Oh a t' i said i remember saying to him Michael Lewis this is Michael Lewis The Blind Side Michael Lewis and he said it's the first time I've ever gotten that I usually get Michael Lewis is this liars poker Michael Lewis so yeah you know him he's an extraordinary individual talent personality and so I wanted to talk to him what I recalled and I was really open with him because he you know whatever you tell him you can tell him a story he'll tell you the story back and you'll learn something from his story he's amazing I was of course I'm surprised but I was and well I also never thought of myself as an obscure analyst at an obscure firm the fact is that prior to that time people didn't really care about financials so I don't know that I was obscure within the world of financials but financials weren't on everyone anyone's radar screen banks really weren't something that people thought too much about and certainly from a risk perspective banks were not never associated with high risk that they could bring down the system let me let Michael Lewis say it and his words as he did when we talked to him about his book the catalyst for me in this story she she's an analyst she wasn't she was until very recently what's called a sell side analysts which means she works for The Wall Street firm a Wall Street firm that is offering stocks to the public and she worked for a firm co-op in however and she was a bad catalyst a financial sector analyst and Meredith Whitney who I'd never heard of start saying things in kind of in 2008 2007 is when I first start paying attention about the Wall Street firms that this sounded different meaning I never heard that she was she was saying they basically didn't know what their understand their the risks they were taking they didn't understand their own balance sheets that they were gonna see predicts Citigroup is going to have to cut it cut or eliminate its dividend a week before they actually do she seems to know more about what's going on inside the places than the people who run them on and she's and it's almost her tone that's it was as interesting as what she said she was actually kind of condescending to them to these Wall Street people and I caught so I call her up because I just it just seemed she was making a different sound I thought I haven't been writing about this world but I'm kind of curious who this woman is and why she thinks this and she made such sense that she persuaded me pretty early on that she didn't put it this way but I put it this way that the Wall Street firms have become the dumb money at the poker table it's somehow these firms which used to be the smart money when I left Salomon Brothers the last thing you wanted to do viewer investor was be on the other side of one of Salomon Brothers trades there was some zero-sum bet to be made with Salomon Brothers who did not make it because you were sure to lose money and what had happened is somehow the firm's had become had turned stupid that I rather than as institutions that they had become they've become the dumb money and so that I was curious that that made me curious how something big had changed and then the natural question of course wasn't well they were the dumb money who was the smart money he says that you led him to Steve an Iseman and and who is he and why was that important to his story I think Michaels original tact was going to be different than what it turned out to be so he we started speaking in March of 2008 and he came about his perspective was fresh and I don't know he just wanted to learn and so it wasn't until September 2008 that the Steve Eisman was even mentioned during conversation and he had asked me about investors who were involved in in buying the brokers investing in the brokers and then had now become entirely demoralized and spirited by the brokers that would never invest in brokers again and I said there is that group this is investing in the brokerage companies but there's also a group that invested and shorted a different type of you know of game and you should you should meet my mentor Steven Iseman so Steve I worked for from 94 to 98 and he is really well depicted in Michael's book a character love him or hate him I happen to love him he is smart and the hits keep coming so when I worked for Steve we wrote on the fall of glass-steagall we wrote on the subprime home equity industry I mean we he working for him I learned you know how to do this and sort of his craft hit every single turn and looked at what was happening in the world of financials from a point of history from a cultural angle and that got you into layers of the financial system that you would have missed otherwise if you had just looked at bank stocks and I think people who didn't connect the dots missed this and missed the entire collapse the system people were always looking to connect the dots to the story were people who got it and it was a few who got it but it was you know it's a it was you had to have an unorthodox way of approaching the system so it's not just that Steve is really smart because I think Michael Louis meets a lot of smart people it's that he is you couldn't if I didn't know Steve I wouldn't would find it hard to believe what he wrote about on paper because the guy this is different you mentioned selling short again to find that that's when you bet against with us when you bet a company's stock price is going down why would they even allow that to happen well there's a market so there's a buyer there's a seller it's a there are good reasons that that that trade exists and often times Co a lot of the short sellers tend to get into a story see a company's weakness before I want to anyone else does and ends up shining light the greatest disinfectant on on what otherwise is a dubious company or story as you know for a generalist and I actually have the analysis that was done by a law firm on the dodd-frank financial regulation legislation here and I've read it and you keep fighting as you're reading it as a generalist what does this mean and all that I'm gonna say as working in finance you still fight with it to see what it means well that I wanted to go back to where you started in this whole business how did how did you train yourself in the first place and why did he get into it um I was a history major in college I went to Brown University and I in in college I studied what was interesting that you know the Berlin Wall was crashing I wanted to study German history was the linchpin to all of modern European history and then when I graduated I wanted to go I grew up in DC so in DC at 15 I worked on the hill I worked for Jack Danforth and I worked tirelessly until I was I went to college in politics and when I graduated from college I wanted to go to the most competitive environment in politics obviously the most competitive environment is DC in in in New York I wanted to go to New York the most competitive industry in New York as I saw it was finance I didn't even know research existed and so once I discovered what research was I really narrowed my search anything else on Wall Street I didn't want to do I didn't want to sell anyone elses product I didn't want to I wanted to make my own product and sell my own product cuz that's what I trusted and what research ended up being is a field of work where you get paid to learn and fascinating and the access to information is incredible so it's truly a meritocracy that the harder you work the more you can do the better work you can do and the farther you can advance so my first job in research was working for an oil and gas analyst who ended up firing me because as I learned later he thought I was too aggressive and I wanted his job but it was 23 at the time and he was in his 40s but at any rate so then getting fired by him was the best thing that could have happened to me because then I ended up working for Steve Eisman now oil and gas de is interesting here because when I had my first job in oil and gas people used to say oh remember the energy crisis in the 70s and I would think to myself in the back of my mom station wagon I mean having not having any experience with in oil and gas industry was a real real detriment getting into financials when I did in the early 90s was the perfect time because that's when securitization market was really getting underway that's when subprime was really getting under way under way that's when credit card lending was becoming a national business so and that's when of course glass-steagall fell there was so much going on at that time that I was growing up with the industry really growing up so I didn't miss anything and you know from an accounting standpoint as I said it was a history major you could learn on the job like anything that was going on you just you know dug your yo dug into and it was a level playing field for the people who all really wanted to work and I really wanted to work what did your mother and father been doing my mother was an executive recruiter and my dad was in finance in different areas but they didn't have a lot of say in terms of me going to research I'm the youngest of three kids so I'm pretty strong at it explain what a researcher does a research analyst typically is siloed into an industry and be financials your siloed into banks and so you cover you know let's say the ten biggest banks in the United States and cover the banking industry so you'll rate a bank stock by seller hold and you'll have relative ratings so you'll have let's say three buys and three holds and you know three cells and four holds and that's you know you're just talking to investors and the investors would be the people that you give your money to that run mutual funds and 401k plans etc and so I'm advising those fund managers on what to buy what to hold what to sell Michael Lewis referred to an obscure company called Oppenheimer it seems like I've heard the name Oppenheimer for years is it still there Oppenheimer is open hours a great old name whether you look at it in the financial sphere to you know date disrespect to South Africa data turrets when I joined Oppenheimer originally it was a research boutique and it was one of the best research boutiques on the streets mall but things were small back then this is early 90s and then it went through a couple of iterations when the you had consolidation in the late 90s and became CIBC and then CIBC sold Oppenheimer back to you know and another retail operation it still exists but it's small and it's it's not what it once was I've got a list here somewhere of all the things that happened to you after this prediction back in 2007 this is something called Buzzle comm I don't never heard of it says good things I like it well here's what it may be said that Whitney has made great strides in a short period of time that is the reason that she made Forbes lists of the best analyst stock pickers in addition to being included in the New York Post 50 most powerful women in New York City she was also ranked in Fortune 500 50 most powerful women in business I want to stop there there's more but why do you have to be the 50 most powerful women why can't just be one of the 50 most powerful people I don't know write to them and tell them I don't where does that come from is it why they still segregate men and women in these kind of I think I don't know I would say from the fortune most powerful women I I was just excited to be invited to the conference let alone make the list it's a great great group of women and and we have a lot of fun and it's a great networking opportunity so women don't typically network for some reason I don't know why that's the case they're usually focused on the task at hand so that's opened up a lot of doors in terms of meeting incredible people why it's segregated at bay it is amazing to me that there are so few women on Wall Street it's just a fact I look around when I go to conferences or when I go to events or when I have events and it's you know I call it a man zone it's just they're a bunch of guys it's been a great advantage for me because I'm different and I don't care about how I look because I'm the only one there I don't have a lot of a lot of comparison so I think I'll ask questions that other people won't ask if people underestimate me that always works to my advantage so which happens a lot so I I don't mind asking dumb questions but it's it's sad to say that there are so few women and in finance are they scared to mess with you because who you're married to I think my husband is a retired World Wrestling Entertainment champion he's six foot seven two fifty he will know I'm 245 but he's 2/6 of that he's a big big guy I don't I really don't get mess with that often maybe it's because I I I was really kidding it was a tough time after the city call but and talk about that but by the way the other things that they say on here the times 100 world's most influential people came along what did this all just happen overnight and not your learning but that all of us that all these awards that you were given names your list see were put on it happened within this bit a period of about 12 18 months and a lot of these lists happened it seems like after a lot had already gone on so the time 100 list which was another sort of pinch yourself list great party happened in May 2008 so sorry 2009 rather so so much has gone on by then I had forgotten and I'm not very self-aware so I don't think about the lists that I'm I'm on I'm just again like that sounds like a great group of people to be around how cool I hope they don't figure out that I don't belong here um yeah it happened pretty quickly again I remember in the late 90s talking financials talking to investors you couldn't sell financial stock to save your life people wanted growth people want to attack media telecom the internet people with zero interest in financials and it's you know yet the high point was over 20% of the S&P so it was just not a sexy sector and it got you know I think that's why it caught so many people off-guard and so when it hit all of a sudden people like Oh who's this obscure analyst I'd been in the business for over 15 years people all of a sudden cared and cared a lot and so what I loved about the opportunity it was I it doesn't feel like work I work all the time I'm and if I'm I'm always on to the next issue I don't stay on one issue for too long a good analyst would market their thesis over and over and over again my thesis once I'm finished with the report I'm on to the next one and time moved so fast during that period that I I just had it I had the research I had you know from the city call then we moved to a big call ring of fire which was the the regulatory capital was determined by the ratings of Moody's and S&P on certain securities so this was November 15th November of seven that was a much bigger call in the city call but I had that two weeks later and that's a huge call and then two weeks later another call and then in the just a month later a call on the monoline insurers I mean it was staggering the amount of work that we were putting out and it happened when right at the time when people cared so that was it was a perfect storm think back to the Enron situation if I remember right there was a short seller on a telephone call with Jeffrey Skilling that started that old process down and here you are with a report that says and I want you to explain what you said about city in 2007 who is sitting anyway and what happened to it after you made your call okay interesting about the Enron if I could go back for one second during so my brief time as an oil and gas junior analyst I actually knew what Enron was I didn't know how you know I didn't know how complex the organization had done but I renew her revered the company was and so at the time in 2001 everyone was worried about Argentina defaulting and so remember writing a note on a Sunday December 1st and saying this will be bigger than anything you can imagine when Enron goes bankrupt and at the time you could see who the creditors were and so that was a big call with the city call the city call was very straightforward the city was one of the largest banks in the world with over two trillion dollars in assets and it had made so many acquisitions over the years that you couldn't really see what was coming or going with the company so each quarter they restated and when a company restates it's very hard to get a historical perspective on what's really happening because they'll restate every line item so you don't know what you're really looking at let me just make sure so put some names on it with Sandy Weill and charge at that time no Chuck printers and charge Sandy Weill had had gone but Sandy Weill was in charge when they made the major deals between travelers solomon citibank i mean he was the architect behind a lot of that was bob rubin there then yes he was in bob room is former secretary of the treasury was involved in advising barack obama when he went in to offer yes and so what I looked at and I remember the summer of 2007 they had a new pointer to new CF or they sorry in earlier in 2007 I appointed a new CFO Gary Crittenden who would come over from American Express who I had had a huge and have a huge amount of respect for they had a meet and greet with Gary Crittenden and Sue's chief financial officer and that was the summer of 2007 says before all of us and I remember what listening to one analyst who was now look I woke in a complete nerd Factory dork Factory if you went to events with me you'd be like why is everyone in black socks and sandals yeah it's just it is about as nerdy as it gets so one of the nerdy or analysts and I mean that is like high esteem the nerdy or you are the cooler you are in my field said you know I've just given up on modeling modeling which is predicting what cities a company's gonna earn modeling City because it's just gotten too complex and thinking at the time but you can't give up that's your job that's what you get paid for so that in the back of my mind the whole time I tried to make city and the my model for city as simple as possible and the rationale of downgrading city to a cell which is a huge deal for an analyst because you want everyone to like you you want to you know you want to get invited to meetings putting a cell on a company is it turns out to be dangerous and is highly unpopular dangerous because people on the stock and you're telling people to sell it and people are losing typically losing money a lot of you anger a lot of people so everyone likes you when you put a buy in the stock and they make more money people don't like it when you put a cell on on a stock and you lose it you're talking about people are saying but if I own city just as an individual investor I would I read you or would this be an institutional group do it be an institutional group but at the the way the day I put this report out pretty much everyone was reading it but to go back to that time though they had just reported just a few weeks after they've reported third quarter numbers and I looked just simply at leverage how much debt they relative to the equity they had and I looked at the leverage compared to the other banks and so the analysis was basic if they needed to get to a tangible equity leverage ratio comparable to their peers they would need to raise thirty billion dollars sell over a hundred billion dollars in assets and owe as a you know as an addition they weren't going to make enough money to pay their dividend to be able to pay their dividend so it was a three pronged pronged report the report was seven pages any generalist could have read the report and known exactly what I meant and exactly how simple the problems of city were and that's how I present things you know if I don't understand something I will work and work and work until it's laid out in a way that an art teacher or a veterinarian can understand it because it's not that complicated you just have to explain it you haven't explained you in a way that is not some crazy vernacular but with the billions of dollars spent in this town for analysts and all this stuff why were you the only one that figured this out I don't know during that during the next I would say until now so from that point when I felt like I got was just starting to get a ton of attention for my work I became very concerned that not very concerned I became concerned not only were more people interested but people would start working harder and that anyone could do what I was was was doing so why weren't they so I remember starting to go on Bloomberg television because I when I wrote a report I wanted to make sure that people knew that I had written at first as opposed to just being plagiarized for ideas I mean information is everywhere I wasn't using information that anyone could not get that was proprietary to me it was as simple as it could be and particularly then with the the issue with the regulatory capital and the rating agencies that was just a course of several conversations conference calls with the FDIC that anyone could have done that and remember looking behind my back thinking like why isn't why are other people doing this and it happened and it's still happening which is great for me but I still think it also makes you think like am I crazy to do this am i right am i you know is this could I be that alone and be right on this it's a I don't know if that makes any any sense but you being in the consensus is a lot more comfortable I want to show you a headline on a Wall Street Journal which was a couple weeks ago and when I saw this I thought of you because one of the things I want to ask you about is regulation and everything else when the new credit card law came into effect The Wall Street Journal here has credit card rates climb everybody watched these hearings and on Capitol Hill and watched the bill being put together and the last thing you expected to see was a headline like that credit card rates climb yeah how do you write legislation and the first day it goes into effect everything goes up well unfortunately that so this happened before the dodd-frank bill this was part of the card Act and what the card act did was that it was designed to protect consumers so all that fine print that you can't really read and you don't really want to read would explain to you that if you're over your limit you get charged a fee and if you are late on your payment you get charged a fee and so they call those hidden fees or if you there was there were some really bad things that were going on which was a double cycle billing and excessive fees charge but the bad side of this was that they put into effect measures that allow that prevented banks from repricing so a credit card loan specifically this is very interesting and very important a credit card loan is an unsecured loan so I've got no collateral behind it so if you go bust on your credit card line I've got nothing to collect that's it I'm done done you mean you're the banker the banker sure so what's so important is that I look at your monthly credit scores and your behavior on a monthly basis to assess the risk so if you if you're late on your phone bill and I'm smiling because I'm about to get to my my funny line here if you're late on your phone bill or you're later on your electric bill I make a mental note of that but if you're later in your cable bill so did you know that when people are late on their cable bill that's the biggest red flag to lenders because men will pay their cable bill beyond you know any other bill god forbid you don't have cable TV right it's okay um do it are you capable you know that the person is the bank the lender knows that the person's in you know in trouble or has a higher higher probability of going to fall so so what I'll do is I'll reprice or I'll put in two mechanisms you know I can cut the line I can still cut the line but I'm gonna reap rice on the fly I need to have that so I can effectively price for risk they eliminated that so if I now want to reap rice your loan and I've seen you spend a lot of time in Atlantic City gambling and I've seen you be delinquent on a bunch of bills I have to give you 45 days notice now to reprice so the lender does now is say I'm not gonna make that loan so I'm going to cut lines to individuals over 1.5 trillion of lines have been cut from the system you predicted like 2.7 yea trillion would be cut yeah by a certain point what the end of the year over the next three years so we're over 1.5 trillion oh and when I made this prediction that was May 2008 I got so much grief on it people who thought it was we were so angry but the idea was if you can't price for risk you're not going to extend the risk and that's what's happened so then for the existing card holders that still have they have to figure out a way to make money so they charge you excessive fees they'll raise your rates because they don't have the option ality of repricing on the fly so it becomes expensive and and what's worse about this is for the guys who get kicked out of the system the less wealthy or poor people it gets a lot more expensive to be poor and now what's coming you know consequences of this is the growth in prepaid cards and payday lenders and that's a very expensive way of yeah paying for things what is your basic feeling about the bill that was passed the financial services bill that was passed in Congress a couple months ago my basic feeling is that it's going to take a long time to figure out what the results are gonna look like so any of it what was feared to be the toughest part of the bill was given a much longer runway timetable so in some respects you know many many years to implement so I think it's very complicated I think that they tried to put some massive bill they tried to put a lot of a basic outline together and let committees work it out so we'll see I mean it some it changed on the fly I mean the Durbin bill that was passed what seemed like last minute which pressures a lot of the the payment companies came out of nowhere so it's a it was heavily political and I take it as an I take it fingers crossed that's an outline and some good things can come from it I have this document here that was prepared by David Huntington who was a partner in the capital markets and securities group at paul weiss rifkind wharton & garrison do you know him no it was published on the Harvard Law School forum okay I figured that was somewhat credible all of that and it basically is its synopsis and I was yeah I don't want to bore the audience but I want to read what some of this stuff is and see if you've interpreted it for instance I just pick up one the Act introduces significant direct regulation of over-the-counter derivatives transactions among the most notable provisions affecting the OTC derivatives markets are clearing and trading the Act authorizes the consumer the the CFTC which is the Commodity Futures Trading Commission and the SEC the Securities and Exchange Commission to mandate central clearing of OTC derivatives that are determined to be appropriate for clearing and capable of being cleared again I don't have any idea what they're talking about here other than I know what derivatives are based on all the chatter does that sound like something that's going to work I think that it will work the more that can be put on a transparent clearing system the better I'll give you an example you know when you wanted to get a stock price a legitimate stock price just from looking at a ticker of a bid or an offer 25 years ago you would have to call a stock broker today you couldn't pull it up on your computer screen you can't do that for a bond and so I think the bond market the credit markets need to move towards this so they're starting with OTC derivatives I think more and more will will move towards open exchange and that's so much better for the consumers in my opinion because there should be transparency there should be the difference between what someone's offering for security and what someone's willing to sell should not be so wide and you think with transparency it would be you would narrow and there are some spreads that the less profitability for Wall Street but I think better for the for the for the system when you say bonds to someone who's never bought a bond what's the difference for a bond and is a stock a bond is we talk about collateral a bond it's going to be a cut you know typically will be you know a collateral holding so you get actually that the the first if a company goes bust the equity how shareholders are wiped out the bonds actually own the collateral of the company of the company and so that is going to be a and a new typically an annuity style payment so you'll know you're getting a 5% coupon for a stated period and it's basically a company borrowing and you financing the borrowing of the company a stock is getting a piece of the equity of the company which is the growth prospect so you're sharing on the upside so it's a it's a higher risk vehicle the bond is a lower risk vehicle the bond market is far bigger and far more widely held than equities but equities are more transparent than bonds it's kind of crazy how did you learn that when did you learn I think most people know the difference for new stock in a bond I'm talking about go back to the beginning where you were in brown you were a history major you came out you went to work as an analyst when did you start learning the language and how would you recommend somebody that just is totally confused by all this to learn it well first of all start with something that really interests you and then you you know let's say you're dying to go to to Spain right because you love Spanish history you'll get to the point where you're learn let learn the language but figure out what you want out of the equation first and then get to the particulars there's nothing about finance that's like rocket science and this is probably the most frustrating thing for me about how you know you think about ponzi schemes the biggest Ponzi scheme for Wall Street is telling someone who's worked really hard to earn a buck that they're not smart enough to understand how that buck is going to be invested which is utter nonsense figure out what you what interests you if you are you know an avid sportsman find out what area of of that you could invest in and then you'll learn the language and you'll earn a capital structure it's very interesting I think that there's stories within all of this and if you do your homework you can be you can be just as smart as as anyone I mean for crying out loud I mean look at this history major but go back to the big short that the Michael Lewis book which is still on the New York Times bestseller list hasn't been all summer he says that you let him to Steve Eisman what did Steve Eisman teach you and where was it that he taught you and what was he doing at the time I would describe the way so Steve Eisman is a lawyer by training and the only distinction I would make out of him being a lawyer by training is he reads really well and I'm being so impressed that he would read B he would take a book review the New York not the New York Times Book Review the New York book review which is some 300 pages and read it during lunch and remember everything so he is a prolific reader so to teach me and I just learned this just from observation read everything you never know where you're gonna get ideas from remember working for Steve thinking man this guy is so smart am I ever gonna learn if I ever gonna be able to think for myself and I ended up learning building for myself but he just there was no rock unturned he followed things that he thought were genuinely interesting I'll give you an example that is not mentioned in in the big short in 1996 99 596 they were starting to do work on changing glass-steagall and this would mean that banks which were only allowed to have 10% or below of their revenues come from the capital markets business would be able to increase that up to 20 I think it was 20 25 percent and so what for Steve that registered is oh my gosh all these banks are gonna buy the regional brokers and get that quick fix immediately so we initiated coverage of the regional investment banks and called the for the consolidation we launched that oh and just some some fun for your DC audience so I was his junior analyst at working the phones and I will work until you know the cows come home I would call every called Decius you know until someone else to the phone the head of the the the chief legal counsel for the congressional Banking Committee ended up not just taking away like picking up the phone but then taking my calls I found out later because I was the only girl who was calling him at work for you they work for me so but there's information all over the place you we were just doing the work of mere focused so we came out with this report and people pooh-poohed it saying oh it's not gonna happen there's no way and the rest is history because there was massive consolidation amongst all the regional banks and that's just one of the things that of going for taking an idea and believing it and having all the conviction because you've done all the work and being so out of favor and out of consensus and then being right the the thrill of being right is that is the single business biggest act for Daisy ACK of this business yeah it's not the it's nothing else it's being right and standing on your principles something else so a bad story was that on the flip side so this is when we were recommending stocks on the flip side we came out with coverage of we came up with a short report on subprime auto finance so during the mid 90s over 30 companies subprime finance companies went public and today virtually none are left they all went bust at a really interesting time there's a murder and Velez didn't ed any rate so we came out selling telling companies - telling investors to sell short the shares of these subprime companies and the time of a report coincided with when one of these companies was trying to raise money and this is a Bear Stearns deal Olympic financial and since the company's trying to raise money we end up disrupting the deal and causing the company to have to pay 300 basis points I think double what they would have had to pay prior to our report so Steve got a letter on letterhead stationery personalized letterhead stationery from a broker at Bear Stearns that said Steve you're a blanking idiot why oh you are okay this guy's a real idiot but that's the equivalent of what I was getting which was really vicious emails from people's personal email accounts anyway um but at any rate I think man we've got to get this guy's security he's gonna get death threats it's gonna be so I kind of lived through it with that report too and the highs and lows and just I think feeling like there was a it was okay to be in the minority if you were right and you were gonna ultimately be proved right that wasn't scary to me and then the standard which his standards were my aspiration so that was so comfortable to me and then you know if you had to say integrity you don't have it but like he's an ethical guys you know he's got boatloads of integrity and so I was so comfortable with that so it just felt like I was steve is a very important person in my life because I he taught me and he validated what I was interested in and believed in me and so for that I'm forever grateful when did you start your own company and February 2009 how did you start it I funded it myself and opened up doors the doors for business let's give me an example of what you had to do how many people work there how big are your offices where they located and what and who are your clients okay I well so the timing is and I got paid on January 30th so I got my bonus on January 30th I started February 18th so it was I went on vacation for a week and then I had a couple things to do in the office so I how I started it I you you have to get legal a lawyer DUP and you know form an LLC I had I soft circled some clients to say if I hypothetically were gonna do this would you follow me and I had I tried and I think made clients a lot of money so people would were willing to believe in me so so much so that we were cashflow positive in the second week we were dinner who the kind of clients that you have I have clients from anywhere from mutual funds to hedge funds law only shops meeting people just by you know go long securities macro funds we have some corporate but you know at the time we had some some corporate clients I and it was I mean so we we started out in temporary office offices and it was in an internal hallway I could hear someone opening a candy bar in the office but it was really close quarters and it looked like a fallout shelter I mean there were computer boxes everywhere it was absolutely unglamorous the first person to visit my office was John Thain the second person was Michael Lewis so that they the people I had working for me were so wide eyed being like it's Elvis Presley gonna walk in next it's incredible so and we it took us till June first we move and moved into our current offices which are about 4,500 square feet on 57th Street between fifth and sixth we converted the old New York Jets headquarters beautiful beautiful offices edgy young new it's really really cool and so we so going back to in terms of how many people we have we have I started the firm with four people we have 14 now I would have thought we would have would have a ton more I think in the next three months we'll be hiring probably ten because we're building out our Broker Dealer but we're really careful about who we hire and so are like everything that I didn't like about traditional Wall Street which was I hated the culture people were not nice and they're they it's so easy to make people feel good about themselves I mean Steve Eisman would told me when I did a great job and he didn't have to tell me when I did a bad job because I wore it I really understood I did a bad job giving people feedback and being nice to each other and having respect and during an ice-cream cake party when it's someone's birthday it sounds really corny but it makes all the difference in the world so we have a rudiment just so thrilled and we're we're I have more resources now so in terms of the coverage that we do it's so much broader and better the American people don't think much of Wall Street I think all the polls show that do they have a reason not to that much of them and is it is any of this and I haven't read much of the other provisions of this but is any of this going to work it's a step in the right direction I think that the attitudes have to change on Wall Street to really reintroduce a level of respect for your customer for your for the consumers and to make it your business to empower consumers and customers as opposed to intimidate and keep these guys in the dark because look it's like playing tennis when you play tennis with someone better than you your game Rises when you have more intelligent and educated and informed clients and costs you perform better there's been a very dangerous unfair and clearly perilous relationship between Wall Street and Main Street that came to a thundering crash and that has to change you got it level the playing field equalized equalized you know information bases and it'll work out better for everyone in the long long run some time ago you had a list of the seven most important people in the economy I've got it here in my stack somewhere I know I remember one it obviously one of them on the list was Tim Geithner and Barney Frank and all that did that list the same today as it was do you remember the list I've got it here so look it was probably nine months ago and it seems like they're ten months ago and it seems like let's just let's just create a new list then who are the most important people today in finance in the country there's no doubt about it I think that Barney Frank remains an extremely powerful force within finance I would say one person that is not on the list that was not on the list then that has clearly put himself on the list is Al Franken who would have thought the comedian from SNL and now the senator from Minnesota with the frank and amendment on the rating agencies I think that's the importance of sorting the rating agencies out is you cannot be overstated so I'm actually why should we pay any attention to the rating agencies after what we found out well you should pay attention to those rating agencies but you need rating agencies in the system because people need to have a guidepost on where the risk lies so their individual investors that just need some some standardization of okay I know I'm gonna get paid this but I know I'm going to assume that risk for it that's fine rating agencies are fine in principle they just have to be run right and done well it's like why would anyone pay for any type of ratings you know I rate equities why would people because you're right because you protect people and make people money if the every business should be that that same way the rating agencies in terms the credit rating agencies have been a duopoly for 20 30 40 50 years I found the list it's Ben Bernanke Tim Geithner Sheila Bair Elizabeth Warren Larry Summers Barney Frank and Chris Dodd that actually turned out to be okay still the same would you mean and and where do you you know in this hope by the time this runs they may have made a decision on who's gonna head up the Consumer Agency but where are you on Elizabeth Warren and somebody else I think Elizabeth Warren looks like she's at least she said as of late August she's pulling together all of our lobbying power to get this to get this job she's well respected and I think she could offer confidence back to that role and she seems seemingly very well liked as well and a good communicator I might take Larry Summers off that list and replace him with Al Franken because it's really been the Treasury's game so the White House has been the White House was a big proponent of HAMP it's the home affordability modification program which was a resounding disappointment but they really left it to the Treasury to execute so the Treasury has really been I think very very active much more so than the White House the FDIC annex Sheila Bair has done a terrific terrific job look there's a there are hundreds more banks to fail but she's doing it in an orderly process and that is no small feat you mentioned that you'd work for Jack Danforth a Republican from Missouri by the way was Clarence Thomas there when you were there he was not there I don't think I was 15 I can't remember you know who was there I worked for Susan Schwab who was the former US trade ambassador I worked for her I think I worked the worst she real well above it you know I was a really really good at the autopen I don't know if you remember that I bring it up because are you very political today and are you on a side and you see the Republicans or the Democrats doing a better job with this whole business of financial regulation I'm a registered independent and I have been ever since I could vote so I voted all over the aisle I vote for candidates I'm really not that interested in parties I it you know pick your person I think that the states have a really impossible job with their fiscal crises and so it may the best man win party or otherwise it is unfortunate now as we head into the midterm elections that you have a stalemate of policymaking where we need stuff we need stimulus we need we need to extend Bush's tax cuts in every every income category this economies and in you know cruising towards a double-dip in a bad way and we have to do something about it housing certainly will take a double dip in the fourth quarter so and and that is that you just have to let that happen I think but you have to create structural reform and that is you know that is nonpartisan the partisan politics right now is maddening and I think it's costing our country a tremendous amount and I think that's why approval ratings across the board are so low if you underestimate your audience your audience will turn on you and I think politicians have grossly underestimated the American people and that's dangerous here's something from the bill financial stability Oversight Council the Act seeks to mitigate the system systemic risk of financial collapse through several legislative and regulatory initiatives the most substantial which is the creation of a ten voter voting members financial stability Oversight Council the council they call it which will be chaired by the Secretary of the Treasury and will include the chairman of the board of governors of the Federal Reserve System the Comptroller of the currency the director of the newly created Consumer Financial Protection Bureau the chairman of the FCC the chairman of the FDIC the chairman of the FCF TC I'm not going to go on there a lot of other agencies why won't any of those agencies be able to fulfill this goal why is there another agency required in this process isn't that you should know this better than anyone is it politics all about creating committee to create other committees like this of all of you know one thing that is clear no agency lacked the powers to prevent this crisis they just weren't doing their jobs and they yeah you're lulled into fifteen plus year period of economic Nirvana and so people are asleep at the wheel for the same thing you can look at banks why banks had such a difficult time at the beginning of this crisis because the collectors in the banks had never seen a bad loan they didn't really know how to collect they had to completely you know recalibrate themselves once they realized that the loans they made were not going to repay as easily as they had and you see that for the agencies as well so it sounds like this is coming from someone who doesn't want to work in politics a committee to create another committee I don't know that that's that's necessary it's more red tape it's certainly more expensive for people and it's going to require at the minimum you know it's gonna require banks to have to hold a lot more capital but as good or bad that's that's good but it didn't I'm just going to steal a line from a friend of mine this was supposed to this was designed to to make sure that you know too-big-to-fail wasn't an issue now it's enshrined you know too big to fail there's another one treatment of certain former bank holding companies any company that was a bank holding company having total consolidated assets of 50 billion or more as of January the 1st 2010 and received financial assistance under or participated in the capital purchase program established under the Troubled Asset Relief Program will be treated as a non-bank financial company supervised by the Federal Reserve if such company ceases to be a bank holding company at any time after January the 1st 2010 what in the world did I just say I think what it's people call that the Hotel California if they do provision very good it's in parentheses I've called the fatal attraction provision once you go there there's no getting out there's no easy way of getting and what it what it was designed to do is people that sought shelter under the bank holding company during tough economic times can't all of a sudden then be free of responsibility during better economic times special assessment the Act mandates the newly created financial stability Oversight Council to impose special assessments on the nation's largest financial firm attacks to prevent to raise up to nineteen billion to offset the cost of the Act the assessments will be imposed on financial institutions with more than fifty billion in assets the 50 billion figure is magic in this whole process what's so special about 50 billion who got there how did they get there with that that figure the 50 billion is the top well the top four commercial banks and the you know it's it's that the major recipients of tarp what they wanted to do was it's very hard to be a small community bank at this point and what's explained it that simply the over the last 20 years with the onset of securitization so much of the lending in this country became you know which was consolidated up to a national level so it was controlled by the top six banks so the top six banks control over two-thirds of the credit card market control over two-thirds of the mortgage market the little banks really BK became adversely selected business models now the little banks are critical to small communities so if you endanger the little banks you have communities go under they're the primary lender to you know commercial real estate to small businesses etc in those communities so this small bank lobby lobbied like crazy to protect the community banks and so they can't afford a special assessment as it is to get now FDIC certain FDIC insurance I think those just this was just changed this law was just changed they had to opt in and pay another assessment fee so the fees for small banks are becoming you know prohibitive to stay in business so they wanted to eliminate those and they wanted to tax the guys who could afford it it sounds like the consumer tax policy but also if they're never going to let the guys who took tarp forget that they took tarp all right we're about done we have a little bit of time this is probably grossly unfair but I have to ask you about this how did someone who deals in integrity and truth end up marrying a guy that dealt in show biz in a World Wrestling Entertainment and I when I read on Wikipedia his background I just had to ask you about this it says in late 1998 Bradshaw I guess it was what he called himself John what's his he was JBL towards the end of his career teamed alongside nation of domination member Farooq to form the tag team of Hell's henchmen managed by the jackal after the jackal left the WWF World Wrestling Federation Farooq and Bradshaw joined the Undertaker's new Ministry of Darkness under the name the Acolytes I could go on I won't that's more interesting than the dodd-frank bill huh well it is interesting but what what is it I mean he he dealt in show biz and a lot of people believe that that stuff isn't rigged well as he would say the storylines are scripted the physical activity is not rigged he retired in April 2009 he had a broken back I mean he's he is banged up so why did they go through that I don't know I don't know I mean there's he'd men a wrestling fan when he was a kid he was a pro football player he played for the Raiders doesn't he played for the world football league the San Antonio riders and so he's been in contact sports for a really long time he's a tough tough guy he's a tough tough guy but despite the packaging he's one of the nerdiest guys that I know he's got a photographic memory his back his dad was a floor bank CEO in Texas so he he's almost more interested in stocks than I am so there's you know you wouldn't I would never have expected that I would never expected to marry someone in that with that packaging but I expected to marry someone like that who's he's he's five thousand times a better person that I am and if we read something I'll give him if something really important I'll give it to him because he'll remember all the details of the particulars and I resumed through things we met when he was promoting a book this is a this is a funny story when he was promoting a book and we were on a Fox television program and it came the point when you had to recommend a stock so this is August of 2003 so the stock he recommended was Citigroup and I turned to him and I hadn't watched wrestling before I mean I I just passed it on that you know flipping channels but I just remembered like the back guys on Saturday and the trunks wrestling I didn't wasn't into modern wrestling but I nothing you nothing you know I didn't know him and what I just said why would you recommend a financial and a rising rate environment taking all the wind out of the sails and here's a guy who doesn't work in finance and I just gave him such a low blow that I don't know why I did it I wasn't thinking there was no surprise why I was single clearly at the time but then we went to dinner next door at Dell Frisco's and the group that we were on the television program with wanted to set us up so they set us right next to each other I'm sure I was terrible and offensive in every way and then a year later we got married on that note we're out of time Meredith Whitney of the Whitney advisory group thank you very much thank you so much next a debate among candidates campaign

Channel: C-SPAN

Views: 50,444

Keywords: C-SPAN, cspan, q&a, whitney, lamb, citigroup, financial, analyst, recession, recovery

Id: j8J56Y_WBdE

Length: 59min 6sec (3546 seconds)

Published: Mon Sep 06 2010