 So welcome everyone context 365 lunch series Guy Adam here. I'm gonna put my glasses on That's what happens when you get to be my age. You need these things to read But if if memory serves this is our seventh one, I believe maybe six, but they've all been fantastic I'm here to tell you today's is gonna be wonderful as well Because we have to we have Dr. Yaron Brooke with us and we've talked offline and we're gonna talk for a while now But Dr. Yaron Brooke is a co-founder and managing partner of BHZ Capital Management LP a hedge fund focused on the consolidation trend in American banking Brooke has been involved in managing funds in the space since 1998 much of the research that drives the funds investment is a product of research he and Robert Hendershott as co-founder Developed as academics in the 90s Dr. Brooke is chairman of the board of the Ein Ryan Institute A non-profit based in Irvine, California. He was a finance professor at Santa Clara University from 1993 to 2000 He's a best-selling author and an internationally sought speaker focusing on the benefits of free markets Which we're gonna talk about the value of business and the morality of capitalism. Dr. Brooke was born and raised in Israel Served as a first sergeant in Israeli military intelligence and earned a BSC and civil engineering from Technion Institute of technology and hyper-Israel Brooke moved to United States received this MBA and PhD in finance from the University of Texas at Austin Hook them horns. Absolutely. Dr. Brooke. How are you? Great to have you with us on context 365 lunch series I am doing great and thanks for having me on I'm looking forward to this as am I so you know what I Typically start with because I think people are always fascinated I obviously just read your bio and I probably could have read it for another 10 minutes in terms of things You've done, but you can tell us a little bit about your journey. How you've gotten here. I know Your life was fundamentally changed. I think at the age of 16 17 when you read the fountain head But maybe you could speak to that sort of get us started here this morning. Sure I mean I grew up in Israel Israel in the in the 60s and 70s was a very socialist place It was it was the it was really the only ideology that existed kind of a collectivist socialist ideology I would atlas shrugged when I was 16 completely blew my mind and changed my life in many respects then went on to read everything Ironman Road and became a real advocate for her ideas I served in the Israeli army and military intelligence for three years like all the Israelis do and Made my wife there, which you know the one great benefit of serving in the army was was was meeting my wife and Landed up doing a degree in civil engineering came to the US when I was 26 To to get an MBA. I'd like the idea of management landed up falling in love with finance and Getting a PhD in finance got a job at Santa Clara University where I met my business partner Robert Handishot Was always kind of interested in these ideas that I ran of I ran's ideas Pursued that passion while I was a professor and while I've been in the past running Managing the hedge fund started on 98 as sub-advising a large offshore hedge fund at the time and the deaf for 10 years with Robert while 2000 I took over the job as CEO of the Ironman of the Ironman Institute That was a lot of fun did a lot of exciting things retired from that in 2017 Basically came on board with the hedge fund for time we stopped sub-advising in 2008 and launched our own fund in 2010 and That's where we are today in the process. I've written You know three or four books have done many many hours of TV interviews and have my own podcast today and Travel around the world speaking and lecturing and and it's it's been a great ride It's been a great ride, and it's great to have you with us real Rick cited So, you know, we were talking before we started and I've said this I've written about it I've said it on our show that I I believe and I'm not suggesting I'm right It's just my beliefs that Amongst the many villains of the 21st century and it's a long list I think on top of that list is going to be Central bankers specifically our Fed officials and you know, we we like to think we're in this great capitalist society But you know, how can it be true capitalism when we basically? Capitalized gains and socialized losses, which is effectively what we've done for the last three decades Can you care to speak to that because I'd love to have that conversation? Absolutely, it goes further way further back than the last three decades and really how can you have capitalism? When the most important price in an economy, which I think is interest rates is centrally planned And when the tool of exchange the most important tool we have in a capitalist economy money Is again centrally planned, you know, people forget before we had a federal reserve We had banks printing money based on reserves of gold or, you know, theoretically You could have anything in reserve and let let the best reserve kind of currency win You could have Bitcoin today Whether Bitcoin would win in a free market I'm dubious, but but you could have that let banks compete in terms of the quality of their money That's true free markets Since the establishment of the federal reserve, we've had a great depression Which almost every economist today believes was caused a large extent By errors of central planners at the at the federal reserve the great depression would not have happened If they had not in a sense tightened the money supply as we went into a recession and caused a great depression Lots of other mistakes were made to being about a great depression But certainly wasn't a phenomena of capitalism as is often taught by historians economists understand this Then of course we got the the the inflation and stagflation of the 70s purely monetary phenomena caused by the federal reserve And then I would argue, you know from the from the snl crisis where we socialized Socialized the risk, right? We took away. We bailed everybody out in the snl crisis And issued bonds and socialized all of those losses To the great financial crisis, which I think was caused by government policy federal reserve policy by island greenspan and by bin Bernanke And then again, we we we bailed everybody out and Distributed the cost of this to to taxpayers All the way to today where we had COVID and look COVID was horrible And the economic consequences were horrible and we had lockdowns which on many fronts were horrible And in what we did was we basically bailed everybody out now Anybody anybody who has any understanding of the world reality knows That there's no free lunch as Milton Friedman used to say right Bailing everybody out has to have a cost. You can't just print money With with with no consequences. You can't bail out zombie companies in the bond market And expect everything to return to normal and things are going to be great I don't know what the cost is going to be I don't know how we're going to pay for it in the next 10 20 years But we're going to pay for it. It might be we'll pay for it with lower growth It might be that we pay for it with another financial crisis It might be that we pay for it with inflation hard to tell but we're going to pay for it and yet nobody cares Boss Yep No, no, please continue because I wanted I want to sort of I want to amplify that but please continue. Yeah. No, look I believe Ben Ben Bernanke is the villain of the of the great financial crisis he and Paulson Basically panicked. They had no clue what was going on Uh, people forget in the last half of 07 in really up until october of 2008 you can take Bernanke statements All of his public statements every single one of them turned out to be wrong, right? This is not going to be any problem. Real estate never causes a big recession Freddie and fanny are fine. Don't worry about them. He was wrong on everything. Paulson was wrong on everything Paulson panicked. We need 700 billion dollars and give me the authority to do whatever I want with it And yet they came out of this crisis as heroes when I think they're the villains You know, they they don't bail out Lehman, but they bail out AIG the next day Completely random completely arbitrary completely complete, you know central planners Uh parixelon something we have not really seen in america And yet now it's taken for granted that the central government is responsible for every aspect of economy to bail out to choose winners and losers We've lost what made this country really special Which was freedom Yeah Well, I mean it's interesting you mentioned Lehman brothers and if memory serves and correct me if i'm wrong but you know, I was I think it was also Lehman brothers that walked away from the table during the long-term capital thing and You know, there's a vindictiveness and there's you know, these people have long memories in terms of you know All right, you know find back then, but I think Lehman paid the price for walking away from LTCM Uh, whenever that was you know, 96, I'm I'm you know memory. I think I think that was yeah And of course, of course, Paulson was from goldman, right exactly. It was never any love lost between goldman and Lehman You know and and you you told me before that you originally were Drexel Of course, remember how Drexel was shut down with a phone call from It was shut down from a phone call from island green span So yes was bankers have and for no reason in my view completely arbitrary Decision by a central bank central bankers have exerted unbelievable power They have caused unbelievably amounts of harm We've seen less stability since existence of central banks not just in the u.s. But across Across the world You know the the people have this mythology about before central banks things were crazy No, things are much crazier since the establishment. So yes, I agree with you about about the lack of Freedom and the fact that they are the villains of the 20th and 21st century So let me ask you a question. Um, is our recessions a bad thing? They don't have to be that is recessions are a way in which we cleanse the market, right? You get excesses in every market You get you get over investments. So for example, you know that during the dot-com bubble It was a bubble now bubbles are not bad because what happened in the bubble is a lot of money floating to a new industry We didn't know who the winners and losers were going to be so a lot of too much money in a sense went in But too much by who's standard, right? Uh, by markets over invested there was a correction call and Internet as we know bounce back nicely and today and has boomed since the dot-com bubble has done phenomenally well Look at amazon amazon is one of the winners. It did phenomenally. Well, we forget about pets dot-com Who cares though, right overall World was created during the dot-com bubble even when you take the bubble into account even when you take the crash into account That's a healthy type of recession It it weeds out the the malinvestment it weeds out the unproductive it weeds out Uh, those companies that shouldn't exist Uh, it that uh, you know, what we call today zombie companies that are dead, but are somehow kept alive Uh, and they and they're healthy in in uh, there's a famous recession 19 2021 Where there was this very very steep recession The the federal government did absolutely nothing the federal reserve did absolutely nothing And the bounce back was immediate quick and sustained us through most of the 1920s. So Uh, I think the problem is not recessions. The problem is our response to the recession Well, it's interesting, you know, I I do a fair amount of public speaking as well and indulge me just for a minute If you could you know, I tell a story the day of the great chicago fire late 1800s There was also a fire in pesto go wisconsin to this day The deadliest fire in the history of the united states depending on your textbook It killed anywhere from 1500 to 2000 and people and effectively born from that was Uh, the national forestry service and in large part their job was fire sequestration because as they learned You know fires were not only destructive and unsightly, but they were deadly as well And if they could somehow quell or sequester fires, it would be a great thing for mankind, right? But I think what they wound up learning the hard way is that as painful destructive potentially deadly as force fires are Their natural part of the cycle, right old trees burned down new trees grow It's it's necessary and what they've learned again the hard way You know fires that when your trees that have been impervious to fire We're now falling victim because these fires were 10 times worse and I tell that story because You know history is littered with disastrous outcomes born of good intentions And I think that's what happened with chairman greenspan. He said to himself Well, wait a second I can alchemy out the recession portion of the cycle and if I can do that we're all be better off for it But it's a it's essential because otherwise we wind up with oh wait No nine and I'm sure there are a lot of people that are not in the head of agreement right now A lot of people saying, you know, both of us are crazy, but we have to go through this You know, you have to allow corporate darnism to work. Otherwise, you don't have a system Absolutely, and and it's not just That you get these shocks and eight or nine, but you get more subtle impacts you get Bad investments you get companies around that shouldn't be around and the consequence of that are slow growth I mean we forget that over the last 10 years during obama and during During trump the economy barely grew it grew at 2.5. That's not really economic growth I mean if we had grown at 2% You know starting at the beginning of this of the 20th century if we'd grown only a 2% throughout that period We'd be almost as poor as Mexico, right? We the the wealth that we have is a consequence of the fact that we have grown at three four five percent during part of those periods And and the 2% and below growth that I expect that we're going to experience in the decades to come is a Is a consequence of all the government intervention that we're seeing in our economy and in the financial markets and in preventing That healthy, uh, you know shum teta the economy is called it creative destruction Some industries have to go out of business for new ones to be born Uh, we some businesses have to go out of business so that we can increase productivity with new businesses new technologies And and we are we're stopping that in its in its track and the fed Is actively involved in that the more it intervenes in the marketplace So, you know and i'm i love this conversation part of which because you know i try not to be dogmatic But clearly i have views as you do as well But you know when i hear you know people like you who are a lot smarter than i am You know sort of reinforce my some of the belief systems that i have I get a little bit amped up. But so so i'll ask i'll ask you this question. Um You know the one of the fed's mandates I believe the fed has a dual mandate as well I happen to think the dual mandate is to make sure the nasdaq and the s&p 500 go up every day And i've said that on tv and you know i get ridiculed and criticized for it But i actually really think that's the case because Um, if if you look and i know you know this but 73 of the u.s economy is driven by the consumer It's a consumer driven economy and to me all consumer spending is as an overlay of the s&p 500 And i'm not suggesting because everybody owns stocks. That's not my point at all my point is I think people make the jump that listen stock market goes up every day must mean the economy's doing well if the economy's doing well Why can't i buy that? You know starbucks coffee or why can't i bet the mercedes that my neighbor has as well and You know people view um the stock market through that lens like things must be going well Things are going well. I can spend money if you look over the last however many years Consumer spending stops on a dime and we have prolonged or precipitous drops in the stock market And i think that's not I don't think that's lost on our officials. Is it am i being too simplistic here or are they too Focused on the stock market in terms of some of their policies. Well, there's no question They're too focused on the stock market. I disagree with you though on the role of consumption While i think most economists view 73 of the economy and i think the fed looks at it that way That doesn't make any sense to me. It just it just doesn't make any sense People you can only consume what you produce You can't consume more than you produce Now you can take on debt to consume more but even then think about Think about consumption in order to consume something. I have to earn money In some capacity i.e by producing in order to make that consumption So before I can consume I have to produce and then what I consume Has to be produced by somebody So there's a sense in which for every act of consumption There are two acts of production right me producing in order to have the money to consume and The good being produced I think where we get confused Is this idea that the government can just create money out of nowhere without any production, right? And and indeed it does in a sense, but but again that has costs The more we focus on consumption as the driver of the economy the more bad decisions we are going to make What drives an economy long term? Is production what drives production long term is ingenuity and investment Right and more and more in the economy we have today. It's ingenuity because you can today invent things Produce things build things with less and less capital. That's what happens in a in a kind of internet world Instead of focusing on how do we encourage entrepreneurship and innovation? That should be the entire focus focusing on innovation And increasing increasing entrepreneurship. We focus on consumption. We focus on the wrong thing And and as a consequence, we have bad economic policies across the board So so it's interesting and now i'm going to really twerk you I know and it's i want to do that because this I love this conversation. You're stephanie kelton and olivier blanchard. I mean, they'll say what you're you're wrong I mean you're mmt is you know where we should be focused on and you know We're neanderthals in our thinking. I mean, it's you know, we're we're looking at everything the wrong way thoughts on that Look, I I think mmt is is a form of Make-believe economics. I think somebody somebody wants to call the economy. Who do economics? You remember that term? George. Sure. I think it was George bus is Yes, I think George Bush got a voodoo economics. He called. I think reagan voodoo economics something like that. Anyway, I think this is real voodoo economics um While mmt makes some interesting observations about a world in zero interest rates The fact that the world is at zero interest rates is already a problem and is already artificial They are no there is no such thing as zero interest rates in a in a market There is no such thing as a zero interest rates in a in a in a true market economy. So already zero interest rates is weird They make some interesting observations about that world in terms of the interchangeability of money and bonds and so on But look the idea that we can create money out of nowhere and the creation of money creates economic activity Is is I believe nonsense on stilts economic activities created with ideas Put into action Products created in the world in which we live today. You don't need a lot of money to create products You don't need a huge amount of capital in order to start a company today. You need a great idea You know talent you need skill sets You know, we can talk about immigration or why we need immigrants because we need that skill set We need to bring people in who can actually create these companies and work at these companies unfortunately our educational system ain't producing them and But but what we need are thriving entrepreneurs who have great ideas and innovations Ingenuity is what drives economic growth not money Money is the consequence of production and great ideas. It shouldn't be the try and listen. I agree and I'll say this You know, I obviously I'm enjoying this conversation a great deal I one of the to me and I've said this and I've written about this one of the many unintended consequences Of the fed's policies over the last, you know, 13 or so years I think it's made corporate america lazy and why is that because they haven't had to focus on their businesses You can borrow money cheap you buy back your stock you pay a dividend the market goes up Nobody gives you know what and everything's fine. Meanwhile, the world's passing by and then people say me Well, give me anecdotal evidence and I'll give you a couple doctor. It's you know general electric I mean the world absolutely passed by this company in in a historical company that buy back stock and oh by the way IBM and then they'll say well, you know, it's hard for them to pivot. I said, well Microsoft was able to do it pretty much the same company and honey. Well, it's been able to do it So there are examples where companies have actually evolved But it's made a lot of companies really lazy and really myopic in their thinking And and think about IBM IBM did a major pivots I think it was in the early 90s in the late 80s early 90s from being a mainframe company, right? And it pivoted to a services company and it needed to pivot again now And it doesn't there's not that energy. There's not that pressure There's not that willingness to be flexible. Look, one of the things that stock buybacks indicate Is the fact that for many of these large companies They don't have good investment opportunities not could be they don't have good investment opportunities because they're lazy But it also could be that they don't have good investment opportunities because They don't have them. They don't exist in our economy I think the biggest problem we face in the US economy today Is that lack of entrepreneurial energy that lack of innovation? There's lack of new ideas They still exist, but they're very very focused in one place Silicon Valley and I don't mean geographically Silicon Valley I mean the mentality of Silicon Valley that might exist in Austin, Texas and in a few other places But it's in a few areas in technology But where is that spirit when it comes to every aspect of economy every industry Has the potential to innovate particularly given the the the technological revolution We're living through and yet we're not seeing that and I think what's holding that back Is the some extent laziness and conservatism on the part of of many business people But it's also the heavy hand of regulation The the the mentality outside of the tech world that failure is unacceptable Remember that startups fail all the time and that's acceptable in Silicon Valley not so acceptable in other industries We need a cultural political economic change in this country To drive real innovation real progress real ingenuity And and and to me that is that is key You know, I just I just launched a new project called ingenuism with my with my business partner Robert Handershot and The focus there is going to be what do we need to do to create a culture? A real ingenuity a culture of real economic growth that is sustainable over the long run and that is going to require changing culturally How we think about the world if people are interested in Genuism calm We just started a couple of weeks ago And and the idea is to really educate people about what has made Silicon Valley unique And how we can export that mentality and that culture into every industry And how we can reduce The the political constraints that exist today on real innovation, you know airplanes today Every generation of Boeing is slower than the previous generation Right the last in real innovation in airplanes was Concord and we know where that landed up right in in the in the trash heap of history It's gone Why are we why don't we have faster airplanes? well All you have to do is look at at the regulatory burdens that we place on this industry and and One of the exciting phenomena is right now in aerospace is their number of of startups focusing on New technologies and airplanes to get them Significantly faster faster than the speed of sound and and to provide, you know It would be great if we could get to london on the days where we could go to london, right? Maybe maybe in a few months. Hopefully In in you know in two three hours from new york rather than the six that it takes today Yeah, it's fascinating You know, I actually spent time in witch talk kansas not to bore the you know what out of you but I I mentioned that because Some of the biggest companies in the united states are based out of witch talk one of them is spirit arrow systems and you know They build I want to say, you know 70 percent or so Boeing's planes and you're right I mean, it's fascinating to see, you know planes being made Probably the same way they were made 30 40 years ago But they have now sort of found themselves in the 21st century But I I understand what you're saying in terms of you know being sort of lost You know, there is no real innovation in certain things and and I think it's The fear of failure is what holds companies back But you know, that's another conversation probably for another time I want to ask you this question and I don't mean to be leading but you know, I know what my views are October 2018 I think Jerome pall had been in office We've been in that seat for a few months and Came out and basically said and i'm paraphrasing that you know, we're gonna We're gonna be on a path to normalize rates and in terms of reducing the balance sheet I think he said something like we'll be an autopilot and from that time in October to early December the market went down Stock market went down 19.9 percent and he completely reversed course I think part of which is because of the stock market. The other part was the pressure he was facing From the trump administration. I would submit That he was on the right track. Am I out of my mind? No, I agree completely. I mean zero interest rates are insane. It doesn't make any economic sense It is an artificial. It is an official creation of central bankers It's an artificial creation of their monopoly over money and in the manipulation of it to get to a Proper economic scenario, you know, real rates need to be positive not negative And and and we need to start returning those rates to normal now ideally in my world Federal reserve wouldn't involve itself in interest rates, right? It would leave the market to do interest rates It wouldn't it wouldn't try to manipulate the long rate the medium rate or the short-term rate To the extent that anybody believes that they have to have a monopoly over the issuance of money. Okay Uh, you can control the money supply to some extent. Maybe you have a rule That would be cool If you actually had a rule on how you were going to control the money the money supply And that let the market determine the interest rate based on your actions Don't target interest rates target a certain rule in terms of how much you're going to increase the supply money. It's it's um You know truly, uh, I I never understood why power was uh was appointed Chairman of the Fed until october until you know december of 18 And I understood completely the reason was that he was susceptible to real pressure his The the guy who was competing with him Was an economist from uh from stanford from uh associated with the huver institute Who had who was going to put the Fed on a rule based monetary system? There would have been far superior to what we have today and um But he would have not been susceptible to political pressure before he was not appointed Well, it's interesting you say that because I think you're speaking about kevin wash. Is that correct? No, and I I I feel bad about the fact that the name has slipped from my mind, but that's okay I thought kevin wash. I thought he was in But but your point is well taken. I think You know, I think the administration put on somebody they thought they could Control and and this is where we are now again. I'm sure joram pal's a lovely man And people say he worked on in wall street. He did he was an attorney though if you recall so not necessarily Somebody with market sense, but that's again, you know another conversation for another time. Let me ask you this I've said this I've written about this every fiat currency in the history of mankind is ended in disaster starting from the roman empire And as recently as you know, we're seeing that as well as in bob way. You obviously saw it in pre-world war one germany When they were burning, you know citizens were actually burning the deutsch marks To to heat their homes I'm not suggesting we're headed down that road, but what's the difference? I mean, you know You tell me what the difference is between the us dollar and any fiat currency in history I mean, I'm curious to know, you know your thoughts on that So let me just know that the economist I mentioned was john taylor And the taylor rule is of course the monetary rule that he came up with. Uh, the would I think have been Been far superior to anything they've got today. Um There is no difference. I mean at the end of the day, uh, you know, what we're seeing With fiat currency is that the temptation of the central authority Is to use that for political purposes and and that is to use it to print up money In order to distribute it. We're more sophisticated today than we were Let's say in weimar germany in the 1920s. We're better models. We have more computational power We we were better at a little bit of predicting the future. But at the end of the day, this is not about economies This is about politics And uh, and you can see that in all the bailouts you can see that in all the These massive stimulus packages and it doesn't matter if you're a public or a democrat They all print up money in order to buy our votes. That's exactly that's exactly what they're doing It was pretty explicit. Um in the trump administration. It's explicit with biden Is our infrastructure really crumbling? Give me a break. Uh, you know, do we need Four trillion dollars and if you look at the bill, half of it is even infrastructure It's just handouts to a variety of different people No, but once you can print money and once you convince yourself mmt in this case That there's no cost to printing money that it's cost free Then The you know after the races and the consequence of this is ultimately either Inflation and significant inflation. We're not talking about two to three percent, but significantly higher than that I lived in israel Uh during a period in the in the 1980s where we had close to a thousand percent inflation They took four zeros off the currency just to keep to catch up So you didn't have to have wheelbarrows to pay for stuff. Um and so You know, it's either inflation Or default uh and and it might be That politically default is less painful than uh than inflation, but we'll see I I don't think we're quite there yet and who knows, you know, the other alternative is That they keep managing to hide the inflation somehow In some ways a lot of this money goes into the stock market and it doesn't really go into consumer prices Uh, we'll see if they can if they can hide that inflation and how for how long they can hide the inflation But it then if that happens Then you get the kind of malinvestment we talked about earlier and what you get a stagnation The worst of all worlds, of course, is what we had in the late 1970s Which is stag inflation Which according to most economists who are advising the government Is actually an impossibility Right to have both inflation and stagnation. They think inflation is caused by economic growth somehow Um, but you had high unemployment And you had inflation which again they think is impossible based on the the On the philips curve, which I I thought you know nixon declared in the early 70s were all canzians now But at the time of the early 80s and ronald reagan nobody was a canzian And now canes is like old fashioned, right? He's too conservative. He's too free market over yet and now It's it's mmt and mmt all the way Well, you can't but you know this as well I mean to the extent that everything is political you can't run on a platform Of we have to take our medicine during my administration because you're not going to get elected So by definition, there's no end to this. I mean, how does it you know, how does it end when You know, you can't be elected on a platform of it's it's time For us to sort of get ourselves back on the rail So if you think about it, I mean I don't know how it ends because by definition it almost can't now I would say we have inflation in spades. They just choose not to measure it I mean if you're a citizen of this country, you know, and I know that you know inflation has been ticking up Pretty consistently over the last few years and you're seeing it all across the board Oh, by the way, you're also seeing it an asset inflation, which obviously they don't measure Which is again another conversation But you know, how do you get away from this when you can't run on a on a platform of We're going to finally do what's right So I think inflation is very very difficult to measure. So I'm not sure whether we've had price inflation. My my argument is That really over the last 40 years Certainly 30 years we should have had Declining prices significantly declining prices if you think of what it means To have dramatically increased productivity globally, right? So think about what it should mean for prices in the u.s to have china come on board To have technology come on board. We should have seen Significant declining prices. I think where the money has gone Is in keeping prices flat when we should have seen them declining dramatically We also don't know how to measure increased quality So, you know a computer today costs the same as a computer 20 years ago But it's not the same beast, right? It's completely different It's much more productive much more efficient today than what's 20 years ago We don't know how to measure that and make those adjustments So I think part of the problem is we don't really have a good measure of price inflation We don't know how to measure it. Of course housing has gone up dramatically You know assets have got other assets have gone up dramatically other things have gone down dramatically Healthcare and education have gone up. It's interesting anything that government touches Housing through zoning and not in my backyard and all that stuff housing where they restrict supply education Where they provide student loans and healthcare where they fund about 60% of all healthcare costs everything that government touches goes up in price Everything that's left to the market goes down in price just just as an aside I don't know how it all ends It doesn't end well And and and what the government has gotten very good at doing is spreading the pain out over many years So that nobody actually feels it, right? You don't feel The we should have grown at three percent. We're only growing at two Or we should have grown at two percent. We're only growing at one Or maybe we should have grown at six percent and we're only growing at one You don't feel that because there's an alternative universe over there where we grew at six percent Right, and they're very good at doing that and then and then staying like trump did This is the greatest economy in human history No, it was a unbelievably mediocre, you know, a growth rate. It was unbelievably mediocre economy But since we didn't have the alternative we couldn't see the alternative everybody thought oh, this is great It's fascinating. I happen to agree with you. So I mean, and I'm sorry to our audience We've taken we've done a lot of ranting here. I I'm the the culprit not you by the way But in terms of banks, I mean, where are we, you know, what are you viewing banks here in the united states? We're just jayme diamonds letter came out. I want to say last week. Maybe it was two weeks ago So I apologize if i'm off Uh, he spoke about and i'm paraphrasing again sort of the existential risk that some of these Established banks face with defy and everything that's going on. Can you sort of speak to your views on where we are? I mean, we're clearly well, I mean, I don't know if we're clearly overbanked or not But I mean, there's clearly things going on. There's a sea change in traditional banking right before our eyes Well, the major sea change in traditional banking right before eyes is is technology. Look technology is overwhelming Um, one of the things we learned from covet is that even gray-haired guys like me Can actually do all our banking online We we don't have to go to the branch and get to know and talk to the manager and sit down and have a cup of coffee with them We can do everything we need to do online. We might like going to the branch But there's no need for doing that and one of the challenges the united states banking system has Is we have five thousand banks five thousand banks 4900 of those banks can't compete with the technology platform JP Morgan Chase has they just have a superior they have the the heft the capital To invest in best of class technology. They can buy fintech And and bring the fintech in house and deploy it Your little bank in your small community doesn't have that ability And yet you can bank with Chase from anywhere anywhere in the country. Why would you go to your little bank? That that doesn't really give you that much at a value anymore I think this is going to create Even more pressure on small banks to sell right To sell themselves for medium-sized banks to grow as big as they can so they can invest in technology Also, we're seeing that the um a real estate play here, right? And we see this in retail space all over the country The value of having big and mortar has come down dramatically So one of the things you're going to see more and more of is bank a buying bank be That it that has overlapping branch networks with it shutting down all their branches You saw that with with a bb&t sun trust mojo, right? That mojo was a real estate play They shut down all the branches because they were across the street from one another They don't need two branches. They can have one massive cost savings and again take those costs invested into technology because that is where the future is It's an interesting history if you're interested Why why we have so many banks in the united states and goes back to the theme of what we just discussed And I'd love to hear your thoughts on that just so it goes back to the founding It goes back to debates between jefferson and hamilton about whether about a distrust of financial power And and and big banks and jefferson won the debate and as a consequence We're very always being as a culture very suspicious of banks Afraid of them going too big afraid of giving them too much Uh things to do and as a consequence banks were regulated to state level And they were for almost all of american history banned From having branches outside of their state In some states like illinois you had unit banking the bank could have one branch. That's it continental illinois I don't remember if you I don't know if you remember continental illinois going bankrupt in 1984. I think Largest bank failure in american history up up to that point It had one branch in downtown illinois downtown chicago. That's it, right and and You know, so no geographic diversification zero zilch We had at the peak close to 20,000 banks in the united states Canada which has a similar geography to ours has 13 banks The united states has had I think we've had 12 banking crises in our history Canada zero Never had a banking crisis to a large extent that is a consequence of the diversification their banks have geographically Across industries where we have not and we've created unhealthy relationship between small rural banks and the big money center banks So all of that really came to a head in in the 70s and 80s during the s&l crisis and congress Finally did something good. It's rare, but it once in a while does and in 1994 They basically changed the laws And allowed banks to merge and consolidate across state lines with no restrictions And since 1994 about anywhere between four to six percent of all american banks Sell every single year like clockwork. That is we're going from 20,000 banks We went to 13 now at 5,000 banks You know, if if you matched the number of banks to our GDP and you compared us to other Developed countries, we should probably have about 400 banks More efficient would probably be a hundred banks. We're heading in that direction So we've seen massive consolidation over the last 20 years. I think that trend Is going to accelerate The first four months of this year have seen a rate of consolidation that would make this year Well, we would have more sales of public banks than in any other year if we continue at this pace And I think I think there's a good chance we will because of the technology point we made And because last year because of covid there was almost no bank mergers very few It's interesting. So in the last few minutes we have And we've gone now 45 minutes without even mentioning the word. I think but you know the role of bitcoin I mean again, I would submit correctly incorrectly It's just my view that you know the birth of bitcoin was born out of everything We've just spent the last 45 minutes talking about is that somewhat accurate. Do you feel that way? I think that's right. I think bitcoin was born because of frustration with central banks It was born because of the existence of capital controls around the world It was born because there is There is a real frustration of the kind of the planned economy and people wanting autonomy Whether it is the right tool Whether it will break loose whether governments would allow it to break loose I think people underestimate the power that governments have even over something like bitcoin and if if The u.s. Government and the federal reserve decide they want to kill bitcoin They can to a large extent. I think kill bitcoin You know, we will see if this is the solution But there is immense frustration out there in the marketplace Over the fact that our currency is unhinged. It's not connected to anything in reality And it is completely completely dependent on political whim And political thirst for power politicians thirst for power And we need to get away from that and whether bitcoin is the solution Or whether there are going to be other solutions coming up or whether we ultimately have to see a collapse of the dollar to get us there That is all hard for me to tell exactly. I'm not very good at predictions But in in on the macro sense, I think nobody is all I can say is You know, nothing good is going to come from all this all this spending and manipulation No, I appreciate that and it's interesting the the best people the best predictors Are the people that say they're not that good at predictions by the way That's what I've learned because people that get paid to do it are actually the worst at it But I want to be respectful of your time. I do think you're going to stay on dr Yarnbrook, but on behalf of context 365 I've thoroughly enjoyed this conversation again The fact that some of most of our views line up does not hurt at all But thanks for being so generous with your thoughts and thanks for being so generous with your time I want to thank the folks of context 365 for another great lunch interview. So folks, thanks for your time if i'm not